Kazakhstan - AHK Zentralasien

7 downloads 27 Views 1MB Size Report
Mar 11, 2013 - Kazakhstan proposed as the theme of the exhibition the topic “Energy ..... power generation through the installation of steam turbines. A new.

march 2013

Energy conservation and the diversification of the industry are key to reducing the energy intensity of Kazakhstan’s economy. • The Government of the Republic of Kazakhstan adopted a “Plan to increase energy efficiency” and a law aimed at reducing the energy intensity of the country’s GDP by at least 10% until 2015 and by 25% until 2020 (from 2008 levels) due to the efficient use of fuel and energy resources. • To date, energy consumption per one unit of Kazakhstan’s GDP exceeds many countries’ indicators: Russia’s by 1.2 times, China’s by 1.5, the USA’s by 2.5 times, Germany’s by 3.2 times, Japan’s by 3.3 times. The reason is a large share of commodity production in Kazakhstan’s industry, but also high electricity transmission losses and the inefficient use of electric power and heat. • Reduction of energy consumption through changing the GDP structure towards services as it happened in many countries will hardly occur in Kazakhstan, given that energy-intensive manufacturing is projected to grow faster than GDP. The reduction of the energy intensity of GDP is thus only possible through energy conservation and the diversification of manufacturing towards less energy-intensive branches. • The new law “On energy conservation and enhancing energy efficiency” provides for benefits to the participants of energy saving programs, for measures to control the use of electrical and heat energy and foresees the introduction of fines for companies and organizations with excessive heat and energy losses. • Energy saving measures will focus on two main sectors: the industry and the government sector (schools, hospitals, public institutions, etc.). The measures are aimed at reducing losses in transformers, electrical and lighting equipment, and at promoting the use of more energyefficient electrical equipment, heating, ventilation, and air-conditioning systems. • Within industry, initial work will focus on 15 major enterprises, which account for about 40% of the country’s electric energy consumption. • Large projects for the upgrading of the country’s heating systems are being implemented in order to increase energy efficiency, reduce fuel consumption, prevent heat and water loss, and reduce air emissions. Among them are projects by the Central-Asian Electric Power Corporation JSC for the upgrading of the centralized heating supply of Pavlodar, Ekibastuz, and Petropavlovsk; a project by “Heating supply of Aktau” aimed at the modernization of the heating networks of Aktau; a project together with the EBRD for improving the efficiency and the modernization of the Pavlodar Thermal Power Station-3 . • There is a new mechanism for electricity prices regulation in place since 2009: tariffs should be sufficiently high to cover investments in new facilities and in the upgrading of the existing ones.

page

• Amendments to the law “On power industry” came into effect in 2009, which provide for differentiated tariffs for individual consumers depending on the volumes of electricity consumed. For legal entities the tariffs are higher and separated into day-time and night-time. • Kazakhstan is looking into ways to use renewable energy sources. A law “On the support of renewable energy sources use” has been adopted. Wind- and hydropower genration are considered to be the most promising ones. Currently, 0.5% of the electric power produced in Kazakhstan is from renewable energy sources (excluding large hydro-power stations). According to the “Electric power development program” a minimum 1 bn kWh per year or 1% of the electric power must be produced from renewable energy sources until 2014. The first solar power plant in Kazakhstan on an industrial scale has been commissioned in the Zhambyl region. Five small hydroelectric power plants have been commissioned in the Almaty region in the past two years. The Ministry of Industry and New Technologies expects the construction of 1,040 MW capacities of renewable energy power stations, among them 13 wind stations with 793 MW, 14 hydroelectric power plants with 170 MW and 4 solar power plants with 77 MW. • Kazakhstan has won the right to host the “EXPO-2017” in Astana. Kazakhstan proposed as the theme of the exhibition the topic “Energy of the future” with the aim to promote new ways in the energy sector, alternative energy sources and new ways of transporting energy. • The Ministry for Environment Protection is developing a “Strategy for the transition to a green economy”, which shall be approved in late 2013.

2

march 2013

Laws on energy conservation and energy efficiency Kazakhstan adopted the “State Program for Energy Conservation” in 1996 and the “Law on Energy Conservation” in 1997 with the aim to regulate energy conservation and to create the financial and organizational preconditions for the efficient use of fuel and power resources and the protection of the environment. However, due to the absence of specific goals and incentives for energy conservation, the program and the law did not yield the expected results. Energy efficiency problems have again received more attention since 2007. That time the Government approved a new draft of the energy conservation law, and in June 2009 the project was submitted to the Majilis (the lower house of the Parliament). On the request by the government of Kazakhstan, the EBRD attracted consultants to support the drafting of the bill by utilizing the international experience. The draft law was considered in the Majilis and then returned to the government for amendments. Subsequently, reduction goals were set: to reduce the energy intensity of GDP by 10% until 2015 and by 25% until 2020 (from the 2008 level). On 13 January 2011, the new law “On energy conservation and energy efficiency” was adopted. The law introduced changes and amendments to: the Code of the Republic of Kazakhstan on administrative violations; the Budget Code of the Republic of Kazakhstan; the Code of the Republic of Kazakhstan “On taxes and other obligatory payments to the budget” (Tax Code); the Law of the Republic of Kazakhstan “On Transport”; the Law of the Republic of Kazakhstan “On natural monopolies and regulated markets”; the law “On local public administration and self-administration in the Republic of Kazakhstan”; the law “On architectural, urban planning, and construction activities in the Republic of Kazakhstan”, the law “On the power industry”, the law “On State control and supervision”, the law “On housing relations”; the law “On Subsoil and Subsoil Use”. Unlike the 1997 law, the new law provides standards for the entitling of public agencies to adopt measures for the modernization of the generation, storage, transportation and consumption of energy, to monitor the effective use of energy resources, to define efficiency indicators; special attention is given to various types of financing mechanisms in the form of grants, low-interest loans, tax breaks, simplified customs procedures for the import of energy-conserving technologies, public-private partnerships, the cost sharing through tariffs and others. The financing mechanisms should support private and public investments in the manufacturing of equipment and components of energy-saving technologies and investments in the use of technologies such as: - compact fluorescent lamps and LED lamps to replace incandescent lamps; - energy-efficient window and door systems; - thermostats for radiators of central heating systems; - automated systems for the control of heat flows for large commercial and residential buildings that depend on municipal heating systems.

page

An “Energy Code” shall be worked out that defines the standards and methods for measuring and labeling energy saving and the rational use of natural resources for: - buildings (residential, commercial, industrial); - public utilities; - industry and manufacturing sites; - instruments and equipment; - transportation equipment (trucks, buses, ships, cars, airplanes, trains, trams, etc.). The law intends to compel that energy conservation, energy efficiency and rational use of energy resources are applied in construction standards and rules, including standards for heat insulating materials, windows, and window systems, doors and door frames, and technical performance standards for water supply, heat supply and lighting. The law foresees the mandatory replacement of incandescent lamps with lights that operate on the basis of more efficient technologies. The law envisages a state-run energy registry. Those entities included in the register that consume more than 1.5 thousand tons of coal equivalent per year, should mandatorily pass an energy audit – and subsequently present energy conservation plans and targets for the annual reduction in their energy consumption. The energy audits have to be performed by professionally trained specialists of energy service companies. In the tax code a provision is to be introduced allowing deductions on emission taxes in the amount of the company’s energy efficiency spending. Sanctions will be applied for non-compliance with the load standards in electrical networks, for disobeying energy consumption standards, for the usage of faulty equipment, valves, for the usage of pipe lines without heat insulation, for the use of electrical equipment not in accordance with the operating instructions, for deploying new equipment or facilities, which are not equipped with adequate energy meters or automated heat-consumption control systems, for the failure to comply with the energy saving and energy efficiency regulations or for less than full compliance.

