In Kazakhstan there are about 128 thousand km of heat, water supply and sewage networks, the total depreciation of which is 51%. This was reported today at a meeting of the Government during the consideration of the current situation and plans for the implementation of the program "Tariff in exchange for investment. The reports were made by Ministers of National Economy Alibek Kuantyrov, Energy - Almassadam Satkaliyev, Industry and Infrastructural Development - Marat Karabayev.

The Head of the Ministry of National Economy said that the current state of the infrastructure of housing and communal services in the country requires updating in order to provide uninterrupted supply of heat, electricity, water and other services to Kazakhstanis. In addition, in this area there is an outflow of qualified professionals who have not increased their salaries for years.

To solve these problems, the Ministry of National Economy is implementing a program "Tariff in exchange for investment". According to it, about 3 trillion tenge of investments are expected to be attracted by 2029 to modernize 62,000 km of engineering networks.

"According to our calculations, this will ensure a 20% reduction in wear and tear of networks by 2029," Kuantyrov said.

The previous program "Tariff in exchange for investment" of 2009-2015 was aimed only at the development of electricity generation by increasing the investment attractiveness of energy sector facilities. The current program has a broader focus. It is aimed not only at the development of electricity generation, but also at the transmission of all utilities, i.e. grids. In addition, the new tariff policy prioritizes the interests of consumers - providing quality services at reasonable prices. 

In 2023, it is planned to attract investments worth about 250 billion tenge to repair 5.8 thousand kilometers of utility networks. In addition, in the current year, additional factors affecting the level of tariffs are an increase in the tariff for electricity generation, wages of employees of enterprises, the wholesale price of commodity gas, the cost of strategic goods, i.e. coal, fuel oil, fuel and lubricants and others.

"In the second quarter of 2023, the agency approved 212 applications for changes in tariffs and investment programs from July 1 this year in a short period of time. As a result, the change in tariffs for public utilities is moderate, and on average amounted to 10 to 30%, taking into account the balance of interests of consumers and enterprises," he informed.

At the same time, vulnerable groups of the population can count on the assistance of akimats to pay for public utilities by providing compensation for part of the costs of utility payments.

The level of wear and tear of all engineering infrastructure is divided into three risk groups:

• red zone;
• yellow zone;
• green zone.

Thus, in the heat supply sector, for enterprises in the red zone with a high level of wear and tear of networks, investment attraction is carried out as a priority. In the field of heat supply for 27 enterprises the level of wear exceeds 65%, of which investment programs have been approved for 24 enterprises. In this sphere in the current year is invested 112 billion tenge, including for the enterprises of the red zone - 58.5 billion tenge. The expected effect only in the current year assumes reduction of wear and tear of networks from 58% to 55%. 6 enterprises will leave the red zone in 2024.

"The average check for a two-room apartment for heat will increase by 1620 tenge or 20%," the head of the Ministry of National Economy said.

In the field of electricity supply for 19 enterprises the level of wear exceeds 70%, of which investment programs have been approved for 16 enterprises. 92 billion tenge is invested in this sphere this year, including 15.5 billion tenge for the enterprises of the red zone. The expected effect assumes only this year reduction of wear and tear of networks from 64% to 62%.

The average check for a two-room apartment will increase by 660 tenge or 20%.

In the sphere of water supply for 15 enterprises the level of wear exceeds 70%, of which investment programs have been approved for 13 enterprises. In this area in the current year invested 29.5 billion tenge, including for the enterprises of the red zone - 11.7 billion tenge. The expected effect this year alone is to reduce the wear and tear of networks from 63% to 58%. 8 enterprises will leave the red zone in 2024.

The average check for a two-room apartment will increase by 190 tenge or 25%.

