Technical Assistance Consultant’s Report

Project Number: 44402-01 November 2012

Regional: Preparation of Sector Road Maps for Central and West Asia ()

Prepared by Cesar Dopazo, Paulo Ferrao, Norberto Fueyo, Antonio Gomez, Rosario Macario, Patrick McCarthy, Samuel Niza, Jiawen Yang ! Fundación Empresa Universidad de Zaragoza

Zaragoza, Spain

For the Asian Development Bank

This consultant’s report does not necessarily reflect the views of ADB or the Government concerned, and ADB and the Government cannot be held liable for its contents.

An Infrastructure Road Map for Kazakhstan Final Report

This consultant’s Report does not necessarily reflect the views of ADB or the Government concerned, and ADB and the Government cannot be held liable for its contents.

Full list of authors and contributors

Universidad de Zaragoza, Spain

César Dopazo Norberto Fueyo Antonio Gómez Ramón Chordá Carlos Montañés Salvador Ochoa Yusef Quadura Marcos Salinas Javier Zubizarreta

Georgia Institute of Technology, Atlanta, USA

Patrick Mccarthy Jiawen Yang Ge Song Landon Reed Bin Yan Aselia Urmanbetova Gaoyuan Zhao

Instituto Superior Técnico, Lisbon, Portugal

Paulo Ferrão Rosário Macário Samuel Niza Sara Amaral Ana Galvão Camila Garcia António Lorena Luis Martinez Gonçalo Mendes António Neves da Silva Duarte Pereira André Pina Joana Ribeiro Ana Ramôa Daniel Wiesmann Abbreviations and acronyms | 5 Abbreviations and acronyms ADB Asian Development Bank R/P ratio Reserves/Production ratio BAT Best Available Technology SCADA Supervisory, Control and Data Acquisition BCP Border Crossing Point SCO Shanghai Cooperation Organization BP British Petroleum SEE Synapse Energy Economics BRT Bus Rapid Transit Corridor SHW Solar Hot Water BSS Bike Sharing System SME Small and Medium Enterprise CA Central Asia SPAIID State Program of Accelerated Industrial- CAR Central Asia Republic Innovative Development CAREC Central Asia Regional Economic SOx Sulfur oxides Cooperation TEU Twenty-foot equivalent unit (the CASE Center for Social and Economic Research cargo capacity of a standard intermodal CBD Center Business District container) CC Combined Cycle UAE United Arab Emirates

CCS CO2 Capture and Sequestration UEDH Useful Energy Coefficient CIS Commonwealth of Independent States UM Urban Mobility CHP Combined Heat and Power UK United Kingdom CWA Central and Western Asia US United States DECC UK Department of Energy and Climate USD United Stated Dollar Change USSR Union of Soviet Socialist Republics Dept Department WB World Bank DeNOx Flue Gas de-NOx WM Waste Management DeSOx Flue Gas Desulfurization WS Water and Sanitation DoU Degree of Urbanization XUAR Xinjiang Uighur Autonomous Regional EE Energy Efficiency EIA US Energy Information Administration Units EU European Union Gcal Gigacalories (109 calories) EurAsEC Eurasian Economic Community GW electric gigawatts unless otherwise GDP Gross Domestic Product indicated

GT Gas Turbine GWth thermal gigawatts HDD Heating Degree Days hm3 cubic hectometers (1,000,000 cubic meters) HNP Health Nutrition and Population km kilometer HOB Heat Only Boilers km2 square kilometer HSR High Speed Railway km3 cubic kilometer IBL Intermittent Bus Lane m3 cubic meter IBNET International Benchmarking Network for M thousand Water Sanitation and Utilities Mt million tonne ICT Information and Communication Mln million Technologies MM million

IEA International Energy Agency MtCO2 million tonne of CO2 IMF International Monetary Fund Mtoe million tonne of oil equivalent Inhab Inhabitant MW electric Megawatts unless otherwise IT Information Technologies indicated

KOREM Kazakh Operator of Electric Energy MWth thermal Megawatts and Power Market Pcal Petacalories (1015 calories) LEC Levelized Electricity Cost Tcal Teracalories (1012 calories)

LED Light-Emitting Diode tCO2 tonne of CO2 LPG Liquefied Petroleum Gas toe tonne of oil equivalent (4.18 1013 Joules) LRT Light Rail Transit Corridor Ton-km tonnes times kilometers MRF Material Recovery Facilities TWh Terawatts hour MSW Municipal Solid Waste Vehicle-km vehicle times kilometers NOx Nitrogen oxides y2000 year 2000 PPP Public Private Partnerships or Power Purchase Parity PT Public Transport $ 2010 US$ unless otherwise indicated PV Photovoltaic Figures, tables and boxes present the consultants’ own results unless QoS Quality of Service otherwise stated

Contents | 7 Contents

Abbreviations and acronyms 5 Contents 7 Introduction 9 Main findings11 1. The country and the vision 13 1.1. Size, location and legacy: the impact on infrastructure. 13 Location as an opportunity. Harsh climate is a constraint. The influence of size and sparseness. Resources. The pervading implications of a powerful legacy. Economic structure: lack of diversification. 1.2. The vision: stability, development, diversification. 16 Government plans and programs. The vision. 2. Challenges and opportunities 21 2.1. Challenges: state of the infrastructure, governance, financing. 21 Obsolescent and low quality infrastructure. Governance issues: private sector participation, lengthy paperwork. Revenues and funding. 2.1. Opportunities: increasing efficiency and diversifying.26 Opportunities for accelerating development and diversifying. Opportunities for increasing efficiency and sustainability. 3. Envisioning the future 29 3.1. Future scenarios. 29 3.2. The future demand of energy. 32 3.3. The future demand of passenger and freight transport. 34 Freight demand forecast. Passenger Demand Forecast. 3.4 The future demand of urban services. 36 4. A road map for infrastructure development 39 4.1. The Energy sector. 39 The demand side. Power supply. Heat supply. Gas supply. Effect on indicators. 4.2. The Transport sector. 45 Meeting the demand. Investment needs. Impact of the proposed measures. 4.3. The Urban Services sector. 48 District Heating. Municipal Solid Waste management. Water and sanitation. Urban mobility. 4.4. Road map overview. 55 5. The cost of not doing 59 5.1 The cost of not doing. 59 5.2 Final recommendations. 62 The energy sector. The transport sector. The urban sector. Notes 65

Introduction | 9

Introduction

What options will Kazakhstan have for its energy mix in sectors (Energy, Urban Services and Transportation). 40 years’ time? How can the country harness productivity These Road Maps are quantitative, and integrated across improvement from urbanization and at the same time sectors. They provide a long-term (30-year) guidance bridge the gap between the rural and urban environment for up to the year 2040; but also offer short-term (e.g. and avoid the drift of people and skills? What transport 5-year) analysis. infrastructure will be required to support economic and social development? The present report is a summary of the key assumptions, results and recommendations arising out of this Kazakhstan wishes to become a modern, market exercise. The starting point for the methodology is economy; an economy that is diversified and less the assessment of the current situation in all three dependent on natural resources. New infrastructures and sectors. This assessment encompasses supply, demand, reforms will be needed if it is to meet its goal. Kazakhstan commercial, regulatory and social aspects, and was needs to be more energy efficient; it must provide quality largely accomplished in the course of two missions to urban and utility services for citizens and businesses; Kazakhstan in May and October 2011. In these missions, and develop an efficient transport and logistical the team undertook also to understand the Government’s infrastructure. plans, and developed a vision for the three sectors. The key conclusions for this part of the work are summarized Planning transcends the straightforward setting of goals in Section 1, The country and the vision, and Section 2, for infrastructure items, such as lengths of new roads, Challenges and opportunities. modern urban services or additional power generation capacity. It requires an integrated cross-infrastructure The methodology also includes an elaboration of a view that is consistent with the country’s vision of its number of scenarios under which energy, transportation own development. International experience shows that and urban services will need to be delivered. The demand economic diversification is a long-term process, which for services is then quantified under these scenarios, requires a 25-30 year planning horizon. Successful year by year up to 2040, using detailed models for the experiences in other countries indicate that it is vital to sectors and subsectors. The models are consistent with establish priorities and to allocate resources accordingly. the current statistical data in the country, and predict future demand using econometric correlations and well Energy, Urban Services and Transportation sectors are established international trends. The scenarios and our all key infrastructure sectors for the development of a demand forecasts are reported in Section 3, Envisioning country. They share some common features that demand the future. an integrated planning approach. Notably: they require large investments, which are often met by pooling The final stage consists of integrating the results from the public and private resources with long payback periods; previous steps to provide a road map to the vision. This and they suppose long term project planning and incorporates a timeline of developments, investments development times, often in excess of ten years. and recommendations that suggest how the demand for services can be met. In this timeline, the analysis starts The combination of large investments and long from the Government plans in the short and mid terms, project lead times risks incurring additional costs if but also account for international trends and emerging a certain course of action is not taken early enough, technologies in the long term and in each sector. The including: higher financial costs; inequalities, in impact of the proposed investments and solutions on key the form of territorial or social inhomogeneous indicators is analyzed, such as on energy and emissions development; environmental degradation; and declining intensity, electricity affordability, water and sanitation competitiveness. coverage, or road congestion and fatalities. The main results are summarized in Section 4, A road map for Against this backdrop, ADB’s Central and West Asia infrastructure development. Division has undertaken, in partnership with the Government of the Republic of Kazakhstan, the Finally, in Section 5, The cost of not doing, the likely development of national Road Maps in the three key impacts of not adopting the suggested interventions are 10 | An Infrastructure Road Map for Kazakhstan evaluated, and some final recommendations provided. The material developed in the course of this project is much more than can be conveyed in this final report. The following, additional sources of information are also available for a more detailed analysis of the results summarized here: • The results from fact-finding effort have been compiled in our separate report Benchmark and SWOT (Strengths, Weaknesses, Opportunities and Threats). Indeed, the key benchmarking variables can be consulted on-line in a benchmarking website built for the project at gfn.unizar.es/benchmarkThis. • The data-gathering effort has resulted in an online electronic data repository. Many of the data items have been geo-referenced for this project, and can now be used with Geographical Information Systems (GIS). • Very detailed accounts of the demand models prepared for this project are also available from ADB as separate technical reports for each of the infrastructure sectors in this Road Map. In particular, these technical reports are the basis of the quantitative analysis presented in this report, and can be consulted whenever additional information on the methodology, assumptions or data is required, or for the full set of results. Main findings | 11

Main findings

The demand for energy, transportation and urban services The investments and interventions proposed in this in Kazakhstan will increase substantially over the next report will provide a development path consistent with 30 years. This report analyzes the implications for these the government’s vision for a modern, diversified, more services of two economic growth scenarios: a Moderate efficient economy. For instance, the country’s overall Growth scenario assumes an average annual GDP energy intensity can be decreased by almost two thirds increase of 3.36% for the period 2011-2040; in a High from the current level of 1700 toe/y2000US$MM to Growth scenario, the average annual growth for the same 650 toe/y2000US$MM (Moderate Growth) or 550 toe/ 30-year period is 5.8%. y2000US$MM (High Growth). This compares very favorably with the much higher intensity of 1000 toe/ Under these assumptions, the electricity demand will y2000US$MM (Moderate Growth) if a ‘business as usual’ increase by a factor of 1.7 to 2.9. Through efficiency path is adopted for the development of the energy sector. measures, however, heat demand will decrease by a factor CO2 emissions per capita can be contained at the current of 0.75 (Moderate Growth), or increase only slightly level of 13 tCO2/inhabit (High Growth) or even decreased by less than 1.1 (High Growth). Gas consumption will to 9 tCO2/inhabit (Moderate Growth). The saving in the increase by a factor of 1.7 to 3. Economic development externality costs of CO2 emissions will be $73 billion will also increase substantially the demand for freight, to $98 billion up to 2040. Local air quality will be also from a total 253 billion ton-km in 2010 to 831 billion significantly improved: the emission of pollutants such as ton-km (Moderate Growth) or 1702 billion ton-km (High NOx and SOx will be roughly halved. The analysis shows Growth) in 2040; and passenger transport demand will that the new investments have only a moderate impact grow by a factor of 3 to 5.4 between 2010 and 2040. In on the affordability of energy to households. the same period, the production of Municipal Solid Waste will increase by a factor of 1.5 to 2; and 37% to 60% With the investments suggested in road infrastructure more freshwater will have to be delivered to urban areas, the national average transport time by road from each even after the introduction of water saving measures provincial capital to other provincial capitals will fall such as metering. The sanitation service will be universal 35%. The national average line-haul time by rail from by 2025, driving up the need for wastewater treatment each provincial capital to all other provincial capitals will by a factor of around 2 in 2040. By 2040, the total urban fall 71% with the construction of the planned strategic travel demand will double or triple in and , railway links. Adding container-based inter-modal while it will triple or quadruple in Astana. transfer between rail and road can reduce the national average cost for container shipment from one provincial To meet these increasing demands until 2040, the capital to all other provincial capitals by 24%. Better road required investments in infrastructure are estimated at infrastructure will also have an impact on the number of $152 billion to $243 billion, or equivalently around 2% of fatalities: by 2040 more than 800 lives will be saved every the forecasted cumulative GDP for the period (see table). year with the upgrade of the 13,000 km of the Asian Highway within Kazakhstan.

Investment timeline ($ billion)

Sector 2011-2015 2016-2025 2026-2040 Total %2011-2040 GDP

Energy 13.2 14.9 28.0 45.4 44.1 97.4 85.3 157.7 1.0% 1.3%

Transport 9.5 9.5 21.0 27.3 24.0 34.6 54.5 71.4 0.6% 0.6%

Urban services 6.9 7.6 4.2 4.6 1.6 2.1 12.7 14.3 0.2% 0.1%

Total 29.6 32.0 53.2 77.3 69.7 134.1 152.5 243.4 1.8% 2.0%

Moderate Growth High Growth 12 | An Infrastructure Road Map for Kazakhstan

In the urban sector, the proposals will bring the energy The urban mobility measures for Almaty, Astana and efficiency of district heating close to that in modern Aktobe aim at encouraging public and non-motorized developed countries through interventions such as the transport modes, to limit private transport, and to deployment of ambient temperature control, heat and improve urban logistics. The measures include the subway water meters and better insulated windows in homes; expansion (Almaty) and a Light Railway Transit Corridor these and similar measures will save about 43% of the (Astana), intermittent bus lane corridors, tariff integration heat that needs to be distributed, and $5.8 billion to $7.4 and parking policies. These measures will be successful billion in heat generation costs over the 30-year period in decreasing the private transport modal share from to 2040. the current levels around of 70% to around 40-50% (depending on the city) by 2025. If these measures are In the Municipal Solid Waste service, by 2025 the not implemented, economic development will cause collection coverage will be 100% and open, uncontrolled instead a 36% increase in private transport modal share dumping will be ended. The latter will be replaced by in these cities; and the additional costs of congestion, 80 to 120 controlled landfill sites meeting international emissions and fatalities will amount to $16 billion standards, and by a substantial increase of recycling (Almaty), $1.18 billion (Astana) or $0.48 billion (Aktobe) and material and energy recovery. This is not only a over the 2010-2040 period (Moderate Growth). more environmentally sound approach; it is also more cost effective: accounting for the environmental and opportunity costs, the total cost of Municipal Solid Waste management will be $123 per ton of waste entering the system, lower than the $135 per ton estimated for a ‘business as usual’ strategy (both for Moderate Growth).

The country and the vision | 13

1. The country and the vision

1.1. Size, location and legacy: the impact on infrastructure

Kazakhstan is a landlocked, transcontinental country in Europe and Central Asia. Although it is the 9th country in the world by size, it is very sparsely populated - with about 6 inhab/km2 it ranks 224th in the world. Its size (and low population density), location (and harsh climate) and its Soviet legacy all place exacting demands on infrastructures across the energy, transportation and urban sectors.

Location as an opportunity problem, road shipments per capita are already high; in The country’s location as a crossroads in Central Asia 2010 they were comparable to or higher than those of provides unique opportunities to develop links between countries with much higher GDP per capita. Kazakhstan’s interior China and interior Europe. The government is high freight turnover (Figure 1.1) reflects the country’s indeed seizing this opportunity to build up its logistics size and its importance as a crossroads. Yet, the figure sector, and to establish itself as the primary regional indicates that further GDP growth is likely to have very provider of transportation logistics. New freight logistics little impact on the growth rate in goods transported, centers, envisaged in Aktobe , Almaty, Khorgos, , which highlights the need for specific measures and and , will serve as transcontinental links policies to expand its road network and develop the with Europe, the Asia-Pacific and South East Asia. logistics sector.

Harsh climate is a constraint One major difficulty in the urban sector is the supply Kazakhstan has a marked continental climate, with large of services to small agglomerates of population whose temperature differences between summer and winter. critical mass may not justify these. Around 15 million Minimum temperatures below -40ºC are not uncommon, people, with 120 different ethnic groups, is dispersed particularly in the northeastern part of the country, while over the territory, with 55% living in urban areas. The summer temperatures may exceed 30ºC or even 40ºC in distribution of the population in isolated small, distant the South. The extreme climate brings its energy demands urban centers makes solutions such as incineration or (for heating in winter, and to some extent for cooling in summer) and also affects urban mobility patterns and modes. The inhabitants’ preference is for private cars and demand higher standards of comfort in the public Million ton-km shipped per 1000 persons transport. Soft green (non-motorized) transport modes 10 are very limited in winter, and will remain so unless new breakthrough technologies improve their comfort under 8 the adverse weather conditions.

The influence of size and sparseness 6 The country’s area and low population have clear implications for the three infrastructure sectors. 4 According to government officials, transport accounts for 8-11% of the final cost of goods, compared to 4.0- 2 4.5% in typical industrialized countries. Urban areas are far apart, and thus subject to high costs for reception of supplies. 0 0 10 20 30 40 GDP per capita ($M) Demand for Kazakhstan’s transport capacity is not sufficient to generate revenues to recover capital Figure 1.1 Goods transported by road per 1,000 people (million ton-km) (2010) and operating costs. This results in inadequate public Road shipments per capita are already higher investment, limited resources for maintaining the system than for most developed countries and a deterrent for private investors to participate with Data: International Road Federation the government in transport projects. To compound the http://www.NationMaster.com/graph/tra_roa_goo_tra_mil_ton_percap-million-ton-km-per-capita. 14 | An Infrastructure Road Map for Kazakhstan recycling facilities economically unfeasible. Sparseness Thousand vehicles also reduces land prices, tipping the scale in favor of 500 landfilling as a means of waste disposal. 450

400 Another characteristic of the country is the concentration 350 of urban settlement areas in the south-east, with three cities (Almaty, Shymkent and Taraz) accounting for half 300 of the population of the main eleven cities. These three 250 cities are near the border with Uzbekistan and Kyrgyzstan. 200 This territorial distribution imposes a limitation on the 150 organization of the supply chain and inevitably on its last mile in urban soil. The logistic network must be able 50 to accommodate the stocks required while optimizing 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 transport costs, but this should not bring additional freight flows to the inner city, with the consequent Figure 1.2 increase of congestion. Terminals are required in the city Vehicles circulating in Almaty outskirts and spread within the urban area to serve the Vehicles in Almaty almost tripled in eight years different zones of the city minimizing motorized traffic Data: Agency of Statistics of the Republic of Kazakhstan flows and emissions.

Resources In parts of the country there is a competition for fresh Kazakhstan is rich in mineral resources and, particularly, water for different uses: health (household supply), food energy ones. At the end of 2009, the Kazakh proven coal (irrigation), biodiversity (ecological flows) and energy reserves amounted to 31,300 Mt (3.8% of the world’s (dams). The use of available water resources is not now total), yielding an R/P ratio of over 300 years. The oil always efficient enough. Wasteful irrigation practices, reserves (5,300 Mtoe) represent 3% of the worldwide a deteriorating infrastructure and the lack of drainage aggregate, with an R/P ratio of 65 years. Annual oil contribute to the salinization of irrigated lands. In production is 78 Mtoe, whereas domestic consumption general, surface water quality is good, although some is 12 Mtoe, leaving a sizeable export margin. Uranium of the river basins are moderately polluted. The most reserves are also substantial, totaling around 19% of the contaminated areas are the watersheds and basins of the world estimate. Ural and Irtysh Rivers, which receive wastewater from chemical, metallurgical, oil refining and machine building Surface water resources are highly seasonal –up to 90% industries. of the flow occurs in spring– and the water resources are distributed unevenly throughout the country. For The pervading implications of a powerful legacy instance, the East Kazakhstan oblast has abundant The legacy from the former Soviet Union has some water resources (taken as an annual average), while present-day implications for Kazakhstan. In the energy Mangistau, with almost no rivers, is a sere land. The and transportation sectors, the country still lacks internal relatively high fluctuations in water level and volume connectivity. This is a reflection of its past as a part of both within the year and year-on-year also cause an a larger political entity; it is also a major bottleneck uneven supply within the regions. The volume of available that the government is trying to redress through groundwater is 15.1 km3 per year and the utilization targeted investments. For example, the power system rate is 7.9%. However, groundwater pollution and the consisted until recently of several, largely unconnected, supply infrastructure deterioration are complicating networks; and while the government has strived since the provision of underground water for the population. independence to connect West, North and South, the This has led to the increased use of surface water for country still relies on neighboring Russia and the Kyrgyz household supply. The dependence on transboundary Republic for frequency regulation. The south of the waters is also important: only about half the country’s country is still supplied with gas from Uzbekistan, while surface water (56.1 km3) is generated within the oil from the fields in the Caspian region is sent to Russia territory1. for processing and imported again as refined products. The country and the vision | 15

Box 1. Kazakhstan’s connectivity as a legacy from the Soviet Union. Source: own data

Kazakhstan’s transport system was part of the former Soviet Union’s system and oriented toward Russia rather than domestic connectivity within Kazakhstan. At the time of Kazakhstan’s independence, railway transport between Almaty and western Kazakhstan had to pass through Uzbekistan. Connection between western, northern and eastern Kazakhstan means entering Russia. This Soviet legacy has more or less dominated railway investment after Kazakhstan’s independence. The map shows the railway links in the early 1990s (in black) and new links constructed before 2011 (in red).

