Anatoly Chubais' Column

Interview with Head of RUSNANO Management Company Anatoly Chubais on the future of electrical transport in Russia, broadcast on RBC TV

07 June 2019

Presenter: - As part of the Saint Petersburg International Economic Forum, Rusnano, Russian Railways and Transmashholding have signed an agreement on the development of environmentally friendly shunter locomotives. What type of locomotives will these be, when are they going to be introduced, how competitive will they be in terms of cost, and how much more will they cost than conventional models?

Anatoly Chubais:  - Well, I think most people have a mental image of a shunter locomotive as very noisy diesel-powered machines that move forwards and backwards belching forth clouds of smoke. It’s important to bear in mind that these locomotives are generally used either in shunting yards in cities, or railway terminals just outside cities. So when Russian railways said that they are very interested in working on hybrid locomotives, this was a serious matter. As matters stand at the moment, it is not really feasible to completely get rid of internal combustion engines, but we are interested in the idea of replacing them with hybrid engines which will run primarily on electricity.

Transmashholding is a well-known and respected company and it is a key player in this sector in Russia. And we are looking into this matter very seriously, as well. The main component of these locomotives is the battery, and batteries are something that we, and specifically our Liotech factory, specialise in. And yesterday all these things came together at last, enabling us to sign this document with Oleg Belozorsky [editor: Chairman of the Board, Russian Railways] and the head of Transmashholding [editor: Kirill Lipa]. This is a serious long-term project. It will continue at least for 4-5 years: with a prototype, then the construction of pilot models for test operation, and then production. The document we have signed sets out specific deadlines and tasks for each of the participants.

- And it will take about 5 years?

- Yes, that’s right.

- And what about the price - how much more expensive than the current models will they be, or is it too soon to say?

- Russian Railways has quite specifically and firmly stated that if both the price itself, and the price in relation to the total usage period of the equipment, are competitive, then the whole project will be worth while. This is a standard problem with innovative technology: the equipment itself is more expensive, but the costs are recovered over its operational lifetime.

- But the initial stage needs some investment.

- Naturally. You invest in the project, and thereby enable it to break even. The fact that Russian Railways is the initiator of the project is important: it acts as an external operator, setting the condition that, over the shunter’s whole operational lifetime, it must be cheaper that a conventional model. And it will also have the added benefits of being environmentally friendly and quieter.

- I keep asking about the price, because it seems to me that the high cost is the one factor, above all others, that is holding up the development of the electric transport sector in Russia. Many of our cities have said that they are not interested in tram and trolleybus routes because diesel buses are cheaper.

- Yes, that’s true, but let us look at the issue from a wider perspective, instead of the picture at a single moment let’s look at the overall tendency, the way things are moving. The fact is, that the switch to electrical transport is now recognised as a global trend. Electrical engines have been around for a hundred years. And this is not just about electrical engines - which, by the way, have an efficiency index of 95% - it is also about batteries: people have developed ways of storing electricity. Batteries are becoming a disruptive technology, they are causing existing standards to be abandoned and transforming inefficient processes into efficient ones. Currently, any new development in technology needs both support and investment. An absolutely fundamental law applies here: as the technology is developed, the unit price decreases. This applies to batteries as to anything else. If we look at trends over the last 5-7 years, people are upgrading technological equipment fairly often, and, as a result, prices are falling. The cost of storing one kW⋅hour of electricity is going down - that is a verifiable fact. That is, the main factor in performance is getting cheaper. In this sense we are part of the general trend, and I consider it important that Russia becomes a part of what we call the electric transport movement. By the way, you talked about affordable prices: that’s exactly why we have subsidies in Russia. An electrical bus may cost 30 million roubles, but the government can provide 17 million roubles of that sum. These projects are subsidised out of the federal budget. The federal government is well aware of the current trend, and has made appropriate adjustments to the country’s economic policies. But the subsidies are still rather small.

- So far, that only applies to Moscow, which plans to get rid of buses with internal combustion engines entirely and replace them with electric buses by 2021, other cities can’t afford to do that yet.

- I would put it slightly differently. Moscow is showing the way. What Sobyanin has achieved in this area is a real breakthrough. A major breakthrough, a transformation. What we are now seeing is that other cities are starting to follow Moscow’s example. Saint Petersburg, my native city, is adopting a different approach: instead of electric buses it is introducing trolleybuses which can operate independently of the power grid for extended periods. And then there’s Novosibirsk, where our main factory, which makes the batteries, is located. We are currently negotiating the acquisition of either long-range trolleybuses or electric buses fitted with our batteries.

- It took you a long time to get that factory up and running...

- Yes, it was a long and difficult project. We worked hard on it for 4 years, it was a difficult project which went through a major crisis. But, as a result of our efforts it has been rescued from bankruptcy. We are discussing the project with the governor of Novosibirsk Region and, working together with the support of the regional authorities, we have a good understanding of the demand for the project and the strategy for its development.

- But, all the same, whether it comes from the regional authorities or from RUSNANO, in the end it’s still government money. How competitive will this project be on the open market? Or is it still too early to say?