3

march 2013

Kazakhstan’s energy consumption per unit of GDP is very high. The energy consumption per one unit of GDP is in Kazakhstan several times higher than in many other countries (Figure 1). Kazakhstan is significantly above the regression line in Figure 2. This can be partly explained by the high proportion of commodity production, but is also brought about by high transmission losses and the inefficient use of

heat and electric energy resulting from the times when tariffs were low and hardly anybody cared about energy saving. The energy intensity of Kazakhstan’s GDP exceeds Russia’s energy intensity by 1.2 times, China’s by 1.5, USA’s by 2.5, Germany’s by 3.2, Japan’s by 3.3, GB’s, Italy’s, Spain’s by 3.9 times.

FIGURE 1: THE ENERGY INTENSITY OF KAZAKHSTA’S ECONOMY IS HIGHER THAN IN MANY OTHER COUNTRIES.

Energy intensity of GDP ( at PPP ), toe/thd USD 0.09 0.10 0.10 0.10 0.10 0.11 0.11 0.12 0.12 0.12 0.13 0.14 0.14 0.14 0.15 0.17

Greece Spain UK Italy Denmark Portugal Japan Germany France Slovenia Netherlands Latvia Romania Poland USA Czechia Finland Bulgaria China Russia Kazakhstan Ukraine

2009

0.19 0.20 0.26 0.31 0.38 0.39

0.0

0.1

0.2

0.3

0.4

Source: International Energy Agency (IEA), ATFBank Research

page

4

march 2013

FIGURE 2: KAZAKHSTAN IS WELL ABOVE THE REGRESSION LINE THAT INDICATES ENERGY CONSUMPTION PER GDP. Energy intensity 8

China USA France Russia

Log (Consumption, mn. o.e.)

6

Japan

Ukraine

UK

Kazakhstan

4

Italy Poland

Czechia

Netherlands

Finland Greece

Bulgaria

Denmark 2 Latvia

Source: International Energy Agency (IEA), Statistical Agency of Kazakhstan, ATFBank Research

y = 0.98x - 1.79 R2 = 0.93

Slovenia

0 2

3

4

5

6

7

8

9

10

Log (GDP at PPP,bn USD)

2009

Figure 3 shows the structure of fuel consumption by some countries. The Kazakhstani industry (without production of electricity, gas, water, but including construction) accounts for 49.3% of the total fuel consumption while accounting for only 39.2% of GDP; Germany’s industry+construction accounts for 21.4% of fuel consumption and

27.8% of GDP; The corresponding figures for the UK are 13.1% and 21.8%, respectively. For the production and distribution of electricity Kazakhstan uses 34.5% of its total fuel consumption, which is approximately equal to Russia’s indicator of 34.6%; the UK uses 32.8%, Germany 29.7% (Figure 3).

FIGURE 3: UK’S INDUSTRY USES 13.1% OF UK’S TOTAL FUEL CONSUMPTION; KAZAKHSTAN’S INDUSTRY USES 49.3% OF THE TOTAL KAZAKHSTANI FUEL CONSUMPTION. Fuel consumption, %

80

60

0.5 1.1 0.3 0.1 11.7 2.5

16.9 49.3

20.6

13.9 16.9 19.2

40

20

7.0 1.1 0.3 9.2

8.1 0.0 1.4 5.9

34.5

34.6

4.1 0.7 0.4 7.1 20.4

21.2

5

Financial intermediation

15.0

13.1

29.7

32.8

Transportation Industry (ex Power industry)

Germany

Kazakhstan

Russia page

Other Agriculture

0

Source: 2009 data, International Energy Agency (IER), Federal State Statistics Service of Russia, Statistical Agency of Kazakhstan, ATFBank Research

Non-energy use

UK

100

Housing services and utilities

Power industry

march 2013

Figures 4a and 4b show the fuel consumption by industry, transportation and the services sector per capita and per unit of GDP at purchasing power parities (PPP). Kazakhstan uses per capita about as much fuel as Germany, but for the industry much more (for

transportation less). For electricity generation and for the industry Kazakhstan consumes significantly more fuel per unit GDP not only than Germany and the UK but also than Russia.

FIGURE 4А: FUEL CONSUMPTION PER CAPITA BY SECTORS

Fuel consumption per capita, toe Non-energy use

5 4.5 4

Other

3.5

Agriculture

3 2.5

Financial intermediation

2

Housing services and utilities

1.5 1 0.5

Transportation

Source: International Energy Agency, Federal State Statistics Service of Russia, ATFBank Research

UK

Germany

Kazakhstan

Russia

0

Industry (ex Power industry) Power industry

FIGURE 4B: FUEL CONSUMPTION PER GDP (AT PPP) BY SECTORS

Fuel consumption per GDP unit, toe/thd. USD

Non-energy use

0.4 Other

0.35 0.3

Agriculture

0.25 Financial intermediation

0.2

Housing services and utilities

0.15 0.1

Transportation

0.05

page

6

UK

Germany

Russia

Source: International Energy Agency, Federal State Statistics Service of Russia, ATFBank Research

Kazakhstan

0

Industry (ex Power industry) Power industry

march 2013

Kazakhstan’s industry uses 0.47 tons of oil equivalent (t.o.e.) per thousand USD of value added in industry (Table 1). Metallurgy plays an important role for this. The energy-intensive sectors metallurgy and refined petroleum products accounted for 37% and 12%,

respectively, of the total manufacturing output in value terms in 2012; the less energy-intensive branches food production and engineering accounted for 16% and 13%. Together, these four sectors account for 77% of manufacturing output.

TABLE 1: FUEL CONSUMPTION PER VALUE ADDED BY THE INDUSTRY OF SELECTED COUNTRIES, T.O.E./THOUS. USD Great Britain

0.05

Germany

0.06

Russia

0.16

Kazakhstan

0.47

Source: International Energy Agency, Federal State Statistics Service of Russia, ATFBank Research

Conservation of electrical and heat energy The Ministry of Industry and New Technologies of Kazakhstan expects electricity demand to increase by 50% until 2018 due to economic growth. According to our estimates, 1% of real GDP growth leads to approximately 0.6% growth in electric energy consumption in Kazakhstan ((dlog (electric energy consumption) = 0.63*dlog (real GDP) (data for 2002-2011, error probability=0.0019; R2=0.31; Durbin-Watson=2.16)). Based on an average annual GDP growth in 2011-2014 of 6% this results in 94.5 bn kWh by 2014, which is slightly lower than the value of 96.8 bn kWh indicated for 2014 by the state program for “Accelerated Industrial and Innovation Development”. For the targeted 7% economic growth, our equation would give 95.5 bn kWh. The concentration of Kazakhstan’s electricity generating capacities close to the coal deposits and the country’s large geographical extension require very long transmission lines (over 370 thousand km.), which leads to high losses of electric energy. They average 1820% in Kazakhstan, according to the AREM (Agency for Regulation of Natural Monopolies). The corresponding figues are 10-12% for Europe, 9% for the U.S., and 5% and 4%, respectively, for Japan and South Korea. The wear and tear of Kazakhstan’s energy sector equipment is very high: 70% for the generating equipment, 65% for the electric networks, 50-80% for the heating networks. The worn out infrastructure of Kazakhstan’s energy sector is a source of huge power losses; there is ample opportunities for efficiency projects.

