Energy Research Report

2010–11 EDUCATIONAL PROGRAM

Energy Research Report

> ENERGY

Over the last 190 years, oil and gas have radically transformed industry.This transformation, however, has come at a price: the world is now polluting at staggering rates, which could lead to a temperature increase up to 6Celsius before the end of the century.

Consequently, an industrial transformation away from a dependance on fossil fuels, which are quickly disappearing and only accelerate climate change, has become an immediate priority. Russia is no exception. In 2007, Russia’s real gross domestic product (GDP) grew by approximately 8.1 percent, surpassing average growth rates in all other G8 countries. This growth was primarily driven by exports of oil and natural gas. Internally, Russia gets over half of its domestic energy from natural gas. The challenges of moving the country beyond an economy based on oil and gas are significant, but the benefits associated with a transition to a sustainable energy supply are potentially even greater...

BEYOND OIL AND GASLOOKING AT RUSSIA’S ENERGY FUTURE

The material in this Research Report representsa selection from

‘Beyond Oil and Gas”

the Publication of the 2011 Strelka Energy Theme.For full text and references, see the complete book.

Contributors:Anastasia ChernyshovaPavel GeichenkoNaina GuptaOleg SemakinIvan Solomin

Reinier de GraafOlga AleksakovaLaura Baird

3

Total Primary Energy Supply

Combustibles Renewables and Waste

Geothermal,Solar, etc

Hydro

Nuclear

Gas

Crude Oil

Coal and Peat

1990 1993 1996 1999 2002 2005 20080

2000

1500

1000

500

Mtoe

POTENTIAL MARKETS FOR RENEWABLE ENERGY TECHNOLOGIES - 53

CHAPTER 3POTENTIAL MARKETSFOR RENEWABLE ENERGYTECHNOLOGIES

There is considerable “low-hanging fruit”, i.e. applications where renewable energysources have an immediate competitive advantage over conventional energy sources.Given Russia’s rich renewable energy resources and the renewable energy technologiesthat already exist in the global marketplace, investment in renewable energy in Russiacould generate large economic returns. This chapter considers renewable options forbulk electricity, o�-grid electricity and heat services, and heat and hot water. Successstories are sprinkled throughout the chapter and appear in boxes in the text.

BULK ELECTRICITY

Russia is the world’s largest producer and exporter of energy but most of its regionsproduce less energy than they need. Many of them import it from energy-rich regions,like Western Siberia.

Region Gas Oil Coal Total

Foriegn Exports

Domestic Production

Domestic Consumption

Deficit (–) / surplus (+)

North –14.2 7.5 2.0

North-west –19.7 –10.8 –1.4

Central –88.2 –34.0 –9.2

Volga-Vyatsky –20.0 –10.1 –2.6

Central-Black soil –21.9 –5.3 –6.4

Lower-Volga

Volga-Vyatsky

Lower-Volga –54.1 29.6 –1.1

North Caucasus –31.6 –8.6 1.9

Urals –58.5 15.3 –28.9

West Siberia 534.3 293.2 45.4

East Siberia 0 –15.0 5.3

Far East 0 –9.1 –0.8

-4.7

-31.9

-131.4

-32.7

-33.6

-25.6 -389.9-38.3

-72.1

+872.9

+872.9

+483.0

-9.7

-9.9

Table 10 Russia’s Regional Fossil Fuel Balance, 2000(million tonnes of coal equivalent)

Source: IEA, Russia Energy Survey, IEA/OECD, Paris, 2002.

Russia’s Regional Fossil Fuel Balance, 2000(million tonnes of coal equivalent)

+872.9

-4.7

-31.0

-131.4

-32.7

-33.6

-25.6

-38.3

-72.1

-9.7

-9.9

0 250 500 1000 km




Hydro

Nuclear

Gas

Crude Oil

Coal and Peat

1990 1993 1996 1999 2002 2005 20080

2000

1500

1000

500

Mtoe

Russia’s Energy Balance


THE CURRENT SITUATION

Export Potential

Renewable Energy Potential




BULK ELECTRICITY



Foriegn Exports

Domestic Production



North –14.2 7.5 2.0

North-west –19.7 –10.8 –1.4

Central –88.2 –34.0 –9.2



Lower-Volga –54.1 29.6 –1.1


Urals –58.5 15.3 –28.9

West Siberia 534.3 293.2 45.4


Far East 0 –9.1 –0.8

-4.7

-31.9

-131.4

-32.7

-33.6

-25.6 -389.9-38.3

-72.1

+872.9

+872.9

+483.0

-9.7

-9.9




Export Potential

Domestic Production

Technolgical Potential

Domestic Consumption-389.9+4593.5

+4203.6

Need Supplement

Domestic Production

Economic Potential


-114.4

Domestic Energy Balance Sheet

4203.6 Mtce (Technical RES Export Potential)

273.5 Mtce (EconomiclyViable RES)

Gross potential Technical potential Economic potential

Small Hydropower 360.4 124.6 65.2

Geothermal Energy * * 115.0**

Biomass Energy 10 × 10 3 53 35

Wind Energy 26 × 10 3 2,000 10.0

Solar Energy 2.3 × 10 6 2,300 12.5

Low Potential Heat 525 115 36

Total RenewableEnergy Sources 2.34 × 10 6 4593.0 273.5

Potential of Renewable Energy Sources in Russia(million tones of coal equivalent per year)

* Geothermal energy resources are estimated to be 180 Mtce/y down to the depth of 3 km. The technical potentialis approximately 20 Mtce/y.** The economic potential comprises hot waters and steam-water fluids of geocirculating technology.Notes: For a detailed methodology of the assessment of the gross, technical and economic potential of renewableenergy, see Bezrukikh, P.P., Arbuzov, J.D., Borisov, G.A., Vissarionov, V.I., Evdokimov, V.M., Malinin, N.K.,Ogorodov, N.V., Puzakov, V.N., Sidorenko G.I. and Shpak, A.A. (2002), Resources and Efficiency of the Use ofRenewable Sources of Energy in Russia,SPb, Nauka. This table is based on the Russian definition of renewableenergy, which differs slightly from the IEA definition. Unlike the Russian definition, the IEA one does not includeheat pumps (low potential heat). According to the IEA definition, small hydropower includes plants with a capacityof less than 10 MW. In the Russian definition, small hydropower includes plants with less than 30 MW capacity.Source: Ministry of Fuel and Energy et al. 1999, The Role of Renewable Sources of Energy in Power Strategy ofRussia. In Yanovsky, A., P. Bezroukikh (ed.), Business and Investment for Renewable Energy in Russia,Proceedingsof the Congress, Moscow, 31 May-4 June 1999.

the coming of age of wind and solar power, The first decade of the 21st Century witnessed

Special Note on RES learning rates:

with annual global growth rates of about 30% and 40%, respectively. A 7% growth rate leads to a doubling every ten years. With a growth rate of 30%, doubling occurs every 2.3 years, and at 40% doubling occurs every 1.75 years. This is Moore’s Law in a new context: renew-able energy growth. Source: Renewable Energyworld.com

389.9 Mtce (Russian Domestic

Consumption)

483.0 Mtoe (Energy Exports)

389.9 Mtoe (Russian Domestic

Consumption)

872.9 Mtoe (Total Energy Poduction)




BULK ELECTRICITY



Foriegn Exports

Domestic Production



North –14.2 7.5 2.0

North-west –19.7 –10.8 –1.4

Central –88.2 –34.0 –9.2



Lower-Volga –54.1 29.6 –1.1


Urals –58.5 15.3 –28.9

West Siberia 534.3 293.2 45.4


Far East 0 –9.1 –0.8

-4.7

-31.9

-131.4

-32.7

-33.6

-25.6 -389.9-38.3

-72.1

+872.9

+872.9

+483.0

-9.7

-9.9




Export Potential

Domestic Production



+4203.6

Need Supplement

Domestic Production

Economic Potential


-114.4








Wind Energy 26 × 10 3 2,000 10.0

Solar Energy 2.3 × 10 6 2,300 12.5









Consumption)



Consumption)





BULK ELECTRICITY



Foriegn Exports

Domestic Production



North –14.2 7.5 2.0

North-west –19.7 –10.8 –1.4

Central –88.2 –34.0 –9.2



Lower-Volga –54.1 29.6 –1.1


Urals –58.5 15.3 –28.9

West Siberia 534.3 293.2 45.4


Far East 0 –9.1 –0.8

-4.7

-31.9

-131.4

-32.7

-33.6

-25.6 -389.9-38.3

-72.1

+872.9

+872.9

+483.0

-9.7

-9.9




Export Potential

Domestic Production



+4203.6

Need Supplement

Domestic Production

Economic Potential


-114.4








Wind Energy 26 × 10 3 2,000 10.0

Solar Energy 2.3 × 10 6 2,300 12.5









Consumption)



Consumption)





BULK ELECTRICITY



Foriegn Exports

Domestic Production



North –14.2 7.5 2.0

North-west –19.7 –10.8 –1.4

Central –88.2 –34.0 –9.2



Lower-Volga –54.1 29.6 –1.1


Urals –58.5 15.3 –28.9

West Siberia 534.3 293.2 45.4


Far East 0 –9.1 –0.8

-4.7

-31.9

-131.4

-32.7

-33.6

-25.6 -389.9-38.3

-72.1

+872.9

+872.9

+483.0

-9.7

-9.9




Export Potential

Domestic Production



+4203.6

Need Supplement

Domestic Production

Economic Potential


-114.4








Wind Energy 26 × 10 3 2,000 10.0

Solar Energy 2.3 × 10 6 2,300 12.5









Consumption)



Consumption)





BULK ELECTRICITY



Foriegn Exports

Domestic Production



North –14.2 7.5 2.0

North-west –19.7 –10.8 –1.4

Central –88.2 –34.0 –9.2



Lower-Volga –54.1 29.6 –1.1


Urals –58.5 15.3 –28.9

West Siberia 534.3 293.2 45.4


Far East 0 –9.1 –0.8

-4.7

-31.9

-131.4

-32.7

-33.6

-25.6 -389.9-38.3

-72.1

+872.9

+872.9

+483.0

-9.7

-9.9




Export Potential

Domestic Production



+4203.6

Need Supplement

Domestic Production

Economic Potential


-114.4








Wind Energy 26 × 10 3 2,000 10.0

Solar Energy 2.3 × 10 6 2,300 12.5









Consumption)



Consumption)





BULK ELECTRICITY



Foriegn Exports

Domestic Production



North –14.2 7.5 2.0

North-west –19.7 –10.8 –1.4

Central –88.2 –34.0 –9.2



Lower-Volga –54.1 29.6 –1.1


Urals –58.5 15.3 –28.9

West Siberia 534.3 293.2 45.4


Far East 0 –9.1 –0.8

-4.7

-31.9

-131.4

-32.7

-33.6

-25.6 -389.9-38.3

-72.1

+872.9

+872.9

+483.0

-9.7

-9.9




Export Potential

Domestic Production



+4203.6

Need Supplement

Domestic Production

Economic Potential


-114.4








Wind Energy 26 × 10 3 2,000 10.0

Solar Energy 2.3 × 10 6 2,300 12.5









Consumption)



Consumption)





BULK ELECTRICITY



Foriegn Exports

Domestic Production



North –14.2 7.5 2.0

North-west –19.7 –10.8 –1.4

Central –88.2 –34.0 –9.2



Lower-Volga –54.1 29.6 –1.1


Urals –58.5 15.3 –28.9

West Siberia 534.3 293.2 45.4


Far East 0 –9.1 –0.8

-4.7

-31.9

-131.4

-32.7

-33.6

-25.6 -389.9-38.3

-72.1

+872.9

+872.9

+483.0

-9.7

-9.9




Export Potential

Domestic Production



+4203.6

Need Supplement

Domestic Production

Economic Potential


-114.4








Wind Energy 26 × 10 3 2,000 10.0

Solar Energy 2.3 × 10 6 2,300 12.5









Consumption)



Consumption)


Final Book.indd 10-11 6/22/2011 10:33:59 PM




Hydro

Nuclear

Gas

Crude Oil

Coal and Peat

1990 1993 1996 1999 2002 2005 20080

2000

1500

1000

500

Mtoe




BULK ELECTRICITY



Foriegn Exports

Domestic Production



North –14.2 7.5 2.0

North-west –19.7 –10.8 –1.4

Central –88.2 –34.0 –9.2



Lower-Volga

Volga-Vyatsky

Lower-Volga –54.1 29.6 –1.1


Urals –58.5 15.3 –28.9

West Siberia 534.3 293.2 45.4


Far East 0 –9.1 –0.8

-4.7

-31.9

-131.4

-32.7

-33.6

-25.6 -389.9-38.3

-72.1

+872.9

+872.9

+483.0

-9.7

-9.9




+872.9

-4.7

-31.0

-131.4

-32.7

-33.6

-25.6

-38.3

-72.1

-9.7

-9.9

0 250 500 1000 km




Hydro

Nuclear

Gas

Crude Oil

Coal and Peat

1990 1993 1996 1999 2002 2005 20080

2000

1500

1000

500

Mtoe

Russia’s Energy Balance


THE CURRENT SITUATION

Export Potential

Renewable Energy Potential




BULK ELECTRICITY



Foriegn Exports

Domestic Production



North –14.2 7.5 2.0

North-west –19.7 –10.8 –1.4

Central –88.2 –34.0 –9.2



Lower-Volga –54.1 29.6 –1.1


Urals –58.5 15.3 –28.9

West Siberia 534.3 293.2 45.4


Far East 0 –9.1 –0.8

-4.7

-31.9

-131.4

-32.7

-33.6

-25.6 -389.9-38.3

-72.1

+872.9

+872.9

+483.0

-9.7

-9.9




Export Potential

Domestic Production



+4203.6

Need Supplement

Domestic Production

Economic Potential


-114.4








Wind Energy 26 × 10 3 2,000 10.0

Solar Energy 2.3 × 10 6 2,300 12.5









Consumption)



Consumption)





BULK ELECTRICITY



Foriegn Exports

Domestic Production



North –14.2 7.5 2.0

North-west –19.7 –10.8 –1.4

Central –88.2 –34.0 –9.2



Lower-Volga –54.1 29.6 –1.1


Urals –58.5 15.3 –28.9

West Siberia 534.3 293.2 45.4


Far East 0 –9.1 –0.8

-4.7

-31.9

-131.4

-32.7

-33.6

-25.6 -389.9-38.3

-72.1

+872.9

+872.9

+483.0

-9.7

-9.9




Export Potential

Domestic Production



+4203.6

Need Supplement

Domestic Production

Economic Potential


-114.4








Wind Energy 26 × 10 3 2,000 10.0

Solar Energy 2.3 × 10 6 2,300 12.5









Consumption)



Consumption)





BULK ELECTRICITY



Foriegn Exports

Domestic Production



North –14.2 7.5 2.0

North-west –19.7 –10.8 –1.4

Central –88.2 –34.0 –9.2



Lower-Volga –54.1 29.6 –1.1


Urals –58.5 15.3 –28.9

West Siberia 534.3 293.2 45.4


Far East 0 –9.1 –0.8

-4.7

-31.9

-131.4

-32.7

-33.6

-25.6 -389.9-38.3

-72.1

+872.9

+872.9

+483.0

-9.7

-9.9




Export Potential

Domestic Production



+4203.6

Need Supplement

Domestic Production

Economic Potential


-114.4








Wind Energy 26 × 10 3 2,000 10.0

Solar Energy 2.3 × 10 6 2,300 12.5









Consumption)



Consumption)





BULK ELECTRICITY



Foriegn Exports

Domestic Production



North –14.2 7.5 2.0

North-west –19.7 –10.8 –1.4

Central –88.2 –34.0 –9.2



Lower-Volga –54.1 29.6 –1.1


Urals –58.5 15.3 –28.9

West Siberia 534.3 293.2 45.4


Far East 0 –9.1 –0.8

-4.7

-31.9

-131.4

-32.7

-33.6

-25.6 -389.9-38.3

-72.1

+872.9

+872.9

+483.0

-9.7

-9.9




Export Potential

Domestic Production



+4203.6

Need Supplement

Domestic Production

Economic Potential


-114.4








Wind Energy 26 × 10 3 2,000 10.0

Solar Energy 2.3 × 10 6 2,300 12.5









Consumption)



Consumption)





BULK ELECTRICITY



Foriegn Exports

Domestic Production



North –14.2 7.5 2.0

North-west –19.7 –10.8 –1.4

Central –88.2 –34.0 –9.2



Lower-Volga –54.1 29.6 –1.1


Urals –58.5 15.3 –28.9

West Siberia 534.3 293.2 45.4


Far East 0 –9.1 –0.8

-4.7

-31.9

-131.4

-32.7

-33.6

-25.6 -389.9-38.3

-72.1

+872.9

+872.9

+483.0

-9.7

-9.9




Export Potential

Domestic Production



+4203.6

Need Supplement

Domestic Production

Economic Potential


-114.4








Wind Energy 26 × 10 3 2,000 10.0

Solar Energy 2.3 × 10 6 2,300 12.5









Consumption)



Consumption)





BULK ELECTRICITY



Foriegn Exports

Domestic Production



North –14.2 7.5 2.0

North-west –19.7 –10.8 –1.4

Central –88.2 –34.0 –9.2



Lower-Volga –54.1 29.6 –1.1


Urals –58.5 15.3 –28.9

West Siberia 534.3 293.2 45.4


Far East 0 –9.1 –0.8

-4.7

-31.9

-131.4

-32.7

-33.6

-25.6 -389.9-38.3

-72.1

+872.9

+872.9

+483.0

-9.7

-9.9




Export Potential

Domestic Production



+4203.6

Need Supplement

Domestic Production

Economic Potential


-114.4








Wind Energy 26 × 10 3 2,000 10.0

Solar Energy 2.3 × 10 6 2,300 12.5









Consumption)



Consumption)





BULK ELECTRICITY



Foriegn Exports

Domestic Production



North –14.2 7.5 2.0

North-west –19.7 –10.8 –1.4

Central –88.2 –34.0 –9.2



Lower-Volga –54.1 29.6 –1.1


Urals –58.5 15.3 –28.9

West Siberia 534.3 293.2 45.4


Far East 0 –9.1 –0.8

-4.7

-31.9

-131.4

-32.7

-33.6

-25.6 -389.9-38.3

-72.1

+872.9

+872.9

+483.0

-9.7

-9.9




Export Potential

Domestic Production



+4203.6

Need Supplement

Domestic Production

Economic Potential


-114.4








Wind Energy 26 × 10 3 2,000 10.0

Solar Energy 2.3 × 10 6 2,300 12.5









Consumption)



Consumption)



Energy has been driving force of Russia’s development since the beginning of the 20th century.

Today, Russia’s dependance on oil and gas limits research and development of new technologies and ultimately the diversification of its economy.

Russia has enormous saving potential. If applied properly, efficiency polcies can free enormous resources, allowing for investment in the modernization of the country.

As the economy becomes more privatized, transparent pricing and the reduction of oil and gas subsidies will allow for new innovative markets to surface.

Introduction of small-scale renewables through public-private partnership could become the “foot in the door’” for independent energy solutions away from the dependency on the grid.

Is a Russia no longer dependent on oil and gas feasible in our lifetime? What are the political, social, and economic hurdles? How does this affect Russia’s position in the world?


Energy has been driving force of Russia’s development since the beginning of the 20th century.

Today, Russia’s dependance on oil and gas limits research and development of new technologies and ultimately the diversification of its economy.

Russia has enormous saving potential. If applied properly, efficiency polcies can free enormous resources, allowing for investment in the modernization of the country.

As the economy becomes more privatized, transparent pricing and the reduction of oil and gas subsidies will allow for new innovative markets to surface.

Introduction of small-scale renewables through public-private partnership could become the “foot in the door’” for independent energy solutions away from the dependency on the grid.

Is a Russia no longer dependent on oil and gas feasible in our lifetime? What are the political, social, and economic hurdles? How does this affect Russia’s position in the world?


Historical background

The Russian Empire was an agricultural country. Although the end of the 19th and beginning of the 20th century saw the extensive development of industrial capi-talism, Russia remained a society with a rural population of 85% in 1913. Never-theless, oil extraction, which existed in the Caucasus for centuries as local oil production, developed into industrial production in the mid-twentieth century.

Starting in the 1840s oil and coal refine-ment products (kerosene and fotogene) have been used for lighting. Due to the slow development of the national oil busi-ness and outdated transport infrastruc-ture, all locally-produced oil products were also only consumed locally. Starting in the 1860s kerosene was imported from the United States, which at the time was the main exporter of oil products in the world.

At the end of the period from 1860—1870s, a series of changes in government policy concerning oilfield development were introduced. In addition, import taxes increased in the 1870s. The fore-going measures spurred the national oil production and refinery businesses. In 1876 the kerosene supply from Baku oilfields exceeded net imports, and imports of oil products stopped in 1883. At that time Russian oil production companies start to compete with U.S. exporters on international markets.

Russian oil extraction and production grew rapidly in the last quarter of the 19th century. Net supply had leveled off with the U.S. by the end of the 19th century, but in general the depth of processing remained considerably low. Up to 70% of crude oil was burned in fire-boxes instead of coal without processing or distillation. Russian chemist Dmitry Mendeleev (famous for creating the periodical table of elements), who played a significant role in the development of the oil industry, complained: “Petroleum is not a fuel. You can stoke even with assignations.”

In the beginning of the 20th century development slowed because of political issues (political crises, the Russian-Japan war, the first Russian Revolution) and until 1913 Russia constituted only 14% of world oil supply.

However, the development and stag-nation of the oil sector did not play a significant role in the structure of energy consumption or the Russian economy,

because at that time coal and firewood were the main sources of energy for the world (see the diagram below).

As an oil exporter Russia imported coal, which was the main energy source for all industries, including the emerging power industry. In 1913 the Russian Empire imported 7,758 tons of coal (20% of net consumption), mostly from Germany and Great Britain. The situation was similar to that of kerosene 50 years earlier. An undeveloped transport infrastructure made it cheaper for Russia’s central region to import coal by sea rather than transport it from producing regions deep

A.A.Makarov. A member of Russian Academy of Science.The Energy Research Institute of the Russian Academy of Sciences (ERIRAS)

Egorov M. Yu., “Tamojennyi tarif v stanovlenii i razvitii neftyanoi promyshlennosti Rossiiskoi Imperii”, 2010.

inside the country. This state of affairs soon played a nasty trick on the country. Germany stopped all exports to Russia during World War I. After the October Revolution all the world powers, including Great Britain, imposed a blockade on the Bolshevik government. From the first days of its existence Soviet Russia was cut off from all import supplies, including fuel, which contributed significantly to the devastation the country descended into during World War I and the subse-quent Russian Civil War.

Energy as Progress The GOELRO plan

While drafting the GOELRO plan in 1920 (The State Plan for the Electrification of Russia), the state committee on electri-fication, headed by Gleb Krzhizhanovsky, took into consideration the lessons of the blockade and crisis fueled by six years of war. The committee emphasized the self sufficiency and sustainability of the newly-created Electro Power System.

Sustainability is independence from imports. However, an undeveloped infra-structure and reliance on local energy resources (peat, firewood, oil shale, low-quality coal, etc.) forced the develop-ment of Russia’s transport infrastructure (electrification of railway lines).The first step was the electrification and develop-ment of coal mining regions (primarily Kuznetsk and the Donets Basin).

The plan emphasized reliance on local resources and thoughtful consideration of natural and energy resources. The plan also discussed food and raw materials, and national well-established economical sectors, such as subdividing the country into large economical regions according to specialization of labor and production.

The plan’s strategic aim and essence was to create a material base for socialism in Russia. Electrification was the framework for economic and industrial development, so emphasis was placed on large-scale machine production and heavy industry. The tactical task was to overcome wartime devastation by increasing labor productivity, while decreasing production costs and the waste of material resources with the help of electrification.

The plan included a comprehensive analysis of the condition of all sectors of the economy, industry and infrastructure, with evaluations of all available resources and facilities. The aim was to define which resources could be produced domestically, using pre-Revolutionary industry facilities, which were available in limited supply, and which would be inevitably exported from industrially developed countries. The results of the analyses were the following:

1. Electro-technical industries were well-developed before the Revolu-tion and well-preserved despite the war;

2. Accumulator and cable producing factories were also well-developed and only needed to reorganize and streamline the workflow;

3. Dynamo and apparatus-building capacities could only fulfill 50% of demand;

4. Turbogenerator and hydroturbine production was only in the design stage;

5. There was no production of lighting, accessories, and small electrical engineering materials, but these materials were easily available on international markets and it was not difficult to build the industry from scratch;

6. There was no production of insu-lators, special kinds of iron, or aluminum and this production could only be created in the long term.

One of the main conclusions of the study was that the involvement of foreign capital, metal production and technology were inevitable in the initial stages of implementation.

The program had worked out in detail the establishment, budget and resource sections. The overall costs of imple-menting the program was 17 billion golden rubles (in the international currency equivalent). This amount was made up of the following:

Electrification — 1.2 billion rubles (consol-idation of existing capacities (250 kW), creation of 1,500 kW of new capacity; integration and unification of all capacity into regional energy systems);

Manufacturing industry — 5 billion rubles (designed growth 80%);

Mining industry — 3 billion rubles (designed growth 80-100%);

Transport infrastructure — 8 billion rubles.

The money for the program would come from 11 billion rubles in the foreign trade surplus, and 6 billion rubles from foreign loans and concessions. Russia’s main exports were oil products, timber, grain and fur.

Foreign resources were used to imple-ment the program (such as materials, equipment, technologies, education of local specialists abroad, commissioning international contractors, producers and individual specialists, etc.), but no foreign loans were used. Foreign invest-ments were mobilized by concessions only, which means that a large part of the capital that was initially to have been in the form of loans had to be obtained from domestic sources, since grain exports were one of the main sources of golden rubles as a convertible currency. This additional pressure was mainly put on the broad shoulders of the peasants. This led to the phenomena of price scis-

sors, which is a situation when prices for agricultural products are lower than they were in 1913, and prices for manufactured goods are significantly higher due to the slower recovery of the industrial produc-tion level compared to that of agriculture. Moreover, a price difference in favor of industry was used after reselling agricul-tural goods abroad in order to fund large-scale industrial development. This addi-tional pressure naturally led to passive and active resistance on the part of the peasants, which in turn made it necessity to increasing police the peasantry. This was how the objective prerequisites took shape for collectivization.

Understanding the relationship between Energy and Russia’s development.

Верстка_11.06.13.indd 4-5 23.06.2011 1:26:29

Historical background

The Russian Empire was an agricultural country. Although the end of the 19th and beginning of the 20th century saw the extensive development of industrial capi-talism, Russia remained a society with a rural population of 85% in 1913. Never-theless, oil extraction, which existed in the Caucasus for centuries as local oil production, developed into industrial production in the mid-twentieth century.

Starting in the 1840s oil and coal refine-ment products (kerosene and fotogene) have been used for lighting. Due to the slow development of the national oil busi-ness and outdated transport infrastruc-ture, all locally-produced oil products were also only consumed locally. Starting in the 1860s kerosene was imported from the United States, which at the time was the main exporter of oil products in the world.

At the end of the period from 1860—1870s, a series of changes in government policy concerning oilfield development were introduced. In addition, import taxes increased in the 1870s. The fore-going measures spurred the national oil production and refinery businesses. In 1876 the kerosene supply from Baku oilfields exceeded net imports, and imports of oil products stopped in 1883. At that time Russian oil production companies start to compete with U.S. exporters on international markets.

Russian oil extraction and production grew rapidly in the last quarter of the 19th century. Net supply had leveled off with the U.S. by the end of the 19th century, but in general the depth of processing remained considerably low. Up to 70% of crude oil was burned in fire-boxes instead of coal without processing or distillation. Russian chemist Dmitry Mendeleev (famous for creating the periodical table of elements), who played a significant role in the development of the oil industry, complained: “Petroleum is not a fuel. You can stoke even with assignations.”

In the beginning of the 20th century development slowed because of political issues (political crises, the Russian-Japan war, the first Russian Revolution) and until 1913 Russia constituted only 14% of world oil supply.

However, the development and stag-nation of the oil sector did not play a significant role in the structure of energy consumption or the Russian economy,

because at that time coal and firewood were the main sources of energy for the world (see the diagram below).

As an oil exporter Russia imported coal, which was the main energy source for all industries, including the emerging power industry. In 1913 the Russian Empire imported 7,758 tons of coal (20% of net consumption), mostly from Germany and Great Britain. The situation was similar to that of kerosene 50 years earlier. An undeveloped transport infrastructure made it cheaper for Russia’s central region to import coal by sea rather than transport it from producing regions deep

A.A.Makarov. A member of Russian Academy of Science.The Energy Research Institute of the Russian Academy of Sciences (ERIRAS)

Egorov M. Yu., “Tamojennyi tarif v stanovlenii i razvitii neftyanoi promyshlennosti Rossiiskoi Imperii”, 2010.

inside the country. This state of affairs soon played a nasty trick on the country. Germany stopped all exports to Russia during World War I. After the October Revolution all the world powers, including Great Britain, imposed a blockade on the Bolshevik government. From the first days of its existence Soviet Russia was cut off from all import supplies, including fuel, which contributed significantly to the devastation the country descended into during World War I and the subse-quent Russian Civil War.

Energy as Progress The GOELRO plan

While drafting the GOELRO plan in 1920 (The State Plan for the Electrification of Russia), the state committee on electri-fication, headed by Gleb Krzhizhanovsky, took into consideration the lessons of the blockade and crisis fueled by six years of war. The committee emphasized the self sufficiency and sustainability of the newly-created Electro Power System.

Sustainability is independence from imports. However, an undeveloped infra-structure and reliance on local energy resources (peat, firewood, oil shale, low-quality coal, etc.) forced the develop-ment of Russia’s transport infrastructure (electrification of railway lines).The first step was the electrification and develop-ment of coal mining regions (primarily Kuznetsk and the Donets Basin).

The plan emphasized reliance on local resources and thoughtful consideration of natural and energy resources. The plan also discussed food and raw materials, and national well-established economical sectors, such as subdividing the country into large economical regions according to specialization of labor and production.

The plan’s strategic aim and essence was to create a material base for socialism in Russia. Electrification was the framework for economic and industrial development, so emphasis was placed on large-scale machine production and heavy industry. The tactical task was to overcome wartime devastation by increasing labor productivity, while decreasing production costs and the waste of material resources with the help of electrification.

The plan included a comprehensive analysis of the condition of all sectors of the economy, industry and infrastructure, with evaluations of all available resources and facilities. The aim was to define which resources could be produced domestically, using pre-Revolutionary industry facilities, which were available in limited supply, and which would be inevitably exported from industrially developed countries. The results of the analyses were the following:

1. Electro-technical industries were well-developed before the Revolu-tion and well-preserved despite the war;

2. Accumulator and cable producing factories were also well-developed and only needed to reorganize and streamline the workflow;

3. Dynamo and apparatus-building capacities could only fulfill 50% of demand;

4. Turbogenerator and hydroturbine production was only in the design stage;

5. There was no production of lighting, accessories, and small electrical engineering materials, but these materials were easily available on international markets and it was not difficult to build the industry from scratch;

6. There was no production of insu-lators, special kinds of iron, or aluminum and this production could only be created in the long term.

One of the main conclusions of the study was that the involvement of foreign capital, metal production and technology were inevitable in the initial stages of implementation.

The program had worked out in detail the establishment, budget and resource sections. The overall costs of imple-menting the program was 17 billion golden rubles (in the international currency equivalent). This amount was made up of the following:

Electrification — 1.2 billion rubles (consol-idation of existing capacities (250 kW), creation of 1,500 kW of new capacity; integration and unification of all capacity into regional energy systems);

Manufacturing industry — 5 billion rubles (designed growth 80%);

Mining industry — 3 billion rubles (designed growth 80-100%);

Transport infrastructure — 8 billion rubles.

The money for the program would come from 11 billion rubles in the foreign trade surplus, and 6 billion rubles from foreign loans and concessions. Russia’s main exports were oil products, timber, grain and fur.

Foreign resources were used to imple-ment the program (such as materials, equipment, technologies, education of local specialists abroad, commissioning international contractors, producers and individual specialists, etc.), but no foreign loans were used. Foreign invest-ments were mobilized by concessions only, which means that a large part of the capital that was initially to have been in the form of loans had to be obtained from domestic sources, since grain exports were one of the main sources of golden rubles as a convertible currency. This additional pressure was mainly put on the broad shoulders of the peasants. This led to the phenomena of price scis-

sors, which is a situation when prices for agricultural products are lower than they were in 1913, and prices for manufactured goods are significantly higher due to the slower recovery of the industrial produc-tion level compared to that of agriculture. Moreover, a price difference in favor of industry was used after reselling agricul-tural goods abroad in order to fund large-scale industrial development. This addi-tional pressure naturally led to passive and active resistance on the part of the peasants, which in turn made it necessity to increasing police the peasantry. This was how the objective prerequisites took shape for collectivization.

Understanding the relationship between Energy and Russia’s development.

Верстка_11.06.13.indd 4-5 23.06.2011 1:26:29

Before we shift to the next step of the story which concerns collectivization and industrialization and their connections with the Energy theme, I have to go into short digression regarding the history and specifics of agricultural production in Russia.

Agriculture have historically been the main brunch of production in the country and served as the main export article for the Russian Empire. This circum-stances were mutually conditional on the structure of society (which was already mentioned in the beginning) with 85% of rural population and 75% involved into agriculture. In the year 1913 Russian Empire was the second biggest crops producer (after USA) and the first biggest crops exporter in the world.

The paradox of the situation was in the fact that at the same time hunger and starvation was a common routine for the majority of the population. A complex of reasons of social, economical, political and climatic conditions made the agricultural production (and life of the population dependent on it) was utterly unsustainable.

The productivity of agriculture was the lowest in Europe. Backward level of development of agricultural produc-tion expressed in low involvement of agricultural machines and fertilizers, low utilization of agronomy and agricul-tural science. All these phenomena were

conditional on low level and accessibility of education , deep poverty of the mass of the nation, and the conservational effect of remaining peasantry commune.

The undeveloped agriculture made the food supply highly dependent or even tied directly to current weather condition wavering. The climatic conditions of the majority of inhabited territory of Russian are characterized by the term “the zone of risky farming”. The most productive territories in terms of soil fertility ( Volga region, Kuban and Novorosia, Ciscau-casia, steppes of northern Turkistan (nowadays partly Kazakhstan)) — Cher-nozemye (black soil) — are at the same time the most frequently subjected to draughts.

The following diagrams depict the yields of the four main crops. The author of the particular calculations is rather optimistic concerning the a mount of yields, considering official statistics being lowered, but what is important and obvious is the wavering of yield which sometimes reach almost 100% in adja-

cent years.

So far as Russians had been living in this conditions for centuries the country had worked out different social, political and cultural means of resistance to the constant threat of famine.

1. The main political and economical means of support of the population of regions struck by crop failure and bad harvest was “Czar’s ration”, system of economical assistance and loans for food purchase.

2. Main social means was the peasantry commune which made it possible to minimize the damage from poor harvest by redistribution of food and land resources inside the commune by more egalitarian principles.

3. Cultural means of resistance to natural disasters were formed into traditional approach to farming and cultivation of land, which on

M. A. Davydov “O potreblenii v Rossii v konce XIX- nachale XX v.”Istoriya i Matematika. O prichinah Russkoi Revolyucii. (Editorial URSS) 2010.

one hand historically provided yet minimal but relatively stable yields, and on the other rejected aggressively all the innovations and improvement attempts.

The irony of the situation is that the same means which served primarily for opposing the natural disasters and smoothing over their consequences, simultaneously served as the main obsta-cles of the modernization of agriculture.

The mechanisms listed above in most cases helped to avoid severe famines and usually it was possible to go without mass victims. But they only served as a ‘safety device’ for extreme situations and didn’t have any systematic influence on the situation of constant shortage of food. The constant starvation combined with persistent poverty of vast masses of people created a deep and hopeless frame of mind of the society which is used to be called the revolutionary situ-ation.

Another thing which is important to mention concerning this ‘safety device’ is that it’s functioning was mostly depen-dent on sustainability of the political and social system. So when the country encountered urgent crisis like The Firs World War the system started to malfunc-tion. And after the defeat in the war, two revolutions in one year and during the civil war which followed all the safety systems of the society decomposed completely. Naturally the harsh draught which struck in year 1921 combined with general devastation produced the sever famine which went down in history as the Famine in Volga-region in years 1921—1922.

The analyses above is given to show the crisis of the agriculture was an abso-lutely urgent issue.

Collectivisation and Indus-trialisation.

In late 1920’s in a sharp political struggle inside the Communist party Joseph

Stalin’s group prevailed over all the competitors. The program of develop-ment they adhered to implied forced industrialization in accelerated pace with emphasis on heavy industry (successive to the GOELRO plan) .

The thirst five year plan (1928—1933) designed in accordance with this political vision stipulated the construction of many new factories and plants and implied a broad involvement of interna-tional contractors, suppliers and special-ists, purchases of grate amounts of materials and equipment on international markets.

Questions of food supply combined with the resources necessary for realization of the plans of electrification and industri-alization actualized two aspects of the problem: improvement of the produc-tivity of agricultural sector and govern-ment grain procurement.

In accordance with socialistic theories on one hand and following USA’s examples of large scale industrial farming on the other, the decision was made to resolve the problem by simultaneous industrial-ization and socialization of the agricul-tural sector, formation of large-scale agricultural enterprises equipped with man power, agronomists, technical staff, and farming machines.

The program gone down in history as Solid Collectivization started in 1928 and finished in 1933 was a deep structural reorganization and re-foundation of all agriculture and of the village in general as a rural part of the society. It included three parallel associated programs: the collectivization it self (establishing of kolkhozes and sovkhozes ), raskula-chivanie (elimination of kulaks as a class) and industrialization (creation of MTS — equipping with machinery and technical staff).

A complex of reasons led to the fact that on initial stages of realization of the program it created a deep crisis in the farming production. Naming those

Yield and consumptiom of main crops by countries in 1913

0

1000

2000

3000

4000

5000

6000

Russia

Austria

-Hun

gary

Britain

Belgium

German

y

Holland

Denmark

Spain

Italy

Norway

Romania

France

Switzerl

andSwiss

Japa

n

Canada

USA

Austar

alia

Argenti

na

Yiel

ds a

nd tr

ade

(thau

sand

s po

ods)

-10

0

10

20

30

40

50

60

Rem

aind

ers

for c

onsu

mtio

n (p

oods

per

cap

ita)

Yield External trade balance Remainders per capita (poods)

Goals of Industrialization.…We mast apply all the efforts to make our country economically independent, self-reliant, grounded on internal market, the country which will serve as a hearth attracting all the other countries, gradually braking away from capitalism and join the riverbed of socialistic economy. This line requires maximal unfolding of our industry, but within the limits and in accordance with the resources we have. <…>

…When the revolution will win in Germany or in France, or in both countries together, when socialistic formation will start there on the higher technical base. Then we will go over from policy of transformation of our county into an independent economical unit, to policy of engagement of our country into the common riverbed of socialistic progress. But until this hasn’t yet happened the minimum of independence of our economy is absolutely necessary, without which it would not be possible to save our country from economical subjecting to the world capital system.

