NEDO-IC-99R07
Feasibility Study on the St. Petersburg City Heat & Electric Cogeneration Plant No.2, etc. Scrap & Build Project
March 2000
NEDOBIS E99007 New Energy & Industrial Technology Development Organization
020004894-0 Contractor: Mitsui & Co., Ltd. St. Petersburg City Heat & Electric Cogeneration Plant No.2, etc. Scrap & Build Project
Contractor: Mitsui & Co., Ltd.
March 2000
Purpose of the Study
In accordance with the United Nations Framework Convention on Climate Change, the Japanese government plans to achieve its reduction target of green house gas emissions through various approaches, including the participation in Joint Implementation projects among advanced nations. As part of such plans, Mitsui & Co, signed a protocol with LENENEGRO (Leningrad Province Public Electric Power Corporation) concerning surveys on St. Petersburg City Central Heat & Electric Cogeneration Plant (hereinafter referred to as "Central Heat/Electric Cogeneration Plant").
The Central Heat/Electric Cogeneration Plant began operating in the 1910s. With its facility and equipment being severely antiquated, the plant's efficiency and operation rate are dropping considerably in recent years. The modernization of the plant is urgently needed. This survey project intends to improve the efficiency of the plant and reduce its emissions of green house gases by scrapping superannuated equipment and building a new gas combined cycle cogeneration facility.______NEDO-IC-99R07
Feasibility Study on the St. Petersburg City Heat & Electric Cogeneration Plant No.2, etc. Scrap & Build Project
March 2000
New Energy & Industrial Technology Development Organization Contractor: Mitsui & Co., Ltd. Preface
In December 1997, the third session of the United Nations Framework Convention on Climate Change (COP3) was held in Kyoto, Japan. At this session, the parties to this convention adopted Kyoto Protocol to prevent global warming caused by the emission of carbon dioxide and other green house gases. Under the Protocol, the developed country parties agreed to aim at reducing their respective emission levels at least by 5% from 1990 levels during the period between 2008 and 2012. Japan's emission reduction target was set at 6%.
In order to provide some flexibility in achieving the targets, Kyoto Protocol stipulated the inclusion of the results from Joint Implementation (JI) and Clean Development Mechanism (CDM). JI is a program in which the reduction amount of greenhouse gases is shared among developed countries that participated in specific joint projects to achieve such reduction. CDM is a cooperation between developed and developing countries. Japan plans to actively participate in these programs to meet its target.
New Energy and Industrial Technology Development Organization of Japan (NEDO) offers a feasibility study assistance program for Japanese corporations that try to examine the details of such projects that help the reduction of greenhouse gas emissions through the adoption of Japanese technologies for energy conservation and alternative energies to petroleum and that contribute to the sustainable economic development of the recipient countries of such projects.
Mitsui & Co., Ltd. was entrusted by NEDO to study the feasibility of the joint modernization project of the Heat/Electric Cogeneration Plant No.2 in St. Petersburg City and other facilities in the Russian Federation. This document was drafted to report the findings of our site surveys and analysis afterwards.
We sincerely hope that this study will help Japan's efforts in preventing global warming through Joint Implementation and contribute to the reduction of greenhouse gas emissions and vitalization of the electric power industry in Russia.
March 2000 Mitsui & Co., Ltd. CONTENTS Outline of the Project
Chap.l Basic Facts of the Project 1-1 General Information about the Russian Federation 1-1-1 Government, Economy and Society 1-1-2 Energy 1-1-3 Need for the Joint Implementation 1-2 Necessity for Adopting Energy-Saving Technology 1-3 Significance, Necessity and Effects of this Project and its Impact on Electric Industry
Chap.2 Project Plan Actualization 2-1 Project Plan 2-1-1 Overview of the Targeted Proj ect Area 2-1-2 Project’s Content 2-1-3 Greenhouse Gas Emissions 2-2 General Outline of the Project Site (Enterprise) 2-2-1 Project ’s (Enterprise ’s) Interests 2-2-2 Project Site (Enterprise) Equipment and Facilities Conditions 2-2-3 Project Implementation Potential 2-2-3-1 Technical Capabilities 2-2-3-2 Management 2-2-3-3 Management Base and Business Policy 2-2-3-4 Capabilities to Withstand Financial Burden 2-2-3-S Personnel Issue Capabilities 2-2-3-6 Implementation System 2-2-4 Post-implementation Specifications of the Project Site Facilities 2-2-5 Scope of Financial Resources, Equipment and Services to be provided for Project Implementation by Participants 2-2-6 Preparations and Points of Consideration for Project Implementation 2-2-7 Project Implementation Schedule 2-3 Financial Plan Actualization 2-3-1 Financial Plan for Project Implementation (necessary funds, fund raising methods, etc.) 2-3-2 Fund Raising Forecast (execution plan of the organization commissioned to study the fund raising issues and the project site (enterprise))
2-4 Points of Consideration Concerning Joint Implementation 2-4-1 Setting of project implementation conditions, work responsibilities, etc. according to the projects site realities 2-4-2 Issues to be Coordinated with the Counterpart Country for Practical Joint Implementation 2-4-3 The Possibility of Approval of Joint Implementation Approach for this Project Chap. 3 Project Efficacy 3-1 Energy-saving Effects 3-1-1 Technical Bases for the Energy-saving Effects Being Generated 3-1-2 Baseline that Serves as the Foundation for Calculating the Energy-saving Effect 3-1-3 Specific Volumes, Period of Generation, and Cumulation Volumes of the Energy-saving Effect 3-1-4 Specific Method for Confirming the Energy-saving Effect 3-2 Effect of Reducing Greenhouse Gases 3-2-1 Technical Bases for the Effect of the Reduction in Greenhouse Gases 3-2-2 Baseline that Serves as the Foundation for Calculating the Effect of Reducing Greenhouse Gases 3-2-3 Specific Volumes, Period of Generation, and Cumulate Volumes of the Greenhouse Gas Reduction Effect 3-2-4 Specific Method for Confirming the Greenhouse Gas Reduction Effect (monitoring method) 3- 3 Effects on Productivity
Chap.4 Profitability 4- 1 Economic Effects of Reduction on Investment 4-2 Project ’s Cost Effectiveness (energy saving and greenhouse reduction results) 4- 3 Others
Chap.5 Confirming the Effects of Propagation (Broader Use) 5- 1 Possibilities of Wider Application in Countries Targeted for the Technology Introduced through this Project 5-2 The Result of Taking Wider Application into Considerations 5-2-1 The Effects of Reduced Energy Consumption 5-2-2 The Effect of Reducing Greenhouse Gases
Chap. 6 Influences on Other Elements (effects on other environmental economical, and social aspects) Conclusion
Attachments
1. Bibliography 2. Protocol concluded at the first visit 3. Technical Assignment 4. Protocol concluded at the third visit Outline Outline of the Project
The "Central Heat-Power Station" which is the target of this study, is a general name for three heat/power generation plants situated in the central part of St. Petersburg City. This Station is operating since 1897, actual facilities are manufactured between 1931 - 1985, although the power generation capacity was originally designed at 109 MW, the facility of this station is so antiquated that it is able to supply only 80% of the capacity at the most with its heat efficiency being extremely low. Supply shortages are currently supplemented by other heat/power stations in neighboring areas.
The survey team visited and studied relevant sites between September 23 and October 2, 1999 and again for a 16-day period beginning on December 7, 1999. The team drafted an improvement plan afterwards and presented it to the Russian counterpart (LENENEGRO, a parent entity of the Central Heat-Power Station) during the period between February 28 and March 4, 2000.
Based on discussions with LENENEGRO representatives, it was decided that the proposed combined-cycle cogeneration facility would contain three 67MW-class gas turbines, three heat recovery steam generators (HRSG), and one back-pressure turbine to achieve the generation capacity of approximately 200MW and heat supply capacity of 200G cal/hr. The total investment required for this project is about 140 million dollars. The construction work is estimated to take 36 months.
It is estimated that the implementation of this project will reduce 1,481,979.0 tons of CG2 per year, or a total of 40,013,434 tons in 27 years after the commencement of operation. In addition, the generation terminal efficiency will be improved from the current 18.68% to 41.0%, which translates into an annual saving of 546,301 tons of crude oil or its equivalent.
Since the currency crisis in July 1998, domestic consumer prices have been kept low in relation to the depreciated Rubles. This has been particularly true with electric and heat charges in comparison with international standards, as they are the necessities of economy and life. Therefore, at the current exchange rate, the financial feasibility of this project would be very low. 8.582% FIRR after tax would be regarded rather low if this were a purely commercial project. However, considering the fact that it is an environmental improvement project aiming at reducing the emission of carbon dioxide, etc. to prevent global warming, the figure should be rated highly.
If implemented, this project is estimated to annually reduce 6,117.51 tons of NOx , 6,146.57 tons of SOx , 1,571.78 tons of soot, and other environmental pollutants. It will become a model plant for urban-type heat-power stations in Russia and provide a foothold in disseminating new technology to other plants, thereby spreading more efficient combined- cycle generation equipment throughout Russia. In recent Russia, greenhouse-gas emission has dropped dramatically since 1990 due to economic recession. However, it will unavoidably increase again if the Russian economy recovers without renewing these superannuated power plants. Thus, it is not a prudent choice for Russia, to use the temporarily reduced emissions of greenhouse gases as tradable emission volume because Russia may have to buy such rights back in the future. It is recommended that modernization of power generation plants in Russia, including this project, should be carried out as Joint Implementation projects with other countries (or organizations) that are trying to meet their reduction targets by assisting other countries.
S-l Chapter 1 Basic Facts of the Project
1-1 General Information about the Russian Federation
The Russian Federation s tretches 2,500 to 4,000 kilometers north and south between lat. 35° N. and lat. 82° N. and 9,000 kilometers east and west between long. 30° E and long. 169 W. Its vast territory lies in the northern part of the Eurasian Continent that stretches long east/westward. It encompasses a land area of 17.07 million-km 2, about 46 times larger than that of Japan. The New Russia, having taken over 76% of the land of the former Soviet Union, has the largest territory in the world and occupies one eighth of the whole land area on earth. Russia faces the ocean to the north and east, the Baltic Sea to the west, and the Azovskoye Sea, the Black Sea, and the Caspian Sea to the southwest. It is otherwise bordered by other countries, namely from the west, Finland, Estonia, Latvia, Belarus, Ukraine, Georgia, Azerbaijan, Kazakhstan, Mongolia, China, and North Korea. (See the Complete Map of the Russian Federation at the beginning of this document.)
With more than 90% of the land being situated above lat. 45 ° N. and having no barriers in the north, its climate is under the direct influence of the Arctic and hardly benefits from the temperate sea currents of the Atlantic and other oceans. The continental climate with short summer and long winter is affecting the agriculture and other industries of the whole country. Only the southern regions around the Central Russia to the West Siberia enjoy mild temperature and humidity. In the regions from the northern part of Russia and Siberia to Yakut, the weather is severely cold and humid. 70% of the population concentrates in 20% of the whole land around the Central Russia.
Capital: Moscow (Population: 8.54 million as of January 1999) Population: 147.1 million (as of 1998) Races : Russian (81.5%), Tartar (3.8%), Ukrainian (2.9%), Chuvashe (1.2%) x Bashkirskayan (0.9%), Belorussian (0.8%), etc. (1998 census) Large Cities and Populations : Moscow (8.63 million), St. Petersburg (4.75 million), Nizhyny Novgorod (13.7 million), Novosibirsk (1.4 million), Yekaterinburg (1.27 milloin), Samara (1.16 million) (1997)
The official language is Russian, the mother tongue of Russians, while other ethnic groups use their respective native languages in their daily lives. According to the survey conducted in 1994 on the usage of language by each ethnic group, 97.3% of Tartars answered that they used Russian at work and 86.2% of them used Russian at school, while 60.8% spoke their mother tongue at home. In the case of Ukrainians, Russian is used by 99.2% at work and by 99.5% at school, and the Ukrainian language is spoken only by 5% at home.
The Russian Orthodoxy is the main religion of this country with estimated followers of 30 to 50 million. There are varieties of other minor religions and sects, including Roman Catholic, various denominations of Protestant, Judaism, Islam, and Buddhism. In actuality, conservative Religious Law enacted in 1997 gave special privileges to the Russian Orthodox Church.
l-l 1-1-1 Government, Economy, and Society
(1) Government
History of the Country The Russian Republic, one of the 15 republics that constituted the Union of Soviet Socialist Republic, declared sovereignty on June 12, 1990. While restarting as a new nation along with the establishment of a Common Wealth of Independent States on December 25, 1991, the new Russia assumed the credit, debt, and the permanent membership of the United Nations Security Council and other positions of the former Soviet Union. It was later renamed as the Russian Federation and remains as such to this day.
Constitution and Political System A new constitution was adopted by the referendum held on December 12,1993. Russia is a federation of republics, regions, and other types of jurisdictions that comprise the nation. It has a semi-presidential government that combines presidential and parliamentary systems. The president exercises his authority in conjunction with legislation (Parliament), judicature (Court), and executive branch (Government). The president coordinates the relations of the three powers within a constitutional limitation and represents the country. The president is elected by a popular vote for a four-year term. Each president is limited to two terms. The president also serves as the Supreme Commander of the Russian Military, assumes the responsibility to protect the country's sovereignty, and sets forth the relationships between the federal and local govenments. Although the constitution prohibits the presidents from exercising his power arbitrarily, he is granted considerable power in reality.
Government and Prime Minister The prime minister is appointed by the president and approved by the lower house. Other ministers are recommended by the prime minister and appointed by the president. The term of the prime minister is linked to that of the president. The prime minister resigns from his position when the corresponding presidential term is terminated. A new cabinet is then formed under the newly elected president.
Parliament (Federal Assembly) According to the constitution adopted in 1993, the Russian Parliament consists of two chambers; the 178-member Federation Council (the upper house) and the 450-member State Duma (the lower house). The members of the Federation Council are the heads of local legislatures and administrations of sub-national jurisdictions, and the members of the State Duma are elected from single-seat or proportional electoral districts. The lower house takes precedence over the upper house. The upper house is in charge of enacting laws, including ratification of agreements and passing of federal budget. The lower house can move a vote of non-confidence in the government, which, however, may or may not be accepted by the president. Thus, the power of the parliament is rather weak compared to that of the president.
The second lower-house election was held in December 17, 1995. As of November 1999, its 450 seats are filled as follows: Communist Party 127, Our Home Is Russia 61 x Liberal-Democratic Party of Russia 46% Yabloko coalition 45% other parties!28, independent 33, vacancy 10.
1-2 The third lower-house election was held in December 19, 1999. After much solicitation of independent members and alignment and realignment of lower house factions, nine factions were officially approved in the new lower house. They are the Communist Party that gained 5% of the votes required to win a seat in a proportional electoral district; The Unity, a newly emerged party; Our Home Is Russia, All-Russian Political Movement (NDR), a left of centrist party; the right-wing coalition; Zhirinovsky Alliance; and Yabloko, a moderate reformist party; as well as newly formed groups, including sPeople's Deputies, Russian Regions, and Agricultural Party.
The new lower house members were summoned on January 18, 2000, and the number of seats allocated to each faction was finalized. The Unity, the right-wing coalition, and other newly emerged parties won a majority of 229 seats. The initiative of the lower house, which was held by the Communist Party and other anti-presidential groups, will be handed over to the ruling party for the first time in the history of new Russia. This will ease political confusion such as rejection of appointed prime minister and impeachment of president by the non-cooperative parliament and will add momentum to reform programs.
The number of seats held by each faction in the new lower house is as follows: (Pro-Kremlin Factions) Unity 81, right-wing coalition 33, Liberal Democratic Party/Zhirinovsky Alliance 17, People's Deputies 58, Russian Regions 40 (total 229)
(Anti-reformists, etc.) Yabloko 21, Agricultural/Industrial Group 36, NDR 43, Communist Party 95, other 17 (total 212) Grand Total 441 (excluding nine seats for reelection, etc.)
The Communist Party's Seleznyov was reelected Chairman of the new lower house. Although the former Prime Ministers Primakov of NDR and Stepashin of Yabloko announced their candidacies, they withdrew immediately before the election, which resulted in Seleznyov's winning a de facto confidence vote for the position.
Members of the upper house used to be elected by popular vote until the adoption of the Upper House Constituent Law in 1995. The law stipulates that the heads of the administrative and legislative bodies of the sub-national districts will be automatically appointed members of the upper house. In the new upper house that resumed in 1996, Stroyev, the Governor of Orlov region, was appointed.
Federation The Russian Federation consists of 89 administrative units: 49 provinces (oblasts), six territories (kraya), 21 autonomous republics, one autonomous oblast, ten autonomous regions (okruga), and two cities of Moscow and St. Petersburg. Unlike the United States that consists only of States of equal status, Russia is a federation of different types of sub national units. Below the sub-national level, there are 1,868 districts and 1,087 cities. Territories are usually ethnic enclaves located in remote areas. However, there are territories like Khabarovsk that calls itself a territory even it has been seceded from a Jewish autonomous oblast.
The Federation Treaty signed in March 1992 outlined the division of powers between the central government and republics, territories, oblasts, and other type of regional
1-3 jurisdictions. It can be said that the administrative structure of the Russian Federation adopts a mixture of the principles of local autonomy and the Leninist self-determination of peoples. Article 5 of the constitution provides that the republics, territories, oblasts, autonomous oblasts, autonomous regions, and cities of federal designation are held to be equal.
Under the 1993 constitution, republics, which used to be referred to as autonomous republics in the Soviet Era, are called "republics (nations)" and granted the rights to have their own constitutions and legislative powers. Provinces, territories, and other sub-units that are legally on an equal footing with republics have the rights to enact their own "charters" and bylaws.
The ambiguous relation between the central government and the regional jurisdictions has been a very complex constitutional and political issue. Independence of constituent republics seeking for sovereignty and self-determination caused the Soviet Union to collapse. However, since some autonomous republics were direct subordinate to the Soviet Union rather than to the Russian Republic in terms of fiscal matters and relationship with the Communist Party, they claimed their sovereignty and secession against the independent Russia and began resisting the reformists' unilateral control over local jurisdictions. In the Post-Soviet era, such self-relying republics supported the reform, but were reluctant to belong to Russia. However, all republics, except for Tatarstan and Chechnya, ended up signing the Federation Treaty in March 1992.
The 1993 constitution enumerates 21 republics. The status of each republic is provided by the federal and republic constitutions. In other words, each sub-unit cannot unilaterally determine its status in relation to the federal government. While the republic constitutions must conform to that of the federal government, these constitutions do not need federal approval because of ethnic and other situations unique to each sub-unit. In fact, such republics as Chechnya, Tatarstan, Karelia, Bashlorotostan, Sakha, and Buryat declared that their republics' laws would henceforth take precedence over those of the Russian Federation.
The complicating relation between the central and local governments reached its peak when the secession movement emerged in some republics led by Chechen and Tatarstan.
Tatarstan adopted a declaration of independence in August 1990. After the collapse of the Soviet Union, Tatarstan government held a referendum in March 1992, and half the voters supported the idea that Tatarstan should become an autonomous and independent entity in view of international laws. Under such circumstances, Tatarstan did not join other republics in signing the Federation Treaty in March 1992. However, after many negotiations, Tatarstan Republic and Russian Federation were able to sign a treaty that stipulated the division of powers between the two govenments. This approach is now called the Tatarstan method and is referred to by other republics as a model case of establishing autonomy.
Chechens are Indo-European mountain tribes that were in constant battle with the Russian Empire in the 19 th century. In 1944, Stalin's genocidal policy virtually erased Chechnya from the map, but during the Khrushchev era, Chechen and Ingush people were permitted to return to their homeland and restore their autonomous republics. Upon the occurrence of the coup in August 1991, the Congress of the Chechen People, whose leader was former Soviet Air Force General Dzhokar Dudayev, came to power. The Congress amended the
1-4 constitution and held a presidential election, in which Dudayev won overwhelming popular support. When Chechnya refused to join the Russian Federation, Russia tried to exercise military power and failed. In March 1992, Chechnya adopted a new constitution based on full autonomy.
Chechnya is comprised of about 130 tribal units called teip. Unlike Ingush people, these tribes are self-governing entities with unique ethnic traditions and spirits. Tribes living on flatlands have different life styles from those living in mountains. Around 1993, these differences caused the republic to split into pro-Moscow and pro-independence groups and the internal conflict within the pro-independence group to intensify. In December 1994, President Yeltsin, on the pretext of eradicating illegal armed forces, dispatched a large number of troops to Chechnya, which led to a war that killed tens of thousands of soldiers and civilians.
Such tragedy was the result of Yeltsin and his advisors' misguided hard-liner approach, such as bombing Groznyy by aircraft. Chechen people's fiery Muslim spirit and their declaration to wage a jihad (holy war) also incurred unnecessary casualties.
For Russia, inclusion of Chechnya and Tatarstan is strategically indispensable, as both republics are rich in oil resources for acquiring foreign exchange.
Chechnya's pro-secession government insisted upon full independence and fought against the Russian army for nearly two years. In August 1996, Security Council Chairman Lebed and pro-peace Chechen Counselor Maskhadov finally signed a cease-fire agreement on condition that Chechen would pigeonhole its sovereignty for five years.
Political Situation of Russia Russian Republic was built based on the reformed former Soviet Union and declared its independence in June 1990. In June 1991, Yeltsin became the first popularly elected president, under whose leadership, unique presidential and administrative systems were developed. However, in the midst of conflict over the Federation Treaty, Yeltsin's unsuccessful coup in August triggered the collapse of the Soviet Union.
In December 1991, President Gorbachev announced his resignation, which marked the end of the Soviet era that had lasted for 69 years. Yeltsin's economic reforms, however, met with numerous oppositions as the conflict among the president, the administration, and the parliament intensified. In December 1992, the People's Deputies appointed Viktor Chernomyrdin to be the Prime Minister. Although Russian people's choice by the referendum in April 1993 to support Yeltsin and disapprove of the parliament seemed to have put an end to the conflict, the hopelessly worsening Russian economy actually increased the tension between the two branches. In September, Yeltsin's forceful announcement to dissolve the Congress of People's Deputies (CDP) and the Supreme Soviet met with strong opposition of the parliament and created a virtual dual power structure. The conflict was finally settled by Yeltsiin's dramatic victory after sending the Russian Army troops to fire on the legislative building. Putting the stabilization of the political situation before the implementation of economic reforms, Yeltsin held a legislative election in December along with a referendum to ask whether the citizens approved of the new constitution. Although the referendum approved of the new constitution by a narrow margin, reformists were swamped by the members of extreme-right Liberal Democratic and Communist Parties in the legislative election, which forced Yeltsin to find a new approach
1-5 to control the parliament.
By adopting a more centrist and communicative approach toward the parliament, Yeltsin managed to bring stability to the political situation until the beginning of autumn in 1994. However, the sudden drop of the ruble in October triggered a severe accusation against the Yeltsin administration, forcing Yeltsin to reorganize the cabinet by incorporating more of conservative views. Also, military intervention in the Chechen civil war that broke out in December became a target of domestic and international criticism, causing Yeltsin to further lose his prestige.
During the "relatively stable" political period in 1995, Russian economy also seemed to have grown out of the critical developmental phase into a period of stability along with a sharp drop of inflation rate and a slowed decline of production. However, negative consequences of the economic reform also surfaced and provided momentum for the Communist Party to win a significantly increased number of seats in the lower house election held in December 17.
All political affairs in the first half of 1996, whether domestic or foreign, revolved around the presidential election in that year. Yeltsin was reelected after a run-off with Zyuganov from the Communist Party.
During this period, the Russian government was administered under the leadership of Chernomyrdin, a successor of Deputy Prime Minister Gaydar. Despite constant changes in cabinet members, Chernomyrdin, with Yeltsin's support, was able to remain in his position and re-appointed Prime Minister after the 1996 presidential election.
In the spring of 1997, the cabinet underwent major reorganization under the leadership of Yeltsin who had recovered from a once critical health condition. He appointed Chubais to be the first deputy prime minister and selected another young politician Nemtsov, then the Governor of Nyshniy Novgorod Oblast, to facilitate reforms towards market-based economy. Yeltsin signed the NATO-Russia Basic Accord in May to establish a cooperative relation with NATO. In November, after a talk with Japanese Prime Minister Ryutaro Hashimoto in Rrasnouralsk, they agreed upon signing a peace treaty to be effective until the year 2000.
In 1998, as Yeltsin's leadership quickly weakened, he was forced to reshuffle the cabinet twice in the same year. At the end of March, Chernomyrdin, who had served many years as the Prime Minister since 1992, was removed from his position. Under the newly appointed Prime Minister Kiriyenko, the former Fuel & Energy Minister, a more task- oriented cabinet was formed. However, he was removed from his office upon being held responsible for the financial crisis in August. The strife between Yeltsin and the parliament continued over the approval of Deputy Prime Minister Chernomyrdin, which was finally settled when Deputy Foreign Minister Primakov was appointed new Prime Minister in September. In October, general strikes demanding Yeltsin's resignation broke out in many parts of the country. Yeltsin developed pneumonia and was hospitalized in November.
In January 1999, Yeltsin was hospitalized again for the treatment of stomach ulcer. In April, the president ordered to arrest Berezovsky, the former CIS executive secretary, for misappropriation of funds of state-owned Aerofloat Airline, whose president was the
1-6 husband of Yeltsin's first daughter Elena. In May, Yeltsin removed Prime Minister Primakov and appointed the Interior Minister Stepashin to be his successor. In August, Yeltsin dismissed Stepashin and all other Ministers, appointed Putin the Deputy Prime Minister, and declared that Putin was the official successor to Yeltin as the president of Russia. In September, the Russian Army began attacking Chechnya again. In November, Yeltsin was hospitalized for the treatment of pneumonia for the fourth time.
On December 19, a lower house election was held for the third time in new Russia. According to the report issued by the Russian Central Election Administration on December 30, the Communist Party remained in the first position by winning 113 seats. Our Home Is Russia, the left of centrist anti-presidential party, also did well by securing 68 seats. The Unity, a newly formed pro-government party, increased their seats to 72, and the right- wing pro-government coalition was able to secure 29 seats. These pro-government representatives formed a central force to support the President Yeltsin-Prime Minister Putin line. In small electoral districts, big political figures were elected one after another, such as Berezovsky, who controlled newly emerged plutocracies from behind the scenes, and the former Prime Minister Stepashin. The former Prime Minister Chernomyrdin won a seat in Yamal-Nenetski Autonomous Oblast, and two other former Prime Ministers Primakov and Kiriyenko also won in proportional electoral districts. Thus, the new lower house will have several representatives who have served as the Prime Minister of the Russian Federation.
In the Moscow-City mayoral election held simultaneously with the lower house election on December 19, Luzhkov was reelected by winning 71.5% of the votes according to the vote count announced in the morning of December 20. This was a slight drop from the previous mayoral election in 1996 when he won 88.5%. Radical reformist Kiriyenko of the Right-Wing Coalition earned 11.4%, and Borodin, The Director-General of the President's Office, obtained 6.1%.
On December 31, Yeltsin, in his TV speech, said "Russia must enter the new millennium with a new political leader." He officially resigned from presidency by signing a presidential decree to forfeit his presidential authorities as of noon that day. Prime Minister Putin was appointed Acting President. On the same day, Putin issued a presidential decree that would secure the safety and social status of Yeltsin and his family after his resignation. The end of Yeltsin regime that had led Russia's politics and economy through tumultuous years since the collapse of the Soviet Union in 1991, marked another important turning point for Russia.
Advanced Presidential Election Due to the sudden resignation of the former President Yeltsin on December 31, 1999, the next presidential election then scheduled to be held in June 2000, was brought forward to March 26, 2000. Putin won this election and will be officially inaugurated as the second President of the new Russia in early may. This presidential election was fought among eleven candidates, including Putin, Communist leader Zyuganov, and Yabloko leader Yavlinski. As of 7:00 p.m. on March 26 (Japan time) with 95.5% of votes being counted, Putin won 52.64% of the votes, followed by Zyuganov (29.34%) and Yavlinski (5.84%). Since Putin won more than 50% of the vote in the first round, his presidency became official according to the electoral provisions.
Putin's overwhelming victory in the first round indicates that he now has the public support
1-7 and a solid political foundation for him to exercise enormous power. In the lower house election held in December 1999 prior to the presidential election, Putin's Unity Party was able to increase their representation and bring the previously-predominant leftists party members under their control. Putin's widespread public approval was mostly due to his tough handling of the Russian offensive to suppress Muslim extremists in Chechnya despite harsh criticisms from the U.S. and other European countries.
Putin's tactics not to propose specific economic measures throughout his election campaign turned out to be good ones because of relatively good economic indicators in recent Russia. For instance, Russia's GDP last year recorded a 3.2% growth from the preceding year. This is partially due to the increased acquisition of foreign currencies because of a rise in international oil prices, as well as increased domestic production of foods and other commodities to substitute more expensive imported goods caused by the devaluation of the Rubles.
The Putin Administration will probably try to find a way to build alliance between his Unity Party and the Our Home is Russia and Communist Parties. However, in order for the Russian economy to grow steadily, Russia needs foreign investment, and therefore, Putin will not be able to ignore the rightwing coalition's approaches that are more in line with the Western nations views. It will be interesting to see how Putin and his administration that place more emphasis on Russian values will be making political decisions under these circumstances.
Vladimir Putin: Born on October 7, 1952 in Leningrad (now St. Petersburg). After graduating from law school of Leningrad State University in 1975, he joined KGB's foreign intelligence arm and engaged in espionage in Germany for many years. After the collapse of the Soviet Union, he worked in St. Petersburg as the vice mayor. Since 1996, he began serving important posts in the administrative office and was appointed head of the Federal Security Service in July 1998 and in March 1999 secretary of the presidential Security Council. On August 9 1999, he was named deputy prime minister after the stepping down of the Stepashin administration, and the lower house approved of him as the prime minister on August 16.
Chechen Conflict In September 1999, a large number of explosives blew up apartment buildings in Moscow, killing around 300 people. Preceding this incident, Chechen armed forces invaded the neighboring Dagestan Republic to declare "the establishment of a Muslim nation and a holy war against Russia." The Russian Army took this opportunity to resume attacks on Chechnya.
In previous attacks during a period between 1994 and 1996, the Russian Army tried to immediately seize the central part of Chechnya only to be bogged down in a prolonged war. Approximately 6,000 Russian soldiers died or became missing, and the casualties on the Chechen side reached 100,000. Having learned from this bitter experience, the Russian Army decided to exercise incessant aerial bombing on Chechnya this time. As many as 200,000 Chechens fled to Ingush and other neighboring territories.
As the media reports expanding damages in civilian lives, Western nations are expressing their growing concern over this conflict for humanitarian reasons. However, Russians are standing firm on their ground, saying that they are "trying to free their people from terrorist
1-8 groups." According to the Interior Ministry's information, more than 2,500 people in Islamic and other radical groups engage in a hostage business in Chechnya, and 1,000 or so people, including 56 foreign nationals, are still kept in captivity.
Under these circumstances, Prime Minister Putin's support rate grew high, as Russian Army's attacks on Chechnya intensified. In the November 1999 poll, up to 78% of the respondents thought highly of Putin. However, around January 2000, situations in Chechnya began looking gloomy. The ideas of "favorable progress of the war" and "minimum casualties" that have supported the overwhelming popularity of Putin, as well as his "eradication of international terrorism" campaign, are now being revealed to be merely false images. Interfax reported on January 24, 2000 that up to 926 Russian soldiers had been killed in combat since last fall, nearly 60% of which or 529 people had died before the attack on Groznyy at the end of last year, according to sources close to Russian Security. "If the casualties of the battles in Dagestan last summer are counted, as many as 1,152 Russians have been killed," said the report. One of the reasons for the sudden rise in casualties was an increase of close combats in a sweep-up operation executed by the Russian Army in order to counterattack the guerrilla tactics of the Chechen armed forces.
Even the Russian media is skeptical about the reported casualties. Independent TV (NTV) reported on January 23 that "the actual number of deaths could be 10 times greater than that is officially announced."
End of March 2000, Manirov, the First Deputy Manager of the General Staff announced, "We were able to weaken the armed forces, the de-facto army of 26,000 soldiers, to 2,500. It is impossible to turn this into a prolonged partisan war." However, pessimistic views are still prevalent among the general public as represented by the former Presidential Advisor Pain's comment, "The anti-Russian sentiment of the Chechens has a long historical background, and their resistance to Russia will not dissipate overnight. If Russian soldiers continue to be killed or injured, the general public of Russia will become weary of the war, which can shake the political foundation." (Sources: Asahi Shimbun Newspaper, 1999 CIS Information File of East European Trade Commission of Russia)
(2) Economy
Transition to Market Economy When Gorbachev's attempts at economic reform know as perestroika (restructuring) failed, his regime was replaced by the Yeltsin administration in December 1999. The Soviet Union dissolved, and the newly formed Russian Federation declared that it would establish a capitalist, market economy. At first, perestroika aimed at reforming and internationalizing the stiffened Russian economy under the autocracy of the Communist Party, improving the living standards of the Russian people, and democratization and decentralization of the society, economy, and politics in general. However, it hit a setback leaving behind many challenges, such as inflation and other obstacles to democratization and liberalization.
During the Soviet era, there were two factors that burdened the state's finance: officially controlled retail price and military expenditure. Under the Soviet's planed economy, all production outputs of machinery, vehicles, cloths, foodstuffs, daily commodities, and other items, as well as their retail prices, were determined by the central government. Whereas
1-9 prices are determined based on the production cost and the balance between supply and demand in a market economy, the planned economy had a different set of criteria. The prices of medical supplies and other daily necessities were set low (sometimes below cost), those of durable consumer goods and imported clothes were high, and whatever was deemed luxurious had an exorbitant price.
Foodstuffs were particularly cheap and sold to people at a significantly lower price than the purchase price from farmers. In order to fill the gap, the central government had to appropriate an enormous amount of funds every year. Even during the Brezhnev era, some officials of the State Planning Committee suggested the price of foodstuffs should be raised.
In implementing prerestroika, Gorvachev tried to convert the munitions industry to consumer goods industry and took the plunge in April 1991, eight months before the dissolution of the Soviet Union, on raising the official retail prices not only for foodstuffs but also for all other items by 200 to 300%. Prices at free markets where farmers were allowed to sell vegetables, fruits, meet, and dairy products that they grew on their own semi-private land (= a piece of land that a farmer who have fulfilled his production quota is allowed to use as a family garden) were three to five times higher than officially controlled prices. Even so, free markets were frequently used because of a wider variety of fresher produce available. However, raised official prices triggered a hike in free-market prices, which accelerated inflation.
There were a series of arrests of managers of state-owned grocery stores who held off selling in anticipation of inflation or sold goods to black markets.
Conversion of the war industry to consumer goods industry did not make much progress. In addition, a heavy fall in oil prices in the international market inflicted a serious and unprecedented damage on the Soviet economy that had relied heavily on oil exports.
As the economic crisis worsens, the reform plans called for a more radical approach. Financial crunch and a chronic shortage of consumer goods urged the reformists to implement more fundamental changes. Even though the rationing system collapsed, a money economy was hardly in place, and people had no confidence in the currency because of inflation. Regional enterprises began spot transactions in order to protect their own economic channels.
Decontrol of Retail Prices Under these circumstances, President Yeltsin lifted price controls on consumer goods in January 1992. It was a kind of "shock therapy, " and the person who was actually in charge of this decontrol was Vice Prime Minister Yegor Gaidar, who had been selected as a Cabinet member at the age 34 and later became the Deputy Prime Minister. This program was internationally supported by IMF, and its ideology was to minimize governmental intervention and move towards a market-oriented economy.
Liberalization of consumer prices without dismantling the governmental monopoly resulted in the acceleration of inflation and hit hard the lives of public servants, military personnel, pensioners, and students who relied on state fund. The decontrol policy caused a hike in retail prices by 2200% from 1985, as well as a drop in production outputs and the polarization of the social structure. The major cause of the decrease in production outputs,
1-10 was disconnected economic relations with East European countries and a collapse of the long-established division of labor under the Soviet regime. People's purchasing power quickly deteriorated because of hyper-inflation. A sudden increase of imported goods due to the liberalization of trade and foreign exchange also spurred the decline of domestic production. Inflation and production shrinkage was occurring at the same time.
Privatization One of the most important reform programs toward a market-oriented economy was privatization. Although Russia's industries have been privatized for the most part, the process itself left many problems behind.
The word "privatization," or "prikhvatizatsiya" in Russian, basically means a transfer of ownership from public to private sectors.
The privatization program established in October 1992 was implemented in two phases.
The first phase is called the voucher-type privatization. This process initiated by Gaidar and Chubays in the summer of 1992 intended to take a popular and democratic approach by distributing equally state-owned properties among Russian citizens. Although this system generated 40 million "nominal" shareholders, most of the vouchers were held or controlled by a handful of people. As a result, the first stage of privatization created uneven distribution of wealth and gave birth to so-called financial oligarchs.
The second phase launched in 1994 is called cash-sales privatization. During this stage, enterprises' capitals were increased at the sacrifice of state funds. Moscow City Mayor Luzhkov and some other newly-emerged figures in local regions were critical of the voucher-type privatization. Polevanov, who had been criticizing Chubays' privatization program, became the chairman of the State Committee for the Management of State Property at the end of 1994. Polevahov, in his report, pointed out that the ownership of 500 enterprises was transferred to a small number of business groups for virtually nothing.
Russia's privatization program was implemented on no legal ground and under little legislative supervision. Lack of private funds and support from IMF also encouraged transactions behind closed doors that were accused as "criminal" by some people. Although unstable political situations were partially to blame, the total revenue generated by privatizing 55% of formerly state-owned enterprises was only 5 billion dollars.
Taking advantage of the poorly supervised privatization program, a new class of entrepreneurs emerged though acquiring vouchers, distributing goods, and investing in investment funds. According to a survey conducted by the Sociology Research Center, 37.1% of the "new Russians" were graduates of Moscow Financial University and 8.6% graduated from Moscow State University.
Newly-risen financial origarchs known as "seven strongmen in Russia" were said to be controlling 50% of Russia's capital and began playing a central role in the privatization process. During an economic and financial crisis in early 1995, many of the previously existed 2,500 or so banks went out of business. In late March 1995, an auction system, in which controlling stakes in Russia's biggest enterprises were exchanged for loans to help pay the government's bills, was established at the suggestion of powerful bankers. Shares of gas, oil, communications, and other types of important businesses that had been held by
l-ll the government moved to the hands of Berezovsky of Logobas, Gusinsky of the Most Group, Potanin of the Interros Group (Oneximbank), and other tycoons. Under government's protection, these financial origarchs rose to tremendous power.
The Yeltsin administration has had strong ties with these financial/industrial groups. Interros' leader Potanin, one of the most famous origarchs and the actuall controller of the Russian economy, served as the first prime minister. Chubais, a close ally of Potanin, was once appointed Prime Minister and implemented the privatization program. Berezovsky who rose in the financial world as the leader of Logobas Group, was appointed secretary of the Security Council and became one of the most influential figures in the behind-the-scene politics in Russia. Chernomyrdin, the former head of state natural gas monopoly Gazprom, was also appointed Prime Minister twice (although Gazprom may be separately categorized from newly-emerged financial/industrial groups).
The strong alliance between government and business groups apparently suggests that the oligarchs have been and are still enjoying political protection to gain enormous wealth and power.
Currency Reforms
1) Redomination
As of January 1, 1998, redenomication to reduce 1,000 rubles to one ruble was implemented. Old notes become no longer acceptable as bills of exchange in January 1999 except at Russia's Central Bank, which will exchange old notes for new notes until 2002.
Russia's Central Bank that has been strictly controlling the fluctuation of the ruble adopted a floating exchange rate system, which was later limited to a range of between plus and minus 15% of the fixed rate of 1997. The Central Bank announced its intention to set the exchange rate at 6.1 rubles per US dollar in 1998 and to keep the average annual rate around 6.2 rubles per US dollar by 2000. However, the actual rate in October 1998 was 15 rubles per US dollar, and that in December 1999 declined to 26 to 28 rubles per US dollar.
2) Devaluation of Rubles and Moratorium
In mid August 1998, the exchange rate of the rubles and stock prices plummeted, making many large private banks virtually insolvent, which caused a financial panic. Under these circumstances, the Russian government and the Central Bank made a joint statement on August 17 that they would considerably devaluate the rubles as follows:
a) Russian Central Bank would adopt a floating exchange rate system within a band of 6.0 to 9.5 rubles per US dollar. If the rate continued to fluctuate beyond these limits, the bank would intervene. It would also control interest rates.
b) Government bonds that would mature before December 31, 1999 would be exchanged for other types of securities. Until this switchover was completed, trading of government bonds at security exchange markets would be suspended.
c) Suspension of foreign exchange: for 90 days starting on August 17, repayment of foreign loans and payment of insurance guaranteed by securities, as well as the
1-12 performance of foreign-currency futures deals would be suspended.
In the early part of the Russian government/Central Bank joint statement, the officials explained Russia's difficult financial situations and their possible causes. The gist of their reasoning was that the government was unable to generate enough revenue to pay off foreign debts, its tax revenues were too little to redeem government bonds and pay interests, and therefore they need to curtail federal budget and reduce the amount of government bonds while borrowing more money from foreign sources. They also indicated as indirect causes of financial crunch that the prolonged currency crisis in Asia and the fall in international oil prices hindered the recovery of the Russian economy and that Russia's decreasing foreign currency reserve disabled the Russian banking system.
This joint statement was intended to provide the government a temporary relief from financial crunch and to save Russian commercial banks by declaring a moratorium on repayment. However, it ended up doing more harm than good because the devaluation of the rubles made it impossible for the Russian government to pay off foreign debts. Top- ranking banks in Russia went bankrupt or became virtually insolvent one after another.
Russian Central Bank later implemented additional measures in an attempt to save troubled commercial banks. For instance, RGB urged depositors of six major banks to transfer their deposits to Sberbank (State Savings Bank) under certain conditions. Although the official reason for this measure was to protect the depositors, the real motive was to rescue the banks from a sudden demand for repayment, chain-reaction bankruptcy, and social instability and chaos. However, many depositors, as well as foreign banks and corporations, incurred a significant loss because of irrecoverable loans from insolvent Russian banks.
Devaluation of the rubles jolted Russia's political situation. Yeltsin resorted to his usual tactics to shift his responsibility by dissolving the Kiriyenko administration. However, his attempt to reappoint Chernomyrdin was disapproved by the lower house, and the Primakov administration was inaugurated instead.
Oligarchs' Fight over Concessions Fights over rights and interests among Russia's new tycoons and business-based politicians are now intensifying again. They are trying to gain as much power as possible during the political blank before the next presidential election in late March, for which Prime Minister/Acting President Putin is the most promising candidate.
Russia's oil giant Zhivnefti has recently acquired controlling interests in Krasnoyarsk Aluminum and Black Aluminum. Newly-emerged Logobas Group has also taken over Novokuznetsuk Aluminum. The actual controller of Zhivnefti and Logobas Group is Roman Abramovich (now a member of lower house), who manipulated Russia's previous administration along with political oligarch Berezhovsky. By acquiring the controlling interests of these three aluminum enterprises, the group has "secured a 70% share in Russia's domestic aluminum production and 20% of world's total production," according to a Russian newspaper. Although the three enterprises were previously controlled by England-based Trans World Group, they decided to sell their stakes to Zhivnefti and Logobas for financial reasons.
All of these aluminum enterprises had a large amount of unpaid utility bills against Russian
1-13 Unified Electric System (RAO UES). UES head Chubais (former first vice prime minister) was said to be planning to take part in the management of these companies in exchange for writing off their debts. However, Bereshovsky and Abramovich snatched the deal out of Chubais' hands at the last moment.
Zhivnefti is trying to expand its oil business and now negotiating a acquisition deal with Pumeftigas of Rushefti Group, a state oil company that engages in the development of petroleum and natural gas resources in Siberia. Another corporate giant Rusprom Group that owns Russia's second largest oil company Yukos, took over a subsidiary of state-owned oil company Onako.
Although whether Chubais will return to politics or remain as the head of UES is still unknown, he will enjoy even more favorable political/business environment than in the Yeltsin era if Putin is elected president in March.
Bereshovsky's move to acquire UES' controlling interests was probably made to contain Chubais' possible advancement and protect his own interests. Economic Condition in Recent Years
1) Russia's Economy in 1998 Russia's Economy in 1998 revealed its own weakness and heavy reliance on government bonds and foreign loans. The government's macroeconomic measures since 1994 to cover federal deficits by borrowing from foreign sources led to excessive tightening on state budget and loans and an artificially high exchange rate of the rubles. The failure of these measures was publicly admitted at the joint statement made by Russian government and Central Bank on August 17. The Primakov administration that took over the Kiriyenko administration had to work hard to put things in order after the financial crisis. As a result, Russia's industrial outputs finally took an upward turn in October. However, this was mostly due to the effects of the devaluation of the rubles, and the Russian economy on the whole had yet to see a sign of recovery.
1998's real GDP dropped sharply by 4.6% from the same period in the previous year (See Table l-l-l-l).
1-15 Table l-l-l-l: Russia's Major Economic Indexes
1992 1993 1994 1995 1996 1997 1998
Population (million) 148.7 148.7 148.4 148.3 148.0 147.5 147.1
GNP ($100 million) 1) 3,980 3,484 3,925 3,320 3,560 4,035
GNP per capita ($) 1) 2,910 2,840 2,650 2,240 2,410 2,740
Real economic growth rate (%) A 14.5 A8.7 A 12.7 A4.1 A3.5 0.8 A4.6
Mining production growth rate (%) A 18.0 A14.1 A20.9 A3.3 A4.0 1.9 A5.2
Agricultural production growth rate (%) A9.4 A4.4 Al2 A8 A7.0 0.1 A12.3
Consumer price index growth rate (%) 2,510 840 215 131 21.8 11.0 84.4
Unemployment rate (ILO method, year end, %) 4.7 5.5 7.4 8.8 9.3 9.0 11.8
Revenue & Expenditure (billion rubles) A 642 A7,944 A65,494 A49,105 A94,188 A118.441 A 86.5
Revenue (billion rubles) 5,328 49,730 172,380 437,007 558,532 687,751 302.4
Expenditure (billion rubles) 5,970 57,674 230,385 486,112 652,720 806,192 388.9
141.553) Trade balance ($100 million) 178.38 208.07 230.76 173.25
876 .S8 3) Imports ($100 million) 678.26 826.63 905.12 886.76
735.333) Exports ($100 million) 499.87 618.56 674.36 713.51
Trade with Japan ($100 million) 3) 34.80 42.70 46.58 59.33 49.73 50.33 38.61
Imports ($100 million) 3) 24.03 27.69 34.90 47.63 39.49 40.18 28.92
Exports ($100 million) 3) 10.77 15.01 11.68 11.70 10.24 10.15 9.69
Current Balance ($100 million) "9 92.84 80.12 120.96 33.42 24.46
Foreign Investment ($100 million) 5.49 18.77 20.90 38.97 33.61
Foreign Debt (end of year, $billion) ^ 120.4 127.4 123.6 150.6
Gold/Foreign-Currency Reserve (end of year, $100 30.14 63.75 65.06 172.07 153.24 177.84 122.23 million) "9
Exchange Rate 414.5 1,247 3,550 4,640 5,560 5,947 20.65
(end of year, ruble per dollar)
Note: 1) World Bank's statistics 2) Customs clearance statistics of Japanese Ministry of Finance (1992 figure is derived from Feb. - Dec. data) 3) Data disclosed by Russian Central Bank 4) Data disclosed by Russian Ministry of Treasury 5) 1/1000 redomination of rubles implemented as of Jan. 1, 1998 Source: various publications of Russian State Statistics Committee unless otherwise noted.
Inflation was under control for a while, but recurred in August 1998, recording a monthly inflation rate of 38.4% in September. It calmed down slightly thereafter but bounced back to 11.6% in December. September's rise was due to a supply shortage of consumer goods caused by reduced imports resulted from the devaluated ruble. Increased money supply (especially cash) was another major contributor to that month's inflation.
1-16 The execution rates of 1998 federal budget were: total revenue 82.3%, tax revenue 76.9%, and non-tax revenue 139.2%. The execution rate of expenditures was 77.8%, of which that for industry, energy, and construction was only 41.3%. Much of the federal fund was spent on government bonds to pay off internal and external debts.
Federal deficit in 1998 was 86.5 million rubles, or 3.2% of GDP, about half of which was made up by foreign loans.
The government was still unable to put a brake on ever-shrinking investment this year. 1998's investment on fixed assets declined by 6.7% from previous year; and the rate of decline actually grew. Housing construction also fell by 7.3%, including investment on private housing that had been growing relatively steadily until then.
Industrial outputs in the first half of 1998 were in marked contrast to those in the latter half. Between January and April, outputs continued to grow by gathering momentum from the previous year. However, they took a downward turn in May and hit bottom in August and September when the financial crisis occurred. The decline of production outputs was due to the appreciation of foreign currencies against the ruble, a shortage of imported parts and components, and fallen prices of major exports in the international market. The production outputs for the whole 1998 fell by 5.2% (See Table 1-1-1-2).
