from the authorities of Chelyabinsk

Chelyabinsk authorities suspect the Fortum energy concern of trying to monopolize the city's heat supply market. City Manager Sergei Davydov made a statement about this yesterday. Fortum explains that urban heating networks require 66 billion rubles of investment, which can only be provided by a strategic investor. Experts remind that the changes made to the legislation allow all heat supply organizations to hope for a business exit from the unprofitable area.

Chelyabinsk city manager Sergei Davydov is not yet ready to give Fortum all the city’s heat supply
Photo: Oleg Kargopolov, Kommersant

Yesterday, at a staff meeting, the head of the Chelyabinsk administration, Sergei Davydov, accused the Fortum energy concern of wanting to monopolize the city's heat supply market. “At the end of last week, company representatives announced that the city administration was delaying the approval of the Chelyabinsk heat supply scheme until 2029, and this was preventing the modernization of networks,” the press service of the city administration recalled, adding that the city manager was surprised by these statements.

Now Fortum owns 85% of the heating networks of Chelyabinsk and proposes to assign the status of a Unified Heat Supply Organization (UTO) to its subsidiary, OJSC Ural Heat Supply Company (UTSK). At the moment, this status has been assigned to the municipal enterprise Chelyabinsk Communal Heating Networks (CHKTS). Mr. Davydov believes that Fortum wants to take control of financial flows from the sale of heat and demanded official clarification from the concern’s management.

Let us remind you that in Chelyabinsk, since the end of 2013, the formation of a heat supply scheme has been underway, which was developed by the VNIPIEnerg design institute. At the end of January, public hearings were held on this project, which caused many objections from market participants. A total of 81 comments were received, of which 69 were taken into account. As VNIPIEnergom told Kommersant, the new version of the scheme is almost completed, most of the changes have been made to the new project. It is expected that by mid-April the Chelyabinsk administration will be able to re-post the scheme for discussion.

Parviz Abdushukurov, Fortum's vice-president for thermal business, emphasized that the decision to assign ETO status is made by the Russian Ministry of Energy. “As for the alleged attempts to monopolize the heat supply market, I would like to emphasize that both Fortum and ChKTS have the status of a natural monopolist defined by law. It is the rules that establish the criteria for choosing this monopolist, and not the subjective desires of the official,” said Mr. Abdushukurov. The company also emphasized that the region is interested in attracting a strategic investor in the heat supply industry. According to the concern's estimates, investments in the amount of 66 billion rubles are required. “Neither the budget system nor the ChKTS will be able to provide the required amount of funds. This program can only be implemented by a large investor,” Fortum emphasized.

Experts explain the increased interest of investors in the heat supply business, which is considered unprofitable, by changes in legislation. “Additions were made to federal laws No. 115-FZ “On Concession Agreements” and No. 190-FZ “On Heat Supply”. Now private companies can operate heat supply facilities on the basis of lease agreements or concession agreements. These agreements must contain long-term parameters for regulating tariffs, which should ensure the planned return on investment,” explained Nikolai Zakharov, senior lawyer in the Legal and Tax Support practice of the NEO Center consulting group. The head of the directorate for work with municipal projects of the Bank of Moscow, Irina Bulgakova, said that according to Rosstat, losses from heat supply throughout the country in 2012 amounted to 58.1 billion rubles, but at the same time budget subsidies to heat supply companies were provided in the amount of 91.5 billion rubles “Heat supply organizations are now counting on receiving more fair estimates of their costs when regulating tariffs and, as a result, reaching the break-even zone,” the expert is sure.

Maria Polous

"Fortum" did not wait for the warmth