How much do you need to invest in the electricity sector to establish a stable energy supply in Kazakhstan?

In recent years, Kazakhstani electric power industry has been experiencing serious difficulties. In many regions, power outages are becoming increasingly common. Oil and gas industry suffers, oil production is falling, and it loses significant profits. Why do consumers not receive stable power supply? What needs to be done to improve the situation? interviewed Zhakyp Khairushev, an expert in the electric power industry, managing director of National Chamber of Entrepreneurs of Kazakhstan ‘Atameken’ to answer questions.

– Now the government is trying to reform the electricity industry. At the same time, we see that emergency situations in the production and transmission of electricity have become more frequent. Why has the number of accidents at power stations increased? How did we end up in this situation?

– It should be noted that such accidents did not begin to occur today. This is, one might say, accumulated fatigue. When modernization and appropriate repairs do not occur, this is what will lead to it. Over the last 6-7 years, it was necessary to pay more attention to electric power facilities, set appropriate tariffs, train personnel and carry out upgrades.

Our tariffs were frozen and the necessary repair programs were not carried out at our power plants and heating facilities. That is why all this led to such sad consequences.

In fact, what is happening today happened here every year. They just did not pay as much attention to it as they have started doing recently.

– But such a number of major accidents as are happening now have never happened before…

– In fact, there was a major accident in only two places – in Ekibastuz and Ridder towns. After the incident, an investigation was carried out there. The issue was that the tariffs that were approved were not enough to carry out even routine repairs, not to mention, major repairs.

How low were the tariffs?

– It’s hard to judge how much. It was different everywhere. But I guess that the tariffs were lower by about 15-30%, somewhere less, somewhere more. As a person in the industry, I can assure you that accidents in heating facilities have occurred annually in different parts of Kazakhstan before. Yes, such major accidents as happened last year in Ekibastuz have not happened for a long time. The last such accident that caused heating systems to freeze in apartments occurred in the 1990s in Kokshetau town.

There is an opinion that the owners of power plants simply did not invest in their plants in all previous years and took all profits from the country. For example, in 2009-2015, the “tariff in exchange for investment” program was implemented in Kazakhstan. Energy producers had their tariffs increased if they invested funds in the modernization, but we see how quickly these plants outdated and thus we can say that no one invested money. At least, that is the impression of what is happening.

– I have no facts about the withdrawal of money, I have not heard or seen such facts. But the fact that from 2009 to 2015 a good modernization was carried out is proven by the fact that in 2014-2015 we exported a large volume of our electricity to the neighboring energy system, and specifically to Russia, on average from 1.5 to 5 billion kWh per year. We held out for some time using the margin of safety created by this modernization but then everything began to crumble. We were going to introduce a capacity market mechanism, but it was introduced in 2019 and it is also late measure. Although, it should have been introduced back in the early 2010s. All this has accumulated and today we have what we have.

Did we export until what year?

– Somewhere until 2016-2017.

Then, did we start importing electricity?

– We have been importing for the last two years. Approximately up to 1.5-2 thousand MW. Mostly from Russia.

What prospects do you see? What needs to be done so that we can supply electricity and not depend on imports?

– We have programs to upgrade production facilities and they are already being implemented. The third power unit will be launched at Ekibastuz GRES-2 in 2026. At Ekibastuz GRES-1, the first unit should be launched soon. The Almaty energy system will be completely switched to gas. Further, we have plans to build GRES-3, Kokshetau, Semey and Ust-Kamenogorsk power plants, etc. In general, there are plans. True, they will be implemented in the next 2-3, maximum 5 years. A little time has been lost. Therefore, while we are engaged in construction, we will have to import electricity.

At the same time, if the same repairs are carried out annually as was carried out this year, then the old power plants will still operate well. In addition, there should be good tariffs and budget funds for upgarde.

– The resumption of the “tariff in exchange for investments” program and 1.5 trillion tenge of pension money will probably help with this? Earlier, Prime Minister Alikhan Smailov announced the government’s intentions to receive funding from the Unified Pension Fund.

– I think the pension fund funds will be used mainly for the construction of new energy facilities. We have not yet seen a plan where exactly these funds will be allocated.

As for the “tariff in exchange for investment,” the program is already working. The mechanism is very simple. If I will build a power station or carry out a deep upgrade of the existing one, relatively speaking in 5-6 years, and I need a certain tariff, then the government provides it to me with the indication of the appropriate time frame for the implementation of the project.

– There were statements that it is necessary to monitor the funds received from increased tariffs and whether these funds are really allocated to the upgrade and construction of energy facilities…

– Yes. there must be control. This should be done by the Market Council created by the Ministry of Energy of Kazakhstan. This mechanism is written in the Law “On Electricity”. The Market Council must analyze these tariff proposals, investment projects and then recommend for approvals. Currently, it is not efficient enough and needs to be reformed by including truly independent experts.

At the beginning of the year, a team of KPMG experts with the support of the World Bank conducted a technical audit of power plants in Kazakhstan. Upon completion of the inspection, the Ministry of Energy reported about stations’ conditions. Does the expert community currently have data on when and which stations should be upgraded and how much money is needed for this?

– These figures are most likely in the Ministry of Energy. We have not seen this data. Because each station has its own investment projects and they all separately approved. This is exactly what the Market Council should do and confirm/decline and give their recommendations on tariffs.

– I would like to know how much investment is needed to upgrade and build, to ensure an uninterrupted supply of electricity and heat in the country.

– To restore order, most likely, you will need 10 times more than the 1.5 trillion tenge that is planned to be allocated from the Unified Pension Fund.

– That is, 15 trillion tenge?

– Yes, I think that’s exactly the amount of money needed to ensure reliable power supply to the Kazakh consumers.

– Thank you for answering’s questions!