Rosseti--Russia's Domestic Energy Major

Putin chats with CEO Andrey Ryumin

Not as well known in the West as Gazprom or Rosatom is Russia’s electricity czar Rosseti, which is almost 90% owned by Russia’s Federal Agency for State Property Management and distributes close to 80% of Russia’s electricity. As with many major Russian businesses, the West is blocking the public’s ability to access their websites. Fortunately, we are able to access and read what the Kremlin will allow us to learn about the conversation between President Putin and CEO Andrey Ryumin during which “key areas of the company's activities, implementation of projects within the investment and repair programs, and measures aimed at improving the reliability of power grids were discussed.” As one would assume, Rosseti is deeply involved in many of Russia’s development plans and national projects making it a strategic asset:

Vladimir Putin: Andrey Valeryevich, Rosseti manages almost all key electric grid assets, engineering and service companies. Last year, the Rosseti Group of Companies demonstrated stable operating results, which are positive and good.

How do you assess the situation and what are the immediate prospects? What can I do to support you?

Alexey Ryumin: Mr President, I would like to report first on the results of the work of the Rosseti Group.

As for production indicators, we have exceeded the figure of 2.5 million kilometers of power transmission lines that we manage. We also operate more than 580 thousand substations with a total capacity of approximately 875 gigavolt-amperes. Electricity transmission also increased last year. In other words, 80 percent of all electricity generated in the Russian Federation is now transmitted through our networks.

Turning to the financial results, I want to say that the company's revenue for 2023 amounted to 1 trillion 380 billion rubles, almost 1.4 trillion rubles [About $16 billion]. This is 17 percent higher than the figure for 2022. Our net profit exceeded 160 billion rubles, slightly exceeded, and amounted to 161 billion rubles. This is 20 percent more than in 2022. And our net profit partially finances our investment program.

The investment program itself has more than 530 billion rubles, and last year we again updated the record of the investment program, which increased by 100 billion rubles compared to the previous year [About $6.1 Billion]. As part of the investment program, we have built more than 35 thousand kilometers of power transmission lines. Approximately 10 gigavolt-amps of new power was introduced last year.

As for the main, key projects that we have implemented, the main project is, of course, the completion of the first stage of electricity supply to the Eastern Landfill (I reported to you about this) at the beginning of this year.

I also wanted to tell you about some major projects. This is the reconstruction of the Pakhra substation. The substation is a key power facility of the Moscow Power Ring. This is the completion of construction of all the electric grid facilities necessary for power supply to Gazprom's Kovykta and Chayandinskoye fields, which are the resource base for the Power of Siberia gas pipeline. As well as connecting the Amur gas chemical complex of Sibur.

These are, of course, the main and largest projects. But it is impossible not to mention the total amount of work performed, technological connections made. Over the past year, we have implemented more than 400 thousand technological connection agreements.

Vladimir Vladimirovich, it is particularly important to note that in the framework of both the investment program and the repair program, when implementing our projects, we mainly use domestic materials and domestic equipment.

Vladimir Putin: Over 90 percent.

Alexey Ryumin: Yes, we have an indicator of over 90 percent. In fact, we are already approaching 95 percent, now 93-94 percent, which is an indicator of import substitution. We cooperate with all major Russian equipment manufacturers, but we also conduct research and development ourselves. As part of this activity, just in March of this year, we opened an Intelligent Digital Network Laboratory in St. Petersburg. This is the most up-to-date network research center in the Russian Federation, and I believe it is one of the most up-to-date similar centers in the world at the moment.

At the end of last year, in accordance with your instructions, power grid assets in such regions as the Novosibirsk Region, the Murmansk Region, the Krasnoyarsk Territory and the Republic of Crimea were transferred to the authorized capital of Rosseti Group. Thus, we have increased our assets, and the geography of our presence in the past year has also increased.

The most important task for us is to pass the autumn-winter period. The autumn-winter period 2023-2024 was driven by an increase of more than 20 percent in natural hazards in the territory of our presence. This is especially true in the southern regions. In particular, in the Rostov region at the beginning of this year, in January-February, freezing rains caused massive blackouts. But even in the face of such a large increase in natural hazards, we managed to maintain the average accident rate at the level of the previous autumn-winter period. I say "average", specific – we work in 82 regions, and, of course, we count the average for all these regions. But the situation is different everywhere, and there are regions where the situation is quite deplorable and equipment wear is already approaching critical levels.

In this regard, in accordance with your instructions, last year the Government of the Russian Federation decided to start financing reliability improvement programs from the federal budget in eight regions of the Russian Federation. We have developed these reliability improvement programs together with the Ministry of Energy. They are designed for three years, and the situation in these eight regions should greatly improve due to these programs.

We can't help but mention our work in the new regions of the Russian Federation. Last year, by order of the Government, backbone networks in the Luhansk and Donetsk People's Republics, Zaporozhye and Kherson regions were transferred to us for free use. Thus, in addition to the restoration works that we have been carrying out since the spring of 2022, last year we fully started operating the mainline complex in the territories of the new subjects of the Russian Federation.

Vladimir Vladimirovich, summing up the results, wanted to say that for the current year, 2024, we have the same priorities. We continue to work in the key areas that I have outlined.

Of course, the main thing for us is reliable and high-quality electricity supply to consumers for a comfortable life of people, for stable economic growth. We plan to complete major projects this year: These are practically all objects of the second stage of electricity supply to the Eastern Landfill, including, of course, connecting large industrial enterprises, small and medium-sized businesses, housing and social facilities.

Finally, Mr President, I would like to thank you for your attention and support to the power grid complex.

Vladimir Putin: You mentioned working in the regions. It is very important not to view anything here. They mentioned the Moscow Energy Ring.

A. Ryumin: Yes.

Vladimir Putin: I talked to Sergey Semyonovich, and he also pays attention to the fact that the region's economy is growing. In this case, we should not allow the situation that we had several years ago, when the relevant electric power facilities were not enough and we had to take emergency measures in order to expand this opportunity. I would not like any emergency measures, everything should be in a planned order.

Alexey Ryumin: Absolutely correct, Mr Putin. Sergey Semyonovich and I discussed this issue. The program is currently being developed, so this issue is under our control.

Vladimir Putin: Good. [My Emphasis]

A large fraction of readers will be aware of problems with their energy grids within their states that comes from lack of investment and public control. “Natural hazards” can be anticipated and planned for, but that and investment to upgrade takes away from profits and thus reduce shareholder dividends. One of the major reasons I chose to live where I do is because of PG&E’s gross mismanagement along with the failure of California’s government to properly handle the so-called energy crisis caused by Enron’s illegal manipulation of unneeded energy markets from 1998-2001. Russia was very fortunate to avoid having its energy grid privatized. The CIS is currently in the process of reforming the energy relations that ruled during the Soviet period. Such projects are often hidden under the rubric of logistic/transport corridors. The design of a pan-Eurasian energy grid by 2040 will be a major accomplishment as there’s a vast geographic area to connect and service. And of course, there will also be the rebuilding of the energy grid within the liberated Great Russian areas once the SMO is concluded. I note EU wants to keep gas flowing across current Ukraine territory after the current contract expires at the end of 2024.

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