OREANDA-NEWS. On 26 June 2009 was announced, that Sergey Emdin, the leader of the "TOP 1,000 Russian Managers" electric power sector top managers rating compiled by the Association of Managers summing up the 2008 performance, had returned to the Irkutsk energy industry. He left the position of LLC EuroSibEnergo's General Director and transferred to the "point of attack" according to his words. This is the second time that he is appointed JSC Irkutskenergo’s Head. But this time he has wider authorities, than earlier.

You left the position of JSC Irkutskenergo's General Director less than a year ago. What for have you returned to Siberia, in your opinion?

The feelings are double. Even considering a small period of time, within which I has not worked with the company, life has changed very strongly. Programs on escalating capacities have been suspended; our consumers now do not need investment projects, for objective reasons. I am sure that everything, we were engaged in during the rapid development will be topical in three-four years, not now. The company thinks it more important now to increase the level of collecting payments and reduce costs.

In my opinion, you can never step into the same river twice, but today a unique situation is developing in the regions and I would like to be at the "point of attack". In the place, where all decisions are taken, rather than in Moscow. Therefore I retired from responsibilities of EuroSibEnergo's General Director, but preserved the position in the company's Board of Directors.

How topical is simultaneous exercising of operative and strategic management functions in the current situation?

We try to simplify and optimize the business management system so that managers of the largest assets do not have other managers "above" them, and are directly accountable to the board of directors. Before the crisis, EuroSibEnergo was focused on new projects, on development; now, due to the crisis, this subject is not so relevant. And on the contrary, the current management by large businesses becomes a priority.

What are the status of, and management by EuroSibEnergo now?

The official status is the same, nothing has changed. EuroSibEnergo is and will remain a representative of one of large shareholders. But the focus of operative decisions will be shifted to Irkutsk; proprietors will tackle the issues of the share capital and strategy. So this is the way we have distributed the authorities. This as well concerns KVSU: we will develop cooperation with coal specialists, and bear the responsibility for this.

Does this assume any transactions?

Sooner or later, the issue of Irkutskenergo and KVSU cooperation can be solved within the limits of establishment of the united company; this possibility is discussed now with representatives of the State in the Board of Directors. These are the nearest prospects. But actually we are already in store for foundation of the energy and coal company. This task is difficult to be implemented because of the crisis, but this is strategically necessary. The aspect of proprietors is very unpredictable, both from the point of view of price policy, and from the point of view of strategic plans. If power specialists, for example, build capacities, coal specialists will be simply obliged to synchronize their activities with them. Otherwise it is waste of money.

Consumption of the thermal energy decreases today; there are likely tot be problems with selling fuel…

Yes, this year will be very difficult for coalmen. They will probably have to closedown some small coal mines temporarily. The consumption fell by 10% in the energy sector, and by 30% - in the coal sector. There are a number of assets which should be closed from the economical point of view, but in this case not only economic consequences, but also social and strategic items are taken into account.

How successful was the last year for the company, both from the point of view of the first person of Irkutskenergo, and the representative of the largest proprietor company?

It was quite successful. We met all the targets. The revenue grew in comparison with 2007 by 17 percent; the volume of investments - by 31 percent. But the year can be conditionally divided into two parts - before the crisis and after the crisis: the company faced absolutely different tasks during these periods. We were finally reformed; we span off a network company. Today it is already actually independent, also will become more and more independent year after year. The second half of the year passed in a mode of anti-recessionary management, in which I also took active part. So it is easy for me to break in. I see all of the company's problems and painful points well enough.

What anti-recessionary measures do you think to be the most effective? Which of them turned to be "playing safe" actions will be turned down by the company? Do you have you own anti-recessionary vision of management by the company?

I do not think there have been "playing safe" actions. The crisis has not been terminated yet, and the company has quite properly responded to the situation. I consider all our efforts to escalate profit and create financial cushion correct. But I would also like to repeat a bandied phrase: the crisis implies not only problems, it also offers new opportunities. We should overcome the crisis as a stronger company, both from the point of view of operative management, and from the point of view of strategic development (I mean a coal business line and renewal of global investment programs).

Are you going to correct the investment policy in connection with rather successful company’s financial performance in 2008 and in the first half of the year 2009? Are you going to release investment projects?

Many investment projects have ceased to be urgent. This is a problem. Consumption decreased essentially; therefore today we approach the investments rationally. And today we will work only with those projects which are connected with reliability and safety. Probably, these approaches will change after consideration of the investment program next year. But the Grid Company this year will renew the construction of the Taishetskaya substation. These are positive features.

Is it connected with RUSAL's decisions to recommence the construction of the Taishetsky Aluminum Plant?

