Mikhail Lifshitz, Chairman of the Board of ROTEC
The Ural Turbine Works (UTW), a member of ROTEC Holding, is the largest Russian steam turbine-building plant. Currently, all СНР plants supplying major cities in Russia and the former USSR are equipped with the UTW turbines. ROTEC also works in the maintenance of gas turbines and power-generating equipment diagnostics and is endeavoring to launch a solar panel-powered airplane for a round-the-world trip. “For something crazy to emerge, critical mass must be attained,” affirms Mikhail Lifshitz, Chairman of the Board of Directors of ROTEC. In an interview with Vedomosti, Lifshitz, an enthusiastic engineer, pilot and melee weapons collector, drew diagrams of the waste incineration TPPs under construction, for which the UTW has developed and manufactured new turbines, and shared samples of solar panels and photos from trips to exotic countries. He has a lot of bold and meaningful ideas in store, such as providing the Amur tiger wildlife sanctuary with green electricity and covering the roofs of Russian houses with solar panels. Not all projects have succeeded: biopolymer production, announced in 2013, was never launched. But Lifshitz says that the project was not rejected: “If the market is ready, we will be too.”
In 2018, ROTEC and its associated companies faced new challenges. The main shareholder in the Holding, the Renova Group and its owner, Viktor Vekselberg, fell under US sanctions. To secure subsidiaries, Renova reduced its stakes in the UTW to 49% and to 46% in Hevel LLC, where Lifshitz is a member of the Board of Directors. None of the enterprises managed by Lifshitz fell under the sanctions. But nevertheless banks and partner companies began to treat the Holding with more caution.
– Did the sanctions against Viktor Vekselberg and Renova have an impact on the UTW, as well as on ROTEC operations? Is it perceptible in the industrial process, in the company attitude?
– "It can be seen in other aspects. Banks are run by people. They have their own priorities, their own sense of self-preservation. When a bank employees have the opportunity not to work in an environment that they consider toxic, then they prefer not to. None of our businesses are on the sanction lists. But the bank clerks get reinsured. It's the same story with complex products. We had four interesting projects; three with American companies and one with a European one. Only one is left. Despite the fact they know we are not under sanctions. When people establish production cooperation, they prefer to see the planning timeframe. They think: "What will happen tomorrow?" I am not saying that things have fallen apart, but circumstances have certainly become more complicated."
– Did the situation change after the turbine plant shareholders replacement? Has the level of trust gone up? (In August 2018, Lifshitz acquired 10% of the UTW shares from the stock sold by Renova, and his stock reached 20%. Another 15% were acquired by Legacy Media LLC, and the remaining 16% – by Yevgeniy Belov, a businessman).
– "There always has been, and still is, trust. But the counterparty also assesses the risks. In any company, there are auditors and advisers who subjectively determine the acceptable risk level. The matter of trust was never discussed."
– So the influence of Renova on the Holding has remained practically unchanged?
– "If you buy Philip Morris shares, will you influence the company management? Probably, that’s why I work here, because Viktor Feliksovich has that ability; not to interfere. The development strategy and the company budget are determined by the Board of Directors consisting of people who make decisions independently."
– Kommersant wrote that the UTW or Hevel could be included in the merger of T-Plus (part of Renova) and Gazprom Energoholding. Was this option discussed with you?
– "Never. It was not planned, not in the works, and not predicted."
– According to media reports, Renova submitted a list of subsidies for its assets to the government, and asked for a guarantee of contracts for its equipment.
– "No, we never asked for a contract guarantee for our equipment. It is clear that the government has taken steps to support companies that have fallen under sanctions. We were not sanctioned, so we did not have direct supportive measures. A systematic work is carried out in terms of localization requirements. Here we are doing our best. There were no direct measures for our companies. There was support for other Renova assets and businesses that were credited in the West."
– Are you discussing supportive measures in connection with the general economic stagnation with the government?
– "There is no stagnation in our areas of operation. Although there was a slowdown. The investment potential of power-generating companies was exhausted on new construction projects under the CSA-1 program [capacity supply agreements], they simply had nothing left for the upgrades. In this case, deferred demand was formed because insufficient funds were invested in the replacement of the existing facilities. If a machine with an operating life of 220,000 hours runs for 300, you will either replace or upgrade it voluntarily, or it will stop and leave a city without heat and electricity.
