Russian-Chinese TPP faces fines for delays

26 January 2017, Week 03 Issue 844

Launch of the Huadian-Teninskaya thermal power plant (TPP) in Yaroslavl will be delayed by six months to a year after the facility failed a surprise inspection by state safety agency Rostekhnadzor. 

About 500 violations were found at the plant, which is being built by a joint venture between Russia’s TGK-2 and Chinese state-owned power generator China Huadian.

Although the information only became public last week, the inspection occurred on December 9, ahead of the planned start of operations at the facility on December 31. Now the joint venture, in which TGK-2 owns 51% stake, faces a fine of 78 million rubles (US$1.3 million) for every month its launch is delayed. These penalties are being imposed by the industry regulator, Market Council. Yaroslavl suffers from chronic energy shortages.

The hefty fines are specified in the joint venture’s capacity provision agreement – a standard contract made between Russian energy suppliers and buyers that delivers high income for the provider through high wholesale rates, but imposes stiff penalties for any failure to meet its conditions. Rosatom is also now facing Market Council fines for delays in getting the first unit of Novovoronezhskaya NPP-2 running. The launch of Huadian-Teninskaya has been delayed twice already without the imposition of fines.

The Russian-Chinese joint venture has invested 20 billion rubles (US$335.2 million) in the building of the facility over the last five years. The Chinese ICBC bank financed 75% of the costs. In addition to paying fines, the joint venture stands to lose 3 billion rubles (US$50.3 million) in profit for the year, AKRA analyst Natalia Porokhova told Kommersant. As a result, TGK-2 may face problems servicing its debts, she added. VTB bank received a court decision in September requiring TGK-2, which is controlled by the Sintez group, to pay its 10.9 billion ruble (US$182.7 million) debt to the bank ahead of schedule. TGK-2 also owed Gazprom 7.35 billion rubles (US$123.2 million) at that time.

The 450-MW Huadian-Teninskaya plant contains three units, two of which are powered by natural gas. The third unit will run on the steam produced by other two. That will make it possible for the plant to cut emissions into the environment by 30%.

Huadian-Teninskaya is considered a “pilot project” in Russian-Chinese energy generation. “Our long-term co-operative relations depend on how [the Huadian-Teninskaya project] is implemented, that is, whether the Chinese will invest more in Russian energy or not. Therefore the facility is under the close watch of our administration. We are very interested … in its implementation without problems,” deputy head of the Yaroslavl regional government Valery Tkachenko said several days before the inspection.

Joseph Murphy

Edited by

Joseph Murphy

Editor

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