J. Stalin, “Political report of central committee.” XIV S’ezd VKP(b) 18-31 December, 1925.

Energy and food.

Верстка_11.06.13.indd 6-7 23.06.2011 1:27:24

Before we shift to the next step of the story which concerns collectivization and industrialization and their connections with the Energy theme, I have to go into short digression regarding the history and specifics of agricultural production in Russia.

Agriculture have historically been the main brunch of production in the country and served as the main export article for the Russian Empire. This circum-stances were mutually conditional on the structure of society (which was already mentioned in the beginning) with 85% of rural population and 75% involved into agriculture. In the year 1913 Russian Empire was the second biggest crops producer (after USA) and the first biggest crops exporter in the world.

The paradox of the situation was in the fact that at the same time hunger and starvation was a common routine for the majority of the population. A complex of reasons of social, economical, political and climatic conditions made the agricultural production (and life of the population dependent on it) was utterly unsustainable.

The productivity of agriculture was the lowest in Europe. Backward level of development of agricultural produc-tion expressed in low involvement of agricultural machines and fertilizers, low utilization of agronomy and agricul-tural science. All these phenomena were

conditional on low level and accessibility of education , deep poverty of the mass of the nation, and the conservational effect of remaining peasantry commune.

The undeveloped agriculture made the food supply highly dependent or even tied directly to current weather condition wavering. The climatic conditions of the majority of inhabited territory of Russian are characterized by the term “the zone of risky farming”. The most productive territories in terms of soil fertility ( Volga region, Kuban and Novorosia, Ciscau-casia, steppes of northern Turkistan (nowadays partly Kazakhstan)) — Cher-nozemye (black soil) — are at the same time the most frequently subjected to draughts.

The following diagrams depict the yields of the four main crops. The author of the particular calculations is rather optimistic concerning the a mount of yields, considering official statistics being lowered, but what is important and obvious is the wavering of yield which sometimes reach almost 100% in adja-

cent years.

So far as Russians had been living in this conditions for centuries the country had worked out different social, political and cultural means of resistance to the constant threat of famine.

1. The main political and economical means of support of the population of regions struck by crop failure and bad harvest was “Czar’s ration”, system of economical assistance and loans for food purchase.

2. Main social means was the peasantry commune which made it possible to minimize the damage from poor harvest by redistribution of food and land resources inside the commune by more egalitarian principles.

3. Cultural means of resistance to natural disasters were formed into traditional approach to farming and cultivation of land, which on

M. A. Davydov “O potreblenii v Rossii v konce XIX- nachale XX v.”Istoriya i Matematika. O prichinah Russkoi Revolyucii. (Editorial URSS) 2010.

one hand historically provided yet minimal but relatively stable yields, and on the other rejected aggressively all the innovations and improvement attempts.

The irony of the situation is that the same means which served primarily for opposing the natural disasters and smoothing over their consequences, simultaneously served as the main obsta-cles of the modernization of agriculture.

The mechanisms listed above in most cases helped to avoid severe famines and usually it was possible to go without mass victims. But they only served as a ‘safety device’ for extreme situations and didn’t have any systematic influence on the situation of constant shortage of food. The constant starvation combined with persistent poverty of vast masses of people created a deep and hopeless frame of mind of the society which is used to be called the revolutionary situ-ation.

Another thing which is important to mention concerning this ‘safety device’ is that it’s functioning was mostly depen-dent on sustainability of the political and social system. So when the country encountered urgent crisis like The Firs World War the system started to malfunc-tion. And after the defeat in the war, two revolutions in one year and during the civil war which followed all the safety systems of the society decomposed completely. Naturally the harsh draught which struck in year 1921 combined with general devastation produced the sever famine which went down in history as the Famine in Volga-region in years 1921—1922.

The analyses above is given to show the crisis of the agriculture was an abso-lutely urgent issue.

Collectivisation and Indus-trialisation.

In late 1920’s in a sharp political struggle inside the Communist party Joseph

Stalin’s group prevailed over all the competitors. The program of develop-ment they adhered to implied forced industrialization in accelerated pace with emphasis on heavy industry (successive to the GOELRO plan) .

The thirst five year plan (1928—1933) designed in accordance with this political vision stipulated the construction of many new factories and plants and implied a broad involvement of interna-tional contractors, suppliers and special-ists, purchases of grate amounts of materials and equipment on international markets.

Questions of food supply combined with the resources necessary for realization of the plans of electrification and industri-alization actualized two aspects of the problem: improvement of the produc-tivity of agricultural sector and govern-ment grain procurement.

In accordance with socialistic theories on one hand and following USA’s examples of large scale industrial farming on the other, the decision was made to resolve the problem by simultaneous industrial-ization and socialization of the agricul-tural sector, formation of large-scale agricultural enterprises equipped with man power, agronomists, technical staff, and farming machines.

The program gone down in history as Solid Collectivization started in 1928 and finished in 1933 was a deep structural reorganization and re-foundation of all agriculture and of the village in general as a rural part of the society. It included three parallel associated programs: the collectivization it self (establishing of kolkhozes and sovkhozes ), raskula-chivanie (elimination of kulaks as a class) and industrialization (creation of MTS — equipping with machinery and technical staff).

A complex of reasons led to the fact that on initial stages of realization of the program it created a deep crisis in the farming production. Naming those

Yield and consumptiom of main crops by countries in 1913

0

1000

2000

3000

4000

5000

6000

Russia

Austria

-Hun

gary

Britain

Belgium

German

y

Holland

Denmark

Spain

Italy

Norway

Romania

France

Switzerl

andSwiss

Japa

n

Canada

USA

Austar

alia

Argenti

na

Yiel

ds a

nd tr

ade

(thau

sand

s po

ods)

-10

0

10

20

30

40

50

60

Rem

aind

ers

for c

onsu

mtio

n (p

oods

per

cap

ita)

Yield External trade balance Remainders per capita (poods)

Goals of Industrialization.…We mast apply all the efforts to make our country economically independent, self-reliant, grounded on internal market, the country which will serve as a hearth attracting all the other countries, gradually braking away from capitalism and join the riverbed of socialistic economy. This line requires maximal unfolding of our industry, but within the limits and in accordance with the resources we have. <…>

…When the revolution will win in Germany or in France, or in both countries together, when socialistic formation will start there on the higher technical base. Then we will go over from policy of transformation of our county into an independent economical unit, to policy of engagement of our country into the common riverbed of socialistic progress. But until this hasn’t yet happened the minimum of independence of our economy is absolutely necessary, without which it would not be possible to save our country from economical subjecting to the world capital system.

J. Stalin, “Political report of central committee.” XIV S’ezd VKP(b) 18-31 December, 1925.

Energy and food.

Верстка_11.06.13.indd 6-7 23.06.2011 1:27:24

reasons briefly, they are: mistakes on the stage of analyzes, design and plan-ning; “peregiby na mestakh” (extremes on-site), mistakes, and abuses in realization by executors; opposition and counteraction on the side of peasantry (especially naturally by kulaks). This crises of fundamental reconstruction of the sector combined with crops failure provoked by draughts in 1931 and 1932 led to the second mass famine in the first 20 years of Soviet Union — The Mass Famine in Volga-region in 1932—1933.

The program called Collectivization was by all means one of the most dramatic moments in Soviet history in general and in Joseph Stalin’s regime in particular. The number of the victims of the famine in 1932—1933 is estimated differently by different authors . The relation between the famine and the collectiviza-tion, the demographical, social, cultural consequences of the program was very controversial and have provoked lots of scientific discussions and countless populist and political speculations.

But what mast be said that a) the program was an objectively urgent yet tough answer to the sharp crisis of the food production which have been ripening for decades, and the political situation featured by a complex of internal and external threats; b) the program reached it’s main goals in estab-lishing large-scale industrialized agricul-tural production, providing food supply for the population and stable amounts of agricultural products for the exports, consequently source of exchange currency for financing the industrializa-tion (including the industrialization of the agriculture itself).

Industrialization of food production meant rapid growth in the usage of power-driven tools. Tractors and agricul-tural machines were imported in tens of thousands annually. Among the biggest construction sites of the first wave of industrialization was three new tractor plants , at least five specialized agri-cultural machinery plants and dozens of machine-building plants producing farming machines and equipment .

This means that dependence of food supply on climatic conditions was lowered down significantly. It can be proved by the fact that rationing system introduced during the famine in towns and cities was abolished in 1935 and draughts of years 1936 and 1939 didn’t affect the food situation in the country.

Yet, the modernization of the agricultural sector was not fully complete even in terms of equipment fitting out or electri-fication. In 1955 in the introduction to the anniversary reissue of the GOELRO Plan

the level of electrification of labor in food production was claimed to be very low, and an intention to improve that situa-tion was signed to the next five year plan . Alec Nove in his “An Economic History of the USSR” gives such an example on unevenness of development:

…Even within a single sector, grain cultivation for instance, large modern combine-harvesters were used alongside totally unmechanized hand operations in the process of cleaning, drying, loading. We have to mention the last famine stroke USSR in 1946—1947 after the severe draught in 1946. Estimations of quantity of victims varies from tens of thousands to one — one and a half million lives. This famine was much more related to deep economical devastation and decline of manpower resources being the consequences of the World War II. But it once again made explicit the gravity of threats to the country which unfavor-able climatic conditions and instability of agriculture constituted.

It pushed the government to design and start a national scale ecological program, aiming to overcome the unfavorable natural conditions of the Russian terri-tory. The program went down in history as The Stalin’s Plan of Transformation of Nature. It implied creation of govern-mental forest shelter belts of total length 5320 kilometers and total area of 117.9 thousand hectares, protective afforesta-tion of kolkhozes and sovkhozes fields with total area of 5709 thousand hect-ares and 44 thousand irrigational ponds . At the same time grassland crop rotation was implemented on all arable lands to rehabilitate the fertility of the soil.

It was a profound scientific program timed from 1950 to 1965, but it was in fact abolished in 1956—1959 in the context of destalinization and the strife against personality cult program under-taken by Khrushchev .

The campaign against Stalin’s favourite travopolye (grass-rotation) reached such a height in 1961-3 that some farms were ordered to plough up fields of clover, for no better reason than to report to Moscow that the area under grasses had been reduced.

Instead of it, an extensive approach in agriculture was chosen, promising to yield results in a short time perspective. It was another prodigious program, yet of absolutely different character — the Reclamation of The Virgin Lands.

Between 1953 and 1956 the amount of cultivated land was increased by 35.9 million hectares, an area equivalent to

Reclamation of the Vergin Land

Industrializzation of Agriculture

Stalin’s Plan of Transformation of Nature

the total cultivated land of Canada. World history knows nothing like it.

Having to cut short the story of agricul-ture in USSR as it is not the main scope of the research, we should name the main conclusions regarding the topic. As the result of the programs of Industrial-ization and Collectivization undertaken on the initial stages of development of the Soviet Country, a brand new industrial agriculture were established. Yet, due to the fact that Industrializa-tion of the country was mainly funded at the expense of the village, of extreme pressure laid upon peasant’s shoulders, the modernization of agriculture was never fully accomplished. The indus-trialized food production lowered the dependence of the Soviet Union on the freaks of nature significantly, but what is interesting from our point of view is that it created a new dependence which is not that obvious — dependence on oil. The term energovooruzhonnost’ means the usage of power-driven tools and is literary translated as ‘energetically armed’. But that consequently means energy dependent. The general theme of the research is articulated as “Russia Beyond Oil and Gas”. So we have to be aware of what would such a transition as implied by this thesis mean for such a painful and important sector as food production.

To give a perspective to the conclusion provided above, we will consider a real life example of industrialized agriculture challenged by energy question.

Cuban Post-oil Future Model.

In the process of it’s collapse Soviet Union in 1989 cut of the support to all it’s allies. In Cuba this caused a deep economical crisis lasted from year 1989 to 1993 and called The Special Period. It was a free-fall of the economy of 34% GDP, lose of 80% of it’s import and export markets, oil imports dropped from 13-14 to 4 million tons per year. Addition-ally in 1992 USA tightened it’s embargo on Cuba. Overnight 750 million dollars of food and medical supply was halted. A few years later embargo was intensified, closing Cuba access to foreign capital sources completely.

As a result Cuban food imports dropped by 80%. Severe shortage of fuel stopped the transport, closed the factories, reduced the production. Electricity bloc-outs lasted 14—16 hours a day. This meant absence of air conditioning systems, of central water supply and, most impor-tant, idle fridges made impossible food storage. All this led to food scarce and starvation of people. Rationing food distribution system guaranteeing a minimal level of food to each of Cuban citizens was introduced to prevent famine. By year 1994 the average Cuban lost 9.5 kilos.

Before the crisis Cuba had the most industrialized agriculture in Latin America. It had 90 000 Soviet tractors and huge factories of oil-based pesti-cides and natural gas based chemical fertilizers. The use of fertilizers per acre exceeded that of USA. The agriculture was mainly export oriented and special-ized on tobacco, sugar cane, citrus, coffee etc.. Almost half of the basic food consumed was imported. Being so dependent on external trade and oil and gas supply, agriculture was struck by the crisis the most significantly and in the first place. It was one of the main reasons of food shortage.

To resolve the harsh problems of the Special Period a set of reforms and social programs was introduced. The most important to mention were the following:

Urban Gardening. Began as sponta-neous squatting every idle plot of land or even rooftops in the city or around it, clearing it with the power of commu-nity and turning it into urban agricul-tural gardens. Later on transformed to self-organized movement with training courses on permaculture and agronomy, development of local communities. As a result local urban agriculture in Havana provides over 50% of the city’s vegeta-bles and fruits consumption. In smaller towns this number reaches 80-100%.

Верстка_11.06.13.indd 8-9 23.06.2011 1:27:43

reasons briefly, they are: mistakes on the stage of analyzes, design and plan-ning; “peregiby na mestakh” (extremes on-site), mistakes, and abuses in realization by executors; opposition and counteraction on the side of peasantry (especially naturally by kulaks). This crises of fundamental reconstruction of the sector combined with crops failure provoked by draughts in 1931 and 1932 led to the second mass famine in the first 20 years of Soviet Union — The Mass Famine in Volga-region in 1932—1933.

The program called Collectivization was by all means one of the most dramatic moments in Soviet history in general and in Joseph Stalin’s regime in particular. The number of the victims of the famine in 1932—1933 is estimated differently by different authors . The relation between the famine and the collectiviza-tion, the demographical, social, cultural consequences of the program was very controversial and have provoked lots of scientific discussions and countless populist and political speculations.

But what mast be said that a) the program was an objectively urgent yet tough answer to the sharp crisis of the food production which have been ripening for decades, and the political situation featured by a complex of internal and external threats; b) the program reached it’s main goals in estab-lishing large-scale industrialized agricul-tural production, providing food supply for the population and stable amounts of agricultural products for the exports, consequently source of exchange currency for financing the industrializa-tion (including the industrialization of the agriculture itself).

Industrialization of food production meant rapid growth in the usage of power-driven tools. Tractors and agricul-tural machines were imported in tens of thousands annually. Among the biggest construction sites of the first wave of industrialization was three new tractor plants , at least five specialized agri-cultural machinery plants and dozens of machine-building plants producing farming machines and equipment .

This means that dependence of food supply on climatic conditions was lowered down significantly. It can be proved by the fact that rationing system introduced during the famine in towns and cities was abolished in 1935 and draughts of years 1936 and 1939 didn’t affect the food situation in the country.

Yet, the modernization of the agricultural sector was not fully complete even in terms of equipment fitting out or electri-fication. In 1955 in the introduction to the anniversary reissue of the GOELRO Plan

the level of electrification of labor in food production was claimed to be very low, and an intention to improve that situa-tion was signed to the next five year plan . Alec Nove in his “An Economic History of the USSR” gives such an example on unevenness of development:

…Even within a single sector, grain cultivation for instance, large modern combine-harvesters were used alongside totally unmechanized hand operations in the process of cleaning, drying, loading. We have to mention the last famine stroke USSR in 1946—1947 after the severe draught in 1946. Estimations of quantity of victims varies from tens of thousands to one — one and a half million lives. This famine was much more related to deep economical devastation and decline of manpower resources being the consequences of the World War II. But it once again made explicit the gravity of threats to the country which unfavor-able climatic conditions and instability of agriculture constituted.

It pushed the government to design and start a national scale ecological program, aiming to overcome the unfavorable natural conditions of the Russian terri-tory. The program went down in history as The Stalin’s Plan of Transformation of Nature. It implied creation of govern-mental forest shelter belts of total length 5320 kilometers and total area of 117.9 thousand hectares, protective afforesta-tion of kolkhozes and sovkhozes fields with total area of 5709 thousand hect-ares and 44 thousand irrigational ponds . At the same time grassland crop rotation was implemented on all arable lands to rehabilitate the fertility of the soil.

It was a profound scientific program timed from 1950 to 1965, but it was in fact abolished in 1956—1959 in the context of destalinization and the strife against personality cult program under-taken by Khrushchev .

The campaign against Stalin’s favourite travopolye (grass-rotation) reached such a height in 1961-3 that some farms were ordered to plough up fields of clover, for no better reason than to report to Moscow that the area under grasses had been reduced.

Instead of it, an extensive approach in agriculture was chosen, promising to yield results in a short time perspective. It was another prodigious program, yet of absolutely different character — the Reclamation of The Virgin Lands.

Between 1953 and 1956 the amount of cultivated land was increased by 35.9 million hectares, an area equivalent to

Reclamation of the Vergin Land

Industrializzation of Agriculture

Stalin’s Plan of Transformation of Nature

the total cultivated land of Canada. World history knows nothing like it.

Having to cut short the story of agricul-ture in USSR as it is not the main scope of the research, we should name the main conclusions regarding the topic. As the result of the programs of Industrial-ization and Collectivization undertaken on the initial stages of development of the Soviet Country, a brand new industrial agriculture were established. Yet, due to the fact that Industrializa-tion of the country was mainly funded at the expense of the village, of extreme pressure laid upon peasant’s shoulders, the modernization of agriculture was never fully accomplished. The indus-trialized food production lowered the dependence of the Soviet Union on the freaks of nature significantly, but what is interesting from our point of view is that it created a new dependence which is not that obvious — dependence on oil. The term energovooruzhonnost’ means the usage of power-driven tools and is literary translated as ‘energetically armed’. But that consequently means energy dependent. The general theme of the research is articulated as “Russia Beyond Oil and Gas”. So we have to be aware of what would such a transition as implied by this thesis mean for such a painful and important sector as food production.

To give a perspective to the conclusion provided above, we will consider a real life example of industrialized agriculture challenged by energy question.

Cuban Post-oil Future Model.

In the process of it’s collapse Soviet Union in 1989 cut of the support to all it’s allies. In Cuba this caused a deep economical crisis lasted from year 1989 to 1993 and called The Special Period. It was a free-fall of the economy of 34% GDP, lose of 80% of it’s import and export markets, oil imports dropped from 13-14 to 4 million tons per year. Addition-ally in 1992 USA tightened it’s embargo on Cuba. Overnight 750 million dollars of food and medical supply was halted. A few years later embargo was intensified, closing Cuba access to foreign capital sources completely.

As a result Cuban food imports dropped by 80%. Severe shortage of fuel stopped the transport, closed the factories, reduced the production. Electricity bloc-outs lasted 14—16 hours a day. This meant absence of air conditioning systems, of central water supply and, most impor-tant, idle fridges made impossible food storage. All this led to food scarce and starvation of people. Rationing food distribution system guaranteeing a minimal level of food to each of Cuban citizens was introduced to prevent famine. By year 1994 the average Cuban lost 9.5 kilos.

Before the crisis Cuba had the most industrialized agriculture in Latin America. It had 90 000 Soviet tractors and huge factories of oil-based pesti-cides and natural gas based chemical fertilizers. The use of fertilizers per acre exceeded that of USA. The agriculture was mainly export oriented and special-ized on tobacco, sugar cane, citrus, coffee etc.. Almost half of the basic food consumed was imported. Being so dependent on external trade and oil and gas supply, agriculture was struck by the crisis the most significantly and in the first place. It was one of the main reasons of food shortage.

To resolve the harsh problems of the Special Period a set of reforms and social programs was introduced. The most important to mention were the following:

Urban Gardening. Began as sponta-neous squatting every idle plot of land or even rooftops in the city or around it, clearing it with the power of commu-nity and turning it into urban agricul-tural gardens. Later on transformed to self-organized movement with training courses on permaculture and agronomy, development of local communities. As a result local urban agriculture in Havana provides over 50% of the city’s vegeta-bles and fruits consumption. In smaller towns this number reaches 80-100%.

Верстка_11.06.13.indd 8-9 23.06.2011 1:27:43

achieved a complete self-sufficiency in food production. Moreover 80% of it’s agricultural products are ‘organic’ (grown without use of chemical fertilizers or pesticides). If we add a brand new sphere of competence in organic farming methods, bio-pesticides and bio-ferti-lizers production and exports of all this all over the Latin America, we will see that Cuba not just successfully overcame the crisis, but made a transition to a new level of development. So Cuba apparently can be considered as a real-life Post-Oil Future Model.

Conclusion.

After the collapse of Soviet Union, Cuba was faced with a crisis whose main feature was a drastic drop in oil supplies. This crisis hit agriculture first and led to food shortages. Cuba managed to successfully overcome the crisis and now its agricultural sector is no longer dependent on fossil fuels. But to achieve this, Cuba in fact had to implement a deindustrialization policy for its farming sector and a partial deurbanization policy. In doing this, Cuba essentially brought food production down to its roots, to the way farming had been done for centuries (with manual labor, draft animals, strong local communities combined with individualized small-scale farming, etc.). On other hand, Cuba combined this old-fashioned approach with a remodernization, a profound scien-tific consideration and newly-developed technological methods (crop rotation and inter-planting, soil rehabilitation, biofer-tilizers, etc.).

Now let us try to understand what this experience means for Russia. Going beyond oil and gas we will plunge agriculture to its pre-industrial state. Re-modernization according to the Cuban scenario will not bring Russia the same

outstanding results. It is not feasible to compare the climate of an island nation in the Caribbean with a vast landmass in a continental climate. Of course, imple-menting organic farming methods can improve the productivity of agriculture; these methods are quite similar to those described in Stalin’s plan to transform nature. However, it is no coincidence that this plan was designed only after industrialization and collectivization. If the actual reasons and motifs of the designers of collectivization are quite debatable, everything is clear concerning industrialization. The industrialization of agriculture was a tool to resolve the system crisis which the agricultural sector was experiencing.

So no precondition of the system crises was resolved or can be resolved completely with the current level of technology (all organic methods and transformational plans are capable of changing the microclimate of a particular field, but not the climate of a region). This means that in the current conditions the deindustrialization of agriculture will plunge the sector into the same crisis from which it recently emerged, with all the comes with it, including the constant threat of famine.

To make the manifestation of “Russia Beyond Oil and Gas” valid, we must find the resources to replace oil and gas. Thus the topic of renewable energy resources has a concrete urgency in agriculture. Cuba can afford nothing more than the use of solar energy for electricity and heating water. Russia just has to consider fuel for machinery.

The most likely solution here would be the distillation of fuel from biomass. These are technologies that provide fuel in the most appropriate form, and they are directly related to agricultural production itself, using its wastes and

emissions as input resources.

The modernization of Russian agriculture based on a combination of sustainable farming approaches (described by the organic farming methods, in Stalin’s plan to transform nature, or something brand new altogether) and renewable energy could be the completion of a long and dramatic process, which started at the beginning of the previous century, but was never completed.

Contemplating the problem of ‘oil needle’, symptoms of Dutch disease and what was the impact of oil prices on the Soviet economy, there is no other way, but to consider briefly through the history of the topic.

Oil and it’s products exports played significant role in financing the realiza-tion of the GOELRO Plan, along with crop export, discussed earlier; furs and timber.

Soviet oil industry of the period was strongly export oriented. “In 1928-29 economic year USSR exported 31.8% of oil products supply, in the case of gasoline even 88%”. New oil pipelines was constructed (Baku — Batum (1929), Groznyi — Tuapse (1930)), along with new refinery plants at the locations of extraction and shipping. The situation was determined by combination of two obvious conditions: a) scarceness of finance for funding electrification and industrialization programs, b) persistent growth of extraction and production of oil combined with c) very low internal consumption, due to yet absent industry and relatively low transportation traffic.

With the beginning of the Depression first dropped grain prices in 1929, oil prices followed by nearly 40% in 1931. In the situation of falling of international demand the level of extraction in USSR was growing in accelerated pace (56% growth between 1929 and 1932). To year 1933 USSR, lacked refinement capacities for over 3 mln. tons of extracted oil, and was selling crude oil overseas in dumping prices. The physical volume of export was growing till 1932, but the revenues were falling beginning from 1930. In the year 1933 (the end of the First Five Year Plan) oil exports constituted the main article of Soviet export (18.7% in value terms).

The situation changed substantially

during the Second Five Year Plan. Despite the goals to increase oil exports, set by the plan, it was gradually falling. The reasons are the same that in the previous decade spurred the exports, but acting with the opposite sign: a) slowing down the increase of extraction and b) persistent growth of internal consump-tion in industry, agriculture, transport.

Together with oil, all the Soviet exports were falling. The gravity of export fell from 3.5% of production in 1930 to 0.8% in 1936. Import was falling even faster. At the second half of the decade the oil share in external trading structure became lower then that of the other export articles. In the Second Five Year Plan Soviet oil industry undergone a transition from purely export oriented sector, to almost exclusive supplying the internal consumption.

Wright after the WWII Stalin in 1946 claimed that in 15 years USSR has to rich in production 500 mln. tons of coal and 60 mln. tons of oil. In fact the number of 60 mln tons was exceeded in 1954—55 and in 1960 production reached 147.9 mln. tones (276% of anticipated). Accelerated development of oil mining in Volga Region (Tataria) and Southern Urals (Bashkria) mostly contributed to this underestimation. This region called Volga-Ural petroleum province in 50’s became the main source of oil and was nicknamed ‘the second Baku’.

The main driving force of the rapid development was active extension of drilling works which consumed over 30% of capital investments into oil sector. Restructuring the drilling works in favour of prospecting and exploration drilling, contributed to growth of deposits in all mining regions. Another important actor was the industrial background,

established in the antecedent period. Incremental supply of drilling and electric equipment, pipes, construction and consumable materials provisioned the programs of development with ‘hardware’ resources. It was a mutual process of tied intensive growth, when rapidly restoring and developing industry technically outfitted the oil and gas complex, which in it’s turn fed the industry with abun-dance of chip and handy fuel, to large extent paving the way for rapid restora-tion and development for industry and for the hole country.

The late forties to early fifties was the birth period of industry of natural gas. The first industrial utilization of natural gas was introduced during the war in central regions cut from oil and coal supply by the battle line. In 1944 the started construction of gas pipe-line Saratov — Moscow. During the first postwar decade the main industrial centers were supplied with gas, natural or synthesized.

This development had a deep impact not only in terms of heavy industry, which always was the priority for the government, but for the everyday life of the people. Postwar reconstruction of the destroyed buildings, constructions and facilities, conversion of military machinery engineering to car produc-tion, extension of public transport and civil aviation, gas utilities — all this deeds required fuel and got it, and had benefited people directly.

Mid sixties were the beginning of the new age of oil and gas industry of the country. The perspectives were exiting: petroleum sector was flourishing, new great oil and gas deposits discovered in the Western Siberia were much grater then those in old mining regions, yet they were located in remote regions far from existing industrial centers and transport lines, with extremely hostile natural conditions. In contentious debate, which took place in late 60’s, a decision was made to start an extensive development of this new deposits. The expense was to be partly covered by export revenues, and the investments were calculated to return in a short term.

At the beginning of that period Soviet export was mainly oriented to CMEA (Council for Mutual Economic Assis-tance). USSR had no broad access to the western oil market and oil prices were considerably low due to both political and infrastructural reasons. The main goals, the new undertaking was targeted at, were primarily the same as in previous

World

WarII

Civill W

ar RestorationcompleteIndustrial-ization

Industrial-izationCollectiv-ization

Attemptof Reorganiza-tionReform ationIncom-plete

Conserva-tion System Crisis Slowdown Devellop-ment

PerestroicaDeteriorationEconomicalCrisis Debt

100

200

300

400

500

600

700

Total Oil Supply

Western SIberiaVolga-Urals Oil Province

Caucasus

20

00

195

0

192

0

193

0

194

0

196

0

1970

198

0

199

0

Oil timberOthers

cearel

Export structure, anual 1933-37

food producecotton

0%

20%

40%

60%

80%

100%

193

3г.

193

4г.

193

5г.

193

6г.

193

7г.

furs

Export structure, total 1933-37

12%

18%

7%

12%

30%

9% 12%

Oil timberOthers

cearel


food producecotton

0%

20%

40%

60%

80%

100%

193

3г.

193

4г.

193

5г.

193

6г.

193

7г.

furs


12%

18%

7%

12%

30%

9% 12%

Oil needle and the collapse of USSR.

Верстка_11.06.13.indd 10-11 23.06.2011 2:27:50

achieved a complete self-sufficiency in food production. Moreover 80% of it’s agricultural products are ‘organic’ (grown without use of chemical fertilizers or pesticides). If we add a brand new sphere of competence in organic farming methods, bio-pesticides and bio-ferti-lizers production and exports of all this all over the Latin America, we will see that Cuba not just successfully overcame the crisis, but made a transition to a new level of development. So Cuba apparently can be considered as a real-life Post-Oil Future Model.

Conclusion.

After the collapse of Soviet Union, Cuba was faced with a crisis whose main feature was a drastic drop in oil supplies. This crisis hit agriculture first and led to food shortages. Cuba managed to successfully overcome the crisis and now its agricultural sector is no longer dependent on fossil fuels. But to achieve this, Cuba in fact had to implement a deindustrialization policy for its farming sector and a partial deurbanization policy. In doing this, Cuba essentially brought food production down to its roots, to the way farming had been done for centuries (with manual labor, draft animals, strong local communities combined with individualized small-scale farming, etc.). On other hand, Cuba combined this old-fashioned approach with a remodernization, a profound scien-tific consideration and newly-developed technological methods (crop rotation and inter-planting, soil rehabilitation, biofer-tilizers, etc.).

Now let us try to understand what this experience means for Russia. Going beyond oil and gas we will plunge agriculture to its pre-industrial state. Re-modernization according to the Cuban scenario will not bring Russia the same

outstanding results. It is not feasible to compare the climate of an island nation in the Caribbean with a vast landmass in a continental climate. Of course, imple-menting organic farming methods can improve the productivity of agriculture; these methods are quite similar to those described in Stalin’s plan to transform nature. However, it is no coincidence that this plan was designed only after industrialization and collectivization. If the actual reasons and motifs of the designers of collectivization are quite debatable, everything is clear concerning industrialization. The industrialization of agriculture was a tool to resolve the system crisis which the agricultural sector was experiencing.

So no precondition of the system crises was resolved or can be resolved completely with the current level of technology (all organic methods and transformational plans are capable of changing the microclimate of a particular field, but not the climate of a region). This means that in the current conditions the deindustrialization of agriculture will plunge the sector into the same crisis from which it recently emerged, with all the comes with it, including the constant threat of famine.

To make the manifestation of “Russia Beyond Oil and Gas” valid, we must find the resources to replace oil and gas. Thus the topic of renewable energy resources has a concrete urgency in agriculture. Cuba can afford nothing more than the use of solar energy for electricity and heating water. Russia just has to consider fuel for machinery.

The most likely solution here would be the distillation of fuel from biomass. These are technologies that provide fuel in the most appropriate form, and they are directly related to agricultural production itself, using its wastes and

emissions as input resources.

The modernization of Russian agriculture based on a combination of sustainable farming approaches (described by the organic farming methods, in Stalin’s plan to transform nature, or something brand new altogether) and renewable energy could be the completion of a long and dramatic process, which started at the beginning of the previous century, but was never completed.

Contemplating the problem of ‘oil needle’, symptoms of Dutch disease and what was the impact of oil prices on the Soviet economy, there is no other way, but to consider briefly through the history of the topic.

Oil and it’s products exports played significant role in financing the realiza-tion of the GOELRO Plan, along with crop export, discussed earlier; furs and timber.

Soviet oil industry of the period was strongly export oriented. “In 1928-29 economic year USSR exported 31.8% of oil products supply, in the case of gasoline even 88%”. New oil pipelines was constructed (Baku — Batum (1929), Groznyi — Tuapse (1930)), along with new refinery plants at the locations of extraction and shipping. The situation was determined by combination of two obvious conditions: a) scarceness of finance for funding electrification and industrialization programs, b) persistent growth of extraction and production of oil combined with c) very low internal consumption, due to yet absent industry and relatively low transportation traffic.

With the beginning of the Depression first dropped grain prices in 1929, oil prices followed by nearly 40% in 1931. In the situation of falling of international demand the level of extraction in USSR was growing in accelerated pace (56% growth between 1929 and 1932). To year 1933 USSR, lacked refinement capacities for over 3 mln. tons of extracted oil, and was selling crude oil overseas in dumping prices. The physical volume of export was growing till 1932, but the revenues were falling beginning from 1930. In the year 1933 (the end of the First Five Year Plan) oil exports constituted the main article of Soviet export (18.7% in value terms).

The situation changed substantially

during the Second Five Year Plan. Despite the goals to increase oil exports, set by the plan, it was gradually falling. The reasons are the same that in the previous decade spurred the exports, but acting with the opposite sign: a) slowing down the increase of extraction and b) persistent growth of internal consump-tion in industry, agriculture, transport.

Together with oil, all the Soviet exports were falling. The gravity of export fell from 3.5% of production in 1930 to 0.8% in 1936. Import was falling even faster. At the second half of the decade the oil share in external trading structure became lower then that of the other export articles. In the Second Five Year Plan Soviet oil industry undergone a transition from purely export oriented sector, to almost exclusive supplying the internal consumption.

Wright after the WWII Stalin in 1946 claimed that in 15 years USSR has to rich in production 500 mln. tons of coal and 60 mln. tons of oil. In fact the number of 60 mln tons was exceeded in 1954—55 and in 1960 production reached 147.9 mln. tones (276% of anticipated). Accelerated development of oil mining in Volga Region (Tataria) and Southern Urals (Bashkria) mostly contributed to this underestimation. This region called Volga-Ural petroleum province in 50’s became the main source of oil and was nicknamed ‘the second Baku’.

The main driving force of the rapid development was active extension of drilling works which consumed over 30% of capital investments into oil sector. Restructuring the drilling works in favour of prospecting and exploration drilling, contributed to growth of deposits in all mining regions. Another important actor was the industrial background,

established in the antecedent period. Incremental supply of drilling and electric equipment, pipes, construction and consumable materials provisioned the programs of development with ‘hardware’ resources. It was a mutual process of tied intensive growth, when rapidly restoring and developing industry technically outfitted the oil and gas complex, which in it’s turn fed the industry with abun-dance of chip and handy fuel, to large extent paving the way for rapid restora-tion and development for industry and for the hole country.




At the beginning of that period Soviet export was mainly oriented to CMEA (Council for Mutual Economic Assis-tance). USSR had no broad access to the western oil market and oil prices were considerably low due to both political and infrastructural reasons. The main goals, the new undertaking was targeted at, were primarily the same as in previous

World

WarII

Civill W

ar RestorationcompleteIndustrial-ization

Industrial-izationCollectiv-ization

Attemptof Reorganiza-tionReform ationIncom-plete

Conserva-tion System Crisis Slowdown Devellop-ment

PerestroicaDeteriorationEconomicalCrisis Debt

100

200

300

400

500

600

700

Total Oil Supply

Western SIberiaVolga-Urals Oil Province

Caucasus

20

00

195

0

192

0

193

0

194

0

196

0

1970

198

0

199

0

Oil timberOthers

cearel


food producecotton

0%

20%

40%

60%

80%

100%

193

3г.

193

4г.

193

5г.

193

6г.

193

7г.

furs


12%

18%

7%

12%

30%

9% 12%

Oil timberOthers

cearel


food producecotton

0%

20%

40%

60%

80%

100%

193

3г.

193

4г.

193

5г.

193

6г.

193

7г.

furs


12%

18%

7%

12%

30%

9% 12%

Oil needle and the collapse of USSR.

Верстка_11.06.13.indd 10-11 23.06.2011 2:27:50

number of 60 mln tons was exceeded in 1954—55 and in 1960 production reached 147.9 mln. tones (276% of anticipated). Accelerated development of oil mining in Volga Region (Tataria) and Southern Urals (Bashkria) mostly contributed to this underestimation. This region called Volga-Ural petroleum province in 50’s became the main source of oil and was nicknamed ‘the second Baku’.

The main driving force of the rapid development was active extension of drilling works which consumed over 30% of capital investments into oil sector. Restructuring the drilling works in favour of prospecting and exploration drilling, contributed to growth of deposits in all mining regions. Another important actor was the industrial background, established in the antecedent period. Incremental supply of drilling and electric equipment, pipes, construction and consumable materials provisioned the programs of development with ‘hardware’ resources. It was a mutual process of tied intensive growth, when rapidly restoring and developing industry technically outfitted the oil and gas complex, which in it’s turn fed the industry with abun-dance of chip and handy fuel, to large extent paving the way for rapid restora-tion and development for industry and for the hole country.




At the beginning of that period Soviet export was mainly oriented to CMEA (Council for Mutual Economic Assis-tance). USSR had no broad access to the western oil market and oil prices were considerably low due to both political and infrastructural reasons. The main goals, the new undertaking was targeted at, were primarily the same as in previous decades of growth: to provide the Soviet economy with a stable and ample supply of cheap fuel, and secondly, to grow export to western countries.

A dens network of pipelines was created

in the Volga region and Ttanscaucasia between 1955 and 1965. In 1964 the “Drujba” (friendship) pipeline (5500 km) connected Volga-Ural mining center to the Eastern European socialistic coun-tries (Czech Republic, Slovakia, Hungary, Poland, Eastern Germany). It opened the way firstly for oil supply to socialistic allies and secondly for the beginning of oil export to capitalistic countries.

The beginning of development of the Western Siberia Petroleum Province started in late 1960’s. As usual in the history of Soviet Union, it was a large scale program with hundreds of thou-sands people shifting to remote, wild regions, working under trying conditions, creating a brand new industrial region of the country. A number of new cities were created. Surgut and Nijnevartovsk was two big centers close to grand oilfields (Ust’-Balykskoe, Fedorovscoe and others near Surgut; Samoltor, Meginskoe and others near Nijnevartovsk), dozens of smaller towns like Kagalim, Neftejugansk, Nagan’ and others. A construction of extensive network of new pipelines, tying remote resource extraction with tradi-tional industrial centers, was lunched at the same time.

The new development started to bear fruit in early 70’s. Production association Glavtumenneftegas had delivered 0.9 mln tons in 1965 in twenty years boosted the supply to 352.7 mln tons. Gas supply raised from 127,7 to 643 bn cbm. Soviet petroleum sector became the biggest in the world. The abundance of resources far exceeded the internal needs, and provided large amounts for export. In combination with international oil crisis provoked by political and military crisis in Middle East (and OPEC oil embargo, which Soviet Union denied to support),

a perfect situation for USSR emerged to enter international oil market.

