a new approach
Although SUEK has been in existence for 20 years, the company remains dynamic and focused on development and diversification. And, of course, SUEK makes a comprehensive contribution to improving the quality of life in the territories where we operate.Stepan Solzhenitsyn, Chief Executive Officer
I was appointed CEO in May, when the pandemic’s impact on the global economy was already clear. By this time, the company’s management had implemented decisive measures to protect personnel and production processes as far as possible. Due to the success of these measures, the infection rate was very low at SUEK, and only had a minor impact on our operational performance.
The diversified structure of SUEK’s business and stable returns from previous CAPEX and M&A investments helped us progress with our plans, even in the context of the global economic crisis. We have significantly increased electricity and heat sales, along with cargo transportation, including non-coal products. In the future, the business will diversify further, enhancing the resilience of the Group.
The growing share of logistics in the Group’s total revenue, increasing third-party cargo transportation and range of loadsprompted us to set up a dedicated business unit within the SUEK Group, called the National Transportation Company ('NTC'). Given its scale and network, NTC's high-capacity railcar and port infrastructure has good prospects and competitive advantages in the market.
Globally, the average annual decline in energy commodities prices, partially offset in the fourth quarter, and lower demand in the European market had a clear adverse effect on many companies in this industry. Still, SUEK was not caught off guard. For some time our international sales focus has been on the Asia-Pacific markets. Accordingly, we have actively developed our port and railcar infrastructure, strengthening our service to eastern and Mediterranean markets. Of equal note is that our washing capacities enable us to process 100% of export coal, decrease the carbon footprint of our products and improve our supply margins across all major segments: thermal, sized and metallurgical coal. As a result, our international sales continue to make a significant contribution to the Group’s performance.
The pandemic is a critical reminder that there is nothing more important than our employees’ health and safety and the well-being of the communities in which we operate. We extend our condolences to the families of employees who died from COVID-19 and also those of the four employees who had fatal accidents at our production facilities. We remain committed to operating in a zero harm workplace and will continue to enforce the highest standards of health and safety training to ensure it is wholly embedded in our corporate culture.
When assessing the impact of the pandemic on the Group’s businesses, we prioritised our commitments to supply consumers with heat, electricity and fuel, to protect employees and minimise the harmful consequences of the infection for local communities. Time has proven that this was the right strategy.
To ensure uninterrupted supply of heat and electricity to the local population and medical institutions, it was vital that we limited COVID-19 infections at our power plants and mining assets, which supply fuel. We exercised stricter safety controls for our employees and ran regular COVID-19 testing programmes covering every single worker; we conducted over 100,000 tests. The company introduced stringent sanitary control measures and regular disinfection. We adjusted our canteen working hours, minimised face-to-face meetings and business trips and transferred employees from the high-risk group and most office staff to remote working. At the height of the pandemic, 6,000-7,000 employees were successfully working remotely.
We had the option of transferring employees to full quarantine, involving staff staying at our facilities around the clock, but this was not required. The measures we took ensured that the pandemic did not overtly impact SUEK’s production processes.
In February 2021, we began vaccinating our employees against COVID-19.
We supplied or financed the purchase of personal protective equipment, sanitisers and medical equipment for municipal medical institutions, including lung ventilators, mobile X-ray machines and air disinfectants. We used SUEK’s dust suppression technology to disinfect municipal territories and public spaces. I am grateful to our volunteers who demostrated great character helping those with limited mobility, doctors and vulnerable groups.
We also provided support to our heating customers who were financially impacted by the pandemic. For households and small businesses, we introduced payment by instalments and expanded our online services.
Through this important work, we gained valuable experience, which we used to make improvements to SUEK’s management structure and enhance the stress-resilience of our entire business. We have raised the efficiency of our risk assessment system, made decisions to optimise the company’s debt portfolio and reduce non-core capital costs, optimised supply chains. We are emerging from the pandemic stronger than before.
Changes in the company’s management are related to its development into a diversified business, namely the growing B2C segment and the response to new challenges and risks. These changes will be made in several stages and will affect all aspects of our structure. New business units will be with unified management; our customer focus will increase across all divisions, and more powers and functions will be delegated to local managers. We will be able to tell you more about the impact of these changes at the end of 2021.
At the same time, the evolution will also affect our corporate culture. We strive to increase the involvement of employees in discussions around operating procedures, including those related to occupational safety, and to enhance relations with trade unions. We pay special attention to finding talent and recruiting young employees, and are evolving how we drive career growth in the company.
In the first place, these are projects of high social importance and environmental benefits as well as projects that increase our economic value.
