Independent Power Project (IPP) as an
optimal structure for the creation of
generating object based on the project
financing principles (PPP)
Shaimerden Chikanayev
Partner
GRATA Law Firm
Why does Kazakhstan need IPP projects?
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Lack of budget funds.
PPP on concession basis does not work.
Private business is more effective than the State.
The principal task of IPP projects is raising foreign private
investment and technologies in electric power industry and
distribution of risks between the government (Akimat) and
foreign private business.
Successful global practice in the US, UK, Turkey, etc. For over
20 years.
There is already such a practice in Kazakhstan: Balkhash TPP (in
progress), similar IPP project with Akimat of one of the regions
(in progress). GRATA has been engaged as a Kazakhstan legal
counsel in both projects.
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Structure of IPP project adapted to the conditions of
Kazakhstan
International Banks
(loan agreements)
Foreign Sponsors
(shareholders)
Akimat
(Project Support Agreement)
SBC
(controlled by Akimat)
(guarantee under the
Sale-and-Purchase Agreement)
Project Company
Contractor
(EPC/T Contract)
Operator
(O&M Contract)
Power Purchaser
(Sale-and-Purchase Agreement)
Fuel Supplier
(controlled by Akimat)
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What does Akimat have to do for
IPP project?
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Guarantee (though the Akimat-owned company - Purchaser) the purchase
of generated power at a predetermined price (formula) in the Project
Company (power plant) for 25-30 years.
Facilitate the conclusion of the fuel supply contract (gas or coal) at a
predetermined price for 25-30 years.
Guarantee that in case of violations by the Purchaser of its obligations, the
Project Company will receive compensation from the Guarantor appointed
by Akimat (utility company owned by Akimat or, for example, SBC).
Guarantee that in the event of material breach by Akimat of its obligations
under the Implementation Agreement, the Project Company is entitled to
demand from the Guarantor to purchase power at a specified price (“ticket
home”) and exit the Project in exchange for a built power plant, which
remains with the Guarantor.
If the Guarantor does not have sufficient funds, Akimat shall make an
additional contribution to the charter capital of the Guarantor.
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Electric Power Sale-and-Purchase Agreement
• The principal contract in IPP projects.
• Long-term (up to 30 years).
• Guarantee of consumption of a certain amount
(e.g. 80%) of power.
• Signed between the Project Company and the
Purchaser (a solvent company represented by
Akimat – e.g. KaragandyZhyluSbyt LLP).
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Guarantee Agreement
• To successfully attract international financing for IPP projects, a
guarantee from a solvent company represented by Akimat
(Guarantor) for the obligations of the Purchaser under the Electric
Power Sale-and-Purchase Agreement is required.
• For example, the guarantee from a solvent utility company or SBC.
• The Guarantor will also have to provide a guarantee to purchase a
built power plant from the Project Company in the event of
termination of the Implementation Agreement due to Akimat’s fault.
• For example, if the Project Company does not receive fuel for more
than 6 months for the reasons beyond its control, it is entitled to
claim the purchase of power (to recover its investments) and
withdraw from the Project.
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Why concession does not work in Kazakhstan?
• Concession objects cannot be subject to pledge (there is nothing to
secure loans by).
• Concession object is not subject to alienation during the period of
the concession (concession in Kazakhstan is only possible on the
‘Build Transfer Operate’ principle).
• Excessive bureaucracy and lack of transparency (development of the
list, tender, etc.).
• Participation in a tender for the selection of a concessionary is not
acceptable for many investors.
• Since concession has proven its inefficiency in Kazakhstan, a good
alternative for raising private investments to construction of power
plants in Kazakhstan on PPP principles may be IPP projects.
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Contact Details:
Shaimerden Chikanayev, Partner
GRATA Law Firm
е-mail: schikanayev@gratanet.com
GRATA Law Firm
104, M. Ospanov Street, Almaty, 050020,
Kazakhstan
Ph.: +7 727 2 445-777
Fax: +7 727 2 445-776
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