AES in Kazakhstan: Global Projects of Energy Giant
Dale Perry, the General Manager of the AES Group of Companies in Kazakhstan, gives an interview to the Kazakhstan International Business Magazine
Dale Perry is currently a Country Manager for AES in Kazakhstan and Vice-President of AES Corp.
Dale joined AES in 1997 as a Vice President of the AES Silk Road Group and directed its Almaty, Kazakhstan office until late 1998. From 1999 through 2000 Dale was the Director of Special Projects and on the Board of Directors of AES Sul, a distribution business in southern Brazil. In 2002 and 2003 Dale was a Managing Director and on the Board of Directors of AES Tisza II, power plant in Eastern Hungary. Most recently, Dale was the Project Director for the Bujagali hydropower project in Uganda. In 2003 he came back to Kazakhstan as the Country Manager for AES.
Dale has a bachelor’s degree in Engineering from Dartmouth College. He also was the founding Chairman of the Kazakhstan Electricity Association.
Mr. Perry, could you please tell us about the current activities of the AES Group around the world?
Our corporation was founded in the USA in 1981. The company chose the manufacturing of safer, cleaner and more reliable electric power as the focus of its activities. Today, AES is one of the largest electric power companies in the world. We supply 45,000 MW of electric power to customers in 27 countries around the world, through 114 electric power-generating companies and 17 distribution companies. We do business in the countries of North and South America, Europe, Africa, China, India and the CIS. The thirty thousand employees of AES facilities make every effort to ensure excellent quality of production to satisfy the increasing global demand in electric power.
Next year is the 10th anniversary of AES' activity in Kazakhstan. What are the main achievements during this period?
We started our activities here in 1996 by purchasing the Ekibastuz-1 State District Power Plant, one of the largest coil-fired electric power plants in the world. We obtained a licence to operate the Ust-Kamenogorsk and Shulbinsk Hydroelectric Power Plants and bought the Ust-Kamenogorsk and Sogrinsk Thermal Electric Power Plants. Finally, in 2002, in order to ensure uninterrupted coal supply to our facilities, we purchased the Maikuben Coal Mine in the Pavlodar region.
Consequently, AES is currently the largest energy producer in Kazakhstan. Our plants for generating heat and electric power have an aggregate capacity of above 6,800 MW, which is about 30% of the total electric power-generating capacity of the country.
AES activities in Kazakhstan also include the distribution of heat and electric power. At present, we manage the East Kazakhstan Power Distribution Company, its Semipalatinsk Branch and Ust-Kamenogorsk Heat Distribution System. These companies' network range exceeds 46,000 kilometres. They provide services to more than 576,000 consumers, including residential areas and large industrial facilities.
One of our most important achievements is the fact that more than 6,500 employees work for AES and only 6 of them are foreigners.
This type of ratio between local and foreign personnel is quite rare for multinational corporations working in Kazakhstan. How did you accomplish this ratio?
From our very first days operating in the country, we have made every effort to engage the Kazakhstani people in our projects and to make considerable investments in the development of local human resources. Many Kazakhstani employees have had the opportunity to upgrade their professional skills at AES facilities in other countries. They have worked in the USA, Argentina, Brazil, Great Britain, Qatar, Chile, Georgia and Ukraine. Now, upon their return to Kazakhstan, they hold management positions in AES. I think this approach excellently demonstrates our long-term strategy.
The high proficiency of our Kazakhstani experts gives us a great advantage in entering new markets. For example, top managers of AES' Almaty office not only manage the activities in Kazakhstan, but the development of our new business in Russia and the other Central Asian states as well.
In your opinion, what is the development state of the electric power sector in Kazakhstan? How attractive is it to foreign investors?
For the last few years, Kazakhstan has been the regional leader in this sector. Furthermore, I think that in terms of economic development, market liberalisation and availability of a corresponding legal base, Kazakhstan outstrips the other Central Asian states and Russia as well.
