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‘Public Private Partnerships Kazakhstan case study: some lessons for Kyrgyz Republic’

Shaimerden ChikanayevMay 2013

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RECENT LEGAL DEVELOPMENTS

The Law of Kazakhstan ‘On Concessions’;

The Law of Kazakhstan ‘On Project Finance and

Securitisation’;The Law of Kazakhstan ‘On State Support of Industrial

Innovative Activity’.

Draft PPP Law


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On-going concession projects in Kazakhstan

North Kazakhstan – Aktobe region power line

(tenor of the project 17 years)

Shar – Ust-Kamenogorsk railway


Passenger terminal of the airport in Aktau



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LESSON 1: Government must be ready to share the risks

• Both Kazakh Central Government and local governments of regions (Akimats) are often not ready to assume any risks.

• Current Kazakh law is rather unclear on government authorities in cases where the concession form of PPPs is not used (e.g. Akims (i.e. mayors) are hesitant to sign any support/implementation agreements).

• Current legislation of Kazakhstan effectively makes it impossible to get operation costs compensation under a PPP project (i.e. no ‘availability payment’).

Current status in Kazakhstan:


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LESSON 2: Relevant legislation shall be adequately flexible and whole process shall be straightforward

• Excessive regulation of concession relationships diminishes the parties’ flexibility in determining project terms and makes current Concession Law unacceptable for investors.

• Delays in decision making, absence of one responsible and duly authorised governmental agency and non-transparent process scares of foreign investors.



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LESSON 3: PPP Centre shall be duly authorised

• PPP Centre was established in 2008 but so far it has NOT facilitated even one real PPP project.

• As of today PPP Centre plays the role of mere external advisor of the Government of Kazakhstan.

• Main activity of the PPP Centre is limited to economic evaluation and monitoring of concession projects.

• Karaganda and Oskemen local PPP Centers have been established but also have no proper mandate and authority to make good push for PPP development (kindergarten concession signed in Karaganda - is it really success story?).



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LESSON 4: Tariff regulation shall not affect bankability of the PPP project

The existing procedure for setting tariffs in Kazakhstan is based on the broad discretion of the tariff regulator in determining the components of a particular tariff. In addition, tariffs are introduced for a limited period of time that makes PPP projects in Kazakhstan non-bankable.


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LESSON 5: ‘Good to have’ to make PPP project bankable (currently not available in Kazakhstan)

Direct Agreements and Step-In

Rights

International

arbitration(if a natural monopoly

or interests of state involved)

Stability of Legislation

Liquid Local Capital Market


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DRAFT PPP LAW: what to expect?

• Availability Payment would be introduced.• Stability of Tariff Regulation (concessionaries would

be able to have special tariffs that can be determined on the basis of special calculation formulas as to be stipulated in the concession agreements).

• Simplified Own Capital Requirement (the concessionaire would be obliged to have own capital of not less than 10 (instead of 20 as of today) per cent of the value of the concession facilities).

Bankability of PPP projects would improve:


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DRAFT PPP LAW: what else to expect?

• New Forms of PPP (the possibility of having concession facilities in private property enables to structure other forms of PPP (eg, BOT, BOO, DBFO etc.) under the concession agreement).

• Improved Tender Process (tenders of potential concession projects would be, generally, required to be conducted in two stages and not one as under current legislation framework).

Bankability of PPP projects would improve:


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Debut IPP in Kazakhstan: $4 bn. Balkhash Power Plant

Project Company

Kazakhstan Government

Korean GovernmentIntergovernmental Agreement

Sponsors (Samruk-Energy/Samsung)

LendersCapacity Buyer(KEGOC)

Energy offtaker

Capacity purchase agreement

(take or pay basis)

Energy Sales Agreement

EPC Contract

Coal Supply Agreement

O&M Agreement

Equity

Debt


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Unprecedented HGA: $2 bn. Fertilizer Production Plant

Project Company

Kazakhstan Government

OJSC EurochemHost Government Agreement (HGA)

Subsoil use contract

(Ministry of Industry)

Gas Supply Agreement

Investment Agreement

(Investment Committee of the Ministry of Industry)


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Shaimerden ChikanayevPartner

Kazakhstan

Almaty, Ospanova 104Tel: +7 (701) [email protected]

ANY QUESTIONS?GRATA Bishkek Office

Office 2, 33/1 Razzakova Street, BishkekTel: +996 312 31 40 [email protected]

mailto:[email protected]

mailto:[email protected]

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