REPORT STATE OF COMPETITION IN CERTAIN COMMODITY MARKETS AND MEASURES TAKEN TO LIMIT MONOPOLISTIC ACTIVITY FOR 2022

This report has been prepared by the Agency for Protection and Development of Competition of the Republic of Kazakhstan (hereinafter referred to as the Agency, the Antimonopoly Authority) to inform the President of the Republic of Kazakhstan and the Prime Minister of the Republic of Kazakhstan on the state of competition in certain commodity markets and measures taken to limit monopolistic activities for 2022 in accordance with subparagraph 26) of Article 90-6 of the Entrepreneurship Code of the Republic of Kazakhstan (hereinafter referred to as the Code).

The Report provides information on:

- the most significant events (measures) in antimonopoly regulation and competition policy in the Republic of Kazakhstan for 2022;

- international co-operation with foreign Antimonopoly Authorities, including within the framework of international integration associations;

- state of competition in certain commodity markets of the Republic of Kazakhstan, factors distorting competition and barriers to entry into commodity markets, information on measures to eliminate them;

- results of work to reduce participation of state in entrepreneurial activities, detection and suppression of violation of competition protection legislation of the Republic of Kazakhstan, indicators of state regulation of economic concentration, information on ongoing work to improve competition protection legislation of the Republic of Kazakhstan;

- main tasks, set before the Antimonopoly Authority for the coming year

Chapter 1. Competition Policy in the Republic of Kazakhstan

General Trends of Competition Policy in the Republic of Kazakhstan

The analysis of the state of competition on commodity markets in the basic sectors of country's economy (markets of fuel and energy sector, transport, telecommunications, and communications) shows that the aggregate share of main market players ranges from 70 to 100%, with a number of markets showing increased market power concentration ratio (low level of competition) (Figure 1).

Figure 1- Dynamics of changes in the market power concentration ratio (concentration ratio of the three (CR-3) largest suppliers), %.

Moreover, there is a new trend in the economy of the Republic of Kazakhstan: state participation in entrepreneurial activities is expanding, and new monopolies with state participation are emerging.

As a result, the formed monopolistic / oligopoly structure of key commodity markets favors banned monopolistic activities, increasing marginal costs of entrepreneurs and costs for population: according to experts of Organization for Economic Co-operation and Development (OECD), weak competition can lead to price increases of up to 10%^[1] on average. In this regard, development of fair competition and general demonopolization of economy have become a national task and priority of Kazakhstan's state policy.

Against this background, a number of systemic documents were adopted in 2022, which define key areas of developing state policy in the field of competition protection and development, including, inter alia, improvement of legislation, adoption of documents of state planning system on competition issues.

Thus, one of important events of the beginning of 2022 was signing of the Law "On Amendments and Supplements to Some Legislative Acts of the Republic of Kazakhstan on the Competition Development"^[2], the so-called "fifth antimonopoly package”, by the Head of State (hereinafter referred to as the Law dated 3 January 2022).

The Law dated 3 January 2022 ensures execution of main directions set out in Presidential Decree No. 484 dated 31 December 2020^[3] (hereinafter referred to as Decree 484). By Decree 484, for the first time in the history of independent Kazakhstan, the active promotion of competition is recognized as a national task. In general, the Law dated 3 January 2022 covers the reduction of state participation in entrepreneurship, ensuring equal access of business entities to state support measures and procurement, development of small and medium enterprises, reduction of administrative and economic barriers to entry into commodity markets, as well as price regulation instruments (the provisions of the Competition Law are described in more detail in Section 1.2 of this Report).

Also in 2022, the Head of State by his Decree approved the Concept of Competition Protection and Development in the Republic of Kazakhstan^[4] (hereinafter referred to as the Concept). The Concept is designed to provide a vision of further development of antimonopoly regulation, as well as the issues of competition development in the country, building a holistic competition policy integrated into the overall economic policy of the country.

Taking into account the tasks outlined in the system documents, active work on the following strategic directions was started in 2022:

1) limiting the share of state participation in entrepreneurship;

2) increasing the coverage of state support measures for private entrepreneurs on competitive principles;

3) working with the Government to promote competition.

From the point of view of effective implementation of the competition policy, it is not unimportant to implement a number of operational measures on which the overall quality of the Antimonopoly Authority's work depends, such as digitalization of its activities and introduction of corporate governance principles.

Improvement of the Competition Protection Law

In 2022, the Agency continued work on improving the competition protection legislation of the Republic of Kazakhstan, in particular, the following Laws were developed and adopted:

1) dated 3 January 2022 "On Amendments and Supplements to Some Legislative Acts of the Republic of Kazakhstan on the Competition Development" (hereinafter referred to as the Law dated 3 January 2022);

2) dated 1 July 2022 "On Amendments and Supplements to Some Legislative Acts of the Republic of Kazakhstan on Anti-Money Laundering and Counter-Terrorist Financing (AML/CTF), as well as State Price Regulation" (hereinafter referred to as the Law dated 1 July 2022);

3) dated 30 December 2022 "On Amendments and Supplements to Some Legislative Acts of the Republic of Kazakhstan the Implementation of Certain Instructions of the Head of State" (hereinafter referred to as the Law dated 30 December 2022).

The Law dated January 3, 2022 provides for the following:

1) providing access to essential facilities.

The laws of the Republic of Kazakhstan lacked clear regulation of entry into the relevant commodity market, which was used by monopolists and dominants when refusing to sell goods, including by referring to the concluded long-term contracts with a permanent circle of persons.

In this regard, the Law (Articles 174, 176-1 of the Code) defines the concepts of essential facilities, criteria for attribution to essential facilities, and establishes the procedure for equal access to essential facilities (approved by Order No. 15 dated 13 June 2022 of the Chairman of the Agency).

These norms in aggregate will ensure equal access of market players to the limited and capital-intensive resources of dominant and monopolists;

2) regulating the activities of public and private operators.

In Kazakhstan, there is a practice of legislative granting of exclusive rights to certain market players to carry out certain types of activities without creating a state monopoly.

In this regard, to minimize monopoly costs, the Law (Articles 120, 172, 193 of the Code, laws on accounting and access to information) extended the legal regime of state monopoly (institute of special law), strict regulation (prices, ban on other activities), compensation for losses to competitors, publicity to public and private operators, and approved the Rules for determining a state-owned enterprise, joint stock company, limited liability partnership as a subject of special law (Government Resolution No. 453 dated 30 June 2022).

These amendments will make it possible to eliminate the negative impact of monopolies on adjacent markets and ensure the transparency of their selection and activities;

3) reducing state participation in entrepreneurship.

The serious consequences of the violation of the "Yellow Pages Rules" principle are the displacement of private entrepreneurs by state-owned business entities from public procurement, quasi-public sector procurement. Meanwhile, the current grounds for state participation in entrepreneurship imply a ban on the activities of state-owned business entities in competitive commodity markets.

To solve this problem, monitoring of the activities of quasi-public sector entities has been introduced (Article 90-6 of the Code) and the procedure has been established for monitoring the activities of state-owned enterprises, legal entities with more than fifty percent of shares (interests in the share capital) owned by the state, and their affiliates for obtaining the approval from the Antimonopoly Authority when establishing, expanding and (or) changing the types of activities carried out, as well as carrying out only those types of activities for which the approval from the Antimonopoly Authority has been obtained" (Order No. 4 dated 28 March 2022 of the Chairman of the Agency).

In addition, to reduce state participation, an exhaustive list has been defined and the grounds for allocating state assignments have been reduced (Article 41 of the Budget Code), and the procedure for issuing an opinion on compliance with the competition protection legislation of the Republic of Kazakhstan has been regulated (Order No. 9 dated 20 April 2022 of the Chairman of the Agency);

4) ensuring equal access to state support measures.

Focusing on the development of small and medium enterprises is one of the strategic directions of state support.

At the same time, in fact, much more funds are allocated to support large businesses. Unreasonably high requirements, non-transparent system of access, lack of proper control lead to the creation of conditions for granting state support to a limited circle of persons.

In this regard, a requirement has been introduced for new state support measures (including the rules for their provision) to be approved by the Antimonopoly Authority and criteria for determining priority areas for the provision of state support measures have been established (Article 194 of the Code).

Implementation of the norms in practice will create equal conditions of access to state support measures, eliminate the facts of targeted support that distorts competition on commodity markets, and focus the state's attention on supporting new market players and SMEs;

5) developing antitrust regulation tools.

Merger and acquisition control is one of the important components of antitrust regulation of market structure aimed at preventing the concentration of market power in single hands. In the course of control over transactions, the Antimonopoly Authority may prescribe certain requirements for the approval of a transaction.

The OECD notes that competition agencies in many countries use proxies to effectively facilitate the enforcement of transactions and independent monitoring. The proxy must be independent and is appointed or approved by the Antimonopoly Authority in the case of both complex unbundling transactions and the need to monitor the enforcement of behavioral conditions.

Thus, the institution of a proxy has become widespread in the practice of Antimonopoly Authorities in foreign countries, as it ensures a professional and expert approach to the implementation of the Antimonopoly Authority's decision, developing optimal solutions together with the business and constructive interaction with the Antimonopoly Authority.

In this regard, to ensure monitoring and facilitate enforcement of the Antimonopoly Authority's decisions on actions aimed at ensuring competition, the Law introduced the institution of a proxy to monitor compliance with the terms of economic concentration transactions (Article 210-1 of the Code) and approved the procedure for keeping the register of proxies (Order No. 5 dated 29 March 2022 of the Chairman of the Agency).

The Law dated 1 July 2022 was drafted and adopted in pursuance of the instruction from the Head of State.

Thus, in January 2022, the Agency, on the instruction from the Head of State, introduced temporary state price regulation for retail sales of liquefied petroleum gas (hereinafter referred to as the LPG).

Under the Code provisions then in effect, the total period of application of such regulation could not exceed one hundred eighty calendar days in any one year. In order to extend the price regulation of retail LPG sales, the Law dated 1 July 2022 excludes the norm concerning the general period of application of price regulation (Part 2 of Article 119 of the Code).

Thus, this amendment made it possible to exclude the risks of sharp price increases and, as a consequence, the emergence of social tension in society.

The Law dated 30 December 2022 was drafted and adopted in pursuance of the instruction from the Head of State.

In January 2022, during a meeting with representatives of large domestic businesses, the Head of State instructed to establish at the legislative level a ban on the exercise of economic functions of the state by private monopoly operators.

In pursuance of this instruction, the Law dated 30 December 2022 amended the Code, providing that only a legal entity with one hundred percent of shares (interests in the share capital) directly or indirectly owned by the state can be a subject of special law
(Article 193 of the Code). Thus, the procedure for establishing private operators has been made as complicated as possible at the legislative level.

Limiting the Share of State Participation in Entrepreneurship

The high level of state presence in entrepreneurship is a deterrent to the promotion of competition on commodity markets. To promote private entrepreneurship and competition, the most important task is to reduce the share of state participation in entrepreneurial activity. Work in this direction is carried out through privatization, restriction of activities of quasi-public sector entities (approval of establishment, restriction of types of activities). The measures being implemented to limit state participation in entrepreneurship are aimed, inter alia, at reducing public operators and state assignments.

Privatization

In accordance with the instruction of the Head of State, given following the results of the meeting on stabilization of the socio-economic and socio-political situation dated 5 January 2022, the Agency has developed proposals to improve the privatization processes taking into account the competition policy. To date, these recommendations have been partially adopted. In particular, the privatization plan includes criteria (principles) according to which enterprises are included in the list of privatized entities.

For reference: The criteria (principles) include: 1) non-compliance of the activity with the conditions of state participation in entrepreneurship; 2) SMEs; 3) proposals of the Antimonopoly Authority; 4) ownership of an uncontrolled block of shares; 5) non-implementation or ineffective implementation of the development plan over the past 3 years; 6) the onset of the payback period of the project; 7) the onset of the period of presence on the commodity market recommended by the Antimonopoly Authority 8) applications from private business entities.

Amendments to the laws on privatization of large enterprises were developed and sent to the Ministry of National Economy, taking into account the Antimonopoly Authority's analysis.

An analysis of the privatization process shows that there are a number of problems arising from the sale of state assets. Due to the lack of clear criteria, privatization plans are formed on a residual principle or on the basis of the results of an independent assessment that does not take into account the issues of competition development:

1) in the first case, the objects of privatization are unprofitable enterprises providing social services (facilities of life support, culture, sports, education) and, if the object is not sold at the end of three tenders, it is subject to liquidation according to the requirements of the laws. In some cases, due to the lack of alternative suppliers, local executive bodies are forced to reestablish state-owned enterprises carrying out the same types of activities;

2) in the second case, to maximize profits, vertically integrated structures of Samruk-Energy JSC type are included in the privatization plan as one lot. This leads to the establishment of new "private monopolies" or to the strengthening of the position of the existing dominants.

To systematize and prevent similar facts in the future, the Agency has proposed a number of measures:

1) legislative regulation of the procedure for forming a privatization plan in coordination with the Antimonopoly Authority. Before the financial assessment of the object, the Agency will make proposals on sale options, taking into account the current market structure;

2) consolidation of the "privatization on application" principle, which gives the entrepreneur the right to choose the object of privatization. If case of a private initiative, the object can be sold;

3) to ensure transparency of decisions of the State Commission on Economic Modernization in terms of approval of direct targeted sales or exclusion of objects from the privatization plan, the Agency proposed to make publicly available the relevant justifications signed by the CEO of the authorized state body;

4) the proposals of the Antimonopoly Authority based on the results of the sectoral analysis will be a mandatory basis for inclusion in the privatization plan.

Relevant amendments were made to the draft Law "On Amendments and Supplements to Some Legislative Acts of the Republic of Kazakhstan on the Development of the Quasi-Public Sector", developed by the Ministry of National Economy.

At the same time, there is a tendency to reduce the Privatization Plan. This is due to the initiatives of state authorities to exclude enterprises from the Privatization Plan for various reasons and reluctance to include new ones. As a result, in a short period of time, without analytical assessment and without taking into account the market structure, decisions are made on the expediency of filling the Privatization Plan or excluding a number of companies from it.

The role of the Antimonopoly Authority in the privatization process is to submit proposals to the Government for the transfer of quasi-public entities to the competitive environment. However, the individual privatization proposals of the Agency are not supported. So, for example, according to the results of the sectoral ^[5]and antitrust analyses conducted at the end of 2021, 91 enterprises were proposed to the Government for privatization, of which only 12 were supported. In 2022, as part of the implementation of the National Entrepreneurship Development Project^[6] (hereinafter referred to as the National Project), as well as taking into account the instructions of the Head of State, work was completed to improve the current methodology of sectoral analysis. As a result, a list of 100 quasi-public sector entities to be privatized was determined.

For reference: the list includes entities providing services in the following sectors: information and communication, construction; agriculture, forestry and fishery; transport and warehousing; financial and insurance, as well as provision of other types of services.

At the same time, based on the results of antitrust analyses, the Agency proposed to include 5 market players in information technologies, communications and transport into the Comprehensive Privatization Plan.

Thus, based on the results of the analytical work carried out by the Agency in 2022, 105 enterprises were proposed for privatization. However, the issue is still being worked out.

Reducing the list of activities authorized for quasi-public sector entities^[7]

In 2022, based on the results of the analysis, the Agency established the absence of quasi-public sector entities for certain types of activities or the presence of only one quasi-public sector entity in the relevant commodity markets for 45 types of activities.

In this regard, at the initiative of the Agency, on 21 July 2022, the Government Resolution was adopted^[8], providing for the reduction of the List of activities carried out by state-owned enterprises, legal entities with more than fifty percent of shares (interests in the share capital) owned by the state, and their affiliates (hereinafter referred to as the List 1095), by 45 types of activities (by 11%), including in the fields of industry, construction, finance, consulting services, transportation. Thus, out of 410 previously authorized activities, 365 will be authorized for quasi-public sector entities today (Figure 2).

Figure 2– Number of authorized activities.

