**WORLD BANK’S ELECTRICITY TRANSMISSION REHABILITATION LOAN TO IMPROVEKAZAKHSTAN’S ELECTRICITY GRID**

**AND**

**PROFILE OF KEGOC, THE NATIONAL ELECTRIC POWER COMPANY**

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**                         January7, 2000**

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**                      By ALEXANDER KATKOV**

# U.S. Commercial Office, Almaty, Kazakhstan

 

INTERNATIONAL COPYRIGHT,U.S. & FOREIGN COMMERCIAL SERVICE AND U.S. DEPARTMENT OF STATE, 2000. ALLRIGHTS RESERVED OUTSIDE OF THE UNITED STATES.

 

SUMMARY: TheInternational Bank for Reconstruction and Development (the World Bank) hasagreed to extend a USD 140 million loan to the government of Kazakhstan (GOK)and the Kazakhstani Electricity Grid Operating Company (KEGOC) toward a USD258.4 million electricity transmission rehabilitation project, according to apress release issued by the World Bank on December 22, 1999.  Additional financing will be providedby KEGOC (USD 62.4 million) and the European Bank for Reconstruction andDevelopment (EBRD) (USD 56 million).

 

U.S. firms may wish toinvestigate the numerous potential business opportunities connected with thisambitious project. END SUMMARY.

 

**1.PROJECT DESCRIPTION**

 

The World Bank loan will be used to improve the quality ofKazakhstan’s electricity transmission and distribution, to develop acompetitive electricity market, and to restructure KEGOC into a more efficientcompany.

 

According to the project description given in the pressrelease, these goals will be accomplished by:

 

�      refurbishing substations (modernizing high-voltageequipment; replacing protective relaying and installing shunt reactors;improving the stability of the power grid);

 

�      upgrading dispatch controls (improving the reliability ofthe transmission system; enhancing the quality of the power supply; operatingthe organized electricity spot market/pool);

 

�      developing an administrative and technical managementsystem (installing a computer-based management information system; creating anew corporate structure for KEGOC);

 

�      receiving technical assistance (project management andprocurement; establishment of the electricity spot market).

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**2. GREATPOTENTIAL BUT IN A CHALLENGING BUSINESS CLIMATE**

 

Despite the enormouspotential, U.S. companies should keep in mind Kazakhstan’s challenging businessclimate.  The U.S.’s import marketshare in power generation equipment is small (about 2.5 percent).  This is mainly due to the geographicadvantage of European and Asian companies, which are able to offer lower pricesdue to lower transport costs. 

 

Kazakhstan has little experience with modern U.S.electrical equipment.  Therefore,U.S. companies serious about this market will need to include a key educationalcomponent to raise awareness of the benefits of modern U.S. technology.

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**3.BACKGROUND INFORMATION ON KEGOC**

 

KEGOC was established onJuly 14, 1997, and is the streamlined successor to Kazakhstanenergo, a Soviet-eravertically-integrated electric power producer and distributor. KEGOC’s assetsinclude 23,463 km of power lines (ranging from 110 kV to 1,150 kV) and 73 powernetwork substations (total transformer capacity: 29,414 MW).  KEGOC, a fully state-owned company, isresponsible for ensuring reliable intra- and inter-state electric powertransmission; developing strategic industry plans, including technical policyplans; and organizing and operating the wholesale electric power market.

 

KEGOC cooperates with RAO ES (Russia) in the western andnorthern parts of Kazakhstan and with the national energy companies ofKyrgyzstan, Turkmenistan, Tajikistan, and Uzbekistan in the country’s south.

 

In 1998, KEGOC was identified by international industryexperts as an impediment to further investment in Kazakhstan’s power generationsector due to its expensive stranglehold on producers via its transmissionnetwork.  Industry experts arewatching to see whether or not KEGOC can evolve into an operating network thatwill allow the market to determine transmission tariffs.  Indeed, the path that KEGOC chooseswill have important repercussions for future foreign investment in the energysector.

 

In November, 1999,former Kazakhstani Minister of Finance, Uraz Dzhandosov, was appointedpresident of KEGOC.  On December20, 1999, during a series of U.S.-Kazakhstani bilateral government meetings,the GOK and the U.S. Trade and Development Agency (TDA) signed a USD 378,000technical assistance grant agreement to go primarily toward drawing up tenderand bidding documents for the above-mentioned electric power transmissionproject.  KEGOC is expected toselect the contractor from a short list of U.S. bidders.

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**4.CONTACT INFORMATION**

 

Interested U.S. firms wishing to obtain detailedinformation on the project should contact:

 

KEGOC

162.zh Shevchenko Street

Almaty 480008, Kazakhstan

Tel:7 (3272)62-60-27

Fax:7 (3272)68-43-08

Contact:      Mr.Uraz Dzhandosov, President

 

The World Bank (representative office in Kazakhstan)

41.a Kazybek Bi Street, 3rd floor

Almaty 480100, Kazakhstan

Tel:7 (3272)60-85-80

Fax:7 (3272)60-85-81

Contact:      Mr.Kadir Tanju Yurukoglu, Resident Representative

 

EBRD (representative office in Kazakhstan)

41.a Kazybek Bi Street, 4th floor

Almaty 480100, Kazakhstan

Tel:7 (3272)58-14-23

Fax:7 (3272)58-14-22

Contact:      Mr.Michael Davey, Country Director

 

Companies interested in learning more about projectfinancing and the Kazakhstani market, may want to contact:

 

The Caspian Finance Center (a regional office of U.S. EximBank, OPIC and TDA)

C/o American Embassy Ankara

110 Ataturk Bulvari

06100 Kavaklidere

Ankara, Turkey

Tel: 90 (312) 468-6110, ext. 2079

Fax: 90 (312) 468-6082

Contact:     Ms.Julie Panaro, U.S. Exim Bank Director

 

The U.S. Commercial Service Almaty

531 Seyfullin Street, 3rd floor

Almaty 480091, Kazakhstan

Tel:7 (3272)58-79-18, 58-79-20

Fax:7 (3272)58-79-22

Contact: Ms. Julie Snyder, Senior Commercial Officer

Mr. Alexander Katkov, Senior Commercial Specialist