1-17 Table 1-1-1-2: Execution of Russia's Federal Budget
1997 (actual) 1998 (original budget) 1998 (actual)
Percentage Billion ruble Percentage Billion ruble Percentage vs. original (%)
Revenue 100.0 367.5 100.0 302.4 100.0 82.3
Tax revenue 76.2 307.0 83.5 236.0 78.1 76.9
Profit tax 10.4 48.1 13.1 34.9 11.5 72.5
Value-added tax 37.4 141.3 38.4 104.7 34.6 74.1
Excise tax 16.1 78.7 21.4 52.5 17.3 66.6
Trade tax 7.9 27.1 7.4 36.5 12.1 134.9
Other tax revenue 4.4 11.8 3.2 7.4 2.6 62.7
Non-tax revenue 12.4 28.5 7.8 39.7 13.1 139.2
Overseas economic activities 3.4 6.9 1.9 15.4 5.1 224.2
Assets of federal/local govts, 1.3 5.3 1.4 4.1 1.3 76.2
Sales of state assets 5.5 8.1 2.2 15.2 5.0 187.6
Other non-tax revenue 2.2 8.2 2.2 5.0 1.7 61.0
Other revenue 00 bo 32.0 8.7 26.7 8.8 83.4
Expenditure 100.0 499.9 100.0 388.9 100.0 77.8
Administration, 1local autonomy 2.3 12.1 2.4 9.7 2.5 80.3
Security & safety 10.4 41.6 8.3 30.7 7.9 73.8
Industry, energy, construction 6.9 27.4 5.5 11.3 2.9 41.3
Agriculture , fishery 2.3 12.0 2.4 3.3 0.8 27.1
Environment, natural resources 0.6 2.9 0.6 2.1 0.5 70.1
Transportation, communication 0.9 1.5 0.3 1.0 0.3 66.1
Social, cultural measures 14.1 67.3 13.5 57.2 14.7 84.9
National defense 18.6 81.8 16.4 56.7 14.6 69.4
Government bond 9.5 124.1 24.8 106.6 27.4 85.9
Subsidy for local governments 14.9 45.6 9.1 43.0 11.1 94.5
Other expenditures 19.5 83.6 16.7 67.3 17.3 80.5
Fiscal deficit 132.4 86.5 65.4
Note: "other ..." are calculated figures. Source: "Social & Economic Conditions of Russia (1999. No.l) " by Russian State Statistics Committee
1-18 Retail sales that were increasing steadily in 1997 took a downward turn in February 1998. The sales grew temporarily in July and August due to a rush of last-minute purchasing before the price hike, and fell again from September on. The total retail sales in 1998 declined by 4.5% from previous year.
Income gap between the 10% lowest-income bracket and the 10% highest-income bracket narrowed slightly from 1997 to 13.4%.
The Federal Budget for 1999 was approved by the State Duma (lower house) and Federation Council (upper house) and signed by President Yeltsion on February 22, 1999. A federal law to enforce the budget was enacted on February 25.
The federal budget was drafted based on GDP of four trillion rubles, an inflation rate of 30%, and a deficit rate of 2.54% of GDP.
The enacted 1999 budget envisaged revenues of 575,046,600,000 rubles and expenditures of 473,676,100,000, projecting a deficit of 101,370,500,000 rubles. However, only 99.9 billion rubles (approx. US$ 4.5 billions) were appropriated for repayment of external loans.
2) Russian Economy in 1999
This section examines the Russian economy during a one-year period starting in August 1998 when a "financial collapse or panic" occurred following the government's announcement to significantly devaluate the rubles and to enforce a moratorium on the repayment of external debts by private sectors.
The exchange rate, which was 6.3 rubles to a US dollar before the devaluation, reached a stable level of 25 rubles to a dollar as of August 1999. However, the inflation rate from the time of devaluation to July was 118% due to a price hike of imported foodstuffs and other products. As of September 1999, the level of inflation was somewhat under control owing to the tight currency and credit control measures enforced by the Russian Central Bank. The amount of circulating money increased by 30% from January to September, which was basically a direct reflection of a 31.4% increase of consumer price index for the same period. The average monthly inflation rate was 5.1% in the first quarter and declined to 2.4% in the second quarter and to 1.8% in the third quarter.
People's income fell considerably. The real wages for a period between January and April 1999 fell 40% from the same period in 1998. In the first half of 1999, the number of people who did not earn the minimum income level of 36 dollars a month was 51.7 million people, or 35% of the population, an increase of 13 percentage points from the previous year's same period. People are trying to get though this difficult situation "by eating more bread and potatoes and less meat and fish, buying clothes and shoes only once in a long while, never thinking of purchasing a car or house, and pinching a free ride on public transportation" (iObsyaya gazetai newspapere).
Industrial production, on the other hand, rose significantly, resisteringg a 6% increase in May and a 9% increase in June from the same months last year. July recorded a dramatic increase of 12.8%, which was "the largest rise not only in the history of Russia's economic reforms since 1992 but also in the history of Soviet after the 1970s" said Latis, assistant to the chief editor of the new Izvestiya newspaper.
1-19 In particular, production of petrochemical, lumber, mineral, and other export products enjoyed a marked increase as their competitiveness improved due to the devaluation of the rubles. The international crude oil price, which was around nine dollars per barrel at the time of financial collapse, rose to a 20-dollar level, which increased the Russia's trade surplus to 8.7 billion dollars during a period between January and April, making easier for Russia to repay its external debts.
In addition, at the Cologne Summit, Russia was able to obtain support to resume IMF loans in exchange for promising to end the Chechnya conflict. It also signed an agreement with the Paris Club concerning the deferred payment of Soviet-era debt.
However, despite the sharp drop of imports, production of foodstuffs and light-industry goods was not growing. The underdeveloped investment environment and complicated taxation system were partially to blame.
Federal revenues for the January-September 1999 period nearly doubled over the same period in 1998 to 387.3 billion rubles. Tax revenues registered a significant rise to 32.6 billion rubles, of which VAT revenue amounted to 14.05 billion rubles and excise tax revenue to 5.6 billion rubles. Revenues from these two types of taxes accounted for 60% of the total tax revenues. The total expenditure was 43.42 billion rubles, about 30% of which were appropriated for the repayment of national debts.
Federal deficit for the above period, taking into account the repayment of basic debts, amounted to 46.9 billion rubles, or 1.5% of GDP, all of which was made up by external debts. (See Tables 1-1-1-3 and 1-1-1-4.)
1-20 Table 1-1-1-3: Changes in Russia's Main Economic Index ______(Increase/decrease rate (%) over the same period of previou s year) 1994 1995 1996 1997 1998 1999 Jan.-Sep. GDP ▲ 12.7 ▲4.1 ▲3.4 0.9 ▲4.6 1.5 Industrial production ▲22.8 ▲ 5 ▲ 4 1.9 ▲5.2 7.0 Consumer goods ▲26 ▲ 14 Agricultural production ▲ 12 ▲ 8 ▲6.6 2.1 ▲6.4 Investment ▲24 ▲ 10 ▲ 7 0.1 ▲ 12.3 ▲2.0 Retail sales 0.1 ▲ 7 ▲ 18 ▲5.0 ▲6.7 0.1 Services ▲38 ▲ 18 ▲ 4 2.5 ▲4.5 ▲ 13.8 Freight transportation ▲ 14.2 ▲ 1.0 ▲ 7 3.6 ▲2.4 2.6 Passenger transport ▲ 13 ▲ 9 ▲ 5 ▲3.6 ▲3.5 4.6 Housing construction ▲6.2 5 ▲ 8 ▲4.0 ▲7.8 ▲4.1 Consumer price 215 131 ▲ 16 ▲5.0 ▲7.3 9.0 Wholesale price of industrial 230 175 21.8 11.0 84.4 36.5 products Trade (dollar base, excluding 25.6 7.4 23.2 67.3 trade with CIS states) Exports 20.1 24 9 ▲3.3 ▲ 15.8 ▲2.5 Imports 12.5 19.5 ▲ 4 22.4 ▲ 17.9 ▲40.8
Notes: Increase/decrease rates, except those of consumer price and trade, were calculated based on the comparison of actual prices. The increase rate of 1999 consumer price was based on the December figure over that of December 1998. Source: Periodicals of Russian Statistic Bureau (former State Statistics Committee) Tablel-1-1-4: Production Volume of Russia's Main Industrial Products Item Unit of 1994 1995 1996 1997 1998 1999 measure Jan.- %
ment Sep. (See note) Electricity 1 bill. kWh 876 860 847 834 826 605.8 1.8 Crude oil (including gas condensate) 1 mill, tons 318 307 301 306 303 227.1 0.9 10 bill, m^ Natural gas 607 595 601 571 591 432.4 0.6 Coal 1 mill, tons 272 263 257 245 232 180.3 7.2 Crude steel t 48.8 51.6 49.3 46.5 43.8 37.6 14.5 Steel material f 35.9 39.0 38.9 37.8 344 29.3 13.1 CNC machining tool 1,000 units 0.5 0.3 0.1 0.1 0.1 Casting/press machine t 3.1 2.2 1.2 1.2 1.2 0.699 ▲29.0 Tractor 28.7 21.2 14.0 12.4 9.8 9.046 46.6
Chemical fertilizer (100% of active ingredients) 1 mill, tons 8.3 9.6 9.1 9.5 9.3 8.591 25.7 Lumber 1 mill, 30.7 26.5 21.9 19.6 16.6 12.7 ▲ 1.2 Paper 1,000 tons 2,216 2,773 2,302 2,226 2,441 2,168 17.4 Cement 1 millt 37.2 36.5 27.8 26.7 26.0 21.2 10.3 1 mill, m^ Textile 2,197 1,774 1,431 1,565 1,395 1,125.5 ▲ 2.1 Personal computer 1,000 units 82.1 62.3 119 144 944 18.099 ▲66.6 Color TV t 1,152 370 102 252 285 129.9 ▲48.7 VCR t 84.6 22.8 6.8 0.01 5.4 Refrigerator/freezer f 2,662 1,789 1,064 1,186 1,043 884.1 3.7 Washing machine t 2,122 1,294 762 800 852 748.2 17.5 Passenger car t 798 835 868 986 836 719.0 15.2 Note: percentage over the figure of the previous year's same period Sources: same as above
1-21 3)Foreign Trade (January -September, 1999)
Data used in this section was based on information from Economist Intelligent Unit of Russian Trade Ministry and Russian State Committee on Tariffs. Russia's foreign trade, both import and export, began declining in the latter half of 1998 following the currency/financial crisis in August 1998 and because of the slump in the worldwide economy. During the period between January and September 1999, Russia's foreign trade, especially import, continued to shrink, recording the total amount of 72,956.000,000 dollars, a 20.6% decline from the same period in 1998. Of the total, exports amounted to 49,651,000,000 dollars (-7.7%), and imports amounted to 2,245,100,000 dollars (-39.4%). The trade balance was 27,245,900,000 dollars in the surplus.
Major trading partners were Germany (10.3% of total trade), Ukraine (6.9%), the United States (6.9%), Belarus (6.9%), Italy (4.6%), China (4.4%), Netherlands (4.1%), Switzerland (3.7%), Britain (3.5%), Finland (3.3%), Poland (3.1%), and Japan (2.6%).
By items, crude oil, natural gas, and petroleum and other mineral products accounted for 42.1% of total exports, of which crude oil accounted for 18.3% of total exports followed by natural gas (15.0%) and petroleum products (6.8%). Export of machinery and equipment was 10.5% of the total, a 10.2% decline from the same period in 1998. Export items that grew both on a quantitative and monetary basis were vodka, cokes, heavy oil, potash fertilizer, logs, lumber, and copper ore. Export of crude oil increased on a monetary basis due to the rise in export prices. Import of coffee, wheat, com, rubber, and cotton increased from the 1998's same period. Import of steel pipes from non-CIS nations also rose in the second and third quarters. While import of machinery and equipment accounted for 33.3% of the total, the volume was reduced by 50% from the previous year's same period. (See Table 1-1-1-5).
1-22 Table 1-1-1-5: Russia's Foreign Trade Partner by Region, January - September 1999 (in million dollars) Amount of trade Export Import Balance Mill. US$ % Mill. US$ % Mill. US$ % Mill. US$ Total 72,056.1 100.0 49,651.0 100.0 22,405.1 100.0 27,245.9 CIS countries 12,873.0 17.9 7,187.0 14.5 5,686.0 25.4 1,501.0 Non-CIS countries 59,183.1 82.1 42,464.0 85.5 16,719.1 74.6 25,744.9 Europe 37,774.1 52.4 27,263.8 54.9 10,510.3 46.9 16,753.5 Asia 11,312.1 15.7 8,937.2 18.0 2,374.9 10.6 6,562.3 US 8,844.8 12.3 5,461.6 11.0 3,383.2 15.1 2,078.4 Africa 1,108.1 1.5 794.4 1.6 313.7 1.4 480.7 Oceania 144.0 0.2 7.0 0.01 137.0 0.6 A130.0 Note: Figures do no include carrying in and out of goods by individuals. Source: Based on information from Economist Intelligent Unit of Russian Trade Ministry.
Aid from International Financial Institutions
1) Basic Agreement between Russia and IMF to Resume Aid on Russia
On his visit to Russia in 1998, Kamdesh of IMF had a talk with Prime Minister Primakov on March 29 and agreed to resume financial assistance to Russia. The estimated amount of loan was 4.5 billion dollars, which would be extended in four installments. Following the Kamdesh Primakov talk, they issued a joint communique stating that IMF had accepted Russia's plan to achieve fiscal surplus of 2% of GDP, excluding repayment of foreign debts.
In the political background of the IMF's decision, there was NATO's aerial bombing on Yugoslavia and Russia's obstinate repellence toward it. Western nations were concerned that Russia might isolate itself from the international community if it had been driven too far into a comer.
Upon signing the Basic Agreement with IMF, Russian government began tackling the reduction of the external debt that it had assumed from the Soviet era to ease the burden on the state finance. Russia requested the Paris Club (the council of major creditor nations) to accept deferred payment over a long term and write off a part of Russia's debt.
2) Russia's External Debt
In December 1998, the Russian government disclosed the total amount of Russia's external debt to be 145 billion dollars as of January 1, 1999. Of the total, the amount of debt that was transferred from the Soviet Union was 10.3 billion dollars, and that incurred by the Russian Federation was 42 billion dollars.
Russia's initial plan to spend 17.5 billion dollars to pay off external debt was first modified to 9.5 billion dollars and further reduced to 4.5 billion dollars on January 12, 1999.
Russia is obligated to repay 300 million dollars to IMF every month, except for July when the amount due is over one billion dollars. Interest payment on Euro Bond of 177 million dollars is also due in March.
3) Reduction of Private Debt
According to Interfax and other media reports in February 2000, the Russian government,
1-23 which had been negotiating with the creditors of the Soviet-era private debt of 31.8 billion dollars in Frankfurt, was able to persuaded the London Club (a group of western creditor banks) to write off 36.5% of Russia's debt and to accept deferred payment. This was the first time since the collapse of the Soviet Union that Russia was able to reach a comprehensive agreement with the creditors of Russia's private debt after many rounds of sporadic negotiations.
The remaining 60% debt would be converted into a Russian government bond denominated in Euro. The Russian government estimated that it would reduce the amount of private debt by 50% if interests were included.
The main motive for the above measure was to remedy Russia's virtual insolvency since the financial crisis in August 1998 and make a comeback to the international capital market to invite foreign investors to Russia. First Vice Minister Kasyanov, who headed the Russian Negotiation Mission, stressed that "Russia would be able to reach a similar agreement with the Paris Club concerning the 39-billion-dollar Soviet-era public debt."
4) Loans from (Former) Export/Import Bank of Japan
The Japanese Export/Import Bank originally promised to extend a credit line of 500 million dollars as humanitarian aid (a 100-million-dollar humanitarian loan had been extended during the Soviet era in the 1990s). It was later agreed that the loan might be used not only for than humanitarian purposes but also for plant export from Japan if it was deemed important for the development of Russian economy.
In October 1991 and April 1993, 600-million-dollar export credit was extended for the purpose of supporting Russia's transition and reforms.
All such export projects were proposed and agreed upon on the premise that Russia would give a guarantee. However, eight years after the initial signing of such agreements, few have been actually executed.
Of the 600 million dollars, only 200 million dollars were actually spent on Sumitomo Corp's project to install optical-fiber cables from Siberia to St. Petersburg via Moscow. Although the remaining 400 million dollars have been allocated to other projects, their execution has been suspended for one reason or another. (Source: Asahi Shimbun News, Economic Trend by Russian East-European Trade Commission, CIS Information file, etc.)
1-24 (3) Society
Changing Lives of the Citizens In Russian society today, some people have risen to tremendous wealth by establishing venture companies while many others live in extreme poverty and cannot even afford to buy basic food. Virtually every Russian felt a significant deterioration of their lives after the collapse of the Soviet Union. The changeover thus affected civilians' lives in a profound way.
Dismantling of state-owned enterprises that had supported civilians' daily lives has led to the destruction of the socialism-based social structure and completely changed people's interrelations. During the Soviet era, people associated mostly with their coworkers and exchanged information with them. Even in times of serious shortages of food and other commodities, people used their extensive personal networks to help one another.
Since most people were employed by state enterprises, which provided almost everything they needed in their lives, they could simply complain or make requests to their employers when their needs were not met. They worked as public servants and assumed that state enterprises would take care of anything for them from finding an apartment, a car, and a hospital to making travel arrangements and paying taxes and pension premiums. People's private lives were completely managed by their employers (=state enterprises) under a unified code of manners. As workers and Communist Party members, they were expected to live modestly and not allowed to put their interests before those of others. Even though the national interests of the Soviet Union were always put first, people restrained themselves from pursuing their personal gain.
However, since the collapse of the Soviet Union, most of the state-owned enterprises have been privatized (only 9.8% of them remain as state-run entities as of 1999) and can no longer take care of their employers into the details of their daily lives. People get minimum assistance from their employers, to whom they now relate in a completely different context. Many people changed their jobs, and, as a result, most of the human networks that had revolved around state enterprises have disappeared. Various needs of daily lives, which used to be accommodated by their employers, are now the responsibility of their local jurisdictions or to be taken care of by people themselves. Privatized enterprises, on one hand, have been relieved of their responsibilities to provide basic civil services, but on the other hand, they had to make their own efforts to secure materials and establish distribution channels in the absence of governmental protection.
As enterprises began concentrating more on what they are supposed to do (i.e., production), the foundation of people's daily lives moved from their work places (production sites) to residential areas (consumers' markets). In finding solutions to their daily challenges, people can no longer turn to their employers but have to make their own decisions under their own responsibilities as private citizens rather than as employees.
The socialist system, in which people could simply bring any problem, work related or otherwise, to their job sites, no longer exists. They now have to sort out numerous difficulties they face and address them to their employers if they are job related or otherwise find solutions on their own. This shift of responsibility has probably had the most profound affect on the lives of Russian people.
1-25 Unfortunately, because of their long-established dependency on their employers and due to underdeveloped civil service programs under constantly changing policies, people are at a loss about what to do and who to turn to. People's expectations that the dismantling of the Soviet Union would bring in more freedom and wealth were completely betrayed. People's frustrations are growing as their living standards deteriorate especially among pensioners and single-mother households, as well as among those who were laid off by private companies that failed in restructuring. In an average household, both the husband and wife now have to work longer hours. As a result, the wife has less time to do house work, and neither of them has little time or energy left to attend other daily challenges. Unlike the Soviet era, which took pride in having working women, more and more people dream of a setup, in which the wife stays home to take care of the house, and the husband dedicates his time to work. However, such a picture will likely remain as fantasy for most people and perhaps merely fuels growing stress. Some citizens are not hesitant about loudly expressing their dissatisfactions and complaints on the street. These hardships often lead to disruption of families. Present Russian society seems as if it were comprised of an infinite number of disillusioned people.
Family Crisis The biggest problem plaguing Russian families is the high divorce rate, which has been an issue since the Soviet era. Many wives, who usually held jobs and thus were financially equal to their husbands, were unhappy about their marriages because their husbands, many of them were alcoholic, hardly shared household choirs and were unwilling to contribute to building a happy family environment. Getting married at an early age, and repeating divorce and remarriage for a few times has been a common pattern followed by many Russians.
The marriage rate in 1994 was 7.4 per 1,000 population, and that of divorce was 4.6. The rates have stayed at these levels in the past several years. During the 1970s and 1980s, the marriage and divorce rates were about ten and a little over three per 1,000 population respectively. This meant that one in every three married couples ended up in divorce. Since then, the number of marriages has decreased and that of divorce increased, and presently, three in every five couples end their marriages.
Reasons for divorce are basically the same as those in the Soviet era. In addition, reduced employment opportunities for married women are making it very difficult for many families to maintain their households with husbands' income alone. In the absence of social stability and financial foundation, it seems quite challenging to keep families together.
Average life expectancy has fallen rapidly since the end of the Soviet era from 69 years in 1985 to 64.2 years in 1994, a drop of five years over a 10-year period. The average life expectancy for males has been declining at an alarming rate from 64 in 1985 and 62 in 1992 to 58.8 in 1993 and 57.3 in 1994. The sudden rise in the male mortality rate has a lot to do with the increasing consumption of alcohol, which has doubled since mid-1980s when President Gorbachev urged temperance. Alcohol-related deaths, which were only 18.2 per 1,000 population in 1990, rose to 52.9 in 1993.
Birth rate is declining while mortality rate is increasing. The birth rate during the 1970s and 1980s was a little over 15 per 1,000 population, which fell to 9.6 in 1994. By contrast, the mortality rates for the same periods rose from around ten to 15.7.
1-26 In other words, Russia's population is shrinking undeniably. Infant mortality rate for under four years of age remains high, registering 4.6 male infants and 3.4 females per 1,000 population in 1994.
Formation of Middle Class As the shift toward a market economy progresses, an income gap widens between the wealthy and the poor in Russia. Whereas members of the so-called "nouveau riche" enjoy swimming with the trend, more and more people are falling in the depths of poverty. In fact, a way over 20% of Russia's whole population of 147 million live on pensions. People are at a loss in the face of skyrocketed inflation rate (the average consumer price has increased 4,800 folds since the implementation of price decontrol following the Soviet's collapse) and their living standards have deteriorated considerably.
In addition to pensioners, the vast majority of public servants, teachers and doctors could not keep up with the flow. The lives of many farmers, female workers of the textile industry, miners, and workers of agricultural equipment factories have changed for the worse also.
On the other hand, however, many people living in large cities have began accumulating wealth to enjoy abundant supplies of food and other types of consumer goods, forming the new "middle class."
In 1997, about 3.5 million TV sets were exported from Japan to Russia via Dubayy, Singapore, Helsinki, and other third-country markets. The predominance of Japanese- made color TVs in the Russian market is a clear indication that Russians' purchasing power is strengthening. A large number of Japanese VCRs, copiers and other types of office equipment, personal computers, and recreational vehicles, are also being shipped to Russia via third countries.
French-made microwave ovens and oven toasters, as well as Italian-made washers and refrigerators are quite popular among Russians, and the middle class that can afford these commodities is definitely expanding.
Imported foodstuffs from North Europe and other countries once dominated the Russian market. However, domestic products began regaining ground around 1995, and an increasing number of consumers now prefer Russian-made food products.
Overseas Travel and Private Car Boom One of the typical indicators of enriching lives of middle-class Russians is the way they spend their spare time. Hobbies and entertainment that were popular during the Soviet era, such as going to theaters and music concerts, reading books, fishing and doing other sports, domestic traveling, enjoying telephone conversations, and spending relaxing weekends at their dacha(suburban cottages that urban residents built on rented state properties) enjoying gardening, etc., are still favored by many.
Russian people's enthusiasm for overseas travel is growing astonishingly in recent years. Tourist and resort areas in Europe and Middle East are seeing an increasing number of Russian visitors, and various businesses taking advantage of Russia's travel boom are thriving.
1-27 According to the 1997 edition of the Russian Statistics Yearbook, 5.5 million foreigners entered Russia during the year of 1996, while 7.79 million Russians went abroad. Although the number of Russian overseas travelers in 1996 decreased from 1995 that registered 8.4 million, the number of inland tourists increased from 2.25 million to 3.42 million, suggesting a growing travel boom in Russia.
Russians' love for cars is quite noticeable also. It is as if their suppressed desire to own cars under the planned economy has finally been unleashed. According to the April 1998 edition of German weekly magazine Tsait, one million Russians (meaning ordinary Russians) purchased new cars in the price range between 13,000 and 20,000 German marks inl997.
As of September 1999, 1.2 million cars have been registered with the Moscow City government. However, the actual number is estimated to reach 2.5 to 30 million cars.
Demand for passenger cars will most likely continue to grow rapidly in Russia. Capital and technical tieups with major automakers in Europe, the United States, and Japan are being negotiated, and the number of imported passenger cars is soaring. At any rate, to accommodate increasing number of cars, development of roads within and between cities and the drastic reform of traffic regulations are urgently needed.
Delayed Payment of Wages Delayed payment of wages is a problem spreading throughout Russia. 57% of Moscow City residents experienced delayed payment in 1997, of which 22% did not receive wages for three or more months.
In Moscow City, 3.5 to 4 million people do not earn enough money to cover basic living costs each month. Based on the city's population, which is 8.54 million as of January 1999, at least 41% of the population are struggling to live minimum lives. These figures clearly show how strained people's lives are in Moscow City.
According to the information from Moscow City Assembly's Social Program Committee, they set the minimum cost of living at 1,400 rubles (5,600 yen) per month. This includes housing, utility, food, and even transportation expenses. Considering the prices of goods in Moscow, this amount is the bare minimum for survival.
Increasing Unemployment Since the devaluation of the rubles in August 1998, the number of unemployed people in the entire Russia has increased by 28%. The number, which had registered 8.14 million immediately before the ruble devaluation, grew to 10.42 million by April 1994 (of which 1.9 million unemployed people were officially registered with the Russian government). The unemployment in that year recorded a very high rate of 14.2%, and the purchasing power per capita decreased by 40%.
The latest statistics by the Moscow City government shows that the unemployment rate of female citizens has reached 43.6% with the average age being 36.1 and the average duration of employment being 8.7 months, which is 1.9 months longer than that of unemployed males. Only 30% of unemployed people have some sort of part time jobs.
1-28 Unused Social Security System According to the information from Moscow City government, only 40% of eligible people are on welfare. Despite the relatively comprehensive social security system, less than half the applicable people actually use it. Still, 72.7% of citizens expect their welfare programs (provision of allowances and food) to improve. Citizens' demand for a better social security system and their nonuse thereof ironically contradict each other.
According to an opinion poll conducted by a survey institute, in which 150 respondents were divided into three groups based on their income, 78% of the lowest income group answered that they do not use social security programs. The rate was 21% higher than that of the highest income group and 27% higher than that of the middle income group.
It seems that the more strained people's lives are, the less they resort to social securities. In other words, the poorer they become, the further away they move from the reach of public assistance. No matter how comprehensive the social security system is developed to be, it will not serve its purpose if the procedures are too complicated for the poor to comprehend and follow when they are hopelessly busy struggling to survive. The most eligible are the most powerless, and these people are more likely to be isolated from the society.
Failing Public Services According to the information provided by the Moscow City government, 53%, or over half of the city's total number of households are in arrears with public utility charges, and the number is growing. According to an attitude survey conducted by the Moscow City, 32.5% of the respondents answered that they were thinking of stop paying utility bills because of a financial crunch. 45.1% of pensioners and 43.4% of unemployed people had the same response. Because of the uncollected bills and other reasons, the city is now considering raising its utility charges. In 1997, public utility charges were raised by 26.1% whereas the residents' real income increased only by 1.7%. 37% of the respondents felt that they could not manage their family finance if the charges were raised again. For good or bad, people do not have to pay any overdue interest or receive a dunning letter even if they fail to pay utility bills (except for those on housing, on which a 0.2% daily penalty interest is charged).
If more households stop paying utility bills, the public service system will collapse sooner or later. A sense of unfairness is spreading among those who pay the bills to support the system even though they feel sympathetic toward the people who fail to pay under various circumstances. A society does not function if its members refuse to take their responsibilities. Therefore, enforcing fairness among people is equally important for the government to providing administrative assistance for the poor. Otherwise, more and more people will assume that non-payment is justifiable.
In addition to low income, a charging system not based on the amount of usage (except for electric charges) seems to be another cause for delayed payment. Heating bills are charged based on the floor area, and gas, water, hot water, and garbage collection charges are based on the size of the household. For electric charges, each household checks their meters once a month and pays their dues at their respective housing management offices. The Moscow City government is contemplating a system, in which meters for each type of energy are installed in every household, and bills are collected according to the readings. However, the city's plan is far away from being practical because its budget cannot afford
1-29 rather expensive energy meters for all households and an enormous cost for managing those meters if they are ever installed.
Reduced Pension Pensioners are the ones whose lives are said to have suffered most under Yeltsin's economic reforms. As mentioned earlier, the average commodity price rose 4,800 times greater than that before the price decontrol in the post-Soviet era. Pensioners could not keep up with the inflation rate and are unable to receive enough from the Social Security. In Moscow City, 2.05 million people, or 24% of the residents live on pensions. As many as 1.7 million senior citizens are looking for part-time jobs to cover living expenses. However, most jobs available are of intense physical labor, such as night guard and street cleaning (or in winter, shoveling the snow early in the morning). The media has reported that 430,000 pensioners suffer extreme poverty and are in urgent need of humanitarian aid.
The amount of pension in the case of a 76-year-old woman was 400 rubles a month in March 1999 and was raised to 450 rubles a month in May. The average pension for the whole Russia was increased to 448 rubles per month, and the minimum monthly pension was raised from 234 rubles to 304 rubles. 450 rubles are only one third the amount that a Moscow citizen needs to live a minimum life each month. Mikhaik Dmitriev, the first vice minister of Russian Ministry of Labor and Social Development, said that "the amount of pension has to be at least 185% of the minimum cost of living. However, because of the inflation since the devaluation of the rubles in August 1998, the real value of pension money was reduced by half." (“Sevodnya ” Newspaper, July 15, 1999)
In general, men start receiving pensions at the age 60 and women at 55 on condition that men have worked for a total of 25 years or longer and women for 20 years or longer. These, however, are general guidelines and vary according to the types of labor they have engaged in. For instance, military personnel and miners, whose jobs involved intense physical labor or potential life hazards, start receiving a greater amount of pensions at age 50.
Although pensions are the only income source for the majority of the elderly, 67% of the whole pensioners in Russia have experienced a some sort of payment delay. While no delay in pension payment has occurred in Moscow City so far, some people in other regions have not received payment for several months at a stretch, and others have been provided with vodka instead.
The biggest cause of the delay is a financial pinch suffered by the Pension Fund, which consists of premiums collected from enterprises and salaried workers and a subsidy from the federal government. As of September 1998, the Fund is 19 billion rubles in the red, while its expenditure is growing at a monthly rate of 30%. Pension premiums arrears are two billion rubles for the federal government and 105 billion rubles for corporations. An increasing number of enterprises are caught in such a financial crunch that they are unable to pay their premiums, which hits pensioners the hardest. A pension reform plan has been proposed that the pension premium for enterprises should be reduced from the current 28% per employee to 18%. By contrast, an average salaried worker pays only 1% of his monthly wage as a pension premium.
On top of about 400 rubles that most pensioners receive in Moscow City, the municipal government adds 10 rubles a month for each pensioner. Although some people criticize it
1-30 as a vote-catching policy, pensioners are simply happy receiving the extra.
In addition, pensioners can use public transportation, except for taxies, within Moscow City for free. By showing their pension certificates when boarding, they can get a free ride on subways, busses, and trolley busses.
The vast majority of people feel the need of pension reforms, without which the Pension Fund will collapse and become unable to pay back pensions to the contributors.
Family Finances in the Red According to the Moscow City government's statistics, an average household lives in a 54- square-meter apartment with two bedrooms and a dining kitchen and pays 147 rubles (590 yen) for public services, such as housing and utilities. An average married couple of pensioners receive 820 rubles per month. After subtracting 147 rubles, 673 rubles (2,690 yen) remain, which translate into 22 rubles (88 yen) per day to live on.
In case of a pensioner living alone, he/she receives 410 rubles (which was raised to 450 rubles in May 1999) plus a 28 -ruble credit from the city government, which is subtracted from his/her monthly housing and utility charges. According to the statistics of the Moscow City government, 368,600 households, or 11% of the total number of households, receive subsidies from the city, of which 68 .8 % are households of pensioners. The number of subsidized households increased by 28,300 from that in two years ago.
Food is the most expensive item in an average pensioner's budget. The food expense is roughly calculated at 12 rubles (48 yen) per day. A loaf of rye bread costs four rubles, a pack of milk costs 12 rubles, 500-gram ham costs 30 rubles, and 500-gram tomatoes cost 25 rubles. For pensioners, such traditional dishes as borscht and 0/\ (fish soup), are now luxury cuisine far beyond their reach.
Inadequate Medical System Many people feel uneasy about the medical system in new Russia. When people become ill, they usually go to "district clinics" in their respective jurisdictions. There are some private clinics, but they are definitely not for pensioners as they charge more than 160 rubles for the first visit. Diagnosis and treatment at district clinics are free of charge (workers pay 3% of their wages as social insurance premiums). Each citizen is issued a health insurance certificate with his/her name, telephone number, and registration number typed on it.
Clinics are chronically overcrowded. If one checks in at nine o'clock in the morning, he or she can see the doctor at three o'clock in the afternoon at the earliest or sometimes the next day. There are only 200 district clinics in Moscow City, which translates into one for every 420,000 citizens.
People have to go to pharmacies to find medicines that the doctors prescribed for them without knowing their availability. Even if they are available, people have to stand in a long line, as there is only one pharmacy for every 23,000 Moscow citizens.
If hospitalization is deemed necessary for a patient, the district clinic refers him/her to one of 56 municipal hospitals that only accommodates inpatients. If a doctor of a district clinic finds a case of heart disease or cancer, the patient is admitted to the National Center
1-31 for Heat Disease, the Science Academy's Cancer Center, or one of other specialized hospitals.
Hospitalization and medical treatment therein are basically free of charge. However, a patient has to pay ten rubles per day for renting a bedpan, 200 rubles per day for hiring a private nurse, and 570 rubles per day for reserving a private room.
There is a separate medical system for the staff of the federal government and their families. Government ministries and agencies operate 35 national hospitals in Moscow City, where the staff and their families are diagnosed and treated as outpatients or inpatients. Regular citizens are not allowed to use these facilities, which are said to be far better equipped and staffed than district clinics and municipal hospitals.
Senior Citizens' Homes The procedure for being admitted by nursing homes for the elderly is fairly simple. Applicants first submit their medical certificates, questionnaires on living environment, and a few other documents to the Moscow City's Social Support Committee, and visit potential nursing homes. Upon living there for six month on a trial basis, they decide whether or not they wish to stay and spend the rest of their lives there. The vast majority continues to stay. As for the charges, if the newly-enrolled person does not have a family, he/she pays 75% of his pension money and keeps the rest in his/her pocket to buy cigarettes, sweets, and other personal items at a concession stand within the facility. If the person has a family member as his/her guarantor, who earns more than a certain amount of wages, he/she pays 500 rubles a month. Only 5% of the elderly belong to this category.
Unfair Taxation System One of the reasons for financial and psychological strain that Russian businessmen are feeling is the strict and persistent levying and interrogation by the taxation office. Tax evasion is so common among businessmen (some perceives it as their due right, and 40% of them do not file an income tax return) that the taxation authority has to make intensive investigations on their finances. Some entrepreneurs complained in despair that 90% of their profits have been taken away by the revenue office.
A public opinion poll reported that 14% of the respondents felt the current taxation system "fair," where as 58% perceived it to be "unfair" (Economy and Lives, 1999). To most taxpayers, their tax moneys are mostly for feeding corrupt politicians and government staff but hardly for serving the interests of common people. In fact, privileges and interests of political leaders and bureaucrats are protected by the system of the Russian government. Even if a bribery case has been revealed, it is dismissed as a personal scandal to the utmost, and never leads to eradicating corruption. People's distrust of politics lessens their sense of obligation to pay taxes.
Increasing Number of Street Children In the whole Russia, there said to be two million children living on the street. Another statistics reports that the figure is four million. There are 30,000 street children in Moscow City alone, and 5% of all Russian children have no home. Many street children in Moscow come from remote regions, such as Sakhalin Province, 10,400 kilometers east of Moscow, and Chechnya, the battlefield of ethnic conflict. But why are there so many street children generated in the areas of no war?
1-32 The first reason is the unemployment of their parents. Since new jobs are hardly available for most of them, they sell their homes in exchange for smaller homes, and use the difference to cover their living expenses for a while. When it is exhausted, they exchange them for even smaller homes and then for homes in suburban areas. Eventually, they have to sell their last homes for money, begin living on the street, and finally abandon their children.
The second reason is the collapse of the school system in local regions. During the Soviet era, schools were managed by state-owned large enterprises, which, since the privatization, have transferred their responsibilities to run schools to their local governments in order to concentrate on their production businesses. Local governments, on the other hand, do not have enough funds to pay teachers' salaries thereby falling into arrears with wage payment for many months. Teachers go on strike, and schools are closed down. Children stop going to school.
Under these circumstances, more and more children become isolated and powerless. Neither their parents nor schools take on the responsibility for educating their children.
In Moscow City, there are 38 shelters (so-called "Children's Homes") for street children ages between five and 18. Small children less than five years of age are taken care of at nurseries. However, these shelters and nurseries can accommodate up to 5,000 children, thereby leaving the other 25,000 on the street.
Although some temporary shelters have been established by private sectors, they cannot keep pace with the ever-increasing number of street children. Being unable to remain indifferent, some churches have remodeled a part of their facilities to take in orphans and begun negotiating with nearby schools about their possible enrollment. Unfortunately, however, one church can accommodate 20 or so kids at the most. Currently, the Moscow City government does not have the accurate data as to how many shelters, including churches, are available for street children.
Accommodated children stay at their shelters until the age 18 and become independent from then on. However, their chance to find a job is rather slim because companies are reluctant to hire people with little education and no guarantor. Being unable to find a job or place to stay, some kids return to the shelters. According to a survey conducted by one of the Children's Homes, 30% of the people who had left the shelter have become criminals, 20% do not have fixed addresses, and 10% have committed suicide.
Children's shelters are in serious financial difficulties. Although Moscow City government subsidize them, the subsidy covers only 45% of their needed revenue and is barely enough to pay for teachers' salaries and food for children with no money left to buy textbooks, clothes, tools, spare parts of the facilities, and even medicine. Private enterprises used to donate certain necessities of life, but stop doing so as the economy turned from bad to worse following the devaluation of the rubles in August 1998.
The new system has given Russian entrepreneurs the freedom to produce goods at will. However, such freedom must be used not only for pursuing their own interests but also for restoring the society through supporting these children and other weak members of society. This is probably a new responsibility that private enterprises and nouveaux riches have to assume in modem Russia.
1-33 (Sources: Citizens' Lives and Economic Conditions of Russia by Iwanami New Books, Politics in Modern Russia by Tokyo University Press, etc.)
1-34 1-1-2 Energy
(1) Electric Power
Electric Power Generation in 1998 According to the Russian State Statistics Committee, Russia's electric power generation in 1998 registered 826 billion kWh, a 1% decline from the preceding year. The rate of operation was 66.1% (that of 1997 was 67.3%). By generation type, hydroelectric power generation was up by 0.8 % from the preceding year whereas nuclear and thermal power generation decreased by 4.4% and 1.7% respectively. Thermal power generation accounted for 68 .8 % of the total amount of power generated in 1998, hydroelectric power for 19.2%, and nuclear power for 12.6%.
Electric generation increased in 39 local jurisdictions and decreased in 42 jurisdictions. Among those which increased power generation were Puskov Oblast(1.3 times that of the previous year), Tveli Oblast, Yaroslavli Oblast, Penza Oblast, Tambov Oblast, Saratov Oblast, Novosibirsk Oblast, and Kemerovo Oblast. Regions that recorded reduced power generation include Udmurt Republic, Buryat Republic, Liningrad Oblast, Smolensk Oblast, Ryazan Oblast, Ivanovo Oblast, Voronezh Oblast, Rostov Oblast, Dagestan Republic, and Tula Oblast.
Only 2.4% of the total power generated in Russia, or 19,520.2 million kWh worth 55.6 million dollars was exported in 1998. Of the exported electricity, 7,172 million kWh, or 169.8 million-dollar worth power, was exported to non-CIS countries.
Electric Power Generation in 1999 According to the Russian Statistics Bureau, power generation during the period between January and September 1999 stayed at the same level as that of 1998, totaling 60.58 billion kWh. Power generation between January and December was 84.5 kWh, up by 2.3% from the preceding year.
(2) Petroleum
Production and Export of Petroleum in 1998 Crude oil production in 1998 was 303.37 million tons, a 0.68% decline from 1997 when an increase had been registered for the first time since 1987. In 1998, Russia was the third largest oil producer in the world following Saudi Arabia and the United States.
By company, production volumes of most large oil companies decreased from the previous year, except for those of the largest and second largest companies, namely, Lyukoil and Surgtneftigas. Yusko, the biggest competitor ofSurgtneftigas, ranked third in Russia while all of its subsidiaries experienced a production decline. The top three companies produced about 40% of oil in Russia.
The ruble devaluation in August 1998 worked in favor of export-oriented petroleum companies at least in a short term. Ruble-based export profits increased for most companies, exceeding the loss they incurred due to a decline of oil price. However, in a long run, they fell into a difficult position as they lost credit in the international financial market and become unable to solicit foreign investment or import foreign-made equipment. In addition, a collapse of the banking system, increased foreign-currency debts, the high
1-35 inflation rate plaguing the Russian economy, the overburdening taxation system that takes away more than half of the companies' profits, non-cash transaction, and other factors further drove these companies into a tight corner. With a few exceptions, most petroleum companies owe considerable amounts of money to the Russian government, which began reinforcing its tax collection drive in 1998. As of today, these petroleum companies remain deeply in debt with the government. (See Table 1-1-2-1.)
Table 1-1-2-1: Production of Crude Oil and Petroleum Products (in million tons) 1995 1996 1997 1998 1999 1~9 Same period in 1998 =100 Crude oil * 307 301 306 303 227.052 100.9 Crude oil processed 182 176 177 164 124.7 101.7 Gasoline for cars 28.1 26.8 27.2 25.9 19.0 100.2 Diesel fuel 47.3 46.7 47.2 45.2 34.8 102.6 Heavy oil 64.5 63.5 62.2 55.3 38.3 94.7 *Note: Including gas condensate Sources: Monthly issues of Social and Economic Condition in Russia, Russian Statistics Agency; 1998 Statistical Year Book, Russian State Statistics Committee
The volume of exported crude oil in 1998 increased by more than one million tons from the previous year whereas the monetary value thereof decreased by 30% due to a further decline in oil price. The average export price per ton was 51.9 dollars as of December 1998, a 52.0% drop from December 1997. Germany, Poland, and Italy have remained to be Russia's major trading partners. Export of petroleum products in 1998, which had been growing until 1997, fell by 11.4 from the previous year. Most of Russia's petroleum products are shipped to non-CIS nations, the decline of which was reflected directly in the reduction of export in 1998.
Production and Export of Petroleum between January and September 1999 The crude oil price in February 1999 marked a record low of some nine dollars per barrel. (Upon OPEC's decision to reduce oil production, it later hit the 30 dollars per barrel mark, the highest level since the Gulf War.) Russia decided to follow the OPEC agreement and reduced its oil export by 1.2 million tons per quarter (100 thousand barrels per day) from that of the fourth quarter 1998. According to the Russian Statistics Agency, the average export oil price of URAL, an Russian export brand, rose to 133.8 dollars per ton in 1998, 2.6 times that of December 1997 of 51.9 dollars per ton.
Nevertheless, Russian crude oil price is lower than that of the North Sea brand, which is relied upon as a crude oil price index. If the Russian government is to maintain its oil price at a 17 dollar-per-barrel level, that of the North Sea brand has to be around 19 dollars per barrel. If it gets any lower, the Russian oil industry may lose its competitive edge thereby falling into a difficult situation.
Oil production between January and September 1999 slightly exceeded that of the precious year's same period. Export decreased on a volume basis due to the government ’s output reduction policy and closer surveillance over the supply of crude oil to domestic refineries. On the other hand, it increased significantly on a monetary basis because of an international price hike.
1-36 Russia's is involved in several oil resource exploitation projects. Among them is the petroleum/natural gas drilling project off the coast of the Sakhalin Island (so-called "Sakhalin II"), a large-scale energy resource exploitation project jointly executed by major companies in Japan, the United States, Britain, and Netherlands. Upon enactment of the Production Sharing Agreement Law by the Russian government in February 1999, oil drilling began in the PiltonAvtovskoe mining area off the northeast coast of the Sakhalin Island. Exploitation of natural gas is also planned in the future.
As for petroleum products, their prices rose due to shortages and increased exports. The Russian government mandated in August that the oil companies must supply more than certain quantities of petroleum products to domestic markets and reinforced stricter control over their export, which resulted in a decline in export volume. From September on, the government imposed an embargo on the export of petroleum products in order to meet a high demand in the winter season. (See Table 1-1-2-2)
Table 1-1-2-2: Exports of Petroleum Products, January - September 1999 Jan.-Sep. 1998 Jan.-Sep. 1999 Same period last year =100
Quantity Value Quantity Value Quantity Value
(100 tons) (million dollars) (100 tons) (million dollars)
Crude oil 102,480.3 8,097.5 102,023.8 9,027.5 99.6 111.5 To non-CIS nations 87,836.3 6,844.6 86,765.0 8,175.6 98.8 119.4 Petroleum products 38,777.4 3,237.7 41,220.8 3,363.7 106.3 103.9 To non-CIS nations 37,043.1 2,950.1 39,030.5 3,139.7 105.4 106.4 Gasoline 2,008.0 272.3 1,642.1 179.1 81.8 65.8 To non-CIS nations 1,771.0 225.9 1,265.1 135.2 71.4 59.8 Diesel fuel 17,630.2 1,799.9 17,806.4 1,807.1 101.0 100.4 To non-CIS nations 17,220.1 1,739.1 17,243.8 1,734.9 100.1 9^8 Heavy oil 15,572.9 754.7 18,442.3 1,030.4 118.4 136.5 To non-CIS nations 15,127.6 714.6 17,698.0 998.2 117.0 139.7 Source; Interfax, Statistical Report (Nov, 20 - 26, 1999)
(3) Natural Gas
Production and Export of Natural Gas in 1998 The production volume of natural gas in 1998 recorded 564 billion cubic meters, up 3.8% from the previous year. By region, ChumeniOblast produced 542 billion cubic meters, a 3.8% increase from the preceding year, accounting for 96.1% of Russia's total natural gas production. Natural gas is also exploited in other regions, such as Olensburg Oblast, Astrakhan Oblast, Komi Republic, and Sakha Republic.
Export volume was 200,618 million cubic meters, down 0.1% from the previous year, and the value decreased by 18.7% to 13,346.5million dollars. Natural gas is Russia's biggest export item, accounting for 18.4% of total exports.
The major export partners include Ukraine, Germany, and Italy. Since CIS nations are chronically in arrears with their payment, Gazprom, a virtual natural gas monopoly in Russia, has taken a firm attitude toward these countries and reduced the supply thereto. (See Table 1-1-2-2.)
1-37 Table 1-1-2-2: Production and Export of Natural Gas (in billion m^) 1993 1994 1995 1996 1997 1998 Production volume SO CO 607 595 601 576 564 Export volume 171 204 192,3 198.5 201.1 200.6 To non-CIS nations 96 109 122 128 121 125.0 Sources: Russian State Statistics Committee, Statistical Yearbook 1997, Statistical Yearbookl 998, and Social and Economic Conditions in 1998 Russia (December 1998)
Production and Export of Natural Gas between January and September 1999 Production and export volumes of natural gas between January and September 1999 stayed at the same levels as those of the same period in the preceding year, registering 432.4 billion cubic meters and 142.174.6 million cubic meters respectively. The export value, on the other hand, declined by 23% from the previous year's same period to 7,456 million dollars due to a decline in the international price of natural gas. The average export price of Russian-produced natural gas stayed at a stable level of 50 dollars per 1,000 cubic meters. Although brakes have been put on the falling price, it dose not seem to show an upward trend anytime soon.
The Blue Stream Project, a plan to install gas pipelines between Russia and Turkey via the Black Sea initiated by Gazprom and SAIPEN, a subsidiary of an Italian company ENI in February 1999, was later joined by Japanese and French companies. Three participating entities comprised of Blue Stream, a joint venture of Gazprom and SAIPEN, Bouygues Offshore S.A. of France, and a Japanese trading company, signed an agreement in November 1999 that prescribed the design, provision of construction equipment and materials, and installation of undersea pipelines by these companies and estimated the total project cost at 1.7 billion dollars. Under the current plan, the first segment of the pipelines is scheduled to begin operation in 2001, and the installation of the rest is scheduled to be completed by 2002.