In the energy sector, we focus on reducing our environmental footprint and improving the efficiency and reliability of our generating facilities. This approach is praised by local environmentalists and enables us to get involved in solving environmental problems in the territories where we operate. The state is supporting this approach with its introduction of a new heat market model based on the long-term tariff and a programme intended to modernise thermal power plants called 'DPM-2'.
In Krasnoyarsk, which is considered one of Russia’s most polluted cities, and in some cities in the Kuzbass and the Altai regions, we have a large-scale social and environmental programme. We are replacing polluting boiler houses with heat from our co-generation plants where we upgrade capacity under the DPM-2 programme and install over 99% efficient electrostatic filters. We have already replaced 55 boiler houses, with 120 more awaiting de-commissioning in the near future. Our programme also includes replacing ageing heating mains and connection of private houses to the district heating, which will significantly improve reliability of heat supply and energy efficiency and decrease heat losses, lessening the environmental and carbon footprint of the utility sector. In Krasnoyarsk, our comprehensive programme will reduce pollutant emissions by over 9% of the city’s total emissions. In total, the programme will reduce annual CO2 emissions by almost 1 Mt from 2025, in addition to current 9 Mt carbon CO2 emissions savings on heat through co-generation. This will outperform by far the emissions saving effect from the Russian renewables programme from 2025, estimated at 5.5 Mt CO2.
In addition to the environmental benefits, participation in the DPM-2 programme will support the EBITDA of SGC upon completing DPM-1 programme revenues in 2025.
We are particularly focused on further developing our port facilities to meet Russia's growing export needs. We have started projects to increase the capacity of the Vanino Bulk Terminal in the Russian Far East to 40 Mt in line with the expanding Russian railway infrastructure, and the capacity at the Murmansk Commercial Seaport to 28 Mt. We always ensure that our work is aligned with strict environmental standards and that we use the best available techniques to suppress dust and protect water areas. We also keep increasing the higher-capacity railcar share in our transportation to improve railway throughput and lessen carbon impact.
In the commodities segment, key projects are linked to the development of assets showing substantial export potential and low-emission technologies. This includes expanding the Pravoberezhny mine in the Khabarovsk region, commissioning a world-class flotation unit at the Kirov WP in Kuzbass, and developing mining and washing assets in Buryatia. All projects, in compliance with the ESG standards adopted by the company, go hand in hand with our large-scale land rehabilitation efforts, the introduction of state-of-the art water treatment systems and bio-diversity enhancement. The best example of this is the construction of modern water treatment systems in Kuzbass. Five modular systems using German technology have already been put into operation, and two more will be installed this spring. After multi-stage treatment and disinfection, we return drinking-quality water to the environment. Furthermore, we efficiently re-use part of the service water for production needs.
Although we have been in existence for 20 years, SUEK remains a dynamic company focused on development and diversification.
In the energy and coal businesses, our efforts will focus on reducing the environmental burden, expanding the range and improving the quality of products offered to our customers. We will advance co-generation and offer new products for metallurgy, construction, power generation and other economic sectors. We will also detail the strategy for our logistics business.
We will continue to improve operational efficiency and current asset turnover, while enhancing our employee training initiatives.
As always, we remain wholly committed to ensuring that we make a comprehensive contribution to the development of the communities we serve and improving their quality of life.
Our COVID-19 response
We are taking the COVID-19 situation very seriously and have implemented a number of preventive risk management measures to both reduce the probability of adverse effects on our employees, business and local communities, and also to minimise any potential impact.
- Transferred most office employees to working remotely, switched to online meetings and restricted travel
- Introduced stricter shift protocols, changed shift and meals schedules to enforce social distancing
- Regular COVID-19 testing
- Started vaccination
- Developed an emergency plan in case the epidemiological situation worsened substantially
- Introduced customised seasonal starts of heat supply based on individual requests from households and organisations
- Introduced installment payment schemes for customers in need
- Transferred customer requests online
- Upgraded IT infrastructure to meet the increasing demand
- Donated to hospitals to purchase lung ventilators and protective equipment
- Disinfected roads, entrances, bus stops in the cities where we operate
- Promoted local employment through social entrepreneurship projects and procurement from local suppliers
- Provided employee volunteer support to vulnerable groups of people and medical workers
Supply chain risk management
- Conducted in-depth analysis of possible logistics interruptions
- Ensured daily monitoring of key risk indicators across the supply chain
- Developed risk mitigation plans in collaboration with key suppliers
- Secured business continuity
- Strengthened cost control and curtailed non-core CAPEX
- Optimised debt portfolio
- Expanded business segments with stable demand
- Advanced risk-management, introduced more frequent credit, liquidity and foreign exchange risk assessments