Power Generation, Transmission & Distribution 2024 Comparisons

The electric power industry in the Republic of Kazakhstan (“Kazakhstan”) includes the generation, transmission, supply and consumption of electrical energy.

The power industry is structured with separate entities and characterised by a combination of bundled and unbundled structures, as well as a mix of state-owned and private investor-owned entities. Currently, Kazakhstan lacks legislative norms regulating the use and implementation of energy storage technologies. In fact, there have not yet been any energy storage projects in Kazakhstan. From the news, it is known that KEGOC, at the end of 2023, signed an agreement with China Power International Development Limited on the implementation of an energy storage system up to 5 MW.

The Ministry of Energy of Kazakhstan in 2024 has prepared draft amendments at the level of a by-law, introducing concepts related to energy storage systems for renewable energy sources with an installed capacity of more than 10 MW.

Also, in 2024, a Special Intergovernmental Agreement between Kazakhstan and France on the implementation of co-operation in the fight against global warming was ratified. The parties intend to apply the Special Agreement to large projects, including energy storage projects with a minimum capacity of 100 MW/200 MWh.

Key Power Industry Laws

Law on Electric Power Industry No 588-II dated 9 July 2004 (the “EPI Law”)

The law defines the aims and objectives of state regulation and control, the powers and competencies of the government, state authorities and the Kazakhstan Electricity Grid Operating Company JSC (KEGOC), and stipulates the rights and responsibilities of electricity generation, transmission and supply companies and consumers.

Law on Natural Monopolies No 204-VI dated 27 December 2018

This law governs the activities of natural monopolies, including the transmission of electricity and generation, transmission, distribution and (or) supply of thermal energy. It establishes the legal basis for regulating tariffs, ensuring fair competition, and protecting the interests of consumers in relation to monopolistic activities.

Law on Energy Saving and Energy Efficiency No 541-IV dated 13 January 2012 (the “ESEE Law”)

This law aims to promote energy conservation and efficiency and sets out measures and requirements for energy efficiency programmes, energy audits, energy management systems, and energy-saving technologies in the power sector.

Law on Supporting the Use of Renewable Energy Sources No 165-IV dated 4 July 2009 (the “Law on Support of RES”)

This law focuses on the development, promotion and use of renewable energy sources (RES). It provides the legal framework for the support mechanisms, incentives and regulations related to RES generation and integration into the power system.

Law on Public-Private Partnership No 379-V dated 31 October 2015 (the “Law on PPP”) and Law No 167-III dated 7 July 2006 “On Concessions” (the “Law on Concessions”)

It sets out the procedures, rights and obligations of public and private entities involved in the development, financing, construction and operation of power projects through a public-private partnership (PPP) model and concession projects.

The author of this guide is currently involved in the project group that aims to consolidate the laws related to PPP and concessions into a single framework. The unified legislation is still under government review and is expected to enter Parliament in autumn 2024.

The following is a general overview of the principal state-owned or investor-owned entities in the Kazakhstan power industry.

• Samruk-Energy, a state-owned holding company, controls several major power generation plants in the country, such as Ekibastuz GRES-1, Ekibastuz GRES-2; Moynak hydropower plant named after U D Kantayev; RES plants – WPP Ereymentau 1, SPP in Almaty and Kapshagai.
• Independent power producers and private companies are also involved in power generation. These entities operated TPP, HPP and RES generations. The following private companies commissioned power-generating plants under investment contracts:
1. Sevkazenergo JSC – belongs to the group of Central Asian Electric Power Corporation JSC (Petropavlovsk TPP-2);
2. Karaganda Energocenter LLP – Karagandy TPP-3 (regional significance plant) and Karagandy TPP-1; and
3. Arm Wind LLP – Italian company Eni Energy Solutions BV, eg, Badamsha WPP and Shaulder SPP.
• The national transmission system is operated by the state-owned company, System Operator of the Unified Power System (UPS), Kazakhstan Electricity Grid Operating Company JSC (KEGOC). Its key responsibilities include electricity transmission across the national power grid and centralised operational and dispatch control of the UPS.
• Centralised dispatch management is carried out by a branch of KEGOC – the National Dispatch Centre of the System Operator.
• Financial Settlement Centre for Support of Renewable Energy Sources (the “Financial Centre”) is defined as the financial centre that supports the RES and carries out centralised purchase and sale of electric power generated by RES and delivered to the electric networks of the UPS.
• Kazakhstan Electricity and Power Market Operator (KOREM) has the status of Centralised Trading Market Operator. KOREM organises and conducts spot trading, centralised trading of electricity; ensures equal access conditions for wholesale electricity market (WEM) participants to the market of centralised trading of electricity; and registers and accounts for concluded transactions of electricity purchase and sale.
• Market Council (Kazakhstan Electricity Association) is defined as a non-profit organisation with responsibilities to monitor the functioning of the electrical energy and capacity market, assess investment programmes, and submit expert opinions, etc.
• Single Buyer – in the power industry of Kazakhstan is a role assigned to a state-owned entity that centrally purchases, sells, and delivers electricity produced by generating facilities to Kazakhstan’s Unified Power System and ensures the financial settlement of transactions related to the purchase and sale of electricity. The company assigned with this role is the Financial Settlement Center for Support of Renewable Energy Sources LLP.

Kazakhstan has taken steps to attract foreign investment in various sectors, including the power industry, and there are no specific restrictions on foreign investment in the power industry. Issues of state support for investments are regulated by the Ministry of Foreign Affairs.