The two main sectors towards which energy conservation measures will be directed from 2012 on are the industry and the government sector (schools, hospitals, government offices, etc.). The measures are aimed at reducing losses in transformers, the electrical equipment and lighting and at promoting the use of more energy-efficient electrical equipment, the optimization of its load, the replacement of underutilized electrical equipment, and at the overhauling of the heating, ventilation, and air-conditioning systems. In industry initial work will focus on 15 major industrial enterprises, which consume about 40% of the country’s electric energy (Table 2), most of them in metallurgy. A 15% reduction of their power consumption would result in annual savings of KZT 40 bn (USD 269.5 mn) at 2011prices, according to the government’s “Comprehensive Plan for Energy Efficiency Enhancing” (Table 3).

page

7

march 2013

TABLE 2: 15 INDUSTRIAL ENTERPRISES ACCOUNT FOR ABOUT 40% KAZAKHSTAN’S POWER CONSUMPTION.

mn kWh

% of consumption

2008

2009

2010

2011

2008

2009

2010

2011

Aksu ferroalloy plant (metallurgy)

5240.2

4631.1

5622.2

5553.9

6.5

5.9

6.4

6.3

Arsellor Mittal Temirtau JSC (ore mining and smelting sector)

4216.1

4207.3

4354.6

4212.7

5.2

5.4

5.0

4.8

Kazzinc JSC (ore mining and smelting sector)

3232.6

3008.4

2832.5

2828.7

4.0

3.9

3.2

3.2

NK Kazakhstan Temir Zholy JSC

3254.8

2926.5

3037.4

3223.1

4.0

3.8

3.5

3.7

KEGOC JSC

2335.1

2379.5

2386.8

2411.6

2.9

3.1

2.7

2.7

Sokolovsko-Sarbayiskiy GOC(ore mining and smelting sector)

2249.7

2208.9

2454.6

2597.9

2.8

2.8

2.8

2.9

PD Zhezkazgantsvetmet (ore mining and smelting sector)

2433.9

2083.0

2123.0

1984.0

3.0

2.7

2.4

2.3

Kazakhstan electrolytic plant (metallurgy)

1696.2

2001.1

3374.1

3621.7

2.1

2.6

3.8

4.1

Tengizshevroil

1456.6

1624.5

1714.9

1726.9

1.8

2.1

2.0

2.0

Aktobe ferroalloy plant TNK Kazkhrom JSC (metallurgy)

1381.3

1315.4

1397.8

1358.0

1.7

1.7

1.6

1.5

PD Balkhashtsvetmet (ore mining and smelting sector)

1411.7

1022.4

934.5

952.1

1.8

1.3

1.1

1.1

Pavlodar aluminium plant (metallurgy)

996.7

952.2

979.4

1015.5

1.2

1.2

1.1

1.2

1737.6

847.9

1390.9

1882.2

2.2

1.1

1.6

2.1

Ust-Kamenogorsk titanium-magnesium integrated plant (metallurgy)

850.1

594.1

578.4

835.9

1.1

0.8

0.7

0.9

RSE “Channel named after Satpayev”

401.4

392.6

362.4

298.7

0.5

0.5

0.4

0.3

32894.0

30194.9

33544.5

34765.8

40.8

38.7

38.3

39.1

80602.70

78623.3

83767.1

88136.0

100.0

100.0

100.0

100.0

Kazphosphate LLP (fertilizer manufacturing)

Total 15 enterprises: Total economy:



Source: Korem JSC, ATFBank Research

In the area of housing, community services and the government sector, measures will focus on 2230 state-owned buildings, 5812 residential buildings and 1100 km of district heating networks. A 20% reduction in the consumption by them of electric and heating energy is supposed to give KZT 37bn (USD 250mn) of annual savings (in 2008 prices). According to the Statistical Agency of Kazakhstan, the residential sector of the country consumes about 40% of the distributed heat energy (~66 mn Gcal). The heat consumption in buildings is about 270 kWh per square meter per year in Kazakhstan,

which is significantly higher than the average European indicator of 100-120 kWh per square meter per year. The main reason of this high energy consumption is the climate and the housing quality. The physical aging of the housing stock, aggravated by inappropriate maintenance, has led to insufficient thermal insulation of a large number of buildings. As a consequence, about 20-30% of the heat is lost through walls, windows, roofs and the ground floor.

page

8

march 2013

TABLE 3: MEASURES FOR ENERGY CONSERVATION ARE PLANNED TO BE APPLIED TO 15 LARGE INDUSTRIAL ENTERPRISES, TO THE HOUSING AND COMMUNITY SERVICES SECTOR AND TO THE GOVERNMENT SECTOR.

Sector

Planned savings

Industry

Housing and community services, government sector

15 large enterprises

15% of consumption

4 bn kWh 2 mn tons of coal per year

2230 buildings 5812 residential buildings 1100 heating networks

20% of consumption

1.3 bn kWh 8 mio Gcal

Source: The government of Kazakhstan, Comprehensive Plan for Energy Efficiency Enhancing,

The consumption of coal increased by 55%, of oil by 78%, of natural gas by 160% between 2000 and 2010. In 2009, Kazakhstan converted fossil fuels in the amount of 76.3 mn tons of coal equivalent into secundary types of energy (for domestic use), in 2010 83.7 mn tons, in 2011 87.3 mn (Table 4); for the

technical needs of the production 27.7 mn tons of coal equivalent were used in 2009, 32.6 mn in 2010, and 36.3 mn in 2011.

TABLE 4: DOMESTIC CONSUMPTION OF FUEL AND POWER, THOUSAND TONS OF COAL EQUIVALENT

Primary fuels (coal+lignite, oil+gas condensate, natural gas)

Secondary types of fuel and energy (electric power, heat, oil products, coke, etc,)

2009

2010

2011

2009

2010

2011

Used for

76,248

83,680

87,294

46,143

46,871

48,392

- conversion into secundary types of energy

48,594

51,032

50,982

1,485

1,498

1,276

- production needs

27,654

32,648

36,312

44,658

45,373

47,116

Source: Statistical Agency of Kazakhstan, ATFBank Research

Coal consumption increased by 55% from 2000 to 2010, oil consumption by 78%, natural gas by 160% (Figures 5a and 5b). Currently, 2.4% of the oil extracted in Kazkahstan, 78.7% of natural gas (in 2000, only 51.0%) and 82% of coal is used for conversion into secundary types of energy for the domestic market. Due to advantages compared to other fossil fuels, such as lower costs and a lower release of harmful substances, particularly the consumption of natural gas rose fast. In the Aral Sea region, at the Akshabulak oil field a new gas turbine power plant for KZT 19.6 bn (USD 130mn) was commissioned. This helps to utilize the associated gas and stabilizes the power supply to

the southern regions of Kazakhstan that have a power deficit. The capacity of the plant is 87 MW or 731.7 mn kWh per year; on top, the technology applied allows the company to significantly increase power generation through the installation of steam turbines. A new gas turbine power plant is to be built in the West Kazakhstan region by 2022. The construction of a first station is planned for 20132015, a further expansion is planned for 2020 – 2021. The West Kazakhstan region has a power defict notwithstanding considerable reserves of hydrocarbons (ATFBank Research Review “Energy growth of Kazakhstan”).

