| 2009-06-09 |
Published: Published by the Expert-Urals Magazine |
ITERA has been supplying natural gas to the Sverdlovsk Region since January of 1999. The Company used to meet the entire ever growing needs in natural gas of the economy and social sphere of the Region, the third largest constituent of the Russian Federation in terms of consumption of natural gas. Vladimir Makeyev, Chairman of the Board of ITERA Oil and Gas Company, LLC, Chairman of the Board of CJSC Uralsevergaz (Urals North Gas), deliberates on the operational experience in the Middle Urals and the search for ways to solve the problem of indebtedness by consumers of natural gas to its suppliers.
Experiment was a success
In Russia it was for the first time that a private company undertook to supply natural gas to an entire constituent entity of the Russian Federation. ITERA activities rest on long-term agreements with the Government of the Sverdlovsk Region and close interaction with Gazprom. It was Gazprom that gave its consent to this experiment in due time. The Company has got some unique operational experience in this economically important locality of the country within the past ten years.
When ITERA entered the Region, consumption of natural gas was within the range 15 billion cu m a year there. We, through JSC Uralsevergaz, jointly with the Government of the Region, were selling up to 19 billion cu m of natural gas nearly every year in the period of 2007-2008. The total of 178.2 billion cu m of natural gas had been supplied there, so far.
I wish to underline specifically the security and continuity of the natural gas supply. There was not a single failure within all the years of cooperation. Before the crisis, there was not a single firm or social facility that suffered from natural gas deficiency. At that, the number of consumers more than doubled since 1999.
One may say the experiment was a success: we eliminated gas deficit and secured stability of the ever growing volume of gas supplied to all categories of consumers. We meticulously carry out all items in our partnership agreement. Decision makers of the Region repeatedly emphasized, that the ITERA activities improved both the economic growth, and the living conditions of the population in the Region.
ITERA is also actively involved in implementing projects related to provision of gas supply, power generation, and in other industries. ITERA jointly with Regiongaz-invest (Reion Gas Investment), USG-stroi (USG-construction), EC ENECO, its affiliates, ensure construction and modernization of the gas-distribution system, heating infrastructure, implementation of energy-saving technology and equipment. It was at the expense of the Company that 62 modern gas boiler houses with an aggregate capacity of about 350 mW were built, 188 km of high pressure off-take gas pipelines and over 200 km of distribution network were brought into service.
It was on ITERA’s request that Gazprom Promgaz (Gazprom Industrial gas) completed the Master Plan for Natural Gas Supply and Provision of Gas Supply in the Sverdlovsk Region until 2020. It will result in raising the level of provision of gas supply in the territory to 72%, while the number of gas-heated populated localities is going to increase 3.5 times over.
ITERA is going to continue its active involvement in construction of new facilities of small-scale power generation facilities based on energy-saving technology and equipment. ENECO jointly with the Government of the Region and Vnesheconombank (Foreign Economic Bank), a state corporation, is to begin implementing the Development of Power Engineering of Housing and Utilities Infrastructure in Municipalities of the Sverdlovsk Region Project in the current year. It envisions construction of 233 boiler houses with a total capacity of about 400 mW and 14 mini-thermoelectric plants with a total capacity of about 60 mW in 2009-2011. Implementation of energy-saving technology, including installation of 286 automated energy supply directory and documentation systems, is envisioned for all facilities. The total investment in the Project is Rubles 4.8 billion.
Among ITERA production facilities are Vyiski wood-working combine with a capacity of 65 thousand cu m of lumber a year, commissioned in 2007, and methanol production complex (currently in the design stage) with a capacity of 600 thousand tons a year in Nizhni Tagil (investment is in excess of Rubles 5 billion). UralMethanolGroup (Urals Methanol Group), a Joint Venture of ITERA Oil and Gas Company and Uralchimplast (Urals Chemical Plastics), is involved in preparation for construction of the complex.
ITERA and Uralsevergaz are involved in multidisciplinary social and charitable activity in the Region. A palace for sport games, polyclinics for war veterans, Clerical-educational Center in Yekaterinburg have been constructed with the companies’ participation. Purpose-oriented financial support is provided to day-care services, subdivisions of the Army and Navy, veteran, medical, sporting and cultural organizations. Over Rubles 650 million have been allocated for these purposes.
