To date, the Company faces a number of key internal and external challenges that resulted from the Company’s current condition, characteristics of the environment and trends of its development.
Key external challenges
1. The availability of free capacities driven by high wear and tear of power plants’ generating equipment.
Currently, there is a surplus of generating capacities in the RK, which resulted from implementation of “tariff in exchange for investment” program during 2009–2015, which helped reducing gaps and limitations of generating equipment, and increase the available capacity of power plants. At the same time, the positive effect obtained from ceiling tariffs is temporary, due to the considerable wear and tear of equipment of power plants which were built 40 and more years ago.
Thus, in the future, the generating companies of the Company have large reserves to increase their market presence because of their high competitiveness in terms of technological and economic aspects.
2. The presence of affiliated generation.
Considerable part of the RK generation refers to “affiliated”, that is, supplying electricity to affiliated consumers. Power units within affiliated generation are generally characterized by a high level of loading compared to power plants operating in the free market and have a guaranteed sales market. As an example, affiliated generation includes such holding companies as the Eurasian Group, Kazakhmys, Arcelor Mittal, Kazzinc, Kazakhstan Utilities Systems, Central Asian Fuel and Energy Corporation, Tarazenergo–2005. The share of such holdings in the total amount of electricity consumption (without the Western zone) is about 50 %. The development of affiliated generation limits both equal access for consumers and the Company’s ability to expand sales.
Due to the above factors, there are prerequisites for changing the existing model of the electricity market with the development of a competitive environment for participants of electricity production and consumption.
3. Development of renewable energy sources.
The concept of the Republic of Kazakhstan transition to a “green economy” which was approved by the Decree of the President of the Republic of Kazakhstan dated May 30, 2013, implies an ambitious development of renewable generation in the Republic of Kazakhstan, assuming a share of renewable energy up to 10 % in total electricity production in the country by 2030. This enabled RES market players to start a large-scale deployment of projects on construction of RES facilities. To date, there are 50 existing renewable energy facilities in the country with a total capacity of about 300 MW.
At the same time, the transition in 2015 to a free floating exchange rate of the national currency had a negative impact on the implementation of RES projects, due to their high dependence on foreign participation (equipment import, financing). This factor jeopardizes the achievement of challenges of Concept for transition to a “green economy”.
4. Decline in coal sales.
Despite the increasing mining potential and the growth of domestic consumption of Ekibastuz coal in the RK, the volumes of supplies to the Russian Federation continue to decline. Russian power plants’ replacement of Ekibastuz coals with Kuznets coals and a partial transfer of some Russian plants from coal to gas negatively affect the volume of coal sales in the export direction.
Key internal challenges
1. Ensuring the adherence to principles of sustainable development, innovation, reduction of environmental pollution.
Currently, the world is experiencing a steady trend in the adherence to principles of sustainable development and reduction of environmental pollution. The commitments undertaken by the Republic of Kazakhstan as an active participant in international relations in the field of environment, and Samruk-Energy as an environmentally and socially responsible company, determine the need for a proactive response to trends in the field of environmental protection.
2. Implementation of the RK Government plan for privatization of the Company’s assets.
In the framework of comprehensive plan for privatization for 2014–2016, “Samruk-Energy” JSC group of companies plans to privatize some assets. To maintain the value of the Company it is necessary to take a number of actions to ensure the sale of these assets at fair market value.
3. The need to radically improve the overall performance.
The need to improve the overall performance of the company and increase the added economic value of the business
4. The high financial burden on the Company resulted from implementation of an ambitious investment program in all business directions.
The level of debt burden, the availability of low-income non-core assets increase the relevance of forming an investment program and target structure of the Company focused on the most attractive strategic type of activities.
The Company’s SWOT analysis based on operating environment, internal and external challenges analysis is presented in table
SWOT-analysis of Samruk-Energy’s state
|1. Availability of large reserves of power generating coal with low cost of production
2. Effective generating capacities against overall level of wear and tear of capacities in the Republic of Kazakhstan
3. Support from the Government and the Fund
|1. Low utilization rate of installed capacity
2. High debt load
3. Low opportunities of quotations management
|1. Expansion of market share through growing demand, ensuring competitiveness and in the future – changing of a market model
2. Development of an export potential of the Republic of Kazakhstan
3. Optimization of balance of generating facilities according to market demand (thermal power plant, combined heat and power plant, hydroelectric power plant, RES)
4. Expansion of coal use directions including through enrichment
|1. Conservation and expansion of affiliated generation
2. Increase in demand and supply gap of the generating capacities
3. Excessive toughening of environmental legislation
4. Increase of access to the Republic of Kazakhstan market due to development of EAES uniform electrical power market
The introduction of sustainable development principles by “Samruk-Energy” JSC group of companies is a fundamental factor in successful implementation of the strategy and minimizing the impact of external factors on the operations of “Samruk-Energy” JSC group of companies.
In 2016, the Company developed Sustainable Development Guideline which aims to systematize the processes of sustainable development both in the head office and in subsidiaries and affiliates. At this, our stakeholders (suppliers, shareholder, development institutions, NGOs, etc.) and members of the Board of Directors took a great part in its development.
In particular, numerous discussions were held with the Chairman of the Board of “Samruk-Energy” JSC and independent members of the Board of Directors, who focused on global trends in sustainable development, in order to properly understand the risks and opportunities for development of the group of companies as a whole.
Thus, in order to understand risks and opportunities in the field of sustainable development, a list describing three aspects of sustainable development was prepared.
|Slowdown in electricity consumption||The deterioration of macroeconomic situation, the slowdown in demand for electricity; High planned rates of commissioning new capacities exceeding the actual growth in demand||Effective use of the existing assets portfolio|
|Increasing instability of economic system due to resource extracting industries’ exposure to crises resulted from global price volatility||Increase in the likelihood of crises occurrence that hinder access to financing of new projects||Improvement of production efficiency, modernization of existing assets|
|Increasing energy conservation and increasing the energy efficiency of the economy||Reduced demand for electricity from conventional generation||The use of coal in combination with advanced clean coal technologies|
|Trend for economy decarbonisation||Deterioration of competitive positions of coal generation with regard to gas, HPP, NPP, RES||Obtaining loans on favorable terms for development of new projects (“clean coal”, underground gasification of coal, methane extraction, development of renewable energy sources); Improvement of quality of used fuel|
|Introduction of more stringent environmental regulations||Toughening of the maximum permissible concentration of harmful substances; Increase in the rates of payment for emissions; Stricter requirements for water consumption – transition to recycling water supply, tightening of temperature regimes; Waste disposal expenditures||Expansion of “green” technologies use|
|Increase in environmental requirements of local communities||Environmental activity of mass media, incl. at the absence of sufficiently professional analysis, the creation of a negative image of the company||PR as a “green” leader and the company that manages natural resources in a responsible manner, enhance the loyalty of community|
|Slowdown in population growth||Slowdown in demand for electricity||If feasible, development of export potential|
|Increase in demand for highly qualified specialists||Lack of qualified specialists, “outstripping” the increase in the cost of labor and the increase in the share of payroll in costs||Performance improvement; Improving the quality of production; Improving the
quality of education and
training of specialists
|Reduction of attractiveness of job in the industrial sector||Increasing difficulty of filling the company’s vacancy||Development of personnel reserve, continuity of positions within the company|