Inter RAO sold duty to China
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Inter RAO managed to agree with China to include a new export duty in the cost of electricity supplies. As a result, the supply price, according to Kommersant’s calculations, will increase, taking into account the 7% duty, to $47 per 1 MWh, and the load on consumers in the Far East will not increase after this. So far, the flow to China has been reduced to 120 MW due to planned repairs of power lines, but then supplies are planned to increase again. Previously, the Chinese side argued that the energy supply to enterprises and the population of border areas depends on electricity supplies from the Russian Federation.
After almost three weeks of negotiations, Inter RAO (a monopoly energy export operator) managed to agree with China to increase the price of electricity supplies by the amount of the export duty. “China is increasing the price under our contract by the amount of duty. China will pay for this duty,” Inter RAO representative Alexandra Panina told reporters on the sidelines of Russian Energy Week. For almost the entire month of October, supplies to China will amount to 120 MW, she noted.
Since 2015, China has been paying for energy supplies from the Russian Federation in yuan, and the price is based on the cost of energy production in the border province of Heilongjiang.
Judging by China’s customs statistics, prices have remained virtually unchanged in recent years. Thus, the average price for energy supplies from the Russian Federation to China from the beginning of 2023 is $43.8 per 1 MWh. Thus, with a duty of 7%, the price will increase to $46.8. China agreed to this because of the high demand for Russian energy in Heilongjiang.
Government announced on the introduction of new flexible exchange rates on September 21. Export duties began to apply on October 1 on a wide range of goods supplied outside the EAEU. They are set at a flexible rate of 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. The duty does not apply to oil, gas, grain and timber, as well as a number of other goods. The Ministry of Energy has already announced that it opposes tariffs on electricity.
Immediately after the introduction of new duties, Inter RAO warned China, as well as Mongolia and Azerbaijan, that it was ready to completely cut off energy exports if the buyer did not agree to increase the purchase price.
Mongolia did this first, while the Chinese side did not make concessions. During negotiations, supplies to China were reduced to 120 MW. Alexandra Panina told reporters that now the power lines through which supplies are carried out to the PRC are out of repair until October 22.
Inter RAO supplies energy to China via three lines 110, 220 and 500 kV. The holding has a long-term contract with China on the “take or pay” principle until 2036. The supply comes from the Far East, where there is no free electricity market, so Inter RAO’s export payments are strictly regulated, and the trader’s profitability is limited to 5%. As a result, a 7% duty would make exports unprofitable for Inter RAO, the holding warned.
As a result, Inter RAO suggested government to increase its profitability by the amount of duty, but such a scenario would increase payments from domestic consumers in the Far East.
The fact is that the rest of the export margin, in addition to 5%, goes to reduce payments by local consumers. For example, since 2012, by limiting the profitability of Inter RAO’s exports, consumers in the Far East have received more than 25 billion rubles. subsidies. According to the Ministry of Energy, in the event of complete stops exports to China, payments from Far Eastern consumers for energy capacity will increase by 6 billion rubles. per year, and for electricity transmission services – by 2.5 billion rubles.
Alexandra Panina explained that changing the selling price will still require changes to market regulations. When calculating Inter RAO’s revenue, it will be necessary to take into account the size of the duty, but now this will not in any way affect the payments of consumers of the Eastern energy system. “Our amendment is now needed so that this price increase can reach us as an exporter, so that we pay the duty to the Russian budget. Payment will be made by Chinese partners. Now Inter RAO will receive a profitability of 5% plus what China will pay,” she explained. The amendment will be discussed on October 27 at the supervisory board of the Market Council (energy market regulator).
China is now one of the largest energy export destinations for the Russian Federation with a share of about 35% of total sales. For many years, sales volumes in China amounted to about 3 billion kWh per year, and in 2022, sales volumes reached a record 4.7 billion kWh against the backdrop of energy shortages in China. At the end of eight months of 2023, the figure amounted to 2.7 billion kWh, that is, by the end of the year, according to Kommersant’s estimates, it could exceed 3.6 billion. The only obstacle to repeating record volumes can be the energy shortage in the energy system of the East, where the last years, domestic demand has been growing sharply with a lack of investment in generation.
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