"Electrical power is unreasonably low-priced in Kazakhstan"

Populist fight against electrical power tariffs is pointless, because it will cause more and more accidents at power facilities.

Electrical power is unreasonably low-priced in Kazakhstan and populist fight against tariffs is pointless, as the number of accidents at power facilities will increase Such an unpopular opinion was expressed by an expert in the energy sector Asset Nauryzbayev in "Itogi Brief" program of ATAMEKEN BUSINESS channel.  Former CEO of KEGOC outlined his attitude to the increase in electrical power tariffs in the full version of his interview on inbusiness.kz. 

- Mr. Nauryzbayev, does Kazakhstan really face an energy collapse due to worn-out networks, as it is said in the public spotlight for the West Kazakhstan region? 

- People always name the problem with some terrible words, such as collapse, disaster, "Chubais cross". There is always some impressive image that should cause people to panic and lead to some changes in life. It's not really that bad. But there is a problem. Objectively speaking, electrical power is very cheap in Kazakhstan. It is unreasonably low-priced - why? It should be cheaper than in other countries, as we have a lot of inexpensive coal, but existing power facilities are wearing out, and the relevant equipment has global prices. That is, all metals, all automation - everything is at global prices. Therefore, in this part we can not save, we only have savings on the fuel component. In this sense, of course, this populist fight against tariffs is pointless as it will actually cause more and more accidents. I wouldn't say it would be a collapse, but reliability is declining, and it means increasing frequency of accidents. That's the problem. More money is needed to increase reliability level, and increase of tariffs is needed to get more money. 

– Can the energy market players themselves upgrade their networks without financial support from the state? 

– Yes, that's what happens all over the world. No one asks for financial support from the state – this is a normal commercial activity. Unfortunately, our tariff regulation is not economic, but political. Tariffs should be "frozen" before the elections - and, they say, for seven years. In a year - tariffs have been "unfrozen", and now they will be increased. However, our people need to get used to the idea that tariffs, in principle, should increase at a rate approximately equal to inflation, and this is not surprising. 

- Atyrau TPP has been recently upgraded for several billion public tenge. What is the reason, in your opinion, of constant fails of the plant? 

 - This accident is actually a consequence of the fact that the reliability of the plant is not very high. There are two sides. One side is lack of investment in previous years, and the second side is an issue of management, to what extent this accident was caused by actions of the management. Energy supervision service conducts the investigation, and it will clear out reasons of the accident. 

- Aktau TPP wants to increase prices for heat and water supply as it needs another reconstruction. However, the Committee on Regulation of Natural Monopolies is strongly against raising tariffs for the public. Who is more right in this case? 

- I believe that the TPP is right as it is very old, and it should be clear that new equipment is needed. New equipment costs as much as in the West. Unfortunately, Kazakhstan does not have any low cost equipment of its own. It is available in the global market, and the global market is the same for the Americans, for the Swiss and for the Kazakhstani people. Thus, the equipment is expensive, and we must accept it and understand it. Task of the competition regulator is to calculate the cost of such equipment correctly, and it is achieved through transparent procurement procedures. The second part is scope of required modernization. As far as I see the situation in the region – in principle, the region is generally difficult, because there is a small population density at large distances and there are power lines connecting our West regions – they are at a low voltage of 220 kilovolts, and because of this there are large losses in this line. The region shall be modernized in general, a 500-kilovolt line shall be constructed, and another story is that there oil producers themselves have a fairly large power generation at their fields, but they are not linked to a single network. 

 - In the capital, several hundred billion tenge was spent for modernization of two old TPP and construction of first line of TPP-3, which lasts almost 10 years. In your opinion, how effectively were the funds used in the capital's energy complex? 

- You are right, projects there last for a very long time. Head of the administration (akim) is replaced, arrangements are being changed, and a project is suspended. It really shouldn't be like this. City administration (akimat) should not influence power engineers, it should be a commercial company, which is responsible for itself, responsible for power supply, responsible for reliability. The city administration shall ensure compliance of declared reliability standards with the actual standards. That is, if the energy system declares, for example, that the power supply interruption will be no more than two or three hours per year, but actually such interruption lasts more than a day, it means that reliability standard is not complied with. And our legislation stipulates penalties for company owners, i.e. they will lose money. But no one is doing this work here, no one measures reliability, and therefore the energy companies can play these games. They say: "It is accident, what we can do...". And generally speaking,  control is effective by measuring reliability, the number of outages. 