Yet, your country should complete the process of liberalisation. Kazakhstan has already developed rather effective 'rules of play', according to which the State reserves a strategic asset, such as power transmission lines. However, power-generating and distributing facilities should be passed into private hands. Here, by completion, I mean the completion of this process. Second, it is necessary to enable true market relations between buyers and sellers. Kazakhstan, as well as Russia, is not entirely rid of the habit of planning its economy, which poses the main difficulty. The use of planned economy methods does not make this sector more attractive to investors who are primarily geared to return on investment when making decisions. Therefore, the first thing the government should do is to create conditions that would ensure quick payback. This would also stimulate the increased inflow of investments in the sector.
This is especially vital in view of the growth of electric power consumption and the increased domestic power shortage, which are expected in the coming years. The steps towards resolving this problem should be taken right now. As to AES, our nine-year experience of operating in Kazakhstan, our access to international capital, and our considerable installed capacity enable us to contribute to this process.
As far as we know, your company has already begun renovating existing power energy facilities. How much investment do you need to implement this programme, and how does this affect electricity rates?
This year, we have successfully completed restoration of one of the power-generating units at the AES-Ekibastuz Plant. As the Minister of Energy and Mineral Resources, Vladimir Shkolnik said, this unit has been streamlined to meet international standards. The implementation of this project enabled us to see a clear picture of how much money the restoration of the remaining seven units would cost us. The company plans to increase the capacity of the Ust-Kamenogorsk Thermoelectric Plant. We estimate that the total cost of renovating these facilities in 2005-2012 will range from US$600m to US$800m. The exact amount of investment will depend on where we will buy the necessary equipment. The main problem is that direct supplies from the USA, Great Britain or Germany would cost too much, which cannot but cause a considerable increase in electricity rates. This is why we are trying to find an optimal solution using available international practice. So, this year we have bought equipment from American Emmerson company, which was manufactured in Poland. We hope to apply a similar scheme in our cooperation with large international companies, such as General Electric and ABB. As a result, we will get equipment that is affordable and, at the same time, meets international standards.
Indeed, this does not mean that we will be able to completely escape the need to increase rates. In order to implement an investment plan for renovating AES-Ekibastuz, we will have to raise annually the price for generated power, which may reach 2.8 cents per kW-hour by 2012. This is two and a half fold higher than current rates, but even then, electricity in Kazakhstan would be one of the cheapest in the world. This means that new rates would not greatly affect the competitive capacity of Kazakhstani companies. On the other hand, if we now start building new power plants in the country, the cost of electricity would be a minimum of 3.5 cents per kW-hour. Therefore, our decision is the most beneficial for Kazakhstan’s economy.
What is the social policy of AES in Kazakhstan?
We annually spend about US$1m on projects concerning our social responsibilities. Each of our facilities has its own sponsor programmes for assistance to schools and hospitals and for the development of sports. We focus on two main areas: health care and education. Thus, one of the departments at a hospital in Ust-Kamenogorsk is being renovated with AES' funds. The equipment will be provided from the USA and the medical staff will complete special training. We also plan to buy an ambulance for the Shulbinsk Hydroelectric Plant, which is located at a considerable distance from the city. One of our latest educational projects is the Masters Programme in Environmental Management, which we have launched at the Eurasian University in Astana in cooperation with New Mexico University. Our initiative has been supported by USAID and the OSCE. Additionally, with the support of the Darden School of Business (University of Virginia, USA), KIMEP and the Kazakh-American Free University, we have opened the Leaders Training Centre in Ust-Kamenogorsk, which is open not only for AES managers, but for the managers of state and private organisations.
What are your personal impressions of our country? What prospects can you envision for Kazakhstan?
I became acquainted with Kazakhstan for the first time in 1997-1998 when we started our operations in your country. Even then, I understood that this country and its people have great potential. So, when in October 2003 I was again offered a position in Kazakhstan, I accepted and moved here with my family.
Today, the country and its young economy face a number of difficult, but challenging tasks, the solutions to which will require long and persistent efforts. Under such circumstances, foreign investors cannot and should not be continuously talking of their expectations for their investments. Perhaps, one of our main responsibilities is to help your country to achieve success and prosperity by delivering best international practices.
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