The following two decades became the age of Soviet Energy Superpower, when USSR grew the biggest petroleum producer and exporter in the world, and was gaining tremendous amounts of money on it’s resources. But the same two decades were the time when Soviet Union plunged into deep economical, social, finally political crisis and came to it’s tragic end. To understand this apparently paradoxical age, in the next paragraph we will contemplate the evolu-tion of the Soviet system.

Autarky state....To return right to fundamentals shows the opening sentence of the classic founding work of economics – Adam Smith’s The Wealth of Nations. Smith states: ‘The greatest improvement in the productive powers of labour, and the greater part of the skill, dexterity and judgement with which it is any where directed, or applied, seems to have been the effects of the division of labour.’ This analysis of Smith, that the driving force of the greatest power of the development of production is the division of labour, or socialised production to use another terminology, remains entirely valid as will be seen - whether considered on the longest time frame or in terms of modern econometric analysis of economic growth.<…>

As is well known the USSR, from the time of the first Five Year Plan onwards, aimed at a very high level of investment in GDP. But this was envisaged within an almost self-contained economy – the USSR was a non-market case of ‘import substitution’ in the way that Argentina for most of the 20th century, for example, was a classic case of market based import substitution (and Argentina also underwent relative economic decline as a result).

The leaders of the USSR mistook the second most powerful force of development of production (fixed investment/physical capital) for the first – the extension of the division of labour which is today necessarily international in scope.

China based itself on the international expansion of the division of labour, and also within that developed an extremely high level of investment. China’s strategy was successful while that of the former USSR was not. There are, of course, other factors in this comparison but this one is absolutely fundamental.

John Ross, About The International Financial Crisis and the Rise of China. 2010.

Energy of development.The rise of Soviet system.

Economical and political systems, estab-lished in USSR in late 1920s, early 1930s was an autarky — isolated system tending to full self-sufficiency. The reasons are partly depicted in the paragraph 3.2, and are mainly concerned with the pre-given conditions, which imposed very strict limitations on the possible variants of development of the system, in terms of means and resources. Means and goals of industrialization were dictated by the urgent threats both to the power of Bolshevik’s Party and to the security of the country. The threats, constituted by internal political and social struggle, and the increasing peril of war.

Economical and political systems of the USSR had no market based regulatory principles (supply-demand balance). On the stage of it’s establishment it had worked out those of it’s own — adminis-trative and punitive means of command economy. A maximal primitive example: if the management is inefficient in the market conditions, the enterprise loses it’s competitiveness, comes to a bank-ruptcy and the owner loses his business. In USSR in the thirties, if the manage-ment was ineffective it was repressed as subversive. Both systems has it’s means to distinct efficient from inefficient. Both systems did it successfully, yet in dramatically different ways.

The tragic humanitarian side-effects of the Stalin’s approach are obvious. But this approach is the only, which enables to secure full mobilization of human resources in a short term, and such a mobilization is crucial for catching up development. In the period between two world wars was the situation for USSR was such, that this kind of development became absolutely necessary.

The great projects of the early years of the Soviet Country were the hard answers to the hard challenges of the epoch. It was the time of great aspira-tions, great breakthroughs and great tragedies and victims. It was a mobilized development in an attempt to overcome the age-old backwardness of the country. The victory in the Second World War was the culmination of the era and ‘historical legitimation’ of the system, since the essential contribution of industrializa-tion, conducted in good time, and of mobilization resource of Soviet society to that victory is beyond doubt.

Transformations and stag-nation of political system.

In postwar history of the USSR histo-rians, economists and researchers specialized on modernization define several key points, defining transitions between different periods of develop-ment of the state. The periods are:

1945-1964 restoration and accomplish-ment of industrialization;

1965-1978 end of the first, industrial part of modernization, attempts undertaken to make a transition to a new, postin-dustrial model of society, to spur the development;

1978-1985 conservation of the system, slowdown of development, manifesta-tions of social and economical crisis.

This periodization is confirmed by comparison of macroeconomic indica-tors, showing the same breakpoints and same trends of growth. Timeframes of this economical trends coincide with geographical transformation of oil and gas complex of the country — the reloca-tion of centre of sector development from Volga-Urals region (the second Baku) to the Western Siberia, described previously.

The first postwar decade was devoted to the restoration of the country and booming growth. System in general was functioning basing on the same princi-ples, which were established before the war and was depicted above. Yet the pressure and repressions were weakend

conciderably.

After Stalins’ death, the Nikita Khrush-chev era known as The Thaw arrived. Khrushchev abolished the Gulag prison camp system and ended the repressions, and significantly weakened administra-tive control at all levels of society. But he neither created new regulatory princi-ples, nor changed the system in accord-ance with the new conditions. Khrush-chev conducted several administrative and economical reforms as he tried to resolve emerging problems by different means, such as decentralization and reorganization, but none of them yield any substantial effect. Thus, although the level of investments in the Soviet economy remained high, the effective-ness of investments decreased gradually. Signs of crisis in the command system and planned economy manifested.

Khrushchev’s thaw was followed by the Brezhnev’s zastoi (period of stagnation). Not all the period of Brezhnev’s rule is regarded as zastoi, only the mid 1970s

Верстка_11.06.13.indd 12-13 23.06.2011 1:28:44

number of 60 mln tons was exceeded in 1954—55 and in 1960 production reached 147.9 mln. tones (276% of anticipated). Accelerated development of oil mining in Volga Region (Tataria) and Southern Urals (Bashkria) mostly contributed to this underestimation. This region called Volga-Ural petroleum province in 50’s became the main source of oil and was nicknamed ‘the second Baku’.

The main driving force of the rapid development was active extension of drilling works which consumed over 30% of capital investments into oil sector. Restructuring the drilling works in favour of prospecting and exploration drilling, contributed to growth of deposits in all mining regions. Another important actor was the industrial background, established in the antecedent period. Incremental supply of drilling and electric equipment, pipes, construction and consumable materials provisioned the programs of development with ‘hardware’ resources. It was a mutual process of tied intensive growth, when rapidly restoring and developing industry technically outfitted the oil and gas complex, which in it’s turn fed the industry with abun-dance of chip and handy fuel, to large extent paving the way for rapid restora-tion and development for industry and for the hole country.




At the beginning of that period Soviet export was mainly oriented to CMEA (Council for Mutual Economic Assis-tance). USSR had no broad access to the western oil market and oil prices were considerably low due to both political and infrastructural reasons. The main goals, the new undertaking was targeted at, were primarily the same as in previous decades of growth: to provide the Soviet economy with a stable and ample supply of cheap fuel, and secondly, to grow export to western countries.

A dens network of pipelines was created

in the Volga region and Ttanscaucasia between 1955 and 1965. In 1964 the “Drujba” (friendship) pipeline (5500 km) connected Volga-Ural mining center to the Eastern European socialistic coun-tries (Czech Republic, Slovakia, Hungary, Poland, Eastern Germany). It opened the way firstly for oil supply to socialistic allies and secondly for the beginning of oil export to capitalistic countries.

The beginning of development of the Western Siberia Petroleum Province started in late 1960’s. As usual in the history of Soviet Union, it was a large scale program with hundreds of thou-sands people shifting to remote, wild regions, working under trying conditions, creating a brand new industrial region of the country. A number of new cities were created. Surgut and Nijnevartovsk was two big centers close to grand oilfields (Ust’-Balykskoe, Fedorovscoe and others near Surgut; Samoltor, Meginskoe and others near Nijnevartovsk), dozens of smaller towns like Kagalim, Neftejugansk, Nagan’ and others. A construction of extensive network of new pipelines, tying remote resource extraction with tradi-tional industrial centers, was lunched at the same time.

The new development started to bear fruit in early 70’s. Production association Glavtumenneftegas had delivered 0.9 mln tons in 1965 in twenty years boosted the supply to 352.7 mln tons. Gas supply raised from 127,7 to 643 bn cbm. Soviet petroleum sector became the biggest in the world. The abundance of resources far exceeded the internal needs, and provided large amounts for export. In combination with international oil crisis provoked by political and military crisis in Middle East (and OPEC oil embargo, which Soviet Union denied to support),

a perfect situation for USSR emerged to enter international oil market.

The following two decades became the age of Soviet Energy Superpower, when USSR grew the biggest petroleum producer and exporter in the world, and was gaining tremendous amounts of money on it’s resources. But the same two decades were the time when Soviet Union plunged into deep economical, social, finally political crisis and came to it’s tragic end. To understand this apparently paradoxical age, in the next paragraph we will contemplate the evolu-tion of the Soviet system.

Autarky state....To return right to fundamentals shows the opening sentence of the classic founding work of economics – Adam Smith’s The Wealth of Nations. Smith states: ‘The greatest improvement in the productive powers of labour, and the greater part of the skill, dexterity and judgement with which it is any where directed, or applied, seems to have been the effects of the division of labour.’ This analysis of Smith, that the driving force of the greatest power of the development of production is the division of labour, or socialised production to use another terminology, remains entirely valid as will be seen - whether considered on the longest time frame or in terms of modern econometric analysis of economic growth.<…>

As is well known the USSR, from the time of the first Five Year Plan onwards, aimed at a very high level of investment in GDP. But this was envisaged within an almost self-contained economy – the USSR was a non-market case of ‘import substitution’ in the way that Argentina for most of the 20th century, for example, was a classic case of market based import substitution (and Argentina also underwent relative economic decline as a result).

The leaders of the USSR mistook the second most powerful force of development of production (fixed investment/physical capital) for the first – the extension of the division of labour which is today necessarily international in scope.

China based itself on the international expansion of the division of labour, and also within that developed an extremely high level of investment. China’s strategy was successful while that of the former USSR was not. There are, of course, other factors in this comparison but this one is absolutely fundamental.

John Ross, About The International Financial Crisis and the Rise of China. 2010.

Energy of development.The rise of Soviet system.

Economical and political systems, estab-lished in USSR in late 1920s, early 1930s was an autarky — isolated system tending to full self-sufficiency. The reasons are partly depicted in the paragraph 3.2, and are mainly concerned with the pre-given conditions, which imposed very strict limitations on the possible variants of development of the system, in terms of means and resources. Means and goals of industrialization were dictated by the urgent threats both to the power of Bolshevik’s Party and to the security of the country. The threats, constituted by internal political and social struggle, and the increasing peril of war.

Economical and political systems of the USSR had no market based regulatory principles (supply-demand balance). On the stage of it’s establishment it had worked out those of it’s own — adminis-trative and punitive means of command economy. A maximal primitive example: if the management is inefficient in the market conditions, the enterprise loses it’s competitiveness, comes to a bank-ruptcy and the owner loses his business. In USSR in the thirties, if the manage-ment was ineffective it was repressed as subversive. Both systems has it’s means to distinct efficient from inefficient. Both systems did it successfully, yet in dramatically different ways.

The tragic humanitarian side-effects of the Stalin’s approach are obvious. But this approach is the only, which enables to secure full mobilization of human resources in a short term, and such a mobilization is crucial for catching up development. In the period between two world wars was the situation for USSR was such, that this kind of development became absolutely necessary.

The great projects of the early years of the Soviet Country were the hard answers to the hard challenges of the epoch. It was the time of great aspira-tions, great breakthroughs and great tragedies and victims. It was a mobilized development in an attempt to overcome the age-old backwardness of the country. The victory in the Second World War was the culmination of the era and ‘historical legitimation’ of the system, since the essential contribution of industrializa-tion, conducted in good time, and of mobilization resource of Soviet society to that victory is beyond doubt.

Transformations and stag-nation of political system.

In postwar history of the USSR histo-rians, economists and researchers specialized on modernization define several key points, defining transitions between different periods of develop-ment of the state. The periods are:

1945-1964 restoration and accomplish-ment of industrialization;

1965-1978 end of the first, industrial part of modernization, attempts undertaken to make a transition to a new, postin-dustrial model of society, to spur the development;

1978-1985 conservation of the system, slowdown of development, manifesta-tions of social and economical crisis.

This periodization is confirmed by comparison of macroeconomic indica-tors, showing the same breakpoints and same trends of growth. Timeframes of this economical trends coincide with geographical transformation of oil and gas complex of the country — the reloca-tion of centre of sector development from Volga-Urals region (the second Baku) to the Western Siberia, described previously.

The first postwar decade was devoted to the restoration of the country and booming growth. System in general was functioning basing on the same princi-ples, which were established before the war and was depicted above. Yet the pressure and repressions were weakend

conciderably.

After Stalins’ death, the Nikita Khrush-chev era known as The Thaw arrived. Khrushchev abolished the Gulag prison camp system and ended the repressions, and significantly weakened administra-tive control at all levels of society. But he neither created new regulatory princi-ples, nor changed the system in accord-ance with the new conditions. Khrush-chev conducted several administrative and economical reforms as he tried to resolve emerging problems by different means, such as decentralization and reorganization, but none of them yield any substantial effect. Thus, although the level of investments in the Soviet economy remained high, the effective-ness of investments decreased gradually. Signs of crisis in the command system and planned economy manifested.

Khrushchev’s thaw was followed by the Brezhnev’s zastoi (period of stagnation). Not all the period of Brezhnev’s rule is regarded as zastoi, only the mid 1970s

Верстка_11.06.13.indd 12-13 23.06.2011 1:28:44

INTRODUCTIONSTRUCTURE OF RUSSIAN ENEGY SECTOR

xx Title Chapter Title Chapter Titlexx

Page Number Font: Interstate Regular (6 height 6 leading)

Currently Russian energy complex is one of most powerful in the world. In 2010 the country became the leader in gas and oil production, and it currently ranks second in coal deposit production and the third in fossil fuels consumption.

The Russian energy sector consists of three parts: fuel production, electric power, and thermal energy.

Fuel production is compromised of the oil and gas sectors, nuclear fuel and coal

production. These sectors provide fuel for consumers and the power industry. The power industry is controlled by utility giant Unified Energy System (RAO UES), power generation facilities, the Federal Grid Company, and market administration, which controls power supply companies and local resellers of electricity for consumers.

The heat energy market supply chain consists of three parts: heat production generated by thermal combined heat and

power (CHP) plants and nuclear power plants, heat distribution, and sales.

Coal, oil, and gas complexes provide fuel for traditional power plants like CHP plants, and thermal power plants – these types of power plants produce 67% of Russia’s electricity. Without fossil fuel production, energy complexes in Russia would lose 67% of their electricity supply and almost 100% of their heat supply.

shortages as almost all decentralized electricity units in Russia are either diesel or gas based. Moreover, during the last decade, the trend of decentralizing energy generation has gained momentum in Russia (even in territories where grids have always existed) as a response to the current problem of large, slow, centralized Russian energy complexes. Fuel sources for decentralized energy generation are often fossil based. The best example of this trend can be found in the construction and launch of a small gas engine generator plant in 2010 in Vladikavkaz, North Ossetia. This power plant produces electricity and heat for several local industrial consumers, the

local television center, a nearby cinema complex, and citizens of a district in Vladikavkaz.

This conjuncture demonstrates that the power generated by traditional Russian energy complexes leaves much to be desired. In order to understand the real reasons for the decentralization of energy generation, it is necessary to look at the specific problems of each sector of Russian energy sectors. What makes decentralized generation so attractive is the fact that it is best to use fossil-based decentralized energy sources in Russia.

The nuclear sector, which is comprised of ten nuclear power plants, provides 16% of Russia’s supply of electricity. Large hydroelectric plants (with a capacity of more than 25 megawatts) and nuclear power plants provide 16% of Russia’s supply of electricity and 0.9% of renewable energy.

The structure of the Russian power sector has, in large part, become centralized because of the unified Russian governmental power grid and the network of state-run oil and gas pipelines. However, there are large territories that are not connected to centralized power sources. These regions frequently experience fuel shortages, which, in turn, lead to heat and electrical

2

3

6

8

5electricity production

oil export (thousands bbl/day)

natural gas production (bn m3)

natural gas consumption (bn m3)

natural gas export (mln m3)

natural gas proved reserves (bn m3)

Russia in the world top 10 crucial energy rates

oil production (thousands bbl/day)

oil consumption (thousands bbl/day)

electricity consumption (bn kw/h)

147’570

10’120

8’728

593.4

646.6

18’690 13’630 8’200 4’363 2’980 2’740 2’460 2’437 2’430 2’185

3’873

4’110 4’451 3’078 956.5 925.9 723.8 620.7 593.4 535.7438.8

3’438 2’901 858.5 857.6 568.0 547.3 536.1447.2404.3

487.9 439.6 140.0 96.26 94.67 94.62 87.45 87.08 78.12

583.6 200.0 181.6 161.3 103.5 86.5 85.7 82.94 79.58

5’430 2’700 2’400 2’349 2’327 2’196 2’182 2’150 2’001

9’764 9’056 4’172 3’991 3’289 3’001 2’798 2’572 2’494

29’610 25’470 7,504 7’461 6’928 6’071 5’246 4’9834’502

94’67098’850179’100 59’670 56’780 55’590 33’500 31’030 30’350 22’300

oil proved reserves (bn bbl)

*CIA (Central Intelligence Agency) world fact book country comparisons chart

264.6 175.2 137.6 115.0 104.0 97.8 97.77 74.2 47.0 37.5 HEAT SUPPLY

ELECTRICAL ENERGY INDUSTRY

FUEL P

RODU

CTION

Industry35%

Industry49%

Industry

20%

Commercial

3%Commercial

Com

mercial16%

16%

Hou

sing

Housing46%

Housing

47%

11%

Tran

spor

t

Transport

25%

22%

3%

Agriculture

3%Agriculture

4%A

gric

ultu

re

OIL

& G

AS

CO

AL

NU

CLE

AR

Dispatch control RAO UES

Market adm

inistration

DistributionPow

er supplyLocal resellers

compananies

others 0.9%hydro 16%nuclear 16%

plants 67.1%

traditional CHP

Heat

Heat

productiondistribution

Sales

CONSUMERS

for report.indd 2-3 6/22/11 11:28 PM

INTRODUCTIONSTRUCTURE OF RUSSIAN ENEGY SECTOR



Currently Russian energy complex is one of most powerful in the world. In 2010 the country became the leader in gas and oil production, and it currently ranks second in coal deposit production and the third in fossil fuels consumption.

The Russian energy sector consists of three parts: fuel production, electric power, and thermal energy.

Fuel production is compromised of the oil and gas sectors, nuclear fuel and coal

production. These sectors provide fuel for consumers and the power industry. The power industry is controlled by utility giant Unified Energy System (RAO UES), power generation facilities, the Federal Grid Company, and market administration, which controls power supply companies and local resellers of electricity for consumers.

The heat energy market supply chain consists of three parts: heat production generated by thermal combined heat and

power (CHP) plants and nuclear power plants, heat distribution, and sales.

Coal, oil, and gas complexes provide fuel for traditional power plants like CHP plants, and thermal power plants – these types of power plants produce 67% of Russia’s electricity. Without fossil fuel production, energy complexes in Russia would lose 67% of their electricity supply and almost 100% of their heat supply.

shortages as almost all decentralized electricity units in Russia are either diesel or gas based. Moreover, during the last decade, the trend of decentralizing energy generation has gained momentum in Russia (even in territories where grids have always existed) as a response to the current problem of large, slow, centralized Russian energy complexes. Fuel sources for decentralized energy generation are often fossil based. The best example of this trend can be found in the construction and launch of a small gas engine generator plant in 2010 in Vladikavkaz, North Ossetia. This power plant produces electricity and heat for several local industrial consumers, the

local television center, a nearby cinema complex, and citizens of a district in Vladikavkaz.

This conjuncture demonstrates that the power generated by traditional Russian energy complexes leaves much to be desired. In order to understand the real reasons for the decentralization of energy generation, it is necessary to look at the specific problems of each sector of Russian energy sectors. What makes decentralized generation so attractive is the fact that it is best to use fossil-based decentralized energy sources in Russia.

The nuclear sector, which is comprised of ten nuclear power plants, provides 16% of Russia’s supply of electricity. Large hydroelectric plants (with a capacity of more than 25 megawatts) and nuclear power plants provide 16% of Russia’s supply of electricity and 0.9% of renewable energy.

The structure of the Russian power sector has, in large part, become centralized because of the unified Russian governmental power grid and the network of state-run oil and gas pipelines. However, there are large territories that are not connected to centralized power sources. These regions frequently experience fuel shortages, which, in turn, lead to heat and electrical

2

3

6

8

5electricity production

oil export (thousands bbl/day)

natural gas production (bn m3)

natural gas consumption (bn m3)

natural gas export (mln m3)

natural gas proved reserves (bn m3)

Russia in the world top 10 crucial energy rates

oil production (thousands bbl/day)

oil consumption (thousands bbl/day)

electricity consumption (bn kw/h)

147’570

10’120

8’728

593.4

646.6

18’690 13’630 8’200 4’363 2’980 2’740 2’460 2’437 2’430 2’185

3’873

4’110 4’451 3’078 956.5 925.9 723.8 620.7 593.4 535.7438.8

3’438 2’901 858.5 857.6 568.0 547.3 536.1447.2404.3

487.9 439.6 140.0 96.26 94.67 94.62 87.45 87.08 78.12

583.6 200.0 181.6 161.3 103.5 86.5 85.7 82.94 79.58

5’430 2’700 2’400 2’349 2’327 2’196 2’182 2’150 2’001

9’764 9’056 4’172 3’991 3’289 3’001 2’798 2’572 2’494

29’610 25’470 7,504 7’461 6’928 6’071 5’246 4’9834’502

94’67098’850179’100 59’670 56’780 55’590 33’500 31’030 30’350 22’300

oil proved reserves (bn bbl)

*CIA (Central Intelligence Agency) world fact book country comparisons chart

264.6 175.2 137.6 115.0 104.0 97.8 97.77 74.2 47.0 37.5 HEAT SUPPLY

ELECTRICAL ENERGY INDUSTRYFUE

L PRO

DUCT

ION

Industry35%

Industry49%

Industry

20%

Commercial

3%Commercial

Com

mercial16%

16%

Hou

sing

Housing46%

Housing

47%11

%

Tran

spor

t

Transport

25%

22%

3%

Agriculture

3%Agriculture

4%A

gric

ultu

re

OIL

& G

AS

CO

AL

NU

CLE

AR

Dispatch control RAO UES

Market adm

inistration

DistributionPow

er supplyLocal resellers

compananies

others 0.9%hydro 16%nuclear 16%

plants 67.1%

traditional CHP

Heat

Heat

productiondistribution

Sales

CONSUMERS


Gas is the main component in the production of electricity and heat in Russia. This fact, in tandem with the fact that Russian GDP, tax revenue, and export structure of the oil and gas

industries have played a significant role in tax income and export structure, make the oil and gas industry extremely important for Russia’s economy, energy security and safety of its citizens. According to recent data, the oil and gas industries are the main contributing factors to the problems of Russia’s traditionally fossil-based energy complex. Russian oil and gas industries consist mainly of 11 vertically integrated companies. The diagram below shows these 11 companies and their corresponding market capitalization values and distribution of governmental shares in shareholder capital from the beginning of 2011.

According to the diagram on the left page, it is obvious that only four of the 11 large oil and gas companies are partially controlled by the government – Gazprom, Rosneft, Transneft and Tatneft; however, these companies (though few in number) play a significant role in the oil and gas market. The volume of sales of governmental companies accounts for 52% of the overall volume sales

Oil & Gas sectorSTATE OF THE CORE OF RUSSIAN ENERGY COMPLEX


BETWEEN 11 OIL AND GAS COMPANIES THE VOLUME OF SALES OF GOVERNMENTAL COMPANIES TAKES 52% AND THEIR NET INCOME TAKES 66%.

EXPORT OF OIL AND GAS IS STILL THE PRIMARY AND EASIEST WAY TO PRODUCE MONEY FOR RUSSIA, THAT’S WHY GOVERNMENT IS ASPIRING TO TAKE STRATEGIC POSITIONS IN THIS SECTOR.

of oil and gas, and the net income of governmental companies accounts for 66%. Thus, the Russian government appears to be successfully profiting from this market.

According to the chart , which explains position of O&G sector in Russian economy, oil and gas account for only a small part of Russian GDP (22.5%). 67% of this percentage of Russian GDP is derived from the preliminary use of energy, which usually yields a 66% profit for the Russian government. This indicates that the Russian economy is sensitive to global demand and the high volatility of oil and gas prices. Unfortunately, the export of oil and gas is still the easiest and preferred way to earn money for Russia, and that is why the government hopes to position itself strategically in this market. This has led to what some believe is a Russian oil curse.

Additionally, corruption is rampant within this sector because some of the major investors, including the Russian government, are addicted to money and power. Another consequence of the Russian oil curse is a fixation on extra profits. Like any addiction, there is an underlying mentality of “I will take a dose now and worry about the consequences later.” This mindset caused the Russian

economy to fall into an unhealthy and fragile state.

In order to understand the failures of Russian oil and gas industries, one must

explore the governmental activities occurring within the sector.

Because of the benefits offered by the government, many government supported companies try to successfully implement illegal schemes in order to gain such governmental assistance. For these companies conducting business is easy because of governmental support and lack of competition. This situation leads to a focus on extra profits and a disregard of core assets, which, in turn, leads to the deterioration of equipment, the curtailing of the implementation and modernization of technologies, and a halt on geological exploration and replenishment of reserves. Higher domestic fuel and electricity prices are another result.

This situation makes the Russian oil and gas sector unprofitable because all the benefits and opportunities belong to governmental companies, which thereby makes it more difficult for independent producers to be successful. Below are some examples that illustrate this point.

NOVATEK TNK-BP

Surgutneftegaz

LUKOIL

BASHNEFT

RUSSNEFT

Gazp

rom

Slavneft 50% 50%

81% 19% 50

% 5

0%

50% 50%

33% 67%

75% 15%GOVTSHARE

34.67%company

size chart

9.17%company

size chart

11.94%company

size chart

2.11%company

size chart

1.34%company

size chart

Transneft 0.43%company

size chart

9.42%company

size chart

7.56%company

size chart

Company management

Natural gas production

Scheme of the top 11 biggest Russian O&G companies ON 30 JAN 2011

Oil production

Refining

Oil and gas transportation

Private companies

Viktor Zubkov - chairman,Vice Chairman of Government of RF

Aleksey Miller - vice chairman

Rosneft 20.18%company

size chart

Company management

Igor Sechin - chairman of the B of D

Vice Chairman of Government of RF

Independent chief operating officers:

Andrey Kostin - CEO VTB Bank

Aleksandr Nakipelov - vice president of

Russian Academy of Science

Hans Iorg Rudolff - CEO Barclays Capital

Bank

Sergey Bogdanchikov

Vladimir Bogdanov - CEO Surgutneftegaz

Nikolay Tokarev - president of Transneft

Andrey Reus - CEO Oboronprom

Uriy Petrov - Federal Property Management Agency

Non executive directors:

TATNEFT

Governmental companies

2.73%company

size chartCompany management Shafagat Takhautdinov - CEORustam Minikhanov - chairman, president of Republic of Tatarstan,CEO of Syazinvestneftekhim

Company m

anagement

Vladimir Bogdanov - CEO

Non executive director of ROSNEFT;

Ananyev Sergey - Deputy Director General

Company management

Viktor Horoshavtchev - president

Aleksandr Gonarchuk - Ch of the B of D

Company management

Mikhail Gucheriyev - president

Aleksandr Korsik - Ch of the B of D

ex president of ITERA

Company management Nikolay Tokarev - presidentSergey Shmatko - chairman,Energy Minister of RF, CEO of RusHydro

Company m

anagement

AARMikhail Fridman - Alfa Group

Viktor Vekselberg - Renova

Len Blavatnyk - Acces ind

Alex Knaster - Simmons and Company

BPTony Heivord

David Pitti

Brian Glivari

Co

mp

an

y m

an

age

men

t

leonid Mikhelson - President

Gennadiy T

imchenko - vice

president, (Pu

tins frie

nd

)

Governmental/nongovernmental part of share

Company management

Vagyt Alekperov -

president

Leonid Fedun - V

ice President

Boards of D

irecto

rs

Igor B

elikov

Viktor Blazh

eev

Donald Evert (ConocoPhillip

s)

Valeriy Gray

fer

German Gref - president of Sb

erbank,

ex ministe

r of The Ministr

y of Economic D

evlopment an

d Trade

Igor Iv

anov - ex ministe

r of M

inistry o

f Foregin Affair

s of RF,

secretar

y of Se

curity Council

Ravil Maga

nov

Sergey M

ikhailov

Mark Mobius

Aleksandr Sh

ohin


How to read this graph On this scheme you can find all significant Russian O&G companies. Governmental companies presented in color, private companies are presented in segments filled by pattern. Also you can compare the size of each company to others (squares of each segment are equal to company market capitalization), find information about core activities and key stakeholders.

For instance TATNEFT, the company is producing and refining oil, 33% of its share belongs to the government and CEO Shafagat Takhautdinov is president of Republic of Tatarstan.

Oil & Gas 22.5%

Oil and Gas sector in Russian economy Oil & Gas 46.3%

Russian GDP structure Tax income structure Export structure

Others

Others Others

Electricity 1% Electricity 1.3% Coal 1.5% Coal 0.4%

Coal 1.7%

Oil & Gas 66.2%

Gross share ownership

Governmental Private

2009 Net Income**2009 Volume of sales**Government in Russian O&G sector

* mln. Russian roubles ** Gazprom, Transneft, Tatneft, Rosneft are in orange color

48%34%

66%

573’2011’106’61652%66.2%

33.8%


Gas is the main component in the production of electricity and heat in Russia. This fact, in tandem with the fact that Russian GDP, tax revenue, and export structure of the oil and gas

industries have played a significant role in tax income and export structure, make the oil and gas industry extremely important for Russia’s economy, energy security and safety of its citizens. According to recent data, the oil and gas industries are the main contributing factors to the problems of Russia’s traditionally fossil-based energy complex. Russian oil and gas industries consist mainly of 11 vertically integrated companies. The diagram below shows these 11 companies and their corresponding market capitalization values and distribution of governmental shares in shareholder capital from the beginning of 2011.

According to the diagram on the left page, it is obvious that only four of the 11 large oil and gas companies are partially controlled by the government – Gazprom, Rosneft, Transneft and Tatneft; however, these companies (though few in number) play a significant role in the oil and gas market. The volume of sales of governmental companies accounts for 52% of the overall volume sales

Oil & Gas sectorSTATE OF THE CORE OF RUSSIAN ENERGY COMPLEX


BETWEEN 11 OIL AND GAS COMPANIES THE VOLUME OF SALES OF GOVERNMENTAL COMPANIES TAKES 52% AND THEIR NET INCOME TAKES 66%.

EXPORT OF OIL AND GAS IS STILL THE PRIMARY AND EASIEST WAY TO PRODUCE MONEY FOR RUSSIA, THAT’S WHY GOVERNMENT IS ASPIRING TO TAKE STRATEGIC POSITIONS IN THIS SECTOR.

of oil and gas, and the net income of governmental companies accounts for 66%. Thus, the Russian government appears to be successfully profiting from this market.

According to the chart , which explains position of O&G sector in Russian economy, oil and gas account for only a small part of Russian GDP (22.5%). 67% of this percentage of Russian GDP is derived from the preliminary use of energy, which usually yields a 66% profit for the Russian government. This indicates that the Russian economy is sensitive to global demand and the high volatility of oil and gas prices. Unfortunately, the export of oil and gas is still the easiest and preferred way to earn money for Russia, and that is why the government hopes to position itself strategically in this market. This has led to what some believe is a Russian oil curse.

Additionally, corruption is rampant within this sector because some of the major investors, including the Russian government, are addicted to money and power. Another consequence of the Russian oil curse is a fixation on extra profits. Like any addiction, there is an underlying mentality of “I will take a dose now and worry about the consequences later.” This mindset caused the Russian

economy to fall into an unhealthy and fragile state.

In order to understand the failures of Russian oil and gas industries, one must

explore the governmental activities occurring within the sector.

Because of the benefits offered by the government, many government supported companies try to successfully implement illegal schemes in order to gain such governmental assistance. For these companies conducting business is easy because of governmental support and lack of competition. This situation leads to a focus on extra profits and a disregard of core assets, which, in turn, leads to the deterioration of equipment, the curtailing of the implementation and modernization of technologies, and a halt on geological exploration and replenishment of reserves. Higher domestic fuel and electricity prices are another result.

This situation makes the Russian oil and gas sector unprofitable because all the benefits and opportunities belong to governmental companies, which thereby makes it more difficult for independent producers to be successful. Below are some examples that illustrate this point.

NOVATEK TNK-BP

Surgutneftegaz

LUKOIL

BASHNEFT

RUSSNEFT

Gazp

rom

Slavneft 50% 50%

81% 19% 50

% 5

0%

50% 50%

33% 67%

75% 15%GOVTSHARE

34.67%company

size chart

9.17%company

size chart

11.94%company

size chart

2.11%company

size chart

1.34%company

size chart

Transneft 0.43%company

size chart

9.42%company

size chart

7.56%company

size chart

Company management

Natural gas production

Scheme of the top 11 biggest Russian O&G companies ON 30 JAN 2011

Oil production

Refining

Oil and gas transportation

Private companies

Viktor Zubkov - chairman,Vice Chairman of Government of RF

Aleksey Miller - vice chairman

Rosneft 20.18%company

size chart

Company management

Igor Sechin - chairman of the B of D

Vice Chairman of Government of RF

Independent chief operating officers:

Andrey Kostin - CEO VTB Bank

Aleksandr Nakipelov - vice president of

Russian Academy of Science

Hans Iorg Rudolff - CEO Barclays Capital

Bank

Sergey Bogdanchikov

Vladimir Bogdanov - CEO Surgutneftegaz

Nikolay Tokarev - president of Transneft

Andrey Reus - CEO Oboronprom

Uriy Petrov - Federal Property Management Agency

Non executive directors:

TATNEFT


2.73%company

size chartCompany management Shafagat Takhautdinov - CEORustam Minikhanov - chairman, president of Republic of Tatarstan,CEO of Syazinvestneftekhim

Company m

anagement

Vladimir Bogdanov - CEO

Non executive director of ROSNEFT;

Ananyev Sergey - Deputy Director General

Company management

Viktor Horoshavtchev - president

Aleksandr Gonarchuk - Ch of the B of D

Company management

Mikhail Gucheriyev - president

Aleksandr Korsik - Ch of the B of D

ex president of ITERA

Company management Nikolay Tokarev - presidentSergey Shmatko - chairman,Energy Minister of RF, CEO of RusHydro

Company m

anagement

AARMikhail Fridman - Alfa Group

Viktor Vekselberg - Renova

Len Blavatnyk - Acces ind

Alex Knaster - Simmons and Company

BPTony Heivord

David Pitti

Brian Glivari

Co

mp

an

y m

an

age

men

t

leonid Mikhelson - President

Gennadiy T

imchenko - vice

president, (Pu

tins frie

nd

)

Governmental/nongovernmental part of share

Company management

Vagyt Alekperov -

president

Leonid Fedun - V

ice President

Boards of D

irecto

rs

Igor B

elikov

Viktor Blazh

eev

Donald Evert (ConocoPhillip

s)

Valeriy Gray

fer

German Gref - president of Sb

erbank,

ex ministe

r of The Ministr

y of Economic D

evlopment an

d Trade

Igor Iv

anov - ex ministe

r of M

inistry o

f Foregin Affair

s of RF,

secretar

y of Se

curity Council

Ravil Maga

nov

Sergey M

ikhailov

Mark Mobius

Aleksandr Sh

ohin


How to read this graph On this scheme you can find all significant Russian O&G companies. Governmental companies presented in color, private companies are presented in segments filled by pattern. Also you can compare the size of each company to others (squares of each segment are equal to company market capitalization), find information about core activities and key stakeholders.

For instance TATNEFT, the company is producing and refining oil, 33% of its share belongs to the government and CEO Shafagat Takhautdinov is president of Republic of Tatarstan.

Oil & Gas 22.5%

Oil and Gas sector in Russian economy Oil & Gas 46.3%

Russian GDP structure Tax income structure Export structure

Others

Others Others

Electricity 1% Electricity 1.3% Coal 1.5% Coal 0.4%

Coal 1.7%

Oil & Gas 66.2%

Gross share ownership

Governmental Private

2009 Net Income**2009 Volume of sales**Government in Russian O&G sector

* mln. Russian roubles ** Gazprom, Transneft, Tatneft, Rosneft are in orange color

48%34%

66%

573’2011’106’61652%66.2%

33.8%


xx xx Title Chapter Title Chapter Title

”Control over resources”

Subsequently, the Russian government both cancelled tax breaks on the development of hard-to-reach oil fields

for companies with foreign shareholders and cut the development of strategic oil fields. These regulations marked the beginning of Russian governmental interest in attempting to control the Russian oil and gas industry. Moreover,

in 2010, as a result of the depletion of existing oil fields, the government established new rules for oil companies, which dictated that companies could not decrease oil production in order to increase domestic oil prices.

“Oil and Gas reserves”

Oil and gas reserves present a significant problem to the Russian oil and gas sector. The BP statistical review shows that Russia has 10.8 billion tons of oil (ABC1C2); however, if it maintains its current rate of extraction, this oil will run

out in 20 years and three months. The Russian Ministry of Natural Resources has said that only 52.6 million tons of Russia’s oil deposits (C3+D1+D2) remain. According to the Russian Ministry of National Resources, Russia also has 19.7 billion cubic meters of natural gas that remain in its reserves.

Russian oil and gas giants are currently using the same production sites and the same extraction technologies that were used during the Soviet period. 75% to 80% of known oil and gas deposits have been depleted, and extraction from these sites is becoming more difficult each month due to the fact that it requires a lot of energy and money.

This situation occurred because geological exploration in Russia was almost paralyzed in 1990. In 2005, the Russian government tried to solve this problem; however, the solution was poorly developed because the Russian government required private Russian oil and gas companies to turn over any new major (strategic) field discovered by geological exploration to the government. This requirement and the availability of oil from current oil fields almost stopped private geological exploration. During 19

70

1980

1990

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

901

5286

1469 18

47

92514

88

O&G exploratory drilling (thousand meters)

3192

- 83%

afte

r col

laps

e of

US

SR

Oil-fields in extencive use

Difficult a

nd

low-permability

Shallow thickness

Under gas-cap

Non

-pr

oble

mat

ic

Forecast and hard-to-reach oil-�elds

33%

77%

22% 1.5% 4.5% 5%

Structure of Russian replacement of reserves and quality of russian oil fields

50%oil recowery from Soviet oil �elds

10%new

oil �elds

40%geological explorationnear Soviet oil �elds

75-80% of the known oil and gas deposits are depleted

0 250 500 1000 km

Moscow

Saint PetersburgKaliningrad

Volgograd

Perm

Omsk

Novosibirsk

Tomsk Krasnoyarsk

Irkutsk

Yakutsk

Vladivostok

Khabarovsk

Uzhno-Sahalinsk

Petropavlosk-KamchatskiArkhangelsk

Murmansk

Resource depletion

5-10 yearsto reach

50

Resource depletion

60-80%DEPLETED

0 250 500 1000 km

Moscow


Volgograd

Perm

Omsk

Novosibirsk

Tomsk Krasnoyarsk

Irkutsk

Yakutsk

Vladivostok

Khabarovsk

Uzhno-Sahalinsk


Murmansk

Resource depletion

422436

247

1534

479

4123

15401

703

567352

102579444

6605741

12

304

315

72

39

56

349

4507

1325

50

Known Russian reserves of oil1534

Ammounts of reseves>1000 mn. t.

