RusHydro zaps new life into Bashkortostan with $830m energy plan

15 Oct '10
Oleg Kouzbit, Online News Managing Editor

Russia’s energy-generating giant, RusHydro, has unveiled plans to re-invigorate the Bashkortostan energy market with an $830m array of large and small hydropower stations and localized hydro equipment production. The RF is solidly behind the plan, but some experts are worried about potential funding problems and a possible collision of interests in the local energy market.

Russia’s largest energy-generating company and the second biggest in the world, RusHydro, has just announced $830+m worth of long-term plans for hydro energy in the Republic of Bashkortostan, Russia’s Volga Basin.

The core of the project calls for construction of a Nizhne-Suyansky watershed, including a 400MW hydropower station and a water-storage reservoir. Further commitments include the launch of hydro energy equipment production in the region’s capital city, Ufa, and construction of a number of small hydro stations in the area.

Detailed timeframes have yet to be specified. The RF Government’s Rossiiskaya Gazeta only reports that for the setting-up of hydroelectric equipment production RusHydro is likely to team up with “a foreign partner”.

The company has told media that design work for Nizhne-Suyansky would be completed by mid-2011 and actual construction may begin soon afterwards. Once online, the hydro station will reportedly take five-to-seven years to build and experts estimate its payback period to be a minimum of 20 years.

57,000km of river waiting to be harnessed

The Nizhne-Suyansky facility is a long-standing project conceived years ago as part of a large Ufa cascade plan, regional officials emphasized, of which only one station has materialized so far—166MW Pavlovskaya facility which is downstream from where Nizhne-Suyansky should be. So the prospective station will complement Pavlovskaya and “…is expected to add sustainability to the region’s energy system,” the officials said.

The project owner believes with a 57,000km long river system and only six mini hydro stations currently operating, Bashkortostan is a perfect launch pad for another round of the company’s expansion.

According to RusHydro president Yevgeny Dod, both Nizhne-Suyansky and the planned cascade of small stations will be selling their electricity domestically via a regional energy operator, Bashkirenergo.

One of the RF’s biggest assets

With its 60 renewable energy subsidiaries across Russia, RusHydro is the world’s second largest hydro energy generating company by installed capacity (25+GW) after Canada’s Hydro-Quebec. It owns the country’s largest hydroelectric station, 6.4GW Sayano-Shushenskaya in Siberia, which had a serious accident with explosions last year. The company is 60.38% owned by the RF; minority shareholders hold the rest of the shares.

High hopes

With its stated focus on small under 25MW hydropower stations as part of its big-ticket project RusHydro is obviously sending regions a clear signal that its interests do not exclusively lie with Russia’s mammoth projects like the $1.6bn, 3GW Boguchanskaya station in the Krasnoyarsk region or the 1.3GW Kankunskaya mega-program with an estimated price tag of just under $2bn in Southern Yakutia—both RusHydro’s biggest facilities.

According to Bashkortostan President Rustem Khamitov, the announced project “…will fundamentally address the issues of providing Ufa residents with potable water, preventing disastrous floods and giving a boost to the economically depressed and largely unemployed north-eastern part of the region.”

Between the good and the ugly

Analysts are very diverse in their appraisals of the future project. Some call RusHydro’s entry into the Bashkortostan market “long-awaited.” Finam Management’s Dmitry Baranov, for one, underscores the region’s vast—and largely untapped—hydro energy potential (Bashkortostan has been focusing on thermal energy) and estimates the cost of the Nizhne-Suyansky construction alone to be around $600m.

Siding with him in assessing the area’s hydro potential is the Energy Development Foundation’s Sergei Pikin. But Mr. Pikin feels that building the station will require up to $1bn—20% more than RusHydro plans for the entire project.

Other observers are more concerned about competitive and regulatory issues, like the tension between the newcomer and local energy firm Bashkirenergo, owned by another major Russian corporation, AFK Sistema. The latter has been the dominant player in the regional energy market and it may be opposed to having its role reduced to a mere electricity seller once RusHydro establishes itself as the new local heavyweight.

Another potential problem is funding. Going into the debt market looking for 20-year bonds will probably be a costly—if not prohibitive—move. How much the RF will put up and whether RusHydro can secure the balance is still unclear.

Political leverage

Project supporters brush off the funding issue stating that government-managed RusHydro’s Bashkortostan deal wouldn’t be welcomed by the RF if it didn’t have its full support and the imprimatur of the region’s new leader, Rustem Khamitov.

Mr. Khamitov is a former top manager of the generating giant hand-picked earlier this year by RF President Medvedev to run Bashkortostan, which has long been plagued by cronyism under the previous management.

By deploying one of its most significant assets to re-invigorate Bashkortostan, pundits feel the RF is making a long overdue commitment to shake up the existing Bashkirenergo monopoly by expanding supplies, lowering cost and opening up the huge Bashkortostan territory to more commercial development.
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