QR Briefing: 2/15/2023
Author: Richard Spooner
Feb 15, 2023
CPC's new feature, QR Briefing, is a summary and analysis of events and trends in the Republic of Kazakhstan (RK). With the decision to switch Kazakh language to a Latinized alphabet, which will be implemented in stages from 2023-2031, the country's name is now being rendered as Qazakstan, and Qazak Republic (QR) is gaining momentum, especially among young people, as a new acronym for the country, replacing RK, to resonate with President Tokayev's rebranding of the country as Jana (new) Qazakstan.
Roman Sklyar re-visits Ekibastuz
During a working trip to the city of Ekibastuz in Pavlodar Region, First Deputy Prime Minister Roman Sklyar harshly criticized the work of Vadim Lesin, General Director of the regional utility agency, PavlodarEnergo JSC. Sklyar was not satisfied with Lesin’s response to his question about the supply of heat to buildings in the city, declaring, “Your parameters say nothing to people. They need their apartments to be warm. This won’t do. Not only are you not fulfilling my instructions, but you can’t explain anything.” Later in the day, Lesin was relieved of his duties.
It was not Sklyar’s first visit to Ekibastuz in the past two and a half months; the previous visit was in late November 2022, when four boiler units at the city’s main thermal power plant failed, leaving the city of 150,000 without heat and hot water during severely cold weather. The state of emergency declared on the night of November 26-27 was lifted on December 8, although at that time, according to estimates, around a dozen buildings remained without heat, and others had only limited service. For almost two weeks, residents lived without heat in freezing temperatures, and many were without electricity and running water, as well.
Authorities do not dispute that the accident at the plant exposed a failure to properly monitor and maintain city infrastructure. Ayan Beisekin, the locally born 35-year-old city Akim, stated in the aftermath of the emergency that he was aware of the deteriorated state of the thermal power distribution system in Ekibastuz, located 310 km east of Astana. “We often raise this issue. There is no secret here. This year (2022), around 500 million tenge ($1.1 million) was spent on renovations and repairs to the plant and city distribution networks,” Beisekin stated.
In municipal contracting, $1.1 million may buy more in Kazakhstan than it does in, say, the United States, but the figure, nonetheless, does not impress.
Following the accident, the company that owns the plant, along with local authorities, spoke of how the low rates charged for heat, water, and electricity provide insufficient revenue to maintain and upgrade the networks. This led to complaints from residents that, relative to their salaries, the tariffs are not low. Entrepreneur Aleksander Klebanov, whose company owns the plant, recorded a video in which he promised to help residents of Ekibastuz affected by the accident. Company representative Bagdat Oral, responding to complaints from citizens, declared that the plant operates at a loss, and announced the company’s readiness to return the facility to state ownership. “There was always the hope that it would be possible to normalize tariff policy,” Oral stated. “We discussed this with the Ministry of Energy. Tariff policy was not normalized. I’m telling it like it is."
The day the state of emergency was lifted, a message appeared on the Akimat website saying local authorities would accept applications from citizens whose residences suffered damage from the accident, promising to inspect housing to evaluate the damages and pay compensation.
The bitter irony is that Ekibastuz is coal country; not far from the city stands a mega-plant that generates 19% of the entire country’s supply of electricity.
In December, a senior official at Antikor (the national Anti-Corruption Agency) visited Ekibastuz and shared with journalists his assumption that the emergency there arose, among other factors, due to systemic corruption in the sector. “In exchange for ‘separate remuneration,’ without consideration of plant capacity, permits are issued to individuals and legal entities to connect to the main thermal supply plant. As a result, power output is diffused, high-rise buildings are cold, apartments have no hot water. And this has happened in other cities, including Taraz in Zhambyl Region, Semei in Abai Region and cities in West Kazakhstan Region,” Sayan Akhmetzhanov stated to local media in the wake of the accident.
