Andrey G.REUS, Deputy Minister of Industry and Energy of the Russian Federation, at EU/G8 Energy Efficiency Conference (German G8 Presidency), 20-21 April 2007, Berlin

Mr. Chairman,

Ladies and gentlemen,

We view the participation of Russia’s representatives in the EU/G8 Energy Efficiency Conference as the continuation of a dialogue on sustainable development, global energy security, and energy efficiency.

The Global Energy Security Plan of Action adopted at the G8 Summit in St. Petersburg largely builds on the Climate Change, Clean Energy and Sustainable Development Plan of Action adopted at Gleneagles, in July 2005 and on the agreements reached in Sea Island in 2004 on the launch of the 3R Initiative (Reduce, Reuse, Recycle), which is an important step forward promoting measures to optimize the resource and material cycle and to improve the competitiveness of economy while reducing environmental impact (SLIDE 1).

It should be noted, that for the first time the high parties agreed that energy efficiency was a key activity area for the countries of the Group of Eight, at the G8 Summit in Evian, France, in 2004.

Since July 2006, the world community (U.S., EU, Japan, China, Italy, etc.) has been committed to renewing its energy strategies. Moreover, this process is not merely declarative. Today, the world’s leading energy consumers are providing legal and financial support to these new strategies by seriously adjusting their energy policies. Russia has also entered this process.

Comparison of the energy strategies shows, that their basic principles are:

• Further development of extraction and delivery of fossil fuels, including development of energy infrastructure,
• Enhancing energy efficiency,
• Promotion of renewable and alternative energy sources.

Implementation of these principles would facilitate more efficient energy use and help reduce environmental impact.

Recently Russia has strengthened its reputation of a reliable energy supplier. Even facing force-majeure circumstances in the transit states Russia succeeded to honour its obligations to consumers and to diversify delivery routes in order to reduce overall risks.

Russia is the world’s leader in natural gas production and export. In 2006 Russia also became a leader in oil production. However, this was not our main goals. It places a special responsibility on our country, which is a leading energy producer and consumer, for ensuring global energy security.

At the same time, energy intensity of Russia’s economy is quite high, it is twice as high (adjusted for purchasing power parity) as in the U.S., 2.3 times higher than the world average, and 3 times higher than in the developed countries of Europe and in Japan (SLIDE 2).

This is basically determined by:

• climate conditions, including low average annual air temperatures, requiring considerable energy consumption to ensure sustainable and reliable energy supply;
• the structure of economy characterized by a large share of energy intense sectors (over 60% of industrial production) in the GDP and a relatively small share of the services sector with low energy intensity;
• significant amount of obsolete energy equipment, which keeps the overall national energy savings potential at 45% of current energy consumption level (SLIDE 3).

So you can see that we do not make a secret of the negative facts. This is our way to take part in the Energy Dialogue.

Specifically high energy intensity:

• lowers the competitiveness of manufacturers;
• generates additional costs (including investments) for national energy supply;
• causes considerable emissions of pollutants.

Taking into account these circumstances, the national energy policy formulated in the Russia’s Energy Strategy to 2020 regards improving energy efficiency as a top priority for the entire national economic policy.

Analysis of implementation of the Strategy in terms of energy efficiency, which is a critical strategic benchmark for the long-term national energy policy, shows that the results achieved in this area during the recent period generally go far beyond the Energy Strategy projections.  According to the Energy Strategy, specific GDP energy intensity in 2006 was supposed to go down by 17.6% compared to 2000, while in reality it went down by 23.3% (SLIDE 4). Compared to 2005, specific energy intensity of the economy in 2006 decreased by nearly 3.3%, making it possible to limit the growth of primary energy resources consumption to just 3.5%, in comparison to the 6.8% GDP growth over the same period.

However, the higher than projected rates of energy intensity reduction do not “lull our vigilance”, because this process has been largely determined by structural transformations of the economy (75-80% of the achieved reduction). Relatively low energy intense sectors of the GDP and industry have been growing faster than more energy intense sectors, and only around 20-25% of the reduction has been achieved through the available technological energy savings potential. Increasing this share would require improved legislative and regulatory frameworks, as well as development of target programmes and a rational market environment.

Over the recent period, measures to develop a rational market environment in Russia, which is important to improve energy efficiency, have been most actively taken in the electricity sector. The implementation of the Action plan on the electricity sector reform has been successfully progressing, as well as market players development and transition to new rules on the wholesale and retail electricity markets. The investment stage of the electricity sector restructuring was launched; in particular, investments of over 4 billion dollars were attracted as a result of competitive public offering of additional emissions of the only two wholesale generating companies. It is an important indicator of the development of a market environment in the power industry.

On the first of September 2006 new procedures for the wholesale electricity market were introduced. A spot (a day-afore) market, was launched.

Measures to develop market environments have been also taken in other sectors of the energy industry. Let me just name the most prominent of them:

• Launching experimental natural gas spot trade at non-state regulated prices;
• A decision to bring by 2011 domestic price for natural gas to the level where equal profitability of domestic sales and export is ensured;
• Stability and predictability of the customs and tariff policies with regard to the export of oil and oil products have been achieved;
• Elimination of import duties for the equipment, which is not produced in the Russian Federation, including equipment for the oil, gas, and coal industries;
• A zero rate extraction tax for flammable natural gas and associated petroleum gas from the oil fields was set;
• Measures are being taken to set up an oil product exchange with eventual oil trading; etc.

