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 KAZAKHSTAN International Business Magazine №4, 2012
 Energy Conservation: Carrot and Stick Approach

Energy Conservation: Carrot and Stick Approach


Law “On energy conservation and enhancement of energy efficiency”, aimed at reducing energy consumption of Kazakhstan’s GDP through the efficient use of available energy resources, was introduced in the end of July. According to the law, from January 1, 2013onwards, all the large industrial enterprises of the country will be included in the State Energy Register of entities, reporting annually on measures for increasing the energy saving. In addition, since 2014, they shall implement energy management systems according to ISO 50001 at their facilities.

The new law that replaced the Law “On Energy Conservation”, acting from 1997, aims to create an integral legal framework and to establish a national infrastructure in energy conservation. In contrast to the previous law, the new one contains strict regulatory standards and is primarily aimed at the industrial sector of Kazakhstan, which now accounts for about 70% of total energy consumption of the country.

Thus, according to the basic provision of the law, since January 1, 2013 individual entrepreneurs and legal entities that consume energy resources in the amount of 1,500 or more tons of equivalent fuel per year, as well as state agencies and quasi-public sector entities will be included in the Uniform State Energy Register (SER). SER entities will have to undergo a mandatory energy audit, and starting January 1, 2014 to implement a system of energy management in accordance with the requirements of international standard ISO 50001 “Energy management system”. According to the estimate of Kazakhenergoekspertiza, a subordinate enterprise of the Ministry of Industry and New Technologies, SER will include about 2 thousand industrial enterprises of Kazakhstan. An analysis and forecasting of GDP energy consumption and efficiency of energy resources use will be conducted on the basis of data obtained from the registry entities.

It should be noted that in 2011 the Ministry of Industry and New Technologies in cooperation with local and foreign expert organizations have conducted energy audit of some enterprises, the results of which revealed a significant potential for energy conservation. Thus, only for Aksu Ferroalloy Plant it reaches 15%, for Petropavlovsk Heavy Engineering Plant – 40%, for Khimpharm – 13%, and for Kazzinc – 32%.

In this regard, a comprehensive plan on enhancement of energy efficiency by 2015, according to which the energy consumption of Kazakhstan’s GDP should be decreased by 10% by 2015, was adopted in November last year. In this case, the annual savings will amount to 16 billion kW/h of electricity, 11 million Gcal of heat power, and 7 million tons of coal, and in terms of money – about 200 billion tenge. The focus will be on the industry, which should provide an annual savings of primary energy resources in the amount of not less than 7.8 million tons of oil equivalent. To achieve these goals, the enterprises included in the SER shall have to annually reduce the consumption of energy and water to the values defined on the basis of the result of energy audit.

In addition, the new law provides for a mandatory examination of project documentation for the construction of new or expansion of existing buildings, structures and facilities, consuming energy resources in the amount of 500 or more tons of equivalent fuel a year starting 2013. At the same time, the law prohibits the acceptance of new facilities that are not equipped with appropriate energy resources metering devices and automated heat consumption control systems.

In addition to the mandatory requirements the law provides for voluntary agreements between the authorized agency, local executive bodies and SER entities for large business. Under these agreements the companies will enter into commitment to reduce energy consumption by at least 25% within five years. In return, local executive bodies will reimburse the costs of enterprises, aimed to improve energy efficiency by reducing rates on emissions taxes.

As for other measures of state support, currently the Ministry of Industry in collaboration with the Ministry of Finance develop different incentive mechanisms for the companies investing in energy efficient technologies. They include reducing corporate and income taxes, double depreciation of equipment, subsidization of energy audit and implementation of energy management.

By the way, the new law also open possibilities for the development of a new area of business for energy service companies in Kazakhstan. It is provided that the work on energy audit, examination as to energy efficiency, as well as implementation of the ISO 50001 standard at the enterprises will be carried out on a competitive basis. In this regard all energy expert organizations will be classified into three categories, depending on their experience in the field of energy examination, qualifications of personnel, and the availability of organization departments in the regions. At that, they shall have to obtain accreditation of the authorized agency represented by the Committee for State Energy Supervision and Inspection of the Ministry of Industry and New Technologies.