However, despite the reduction of the 1095 List, the establishment of new quasi-public sector entities continues. This has been facilitated, inter alia, by the expiration of the moratorium on the establishment of quasi-public sector entities in December 2021^[9]. During the moratorium period from 2019 to 2022, the establishment of quasi-public sector entities decreased by an average of 50%. At the same time, after the moratorium expired, the number of quasi-public sector entities established exceeded the number of privatized enterprises.

Monitoring of activities

At the beginning of 2022, the Antimonopoly Authority was empowered to monitor the activities of quasi-public entities for obtaining the approval from the Antimonopoly Authority when establishing, expanding and(or) changing the activities carried out, as well as carrying out exclusively those activities for which the approval from the Antimonopoly Authority has been obtained^[10].

In accordance with the schedule for 2022, monitoring was carried out at National Company Kazakhstan Temir Zholy JSC (hereinafter referred to as KTZ). It was found that the statutory activities of KTZ, including its affiliates, totaled more than 400 activities.

For reference: out of 42 companies 14 companies are not covered by the monitoring, including: 7 non-residents of the Republic of Kazakhstan, and 7 joint ventures with no more than 50 percent of shares (interests).

The results of monitoring at KTZ indicate non-compliance with the "Yellow Pages Rule" principle, enshrined in the Code^[11]. Thus, of the 424 types of activities analyzed, 81 are carried out without approval of the Antimonopoly Authority.

Similar work was carried out in the regions, where 251 state-owned social enterprises were monitored. As part of the monitoring, violations were identified in the actions of 59 entities and relevant improvement notices were given to them. Similar work continues for individual enterprises that are members of Samruk Kazyna JSC.

For reference: Kazakhtelecom JSC, Kazpost JSC, Samruk-Kazyna Contract LLP, Samruk Kazyna Business Service LLP, Samruk Kazyna Invest LLP, Kazakhstan Nuclear Power Plants LLP.

At the same time, according to the Ministry of Finance, more than 6 thousand state-owned enterprises operate in Kazakhstan. In this regard, the Government should review the activities of all quasi-public sector entities for compliance with the norms of the Code.

Reducing operators

The Agency continues to work on the reduction of single operators.

In implementation of the instruction of the Head of State, voiced in the Address to the People of Kazakhstan dated 01 September 2022^[12] (hereinafter referred to as the Address dated 01 September 2022), as part of activities for the National Project, a list of operators and subjects of state monopoly has been formed for the purpose of depriving them of operator and monopoly status and further transfer to a competitive environment.

For reference: 1) National Information Technologies JSC - deprivation of 3 operator functions out of 5 available ones; 2) Kazaviaspas JSC - limitation of operator scope of activities for the needs of the Ministry of Emergency Situations; 3) Kazteleradio JSC - deprivation of the status of a national broadcasting operator; 4) Kazimpex JSC - deprivation of the status of an operator providing economic support to the national security bodies of the Republic of Kazakhstan; 5) Republican Centre for Space Communications JSC - deprivation of the status of a national operator of the space communications system; 6) Ural-Atyrau Sturgeon Hatchery Republican National Enterprise of the Committee of Fisheries of the Ministry of Ecology, Geology and Natural Resources of the Republic of Kazakhstan – deprivation of the monopoly on the removal of sturgeon species from their natural habitat due to the moratorium on trapping; 7) Kazakhstan Garysh Sapary JSC - an operator of remote sensing of the Earth.

The Law of 03 January 2022 amended the Code, in particular introducing norms regulating the institute of special law governing the activities of operators determined to perform certain types of economic activities.

Seventeen operators are proposed to be regulated under the special law. These operators are recognized as subjects of special law and are included in the register of subjects of special law^[13]. The remaining 24 operators are not subject to regulation because they have no impact on the market or their activities are already regulated by the laws on natural monopolies.

However, state authorities do not cease to grant exclusive rights to subordinate organizations. Thus, the Agency has identified 17 new operator functions enshrined at the legislative level and having signs of special law. This is due, inter alia, to the desire to "circumvent" bidding procedures, thus ensuring that goods and works can be procured from a "single source", from an entity defined by the laws. For example, in 2022, more than a third of all public procurement is single-source procurement (about KZT 2.4 trillion). Of this amount, about 8 per cent (KZT 191 billion) are single-source procurements from entities defined by the laws.

Reducing state assignments

The analysis of state assignments has shown an annual dynamics of growth of financial indicators with a systematic decrease in their number. Thus, in the period from 2021 to 2022, the amount of funds allocated for the implementation of state assignments increased from KZT 182.1 billion to KZT 329.1 billion, with the total number of agreed bids 157 and 119 respectively (Figure 3).

Figure 3– Number of agreed state assignments.

At the same time, the number of applications from state authorities to obtain a favorable opinion of the Agency does not decrease. This is due to the existing practice of using state assignments for the maintenance of subordinate organizations.

To involve private entrepreneurs in the implementation of state assignments, the Antimonopoly Authority today, when approving them, imposes conditions on the transfer of part of the work to private entrepreneurs. In addition, the Antimonopoly Authority is empowered to determine the amount of work to be transferred to the competitive environment through a tender (about 5% of the amounts intended for the implementation of government assignments).

To limit the facts of non-competitive procurement of goods (works, services) from subordinate organizations through state assignments, a list of areas (sectors) where the implementation of state assignments is possible has been created. It has 26 points and will be reduced in the future, taking into account the level of competition development. There is also an exhaustive list of criteria for attributing services to state assignments (ensuring national security, state defense capacity, maintenance of strategic facilities, critical informatization facilities, absence or low level of competition in commodity markets, or uniqueness of goods and intellectual property). At the same time, at the legislative level there is a ban on the inclusion in the list of state assignments of orders that do not meet the areas and criteria.

Monitoring state support measures

The most important task is to increase the coverage of state support measures for private entrepreneurs on competitive principles. Now there is a personalization of state support measures - mainly large businesses are supported. This negatively affects the investment attractiveness of the country, and also reduces the allocative efficiency of competition, contributing to the emergence of so-called "zombie firms".

The existence of issues of accessibility of state support measures was noted by the Head of State at the meeting of the Majilis of the Parliament on 11 January 2022: "The existing system is focused mainly on servicing large structures on the principle: "to friends - everything, the rest - according to the law". In fact, this system further reinforces the oligopoly in the economy. Large businesses enjoy special privileges, stifling competition and hindering reform.^[14]"

In this area, the Agency analyzed the activities of Baiterek Holding (hereinafter referred to as the Holding) to ensure equal access to state support measures.

Based on the results of the analysis, the actions of the Holding Company's subsidiaries showed signs of violation expressed in:

- the creation of unequal conditions of access to support measures for final recipients, part of the application of different lending rates for large infrastructure projects;

- favoritism in the actions of the Holding Company's subsidiaries in terms of priority, accelerated consideration of applications for support measures (instead of 7 calendar days, some projects are approved without queuing within 2-3 days from the moment of receipt, while for other projects the consideration timeframe is violated and exceeds 300 days);

- the creation of a privileged position by not providing counter-obligations to certain businesses or continuing to provide support measures when they were not actually implemented.

In this connection, the Holding Company has been issued a Prescription to take actions aimed at ensuring competition. Also, to the address of KazakhExport JSC and Development Bank of Kazakhstan JSC, operators of state support measures, has been notified about presence of signs of violations of the laws in their actions. Currently, the Agency's arguments have been taken into account by the Holding and the operators, and work is underway to bring the processes of providing state support measures into compliance with competition law.

At the same time, in addition to identifying signs of violations, the Agency also identified a number of industry-specific problems affecting the development of competition.

1) lack of planning for the allocation of funds to specific areas of support within the framework of one state program (national project). At present, when developing program documents, sectoral ministries determine the main approaches and tools to stimulate entrepreneurship, but do not take into account the allocation of funds to specific areas of support. In practice, this leads to a deviation from the main objective of the program document, as a consequence of which monopolized markets do not develop.

For reference: the development of transport infrastructure and transit potential of the country was stated as the main objectives of the Nurly Zhol State Programs for 2015-2019, 2020-2025. Monitoring has shown that in fact most of the state's resources are directed to a non-priority area of support - pre-export financing. Since 2015, the total amount of financial support to the above state programs amounted to KZT 711 billion, of which 18.3% was allocated for preferential lending for infrastructure projects, 2.5% for subsidizing leasing rates for the purchase of railcars, and 79.1% for pre-export financing. Only 19 enterprises received this type of incentives, with the majority (55%) allocated to 3 organizations: Kazphosphate LLP, Arcelor Mittal Temirtau JSC, Kazzinc LLP.

2) low efficiency of state support measures due to the lack of a unified system for monitoring the acceptance of counter-obligations.

Based on the results of the analysis, it was found that within the framework of one project, when receiving support measures from different operators, businesses indicate the same final results (job creation, increased tax payments, increased production and (or) export of products).

Today, the state authorities have developed a unified position on the need to create a monitoring system that excludes the possibility of simultaneous receipt of support measures within the framework of one project and/or enterprise without taking additional amounts of counter obligations.

At the same time, the issue of the responsibility of the developers of national projects to determine funding limits for specific areas of support will be worked out within the framework of the Concept and during the development of the new version of the Budget Code.

Working with the Government to promote competition

For a long time, there has been a weak involvement of sectoral government bodies in the adoption of measures to promote competition in the implementation of government policy in the relevant sectors of the economy. As a result, administrative barriers to the development of competition remain in the country's economy.

In this regard, in 2022, as part of the Concept implementation, the Agency, together with the Government, in order to optimize the interaction between competition and sectoral policies, started joint work on the development of competition in certain commodity markets. In particular, competition development roadmaps are being adopted in this direction. As of today, Kazakhstan has already adopted roadmaps for the development of competition (posted on the Agency's official website)^[15]:

1) in the oil and oil products market. The Action Plan provides for a number of measures to ensure access to resources, to analyze exchange trading in oil products with a view to increasing it to 20%, to approve the Rules of Equal Access to Essential Facilities for Wholesale Sales of Oil Products, to approve KMG Aero JSC's activities on jet fuel sales by a certificate of antitrust compliance (retail sales), to develop a forecast plan for convergence of the cost of fuels and lubricants within the EAEU by 2025 (mechanism of balanced price regulation);

2) in the coal sales market. It is planned to eliminate "unproductive" intermediaries (by setting requirements to wholesale and retail coal suppliers on the availability of storage infrastructure, ban on coal sales between intermediaries; as well as amending the List of Exchange Commodities and the Rules of Exchange Trading to fix the ratio of sales of 50% share of utility coal through exchanges: 90 per cent long-term annual contracts, 10 per cent spot trades). To cover the demand in the domestic market in a timely manner, priority will be given to rolling stock for the carriage of utility coal purchased by regional operators at the commodity exchange. In addition, a mechanism of regional supply bases for utility coal will be introduced (preservation of FCA conditions with division of trades by regions), with a possibility to switch to the RoK supply basis in case of non-demanded volumes". In addition, the primary wholesale market of coal sales for the needs of energy producing organizations will be analyzed for classification as a publicly important market;

3) in the civil aviation sector. The Roadmap envisages measures aimed at eliminating key barriers to competition development in civil aviation (excessive state participation, limited access to infrastructure) and including, inter alia, the implementation of the state block of shares in QazaqAir JSC, AirAstana JSC, separation of FlyArystan Airlines as a separate market player until privatization, extension of the "open skies" regime until 2028, as well as consolidation of non-discriminatory access of retailers of aviation fuel to fuel-fueling complexes of airports, as well as elaboration of issues on construction of alternative fuel-fueling complexes in the airports of the Republic;

4) in the agro-industrial sector. To stimulate agricultural producers, new approaches to subsidies are envisaged with a focus on problematic commodity markets. A conceptual revision of the state price regulation of socially important food products is expected. The plan is to remove barriers in promoting agricultural producers' products to consumers through trade networks/facilities, to balance the interests of domestic producers and food trade organizations, and to develop exchange trade in agricultural products;

5) in the housing construction sector. By the end of 2023 it is planned to solve the problem of non-competitive allocation of land plots through mechanisms of special economic zones and socio-entrepreneurial corporations, responsibility of akimats for failure to place information on vacant land plots is toughened, checks for compliance with the laws in terms of attracting funds of shareholders are introduced . Measures have been included providing for the digitalization of the processes of acquisition of residential and non-residential premises, shares and units in residential buildings under construction, increasing transparency of the activities of the single operator (Kazakhstan Housing Company JSC) in the selection of engineering companies, attributing the services of the operator to public services;

6) in the health care sector and in the market of medicines storage and transport services. The plan is to reduce excessive price regulation for medicines in the commercial segment, to provide access to state procurement of medicines within the Statutory Free Medical Assistance and/or the Compulsory Social Health Insurance system. In addition, it is envisaged to reduce the level of state participation in the health care sector and eliminate administrative barriers to health care services. The business processes of market entry of medicines will be digitized. It is also envisaged to reduce the share of single-source procurement for the service of storage and transport of medicines and medical devices;

7) in the telecommunication sector. The roadmap includes measures aimed at reducing the state's share in the telecommunication market, including, inter alia, analysis of the current procedure for conducting auctions for radio frequency allocation (taking into account international experience), the demonopolization of the Kazakhtelecom Group by means of phased establishment of subsidiaries (cellular operators). The measures also included aimed at ensuring equal access to infrastructure, including such as establishing the competence of the authorized body in the field of telecommunication to reallocate radio frequency spectrum (the RFS), introducing mandatory sharing of RFS, infrastructure (sharing), analyzing the procedure for connection and interaction of telecommunication networks of telecommunication operators, determining the competence to approve the competitive procedure for the transfer of utility tunnel built at the expense of budgetary funds.

Thus, government agencies are involved in promoting competition in the relevant sectors of the economy.

The remarkable fact is that the need for a whole-of-government approach to address the problems of excessive concentration, monopolization and unfair competition is also noted in the Executive Order on Promoting Competition in the American Economy^[16]. In this Decree, in addition to the classic antitrust line of defense against monopolization (antimonopoly regulations, including Sherman and Clayton Acts) the Executive Order includes measures requiring industry regulators to protect fair competition conditions and to cooperate with the Antimonopoly Authorities (the Federal Trade Commission and the Department of Justice).

Identifying and suppressing anti-competitive practices

An important feature of the new competition policy was its focus on the transition from a punitive orientation ("ex-post") to the active use of "ex-ante" measures stimulating market players to pro-competitive behavior.

Such measures include, inter alia, notices of the existence of signs of violation in actions (inaction), warnings about the inadmissibility of anti-competitive practices, antitrust compliance.

Thus, the focus of the Agency's activities is shifted to the prevention of anti-competitive practices.

The relevant approaches are enshrined in Decree 484^[17] and the Concept, which prioritizes preventive antitrust regulation measures as one of the principles of the state policy for the development of competition.

In general, in 2022, the antimonopoly authority issued 508 notices of the existence of signs of violation in actions (inaction) in the field of competition protection (Figure 4), of which 430 notices or 84.6% were closed (79.2% in 2021).

However, there is an increase (relative to 2021) in the number of notices issued in 2022 (a 27% increase).

Figure 4– Dynamics of notices issued.

In addition, in 2022, 33 warnings on the inadmissibility of violating competition law were issued (Figure 5), with a 43% increase in the number of warnings issued compared to 2021.

Figure 5– Dynamics of warnings issued.

Stable growth is also observed in the number of agreed drafts of the external act of antitrust compliance. In 2022, 251 drafts of the external act of antitrust compliance were agreed, in 2021, 236 drafts were agreed, and in 2020, 82 drafts were agreed (Figure 6).

Figure 6– Dynamics of agreed drafts of the external act of antitrust compliance.

The Agency's law enforcement practice, including antitrust response measures, is being modified in view of changes in approaches to the development of competition protection and development, improvement of competition protection laws.

The antimonopoly authority focuses on the more "malicious" anti-competitive practices that cause the most tangible economic damage, including such practices as anti-competitive agreements, abuse of dominant or monopolistic position.

OECD experts estimate that violations related to cartels and abuse of dominant or monopolistic position can lead to unjustified price increases of up to 15% on average^[18].