The Entrepreneur Code No 375-V dated 29 October 2015 (the “Entrepreneur Code”) governs investment activities and provides a legal framework for both domestic and foreign investors. It guarantees equal treatment of foreign and domestic investors, protection of property rights, the right to repatriate profits, and protection of foreign investors from uncompensated expropriation and requisition.

Investment Projects and Preferences

Investment project

• The establishment of new manufacturing facilities, expansion or renewal of existing ones, including through PPP and concession projects.
• The activities of electricity generation, transmission, distribution and sale to consumers are classified as priority to conclude investment projects.
• Preferences– customs duty exemptions on technological equipment and its components, spare parts, import VAT exemptions, government natural grants.

Investment priority project

• The establishment of new manufacturing facilities – at least 2 million MCI monthly calculation index (MCI) (approx. USD15,525,104) (please note: 1 MCI in 2024 is equal to KZT3,692); expansion and (or) renewal of existing manufacturing facilities – at least 5 million MCI (approx. USD38,812,759).
• Since February 2020, the production of electricity, excluding thermal and nuclear power plants, has been categorised as a priority activity listed for the execution of investment priority projects.
• Preferences– customs duty exemptions, import VAT exemptions, government natural grants, reduces corporate income tax by 100% on income, applies co-efficient 0 on land tax for the establishment of new manufacturing facilities for ten years and applies co-efficient 0 on property tax for eight years.

Special investment project

• Member of a special economic zone or owner of a free warehouse (customs regime).
• Preferences– exemption from import customs duties and exemptions from VAT when importing goods as part of finished products produced in the territory of a special economic zone or free warehouse.

Investment agreement

This is a new tool for large investment projects – at least 7.5 million MCI (approx. USD 58,219,139), which provide preferences in agreement with the government, such as: stability of legislation up to 25 years, reduction of CIT by 100% for ten years, application of co-efficient 0 when calculating land tax for ten years and property tax for eight years, exemption for the sale of goods, works and services from VAT in the territory of a special economic zone and reduction of tax liabilities up to 20%.

Investment agreements for modernisation, expansion, reconstruction, and/or renewal

These are concluded only in relation to the main generating equipment of existing electric stations operated by energy-generating organisations.

Investment agreements for the modernisation, reconstruction, and/or expansion of existing power plants with the construction of generating units using gas as an alternative fuel

These are only concluded with operational (existing) power stations of active energy-generating organisations located in cities of republican significance.

BITs and International Agreements

Bilateral investment treaties and international agreements that Kazakhstan has entered into with foreign countries may provide additional protections for foreign investors, such as dispute resolution, repatriation of profits, and protection against expropriation. For instance, Kazakhstan has ratified the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards by Presidential Decree dated 4 October 1995. In the same year, it ratified the European Convention on International Commercial Arbitration, and, since 21 October 2000, the Washington Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID). Later, by Decree No 2537 of the President on 18 October 1995, Kazakhstan ratified the Treaty to the Energy Charter and the Protocol to the Energy Charter concerning energy efficiency and related environmental aspects. By ratifying it, Kazakhstan demonstrates a commitment to participating in international energy co-operation and creating a secure, predictable environment conducive to attracting foreign energy investments to the country.

Expropriation

Under the civil legislation of Kazakhstan, the concept of forcible alienation of property, which can be considered a form of expropriation, encompasses the practice of nationalisation. Nationalisation of strategic assets (the national power grid and power generation facilities with a capacity of at least 50 MW) can be carried out in accordance with Law on State Property No 413-IV dated 1 March 2011 (the “Law on State Property”). Nationalisation may be conducted in the public interest to ensure national security and only in an exceptional case of alienation of property owned by individuals and non-governmental legal entities. It is implemented only after all other possible forms of alienation of property have been exhausted. The amount of compensation paid to the owner of the nationalised property is determined based on the market value of the property and should be compensated in full.

Subsidies

The following subsidies occur:

• the construction, reconstruction, modernisation of heat supply systems as an economic incentive for their development (Article 7-2 of the EPI Law and Order No 665 of Minister of Energy (MoE) dated 14 October 2015);
• the expenses of organisations in the field of heat energy production for the repayment and servicing of loans from international financial organisations that have been attracted for the implementation of projects to modernise energy supply systems (Article 5.70-35 of the EPI Law and Order No 296 of MoE dated 2 September 2019); and
• energy-producing organisations to acquire fuel to ensure uninterrupted heating season operations (Article 5-2 of the EPI Law and Order No 309 of MoE dated 13 September 2017).

Sale and Transactions of Strategic Assets

The national power grid, power generation facilities with a capacity of at least 50 MW, as well as shareholdings (participation interests, stakes) in legal entities and individuals and legal entities that have the ability to directly or indirectly determine decisions or exert influence on the decisions, are considered as strategic assets.

The transfer of rights or the imposition of restrictions on strategic assets by third parties is subject to approval by the government, based on the sector-specific opinion of the MoE and in co-ordination with national security agencies.

Kazakhstan has a priority right to acquire the strategic asset in cases where a citizen or non-governmental legal entity intends to enter into a transaction for the alienation of a strategic asset, as well as in cases of enforcement proceedings on a strategic asset or alienation of a strategic asset by a rehabilitation or bankruptcy manager, or realisation of pledged property (strategic asset) by a pledgeholder through extrajudicial procedures, or enforcement proceedings on a strategic asset based on a court decision.

