Prime Minister Vladimir Putin addressed a meeting on the reform of the energy industry
18 june 2008
Vladimir Putin's opening remarks:
Today we will discuss changes in the energy industry.
Let me remind you that we began the reforms back in 2001. All the decisions taken then were aimed at making a clear-cut distinction between monopoly and competitive types of activities, at forming a free energy market with understandable and transparent procedures and rules, and at attracting as many private investors as possible.
RAO UES has already sold 780 billion roubles worth of assets, and we hope that this money will eventually be reinvested in the development of the sector. In fact, this is the whole point of the exercise.
The new owners must come to grips with the task of modernisation and the building of generating capacity.
I should add that service and marketing divisions have also been acquired by private companies, which imposes a special responsibility on them for the quality of their services.
The reorganisation of RAO UES will be completed in June 2008. At this point in time it is important to maintain close supervision of the energy industry.
It is necessary to guarantee energy supply to households and to the economy, especially in the autumn and winter season. To this end we have to build an effective system of interaction among all the energy market participants.
The managerial functions previously performed by RAO UES, such as coordination of the sector's development, forecasting demand, etc., have been transferred to the Ministry of Energy. Today we will see how well the newly formed agency is prepared for this work.
And of course it is necessary to tackle the task of ensuring that the energy industry develops faster than the rest of the economy. This is the only way if we are to meet the constantly growing demand, which is predicted to increase by 70% by 2020. In reality, if the economy develops at its present pace, I think it will be more than 70%.
We would like to see new large-scale projects in industry, transport, in the development of cities and villages, in construction. All these programmes must be provided with the necessary energy supply.
We must not allow the deficit of generating capacity and insufficient development of power grids to limit growth.
At the end of the day we are talking about preserving the common economic space when we talk about comparable prices for energy in various regions and about comparable tariffs. We all know very well that if we operate strictly according to market principles in one region where there will be corresponding tariffs and prices while we fail to adopt such principles in other regions and delay such adoption, where will all the goods flow? Obviously to where tariffs and prices are higher. It is a very serious issue and I am not sure that everything has been thought out well enough. We should take a closer look at what will happen and how we will preserve and develop the common economic space in the future.
In February the Government approved the General Scheme of the location of energy facilities until 2020. Under that programme more than 40 gigawatts of generating capacity will be introduced in the next five years alone. Nearly 100,000 km of long-distance and distribution networks will be built. By the way, that would give a boost to the related industries: machine-building, the construction industry and so on.
To implement all the projects under the General Scheme will cost about 20 trillion roubles. Most of that money should come from off-budget sources.
I would like to ask the Energy Ministry to closely monitor and control the compliance with investment commitments assumed by domestic and foreign companies.
Along with the introduction of new capacity it is necessary to dramatically increase energy saving, by at least 40% by the year 2020.
Energy consumption in the Russian economy is 2.3 times higher than the world average. About 40-45% of the current energy consumption is the potential for saving energy in our country.
In the short term the most immediate effect can be achieved inside the energy industry itself. I am referring to the long overdue modernisation of the thermal power plants, reduction of losses in the power grid and the development of renewable energy sources.
We need a system of pricing and technical standards that would stimulate energy saving. I believe that the place to begin is the Government itself.
We should make sure that the responsibility is shared. I would ask you to prepare proposals to reduce the level of energy consumption in the public sector as soon as possible.
I would like to make special mention of the situation with new users. I draw your attention to small and medium companies. Sometimes it is simply impossible for them to get connected. They have to pay exorbitant sums of money. Experts calculate that the connection cost may amount to 10-15% of an investment project, and sometimes even more. A small company often cannot afford to pay such an amount.
I would like to hear your proposals as to how we should go about solving this problem. Obviously, generating capacity must be introduced. That goes without saying. You don't have to tell me that. While proceeding with that task, I think, we can act more effectively.
Vladimir Putin's closing remarks:
Over the past years a large amount of work has been carried out to modernise the country's energy industry. It was not all smooth sailing: there were arguments and clashes of opinion. There were vigorous debates on the process of modernisation in the professional community and among the general public. There were battles over the issue in the State Duma.
You know that I have always supported the process of economic modernisation and modernisation of the energy industry in particular. I think that we are generally on the right track and we are achieving our goals.
We are now entering an entirely new phase of modernisation. Our energy industry will have to develop on a new economic basis, according to new principles. But in a way this is only the beginning of the road. It is a very important period in our lives, a stretch of the road.
A great deal will depend, not only in the energy industry but in the economy as a whole, on our effective and responsible actions. Much will depend on how we will modernise the economy as a whole. We understand that the modernisation of the energy industry can to a large extent be a pilot project, an example for other branches of the economy. So we must achieve a positive result here.
I would like to draw your attention to several things. First, the social implications of our actions. It may sound like bad news for those who invest resources and who seek the biggest returns as soon as possible, but we cannot and will not forget about the social impact of our actions.
We cannot and will not have our citizens shoulder all the burden of what we do to modernise the energy industry. That would be wrong because it would undermine trust in what we are doing. Without trust we won't get anywhere. So we will have to be patient and keep to our schedule - already very tough - in raising tariffs.
We cannot go further at this moment and we cannot and will not go any further in the near future.
Please think through and use those instruments that have been proposed today to minimise the negative impact for all the participants in this process, in particular for the industry.
I draw the attention of the Energy Ministry to its substantially increased role in this situation. The Ministry is becoming a headquarters for regulating the energy industry in the country.
Business contacts must be established with all the parties to this process: the private investors and the companies that effectively remain under government jurisdiction. All this should function as a single mechanism. There is still time and all this can be planned carefully without undue haste. Especially since a great deal has already been done.
One last point. We are all very well aware that the process initiated several years ago has created major private investors, private players in the energy sector. That is good. We very much hope that it will boost the development of energy capacity, create additional resources and direct them into the modernisation of those elements that are still owned and controlled by the government. That is why we are doing it all.
Clearly, the private investor wants to get the highest possible profits in the shortest possible time. But I urge everyone to behave in a responsible manner. It may not be a very pleasant thing to hear but I have to say it. Those who will regard this process irresponsibly and will undermine people's confidence in what we are doing and create problems in pursuit of immediate commercial interests will meet with a corresponding response. As regards government officials, they will face administrative sanctions. As regards irresponsible behaviour of business let me put it bluntly, even rudely, I will take (profits) from your stomach and give them to the poor. You can pass this message to all those concerned. Let there be no illusions on that score.
We will continue to help those who behave responsibly with full awareness of the ambitious tasks the country and its energy industry face.
We will be tough on those who are guided by the interests of the here-and-now and forget about the interests of the country. I very much hope that we will continue to work together as we have done up until now, supporting each other and leaning on each other. It is especially important at this stage.
I would like, however, to end on an upbeat note. I would like to thank all those who have worked up until now and, as I have said, took the solution of this problem to where it is today.
Thank you. I wish you all the best.