Anatoly Chubais' Column

Head of RUSNANO Management Company Anatoly Chubais: I try to only work with projects that are permanent, that cannot be reversed

13 June 2019

Over the 12 years that I have been working at Rusnano, there have been both very successful projects, and projects that never went ahead, admits Chairman of the Rusnano Executive Board Anatoly Chubais. In an interview with RIA Novosti on the side-lines of St. Petersburg International Economic Forum (SPIEF) 2019, Chubais explained what industrial energy storage is, why the introduction of a carbon tax in Russia is inevitable, how to make wind farms work in the cold Arctic climate, and also shared his opinion on the arrest of Michael Calvey and on the third Yukos case. Interview by Dilyara Solntseva and Mariam Baghdasaryan.

– Let's start by talking about climate change. This is becoming one of the major challenges for Russia and for the world. What measures do you believe are of paramount importance for our country to combat climate change?

– Firstly, it was in fact during our SPIEF climate session when Russia's Special Presidential Representative on Climate Issues Ruslan Edelgeriyev voiced a position that Moscow has taken for the first time, saying that Russia intends to ratify the Paris Agreement, which is extremely important now. Secondly, there is a government decree that outlines an action plan with the steps that need to be taken to ratify the Agreement. One of the key things it does is highlight a set of issues related to measuring emissions. We don't really know how to measure them properly, and it is not an easy task to standardise on a nationwide scale — to create a state system to record emissions.

And this is where the most difficult issue to be addressed starts, i.e. carbon tax. Should the new economic measures be taken to reduce carbon dioxide emissions or not? This will perhaps be the most difficult question to answer out of all the proposed measures to combat climate change.

– What do you think: should a climate tax be introduced or not?

– To answer the question of whether or not it is necessary, you need to answer another question — what does it aim to achieve? And it seems to me that there is a common misconception here when it comes to answering this question. The misconception is essentially that people say: those who are in favour of introducing a carbon tax are against business, and those who do not want to introduce a tax want to protect business. It is only natural to think this way, everyone always reacts in the same way to the introduction of any tax. But I just think that the question has been formulated in the wrong way from the beginning. It should not be about whether we are “for or against” business, or whether “we are for tactics or for strategy”? The way I see it is that it is immensely important to tackle global climate change, which has reached a critical level, so no cosmetic measures will be enough to make it go away.

– Does that mean you're advocating a strategy?

– In the area of climate change — Yes, I am. There is a phenomenon known as carbon protectionism. Not everyone is aware that the European Union has adopted a list of new standards over the past few years to charge an additional tax on goods entering the EU if they do not meet requirements which limit CO2 emissions in production. And while we may think that we have outsmarted everyone and can easily get away with avoiding this tax right now, 5–7-10 years down the line we will see that, as it turns out, we have shut down our own exports, including exports regulated by OPEC. And that is a very painful situation to be in.

That is why I think the sensible thing to do would be to learn the rules of measurement first, to know the limits on emissions, we do not know them yet, and after we have done that, we will most likely have to think about introducing a carbon tax. But my bet would be that the first tax will be symbolic and quite minimal.

– Rusnano signed two agreements in the field of industrial energy storage at SPIEF. What problems will they help to solve in the field of energy?

We believe that industrial energy storage is not a specific area, it is really a massive technological cluster that is unfolding and expanding right before our eyes. We started talking about this three years ago, and the way things look now has proven our theory.

So, what exactly do we mean by this? The electric power industry is organised in such a way that the system needs to produce electricity at the same time when it is being used. To power the light bulbs in this room at Lenexpo right now, the turbines driving the rotation in the generators at Southern CHP (located in St. Petersburg) for example, need to be producing electricity at the same time. If energy consumption increases, more needs to be generated, and if there is a fall in consumption, then less energy needs to be generated.

Being able to store energy fundamentally transforms the entire production cycle in the power industry. You no longer need to maintain maximum power output in order to cover peak consumption, you need to save as much energy as possible to back up the power station's optimal power output.

We feel that the two agreements that were signed at SPIEF are the first two solid steps towards the introduction of storage technologies. And by the way, I must express how thankful I am to Russian Railways and to Oleg Belozerov in particular for recognising the scale of the energy efficiency problem and for the action they have taken in response to it.

– Is it possible to introduce storage technologies without any support from the state?

– The pilot project being implemented with Russian Railways is just one example of the practical steps that can be taken to introduce energy-storage devices without state support. Russian Railways is acting as a business here, and business says: this is good for us.

– Tell us about how you are working with the Danish company Vestas, which supplies equipment for wind turbines to generate wind power. And are you planning to work in the Arctic, have you already made progress in this direction?

– Vestas is not just a company with a great reputation, it is the largest wind turbine company in the world. Vestas controls a third of the world market, and it is a technological trendsetter. We have developed very close business relations on the Russian market. We have been through a long and arduous journey together to create a new cluster — we built three outstanding wind farms in Russia, nothing like these had ever been built before, and now we are thinking about what our next step should be.