page

9

march 2013

FIGURES 5A AND 5B: CONSUMPTION OF PRIMARY FUELS, MN TONS OF OIL EQUIVALENT VS. GDP

Consumption of oil, gas, coal vs real GDP

mn toe

Consumption of oil, gas, coal vs real GDP

300

2000 =100

100 90 80 70 60 50 40 30 20 10 0

250 225 200 175 150 125 100 75 50 25 0

250 200 2000 =100

150 100 50 0 2000 2001

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Oil

Gas

Coal

Oil

GDP (right hand scale)

2002

2003 2004

Gas

2005

Coal

2006 2007

2008

2009 2010

GDP (right hand scale)

Source: Statistical Agency of Kazakhstan, ATFBank Research

The share of coal in the total domestic consumption of primary fuels is 46.0%, of oil 22.5%, of gas 31.5% (Table 5). The production and distribution of electric energy, gas, water consumes 38.0% of the total consumption of primary fuels (measured by coal equivalent): in the form of coal 31.7% and in the form of gas 6.3%. Manufacturing uses 33.0% of the total consumption of primary fuels, of which

10.8% in the form of coal, 20.5% in the form of oil and 1.6% in the form of gas. The mining industry consumes 24.4% of primary fuels, of which 1.9% in the form of coal, 0.6% in the form of oil, 21.9% in the form of gas. These three sectors together account for 95.4% of the total primary fuels consumption by all sectors of Kazakhstan’s economy.

TABLE 5: FUEL CONSUMPTION BY SECTORS IN THE TOTAL CONSUMPTION OF PRIMARY FUELS, % 2011

Coal, lignite

Oil, gas condensate

Natural gas

Total

Production and distribution of electric energy. gas. water

31.7

0.0

6.3

38.0

Manufacturing

10.8

20.5

1.6

33.0

Mining

1.9

0.6

21.9

24.4

Trade

0.1

1.3

0.0

1.5

Transportation

0.1

0.1

1.0

1.1

Education

0.5

0.0

0.1

0.6

Public administration

0.3

0.0

0.1

0.4

Agriculture

0.3

0.0

0.0

0.3

Community services

0.0

0.0

0.2

0.2

Healthcare

0.2

0.0

0.1

0.2

Construction

0.0

0.0

0.1

0.1

Real estate

0.0

0.0

0.1

0.1

Financial intermadiation

0.0

0.0

0.0

0.0

Telecom

0.0

0.0

0.0

0.0

Hotels and restaurants

0.0

0.0

0.0

0.0

40.024.1

19.587.8

27.381.0

86.992.9

46.0

22.5

31.5

100.0

Total consumption in th tons of coal equivalent Total:

Source: Statistical Agency of Kazakhstan, ATFBank Research

Table 6 shows the share of the sectors in the consumption of various types of fuels and energy. Manufacturing uses 24.0% of the total coal consumed domestically, 47.6% of electric energy, 90.9% of oil,

45.1% of heat energy. The “Production and distribution of electric energy, gas and water” uses 68.5% of coal, 16.9% of electric energy, 24.2% of heat energy, 59.1% of natural gas, 22.6% of heating oil.

page 10

march 2013

TABLE 6: SHARE OF SECTORS IN THE CONSUMPTION OF VARIOUS TYPES OF FUELS AND ENERGY, % 2011

Coal

Electric energy

Petroleum gas

Oil

Heat energy

Natural gas

Gas oil

Motor Coke Stripped gas gasoline

Heating oil

Other

Agriculture

0.6

1.0

0.0

0.0

3.8

0.2

12.4

0.0

0.0

4.5

0.2

0.8

Mining

4.3

19.5

93.7

2.7

9.1

6.6

19.8

1.2

100.0

9.2

0.7

0.9

Manufacturing

24.0

47.6

0.9

90.9

45.1

16.4

8.2

98.8

0.0

7.0

73.1

39.2

Production and distribution of electric energy, gas, water

68.5

16.9

5.0

0.0

24.2

59.1

1.9

0.0

0.0

2.7

22.6

30.5

Construction

0.1

0.7

0.1

0.0

2.2

0.7

30.1

0.0

0.0

35.2

1.5

5.8

Trade

0.2

1.1

0.0

6.1

0.8

0.5

3.1

0.0

0.0

13.9

0.5

3.1

Hotels and restaurants

0.0

0.1

0.0

0.0

0.1

0.1

0.1

0.0

0.0

0.1

0.0

0.0

Transportation

0.2

6.5

0.0

0.2

1.4

11.1

21.3

0.0

0.0

14.7

0.3

17.0

Telecom

0.0

0.5

0.0

0.0

0.2

0.0

0.3

0.0

0.0

2.0

0.0

0.0

Financial intermediation

0.0

0.1

0.0

0.0

0.1

0.1

0.0

0.0

0.0

0.8

0.0

0.0

Real estate

0.1

2.4

0.0

0.0

1.3

0.7

0.3

0.0

0.0

0.8

1.0

0.4

Public administration

0.7

1.0

0.1

0.0

3.4

0.6

0.5

0.0

0.0

5.5

0.1

0.7

Education

1.0

1.6

0.1

0.0

5.3

1.1

1.6

0.0

0.0

1.0

0.1

0.9

Healthcare

0.4

0.7

0.0

0.0

2.5

0.6

0.5

0.0

0.0

2.4

0.0

0.5

Community services

0.1

0.2

0.0

0.0

0.4

2.3

0.0

0.0

0.0

0.2

0.1

0.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

100.0

39.251.2 20.748.6 19.759.1 19.062.8

7.908.9

7.594.6

5.402.8

3.636.9 2.185.8

1.873.9

1.827.6

2.994.8

Total, thous. tons of coal equivalent

*- other – lignite, blast furnace gas, gas condensate, coke gas, purified gas, kerosene, propan, butane, stove fuel, jet engine fuel, wood fuel, aviation gasoline, hard coal briquettes, wood, petroleum coke, liquid bitumens, oil-refinery gas Source: Statistical Agency of Kazakhstan, ATFBank Research

Kazakhstan can achieve a decrease of energy consumption per unit of GDP by 25% until 2020 only through energy conservation and the diversification of manufacturing. According to our estimates, Kazakhstan’s energy intensity solely through the change in the structure of GDP would decrease only by 1.8% until 2017 based on the forecast of growth by sectors given in the document “Forecast of the socio-economic development of Kazakhstan in 2013 – 2017” (Table 7) of the Ministry of Economy and Budget Planning. If the energy intensity of all sectors remained the same as in 2011, the share of manufacturing in energy consumption would rise by 3.9 percentage points until 2017 (Table 8) because its growth is forecasted to exceed GDP growth. (Our estimates are made

by taking into account all types of fuels and enegy while excluding the sector “Production and distribution of electric energy, gas, water” in order to avoid serious double counting of consumption (first as primary fuel and than as electricity). Figure 6 compares the share of sectors in the fuel consumption and GDP.) Therefore the only way to reduce the energy intensity of GDP by 10% until 2015, respectively by 25% until 2020 is to rely on energy saving and on the diversification of manufacturing towards less energy-intensive industries.