When the project is completed, Russia will be able to export 16 billion cubic meters of natural gas directly to Turkey without going though other countries.
(4) Coal
Coal Production in 1998 Russia's coal production in 1998 was 232 million tons, a 5.4% decline from the preceding year. Of the 32 coal-producing jurisdictions, 24 of them, especially Amur Oblast, Khabarovsk Oblast, MagadanOblast, the Maritime Province of Siberia, and other regions in the Far East, registered a decrease from the previous year.
Kemepovo Oblast, Russia's largest coal-producing region, extracted 97.8 million tons of coal, a 3.6% increase from the preceding year, accounting for 40% of Russia's total coal production.
Russian government's policies for the coal industry have been focused primarily on the closure of unprofitable mines and development of new ones, as well as dealing with unemployed miners resulted therefrom and transferring them to newly-developed mines. As of December 1998, the number of coal mines has been reduced to 112, less than half of 232 existed in 1993. However, due to lack of funds, most of the coalmine development projects have been canceled since then, and the government became unable to relocate
1-38 many of the unemployed miners. (See Table 1-1-2-3.) Tablel-1-2-3: Import/Export Trend of Coal 1997 1998 Qty. (1,000 Value ($ million) Qty. (1,000 tons) Value ($ million) tons) Import 23,092.9 829.6 23,477.7 626.4 To non-CIS nations 19,703.3 702.4 18,224.2 491.2 Export 15,098.0 250.3 14,945.4 184.8 To non-CIS nations 421.0 18.1 333.6 14.6 Source: Information furnished by Russian State Statistics Committee and Russian State Customs Committee
Coal Production. Export, and Import. January - September 1999 Coal production between January and September 1999 increased by 7.2% from the preceding year to 180 million tons. Although the production volume in each month of the third quarter was less than 20 million tons, it marked a more than 10% increase from the preceding year, when the coal production had decreased considerably in the wake of a series of strikes organized by miners and the financial crisis hitting the Russian economy.
A large portion of the increased output was allocated for export. About 19.72 million tons, 15% more than the previous year's tonnage, were exported during this period. However, a decline of coal price resulted in a decrease in the monetary value of the exported coal by 36% to 327 million dollars. The average export price as of September was 16.1 dollars per ton, a 64% decline from the previous year's corresponding period.
Russia imported 9.72 million tons of coal, 90% of which or 9.66 million tons came from CIS countries. The total amount of imported coal decreased by about 1.2 million tons from the preceding year.
(Russia East Europe Trading Commission, 1998 edition of Economic Trend, 1999 No.3)
1-1-3 Need for the Project and Joint Implementation
The St. Petersburg Central Heat-Power Station, the execution site of the proposed project, is a general name for three co-generation plants located in the central part of the city. Due to antiquated equipment and facilities, they are on the verge of closure as they can only supply 109 MW or 80% of the city's requirement estimated at 160 MW. Although deficit is currently supplemented by other stations in the same chain, the city of St. Petersburg is eager to operate its own independent heat-power supply system. This project aims at immediately solving the power shortage in central St. Petersburg by renewing the equipment and facilities of the Central Station, as well as reducing the emission of greenhouse gases by switching to gas thereby increasing the efficiency of these facilities.
LENENERGO, the implementing agency of this project, and the St. Petersburg City government are expecting a lot from this project and have showed great understanding and interests in the possibility of Joint Implementation as stipulated in the Kyoko Protocol adopted at the United Nations Framework Convention on Climate Change (COP3). This project, if implemented, is estimated to reduce 1,386,321.5 tons of C02 per year. Based on the sales of emission at five US dollars per ton, it will be able to generate a yearly income of 6,932,000 dollars, thereby significantly enhancing the project's profitability.
1-39 1-2 Necessity for Adopting Energy-Saving (or Alternative Energy) Technology
At COP3, Russia, along with East European countries, was designated as one of the nations with which developed countries can trade the emission of greenhouse gases. Although the Kyoto Protocol did not require Russia to reduce emission, Russia, according to the 1997 IEA data, emitted over 1.5 billion tons of C02 in 1995, nearly 50% of which or 740 million tons were from heat/electric power generation facilities.
Thermal power generation accounted for 60% of electricity generated in Russia in 1997. 65% of fuel used in thermal power plants was gas, followed by coal accounting for 25%. However, usage of coal is limited in the coal-producing region Energo because of the high cost for storage and transportation.
"Fuel and Energy 1996-2000," a federal program adopted by the Russian government in 1996, intends to generate approximately 11 million megawatts by installing a new type of thermal units by 2000. The government also plans to generate another 10 million megawatts or so by setting up combined-cycle generation equipment and gas turbines by 2000. Installation of such high-efficiency equipment is expected to save 3 billion cubic meters of natural gas.
In view of the above, the proposed project holds great significance for Russia as it will complement the Fuel and Energy program of its government.
If implemented, this project is estimated to conserve 510 thousand tons of crude oil or its equivalent per year given the caloric value of crude oil being 10,000 Kcal.
1-3 Significance, Necessity, and Effects of this Project and its Impact on Electric Industry
As mentioned earlier, Russia is in great need of this project. After analyzing the contents of the project, we have found that its profitability was rather low, but its impact on the improvement of air, water, and other environmental qualities was extremely high. With financial assistance, other heat/power stations operating under similar conditions will likely follow suit and switch to high-efficiency combined-cycle equipment.
1-40 Chapter 2 Project Plan Actualization
2. LENENERGO, the implementing agency of this project, is a regional electric power company having a history of over 100 years and an ample capacity to carry out the project. Not only LENENEGRO but also St. Petersburg City and RAO UES are showing keen interests in the joint implementation of this project and have agreed to cooperate during the implementation stage.
3. The preconditions of the joint implementation include an engineering study and a detailed feasibility study to be jointly conducted by Russian and Japanese parties. As for financing, a special-circumstance yen credit or an equivalent soft loan is expected of the Japanese government, as it is difficult for the Russian side alone to come up with the funds. 2. Project Plan Actualization
2-1 Project Plan
2-1-1 Overview of the Targeted Project Area
(1) General Outline of the Leningrad Oblast
Introduction The Central St.Petersburg City Heat & Electric Power Cogeneration Plant is the main power station under the management by "LENENERGO AO". The station is located in the St.Petersburg district. The heat & power generation plants located in this district supply thermal and electric power to the largest consumers in the downtown area of St.Petersburg which, in its turn, is the center of the Leningrad Oblast. LENINERGO is the power utility company supplying heat and electric power to the entire St.Petersburg district. The heat and electric power generated by the cogeneration plants is routed to the consumers via LENENERGO's distribution networks.
Brief Economic & Geographic Description The area surrounding the city of St.Petersburg is called the Leningrad Oblast. The city of St.Petersburg is an independent federal entity. The oblast is located in the Russia's north-west and faces the Baltic Sea through the Gulf of Finland. Its territory is 85,900 sq.km. Across the widest part of the oblast its length reaches 450 km from west to east, and 320 km from north to south. The width of the narrowest central part is around 100 km. The territory of the Leningrad Oblast puts it among the largest oblasts within the Russia’s European region. To the west the oblast is separated by the Narva River from the Republic of Estonia; to the north-west the oblast borders upon Finland. To the north the oblast borders upon the Republic of Karelia while to the south it faces three more neighboring oblasts, namely, Vologda, Novgorod, and Pskov Oblasts. Population of the Leningrad Oblast is 6.42 million (as of 1997) which accounts for 4.4% of the entire Russia's population. The major part of the oblast's population concentrates in St.Petersburg. The city's population is approximately 4.8 million, that is, 74.8% of the oblast's population (ref.to Table 2-1-1-1).
Table 2-1-1-1 Population Structure of the Leningrad Oblast (Unit: 1,000 persons)
St.Petersburg City Leningrad Oblast Population Share of the oblast's population Population Share of Russia's population 1990 5,035 75.09% 6,705 4.52% 1993 4,952 74.74% 6,626 4.46% 1994 4,883 74.53% 6,552 4.42% 1995 4,838 74.29% 6,512 4.39% 1997 4,750 74.77% 6,420 4.37% (Source : Leningrad Oblast Administration)
2-1 Population of the Leningrad Oblast is shrinking and it is especially evident in the case of St.Petersburg. It is expected that this trend shall continue in the future, as well. Below are the data on the major sectors of economy of the Leningrad Oblast (ref.to Table 2-1-1-2).
Table 2-1-1-2 Historical Changes in the Structure of the Leningrad Oblast's Industrial Output (%) (as of 1997)
Industrial sector 1980 1990 1994 1997 Machine building, metal processing 15.1 17.7 6.6 8.6 Light industry 7.9 6.8 1.5 1.4 Food industry Food processing 7.6 8.7 7.5 8.0 Chemical & petrochemical industries 7.4 9.0 3.7 7.3 Pulp & paper 13.2 15.7 10.2 18.4 Building materials 6.4 5.3 6.0 6.6 Power engineering 30.7 25.6 54.3 38.0 Others 11.7 11.2 10.2 11.7 Industrial output, total 100.0 100.0 100.0 100.0
(Source : Leningrad Oblast Administration)
Within the industrial output structure of the Leningrad Oblast the first place is occupied by power engineering while the second place belongs to pulp & paper. Until 1990, the second place used to be held by machine building and metal processing industries; however, recently the output of these industries has been dropping while power engineering's share, to the contrary, has been increasing. Moreover, as of late, light industry's share also exhibits decrease. The raising share of the fuel & power engineering complex can be explained by advancing prices of the petroleum products and generated power. Power consumption of the Leningrad Oblast in 1997 amounted to 31.2 billion kWh. The oblast's GDP (gross domestic product) is US$ 2.8 billion, that is, approximately US$1,640 per capita (as of 1997).
(2) General Outline of the City of St.Petersburg
Brief Geographic and Historical Description
The city of St.Petersburg is an independent administrative entity within the oblast's structure. During the existence of the Russian Empire, St.Petersburg was its capital city. Its geographic coordinates, 59°57' N 30° 19' E, places the city near the northern border of Russia. The city is situated along both banks of the Neva River and expands with the delta. The width of the river within the city limits varies from 340 to 650 meters. The river splits into a multitude of channels inside the city. These channels divide St.Petersburg into 101 islands. The territory of the city is 32,468 ha;
2-2 meanwhile, approximately 15% of the territory is covered with water. There are 600 bridges in the city. St.Petersburg was founded in 1703. As planned by Peter the Great, this underdeveloped marshland was destined to become Russia's path to the sea and "window on Europe". Accordingly, the building of the capital city had begun. Apart from the above, the city would function as a fortress defending Russia from the northern nations threatening the country at the time. On May 27, 1703, the guns of the Peter-Paul Fortress had announced the commencement of the opening ceremony. From that moment on, this day is held as St.Petersburg's birthday. The city was named after St.Peter and has became St.Petersburg, then Petrograd, then Leningrad. At present, the city has its initial name of St.Petersburg. Population is 4.75 million (as of 1997). A very special place in the history of the city belongs to a 900-day period during World War II when the city withstood the siege by the German army. At present, works are under way on a 651-km long high-speed railroad, highway and fiber optic communication line construction projects which shall connect the city to Moscow. If successful, this comprehensive plan shall lay down all the prerequisites necessary to develop functions of the capital city. A fine art collection founded by Catherine the Great is exhibited in the world- famous Hermitage Museum; there is also a Country Palace and other notable buildings. All this makes St.Petersburg a world-class tourist center.
Economic Overview
Ever since the time of the Russian Empire the city has been developing as a major industrial, scientific and cultural center. Aside from the fact that the city had had played a role of a major mercantile port connecting the country with Europe, St.Petersburg had become the largest navy port in the entire Russia which, in turn, brought about the development of shipbuilding industry. On the one hand, navy shipbuilding was under development from the 18th to 19th centuries and, on the other hand, light industry represented by spinning, weaving, and knitting factories and tanneries, was also growing fast. During the era of the former Soviet Union a multitude of large-scale industrial enterprises engaged in domestic manufacturing of turbines and electric equipment for power stations, atomic power engineering, industrial robots, etc., was constructed. However, the industrial performance indices of this region had dropped drastically during the recent times because of economic turmoil (ref.to Table 2-1-13).
Table 2-1-1-3 Trends of Industrial Production Output in St.Petersburg (1991 -1995)
Industrial Output Index Change from previous year (1991=100) (%) 1991 100 +0.9 1992 80 -20.1 1993 66 -16.8 1994 49 -25.3 1995 42 -15.0
(Source : Leningrad Oblast Administration)
2-3 Listed below are the data on the industrial production structure breakdown in St.Petersburg and the Leningrad Oblast for 1997 (ref.to Table 2-1-1-4).
Table 2-1-1-4 Industrial Production Structure of St.Petersburg and Leningrad Oblast (%) (as of 1997)
St.Petersburg Leningrad Oblast Power engineering 12.3 9.0 Fuel complex - 29.0 Ferrous metallurgy 1.7 - Non-ferrous metallurgy 2.5 8.0 Chemical & petrochemical 3.3 7.3 Machine building & metal processing 34.5 8.6 Pulp & paper 4.2 18.4 Building materials 3.4 6.6 Light industry 5.1 1.4 Food processing 24.7 8.0 Others 8.3 3.7 Industrial production, total 100.0 100.0
(Source : Leningrad Oblast Administration)
The most important industry of St.Petersburg is machine building and metal processing followed by food processing and light industries. As evident from Table 2-1-1-5, machine building and metal processing held 51% share of the total industrial production in 1990; however, their share has dropped to 39% recently. In 1990 the second place after machine building and metal processing was occupied by light industry but in the course of the last years its share has dropped, too, thus reflecting the economic crisis's realities. Meanwhile, food processing industry, on the contrary, has gained momentum (ref.to Table 2-1-1-5).
Table 2-1-1-5 Historical Changes in the Structure of StPetersburg's Industrial Output (%) (as of 1997) Industrial sector 1980 1990 1994 1997 Machine building, metal processing 43.1 51.0 39.4 34.5 Light industry 21.3 14.2 7.7 5.1 Food processing 15.3 12.1 19.8 24.7 Chemical & petrochemical industries 5.6 3.9 4.6 3.3 Pulp & paper 2.8 3.0 5.0 4.2 Building materials 2.5 2.2 4.1 3.4 Power engineering 1.6 1.9 6.3 12.3 Others 7.8 11.7 13.1 12.5 Industrial output, total 100.0 100.0 100.0 100.0
(Source : Leningrad Oblast Administration)
The city's GDP is US$ 10.3 billion, that is, around US$2,140 per capita (as of 1997).
2-4 2-1-2 Project's Content
This Project to be located in the central district of the city of St.Petersburg calls for modernization of the equipment on the "Scrap & Build" basis at the Central Heat & Power Station planning to shut down the existing superannuated and worn-out equipment which shall allow to supply power to the city center currently experiencing power shortage, improve station's effectiveness and thus decrease greenhouse gas emissions. The Central Heat & Power Station is a collective term referring to three heat & power plants, namely, ES-1, TEZ-2, and ES-3. Upon unification under the LENENERGO management the names of these plants were changed and for convenience's sake they are now called, respectively, Station No.l, Station No.2, and Station No.3. The locations of these stations are shown in Figure 2-1-2-1. Due to dilapidation of the equipment at the Central Heat & Power Station, not only the effectiveness has dropped but also emerged a problem of an insufficient supply of generated power to the central part of the city thus forcing to borrow the lacking power from the power stations managed by LENENERGO and located in the outskirts of the city. In this connection, since installation of the new, highly efficient cogeneration equipment accompanied by removal of the old and dilapidated facilities shall lead to the improvement both in the technical and economical aspects, not only LENENERGO itself but also its higher-ranking organization, this being RAO UES, impart the utmost importance and attach special priority to the Project. This Project which aims to study the current situation at the three above mentioned heat and power plants and subsequently select among them a station to install new equipment on the "Scrap & Build" basis, takes into account the future plans of development of heat & power engineering in Russia and targets decrease of the greenhouse gas emissions, as well.
2-5 2-1-3 Greenhouse Gas Emissions
In principle, so-called "greenhouse gases" are the following 6 gases :
Carbon dioxide : CO2 Methane : CH4 Nitrous oxide : N2O Hydrofluorocarbon : HFC Phosphofluorocarbon : PFC Sulfur hexafluoride : SF6
This Project targets the greenhouse gases emitted as the exhaust gas from the smokestack in the course of operation of the cogeneration power plant.
Among the chemicals constituting the greenhouse gases the biggest share belongs to the carbon dioxide (CO2). As for methane (CH4), since this gas is combustible it is completely consumed in the fuel-firing process at the power station. Accordingly, methane as such is not emitted into the atmosphere and thus is not a target gas within the Project's scope.
Considering the matters pertaining to the environmental protection in its entirety, it is desirous to lower emissions of other pollutants, as well.
Exhaust gas contains the following pollutants :
Carbon dioxide : CO2 Sulfur oxides : SOx Nitrous oxides : NOx Soot
Implementation of this Project shall result in decreased emissions of the greenhouse gases such as carbon dioxide (CO2), nitrous oxides (NOx), sulfur oxides (SOx), and soot.
Moreover, upon replacement of the conventional coal- and natural gas-fired heat & power generation equipment with the combined cycle co-generation equipment, supply of the thermal energy generated by the new facilities shall bring about a lower unit consumption of the fossil fuel per unit of the power so generated which, in turn, means decrease of the greenhouse gas emissions and, in addition, one might consider the transition to an alternative energy source due to lowered consumption of the fossil fuel as one of the beneficial effects generated in the course of this Project's implementation.
Assessment of such effects is covered in Chapter 3 and further.
2-7 2-2 General Outline of the Project Site (Enterprise)
2-2-1 Project's (Enterprise's) Interests
During the briefing of the Russian side regarding the Final Report Draft in the course of the 3rd field survey, there were confirmed the requirements of the Technical Assignment concluded with LENENERGO, the implementing agency within the frameworks of the Project, and once again there was emphasized the high interest level on the part of the Russian counterparts in the realization of the Project. Among the officials signed the Minutes Of Meeting, there were not only the representatives from LENENERGO but also the St.Petersburg Power Coordination Committee's Chairman. The participants have confirmed their eagerness to render a full-scale support towards the progress of the Joint Implementation of these matters. In addition, since the implementation of a highly financially-efficient project seems to be quite a challenging task under the present crisis-stricken state of the Russian economy, unstable exchange rate, cheap domestic rates for electric power in comparison with the international markets, and other factors, RAO UES also expects that the Joint Implementation shall contribute to a higher financial efficacy of the Project.
2-2-2 Project Site (Enterprise) Equipment and Facilities Conditions
As noted in section 2-1-2, the central heat & power station means three power plants, No.l, No.2 and No.3. Below follows a brief description of the conditions of the presently operating machinery, equipment and facilities as well as brief specifications of the new equipment to be installed on the Scrap & Build basis.
Table 2-2-2-1 summarizes brief specifications of each type of the equipment installed at the three plants, their current running capacities and other operating parameters, as well as annual operation data. Table 2-2-2-2 lists power & heat generation monthly breakdown data for 1998.
There are no dust collectors, desulfurization or denitrification equipment, neither waste treatment systems or any other environmental protection facilities installed at the plants.
2-8 Table 2-2-2-1 Central Heat-Power Station Specification of Equipment
Rated Condition Operating Condition Makeup Water Operation Capacity Pressure Temperature Capacity Pressure Temperature Temperature Flow Year (bar) (°C) (bar) CO) CO (ton/h) Steam Boiler No. 1 1978 50t/h 14 250 42t/h 11.1 224 104 45 Steam Boiler No. 2 1,979 50t/h 14 250 40t/h 11.2 229 104 42 Steam Boiler No. 3 1,980 50t/h 14 250 40t/h 11.7 220 104 43 Steam Boiler No. 4 1,981 50t/h 14 250 41t/h 11.4 213 104 43 No.1 Station Steam Boiler No. 5 1,982 50t/h 14 250 39t/h 11.1 234 104 41 Steam Boiler No. 6 1991 50t/h 14 250 - — - ™" - Hot Water Boiler No. 1 1978 100Gcal/h 16 150 66Gcal/h 16 Hot Water Boiler No. 2 1979 100Gcal/h 16 150 21 Gcal/h 16 Hot Water Boiler No. 3 1981 100Gcal/h 16 150 17Gcal/h 16 Steam Boiler No. 1 1931 120t/h 28 400 92.2t/h 30.1 395 104 95.5 Steam Boiler No. 2 1931 120t/h 28 400 90.9t/h 28.8 389 104 93.0 Steam Boiler No. 5 1931 120t/h 28 400 100.1t/h 29.2 396 104 102.4 Steam Boiler No. 4 1949 125t/h 90 500 104.0t/h 93.7 495 104 104.0 Steam Boiler No. 6 1950 175t/h 90 500 123.8t/h 93.2 496 144 123.8 Steam Boiler No. 7 1951 175t/h 90 500 123.8t/h 93.2 496 144 123.8 Hot Water Boiler No. 1 1967 100Gcal/h 16 150 57.2Gcal/h 16 No.2 Station Hot Water Boiler No. 2 1969 100Gcal/h 16 150 51.1 Gcal/h 16 Hot Water Boiler No. 3 1971 75Gcal/h 16 150 30.9Gcal/h 16 Hot Water Boiler No. 4 1983 75Gcal/h 16 150 ™ 16 Hot Water Boiler No. 5 1985 75Gcal/h 16 150 - 16 Steam Turbine No. 1 1931 21 MW 28 400 15.2MW 26.2 388 104 104.2 Steam Turbine No. 2 1949 50MW 90 500 31.1 MW 90.8 490 144 184.5 Steam Turbine No. 5 1950 30MW 90 500 33.9MW 91.1 486 104 177.8 Steam Boiler No. 1 1912 35t/h 15 350 29t/h 13.3 304 78 29 Steam Boiler No. 2 1913 35t/h 15 350 30t/h 13.6 306 78 30 Steam Boiler No. 3 1913 35t/h 15 350 32t/h 13.3 298 78 32 Steam Boiler No. 4 1911 35t/h 15 350 31 t/h 13.6 295 78 31 No.3 Station Steam Boiler No. 5 1915 35t/h 15 350 28t/h 13.2 318 78 28 Steam Boiler No. 6 1914 35t/h 15 350 30t/h 13.1 291 78 30 Steam Turbine No. 1 1929 4MW 14/1.4 350 2.8MW 13.0 295 78 43.4 Steam Turbine No. 2 1929 4MW 14/1.4 350 4.2MW 12.7 299 52.8 Table 2-2-2-2 Record of Monthly Power Generation & Heat Supply (1998)
No.1 Station Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec. Total Power Generation ( X 103MWh) - - - - — - - 0 Heat Supply Air Conditioning(Gcal) 63,369 60,725 56,242 43,726 0 0 0 0 0 34,740 54,769 58,487 372,058 Steam (ton) 13,166 15,487 14,186 9,079 1,042 81 901 1,039 1,091 4,426 12,317 13,888 86,703 Hot Water (Gcal) 15,452 14,794 17,165 18,301 25,336 5,400 19,378 15,756 18,286 16,767 20,760 22,250 209,645
No.2 Station Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec. Total Power Generation ( X 103MWh) 45,556 39,336 43,567 38,330 21,439 12,168 3,168 16,825 20,689 36,187 40,474 41,572 359,311 Heat Supply Air Conditioning(Gcal) 181,561 180,364 162,409 124,092 0 0 0 0 1,137 103,672 161,473 179,776 1,094,484 Steam (ton) 13,929 11,787 12,846 14,051 6,419 6,379 1,298 6,130 6,382 12,069 12,774 14,877 118,941 Hot Water (Gcal) 41,922 39,225 41,840 42,097 56,606 48,180 8,589 43,436 55,587 34,811 42,984 46,837 502,114
No.3 Station Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec. Total Power Generation ( x 103MWh) 5,433 5,101 4,828 3,653 0 0 0 0 0 2,172 4,347 4,638 30,172 Heat Supply Air Conditioning(Gcal) 39,824 37,358 34,590 28,155 0 0 0 0 0 19,562 31,057 35,514 226,060 Steam (ton) 990 894 955 929 0 0 0 0 0 727 836 603 5,934 Hot Water (Gcal) 1,627 1,451 1,532 1,424 0 0 0 0 0 1,074 1,095 1,170 9.373
Total of No.1 ~No.3Station Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec. Total Power Generation ( X 103MWh) 50,989 44,437 48,395 41,983 21,439 12,168 3,168 16,825 20,689 38,359 44,821 46,210 389,483 Heat Supply Air Conditioning(Gcal) 284,754 278,447 253,241 195,973 0 0 0 0 1,137 157,974 247,299 273,777 1,692,602 Steam (ton) 28,085 28,168 27,987 24,059 7,461 6,460 2,199 7,169 7,473 17,222 25,927 29,368 211,578 Hot Water (Gcal) 59,001 55,470 60,537 61,822 81,942 53,580 27,967 59,192 73,873 52,652 64,839 70,257 721,132 (1) Station No. 1
1) Overview of the Plant
Station No.l is located in the southern section of the city center at the following address : Obvodni Kanal, 76. Its territory is approximately 149,000 m2. The station was first put into operation in 1898. (The presently used equipment was manufactured in 1979 - 1990).
The equipment and facilities of the Station No.l consist of the following : 3 hot water boilers for district heat supply; 6 steam boilers; 2 fuel oil storage tanks; 2 steam/water heat exchangers, and transforming electrical equipment. No power generating equipment has been installed.
There is a plan to install 8 new hot water boilers within the available territory. Although the construction of a smokestack (150 m) and equipment foundations has been completed, this plan was then discontinued due to the lack of funds and dropping demand for the heat supply.
According to 1997 data, the fuel consumed in the course of the operation was mainly natural gas (93.6%) while the rest was backed up with fuel oil. Meanwhile, this was mainly because of decreased demand and the real feed rate of the gas is just 28,000 Hm3/h which is barely enough to fire 3 hot water boilers. In consequence, should the demand increase the share of consumed fuel oil shall also increase accordingly.
In this connection, LENENERGO plans appropriate countermeasures and is now implementing a gas pipeline construction project to be completed in 2001.
Make-up water is supplied from the city water supply grid. Water consumption rate is around 2,000 m3/h at present. Should the installation of the 8 new water boilers be realized the water consumption rate so required might run up to 5,000 m3/h.
In case if new generation equipment is to be installed, its power output shall not exceed maximum 200 MW due to limited transmission capacity of the power transmission lines.
Figure 2-2-2-1 shows the station's plot plan.
2) Major Equipment Specifications
(a) Hot water boilers
Type KVGM-100 Quantity 3 units Fuel Gas, fuel oil Capacity 100 Gcal/h each Year of manufacture 1978 thru 1981
2-11 (b) Steam boilers
Type GM-50 Quantity 6 units Fuel Gas, fuel oil Generated steam 14 bar / 250°N Capacity 50 t/h each Year of manufacture 1978 thru 1990
(c) Fuel oil storage tanks
Quantity : 2 units Capacity : 10,000 m3 each
(d) Steam/water heat exchangers
Quantity 2 units Capacity 5,000 m3 each
(e) Transforming electrical equipment
Type Indoor type Voltage 6 / 35 / 110 / 220 kV
3) Current Equipment Status and Operating Conditions
The three existing hot water boilers were commissioned in 1978 through 1981. They are tied-up directly to the district heat supply system. To the date, their operating time has run up to 36,000 hours, 56,000 hours, and 59,000 hours, respectively.
Design temperature of the hot water fed into the district heat supply system is 150°C while 70°C is design temperature of the return water. As a matter of fact, due to insufficient fuel supply caused by financial and other difficulties, the district heat supply system is running at 75°C for the hot water (at ambient temperature of - 5°C) and 40 °C for the return water.
This equipment as a whole is in a good condition and under timely maintenance and reasonable planned repairs can be operated for a good while longer.
The six existing steam boilers were commissioned in 1978 through 1990 (five boilers are in operation as of now). At present, two boilers run during summer time and up to four boilers can be put into operation in winter depending on the actual demand.
2-12 Since during a certain period in the past a highly sulfurous heavy fuel oil (so-called "mazut") was used as the main fuel, low temperature components were damaged by corrosion. Aside from that, no other significant problems are noted.
Because of the economic difficulties reflected in the diminished demand for heat supply, annual heat supply was 772,000 kcal in 1995, 714,000 kcal in 1997, and 641,000 kcal in 1998.
4) Points of Consideration Under "Scrap & Build" Approach
There are certain structures and other items still remaining within the area (approx. 22,000 m2) set aside for the installation of the new 8 hot water boilers, however since they are not in operation at present, such an area can be used not only to dismantle and remove the existing unused structures and facilities and subsequently erect new equipment on this spot but also this allows, upon installation of new equipment, to dismantle and remove superannuated and dilapidated structures, facilities and equipment which are in use at the moment.
In addition, according to LENENERGO, there is no underground cable ducts, lines, etc. cross-connecting the currently operating facilities within this area which means that the new construction can be performed without causing unduly disturbances to the operation of the existing equipment and facilities.
Although the new equipment, as has been already mentioned, may additionally require up to 3,000 m3/h, there is no anticipated problems concerning the make-up water for the heat supply.
Moreover, the location of the Station No.l inside the industrial district of the city does give additional advantages related to the station's noise within the environmental protection frameworks.
In general, the points of consideration in case of the new construction within this site are as follows : •
• How to use the smokestack (150 m) erected in the center of the allocated site, or the existing structures and equipment foundations • Limited power output of generating equipment (approx. 200 MW max.) due to the limited transmission capacity of power transmission lines • Gas fuel supply (the existing gas supply flow rate is insufficient for the new equipment)
2-13 station site : (2) Station No.2
1) Overview of the Plant
Station No.2 is located in the eastern section of the city center at the following address : Novgorodskaja street, 11. Its territory is approximately 100,000 m2. The station No.2 was first put into operation in 1897 (the presently used equipment was manufactured in 1931 - 1985). There are housing blocks nearby.
The station is equipped with the following major facilities and pieces of machinery : 5 hot water boilers for district heat supply; 6 steam boilers; 3 condensing steam turbines for power generation; 3 fuel oil storage tanks; 4 steam/water heat exchangers; and transforming electrical equipment.
Although main fuel is gas, coal and fuel oil are also used additionally or for backing- up. According to the actual data on fuel consumption in 1997, the shares of different types of fuel used at the plant were as follows : gas 89.5%, coal 9.9%, and fuel oil 1.6%. The ash produced in the course of coal firing is disposed of by transporting it by trucks to a disposal site located in the suburbs. There is a plan to discontinue use of coal by 2003 due to a variety of problems related to the environmental protection and transportation.
Make-up water is fed from the city water supply grid; condensing equipment cooling water is taken from the Neva River which flows in the eastern section of the station's site. In order to avoid the raise of the river water temperature it is planned to transfer to a closed-loop system with a water-cooling tower for the condensing equipment.
A considerable part of this equipment is superannuated and dilapidated, this being the cause of high repair expenses.
It is reported that in connection with limited transmission capacity of the power transmission lines, maximum output power of the generating equipment should be approximately 100 MW.
The station plot plan is shown in Figure 2-2-2-2.
2) Major Equipment Specifications
(a) Hot water boilers — 1
Type : PTVM-100 Quantity : 2 units Fuel : Gas, fuel oil Capacity : 100 Gcal/h each Year of manufacture : 1967 thru 1969
2-15 (b) Hot water boilers — 2
Type PTVM-75 Quantity 3 units Fuel Fuel oil Capacity 75 Gcal/h each Year of manufacture 1971 thru 1985
(c) Steam boilers — 1
Type LMZ Quantity 3 units Fuel Gas, fuel oil Generated steam 28 bar/400°N Capacity 120 t/h each Year of manufacture 1931
(d) Steam boiler — 2
Type Benson-SKB Quantity 1 unit Fuel Gas, fuel oil Generated steam 90 bar / 500°N Capacity 125 t/h Year of manufacture 1949
(e) Steam boilers — 3
Type Benson-Durr Quantity 2 units Fuel Gas, fuel oil Generated steam 90 bar / 500°N Capacity 175 t/h each Year of manufacture 1950-51
(f) Steam turbine — 1
Type T-20,5-26/LMZ Method Condensing Quantity 1 unit Input steam 28 bar / 400°N Power output 21,000 kW Year of manufacture 1931
(g) Steam turbine — 2
Type T-20-90/LMZ Method Condensing Quantity 1 unit
2-16 Input steam 90 bar / 500°N Power output 30,000 kW Year of manufacture 1949
(h) Steam turbine — 3
Type T-50-90/LMZ Method Condensing Quantity 1 unit Input steam 90 bar / 500°N Power output 50,000 kW Year of manufacture 1950
(i) Fuel oil storage tanks
Quantity 3 units Capacity 2,000 m3 each
(j) Steam/water heat exchangers
Quantity : 4 units Capacity : 5,000 m3 each
(k) Transforming electrical equipment
Type : Outdoor type Voltage : 6/35/110 kV
3) Current Equipment Status and Operating Conditions
Operation of existing hot water boilers (5 units in total) has commenced during the period of 1967 though 1985. The total operating time of the boilers varies from 10,000 to 76,000 hours, the later being the case of the longest-run units.
Out of 5 boilers three units are gas-fired and the other two operate on fuel oil. As of now, oil-fired boilers are being unused.
Design temperatures of the supply and return water of the district heat supply system are 150°N / 70°N, however, the current temperature during the actual operation is 95°N / 40°N (at -25°N ambient temperature) due to the similar reasons explained for the Station No. 1.
The condition of this equipment in good in general.
2-17 As for the steam boilers, the 3 low-pressure (28 bar) boilers were commissioned in 1931 and their cumulative operating time exceeds 360,000 hours. This equipment is still being in use despite the fact its lifetime has already expired.
Three high-pressure (90 bar) boilers put into operation in 1949-51 are in approximately the same condition as the low-pressure boilers.
3 steam turbines were commissioned in 1939, 1949 and 1950, and their cumulative operating time is 378,000 hours, 325,000 hours, and 397,500 hours, respectively. Each of these is in a condition allowing to continue its operation for a certain time, however, it is highly probable that these turbines will be shut down and decomissioned in the near future.
Actual annual heat supply volume of the Station No.2 was 1,665,000 Gcal in 1995, 1.690.000 Gcal in 1997, and 1,680,000 Gcal in 1998. It is reported that this accounts for approximately 80% of the actual demand. Actual transmitted power volume was 297.000 MWh in 1995, 272,000 MWh in 1997, and 359,000 MWh in 1998.
4) Points of Consideration Under "Scrap & Build" Approach
Despite the superannuated and dilapidated equipment, this station plays at present a key role in supplying heat and power to the city center of St.Petersburg. It is believed, though, that the Scrap & Build approach can be rather difficult to follow in this case because of the necessity to maintain power and heat supply operation throughout the construction period.
Meanwhile, since there does exist a plan to discontinue use of coal by the end of 2003, an opportunity presents itself to dismantle and remove the existing coal storage facility and erect new equipment in its place and within the neighboring area (approx.11,000sq.m). Should this become the case, certain attention is to be paid towards the cable ducts and lines laid underground near the coal storage facility and which cross-connect the existing equipment.
In general, the points of consideration in case of the new construction within this site are as follows : •
• Date of discontinuation of use of coal • How to deal with the existing structures and underground facilities on the allocated construction site (the area left upon removal of the existing coal storage facility and the adjacent area) • Environmental protection measures (because of the vicinity of the housing buildings, and against the noise pollution, in particular) • Limited power output of generating equipment (approx. 100 MW max.) due to the limited transmission capacity of power transmission lines • Make-up water supply (the existing water supply flow rate is insufficient for the new equipment) • Gas fuel supply (the existing gas supply flow rate is insufficient for the new equipment)
2-18 CD Chemical Shop © Management/Turbine Building © Warehouse @ Garage © Gasoline Tank © Boiler Building © Intake Water Rump Station © Chlorination Equipment Room © Hanger s Repair Shop © Chemical Treatment Equipment Room © Stack © Gas Distribution Equipment Room © Recreation Room © Mechanical Repair Shop © Electrical Repair Shop © Water Tank © Water Treatment Equipment Room © Battery Room © Unloading Facility © Fuel Oil Pump Station Fuel Dll Tanks © Guard House © Crusher © Pump Station Indoor Coal Storage Yard © Construction Shop Administration Building
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Fig.2-2-2-2 NO.2 STATION SITE LAYOUT (3) Station No.3
1) Overview of the Plant
Station No.3 is located in the city center at the following address : Nab.Fontanki, 104, covering the area of approximately 17,400 m2 and being in a close vicinity to the housing blocks.
The station No.3 was first put into operation in 1898 (the presently used equipment was manufactured in 1912 - 1929). The station is equipped with the following major facilities and pieces of machinery : 6 steam boilers; 2 back-pressure steam turbines for power generation; and transforming electrical equipment.
Main fuel is gas; in 1997 its share was 99.6%. Fuel oil are also used for back-up purposes.
The fuel oil storage facility of the Station No.3 is superannuated and dilapidated while there is no waste water treatment facilities installed. In this connection, fuel oil and make-up water are fed from the Station No.l.
The station plot plan is shown in Figure 2-2-2-3.
2) Major Equipment Specifications
(a) Steam boilers
Type B&W Quantity 6 units Fuel Gas, fuel oil Generated steam 15 bar / 350°N Capacity 35 t/h each Year of manufacture 1912-15
(b) Steam turbine — 1
Type R-3-14/1.2 Laval Method Back pressure Quantity 1 unit Input steam 14 bar / 350°N Exit back pressure 1.4 bar Power output 30,000 kW Year of manufacture 1929
2-20 (c) Steam turbine — 2
Type E-5a5-14/1.4 AEG Method Back pressure Quantity 1 unit Input steam 14 bar / 350°N Exit back pressure 1.4 bar Power output 50,000 kW Year of manufacture 1929
(d) Transforming electrical equipment
Type Outdoor type Voltage 6/35/110kV
3) Current Equipment Status and Operating Conditions
The six existing steam boilers have been in operation since 1912 - 1915 and their cumulative operating time reached 300,000 to 360,000 hours. This equipment is in a strikingly poor condition, its lifetime resources have been completely exhausted.
The two existing back-pressure steam turbines have been commissioned in 1912 and their cumulative operating time reached 220,000 hours and 227,000 hours, respectively. Both turbines together with their blades badly corroded. Moreover, there are problems with spare parts supplies. This equipment is in exceptionally poor condition.
Because of these conditions, the equipment remains off-line virtually all the time and is placed into the operation only when it is justified by increased demand.
Actual volume of heat supply was 236,000 Gcal both in 1995 and 1997, and 226,000 Gcal in 1998. Actual volume of transmitted power was 17,100 MWh in 1995, 15,000 MWh in 1997, and 30,000 MWh in 1998.
4) Points of Consideration Under "Scrap & Build" Approach
At the time being, the facility in question remains off-line virtually permanently and its decommissioning should not significantly affect the heat and power supply operations. In this connection, it can be said that there is no serious obstacles hampering the scrap & build approach. However, there do exist certain points of consideration in case of the new construction within this site : •
• Small construction site area
2-21 • Environmental protection measures (because of the vicinity of the housing buildings, and against the noise pollution, in particular) • Make-up water supply (the existing water supply flow rate is insufficient for the new equipment) • Gas fuel supply (the existing gas supply flow rate is insufficient for the new equipment)
2-22 VAREHI
warehouse / \ GARAGE
IIL TANK GATE* x guar \ HOUSE
BOILER/TURBINE BUILDING
'AREHOUSI LABORATORY 1ISTRIBUTIDI ,STATION ,
GARAI
0 50 !00m
Fig.2-2-2-3 N0.3 STATION SITE LAYOUT 2-2-3 Implementation Potential of Project Site (Enterprise)
(1) Technical Capabilities
General Outline of LENENERGO AO
In the course of its 110-year history, LENENERGO was established in 1993 as a parent public company in charge of power utility services in Russia's north-west. Its stock capitalization amounts to 897 mln.rubles of which 49% are contributed by RAO UES, and the rest 51% are formed out of the capital contributions provided by local government as well as other credit institutions and financial establishments.
LENENERGO manages its 15 subordinated power stations and power distribution and transmission grid encompassing the entire region. LENENERGO is the largest power utility company in Russia's north-west, and its services cover both St.Petersburg (1,400 km2, population 4.8 min.) and the Leningrad Oblast (84,600 km2, population 1.7 min.), altogether 86,000 km2 (6.5 min.).
The Leningrad Oblast's power sources are represented by thermal, hydroelectric and nuclear power plants. Accordingly, one can broadly classify this region's power plants into the following three categories :
A. Power stations subordinated to LENENERGO B. Leningrad Nuclear Power Station (self-governing independent body) C. In-house power plants of the industrial factories
The distribution of the generated power volumes within the region is as follows :
A. Power stations subordinated to LENENERGO 5,337 MW B. Leningrad Nuclear Power Station 4,000 MW C. In-house power plants of the industrial factories 470 MW
Generated power, total 9,807 MW
Since the region's power transmission and distribution lines are being managed by LENENERGO, all the stations and power plants mentioned above are included into this company's transmission and distribution network.
Approximately 41% of the total power volume generated in the Leningrad Oblast are being provided by the Leningrad Nuclear Power Station. However, this nuclear power plant was commissioned in 1974 and has been in operation in the excess of 25 years which means its design life span shall be exhausted in the near future. Accordingly, to carry on with the operation of this NPP, a substantial re-construction would be in order implying extensive investments. These matters are now under consideration and the decision on whether to continue the NPP's operation or shut it down, is yet to be made.
Below are LENENERGO's actual heat and power generation and transmission data for 1998:
2-24 Power generation at the plants subordinated to LENENERGO : 19,544 mln.kWh Power purchased from FOREM power wholesale market: 8,198 mln.kWh Power, total : 27,742 mln.kWh The main power supplier for FOREM is the Leningrad Nuclear Power Station (4,000 MW power generation capacity) LENENERGO heat supply : 22,915 thous.Gcal
Power Plants Subordinated to LENENERGO
There are 11 thermal power plants (9 plants in St.Petersburg and 2 more in the Leningrad Oblast) as well as 4 hydroelectric power stations, all subordinated to LENENERGO. Within the LENENERGO's transmitted power structure, 70% of total generated power are provided by the above mentioned subordinated power plants including 48% by thermal plants and 15% from hydroelectric stations. 42% are bought from FOREM, 5% are transmitted from the in-house (thermal) power plants of industrial enterprises.
All LENENERGO's power plants situated within St.Petersburg city boundaries are thermal ones, and their total power capacity is 2,437.5 MW which comprises approximately 51% of the total power capacity of all the plants and stations subordinated to LENENERGO, or 45% should we also include hydroelectric power stations into consideration.
LENENERGO's transmitted power volume has been diminishing recently. Transmitted power volume was approx. 25.6 bln.kWh in 1990 but thereafter it tended to decrease on the annual basis and by 1998 dropped to 19.5 bln.kWh which is about 76% of the 1990 level. This reflects actual stagnation of the industrial sector throughout the recent period and is explained by a considerable decrease of power demand on the part of industrial consumers. Heat supply volumes at the co-generation plants (9 facilities) are as follows : 11,714 Gcal/h from gas-firing plants, and 9,515 Gcal/h from coal/oil-firing plants.
From the demand structure for the transmitted power generated by these co-generation plants, it is evident that approx. 12% go to FOREM and around 83% are supplied to St.Petersburg districts including 37% for industrial needs and 24% for. commercial businesses. Accordingly, the total share of the industrial and commercial sector is 61%. Household power supply hovers around 18% level. Due to this demand structure, economic and industrial tendencies strongly influence power demand within the region.
Total length of the transmission lines operated by LENENERGO is 36,021 km of which 1,168 km belong to RAO UES but managed by LENENERGO. The service area is divided into 40 sectors run by 10 branch offices. There are 3 types of major transmission lines : 330kV, 220kV and HOkV.
2-25 LENENERGO's Organization
LENENERGO comprises 36 departments staffed with 18,000-strong labor force allocated as follows : power and heat generation 6,027; power and heat supply 5,560 (sub-total 11,587); security and management 4,400.
While the existing new equipment was manufactured in 1979 through 1990, the equipment and facilities of St.Petersburg power stations are, as a whole, superannuated such as steam boilers commissioned in the 1910s or steam turbines put into operation in the 1920s. Since LENENEGO itself is a large-scale organization staffed with a lot of experienced personnel and having a long record of operation spanning over 100 years, it can be said that there do exist sufficient technical capabilities to implement this modernization Project.
(2) Management
As mentioned above, out of 18,000-strong labor force of LENENERGO 4,400 persons are engaged in management which is one forth of the total staff thus implying availability of a sufficient management structure. The Central St.Petersburg Heat & Power Station was staffed with 1,560 employees in 1997 of which 1,341 worked at the station and the rest 219 persons were engaged in the fields such as social welfare and transportation (management personnel number remains unclear but it seems reasonable to consider it similar to LENENERGO's pattern as a whole).
2-26 (3) Management Base and Business Policy
LENENERGO's financial statements for 1998 fiscal year are as follows :
Balance Sheet at the beginning of at the end of 1998 1998 (million rubles) (Assets) Non-current assets Intangible assets 9 6 Fixed assets 9,286 9,582 Long-term financial assets 326 348 Construction in progress 2,556 2,236 Sub-total 12,177 12,172
Current assets Capital stock 428 477 Paid-in VAT 616 756 Accounts receivable (to be settled in a 12-month period) 0 0 Accounts receivable (to be settled within a 12-month period) 3,014 3,867 Short-term financial assets 0 61 Other financial assets 29 19 Sub-total 4,087 5,180
Losses Losses carried forward 685 685 Losses for the current period 0 265 Sub-total 685 950 Assets, grand total 16,949 18,302
(Liabilities) Equity Capital stock 897 897 Asset revaluation 10,200 10,308 Capital reserve 0 0 Accumulated fund 33 8 Social development fund 524 516 Target investments and loans 485 408 Profits carried forward 0 0 Income for the current period 0 0 Sub-total 12,139 12,137
Long-term liabilities Long-term loans payable 0 2 Other long-term liabilities 0 0 Sub-total 0 2
Short-term liabilities Short-term loans payable 79 31 Accounts payable 4,727 6,130 Accrued dividends 4 2 Advance received profit 0 0 Consumption fund 0 0 Other short-term liabilities 0 0 Sub-total 4,810 6,163 Liabilities, grand total 16,949 18,302
2-27 Profit and Loss Statement 1998 1997 (million rubles)
Item Sales (goods, commodities, operations, services) 6,196 6,044 Cost of sales 6,153 6,253 Selling expenses 0 0 Administrative expenses 0 0 Operating revenue (expenditures) 43 -209 Interests received 2 1 Interests paid 1 0 Dividends 1 0 Other operating revenue (VAT excluded) 70 10 Other operating expenditures 164 154 Current income (losses) -49 -350 Non-operating revenue 78 88 Non-operating expenditures 99 29 Current profit (loss) -73 -291 Income tax 0 1 Internal reserves 71 57 Profit (loss) carried forward -144 -350
Analysis of business conditions at LENENERGO was performed on the basis of the above financial statements.
1) Profit and Loss Statement
a) 1998 sales increased in comparison with that of 1997 while cost of sales decreased. As a result, gross profit which was in the red during 1997 fiscal year has registered positive value of 73 million rubles in 1998 fiscal year. This can constitute an outcome of the increased volumes of generated power (376 mln.kWh) and heat (407,000 Gcal). Gross profit margin does not exceed 0.7%, though.
b) Ordinary income (operating revenue) in 1997 fiscal year was 352 min.rubles in the red; compared to that, 49 mln.rubles in the read for 1998 fiscal year show that the losses dropped seven-fold. This is because of running-up gross sales revenues and increased other operating income (extraordinary revenues) by 60 mln.rubles compared to 1997.
c) Non-operating revenue in 1998 dropped by 10 mln.rubles from 1997 fiscal year while non-operating expenditures escalated by 70 mln.rubles. As a consequence, current profit for 1998 fiscal year registered 73 mln.rubles in the red which is a four-fold decline from 1997 (391 mln.rubles). Loss carried forward in 1998 fiscal year (including internal reserve allocations) registered 144 mln.rubles which is a major achievement in cutting down the losses as compared with 1997 fiscal year (350 mln.rubles). Internal reserve allocations were increased in 1998 fiscal year as compared with 1997 fiscal year but remained rather small amounting to just 16% of the capital stock volume.
2-28 2) Balance Sheet
a) The ratio of shareholders' equity to the capital assets was 92% in 1998 which testifies to the absence of any serious problems as far as capital funds are concerned. What's more, fixed assets at the end of 1998 accounted for approximately 86% of the shareholders' equity (capital stock and reevaluated assets) which can be regarded as a favorable sign. This notwithstanding, the fixed-to-current assets ratio was about 1.85 making us to conclude that the invested capital pay-back period is rather long.
b) Both accounts receivable and accounts payable increased as compared with the beginning of 1998 and the accounts payable at the year's end exceeded the accounts receivable by 2,263 mln.rubles.
c) Both carry-forward profits and current period's income were zero at the year's start and end.
Reasoning from the above, one can indicate the following problems.
