Tariff policy

The operations of “Samruk-Energy” JSC subsidiaries and joint ventures, which are natural monopoly entities, entities of the competitive and socially significant markets, are regulated by the laws of the Republic of Kazakhstan “On power industry”, “On Natural Monopolies” , Entrepreneurial Code of the Republic of Kazakhstan and other legislation of the Republic of Kazakhstan.

Tariff regulation, depending on the type of business of energy companies, falls within the competence of the Committee for Regulation of Natural Monopolies and Protection of Competition of the RK Ministry of National Economy (hereinafter – the Committee) or the industry-specific ministry – the Ministry of Energy (hereinafter – ME).

Tariffs for electricity for energy-producing organizations for 2016–2018 were set at the level of ceiling tariffs for power plants earlier approved for 2015.

Based on the Concept for the Development of the Fuel and Energy Sector (FES) of Kazakhstan until 2030, adopted in 2014, the Capacity Market was introduced in 2019 as an effective mechanism for providing the industry with a sufficient level of investment, which will have a favorable effect on the market in the long term.

Between 2019 taking into account the introduction of a capacity market for energy-producing organizations, the following have been established:

— cap tariffs for capacity, including the costs of investment projects and repayment of principal (for credit funds raised for the implementation of investment projects);

— cap tariffs for electricity, including the costs of operating and interest expenses (for credit funds raised for the implementation of investment projects).

Tariffs for the supply of electricity produced by RES using facilities, are fixed and were approved by the Republic of Kazakhstan Government depending on RES technology (separately for wind, solar and other resources) and these tariffs are subject to annual indexation. At the same time, the financial and settlement center acts as a buyer, and an energy-producing organization acts as a seller.

The Committee regulates tariffs for the transmission and distribution of electricity for energy transmission companies, for heat production and tariffs for energy supply. Regulation and control by the Committee is carried out in strict accordance with the legislative and regulatory legal acts of the Republic of Kazakhstan. Social and political issues significantly affect tariff decisions. Economic, social and other policies of the Government of the Republic of Kazakhstan may have a significant impact on the Group’s operations.

Weighted average tariffs for electricity generation

The following tariffs were in effect during the reporting period: Capacity market began its operation in the RK from January 1, 2019. The income received by electricity producers is divided into two components – income from the sale of electricity (allocated to cover current expenses) and income from the provision of services to maintain the availability of electricity capacity (allocated to repay principal and for investments).

The unified cap tariff for the service for maintaining the availability of electric capacity for all EPOs in the amount of 590 thousand tenge / MW * months was approved. Electricity tariffs were approved for the period from 2019 to 2025.

However, the approved tariffs do not provide for profitability and indexation by year. Moreover, according to paragraph 2 of Article 12-1 of the Law of the Republic of Kazakhstan “On Power Industry”, electricity tariffs are adjusted annually, if necessary, With the introduction of the capacity market, the average weighted tariffs for electricity in 2019 for some plants were below the 2018 tariff level.

So, at the average weighted tariff in the Republic of Kazakhstan for Ekibastuz State District Power Plant-1 in 2018 – 7,28 tenge / kWh, the average weighted tariff for 2019 were set at the level of 5,87 tenge/ kWh. For Shardarinsk HPP, at an individual tariff 9,50 tenge / kWh that was in effect in 2018, the average weighted tariff taking into account the capacity market for 2019 was set at the level of 4,86 tenge/kWh.

In connection with the approval of deficit tariffs for stations by the RK ME, in accordance with regulations of RK, EPO submitted applications for adjusting cap tariffs for electricity to the RK ME before September 1, 2019. As a result, from November 1, 2019, the RK ME approved the following cap tariffs for electricity. For Ekibastuz SDPP-1, the tariff was maintained at the level of 2019 – 5,76 tenge / kWh.

A significant increase in tariffs for Moynak HPP and Shardarinsk HPP stations was made in connection with ongoing large-scale investment programs and the inclusion of interest of borrowed funds in the tariffs, an increase in depreciation expenses and property tax. For Ekibastuz SDPP-2 stations and Almaty Power Plants, tariffs were increased by 6 and 4 %, respectively, due to an increase in operating expenses.

EPO name
tenge/kWh
From January 1, 2019 From November 1, 2019 (+,-) %
“Ekibastuz SDPP-1” LLP 5,76 5,76 14,5% 0 100%
“Ekibastuz SDPP-2 Plant” JSC 7,31 7,73 8,0 % 0,42 106%
“Almaty Power Plants” JSC 8,33 8,70 0,1 % 0,37 104%
“Moynak HPP” JSC 7,14 12,02 6,4 % 4,88 168%
“Shardarinsk HPP” JSC 3,25 8,72 6,4 % 5,47 268%

For 2020, the Company worked with the RK Ministry of Energy on the approval of investment tariffs for plants implementing large-scale investment projects – “Moynak HPP” JSC, “Shardarinsk HPP” JSC and “Almaty Power Plants” JSC.

EPO name
thous. tenge /MW*month
Volume Individual tariff Period
“Almaty Power Plants” JSC 69,5 MW 4 168,60 2020–2024
“Moynak HPP” JSC 298 MW 2 563,67 2020–2026
“Shardarinsk HPP” JSC 61 MW 4 069,3 2020–2028

From 2021 onwards, electricity and capacity tariffs are projected taking into account the consumer price index. Tariffs for the supply of electricity produced by renewable energy sources are fixed and approved by the RK Government depending on renewable energy technology (separately for wind, solar and other sources) and are subject to annual indexation.