Crisis defines objects
ITERA is prepared to continue increasing the investment and charitable potentialities of its presence in the Region. The Company’s plans are materially affected by the economic crisis, though. It produced a hard effect on the gas supply to the area and on payments for gas by its consumers in the fall of 2008. Most enterprises, because of steep fall in the level of production and warm winter, began reducing gas consumption in October. Gas consumption went down by 13.6% in the fourth quarter as against that of the previous year, and by 13.4% in January-April of the current year.
Large enterprises used to pay in full and in a timely manner for the gas they consumed before the crisis. Powermen, metal-makers, producers of cement and pipes encountered serious payment problems last fall, though. The current indebtedness of industrial and municipal enterprises of the Region in front of CJSC Uralsevergaz is within the range of Rubles 5 billion.
Deterioration of payments by gas consumers made ITERA raise additional, much more expensive, credit resources to be able to purchase the necessary volume of gas and transport it to the Region. This, naturally, affected the investment capabilities and the economics of the Company and put under real threat continuity of gas supply and energy safety of the Region.
Given the complexity of the situation and the interests of consumers, ITERA jointly with CJSC Uralsevergaz adjusted its pricing policy and reduced prices on gas consumed by industry in 2009. ITERA, based on talks and compromise solutions, was trying to settle issues of indebtedness with individual consumers.
The course of special concern was the situation with the payments for gas by enterprises of housing and utilities that have accumulated huge debts. An overdue indebtedness for the heating season of 2008-2009 had exceeded Rubles 2 billion. Housing and utilities have large debts in front of other energy suppliers, too. Problems of municipal enterprises are well known. In our opinion, to solve them, it is necessary that all participants in the process combine their efforts. The fact is that many housing and utilities enterprises (both private and municipal ones), in fact, fully lost an ability to build responsible and honest relationship with their business partners, primarily, with suppliers of energy resources. At that, housing and utilities enterprises, as against enterprises of power generation and industry, do not pay in advance or for the current month. They are supposed to pay only for the gas they had actually consumed (after completion of a month) and at minimal prices established by the Federal Tariffs Service.
The obviously abnormal situation, where some consumers live at the expense of others, could have been «ignored» further, unless the world economic crisis. It made a powerful kick on the larger enterprises and deprived them of a possibility to effect advance payments and, correspondingly, to ensure financial security of the Region. It became obvious for everyone that now and in the future all consumers should fit in the rigid gas consumption limits.
Both the business flagship, and small enterprises should live within their means. So far, consumers succeed to consume gas mechanically in the quantities they used to, even against the background of huge debts. Very soon, though, every one of them would have to count only on the volume of gas they had paid for.
Saving and strict record keeping
I am convinced that in this, anything but simple economic situation, it is important for suppliers and consumers to arrive at an understanding of what they need to do. I believe, the first thing they should do is to enforce supreme discipline of payments for natural gas. However, it is possible to expect successful performance of the economy in the long term only in case the problem of energy efficiency is addressed a serious way. According to the World Bank, Russia spends more energy on every unit of GNP than any of the 10 larger energy consuming countries. The potential of the Region in the energy saving area is 45 per cent the total volume of primary energy consumption. An issue of rational usage of gas is of key importance: the share of natural gas in the fuel and energy balance of the Region is within the range of 58 per cent. According to expertly computations, the economy of natural gas may be as high as 18 per cent the current consumption. According to Uralsevergaz specialists, this factor may be even higher, that is up to 25 per cent. In other words, the Region uses inefficiently about 4.5 billion cu m of natural gas every year.
The main problem of housing and utilities enterprises is wear and tear of fixed assets. Out of 282 municipal gas-fired municipal boiler houses, 75 need reconstruction. 46 per cent of boilers there are over 25 years old, 22 per cent are 20 to 25 years old. An average efficiency of natural gas usage is 53 per cent.