Of course, by the end of the program, there was a kind of slowdown, but it was predictable. Therefore, we strongly diluted the traditional energy sector with various interesting solutions linked to other industries: these are commercial generation, waste thermal power plants and marine engines. There are countries with which we traditionally are friends and work with. These are Kazakhstan, Belarus and Mongolia, and they were providing about half of our revenue."
Chairman of the Board of Directors, ROTEC
Born in Moscow in 1963. Graduated from the Bauman Moscow State Technical University and Kaluga Aviation Flight and Technical School
– How do you assess the export portfolio, what is its share in operating revenue?
– "Approximately 40–50% already for the next five years."
– This spring, the results of the first selection of the program for the upgrading of existing TPPs was summed up (the CSA MOD program provides for a return on investment with a guaranteed income rate of 14%). Many people are not content with the selection result, calling it a “major overhaul”. Why do you think this happened?
– "This issue was heavily discussed in the Ministry of Industry and Trade. And I insisted that we have to define the meaning of “upgrading”. When we restore the characteristics of an item, it is a repair. When we change them for the better, then it is an upgrade. We must increase the fuel efficiency or capacity to a certain level. Then this would be an upgrade. I'm sorry, but we are still stuck with this stupid Soviet-style price criteria, when the tender results are defined only by the price. When our colleagues apply for repair of a condensing turbine of 300 MW, it is clear that the price scaled to 1 MW of power would be way lower than replacing a cogeneration turbine of 100 MW. But the question remains – what is upgrading? Perhaps, replacement of a power unit at a СНР is an upgrade. Replacement of the turbine high pressure cylinder at a State District Power Plant is something completely different."
– On the other hand, consumers are already unhappy with the high cost of the program...
– "Consumers will be unhappy when one of our cities or towns freezes in winter and is left without electricity and water. Or when the cover flies off of a turbine and destroys something. Then, the consumer will also be unhappy. But if we talk about upgrading, then it should be purely upgrading. Because repair falls under the area of responsibility of the operation organizations. And subsidizing a repair is a bad experience for the State. The State declared that it would take money from the market to make upgrades, and that is understandable. And this is true, even if there are few funds. But when we take money from the market and “patch holes”, then, I'm sorry, it's nonsense."
– But all the expenses for the energy market should be limited by the inflation rate...
– "Who said they have to be limited?"
– Putin did. Instructions of the President.
– "Upgrading is far from all the expenses for the energy market. In fact, a huge resource is allocated. Don't blame Putin. Putin approved the funds for upgrading. If we substitute it with repairs, then he has nothing to do with it. We have to avoid substitution of notions. There is a definition for upgrading, which is changing the system characteristics by at least 10% for the better. Not restoration, change."
– Do you have arrangements with the companies that passed the selection for turbine replacement?
– "All projects undergo a competitive bidding process. There is nothing that is given to us by birthright. We are always present on the market. Wherever we go, we always have our Chinese friends on the one hand, and on the other hand – Siemens and General Electric (GE). Here we have to act faster, we have to calculate more accurately and manufacture better."
– How do you assess the sales market under the CSA program?
– "I do not. Our business model is not built on subsidies. We can only rely on the market. We have 23 T-250 turbines, of which 13 have completely outlived their service life. If somewhere we have a Т-100 turbine reaching the time when it either stops working or starts giving off smoke, then I definitely will concentrate on that. And I know for sure that we will replace it. With or without CSA. We have about 350 Ural turbines in the country that have outlived their service life. By understanding the condition of the fleet, we can estimate the upgrading market. CSA may make turbine replacement closer and make it easier for the customer. But CSA is not for us. In this scheme it is important for the plant to determine the level of localization of production, this is what aligns us with foreign colleagues in the cost of funding. Currently, given the inequality of financial conditions, our Western colleagues would simply eat us for lunch."
– During what period will upgrading of these 350 machines be required?
– "Within around 10 years. This is realistic since it is clear that the machines are reliable."
