New "Tariff for Investment" programme aims to attract up to 400 billion tenge of investment into industry annually

The progress of the audit of the Republic's energy facilities and heating networks was considered at the Government session chaired by Prime Minister Alikhan Smailov. Reports on this topic were made by the Ministers of Energy Bolat Akchulakov, Industry and Infrastructural Development Kairbek Uskenbayev. Nurlan Urankhayev, Akim of the Abay region, reported on the uninterrupted operation of the Heat Power Station-1 in Semey; Nurlan Nogayev, Akim of the Mangystau region, on the restoration of hot water supply in Aktau; Ermaganbet Bulekpaev, Akim of the Karaganda region, on heat supply to residents of Karaganda and operation of the Heat Power Station-2 in Temirtau; Asain Baikhanov, Akim of the Pavlodar region, on the situation in Ekibastuz and measures being undertaken.

According to Minister of Energy Akchulakov, the Agency conducted an analysis of the technical condition of 37 thermal power plants. Thus, 19 cogeneration plants were included in the red zone, 11 cogeneration plants in the yellow zone, and 7 cogeneration plants in the green zone. When determining CHPPs by risk zones four criteria were taken into account:

First. Wear and tear of equipment, with an average of 66%, with CHP plants in Uralsk and Stepnogorsk being the most worn out. Uralsk, Stepnogorsk, Taraz, Kyzylorda, and Kentau exceed 80%.

Second. Number of technological failures, the analysis of which shows that by the end of 2021 there is a 5% increase in emergency shutdowns in power plants compared to 2020.

Third. Lifetime of operation. The average lifetime of CHPP plants is 61 years. About 76% of CHPP plants have been in operation for more than 50 years.

Fourth. Shortage of personnel due to low wages.

"The average salary of the production personnel at CHPPs in Kazakhstan in 2021 is 224,100 tenge. As is known, at CHPP, costs are shared between heat and electricity. The heat tariffs for CHPPs provide for an annual 5% increase in the payroll. The Ministry of Energy, when considering the ceiling tariffs for electricity, has provided for a 15% increase in wages for the personnel involved in electricity generation," Akchulakov said.  

In order to minimize risks during the next autumn-winter period for cogeneration plants located in the red zone, the government determined the volume of capital repairs of key equipment, reconstruction and modernization.

According to preliminary data, to carry out the above-mentioned works, funding in the amount of 182 billion tg is required. This calculation was made as part of benchmarking.

According to the Minister of Energy, monetary funds envisaged for repair of power generating organizations taking into account the approved tariffs for electric and heat energy amount 93 billion tenge. 

At the moment, revenues of power plants from sales of electricity and heat within the approved tariffs do not cover the costs for full-fledged repairs. The amount of underfunding is 88 billion tg. 

In order to implement the above-mentioned works on 12 cogeneration plants, which are in municipal and quasi-public ownership, it is proposed to finance from the state budget, and on 22 private cogeneration plants at the expense of the owner. 

In implementation of the Presidential Address of September 1, 2022, the issue of adopting a new programme "Tariff for Investment" in 2023 is being considered. Securing investment in power plants will enable existing reserves to be tapped in the quickest and most efficient way possible. The programme will rehabilitate, modernise and expand the existing assets of power generating organisations, thereby improving the reliability of the power system and ensuring a 15% reduction in depreciation of generating capacity by 2035.

The programme is also designed to:

  • attract up to 400 billion tenge of investment into the sector annually;
  • ensure counter commitments by market participants. 

"Priority projects requiring investments will be identified on the basis of technical audits of plants that supply heat and have a critical level of wear and tear," Akchulakov stressed.  

In addition, it is required to:

  • increase in the ceiling tariff for the electricity capacity availability maintenance service from Tenge 590 thousand to Tenge 2 million per MW per month with subsequent indexation for the inflation rate. 
  • amendment of legislation on the targeted use of funds received from the sale of electricity capacity availability maintenance service and depreciation deductions received from the sale of electricity and heat in the approved cap tariffs.