500-1000 mn. t.

100-500 mn. t.

10-100 mn. t.

big reservoirs in use existingpipelines

projected or under construction pipelines

ammount of discovered oil

sea terminals

1534

this period, state-run institutes in this field were unsuccessful and inefficient because of a lack of financing. As a result, Russia has exhausted current oil and gas extraction sites and no longer has new fields with the same resource capacity to support and increase current amounts of oil and gas extraction. This is why there is a long waiting period between production and availability. All the new projects that Russia has been developing require at least a 10-year waiting period before production can begin. Moreover, the oil and gas in these fields are of a bad quality and are hard to produce. The oil and gas are becoming harder to extract as they are located both deeper in the earth and in dangerous regions. Thus, one can assume that there will be either a drastic decline in oil and gas production in next several years, or oil and gas production will fail to meet consumer demand.

Below is statistical data pertaining to current available oil deposits: • Currently, Russia has 2,750 oil fields• 1,580 oil fields that are now in use contain about 80% of Russian oil deposits

• Almost all the oil fields that are in use in the Caucasus, Ural, Volga River basin, Western Siberia are known to have high reserves depletion coefficients of 60% to 85%• A third of Russian oil deposits are being used extensively• 67% of them contain difficult oil • 36% of them contain low-permeability reservoirs • 4% of them have a shallow thickness of oil • 14% are in under-gas-cap zones

It appears that Russia is on the threshold of dramatic changes and will soon lose its leadership position. The size of the country is a significant obstacle to the oil and gas industry because all the remaining oil is hidden in hard-to-reach regions with extreme weather conditions that are located offshore in the Arctic Ocean. Thus, the time that is necessary to develop new oil or gas fields is not usually a profitable one. For example, it takes 10 years to develop such resources, but only three to four years to consume these resources.



”Control over resources”

Subsequently, the Russian government both cancelled tax breaks on the development of hard-to-reach oil fields

for companies with foreign shareholders and cut the development of strategic oil fields. These regulations marked the beginning of Russian governmental interest in attempting to control the Russian oil and gas industry. Moreover,

in 2010, as a result of the depletion of existing oil fields, the government established new rules for oil companies, which dictated that companies could not decrease oil production in order to increase domestic oil prices.

“Oil and Gas reserves”

Oil and gas reserves present a significant problem to the Russian oil and gas sector. The BP statistical review shows that Russia has 10.8 billion tons of oil (ABC1C2); however, if it maintains its current rate of extraction, this oil will run

out in 20 years and three months. The Russian Ministry of Natural Resources has said that only 52.6 million tons of Russia’s oil deposits (C3+D1+D2) remain. According to the Russian Ministry of National Resources, Russia also has 19.7 billion cubic meters of natural gas that remain in its reserves.

Russian oil and gas giants are currently using the same production sites and the same extraction technologies that were used during the Soviet period. 75% to 80% of known oil and gas deposits have been depleted, and extraction from these sites is becoming more difficult each month due to the fact that it requires a lot of energy and money.

This situation occurred because geological exploration in Russia was almost paralyzed in 1990. In 2005, the Russian government tried to solve this problem; however, the solution was poorly developed because the Russian government required private Russian oil and gas companies to turn over any new major (strategic) field discovered by geological exploration to the government. This requirement and the availability of oil from current oil fields almost stopped private geological exploration. During 19

70

1980

1990

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

901

5286

1469 18

47

92514

88

O&G exploratory drilling (thousand meters)

3192

- 83%

afte

r col

laps

e of

US

SR

Oil-fields in extencive use

Difficult a

nd

low-permability

Shallow thickness

Under gas-cap

Non

-pr

oble

mat

ic

Forecast and hard-to-reach oil-�elds

33%

77%

22% 1.5% 4.5% 5%

Structure of Russian replacement of reserves and quality of russian oil fields

50%oil recowery from Soviet oil �elds

10%new

oil �elds

40%geological explorationnear Soviet oil �elds

75-80% of the known oil and gas deposits are depleted

0 250 500 1000 km

Moscow


Volgograd

Perm

Omsk

Novosibirsk

Tomsk Krasnoyarsk

Irkutsk

Yakutsk

Vladivostok

Khabarovsk

Uzhno-Sahalinsk


Murmansk

Resource depletion

5-10 yearsto reach

50

Resource depletion

60-80%DEPLETED

0 250 500 1000 km

Moscow


Volgograd

Perm

Omsk

Novosibirsk

Tomsk Krasnoyarsk

Irkutsk

Yakutsk

Vladivostok

Khabarovsk

Uzhno-Sahalinsk


Murmansk

Resource depletion

422436

247

1534

479

4123

15401

703

567352

102579444

6605741

12

304

315

72

39

56

349

4507

1325

50

Known Russian reserves of oil1534

Ammounts of reseves>1000 mn. t.

500-1000 mn. t.

100-500 mn. t.

10-100 mn. t.

big reservoirs in use existingpipelines

projected or under construction pipelines

ammount of discovered oil

sea terminals

1534

this period, state-run institutes in this field were unsuccessful and inefficient because of a lack of financing. As a result, Russia has exhausted current oil and gas extraction sites and no longer has new fields with the same resource capacity to support and increase current amounts of oil and gas extraction. This is why there is a long waiting period between production and availability. All the new projects that Russia has been developing require at least a 10-year waiting period before production can begin. Moreover, the oil and gas in these fields are of a bad quality and are hard to produce. The oil and gas are becoming harder to extract as they are located both deeper in the earth and in dangerous regions. Thus, one can assume that there will be either a drastic decline in oil and gas production in next several years, or oil and gas production will fail to meet consumer demand.

Below is statistical data pertaining to current available oil deposits: • Currently, Russia has 2,750 oil fields• 1,580 oil fields that are now in use contain about 80% of Russian oil deposits

• Almost all the oil fields that are in use in the Caucasus, Ural, Volga River basin, Western Siberia are known to have high reserves depletion coefficients of 60% to 85%• A third of Russian oil deposits are being used extensively• 67% of them contain difficult oil • 36% of them contain low-permeability reservoirs • 4% of them have a shallow thickness of oil • 14% are in under-gas-cap zones

It appears that Russia is on the threshold of dramatic changes and will soon lose its leadership position. The size of the country is a significant obstacle to the oil and gas industry because all the remaining oil is hidden in hard-to-reach regions with extreme weather conditions that are located offshore in the Arctic Ocean. Thus, the time that is necessary to develop new oil or gas fields is not usually a profitable one. For example, it takes 10 years to develop such resources, but only three to four years to consume these resources.



“Unobvious investments”

In addition to the Russian government, Russian oil and gas companies, instead of investing in vulnerable core assets and geological exploration, are spending money on questionable projects. Such projects include the development of sports clubs and unprofitable oil and gas fields. The strangest Russian project is the South Stream Pipeline, whose construction can be attributed to the gas supply from Russia to Europe being interrupted by transitory countries like Ukraine and Belarus. This affects the secure gas supply to the European

market. Unofficially, many Russian pipelines were constructed as a means to make illegal profits.

Such gas pipelines include that between Altai and Gryaznovech-Vyborg, which was constructed in 2006. Information about the Altai pipeline was published for the first time in April 2006. At a length of 2,800 kilometers, this pipeline was constructed at a cost of $1.6 million to $1.8 million per kilometer (information provided by the design institute). Thus, in 2006, Gazprom spent 19.84 billion rubles

on the construction of the Gryaznovech-Vyborg pipeline, which was a project that was approved in 2004-2005 for a cost of $5.1 million per kilometer. The amount spent on this second pipeline was four times more expensive according to the designers who assessed the costs of the Altai pipeline. Why, then, is the total cost four times more than cost assessed by the design institute? Apparently, the Gazprom’s board of directors added the costs for hiring dealers and contractors, which increased the project cost by three or four times.

In May 2011, Gazprom officially published the cost of its pipeline projects for the first time. This publication revealed that the most expensive pipeline project was that of the Bovanenkovo-Ukhta pipeline on the Yamal peninsula. The price of this pipeline (989.6 billion rubles) is incomparable to other gas pipeline projects. In fact, one kilometer of this pipeline cost 447.5 million rubles to construct. The necessity of this pipeline is still being questioned. Until 2006, Gazprom considered that the base variant of gas transfer from Yamal to the mainland was a branch from Bovanenkovo to Yamurg, then via existing

from a Gazpromexport brochure). Gazprom’s preliminary plans for the construction of the South Stream pipeline were planned in 2007. This is the company’s most expensive pipeline to that travels to Europe. This pipeline was built so as to bypass Ukraine, a country through which gas transitions occur, thereby avoiding potential conflicts and interruptions of the supply of gas. There are plans to connect this pipeline under Turkish seas. Russia has always had an unstable political relationship with this country. Turkey has stalled the approval of this pipeline, which has jeopardized

0 250 500 1000 km

Moscow


Volgograd

Perm

OmskNovosibirsk

Tomsk Krasnoyarsk

Irkutsk

Yakutsk

Vlad

ivos

tok

Khabarovsk

Uzhno-Sahalinsk


Murmansk

Resource depletion

Vyborg

Gryazovech Uhta

to China

to Europe

to Europe

to Europe

to Europe

to Europe

to Europe

to CISto CIS to China

to Korea

to APR

to China

Bovanenkovo

Yamburg

4-5 times cheaper option

cost 989.6 bn Russianrubles; 1100 km length

cost 5,1 m$/km917km length

cost 1,6-1,8 m$/kmlength 6700 km

cost 467 bn Russianrubles; length 1800 km

existing pipelinespipelines under construction or planned

pump stations

Gazprom pipelines

Sakhalin-Khabarovsk-Vladivostok Bovanenkovo-Uhta Uhta-Torjhok Graznovech-Vyborg Pochinki-Gryaznovech Djugba-Lazarevskoye-Sochy

Prime Gasprom pipelines equipment suppliers- “Stroygasmontagh”, “Stroygasconsulting”- “Stroygasconsulting”- “Stroygasmontagh”-“Stroygasmontagh”-“Stroygasmontagh”-“Stroygasmontagh”

Russian pipelines to Europe

Teriberka

Gryazovets

Aleks.Gai

Makat

SmolenskMinsk

Moscow

Pochinki

Lukoyan-ovskaya

Petrovsk

Kursk

Novopskov

Shebelinka

Beregovoe

St.Peters-burg

Vyborg

Kalinin-grad

Kondratki

UzhgorodDolina Mozyr

Izmail

Pipelines under construction

Existing pipelines

Tiraspol

Turkey

Romania

Ukraine

Belarus

Poland

Finland

SlovakiaHungary

Lat.Lit.

Est.

Russia

Georgia

Blue Stream

Nord Stream

Moldova

Karachaganak

Germany

KobrinBrest

Bulgaria

South Stream

Samsun

Cheboksary

Nabucco

SwedenNorway

Beineu

Frankfurt/Oder

-Yamal-Europe

Urengoy-Pomary-UzhgorodSoyuz

Russian pipelines to EuropeRussian pipelines to Europe

Teriberka

Gryazovets

Aleks.Gai

Makat

SmolenskMinsk

Moscow

Pochinki

Lukoyan-ovskaya

Petrovsk

Kursk

Novopskov

Shebelinka

Beregovoe

St.Peters-burg

Vyborg

Kalinin-grad

Kondratki


Izmail


Existing pipelines

Tiraspol

Turkey

Romania

Ukraine

Belarus

Poland

Finland

SlovakiaHungary

Lat.Lit.

Est.

Russia

Georgia

Blue Stream

Nord Stream

Moldova

Karachaganak

Germany

KobrinBrest

Bulgaria

South Stream

Samsun

Cheboksary

Nabucco

SwedenNorway

Beineu

Frankfurt/Oder

-Yamal-Europe



Soviet pipelines, because the capacity of these pipelines in enough to support new Yamal gas fields. This option is five to six times cheaper and removes the need to construct a new pipeline with a capacity of only one-fourth of Gazprom’s annual gas production.

Another large Gazprom project is the pipeline from Sakhalin to Khabarovsk to Vladivostok, which cost 467 billion rubles to construct. The first stage of construction will begin in 2011. The estimated capacity of this pipeline by 2020 is 30 billion cubic meters per year. One kilometer of this pipeline will cost 254 million rubles. This high cost can be explained by the difficult geological, geographical and seismic conditions of the location and the accessibility of construction equipment from the pipeline construction route. However, the necessity of this project is questionable because it would be cheaper to build a

gas terminal in the seas surrounding Vladivostok in order to receive gas from Yamal and Australia.

Additionally, Gazprom pipelines to Europe were built with huge and unfounded capacities excesses. Europe’s annual natural gas import demand will likely grow by 70 to 100 billion cubic meters by 2020. This, however, will not pose a problem as the combined capacity of the Nord Stream and South Stream pipelines is 118 billion cubic meters per year. (cited

the entire project. Moreover, even if Turkey approves the construction, there is no guarantee that Turkey will not change the conditions of its agreement with Russia much like it did with the Blue Stream pipeline.

An additional obstacle for the South Stream pipeline is the Nabukko pipeline. This pipeline is will transport gas from the Caspian region to Europe via Azerbaijan, Georgia, Turkey, Bulgaria, Hungary, Rumania and Austria. Many

expect this pipeline to serve as the principle pipeline that will diversify gas supply and meet all European gas demands. Both pipelines will use the same route through European territories. Therefore, the Nabucco Pipeline will likely be South Stream’s main competition.

Another problem facing the South Stream pipeline is that Gazprom is unable to fulfil its export contracts without assistance from Central Asian countries such as Turkmenistan, Uzbekistan and Kazakstan. These countries must sell gas to Gazprom, which can dictate its

own terms because it is the only buyer. However, given that China is currently constructing pipelines to these countries, this situation will undoubtedly change.

In summation, according to experts, the cheapest way to transfer Russian gas to Europe is through Belarus and Poland. In descending order, the most expensive way to transfer Russian gas to Europe is through the South Stream, then the North Stream, and finally through Ukraine. If Europe were to buy Russian gas via these last two pipelines, it would be paying a premium price for gas.



“Unobvious investments”

In addition to the Russian government, Russian oil and gas companies, instead of investing in vulnerable core assets and geological exploration, are spending money on questionable projects. Such projects include the development of sports clubs and unprofitable oil and gas fields. The strangest Russian project is the South Stream Pipeline, whose construction can be attributed to the gas supply from Russia to Europe being interrupted by transitory countries like Ukraine and Belarus. This affects the secure gas supply to the European

market. Unofficially, many Russian pipelines were constructed as a means to make illegal profits.

Such gas pipelines include that between Altai and Gryaznovech-Vyborg, which was constructed in 2006. Information about the Altai pipeline was published for the first time in April 2006. At a length of 2,800 kilometers, this pipeline was constructed at a cost of $1.6 million to $1.8 million per kilometer (information provided by the design institute). Thus, in 2006, Gazprom spent 19.84 billion rubles

on the construction of the Gryaznovech-Vyborg pipeline, which was a project that was approved in 2004-2005 for a cost of $5.1 million per kilometer. The amount spent on this second pipeline was four times more expensive according to the designers who assessed the costs of the Altai pipeline. Why, then, is the total cost four times more than cost assessed by the design institute? Apparently, the Gazprom’s board of directors added the costs for hiring dealers and contractors, which increased the project cost by three or four times.

In May 2011, Gazprom officially published the cost of its pipeline projects for the first time. This publication revealed that the most expensive pipeline project was that of the Bovanenkovo-Ukhta pipeline on the Yamal peninsula. The price of this pipeline (989.6 billion rubles) is incomparable to other gas pipeline projects. In fact, one kilometer of this pipeline cost 447.5 million rubles to construct. The necessity of this pipeline is still being questioned. Until 2006, Gazprom considered that the base variant of gas transfer from Yamal to the mainland was a branch from Bovanenkovo to Yamurg, then via existing

from a Gazpromexport brochure). Gazprom’s preliminary plans for the construction of the South Stream pipeline were planned in 2007. This is the company’s most expensive pipeline to that travels to Europe. This pipeline was built so as to bypass Ukraine, a country through which gas transitions occur, thereby avoiding potential conflicts and interruptions of the supply of gas. There are plans to connect this pipeline under Turkish seas. Russia has always had an unstable political relationship with this country. Turkey has stalled the approval of this pipeline, which has jeopardized

0 250 500 1000 km

Moscow


Volgograd

Perm

OmskNovosibirsk

Tomsk Krasnoyarsk

Irkutsk

Yakutsk

Vlad

ivos

tok

Khabarovsk

Uzhno-Sahalinsk


Murmansk

Resource depletion

Vyborg

Gryazovech Uhta

to China

to Europe

to Europe

to Europe

to Europe

to Europe

to Europe

to CISto CIS to China

to Korea

to APR

to China

Bovanenkovo

Yamburg

4-5 times cheaper option

cost 989.6 bn Russianrubles; 1100 km length

cost 5,1 m$/km917km length

cost 1,6-1,8 m$/kmlength 6700 km

cost 467 bn Russianrubles; length 1800 km

existing pipelinespipelines under construction or planned

pump stations

Gazprom pipelines

Sakhalin-Khabarovsk-Vladivostok Bovanenkovo-Uhta Uhta-Torjhok Graznovech-Vyborg Pochinki-Gryaznovech Djugba-Lazarevskoye-Sochy

Prime Gasprom pipelines equipment suppliers- “Stroygasmontagh”, “Stroygasconsulting”- “Stroygasconsulting”- “Stroygasmontagh”-“Stroygasmontagh”-“Stroygasmontagh”-“Stroygasmontagh”


Teriberka

Gryazovets

Aleks.Gai

Makat

SmolenskMinsk

Moscow

Pochinki

Lukoyan-ovskaya

Petrovsk

Kursk

Novopskov

Shebelinka

Beregovoe

St.Peters-burg

Vyborg

Kalinin-grad

Kondratki


Izmail


Existing pipelines

Tiraspol

Turkey

Romania

Ukraine

Belarus

Poland

Finland

SlovakiaHungary

Lat.Lit.

Est.

Russia

Georgia

Blue Stream

Nord Stream

Moldova

Karachaganak

Germany

KobrinBrest

Bulgaria

South Stream

Samsun

Cheboksary

Nabucco

SwedenNorway

Beineu

Frankfurt/Oder

-Yamal-Europe


Russian pipelines to EuropeRussian pipelines to Europe

Teriberka

Gryazovets

Aleks.Gai

Makat

SmolenskMinsk

Moscow

Pochinki

Lukoyan-ovskaya

Petrovsk

Kursk

Novopskov

Shebelinka

Beregovoe

St.Peters-burg

Vyborg

Kalinin-grad

Kondratki


Izmail


Existing pipelines

Tiraspol

Turkey

Romania

Ukraine

Belarus

Poland

Finland

SlovakiaHungary

Lat.Lit.

Est.

Russia

Georgia

Blue Stream

Nord Stream

Moldova

Karachaganak

Germany

KobrinBrest

Bulgaria

South Stream

Samsun

Cheboksary

Nabucco

SwedenNorway

Beineu

Frankfurt/Oder

-Yamal-Europe



Soviet pipelines, because the capacity of these pipelines in enough to support new Yamal gas fields. This option is five to six times cheaper and removes the need to construct a new pipeline with a capacity of only one-fourth of Gazprom’s annual gas production.

Another large Gazprom project is the pipeline from Sakhalin to Khabarovsk to Vladivostok, which cost 467 billion rubles to construct. The first stage of construction will begin in 2011. The estimated capacity of this pipeline by 2020 is 30 billion cubic meters per year. One kilometer of this pipeline will cost 254 million rubles. This high cost can be explained by the difficult geological, geographical and seismic conditions of the location and the accessibility of construction equipment from the pipeline construction route. However, the necessity of this project is questionable because it would be cheaper to build a

gas terminal in the seas surrounding Vladivostok in order to receive gas from Yamal and Australia.

Additionally, Gazprom pipelines to Europe were built with huge and unfounded capacities excesses. Europe’s annual natural gas import demand will likely grow by 70 to 100 billion cubic meters by 2020. This, however, will not pose a problem as the combined capacity of the Nord Stream and South Stream pipelines is 118 billion cubic meters per year. (cited

the entire project. Moreover, even if Turkey approves the construction, there is no guarantee that Turkey will not change the conditions of its agreement with Russia much like it did with the Blue Stream pipeline.

An additional obstacle for the South Stream pipeline is the Nabukko pipeline. This pipeline is will transport gas from the Caspian region to Europe via Azerbaijan, Georgia, Turkey, Bulgaria, Hungary, Rumania and Austria. Many

expect this pipeline to serve as the principle pipeline that will diversify gas supply and meet all European gas demands. Both pipelines will use the same route through European territories. Therefore, the Nabucco Pipeline will likely be South Stream’s main competition.

Another problem facing the South Stream pipeline is that Gazprom is unable to fulfil its export contracts without assistance from Central Asian countries such as Turkmenistan, Uzbekistan and Kazakstan. These countries must sell gas to Gazprom, which can dictate its

own terms because it is the only buyer. However, given that China is currently constructing pipelines to these countries, this situation will undoubtedly change.

In summation, according to experts, the cheapest way to transfer Russian gas to Europe is through Belarus and Poland. In descending order, the most expensive way to transfer Russian gas to Europe is through the South Stream, then the North Stream, and finally through Ukraine. If Europe were to buy Russian gas via these last two pipelines, it would be paying a premium price for gas.


xx


xx Title Chapter Title Chapter Title

Russian nuclear energy industry

Nuclear power and the nuclear energy sector play a major role in national security and the state interest. It is an industry that helps determine Russia’s position and competitiveness in the global nuclear energy market. Russia’s nuclear power plants are organized in

nodes on the Russian power grid in order to create a stable supply of electricity.

The Russian government is greatly concerned with the development of the Russian nuclear industry. The Russian government plans to invest up to one trillion rubles by 2015 towards such development. 68 billion rubles will be invested in the construction of new nuclear power plants. Moreover, several

Russian embassies plan to lobby for the advancement of Russian nuclear technology.

The Russian nuclear energy sector is represented by the state-run atomic energy corporation, Rosatom, which is involved in 250 enterprises and scientific institutions and participates in the development of many other ventures, such as the nuclear weapon

enrichment market, 22% of the uranium conversion market, and 12% of the nuclear fuel supply. The nuclear power plant construction market is completely dominated by Rosatom. In 2006 there was a decision to divide the nuclear industry into parts: military and civil parts and a specially created vertically integrated company that supplied equipment to nuclear power plants. The corporatization of the civil

industry, scientific institutes, the nuclear safety sector, and the unique nuclear icebreaker sector. This is one of the most developed industries in Russia. Rosatom has a competitive advantage in the world market because this corporation possesses all the tools necessary to produce nuclear energy. It conducts its own uranium production and even constructs new nuclear power plants. Rosatom controls 34% of the uranium

part of the industry has lead to the conversion of companies into joint stock ventures. This transformation provided a 360% increase in the price of company assets, a 170% increase in labor productivity, and a 37% increase of the corporation’s net income.

0 250 500 1000 km

Moscow


Volgograd

Perm

Omsk

Novosibirsk

Tomsk Krasnoyarsk

Irkutsk

Yakutsk

Vladivostok

Khabarovsk

Uzhno-Sahalinsk


Murmansk

Kola NPP

Leningrad NPP

Kalinin NPP

Bilibino NPP

Smolensk NPP

Nuclear power plants

Key rosatom productionfacilities

Scienti�c nuclear reactors

Big nuclear waste disposals

Kursk NPP

Novovoronezh NPP

Rostov NPP

Balakovo NPP

Beloyarsk NPP

Angarsk Electrolisys andchemical Combine

Electrochemical plant

Krasnoyarsk Mining and Chemical combine

Siberian integrated Chemical Plant

Electrikhimpribor

Ural Electrochemical Combine

PA Mayak

Russian nuclear facilities

Basic and applied

STRUCTURE AND DUTIES OF ROSATOM

STRUCTURE OF NUCLEAR POWER COMPLEX

Rosatom

Support of the nucleardeterrence policy

Fulfillment of theGovernment DefenceOrder

research

Scientific and engineering support of the nuclearpower and industry development program

Innovative developments,including those in relatedindustries

Accident-free operations

Management of spent nuclear fuel andradioactive waste

of nuclear and radiationhazardous nuclear powerand other facilities

Solutions of the problems of "nuclear legacy"(Reprocessing and storage of spent nuclear fuel and radioactive waste, rehabilitation of contaminated territories etc.)

Arctic navigation along theNorthern Sea Route

Emergency rescueoperations in ice fieldsNuclear icebreaker

weapon complextechnology complex

Nuclear power

Nucle

ar saf

ety

complex

complex

Nuclear Science and

complex

Enriched

TVEL Energoatom

AtomenergoproyektAtomstroyexportZarubezhenergostroy

Techsnabexport

Central Design bureau of Machine Building, AfrikantovaIC RGC

ARMZ

preparation of uranium mining conversion enrichment

Geological exploration deconversion fuel production

fuel elements10 NPP

Equipment manufacturing

Production ofgas centrifuges

Design of NPP NPP construction

Nuclear fuel production Electricity production

machine building industry


xx



Russian nuclear energy industry

Nuclear power and the nuclear energy sector play a major role in national security and the state interest. It is an industry that helps determine Russia’s position and competitiveness in the global nuclear energy market. Russia’s nuclear power plants are organized in

nodes on the Russian power grid in order to create a stable supply of electricity.

The Russian government is greatly concerned with the development of the Russian nuclear industry. The Russian government plans to invest up to one trillion rubles by 2015 towards such development. 68 billion rubles will be invested in the construction of new nuclear power plants. Moreover, several

Russian embassies plan to lobby for the advancement of Russian nuclear technology.

The Russian nuclear energy sector is represented by the state-run atomic energy corporation, Rosatom, which is involved in 250 enterprises and scientific institutions and participates in the development of many other ventures, such as the nuclear weapon

enrichment market, 22% of the uranium conversion market, and 12% of the nuclear fuel supply. The nuclear power plant construction market is completely dominated by Rosatom. In 2006 there was a decision to divide the nuclear industry into parts: military and civil parts and a specially created vertically integrated company that supplied equipment to nuclear power plants. The corporatization of the civil

industry, scientific institutes, the nuclear safety sector, and the unique nuclear icebreaker sector. This is one of the most developed industries in Russia. Rosatom has a competitive advantage in the world market because this corporation possesses all the tools necessary to produce nuclear energy. It conducts its own uranium production and even constructs new nuclear power plants. Rosatom controls 34% of the uranium

part of the industry has lead to the conversion of companies into joint stock ventures. This transformation provided a 360% increase in the price of company assets, a 170% increase in labor productivity, and a 37% increase of the corporation’s net income.

0 250 500 1000 km

Moscow


Volgograd

Perm

Omsk

Novosibirsk

Tomsk Krasnoyarsk

Irkutsk

Yakutsk

Vladivostok

Khabarovsk

Uzhno-Sahalinsk


Murmansk

Kola NPP

Leningrad NPP

Kalinin NPP

Bilibino NPP

Smolensk NPP

Nuclear power plants

Key rosatom productionfacilities

Scienti�c nuclear reactors

Big nuclear waste disposals

Kursk NPP

Novovoronezh NPP

Rostov NPP

Balakovo NPP

Beloyarsk NPP

Angarsk Electrolisys andchemical Combine

Electrochemical plant

Krasnoyarsk Mining and Chemical combine

Siberian integrated Chemical Plant

Electrikhimpribor

Ural Electrochemical Combine

PA Mayak

Russian nuclear facilities

Basic and applied

STRUCTURE AND DUTIES OF ROSATOM

STRUCTURE OF NUCLEAR POWER COMPLEX

Rosatom

Support of the nucleardeterrence policy

Fulfillment of theGovernment DefenceOrder

research

Scientific and engineering support of the nuclearpower and industry development program

Innovative developments,including those in relatedindustries

Accident-free operations

Management of spent nuclear fuel andradioactive waste

of nuclear and radiationhazardous nuclear powerand other facilities

Solutions of the problems of "nuclear legacy"(Reprocessing and storage of spent nuclear fuel and radioactive waste, rehabilitation of contaminated territories etc.)

Arctic navigation along theNorthern Sea Route

Emergency rescueoperations in ice fieldsNuclear icebreaker

weapon complextechnology complex

Nuclear power

Nucle

ar saf

ety

complex

complex

Nuclear Science and

complex

Enriched

TVEL Energoatom

AtomenergoproyektAtomstroyexportZarubezhenergostroy

Techsnabexport

Central Design bureau of Machine Building, AfrikantovaIC RGC

ARMZ

preparation of uranium mining conversion enrichment

Geological exploration deconversion fuel production

fuel elements10 NPP

Equipment manufacturing

Production ofgas centrifuges

Design of NPP NPP construction

Nuclear fuel production Electricity production

machine building industry



If the nuclear energy complex is not as hopeless as the oil and gas industry, then renewable energy, with its 0.9% share of the Russian electrical power supply, shows that there are almost no renewables in Russia. Big hydro allows for the generation of cheap electricity, but cannot be considered as a renewable energy source because of its huge footprint. Each new large hydroelectric plant floods significant areas, thereby causing swamps to form, water pollution, the transformation of natural ecosystems and, in the case of dam failures, accidents comparable only to nuclear disasters.

Currently big hydro accounts for 16% of the Russian supply of electricity. Russia has 47 large HPPs and PSPs; and two large hydroelectric plants are under construction. Almost all large hydroelectric plants belong to the state-run company RusHydro, previously known as HydroOGK. The Russian government owns a 50% +1 share in RusHydro.

The total installed capacity of hydroelectric plant turbogenerator units in Russia today amounts to approximately 45 million kW (the fifth largest in the world), with an output on the order of 165 billion kWh per year (also

in fifth place), while hydroelectric plants account for no more than 21% of Russia’s total electric power production. At the same time, in terms of the economic potential of hydropower resources, Russia is second in the world (with about 852 billion kWh, after China), but only 20% in terms of the degree of its development - a figure that is far behind virtually all developed countries and even many developing ones. The respective figures for France and Switzerland, for instance, are over 90%, for Canada and Norway – 70%, and for the U.S. and Brazil – 50%. In terms of installed hydro capacity RusHydro is in third place after Brasil Eletrobas, with a capacity of 36,000 MW, and Canada’s Hydro-Qubec – 33,600 MW.

Third place seems satisfactory, but the deterioration of equipment renders all of RusHydro’s core assets almost null. The situation is identical to that in the O&G sector – good scale and power qualities are the results of power production with old and decaying equipment. 53% of hydro turbines, 52.5% of electricity generation units, and 40-70% of boosters have gone beyond their projected operational life. The average value of deterioration of equipment at Russian hydroelectric plants is 70%, mainly in power plants on the Volga and Kama Rivers and in power plants in the northern Caucasus. 21% of Russian hydropower plants have been in operation for more than 50 years (in Dagestan, Kabardino-Balkaria, Karachay-Cherkessia, Northern Ossetia and Kuban).

However, after the August 17, 2009 disaster at the Sayano-Shushenskaya hydroelectric plant, in which 75 people died (the reasons included old equipment, negligence and the traditional Russian hope for a miracle, in this case that the hydro turbine would repair itself using its own hydro turbine efforts) and the requirements to complete construction of the Boguchany hydropower station. Hydroelectric plants in the Caucasus and central regions will continue to bear heavy loads while operating under critical conditions. There is no guarantee that a disaster even more dramatic than that of the Sayano-Shushenskaya accident will not happen in Russia in the next few years. Moreover, there is a high probability that a disaster will happen.

In an attempt to escape responsibility for new disasters and to avoid necessary renovation expenses, the Russian government and RusHydro have decided to privatize hydropower stations.

According to Energy Minister Sergei Shmatko, RusHydro has been instructed to create a two-phase plan to privatize its hydropower plants under which the government would give up its controlling stake. Experts suggest that the head of Rusal, Oleg Deripaska, will be a key buyer of the RusHydro shares. The hydropower stations belonging to RusHydro in Siberia supply the lion’s share of electricity to Deripaska’s aluminum factories, and consequently, keeping power generation under his control meets the interests of Rusal. China could also be a potential strategic partner for RusHydro. Several Chinese companies have already expressed their desire to buy shares.

This situation highlights one of the details of Russian state-run management, as sometimes it acts like the hungry grasshopper which eats up everything that is in its way and then sells what remains using hot price methods.

Big Hydro & RenewablesState of Russian Big Hydro complex

mW

Hydropower plant Most dangerous due to deterioration of equipment

Under construction

Installed capacity

Kaskad Verhnevolzhskyh HPP

Zagorskaya HPPNizhegorodskaya HPP

Cheboksary HPP

Kamskaya HPP

Votkynsk HPP

Nizhnekamsk HPP

Jhigulevskaya HPPSaratov HPP

Lenin HPP

Volzhskaya HPPKaskad Kubanskyh HPP

Cherkessk HPP

Irgansk HPP

Ust Hantayskaya HPP

Kureyskaya HPP

Novosibirskaya HPP

Sayano-Shushenskaya HPP

Irkutskaya HPP173% deteriorated

87% deteriorated

98% deteriorated87% deteriorated

91% deteriorated

98% deteriorated

95% deteriorated

121% deteriorated

110% deteriorated

Krasnoyarsk HPP

Bratsk HPP

Ust Ilyimskaya HPPBoguchansk HPP

Ust Srednekasanskaya HPP

Kolymskaya HPP

1360 2330

2582

2320

1248

1020522

1370

520

1200

456441

455

600

6721

6000

3000

3840

4515

662

1330

570

900

2010

1000

462

400

Russian “Big” Hydro power plants

0 250 500 1000 km

Moscow


Volgograd

Perm

Omsk

Novosibirsk

Tomsk Krasnoyarsk

Irkutsk

Yakutsk

Vladivostok

Khabarovsk

Uzhno-Sahalinsk


Murmansk

Age of HPPs installed capacity

<150

5

10

15

20

25

30

15-20

Capa

city

, %

20-25 25-30 30-35 35-40 >40-45

35

40

45

50

55

60



If the nuclear energy complex is not as hopeless as the oil and gas industry, then renewable energy, with its 0.9% share of the Russian electrical power supply, shows that there are almost no renewables in Russia. Big hydro allows for the generation of cheap electricity, but cannot be considered as a renewable energy source because of its huge footprint. Each new large hydroelectric plant floods significant areas, thereby causing swamps to form, water pollution, the transformation of natural ecosystems and, in the case of dam failures, accidents comparable only to nuclear disasters.

Currently big hydro accounts for 16% of the Russian supply of electricity. Russia has 47 large HPPs and PSPs; and two large hydroelectric plants are under construction. Almost all large hydroelectric plants belong to the state-run company RusHydro, previously known as HydroOGK. The Russian government owns a 50% +1 share in RusHydro.

The total installed capacity of hydroelectric plant turbogenerator units in Russia today amounts to approximately 45 million kW (the fifth largest in the world), with an output on the order of 165 billion kWh per year (also

in fifth place), while hydroelectric plants account for no more than 21% of Russia’s total electric power production. At the same time, in terms of the economic potential of hydropower resources, Russia is second in the world (with about 852 billion kWh, after China), but only 20% in terms of the degree of its development - a figure that is far behind virtually all developed countries and even many developing ones. The respective figures for France and Switzerland, for instance, are over 90%, for Canada and Norway – 70%, and for the U.S. and Brazil – 50%. In terms of installed hydro capacity RusHydro is in third place after Brasil Eletrobas, with a capacity of 36,000 MW, and Canada’s Hydro-Qubec – 33,600 MW.

Third place seems satisfactory, but the deterioration of equipment renders all of RusHydro’s core assets almost null. The situation is identical to that in the O&G sector – good scale and power qualities are the results of power production with old and decaying equipment. 53% of hydro turbines, 52.5% of electricity generation units, and 40-70% of boosters have gone beyond their projected operational life. The average value of deterioration of equipment at Russian hydroelectric plants is 70%, mainly in power plants on the Volga and Kama Rivers and in power plants in the northern Caucasus. 21% of Russian hydropower plants have been in operation for more than 50 years (in Dagestan, Kabardino-Balkaria, Karachay-Cherkessia, Northern Ossetia and Kuban).

However, after the August 17, 2009 disaster at the Sayano-Shushenskaya hydroelectric plant, in which 75 people died (the reasons included old equipment, negligence and the traditional Russian hope for a miracle, in this case that the hydro turbine would repair itself using its own hydro turbine efforts) and the requirements to complete construction of the Boguchany hydropower station. Hydroelectric plants in the Caucasus and central regions will continue to bear heavy loads while operating under critical conditions. There is no guarantee that a disaster even more dramatic than that of the Sayano-Shushenskaya accident will not happen in Russia in the next few years. Moreover, there is a high probability that a disaster will happen.

In an attempt to escape responsibility for new disasters and to avoid necessary renovation expenses, the Russian government and RusHydro have decided to privatize hydropower stations.

According to Energy Minister Sergei Shmatko, RusHydro has been instructed to create a two-phase plan to privatize its hydropower plants under which the government would give up its controlling stake. Experts suggest that the head of Rusal, Oleg Deripaska, will be a key buyer of the RusHydro shares. The hydropower stations belonging to RusHydro in Siberia supply the lion’s share of electricity to Deripaska’s aluminum factories, and consequently, keeping power generation under his control meets the interests of Rusal. China could also be a potential strategic partner for RusHydro. Several Chinese companies have already expressed their desire to buy shares.

This situation highlights one of the details of Russian state-run management, as sometimes it acts like the hungry grasshopper which eats up everything that is in its way and then sells what remains using hot price methods.

