The chairman of the public association "Kazakhstan Association of Energy Repair, Design, Engineering Companies, and Energy Equipment Manufacturers," Sergey Agafonov, made this statement while discussing the implementation of the National Project for the modernization of the energy and communal sectors. According to him, the main goal of the initiative is to ensure the viability of Kazakhstan's energy infrastructure. The expert elaborated on the tasks that need to be accomplished in an interview with a correspondent from inbusiness.kz.
photo from Sergey Agafonov's personal archive
– Sergey Sergeyevich, what is the relevance of the national project, what key tasks have been identified, and what are its implementation prospects?
– The relevance of the national project is hard to overestimate, as it is literally called upon to ensure the further viability of our energy infrastructure, which is in a rather worn-out state. Such a large-scale modernization has been needed for a long time. Regarding its prospects, forecasting is usually a thankless task, but I will attempt it. Of course, I would like the so-called "seeds" of the national project, as I always say, to fall on more fertile ground. I mean that the regulation system and the methodology for tariff formation for natural monopolies, which will be key participants in the national project, are not yet well adapted for its goals, which is obvious. Therefore, there are certainly risks that the national project may not achieve its objectives. Unfortunately, we find ourselves in a situation where we simply need to start its implementation.
At the same time, the number one task is to reduce wear and tear, or, as I mentioned above, to ensure the viability of our energy infrastructure. For example, in the generation sector, we have a wear rate of 56-57% by various estimates. There are facilities, such as CHPs, that operate in a critical zone with a wear rate of 80-90%. These are essentially emergency facilities. The situation is even worse with electrical networks. Estimates vary, but the average wear rate there exceeds 70%, and there are regional electricity network companies operating with a critical wear rate of over 90%, which are also practically emergency facilities. Can you imagine a company's network with a 97% wear rate, meaning that almost all of its resource has been used up?! The situation with thermal networks is slightly better, with a wear rate of around 50% plus a bit more. It is expected that as a result of the national project's implementation, over five years, the wear rate of our generation will decrease by 17%. Regarding electricity supply networks, the task is more ambitious; we need to reduce it by 30%. And since, as I mentioned earlier, the situation with thermal networks is somewhat better, the goal here is to reduce wear by 10% over five years. So, reducing infrastructure wear is a key goal, but not the only one.
As I always say, the national project is a very important "springboard" for our domestic producers, or, as it is commonly said, producers of Kazakh goods, works, and services (KazTRU), referring to local companies that do not manufacture goods but still possess high qualifications in the production of works and services. Is it necessary to say that, unfortunately, our domestic producers, including in the energy sector, are not developing as we would like? And this is not their fault. They are ambitious, active, and ready to grow. The problem lies in the ineffective system of state protectionism, which, it must be acknowledged, government agencies have started to pay more attention to in the last year or two, likely realizing the relevance of this issue.
Public organizations are also trying to promote the emergence of a normal and healthy state protectionism. For example, in December last year, our association, KAZEPI, with the support of the NPP RK "Atameken," organized the I Kazakhstan Forum of Domestic Producers "KazEnergoOTP-2024," which we believe will become an annual large-scale event in support of KazTRU. Therefore, the second task is to give our domestic producers in the energy sector the opportunity to "take off" and strengthen. If we talk about numbers, then at least five years from now, in 2029, which is the final year of the national project's implementation, the share of domestic producers in the energy sector should reach 60% – up from 20% in 2025. This is certainly ambitious, but we are very hopeful that it will happen!
– In your opinion, what is needed for the tasks you outlined to be effectively implemented?
– The most important thing is proper control over the allocation of national project funds, since the existing system of regulating natural monopolies is not capable of doing this effectively on its own. This is a concern for everyone – both NPP "Atameken" and industry associations. Just yesterday, we held a meeting of the energy committee of the National Chamber, where one of the questions on the committee's work plan for 2025 was precisely the monitoring of the effective expenditure of national project funds. An effective control mechanism is needed. All cases of irrational spending of funds must be made public. 14 trillion tenge is a huge budget, essentially public money; it is no coincidence that the project is called national, and any attempts to "attach" themselves to it must be suppressed in the most radical way. Ultimately, it is necessary to ensure that everything results in renewal, in "hardware," as I say, rather than, as often happens here, "trickling" into pockets. Therefore, proper control is the first and foremost thing! The second relates to the second task – ensuring the procurement of domestic goods, works, and services, which, accordingly, requires mechanisms that already exist. There are two: offtake contracts and an electronic procurement platform, meaning digital, which minimizes human intervention and filters out pseudo-domestic producers, of which there are quite a few. This is a significant problem now, not only for the industry but for the entire economy of Kazakhstan. Deputies often mention this when, under the guise of a domestic producer, imported products are sold, literally re-labeling them.
– What challenges does Kazakhstan's energy sector face today?
– There are many challenges, and if I were to rank them in order of priority, I would place the deficit of electricity and the shortage of maneuverable capacities at the top. This is everything we currently have to purchase at high prices from neighboring countries. In other words, we are buying a basic volume of electricity, and, more importantly, we are regulating it, ensuring changes in our daily electricity consumption schedule. The challenge associated with the wear and tear of infrastructure is, of course, a direct cause of the two problems I mentioned above. But this "chain" of cause-and-effect relationships does not end there. In fact, wear is also a consequence, but of ineffective regulation mechanisms in the industry. At least in the sphere of natural monopolies, as I said earlier, the system has long required revision, both the methodology for tariff formation and the regulation system itself. Therefore, if we "build" the entire cause-and-effect relationship, the root cause is the problem of regulating the industry, which has resulted in wear, and this, in turn, has provoked the deficit.
Thus, there are significant concerns that by implementing the national project without establishing a normal transparent and effective regulatory system, we could encounter the same result. And this is a major risk! We constantly insist that we first need to review and improve the regulation mechanisms. By "injecting" such funds, we cannot simply rely on any manual management, which is generally always ineffective.
Another challenge that both our energy system and the global one face is the energy transition. Whether we like it or not, we need to gradually abandon traditional coal generation. Just recently, at a meeting, representatives of the Kazakhstan Development Bank stated that within the framework of the national project, they would not be able to finance the modernization of coal generation. Because they already have relevant criteria similar to those worldwide. In other words, we are moving towards a point where renewable energy sources will gradually become traditional generation. And this again poses challenges for our energy system, related to the need for regulation, meaning the presence of maneuverable capacities, which we practically lack. Accordingly, the whole world will transition to a model where renewable energy sources and nuclear power plants will be used as base generation, while maneuverable capacities will largely be covered by energy storage systems. Whether we want it or not, these will not be hydroelectric power stations or gas power plants; they will indeed be storage systems, which is the configuration, and now the whole world is following this path; we are no exception, and this is a significant challenge. Therefore, I also consider the energy transition to be a challenge for our energy system.
– How attractive is the energy sector of Kazakhstan for investors?
– Regarding investment attractiveness, I can say that it is peculiar due to the same root cause – the ineffective system of industry regulation. The same national project, for instance, will be financed through national development institutions, and funds from the ENPF, but it is unlikely to attract any serious private investments. If we talk about the construction of new generation facilities, you know, we have several very large projects planned for the construction of renewable energy sources, which involve substantial foreign investments, but their attractiveness is solely based on state guarantees in