Fueling the Evolution of Kazakhstan’s Energy Industry

Kazakhstan, a vast and resource-rich nation in Central Asia, is poised for a significant transformation in its energy sector. Focused on sustainability and alignment with global decarbonization efforts, the country is undertaking an ambitious initiative to fortify the security and reliability of its energy supply. This initiative is a collaborative effort between the Government of Kazakhstan, the World Bank, and private sector entities.

A Vision for Reform and Innovative Approaches Historically reliant on fossil fuels, Kazakhstan faces the imperative of phasing out inefficient subsidies and modernizing its energy infrastructure. Reports from the International Energy Agency (IEA) indicate that Kazakhstan’s fossil fuel subsidies accounted for approximately 6% of its 2021 GDP, ranking it among the top 25 countries with substantial subsidy burdens. Acknowledging this need for change, the government is committed to gradually reforming and eliminating these costly subsidies. Initiatives like the “tariff for investment” program have been introduced to facilitate this transition.

Central to this transformation is the creation of an incentive-driven tariff regulation methodology. This methodology aims to promote responsible and sustainable energy practices by linking financial incentives to specific achievement goals. To implement this approach, the government is undertaking a comprehensive reform effort. This includes designing a fairer tariff structure, ensuring social protection for vulnerable groups against potential price hikes, and reinforcing the institutional framework for tariff regulation.

Pursuing a Sustainable Path Kazakhstan’s energy subsidy reform is already in motion—the government approved a comprehensive reform package for the electricity and heating sectors before the close of 2023. Pilot implementation is slated for 2024, laying the groundwork for broader industry integration. This integration will harmonize investment incentives with regulations, fostering innovation, sustainability, increased sector investments, and enhanced operational efficiency.

The reform is aimed at securing sustainable electricity and heating services while facilitating the country’s shift towards cleaner energy sources. This year marks a pivotal moment in tariff policy, introducing new methodologies for tariff setting and heightening the industry’s appeal for investment. Appreciation is extended to the World Bank for their efforts in developing this methodology and training specialists ahead of the planned 2024 pilot.

Success through Collaborative Governance and Knowledge Sharing Efficient coordination, policy implementation, and consolidated regulatory functions involving all relevant stakeholders are pivotal to the success of these reforms. Currently, regulatory responsibilities are dispersed across multiple entities, resulting in inefficiencies. To address this, the World Bank has proposed consolidating all regulatory functions within a specialized organization to enhance the effectiveness of energy regulation in Kazakhstan.

Sharing knowledge and fostering communication are integral to Kazakhstan’s reform initiative. The World Bank has organized workshops to impart international best practices and insights. These sessions have educated and engaged stakeholders, aiding in the design of better policies. Workshops in 2023 covered the reform study, new methodologies, implementation processes, and experiences from other nations. This exchange has empowered the government and stakeholders with a wealth of global knowledge.

A Transformative Journey and a Model for Others Kazakhstan’s energy subsidy reform marks a crucial milestone in its pursuit of a secure, sustainable, and dependable energy supply. As the country strides towards a cleaner, greener energy future, these reforms will also incentivize private sector involvement in renewable energy development.

Kazakhstan’s progress in energy transition can serve as a blueprint for neighboring nations and beyond. By steering away from fossil fuels, it paves the way for a just and sustainable transition, contributing to a resilient economy for all.