Steps to improve legislative and regulatory framework included completion of drafting Federal Laws “On amending the law “On Energy Saving””, “On Supporting Renewable Energy Use”, and “On Alternative Motor Fuels”. A number of laws in force have been amended and supplemented to introduce energy efficiency requirements.

The Russian Ministry of Industry and Energy initiated development of seven basic national energy efficiency standards.

Specifically, I would like to focus your attention on the draft Federal Law “On amending the law “On Energy Saving””, which requires that an energy efficiency standard be introduced in the economic activities of companies. This would be defined as an economically viable level of energy efficiency, given current equipment and technology development levels. While energy efficiency investments would be getting federal support in various forms, violating these standards would result in charges. Funds accumulated through these charges would be collected in the federal budget and spent on further implementation of the energy savings potential Importantly, the draft law aims at large-scale involvement of the business community in the energy efficiency improvement process through public-private partnerships, which imply sharing risks between the state and the private sector and fostering favourable business environment.

Draft Laws “On Supporting Renewable Energy Use” and “On Alternative Motor Fuels” facilitate federal regulation and promotion of the use of renewable energies and alternative types of motor fuel, as well as delimitation of responsibilities between federal and regional authorities.

As regards the implementation of target programs, we have drafted a new Federal Target Program “Improving Energy Efficiency in the Russian Federation” till 2015.

This Program aims at improving energy efficiency and implementing the technological energy savings potential. Generally, it is expected to bring down specific energy intensity of the GDP by 2015 to 62.5% of the 2006 level.

It is in the implementation of the energy savings potential that we are looking for active cooperation with the world community.

Presently, Russia is actively cooperating in energy efficiency with many countries, both in the bilateral and multilateral formats. In 2006, a Memorandum of Cooperation in Energy Efficiency was signed between the Ministry of Economy of the Netherlands and the Ministry of Industry and Energy of the Russian Federation. For 10 years now, the Joint Energy Efficiency Working Group of the Russian Ministry of Industry and Energy and the U.S. Department of Energy has been functioning. Just a week ago, a Russian-German Energy Efficiency Forum took place in Moscow.

Giving a special attention to energy efficiency as a critical instrument of reducing energy intensity of economy and ensuring energy security, Russia and the European Union launched an Energy Dialogue. In February 2006, Coordinators of the Energy Dialogue (V. Khristenko, RF Minister of Industry and Energy, and A. Piebalgs, EU Energy Commissioner) put forward a joint energy efficiency initiative. Specific implementation measures were discussed by Russian and European experts at the seminar in Moscow on the twenty sixth of October 2006, and at the conference of energy agencies and energy saving centres in Kazan on the sixth of December 2006.

Today, the global energy situation is so complex and multi-faceted, that the world community is required to develop forms of cooperation and coordination based on mutually acceptable principles, primarily on the specific targets fixed by energy strategies.

In March 2007, the European Council approved the basic principles of energy policy for Europe and Action Plan for its implementation. Its main objectives are:

• Saving 20% of the EU’s energy consumption compared to projections for 2020;
• Reaching a 20% share of renewable energies in the overall EU energy consumption by 2020;
• 20% reduction in greenhouse gas emissions compared to 1990;
• etc.

At the G8 Summit in Heiligendamm this year, our heads of states will discuss issues related to the coordination of many of these basic strategic guidelines.

Analysis of the basic principles of the RF Energy Strategy, taking into account the development of the real sector of national economy, shows that we bring on the agenda and shall be addressing similar tasks. Keeping in mind considerable technological energy savings potential, we project 60% energy efficiency improvement and halving specific energy intensity by 2020 as compared to the 2000 level. We actively promote renewable energies. We are also close to the European Union in terms of achieving greenhouse gases emissions reduction targets.

We also focus on energy efficiency improvements in the municipal utility sector. As of 2006, in the framework of the housing reform cold and hot water meters are installed in nearly 10% of all Russia’s residential households; it is not a figure to be proud of, but it resulted in 10-15% reduction of energy consumption in these building. Further implementation of the meters and controls installation program, along with buildings insulation and optimization of energy supply regimes, may help achieve 20-25% energy efficiency improvement in the municipal utility sector.

This month we have accomplished the development of draft general layout of the power sector facilities location until 2020. With an account of projected energy consumption growth in the country, installed generation capacity would reach 340 GW by 2020 (baseline scenario). Projected nearly 130 GW capacity increase shall be met through the commissioning of new generation units, including in gas-fired generation (approximately 30%) through the implementation of an efficient gas-and-steam cycle with low fuel consumption.

We also support the EU member-countries’ initiative on mutual electricity supply integration and urge to facilitate the development of a joint feasibility study for synchronous connection of power transmission lines run by the CIS countries and Baltic states with the Union for the Coordination of Transmission of Electricity in Europe (UCTE).

We are currently working to verify Russia’s Energy Strategy, including energy efficiency indicators, and to extend it until 2030.

In our view, development of a long-term strategic assessment of Russia’s energy sector development may become an important element of the world energy development concept.

Thank you for your kind attention.