As a result, for example, while in 2016 the Antimonopoly Authority's investigations into anti-competitive agreements accounted for 3% of the total structure of investigations, by the end of 2022 this indicator has reached 35%, thus topping the list.

In second place are investigations related to abuse of dominant or monopolistic position. In general, the structure of investigations by type of violations is shown in Figure 7.

Figure 7– Structure of investigations by type of violation in 2022.

For reference: In total, 133 investigations were completed in 2022 with respect to more than 283 market players (the increase in the number of market players in the scope of investigations is due to investigations of wholesale and retail sellers of liquefied gas) and 13 state, central and local executive bodies:

anti-competitive agreements - 46 investigations;
abuse of dominant or monopolistic position – 37 investigations;
anti-competitive actions (inaction) of state and local executive bodies - 17 investigations;
unfair competition – 4 investigations;
coordination of economic activities - 3 investigations;
anti-competitive concerted actions - 26 investigations.

Examples of significant ones include investigations into:

- the establishment of monopolistically high prices revealed in the actions of Kamkor Locomotive LLP, which provides locomotive maintenance services. The court imposed an administrative penalty of KZT 240 million on Kamkor Locomotive LLP for these actions;

- abuse of dominant position, expressed in the systematic refusal to sell oil products to certain buyers while satisfying the requests of other buyers, revealed in the actions of Petrosun LLP following the results of joint work with the prosecutor's office (KZT 607 million was recovered);

- cartel agreement revealed as a result of the completed investigation of KFK Medservice Plus LLP, Akniyet LLP, Stopharm LLP. These companies, when participating in the procurement of transport and storage services for medicines conducted by SK-Pharmacia LLP, created phantom competition by agreeing and allocating lots in advance;

- evidence of abuse by Halyk Bank of Kazakhstan JSC of its dominant position, which was expressed in the imposition of life insurance services. The investigation was initiated in connection with the failure to close the notice of the existence of signs of violation of competition protection legislation in the actions of the bank;

- evidence of monopolistically high prices for metrology services (verification and calibration of measuring instruments), for confirmation of conformity of goods (testing, certification, declaration of products and services). Investigations on these facts were initiated against National Center for Expertise and Certification JSC;

- evidence of monopolistically low prices for petroleum coke. An investigation was initiated against UPNK-PV LLP on this fact.

In its turn, the Agency's practice for the last 3 years on investigations of unfair competition facts that do not have a significant impact on the general conditions of goods circulation in the relevant commodity market shows the opposite dynamics (in 2020 - 11 investigations (10%), in 2021 - 7 investigations (5.7%), in 2022 - 4 investigations (3%)).

At the same time, as the statistics of the notices issued by the Agency show, one of the significant factors distorting competition is the anti-competitive actions of state bodies, the indicators for which reached 27% in 2022 (Figure 8).

Figure 8– Structure of notices by type of violations in 2022.

For reference: By type of violation, the statistics of notices issued are as follows:

196 on the grounds of abuse of dominant or monopolistic position (except for the grounds specified in subparagraph 1) of Article 174 of the PC RoK);
136 on the grounds of anti-competitive actions (inaction), agreements of state and local executive bodies, organizations vested by the state with the functions of regulating the activities of market players;
97 on the grounds of anticompetitive concerted actions of market players;
74 on the grounds of unfair competition;
5 on the grounds of anti-competitive vertical agreements.

In this case, it should be noted that by possessing power-administrative competence, the state, local executive bodies, organizations vested with the functions of regulating the activities of market players have the ability to influence the state of competition.

In this regard, the practice of favoritism and the creation of unequal conditions for doing business by the state causes significant damage to entrepreneurship and the investment climate. The main risks of such actions are contained in the procedures for granting state support measures, land plots, public procurement, and business regulation. Thus, the implementation of investment projects with the participation of Social and Entrepreneurial Corporations (SECs) with the right to provide land plots and other support measures, due to the absence of strict selection rules, has become the most common practice of creating a privileged position for certain market players.

Overall, the investigations completed in 2022 resulted in decisions to:

- initiate administrative offence proceedings and issue orders to eliminate violations of law in 65 investigations (134 in 2017, 117 in 2018, 50 in 2019, 50 in 2021);

- terminate investigations on the grounds provided for in Article 223 of the Code for 34 investigations (23 in 2017, 28 in 2018, 18 in 2019, 51 in 2020, 43 in 2021);

- issue prescriptions to eliminate violations of law in 10 investigations (53 in 2017, 23 in 2018, 5 in 2019, 8 in 2020, and 10 in 2021);

- transfer materials to law enforcement agencies for pre-trial investigation in 24 investigations (2 in 2017, 3 in 2018, 0 in 2019, 0 in 2020, 4 in 2021).

For 2022, fines totaling KZT 2.1 billion were imposed for violations of competition law, of which KZT 1.9 billion or 90.5 per cent were recovered (in 2017 - KZT 3.2 billion, in 2018 - KZT 2.4 billion, in 2019 - KZT 1.3 billion, in 2020 - KZT 675 million, in 2021 - KZT 1.1 billion). The upward trend in the amount of fines is related to a number of investigations into cartel agreements and abuse of dominant or monopolistic position. At the same time, as part of joint work with law enforcement authorities on anti-competitive practices, more than KZT 12 billion in damages were reimbursed to the state income.

At the same time, the effectiveness of antitrust response measures deserves special attention. Practice shows that antitrust investigation procedures are unreasonably prolonged, which is a consequence of unnecessary bureaucratic procedures and abuse of procedural rights by appealing burdensome administrative acts. Litigation to appeal the acts of investigation can stretch up to two years.

Regulating economic concentration

At the same time, significant work has been done as part of regulating economic concentration.

1) For example, a joint audit (with the Prosecutor's Office of the Atyrau Oblast) has been completed regarding the legality of the alienation of a 50% interest in the LPG Storage Park LLP (hereinafter - the Storage Park) from Atyrau Oil Refinery LLP (hereinafter - the Atyrau Oil Refinery) in favor of Joint Technologies LLP.

For reference: Earlier, on 16 March 2021, s consent was granted for economic concentration, subject to the fulfillment of a number of requirements (the Consent Order).

As a result of the audit of the Storage Park's actions, the facts of abuse of dominant position were revealed, which is a violation of the requirements.

For reference: failure to fulfil one or more requirements of the Antimonopoly Authority is grounds for revision of a previous ruling (Article 208(5)(3) of the Code).

On 23 January 2023 the consent ruling was cancelled. On 8 February 2023 this ruling was appealed by Joint Technologies LLP to the Specialized Inter-district Administrative Court of Astana.

By the ruling of the Specialized Inter-district Administrative Court of Astana dated 05 April 2023, the claims of Joint Technologies LLP were dismissed. Consequently, the order to cancel the Economic Concentration Order was held by the court to be lawful.

The Agency filed a similar claim to the Specialized Inter-district Administrative Court of Atyrau Oblast (to cancel the ruling on re-registration of 50% share of the Storage Park).

On 3 May 2023, the Agency's claim was granted. The Agency's motion to reverse the ruling in terms of immediate enforcement of the court ruling is also granted.

Order No. 1047 dated 3 May 2023 of the Atyrau Oblast Branch of Government for Citizens Public Corporation Non-Commercial Joint-Stock Company cancelled the ruling on state registration of the Storage Park dated 13 May 2021.

Consequently, the ruling of the Specialized Inter-district Administrative Court of Atyrau Oblast entered into legal force and 50% of Storage Park's interest was transferred to the Atyrau Oil Refinery.

2) Also previously, by Order No. 257/NK dated 16 September 2022 of the Chairman of the Agency (hereinafter referred to as the Consent Order), TEK Acquisition Corp LLP (hereinafter referred to as the Buyer) submitted its consent to the economic concentration with the imposition of a number of conditions.

One of the conditions was to develop and agree with the Antimonopoly Authority a system of measures to prevent violations of competition law (external and internal antitrust compliance), providing for a sales and pricing policy aimed at ensuring equal and non-discriminatory conditions in the market for services of acceptance, storage and dispensing of liquid, bulk and tare cargoes (diesel fuel) until 31 November 2022.

In turn, due to the existence of an arbitration dispute between Kamkor Management LLP (hereinafter referred to as the Seller) and the Buyer in respect of the sale and purchase agreement due to the Seller's waiver of its contractual obligations, it is not possible for the Buyer to fulfil this condition.

Thus, due to the Buyer's lack of control over the executive body of Fuel and Energy Complex - KAZAKHSTAN Trade House LLP, it is not possible to agree the act of external and internal antitrust compliance. Consequently, the Buyer is not in compliance with the conditions of the Economic Concentration Consent Order.

In accordance with Article 208(5)(3) of the Code, if participants in economic concentration fail to fulfil the requirements that conditioned the Antimonopoly Authority's decision, the Antimonopoly Authority shall, on its own initiative or at the request of an interested party, reconsider its decision to consent to or ban economic concentration.

Meanwhile, earlier, on 20 January 2023, at the regular meeting of the Economy Demonopolization Commission of KTZ JSC (together with the Agency for Financial Monitoring, Agency for Protection and Development of Competition, Ministry of Industry and Infrastructural Development, Samruk-Kazyna JSC) was instructed to ensure the return of assets to state ownership in accordance with the established procedure. A similar position was expressed by the Commission on 17 May this year. In this regard, the Agency has started work on cancellation of the previously issued consent with subsequent consideration of this issue at the next meeting of the Agency Board.

3) Another example is the revision of Order No. 170-OD dated 10 July 2018of the Chairman of the Committee for Regulation of Natural Monopolies, Protection of Competition and Consumer Rights of the Ministry of National Economy of the Republic of Kazakhstan "On Granting Consent to Economic Concentration on the Application of Kazakhtelecom JSC".

Thus, the order was amended to ensure the alienation of 100% of participation shares of KazNet Media LLP, Kcell JSC's subsidiary, on contractual terms determined taking into account the cost of their acquisition, in case of interest in the purchase of 100% of participation shares by market players, not included in the group of persons of Kazakhtelecom JSC and not participating in the Agreement on transfer at least 20 MHz for reception / at least 20 MHz for transmission in the 2500-2570/2620-2690 MHz bands, as well as at least 20 MHz in the 2570-2620 MHz band to other players of the commodity market for provision of cellular communication services.

In total, in 2022, the Antimonopoly Authority was applied to the state service "Consideration of applications for consent to economic concentration" 80 times, of which 29 transactions were consented and 1 transaction was banned, 2 transactions were terminated due to revocation:

- in Q1: 0 consented;

- in Q2: 20 consented, 1 banned, 2 terminated;

- in Q3: 6 consented;

- in Q4: 3 consented;

Monitoring commodity exchanges

Exchange trading in accordance with international practice in conditions of stable monopolistic / oligopolistic market structure acts as a key tool to ensure equal access to limited resources of monopolists for all categories of business, mainly small and medium-sized businesses, and to form informative (transparent) market pricing with indicators that can be used by all market players and regulators (benchmarking).

At the same time, for many years in Kazakhstan, the situation in the exchange trading market has been characterized by systemic gaps that cause non-transparent operation of commodity exchanges and focus on large business, which does not allow for the proper use of all positive effects (advantages) of exchange trading.

In particular, the following systemic problems should be noted:

- excessive diversity of commodity exchanges given the small capacity of commodity markets in Kazakhstan (as of the end of 2022, there were 13 commodity exchanges in the country, while Uzbekistan and Belarus have only one exchange each), which leads to fluctuations in the results of exchange quotations and does not allow for the formation of reliable price indicators;

- non-compliance of the electronic trading system (ETS) of the majority of commodity exchanges with information security requirements (the existing mandatory requirements for ETSs are generalized, the existence of ETSs is confirmed by Acceptance and Commissioning Certificates, as a result, ETSs are based on 1C Enterprise software and web interfaces), which creates conditions for manipulation of trading results in the interests of certain groups of persons;

- circumvention of mandatory requirements of public procurement laws (persons without qualification and bad-faith bidders of the public procurement system may participate) through procurement on the commodity exchange (selective monitoring by the General Prosecutor's Office revealed 496 contracts with 9 bad-faith suppliers in the amount of KZT 1.3 billion, as well as facts of formal procurement of brokers' services for KZT 1, which creates risks of collusion and corruption);

- circumvention of mandatory requirements of subsoil use laws (for local content) allows to conclude deals with known suppliers;

- lack of state control over the activities of clearing organizations, which creates conditions for the functioning of "unproductive" intermediaries and artificially created monopoly structures;

- the absence of a single authorized state body ensuring comprehensive and effective state regulation of the exchange trading sphere.

The imperfection of the current exchange trading system is abused by bad-faith commodity exchanges and traders. These facts were confirmed by the results of the audit conducted in 2022 by the Prosecutor's Offices with the involvement of concerned state bodies on the instructions of the Head of State (audit of commodity exchanges have not been conducted for at least the last 5-7 years, including due to the current moratorium on audit of micro-businesses).

In addition, violations of the requirements of the laws on commodity exchanges were revealed in the activities of commodity exchanges, expressed in:

- violation of the requirements for the re-issuance of licenses;

- non-compliance with the qualification requirements;

- participation of commodity exchange employees in exchange transactions.

On these facts, the Agency initiated 19 cases on administrative offences against commodity exchanges with imposition of fines for a total amount of only KZT 2.2 million, while the judicial bodies did not apply an additional measure of administrative penalty in the form of suspension of the license, however, the fact of payment of administrative fines does not ensure further actual elimination of violations.

At the same time, in 2022, 4 commodity exchanges before the audit voluntarily returned licenses for the right to engage in commodity exchange activities (Shygys International Universal Commodity Exchange JSC, Universal Commodity Exchange of Eurasian Cooperation JSC, Silk Way Universal Commodity Exchange JSC and Qazaqstan Universal Commodity Exchange JSC), 2 exchanges were liquidated by court ruling due to mismatch in the size of authorized capitals (Asian Commodity Exchange JSC, Green Climate Exchange JSC).

On the Agency's initiative, the authorized body in the field of regulation of trading activities sent lawsuits to judicial bodies for forced liquidation of 8 commodity exchanges whose activities do not meet the legal requirements (positive rulings were made on 3 lawsuits, Commodity Exchange of Agricultural Producers, Subsoil Users and State Institutions JSC, Halyk Commodity Exchange JSC, Qazaqstan Universal Commodity Exchange JSC were liquidated).

The solution to the existing problems is seen in the adoption of a set of measures aimed at ensuring a proper level of state control in the sphere of exchange trading, improving the activities of commodity exchanges and increasing the transparency of trading, including:

1) the amendments to the existing laws providing for:

- the tougher requirements for commodity exchanges and their ETSs;

- the removal of commodity exchanges from the category of SMEs;

- a ban on the sale of non-standardized goods through commodity exchanges;

- the exclusion of the procurement method "through commodity exchanges" from the public procurement laws;

- the extension of state control to the integral participants of exchange trading - exchange brokers and clearing organizations;

- increased administrative liability for violation of the Commodity Exchanges Act, etc.;

2) the definition of a single regulator in the sphere of exchange trading represented by the Agency, since one of its main functions is the development and protection of competition (it has an independent structural subdivision of 5 units, territorial subdivisions), which is confirmed by the actual results in this area.

For reference: Since the establishment of the Agency, transparent exchange trading in oil products (gasoline, diesel fuel, jet fuel) and bitumen has been launched. Direct trading of utility coal directly from coal mines, in small batches to regional operators bypassing intermediaries have been launched, business games have been organized and held on these markets using new approaches to trading, market players have been trained to freely enter exchange trading, sectional rules were developed, taking into account the features and specifics of each market (which formed the basis of the Rules of Exchange Trading), and direct access to electronic trading systems of commodity exchanges have been provided. Under the National Project, the development of exchange trading is included as a tool to ensure access to "essential facilities" and eliminate distorted pricing. A number of roadmaps for the development of competition in the relevant industries have been developed, which include measures concerning priority provision of rolling stock for the transportation of coal purchased by regional operators at the commodity exchange, development of sectional rules for exchange trading in sugar, amendments to the List of Exchange Commodities in terms of implementation of exchange trading in sugar, etc.