Several critical links have been added to the railway The national railway network as a Soviet legacy network, thus providing better connections between eastern and northern parts, eastern and central parts, southern and western parts, and northern and eastern new railway lines -Zhezkazgan-Beyneu and Arkalyk- parts. One remaining big gap is between the central Shubarkol– will further strengthen the domestic and western parts of the system. Constructing two network connectivity and reduce transport costs.

Kazakhstan’s transport system was part of the Soviet Household electricity price ($/kWh) / GDP per capita ($/inhab) (scaled by 106) Union and oriented toward Russia more than to domestic 35 connectivity. (See Box 1). 30 The urban planning of Kazakh cities dates back to the former Soviet Union era. This legacy includes well 25 designed, well planned, livable cities, multifunction boroughs, green spaces and wide avenues. However, these 20 standards have also been a key factor in stimulating the 15 use of private cars, which was further encouraged as the country moved towards a market economy. For instance, 10 the number of vehicles circulating in Almaty almost tripled between 2000 and 2008 (Figure 1.2), with more 5 than 90% of vehicles privately-owned2.

0 20 40 60 80 100 Tariffs for public services are generally low in Kazakhstan, GDP per capita ($M) to the point of compromising cost recovery and deterring Figure 1.3 private investment. Arguably this can also be interpreted Relative (to the Gross Domestic Product per capita) residential as a Soviet inheritance. It may reflect a mindset where electricity tariffs (2009-2011) social protection and inclusiveness is generally provided Despite recent courageous increases, residential electricity tariffs remain low relative to GDP per capita through free or low cost services, to the point of compromising the state of repair of the infrastructure. Data: GDP from World Bank, 2009; Worldwide electricity prices from Eurostat (2009), IEA Report Energy Prices and Taxes (Q4 2009); Kazakh electricity prices for 2011 This is very clearly exemplified by electricity tariffs: despite aggressive increases in recent years, the tariffs (relative to the GDP) are still the lowest for countries with a similar level of income (Figure 1.3). 16 | An Infrastructure Road Map for Kazakhstan

The effect of low tariffs can be seen across the sectors: for instance, the high financial deficits in public transport companies3 or the poor maintenance of the heat distribution networks.

Economic structure: lack of diversification The structure of the economic activity of Kazakhstan presents some key differences with countries of a similar degree of development (measured by the GDP per capita). The agricultural sector contributes 4.8% to the GDP, and this is in line with similar countries. However, the industry share is 42.4%, well above the international average for its level of development, and possibly the reflection of an economy oriented towards the exploitation of natural resources. The services share, at 52.8%, is, conversely, below that of its peers. Figure 1.4 Kazakhstan exports in 2009 (total value: $43 billion) This economic structure has some relevant repercussions The export makeup shows lack of diversification in the three sectors. It is partly responsible for the Source: The Observatory of Economic complexity by Alexander Simoes, http://atlas.media.mit.edu/ high energy intensity, since industry is generally more energy intensive than agriculture or services. In the transportation sector, it explains the relatively high road freight intensity. In the water services sector, agriculture, with a GDP contribution of only 4.8%, uses about 82% of the available fresh water.

The industrial sector clearly lacks diversification (Figure 1.4). The contribution of minerals and their transformed products to the export basket was about 93% in 2009; of these, oil and gas made up 65% of the total exports.

1.2. The vision: stability, development, diversification

Government plans and programs 2020 (issued 2010). The current segment of Strategy Unlike many other developing (and even developed) 2030 was issued as Presidential Decree 922, and covers countries, Kazakhstan has issued a number of well- the period 2010-2019. The document sets out objectives crafted strategic documents. The parent one is Strategy for numerous political, social and economic aspects; Kazakhstan 2030 (issued 1997), which is also the source these objectives are sometimes qualitative but often of subsequent, detailed plans. Strategy Kazakhstan quantitative, and are to be achieved by certain deadlines 2030 spells out the situation of the country at the time along the period, but primarily by 2020. The short-term in the form of a quite lucid analysis of strengths and implementation of the 2020 plan is set out in the form opportunities. The vision portrayed in this document of a series of projects under the “State Program of is well-structured and insightful. It states seven “long- Accelerated Industrial-Innovative Development”, SPAIID. term priority goals” (See Box 2). Priority 3 is a resolute defense of the free market economy; and the energy, The energy sector is one of the seven priorities in Strategy transportation and urban sectors are all key priorities (the 2030. The main goals are: to attract foreign investment, urban sector is embedded in priority 4, welfare). technology and know-how (from the USA, Russia, China, Japan and Western Europe), and to form long-term stable The development of “Strategy Kazakhstan 2030” is partnerships with major international companies; to conducted in a set of sequential policy documents for accelerate the development and creation of an energy the periods 1998-2000, 2000-2010 and, currently, 2010- infrastructure, with the aim of self-sufficiency; and The country and the vision | 17

Box 2. The seven priorities of the Kazakhstan government. Source: Strategy Kazakhstan 2030 1. National security. Ensure the development of 5. Energy resources. Efficiently use the energy Kazakhstan as an independent sovereign state, while resources of Kazakhstan through rapid increases in maintaining full territorial integrity. mining and in oil and gas exports to generate revenue that will contribute to sustainable economic growth 2. Domestic political stability and consolidation and to improving the lives of the Kazakh people. of the Society. Preserve and strengthen the domestic political stability and national unity that will enable 6. Infrastructure, particularly transport and Kazakhstan to set its national strategy for current and communication. Develop these key sectors to enhance future decades. national security, political stability and economic growth. 3.Economic growth based on an open market economy with a high level of foreign investments 7.Professional State. Establish an effective and and internal savings. Achieve real, sustainable and modern corps of civil servants in Kazakhstan which is increasing economic growth. devoted to and capable of acting as representatives of the people in achieving the country’s priorities. 4. Health, education and welfare of the citizens of Kazakhstan. Constantly improve the living conditions, health, education and opportunities in Kazakhstan and improve the ecological environment.

“a very prudent use of future revenues from domestic Through SPAIID, the Government broadens its transport energy resources”. The preamble recognizes the need vision from a roads program to a multimodal systems to act in the abatement of global warming through perspective, with state-of-the-art information the control of GHG emissions and the involvement of technologies and international design and operating Kazakhstan in regional issues such as water use. It also standards. Critical to the country’s accelerated sets out specific targets for the diversification of the development is the country’s role as a globally economy beyond mineral exploitation and commodity competitive logistics hub. The “Strategy of Transport exports. Sector Development up to 2015” identifies a 26 billion USD investments strategy for infrastructure construction For the oil and gas sectors, SPAIID succinctly establishes during 2006-2015. There should be an upgrade to the that: by 2014, domestic refineries should fully meet the national road system. Infrastructure financing should internal needs for fuels; by 2012, the pipeline Beineu- reflect self-sufficiency principles and an institutional and Bozoy-Akbulak should supply gas to the entire south regulatory environment to accommodate sustainable of the country. More detailed energy sector goals are capital investments and system maintenance. The enunciated: by 2015, renewables should contribute more transport strategy is multimodal, including railways, than 1.5% to the total energy consumption; by 2012, a automobile, in-city passenger, air and water carriage. long-term tariff policy for electricity pricing, and tariffs These investments will lower costs for domestic shippers for the transmission and distribution of electricity, should and travelers and, importantly, for transit traffic, which be implemented. The program sets out a curtailment of is a source of substantial revenue to the State budget the energy intensity in the period by at least 10% (with and domestic transport companies. By ensuring reliable respect to 2008). In the electricity sector, the program and accessible routes, the Strategy intends to facilitate lists 14 projects to modernize existing power plants trade growth between West and East. There is to be and power lines or build new ones. Provisions are also modernization of existing routes, new connecting legs made to increase coal production. A section on energy and a customized model, of meridian and latitude efficiency gives a broad outline of legislative and other arrangement of the main routes and connecting initiatives to be taken. The absence of measures to redress stretches, as well as renovation of all transport fleets. the current shortcomings of the DH system is among the main omissions. 18 | An Infrastructure Road Map for Kazakhstan

The proposed Astana Light Rail Transit (LRT) project (2012- consumption. The difficulties and challenges of the water 2017) will improve urban mobility, quality of life and sector in Kazakhstan cast some doubts on the likelihood of inclusive growth in the fast-growing capital (projected achieving the Government’s ambitious 2020 goals, which population of 1.5 million by 2030). The LRT system will are more likely to be met in the period 2020-2040. provide the opportunity to rethink urban mobility in an integrated way; it will have a demonstration value with In January 2012 President Nazarbayev made his potential for replication in other cities as no modern annual address to the Kazakh people, with the theme transit system currently exists in the country. The Kazakh “Socio-economic modernization as the main vector of government plans to use initially its budgetary resources development of Kazakhstan”. The speech contains several and it has requested the Asian Development Bank (ADB) to key messages which are very relevant for the sectors finance the civil works at a later stage. assessed in this report. Among them, the strive “to join the ranks of the high-income countries by 2015”; an Kazakhstan has no strategy or action plan in which to set impulse to new affordable housing (both for sale and for the policy for municipal and industrial waste (including long-term lease, with implications for energy savings); the the large amounts of waste accumulated from resource development of the regions, and the avoidance of single- mining activities over many decades). In 2011, the EU industry towns (diversification); the simplification of the supported a project for the development of a “National administrative procedures; the overriding importance Strategy and Action Plan for Municipal solid waste of innovative industrial development, and of innovation management” but this document did not come into force4. clusters; several key investments in the energy and The waste management legal framework is currently set transportation sectors, including the gasification of the by the Environmental Code (adopted in 2007). It specifies country; the promotion of tourism; and the use of loans the norms defining the property rights for waste and to from the National Fund to fund in part these initiatives. assign waste with no identifiable owner as municipal Key infrastructure investments singled out in the speech or state property. According to the Code, municipalities are: the construction of the first module of the must define and implement MSW systems and programs Thermal Power Station; the completion of the Kazakhstan (for collection, recycling, transfer and disposal) and section of the international motor road corridor “Western develop fully compliant landfill facilities, including Europe–Western China”; the construction of two new closure and post closure maintenance activities. It also rail lines –Zhezkazgan-Beyneu (1,200 km) and Arkalyk- mandates municipalities to reduce waste and increase Shubarkol; and the refining complex at the Refinery. recycling, to establish MSW information systems and enforce environmental compliance. The assessment of the The vision performance of the municipalities is however very difficult From the current state of the three infrastructure sectors, since the Code does not set periods for the adoption of the as evinced by benchmarking, and the analysis of the norms nor waste treatment targets, and waste quantities Government’s strategies and priorities, we propose the in the country are rarely recorded. following vision for the sectors in 2040:

The Kazakh Government launched the “Akbulak Program” (2011-2020) to provide the population with safe drinking water and sanitation services. This is a reform linked investment program for improving infrastructure capacities and efficiencies with the prime objective of developing the sector partially through Public Private Partnerships (PPP). To accelerate the transfer of urban water utilities to PPP models, the program defines a scheduled transfer of 20 municipal enterprises. It details the 2020 targets of universal access to centralized urban water supply and sanitation with increased reliability. It also aims at 100% coverage of the urban population with individual meters, the treatment of 100% of the wastewater, a reduction of supply system losses to 15%, and a 70% cutback in operating costs mainly through reductions in power The country and the vision | 19

Energy Transportation Urban

• Energy efficiency will improve • A seamless, multimodal transport • By 2040 the urban citizens will have significantly to around system will support the movement universal access to public transport 500 toe/y2000US$MM, a level of people and goods domestically services, water supply, sanitation closer to current ones in developed and regionally within Central Asia. and waste collection. An integrated countries. • Dependable, energy efficient and approach to prevent and control • The environmental sustainability of safe transport services will support domestic and industrial pollution the energy system will be improved economic and social development. and increase eco-efficiency of despite the demand growth by • Kazakhstan will be a multimodal services will be common practice. containing the annual emissions global transport and logistics hub • The access to basic urban services per capita to levels similar to with significant growth in cargo will be guaranteed by governmental current ones (about 13 ton) in any transit freight. It will also have social programs. Uninterrupted and scenario. The carbon intensity of efficient cross-border and transit affordable services of quality will the economy will be decreased by traffic activities and full integration be instrumental in ensuring equal a factor of 3. This will be achieved with the transport systems in the social and economic opportunities through a balanced mix of Customs Union. to citizens. conventional and clean generation • The transport system will combine • For the economic sustainability technologies (including renewables innovations in infrastructure, of public transport, water and and nuclear). vehicle and information waste services, cost recovery will • The reliability of the power and technologies with a well-trained be guaranteed through appropriate district heating systems will be workforce and an accommodating tariffs and by strong, competitive enhanced with the modernization regulatory and institutional participation of the private sector. of the generation and transmission environment. • The future urban system in assets and by providing adequate • There will be a larger participation Kazakhstan will rebalance and levels of redundancy. of the private sector in financing reduce urban-rural disparities, • The gasification of the country will transport projects. particularly in terms of mobility. continue as a means to provide There will be a network of cities with gas independence, comfort to the different social and economic roles; citizens and better environmental the development of transit-oriented conditions in cities. cities with better accessibility • The tariff structure and will provide added value to real enforcement (e.g. metering) will estate and increased business provide a revenue stream that opportunities. will render the system financially • Transport services will consist of a sustainable for private companies reliable network of infrastructures in the mid term. and services supported by modern assets. • A planned MSW management system will foster waste prevention, and an appropriate collection strategy will provide high levels of recovery. Controlled landfills will replace all open dumps and non- controlled landfills. Recycling and recovery of organic and energy components will assure near zero landfilling by 2040. The remaining and non-organic fraction will be directed to energy recovery in suitable industries and facilities, so promoting the integration of waste management with heating systems. 20 | An Infrastructure Road Map for Kazakhstan Challenges and opportunities | 21

2. Challenges and opportunities

Following from the analysis in the previous chapter, Chapter 2 summarizes the main difficulties facing Kazakhstan’s three infrastructure sectors, and suggests how such challenges can be turned into opportunities to further the Government’s plans and the vision for the country.

2.1. Challenges: state of the infrastructure, governance, financing

Obsolescent and low quality infrastructure Primary energy intensity (toe/$MM) Despite government efforts to modernize infrastructure across sectors, obsolescence and insufficient quality are 1000 pervasive as many of the country statistics and service indicators reflect. 800

The energy intensity (primary energy consumption 600 per unit GDP) of the Kazakh economy is the highest among countries with a similar GDP per capita (Figure 400 2.1); tellingly, it has not decreased in recent years, but has remained roughly constant at about 0.55 toe/$M. 200 The reasons for this energy intensity are manifold (see the analysis in Box 3), but are mainly attributable to 0 the ageing generating assets. Aware of the problem 0 10 20 30 40 50 60 80 posed by the technical obsolescence of the assets, the GDP per capita ($M) Government has implemented several policies to address Figure 2.1 this deficiency. A salient one is the so-called ‘ceiling Energy intensity of several countries (2009) tariffs’ for power generation, whereby higher electricity Kazakhstan’s energy intensity is the highest for its level tariffs are negotiated with the generating companies in of development return for their commitment to invest in new technology. Data: World Bank This scheme will be in place from 2008 to 2015. High

CO2 emissions, at about 12 tCO2/person, are another unwanted outcome, with Kazakhstan exhibiting the Traffic deaths per million persons highest index among countries with a similar level of development. 500

The available generation capacity in Kazakhstan is close 400 to the peak demand. Fitchner5 reported a peak demand of 12,600 MW, a required capacity of 13,860 MW (after a 300 10% reserve margin) and an available capacity of 13,574 MW. New power plants or the rehabilitation of out-of-service ones will be necessary to meet increasing 200 demand in the coming years. 100 For the state of the road infrastructure, a telltale indicator is the number of fatalities. Compared to developed or 0 developing countries with similar GDPs, Kazakhstan’s 0 10 20 30 40 50 60 GDP per capita ($M) roads are far from safe (Figure 2.2). At 306, the number of Figure 2.2 fatalities per million population in Kazakhstan is at least Fatalities per million population (2009) 5 times higher than developed countries including Japan, The road fatality rate is higher than average Norway, and Germany; and more than 2 times higher than Data: The World Health Organization, Armenia, Tajikistan, and Uzbekistan. A similar conclusion is http://www.photius.com/rankings/road_traffic_deaths_country_rankings_2009.html 22 | An Infrastructure Road Map for Kazakhstan reached in urban environments, with Almaty approaching % of lost heat in distribution the threshold of 150 fatalities per million inhabitants; 30 this figure is higher than all major world cities, and only Sao Paulo (Brazil), Guadalajara (Mexico), Krakow (Poland) 25 and, by far, Dubai (UAE) exceed this rate. A 2040 vision for Usual range of values for poorly maintained systems from former 20 Kazakhstan calls for a safe transport environment with a USSR and Centro and Eastern Europe goal of no fatalities and no injuries. Meeting this ambitious 15 goal will require significant information technology investments and the adoption of new vehicle technologies 10 that generate smart transport infrastructure (roads, rails, Usual range of values for poorly maintained systems from Western Europe air, and water), smart vehicles, and smart drivers, i.e. drivers 5 that interact with infrastructure and vehicle technologies to create an injury free environment. 0 RF3 RF2 RF1 RF4 Urai Lodz Okha Tartu Alytus Atyrau Tallinn Vilnius Aktobe Almaty Poznan Ploiesti Ostrava Nevelsk Helsinki Among urban facilities, the crucial district heating Kholmsk Raduzhny Uglegorsk Marijampole

service suffers from severe obsolescence in 80% of its Nefteyugansk Semipalatinsk Nizhnevartovsk extension, as evinced by two key indicators (Figure 2.3): Khanty-Mansiysk network distribution losses and number of failures. The Number of failures / km of networks usual range of energy losses for modern, well-maintained 1.6

West European district heating distribution systems is 1.4 5-10%. Cities such as Aktobe, Atyrau and Almaty show distribution heat losses in the range of 15% to 25%, 1.2 which are higher, although within the values found 1.0 in former USSR countries; the energy losses reach 0.8 30%, in the Semipalatinsk system, a 280 km network where at least 70% of the piping is over 25 years old. 0.6

A rehabilitation of Kazakhstan’s district energy systems 0.4 would potentially reduce distribution heat losses to 10 to 15%. The annual number of failures per km of 0.2 network is also high, and in line with the higher number 0.0 of failures of former USSR countries. These are often due RF4 RF1 RF3 RF2 Urai Lodz Tartu Alytus

to external and internal corrosion of distribution pipes. Tallinn Vilnius Aktobe Almaty Poznan Helsinki

In Kazakhstan, corrosion is intensified by the use of open Raduzhny Marijampole Nefteyugansk

heating water systems, which suffer from poor water Nizhnevartovsk treatment and require continuous refills of fresh water. Khanty-Mansiysk The number of annual refills is between 10 and 30, while Figure 2.3 in Western European systems it is between 1 and 5. Top: International benchmarking of heat losses in district heating networks (2002-2011). Bottom: International benchmarking of Household heating demands in Kazakhstan are likewise breakdowns in distribution networks (2002-2011) Losses and failures in the distribution networks are high very high. Energy consumption per square meter of dwelling is twice that of Iceland, more than four times Data: Several sources, including GWP (2009), Regional Review: Water supply and sanitation in the countries of Central Asia and Southern Caucasus. Global Water Partnership, Central Asia and Caucasus. that of Estonia or Lithuania, more than seven times that RF: Russian Federation cities of Germany, Poland, or Finland, and nearly 15 times that of Sweden. between 9% and 76% among the different oblasts8. In sanitation services, the technical conditions of one The water and sanitation networks present similar third of the 86 urban sewerage treatment plants are challenges. Since independence, the low level of revenue considered inadequate9. collection and insufficient state subsidies have meant a drastic drop in repair and maintenance6. Water supply In addition to the state of the infrastructure, there is networks are in poor condition and failures are frequent. clear evidence that current levels of service are generally About 64% of the network needs major repairs or below international standards. In general, the existing complete replacement7. Water losses vary, on average, infrastructures are insufficient to support sustainable Challenges and opportunities | 23 future growth and diversification of the Kazakh economy. Water supply (% population served) In urban services, for instance, the level of service of 100 water supply is relatively low at 86%, and 73% for sanitation (Figure 2.4). According to the Government 90 “Ak-Bulak Program”, in some urban areas only between 39% and 72% of the collected wastewater is treated. 80