– Russia is currently trying to focus on gas turbines, and on building its own high-power gas turbines. Does this create potential competition for you?
– "The most rational system for a thermal station is gas and steam turbines. We have great machines that were made especially for this. Any gas turbine is linked to a steam turbine. Therefore, there is no competition here with gas turbines. As for the gas turbine in general, the question is extremely ambiguous. You need to make at least 10 of them per year just to make your business successful. If you build an enterprise in the planning horizon of at least 10 years, you need to understand [that there is] a demand for 100 machines. When this discussion began, we were asked: “What about you?” Show me the demand for 100 machines and we will start producing them."
– Is a Russian gas turbine required at all, not localized, but a locally produced one?
– "In a normal market situation, of course not. There is overproduction in the world, and the market is global. But if you take the very specific setup of today's political forces under the conditions of restrictions... You do not usually bake bread at home, but if all the bakeries around you close, then you will bake it. Therefore, it falls into the zone of subsidization. We find ourselves in tough conditions on the global market. On a market where Siemens and GE turbines are distributed free of charge, we will not sell anything for money."
– So, you do believe in the future creation of Russian gas turbines?
– "Building a gas turbine is no easy task, but it is feasible. The country has all the expertise for this. The main thing required is demand, normal calculated demand. We have already been restoring gas turbine blades for three years. This production is difficult, but there are no miracles. Last year, we mastered the production of honeycomb seals for aircraft engines and turbines. There were only seven manufacturers in the world – three in America, one in Europe and three in China. Now there is one in Russia. Everything is possible. When there are no scientific obstacles at the level of physics or chemistry, but there is a matter of engineering, everything can be calculated in man-hours."
– Has the company's gas turbine maintenance market share changed with the launch of blade restoration operations?
– "It has grown a little. We just, in fact, opened Pandora’s box, and the foreign manufacturers came. For them, the threshold for such solutions is the appearance of the technology in the territory. If it is not in the country, no one is going to bring it in. As soon as it appears, the gate is opened for others."
– In 2016, you estimated your market share at 20%, and your service portfolio was about 20 billion rubles. How is it now?
– "Now, the share of Sulzer Turbo Services Rus (ROTEC and Swiss Sulzer JV) is about 25%. The structure has changed slightly, the service contracts before were longer and easier to calculate. When there is no special competition, the customer tries to haggle their price on volume and on the duration of the contract. When there is competition on the market, the customer already thinks that he will now sign a long-term contract, and in a year the prices will change, and begins to do a brisk trade for every turbine inspection. Therefore, our total share has probably increased, but it is difficult to say anything about an increase in our portfolio."
– Tell me more about honeycomb seals. What is the operating principle, what is it all about?
– "Do you understand the design of the turbine? (He takes a sheet of paper and a pencil and starts drawing). Here is our turbine body, this is the rotor, and these are the blades. In order to rotate, there should be a clearance between the blades and the body. But when the turbine is running, part of the steam or gas flows through the gap, creating resistance and reducing efficiency. To make the flow smaller, we can install a honeycomb unit, and the blade will simply cut its way through. Then the gap will be much denser. So, we increase the efficiency of the flow part by about 4–5%, which really is a lot during long-term operation. This also applies to gas turbines, and large and small steam turbines. There are two technologies for the manufacture of this honeycomb. One is to take a foil, perforate it and bend it. In the old engines, they installed the honeycomb, manufactured per this technology of “bending-folding”. But, given that the blade is an expensive part, the precise geometry is very important. The world switched to the technology of welded honeycomb, and all the new machines were won over either by the British or the Americans.
Understanding demand, we decided to do this. But the fact is that the equipment that makes this product simply does not exist on the market. You can’t go and buy it. To produce a welded honeycomb, you need to design and manufacture the units. We started the project in May of last year and began serial production in December. Another record."
Shareholders (Company data as of April 4, 2018):
Renova-Holding Rus LLC of Viktor Vekselberg (49%), Mikhail Lifshitz (31%), Yevgeniy Belov (20%).
Financial indicators (RAS, 2017):
revenue – RUB 1.4 billion,
net profit – RUB 662.2 million.
