KEGOC President Interviewed by “Panorama” Newspaper

OREANDA-NEWS. On 23 July 2009 was announced, that Kanat Bozumbayev, KEGOC President was interviewed by “Panorama” Newspaper:

Earlier on the Government alleged about its plans up to 2015 to attract investments in the volume of approximately KZT 3 trillion to power industry. The amount is considerable, especially in the conditions of global crisis just as many huge companies face the deficit of attracting outside financing. However the Government did not intend to change plans with regard to evolving industrial projects. How power industry manages to keep on implementing targeted investment programs? 

In 2007 Government of the country adopted integrated Sustainable Energy Action Plan up to 2015 envisaging determination of major development trends in this sphere alongside with elaboration of measures to increase its investment attractiveness. Public-private partnership practices have been introduced under projects implementation. Starting from 2009 the new Tax Code has been introduced that significantly decreased the rates for major taxes. Corporate income tax compared to the last year, has been already decreased by third part this year and makes 20 % and by 2011 - 15% decrease is planned. Besides, Governmental Resolution in March 2009 approved maximum tariffs for energy producing companies which will serve for potential investors as definite price signals, ensuring payback of committed investments. The Law “On Support of Renewables” has been adopted.

Realizing significance of anticipating infrastructural support for national economy and notwithstanding the global crisis and difficulties of the current period, financing and implementation of existing perspective investment projects will be actually followed.

Currently we are in implementation of three large investment projects with total value of KZT 139.5 bln. including rehabilitation of national power grid (phases I and II) totaling KZT 95.8 bln. and construction of 500 kV second electricity transmission line of Kazakhstan North-South Transit  totaling KZT 43.7 bln. They are financed out of loan proceeds provided by EBRD, IBRD and Development Bank of Kazakhstan as well as out of our own company funds. We expect that two other strategic investment projects touching Construction of 500/220 kV Alma SS Connected to Kazakhstan National Grid via 500, 220 kV Lines and Moinak Electricity Transmission Project scheduled for implementation in 2009 will also be financed out of IBRD loan proceeds. Currently, implementation of investment projects depends on obtaining sovereign guarantees and funds from national budget for increase of authorized capital of KEGOC JSC. Related questions are being considered, at once, in the Government.

On the whole, these projects purposed “against crisis” enabling surmounting the crisis and ensuring technological base for economy functioning in the post-crisis period. It is obvious that delays in projects implementation pertaining to replacement of physically and morally obsolete equipment as well as construction of power networks for additional electricity transmission to energy deficient areas of the country may result in decrease of UPS operational reliability and even in interruptions of power supply to consumers and deepening of crisis.  

What is the volume of investments into KEGOC’s projects in 2009? Have you decreased the budget of the company this year? If yes, state what are the projects “sacrificed”?

Volume of investments to KEGOC JSC for 2009 under “Rehabilitation Project –Phase I”, “Construction of 500 kV Second Transmission Line of Kazakhstan North-South Transit”, “Moinak Electricity Transmission Project”, “Construction of 500/220 kV Alma SS connected to Kazakhstan NPG via 500, 220 kV lines”, “Modernization of 220 kV OHTL “TsGPP-Ossakarovka” and others makes KZT 27,894,181 bln. including KZT 10,147,381 bln. own funds and loan proceeds KZT 17,746,8 bln. This year we did not reduce the volume of investments for projects. We cut administrative expenses and salaries due to personnel reduction in executive administration.

As is known, full completion of 1st Phase of Rehabilitation Project is scheduled in the 4th quarter of 2009. What has been done for improvement of energy efficiency of NPG operation?

Actually the project intends to improve technical level, energy efficiency and reliability of NPG operation. Under implementation of the 1st Phase of the Project we installed modern high voltage equipment at 67 substations, supervisory control and data acquisition systems such as SCADA/EMS, Commercial Metering System, digital corporate telecommunication system. We expect to finish the works in the fourth quarter this year. In 2010 we plan to finish the works connected with relay protection and automation component at the remaining small part of substations. 

