«Parallel Connection (Rossiyskaya Gazeta – the Urals, 5 February 2009)

05 February 2009

Power companies cut their expenses and reduce the number of dealer companies.

The Ural regions whose economic sectors are based on export felt the aftermath of the world economic crisis earlier and more severely than others. In January the economic slump came to the power industry. And today Alexey Bobrov, President of the Interregional Distributive Grid Company of Urals, will tell us how their company plans to resolve problems.

- Alexey Olegovich, in January 2009 the power consumption in the Urals dropped by 11-17 percent in comparison with the same period last year. The company earnings plummeted accordingly. Will the shortage of money affect the reliability of power supply?

- The situation is complicated but I still don't tend to pile up the agony. We don't even discuss the possibility to reduce investments intended for the production. All the production is financed in full, the same is about the repair program. All the other expenses are subject to adjustment.

- What are you going to sacrifice?

- We plan to reduce the administrative staff by ten percent as well as cut down their expenses. The top management of the company will lose their annual bonuses and quarterly rewards, reward fees to all the other non-production employees will be reduced by 50 percent. Our managers refused from travelling business class, booking VIP halls. In general the company reduced its car park by 900 transport units, we plan to reduce auxiliary transport (buses, trucks) and leave only special-purpose vehicles necessary for the power system operation. Besides, we cut expenses on mobile calls to a large extent.

- Are you going to adjust the investment program of the IDGC?

- In 2008 we fulfilled everything we had planned. However this year, no doubt, will change the company investment program. It is not exactly connected with the shortage of money but with the power consumption drop: there is no sense to build facilities which are not in demand. Metallurgic companies will not commission new production capacities in the near future; the construction of big trade and business centers was laid off. Thus, there will be no deficit of power. Facilities the connection to which was paid by consumers will be commissioned in time. But facilities built at our personal expense or with borrowed funds will be commissioned later. Today the company has 15-17% interest rate loans, and this is our limit. To construct using such a loan is a blind alley. Even as a company with a good credit history we face a difficulty to obtain a loan on acceptable terms.      

- Was the drop in connection earnings considerable?

- The global recession resulted in withdrawal of requests by potential consumers and termination of connection contracts on the whole area covered by the IDGC of Urals. In particular, in Sverdlovsk region 77 requests have already been withdrawn, their total capacity was 6.5 MW. Customers terminated 82 contracts with the total amount of about 120 million rubles.

- Today the connection fee for small businesses is reduced to 550 rubles provided the capacity of the facility does not exceed 15 kW. What can happen due to these decisions?

- The sector may suffer from a serious system crisis. Everything given free of charge vanishes sooner or later. For example, we have free roads and they are our permanent problem. Positive consequences of such a decision are, putting it mildly, obscure. Yes, we understand support of businesses, including small businesses. We can connect everybody free of charge. However it happens, when a company can connect 10 kW but consumers demand 200 kW for free, how can we provide such amount? We won't be able to construct new facilities because there will be no actual grid development resources. There is no compensation of profit loss to grid companies and it is unknown whether it will be granted sometime. Sooner or later industry will take heart, consumption will recover and investment programs will be in operation again. But the figures of power facilities commissioning will be lagging behind the actual economic demand.

 - Corporate finances drift down and aggravate the problem of mutual non-payment. How ominous is it for the IDGC of Urals and how are you going to cope with it?

- Today the debts of sales companies payable to the IDGC of Urals exceed 3.35 billion rubles. Just to compare: the company annual profit is planned to be about 42 billion. Bearing in mind that we have expenses not in any way subject to reconsideration, such debts affect other expenses including our investment program. We will be uncompromising in defending our company interests: we have filed suits to the arbitration court, sent letters of complaint to the antimonopoly service and general prosecutor's office. There are no options here: our partners have to pay in time and control their consumption so that it matches their abilities.

As one of the anti-recessionary measures which help cut expenses considerably we offer direct contracts with big industrial enterprises. They help bypass sales companies who often tend to be financially weak and exposed to high risks. It leads to more efficient cooperation with power suppliers, reduced expenses and helps avoid the risk of limited power supply of prompt payers due to dealer debts payable to grid companies, as well as provides free choice of a dealer company. 60-90 percent of power in the world is sold under direct contracts. By the way, we operate on this particular model in Chelyabinsk region and non-payment is not such a great concern here.    

The regulatory system for direct contracts was formed long ago and is effective now. In our opinion, direct contracts make tariff regulation transparent. Earlier dealers and grid companies had many disputes but after tariffs are divided into constituent parts (provided by the federal laws) a consumer can see the price of power production, power transit and a dealer company markup. Besides, direct contracts help consumers determine a more flexible and acceptable payment schedule, so it is more beneficial in the current economic conditions.

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