According to the Minister of Energy, currently the average wear and tear of power grids in the Republic of Kazakhstan is about 66%, with 81% in East Kazakhstan region. Because of this in 2022 compared to 2021 increase in the number of technological violations amounted to 183 cases and 7 cases of occupational injuries.

"In view of the above, I consider it necessary to take the following urgent system measures to be solved at the level of local executive bodies: to provide engineering infrastructure for previously allocated land plots and to intensify work to identify ownerless electricity networks and their assumption into municipal ownership with the execution of documents of title and the subsequent transfer of these facilities on the balance of power transmission companies," Akchulakov said.  

At the same time, the Ministry of Energy started work on an independent technical audit of power stations in the country. The technical audit is carried out with the technical assistance of the World Bank. Within the open tender for the first stage of the Technical Audit the World Bank selected a consortium of companies, including KPMG India, KPMG Kazakhstan and Acelerex Inc. the local coordinator of the project is JSC Kazakhstan Electricity and Capacity Market Operator. The deadline for completion of the Technical Audit is scheduled for the end of the first quarter of 2023.    

Agreements have also been reached with the World Bank to carry out the second stage of the technical audit of the state of the electricity networks; the terms of reference are currently being agreed upon.

The outcome of this work is planned to be a Technical Audit of the country's power utilities using the world's best technical audit practices and issuing relevant recommendations to reduce physical deterioration, improve reliability and safe operation of power equipment.

According to the Entrepreneurial Code, inspections of entities are carried out on the basis of checklists reflecting the requirements of regulations. However, the checklists do not include requirements for the operation of energy equipment set out in local operating instructions and manufacturer's instructions, which are not part of the NLAs. These requirements are mandatory for maintaining the proper technical condition of energy equipment of energy enterprises and consumers.

Based on the above, the Ministry has prepared amendments to strengthen the function of the state energy oversight body and was introduced into the draft Law of the Republic of Kazakhstan "On Amendments and Additions to Certain Legislative Acts of the Republic of Kazakhstan on Heat and Power Engineering". A regulatory impact analysis has also been carried out with regard to the strengthening of state energy control.

Approaches of the Ministry of Energy to strengthen energy control in part:

  • to take the energy control of power plants, heat and electricity networks outside the scope of the Entrepreneurial Code, 
  • carrying out controls without applying risk assessment criteria and checklists; 
  • inspections of the plants, heat and power networks not more than 4 times annually;
  • to transfer of control of the main heating networks from the IIOE to the Committee; 
  • enforcement of injunctions by court order;
  • monitoring as accidents and technological violations occur; 
  • inspections of repair works and execution of investment agreements;
  • increasing fines in the CAO and imposing them on the first managers of the enterprise.

It should also be noted that strengthening state energy control will not have the desired effect without increasing the number of staff of the state energy control body.

"The 20 territorial departments of the Committee for Atomic and Energy Supervision and Control each have three state technical inspectors. The existing staff of state inspectors is insufficient for full and quality control over the operation and safety of electrical installations of facilities in the Republic of Kazakhstan. On the basis of the above, given the considerable amount of work in order to prevent the loss of state control in the field of nuclear energy and electricity proposed to increase the number of staff of territorial departments of the Committee," Akchulakov summarized.

In turn, Minister of Industry and Infrastructure Development Uskenbayev said that at present the length of the heating network in the cities is 12.1 thousand km, of which 6.7 thousand km need replacement, the average wear and tear is 55%. The required investment volume is about 2.2 trillion tg.

According to the data of akimats, 83 subjects of natural monopolies provide heat supply services in 74 cities, of which 61 utility companies have 10.2 thousand km on their balance sheets, 22 private entities have 1.9 thousand km of heating networks on their balance sheets.

"Wear of the networks is less than 50% in 45 cities, 4.3 thousand km long, 1.4 thousand km need replacement, 52 entities of natural monopolies provide services. Wear of the networks from 50% to 70% in 19 cities, 5.9 thousand km long, requires replacement of 3.7 thousand km, are on the balance sheet of 20 CEMs. Wear of the networks exceeds 70% in 7 cities, 1.9 thousand km long, are on the balance sheet of 7 entities, 1.6 thousand km need replacement. Four entities in the cities of Ridder, Shemonaikha and Arkalyk, the network length of 52 km exceeds the standard service life," Uskenbayev informed.  