I would like to specially mention that owing to installation at substations of new equipment having improved and more cost effective characteristics, the rehabilitation project already had a positive impact with regard to energy saving, we managed to decrease energy consumption by 10 % for auxiliaries of the substations.

What is the second phase of this project?

Second Phase of the Project envisages for continuation of modernization and replacement of high voltage equipment at substations which have not been covered by the first phase of the project, as well as construction of 220 kV lines. Total value of the project pursuant to FS elaborated in 2008 makes KZT 52 bln. Project is being financed out of loan proceeds. To this effect in June of the last year we signed Loan Agreement with EBRD to the amount making €255 mln. In November last year we signed the Contract for Consulting Services with German Company MVV Decon GmbH. This year we plan to conduct tender for selection of contractors to perform turnkey works for modernization of substations.

Can it be said that since the Rehabilitation Project is complete, Kazakhstan will get the most reliable and improved National Power Grid (NPG)?

It is better to say the advanced NPG with high safety margin. NPG is a backbone network, and its rehabilitation enables to ensure the required reliability level of NPG operation. Is shall be noted that the most of electric network of Unified Power System (UPS) of Kazakhstan was formed in 1970s. This equipment is technically obsolete, considerable life cycles imply an increased possibility of failures that generally reduced the reliability of Kazakhstan NPG operation.

What is Kazakhstan position against other countries of the region?

Today Kazakhstan covers its own electricity demand and has the definite long-term Plan for Power Sector Development. In whole the power sector in Kazakhstan provides covering needs of the country’s economy and population. In 2008 electricity consumption in the Republic of Kazakhstan made 80.6 bln. kWh, and generation made 80.1 bln. kWh. At a time of increasing demand for electricity, by 2015 several projects in generation and transmission sectors will be implemented. I mean the construction of Balkhash TPP (2640 MW), extension of Ekibastuzskaya GRES-2 (1050 MW), restoration of three suspended power units at Ekibastuzskaya GRES-1 (1500 MW). GTPP (240 MW) of Second Generation Plant, "Tengizshevroil" LLP, has already been commissioned, Moinak HPP (300 MW) is under construction. In addition, in 2008 with the support of our company the interregional transmission line North Kazakhstan – Aktubinskaya Oblast was constructed. This year we are planning to complete the Project on construction of the 500 kV Second Transmission Line of Kazakhstan North-South Transit and Kazakhstan Electricity Transmission Rehabilitation Project, Phase I (concerned).

In contradiction to Kazakhstan there are restrictions on energy consumption during autumn and winter period in power grids of Kyrgyzstan and Tadzhikistan. Structural feature of generating capacities in these countries is the domination of hydropower stations which superfluously generate electric power in spring-summer period, but unable to provide in full the demand in cold season. Besides there are problems with attracting investments in development of generating capacity and construction of new HPP what is connected with low price on electric power in the region.

Formerly power engineers expected that at the background of boosting crisis in Kazakhstan, soon electricity generation will prevail over its demand and due to breaking of industrial production, reduction of electricity purchase there will certainly appear its surplus which has to be sold in the wholesale market and that may cause reduction of electric power price. What is the situation today?

In general, influence of crisis on reduction of electric power price is observed in the republic since November 2008. In the first half of this year electric power consumption was 39.25 bln. kWh (92.8% in comparison with the same period in 2008), generation – in volume 39.72 bln. kWh (94%). In 2009 power consumption is expected to be at the level of 74.55 bln. kWh (7.5% less in comparison with 2008), and generation – 73.78 bln. kWh. In 2010 these indices will make 75.3 bln. kWh (in comparison with 2009, increase of energy consumption is imperceptible – about 1%) and 75.3 bln. kWh correspondingly. During 2011-2015, under stabilizing of national economy, sustainable growth of energy consumption with dynamics of about 6% per year is forecasted. Taking into account commissioning of new generating capacities, power industry of Kazakhstan will also be able to cover forecast volume of power consumption. Moreover I would like to notice that considerable surplus of electric power to form export potential will be available only by 2014-2015 with implementation of projects commissioning large generating capacities (Balkhashskaya TPP, extension of EKGRES-2, reconstruction of EKGRES-1, modernization and extension of Aksuskaya GRES).