Established in 2010. The company is involved in servicing gas and steam turbines, manufacturing power engineering equipment, and rendering engineering services.
– What was the volume of investments in production?
– "I don’t even want to discuss this. Because when there is a brilliant idea and a quick realization of this idea, it doesn’t matter how much money you spent. It is impossible to measure such things by investment volumes. Any monkey can buy a machine for $100 million. And we have managed to invent a technology that cannot be bought. And that's cool."
– What is the demand and scope of supply?
– "We are already supplying for steam turbines, for aircraft engines. The scope... We would be counting the chickens before they’re hatched. There are a lot of challenges. The project is currently in a state when there is no time to breathe, and the volume is just building up."
– Another of your innovative projects is the PRANA system for monitoring and forecasting the state of power equipment. How many units of power equipment are connected to the system currently? How many incidents were predicted and prevented?
– "298 incidents were prevented as of July 1. Incidents do not necessarily mean prevented accidents, due to different paths of development. 113 units of equipment are now connected to PRANA. Another 12 are currently being connected to Gazprom Neft and Kazakhstan’s Pavlodarenergo, making a total of 125 units."
– Can prevented incidents be converted into a savings amount? How much did the system save for your customers?
– "According to what our customers see, at a cost of services of about 80 million rubles per year, the proven savings turned out to be 0.5 billion rubles. Any operations budget envisages non-production of electricity, unplanned shutdowns and emergency repairs. We practically turn these lines to zero in terms of the main equipment. They all become planned items, and this is always cheaper."
– Do you have ambitions to capture the market and install PRANA on all power equipment in Russia?
– "Of course, I do. The tasks that I set for the business are to go beyond the industry and abroad. That is not easy in the current political environment. So far, we have our first project in Kazakhstan. I expect that we will do a project in Mongolia, however, there is only a minor energy sector there. All of this is not easy, because you need to work in the host language so that the interfaces are correct. This takes time, money and human resources. The big challenge is industry expansion. PRANA is a sophisticated knowledge-based project, not a boxed solution that can be put on any gadget. And, we cannot supply the system at the same price to other industries as to the energy sector. If a turbine costs $20 million, the pump costs $0.5 million. And data collection should be solved by means of new technologies that will reduce the cost of the unit."
– You have designed and installed the first Russian turbine for a waste incineration plant. What are its features? (Four waste incineration thermal power plants in the area near Moscow and one in Tatarstan is being built by RT-Invest together with the Japanese-Swiss Hitachi Zosen Inova).
– "It's is a steam turbine, which can be at a waste incineration plant, and can work with a gas turbine at a thermal power plant. This is a steam turbine for a combined cycle. (Draws a diagram of the turbine). Hot steam passes through the stages, reaches large diameters and flies for cooling through the pipe. Given the fact that the pipes go up or down, it is a multistory structure. In our new turbine, an axial exhaust is used, and the steam does not go out into the pipe, but back to the open rear section. Due to this, the block dimensions are greatly reduced in height. I will not say that this solution is better or worse, but the experts designing waste incineration plants in Russia (incidentally, with extensive international experience) have issued these technical conditions. There is no such turbine in Russia. We said: "so what if it doesn’t exist? We made it.
I support the fact that any CHP can be converted for waste incineration. This will require far fewer investments. But, given the fact that the problem in our country has already become a disaster, it is necessary to burn a lot. And this issue is very sensitive. RT-Invest took the existing proven and best solution to burn these hundreds of thousands of tons of waste, definitely knowing that you are not going to poison anyone. Therefore, it turned out to be expensive, and so a Swiss contractor was involved. They use dry cooling towers in order not to consume water. And they use the axial exhaust as cooling towers."
– Five waste incineration TPPs are under construction. How many more will be needed?
– "The government stated that we should have about 200 of such plants, I don't really believe that. I believe that in all cities with a population of over a million, there should be at least a couple of such enterprises. We have 16 cities with a population of over a million. Therefore, we believe, we will need about 35 units."
– What is the level of turbine localization? How many foreign parts does it include?