page 11

march 2013

TABLE 7: FORECAST OF THE GROWTH OF THE KAZAKHSTANI ECONOMY BY SECTORS, IN REAL TERMS, % YOY 2013

2014

2015

2016

2017

Manufacturing

8.0

9.1

7.1

7.5

7.3

Production and distribution of electric energy, gas, water

3.8

4.4

5.6

4.4

3.6

Mining

1.6

1.7

7.4

5.2

6.7

Construction

3.5

3.3

3.6

3.3

3.0

Transportation

7.2

7.1

7.9

7.6

7.8

Trade

11.7

11.3

11.5

9.5

8.7

Agriculture

4.6

5.0

4.9

5.5

5.5

Telecom

8.3

8.7

10.4

11.2

12.1

GDP

6.3

6.5

7.7

6.8

7.0

Source: Ministry of Economy and Budget Planning, Forecast of the socio-economic development of Kazakhstan in 2013 – 2017

TABLE 8: OUR ESTIMATE OF THE CHANGE IN ENERGY CONSUMPTION SOLELY DUE TO A CHANGE IN THE GDP STRUCTURE, IF THE ENERGY-INTENSITY OF THE SECTORS REMAINED UNCHANGED Share in GDP, %

Sectors*

Agriculture

Energy consumption, thous tons of oil equivalent

2011

2011

2012 o

2013

2014

2015

2016

2017

5.5

1.564.5

1.361.1

1.423.7

1.494.9

1.568.2

1.654.4

1.745.4

Share in energy consumption, % Difference 2011 2017 20172011 p.p. 1.7 1.3 -0.39

Mining

19.4 29.472.9 29.973.9

30.453.5

30.971.2

33.263.1

34.992.8

37.337.3

31.7

27.7

-4.00

Manufacturing

12.2 48.291.6 51.720.3

55.857.9

60.940.9

65.267.7

70.162.8

75.284.7

51.9

55.8

3.91

Construction Trade

7.1

2.910.8

2.995.2

3.100.1

3.202.4

3.317.6

3.427.1

3.529.9

3.1

2.6

2.62

14.8

2.103.9

2.371.0

2.648.5

2.947.7

3.286.7

3.599.0

3.912.1

2.3

2.9

-0.23

Hotels and restaurants

1.6

49.2

55.3

58.8

62.6

67.4

72.0

77.1

0.1

0.1

-2.21

Transportation

7.5

4.375.8

4.721.4

5.061.4

5.420.7

5.849.0

6.293.5

6.784.4

4.7

5.0

4.98

Telecom

2.7

179.6

194.4

210.5

228.8

252.6

280.9

314.9

0.2

0.2

-4.47

Financial intermediation

2.1

57.5

54.9

59.3

64.0

69.8

75.4

81.4

0.1

0.1

-0.13

Real estate

9.3

759.6

770.2

818.8

872.0

939.1

1.003.0

1.073.2

0.8

0.8

0.73

Public administration

5.3

948.0

967.9

1.028.9

1.095.7

1.180.1

1.260.4

1.348.6

1.0

1.0

0.18

Education

8.4

1.383.4

1.444.2

1.535.2

1.635.0

1.760.9

1.880.7

2.012.3

1.5

1.5

0.47

Healthcare

1.9

621.6

656.4

697.8

743.1

800.4

854.8

914.6

0.7

0.7

-0.81

Community services

0.4

274.5

290.9

309.3

329.4

354.7

378.9

405.4

0.3

0.3

-0.37

100.0 100.0

0.00

Total, thous. tons of oil equivalent GDP at PPP, USD bn Indicator of energy intensity development**, thous. t.c.e./ USD bn

98.1 92.992.7 97.577.3 103.263.5 110.008.6 117.977.4 125.935.5 134.821.2 214.8

227.7

242.1

257.8

277.7

296.5

317.3

+47.7%

0.4328

0.4285

0.4266

0.4267

0.4249

0.4247

0.4249

-1.84

* without “Production and distribution of electric energy, gas, water” to avoid double counting of energy first as primary and then as secondary in the other sectors ** АTFBank Research estimates Source: Statistical Agency of Kazakhstan, ATFBank Research

page 12

march 2013

FIGURE 6: MANUFACTURING GENERATES 12.2% OF GDP, USES 51.9% OF ENERGY * (2011).

Energy consumption vs GDP, 2011 100% 90%

Construction; 3.1 Real estate; 9,3

Transportation; 4.7 Retail; 2.3

Construction; 7.1

80% 70%

Agriculture; 5.5

Mining; 31.7

Public administration; 5.3

60%

Education; 8.4

50%

Transportation; 7.5

40%

Retail; 14.8

30% Manufacturing; 51.9 20% 10%

Mining; 19.4

Manufacturing; 12.2

0% Consumption

GDP

* without considering “ Production and distribution of electric energy, gas, water” in order to avoid double counting Source: Statistical Agency of Kazakhstan, ATFBank Research

The electricity tariffs reform Kazakhstan has introduced a new regulatory mechanism for the price setting by electric power producers since 2009. Power generators can apply three types of tariffs: limited, calculated, and individual. The Government of Kazakhstan approved limit tariffs for different groups of power plants, broken down by years, until 2015. The limits are set in a way that investments would amortize themselves within 8-12 years. The power plants are divided into 13 groups. The limits are to be set to levels that fund the investment commitments by the power plants of a specific group. The limits are subject to annual review on the basis of the actual investment costs incurred by the power plants. In cases of large-scale investments such as the construction of new power plants, investors can work on the basis of calculated tariffs or in the case of extra-ordinarily high investments on the basis individual tariffs, which are higher than the calculated and require extra documentation (ATFBank Research Review “Energy growth of Kazakhstan”). The reform and the resulting higher electricity prices are aimed at attracting more investors and at a more rational use of energy.

Amendments to the Law of the Republic of Kazakhstan “On the power industry” entered into force on 1 January 2009, which provide for differentiated tariffs for individual consumers depending on their consumption volumes. Graduated electricity tariffs apply: up to a specific value (in the most cases 70 kWh per person per month for buildings with gas, and 90 kWh for buildings with the use of electric stoves) the tariff is cheaper than the base tariff and each kWh in excess of the specific value set is 20% more expensive than the base tariff. For legal entities the tariff is generally higher and divided into day-time and night-time. According to the monopoly agency AREM, consumers were able to save of USD 13.5 mn in 2010, thanks to this tariff scheme. Kazakhstan uses day-time and night-time tariffs for electric energy also for individuals, which enabled users to save another USD 6.8mn in 2010. The sheme reduced electric energy consumption by 2.3% in 2010, and emissions by 27 thousand tons, according to AREM.

page 13

march 2013

Energy conservation projects Under the Sustainable Energy Initiative of the European Bank for Reconstruction and Development (EBRD), the Government of the Republic of Kazakhstan and the EBRD agreed on an “Action Plan for

Sustainable Energy Development” in June 2008. Some (2010-2013) projects are presentedin Table 9.

TABLE 9: MAJOR EBRD SUPPORTED PROJECTS IN THE FIELD OF ENERGY CONSERVATION IN KAZAKHSTAN (2010-2013) Project

Project Description

EBRD Finance

The project foresees the modernization of generating assets and the upgrading of existing electricity distribution networks. The investments are CAEPCO Rehabilitation Project expected to significantly reduce CO2 emissions and save coal and to reduce transmission losses.

