Transcript of the beginning of the meeting:
Vladimir Putin: Good afternoon. How would you assess the holding's performance in the autumn and winter period and the effect that your efforts, including those pertaining to development, have had on pricing policy? How are the government's instructions on simplification of the procedures for connecting small and medium-sized businesses to the grid being implemented?
Nikolai Shvets: Mr Putin, the 190,000 people employed by IDGC Holding, which has a presence in 69 of Russia's regions, performed well in autumn 2009 and winter 2009 to 2010. All technological faults were addressed quickly. This autumn and winter we even managed to cut the time it took to repair faults. Previously it took, on average, 5.5 hours, whereas in this period that time fell to four hours, despite the fact that the number of faults surged by over 1,000. We have taken some organisational measures, held exercises and joint drills with the Emergencies Ministry. One main indicator of how efficiently a distribution grid company addresses technological faults is a decline in electricity supply shortfalls. We managed to cut such occurrences by almost 20%.
Vladimir Putin: You coped with the abnormally low temperatures experienced by certain regions?
Nikolai Shvets: Yes, we coped with them. The IDGC of Siberia performed especially well in that period. They took additional measures, held exercises, replenished their supplies and purchased mobile back-up diesel power stations. We managed to achieve such good results in the autumn and winter period because we fully implemented our investment programme in 2009 and carried out all necessary repairs and maintenance works, costing a total of 17 billion roubles. The fact that none of the repaired equipment failed speaks to the high quality of the repairs.
Vladimir Putin: What would you say were the key areas of investment for the reporting period?
Nikolai Shvets: The construction of substations and power transmission lines were two crucial areas of investment. We spent 76 billion roubles [on this] last year, boosting capacity by 9,000 GW and commissioning 10,448 kilometres of power transmission lines.
As for your second question, the IDGC Holding has successfully achieved the goal in terms of connecting small and medium-sized businesses to the grid. A corresponding resolution (hyperlink) was signed in April and now plays an important role in supporting small and medium-sized businesses. In total, the IDGC Holding has been providing connection to capacities of about 3 GW per year over the past three years. Small businesses accounted for 660 MW in 2009, and could get connected at a reduced rate of 550 roubles per 1 kW.
Vladimir Putin: Is this rate substantially lower than in previous periods?
Nikolai Shvets: Yes, it is. The reduced rate proved an incentive for small businesses and there was a surge in applications. However, there were certain attempts to abuse this privilege, for example, when an array of small businesses applied for a 15kW connection across all regions. That's why we signed corresponding agreements, established constructive relations with the nationwide organisation for small and medium-sized businesses (OPORA) and put significant effort into raising overall awareness of the principles behind the system. In addition, a law on energy efficiency was adopted at that time, which also contributed to an increase in small businesses' level of awareness regarding the need to think more pro-actively in matters of energy efficiency.
As for medium-sized businesses eligible for 15 to 100 kW connections, the payment procedure for them is as follows: the first payment is 5% and the rest of the sum is paid in equal installments over three years. In order to provide these connections the IDGC Holding had to borrow an estimated 16 billion roubles.
In order to receive compensation for this under the government resolution, we have submitted the necessary supporting documentation to the relevant regulating authorities in all of Russia's regions but only 9 billion roubles has been accounted for so far. We will submit further substantiation in order to have the rest of the sum accounted for in the next regulating period.
Vladimir Putin: You have mentioned last year's investment. How much do you plan to invest this year?
Nikolai Shvets: Our investment programme for 2010 totals 89 billion roubles. We have already agreed 85 billion roubles of investment with the regional authorities.
The IDGC Holding is controlled by regional regulating authorities. That's why we have a keen interest in establishing constructive and close cooperation with senior officials and governments in the regions. Both governors and regulating authorities have the opportunity to increase tariffs in order to see investment programmes come to fruition in their areas.
Vladimir Putin: Yes, I know about that. Could you please repeat once again how much you invested last year?
Nikolai Shvets: 76 billion roubles.
Vladimir Putin: 76 billion roubles. And how much will you invest this year?
Nikolai Shvets: 89 billion roubles. We have agreed on 85 billion roubles with the regional authorities. Our investment programmes are currently under discussion since the holding's companies are moving to long-term regulating methods based on the profitability of invested capital.
We are very grateful to you, the government and the Energy Ministry for the support you gave us when we assessed this approach after trying it in pilot regions. All our subsidiaries will adopt the new regulating methods from January 1, 2011.
As a holding, this is something we have a great interest in. First, the new method allows us to be more efficient in choosing our investment projects. They should be synchronised with projects already being implemented in the regions so that we do not build facilities that will later fail to provide a return on the investment and to bring returns on the investment as expected under this new approach.
Second, another issue related to the transition to the new method is the reduction of expenditures on operational activities. If a company achieves at least a 1% reduction in expenditure it can keep these funds for the entire regulating period, currently a five-year term. The company can spend these funds on additional investment projects or on repairs.
Vladimir Putin: Good.