– "The assembly is 100% Russian. 10% – imported cast semi-finished products. This is metallurgical work, which is done outside our homeland. The rest we do ourselves. We order heavy casting items in the Czech Republic, Italy and China. When there are requirements for 100% localization, we order in Russia, but it is more expensive. Casting semi-finished items are products with a long cycle and the work takes from 4 to 6 months. To do this, the manufacturer needs to take either an advance payment from me or a bank loan. Only if our manufacturer takes a bank loan at 11% per annum, an Italian guy takes at 1.5%. For six months, our metallurgist accumulates 5% of the price difference. And we cannot do anything with this difference."
– You announced an ambitious biopolymer production project. Why didn't it happen?
– "We put it on the shelf for a while. These are biodegradable polymers from natural material. The holder of the polymerization technology is Sulzer Chemtech. Biodegradable plastics lose on production costs. Imagine what you need to do to create packaging made of natural raw materials? The best raw materials are the waste from sugar production from beets. We also considered low-grade wheat from Kazakhstan. In the production process, lactic acid is released from plant materials in the reactor, then it is polymerized, and depending on the method and technology of polymerization, molecules similar to those of traditional polymers are obtained.
The story of competition with traditional plastics can be resolved in two ways. The first is subsidies, which I am totally against. The second way is a ban, and the ban is not partial, but complete. In many countries, the issue of plastic recycling has been resolved. For example, they collect polyethylene bottles, chop and recycle them. But if the traditional plastic mixes with biopolymers, it cannot be recycled. Therefore, the ban on the use of traditional plastics should be complete.
We still have our ear to the ground. If such a project begins to develop, Sulzer will certainly try to participate in it. But in 2013, when we were estimating the project, we began to communicate with the authorities, with players who were also engaged in polymer products, there was no readiness to ban something in the country. And we did not force the initiative to stop making polymers. If there is a market readiness to put something like this forward, we will be there."
– You say that you are not involved in subsidized projects. But is it currently possible to develop renewable energy in Russia, given the competition with cheap hydrocarbons? (RES power plants are built in Russia under CSA, which guarantee a return on investment with a return of 12% due to increased payments from industrial consumers).
– "Almost every country in the world is developing alternative energy use subsidies, this is not an experience unique to us, and is not a mechanism for an individual enterprise. Thanks to CSA RES, an entire industry has been created from scratch in Russia. This is a story about the participation of the state, and it's shameless. Hevel makes one of the best solar photoconverters in the world. About 150 different contracting organizations are currently working at construction sites run by Hevel. Moreover, unlike traditional power engineering, the 10 MW solar fleet contractor is a local small business by a wide margin. A huge number of people are involved in it.
The question remains: what’s next? Our problem is our very cheap electricity compared to the rest of the world. To make electricity production functional, it must be sold for the same money as in the wider world. If we have a price of 1 kW for wholesale for 3 cents, and in Germany it is 11 cents, then, of course, you can live without subsidies, but not for long. There are two options here: either raise the price of electricity, or subsidize it. But there are areas where we are competing not with electricity, but with oil. A village powered by a diesel power plant has a totally different situation. In that village, a small solar farm is competing with a diesel power station. In 2013, we built the first combined plant in Altai, and after a while I asked the local manager: "So, how is it? I'm interested." His answer was brilliant: 40% saving on diesel. And he needs to buy this diesel, it must be delivered and stored. Installation of a station of this kind will have a payback in 1.5 years."
– If, in an isolated area, solar stations were already competitive in 2013, why are there still diesel plants in 2019?
– "Slow and steady wins the race, but not immediately. The industry is still driven by solar farms that generate electricity on an industrial scale. Now our colleagues from Hevel are moving the industry forward. ROTEC has had excellent dealings with the Amur tiger wildlife sanctuary. There are 13 stations for rangers, foresters and scientists, all scattered around the preserve area. We made generators everywhere, 18 stations in total. Now we are engaged in a new generation of modules for the technology of their application. When we build solar farms, we take out a huge amount of land from normal turnover, which could be used to plant potatoes or just lie to on the grass. We are reproducing a model of centralized generation. But you have to use already existing structures – which are roofs."
– Meaning your panels can be installed on roofs?