In the field of wastewater disposal for 26 enterprises the level of wear exceeds 70%, of which investment programs have been approved for 23 enterprises. In this area in the current year invested in 15.3 billion tenge, including for the enterprises of the red zone - 8.9 billion tenge. The expected effect in the current year assumes reduction of wear and tear of networks from 74% to 71%. 3 enterprises will leave the red zone in 2024.

The average check for a two-room apartment will increase by 220 tenge or 30%.

"Thus the increase in the average check for all utilities will be about 3-4 thousand tenge," Alibek Kuantyrov said. 

In order to improve the efficiency of utility companies made changes to Article 22 of the Law "On Natural Monopolies".

First. Increase in wages of employees of public utilities, including plumbers, electricians and welders from 50% to 100%. Thus, the average salary will increase from 135 thousand tenge to 200-300 thousand tenge depending on the industry and region. This will affect about 200 thousand workers in the housing and utilities sector.

Second. Phased transfer of ownerless networks. Thus, more than 25 thousand kilometers of utility networks are subject to transfer into trust management and communal ownership. The adopted amendments will make it possible to compensate the costs of utility companies for the maintenance and operation of ownerless networks, which will increase the coverage of consumers and ensure the stability of the services provided.

As noted earlier, the ongoing tariff reform is based on the principles of transparency, accountability and publicity of the entire tariff setting process.

All activities are covered by mass media. Each stage of natural monopoly regulation is digitized in the electronic Monopolist database. It provides for an electronic format for submitting applications and reports, issuing technical specifications on a one-stop-shop basis and automating the risk management system.

The procurement of enterprises has also been transferred to the electronic format. Every citizen can enter the system and view the documentation. Control over the targeted use of consumer funds is ensured with the involvement of the public and technical experts.

In case of violation of consumers' rights, temporary compensatory tariffs are introduced, and natural monopoly entities are brought to administrative responsibility. Thus, in case of unjustified overcharging for utility bills, the funds will be returned to consumers through recalculation in subsequent bills.

Based on the results of inspections, materials may be transferred to law enforcement and other bodies, including the Agency for Financial Monitoring and the Ministry of Finance, which control capital withdrawal, on the basis of the risk management system.

Priority tasks for 2023-2024 include:

• timely and quality execution of investment program activities;
• ensuring compliance with the corridor of contribution to inflation from regulated services;
• introduction of "social consumption norms" taking into account the income level of consumers;
• ensuring gradual abandonment of cross-subsidization of tariffs;
• preventing unjustified growth of tariffs and ensuring protection of consumer rights.

Thus, the Ministry on its part has taken measures to carry out repair works.

"The implementation of the program has moved to the practical plane. Local executive bodies together with housing and utilities enterprises need to ensure timely and quality repair work, as well as to prepare documentation to reduce wear and tear of networks in subsequent years," the Minister of National Economy said.

As Energy Minister Almassadam Satkaliyev informed, the international audit company KPMG conducted a technical audit of the stations within the framework of the World Bank's grant assistance. During the technical audit visited 57 stations, including 37 combined heat and power plants. Special attention was paid to the technical condition of the main and auxiliary equipment of thermal power plants and the conditions of its operation.

"Based on the results of the survey, all stations were categorized depending on the technical condition of the equipment, operation period, specific fuel consumption indicators, accident rate, staffing and repair work. Action plans were drawn up for each station, taking into account the audit recommendations provided by experts," he added. 

Outdated stations with a high level of wear and tear, which are not subject to modernization and restoration, will be gradually decommissioned as new capacities are commissioned. According to the results of the technical condition assessment, it was revealed that 62% of power boilers, 58% of turbines have worked out their service life and need to be replaced. The amount of capacity to be replaced is 2.5 thousand MW.

The Ministry of Energy in accordance with the instruction of the Head of State is working on the implementation of the updated program "Tariff in exchange for investment" within the framework of the approved "Road Map". Thus, in order to increase the investment attractiveness of the generation sector, the annual limit of return investments was raised from 32 billion tenge to 428 billion tenge.