Municipal solid waste collection services cover only 70 about 25% of the total population. Waste production in big cities like Almaty and Astana is at similar per 60 capita amounts, and of a similar composition, as other 50 cities in Asia and elsewhere; but the most significant difference between Kazakhstan and other nations in 40 the MSW sector lies in the waste treatment methods: 30 In Kazakhstan, nearly all MSW is dumped into sites that 0 10 20 30 40 50 60 have few, if any, engineered environmental protection GDP per capita, PPP ($M) systems. Kazakhstan is addressing this issue and is Sanitation (% population served) planning the construction of over 150 international- standard landfills near major cities. However, other forms 100 of treatment, such as recycling or composting, should be implemented to decrease waste management costs and 80 increase the competitiveness of economic sectors that can use waste as inputs. 60 Governance issues: private sector participation, lengthy paperwork 40 Even the wealthiest countries do not have sufficient resources to meet all of their infrastructure needs, 20 and this is a particularly acute problem for developing countries. In line with its long-term vision, the Kazakh government has resolutely pursued several programs 0 10 20 30 40 50 60 in recent years to involve the private sector in the GDP per capita, PPP ($M) development and operation of infrastructures. The results Figure 2.4 have been mixed. Access to improved water supply and sanitation as a function of GDP per capita Kazakhstan’s impressive economic growth has brought The coverage of water supply and sanitation is low about a substantial additional demand for transport Data: Country data - World Bank. 2011. World Development Indicators & Global Development Finance, and logistics. These sectors are important targets for Data for improved water source for 2008; Kazakhstan data: IBNET, Data for sewage coverage private sector involvement. In addition to the private sector dominance in the trucking industry, the railway sector has private sector participation in both passenger and freight services. The government has also privatized airport infrastructure and airlines. If the transport system is to be a driver of economic growth and development, Kazakhstan must have a portfolio of funding sources, including sovereign funding, international organizations, and private investors. In 2007, private sector investment in Kazakhstan was $31 million, comparable with countries with per capita incomes of $2,000–$5,000. Among resource-rich economies, the average private sector investment is $385 million. Private sector investments in resource-oriented Algeria, Ecuador, and Malaysia were 24 | An Infrastructure Road Map for Kazakhstan

$161 million, $200 million, $425 million, respectively, in 44% are controlled by industrial conglomerates whose core 2007-2008. Kazakhstan needs to invest at least ten times business is not energy generation but resource extraction more (the sample average) in the short to medium term and transformation; only 13% are owned by corporations for transport to be a significant economic driver and for whose sole business concern lies in the power industry. Kazakhstan to sustain the reliable and efficient logistics sector necessary for a globally competitive regional Some indicators suggest also that the amount of logistics hub. paperwork, and the ensuing costs, associated to trade activities are above the average. This is the case, for In urban services, the extent of participation of the instance, in the border crossing of goods. Kazakhstan private sector varies. In MSW, the private sector requires almost the highest the number of documents involvement is broadly limited to the collection of for importing goods (12 in comparison with 2 for MSW (where private companies are contracted by the France, which has the least). Its import costs are among municipalities). Most of the MSW treatment facilities the highest of the resource-rich counties at $3,005 are, on the other hand, managed by public entities. The per container (Figure 2.5). They are comparable with city of Almaty delegated its MSW collection to a total Azerbaijan ($3480) and Botswana ($3390) but well above of 30 private sector contractors, although one dominant Gabon ($1955), Mexico ($ 880), Peru ($880), and Chile group collects almost 90% of the MSW. In 2008 private ($795). water services operators in Kazakhstan were already providing services to almost 41% of population. The Spatial investment inequalities are also often a cause Government’s “Ak Bulak” Program indicates that the for concern. For instance, the main cities of Almaty and water companies of 4 pilot cities (Taraz, Atyrau, Kylorda, Astana attracted together about 30% of total investment Ust’kamenogorsk - population range 200,000 – 300,000 in urban mobility10. people) are to be transferred to a PPP model during 2012; during a second stage (2013-2015) another 15 water companies, including those of Almaty and Astana, will be transferred. In Almaty an early privatization process led to a severe degradation of quality and level of service. The early reform was done by adopting net cost based contracts, i.e. the operational and commercial risks were transferred to the private sector. No optimization of risk allocation was made. As a consequence, the private sector operates under its own rules and with poor service, Cost to import ($ per container) particularly in terms of reliability and safety. The reform 6000 did not solve the financial problem; severe bottlenecks exist and private investment is required. There is no 5000 framework for the engagement of the private sector, which is perceived as a high risk factor by investors. 4000

In the power sector, while Kazakhstan has the most 3000 liberalized energy system in Central Asia, there are clear 2000 indications that markets are not yet fully developed. The centralized market operated by KOREM (Kazakhstan 1000 Wholesale Energy and Capacity Market) transacted only about 4% of the electricity sales by volume in 2010, and 0 most of the trade is conducted through bilateral contracts. 0 10 20 30 40 This may be one of the main consequences of a lack GDP per capita (y2000 US$M) of generation capacity in the system. In 2009 KOREM Figure 2.5 proposed the establishment of a capacity market to Cost to import ($ per container) (2010) support investments in new generating assets; the creation The cost to import is high for the GDP per capita, and also of this market is now underway. Although about 57% of compared with most resource-rich countries the generating assets are owned by private companies, Data: World Bank Challenges and opportunities | 25

Revenues and funding A pervasive view across most sectors is that revenue stream is not sufficient as an incentive for private sector Price of district heat ($ PPP/MWh) 120.00 participation. This may be because of low tariffs, non- technical losses, or both. 100.00

80.00 Thus, in absolute terms household electricity tariffs are among the lowest in the world (only higher than 60.00 in Uzbekistan and Indonesia, for countries for which 40.00 statistics are available). However, relative to the purchasing power, they are only slightly below average. 20.00

This indicates that the margin for tariff increases is 0.00 limited and that, perhaps, these should be linked to GDP 0.00 10.00 20.00 30.00 40.00 50.00 60.00 growth. GDP per capita ($M) Figure 2.6 District heating is a regulated industry where tariffs are International benchmark of the average district heat tariff as a set by the Agency for Regulation of Natural Monopolies, function of per capita GDP Heating tariffs are low, and updates may provide opportunity an independent state body. Although heat tariffs have for new businesses risen significantly during the last years, they remain among the lowest for countries with a similar per capita Data: World Bank GDP (Figure 2.6). Tariffs usually cover operational costs but do not compensate for the substantial investments required to renew and modernize the distribution network.

In the MSW sector, current tariffs are low and usually not cost representative; they may indicate an indirect state subsidy to the sector (the state assumes the expenses and does not take measures to dissuade waste production). As in other sectors, low tariffs make it difficult to maintain or improve service levels because they do not permit cost recovery.

The financial sustainability of the water supply system is a concern of the government, with two key issues being water losses and water metering. Non-revenue water represents 40% of the water produced, due to losses in the system and the fact that 25% of consumers do not have individual water meters11. 26 | An Infrastructure Road Map for Kazakhstan

2.2. Opportunities: increasing efficiency and diversifying

The challenges outlined above also offer opportunities for shaping Kazakhstan’s future along the principal directions envisioned by the government. In this section, we indicate possible opportunities, in the three sectors analyzed, for increasing the country’s efficiency and sustainability, and for accelerating the development and contributing to economic diversification. Some of these opportunities will be quantified in later sections.

Opportunities for accelerating development and going to Dostyk and Khorgos. The Lanzhou-Chongqing diversifying Railway links China’s huge southwestern production The dispersed natural resources and economic centers base to XUAR. in Kazakhstan highlight the importance of transport as a critical component for the country’s economic The long term industrial plan provides an opportunity development. Kazakhstan’s most recent transport for transition of rural areas into new urban areas. This strategy, articulated in the Strategy of Transport Sector allows the development of transit-oriented cities where Development through 2015, envisions a 10 year $26 land use is decided according to planned accessibility and billion investment in transport and telecommunication mobility needs. Urban mobility services can be structured infrastructure. The strategy embodies a higher quality with planned trunk and feeder services (including private and integrated network, whose infrastructure complies and public services, and motorized and non-motorized with international standards. The strategy envisions ones). The priority for the organization of land use and infrastructure financing to be based upon self-sufficiency transport should be accessibility, in order to minimize principles to sustain the system as well as an investing the need for motorized transport. Land-use value will environment that attracts and provides strong economic increase as a consequence of better accessibility. incentives for foreign and domestic investors. The strategy covers all modes, with 40% focused on railways, The transition to MSW management practices meeting 23% on highways, 12% on air and water, and 25% on international standards requires large capital investments telecommunications. in MSW treatment and disposal facilities. The investments needed until 2040 run to several billion US dollars. Kazakhstan lies at the crossroads where the Asian value Attracting direct, market-driven private investment chain meets the European value chain. Kazakhstan is possible under the right conditions, namely large can serve as an alternative route that links inland and reliable input of MSW from collection services, (western) China and inland (eastern) Europe. Inland appropriate policy tools such as landfill gate fees and, China could provide a great amount of cargo for a ultimately, a contained investment risk. land-based route toward the West. The area takes in Xinjiang Uighur Autonomous Region (XUAR), Sichuan Outstanding opportunities for the economic and Province, Chongqing Municipality, Gansu Province and industrial diversification of Kazakhstan may materialize Qinghai Province. The distance from the eastern seaport in the fields of nuclear and renewable energies. The exceeds 2,000 km. Following China’s “move West” Soviet legacy constitutes an excellent background for strategy, the economic development of inland China has Kazakhstan’s engagement in the current nuclear energy accelerated rapidly in the past decade. Factors driving this program. Kazakhstan owns about 15% of the world’s development include: 1) relatively cheap land and labor estimated uranium resources and since 2009 it has been costs compared to the east and coastal areas; 2) favorable the leading producer. Kazakhstan aims to manufacture investment and tax policies to promote economic fuel or, at least, fuel pellets of UF6, apart from raw development; and 3) newly discovered energy resources. uranium, as well as collaborate in the development, installation and marketing of small- and medium-size Chinese producers are eager to ship their products to nuclear reactors. Kazatomprom has been cooperating Europe via a more cost-effective route. This land bridge with major nuclear plant manufacturers worldwide since alternative seems more promising with the recent 2006. Kazakhstan has good wind resources, with an transport infrastructure investment in inland China. economically feasible potential in excess of 390 TWh/ Following China’s Railway 2020 plan, the Linhe-Hami year within 50 km of the existing power networks (See Railway was completed in 2010, so adding another Box 4). Most wind turbine components could be easily corridor for transit cargo from XUAR. Double tracking manufactured in Kazakhstan. Similar considerations apply and electrification have increased capacity for cargo to solar, biomass and geothermal energies. Challenges and opportunities | 27

Box 3. How energy efficient could Kazakhstan be? Source: Own results Kazakhstan is one of the least energy efficient distribution losses to 4.8%, heat to 7.7%, natural gas economies, with a specific primary energy consumption to 2%); increasing the efficiency of heat generation

of about 1700 toe/y2000US$MM. Conversely, CO2 to 80%, of CHP to 85%, and of power plants to 55%

emissions, at about 12 ton CO2 per capita, are the (gas CC) or to 43% (coal supercritical), and by reducing highest among similarly developed countries. the reinjection or flaring of accompanying gas to 5% (relative to final energy consumption). What is the cause of this inefficiency? Should policymakers focus on the demand side or on the supply Energy demand would be reduced by 30% by upgrading side to improve it? the housing stock (thus decreasing the need for heat in winter) and the domestic appliances, and by using Our analysis shows that the inefficiency can be jointly present-day best available practices in the industrial attributed, in similar proportions, to the supply, the and services sector. demand, and the economic structure of Kazakhstan. Finally, about a 24% improvement could be through The causes of energy intensity in the Kazakh economy structural change. As the country develops, the current GDP shares of the industrial and service sectors are likely to decrease in favor of the services sector share. Because services are less energy intensive than industry or agriculture, the economy will require a smaller energy input per unit GDP.

A possible economic structure of Kazakhstan in the long term:

Together, these measures would bring Kazakhstan’s On the supply side, a 29% improvement would be efficiency in line with that of other developed achieved by decreasing energy distribution losses to countries. There is no inexplicable reason why the the levels of modern economies (for instance, power Kazakh economy is energy inefficient.

Opportunities for increasing efficiency and and gas companies and contribute significantly to the sustainability energy mix of the country by providing piped gas to the Kazakhstan has sizeable reserves of gas, with a reserves- population for district heating and for gas-based peaking to-production ratio estimated by international sources power. The Presidential speech of January 201215 instructs at around 55 years12. This amounts to 1% of world the Government to complete a gas processing plant on gas deposits. Somewhere in the region of 45-70%13 is, the Karachaganak field. however, the so-called associated (or accompanying) gas present in the hydrocarbon deposits. Given its high Further integration of the regional energy markets will sulfur dioxide content, a large fraction (approximately afford Kazakhstan the benefit of the complementariness of 76%14) is injected back into the wells, thus increasing neighboring energy systems, and also of larger economies the rate of reservoir recovery, or even flared (gas flaring of scale for its energy sector. This is beneficial in any is however, officially, banned in Kazakhstan). However, scenario, but particularly so with the greater penetration with appropriate treatment before transport and usage, of nuclear and renewable sources. The increase of the associated gas could become a source of revenue for oil renewable electricity contribution will need the installation 28 | An Infrastructure Road Map for Kazakhstan of reserve power (with low capacity factors) to compensate so there is a lack of information for the network for the unpredictability and variability of these sources. A management and for the end user, which deters savings. high degree of regional integration will reduce the need The ongoing intervention in the building sector by the for reserve power by drawing from pooled transnational Agency for Housing and Utilities (e.g. window insulation) assets, and will allow higher penetration of renewables will improve energy efficiency, which, together with by providing export channels at times of generation demand side management measures (temperature excess. For Kazakhstan, we estimate that higher regional control, hot water meters) could provide reductions of up integration can, in 2040, dispense with the installation of 5 to 25% in energy consumption. GW of reserve power. The municipal waste sector offers many opportunities The route linking China and Europe through Kazakhstan for efficiency and sustainability, and for private sector passes through the fewest number of border crossing participation. In Kazakhstan, MSW production levels points and crosses the least number of countries. and composition are similar to those in developed The Customs Union between Kazakhstan, Russia and countries. New waste management policies should Belarus can further improve efficiency by shortening focus on improving collection and diversification of border clearance times, reducing costs, and dramatically waste treatment methods. The potential for material increasing transit time reliability and predictability. The recovery from waste in urban areas is high. Recycling inland China - inland Europe land bridge, however, has of paper, cardboard and organic matter in Astana and sea, land, and air competitors. These include: 1) the sea Almaty alone could divert waste streams of half a route from East China to West Europe; 2) the land bridge million tons per year away from landfills. This would through Siberia; and 3) the air hub in Uzbekistan, West improve Kazakhstan’s environmental performance while China and Russia. In the short term, the competing promoting new business opportunities for SMEs. The sea and land routes are unlikely to make significant use of waste as an input for industrial processes is an technology breakthroughs. The transport improvement opportunity for increasing revenue for the private sector in Kazakhstan’s railway and highway systems is making and lower costs of waste treatment. The recovery of the western China-inland Europe route increasingly heat from the waste management industry is also an competitive. However, Kazakhstan must carefully study its opportunity that merits consideration given the levels of competitors’ strategy in the aviation industry. solid waste generation in the country.

Kazakhstan has an opportunity to create a comparative The water services in Kazakhstan also offer significant advantage, particularly at Dostyk and Khorgos but also opportunities for upgrading. Physical investments in at other BCPs, in regional transit and trade by providing rehabilitation and expansion of water and wastewater efficient and reliable transit routes, significantly lowering works will contribute to better public health and hygiene import costs and required documentation. As noted and protection of the environment. The generalized earlier, in imports of goods Kazakhstan requires up to installation of individual water meters and leakage 6 times more documents and imposes considerably control programs will reduce losses and rationalize higher container costs than the best-practice benchmark investments. The water sector also offers opportunities countries. Combined with the break-of-gauge problem in terms of energy recovery, primarily through anaerobic that causes long delays and the low rail freight speed, digestion of wastewater sludge from treatment plants, these practices hinder the efficient flow of goods with production of heat and electricity (clean energy and cause shippers to seek alternative routes through from dirty water) and production of treated wastewater neighboring countries. to be reused (for cleaning and irrigation purposes).

Several interventions in the district heating subsector may result in substantial energy efficiency increases and provide opportunities for private sector participation, particularly in the infrastructure upgrading. District heating networks still operate on open circulation and constant flow systems, which leads to low overall performance and reduced control on the demand side. Only about 30% of the customers have heat meters16, Envisioning the future | 29

3. Envisioning the future

In this chapter, we forecast the demand for services in Kazakhstan through to 2040. We first construct three scenarios that define the future in terms of economy development, population growth and degree of urbanization, among other variables. For each scenario we model the demand for services (e.g. urban waste collection, electricity or railway freight), and we show how the demand will evolve over time. In Chapter 4, we will use these forecasts to determine how the demand can be met through investments in infrastructure, reforms and policies.

3.1 Future scenarios

Scenarios are alternative states of the country in a given We build the scenarios by combining possible future time horizon. In this work, these scenarios represent trends of the exogenous, controlling variables (Figure 3.1). the possible future development of the main external We do not attempt to single out a most likely one, but to variables, prior to formulating specific strategies for ascertain the implications of possible, even if conflicting, the three infrastructure sectors. As is often the case alternative country development pathways. The pathways with scenario-based exercises, any particular scenario is highlighted in green are those leading to the scenarios highly unlikely. The aim of the scenario analysis is not that will be the aim of the road map analysis. to anticipate the most probable future, but to expose weaknesses and opportunities in the respective sectors as Thus, a Moderate Growth scenario is composed by the external conditions change. selecting the central trend for all the exogenous variables, except worldwide restrictions to emissions, where the Integrated scenarios for all three infrastructure sectors low-restriction trend is chosen (i.e. no restrictions), and are built using six key exogenous variables, which for regional integration, for which the continuation of are deemed to determine the demand for services in all the current status quo is selected. sectors. These six variables are: the country’s GDP; the population; the degree of urbanization; the international A High Growth scenario is assembled by choosing the prices of fossil fuels; the international pressure to curb combination of exogenous variables that will place a GHG emissions; and the integration among the countries greater stress on infrastructure services: high growth, at the regional (Central Asian) scale. high degree of urbanization, high energy prices and

Figure 3.1 The three scenarios (shown in green): Moderate Growth, High Growth and High Growth with Increased Regional Integration 30 | An Infrastructure Road Map for Kazakhstan emission costs, and low regional integration. The effect of Real annual GDP growth Low Med High a stronger regional integration is obtained by comparing 16% this scenario to a similar one but with greater regional (Central Asia) integration. 12%

GDP growth is the key exogenous variable for forecasting the demand for services across all three 8% sectors. Detailed growth predictions for the long term are not generally publicly available; indeed we have not 4% found any for Kazakhstan. For our scenarios, we propose Low, Medium and High real growth trends (Figure 3.2). 0% (The Low Growth trend is reported for completeness, 2000 2010 2020 2030 2040 but not used in the analysis). For all the trends, we start from the IMF GDP projections to 2016. For our Moderate Figure 3.2 Growth trend, we extend these to 2040 using long-term Real GDP growth rate real growth rates based on WB, 30-year historical data. For Kazakhstan, the IMF projection of 6.4% for 2016 is progressively decreased to 2% by 2040, yielding an POP, low POP, base POP, high 24,000,000 average 30-year growth of 3.36% (for comparison, the 44-year growth of Australia is 3.49%). The High Growth option is representative of sustained growth achieved 18,000,000 through economic diversification and reform. Thus, after 2016 we assume real growth rates that are only slightly 12,000,000 below those projected by the IMF for 2016. This gives a long-term growth rate for Kazakhstan of 5.5%, resulting 6,000,000 in an average of 5.82% for the 30-year period.