Gross Profit Margin
Being equal 0.7%, this parameter is exceptionally low. To boost it up, one needs to expand sales volume and cut down on cost of sales. It goes without saying that production costs (raw materials, labor, manufacturing, etc.) are to be driven down as much as possible, however, in case of LENENERGO, the most important task is to review the billing rates for power and heat consumption which are the basis of deriving the revenue. RAO UES policy is to set up above-par billing rates for industrial consumers while keeping the billing rates for household consumers below par. Such a policy needs a major revision, though : either raise household rates, or do it both for the household and industrial consumers.
Accounts Receivable
Accounts receivable by far exceed accounts payable. Cash transactions in the Russian economy are reportedly used to a limited extent while barter trading is becoming a common place. Breakdown of both sell and buy transactions remains unclear but since LENENERGO is virtually free form borrowed indebtedness, there is arguably no need to borrow loans to compensate for accounts receivable. Still, should accounts receivable become too large, it may unduly jeopardize the business performance.
As far as settlement of accounts is concerned, LENENERGO's management base is rather weak and while the existing equipment remains in operation, annual escalation of maintenance costs is all but unavoidable. Considering that sales remain at approximately the same level, the practice of incurring losses seems to continue into the future.
Regarding the future business policy, it is evidently necessary to carry out first a partial revamping of the facilities, downsize the labor force, and proceed with other measures to
2-29 straighten-up the business. At the same time, it is similarly important to revise the currently used billing rates for power and heat consumption, as well as recover outstanding utility fees from the customers (as of March 1999 : average selling price for electric power is 37.0 kopecks per kWh, and 106.4 rubles per Gcal for heat; production costs remain unclear, though).
(4) Capabilities to Withstand Financial Burden
Total Project construction cost (including installation and in-land transportation within Russia; certain expenditure items are excluded, though) is estimated at US$140,000,000 at the time being. Should the "Joint Implementation of Project" concept be acknowledged, the Russian side would be required to provide coverage of ruble portion as well as the downpayment portion for the hardware (depends on financing scheme; in case of JBIG funds, the downpayment will constitute 15%). However, judging by the present financial position of LENENERGO, it cannot be helped but say there is no internal capabilities to withstand this financial burden.
Addressing the issue of find raising methods, the first move for LENENERGO should be to secure loans from financial institutions and credit establishments constituting LENENERGO's shareholders. As for the lacking portion, considering that St.Petersburg city government © is forced to buy power from other regions to compensate for limited capacities of the Central Power & Heat Station, and © in order to continue to use the Central Power & Heat Station as a sole power station within the city limits in the future, it must acknowledge the necessity to improve management and modernize equipment and facilities, the city government could allocate funds from the local municipality budget, or issue city bonds thus raising the funds to secure needed loans for LENENERGO.
(5) Personnel Issue Capabilities
As mentioned above, ever since the times of the Russian Empire, St.Petersburg had been developing as major mercantile port to trade with the European nations, and shipbuilding and other machine building industries developed here. In the modem times, the city had become known as a heavy industries area concentrated around production of military hardware. Munitions factories were evacuated to the innermost areas of the country during World War II to keep them protected from destruction by the German army.
These traditions still live nowadays. As for the electric power generating equipment and facilities, there is a large-scale boiler factory in the suburbs, Siemens Turbine Works which is a Russian-German-Finnish joint venture, etc. The Central Power & Heat Station also has this equipment; even 70-year old, superannuated equipment is being kept here operating thanks to self-procurement of spare parts and other feats of local ingenuity.
Hence, the availability of highly skilled and qualified personnel allows one to conclude that there should not be any problem related to operation and maintenance of the state-of- the-art combined cycle co-generation equipment upon its introduction.
2-30 (6) Implementation System
At the execution stage for this Project, LENENERGO shall act as an implementation HQ comprising several project teams within its framework. As for the Japanese side, it is planned to appoint, prior to implementation, a Russian engineering consultant, select relevant machinery (including that of the Russian manufacture), as well as develop a detailed F/S including construction and transportation cost estimates.
During the implementation phase, the Japanese engineering team along with the Russian engineering team (including the consultant) shall perform comprehensive management and guidance regarding tendering, procurement, construction, installation, running-in and handing-over of the facility.
2-31 2-2-4 Post-implementation Specifications of the Project Site Facilities
This section concerns the new co-generation equipment installation site, power and heat generation methods, major equipment specifications, expected performance, configuration, construction costs, etc.
(1) Construction site
1) Construction site selection
The present situations at each station targeted under this study, as well as the points of consideration related to the Scrap & Build approach, are covered in section 2-2-2. Upon comparison of these stations and considering opinion of LENENERGO and results of the field survey, it was concluded that arguably the most expedient solution would be placement of the new equipment within the available area at Station No.l (the area where additional hot water boilers were to be installed). Accordingly, it was planned to proceed with further study of the matters in question on this premise regarding the location of new facility. Below are enumerated the merits making the selected site the most advantageous among the others.
(a) Availability of free space to install the equipment
Although the central section area of the site which was earlier allocated for construction of additional hot water boilers, is taken by a completed 150 m stack and there are some equipment foundations and machine rooms, the area of this site is about 22,000 m2 which makes possible to install large capacity equipment. Moreover, new construction will not disturb operation of the existing equipment's ducts, cables, etc.
(b) Potential of Scrap & Build approach
Since new equipment will be installed onto idle site, it makes possible to scrap the old equipment after new equipment has been commissioned. This allows to continue operation of the existing equipment during the construction phase without affecting power and heat supply.
(c) Accessibility of sufficient amount of make-up water
Since there was a plan to install additional hot water boilers, a fair amount of water (approximately 3,000 m3/h) can be supplied here making possible to provide make-up water for new equipment's portion out of the existing equipment even when considering water loss within the heat supply system. (Design water intake rate during the peak consumption is about 2,300 m3/h including make-up water for heat supply).
(d) Environmental expediency
2-32 Unlike Station No.2 and Station No.3 which are near the housing blocks, Station No.l is situated in the vicinity of an industrial district which makes this site environmentally expedient (concerning the noise, in particular).
Meanwhile, during the detailed study, one shall coordinate with LENENERGO what is to be done with the existing stack, equipment foundations and other facilities, as well as how to treat the issue of insufficient fuel supply (even though a new pipeline is being build).
Figure 2-2-4-1 shows plot plan of the site allocated for the new equipment installation.
2) Natural conditions and environmental regulations
Below are listed the natural conditions and environmental regulations for the city of St.Petersburg where new equipment is to be installed.
(a) Average monthly temperature, relative humidity and precipitation
Temperature (°C) Relative humidity Precipitation (%) (mm) January -7.7 87 38.0 February -6.9 85 30.5 March -2.2 78 32.6 April 4.0 72 32.6 May 11.0 67 41.3 June 15.4 68 55.8 July 17.8 72 78.5 August 16.2 78 79.8 September 11.0 82 69.1 October 5.5 85 65.2 November 0.1 87 53.1 December -4.8 87 48.1
Annual average 5.0 79 624.6* * Cumulative yearly precipitation Source : Annual Nature Science Tables for 1999 (published by National Observatory)
(b) Environmental regulations (atmosphere)
• SOx environmental concentration 0.5 mg/mJ • NOx environmental concentration 0.085 mg/m3
Source : Documents provided by LENENERGO
2-33 Stack Height) 150,000 Foundation Diameter' 27,000
Fig.2-2-4-1 CONSTRUCTION SITE FOR NEW GTCC COGENERATION PLANT (2) Power Generation & Heat Supply Equipment
As for the power generation and heat supply capacity rates of the new equipment, as well as concerning the types of power generation system and main facilities, the study of these matters and the decision-making were performed on the basis of coordination with LENENERGO and by taking into consideration LENENERGO's opinions and plans so that there will be realized effect of reduction of greenhouse gas emissions and the equipment would conform to the future plans of LENENERGO regarding power and heat supply.
Below are explained results of the study for each major issue.
1) Power generation and heat supply capacity rates
Regarding power generation and heat supply capacity rates, LENENERGO expressed, during the first field survey, the following preferences based on the forecast power demand and limited power transmission line capacities. Upon discussion, the Japanese Study Team concurred with these suggestions.
• Power generation capacity of approximately 200 MW • Heat supply capacity of approximately 400 Gcal/h including the portion of the existing equipment which can continue operation (new equipment's portion of about 200 Gcal/h)
In doing so, the heat supply system shall use the hot water heated by the steam fed from the new plant (via heat exchanger). 2
2) Power generation method
Speaking of the new plant's power generation method, even before the field survey has been conducted, LENENERGO was approached with an aim to confirm that compared to the conventional steam-driven power generation, the combined cycle co-generation method features the most outstanding and effective performance, and LENENERGO has agreed with this statement. Thereafter, during the first field survey, the Study Team has further suggested that placement of several same-type units and their flexible operation in accordance with power and heat supply demand would be the most effective in bringing down greenhouse gas emission volume, and LENENERGO has endorsed this opinion, too. The combined cycle power generation is a method which combines the conventional steam-driven power generation with gas turbine power generation. The system where gas turbine is used as a high temperature heat source and the stem-driven power generation cycle as a low- temperature heat source, achieves the most outstanding efficiency rates. Many a power utility company both in Japan and abroad have introduced recently the power generation equipment utilizing this approach. Table 2-2-4-1 below summarizes the combined cycle performance overview.
2-35 Table 2-2-4-1 Combined Cycle Performance Overview Combined Cycle Type
Waste heat recovery method According to this method, gas turbine exhaust gases are fed into a waste heat recovery boiler (Heat Recovery Steam Generator, HRSG) where this waste heat produces the steam which drives the steam turbine. Exhaust gas afterburn method According to this method, gas turbine exhaust gases are utilized as a combustion atmosphere in the boilers of the conventional steam-driven power generation system Fuel-supplement exhaust gas This method is similar to the waste hear recovery afterburn method approach; here the gas turbine exhaust gases into which additional fuel was injected, are combusted thus raising the gas temperature and increasing the steam turbine power output. Feed water heater method According to this method, gas turbine exhaust gases are utilized to heat feed water of the steam-driven power generation system Add-on supply boiler method According to this method, a compressor mounted onto the same shaft with the gas turbine, produces compressed air which is fed into a heating boiler thus generating, upon injection of fuel, a high-temperature and high- pressure fuel gas which is then fed into the gas turbine
Combined Cycle's Distinctive Features (Waste Heat Recovery Method)
High heat efficiency While the peak heat efficiency of the conventional steam-driven power generation cycle is maximum 41% (power generation side HHV base; same below), the combined cycle, should a l,300°C-class gas turbine be used, permits one to achieve altogether a 48% - 50% heat efficiency. When using a l,500°C-class gas turbine, the heat efficiency can be raised to as high as 52% to 57%. Small decrease of heat efficiency As a rule, a combined cycle plant consists of several under partial load small-capacity units. Due to this, the increase or decrease of the output power is conducted by raising or lowering the number of the units in operation which allows to achieve a high heat efficiency rate within a wide output power range. Short start-up and shut-down time By using a gas turbine with a combination of several small-capacity units, it becomes possible to operate under a widely varying load factor, as well as start-up or shut-down the plant in a short time. Low intrinsic energy consumption Since the number of auxiliary machinery and equipment is small, intrinsic energy consumption can be as low as 2% to 3% (fuel gas pressure over 10 kg/cm 2G) as compared to 4% to 6% in case of the fuel oil/gas-fired steam-driven power generation
Although the combined cycle technology, as evident from the table above, is classified into several methods, nowadays, when speaking about the combined cycle, it usually infers the waste heat recovery technology featuring an
2-36 outstanding heat efficiency rate and a simple system make-up, and so this project calls for a study based on this method, as well.
Meanwhile, the waste heat recovery technology itself is divided further into two subtypes depending on the shaft design. Specifically, there is a single-shaft design wherein a single steam turbine is provided for a single gas turbine, and a multiple-shaft design wherein a single steam turbine is provided for several gas turbines.
In the former case, the gas and stem turbines are coupled by the same shaft upon which a single electric generator unit is mounted. The latter case demands that an electric generator shall be provided for each gas turbine / steam turbine combo so there is no linkage via a common shaft.
Figure 2-2-4-2 exhibits an example of single-shaft and multiple-shaft machine designs.
In order to select proper equipment in a multiple gas turbine installation scenario, it is indispensable to make allowance for operating and installation conditions. Single-shaft machine design provides for a low decrease of heat efficiency rate under a partial load which is linked to the control over several axes in operation. On the other hand, in the case of multiple-shaft machine design, the control is performed only over gas turbines which makes the heat efficiency a bit lower than that in the single-shaft machines, so that's why the increase of the heat efficiency here is achieved through the increase of the steam turbine's capacity. Such is the reasoning behind the concept that the medium- scale power plants where load changes frequently, had better to utilize single shaft machines while multi-shaft models are more suited for the backbone power plants running under a base load.
Within this Project's frameworks, a study of a several gas turbine units installation scenario will be conducted so that it would be possible to react flexibly to the changes in power and heat supply demand. Since the station will operate under a base load and, besides, the steam turbines in the 200 MW single-shaft combined cycle co-generation units would be rather small and low- powered thus adversely affecting the efficiency of the operation, the decision was made to accept the multi-shaft design.
2-37 SINGLE SHAFT TYPE MULTI SHAFT TYPE
Stack Stack
Steam Turbine
Generator
Air — Gas Turbine Gas Turbine Condenser
Steam Turbine
Generator
Condensei
Fig, 2-E-4-2 CONFIGURATION OF SINGLE SHAFT AND MULTI SHAFT TYPE 3) Main Equipment
(a) Gas turbine
The gas turbine is the core component and of the utmost importance in any combined cycle power generation facility thus warranting the strictest requirements towards its functional reliability.
Unlike steam turbines which are designed and manufactured by customizing for each individual order, the usual practice in selecting a gas turbine is to choose one from a standard production line-up available from manufacturer when a necessity in such a gas turbine arises.
The most widely used gas turbines at present are of so-called 1,300°C inlet temperature class which determines the turbine performance. There are plenty of models within this class at every turbine manufacturer and lots of such turbines are in operation in many countries, and so their reliability is very high.
In case of a 1,500°C class turbine which is presently considered the most advanced one, its absolute heat efficiency is 4 to 7 per cent higher than in a 1,300°C class unit. However, nowadays only high-power models are being developing within this class (300 MW class 50 Hz turbines) and there is still no past records on operation of relatively small-power turbines such as the one planned for in the Project. What's more, the turbines of this class use steam- cooled combustion chamber and cooling vanes thus requiring a highly sophisticated purified water control.
Based on the above, a decision was made to use for this Project the 1,300°C class turbines. As for their capacity, based on the planned output power value, multi-unit configuration, etc., it was decided to use triple-axis 67 kW class turbines (1 steam turbine for 3 gas turbine units).
(b) Steam turbine
One of the selection aspects regarding the steam turbine design is the choice between a condensing and back-pressure turbines.
In condensing design, the steam expanded inside the turbine is fed into an evacuated vessel wherein it turns into a condensate by means of a cooling water. In case of a co-generation plant, similarly to this Project, the heat supply steam is extracted from the turbine at an intermediate stage.
As for the back-pressure design, the steam is being vented from the turbine at a preset pressure and usually utilized for further process needs like in this Project where it would be used for district heating.
A condensing steam turbine's output power and power generation efficiency are high. However, due to heat losses inside the steam condenser, the co-generation
2-39 efficiency tends to be lower. On the contrary, a back-pressure turbine has a low power capacity and down-graded power generation efficiency while the co generation efficiency tends to be higher.
The Study Team held discussions with LENENERGO and based upon the strong desire of LENENERGO to raise the co-generation efficiency and, in addition, since no water condensing and/or re-circulation equipment would be needed thus cutting down on costs, and intrinsic energy and water consumption rates would be low, there was made a decision to adopt the back-pressure design.
(c) Heat Recovery Steam Generator (waste heat recovery boiler)
Speaking of HRSG, there are single-pressure and multi-pressure designs. In addition, the multi-pressure units are further subdivided into double-pressure and triple-pressure models. Single-pressure units, with their simple water and steam system design, are a low-cost solution but energy recovery efficiency is also the lowest here. In contrast, triple-pressure design offers the highest energy recovery efficiency but the drawback is their water and steam systems are very complicated thus driving up to the ceiling the cost of such an equipment.
Considering the scale, efficiency, cost, etc. of the equipment for this Project, it was decided to use a double-pressure design.
Only high-pressure steam, however, will be fed into the turbine while low- pressure steam will be used for heat supply and fed directly into the heat exchanger.
4) Environmental Protection Measures
Environmental concentrations (for atmospheric pollutants) were presented in section (1) 2) (b) above, and these requirements can be satisfied by using gas fuel and a low NOx-forming dry combustion chamber.
Despite the fact that the site where the facility is situated is considered to be an industrial district, it is located nearly in the dead center of St.Petersburg thus warranting a close attention to the noise and vibrations. The practical experience in operating such an equipment demonstrates that the noise level is 60-65 dB(A) at a one-meter distance of the facility's wall while the vibration level at the boundary line does not exceed 50 dB which clears the criteria set up for the city power plants thus leading to the conclusion that there is no problems affecting environment of the surroundings. As for the noise, it can be lowered even more by erecting sound insulating walls and planting trees and shrubs on the site.
Also, speaking on the waste water, a comprehensive waste water treatment systems will be provided so that only treated water is going to be discharged beyond the
2-40 facility limits thus bringing to the conclusion that there will be no problems affecting the environment of the surrounding area.
(3) Main Equipment Specifications and Layout
1) Main Equipment Specifications
Listed below are the main equipment specifications based on the results of the Study summarized in the preceding section.
(a) Gas turbines
Gas turbine unit Type Open-cycle single-axis turbine Turbine inlet temperature approx. 1,300°C Fuel natural gas (ref.to description in Table 2-2-4-2) Rated capacity 67,000 kW (@ 15°C, at generator terminals) Combustion chamber low-NOx dry combustion chamber Quantity 3 units
Air compressor Type axial compressor Pressure ratio approx. 15 Quantity 3 units
(b) Steam turbine
Type Single-pressure, one-piece body, uniflow exhaust, steam extraction, back-pressure Rated capacity 51.000 kW Rotation speed 3.000 rpm Steam conditions 57 kg/cm2 A / 538°C Exhaust gas pressure 2 kg/cm2 A Quantity 1 unit
2-41 (c) Power generators
• Gas turbine generators Type horizontal, cylindrical, revolving excitation field, air-cooled Capacity 78 MVA Voltage 21 kV Frequency 50 Hz Rotation speed 3,000 rpm Power factor 90% (slippage) Quantity 3 units
• Steam turbine generator Type horizontal, cylindrical, revolving excitation field, air-cooled Capacity 59 MVA Voltage 21 kV Frequency 50 Hz Rotation speed 3,000 rpm Power factor 90% (slippage) Quantity 3 units
Main transforming equipment
• Gas turbine main transformers Capacity 59 MVA Voltage 21kV/220kV Cooling system Oil / water cooling Quantity 3 units
• Steam turbine main transformers Capacity 59 MVA Voltage 21kV/220kV Cooling system Oil / water cooling Quantity 3 units
HRSG
Type non-reheating, double pressure, natural circulation Steam conditions (HP steam) 59 kg/cm2 A / 540°C (LP steam) 2.1 kg/cm2 A / 206°C Layout horizontal Quantity 3 units
2-42 2) Main Equipment Layout
Layout of the equipment was planned on the premise as to form a reasonable connection to the switchgear facility situated in the southern section of the allocated construction site.
In addition, because of the complexity of duct drawing, the existing stack shall not be used. Instead, each group will be provided with an independent smokestack. As for the existing stack, it is planned to newly look into this matter together with the Russian side at the detailed study stage including assessment of the possibility to use this stack with the new equipment.
Figure 2-2-4-3 shows plot plan of Station No.l after new power plant construction while Figures 2-2-4-4 & 2-2-4-S illustrate the layout of new plant's equipment and facilities.
2-43 0
m
SQOm □□
© G qs Turbine © Heat Exchanger © Water Treatment Facility © Gas Turbine Generator © Elec, Equipment Room © Demineralized Water Tank © Stack © Central Control Room © Unit Neutralizing Pit HRSG © Main/Aux, Transformer © Gas Compressor Room © Intake Air Filter House © Stack (Existing) © Cooling Tower -4-4 GENERAL ARRANGEMENT © Steam Turbine © Waste Water Treatment Facility © Steam Turbine Generator © Raw Water Tank Stack GL+50000
Overhead Crane
Gas Turbine Gas Turbine Generator Main Transformer Heat Exchanger
Intake Air Filter
25 50m rz~r
Fig.2-2-4-5 GENERAL ARRANGEMENT (SECTION) (4) Expected Performance
1) Design Basis
Listed below are design basis data used to calculate the expected performance parameters of the power plant.
• Fuel natural gas (ref.to description in Table 2-2-4-2) • Supply gas pressure 5 kg/cm2 G • Gas turbine fuel consumption 15,000 kg/h (under ISO conditions) (per unit) • Gas turbine air oversupply rate 2.774 (under ISO conditions) • Gas turbine exhaust outlet 608 °C (under ISO conditions) temperature • Smokestack height 50 m • Heat supply hot water temperature 130°C • Heat supply return water 40°C temperature • Heat supply make-up water ratio 30% of hot water supply
Table Z-2-4-2 Fuel Description (natural gas)
Chemical composition (vol.%) Methane 98.000 Hydrogen 0.003 Ethane 0.700 Carbon monoxide 0.010 Propane 0.130 Oxygen Butane 0.070 Nitrogen 0.780 Isobutane 0.053 Carbon dioxide 0.025 Pentane 0.013 Free water Isopentane Hydrogen sulfide 0.020 Cyclopentane Others 1.034 Calorific value (LHV, kca /m3) 7 970 Specific weight (kg/m3) 0,683 Source : Documents provided by LENENERGO
2) Expected Performance Parameters
Listed below are the expected performance and utilities parameters under ISO conditions (pressure 1 atm., temperature 15°C, relative humidity 60%). Heat balance curve, water balance curve, and one-line connection diagram summarizing those data are shown in Figures 2-2-4-6, 2-2-4-7, and 2-2-4-S, respectively.
2-47 Output power at generator terminals 252,000 kW (gas turbines) (67,000 kW x 3) (steam turbine) (51,000 kW) Power generation efficiency at generator terminals (@ LHV) 41.0% Intrinsic auxiliary power Output power at transmission terminals 241,00 kW Power generation efficiency at transmission terminals (@ LHV) 39.2% Heat supply rate 227 Gcal/h Plant efficiency at generator terminals 83.8% Plant efficiency at transmission terminals 82.1% Exhaust gas temperature (HRSG outlet) 131°C Exhaust gas flow rate (total for 3 HRSG) 2,163,000 Nm3/h Water intake flow rate (excl.heat supply make-up water) 37 t/h Waste water flow rate 19 t/h Nox emission concentration (@ 15%0] dV) < 25 ppm Max. NOx surface concentration (hourly value) < 0.0015 ppm Max. surf ace concentration (hourly value) 10.4 km SOx emission concentration (@ 15%0] dV) approx. 6.5 ppm Max. SOx surface concentration (hourly value) approx. 0.0004 ppm Airborne pollutant fallout zone from the smoke origin 10.4 km Noise level (at the facility's boundary, excluding background noise) < 65 dB(A) Vibration (at the facility's boundary, excluding background vibration) <50 dB Notes :
1. Although the power capacity at generator terminals somewhat exceeds 200 MW, that is to say, an approximate transmitted power value restricted by the transmission line capacity limitations, the reasons were explained to LENENERGO and approved thereby.
2. Heat supply make-up water is needed at the rate of 750 t/h to 2,280 t/h (depending on the heat supply hot water temperature).
3. SOx emission and maximum surface concentrations vary depending on fuel gas sulfur content.
4. Max. NOx / SOx surface concentrations (hourly values), as well as airborne pollutant fallout zone from the smoke origin were calculated by Bosanke-Sutton formula.
2-48 TRANSMISSION LINE
220kVS/S
Fig.2-2-4-8 CONCEPTUAL ONE-LINE DIAGRAM (5) Construction Cost
Construction cost estimate method and calculation results are presented in Table 2-2-4-3. Accordingly, estimated construction cost is US$134,000,000. The following expenses are left out of the calculated construction cost estimate, though :
• Engineering Consultant's expenses • Expenses for the demolition and removal of the existing structures and equipment foundations, as well as construction site preparation expenses • Expenses to lay down a fuel gas supply pipeline to the site • Transmission line capacity improvement expenses (if needed) • Contingency reserve
2-52 Table 2-2-4-S Estimation of Construction Cost
1. Percentage of cost for each equipment in GTCC plant (based on the past record) ♦Condensing turbine, not included the cooling tower and heat exchanger
(%) GT+Generator 32.6 Steam Turbine 7.4 HRSG 10.6 (Total of main equip.) (50.6) Elec./Control/BOP 18.7 T ransportation/lnstall - ation 17.9 Civil/Architectural 12.8
2. 67,000kW class (6FA) GT cost Based on Gas Turbine World Handbook 1998-99 Turbogenerator Price Levels" $18,900,000 (FOB cost for package)
3. Cost estimation for single shaft type (1-1-1) Percentage of GT cost: 32.6% Consequently, construction cost for single shaft type is $18,900,000-1-32.6%== $57,980,000
4. Cost adjustment of single shaft type to multi shaft type Based on Gas Turbine World Handbook 1998-99 Turnkey Combined Cycle Plant Price Levels" the cost of multi shaft type (3-3-1) is estimated as 2.3times of single shaft type (1-1-2)
5. Cost of cooling tower Based on the past record, it is estimated as $3,600,000.
6. Cost of heat exchanger Based on the past record, it is estimated as $2,800,000.
7. Cost adjustment of condensing turbine to back pressure turbine The cost of back pressure turbine is estimated to minus the cost of following items from the cost of condensing turbine. Turbine itself $3,700,000 Reduction of Condensate water facility $990,000 __Reduction of Civil/Transportation/lnstallation ___$300,000 Total $4,990,000
8. Estimated construction cost From the above 3. ~7. , it is estimated as; $57,980,000 x 2.3+$3,600,000+$2,800,000-$4,990,000 = $ 134,764,000 $134,800,000 Turbogenerator Price Levels (continued) Budgetary average equipment-only price levels for a new basic gas turbine generating package including single-fuel gas turbine, air-cooled electric generator (some H2 cooled on larger units), skid and enclosure, inlet and exhaust ducts and exhaust silencer, standard control and starting systems, conventional combustion system (unless noted otherwise as dry low emissions), FOB the factory in 1998 U.S. dollars. Prices can vary significantly depending upon the scope of plant equipment, geo- graphical area, special site requirements and competitive market conditions.
Model ISO Base Heat Rate LHV Budget $ per Load Btu/kW-hr Efficiency Price kW
LM2500+ ...... ____28,500 kW 8985 Btu 38.0% $9,900,000 $346
MF-221 ...... ____30,000 kW 10,670 Btu 32.0% $10,000,000 $333
Coberra 6761 . . . . ____30,780 kW 8775 Btu 38.9% $10,000,000 $325
IM5000 ...... ____33,550 kW 9210 Btu 37.1% 512,900,000 $384
PG6561B ...... ____39,620 kW 10,710 Btu 31.9% $10,500,000 $265
GTX100 ...... ____43,000 kW 8215 Btu 37.0% $12,400,000 $288
LM6000PD ...... ____43,100 kW 8180 Btu 41.7% $13,200,000 $306
LM6000PC ...... ____44,100 kW 8140 Btu 41.9% $12,600,000 $286
251B11/12 ...... ____49,400 kW 10,440 Btu 32.8% $12,800,000 $259
IM5000-STIG ______51,160 kW 7790 Btu 43.8% $13,900,000 $272 (steam injection)
Trent OLE ...... ____51,190 kW 8210 Btu 41.6% 516,000,000 $312
FT8 Twin...... ____51,300 kW 8885 Btu 38.4% $16,100,000 $314
GT8C ...... 52,800 kW 9920 Btu 34.4% $14,800,000 $280
V64.3...... ____63,000 kW 9690 Btu 35.2% $16,075,000 $255
V64.3A ...... ____70,000 kW 9350 Btu 36.5% $19,600,000 $280
PG6101FA...... 70,150 kW 9980 Btu 34.2% $18,900,000 $269
PG7121EA ...... 85,400 kW 10,420 Btu 32.8% $17,930,000 $210
401 ...... ____85,900 kW 9330 Btu 36.6% $20,500,000 $239
V84.2 ...... 109,000 kW 10,035 Btu 34.0% $20,100,000 $184
501D5 ...... 109,400 kW 9960 Btu 34.3% $20,300,000 $185
GT11N2...... 115,500 kW 9780 Btu 34.9% $21,800,000 $189
501D5A...... 122,480 kW 9730 Btu 35.1% $22,500,000 $184
16 1998-99 GTW Handbook Turnkey Combined Cycle Plant Price Levels (continued)
Average standardized turnkey combined cycle power plant prices in 1998 U.S. dollars for a basic nat ural gas-fired combined cycle with gas turbine generator, unfired multi-pressure heat recovery boiler with no bypass stack, condensing multi-pressure steam turbine generator, step up transformer, water cooled heat rejection, standard controls, starting system and plant auxiliaries, and generally with dry low NOx gas turbine. Depending on volume and scope of equipment, site specific requirements, geo- graphic location and competitive market conditions, these prices can vary considerably.
Plant Model Net Plant LHV Heat Net Plant No. Gas No. Steam Budget $ per Output Rate Efficiency Turbines Turbines Price kW
KA8C-1 ...... 76.3 MW 6740 Btu 50.6% 1xGT8C 1x24 MW, 2P $52,300,000 $685
CC205P ...... 77.8 MW 8110 Btu 42.1% 2xFr.5PA 1x27 MW, 2P $47,850,000 $615
Cobra 1.64.3 . . . .90.4 MW 6615 Btu 51.6% 1XV64.3 1x32 MW, 2P $59,400,000 $657
1xP200-PFBC . . .100.0 MW 8030 Btu 42.5% 1xGT35P 1x83 MW, Cond.$100,000,000 $1000
GUD 1S.64.3A . .101.0 MW 6355 Btu 53.7% 1XV64.3A 1x31 MW, 3P, RH $72,700,000 $720
CC2-6000 _____ . .106.5 MW 6610 Btu 51.6% 2xLM6000PC 1x22 MW, 2P $71,000,000 $666
S-106FA...... 107.4 MW 6420 Btu 53.2% 1xFr.6FA 1x40 MW, 3P, RH $78,400,000 $730
S-206B ...... 121.0 MW 6930 Btu 49.3% 2xFr. 6B 1x43 MW, 2P $69,500,000 $574
1x1 401...... 125.2 MW 6290 Btu 54.3% 1x401 1x43 MW, 2P $63,300,000 $505
2x1 Trent...... 125.5 MW 6600 Btu 51.7% 2xTrent 1x29 MW, 2P $87,800,000 $700
S-107EA...... 130.2 MW 6800 Btu 50.2% 1xFr. 7EA 1x48 MW, 3P $60,000,000 $460
2x1 251311/12 . .145.4 MW 6990 Btu 48.8% 2x251811/12 1x53 MW, 2P $87,200,000 $600
KA13D-1...... 147.1 MW 6920 Btu 48.6% 1xGT13D 1x53 MW, 1P $74,900,000 $510
GUD 1.84.2. .. . .163.0 MW 6630 Btu 51.5% 1XV84.2 1 x60 MW, 2P $79,900,000 $490
KA11N2-1 . .168.0 MW 6700 Btu 50.9% 1xGT11N2 1 x56 MW, 2P $80,600,000 $480
1x1 501D5A . . . .173.7 MW 6750 Btu 50.6% 1x50105A 1x59 MW, 2P $85,900,000 $495
MPCP1-701 D . .212.5 MW 6635 Btu 51.4% 1x701 D 1 x70 MW, 2P $99,875,000 $470
S-206FA ...... 218.7 MW 6300 Btu 54.1% 2xFr. 6FA 1x84 MW, 3P, R $100,000,000 $457
GUD 1.94.2 . . . .238.0 MW 6550 Btu 52.1% 1xV94.2 1x88 MW, 2P $106,100,000 $446
2x1 401 ...... 250.3 MW 6290 Btu 54.3% 2x401 1x85 MW, 2P $107,600,000 $430
GUD 1S84.3A. .260.0 MW 5883 Btu 58.0% 1 XV84.3A 1 x84 MW, 3R R $113,900,000 $438
S-107FA...... 262.6 MW 6090 Btu 56.0% 1xFr. 7 FA 1x95 MW, 3P, R $112,900,000 $436
S-207EA...... 263.6 MW 6700 Btu 50.9% 2xFr. 7EA 1x101 MW, 3P $105,750,000 $401
1x1 501F _____ .273.3 MW 6110 Btu 55.9% 1x501 F 1x97 MW, 3P,R $112,100,000 $410
1998-99 GTW Handbook 25 Turnkey Combined Cycle Plant Price Levels (continued) Average standardized turnkey combined cycle power plant prices in 1998 U.S. dollars for a basic nat ural gas-fired combined cycle with gas turbine generator, unfired multi-pressure heat recovery boiler with no bypass stack, condensing multi-pressure steam turbine generator, step up transformer, water cooled heat rejection, standard controls, starting system and plant auxiliaries, and generally with dry low NOx gas turbine. Depending on volume and scope of equipment, site specific requirements, geo graphic location and competitive market conditions, these prices can vary considerably.
Plant Model Net Plant LHV Heat Net Plant No. Gas No. Steam Budget $ per Output Rate Efficiency Turbines Turbines Price kW
KA24-1 ...... 274.0 MW 5870 Btu 58.1% 1xGT24 1x102 MW, 3P $114,800,000 $419
GUD 1 S.94.2A . .285.0 MW 6095 Btu 56.0% 1xV94.2A 1x95 MW, 3P, R $112,300,000 $394
2x1 501D5A______348.3 MW 6730 Btu 50.7% 2x501 D5A 1x119 MW, 2P $139,300,000 $400
1x1 701F...... 374.6 MW 6065 Btu 56.3% 1x701F 1x132 MW, 3P, R $132,000,000 $352
GUD 1S.94.3A . .380.0 MW 5885 Btu 58.0% 1xV94.3A 1x120 MW, 3P, R $134,900,000 $355
S-109 FA...... 390.8 MW 6020 Btu 56.7% 1 xFr. 9 FA 1x142 MW, 3P, R $139,100,000 $356
KA26-1 ...... 396.0 MW 5830 Btu 58.5% 1xGT26 1x140 MW, 3P, R $140,500,000 $355
MPCP2-701D .. .426.6 MW 6610 Btu 51.6% 2x701D 1x142 MW, 2P $161,250,000 $378
KA11N2-3...... 517.0 MW 6550 Btu 52.1% 3xGT11N2 1x172 MW, 2P $178,400,000 $345
S-207FA...... 530.0 MW 6040 Btu 56.5% 2xFr. 7FA 1x196 MW, 3P, R $180,500,000 $341
2x1 501F...... 548.2 MW 6090 Btu 56.0%" 2x50]F 1x196 MW, 3P, R $183,600,000 $335
S-507EA...... 620.0 MW 6800 Btu 50.2% 5xFr. 7EA 3x68 MW, 3P $207,700,000 $335
GUD 3.94.2 ...... 719.5 MW 6490 Btu 52.6% 3xV94.2 1x270 MW, 2P $244,700,000 $340
KA13E2-3 ...... 728.6 MW 6410 Btu 53.2% 3xGT13E2 1x248 MW, 2P $244,400,000 $335
2x1 701F...... 749.6 MW 6090 Btu 56.0% 2x701F 1x264 MW, 3P, R $211,600,000 $290
GUD 2.94.3A . . .760.0 MW 5883 Btu 58.0% 2xV94.3A 1x260 MW, 3P, R $225,700,000 $297
S-209FA ...... 786.9 MW 5980 Btu 57.1% 2xFr. 9FA 1x289 MW, 3P, R $232,100,000 $295
26 1998-99 GTW Handbook 2-2-5 Scope of Financial Resources, Equipment and Services to be provided for Project Implementation by Participants
The scope of financial resources, equipment and services to be provided towards implementation of this Project is outlined in section 2-4-1. The core issues of this Study, however, concern the Basic Design for the Project aimed to reduce greenhouse emissions. In this connection, the machinery and equipment specifications, as well as construction cost estimate are only prepared in a concise and approximate form. Therefore, a comprehensive engineering study and a detailed F/S will be developed by a joint team comprising both Japanese side's task force and Russian Engineering Consultant (a design institute) at the stage when the perspectives of the Joint Implementation of the Project would have been already ascertained. It shall bring forward detailed specification for the new equipment and facilities, specific construction methods fit to the local conditions, and total project cost estimates. Thereafter, the detailed scope of financial resources, equipment and services to be provided by the Japanese and Russian sides shall be defined on that basis.
2-2-6 Prerequisites and Points of Consideration for Project Implementation
Russia's power generation volume in 1999 was 845 billion kWh, that is to say, 2.3% higher than the level registered in 1998 (826 billion kWh). This is still, however, a substantially lower (by approximately 20%) than the result achieved in 1991 (1,056 billion kWh). The reasons behind the dropped power consumption have to do with the economic crisis as well as with the practice when utility companies stop supplying power to the defaulted customers. According to RAO UES, collected billing fees reach only 80% to 85% of the power sales volume and, what's more, merely 15% to 20% of that amount are collected in cash while the rest is settled in the form of barter transactions.
Because of this, all power stations suffer from chronic fund shortage and LENENERGO is not an exception in this regard, its financial position being extremely weak as it is. Consequently, to implement this Project, one should arguably improve financial position (augment cash flow) gradually and prior to starting the Project itself.
Moreover, the Russian side's capabilities to raise the Project-related funds are distinctly limited which makes it necessary to borrow a low-interest, long-term loan.
In addition, speaking on the staffing issues, apparently it will be necessary to re organize the old staffing structure concerning the operation and maintenance personnel for the existing equipment and its training to improve technical efficiency in preparation to the new construction project.
2-57 2-2-7 Project Implementation Schedule
As was mentioned in section 2-2-5, a comprehensive engineering study and detailed F/S shall be prepared by a joint Japanese-Russian team after the perspectives of the Joint Implementation of the Project have been confirmed.
Upon completion of the study, should formal decision to proceed with the realization be made, the Project will be implemented by preparing Basic Design and procurement specifications, appointing contractors, performing construction works, etc. In doing so, the selection of the contractors commissioned to perform the construction works shall be made by a competitive bidding.
On this basis, after the decision to execute the Project is made, the following implementation schedule is planned in consideration of the past experience :
• Execution decision-making ~ Procurement specifications preparation : 6 to 9 months • Contractor bid tendering ~ Selection of Contractor : 10 to 15 months • Conclusion of contract with Contractor ~ Start of operation (construction work period) : 30 to 36 months
Construction work schedule in case of 36-month scenario is summarized in Table 2- 2-7-1. However, since the winter temperature in St.Petersburg is very low, civil engineering works (such as concrete works, etc.) are to be thoroughly adjusted in the course of the above study.
2-58 Table 2-2-7-1 Construction Work Schedule
Year 1 2 3
Progress Month 1 2 3 4 | 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36
Cont ract Constr uctio n wo k start Po\/ver Fiecei zing Steam admis sion C onpl etion 1r 1r f Mile Stone 1r 1r 1 1
1. Planning/Designing
2. Civil/Architectural
3. GT Generator-HRSG & Aux. Equipment
Manufacturing
Transportation
Installation Test/Trial Operation
4 . ST Generator & Aux. Equipment
Manufacturing
Transportation
Installation
Test/Trial Operation
5 . BOP & Electrical/Control Equipment
Manufacturing
Transportation
Installation Test/Trial Operation
......
6 . Plant Trial Operation 2-3 Financial Plan Actualization
2-3-1 Financial Plan for Project Implementation (necessary funds, fund raising methods, etc.)
Total Project budget is approximately US$140,000,000. The breakdown is as follows:
Table 2-3-1-1 Amount Machinery and equipment 93,817,000 Transportation and installation 23,868,000 Construction work 17,068,000 Preparatory expenses, miscellaneous costs 46,000 Consulting expenses 4,044,000 B. Interest rate during construction period 0.75% (1) 433,000 3.10% (2) 1,784,000 TOTAL 139.277.000 (1) 140.628.000 (2) * (1) : Special Yen-Denominated Environmental Loan Base * (2): JBIG Export Finance Base
Russia, in the course of its transition towards capitalism, has faced a severe economic crisis, there is a problem of foreign debt repayment and although many power stations strive to improve and advance, the progress is very slow and virtually non-existent because of lack of funds. Aside from that, collection of power sales billing fees is performed not only in cash but also by means of barter transactions. At the Preliminary F/S stage it was difficult to assess the Russian side's fund raising capabilities under those conditions.
This notwithstanding, since Russia is very important to Japan for geopolitical reasons and since it is expected that the country will carry on with the energy resources exporting business in the future, and since the Project aims to reduce the greenhouse emissions, the Japanese Government is strongly interested in its Joint Implementation.
To materialize this Project, it is absolutely indispensable to secure a long-term loan with as low an interest rate as ever possible.
All these circumstances being considered, the following credit terms and conditions were assumed :
(1) Special Yen-Denominated Environmental Loan
Interest rate : 0.75% per annum Repayment period : 40 years including a 10-year grace period Credit ratio: 85%
2-60 (2) JBIG Export Finance
Interest rate : 3.1% per annum * Reference rate. An approx. 1.9% risk premium for Russia is being applied from April 1999. Other expenses omitted. Repayment period : 10 years Credit ratio: 85%
2-3-2 Fund Raising Forecast (execution plan of the organization commissioned to study the fund raising issues and the project site (enterprise))
Because of the above mentioned situation, individual fund raising by the Project's Russian counterpart (enterprise) is extremely difficult. In addition, for financial self sustainability it is indispensable to secure a long-tern loan with as low an interest rate as ever possible since it appears difficult to implement the project at the expense of direct investments provided by the private businesses or financial institutions and credit establishments.
The bottom line is that there are big expectations for a special environmental loan in yen denomination to be provided by the Japanese Government on the premise of a Joint Implementation, or any other similar soft loan. However, the successful arrangement of such a credit depends on the future outcome of the Japan-Russia political dialogue and it is problematic to form concrete implementation plans at the current stage.
2-4 Points of Consideration Concerning Joint Implementation
2-4-1 Setting of project implementation conditions, work responsibilities, etc. according to the project site's realities
Things to be Coordinated with Russian Counterparts for the Realization of the Joint Implementation Project.
The most critical question in implementing this joint project is how to raise the necessary founds. Because of the public nature of the electric power project, a long term, minimum-interest loan will be most desirable. Ideally, it should be provided as part of a Japanese government's ODA program, including a special-circumstance yen credit and export financing of the International Cooperation Bank. At the same time, the Russian government needs to develop official policies and systems to accept financial aid from Japan. For this, discussions and finalization of the policies between the Russian and Japanese governments are urged.
Currently, Russia has no obligation to reduce C02 emissions and is designated as one of the countries from which developed countries can buy tradable emission rights of green house gases. However, if the Russian economy recovers, its C02 emission level will rise unavoidably.
2-61 Thus, it is not appropriate for Russia to use the temporarily reduced emissions of greenhouse gases as tradable emission rights without implementing greenhouse gas reduction projects because Russia may have to buy such rights back in the future. It is recommended that modernization of power generation plants in Russia, including the Heat/Power Cogeneration Plant in St. Petersburg, should be carried out as Joint Implementation projects with other countries (or organizations) that are trying to meet their reduction targets by assisting other countries.
Russian government is urged to prepare itself for the signing of the United Nations Framework Convention on Climate Change by establishing a system that will enable Russia to carry out emission control projects through Joint Implementation.
This Project's main business body is LENENERGO which is in charge of the Central Heat & Power Station. However, after privatization in Russia following the collapse of the Soviet Union, the electrical power engineering being a basic industrial infrastructure was left open to the public intervention on the part of the government and as each one among the regional power stations is governed by RAO UES, it is not possible to proceed with implementation of the Project without obtaining consent and support of the said organization. In addition, since the Project is situated in the city of St.Petersburg, the approval and backup on the part of the city government is indispensable, too.
At the same time, since this Project includes a large amount of environmental protection works, public works, etc. which are vitally important in supporting city functions of St.Petersburg, one essentially cannot expect a high profitability. Moreover, judging from the current Russia's economic situation, it is hardly realistic to count on the progress of work on the basis of direct investments provided by the Japanese private sector alone. Japan's role shall comprise technical cooperation, money lending, provision of plant's equipment on the payback basis.
Based on these conditions, one can expect the following roles to be played by the Japanese and Russian sides and both national governments.
(1) Project Preparation Stage
No. Implementation Item Assigned Role 1 Engineering Study and Detailed F/S Jointly by the Japanese and Russian consulting companies 2 Environmental Impact Assessment Russian consulting company 3 Own fund raising (15% of total Project LENENERGO, RAO UES Cost) 4 Pipeline extension work St.Petersburg city government and LENENERGO 5 Long-term loan arrangement Russian Government, Japanese (85% of the total Project Cost) Government Japanese industrial companies LENENERGO, RAO UES
2-62 (2) Design Engineering Stage
No. Implementation Item Assigned Role 1 Basic Design Japanese consulting company 2 Detail Engineering Jointly by the Japanese and Russian consulting companies
(3) Design Engineering Stage
No. Implementation Item Assigned Role 1 Procurement and supply of machinery and equipment •Main machinery and equipment Japanese industrial companies •Local machinery and equipment Russian industrial companies 2 Construction work • Supervision Japanese industrial companies •Operations Russian construction companies
(4) Technical Guidance upon Completion
No. Implementation Item Assigned Role 1 Technical Guidance upon Japanese industrial companies Completion
2-4-2 The Possibility of Approval of Joint Implementation Approach for this Project
Since the modernization of facilities in the field of electric power industry is connected to the strengthening of the Russian economy and improvement of living standards of the population, the Russian Government's interests are very strong. The environmental and energy measures are emphasized by the Russian Government and the modernization of the St.Petersburg Central Power & Heat Station is given a high priority. In the course of the field survey, LENENERGO being an implementing agency, RAO UES, as well as St.Petersburg city government have displayed extraordinarily constructive attitude and eagerness to cooperate.
The answer was that upon conclusion of the UN Framework Convention of Climate Change and establishment of a Joint Implementation mechanism within the Russian Government and should financing from Japan be expected, the implementation of the Project shall receive across-the-board collaboration.
2-63 Chapter 3 Project Efficacy
2. Energy will be conserved according to the following schedule: Energy conserved: 546,301 toe/year Project life: 27years Cumulative energy conserved: 14,750,137 toe
3. Greenhouse gas emission will be reduced by improved efficiency and fuel conversion.
Improved efficiency Power generation efficiency: 18.68% -* 41.0% Fuel conversion coal/heavy oil/natural gas natural gas
4. Greenhouse gas will be reduced according to the following schedule: Reduced C02: 1,481,979.0 t/year Project life: 27 years Cumulative C02 reduced: 40,013,434 t
5. Productivity is expected to improve due to enhanced reliability, 3. Project Efficacy
3-1. Energy-saving Effects
The energy-saving effects at the power plant are gauged by comparing a baseline that reflects the operating conditions at the plant, focusing primarily on the power-generating equipment at the existing steam supply and power generating station with the project case, in which it is assumed that the project will be implemented in the future. The baseline and the project case show that the volume of fuel consumed will be significantly reduced by improving the power-generating efficiency of the plant.
The efficiency is confirmed by calculating the volumes of heat used for the baseline and in the project case, and subtracting the volume of heat used in the project case from the volume of heat used for the baseline. This shows the reduction in the volume of heat used by implementing the project.
This section describes the effects of energy-saving effects before and after the project is implemented, and the bases for those effects. It also describes the far-reaching effect possibilities inherent in the project.
3-1 3-1-1. Technical Bases for the Energy-saving Effects Being Generated
This project involves replacing the power-generating equipment in a conventional steam supply and power generating station that bums coal, heavy oil, and natural gas with gas turbine combined-cycle power-generating equipment that bums natural gas. By supplying heat with a heat supply system using a combined cycle, the volume of fossil fuel consumed per unit energy is reduced, with an accompanying decrease in greenhouse gas emissions. Thus, by implementing this project, less fossil fuel will be consumed, and accordingly, more energy will be saved.
This project to reduce greenhouse gases will result in existing equipment that is aged and deteriorating being made more efficient, but the existing plant is both a power station and a steam supply and heat generating station, and an analysis of the annual operation data reveals only approximate values for the power-generating efficiency and the supplied heat efficiency. Testing of the various units of equipment will be necessary in order to determine a more accurate plant efficiency rate.
For this reason, the efficiency of the existing plant was calculated based on analyzing the results of annual operation data and the rated output operation data at the current point in time, which includes the deterioration factor.
(1) The existing power-generating plant is a thermal plant designed to supply heat using steam turbines and conventional boilers, but it has badly aged and deteriorated, with an accompanying drop in efficiency. This project is designed to improve efficiency by installing combined-cycle cogeneration equipment that uses state-of-the-art high-efficiency gas turbines fueled by natural gas.