From 2015 to 2022, about 295 billion tg was allocated under the state programme "Nurly Zhol" and "Nurly Zhol" under the mechanisms of budget credit and subsidies, and 3,546 km were built and reconstructed. At the same time, since 2020 there has been low interest of local executive bodies in budgetary lending due to limited tariffs and unprofitable natural monopolies to ensure repayment.

In this regard, the agency proposes a phased approach for the modernisation of heating networks.

First stage: from 2023 to 2030, it is proposed to replace heat networks with more than 70% deterioration, which amounts to 1,600 km.

Second stage: from 2030 to 2040, replacement of heat networks with 50 to 70% wear, which amounts to 3.7 thousand km.

"Heat networks with less than 50% wear and tear are proposed to be replaced under the CEM investment programmes," the Minister for Industry and Infrastructure Development clarified.  

Under the first stage, 11 CEMs in 10 cities, with the network length of 1.9 thousand km, of which 1.6 thousand km requires replacement, are being considered. The costs will be about 538 billion tenge. For 7 years it is proposed to replace 225 km annually, amounting to 75 billion tg through budget crediting with the establishment of an appropriate level of tariff.

For the second phase, 20 CEMs in 19 cities are being considered, with 5.9 thousand km of networks, of which 3.7 thousand km require replacement. The costs will be about 1.2 trillion Tenge.

"Within 10 years, it is proposed to replace 370 km annually to the amount of 122 billion tenge through budget crediting with the establishment of an appropriate level of tariff," Uskenbayev said.  

Today there are three mechanisms for financing the reconstruction and construction of heating networks:

First is a budget loan, the interest rate is 0.01% per annum, the term of the loan is up to 20 years, and the grace period for repayment of the principal is 6 years;

Second is a subsidy through co-financing with international financial institutions. 50% IFIs and 50% subsidy from the budget.

Third is the allocation of targeted transfers within the budget programme "Development of Mono and Small Towns", where the Ministry of National Economy is the administrator.

For state-owned entities with insufficient financial sustainability, financing through targeted transfers is proposed. In order to improve the condition of heating networks, the akimats need to:

  • approve an action plan for each entity, taking into account the level of deterioration of the heat supply networks;
  • by 1 June 2023, carry out a technical inspection of the heating networks;
  • by the first half of 2023, complete the development of the design and estimate documentation for the construction and installation works planned for 2023;
  • by the end of 2024 to complete the PDD for Stage 1;
  • open the budget programme for targeted transfers.

Also, in order to ensure availability of information and operational planning of development of CEM networks it is necessary to enter data of engineering infrastructure and their technical condition into the system of urban inventory.

Akim of Abay region Nurlan Urankhayev reported that centralized heat supply of Abay region is provided by 44 heat sources of which: 4 with a capacity of more than 100 Gcal/hour and 40 with a capacity of less than 100 Gcal/hour. 

"Most of the district heating sources have been operating for more than 35 years, the average depreciation of these 44 sources is 46.17%. The average depreciation of 455.2 km of heat networks in the region is 63.8%. Including deterioration of 315 km of Semey city networks is 68%. Most of Semey city networks operated for more than 40 years, and on the right bank of Semey city networks were built in 1963-1965," the akim of the region informed.  

This year, in preparation for the heating season, repair works with reconstruction of 3.2 km networks in amount of 585.6 mln. tg and heat sources in the amount of 1034.08 mln. tg have been held in the region. The planned activities have been implemented in full

However, the situation on heat supply in Semey city remains critical. If in the heating season 2021-2022 there were 310 technological violations, including: 31 at heat sources, 279 at heat networks, then in only 2.5 months of the heating season 2022-2023 there were 168 technological violations, including: 25 at heat sources, 143 technological failures at heat distribution networks, which means that the number of technological failures will be higher than in the previous heating season.

