French Vostok to Become Pioneer in Russian Electricity Market

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Feb. 29 – French grid company Vostok has been contracted to run the Tomsk Distribution Company of Russia’s grid firm MRSK for an initial 18-month probationary period, the companies announced on Tuesday. It’s the first time a foreign entity has been permitted to manage an operating entity in Russia.

“This is the first instance of such cooperation with Western partners. The French party has made the right decision by choosing Siberia for its operations,” Prime Minister Vladimir Putin noted.

Tomsk is a city in the southwest edge of the great Siberian Taiga, the administrative center of Tomsk Region, located about 3,500 kilometers from Moscow.

If MRSK decides to extend the contract beyond 18-month probationary period, the project will run until the end of 2019.

The agreement was signed after two years of intensive negotiations between the two major government-controlled electricity distribution grid companies of Russia and France.

The annual throughput capacity of MRSK, the world’s largest electricity distribution grid company, is about 600 billion kilowatts of electricity, distributed via a network more than 2 million kilometers long, the company web site says. Its assets include more than 456,000 substations with a total transforming capacity of 362 giga-volt-ampere.

MRSK is a monopolistic provider of network connections and electricity distribution services for medium and low-voltage grids in 69 constituent entities throughout Russia.

The French firm Vostok runs 95 percent of France’s electricity grid with a total length of 1.27 million kilometers and services 33.6 million customers.

Under the terms of the agreement, Électricité Réseau Distribution France Vostok (ERDF Vostok) representatives will be able to operate the day-to-day activities of the Tomsk Distribution Company at their own discretion, an ERDF press-release said.

The French management is expected to start integrating efficient methods and new engineering and process solutions in the operation of Tomsk Distribution Company to achieve certain advantages in the company’s performance as compared to the existing operation system.

“The very first thing we will do is conduct an audit. Then we will see,” said Eric Beaujean, ERDF Vostok’s Moscow-based general director.

Beaujean would not reveal how much the eight-year contract is worth, but said payment is tied to the manager’s ability to improve TRK’s reliability and cut losses.

“ERDF has vast experience operating in multiple international markets, and we are placing much hope in a mutually beneficial exchange of knowledge, expertise and technologies that our partnership will bring,” Nikolay Shvets, director general of MRSK Holdings, noted during the signing ceremony.

“We expect that not only the Tomsk Region and the overall Russian distribution system, but also our French partners, will benefit from the combination of expertise and knowledge accumulated in France and Russia in operating electricity distribution facilities.”

Elina Kuliyeva, a utilities analyst at Alfa Bank, suggests that the French firm has been attracted not only by relatively low-risk business, but also with opportunities to “investigate the market ahead of the likely privatization of Russia’s grid companies.”

“They will be trying to learn the rules and how the market operates. Most foreign investors don’t really understand how the market works here,” she said.

According to the ERDF Vostok press-release, cooperation between the parties will not be limited only to the above project, but will also focus on exploring opportunities for joint activities in other regions of Russia. This will include arranging interaction in innovative development and joint research based at the facilities of the Skolkovo Innovation Center and Tomsk Polytechnic University.

Company representatives said there was no talk of privatization so far. At the same time, parties “would not exclude the possibility in the future.”

Analysts expect the talks of privatization will speed up after next Sunday’s presidential election.

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