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Meeting with Inter RAO CEO Boris Kovalchuk

August 13, 2020, Novo-Ogaryovo, Moscow Region

Vladimir Putin had a meeting with CEO of Inter RAO PJSC Boris Kovalchuk to discuss the energy holding’s performance.

President of Russia Vladimir Putin: Good afternoon, Mr Kovalchuk. Inter RAO UES has become one of the biggest companies in the country. You are the fourth largest electricity generator in Russia, the fourth largest thermal power generator. You also implement engineering projects very actively. Since 2018, you have launched over six gigawatt of power-generation facilities, and these are very good indicators. To the best of my knowledge, your 2019 profits exceeded 900 billion rubles.

Inter RAO CEO Boris Kovalchuk: Over one trillion.

Vladimir Putin: Let’s discuss all these aspects now that Inter RAO UES is the only company exporting electric power abroad, and, if necessary, buying this electric power abroad.

Go ahead, please.

Boris Kovalchuk: Mr President, Inter RAO Group is the largest Russian electric power generator in terms of capitalisation. Our company’s value exceeds 600 billion rubles. For comparison, the company’s 2014 capitalisation was only 74 billion rubles. In March 2020, prior to the economic impacts of the pandemic, the company was worth over 650 billion rubles on the Moscow Exchange. In the past six years, the Group’s capitalisation soared more than eight times over.

We operate in 15 countries. The company is represented in over 30 Russian regions. Its rated capacity is 32,000 megawatt, it generates 133 billion kilowatt/hours of electric power and sells about 200 billion kilowatt/hours on the retail market. This year, the company posted the best export result since 2011, over 19 billion kilowatt/hours.

You have noted absolutely correctly that we are rated fourth in terms of electric and thermal power generation volumes, third in terms of our rated capacity and first in terms of retail business. We are also the only export-import operator.

The Group ranks among Russia’s 15 largest holding companies. As I have said, our profits exceeded one trillion rubles for the first time in 2019.

Mr President, in 2009 you made a decision to consolidate a number of assets within Inter RAO. If you allow me, I will report on how the company has changed over these ten years.

Vladimir Putin: We will talk about this.

Also, I would like to hear about the progress on new generating capacity. You are working on four of them now, right?

Boris Kovalchuk: We are working on a substantial number of units, including as part of the modernisation programme that you have approved.

Let me brief you on the numbers. Revenue increased from 68 billion rubles in 2009 to 1,03 trillion in 2019, which means a 15-fold surge. EBITDA was up from 11 billion to 141 billion, or 12.7-fold. Taxes paid rose from 2 billion to 66 billion a year, or more than 30-fold. In 2009 we reported 12 billion rubles in losses, and in 2019 we posted a profit of 82 billion rubles.

Over these 10 years, we invested 539 billion rubles in Russian power generation. You were right to mention the multiple facilities that were launched in the Russian Federation. To be more precise, they have an aggregate capacity of 7,300 megawatt. This led to the decline in the amount of fuel used per kilowatt-hour to 295 grams. This is the best result for all Russian thermal power generating companies.

Moreover, we undertook additional obligations regarding 6,700 megawatt of capacity under the modernisation programme you approved in 2018, which amounts to 40 percent of Russia’s overall power output.

Vladimir Putin: As far as I know, 6.1 gigawatt have been launched since 2018. Is this so?

Boris Kovalchuk: We have also factored in your instructions regarding the Kaliningrad Region, and added them to this total, since we worked on this project as well.

Vladimir Putin: Yes, I remember that we both attended the opening of the power plants there.

Boris Kovalchuk: Yes, and thank you very much for being there.

Let me give you a brief progress report. Inter RAO received about 40 percent of the overall power output. It is important to note here that the tenders held as part of the programme you had approved helped reduce the cost of a kilowatt for our consumers, while construction costs dropped by almost three times compared to the ceiling CAPEX figures. This has enabled us to use these funds, adjusted for inflation, to upgrade and build more generating units.

As you have said, we have a number of new projects. One of them is that we are planning large-scale construction of a power generation facility in the Tula Region, as well as the implementation of a project worth 200–300 billion rubles to fully supply energy to the Payakha oil and gas fields in the Krasnoyarsk Territory. We have signed a preliminary agreement, this is Rosneft’s Vostok Oil project.

Also, if you do not mind, I will report on the progress we have made in building a facility in the Kaliningrad Region following your instructions. Thank you very much for taking part in the launching of two stations in 2018.

At the beginning of last year, we completed the construction of the Pregolskaya station with a capacity of 455 megawatts, and at the end of this year the last of the four power plants, the Primorskaya TPP with a capacity of 195 megawatts, will be completed. Taking this opportunity, we would like to invite you to hold the ceremonial launch, if possible.