Another crucial point arising from the legislative innovations – is a training of local energy managers which will control energy consumption of the enterprises. According to the same Ministry of Industry and New Technologies, the Institutions of Higher Education will prepare specialists in energy audit and energy management, as well as centres for training and professional development in the field of energy conservation will be open starting 2013. In addition, starting next year classroom sessions on “The essentials of energy conservation” will be introduced in schools. International educational and professional centres are also involved in the training of personnel. Among them are the German educational centre on energy efficiency and renewable energy sources, Masdar University of Science and Technology, Korea Institute of Green Growth and the Norwegian company ENSI. Educational and training workshops already take place with the participation of foreign experts of the US Department of Energy, Ministry of Economy and Technology of Germany, the French energy company GDF SUEZ, the German Energy Agency, the Japanese agency of human resources, etc.

Be prepared!

Another legislative innovation, which directly affects electricity producers are amendments to the Law “On Electric Power Industry”, which was adopted on 4 July this year. According to them, the law legislates determinations of standards of operating inventory of fuel (minimum operating inventory of fuel for energy producing organizations in the daily scale) and certificate of readiness of energy-producing enterprises (annually issued document confirming the readiness of energy producing and transmitting organizations to operations in autumn and winter conditions).

Prior to that, the availability of certificate of readiness was of advisory nature, and therefore the responsibility of energy-producing enterprises for the preparation to work during heating season remained formal. The standards of the operating inventory of fuel were not observed which created a threat of the failure of uninterrupted power supply to the regions. For example, during the last heating season fuel reserves occasionally reached a critical point at such energy sources, as a number of stations of Almaty, Thermal Power Plant-2 (Petropavlovsk), State District Power Plant-2 (Karaganda), State District Power Plant-1 (Temirtau), Thermal Power Plant-2 (Astana) and others.

Now the government will approve the form, procedure and terms of receipt of certificate of readiness to operations in autumn and winter conditions, and to adopt standards for operating inventory of fuel for energy producing and transmitting organizations. At the same time, violation of the deadline for receipt of certificate of readiness will result in a fine, which will be 50 MCI for individual entrepreneurs, 150 MCI – for small and medium business entities, and 300 MCI – for big businesses.

In addition, the penalties for violations of approved operating rules for power plants and supply networks, safety during operation of thermal and mechanical equipment of power plants and heating systems, operation of user’s electrical installations, and established modes of energy consumption significantly increased.

According to the Committee of the State Energy Supervision and Inspection, all of these innovations should help to increase the efficiency and uninterrupted operation of the country's energy system and reliable power supply for all users.

There is a rate and where are investments?

As is known, in 2009, the government initiated amendments to the Law “On Electric Power Industry”, according to which a mechanism of “rate limits”, aimed to stimulate power plants to invest in the modernization of old and construction of new generating capacities in return for a controlled increase in selling prices appeared in Kazakhstan. Introduction of rate limits actually gave certain results. Thus, if in 2009, power plants invested in the development of generation capacities about 65 billion, and in 2010 – 85 billion, by the end of last year the figure has already reached 134 billion tenge.

However, as stated by the Chairman of the Agency for Protection of Competition, Mr. Gabidulla Abdrakhimov, the analysis of power plants activities has shown that in fact not all is as smooth as it was expected by the government. First, some of power producers unreasonably allocate high volumes of funds received from the tariff increases, to the payment of dividends to the founders. “For example, one of the power plants in 2011 made a profit of more than 2.7 billion tenge due to rise in prices, while only 24.9 million tenge was directed to the investments”. Second, the power plants include in the rates costs which are not associated with electricity production, such as the cost of the cultural events, the payment of remuneration of the members of the Board of Directors, various membership fees. Thirdly, some companies place received funds in second-tier banks. “So, one of the power plants in 2011 had on deposit funds in the amount of 1.4 billion tenge”. Mr. Abdrakhimov did not name particular “names of characters”, having mentioned that the work of the Antimonopoly Department based on these facts is not yet complete.