Big Hydro & RenewablesState of Russian Big Hydro complex

mW

Hydropower plant Most dangerous due to deterioration of equipment

Under construction

Installed capacity

Kaskad Verhnevolzhskyh HPP

Zagorskaya HPPNizhegorodskaya HPP

Cheboksary HPP

Kamskaya HPP

Votkynsk HPP

Nizhnekamsk HPP

Jhigulevskaya HPPSaratov HPP

Lenin HPP

Volzhskaya HPPKaskad Kubanskyh HPP

Cherkessk HPP

Irgansk HPP

Ust Hantayskaya HPP

Kureyskaya HPP

Novosibirskaya HPP

Sayano-Shushenskaya HPP

Irkutskaya HPP173% deteriorated

87% deteriorated

98% deteriorated87% deteriorated

91% deteriorated

98% deteriorated

95% deteriorated

121% deteriorated

110% deteriorated

Krasnoyarsk HPP

Bratsk HPP

Ust Ilyimskaya HPPBoguchansk HPP

Ust Srednekasanskaya HPP

Kolymskaya HPP

1360 2330

2582

2320

1248

1020522

1370

520

1200

456441

455

600

6721

6000

3000

3840

4515

662

1330

570

900

2010

1000

462

400

Russian “Big” Hydro power plants

0 250 500 1000 km

Moscow


Volgograd

Perm

Omsk

Novosibirsk

Tomsk Krasnoyarsk

Irkutsk

Yakutsk

Vladivostok

Khabarovsk

Uzhno-Sahalinsk


Murmansk

Age of HPPs installed capacity

<150

5

10

15

20

25

30

15-20

Capa

city

, %

20-25 25-30 30-35 35-40 >40-45

35

40

45

50

55

60



It is interesting that in Russia all former assets of RAO UES in the field of renewable energy (almost all the Soviet-Russian renewable energy legacy such as tidal, geothermal and wind power plants) belong to RusHydro. The construction of several renewable energy power plants are planned, and it is obvious that these new projects should increase the volume of renewable energy in the Russian energy supply, even up to 4.5 % by 2020, according to Russian energy strategy. However, needed repairs to the Sayano-Shushenskaya hydroelectric plant and the strange behavior of the

Russian government in regards to large hydropower plants amid a fossil-fuels-based economy leaves in serious doubt the belief that RusHydro would be able to manage this energy property and even to construct more.

Almost all of the 0.9% in electricity generation based on renewable energy sources has been put on the map below. Unfortunately, in such a big country all the facilities in operation can be counted on the fingers.

Against the odds, other government and large private companies are moving over to the renewable energy field. In 2009-2010 a sector of companies that recognize the renewable energy industry as one of the key components of their

business development emerged in Russia. These companies have all the necessary resources to form a Russian domestic renewable energy market.

If Rusnano in the list above could be considered, by a long stretch of the imagination, to be the locomotive of Russian modernization, then the concealed interests of the state corporation Rostekhnologii (called by journalists RosFamilyTechnology), where top management has also been spotted face in trough, could become potentially harmful for healthy renewable energy development. The example of the family of Sergey Chemezov, the head of Rostekhnologii, is most illuminating. For instance, his wife has her own

business, a company called Kate, which created a Russian type of automatic transmission for cars. Kate started construction of a factory that is not yet completed. Despite the lack of a factory, Kate already has the big client – Russian AvtoVAZ (whose blocking shares belong to Rostekhnologii), which has a contract value of 300 million rubles, according to unofficial sources. Chemezov’s son is co-owner of a private pharmaceutical company, Medpharmtechnologiya, the management company of the Pharmapolis project, a projected pharmaceutical cluster planned in Volokolamsk district – a group of connected innovative companies, developers of new medicine, chemical production facilities, suppliers of

equipment and researchers. Construction and development of the project are under the financing and control of Rostekhnologii.

Also, other relatives of Chermezov participate in various other businesses financed by Rostekhnologii, including cement production, insurance, and other activities. The widespread nepotism together with a strong fossil fuels lobby makes the participation of governmental companies potentially harmful for the development of renewable energy business in Russia.

Russian RE companies cluster.

Renova group

Key subsidaries: - Avelar Energy Group - focuses on conventional and renewable energy with activities ranging from gas production to household distribution and renewable sources development

- Columbus Nova - investments in biofuel technologies

-HEVEL LLC (a joint venture between Russian Corporation of Nanotechnologies (RUSNANO) Company was founded in summer 2009 to build and develop produc-tion of thin-film solar modules in Russia. 130 MW plant (more than 1 mln. modules per year) will be located in Novochebok-sarsk, Chuvashia.

Government corporation Rostechnologii

Construction of 1 GW windmill field on the Volga river together with RosHydro and high technology products support for Rus-sian RE industry

RUSNANO

RUSNANO Capital - Invest in funds with diversified portfolios of projects in nano-technology, pharmaceuticals, clean and renewable sources of energy, electronics, advanced materials and technologiesConstruction of the first Russian industrial solar energy plant in Kislovodsk

RusHydro

Possess all assets of RAO UES in the field of renewable energy usage

0 250 500 1000 km

Moscow


Volgograd

Perm

Omsk

Novosibirsk

Tomsk Krasnoyarsk

Irkutsk

Yakutsk

Vladivostok

Khabarovsk

Uzhno-Sahalinsk


Murmansk

Resource depletion Russian existing and planned RE facilities

Kyslogubskaya TPP

Mezenskaya TPP

Zapolyarnaya WPP

Primorskaya WPP

Tugurskaya TPP

Pauzhetskaya GTPP

Ocean GTPP

Verhne- MutnovskayaGTPP

Mutnovskaya GTPP

Bering Iceland WPP

Yantarenergo WPP

Small GTPPFilipovo

Kulikovskaya WPP

Baltyskaya WPP

Small hydro Solar Tidal Geothermal Wind

Planned

Rostov WPP

Kalmykiya WPP

Projected by Rusnano solar power plant

Tukpeldy WPP

Nitol Solar plant (productionof photovoltic equipment)

Travropol GTPP

Zagorskaya HPP+4 small HPP of Mosvodokanal

Renewables structure

Biomass/Gas 64.62%

Small Hydro 0.55%

Wind 31.24%

Tidal 0.07%Geothermal 3.52% Sun 0%

Biomass/Gas 64.62%

Small Hydro 0.55%

Wind 19%

Tidal 18%

Geothermal 3% Sun 0%

0.9% 4.5%

Russia 2010Renewables structure Russia 2020

Renewables counted on the fingersRE In Russia



It is interesting that in Russia all former assets of RAO UES in the field of renewable energy (almost all the Soviet-Russian renewable energy legacy such as tidal, geothermal and wind power plants) belong to RusHydro. The construction of several renewable energy power plants are planned, and it is obvious that these new projects should increase the volume of renewable energy in the Russian energy supply, even up to 4.5 % by 2020, according to Russian energy strategy. However, needed repairs to the Sayano-Shushenskaya hydroelectric plant and the strange behavior of the

Russian government in regards to large hydropower plants amid a fossil-fuels-based economy leaves in serious doubt the belief that RusHydro would be able to manage this energy property and even to construct more.

Almost all of the 0.9% in electricity generation based on renewable energy sources has been put on the map below. Unfortunately, in such a big country all the facilities in operation can be counted on the fingers.

Against the odds, other government and large private companies are moving over to the renewable energy field. In 2009-2010 a sector of companies that recognize the renewable energy industry as one of the key components of their

business development emerged in Russia. These companies have all the necessary resources to form a Russian domestic renewable energy market.

If Rusnano in the list above could be considered, by a long stretch of the imagination, to be the locomotive of Russian modernization, then the concealed interests of the state corporation Rostekhnologii (called by journalists RosFamilyTechnology), where top management has also been spotted face in trough, could become potentially harmful for healthy renewable energy development. The example of the family of Sergey Chemezov, the head of Rostekhnologii, is most illuminating. For instance, his wife has her own

business, a company called Kate, which created a Russian type of automatic transmission for cars. Kate started construction of a factory that is not yet completed. Despite the lack of a factory, Kate already has the big client – Russian AvtoVAZ (whose blocking shares belong to Rostekhnologii), which has a contract value of 300 million rubles, according to unofficial sources. Chemezov’s son is co-owner of a private pharmaceutical company, Medpharmtechnologiya, the management company of the Pharmapolis project, a projected pharmaceutical cluster planned in Volokolamsk district – a group of connected innovative companies, developers of new medicine, chemical production facilities, suppliers of

equipment and researchers. Construction and development of the project are under the financing and control of Rostekhnologii.

Also, other relatives of Chermezov participate in various other businesses financed by Rostekhnologii, including cement production, insurance, and other activities. The widespread nepotism together with a strong fossil fuels lobby makes the participation of governmental companies potentially harmful for the development of renewable energy business in Russia.

Russian RE companies cluster.

Renova group

Key subsidaries: - Avelar Energy Group - focuses on conventional and renewable energy with activities ranging from gas production to household distribution and renewable sources development

- Columbus Nova - investments in biofuel technologies

-HEVEL LLC (a joint venture between Russian Corporation of Nanotechnologies (RUSNANO) Company was founded in summer 2009 to build and develop produc-tion of thin-film solar modules in Russia. 130 MW plant (more than 1 mln. modules per year) will be located in Novochebok-sarsk, Chuvashia.

Government corporation Rostechnologii

Construction of 1 GW windmill field on the Volga river together with RosHydro and high technology products support for Rus-sian RE industry

RUSNANO

RUSNANO Capital - Invest in funds with diversified portfolios of projects in nano-technology, pharmaceuticals, clean and renewable sources of energy, electronics, advanced materials and technologiesConstruction of the first Russian industrial solar energy plant in Kislovodsk

RusHydro

Possess all assets of RAO UES in the field of renewable energy usage

0 250 500 1000 km

Moscow


Volgograd

Perm

Omsk

Novosibirsk

Tomsk Krasnoyarsk

Irkutsk

Yakutsk

Vladivostok

Khabarovsk

Uzhno-Sahalinsk


Murmansk

Resource depletion Russian existing and planned RE facilities

Kyslogubskaya TPP

Mezenskaya TPP

Zapolyarnaya WPP

Primorskaya WPP

Tugurskaya TPP

Pauzhetskaya GTPP

Ocean GTPP

Verhne- MutnovskayaGTPP

Mutnovskaya GTPP

Bering Iceland WPP

Yantarenergo WPP

Small GTPPFilipovo

Kulikovskaya WPP

Baltyskaya WPP

Small hydro Solar Tidal Geothermal Wind

Planned

Rostov WPP

Kalmykiya WPP

Projected by Rusnano solar power plant

Tukpeldy WPP

Nitol Solar plant (productionof photovoltic equipment)

Travropol GTPP

Zagorskaya HPP+4 small HPP of Mosvodokanal

Renewables structure

Biomass/Gas 64.62%

Small Hydro 0.55%

Wind 31.24%

Tidal 0.07%Geothermal 3.52% Sun 0%

Biomass/Gas 64.62%

Small Hydro 0.55%

Wind 19%

Tidal 18%

Geothermal 3% Sun 0%

0.9% 4.5%

Russia 2010Renewables structure Russia 2020

Renewables counted on the fingersRE In Russia



At present, potentially the most powerful energy complex in the world, because of the destructive management of the last 30 years, has been transformed into a feeble old man, screening itself behind myths and beautiful, but doubtful, promises.

The enormous amount of forecast

deposits of fossil fuels in Russia could cover domestic energy demands in the foreseeable future, but the situation is worse than it could be. As long as the Russian government continues to focus on excess profits and fossil fuels remain the primary source of income for the Russian economy, there will be no shift in modernization, no shift in energy efficiency, and no shift in implementation

of new technologies. The stability of energy supplies on a national scale will decrease, the gap between available and forecast fossil reserves will grow, the conditions for business and industry will become more complicated, and the whole of Russia will continue to move towards a dead end.

To summarize, there are several

structure problems for the Russian energy sector >

Electricity prices upturns and monopolization of the O&G sector

In Russia three is a significant electricity price spread between the wholesale electricity market and the sale prices for consumers where electricity prices are growing faster. With the current rate of growth for electricity prices, the price will exceed U.S. and Finnish levels by 2014.

This growth in electricity prices is happening because of rising gas prices, the acute necessity of renovation in generation and transmission funds, the implementation of a RAB-based tariff policy, the lifting of regulation on sales mark-ups of electricity retail markets, and non-competitive conditions.

Also, problems of the Russian oil and gas industry have an impact on the whole electrical energy industry, because gas is a prime fuel for electricity generation in Russia and occupies at least 55% of the whole electricity generation structure.

Stability of energy supply

The construction of a Russian unified energy grid was a great achievement of the Soviet era, which allowed for the development of industry and enforced the energy security of the entire county. However, the capacity of this grid is not infinite and even now the problem exists of putting new facilities into electricity production. For instance, the capacity limit of the existing energy grid does not allow improved ICUF (Installed Capacity Utilization Factor) value at Russian nuclear power plants, and so now this value in Russia is below the world average. Moreover, the failure of one branch of the Russian energy grid usually leads to sweeping blackouts in nearby regions.

World demands and requirements

Russia has a fossil-fuel, O&G-based economy and is trying to hold onto it, because it makes easy money for the country.

However there is no doubt that world demand for clean energy is growing together with installed renewable energy capacities in countries setting the pace in this field. Russian products are fossil based; its GDP energy intensity is one of the biggest in the world, while the competitive qualities of Russian products leave much to be desired. There is no doubt that the demand for Russian products with a fossil background will fall. From this point of view, production based on renewable energy sources can bring additional benefits to Russian industry. In addition, a fossil-based energy sector in the future can potentially make Russia unattractive for foreign industry as a country where they could build their production facilities.

All these data show that a traditionally centralized and powerful energy complex

is decaying. Russian citizens, business and industry have lost confidence in it, and they do not know how much they will pay for fuel end electricity in the next two to five years and what additional problems with electricity supply they will face. This is why the trend of decentralized generation has occurred and is gaining momentum in Russia – consumers are simply trying to avoid this unpredictability. Conversely, independent producers of electricity still consider diesel and gas as the main sources for electricity generation, which also puts them under the threat of unpredictability due to the difficult situation in the O&G sector.

It now looks like Russia does not have any choice in any likely future scenario and will have to force development of renewables to avoid the tragic consequences of its current and past actions. Even in the case that the country would find new, easily available oil and gas sources and would increase their export, that future would likely lead to a dead end anyway. Moreover, the benefits of renewables can solve many other additional acute problems.

ConclusionRenewables are needed

0 250 500 1000 km

Moscow


Volgograd

Perm

Omsk

Novosibirsk

Tomsk Krasnoyarsk

Irkutsk

Yakutsk

Vladivostok

Khabarovsk

Uzhno-Sahalinsk


Murmansk

2005 May 25Explosion at the “Chagino” substation leads to global cascade power cuts in the Moscow region, Kaluga Region and Tula Region. 4 m. people were s taying without electricity for several hours. 20000 people were trapped in the subway, 15000 people were trapped in elevators. Accident leads to significant telecommunication systems jams 2001 March 1A heavy fall of wet snow leads to damage of 253 electric substations. 60 towns and villages were switched off from the electricity grid2000 June 10Explosion at the“Vernadskaya” substation. 200 Moscow dwelling-houses were staying without electricity 2002 Febrary 27A heavy fall of snow leads to multiple transmission lines breaks. 370 towns and villages were staying without electricity

2010 December 26Icing on the transmission lines leads to multipletransmission lines breaks. About 100 000 citizens in Moscow Region and 60 000 in the Vladimir Region, Tver Region and Smolensk region were staying without electricity for long time (up to 2 weeks). International airport Domodedovo worked without stable electricity connection for several days2006 May 6

Failure of the air circuit breaker at the “Vostochnaya” substation leads to 3 hours blackout at the almost half of St. Petersburg 2001 November 01-12The hurricane leads to multiple transmission lines breaks. 600 towns and villages were staying without electricity for several days

2010 August 20Malfunction at the electrical substation “Vostochnaya” leads to the rolling blackout. Almost half of St. Petersburg was switched off from the electricity connection for one hour. Accident has affected public transportation systems including metro, trams, trolleybuses; and water supply in these districts

2004 NovemberAccident on the transmission line. 26 towns and villages in the Region of Krasnodar were staying without electricity 2001 December 18A heavy rain leads to tripping of the 2 Sochy central substations. 320000 inhabitants of Sochi were staying without electricity and hot water

2003 April 7A heavy fall of snow leads to transmission line damage. 69 towns and villages were staying without electricity2001 November 25A heavy fall of wet snow leads to transmission lines damage. 33 towns were staying without electricity

2000 Febrary 27A heavy snowfall leads to 60 transmission lines damage and breakage of 537 electrical substations. 33 towns and villages were staying without electricity

2004 October 10Squall wind leads to transmission lines breaks. 33 towns and villages were staying without electricity

2004 JanvaryAccident on the transmission line. 354 towns and villageswere staying without electricity 2010 June 15

Squall wind leads to transmission lines breaks and massive power cuts. 20000 citizens and socially significant facilities were staying without electricity for 1 day.

2009 August 17Catastrophe at the Sayano-Shushenskaya Hydro Power Plant. Negligence and deterioration of equipment leads to hydro turbine damage. As a result 75 people died, whole power plant was broken and stopped. Catastrophe leads to temporary interruption of power supply in several Siberian districts, panic in downstream villages, huge ecological damage. Disbenefit - approximately 7.5 billion roubles.

2004 October 10Fault of the city power-supply system. Whole Vladivostok is staying without electricity for 5 hours2002 October 28Squall wind and heavy snowfall leads to transmission lines damage. 25 towns and villages were staying without electricity

2002 October 14Squall wind leads to 50 transmission lines breaks. 202 towns and villages were staying without electricity

2010 November 22Transmission line wires were damaged by strong wind.4000 peoples were stayiong without electricity for 2 days

2000 March 25A heavy snowfall leads to 45 transmission lines breaks. 12 (+24 partly) towns were staying without electricity

2004 OctoberFault of Substation “Dachnaya”. Significant part of the city was staying without electricity for 2 days. 4 boiler-houses and 10 central heat distribution stations were switched off, which leads to cancelling of heat supply.

2003 September 9Squall wind leads to transmission lines breaks. 157 towns and villages at the Tambov Region, 600 towns and villages at the Province of Ivanovo, 1009 towns and villages at the Ryazan Region were staying without electricity.

2001 Janvary 9A heavy fall of wet snow leads to transmission lines breaks202 towns and willages, 30 farms were staying without electricity.

2003 September 9The explosion of the fuel-air mixture at the electrical substation “Leninskaya”. 8000 citizens were staying without electricity for several hours.

2002 Janvary 1Hurricane leads to transmission lines breaks. 30 towns and villages were staying without electricity

2009 November 11A heavy fall of snow, and squall wind leads to multipletransmission lines damage. 15000 citizens were staying without electricity up to 24 hours

2007 August 08Icing on the transmission lines leads to wires breakage.39000 citizens were staying without electricity

2007 August 08Squall wind and heavy rain leads to transmission lines of the Bureyskaya Hydropower plant damage. It leads to therolling blackouts in Khabarovsk, Province of Amur andPrimorskiy Kray

2007 August 08Squall wind leads to transmission lines damage. Southernvillages and towns of Chita Region were staying without electricity

2007 August 08A heavy fall of snow leads to transmission lines damage. 145 towns and villages (71500 citizens) were without electricity

2010 Janvary 22A heavy fall of snow, icing on the transmission lines and low temperatures leads to multiple transmission lines breaks. More than 20000 citizens were staying without electricity more than 3 days

2010 April 3Squall wind with rain leads to transmission lines btraksand massive power cuts. 39000 citizens were stayingwithout electricity for 15 hours2010 April 3Death of equipment of “Vostochnaya” substation. 34000 citizens were staying without electricity for several hours

2010 Febrary 5Icing on the transmission lines leads to transmission lines breaks. 10000 citizens were staying without electricity for 3 days

Blackouts frequency

1 per 10 years

Blackouts frequency

2-3 per 10 years

3 and more per 10 years

Russian blackouts

0,0 0,1 0,2 0,3 0,4 0,5

CIS 0.41

0.42

0.34

0.26

0.2

0.2

0.2

0.17

0.15

Russia

Ukraine

Belrussia

Canada

USA

China

Dewelopedcountries

India

World toe/$1000

GDP energy intencity, 2007

Price RUR/MWgas tariff upturns index

by IFK ‘Alemar’, ALBE

Tariff RUR/MW

0 2009 2011 2013 2015 2017 2019

400

800

1200

1600

2000

Forecast of wholesale electricity prices and tariffs, gas tariff upturns indexes

50

100

150

200

250

300

2.6 times 2.6

times



At present, potentially the most powerful energy complex in the world, because of the destructive management of the last 30 years, has been transformed into a feeble old man, screening itself behind myths and beautiful, but doubtful, promises.

The enormous amount of forecast

deposits of fossil fuels in Russia could cover domestic energy demands in the foreseeable future, but the situation is worse than it could be. As long as the Russian government continues to focus on excess profits and fossil fuels remain the primary source of income for the Russian economy, there will be no shift in modernization, no shift in energy efficiency, and no shift in implementation

of new technologies. The stability of energy supplies on a national scale will decrease, the gap between available and forecast fossil reserves will grow, the conditions for business and industry will become more complicated, and the whole of Russia will continue to move towards a dead end.

To summarize, there are several

structure problems for the Russian energy sector >

Electricity prices upturns and monopolization of the O&G sector

In Russia three is a significant electricity price spread between the wholesale electricity market and the sale prices for consumers where electricity prices are growing faster. With the current rate of growth for electricity prices, the price will exceed U.S. and Finnish levels by 2014.

This growth in electricity prices is happening because of rising gas prices, the acute necessity of renovation in generation and transmission funds, the implementation of a RAB-based tariff policy, the lifting of regulation on sales mark-ups of electricity retail markets, and non-competitive conditions.

Also, problems of the Russian oil and gas industry have an impact on the whole electrical energy industry, because gas is a prime fuel for electricity generation in Russia and occupies at least 55% of the whole electricity generation structure.

Stability of energy supply

The construction of a Russian unified energy grid was a great achievement of the Soviet era, which allowed for the development of industry and enforced the energy security of the entire county. However, the capacity of this grid is not infinite and even now the problem exists of putting new facilities into electricity production. For instance, the capacity limit of the existing energy grid does not allow improved ICUF (Installed Capacity Utilization Factor) value at Russian nuclear power plants, and so now this value in Russia is below the world average. Moreover, the failure of one branch of the Russian energy grid usually leads to sweeping blackouts in nearby regions.

World demands and requirements

Russia has a fossil-fuel, O&G-based economy and is trying to hold onto it, because it makes easy money for the country.

However there is no doubt that world demand for clean energy is growing together with installed renewable energy capacities in countries setting the pace in this field. Russian products are fossil based; its GDP energy intensity is one of the biggest in the world, while the competitive qualities of Russian products leave much to be desired. There is no doubt that the demand for Russian products with a fossil background will fall. From this point of view, production based on renewable energy sources can bring additional benefits to Russian industry. In addition, a fossil-based energy sector in the future can potentially make Russia unattractive for foreign industry as a country where they could build their production facilities.

All these data show that a traditionally centralized and powerful energy complex

is decaying. Russian citizens, business and industry have lost confidence in it, and they do not know how much they will pay for fuel end electricity in the next two to five years and what additional problems with electricity supply they will face. This is why the trend of decentralized generation has occurred and is gaining momentum in Russia – consumers are simply trying to avoid this unpredictability. Conversely, independent producers of electricity still consider diesel and gas as the main sources for electricity generation, which also puts them under the threat of unpredictability due to the difficult situation in the O&G sector.

It now looks like Russia does not have any choice in any likely future scenario and will have to force development of renewables to avoid the tragic consequences of its current and past actions. Even in the case that the country would find new, easily available oil and gas sources and would increase their export, that future would likely lead to a dead end anyway. Moreover, the benefits of renewables can solve many other additional acute problems.

ConclusionRenewables are needed

0 250 500 1000 km

Moscow


Volgograd

Perm

Omsk

Novosibirsk

Tomsk Krasnoyarsk

Irkutsk

Yakutsk

Vladivostok

Khabarovsk

Uzhno-Sahalinsk


Murmansk

2005 May 25Explosion at the “Chagino” substation leads to global cascade power cuts in the Moscow region, Kaluga Region and Tula Region. 4 m. people were s taying without electricity for several hours. 20000 people were trapped in the subway, 15000 people were trapped in elevators. Accident leads to significant telecommunication systems jams 2001 March 1A heavy fall of wet snow leads to damage of 253 electric substations. 60 towns and villages were switched off from the electricity grid2000 June 10Explosion at the“Vernadskaya” substation. 200 Moscow dwelling-houses were staying without electricity 2002 Febrary 27A heavy fall of snow leads to multiple transmission lines breaks. 370 towns and villages were staying without electricity

2010 December 26Icing on the transmission lines leads to multipletransmission lines breaks. About 100 000 citizens in Moscow Region and 60 000 in the Vladimir Region, Tver Region and Smolensk region were staying without electricity for long time (up to 2 weeks). International airport Domodedovo worked without stable electricity connection for several days2006 May 6

Failure of the air circuit breaker at the “Vostochnaya” substation leads to 3 hours blackout at the almost half of St. Petersburg 2001 November 01-12The hurricane leads to multiple transmission lines breaks. 600 towns and villages were staying without electricity for several days

2010 August 20Malfunction at the electrical substation “Vostochnaya” leads to the rolling blackout. Almost half of St. Petersburg was switched off from the electricity connection for one hour. Accident has affected public transportation systems including metro, trams, trolleybuses; and water supply in these districts

2004 NovemberAccident on the transmission line. 26 towns and villages in the Region of Krasnodar were staying without electricity 2001 December 18A heavy rain leads to tripping of the 2 Sochy central substations. 320000 inhabitants of Sochi were staying without electricity and hot water

2003 April 7A heavy fall of snow leads to transmission line damage. 69 towns and villages were staying without electricity2001 November 25A heavy fall of wet snow leads to transmission lines damage. 33 towns were staying without electricity

2000 Febrary 27A heavy snowfall leads to 60 transmission lines damage and breakage of 537 electrical substations. 33 towns and villages were staying without electricity

2004 October 10Squall wind leads to transmission lines breaks. 33 towns and villages were staying without electricity

2004 JanvaryAccident on the transmission line. 354 towns and villageswere staying without electricity 2010 June 15

Squall wind leads to transmission lines breaks and massive power cuts. 20000 citizens and socially significant facilities were staying without electricity for 1 day.

2009 August 17Catastrophe at the Sayano-Shushenskaya Hydro Power Plant. Negligence and deterioration of equipment leads to hydro turbine damage. As a result 75 people died, whole power plant was broken and stopped. Catastrophe leads to temporary interruption of power supply in several Siberian districts, panic in downstream villages, huge ecological damage. Disbenefit - approximately 7.5 billion roubles.

2004 October 10Fault of the city power-supply system. Whole Vladivostok is staying without electricity for 5 hours2002 October 28Squall wind and heavy snowfall leads to transmission lines damage. 25 towns and villages were staying without electricity

2002 October 14Squall wind leads to 50 transmission lines breaks. 202 towns and villages were staying without electricity

2010 November 22Transmission line wires were damaged by strong wind.4000 peoples were stayiong without electricity for 2 days

2000 March 25A heavy snowfall leads to 45 transmission lines breaks. 12 (+24 partly) towns were staying without electricity

2004 OctoberFault of Substation “Dachnaya”. Significant part of the city was staying without electricity for 2 days. 4 boiler-houses and 10 central heat distribution stations were switched off, which leads to cancelling of heat supply.

2003 September 9Squall wind leads to transmission lines breaks. 157 towns and villages at the Tambov Region, 600 towns and villages at the Province of Ivanovo, 1009 towns and villages at the Ryazan Region were staying without electricity.

2001 Janvary 9A heavy fall of wet snow leads to transmission lines breaks202 towns and willages, 30 farms were staying without electricity.

2003 September 9The explosion of the fuel-air mixture at the electrical substation “Leninskaya”. 8000 citizens were staying without electricity for several hours.

2002 Janvary 1Hurricane leads to transmission lines breaks. 30 towns and villages were staying without electricity

2009 November 11A heavy fall of snow, and squall wind leads to multipletransmission lines damage. 15000 citizens were staying without electricity up to 24 hours

2007 August 08Icing on the transmission lines leads to wires breakage.39000 citizens were staying without electricity

2007 August 08Squall wind and heavy rain leads to transmission lines of the Bureyskaya Hydropower plant damage. It leads to therolling blackouts in Khabarovsk, Province of Amur andPrimorskiy Kray

2007 August 08Squall wind leads to transmission lines damage. Southernvillages and towns of Chita Region were staying without electricity

2007 August 08A heavy fall of snow leads to transmission lines damage. 145 towns and villages (71500 citizens) were without electricity

2010 Janvary 22A heavy fall of snow, icing on the transmission lines and low temperatures leads to multiple transmission lines breaks. More than 20000 citizens were staying without electricity more than 3 days

2010 April 3Squall wind with rain leads to transmission lines btraksand massive power cuts. 39000 citizens were stayingwithout electricity for 15 hours2010 April 3Death of equipment of “Vostochnaya” substation. 34000 citizens were staying without electricity for several hours

2010 Febrary 5Icing on the transmission lines leads to transmission lines breaks. 10000 citizens were staying without electricity for 3 days

Blackouts frequency

1 per 10 years

Blackouts frequency

2-3 per 10 years

3 and more per 10 years

Russian blackouts

0,0 0,1 0,2 0,3 0,4 0,5

CIS 0.41

0.42

0.34

0.26

0.2

0.2

0.2

0.17

0.15

Russia

Ukraine

Belrussia

Canada

USA

China

Dewelopedcountries

India

World toe/$1000

GDP energy intencity, 2007

Price RUR/MWgas tariff upturns index

by IFK ‘Alemar’, ALBE

Tariff RUR/MW

0 2009 2011 2013 2015 2017 2019

400

800

1200

1600

2000

Forecast of wholesale electricity prices and tariffs, gas tariff upturns indexes

50

100

150

200

250

300

2.6 times 2.6

times


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http//iea.org

coal oil gas nuclear hydro waste renewables

RUSSIAN ENERGY BALANCEINTRODUCTION IN RUSSIAN ENERGY PRODUCTION AND CONSUMPTION

Russia is the world’s largest exporter of primary energy. In 2004, Russia exported a total of 520 Mtoe, including 330 Mtoe of oil, 168 Mtoe of natural gas and 22 Mtoe of coal. Energy exports have been the ma-jor driver for Russian economic growth, accounting for 25% of GDP and 65% of export revenue.

Russia is the world’s third largest energy consumer. Primary energy consumption has grown dramatically over the past five years at a rate of 2.5%, while GDP growth reached 7.1% in 2004 to surpass the aver-age growth rates of other G8 economies. In 2005, natural gas accounted for the largest share of primary energy consump-tion at 56%, followed by oil at 18% and coal at 16%. Due to Russia’s extremely cold weather, the most important use of natural gas is for heating. Russia meets all of its energy needs through domestic

production, as it has the world’s largest natural gas reserves, the second largest coal reserves, and the eighth largest oil reserves. However, with depleting oil and gas reserves in the economy’s traditional oil and gas producing regions, Russia has been forced to look for new sources of energy. The total primary energy supply (TPES) is the sum of all energy production in a country, or a kind of energy profile for a country. Half of Russian TPES is gas and 70% of gas production is consumed inside the country. Russia exports most of its oil and coal.

Russian energy consumption declined sharply after 1990, so the Kyoto Protocol is, for the moment, no longer on the list of Russian problems. Russia’s energy use is mainly fueled by increasing economic activity, boosted in part by high world energy prices. Russian GDP has grown steadily at an average rate of 5.1% annu-ally since 1999, when the economy began to recover. This economic rebound started in 1999, a year after the Russian ruble was reevaluated. The rebound was later sup-ported by soaring world energy prices in 2000.

Russian GDP is expected to continue to grow, although at a slower pace of 3.8%.Industrial energy consumption fell sharp-ly in the early 1990s following the break-up of the Soviet Union, however demand is projected to recover and grow at an average annual rate of 1.6% until 2030. The growth will be less than half of the industrial sector’s added value, at 4.1% per year during the same period, resulting

in a substantial decline in energy inten-sity at an average rate of 2.4% annually. The expected technological retrofitting of industrial facilities and the effect of subsidy cuts on energy prices will con-tribute to the decline in industrial energy production. Many industrial facilities are antiquated and technologically obsolete in Russia. National statistics show that the average age of industrial facilities and equipment was 20 years old in 2002. Replacing these facilities is crucial for the development of Russian industry and en-ergy could be saved through the introduc-tion of advanced technology. Therefore, industrial energy demand by 2030 is like-ly to be similar to 1992 levels, despite the substantial increase in industrial activity. Russia encompasses part of the world’s largest landmass, has centers of popula-tion in some of the coldest areas on earth, is the world’s tenth largest economy, and has a predominance of heavy industry, therefore it is understandable that the country is at the higher end of any inter-national ranking of energy intensity. Col-lectively, however, these factors fail to explain all of Russia’s energy intensity. Russia is more energy intensive than in-ternational comparisons would suggest for countries with similar levels of income, landmass, temperature and industry.

“...Russia’s current energy inefficiency is equal to the annual primary energy consumption of France...”

According to 2009 data, the most energy intensive sector is industry at 29%. Sub-sequently, the second is the residential housing sector at 26%, and the third-larg-est consumer is the transport sector at 22%. Every sector has a large potential for energy efficiency. A more comprehen-sive analysis of transforming energy proc-esses provides a great deal of information as to where the losses are and where the potential is.

eefstrelka10pages.indd 2-3 22.06.2010 23:52:42

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2008

1990

2000

2008

1990

2000

2008

1990

2000

2008

1990

2000

2008

1990

2000

2008

1990

2000

2008

http//iea.org

coal oil gas nuclear hydro waste renewables

RUSSIAN ENERGY BALANCEINTRODUCTION IN RUSSIAN ENERGY PRODUCTION AND CONSUMPTION

Russia is the world’s largest exporter of primary energy. In 2004, Russia exported a total of 520 Mtoe, including 330 Mtoe of oil, 168 Mtoe of natural gas and 22 Mtoe of coal. Energy exports have been the ma-jor driver for Russian economic growth, accounting for 25% of GDP and 65% of export revenue.

Russia is the world’s third largest energy consumer. Primary energy consumption has grown dramatically over the past five years at a rate of 2.5%, while GDP growth reached 7.1% in 2004 to surpass the aver-age growth rates of other G8 economies. In 2005, natural gas accounted for the largest share of primary energy consump-tion at 56%, followed by oil at 18% and coal at 16%. Due to Russia’s extremely cold weather, the most important use of natural gas is for heating. Russia meets all of its energy needs through domestic

production, as it has the world’s largest natural gas reserves, the second largest coal reserves, and the eighth largest oil reserves. However, with depleting oil and gas reserves in the economy’s traditional oil and gas producing regions, Russia has been forced to look for new sources of energy. The total primary energy supply (TPES) is the sum of all energy production in a country, or a kind of energy profile for a country. Half of Russian TPES is gas and 70% of gas production is consumed inside the country. Russia exports most of its oil and coal.

Russian energy consumption declined sharply after 1990, so the Kyoto Protocol is, for the moment, no longer on the list of Russian problems. Russia’s energy use is mainly fueled by increasing economic activity, boosted in part by high world energy prices. Russian GDP has grown steadily at an average rate of 5.1% annu-ally since 1999, when the economy began to recover. This economic rebound started in 1999, a year after the Russian ruble was reevaluated. The rebound was later sup-ported by soaring world energy prices in 2000.

Russian GDP is expected to continue to grow, although at a slower pace of 3.8%.Industrial energy consumption fell sharp-ly in the early 1990s following the break-up of the Soviet Union, however demand is projected to recover and grow at an average annual rate of 1.6% until 2030. The growth will be less than half of the industrial sector’s added value, at 4.1% per year during the same period, resulting

in a substantial decline in energy inten-sity at an average rate of 2.4% annually. The expected technological retrofitting of industrial facilities and the effect of subsidy cuts on energy prices will con-tribute to the decline in industrial energy production. Many industrial facilities are antiquated and technologically obsolete in Russia. National statistics show that the average age of industrial facilities and equipment was 20 years old in 2002. Replacing these facilities is crucial for the development of Russian industry and en-ergy could be saved through the introduc-tion of advanced technology. Therefore, industrial energy demand by 2030 is like-ly to be similar to 1992 levels, despite the substantial increase in industrial activity. Russia encompasses part of the world’s largest landmass, has centers of popula-tion in some of the coldest areas on earth, is the world’s tenth largest economy, and has a predominance of heavy industry, therefore it is understandable that the country is at the higher end of any inter-national ranking of energy intensity. Col-lectively, however, these factors fail to explain all of Russia’s energy intensity. Russia is more energy intensive than in-ternational comparisons would suggest for countries with similar levels of income, landmass, temperature and industry.

“...Russia’s current energy inefficiency is equal to the annual primary energy consumption of France...”

According to 2009 data, the most energy intensive sector is industry at 29%. Sub-sequently, the second is the residential housing sector at 26%, and the third-larg-est consumer is the transport sector at 22%. Every sector has a large potential for energy efficiency. A more comprehen-sive analysis of transforming energy proc-esses provides a great deal of information as to where the losses are and where the potential is.


RUSSIAN ENERGY LOSSESINTRODUCTION IN RUSSIAN ENERGY PRODUCTION AND CONSUMPTION

HEAT TRANSFORMATION. The Russian heating system is the big-gest in the world with a one-hundred-year history. Russia produces 44% of the world’s thermal energy. Transforming raw energy into heat (mostly gas and coal), heat boilers and CHP plants (a cogenera-tion of electricity with heat) account for 44% of Russia’s energy loss. The energy conversion index indicates an average energy loss of 20% for heat boilers and 20% for CHP plants – heat is a co-prod-uct of electricity production. This area has recently encountered many prob-lems. Namely, most electricity produced by CHP plants in Russia is a by-product of electricity production; however, CHP plants are currently functioning at a 30% efficiency rate. In 1990 the manufactur-ing market shrunk thereby rendering CHP plants inefficient and unnecessary. Despite being economically efficient, CHP plants are not used. Instead, heat boilers, which produce heat from coal and gas, are preferred.

ELECTRICITY TRANSFORMATION.In transforming energy (mostly gas and coal) into electricity, 70% of the energy is lost in the process. The most modern plants can implement the process with a loss of only 45%, but even in European countries average efficiency is not more than 38-39%. However, some other prob-lems are not even on the government’s radar. First, there is a general bias in the power industry, perpetuated by exagger-ated demand-growth forecasts, to build traditional, new-generation capacity rather than invest in energy efficiency. Second, the lack of coordination with heat supply systems and cumbersome administrative regulations for small-scale CHP plants lead to a sub-optimal energy supply system. Third, current energy prices discourage energy and operational efficiency behavior.

OIL TRANSFORMATION.Oil refining is a specific case. Russian refineries get 200 liters of high-quality gasoline from one ton of oil, while an-other 200 liters are losses and low-quality fuel. Russia sells some of these products to Europe, where it is used to make higher-quality fuel. In comparison, the last generation of oil refining in the United States yields 500 liters of gaso-line from one ton of oil. Nearly all work-ing refineries (80%) need to be replaced. Another problem is that those refiner-ies are unevenly spaced as they were built according to the Soviet extraction industry, thus transport costs are higher. Moreover, mini-refineries cannot produce more high-quality fuel.Russia’s power industry uses a high level of energy for several reasons. The energy system is a highly interrelated system. For example, heat boilers use electricity to transport water; oil and gas pipelines also use electricity produced from oil and gas. This means that any division by gen-eration type or by consumption type is done according to convention. However, this interrelated system has one charac-teristic in that 40% of the power genera-tion equipment is old. Three-quarters of Russia’s oil pipelines are more than 20 years old, 59% of Russian gas pipelines need to be replaced and 75% of the equipment is out of date. Russia’s power industry is a very old system. This is why only calculated losses are comparable with total consumption among the public.