0 The next external variable with an impact in the demand 1960 2010 2020 2030 2040 of services is population growth. We use the projections from the Population Division of the Department of %Urban, low %Urban, base %Urban, high 85.00% Economic and Social Affairs of the United Nations Their Medium, Low and High trends to 2040 are assumed without further modification (Figure 3.3). The differential 70.00% growth of larger cities with respect to rural settlements is very likely to continue in the next decades in Central

Asia. This differential growth has a definite impact on 55.00% the type of infrastructure services required to support the development of the country, such as electricity generation, heating and sanitation, urban mobility 40.00% or logistical systems. In this project, the Degree of Urbanization (DoU) is measured through the projected percentage of urban population. Thus three DoU’s are 25.00% selected: low, medium and high, corresponding to three 1960 1980 2000 2020 2040 annual growth rates for the total urban population. Figure 3.3 The growth rates have been derived by calculating the Population (top) and degree of urbanization (bottom) average urban population growth between 2004 and Data for population forecast: World Population Prospects: The 2010 Revision, CD-ROM Edition 2010, resulting in a growth of 1.71% for Kazakhstan for United Nations, Department of Economic and Social Affairs, Population Division (2011) Historical data for degree of urbanization: Health Nutrition and Population (HNP) Statistics the Moderate Growth scenario (Figure 3.3). http://databank.worldbank.org. World Bank (2012) Envisioning the future | 31

Oil price 2010 US$/bbl Low Med High The international price of fossil fuels is the fourth 250 exogenous variable used in the scenario. Long-range energy price forecasts are of course highly speculative; 200 and, furthermore, they are seldom publicly available. We use the forecast from the UK Government Dept of Energy and Climate Change for oil, gas and coal prices 150 up to T+30 (Figure 3.4). The forecasts projected by the DECC are important inputs in models and policy-making

100 in other UK Government departments. Global concern about climate change could translate into international pressure to curb national GHG emissions. In this project, 0 2010 2013 2016 2019 2022 2025 2028 2031 2034 2037 the pressure is reflected incosts associated to CO2 emissions. We consider two alternatives for these costs (Figure 3.5). In our low costs alternative, no costs Gas price 2010 US$/GJ Low Med High are included. For the high costs options, we use values 20.00 from the low-costs trend suggested by Synapse Energy Economics in their report “2011 Carbon Dioxide Price 15.00 Forecast”.

The last parameter in our scenario building tree is the 10.00 extent of regional integration. This parameter is relevant only for the energy and transportation sectors. It is used 5.00 to explore the impact on these sectors of an increased commerce of goods and energy among countries in the region, and of a greater population mobility (e.g. through 0.00 2010 2013 2016 2019 2022 2025 2028 2031 2034 2037 tourism).

Road Map High SEE Low SEE Med SEE High Coal price 2010 US$/GJ Low Med High 2010 US$/tCO2 20.00 20.00

15.00 15.00

10.00 10.00

5.00 5.00

0.00 0.00 2010 2013 2016 2019 2022 2025 2028 2031 2034 2037 2010 2013 2016 2019 2022 2025 2028 2031 2034 2037

Figure 3.4 Figure 3.5

Evolution of international fuel prices Estimates for CO2 emission prices from Synapse Energy Economics (SEE) (lines) and our Road Map high-cost trend (dots) 32 | An Infrastructure Road Map for Kazakhstan

3.2 The future demand of energy

Terawatt-hours The demand for energy is estimated for all scenarios and 150 for every year up to 2040 using a detailed, bottom-up model for each economic sector (agriculture, industry, services and households) and subsector. The estimation 100 accounts for exogenous influences, such as economic and Household population growth or increased urbanization and also for Industry efficiency measures (e.g. more efficient lighting) or likely 50 Services technology changes (e.g. the emergence of the electric car). Transport Agriculture

Since electricity is the most convenient energy vector, and 2010 2020 2030 2040 the degree of electrification in the energy use is often Terawatt-hours 150 held as an indicator of economic progress and well-being, Household it is not surprising that in both our scenarios the demand Industry for electricity increases (Figure 3.6); for the Moderate Services 100 Transport Growth scenario, from about 64 TWh/year in 2010 to 109 Agriculture TWh/year; and for the High Growth, up to 184 TWh/year.

We estimate that the peak power increases from 12.3 50 GW in 2010 to 21.4 GW in the Moderate Growth scenario or 35.9 GW in the High Growth scenario. The drivers of this increase are industrial consumption (particularly for 2010 2020 2030 2040 High Growth scenario) and transport. The latter is due to the demand from rail transport, with the complete Figure 3.6 electrification of the railway tracks and the increase in Annual electricity demand by sector in the Moderate Growth (top) and freight; and to the penetration of the electric car, which High Growth (bottom) scenarios Increased electrification will double or triple the current demand we assume will be 35% of the total vehicle-km in 2040. According to our estimations, by 2014, approximately, Thousand Toe electricity demand will exceed (in annual energy terms) the generation capacity of the power assets installed at 7,000 the end of 2010. The additional capacity budgeted by the 6,000 Government up to 2015 (some additional 3.3 GW) would 5,000 Household Industry 4,000 provide the demand needs up to 2018. Services 3,000 The current total heat demand of about 7.5 Mtoe can 2,000 either decrease to 5.6 Mtoe (Moderate Growth) or increase 1,000 slightly to 7.7 Mtoe (High Growth) if energy saving 0 measures are applied across sectors (Figure 3.7). The heat 2010 2020 2030 2040 Thousand Toe distributed by district heating networks to households Household and services is primarily a function of the surface area to 7,000 Industry be heated, which will increase with population growth 6,000 Services but also with the increase in per capita dwelling area 5,000 as the country develops. Energy saving measures will 4,000 counter this trend of increasing heat demand, with a 3,000 net reduction between 2010 and 2040 in the Moderate 2,000 Growth scenario, and a slight increase in the High 1,000 Growth one. Through these measures, we envisage a 0 gradual reduction of the useful energy needed for space 2010 2020 2030 2040 heating from the current (on average) 218 kJ/m2/HDD to Figure 3.7 148 in 2040. For comparison, in 2010 the typical useful Annual heat demand by sector in the Moderate Growth (top) and High energy (in the same units) was 115 for Sweden, 165 for Growth (bottom) scenarios Finland, 109 for Canada and 72 for Japan. This reduction Efficiency measures can contain, or even decrease, heat demand Envisioning the future | 33 is achieved through better insulation in buildings, decreases substantially in all cases as the housing stock the installation of heat meters and other heat-saving and facilities are modernized; in the High Growth practices detailed in Chapter 4. We also envisage a certain scenario, this decrease is more than compensated by shift to gas and electricity for space heating and hot the increased use of coal by industry (steel production, water, which decreases heat demand. Thus the share of cement manufacturing), while in the Moderate Growth gas increases from 29% in 2010 to 50% in 2040, in line one the latter remains roughly constant. with government plans for bridging national gaps in gas transport and bringing piped gas to the main cities; for The consumption of refined liquid fuels (essentially hot water, the share increases from 30% in 2010 to 40%. diesel and gasoline, since the contributions of oil and The electricity share increases from 4.4% in 2010 to 10% aviation kerosene are small) will increase from 8.2 Mtoe to in 2040 for both space heating and hot water. about 11.6 Mtoe (Moderate Growth) or 21.7 Mtoe (High Growth). In both cases, demand growth is contained in Gas consumption increases in both scenarios, from the transport sector with the progressive electrification of 5.2 Mtoe to 9.1 Mtoe or 15.5 Mtoe (Figure 3.8). The the railways, and the increasing penetration of the electric growth is mainly attributed to industry, due to increased car for short-distance travelling from 2025. The use of activity, and to households, due to the energy vector diesel in agriculture and industry remains fairly constant displacement effects for space heating and hot water (with growing activity being compensated by increased outlined in the previous paragraph. Gas consumption efficiency), while in households diesel use is displaced in the service sector will in both scenarios increase (due by other, more convenient vectors (such as electricity or to increased activity) and then decrease (due to better gas). If, in line with the government vision, Kazakhstan efficiency) to remain roughly constant for the period. wishes to be self-sufficient in respect of refined fuels, the refining capacity (for gasoline) should be increased by We envisage that coal demand will decrease for the 150% (Moderate Growth) or 350% (High Growth) up to period, from 7 Mtoe (2010) to 5 Mtoe in the Moderate 2040. For diesel, in our Moderate Growth scenario no new Growth scenario, while it will increase moderately to refining capacity would be needed, whereas it should be 8.3 Mtoe for High Growth (Figure 3.9). The reason for increased by 30% for High Growth. this different trend is that household coal consumption

Thousand Toe Moderate Growth High Growth Thousand Toe 8,000 14,000 7,000 12,000 6,000 10,000 5,000 Household 8,000 4,000 Industry 6,000 3,000 Non energy use 4,000 2,000 2,000 1,000

2010 2020 2030 2040 2010 2020 2030 2040 Thousand Toe Thousand Toe 9,000 Household 8,000 Household 8,000 Industry 7,000 Industry 7,000 Services Non energy use 6,000 6,000 Non energy use 5,000 5,000 4,000 4,000 3,000 3,000 2,000 2,000 1,000 1,000

2010 2020 2030 2040 2010 2020 2030 2040

Figure 3.8 Figure 3.9 Annual gas demand: total (top), and by sector in the Moderate Growth Annual coal demand by sector in the Moderate Growth (top) and High scenario (bottom) Growth (bottom) scenarios Gas demand will triple in the High Growth scenario Coal consumption by households for heating, cooking will decrease substantially 34 | An Infrastructure Road Map for Kazakhstan

3.3 The future demand of passenger and freight transport

For the freight and passenger sectors, we use Integration is captured through increased international transportation turnover as the measure for the demand trade and, specifically, the percent of merchandise imports of transportation services. Freight turnover is the from countries in the region. In the immediate post- number of ton-kilometers per time period and passenger Soviet era, Kazakhstan imported more than 70% of its turnover is the number of passenger-kilometers per merchandise imports from developing countries in the period. Forecasted turnover for each mode is the product region. In the ensuing years, this percentage decreased and of mode share and total ton-kilometer or passenger- by 2009 just 41% of Kazakhstan’s merchandise imports kilometers forecasts. were from countries in the CWA and Eastern European regions. The Increased Regional Integration scenario Ton-kilometers are a standard measure of freight demands assumes strong regional economic ties and integration because they reflect the amount of goods shipped and that lead to a much higher percentage of Kazakhstan’s the distance traveled. To obtain more insight into future merchandise imports coming from its neighbors. In demands, we generated forecasts for the total amount particular, the Increased Regional Integration scenario of goods shipped under Moderate Growth, High Growth, assumes that the percentage of Kazakhstan’s merchandise and Increased Regional Integration scenarios. Similar imports coming from nearby countries will increase 2.35% to the freight market, passenger-kilometers measure per year. At this growth rate, regional countries in 2040 will demand for the travel market because this measure be economically integrated with Kazakhstan and they will reflects the number of people traveling and the distances be source of more than 75% of Kazakhstan’s merchandise people travel. Demand forecasts for the total number of imports. In terms of merchandise imports, Kazakhstan will passenger were also obtained under all three scenarios. be as economically integrated with regional countries it was in the mid-1990s. Freight demand forecast Between 2015 and 2040, ton-km demands increase 70% Under each scenario, between 2015 and 2040 the (Moderate Growth), 248% (High Growth), and 420% proportion of freight carried by rails decreases by about (Increased Regional Integration). Modal demands, and 28% due to the disproportionate increase in freight therefore mode shares, shift towards highways and at the carried on highways. And the total amount of rail turnover expense of railways. These shifts (Table 3.1), reinforce past increases in all scenarios although the increase is very trends which have seen rail shares decrease between 1998 small between 2025 and 2040 under the Moderate Growth and 2010, with a slight increase in 2010. In our scenarios scenario. Pipelines also lose share but the extent depends for the freight sector, the impact of Increased Regional on the scenario, falling by 2/3 under the High Growth

Moderate Growth 2010 % 2015 % 2025 % 2040 % Highway 41.3 16.3% 115.8 23.7% 206.9 32.1% 374.4 45.1% Rail 152.0 60.1% 269.8 55.2% 321.6 49.9% 324.7 39.1% Pipeline 59.5 23.5% 103.2 21.1% 116.6 18.1% 132.6 16.0% Air 0.100 0.040% 0.001 0.0002% 0.058 0.009% 0.033 0.004% Total Demand 253 489 645 831

High Growth 2010 % 2015 % 2025 % 2040 % Highway 41.3 16.3% 118.3 24.0% 282.9 34.8% 897.1 52.7% Rail 152.0 60.1% 277.0 56.2% 422.0 51.9% 695.3 40.8% Pipeline 59.5 23.5% 97.3 19.7% 108.1 13.3% 109.1 6.4% Air 0.100 0.040% 0.001 0.0002% 0.081 0.010% 0.068 0.004% Total Demand 253 493 813 1,702

Increased Regional Integration 2010 % 2015 % 2025 % 2040 % Highway 41.3 16.3% 125.8 24.0% 353.9 34.8% 1425.1 52.7% Rail 152.0 60.1% 294.4 56.2% 528.1 51.9% 1104.5 40.8% Table 3.1 Pipeline 59.5 23.5% 103.5 19.7% 135.3 13.3% 173.3 6.4% Future freight turnover (billion ton-kilometers) Air 0.100 0.040% 0.001 0.0002% 0.102 0.009% 0.108 0.004% Surging road freight turnover eclipses rail Total Demand 253 524 1,017 2,704 freight turnover gains Envisioning the future | 35 and Increased Regional Integration scenarios. Air freight Tons (million) Rail Pipeline Highway Air demands continue to account for a negligible share of Kazakhstan’s freight market in the future. Future demands 16,000 reported in the table reflect Kazakhstan’s current industrial 12,800 and transport profile, with the shipping of large quantities of low value goods and very few high quality and time- 9,600 sensitive goods that often require air shipments. If the country’s industrial base does not expand to include a 6,400 bigger and broader range of high value goods, air freight 3,200 turnover will not grow and its proportion of the freight market will remain negligible. 0

Moderate Growth would see an increase in total 2010 2015 2025 2040 shipments from 2,482 million tonnes in 2010 to 7,113 Figure 3.10 million tonnes in 2040 with highways, rail, and pipelines Future freight shipments in the High Growth scenario (million tonnes) accounting for 82.8%, 6.0%, and 9.2% by 2040. Air The increasing role of specialized oil and gas shipments shipments will increase from 27 million to 129 million, representing 2% of the total amount shipped. In the Passengers (millions) Rail Air High Growth scenario, total tonnes shipped exhibits 24 strong growth, rising to 15.1 billion tonnes (Figure 3.10). Highways continue to account for 82% but with 1.7 billion tonnes shipped in 2040; pipelines account for 18 11% of the goods shipped. Assuming that tonnes shipped under the Increased Regional Integration scenario increase in the same proportion as ton-kilometers, then 12 Increased Regional Integration foresees a 58% increase in tonnes shipped, rising to 23.8 billion tonnes. 6 Passenger Demand Forecast

Passenger demand will increase 52% (Moderate Growth), 0 168% (High Growth), or 211% (Increased Regional 2010 2015 2025 2040 Integration) between 2015 and 2040 (Table 3.2). In the Figure 3.11 Air and rail passengers served (in millions) in the Moderate Growth Increased Regional Integration scenario, growth in tourist scenario expenditures per capita was our measure of integration Economic development favors air travelers for the travel market. The forecasts assume increases in tourist expenditures of 10% per year between 2010 and 2015 and 15% per year between 2025 and 2040. were obtained for passengers served on air and rail under the Moderate, High Growth, and Increased Regional In the High Growth scenario, there is less reliance Integration scenarios. Under the Moderate Growth scenario on motor vehicles. Compared with 94.3% share of total rail and air passengers decrease from 21 million to 18 passenger-kilometers in 2040 under a Moderate Growth million, driven by the falling number of railway travelers scenario, the highway share is lower at 90.9% in 2040 if from 18 million (89%) in 2010 to 13 million (77%) in 2040 a high growth rate prevails. Relative to the High Growth (Figure 3.11). Air travelers, on the other hand, increase from scenario, total passenger demand in 2040 under the 2.2 million in 2010 to 4.1 million in 2040 and account for Increased Regional Integration generates an additional 67 23% of the air-rail passenger market. billion passenger-kilometers. Under the High Growth scenario, however, the situation The increasing demands for transport infrastructure, changes with the number of railway passengers rising including additional air capacity, require more from 18 million in 2010 to 23 million in 2040. The air travel investments in the High Growth and Increased Regional market continues to rise under the High Growth scenario, Integration scenarios. serving 7.3 million passengers. This trend continues under the Increased Regional Integration scenario assuming that Another measure of passenger demand is the number of rises in rail and air travelers increase in similar proportions passengers served on intercity public conveyances. Forecasts to rail and air passenger-kilometers. 36 | An Infrastructure Road Map for Kazakhstan

Moderate Growth 2010 % 2015 % 2025 % 2040 % Highway 72.2 83.3% 139.8 86.4% 194.4 90.9% 231.0 94.3% Rail 11.4 13.1% 13.3 8.4% 10.1 4.7% 4.9 2.0% Air 3.1 3.6% 7.8 5.1% 9.3 4.4% 9.0 3.7% Total Demand 86.7 161 214 245

High Growth 2010 % 2015 % 2025 % 2040 % Highway 72.2 83.3% 139.1 86.4% 215.2 89.7% 392.8 90.9% Rail 11.4 13.1% 13.6 8.4% 12.4 5.2% 11.0 2.5% Air 3.1 3.6% 8.2 5.1% 13.0 5.4% 28.1 6.5% Total Demand 86.7 161 240 432

Increased Regional Integration Table 3.2 2010 % 2015 % 2025 % 2040 % Future passenger demands for transport services Highway 72.2 83.3% 138.6 86.6% 236.8 89.4% 453.4 90.9% (billion passenger-kilometers) Rail 11.4 13.1% 13.5 8.4% 13.7 5.2% 12.7 2.5% Significant air passenger demands call Air 3.1 3.6% 8.1 5.1% 14.3 5.4% 32.5 6.5% for more infrastructure Total Demand 86.7 160 265 499

3.4 The future demand of urban services MSW Production (Mton/year) Moderate Growth High Growth 10 An econometric model was used to forecast the MSW production rates for the period 2010-2040. The need to address very different urban realities and development 8 paths (e.g. large, services-based cities vs. agricultural towns) calls for a hierarchical clustering of cities based on available socio-economic and demographic indicators. 6 MSW composition was defined as a function of this hierarchic clustering.

4 We predict that the total MSW production could increase 2010 2020 2030 2040 from more than 4 million tonnes per year, up to 6.5 to 8 Figure 3.12 million tonnes per year in 2040 (Figure 3.12). Large cities, Total MSW production in the largest 88 cities like Almaty or Aktobe already have high production rates, MSW production can double by 2040 but are expected to continue to increase due to higher purchasing power (Figure 3.13). Smaller cities, such as MSW production rates(Kg/cap/day) Turkestan, will also continue to increase MSW production 1.8 rates, again due to economic growth of these regions. Per capita water consumption values were estimated 1.6 using current data and international standards, and the future needs of water were estimated through four 1.4 indicators: water supply service coverage, real water losses, sanitation service coverage, and infiltration/ inflow. The required water and wastewater production 1.2 (Figure 3.14) were calculated considering the population projections and by adopting international 1 2010 2020 2030 2040 recommendations and practices for water supply and sanitation systems. Aktobe Moderate Growth Aktobe High Growth Turkestan Moderate Growth Turkestan High Growth Almaty Moderate Growth Almaty High Growth In urban areas with less than 50,000 inhabitants there Figure 3.13 will be a decrease in the required water production Forecast of per capita MSW production for selected cities followed by a rise until 2040, while in cities with more Per capita MSW production rates will rise 10% to 25% due to than 50,000 inhabitants the required water production economic growth of urban areas Envisioning the future | 37 will increase from 2010 to 2040. The decrease in the hm3 of water (or wastewater) per day 3.50 smaller cities is mainly due to the reduction of water losses and of the per capita consumption from 2010 to 3.00

2015 (induced by metering installation), which overcomes 2.50 the population increase effect. The total required water production in urban areas will be 2.76 hm3/day in 2040 2.00 (Moderate Growth), 37% higher than in 2010; or 3.23 1.50 hm3/day (High Growth), an increase of 60%. 1.00

Wastewater production was estimated from the required 0.50 water production by considering an inflow coefficient 0.00 and adding a component of infiltration/inflows. The 2010 2015 2025 2040 Water Production Wastewater Production forecast for total wastewater production in urban areas Moderate Growth Moderate Growth 3 considering Moderate Growth is of 2.26 hm /day, which Water Production Wastewater Production represents an increase of 85% compared to 2010, due High Growth High Growth to rise of service levels to 100%. For High Growth there Figure 3.14 will be an increase in total wastewater production of Forecast of demand for urban water services (water supply and 117% with respect to 2010. The increase in wastewater wastewater production) production will be more pronounced in urban areas with Water supply will need to increase between 37% and 60%, and the capacity to treat wastewater between 189% and 239%. more than 50,000 inhabitants. The analysis per oblast shows a reduction in the production of wastewater in some oblasts (namely East-Kazakhstan, Karagandy and ) when compared to current levels, due Almaty, Astana and Aktobe over the years despite the to significant reductions in local per capita water measures envisioned (Figure 3.15). By 2040 the total consumption. number of trips per day in Almaty will almost double in the High Growth scenario. Astana presents a similar trend The total daily travel demand is the product of the to 2040 with higher growth rates, resulting in the tripling estimated urban population and the daily trips per or the quadrupling of daily trips for either scenario. For all inhabitant, which in turn is a function of the per capita cities the private car will, in 2040, have a share of below GDP. The estimated total travel demand will increase for 50% with the envisioned transport measures.

