Give ruble to coal – Newspaper Kommersant No. 20 (7465) dated 02/03/2023
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The problem of losses of TPP “RusHydro” in the Far East has reached the President of the Russian Federation Vladimir Putin. As Kommersant found out, the state holding asked to allocate 93 billion rubles from the budget. to cover the “accumulated financial debt” due to rising fuel prices, primarily coal, and understated energy tariffs. Vladimir Putin admitted the possibility of allocating a subsidy, but instructed the government to think about a mechanism for regulating coal supplies for export, following the example of the fertilizer market.
The head of the state holding RusHydro, Viktor Khmarin, turned to Russian President Vladimir Putin with a request to allocate 93 billion rubles from the budget. to “restore financial stability” of its subsidiary Far East Generating Company (DGK, which operates large thermal power plants in the Far East). The money is needed to “repay the accumulated financial debt” of the DGK due to the difference between coal costs and tariff revenue from the sale of energy, according to a letter from Mr. Khmarin (Kommersant has a document dated December 9, 2022). The letter notes that the board of directors of RusHydro has already decided to issue an interest-free loan for 93 billion rubles to DGK in order to prevent the company from going bankrupt.
On December 22, Vladimir Putin signed a letter to Prime Minister Mikhail Mishustin, Deputy Prime Minister Alexander Novak and Finance Minister Anton Siluanov, instructing them to consider and propose solutions to the problem. “Subsidies are possible,” the president wrote. “But we have the practice of exporting, for example, fertilizers. It turned out that we need to ensure the domestic market, and then exports.” RusHydro did not respond to Kommersant’s request.
The total installed power capacity of DGK facilities is about 4 GW. In 2021, DGK consumed 8.94 million tons of coal for 25.99 billion rubles, as well as 3.5 billion cubic meters of gas for 21.24 billion rubles.
The problem of TPP losses in the Far East has existed for many years: electricity tariffs are tightly regulated there, and coal is traded at free prices. Now the growth of the weighted average price of coal contracted for 2022-2023 is twice the price of fuel included in the tariffs, writes Mr. Khmarin. The share of fuel costs in TPP tariff revenue is up to 60%. Tariff revenue does not cover operating and investment costs, he argues, pointing to a “significant increase in the loss of DGK”: up to 36.6 billion rubles. in 2022 compared to 4.7 billion rubles. in 2017.
Mr. Khmarin connects the deficit and the sharp rise in the price of coal within the Russian Federation with the desire of coal miners to sell goods abroad against the backdrop of growing world quotations. Export coal has priority at the Eastern landfill due to special instructions from the President of the Russian Federation on the volume of coal export from Kuzbass and other regions. Coal for housing and communal services and energy goes to the fifth place, and the logistics of transportation for the Far Eastern thermal power plants is not always optimal. Aleksey Shilo, deputy general director of Russian Railways, said that coal for the Neryungri hydroelectric power station in Yakutia is being transported from Kazakhstan, although supplies from nearby deposits would be cheaper. The supply of coal for the Primorsky branch of DGK from Buryatia would be 20% cheaper than from Kuzbass. Another factor in the growth of coal prices in the Russian Federation is the rise in the price of coal transportation in 2022, primarily over long distances, due to the abolition of the preferential coefficient of 0.4 to the tariff.
In Russia, prices for quality grades of coal are formed on the basis of netback (quotation in the port in China minus transportation by rail, loading on a ship and freight), says Sergey Grishunin from the NRA. For cheaper grades, pricing follows world price indices, but is based on the existing base, in this regard, prices for cheap grades of coal in the second half of 2022 decreased and grew only in November against the backdrop of winter purchases.
There is no formal regulation of supplies to the Russian Federation and abroad on the fertilizer market, but Russian chemical companies call the domestic market a priority. The procurement plan is formed a year ahead, and since last year the ministries have been determining the specific volume of supplies per month from each company. According to the Ministry of Agriculture, at the end of 2022, Russian farmers were supplied with 5 million tons of the active substance (an increase of 8.1%). Producers voluntarily keep domestic prices below market prices (the discount reaches 30% for various types of fertilizers) and periodically freeze prices, because otherwise the authorities threaten to impose export duties. In 2022, the FAS allowed a phased indexation of fertilizer prices, but the price increase was postponed to 2023.
From December 1, 2021, the government introduced quotas for the export of fertilizers in order to prevent their shortage in the domestic market. The total volume of the quota for the export of nitrogen and complex nitrogen-containing fertilizers will amount to more than 12 million tons. However, this level of quotas does not exceed the average values of exports over the past few years, that is, in fact, does not limit it. At the same time, at the request of farmers, in February 2022, a complete ban on the export of ammonium nitrate from Russia was introduced for three months amid a sharp rise in prices on world markets and fears of a shortage.
Sergei Grishunin recalls that coal trading on the St. Petersburg Exchange will soon begin, which should help in the formation of an alternative pricing platform for low-grade coal grades. The need for more expensive grades of coal in the Far East is minimal, so it would be inappropriate to impose unnecessary restrictions on them, he believes.
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