Kazakhstan: Development Of Renewable Energy Projects Kazakhstan

Last Updated: 27 July 2016
Article by Colibri Kazakhstan LLP

STATE SUPPORT FOR RES

According to the legislation of the Republic of Kazakhstan in force as at September 30, 2015, energy producing organizations that use RES to generate electricity can benefit from preferential fixed tariffs and other forms of state support. The support framework is expected to be further improved by the Green Economy law, the draft of which was submitted to the lower house of the parliament of the Republic of Kazakhstan on May 20, 2015.

The state support includes:

  • Preferential fixed tariffs for electricity generated by RES facilities, for a period of 15 years, with annual indexation to inflation. The draft Green Economy law introduces provisions for a better methodology for setting and revising fixed tariffs, allowing for greater differentiation, more frequent revisions and better founded methods for setting the level of tariffs.
  • Mandatory connection of RES facilities to transmission or distribution networks. The grid company has to cover all the costs of connecting an RES facility (including grid reinforcement), except for the cost of the line between the RES facility and the grid and other components on the generation side.1
  • Priority and mandatory transmission of electricity generated using RES.
  • Mandatory purchase of electricity generated using RES by the single off-taker Financial Settlement Center (FSC). The draft Green Economy law envisages increasing the short-term liquidity of the FSC through the creation of a Reserve Fund.
  • Exemption of RES from payment of electricity transmission fee.
  • No licensing requirement for energy generation.

In addition to the support measures stipulated by the legislation on renewable energy, an RES project can also benefit from a number of other state support mechanisms provided for all investment projects in Kazakhstan:

  1. Exemption from customs duties;
  2. Government in-kind grants;
  3. Tax preferences and investment subsidy.

State support for facilities relating to industry and innovation, provided that the project is included in the Industrialization Map (in accordance with the Law on State Support for Industrial and Innovation Activities), for example, provision of land plots free of charge.

In addition to the state support mechanisms described above, both local and foreign Investors are granted full and unconditional protection of their rights and interests as provided by the Constitution of the Republic of Kazakhstan, the Law on Investment, and other laws and regulations, as well as international treaties ratified by the Republic of Kazakhstan (e.g. the Energy Charter Treaty, Trade Pacts, etc.).

These include:

  • Compensation of losses resulting from any decision by public authorities or government officials that contravenes the legislation of the Republic of Kazakhstan;
  • Guarantee of stability of the terms and conditions of contracts between Investors and government bodies, unless mutually agreed by both parties;
  • Guarantee of stability in the event of amendments to legislation, including the Tax Code and legislation on the employment of foreign labor;
  • Guarantee of Investors' rights in the exceptional case of nationalization and requisition. In both cases, an Investor is entitled to full compensation at market prices.

Procedures for the Preparation, Agreement, Approval and Implementation of RES projects

When preparing and implementing projects to construct RES facilities, the Investor shall strictly comply with the legislation of the Republic of Kazakhstan, including legislation on renewable energy sources, energy, land, ecology, sanitation and epidemiology, industrial safety, tax, entrepreneurial activities, and civil law.

PROCEDURE FOR PREPARATION, AGREEMENT, APPROVAL AND IMPLEMENTATION OF PROJECTS ON CONSTRUCTION OF ELECTRIC POWER STATIONS USING RES IN THE REPUBLIC OF KAZAKHSTAN

Scheme Of Renewable Energy Project Development

LEGALIZATION OF RIGHTS TO A LAND PLOT

The first stage of implementation of any RES project is to accurately select the site for construction of the generating facility. Selection of the site is one of the most critical decisions in terms of the future success of the project: it determines whether optimal use will be made of the particular type of RES, and consequently, the economic feasibility of the project. This refers to wind, hydro and solar energy in particular. Considering the average lifetime of a renewable energy project, the land has to be secured for at least 25 years.

In the case of public land, a developer can either be granted temporary land use rights (short-term: up to 5 years, or long-term: for 5-49 years), or they can acquire the land from the local executive bodies. It should be noted that foreign legal entities cannot acquire land and can only be granted temporary land use rights for a period of up to 10 years. However, a local legal entity controlled by foreign persons can obtain land use rights for a longer term.