Million trips 8,00 Almaty Astana Aktobe 7,00

6,00

5,00

4,00

3,00

Current 2,00 Moderate Growth High Growth 1,00 Private car share Public transport share 0,00 Non motorized share 2010 2015 2025 2040 2010 2015 2025 2040 2010 2015 2025 2040

Figure 3.15 Total trip demand and modal share evolution of Almaty, Astana and Aktobe By 2040 the private car modal share will be contained below 50% under the proposed measures 38 | An Infrastructure Road Map for Kazakhstan A road map for infrastructure development | 39

4. A road map for infrastructure development

What are the best options to supply the electricity that will sustain Kazakhstan’s growth? Can we curb the demand for heat in households and services as the population grows and the country develops? What incentives are needed to reduce the share of private transport (and hence congestion) in cities in favor of public modes? Can we shift road freight to rail? What will be the impact of these proposals for the energy and emissions intensities of the Kazakh economy? And in the cost and quality of the services provided?

In this chapter, we analyze how the demand for services for the next 30 years forecast in Chapter 3 can be met through a combination of investments and policies. Both kinds of measures are extended to the demand and to the supply side of the services involved; thus, by suggesting measures for curtailing or optimizing the demand we attempt to optimize the development of additional infrastructure. We also quantify the investments needed, and the effect that the proposed pathway will have on key indicators, such as energy intensity, the levelized cost of electricity or heat, modal shares in urban mobility, or the cost of congestion.

4.1 The Energy sector

The demand side CHP plants also supply heat for households, services and Energy conservation and energy efficiency on the industries. Approximately, 55% of the power is supplied demand side are the cornerstones of any modern by power-only plants and 45% by CHP facilities. Both energy policy. The most efficient energy is one that does kinds of plant are largely obsolete, which is the source of not need to be generated at all because of demand- inefficiencies, high emissions and low quality of service. side measures. With this in mind, a road map for the There is also a lack of generation slack, with the available energy system of the future in Kazakhstan must start assets amounting to approximately 13.5 GW and the by considering the extent to which the demand can peak to 12.3 GW (year 2010). The current mix relies be contained, even in scenarios of fast economic heavily on local coal: about 76.0% of the primary energy growth. Containment is the result of three kinds of of power-only plants comes from coal, 6.9% from hydro, measures: energy conservation policies (e.g., better 14.6% from gas and 2.5% from oil. For CHP plants, 71.3% house insulation); increases in process efficiency due to is from coal, 26.5% is from gas and 2.3% from oil. technological improvement (e.g., better cement kilns); and structural change (e.g., a greater share of the services Our vision for the Energy sector starts with the sector in the economic makeup of the country). Government plans for the next few years, and its long- term vision for the country. In designing the energy mix We have assessed the current energy performance of of the future, we have considered the overriding goals to the several economy sectors on the basis of national be an increase in the generation efficiency; a substantial statistics (from the Agency of Statistics of the Republic decrease in the CO2 emissions; an improvement in the of Kazakhstan) and international data (from the quality of service through the modernization of the International Energy Agency), and benchmarked these assets and the provision of greater redundancies; and the against similar indicators from other countries. As containment of the cost to the final user. a consequence of this process, we suggest a list of demand-side measures to be implemented until 2040, As generating technologies, we have considered three and have estimated the likely energy savings per sector main ones, viz: conventional pulverized coal (sub and (Table 4.1). The cumulative primary energy savings supercritical), including Carbon Capture and Sequestration through these demand-side measures are 530 Mtoe (CSS); nuclear reactors; and renewables (mainly wind and (Moderate Growth) or 515 Mtoe (High Growth) until hydro). The hydroelectric contribution to the mix does not 2040, or between 16% and 20% of the primary energy change. Our analysis indicates that all three carbon-free consumption for the period. technologies (CCS) provide comparable electricity costs (see Box 4). CCS remains, at the time of writing, a rather Power supply speculative technology with an uncertain commercial Power in Kazakhstan is currently provided by both power- future; it also requires the identification of safe and only plants and combined heat and power (CHP) plants. sufficient geological storage capacity for CO2 in the vicinity 40 | An Infrastructure Road Map for Kazakhstan

Consumption reduction Consumption reduction 20% less hot water consumption per capita Reduction of old coal boilers from 63% Only 14% (rural) old coal boilers Increase of gas and LPG boilers from Increase of gas and LPG boilers to to 29%/16% (urban/rural) 40%/45% (urban/rural) Introduction of SHW (South) SHW produces 10.0 % of the hot water Promotion of electric cooker: from Promotion of electric cooker Electric cookers 60 %/40% (rural/urban) 20.5%/4.5% (urban/rural) in 2010 in 2040 Promotion of CFL No incandescent lamps (2020) 20% LEDs by 2025 50% LEDs by 2040 Increased efficiency of Increased efficiency of Energy consumption of refrigerator/washing machines refrigerators/washing machines refrigerators/washing machines reduced by 60%/30% EE in industry (mainly iron and steel, Industry EE 35% closer to BATs Industry EE 75% closer to BATs non-ferrous, chemical and petrochemical, non-metallic minerals sectors) EE in electricity, increased value added

Introduction of electric car (2020) 35% vehicle-km with electric car

More efficient irrigation systems and 10% EE improvement in 20 % EE improvement in agriculture machinery agricultureagriculture LPG Liquefied Petroleum Gas SHW Solar HotWater CFL Compact Fluorescent Lamp LED Light Emitting Diode EE Energy Efficiency BAT Best Available Technology Moderate Growth High Growth Table 4.1 Selection of demand-side measures (partial list) and final energy savings of the generation assets, which cannot be ensured, at present, in the case of Kazakhstan. Given that Kazakhstan possesses sufficient wind and nuclear resources, we MW 40000 have chosen these as our carbon-free technologies for a Available power 35000 Peak load demand balanced generation portfolio in 2040. Base load demand 30000 25000 For dimensioning the generation system we assume that 20000 the peak and valley power demands scale with the total 15000 annual electricity demand. Based on our prediction of 10000 the latter, we ensure, year by year, enough dispatchable 5000 power to meet the peak, plus a safety margin, for 0 quality of service, of 10% (Figure 4.1). Generally, we cap 2010 2020 2030 2040 the penetration of wind and nuclear to the forecast MW valley demand, since wind is unpredictable and nuclear 40000 Available power uninterruptable. Gas and coal power stations, and 35000 Peak load demand Base load demand hydroelectricity, provide the balance between wind and 30000 Available power nuclear on one hand and demand on the other. 25000 20000 In our Increased Regional Integration scenario we 15000 explore the benefits for the power sector of reinforcing 10000 regional energy trade. The Central Asia Regional 5000 Economic Cooperation (CAREC) program, initiated 0 2010 2020 2030 2040 in 1997, emphasizes the energy sector as a key development enabler. Energy supply-demand balance Figure 4.1 and infrastructure constraints, regional dispatch and Available power, peak load demand and base load demand in the High Growth scenario (top) and in the Increased Regional Integration regulatory development and water-energy linkages are scenario (bottom) the three pillars on which its Energy Sector Coordinating Imports meet the peak load demand in the Increased Regional Committee bases the Energy Action Plan. A 2011 master Integration scenario A road map for infrastructure development | 41

Box 4. CCS, Wind or Nuclear? Source: Own estimations unless otherwise stated

In its strive for a sustainable, de-carbonized cost of nuclear energy is substantially flat (in constant economy, Kazakhstan enjoys at least three resources: currency) since the main contribution to cost is capital wind, nuclear, and coal (with carbon capture and and it is a mature technology. For CCS, which includes sequestration, CCS). Which of these could be a long- the cost of sequestration, the cost of electricity does term winner? depend on the price of of coal, for which the figure presents two possibilities: low ($40.8 per tonne in Kazakhstan has ample potential for all three resources 2040) and high ($83.2 per tonne in 2040). In the latter, (see table); this is well known for coal and nuclear the increase in the fuel price drives up the cost. The fuel; as for wind, our analysis indicates that the overall cost of electricity from wind, however, decreases with potential in this vast country is in excess of 15,000 time, as most technology outlooks foresee a decrease TWh/year. Furthermore, a potential of 10,000 TWh/year in the specific investment cost in the next years due to is within 50 km the current power transport network, technological learning. and of these about 391 TWh/year (nearly 5 times the current annual demand of electricity) can be generated Overall, nuclear and wind are probably more cost with a capacity factor in excess of 30%. effective in the long term. CCS is a technology under development; its commercial future is uncertain, as Our analysis provides the cost of electricity with each of are the capital costs required. The CCS technology these three options. The cost evolution is shown in the also requires the availability of sequestration sites figure. We have assumed international investment costs close to the power stations (usually at the coal mining in all cases. For CSS, we assume a load factor of 75% sites), something this study has not ascertained for for the plants; for wind, 30%; and for nuclear, 90%. The Kazakhstan.

Capacity factor within 50 km of the power grid Cost of electricity for several technologies

Reserves of coal and nuclear fuels, and wind potential Sources: • Nuclear capital costs: International Energy Agency & Nuclear Energy Agency, Projected costs of generating electricity, 2010. A. Grubler, The cost of the French nuclear scale-up: A case of negative learning by doing, Energy Policy, Volume 38, pp. 5174 – 5188, 2010. • CCS capital costs: M. Finkenrath, Cost and Performance of Carbon dioxide Capture from Power Generation. IEA, Working paper, 2011. M. van den Broek, R. Hoefnagels, E. Rubin, W. Turkenburg, A. Faaij, Effects of technological learning on future cost and performance of power plants with CO2 capture, Progress in Energy and Combustion Science, Volume 35, pp 457 – 480, 2009. K. Damen, A. Faaij and W. Turkenburg, Pathways towards large-scale implementation of CO2 capture and storage: A case study for The Netherlands, International Journal of Greenhouse Gas Control. Volume 3(2), pp 217 – 236, 2009. M. van den Broek, A. Faaij, W. Turkenburg, Planning for an electricity sector with carbon capture and storage: Case of the Netherland, International Journal of Greenhouse Gas Control. Volume 2(1), pp. 105 – 129, 2008. • Wind balance and grid costs: International Energy Agency, Wind energy – Technology Road- map, 2009. H. Holttinen, S. Uski-Joutsenvuo, J. Kiviluoma, Power system assessment for wind energy development in Kazakhstan, Final report, United Nations Development Programme, 2011. 42 | An Infrastructure Road Map for Kazakhstan plan for the power sector17 concludes that obsolete MW added 30000 Hydro electric assets in every Central Asia Republic (CAR) must Solar PV energy 25000 be modernized or reconstructed and new generation Wind energy 20000 Nuclear plants, lines and substations must be added to allow Coal supercritical basic independent operation. However, after these 15000 Gas-Combined Cycle Coal-Rehabilitation improvements, every national system “can be either 10000 stronger, if existing interconnecting lines (between 5000 CA countries) remain in service, or weaker, if isolated 0 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 network operation is chosen”. Benefits of interconnected 2030 2032 2034 2036 2038 2040 power systems of the CAR are reduction of additional MW decommission installed capacity and spinning reserve, higher load 0 factors, efficiencies and voltage stability and an 5000 Conv. Gas Conv. Coal increment in electricity trade. Kazakhstan leads power 10000 market integration efforts in several international forums 15000 (CAREC, EurAsEC, SCO). 20000

25000

In all our scenarios, the increase in installed wind power 30000 requires additional reserve power to supply the peak. These additional assets often operate at low capacity Figure 4.2 Generation assets added and withdrawn (Moderate Growth) factors on a yearly average. For our Increased Regional Conventional, inefficient coal and gas assets will be replaced Integration scenario, this peak demand is partly satisfied with cleaner technologies through imports. As a consequence, some of the additional reserve power is not needed, and the overall MW capacity factor of the thermal generation increases (and 35000 Gas conventional Coal conventional hence this becomes more cost effective). The benefits 30000 Hydro 25000 Solar PV energy are therefore a smaller investment in generation assets Wind energy (although an increased one in transborder transmission), 20000 Nuclear 15000 Coal supercritical and cheaper electricity costs. Additionally, at times of Gas-Combined Cycle large wind generation, the excess power can be exported, 10000 Coal-Rehabilitation 5000 thus simplifying the management of the national 0 system. We suggest an increased regional integration 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 in the power system starting from 2025. This enhanced 2030 2032 2034 2036 2038 2040 integration intro supra-national power systems is often Figure 4.3 found in countries with large contributions from non- Evolution of the generation mix (Moderate Growth) manageable energy sources. Spain and Denmark (with The generation portfolio will be more sustainable with the wind contributions close to 20%), or the UK (with a large migration to nuclear, high efficiency coal and wind planned offshore wind contribution) have or are planning strengthened international interconnections. Accordingly, $ billion Moderate Growth High Growth in our Increased Regional Integration scenario, we 160 allocate a further investment of $3 billion to boost the 140 international power interconnections that will allow 120 these additional power flows in and out of the country. 100 80 The annual implementation rates, as new assets are added 60 to meet new demand and to make up for decommissioned 40 ones (Figure 4.2), lead to a power generation makeup in 20 2040 which is, for the Moderate Growth scenario, 24.7% 0 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 supercritical coal, 3.6% gas combined cycle, 28.4% wind, 2030 2032 2034 2036 2038 2040 1.2% solar PV, 32.8% nuclear and 9.3% hydro (Figure 4.3). Figure 4.4 For the High Growth scenario, these are 29.3% Cumulative investment in power (generation and transport) for both scenarios supercritical coal, 8.7% gas combined cycle, 22.5% wind, On average over the period, the annual investment in power 1.5% solar, 33.2% nuclear and 4.8% hydro. assets is between 0.9% and 1.24% of the annual GDP A road map for infrastructure development | 43

The cumulative investment required is around $77 billion By 2040, most of the existing CHP stock will have been for the Moderate Growth scenario, or about $147 billion renovated; there will be 1.9 GW (1.6 GW in 2020) of for the High Growth one (Figure 4.4). The average annual refurbished coal CHP’s (with flue gas clean-up facilities), investment over the period is 0.9% (Moderate Growth) or 2.4 GW (3.3 GW in 2040) of new CHP CC and 0.2 GW (0.3 1.24% (High Growth) of the annual GDP. In the Increased GW in 2040) of new CHP GT. The coal-based CHP units of Regional Integration scenario, the required investment Astana, Almaty and all switch to natural gas. $141 billion (1.18% of the annual GDP), which is slighlty lower than in the High Growth scenario, since the reserve In 2009, piped gas reached about 54% of the homes in power requirements are decreased by 5 GW due to the urban areas, and 16% of the rural ones. In line with the strengthened international interconnections. government plans to expand the network of distributed gas, we foresee an increased use of gas for space heating Heat supply in household boilers. Thus, in 2040, 50.0% of the space About 55% of the heat demand in Kazakhstan is provided heating demand will be covered by distributed gas, versus by heat-only boilers (HOB), and the remaining 45% by 29.6% in 2010. Due to the efficiency measures and to

CHP. The total thermal power of the HOBs is 11.9 MWth, this partial shift to piped gas for heating, no additional and they use mainly coal as fuel; their efficiency, 60% on generation capacity will be needed for CHP. average, is low. The installed electric power in CHP units is 6.7 GW. Both HOB and CHP plants are generally old: in The cumulative investment in district heating equipment 2010 39% of CHP units were older than 40 years; and, in (CHP and HOB) up to 2040 would be $8.6 billion for the 2020, 65% of the units will be older than 40 years. Moderate Growth scenario, or about $10.7 billion for the High Growth one. The average annual investment over the In the vision scenario the current heat demand of about 8 period is 0.12% (Moderate Growth) or 0.13% (High Growth) Mtoe could either decrease to 6.5 Mtoe (Moderate Growth) of the GDP. or increase slightly to 9.0 Mtoe (High Growth). In the vision scenario, the increase in efficiency, the reduction of the The cumulative investment in the energy sector for the pollution caused by these plants and the switch to natural period is included in table 4.2. gas (taking into account the expansion of the gas pipelines in the country), are the main targets. Gas supply Primary gas demand increases from the current 18.8 Our road map therefore calls for the progressive Mtoe per year to 22.2 Mtoe in the Moderate Growth withdrawal of the current HOB assets up to 2040; they scenario, and to 36.5 Mtoe in the High Growth one. will be replaced with new coal HOB units (3.5 GWth in Assuming that the annual average increase in gas

2040) and natural gas ones (1.5 GWth in 2040). These production in the last ten years is sustained, there will new HOB’s have higher efficiencies (85%). Since urban be enough production capacity to meet demand in both pollution from these sources is a major cause for concern scenarios. Our vision embeds the Government’s plans of the Kazakh authorities, coal-fired units are equipped for the extension of the gas pipelines (e.g. to Astana, with modern flue gas clean-up facilities (particulate Karaganda and the South of the country) and of the gas matter control, DeSOX and DeNOx). distribution network.

In the case of CHPs, these are either renovated or replaced with natural gas units as their lifetime reaches 40 years.

Sector 2011-2015 2016-2025 2026-2040 Total

Electricity 7.4 8.3 8.3 17.0 27.1 24.5 28.7 63.5 57.3 53.1 98.9 90.1 CHP/heat 1.9 2.1 2.1 4.3 5.3 5.3 2.3 3.3 3.3 8.5 10.7 10.7 Power grid 3.9 4.5 4.5 6.7 13.0 11.9 13.1 30.6 35.0 23.7 48.1 51.4 Total 13.2 14.9 14.9 28.0 45.4 41.7 44.1 97.4 95.6 85.3 157.7 152.2

Note: Heat investments are for generation only. Heat distribution investments are reported in the District Heating section Moderate Growth High Growth Increased Regional Integration CHP Combined Heat and Power Table 4.2 Investment timeline for the electricity and heat sectors ($ billion) 44 | An Infrastructure Road Map for Kazakhstan

Effect on indicators Ratio of LEC ($/kWh) to GDP per capita ($/inhab) (scaled by 106) 4.5 As new investments are deployed in the power sector, and fuel prices increase, the cost of electricity (calculated as the 4.0 Levelized Electricity Cost, or LEC) will rise. Our estimation 3.5 is that in 2040 the LEC will be, in constant currency, 5 3.0 times as high as now in the Moderate Growth scenario, 2.5 and 7 times (including emission costs) in the High Growth 2.0 one, and 5.4 times in the Increased Regional Integration. 1.5 (The investment in the power grid is excluded from the 1.0 LEC calculation above.) However, in terms of purchasing 2010 2015 2020 2025 2030 2035 2040 power (for instance measured by the GDP per capita), the Moderate Growth High Growth Increased Regional Integration increases in all scenarios are smaller (a factor of 2.2 in the Figure 4.6 Moderate Growth case, or of only 1.6 in the case of High Levelized Cost of Electricity relative to the GDP per capita (excluding Growth, even after including emission costs). The lower grid investments) New investments will increase the cost of electricity, but higher LEC in the scenario of Increased Regional Integration is due purchasing power in the case of High Growth will partially to the smaller investment needs in assets, and to a higher offset the increase capacity factor (by 7%) of the thermal generation.