As discussed in other sections, there is currently no legal regulation in Kazakhstan regarding energy storage issues.

Sale and Transactions of Natural Monopoly Entity Asset

A natural monopoly entity refers to an individual entrepreneur/legal entity that provides services, such as:

• transmission of electrical energy;
• production, transmission, supply of thermal energy, excluding thermal energy generated using heat from soil, groundwater, rivers, reservoirs, industrial wastewater, and power plants, as well as wastewater treatment plants;
• technical dispatching of electricity supply and consumption; or
• organisation of production-consumption balancing for electrical energy.

According to Article 13.1 2 of the Law on Natural Monopolies, a natural monopoly entity is required to obtain the consent of the Ministry of National Economy (MNE) for:

• transactions related to the property intended for providing regulated services if the book value of such property, as reflected in the balance sheet at the beginning of the current year, exceeds 0.05% of the balance sheet value of its assets; or
• reorganisation or liquidation.

The sale, lease or trust management of power facilities and/or their separate parts is carried out with prior notification to the MoE and Committee for Regulation of Natural Monopolies (MNE). A power facility refers to the property of power generation and power transmission organisations that is directly used in the process of electricity production, conversion, transformation, transmission, and/or conversion into other forms of energy.

The MNE adopted Decree No 73 dated 13 August 2019, which outlines procedures for public hearings, procurement guidelines, setting KPIs related to quality, reliability and efficiency, as well as rules for their approval and monitoring. The rules also specify the reporting requirements and processes that natural monopoly companies need to adhere to, including the use of regulatory reporting templates.

The following is a general overview of the Central Planning Authorities of Kazakhstan.

• MoE is the central government authority that formulates, implements and co-ordinates the policy and regulations in the energy sector. The departments of the MoE are:
1. the Department for RES;
2. the Department of Strategic and Information Development; and
3. the Electric Power Development Department.
• Committee of Atomic and Energy Supervision and Control (CAESC) – the MoE has established CAESC to carry out regulatory oversight in the electric power industry.
• MNE leads investment activities for the electric power industry and eligible for policies related to state guaranteed borrowing and debt, PPP, public investment projects.
• Committee for Regulation of Natural Monopolies (CRNM) is established within the MNE to fulfil regulatory duties as a government authority in the realm of natural monopolies. The CRNM has the authority to review and assess mergers, acquisitions and other forms of concentration of economic entities.
• Ministry of Industry and Infrastructural Development (MIID) is responsible for the state control in the field of energy saving and energy efficiency.
• Ministry of Ecology and Natural Resources (MENR) is entrusted with the responsibility of shaping and executing state policies, co-ordinating management processes, and overseeing various sectors related to environmental protection, including, among others, conservation and regulation of natural resource utilisation, geological research of subsoil, safeguarding and utilising water resources, water supply, sanitation, forestry, wildlife protection, and the management of specially protected areas.
• The Agency for Protection and Development of Competition (the “Agency on Competition”) holds responsibility for regulating and overseeing competition protection, prevention of monopolistic activities, control and regulation of state-monopolised activities, as well as state supervision.

Kazakhstan has implemented measures to broaden its energy portfolio and enhance the proportion of RES. It has established supportive frameworks, such as feed-in tariffs and auctions, to encourage the growth of renewable energy projects. These mechanisms are designed to stimulate investments in renewable energy generation and progressively decrease dependence on carbon-based power generation in the future.

The implementation of the RES auction mechanism in Kazakhstan was introduced through Law No 89-VI LRK on 7 November 2017. Alongside this, the Law on Support of RES incorporated requirements for conducting auctions. The primary objective of this mechanism is to select RE projects with the lowest costs and establish competitive market prices for RES.

To facilitate the RES auctions, the MoE issued Order No 280 on 7 August 2017, designating KOREM’s electronic trading platform as the platform for conducting these auctions. According to the information provided by KOREM, over the five years 54 RES auctions were held for a total installed capacity of 2,395 MW.

The recent amendments to the legislation on supporting the use of Renewable Energy Sources and the Electricity Sector were enacted by Law No 96-VIII in the Republic of Kazakhstan, dated 19 June 2024. The Law introduces the concept of “small-scale renewable energy facilities” – technical devices with a capacity of up to 200 kW that generate electric and/or thermal energy using renewable energy sources (RES).

Owners of small-scale RES can use the generated energy for their own needs and sell excess electricity to energy supply organisations. Excess electricity will be purchased by electricity supply organisations at a ceiling price, set by the Committee on Regulation of Natural Monopolies of the Ministry of National Economy. To ensure the guaranteed purchase of electricity generated by small-scale RES and to remove barriers to grid access, energy supply organisations are required to enter into purchase agreements, and energy transmission organisations must provide unhindered access to their networks.

Hydroelectric Power Development

Small hydropower plants (SHPPs) with a total capacity of up to 10 megawatts, commissioned before 1 July 2023, are allowed to sell the electricity they generate directly to electricity supply organisations, by-passing a single buyer. Electricity generated by SHPPs will be purchased on a priority basis by energy supply organisations at a ceiling tariff, set by the Ministry of Energy. This tariff will be reassessed every seven years.

Investment Agreements and Alternative Fuel

Investment agreements for modernisation, reconstruction and/or expansion, which involve the construction of generating installations using gas as an alternative fuel, will only be concluded with existing energy-producing organisations. These organisations must operate electrical stations, including those involved in combined heat and power production, located in cities of republican significance, and concerning their primary equipment generating heat and electricity.