According to the Agency's estimates, the implementation of these measures will create a healthy competitive environment and contribute to the development of import substitution processes and the development of regional entrepreneurship.

International cooperation

The Agency is working to strengthen international cooperation with foreign Antimonopoly Authorities, both within the framework of international integration associations and on a bilateral basis.

Interaction with OECD

The Agency is preparing for the Second OECD Expert Review "Competition Law and Policy in Kazakhstan": it is planned to sign an agreement with the OECD on the Second Review. The purpose of the Second Review is to obtain OECD experts' recommendations for improving the competition policy system based on the analysis of the existing competition law of the Republic of Kazakhstan (identifying advantages and disadvantages) and the experience of other countries. The recommendations will provide a useful basis for revising laws, changing procedures and strengthening institutions in the country.

The review is also useful for documenting the country's progress since the first OECD review. The first expert review was conducted in Kazakhstan in 2015, and its results served as a basis for a radical reformatting of the work of the antitrust service and the system of antitrust regulation of the economy as a whole.

Interaction in the context of cooperation with the EAEU and the CIS

On 25 May and 6 September 2022, the Agency participated in the meetings of the Eurasian Economic Commission (hereinafter referred to as the EEC) (in the "5+1" format) together with the heads of Antimonopoly Authorities of the EAEU member states and a member of the Board (Minister) for Competition and Antitrust Regulation. On this platform, the parties discussed the issues of participation of the authorized bodies of the EAEU member states in the implementation of a list of measures to improve the regulatory legal framework and methodological foundations in the field of competition protection, both the national law of the EAEU member states and the EAEU law on antitrust regulation, as well as state regulation of prices for socially important goods.

The Agency has also developed amendments to the Agreement on the Procedure for the Protection of Confidential Information and Responsibility for its Disclosure in the Exercise by the EEC of its Powers to Control Compliance with Uniform Competition Rules dated 12 November 2014 (hereinafter referred to as the Agreement). On 16 March 2022, the Law on Ratification of the Protocol on Amendments to the Agreement was signed by the Head of State. The ratified Protocol is aimed at bringing the text of the Agreement in line with the provisions of the Treaty on the EAEU.

In 2022, the Agency participated in the 53rd meeting of the Interstate Council on Antitrust Policy of the CIS Member States (hereinafter referred to as the ICAP) and the Headquarters for Joint Investigations of Violations of Antimonopoly regulation s of the CIS Member States.

The parties discussed the issues of competition development in the digital era, tools of antitrust and price regulation in modern conditions, as well as the need to conduct research on the markets of medicines and socially important goods in the CIS. As part of the Headquarters' activities, research was initiated in the CIS countries on unfair competition, application of competition law to intellectual property objects.

The work within the framework of the ICAP allows to develop common approaches to the harmonize competition law, improve law enforcement practice, and exchange experience in combating anti-competitive practices.

Implementing operational measures

Important from the point of view of the effective implementation of competition policy is the implementation of a number of operational measures, on which the overall quality of the work of the Antimonopoly Authority depends.

Digitalization of the Antimonopoly Authority's activities

An important area of focus here, taking into account leading international practices, is the development of new approaches to the digitalization of the Agency's activities.

Thus, one of the main tasks of the Antimonopoly Authority is to prevent, detect and investigate, suppress violations of the competition law. At the same time, the Agency's fundamental tool in the implementation of this task is the collection of necessary information and evidence to confirm or refute the violation.

In practice, analyses conducted under the old scheme have a number of disadvantages related to the lengthy procedure of information retrieval (sending and processing of numerous requests to market players, competent authorities, etc.), drawing conclusions and, as a result, making decisions ex post facto, when the effect of such actions lose their relevance (individual cases take 2-3 years). Today, the Antimonopoly Authority is focused on re-engineering its activities with an emphasis on automating the processes of monitoring and analyzing commodity markets.

The Agency jointly with the Bureau of National Statistics of the Agency for Strategic Planning and Reforms of the Republic of Kazakhstan (hereinafter referred to as the BNS) started work on the creation of an analytical map of the state of competition. The analytical map of the state of competition is a dashboard (Figure 9).

Figure 9- Dashboard interface.

The dashboard is at the testing stage.

To be included in the dashboard at the initial stage, the Agency has worked with the Bureau of National Statistics to develop a list of 16 commodity markets with historically problematic issues.

The markets will be quoted by 15 basic indicators.

Table 1. List of commodity markets and basic indicators to be included in the dashboard at the stage of system launch.

Commodity markets

Basic indicators

1. AI-92, 95 (96) gasoline

2. Diesel fuel

3. Liquefied petroleum gas

4. Electricity

5. Jet fuel

6. Coal

7. Bitumen

8. Cellular communication services

9. Air transport services for passengers

10. Railway transport services for passengers

11. Housing construction

12. Cement

13. Fittings

14. Concrete

15. Socially important food products, except for fruits and vegetables

16. Production (national producers), wholesale and retail sales of medicines

1. List of market players

2. Volume of production of goods (works, services) in kind and in value terms

3. Volume of wholesale and retail sales of goods / services in kind and in value terms

4. List of market players with state participation, share of state participation

5. Producer prices

6. Prices of wholesale and retail sales of goods

7. Average prices

8. Volumes of export of goods

9. Volumes of import of goods

10. Market share of the three largest enterprises (in relation to the total volume) in the RK market and by region

11. Herfindahl-Hirschman Index

12. Weighted average Lerner index

13. Volume of investment

14. Average break-even level

15. Average salary level

The list of commodity markets will be continuously expanded and scaled up. In addition, the possibility of integrating data from other information sources, including data on export and import operations, data on economic activity, data from service aggregators, marketplaces, etc., into the dashboard is being developed.

As a result, the dashboard will become an effective tool for structuring, analyzing and representing indicators, and will make it possible to promptly assess the situation on commodity markets, identify potential problems, and take timely preventive measures. This will make it possible to prioritize the Agency's core activities in specific commodity markets and implement its functionality more efficiently.

Also, in order to effectively identify cartels in public procurement, the Agency has introduced Ormek Search Information System. This system was created on the platform of the "Single Window of Procurement" of Atameken National Chamber of Entrepreneurs of the Republic of Kazakhstan and allows identifying signs of bid rigging. The Ormek system analyzes behavior and establishes indirect links between bidders with automatic notification of possible signs of bid rigging.

The system covers public procurement starting from 2019. For example, the system revealed that in 2019, two companies jointly participated in tenders for 7 procurements for the repair of motorways ordered by local executive bodies and alternately won almost without reducing the price, creating phantom competition for each other. Savings on procurement amounted to 0.01%. Signs of bid rigging are also confirmed by the fact that these enterprises acted as contractors and subcontractors for each other in the execution of public procurement contracts. In general, after the introduction of the Ormek Search Information System, the Agency for the Protection and Development of Competition initiated 19 investigations against 38 market players on the grounds of bid rigging.

The issue of the Agency's public services, in particular, consideration of applications for M&A transactions, deserves special attention. In order to improve the quality and accessibility of the public service on economic concentration, the Agency together with National Information Technologies JSC carried out work on the digitalization of the public service "Consideration of applications for consent to economic concentration", which is now available online. The service recipient can apply for consent electronically, which in turn will eliminate the need to submit paper documents.

It is planned to consolidate this work at the level of the Rules for the Provision of Public Services in accordance with the laws on legal acts in the context of the developed draft order of the Chairman of the Agency, where submission of documents through the portal will mandatory.

The draft order is published on the website of open LSIs (Laws and Statutory Instruments) and sent to Atameken National Chamber of Entrepreneurs, members of the Public Council, accredited organizations, as well as to Sapargaliev Scientific Research Institute of State and Law for anti-corruption expert review.

For reference: Previously, the service was considered only when paper copies were submitted, but now, to simplify the service, the Internal Portal of the Information System "E-licensing State Databa" has been created, where applicants can online apply and submit the necessary documents.

The next stage, in accordance with the Agency's Action Plan for 2023, is to partially automate the collection of information filled in by the service recipient. This is necessary to confirm the validity and reduce the list of information provided by the service recipient.

In particular, it is planned to automate the obtaining of information on individuals (IIN, document number, etc.) and legal entities (BIN, OKED, etc.).

In addition, in accordance with the Rules for Digital Transformation of Public Administration, the Digital Transformation Office has been established at the Agency, and its composition and regulations have been approved. The Office's tasks are the integrated management and implementation of the Digital Transformation Roadmap. The Agency's Digital Transformation Roadmap has been developed, which defines the strategic direction of the industry's digital transformation and the corresponding performance and efficiency goals of the public administration system, which are planned to be achieved by the public body through digital transformation in the planned period.

Introducing corporate governance principles

As is well known, Antimonopoly Authorities in all developed countries have long and successfully operated on the principle of corporate governance, which contributes to increased transparency and efficiency. The Kazakhstani Antimonopoly Authority has also felt the need to develop corporate governance. In this regard, taking into account the best international practices, the Agency started work on the introduction of corporate governance principles.

Since November 2022, the Agency has launched the institute of Board made up of the Agency's management (all necessary governing internal regulatory documents have been adopted, the membership of the Board and its functional responsibilities have been approved).

In 2022, 9 Board meetings were held. Since the beginning of 2023, 7 Board meetings have already been held. The Board determines the Agency's short-term and long-term goals, makes decisions on the most key issues, for example, mergers and acquisitions, the opening of antitrust investigations are discussed and determined collectively. It is also planned to establish the Supervisory Board. Its main function will be to make recommendations to the Board within the scope of the Agency's activities.

For the subsequent introduction of corporate processes in the agency, the Agency has adopted a Corporate Governance Implementation Plan, within the framework of which a memorandum of cooperation has been signed between the Agency and the Qazaq Independent Directors Association^[19]. The parties agreed to establish partnership relations and develop long-term cooperation aimed at implementing joint projects in the field of corporate governance.

In order to increase the transparency and efficiency of the Agency for Protection and Development of Competition, including better application of economic analysis, the Office of Chief Economist has been established.

For reference: EU Directorate-General for Competition: out of a total of about 700 employees, more than 400 (casehandlers) investigate specific cases. Of them, just over a quarter specialize in government subsidies, 2-3% work in the Chief Economist's team, and the rest investigate antitrust cases.

The duties of the Office of Chief Economist include intra-departmental control of the results of commodity market research obtained, and conducting independent research.

Chapter 2. Analysis of the status competition in certain commodity markets

In accordance with the Entrepreneurial Code, [20]anti-monopoly authority is vested with competence to analyze state of competition in commodity markets. Analysis of state of competition in commodity markets is a key tool for implementing competition policy, that determines appropriate decisions on revealing market entities occupying dominant or monopolistic position, developing set of measures aimed at protecting and developing competition, preventing, limiting and suppressing monopolistic activities.

In total, more than 80 commodity market analyses were conducted in 2022. With that, in most cases, this includes unscheduled analysis of commodity markets conducted as prompt measures, which is due, inter alia, to execution of instructions related to January events, measures provided for by the Anti-Inflationary Response Package, as well as instructions from President's Administration, the Government of the Republic of Kazakhstan. In addition, unscheduled analyses of commodity markets were conducted on the basis of incoming requests from individuals and legal entities.

It should be noted that in 2022, the Agency had conducted planned analysis for only 20 commodity markets:

Wholesale market of petroleum products;
Retail market of petroleum products;
Wholesale electricity market;
Retail electricity market;
Wholesale coal market;
Retail coal market;
Market of construction and installation services for connecting consumers to natural gas networks;
Market for technical, maintenance services and overhaul of locomotives;
Railcar repair services market;
Digital Terrestrial Broadcasting services market;
Copper Sales Market;
Lead Sales Market;
Zinc Sales Market;
Aluminum Sales Market;
Processed milk sales market;
Sugar sales market;
Medicines sales market;
Market of services for conducting PCR diagnostics of coronavirus infection;
Market of services for collection, removal, sorting and disposal of solid waste;
Car lending services market.

2.1. Wholesale and retail markets of petroleum products

Analysis of the wholesale and retail markets of petroleum products was carried out in accordance with the Agency's Work Plan for 2022 and covers certain types of fuel and energy-oriented petroleum products such as: gasoline RON-92 and RON-95, aviation and diesel fuel (hereinafter referred to as petroleum products).

In accordance with the Law "On State Regulation of Manufacturing and Turnover of Specific Types of Oil Products", fuel oil and road bitumen also belong to certain types of petroleum products. Fuel oil has limited use as start-up fuel for heat and power plants, and therefore was not covered by the analysis. Road bitumen is used as construction material, and is not a fuel and energy commodity.

According to their properties and areas of use (groups of buyers), gasoline of RON-92 and RON-95 grades, diesel fuel (summer / winter) and jet fuel are not interchangeable.

Fig. 1- Market balance for 2022, tons.

All petroleum products are produced from crude oil prepared for processing, supplied by the same organizations. Thus, the largest market shares are accounted for by "Petrosun" LLP, "KMG" JSC and "Petrostar" LLP:

- gasoline RON-92: Petrosun LLP – 58.7%, NC KazMunayGas JSC - 32.6%;

- gasoline RON-95: LLP "Petrosun" – 47.3%, "NC KazMunayGas" JSC – 24.1%, "Petrostar" LLP – 16.5% (Figure 11).

Fig. 2- Shares of wholesale sellers of gasoline for the period

from October 2021 to September 2022, %.

Jet fuel: Petrosun LLP - 56.8% share; NC KazMunayGas JSC - 24% share (Figure 12).

Fig. 3- Shares of jet fuel wholesale sellers, %.

Diesel fuel: Petrosun LLP - 51.1%, NC KazMunayGas JSC - 29.9% (Figure 13).

Fig.4 - Shares of diesel fuel wholesale sellers, %.

Compared to earlier analysis of commodity market, for the period from September 2021 to September 2022, the number of market entities increased from 36 to 55.

With that, for RON-95 gasoline (non-regulated price), there is a market deconcentration, due to new market entity, Petrostar LLP, which occupies a market share of 16%.

During the analysis, dynamics of prices for petroleum products from two large wholesale distributors - "Petrosun" LLP and "KazMunayGas" JSC was studied.

Fig. 5– Price of diesel fuel, KZT / ton.

In general, wholesale market for sale of petroleum products is characterized as highly concentrated:

Gasoline RON-92: CR-3: 91.3%, Herfindahl-Hirschman Index (hereinafter – HHI): 2000 <4513.53<10000.

Gasoline RON-95: CR-3: 87.9%, HHI: 2000 <4625<10000.

Diesel fuel: CR-3: 81%, HHI: 2000 <3497.5<10000.

Jet fuel: CR-3: 80.8%, HHI: 2000 <3809<10000.

In this connection, in accordance with paragraphs 4 and 6 of Article 172 of the Entrepreneurial Code, Petrosun LLP, NC KazMunayGas JSC are recognized as entities occupying a dominant position in the market.

Taking into account new norms of the Code on ensuring equal access to key capacity, as well as shares, occupied at the market, according to analysis results, Petrosun LLP and NC KazMunayGas JSC were recognized as owners of key capacity.

Main events

An important event in 2022 was adoption of the Law "On Amendments and Additions to some Legislative Acts of the Republic of Kazakhstan on the implementation of certain instructions of the Head of State", which provides for:

- strengthening requirements for oil suppliers regarding affiliation with subsoil user organizations (hereinafter referred to as SUO);

- transition of oil refineries (hereinafter referred to as OR) from processing to marketing scheme;

- granting SUO the right for oil refining and further sale of its own petroleum products;

- elimination of "unproductive" intermediaries by strengthening the requirements for oil tank farms.

According to preliminary estimates, this law has had a positive impact on market structure and composition of its subjects in terms of SUO's access to oil refining and sale of petroleum products, as well as elimination of "unproductive" intermediaries.