It is connected not only with this. The lines come to Taishet from the Boguchanskaya HPS, the construction of which is held in the Krasnoyarsk region. The substation should appear in any case - with or without a plant. The configuration of this project depends only on the construction of the TAZ (the Taishet Aluminum Plant). All power objects of the Taishet direction are included in the production forces allocation scheme; putting in operation of the first stage is planned for the beginning of the year 2011.

How much do the company's structural changes connected with the reform influence the financial and industrial results of Irkutskenergo? How much does the theoretical model of Irkutskenergo and IEGC’s relations which, for certain, were built at carrying out of actions stipulated by the law, correspond to what really happens today?

It seems to me that many people exaggerate the importance of the division of networks and generation. What has happened? One proprietor succeeded another. Irkutskenergo was a proprietor before; now the proprietor is Irkutskenergo's shareholders. In course of time, shareholders may sell their shares and the affiliation will be lost. The Grid Company has been existing with its own budget and tariffs for a long time. Irkutskenergo and Irkutsk Electric Grid Company have been applying the specially developed rules for three years. There are no problems in this sphere. And the fact that we preserved good human relations is a recipe for effective solution of tasks which arise at joints, are discussed and quickly solved.

What will be the system of mutual relations in the regional sphere of generation and deliveries of electric power in the near future, in your opinion? Should the number of players change here, to your mind?

I do not see preconditions for occurrence of new large players. Those who wanted to join - they have already joined. "Rusenergosbyt", for example. I do not see unexpectedness in the future. The managers of the sector are aimed at reaching a quiet period. No one desires to transform the reform into a revolution, especially in conditions of the crisis. On the contrary, a period of stabilization should come now; the participants of the market should prove to each other that the power sector can operate economically. Tariffs should not grow too quickly, and reliability should rise.

How do you think, will guaranteeing suppliers of the first level, for example, "Oblkommunenergo", appear in the region?

We have always considered there is no a financial and strategic necessity of existence of such enterprises as "Oblkommunenergo". There is a burdensome duplication of functions to be paid by the consumers of the Irkutsk region. It is incorporated in the tariff. Therefore our policy is the same - uniting the grid company with resellers: there should exist one company from high voltage networks up to a plug socket. This is fair in relation to consumers. And, most likely, this will happen sooner or later. Or, at least, such companies as "Oblkommunenergo" should receive the status of the subject of the wholesale market, which is difficult and expensive enough.

Is Irkutskenergo going to offer tariff revision this year?

It is a scheduled work. We will suggest increasing tariffs within the limits of inflation and current laws. Nothing more than that.

Last year relations of Irkutskenergo and Gazprom were made actual. What positive movements may be seen in this sphere?

Really, negotiations with Gazprom have recently become active. Partners appeared who are interested in realization of the project of the Irkutsk region gasification. The main project we are negotiating now is associated gas of the north of the Irkutsk region and construction of a gas power station in Ust Kut. We consider diversified scripts. Despite the crisis, this station will be demanded as the cheapest generation which can be constructed. Oil has already been supplied and, accordingly, gas will follow. In the certain sense, this project is adhered to the fact that volumes of oil which is pumped through ESPO pipeline will grow, rather than adhered to our desires. Gas may be pumped into the layer, but only up to a certain period, and it is very expensive to burn it.

What is the subject of negotiations now?

We consider different opportunities, but the base script is as follows: "Gazprom" builds a pipe, cooperates with oilmen, and we build a station and generate electric power.

After the last week's meeting of Deputy Chairman of the Gazprom's Management Board Alexander Ananenkov and the Governor of the Irkutsk region Dmitry Mezentsev, the project of gas supply to Bratsk was made public again. It assumes Irkutskenergo’s participation and touches construction of a gas boiler house in one of the city districts. How much is it close to realization?

There are certain difficulties here, unfortunately, which are connected with financing from the Government of the Irkutsk region. We, for our part, have purchased a units boiler house, and it is already available at Bratsk HPS-6 at containers and ready for installation. And, most likely, we will mount it without waiting for the budgetary solution. In fact the project is in a high degree of readiness and the question of financing of the pipeline site will be necessarily solved. And further on we will see, whether it is necessary to pass from the project of the local boiler house to the project of a co-generation HPS.

How will the structure of the company's loans vary? How far does the idea of loans in the share market move aside?

We are in for serious work with creditors. Irkutskenergo is a profitable company, but we have a problem with cold hard cash. Everything that is connected with the credit and money policy and share market is not very simple for us. In this situation, one of our main priorities is creation of a stable credit stock. The company’s short-term obligations to banks equal RUR 8 billion. We would like to translate them into longer predicted resources. And from the point of view of the debt market, a way-out is real. We plan to issue bonds for RUR 5 billion already this year.

How do relations of Irkutskenergo and consumers vary? How problematic is the task of the debt receivable reduction? How, in this connection, are you going to build mutual relations with municipal and regional authorities?

