Deripaska to Double Coal Sales to China as Putin Goes East

Billionaire Oleg Deripaska’s En+ Group Ltd. plans to almost double coal sales to China next year as President Vladimir Putin encourages Russian companies to turn east amid a standoff with the U.S. and Europe over Ukraine.

En+, which manages Deripaska’s commodity holdings, seeks to boost Chinese coal shipments to 1 million tons in 2015, from about 600,000 tons this year, Chief Executive Officer Maxim Sokov said in a Sept. 15 interview in Moscow. He reiterated that the company may participate in building a grid to channel electricity from Siberian hydropower stations to China.

“The fact that Russia is turning to China due to the geopolitical situation certainly helps in our China-focused projects,” Sokov said. “It’s always easier when there is a strong state will to develop such projects.”

Putin completed a $400 billion deal to supply gas to China over 30 years in May and is encouraging investment from the world’s second-biggest economy as U.S. and European sanctions over Ukraine threaten to tip Russia’s economy into recession. Russia wants to attract cash from China into industries from housing to natural resources.

Deripaska, who sponsors the Baikal economic forum, has been pushing Russia to develop more projects with China since at least 2008. En+ will seek to tap Chinese demand, Sokov said.

‘Colossal Market’

“It is just across the border where one can find a colossal market, which has a structural energy and resource deficit,” said Sokov, adding that his company has joined with Shenhua Group Corp. to develop the Zashulanskoye coal deposit in Siberia. “Undoubtedly it has a very good export potential.”

The plan is to mine 1 million to 6 million tons of coal a year at Zashulanskoye, depending on the market outlook, he said. Production is due to start in 2016 and will contribute to En+’s goal of exporting half its coal by 2021, Sokov said.

The power line project may take more than a decade, Sokov said.

“Supplying electricity to China from Russia is a very logical step and I am 100 percent sure it will happen one day,” he said.

The company is also considering construction of data centers in three Siberian cities, including Irkutsk, to store information for Russian and possibly Chinese telecommunication companies, Sokov said. Data centers are electricity-intensive, with power accounting for at least 30 percent of costs that may be met from En+ utilities in Siberia.

Russian companies may raise project financing from Chinese banks, backed either by long-term off-take agreements similar to the one En+ has with Shenhua Group or from using Chinese equipment, engineering, procurement and construction services, according to Sokov.

En+ has about $1 billion of debt, held mostly in dollars by Russian banks.

“We don’t think that the geopolitical situation will affect our talks with the banks over refinancing,” Sokov said. “We think we will be able to fully refinance it by year end.”

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