Investment programmes cannot be altered while under review by the Market Council. During the decision-making period by the authorised body on whether to conclude an investment agreement, energy-producing organisations may amend the investment programme based on changes in the project’s technical and economic indicators. These organisations must then obtain a repeated positive conclusion from the Market Council and state expertise on the feasibility study for the project.

Financing of Electrical Grid Modernisation

The Law introduces provisions for the state financing of construction, reconstruction and modernisation of municipal electrical grids. These grids are operated by regional electric grid companies and are owned by local authorities.

The rules for this financing will be approved by the Ministry of Energy, in co-ordination with the Ministry of Finance.

The government of the Republic of Kazakhstan issued a resolution on 28 March 2023, No 263, approving the Concept for the Development of the Power Industry of the Republic of Kazakhstan for 2023–2029. This concept outlines the strategic vision and measures for the development of the power industry, including the production and consumption of electric power, power transmission, power supply, and thermal power.

The resolution mandates the central and local executive bodies, state bodies directly subordinate and accountable to the President of the Republic of Kazakhstan, and other organisations responsible for implementing the concept, to take necessary measures for its implementation.

Kazakhstan is in the process of drafting new legislation focused on the advancement of alternative energy. This forthcoming law aims to encompass various sources, including hydrogen, industrial gases, methane from coal-bed gas, biomass and bioenergy, the utilisation of municipal solid waste, and nuclear power.

Moreover, a law on thermal power engineering is being developed at the Majilis, which will regulate social relations arising in the process of generation, transmission, supply and consumption of thermal energy for communal and industrial needs, creation, operation, development of heat supply systems and state regulation in the field of thermal power engineering.

Kazakhstan is embarking on a transformative initiative that aims to ensure the security and reliability of its energy supply. This includes a comprehensive energy subsidy reform package, driven by a partnership between the government of Kazakhstan and the World Bank. The government has committed to reforming and gradually phasing out costly subsidies, and as part of this effort has introduced initiatives like the “tariff for investment” programme.

The core of this transformation is the development of an incentive-based tariff regulation methodology, which aims to incentivise responsible and sustainable energy practices by linking financial rewards to the achievement of specific goals.

The Ministry of Energy has developed an action plan for the development of the electric power industry, providing for the commissioning of an additional 26 GW of new generating capacity.

Kazakhstan has ambitious plans for green hydrogen production. The country has launched the Hyrasia One project, a major green hydrogen production plant in the Mangystau Region. The project involves building and operating a desalination plant, a 40-GW renewable energy station (wind, solar), and a 20-GW water electrolysis production facility. The Ministry of Energy is in the process of drafting the Concept for the development of the hydrogen power industry until 2040.

Kazakhstan has made significant strides in renewable energy. The country boasts 146 operational renewable energy facilities exceeding 100 kW, with a cumulative installed capacity of 2.9 GW. The facilities include wind, solar, hydroelectric, and biogas power plants. In 2024, the country aims to commission 11 facilities for renewable energy, totalling 117.35 MW.

While specific policies on energy storage were not found, the country’s energy policy is aimed at achieving energy independence through the production of electricity with the maximum use of cheap low-grade coal. The introduction of nuclear power is included as a necessary option for ensuring energy security.

Kazakhstan is considering the construction of a nuclear power plant with at least two units with a capacity of 1,000–1,400 MW. The government has received offers to build the facility from France, China, South Korea, and Russia. A public referendum regarding the construction of a nuclear power plant in Kazakhstan is scheduled for autumn 2024.

In contrast to countries like the Kyrgyz Republic, Tajikistan, Turkmenistan and Uzbekistan, Kazakhstan implements the following regulatory measures in the energy sector:

• Monitoring Regulation;
• Dispute Resolution Procedure; and
• Technical and Quality of Service Regulation.

Due to geographical factors, the vast territory, and diverse landscapes, it is technically and economically advantageous to supplement and balance the electric power supply in Kazakhstan by importing electricity from neighbouring countries. This approach takes into consideration the specific requirements and conditions of different regions within Kazakhstan, which are divided into North, South, East and West.

Notably, the infrastructure of the power transmission networks may vary across these regions, and there is currently a gap in the electricity system, particularly in the western part where it is not connected to the main grid. To ensure a reliable power supply, Kazakhstan engages in the practice of buying and selling electricity with neighbouring countries.

The WEM in Kazakhstan operates under a structure known as the “single buyer” model. Step 50 of the Plan of the Nation – 100 Concrete Steps Program provides for the Single Buyer market model. From 1 July 2023, the Financial Centre has been appointed as the Single Buyer.

The WEM consists of:

• decentralised electricity trading market – prices and delivery terms are determined by the terms of the contracts concluded between market participants;
• centralised electricity trading market – contracts and transactions for the purchase and sale of electricity are concluded based on the results of organised trading platform;
• real-time balancing market – functioning to financially settle hourly imbalances that occur within the operational day between actual and contractual production-consumption of electricity in the UPS;
• market for system and ancillary services, operating based on both the acquisition from WEM participants and the provision by the system operator of relevant services to ensure compliance with national reliability standards for the operation of the UPS and the quality of electricity; and
• market for electricity capacity.

Except for the export of electrical energy, an energy-producing organisation is prohibited from selling electricity to individuals or legal entities who are not participants of the WEM and/or retail market.