Tariffs for heat production, tenge/Gcal

Name 2017 actual 2018 actual 2019 actual 2020 forecast 2021 forecast
“Almaty Power Plants” JSC 3 363 3 917 3 354 3 444 3 514
“Ekibastuz SDPP-2 Plant” JSC 740 816 809 849 867
“Ekibastuz SDPP-1” LLP 352 446 572 438 438

As for natural monopoly entity, the legislation provides for the approval of long-term (5+ years) ceiling tariff levels for organizations producing heat, with the inclusion of an investment component in them and annual indexation of costs.

The Committee approves ceiling tariffs. However, an increase in tariffs is carried out no more than once a year and there are risks of maintaining tariffs without increasing, in cases of a plant’s costs escalation for objective reasons.

Tariffs for electricity transmission services, tenge/kWh

Name 2017 actual 2018 actual 2019 actual 2020 forecast 2021 forecast
“Alatau Zharyk Company” JSC 5,83 5,89 5,46 5,95 6,92

For “Alatau Zharyk Company” JSC, which is also a natural monopoly entity, long-term ceiling tariffs have been approved based on tariff estimates with an investment component for 2016–2020 for regional energy transmission companies (RETC); an authorized body adjusts them if necessary.

However, tariffs are increased no more than once a year, in cases of an increase in RES costs for objective reasons (adoption of unowned networks and equipment, etc.). There are also risks of maintaining tariffs without increasing.

Tariffs for electricity sale by ESO, tenge/kWh

Name 2017 actual 2018 actual 2019 actual 2020 forecast 2021 forecast
“AlmatyEnergoSbyt” LLP 16,38 16,42 16,11 18,29 20,27

The energy supplying organization “AlmatyEnergoSbyt” LLP is an entity of a socially significant market and is regulated by an authorized body. The tariff calculation includes operating, financial and investment components.

There are risks of artificial containment of tariff growth by the Regulator in order to maintain social stability of the population in the regions. For ESO, differentiation is maintained for individuals according to consumption norms, electricity for legal entities is supplied at average selling rates.

Coal sales price, tenge/tons

Name 2017 actual 2018 actual 2018 actual 2020 forecast 2021 forecast
“Bogatyr Komir” LLP 1 944 2 013 2 120 2 302 2 389

The selling price of “Bogatyr Komir” LLP’s coal is approved independently by the price list for consumers of the Republic of Kazakhstan for 3 groups of consumers (energy sector at KTZh’s connecting station, energy sector at the coalgathering station, public living needs). Regulation is performed on the basis of the Entrepreneurial Code of Committee for Regulation of Natural Monopolies and Protection of Competition under the RK Ministry of National Economy.

Liquidity and financial stability indicators

Compliance with covenants from external lenders:

Covenant Standard 2019 Actual 2020 Forecast Note
Debt/EBITDA (EBRD,HBK) No more than 3,5 3,31 3,04 Is complied
EBITDA/interest rate (EBRD) No less than 3,0 3,34 3,97 Is complied
Debt/Equity (EDB and KDB) No more than 2,0 0,56 0,65 Is complied

At the end of 2019, “Samruk-Energy” JSC (hereinafter – the Company) complied with lenders’ financial and nonfinancial covenants, which are set on a semi-annual basis.

According to the 2019 results, “Samruk-Energy” JSC reached the target indicators for financial stability ratios set by the shareholder.

Debt burden reduction

According to the results of 12 months of 2019, the consolidated debt of the Company amounted to 338 bln. tenge, the decrease in debt for the reporting period compared to the results of 2018 (382.9 bln. tenge) amounted to 45 bln. tenge. Debt reduction in 2019 is associated with planned repayment of debts and early repayment of debts in the amount of 25.6 bln. tenge.

Description 2017 actual 2018 actual 2019 actual 2020 forecast 2021 forecast
Debt/EBITDA 4,64 3,18 3,31 3,04 2,32
Debt/equity 0,75 0,65 0,56 0,65 0,53
Current liquidity 1,36 1,04 0,70 0,78 0,93

As part of mitigating of currency risks, the Company implemented the following activities in 2019:

— refinancing of foreign currency liabilities of “Moynak HPP” JSC from the CDB for 136 mln. US dollars in tenge. As part of this deal, a guarantee of the Fund for 50 mln. USD was released, the level of foreign currency liabilities in the loan portfolio was reduced from 17 % to 3 %.

— additionally, the currency liabilities of “Moynak HPP” JSC from “KDB” JSC in the amount of 11.7 mln. were converted into tenge. The deal allowed to reduce the level of foreign currency liabilities in the group’s loan portfolio from 3 % to 1,5 %.

— reservation of the full amount of obligations under the EPC contract in euros (balance hedging) was ensured, which made it possible to mitigate the risk of rising project costs taking into account currency fluctuations.

Interest expense reduction

At the same time, according to the 2019 results, a decrease in interest expenses was achieved owing to scheduled and early repayments of debt, refinancing of foreign currency liabilities and a reduction in interest rates on existing loans of “Samruk-Energy” JSC group of companies.

Credit Rating (Fitch Ratings)

According to the 2019 results, the long-term ratings of “Samruk-Energy” JSC from the international rating agency Fitch Ratings were kept at “BB”; the outlook is “Stable”.

Fines

The total amount of significant fines across “Samruk-Energy” JSC group of companies – 4,023,837 thous. tenge. The authorized state agencies (labor inspection, workplace safety, fire safety, energy supervision and control, sanitary and epidemiological supervision) checked for compliance with legal requirements and issued 9 improvement notices without imposing financial sanctions. Cases associated with hindering competition and violation of antimonopoly legislation,which occurred during the reporting year, were not reported.