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President of Russia Vladimir Putin: Mr Kovalchuk, you operate one of the largest energy companies. I have looked over the company’s 2023 performance, and it is very impressive, I would say. You generated more electricity and hired additional personnel. You posted 135 billion in net profits, right?

Chairman of the Board of Inter RAO Boris Kovalchuk: Yes, you are absolutely right.

Vladimir Putin: What do you personally think about the company’s 2023 performance?

Boris Kovalchuk: Mr President, thank you very much for this assessment. These results are the achievement of the group’s large team. I would like to briefly review 2023 performance.

We traditionally compare our activities with those of 2009 when you signed an instruction to consolidate multiple assets under the Inter RAO Group. This is what launched the development of the company in its current form.

From 2009 to 2023, our earnings increased from 68 billion to 1.35 trillion. We replace the term EBITDA with operating earnings, which grew from 11 billion to 180 billion. As you said, 2009 losses changed for net profits of 135 billion rubles.

What’s important? Notably, we have created a substantial financial safety cushion. The company has no debt and holds substantial funds. Today we are starting an active investment period. There are plans to invest about 160 billion rubles in 2024.

Mr President, we are seeing record-breaking earnings and profits, while in terms of operating earnings we remained at the 2022 level, and I would like to explain why.

Until May 2022, we were exporting electricity to Western countries, and you remember the price levels of that period. Five months before the end, we earned 28.8 billion rubles. We did not earn this money in 2023 and had to reduce our indicators by the same margin.

In 2020, you drew our attention to the importance of developing engineering divisions, and we launched this business. I can say that the engineering and IT business groups brought in 23.5 billion rubles in operating earnings in 2023. These businesses allowed us to compensate for export revenue shortfalls.

I will elaborate on the key areas, starting with IT and engineering. The group owns the largest holding in the field of construction works with total revenue of about 100 billion rubles and an order portfolio worth more than 100 billion rubles. Our key partners and customers include FSK – Rosseti, Inter RAO itself, as well as enterprises of the St Petersburg housing and public utility sector: TEK and Vodokanal.

I would like to note that the cost of purchasing engineering companies amounted to 37 billion last year and generated income of 20.5 billion rubles. That is, more than half of the money was returned in a year. And over the two and a half years since the purchase of the engineering and IT businesses, for which we paid 47 billion, the total profitability exceeded 50 billion rubles. That is, despite all the difficulties with interest rates and the rising cost of equipment, we recouped the money spent on this business in two and a half years. Compare this with the payback period for basic generation projects, which ranges 12–15 years. We will further develop these competencies.

Generation is the second key aspect of our activities. I will speak about investment activities here. In 2009–2024, the group built 10,400 megawatts of new capacity and invested about 650 billion net of VAT. We are also actively participating in your upgrade programme. The total volume of tenders we won amount to more than 10,000 megawatts, and investments will total about 185 billion rubles net of VAT.

Mr President, construction of the Novolenskaya Thermal Power Plant in the Republic of Sakha (Yakutia) is the most important project for us, and we must complete it in 2028, with a total investment of about 257 billion. It provides for the creation of a complete energy cluster, including the development of a gas field and installation of CNG [comprehensive gas treatment] unit, with 200 kilometres of gas pipes to be laid, and a station of 550 megawatts to be built in Lensk. The total length of the electic power transmission line that we will lay will be about 1,000 km in a single-circuit design.

Alrosa is our partner here, and we will supply gas from its gas fields. This is a truly unique and complex project that we have already started and hope to complete on time.

The construction of an innovative combined cycle power plant in the Kashira district, Moscow Region, is another important project worth 90 billion. We must also complete it as part of the instructions that were given for the development of gas turbine engineering.

Mr President, our third most important activity is energy supply. We are the number one company in this area. I would like to thank you for the instruction to establish a reference principle for setting rates in which everything is calculated according to a formula and has the least number of fluctuations one way or another.

This has helped stop bankruptcies at large supply holdings. You once pointed this out to power companies. Now this does not exist, or it is just an exception, although I cannot even recall when this problem last occurred. Debt in the retail energy market is no longer growing – it simply does not exist.

At this point, I would like to mention yet another instruction you gave us. It is related to creating uniform information settlement centres in the regions. We have established several such centres – the three largest are in the Moscow Region, St Petersburg and the Leningrad Region. We did this in cooperation with the regional authorities. It was a major joint effort.

I will cite figures on the results of one of them. Owing to our centre, from 2019 to 2023, we managed to increase the collection of all utility fees – electricity, gas and water – in the Moscow Region from 91.1 percent to 97.6 percent, this was about a 6.5 percent increase. It may not sound like a lot, but what has this achieved?

With a profit of 250 billion rubles, it added 15 billion rubles to the housing and utility sector. Mr President, this amount did not come from the budget or from additional tariff increases. This amount used to remain with some middlemen or disappear in some obscure way. Such infrastructure companies make it possible to find additional sources. It allowed the Moscow Region to start dealing with its old debt-related problems. This is why we believe we are seeing positive results from our activities.

The fourth area that is primary for us is engineering. Over the past two years, as we have grown into this more seriously, we purchased several plants at once. These include the Ural Turbine Works, the leading producer of steam turbines, and two transformer works – Voronezh Transformer plant and SMTT [High Voltage Solutions] in St Petersburg. The former manufactures transformers up to 330 kV and the latter – up to 500 kV. We also have STGT – a producer of key components for gas turbines. It also manages a very important function – the servicing of gas turbine equipment. This is particularly important now that we still have a fleet of foreign turbines.

In Russia, the straight-line rate for electricity, market price in terms of generating electricity, has lagged behind inflation by more than 12 percent over the last three years. So we always say that the electric power industry is one of the factors taming inflation, since it lags behind.

Vladimir Putin: You said everyone knows what happened in our Western partners’ countries. What was happening there? Please repeat it.

Boris Kovalchuk: Mr President, first of all, the share of electricity generation from coal in a number of countries exceeded the share of coal generation in Russia by several times even though our colleagues say they are striving for an eco-friendly economy and are fighting CO2 emissions. But prices reached 1,000 euros per megawatt-hour, while in Russia the cost was 25–26 euros. This is what happened.

By the way, this is still happening. In Finland, a few weeks ago, the price again reached 900 euros per megawatt-hour, whereas in Russia it costs 25 euros. For example, Finland – this is our traditional market – made corresponding decisions, and as a result, the reserves that were previously taken from the North-West Thermal Power Plant, from the energy system of the Russian Federation, are now unavailable. When there is no wind and one of the Olkiluoto Nuclear Power Plant units stops operating – if I am not mistaken, it took them 15 years to build this plant, as there were some difficulties, and it is still not working properly – it leads to a serious shortage and a sharp increase in prices.

That is what’s happening there. This situation is widespread.

Vladimir Putin: Coal generating has also increased in Central Europe.

Boris Kovalchuk: Yes, there was also an increase in Germany because they had nothing else with which to generate electricity. So, we assess the situation in their energy sector as extremely negative. We have the consumption figures: an average decrease of about 13 percent between 2021 and 2023, 9 percent in Italy, 12 percent in Germany, 16 percent in France, and a 22 percent decrease in the UK. The difficulties are obvious.

We are experiencing strong growth. Based on this, tenders are being opened both in Siberia and in the south to build new generating facilities.

Vladimir Putin: Thank you.

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