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 KAZAKHSTAN International Business Magazine №4, 2011
 Our Primary Goal Is Reform of Construction, Housing and Utilities
Our Primary Goal Is Reform of Construction, Housing and Utilities

Serik Nokin, Chairman of the Kazakhstan Agency for Construction, Housing and Public Utilities, responds to questions from the Kazakhstan magazine

Serik Kenesovich, your agency was set up in 2009 in difficult times for the construction industry. What tasks had been set before your agency and what results did you manage to achieve in the last two years?

The mission of our Agency is the implementation of public policy of development and reforming of the construction industry, housing and public utilities in Kazakhstan. In 2010, the share of these sectors in the country’s GDP was 9.3 %, and the share of workers working in these sectors was 8.7 % of the total workforce in the country. Therefore, our primary goal is to revive these two important sectors of the economy, to systematically transform them, as well as to improve the methods of state regulation of architecture, urban planning and construction activities, and to adapt them to modern realities. In short, all this requires the cardinal reforming of the system. As previously there was no single state agency in the country responsible for decision-making in these important areas, now our Agency is entrusted with this task.

Owing to the anti-recession measures taken by the Government, we have not allowed that the volume of housing construction to reduce and we have managed to retain it at the pre-recession level, and this is about 6 million m2. This year, due to all the funding sources in the country, it is expected that 6 million m2 of housing will be built. We managed to retain the volume of public housing put into operation, and we are actively developing a system of housing savings. The construction of an engineering and public utilities infrastructure funded from the state budget is in progress; private investments are being attracted in housing construction. The result of the Agency's work in this direction has been the adoption in the current year of the Housing Construction Program in the Republic of Kazakhstan for 2011–2014.

Of course, the Kazakhstani people’s attention today is drawn to the current reforms in the housing and public utilities sector launched by the Agency. We need to carry out a major overhaul of every multistoried residential building built in the Soviet times, to "re-educate" the condominiums through ensuring competition in the public utilities market, as well as to renew the worn-out systems of heat, electricity and gas supply. These are all technically difficult challenges we will have to solve in the coming years under the Housing and Public Utilities Modernization Program adopted by order of the President in April this year. Admittedly, the people of Kazakhstan have been waiting for this instrument for a few years, since problems in the industry have been accumulating for decades.

How do you assess the current state of matters with the quality of construction work today in Kazakhstan?

We have consistently and systematically been working to strengthen control over the safety and quality of construction, since this is a key objective for the comprehensive development of the construction industry.

In our opinion, the main causes of a general decline in quality are the imperfection of the licensing and law-making systems, in particular, the state control of construction, as well as the lack of sufficient expertise and professionalism of the construction market participants (designers, builders, representatives of technical supervision and field supervision).

Until recently, the local administrations which are part of the structure of oblast akimats (local executive authorities), also of akimats of the cities of Almaty and Astana, were entrusted with supervisory functions of state architectural and building inspection. This led to destruction of previously well-operating single system of state architectural and building control over the quality of construction.

It happened so that the local executive authorities – the Akimats – fulfilled all the functions of architectural, urban planning and construction activities, from decision-making on construction and licensing to exercising control over the quality of construction and organization acceptance of the complexes put into operation. Giving these powers to akimats has led to the current difficult situation: a sharp increase in the number of violations and claims from citizens complaining of the poor quality of construction, as well as acceptance into operation of buildings with a poor quality of construction or even with incomplete construction.

However, in August this year, the President signed the decree on Measures to Further Improve the Public Administration System in the Republic of Kazakhstan, under which our Agency was transferred the functions and powers in the area of state architectural and building control and licensing from local executive authorities. So now a uniform state control over safety and quality of construction will be ensured.

I should add that the quality of work greatly depends on the responsibility of all participants of the construction process: the customers (technical supervision), entities in charge of field supervision and contractors (engineers, foremen and construction workers). Often the design and construction organizations have relevant licenses, but, in fact, they do not have the necessary skills and expertise and professional builders as personnel. The licensing system that had been operating until recently did not allow determining the level of knowledge of specialists, so we started reforming both the systems of control and supervision and compliance assessment. In the framework of this work the list of licensed types of activities in the construction industry was reduced and optimized. In particular, it excludes: (1) project examination and engineering services, which were transferred to the qualification system (implementation of project examination, technical and field supervision, evaluation of safety and stability of buildings and structures); and (2) production of building materials, structures and products with their transfer for certification. Today, most construction materials and structures pass through mandatory certification (precast concrete, concrete, bricks, adhesives, paints, varnishes, etc.). In addition, the licensing on 11 subtypes and 23 sub subtypes works is excluded.