- It is true that we are still only at the beginning. You cited the example of KAMAZ, but we haven’t yet developed a product with KAMAZ, that is something we are just starting on. And you also cited Russian Railways as an example. As I said, and I’m quite open about this, the project is going to take about 5 years. So we’re not yet in a position to produce and distribute hybrid batteries. Yes, we can supply long-range batteries for trolleybuses, and, soon we’ll be able to do the same for electric buses. But that is just the beginning. In this context it’s important to determine two things: firstly, we need a range of vehicles that will be in real demand in our country, and secondly, we need to set economic limits on the vehicles’ technological components and do exactly what we’ve been talking about - reach a point where, all things considered, Russian-made equipment can compete with equipment made in China.

- Do you mean protectionist measures?

- No. Let me make this clear: in all that I have said, I have not once used the word “protectionism”. And what I have to say about customs policies is not connected to protectionism either. And, by the way, Russia is a member of the WTO. We have strict limitations on the use of protectionist measures. But there isn’t a single country that would implement a customs policy that discriminates against its manufacturing sector. So, there is a big difference between having a rational customs policy and protectionism. We are against protectionism, but we are in favour of a rational customs policy.

- Anatoly Borisovich, if we could just return to the subject of trolleybuses and electrical transport in cities. In many cities the municipal unitary enterprises owe a lot of money to the electricity companies, which is one of the reasons why they have had to abandon this type of transport. In your opinion, how could this problem be resolved?

- In my view, these debts which consumers, including the municipal unitary enterprises, owe to the electricity companies are a symptom of a systemic failure in economic policy at both a federal and a regional level. Let’s start by looking at the end user. Our country has some of the lowest electricity prices in the world. And if a real business, including a municipal enterprise, is unable to pay for the electricity it uses, then, as Mikhail Mikhailovich Zhvanetsky said, “Maybe something’s wrong with the Conservatoire.” Maybe something is wrong with the management of those companies? Maybe there is something strange about an approach to management that allows a company to choose whether to pay or not? Maybe, with a strategy like that, it will always be more convenient not to pay, but to get into debt and, in the end, be declared bankrupt and then start up again under a new name? Maybe it’s time to put an end to this practice?

How is it that in 2008, at the end of the market reforms, there was 100% payment of bills in even the most financially disadvantaged regions, including Chechnya, while now payment rates have fallen to 70, 60, or even 50%? Is that really of any use to anyone? Who is going to work? To take responsibility for this problem? Let me repeat this, if you create a system situation in which there is a choice about whether to pay, or not to pay, then - and I’ll give you three guesses - which option is your customer going to choose? It’s not hard to predict what will happen.

The root of the problem is, that in this area our economic policy is very lax. We need to get our house in order, and everything will start running properly.

- And what specific measures do you propose?

- Quite simple, we need to stop these repayment holidays. You may talk about cutting off customers with unpaid bills, I would call it putting a stop to repayment holidays.

- Call in the debts, and somehow squeeze the money out of these poor municipal unitary enterprises?

- There are procedures for doing this, methods that mankind has developed and which are used in Russia. They are called seizure and sale of assets, and payment of debts owed to creditors.

- The situation has reached the point where even social organisations have unpaid debts. Of course, for them, putting a stop to repayment holidays...

- Who said anything about that? Who said that? Let me say this again: in 2008, when GNP per capita was about 30% lower than it is today, the whole country, including the most disadvantaged regions, paid for its electricity. We had got our house in order. But, what else is to be expected when we have created a situation in which you have a choice: if you pay your bills, that’s great, if you don’t pay, that’s also great. In a situation like that, what is the consumer going to do? Try and guess. This gaping hole in our economic policy is absolutely absurd. This is the root of the problem, and we need to deal with it.

- Let’s get back to a less contentious subject. Let’s talk about electrical cars, for example, and return to those lithium-ion batteries. Do you see any grounds to expect a significant fall in the cost of this form of transport, and of these batteries, in the near future?

- I think that if we look at electrical passenger transport as a whole, then yes, it’s very clear that that is going to happen, but the “passenger transport” sector is made up of many different segments and has lots of elements to it. And in converting to electrical power, we need to start with the right segments, not try and start with the wrong ones. Let me explain. For example, it’s no secret that heavy-duty vehicles such as KAMAZ trucks already use electrical propulsion as one of the elements in their energy mix. And BELAZ construction trucks also use electricity. So the “electric motor - wheel” drive is already in use in heavy-duty BELAZ trucks. In that segment the technology has been proved to be effective. And then the next level to look at is public transport in cities. This has been proved to be effective in both Moscow and Saint Petersburg. It would make no sense to start with Ladas, which are the cheapest, most mass-market cars of all. In my view, that segment of the market will be the last, and not the first, to convert to electricity. But it will transfer in time, yes, that will also happen. But it would be a mistake to try and rush things before the market is ready.

- Anatoly Borisovich, thank you very much! We started with steam engines, and we’ll finish with steam engines. Anatoly Chubais, head of RUSNANO, in RBC’s mobile TV studio, during the Saint Petersburg International Economic Forum.

Source: RBC-TV, 07.06.2019