With that, the negative consequences of state's presence in oil refining market (KMG Group, CNPC) and sale of petroleum products (NC KazMunayGas JSC and Petrosun LLP) have intensified, number of complaints against refineries has increased (refusals to accept applications, forced buyback, lowered purchase price).

This law also introduced possibility of state regulation of fuel prices at wholesale market, as well as the obligations of oil suppliers to sell products to gas stations during seasonal period.

Since April 12, 2023, new ceiling prices for sale of petroleum products have been introduced:

1) by Order of the Minister of Energy No. 139 dated April 12, 2023, the maximum prices for wholesale sale of petroleum products to stationary gas stations on the basis of ex-works supply form refinery are set as follows(with VAT):

- RON-80 gasoline – 93 161 KZT/ton;

- RON-92 and RON-93 gasoline – 214 584 KZT/ton;

- diesel fuel (summer, off–season) - 284 350 KZT/ton;

2) By Order of the Minister of Energy No. 140 of April 12, 2023, amendments were made to the Order of the Minister of Energy No. 361 of May 19, 2015 "On establishment of ceiling prices for retail sale of petroleum products with price, regulated by the state", according to which ceiling prices for retail sale of petroleum products through stationary gas stations are set as follows (with VAT):

- RON-80 gasoline – 89 KZT/liter;

- RON-92 and RON-93 gasoline – 205 KZT/liter;

- diesel fuel (summer, off–season) - 450 KZT/liter;

- upon presentation of driver's license issued in the Republic of Kazakhstan, up to 100 liters per day – 295 KZT/liter;

- upon presentation of driver's license and vehicle registration certificate issued in the Republic of Kazakhstan for trucks, special, specialized cars and buses - up to 300 liters per day – 295 KZT/liter.

According to preliminary estimates, this had produced a negatively effect on elasticity of diesel fuel supply at the market due to non-market wholesale price to gas stations and "fixed" retail price at gas stations, as well as the fact that market participants "expected" non-market mechanisms for distributing volumes in spring-field period and "hoarding" diesel at oil tank farms.

Established maximum retail price of fuel and lubricants in the Republic of Kazakhstan is still lower than the prices in neighboring countries, both members of EAEU and those who have active trade turnover with Kazakhstan (Uzbekistan, China).

The problems of cross-border flow and covert transit of fuel and lubricants remain unresolved even with adoption of the Law and introduction of "manual" administrative regulation. To solve the problems, it is necessary to use a balanced pricing mechanism at retail trade, focused on both internal and external indicators.

However, there is also a positive economic effect, as according to preliminary data, admission of SUO gave an impulse for deconcentration of primary wholesale trade in petroleum products by reducing share of Petrosun LLP and oil suppliers in general.

According to forecast data, introduction of balanced price regulation for oil and petroleum products (which takes into account external indicators), considering increase in prices at retail market and further elimination of disparity, will provide more than 1 trillion KZT contribution to GDP (due to additional tax revenues from fuel and lubricants).

Also in 2022, the Rules of exchange trading in terms of regulating petroleum products exchange trading (Chapter 24) have been amended by the order of Deputy Prime Minister - Minister of Trade and Integration dated July 19, 2022 No. 294-NK "On Amendments to the Order of the Acting Minister of National Economy of the Republic of Kazakhstan dated March 30, 2015 No. 280 "On approval of the Standard Rules of Exchange Trading"

In addition, the National Project provides for increase in sales of gasoline, diesel fuel, jet fuel and bitumen through commodity exchanges up to 20% of total sales by 2025.

However, business entities, as well as Kazakhstan Fuel Association, have voiced complaints against sectoral government body and quasi-public sector stating that diesel fuel has not been put up for exchange trading since January 2023. Despite improvements of regulatory framework in the field of exchange trading, no real measures are being taken to increase volume of certain types of petroleum products.

With the administrative regulation of prices for petroleum products, prices are formed at the stock exchange in parallel, which can serve as a price indicator for the market (for balanced regulation mechanism). According to forecast, putting petroleum products to stock exchange (up to 20% by 2025) will provide competitive access to petroleum products worth more than 1 trillion KZT.

Barriers for competition development

1) over the past 3 years, despite 13% increase in diesel fuel production, negative balance of the market persists. Domestic consumption increased from 4.7 to 5.5 million tons, or 15%. The main increase is in agricultural production, where consumption increased by 26%. The second reason is illegal export of petroleum products (5% of market volume) and transit transport (up to 10%).

In this regard, the Government has implemented a set of measures on pricing and control over turnover of petroleum products. Main operator was created with share over 80% on the basis of KMG (by purchasing share in Petrosun LLP).

As part of transition to marketing scheme, the refineries have actually been granted priority right to purchase oil and sell fuel. Restriction on export of fuel has been introduced and system for monitoring turnover of petroleum products has been introduced.

Retail prices for domestic and transit transport have been regulated since August 2022. Currently, wholesale price of sales to gas stations is regulated, with compulsory sale of volumes to retail market;

2) high difference between wholesale (227 KZT/l.) and retail prices (from 295 to 450 KZT/ l.) is the main reason for dissemination of shadow schemes. The main volume of diesel fuel (45%) is sold to large gas station networks, and during agricultural season – to agricultural producers (up to 30%). The rest of the market remains uncontrolled ("in the shadows").

So, structure of "Petrosun" LLP counterparties contains the same former intermediaries: "Silk Way Petroleum" LLP, "SAPAR Trading" LLP, "Petro Capital" LLP, "Lf-Trade" LLP and others. "NC KazMunayGas" JSC has guaranteed to sell 35% of petroleum products to "PetroRetail" LLP, some of which are resold at the market to other gas stations (economically non-productive intermediaries).

Currently, the Agency is checking the facts of unjustified refusals to sell fuel and lubricants.

After change of ownership, practice of selling fuel without centralized accounting, as per verbal requests of consumers began to be widely used in Petrosun LLP. Refusals to provide diesel fuel are not registered. Turnover of diesel fuel sales against cash has increased.

Thus, the state still does not control about 30% of petroleum products, that negatively affects transparency of pricing and remains one of the factors for artificial formation of high prices;

3) fuel distribution among agricultural producers is also carried out non-transparently, according to distribution lists. There is no control over targeted use of preferential fuel.

With transition to marketing scheme, practice of compulsory withdrawal of oil from private subsoil users by refineries at low prices is being introduced. Price of purchasing oil by KMG was reduced from 100 to 70 thousand KZT/ton, that did not lead to price reduction, but only increased profitability of refineries. Unbalanced price regulation has caused disparity of domestic and external prices. The difference in the cost of diesel fuel in Kazakhstan and neighboring countries has reached 65%. In these conditions, measures of controlling illegal export of fuels and lubricants proved to be ineffective.

In turn, differentiation of prices for domestic and transit transport has led to restrictions on sale of "preferential" fuel to population. Establishment of unified wholesale price at the level of diesel fuel cost, sold by KMG and Petrosun LLP (236 thousand KZT/ton) jeopardizes small oil suppliers (280-350 thousand KZT/ton), whose production costs are much higher;

4) no less serious consequences arise in retail market, where the share of SMEs decreases annually in conditions of strict price control. In particular, small gas stations have indirect (through oil tank farms or large gas stations networks) access to resources of oil suppliers, that means higher cost of purchasing fuel;

5) if price control is established at wholesale and retail markets, then monopoly oil refining services remain excluded from price regulation.

As a result, facts of overpricing refinery services are revealed on an ongoing basis. For example, in 2022, Atyrau and Pavlodar refineries exceeded justified price by 35% and 17%, respectively. Despite this, Atyrau refinery, as part of KMG Group, again increased processing cost by 27%in January this year.

Taking into account approximately 18% contribution of processing cost to wholesale price, this significantly increases final cost for consumers;

6) poor quality of state management of the refinery is characterized by the number of unscheduled repairs.

In February, Atyrau refinery stopped catalytic cracking. In the same month, Pavlodar refinery, due to a defect in hydrogen production unit, also stopped production of diesel fuel in an emergency. With that, the total amount of funds invested into modernization of Atyrau, and Pavlodar refineries for 5 years amounted to 1.9 trillion KZT.

In total, 106 unscheduled shutdowns have occurred at these state refineries over the past 3 years, while 21 unscheduled shutdowns have occurred at the Shymkent refinery, which is owned by private investor (50.2%), that indicates more efficient asset management.

In turn, state shareholding of refinery complicates elimination of accidents, as it requires that procurement of equipment must be conducted in compliance with current legislation;

7) planned gradual increase in prices is a necessary measure to eliminate imbalances at domestic market.

However, in conditions of maintained monopoly state at wholesale market, price increase means profitability increase for dominant wholesale suppliers and retail market entities.

Therefore, when prices rise, it is necessary to increase excise tax rates in order to withdraw excess profits and redistribute profits from wholesale sector to subsoil users by increasing purchase prices;

8) data collection is carried out by SRC of the Ministry of Finance (gas station tax returns), Ministry of Energy (reports of oil tank farms and refineries) and "NIT" JSC (oil products accounting system (OPAS), through metering devices at refineries and gas stations).

Tax returns for SRC and reports for MoE are generated by gas stations and oil tank farms independently, that reduces data reliability, while data collection of "NIT" JSC is carried out automatically through metering devices. However, the system of "NIT" JSC is related only to remainders at gas stations.

Thus, there is no single platform for collecting and accounting turnover of petroleum products, there is no process automation.

On December 31, 2015, by the decree of the Government, "NIT" JSC was defined as the operator of oil products accounting system (OPAS), the system was introduced only in June 2019, but it is not full–fledged, since it does not cover all market participants - feedstock suppliers and oil tank farms. The issue of financing this system has not yet been resolved, "NIT" JSC develops and maintains it independently.

Proposals and recommendations for competition development

Based on results of analysis, the following proposals were developed for market under consideration:

1) development of petroleum products exchange trading up to 20% of market volume;

2) regulation of access to oil refining services within the Rules of Equal Access to Key Capacity (there are existing Rules for access of oil suppliers to processing of crude oil and (or) gas condensate, and (or) refined products, approved by Order No. 51 of the Minister of Energy of the Republic of Kazakhstan dated February 2, 2015, amendments to this order are planned);

3) regulation of petroleum products sale within the framework of the Rules of Equal Access to Key Capacity (Rules have been developed, currently agreed with the industry state authorities (Ministries of Finance and Energy);

4) return to state regulation of prices for oil refining services , which was in effect until 2017;

5) recognition of oil refining services as licensed activity with qualification requirements of integrated technological process;

6) introduction of full cycle accounting for turnover of petroleum products on the basis of "NIT" JSC, including sales by feedstock suppliers and oil tank farms with budget financing;

7) gradual increase in wholesale and retail prices for petroleum products with increase in excise duty and prices for purchasing oil from subsoil users and subsequent deregulation of the market;

8) changing market model focused on competition of large and small vertically integrated companies;

9) implementation of a set of measures to reduce state participation in market of sale and processing of petroleum products in order to demonopolize market due to inefficiency of state operator (Agency's position was sent to the Government Office, Presidential Administration, general approaches were supported, including by industry body).

In 2022, the Agency jointly with the Ministry of Energy adopted a roadmap, which provides for:

1) analysis of exchange trading in petroleum products for up to 20% increase in volumes of trading;

2) approval of the Rules of equal access to key capacity of wholesale sales of petroleum products;

3) approval by "KMG-Aero" JSC of sale of aviation kerosene by the antimonopoly compliance act (retail sale);

4) development of a forecast plan for convergence of fuel and lubricants prices within the EAEU by 2025 (balanced price regulation mechanism);

5) regulation of access to oil refining services within the Rules of Equal Access to Key Capacity.

2.2. Wholesale and retail markets of electric energy

Analysis of wholesale and retail markets of electric energy was carried out in accordance with Agency's Work Plan for 2022.

In accordance with paragraph 3 of Article 14 of the Law "On Electric Power Industry", electric energy market consists of two levels: wholesale and retail electric energy markets.

In the wholesale market, electric energy is purchased for resale at retail market or to wholesale consumers, usually for industrial purposes.

According to KEGOC JSC, as of September 1, 2022, 53 energy-producing organizations (hereinafter referred to as EPO) carried out wholesale electricity sales.

Also, there are more than 80 market entities operating in the wholesale electricity market that supply electricity generated from renewable energy sources (hereinafter referred to as RES).

However, conditions for sale of RES electricity differ. Thus, according to the Law "On Support of Use of Renewable Energy Sources", all electricity supplied to the grid from RES EPOs is guaranteed to be paid by single buyer (FSC for support of RES LLP) at established tariffs for 1 kWh (ceiling price until 2018 or auction price after 2018).

Thus, there is no competition between these EPOs, and therefore they cannot be taken into account when calculating shares of market entities. The process of competition between these EPOs occurs only at the stage of project selection based on the results of auctions.

About 20 organizations that provide services of transmitting electric energy through power lines at the regional level participate in wholesale electricity market.

According to the Law "On Natural Monopolies", electricity transmission services belong to natural monopolies and state regulation of energy transmission organizations is carried out by the authorized body that manages relevant spheres of natural monopolies, represented by the Committee for Regulation of Natural Monopolies of the Ministry of National Economy of the Republic of Kazakhstan (hereinafter – CRNM) by forming, establishing and approving the tariff.

In the retail electricity market, energy supply organizations (hereinafter referred to as ESOs) act as sellers, buying electricity from EPOs for subsequent sale to retail consumers, taking into account transportation costs, payments for power, etc.

There are over 140 ESOs operating at electricity supply market, including approx. 35 ESOs that are guaranteeing electricity suppliers, which are regulated by CRNM in accordance with pricing procedure in socially significant markets. The remaining ESOs independently set selling price for electric energy.

Wholesale electricity market

Information about wholesale electricity market entities that occupy dominant or monopolistic position is given in the following table.

Table1. Wholesale electricity market entities that occupy dominant or monopolistic position.