Wholesale Price of Electricity

The wholesale price of electricity is determined through a combination of competitive offers among generators and price regulation. Under the EPI Law and Order of the MoE No 147 dated 27 February 2015, energy suppliers (excluding RES) must sell electricity at tariffs that are within the maximum tariffs set for their specific groups (47) of energy suppliers. These maximum tariffs are established annually for a seven-year regulatory period and can be adjusted if necessary.

The maximum tariffs are based on the maximum production costs for generating the maximum amount of energy. Any excess amount above the maximum tariff should be refunded to the participants of the WEM and/or retail market, with the refund not exceeding 10% of the total generated electric energy.

Administrative Liability

The sale of electrical energy exceeding the approved selling price on the balancing market, for export, and to digital miners within the established quotas, results in a penalty of 10% of the income (revenue). The sale by an energy-producing organisation to individuals and legal entities who are not subjects of the wholesale and/or retail market, leads to a penalty of 100% of the income (revenue). The unlawful acquisition (purchase) of electrical energy by an energy-producing organisation from another energy-producing organisation results in a penalty of 100% of the payment amount for the acquired (purchased) electrical energy.

The export is conducted at a price that is equal to or higher than the production cost of the exported electricity, but only when there is an excess of electricity, while the import occurs solely when there is a shortage of electrical energy in the UPS. Kazakhstan is a member of the Central Asia Power System (CAPS), which is a regional power system that integrates the electricity grids of Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan. CAPS enables the exchange of electricity among these countries, allowing for imports and exports of power. Furthermore, Kazakhstan has established power transmission lines that interconnect with Russia, China and neighbouring countries, facilitating cross-border electricity trading. The export and import of electric energy in Kazakhstan adhere to the regulations set forth in the country’s customs legislation, unless there are specific provisions outlined in a ratified international treaty that Kazakhstan is a party to.

Kazakhstan’s electricity supply mix consists of various energy sources:

• thermal power plants – primarily fuelled by coal (70% energy) and natural gas;
• hydropower – particularly in the eastern and south regions;
• natural gas – Kazakhstan has substantial natural gas reserves, and gas-fired power plants;
• RES – the country has been exploring the development of RES projects, including wind and solar power; and
• nuclear power – Kazakhstan is considering launching nuclear power plants in the Ulken village (Almaty region) and Kurchatov city (Abay region).

Market Concentration Limits

The principal law that governs market concentration limits is the Entrepreneur Code. To prevent the emergence of a monopoly position and/or the restriction of competition, it is necessary for market entities to obtain prior approval from the Agency on Competition in order to carry out the following transactions (actions):

• reorganisation of a market entity through merger or acquisition;
• acquisition by an individual(s) of voting shares (participation interests in the charter capital, units) of a market entity, where such individual(s) obtains the right to dispose of more than 50% of the said shares; and
• acquisition in ownership, possession and use, including as payment (transfer) of the charter capital, by a market entity (group of individuals) of the main production assets and/or intangible assets of another market entity, if the book value of the assets comprising the subject of the transaction exceeds 10% of the book value of the main production assets and intangible assets of the market entity disposing or transferring the property.

Notification to the Agency on Competition should be submitted no later than 45 calendar days in the following cases:

• acquisition by a market entity of rights (trust management agreement/JV agreement) that allow the entity to give binding instructions in carrying out its entrepreneur activities or perform the executive body functions; and
• participation of the same individuals in the executive bodies, boards of directors, supervisory boards or other governing bodies of two or more market entities, provided that such individuals determine the conditions for conducting entrepreneur activities.

Consent and notification are only required if the aggregate book value of assets of the reorganising market entities and the market entity whose shares (participation interests in the authorised capital, units) are being acquired, or their total volume of goods sold in the previous financial year, exceeds 10 million MCI (approx. USD77,625,518 in 2024).

Economic concentration conducted without consent, leading to the establishment of a monopoly position, or the restriction of competition, can be deemed invalid by a court. Similarly, state registration or re-registration of a market entity, as well as the registration of rights to immovable property, carried out in violation of market concentration limits, may be declared unlawful and subsequently revoked.

To prevent violations of competition legislation, the Agency on Competition carries out regulation of economic concentration, analysis of the state of competition monitoring of prices and in product markets and is entitled to:

• issue mandatory orders to market participants to cease violations and/or eliminate their consequences, terminate or amend contradicted agreements, cancel transactions by terminating or declaring them void;
• issue mandatory orders to state and local executive bodies and organisations to revoke or amend their acts, eliminate violations; terminate, cancel, or amend contradicted agreements and transactions;
• consider cases of administrative offences in the field of competition protection and restriction of monopolistic activities; and
• apply to a court with claims and applications, and participate in legal proceedings.

According to Article 159.1 and 159.2 of the Code on Administrative Offences No 235-V dated 5 July 2014 (the “Administrative Code”), the following penalties are applied in violations of the Entrepreneur Code and the conclusion of prohibited anti-competitive agreements and co-ordinated actions: a fine from 3% to 5% of the income (revenue) derived from monopolistic activities, depending on the business size; and the monopolistic income obtained by businesses is also confiscated but cannot exceed one year’s income.

Under Article 161 of the Administrative Code, failure by market participants to obtain the consent for economic concentration of the Agency on Competition, as well as non-compliance with the requirements and obligations, and failure or delayed submission of a notification results in fines from 80 MCI (approx. USD621) to 1,600 MCI (approx. USD12,420), depending on the business size.

