Energy of North Caucasus: causes of red ink

The Russian electricity industry is teeming with serious problems: the consolidation of once separate structures under the management of Russian Networks continues, the demands to the payment discipline are becoming more austere for consumers, quite unpopular measures are taken for defaulters. Those used to living in a quite bog show controversial impressions of the changes, including hostility.

If the work costs rubles...

The Interregional Distribution Grid Company (IDGC) of the North Caucasus has to deal with numerous challenges partly caused by the macroeconomic conjuncture. They are based on problems that have been accruing since 2006. In Dagestan, Ingushetia and Chechnya, officers still used incorrect balances of electricity when composing bills for services: they ignore the actual technological expenditures when delivering electricity, calculating the number of consumers incorrectly in light of the falling population level. Artificially lowered figures have their impact on the well-doing of the grid company. For example, the fees for sending electricity to the networks of Dagenergo in 2006 were 50% lower than in other entities of the NCFD. The price policy of the regional regulator has not changed.

Unsurprisingly, Rosseti director general Oleg Budargin drew attention to the imbalance during the Saint Petersburg International Economic Forum: 'We do not stand for raising prices for the final consumer. We are talking about a fair share for electricity supply networks inside the power fees. Mind you that the share of networks was 38% five years ago, it is 28% now. Besides, we lived for a year without an increase in prices. The prices for generation are growing, they are not falling for distributing organizations either. It is unfair, the 'price pie' must be changed.'

If the work costs a ruble, a ruble should be paid, not 0.6-0.8 rubles. Is not that so? In general, the price 'deficit' in 2011-2014 in Dagestan, Ingushetia and Chechnya reached about 8 billion rubles. In 2015-2017, about 5 billion rubles more will be added to the sum.

It is worth noting that the net profit of companues in 2012-2013 was only made due to technological connection, transfer of electricity has been loss-making for the last several years.

Still, the capital investments of 2.385 billion rubles allowed the interregional grid company to launch 618km of power lines and 173MW of transformers (about 179% and 149% of planned) in 2014. It improved the quality of power supply and eased restrictions in connecting new consumers.

As of January-March 2015, the IDGC of the North Caucasus got 144.53 million rubles of investments (53.84 million rubles or 268% were planned), 620.67 million rubles assigned (315.82 million rubles or 197% were planned).

Additional expenses

The North Caucasus IDGC is not trying to cover the facts of poor payment discipline of the consumers in the North Caucasus. On the contrary, it is sounding the alarm on the enormous debts at governmental meetings and councils. A whole complex of measures was mobilized: court warrants, shutdown of power for defaulters, submissions to the police. Chechen energy managers have even purchased cash machines that they take with themselves when visiting debtors, making the billing process as convenient as possible for consumers. Progress is evident. The rate of payments for electricity in Chechnya rose from 72% in 2013 to 80% in 2014.

Maybe someone would want to split the single energy system of the country into 'own' and 'alien'. No matter how you take it, the most unfavourable and dangerous work is still done by specialists of the grid company. Their life is under threat whenever they face innapropriate behaviour of dishonest consumers of electricity when ordered to cut the power of enterprises and houses of debtors. A worthy example to mention comes from Karachay-Cherkessia, when a furious defaulter rushed out of his house and tried to zero in on officers shutting down his life with an airgun. Militarized security of an enterprise in Ingushetia did not allow officers of the power company to check the meters. Such cases are frequent, unfortunately.

Problems common for the energy complex of the North Caucasus are further aggravated by the refusal to pay by uncontrolled territorial grid organizations that owe over 85% (over 10 billion rubles) of all electricity debts to the North Caucasus IDGC for power transfer. No wonder the Russian Energy Ministry insists on prohibiting regions to have their own grid companies, as stated by Deputy Minister for Energy Vyacheslav Kravchenko during a round-table conference on development of power networks at the State Duma. According to Russian Energy Minister Alexander Novak, only 400 grid companies should remain by 2025: 'A governmental enactment was made and critaria set, which local commissions may use to make decisions on prices for a grid organization. The criteria are clear: financial security, professional staff and so on.'

Energy officers are confident that onlu collaboration of republican and regional authorities can achieve serious results in enforcing the payment discipline of consumers and preventing thefts of energy resources. Prevention of growth of debts requires resolution of problems around the development of legal acts, issuing of bank guarantees and even publication of lists of debtors in mass media.

Limit-exceeding losses of electricity caused by technological reasons and theft of energy resources by dishonest consumers are still a pressing issue. It all resulted in red ink at the North Caucasus IDGC. The company exploits about 100% of power grids in the region. The management of Rosseti is well aware of the problems. It file a request to the government to get 35 billion rubles to support its Siberia IDGC, North Caucasus IDGC, South IDGC and Kubanenergo.

The sums paid by the company to compensate the additional expenditures caused by limit-exceeding losses in 2014 totaled about 2.7 billion rubles. That is why the North Caucasus IDGC is implementing a complex account system to switch to remote collection of data on energy consumption, to avoid the human factor in processing the information. The process will be completed in Dagestan's Makhachkala and Chechnya's Gudermes, Grozny and Argun in 2016. The problem is that newly connected networks have not installed automatic power meters.Limit-exceeding losses in power networks there are sometimes reaching 40-50% there. The losses in North Caucasian networks totaled 14.71% in 2014, dropping by 0.19% over the previous year.

Grids unite

The fragmentary energy sector is now consolidating according to the president's decree N1567 signed on November 22, 2012, and the Rosseti Strategy for Development of the Electric grid Complex. It was easy to split a once single energy system, it is now harder to piece it together, get rid of unneccessary markups and expenditures.

Consolidation of property of the grid company is one of the key goals the North Caucasus IDGC and the Russian energy as a whole needs to accomplish. In 2014, the consolidated property totaled 21,339.2 units. Assistance of executives in NCFD entities was indispensible. The company signed road maps with authorities of republics to consolidate and set clear steps with account of every region's peculiarities.

In early December, a deal to rent power grids of Vladikavkaz and the Alagirsky District of North Ossetia was signed. The North Caucasus IDGC rented networks of Makhachkala, consolidating the Makhachkala City Power Lines. The rent of Izberbash property was extended until 2019. Rent of power lines of Stavropol was extended until 2017m an additional deal on extension of grids in Yessentuki is on the way. The company is considering a set of projects on rent of power lines in Dagestan and Stavropol Territory. The deals will be made in 2015.

Every year the load of problems gets heavier: reconstruction, realization of investment projects, modernization and reconstruction. They all cost a lot of money. The North Caucasus IDGC is forced to lower operational expenditures. Optimization of operational expenditures includes redundencies at the administrative and management departments, termination of employment for operators, formation of an efficient organizational structure. It should save the grid company 43 million rubles a year. Reduction of expenditures, optimization of assets management, business processes, warehouses and generating programs are part of the plan. The measures should save up to 400 million rubles a year.

Anti-crisis measures will help grid companies retain stability in the North Caucasus power grids. The North Caucasus IDGC is more concerned about keeping its power lines intact during the high load in winter and in extreme situations caused by severe weather. Increase of power capacity to keep all electric facilities running is another key goal of the grid company.