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Belarusian energy industry borrows to modernize its facilities

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April 22, 2016 18:06

By 2016 Belarus plans to spend more than USD 5 billion on the development and modernization of the Belarusian energy system, Deputy Energy Minister Mikhail Mikhadyuk said.

This amount has been budgeted in the State programme for the development and modernization of the Belarusian energy system, recently approved by the government.

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The Government has increased funding within the state programme from USD 3 billion in the last five years to USD 5 billion for the following five years. It has also amended the objectives of the new programme: it does not focus any more on the reliability of the Belarusian energy system, but on a significant increase of the production efficiency and reliability of electricity supply to customers. During 2011-2015 it is projected to commission around 2.5 GW of high output generating capacity and to close down 1.8 GW of inefficient capacities, thereby reducing the depreciation of fixed assets of the energy system by 40%.

These changes are logical, main assets age rapidly; despite of the cheap gas, the cost of the electricity production could not be reduced. At the same time, having signed the agreement on Common Economic Space with Russia, Belarus has reduced the urgency of reliable supplies of energy resources, at least in the short run.

Major modernization works will be held in Lukoml and Bereza hydro power, which managed to attract Chinese concessional loans for the construction of two new power units with generating capacity 400 MW each. The programme envisages modernization of Minsk hydro power-2, hydro power-3, Bobruisk hydro power – 2, Mogilev hydro power – 1 and a number of other hydro powers before the end of 2016. World Bank loans will be used by enterprise Belenergo to upgrade boilers PK-3 in Borisov and RK-3 in Mogilev with generating equipment to convert them into mini hydro powers.

Also, talks are ongoing about the construction of wind farms in Belarus with overall capacity of 60 MW.

Therefore, the Belarusian energy system is being upgraded mainly due to the Chinese loans, which deteriorates already poor financial state of the Belarusian energy system. All companies of the Belenergo group and Belenergo itself are generally unprofitable. Energy tariffs for the population are extremely low and their increases are associated with the growth of social tension. Moreover, Chinese loans need to be serviced and repaid, while there are no funds for it. Thus, the Belarusian energy system (primarily generation) is the next candidate for privatization and by the virtue of its unprofitability – at low cost. It will be bought out either by Russia’s Gazprom (Gazprom’s Deputy Chairman Andrei Kruglov said on 23 March, the whole Belarusian energy sector and electricity production in particular, was in the interests of Gazprom), or by RAO UES.

As for the plans regarding the development of alternative energy, they are yet only projects and desires. There are no funds for their implementation inside the country and no rush on the part of foreign investors, despite of the higher tariffs on green energy. This could be explained by a generally complicated economic situation in the country and by the unfavorable investment climate, as well as by specific problems, for example, the failure to build a wind farm by a German company ENERTRAG was due to the position of the Ministry of Defense (wind mills block the radar’s operation), local bureaucracy, etc. Accordingly, the development of alternative energy is slow and also mainly at the cost of borrowings, rather than investments. The energy industry of the country might soon become insolvent, if it continues borrowing at a pace.

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