Along with that, the categorization of licenses is introduced in the licensing system: the licenses will be divided into three categories depending on the types of activities, skills, experience and other criteria. With the introduction of certification, specialists engaged in project examination and engineering services in construction will be able to perform this work after verification of their knowledge and skills. Thereby their personal responsibility will increase, and incompetent people will leave the building market.

Could you describe the main directions and priorities of the 2011–2014 Housing Program? What measures of state support of the industry are provided for in this program?

This program developed by order of the Head of State is aimed to support housing construction and promote mortgage. It involves several directions.

The first one is the construction by local executive bodies of affordable housing for sale through the use of the housing savings system. Work on this scheme has been initiated in all regions.

The second direction of the Program involves funding of second tier banks to finance housing construction. According to this direction, the government intends to place target deposits in the STB for the period of construction and start of house selling.

And the third one is the development of an engineering and public utilities infrastructure. In 2011, 20 billion tenge was allocated for these purposes to akimats. This will allow ensuring the timely commissioning of the building into operation and increasing the volume of construction of individual and commercial apartment houses.

I am sure the implementation of these measures will allow building about 6 million m2 of housing every year. As a consequence, this will produce a positive effect on related growing industries.

I would like to add that for further development of housing construction the Agency jointly with the akimats of the oblasts and the cities of Astana and Almaty are carrying out analysis of the housing market, taking into account the forecast indicators, including individual, commercial and rental housing, housing and public utilities, and the construction industry. We are also working out measures to gradually increase housing construction to 8 million m2 by the year 2017.

Now the government has plans to develop the more large-scale State Housing Construction Program for 2012–2016, which will clearly specify the incentive mechanisms of mortgage lending and will determine the selling price of the housing, taking into account the seismicity factor.

Currently, the Agency is carrying out reforms of the technical regulation system, architectural and building control and pricing system in the construction sector. Which of the reforms you would call a high priority and for solution of which problems these reforms are targeted?

In fact, all the reforms our Agency started are of prime concern, since they are all directed to improve the development of the domestic construction industry. As for the reforms of technical regulation, this is a very time consuming and difficult transition to the single European base of technical regulation in the construction industry.

What will it give to Kazakhstan? First of all, the transition to the so-called Eurocodes will allow us to use advanced technologies and innovation, and eliminate technical barriers in the implementation of investment projects in the country. By the way, our closest neighbors and partners Russia, Ukraine and Belarus are also following this path.

In general, the reform is covered by three system components: these are a regulatory framework, supervision and monitoring, and evaluation of compliance.

Last year we launched the first phase of reforms, under which there were developed the building and technical regulations called "The Safety of Buildings and Structures, Building Materials and Products", Kazakhstani construction standards that meet the Eurocodes with relevant national appendices, as well as instructions on the Eurocodes application in the transition period until 2015. A parallel operation of the Eurocodes together with the existing national building codes and regulations started in Kazakhstan on July 1 of the current year.

Along with the reform of the regulatory system, our Agency is reforming the system of control, supervision and compliance evaluation. This is what I talked about previously.

It is clear that the reforming of technical regulation of the construction industry should be accompanied by improving the regulatory, legal, and estimate regulatory framework. In this context, the adaptation of Eurocodes is only one of the steps Kazakhstan has to do on the long path of intersectoral reforming of technical regulation in the construction industry. It will inevitably affect other sectors and activities: land use, environmental protection, healthcare, industrial safety, fuel and electricity supplies, transport and so on.

What are the challenges the Agency faces in the area of housing and public utilities?

According to the Agency for Statistics, the total length of the public utilities distribution networks in Kazakhstan today is about 240 thousand kilometers. Local executive authorities conducted an inventory of their actual condition. The results showed that most of the structures and networks of the housing and public utilities complex were introduced or underwent capital repairs more than 20 years ago (and some of them have been in operation since 1905–1947). In general, based on a normative term of reliable operation set at 25 years, about 63 % of the networks require serious renovation or complete replacement: 63 % of the heating system, 73 % of the power supply system and 54 % of the gas supply system have to be repaired or replaced.    

Thus, due to lack of funding and physical depreciation of fixed assets of organizations, facilities of the public utilities sector in most oblasts are not in a good condition, but in “emergency recovery” condition. For example, 0.7 accidents in average happen per one kilometer of the water supply network in the country. In some regions the accident rate reaches 2.5, while in eastern European countries this indicator fluctuates between 0.2–0.4 and can be considered a benchmark.

