KAZAKHSTAN - The Power Sector

The country has faced serious power shortages since 1992, and more problems are expected in the short-term. Last winter, for example, several Kazakh cities had to manage with limited heat and power supplies. The focus of the government is to achieve self-sufficiency in power, but this may not be possible for some years. Kazakhstan currently buys more than 15% of its electricity needs from Russia, Uzbekistan and Kyrgyzstan. Periodic payment difficulties have caused electricity supplies to be cut, with the Kazakh industry and population having had to endure frequent power cuts even in winter.

The government regards the state power company Kazakstanenergo as cumbersome and has been considering its sale to the private sector for some time. Before that is done, the company may be split according to its different activities, namely power generation, transmission and distribution - i.e. to be made more efficient and attractive to investors. There are plans to build several new power plants in the country. The goal is to put in place an additional 10,000 MW in installed power generating capacity by the year 2010, mainly by attracting foreign investment.

There has been a positive response from foreign companies to proposed power generation projects in Kazakhstan. But critics complain that the government is still unsure about what the sector should look like a decade from now. It remains unclear whether this sector will remain in state hands or be privatised. The government has, for example, said it intends to put the transmission of power into the hands of private operators. Tenders for the operation of seven of the country's major power plants were issued in March 1997. But the situation has become vague since then.

A big part of the problem is that investors are daunted by a combination of low electricity tariffs set by the government and, despite the low tariffs, a high incidence of non-payment of bills as well as outright theft. The result

is a serious liquidity problem, with the power industry owed an estimated $700 million by local customers. Kazakhstanenergo is thus plagued by debts to its fuel suppliers which it is unable to pay because of credits which it is unable to collect from its customers.

Tractebel was one of the first companies to get involved in the Kazakh power sector, buying Almatyenergo - which serves 15,000 enterprises and state institutions and 650,000 households in Almaty - at a cost of $5m in August 1996. Operating through an affiliate, Almaty Power Consolidated, it initially faced problems with subsidies, non-payment of bills and the company's outstanding debt. It acquired a bad image as there was criticism of the company for firing workers and cutting off supplies to unpaying customers. But these problems are being overcome: Tractebel has brought prices closer to market levels, bill collection levels have improved from less than 30% to more than 90% and there is a greater degree of efficiency in operations.