Power system of the Republic of Kazakhstan

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1 State regulation of tariffs and prices in the fields of electricity and gas supply Azamat Maitiyev Committee on Regulation of Natural Monopolies, Protection of Competition and Consumer Rights under the Ministry of National Economy of the Republic of Kazakhstan www. erranet.org

2 Power system of the Republic of Kazakhstan Energy producing organizations Renewable Energy Sources KEGOC Regional Electric Grid Companies Consumer Energy supply organizations September 25-26, 2017 Astana, Kazakhstan 2

3 Generation of electric energy Number of energy producing organizations CHPP HPP GHPP Power stations- 7 - HEGC- 1 - TPP- 1 Ministry of Energy of the Republic of Kazakhstan approves marginal tariffs for electric energy by the groups of power producing organizations (0,0124) Marginal tariffs by the groups of power producing organizations (KZT/kWh) 10,61 8,51 9,02 9,3 9,86 9,63 (0,026) ,18 8,4 8,4 (0,0221) (0,0228) (0,0236) (0,0242) (0,0208) (0,02) (0,0206) (0,0206) (0,0165) 11,92 11,96 14,2 15,1 (0,0348) (0,037) (0,0292) (0,0293) 16,44 (0,0403) KZT/kWh (euro/ kwh) гр 4 гр 7 гр 3 гр 8 гр 9 гр 5 гр 6 гр 10 гр 1 гр 2 гр 14 гр 15 гр 12 гр 16 гр 17 гр Min. tariff 5,04 KZT/kWh VAT included ( Bukhtarma PPC, «Kazzink» LLP, «АES УК ГЭС» LLP, «AES Шульбинская ГЭС» LLP, «Шардиринская ГЭС» JSC, «AES Мойнакская ГЭС» JSC) (0,01 euro/kwh) Max. tariff- 16,44 KZT/kWh VAT included ( «SagatEnergy» LLP) (или 0,04 euro/kwh) September 25-26, 2017 Astana, Kazakhstan 3

4 Generation of electric energy Renewable Energy Sources Number of RES 42, including: - WPP SPP BioPP HPP - 19 Resolution of the Government of the Republic of Kazakhstan dated June 12, 2014 No. 645 approved fixed tariffs for the supply of electricity produced by renewable energy sources: (0,046) (0,062) (0,089) (0,096) (0,164) KZT/kWh (euro/ kwh) 0 ГЭС ВЭС БиоЭС СЭС «Астана EXPO-2017» The state policy in the field of support of the use of renewable energy sources is implemented by the Ministry of Energy of the Republic of Kazakhstan September 25-26, 2017 Astana, Kazakhstan 4

5 Transmission of electrical energy Transmission of electrical energy is a sphere of natural monopolies Electric power transmission in Kazakhstan is carried out by: - on inter-regional level networks; - on regional level networks. Services of subjects of natural monopolies are regulated by the Committee on Regulation of Natural Monopolies, Protection of Competition and Consumer Rights under the Ministry of National Economy of the Republic of Kazakhstan September 25-26, 2017 Astana, Kazakhstan 5

6 Transmission of electricity through interregional networks KEGOC Carries out transmission of electricity through interregional networks Max. tariffs for transmission of electricity for , KZT/kWh KZT/kWh (euro/ kwh) 2,31 (0,006) 2,78 2,50 ([ЗНАЧЕНИЕ]) ([ЗНАЧЕНИЕ]) 3,15 3,12 ([ЗНАЧЕНИЕ]) ([ЗНАЧЕНИЕ]) The volume of investment for , million euros The volume of services provided for , million / kwh всего September 25-26, 2017 Astana, Kazakhstan 6

7 Transmission of electricity through regional networks KZT/kWh (euro/ kwh) 2,43 (0,006) Regional Electric Grid Companies (REC) -21 The marginal tariffs for regulated electricity transmission services have been approved for the REC, with a validity period of 5 years (for ) with an investment commitment aimed at the reconstruction and modernization of worn-out assets, and the overhaul of major equipment and networks. 3,42 (0,008) 4,15 (0,010) Marginal tariffs for transmission of electricity in 2017, KZT/kWh 4,27 4,33 (0,011) (0,011) 4,78 4,83 (0,012) (0,012) 4,92 (0,012) 5,37 5,40 5,44 (0,013) (0,013) (0,013) 5,73 6,02 6,11 (0,014) (0,015) (0,015) 6,29 (0,015) 7,08 (0,017) Volume of REC investmnets- 260 billion KZT( 637 million euros) September 25-26, 2017 Astana, Kazakhstan 7