At the same time, deputies of the Mazhilis resolved to conduct a parliamentary investigation of what occurred in Ekibastuz, and President Tokayev gave instructions to create an interdepartmental commission to monitor the activities of central and local executive bodies in preparation for the winter heating season.
Then in mid-January of this year, while acceptable ‘parameters’ were still being restored throughout the city, another breakdown occurred at Ekibastuz Central. "On the morning of January 13, at 09:45, work was completed on boiler unit No. 14 and re-start of the unit commenced," said Dmitry Zakharov, Acting Director General at municipal utility agency EkibastuzEnergo. He added that six boiler units were now in operation, and assured consumers that in their January account statement they would be billed only for thermal energy actually consumed. That day, Akim Ayan Beisekin reported on social networks that the city's main power plant was operating normally.
As indicated above, the deteriorated state of the country’s utilities networks is no secret, and less than a week after the emergency situation in Ekibastuz was lifted, a national business-oriented media outlet, dknews.kz, published an in-depth look at the problem and warned about the scale of what it called a potential tragedy. According to the article, in the fuel and energy sector, the ware factor or degree of deterioration for fixed assets is considered acceptable up to a level of 45%, while an indicator from 45% to 65% indicates a pre-crisis situation, and above 65% means one should be prepared for emergencies and constant breakdowns in the supply of heating services. According to available statistics, at the end of 2021, the level of depreciation for fixed assets at such facilities in Kazakhstan was 71.7%, and as high as 78% for some machinery and equipment.
A third of the country’s main thermal power plants have been in operation for more than half a century, and at least 1500 kilometers of heating networks are in urgent need of replacement or repair, with their deterioration level above 75%. One report cited in the article estimated the cost of such replacements and repairs at 528 billion tenge ($1.17 billion). As for electricity, in October of 2022, Minister of Energy Bolat Akchulakov stated that emergency shutdowns were up 22% compared to 2021, and their duration had increased by 16%. Earlier, Prime Minister Alikhan Smailov noted that the current level of depreciation for regional electricity networks is around 65%, but as high as 80% in some cities.
A telling contrast to this disheartening picture can be found in Kazakhstan’s telecommunications sector, and the key factor is likely the influence of private ownership. In Kazakhstan, as of the end of 2021, depreciation in this sector was only 50.5%, and had decreased by 6% over the preceding three years.
KazakhTelecom JSC, the national telecommunications operator, increased investment in the sector’s infrastructure steadily during those three years and has continued to do so since 2021. The same applies to the country’s two main providers of mobile telephone service, KCell and Beeline, both private entities.
KazakhTelecom is owned 52% by the national welfare fund, Samruk Kazyna. The remainder is held by private investors in the UK, the United States, and Luxembourg. The company’s common shares and ADRs (American Depository Receipts) are traded on KASE, the national stock exchange. KazakhTelecom maintains credit ratings with S&P and with Fitch, which in December of 2022 set the company at BBB/Stable, which is where it’s rating has hovered for some time. KazakhTelecom is a diversified company with subsidiaries in Cloud solutions technology that provide services to clients in Kazakhstan, including the national welfare fund, and in neighboring countries. Other subsidiaries operate online stores, provide internet service to rural areas, and offer land-line phone services, mobile phone services, and data center and data network services. In addition, KazakhTelecom owns significant sectoral infrastructure that it rents to over 100 local operators.
When we look at thermal power stations and electricity supply, the challenges are evident. Reform of tariff policy is needed but will be socially painful without subsidies. Corruption at the level of station management is evidently widespread and demonstrably dangerous. Systematic efforts to maintain and renew infrastructure will be expensive. The government recognizes the issues, the media publish detailed statistics with colorful infographics, but the problems remain acute. The funding required is significant, but there is another part of the formula to be examined. Identifying a problem is one thing; dealing with it promptly and effectively is another, just as drawing up a comprehensive development program for a specific sector of the economy is one thing, while implementing it systematically and without delay is another, and in the difference between the two lies a long-standing problem of public administration in Kazakhstan that goes beyond sectoral distinctions. Too often, government agencies seem to view producing development plans as an end in itself, rather than a means to end. One could argue that the government should stop striving to manage the economy and focus instead on regulating it. Toward that end, it would be important for the country to move forward with purpose on the plan set by President Tokayev and his team to accelerate privatization, including privatization of Samruk Energy, where the regional utility agencies are held, so that decisions on problems are taken more promptly and the work necessary to resolve them is carried out more cost-efficiently.
