Carbon Finance
and Corporate Strategy
Vladimir Litvak, Head, New Power Projects, SUEK
MoscowApril 28, 2008
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TGK-13
TGK-12
Far East Energy
Company
SUEK profile
OGK-2
OGK-2
OGK-2
OGK-2
OGK-2OGK-6
OGK-6
OGK-6
OGK-6
OGK-6
SUEK's Coal AssetsRegion, where SUEK possesses stakes in energy assets
Coal Assets (million tons as of 2007)
Reserves 5,448Production 90.9Exports 27
Energy Assets TGK-12 (48.45%) TGK-13 (40.89%)Far East Energy Comp. (31.8%)
OGK-2 (44.39%) OGK-6 (52.52%) Total
Generation, GW 4.4 2.5 5.6 8.7 9.1 30.3
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Power Generation in Russia – Reform Status
Revenue$382m
Market share12%
32.0
1.8
2006 2007 2008
Final decisions on the reform are taken – reform is irreversible
Market liberalization has started
IPO of several OGKs and TGKs
Key strategic players identified
Entrance of international players (E.On, Enel)
Post reform
Completion of the reform, RAO UES ceases to exist in July 2008
IPO of further generation companies
Consolidation among key participants of the market
Further international players (RWE, Fortum)
Investment in new and revamping of existing generation capacity
Further liberalization of the capacity market
Principal decisions on the reform are taken
Formation of 6 Wholesale Generation Companies (OGK) and 14 Territorial Generation Companies (TGK)
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Power Generation in Russia –
Opportunities and Challenges
Substantial value creation in:
Participation in rapid growth of Russian economy
Modernization of plants and equipment
Introduction of management best practices
Unprecedented transformation:
Expected level of commitment by investors versus market uncertainty
Lack of experience in construction of plants in Russia
Scale and coordination with primary fuel suppliers
ChallengesOpportunities
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Vertical Integration:
SUEK Strategy in Energy Sector
Adequate investments
Creation of engineering capability and standardization
Competitiveness
Secure sourcing of fuel
Integrated investment planning
Integrated logistics and storage
SUEK’s key strategic visions are size and integration
Critical Mass for:
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Gazprom – SUEK Venture Strategic step with substantial win-win
Vehicle to achieve diversification of power generation in the Russian Federation, with particular focus on coal as fuel
Plans to obtain public listing after completion of the deal Large scale company able to carry out substantial investments:
reconstruction and building new coal fired electricity capacities based on innovative technologies
developing new technologies of extraction and combustion of coal and coal-bed methane
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Elements of Power and Heat Investment Program
Power and Heat
Construction of new power generation capacity, primarily coal-fired units (both condensing and CHP)
Rehabilitation/upgrade/repowering/modernization of existing units
Environmental Improvements – SOx, NOx, particulates
Coal Mining
Safety and productivity enhancements
Comprehensive utilization of resources (economically and financially sound)
Mine degasification, methane removal and recovery
Decrease in methane venting (environmental charges)
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Contribution to climate change mitigation: strategy implications and challenges
Power and Heat
Higher efficiency of new units: existing plans are to build in 2008-2012 fleet of coal-fired units with average efficiency of 36-38%
More aggressive rehabilitation/upgrade program for existing units
New generation technologies
CC&S
Coal methane-based capacity
Coal Mining
Comprehensive utilization of coal-mine methane, including gob gas and ventilation air
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Strategy review, implementation and carbon finance instruments
SUEK is bringing carbon dimension into its corporate strategy under the current round of strategy review
Emphasis is on use of available and future carbon finance instruments
Choice of instruments: investment cycle
First coal-mine methane utilization project: JI
PDD prepared, determination is underway, submission to Russian JI FP is being prepared
Power and heat generation: upgrades/modernization – JI?
New units – GIS?
New instruments – facilities, funds to promote post-2012 reductions, implement clean technologies
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Summary
SUEK is committed to building more efficient coal power plants with efficiency levels as high as is financially and economically justified (given the increased capex, market rules uncertainties and other factors). The new plants will also have lower SOx and NOx emissions
The The company intends to contribute to national and international efforts to prevent and mitigate impacts of global climate change and is developing its carbon strategy
company is participating in Kyoto Protocol: it is developing the Coal Mine Methane (CMM) utilization project (currently in determination) that will both reduce methane emissions and avoid emissions from additional coal-based generation. It also assesses potential for JI-projects in power and heat generation
SUEK is participating in consultations related to post-2012 carbon markets, viewing new financial mechanisms for reduction of GHG emissions and promotion of clean coal generation technologies as potentially effective instruments in “de-carbonizing” coal-based power generation
SUEK cooperates with IEA, the World Bank, UNECE and other international institutions on the above
SUEK actively discusses with international coal and power companies cooperation in clean coal technologies such as CCS, efficient generation etc.
SUEK is working with the Russian Government to help to develop legislation and other incentives to improve efficiency of coal power generation and make it more environmentally benign