9 September 2019

SUEK to invest over $775 million in the Far Eastern projects

SUEK’s CEO, Vladimir Rashevsky, describes a capacity upgrade programme, global markets and coal prices.

At the Eastern Economic Forum 2019, JSC Daltransugol, a subsidiary of Siberian Coal Energy Company (SUEK), entered into an agreement for the delivery of a large-scale project to expand the capacity of the Daltransugol coal shipment terminal (Vanino Bulk Terminal) from 20 to 40 million tonnes a year. This project is one of the most ambitious in SUEK’s ‘Far Eastern portfolio’ featuring an investment of over 50 billion roubles (about $776 million) in 2019. In his interview with the PrimaMedia Information Agency, SUEK’s CEO, Vladimir Rashevsky, spoke about the plans made by this leading coal and energy company in the Far East.

Reference: Siberian Coal Energy Company supplies coal to 48 countries through its own distribution network. In August 2018, SUEK completed the consolidation of Siberian Generating Company (SGC), which resulted in the establishment of one of the world's largest coal and energy businesses with diversified revenue sources. The operating cash flow of the combined company totalled $1,901 million. Affordable financing and favourable market conditions enable SUEK to continue its expansive capacity development programme. Total investment in 2018 rose by 18% to $903 million.

Primorye Is Not Standalone

—  After the Vanino Bulk Terminal’s upgrade project starts, how will it contribute to the coal industry in the region, and how will environmental safety issues be tackled?

—  The Vanino Bulk Terminal, which has been operating for ten years already, is the most advanced, hi-tech and environmentally friendly terminal. At the design stage, its concept encompassed solutions that were in line with the best available technologies in the environmental field, and we have been continuously working on their improvement. The technologies included are ones that are absolutely unique. Thanks to these technologies, the port, capable of handling more than 20 million tonnes of coal per year, does not have a negative impact on the environment. Our expansion project, involving the third construction phase of the Vanino Bulk Terminal in the Vanino district, will start this year. In the years to come, it will help bring the transshipment capacity to 40 million tonnes, in other words, to double it. In both construction and design, the key focus will again be on environmental safety issues.

—  What other projects is your company developing in the Far East?

— SUEK is investing 20 billion roubles (about $310 million) in development in the Khabarovsk region. Our goal is to increase coal production to 12-14 million tonnes in the next few years. This will be possible because of the new facilities in the Verkhnebureinsky district of the Khabarovsk region. Another priority is the development of the Nikolsky mine in Buryatia with an investment of 15 billion roubles (about $233 million). The total capacity of our Tugnuisky and Nikolsky open-pit mines should grow to 15 million tonnes a year.

— Do your development plans apply to the Primorye region?

— In Primorye, the coal industry is primarily focused on the domestic market. There we operate two relatively small but developing units that are part of the Primorskugol structure: Novoshakhtinskoye and Vostochnoe. We hope that electricity generation in the region will increase, which will boost fuel consumption. For our part, we are ready to provide reliable and stable supplies in the required amount. I should emphasise here that Primorye is not standalone but is part of the general development concept in the Far East, which comprises various projects delivered by SUEK in this vast territory, in different sectors.
Far Eastern Portfolio

— How is your company’s portfolio diversified today?

— SUEK is developing coal mining, electrical and heat energy businesses, in addition to logistics. Our growth is very exciting. This year we plan to invest over 70 billion roubles (over $1 billion) in mining alone. Around 40 billion roubles (about $620 million) will be invested in electricity projects. The logistics is also growing fast. In April, after purchasing the Nitrokhimprom leasing company, we increased our rolling stock to 55 thousand railcars, which makes us self-sufficient in transportation matters. By the size of its fleet, Nitrokhimprom is one of the largest operators of gondola freight cars in Russia. For 2018, the total investment of our company in various sectors grew by 18%. Further development prospects are linked to both the domestic and foreign markets.

— What do your export plans depend on?

— As always, on market conditions. This year, unfortunately, the situation is more complicated than two or three years ago, but we focus on stable supply volumes: over 50 million tonnes of coal this year. Further export plans will be related to the development of the Eastern Section [by Russian Railways], namely the modernisation of the Baikal-Amur and Trans-Siberian Railways. President Vladimir Putin, in a message to the Federal Assembly, spoke about the need to expand the capacity of the Baikal-Amur and Trans-Siberian Railways by a factor of 1.5 in six years. These plans have been put in action. The first and second BAM development stages are underway. Accordingly, our production and logistics projects are tied to the state project.

Power Industry Transformation

— Will the situation in the European market, where the price of coal has dropped to its lowest value since June 2016, below the breakeven level of Russian coal companies, somehow affect coal export?

— Now, the power industry is undergoing transformation. Europe has long been reducing coal consumption and is switching to liquefied gas and renewable energy sources. This is largely due to political motives. However, the economies of the Asia-Pacific region rely heavily on coal and gas. Of course, we see an opportunity for the Russian coal industry to expand its presence in these markets, especially since our coal, along with Australian coal, is the most competitive.

— Are you talking about China in the first place?

— No, not only about China. China, Japan and South Korea are the largest consumers of energy resources. Besides, new growing sales markets are emerging, which include Vietnam, Thailand and Malaysia. SUEK does business with all countries and all the largest companies, consumers of energy resources in the Asia-Pacific region. The mentioned projects in Khabarovsk and Buryatia are targeted specifically at exports to the Asia-Pacific region.

— Are there any forecasts available? What will happen to coal prices in Asian markets?

— Forecasting is a thankless job, but taking into account the potential of the Asia-Pacific region, we can expect that the range of thermal coal prices will be $60-100 dollars per tonne. These approximate figures will determine coal pricing in the coming years.

Market Structure

— Of course, such ambitious projects repeatedly raise environmental safety issues. What can you say to Primorye residents who are very concerned about this subject today?

— All problems have solutions; the main thing is to deal with them. Stevedores have access to technologies that enable the environmentally friendly shipment of coal and other bulk cargo. Recently, reference books with the best available environmental protection technologies, specifically regarding coal transshipment in ports, have been approved. These technologies include pile spraying, wind shields and other safety measures. I know that a large number of stevedores who work at Nakhodka and Vostochny ports are now implementing such projects, and I am sure that the problem will be less severe in the next year or two. We see that regional authorities, stevedoring companies and the public focus and cooperate on this issue.

— How do you think the coal energy industry will develop in Russia? Are any global changes in the structure of this market possible over the next ten years?

— We do not expect any fundamental changes in the coming decades in terms of the electric power industry structure. As for the trends, one can note the great synergy potential of coal, energy and transport assets accumulated by SUEK. It is important to understand that the power industry, including coal-related, requires modernisation. This process was initiated in 2018-2019, and we plan to heavily invest in it. Today, SUEK already has a portfolio of projects in the Krasnoyarsk, Kemerovo and Altai regions. They will be developed with a view to improve the efficiency and environmental friendliness of the electric and heat energy facilities that the company operates. Our main investments are aimed at increasing the production of high-CV coal, developing our logistics assets, upgrading the existing power capacity and completing SUEK’s labour, industrial and environmental safety projects.
Source: Primamedia
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