The Meeting of the Commission on the Strategy for the Development of the Fuel and Energy Industry and Environmental Safety

Vladimir Putin’s presentation.

[Excerpts from transcript of meeting of the Commission on the Strategy for the Development of the Fuel and Energy Industry and Environmental Safety]

Colleagues, good afternoon.

We are holding a meeting of the fuel and energy industry development commission in Kuzbass for a reason. We all understand that Kuzbass is one of the world's largest coal mining centres, I mean global centres. And, among other things, yesterday was a professional holiday for those who work here and in the industry as a whole – Miners’ Day. I want to congratulate the miners personally and on behalf of all those present here on their professional holiday, wish them good health, all the best, and success in their difficult work that our country needs so badly.

Colleagues, today we have a packed agenda. Together with business representatives and regional leaders, we will discuss the current situation in the Russian fuel and energy industry, consider the key areas and guidelines for the development of the industry and, of course, evaluate how the earlier decisions of our Commission are being implemented.

The fuel and energy sector plays an important part in increasing the pace and quality of the country’s economic growth. It accounts for about 22 percent of the country's GDP, almost 60 percent of exports and 40 percent of federal budget revenue.

Amid a complex market situation and artificial external constraints in recent years, the Russian fuel and energy sector was able to effectively overcome the challenges facing it. As of the end of last year, Russia once again confirmed its status as a leader in the global energy market. We are number one in the world in terms of oil production, and second in gas production. Russia is among the leading countries in electricity generation and coal production; we are the world’s fourth largest producer of electricity and the sixth largest coal producer in the world.

Russian energy companies are investing more in expanding their capacities. Last year, investment increased 10 percent to 3.5 trillion rubles.

New oil and gas fields are being developed, and the transport infrastructure is being expand accordingly. However, I want to emphasise that the provision of gas supply in the region, including rural areas, is not moving fast enough. We were to the Chernigovets open-cut mine with the acting governor just now. There, we met with a small group of employees and one of them had a question about provision of gas supply. This is a natural question, because the progress is, unfortunately, not moving as quickly as we had hoped. There’s need for coordination between the federal authorities, Gazprom, independent producers and the local authorities because the ”last mile“ is usually the problem. We need to coordinate everything. We need better dynamics on this issue. I propose that we discuss this particular matter at one of the commission’s subsequent meetings.

Russian energy companies are maintaining consistent positions on foreign markets. So, natural gas exports have been growing at record levels for two consecutive years now. We need to develop the Russian energy sector’s export potential.

Notably, competition on the global energy market has become noticeably sharper in recent years, so it is extremely important to use our competitive advantages efficiently, to diversify supply routes, and establish ourselves in new markets.

As we are all aware, the Asia-Pacific region is one of the most attractive areas with growing demand for a wide range of goods, which opens up great opportunities for Russian companies.

In this regard, I would like to note one important initiative. In June of this year, during my visit to China, I agreed with President Xi Jinping on organising a Russian-Chinese energy business forum. I am confident that this platform will expand our cooperation, help us find new areas for mutual investment, and launch promising projects in the energy sector. The first forum is planned for November in Beijing. I know that about 40 companies have already expressed interest from the Russian side. Prominent representatives of China are also expected to attend. Please report on the progress of this forum today.

Russia is certainly open to cooperation with all countries in the East and the West. It is important not only to gain new markets, but also to feel confident in our traditional markets. Today within the framework of our Commission, we will specifically discuss the prospects for the development of such cooperation in coal distribution. Last year, domestic companies exported more than 190 million tonnes of coal. This makes Russia the third largest coal exporter in the world. The current market situation gives Russia an opportunity to expand its presence in the global coal market, consolidate its positions and increase our country’s share. To take advantage of these opportunities, we need to resolve a range of problems – we have to increase the profitability and safety of coal mining and modernise production in traditional coal mining regions (Kuzbass, Khakassia, Yakutia) and in the new ones (eastern Siberia and the Far East).

We also need to improve logistics, expand export channels, especially the capacity of the railways, for which coal companies are anchor shippers. As you know, the development of the eastern railways, the bottlenecks on the BAM and the Transsib are viewed as priority objectives for the development of Russia's transport infrastructure in the coming years.

I would like to stress again that there needs to be ongoing coordination, the mutual adjustment of planned coal production increases with Russian Railways’ development programmes and seaport investment projects. It is important to ensure a balanced, integrated approach to expanding the capacity of the railways, to take into account the needs of the coal mining industry, as well as the shippers of bulk and bulk container products. We need to consider creating mutual obligations between carriers and buyers with long-term contracts in this area. This approach will serve the successful implementation of both shippers’ and transport companies’ investment plans.

Let me point out another matter of principle. We should solve development issues in coal mining with the aid of cutting-edge technology that must be efficient but, above all, must improve the miners’ working conditions and safety. We should introduce more advanced standards in the industry and pay more attention to environmental protection, especially at ports and coal-handling places. Concern for people’s lives and health as well as environmental welfare in cities and towns must be our unquestionable priority. The entire chain must become environmentally sound, from the mining to the handling of coal at sea ports.

I ask the commission to monitor these issues constantly and propose that it consider an audit of how mineral developers are complying with the approved models of deposit exploitation, the legal base and its use in environmental and industrial security in order to improve legislation in this sphere.

And another topic before we proceed to the reports: modernisation of thermal power plants. In recent years, we have managed to significantly increase our heat generation capacity, upgrade its structure and improve plant stability and efficiency. The agreement mechanism on capacity supply has played the key role in this process. It was based on investors’ responsibilities to introduce new capacities after privatising the energy facilities on terms that were rather comfortable for businesses.

Today we are speaking about resource-saving environmental stations, which will replace the obsolete and unreliable equipment with low ecological standards and cost effectiveness. In addition, we should do this using the equipment produced in Russia as widely as possible, including 100 percent localisation if our foreign partners are the original producers. We must identify stable sources of funding modernisation in the thermal energy sphere. I ask the Energy Ministry to focus on this issue and analyse all the market reserves.

In addition, I would like to stress once again that capital investment must not be passed along to consumers. Today certain regions lobby for unjustified rate increases. As a result, the money does not go to the development of the regional energy sphere but rather to certain people close to the decision-makers. There is a proposal to change this situation by introducing a standard rate-setting principle. We will also discuss this approach today.

This is what I wanted to say at the beginning. Thank you for your attention.