The principal laws in Kazakhstan governing the construction and operation of generation facilities are based on the following:

• EPI Law;
• ESEE Law;
• Rules for conducting tenders for the construction of newly commissioned generating facilities;
• Law on PPP and Law on Concessions – the design and construction of power plants, transmission lines, and substations;
• Law No 242 dated 16 July 2001 on architectural, urban planning and construction activities in Kazakhstan (the “Construction Law”);
• Order issued by the MNE approving the Construction Standards, which establish the timelines and requirements for the construction of various industrial power plants, including industrial heating TPP, state district power plants/TPP, gas turbine and combined cycle power plants, electrical substations, high-voltage power lines and other;
• Decree of the Government “Requirements for the Safety of Buildings and Structures, Building Materials and Products”;
• Environmental Code sets out environmental regulations and standards that apply to the construction and operation of generation facilities; development of environmental documentation is based on the following documents (but not limited to) –
1. instruction for determining the category of an object having a negative impact on the environment,
2. instruction on the organisation and implementation of environmental assessment,
3. methodology for determining the standards of emissions into the environment,
4. rules of state environmental expertise,
5. rules for public hearings,
6. rules for issuing environmental permits,
7. environmental impact statements, and
8. forms of environmental impact permits and procedures for their completion;
• Code of Kazakhstan No 125-VI ZRK dated 27 December 2017 on Subsoil and Subsoil Use, given that in operation of generation facilities coal, oil and gas resources are usually used; and
• Grid Connection Regulations – Order No 327 of MoE dated 23 September 2020 on Approval of the Rules for Technological Connection to Electric Grids of Power Transmission Organisations, covering technical specifications, grid interconnection agreements, and the responsibilities of both the facility owner and the grid operator.

The construction and operation shall be performed in accordance with the following documents:

• design documentation;
• detailed design documents;
• work organisation plan;
• project execution plan;
• construction organisation plan; and
• current industry standards/rules of Kazakhstan.

The following processes apply.

• Feasibility study and project planning – conduct a feasibility study to assess the technical, economic and environmental viability of the generation facility. Prepare a detailed project plan, including site selection, capacity assessment, resource availability and preliminary engineering designs.
• Land acquisition – identify and secure the necessary land for the construction and operation of the generation facility.
• Environmental Impact Assessment – participate in public hearings in accordance with the legal requirements in the field of environmental protection and prepare a report and presentation on the report on possible impacts and the documents necessary to pass the state environmental expertise according to the category.
• Sanitary protection – develop a preliminary (estimated) project of sanitary protection zone, with calculations of dispersion of atmospheric air pollution and levels of physical impact on the atmospheric air (noise, vibration, electromagnetic radiation and other physical factors) and, if necessary, an assessment of the risk to life and health of the population.
• Permitting and licensing – based on the Law No 202-V dated 16 May 2014 “On Permits and Notifications” (the “Law on Permits”), the generation is not licensed activity. Nevertheless, licences for design activities in construction design for electric supply up to 35 kV, up to 110 kV, and above, including technological design, are required. Therefore, construction work should start only upon (i) obtaining the respective licence or (ii) conclusion of a construction agreement with a licensed contractor. The construction could be started only upon submitting a notification of the commencement of construction and installation work to the State Architectural and Construction Supervision Authority.
• Grid connection agreement – negotiate and enter into a grid connection agreement with the KEGOC.
• Technical design and engineering – develop detailed technical designs and engineering plans for the facility.
• Insurance requirement – insurance of construction and installation risks, which include insurance of works, site, materials, equipment, civil liability insurance for damage to health and property of third parties, and other.

In Kazakhstan, depending on balance of electrical capacity, tenders and auctions are provided for construction of new generation facilities. Brief information on terms and conditions is provided below.

Tender for the Construction of Newly Generating Facilities

If a projected uncovered deficit of electrical capacity identified for the upcoming seven-year period in the UPS during the first five years of the forecast exceeds 100 MW, the authorised body conducts a tender for the construction of generating facilities to be newly commissioned, with a capacity sufficient to cover the projected deficit.

The winner should sign the agreement within ten business days. Within 45 calendar days from the announcement of the tender results, the authorised body concludes an agreement, which specifies the deadline for commissioning the generating facilities and establishes the responsibility for non-performance or improper fulfilment of the obligations.

Auctions

If the forecast balance of electrical energy and capacity for the next seven years shows an anticipated shortage of regulating electrical capacity exceeding 100 MW in the UPS during the last three years of the forecast, the authorised body considers the volumes of introduced capacity in the plan for placing generating units with manoeuvrable generation mode.

The selection of projects for the construction of newly commissioned generation facilities with manoeuvrable generation mode is carried out through the organisation and conduct of auction bidding. The authorised body includes the winner of the auction in the list of power plants and within 15 calendar days sends the draft of the power purchase agreement.

Within 30 calendar days, the winner signs the agreement at an individual tariff for the service of maintaining the readiness of electric power. The tariff is determined based on the auction bidding results and the agreement is signed for a period of 15 years.

Registration of Ownership Rights

The following steps are mandatory for registration of title to a completed project:

• commissioning;
• certificate of acceptance; and
• registration of title to immovable property.

Any rights to immovable property for more than one year are subject to registration.

Land plots can be either owned or used, on a permanent or temporary basis. According to Article 84.2(4) of the Land Code, a land plot can be compulsorily expropriated for the construction (reconstruction) of power system generations, provided that the owner or non-state land user receives equivalent compensation and gives consent, or by a court decision.

