Tariff policy

Electricity tariff setting scheme

Tariff regulation, depending on the type of activity of energy companies, falls within the competence of the Committee for the Regulation of Natural Monopolies and Protection of Competition under the Ministry of National Economy of the Republic of Kazakhstan (hereinafter – the Committee) or line ministry – the Ministry of Energy (hereinafter – the ME).

Electricity tariffs for energy producing organizations (hereinafter – EPO) between 2016 and 2018 were set at the level of ceiling tariffs for plants which were approved in 2015.

Based on the Concept for the Development of Fuel and Power Sector of Kazakhstan until 2030, which was adopted in 2014, the Capacity Market has been introduced since 2019 as an effective mechanism for providing the industry with a sufficient level of investment, which will have a favorable influence on the market in the long term.

In the context of control over prices and tariffs in power industry, the ME is entrusted with the functions of approval of ceiling tariffs for electricity, ceiling tariffs for balancing electricity, and ceiling tariffs for the service of maintaining the availability of electrical capacity. The ME also establishes individual tariffs for the service of maintaining the availability of electric capacity for existing and newly commissioned generating plants.

Starting from 2019 considering the introduction of the capacity market for energy-producing organizations, the following were formed:

• ceiling tariffs for capacity, including the costs of investment projects and repayment of the principal debt (on credit funds attracted for the implementation of investment projects);
• ceiling tariffs for electricity, including the cost of electricity production and the rate of return. The Order No. 205 dated May 22, 2020, on the approval of the “Methodology for establishing the rate of return considered when approving ceiling tariffs for electricity, as well as a fixed profit for balancing taken into account when approving ceiling tariffs for balancing electricity” was amended by the Order No. 76 of the Republic of Kazakhstan Minister of Energy dated March 11, 2021.

The mechanism of a pass-through charge included in EPO electricity sales tariff has been introduced since July 1, 2021 in accordance with the Republic of Kazakhstan Law “On Supporting the Use of RES”, in order to reimburse the costs of purchased EPO electricity. The pass-through charge is calculated by “SFC for RES Support” LLP based on expenditures for supporting RES in the Republic of Kazakhstan and the volumes of electricity supply by EPO, which are conditional consumers. Considering the introduction of RES pass-through charge, the tariffs for electricity of the country's energy-producing organizations were revised.

Tariffs for the transmission and distribution of electricity for power transmission companies, to produce heat and tariffs for energy supply (ESO) are regulated by the Committee. Regulation and control by the Committee is performed in strict accordance with the laws and regulations.

Tariff decisions are heavily influenced by social and political issues. Economic, social, and other policies of the Government of the Republic of Kazakhstan may have a significant impact on the Group's operations.

The final electricity tariff comprises the below components:

• the selling price of the energy producer (ceiling tariff and pass-through charge);
• prices for electricity transmission through the National Grid;
• prices for transmission and distribution over REC networks;
• regulation, balancing and dispatching services;
• services to ensure the availability of electric capacity.

MODERNIZATION OF PLANT CAPACITIES THROUGH THE SERVICE OF THE ELECTRIC CAPACITY MARKET AND CEILING TARIFFS

Average weighted tariffs for electricity generation

Capacity market has commenced operation in the Republic of Kazakhstan from January 1, 2019. The income received by electricity producers is divided into two components – income from the sale of electricity (used to cover current expenses) and income from the provision of services to maintain the availability of capacity (used for repayment of the principal debt and investments). A single cap tariff for the service of maintaining the availability of capacity for all EPOs was approved in the amount of 590 thousand tenge/MW*month. Electricity tariffs were approved for 2020–2025. However, the approved tariffs do not provide for indexation by years. At the same time, in accordance with paragraph 2 of Article 12-1 of the Law of the Republic of Kazakhstan "On Electricity", if necessary, electricity tariffs are adjusted annually.

With the introduction of the capacity market, the average weighted electricity tariffs in 2020 for stations increased, considering adjusted ceiling tariffs introduced from July 1, 2020 and the introduction of individual capacity tariffs.

In connection with the approval of deficit tariffs for stations by the ME of the Republic of Kazakhstan, in accordance with the Regulations, EPO submitted applications for adjusting the ceiling tariffs for electricity to the ME of the Republic of Kazakhstan. As a result, from July 1, 2020, the ME of the Republic of Kazakhstan approved the ceiling tariffs for electricity, which were valid until March 31, 2021.

Considering the approval of the Methodology for determining the rate of return (Order of the Minister of Energy No. 205 dated May 22, 2020, as amended in accordance with Order No. 76 dated March 11, 2021) – the rate of return was included in the ceiling tariffs of EPO from April 1, 2021 in accordance with the Order of the Minister of Energy of the Republic of Kazakhstan dated 30.03.2021.