In what way the deficit of peak power is being covered today when many rehabilitation projects are on their implementation verge and power facilities are unable to get through with increasing loading? 

Reduction in Kazakhstan consumption, in comparison with 2008, will make about 5.5 bln. kWh, or 675 MW of hourly average load. Meanwhile the maximum value of consumed electricity for the same period will be decreased by 1200-1400 MW overall in the country. Peak loads will be covered through purchasing the regulating power by subjects of Kazakhstan Wholesale Electricity Market in Integrated Power System of Central Asia up to 300-400 MW and using of power reserves of Irtysh Cascade HPP up to 200-300 MW.   

What are you doing now for enhancing international power cooperation? What are the certain tasks performed, for instance, regarding joint construction of Kamabaratinskaya HPP-1 and HPP-2 in Kyrghyzstan and arranging integrated power project connecting OHTL and substations in the territory of Central Asia countries?

We participate in the work of CIS Electric Power Council, EurAsEC Integration Committee, Coordination Electric Power Council of Central Asia. In 2008 US Agency for International Development (USAID) jointly with United States Energy Association (USEA) and with participation of KEGOC JSC have implemented the first stage of REMAP project – Regional Energy Market Assistance Program, and formed common design model for power systems in South Kazakhstan and Central Asia countries. Since 2007 we participate in implementation of project for development of agreed national power strategies in Central Asia financed by European Union.

As for Kyrghyzstan and Tadzhikistan, these countries are planning implementation of several large projects including construction of OHTL and HPP to provide power export from Central Asia to Southern Asia including Afghanistan and Pakistan. However, taking into account troublesome economical status of Kazakhstan on the background of world crisis, we can hardly say that participation of Kazakhstan in implementation of these projects will come out right, as they require considerable financial resources. It is appropriate in the first place to use these resources for development of domestic electric power industry and certain projects in Central Asia which have significant importance for hydro-power regime of RK South.

For some time past it is highly negotiated to involve renewables into energy balance. Can these projects influence power industry of Kazakhstan for real? 

Potential of renewables in Kazakhstan is huge. With a rough estimation it is about 11.5 bln. kWh per year.  In addition, the technical potential is even higher – more than 300 bln. kWh per year – and it can be used in further prospective. As a comparison, annual consumption of Kazakhstan United Power Grid is about 80 bln. kWh, that means that we could cover up to 14 % of our own needs by renewables. It is obvious that renewables have their advantages: both environmental integrity and no dependence on fossil fuels delivery. Although there is one serious barrier for its development – it is respectively high prime cost of electric power generated by such facilities and correspondingly their low competitiveness in conditions of free and open power market. It is obvious that in such conditions development of renewables industry without support from government is impossible. I think that prominent progress regarding this matter can be achieved through adoption of law "On Governmental Support of Renewables”, which as I have already said, was signed by the head of the country. 

What are the steps taken in recent time in Kazakhstan for improvement of legal frameworks in power industry? To what extent is Kazakhstan lawmaking in this sphere adequate?

From total state monopoly, inherited from former USSR, we perform transition to market relations for just 10-15 years. Systemic reforms in the sector divided it into competitive part (production and purchase and sale) and monopolistic part (transmission and distribution), there operates competitive wholesale electricity market on the basis of direct contracting of purchase and sale between consumer and generator. However we cannot say that the current structure of the sector and relations formed between market participants is something absolutely complete. It is in prospect for us to make sufficient reserves of movable capacities to complete formation of sound balancing market, to improve tariff making and retail market that currently did not become an instrument of effective feedback between retail consumer and power supplier. Besides, we have to finish our work on establishment of Commercial Metering Systems in regional networks. I would like to add that in April of the current year, governmental resolution approved the Concept for Further Development of Market Relations in the Power Industry of Kazakhstan which states these and other tasks that face the sector. Thus we still have much to implement in future.