Chinese to rescue Russian coal-fired power expansion

By Simon Shuster and Jacqueline Cowhig - Analysis

MOSCOW/LONDON (Reuters) - Chinese engineers are coming to the rescue of the Russian electricity sector, as outgoing President Vladimir Putin backs a five-year expansion plan that will rival Lenin's drives to electrify the nation.

An estimated 41,000 megawatts of new generating capacity is to come on line by 2011, much of it coal-fired rather than gas, a goal that is way out of reach for Russian machine builders, and even threatens to swamp the order books of global giants such as General Electric Co (GE.N) and Siemens AG (SIEGn.DE).

In search of an alternative supplier, Russian power producer OGK-2 OGKB.MM turned to a consortium of Chinese engineering firms, led by Harbin Turbine Co., granting them a tender to build two 660 MW coal-powered turbines by 2012. It was the first such deal in the sector between Russian and Chinese firms.

"It is simply a necessity for us to work with the Chinese. We will not get the capacity built otherwise," said Stanislav Neveynitsyn, executive director of OGK-2, Russia's third biggest fossil fuel-run generator.

Power producers TGK-12 KZBE.MM and TGK-13 TGKM.MM -- which are together installing 2200 MW by 2011 -- have also visited engineering plants in China.

"I can tell you they liked what they saw," Neveynitsyn said. "Our colleagues are watching our experience with the Chinese very closely."

Russia's former electricity monopoly Unified Energy System (UES) EESR.MM designed the ambitious growth programme for the sector, which it says needs $135 billion of investment by 2015 if Russia is to avoid a critical shortage of power.

The sector has not seen such an overhaul since Soviet leaders Vladimir Lenin and Josef Stalin pushed to industrialise the country in the 1920s-1940s with little foreign help.

UES, the Soviet-era power monopoly they envisioned, is being split up and sold off by this summer to help pay for all the new constructions.

The investors buying up UES assets are committing to fulfill these expansion plans, meaning there are hundreds of construction tenders in the pipeline.

"The engineering firms that win these tenders will be those that give the best quality and price," said Boris Vainzikher, chief technical officer of UES.

"But another factor is speed. If someone offers to build cheap and build well, but only by 2015, that won't work. So in this case, the Chinese won the tender."

Going forward, speed could indeed become the main factor, as Russia plans to install some 280 turbines by 2011. Only Chinese engineers have proven capable of commissioning one per week, the pace Russia will require if it is to stave off a power crunch.

COAL-FIRED PARTNERSHIP

Both Russia's and China's electricity policy stand out from the West in their increasing use of coal-powered generators, whose emissions of greenhouse gases have made most Europeans move toward cleaner energy, such as nuclear and hydroelectric.