8 Transmission of electrical energy by small energy transmission organizations KEGOC REC ETO Number of small energy transmission organizations Min tariff 0,16 KZT/kWh (0,0004 euro/kwh) (Karaganda region.) Max tariff 9,96 KZT/kWh (0,024 euro/kwh) (Karaganda region.) Problem: The presence of a larger number of small energy transmission organizations in the same chain of electricity supplies leads to a rise in the price of the final price for electricity. Solution: In June 2017, the Law "On Electric Power Industry" was amended with providing the merger of small energy transmission organizations with the REC through the strengthening of the qualification requirements for the implementation of electricity transmission activities. Results: - Increase the reliability of the power system - Reduce the number of links in the transmission chain to the end user - Optimizes costs and accordingly reduces the price of electrical energy September 25-26, 2017 Astana, Kazakhstan 8

9 Power supply Retail sale of electric energy by power supplying organizations is a licensed type of activity. As of the Register of organizations that have a license to carry out activities for the purchase of electricity for energy supply consists of 231 entities. At the same time, from the side of the Committee, state regulation extends to 40 entities. Final prices for the population for (0,0607) KZT/kWh (euro/ kwh) (0,0410) (0,0492) (0,0146) 0.00 Individuals Legal entities September 25-26, 2017 Astana, Kazakhstan 9

10 Power supply Comparison of tariffs of ERRA member countries (0,1598) (0,1583) (0,1525) (0,1509) (0,1506) 58.6 (0,1438) 56.2 (0,138) 53.9 (0,1322) 51.5 (0,1264) 50.3 (0,1235) 46.8 (0,1147) 45.6 (0,1118) 44.4 (0,1089) 42.6 (0,1046) KZT/kWh (euro/ kwh) (0,09) (0,0871) 34.9 (0,0857) 32 (0,0784) 31.4 (0,077) 24.9 (0,061) (0,0493)(0,0492) 18.4 (0,0309) 11.8 (0,029) 0 September 25-26, 2017 Astana, Kazakhstan 10

11 Gas supply scheme in the Republic of Kazakhstan Gas supply in the Republic of Kazakhstan consists of several processes: Extraction (local sources) Imports (Russia, Uzbekistan) Storage of commercial gas in underground storage facilities Commercial gas transportation via the main and distribution pipelines Gas sales to consumers September 25-26, 2017 Astana, Kazakhstan 11

12 Storage of commercial gas Storage of commercial gas is a sphere of natural monopolies. Tariffs are approved by the Committee Intergas Central Asia JSC carries out storage of gas in 3 underground storage facilities: Aktobe region Zhambyl region The annual volume for 2017 is 18.3 billion m3 South Kazakhstan Region The tariff for the gas storage service was approved for the validity period of 5 years in the amount of KZT/1,000 m3 per month (VAT included) or 0.78 ; The total volume of investments is 26 billion tenge (64 million euros) September 25-26, 2017 Astana, Kazakhstan 12

13 Transportation of gas through main gas pipelines Transportation of gas through main gas pipelines to the domestic market is a sphere of natural monopolies. Tariffs for gas transportation services through main gas pipelines: - to the domestic market - approved by the Committee; - for the purposes of transit through the territory of the Republic of Kazakhstan and export outside - are established by the entities themselves. Services for transportation of gas through main gas pipelines are carried out by: 1. Intergas Central Asia JSC; 2. "Asian Gas Pipeline LLP; 3. "Beyneu Shymkent Gas Pipeline LLP. September 25-26, 2017 Astana, Kazakhstan 13

14 Transportation of gas through main gas pipelines Intergas Central Asia JSC The annual volume of gas transportation to the domestic market in 2017 is 12.6 billion m3; The tariff for transportation of gas to the domestic market of the Republic of Kazakhstan KZT/1000m3 (VAT included) or 6.12 ; The total volume of investments is 59,679 million KZT or million euro. September 25-26, 2017 Astana, Kazakhstan 14

