USD/KZT 356.54  +2.42
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MAEK Kazatomprom: Strategic Power
Mangistau oblast is one of the oldest oil producing regions in Kazakhstan, and accounts for about ¾ of all the oil extracted during the history of the Kazakhstani petroleum industry. The government’s plans for developing offshore deposits in the Caspian Sea open up a wide range of prospects for the region. The three seaports (Aktau, Bautino, and Kuryk) make this area a key player in servicing offshore petroleum operations. A free economic zone has been established in the region, and it has fostered the construction of new plants and rehabilitation of the chemical industry.
A feature of Mangistau is that the region is autonomous in terms of energy resources. The only source of electric power in the region, as well as heat and fresh and potable water for Aktau, is the Mangistau Nuclear Power Plant (abbreviated MAEK in Russian), the stability of which currently determines the development of the region’s industrial potential and energy security.
The Mangistau Nuclear Power Plant was built in the 1960s as an integrated power and water producing facility. In 1973, nuclear reactor BN 350 was put into operation at the plant. The BN 350’s certified operating life was 20 years; it was the first power reactor in the world operating with fast neutrons, and is also the first reactor to be put out of service. In addition to the BN 350, MAEK combines three heat and power plants, a distillation and industrial water facility, heating mains and pipelines connected to central water-supply units, a transmission line and substations, a diversion facility and a maintenance factory, an oil base, a fuel-oil storage tank, and other infrastructure.
In the 1990s the crisis in the country’s economy faced MAEK with a number of challenges: upgrading of key assets was completely stopped, no repair or construction was carried out, and salaries were paid erratically. The salary and welfare debts reached 8bn tenge; accounts payable exceeded 11bn tenge. The extensive rehabilitation procedures conducted over four and a half years had no positive effect—the major energy supplying company in the region went bankrupt. On 30 April 2003, the property of the company was auctioned. The National Atomic Company "Kazatomprom" beat two competing companies to become the owner of MAEK.
On 1 May 2003, the new owner and operator, MAEK Kazatomprom, with an authorised capital of 5,941,123,000 tenge, started operating the power plant. Having huge experience in crisis management, Kazatomprom launched a strategic programme for development of the enterprise, including marketing, production, economic, and HR policies.
Development Strategy
The first and foremost task for MAEK Kazatomprom was to repair and upgrade fixed assets. Over the previous years, the plant had been reducing its capacity while aiming to support other companies and the region's population through relatively low tariffs. Because of a lack of finance, MAEK failed to carry out some of the required maintenance; in 1999-2002, the deficit of finance for maintenance exceeded 1bn tenge.
The most pressing repairs began in 2003 although this could not resolve all the urgent issues. When purchased, the depreciation rate of the enterprise’s fixed assets was 67 percent. Most of the process, communications and control equipment, while still in operation, was both worn and outdated.
To overcome this situation, a medium-term investment programme was developed with the objective of upgrading and enhancing MAEK Kazatomprom before 2010. The amount of investment during this period is expected to total 7.7bn tenge, including 4bn tenge to be provided by Kazatomprom from dividends payable on the government’s stock and 3.7bn tenge to be gained thanks to the enterprise's own economic activities.
In 2004, Kazatomprom provided 450m tenge for modernisation and rehabilitation of the main equipment at the power complex. The first line of finance has been used to reequip the oldest heat and power plant (No.1), which came into operation as early as 1962. During the upgrade to plant No.1 new gas-tight furnaces were installed in the boilers with a view to increasing their performance and reducing the fuel consumption rate. The outdated pumping equipment, heat exchangers, steam lines and boiler-feed mains have been replaced. The strategy for development of the enterprise also provides for the upgrade of heat and power plant No.2, which will require an investment of 417m tenge. The cost of modernisation of heat and power plant No.3 will come to about 480.9m tenge. The distillation facility needs the replacement of heating chambers for five distillation and desalinisation units and seawater heat exchangers, as well as an upgrade to the process control system. These renovations require some 876.1m tenge. Another significant investment of about 1,116.7m tenge will be needed to upgrade the networks and substations.
The second phase of the investment programme implies construction of a new distillation and desalinisation facility. The existing distillation facility at MAEK Kazatomprom has 11 desalinisation units. However, since the potable and process water tanks were put in operation as early as 1971 and their pumping units were designed to serve only the 30,000 people living in Aktau at that time, regular water supplies to the city, which now has a population in excess of 150,000, can only be guaranteed if new tanks are constructed. This project is expected to be finished before 2007 and will require 4.3bn tenge of investment.
Indispensable Human Resources
The work at an enterprise with this technological and strategic level, and the need for technical re-equipment, places a great responsibility on its personnel and requires professional skills, efforts and coordination. Therefore, the second priority task for MAEK Kazatomprom is to attract and retain highly qualified workers, the more so as the HR component of the newly purchased enterprise was deplorable. In 2002, the personnel turnover came to 18.5 percent; from 1999 to 2002 more than 50 percent of staff changed. Over 30 percent of the people who left the company had qualifications in categories six to eight and six or more years of professional experience. The main reason for quitting their jobs was the salary level—the lowest among the region’s industrial enterprises when MAEK Kazatomprom was founded.
To develop highly qualified personnel and retain skilled workers, the new owner of the power plant gradually started increasing the salaries of its employees. Currently, the average salary amounts to 49,000 tenge. Moreover, to train new employees, MAEK Kazatomprom has organised its own training and production centre. The Yesenov University in Aktau is another source of qualified specialists; its students are also receiving practical training at the enterprise. MAEK seconds its employees abroad so that they can develop their professional skills and become acquainted with the achievements of their foreign counterparts. The plant has been successful in resolving social issues and provides good opportunities for career development. All these measures have helped to reduce the personnel turnover to 8.8 percent. Kazatomprom’s image is also an important factor in these developments—working for a company which is part of this powerful national organisation is a matter of prestige.
New Prospects and Objectives
Currently, the situation at MAEK Kazatomprom is stable. The plant is operating without interruption, particularly during the heating season. The re-equipment of the enterprise has allowed its capacity to be increased to 895 MW. In 2004, MAEK Kazatomprom provided its consumers with 2.2 billion kWh of electric power, 11.4 million m3 of various types of water, and 738,000 Gcal of heat.
Tariff policies have been improved and a new consumer servicing system has been launched. The payment collection rate now reaches 94 percent, compared to only 65 percent in 2002. Yet, the problem of undistributed losses of water, heat and electric power supplied to consumers has not been resolved. The gap between the electric power supplied and distributed reaches some 400m tenge a year.
Regular supplies of the required quantities of natural gas, at stable prices, is another significant concern related to the increasing power consumption in the region (according to experts, electric power demand will grow by 6-9 percent annually and reach 780 MW by 2010). The initial programme of development for the Mangistau region has been focused on cheap nuclear power. However, after the BN 350 reactor was put out of service, the entire power plant was reoriented to operate on natural gas, which raises two major problems. Firstly, the reserves of the Uzenmunaigas's fields are depleting—in 2004 the company decreased its share in total gas supplies to 40%, compared to 94% in 1998. Secondly, the private oil companies that operate in the region have no interest in increasing gas supplies at low prices since they can sell these volumes at an export price. For this reason, the sustainable development of MAEK Kazatomprom will definitely depend on coordinated efforts by the Government, the Agency for Regulation of Natural Monopolies, the Mangistau oblast Akimat, and the company itself.

Table of contents
Oil in the CIS: Economic and Sovereign Rating Implications  Special Report of Fitch Ratings Agency 
The Science of Selling  Harry Frisch, Michael Bang 
All People Are Different  Fatima Chapkhaeva 
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