Expropriation of irrigated agricultural land, land of experimental fields of agricultural, biological, irrigation and land reclamation, fish farming institutions, as well as land from the forest and water reserves, is allowed in exceptional cases as to the construction of generations for the use of RES, construction power transmission lines, communication lines, and major pipelines when there are no other alternative options for their placement.

If a land user has redeemed the right to use a land plot granted for state needs, compulsory alienation of the land plot will include compensation for the redemption cost. Upon request, an alternative land plot may be provided. If the land user has not redeemed the granted right, an alternative land plot may be provided in accordance with the Land Code. Full compensation for damages to the land user is provided.

The EPI Law does not directly specify the requirements for decommissioning generation facilities. However, under the Environmental Code, as part of the remediation of the environmental impact caused by power industry plants, measures must be taken to restore land plots to a state ensuring the safety of human life and health, environmental protection, and their suitability.

The specific procedures for decommissioning construction facilities, closing hydrogeological wells, landfill closure, waste management, and other activities in the nuclear energy sector are determined by the legislation of Kazakhstan.

Financial Assurance

The remediation of the environmental impact caused by facilities (category I) is carried out at the expense of the entity that is the operator of such a facility at the time of its decommissioning. This is intended to ensure that funds are available to cover the costs of decommissioning when the facility reaches the end of its physical or economic life.

The principal laws that regulate construction and operation of transmission lines include the EPI Law, the Environmental Code and the Construction Law. Please see 4.2 Obtaining Approvals for the Construction and Operation of Transmission Lines and Associated Facilities for details concerning regulation on environmental reviews.

Power transmission lines can be owned by both the state and private entities and are subject to registration with the judicial authorities. Inter-regional and/or interstate power transmission lines, substations, and distribution devices with a voltage of 220 kV and above, which are part of the UPS, are owned and operated by the state (KEGOC) from the moment of their creation.

The national electric grid in Kazakhstan is not subject to privatisation. Regional-level power grids provide electrical connections within regions and transmit electricity to retail consumers, and are owned and operated by regional power grid companies.

As discussed in other sections, there is currently no legal regulation in Kazakhstan regarding energy storage issues.

Sales and Transactions of Power Transmission Assets

The owner of electric networks that provide electricity transmission services has the right to sell, transfer on a gratuitous basis to or place under the trusteeship of a power transmission organisation, the electric networks to which they are directly connected.

Power transmission organisations must comply with the requirements for electricity transmission activities, which include the following:

• dispatch technological control;
• departments staffed with certified personnel responsible for the operation and maintenance of electric networks, equipment, mechanisms, occupational health and safety, provided with personal and collective protective equipment, specialised clothing, tools, and devices;
• contracts with the system operator for the provision of system services; and
• automated systems for commercial metering and telecommunication systems that ensure their integration with the systems installed by the system operator and regional electric network companies.

According to the Environmental Code, the construction of overhead transmission lines with a voltage of 220 kV or more and a length exceeding 15 km is classified as an activity that requires an Environmental Impact Assessment (EIA).

Overhead transmission lines with a voltage of 110 kV or higher are included in the list of activities and objects that require the mandatory screening procedure for assessing the impact of planned activities. The screening procedure is conducted to determine whether a full EIA is required for the specific project.

The EIA process involves evaluating the potential environmental effects of the project and proposing measures to mitigate or minimise those impacts. The EIA requires public participation, including via public hearings. The EIA process is regulated by the Ministry of Ecology and Natural Resources, which issues EIA conclusions that shall be the basis for further design and construction of electric transmission lines.

Design documentation for the construction of transmission lines shall require expert examination of a specialised expert organisation (Gosexpertiza). Pursuant to Order of MoE No 210 dated 18 December 2014 “On Approval of the Electric Grid Rules”, the design and construction of duplicating (shunt) power transmission lines and substations are carried out with prior notification and approval with akimats (local administrations), MNE, CRNM and the KEGOC in the following manner:

• when submitting an application for the connection of new power transmission lines, the network user notifies the power transmission organisation to which they are connected;
• completed applications for existing or new generating installations are submitted by the network user to the KEGOC (20 business days) and forwarded, along with their opinion, to the akimats, MNE (8 business days);
• the decisions made by them are then forwarded to the KEGOC; and
• KEGOC notifies the network user and the power transmission organisation of the decision (10 business days).

According to the Law on Permits, main transmission lines with voltage up to 35 kV and up to 110 kV and above can be constructed by a company that has a licence for special construction and installation works, including major repairs and reconstruction.

The design and construction of duplicate (shunt) power transmission lines and substations could be on the increase in electrical power consumption by the consumer. Moreover, an energy generating organisation and a consumer belonging to the same group of individuals have the right to jointly or independently design, construct and operate their own power transmission lines with a voltage of 220 kV and above, provided that the electrical energy transmitted through such lines will be used for consumption within the said group of individuals within the administrative-territorial unit. They must also comply with the technical requirements determined by KEGOC to ensure the reliability of the operation of the UPS. These power transmission lines are owned by those individuals and cannot be transferred to the national company without their consent.

Public servitudes can be established without expropriating land plots. This can be done to meet the needs of the state and local population. Public servitudes are established for the purpose of using land plots for the installation and operation of electrical and other lines and networks.

The granting of rights to land plots is regulated by Article 43, while the construction and operation of heat networks are governed by Article 44 of the Land Code.

Under Article 84.2(4) of the Land Code, a land plot can be compulsorily expropriated for the construction (reconstruction) of power transmission lines and communication lines, provided that the owner or non-state land user receives equivalent compensation and gives consent, or by a court decision.