(2) The equipment capacity of the existing power-generating plant is low, with the planned value for the power-generating equipment being 4 to 50 MW (currently this figure is between 2.8 and 33.9 MW), and the percentage of power consumed within the plant is high. In this project, because the unit equipment capacity is high, the efficiency can be improved by centralizing auxiliary machinery to reduce the percentage of power consumed within the facility.
Tables 3-1-1-1 and 3-1-1-2 show the specifications of the existing boilers and turbine generators.
3-2 Table 3-1-1-1. Existing boiler and turbine generator specifications (1)
------1----- Planned value Current status Temper Temper Plant Unit No. Since Pressure Pressure ature ature Output (bar) Output (bar) CC) (C) No. 1 1 1978 50 t/h 14 250 42 t/h 11, 1 224 Steam boiler 2 1979 50 t/h 14 250 40 t/h 11, 2 229 3 1980 50 t/h 14 250 40 t/h 11,7 220 4 1981 50 t/h 14 250 41 t/h 11,4 213 5 1982 50 t/h 14 250 39 t/h 11, 1 234 6 1991 50 t/h 14 250 — t/h — — 1 1978 100 t/h 16 150 66 t/h 16 — Hot-water boiler 2 1979 100 t/h 16 150 21 t/h 16 — 3 1981 100 t/h 16 150 17 t/h 16 — No. 2 1 1931 120 t/h 28 400 92, 2 t/h 30, 1 395 Steam boiler 2 1931 120 t/h 28 400 90, 9 t/h 28, 8 389 3 — - t/h — — — t/h — — 4 1949 125 t/h 90 500 104 t/h 93, 7 495 5 1931 120 t/h 28 400 100, 1 t/h 29, 2 396 6 1950 175 t/h 90 500 123, 8 t/h 93, 2 496 7 1951 175 t/h 90 500 123, 8 t/h 93, 2 496 1 1967 100 Gcal/h 16 150 57, 2 Gcal/h 16 — Hot-water boiler 2 1969 100 Gcal/h 16 150 51, 1 Gcal/h 16 — 3 1971 75 Gcal/h 16 150 30, 9 Gcal/h 16 — 4 1983 75 Gcal/h 16 150 ~~ Gcal/h 16 — 5 1985 75 Gcal/h 16 150 — Gcal/h 16 — 1 1931 21 MW 28 : 400 15, 2 MW 26, 2 388 Condensing steam turbine 2 1949 50 MW 90 500 31, 1MW 90, 8 490 3 1950 30 MW : 90 500 33, 9 MW 91, 1 486
3-3 Table 3-1-1-2, Existing boiler and turbine generator specifications (2)
Planned value Current status Since Temper Temper Plant Unit No, Pressure Pressure Output ature Output ature (bar) (bar) CC) CC) No. 3 Steam boiler 1 1912 35 t/h 15 350 29 t/h 13, 3 304 2 1913 35 t/h 15 350 30 t/h 13, 6 306 3 1913 35 t/h 15 350 32 t/h 13,3 298 4 1911 35 t/h 15 350 31 t/h 13, 6 295 5 1915 35 t/h 15 350 28 t/h 13, 2 318 6 1914 35 t/h 15 350 30 t/h 13, 1 291 Back-pressure 1 1929 4 MW 14/1, 4 350 2, 8 MW 13 295 steam turbine 2 1929 4 MW 14/1, 4 350 4, 2 MW 12, 7 299
The supplied heat efficiency of the existing equipment was determined using the data acquired in this study. Supplied heat efficiency = annual volume of heat supplied / volume of fuel heat used annually
Tables 3-1-1-3 to 3-1-1-6 show the figures for heat supply on an annual basis, while Table 3-1-1-7 shows the figures for fuel usage.
3-4 Table 3-1-1-3, No. 1 station: Power-generating and heat supply figures ______*The enthalpy of the steam generated was set at a weighted average of 583,141 kcal/kg, Jan, Feb, March April May June July August Sept, Oct, Nov, Dec, Total Amount of power generated ------0 (x 103 MWh) Heat supply (Gcal) 86 499 84 550 81 679 67 321 25 944 5 447 19 903 16 362 18, 922 54 088 82 712 88 836 632 263 For air conditioning 63 369 60 725 56 242 43 726 0 0 0 0 0 34 740 54 769 58 487 372 058 (Gcal) Steam (T) 13 166 15 487 14 186 9 079 1 042 81 901 1 039 1, 091 4 426 12 317 13 888 86 703 Steam (Gcal 7 678 9 031 8 272 5 294 608 47 525 606 636 2 581 7 183 8 099 50 560 conversion) Hot water (Gcal) 15 452 14 794 17 165 18 301 25 336 5 400 19 378 15 756 18 286 16, 767 20 760 22 250 209 645
Table 3-1-1-4, No. 2 station: Power-generating and heat supply figures ______*The enthalpy of the steam generated was set at a weighted average of 667,949 kcal/kg, Jan, Feb, March April May June July August Sept, Oct, Nov, Dec, Total Amount of power generated 45 556 39 336 43 567 38 330 21 439 12 168 3 168 16 825 20 689 36 187 40 474 41 572 359 311 (x10 3 MWh) Heat supply (Gcal) 232 787 227 462 212 829 175 574 60 894 52 441 9 456 47 531 60 987 146 544 212 989 236 550 1 676 045 For air conditioning 181 561 180 364 162 409 124 092 0 0 0 0 1 137 103 672 161 473 179 776 1 094 484 (Gcal) Steam (T) 13 929 11 787 12 846 14 051 6 419 6 379 1 298 6 130 6 382 12 069 12 774 14 877 118 941 Steam (Gcal 9 304 7 873 8 580 9 385 4 288 4 261 867 4 095 4 263 8 061 8 532 9 937 79 447 conversion) Hot water (Gcal) 41 922 39 225 41 840 42 097 56 606 48 180 8 589 43 436 55 587 34 81 1 42 984 46 837 502 114
3-5 Table 3-1-1-5, No. 3 station: Power-generating and heat supply figures
Jan, Feb, March April May June July August Sept, Oct, Nov, Dec, Total Amount of power generated 5 433 5 101 4 828 3 653 0 0 0 0 0 2 172 4 347 4 638 30 172 (x 103 MWh) Heat supply (Gcal) 42 094 39 390 36 742 30 182 0 0 0 0 0 21 108 32 695 37 076 239 287 For air conditioning 39 824 37 358 34 590 28 155 0 0 0 0 0 19 562 31 057 35 514 226 060 (Gcal) Steam (T) 990 894 955 929 0 0 0 0 0 727 836 603 5 934 Steam (Gcal 643 581 620 603 0 0 0 0 0 472 543 392 3 854 conversion) Hot water (Gcal) 1 627 1 451 1 532 1 424 0 0 0 0 0 1 074 1 095 1 170 9 373
Table 3-1-1-6, Total for Nos, f, 2, and 3 stations: Power-generating and heat supply figures Jan, Feb, March April May June July August Sept, Oct, Nov, Dec, Total Amount of power generated 50 989 44 437 48 395 41 983 21 439 12 168 3 168 16 825 20 689 38 359 44 821 46 210 389 483 (x 103 MWh) Heat supply (Gcal) 364 513 354 510 334 357 275 796 87 723 58 669 29 610 64 743 80 795 223 719 331 289 365 755 2 571 480 For air conditioning 284 754 278 447 253 241 195 973 0 0 0 0 1 137 157 974 247 299 273 777 1 692 602 (Gcal) Steam (T) 28 085 28 168 27 987 24 059 7 461 6 460 2 199 7 169 7 473 17 222 25 927 29 368 211 578 Steam (Gcal 20 758 20 593 20 579 18 001 5 781 5 089 1 643 5 551 5 785 13 093 19 151 21 721 157 746 conversion) Hot water (Gcal) 59 001 55 470 60 537 61 822 81 942 53 580 27 967 59 192 73 873 52 652 64 839 70 257 721 132
3-6 Table 3-1-1-7, Annual volume of fuel used to supply heat Station No, 1 No, 2 No, 3 Total Gas (103 Nm3/year) 88 891 196 038 35 228 320 157 Heavy oil (t/year) 3 162 2 058 167 5 387
Coal (1/year) — 33 078 — 33 078
The volume of heat supplied determined in Table 3-1-1-6 contains steam gas from the exhaust produced by the turbines, so the total value for the heat supplied for air conditioning and to heat water is the amount of heat supplied by the fuel, noted in Table 3-1-1-7.
As a result: Heat supply volume: 2 413 734 (Gcal) Fuel consumption volume: Gas 320157 (103 Nm3/year) Heavy oil5 387 (t/year) Coal 33 078 (t/year) Unit heat-generating volume: Gas 10 932 (kcal/kg) Specific gravity: 0,72905 (kg/m3N), 7,970 (kcal/m3N) (LHV): Heavy oil9 593 (kcal/kg) Coal 5 426 (kcal/kg)
Supplied heat efficiency = Volume of heat supplied / { (volume of gas used x volume of unit heat generation) + (volume of heavy oil used x volume of unit heat generation) + (volume of coal used x volume of unit heat generation)} = 2 413 734 / (2 551 651 + 51 677 +179 481) (Unit: Gcal) = 86,74%
The generating-end efficiency of the existing equipment was determined from the data acquired in this study. Calculated as: power-generating efficiency = turbine generator efficiency x boiler efficiency
At this point, because the existing condensing turbine at the No, 2 station is being used in actual operation, the operation data for this turbine is shown in Table 3-1-1-8.
3-7 Table 3-1-1-8, No. 2 station condensing turbine generator characteristics Boiler Boiler Generating Boiler exit Volume of Pressure Temperature entrance entrance power enthalpy steam temperature enthalpy MW Bar °C KJ/kg KJ/kg T/h No. 1 15,2 26,2 388 3 211 104 437 84542 104 3 No. 2 311 90, 8 490 3 361 144 611 94752 184 5 No. 3 33,9 911 486 3 350 104 442 67257 177 8
Using this data, the turbine generating efficiency was calculated based on the formula given below, The results are shown in Table 3-1-1-9.
Turbine generator efficiency = volume of generating power / volume of heat input
The volume of heat input is defined as: = (boiler exit steam enthalpy - boiler entrance steam enthalpy) x volume of steam
Table 3-1-1-9, No. 2 station condensing turbine power-generating efficiency Boiler exit Boiler entrance Volume of Volume of heat Turbine power enthalpy enthalpy steam input generating efficiency KJ/kg KJ/kg t/h GJ/h % No. 1 3 211 437, 84542 104,3 289 233942 18, 92 No. 2 3 361 611, 94752 184, 5 507 183540 22, 07 No. 3 3 350 442, 67257 177, 8 516 974612 23,61
The average value of the three turbine generators at the No, 2 station was used for the turbine power-generating efficiency.
No, 1 turbine generator efficiency: 18,92% No, 2 turbine generator efficiency: 22,07% No, 3 turbine generator efficiency: 23,61%
Average turbine generator efficiency: 21,53%
Also, based on the following: Boiler efficiency = supplied heat efficiency = 86,74% the following results: Generating-end efficiency = turbine generator efficiency x boiler efficiency = 18,68%
In comparison, the power-generating efficiency resulting from this project is, as described in 2-1-
3-8 2, “Specifications before and after implementing the project ”, as follows:
Generating-end efficiency = 41,0% (at rated output)
The difference between these efficiency figures demonstrates that the project will be amply effective in saving energy.
3-9 3-1-2. Baseline that Serves as the Foundation for Calculating the Eenergy-saving Effect
(1) Setting the baseline The calculations for the baseline and the volume of heat used in the project case were made using the same the method used to calculate the volume of C02 reduction, based on the IPCC Guidelines for National Greenhouse Gas Inventories Reference Manual /1,4,1, “Approaches for Estimating C02 Emission” (see section 3-2-2, “Baseline that serves as the foundation for calculating the greenhouse gas reduction effect”).
The greenhouse gas is estimated within the framework of this project by the following steps.
# The volume of emissions prior to starting the project is estimated. # The future volume of emissions assuming that the project is not implemented is predicted (reference case). # The future volume of emissions assuming that the project is implemented is predicted (project case). The reference case and project case are then compared to evaluate the actual effects of the greenhouse gas (GHG). The “reference case” mentioned above serves as the baseline.
The baseline for this project has been set as indicated below, for the reasons explained above and those explained later.
Volume of fuel heat that would be used if the volume of power likely to be produced and the volume of heat likely to be supplied, from the steam supply and power generating station after the combined-cycle cogeneration equipment installed as part of this project were supplied from the existing steam supply and power generating station and aged and deteriorating power plants in the neighboring vicinity
The elements that serve as the foundation for calculating the volume of heat used, using the above method, are noted below. *)
*)IPCC guidelines: Method for calculating the volume of greenhouse gas emissions as stipulated by an inter-government panel (IPCC) relating to climatic changes.
3-10 1) An overview of the project This project aims to upgrade the steam supply and power generating station in the center of St, Petersburg, by modernizing it with combined-cycle cogeneration equipment using gas turbines, and also to gradually do away with the power-generating equipment in the three existing steam supply and power generating stations within the same area, which have deteriorated (currently these three power plants are collectively referred to as the Central Steam Supply and Power Generating Station), and thus to improve the heat efficiency of the facilities, reducing the C02 emitted from the facilities as greenhouse gas.
In this study, as described in Chapter 2, “Specific Project Planning ”, as a result of discussion with the Lenenergo side, the project case was planned with the conditions of location and the specifications described below, and agreement was reached with Lenenergo on this basis.
• Under the conditions of location, the No, 1 station in the area is targeted for increasing the number of hot water supply boilers. • The power-generating capacity is set at approximately 200 MW. • The heat supply volume, including existing boilers, is set at approximately 400 Gcal. • The steam turbines will be back-pressure type turbines.
2) Approach taken in setting the baseline In recent years, the Russian economy has been in a state of crisis, and there has been a significant decrease in industrial production caused by industrial stagnation, Under current conditions, there has been a noticeable overall drop in power demand.
At the same time, however, St, Petersburg, which is the second largest city in the Russian Federated Republic, is situated in the center of economic development taking place in western Russia, and with the number of industries venturing into other regions increasing on an annual basis, the demand for power is expected to increase in the future, As a result, it is thought that the ability of the Central Steam Supply and Power Generating Station, which is in the center of this city, to provide a stable supply of heat and power will be even more important in the future.
In this study, we looked at both the current situation and future conditions, and, taking into consideration the effects of saving energy and reducing greenhouse gases, we established a baseline, through mutual discussion and agreement reached with Lenenergo, based on power planning.
Table 3-1-2-1 indicates the capacity of the existing facilities in the planned values for the Central Steam Supply and Power Generating Station targeted by this study.
3-11 Table 3-1-2-1, Capacity of existing facilities of Central Steam Supply and Power Generating Station No, 1 station No, 2 station No, 3 station No, 1 steam boiler, 50 t/h No, 1 steam boiler, 120Vh No, 1 steam boiler, 35 t/h No, 2 steam boiler, 50 Vh No, 2 steam boiler, 120 Vh No, 2 steam boiler, 35 t/h No, 3 steam boiler, 50 Vh No, 4 steam boiler, 125 Vh No, 3 steam boiler, 35 t/h No, 4 steam boiler, 50 t/h No, 5 steam boiler, 120 Vh No, 4 steam boiler, 35 Vh No, 5 steam boiler, 50 t/h No, 6 steam boiler, 175 t/h No, 5 steam boiler, 35 Vh No, 6 steam boiler, 50 t/h No, 7 steam boiler, 175 t/h No, 6 steam boiler, 35 t/h No, 1 hot-water boiler, 100 No, 1 hot-water boiler, 100 No, 1 steam turbine generator, 4 Gcal/h Gcal/h MW No, 2 hot-water boiler, 100 No, 2 hot-water boiler, 100 No, 2 steam turbine generator, 4 Gcal/h Gcal/h MW No, 3 hot-water boiler, 100 No, 3 hot-water boiler, 75 Gcal/h Gcal/h No, 4 hot-water boiler, 75 Gcal/h No, 5 hot-water boiler, 75 Gcal/h No, 1 steam turbine generator, 21 MW No, 2 steam turbine generator, 30 MW No, 5 steam turbine generator, 50 MW
Table 3-1-2-2 shows the total existing equipment capacity of the Central Steam Supply and Power Generating Station targeted by this study.
Table 3-1-2-2, Total Existing Equipment Capacity of the Central Steam Supply and Power generating Station Steam boilers x 18 1,345 (t/h) Hot-water boilers x 8 725 (Gcal/h) Steam turbine generators x 5 109 (MW)
As shown in Table 3-1-2-2, the design value for the power-generating capacity of the existing facilities is 109 MW, In relation to this, taking into consideration the future increase in the demand for power anticipated by Lenenergo, it was decided to install combined-cycle cogeneration equipment of approximately 200 MW for the project case, In this case, even if we do not take increased power demand into consideration, putting the high-efficiency gas turbine cogeneration system into operation if this project is implemented would enable other low- efficiency power plants under Lenenergo management, which are part of the power generating network along with the Central Steam Supply and Power Generating Station, and which are older or have deteriorated, to be shut down or abolished.
In the event that this project is not implemented, Lenenergo would probably handle the shortage of power caused by increased demand by boosting the facility operation rate at the Kirishi Power Plant (equipment capacity of 2,097 MW, located 120 km southeast of StPetersburg) and other existing steam supply and power generating stations under its management, and by shutting
3-12 down operations at other older facilities with a low efficiency rate.
As a result, based on this and other factors, the baseline heat usage volume was set for the project case by taking the volume of heat used at the current heat efficiency of the existing facilities as using that figure as the planned volume of power to be generated and the planned volume of heat to be supplied annually. In specific terms, the items listed below were included as additions or corrections in establishing the baseline,.
• Volume of fuel heat used for generating power at the Central Steam Supply and Power Generating Station • The volume of fuel heat used if the volume of power determined by subtracting the volume of power generated annually at the Central Steam Supply and Power Generating Station from the annual planned power-generating volume for the new facilities is generated at the average fuel consumption rate of the Lenenergo power-generating facilities • The volume of fuel heat used for heat supply at the Central Steam Supply and Power Generating Station
Fig. 3-1-2-1 shows a conceptual diagram of the baseline setting for the volume of power generated.
■ ^-Overall demand for power in the center of St, Petersburg Before project is (A) (B) (D) implemented ~ -■ - -... After project is (D) (D) implemented
(A) : Volume of power supplied from existing steam supply and power generating stations (B) and (D): Volume of power purchased to supplement insufficient supply (C) : Volume of power supplied from combined-cycle cogeneration (D) : Volume of power purchased to supplement insufficient supply
Fig. 3-1-2-1, Conceptual diagram of baseline setting for volume of power generated
With regard to item (D), the volume of power purchased to supplement insufficient supply, because there is no change before and after implementation of the project, this item will not be included within the scope of the project.
For the volume of power generated, the base is considered to be a volume equivalent to (A) + (B) = (Q-
3-13 Fig. 3-1-2-2 shows a conceptual diagram of the baseline setting for the volume of heat supplied.
Overall demand for heat in the center of St, Petersburg Before project is (E) implemented
After project is (F) (G) implemented
(E) : Volume of heat supplied from existing steam supply and power generating stations (F) : Volume of heat supplied from combined-cycle cogeneration (G) : Heat supplied from existing steam supply and power generating stations to make up deficiency Fig, 3-1-2-2, Conceptual diagram of baseline setting for volume of heat supplied
The volume of heat supplied is considered to be a volume equivalent to (E) = (F) + (G).
(2) Calculating the baseline heat usage volume 1) How the baseline heat usage volume was calculated
(a) Portion from existing Central Steam Supply and Power Generating Station Annual heat usage volume (TJ/vear) = Annual power output volume (MWh) x 3,600 / 106 / power-generating efficiency + annual volume of heat supplied (Gcal/year) x 4,1868 /103 / supplied heat efficiency •
• Annual power output volume (MWh) : Actual 1998 figure at Central Steam Supply and Power Generating Station, acquired from Lenenergo • 3 600 : kW and kJ conversion constant (1 kW = 3 600 kJ) • Power-generating efficiency : Actual figures for existing steam turbines at Central Steam Supply and Power Generating Station, calculated based on data acquired from Lenenergo (see section 3-1-1, “Technical bases for the energy-saving effects being generated ”). • Annual volume of heat supplied (Gcal/year) : Actual 1998 figure at Central Steam Supply and Power Generating Station, acquired from Lenenergo However, because the actual figure from Lenenergo for heat supplied using steam is based on a unit of t/h, this was converted to Gcal based on the steam conditions of the boiler-generated steam. • 4,1868
3-14 : kcal and kJ conversion constant (1 kcal = 4,1868 kJ) • Supplied-heat efficiency : Actual figures for existing steam turbines at Central Steam Supply and Power Generating Station, calculated based on data acquired from Lenenergo (see section 3-1-1, “Technical bases for the energy-saving effects being generated ”).
(b) Purchased power component (the difference between the power output volume for the project case and the power output volume at (a)) Annual heat usage volume (TJ/vear) = {Project case annual power output volume (MWh) - existing annual power output volume (MWh)} x 3 600 /106 / power-generating efficiency
• Annual power output volume (MWh) : Planned annual power output volume if the project case is implemented • 3 600 : kW and kJ conversion constant (1 kW = 3 600 kJ) • Power-generating efficiency : Average heat efficiency for power-generating facilities under Lenenergo management (see section 3-1-1, ‘Technical bases for the energy-saving effects being generated ”) • Annual heat usage volume at existing facilities (TJ/year) : Annual heat usage volume calculated at 1)
(c) Baseline heat usage volume Baseline heat usage volume (TJ/year) = Heat usage volume calculated at a) for existing facilities (TJ/year) + purchased power component of heat usage volume calculated at b) (TJ/year)
2) Calculation results for actual heat usage volume The specific design results for the baseline heat usage volume, based on the calculated foundation and calculation method explained in 1), are as follows.
(a) Setting the baseline (heat usage volume based on existing equipment) The following were considered when setting the baseline. It was assumed that the volume of heat supplied and the power output volume would not change, regardless of whether or not the equipment was changed. It was also assumed that, because changes in the economic situation are fluid, the hypothesized demand would not change, even over the passage of time. a) Portion supplied by the existing equipment at the Central Steam Supply and Power Generating Station Annual power output volume (MWh/vear) The actual power output volume was used.
3-15 Actual value: 389 483 (MWh/year)
Annual volume of heat supplied (TJ/year) The actual volume of heat supplied was used. Actual value of steam: 133 860 (Gcal/year) Actual value of hot water: 2 413 734 (Gcal/year) = Steam (Gcal/year) x 4,1868 /103 + hot water (Gcal/year) x 4,1868 /103 * A constant was used at this point: 1 (kcal) = 4,1868 (kJ). = 560,4+10105,8 = 10 666,3 (TJ/year)
Annual equivalent volume of heat supplied (TJ/year) The same unit (J) was applied to the total figure for the annual power output volume and the annual volume of heat supplied, to determine this figure. =Annual power output volume + annual volume of heat supplied =Annual power output volume (MWh) x 3,600 /106 + annual volume of heat supplied (TJ) * A constant was used at this point: 1 (kW) = 3,600 (kJ). = 1402,1 + 10666,3 = 12 068,4 (TJ/year)
Plant heating efficiency (%) It was decided to use the average value of the rated load efficiency rates for the existing steam turbines (condensing type) as the plant power efficiency. For the supplied heat efficiency, it was decided to use the annual average efficiency (1998 actual figure) of the existing steam boilers. Power-generating end efficiency = 18,68% Supplied heat efficiency = 86,74% (See section 3-1-1, “Technical bases for the energy-saving effects being generated ”,)
Annual volume of heat used (TJ/year) This was determined by dividing the annual equivalent heat supply volume by the heat efficiency, However, because the power-generating efficiency and the supplied heat efficiency are different, the power output volume and heat supply volume were determined individually and then added. = Annual power output volume (MWh/year) x 3,600 / 106 / power-generating heat efficiency (%) x 100 + annual volume of heat supplied (TJ/year) / supplied heat efficiency (%) x 100 = 7507,1 + 12297,2 = 19 804,3 (TJ/year) b) Purchased power component (the difference between the project case power output volume and the power output volume at a)) Power is supplied by means of a network that extends throughout Russia, and where insufficient power is available in large metropolitan areas like the St, Petersburg area, in particular, extra
3-16 power is brought in from power plants outside the urban area, In such cases, loss is caused not only by inadequate power-generating efficiency, but also by insufficient power-transmitting efficiency. In this case, the shortages were offset by the average power-generating efficiency of the existing power-generating facilities, but in actuality, those power plants with higher efficiency levels are operated preferentially, and the shortage of power is made up by running those power plants with lower efficiency rates, Because of this, the actual effect will undoubtedly worsen, including power transmission losses.
Annual power output volume (MWh/vear) The difference was determined between the volume of power to be output with the new equipment, and the actual volume being generated with the existing equipment. = Hypothesized volume of power to be purchased = Volume of power output by new equipment (MWh/year) - actual value (MWh/year) = 1542 038,4 - 389 483 (MWh/year) = 1152 555,4 (MWh/year)
Annual equivalent heat supply volume (TJ/vear) The annual power output volume was determined using a uniform unit (J). =Annual power output volume * A constant was used at this point: 1 (kW) = 3 600 (kJ). =Annual power output volume (MWh) x 3 600 /106 = 4149,2 (TJ/year)
Plant heat efficiency (%) Because it is anticipated that equipment with poor efficiency will be shut down first, the value for existing condensing turbines which can be considered equivalent to this equipment was used. Power-generating heat efficiency = 18,68%
Annual heat usage (TJ/year) This was determined by dividing the annual equivalent heat supply volume by the heat efficiency. =Annual equivalent heat supply volume (TJ) / Power plant heat efficiency (%) x 100 = 22 214,9 (TJ/year) c) Baseline annual heat usage volume Baseline annual heat usage volume (TJ/vearf This was determined by adding the annual heat usage volume for the existing equipment to that of the purchased power component. = Annual heat usage volume for existing equipment (TJ/year) + annual heat usage volume for purchased power (TJ/year) = 19,804,3 + 22,214,9 = 42,019,2 (TJ/year)
3-17 3-1-3. Specific Volumes, Period of Generation, and Cumulative Volumes of the Energy saving Effect
(1) Energy-saving effect The energy-saving effect induced by this project was calculated by taking the difference between the ‘‘baseline heat usage volume ”, which is the predicted amount of heat that would be used if the project were not implemented, and the “project case heat usage volume ”, which is the predicted volume of heat that would be used if the project were implemented.
The “baseline heat usage volume ” is as described previously in section 3-1-2, “Baseline that serves as the foundation for calculating the energy-saving effect”, The “project case heat usage volume ” is calculated as described below.
1) Approach taken in setting the project case This project targets power plants in three locations, the No, 1, No, 2, and No, 3 stations, According the project planning, combined-cycle cogeneration equipment using gas turbines will be installed in the No, 1 station, and existing power-generating facilities will gradually be phased out.
However, demand for heat in St, Petersburg is greater than the volume of heat that can be supplied by the combined-cycle cogeneration equipment planned in this project, Therefore, some of the existing equipment, such as boilers, will be left in order to make up the deficit.
Because the demand for heat in the center of St, Petersburg will remain constant regardless of whether or not this project is implemented, the volume of heat supplied will be the same after the renovations have been made, and the existing boilers will continue to be operated even after the new equipment has been installed and is in operation, In specific terms, the items listed below were included as additions or corrections in establishing the volume of emissions for the project case. •
• Vblume of heat predicted to be supplied by the new equipment • The volume of heat predicted to be used if the volume of heat determined by subtracting the volume of heat supplied annually at the Central Steam Supply and Power Generating Station from the volume of heat planned to be supplied annually by the new facilities is generated at the average fuel consumption rate of the heat-supplying facilities at the Central Steam Supply and Power Generating Station
3-18 2) Prior conditions Fig. 3-1-3-1 shows the actual heat figure and the power demand for the center of St, Petersburg, which is the range within which heat will be supplied.
60,000 400,000
350,000 50,000 Power 300.000 40,000 250.000 s
30,000 200,000
$ 20,000 150,000 i 100,000 10,000 50,000
According to Fig, 3-1-3-1, the demand for heat is significantly less in summer than in winter, and under the present conditions, if all of the new equipment is operated, surplus heat will be produced, Therefore, in the annual operation pattern for the project case, the number of units in operation is adjusted for each month, to match the demand for heat, in units of gas turbine + HRSG series, Basically, the planning was drafted so that the equipment will be supplying the required volume of heat at any given time, In this case, periodic inspections can be carried out on each individual series by conducting them in the summer, when the number of operating series is lower.
With combined-cycle equipment using gas turbines, the output of the equipment changes in response to the temperature (output is lower when the temperature is higher) because of the characteristics of the gas turbine, With this in mind, calculations will be carried out using 15°C, which is the average summer temperature in St, Petersburg, as the standard temperature.
Also, by allocating operating series from the summer, when the number of operating series is lower, to the winter period, an annual average equipment usage rate of 70% is possible for the equipment as a whole, which is the planned standard rate when the equipment is installed in Japan, In this way, the usage rates for the individual months, from the standpoint of actual operation, can be suppressed up to 90%. Table 3-1-3-1 shows the operation pattern for the combined-cycle cogeneration equipment according to this project.
3-19 Table 3-1-3-1. New equipment operation pattern Jan, :eb, Aar, Usage rate 90% 90% 90% 90% 70% 70% 70% 70% 70% 90% 90% 90% Rated power-generating 252,0 252,0 252,0 252,0 168,0 168,0 84,0 168,0 168,0 252,0 252,0 252,0 210,0 Output (MW) Power transmission 168739 152 410 168739 163296 87494 84 672 43 747 87494 84672 168739 163296 168739 1 542038 MW) Heat supply capacity 227,0 227,0 227,0 227,0 151,3 151,3 75,7 151,3 151,3 227,0 227,0 227,0 189,2 (Gcal/h) Volume of heat 151 999 137290 151 999 147 096 78814 76272 39407 78814 76272 151 999 147096 151 999 1 389 058 Supplied (Gcal) Plant efficiency (%) 83,8% 83,8% 83,8% 83,8% 83,8% 83,8% 83,8% 83,8% 83,8% 83,8% 83,8% 83,8% 83,8% Power-generating 41,0% 41,0% 41,0% 41,0% 41,0% 41,0% 41,0% 41,0% 41,0% 41,0% 41,0% 41,0% 41,0% Efficiency (%) • Annual usage rate of GT 3 units: 69,85% 3-20 (2) Calculating the energy-saving effect The following shows how the energy-saving effect was calculated, Detailed results of the study will be shown following the description of the calculation method. 1) How the energy-saving effect was calculated (a) Calculating the volume of heat used for the project case a) Newly installed combined-cycle cogeneration equipment Annual volume of heat used (TJ/vear) = Planned annual power output volume (MWh x 3,600 / 106 / planned power-generating efficiency • Planned annual power output (MWh) : Annual volume of power planned to be output if the project case is implemented • 3,600 : Conversion index for kW and kJ (1 kW = 3,600 kJ) • Planned power-generating efficiency : Heat efficiency for the power-generating segment of the newly installed combined-cycle cogeneration equipment • Because a combined cycle is used, the total volume of heat used is the volume of power output divided by the power-generating efficiency, regardless of the volume of heat supplied. b) Portion for continued operation of existing equipment (differential between heat demand volume and volume of heat at a)) With the heat supply capacity resulting from installing the new combined-cycle cogeneration equipment, the high demand for heat in winter means that insufficient heat will be produced, This deficit will be compensated for by continuing to operate the existing equipment. Annual heat usage volume (TJ/vear) = {Annual volume of heat supplied (Gcal/year) - planned annual volume of heat supplied with new equipment (Gcal/year)} x 4,1868 /103 / supplied heat efficiency • • Annual volume of heat supplied (Gcal/year) : Actual 1998 figure at Central Steam Supply and Power Generating Station, acquired from Lenenergo However, because the actual figure from Lenenergo for heat supplied using steam is based on a 3-21 unit of t/h, this was converted to Gcal based on the steam conditions of the boiler-generated steam. • Annual planned volume of heat to be supplied with new equipment (Gcal/year) : Volume of heat planned to be supplied annually if the project case is implemented • 4,1868 : kcai and kJ conversion constant (1 kcal = 4,1868 kJ) • Supplied heat efficiency : Actual figures for existing steam turbines at Central Steam Supply and Power Generating Station, calculated based on data acquired from Lenenergo (see section 3-1-1, “Technical bases for the energy-saving effects being generated ”). c) Volume of heat used in project case Project case heat usage volume (TJ/year) = Volume of heat used with new equipment calculated at a) (TJ) + volume of heat used for continued operation of existing equipment, calculated at b) (TJ) (b) How the energy-saving effect based on the project was calculated a) Annual reduction in volume of heat used (TJ/year) = Baseline volume of heat used, calculated in 3-1-2 (TJ/year) - Volume of heat used in project case, calculated in 2) (TJ/year) b) Cumulative (lifetime) reduction in volume of heat used (TJ) =Annual reduction in volume of heat used (TJ/year) x lifetime • Annual reduction in volume of heat used (TJ/year) : Value calculated at a) 2) Results of calculating the actual energy-saving effect The following shows the specific calculation results of the energy-saving effect to be achieved, using the calculation bases, calculation methods and operation mode patterns described in sections 3-1-1,3-1-2, and 3-1-3 (1). (a) Volume of heat used in the project case a) Portion for the newly installed combined-cycle cogeneration equipment Because the operation of the equipment is different in summer and winter, and the equipment capacities also appear to be different, the calculation was carried out using the number of 3-22 operation days in each month, for both the volume of power generated and the volume of heat supplied. The operation pattern described previously in Table 3-1-3-1 was used. Annual volume of output power generated (kWh) This was determined by multiplying the volume of power generated by the annual usage rate, Because the operation rate differs due to the winter demand, however, and because the equipment capacities also appear to differ, the calculation was based on the number of operation days in each month. New equipment (3 units in operation) Power-generating end output: 252,0 (MW) Load ratio: 90% = Power-generating end output (MW) x load ratio (%) /100 x no, of operation days (days) x 24 (h)/l(f = 1153 958,4 (MWh) New equipment (2 units in operation) Power-generating end output: 168,0 (MW) Load ratio: 70% = Power-generating end output (MW) x load ratio (%) /100 x no, of operation days (days) x 24 (h)/l(f = 344 332 8 (MWh) New equipment (1 unit in operation) Power-generating end output: 84,0 (MW) Load ratio: 70% = Power-generating end output (MW) x load ratio (%) / 100 x no, of operation days (days) x 24 (h)/l(f = 43 747,2 (MWh) Annual volume of output power generated = Output power generated by new equipment (1 unit in operation) + output power generated by new equipment (2 units in operation) + output power generated by new equipment (3 units in operation) = 1542 038,4 (MWh/year) Annual volume of heat supplied (TJ/year) This was determined by multiplying the volume of heat supplied by the annual usage rate, 3-23 Because the operation rate differs in summer and winter, however, and because the equipment capacities also appear to differ, the calculation was based on the number of operation days in summer and winter, separately. New equipment (3 units in operation) Heat supply capability: 227,0 (Gcal/h) Load ratio: 90% = Heat supply capability (Gcal/h) x 24 (h) x no, of operation days (days) x annual load ratio (%) / 100 = 1039 478,4 (Gcal) New equipment (2 units in operation) Heat supply capability : 151,3 (Gcal/h) Load ratio: 70% = Heat supply capability (Gcal/h) x 24 (h) x no, of operation days (days) x annual load ratio (%) / 100 = 310172,8 (Gcal) New equipment (1 unit in operation) Heat supply capability: 75,7 (Gcal/h) Load ratio: 70% = Heat supply capability (Gcal/h) x 24 (h) x no, of operation days (days) x annual load ratio (%) / 100 = 39 407,2 (Gcal) Annual volume of heat supplied = Vblume of heat supplied by new equipment (1 unit in operation) + volume of heat supplied by new equipment (2 units in operation) + volume of heat supplied by new equipment (3 units in operation) = 1389 058,4 (Gcal) • A constant was used here: 1 (kcal) = 4,1868 (kJ). =Annual volume of heat supplied (Gcal/year) x 4,1868 /103 = 5 815,7 (TJ/year) Annual equivalent volume of heat supplied (TJ/vear) The same unit (J) was applied to the total figure for the annual power output volume and the annual volume of heat supplied, to determine this figure. =Annual power output volume + annual volume of heat supplied • A constant was used at this point: 1 (kW) = 3 600 (kJ). =Annual power output volume (MWh) /106 x 3 600 + annual volume of heat supplied (TJ) = 5 551,3 + 5 815,7 = 11367,09 (TJ/year) 3-24 Plant heating efficiency (%) It was decided to consider the power-generating efficiency as the volume of power output from the gas turbines and steam turbines, generated by the volume of fuel heat supplied. The plant efficiency was considered to be generated by the volume of fuel heat supplied by both the power output volume and the volume of heat supplied. The efficiency of the new combined-cycle cogeneration equipment using 67 MW gas turbines is as follows: Power-generating end efficiency (annual average power-generating end efficiency) = 41,0% Plant efficiency (annual average) = 83,8% (See table 3-1-3-1, “New equipment operation patterns” ,) Annual volume of heat used (TJ/year) The annual volume of heat used was determined by dividing the annual equivalent heat supply volume by the heat efficiency, However, because combined-cycle operation is used, the total volume of fuel used is the volume of output power generated, divided by the power-generating efficiency, Because heat given off from the gas turbines is reused, this figure is based on fuel expenses being limited to those incurred for generating power. = Annual power output volume (MWh/year) x 3 600 / 106 / power-generating end efficiency x 100 • A constant was used here: 1 (kWh) = 3 600 (kJ). = 13 554,4 (TJ/year) b) Portion from continued operation of existing equipment (difference between volume of demand for heat and volume of heat at a)) Here, it was assumed that current increases in demand coming from population increases and industrial growth will be offset by improvements in the network system and higher efficiency resulting from the families in need of heat using thermostats, Therefore, it was assumed that the total volume of supplied heat is no different from the actual value. Deficits will be made up for by operating boilers in the existing facilities which have a relatively high rate of efficiency. Annual volume of heat supplied (TJ/year) This was determined by taking the difference between the volume of heat supplied by the new equipment and the actual value for the volume of heat being supplied by the existing equipment. = Total demand (TJ/year) - portion from new combined-cycle cogeneration equipment (TJ/year) = 10 666,3 (TJ/year) - 5 815,7 (TJ/year) = 4 850,6 (TJ/year) Annual equivalent volume of heat supplied (TJ/year) The same unit (J) was applied to the annual volume of heat supplied, to determine this figure. =Annual volume of heat supplied (TJ/year) = 4 850,6 (TJ/year) Plant heat efficiency (%) The annual average efficiency (actual 1998 figure) of the existing steam boiler was used as the supplied heat efficiency. Heat supplied = 86,74% (See section 3-1-1, “Technical bases for the energy-saving effects being generated” ,) Annual heat usage volume (TJ/vear) This was determined by dividing the annual equivalent heat supply volume by the heat efficiency. =Annual equivalent heat supply volume (TJ/year) / power plant heat efficiency (%) x 100 = 5 592,2 (TJ/year) c) Annual volume of heat used in proj ect case Project case annual heat usage volume (TJ/year) This was determined by adding the annual heat usage volume for continued operation of the existing equipment to the annual heat usage volume for the new combined-cycle cogeneration equipment. = Annual volume of heat used with new equipment (TJ/year) + annual volume of heat used for continued operation of existing equipment (TJ/year) = 13554,4 + 5 592,2 = 19146,7 (TJ/year) (b) Calculating the energy-saving effect Annual reduction in volume of heat used (TJ/year) This was determined by taking the difference between the baseline annual usage volume and the project case annual heat usage volume. = Baseline annual volume of heat used (TJ/year) - annual volume of heat used in project case 3-26 (TJ/year) = 42019,2-19146,7 = 22 872^ (TJ/year) Annual reduction in volume of heat used based on crude oil conversion value ftoe/vear) The unit for the annual reduction in the volume of heat used was changed to the crude oil conversion value. • A constant was used at this point: 1 (toe) = 10 000 000 (kcal) l(J) = 0,238846(kcal) =Annual reduction in volume of heat used (TJ/year) x 1012 x 0,238846 /103 /107 = 546 301370 (toe/year) (3) Period during which energy will be saved by the project The lifetime during which the effect of the project will be realized was set at 27 years. This was determined by taking the length of time during which the power generating project is to be carried out in Russia, which is 30 years, and subtracting the period of construction for the project, which is 3 years, Based on this result, a period of 27 years was used as the actual project duration. (4) Cumulative energy-saving effects resulting from the project The cumulative reduction in the volume of heat used, which is the cumulative energy-saving effect resulting from the project, was determined by multiplying the annual reduction in the volume of heat used by the lifetime of the project, to find the total volume of the reduction in heat used achieved by installing the cogeneration system. For this purpose, the duration of the project was set at 27 years, by subtracting the period of construction, which is 3 years, from the project duration, which is 30 years. Cumulative reduction in the volume of heat used (TJ) =Annual reduction in the volume of heat used (TJ/year) x lifetime (years) = 617 558 (TJ) Cumulative reduction in volume of heat used based on crude oil conversion value (toe) The unit for the cumulative reduction in the volume of heat used achieved by implementing this project was changed to the crude oil conversion value. • A constant was used at this point: 1 (toe) = 10 000 000 (kcal) 3-27 1(J) = 0,238846 (kcal) = Cumulative reduction in volume of heat used (TJ) x 10u x 0,238846 /103 /107 = 14 750136,979 (toe) 3-1-4. Specific Method for Confirming the Energy-saving Effect The energy-saving effect of this project was determined by calculating the volume of heat for the actual fuel used, and the volume of power output and volume of heat supplied as a result. The volume of heat for the actual fuel used can be determined by calculating the volume of fuel used and the volume of heat produced among the fuel properties. The volume of fuel used can be monitored at all times by means of fuel flow meters and fuel integrating meters attached to the pipes. With regard to the fuel properties, the volume of heat produced can be measured using a continuous monitoring device, but because the natural gas that serves as the fuel is supplied at a steady rate from the pipeline, it is also possible to confirm the volume of heat in a non-intrusive way, by periodically analyzing samples. With regard to the volume of power output, a power integrating meter can be installed on the power-generating and power-transmitting ends, enabling continuous monitoring. The volume of heat supplied can be monitored by installing a heat volume integrating meter that directly monitors the heat volume from devices installed at the entrance and exit of the heat exchanger. Data items to be monitored The volume of heat for the fuel used (calculated from the volume of fuel used and the volume of heat produced) The volume of output power supplied (power integrating meter) and volume of heat (heat volume integrating meter) Method by which data is to be compiled The analysis of the fuel components and the volume of fuel used can be verified using numeric values. The results of periodic analysis of the fuel component and the volume of fuel used, taken from the continuous monitoring devices, will be recorded. 3-28 Monitoring interval The volume of fuel used will be monitored continuously. To achieve higher accuracy, however, a detailed study will be required when the project is implemented, to determine the timing for period inspection and calibration of the monitoring devices, and to determine how the devices will be maintained in good condition by tight sealing and other methods. 3-2. Effect of Reducing Greenhouse Gases The effect of reducing greenhouse gases at the power plant was evaluated by comparing the baseline and the future project, particularly in terms of the power-generating equipment at the existing steam supply and power generating station, In the baseline and project planning, improving the power-generating efficiency will significantly reduce the volume of fuel consumed, which in turn will reduce the volume of C02, which is a greenhouse gas. The volumes of greenhouse gases emitted were calculated for the baseline and after implementation of the project, and the reduction in the volume of greenhouse gas was calculated and confirmed by subtracting the volume of greenhouse gas emitted after implementation of the project from the volume emitted at the baseline point. Ibis section explains the volumes of greenhouse gas emitted before and after implementation of the project, the bases for that reduction being effected, and the possibility of the effect applying to a wider area. 3-2-1. Technical Bases for the Effect of the Reduction in Greenhouse Gases This project involves replacing the power-generating equipment in a conventional steam supply and power generating station that bums coal, heavy oil, and natural gas with gas turbine combined-cycle power-generating equipment that bums natural gas, By supplying heat with a heat supply system using a combined cycle, the volume of fossil fuel consumed per unit energy is reduced, with an accompanying decrease in greenhouse gas emissions, Thus, by implementing this project, less fossil fuel will be consumed, and accordingly, more energy will be saved. This project to reduce greenhouse gases will result in existing equipment that is aged and deteriorating being made more efficient. 