№

Geographical boundaries

Name of EPO (groups of entities)

Market share

Competition level

2021

2022

(January-August)

Almaty power center

"Samruk-Energo" JSC

93 %

2000 <HHI 8681 <10000

2000 <HHI 8301 <10000

Taldykorgan power center

"Samruk-Energo" JSC

TEK LLP

70-73 %

12 %

70 <CR(3) 85 <100

2000 <HHI 5580 <10000

70 <CR(3) 92 <100

2000 <HHI 5057 <10000

Kyzylorda region

"Samruk-Energo" JSC

State Enterprise "Kyzylordateploelectrocenter"

67 %

19 %

70 <CR(2) 85 <100

2000 <HHI 4837 <10000

70 <CR(3) 90 <100

2000 <HHI 3586 <10000

Zhambyl region

"Samruk-Energo" JSC

"Zhambyl GRES-1" named after T.I. Baturov" JSC

62 %

27 %

70 <CR(2) 89 <100

2000 <HHI 4662 <10000

70 <CR(2) 90 <100

2000 <HHI 4447 <10000

Kokshetau power center

"Samruk-Energo" JSC

Stepnogorsk CHP LLP

60 %

23 %

70 <CR(2) 83 <100

2000 <HHI 4204 <10000

70 <CR(3) 89 <100

2000 <HHI 3423 <10000

Kostanay region

"Samruk-Energo" JSC

Group consisting of "EEC" JSC, CHP of "Aluminum of Kazakhstan" JSC and Rudnenskaya CHP

SevKazEnergo JSC

> 55 %

24,32 %

18,20 %

70 <CR(3) 97 <100

2000 <HHI 3959 <10000

70 <CR(2) 80 <100

2000 <HHI 4027 <10000

Pavlodar region

"Samruk-Energo" JSC

Group consisting of SevKazEnergo JSC and Pavlodarenergo JSC

47 %

39 %

70 <CR(2) 86 <100

2000 <HHI 3784 <10000

70 <CR(2) 91 <100

2000 <HHI 4164 <10000

Turkestan region and Shymkent city

"Samruk-Energo" JSC

Group consisting of "3-Energoportalyk" JSC and "Eurasian Energy Corporation" JSC

65 %

15 %

70 <CR(2) 80 <100

2000 <HHI 4465 <10000

70 <CR(3) 84 <100

2000 <HHI 3329 <10000

Zhezkazgan power center

"Samruk-Energo" JSC

Group consisting of GRES Topar LLP, Balkhash CHP and Zhezkazgan CHP of Kazakhmys Energy LLP

29-35 %

35,60 %

70 <CR(3) 81 <100

1000 <HHI 2393 <2000

70 <CR(3) 82 <100

2000 <HHI 2448 <10000

Akmola region and Astana

"Samruk-Energo" JSC

Astana-Energia JSC

> 39 %

50 %

70 <CR(2) 89 <100

2000 <HHI 4036 <10000

70 <CR(2) 90 <100

2000 <HHI 4134 <10000

Aktobe region

"Samruk-Energo" JSC

"Aktobe CHP" JSC

Zhanazholskaya GTPP

> 29 %

29,5 %

28,5 %

70 <CR(3) 87 <100

2000 <HHI 2528 <10000

70 <CR(3) 87 <100

2000 <HHI 2771 <10000

East Kazakhstan region

Group consisting of "AES Shulbinskaya HPP" LLP and "AES Ust-Kamenogorsk HPP" LLP

Ust-Kamenogorsk CHP LLP

"Samruk-Energo" JSC

50,5 %

18,6 %

12 %

70 <CR(2) 70 <100

2000 <HHI 2897 <10000

70 <CR(2) 73 <100

2000 <HHI 2796 <10000

Karaganda power center

Group consisting of Karaganda Energy Center LLP and Ust-Kamenogorsk CHP LLP

"Samruk-Energo" JSC

56 %

18 %

70 <CR(2) 73 <100

2000 <HHI 3463 <10000

70 <CR(2) 92 <100

2000 <HHI 3384 <10000

North Kazakhstan region

SevKazEnergo JSC

100 %

2000 <HHI 9941 <10000

2000 <HHI 5348 <10000

West Kazakhstan region

BatysPower GTPP-200 LLP

Ural GTPP

39 %

20 %

70 <CR(2) 58 <100

2000 <HHI 1883 <10000

70 <CR(3) 60 <100

2000 <HHI 2448 <10000

Atyrau region

Atyrau CHP JSC

GTPP OF "KUS" LLP

56 %

25 %

2000 <HHI 3761 <10000

2000 <HNI 3827 <10000

Mangystau region

MAEK-Kazatomprom LLP

GTPP OF "KUS" LLP

76 %

23 %

2000 <HHI 6323 <10000

2000 <HHI 5577 <10000

As can be seen from the table, wholesale electricity market is a highly concentrated market.

Retail Electricity market

Information about retail electricity market entities that occupy dominant or monopolistic position is given in the following table.

Table2. Retail electricity market entities that occupy dominant or monopolistic position.

Geographical boundaries	ESO	Market share	Competition level
Geographical boundaries	ESO	Market share	2021	2022 (1st half of the year)
Astana city	PRIME ENERGY RESOURCES LLP AstanaEnergosbyt LLP	74,7 % 14,1 %	70<CR(1) 75 <100	70<CR(2) 87 <100
Almaty city	Almatyenergosbyt LLP	91,3 %	70<CR(1) 91 <100	70<CR(1) 83 <100
East Kazakhstan region	Shygysenergotrade LLP AB Energo LLP	56,1 % 15,6 %	70<CR(2) 72 <100	45<CR(1) 48 <100
Zhambyl region	ZhambylZharykSauda-2030 LLP	68 %	70 % < CR(3) 90,14 < 100	70 % < CR(3) 85,18 < 100
Mangystau region	Mangistau Zharyk LLP MangistauEnergoMunay LLP AktauEnergoSbyt LLP	43,6% 27,9 % 20,5%	70 % < CR(3) 92 < 100	70 % < CR(3) 91 < 100
West Kazakhstan region	Batys Energy Resources LLP Batys Power LLP	55 % 33 %	70 % < CR(2) 88 < 100	70 % < CR(2) 88 < 100
Pavlodar region (with the exception of Ekibastuz city, aviators' settlement of Pavlodar city)	Pavlodarenergosbyt LLP AB Energo LLP	39,5 % 38,3%	70 % < CR(2) 78 < 100	70 % < CR(1) 79 < 100
Aktobe region	Aktobeenergosnab LLP	76 %	70 % < CR(1) 76 < 100	70 % < CR(1) 81 < 100
Almaty region	Almatyenergosbyt LLP	99,43 %	70 % < CR(1) 99 < 100	70 % < CR(1) 99 < 100
Atyrau region	Atyrau Energosatu LLP Karabatan Power LLP	68 % 24 %	70 % < CR(2) 92 < 100	70 % < CR(2) 93 < 100
Shymkent	Energopotok LLP EnergoSnab XXI LLP Yugenergoimpulse LLP	57 % 12,5 % 11,1 %	70 % < CR(3) 80 < 100	70 % < CR(3) 81 < 100
Turkestan region	Energopotok LLP	82,4 %	70 % < CR(1) 82 < 100	70 % < CR(1) 82 < 100

It follows from the above table that the retail electricity market in most regions of the country is also highly concentrated market (in some cases refers to market with moderate concentration).

Main events

In the wholesale electricity market, there is still a stable high concentration of market between several vertically integrated companies represented by Samruk-Energo JSC, Kazakhstan Utility Systems LLP, Central Asian Electric Power Corporation JSC and Eurasian Energy Corporation JSC, depending on the region.

Direct electricity supplies to large energy consumers ensure for them reduction in cost of final products, and therefore it is necessary to encourage and support entry of new consumers into the wholesale market.

However, EPOs are noted for refusing to conclude direct contracts with potentially new consumers with reference to reservedness of all the contractual volumes by ESOs and other consumers. "Eurasian Foods Corporation" JSC and a number of other food producers, meeting all the parameters of wholesale consumers, are refused by EPOs with reference to reservedness of all the contractual volumes of electricity for 5-10 years ahead.

With that, formally, these refusals are considered legitimate since absence of goods due to conclusion of contracts with other buyers excludes liability for abuse of dominant or monopoly position.

Also, restriction of access to electricity for wholesale consumers was influenced by intermediary structures represented by ESO. Despite market role of ESOs as suppliers of retail market, some ESOs have occupied "niche" of supplying wholesale consumers. Out of wholesale consumers' demand for 30 billion kWh, 8 billion kWh is accounted for by supplies via ESO.

Thus, "NC KTZ" JSC , being in the same structure with EPO "Samruk-Energo" and other EPOs of "NWF Samruk-Kazyna" JSC, purchased electricity not directly from power plants, but through various ESOs (on this fact, anti-corruption service is investigating criminal case on abuse of official powers by the management of national companies).

The largest shares in this "niche" were occupied by such ESOs as the former subsidiary of NC KTZ JSC – Temirzholenergo LLP – 1.5 billion. kWh; AB Energo LLP, Samga Development LLP – 3 billion kWh. In this regard, these ESOs represented unproductive intermediary link between wholesale consumers and EPOs. With that, conclusion of transactions between ESOs and wholesale market consumers did not contradict with legislation on electric power industry. In this regard, in order to exclude this practice, the Agency initiated amendments to the Law on Electric Power Industry in 2021, prohibiting ESOs to supply wholesale consumers (Law was signed on January 3, 2022). Thus, marginal costs of wholesale consumers were reduced by about 4.5 billion KZT.

In addition, by Order of the Chairman of the Agency No. 4 dated May 4, 2023, amendments were made to the current procedure for providing equal access to key capacity in terms of providing a special procedure for providing equal access to key capacity in decentralized electricity purchase and sale market, which takes into account transparent mechanism for sales of electricity at wholesale electricity market (acceptance, fulfillment of requests, process of distributing electricity volumes for planned period in priority order, basis for refusals to fulfil requests, etc.).

By the end of 2022, the wholesale market had a negative balance of electricity (generation – 113.89 billion kWh, consumption – 112.86 billion kWh) in amount of 1.03 billion kWh, which was covered by imports from neighboring countries.

Fig. 6– Forecast of electricity consumption.

To cover the deficit, the Government plans to switch to new market model from July 1, 2023, which provides for aggregated purchase of electricity at wholesale market by state monopoly structure, Single Buyer, for subsequent sale of electricity to ESOs and other consumers at averaged single price.

With that, alignment of wholesale prices will not eventually lead to equalization of final tariff since tariffs of regional energy transmission organizations differ in the regions.

Also, introduction of Single Buyer model carries risks of strengthening "Averch-Johnson effect" at electricity market, consisting in deliberate increase of production costs.

It is expected that Single buyer will purchase electricity, among other at centralized auctions, that, according to the Ministry of Energy, will allow fulfilling instructions of the Head of State on increasing centralized electricity trading.

With that, the new monopoly operator, represented by Single buyer, bears the risks of negative impact on competition at retail electricity market, because after introduction of new market model, preferential right to receive electricity will be granted to ESOs affiliated with energy transmission organizations.

The experience of operating Single Buyer market in Ukraine shows that under this market model, electric grid company (REC) becomes the only supplier of electricity in the regions, thus eliminating competition at the market and right of consumers to choose an electricity supplier.

Fig. 7– Models of electricity market.

Realizing the need to introduce new capacities and import electricity in the country, Agency supported the use of mechanism with Single Buyer of electric energy as a temporary measure until the tasks are solved within the framework of fuel and energy complex and electric power industry development concept for 2023-2029.

Today, there is already Single buyer of electric power at the market, represented by Financial-Settlement Center, which has been operating since 2019 to attract investments to maintain existing and introduce new capacities in the unified electric power system of Kazakhstan to cover demand for capacity.

With that, collecting payments for power covers of fixed costs of power plants, while payment for electric energy covers variable costs and income generation by power plants.

It should be noted that since 2019, power plants have received more than 285 billion KZT, at the capacity market and, according to explanations of the Ministry of Energy, EPOs that have concluded contracts for provision of services to maintain capacity readiness under subparagraphs 3) and 4) of paragraph 3-1 of Article 15-3 of the Law "On Electric Power Industry", have no restrictions on targeted use of funds received from sale of these services, i.e. the EPO has the right to independently dispose received funds.

In addition, savings resulting from certification of generating units of power plants and under-consumption of power on consumers’ side are considered by a Single buyer as its own financial result (annually from 8 to 15 billion KZT) and corporate income tax of 20% is applied to it, that means an incomplete refunds to consumers of power, including population.

With that, the cost of Single Buyer's services is not regulated by state and is deducted from funds returned to consumers within 2 years. Until the funds are returned to consumers, they are placed on deposits.

Thus, in order to minimize negative impact of Single Buyer on the market, when discussing the bill providing for its introduction, the Agency had proposed a number of amendments in the Senate of the Parliament, including those aimed at ensuring transparent and equal access to electricity volumes of Single Buyer for wholesale consumers and ESOs, introduction of state regulation of price of Single Buyer's services, which were supported by the deputies of the Senate.

In addition, the Agency proposed introduction of EPOs' obligation to implement investment program for attracted funds within the framework of capacity market, which was also supported by Senate deputies.

The law [21]with the above-mentioned amendments of the Agency was adopted on April 19, 2023.

Special attention should be paid to ongoing auctions of electric power. Bidding results show absence of competition between power plants.

Fig. 8– Ranked schedule of 2022 auction results for Northern and Southern zones of the UES of the Republic of Kazakhstan.

Thus, the Ranked schedule of 2022 auction results for the Northern and Southern zones of the UES of the Republic of Kazakhstan, presented by KEGOC JSC (Figure 17), shows that all 23 power plants, with exception of one Stepnogorsk CHP, submitted bids at the maximum allowable price of 590 thousand KZT/MW.

This was facilitated by the fact that GRES-1 LLP (Samruk-Energo) refused to compete, being the last of bidders to submit an application for power maneuvering service with the same price of 590 thousand KZT/MW for 1,436 MW with available capacity of 3,008 MW or 47.7%.

As a result, lost revenue of state power plant according to 2022 auction results amounted to more than 10 billion KZT, and for the period from 2018 to 2022 – 50 billion KZT and above.

Moreover, due to absence of competition at the auction, Kazakhstani consumers purchased power maneuvering services at the maximum price set by the Ministry of Energy - 590 thousand KZT/MW. So, if in 2018, that was the first auction year, cost of maneuvering capacity according to auction results decreased to 383 thousand KZT / MW, for the last 3 years it has been kept at the maximum established level.

Development of competition at retail market is also hindered by differentiation of tariffs for electricity supply services of regulated ESOs, due to which there is a tendency for legal entities and budget organizations to leave for alternative unregulated ESOs.

In addition, decrease in volumes attributable to legal entities leads to annual increase in the average tariff of guaranteeing suppliers. In order to create equal conditions of competition between ESOs, it is necessary to change approach in subsidizing household consumers to the targeted orientation of support measures for socially vulnerable segments of population.

In this regard, the National Project provides for step-by-step elimination of tariff differentiation by consumer groups. It follows from the calculations that, in general across the Republic, local budgets will save over 38 billion KZT, that can be directed to targeted subsidizing of utility costs of socially vulnerable segments of the population. Also, expenses of small and medium-sized businesses will decrease by more than 38 billion KZT.

In addition, at the meeting for development of energy and engineering infrastructure, dated March 2, 2022, Head of State instructed to start implementing a project on partial equalization of tariffs between consumer groups, and in his Address to the People of Kazakhstan dated September 1, 2022, he noted the need for gradual rejection from cross-subsidizing tariffs in natural monopolies and in socially significant markets.

Almaty, Kostanay region and West Kazakhstan region (hereinafter - WKO) were selected as pilot regions.

State stakeholders have carried out extensive awareness raising campaign. Local executive bodies have developed mechanism of social assistance for socially vulnerable part of population at the expense of budget savings from tariff equalization.

However, it was decided to reduce differentiation of tariffs between the household consumer tariff and average daily tariff:

- in Almaty by 2.3% (from 14.6% to 12.3%);

- in Kostanay region by 3.4% (29% to 25.6%);

- in West Kazakhstan region by 8.2% (from 18% to 9.8%).

CRNM justifies its decision by increasing the ceiling prices for electricity of EPOs from July 1, 2022. Thus, the National Project and instructions of the Head of State on gradual reduction of tariffs differentiation between groups of consumers for electricity services were implemented partially.

For reference: National Project for 2022 provides the following targets for the maximum difference between group of consumers and average electricity tariff:

in Almaty - 0% (current difference - 12.3%);

in Kyzylorda region – 12% (current difference - 12%);

in Karaganda region – 19.5% (current difference - 31%);

in East Kazakhstan region – 15% (current difference - 31%);

in Akmola region – 25% (current difference - 31%);

in Zhambyl region – 27% (current difference - 36%);

in Mangystau region – 2% (current difference - 23%);

in Pavlodar region – 29% (current difference - 37%);

in North Kazakhstan region - 31% (current difference - 35%);

in Turkestan region and Shymkent – 29% (current difference - 30%).

In addition, in a number of regions, there is a significant increase in differentiation of electricity tariffs compared to 2021.

For example, in East Kazakhstan region, tariff differentiation was increased by 1%, in Akmola region by 6%, in Zhambyl region by 9%, in Mangystau region by 21%, in Pavlodar region by 8%, in North Kazakhstan region by 4%.

Barriers for competition development

The main obstacle to development of competition in electricity markets is state regulation of prices for power plants and regulated ESOs. This, in turn, reduces incentives for both power plant owners and new investors to upgrade existing and build new capacities, that generally hinders industry development and keeps the situation with shortage of electricity.

In this regard, Government needs to ensure gradual deregulation of prices in the industry in order to form market principles of functioning that allow investors to respond to market signals and consider the possibility of building new capacities and ensuring equal conditions of competition between ESOs.

In addition, for thermal power plants, which are also producers of thermal energy and are regulated under legislation on natural monopolies, cross-subsidization of thermal energy is applied at the expense of electricity tariffs. Thus, thermal power plants are now in unequal conditions of competition with other energy enterprises that produce only electricity.

