Goal 2. Ensure KEGOC’S efficient operations

Tariff Policy

To fulfil the mission of ensuring the NPG reliable operation, KEGOC has the main income source — cap tariffs for regulated services, which are approved by the authorized body for natural monopolies.

When implementing the large infrastructure investment projects, the company adheres to the tariff gradual increase policy. Under the Law on Natural Monopolies of the Republic of Kazakhstan the following KEGOC services refer to the natural monopoly services:

  • electricity transmission via NPG;
  • technical dispatching of electricity supply to the grid and electricity consumption;
  • management of electricity generation and consumption balancing.

Once established, KEGOC has been consistently improving the tariff policy of regulated services and playing an active role in activities of relevant organisations relating to the tariff policy improvement.

In accordance with the legislation KEGOC shall submit applications to the Committee for Regulation of Natural Monopolies, Protection of Competition and Consumer Rights of the Ministry of National Economy of Kazakhstan (the authorized body regulating natural monopolies) seeking approval (revision) of tariffs for regulated services referring to the sphere of natural monopoly.

The Company’s tariffs are set on a costs-plus basis, whereby the Company, in order to set a tariff for a certain period of time, considers the corresponding estimates of operating and financial costs and a fair rate of return on capital.

In 2013, KEGOC started rendering services at the cap tariffs. The principles of calculating the cap tariffs are similar to the calculation of annual tariffs except that the cap tariffs shall be approved for the period of up to five years. The cap tariffs make it possible for the Company to plan its capacity for long periods, and shareholders have the opportunity to get more information about the Company.

In accordance with the established procedures, KEGOC applied to the authorized body regulating natural monopolies seeking for approval of the cap tariffs and tariff estimates for KEGOC’s regulated services for a long-term period. Based on the consideration results, Order No. 388-OD dated 21 September 2015 approved the cap tariffs and tariff estimates for KEGOC’s regulated services for a five-year period from 01 January 2016 to 31 December 2020.

tenge per kWh 2016 2017 2018 2019 2020
electricity transmission 2.080 2.246 2.496 2.823 2.797
technical dispatching 0.231 0.234 0.249 0.306 0.306
generation and consumption balancing 0.084 0.086 0.091 0.098 0.098

In 2018, the following temporary compensatory tariffs were applied for the regulated services of KEGOC:

Service (KZT/kWh) Period Grounds Decision
01/01/2018–
30/06/2018		 01/07/2018–
31/12/2018		 Based on the
consideration
of the report on
execution of tariff
estimates for
2016 and 2017		 of the
authorized
body
regulating
natural
monopolies
electricity transmission 2.4957 2.4928
technical dispatching 0.2489 0.2482

In addition, the authorized body approved the decision of KEGOC to reduce, from 1 August 2018 to the end of 2018, the cap tariffs for technical dispatch of supply to the grid by 5% (from 0.2482 to 0.237 KZT/kWh), and for managing of electricity production and consumption balancing by 3% (from 0.091 to 0.088 KZT/kWh).

The decision to reduce KEGOC cap tariffs was made in accordance with the current legislation so that to achieve a balance of interests of consumers and the natural monopoly considering the actual growth in the volume of technical dispatching of electricity supply to the grid and managing of electricity production and consumption balancing for the previous period of 2018.

At the end of 2018, as part of the fulfilment of the instructions of the Head of State, the Ministry of Energy of the Republic of Kazakhstan decided to reduce the cost of electricity from 1 January 2019. Considering this decision, and the planned growth in the volume of services provided by KEGOC with the view to support the population, small and medium-sized businesses, the Company decided to reduce tariffs for its services to the level of 2018.

Service Approved tariff caps
for 2019
(tenge per kWh)		 Tariff caps for 2019,
including reduction
(tenge per kWh)
Electricity transmission 2.823 2.496
Technical dispatching 0.306 0.237
Managing of production and consumption balancing 0.098 0.088

According to the approved procedures the Company arranges public hearings to report its activities with respect to regulated services to strengthen the protection of consumers’ rights, ensure transparency of activities for consumers and other interested parties. The basic principles of public hearings are publicity, transparency of the Company’s activities and observance of the balance of consumer interests.

Financial and Economic Performance

The financial and economic results of 2018 were affected by the growth in the volume of rendered regulated services, revaluation of fixed assets classified as Constructions, and the partial early repayment of the borrowed loan at the end of 2017.