In addition to the high level of wear and tear, the main problems of communal infrastructure include the poor level of equipping of apartment houses with general and individual measuring devices metering the consumption of public utilities, technological lag of the industry, including a weak practice of application of innovative energy-saving technologies and activities, as well as inadequate funding of projects on reconstruction of the networks and structures from off-budget sources.

The modernization of utility systems in Kazakhstan will be carried out both from the budget funds and rates through the implementation of investment plans of enterprises. The program of modernization of the housing and public utilities sector until 2020 stipulates that due to all sources of funding over 81 thousand kilometers of heat, electricity and gas distribution networks will be restored in 10 years, i.e. to 50 % of public utilities have to be renewed.

One more important aspect of the Program is repair of multistoried residential buildings. Today, according to statistics, 32 % of the total number of them needs capital repairs – this is one-third of all housing in Kazakhstan. It is clear that the Program clearly provides for both financing schemes and control over the quality of repair.

I note in brief that it is proposed to carry out repairs of dilapidated multistoried buildings by using the two funding mechanisms. According to the first one, transfers will be allocated from the republican budget to akimats for capitalization of socio-entrepreneurial corporations (SEC) (later on this role will be given to banks, international financial institutions and the Housing and Public Utilities Development Fund; the concept of the latter is being currently developed by the World Bank). Contracts will be concluded between condominiums (or other governing bodies of the condominiums’ facilities), contractor and SEC. The apartment owners will make an initial contribution of 15 % of the total project cost. These funds will be used to pay the contractor, and the remaining 85 % will come from the SEC. During the period set in the contract, the apartment owners will make monthly contributions to a savings account. The amounts so paid back will be used by the SEC for capital repairs of other multistoried buildings.

According to the second mechanism (the challenge here is the current repairs) loans will be extended from the republican budget to the oblast akimats for a period of 7 years with the interest rate of 0.1 % per annum. In its turn, the oblast akimat will extend the loans to the akimats of the cities; the latter will set up a specialized LLP or JSC with a 100 % participation of the state or engage an analogues operating entity (in prospect, it can be a private enterprise). In 2011–2012 the city akimat will capitalize this authorized organization and in the following years will extend loans to it. A contract will be concluded between a condominium (the customer) and the LLP. As it will be agreed upon with the general meeting of the apartment owners, the LLP will select subcontractors to carry out repairs, and by engaging them (or on their own) will carry out all necessary repairs of the property. In other respects, the given scheme does not differ from that set forth above.

11,624 residential buildings will be renovated in the next 10 years. The share of the houses in need of major repairs is expected to reduce from the current 32 % to 22 % by 2015 up to 10 % by 2020.

I note that the housing and public utilities modernization program also aims to help the apartment owners to more efficiently manage their common property. The reform involves the transmission of part of the technical functions on maintenance and operation of the buildings from the condominiums to professional service companies. The principle of management of apartment buildings "One house, one condominium management body, and hired professional company to service the building" will be gradually introduced. As a result, through creating a competitive environment the end user will face a betterment in the quality of services and reduction in their costs.

Thus, almost a 50 percent renewal of the heat, electricity and gas distribution networks, 11.5 thousand renovated apartment buildings, transparent and high-quality work of service companies on maintenance of the buildings – the Kazakhstani people will get all this in the next decade due to the housing and public utilities modernization program. 

What should be done, in your opinion, to increase the investment attractiveness of the housing and public utilities sector for private business, and what role is the state expected to play here?

One of the main tools to achieve progressive growth of the economy is the efficient interaction of the state and business. The trend of strengthening this cooperation, including that in the housing and public utilities sector, has being recently observed in Kazakhstan as well. Many enterprises in this sector are of strategic importance and can not be privatized. However, on the other hand, the state does not always have sufficient funds needed to support them. In this case, the only solution here is to use state-and-private partnership.

For this, Kazakhstan Center for Modernization and Development of Housing and Public Utilities JSC, set up as part of the structure of our Agency, jointly with the Kazakhstan Center for State-and-Private Partnership (SPP), is developing a set of measures to introduce elements of the SPP in the utilities sector, including services for water, gas, electricity and heat supply, sewerage, garbage removal, maintenance of elevators and other.

Of course, the SPP mechanisms in the housing and public utilities sector have good potential and they should be given serious attention not only from the state, but business also. By the way, interested business entities can already take part in the projects of apartment buildings repair; these projects already started in all regions of the country. Entrepreneurs will be able to participate in such projects as a financial participant, or as a provider of repairs and modernization of heat supply systems of the buildings. I think this is one of the promising options for expanding business by small and medium businesses, which will help reduce the state budget expenditure and increase the level of living conditions in Kazakhstan.


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· 2000 №1  №2  №3

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