‘Public Private Partnerships Kazakhstan case study: some lessons for Kyrgyz Republic’ Shaimerden Chikanayev May 2013 01.12.2018

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 01.12.2018 2 2

On-going concession projects in Kazakhstan North Kazakhstan – Aktobe region power line (tenor of the project 17 years) Shar – Ust-Kamenogorsk railway (tenor of the project 23 years) Passenger terminal of the airport in Aktau (tenor of the project 30 years) 01.12.2018 3 3

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: 01.12.2018 4 4

Current status in Kazakhstan: 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. Current status in Kazakhstan: 01.12.2018 5 5

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?). Current status in Kazakhstan: 01.12.2018 6 6

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. 01.12.2018 7 7

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 01.12.2018 8 8

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: 01.12.2018 9 9

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: 01.12.2018 10 10

Debut IPP in Kazakhstan: $4 bn. Balkhash Power Plant Kazakhstan Government Korean Government Intergovernmental Agreement Sponsors (Samruk-Energy/Samsung) Equity Capacity purchase agreement (take or pay basis) Lenders Capacity Buyer (KEGOC) Project Company Debt Energy Sales Agreement Energy offtaker O&M Agreement Coal Supply Agreement EPC Contract 01.12.2018 11 11

Unprecedented HGA: $2 bn. Fertilizer Production Plant Kazakhstan Government OJSC Eurochem Host Government Agreement (HGA) Subsoil use contract (Ministry of Industry) Investment Agreement (Investment Committee of the Ministry of Industry) Project Company Gas Supply Agreement 01.12.2018 12 12

ANY QUESTIONS? GRATA Bishkek Office Office 2, 33/1 Razzakova Street, Bishkek Tel: +996 312 31 40 50 bishkek@gratanet.com Shaimerden Chikanayev Partner Kazakhstan Almaty, Ospanova 104 Tel: +7 (701) 7878020 schikanayev@gratatanet.com 01.12.2018