As for these investments in plants – this is also an example of absolutely unsystematic work of the city administration. Saryarka gas pipeline is being built and a coal TPP is built. City administration shall coordinate these two tasks at the level of the government and at the level of energy companies. City administration did not deal with this issue, and now there is a situation when the city has gas, and no one needs it. This is absurd. 

 – Will the price of electricity rise due to increase in the power tariff? 

- It should rise as our energy industry is underfunded, so the price will rise. We are at at the bottom of the list of countries by price. The good thing is that when the price will rise by four or five tenge, we will have market conditions for the emergence of renewable energy, it will not be necessary to support it. Now there are investors, who are ready to work for a long time, and they have reasonable tariffs, and we will get into a market situation by increasing the price by four-five tenge. The further development of our energy sector will be quite "green".  

Price increase will increase to the extent determined by the competition regulation and  capabilities of the energy companies. It is understood, that we can not immediately increase the tariff by four tenge, as these funds will not be used, and there is no reason. The second side of the issue is consumers. In fact, we very often treat the increase in the electrical power price very, so to speak, thoughtlessly and irresponsibly - we just outraged, complaining about "fat cats". Besides, the electricity bills have not the largest amounts. Sometimes a person may drink a cup of coffee for 800 tenge, and power tariff increase is one cup of coffee per month. That is, the most part of the public may calmly tolerate electrical power tariff increase by four tenge. If you take a larger family, if it consumes 500 kilowatt-hours, for example, then an increase of four tenge will cause increase in bill by  two thousand tenge per month, that is, two or three cups of coffee. It is unpleasant, but not terrible, and those for whom it is difficult - there are not so many such people. Such people shall be granted with state subsidies. Or more systematically, the country shall set  a higher minimum wage level. Thus, setting the low minimum wage level causes a lot of additional required methods of support for the poor, mothers with many children, etc. It is clear that all this carries large transaction costs. It is much easier to ensure that all people are able to pay for more expensive electrical power and gas through increased wage level. 

I repeat that our tariffs are low at the global level, we import equipment from the global markets, and only fuel, coal, allows our energy to be low-priced. If tariffs have not been "unfrozen", then there would definitely be a collapse, because if there were not enough funds for current repairs, then, of course, the equipment will break down. The economy forces to change the situation, the tariff will increase. Amount of tariff increase is the control from the state over the method of procurement, transparency of procurement procedure, access for competitors and presence of price fixing. In this case, the costs become justified, the volume of investment must be consistent with the needs of the region, because we see that the West has a special specific zone, it is not connected to the center and East of Kazakhstan, the main energy system. There is one rather weak line connecting these three regions, and a lot of network development is required there. In this sense, the state must come up with something. There must be a concession, or there must be some kind of program related to the royalties paid to us by oil and gas companies. Some of the costs they can take for the development of energy networks, because it is profitable for them. 

In general, the system of tariff control is very old-fashioned and non-transparent. There are different flexible tariff regulation schemes in the world, but we are stuck in the 90 - ies of the last century. Therefore, each case of tariff increase is unique, and somewhere, perhaps, tariffs are raised unreasonably. But in general, I repeat, our electrical power is low-priced, cheaper than in countries with lower life level - Georgia, Ukraine.

- Last outages on networks in Nur-Sultan, accident in summer in Almaty, failure of Atyrau TPP operation, recent  failure of the boiler at the Mangystau Nuclear Power Engineering Plant in Aktau - is this some kind of chain in implementation of a conspiracy of power companies for tariff increase? How may these accidents be explained logically? KEGOC wanted to build a high-voltage line to Atyrau from Uralsk and further to Tengiz, "Astana-REC" recently sued with competition regulators due to tariff reduction, Almaty power plants needed payments from the power market to compensate for the investments of the indebted "Samruk-Energy". All this gives rise to certain thoughts. It is not clear why power went out in Atyrau two weeks ago, if Samruk-Kazyna has  recently launched gas turbine station for 310 MW.  

– I always say that any conspiracy theory is actually someone's direct mistake. There is a general decrease in the reliability level of the power system due to underfunding, but it is necessary to understand in each individual case – what caused the accident. This is often the fault of managers.

Link to the article: https://inbusiness.kz/ru/news/elektroenergiya-v-kazahstane-neobosnovanno-deshevaya