The level of state participation in generation also remains high. The share of 18 state-owned companies (including those within Samruk-Energo) in supply of electricity to the grid (excluding their own needs and interstate flows) is 42% or ~0.4% of GDP.

With that, there is only one state-owned ESO represented by AlmatyEnergoSbyt LLP, which is also a part of the Samruk-Energo group, in the retail market of Kazakhstan.

In general, the documents of government planning system provide targets for reducing share of state participation to 13.9% by 2026. To achieve this indicator, it is necessary to ensure implementation of measures aimed at denationalization reducing state involvement in economy, including electric power industry.

There is still high concentration in retail electricity market, where shares of ESOs, vertically integrated with electric network and (or) energy-producing organizations vary from 55-75% to 75-100%, depending on the region.

Table3. Affiliation of energy supply organizations with regional electric grid companies by region.

№	Region	Regional electric grid company	Affiliated energy supply organization
1	Astana city	"Akmola REC" JSC (1/3 of transmission volume)	AstanaEnergosbyt LLP
2	Akmola region	"Akmola REC" JSC	AREC Energosbyt LLP
2	Akmola region	Kokshetau Energo LLP	Kokshetau Energo Center LLP
3	Pavlodar region	Pavlodar REC JSC	Pavlodarenergosbyt LLP
4	North Kazakhstan region	"North Kazakhstan REC" JSC
5	Karaganda region	"Kagandy Zharyk" LLP	"Karagandyzhylusbyt" LLP, "RSC" LLP
6	Turkestan region and Shymkent city	Ontustik Zharyk Transit LLP	Energopotok LLP
7	Mangystau region	Mangystau REC JSC	Mangystau Zharyk LLP
9	Atyrau region	Atyrau Zharyk JSC	Atyrauenergosnab LLP
10	Zhambyl region	"Zhambyl electric networks" JSC	Zhambyl Zharyk Sauda LLP
11	Almaty region	TATEC JSC	Zhetysuenergotrade LLP
12	East Kazakhstan region	"East Kazakhstan REC" JSC	Shygysenergotrade LLP
13	Almaty city	"Alatau Zharyk Companiyasy" JSC	Almatyenergosbyt LLP

Currently, the Agency receives numerous requests from ESOs who cannot conclude an agreement on provision of electricity transmission services through networks of regional electric grid companies (hereinafter referred to as REC).

RECs, carrying out electricity transmission activities, are subjects of natural monopolies and are regulated by authorized body for natural monopolies in terms of providing equal access to electric grid for consumers and setting tariffs for their services.

With that, until 2004 in Kazakhstan, RECs provided energy supply services to consumers connected to their networks.

Since 2004, energy supply services had been separated from electricity transmission services and form competitive market where two or more ESOs can operate.

Since introduction of competitive model until today, the state has issued more than 300 licenses for purchase of electricity for energy supply purposes. In each region, in addition to guaranteeing electricity supplier, there are at least 5 independent ESOs. With that, there is a positive trend in emergence of new market participants, over the past 5 years, more than 50 new ESOs have entered the market.

However, due to affiliation of RECs with ESOs, that are guaranteeing suppliers of electricity, occupying dominant positions, RECs are not interested in admitting new ESOs to the market, since new ESOs take to service legal entities due to existing practice of tariff differentiation.

Thus, RECs refuse for various reasons to conclude a contract for transmission of electricity with new ESOs.

Existing differentiation of ESO tariffs limits competition struggle of both regulated ESO for non-household consumers and unregulated ESO for household consumers. This eventually leads to overflow of legal entities from regulated to unregulated ESOs, increased expenditures of SMEs on utilities, influencing cost of their final products, inefficient use of budget funds in terms of support for all segments of population, but not socially vulnerable segments of population.

Separate factor of low level of competition between ESOs, in addition to differentiation and regulation of ESO tariffs and limited access to REC networks, is lack of available mechanisms for changing ESOs. In this regard, it is necessary to create conditions for simplifying procedure for consumers to change his ESO.

National Project provides for measures aimed at eliminating price distortions at electricity markets and ensuring access for new suppliers. One of the main tasks is to increase share of consumers who have switched to alternative electricity suppliers, as well as to reduce time for changing suppliers by creation of online platform (marketplace).

The experience of Germany shows that the consumer can compare prices of various electricity suppliers and choose the most favorable tariff using a special Internet resource. Then, he can apply for a contract with a new supplier through various communication channels, such as telephone, Internet or office.

After receiving application, new supplier informs the former supplier about termination of the contract and carries out all necessary procedures to transfer consumer to its service. This process takes about two weeks on average and allows the consumer to receive discounts of up to 30%. Today, "KOREM" JSC has developed an online digital platform that allows consumers to choose ESO based on the most favorable offers at the market.

Proposals and recommendations for competition development

The Agency proposes the following to ensure development of competition at electricity market.

1) in order to reduce risks of violation of antimonopoly legislation, as well as in order to preserve competition between ESOs, it is necessary to ensure transparent and equal access to electricity volumes at Single buyer by digitalizing its services for ESOs and other consumers at uniform prices.

The Ministry of Energy is currently developing by-laws regulating Single Buyer activities, within which the Ministry of Energy supports the Agency's proposals on digitalization of its services for transparent and equal access to electricity volumes;

2) ensuring introduction of amendments and additions to legislative acts regarding exclusion of recognizing own income formed as a result of Single Buyer activities, and collecting corporate income from this entity.

This proposal was previously supported by both the Ministry of Energy and Senate deputies. At this stage, it is necessary to initiate appropriate amendments to the Tax Code;

3) ensuring gradual abolition of tariff differentiation by consumer groups for electricity supply in order to create equal conditions of competition between regulated and unregulated ESOs with point subsidization of electricity costs for socially vulnerable segments of population.

This proposal is being implemented both within the framework of National Project and individual instructions of the Head of State, including Address to People of Kazakhstan dated September 1, 2022;

4) in order to reduce cost of switching for consumers, as well as to strengthen competition between ESOs for consumers, it is necessary to run pilot test of online digital platform of "KOREM" JSC on changing electricity suppliers in one of country's regions for its subsequent scaling-up, with the condition that other developers can be provided services of marketplace for online switching of ESOs by consumers;

5) in order to ensure unhindered access to REC networks, it is necessary to introduce a practice with legislative consolidation of service model for provision of electricity transmission services, which provides for services on the basis of electricity sales contracts with Single buyer;

6) in order to reduce concentration at wholesale market and develop competition in retail market, it is proposed to privatize subsidiaries of Samruk Energy JSC in separate lots with mandatory conditions:

- single lot - "Ekibastuzskaya GRES-1 named after Bulat Nurzhanov" LLP and "Ekibastuzskaya GRES-2" JSC, "Moynakskaya HPP" JSC;

- separate lot - "Shardarinskaya HPP" JSC;

- separate lot - "Samruk-Green Energy" LLP;

Almatyenergosbyt LLP before its unbundling into several independent energy supply organizations;

- "Almaty Electric Power Plants" JSC before its unbundling by creating independent EPO on the basis of CHP-1 (85MW), CHP-2 (240MW), CHP-3 (90 MW), Kapshagai HPP (90MW);

- "Alatau Zharyk companiyasy" JSC for the purpose of preservation in state ownership and transfer to private environment by transfer to concession (trust management) on competitive basis (competition for the market);

7) in order to increase investment attractiveness and competition, it is necessary to ensure consolidation of EPO into groups when approving marginal tariffs;

8) in order to provide equal conditions for competition at electricity market between thermal power plants and other types of plants, it is necessary to take measures to eliminate cross-subsidization of thermal energy at the expense of electricity.

Most of the above proposals are supported by interested government agencies and will be included in the Roadmap for Development of Competition at Electricity Market. Additional work is required on individual proposals.

2.3. Wholesale and retail markets of coal sales

Analysis of wholesale and retail markets of coal sales was carried out in accordance with Agency's Work Plan for 2022.

Coal industry is one of the most important resource sectors of the Republic of Kazakhstan. In terms of coal reserves, Kazakhstan is among the top ten leading countries. State balance sheet takes into account reserves for 49 deposits, amounting to 33.6 billion tons, including hard coal – 21.5 billion tons, brown coal – 12.1 billion tons. More than 90% of the proven coal reserves are concentrated in the north and central part of Kazakhstan.

Today, Republic's coal industry provides about 70% of electricity generation in Kazakhstan, one hundred percent coke production, fully meets fuel needs of municipal sector and population.

The main coal mining enterprises are located in the Karaganda, Ekibastuz and Maykubensk coal basins, as well as at Shubarkol, Borlinsky and Karazhyrinsky fields. The peculiarity of Kazakhstan's coal industry in comparison with the world coal-owning states is that this industry is not subsidized by the state. The development of coal deposits in Kazakhstan is carried out on the basis of subsoil use contracts concluded between the state represented by the Ministry of Industry and Infrastructure Development and subsoil users.

According to the information of Ministry of Industry and Infrastructure Development for analyzed period (2018-2021 and the first half of 2022) there were 46 contracts and 1 license for subsoil use. 27 main market entities carry out the extraction and primary wholesale sale of coal in the republic.

There are enterprises that are at the stage of exploration and preparatory work and, accordingly, do not produce and sell coal.

Coal is traded within the geographical borders of the Republic of Kazakhstan and is sold for use:

- for the needs of energy-producing organizations;

- for the needs of municipal consumers;

- for the needs of industrial enterprises.

According to official statistics, in 2022, volume of coal and lignite production (except coal concentrate) amounted to 113.9 million tons, that is 1.8 million tons or 1.7% more than in 2021[22].

In 2022 , shipment of coal to domestic market of the country amounted to[23]:

- energy-producing enterprises - 64.4 million tons;

- industrial enterprises - 6.1 million tons;

- 11.03 million tons were shipped for municipal and household needs and population.

Fig. 9– Coal production and supply, million tons.

Transportation and delivery of coal is carried out by rail and road transport.

Coal pricing is based on market relations and is not regulated by the state.

Coal is shipped to energy companies at selling prices of surface mines under direct contracts.

The bulk of coal for municipal consumers and population is sold through commodity exchange.

The Agency has developed Recommendations (sectional rules) for sale of municipal coal through commodity exchanges (hereinafter referred to as Sectional Rules).

This innovation is registered by the order of the Minister of Trade and Integration No. 498-NK dated August 13, 2021.

The main purpose of introduction of this exchange trading scheme is to provide population with "cheap" municipal coal without unproductive intermediaries in the pricing scheme.

Provision of direct access for regional operators for amount of 544 thousand tons in 2021 ("Shubarkol Komir" JSC - 387 thousand tons, "Karazhyra" JSC - 108 thousand tons, "Maykuben-West" JSC - 49 thousand tons) and 576 thousand tons in 2022 ("Shubarkol Komir" JSC - 411 thousand tons, "Karazhyra" JSC - 130 thousand tons, "Maykuben-West" JSC - 35 thousand tons) allowed reducing costs of coal operators in amount of approx. 5.6 billion KZT.

Article 90-6 of the Code provides for competence of antimonopoly authority to monitor prices on commodity markets in order to establish signs of violation of legislation in the field of competition protection.

According to the results of the heating season and price monitoring, there were no sharp fluctuations. At coal railway dead ends, the price of municipal coal, depending on the region, brand and fraction of coal, ranged from 9 to 23 thousand KZT/ton. The price depends on size fractions, ash content and distance to final consumers, taking into account transport costs.

With that, 16 acts of antimonopoly compliance aimed at reducing risks of violation of antimonopoly legislation by market entities have been agreed with regional owners of coal bases (dead ends) who purchase coal for resale to population for household needs.

The issue of selling coal to population has a social nature, in this connection the Agency conducts weekly monitoring of coal selling prices at railway dead ends in order to prevent unjustified price increases.

If power-generating coal is sold directly to energy-producing and industrial enterprises, then municipal coal is sold through a network of intermediaries.

To do this, coal mining companies use stock trading, where huge volumes (up to 3 million tons or up to 71% of the annual shipment volume) are sold within a few minutes to a limited number of suppliers, which do not change for several years (from 2 to 17).

For example, in December 2022, "Halyk Komir" LLP buys 120 thousand tons of coal at weighted average price of 6,500 KZT/ton through commodity exchange of "TB "Caspian" JSC from "Karazhyra" JSC and resells it for 12,595 KZT/ton.

Table4. Primary sale through commodity exchange.

Seller	Stock market	Volume, tons.	Buyer	Transaction amount, KZT.	Weighted average. price, KZT/ton.
"Karazhyra" JSC	"TB "Kaspiy" JSC	120,000	Halyk Komir LLP	780 000 000	6 500

Table5. Secondary sale through commodity exchange.

Seller	Stock market	Volume, tons.	Buyer	Transaction amount, KZT.	Weighted average. price, KZT/ton.
Halyk Komir LLP	"TB "Kaspiy" JSC	1 000	Halyk komir IE	12 595 000	12 595

Thus, the mark-up of Halyk Komir LLP, which does not own technically equipped railway dead end (weighing equipment, loading and unloading transport, etc.) on ownership right or other legal grounds, is about 94%.

The task of such intermediaries, who do not have storage infrastructure, is to find buyers. Exchange transactions are concluded by brokers who simultaneously represented interests of sellers and buyers, and access to trading is maximally limited for independent suppliers.

Some commodity exchanges were opened for the purpose of bidding by certain narrow circle of sellers and buyers, being so-called "pocket" exchanges.

The analysis highlights several areas of coal use in the domestic market of the Republic of Kazakhstan: for electric power industry, for municipal needs of population, for industrial enterprises.

Bogatyr Komir LLP occupies a dominant position in the market of coal sales for energy–producing organizations (2018 – 86.07%, 2019 – 86.47%, 2020 – 84.84%, 2021 - 86.33%, the first half of 2022 - 83.1%).

Table6. The share of dominance at the market of coal sales for energy-producing organizations.

№	Name	2021	First half of 2022
№	Name	Share, %	Share, %
1	Bogatyr Komir LLP	86.33	83.1
2	"Karazhyra" JSC	7.12	8.91
3	Kazakhmys Coal LLP	3.16	3.41
4	"Eurasian energy corporation" JSC	2.57	0.83
5	"Angrensor Energo" JSC	0.32	3.43
6	Other market entities	0.5	0.32
	Total	100	100

At the market of coal sales for EPO needs, Bogatyr Komir LLP occupies constant dominant, almost monopolistic share of more than 80% on average.

Table 8. Price dynamics (weighted average) for power generating coal in 2018-2021 and the first half of 2022, KZT per 1 ton without VAT.

№	Coal mining companies	2018	2019	2020	2021	I half of 2022
1	Bogatyr Komir LLP	1 940	1 940	2 132 (9,9%)	2 077 (-2,6%)	2 228 (7,3%)
2	Eurasian Energy Corporation JSC	3 206	2 260 (-29,51%)	3 707 (64,03%)	2 765 (-25,41%)	3 292 (19,06%)
3	"Karazhyra" JSC	3 146	3 330 (5,85%)	3 458 (3,84%)	3 599 (4,08%)	3 903 (8,45%)
4	Kazakhmys Coal LLP	3 757	3 846 (2,37%)	2 814 (-26,83%)	3 334 (18,48%)	3 635 (9,03%)
5	"Angrensor Energo" JSC	2 730	2 533 (-7,22%)	2 797 (10,42%)	3 931 (40,54%)	4 960 (26,18%)

In addition, in 2022, Bogatyr Komir LLP increased selling price for power-generating coal from August 1 to 2,282 KZT/ton, from September 1 to 2,396 KZT/ton, from October 1 to 2,516 KZT/ton, from November 1 to 2,642 KZT/ton; from December 1 up to 2,774 KZT/ton, and from January 1, 2023 up to 2,968 KZT/ton.

Taking into account existing signs of violation of legislation in the field of competition protection, issue of taking antitrust response measures against Bogatyr Komir LLP is currently being considered for establishing monopolistically high price for power-generating coal, namely, exceeding growth rates of prices for power-generating coal in January-December 2022.

"Karazhyra" JSC and "Shubarkol Komir" JSC occupy a dominant position in market of coal sales for needs of municipal consumers with combined dominant share more than 60%.