Certain problems do exist. But the situation is under control. We constantly monitoring the situation in the world markets: in fact our large consumers are focused on export, and we, accordingly, very strongly depend on the conjuncture of the world prices. The debt receivable drastically grew at the end of the last year. It reached RUR 3.7 billion, but we managed to optimize it a little in the first quarter, and today it equals RUR 3.3 billion. There is a group of problematic enterprises; we closely cooperate with them and try to find settlement by compromise. There are problems with the budget. While payments are settled more or less normally, but we are not sure that by September 1st, out debt will equal zero. And this is a matter of problematic or normal entering the winter.

Will you toughen the debt recovering policy?

To tell the truth, we have been always strict when approaching this issue. The company is ready for compromises and negotiations, but frequently the only effective mechanism on debt collecting is restriction of power resources supplies. And this is not our arbitrariness. This is a strictly regulated procedure with attraction of the Office of Public Prosecutor. Each step is outlined: allowed and unallowed actions. We consider each specific case separately; we sign schedules of debt re-structuring. The situation is complicated, but I would not say that it is absolutely critical. Its shape depends on the professionalism of people who make decisions. It is clearly seen when you carry on a dialogue with a professional.

What will happen with power supplies of Baikalsk? In fact you were a participant of all last governmental meetings.

I will not analyze the reason of the suspension of the Baikalsk Pulp and Paper Plant. One thing is clear: this is a negative thing for the company's economy. The Baikalsk Pulp and Paper Plant was a large consumer of coal and electric power. Moreover, now Irkutskenergo incurs the responsibility for heat supplies of Baikalsk and this year the question will be solved within the limits of the existing tariff solution. Next year we will construct an electric boiler there. At this stage, we do not see an opportunity to maintain a large thermal power station without the consumer of steam which is represented by the plant. Now the most important thing is that all the interested parties should come to a definite vision of what will be in Baikalsk. We should understand during the nearest year what capacities are needed there, whether there will be a plant, or there will be only tourists. It should be strictly declared: we should know the recipient of our resources. Looking at the present situation we can say that no large manufacture will be there. Most likely, we will start to be guided by the population, small manufactures. And, taking into account the ecological features of the Baikal, it is better not to build a coal plant there. It is clear that the boiler house's heat power will be expensive as electric power constantly rises in price, but after a time, approximately in five years, it can be translated to gas. I hope by this time gas will appear in the Irkutsk region.

Newly appointed Governor Dmitry Mezentsev has already made his position public: business should solve social and economic problems of the region in partnership with authorities. Do you have a stated relation to this opinion?

We consider that the Governor's position is absolutely adequate to the current situation, and we have been adhering to it for a long time. But these relations will be more fruitful if we mean mutually beneficial cooperation. The authorities should not force business to something: is should be a dialogue. Otherwise, it will be difficult to speak about a growth of the investment appeal of the Irkutsk region.

What does your company expect from authorities?

We wait support in budgetary debts work. Here regional authorities can and should become coordinators for work with mayors. Or, for example, if Irkutskenergo goes towards regional authorities in solution of problems of the forthcoming heating season like in Baikalsk in particular, in response it would be desirable to count on any assistance in the solution of our issues with the resellers.

Does the regional government let you know that they are ready to this dialogue? If it does, in what form is it expressed?

The governor has just been appointed - a significant person. His first deputies have been declared. They are the professionals who have already proved themselves in the region. The team is strong, but certain things only start to take shape. We hope for the system work of officials and business. I am sure our experience as a large representative of the system forming sector may be in demand. In fact, the company already now becomes a certain anti-recessionary headquarters. We are frequently in close relations with the consumer and we often receive the negative signals touching the condition of the regional economy much earlier, than the administration's official receives them. Irkutskenergo is an exceptional company. Our responsibility in many respects lays not in helping somebody with money, though the company pursues a charity program. Our most important responsibility is to provide low growth of tariffs and reliable electric power supplies of the region.

Biographical data

Sergey Vladimirovich Emdin was born on May 20th, 1971, in Leningrad. He graduated from the St. Petersburg State University (faculty of geography and geo-ecology, faculty of economic geography), Kansas University, the USA (School of Business Administration), Harvard Business School, has MBA degree, Candidate of Economic Science. Mr. Emdin worked as an analyst and adviser with McKinsey Company (St. Petersburg, Moscow), First Deputy General Director of JSC "UAZ", and held supervising positions in the group of the automobile division of "Severstal" Company. Since December 2002, he was Executive Director of JSC Irkutskenergo; since October 2005, he was General Director of JSC Irkutskenergo. Since May 19th, 2008, he was General Director of EuroSibEnergo. On May 15th, according to the decision of the JSC Irkutskenergo's Board of Directors, Mr. Emdin was appointed the company's General Director. He is married. He brings up the son and the daughter.