USD 140 mn

Aktobe District Heating

The project aims to rehabilitate and modernize the district heating facilities and the main networks operated by the Company. This should result in enhanced energy efficiency, reduction in technical and commercial losses and improvements in environmental standards.

USD 15.1 mn USD 4.2 mn from the Clean Technology Fund (CTF)

Shardara HPP Modernization The EBRD is considering financing the Shardara HPP rehabilitation project to Project replace old equipment and improve the efficiency of this hydropower plant.

USD 65.2 mn

The Project is aimed at the replacement of parts of the obsolete district heatAktau District Heating ing networks operated by the Company by pre-insulated modern technology pipes in order to reduce energy and water losses, increase the reliability and quality of the provided heat and hot water sevices, reduce maintenance and operation costs as well as reduce the negative environmental impact.

USD 7.4 mn

KEGOC Osakarovka Restructuring Loan

Rehabilitation of the Ossakarovka electricity transmission line to contribute to overall system reliability and support the development of the Akmola region, enabling electricity transmission from Central Kazakhstan to Astana and the Akmola oblast (region).

USD 161.7 mn up to USD 83 mn is expected to be co-financed by banks. USD 100 mn

Kazakhstan District Heating Modernisation Framework

The investments are expected to yield significant reductions in heat losses, CO2 emissions and coal savings.

CAEPCO District Heating - The projects will finance investment programmes in Pavlovdar, Ekibastuz and Pavlodar Petropavlovsk aimed at the rehabilitation of the heat distribution networks of these cities. The investments are expected to yield significant reductions in heat losses, CO2 emissions and save coal, The project is aimed at improving the reliability and capacity utilization of the power plant, and at the enhancing of energy efficiency, the reduction AES Sogrinsk CHP of losses and improvements in environmental standards. The scope of the project includes the replacement of turbine-generators, the modernization and reconstruction of boilers, auxiliary systems and other energy efficiency investments. The loan will be used to finance the replacement of one turbine of the Sogrinsk power plant.

USD 42 mn from CTF (subject to separate approval). USD 30 mn USD 10 mn from CTF (subject to separate approval)

USD 28.7 mn

Source: EBRD, ATFBank Research

page 14

march 2013

As part of this plan, the EBRD launched a new credit line to finance projects in the sphere of improving energy efficiency and reclaiming renewable energy sources – the “Kazakhstan Sustainable Energy Fund”. The program was launched in September 2008 and operates through local banks. Several energy efficiency projects were realized under the program (Table 10) for the replacement or upgrading of energy-intensive production equipment; for the replacement or repair of boilers to achieve a reduction in fuel consumption by 20-40%, for the combination of the generation of heat and electric energy in order to enhance the reliability of energy supplies and reduce the consumption of primary fuels by 30-40%; installation of variable fuel supplies with the target to reduce energy consumption by 25-30%. Renewable energy projects were also realized under the program:

wind turbines; the usage of biomass for the production of heat, electric energy, biofuels, biogas; geothermal heat pumps designed for economical air heating and the production of hot water. The EBRD signed a loan agreement with the local government of Almaty for the amount of USD 39.3mn allocated for the purchase of new buses running on compressed natural gas. The project is a part of an integrated approach to the urban transport in Almaty. The EBRD plans to invest about EUR 150mn in 12-15 municipal projects in Kazakhstan over the next two years. Previously the EBRD granted the company “Almatyelectrotrans” a 13-year loan of USD 36mn for the purchase of 200 new trolleybuses. The EBRD provided the company financing to upgrade its trolleybus stations and purchase new buses already in 2009-2010 (Interfax-Kazakhstan).

TABLE 10: EXAMPLES OF PROJECTS IMPLEMENTED JOINTLY WITH KAZAKHSTAN SUSTAINABLE ENERGY FUND Region

Project

Volume of investments

Energy saving

Agriculture (livestock breeding farm)

North Kazakhstan Region

Biogas plant with a mini CHP

USD 2 mn

6,470 MWh per year Reduction of CO2 emissions

Production of building materials

Karaganda Region

Replacement of compressors – reducing energy costs

USD 130 thous.

1,000 MWh per year Reduction of CO2 emissions

West Kazakhstan Region

Electric compressor replacement – reducing energy costs

USD 13.8 mn

109,500 MWh per year Reduction of CO2 emissions

Food industry (butter) (production from sunflower oil)

Eeast Kazakhstan Region

Replacing the fuel oil boiler with a boiler runing on biomass

USD 1.5 mn

2,960 MWh per year Reduction of CO2 emissions

Construction, production of concrete products

Almaty Region

Installing a steam turbine for equipment energy efficiency

USD 302.5 thous.

650 MWh per year 277000м3 of gas

Sector

Oil and gas

Source: Kazakhstan Sustainable Energy Fund, ATFBank Research

In Aktau, a new plant for the production of energy-saving lamps was put into operation in the Aktau factory for the production of electrical equipment. It is planned to increase its production capacity by 2 times in the future. The products are manufactured based on LEDs. They

allow saving of up to 70% electric energy for the same illumination. The state-owned Samruk-Energo JSC also plans to set up a production facility of LED lamps in Kazakhstan.

page 15

march 2013

Kazakhstan has a significant potential of renewable energy. Kazakhstan has significant renewable energy resources in the form of hydropower, wind, sun, and biomass (estimates below), but apart from hydropower, these resources have not yet found widespread use. Only 0.5% of the electric energy is produced from renewable energy sources (the definition excludes large hydro-power stations). However, since the adoption of the Law “On the support of renewable energy use” a number of objects have been commissioned. A small hydroelectric power plant with a capacity of 5.1 MW was commissioned on the river Issyk in the Almaty region. In the Almaty region, at the river Karatal, the “Karatal hydroelectric power plant-4” with an installed capacity of 3.5 MW was put into operation. In the Jambyl region, the Karakystak hydroelectric power plant with the capacity of 2.1 MW is being constructed. A hydroelectric power plant construction with a capacity of 9.2 MW is carried out at Tasotkel water-storage basin in the Shu district.

Wind and hydropower are considered to be the most promising renewable energy resources. According to “Sector program for the development of the electric power industry”, 1% of electric power must be generated from renewables by 2014. The use of local renewable energy sources is an alternative to the centralized power supply particularly for remote areas experiencing a lack of power.The Government of Kazakhstan has worked out a draft law, directed to support the use of renewable energy sources. The basis of the draft is the introduction of fixed tariffs for electric power generated from renewable energy resources that will clarify the tariffs for electricity from renewable and guarantee sufficient returns on investments. The draft foresees also government guarantees for the purchase of electric power generated from renewable energy resources.

