We should stick to golden mean in tariffs — Alikhan Smailov on Kazakhstan modernization of life support systems

The progress of the program "Tariff in exchange for investment" was considered at the Government session chaired by the Prime Minister of the Republic of Kazakhstan Alikhan Smailov, El.kz cites primeminister.kz.

As noted by the Minister of National Economy Alibek Kuantyrov, the infrastructure of the housing and utilities sector in the country needs to be updated in order to provide Kazakhstani people with heat, electricity, water and other public services without interruption. In addition, there is an outflow of qualified specialists in this sphere, whose salaries have not been increased for years.

To solve these problems, the program "Tariff in exchange for investment" is being implemented, according to which about 3 trillion tenge of investment is expected to be attracted for the years 2023-2029 to modernize 62 thousand km of engineering networks. According to calculations, this will ensure a 20% reduction in wear and tear of networks by 2029. According to him, the new tariff policy prioritizes the interests of consumers in providing quality services at reasonable prices.

Thus, in 2023 it is planned to attract about 250 billion tenge of investments for the repair of 5.8 thousand kilometers of engineering networks. In the second quarter, the ministry approved 212 applications of housing and utilities companies for changes in tariffs and investment programs (increase in repair work, wages of employees, maintenance of ownerless networks). As a result, the change in tariffs for public utilities is moderate, on average from 10 to 30%, taking into account the balance of interests of consumers and enterprises.

The Minister of Energy Almassadam Satkaliyev reported that the International Auditing Company KPMG has completed a technical audit of 57 power plants of the Republic of Kazakhstan, including 37 thermal power units. Based on the results of the survey, all stations were categorized depending on the technical condition of equipment, terms of operation, etc. As of today, action plans have been formed for each of them.

Based on the results of the assessment, it was revealed that 62% of power boilers and 58% of turbines have reached the end of their service life and therefore need to be replaced. The volume of capacities to be replaced is 2.5 thousand Mw. Since June 1, according to the submitted applications, the Ministry has adjusted marginal tariffs for electricity for 27 out of 47 energy producing organizations, the average growth of tariffs of which will be about 24%.

In general, it is planned to increase the marginal tariff on the electric capacity market to 1.5 million tenge per 1 Mw per month. This measure will ensure an annual investment inflow of 160 billion tenge into the generation sector for the renovation and repair of existing plants.

Marat Karabayev, Minister of Industry and Infrastructural Development, reported that today there are about 128 thousand kilometers of heat, water supply and water disposal networks in the country. Their total depreciation is 51%, and the task is to reduce this figure to 40% in the coming years. The highest deterioration of utility networks remains in Pavlodar, East Kazakhstan, Karaganda regions and Ulytau region.

This year 86 billion 300 million tenge has been allocated for modernization of 126 km of heat networks. For 3 months, 23 km have been laid down which is 18% of the total plan. In general, in preparation for the upcoming heating season at the stage of implementation is 57 projects.

This year 280 billion tenge has been allocated from the republican budget for construction and reconstruction of water supply and water disposal systems. Today there are 402 projects at the stage of realization. By the end of this year, 120 more rural settlements and 4 cities will be provided with centralized water supply (bringing access to 100%).

Prime Minister emphasized that today there is a critical situation with the state of infrastructure of housing and communal services. A recent example is the accident at the Mangystau Nuclear Power Plant, as a result of which Atyrau and Mangystau regions were left without power supply. The past heating season also revealed many problems.

He added that keeping all infrastructure facilities in working condition requires large investments, as many of them have been in operation since the middle of the last century.

"In order to effectively modernize and overhaul life support systems, the Tariff for Investment program was proposed. This approach will allow to reconstruct, modernize and expand the existing assets of energy producing organizations, improve the reliability of the energy system and reduce the wear and tear of equipment," Alikhan Smailov said.

According to him, the growth of tariffs for the population in the current year will amount to 10-30%, which is a very moderate increase, without which it is impossible to effectively maintain the infrastructure of the housing and utilities sector.

"In the issue of tariffs we should stick to the golden mean. We must take into account the needs for the development of the industry, but also the capabilities of the population," Prime Minister emphasized.

Head of the Government pointed out that for more than three years the stations, utility companies of the republic worked practically without income, so funds were not invested in repair and modernization. If it was done, it was done through the attraction of borrowed capital or at the expense of the state.

At the same time, repair of power facilities became dozens of times more expensive. There was a significant increase in prices for rolled metal products, pipes, fittings, bearings, pumps, electrical equipment, and so on. Due to low wages, an outflow of qualified specialists began to leave the energy industry. At the same time, the enterprises could not make their working conditions more attractive.

Moreover, starting from 2021, Kazakhstan faces a deficit of electric energy, in this regard, it is necessary to increase its generation.

"Therefore, the growth of tariffs is necessary. And with the introduction of the "Tariff in exchange for investment" program, we will be sure that the profit from the tariff increase will not go into someone's pocket, but to the real modernization of production facilities. The new policy will be based on the principles of transparency, accountability and publicity of the entire tariff setting process. The relevant legislative amendments, regulations have already been adopted," Alikhan Smailov said.

As Prime Minister noted, previously the state could not adjust investment programs and tariffs of natural monopolies. Now it is possible.

At the same time, he emphasized that the growth of tariffs would not affect the incomes of low-income families.

"At the expense of local budgets, low-income families are provided with housing assistance to pay for utilities. It is paid if the level of expenditure on utilities exceeds 10% of the average monthly total family income," Prime Minister said.

In general, he said, currently the central and local executive bodies are doing a lot of work in the communal sector. Therefore, no region should not allow disruption of the heating season, as well as major accidents. This is especially true for the northern regions, where there is a short construction season and early start of the heating period.

"Repairs must be carried out clearly according to established schedules. This year about 6 thousand kilometers of engineering networks will be repaired. These are extremely worn-out infrastructure facilities that require immediate modernization. More than 25 thousand kilometers of ownerless utility networks will be handed over to monopolists. They must put them in order. All these changes should be felt by our citizens," Prime Minister said.

In conclusion, he instructed the Ministry of Finance and the Financial Monitoring Agency to ensure control over the proper execution of investment programs by utilities and power plants, the Ministry of National Economy, the Ministry of Energy and the Ministry of Industry to prevent unreasonable growth of tariffs and to ensure the protection of consumer rights.

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