RUSSIA EYES CHINA AND OTHER ELECTRICITY MARKETS

Unified Energy Systems, the Russian electricity giant, has pledged to capitalize on China’s fast growing energy needs by exporting Siberian electricity to China. In the meantime, Russia’s pro-active approach to energy projects in Central Asia has begun to take on geopolitical dimensions.

UES says its entry into China’s energy market is set to be export-driven. In 2005, Russia is to supply 500 million kilowatt-hours (kWh) of electricity to China as part of border cooperation projects, said Leonid Drachevsky, deputy head of the UES board, who visited Beijing on March 2-4. Cooperation between Russia and China has been picking up since the electricity supplies to China reached 300 million kWh in 2004, according to Drachevsky.

Following the talks in the Chinese capital, UES and the Chinese State Power Corporation signed a memorandum of understanding on further cooperation. “According to the plan,” Drachevsky said, “these supplies will amount to 500 million kWh in 2005, and 800 million kWh in 2006.”

Russia and China also agreed to form a joint working group on power cooperation, which is due to meet later in March to discuss concrete projects. Inter-RAO, a subsidiary of UES, is expected to become a leading electricity supplier to China.

Drachevsky also said that the joint working group would discuss ways to attract Chinese investments into the Russian energy sector. “I do not see any reasons why Chinese capital can not be invested in the Russian energy sector” (RIA-Novosti, March 4).

Russian officials reportedly indicated that UES plans to export electricity to China from the Bureiskaya Power Plant, which produces more electricity than Russia’s Far East can consume. Bureiskaya’s first unit was launched in June 2003 with a major publicity campaign, President Vladimir Putin even attended the event. The plant is due to be completed in 2008. However, Putin’s chief economic adviser Andrei Illarionov has lashed out at the project, calling it economically unjustified.

Funding has long been Bureiskaya Power’s major issue. UES plans to invest 5.85 billion rubles ($211 million) in the plant this year, while Bureiskaya Power Plant would re-invest 2.46 billion rubles ($98 million) of its revenues toward renovation. Therefore, UES would not mind attracting some Chinese funding for the project.

Russian officials have hailed talks in Beijing as a breakthrough in bilateral cooperation. “This meeting means a new stage in our relations,” Drachevsky declared. He also indicated that Russia and China could eventually revive the idea of an Irkutsk-Ulan Bator-Beijing power link. “Everything will depend on the terms and conditions, including the cost of power deliveries,” he noted (Itar-Tass, March 4).

However, terms and conditions already have undermined other ambitious bilateral projects. In the mid-1990s, Russia and China discussed a project to build a $1.5 billion 2,600-kilometer-long power transmission line from Irkutsk region in Siberia to China. However, neither side ever agreed on an electricity price, and China walked out of talks on the project in 1999.

Moreover, Russian energy firms were dealt a blow when China excluded them from the enormous Three Gorges hydropower project. In the mid-1990s, Russia was hoping, and received Chinese promises, to secure a role in the Three Gorges project. However, Russian companies have failed to get any contracts there. The Three Gorges hydropower plant is expected to generate 48.6 billion kWh of electricity in 2005, 19.5 billion more than last year.

Russia earns some $500 million a year from electricity exports. Russia sold nearly 300 million kWh to China last year, up from 160 million in 2003. Russia also sells some 40 million kWh a year to Mongolia. However, these figures still remain a fraction of Russia’s roughly 2 billion kWh electricity trade with Kazakhstan.

Russia’s UES electricity monopoly has been seen as seeking a larger role on electricity markets along the Russian borders. For instance, UES has joined major projects in Central Asia, such as the Sangtudin-1 hydroelectric power station in Tajikistan, as well as the Kambaratin-1 and Kambaratin-2 plants in Kyrgyzstan. These projects are not just aimed at producing electricity for sale: these plants could eventually allow Russia to regulate the flows of Central Asia’s major rivers — Vahsh, Amudarya, and Syrdarya.

In April 2004, Russia, Kyrgyzstan, and Kazakhstan tentatively agreed to fund a $1.8 billion project to build the Kambaratin hydropower plants in Kyrgyzstan. The plants’ 6-billion-cubic-meter reservoir is also designed to solve water supply problems of Kazakhstan, as well as Uzbekistan. Russian officials made no secret that Russia’s hydropower drive in Central Asia had a geopolitical agenda as well.

Disputes have developed among the three downstream countries — Kazakhstan, Turkmenistan, and Uzbekistan — that are all heavy consumers of water for growing cotton, and the upstream states — Kyrgyzstan and Tajikistan. The downstream countries require more water for their growing agricultural sectors and rising populations, while the economically weaker upstream countries want to use more water for electricity generation. In February 2002, when Kazakhstan stopped supplying electricity to parts of Kyrgyzstan, Kyrgyz authorities threatened to leave parts of Kazakhstan without water for irrigation.

As competition for electricity and water is set to intensify in Central Asia, major hydropower projects could eventually boost Russia’s geopolitical influence there. Meanwhile, as Russia’s joint electricity projects with China remain modest, their geopolitical significance seems to remain a long way off.