Table 9. The share of dominance at the market of coal sales for municipal consumers.

№	Name	2021	First half of 2022
№	Name	Share, %	Share, %
1	"Karazhyra" JSC	29.08	30.26
2	"Shubarkol Komir" JSC and Eurasian Energy Corporation JSC	33.94	34.12
3	"Maykuben-West" JSC	11.42	12.57
4	"GRK "Sat Komir" JSC	4.01	2.77
5	Sherubai Komir LLP	2.61	3.65
6	STS-1 LLP	3.38	4.27
7	Coal Resource LLP	2.47	2.07
8	Transkomir LLP	1.79	3.04
9	Kulan Komir LLP	1.53	0.58
10	Gamma Sarykol LLP	1.54	1.47
11	Bogatyr Komir LLP	1.25	0.78
12	"Razrez "Kuznetsky" LLP	1.54	1.59
13	"Firm "Rapid" LLP	1	1.16
14	Other market entities	4.44	1.67
	Total	100	100

Degree of monopolization of the market for extraction and wholesale sale of coal for municipal needs is highly concentrated.

in 2021: (CR3) 70% < 74,44 < 100%, 2000 < 2128 < 10 000

first half of 2022: (CR3) 70% < 76,95 < 100%, 2 000 < 2238 < 10 000.

Table 10. Share of dominance in accordance with concentration coefficients and Herfindahl–Hirschman indices.

Name	Market share (%)	Total market share	HHI
"Karazhyra" JSC	30.47	71.68	1 929
"Shubarkol Komir" JSC and "EEC" JSC	29.3
Bogatyr Komir LLP	11.91
"Karazhyra" JSC	34.56	73.81	2 288
"Shubarkol Komir" JSC and "EEC" JSC	32.34
Bogatyr Komir LLP	6.91
"Karazhyra" JSC	33.67	77.04	2 302
"Shubarkol Komir" JSC and "EEC" JSC	32.37
"Maykuben-West" JSC and "Shubarkol premium" JSC	11
"Shubarkol Komir" JSC and "EEC" JSC	33.94	74.44	2 128
"Karazhyra" JSC	29.08
"Maykuben-West" JSC and "Shubarkol premium" JSC	11.42
"Shubarkol Komir" JSC and "EEC" JSC	34.12	76.95	2 238
"Karazhyra" JSC	30.26
"Maykuben-West" JSC and "Shubarkol premium" JSC	12.57

At wholesale market of municipal coal, share of three coal mining companies is 74.4%.

Table 11. Price dynamics (weighted average) for municipal coal in 2018-2021 and the first half of 2022, KZT per 1 ton without VAT.

№	Coal mining companies	2018	2019	2020	2021	I half of 2022
1	"Shubarkol Komir" JSC	4 816	5 153 (7%)	5 463 (6,02%)	5 592 (2,36%)	5 506 (-1,54%)
2	"Karazhyra" JSC	2 856	3 605 (26,23%)	4 108 (13,95%)	4 111 (0,07%)	4 270 (3,87%)
3	"Maykuben-West" JSC	5 435	6 061 (11,52%)	5 221 (-13,86%)	5 473 (4,83%)	5 656 (3,34%)
4	"GRK "Sat Komir" JSC	3 493	4 472 (28,03%)	3 946 (-11,76%)	5 248 (33%)	5 995 (14,23%)

Main events

Monopoly structure of the wholesale markets for energy and municipal coal remains unchanged.

Share of Bogatyr Komir LLP in power-generating coal market exceeds 80%. Combined share of 3 main producers of municipal coal - "Shubarkol Komir" JSC, "Karazhyra" JSC, "Maykuben-West" JSC is 74%.

In these conditions, dynamic growth of wholesale coal prices remains, being average of 6% per annum.

Thus, Bogatyr Komir LLP increased cost of power-generating coal by 15.5% in 2020, by 10% in 2021, reducing it to 2% based on results of discontinued investigation, and plans to increase to 40% in 2022.

"Shubarkol Komir" JSC increased prices by 6.5% in 2019 and 4.2% in 2021. "Karazhyra" JSC - 36% in 2019 and 25% in 2021, that allowed it to increase profitability to 52% in 2021.

If power-generating coal is sold directly to energy-producing and industrial enterprises, then municipal coal is sold through a network of intermediaries.

To do this, coal mining companies use stock trading with huge volumes.

With that, as the results of the antimonopoly investigation showed in 2019, more than 90% of the transactions concluded at the auction were not provided with either payment or shipment of coal.

Currently, practice of using "unproductive" intermediaries by coal producers, which leads to increase in the final cost of coal for population by an average of 40-45%, continues.

So, according to the results of auction on September 8-9 this year. "Shubarkol Komir" JSC offered 3.2 million tons of coal, that was bought by 16 regional operators (26% of the volume) and 10 intermediaries (74% of the volume) within a few minutes without remainders.

In this regard, in order to prevent vertical collusion at auctions, the Prosecutor General's Office has carried out measures to identify and suppress collusion at coal exchange auctions. The audit covered "Shubarkol-Komir" JSC, stock exchange companies, as well as large buyers in order to identify schemes for artificial increase of prices and possible collusion in the sale of coal.

It is established that in 2022, on average, municipal and household coal was sold by "Shubarkol-Komir" JSC at a price of 6.2 thousand KZT/ton. In the future, the cost of selling coal to a regional operator varies from 11 to 17 thousand KZT/ton. The final prices from dump trucks range from 25 to 30 thousand KZT.

Thus, the final cost for consumers coal delivery chain increases from dead end to consumer by 3-4 times from the cost of its initial sale.

According to results of audit of collusion in coal exchange trading, violations of current legislation that led to increase price of coal were not revealed.

At the same time, in order to stabilize prices, antimonopoly authority takes response measures against manufacturers and retail operators. Issues of tightening trading rules, strengthening requirements for suppliers and commodity exchanges on availability of appropriate infrastructure are being worked out as systemic measures.

Thus, the sale of municipal coal without participation of unproductive intermediaries in pricing scheme has been ensured by making changes to the List of stock exchange goods and Rules of exchange trading in terms of increasing exchange trading of municipal coal for regional operators from 10% to 50%, and obligation to offer their volumes at exchange trading for market entities, engaged in the processing (enrichment) of coal has been introduced. Increase in exchange trading of municipal coal will provide direct access for regional operators for about 4 million tons, that will reduce expenses of coal operators by about 16 billion KZT.

In addition, the issue of taking antimonopoly response measures against Bogatyr Komir LLP is currently being considered in the market of power-generating coal, taking into account signs of violation of competition protection legislation.

However, these antitrust response measures have low effectiveness in terms of influencing behavior of Bogatyr Komir LLP at the system level. Taking into account remaining share of the subject and constant increase in prices, it is necessary to work out issue of attributing primary wholesale coal sales market for the needs of energy-producing organizations to socially significant markets with appropriate price regulation.

Based on the results of the analysis, measures have been developed that are included in Roadmap for Development of Competition at coal sales market.

The measures provide ways to solve main problems of developing competition in coal industry and are aimed at increasing transparency of procurement procedure, eliminating unproductive intermediary structures at market municipal coal sales market and introduction of state price regulation of power-generating coal by attributing this market to socially significant market. In December 2022, this Roadmap was adopted by the Ministries of Industry and Infrastructure Development, Trade and Integration together with the Agency.

Proposals and recommendations for competition development

1) elimination of intermediaries:

- establishment of requirements for wholesale and retail suppliers of coal for availability of storage infrastructure, as well as ban on sales of coal between intermediaries (by analogy with electricity and petroleum products markets);

- making changes to the List of exchange-traded goods and the Rules of exchange trading in terms of regulating sale ratio of 50% of municipal coal through commodity exchanges: 90% long-term annual contracts, 10% spot trading;

The recommendation has been implemented. The Ministry of Trade and Integration adopted Order No. 294 dated July 19, 2022, which provides for increase in exchange trading of municipal coal for regional operators up to 50%. With that, for the Rules of exchange trading to correspond to List of exchange-traded goods, the Ministry of Trade and Integration amended the List in terms of increasing the exchange trading of municipal coal for regional operators to 50%, and also introduced obligation to offer their volumes at exchange trading for market entities engaged in coal processing (enrichment).

At this stage, it is necessary to make changes to the Rules of exchange trading in terms of regulating trading of municipal coal and its sales by 90% through long-term annual contracts and 10% through spot trading;

2) reduction of market concentration by:

- compulsory joint use (sharing) of large coal deposits by sites through revising contractual territories and holding auction for granting rights to alternative market entities on these sites (legislative definition of competence of authorized bodies to issue relevant rules).

For this, the Ministry of Industry and Infrastructure Development has provided a position on exclusion from the Roadmap. This is due to the fact that according to the provisions of the contracts, the subsoil user is obliged to fulfill the obligations prescribed in it. With that , only violation of contract terms and provisions of the current legislation can be the basis for its termination. When subsoil users fulfill their obligations under the contract, alienating part of the contract territory is illegal;

- coordination of transactions on transfer of subsoil use rights for coal mining for economic concentration;

3) timely and full coverage of demand in the domestic market through:

- priority provision of rolling stock for transportation of municipal coal purchased by regional operators at commodity exchange;

- implementation of the mechanism of regional bases for the supply of municipal coal (preservation of FCA conditions with division of trade by region) with possibility of switching to basis of supply of the Republic of Kazakhstan in case of unclaimed volumes;

4) state regulation. As of today, Agency has begun work on analyzing primary wholesale coal sale market for the needs of energy-producing organizations in terms of attribution to socially significant markets.

2.4. Market of construction and installation services for connecting consumers to natural gas networks

Commercial gas market

National operator represented by "NC "QazaqGaz" JSC carries out wholesale sales of commercial gas at domestic market according to marginal tariffs approved by the Ministry of Energy. With that , due to anti-inflationary regulation, purchase price of commercial gas increases by no more than 15% annually.

Export prices of "QazaqGaz" JSC are formed according to market conditions, and therefore subsidize domestic prices.

This made it possible to subsidize domestic market for a long period. However, this imbalance of internal and external prices increasingly leads to problems of saturating domestic market, as volume of consumption at domestic market is growing, respectively reducing export volumes.

In an attempt to solve this problem, a number of legislative amendments have been initiated since 2022.

In particular, new incentive formula for purchase price of gas by the National Operator from subsoil users for newly commissioned fields has been developed and approved.

With that , revision of the purchase price for commercial gas did not affect cardinally operating fields, including small SUO, that leads to unequal conditions in primary market of wholesale sale of commercial gas, and as a consequence, violation of competition and investment climate.

Thus, situation on primary wholesale market of commercial gas sales (low investment attractiveness, administrative and economic barriers) has not been solved for the most part.

It should also be noted that the new amendments granted the national operator the right to 10% commission for servicing gas purchases and sales (profitability level).

It should be noted that the national operator is not a producer of commercial gas, but its reseller. For such structures, by analogy with the retail gas market, a supply mark-up is provided, established by the regulator based on actual planned sales costs (administrative, financial costs, payroll, etc.), and not fixed amount.

In this connection, establishing certain profitability threshold of the National Operator leads to unjustified increase in gas tariffs, while the calculation on actual basis could take into account current situation with financial and economic activities of the entity.

The Agency provided comments on the draft of relevant bill, but these comments were not accepted.

In general, the problem of saturating domestic market with gas, attracting investment in industry can be solved by introducing exchange trading for commercial gas, which will allow the SUO to sell volumes of gas to consumers directly, without participation of a national operator, at market prices.

When adopting the Law "On Gas and Gas Supply", which provides for granting preferential right to purchase commercial gas to "QazaqGaz" JSC, the rationale for amendments was the need to implement gasification program for the regions of the country.

The implementation of Gasification Program of the country's regions is calculated until 2030 and provides for new gasification projects according to updated General Scheme of Gasification and modernization, expansion of gas transportation infrastructure. The sources of financing of the program will be the state budget, own and borrowed funds, which will be paid back at the expense of transportation tariffs, wholesale and retail gas prices, as well as allocation of funds from state budget through the replenishment of the authorized capital.

Thus, the gasification of the country's regions is provided mainly at the expense of republican and local budgets, borrowed funds and tariff, while justification for monopolizing wholesale market by granting preferential rights to the National Operator was financing of the country's gasification.

In this regard, the attempts of the National Operator to enter adjacent markets (construction and installation works) continue, due to containment of tariffs for domestic sale of commercial gas, drop in export revenue and gas production. An example of this situation is the market of construction and installation works(hereinafter referred to as CIW ).

The analysis of market of CIW for connecting consumers to natural gas was carried out in accordance with the Agency's Work Plan for 2022.

Based on incoming requests and active agenda of gasification of the housing stock, the analysis considered the market segment of works for connecting household consumers.

In this regard, the analysis does not include the market segment in terms of connecting commercial and other consumers (central heating facilities, other categories of business entities, social institutions) that are not households.

This report contains information for each region.

Market under consideration as a whole represents the last stage ("last mile") of consumers' gasification process and is adjacent (connected) to market for supply of commercial gas through the pipeline.

Process of gasification (laying gas pipelines) includes construction and installation work on high-pressure (trunk), medium-pressure (distribution) and low-pressure pipes ("intra-house networks" from input of distribution network to consumer's gas-consuming equipment (heating boilers, cooking stoves, water heaters, etc.).

Schematically, this is shown in Figure 19:

Fig. 10- The structure of entire gasification stage and place of CIW market for connecting end consumers (population).

Customers of CIW on high and medium pressure pipelines are gas distribution organizations or other pipeline owners.

In turn, customers of CIW for intra-house networks are the gas consumers themselves.

In these segments, the market conditions differ, in the first case contractual relations are formed between market entities from both sides, most often it is public procurement (tender), scope of work is larger and technologically complex, and therefore a separate license is required for construction and installation companies (hereinafter referred to as CICs).

In the second case, the market is formed between the CICs and gas consumers (customers of CIW ), indefinite circle of consumers act as potential customers, which depends on supply of distribution networks.

Consumers search for CICs or vice versa through publicly available communication channels (advertising, recommendations, etc.).

Table 12. Number of market entities by region.

	Region	2021	2022
1	Astana city	70	140
2	Almaty city	19	8
3	Shymkent	37	3
4	Akmola region	7	7
5	Karaganda region	5	7
6	Turkestan region	99	99
7	Zhambyl region	11	6
8	Almaty region	39	29
9	Zhetisu Region		13
10	Kostanay region	11	49
11	Kyzylorda region	24	24
12	Mangystau region	69	108
13	Aktobe region	8	7
14	East Kazakhstan region	1	1
15	West Kazakhstan region	19	7
16	Atyrau region	3	2
	Total	422	510

Due to absence of gasification system infrastructure in North Kazakhstan and Pavlodar regions, Departments of these regions did not analyze CIW market.

Table 13. CIW market shares for 2022 and market concentration (degree of monopolization).

Region	CR 3	HHI
Astana city	8,01+5,43+5,40=18,84	327.50
	Low - concentrated
Almaty city	34,08+19,51+14,76=68,35	2064.1
	Moderately concentrated
Aktobe region	43,23 + 18,71 + 30,77 = 92,71	6 574
	Highly concentrated
Atyrau region	100	10000
	Highly concentrated
East Kazakhstan region	100	10000
	Highly concentrated
Zhambyl region	66,08+18,16+13,18=97,42	4873.12
	Highly concentrated
Karaganda region	38,8+27,1+15,7=81,6	2 659,43
	Highly concentrated
Kyzylorda region	17,3+16,9+13,6=47,8	972.6625
	Moderately concentrated
Mangystau region	5,2+6,1+4,8=16,1	256.97
	Low - concentrated
Turkestan region	7,47+6,85+6,41=20,73	350.02
	Low - concentrated
Shymkent	52,13+46,54+1,33=100	4 885,26
	Highly concentrated
Kostanay region	64,8+17,4+16,0=98,2	4 760,73
	Highly concentrated
West Kazakhstan region

Дата публикации

26 июня 2023