Although court decisions are not a source of law in Kazakhstan, a recent Supreme Court decision has provided guidance to the power industry by clarifying its interpretation of recent legislative changes – namely, that the prohibition against the resale of power in Kazakhstan includes imported power.
The energy sector in Kazakhstan is governed primarily by the Law on Electricity.(1) In accordance with recent amendments to the law, the power market was restructured as follows:
- Power-generating organisations produce power, which they areauthorised to sell to power-supplying organisations or end users, or both. They cannot resell power produced by another power-generating organisation.
- Power-supplying organisations can sell power bought from power-generating organisations to end users, but not to another power-supplying organisation.
- Power-transferring organisations are responsible for power transmission.
These changes were introduced to prevent or limit the involvement of intermediaries and protect end users from inflated power prices. However, they have given rise to a number of ambiguities with respect to the application of the law. One previously unclear issue regarding the extent of the restriction on the resale of power has now been clarified.
Although the changes limited the role of power-supplying organisations to supplying power to end users, it was unclear whether the restriction applied only to power produced in Kazakhstan or whether it also covered imported power. Historically, Kazakhstan and other former Soviet Union countries - including Russia, Uzbekistan and Kyrgyzstan - have maintained parallel electricity systems, enabling Kazakh entities to import power from these neighbouring countries.
Until recently, the Ministry of Industry and New Technologies (which regulates the energy sector) considered that the rule did not cover imported power.(2) However, the Agency on the Regulation of Natural Monopolies (the tariff regulator for the power industry) took the opposite view and has imposed significant charges on sales of imported power between power-supplying organisations in Kazakhstan. The Supervisory Collegium of the Supreme Court considered the issue when a major power importer, KazEnergoResurs LLP, appealed against such charges.
The Almaty Economic Court had rejected KazEnergoResurs's claims, ruling that the prohibition against the resale of power covers both imported and domestically produced power. The Supreme Court upheld this decision.(3)
Although the Supreme Court's decision is not technically binding on Kazakhstan's lower courts (as an equivalent decision would be in a common law jurisdiction), it will be persuasive in practice. As such, the prudent view is that restrictions on a power-supplying organisation's ability to resell power to another such organisation, as introduced by the recent amendments, apply to imported power.
This may be unwelcome news for power-supplying organisations, but it at least provides greater clarity on the issue and is likely to resolve confusion which had extended to the divergent views of the two industry regulators.
For further information on this topic please contact Azamat Kuatbekov or Alexander Korobeinikov at Baker & McKenzie CIS by telephone (+7 495 787 2700), fax (+7 495 787 2701) or email ([email protected] or [email protected]).
(2) See the letter of the head of the Power and Coal Industry Department of the Ministry of Industry and New Technologies dated November 27 2010, 06-2-2870. Legal database Paragraph 2011.