1. State Regulation in the Natural Monopoly Sphere Agency of the Republic of Kazakhstan on Regulation of Natural Monopolies ALMATY – 2006

2. Main tasks of the Agency: Implementation of the state policy in the sphere of control and regulation of activities of subjects of natural monopolies; Implementation of the state policy in the sphere of control and regulation of activities of subjects of natural monopolies; Protection of consumers in the sphere of operations of subjects of natural monopolies; Protection of consumers in the sphere of operations of subjects of natural monopolies; Development of the state policies in the sphere of natural and state monopolies. Development of the state policies in the sphere of natural and state monopolies.

3. State regulation and control over activities of subjects of the natural monopoly - Approval of the interim decreasing ration, compensating tariff - Special procedure for cost formation - Approval of tariffs, tariff estimates - Approval of the parallel level of tariffs - Approval of the investment tariff - Coordination of the accounting policy - Approval of the procedure for maintenance of separate accounting for revenues, costs and used assets - Control over economic and operating activities that affect setting of tariffs for subjects

4. Main principles of the tariff policy - Maintaining the balance of interests of consumers and those of subjects of the natural monopoly; - Predictability of tariffs; - Covering of costs and rate of return ensuring efficient functioning of the subject of the natural monopoly.

5. As of January 1, 2006, includes more than 700 enterprises The State Registry of the Subjects of Natural Monopolies 177 enterprises in the Republican section More than 600 enterprises in the local section

6. Concept of the tariff policy in natural monopoly spheres - Improvement of mechanisms for ensuring transparency of set tariffs; - Building up the monitoring system on the basis of balanced system of evaluation criteria of regulation; - Development of models of evaluation of impact of the dynamics of the levels of tariffs for services of subjects of natural monopolies on the sectors of economy; - Improvement of mechanisms for control and expert testing of activities of subjects.

7. Law of the Republic of Kazakhstan «On making changes and amendments to the Law of the Republic of Kazakhstan «On Natural Monopolies» with respect to setting of tariffs (prices, rates, fees) and tariff estimates for regulated services (goods, works) of a subject of the natural monopoly The right of the central authorized body to carry out expert test according to technical, technological norms, standards of technical losses approved by industrial state bodies was envisioned in the law; The right of the central authorized body to carry out expert test according to technical, technological norms, standards of technical losses approved by industrial state bodies was envisioned in the law; Changes in tariffs (prices, rates, fees) for regulated services (goods, works) would be done not more than once a year; Changes in tariffs (prices, rates, fees) for regulated services (goods, works) would be done not more than once a year; Terms for reviewing draft tariffs and tariff estimates of subjects of natural monopolies were extended up to 90 days. Terms for reviewing draft tariffs and tariff estimates of subjects of natural monopolies were extended up to 90 days.

8. Problems of formation of the retail electricity market Sale price of plants Sale price of plants - Lack of separate cost accounting at electricity distribution companies (RECs); - Presence of cross subsidies between industrial enterprises and the population; - Lack of competition in supply of electricity to retail consumers; - Imperfectness of the tariff methodology for transmission of electricity through regional networks; - Low level of attraction of investments to the power and heat sectors. SALE TARIFFSALE TARIFF Costs of services of the JSC «KEGOC» Services on transmission of electricity through REC networks (“entry” tariff) Compensation of normative technical losses

9. Implementation of the tariff policy in the power sector Sale price of plants Sale price of plants - Unbundling of energy supply organizations (ESO) from RECs); - Maintenance of separate cost accounting by types of activities; - Inclusion of costs of normative technical losses; - Possibility of RECs converting to setting “stable” tariffs for electricity transmission services through regional networks on a medium-term basis. SALE TARIFFSALE TARIFF Services on transmission of electricity through REC networks (“entry” tariff) Transmission of electricity through networks of JSC «KEGOC» Supply mark up

10. The following serves as the basis for development of the tariff policy for the near future: Detailed analysis of the role and place of regulation of natural monopolies in the economic development policy of the state; Detailed analysis of the role and place of regulation of natural monopolies in the economic development policy of the state; Description of the current situation in the field of regulation and activities of subjects of natural monopolies; Description of the current situation in the field of regulation and activities of subjects of natural monopolies; Identification of regulatory problems taking into account requirements of the economic policy; Identification of regulatory problems taking into account requirements of the economic policy; Improvement of the main areas of the state regulation in the spheres of natural monopolies and mechanisms for implementing them. Improvement of the main areas of the state regulation in the spheres of natural monopolies and mechanisms for implementing them.

11. Issues that require system solutions - Availability of excessive (not used) capacities; - Lack of complete transparency of cost allocation with respect to regulated services; - Insufficient solvency of certain consumer categories; - Low efficiency of subjects of the natural monopoly; - High degree of depreciation of assets; - Lack of efficient institutional mechanisms for regulation of efficient operations of management of subjects.

12. Proposed solutions - To assess how dynamics of the levels of tariffs affects the most important macroeconomic indicators, taking into account their (tariff) leveling for all consumer categories; - To elaborate optimal ways to re-balance tariffs on a medium-term basis.

13. THANK YOU FOR ATTENTION!