RusHydro estimates its savings of capital expenditures for 4 projects in the Far East at RUB 3.4 bn following tender process
JSC RusHydro (ticker symbol: MOEX, LSE: HYDR; OTCQX: RSHYY) announces that the Company's Board of Directors held a meeting on February 25, 2014. The Board of Directors reviewed the report of the Management Board of RusHydro on implementation of four priority projects in the Far East of Russia.
In late 2012, RusHydro received RUB 50 bn from the Russian government in its share capital. The funds were specifically earmarked for the construction of the following power and heat power plants in Far East of Russia: Sovetskaya Gavan’ TPP in Khabarovsk region, Sakhalinskaya TPP No.2 (1st stage), Yakutskaya TPP No.2 (1st stage), Blagoveschenskaya TPP (2nd stage). Total electric capacity of new generating facilities will be 543 MW, heat capacity – 872 GCal/h. These projects will help meet the increasing demand for electric and thermal power and improve reliability of power supply in the regions.
Technological assessment and price audit
On March 22, 2013, RusHydro signed an agreement with Sberbank of Russia, according to which the latter would act as an agent responsible for control of the proper allocation and use of funds from the Russian state. The agreement has been signed as per the Russian Government’s regulations on technological and price audit of large public investment projects.
In 2013, the technological assessment and price audit of the Yakutskaya TPP No.2 and Blagoveschenskaya TPP was completed. Independent technological assessment and price audit of the Yakutskaya TPP No.2 project had been conducted by Sweco Soyuz Engineering (SWECO Group), of the Blagoveschenskaya TPP expansion project – by Ernst & Young – valuation and advisory services. These engineering and advisory companies were selected by Sberbank of Russia through a tendering process.
The completion of technological assessment and price audit of the Sovetskaya Gavan’ and Sakhalin projects is expected in April 2014. Independent audit of the Sakhalinskaya TPP project is conducted by EnergoFichtner (Russian JV of Fichtner GmbH & Co. KG), of the TPP in Sovetskaya Gavan’ project – by Sweco Soyuz Engineering.
Project documentation review by Federal agency of assessment (Glavgosexpertiza)
All the four projects should be approved by the Federal agency of assessment (Glavgosexpertiza), before any funds from the RUB 50 bn can be released by Sberbank and used for construction by RusHydro. The Blagoveschenskaya and Yakutskaya projects have already been approved by the Glavgosexpertiza, total cost of construction of the second stage of the Blagoveschenskaya TPP amounts to RUB 8.2 bn (incl. VAT); of the Yakutskaya TPP No.2 – RUB 26.193 bn, including VAT. A number of changes to the design project of the power plant have been made following the expert assessment of the Yakutskaya TPP No.2 project. Updated technical parameters, approved by Glavgosexpertiza, led to an increase in installed electric capacity of the plant from 170 MW to 193 MW and installed heat capacity from 460 GCal/h to 469 GCal/h.
The project documentation of the Sakhalinskaya TPP No.2 was submitted for the expert assessment in January, 2014. The Company expects to receive the results of the review in April 2014. The project documentation of the Sovetskaya Gavan’ TPP has been submitted for ecological review for the second time. In March 2014, the whole project documentation will be submitted for review. The expected completion date of the expert assessment is June 2014.
Selection of general contractors and suppliers of the equipment
Following tendering process, JSC TEK Mosenergo has been selected as a general contractor for construction of the first stage of the Yakutskaya TPP No.2; GE Packaged Power Inc. (General Electric Group) will supply the main equipment for the plant. JSC Power Machines won an open tender and was selected the general contractor for the expansion of the coal-fired Blagoveshenskaya TPP project. As general contractor, Power Machines will build the second stage of the Blagoveshenskaya TPP, including design, construction and installation works; and will also manufacture and deliver the equipment.
During tender procedures the price of construction of the Yakutskaya TPP No.2 (1st stage) decreased by RUB 2.3 bn and amounted to RUB 17.381 bn (incl. VAT), against the initial (maximum) price of RUB 19.687 bn; the price of manufacturing of gas turbines decreased by RUB 0.518 bn and amounted to RUB 3.49 bn (incl. VAT), against the initial price of tender of RUB 4 bn. Savings on contracting the second stage of the Blagoveshenskaya TPP totaled RUB 0.6 bn (the price of contract amounted RUB 7.3 bn (incl. VAT), as compared to the initial price of RUB 7.9 bn). All in all, the accrued savings amounted to RUB 3.425 bn on the construction of these two projects.
Tender for the first stage of the Sakhalinskaya TPP No.2 project will be announced after completion of technological assessment and price audit and review of the project documentation by Glavgosexpertiza (expected in April-May 2014). Tender for selection of general contractor of the TPP in Sovetskaya Gavan’ project will be resumed after approval of project documentation by Glavgosexpertiza (expected in May 2014).
Organization of the construction process
In order to implement the construction of new generating facilities in the Far East of Russia RusHydro set up four subsidiaries, wholly-owned by RusHydro, to exercise managerial and control functions, commission and operate new facilities. The Company’s Board of Directors approved creation of these four companies in April 2013. In June 2013, these subsidiaries were registered in the local authorities of the Federal Tax Service of Russia: CJSC TPP in Sovetskaya Gavan’, CJSC Sakhalinskaya TPP No.2, CJSC Blagoveschenskaya TPP, CJSC Yakutskaya HPP No.2.
RusHydro’s subsidiary in the Far East, RAO ES of East, is responsible for the operating management of the four companies. On December 3, 2013, the Board of Directors of RusHydro approved new framework for construction of power facilities in the Far East of Russia. This framework provides for transfer of shares of CJSC TPP in Sovetskaya Gavan’, CJSC Sakhalinskaya TPP No.2, CJSC Blagoveschenskaya TPP, CJSC Yakutskaya HPP No.2, owned by RusHydro, in trust management of RAO ES of East. These shares cannot be alienated, pledged or reassigned. The agreement on shares transfer between RusHydro and RAO ES of East was signed on December 23, 2013.
Funding of the projects
All works are funded by RusHydro and RAO ES of East. The budget funds in the amount of RUB 50 bn haven’t been yet allocated for preparatory or construction works. These funds might be spent only after completion of all necessary reviews and approvals.
As of January 1, 2014, RusHydro, including RAO ES of East, spent RUB 5.5 bn on the development and approval of project documentation, procurement of equipment and preparation works.
Control of proper use of budget funds
In order to provide maximum transparency of budget funds use RusHydro designed a framework allowing the government to assess and analyze the progress of projects implementation on a regular basis, ensure the efficiency of the investments and control the proper use of funds. RusHydro signed the a number of agreements with the Ministry of Economic Development, Ministry of Energy of Russia and the Accounts Chamber of the Russian Federation for these purposes.
Currently the Company is preparing all necessary documentation to obtain building permits for four new plants in the Far East. The start of major construction works at the Yakutskaya TPP No.2 is scheduled for June 2014; at the TPP in Sovetskaya Gavan’ – for July 2014.
The information in this press release may contain projections or other forward-looking statements regarding future events or the future financial performance of RusHydro. You can identify forward looking statements by terms such as "expect," "believe," "anticipate," "estimate," "intend," "will," "could," "may" or "might," the negative of such terms or other similar expressions. We wish to caution you that these statements are only predictions and that actual events or results may differ materially from these statements. We do not intend to update these statements to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. Many factors could cause the actual results to differ materially from those contained in our projections or forward-looking statements, including, among others, general economic conditions, our competitive environment, risks associated with operating in Russia, rapid technological and market change in our industries, as well as many other risks specifically related to RusHydro and its operations.
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