3-29 The values used for the efficiency of the existing equipment are those described in section 3-1-1, “Technical bases for the energy-saving effects being generated ”. The heat supply efficiency for the existing equipment was determined from data acquired in this study. Heat supply efficiency = calculated as the annual volume of heat supplied / annual volume of fuel heat used. = 86,74% The power-generating end efficiency for the existing equipment was determined from data acquired in this study. Power-generating end efficiency = calculated as the turbine generator efficiency x boiler efficiency. = 18,68% hr comparison, the power-generating efficiency resulting from this project is, as described in 2-1- 2, “Specifications before and after implementing the project ”, as follows: Generating-end efficiency = 41,0% (at rated output) The difference between these efficiency figures demonstrates that the project will be amply effective in saving energy, and that the volume of greenhouse gases produced will be reduced as a result. Also, the combined-cycle cogeneration equipment that will be installed in this project runs entirely on natural gas as a fuel, but existing equipment at the steam supply and power generating station uses partly coal and partly heavy oil as a fuel. hr the same way, other power plants which send power to St, Petersburg use partly coal and partly heavy oil and peat as fuel. Table 3-2-1-1 shows the properties and components of the fuel used at existing steam supply and power generating stations, while Table 3-2-1-1 shows the actual figures for fuel use. Table 3-2-1-1, Fuel properties and components at existing steam supply and power generating 3-30 stations Gas Heavy oil Coal Lower heating 7 970 kcal/Nm3 LHV 9 593 Kcal/kg LHV 5 426 Kcal/kg value (LHV) Methane (CH4) 98 vol, % Hydrogen (H) 10wt,% Carbon (C) 83 wt, % Ethane (QFU 0,7 vol, % Sulfur (S) 2 wt, % Hydrogen (H) 5,8 wt% Propane 0,13 vol, % Water (H20) 0,5 wt, % Oxygen (O) 3,7 wt, % (CgHg) Butane (n- 0,07 vol, % Other 0,968 wt,% Sulfur (S) 0,4 wt, % C4H10) Isobutane (I- 0,05255 vol, % Nitrogen (N) 2,9 wt, % C4H i0) Pentane (n- 0,013 vol, % Water (H20) 4,5 wt, % c5h 12) Hydrogen (H2) 0,0029 vol, % Carbon 0,01 vol, % monoxide (CO) Nitrogen (N?) 0,78 vol, % Carbon dioxide 0,025 vol, % (CO,) Hydrogen 0,02 vol, % sulfide (H,S) Other 0,683 vol, % Table 3-2-1-2. Actual fuel usage at existing steam supply and power generating stations Fuel type Annual usage volume Heat volume Usage percentage conversion value Coal 47 013T 1068,0 TJ 7,2% Natural gas 405 89810 3xNm 3 13 544,3 TJ 91,1% Heavy oil 6274T 252,0 TJ 1,7% Table 3-2-1-3 shoes the fuel usage percentages before and after implementation of the project. Table 3-2-1-3. Fuel usage percentages before and after project implementation Fuel type Before project implementation After project implementation Existing steam Purchased power Combined-cycle Existing steam supply and power components cogeneration supply and power generating (nearby power generating stations plants) stations Coal 7,2% 3,44% 0% 7,2% Gas 91,1% 71,54% 100% 91,1% Heavy oil 1,7% 24,84% 0% 1,7% Peat 0% 0,18% 0% 0% Based on IPCC guidelines, the amounts of carbon contained in the various fuels used are as follows: Coal: 25,8 (t/TJ) 3-31 Natural gas: 15,3 (t/TJ) Heavy oil: 22,0 (t/TJ) Peat: 28,9 (t/TJ) Also, according to IPCC guidelines, the correction coefficients for incomplete burning of carbon for the various fuels used are as follows: Coal: 0,980 Natural gas: 0,995 Heavy oil: 0,990 Peat: 0,990 Thus, natural gas offers the lowest volume of carbon generated per unit heat volume, among all of the fuels. Because the emitted volume of C02, which is a greenhouse gas, is proportional to the volume of carbon produced by burning, the volume of greenhouse gases emitted can be reduced by converting coal, heavy oil, and peat into natural gas. Based on the above, this project will have two results: reducing greenhouse gases as a result of the energy-saving effect, and reducing greenhouse gases as a result of the fuel conversion effect. 3-2-2. Baseline that Serves as the Foundation for Calculating the Effect of Reducing Greenhouse Gases (1) Setting the baseline The baseline was set in conformance with the setting described in section 3-1-2, “Baseline that serves as the foundation for calculating the energy-saving effect”. The baseline greenhouse gas emissions volume was set as the volume of greenhouse gas that would be emitted if the annual planned volume of power was output and the annual planned volume of heat was supplied, as specified in the project case, at the heat efficiency of the existing equipment. In specific terms, the items listed below were included as additions or corrections in establishing the baseline. 3-32 The volume of greenhouse gases predicted to be emitted annually from the total fuel used for generating power at the Central Steam Supply and Power Generating Station The volume of greenhouse gases predicted to be emitted if the volume of power determined by subtracting the volume of power generated annually at the Central Steam Supply and Power Generating Station from the annual planned power-generating volume for the new facilities is generated at the average fuel consumption rate of the Lenenergo power generating facilities The volume of greenhouse gases predicted to be emitted from the total fuel used to generate steam and power at the Central Steam Supply and Power Generating Station The calculations for the baseline and the project case greenhouse gases are based on the IPCC Guidelines for National Greenhouse Gas Inventories Reference Manual /1,4,1, “Approaches for Estimating C02 Emission ”. The greenhouse gas is estimated within the framework of this project by the following steps. The volume of emissions prior to starting the proj ect is estimated. The future volume of emissions without the proj ect is predicted (reference case). The future volume of emissions with the project is predicted (project case). *) *)IPCC guidelines: Method for calculating the volume of greenhouse gas emissions as stipulated by an inter-government panel (IPCC) relating to climatic changes. 3-33 The reference case and project case are then compared to evaluate the actual reduction in the greenhouse gases. The “reference case” mentioned above serves as the baseline. The baseline for this project has been set as indicated below, for the reasons explained above and those explained later. Volume of greenhouse gases that will be generated if the volume of power likely to be produced and the volume of heat likely to be supplied from the steam supply and power generating station after the combined-cycle cogeneration equipment installed as part of this project were supplied from the existing steam supply and power generating station and aged and deteriorating power plants in the neighboring vicinity Fig. 3-2-2-1 shows a conceptual diagram of the baseline setting for the volume of power generated. <- Overall demand for power in the center of St, Petersburg -> Before project is implemented 1 1 (A) (B) (D) After project is implemented 1 (C) 1 (D) (A) : Volume of power supplied from existing steam supply and power generating stations (B) and (D): Volume of power purchased to supplement insufficient supply (C) : Volume of power supplied from combined-cycle cogeneration (D) : Volume of power purchased to supplement insufficient supply Fig. 3-2-2-1 Conceptual diagram of baseline setting for volume of power generated With regard to item (D), the volume of power purchased to supplement insufficient supply, because there is no change before and after implementation of the project, this item will not be included within the scope of the project. For the volume of power generated, the base is considered to be a volume equivalent to (A) + (B) = (Q. 3-34 Fig. 3-2-1-2 shows a conceptual diagram of the baseline setting for the volume of heat supplied. <- Overall demand for heat in the center of St, Petersburg -> Before project is implemented After project is implemented (E) : Volume of heat supplied from existing steam supply and power generating stations (F) : Volume of heat supplied from combined-cycle cogeneration (G) : Volume of heat supplied from existing steam supply and power generating stations to make up deficiency Fig. 3-2-2-2 Conceptual diagram of baseline setting for volume of heat supplied The volume of heat supplied is considered to be a volume equivalent to (E) = (F) + (G). (2) Calculating the volume of greenhouse gases produced for the baseline 1) How the baseline heat usage volume was calculated (1) Portion from existing Central Steam Supply and Power Generating Station Annual heat usage volume (TJ/vear) = See section 3,1,2, “Baseline that serves as the foundation for calculating the energy-saving effect”. (b) Purchased power component (the difference between the power output volume for the project case and the power output volume at a)) Annual heat usage volume (TJ/vear) = See section 3,1,2, “Baseline that serves as the foundation for calculating the energy-saving effect”. (c) Baseline heat usage volume Baseline heat usage volume (TJ/vear) = Heat usage volume calculated at 1) for existing facilities (TJ/year) + purchased power component of heat usage volume calculated at 2) (TJ/year) 2) Calculating the volume of greenhouse gases emitted for the baseline 3-35 (a) Portion emitted from the existing Central Steam Supply and Power Generating Station Annual volume of greenhouse gases emitted (t/vear) = 2 {volume of carbon contained in the various fuels used (t/TJ) x usage percentage of the various fuels used x correction coefficients for incomplete burning of carbon for the various fuels used} x annual volume of heat used (TJ/year) x 44 /12 # Amounts of carbon contained in the various fuels used (t/TJ) Numeric values based on IPCC guidelines: Coal: 25,8 Natural gas: 15,3 Heavy oil: 22,0 Peat: 28,9 # Usage percentages of the various fuels used : Actual 1998 figures for the Central Steam Supply and Power Generating Station, acquired from Lenenergo # Correction coefficients for incomplete burning of carbon for the various fuels used Numeric values based on IPCC guidelines: Coal: 0,980 Natural gas: 0,995 Heavy oil: 0,990 Peat: 0,990 # Annual volume of heat used (TJ/year) : Values calculated at (1) and (a) # Molecular weight ratio : Molecular weight ratio of carbon (C) to carbon dioxide (C02) b) Purchased power component (difference between project case power output volume and power output volume for existing equipment) Annual greenhouse gas emissions volume (t/vear) = 2 {volume of carbon contained in the various fuels used (tyTJ) x usage percentage of the various fuels used x correction coefficients for incomplete burning of carbon for the various fuels used} x annual volume of heat used (TJ/year) x molecular weight 3-36 • Amounts of carbon contained in the various fuels used (t/TJ) : Same as (a) • Usage percentages of the various fuels used : Actual figures for power stations under Lenenergo management, acquired from Lenenergo • Correction coefficients for incomplete burning of carbon for the various fuels used : Same as (a) • Annual volume of heat used (TJ/year) : Values calculated at (1) and (b) • Molecular weight ratio : Molecular weight ratio of carbon (C) to carbon dioxide (COj (c) Baseline annual greenhouse gas emissions volume (t/year) = Annual volume of greenhouse gas emissions for existing equipment, calculated at 1) (t/year) + annual volume of greenhouse gas emissions for purchased power component, calculated at 2) (t/year) (2) Results of calculating the actual volume of heat used The following shows the specific calculation results of the reduction in greenhouse gases to be achieved, using the calculation bases, calculation methods and operation mode patterns described in sections 3-2-1,3-2-2, and 3-2-3 (1). Reduction in the volume of greenhouse gases (1) Vblume of greenhouse gas emissions based on the baseline 1) Portion from the existing Central Steam Supply and Power Generating Station Annual volume of carbon used (t/year) The annual volume of carbon used was calculated from the annual volume of heat used by the existing equipment at the baseline level, and the amount of carbon contained in each type of fuel, based on the IPCC guidelines. The following were used as the constants for the amounts of carbon contained in the fuels, according to IPCC guidelines: 3-37 Coal: 25,8 (t/TJ) Natural gas: 15,3 (t/TJ) Heavy oil: 22,0 (t/TJ) Annual usage percentages for the various types of fuel used: From the actual figures: Coal 47 013 (t) 1068,0 (TJ) 7,2% Natural gas 405 898000 (Nm51 13,544,3(13) 91,1% Heavy oil 6 274 (t) 252,0 (TJ) 1,7% Volume of carbon used (coal) =Annual volume of heat used (TJ/year) x volume of carbon contained in coal (t/TJ) x percentage of coal used = 36 712^ (t/year) Volume of carbon used (gas) = Annual volume of heat used (TJ/year) x volume of carbon contained in gas (t/TJ) x percentage of gas used = 276 097,7 (t/year) Volume of carbon used (heavy oil) = Annual volume of heat used (TJ/year) x volume of carbon contained in heavy oil (t/TJ) x percentage of heavy oil used = 7 386,1 (t/year) Annual volume of carbon used = Volume of carbon used (coal) + volume of carbon used (gas) + volume of carbon used (heavy oil) = 320196,3 (t/year) Annual volume of greenhouse gas emissions (t/year) The annual volume of greenhouse gas emissions was calculated from the annual volume of carbon used by the existing equipment at the baseline level, and the correction coefficient for incomplete burning of carbon, based on the IPCC guidelines. According to IPCC guidelines, the correction coefficients for incomplete burning of carbon for 3-38 the various fuels used are as follows: Coal: 0,98 Natural gas: 0,995 Heavy oil: 0,99 The various molecular weight ratios are as follows. C: 12,011 0:15,9994 COz: 44,0098 Molecular weight ratios = Molecular weight of C02 / molecular weight of C = 3,664124552 Annual volume of greenhouse gas emissions = Vblume of carbon used (coal) x correction coefficient for incomplete burning of carbon (coal) x molecular weight ratio + volume of carbon used (gas) x correction coefficient for incomplete burning of carbon (gas) x molecular weight ratio + volume of carbon used (heavy oil) x correction coefficient for incomplete burning of carbon (heavy oil) x molecular weight ratio = 131828,7 +1006 598,0 + 26 793,1 = 1165 219,8 (t/year) 2) Purchased power component (difference between project case power output volume and power output volume at a)) Annual volume of carbon used (t/year) The annual volume of carbon used was calculated from the annual volume of heat used for the purchased power component, and the volume of carbon contained in each type of fuel, based on the IPCC guidelines. Based on IPCC guidelines, the constant used for the amounts of carbon contained in the various fuels used are as follows: Coal: 25,8 (t/TJ) Natural gas: 15,3 (t/TJ) Heavy oil: 22 (t/TJ) 3-39 Peat: 28,9 (t/TJ) Annual usage percentages for the various types of fuel used: From the actual figures: Cdal:3,44% Natural gas: 71,54% Heavy oil: 24,84% Peat: 0,18% Volume of carbon used (coal) =Annual volume of heat used (TJ/year) x volume of carbon contained in coal (t/TJ) x percentage of coal used = 19 716,2 (1/year) Volume of carbon used (gas) =Annual volume of heat used (TJ/year) x volume of carbon contained in gas (t/TJ) x percentage of gas used = 243156,1 (1/year) Volume of carbon used (heavy oil) = Annual volume of heat used (TJ/year) x volume of carbon contained in heavy oil (t/TJ) x percentage of heavy oil used = 121400,1 (1/year) Volume of carbon used (peat) =Annual volume of heat used (TJ/year) x volume of carbon contained in peat (t/TJ) x percentage of peat used = 1155,6 (1/year) Annual volume of carbon used = Volume of carbon used (coal) + volume of carbon used (gas) + volume of carbon used (heavy oil) + volume of carbon used (peat) = 385 428,0 (1/year) Annual volume of greenhouse gas emissions (t/vear) The annual volume of greenhouse gas emissions was determined from the annual volume of 3-40 carbon used for the purchased power component, and the correction coefficient for incomplete burning of carbon, for each type of fuel, based on the IPCC guidelines. According to IPCC guidelines, the correction coefficients for incomplete burning of carbon for the various fuels used are as follows: Coal: 0,98 Natural gas: 0,995 Heavy oil: 0,99 Peat: 0,99 Molecular weight ratios: = Molecular weight of C02 / molecular weight of C = 3,664124552 Annual volume of greenhouse gas emissions (t/year) = Volume of carbon used (coal) x correction coefficient for incomplete burning of carbon in coal x molecular weight ratio + volume of carbon used (gas) x correction coefficient for incomplete burning of carbon in gas x molecular weight ratio + volume of carbon used (heavy oil) x correction coefficient for incomplete burning of carbon in heavy oil x molecular weight ratio + volume of carbon used (peat) x correction coefficient for incomplete burning of carbon in peat x molecular weight ratio = 70 797,7 + 886 499,3 + 440 376,8 + 4192,0 = 1401 865,8 (t/year) 3) Baseline annual volume of greenhouse gas emissions The baseline annual volume of greenhouse gas emissions was determined by adding the annual volume of greenhouse gas emissions for the purchased power component to the annual volume of greenhouse gas emissions for the existing equipment, at the baseline level. Baseline annual volume of greenhouse gas emissions (t/year) =Annual volume of greenhouse gas emissions for existing equipment (t/year) + annual volume of greenhouse gas emissions for purchased power component (t/year) = 1165 219,8 + 1401 865,8 = 2 567 085,6 (t/year) 3-41 3-2-3. Specific Volumes, Period of Generation, and Cumulative Volumes of the Greenhouse Gas Reduction Effect (1) Greenhouse gas reduction effect The greenhouse gas reduction effect induced by this project was calculated by taking the difference between the “baseline greenhouse gas emissions volume ”, which is the predicted volume of greenhouse gas that would be emitted if the project were not implemented, and the “project case greenhouse gas emissions volume ”, which is the predicted volume of greenhouse gas that would be emitted if the project were implemented. The “baseline greenhouse gas emissions volume ” is as described previously in section 3-2-2, “Baseline that serves as the foundation for calculating the greenhouse gas emissions volume ”, The “project case greenhouse gas emissions volume ” is calculated as described below. 1) Approach taken in setting the project case Because the demand for heat in the center of St, Petersburg will remain constant regardless of whether or not this project is implemented, the volume of heat supplied will be the same after the renovations have been made, and the existing boilers will continue to be operated even after the new equipment has been installed and is in operation, In specific terms, the items listed below were included as additions or corrections in establishing the volume of emissions for the project case. Volume of greenhouse gases predicted to be emitted by the new equipment The volume of greenhouse gas predicted to be emitted if the volume of heat determined by subtracting the volume of heat supplied annually at the Central Steam Supply and Power Generating Station from the volume of heat planned to be supplied annually by the new facilities is generated at the average fuel consumption rate of the heat-supplying facilities at the Central Steam Supply and Power Generating Station 2) Prior conditions for the calculations The annual operation pattern for the project case, which is a prior condition for calculating the reduction in greenhouse gas emissions, is as described in section 3-1-3, “Energy-saving effect”, As explained in this section, there is significantly less demand for heat in the summer period, and if all of the new equipment is put into operation, a surplus of heat will be produced, Thus, the number of units in operation will be adjusted for each month, to match the demand for heat, in units of gas turbine + HRSG series, so that the appropriate volume of heat can be supplied at any 3-42 given point to match the demand at that point, Table 3-1-2-3 was drafted using this as a basis. (2) Calculating the greenhouse gas reduction effect The reduction in the volume of greenhouse gases was calculated by taking the annual volume of heat used from the baseline and the annual volume of heat used from the project case and converting them into the volume of greenhouse gas emissions in accordance with the calculation formula prescribed by the IPCC guidelines, The volume of greenhouse gas emissions from the project case was then subtracted from the baseline volume of greenhouse gas emissions. The method by which the reduction in the volume of greenhouse gases was calculated is described below, Detailed results of the study will be shown following the description of the calculation method. 1) How the greenhouse gas reduction effect was calculated (a) Calculating the volume of greenhouse gas emissions for the project case a) Portion for the newly installed combined-cycle cogeneration equipment Annual volume of greenhouse gas emissions (t/year) = Volume of carbon contained in the gas (T/TJ) x correction coefficient for incomplete burning of carbon in gas x annual volume of heat used (TJ/year) x molecular weight ratio • Volume of carbon contained in gas (T/TJ) : Numeric value based on IPCC guidelines: 15,3 • Correction coefficient for incomplete burning of carbon in gas : Numeric value based on IPCC guidelines: 0,995 • Annual volume of heat used (TJ/year) : See section 3-1-3, “Specific volumes, period of generation, and cumulative volumes of the energy-saving effect”. • Molecular weight ratios : Molecular weight ratio of carbon (C) to carbon dioxide (C02) b) Portion for continued operation of existing equipment (differential between heat demand volume and volume of heat at a)) 3-43 Annual volume of greenhouse gas emissions (t/vear) = 2 (annual volume of carbon contained in the various fuels used (tyTJ) x usage percentage of the various fuels used x correction coefficients for incomplete burning of carbon for the various fuels used) x annual volume of heat used (TJ/year) x molecular weight ratio • Amounts of carbon contained in the various fuels used (t/TJ) : The following numeric values, based on IPCC guidelines: Coal: 25,8 Natural gas: 15,3 Heavy oil: 22,0 • Usage percentages of the various fuels used : Actual 1998 figures for the Central Steam Supply and Power Generating Station, acquired from Lenenergo • Correction coefficients for incomplete burning of carbon for the various fuels used The following numeric values, based on IPCC guidelines: Coal: 0,980 Natural gas: 0,995 Heavy oil: 0,990 • Annual volume of heat used (TJ/year) : See section 3-1-3, “Specific volumes, period of generation, and cumulative volumes of the energy-saving effect”. • Molecular weight ratios : Molecular weight ratio of carbon (C) to carbon dioxide (C02) (c) Proj ect case greenhouse gas emissions volume Project case greenhouse gas emissions volume (t/year) = Greenhouse gas emissions volume calculated at 1) for new equipment (t/year) + volume of greenhouse gases emitted from continued operation of existing equipment (t/year), calculated at 2) (b) Calculating the reduction in greenhouse gases achieved by the project a) Annual reduction in volume of greenhouse gases (t/year) 3-44 = Baseline volume of greenhouse gases emitted - volume of greenhouse gas emissions in project case • Baseline volume of greenhouse gas emissions (t/year) See section 3-2-2, “Baseline that serves as the foundation for calculating the greenhouse gas reduction effect”. • Vblume of greenhouse gas emissions in project case (t/year) Value calculated at (2) 1) (a) c) h) Cumulative reduction in volume of greenhouse gases (t) =Annual reduction in volume of greenhouse gases (t/year) x lifetime • Annual reduction in volume of greenhouse gases (t/year) : Value calculated at a) (2) Results of calculating the volume of the reduction in greenhouse gases The following shows the specific calculation results of the reduction in greenhouse gases to be achieved, using the calculation bases, calculation methods and operation mode patterns described in sections 3-2-1,3-2-2, and 3-2-3 (1). 1) Volume of greenhouse gas emissions in the project case a) Portion for the newly installed combined-cycle cogeneration equipment Annual volume of carbon used (t/year) The annual volume of carbon used was calculated from the annual volume of heat used by the new cogeneration equipment, and the amount of carbon contained in each type of fuel, based on the IPCC guidelines. The following were used as the constants for the amounts of carbon contained in the fuels, according to IPCC guidelines: Natural gas: 15,3 (t/TJ) = Annual heat used (TJ/year) x volume of carbon contained in the fuel (t/TJ) = 207382,9(t/year) See section 3-1-3, “Specific volumes, period of generation, and cumulative volumes of the energy-saving effect”. 3-45 Annual volume of greenhouse gas emissions (t/vear) The annual volume of greenhouse gas emissions was determined from the annual volume of carbon used by the new cogeneration equipment, and the correction coefficient for incompletely burned carbon in each type of fuel, based on the IPCC guidelines. The following was used as the constant for the correction coefficient for incompletely burned carbon in the fuel, according to IPCC guidelines: Natural gas: 0,995 Molecular weight ratio = Molecular weight ratio of C02 to C = 3,664124552 =Amount of carbon used (gas) x correction coefficient for incompletely burned carbon in the gas x molecular weight ratio = 756 077,5 (t/year) b) Portion for continued operation of existing equipment (differential between heat demand volume and volume of heat at a)) Annual volume of carbon used (t/vear) The annual volume of carbon used was calculated from the annual volume of heat used for the existing equipment, and the volume of carbon contained in each type of fuel, based on the IPCC guidelines. Based on IPCC guidelines, the constants used for the amounts of carbon contained in the various fuels used are as follows: Cbal: 25,8(1/0) Natural gas: 15,3 (tyTJ) Heavy oil: 22 (tyTJ) Annual usage percentages for the various types of fuel used: From the actual figures: Constants: Coal 47013(1) 1068, 0(TJ) 7,2% 3-46 Natural gas 405 898(lOWN) 13 544,3 (TJ) 91,1% Heavy oil 6274(t) 252,0 (TJ) 1,7% Volume of carbon used (coal) =Annual volume of heat used (TJ/year) x volume of carbon contained in coal (t/TJ) x percentage of coal used = 10 366,7 (t/year) Volume of carbon used (gas) = Annual volume of heat used (TJ/year) x volume of carbon contained in gas (t/TJ) x percentage of gas used = 77 963,1 (t/year) Volume of carbon used (heavy oil) = Annual volume of heat used (TJ/year) x volume of carbon contained in heavy oil (t/TJ) x percentage of heavy oil used = 2 085,7 (t/year) Annual volume of carbon used = Volume of carbon used (coal) + volume of carbon used (gas) + volume of carbon used (heavy oil) = 90 415,4 (t/year) Annual volume of greenhouse gas emissions (t/year) The annual volume of greenhouse gas emissions was determined from the annual volume of carbon used in the heat supplied by the existing equipment, and the correction coefficient for incomplete burning of carbon, for each type of fuel, based on the IPCC guidelines. According to IPCC guidelines, the correction coefficients for incomplete burning of carbon for the various fuels used are as follows: Coal: 0,98 Natural gas: 0,995 Heavy oil: 0,99 Molecular weight ratios: = Molecular weight of C02 / molecular weight of C 3-47 = 3,664124552 = Volume of carbon used (coal) x correction coefficient for incomplete burning of carbon in coal x molecular weight ratio + volume of carbon used (gas) x correction coefficient for incomplete burning of carbon in gas x molecular weight ratio + volume of carbon used (heavy oil) x correction coefficient for incomplete burning of carbon in heavy oil x molecular weight ratio = 37 225,1 + 284 238,2 + 7 565,7 = 329 029,0 (t/year) c) Project case annual volume of greenhouse gas emissions Project case annual volume of greenhouse gas emissions (t/year) The project case annual volume of greenhouse gas emissions was determined by adding the annual volume of greenhouse gas emissions for continued operation of the existing equipment to the annual volume of greenhouse gas emissions for the new equipment =Annual volume of greenhouse gas emissions for new equipment (t/year) + annual volume of greenhouse gas emissions for continued operation of existing equipment (t/year) = 756 077,5 + 329 029,0 = 1085106,6 (t/year) d) Reduction in greenhouse gases achieved by the project Annual reduction in volume of greenhouse gases emitted (t/year) This was determined by taking the difference between the baseline reduction in the annual volume of greenhouse gas emissions and the reduction in the annual volume of greenhouse gas emissions for the project case. Annual reduction in volume of greenhouse gases emitted = Baseline annual volume of greenhouse gases emitted (t/year) - annual volume of greenhouse gas emissions in project case (t/year) = 2567085,6-1085106,6 = 1481979,0 (t/year) (3) Period during which the project effect will be realized The lifetime during which the effect of the project will be realized was set at 27 years. This was determined by taking the length of time during which the power generating project is to 3-48 be carried out in Russia, which is 30 years, and subtracting the period of construction for the project, which is 3 years, Based on this result, a period of 27 years was used as the actual project duration. (4) Cumulative volume in reduction of greenhouse gases resulting horn the project The cumulative reduction in the volume of greenhouse gas emissions resulting from the project was determined by multiplying the annual reduction in the volume of heat used by the lifetime of the project, to find the total volume of the reduction in greenhouse gases achieved by installing the cogeneration system. Cumulative reduction in the volume of greenhouse gases fit The annual reduction in the volume of greenhouse gases emitted was multiplied by the lifetime, to find the total volume of the reduction in greenhouse gases achieved by installing the cogeneration system. For this purpose, the lifetime of the project was set at 27 years, by subtracting the period of construction, which is 3 years, from the project duration, which is 30 years. =Annual reduction in the volume of greenhouse gases emitted (t/year) x lifetime (years) = 40013434(t) 3-49 3-2-4. Specific Method for Confirming the Greenhouse Gas Reduction Effect (monitoring method) The greenhouse gas targeted by this project is carbon dioxide (C02), which is included in the smoke produced as a result of the operation of the steam supply and power generating plant. The volume of the greenhouse gas emissions can be determined from the volume of fuel burned at the plant and the properties of the fuel. In present-day Russia, no monitoring equipment has been installed in existing facilities to monitor environmental factors, and at many of the steam supply and power generating plants in Russia, and at power plants, no measurements are conducted based on fundamental environmental regulations, as they are in Japan. Consequently, it is important to carry out more realistic monitoring of the volume of fuel used and the properties of the fuel. Data items planned for monitoring The volume of C02 produced (calculated from the volume of carbon used) Method by which data is to be compiled The analysis of the fuel components and the volume of fuel used can be verified using numeric values for the volume of C02 produced. The results of periodic analysis of the fuel component and the volume of fuel used, taken from the continuous monitoring devices, will be recorded. Monitoring interval The volume of fuel used (volume of carbon used) will be monitored continuously. (1) The importance of environmental monitoring Establishing an environmental monitoring system will be an important factor in identifying and managing the volume of C02 emissions before and after the project, C02 being a greenhouse gas, and in determining and managing the extent to which the environment is affected by the emissions. Data concerning these factors will be compiled continuously, in real time, and evaluated, In the 3-50 event that a problem occurs, it is important that prompt action be taken to protect the environment, and it is necessary to set up a system for that purpose. At the current time, there are no devices in practical use that enable the total volume of C02 emitted from the smoke to be measured directly and accurately but as further advances are made in this field in the future, solutions will no doubt appear, At the same time, however, as long as we have a detailed understanding of the composition of the natural gas used as fuel and the volume of fuel consumed, the volume of C02 emissions can be determined fairly easily, through logical calculation values, Naturally, a system must be in place by which the fundamental operation data necessary for these calculations can be controlled in terms of both hardware and software, and it will be necessary to create a system through which heat efficiency management and environmental control can be easily carried out on a daily basis, and to strengthen the system by improving the technology and skills involved. (2) Primary personnel responsible for monitoring With regard to composition analysis data for the natural gas currently supplied in Russia, and for the steam supply and power generating station in St, Petersburg, we rely on the supplier of the natural gas for the compositional data of the gas, In the future, it will be important to set up a system within the power plant itself, including gas analysis devices, so that gas can be managed directly and continuously on-site, and bi-directional cross-checking can be carried out. It is also necessary to install gas flow measuring devices with a higher level of precision, to monitor the volume of natural gas used. In addition, a fundamental prior condition of this project is that the various data measurements necessary in order to calculate the effects of the C02 emissions on the environment, and the volume of the exhaust gas component emitted, will be carried out by the power company responsible for management of the power plant, including operation and maintenance, The power company accepting this consignment will also compile the necessary data, conduct sampling of the emitted gas, and conduct chemical analyses, along with any other periodic processing and analysis required, In the future, if the volume of C02 emission are acquired, the company holding the C02 reduction contract, or a proxy organization, will need to confirm and check the results of data management, based on the contract contents, and to take other necessary measures such as obtaining approval and authorizations. (3) Data items planned for monitoring 3-51 The following data items will be gathered, as necessary items for calculating the volume of C02 emissions and monitoring the volume of exhaust gas component emissions that affect the environment. Weather and atmospheric data (atmospheric temperature, humidity, barometric pressure, etc,) Fuel property data (composition, caloric heat, etc,) Volumes of fuel used by various units of equipment Volumes of air taken in and volumes of gases emitted by various units of equipment Volumes of nitrogen oxides and sulfur oxides produced (4) Method by which data is to be compiled As power generating equipment becomes modernized, the processing capabilities and reliability of control systems are expanding, The data necessary for calculating the volume of C02 produced and other factors will be compiled using DCS (Distributed Control System), which is a control system used to compile this type of data. Control systems make it easier to process, manage, record, and print out data showing figures for power generation, and make it possible to compile and process data. 5 (5) Monitoring period Computers for environmental management will be used to analyze and manage data automatically, on a timely and daily basis. 3-52 3-3. Effects on Productivity Through this project, combined-cycle cogeneration equipment using gas turbines with outstanding capabilities in terms of operation and control will be installed in adjoining urban areas where there is strong demand for power, This will result in a better ability to respond to fluctuations in demand, and a shortening of the power transmission network, enabling a more stable supply of power that should lead to improved productivity in other industries as well. It is thought that implementing this project will affect Russia in a variety of highly positive ways. 3-53 Chapter 4 Profitability 2. Return on investment over a 30-year project period (excluding C02 emission right) Case 1: EIRR 10.156% FIRR 8.582% Case 2: EIRR 10.051% FIRR 8.540% 3. Construction cost vs. project effect (energy conservation) over a 30-year period: Case 1: 0.1059 toe/US$ 9.442 US$/toe Case 2: 0.1049 toe/US$ 9.534 US$/toe4 4. Construction cost vs. project effect (reduction of greenhouse gases) over a 30-year period: Case 1: 0.1179 t (COJ/USS 8.4808 US$/t(COJ Case 2: 0.11741 (COj/US$ 8.5145 US$/t(Coj 4. Profitability Internal Rate of Return (IRR) is used as an index to evaluate the profitability of this project. In addition, projected financial statements, consisting of sales plan, production cost, investment plan, financing plan, and statement of cash flow, are presented. Sensitivity analysis is conducted to check how each cost factor affects the IRR. The evaluation is on a long-term basis over a 30-year period. It is assumed that the project will commence in 2003 and, after a 3-year construction period, begin and continue operation for 27 years. Construction and O & M costs are based on the current rates and on the assumption that they will stay at those levels in the future. Figures are calculated based on the US dollar because the constantly fluctuating Ruble did not seem to be an appropriate currency for financial projection. The exchange rate of the Rubles against the US dollar plummeted in September 1998 and has since stabilized somewhat although it is still showing a slight downward trend. The average rate of the past nine months (June 1999 to February 2000), or 26.0 Rub./US $ is used in this analysis. 4-1 4-1 Economic Effects of Return on Investment Financial analysis attempted in this report is based on various projections of different financial factors. Return on investment and its impact on the economy of the project is evaluated based on the internal rate of return calculated by the discount cash flow (DCF) method that uses various computations on budget, financing, procurement, and other parameters as described in the following sections. Data relevant to the computation of administrative cost of the power plant was obtained in Russia. However, because it was difficult to project how the Rubles would fluctuate under the unstable Russian economic/political situations, and because it was unlikely that the Rubles would appreciate to the level before the economic crisis in August 1999, we decided to convert the costs into US dollars at a realistic exchange rate of 26.0 Rub./US$. In addition, we examined the economic effects of investment return by taking into account possible trading of the volume of C02 emission* in the future at a US$5/t(C02) rate as estimated by the Prototype Carbon Fund. * Trading of the volume of Co 2 emission: At the Third Framework Convention on Climate Change (COPS) held in Kyoto, Japan in 1997, each participating country and international organization set a reduction target for the emission of greenhouse gases. However, reducing C02 and keeping the emission at these committed levels are difficult for many countries. Thus, it was adopted at COP4 held in Buenos Aires in 1998 that a mechanism, principles, and procedures to allow trading of C02 emission rights between countries would be drafted. According to this mechanism, if a country can reduce its actual CO2 emission below the allowable level, it can sell the remaining amount to other advanced nations. Russia and China are expected to become the major sellers of such rights. 4-3 (1) Construction Cost of the Project Figures below are basis of construction cost calculation: 1) Cost ratio (%) of each item in a gas turbine combined cycle is based on past data and set as follows (condenser turbine is used; cooling tower, heat exchanger, and bypass damper are not included.) Gas turbine + electric generator 32.6(%) Steam turbine 7.4(%) HRSG 10.6(%) (Total of the above) (50.6)(%) Electrical/control system/BOP 18.7(%) Installation/transport 17.9(%) Building construction 12.8(%) 2) 6FA gas turbine price: US$18,900,000 (FOB price of a gas turbine and generator package) based on Gas Turbine World Handbook 1998-99 "Turbogenerator Price Levels" (See Appendix.) 3) Total construction cost in case of one-shaft type (1-1-1) Ratio of gas turbine cost (based on subsection 1) above): 32.6% Thus, the total construction cost of 1-shaft type is: US$18,900,000 % 32.6% =? US$57,980,000 4 4) Revising the number of units Adjusting the total construction cost of 1-shaft type to that of multiple-shaft type (3-3-1) Based on the Gas Turbine World Handbook 1998-99 " Turnkey Combined Cycle Plant Price Levels" (See Appendix.), the cost of 3-3-1 is about 2.3 times that of 1-1-1. 5) Cost of cooling tower Cost of a cooling tower is added to the above figure. Based on the past data of an equivalent-class (circulation: approx.2,000m 3/h), the cost is set at US$3,600,000. 6) Cost of heat exchanger Cost of heat exchangers is added to the above figure. Exchangers for six water-supply heaters of 350 MW-class generation equipment will be used at an estimated cost of US$2,800,000. 7) Adjusting cost from condensation turbines to back-pressure turbines Switching from condensation turbines to less sophisticated back-pressure turbines will save some cost. As the back-pressure type does not require a condenser and related equipment, it will also reduce the costs of installation, transportation and construction of such equipment and facility. The cost of back-pressure turbine is estimated to be the 0.7th power of the generation capacity ratio of a normal 3-3-1 condensation turbine (approx. 100,000 kW) versus a back-pressure turbine used in this project (approx. 51,000 kW). Condenser equipment cost is estimated at 10% of the steam turbine cost. The installation, transport, and building construction costs are assumed at minus 10% of those of a steam turbine. Therefore, the total cost adjustment generated by switching from condenser turbines to back pressure turbines is assumed at US$4,990,000. This consists of a reduced cost of turbines themselves (US$3,700,000) and costs saved for not having the condenser equipment (US$990,000) and related works, such as installation, transportation, and building construction (US$300,000). 8) Total construction cost Based on items 3) to 7), the total construction cost is: (total construction cost for 1-shaft type) x (adjustment coefficient of multi-shaft) + (cost of cooling tower) + (cost of heat exchanger) - (cost adjustment from condenser to back pressure turbines) = US$57,980,000 x 2.3 + US$3,600,000 + US$2,800,000 - US$4,990,000 = US$134,764,000 —* US$134,800,000 (the difference is allocated for reserve and miscellaneous expenditures) Table 4-4-1 below itemizes the construction cost of this project. 4-6 Table 4-1-1: Construction Cost (103US$) Gas turbine 36,570 Steam turbine 9,867 HRSG 14,133.5 Electric/Control/BOP 10,841 Installation/Transport 10,378 Building construction 7,421 Heat exchanger, etc. 1,410 Reserve/m isc. 46 Total 134,800 (2) Profitability Listed below are parameters and calculated figures that are relevant to computing annual revenues. 1) Sales Plan The revenue of this project will be generated by selling electric power and heat. Table 4-1-2 shows the projected sales of power and heat. Heat supply volumes were based on past data. Electric power supply was derived by subtracting the amount of power used within the station from that at the generation terminal. Because it is a co generation system, power is generated in proportion to heat supply. In St. Petersburg City, the power demand exceeds the supply from the Central Station, thus 100% of power supplied by the station is consumed in its neighborhood. (See Section 3-1-2: Baselines for Computing Energy Conservation Effects.) Table 4-1-2: Sales Schedule of Power and Heat Year # 1 2 3 4 5 ~ Calendar Year Capacity 2003 2004 2005 2006 2007 ~ Power supply 2,111,160 0 0 0 1,463,392.8 1,463,392.8 (MWh/yr.) Heat supply 1,988,520 0 0 0 1,389,058.4 1,389,058.4 (Gcal/yr.) Usage (100) 0 0 0 69.85% 69.85% (%) Power charge is uniformly set at the March 1999 rate of 0.37 Rub./kWh. Heat charge is uniformly set at the March 1999 rate of 106.4 Rub./ Gcal. 4-7 2) Variable Costs The proposed gas combined system will use natural as a fuel, the usage of which is shown in Table 4-1-3 below: Table 4-1-3: Usage of Fuel and Water Year # 1 2 3 4 5 ~ Calendar year 2003 2004 2005 2006 2007 ~ Natural gas 0 0 0 406,201.1 406,201.1 (106m3/yr.) Water 0 0 0 16,393,336.8 16,393,336.8 (m3/yr.) • Unit price of natural gas is set at the March 1999 rate of 356.41 Rub./m 3. ' Water is included in the above table as another variable cost. This was computed based on the water requirement of the newly-installed combined co-generation system. The unit price of water is set at 1.11 Rub./m 3. • Steam conditions of the existing boiler do not differ from those of the new system. Therefore, cost for chemicals is computed in proportion to the differences in the outputs of power and heat between existing and new facilities. 3) Fixed Costs The new system will be operated by the personnel and other existing resources of the station. Thus, such fixed costs as personnel, administration, and repair expenses are calculated based on the past data and in proportion to the differences in the outputs of power and heat between existing and new facilities . Annual usage 69.9% (based on gas turbine) Exchange rate l(US$) = 26.00(Rub.) Cost of coal 356.5(Rub./t) 0.6036(US$/GJ) Cost of natural gas 356.41 (Rub ./103m3) 0.4108(US$/GJ) Cost of fuel oil l,500(Rub./t) 1.4364(US$/GJ) Power charge 0.37(Rub./kWh) 0.0142(US$/kWh) Heat charge 106.4(Rub./Gcal) 0.9774(US$/GJ) Cost of water l.l(Rub./t) Annual 0 & M 99,988,439(Rub./year) 3,845,709(US$/year) Annual fuel cost 145,501,632(Rub./year) 5,596,217(US$/year) Natural gas 145,501,632(Rub./year) Annual sales of power 541,455,336(Rub./year) 20,825,205 (U S $/year) Annual sales of heat 147,795,814(Rub ./year) 5,684,454(US$/year) Annual water charge 18,196,604(Rub./year) 699,869(US$/year) Annual revenue/expenditure 425,564,475(Rub./year) 16,367,864(U S $/year) Note: The gross amount of the operation and maintenance cost will stay at the same level as computed as follows: (annual O & M cost) x (heat generated by new system) -r (total heat generated) The price of C02 emission right is set as follows: lt(C02)=5(US$) Annual cost of C02 emission (US$/year) = annual C02 emission (t/year) X C02 emission right (US$/t) = 1,481,979.0X5 = 7,409,895 (US$/year) 4-9 Listed below are revenues and expenditures of the heat-power station after the implementation of the project: Annual 0 & M cost 142,655,600(Rub./year) 5,486,754(US$/year) Annual fuel cost 210,211,720(Rub./year) 8,085,066(US$/year) Coal 6,434,157(Rub./year) Natural gas 200,201,206(Rub./year) Oil 3,576,357(Rub,/year) Annual sales of power 541,455,336(Rub./year) 20,825,205(US$/year) Annual sales of heat 271,064,016(Rub./year) 10,425,539(US$/year) Annual water charge 49,020,228(Rub./year) l,885,393(US$/year) Annual revenue/expenditure 410,63 l,804(Rub ./year) 15,793,531(US$/year) -HO (3) Economic Effects of Return on Investment (case 1) Based on the project budget in Section (1) and the annual revenue/expenditure in Section (2) above, the internal rate of return is computed as shown below. The life of this period is set for 30 years according to the Russian standard. As the construction will take three years, the actual lifetime of the project will be 27 years. 1) Financing Of the needed fund, the facility and equipment cost will be covered by a long-term loan, and the rest will be covered by owned capital. Thus, the ratio of borrowed fund and owned capital is 85% to 15%. A 40-year loan with 0.75% interest unredeemable for ten years is assumed. This represents the terms of the special circumstance yen credit of the Japanese government. This financing scenario is referred to as "case 1." In case that the special circumstance yen credit is not applicable to this project, we assumed another scenario in which the project is funded by the export financing of the International Cooperation Bank. The terms of this loan is assumed as below: Interest: 3.1%, Term of repayment: 10 years (covers 85% of equipment/facility cost) This scenario is referred to as "case 2" and its effects of investment return are presented in the following Section (4) Economic Effects of Return on Investment (Case 2). 2) Necessary Funds Tables 4-1-4 and 4-1-5 respectively show the investment plan and financing plan of the project. 