Incentive-based regulation

The validity of KTZ's tariff will have to be proven

The Mazhilis (lower house) of the Parliament of Kazakhstan approved the draft law “On Natural Monopolies”. With the adoption of the document, the activities of JSC NC Kazakhstan Temir Zholy (KTZ) will be controlled by the Tariff Policy Council and the Public Association of Consumers of Railway Operator Services.

As Minister of National Economy Timur Suleimenov explained, the current version of the law, adopted in 1998, is noticeably outdated. Over the course of 20 years, more than 200 amendments were made to the document by fifteen regulations. “Therefore, the law has lost its consistency, contains a significant number of references, and is also difficult to understand. In addition, today the procedures for regulating the activities of natural monopolies, the formation and approval of tariffs are enshrined in 79 by-laws. The project combines them into two basic documents,” noted Timur Suleimenov.

According to him, the new document will increase the transparency of the activities of monopolists through the creation of new structures.

The Tariff Policy Council will consider draft investment programs of companies, which are approved for the duration of the tariff - five years. He has the right to approve them or send them for revision if, for example, there are no sources of funding or supporting documents, or if the information in them is unreliable.

As the minister clarified, the second new institution will be the Public Association of Service Consumers. This non-profit organization will also be able to evaluate investment projects and their effectiveness and get acquainted with reports on the implementation of tariff estimates and, in case of claims, file lawsuits to protect their own rights, since they are buying the services of a monopolist.

At the same time, deputies already have questions about the document. According to the Chairman of the Mazhilis, Nurlan Nigmatulin, the draft law provides for public hearings on planned changes in tariffs, but this procedure is not regulated and boils down only to the obligation of the monopolist to report the timing of their implementation or the fact that they have already taken place. “There is no mention of the legal consequences of the results of the hearings. Their main goal should be to ensure the competition of alternative opinions: on the one hand, the subject of a natural monopoly, on the other, consumers of services, that is, representatives of the public and business. Accordingly, the approval of the tariff should be based on their decision, and the council will act as an arbiter and should post accessible and understandable information for citizens about the mechanisms for its formation,” says Nurlan Nigmatulin.

Meanwhile, KTZ believes that at first glance there are no fundamental innovations in the document. “As far as we understand, the general structure of the law has remained the same, it has only combined several disparate by-laws and two new structures will appear. But the draft has so far been approved by the lower house in the first reading; it will be considered in the Senate, which may decide to supplement or immediately adopt the document. We are not familiar with it in detail, and it will be possible to evaluate its effect only in practice, when the law is adopted,” said Baurjan Turezhanov, chief manager of the regulatory support department for corporate projects of the Department of Strategic Planning, Interaction with Government Authorities and Corporate Development of KTZ.

However, experts noticed important changes for the activities of the railway company. “Currently, the republic uses a costly method of tariff regulation. That is, in fact, all expenses and some kind of margin are laid out. The monopolist has no interest in improving operational efficiency or saving money. Now KTZ will have to prove the validity of the tariff, since an incentive method is being introduced, where the rate depends on performance indicators, quality and reliability of services. They must be ensured by the management and employees of the company,” commented Shaimerden Chikanaev, partner of the International Law Firm GRATA International, to Gudka.

According to him, there are many less significant changes that, in general, should increase the transparency of KTZ’s work. In particular, technical expertise of the implementation of the investment program and public monitoring are being introduced. Now this is carried out exclusively formally; public organizations cannot in any way influence the tariff policy of KTZ. And by the way, the company will publish public reports once every six months, and not annually, as now, and will also begin to post on its Internet resources information about the progress of investment programs, down to the location and photos of objects.

“The consideration of the monopolist’s applications for approval of tariffs is being transferred to an electronic format. Consumers will also have access to them. It is important that state control over the activities of KTZ is removed from the general procedure provided for by the Entrepreneurial Code. Therefore, checks will be carried out more frequently. And the tariff regulator will have access to the databases of government bodies in order to compare reports on the implementation of tariff estimates and investment programs with information on cash flows, tax revenues and product sales volumes to identify fictitious schemes,” notedShaimerden Chikanaev.

According to Alexey Chekryzhov, an expert at the Berlek-Unity Center for Geopolitical Research, with the new law the state is strengthening control over the railway monopoly.
“The mechanisms for setting tariff policy will indeed become more flexible, but this does not imply their automatic reduction. The draft proposes to tie tariff setting to an increase or decrease in prices for strategic goods - gas, oil, coal, but nothing foreshadows a decrease in the cost of energy resources,” says the expert.

Therefore, it is no less important, says Alexey Chekryzhov, when updating the regulatory framework, to also consider measures to freeze the tariffs of monopolists, primarily energy ones, while introducing other forms of their support.

 

First published on the portalGudok.

GRATA International partner, director of the Banking and Finance department Shaimerden Chikanaev commented.