Vladimir Putin: All right.

How is your engineering segment developing? I know that you take a very active part not only in construction but also in engineering and scientific support of all these projects.

Boris Kovalchuk: Mr President, as for construction, we have a full cycle of turnkey construction of any type of power facilities in Russia and abroad. We are also working in Cuba and have worked in Venezuela, Ecuador and Bangladesh – so we also have international experience.

As for technology development, we have two projects: together with RUSNANO and Rostec, we are implementing a project to improve the domestic GTD-110 turbine, and the second project is our joint venture.

Vladimir Putin: What capacity?

Boris Kovalchuk: 110 megawatts. We are working on it, testing at our stand. There are good results: it has already driven up 3,000 hours.

Vladimir Putin: We need turbines of this capacity.

Boris Kovalchuk: Mr President, we are working on it.

And the second project is our joint venture with General Electric, located in the Yaroslavl Region. It manufactured turbines for the Kaliningrad Region. We are implementing a project to fully localise the production of turbines with a capacity of 77 and 190 megawatts. We took two of these standard sizes. Therefore, the engineering segments of Inter RAO Group are developing.

Once again, we would like to thank you for making sure the modernisation programme was approved, because during the pause between the end of the first power supply contract and the decisions you made, we had to maintain these divisions, as we understood their importance. And now we managed to give them a full workload, including 6,700 megawatts of modernisation, plus the Tula projects. Therefore, our engineering unit is fully loaded with work.

Vladimir Putin: What is your labour productivity like across the group?

Boris Kovalchuk: Our labour productivity has grown four-fold over the past 10 years.

Vladimir Putin: And what about salaries?

Boris Kovalchuk: The average salary is close to 80,000 rubles – 78,500.

Now we are experiencing a slight decrease in productivity, firstly, because the consequences of the pandemic are beginning to be felt, obviously. And secondly, we are starting to invest more in development, so we are recruiting people for digital projects, for service projects. Those projects have not produced any revenue yet.

Vladimir Putin: But considering what you said, labour productivity is growing somewhat faster than salaries.

Boris Kovalchuk: Yes.

Vladimir Putin: And that is good.

Boris Kovalchuk: As part of fulfilling your instructions, we are also intensively developing retail services through sales companies. Unified information and payment centres have been created in the Moscow and Leningrad regions.

Vladimir Putin: This is very important. This makes transactions more transparent.

Boris Kovalchuk: That’s right.

This way, all transactions become fully transparent, which is convenient for consumers, households and resource-supplying companies, because there is a single financial centre for housing and utilities services. We have also launched similar projects in the Tomsk Region and Bashkortostan.

Despite all the difficulties caused by the pandemic, we continue to make good on all payments due on the wholesale market, to grid companies, and we pay taxes to the state budget and social security funds.

I would like to note that over the entire lockdown period, we did not make a single employee stay home without pay. We continued to pay their salaries and even bonuses. We support our employees as much as we can. Also, the management of the holding company contributed more than 100 million rubles of their own money for COVID-19 response efforts, as charity, and to support volunteer movements.

To conclude, I would like to say that we have been hard at work promoting the digital transformation, and it has already yielded results. By introducing IT services, we have been able to consign certain functions within the group to specific regions. For example, offices in the Ivanovo Region provide for accounting, HR, treasury services for Inter RAO and our subsidiaries, the processing centre for our retail companies is in the Saratov Region, while the Tambov Region is home to our call centres. Inter RAO is one of the few companies that chose not to use a foreign solution, SAP, to build its management system, and opted for a Russian technology instead.

Mr President, to conclude, I would like to share some figures on the cost of electricity in Russia. We ordered an official report from KPMG, a big four international accounting firm, and they are working on it together with the Higher School of Economics and experts. I have the figures for 2018. Electricity prices for households in Russia averaged $57 per megawatt-hour, compared to $353 or six times higher in Germany, and $247 for the European Union in general, considering the difference among its members in terms of economic development. The average price of electricity for small and medium-sized businesses was $76 in Russia, $233 in Germany and $169 in the EU. For export-driven major industrial operators who generate most of their revenue in foreign currency prices in Russia were 25 percent lower compared to the EU. With this in mind, based on this analysis and the data we have, we can say that today for most producers the price of electricity does not stand in the way of development.

Vladimir Putin: On the contrary, this gives them a competitive advantage.

Boris Kovalchuk: Yes, this is true.

Mr President, the group’s financial standing is sound, it has all the financial resources it needs and is ready to undertake any tasks in the spheres of power generation and digital technology.

Vladimir Putin: Good.

Let’s move on to a more in-depth discussion.


August 13, 2020, Novo-Ogaryovo, Moscow Region