4-n Table 4-1-4: Investment Plan (Case 1) (103US$) Year 1 2 3 Total Equipment 46,909 46,909 93,817 Transport/Installation 11,934 11,934 23,868 Construction 17,068 17,068 Reserve/Misc. 46 46 Consultant fee 1,348 1,348 1,348 4,044 Interest during n 7-0/ 0 0 433 433 construction Total 18,462 60,191 60,624 139,277 Table 4-1-5: Financing Plan (Case 1) (103US$) Year 1 2 3 Total Own capital 15% 18,462 2,430 0 20,892 Loan 85% 0 57,761 60,624 118,385 Total 100% 18,462 60,191 60,624 139,277 Exemption from import duties as part of investment incentive is assumed. Likewise, it is assumed that the project is exempted from 20% value added tax (VAT) also. The consultant fee is assumed at 3% of the construction cost. Interest during construction is computed at a long-term rate of 0.75% per year on 85% of the needed funds. Initial running cost is not included in the calculation, as the combined co-generation will partially take over the existing facility while still running. Contingency is not included either. Table 4-1-6 shows the annual revenues/expenditure of the new project, and Table 4-1-7 shows possible revenues when trading of C02 emission rights is permitted. Table 4-1-6: Annual Revenue/Expenditure of New Facility 0 & M 3,845,709 US$/year Fuel cost 5,596,217 US$/year Sales of power 20,825,205 US$/year Sales of heat 5,684,454 US$/year Water charge 699,869 US$/year Balance 16,367,864 USS/year Table 4-1-7: Revenue from Sales of Emission Rights Annual C02 7,409,895 USS/year emission right CO, emission right 5 US$/t(COP) 3) Result of Financial Analysis Based on the above premises, the internal rate of return is computed as follows: (a) Economic Internal Rate of Return (EIRR) before Tax Table 4-1-8 shows the EIRR before tax without the sales of C02 emission rights. Table 4-1-9 presents the EIRR before tax including the sales of the volume of C02 emission. 4- 14 Table 4-1-8: Revenue/Expenditure and EIRR before tax (emission rights not included) - Case 1_____ (lCFUSS) Repayment Expenditure (A) Revenue Annual Balance EIRR Yr. Investment Fuel O&M Subtotal (B) B+C-A 1 18,462 18,462 -18,462 2 60,191 60,191 -60,191 3 60,624 60,624 -60,624 4 5,596 4,546 10,142 26,510 16,368 -78.088% 5 5,596 4,546 10,142 26,510 16,368 49:281% 6 5,596 4,546 10,142 26,510 16,368 -31.683% 7 5,596 4,546 10,142 26,510 16,368 -20.521% 8 5,596 4,546 10,142 26,510 16,368 -13.046% 9 5,596 4,546 10,142 26,510 16,368 -7.810% 10 5,596 4,546 10,142 26,510 16,368 -4.011% 11 5,596 4,546 10,142 26,510 16,368 -1.174% 12 5,596 4,546 10,142 26,510 16,368 0.995% 13 5,596 4,546 10,142 26,510 16,368 2.684% 14 5,596 4,546 10,142 26,510 16,368 3,946 4.023% 15 5,596 4,546 10,142 26,510 16,368 3,946 5.098% 16 5,596 4,546 10,142 26,510 16,368 3,946 5.971% 3,946 17 5,596 4,546 10,142 26,510 16,368 6.689% 3,946 18 5,596 4,546 10,142 26,510 16,368 7.283% 3,946 19 5,596 4,546 10,142 26,510 16,368 7.779% 3,946 20 5,596 4,546 10,142 26,510 16,368 8.197% 3,946 21 5,596 4,546 10,142 26,510 16,368 8.550% 3,946 22 5,596 4,546 10,142 26,510 16,368 8.851% 3,946 23 5,596 4,546 10,142 26,510 16,368 9.108% 3,946 24 5,596 4,546 10,142 26,510 16,368 9.328% 3,946 25 5,596 4,546 10,142 26,510 16,368 9.519% 3,946 26 5,596 4,546 10,142 26,510 16,368 9.684% 3,946 27 5,596 4,546 10,142 26,510 16,368 9.827% 3,946 28 5,596 4,546 10,142 26,510 16,368 9.952% 3,946 29 5,596 4,546 10,142 26,510 16,368 10.061% 3,946 30 5,596 4,546 10,142 26,510 16,368 10.156% 87,977 TL 139,277 151,098 122,731 413,106 715,761 302,655 4-15 Table 4-1-9: Revenue/Expenditure and EIRR before tax (with emission rights) - Case 1______(lOTJSS) Bpm±ie$ FteaiE Errranifcjt AndtiErtB Yr. RspEfyfTHt EIRR tieshet Ftd O&M attti 0 0 BOA 1 18,462 18,462 -18,462 2 60,191 60,191 -60,191 3 60,624 60,624 -60,624 4 5,596 4,546 10,142 26,510 7,410 23,778 -70.320% 5 5,596 4,546 10,142 26,510 7,410 23,778 -39.371% 6 5,596 4,546 10,142 26,510 7,410 23,778 -21.793% 7 5,596 4,546 10,142 26,510 7,410 23,778 -11.096% 8 5,596 4,546 10,142 26,510 7,410 23,778 4.155% 9 5,596 4,546 10,142 26,510 7,410 23,778 0.575% 10 5,596 4,546 10,142 26,510 7,410 23,778 3.924% 11 5,596 4,546 10,142 26,510 7,410 23,778 6.367% 12 5,596 4,546 10,142 26,510 7,410 23,778 8.192% 13 5,596 4,546 10,142 26,510 7,410 23,778 9.584% 3,946 14 5,596 4,546 10,142 26,510 7,410 23,778 10.662% 15 5,596 4,546 10,142 26,510 7,410 23,778 3,946 11.509% 3,946 16 5,596 4,546 10,142 26,510 7,410 23,778 12183% 17 5,596 4,546 10,142 26,510 7,410 23,778 3,946 12.724% 18 5,596 4,546 10,142 26,510 7,410 23,778 3,946 13.162% 19 5,596 4,546 10,142 26,510 7,410 23,778 3,946 13.520% 20 5,596 4,546 10,142 26,510 7,410 23,778 3,946 13.815% 21 5,596 4,546 10,142 26,510 7,410 23,778 3,946 14.058% 22 5,596 4,546 10,142 26,510 7,410 23,778 3,946 14.260% 23 5,596 4,546 10,142 26,510 7,410 23,778 3,946 14.428% 24 5,596 4,546 10,142 26,510 7,410 23,778 3,946 14.570% 25 5,596 4,546 10,142 26,510 7,410 23,778 3,946 14.689% 26 5,596 4,546 10,142 26,510 7,410 23,778 3,946 14.789% 27 5,596 4,546 10,142 26,510 7,410 23,778 3,946 14.874% 28 5,596 4,546 10,142 26,510 7,410 23,778 3,946 14.946% 29 5,596 4,546 10,142 26,510 7,410 23,778 3,946 15.007% 30 5,596 4,546 10,142 26,510 7,410 23,778 3,946 15.059% TL 139,277 151,098 122,731 413,106 715,761 502,722 87,977 4- 16 (b) Financial Internal Rate of Return (FIRR) after Tax In order to assess the financial standing of the project, we set taxation parameters as described below and computed the FIRR net of tax. a) Depreciation Expense Direct costs (construction and design fees) of the power plant are depreciated in the straight-line method over a 20-year period with a residual value of 5%. Indirect costs, such as security deposit, customs duties, VAT, interest during construction, and pre-operational expenses are depreciated in the straight-line method over a 10-year period with zero residual value. b) Taxes • 2% property tax on facility and equipment is assumed with a residual value of 10% after 25 years. • 12% corporate tax on profit is assumed. • Investment on plant and equipment is assumed to be exempted from VAT as an incentive for Joint Implementation projects for preventing global warming. Different versions of FIRRs net of tax are shown below. FIRR in Table 4-1-10 does not include C02 emission rights. Table 4-1-11 shows FIRR with C02 emission right transaction that is exempted from taxation because of an incentive program. Table 4-1-12 includes C02 emission right transaction that is taxable. 4-17 Table 4-1-10: Revenue/Expenditure and FIRR (emission right excluded, with tax ) -case 1 (10%$) Expend i ture(A) Revenue Simple annual balance Property tax Depreciate Interest Taxable imcom Corporate tax Net profit Repayment of Yr. FIRR Invest. Fuel O&M Subtotal (B) (D)=B+C-A (E) (F) (G) (H) -D-E-F-G (I) D-E-I principle 1 18, 462 18, 462 -18, 462 -18, 462 -18, 462 2 60, 191 60,191 -60, 191 -60, 191 -60, 191 3 60, 624 60,624 -60, 624 -60, 624 -60, 624 4 5, 596 4, 546 10,142 26, 510 16, 368 1, 876 8, 274 888 5, 329 640 13, 852 -80. 960% 5 5, 596 4, 546 10,142 26, 510 16, 368 1, 792 8, 274 888 5, 414 650 13, 926 -53. 116% 6 5, 596 4, 546 10, 142 26, 510 16, 368 1, 707 8, 274 888 5, 498 660 14, 001 -35. 500% 7 5, 596 4, 546 10,142 26, 510 16, 368 1,623 8, 274 888 5, 583 670 14, 075 -24. 117% 8 5, 596 4, 546 10,142 26, 510 16, 368 1, 539 8, 274 888 5, 667 680 14, 149 -16. 387% 9 5, 596 4, 546 10,142 26, 510 16, 368 1, 454 8, 274 888 5, 752 690 14, 224 -10. 911% 10 5, 596 4, 546 10,142 26, 510 16, 368 1, 370 8, 274 888 5, 836 700 14, 298 -6. 897% 11 5, 596 4, 546 10,142 26, 510 16, 368 1,285 8, 274 888 5, 920 710 14, 372 -3. 871% 12 5, 596 4, 546 10,142 26, 510 16, 368 1, 201 8,274 888 6, 005 721 14, 446 -1. 538% 13 5, 596 4, 546 10,142 26, 510 16, 368 1, 116 8, 274 888 6, 089 731 14, 521 0. 296% 14 5, 596 4, 546 10,142 26, 510 16, 368 1,032 4, 222 888 10, 226 1, 227 14, 109 3, 946 1. 716% 15 5, 596 4, 546 10,142 26, 510 16, 368 948 4, 222 858 10, 340 1, 241 14, 179 3, 946 2. 872% 16 5, 596 4, 546 10,142 26, 510 16, 368 863 4, 222 829 10, 454 1, 255 14, 250 3, 946 3. 824% 17 5,596 4, 546 10,142 26, 510 16, 368 779 4, 222 799 10, 568 1, 268 14, 321 3, 946 4. 614% 18 5, 596 4, 546 10,142 26, 510 16, 368 694 4, 222 770 10, 682 1, 282 14, 392 3, 946 5. 275% 19 5, 596 4, 546 10,142 26, 510 16, 368 610 4, 222 740 10, 796 1, 296 14, 462 3, 946 5. 834% 20 5, 596 4, 546 10,142 26, 510 16, 368 525 4,222 710 10,910 1, 309 14, 533 3, 946 6. 308% 21 5, 596 4, 546 10,142 26, 510 16, 368 441 4, 222 681 11,024 1, 323 14, 604 3, 946 6. 713% 22 5, 596 4, 546 10,142 26, 510 16, 368 357 4, 222 651 11, 138 1, 337 14, 675 3, 946 7. 062% 23 5, 596 4, 546 10,142 26, 510 16, 368 272 4, 222 622 11, 253 1, 350 14, 745 3, 946 7. 362% 24 5, 596 4, 546 10,142 26, 510 16, 368 188 592 15, 588 1, 871 14, 310 3, 946 7. 615% 25 5, 596 4, 546 10,142 26, 510 16, 368 188 562 15, 618 1, 874 14, 306 3, 946 7. 834% 26 5, 596 4, 546 10,142 26, 510 16, 368 188 533 15, 647 1, 878 14, 303 3, 946 8. 025% 27 5, 596 4, 546 10,142 26, 510 16, 368 188 503 15, 677 1, 881 14, 299 3, 946 8. 192% 28 5, 596 4, 546 10,142 26, 510 16, 368 188 474 15, 707 1, 885 14, 295 3, 946 8. 339% 29 5, 596 4, 546 10,142 26, 510 16, 368 188 444 15, 736 1, 888 14, 292 3, 946 8. 468% 30 5, 596 4, 546 10,142 26, 510 16, 368 188 414 15, 766 1, 892 14, 288 3, 946 8. 582% TL 139, 277 151, 098 122, 731 413,106 715, 761 302, 655 246, 950 51, 300 4-18 Table 4-1-11 Revenue/Expenditure and FIRR (with emission right and tax, without taxable emission) - easel (103US$) Expend! turer (A) Revenue Simple annual bat. Property tax Depreciation Interest Taxable income Corporate tax C02 Em. right Net profit Repayment of Yr. FIRR Inv. Fuel om Subtotal (B) (D)=B+C-A (E) (F) (G) (H) =D-E-F-G (I) (C) D+C-E-I principle 1 18, 462 18, 462 -18, 462 -18, 462 -18, 462 2 60, 191 60, 191 -60, 191 -60, 191 -60, 191 3 60, 624 60, 624 -60, 624 -60, 624 -60, 624 4 5, 596 4, 546 10, 142 26, 510 16, 368 1, 876 8, 274 888 5, 329 640 7, 410 21, 262 -72. 854% 5 5, 596 4, 546 10, 142 26,510 16, 368 1, 792 8, 274 888 5, 414 650 7, 410 21, 336 -42. 453% 6 5, 596 4, 546 10, 142 26, 510 16, 368 1, 707 8, 274 888 5, 498 660 7, 410 21, 410 -24. 795% 7 5, 596 4, 546 10, 142 26, 510 16, 368 1, 623 8, 274 888 5, 583 670 7,410 21, 485 -13. 904% 8 5, 596 4, 546 10, 142 26, 510 16, 368 1, 539 8,274 888 5, 667 680 7, 410 21, 559 -6. 763% 9 5, 596 4, 546 10, 142 26, 510 16, 368 1, 454 8, 274 888 5, 752 690 7, 410 21, 633 -1. 852% 10 5, 596 4, 546 10, 142 26, 510 16, 368 1, 370 8, 274 888 5, 836 700 7,410 21, 708 1. 654% 11 5, 596 4, 546 10, 142 26, 510 16, 368 1, 285 8, 274 888 5, 920 710 7, 410 21, 782 4. 231% 12 5, 596 4, 546 10, 142 26, 510 16, 368 1, 201 8, 274 888 6, 005 721 7, 410 21, 856 6. 173% 13 5, 596 4, 546 10, 142 26, 510 16, 368 1, 116 8, 274 888 6, 089 731 7, 410 21, 931 7. 664% 14 5, 596 4, 546 10, 142 26, 510 16, 368 1,032 4, 222 888 10, 226 1,227 7, 410 21, 519 3, 946 8. 805% 15 5, 596 4, 546 10, 142 26, 510 16, 368 948 4, 222 858 10, 340 1, 241 7, 410 21, 589 3, 946 9. 710% 16 5, 596 4, 546 10, 142 26, 510 16, 368 863 4,222 829 10, 454 1, 255 7,410 21, 660 3, 946 10. 438% 17 5, 596 4, 546 10, 142 26, 510 16, 368 779 4,222 799 10, 568 1,268 7,410 21, 731 3, 946 11.028% 18 5, 596 4, 546 10, 142 26, 510 16, 368 694 4,222 770 10, 682 1,282 7, 410 21, 802 3, 946 11. 510% 19 5, 596 4, 546 10, 142 26, 510 16, 368 610 4,222 740 10, 796 1, 296 7, 410 21, 872 3, 946 11. 908% 20 5, 596 4, 546 10, 142 26,510 16, 368 525 4,222 710 10, 910 1,309 7,410 21, 943 3, 946 12. 238% 21 5, 596 4, 546 10, 142 26,510 16, 368 441 4, 222 681 11,024 1,323 7,410 22,014 3, 946 12. 513% 22 5, 596 4, 546 10, 142 26, 510 16, 368 357 4, 222 651 11, 138 1, 337 7, 410 22, 085 3, 946 12. 744% 23 5, 596 4, 546 10, 142 26, 510 16, 368 272 4,222 622 11, 253 1,350 7, 410 22, 155 3, 946 12. 938% 24 5, 596 4, 546 10, 142 26, 510 16, 368 188 592 15, 588 1, 871 7, 410 21, 720 3, 946 13. 099% 25 5, 596 4, 546 10, 142 26, 510 16, 368 188 562 15, 618 1,874 7,410 21, 716 3, 946 13. 236% 26 5, 596 4, 546 10, 142 26, 510 16, 368 188 533 15, 647 1,878 7,410 21, 712 3, 946 13. 352% 27 5, 596 4, 546 10, 142 26, 510 16, 368 188 503 15, 677 1,881 7,410 21, 709 3, 946 13. 451% 28 5, 596 4, 546 10, 142 26, 510 16, 368 188 474 15, 707 1, 885 7,410 21, 705 3, 946 13. 535% 29 5, 596 4, 546 10, 142 26, 510 16, 368 188 444 15, 736 1,888 7,410 21, 702 3, 946 13. 608% 30 5, 596 4, 546 10, 142 26, 510 16, 368 188 414 15, 766 1,892 7, 410 21,698 3, 946 13. 670% TL 139, 277 151, 098 122, 731 413, 106 715, 761 302, 655 447,017 51, 300 4-19 Table 4-1-12: Revenue/Expenditure and FIRR (with emission right and tax, with taxable emission) - easel (103US$) Expenditure(A) Revenue C02 Em. right Simple annual bal. Property tax Description Inters t Taxable income Corporate tax Net profit Repayment of Yr. FIRR Invest. Fuel O&M Subtotal (B) (0 (D) =B+C-A (E) (F) (G) (H) =D-E-F-G (I) D-E-I Principle 1 18, 462 18, 462 -18, 462 -18, 462 -18, 462 2 60, 191 60, 191 -60, 191 -60, 191 -60, 191 3 60, 624 60, 624 -60, 624 -60, 624 -60, 624 4 5, 596 4, 546 10, 142 26, 510 7, 410 23, 778 1, 876 8,274 888 12, 739 1, 529 20, 373 -74. 187% 5 5, 596 4, 546 10, 142 26, 510 7, 410 23, 778 1, 792 8, 274 888 12, 824 1, 539 20, 447 -44. 135% 6 5, 596 4, 546 10, 142 26, 510 7, 410 23, 778 1, 707 8,274 888 12, 908 1, 549 20, 521 -26. 466% 7 5, 596 4, 546 10, 142 26, 510 7, 410 23, 778 1,623 8,274 888 12, 993 1,559 20, 596 -15. 493% 8 5, 596 4, 546 10, 142 26, 510 7, 410 23, 778 1, 539 8,274 888 13, 077 1, 569 20, 670 -8. 259% 9 5, 596 4, 546 10, 142 26, 510 7, 410 23, 778 1, 454 8, 274 888 13, 162 1, 579 20, 744 -3. 261% 10 5, 596 4, 546 10, 142 26, 510 7, 410 23, 778 1, 370 8, 274 888 13, 246 1, 590 20, 819 0. 322% 11 5, 596 4, 546 10, 142 26, 510 7, 410 23, 778 1, 285 8,274 888 13, 330 1,600 20, 893 2. 968% 12 5, 596 4, 546 10, 142 26, 510 7, 410 23, 778 1, 201 8,274 888 13,415 1,610 20, 967 4. 968% 13 5, 596 4, 546 10, 142 26, 510 7, 410 23, 778 1, 116 8,274 888 13, 499 1,620 21,041 6. 510% 14 5, 596 4, 546 10, 142 26, 510 7, 410 23, 778 1, 032 4,222 888 17, 636 2, 116 20, 629 3, 946 7. 692% 15 5, 596 4, 546 10, 142 26, 510 7, 410 23, 778 948 4,222 858 17, 750 2, 130 20, 700 3, 946 8. 635% 16 5, 596 4, 546 10, 142 26, 510 7, 410 23, 778 863 4,222 829 17, 864 2, 144 20, 771 3, 946 9. 395% 17 5, 596 4, 546 10, 142 26, 510 7, 410 23, 778 779 4,222 799 17, 978 2, 157 20, 842 3, 946 10.014% 18 5, 596 4, 546 10, 142 26, 510 7, 410 23, 778 694 4,222 770 18, 092 2, 171 20, 912 3, 946 10. 522% 19 5, 596 4, 546 10, 142 26, 510 7, 410 23, 778 610 4, 222 740 18, 206 2, 185 20, 983 3, 946 10. 943% 20 5, 596 4, 546 10, 142 26, 510 7, 410 23, 778 525 4,222 710 18, 320 2, 198 21, 054 3, 946 11. 293% 21 5, 596 4, 546 10, 142 26, 510 7, 410 23, 778 441 4, 222 681 18, 434 2,212 21, 125 3, 946 11. 587% 22 5, 596 4, 546 10, 142 26, 510 7, 410 23, 778 357 4,222 651 18, 548 2, 226 21, 195 3, 946 11. 834% 23 5, 596 4, 546 10, 142 26, 510 7, 410 23, 778 272 4,222 622 18, 662 2, 239 21,266 3, 946 12. 043% 24 5, 596 4, 546 10, 142 26, 510 7, 410 23, 778 188 592 22, 998 2, 760 20, 830 3, 946 12. 217% 25 5, 596 4, 546 10, 142 26, 510 7, 410 23, 778 188 562 23, 028 2, 763 20, 827 3, 946 12. 365% 26 5, 596 4, 546 10, 142 26, 510 7, 410 23, 778 188 533 23, 057 2, 767 20, 823 3, 946 12. 491% 27 5, 596 4, 546 10, 142 26, 510 7,410 23, 778 188 503 23, 087 2, 770 20, 820 3, 946 12. 599% 28 5, 596 4, 546 10, 142 26, 510 7,410 23, 778 188 474 23, 117 2, 774 20, 816 3, 946 12. 692% 29 5, 596 4, 546 10, 142 26, 510 7, 410 23, 778 188 444 23, 146 2, 778 20, 813 3, 946 12. 772% 30 5, 596 4, 546 10, 142 26, 510 7, 410 23, 778 188 414 23, 176 2, 781 20, 809 3, 946 12. 841% TL 139, 277 151, 098 122, 731 413, 106 715, 761 502, 722 423, 009 51,300 4-20 4) Sensitivity analysis of the after-tax FIRR (finance internal rate of return) For the case when C02 emission permits are not considered, sensitivity analysis of the after-tax FIRR is shown in Graph 4-1-1 -exchange rate -gas unit price -electricity retail price 120% 130% 140% 150% 160% Graph 4-1-1 Case 1: After-tax FIRR sensitivity analysis graph (C02 emission permits ignored) The most sensitive factor is exchange rate: if it falls by 50%, FIRR would become 17.932%. It is followed by retail price of electricity: 50% rise would deliver 14.775% FIRR. Though the FIRR rate of 8.582% is considered low for a purely commercial venture, bringing into the view that the present program is a public works project, contributing to prevention of the global warming by reducing carbon dioxide emission and benefiting ecology in other ways, this rate is deemed appropriate. Since the Russian currency crisis in July 1998, domestic prices, especially electric power rates and prices of other basic products, brought down by the rapid devaluation of ruble, have been staying at a very low level up to now. Due to that, with the present exchange rate, financial feasibility of investment projects, particularly those involving foreign investments, is not necessarily good. In the future, as the situation in Russia’s economy normalizes, an adjustment of electric power 4-21 rates and steam heating tariffs to bring them in line with reality will become necessary. The present retail price of electric power is 0.563 Rub/ kWh, or just 0.0217 US$/ kWh. Compared to existing electric power rates in developed countries, this price is very low. (4) Economic effectiveness of loan repayment (Case 2) Calculations of the internal return rate (IRR), based on the project ’s budget (see Chapter (1)) and annual balance (see Chapter (2)), are presented hereinafter. As the period of project, according to Russian standards, includes time of construction, the total project period here is 30 years. With the project ’s construction period of 3 years, operating time (lifetime) would be 27 years. 1) Raising of funds As planned, in the total amount of the required funds, the part corresponding to the cost of equipment will be financed by a long-term loan, the rest - by the self-owned capital. Accordingly, the debt loan ratio is going to be 85% of the loan against 15% of the company ’s own capital. The long-term loan is accommodated on terms of the 3.1% interest rate and 10-year repayment period and is expected to be provided by Japan Bank for International Cooperation. 2) Required funds Investment plan is presented in Chart 4-1-13, capital spending plan - in Chart 4-1-14. 4-22 Chart 4-1-13 Investment plan (Case 2) (, 000 US$) Year 1 2 3 Subtotal Equipment 0 46,909 46,909 93,817 Transportation, erection and installation 11,934 11,934 23,868 23,868 Construction 17,068 0 0 17,068 Start-up and miscellaneous expenses 0 0 46 46 Consulting expenses 1,348 1,348 1,348 4,044 Interest during 2>\% 0 1,784 1,784 construction Total 18,462 60,191 61,975 140,628 Chart 4-1-14 Capital spending plan (Case 2) (,000 US$) Year 1 2 3 Subtotal Own capital 15% 18,462 2,632 21,094 Debt loan 85% 0 57,559 61,975 119,534 Total 100% 18,462 60,191 61,975 140,628 Invested funds are expected to receive preferential treatment and be exempt from import tax. VAT (value added tax) rate is 20%, but as in the above case, preferential status would make it possible to avoid this tax. Consulting expenses are planned as 3% of the construction cost. For the interest payment during the period of construction (interest during construction) applies the long-term loan interest rate (0.75% per year), planned to be the same for the whole amount of the 85% borrowed part. Fund for initial operation is operating capital, prepared in advance. This time, however, it was not arranged for, because while continuing operation of the existing machines, part of their power output duty will be transferred to the combined co-generation equipment. Besides, there were no special calculations done for contingencies . 3) Financial analysis results Calculations of the internal return rate were done for the conditions, stated above. Their results are as follows: 4-23 (a) Pre-tax economic internal rate of return (EIRR) For the case when C02 emission permits are not considered, pre-tax economic internal rate of return (EIRR) is shown in Chart 4-1-15. For the case when trade in international permits for C02 emission exists, pre-tax economic internal rate of return (EIRR) is shown in Chart 4-1-16. 4-24 Chart 4-1-30 Balance and EIRR (without emission permits and taxes, Case 2) ______(,000 us$) Expenditures (A) Revenues Annual balance Year Amount repaid EIRR Operation and Investment Fuel Subtotal maintenance (B) B+C-A 1 18,462 18,462 -18,462 2 60,191 60,191 -60,191 3 61,975 61,975 -61,975 4 5,596 4,546 10,142 26,510 16,368 11,953 -78.414% 5 5,596 4,546 10,142 26,510 16,368 11,953 -49.622% 6 5,596 4,546 10,142 26,510 16,368 11,953 -31.982% 7 5,596 4,546 10,142 26,510 16,368 11,953 -20.784% 8 5,596 4,546 10,142 26,510 16,368 11,953 -13.281% 9 5,596 4,546 10,142 26,510 16,368 11,953 -8.024% 10 5,596 4,546 10,142 26,510 16,368 11,953 -4.208% 11 5,596 4,546 10,142 26,510 16,368 11,953 -1.357% 12 5,596 4,546 10,142 26,510 16,368 11,953 0.823% 13 5,596 4,546 10,142 26,510 16,368 11,953 2.522% 14 5,596 4,546 10,142 26,510 16,368 3.868% 15 5,596 4,546 10,142 26,510 16,368 4.950% 16 5,596 4,546 10,142 26,510 16,368 5.830% 17 5,596 4,546 10,142 26,510 16,368 6.552% 18 5,596 4,546 10,142 26,510 16,368 7.151% 19 5,596 4,546 10,142 26,510 16,368 7.651% 20 5,596 4,546 10,142 26,510 16,368 8.072% 21 5,596 4,546 10,142 26,510 16,368 8.428% 22 5,596 4,546 10,142 26,510 16,368 8.732% 23 5,596 4,546 10,142 26,510 16,368 8.991% 24 5,596 4,546 10,142 26,510 16,368 9.214% 25 5,596 4,546 10,142 26,510 16,368 9.407% 26 5,596 4,546 10,142 26,510 16,368 9.573% 27 5,596 4,546 10,142 26,510 16,368 9.718% 28 5,596 4,546 10,142 26,510 16,368 9.844% 29 5,596 4,546 10,142 26,510 16,368 9.955% 30 5,596 4,546 10,142 26,510 16,368 10.051% TL 140,628 151,098 122,731 414,457 715,761 301,304 4-25 Chart 4-1-16 Balance and EIRR (including emission permits and excluding taxes, Case 2 ) (1,000 US$) Emission Annual balance Expenditures (A) Revenues permits Amount Year EIRR Operation and repaid Investment Fuel Subtotal maintenance (B) (C) B+C-A 1 18,462 18,462 -18,462 2 60,191 60,191 -60,191 3 61,975 61,975 -61,975 4 5,596 4,546 10,142 26,510 7,410 23,778 11,953 -70.712% 5 5,596 4,546 10,142 26,510 7,410 23,778 11,953 -39.743% 6 5,596 4,546 10,142 26,510 7,410 23,778 11,953 -22.115% 7 5,596 4,546 10,142 26,510 7,410 23,778 11,953 -11.378% 8 5,596 4,546 10,142 26,510 7,410 23,778 11,953 -4.408% 9 5,596 4,546 10,142 26,510 7,410 23,778 11,953 0.344% 10 5,596 4,546 10,142 26,510 7,410 23,778 11,953 3.710% 11 5,596 4,546 10,142 26,510 7,410 23,778 11,953 6.166% 12 5,596 4,546 10,142 26,510 7,410 23,778 11,953 8.003% 13 5,596 4,546 10,142 26,510 7,410 23,778 11,953 9.404% 14 5,596 4,546 10,142 26,510 7,410 23,778 10.489% 15 5,596 4,546 10,142 26,510 7,410 23,778 11.343% 16 5,596 4,546 10,142 26,510 7,410 23,778 12.022% 17 5,596 4,546 10,142 26,510 7,410 23,778 12.568% 18 5,596 4,546 10,142 26,510 7,410 23,778 13.011% 19 5,596 4,546 10,142 26,510 7,410 23,778 13.372% 20 5,596 4,546 10,142 26,510 7,410 23,778 13.669% 21 5,596 4,546 10,142 26,510 7,410 23,778 13.915% 22 5,596 4,546 10,142 26,510 7,410 23,778 14.120% 23 5,596 4,546 10,142 26,510 7,410 23,778 14.290% 24 5,596 4,546 10,142 26,510 7,410 23,778 14.434% 25 5,596 4,546 10,142 26,510 7,410 23,778 14.554% 26 5,596 4,546 10,142 26,510 7,410 23,778 14.656% 27 5,596 4,546 10,142 26,510 7,410 23,778 14.742% 28 5,596 4,546 10,142 26,510 7,410 23,778 14.815% 29 5,596 4,546 10,142 26,510 7,410 23,778 14.877% 30 5,596 4,546 10,142 26,510 7,410 23,778 14.930% TL 140,628 151,098 122,731 414,457 715,761 501,371 4-26 (b) After-tax finance internal rate of return (FIRR) After-tax finance internal rate of return (FIRR) is used as a tool for evaluating operation results, influenced by taxes. Conditions of tax collection are explained hereinafter. a) Depreciation allowances Direct cost of the electric power station (design and construction cost) is depreciating straight-line during 20 years, with remaining residual value of 5%. As for security deposit, custom duties, value-added tax, interest payments during construction and pre-operation expenses in the part of overheads, they shall depreciate completely (zero residual value) in the straight-line manner during 10 years. b) Taxes Equipment is liable to the 2% fixed assets tax; its residual value after 25 years shall be 10%. Corporate tax rate is fixed at the level of 12% of the revenues. Value-added tax (VAT) on capital investments is expected to be avoided, because the project is considered to be a joint implementation project for prevention of global warming and therefore, investments shall be subject to preferential treatment. 4-27 After-tax finance internal rate of revenue (FIRR) is shown thereinafter. For the case when C02 emission permits are not considered, after-tax finance internal rate of return (FIRR) is shown in Chart 4-1-17. For the case when international permits for C02 emission are not liable to taxation due to tax breaks, after-tax finance internal rate of return (FIRR) is shown in Chart 4-1-18. For the case when international permits for C02 emission are taxable, after-tax finance internal rate of return (FIRR) is shown in Chart 4-1-19. Table 4-1-17: Revenue/Expenditure and FIRR net of tax (emission right excluded) - Case 2______(l03US$) Simple Property Depreciatio Interest Taxable Corporate Net profit Repayment Expenditure (A) Revenue annual tax n income tax FIRR of principle Yr. balance Investme (D)=B+C- (E) (F) (G) (H)—D-E- (I) D-E-l Fuel 0 & M Subtotal (B) nt A F-G 1 18,462 18,462 -18,462 -18,462 -18,462 2 60,191 60,191 -60,191 -60,191 -60,191 3 61,975 61,975 -61,975 -61,975 -61,975 4 5,596 4,546 10,142 26,510 16,368 1,876 8,274 3,706 2,512 301 14,190 11,953 -80.867% 5 5,596 4,546 10,142 26,510 16,368 1,792 8,274 3,335 2,967 356 14,220 11,953 -52.947% 6 5,596 4,546 10,142 26,510 16,368 1,707 8,274 2,964 3,422 411 14,250 11,953 -35.328% 7 5,596 4,546 10,142 26,510 16,368 1,623 8,274 2,594 3,877 465 14,280 11,953 -23.968% 8 5,596 4,546 10,142 26,510 16,368 1,539 8,274 2,223 4,332 520 14,309 11,953 -16.268% 9 5,596 4,546 10,142 26,510 16,368 1,454 8,274 1,853 4,787 574 14,339 11,953 -10.821% 10 5,596 4,546 10,142 26,510 16,368 1,370 8,274 1,482 5,242 629 14,369 11,953 -6.833% 11 5,596 4,546 10,142 26,510 16,368 1,285 8,274 1,112 5,697 684 14,399 11,953 -3.831% 12 5,596 4,546 10,142 26,510 16,368 1,201 8,274 741 6,152 738 14,429 11,953 -1.518% 13 5,596 4,546 10,142 26,510 16,368 1,116 8,274 371 6,607 793 14,459 11,953 0.298% 14 5,596 4,546 10,142 26,510 16,368 1,032 4,222 0 11,114 1,334 14,002 1.703% 15 5,596 4,546 10,142 26,510 16,368 948 4,222 0 11,199 1,344 14,076 2.849% 16 5,596 4,546 10,142 26,510 16,368 863 4,222 0 11,283 1,354 14,151 3.793% 17 5,596 4,546 10,142 26,510 16,368 779 4,222 0 11,367 1,364 14,225 4.578% 18 5,596 4,546 10,142 26,510 16,368 694 4,222 0 11,452 1,374 14,299 5.237% 19 5,596 4,546 10,142 26,510 16,368 610 4,222 0 11,536 1,384 14,374 5.793% 20 5,596 4,546 10,142 26,510 16,368 525 4,222 0 11,621 1,394 14,448 6.266% 21 5,596 4,546 10,142 26,510 16,368 441 4,222 0 11,705 1,405 14,522 6.671% 22 5,596 4,546 10,142 26,510 16,368 357 4,222 0 11,790 1,415 14,597 7.019% 23 5,596 4,546 10,142 26,510 16,368 272 4,222 0 11,874 1,425 14,671 7.319% 24 5,596 4,546 10,142 26,510 16,368 188 0 16,180 1,942 14,239 7.571% 25 5,596 4,546 10,142 26,510 16,368 188 0 16,180 1,942 14,239 7.791% 26 5,596 4,546 10,142 26,510 16,368 188 0 16,180 1,942 14,239 7.982% 27 5,596 4,546 10,142 26,510 16,368 188 0 16,180 1,942 14,239 8.149% 28 5,596 4,546 10,142 26,510 16,368 188 0 16,180 1,942 14,239 8.296% 29 5,596 4,546 10,142 26,510 16,368 188 0 16,180 1,942 14,239 8.426% 30 5,596 4,546 10,142 26,510 16,368 188 0 16,180 1,942 14,239 8.540% TL 140,628 151,098 122,731 414,457 715,761 301,304 245,651 4-29 Table 4-1-18: Revenue/Expenditure and FIRR net of tax (with taxable emission right)- Case 2 (103US$) Simple Property Depreciat Interest Taxable Corporate C02 Net profit Repayme Expenditure (A) Revenue annual tax ion income tax emission ntof FIRR principle Yr. balance right D+C-E-l Investme (D) = (E) (F) (G) (H)=D- (I) (C) Fuel 0 & M Subtotal (B) nt B+C-A E-F-G -18,462 -18,462 -18,462 18,462 18,462 1 ? 60,191 60,191 -60,191 -60,191 -60,191 3 61,975 61,975 -61,975 -61,975 -61,975 -72.883% 4 5,596 4,546 10,142 26,510 16,368 1,876 8,274 3,706 2,512 301 7,410 21,600 11,953 -42.420% 5 5,596 4,546 10,142 26,510 16,368 1,792 8,274 3,335 2,967 356 7,410 21,630 11,953 -24.748% 6 5,596 4,546 10,142 26,510 16,368 1,707 8,274 2,964 3,422 411 7,410 21,660 11,953 11,953 -13.863% 7 5,596 4,546 10,142 26,510 16,368 1,623 8,274 2,594 3,877 465 7,410 21,690 -6.735% 8 5,596 4,546 10,142 26,510 16,368 1,539 8,274 2,223 4,332 520 7,410 21,719 11,953 11,953 -1.838% 9 5,596 4,546 10,142 26,510 16,368 1,454 8,274 1,853 4,787 574 7,410 21,749 1.655% 10 5,596 4,546 10,142 26,510 16,368 1,370 8,274 1,482 5,242 629 7,410 21,779 11,953 4.221% 11 5,596 4,546 10,142 26,510 16,368 1,285 8,274 1,112 5,697 684 7,410 21,809 11,953 6.152% 12 5,596 4,546 10,142 26,510 16,368 1,201 8,274 741 6,152 738 7,410 21,839 11,953 7.635% 13 5,596 4,546 10,142 26,510 16,368 1,116 8,274 371 6,607 793 7,410 21,869 11,953 14 5,596 4,546 10,142 26,510 16,368 1,032 4,222 0 11,114 1,334 7,410 21,412 8.767% 9.668% 15 5,596 4,546 10,142 26,510 16,368 948 4,222 0 11,199 1,344 7,410 21,486 10.392% 16 5,596 4,546 10,142 26,510 16,368 863 4,222 0 11,283 1,354 7,410 21,561 10.980% 17 5,596 4,546 10,142 26,510 16,368 779 4,222 0 11,367 1,364 7,410 21,635 11.461% 18 5,596 4,546 10,142 26,510 16,368 694 4,222 0 11,452 1,374 7,410 21,709 19 5,596 4,546 10,142 26,510 16,368 610 4,222 0 11,536 1,384 7,410 21,784 11.858% 12.188% 20 5,596 4,546 10,142 26,510 16,368 525 4,222 0 11,621 1,394 7,410 21,858 21 5,596 4,546 10,142 26,510 16,368 441 4,222 0 11,705 1,405 7,410 21,932 12.463% 12.694% 22 5,596 4,546 10,142 26,510 16,368 357 4,222 0 11,790 1,415 7,410 22,007 23 5,596 4,546 10,142 26,510 16,368 272 4,222 0 11,874 1,425 7,410 22,081 12.888% 13.049% 24 5,596 4,546 10,142 26,510 16,368 188 0 16,180 1,942 7,410 21,648 25 5,596 4,546 10,142 26,510 16,368 188 0 16,180 1,942 7,410 21,648 13.186% 26 5,596 4,546 10,142 26,510 16,368 188 0 16,180 1,942 7,410 21,648 13.302% 27 5,596 4,546 10,142 26,510 16,368 188 0 16,180 1,942 7,410 21,648 13.401% 28 5,596 4,546 10,142 26,510 16,368 188 0 16,180 1,942 7,410 21,648 13.486% 29 5,596 4,546 10,142 26,510 16,368 188 0 16,180 1,942 7,410 21,648 13.559% 30 5,596 4,546 10,142 26,510 16,368 188 0 16,180 1,942 7,410 21,648 13.621% L 140,628 151,098 122,731 414,457 715,761 301,304 445,718 4-30 Table 4-1-19: Revenue/Expenditure and FIRR net of tax (with non-taxable emission right) - Case 2 103US$) CO; Simple Property Depreciat Interest Taxable Corporate Net profit Repayme Expenditure (A) Revenue emission annual tax ion income tax ntof FIRR Yr. right balance principal Investme (C) (D)= (E) (F) (G) (H)=D- (I) D-E-l Fuel 0 & M Subtotal (B) nt B+C-A E-F-G 1 18,462 18,462 -18,462 -18,462 -18,462 2 60,191 60,191 -60,191 -60,191 -60,191 3 61,975 61,975 -61,975 -61,975 -61,975 4 5,596 4,546 10,142 26,510 7,410 23,778 1,876 8,274 3,706 9,922 1,191 20,711 11,953 -73.790% 5 5,596 4,546 10,142 26,510 7,410 23,778 1,792 8,274 3,335 10,377 1,245 20,741 11,953 -43.566% 6 5,596 4,546 10,142 26,510 7,410 23,778 1,707 8,274 2,964 10,832 1,300 20,770 11,953 -25.886% 7 5,596 4,546 10,142 26,510 7,410 23,778 1,623 8,274 2,594 11,287 1,354 20,800 11,953 -14.947% 8 5,596 4,546 10,142 26,510 7,410 23,778 1,539 8,274 2,223 11,742 1,409 20,830 11,953 -7.756% 9 5,596 4,546 10,142 26,510 7,410 23,778 1,454 8,274 1,853 12,197 1,464 20,860 11,953 -2.800% 10 5,596 4,546 10,142 26,510 7,410 23,778 1,370 8,274 1,482 12,652 1,518 20,890 11,953 0.745% 11 5,596 4,546 10,142 26,510 7,410 23,778 1,285 8,274 1,112 13,107 1,573 20,920 11,953 3.356% 12 5,596 4,546 10,142 26,510 7,410 23,778 1,201 8,274 741 13,562 1,627 20,950 11,953 5.327% 13 5,596 4,546 10,142 26,510 7,410 23,778 1,116 8,274 371 14,017 1,682 20,979 11,953 6.843% 14 5,596 4,546 10,142 26,510 7,410 23,778 1,032 4,222 0 18,524 2,223 20,523 8.004% 15 5,596 4,546 10,142 26,510 7,410 23,778 948 4,222 0 18,608 2,233 20,597 8.930% 16 5,596 4,546 10,142 26,510 7,410 23,778 863 4,222 0 18,693 2,243 20,671 9.676% 17 5,596 4,546 10,142 26,510 7,410 23,778 779 4,222 0 18,777 2,253 20,746 10.284% 18 5,596 4,546 10,142 26,510 7,410 23,778 694 4,222 0 18,862 2,263 20,820 10.782% 19 5,596 4,546 10,142 26,510 7,410 23,778 610 4,222 0 18,946 2,274 20,894 11.195% 20 5,596 4,546 10,142 26,510 7,410 23,778 525 4,222 0 19,031 2,284 20,969 11.538% 21 5,596 4,546 10,142 26,510 7,410 23,778 441 4,222 0 19,115 2,294 21,043 11.826% 22 5,596 4,546 10,142 26,510 7,410 23,778 357 4,222 0 19,199 2,304 21,117 12.068% 23 5,596 4,546 10,142 26,510 7,410 23,778 272 4,222 0 19,284 2,314 21,192 12.272% 24 5,596 4,546 10,142 26,510 7,410 23,778 188 0 23,590 2,831 20,759 12.442% 25 5,596 4,546 10,142 26,510 7,410 23,778 188 0 23,590 2,831 20,759 12.586% 26 5,596 4,546 10,142 26,510 7,410 23,778 188 0 23,590 2,831 20,759 12.710% 27 5,596 4,546 10,142 26,510 7,410 23,778 188 0 23,590 2,831 20,759 12.815% 28 5,596 4,546 10,142 26,510 7,410 23,778 188 0 23,590 2,831 20,759 12.905% 29 5,596 4,546 10,142 26,510 7,410 23,778 188 0 23,590 2,831 20,759 12.983% 30 5,596 4,546 10,142 26,510 7,410 23,778 188 0 23,590 2,831 20,759 13.050% TL 140,628 151,098 122,731 414,457 715,761 501,371 421,710 119,534 4-31 4) Sensitivity analysis of the after-tax FIRR (finance internal rate of return) For the case when C02 emission permits are not considered, sensitivity analysis of the after tax FIRR is shown in Graph 4-1-2. -exchange rate - gas unit price - electricity retail price 120% 130% 140% 150% 160%i Graph 4-1-2 Case 2: After-tax FIRR sensitivity analysis graph (C02 emission permits ignored) The most sensitive factor is exchange rate: if it falls by 50%, FIRR would become 17.873%. It is followed by retail price of electricity: 50% rise would deliver 14.775% FIRR. Though the FIRR rate of 8.540% is considered low for a purely commercial venture, bringing into the view that the present program is a public works project, which would contribute to the prevention of the global warming by reducing carbon dioxide emission and benefit ecology in other ways, this rate is deemed appropriate. However, if the borrowing is done on the terms proposed in Case 2, the 30-year-long project would have a repayment period of just 10 years. That would lead to the situation, when principal repayments and interest charges added up exceed annual profit and necessitate additional investments. It becomes clear after examining annual balances in the beginning of the repayment period. 4-32 This issue is discussed in Chapter 4-3 (1) “Fund management ”. 4-2 Project ’s Cost Effectiveness (energy saving and greenhouse gas reduction results) Realization of the project, besides the cost of machines ’ main bodies, controlling equipment, civil engineering and construction, would also require a lot of various expenditures such as management and administrative expenses, etc. This part describes reasons for these additional costs and the way they are dealt with. It also compares the cost of energy saving and greenhouse gas reduction measures and their results (cost effectiveness), produced in the course of the project ’s implementation. Final evaluation of the energy saving and greenhouse gas reduction results, achieved by the project, is based on the comparison of the following criteria: for energy saving: “amount of fuel in oil equivalent, saved per 1US$” and “cost of saving 1 ton of oil equivalent ” ; for greenhouse gas reduction: “volume of greenhouse gas reduction per 1 US$” and “cost of greenhouse gas reduction by 1 ton ”. (1) Financial benefits, expected as a result of the project ’s realization (financial effect of energy saving measures), method of their assessment and explanations, etc. When project is brought into operation, financial benefits from the energy saving activities largely depend on the proper management of the electric power station. However, results would be normally expected as listed hereinafter,. 1) Minimized waste of resources as a result of the more effective operation of equipment and overall improvement in the plant ’s management, enabled by introduction of the latest plant control systems (DCS) for electric power generation plants. 4-33 2) Introduction of the last-generation technologies and equipment boosts cost effectiveness of the generated electricity (proportion between the cost of fuel and the cost of electric power this fuel generated) and improves plant ’s general performance. 3) Obviously, annual results of the reconstructed power generation plant are going to be higher than it is showing now with its already outdated equipment. At the moment, the above effects are considered very natural and typical for Japan and other developed countries. But for Russia as well, compared to its existing electric power stations, the use of the new equipment is likely to be very advantageous. Besides that, the fact that the project ’s implementation is needed to secure a stable supply of electric power and thermal energy, provides base for estimating profitability in the course of calculating IRR in the future 25-30 years. This fact is also important for the stability of fund collection, security of profits and other issues. (2) Estimation of cost effectiveness Estimation of the project ’s cost effectiveness in terms of energy saving is based on the amount of fuel saved, expressed by means of the crude oil equivalent. Likewise, estimation of the project ’s cost effectiveness in terms of greenhouse gas reduction is based on the volume of the greenhouse gas reduction (volume by which C02 emission was reduced) As for the method of cost effectiveness calculation, it is based, on one hand, on the amount of the saved fuel in oil equivalent and the volume of the greenhouse gas reduction when operation under the project begins. On the other hand, it is based on the size of the project ’s budget, required for the reconstruction of the power generation plant (project ’s total budget is 4-34 shown in Chart 4-1). Formulas and results of the cost effectiveness calculations are presented hereinafter. 1) Cost effectiveness estimation method Oil equivalent of the amount of fuel saved per 1US$ of expenses (toe/US$) = amount of fuel saved (toe) -r project ’s total budget (US$) Expenses, required for saving 1 toe amount of fuel (US$/toe) = project ’s total budget (US$) amount of fuel saved (toe) Volume of greenhouse gas reduction per 1US$ of expenses (t/US$) = volume of greenhouse gas reduction_(t) -E project ’s total budget (US$) Expenses, required for greenhouse gas reduction by 11 (US$/t) = project ’s total budget (US$) -E volume of greenhouse gas reduction^) 2) Cost effectiveness calculation results Concrete results of the cost effectiveness calculations, carried out according to the method, described in Paragraph 1), are presented hereinafter. a) Cost effectiveness in the specific circumstances of the yen-based loan The project ’s total budget, including interest payments during construction period, is 139,277,000 US$. 4-35 a) Cost effectiveness of the project in view of its total budget Oil equivalent of the amount of fuel saved per 1US$ of expenses (toe/US $) = amount of fuel saved (toe) -r- project ’s total budget (US$) = 105.9049 (toe/US$) Expenses, required for saving 1 toe amount of fuel (US$/toe) = project ’s total budget (US$) -7 amount of fuel saved (toe) = 0.0094 (US$/toe) Volume of greenhouse gas reduction per 1 US$ of expenses (t/US$) = volume of greenhouse gas reduction_(t) -r- project ’s total budget (US$) = 0.1179 (t/US$) Expenses, required for greenhouse gas reduction by 11 (US$/t) * = project ’s total budget (US$) "7- volume of greenhouse gas reduction.(t) = 8.4808 (US$/t) b) Cost effectiveness of the project if cost of the C02 emission permits (5 US$/t) is added to operational expenses Volume of greenhouse gas reduction per 1US$ of expenses (t/US$) = volume of greenhouse gas reduction_(t) -C {project ’s total budget (US$) + cost of the C02 emission permit (US$)} = 0.2873 (t/US$) 4-36 Expenses, required for greenhouse gas reduction by 11 (US$/t) = {project ’s total budget (US$) + cost of the C02 emission permit (US$)} ~E volume of greenhouse gas reduction_(t) = 3.4808 (US$/t) (b) Cost effectiveness if the lender is Japan Bank for International Cooperation The project ’s budget, including interest payments during construction period, is 140,628,000 US$. c) Cost effectiveness of the project in view of its total budget Oil equivalent of the amount of fuel saved per 1US$ of expenses (toe/US$) = amount of fuel saved (toe) -E project ’s total budget (US$) = 104.8874 (toe/US$) Expenses, required for saving 1 toe amount of fuel (US$/toe) = project ’s total budget (US$) ~E amount of fuel saved (toe) = 0.0095 (US$/toe) Volume of greenhouse gas reduction per 1US$ of expenses (t/US$) = volume of greenhouse gas reduction_(t) -E project ’s total budget (US$) = 0.1174 (t/US$) Expenses, required for greenhouse gas reduction by 1 t (US$/t) = project ’s total budget (US$) ~E volume of greenhouse gas reduction_(t) 4-37 = 8.5145 (US$/t) b) Cost effectiveness of the project if cost of the C02 emission permits (5US$/t) is added to operational expenses Volume of greenhouse gas reduction per 1US$ of expenses (t/US$) = volume of greenhouse gas reduction_(t) -r {project ’s total budget (US$) + cost of the C02 emission permit (US$)} = 0.2845 (t/US$) Expenses, required for greenhouse gas reduction by It (US$/t) = {project ’s total budget (US$) + cost of the C02 emission permit (US$)} -i- volume of greenhouse gas reduction_(t) = 3.5145 (US$/t) 4-3 Others (1) Fund management To determine the healthiness of the project ’s cash-flow, an important index, used for measuring long-term loan repayment capability, is debt service ratio (DSR). Formula for its calculation is as follows: DSR = (after-tax profit) -F (amount of long-term interest payment and interest due) Normally, if DSR is bigger than 1.5, situation with the cash-flow is considered healthy. In the situation discussed here, the C02 emission permits are not taken into consideration. If the project ’s funding is organized as proposed in Case 1, from the 13-th year of repayment 4-38 and later on, DSR would be within the range of 2.9-3.3, which is considered enough sound. As for Case 2, in this situation the index during the repayment period would range from 0.9 to 1.2 . Cash-flow situation in this case is judged insecure. In fact, right until repayment is completed in the 13-th year, as planned, IRR is going to be 0.298%. Because it is impossible to achieve balance of payments with the interest rate of more than 3.1%, additional borrowings would surely enough be needed in the period between the 4-th and the 7-th year. For this reason the variant, suggested in Case 2, is considered unrealistic. (2) Net present value Net present value is used as a tool for estimating the usefulness of invested funds. In the situation discussed here, the C02 emission permits are not taken into consideration. If funds are raised as proposed by Case 1, i.e. with 0.75% discount rate, 30 years later the net present value would amount to 203,670,000 US$. If funding is organized according to Case 2, after 30 years the net present value would be just 105,286,000 US$. In Case 2 in particular, after 13 years, the moment repayment is due to be completed, the net present value would fall down to -20,213,000 US$. This is a clear sign of an unhealthy investment and, as stated in Paragraph (1), the variant, suggested in Case 2, is considered unrealistic. 4-39 Chapter 5 Confirming the Effects of Propagation (Broader Use) 2. Dissemination of transferred technology through this project will promote the construction of similar facilities in Russia thereby spreading the effects of energy conservation and greenhouse gas reduction in wider areas of the country. 5. Confirming the Effects of Propagation (Broader Use) 5-1. Possibilities of Wider Application in Countries Targeted for the Technology Introduced through this Project (1) Influences on other regions The St. Petersburg steam supply and power generating station is part of the Leningrad state power generating network, and does not operate independently, but rather must naturally be considered in the context of its close interdependence with other regions. As a result, before considering the possibilities of broader application as a result of initiating this project, we considered potential effects on other regions, and studied the possibilities of effects within the power generating network, and of renovating the existing equipment and facilities in the power generating plant. 1) Possibilities within the power generating network The following section outlines possible outcomes in terms of effects and changes induced by greenhouse gases on the various regions should this project be initiated. This power plant, which is under Lenenergo management, is an important power generating and steam supply plant for St. Petersburg, which is Russia’s second largest metropolis, and the plant can be described as a power station whose mission is to provide an extremely reliable and stable supply of power on a year-round basis. As a result of implementing this project, this would become a steam supply and power generating station that qualifies as a modern, highly efficient power plant, with equipment and facilities modernized through the use of combined-cycle cogeneration using high- efficiency gas turbines. Naturally, at the same time, it would be given preference in terms of operation by Leningrad ’s power network, and if the annual volume of power produced increases as a result of a higher usage rate due to the outstanding level of this plant, it is thought that greenhouse gases in other regions will decrease, because less power will be produced from older and less efficient power stations in those areas. 2) Possibilities resulting from renovating the power plant facilities Among problems which could possibly result from upgrading and renovating the power plant facilities is a hypothetical increase or reduction in greenhouse gases in other regions, caused by relocating the equipment from the power plant to power generating stations in those areas. With this project, however, the equipment being removed from the plant is too old and has deteriorated too far to be serviceable, and would be discarded as scrap. In the power generating network, the possibility of changing the levels of greenhouse gases produced in other regions is a problem of balancing the load over the entire power generating system in Moscow and in Russia as a whole, and it would be problematic to cover this possibility in the feasibility study for this power plant alone. The structural organization of Russia’s power industry is consolidated by RAO UES, a vast government-run body. Also, a power wholesale market (FOREM) exists in Russia, and power is bought and sold in the various regions at prices determined by a federal power committee. In actuality, most regional power companies are currently laboring under an imbalance between demand and supply. After the collapse of the Soviet Union in 1991, the structural organization of Russia’s power industry as a whole reached the condition in which it still finds itself today, where RAO UES, which serves as the core organizational structure for all of Russia, is beset by a multitude of issues, and is in the process of restructuring the organizational structure of the power system nationwide. As part of this effort, RAO UES will undoubtedly be promoting the renovation and modernization of equipment and facilities, and it is thought that implementing this project will produce a significant benefit by contributing to reducing greenhouse gases in other areas. (2) Wider application of the target technology The combined-cycle power generating technology using a gas turbine that will be utilized in this project is the most efficient method available today of generating power, as well as offering the highest effectiveness in terms of reducing C02 emissions. Development of this technology has been underway in Russia as well for some time, but the equipment is not yet at the operable stage. In order to successfully produce power using a gas turbine combined-cycle power generating system, it is important to have, along with the equipment design and equipment manufacturing, the highest possible level of operational management overseeing the designed equipment. Along with installing combined-cycle power generating equipment, which has a history of proven results, this project will assure the transfer of operational management technology, enabling a foundation for the spread of technology from the target plant, which will serve as a model urban steam supply and power generating station in Russia, to other power plants. Consequently, this will help to promote the expansion of efficient combined-cycle power generating facilities in Russia in the future, and we can look forward to a further decrease in greenhouse gases as a result. 