EBRD finances two district heating networks in Kazakhstan

By Sergiy Grytsenko

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The European Bank for Reconstruction and Development (EBRD) is providing JSC Central-Asian Electric Power Corporation (CAEPCO) with a facility which will support the modernisation of district heating networks resulting in better and more efficient services for the people of northern Kazakhstan.

The EBRD’s facility will consist of two loans to CAEPCO’s district heating operators, totalling of up to €21.7 million (US$ 30 million), to finance their modernisation in Pavlodar, Ekibastuz and Petropavlovsk.

The new energy efficiency investment is the EBRD’s first district heating project both in Kazakhstan and Central Asia. It is part of the Bank’s wider approach to assist Kazakhstan in improving energy efficiency in its municipal infrastructure system.

The loans will provide CAEPCO, a leading private company in the country’s energy distribution sector, with medium and long term financing in local currency, the Kazakh tenge, in line with the Bank’s focus on increasing local currency lending in its countries of operations.  The project will be co-financed by the Clean Technology Fund (“CTF”) and supported by CAEPCO’s corporate guarantee.

It will be the first project in Kazakhstan co-financed by CTF. СTF financing will be up to US$ 10 million. The use of the CTF’s concessional funds will help optimise the pace of investments in network modernisation with a view to improved affordability of end-user tariffs. Concessional funds can be instrumental in realising the actual impact of such investments by increasing project scope for improved energy efficiency while remaining within the affordability constraints, particularly during the periods of macroeconomic volatility.

The EBRD’s loans will be used to transform the heating systems in the three cities from being supply-driven and wasteful to demand-driven and consumer friendly. This will be achieved through improving operational performance, reducing distribution network losses, and introducing better environmental standards. Over the next ten years the two operators will be able to substantially reduce their CO2 emissions by estimated 130,000 tonnes a year.

“With the Bank’s support, over 2011-2014 these municipal district heating operators will be able to replace worn-out equipment with new modern automated substations, which are currently the best available technology on the EU district heating markets, providing customers with better more reliable and efficient services,” said Jean-Patrick Marquet, EBRD Director for Municipal and Environmental Infrastructure.

Moreover, the operators will be able to adopt modern energy supply business practices leading to more sustainable profits by launching new tariff policies and expanding metering programme, when customers will be billed on the basis of their actual meter-recorded rather than norm-based consumption.

Kazakhstan’s district heating sector has not seen much of new investments over the past 20 years. With the centralised heat supply networks in Kazakhstan being depreciated by 80 per cent on average, heat distribution losses amount to about 30 per cent.

“This loan is a significant development for the whole energy sector of the Republic of Kazakhstan. With this support we will considerably enhance the efficiency of our municipal heating networks, leading to further improvements in environment conditions and also increasing the reliability and stability of heat supplies for our consumers,” said Alexander Klebanov, Chairman of the CAEPCO Board of Directors.

The EBRD, as the largest financial investor in Kazakhstan outside the oil and gas sector, has invested over €2.8 billion in over 130 projects in various sectors of the Kazakh economy, mobilising additional investments in excess of about €7 billion, with about 70 per cent of the projects’ being investments into the development of the country’s private sector.

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