Central Asian Electric Power Corporation (CAEPCO), the largest private energy company in Kazakhstan, will celebrate its first anniversary this year: five years of operation since the company’s foundation. Today, among its shareholders there are three influential international institutions, namely the EBRD, ADB, and IDB. In addition, CAEPCO expects it will be awarded international credit rating this year, and to go for an IPO in 2016. CAEPCO President Erkyn Amirkhanov shares the key priorities and future investment projects.
CAEPCO is the largest private vertically integrated energy company in Kazakhstan, which provides the operation of the electric power systems of Pavlodar and North Kazakhstan Oblasts and the city of Astana. The strategic goal of the corporation is to raise the market value of its assets and investment attractiveness by increasing the efficiency of its subsidiaries. The achievement of this goal is ensured through the implementation of measures in the following key areas. The first one is to increase the current efficiency of CAEPCO enterprises, also through optimization of their costs. The second area involves the development and capitalization of existing electric power facilities (assets) under the investment programs. The third area is the introduction of promising innovative projects and international standards in the industrial, environmental and social spheres. The fourth area is to increase CAEPCO’s share in the domestic market and to strengthen our leadership position.
It is worth noting that at the moment, two trends are being observed in the Kazakhstan economy. On the one hand, the price of energy resources increases, as a result of which the operating businesses intensively adopt energy-saving technologies. This means that most likely, the increase in electric power consumption by current consumers is not expected. On the other hand, today new facilities are introduced into operation, due to which the power consumption rises. In response to this challenge, CAEPCO is ready to build new power plants and power units and to modernize outdated facilities. For example, according to our strategy,at two of our four power generating sources, modernization and renovation with further expansion is expected; these are the Pavlodar CHP #3 and the Petropavlovsk CHP #2. At the two other two plants, the Pavlodar CHP #2 and the Ekibastuz CHP, we are carrying out scheduled maintenance of equipment and are considering the possibility of building new power plants on the site. The investment program pays serious attention to environmental issues and reduction in losses in the transmission of electricity and heat.
I would like tomake a separate focus on the introduction of a world-class ERP-system Ventyx (a subsidiary of ABB, the global leader in production of electric power equipment and automation technologies) in the corporation. It allows one to optimize costs for the repair, renovation and modernization by reducing them by 20%–25%, as well as to reduce the residues of materials in warehouses. Integrated and automated scheduling of repairs, following the introduction of this product, will make it possible to increase the reliability of the equipment, to avoid waste of money, to reduce the time of repair due to the accounting of the personnel and timely delivery of materials and equipment, and this, in its turn, will benefit the activities of the corporation, as a whole.
What role has the adoption of the marginal tariffs program played in qualitative development of the corporate assets?
A well-known Government Resolution "On the Capped Tariff Levels" was signed in 2009. Before this, physically obsolete equipment was in operation at almost all power-generating enterprises of Kazakhstan. The tariffs at that time in effect did not make it possible to repair stations in the needed volume, not to mention their comprehensive modernization and renovation.
With the adoption of the above-said Resolution, the power generation sector began raising actual investment. As a result, bona fide market participants could renew their fixed assets: the investment component was included in the electricity tariff. Owing to this the opportunity to implement a number of large-scale projects appeared. Thus, in the Pavlodar CHP #3 a new boiler unit #1 and a turbine unit #1 were installed. Before 2018 work will be carried out to replace the turbine unit #2, and to install two new boilers #7 and # 8 and a turbine unit #7, to build two towers #5 and #6 and a new ash dump, as well as to carry out full-scale modernization of boiler units #2 and #3. All new equipment will be equipped with modern automated control systems and effective effluent treatment units. On the plans for the Pavlodar CHP #2 are the replacement of the boiler unit #1 and the turbine unit #1, and to build a new ash dump. The assembling and start-up operations for the turbine unit #2 and the construction of the second section of the ash dump are expected at the Ekibastuz CHP.
Complete modernization of the boiler unit #6 and #7 was implemented, and a new ash dump was constructed at the Petropavlovsk CHP #2. Currently, assembling and start-up of a new boiler #8 and the replacement of turbine unit #4 is in progress. The plans are to upgrade the boiler unit #12 to increase the production of steam, as well as to replace the turbine units #1 and #5 and the boiler units #1 and #12.
Apart from this, all the stations underwent the reconstruction of the ash traps with installation of second generation emulsifiers that has reduced harmful emissions by 5 times. The degree of purification of exhaust gases increased to 99.7%. All these measures will help to increase the electrical capacity of CAEPCO power generating facilities by almost 30% by 2018.
As far as we know, besides the "tariff in exchange for investment" mechanism, you successfully managed to use the debt and equity financing...
Yes, you are right. CAEPCO subsidiaries – SEVKAZENERGO and PAVLODARENERGO – have already issued debt instruments on the Kazakhstan Stock Exchange. We are not planning to float the subsidiaries’ shares for now. Under the strategy of our corporation, we are going to launch a public offering procedure: we have scheduled an IPO for the autumn of 2016, and we will list our shares on the KASE and on one of the international floors. We expect an international rating will be awarded to CAEPCO by the end of this year.
The Government proclaimed a policy aimed at raising the energy efficiency of domestic enterprises and the transition to a "green economy." What measures are CAEPCO taking as part of this policy?
I should note that all activities scheduled by CAEPCO as part of the investment programs, are aimed at reducing energy consumption. Today, energy consumption in the manufacturing of domestic products is several times higher than that in the advanced countries of the world. The major consumers of electric power in Kazakhstan are industrial enterprises: they consume about 70% of all electricity. Therefore, the increase in tariffs was quite a justified measure to motivate consumers to energy saving.
I should add that we are also interested in improving energy efficiency, since our enterprise, like any other, consumes energy.
CAEPCO was set up on August 8, 2008. In 2009, the corporation entered into a subscription agreement with the EBRD. Under it, the Bank acquired 24.99% of the corporations’ shares. In 2011 the Islamic Infrastructure Fund in the person of Kaz Holdings Cooperatief UA, acquired 12.89% of the ordinary shares of the company by paying $50 million in the authorized capital of CAEPCO. IIF is a joint fund between the Islamic Development Bank (IDB) and the Asian Development Bank (ADB).
In 2011, the EBRD allocated credit facilities in the amount of 4.5 billion tenge to CAEPCO subsidiaries to implement a program of modernization of central heating systems in the cities of Pavlodar, Petropavlovsk and Ekibastuz. This loan is the first project of EBRD on financing of programs in the area of central heating in Kazakhstan.
According to CAEPCO development strategy, the years between 2008 and 2012 was the period of formation of the corporation and consolidation of its assets. The second phase that covers the period from 2013 to 2015 is the expansion of the company’s presence in the power engineering sector of Kazakhstan. In the current year, the company plans the Eurobond issue. In 2016, the company will launch an IPO.