Kazakhstan prepares wholesale electricity market to attract investment

May 6. business new europe

By Clare Nuttall

Kazakhstan prepares wholesale electricity market to attract investmentKazakhstan plans to create a wholesale electricity market in a bid to attract more investment to the generation sector, according to the head of the country’s grid operator.

Legislation paving the way for the new market has been drawn up by national grid operator Kegoc and approved by Kazakhstan’s economic policy board, headed by Karim Massimov, the prime minister. It is due to go before parliament in the near future.

“The [wholesale] capacity market mechanism will make it possible to return investments, including on renewable resources. We expect that when the capacity market is established, it will completely solve problems connected to the construction of generating plants,” Almassadam Satkaliyev, chairman of Kegoc’s management board, tells bne.

Investment in Kazakhstan’s electricity generation and transmission sector has been a matter of urgency since the economy started to take off in the mid-2000s. The slowdown in economic activity during the recent crisis gave a brief respite but demand is now expected to accelerate as the economy expands and the government pushes ahead with its industrialisation plans. Domestic consumption is also rising as the population grows and becomes more affluent.

According to Kazakhstan’s ministry of industry and new technologies, electricity consumption is set to reach 100.5bn kWh by 2015, while generation will increase from its 2010 level of 82.6bn kWh to 103.5bn kWh by 2015. Kazakhstan is currently investing in new capacity across the board – from coal and nuclear to renewable energy. Major projects include the expansion of the Ekibastuz Gres-2 coal power station and the construction of a new thermal power station near Lake Balkash, as well as the Moinak Hydropower plants in south-east Kazakhstan.

The country is also expected to get its first nuclear power plant, to be built in cooperation with Russia in the western Mangystau region. However, this is still at the early planning stages and a date for construction hasn’t been decided.

The development of the wholesale market will help bring in more investors like Malaysia’s CapAsia, a private equity fund set up by CIMB Group and Standard Bank Group, which on April 25 said they had agreed to provide $50m in equity capital to Central Asian Power and Energy Company (Capec) in Kazakhstan through its Islamic Infrastructure Fund (IIF).

“We see Kazakhstan as a primary market for IIF because of the government’s commitment to furthering private sector involvement in the provision and financing of infrastructure,” CapAsia’s CEO, Dr Johan Bastin, said in a statement.

Capec is a power generation and transport company, which is also the controlling shareholder in Eximbank Kazakhstan and the APF Amanat Kazakhstan pension fund.

Kegoc itself has already approved a long-term investment strategy under which a total of KZT530bn ($3.6bn) will be invested by 2025. It has embarked upon several projects, including rehabilitation of substations, transmission lines and other equipment, building a new substation near Almaty, and power lines to the Moinak power plant. Kegoc is now considering building a new 500 kilovolt north-south power line and new transmission lines to connect the west Kazakhstan regions of Uralsk, Atyrau and Mangystau to the national grid.

Interest in alternative energy has increased since the adoption of legislation on renewable energy in 2009. The share of alternative energy sources in the total electricity mix is expected to increase from 0.48 per cent in 2010 to 1.54 per cent in 2015, according to the Kazakhstan’s Ministry of Industry and New Technologies.

“There is a good dynamic for introducing small hydropower plants in the south of Kazakhstan. Several projects to build wind farms have also been initiated recently,” Satkaliyev says. “As the system operator, Kegoc will give maximum support.”

Some 30 per cent of Kegoc’s investment programme is expected to be funded either directly from the Kazakh government or through state holding company Samruk-Kazyna, which owns 100 per cent of Kegoc. The electricity company is one of those earmarked for participation in the “People’s IPO” programme, under which state companies will list around 10 per cent of their shares on the domestic stock exchange. President Nursultan Nazarbayev has ordered that the IPOs take place before the end of this year, but a government working group is still working on the parameters.

“The IPO is a good chance for alternative direct investments for our projects, rather than receiving funds from the state budget. It is really what we need and a very necessary process,” Satkaliyev says. “It is an opportunity for us to join the stock market as a transparent company.”