MINISTRY OF INDUSTRY AND NEW TECHNOLOGY OF THE REPUBLIC OF

REPUBLIC OF KAZAKHSTAN: Electricity Market Development State monopoly structure of the energy sector (1992-1994)

State electricity Industrial Groups in company Energy and "Kazakhstanenergo" Electrification Consumers

Ministry of Energy Interregional Dedicated and Coal Industry Dispatching Office of associations and of the Republic of Kazakhstan enterprises Construction and Kazakhstan installation contractors

Kazenergotechinspek Research and design ciya institutes Dedicated repair facilities As a result of implementing Stage I of the market reforms in 1995-1996: • separation of the functions carried out by regional utilities for generation, transmission and distribution of electricity; • all power plants were converted into joint stock companies with economic and legal independence; • joint regional power distribution companies (JSC RPDC) were established on the basis of 110-0.4 kV power networks; • Publicly-traded Kazakhstan Electricity Grid Operating Company KEGOC (JSC KEGOC) was established on the basis of 1150 - 220 kV power networks and the Central Dispatch Service of the Unified Power System of Kazakhstan (UPS CDS); • business entities in the electricity market were allowed to conclude direct contracts for the purchase of electricity; • large-scale privatization of power plants was launched; • central regulatory agency for heat and electricity prices (tariffs) was established; • district heat supply functions were transferred from the central government to local authorities. Power Market Structure in the Republic of Kazakhstan following Stage II of reforms (1997-2003)

JSC KEGOC Regional power National-level national power supply systems power plants grid (SS)

AES-ST General-purpose Ekibastuz (4000 CHPP Central Heat consumers MW); Heat distribution Dispatch networks JSC Ekibastuz Service Power plants Energy Centger (industrial Industrial (1000 MW); 9 branches enterprises) consumers of main District boiler Residential energy JSC UPS power houses consumers (2100 MW); networks Regional Power Agricultural with a Distribution consumers regional Companies chain of dispatch Municipal networks hydropower center plants (1708); Direct wholesale TPP-2 consumers of (608 MW) electricity

Heat Power Stage III of developing market relations in the power industry of Kazakhstan (2004-2006) aims to address the following issues in the existing wholesale and retail electricity markets: • Possible reduction in reliability of the UPS of Kazakhstan due to conflicting interests of consumers and producers of electricity in the absence of market-based mechanisms for resolving imbalances between actual and contractual values of output and consumption of electricity, as well as the tapping of power reserves; • The need for de-monopolization of a series of vertically integrated regional power companies; • Lack of competition in supply of electricity to retail customers; • The need for separating power transmission functions in regional power companies from sales of electricity to retail consumers. SIMPLIFIED DIAGRAM OF THE ELECTRICITY MARKET following Stage III (ONGOING)

output transmission distribution Distribution ULTIMATE Power plant KEGOC of electricity of electricity company of electricity CONSUMER

ENERGY PROVIDERS Payment for electricity price

4 Model of the electricity market after the reforms

Power generation companies

Bilateral Electricity Ancillary Centralized tender services contract balancing market market market

Wholesale buyers (power suppliers, transmission companies and large consumers)

7 Advanced model of a competitive retail electricity market

Retail market

Regional Power Grid Company (RPGC) transmission transmission

purchase consumers

supply Energy providers (EP) market Wholesale Retail

Retail market players include:  Power generation companies;  Regional Power Distribution Companies;  Power transmission companies;  Last resort supplier;  Energy providers;  Retail consumers. Current model of the electricity market

Power generation companies

Producers are divided into 13 price groups, with cap rates set for each group TransCo’s will be divided into price in exchange for investment commitments (3.9-10.34 tenge/kWh in 2013) groups based on the following criteria: type of TransCo and unit power of generating equipment

Bilateral Electricity Ancillary Capacity contract Centralized tender service market balancing market market market (in simulation mode) (from 2016)

Wholesale buyers (power suppliers, transmission companies and large consumers) System operator

9 CAP RATES (under Resolution of the Kazakh Government No.392 dated March 25, 2009) 2009 2010 2011 2012 2013 2014 2015 Group 1 (GRES-1 plant, 2, UPS) (3) 3.6 4.68 5.6 6.5 7.3 8.0 8.8 Group 2 (ZhGRES) (1) 5.9 6.5 6.9 7.9 8.3 8.5 8.7 Group 3 (Astana - Energy, KarEnergoTsentr, Pavlenergo 4.3 4.94 5.4 5.9 6.4 6.9 7.5 CHP-2, 3, UKTETS, Ars Mitl) (5) Group 4 (Kar GRES-2, Aluminum of Kazakhstan, 3.5 3.8 4.1 4.55 5.1 5.5 6.0 CHP, Zhezkazgan CHP) (4) Group 5 (Petrop CHP, Ridder CHP, JSC SSGPO) (3) 3.6 4.1 4.8 5.45 6.25 7.15 8.05 Group 6 (Corp CHP KarGRES-1 Jet-7) (3) 6.3 7.3 7.7 7.9 8.1 8.2 8.3 Group 7 (3 energoort, CHP , CHP 4.9 5.4 5.9 6.3 6.7 7.0 7.3 TarazEnergoTsentr PCG - energy center ) (5) Group 8 ( CHP, Tekeliysky CHP, LLP Shakhtynsk 4.5 4.95 5.4 5.98 6.6 7.2 7.5 CHP, JSC Pavlodarenergo, SCE Teplokommunenergo) (5) Group 9 ( CHP, Ural CHP, Kostanai CHP) (3) 5.28 5.56 5.88 6.28 6.7 7.12 7.6

Group 10 (AlES CHP-1, CHP-2, CHP-3, Kapsh. HPP) (1) 5.74 6.74 7.1 7.4 7.8 8.2 8.6 Group 11 (MAEC-Kazatomprom) (1) 7.23 7.23 7.23 9.54 10.34 10.96 11.62 Group 12 (LLP Zhanazhol GTPP, AZF CHP, JSC TNK 5.3 5.8 6.4 7.0 7.7 8.4 8.8 Kazchrome, LLP Ural gas turbine TPP, LLP Crystal Management) (4) Group 13 (Buh.HPP, UK HPP Shard. HPP, Shulb. HPP, 2.79 3.0 3.3 3.63 3.9 4.3 4.5 10 JSC Moynak HPP) (5) Electric power market model

STATE

Obligation to Cap rate State support purchase power

Standby

power

,

Requests

) )

SO ( TENDER »

Investors (MINT) Existing Pneeded

to generation BIDDING

determine KOREM JSC facilities EP the price, «KEGOC Distribution Companies Distribution

value and consumers ,

JSC Providing for terms of

Projected power – operator bidding (centralized standby power

balance (SO) purchase System operator at a flat price

Standby power New Regional Power Regional generation Other Other than by than by facilities bidding 6 Enactment of the Law will allow switching to a new model (starting from 2015)

output System transmission distribution Power plant RPGC Consumers of electricity operator of electricity of electricity

tariff Payment for for Payment electricity Distribution charge Transmission charge

tariff Energy providers Payment for electricity цена

Capacity Capacity Capacity charge System operator Capacity charge price tariff

10