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total investment of RUB1.45 trillion ($21.6bn) in 2020 prices and total consumer payments of RUB2.13 trillion ($31.7bn) in 2021 prices by 2035. MinEnergo’s revised program almost doubles the load on consumers, increasing expected electricity payments from the originally-intended RUB1.35 trillion ($20bn). Of course, this move favours investors as it will help guarantee a return on their money. It should also ensure the smooth execution of MinEnergo’s concept, which looks to use cash flow from new power supply contracts to renew the old generation as well as help localize production. Other details of the program remain largely unchanged. MinEnergo plans to modernize 39 gigawatts of power generation in total, the first 11 of, which should be selected immediately in 2022-24. These will be completed under 16-year contracts with generation companies. In the first year, market returns will cover all operating expenditures (OPEX) and in later years will also cover capital expenditures (CAPEX). However, if the localization of equipment for a project is under 90%, the investor will only be compensated for OPEX. CAPEX limits are 54,000 ($805) per kW for coal thermal power plants and 33,000 ($492) per kW for gas plants. Overall, the program envisions project profitability at 14%.
The Ministry of Construction has sent a draft bill to the government that would eliminate VAT for utilities concessionaires who used to rent their properties. Currently, corporations that rent utilities are not required to pay VAT, but concessionaires are. Minstroi hopes this measure will incentivize renters to switch their contracts to concessions and encourage investment in utilities networks. Minstroi has made switching utility rent contracts to concessions a priority and it aims to convert 80% of contracts by 2020. The tax incentives must be changed before most renters will agree to become concessionaires, however. The Ministry of Construction hopes switching rent contracts to concessions will increase investment in utilities networks. The sector faces a serious shortage of available capital; in some cases, cities are unable to find new renters when contracts end. Concessionaires, who hold onto properties longer, should invest more in maintaining their properties, especially because they will not have to pass the VAT tax on to consumers or investors.
The Federal Antimonopoly Service is introducing new regulations for utility companies, which will impact who pays for new connections to utility networks and how much companies with sub-networks can charge for utilities. The proposal shunts costs onto utilities companies, who will have no means of calculating how to distribute costs among end users after building a connection. The issue is systemic and pressing given how much of Russia uses utilities infrastructure that went unregistered and unclaimed after the Soviet period, incurring losses for companies. On the one hand, FAS is offering a level of consumer protection from predatory providers who exploit how messy the country's grids are. On the other hand, it's quite likely companies and individuals will end up fighting in court over cost-sharing as set forth by the change. Previously, those who wanted a new connection to the heating, water, or sewage systems had to pay the whole cost of the connection themselves. The new regulation stipulates that the cost of the new connection must be shared proportionally between everyone who benefits from it, which is impossible to determine until after the new connection has already been installed. Effectively, the utility company must now install the new connection for free and hope those who benefit from it will repay the cost. The other regulatory change affects companies with privately-owned utility subnetworks. These companies sometimes charge outrageous fees for water and heating and profit off of arbitrage. From now on FAS will set rates for these companies that take into account the costs faced by analogous companies.
The Russian Energy Ministry has released a revised plan to modernise the utilities sector this week after the previous set of reforms were suspended following the 2008 global crisis. Utilities were a key focus before the crash as the government attempted to change the regulations to
97 RUSSIA Country Report September 2018 www.intellinews.com