Analysis of the implementation of planned income and expenditure indicators, KZT million

2018 plan 2018 actual Deviation Main reasons for deviations
Consolidated income 173,225.15 194,194.04 +12.1%
operating income 171,268.92 175,797.39 +2.6% Due to the increase in revenues from regulated services, from the sale of electricity to compensate for hourly deviations of the actual cross-border balance flows. At the same time, the decrease in revenues due to decrease in revenues from the sale of purchased electricity (Uzbekenergo did not purchase electricity), from the sale of purchased electricity produced by renewable energy sources by FSC RES and from the sale of power control services.
non-operating income 1,956.23 18,396.65 The increase is due to the growth in the foreign exchange gain, income from recoverable impairment loss of the fixed assets classified as Construction, income from the interest on bank deposit operations, income from the interest on securities, income due to change in the fair value of short-term securities, and income from equity participation in other organizations (share of profits of associated enterprises).
Consolidated expenditures 129,259.32 143,169.22 +10.8%
cost of sales 107,082.58 105,840.19 -1.2% Due to the reduction of expenses on technical losses, on the purchase of electricity to compensate for non-contractual withdrawal by Uzbekenergo due to the lack of electricity supply, and on power regulation provided by third parties. In addition, there is decrease in labour costs due to the postponement of the introduction of a new procedure for evaluating activities, expenses on labour and environmental protection, on fuel and lubricants, etc. At the same time, expenses on depreciation deductions increased due to the operating system revaluation, purchase of electricity from the Russian power system to compensate for imbalances, transfer of electricity via the third-party networks, purchase of electricity generated by renewable energy sources.
2018 plan 2018 actual Deviation Main reasons for deviations
general and
administrative expenses		 16,848.22 15,499.09 -8% Due to the reduction of expenses on consulting services based on capitalization, on labour costs, on the costs of technical support of information systems of the business transformation centre, on travel expenses, as well as other expenses of the period. At the same time, property tax expenses increased.
Consolidated income 178,134.83 194,194.04 +9.0%
Operating income 152,379.82 175,797.39 15.4% The fulfilment is mainly due to the increase in revenues on regulated services, as well as revenues from operations on the purchase and sale of electric energy by FSC RES.
Non-operating income 25,755.00 18,396.65 -28.6% Due to the decrease in the foreign exchange gain, decrease of revenues from operations with deposits, from changes in the fair value of long-term trade receivables, from equity participation in other organizations (the share of profits of associated enterprises). At the same time, there is increase in the income from recovered impairment loss of fixed assets classified as Construction, income as interest on securities, changes in the fair value of short-term securities.
Consolidated
expenditures		 135,493.13 143,169.22 +5.7%
cost of sales 89,399.37 105,840.19 +18.4% The excess is due to the increase in expenses for the purchase of electricity produced by renewable energy sources, depreciation deductions due to the revaluation of fixed assets, technical loss of electricity, purchase of electricity from the Russian power system to compensate for imbalances, remuneration of production personnel, transmission of electricity via the third-party networks.
general and
administrative expenses		 13,142.39 15,499.09 +17.9% The increase is mainly due to the accrual of provisions, property tax and labour costs. At the same time, the expenses for consulting services and medical insurance for employees deceased.

All of the above factors influenced the operating profit and financial result based on 2018 results.

Any information concerning the plans referred to in this Annual Report is forward-looking and reflects the current views of KEGOC with respect to future events and is exposed to certain risks, uncertainties and assumptions relating to the business, financial condition, operating results, growth strategy and liquidity of KEGOC.

International Cooperation

About cooperation with economic entities of power systems in the neighbouring countries as part of the parallel work

In its activities, KEGOC interacts with power systems of other states, such as:

  • Russia (Federal Grid Company of Unified Energy System, System Operator of Unified Energy System, Inter RAO);
  • Kyrgyz Republic (Power Plants OJSC, Kyrgyzstan NPG OJSC);
  • Uzbekistan (Uzbekenergo OJSC);
  • Tajikistan (Barki Tojik OSHC).

Russian Federation

In 2018, KEGOC continued the relations with the Russian counterparts with respect to agreements for parallel operation signed in 2010 in pursuance with the intergovernmental Agreement on some measures to ensure the parallel operation of power systems of Kazakhstan and Russia dated 20 November 2009. The following agreements govern the basic technical and financial obligations of the parties in parallel operation of Kazakhstan UPS and Russian UPS:

  • agreement for parallel operation of power systems of the Republic of Kazakhstan and the Russian Federation;
  • agreement for electricity procurement to cover the hourly deviations of the actual interstate balance flows of electricity vs. the plan between KEGOC and Inter RAO;
  • agreement for electricity transmission (transit) services via KEGOC networks.

In 2018, there were electricity purchase and sale transactions under the agreements between KEGOC and Inter RAO to compensate for hourly deviations of the actual cross-border balance flows vs. the plan on the border of Kazakhstan UPS and the Russian UPS.