– "The traditional glass-aluminum module makes the roof heavier by about 180 kg per square meter. We needed another product and we created it – a solar module made of composite materials. Now we are developing the production technology. You can pick it up and estimate how much it weighs. (He draws samples of the new and traditional modules. The latter is a few times heavier). At the same time, you can dance on it or wipe it with a mop. This is a new feature, a new product, which we are now testing and promoting.
But no one has seen it yet. This solar module is integrated into the roofing material. It can already be mass produced. But this has not yet happened. The next round of changes in regulation is needed in order to not only install the module on the roof and generate energy, but also to sell it."
– Do you believe in distributed generation in Russia?
– "You may not believe it, but it’s already here. The decentralization that is happening in the world is like warming up. We built a new generation facility with new capacities. We’ve been discussing it for a long time, taking on the programs and the generating companies were clambering over each other to receive these projects. We have introduced 30 GW in systemic generation. In parallel, without any subsidies, 20 GW of gas piston and diesel capacities emerged in a way that has remained unnoticed to anyone in Russia. Nobody subsidized them. Bang – and here they are. On their own. Without subsidies, without any relationship with this systemic generation. (The Ministry of Energy does not have information about 20 GW new facilities outside the EEC, a ROTEC representative explained that the company's estimate is based on data on the number of gas piston and diesel generators imported into Russia. – Vedomosti)."
– Tell me about the Albatross project. How did you come up with the idea to create an airplane powered by solar batteries and its trip around the world?
– "Critical mass must be attained for something crazy to happen. Probably, it took shape when Fyodor Konyukhov and I were sitting and talking, which resulted in this idea. The background to this is that the company is operating in the solar industry and I am a pilot. And of course, the experience of Fyodor Filippovich.
The issue of energy generation is important to me from a scientific point of view. To produce a module that is able to fly, and to come to certain dimensional, weight and ergonomic characteristics is the story of a new top-notch product. We studied it for a long time in technical terms. When we realized that it was theoretically feasible, then we started calculations. And we still are calculating. What is an aircraft working on a solar engine? Let's fantasize. The idea of creating atmospheric devices that can fly for long periods is very relevant. Australia ordered an aircraft for detecting fires, and our devices have already spent 18 hours in the air. They are retransmitters and observation systems. They have plenty of applications. Therefore, a manned vehicle can easily be converted into anything. We want to make a decent aircraft. So far, we have encountered no scientific obstacles, we are collecting data and preparing a calculation base."
– You have promised to present the project by 2020, do you think this is feasible?
– "We will not manage to by 2020, we are still performing flights in the flying laboratory. The project is complex and there is a need to create a whole set of technical solutions with current sources and drives. This is quite sophisticated work from an engineering perspective."
– Apart from being a pilot, you collect weapons. Where does your passion for melee weapons come from?
– "I wouldn’t call it a passion. This hobby arose quite a long time ago, during my businesses that were not related to ROTEC. I studied tool steels, and I wondered: what was used before? And I bought the first knife from modern Damascus from one of those craftsmen who restored the secret of production. I don't even call it collecting. It's an interest. It's history. Any object that is made by hand bears the marks of time, and of the society in which it was made. (Shows blades from his collection). Here is one of my favorite items that was made by Kalashnikov. This is the shape of a bayonet, which he placed on a classic hunting clasp-knife. It did not enter into series production; there were only 20 of these knives made. They were given away to the heads of states and the top ranking generals just like hunting knives. Then they made a dozen more of them. This is a piece of history that was invented by one of the world's best designers, an engineering masterpiece. And this item is 500 years old. This is Damascene."
– It is frightening to hold a blade with such a history. Tell us how you find them.
– "They find me themselves. I travel quite a lot. Sometimes you find yourself somewhere looking for an antique dealer. In Fes, I tried to find a seller of genuine antiques, and I did. We talked, he took me to his house. We walked up the stairs, and I saw that there was a chest, and there was a gun on the chest, a specific gun with an old mechanism, decorated with gold and silver. And the mechanism was American. I don’t like firearms much, I took it, looked at it from different sides and asked him: “Listen, where does it come from?” He, turning over his shoulder, without hesitation, answered: “My family has lived in this house for 400 years. I do not know where.”
А source: VEDOMOSTI