There is no uncontrolled growth of tariffs for utilities in Kazakhstan – Chairman of Agency for Regulation of Natural Monopolies Murat Ospanov


There is no uncontrolled growth of tariffs for utilities in Kazakhstan - Chairman of Agency for Regulation of Natural Monopolies Murat OspanovCurrently the press is often discussing innovations in the legislation on tariff regulation. What kind of innovations will be implemented and how they will be effective in practice – these things are spoken about in an interview of our correspondent with the chairman of Kazakhstan Agency for Regulation of Natural Monopolies Murat Ospanov.

– Mr. Ospanov, please tell us what changes are planned to the existing legislation?

– I would like to note that the Agency is doing a great job in this area, and many of our proposals have already been executed. For example, last year passed a law aimed at strengthening control over investment obligations of monopolists. From 1 January 2013 were approved tariffs of the Agency by method of comparative analysis – benchmarking. One important advantage of the method is to minimize the “human factor” in making decisions. Another innovation is transition of natural monopolies of low power of the bidding campaign for mailing. In order to improve the investment attractiveness and modernization of the regulated sector has been adopted Comprehensive Plan for the introduction of new mechanisms for water tariff for 2013-2015.

Now we are working to optimize the regulatory framework. The analysis of 80 regulations, resulting in 17 of them optimized to 3 PPA. In addition, 13 regulations and 16 out of 40 techniques were put to loss.

– Will you tell us more about optimization, and regulatory framework.

– Of course, I will. The head of state entrusted the Government and the “Atameken” IEP thoroughly understand the issues of the issuance of technical conditions for connecting the operating companies or plants to utilities, with a change of ownership. So, our Agency in conjunction with other state agencies has worked out a plan providing for issuance of technical conditions on the principle of “one window”. Rules for issuing technical conditions provide a complete list of specifications, and completely exclude the possibility for a monopolist to make further demands. In particular, the change of ownership will not be the reason for new technical conditions. Now they will be issued strictly on the address of the object, not its owner. Furthermore, the nearest point of access will be determined by a commission – with the participation of representatives of local executive bodies, experts and public organizations. To eliminate conditions that create monopolies in the opportunities for corruption, it is envisaged to invent an act of notification of commissioning and regulation of terms of delivery of technical conditions.

Another problem is the accumulated depreciation over the years – the problem can not be solved simultaneously through rate, as this will lead to increase in rates for regulated services at times. Way out of this situation lies in the debt financing for implementation of investment programs in development institutions and commercial banks. Borrowing has considerable potential – it allows a large-scale modernization in a short time, with minimal impact on the rate. As a result, there will be improvement of the quality of services, reduced losses, reduced energy consumption and materials, automated production will be carried out. Due to the effect of the cost reduction will be possible to keep the tariff for regulated services, and carry out an annual return of principal, with minimal impact on the rate. In this regard, we do focus on heating systems and water treatment plants due to high wear.

Particular attention I would like to draw to the problem of monopoly procurement of goods, works and services, the costs of which are accounted for in tariff formation. There are a lot of problematic issues, so we have developed a list of goods and services purchased by monopolists, which contains information on prevailing prices in the market. It will be posted on our Web site. This list will be used when considering their investment, the tariffs of natural monopolies. The tariff would be not higher than in the list. However, the high price of the product monopolist can confirm by the Chamber of Commerce certificate. Under tacilitation possibility of granting the application in electronic format will be created.

– One of the issues of concern to the public is the lack of transparency in tariff. What will change in this area?

– Yes, this is a very topical issue which constantly hears criticism, especially the procedure of public hearings. Therefore, we have developed a number of amendments to the legislation in terms of their getting through. Now the announcement of the public hearing will be posted on TV and newspapers with a large circulation, distributed in the region. During 10 days prior to the event in the local newspaper there will be publication of abstracts, revealing the issues before the hearing – causes of changes in tariffs, activity of monopolies and other relevant information.

There are other requirements – the Hearing should not include employees of a monopolist.

– What is the metering system seen theoretically by the Agency?

– You are aware of the fact that in 2017 there is exhibition EXPO-2017 in Kazakhstan with up to date topic – “Energy for the future.” To save energy, you need to reliably know how much is consumed and determine the real scope of services can only be metered. Moreover, energy loss level can be determined during transportation. Today, all consumers in the country have electric energy meters. But reading of meter data is done at different times of the day or even on different days of a month. In this regard, the issue of one-time meter readings should be addressed through introduction of an automated system of commercial energy metering (AMR), which are installed at the top level in all the regional electricity companies. The agency is working on a phased introduction of AMR on the bottom (household) level – for 2013-2015 for this purpose have been provided about KZT 20.3 billion (tenge).

The situation with the metered heat is much more difficult – the country’s low level of common house installation of meters. And without a reliable record of the heat energy it is untimely to speak about energy conservation. After all, heat meter device allows for to not only pay the actual consumption, it is a powerful incentive for energy efficiency measures and energy conservation at all levels, including in-house heating systems and equipment belonging to the consumers. Now the problem will be solved only by a provider, and not consumers. Balanse keeper of meters will be a monopolist. Devices of account on the balance of the consumer, will be purchased by them from the inhabitants of the residual value, and maintained by the service provider. The sources of funds for installation of meters at first phase will be the means: from conversion of heat supply services with the outdoor temperature, the application of tariff differentiation depending on the presence or absence of heat meters, through adjustments of investment programs.

-Does the Agency analyze the content of proposed tariffs? What services are auditing utility rates and confirm the value of their constituents?

– I have just wanted to point out that the approval of tariffs is carried out strictly in accordance with the requirements of the legislation that contains strict limits on expenses included in the rates. When considering applications there is assessment of draft tariffs with experts, consumers, public associations. We strengthen our efforts to ensure protection of consumer rights through the public. We have signed a memorandum of cooperation with leading republican non-governmental organizations such as “Atameken” Union, Consumers League of Kazakhstan, Almaty Association for support of market participants named K?mekshі, and we will promptly solve all problems. Because of this, when considering applications for tariffs only 42 basic subjects of natural monopolies in 2012, requested monopoly profits reduced by more than 55 billion tenge.

It is interesting that the change in regulated tariffs shall be based on the planned corridor of inflation, approved by the Government. This is one of the main macroeconomic indicators. To say in other words, in Kazakhstan there is no uncontrolled growth of tariffs for public utilities.

For example, in 2012 the decision to change the tariff provided, according to statistics, the total contribution to the inflation rate of 1.2 percent during the planned annual limit value of 1.9 percent. Thus, last year, the impact of regulated tariffs for inflation was held off. For 2013 the Government approved the contribution of regulated services at 1.2 percent.