15 Transportation of gas through main gas pipelines "Asian Gas Pipeline LLP The annual volume of gas transportation to the domestic market in 2017 is 1.3 billion m3; The tariff for gas transportation to the domestic market of the Republic of Kazakhstan is KZT/ 1000 m3 (VAT included) or 9.67 ; The total volume of investments is billion KZT or million euros. September 25-26, 2017 Astana, Kazakhstan 15

16 Transportation of gas through main gas pipelines "Beyneu Shymkent Gas Pipeline«LLP The annual volume of gas transportation in 2017 is 3.8 billion m3; The tariff for transportation of gas for 5 years is KZT/1000m3 (VAT included) or 50 ; The total volume of investments is billion KZT or million euro. September 25-26, 2017 Astana, Kazakhstan 16

17 Transportation of gas through the distribution pipelines of JSC "KazTransGas Aimak" L - Length of gas pipelines I - Long-term investments ( ) T - The marginal tariff for 2017б including VAT West Kazakhstan region L I T L I T km - 4,62 billion KZT ,82 KZT/ thousand m3 (6,7 ) Atyrau region km - 1,14 billion KZT ,75 KZT/ thousand m3 (4,9 ) L I T Aktobe region km - 21,46 billion KZT ,4 KZT/ thousand m3 (14,06 ) L I T Kyzylorda region Kostanay region km - 7,15 billion KZT ,21 KZT/ thousand m3 (13,6 ) North Kazakhstan region Akmola region Astana Karaganda region Pavlodar region L I T East Kazakhstan region - 53 km - 0,5 billion KZT KZT/ thousand m3 (4,3 ) L I T Mangistau region km - 24,13 billion KZT KZT/ thousand m3 (6,8 ) L I T km - 20,8 billion KZT ,5 KZT/ thousand m3 (25,1 ) L South Kazakhstan region km L I T Zhambyl region km - 16,85 billion KZT ,7 KZT/ thousand m3 (16,9 ) Almaty region Almaty L I T km - 17,43 billion KZT ,7 KZT/ thousand m3 (16,6 ) I - 7,48 billion KZT T ,9 KZT/ thousand m3 (23,05 ) September 25-26, 2017 Astana, Kazakhstan 17

18 Retail sales of natural gas by "KazTransGas Aimak JSC V N - Annual gas sales for Price for population North Kazakhstan Region J - Price for legal entities Pavlodar Region Kostanay Region West Kazakhstan Region V million m3 N - 17,34 KZT/m3 (0,04 ) J - 17,34 KZT/m3 (0,04 ) Atyrau Region V million m3 N - 8,01 KZT/m3 (0,02 ) J - 19,81 KZT/m3 (0,05 ) V million m3 N - 24,51 KZT/m3 (0,06 ) J - 29,02 KZT/m3 (0,07 ) Aktobe Region V million m3 N - 9,27 KZT/m3 (0,02 ) J - 14,35 KZT/m3 (0,04 ) Akmola Region Astana Карагандинская область East Kazakhstan Region V - 15 million m3 N - 11,22 KZT/m3 (0,03 ) J - 11,22 KZT/m3 (0,03 ) Almaty Region Mangystau Region V million m3 N - 10,30 KZT/m3 (0,03 ) J - 22,21 KZT/m3 (0,05 ) Kyzylorda Region V million m3 N - 19,92 KZT/m3 (0,05 ) J - 19,92 KZT/m3 (0,05 ) South Kazakhstan Region V million m3 Zhambyl Region V million m3 N - 26,16 KZT/m3 (0,06 ) J - 34,41 KZT/m3 (0,09 ) V - 36 million m3 N - 36,45 KZT/m3 (0,09 ) J - 36,45 KZT/m3 (0,09 ) Almaty V million m3 N - 34,75 KZT/m3 (0,09 ) J - 34,75 KZT/m3 (0,09 ) N - 34,48 KZT/m3 (0,09 ) J - 36,10 KZT/m3 (0,09 ) September 25-26, 2017 Astana, Kazakhstan 18