From June 1 of this year, the agency according to the submitted applications adjusted the marginal tariffs for electricity for 27 out of 47 energy producing organizations. The average growth of tariffs will be about 24%.

It is planned to increase the marginal tariff on the electric capacity market up to 1.5 million tenge per 1 MW per month. This measure will ensure an annual investment inflow of 160 billion tenge into the generation sector for the renewal and repair of existing plants.

"In order to ensure a predictable tariff policy, the possibility of approving marginal tariffs for electricity for a long-term period is being considered, taking into account annual indexation to inflation," Satkaliyev said. 

The current situation on obsolescence of the main and auxiliary equipment of CHPPs and active urbanization with an increase in the consumed heat capacity demonstrates the need for modernization, reconstruction and renewal of existing generating capacities of CHPPs, which require significant costs.

As part of short-term measures to implement the "Tariff in exchange for investment" program, it is proposed to conclude investment programs for capital repairs of main and auxiliary equipment for a three-year period (2024-2026) for combined heat and power plants with a high level of wear and tear that are not subject to modernization and rehabilitation. This will make it possible to maintain these combined heat and power plants in a serviceable condition for stable heating seasons until new capacities are commissioned.

In order to stabilize the situation, the scope of capital repairs of the main equipment, reconstruction, modernization, as well as construction of new boilers, turbines, chimneys, etc. has been determined (with implementation date for 2023). (119 boilers, 79 turbines and other works).

As a result, financing in the amount of 182 billion tenge is required to perform the above works. At the same time, the funds envisaged for repairs of the thermal power plant, taking into account the approved tariffs, will amount to 93 billion tenge. At the moment, the revenues of power plants from the sale of electricity and heat energy within the approved tariffs do not cover the costs to perform full-fledged repairs. The amount of underfunding is 88 billion tenge. This calculation was made within the framework of benchmarking in terms of the amount of funding required for the full-fledged implementation of capital and extended-current repairs. 

It is planned to cover the shortfall by allocating annual funding in the amount of about 100 billion tenge within the annual limit of repayable funds on the electricity capacity market by concluding short-term investment programs for capital repairs of CHPP equipment.

This measure is related to the fact that the enterprises of the industry cannot attract additional funds from the second-tier banks due to their creditworthiness. At the same time, it will be envisaged to coordinate the schedules of repairs with both the authorized body (KAENK), local executive bodies, and the system operator (KEGOC). Also, the implementation of investment programs will be monitored at all stages of implementation by the Energy Supervision Committee with the involvement of the public in each region.

It is proposed to change the approach to the selection of investment projects within the framework of the conclusion of investment agreements in terms of the owners' obligations to develop a program for modernization, reconstruction and expansion of capacities for plants subject to further operation in the long term. The authorized body will conclude investment agreements as applications are received.

Practice has shown low interest of enterprises in concluding investment agreements due to the impossibility of attracting financing from second-tier banks. To solve this issue, the Ministry of Energy proposes to provide for the possibility of financing investment projects of thermal power plants during their implementation.

The main criteria for the conclusion of investment agreements will be the establishment of target indicators in terms of reducing the level of wear and tear by 10-15% of the existing level, reducing the company's own needs, bringing the specific consumption of fuel equivalent to the design level, and the introduction of BAT.

At the same time, it is planned to introduce counter obligations on the part of market participants to ensure transparency of the targeted use of the received funds. Thus, the following amendments to the legislation are currently under consideration:

• return of control functions of the authorized body over the targeted use of funds received under the Tariff-in-exchange-for-investment policy;
• setting target indicators to be achieved within the framework of the invested investments;
• establishment of penalties in case of non-achievement of indicators in the absence of objective reasons;
• establishment of responsibility in case of misuse of funds, including the heads of enterprises;
• establishment of responsibility of contracting organizations for the quality of work performed.

Work is also underway to strengthen energy supervision. It is planned to increase the staff of regional departments by 70 units of inspectors.

