Legal Framework Of Investing In Power Industry Of Kazakhstan

The article is aimed to summarise the laws of Kazakhstan in view of the potential local and foreign investor.

1. Current Legal and Regulatory Regime

   To our knowledge, currently there are 8 large power plants 'of national importance' in Kazakhstan; four of them are thermal power plants, and the other four - hydro power plants. There are also a number of smaller regional power station.

   Power is transmitted through the transmission networks by the so-called 'transmission companies'. The transmission companies can be of two levels: first is a system operator, which operates the national transmission network, and second is a regional power companies, which transmit power through the regional electric grids.

   The system operator, 'Kazakhstani Electrical Grids Operation Company' JSC (KEGOC) is the national transmission company, which owns and operates the national electric grid. It manages the electricity market and international electricity exchange system.

   In Kazakhstan there are also 18 regional power companies in each region (administrative region), large cities and the capital city - Astana.

   The system operator and regional electricity companies transmit electric power sold by power plants (the so-called 'power generating companies'), in accordance with the power purchase agreements concluded with consumers and/or power supplying companies. The relationships between the power generating companies on one hand, and between system operator and regional electric grid companies, on the other hand, are governed by separate agreements concluded between them.

   Beside the above market players, there are about 124 thousands of so-called 'power supplying companies' in Kazakhstan engaged in the distribution of power among end consumers of Kazakhstan.

   The Law of the Republic of Kazakhstan 'On Electric Power Industry', dated 9 July 2004 was amended in 2009 to attract power investments through establishment of a new tariff setting system for electric power generation, under which investors assume certain investment committments in return of a comfortable tariff (the so-called "tariff for investments" mechanism).

   The Law provides for a two-level system that includes: at a lower level - the so-called 'ceiling tariff' (when power producers may set their own tariffs up to the regulated maximum), and at an upper level - 'estimated tariff' and 'individual tariff', which can exceed the ceiling tariff subject to the approval of the state competent authorities. Special regulations were adopted for the ceiling, estimated and individual tariffs.

   In accordance with the Law of the Republic of Kazakhstan 'On Electric Power Industry', a generating company may ad arbitrium set its tariff by virtue of a contract with a counterparty. Such a tariff shall in no way exceed the ceiling regulated tariff set for sales by generating companies.

   The ceiling tariff varies according to the certain...