We have signed an agreement which aims to make use of Russian innovations to upgrade wind turbines. We see that our portfolio companies have a variety of technologies to offer which could be integrated into the Vestas technology platform to significantly improve the product.

Let me give you an example. Our major interest in terms of developing wind power is the North. I am absolutely certain that the Russian North is a unique region with a great potential for wind power. First of all, its natural potential has been measured and proven. Secondly, all of the projects that are currently being implemented in the Arctic are serious investments that Russia is beginning to roll out: the Northeast Passage and the ports of course all require a sustainable energy infrastructure. I strongly believe that we need to make a strategic move away from those outdated diesel generator power plants — they are a sorry sight, sad enough to bring a tear to the eye of anyone who looks at them — we need to make the transition to modern forms of energy, including renewable energy.

From a technological point of view, we need what we call the northern version of the wind turbine, Vestas already offers a solution, but it is intended for temperatures no lower than minus 45, but operability needs to be guaranteed at minus 55–60 in the Arctic. One of the ideas we're working on with Vestas is adding single-walled carbon nanotubes to paint, which would make material electrically conductive. If this type of paint was used to coat the surface of the equipment in the turbines, and if a minimal level of a current was passed through the surface, this would create resistance, and thermal heating would be able to prevent ice from building up on the surface of functioning equipment. The team from Vestas is very interested in this technology. Colleagues in Denmark will begin pilot tests soon, and then I hope that the technology will be used in the industrial setting.

– This year?

– We won't be able to have it ready for this year, this is a serious task. But we will definitely start working on it this year.

– Rusnano's net losses according to Russian Accounting Standards (RAS) in the first quarter of 2019 amounted to 2.5 billion roubles, compared with a profit of 655.58 million roubles in 2018. What are these figures a reflection of?

– You know what? If you look at our financial dynamics over the past five years, we have finished every year with a profit. This is despite the fact that there were cases where quarterly and half-year reports showed clear losses. This is due to two factors. Firstly, business in innovative areas is inherently irregular in comparison to traditional sectors of the economy. All the output from projects is generally seen in the third or fourth quarter. Exiting projects is when we gain our main source of income as an investment fund, and so this revenue has a direct impact on profits. So I am not very concerned about a loss in the first quarter. And it is more important for us to come out of the year with a profit, though it isn't an easy task. Let's hope it works out.

– You planned to pay dividends at the end of last year…

– Yes, we did plan to pay them, and it is already clear that we will. According to a proposal we have submitted, the dividends we expect to pay the state will be record-breaking, and they will exceed the dividends paid last year. The relevant directives for voting by the Board of Directors are currently being considered, and the final decision will be made by the shareholder. But we expect that our proposal will receive support.

– You have previously said that Rusnano intends to significantly increase the amount of private investments it makes to develop the domestic Russian nanotechnology industry in 2019, what level of increase are we to expect? How exactly does the company intend to achieve these goals?

– Of course we are planning to increase investment, this is the main area our business focuses on. I can't talk about wind power without touching on composite materials, including carbon fibre, which falls under the nanotechology industry. The world market for carbon fibre nanocomposites in wind power is now larger than the market it has in the entire field of aviation, so we have gone into this industry and are working with Vestas to localise production. Having the world leader in wind power taking part in joint ventures for the production of energy equipment is a private investment in the nanotechnology industry in and of itself. We have already opened factories where nacelles, towers and blades are produced for wind turbines. This year, ourselves and our partners are planning to give the green light for the construction of a new wind farm and the localisation of the most structurally complex material for blades — pultruded profiles. This is quite a significant investment in total.

– Are you planning to continue with it this year?

– At the end of 2018, we had managed to attract more than 58 billion roubles worth of third-party funds for new investment funds being managed by Rusnano. We will have a KPI for this year as well, we don't have a figure yet — but we will announce it as soon as we do. Although it is a very difficult figure to call. But based on the talks that I have had at this forum alone, there are enough reasons to be confident that we will try to implement it.

– Talks with Russian companies?

– Russian and international companies. Talks with leading global companies.

– According to previous reports, Rusnano and Gazprom are planning to create a fund for joint work on developing the market for gas use in vehicles. When will this fund be established? What exactly will it be used for?

– Yes, that is correct. Gazprom came to us with this proposal, we studied the market outlook, and realised that this is a really interesting area of technology. In general, we believe that there are two major technological trends in transport: the first trend is going electric, and the second is gas fuel. We would therefore like to look into both of these areas.

We took up Gazprom's offer and worked out roadmaps for two different regions in Russia — the Rostov and Belgorod regions — we found local partners who we are prepared to work with in this serious area, we organised a structured fund, and received approval from Rusnano's Board of Directors. Now the ball is in Gazprom's court: if Gazprom confirms that the company is ready to be our partner and participate in the fund, then the project will go ahead. We are waiting for their decision.