HEAT TRANSPORTATION. A huge amount of energy is lost during transport from producer to consumer due to badly insulated heating pipes, leaks and breakages. The consequences of this are that the consumer pays for every-thing. There is no reason to invest in efficiency when heating agencies can get back their costs from the consumer. The most significant barriers to energy effi-ciency in the supply of heat relate to how tariffs are applied, the legal structure of municipal utility providers, and a lack of information and coordination. Resolving these problems involve substantial price reform, transforming municipal heat suppliers into commercial entities, better statistical information, and developing a heat supply plan.

ELECTRICITY AND OIL TRANSPORTATION. The transport of electricity and oil are comparable with world averages, although the power transportation infra-structure needs to be replaced.

CONSUMPTION.The last group of losses concerns con-sumption. The main reasons for the high degree of these losses are old buildings, cars and trucks, and the structure of organizations, which did not create any interest in efficiency. Losses amount to two-third of consumption in the residen-tial sector. The most significant barriers to energy efficiency in residential hous-ing relate to building standards, public behavior, and difficulties in organizing

and financing efficient energy improve-ments in public areas.The same level exists in the public-commercial sector, where the absence of responsibility has led to frighten consequences. Both cases are paid for by the consumer and subsidized by the gov-ernment. This potential is “low hanging fruit” for the government. However, effi-ciency energy improvements have limited uptake by public organizations due to the following regulatory hurdles: public organizations are not allowed to retain or reallocate savings on utilities; they cannot conclude long-term contracts or contracts that pay for investments with future savings. Procurement rules favor the lowest cost of the bid, not the lowest lifetime cost. This sector is the last to see any real change because of a lack of knowledge and personal encouragement.The potential in industry for using the world’s technical potential is 47%. How-ever, with Russian technical examples the potential is 30%. Before energy market reform in 2010, the industry was highly-subsidized through special contracts, price discounts and direct subsidies. Industry is slow to realize its efficient energy potential mainly because there is a lack of awareness among managers and an insufficient supply of long-term capital to finance efficient energy modernization. In addi-tion, companies in a number of sectors lack incentives to save because energy prices are growing at a slower pace than producer prices.

One can get a clear picture by putting all these losses together to compare with a “normal” level. Of the total primary energy supply, 78% is losses, while only 22% is real consumption.

*Three notions are usually used to calculate potential in energy efficiency questions. Technical potential is the immediate replacement of all old equip-ment and infrastructure with the most up-to-date hardware. An investment is financially viable if it generates attrac-tive return amid existing energy prices. An investment is economically viable if its value to the economy as a whole justifies the investment; e.g. the cost of saving a unit of energy is less than the cost to build a new unit of production capacity, or the opportunity cost to Rus-sia of exporting a unit of gas, whichever is greater.

66%

66%9%

26%

29%

31%

46%

5%

2%

0.7%

15%

4%

24%

31%

26%

14%

69%

4%

72%

24%

2%

72%

7%

17%

28%

TOTAL PRIMARY

ENERGYSUPPLY

TRANSFORMED,PREPARED

ENERGY

10%

22%

2%

47%

63%

63%

20%

20%

44%

13%

CONSUMPTION

PUBLIC

NONENERGY47

CONSUMPTIONREAL

LOSSES

151

535

AGRICULTURE 10

63

40

RESIDENTIAL113

TRANSPORT97

INDUSTRY125

CHP6063

ELECTRICITY29 ELECTRICITY

HEAT 78

HEAT113

GAS134

243

OILREFINERY

COAL117

OIL243

GAS366

NUCLEAR 42

RE AND WASTE 6

HYDRO 14

RUSSIAN ENERGY USE

http://worldbank.org.ru wb russia report №7http://iea.org/stats/indicators.asp?country_code=ruhttp://www.gks.ru/wps/wcm/connect/rosstat/rosstatsite/main/account/#

RUSSIAN ENERGY USE

LOSSES ANALYSIS

ECE 30%ECE 80%

ECE 56%

50 % transportationand old infrastructure

15 % transportation

6 % stealing

3 % transportation andold infrastructure

5% storage

GASnuclear

CRUDE OIL

COAL INDUSTRY

TRANSPORT

RESIDENTIAL

TPES TRANSFORMEDTRANSFORMATION*ECE - energy conversion efficiency

FINAL CONSUMPTON EFFICIENCY POTENTIAL

PUBLIC

AGRICULTURENON-ENERGY

energy industryown use

EI oun use

losses

gasoline

diesel kerosene mazut

Russian 30%

pipelines 12%

66 %

60 %

transportation 17%

international 17%

20%30%10%35%

71%

47%

18%

26 647

electricity

HEAT

losses in heating89 267

losses in electricity126 780

OIL PRODUCTS

OTHEROTHER

GASGAS

COAL

TPES TRANSFORMATION CONSUMPTION

raw energyexport

convercionlosses

supplyreasons

-

transportationlosses

consumptionlosses

consumption

TRANSPORTATION


RUSSIAN ENERGY LOSSESINTRODUCTION IN RUSSIAN ENERGY PRODUCTION AND CONSUMPTION

HEAT TRANSFORMATION. The Russian heating system is the big-gest in the world with a one-hundred-year history. Russia produces 44% of the world’s thermal energy. Transforming raw energy into heat (mostly gas and coal), heat boilers and CHP plants (a cogenera-tion of electricity with heat) account for 44% of Russia’s energy loss. The energy conversion index indicates an average energy loss of 20% for heat boilers and 20% for CHP plants – heat is a co-prod-uct of electricity production. This area has recently encountered many prob-lems. Namely, most electricity produced by CHP plants in Russia is a by-product of electricity production; however, CHP plants are currently functioning at a 30% efficiency rate. In 1990 the manufactur-ing market shrunk thereby rendering CHP plants inefficient and unnecessary. Despite being economically efficient, CHP plants are not used. Instead, heat boilers, which produce heat from coal and gas, are preferred.

ELECTRICITY TRANSFORMATION.In transforming energy (mostly gas and coal) into electricity, 70% of the energy is lost in the process. The most modern plants can implement the process with a loss of only 45%, but even in European countries average efficiency is not more than 38-39%. However, some other prob-lems are not even on the government’s radar. First, there is a general bias in the power industry, perpetuated by exagger-ated demand-growth forecasts, to build traditional, new-generation capacity rather than invest in energy efficiency. Second, the lack of coordination with heat supply systems and cumbersome administrative regulations for small-scale CHP plants lead to a sub-optimal energy supply system. Third, current energy prices discourage energy and operational efficiency behavior.

OIL TRANSFORMATION.Oil refining is a specific case. Russian refineries get 200 liters of high-quality gasoline from one ton of oil, while an-other 200 liters are losses and low-quality fuel. Russia sells some of these products to Europe, where it is used to make higher-quality fuel. In comparison, the last generation of oil refining in the United States yields 500 liters of gaso-line from one ton of oil. Nearly all work-ing refineries (80%) need to be replaced. Another problem is that those refiner-ies are unevenly spaced as they were built according to the Soviet extraction industry, thus transport costs are higher. Moreover, mini-refineries cannot produce more high-quality fuel.Russia’s power industry uses a high level of energy for several reasons. The energy system is a highly interrelated system. For example, heat boilers use electricity to transport water; oil and gas pipelines also use electricity produced from oil and gas. This means that any division by gen-eration type or by consumption type is done according to convention. However, this interrelated system has one charac-teristic in that 40% of the power genera-tion equipment is old. Three-quarters of Russia’s oil pipelines are more than 20 years old, 59% of Russian gas pipelines need to be replaced and 75% of the equipment is out of date. Russia’s power industry is a very old system. This is why only calculated losses are comparable with total consumption among the public.

HEAT TRANSPORTATION. A huge amount of energy is lost during transport from producer to consumer due to badly insulated heating pipes, leaks and breakages. The consequences of this are that the consumer pays for every-thing. There is no reason to invest in efficiency when heating agencies can get back their costs from the consumer. The most significant barriers to energy effi-ciency in the supply of heat relate to how tariffs are applied, the legal structure of municipal utility providers, and a lack of information and coordination. Resolving these problems involve substantial price reform, transforming municipal heat suppliers into commercial entities, better statistical information, and developing a heat supply plan.

ELECTRICITY AND OIL TRANSPORTATION. The transport of electricity and oil are comparable with world averages, although the power transportation infra-structure needs to be replaced.

CONSUMPTION.The last group of losses concerns con-sumption. The main reasons for the high degree of these losses are old buildings, cars and trucks, and the structure of organizations, which did not create any interest in efficiency. Losses amount to two-third of consumption in the residen-tial sector. The most significant barriers to energy efficiency in residential hous-ing relate to building standards, public behavior, and difficulties in organizing

and financing efficient energy improve-ments in public areas.The same level exists in the public-commercial sector, where the absence of responsibility has led to frighten consequences. Both cases are paid for by the consumer and subsidized by the gov-ernment. This potential is “low hanging fruit” for the government. However, effi-ciency energy improvements have limited uptake by public organizations due to the following regulatory hurdles: public organizations are not allowed to retain or reallocate savings on utilities; they cannot conclude long-term contracts or contracts that pay for investments with future savings. Procurement rules favor the lowest cost of the bid, not the lowest lifetime cost. This sector is the last to see any real change because of a lack of knowledge and personal encouragement.The potential in industry for using the world’s technical potential is 47%. How-ever, with Russian technical examples the potential is 30%. Before energy market reform in 2010, the industry was highly-subsidized through special contracts, price discounts and direct subsidies. Industry is slow to realize its efficient energy potential mainly because there is a lack of awareness among managers and an insufficient supply of long-term capital to finance efficient energy modernization. In addi-tion, companies in a number of sectors lack incentives to save because energy prices are growing at a slower pace than producer prices.

One can get a clear picture by putting all these losses together to compare with a “normal” level. Of the total primary energy supply, 78% is losses, while only 22% is real consumption.

*Three notions are usually used to calculate potential in energy efficiency questions. Technical potential is the immediate replacement of all old equip-ment and infrastructure with the most up-to-date hardware. An investment is financially viable if it generates attrac-tive return amid existing energy prices. An investment is economically viable if its value to the economy as a whole justifies the investment; e.g. the cost of saving a unit of energy is less than the cost to build a new unit of production capacity, or the opportunity cost to Rus-sia of exporting a unit of gas, whichever is greater.

66%

66%9%

26%

29%

31%

46%

5%

2%

0.7%

15%

4%

24%

31%

26%

14%

69%

4%

72%

24%

2%

72%

7%

17%

28%

TOTAL PRIMARY

ENERGYSUPPLY

TRANSFORMED,PREPARED

ENERGY

10%

22%

2%

47%

63%

63%

20%

20%

44%

13%

CONSUMPTION

PUBLIC

NONENERGY47

CONSUMPTIONREAL

LOSSES

151

535

AGRICULTURE 10

63

40

RESIDENTIAL113

TRANSPORT97

INDUSTRY125

CHP6063

ELECTRICITY29 ELECTRICITY

HEAT 78

HEAT113

GAS134

243

OILREFINERY

COAL117

OIL243

GAS366

NUCLEAR 42

RE AND WASTE 6

HYDRO 14

RUSSIAN ENERGY USE

http://worldbank.org.ru wb russia report №7http://iea.org/stats/indicators.asp?country_code=ruhttp://www.gks.ru/wps/wcm/connect/rosstat/rosstatsite/main/account/#

RUSSIAN ENERGY USE

LOSSES ANALYSIS

ECE 30%ECE 80%

ECE 56%

50 % transportationand old infrastructure

15 % transportation

6 % stealing

3 % transportation andold infrastructure

5% storage

GASnuclear

CRUDE OIL

COAL INDUSTRY

TRANSPORT

RESIDENTIAL

TPES TRANSFORMEDTRANSFORMATION*ECE - energy conversion efficiency

FINAL CONSUMPTON EFFICIENCY POTENTIAL

PUBLIC

AGRICULTURENON-ENERGY

energy industryown use

EI oun use

losses

gasoline

diesel kerosene mazut

Russian 30%

pipelines 12%

66 %

60 %

transportation 17%

international 17%

20%30%10%35%

71%

47%

18%

26 647

electricity

HEAT

losses in heating89 267

losses in electricity126 780

OIL PRODUCTS

OTHEROTHER

GASGAS

COAL

TPES TRANSFORMATION CONSUMPTION

raw energyexport

convercionlosses

supplyreasons

-

transportationlosses

consumptionlosses

consumption

TRANSPORTATION



Independent estimates

An investments in energy efficiency, esti-mated by World Bank in collaboration with CENEF and International Financial Center


According to World Bank analysis, the benefits for Russian economy are larger than total savings according to Federal Program. It’s a half of russian budget per year!

Energy subsidies

For the moment, the total amount of energy subsidies per year is bigger than planned investments in energy efficiency

The Russian budget in 2011 was planned with deficit, but during first 4 months, inspite of capital’s outflow and crisis consequences, made proficit based on high oil prices. Non-budget in-

vestments are a base of the Federal program, only 7.5% of investment will come directly from budget according to this law. This is a weak place of the program, because it’s not clear where the money will come from.

Only budget or-ganisations during 10 years spend for energy a number of money equal to one quarter to all necessary investments in energy efficiency.The structure of finansing of energy expenditures for budgeto organisa-tions rather discourages efficient consumption than stimulate it

Foregone export revenues

Realising efficiency potential can give Russia every year more money than VAT taxes per year

Federal Program

Federal program of 2010 by 2020 sets investments nearly equal to independent estimates, but measures and instrument are different (appendix)Thats why benefits look modest compare to independent reports.

8 844 billions of rubles

The budget of Russian Federation in 2011


The the foregone export revenues, which Russia lets go every year because of the lowest efficiency of energy using in the world


The total amount of expenditures of Rus-sian budget organizations, spent during 10 years from 2000 to 2010. This is 3.7 times bigger than total amount of budget investments in energy efficiency during next 10 years: from 2010 to 2020

695 billions of rubles

The total amount of budget investments in energy efficiency during next 10 years: from 2010 to 2020 (the sum 9535 billions is based on non-budget investments)

69526008844 4500 9535


The total amount of investments accord-ing to the Federal program for Energy Efficiency 2010-2020


Economic benefit PER YEAR according to World Bank calculation, which is nearly twice smaller than budget per year and total amount of investments in efficiency during 10 years.

A number of investments in energy effi-ciency per year according to real law: the Federal program 2010. The same amount of money budget spent last 10 year for subsidize residential heating.

The numbers of education budget expen-ditures, fossil taxes, total budget per year for comparison of scale of energy invest-ments and benefits of efficiency

3360




An investments in energy efficiency, esti-mated by World Bank in collaboration with CENEF and International Financial Center


According to World Bank analysis, the benefits for Russian economy are larger than total savings according to Federal Program. It’s a half of russian budget per year!

Energy subsidies

For the moment, the total amount of energy subsidies per year is bigger than planned investments in energy efficiency

The Russian budget in 2011 was planned with deficit, but during first 4 months, inspite of capital’s outflow and crisis consequences, made proficit based on high oil prices. Non-budget in-

vestments are a base of the Federal program, only 7.5% of investment will come directly from budget according to this law. This is a weak place of the program, because it’s not clear where the money will come from.

Only budget or-ganisations during 10 years spend for energy a number of money equal to one quarter to all necessary investments in energy efficiency.The structure of finansing of energy expenditures for budgeto organisa-tions rather discourages efficient consumption than stimulate it

Foregone export revenues

Realising efficiency potential can give Russia every year more money than VAT taxes per year

Federal Program

Federal program of 2010 by 2020 sets investments nearly equal to independent estimates, but measures and instrument are different (appendix)Thats why benefits look modest compare to independent reports.


The budget of Russian Federation in 2011


The the foregone export revenues, which Russia lets go every year because of the lowest efficiency of energy using in the world


The total amount of expenditures of Rus-sian budget organizations, spent during 10 years from 2000 to 2010. This is 3.7 times bigger than total amount of budget investments in energy efficiency during next 10 years: from 2010 to 2020

695 billions of rubles

The total amount of budget investments in energy efficiency during next 10 years: from 2010 to 2020 (the sum 9535 billions is based on non-budget investments)

69526008844 4500 9535


The total amount of investments accord-ing to the Federal program for Energy Efficiency 2010-2020


Economic benefit PER YEAR according to World Bank calculation, which is nearly twice smaller than budget per year and total amount of investments in efficiency during 10 years.

A number of investments in energy effi-ciency per year according to real law: the Federal program 2010. The same amount of money budget spent last 10 year for subsidize residential heating.

The numbers of education budget expen-ditures, fossil taxes, total budget per year for comparison of scale of energy invest-ments and benefits of efficiency

3360



“... As rising prices chip away at the world’s largest energy subsidy ($40 billion per year), industrial enterprises will see their profits decrease by at least 15%....”

LIBERALIZATIONA KEY SOLUTION FOR ENERGY EFFICIENCY

Russia is big energy exporter and income from oil and gas exports accounts for two-thirds of the country’s budget. How-ever, internal and external prices differ. Companies (such as Gazprom, Rosneft and TNK-BP) involved in this market are in reality 100% government-owned. It is a very complicated situation for all the participants because the energy com-pany is at the same time both the seller and the controller, and in one organization two contradictory aims exists. Gazprom, for example, as a market company, has to sell gas at European prices otherwise only export is profitable. Gazprom as a governmental institution cannot avoid domestic delivery (the company supplies 70% of all Russian gas). This is a core characteristic and the main problem of all energy sectors everywhere - fuel extrac-tion, refining and electricity production. So-called natural monopolies never fol-

low clear free market rules, which is why government sets up strict regulations and controls these sectors. In Russia control-ler and controlled are the same (70% of the natural gas Russians consume is used for electricity and heating). The results in a duality of intentions: on the one hand the country needs efficiency, on the other it does not. In 2007, a total of $3.3 mil-lion from all budgets (federal and local) was spent on heating, which is 40% of the severance tax in 2010.

The exclusive rights granted to Russia’s large energy suppliers undoubtedly stifle energy efficiency in the country. Russia frequently receives recommendations about the need for greater competition, included in messages on energy effi-ciency. Competition is not an end in itself, but a means to improve energy efficien-cy, and with it Russia’s national welfare. Russia will not be able to reap the gains of energy efficiency without allowing for greater competition in energy production and supply. Monopolies in the oil, gas and electricity sectors severely limit Russia’s ability to tap into its energy efficiency po-tential.

Moreover, some vestiges of Soviet central planning persist in the Russian energy sector. The perceived need for widespread government ownership and operation of energy companies is one example of this heritage. Government ownership per se is not problematic if governance is good enough to encourage efficiency and su-perior performance. Evidence suggests, however, that competition is better at encouraging efficiency and performance. Competition is more difficult to imple-

ment when the government has a direct financial stake in a particular sector and is involved in the management of companies

The next big problem is that the cost-plus regulation in Russia discourages improve-ments in operating and maintenance ef-ficiency. Regulation also discourages capital investments even if those invest-ments may yield cost savings for custom-ers over time. More generally, regulation historically gives energy utilities an inher-ent incentive to build more production ca-pacity and sell more energy, rather than conserve it. In the face of rising energy prices, many regulators are now looking for ways to change this incentive by “de-coupling” profits from energy sales.As rising prices chip away at the world’s largest energy subsidy ($40 billion in 2005), industrial enterprises will see their profits decrease by at least 15%. Energy efficiency will help companies remain competitive. Russian industry cannot be competitive without special conditions and cheap energy is one of those condi-tions.* Electricity subsidies for alumi-num companies over the last 20 years have made this industry very successful. For example, Rusal produces 10% of the world’s aluminum. A high percent of alu-minum costs is the price of electricity and it is profitable even with exporting prima-ry products.

All domestic prices were deregulated in Russia in 1992 with the exception of en-ergy prices. Over the past 20 years the government has regulated all gas, oil, electricity and heat prices. It took Russia a long time to begin liberal-izing the energy market and this is a slow process. Many reforms for grid efficiency were implemented over the past 10 years. The government retained control over

electricity generation, distribution and transportation networks, gas production and distribution, and boiler houses. Now, in 2011, the liberalization of the energy system and prices are underway. The electricity market is already independ-ent and has been organized accord-ing to the European model: generation, transportation and distribution were spun off to different companies; prices were gradually increased to move power utilities closer to full-cost recovery, and the government made a commitment to launch a new price policy. These reforms will help Russia improve its energy effi-ciency.

The government should first complete its reform of the power sector, including price reform. The government could also introduce other measures, such as pro-viding greater financial incentives or re-quiring power companies to implement demand-side management programs,

01999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

1 18

0

34

50

65

80

94

127

140

153

166

180

193

200

216

103

2

3

4

5

6

7

8

9

10

11

12

13

14

15

US

cent

s/kW

h

Rising electricity and gas tari�s

political pressure

0 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045

1000000

1200000

800000Gas extraction

Gas consumption

Gas export

600000

more likely gasextraction forecast

less likely gasextraction forecast

consumption:scenario with low efficiency grow

consumption:innovative scenario with high efficiency grow

developed fieldsextraction

400000

200000

Gas grip. The forecast of dynamic of gas extraction and consumption by 2050.

Residential buildings

Energy Efficiency potential by Sector

Electricity generation

Technical

Economical

Financial

2008 Energy consumption

Manufacturing

Transportation

Heating supply

Fuel productionand consumption

Non-residential buildings

Gas flaring

0 50 100 150 200

Accompanying decrease in

primary energy consumption



“... As rising prices chip away at the world’s largest energy subsidy ($40 billion per year), industrial enterprises will see their profits decrease by at least 15%....”

LIBERALIZATIONA KEY SOLUTION FOR ENERGY EFFICIENCY

Russia is big energy exporter and income from oil and gas exports accounts for two-thirds of the country’s budget. How-ever, internal and external prices differ. Companies (such as Gazprom, Rosneft and TNK-BP) involved in this market are in reality 100% government-owned. It is a very complicated situation for all the participants because the energy com-pany is at the same time both the seller and the controller, and in one organization two contradictory aims exists. Gazprom, for example, as a market company, has to sell gas at European prices otherwise only export is profitable. Gazprom as a governmental institution cannot avoid domestic delivery (the company supplies 70% of all Russian gas). This is a core characteristic and the main problem of all energy sectors everywhere - fuel extrac-tion, refining and electricity production. So-called natural monopolies never fol-

low clear free market rules, which is why government sets up strict regulations and controls these sectors. In Russia control-ler and controlled are the same (70% of the natural gas Russians consume is used for electricity and heating). The results in a duality of intentions: on the one hand the country needs efficiency, on the other it does not. In 2007, a total of $3.3 mil-lion from all budgets (federal and local) was spent on heating, which is 40% of the severance tax in 2010.

The exclusive rights granted to Russia’s large energy suppliers undoubtedly stifle energy efficiency in the country. Russia frequently receives recommendations about the need for greater competition, included in messages on energy effi-ciency. Competition is not an end in itself, but a means to improve energy efficien-cy, and with it Russia’s national welfare. Russia will not be able to reap the gains of energy efficiency without allowing for greater competition in energy production and supply. Monopolies in the oil, gas and electricity sectors severely limit Russia’s ability to tap into its energy efficiency po-tential.

Moreover, some vestiges of Soviet central planning persist in the Russian energy sector. The perceived need for widespread government ownership and operation of energy companies is one example of this heritage. Government ownership per se is not problematic if governance is good enough to encourage efficiency and su-perior performance. Evidence suggests, however, that competition is better at encouraging efficiency and performance. Competition is more difficult to imple-

ment when the government has a direct financial stake in a particular sector and is involved in the management of companies

The next big problem is that the cost-plus regulation in Russia discourages improve-ments in operating and maintenance ef-ficiency. Regulation also discourages capital investments even if those invest-ments may yield cost savings for custom-ers over time. More generally, regulation historically gives energy utilities an inher-ent incentive to build more production ca-pacity and sell more energy, rather than conserve it. In the face of rising energy prices, many regulators are now looking for ways to change this incentive by “de-coupling” profits from energy sales.As rising prices chip away at the world’s largest energy subsidy ($40 billion in 2005), industrial enterprises will see their profits decrease by at least 15%. Energy efficiency will help companies remain competitive. Russian industry cannot be competitive without special conditions and cheap energy is one of those condi-tions.* Electricity subsidies for alumi-num companies over the last 20 years have made this industry very successful. For example, Rusal produces 10% of the world’s aluminum. A high percent of alu-minum costs is the price of electricity and it is profitable even with exporting prima-ry products.

All domestic prices were deregulated in Russia in 1992 with the exception of en-ergy prices. Over the past 20 years the government has regulated all gas, oil, electricity and heat prices. It took Russia a long time to begin liberal-izing the energy market and this is a slow process. Many reforms for grid efficiency were implemented over the past 10 years. The government retained control over

electricity generation, distribution and transportation networks, gas production and distribution, and boiler houses. Now, in 2011, the liberalization of the energy system and prices are underway. The electricity market is already independ-ent and has been organized accord-ing to the European model: generation, transportation and distribution were spun off to different companies; prices were gradually increased to move power utilities closer to full-cost recovery, and the government made a commitment to launch a new price policy. These reforms will help Russia improve its energy effi-ciency.

The government should first complete its reform of the power sector, including price reform. The government could also introduce other measures, such as pro-viding greater financial incentives or re-quiring power companies to implement demand-side management programs,

01999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

1 18

0

34

50

65

80

94

127

140

153

166

180

193

200

216

103

2

3

4

5

6

7

8

9

10

11

12

13

14

15

US

cent

s/kW

h

Rising electricity and gas tari�s

political pressure

0 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045

1000000

1200000

800000Gas extraction

Gas consumption

Gas export

600000

more likely gasextraction forecast

less likely gasextraction forecast

consumption:scenario with low efficiency grow

consumption:innovative scenario with high efficiency grow

developed fieldsextraction

400000

200000

Gas grip. The forecast of dynamic of gas extraction and consumption by 2050.

Residential buildings

Energy Efficiency potential by Sector

Electricity generation

Technical

Economical

Financial

2008 Energy consumption

Manufacturing

Transportation

Heating supply

Fuel productionand consumption

Non-residential buildings

Gas flaring

0 50 100 150 200

Accompanying decrease in

primary energy consumption


25 Energy Taxation Incentives a Case Study

SOFT EVACUATIONA STRATEGY FOR RUSSIA - C0MPACT COUNTRY

Russia’s total population is expected to shrink to 121 million in 2030 from 145 mil-lion in 2002, which will have a major im-pact in both the residential and commer-cial sectors as standards of living improve across the economy. The urbanization level is expected to increase from 73% to 78% over the same period.

Roughly half of Russian cities with a population under 100,000 have basically one industry. Even these one-factory towns, which have a successful industrial base, are experiencing many social and economical problems; such as declining population, growing unemployment and a shortage of public services. The decline of single-factory towns is a consequence of extensive development during the pe-riod of industrialization.

The percent of the urban population is continuing to grow, while the total number is decreasing. Large cities are growing be-cause of an exodus from towns, not from villages as was the case previously. By 2025-2030 only six Russian cities will still be growing: Moscow, St. Petersburg, Novosibirsk, Nizhniy Novgorod, Yekaterin-burg and Samara.

Most one-factory towns will be shut down over the next 20 years, therefore this fact should be taken into consideration during the planning process.The planned evacuation from these sin-

gle-factory towns should not only include people who want to leave, but equipment should be taken that can still be used. Assistance will be provided to those who want to leave, mostly consisting of con-sulting services. Manufacturing, wherever possible, will be moved to larger cities to-gether with the population.

Many Russian manufacturing cities are a legacy of wartime evacuations in 1941-1942. This process was organized so quickly and efficiently that all strategi-cally important industry was moved from the west to the east. Some of this industry was not replaced after the war. Thus, one could speak here about re-evacuation.

This is a natural process and the gov-ernment should assist in regulating it. Large cities should be ready for constant growth, and plan intensive, not extensive, development. Some large cities will only be a station in the relocation process, so some temporary arrangements need to be made.

The lure of high oil prices and lack of de-veloped production sites will generate a desire to build new cities in the east and north. This should not be allowed to hap-pen for objective reasons, and the govern-ment should clearly state its position not to build any new cities.

Arctic Ocean

NorthPacificOcean

BlackSea

CaspianSea

NorvegianSea

BarentsSea

KaraSea

LaptevSea

East SiberianSea Bering

Sea

Sea ofOhotsk

Sea ofJapan

00Strelka Imstitute for Media, Architecture and Design.Energy theme.

Mapping workshop.

Arctic Ocean

NorthPacificOcean

BlackSea

CaspianSea

NorvegianSea

BarentsSea

KaraSea

LaptevSea


Sea

Sea ofOhotsk

Sea ofJapan

0 250 500 1000 km

Saratov

Rostov-na-Donu

Krasnodar

SochiNovosibirsk

Krasnoyarsk

Irkutsk

Vladivostok

Khabarovsk

Saint Petersburg

Yaroslavl

Moscow

Nizhny Novgorod

PermKazan

Samara

Ufa

Ekaterinburg

Chelyabinsk

Omsk


Mapping workshop.

Arctic Ocean

NorthPacificOcean

BlackSea

CaspianSea

NorvegianSea

BarentsSea

KaraSea

LaptevSea


Sea

Sea ofOhotsk

Sea ofJapan

0 250 500 1000 km

Saratov

Rostov-na-Donu

Krasnodar

SochiNovosibirsk

Krasnoyarsk

Irkutsk

Vladivostok

Khabarovsk

Saint Petersburg

Yaroslavl

Moscow

Nizhny Novgorod

Kazan

Samara

Ufa

Ekaterinburg

Perm

Chelyabinsk

Omsk

Consequences of “-20” ruleThe soviet measure to prohibit life in big cities for certain categories of habitants has also a consequence in terms of perception of life there. To live in big city means privilege compare to life in village or in mono-city.

Benefits of “+20” ruleThe natural process of consolidation of population in more succesfull cities could be supported by creating special agency for consulting those who want to escape.

“City Russia”An art project of Pavel Peppershtein, a famous contem-porary russian artist. The series of art works reflects national achievements (Kandinsky tower, Malewich kube, round dance)“...Ball hangs over the city of Russian spirituality, making a sculpture, “Granny” center of anti-air defense of the city - if you think about it, it is rational thought..”

The “hundred first kilometer” is an infor-mal term designating a way of restricting citizens rights which was applied in the USSR to separate categories of citizens. They were forbidden to lodge in limits of a 100-kilometer zone around Moscow, Leningrad, capitals of union republics, other large, and also “the closed” cities.In days of political repressions families living 101 kilometers and further were subjected to these restrictions.

Following similar not working citizens (so-called parasites), dissidents, recidivists and RSFSR condemned on especially heavy law articles also exposed to certain repressions, mainly dispatch.

Very often this rule was formulated as item “minus 3 (7,13,20) cities” which mean that citizens were allowed to live in the biggest Russian cities.

If this “restriction” were to be inverted – called “plus 20” – it would substantially help those who want to escape to do it.It would be enforced by a government agency (rather than subsidy, the typical government instrument) which would have two main functions: to help people to integrate in new city, and to control their integration to prevent “getto” crea-tion and wrong integration.



SOFT EVACUATIONA STRATEGY FOR RUSSIA - C0MPACT COUNTRY

Russia’s total population is expected to shrink to 121 million in 2030 from 145 mil-lion in 2002, which will have a major im-pact in both the residential and commer-cial sectors as standards of living improve across the economy. The urbanization level is expected to increase from 73% to 78% over the same period.

Roughly half of Russian cities with a population under 100,000 have basically one industry. Even these one-factory towns, which have a successful industrial base, are experiencing many social and economical problems; such as declining population, growing unemployment and a shortage of public services. The decline of single-factory towns is a consequence of extensive development during the pe-riod of industrialization.

The percent of the urban population is continuing to grow, while the total number is decreasing. Large cities are growing be-cause of an exodus from towns, not from villages as was the case previously. By 2025-2030 only six Russian cities will still be growing: Moscow, St. Petersburg, Novosibirsk, Nizhniy Novgorod, Yekaterin-burg and Samara.

Most one-factory towns will be shut down over the next 20 years, therefore this fact should be taken into consideration during the planning process.The planned evacuation from these sin-

gle-factory towns should not only include people who want to leave, but equipment should be taken that can still be used. Assistance will be provided to those who want to leave, mostly consisting of con-sulting services. Manufacturing, wherever possible, will be moved to larger cities to-gether with the population.

Many Russian manufacturing cities are a legacy of wartime evacuations in 1941-1942. This process was organized so quickly and efficiently that all strategi-cally important industry was moved from the west to the east. Some of this industry was not replaced after the war. Thus, one could speak here about re-evacuation.

This is a natural process and the gov-ernment should assist in regulating it. Large cities should be ready for constant growth, and plan intensive, not extensive, development. Some large cities will only be a station in the relocation process, so some temporary arrangements need to be made.

The lure of high oil prices and lack of de-veloped production sites will generate a desire to build new cities in the east and north. This should not be allowed to hap-pen for objective reasons, and the govern-ment should clearly state its position not to build any new cities.

Arctic Ocean

NorthPacificOcean

BlackSea

CaspianSea

NorvegianSea

BarentsSea

KaraSea

LaptevSea


Sea

Sea ofOhotsk

Sea ofJapan


Mapping workshop.

Arctic Ocean

NorthPacificOcean

BlackSea

CaspianSea

NorvegianSea

BarentsSea

KaraSea

LaptevSea


Sea

Sea ofOhotsk

Sea ofJapan

0 250 500 1000 km

Saratov

Rostov-na-Donu

Krasnodar

SochiNovosibirsk

Krasnoyarsk

Irkutsk

Vladivostok

Khabarovsk

Saint Petersburg

Yaroslavl

Moscow

Nizhny Novgorod

PermKazan

Samara

Ufa

Ekaterinburg

Chelyabinsk

Omsk


Mapping workshop.

Arctic Ocean

NorthPacificOcean

BlackSea

CaspianSea

NorvegianSea

BarentsSea

KaraSea

LaptevSea


Sea

Sea ofOhotsk

Sea ofJapan

0 250 500 1000 km

Saratov

Rostov-na-Donu

Krasnodar

SochiNovosibirsk

Krasnoyarsk

Irkutsk

Vladivostok

Khabarovsk

Saint Petersburg

Yaroslavl

Moscow

Nizhny Novgorod

Kazan

Samara

Ufa

Ekaterinburg

Perm

Chelyabinsk

Omsk

Consequences of “-20” ruleThe soviet measure to prohibit life in big cities for certain categories of habitants has also a consequence in terms of perception of life there. To live in big city means privilege compare to life in village or in mono-city.

Benefits of “+20” ruleThe natural process of consolidation of population in more succesfull cities could be supported by creating special agency for consulting those who want to escape.

“City Russia”An art project of Pavel Peppershtein, a famous contem-porary russian artist. The series of art works reflects national achievements (Kandinsky tower, Malewich kube, round dance)“...Ball hangs over the city of Russian spirituality, making a sculpture, “Granny” center of anti-air defense of the city - if you think about it, it is rational thought..”

The “hundred first kilometer” is an infor-mal term designating a way of restricting citizens rights which was applied in the USSR to separate categories of citizens. They were forbidden to lodge in limits of a 100-kilometer zone around Moscow, Leningrad, capitals of union republics, other large, and also “the closed” cities.In days of political repressions families living 101 kilometers and further were subjected to these restrictions.

Following similar not working citizens (so-called parasites), dissidents, recidivists and RSFSR condemned on especially heavy law articles also exposed to certain repressions, mainly dispatch.

Very often this rule was formulated as item “minus 3 (7,13,20) cities” which mean that citizens were allowed to live in the biggest Russian cities.

If this “restriction” were to be inverted – called “plus 20” – it would substantially help those who want to escape to do it.It would be enforced by a government agency (rather than subsidy, the typical government instrument) which would have two main functions: to help people to integrate in new city, and to control their integration to prevent “getto” crea-tion and wrong integration.


Region energy consumption

The Saint-Petersburg region

The Moscow region

The Nenetsky region

Chuvash republic0.7 mln.rub per km2

The Krasnoyarskiy region

Yakutia

The Chukotsky region137 000 rub. per person

The Kamchatsky region

The Buryatia republic

http://interfax-era.ru/reitingi-regionov/2009/obshchee-potreblenie-energii#part6

0 250 500 1000 km


INDEPENDENT REGIONSA STRATEGY OF CHANGING FINANCIAL INCENTIVES FOR REGIONS

Electricity prices

The analysis of electricity prices per kWh in 2009 in different russian regions showed a big difference between Irkutsky region (hydropower plants) and far-east regions, despite of existance of fuel sources in these regions

“... The structure of distribution of budget money provokes region administrations to compete in dependency, rather than in quality or efficiency ...”

Population This parameter is different compare to a population dencity, and better correlates with fuel consumption

Fossil fuel consumptionThe mapping of fossil fuels consumption not directly cor-relates with human density of population. The main energy consumer in Russia is industry.

In Russia, 76 of its 83 regions are highly dependent on the federal budget, which is a contradiction in terms of efficiency. As long as this dependency exists, the regions are not intrested in efficiency and all efforts to change this are futile. The system of budget distribution is constructed in such a way that regions compete for money, while more than half of regional taxes go to the federal budget. Only six regions have less than 20% of federal money in their budget. These regions play the role of budget donors. The structure of distributing budget money forces regional administrations to compete in dependency, rather than competing in quality of development or finding new approaches and results. Mapping federal budget finances shows a

high level of subsidies for Yakutia, Krasn-odar territory, the Caucasus, Kamchatka and Primorsky territory, even though the population density in those regions is not very high. The central territories are subsidized evenly, while Yakutia, Chuko-tka, Kamchatka and the Magadan region receive a large amount of subsidizes. In addition, electricity prices are highest in these regions because of the long dis-tances required to transport energy.

The federal program for energy effi-ciency continues this tradition to target investments divided between regional programs and efficiency. As was the case in 2003, the existing mechanism puts obstacles in the way of efficiency and is counterproductive to an efficient approach.

In 2011, the Finance Ministry plans to allocate grants in the amount of almost 400 billion rubles withthe intention to to equalize fiscal capacity of the subjects of the Russian Federation. The money willbe distributed among the majority of Russian regions; however donor enti-ties such as Moscow andMoscow region, St. Petersburg, Tyumen will not be recipients of the federal assistance.

The Center will provide grants in support of measures to balance the budgets of the Russian Federation.When combined with the contribu-tions of the Finance Ministry and the regional budgets for subsidiesto promote employment and addi-tional funding for health care by local doctors,the sum of thesecontributions from the Center reach more than 470 billion rubles, according to “Nezavisimaya Gazeta”.

The newspaper said the federal bailout regions differ in the draft budget-2011 in more than 50 times.Thus, in the Belgorod region Treasury will transfer, less than a thousand rubles per inhabitant in 2011,and in Yakutia, Magadan and Tuva more than 43 thousand rubles per person. Experts “NG” estimatethat the amount of federal subsidies allocated is a political decision more than it is an economic one.Indeed, some areas of the Urals, where industry suffered heavily from the crisis, receive grants farsmaller than the “hot” Chechnya.

