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Sergey Pikin: "2013 should be dedicated to devising the Power Industry Road Map."

Sergey Pikin, Director of the Energy Development Fund, told about the outcome of 2012 for the power industry, key events and expectation for this year. Sergey, how would you summarize year 2012 for the industry?

Sergey Pikin: All developments of 2012 – amendments of the tariff policy, structural changes – were conceived in 2011. Overall, in the past 12 years, since the RAO reform, this past year has been one of the most exciting.

The key event, I would say, is the shift in the industry management system. At last, the power industry's orientation towards the consumer was fixed in the law. While there had been a lot of talk about it before, in 2012 the consumer finally got a part in the power industry relationships on equal footing with generation, grids and sales. Moreover, it was established that the consumer's interests should be valued at the federal and regional levels on par with with those of major energy companies.

All other developments of the year were viewed more or less through this prism. What is your stance on the consolidation of the Russian power networks into a single company Russian Grids, JSC.

SP: In my view, this project is absolutely inefficient in terms the advancement of the power industry. Building a big consolidated structure will not improve transparency, while transparency of relations happens to be just the problem of the industry at this point.

The processes of curtailing the tariffs and enhancing consumer service are running in parallel, independently from the establishment of Russian Grids. They are not related to the amalgamation. In my opinion, the consolidation of the power grids clashes with the initial target model of the reforms of the industry. In 2012, the Market Council qualified three RES projects. What do you think about the prospects of large scale development of renewables-based and distributed generation in Russia?

SP: In Russia, RES are only viable as part of distributed generation. They can be an efficient substitute for the conventional high-cost distributed energy sources, where it is possible. In all other cases, it is just high-tech: beautiful, but, in our reality, economically inviable. How do you evaluate the new team in the Ministry of Energy? They have been working for over half a year. Is it possible to draw any conclusions already?

SP: Alexander Novak came from a different background, but he has made a remarkable progress professionally over the past half a year. I think, his fresh look allowed him to do some things that the old team took a lot longer to do. So far, this has not resulted in any profound changes or serious decisions, but the fervor displayed by the minister and his team at the outset of their activities brings some optimism. Whether it will prove justified remains to be seen in 2013. How effective could be the measures the Ministry deems essential for the next year, if it is to fulfill them?

SP: The key word here is "if". I hope all major commitments will be fulfilled. It's disconcerting that over the past half a year some administrative competition arose between the government and the president's fuel and energy administration responsible for the power industry. This may result in making some suboptimal decisions by comparison to the intended model. I wish success to our reformists, but their ability to deliver will depend on how productive the administrative competition between different teams will be. In your opinion, does the Ministry of Energy in its current composition have what it takes to become the strongest single regulator that many think the industry lacks.

SP: I don't think it does. With all my respect for the current members of the Ministry, when solving issues they are proceeding from local tasks. It is necessary to formulate the strategy and, above all, the implementation plan - the Power Industry Road Map. All issues they are pondering now – nonpayments, cross-subsidizing – are long standing, and it is impossible to proceed any further without solving them.

It's not about the team, it's about the existing system of decision making. Altering it is a complicated issue, because it evolved as a chain of compromises between what it "should be" and what "may be accepted". Therefore, the outcome of execution of any, even the smartest, model may be unpredictable. Certainly, the Ministry is doing all it can within its competence and the system of relations and administrative competition that exist. Does this mean the industry needs a new leader?

SP: The current system of political power could not give rise to such a figure, in principle. What is needed is not a personality, but a detached and unchanging system of rules. I never cease to repeat that whatever the system of rules – good or bad – if it could operate for a span of at least 10 years, it will be an efficient system. The market players will adapt to it and build their development plans within its frame. Whereas in the situation of constantly changing rules, there may be no coherent development – the players will either have to be forced to act or subsidized by the federal budget. What is your forecast for the energy industry for 2013?

SP: The main thing for 2013, in my view, is for the sector to finally arrive at a model that will serve as a guideline from the existing "transient transitional" model to the development target. The discussion now revolves around long-known solutions, and nothing new is being offered. At the same time, the decision-making mechanisms opted for are far from efficient. I believe this calls for a public discussion involving, among others, those who will be operating in the new model – the energy companies. I very much hope that the Ministry will establish public and expert councils, which would tackle these issues. So far, the backstage discussions with a select few experts and invited parties do not allow us to speak of these discussions actually resolving any issues of the industry.

However, the key issue for the power industry today is not about the market model. The issue is on what platform the power industry will develop in the future. All details discussed now are minor compared to a ten-year horizon of industry's development. At this point, all we have is the General Layout of Power Facilities and other similar programs, which are by no means strategic documents. This is a scientific paper on the prospects of energy development, at best. Therefore, I think the next year should be dedicated to setting concrete objectives, defining the development program, the plan for its implementation, performance criteria and responsibilities. This should add up to a Russian Power Industry Road Map. Only then will we be able to formulate the mechanisms of market relations.

Today, all discussions of changing the model end up envisaging "new" programs: CSA-prime, DAM-prime, BM-prime. But they fail to address the evident problems. The industry should be made transparent and efficient first before discussing current tasks. And foremost, we need to formulate how these tasks will be solved, and who will be responsible for this. Otherwise, the industry will wallow in discussions and end up with yet another model-prime, but not the model of power industry development.