Inter RAO is ready to stop exporting electricity to China due to duties

Inter RAO does not rule out stopping electricity supplies to China from October due to the introduction of an export duty of 7%. The flow may be stopped if the PRC does not agree to increase the purchase price by the amount of the duty. The price, according to Kommersant’s calculations, will increase to $47 per 1 MWh. China is the largest remaining electricity export destination with a volume of about 4 million MWh. The introduction of duties on supplies to China, according to analysts, is “extremely dangerous”, since it will make sales of Inter RAO unprofitable, and will also lead to an increase in energy prices for domestic consumers in the Far East.

Inter RAO intends to increase the price of electricity sales to countries outside the EAEU from October 1 due to the introduction of export duties. The energy company has already notified China, Mongolia and Azerbaijan of a 7% price increase, Inter RAO representative Alexandra Panina told reporters. According to her, if the new price is rejected, the holding may stop exporting to these countries: “Today or tomorrow we are waiting for a response from counterparties. If we do not receive confirmation tomorrow, we plan to begin restrictions or completely cut off volumes.” In the future, the price increase may also affect Georgia and Turkey, but deliveries there are not planned in October.

The government on the evening of September 21 published a decree introducing export duties on a wide range of goods supplied outside the EAEU from October 1, 2023 to December 31, 2024. Duties are set at 4–7% at an exchange rate of 80–95 rubles. per dollar, at an exchange rate of less than 80 rubles. rates are reset to zero. However, duties are not imposed on, for example, oil and gas, as well as a number of other goods. For the electric power industry, the introduction of duties came as a surprise, Kommersant’s sources say.

After the closure of energy exports to the EU, China became Inter RAO’s largest buyer.

In 2022, the company supplied a record amount of electricity there – approximately 4.7 million MWh. This year, supply volumes have been declining due to restrictions amid energy shortages in the Far East. Over the eight months of this year, Russia sold 2.7 million MWh to China for $117.9 million, according to Chinese customs statistics. The smallest supply volume, as Kommersant expected, was in August and amounted to only 266.3 thousand MWh for $11.43 million (see “Kommersant” dated August 31). If supplies remain at the August level, the volume of exports for the year could reach 3.7 million MWh. The average price of supply to China is $43.8 per 1 MWh, and with an increase of 7% the figure will reach $46.8.

At the same time, the profitability of Inter RAO sales to China is now artificially limited by the Russian regulator to 5%. The rest of the margin goes to reduce prices for domestic consumers in the Far East. Ms. Panina noted that due to the cessation of supplies from the Russian Federation to China, the price for consumers in the Far East will increase “significantly.” “With a profitability of 5%, we cannot afford to pay a seven percent duty,” said Ms. Panina.

The introduction of an export duty on electricity is “an extremely dangerous step,” says Sergei Sasim, director of the Center for Electric Power Research at the Higher School of Economics.

Such a measure will cause direct damage to Inter RAO, whose revenue from exports to China amounts to 8–10 billion rubles. annually, he continues. In addition, the low margins of export supplies are the result of withdrawals of the exporter’s proceeds, which are used to contain electricity prices for the Far East. Thus, either Far Eastern consumers will suffer, or the budget will be forced to increase costs to curb price increases, or this will lead to shortfall in income for domestic electricity suppliers.

Denis Krasnovsky from ACRA believes that the very situation with the introduction of a duty above the contract margin looks somewhat strange. “Clarification is required here, for example, the introduction of linking the export duty to the margin under the contract,” he says. “Otherwise it will look nothing more than a mechanism for banning the export of electricity.”

Alexandra Panina added that the profitability of Inter RAO supplies to Mongolia is even lower than to China. Inter RAO did not disclose exports to Mongolia for 2021–2022; in 2019, sales volume was 372 million kWh, and the forecast for 2024 was 700 million. Exports to Georgia at the end of 2021 were 1.7 billion kW• h. Supplies to Azerbaijan in 2019 amounted to 91 million kWh, plans for 2024 – 300 million.

Polina Smertina