Regulatory reform and market development in power sectors of transition economies: the case of Kazakhstan

Kazakhstan has been at the forefront of power sector reform in EBRDʹs countries of operations. Starting in 1996, a regulator was set up, the industry was partially unbundled, some distribution and generation companies were privatised, and the large user market was liberalised. A number of reform challenges remain however in the area of privatisation, regulation and competition. The paper proposes that the remaining distribution companies be privatised with a view to raising the level of cash collection. Before this takes place, the industry would benefit from regulatory changes, strengthening independence of the regulator and modifying regulatory rules to improve risk allocations and strengthen incentives. On competition, the paper proposes enhancing the present market arrangements by introducing a balancing pool, and re-balancing transmission tariffs to reflect location marginal costs. Implementation of the proposed changes should yield substantial welfare gains for Kazakhstan. The broad challenges in Kazakhstan are characteristic of those in the sector throughout the region.