Hydropower Hydraulic power is a widely used renewable energy resource throughout the world. The advantages of hydropower: renewable energy sources, high maneuverability, multipurpose utilization of water resources, little air-polluting emissions and the saving of fuels. Disadvantages: the construction of hydroelectric power plant can take longer and be more expensive than the construction of plants based on other energy sources, water-storage basins can take up large areas and have a big impact on the ecology. According to International Energy Agency (IEA) 2009 data, the share of hydropower in the world’s electric power production was 16.5%. Hydropower is most developed in countries such as Norway (95.7%), Brazil (83.8%), Switzerland (54.8%). Hydroelectric power plants are particularly suitable for the power supply to remote areas and sparsely populated areas. In Kazakhstan, the share of hydropower (including large plants) accounts for 10%. The main hydropower resources are located in the East and the South-East regions of the republic. According to the “Program for the development of the electric power industry”, Kazakhstan’s theoretical hydropower potential is about

170 bn kWh of electric power per year, technically feasible for implementation are 62 bn kWh, of which about 8bn kWh are suitable for small hydroelectric power plants with a capacity of less than 35 MW. The program sees a hydro power potential of about 10 bn kWh for the Southern regions of Kazakhstan, for Northern and Central Kazakhstan a potential of about 2.8 bn kWh, and for Western Kazakhstan also 2.8 bn kWh. The main potential is located in Eastern Kazakhstan. Power generation at the first major hydropower project in the history of independent Kazakhstan, the 300 MW, USD 360mn, Moinak Hydroelectric Power Plant, began in April 2012. In 2013, the electric power generation at the Moinak plant is foreseen to double to more than 1 bn kWh. This should cover the daily load peaks in the South of Kazakhstan and thus ensure the independence of the republic from electric power imports from the Central Asia Net. In the Almaty region, 5 small hydropower plants with a capacity of 19.4 MW have been put into operation during the last two years, according to the Ministry of Industry and New Technologies, andin the Jambyl region a small hydropower plant with a capacity of 1.5 MW.

Wind energy The use of wind energy is developing dynamically throughout the world. According to the data of the Worldwide wind energy association (WWEA), globally installed capacities of wind energy increased by almost 8 times over a period of the years 2001-2010 to 196,630 MW. The annual electric power generated with all wind energy turbines is 430 TW, which exceeds the electrical energy consumption of Great Britain, and is 2.5% of the electric power consumption of the world. China became the world leader in installed wind energy capacity in the 2010 and a center of the international wind industry. Kazakhstani scientists developed “The wind atlas of Kazakhstan”. 15 sites were investigated

in several regions of Kazakhstan. The results showed that Kazakhstan is extremely rich in wind energy resources. In most territories of the country, the annual average wind speed is 4-5 m/s, and in some areas it exceeds 6 m/s, which creates good conditions for the development of the wind energy industry. Research on the wind energy potential of Kazakhstan within the framework of the project of the United Nations Development Program on wind energy showed favorable conditions for the construction of wind-power stations in the South of Kazakhstan (the Almaty, Jambyl, South Kazakhstan regions), in the West (the Atyrau and Mangystau

page 16

march 2013

regions), in the North (the Akmola region) and in the Centre (the Karaganda region). According to the evaluations of the experts of the UN project, the Djungar gates are one of the best places in the world for wind energy development. Their wind energy potential is estimated to amount to 37 mn kWh/km. Ample free areas allow the installation of wind-power station with capacities of up to 1000 MW in Kazakhstan. The Ministry of Energy and Mineral Resources drafted a “National Program for the wind energy development until 2015, with a view to 2024”. The program calls for the use of wind energy for power generation in the volume of 900 mn kWh per year by 2015 and 5 bn kWh by 2024. There shall be various economic incentives such as tax and credit allowances, favorable tariffs, subsidies, etc. Until 2015, wind energy projects with a total capacity of 300 MW are planned according to the Program, including: in the Djungar gates (50-100 MW), the Shelek corridor (100-200 MW), in Astana (20 MW), in Fort Shevchenko (50 MW), and other projects (Table 11). The state holding Samruk-Kazyna signed a cooperation agreement with the Guangdong Nuclear Power Corporation (GNPC) in 2010. Jointly with the Ministry of Nuclear Industry of Kazakhstan, the venture will install wind power stations and engage in wind and solar power production and the construction of mini-hydro stations.

The company Izen-Su of the Korday district put a wind turbine with a capacity of 1.5 MW into operation in November 2011. The construction of a wind farm by private investor, the company Green Energy Almaty, in the Shelek corridor with the capacity of 51 MW is expected in the Almaty region. Jointly with Samruk-Green Energy LLP and German KD Stahl-und Maschinenbau, KazAgroFinance will enter into a project of constructing small wind turbines with a capacity from 300 W to 7 kW. Their main advantage would be the generation of electric power at low wind speeds (2 m/s) (Interfax-Kazakhstan). In the East Kazakhstan region, the Kazakhstani-Spanish Company Spain Consulting will begin the construction of wind station in the Ural district with the capacity of 24 MW. It is also planned to launch the first stage of wind farm in the Korday district until end-2013. Plans for the longer run: wind farms in the Almaty, Aktobe, Pavlodar, Magystau and Kostanay regions. Samruk-Energo plans to begin the construction of the first phase of the Yereimentau wind farm with a capacity of 45 MW in the current year. All the project documentation has already been approved. The farm shall provide electricity for the EXPO-2017.

TABLE 11: WIND ENERGY PROJECTS Company

Costs

Project

Region

Euro 200 mn

Construction of wind turbines with a capacity of up to 500 MW

-

Samruk-Energo JSC

Wind station with a capacity of 60 MW (Document about the technical-economic need under preparation)

Almaty Region

Samruk-Energo JSC

Wind station with a capacity of 51 MW (Document about the technical-economic need under preparation)

Akmola Region

Wind power station with a capacity of 45 MW

Akmola Region

Vestas

New Smart Energy LLP New Smart Energy LLP

USD 100 mn

Wind power station (Document about the technical-economic need South Kazakhstan Region under preparation) Source: Interfax-Kazakhstan, ATFBank Research

German Vestas, one of the world’s largest producers of wind generators, intends to invest around Euro 200 mn in projects for the development of wind energy in Kazakhstan and organize the construction of wind turbines with a capacity of up to 500 MW (Interfax-Kazakhstan). Vestas intends to implement projects mainly in regional areas where there is a lack of power. New Smart Energy LLP invests USD 100 mn in the construction of a wind power station in the Yereimentau district of the Akmola region of Kazakhstan (Interfax-Kazakhstan). The capacity of the station will be 45 MW; it is planned to implement the project in 2013. “The first wind power station” LLP already submitted the “Document about the technicaleconomic need“ to the Ministry of Industry and New Technologies. The

Ministry of Industry and New Technologies has approved it and already offset the electricity selling tariff and its duration. Private Kazakhstani investors established the Company New Smart Energy LLP in 2010, with the aim of implementing projects in the field of renewable energy sources. The company is engaged in aproject for the construction of a wind power station at the Zhuzymdyk field (in South-Kazakhstan region) as well as in the Yereimentau field. In Astana, projects are wind energy generators are installed in the Rozhdestvenskiy cordon, in the new Schoolchildren’s palace, and on the roof of the Gumilev Eurasian National University in order to provide them with electricity in case of power outages.

