Aset Nauryzbayav, the former President of KEGOC
ALMATY, April 26
(Specially for the GLOBE)
The electric power energy sector of Kazakhstan has become a testing site for the whole CIS lately. It was in this sector that the theories of liberal reforms were applied for the first time and in a radical mode. However, contrary to Armenia, where a very acute crisis in the energy sector brought about a dramatic change in the mood and views of public on the need for the nuclear powered energetic in their country, in Kazakhstan the reforms were promoted from the top.
As usual, the reforms attracted little interest from potential market participants, who were unwilling to look beyond their switchers and transformers. Nevertheless, those who benefited from the reforms (primarily big industry) quickly adopted them, while those who were negatively affected by the reforms harshly criticize the policy. Quite naturally, a significant proportion of the public stands against the Thatcherite reforms. Those who benefit from the policy never inform newspapers, the President, and the Government about it. Further, the final positive impact of reforms is far less understandable to an ordinary citizen than a rise in the electric bill for one�s apartment.
What have the liberals to say in their defense? First, the macroeconomic impact of the abolition of the hidden subsidies of small customers by larger ones has proven to be a positive one, as it has stimulated the development of production. This allows for the creation of more working places and the payment of wages, which cover the expenditures of individual customers. This is especially important for Kazakhstan, which was primarily founded upon city-forming enterprises. Second, a tariff policy that is based upon real expenditures reveals the real cost of all goods produced, and better allows for sound decision-making concerning the profitability of certain enterprises. Third, as was mentioned above, by improving the position of the large enterprises in the world market (which are mostly exporters), the country�s balance of payments can be improved.
Of course the alteration in such fundamental issues as the tariffs for electric power or heat supply must be introduced gradually. Government policy concerning the medium-term policy in tariffs needs to be formulated this spring or summer. It must be honestly admitted that during some period, the rural population will be subsidized at the expense of the urban one. The existing errors in the method of tariffs accounting on the wholesale and retail markets must be corrected. Finally, we must begin to seriously develop the retail market for electric power.
How can it be done? First, the principle of division of the monopoly and non-monopoly functions of distributive companies that has been announced in The Law on Natural Monopolies must be carried out. This means that the enterprises essentially dealing with the maintenance of power girds must be separated from marketing. The regulations on the provision of the power transmission services by a gird enterprise must be clearly specified.
In the same category is a division of the power generating stations into independent enterprises. The integration of sources of electricity and grids that seems natural, is in fact a �wrong monopoly�. It is wrong because it allows the girds to pay the expenditures involved with energy production, thus gaining advantages in competition with other stations. When the stations are divided from sources they are forced to correctly form their cost price.
The implementation of all of the suggested ideas is closely linked with the future fate of the distributive companies. In addition to the general unfavorable background for investment, potential investors are scared by the difficult experiences of the western companies such as Tractebel and AES. The former is currently engaged in an unsuccessful struggle with the Antimonopoly Committee for the tariff. The latter has so far been unable to achieve a stable position on the market, wallowing in numerous lawsuits. The problems of these firms are mainly caused by imperfect legislation and Kazakhstan�s poor privatization scheme. It is impossible to insure a normal situation for the new investors given the volatile mood of our Government.
It is therefore necessary to seek investors in the vicinity. In fact there are already real investors. These are creditors who have so far provided regional companies with a more or less acceptable existence. Of course these were investments in the turnover capital which was notoriously consumed in form of the social supply to non-payers and as �commercial� losses -which means losses nobody has yet seen. Nevertheless these investments were made and the control of enterprises could pass to creditors who are anxious not to increase debts any further, providing the creditor�s debt is converted into stocks.
Of course, there is a significant probability that the producing source could become one of the large stockholders. Then the issue broadly discussed at the Conference organized by THE GLOBE newspaper last August could appear, that is: could station keep grids in their ownership? The only answer to this question it seems: Yes they can, but under specified conditions. Now when the functions of the transmission of power and its marketing are still undivided in many RECs, and RECs purchase power for all their customers, these purchases must be implemented based upon open tenders. If the selling companies are separated from the transmitting one, the owner of a transmitting company must provide equal conditions for all traders presented on the market.
It is possible that creditors (and the state first of all) may prefer to sell part of their stock in the stock market. No special interest for these stocks can be expected to occur at first. However some insignificant package could be fostered by the largest Western companies, in order to begin monitoring the potentially interesting market. In the future, providing everything is normalized, an investor could increase its share, creating at last some movement on our motionless stock market.
In this article I haven�t refuted my belief about the advantage of a long-term concession of RECs over their privatization. This thought was announced in the Program on future reform of the electric power market. But the existing conditions don�t allow for the implementation of this scheme, at least one that in the best interests of the customer. First, the unstable situation scares serious concessionaires. Second, there is no experience in self-government and in public control in society. This could result in the non-fulfillment of obligations taken by a concessionaire, as is widely practiced today. Therefore now it is time to agree with the sacrifices involved with the antimonopoly regulation and acknowledge the impossibility for tariffs based upon market price for electrical power distribution.
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