In accordance with the Republic of Kazakhstan Law "On supporting the use of renewable energy", EPO's electricity sales tariff has included the markup for supporting the use of RES from 01.07.2021 at the level of 1.57 tenge/kWh, calculated by “SFC for RES Support” LLP based on the costs of supporting RES in the Republic of Kazakhstan and the volume of electricity supply by EPO, which are conditional consumers. Considering the introduction of RES pass-through charge, EPO's new ceiling electricity tariffs were approved by the Order of the Minister of Energy of the Republic of Kazakhstan No. 211 dated 24.06.2021.

Thus, the following ceiling electricity tariffs were in effect during 2021:

From the beginning of 2021 a significant increase in the tariff occurred “ESDPP-1” LLP and “SharHPP” JSC by 28.7% and 27.6%, respectively, at “SDPP-2” JSC and “APP” JSC by 11.3% and 14.5% respectively. For “MHPP” JSC, the tariff increased slightly from 12.02 tenge/kWh to 12.47 tenge/kWh, or by 3.7%.

The work with the Ministry of Energy of the Republic of Kazakhstan has been carried out starting from 2020 regarding the approval of investment tariffs for stations implementing large-scale investment projects – “MHPP” JSC, “SharHPP” JSC, “APP” JSC and “SDPP-1” LLP.

On 28.02.2021, “SDPP-1” LLP concluded an investment agreement with the Ministry of Energy of the Republic of Kazakhstan for modernization, reconstruction, expansion, and renewal of the Project for the restoration of power unit No. 1 with the establishment of a tariff in the amount of 1,199 thousand tenge / MW* month for 2025–2031 for volume of services amounting to 476,6.

Parameters of concluded investment agreements below.

The parameters of the concluded investment agreements are given below

ESDPP filed an application to the Market Council (KEA) on 26.01.2021 for approval of an individual tariff for the implementation of the project "Expansion and reconstruction of ESDPP-2 with the installation of power unit No. 3". After receiving a positive recommendation from the Market Council on March 29, 2021, the application was submitted to the Ministry of Energy of the Republic of Kazakhstan.

From 2022 onwards, electricity and capacity tariffs are forecasted with indexation.

Tariffs for electricity transmission services

The ceiling tariff for 2021–2025 with its entry into force from 01.06.2021 was approved for “Alatau Zharyk Company” JSC, which is also a natural monopoly entity, by the Decree of the DCRNM dated May 17, 2021. The approved tariff for 2021 is 6.09 tenge/kWh with an increase of 0.8% to the current tariff.

An increase (adjustment) of tariffs is made no more than once a year, in cases of an increase in the costs of RES for objective reasons (in accordance with Article 22 of the Law of the Republic of Kazakhstan “On Natural Monopolies”, the grounds for changing the tariff approved by the authorized body are changes in the cost of strategic goods (purchased electricity ).

Tariffs for electricity sale

The power supply company “AlmatyEnergoSbyt” LLP is a socially significant market entity and is also subject to regulation by the authorized body. The tariff calculation includes operational, financial and investment components. There are risks of artificial containment of tariff growth by the Regulator to maintain the social stability of the population in the regions. For individuals, differentiation in terms of consumption rates has been maintained, for legal entities, electricity is supplied at average selling tariffs.

On February 1, 2021 in connection with the reduction of “KEGOC” JSC tariff, tariffs for “AES” LLP were reduced to 18.25 tenge/kWh (by 1.2% compared to the previous one), including differentiated tariffs for consumer groups.

Considering an increase in tariffs for energy sources from 01.07.2021, DCRNM sent a Motivated Opinion dated 23.08.2021 on the price increase from 01.09.2021 up to 19.74 tenge/kWh or by 14.5% to the current level.

Heat tariff setting scheme

In view of the social significance of heat energy prices, the state, through CRNM, is implementing a policy of restraining the growth of tariffs, which is expressed in the desire to underestimate heat energy tariffs.

Unlike the power industry, the structure of heat supply systems consists of three sectors: production, transmission (including distribution and sale of heat) and consumption of heat.

The heat energy market is represented only by the retail sector, with the actual absence of a retail consumer's practical ability to choose heat energy suppliers.

Heat production volumes

As for a natural monopoly entity, the legislation provides for the approval of long-term (5+ years) ceiling tariff levels for organizations producing heat, with the inclusion of an investment component and annual indexation of costs. The ceiling tariffs are approved by the Committee. However, an increase in tariffs is made no more than once a year and there are risks of maintaining tariffs without an increase in cases of an increase in station costs for objective reasons.

Tariffs for regulated services on production of heat for 2022– 2026 with entry into force from 01.01.2022, were approved for “APP” JSC by a joint order of the Departments of the Committee for the Regulation of Natural Monopolies (hereinafter DCRNM) under the RK Ministry of National Economy for Almaty city No. 141-OD and for Almaty region No. 267-OD dated November 29, 2021, where for 2022 an increase to the current tariff was 8.6%.