It may sound strange, but the world economic crisis has an important function. It is a sanative function. Actors, whose economic activity is efficient, will remain in the economy. This means one cannot do without strict record keeping and saving gas. This was exactly why we began implementing an Automatic System for Commercial Record Keeping of Gas (ASCRKG) yet in 2007. It had been coordinated with the Government of the Region. Its status is that of a program. It is producing initial positive results. Only scrupulous verification of natural gas consumption figures and assessment of efficient usage of this valuable energy resource make it possible to look for ways of the gas saving and reduction of its useless waste. The plan is to hook all natural gas consumers to ASCRKG within 4 years.
Populism exacerbated the problem
Industrial enterprises are trying to solve energy efficiency problems this or that way. In that sense, housing and utilities enterprises, as they say, are far from being a new-ploughed field. According to results of analysis, leaders of many municipalities were engaged in candid populism, thus aggravating the problem. For example, instead of defending economically grounded tariffs in the Regions’ Energy Commission, the local authorities were freezing them. As a result, tariffs that did not cover effective expenses on municipal services, even in case 100 percent of payments are collected from the population. The difference between the cost price and tariffs is the main reason for huge debts. Given the reduction of the paying capacity of the population, it is possible to forecast further aggravation of the problem.
No universal cure for the problem exists. Nevertheless, there is a package of measures every enterprise would have to implement sooner or later. First, this is the organization of efficient and transparent gas accounting system. Second, this is elaboration of measures on energy saving. Third, this is securing the financial discipline and efficient administration of the flow of moneies not to allow for accumulation of debt. Over three months are left before the heating season begins and it is the right time now to try and solve aggressively the problems which it was possible to shrug off until recently. The crisis is not going to allow heads of housing and utilities enterprises to shift their part of the work to their business partners using declarative statements on social responsibility as a smoke screen.
Understanding there was no other way out, we have been investing in gas provision in the Region and housing and utilities infrastructure, in heat generation, in solving the problem of raising energy efficiency in this sector in the past ten years.
At the same time, I need to point out that the system of gas supply to industrial enterprises and socially oriented facilities that had been created within the past ten years began deteriorating. Mezhregiongaz, LLC (Interregional Gas) began supplying natural gas to an affiliate of OJSC OGK-2 - Serovskaya State District Power Plant (controlling interest of OJSC OGK-2 belongs to Gazprom) beginning in January of 2009. OJSC TNK-BP Holding, on permission of Gazprom, has been supplying natural gas to OJSC TKG # 9 (controlled by TNK-BP via CJSC Complex Energy Systems) since March.
At further development of the trend, in case new suppliers would be selling gas to larger and solvent enterprises of the Region, ITERA would become hostage of its commitments related to provision of gas to the most problematic consumers in social sphere, housing, utilities and to the population. Given the ever growing indebtedness for gas by a number of industrial enterprises, and especially by those of the housing and utilities system, we won’t be able to guarantee reliable gas provision to them.
Unpopular measures
Despite certain signs of the economic stabilization in the Region, the indebtedness for gas by consumers of the Region is now of a systematic character and, unfortunately, it remains at a critical level.
In this situation, ITERA and CJSC Uralsevergaz have to take unpopular measures to stimulate the settlements for the consumed gas. Limitations on gas supply are being introduced or gas is cut off from a number of industrial enterprises and enterprises of housing and utilities. Uralsevergaz plans to terminate agreements with 35 enterprises beinjg the most malicious debtors. It has been decided to begin bankruptcy proceedings in respect of 28 enterprises. We are going to make gas supply agreements with solvent consumers of gas only for 2010.
Efforts by the Company alone would be insufficient to change trends and the situation in the gas market. We recon on efficient assistance on the part of the leaders of the Sverdlovsk Region and the task-force financial support on the part of the Federal Center to enterprises where the state has the controlling stake of shares, such as NPP Uralvagonzavod (Urals Railroad Carriage Plant), Krasnouralski Chemical Plant (Red Urals Chemical plant) etc. Let have it straight. The situation is critical. It is only combination of efforts that would allow us to overcome the crisis in gas supply in the Region, to help stabilize and develop the economy of the largest industrial center of the country.
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