In the list of grant recipients were about 70 Russian regions. According to the Federal State StatisticsService, this is roughly 100 million Rus-sians. This means a subsidy of 4,700 rubles per capita from thefederal budget, according to Rosstat, Russian statistic agency.

The draft budget for 2011 shows a strong differentiation between Russian regions not only on incomepopulation, but also for federal assist-ance center. The volume of this aid often differs by more than50 times, and occasionally 100 times. Thus, in the Belgorod region Treasury will transfer less than athousand rubles to each resident in 2011, which each resident of Kamchat-ka will recieve almost 90thousand rubles, said, “NG”.

http://www.city-n.ru/view/165402.

Region’s budget finance 2011


Region energy consumption

The Saint-Petersburg region

The Moscow region

The Nenetsky region

Chuvash republic0.7 mln.rub per km2

The Krasnoyarskiy region

Yakutia

The Chukotsky region137 000 rub. per person

The Kamchatsky region

The Buryatia republic

http://interfax-era.ru/reitingi-regionov/2009/obshchee-potreblenie-energii#part6

0 250 500 1000 km


INDEPENDENT REGIONSA STRATEGY OF CHANGING FINANCIAL INCENTIVES FOR REGIONS

Electricity prices

The analysis of electricity prices per kWh in 2009 in different russian regions showed a big difference between Irkutsky region (hydropower plants) and far-east regions, despite of existance of fuel sources in these regions

“... The structure of distribution of budget money provokes region administrations to compete in dependency, rather than in quality or efficiency ...”

Population This parameter is different compare to a population dencity, and better correlates with fuel consumption

Fossil fuel consumptionThe mapping of fossil fuels consumption not directly cor-relates with human density of population. The main energy consumer in Russia is industry.

In Russia, 76 of its 83 regions are highly dependent on the federal budget, which is a contradiction in terms of efficiency. As long as this dependency exists, the regions are not intrested in efficiency and all efforts to change this are futile. The system of budget distribution is constructed in such a way that regions compete for money, while more than half of regional taxes go to the federal budget. Only six regions have less than 20% of federal money in their budget. These regions play the role of budget donors. The structure of distributing budget money forces regional administrations to compete in dependency, rather than competing in quality of development or finding new approaches and results. Mapping federal budget finances shows a

high level of subsidies for Yakutia, Krasn-odar territory, the Caucasus, Kamchatka and Primorsky territory, even though the population density in those regions is not very high. The central territories are subsidized evenly, while Yakutia, Chuko-tka, Kamchatka and the Magadan region receive a large amount of subsidizes. In addition, electricity prices are highest in these regions because of the long dis-tances required to transport energy.

The federal program for energy effi-ciency continues this tradition to target investments divided between regional programs and efficiency. As was the case in 2003, the existing mechanism puts obstacles in the way of efficiency and is counterproductive to an efficient approach.

In 2011, the Finance Ministry plans to allocate grants in the amount of almost 400 billion rubles withthe intention to to equalize fiscal capacity of the subjects of the Russian Federation. The money willbe distributed among the majority of Russian regions; however donor enti-ties such as Moscow andMoscow region, St. Petersburg, Tyumen will not be recipients of the federal assistance.

The Center will provide grants in support of measures to balance the budgets of the Russian Federation.When combined with the contribu-tions of the Finance Ministry and the regional budgets for subsidiesto promote employment and addi-tional funding for health care by local doctors,the sum of thesecontributions from the Center reach more than 470 billion rubles, according to “Nezavisimaya Gazeta”.

The newspaper said the federal bailout regions differ in the draft budget-2011 in more than 50 times.Thus, in the Belgorod region Treasury will transfer, less than a thousand rubles per inhabitant in 2011,and in Yakutia, Magadan and Tuva more than 43 thousand rubles per person. Experts “NG” estimatethat the amount of federal subsidies allocated is a political decision more than it is an economic one.Indeed, some areas of the Urals, where industry suffered heavily from the crisis, receive grants farsmaller than the “hot” Chechnya.

In the list of grant recipients were about 70 Russian regions. According to the Federal State StatisticsService, this is roughly 100 million Rus-sians. This means a subsidy of 4,700 rubles per capita from thefederal budget, according to Rosstat, Russian statistic agency.

The draft budget for 2011 shows a strong differentiation between Russian regions not only on incomepopulation, but also for federal assist-ance center. The volume of this aid often differs by more than50 times, and occasionally 100 times. Thus, in the Belgorod region Treasury will transfer less than athousand rubles to each resident in 2011, which each resident of Kamchat-ka will recieve almost 90thousand rubles, said, “NG”.

http://www.city-n.ru/view/165402.

Region’s budget finance 2011



Federal budget finance The mapping of number of federal budet financing per region. The Krasnoyarsky region, Yakutia and Caucasus cost more than the Moscow region

Budget per kilometerThe amount of budget finansing divided by region territory showed high disbalance of regions “costs”

DependencyThe percentage of local finansing and federal finansing. Only 6 regions are self-dependent, other are highly dependent from central finance.

Budget money per capitaCombining of two maps - population density and budget money finance, makes picture more clear: the differ-ance between regions in terms of money per capita is extremely high.



Federal budget finance The mapping of number of federal budet financing per region. The Krasnoyarsky region, Yakutia and Caucasus cost more than the Moscow region

Budget per kilometerThe amount of budget finansing divided by region territory showed high disbalance of regions “costs”

DependencyThe percentage of local finansing and federal finansing. Only 6 regions are self-dependent, other are highly dependent from central finance.

Budget money per capitaCombining of two maps - population density and budget money finance, makes picture more clear: the differ-ance between regions in terms of money per capita is extremely high.


1. Energy DNAThe energy consumed by a country is de-scribed in three primary sectors, Indus-try, transport and Residential. In Russia all three sectors consume approximately 25% of the Total Final Energy consump-tion of the country as detailed by the In-ternational Energy Agency REFERENcE gRAph pAgE x.

Each sector has different proportions of fossil fuel (coal, oil and natural gas) and renewables.

The Industry sector and the heating segment within the Residential sector is not directly influenced by the individual and is determined by the state. Industry in Russia is currently focused on the production of energy and cement.

The road segment within the transport sector is primarily composed of oil products as an energy source while the residential (non heating segment) is composed of natural gas as the largest component

On detailing the energy consumption in the country by fossil fuel type and carbondioxide emission we describe the amount of energy consumed in the road segment of the transport sector and the non heating residential segment in the language of carbondioxide emission.

The residential sector consumes more energy than does the road segment

Is a function that is created to isolate and identify an object in an individual’s lifestyle that consumes energy and with intervention could form a marked differ-ence to the country’s energy profile. It is defined by three criteria:

1. The energy DNA of a country describes the energy consumption in the country’s primary sectors, industry, transport and residential and identifies the fossil fuel usage in each sector

2. Scalability Factor where key compo-nents within the road segment and non heating residential segment are isolated and the effort that is required to save a meagre 1000KToe is measured.

3. Market saturation describes the cur-rent status of the key components in the market of the country that is being evaluated.

2. Scalability Factor 3. Market SaturationAn individual in Russia consumes energy in heating, electrical appliances, lighting and miscellaneous smaller uses of elec-tricity like the phone, internet etc and his private car. Though the miscellaneous activities consume as much electricity as lighting does it would be difficult to moni-tor it as the number of equipments and the scale of electricity consumption per piece is fairly small.

heating in Russia is part of the central system and this is beyond the control of the individual.

We isolate lighting, electrical appliances and the private car to evaluate the scale of intervention that would be required to create a country wide effect in the energy sector.

Reduction of 1000 KToe of energy with lighting: Assuming the the cFL is cur-rently the most energy efficient light that is affordable in a home today and can be fitted into the home without changing the light fixtures, we find that to save 1000 Ktoe of energy per year we will have to change 20 lightbulbs in

3,794,000 homes.

Reduction of 1000 KToe of energy with appliances: Appliances in the home like dishwashers, washing machines, ovens, refrigerators, portable heating consume electricity. By replacing these appliances by ‘energy efficiency certified ones we realise that to save 1000 Ktoe we would have to replace all the large appliances in

38,000,000 homes.

Reduction of 1000 KToe of energy with private cars: Russia has a motorisation rate of 238 cars per 1000 people and Moscow, 300 per 1000 people. This es-sentially means in a family of three, there is one car per family (approximately). Assuming, we do not reduce the amount the car is used but we just change the car to one that is considered fairly fuel efficient (of the same size and the same status value) we find that we can mini-mise 1000 KToe of Energy by changing

49,400 cars.

It would require considerably less effort to lessen energy consumption by the same amount in road transport then in residential

Above: calculating the amount of energy that is saved on replacing 20 incandescent bulbs with cFL bulbs

KToe: Kilo Tonne of Oil Equivalent

Energy saving per year: 3066 KWhr



Above: calculating the amount of energy that is saved on large household appliances with energy saving branded products


Minimisation Potential

The table on the left shows a high market saturation (above 90%) of the washing machine, television, and refrigerator in the Russian household. It will not be wrong to assume that most households would own one washing machine and refrigerator. The average life of the two are 8 years and even if the market will continue to grow with new products it would be safe to assume that newer tech-nologies would be more energy efficient than any product from before 2000. The computer and the automobile market are in their nascent consumption stage in Russia.

On the bottom left we see the growth in the automobile market from 2003 and the growth the global automobile indus-try foresees for Russia.

Above: pWc report on the automobile in Russia

Report Final.indd 4-5 22/6/11 22:06:58

1. Energy DNAThe energy consumed by a country is de-scribed in three primary sectors, Indus-try, transport and Residential. In Russia all three sectors consume approximately 25% of the Total Final Energy consump-tion of the country as detailed by the In-ternational Energy Agency REFERENcE gRAph pAgE x.

Each sector has different proportions of fossil fuel (coal, oil and natural gas) and renewables.

The Industry sector and the heating segment within the Residential sector is not directly influenced by the individual and is determined by the state. Industry in Russia is currently focused on the production of energy and cement.

The road segment within the transport sector is primarily composed of oil products as an energy source while the residential (non heating segment) is composed of natural gas as the largest component

On detailing the energy consumption in the country by fossil fuel type and carbondioxide emission we describe the amount of energy consumed in the road segment of the transport sector and the non heating residential segment in the language of carbondioxide emission.

The residential sector consumes more energy than does the road segment

Is a function that is created to isolate and identify an object in an individual’s lifestyle that consumes energy and with intervention could form a marked differ-ence to the country’s energy profile. It is defined by three criteria:

1. The energy DNA of a country describes the energy consumption in the country’s primary sectors, industry, transport and residential and identifies the fossil fuel usage in each sector

2. Scalability Factor where key compo-nents within the road segment and non heating residential segment are isolated and the effort that is required to save a meagre 1000KToe is measured.

3. Market saturation describes the cur-rent status of the key components in the market of the country that is being evaluated.

2. Scalability Factor 3. Market SaturationAn individual in Russia consumes energy in heating, electrical appliances, lighting and miscellaneous smaller uses of elec-tricity like the phone, internet etc and his private car. Though the miscellaneous activities consume as much electricity as lighting does it would be difficult to moni-tor it as the number of equipments and the scale of electricity consumption per piece is fairly small.

heating in Russia is part of the central system and this is beyond the control of the individual.

We isolate lighting, electrical appliances and the private car to evaluate the scale of intervention that would be required to create a country wide effect in the energy sector.

Reduction of 1000 KToe of energy with lighting: Assuming the the cFL is cur-rently the most energy efficient light that is affordable in a home today and can be fitted into the home without changing the light fixtures, we find that to save 1000 Ktoe of energy per year we will have to change 20 lightbulbs in

3,794,000 homes.

Reduction of 1000 KToe of energy with appliances: Appliances in the home like dishwashers, washing machines, ovens, refrigerators, portable heating consume electricity. By replacing these appliances by ‘energy efficiency certified ones we realise that to save 1000 Ktoe we would have to replace all the large appliances in

38,000,000 homes.

Reduction of 1000 KToe of energy with private cars: Russia has a motorisation rate of 238 cars per 1000 people and Moscow, 300 per 1000 people. This es-sentially means in a family of three, there is one car per family (approximately). Assuming, we do not reduce the amount the car is used but we just change the car to one that is considered fairly fuel efficient (of the same size and the same status value) we find that we can mini-mise 1000 KToe of Energy by changing

49,400 cars.

It would require considerably less effort to lessen energy consumption by the same amount in road transport then in residential

Above: calculating the amount of energy that is saved on replacing 20 incandescent bulbs with cFL bulbs

KToe: Kilo Tonne of Oil Equivalent






Minimisation Potential

The table on the left shows a high market saturation (above 90%) of the washing machine, television, and refrigerator in the Russian household. It will not be wrong to assume that most households would own one washing machine and refrigerator. The average life of the two are 8 years and even if the market will continue to grow with new products it would be safe to assume that newer tech-nologies would be more energy efficient than any product from before 2000. The computer and the automobile market are in their nascent consumption stage in Russia.

On the bottom left we see the growth in the automobile market from 2003 and the growth the global automobile indus-try foresees for Russia.

Above: pWc report on the automobile in Russia


http://www.hybridcars.com/history/the-great-hybrid-car-cover-up-of-74.html

The Electric car 1966-1900: Strike 2:The Electric car became a priority after the 1973 Oil Embargo for US Energy security. When Japan introduced their fuel efficient vehicles and lean produc-tion tecnique, innovation in the direction of the electric car was halted.

1972: First Hybrid: Victor Wouk; Buick Skylark

1974: Vanguard-Sebring’s citycar; The company dissolves a few years later

The economy is sliding Eastwards and Southwards. This is particularly true for manufacturing as the developing worlds’ of India and China are industrialising rapidly to become global manufacturing centres.

The United States dominated the auto-mobile industry till the 1950’s. Euro-pean automobile manufacturing gained market share in the 50’s because of their technological innovations and stylistic additions to the type of cars. European and American manufacturing ran neck to neck from the 1950’s to the 1970’s when Japan became a competitive addition to the two countries with fuel efficient technology introduced in Japanese models and lean production technique of manufacturing; which co-incidently cre-ates energy consumption in freight.

The Sliding Axis.The 2000’s have seen new players emerge in China, South Korea and India. (Global Automobile Industry: Changing with the times: Chithra Gopal)

Every technological change heralds a change in the landscape of the automo-bile industry.

Japan, South Korea, Australia, New Zea-land, Western United States, Northern Europe, Ireland, India and China are cur-rently introducing or about to introduce variants of fossil fuel free transport.

Ports are important economic indicators of development, industrialisation and growing GDP of a country.

http://www.4-the-love-of-jeeps.com/postal-jeep.html http://www.4-the-love-of-jeeps.com/postal-jeep.html

1975: The US Postal buys 350 electric jeeps.

1988: GM concept car EV1. Produced from 1997 for lease only

The Electric car 2006- : Third Time Lucky ?

Above: The changing centres of the automobile industry and the obvious connection with the changing economic centres of the world.

The map above traces the changing centres of the automobile industry but it could be a map of changing economic centres, or port networks.


http://www.hybridcars.com/history/the-great-hybrid-car-cover-up-of-74.html

The Electric car 1966-1900: Strike 2:The Electric car became a priority after the 1973 Oil Embargo for US Energy security. When Japan introduced their fuel efficient vehicles and lean produc-tion tecnique, innovation in the direction of the electric car was halted.

1972: First Hybrid: Victor Wouk; Buick Skylark

1974: Vanguard-Sebring’s citycar; The company dissolves a few years later

The economy is sliding Eastwards and Southwards. This is particularly true for manufacturing as the developing worlds’ of India and China are industrialising rapidly to become global manufacturing centres.

The United States dominated the auto-mobile industry till the 1950’s. Euro-pean automobile manufacturing gained market share in the 50’s because of their technological innovations and stylistic additions to the type of cars. European and American manufacturing ran neck to neck from the 1950’s to the 1970’s when Japan became a competitive addition to the two countries with fuel efficient technology introduced in Japanese models and lean production technique of manufacturing; which co-incidently cre-ates energy consumption in freight.

The Sliding Axis.The 2000’s have seen new players emerge in China, South Korea and India. (Global Automobile Industry: Changing with the times: Chithra Gopal)

Every technological change heralds a change in the landscape of the automo-bile industry.

Japan, South Korea, Australia, New Zea-land, Western United States, Northern Europe, Ireland, India and China are cur-rently introducing or about to introduce variants of fossil fuel free transport.

Ports are important economic indicators of development, industrialisation and growing GDP of a country.

http://www.4-the-love-of-jeeps.com/postal-jeep.html http://www.4-the-love-of-jeeps.com/postal-jeep.html

1975: The US Postal buys 350 electric jeeps.

1988: GM concept car EV1. Produced from 1997 for lease only

The Electric car 2006- : Third Time Lucky ?

Above: The changing centres of the automobile industry and the obvious connection with the changing economic centres of the world.

The map above traces the changing centres of the automobile industry but it could be a map of changing economic centres, or port networks.


ELECTRIFIED is a three step programme to emancipate Russia from it’s economic dependency on oil and gas.

The five important components of the worldwide EV industry are: battery production, supply chain, research and development and Manufacturing and deployment.


ELECTRIFIED is a three step programme to emancipate Russia from it’s economic dependency on oil and gas.

The five important components of the worldwide EV industry are: battery production, supply chain, research and development and Manufacturing and deployment.


Scenario 1 : Russia mines rare earth metals and Nickel and uses them as the ‘New Oil’. The country benefits

from GDP growth but there is no trickling down of knowledge and wealth, leaving the country as it is

Scenario 2: Russia uses it’s resources as leverage to create alliances, barter export for knowledge and Research and Development expertise, and private investment providing a long term industry in Novosibirsk region.

Bartering a constant supply of rare earth metals for creation and knowledge investment into the R&D Far East University in Russky island.

Thunder Sky (china) has invested in Novosibirsk, bat-tery production unit to be built by RusNano.

Forming strategic alliances with kazakhstan, Russia can increase it’s source and get transit economy to pass the resource to Japan and S. Korea, bypassing China

FOR euROpe and china (2012), SOuth aFRica and tuRkey (2013)

lOng teRm ecOnOmic gROwth

knOwledge tRanSFeRallianceS

expORt ReSOuRce

Due to border disputes with Japan, China reportedly stopped rare earth metals exports to Japan (Dec 2010)

Transport alternatives (electric cars), Renewable technologies (wind turbines), ICT (iphone) and High end Scientific equipment (MRI, x ray) all use rare earth metals

Russia has the world’s second largest known resource of rare earth metals and it is currently mined as a secondary material rather than the primary.

ShORtage

China was supplying 92% of the world’s requirement of rare earth metals but in 2011 it has committed to reducing the suplly by 35%.

intROductiOn OppORtunity

phase a 2011Russia is the largest source of the world’s Nickel supply and the second largest source of rare earth metals; the resourc-es are especially important for battery technology and hence of great impor-tance in the electric car.

Nickel is already being mined in Russia and is responsible for some fortunes, but rare earth metals are right now treated like a by product in mining.

China was the world’s largest supplier of rare earth metals in the world till they decided that they needed the metals for their own ambition in the low carbon economy. China has reduced export of the metal to a basic amount.

Rare earth metals are projected as the ‘new Oil’ but rather than treat them as an export-able product as Russia is bound to do, Russia uses the

metals as leverage

to create national and international investment. There is one EV Battery production centre planned in the Novosibirsk region. It is planned with Rusnano and a Chinese investor, Thunder Sky.

Novosibirsk is between Kazakhstan and Western Siberia (both have large known resources of rare earth metals). it is geo-graphically perfect for Battery manufac-turing and supply.

In tandem with the battery manufactur-ing, Russky island that is urrently being prepared for the APEC 2012 Summit in the Far East, and is planned as the new Far Eastern University will be developed as the centre for Battery technology research and development along with electric vehicle testing and development.

Russky island neighbours Japan and South Korea; both countries are ad-vanced in battery manufacturing and technology and they bought do not have the neccessary metal resources. Russia is the via media between Kazakhstan and the East, bypassing China.

Some of the existing departments at the Far East University are suitable to start the research and development facility for the EV technology.

Right: the trade relationships that can be formed between Russia and its neighbours on leveraging its resources to bring about knowledge within the country


Scenario 1 : Russia mines rare earth metals and Nickel and uses them as the ‘New Oil’. The country benefits

from GDP growth but there is no trickling down of knowledge and wealth, leaving the country as it is

Scenario 2: Russia uses it’s resources as leverage to create alliances, barter export for knowledge and Research and Development expertise, and private investment providing a long term industry in Novosibirsk region.

Bartering a constant supply of rare earth metals for creation and knowledge investment into the R&D Far East University in Russky island.

Thunder Sky (china) has invested in Novosibirsk, bat-tery production unit to be built by RusNano.

Forming strategic alliances with kazakhstan, Russia can increase it’s source and get transit economy to pass the resource to Japan and S. Korea, bypassing China

FOR euROpe and china (2012), SOuth aFRica and tuRkey (2013)

lOng teRm ecOnOmic gROwth

knOwledge tRanSFeRallianceS

expORt ReSOuRce

Due to border disputes with Japan, China reportedly stopped rare earth metals exports to Japan (Dec 2010)

Transport alternatives (electric cars), Renewable technologies (wind turbines), ICT (iphone) and High end Scientific equipment (MRI, x ray) all use rare earth metals

Russia has the world’s second largest known resource of rare earth metals and it is currently mined as a secondary material rather than the primary.

ShORtage

China was supplying 92% of the world’s requirement of rare earth metals but in 2011 it has committed to reducing the suplly by 35%.

intROductiOn OppORtunity

phase a 2011Russia is the largest source of the world’s Nickel supply and the second largest source of rare earth metals; the resourc-es are especially important for battery technology and hence of great impor-tance in the electric car.

Nickel is already being mined in Russia and is responsible for some fortunes, but rare earth metals are right now treated like a by product in mining.

China was the world’s largest supplier of rare earth metals in the world till they decided that they needed the metals for their own ambition in the low carbon economy. China has reduced export of the metal to a basic amount.

Rare earth metals are projected as the ‘new Oil’ but rather than treat them as an export-able product as Russia is bound to do, Russia uses the

metals as leverage

to create national and international investment. There is one EV Battery production centre planned in the Novosibirsk region. It is planned with Rusnano and a Chinese investor, Thunder Sky.

Novosibirsk is between Kazakhstan and Western Siberia (both have large known resources of rare earth metals). it is geo-graphically perfect for Battery manufac-turing and supply.

In tandem with the battery manufactur-ing, Russky island that is urrently being prepared for the APEC 2012 Summit in the Far East, and is planned as the new Far Eastern University will be developed as the centre for Battery technology research and development along with electric vehicle testing and development.

Russky island neighbours Japan and South Korea; both countries are ad-vanced in battery manufacturing and technology and they bought do not have the neccessary metal resources. Russia is the via media between Kazakhstan and the East, bypassing China.

Some of the existing departments at the Far East University are suitable to start the research and development facility for the EV technology.

Right: the trade relationships that can be formed between Russia and its neighbours on leveraging its resources to bring about knowledge within the country


With the Economic world shifting towards the Pacific, The Pacific edge of Russia is poised to economic growth with a few clever articulations by the Government.

Vladivostok was the main naval base for the Soviet Pacific fleet. It was closed to foreigners and only opened after the collapse of the Soviet Union. Vladivostok sees migration from China, and tourism primarily from Japan and South Korea.

The Primorye region has a used car industry that was cre-ated by Japan. It employs around 100,000 people in the city of Vladivostok and its surrounding regions, who are responsible for assembly, maintenance and selling the car. Vladivostok is also a shipping port and has a ship building industry.

In 2006, the Government increased taxes on imported and used cars and this caused an economic setback in the region. To relieve the economy, the government distributed a smal part of the automobile industry, which till 2009 was located in West Russia, to the Primorye region.

Sollers is one of the first automobile production units that was set up in Primorye. Mazda, Matsui, and AvtoVAZ are also showing an interest in the region.

The region shows a well developed machinery and tool engineering industry, Locomotive repair plants and radio electronic and automatic equipment manufacturing. Small and medium eterprises within the automobile component industry are available within the region.

Russia, is currently developing the region for the APEC 2012 summit,

By Giving the Primorye region the status of a special administrative region,Russia can create a global clustering with countries across the Pacific who are currently active in the development of EV technology.China, has two secial administrative zones, Hong Kong and Macau. By retaining the one country two law relation-ship, China has ensured that these two regions maintain their economic growth and diversity while the mainland is centrally controlled.

The benefits of the relationship is obvious for both China and Hongkong. It is a temporary solution that can be extended if desired. The relationship is primarily for eco-nomic and trade benefits and the independence in these matters allows for decisions to be taken faster. The rule of law and independent visa regulations makes it safe and

accessible while at the same time Hong Kong has Chinas’ support for its products and stimulus when needed and China as a manufac-turing base.

Russia does not have the reputation of a transparent or fair government, it’s business ethics are questionable and borders are non porus. In fact, Russia’s borders have always been a problem for it’s own history and industrialisation. Many early attempts to jump start the automobile industry and make it competitive were thwarted by problems created on import of machinery or migration of knowledge into the country. As a special administrative region, Primorye will be able to distance itself from the centralised system of governance and resurrect itself as a part of the Pacific economic association zone.

Russia

VladiVostok HonG konG

mainland cHina

wide range of agreements with other countries and territories such as mutual abolition of visa require-ment, mutual legal aid, air services, extradition, handling of double taxation and others.. Free Press. relief from double taxation. Lowest Corporate tax in the world. Gateway to Mainland China. No say in PRC’s foreign policy and defense butallowed to make bilateral ties for commercial and economic purposes. Own judicial system. Codified Constitution - The Basic Law. Under CEPA Zero tarrifs for goods from HK to China. Under CEPA HK gets prefrential treatment in 44 sectors. Under Pearl River Delta Agreement 9 regions work together to standardise, create infrastructure and better economic ties. Chinese economic stimulus in times of need. positive non interventionist Capital model: Govern-ment onlycreates regulatory and physical infrastructure. Free Market

Zero tarrif to goods from Hong KongPreferential treatment in 44 sectors under CEPAChina is HK’s backyard for Manufacture

region administrative Region ?


With the Economic world shifting towards the Pacific, The Pacific edge of Russia is poised to economic growth with a few clever articulations by the Government.

Vladivostok was the main naval base for the Soviet Pacific fleet. It was closed to foreigners and only opened after the collapse of the Soviet Union. Vladivostok sees migration from China, and tourism primarily from Japan and South Korea.

The Primorye region has a used car industry that was cre-ated by Japan. It employs around 100,000 people in the city of Vladivostok and its surrounding regions, who are responsible for assembly, maintenance and selling the car. Vladivostok is also a shipping port and has a ship building industry.

In 2006, the Government increased taxes on imported and used cars and this caused an economic setback in the region. To relieve the economy, the government distributed a smal part of the automobile industry, which till 2009 was located in West Russia, to the Primorye region.

Sollers is one of the first automobile production units that was set up in Primorye. Mazda, Matsui, and AvtoVAZ are also showing an interest in the region.

The region shows a well developed machinery and tool engineering industry, Locomotive repair plants and radio electronic and automatic equipment manufacturing. Small and medium eterprises within the automobile component industry are available within the region.

Russia, is currently developing the region for the APEC 2012 summit,

By Giving the Primorye region the status of a special administrative region,Russia can create a global clustering with countries across the Pacific who are currently active in the development of EV technology.China, has two secial administrative zones, Hong Kong and Macau. By retaining the one country two law relation-ship, China has ensured that these two regions maintain their economic growth and diversity while the mainland is centrally controlled.

The benefits of the relationship is obvious for both China and Hongkong. It is a temporary solution that can be extended if desired. The relationship is primarily for eco-nomic and trade benefits and the independence in these matters allows for decisions to be taken faster. The rule of law and independent visa regulations makes it safe and

accessible while at the same time Hong Kong has Chinas’ support for its products and stimulus when needed and China as a manufac-turing base.

Russia does not have the reputation of a transparent or fair government, it’s business ethics are questionable and borders are non porus. In fact, Russia’s borders have always been a problem for it’s own history and industrialisation. Many early attempts to jump start the automobile industry and make it competitive were thwarted by problems created on import of machinery or migration of knowledge into the country. As a special administrative region, Primorye will be able to distance itself from the centralised system of governance and resurrect itself as a part of the Pacific economic association zone.

Russia

VladiVostok HonG konG

mainland cHina

wide range of agreements with other countries and territories such as mutual abolition of visa require-ment, mutual legal aid, air services, extradition, handling of double taxation and others.. Free Press. relief from double taxation. Lowest Corporate tax in the world. Gateway to Mainland China. No say in PRC’s foreign policy and defense butallowed to make bilateral ties for commercial and economic purposes. Own judicial system. Codified Constitution - The Basic Law. Under CEPA Zero tarrifs for goods from HK to China. Under CEPA HK gets prefrential treatment in 44 sectors. Under Pearl River Delta Agreement 9 regions work together to standardise, create infrastructure and better economic ties. Chinese economic stimulus in times of need. positive non interventionist Capital model: Govern-ment onlycreates regulatory and physical infrastructure. Free Market

Zero tarrif to goods from Hong KongPreferential treatment in 44 sectors under CEPAChina is HK’s backyard for Manufacture

region administrative Region ?


Phase C 2015 MosCow, st.Petersburg, saMara, 2018: VladiVostok

national legislationregional legislation

Russia will adopt a fuel efficient vehicles in its fleet because of carbon pricing (pricing on emissions, and export from high emitting countries) and because of increasing internal consumption (causing it to start importing oil and gas).

It is only a question if it decides to do it slowly with strategic planning or it is forced to move towards it suddenly with make shift solutions on demand.

To adopt Electric Vehicles in the country Russia will have to initiate legislation at a National and Regional level and cre-ate systems and collaborations so that private investment, small community and individual business opportunities are created.

The battery pack in an electric vehicle is a fuel component and can be detached from the vehicle in sales and services. When it was understood that batter-ies like gasoline needs to be readily available, interchangeable and refillable (chargeable in this case) the electric vehicle service industry began.

Across the world there are strategic collaborations betwen the EV industry and battery manufacturers and service providers.

It is not surprising that Renault-Nissan feature again in this example and that Renault Nissan are active in Russia and hold a share in the most prestigious na-tional automobile brand in Russia.

Renualt-Nissan have collaborated with Better Place. Better Place is a global provider of EV networks and services. They introduce country specific solutions to incorporate mass adoption of electric vehicles. As I write this they have col-laborations and solutions for Denmark, China, Japan, Australia, Israel, North America and the EU.

The electric vehicle should be marketed like a mobile phone. The consumer buys/leases the hardware (that is the car) and the battery and network is provided by the service provider. At the moment, the automobile company collaborates with service providers but over time the con-sumer will have a choice of the service provider making it very competitive.

As part of the National EV framework in Russia, the first step is to extend these existing collaborations and initiate cities and partnerships. that already exist around the world and can be easily imported into the country.

With National legislation that will make the electric vehicle affordable and convenient

the government has to create legislation that makes the use of any motorised vehicle in the country a thoughtful action and should create multiple options of mobility in the city so that private car ownership is not the only alternative

The Government, Private investors and individuals should get into a collabora-tive model where there is an attempt to change road transport choice and use through legislation, incentives, rebates and zoning and engaging the public (Transport Policy UK: Low carbon econ-omy). The money flowing through the system should never be used as revenue by the state as it acts counter produc-tively to create change and there should be constant dissemination of information by the state to ensure that there is a mass understanding of the policy and its desired effect.

Renault:Nissan:Better Place is one such collaboration. Renault is produc-ing automobiles in Moscow, poetically Moscow can be the first centre for EV just as AMO_ZIL was set up as the first automobile manufacturer in Moscow in 1916. To ensure mass adoption National legislation has to create incentives and commit to changing government fleets (taxi, postal, police) to electric vehicles. This provides a guarantee for private companies to enter the market and for consumers to experience and trust the technology.

Across the world incentives include tax rebates, cash rebates, parking and charging preference, congestion charge redemption etc.

Above: The different rebates and incentives introduced by governments across the world to induce mass adop-tion of electric vehicles

Left: The rebound effect. It is very important to create a system where there is a strong relationship between energy consumed and action of the individual. Unfortunately, monetising the relationship seems to be the way.

Left: The continous monetary loop between incen-tives, rebates and fines. The money generated by the system should not be used for profits as it is counter productive

private investmentsPrivate investments are the bridge be-tween the government and the individual small enterprise. They collaborate with the Government to create infrastructure, disperse incentives in form of bonus, loyalty points and services and they cre-ate a system that small enterprises find a platform to provide diverse and custom-ised solutions and services.


Phase C 2015 MosCow, st.Petersburg, saMara, 2018: VladiVostok

national legislationregional legislation

Russia will adopt a fuel efficient vehicles in its fleet because of carbon pricing (pricing on emissions, and export from high emitting countries) and because of increasing internal consumption (causing it to start importing oil and gas).

It is only a question if it decides to do it slowly with strategic planning or it is forced to move towards it suddenly with make shift solutions on demand.

To adopt Electric Vehicles in the country Russia will have to initiate legislation at a National and Regional level and cre-ate systems and collaborations so that private investment, small community and individual business opportunities are created.

The battery pack in an electric vehicle is a fuel component and can be detached from the vehicle in sales and services. When it was understood that batter-ies like gasoline needs to be readily available, interchangeable and refillable (chargeable in this case) the electric vehicle service industry began.

Across the world there are strategic collaborations betwen the EV industry and battery manufacturers and service providers.

It is not surprising that Renault-Nissan feature again in this example and that Renault Nissan are active in Russia and hold a share in the most prestigious na-tional automobile brand in Russia.

Renualt-Nissan have collaborated with Better Place. Better Place is a global provider of EV networks and services. They introduce country specific solutions to incorporate mass adoption of electric vehicles. As I write this they have col-laborations and solutions for Denmark, China, Japan, Australia, Israel, North America and the EU.

The electric vehicle should be marketed like a mobile phone. The consumer buys/leases the hardware (that is the car) and the battery and network is provided by the service provider. At the moment, the automobile company collaborates with service providers but over time the con-sumer will have a choice of the service provider making it very competitive.

As part of the National EV framework in Russia, the first step is to extend these existing collaborations and initiate cities and partnerships. that already exist around the world and can be easily imported into the country.

With National legislation that will make the electric vehicle affordable and convenient

the government has to create legislation that makes the use of any motorised vehicle in the country a thoughtful action and should create multiple options of mobility in the city so that private car ownership is not the only alternative

The Government, Private investors and individuals should get into a collabora-tive model where there is an attempt to change road transport choice and use through legislation, incentives, rebates and zoning and engaging the public (Transport Policy UK: Low carbon econ-omy). The money flowing through the system should never be used as revenue by the state as it acts counter produc-tively to create change and there should be constant dissemination of information by the state to ensure that there is a mass understanding of the policy and its desired effect.

Renault:Nissan:Better Place is one such collaboration. Renault is produc-ing automobiles in Moscow, poetically Moscow can be the first centre for EV just as AMO_ZIL was set up as the first automobile manufacturer in Moscow in 1916. To ensure mass adoption National legislation has to create incentives and commit to changing government fleets (taxi, postal, police) to electric vehicles. This provides a guarantee for private companies to enter the market and for consumers to experience and trust the technology.

Across the world incentives include tax rebates, cash rebates, parking and charging preference, congestion charge redemption etc.

Above: The different rebates and incentives introduced by governments across the world to induce mass adop-tion of electric vehicles

Left: The rebound effect. It is very important to create a system where there is a strong relationship between energy consumed and action of the individual. Unfortunately, monetising the relationship seems to be the way.

Left: The continous monetary loop between incen-tives, rebates and fines. The money generated by the system should not be used for profits as it is counter productive

private investmentsPrivate investments are the bridge be-tween the government and the individual small enterprise. They collaborate with the Government to create infrastructure, disperse incentives in form of bonus, loyalty points and services and they cre-ate a system that small enterprises find a platform to provide diverse and custom-ised solutions and services.


Step 01: The stage is set and all moti-vators are introduced simultaneously. They affect all the actors monetarily and prompt them to discover or introduce new solutions.

Step 02: With the right private invest-ments and information dissemination: innovative solutions and secondary economies are created.

Rather than being sanctimonious about the use of private transport and suggest-ing behaviour change as one that would save the world or as a tool for community building we introduce the idea as simply one that makes economic sense to indi-viduals not only as a means of personal savings but as a system that encourages entrepreneurship, small scale individual business and reinforces the idea that the private car is a tool for independent busi-

ness and innovation. This is not new in Russia. The car through history has been a mode to generate income, this is seen even today in Moscow and St. Petersburg where every car is potentially a taxi.In the diagram on the right we see the system being activated and the various props being created.

Step 2 bifurcates into a variety of solu-tions and opportunities (a,b,c ...)

innovation economy: small/medium scale

1 2

x

2a

2c

2b

Step 2a: The catch a car phenomena is unique to Russia. It is a phenomena that should be strengthened as it reduces the desire to own a car, liberates monopoly from taxi companies and makes ride sharing an existing reality in Russia. The ease at which you can flag down a car or find one is the most important part of the experience.

Solution X: Multi- user integrated travel package

The Network/cloud State Housing Assoc small business

citizen Employers Corporates commercialCatch a car

Director The actors

Scenarios when national, regional and local initiatives are played out simultaneously

Above: Mapping the potentials generated on introduc-tion of EV in the country with tax and urban planning solutions to pre-empt the rebound effect.

Above: Tax and rebates offered by the government with solutions provided. The strategy is ‘Inconvenience with Alternatives’

Left: The route planner to engage the informal taxi into the innovative economy as they provide a solution to excessive car usage.


Step 01: The stage is set and all moti-vators are introduced simultaneously. They affect all the actors monetarily and prompt them to discover or introduce new solutions.

Step 02: With the right private invest-ments and information dissemination: innovative solutions and secondary economies are created.

Rather than being sanctimonious about the use of private transport and suggest-ing behaviour change as one that would save the world or as a tool for community building we introduce the idea as simply one that makes economic sense to indi-viduals not only as a means of personal savings but as a system that encourages entrepreneurship, small scale individual business and reinforces the idea that the private car is a tool for independent busi-

ness and innovation. This is not new in Russia. The car through history has been a mode to generate income, this is seen even today in Moscow and St. Petersburg where every car is potentially a taxi.In the diagram on the right we see the system being activated and the various props being created.

Step 2 bifurcates into a variety of solu-tions and opportunities (a,b,c ...)

innovation economy: small/medium scale

1 2

x

2a

2c

2b

Step 2a: The catch a car phenomena is unique to Russia. It is a phenomena that should be strengthened as it reduces the desire to own a car, liberates monopoly from taxi companies and makes ride sharing an existing reality in Russia. The ease at which you can flag down a car or find one is the most important part of the experience.

Solution X: Multi- user integrated travel package

The Network/cloud State Housing Assoc small business

citizen Employers Corporates commercialCatch a car

Director The actors

Scenarios when national, regional and local initiatives are played out simultaneously

Above: Mapping the potentials generated on introduc-tion of EV in the country with tax and urban planning solutions to pre-empt the rebound effect.