Primary energy (Mtoe) CO2 emissions (Mt) For district heating, the capital costs for the renovated 140.0 350 assets and also of the increasing fuel costs lead to an 120.0 300 increase of the Levelized Cost of Heat by a factor of 100.0 250 2.3 (Moderate Growth), 3.2 (High Growth) or 3.7 (High Growth and including the externality cost of emissions). 80.0 200 60.0 150

The proposed measures will have a clear positive impact 40.0 100 on the sustainability of the Kazakh energy system. The primary energy demand over the period will remain 20.0 50 0.0 0 sensibly constant (at 60 Mtoe/year) in the Moderate 2010 2020 2030 2040 Growth scenario, and will increase by 70% in the High Moderate Growth (PE) Moderate Growth (CO2) High Growth (PE) High Growth (CO ) one. In both cases, however, the primary energy intensity 2 will decrease to approximately 50% of the current levels. Figure 4.7 Energy demand and CO2 emissions Energy demand and total emissions will remain roughly CO2 emissions, under the proposed vision, will decrease to constant in the Moderate Growth scenario, but will increase 90% of current levels (Moderate Growth) or increase up for the High Growth one to 142% (High Growth); CO2 intensity (the CO2 emissions per unit GDP), however, will substantially decrease in Primary energy intensity (toe/y2000US$M) CO2intensity (toe/y2000US$M) both cases to approximately 30% of the current level. 1.8 6.0 1.6 5.0 MW 1.2 8000 4.0 1.0 7000 6000 Gas CHP GT 0.8 3.0 5000 Gas CHP CC Coal CHP updating 0.6 4000 Current gas CHP 2.0 3000 Current coal CHP 0.4 2000 1.0 0.2 1000 0 0.0 0.0 2010 2020 2030 2040 2010 2012 2014 2016 2018

2020 2022 2024 2026 2028 Moderate Growth (PE) Moderate Growth (CO ) 2030 2032 2034 2036 2038 2040 2 High Growth (PE) High Growth (CO2) Figure 4.5 Figure 4.8

Evolution of the CHP mix for the Moderate Growth scenario Primary energy and CO2 emissions intensities

By 2040, most of the CHP stock will be upgraded to more With the proposed measures, energy and emissions (CO2) efficient, cleaner technologies intensity will decrease substantially in both scenarios A road map for infrastructure development | 45

4.2 The Transport sector

Meeting the demand while improving the quality of the transport service. Kazakhstan has viewed transport investment and logistics Investments in the logistics sector should include development as a major driver to accelerate economic container-based inter-modal transfer facilities and development. We envision a multi-modal transport modern information systems for logistics management. network that promotes domestic market integration and Investment by 2015 should include major operational regional market access. We develop investment plans inter-modal logistics facilities in Khorgos, Karagandy, that help to cut transport time and costs and improve and . In addition, Kazakhstan should initiate work domestic and regional connectivity. Through investments on major air cargo intermodal facilities at Almaty and in rail, road and intermodal facilities that support Karagandy airports. These improvements are important land, sea and air transport, a multi-modal network will steps in building a strong logistics sector that follows help to integrate domestic markets. By re-configuring best practices and is a driver of economic development in infrastructure and border crossing procedures, Kazakhstan Kazakhstan. will have better access to regional- and world-wide trade opportunities. Beyond 2015, there should be further investment in railway modernization and road reconstruction. By The first part of our proposed investment plan, which 2040, the national highway corridor will have over covers the period 2010-2015, builds upon Kazakhstan’s 8,567 km of high quality roads that link all provincial existing plans to expand its multi-modal network. We capitals and major border crossing points in all parts of take into account the road corridors defined by three Kazakhstan. Safety on these corridors will be at a level stakeholders: CAREC, United Nations (Asian Highway) and consistent with international standards. After 2015, the the Kazakhstan national government (mainly national railway sector should focus on railway electrification and road corridors). We propose that the road sub-sector and, modernization. By 2040, 9,950 km of rail track will be consistent with the domestic road corridor plans of the electrified and 4,000 km will be modernized (including national government, should focus on the major border electrification, upgrade of locomotives, cars and signal crossings, including Khorgos on the China border, and control system); rail speeds will be at international the economic centers at Almaty, Karagandy, Shymkent, standards of 100 km/hour. Aktobe and Astana. The major highway corridors through these BCPs and economic centers include the Western The road and railway projects should be side by side with Europe-Western China corridor. All relevant segments intermodal facilities (freight inter-modal transfer) located are part of a system of over 8,567 km four-lane national at relevant provincial capitals. Focusing during this period road corridors. Widening and reconstructing these roads on the major cities of Almaty, Taraz and Shymkent, we to international standards will reduce monetary and time envision a total investment of $1.5 billion as Kazakhstan costs of transit as well as freight and passenger travel in continues to build more logistics facilities in other and out of these areas. In addition to increasing the level economic centers, including Aktobe and Atyrau, which of service and reducing travel costs, these investments will eventually create a network of state-of-the-art in high quality roads will generate important highway logistics and intermodal centers that will help to establish safety benefits for the country, so reducing fatal and Kazakhstan as a regional logistics hub (See map in Box 5). serious non-fatal crashes. The above physical capacity projects should go side The rail sector should complete on-going investments by side with custom harmonization projects along the for modernizing its existing power system, signal system, Kazakhstan-China border at Dostyk and Khorgos, and cars and locomotives. In addition, the railway sector will along the Kazakhstan-Uzbekistan border at Tazhen add strategic links, including the Almaty–Khorgos link and Zhibek Zholy. For example, shipments between through Zhetygen and the Central-Western Kazakhstan Kazakhstan and China need to submit different custom links that include those connecting Zhezkazgan– forms at each side and there is no exchange of electronic Saksaulskaya and Shalkar–Beineu. These new rail lines forms between these two countries, which causes add up to 1,280 km of new construction. significant paper-work delays. Delay time and monetary costs at those border crossings can be significantly Kazakhstan also plans to establish a vigorous intermodal reduced, similar to those between Kazakhstan, Russia logistics sector that can facilitate inter-modal transfers and Belarus, where implementation of a Customs Union 46 | An Infrastructure Road Map for Kazakhstan

Box 5. Benefits of National Road Corridor investment

In anticipation of increasing future demands, Kazakhstan’s investment plan is expected to reduce transport costs for enterprises that rely on inter-city shipment. Atyrau and Khorgos are both important present and future economic centers in Western and Eastern Kazakhstan, respectively. They will become two anchor points in Kazakhstan’s road transport. In a network-based analysis of existing routes, we estimate that the shortest time path between the anchor points requires 54 hours driving time for the 2735 km trip.

The construction of the high-standard national road

corridor, which is proposed by the Government of Transport path change with investment in national road corridors Kazakhstan , will improve driving speed and change the shipment path. The fastest trip between Atyrau and corridor). Although the trip distance increases by about Khorgos is the one that uses this new road corridor 200 km, the driving time decreases to 41 hours, a 24% (assuming that the driving speed is 110 km/hour on the reduction. has significantly simplified custom control procedures We also consider a high speed railway network that and rules. Based upon delay times at BCPs with Russia, connects Astana and Almaty in the north-south direction adoption of similar BCP procedures at the Kazakhstan- and Urumuqi, Khorgos, Almaty, Shymkent, Tashkent and China border has the potential to reduce the delay by Samarkand in the west-east direction. The route in either 80-90%. direction has a distance similar to that between Shanghai and Beijing, a distance that makes high speed rail The investment milestones are outlined in the Table 4.3. service competitive. We expect that the portions within Kazakhstan can be completed by 2040, together with Investment needs those in Uzbekistan and China. The expensive high speed The investment is estimated for each sector and for railway project moves the total estimated investment each time period, and summarized in Table 4.4. Under cost up to $125.4 billion. the Moderate Growth scenario, there will be $37.8 billion for the construction of 8,800 km four-lane high Impact of the proposed measures quality national road corridors and $14.8 billion for new With these investments the national average transport construction and modernization of the railway network. time by road from each provincial capital to other provincial capitals will fall 35% in the scenario of Under the High Growth scenario, the high population Moderate Growth, 43% in the High Growth scenario and and GDP growth rate will drive additional infrastructure 45% in the Increased Regional Integration scenario (Table investments. 4 lane highways will link all existing 4.5). The national average line-haul time by rail from provincial capitals. The total length of high quality four- each provincial capital to all other provincial capitals will lane roads will increase to 10,400 km and total investment fall 71% with the construction of the planned strategic will run to $71.0 billion. For the Increased Regional railway links and the US class 4 freight transport speed Integration scenario, road segments of the Asian Highway (100 km per hour for freight transportation). Adding and CAREC corridors that are not part of Kazakhstan a container-based inter-modal transfer between rail national road corridors, for example, the road linking and road reduces the national average cost for one Atyrau and Uralsk, are upgraded to high-quality national TEU shipment from one provincial capital to all other road standards. Although not viewed to be of national provincial capitals by 24%. significance by Kazakhstan’s national government, we believe that their presence in these corridors proves their regional significance. Under this scenario, the four-lane highway attains a total length of 13,000 km. A road map for infrastructure development | 47

Scenario Mode 2011-2015 2016-2025 2026-2040 Central corridor: Astana-Almaty Road Western Europe and Western China (total 4-lane quality length reaches Total 4-lane quality length reaches Corridor (913 km reconstruction) 4250 km; 50% of national roads) 8500 km) Strategic rail links: Khorgos and Eletrification and modernization Eletrification and modernization Rail Central-Western Kazakhstan (1290 (1800 km). Total electrified reaches (1850 km). Total electrified reaches Moderate km new construction) 8,100 km 9,950 km Growth Khorgos, Karagandy (including air), Almaty (including air), Taraz, Shymkent, Astana (including air), Intermodal Aktau (including sea) Atyrau, Aktobe

BCP China border Uzbekistan border

Western Europe and Western China Total 4-lane quality length reaches Total 4-lane quality length reaches Road Corridor (913 km reconstruction) 6600 km 10400 km

Strategic rail links: Khorgos and Electrification and modernization Electrification and modernization Rail Central-Western Kazakhstan (1290 (1800 km). Total electrified reaches (1850 km). Total electrified reaches High km new construction) 8,100 km 9,950 km Growth Khorgos, Karagandy (including air), Almaty (including air), Taraz, Shymkent, Astana (including air), Intermodal Aktau (including sea) Atyrau, Aktobe

BCP China border Uzbekistan border

Western Europe and Western China Total 4-lane quality length reaches Total 4-lane quality length reaches Road Corridor (913 km reconstruction) 7900 km 13100 km

Strategic rail links: Khorgos and High Growth + HSR: Rail Central-Western Kazakhstan (1290 High Growth + HSR: Astana-Almaty Increased km new construction) Shymkent – Khorgos Regional Integration Khorgos, Karagandy (including air), Almaty (including air), Taraz, Shymkent, Astana (including air), Intermodal Aktau (including sea) Atyrau, Aktobe

BCP China border and Uzbekistan border Further BCP improvement

BCP Border Crossing Point Table 4.3 HSR High Speed Rail Investment milestones A road map for infrastructure in the transport sector

Mode 2011-2015 2016-2025 2026-2040 Total

Road 3.8 3.8 3.8 15.5 18.5 27.3 18.5 25.2 27.3 37.8 47.5 58.4 Rail 5.4 5.4 5.4 4.7 7.7 32.5 4.7 7.7 27.5 14.8 20.8 65.4 Intermodal 0.3 0.3 0.3 0.6 0.9 0.6 0.6 1.5 0.6 1.5 2.7 1.5 BCP 0.2 0.2 0.4 0.2 0.2 0.2 0.4 0.4 0.6 Table 4.4 Total 9.5 9.5 9.5 21 27.3 60.8 24 34.6 55.6 55.6 71.4 125.9 Investment milestones ($ billion) Moderate Growth High Growth Increased Regional Integration Cumulative investment ranges from $55 billion to BCP Border Crossing Point $125 billion

Investiment Indicator 2011 2026-2040 Total

Road Driving hours 24.8 16.0 14.1 13.7 -35% -43% -35%

Rail Line haul hours 48.0 17.0 14.0 14.0 -65% -71% -71% Table 4.5 Intermodal Inter-province TEU 675.0 514.0 514.0 514.0 -24% -24% -24% Impacts on freight transport of the proposed measures shipment $/TEU (high speed railway excluded) Moderate Growth High Growth Increased Regional Integration The proposed investments will significantly decrease TEU Twenty-foot equivalent unit travel times and shipment costs 48 | An Infrastructure Road Map for Kazakhstan

4.3 The Urban Services sector

District Heating to households (based on current energy consumption To improve the District Heating service in Kazakhstan we values). The results show that installing ambient recommend implementing the following measures (Table 4.6): temperature control and heat meters in households and 1. Ambient temperature control in households. replacing decaying piping with insulated piping are the Installing thermostatic radiator valves with most impactful. circulation bypass enables local and independent indoor air temperature control in each household, The implementation of these measures has a significant so contributing to reduce energy consumption and impact in the useful energy coefficient, UEDH, or the precluding excessive heating and subsequent energy amount of heat that is required per unit dwelling area losses. and per HDD (Heating Degree Day). The national average 2. Installing hot water meters in households enables of the UEDH is reduced from the current value of the owners to monitor their consumption, and 218 kJ/HDD/m2 to 148 kJ/HDD/m2; this latter value is this represents an indirect consumption reduction consistent with that in developed countries. mechanism, as well as a means to enable the district heating agents to charge appropriately for hot water. Municipal Solid Waste management 3. Improved windows insulation in the households to For the MSW sector, we propose the following measures reduce direct energy losses and reduce air infiltrations. (Table 4.7): 4. Installing heat meters in building substations means 1. Implement dual collection system. Collection accountability of energy consumption, which affects systems based on the separate collection of waste people’s behavior by promoting an economic incentive streams have long been the norm in recovery-oriented for energy efficiency. MSW management systems. In particular, the dual 5. Replacing decaying piping and adding insulation collection systems, in which the wet fraction (e.g. is a critical investment to increase the reliability of the organic matter) is collected separately from the dry network and also reduces heat losses and water leaks. fraction, enable higher material recovery fractions and 6. Upgrade pumping stations with a SCADA - can reduce overall collection costs. Until 2015, dual Supervisory, Control and Data Acquisition–System, collection schemes tailored for specific cities should be allows monitoring and control of the district heating deployed. Experience gained from these pilots should network, with online data and remote control of the be gradually extended to all urban areas to reach system, including the automation of the pumping 100% collection by 2025. stations. This promotes significant energy savings and 2. Investment in specialized containers and decreases the number of failures. collection vehicles. Increased collection coverage 7. Closing the hot water circuit by introducing a requires substantial investments in specialized vehicles secondary circuit at the building substation level, and containers. The type and density (volume per thus avoiding the losses of hot water due to direct use inhabitant) of containers is determined by local MSW in the household. This requires the installation of a strategies, but as a reference, the density for separate secondary circuit equipped with a heat exchanger and collection containers should be at least 1 m3 for an accumulation system for heating the water to be around 80 inhabitants (assuming weekly collection used in the household. This increases energy efficiency services), whereas for unsorted waste the density by promoting a narrower temperature gap between should be at least 1 m3 for 53 inhabitants (assuming distribution and consumption, and a better regulation of collection every two days). The need for collection the in-house temperature regime due to automatic control. vehicles is also strongly linked to local environmental targets. In the Moderate Growth Scenario, daily The energy savings associated with the implementation collection capacity should be around 2700 tonnes, of each of these measures have been quantified for all which translates into a national fleet of around 4400 the oblasts (Figure 4.9). Their relative magnitude depends large capacity waste collection trucks. on the characteristics of the distribution network, and 3. Increase landfilling capacity. By 2025, all open particularly of the heat delivered to households and to dumps should be closed and new landfills meeting other users, such as industry. Overall, the measures have international standards should be built. Kazakhstan the potential to save 78 % of the energy distributed must increase landfill capacity to around 3 million A road map for infrastructure development | 49

Energy saving measure Potential energy savings Savings relative to Ambient temperature control in households 23% Energy delivered Installing hot water meters in households 30% Hot water delivered Insulation of windows in households 10% Energy delivered Installing heat meters 15% Energy delivered

Replacing decaying piping and adding insulation 38% Energy losses Table 4.6 Upgrade pumping stations 11% Energy losses Proposed energy saving measures and their impact Each of the measures proposed will save between Upgrade/Close system at building substation 6% Energy losses 6% and 38% of the distributed heat tonnes per year by 2025, reducing it to 2.4 million centers. In order to reach energy recovery targets, tonnes per year by 2040 (Moderate Growth Scenario). installed capacity should reach 0.7 million tonnes Taking into account the sparseness of Kazakhstan, per year by 2025 and 0.85 million tonnes per year by the average capacity of landfills should be low. The 2040. However, given that energy recovery in large- estimated number of new landfills to build until 2040 scale incineration plants is only economically viable in should be between 80 (Moderate Growth) and 120 large urban areas with significant industrial demand (High Growth). for heat, such as Almaty or Shymkent, the number of 4. Increase material and energy recovery capacity. incineration plants should be at most three or four. MSW landfilling must be followed by material and energy recovery treatment options. This will reduce Almost 85% of the collection costs are usually related overall MSW management costs and increase the to labor and to capital costs of collection vehicles and economic competitiveness of sectors using waste containers. In the Moderate Growth Scenario, cumulative materials, like scrap metal. To accomplish this, it is investment in collection vehicles until 2040 is estimated necessary to invest in recycling, biological treatment at $1.6 billion, whereas for containers this value is around and energy recovery infrastructures. The recovery $0.2 billion. By adding labor costs, an annualized cost fraction will still be marginal in 2015, but by 2040 of collection was estimated at $0.40 billion by 2040, or it should represent around 65% of all MSW treated $59 per tonne of MSW collected. In the High Growth (Figure 4.10). Scenario, accumulated investment in collection until Material recovery facilities (MRF), which are assembly 2040 is $2.1 billion. With labor costs, the annualized cost of lines where MSW is manually or mechanically sorted, collection is $0.44 billion by 2040, or $57 per tonne of MSW guarantee that some waste streams can be recycled collected. The value decreases with higher production rates or incinerated. To achieve proposed targets in the due to economies of scale in collection. Moderate Growth Scenario, sorting capacity must increase to around 1.3 million ton per year by 2025, In the Moderate Growth Scenario, the investments in and to 1.9 million ton per year by 2040. Roughly, this MSW treatment needed to fulfill target demand until amounts to more than 20 MRF near the largest urban 2040 are more than $2 billion (Table 4.8), with nearly

Targets Measures Implement dual collection systems Increase collection coverage Invest in specialized containers and vehicles to 100% in urban centers Increase public awareness of separate collection for recycling

All final disposal should be done in Build new and retrofit existing landfills landfills meeting best standards Close open dumps

Material recovery of at least 50% of MSW Build MRF to increase material sorting capacity Energy recovery to guarantee that less Build incineration plants to increase energy recovery capacity than 35% of MSW is landfilled Implement Extended Producer Responsibility schemes for specific waste streams

Near zero deposition of Build biological treatment facilities to increase biological recovery capacity biodegradable MSW in landfills Increase door-to-door and kerbside collection.

MSW Municipal Solid Waste Table 4.7 MRF Material Recovery Facilities Targets and measures for an environmental sound MSW management system The proposed measures in MSW aim to increase collection coverage, close open dumps and promote material and energy recovery 50 | An Infrastructure Road Map for Kazakhstan

1.000 Gcal/year 60

50

Energy savings 78% 40

30 District Heating Delivered Losses Ambient temperature control 20 Hot water meters Energy distributed 100% Insulation 10 Heat meters Piping replacement and insulation Upgrading pumping stations 0 Upgrading building substations Total Atyrau Almaty Aktobe Akmola Zhambyl Pavlodar Kyzylorda Mangistau Karaganda Astana city Almaty city East Kazakhstan West Kazakhstan West North Kazakhstan South Kazakhstan

Figure 4.9 Energy savings from energy delivered for household heating Energy saving measures have a potential to save 78% of the energy distributed for DH in households half of it going to the construction of new landfills. ton of waste collected and treated. In the High Growth Most of these investments will have to be made by 2025 scenario, these values increase to $4.4 billion and $363 ($1.5 billion). By 2040, operational costs in treatment per year. Annualized costs are lower at $111 per tonne of will amount to $79 million per year, or $11.5 per tonne waste collected and treated. of MSW treated, with MRF representing almost 44% of treatment operational costs. By 2040, annualized costs The values presented above refer to average country-level will be more than $300 million, or $56 per tonne of costs, varying from region to region, especially due to MSW entering the system. In the High Growth scenario, scale. In high-density regions, collection costs are lower cummulative investment will be more than $2.3 billion and large capacity facilities are economically viable. For by 2040, while operational costs will amount to $90 per instance, the estimation for annualized costs of Almaty’s tonne of MSW entering the treatment phase. Annualized MSW management system by 2040 is $90 per tonne of costs will be $55 per tonne of MSW entering the MSW collected and treated. But for a city such as Uralsk, treatment phase. West Kazakhstan province, there is no scale for several technological options and collection cost are closer to Until 2040, in the Moderate Growth scenario, MSW national average. In this case, annualized costs were management in Kazakhstan requires investments in the estimated at $109 per tonne of MSW collected and order of $4 billion. The operational costs will be more treated. than $300 per year. Annualized costs will be $115 per

100% Incineration Biologial recovery 80% Recycling 60% Landfilling Open dump or uncollected 40%

20%

0% 2010 2020 2030 2040

Figure 4.10 Evolution of MSW management by treatment category in urban areas according to proposed targets Effective MSW management calls for the end of dump sites and a high recovery fraction A road map for infrastructure development | 51

Cumulative Investment Operation/Maintenance Collection ($ million) ($ million/year)

Collection vehicles 1603 1808 80 91 Containers 231 263 Labor force 143 173 Total 1834 2071 223 263 Treatment

Landfills 950 1044 11 13 Biological treatment 490 580 17 20 Incineration 460 479 17 17

MRF 210 238 35 40 Table 4.8 Total 2110 2341 80 100 Cumulative investments and operational costs for MSW management in urban areas (High Growth and Moderate Total 3944 4412 303 363 Growth scenarios) Moderate Growth High Growth To reduce harmful impacts of MSW disposal, MRF Material Recovery Facilities Kazakhstan must invest up to $4.4 billion until 2040

Water and sanitation This investment comprises the construction of new water The strategy to improve the Water Supply and Sanitation supply and sanitation systems and the rehabilitation of services in Kazakhstan comprises the following measures: existing water and sewer networks. The investment for 1. Implement water-saving programs to reduce water the period 2015-2025 is $1.9 billion for the Moderate losses and illegal consumptions, and promote an Growth scenario and $2.2 billion for the High Growth one. efficient use of water; The projected investment corresponds to the replacement 2. Increasing the meter coverage in urban areas from of equipment in water and wastewater systems and 76% to 100%; rehabilitation and extension of existing networks. In the 3. Construction of new water supply systems and last period, 2025-2040, the projected investment is $0.2 rehabilitation of existing ones to increase the billion for the Moderate Growth scenario and $0.3 billion production of drinking water; for the High Growth scenario, comprising the extension of 4. Extension of water supply networks (end-users water and sewer networks. The total investment projected systems) to provide access to piped water to 100% of is $6.8 billion to $7.8 billion. urban population; 5. Rehabilitation of existing water supply networks The effects of the reform in water services are assessed to reduce the water losses up to 15% and the annual through three performance indicators: the water supply number of failures per kilometer to 0.3; service coverage is projected to increase from 82% in 6. Extension of sewer systems to provide access to 2010 to 100% in 2025; the wastewater service coverage wastewater drainage systems to 100% of urban is projected to increase from 73% in 2010 to 100% in population; 2025; for water losses a decrease from 30% in 2010 to 7. Rehabilitation of existing sewers to reduce the 15% is expected in 2040. annual number of failures per kilometer to 0.1; 8. Construction of new wastewater treatment plants Urban mobility and rehabilitation of existing ones to ensure quality To meet the travel demand, several measures are of effluent discharges compatible with the legislation envisioned over the years for Almaty, Astana and Aktobe. and with the receiving water uses; A set of measures encouraging the use of public transport 9. Implementation of monitoring system for the and non-motorized modes and limiting the use of private water sector (water supply and sanitation transport are implemented until 2015, 2025 and 2040 in services), supervised by a regulatory authority. these three cities (Table 4.9).