page 17

march 2013

Solar energy Kazakhstan’s solar energy resources are stable and exploitable thanks to favorable dry weather conditions. The number of solar hours is 22003000 hours per year, and the solar radiation energy is 1300-1800 kW per 1 sqm per year (Program for the development of the electric power industry). Using photo converters, a potential solar power stations capacity of 2500 MW could provide 2.5 bn kWh per year. The most favorable areas for placing solar power stations are the Aral Sea region, the Kyzylorda and South Kazakhstan regions, which have an electricity deficit. Solar energy, as well as other types of renewable energy, has been little developed and used in Kazakhstan until now. However, measures have been taken that will allow a more intensive development of solar energy in the near future, among them the construction of a plant for the production of metallurgical silicon in the city of Karaganda (a project of the “Program of accelerated industrialization and innovation). The plant produced about 11 thousand tons of high quality metallurgical silicon in 2012 and 8 thousand tons of micro-silicon. A second furnace has already been installed on the plant, and now the plant’s capacity is 25 thousand tons of metallurgical silicon per year (Interfax-Kazakhstan). Planning works for the installation of two more furnaces are about to be completed – the construction of the second stage of expansion of the plant will begin in 2013. This will increase the output of the main products to up to 50 thousand tons per year. A plant for the production of polycrystalline silicon, which is the raw material for solar modules production, will be established in Astana. Polysilicon will be produced

in the city of Ust-Kamenogorsk at a total project cost of KZT 33-34 bn (about USD 230 mn). It is planned to build a plant for production of metallurgical silicon in the city of Ekibastuz. The plant’s capacity will be 25 thousand tons per year; the construction costs are supposed to amount to about USD 60 mn (Interfax-Kazakhstan). The ”Social-entrepreneurial corporation Pavlodar” and the German company DPU Investment GmbH signed a memorandum on solar energy cooperation. Among the potential areas of cooperation is the construction of a plant for the production of solar batteries in the city of Pavlodar. DPU Investment GmbH is a company engaged in the development of projects in the energy and renewable energy sector and the attraction of international investments (Kazinform). The first Kazakhstani solar power station on an industrial scale, the Otar solar power station with a capacity of 504 kW was commissioned. Built by private investors, the solar power station is connected to the common power networks and can deliver its electric power to the unified power system of the country. KazEcoWatt LLP was the investor for the construction of the Otar solar power station with a capacity of 504 kW. The construction costs of the first stage of Otar totaled about KZT 200mn. The capacity of the first stage of Otar is currently sufficient to meet the demands for electric power of more than 200 households. The fully installed capacity of Otar shall reach 7 MW (Interfax-Kazakhstan). Samruk-Energo JSC plans to build a solar power station with a capacity of 2 MW in the city of Kapshagay (Almaty region).

Biomass energy Biogas plants engaged in recycling of animal wastes are built in the Kostanay, North Kazakhstan and East Kazakhstan regions and in the

Talgar district. The biogas is used to produce electric power and heat.

Kazakhstan – a participant of the Kyoto agreement On March 12, 1999, Kazakhstan signed the Kyoto Protocol and ratified it on March 26, 2009. The Kyoto Protocol – is an additional document to the UN Framework Convention on Climate Change (of the year 1992). The signatory countries agreed on the need to reduce greenhouse gas emissions that cause global warming. Kazakhstan ratified the Kyoto Protocol without its appendix that defines a mechanism of quantitative emission limitations and emissions trading (for the countries which have ratified it). Developing countries were not encumbered, but could undertake voluntary obligations and win funding under it. Kazakhstan has repeatedly stated its intention to join the Appendix B of the Kyoto Protocol and to commit to the relevant obligations. These intentions are recorded in the official decisions of the Conference of the Parties in Copenhagen (the year 2009), Cancun (the year 2010) and Durban (the year 2011), but there was no decision on acceptance. The European

Union was against the inclusion of Kazakhstan in the Appendix B. The EU argument came basically down to the fact that Kazakhstan has ratified the Kyoto Protocol late and missed the right moment to enter in the Appendix B. Given that the first control period of the Kyoto Protocol ended in 2012 participation in Kyoto-2 is of more importance for Kazakhstan. At the conference in December 2011, that took place in Durban, after numerous disagreements, the delegations of 194 countries have agreed to prolong the duration of the Kyoto Protocol by 5 years. It was agreed to draft a future document that would oblige all countries, not only industrialized ones, to reduce the volumes of greenhouse gas emissions. Unlike the Kyoto Protocol, it should be legally binding for all countries. It is planned to approve the new document in 2015, and let it enter into force by 2020.

page 18

march 2013

An “Association of high-tech, energy-efficient and innovative companies” has been formed. An “Association of high-tech, energy-efficient and innovative companies” has been established in Kazakhstan to promote and popularize ideas and new technologies in the field of energy conservation. The association’s activity will focus on the development of energy-efficient technologies and industries, the implementation of energy-efficient technologies, equipment and materials in the generation, distribution and consumption of energy, and on the promotion of public policies

aimed at the acceleration of innovation and the industrial development of Kazakhstan. The Association was established with the support of the UNDP/Global Environment Facility. The association will actively participate in stimulating the culture of ecological design and construction, in the introducing of standards for passive buildings, in elevating the level of professionalism, in the maintenance of residential, office and industrial buildings to modern international standards.

EXPO 2017 – an opportunity for Kazakhstan to promote new, energy efficient technologies Kazakhstan won the right to hold the International specialized exhibition “EXPO-2017” in the city of Astana. Kazakhstan has proposed the theme “Energy of the future” for the “EXPO-2017”, with the aim of promoting new ways in the energy industry, primarily the development of alternative energy sources and new ways of transmission. The Ministry for Environment Protection is developing a “Strategy

for the transition to a green economy”, which is to be approved by end-2013. According to its plan for energy-efficiency, the Ministry of Industry and New Technologies expects the construction of 1040 MW capacity based on renewable energy ressources until 2020 within the framework of the transition to a green economy, including 13 wind power stations with 793 MW capacity, 14 hydroelectric power plants with 170 MW capacity and 4 solar power stations with 77 MW capacity.

page 19

march 2013

CONTACT Kazakhstan

ATFBank, member of UniCredit Group 100, Furmanov str., 050000 Almaty www.atfbank.kz

ATFBank Research

Hans Holzhacker Chief Economist [email protected] Timur Dauranov [email protected] Asan Kurmanbekov [email protected] Aigul Omarova [email protected]

International Desk:

Treasury Department

Indira Askarova [email protected]

Nazar Toleubayev [email protected]

Corporations Department

Custody

Vitaliy Kim [email protected]

Anna Kustova [email protected]

Vladimir Vassilyev Head of Custody Division, [email protected]

ATF Finance

Zhanar Nurzhanova Senior Specialist [email protected]

This review (hereinafter referred to as the Document) is prepared by the Analysts of JSC «ATFBank». The Document is prepared for informational purposes and is not: 1) a suggestion or an application for suggestion, sale or purchase of any financial instrument and/or 2) a professional opinion (recommendation) in terms of any investment decision and/or 3) rating of a business organization. This Document cannot be distributed, reproduced, disclosed or published completely or partially in whatever form or by any means without a prior author’s written permission. The information and opinions in this Document are based on the data received from credible sources. However, the author does not guarantee, implicitly or explicitly, and shall not be obliged and shall not bear responsibility, including indemnification in relation to the receiver of this Document and/or third parties regarding accuracy, completeness and/or correctness of any information in this Document. From now forth, the author shall not be obliged to update the information in this Document. Any person obtained or received this Document shall observe abovementioned restrictions. License No239 to conduct banking and other operations and carry out of activity on the securities market dated 28.12.2007 issued by the Agency of the Republic of Kazakhstan on Regulation and Supervision of Financial Market and Financial Organizations page 20