Kazakhstani Police Officers Study the Experience of U.S. Colleagues
Shugyla Turlybek of the Ministry of Internal Affairs reported February 10 on an exchange program between Kazakh and American police officers, saying “The experience of American sheriffs was studied by the police of Kazakhstan. Our delegation, which included representatives of educational institutions affiliated with the Ministry, made a tour of the United States to study the experience of our American colleagues in community-oriented policing.” Kazakh officers met with counterparts from police departments in Delaware, Virginia, and Maryland, learning about recruitment processes and the training and re-training of new and veteran officers, including sessions at the Academies of the DEA and FBI. The visit was organized by the U.S. State Department's Bureau of International Drug Trafficking and Law Enforcement with support from the U.S. Embassy in Kazakhstan, Ms. Turlybek added.
Tokayev Instructs the Minister of Internal Affairs to Intensify Work on Solving Cases of Provocation against Journalists
The presidential press service, Ak Orda, reported that the head of state recently received Minister Marat Akhmetzhanov for a briefing on crime. According to the Minister’s presentation, there has been a significant reduction in the number of murders, aggravated assaults, robberies, and street crimes thanks to the implementation of a set of preventive measures. The President was likewise briefed on the immigration situation and measures to combat organized crime and drug trafficking. Finally, the Minister reported on the first results of a pilot program to investigate the integrity of police officers as part of the anti-corruption program approved by the President for 2022-2026, and the President instructed the Minister to step up work to uncover illegal actions and provocations against representatives of civil society and journalists.
Kazakhstan to Build Large Trade Hubs by 2026
Kazakhstan plans to build five border hubs by 2026, the Ministry of Trade and Integration reported on February 10. An industrial trade and logistics complex will be created in Zhambyl region on the border with Kyrgyzstan and an international center for industrial cooperation called Central Asia will appear in Turkestan region on the border with Uzbekistan. In addition, a cross-border trade center called Eurasia is planned in West Kazakhstan region on the border with Russia, a container hub called Caspian Junction will appear in Aktau on the Caspian Sea, and the bordercrossing station with China at Khorgos will be significantly expanded.
"The source of financing will be determined for each project individually, based on the objectives and specific features of each project. The amounts of financing are being worked out with potential investors and will be set forth in the corresponding investment agreements," a Ministry of Trade spokesperson explained.
The hubs will offer warehousing, storage, processing, production of new goods, and their sale with integration into international commodity distribution systems, as well providing logistical support, rental of retail space, and pre-sale preparation services like calibration, sorting, packaging, and product certification. “Cross-border hubs will not be only local trade centers; they will cover the export needs of enterprises from other regions of Kazakhstan," the ministry announced. In addition, these centers are intended to cut the number of links in the supply chain, reduce product cost for the end consumer, and increase speed of delivery.
Kazakhstan to Triple Export Duties on Petroleum Products
Export customs duties for refined oil products from Kazakhstan will be increased more than threefold, according to Vice Minister of Energy Asset Magauov. “Three years ago, the rate for refined products was the same as the rate for crude,” he stated on February 9. After completing the modernization of Kazakhstan’s three largest refineries, plans were announced to export gasoline to Central Asian neighbor countries, but these plans were scrapped in light of a steady annual increase in domestic consumption of gasoline and diesel fuel.
The new export duty rate will float and be calculated by the State Revenue Committee based on the cost of Brent crude. Mini-refineries, which export most of their production, will be required, starting in 2024, to be equipped with metering devices and to gradually increase production of higher value-added products like motor fuel.