19 Retail sales of liquefied petroleum gas through group storage tanks V Р - Annual volume for Price with VAT West Kazakhstan Region V Р "Gorgas service LLP m3-489,9 KZT/m3 (1,2 ) Kostanay Region "Central gas supply of Astana" LLP North Kazakhstan Region Akmola Region Astana Pavlodar Region Kokshetau-Trans-Gas LLP V m3 Р KZT/m3 (0,99 ) Gas-Kyzmet LLP V m3 Р - 350,01 KZT/m3 (0,86 ) "Dzhurkin MV IE Aktobe Region V Р m3-374,45 KZT/m3 (0,92 ) Karagandy Region V Р m3-399,99 KZT/m3 (0,99 ) Atyrau Region «Alem Gas» LLP Temirgaz LLP East Kazakhstan Region V m3 Р - 310,26 KZT/m3 (0,77 ) V Р - 602,92 m3-136,64 KZT/m3 (0,34 ) Mangystau Region Kyzylorda Region Zhambyl Region Almaty Region South Kazakhstan Region September 25-26, 2017 Astana, Kazakhstan 19

20 Tariff policy The main objective of the current tariff policy is to attract investment in the fields of transmission of electricity and gas transportation through main and distribution gas pipelines to upgrade and modernize the core assets, reduce losses and improve the quality of services provided Since 2015, a new investment tariff policy on the transition of natural monopolies on marginal tariffs (valid for 5 years or more). September 25-26, 2017 Astana, Kazakhstan 20

21 Tariff formation In the Republic of Kazakhstan, tariffs for regulated services of subjects of natural monopolies are formed as follows: Т = (З + П)/V З economically reasonable costs directly attributable to the provision of services and determined in accordance with the Special Procedure for Forming Costs (Order of ARNM RK No. 130-OD of April 25, 2013); П profit calculated in accordance with the Instruction on Calculating the Rate of Return on the Regulated Base of Assets Involved for Natural Monopoly Entities (Order of ARNM RK No. 17-OD of January 27, 2003). September 25-26, 2017 Astana, Kazakhstan 21

22 Special order of regulation The subjects of natural monopolies that attract loans from international financial organizations could be regulated in accordance with the Special procedure for regulation (Order of the MNE RK No. 710 of November 24, 2015). This special procedure was developed and approved following the EBRD's research project "Regulation in Infrastructure and Tariff Policy Development". Advantage of special order: The short period of consideration of the application is 45 days against 180 days. Acceptance of actual costs for the previous year. Granting of 30% of free profit in case of achievement of indicators of quality, reliability and efficiency. September 25-26, 2017 Astana, Kazakhstan 22

23 Monitoring the implementation of tariff estimates and investment programs Tariff estimates for regulated services of subjects of natural monopolies are approved by the Committee. The investment programs of the entities are approved by the Committee: - in the sphere of electric power transmission jointly with the Ministry of Energy of the Republic of Kazakhstan (ME RK) and Local Executive Bodies (LEB); - in the sphere of gas transportation jointly with the Ministry of Energy of the Republic of Kazakhstan. Annually by May 1 the subject of natural monopoly provides: - report on the implementation of the tariff estimates (to the Committee); - a report on the implementation of the investment program (to the Committee, ME RK and LEB) In case of failure to fulfill the tariff estimate and investment program, the compensating tariff is approved for the entity. September 25-26, 2017 Astana, Kazakhstan 23

24 Publicity of tariff approval, control of the implementation of tariff estimates and investment programs The process of approving tariffs, monitoring the implementation of tariff estimates and investment programs is open. At the stage of consideration of the application of the subject for approval of a new tariff, public hearings are held with the invitation of the Deputies of the Parliament of the Republic of Kazakhstan, state bodies, consumers and their public associations. Annually the subject of natural monopoly: - Reports to consumers and other interested parties on the activities of providing regulated services; - Places reports on the activities related to the provision of regulated services, the implementation of tariff estimates and investment programs, information on tariffs in the mass media, including its Internet resource or the Internet resource of the authorized body, September 25-26, 2017 Astana, Kazakhstan 24

25 Thank you for your attention! September 25-26, 2017 Astana, Kazakhstan 25