For details on expropriation and compensation, please see 3.4 Eminent Domain, Condemnation or Expropriation Rights.

Transmission of electrical energy and production, transmission, supply of thermal energy, and power plants belong to the sphere of natural monopoly. The process of connecting to the power supply networks consists of the following stages (excluding installed capacity up to 200 kV):

• submission of an application for the issuance of technical conditions, which is prepared by the architecture and urban planning authority;
• review of the application by the natural monopoly entity;
• sending of technical conditions by the natural monopoly entity to the architecture and urban planning authority;
• issuance of the result of the application review for the issuance of technical conditions, together with the architectural and planning tasks and topography;
• execution of works by the consumer in accordance with the technical conditions; and
• notification of the consumer about the completion of works and readiness for connection to the networks of the natural monopoly entity.

As mentioned, legislation in Kazakhstan provides for the design and construction of duplicating (shunt) power transmission lines and substations. This process is carried out with prior notification and approval.

Regional power grid companies perform the function of electricity transmission through the electrical networks within their balance responsibility division and if the power transmission organisation or network user plans to install new electrical installations at the boundary of the balance responsibility division, they notify, no later than eight months before the planned installation, other adjacent network users about the proposed identification of the electrical installations.

The CRNM has authority to implement a tariff policy for regulating natural monopolies. As per MNE Order No 90 dated 19 November 2019, the Rules for setting tariffs apply to electricity transmission, technical dispatching, and production-consumption balancing services. The tariff for electricity transmission services through the national electricity grid is applicable to consumers engaged in transmitting electricity, including transit and exported electricity.

When setting tariffs for natural monopolies, several methods are considered, including cost recovery, stimulating tariffs, indexation, and tariffs based on PPP or concession contracts. The MNE has 90 business days to review tariff applications. In cases where public hearings are needed, draft tariffs and tariff structures must be made accessible to the public.

1.       Tariff for regulated services related to the production, transmission, distribution and supply of thermal energy as a whole is calculated using the following formula:

T=(Z+P)/Q

where:

• Z – economically substantiated costs of thermal energy;
• P – allowed profit necessary for ensuring the effective production, transmission, distribution and supply of energy; and
• Q – planned annual volume of thermal energy consumption by consumers.

2.       Tariff for the transmission, distribution and supply of thermal energy as a whole is calculated as follows:

T=(T+(Z+P))/Q

where:

• T – tariff for the production of thermal energy, in tenge per 1 Gcal;
• Z – economically substantiated costs incurred by the entity for transmission, distribution, supply; and
• P – allowable profit necessary for the efficient provision of regulated services (transmission, distribution, supply).

3.       When approving the tariff for regulated services related to thermal energy supply, or if separate tariffs for regulated services related to production, transmission, distribution and supply of thermal energy are approved for the entity, the tariff is calculated using the following formula:

T=(T(prod.)+T(transm.)+(Z+P))/Q

where:

• T (prod.) – tariff for the production of thermal energy;
• T (transm.) – tariff for the transmission and distribution of thermal energy;
• Z – economically substantiated costs incurred by the entity for providing regulated services related to thermal energy supply; and
• P – allowable profit necessary for the efficient provision of regulated services.

KOREM ensures equal conditions for the access of subjects of the WEM to the market for centralised trading in electricity. Moreover, contracts concluded by energy supply and energy transmission organisations in the retail market are required to contain equal conditions for all participants in the retail market of electrical and thermal energy.

Prices and conditions for the supply of electrical energy by energy supply organisations are determined in accordance with the sales contract by mutual agreement of the parties, taking into account the tariff set by the energy transmission organisation.

The principal laws governing the construction and operation of electric distribution facilities are the EPI Law and the Construction Law. In addition, there are a several ministerial Orders regulating the construction of electricity facilities. For details, please see 4.1 Regulation of Construction and Operation of Transmission Lines and Associated Facilities.

As discussed in other sections, there is currently no legal regulation in Kazakhstan regarding energy storage issues.

In general, considering interconnectedness of transmission and distribution activities under the Kazakhstan legislation, regulatory processes for obtaining all approvals necessary to construct and operate electric distribution facilities are identical.

Based on the Law on Permits, the distribution is not licensed activity. In the energy sector, licensing activity is only the purchase of electricity for energy supply. Licence is defined as “a permit of the first category issued by the licensor to an individual or legal entity to perform a licensed activity associated with high risk”.

As mentioned above, in Kazakhstan, the transmission of electrical energy refers to technologically interconnected actions aimed at transmitting and/or distributing electrical energy through electrical networks. Given their connection, terms and conditions imposed in approvals for the construction and operation of electricity distribution facilities are identical with transmission lines.

In general, given the technological interconnectedness of transmission and distribution activities under the legislation in Kazakhstan, these issues in relation to the construction and operation of electricity distribution facilities are identical to those in relation to transmission.

The Law on Natural Monopolies identifies that the distribution of thermal energy is considered to be a natural monopoly. As mentioned above, the transmission of electrical energy in Kazakhstan involves a series of interconnected technological processes as transmitting and distributing electrical energy through electrical networks. Hence, please see 4.5 Monopoly Rights to Provide Transmission Services for details.

In Kazakhstan, the transmission of electrical energy refers to technologically interconnected actions as transmitting and/or distributing electrical energy through electrical networks. Please see 4.6 Transmission Charges and Terms of Service for details on regulation.