He therefore considers it necessary to cancel the current mechanism for setting rates limits for electricity by groups of producers (that is, common rate to all). Instead of this, “for transparent pricing and enforcement of investment commitments it is necessary to approve rates limits separately for each power plant”. The Agency intends to send appropriate proposals to the government.

Increase – can not be reduced!

Meanwhile, energy prices continue to rise steadily. Since August 7, AlmatyEnergoSbyt LLP informed its customers of the receipt of notice from the power transmitting company Alatau Zharyq Kompaniyasy about the increase of electricity rates by 30% starting September 1, 2012. Given that the rate of Alatau Zharyq Kompaniyasy is one of the principal constituents (34.7%) of the selling rate of AlmatyEnergoSbyt, the company has applied to the Department of the Agency for Regulation of Natural Monopolies (AREM) in Almaty and Almaty region to increase electricity prices for end-users.

However, from the beginning of autumn a 9% growth in the rates for heat power is expected to come to the people of the southern capital. But initially “Almaty heating systems” LLP requested to increase prices by 12.2%. However, based on the examination conducted by the City’s Department of the Agency for Regulation of Natural Monopolies (AREM), the new rate was approved at the level of 4,249.48 tenge per 1 Gcal (exclusive of VAT) against the current 3,891.8 tenge. As noted by the Agency for Regulation of Natural Monopolies (AREM), the main reasons for rate increase are the increase of price of material expenses, indexation of personnel wages, the increased cost of services of external agencies, as well as raising rates by heat power sources – JSC Almaty Power Plants and Almatyteplokommunenergo LLP.

Perhaps the Almaty power companies should learn the experience of other regions. So, as early as July, was reported: a preparation for merge of two electricity companies is proceeding in Kostanay, this will allow to reduce the rate for consumers by 15%. “We see the decrease in losses and rate for the population is to combine two transmitting companies – ETC-Forfait and Mezhregionenergotranzit, – said Mr. Nurlan Kuatov, a Deputy Head of Energy and Housing and utilities Department of the akimat of Kostanay region during public consultations. According to him, these organizations are responsible for transmitting electrical power of different capacity, but, in fact, perform duplicate functions and have excess administrative units. Because of such a complicated structure only the transport component in the final rate reaches 38.4%. The work on merge of these electricity companies is in the active phase and under the control of the Kostanay Department of the Agency for Regulation of Natural Monopolies (AREM).

Ownerless interest

Committee of State Energy Supervision and Inspection presented the results of examination of ownerless electrical grid facilities. Most of them are found in the southern regions – Almaty, Kyzylorda, South Kazakhstan and Zhambyl regions. In total, today in Kazakhstan there are more than 2 thousand km of ownerless power transmission lines (about 1% of the total length of the republican network) and about thousand substations. Generally, they include transformer substations and network sites that were previously owned by the dissolved farm producers and bankrupt enterprises. According to Mr. Armand Turlubek, a Chairman of the Committee, the problem is not only in the legal fact of the absence of lawful owner. Ownerless networks is a serious emergency factor, as well as one of the reasons of the reduction in the quality of electricity and technical losses. They represent a direct threat to the health and lives of the local population. Such networks are often located in remote areas and provide electricity to small localities. In this case, the distribution electrical grid companies have to solve problems of repair and maintenance of networks on their own account, although they do not have property holder and electricity rate does not contain payment for their service.

In this regard, the Prime Minister, Mr. Karim Massimov instructed akimats of the regions to carry out an inventory of ownerless electricity networks, to assess their technical condition and to provide financing of repairs. In addition, it is necessary to determine property holders or organizations maintaining these power transmitting networks.

Table of contents
Telecom KZ: Always in Reach  Saken Sarsenov 
Maintaining Leadership  Kuanyshbek Yessekeyev 
Fast and Generous  Alexander Vassilyev 
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