In accordance with the Law on RES, local executive bodies give priority to the provision of land plots for construction of RES facilities, in compliance with the RES Facilities Siting Plan, which is to be approved by the Ministry of Energy of the Republic of Kazakhstan (MOE). Yet, as at November 1, 2015, the procedure for developing and approving the Siting Plan had not yet been produced. Therefore, in order for an Investor to move on to the following steps, inclusion of a project in the RES Facilities Siting Plan is not mandatory. The draft Green Economy law replaces the concept of the Siting Plan with a Plan-forecast, and the MOE is expected to specify the rules for the inclusion of RES projects in this new plan.

In special cases under the Law on Investment land can also be provided to a developer based on an Investment Agreement with the government. The developer will be able to use the land free of charge for the whole period of project development, and upon successful commissioning of the power plant, land ownership will be transferred to the developer at no cost.

In the case of private land, a developer will have to purchase it from the current owner. This transaction is not heavily regulated. The transfer of the title to land has to be accompanied by: 1. Registration of the sale/purchase agreement with the Ministry of Justice; and 2. Acquisition of the land ownership certificate confirming the title to the land.

In any case, an Investor will have to enter into one of the following: a lease agreement, an agreement for use of land free of charge, or a sale and purchase agreement. These are based on the templates approved by the Ministry of Justice, and the conditions of such agreements are typically not negotiable.

It should be noted that for the purpose of initial design and survey work on the land plot under consideration, a developer can simply enter into an agreement with either the private holder of the land title or the local public authority and carry out this work without having to pay for the use of the land. If the results of the investigation are positive, the land use rights will be formalized accordingly. The only issue holding developers back from using this opportunity is the absence of legally binding exclusive rights to that land during the investigation period. In theory, it is possible for another developer to formalize the rights to that land during that period. As permitted by the law, a developer could use a "free form" contract and insert an exclusivity clause into the agreement to give them an exclusive right to the land during the design and survey work. However, in practice, most developers prefer to formalize their land rights in full prior to making any investments.

Considering the nature of renewable energy projects and the usually remote location of project sites, which are predominantly under public ownership, the following is a detailed description of the steps and procedures a developer will have to go through in order to obtain temporary land use rights or acquire a land plot from the state:

  1. After selecting the site the developer hires a licensed organization to carry out the design and survey work. This is usually the same licensed design company that will develop the design documentation and cost estimates. At this stage they provide the developer with a pre-feasibility study (pre-FS), based on which the developer decides whether to continue with the project.
  2. The Investor files an application with the local executive body (LEB) requesting a right to the land plot. Within the LEB, the application is reviewed jointly by the Land Relations Department (LRD) and the Department of Architecture and Municipal Planning. If both departments agree to the request, the LEB issues a decision that the land plot is to be provided for development of a renewable energy project. Review of the application can take up to 2 months.
  3. For the development of the land use plan the Investor has two options: they can hire an appropriately licensed individual or company/organization, or they can request that the Land Cadastre Research and Production Center conducts this work on the Investor's behalf. The LRD within the LEB reviews the land use plan. Once the LRD has approved the plan the LEB grants rights to the land plot within 7 business days.
  4. Within 1 month of being granted rights to the land the Investor conducts an on-site delimitation of the land plot boundaries with the help of regional and municipal offices of the LRD, in accordance with territorial zoning.
  5. The Investor and the LEB enter into a sale/purchase or lease agreement for land use, based on which the Land Cadastre Research and Production Center produces an identification document for the land plot within 6 business days.
  6. The Investor applies to the Public Service Center at the locality of the land plot, for state registration of the rights to the land plot.

To read this Guide in full, please click here.

Footnote

1. There is no clear mechanism allowing grid companies to recover the costs related to connecting RES plants. This can result in connection delays. To address this issue the draft Green Economy law envisages that the costs of investment at the substation will be covered by the RES project. In addition, the draft law introduces a requirement for solar power plants to be equipped with batteries to accumulate energy during high generation periods and supply energy during low or no power generation periods from RES plants.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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