5-2. The Result of Taking Wider Application into Consideration There is a conflict between the possibility of changing the fuel from coal to natural gas, and the political insistence on using coal, but assuming that there are older and deteriorating power plants in the pertinent surrounding area that contain equipment using the same type of natural gas as a fuel, natural gas can be used with the combined-cycle equipment planned in this project for the power plant. Also, as long as capital can be procured, it is considered feasible that the same type of project can be implemented on a broader scale in the future. 5-2-1. The Effects of Reduced Energy Consumption Many of the power plants under RAO UES and Lenenergo management are thermal power plants equipped with older, deteriorating equipment. Furthermore, Russia has adequate supplies of underground natural gas to support the use of natural gas in these plants in the future. The efficiency rate of existing power plant facilities is judged, based on a Lenenergo pamphlet, to be as follows: Fuel composition: Coal 3.44% Heavy oil 71.54% Natural gas 24.84% Peat 0.18% Because there is no value for peat in the fuel properties that have been acquired to date, and because the rate of use is only 0.18%, the figures are assumed to be as follows: Fuel composition: Coal 3.45% Heating value: 7,200 (kcal/kg) Heavy oil 24.88% Heating value: 9,700 (kcal/kg) Natural gas 71.67% Heating value: 11,210 (kcal/kg) Average: Heating value (10,695.71 (kcal/kg) According to the pamphlet, the volume of fuel consumed for power production is as follows: Volume of fuel consumption: 305.6 (kg/kWh) As a result, the power generating efficiency is as follows: Power generating efficiency: 26.3% Again according to the pamphlet, the volume of fuel consumed in order to supply heat is as follows: Volume of fuel consumed: 140.3 (kg/Gcal) As a result, the heat supply efficiency is as follows: Heat supply efficiency: 66.6% The power generating efficiency achieved by this project is 41.0% (at rated output), and, if the power generating equipment in these plants were renovated to the same level as that targeted by this project, energy would be saved by the difference in efficiency levels. To determine the actual energy-saving results, however, it would be necessary to study the balance in demand and supply through a detailed investigation of each individual power plant. 5-3 5-2-2. The Effect of Reducing Greenhouse Gases If the equipment were run at the same level as the power generating equipment renovated in this project as described in “5-2-1, The effects of reduced energy consumption ”, C02 emissions would be reduced as a result of improved heat efficiency and a change in fuel from coal, heavy oil, and peat to natural gas. In order to determine the actual amount by which greenhouse gases would be reduced, however, it would be necessary to study the balance in demand and supply through a detailed investigation of each individual power plant. 5-4 Chapter 6 Influences on Other Elements (effects on other environmental economir, and social aspects) 1. This project is projected to reduce large amounts of other environmental pollutants. 2. Reduction of NOx : 6,117.51 ( t /year) 3. Reduction of SOx : 6,146.57 ( t /year) 4. Reduction of soot: 1,571.78 ( t /year) 6. Influences on Other Elements (effects on other environmental, economic, and social aspects) The reduction of greenhouse gases is only one potential outcome of implementing this project. Others include aspects such as environmental elements, power generating equipment systems, economic elements, and social elements. Taking a region-oriented approach, we can consider the effects on a micro basis, such as within the power plant itself and in the area around the power plant, and on a macro basis, such as the state of Leningrad and the surrounding area. In terms of the degree of economic and social influence as well, this changes significantly depending on how Russia’s economic and social situation changes in the future, and it is possible, conversely, that this project may also be affected by those changes. With this in mind, we studied possible influences other than the greenhouse gases, taking the current situation as the starting point and adding future considerations to some extent. (1) Other elements affecting the environmental aspect During the era of the Soviet Union, operational objectives for both power and heat generation were given priority over environmental elements, which were given minimal consideration. Recently, however, cooperation is beginning to make itself evident at the state level, in the form of NOx countermeasures and other environmental measures. At the same time, however, along with the older, deteriorating equipment at the St. Petersburg steam supply and power generating station, no attempts have been made to install equipment to protect the environment, such as dust filters for boilers, desulfurization devices, or NOx removal systems. The only visible attempts to protect the environment are in the form of reducing above-ground concentrations by atmospheric diffusion. 1) Reducing NOx , SOx , and soot particle levels by implementing this project With combined-cycle cogeneration equipment, almost no SOx , soot, or other contaminants are produced by burning gases, and the volume of NOx emitted can be reduced to around 25 ppm (@15%02 dV) by using a dry low-NO x burner on the gas turbine. Therefore, implementing this project should contribute significantly to improving the environment. No dust filters, desulfurization devices, or NOx removal systems have been installed in existing plants. This is because the only measures being taken in Russia are to decrease the above-ground concentrations of contaminants through atmospheric diffusion. 6 - 2 With the combined-cycle cogeneration equipment to be installed through this project, almost no soot, or other emissions are produced by burning gases, and the volumes of SOx and NOx emitted are very low, so a significant contribution to the environment can be expected. The following shows the results of a calculation which determines decreases in the volumes of annual emissions if new combined-cycle cogeneration equipment is installed. (a) Annual emissions of environmental contaminants as a baseline figure Fuel LHV (GJ/t) NOx Sulfur content Ash content properties (hypothetical value) (wt%) (wt%) Coal 22.7176 300 ppm * 0.4% 10.0% Natural gas 45.7704 300 ppm * 0.02% 0.0% Heavy oil 40.1640 300 ppm * 2.0% 0.0% Note) We are told that, generally, an average value of around 250 ppm is possible for items marked with an asterisk (*), even without flue gas denitrification equipment, and regardless of the type of fuel, but because of deterioration of the equipment over the passage of time, and other factors, we used the value of 300 ppm. The emissions volumes for environmental contaminants were determined from the volume used, the concentration of NOx emissions, and the sulfur and ash contents of the fuel, for each type of fuel. Usage volume, by type of fuel = Annual heat usage volume (TJ/year) x usage percentage by type of fuel Annual heat usage volume with existing equipment 19,804.3 (TJ/year) Annual volume of heat used for purchased power amount 22,214.9 (TJ/year) 20,699.1 Annual volume of coal used (existing equipment) Usage percentage 7.2%: 1,423.0 (TJ/year) Annual volume of natural gas used (existing equipment) Usage percentage 91.1%: 18,045.6 (TJ/year) 6 - 3 Annual volume of heavy oil used (existing equipment) Usage percentage 1.7%: 335.7 (TJ/year) 6 - 4 Annual volume of coal used (purchased power amt.) Usage percentage 3.44%: 764.2 (TJ/year) Annual volume of natural gas used (purchased power amt.) Usage percentage 71.54%: 15,892.6 (TJ/year) Annual volume of heavy oil used (purchased power amt.) Usage percentage 24.84%: 5.518.2 (TJ/year) Annual volume of peat used (purchased power amt.) Usage percentage 0.18%: 40.0 (TJ/year) Volume of NCU emissions (t/vear) The annual emissions volumes for environmental contaminants were determined from the annual usage volume and the concentration of NOx emissions, for each type of fuel. The following equation was used to calculate the volume of NOx emissions for each type of fuel. = Volume of fuel used (TJ) / volume of fuel heat generation (GJ/t) x volume of unit exhaust gas (Nm3/t) x concentration of NOx emissions (ppm) x volume of NOx specific gravity (kg/Nm3) x 103 Volume of unit exhaust gas = volume of exhaust gas (Nm3/t) per 1 t of fuel (hypothesized value) Coal / peat: 9,800 Natural gas: 13,500 Fuel oil: 11,500 Volume of NOx specific gravity (kg/Nm3) (as N02): 46.0055 / 22.4 = 2.0538 = Existing equipment component (coal) of NOx emission volume + existing equipment component (natural gas) of NOx emission volume + existing equipment component (fuel oil) NOx emission volume + purchased power component (coal) NOx emission volume + purchased power component (natural gas) NOx emission volume + purchased power component (fuel oil) NOx emission volume + purchased power component (peat) NOx emission volume = 378.22 + 3,279.44 + 59.22 + 203.10 + 2,888.16 + 973.49 + 10.64 = 7.792.27 t/year 6 - 5 Volume of S(X emissions (t/year) The annual emissions volumes for environmental contaminants were determined from the annual usage volume and the sulfur component in the fuel, for each type of fuel. The following equation was used to calculate the volume of SOx emissions for each type of fuel. = Volume of fuel used (TJ) / volume of fuel heat generation (GJ/t) x sulfur component of fuel (wt%) x molecular weight ratio of SOx and S x 103 / 102 Molecular weight ratio of SOx and S S02 / S = 1.998 Molecular weight ratio of H2S and S02 S02 / H2S = 1.880 = Existing equipment component (coal) of SOx emission volume + existing equipment component (natural gas) of SOx emission volume + existing equipment component (heavy oil) SOx emission volume + purchased power component (coal) SOx emission volume + purchased power component (natural gas) SOx emission volume + purchased power component (heavy oil) SOx emission volume + purchased power component (peat) SOx emission volume = 500.57 + 148.22 + 334.01 + 268.83 + 130.54 + 5,489.90 + 14.07 = 6,538.06 t/year Volume of soot emissions (t/year) The annual emissions volumes for environmental contaminants were determined from the annual usage volume and the ash component in the fuel, for each type of fuel. The following equation was used to calculate the volume of soot emissions for each type of fuel. = Volume of fuel used (TJ) / volume of fuel heat generation (GJ/t) x ash component of fuel (wt%) x ratio extracted by burning ash x 103 / 102 • The ratio extracted by burning the ash was set at 20%. = Volume of soot emitted from coal by existing equipment + existing equipment (natural gas) soot emission volume + existing equipment (heavy oil) soot emission volume + purchased power component (coal) soot emission volume + purchased 6 - 6 power component (natural gas) soot emission volume + purchased power component (heavy oil) soot emission volume + purchased power component (peat) soot emission volume = 1,252.74 + 0.00 + 0.00 + 672.78 + 0.00 + 0.00 + 35.20 = 1,925.52 (t/year) (b) Volumes of annual emissions of environmental contaminants in the case of this project The emissions volumes for environmental contaminants were determined from the volume used, the concentration of NOx emissions, and the ash and sulfur contents of the fuel, for each type of fuel. Usage volume, by type of fuel (TJ/vear) = Annual heat usage volume (TJ/year) x usage percentage by type of fuel Annual usage volume with new equipment 13,554.4 (TJ/year) Annual volume of heat used from insufficient volume of heat5 ,592.2 (TJ/year) Annual volume of natural gas used (new equipment) Usage percentage 100.0%: 13,554.4 (TJ/year) Annual volume of coal used (insufficient volume of heat) Usage percentage 7.2%: 401.8 (TJ/year) Annual volume of natural gas used (insufficient volume of heat) Usage percentage 91.1%: 5,095.6 (TJ/year) Annual volume of heavy oil used (insufficient volume of heat) Usage percentage 1.7%: 94.8 (TJ/year) Annual volume of NCU emissions (t/year) The annual emissions volumes for environmental contaminants were determined from the annual usage volume and the concentration of NOx emissions, for each type of fuel. However, the concentration of NOx emissions from new equipment was set at 25 ppm (@15%02 dV). The following equation was used to calculate the volume of NOx emissions for each type of fuel. = Volume of fuel used (TJ) / volume of fuel heat generation (GJ/t) x volume of unit exhaust gas (Nm3/t) x concentration of NOx emissions (ppm) x volume of NOx 6 - 7 specific gravity (kg/Nm3) x 103 Volume of unit exhaust gas (Nm3/t) (hypothesized value) Coal / peat: 9,800 Natural gas: 35,000 with new equipment; 13,500 for insufficient heat supply Fuel oil: 11,500 Volume of NOx specific gravity (kg/Nm3) (as N02): 46.0055 / 22.4 = 2.0538 = Combined-cycle cogeneration equipment component (natural gas) of NOx emission volume + volume of NOx emission for heat component supplied by continuous operation of existing machinery (coal) + volume of NOx emission for heat component supplied by continuous operation of existing machinery (natural gas) + volume of NOx emission for heat component supplied by continuous operation of existing machinery (fuel oil) = 625.21 + 106.80 + 926.03+ 16.72 = 1,674.76 t/year Annual volume of SOx emissions (t/year) The annual emissions volumes for environmental contaminants were determined from the annual usage volume and the sulfur component in the fuel, for each type of fuel. The following equation was used to calculate the volume of SOx emissions for each type of fuel. = Volume of fuel used (TJ) / volume of fuel heat generation (GJ/t) x sulfur component of fuel (wt%) x molecular weight ratio of SOx and S x 10 Molecular weight ratio of S and S02 S02 / S = 1.99790 Molecular weight ratio of H2S and S02 S02 / H2S = 1.87973 = Combined-cycle cogeneration equipment component (natural gas) of SOx emission volume + volume of SOx emission for heat component supplied by continuous operation of existing machinery (coal) + volume of SOx emission for heat component supplied by continuous operation of 6 - 8 existing machinery (natural gas) + volume of SOx emission for heat component supplied by continuous operation of existing machinery (heavy oil) = 111.33 + 141.35 + 44.49 + 94.32 = 391.48 (t/year) Annual volume of soot emissions (t/vear) The annual emissions volumes for environmental contaminants were determined from the annual usage volume and the ash component in the fuel, for each type of fuel. The following equation was used to calculate the volume of soot emissions for each type of fuel. = Volume of fuel used (TJ) / volume of fuel heat generation (GJ/t) x ash component of fuel (wt%) x ratio extracted by burning ash x 10 *The ratio extracted by burning the ash was set at 20%. = Combined-cycle cogeneration equipment component (natural gas) of soot emission volume + volume of soot emission for heat component supplied by continuous operation of existing machinery (coal) + volume of soot emission for heat component supplied by continuous operation of existing machinery (natural gas) + volume of soot emission for heat component supplied by continuous operation of existing machinery (heavy oil) = 0.00 + 353.74 + 0.00 + 0.00 = 353.74 (t/year) (c) Effect of annual NOx reduction Reduction in annual volume of NOx emissions (t/year) The difference between the baseline volume of NOx emissions and the volume of NOx emissions in the project case was determined. = Annual baseline volume of NOx emissions (t/year) - Annual project case volume of NOx emissions (t/year) 6 - 9 = 7,792.27-1,674.76 = 6,117.51 (t/year) Reduction in annual volume of SOx emissions (t/vear) The difference between the baseline volume of SOx emissions and the volume of SOx emissions in the project case was determined. = Annual baseline volume of SOx emissions (t/year) - Annual project case volume of SOx emissions (t/year) = 6,538.06-391.48 = 6,146.57 (t/year) Reduction in annual volume of soot emissions (t/year) The difference between the baseline volume of soot emissions and the volume of soot emissions in the project case was determined. = Annual baseline volume of soot emissions (t/year) - Annual project volume of SOx emissions (t/year) = 1,925.52-353.74 = 1,571.78 (t/year) 2) Influences on the natural environment Because the existing equipment targeted by this project is located within the No. 1 station building, there is no danger of destruction of the surrounding natural environment (forests, vegetation, etc.) caused by physical elements relating to setting up a new power supply in the area. 3) How the harmonic balance with the scenery will be affected When the facilities for this project are constructed, it will be important to achieve peaceful interaction with the surrounding area. In order to do that, minimizing the load on the environment caused by the power plant facilities is, of course, of primary concern, and it is equally important not to disturb the scenic appearance of the surrounding area. With that in mind, the layout, shape, and color of the power plant facilities will be carefully planned so as to harmonize with the surroundings. 6 - 10 Above all, St. Petersburg is home to many industries that are important from an historical and cultural point of view, and constructing power plant facilities in a way that earns the trust and confidence of area residents will play a fundamental role in the smooth progression of energy services in the future. 4) Influences on other environmental elements If modernization is carried out through the combined-cycle cogeneration equipment using gas turbines, as defined by this project, not only the plant equipment itself, but utility equipment necessary in order to generate and supply power will also be upgraded and renovated. In particular, because the waste water treatment facilities that directly affect the environment will be renovated, with waste water treatment management being updated in terms of both hardware and software aspects, there should be significant improvement in comparison with the previous facilities. Because St. Petersburg is a vitally important city historically and culturally, and because the power generating plant is located in a central part of the city, sufficient planning will need to be devoted to disposing of industrial waste when the project is implemented and existing facilities are destroyed. (2) How economic and social elements will be affected 1) Influence on economic aspects It goes without saying that the operational management of the power plant will undergo changes, including how the St. Petersburg steam supply and power generating station is run and how maintenance is carried out. The profits of the power plant will be affected by changes in fuel costs, electricity costs, and the cost of supplying heat, as well as by changes in personnel costs and various other expenses. As a result of implementing this project, older and deteriorating equipment will be disposed of, and a gas combined-cycle power generating system will be installed, with the result that customers will be able to count on a stable supply of power because of the modernized facilities. In the future, the area near the power plant will naturally enjoy positive economic benefits from this modernization, as will St. Petersburg and the state of Leningrad, and the surrounding area. In addition, the following items are considered to be possibilities when comparing the older facilities with the modernized facilities. (a) With this project, the improved power-generating efficiency rate of the plant following renovation will make the facility more economic as a power plant. Additionally, it will be possible to supply power more cheaply, which will improve the Lenenergo administration and management. (b) The new facilities will lead to a higher efficiency rate and a boost in confidence with the ability to provide a more stable supply of power, and in turn, this will be reflected in shorter maintenance periods and fewer problems with the equipment and systems in comparison with the earlier equipment. Operation of this power station will be given top priority, and if the annual operation rate is increased, the power plant will naturally enjoy more benefits economically. (c) The systems of the aging Central Steam Supply And Power Generating Station will be replaced with state-of-the-art computerized DCS control. This will result in a more streamlined system for power plant personnel, with improved systems for operation, management, monitoring, and data recording. It is thought that this can contribute to reduced administrative and management costs for the power plant. (d) The St. Petersburg district of the state of Leningrad has historically developed as the industrial and economic heart of the region. During the era of the former Soviet Union, numerous large-scale manufacturing industries were established here, and the first domestic production of turbines and generators for power plants, of reactors, and of robots all took place here. In recent years, however, the area has been strongly affected by economic crisis, and industrial production has dropped sharply. At the same time, however, as the government and economy of Russia continue to stabilize in the future, the assurance of a stable supply of power and heat will contribute to the economic stability and development of the state of Leningrad and of the St. Petersburg area in particular. Note) The St. Petersburg Steam Supply and Power Generating Station is a critical power plant in terms of supplying power and heat to the residents of the state of Leningrad and to the industrial district. The current facilities have deteriorated badly, and should a problem occur in the future with supplying heat and/or power, there 6 - 12 could be significant adverse consequences for the economy of the state of Leningrad. 2) Effects on society Ever since the collapse of the Soviet Union, Russia has been in the midst of political and economic change. On a national scale, as well, the environment surrounding power production faces problems of its own, and with the organizational structure of the power system facing numerous overall problems in terms of restructuring, renovating and upgrading the many facilities that have deteriorated, the rebuilding of the Russian economy is an urgent issue. In particular, the development of the energy industry, which serves as a foundation for economic development as a whole, is a large factor in the Russian society of today. Consequently, if this project is implemented, it may conceivably prove highly beneficial to the social development of Russia in the future. It is thought that implementing this project will help to stabilize employment and consumption in the region in which the power plant is located. (a) In terms of influences on Russian society, Russia has never resorted to assistance from any other country in technology or in any other kind of assistance in the building of facilities such as power plants. If the power plants is renovated in a cooperative project with Japan, the introduction of Japanese technology and facilities will contribute to the economic bloc of the state of Leningrad through the construction of a power plant that will support the energy foundation of the society, and it is thought that Japan will strongly influence Russian society as a result of this project. (b) Instability in the supply of power has a continuously negative effect on everyday life and the economy, and in the long run will hinder social development in Russia. If this project is implemented, however, stable supplies of power and heat can be assured, and this may well prove a springboard to social expansion and development. (c) In Russia, the supply of heat in winter is even more critical to society than a stable supply of power. Renovating the power plant will assure a stable supply of heat from the plant, and thus it is thought that this project will make a strong contribution in social terms as well. 6 - 13 Conclusion Conclusion Power generation plants in Russia are faced with problems, such as operational inefficiency and environmental pollution because of antiquated equipment and facilities and lack of funds to renew them. Although greenhouse-gas emission has dropped dramatically from 1990 due to economic recession, it will unavoidably increase again if the Russian economy recovers with the power plants remaining not upgraded. Therefore, it is not a prudent choice for Russia, to use the temporarily reduced emissions as tradable emission rights without efforts to curtail emissions because Russia may end up buying such rights back in the future. The more desirable approach is to reduce the emissions of greenhouse gases by modernizing the St, Petersburg Heat-Power Station and other power plants through Joint Implementation with other countries (or organizations) that are committed to meeting their reduction targets by assisting other countries. Implementation of this project is estimated to reduce 1,481,970.0 tons of C02 annually. Improved power generation efficiency is projected to conserve fuels equivalent to 546,301 tons of crude oil per year. 8.582% FIRR after tax would be regarded rather low if this were a purely commercial project. However, in view of the fact that it is an environmental public works project aiming at reducing the emission of greenhouse gases to prevent global warming, the figure should be rated highly. Since the currency crisis in July 1998, domestic consumer prices have been kept low in relation to the depreciated Rubles. This has been particularly true with power and heat charges in comparison with international standards, as they are the necessities of economy and life. Therefore, at the current exchange rate, the financial feasibility of this project would be very low. In order for the project to become financially independent, a long-term loan with a minimum- interest will be indispensable. Ideally, it should be financed by the "special-circumstance yen credit" of the Japanese government or other loans of equivalent terms. At the same time, electric and heat charges should be adjusted to more realistic levels as the Russian economy normalizes in the future. During the third site survey between February 28 and March 4, 2000, the survey team gave an outline of this report to their Russian counterparts. The Director of the Central Heat-Power Station and the representatives of LENENEGRO and St. Petersburg City each signed a protocol to approve this report upon reconfirming the necessity for this project. To achieve this project, the following should be preconditioned. ® A soft loan such as the special yen loan associated with the environment from the Japanese Government or equivalent will be provided. © A climatic fluctuations frame treaty will be concluded and a scheme of joint implementation will be established in Russia. From now on we will discuss the orientation on this issue with the Russian side to execute this project based on the trend of the political conference between Japan and Russia as well as United Nations Conference on Climatic Fluctuations Frame Treaty. Considering a pressing necessity of the project and a great interest of Russian side, it would be expected that the project be realized at the earlier date if appropriate circumstances are prepared. Attachments 1. Bibliography 2. Protocol concluded at the first visit 3. Technical Assignment 4. Protocol concluded at the third visit Bibliography Title Publisher Date of Publication Scientific Chronological Tables (FY National Astronomical October, 1998 1999 edition) Observatory Course of Lectures No. 14 of the Thermal and Nuclear Power May, 1998 Thermal and Nuclear Power Engineering Society Engineering Society: “Fuel and Combustion ” (in Jap.) Course of Lectures No. 25 of the Thermal and Nuclear Power 1998 Thermal and Nuclear Power Engineering Society Engineering Society: “Combined Power Generation ” (in Jap.) Handbook for Thermal and Nuclear Thermal and Nuclear Power April, 1989 Power Engineers Engineering Society Gas Turbine World Handbook 1988- Requot Publishing, Inc. December, 1998 99 “Asahi Simbun” Newspaper October, 1999 March, 2000 CIS Information File, Japan Association for Trade March, 2000 1999 edition (in Jap.) with Russia & Central-Eastern Europe Economic Trends. 1998, Annual Japan Association for Trade May, 1998 Report (in Jap.) with Russia & Central-Eastern Europe Economic Trends. 1999, No. 3 (in January, 2000 Jap.) Civil Life (in Jap.) Iwanami Shoten, Publishers. November, 1999 Economic Situation in Russia (in Iwanami Shoten, Publishers. November, 1998 Jap.) Modem Politics in Russia (in Jap.) University of Tokyo Press November, 1997 PROTOCOL This Protocol is made and entered into on this 30th September, 1999 by and between Joint stock company “ LENENERGO”, St. Petersburg, Russian Federation, and Mitsiu and Co., Ltd Tokyo, Japan. WHEREAS LENENERGO has a plan to modernize its several heat and power generation plants existing in the city of St. Petersburg (hereinafter called the “Project”). WHEREAS MITSUI is willing to make a preliminary feasibility study for the Project with a financial support by the New Energy and Technological Development Organization under the Ministry of International Trade and Industry of Japan. WHEREAS LENENERGO has accepted such proposal of MITSUI, and both parties agreed as follows. 1. Preliminary Feasibility Study shall be made for the site of branch No.l of the “Central TES” of the joint stock company “LENENERGO” and based on the following concept. ❖ Combined Cycle Cogeneration Plant with the capacity of approximately 200 MW including heat generation of approximately 400 GCal/h faking into account the possibility of using the existing capacity on the site. ❖ Power generation shall be considered as the first priority. 2. Any additional information to be required by MITSUI for the Preliminary Feasibility study shall be provided by LENENERGO to MITSUI upon request. 3. The Preliminary Feasibility Study shall be completed by the end of March, 2000. 4. Technical Assignment stipulating other details shall be concluded by both parties. “ “ September, 1999 O LENENERGO S.J. MIKHAILOV MITSUI: Y. TANAKA Senior Manager Electric Machinery International Division IIPOTOKOJI HacTOHirtHH llpoTOKOJi cocxaBJien h samnoneH 30 cenxaOpa 1999 rom Moiety AO «JIEH3HEPFO», CaHKT-nexep6ypr, PoccnncKaa Oe^epaunji, h MHF(YH sh /i, Ko ., JIx#, Tokho , ^nOHHjl. nPHHHMAJI BO BHHMAHHE, hxo JIEH3HEPFO nnaHHpyex MO#epHH3HpoBaxB HCKoxopBie xenjio3JieKxpocxaHitHH, (JjyHKnnoHHpyiomHe b CanKx-Flexep6ypre (flajiee no xeKCxy «llpoeKX»). 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HpeABapnxejiBHoe xexHHKO-3KOHOMHHecKoe oGocHOBanne Gyaex noAroxoBJieno jym nnoma^KH (Jmjmajia N° 1 «H,eHxpajiBHon T3L(» AO «JIEH3HEPFO» na ocnoBaHHH cjie^yiomeH Konnennnn. ❖ TennosjieKxpocxani%na MomnocxBio okojio 200 Mbx , BKjnonaa npoH3BOACXBO xenjia nopa^xa 400 rnraKajiopHH b nac, c ynexoM bosmohchoxo ncnojiBBOBanna AencxByiomHx Momnocxen na nnoma/nce. ❖ npoH3BOACxso 3neKxpo3Heprnn paccMaxpnsaexcM B Kanecxse npnopHxexHoro. 2. ^onoiiHHxejiBHaa nn^opMai^na, Koxopyio aanpocnx MHLJYH jum HpeABapHxejiBEoro xexHHKO-3KOHOMHnecKoro oGocHosanna, Gyaex npe^cxaBJiena co cxoponBi JIEH3HEPFO. 3 npe^BapnxejiBHoe xexHHKO-aKOHOMHHeeicoe oGocHOBanne Gyn,ex aaKonneno k Konny Mapxa 2000 roya. 4. OGe cxoponBi no^nnmyx TexHHHecxoe Saaanne, Koxopoe Gyaex BKJHonaxB nponne /jexajin. « « cenxaGpa 1999 ro#a J1EH3HEPFO: C.iL MnxaHjioB FjiaBHBiH nnxcenep MHF(YH: H. Tanaxa FjiaBHBiH ynpaBJunomnn Me^KjzynapoAHBiH ^enapxaMenx aneKxpoManiHHocxpoeHHfl Approved by the Ministry of Fuel and Energy of the Russian Federation ^--^-Va&ry Garipov // December 1999 TECHNICAL ASSIGNMENT to make a Preliminary Feasibility Study for modernization of Heat&Power Supply System in the center of St. Petersburg in view of the international obligation for CO2 emission reduction RAO EES Rossii ^Chief of the Department of Strategic Development, R&D Policy Youry Koucherov December 1999 TECHNICAL ASSIGNMENT To make a Preliminary Feasibility Study for modernization of Heat & Power Supply System in the center of St.Petersburg in view of the international obligation for CQ2 emission reduction. 1. Basis for Preliminary Feasibility Study Performance 1.1. Protocol of the III UN Convention on climate (Kyoto,Japan,December, 1997) 1.2. The Agreement of the Governments of Russia and Japan on joint activity for fulfillment of obligations to minimize carbon dioxide emission. 1.3. The decision of New Energy and Industrial Technology Development Organization (“hereinafter called the “NEDO”) under Ministry of International Trade and Industry of Japan dated 21st July 1999 on the development of the Preliminary Feasibility Study (hereinafter called the “FS”) by “Mitsui&Co.,Ltd.”, in association with “Tokyo Electric Power Company ” (hereinafter called the “Contractor ”) 1.4. The Agreement between Russian Joint Stock Company “Lenenergo ” and Mitsui & Co.,Ltd. dated November 1998. 2. Actuality of Work and Concrete Tasks 2.1. The countries which signed the UN Convention on Climate and the Protocol of the 3rd Conference of the Parties of the above said Convention assumed stringent obligations to reduce C02 emission by 2008-2012 as compared with the base level of 1990 (-6% for Japan and 0% for Russia as a country with a transitional economy). Significant effect in carbon dioxide emission reduction may be obtained in the electric power sector which accounts for 30% of C02 emission, by modernization of existing Heat & Power supply system, and replacement of obsolete power equipment, and with utilization of high efficiency and up-to-date technologies. 2.2. Russian Joint Stock Company “Lenenergo ” desires to modernize the Central Heat & Power Station(hereinafter called the “CHPS”) existing in the city of St.Petersburg. The CHPS consists of the following. -NOT Plant This Plant is located at Obodni canal 76 in the south of the center of St. Petersburg. -NO.2 Plant This Plant is located at Novgolodskaya street 11 in the east of the center of St.Petersburg. -NO.3 Plant This Plant is located at Nab.Fontanki 104 in the center of St.Petersburg. 2.3. The principal object of this work is to estimate possible C02 emission reduction after the modernization of the CHPS with conversion of it into erection of a Combined-Cycle Power Plant as well as approximate cost of the project realization. 3. Scientific,Technical,Economic,Organization and Other Requirements to Feasibility Study and its Results 3.1. This Feasibility Study is based on the information and data supplied by Russian organizations pursuant to the questionnaires submitted by the Contractor. After receiving answers from Russian Customer, Japanese experts shall visit the Central Heat & Power Station for the purpose of familiarizing with the plant operation conditions and preparing the recommendations for further modernization of the plant from the point of view of effectiveness and economic and environmental effects. The final report coordinated by the both Parties (the Contractor and Russian Customer) shall be transmitted to NEDO for examination. The summary of the FS shall be submitted to Russian Customer in Russian Language. 3.2. Combined Cycle Co-generation Plant with the capacity of approximately 200MW including heat generation of approximately 400Gcal/h is to be built at the site of NO. 1 Plant with due regard to being paid to the possibility of using the existing capacity on the site. 3.3. After completion of the Combined Cycle Co-generation plant at the site of NO.l Plant, the existing steam turbine generators in total 109MW that consist of Unitl (21 MW), Unit 2(30MW), and Unit 3(50MW) at the No.2 plant, and Unit l(4MW),and Unit 2(4MW) at the No3 plant will eventually stop operation. 3.4. Heat and Power generation shall be considered as the first priority. 4. Relation with Previous and Future Work, Expected Use of the F/S The Feasibility Study is to be prepared as the first step and the results of this study will be used for development of the project regarding modernization of the Central Heat & Power Station, in case that positive decision of implementation of this project has been made by Japanese and Russian parties concerned. 5. Feasibility Study Schedule and Completion Dates, including Completion Dates for Main Stages The Feasibility Study is to be executed during the following period: September 1999- March 2000, including; the following main stages; • Preparation and submission of source/data submitted by the Russian Party -September 1999 - October 1999; • Development of research work - November 1999 - December 1999 • Review of the first draft of the report by the Parties and collection of additional data - December 1999 • Amendment of the draft of Feasibility Study report — December 1999-Feburary 2000 • Completion and submission of the final report to NEDO—March 2000 6. Basic Contents of Feasibility Study The scope of work for Feasibility Study includes but is not limited to: 6.1. General Information about Russia 6.2. Project background/outline 6.3. Effect of Green House Gas emission reduction 6.4. Calculation Method of the effect of Green House Gas emission reduction 6.5. Balance of project cost and improvement of Environment 6.6. Monitoring plan of the Green House Gas emission 6.7. Possibility of Green House Gas emission reduction at the surrounding area after the project implementation . 6.8. Effect other than Green House Gas emission reduction through project implementation 6.9. Split of Scope of Works between the Contractor and Russian Customer 7. List of Protected Works of Industrial Property, Computer Programs and/or Database to be Used for Work/Services Performance Such items are not envisaged except for those specifically agreed by the parties. 8. Procedure of Acceptance of the Results of Feasibility Study The draft of Feasibility Study Report shall be reviewed by the authorized Russian and Japanese Parties’ representatives. If any observation is raised by the Russian side during the joint examination, such observation is to be recorded into a protocol. The Contractor has right to either take these observations into consideration or to reject them, arguing such rejection when elaborating the final draft of Feasibility Study Report. 9. List of Feasibility Study and Completeness of its Results All data and information, prepared by Russian Customer, if any, shall be submitted to the Contractor. A protocol is to be signed between the parties to affirm that such data and information satisfy the completeness of results of the Feasibility Study as set forth in the submitted Contractor ’s questionnaires. The Contractor shall prepare the summary of the Feasibility Study report and submit it to Russian Customer as stipulated in the above clause 3. ! Russian Joint Stock Company Mitsui & Co.,Ltd of Energy & Electrification “ Lenenergo " ~)J / '; h /o . /Tec / YTBepacflaio: SaMecxHTejiB Mmincxpa T0IU1HBB H 3HepreTHKH POCCHHCKOH OeAepaUHH B.3. FapHnoB Aeica6ptf 1999 r. TEXHHHECKOE 3AMHME na paapaGoTKy npe/jBapHxejibHoro xexHHKO-3KOHOMHHecKoro oGocHOBaHHa (oGocHOBamm HHBecxHijHH) b MO£epHH3aixHK> LJeHxpajiBHOH T3IJ, AO «JXeH3Hepro» b CaHKx-IIexepGypre c ijejiBio coKpameHHB bbiG pocob napHHKOBBix rasoB f HanajiBKHK flenapxaMenxa cxpaxernn pa3BHXH5 H HayHHO-XeXHHHeCKOH nojraxHKH PAO "E3C Pocchh " .H. KynepOB . ACKaGpa 1999 ro^a TEXHHHECKOE 3AAAHHE Jjih nonroTQBKH npennpoeKTHoro oGocHOBaHHA hhbccthixhh b MonepHH3anHio UeHTpajibHOH T3U AO «JIeH3Hepro» b CaHKT-IIeTepGvpre c vhctom MexcnVHapoHHbix oSsnaTejibCTB no coKpameHHio BbiGpocoB CO?. 1. OcHosa nan npoBeneHHn nannoro npennpoeKxnoro oGocnoBanHn hhbccthuhh b MonepHnsanmo LJeHTpajibHOH T3LJ AO «JIen3nepro» (nanee no xeiccxy «OGocHOBaHHn»): 1.1. HpoTOKOJi III KoHBennHH OOH no KJiHMaTy (Khoxo , JlnoHHn, nexaGpb 1997 rona) 1.2. Cornamenne Mex BbrnojiHCHHio oGn3axenBCXB no coKpamennio BBiGpocos nnyoKHCH yrnepoqa. 1.3. Pemenne OprannaannH no pa3BHxmo hobbix bh ^ob . anepran n npoMBimjiennBix xexno/iorHH (nance no xeiccxy «HE/IO») npn Mhhhctcpctbc BnemneH Toprosnn n npoMbinuicHHOcTH ilnoHHH ot 21 mojia 1999 rona na nonroxosKy OGocnoBannn cnnaMH «Mnnyn snn Ko., JIxn.» COBMCCTHO C «TOKHO OjlCKTpHK HaySp KoMnaHHH)). 1.4. CorjiameHHe Mexcny AO «JIen3nepro» 5 iipaBHrejibCTBOM CanKx-nexepGypra h xopnopannen «Mnnyn» ox HonGpn 1998 rona. 2. AicxyajiLHocxb paGox h KOHKpexHbie sanann 2.1. CxpaHBi, nonnHcafimne KonsennHio OOH no KJiHMaxy h HpoxoKOJi Tpexben Kon^epennHH YnacxHHKOB ynoMnnyxofi BBime KoHBennHH npnnnnH na ceGn KOHKpexnBie oGnsaxenBCXBa no coKpameHHio k 2008-2010 r.r. BbiGpocoB CO2 no cpaBnenmo c oGbCMaMH BBiGpocoB 1990 r. (-6% nan ilnoHHH h 0% nan Pocchh Kan cxpanBi c nepexonnon skohomhkoh ). OmyxHMBix pesyjiBxaxoB no coKpainenmo BbiGpocoB CO2, mojkho noGnxBcn nocpencxsoM MonepnHsanHH cyinecxByiomHx chcxcm no npoH3BoncxBy xenna h sneKxposneprnH, saMenBi ycxapesmero aneprexHnecKoro oGopynoBannn h npHMenenHn BBicoK03(j)(|)eKXHBHBix h caMBix COBpeMCHHBIX x«exnoaorHH. 2.2. PoccHHCKoe aicnHonepnoe oGinecxBO «JIen3Hepro» nnannpyex MoaepHH3HpoBaxB H,eHxpajiBHyio T3L%, neHCXByioinyio b nenxpe ropona CaHKX-PIexepGypr. l|eHxpajiBHan T3LJ BKjnonaex b ceGn: Cxannmo N° 1 3xa cxaminn pacnonoxcena b nenxpe Camcx-IIexepGypra no anpecy OG bojihbih xanaji, 76. Cxannnn N°2 3xa cxaminn pacnonoxcena k Bocxoxy ox nenxpajiBHOH nacxn CanKx-HexepGypra no anpecy HoBroponcKan yn., 11. CxamiHn N°3 3xa cxannnn pacnonoxcena nenxpe CanKX-HexepGypra no anpecy HaGepexcnan OonxanKH, 104. 2.3. FnaBHOH sananen nannon paGoxbi nsnnexcn onenxa bosmoxchofo coKpainennn BbiGpocoB CO2 b pesyanxaxe MonepnnsanHH I^enxpajiBnon T3IJ(, Koxopan Gyne BKjnonaxB cxpoHxenBcxBO naporasoBon ycxanoBKH, a xaxxce onpenenenne npHMepnoH cxohmocxh ocyinecxBnennn npoexxa. 3. HaynHBie, xexnnnecKHe, 3KonoMHnecKne, oprannsanHOHHBie h nponne xpeGoBannn k OG ocnoBanHK) h ero peaynBxaxaM: 3.1. j^annoe OGocnoBanne ocnosBiBaexcn na cBenennnx h nannBix, npenocxaBnennBjx pocchhckhmh opranHsanHXMH, no sonpocaM, npencxaBnennBiM nnoncxoH Cxoponon. Flocae nonynennn oxBexoB ox Jlenanepro, nnoncKHe sxcnepxBi nocexnx I^enxpanBnyio xennoaneKxpocxannHio nan 03naK0MJienHn c ycnoBHnMH (J)yHKnHOHHpoBaHHn cxannnn. Ohh nonroxoBnx pexoMennannH nan 1 HOCJieflyiOmeH MOflepHHSaitHH CXaHIJHH C XOHKH 3pCHHa 3(|)(])eKXHBH0CXH, 3KOHOMHHCCKHX h SKOJiorHnecKHX nocjiejtCTBHH. 3aKjnoHHTeni>HE>iH oxnex, corjiacoBaHHBiH c o G chmh CxoponaMH (HoZtpflAHHK H POCCHHCKHH 3aKa3HHK), GyUCX HepCflaH HEflO flJIH H3yHCHHH. HsJIOXCCHHe 06ocHOBaHHH Gyaex npeacxaBjieHo pocchhckoh Cxopone na pyccxoM a3BiKe. 3.2. Ha TeppHTopHH cxamiHH JNM npeanojiaraexca nocxponxB naporaaosyio ycxanoBKy moiiihocxbio okojio 200 MBx h 400 FKaji/nac h oGecnenHXB ee xomiHBOCHaOxceHHe. ^ojdkhoc BHHMaHHe Gyaex yaeneHO hco Oxo ^hmocxh MaKCHMajiBHoro HcnoiiBSOBaHHa cymecxByiomeH xeppHxopHH CXaHIJHH. 3.3. Hocjie saBepmcHHa cxpoHxejiBCXBa naporasoBOH ycxanoBKH na xeppnxopHH cxamiHH JN2I, jtencxByiomHe napoBBie xypGorenepaxopBi 3C-2, 3 o6men moiuhocxbio 109 MBx Gyayx nocxeneHHO ocxanaBjiHBaxBca h aaMcnaxsca Gojiee okohomhhhbim oGopyaosaHHCM. 3.4. HpHopHxexHBiM HanpaBJieHHCM aBJiaexca npoH3Boacxso sjieKxpoaneprHH na xennoBOM noxpeGjieHHH. 4. BsaHMOseficxBHe c npe^Bmymeif h nocjieayiom;eH aeaxejiBHOcxBio, npe^nojiaraeMoe npHMeneHHe pesyjiBxaxoB OGocHOBaHHa HoaroxosKa Aannoro OGocHOBanna aBiixca nepBBiM rnaroM, a pesyjiBxaxBi axoro H3yneHHa Gyayx HcnojiB30BaHBi ana paspaGoxKH npoexxa no MonepHHsaiiHH I%enxpajiBHon xennoaneKxpocxaHUHH, npn ycjioBHH, hxo PoccHHCKaa h ^InoHCKaa cxopoHa npHMyx nononcHxenBHoe penienne oxhochxcjibho peajiH3aii;HH nacxoamero npoexxa. 5. Fpa4>HK OGocHOBaHHa h aaxa saBCpmenHa paGox, BKnionaa flaxBi BasepniCHHa Ochobhbix axanos OGocHOBaHHA, Gynyx Hcnonnaxsca b cnenyroniHe cpoxn: • Oo^roxoBKa h npencxasncHHe hcxohhhkob /CBencHHH pocchhckoh cxopoHOH — cenxaGps 1999 roaa - OKxaGpB 1999 rofla; • HpoBcacHHe HCCjie^oBaxejiBCKHX paGox - HOJiGpB 1999 roaa - aeKaGpB 1999 rona; • PaccMOxpeHHe nepBoro npoeKxa oxnexa CxoponaMH h cGop flononHHxejiBHOH HH^opMantHH - aexaGpB 1999 roaa; • McnpaBJieHHH k npoeKxy oxnexa no OGocHOBamno - aexaGpB 1999 roaa - (J)eBpajiB 2000 roaa; • 3aBepmeHHe h npeacxaBneHHe OKOHnaxejiBHoro oxnexa HE^O - Mapx 2000 roaa 6. OcHOBHoe coaepncaHHe OGocHOBanna OG hcm paGox no OGocnoBanmo BKjnonaex, ho hc orpaHHHHBaexca: 6.1. OGmne CBenenna no Pocchh 6.2. Hcxopna/njian HpoeKxa 6.3. HocneacxBHa coKpamenna BBiGpocos rasoB, BBi3BiBaiom;HX napHHKOBBift 3(|)4)eKX 6.4. Mexo^HKa pacnexa nocnencxBHH coKpanienna BBiGpocos rasoB, BBisBisaiomHx napHHKOBBiH 3 6.5. Onpeaenenne cxohmocxh Hpoexxa h yjiynmeHHa sKonornnecKOH oGcxanoBKH 6.6. Hnan MOHHxopHHra BBiGpocos raaos, BBi3BiBaiomHx napHHKOBBiH a^4 )eKT 6.7. Bo3MoacnocxH coKpamenna BBiGpocos rasoB, BBi3BmaiomHX napHHKOBBiH 3(|)(])eKx na npHaeraioninx xeppnxopnax nocne BBinoaneHHa Hpoexxa 6.8. Hponne nocneacxBHa BBinonneHHa Hpoexxa noMHMO coKpamenna BBiGpocos rasoB, BBIBBIBaiOiqHX napHHKOBBiH 3<|)(|)eKX 6.9. PacnpeaeaeHHe o G hcmob paGox Meacay anoHCKOH h pocchhckoh CxoponaMH. 2 7. FlepeHCHb 3amnmeHHLix pa6oT (npoMbimneHHaa co G ctbchhoctb ), KOMnbroxepHbie nporpaMMbi h /hjih 6asbi saHHbix, KOTOpbie 6yayx Hcnojib30BaTbC5i npn Bbino/meHHH pa6ox/yc.riyr. /^aHHbie nyHKTbi He npeaycMoxpeHbi, 3a HCKjnoneHHeM Tex, KOTOpbie KOHKpeTHO corjiacosanbi CTOponaMH. 8. ripouejiypa npneMKH pesynbxaxoB OGocHosaHHA npoeKT oxnexa no 06ocHOBaHHio 6yaex paccMaxpHBaxbca ynojiHOMOHeHHbiMH npeacxaBHxe JiaMH pOCCHHCKOH H 5HIOHCKOH CTOpOH. ECJIH B npOHeCCe COBMeCTHOFO HSyHCHHfl pOCCHHCKafl CTOpOHa caenaex KaKne-JinGo saMenaHHJi, bth saMenaHHa Gyayx BHeceHbi b npoxonoji. .flnoHCKaa cxopona HMeex npaBO npHHHXb bo BHHMaHHe yKaaaHHbie saMenanHa hjih oxKJiOHHXb hx, apryMeHxnpya aannoe oxKjioHenHe npn noaroxoBxe OKonnaxe/ibHoro npoexxa OGocHOBanna. 9. Hepenenb AOKyMenxoB ana OGocnoBaHHa h ^ocxHaceHHa pesyjibxaxoB Bee CBeaenna h aannbie, noaroxoBJienHbie pocchhckoh Cxoponon, ecjin ohh 6yayx npescxaBjieHbi, 6yayx nepesanbi anoncKon Cxopone. Cxoponbi noanmnyx npoxoKOJi, b KoxopoM yxsepwiT, hto yxasaHHbie cse^eHHH h ^annbie y^oBJicTBopaiox OGocnoBannio b cooxBexcxBHH c BonpocHHKaMH, npeflcxaBJienHbiMH anoHCKOH CxoponoH. -H hohckhh napxnep no/troxoBHT H3Ji05KeHne OTHexa no 06ocHOBanmo h npeacxaBHT ero pocchhckoh Cxopone b cooxBexcxBHH c nyHKTOM 3 naexoamero aoKyMenxa. («. p^, 11 3 PROTOCOL This protocol is executed and signed March 1, 2000, between AO “Lenenergo ”, St Pe tersburg, Russian Federation, and "Mitsui and Co., Ltd”, Tokyo, Japan. In compliance with the Agreement between the municipal Government of St. Pe tersburg, AO “Lenenergo ”, and "Mitsui and Co., Ltd”, signed in November, 1998, the Protocol of September 30,1999, and the Technical Assignment of December 10,1999, the specialists of the "Mitsui and Co., Ltd” and "Tokyo Electric Power Company ”, have prepared the Brief Summary of Study for the modernization of the Central Power Station in St. Petersburg. The reconstruction shall achieve the following discharge reduction, as compared to current valves: C02 1386000 t/y NOx 5800 t/y SOx 5700 t/y Dust i sooty The results of the Study have been discussed February 29,2000 and March 1,2000, with the participation of the "Lenenergo ” specialists. The Parties confirmed that die Study corresponds to the requirements of the Technical Assignment of December 10,1999, and may be submitted to theNEDO. AO "Lenenergo "Mitsui and Co., Ltd” Director on technical Development y VA Nosakov Chief of Deportment St Petersburg Administration Power and engineering Committee APPROVED: V.B. Ivanov Director of -______—— the "Central Heat-Power Station ” nPOTOKOJl HacTOfiunuM npoTOKon cocrasneH v\ aaicnroneH 01 Mapra 2000 roaa Meay AO "JleH3HeproM r. CaHKT-fleTepOypr, PocoimwGKaR Oeaepaqt/ifl m Kopnopai^neM "Mm^yn 3Ha Ko. JlTa" TOKHO, flnOHMB. B cooTBeTCTBMH c ComanieHMeM o coTpyaHHHecrse Me>Kay flpaBHTeribCTBOM r. CaHKT-nejepOypra, AO "JleHSHepro" h KopnopaLiweM 3Ha Ko. Jlra", 3aKJlK)H6HHOM B HOflOpB 1998 T., flpOTOKOnOM OT 30 CeHTflOpfl 1999 r. M TeXHMHeCKHM saaaHHBM ot 10 a^KaOpfl 1999 roaa, cnei4nanncTaMn "Mmjyn 3Ha Ko. JlTa", Obino noaroToaneHO KpaTKoe M3no>KeHMe peaynbTaTOB nccneaoBaHi/iA peKOHcrpyKi4nn MeHTpanbHOH T3I4. Bz peaynbTaTe npoBeaenwA peKOHCTpyKL(HM 6ya©T aocTwmyro coKpameHMe 06b6Ma OT COBpeMBHHblX BenMHMH C02 1 386 000 T/roa NOx 5 800 T/roa SOx 5 700 T/roa Flbirib 1 500 t 29.02.00 r. h 01.03.00 «r. npH ynacr mh cneqHanucroB AO "JleHSHepro" 6binw paccMOTpeHbi peaynbTaTbi wccneaoBaHMfl. CTopoHbi noaTBepawnw, hto BbinonHBHHoe nccneaoBaHne OTBenaeT TpeOosaHMflM, HsnoweHHbiM b TexHHnecKOM saaaHMH ot 10 aeKaOpfl 1999 roaa, h mokbt 6biTb npeacTasneHo b OpraHMsaqwK) no pa3BMTHK) HOBbix BMaOB 3H6prHH M npOMblLUJieHHblX TexHonorww ("HEflO"). AO "JleHSHepro" Mni4yn HeCKOMy P33BMTMK) 6.O. BatiH3nxep Kommtbt no SHeoreTMKe 14 w-DKeHeoHOMV oSecneneHHK) Ha^ CornacosaHo: flwpeicTOp LjeHTpa nbHOH T9L| The contents of this report may not be disclosed without obtaining a prior consent from the New Energy & Industrial Technology Development Organization (NEDO). Please contact by phone or fax at: Phone : 03-3987-9466 Fax : 03-3987-5103