It is also proposed to revise the deadlines for submitting applications to the Market Council, to eliminate the restriction of application submission until February 1 to year-round submission of applications as investment projects are ready. Thus, the barrier on the timing of filing applications for consideration by the Market Council and the authorized body will be eliminated.

In order to ensure transparency and control over the targeted use of funds allocated under the above approaches, it is proposed to introduce a three-stage control over the implementation of investment agreements.

The approach provides for:

- control by the authorized body on the basis of a project office. The project office will provide access to control by all stakeholders. As well as control by the Energy Supervision and Control Committee at all stages of investment agreement implementation;

- control by local executive bodies with the involvement of public organizations and residents of a particular region;

- holding public hearings with the involvement of stakeholders, and control by law enforcement agencies.

The Ministry of Industry and Infrastructural Development works on modernization and reconstruction of networks are carried out mainly at the expense of the republican budget. This was reported by the head of the department Marat Karabayev.

According to the pre-election program of the Head of State, by 2030 the task is to reduce the total deterioration of utility networks to 40%. Target indicators to reduce wear and tear have been set and communicated to the regions.

Today, the highest wear of utility networks remains in Pavlodar, East Kazakhstan, Karaganda regions and Ұlytau region. 

This year 86 billion 300 million tenge has been allocated for modernization of 126 km of heating networks. For 3 months, 23 km of heat supply networks have been laid, which is 18% of the total plan.

At the same time, the Ministry has created a working group, which made visits to the regions to monitor the progress of preparation for the upcoming heating season and implemented projects of heat supply.

There are 57 projects at the stage of implementation. Basically, all projects are undergoing network laying, as well as preparatory and dismantling works. 

In parallel, the formation of the national budget for 2024 is underway.

Applications were received from 14 regions for 42 projects providing for the reconstruction of 87 km of heat supply networks for a total amount of 63.8 billion tenge. At the same time, 6 regions did not submit budget requests. These are Almaty, Atyrau, West-Kazakhstan regions and Zhetisu region, as well as the cities of Astana and Almaty.

By the end of this year, akimats for the reconstruction of heating networks need to develop design and estimate documentation with a positive conclusion of state expert examination for construction and installation works in 2024.

As for water supply and wastewater disposal, a high level of wear of networks is observed in 7 regions for water supply, in 6 regions for wastewater disposal.

This year 280 billion tenge is allocated from the national budget for the construction and reconstruction of water supply and wastewater disposal systems.

There are 402 projects under implementation. By the end of this year 120 rural and 100% access 4 cities will be provided with centralized water supply.

Within the framework of formation of the budget for 2024, applications for the implementation of 292 projects on water supply and wastewater disposal have been submitted by 15 regions for a total amount of 242 billion tenge.

The new tariff policy provides for an average increase in the tariff for public utilities up to 20%.

In order to support low-income citizens whose housing is recognized as the only one or who live in dwellings from the state housing fund, housing assistance in the form of reimbursement of utility costs is provided from the local budget. The general rules for allocating housing assistance are determined at the level of the Government (December 30, 2009, No. 2314 "On Approval of the Rules for Providing Housing Assistance"). At the same time, maslikhats approve the amount of the maximum allowable level of expenditures of citizens and the procedure for assigning housing assistance.

"Over the past 4 years, according to local executive bodies, housing assistance has been paid to more than 174 thousand subscribers for a total amount of 5 billion tenge. For 6 months of this year, housing assistance was provided to 31 thousand families in the amount of 630.5 million tenge," Satkaliyev said.

In order to increase the coverage of recipients and the amount of compensation in December 2022 amended the Rules for the provision of housing assistance in terms of limitation on the maximum allowable level of expenditure in the amount of no more than 10%.

#Electric Power #Energy #Government session #Heat supply #Infrastructural development #Ministry of Energy #Ministry of Industry #Ministry of National Economy