Above: Tax and rebates offered by the government with solutions provided. The strategy is ‘Inconvenience with Alternatives’

Left: The route planner to engage the informal taxi into the innovative economy as they provide a solution to excessive car usage.


ELECTRIFIED!


ELECTRIFIED!


RENEWABLES IN RUSSIASince grid condition and power price are relatively ok in urban areas, so, to identify our target audience, we will concentrate on suburban and rural areas in aglomerations of big cities.This houses are usually referred to as dachas, but, of course, among them there are a lot of houses that are used as permanent habitats.

To get visual, it could have been appropriate to present a map of dachas - but it is virtually impossible task bacause this type of housing is very popular and vide spread.

then charges residents his own tarrifs to get return on investment. In some cases this tarrif goesup to as much as 40% of initial state tarrif.This way, near the city, in one settelment there can be four different tarrifs - one is the state tarrif, second is the same tarrif plus huge investment into new line and maintainance, third is tarrif set by the developer and the last is price of fossil fuels for off-grid power supply systems.

The same mechanisms that prevents households from easily getting permittion for additional power capacity - bureauctratcy and corruption - together with Russian political and market conjuncture in relation to energy provision - makes it hard to simply apply european best practice, like feed-in tarrifs and smart grids. This usually means huge infrastructural investments, education, and volumes, and, again,can’t be done overnight.

Since geography matters anyway, because it is important to take into account renewable factors, like lakes, rivers, climate, ect, I decided to analize aglomegations of 21 biggest cities of Russia, situated in most populated areas of the country, around which dachas are situated.

Locations near big cities can be classified, different typologies can be identified and there are some exact numbers in place. I’ve researched 21 biggest cities with population range from 500 000 to several millions, that totally accountfor 32% of Russian population.

osto

aroslavl

oroneg

ijni Novgorod

Saint Petersburg

olgograd

erm e

rafa

katerinburgumen

r

ovsk

ovosibirsk

Barnaul

omskKrasnoyarsk

CURRENT GRID TARGET GRoUp: SUBURBAN AREAS

Current power grid is for the main part soviet legacy, together with 90% of all energy infrostructure. It’s maintained in relatively good conditions in urban and strategical areas, where blackouts and powercuts are rare and are considered technical catastrophes.

In suburban and rural areas, on the other hand, power grid is in poor condition, what makes it unprotected in face of natural disasters, so many power cuts occure after snow or thunder storms, what makes situation even wother - when power lines are fixed - they are supposed to be changed for new ones, but what happens most of the time - money, or matirials are stolen, and powerlines are just tied together, what makes further power cuts even more likely.

What’s more, Russian enrgy grid does not cover all the homes in our country. While almost all urban population is conneccted to the grid - big number of homes in suburban and rural areas are off grid. This gives us the first niche for renewables.

Renewable power is thought to be expensive, and, after looking at tarrif chart, one may think that electric power in Russia is cheap enough to make renewable power uncompetitive.

First, as I have mentioned above, there are off grid remote locations, that are too hard or expensive to be connected. But, even in aglomerations of big cities, we can find off grid situations and different tarrifs that are considerably higher then original state ones. If we look at the illusration on the right, we can see a hypothetical suburban settelment and it’s development story from infrastructure point of view.

Lets consider the initial power capacity of the settelments some X.X is more then the original number of houses needed - there was a reserve left for growth and security purposes.As time passes, some homes are sold, demolished and rebuilt into more modern ones, and even older homes get new appliences that consume more power.

Then,new houses appear, the site grows and at one point at time X is out, and no new homes can be powered from existing network.

New homes have to build a new line (usually from the road or local sub-station) and also get permission for new power capacity - this means money and bribes, that is, again, money. After the new line is built, (around200 000 RUR per home in Moscow prices) hoseholds continue paying regular state-issued power tarrif, but also sometimes have to pay additional amortization fees for the new line. Some households group to pay

less and do it, some refuse or have no money to, and stay off grid, using generators that run mainly on fossil fuels - gas or diesel.

The latest fashion - cottage homes and townhouses are sold as an alternative to urban living - that means they have to be as contemporary as city apartmments are, and power supply is a must.

Usually, the developer invests into infrastructure, simply doing the same as household owners described above, and

NIGNI NOVGOROD SAMARA KAZAN

VOLGOGRAD KRASNOYARSK ULIANOVSK

PERM NOVOSIBIRSK SARATOV

UFA BARNAUL MOSCOW

IGEVSK YAROSLAVLVORONEG

CHELIABINSK EKATERINBURG TUMEN

MAHACHKALA ST PETERBURG ROSTOV NA DONU

NIGNI NOVGORODPopulation Population Population

1251

2020Aglomeration

1165

2050Aglomeration

1144

1560Aglomeration

Population Population Population

1021

1014Aglomeration

974

1155Aglomeration

614

672Aglomeration


992

1306Aglomeration

1474

1800Aglomeration

838

1186Aglomeration


1062

1300Aglomeration

612

731Aglomeration

11 514

14 500 Aglomeration


628

1080Aglomeration

890

1175Aglomeration

592

750Aglomeration


1130

1350Aglomeration

1350

2050Aglomeration

582

656Aglomeration


578

760Aglomeration

4849

5400Aglomeration

1090

1800Aglomeration

SAMARA KAZAN



UFA BARNAUL MOSCOW




-

NEW COTTAGE SETTELMENTS RAISED BY ONE SINGLE DEVELOPER

ROAD AND POWERLINE

OLD HOUSES FROM HISTORICAL CONSTRUCTION

NEW HOUSES THAT FIT INTO INITIAL POWER CAPACITY

NEW HOUSES THAT GROUPED TOGETHER TO PAY FOR EXTRA POWER CAPACITY

AND NEW CONNECTION TO

THE GRID.

ALL NEW HOUSES THAT DID NOT FIT INTO

INITIAL POVER CAPACITY

HISTORICAL TERRITORY OF THE SETTLEMENT

HOMES THAT DECIDID NOT TO OR HAD NO

MONEY TO BRIBE LOCAL

AUTHORITIES

AND GET EXTRA CAPACITY - REMAINED OFF-GRID

HISTORICAL CONSTRUCTION HOUSES THAT POSESS NEW HOME APPLIANCES THAT CONSUME MORE POWER

ALL THE HOMES THAT FIT INTO INITIAL CAPACITY OF ELECTRICITY PROVISION

RENOVATED OR REBUILT STRUCTURES IN

PLACE OF OLD HOMES

IVANBIO.indd 2-3 23.06.2011 01:45:58

RENEWABLES IN RUSSIASince grid condition and power price are relatively ok in urban areas, so, to identify our target audience, we will concentrate on suburban and rural areas in aglomerations of big cities.This houses are usually referred to as dachas, but, of course, among them there are a lot of houses that are used as permanent habitats.

To get visual, it could have been appropriate to present a map of dachas - but it is virtually impossible task bacause this type of housing is very popular and vide spread.

then charges residents his own tarrifs to get return on investment. In some cases this tarrif goesup to as much as 40% of initial state tarrif.This way, near the city, in one settelment there can be four different tarrifs - one is the state tarrif, second is the same tarrif plus huge investment into new line and maintainance, third is tarrif set by the developer and the last is price of fossil fuels for off-grid power supply systems.

The same mechanisms that prevents households from easily getting permittion for additional power capacity - bureauctratcy and corruption - together with Russian political and market conjuncture in relation to energy provision - makes it hard to simply apply european best practice, like feed-in tarrifs and smart grids. This usually means huge infrastructural investments, education, and volumes, and, again,can’t be done overnight.

Since geography matters anyway, because it is important to take into account renewable factors, like lakes, rivers, climate, ect, I decided to analize aglomegations of 21 biggest cities of Russia, situated in most populated areas of the country, around which dachas are situated.

Locations near big cities can be classified, different typologies can be identified and there are some exact numbers in place. I’ve researched 21 biggest cities with population range from 500 000 to several millions, that totally accountfor 32% of Russian population.

osto

aroslavl

oroneg

ijni Novgorod

Saint Petersburg

olgograd

erm e

rafa

katerinburgumen

r

ovsk

ovosibirsk

Barnaul

omskKrasnoyarsk

CURRENT GRID TARGET GRoUp: SUBURBAN AREAS

Current power grid is for the main part soviet legacy, together with 90% of all energy infrostructure. It’s maintained in relatively good conditions in urban and strategical areas, where blackouts and powercuts are rare and are considered technical catastrophes.

In suburban and rural areas, on the other hand, power grid is in poor condition, what makes it unprotected in face of natural disasters, so many power cuts occure after snow or thunder storms, what makes situation even wother - when power lines are fixed - they are supposed to be changed for new ones, but what happens most of the time - money, or matirials are stolen, and powerlines are just tied together, what makes further power cuts even more likely.

What’s more, Russian enrgy grid does not cover all the homes in our country. While almost all urban population is conneccted to the grid - big number of homes in suburban and rural areas are off grid. This gives us the first niche for renewables.

Renewable power is thought to be expensive, and, after looking at tarrif chart, one may think that electric power in Russia is cheap enough to make renewable power uncompetitive.

First, as I have mentioned above, there are off grid remote locations, that are too hard or expensive to be connected. But, even in aglomerations of big cities, we can find off grid situations and different tarrifs that are considerably higher then original state ones. If we look at the illusration on the right, we can see a hypothetical suburban settelment and it’s development story from infrastructure point of view.

Lets consider the initial power capacity of the settelments some X.X is more then the original number of houses needed - there was a reserve left for growth and security purposes.As time passes, some homes are sold, demolished and rebuilt into more modern ones, and even older homes get new appliences that consume more power.

Then,new houses appear, the site grows and at one point at time X is out, and no new homes can be powered from existing network.

New homes have to build a new line (usually from the road or local sub-station) and also get permission for new power capacity - this means money and bribes, that is, again, money. After the new line is built, (around200 000 RUR per home in Moscow prices) hoseholds continue paying regular state-issued power tarrif, but also sometimes have to pay additional amortization fees for the new line. Some households group to pay

less and do it, some refuse or have no money to, and stay off grid, using generators that run mainly on fossil fuels - gas or diesel.

The latest fashion - cottage homes and townhouses are sold as an alternative to urban living - that means they have to be as contemporary as city apartmments are, and power supply is a must.

Usually, the developer invests into infrastructure, simply doing the same as household owners described above, and

NIGNI NOVGOROD SAMARA KAZAN



UFA BARNAUL MOSCOW




NIGNI NOVGORODPopulation Population Population

1251

2020Aglomeration

1165

2050Aglomeration

1144

1560Aglomeration


1021

1014Aglomeration

974

1155Aglomeration

614

672Aglomeration


992

1306Aglomeration

1474

1800Aglomeration

838

1186Aglomeration


1062

1300Aglomeration

612

731Aglomeration

11 514

14 500 Aglomeration


628

1080Aglomeration

890

1175Aglomeration

592

750Aglomeration


1130

1350Aglomeration

1350

2050Aglomeration

582

656Aglomeration


578

760Aglomeration

4849

5400Aglomeration

1090

1800Aglomeration

SAMARA KAZAN



UFA BARNAUL MOSCOW




-

NEW COTTAGE SETTELMENTS RAISED BY ONE SINGLE DEVELOPER

ROAD AND POWERLINE

OLD HOUSES FROM HISTORICAL CONSTRUCTION

NEW HOUSES THAT FIT INTO INITIAL POWER CAPACITY

NEW HOUSES THAT GROUPED TOGETHER TO PAY FOR EXTRA POWER CAPACITY

AND NEW CONNECTION TO

THE GRID.

ALL NEW HOUSES THAT DID NOT FIT INTO

INITIAL POVER CAPACITY

HISTORICAL TERRITORY OF THE SETTLEMENT

HOMES THAT DECIDID NOT TO OR HAD NO

MONEY TO BRIBE LOCAL

AUTHORITIES

AND GET EXTRA CAPACITY - REMAINED OFF-GRID

HISTORICAL CONSTRUCTION HOUSES THAT POSESS NEW HOME APPLIANCES THAT CONSUME MORE POWER

ALL THE HOMES THAT FIT INTO INITIAL CAPACITY OF ELECTRICITY PROVISION

RENOVATED OR REBUILT STRUCTURES IN

PLACE OF OLD HOMES

IVANBIO.indd 2-3 23.06.2011 01:45:58

Near cities, formed around historical trade crossroads, suburban communities are formed alongside the developed road system inbetween the transportation network, sometimes near small creeks and rivers that are present in the landscape but don’t conciderably influence settelment patterns.

Cities formed near big rivers usually stretch along this rivers, and suburban areas were included into city territory due to it’s development, this type of cities host two types of suburban households - one is dacha-style homes inside the city and another type is settelments along the river, on the islands.

If a city is situated on a sea shore - suburban areas and dachas stretch alongside the embankment, if there is a river delta (as shown on a picture) like in Rostov-na- Donu, dachas and countryhouses are situated on thesea shore and as well up the river, or on the opposite side of the river from the city, if the city mainly occupies only one side of the river

Cities surrounded by lakes and mountines, like Ekaterinburg, usually feature suburban structures near lakes and in natural reservations. Due to specific landscape, road network is less developed then in case one, but the latest tendency is construction of cottages and townhouses alongside roads near the city, folloving the model presented in the first case.

four typologiesThe cheapest way to run a household on renewable sourse today is small wind turbine. Average household’s monthly energy need is 300 kwt/h. I’ve surveyed local distributors to find that to produce this amount of power in Moscow region a 5Kwt/h wind turbine is needed. With a cost of 300 000 rur and life cycle of 20 years it produces electric power at 4,1 rur per kwt/h with our low average wind speed (3-4 m/s). State tarrif in Moscow region is 2,37, which, of course, is out of competition, but tarrif charged by developer is 4-5 rur per kvt/h, and if you’re running a generator - one kilowatt may cost you up to 10 rur.There are different areas with different potentials - if our case was not near Moscow but near Murmansk with average wind speeds higher than 7 m/s, the same wind turbine will work at full capacity and produce 500 kvt a month, at a price of 2,5 rur per kilowatt.This numbers highly depend not only on a region, but also on features of local landscape, presense of lake or a field, or a hill.

We used wind as an indicator in this case because it is more o less universal - mycro hydro plants only work where there are suitable rivers, solar panels are

near Moscow - only for permission, plus bribes to get the permission, plus building and maintaining the new powerline, makes alltogether the cost of at least 500 000 rur, but owner also has to pay state tarrif - that grows 10% annualy - over 25 years it’s going to be 21,6 rur per kvt/h, in 25 years it’s 650 000 rur in power fees.

The alternative 5 kvt wind turbine with batteries and power management system costs the same 500 000 rur, life cycle is the same 25 years (with a possibility for upgrade) - and then there is no extra charge for electric power - exept maintainance and amortisation costs .

Geothermal heat pumps work in all weather and climate conditions - because they take advantage of constant temperature of soil three to five meters below surface - 10 degrees celsium that cools down air or water in summer and pre-heats air and water in winter, when usually up to 60% of energy is used for heating.

The owerall paradigm is that state tarrif - that depends on oil price, workforce cost, soviet-time power plants in getting more and more expensive every year, and renewable souses, along with development of technology, are becoming cheaper.

competitive in southern regions. Small scale does not imply utulisation of more complex and advance technology, because it is usually bigger in scale and much more expensive.

What is used on this scale is solar panels, geothermal heat exchange to save money on ventilation and especially heating in winter, small (up to 5 kvt) wind turbines, micro hydro stations.

State tarrif is the most favorable in all cases - but my point is that due to imperfection of the grid - it’s bad quality and coverage renewable sourses may be competitive, or at least, if used in a mix, can help to save money.

Basically, there are three cases.If a household is on grid, and is charged regular state tarrif - it’s as cheap as it can get in the short run.

If you’re on grid, but pay more than 4 rur per kw/h - it’s a reason to think about investment into renewable technology - this way household becomes independent from developer, who can change fees at will, and, also, this tarrifs grow together with state tarrifs - at least 10% a year.

If a home is off grid, but owner is ready to invest into infractructure - it will cost 10-20 000 rur per kilowatt of capacity in regions and 50-60 000 rur per kwt/h

CAses

3 kW VERTICAL AXIS WIND TURBINE

STATE TARRIF

ADDITIONAL POWER CAPACITY CASES

generator working on fossil fuel

Moscow region

min 10% annual growth (factors, forecasts)

may be lowered

2,54,1

4,5

10

IVANBIO.indd 4-5 23.06.2011 01:51:04

Near cities, formed around historical trade crossroads, suburban communities are formed alongside the developed road system inbetween the transportation network, sometimes near small creeks and rivers that are present in the landscape but don’t conciderably influence settelment patterns.

Cities formed near big rivers usually stretch along this rivers, and suburban areas were included into city territory due to it’s development, this type of cities host two types of suburban households - one is dacha-style homes inside the city and another type is settelments along the river, on the islands.

If a city is situated on a sea shore - suburban areas and dachas stretch alongside the embankment, if there is a river delta (as shown on a picture) like in Rostov-na- Donu, dachas and countryhouses are situated on thesea shore and as well up the river, or on the opposite side of the river from the city, if the city mainly occupies only one side of the river

Cities surrounded by lakes and mountines, like Ekaterinburg, usually feature suburban structures near lakes and in natural reservations. Due to specific landscape, road network is less developed then in case one, but the latest tendency is construction of cottages and townhouses alongside roads near the city, folloving the model presented in the first case.

four typologiesThe cheapest way to run a household on renewable sourse today is small wind turbine. Average household’s monthly energy need is 300 kwt/h. I’ve surveyed local distributors to find that to produce this amount of power in Moscow region a 5Kwt/h wind turbine is needed. With a cost of 300 000 rur and life cycle of 20 years it produces electric power at 4,1 rur per kwt/h with our low average wind speed (3-4 m/s). State tarrif in Moscow region is 2,37, which, of course, is out of competition, but tarrif charged by developer is 4-5 rur per kvt/h, and if you’re running a generator - one kilowatt may cost you up to 10 rur.There are different areas with different potentials - if our case was not near Moscow but near Murmansk with average wind speeds higher than 7 m/s, the same wind turbine will work at full capacity and produce 500 kvt a month, at a price of 2,5 rur per kilowatt.This numbers highly depend not only on a region, but also on features of local landscape, presense of lake or a field, or a hill.

We used wind as an indicator in this case because it is more o less universal - mycro hydro plants only work where there are suitable rivers, solar panels are

near Moscow - only for permission, plus bribes to get the permission, plus building and maintaining the new powerline, makes alltogether the cost of at least 500 000 rur, but owner also has to pay state tarrif - that grows 10% annualy - over 25 years it’s going to be 21,6 rur per kvt/h, in 25 years it’s 650 000 rur in power fees.

The alternative 5 kvt wind turbine with batteries and power management system costs the same 500 000 rur, life cycle is the same 25 years (with a possibility for upgrade) - and then there is no extra charge for electric power - exept maintainance and amortisation costs .

Geothermal heat pumps work in all weather and climate conditions - because they take advantage of constant temperature of soil three to five meters below surface - 10 degrees celsium that cools down air or water in summer and pre-heats air and water in winter, when usually up to 60% of energy is used for heating.

The owerall paradigm is that state tarrif - that depends on oil price, workforce cost, soviet-time power plants in getting more and more expensive every year, and renewable souses, along with development of technology, are becoming cheaper.

competitive in southern regions. Small scale does not imply utulisation of more complex and advance technology, because it is usually bigger in scale and much more expensive.

What is used on this scale is solar panels, geothermal heat exchange to save money on ventilation and especially heating in winter, small (up to 5 kvt) wind turbines, micro hydro stations.

State tarrif is the most favorable in all cases - but my point is that due to imperfection of the grid - it’s bad quality and coverage renewable sourses may be competitive, or at least, if used in a mix, can help to save money.

Basically, there are three cases.If a household is on grid, and is charged regular state tarrif - it’s as cheap as it can get in the short run.

If you’re on grid, but pay more than 4 rur per kw/h - it’s a reason to think about investment into renewable technology - this way household becomes independent from developer, who can change fees at will, and, also, this tarrifs grow together with state tarrifs - at least 10% a year.

If a home is off grid, but owner is ready to invest into infractructure - it will cost 10-20 000 rur per kilowatt of capacity in regions and 50-60 000 rur per kwt/h

CAses

3 kW VERTICAL AXIS WIND TURBINE

STATE TARRIF

ADDITIONAL POWER CAPACITY CASES

generator working on fossil fuel

Moscow region

min 10% annual growth (factors, forecasts)

may be lowered

2,54,1

4,5

10

IVANBIO.indd 4-5 23.06.2011 01:51:04

MIDDLE SCALE PRIVATE PUBLIC PARTNERSHIPSPublic–private partnership (PPP) describes a government service or private business venture which is funded and operated through a partnership of government and one or more private sector companies.

PPP in Russia is in it’s development stage, but some projects of this kind have already been launched in different areas. In simple words, PPP is a business project, that has something to do with positive externalities for local community or national interest, and for this reason gets some level of support from the government.

In best practice cases it’s financing, subsidies, insurance of stable demand for the product, but in all cases, what is crucial for Russia, it’s the fact that puplic party supports the project and somehow takes a stake in it - what makes it easier to get all the papers and desigions on time, and be sure that no obstacles from goverment may geopardize the project.

When we’re talking about middle-scale production of alternative energy - the one that involves more investments, higher volumes of production, that no longer can stay on household consumer level, and have to be taken into account by local government.

Since middle scale renewable power projects use, and may posess an aditional strain on existing infrostructure, and produce an amount of power that is a subject to distribution, PPP may be a good option for development on this level of scale.

Project I studied is a biogas power plant that produces biomethane from farming waste - cattle excrements in Graivoron area of Belgorodski region. Biogas is one of the most perspective renewable sources in Russia, if we consider our climate, natural potential and existing infrostructure.

Biogas production is based on agriculture waste - the resource that is virtually free, in abundance with a tendency to grow, and, what is most important, that needs to be utilised, or is utilised on a cost or used with low returns.

In perspective we may talk about three main stocks for biogas producton - cattle excrements, waste from food crops, and waste from wood and paper production industry.

Biogas production is based on existing infrastructure of private and public entities of agricultural industry across country, that, again, are either owned or to some extend regulated by the state, and also posess a working logistics system, and form local community around them.

The fact, that the industry is literary throwing away it’s possible profit, that may have generated additional benefits, may be a good argument for the industry to invest to aditional infrastructure, and for local goverment to support it.

Building on stable industry solves another crucial for Russian case problem - intermittence if power sourse. Unlike wind or sun, anaerobic digestion is a stable continious process, and it’s power capacity fluctuate over a year - if it’s 500 kw/h, it is 500 kilowatts per hour, every hour, what makes it reliable enough to be used to support the industry and to be fed into the local network.

This also solves the problem of storage - biogas is being produced continiosly, but the rate of electricity production may be controlled and easily changed, and excess power is stored in form of gas, with no transaction losses, and then may be transferred into electricity on the same site, or sold, burnred directly or transformed into electric power anywhere else - Russian industry and households are technicaly prepared to use natural gas - and biogas contains the same methane as natural gas.

Apart from the main product - biogas, which, as we’ve mentioned before, has lots of benefits, there are several side products of a certain value - heat, that can be recaptured and used, solid and liquid digestate, that is a good agricultural supplement.

Case study features a bioenergy project in Graivoron Area of Belgorod Region, that consists of two biogas plants, that are situated near farms and use waste from cows and chicken, and pigs respectively. We’re going to look at the project in context of local infrostructure, observe technical details of each plant and analize economy of the whole project.

BIOGAS IN RUSSIA

Agriculture is one of strategic industries for Russia, it’s main purpose is to feed the country and provide export profits, so even different shocks and troubles are setteled and regulated by the goverment, gross subsidies for this sector in 2010 accounted for RUR 104 MM.

CASESTUDY

IVANBIO.indd 6-7 23.06.2011 02:01:22

MIDDLE SCALE PRIVATE PUBLIC PARTNERSHIPSPublic–private partnership (PPP) describes a government service or private business venture which is funded and operated through a partnership of government and one or more private sector companies.

PPP in Russia is in it’s development stage, but some projects of this kind have already been launched in different areas. In simple words, PPP is a business project, that has something to do with positive externalities for local community or national interest, and for this reason gets some level of support from the government.

In best practice cases it’s financing, subsidies, insurance of stable demand for the product, but in all cases, what is crucial for Russia, it’s the fact that puplic party supports the project and somehow takes a stake in it - what makes it easier to get all the papers and desigions on time, and be sure that no obstacles from goverment may geopardize the project.

When we’re talking about middle-scale production of alternative energy - the one that involves more investments, higher volumes of production, that no longer can stay on household consumer level, and have to be taken into account by local government.

Since middle scale renewable power projects use, and may posess an aditional strain on existing infrostructure, and produce an amount of power that is a subject to distribution, PPP may be a good option for development on this level of scale.

Project I studied is a biogas power plant that produces biomethane from farming waste - cattle excrements in Graivoron area of Belgorodski region. Biogas is one of the most perspective renewable sources in Russia, if we consider our climate, natural potential and existing infrostructure.

Biogas production is based on agriculture waste - the resource that is virtually free, in abundance with a tendency to grow, and, what is most important, that needs to be utilised, or is utilised on a cost or used with low returns.

In perspective we may talk about three main stocks for biogas producton - cattle excrements, waste from food crops, and waste from wood and paper production industry.

Biogas production is based on existing infrastructure of private and public entities of agricultural industry across country, that, again, are either owned or to some extend regulated by the state, and also posess a working logistics system, and form local community around them.

The fact, that the industry is literary throwing away it’s possible profit, that may have generated additional benefits, may be a good argument for the industry to invest to aditional infrastructure, and for local goverment to support it.

Building on stable industry solves another crucial for Russian case problem - intermittence if power sourse. Unlike wind or sun, anaerobic digestion is a stable continious process, and it’s power capacity fluctuate over a year - if it’s 500 kw/h, it is 500 kilowatts per hour, every hour, what makes it reliable enough to be used to support the industry and to be fed into the local network.

This also solves the problem of storage - biogas is being produced continiosly, but the rate of electricity production may be controlled and easily changed, and excess power is stored in form of gas, with no transaction losses, and then may be transferred into electricity on the same site, or sold, burnred directly or transformed into electric power anywhere else - Russian industry and households are technicaly prepared to use natural gas - and biogas contains the same methane as natural gas.

Apart from the main product - biogas, which, as we’ve mentioned before, has lots of benefits, there are several side products of a certain value - heat, that can be recaptured and used, solid and liquid digestate, that is a good agricultural supplement.

Case study features a bioenergy project in Graivoron Area of Belgorod Region, that consists of two biogas plants, that are situated near farms and use waste from cows and chicken, and pigs respectively. We’re going to look at the project in context of local infrostructure, observe technical details of each plant and analize economy of the whole project.

BIOGAS IN RUSSIA

Agriculture is one of strategic industries for Russia, it’s main purpose is to feed the country and provide export profits, so even different shocks and troubles are setteled and regulated by the goverment, gross subsidies for this sector in 2010 accounted for RUR 104 MM.

CASESTUDY

IVANBIO.indd 6-7 23.06.2011 02:01:22

BIOGAS PRODUCTION PROCESS

1 2 3 4

5

Biological waste from animals get into the collector

Biogas is compressed by a pupm and freed from condensate

Heat energy is mainly used to pre-heat the substrate and maintain operation temperature in fermentator

Electric power and heat are produced in CHP

Pre-heated substrate is pumped to the fermentator,where biogas is collected in gasgolder.

Mixed digestate gets to temporary lagoon, andthen to the separatorwhere liquid and solid digestates are separated

Liquid digestate is collected in lagoon, solid is stored, both are used domestically or sold

IVANBIO.indd 8-9 23.06.2011 01:51:32


1 2 3 4

5

Biological waste from animals get into the collector

Biogas is compressed by a pupm and freed from condensate

Heat energy is mainly used to pre-heat the substrate and maintain operation temperature in fermentator

Electric power and heat are produced in CHP

Pre-heated substrate is pumped to the fermentator,where biogas is collected in gasgolder.

Mixed digestate gets to temporary lagoon, andthen to the separatorwhere liquid and solid digestates are separated

Liquid digestate is collected in lagoon, solid is stored, both are used domestically or sold

IVANBIO.indd 8-9 23.06.2011 01:51:32

a project costing 7,5 M euro Has inVestMent return rate oF 56% oVer 5 YearperioD, net VaLue oF 603 097 000 rur oVer 5 Years, anD eBitDa* oF 120M rur annuaLY, paYs oFF in 2 Years anD 8 MontHs

econoMicsgeograpHY anD inFrastructure

GRAIVORON

13

GRAIVORONAREA

UKRAINE

KURSKREGION

VORONEJ REGION

REGION OF GRAIVORON IS STRATEGICALLY SIT UATEDNEAR BORDERS OF UKRAINE,

AND T WO OTHER REGIONSOF RUSSIA -

KURSKI AND VORONEGSKI.

IT ’S ALSO IN C LOSE RE ACH WITHIN MAIN A UTO AND

RAILWAY RO OTS CONNECTINGCENTRAL PART OF RUSSIA W ITH

ITS SOUTHERN TERRITIRIESAND UKRAINE, AND MAIN

CUCSOMS POINTS, W HAT IS

A GOOD PERSPEC TIVE FOR EXPORT OF ENERG Y.

RAILWAY

HIGHWAY

ROAD

SOURCE FARM

BIOGAS PLAN T

SOURCE-FARMS FO RT WO BIOGAS PLANTS

75028 8582 7952 918

131

1044710168210007496

04

0,501 800

1602 400

610 %20 %

40

56 %603 097

10 %762 691

6127 115

2,72

0 %0 %

56,1 % -30 % -20 % -10 % 0 % 10 % 15 %-15 % 46,5 % 52,9 % 59,2 % 65,3 % 71,2 % 74,1 %-10 % 43,8 % 50,1 % 56,1 % 61,9 % 67,6 % 70,4 %

0 % 39,1 % 45,1 % 50,7 % 56,1 % 61,3 % 63,9 %10 % 35,0 % 40,8 % 46,2 % 51,2 % 56,1 % 58,5 %20 % 31,4 % 37,0 % 42,1 % 47,0 % 51,6 % 53,8 %30 % 28,2 % 33,6 % 38,6 % 43,3 % 47,7 % 49,9 %

-

15 %

-

10

%

0

%

10

%

20

%3

0

%

-

30

%

-20

% -

10

%

0

% 1

0

%

15

%

1 %

63 %

22 %

13 %

PRODUC TION

INVESTMENTS VAT INC LUDED

IRR SESITIVI TY

PROFIT AND LOSS

EFFICIENCY

total waste usedbiogaselectric powerheat powerdigestate

projectequipmentCMPinfrastructuretotal

price (vertical)investment (horisontal)

tonns/daym3/daykwt/hkwt/htonns/day

Resource price electricity priceheat power pricedigestate priceelectric power consumedheat power consumed

IRR (5 years horizon + residua value)NVP (5 years horizon + residua value)discount rateresidua valueEV/EBITDAEBITDA 5th yearpay-off period years

th.rur

th.rur

th.rur

investment phazeinterest ratestockholder shareeuro to rur exchange rate

rur/tonnrur/kwtrur/kwtrur/tonnkwt/hkwt/h

month

thous. eurothous. eurothous. eurothous. eurothous. euro

1/1/11 4/1/11 7/1/11 10/1/11 7/1/12 7/1/13 7/1/14 7/1/15 1/1/16

-98 360 -201 480 35 650 35 706 139 095 124 348 113 945 113 3480 0 -2 480 -2 480 -5 967 -4 475 -2 983 -1 492

762 691-98 360 -201 480 33 170 33 226 133 128 119 873 110 962 111 856 762 691

0,25 0,25 0,25 0,25 1,00 0,72 0,00 0,00

CASH F LOWtime periodFCFtax shieldresidual valuetotal cash flow

project pay-off

*(earings before tax,interest, amortisation and depreciation)

IVANBIO.indd 10-11 23.06.2011 01:51:46

a project costing 7,5 M euro Has inVestMent return rate oF 56% oVer 5 YearperioD, net VaLue oF 603 097 000 rur oVer 5 Years, anD eBitDa* oF 120M rur annuaLY, paYs oFF in 2 Years anD 8 MontHs

econoMicsgeograpHY anD inFrastructure

GRAIVORON

13

GRAIVORONAREA

UKRAINE

KURSKREGION

VORONEJ REGION

REGION OF GRAIVORON IS STRATEGICALLY SIT UATEDNEAR BORDERS OF UKRAINE,

AND T WO OTHER REGIONSOF RUSSIA -

KURSKI AND VORONEGSKI.

IT ’S ALSO IN C LOSE RE ACH WITHIN MAIN A UTO AND

RAILWAY RO OTS CONNECTINGCENTRAL PART OF RUSSIA W ITH

ITS SOUTHERN TERRITIRIESAND UKRAINE, AND MAIN

CUCSOMS POINTS, W HAT IS

A GOOD PERSPEC TIVE FOR EXPORT OF ENERG Y.

RAILWAY

HIGHWAY

ROAD

SOURCE FARM

BIOGAS PLAN T

SOURCE-FARMS FO RT WO BIOGAS PLANTS

75028 8582 7952 918

131

1044710168210007496

04

0,501 800

1602 400

610 %20 %

40

56 %603 097

10 %762 691

6127 115

2,72

0 %0 %

56,1 % -30 % -20 % -10 % 0 % 10 % 15 %-15 % 46,5 % 52,9 % 59,2 % 65,3 % 71,2 % 74,1 %-10 % 43,8 % 50,1 % 56,1 % 61,9 % 67,6 % 70,4 %

0 % 39,1 % 45,1 % 50,7 % 56,1 % 61,3 % 63,9 %10 % 35,0 % 40,8 % 46,2 % 51,2 % 56,1 % 58,5 %20 % 31,4 % 37,0 % 42,1 % 47,0 % 51,6 % 53,8 %30 % 28,2 % 33,6 % 38,6 % 43,3 % 47,7 % 49,9 %

-

15 %

-

10

%

0

%

10

%

20

%3

0

%

-

30

%

-20

% -

10

%

0

% 1

0

%

15

%

1 %

63 %

22 %

13 %

PRODUC TION

INVESTMENTS VAT INC LUDED

IRR SESITIVI TY

PROFIT AND LOSS

EFFICIENCY

total waste usedbiogaselectric powerheat powerdigestate

projectequipmentCMPinfrastructuretotal

price (vertical)investment (horisontal)

tonns/daym3/daykwt/hkwt/htonns/day

Resource price electricity priceheat power pricedigestate priceelectric power consumedheat power consumed

IRR (5 years horizon + residua value)NVP (5 years horizon + residua value)discount rateresidua valueEV/EBITDAEBITDA 5th yearpay-off period years

th.rur

th.rur

th.rur

investment phazeinterest ratestockholder shareeuro to rur exchange rate

rur/tonnrur/kwtrur/kwtrur/tonnkwt/hkwt/h

month

thous. eurothous. eurothous. eurothous. eurothous. euro

1/1/11 4/1/11 7/1/11 10/1/11 7/1/12 7/1/13 7/1/14 7/1/15 1/1/16

-98 360 -201 480 35 650 35 706 139 095 124 348 113 945 113 3480 0 -2 480 -2 480 -5 967 -4 475 -2 983 -1 492

762 691-98 360 -201 480 33 170 33 226 133 128 119 873 110 962 111 856 762 691

0,25 0,25 0,25 0,25 1,00 0,72 0,00 0,00

CASH F LOWtime periodFCFtax shieldresidual valuetotal cash flow

project pay-off

*(earings before tax,interest, amortisation and depreciation)

IVANBIO.indd 10-11 23.06.2011 01:51:46


750 TONNS OF WASTE IS PRODUCED DAILYBY THREE FARMS IN GRAIVORON

AREA OF BELGORODSKI REGION.THERE ARE MORE

THAN 50 FARMS IN THIS AREA ALONE,AND THOUSANDS ACROSS

THE COUNTRY

As mentioned before, PPP in biogas production is very likely to happen and suceed, because there is a number of social and economical benefits for local government and community.Once the deal with local authorities is settled, and prospective market for products is identified - it is much easier

to get debt financing for the project, wich has rather high IRR what all together make this busines opportuniti rather attractive.

This project’s annual external capacity (nergy that can be sold) is 24 717 528 kwt .Annual needs of urban family of

three is 3 600 kwt/h annualy.Biogas as a power source can be used to minimize energy expenses of farms, especially heating costs in winter, that account for 60% of energy use. Eccess power can be fed into local grid, sold to local businesses or off-grid homes in form of methane.

750 TONNS OF CATTLE WASTE A DAY 365 DAYS A YEAR PRODUCES ENOUGH ENERGY

TO POWER NEEDS OF 6 800 FAMILIES DURING ONE YEAR.

Animal waste isn’t the only source of biogas.Other industries, that are also wide spread across country are food and techical crops and wood/paper industry. Technology in this case is a bit more advanced, it usually includes gasification, but an advantage is that a gasification module can be pluged into existing biogas infrastructure, and produce biomethane too.

The rest stays the same, there may be a need to get another CHP.

Farms and other agricultural facilities are usually situated near small and middle sized local communities of 50-100 houses, that means, that biogas plant is able to produce enough power for itself and for 60 little villages like this.

IVANBIO.indd 12-13 23.06.2011 01:52:04


750 TONNS OF WASTE IS PRODUCED DAILYBY THREE FARMS IN GRAIVORON

AREA OF BELGORODSKI REGION.THERE ARE MORE

THAN 50 FARMS IN THIS AREA ALONE,AND THOUSANDS ACROSS

THE COUNTRY

As mentioned before, PPP in biogas production is very likely to happen and suceed, because there is a number of social and economical benefits for local government and community.Once the deal with local authorities is settled, and prospective market for products is identified - it is much easier

to get debt financing for the project, wich has rather high IRR what all together make this busines opportuniti rather attractive.

This project’s annual external capacity (nergy that can be sold) is 24 717 528 kwt .Annual needs of urban family of

three is 3 600 kwt/h annualy.Biogas as a power source can be used to minimize energy expenses of farms, especially heating costs in winter, that account for 60% of energy use. Eccess power can be fed into local grid, sold to local businesses or off-grid homes in form of methane.

750 TONNS OF CATTLE WASTE A DAY 365 DAYS A YEAR PRODUCES ENOUGH ENERGY

TO POWER NEEDS OF 6 800 FAMILIES DURING ONE YEAR.

Animal waste isn’t the only source of biogas.Other industries, that are also wide spread across country are food and techical crops and wood/paper industry. Technology in this case is a bit more advanced, it usually includes gasification, but an advantage is that a gasification module can be pluged into existing biogas infrastructure, and produce biomethane too.

The rest stays the same, there may be a need to get another CHP.

Farms and other agricultural facilities are usually situated near small and middle sized local communities of 50-100 houses, that means, that biogas plant is able to produce enough power for itself and for 60 little villages like this.

IVANBIO.indd 12-13 23.06.2011 01:52:04

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