In 2018, KEGOC under the contract with FGC UES transmitted electricity via KEGOC’s networks from the Russia through Kazakhstan back to the Russia.

Central Asia

In 2018:

  • unscheduled consumption of electricity by the power system of Uzbekistan from the UES of Kazakhstan was not carried out;
  • KEGOC provided services to regulate (frequency) capacity of the power system of Uzbekistan in accordance with the contract;
  • to regulate unscheduled power flows between the power systems of Kazakhstan and Kyrgyzstan, in accordance with instruction of 6 Intergovernmental Council, the purchase and sale of electricity was carried out between KEGOC and Kyrgyzstan NPG.

During the reported period, the work with respect to other aspects of the parallel operation with power systems of Central Asia continued.

In 2018, KEGOC participated in the meetings of the 33rd Coordination Commission of the Coordination Electric Power Council of Central Asia and the 29th Coordination Electric Power Council of Central Asia held on 24-25 October 2018 in Dushanbe (Tajikistan), meetings of the 32nd Coordination Commission of the Coordination Electric Power Council of Central Asia and the 28th Coordination Electric Power Council of Central Asia held on 20-21 June 2018 in Cholpan-Ata (Kyrgyz Republic).

CIS Electric Power Council

In 2018, two meetings of the CIS Electric Power Council were held: 52nd meeting (in absentia) and 53rd meeting.

The 53rd meeting of the CIS Electric Power Council took place on 2 November 2018 in Nur-Sultan in the central office of KEGOC. It was attended by delegations of state authorities and companies of the electric power industry from Azerbaijan, Armenia, Belarus, Kazakhstan, Kyrgyzstan, Moldova, Russia and Uzbekistan, and representatives of the Executive Committee of the CIS, Eurasian Economic Commission and Energiya Coordinating Dispatch Centre.

The meeting participants discussed the most topical issues of interstate cooperation of the CIS electric power systems. In particular, heads of CIS delegations presented the information on the preparation of the power systems of the Commonwealth states for the autumn-winter period 2018-2019, and a number of documents of the Commission for Coordination of the Operational and Technological Cooperation of the energy systems of the CIS and Baltic states (CCOTC) were discussed.

As a result of the meeting, amendments and addenda to the Strategy (main areas) of interaction and cooperation of the CIS member states in the electric power sector were reviewed and approved, documents regulating personnel training, activities of CIS EPS working groups and the work plan of the CIS Electric Power Council for 2019 were considered and adopted. Also, it was decided to award the title of honour ‘Honourable Power Engineer of the CIS’ to a number of representatives of the CIS electric power systems.

KEGOC employees participated in the meetings of the following working groups of CIS EPS:

  • the 27th and 28th meetings of the Coordination Council on the implementation of the Strategy for interaction and cooperation of the CIS member states in the electric power sector;
  • the 32nd and 33rd meetings (in absentia) of the Commission for Coordination of the Operational and Technological Cooperation of the Energy Systems of the CIS and Baltic states (CCOTC);
  • the 32nd meeting of the Working Group ‘Formation of the common electricity market of the CIS member-states’;
  • the 30th meeting of the Working Group on updating and harmonizing the regulatory and technical framework for electric power industry regulation in the CIS;
  • the 23rd meeting of the Working Group on metrological support of the CIS energy sector;
  • the 11th and 12th meetings of the Working Group on the development of the interaction system in case of accidents and other emergency situations at the electric power facilities of the CIS member-states;
  • the 10th and 11th meetings of the Working Group on the equipment operation reliability and occupational health;
  • joint meetings of the Working Group of the CIS EPS on Environmental Protection and the Working Group on Energy Efficiency and Renewable Energy
  • the 17th and 18th meetings of the Working Group on personnel management and training in the CIS electric power industry.

International Council on Large Electric Systems (CIGRE)

KEGOC participated in the 47th session of the International Council on Large Electric Systems (CIGRE) held from 26 to 31 August 2018 in Paris. The biennial CIGRE session is a unique event in the electric power industry including the international congress and the power equipment exhibition. The site, which brought together more than 3,500 delegates and representatives of world power companies, research organizations, manufacturers of equipment and materials for the electric power industry, design institutes and higher educational institutions, discussed issues related to new technologies developed to ensure the use of variable and hard-to-predict renewable energy sources in power systems. In particular, the following topics were discussed at the event: energy storage technologies in transmission and distribution systems, high-voltage DC OHLTs technologies and construction of AC and DC lines of ultra-high voltages, etc. Moreover, separate sessions were devoted to enhancing the role of consumers in power management, the use of new technologies and solutions in the formation and development of intelligent networks.