Until 2015, a total investment between $4.7 billion and The first measure envisioned for Almaty is the implementation $5.3 billion (respectively for Moderate Growth or High of urban mobility surveys over the years to understand urban Growth scenarios) is projected (Figures 4.11 and 4.12). mobility behavior and estimate travel demand in the city. 52 | An Infrastructure Road Map for Kazakhstan

By 2015, Almaty’s subway will be extended to the Water supply service coverage (%) Cumulative investment ($ billion) northeast and southwest of the city. This extension is 105% 6.4 100% 5.9 around 20% of the total subway extension to 2040. 95% 5.4 By this time Almaty should have one bus rapid transit 90% 4.9 (BRT) corridor, which consists of a bus line operating in a 85% 4.4 segregated lane, and also two intermittent bus lane (IBL) 80% 3.9 75% corridors, which consist of a regular lane accessible for 3.4 70% 2.9 all types of vehicles that can change to a segregated bus 65% 2.4 lane for the time necessary for a bus to pass through. In addition, we propose the construction of one multimodal interface station such as Park and Ride facilities in Almaty by 2015 to make transfers short, easy and comfortable for passengers and make public transport more attractive 2010 2015 2020 2025 2030 2035 2040 and competitive than private cars. Level of service Short Term Strategy Investment for Moderate Growth scenario Medium Term Strategy Investment for Moderate High scenario Long Term Strategy To prevent accidents several measures such as signs and street lights, traffic calming techniques will be Figure 4.11 implemented. Moreover, the promotion of activities Strategies, investments and indicators for water supply services to change drivers’ behavior is necessary. To support A complete coverage of urban water supply demands a total investment between $4.5 billion and $5.3 billion bicyclist safety, paved shoulder and off-road trails will be incorporated. Another measure envisaged is the revision of road network hierarchy which reflects the shift of Sanitation service coverage (%) Cumulative investment ($ billion) emphasis towards more sustainable modes and takes 105% 2.9 into account the needs of all road users. We propose the 100% 2.7 development of local roadways in order to give greater 95% 2.5 priority and safety to pedestrians. This revision will 90% 2.3 result in wider roadways of hierarchy 1, 2 and 318 which 85% 2.1 increase capacity by 50%. 80% 1.9 75% 1.7 70% 1.5 Also before 2015, tariff integration is proposed for 65% 1.3 implementation in Almaty to increase the use of public transport by making the ticketing system attractive and easy to understand for all users. These measures are expected to result in a decrease of private transport modal share of Almaty from 73% to 61%. 2010 2015 2020 2025 2030 2035 2040

Level of service Short Term Strategy In Astana, by 2015 we also propose the implementation Investment for Moderate Growth scenario Medium Term Strategy of a BRT corridor as well as a light rail transit (LRT) Investment for Moderate High scenario Long Term Strategy corridor. The construction of LRT should be implemented Figure 4.12 in a phased basis and by 2015 16 kilometers should be Strategies, investments and indicators for sanitation services available from Astana airport to the city center. Astana A complete coverage of urban sanitation demands a total should also have wider roadways that increase their investment between $2.3 billion and $2.5 billion capacity by 50%, and tariff integration. To give more

Measures BRT bus rapid transit corridors LRT light rail transit corridor Encourage public and non-motorized Subway expansion, BRT, LRT, IBL, BSS, IBL intermittent bus lane corridors transport intermodal stations, tariff integration BSS bike-sharing system

Limiting private transport use Parking policy, urban tolls Table 4.9 Measures to improve urban mobility Infrastructures for loading Proposed urban mobility measures for encouraging public and Organize urban logistics and unloading non-motorized modes, limiting private transport and improving urban logistics A road map for infrastructure development | 53 attention to urban logistics, by 2015 Astana should have Private transport modal share (%) infrastructures for loading and unloading goods. These 75% 70% Public transport measures measures will result in a decrease of private transport Private car measures 65% Non-motorized transport measures modal share of Astana from 70% to 66%. By 2015, we 60% also propose an IBL corridor and tariff integration for 55% Aktobe. These measures will result in a decrease of private 50% transport modal share of Aktobe from 71% to 63%. 45% 40% By 2025, Almaty’s subway should be further extended 35% (around 50% of the total extension). Urban tolls in the city center which charge private vehicle parking in central areas of the city with a higher value than in other 2010 2015 2020 2025 2030 2035 2040 non-central areas of the city should be in service by 2025. The main purpose of the charge is to reduce congestion Figure 4.13 in the radials and city center. In addition to urban tolls, Timeline of proposed measures and its impact on private transport modal share for Almaty parking policy should be implemented in the whole city to The proposed measures will result in a total private transport shift users from private car to public transport; removing savings of 36% in Almaty obstacles from roadways and consequently improve the Private transport modal share (%) steady flow of traffic and increase roadways capacity. 75% 70% Public transport measures We propose for Almaty a bike-sharing system (BSS) in a Private car measures central area of 34 km2 which is a network of public use 65% Non-motorized transport measures bicycles distributed around the city for use at low cost. In 60% this system, bicycles can be picked up at any self-service 55% bike-station and returned to any other bike-station. 50% 45% The LRT system of Astana should be extended by 2025, 40% expanding from city center to the northern part of Astana 35% up to the main railway station, increasing its length by 10 kilometers. Astana should also have a BSS system by this time. Both Astana and Aktobe should have installed 2010 2015 2020 2025 2030 2035 2040 a parking policy in the whole of the cities by 2025. In all Figure 4.14 three cities we propose further widening of roadways of Timeline of proposed measures and its impact on private transport hierarchy 1, 2 and 3 until 2025. These measures should modal share for Astana cause a reduction in private transport modal share of 23% The proposed measures will result in a total private transport in Almaty, 13% in Astana and 20% in Aktobe. savings of 18% in Astana Private transport modal share (%) 75% By 2040, Almaty’s subway should be further extended 70% Public transport measures (around 30% of the total expansion). In Astana the last Private car measures 65% section of LRT should be constructed, closing the loop Non-motorized transport measures 60% back to the city center and increasing 18 kilometers 55% in length. In Aktobe a BSS system in an area of 93 50% km2 should also be implemented. In 2040, the private 45% transport modal share is expected to decrease to 37%, 40% 52% and 40% in Almaty, Astana and Aktobe respectively 35% (Figures 4.13 to 4.15).

The total investment for urban mobility network until 2010 2015 2020 2025 2030 2035 2040 2015 for Almaty city is projected to be $888 million. Moreover, the yearly total operational cost of the Figure 4.15 proposed measures for Almaty is projected at $61 million. Timeline of proposed measures and its impact on private transport modal share for Aktobe The total investment for urban mobility network in Astana The proposed measures will result in a total private transport until 2015 is lower and is projected to be $461 million. savings of 31% in Aktobe 54 | An Infrastructure Road Map for Kazakhstan

The yearly operational cost of the proposed measures stimulate a decrease of 15% in private transport modal for Astana is projected at $6.8 million. For Aktobe, the share (Figure 4.16). The implementation of urban tolls total investment for urban mobility network until 2015 is with parking policy and bike-sharing systems investments projected to be $7 million and the yearly operational cost will result in a 21% decrease in private transport modal of the proposed measures is projected to be $0.65 million. share. The total savings in private transport modal Table 4.10 presents a summary of these costs until 2040. share is 36% with a total investment of $804 million. If the investment is made, congestion cost will decrease The investments will have a direct impact on private to $245 million in the Moderate Growth scenario transport modal share as a consequence of the and increase to $514 million in the High Growth one. proposed measures. The BRT and IBL corridors with CO2 emissions will decrease, due to the continuous tariff integration and subway expansion in Almaty will improvement of vehicle efficiency, from 3097 tonnes to

City 2010-2015 2015-2025 2025-2040 Total Subway expansion 617 [51.84] 601 [50.49] 61.8 [5.19] 1281 Bus Rapid Transit Corridors 154 [3.55] - - 154.9 Intermittent Bus Lane Corridors 14.5 [0.73] - - 14.54 1 intermodal station 26.8 [0.77] - - 26.86 Urban Mobility surveys 1.00 - - 1.00 Almaty Measures security and safety 1.27 - - 1.27 Tariff integration 3.3 [0.28] - - 3.38 Widening roads 68.1 [3.41] 19.5 [0.98] - 87.75 Urban tolls - 6.28 - 6.28 Parking policy - 6.33 [25.47] - 6.33 Bike-Sharing System - 0.35 [0.13] - 0.35 Light Rail Transit Corridor 318 [3.66] 111 [1.18] 4.7 [0.26] 434.7 Bus Rapid Transit Corridors 98.1 [0.89] - - 98.19

Astana Widening roads 42.4 [2.12] 13.6 [0.68] - 56.05 Tariff integration 1.96 [0.16] - - 1.96 Parking policy - 12.3 [49.51] - 12.30 Bike-Sharing System - 1.33 [0.51] - 1.33 Intermittent Bus Lane Corridors 5.17 [0.52] - - 5.17

Aktobe Tariff integration 1.61 [0.13] - - 1.61 Parking policy - 4.36 [17.55] - 4.36 Bike-Sharing System - - 0.17 [0.07] 0.17 Table 4.10 Investment timeline for the urban mobility sector, $ million. Total 1355 777 66.72 2200 [In square brackets, operational costs, $ million/year]

Indicator City 2010 2040 % change Almaty 299 245 514 -18% 72% Congestion costs Astana 35 172 860 386% 2325% ($ million/ year) Aktobe 3.2 12 25 283% 691% Almaty 3097 1762 1858 -43% -40% CO2 Emissions (tons/year) Astana 1312 1238 2292 -6% 75% Aktobe 303 272 307 -10% 1% Table 4.11 Yearly congestion costs, tons of CO2 emissions Almaty 6 8 8 33% 33% Number of and number of fatalities for Almaty, Astana and Aktobe fatalities Astana 3 6 7 100% 133% Congestion costs and number of fatalities per year will increase while CO2 emissions will decrease Aktobe 1 2 2 100% 100% in the High Growth scenario in Almaty Moderate Growth High Growth A road map for infrastructure development | 55

1762 tonnes in the Moderate Growth scenario and to Private transport modal share (%) 75% 1858 tonnes in the High Growth one (Table 4.11). Even Today if measures to prevent accidents are implemented in 70% Almaty, in both Moderate and High Growth scenarios the 65% yearly number of fatalities will increase from 6 to 8. Subway & BRT & IBL -15.2% 60% & Tariff integration

The estimated congestion cost in the main cities will 55% increase in the future even if measures are taken (Table 4.11), because of the growth of population and 50% GDP per capita that results in a high growth of number 45% of trips per inhabitant. By the same reason, the number Urban tolls & Parking -21% of fatalities will increase in the future. However, if 40% & BSS measures are taken, this growth is moderated. The 35% 625 650 675 700 725 750 775 800 825 850 875 900 estimated emissions of CO2 in the future for Almaty will Investment ($ million) decrease due to the efficiency of the public and private Figure 4.16 fleets. And as much more people will use public transport, Private transport modal share savings and investment for Almaty until 2040 The total savings in private transport modal share is the emissions will be considerably reduced. However, in 36% with a total investment of $804 million Astana and Aktobe the emissions will decrease only in the Moderate Growth scenario. In the High Growth one, even if measures are taken, the emissions will increase. In Private transport modal share (%) Aktobe, in the High Growth scenario the increase is only 75% 1%. Today 70% In Astana, tariff integration with the BRT and LRT Tariff integration & BRT & LRT -5.2% corridors will stimulate a decrease of 5.2% in private 65% transport modal share (Figure 4.17). The implementation of parking policy and BSS system will result in a decrease 60% of 12.5% in private transport modal share. The total savings in private transport modal share is 18% with 55% Parking -12.5% & BSS a total investment of $548 million. In Aktobe, tariff integration and the IBL corridor will result in a decrease 50% 625 650 675 700 725 750 775 800 825 850 875 900 of 8% in private transport modal share (Figure 4.18). The Investment ($ million) implementation of parking policy and BSS system will Figure 4.17 stimulate a decrease of 24% in private transport modal Private transport modal share savings and investment for Astana until 2040 The total savings in private transport modal share is 17.7% with share. The total savings in private transport modal share a total investment of $548 million is 31% with a total investment of $184 million.

Private transport modal share (%) 75% 4.4 Road map overview Today 70% IBL & Tariff integration -7.9% The previous section has outlined the main investments 65% required to meet the demand for services in future years. 60% Investments, however, are only one aspect of a wider set of intertwined measures which include governance 55% reforms and non-financial resources (such as technology 50% -23.6% Parking & BSS -23.6% or skills). This section provides an overview of how 45% these several types of measure develop over time. The 40% measures are shown in Table 4.12. They are grouped as 35% Non-physical Infrastructure (comprising Governance, 0 2 4 6 8 10 12 14 16 Investment ($ million) Competition and Transborder reforms), Physical Figure 4.18 Infrastructure (Supply Assets, Demand Assets and Quality Private transport modal share savings and investment for Aktobe until 2040 of Infrastructure), and finally Resources (Technology, The total savings in private transport modal share is 31.5% with Human and Funding). a total investment of $184 million 56 | An Infrastructure Road Map for Kazakhstan

Box 6. A pipeline of projects in the district heating service for Almaty The district heating service provides opportunities energy consumption for each household and to for a set of projects to be implemented, driven by the provide individual benefits to those who change their need to increase both the quality of service and energy consumption behavior to a more energy responsible efficiency. The investments needed depend on the one. This includes installing ambient temperature specific infrastructure at each city, namely in terms of control in each household, so preventing excessive the length of the network, the number of buildings heating that is normally compensated by opening the served and its area or the technical facilities involved, windows during the winter. such as pumping stations. Installing heat meters at the building level, allows for Here, we present as an example the case of Almaty, the energy costs to be effectively attributed to the which operates a large district heating system, household owners, providing them a direct economic supplying about one million inhabitants with hot water incentive to save energy. This is in line with the current and heat. The heat is generated in two combined heat legal framework, that requires all the consumers to and power plants and in several heat-only boilers. The be equipped with heat meters, and the efforts of the district heating distribution system includes two major Almaty Akimat to complete the installation of heat networks (Center and South), an area with several meters during the next years. medium sized networks in the North-East and about 60 small areas, located in the outskirts of Almaty. In total, We have calculated the investment needed to it has over 1,000 km of piping. implement in Almaty each of the measures we propose and the ensuing energy savings. The graph in this box Replacing decaying piping and adding insulation is a shows these measures and savings ordered so that priority, as the district heating distribution networking the most cost-effective come first. For instance, by is in poor conditions and urgently needs to be renewed equipping homes with ambient temperature control, during the next decade. up to 17% energy savings can be achieved at a cost of $27 million; and installing heat meters follows in cost The most cost effective investments are those based effectiveness with 8% savings for an investment cost of on providing the technologies necessary to customize $20 million.

Cumulative investments and savings in District Heating for Almaty Energy Consumption (Tcal)

240000 Today

220000 17%

200000 Ambient temperature control in households

8% Installing heat meters 180000 2% Installing hot water meters 6% Insulation of windows 2% Upgrading pumping stations 160000 9%

Replacing decaying piping and adding insulation 140000

120000

100000 0 100 200 300 400 500 600 700 Cumulative Investment ($ million) A road map for infrastructure development | 57

For the short term (T+0 to T+5), we select those solar energy (E15) and of nuclear power (E16). This measures that are urgently needed, in a high state of modern power system needs to be complemented with readiness (for instance, because they are aligned with the increased cooperation with neighboring countries, and government plans), or required to lay the foundations for for this to happen mechanisms for the transboundary subsequent interventions. Demand-side energy saving exchange of power and water need to be in place. In the measures and incentives (measures E5, U16 in Table transportation and logistics sector, in order to increase 4.12) are best introduced at this early stage, because the level of trade and transit traffic, the road map curtailing demand is the most cost-effective energy- suggests the initiation of dialogue with other neighboring efficiency measure; this is also applicable to water, countries for establishing customs unions (T12). For where measures to save by reducing losses and waste the transport and logistics sectors to be regionally and (U9) and non-metered usage (U14) are suggested. We internationally competitive, they must attract a higher also suggest at this stage the design of incentives, such proportion of high-quality professionals, including as feed-in tariffs, for renewable energy (E3) and the managers, transport safety experts, and transport/ start of the deployment of wind power (E4), since it is logistics systems engineers with advanced degrees (T13). a mature technology for which no major cost-reducing To better coordinate multi-mode investment for the breakthroughs are envisaged. In the transportation whole country, Kazakhstan needs to create a national sector, tax incentives or subsidies (T6) can hasten the transportation account that integrates revenue sources conversion of older trucking fleets to newer, ‘greener’, from each mode, and disburses fund to each mode, for and ICT-enhanced fleets. The road map advocates several operating and capital expenditures (T14). In the urban measures to improve regional commerce, such as: mobility sector, the goal is a shift towards public and implementing institutional and technological changes non-motorized modes: sustainable transportation for that resolve the outstanding issues within the Customs schools and corporations (U28); promotion of non- Union, including procedures to simplify document motorized (soft) modes such as walking or cycling (U35, exchange and BCP charges (T3); investment in ICT at U38, U39); or multimodal exchange stations (U36). In the the BCPs with the highest traffic counts and rail traffic water, sanitation, waste and district heating subsectors to streamline the highway and rail traffic flows and the road map calls in this time frame for interventions effectively expand BCP capacity (T4). In the urban services that lead to improved quality of service and sustainability. sector, a large planning effort should be made in this Thus an Extended Producer Responsibility program (U27) time frame, including obtaining reliable data for decision proposes that manufacturers internalize the cost of the making through urban mobility surveys and other product end-of-life, starting in specific growing sectors, initiatives (U6), long-term plans for municipal solid waste such as the automotive industry, and using these as tests reduction (U2), the creation of the relevant agencies for widespread implementation in other sectors. The (U3) or the revision of the technical and regulatory movement and disposal of hazardous waste should be frameworks and Master Plans for urban mobility (U4). controlled (U34). The quality of ground and surface water Pressing needs, such as the expansion of water supply should be monitored (U31) as well as the performance of and sewage systems, should be attended to (U14), in line the water supply and sanitation services (U32). with similar government initiatives. For the long term (T+15 to T+30) we defer some In the mid term (T+5 to T+15) we advocate more measures that are likely to be needed as a response to substantial, structural transformations across sectors. the pressure induced by increased internal demand or Energy and urban service tariffs should in this period prevailing international protocols. Thus, in the energy allow for full cost recovery (EU6), and energy cross- sector we envisage that a tax or cap-and-trade scheme subsides should be replaced with a system of lifeline (E20) will aid in containing emissions and moving faster tariffs (E7) that ensures energy access for all. Large towards a greener economy. In the transportation sector, scale industrial energy efficiency programs should be safety will become a matter of public concern and deployed in this period (E8), particularly in the very should be addressed through a national policy (T15). energy intensive industries: iron and steel, non-ferrous, Increased demand for the urban mobility will require the chemical and petrochemical, and non-metallic minerals. implementation of LRT systems in further cities (U50) and The country energy mix and emission intensity will the introduction of urban tolls (U51). start to improve significantly around this period, with the full deployment of wind, and the introduction of 58 | An Infrastructure Road Map for Kazakhstan

E Energy measure T Transport measure U Urban services measure EU Energy and urban measure Table 4.12 Road map overview, including non-physical measures (for the meaning of acronyms, please see list at the beginning of this document) The cost of not doing | 59

5. The cost of not doing

What are the benefits for Kazakhstan of the investments and reforms suggested in Chapter 4? For each scenario we have run additional cases where the demand is forecast and met without the interventions proposed in Chapter 4. The comparison of the outcome from these ‘business as usual’ cases (or baseline, as they will be termed) with our vision provides a quantification of the benefits of the proposed pathways in each scenario. These are presented in this chapter, before closing the report with a summary of the recommendations.