In connection with criticality of high wear and tear of heat sources and networks and existing deficit of heat energy, taking into account the growth prospects of Semey city, we have prepared a complex action plan for reconstruction of networks and boiler houses and for implementation of which we request to support funding from the Republican budget in 2023 in the amount of 12.5 billion tenge.

Nurlan Nogayev, Akim of Mangistau region, informed that MAEK LLP is the main life-supporting enterprise of the region. The single energy complex produces electricity and heat, drinking, hot and industrial water.

MAEK includes two combined heat and power plants (TETs-1 and TETs-2), one power plant (TPP), a distillate preparation plant and an industrial heat and water supply plant.

"The main equipment of the enterprise was commissioned in 1962-1990 and the level of depreciation is 81%. From 2023 the enterprise will become the regional communal property, after which the technical audit of energy equipment will be carried out," Nogayev said.  

Within the framework of modernization of the enterprise it is planned to implement 6 projects with the approximate cost of 127.7bn tg. These include:

  • construction of 1 desalination plant (24.0 thousand m3/day), design and estimate documentation developed for the project, under review by the State Expertise, release date January 2023. Implementation period - 2023-2024; 
  • 1 combined cycle gas turbine unit (139 MW) is planned to be constructed under individual investment tariff for power. On November 12 this year, an investment agreement was concluded with the Ministry of Energy of the Republic of Kazakhstan. Implementation period - 2024-2026;
  • construction of 1 boiler plant (100 Gcal/hour), modernization of 2 boiler plants (377 Gcal/hour) and 1 turbine plant (65 MW), a feasibility study is being developed for the projects, completion - Q2 2023. Implementation period - 2024-2028.

At the same time, the issues of reconstruction of Aktau heating networks are very urgent in the region. Wear of heating networks is 88% (total length is 438 km, wear and tear 386 km). To solve these problems by 2026 it is planned to carry out works on reconstruction of thermal networks in 25 micro-districts of Aktau in stages (5 zones) for a total amount of 79 billion tg.

"As of today on the 1st stage technical research of a condition of heating networks of 9 micro-districts is conducted, the design and estimate documentation on reconstruction of heating networks of 3 micro-districts with extent of 10.2 km is developed, the budgetary application on financing in the amount of 11.5 billion tenge is submitted to the Ministry of Industry and Infrastructural Development of the RK. Design and estimate documentation is being developed for 6 micro-districts, the deadline for completion is Q1 2023," the Mangystau region Akim said.  

Also, work on the technical survey and development of design and estimated documentation for the reconstruction of heating networks of the remaining 16 districts will be carried out step by step.

In turn, the Akim of Pavlodar region Asain Bayhanov informed that today Ekibastuz CHPP is working in the normal mode, the thermal parameters are normal. In operation are 6 boilers, 1 is in reserve, 3 are under repair.

Works on restoration of heat supply have been completed, including residential houses of the private sector.

"There are complaints of "underheating" due to an unbalanced heating system. Work on balancing and adjustment of temperature parameters is being carried out on them. A unified contact centre 109 is in operation 24 hours a day, where all appeals of residents on "underheating" in residential houses are immediately transferred to a special group for inspection and taking necessary measures," Baihanov said.  

As of this week, schools and kindergartens have resumed normal operation.

"To ensure the stable passage of the heating period in the region an operational plan has been developed with the identification of the most vulnerable objects. All of them are taken under special control," the akim of the region noted.  

Concerning prevention of repetition of happened work is conducted on several directions:

First of all, the repair works are conducted on 3 boilers of heat supply station for provision of reserve capacities till the end of heating period.

Second, is that a terms of reference has already been developed for a comprehensive heat and power audit of the entire heat supply system of the city of Ekibastuz.

Third, the Akimat together with the shareholders of Ekibastuz TPP are preparing for the upcoming spring and autumn hydraulic tests with the replacement of faulty shut-off valves, 

Fourth, is the development of design and estimate documentation for construction of new and reconstruction of old heat supply networks has started, the documentation is planned to be prepared by the middle of March of the next year.

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