– Let's return to the figures on financial performance. Rusnano placed its securities on the Russian market at an energetic pace last year, do you plan to keep up this tempo?

– Yes we do, an event took place in the debt market which is important for us. We attracted a five-year loan without state guarantees for the first time last year. And this year we had a successful listing of exchange-traded bonds without state guarantees among a wide range of investors. The favourable financial results of 2018, as well as high credit ratings from the agencies Fitch and Expert RA contributed to the success of the listing. It was really important for us to see how the financial market would assess us as an independent issuer, because it was the first time we had entered the free credit market, where people are prepared to risk their money. As a result, we received the amount of money we needed, the amount we had sought — 4.5 billion roubles, and moreover, there were more people who wanted to buy our debt than our organisers had expected, there was an oversubscription.

The funds were raised on favourable terms, and this gave us a very important signal. We will continue to enter the market with new issues under favourable conditions.

– Can you tell us which projects you deem to be the most successful at Rusnano?

– I will tell you the two most successful projects. The most successful project in our portfolio today is probably OCSiAl. It is the first “unicorn” in the real sector with Russian roots, valued at a billion dollars. The first synthesis facility for single-walled carbon nanotubes was built in Novosibirsk.

Another example of a successful project would be one in the sphere of B2C — our network of medical centres located in 11 different cities, which use PET technology for early cancer diagnosis and for diagnosis and treatment in cardiology and neurology. We are really proud of this project. It's not so much about the financial results, although they are fairly decent. I feel that the most important thing is that over 100 thousand people in Russia have been able to receive a high-precision cancer diagnosis while it is still in the early stages. And another very important point is that not only has the project itself been a successful, but after we sold our shares, the buyer returned to us with a proposal to work together to further expand the project to cover another 20 regions in Russia. And we will move from cancer diagnosis to start looking at treatment as well, which is within the national projects.

– What about unsuccessful projects?

– I'll tell you a story I haven't talked about before. In large industrial sectors, revolutionary technological shifts (such as nanotubes, for example) are not common, but they do happen. In lighting, a transition has been taking place right before our very own eyes over the past 20 years, a transition towards the mass use of LEDs, because they are several times more efficient than incandescent light bulbs. This is across the board, in industrial, domestic, street and special lighting. We and our partners invested in setting up a factory in this area in St. Petersburg, and it is up and running. But unfortunately, we found that we couldn't deliver a comprehensive solution in this industry. The industry involves a set of technologies, the most important of which is the creation of heterostructures, and we could not compete with China in this department in terms of the scale of its market share, and perhaps also due to the project's own shortcomings. And I'm terribly sorry that we have not been able to generate enough demand for technology that Russia has created.

– I have a couple of questions which are not directly related to your business. The NTV channel produced a documentary based on materials from the Office of the Prosecutor General of the Russian Federation, who have initiated a new investigation into Yukos and are trying to prove that Mikhail Khodorkovsky privatised Yukos illegally and withdrew $ 51 billion from Russia. You have been referred to as “the father of privatisation”, in your opinion, could this case signal the beginning of a re-examination of major privatisations in Russia?

– Out of the question, it would be absolutely impossible. No leader would make that kind of decision. Let me refer to the opinion of a far more “authoritative” expert than myself — Gennady Andreevich Zyuganov. In 1995, Gennady Zyuganov said that if someone decides they want to reverse a case of privatisation, the clatter of machine-gun fire will resound across Russia, from Vladivostok to Kaliningrad, and we cannot let that happen. I agree with him, there is no going back.

A negative character trait I have is that I try to only work with projects that are permanent, that cannot be reversed I'm not interested in projects that can be undone.

– SPIEF 2019 took place as news unfolded of Michael Calvey's case. This whole situation, Calvey's absence at the forum — is this a bad sign for the investment climate? Should he have been released for the forum?

– I was one of the people who vouched for Michael Calvey. I know him as one of the most respected people in the industry. I know him as the person who brought billions of dollars into Russia, and this is what he has received in the end. The most concise and accurate assessment of this situation was a word which was spoken at the forum that came from the lips of Andrey Makarov and Oleg Tinkov. That word is “shame” — it hits the nail on the head, there is no other word for it.

If we are talking about whether or not he should have made an appearance at the forum, I have a completely different position. Just imagine Michael being escorted there by officers from the Russian Federal Penitentiary Service! It would be twice as shameful for the investment climate.

The fact that the Kremlin called Calvey a trustworthy businessman is a good sign and means a lot in our real political system. But if you look at the trend, it seems to me that the Russian authorities have realised that the scale of the damage this case has caused cannot be compared to anything that has ever happened before. In my opinion, the situation has taken a turn and is now moving in a positive direction. That is something I am personally very happy about.

Source: RIA Novosti, 13.06.2019