"We consider development of Siberia and Far East on a project scale "

Alexey Shapovalov

Commersant, 12.05.2006, p. 14

The 3^rd Krasnoyarsk economic forum opens today in Krasnoyarsk. 30 investment projects will be presented at the forum. According to the Ministry of Economic Development and Trade assessment, implementation of those projects could increase Russian GDP by 30%. However, most of the projects are unprofitable without state support. Deputy Minister of Economic Development and Trade, Kirill Androsovtold Commersant reporter Alexey Shapovalov what should be done to implement major projects in Siberia and Far East.

- Krasnoyarsk economic forum is being held for the third time. Has it already brought any results to Siberia and Far East that you could tell about?

- I participate in this forum for the first time. This year the Ministry of Economic Development and Trade has acted as a co-organiser of the forum in conjuction with Krasnoyarsk region administration. Ministry representatives have been to Krasnoyarsk region several times. In November government delegation headed by the Prime Minister, Mikhail Fradkov, visited the region. During those visits we arrived at an important conclustion that Siberia and Far East development should be considered not through long-term complex socio-economic programmes, but through particular projects. And having those projects in mind we should decide what's to be done by the federal and regional governments to make those projects effective for business.

- How could you comment on projects presented at the forum? There are about 30 of them and, according to the Ministry of Economic Development and Trade assessment, their implementation could result in 30% GDP increase.

- Such assessment does exist. However, one should agree, it's a rough assessment, as there are no thorough design estimates for many projects, moreover, there are no feasibility studies of decent quality for the majority of them. It's important to, firstly, analyse the market. If the market has a good long-term potential and is able to pay for our product, then we consider the project.

- Why have talks about those projects begun only now? Is it just because the state became an active participant of the investment process and without the state those projects are impractical?

- I think, yes. The majority of those projects are impractical in terms of infrastructure development without state participation. But infrustructure could give an impulse to the local project that would later work for all.

- Could you, please, tell in greater detail about western and eastern gas pipeline routes to China. What does schedule of East pipeline construction depend on? On the date and terms of Gazprom joining the project? They say that Sakhalin reserves are not enough for export to China via eastern route.

- This topic is worth another interview and not with the Ministry of Economic Development and Trade but with the Ministry of Industry and Energy. This Ministry is responsible for the development of gas recovery and delivery strategy in Eastern Siberia and Far East. Gas transportation systems should rely on major gas fields. There are three such fields in the region: Sakhalin, Chayndinskoye and Kovyktinskoye gas-condensate fields. According to our estimates, Chayndinskoye field is the most complex in terms of geological parameters and, correspondingly the most expensive in exploration and development. It should become a supporting one and should be developed on the basis of already constructed infrastructure of Kovyktinskoye field and complement to it on the stage when extraction volume starts to decrease. Kovyktinskoye field provides for three major plans implementation: gas chemistry development in Irkutsk region, provision of gas supply to Chita, Buryatiya and Irkutsk, it is also the basic field for export of gas to China and South Korea. To my mind, Kovyktinskoye field does not compete with Sakhalin project. As of today Sakhalin is not developed at all. According to geological exploration of the first, second and third zones of Sakhalin field annual volume of extraction is expected to be not less than 25 bln cubic metres of gas. But there are fourth, fifth, sixth, seventh, ninth and up to eleventh zones, where licensed plots are prepared. In the near future auctions will be held on them. The majority of experts with whom I talked agree that Sakhalin would provide not less than 50 bln cubic metres of gas annually in mid-term perspective. But serious choice is to be made in this regard. Sakhalin is a perfect place for LNG production, as there are deep sea bays. As part of "Sakhalin-2" project the construction of LNG production plant with 9.6 mln tons production capasity is almost finished in one of those bays. It is possible either to further develop this sector or to set up an export production of gas chemistry in the region. In this case all three fields would supplement each other. Sakhalin would provide for gas chemistry, while Kovykta and Chayanda gas and casing-head gas from oil fields would make the basis for pipeline gas.

- To your mind, is $6.5 bln enough for development of such a huge gas field as Kovytkinskoye? It's known that Shtokman field development is estimated to account for $12-14 bln. What are the terms of Gazprom joining the project and when export extraction would be started?

- Kovykta and Shtokman are completely different projects. In the first case we are talking about onshore extraction, in the second - about shelf extraction. I can't think of any reasons that could raise the cost of Kovytkinskoye gas condensate field development. Investment of $6,5 bln already makes gas production cost rather high. Construction of gas transportation system to China would entail additional expenditures. That is why Kovykta development to the extraction level of 30-35 bln cubic metres per annum is profitable only if the gas from this field is exported. Russian market is unable to consume those 30-35 bln cubic metres; it's an excessive volume for the internal needs of the region. If to direct this gas into the unified gas supplying system westwards, preliminary estimations show extremely high price at the point of entry and most probably there would be no demand for it at such price. Due to the price factor the only market for this gas is China. The field development depends on the terms of Gazprom joining the project. But it depends on the outcome of Gazprom - TNK (Tumen Oil Company) - BP negotiations.

- The next question is about "HydroOGK". It is known that they have big ideas regarding two projects in the region with total cost exceeding $20 bln. How feasible is it? And what are the investment sources? Does Russia really need extra-powerful Turukhanskaya hydroelectric station and South Yakutsk hydroelectric complex? Who are the consumers of this energy?  

- If the project of energy export to China is carried out, we would need additional capacity of 10-12 gigawatts along China border line. In future we'll have to choose between gas, coal and hydro energy. It would also entail significant investments into electric power lines development. At the moment we are preparing a programme of power industry objects allocation up to the year 2020 in conjunction with the Ministry of Industry and Energy and RAO "UES of Russia". By the year end we would know the answer if we need Turukhanskaya hydroelectric station or KATEK coal project once abandoned. 

- If the question of those two hydroelectric power stations construction is answered positively, would they be carried out by "HydroOGK" and who would finance them?

- "HydroOGK" has estimated total volume of funds it is able to earn and attract on the market. Based on those funds a long-term 10 years investment programme was developed. Those funds are enough to finance construction of Boguchanskaya hydroelectric station and to finish Burejskaya hydroelectric station construction. As far as I remember, it covers all reguired design works for Turukhanskaya hydroelectric station, while construction costs are not included. Construction should be financed on the basis of project financing principle when forecasted profit from sold energy should cover all construction costs including interest on attracted credits.

- Could you tell me about Boguchansky gas processing complex? There is almost no information on it whatsoever.

- I've heard about this project only as an idea, as calculated project does not exist. The idea itself is justified, as the construction of West Siberian - Passific Ocean pipeline would give a strong impulse for oil extraction at West Siberian gas condensate fields where there is a lot of gas condensate. And gas processing or gas preparing plant is an important part of infrastructure that would provide for gas stabilisation and would increase its added value. The plant would be constructed by those interested in increasing development effectiveness of gas condensate fields. I believe these are oil companies.

- What decision would be made on OAO "Elgaugol" stock that belongs to Russian Railways?

- "Elgaugol" stock is a part of Russian Railways charter capital. Its selling requires government approval. We support Russian Railways decision to sell these assets as well as the idea of merging the two projects "Yakutugol" and "Elgaugol". As of today 75% of "Yakutugol" belong to the Republic of Sakha (Yakutiya) while 25% have been bought by "Mechel" company which has already started investing money in it. But we are currently searching an effective way to merge "Yakutugol" and "Elgaugol" stocks in order to attract an investor for a complex project of coal deposits development in the Republic of Sakha (Yakutiya). The participation of state might be required only in part of  BAM infrastructure development. On the whole the state does not participate in the project.