January 24, 2019 / 10:59 AM / 5 months ago

Moscow approves $29 billion power upgrade to encourage domestic suppliers

MOSCOW (Reuters) - Russia has approved the start of a 1.9 trillion ruble ($29 billion) modernization plan for domestic power plants, Energy Minister Alexander Novak said on Thursday.

Steam rises from the chimneys of a thermal power plant behind the Ivan the Great Bell Tower in Moscow, Russia January 9, 2018. REUTERS/Maxim Shemetov

Power is one of the most competitive sectors in Russia, with state players, private investors and firms such as Italy’s Enel (ENEI.MI) (ENRU.MM), Finland’s Fortum (FORTUM.HE) and Germany’s Uniper (UN01.DE).

The 2022-2031 modernization covers 41 gigawatts, a sixth of Russia’s existing power plant capacity, and will replace an earlier state-backed program where investors were given the opportunity to build the new capacity.

Investors will bid to take part in selected upgrades and granted 16-year agreements with customers who will pledge to pay higher prices in exchange to the access to the capacity.

Moscow will require them to use Russia-produced equipment for the upgrades which would involve replacement of turbines, boilers, steam-power units, among other parts, in “up to 100 percent” of cases, Novak told reporters.

Using Russian equipment may be a challenge. Russia began building two power stations in Crimea to provide electricity to the peninsula which it annexed from Ukraine in 2014, but the facilities became embroiled in a row over sanctions.

German engineering firm Siemens (SIEGn.DE) has said Russia clandestinely delivered several of its turbines to Crimea, despite European sanctions which ban the supply of energy technology to Crimea.

Russia’s energy ministry says the turbines were not from Siemens, but were modernized turbines that were the work of Russian specialists and were Russian equipment.

Russia partially launched both power stations in Crimea last year but has delayed the timing for them to reach full capacity.

Tekhnopromeksport, the engineering firm building the plants, said last month it had requested the full launch be pushed back until spring, citing issues with the supply of equipment and problems with subcontractors and infrastructure.

Russia wants the new program to be a catalyst for local producers, including subsidiaries of foreign firms, to create domestic versions of the global power sector equipment, cutting Moscow’s reliance on Western suppliers.

($1 = 65.8875 rubles)

Reporting by Anastasia Lyrchikova; writing by Katya Golubkova; editing by Jason Neely and Alexander Smith

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