5.1 The cost of not doing

In the energy sector, the main challenges that Kazakhstan Primary energy intensity (toe/y2000 US$MM) faces are, apart from lack slack in electricity generation 2000 to support growth, energy intensity and CO2 emissions. What is the impact of “not doing” on these indicators? Kazakhstan

1500 We forecast that, even in the baseline cases, the overall energy intensity of the country will nevertheless decrease as the country develops, from 1700 to 1000 toe/y2000 1000 US$MM by 2040 in the Moderate Growth scenario (Figure 5.1). However, in both scenarios the intensity level will still be too high for country’s level of development. 5000 The interventions suggested would decrease the intensity level to 650 (Moderate Growth) or 550 (High Growth) 0 toe/ y2000 US$MM, still slightly higher than, but much 0 10 20 30 40 50 60 closer to, today’s intensities for the level of development. GDP per capita ($M) Figure 5.1 Energy intensity of several countries in 2009, and projections for Our vision is successful in containing the per capita CO2 Kazakhstan 2040 emissions in all scenarios. For Moderate Growth, these Only through decisive interventions will the energy intensity converge to international levels by 2040 are decreased from the current 13 tCO2/inhabitant to 9 tCO2/inhabitant in 2040; in the High Growth case, they

CO2 emissions per capita (tCO2/inhabitant) remain approximately constant at 13.5 tCO2/inhabitant. In contrast, per-capita emissions increase even in the 25.0

Moderate Growth case (to 16.5 tCO2/inhabitant in 2040), if no measures are taken. The emissions saved in 20.0 the period are 2177 MtCO2 (Moderate Growth) or 2849

MtCO2 (High Growth); with the emission costs suggested 15.0 for the High Growth case, the total savings in CO2 externalities would be $73 billion (Moderate Growth) or $98 billion (High Growth). In the power sector, the 10.0 investment costs per tonne of CO2 saved are $41 per tCO2

(Moderate Growth) or $51 per tCO2 (High Growth); in the heat sector, $3.9 (Moderate Growth) or $2.5 per tCO2 5.0 (High Growth).

Local air pollution is another major concern. In our 0.0 visions, major sources of urban air pollution, namely the 2010 2020 2030 2040 Moderate Growth (Baseline) High Growth (Baseline) district heating plants, are fitted with DeNOx and DeSOx Moderate Growth (Vision) High Growth (Vision) technologies. Combining their better efficiencies with a Figure 5.2 greater use of distributed gas for household heating, the CO2 emissions per capita national, cumulative (up to 2040) SOx and NOx emissions With the proposed actions, emissions are contained in all scenarios 60 | An Infrastructure Road Map for Kazakhstan from heating plants will be 49% for SOx and 40% for Energy expediture/household expediture NOx (Moderate Growth) or 53% (SOx) and 42% (NOx) 2.00% (High Growth) lower than in the respective baseline cases.

Of course, these improvements almost invariably require 1.50% additional investments in infrastructure. For the Moderate Growth scenario, the cumulative, additional investment needed for our vision (with respect to the baseline case) 1.00% is about $30 billion for the power sector, and $3.1 billion for heat; for the High Growth case, the figures are $43 billion and $2.3 billion, respectively. We can assess the 0.50% impact of these investments in the final consumer by assuming that they are fully embedded in the heat and power tariff. If this is the case, in the Moderate Growth 0.00% scenario the cost of electricity will be in 2040 52% higher 2010 2020 2030 2040 in our vision than in the baseline case; or 39% higher for Moderate Growth (Baseline) High Growth (Baseline) Moderate Growth (Vision) High Growth (Vision) High Growth (without externalities). The contribution of the energy bill (heat, gas, electricity) to the household Figure 5.3 expenditure will increase by 24% (Moderate Growth) or Household energy expenditure (gas, electricity and heat) relative to 7.5% (High Growth) with respect to the baseline scenario. total household expenditure. The energy component in the household expenditure roughly (The costs above comprise generation and losses, but not doubles by 2040 distribution or other system costs.)

Underinvestment in the transport sector will lead to significant efficiency losses, particularly considering the expected increase in demand. That is, insufficient investment will lead to significant opportunity loss. Considering Kazakhstan’s high road accident rate, the proposed investments in four-lane high quality roads Heat consumption for district heating (Tcal) will generate important highway safety benefits for the 90000 country, reducing fatal and serious non-fatal crashes. 80000 Based on Asian Highway Data, fatality per million vehicle 70000 kilometer on two lane highway is 0.124, and that on four-lane highway is 0.028, about four times lower than 60000 the former. 50000

Of the 13,000 km road of Asian Highway within 40000

Kazakhstan, only 560 km were four lane highway. The 30000 total annual fatalities in 2009 were 213. Without the proposed investment, the annual number of fatalities will 20000 grow to 1138 by 2040, an increase of 628%. With all road 10000 segments becoming four lane highways, the number of 0 fatalities will only increase to 301 by 2040. The fatality 2010 2020 2030 2040 reduction is 827 lives. Moderate Growth (Baseline) High Growth (Baseline) Moderate Growth (Vision) High Growth (Vision) The impact of not implementing the proposed efficiency measures in the District Heating service is the wasted Figure 5.4 energy (Figure 5.4). We estimate that the cumulative Evolution of energy consumption in the Moderate and High Growth scenarios with the proposed measures (Vision) and without (Baseline) energy wasted by not implementing these measures is Arrows highlight the cumulative wasted energy in each scenario between 618 Pcal (Moderate Growth) and 745 Pcal (High Not implementing the proposed measures will result in a Growth), or about 43% of the heat that would need to be cumulative waste of 745 Pcal of heat (High Growth scenario) distributed. The cost of not doing | 61

Baseline case (no measures) Vision case (with measures) The cost of not doing

Heat distributed (Pcal) 1451 833 618 Moderate Growth Cost of heat ($ billion) 19.1 13.3 5.8

Heat distributed (Pcal) 1700 955 745 High Growth 24.5 17.1 7.4 Cost of heat ($ billion) (with externalities: 46.6 ) (with externalities: 24.7 ) (with externalities: 21.9 ) Table 5.1 The cost of “not doing” in District Heating Not implementing the proposed measures will result in a cumulative cost of $5.8 billion -$7.4 billion

Unit Costs ($/ton MSW) The cost of generating this additional, wasted energy 140 is estimated at $5.8 billion to $7.4 billion, before accounting for externalities due to emissions (Table 5.1). 130 $12 $9

Not implementing an MSW management strategy with 120 recovery will have high costs (Figure 5.5). The Baseline case, which assumes that all MSW produced is disposed 110 in landfills meeting the best standards, has environmental impacts that represent a cost of $10 per ton of MSW. In the vision case, these impacts have a cost of $9.1 per 100 ton of MSW. These environmental impacts are related to atmospheric and water body pollution. However, 90 Moderate Moderate High High the largest costs are the opportunity costs that result Growth Growth Growth Growth from not selling recyclables and subproducts such as (Baseline) (Vision) (Baseline) (Vision) heat, electricity and compost. For the baseline case, Oportunity Costs this opportunity cost is estimated at $15.5 per ton of Enviromental Impacts Financial cost MSW disposed, whereas for the vision case it is $2.4. Figure 5.5 Adding the environmental and opportunity costs to the MSW management costs in 2040 annuitized costs, the total cost of MSW management is By 2040, the cost of “not doing” will be $9 to $12 per ton of MSW $135 per ton of MSW entering the system, in the baseline case, higher than the $123 in the vision case (Moderate $ billion Growth scenario). 60 Almaty Astana Aktobe The proposed measures for urban mobility in Almaty, 50

Astana and Aktobe will encourage the use of public 40 transport and non-motorized modes which will result in private transport modal share savings. The avoided 30 costs of externalities such as congestion, CO2 emissions and fatalities will be $16 billion, $1.18 billion and $0.48 20 billion, respectively, in the Moderate Growth scenario 10 (Figure 5.6). 0

In the High Growth (Baseline) case (no measures), the private Moderate Growth Baseline transport modal share in Almaty will be 36% higher. The High Growth Vision total investment need in the High Growth (Vision) case is Figure 5.6 $804 million. Moreover, the avoided costs of externalities Additional cost of congestion, CO2 emissions and fatalities such as congestion, CO2 emissions and fatalities will be $30 (cumulative 2010-2040). Dark colors: vision; light colors: baseline billion. In Astana, the private transport modal share will In Urban Mobility, the cumulative cost of “not doing” will be be 18% higher in the High Growth (Baseline) case. With $30 billion in Almaty, $11 billion in Astana and $1.5 billion in Aktobe (High Growth scenario) 62 | An Infrastructure Road Map for Kazakhstan a total investment of $548 million in the High Growth 2015. The additional capacity budgeted by the Government (Vision) case, this increase is avoided. The externalities up to 2015 (some additional 3.3 GW) would provide the avoided, such as congestion, CO2 emissions and fatalities, demand needs up to 2018 approximately. Diversification will be $11 billion. of generation away from coal and towards CO2 neutral technologies (such as wind or nuclear) is also critical to In the High Growth (Baseline) case, the private transport contain emissions per capita to current levels (about 13 modal share in Aktobe will be 31% higher. A total tCO2/capita) as the country develops. In the mid term, investment of $184 million is needed in the High Growth emission curtailing mechanisms, such as taxation or (Vision) case. The avoided costs of externalities such as trading schemes, should be implemented; for the latter, congestion, CO2 emissions and fatalities will be $1.5 a wider, regional scale is most likely to be needed for the billion. market to function effectively.

• Gasification. The government plans to make piped gas 5.2 Final recommendations available in the main cities is a sound measure that will contribute to decrease energy intensity and pollution. In The energy sector urban areas, obsolete coal-fired units for heat generation • Reforms and incentives to curb energy intensity. are responsible for high levels of urban pollution and Our analysis has shown that supply, demand and should be replaced with gas-fired CHP units as early as economic structure are all responsible for the high levels feasibly possible. of energy intensity of the Kazakh economy. Reforms and incentives are needed to make supply more efficient, • The need to promote of effective energy markets. and to decrease demand, as are measures for economic The low population density and the resource oriented diversification and development. nature of the national economy are significant hurdles for effective markets to develop in the capital-intensive • Energy efficiency on the demand side. The final energy sector. The large electricity requirements of energy demand of households is average in relation to the extraction and transformation industries provide the level of development, and hence not a major cause these companies with the economy of scale required to of the current inefficiencies; this is also the case for become power suppliers. However, this is not always the transport sector. The industrial sector, however, is in the interest of the consumer at large. Currently, about 5 times as intensive in final energy, and about as about 44% of the power sector is controlled by such 3 times in electricity, as countries with a similar GDP per industries and the participation of independent energy capita. Although this is indicative of an industrial sector companies should be encouraged. Against this backdrop, largely based on resource extraction, it also highlights the low population density can provide the conditions opportunities for improvement. Our research pinpoints for vertically-integrated monopolies to develop (e.g. the iron and steel, non-ferrous, and non-metallic integrated generation-distribution-commercialization mineral subsectors, where energy consumption is on in remote areas). Incentives and regulations are needed average 100% higher than if they used the best available in the sector in order to encourage medium and large technologies. Although a small contributor to overall energy companies to participate. energy consumption, the agricultural sector is about twice as inefficient as similar economies, and could also • The rationale for increased regional integration. benefit from incentives to save energy. There are many instances where Kazakhstan could benefit from an increased regional integration in • Generation modernization and diversification. Our the energy sector. The Kazakh energy system is analysis confirms the widely held views on the impact complementary to neighboring ones. Greater levels or of asset age on low efficiencies, high CO2 intensities and regional interconnection will provide export routes for low Quality of Service. Old, inefficient generating assets Kazakhstan’s nuclear electricity in the future, and help are responsible for 15% of the primary energy intensity. with the technical regulation of the intermittent wind Government-led incentives, of which the so-called ‘ceiling power. The levels of backup and spinning power are lower tariffs’ are an example, are paramount in the upgrading in integrated scenarios, and this is reflected in lower process. Additionally, the country needs to build generation electricity costs. Also integration can provide economies of capacity quickly to meet demand. In our scenarios, the scale that are not available to the country alone. Current current power generation capacity will be insufficient by integration efforts (the customs union with Belarus and The cost of not doing | 63

Russia and the CAREC initiatives) should be sustained in costs at border crossing points, as well as affecting the future. the extent and intensity of trade. Efforts to reduce these delays should follow best regulatory practices The transport sector for technical and standards regulations, speedy dispute • Connectivity as an investment priority. settlement procedures, customs valuation of imports, and Kazakhstan’s size and low population density require a significantly reduce the requirement for ‘transactions greater amount of transportation infrastructure on a passports’. per capita basis in order to ensure effective connectivity among domestic economic centers and access to regional The urban sector markets. Restructuring the network from a Soviet Union • Rehabilitation of DH infrastructure. The heat orientation to meet the needs of modern Kazakhstan will distribution network is generally over 25 years old and continue to drive transportation investment. Government obsolete in 80% of its extension. An intervention must expenditure on new capacity projects (reconstruction, bring the service quality close to that in the reconverted new construction and modernization) should continue to systems of Eastern Europe, particularly in terms of heat be the priority for the transport sector. losses and number of failures per km.

• Safety as part of level of service. Fatalities on • Need for training. The training and certification Kazakhstan highways are high and the country needs to of technical staff for installation, operation and take a systems perspective that includes engineering design, maintenance of modern DH equipment is vital. high quality roads, driver education, law enforcement, and national leadership that recognizes highway safety as a • Competitive and functional market. The state of public health problem while at the same time improving the DH infrastructure has become the major obstacle transportation levels of service in general. for the development of an effective urban heat market due to the lack of interest from private stakeholders, • Logistics development under increasing pressure. associated to the investment risks. Attracting foreign Domestic demand and external competition increases the investment may require the government to participate pressure for logistics development. Within Kazakhstan, in the upgrading of the DH distribution infrastructure. achieving accelerated industrial diversification requires Also regulatory and political barriers are preventing the inter-modal logistics facilities, including air cargo. development of an effective and competitive market- Inter-modal air cargo facilities at Almaty and Astana will oriented sector. District heating is still a broadly regulated serve as a viable option for high-value time sensitive industry where tariffs are set by the state Agency for goods. The competition for Europe-Asian transit Regulation of Natural Monopolies. Heat prices are demands efficient logistic practices consistent with global comparatively low when benchmarked against other standards, and significant modernization of rail, road, countries with a similar GDP per capita. Current heat inter-modal facilities, ICT investment and education. tariffs basically cover operational costs, and do not compensate for the substantial investments required to • Assessing and reforming transportation finance. renew and modernize the distribution network. The heat In order to reduce reliance of transport infrastructure pricing system should be revised and restructured. maintenance and investment on government general revenue, Kazakhstan needs to ensure that the collection • Affordability of heating services. The expected and the usage of current transport-relevant taxes, fees, increases in heating tariffs as an outcome of any major charges, and tariffs reflect cost-based principles. In restructuring of the district heating market may affect addition, a national transportation fund should help to the living conditions of some layers of Kazakh society. A integrate revenue sources from each mode, distribute system of social or lifeline tariffs should strike a balance funds to each mode, and to leverage private sector between the commercial feasibility of heating services resources in the development of a multi-modal transport and affordability for these social strata. system. • MSW collection coverage and landfilling. • Rationale for Regional Integration. Requiring a A major problem in MSW management is the low high number of documents (e.g. documents to verify collection coverage outside the largest cities and the pricing of import/export transactions, also known as lack of proper landfilling. All open dumps and landfills in ‘transactions passports’) for trade increases delays and unsatisfactory condition should be progressively closed, 64 | An Infrastructure Road Map for Kazakhstan while still increasing collection to cover all settlements. in urban areas, 82%, shows room for improvement. This requires large investments in collection equipment There is a need to expand water supply networks and (vehicles and containers), and new landfills meeting the rehabilitate the existing ones to increase quality of best international standards. It is also important to coach service. Increasing metering coverage together with the local authorities to design their own MSW management reduction of water losses will increase revenue. plans and to train specialized staff. • Performance of sanitation services. The existing • Material and energy recovery from MSW. In the wastewater treatment facilities are generally reported long run, Kazakhstan’s MSW strategy should also rely on as technically and operationally unsatisfactory, which material and energy recovery. In spite of higher direct contributes to the pollution of water bodies. The current costs when compared to landfilling, these options are level of service in urban areas, 73%, must be increased economically competitive due to the extra revenues by expanding sewer networks and rehabilitating and from recyclables, heat and electricity. Also, material building wastewater treatment plants in order to protect recovery creates more jobs than disposal and decreases water sources. the need to import paper, plastics, or rubber, among other materials. We estimate that by 2040 the economic • Fatalities in Urban Mobility. Our analysis has shown potential for material recovery will be $620 million per that Kazakh cities currently present a rate of fatalities year. much above the observed trend in Europe. Both Eastern and Western European countries show a considerable • Private sector participation in MSW. Kazakhstan decrease in road fatalities, mostly due to a substantial needs a well-designed, comprehensive and stable set of transfer of the modal share towards public and non- policy tools that can encourage private sector investment motorized transport, together with strong investments in (e.g. feed-in tariffs for heat and electricity from waste- traffic calming, regulation, enforcement and education. to-energy treatments). In the treatment of MSW, where This is a pattern that Kazakhstan can copy. private sector participation is low, a small number of PPP should be carefully set up in the next five to ten • Costs of congestion in cities. To avoid the high costs years. The success of these will pave the way for further of congestion in the future, it is crucial to place a strong PPP initiatives. The adoption of Extended Producer emphasis in public transport and soft modes (walking and Responsibility (EPR) schemes, in which manufacturers cycling) in the main cities, together with the restriction are made financially responsible for the management of private transport. These policies not only avoid of the product end-of-life, will ensure that the private congestion, but they also promote more sustainable cities sector invests in the collection and treatment of waste with lower pollutant emissions. streams included in the EPR schemes (e.g. vehicles, packaging, electronic and electric equipment). The EPR • Institutional reforms for Urban Mobility. To approach should be tested in specific sectors, such as overcome the lack of transparency perceived by foreign the automotive industry, before extending it to other investors, institutional reform must be implemented manufacturing sectors. and several regulatory pieces are required. Measures like urban mobility surveys, the implementation of mandatory • Uneven distribution of water resources. Master Plans, the creation of Urban Mobility agencies, Water availability depends on the high percentage and the development of a monitoring system to assess of water flowing from neighboring countries, the performance of current systems are a pre-regulatory highly seasonal character of precipitation, the uneven requirement to pave the way for a successful institutional distribution throughout the country and the pollution reform. of groundwater and surface water. The consolidation of transboundary agreements is needed as is pollution control from agriculture and wastewater discharges.

• Performance of water supply services. Water supply networks are in a poor condition causing frequent breakdowns and high average water losses, resulting, in general, in a low service performance with intermittent supply and low pressure levels. The current level of service Notes | 65 Notes

1 Environmental Performance Reviews: Kazakhstan. Second Review. United Nations Committee on Environmental Policy, Economic Commission for Europe, 2008.

2 Agency of Statistics of the Republic of Kazakhstan

3 Reported by local experts to be around 35%.

4 http://eeas.europa.eu/delegations/kazakhstan/press_corner/all_news/news/2011/20110303_01_en.htm and local experts.

5 ADB – TA 7558 – Central Asia Regional Economic Cooperation Power Sector Master Plan. Asian Development Bank, 2010

6 Regional Review: Water supply and sanitation in the countries of Central Asia and Southern Caucasus. Global Water Partnership, Central Asia and Caucasus, 2009

7 The program “Ak Bulak” for 2011-2020, Government of the Republic of Kazakhstan, 2011

8 Agency of Statistics of the Republic of Kazakhstan

9 The program “Ak Bulak” for 2011-2020, Government of the Republic of Kazakhstan, 2011

10 Porter, M.: Kazakhstan’s Competitiveness: Roadmap towards a diversified economy.Institute for Strategy and Competiveness. Harvard Business School, 2005

11 Consultants mission to Kazakhstan, October 2011

12 Statistical Review of World Energy 2011, BP

13 This figure is variously reported in the different sources. The upper limit is fromEnergy Trade and Cooperation Between the EU and the CIS Countries. CASE Network Reports

14 International Energy Statistics 2010, US EIA

15 Presidential speech Socio-economic modernization as the main vector of development of Kazakhstan, 27 January 2012

16 The Modernization Program of Housing and Utilities of the Republic of Kazakhstan for 2011-2020, Government of the Republic of Kazakhstan, 2011.

17 Central Asia Regional Economic Cooperation Power Sector Master Plan, TA 7558, ADB, 2011

18 Hierarchy 1: Arterial road network; Hierarchy 2: Distribution network; Hierarchy 3: Local distribution; Hierarchy 4: Local streets