Market Overview
The potential of the environmental technologies market in Kazakhstan is closely related to the continuing dependency of the economy on the export of natural resources, expanding scale of mining, energy activities and their negative impact on the environment, as well as inevitable climate change consequences for economic sectors and quality of life. Besides the obvious and pressing environmental challenges, there is also a growing political commitment to support “green” developments by tightening legislation and ensuring its strict enforcement.
Market Opportunities
Environmental management in Kazakhstan can be divided into four main groups:
- Air pollution control
- Water management
- Waste management
- Biodiversity protection
Air Pollution Control
In Kazakhstan, large-scale mining, oil and gas exploration, industrial activities, economic growth in the last decade, and increased traffic flows all demand urgent and serious air pollution control. Toxic gases, including SO2, NOx, and PM, reach high levels in some of Kazakhstan’s cities. Most industrial facilities have not installed modern technologies to reduce emissions. Moreover, the outdated surveillance and measurement systems used by businesses do not provide an accurate depiction of the threat of air pollution. Additionally, poor quality car fuel with high sulfur contents pose additional challenges. Air pollution has a serious negative impact on human health. In Almaty, air pollution was cited as the cause of premature deaths in 2,800 Kazakhstan residents. Pollution is also known to increase diseases in the cardiovascular, respiratory, and digestive systems in the industrial cities of Temirtau, Ust-Kamenogorsk, Aktau, and Ekibastuz.
The new Environmental Code shifted the burden of pollution onto businesses, for which the government can order fines that are more expensive than installing the proper systems to prevent the damage in the first place. This legislation encourages businesses to address their pollution emissions to avoid more costly government interference. If enterprises do not introduce BAT, then the fine rates for emissions will double in 2025, quadruple in 2028, and increase by eightfold in 2031.
Through these efforts, Kazakhstan’s carbon regulations will be strengthened. Companies are already starting to prepare by conducting an analysis of the impact on costs and investment as well as implementing an effective de-carbonization strategy.
Transport
The transportation system in Kazakhstan faces depreciation of auto transport, limited use of gas, and cheap and low-quality fuel. The integration of smart transport systems in coordination with the international standards is a national priority. This area provides potential for the export of transport services.
The Euro 5 standard is currently valid for both new cars produced in Kazakhstan and for imported ones.
The Kazakhstan government introduced the “Green Principles for Sustainable Development of Road and Transport Infrastructure” in 2017. These principles define criteria and establish a scoring system for assessing road transport infrastructure facilities, roads, roadside service facilities, and roadside hotels for compliance with environmental requirements and for assigning these facilities a compliance category.
Renewable Energy
The government of Kazakhstan set ambitious targets to increase the share of renewable energy sources in the energy balance up to 30% by 2030. It successfully implemented a system of auctions for the selection of renewable energy projects and for attracting funding from international institutions.
Opportunities
- From 2021 to 2024, the top 50 industrial enterprises of the east Kazakhstan region plan to purchase technologies for automatic monitoring of emissions.
- Mining enterprises of Kazakhstan need technologies for:
- the utilization of sulfur dioxide,
- increase the efficiency of sulfuric acid plants,
- mine and wastewater treatment systems, and
- waste gas capture systems.
- PAZ “Aluminum of Kazakhstan” JSC plans to allocate USD$8 million for the stage-by-stage reconstruction of fourteen electrostatic precipitators in the sintering shop and USD$6 million for the reconstruction of four ash-collecting installations at the combined heat and power plant until 2030.
- Modernization of Thermal Power Station 2 in Almaty: reconstruction of existing boilers with their transfer to gas combustion for USD$31 million by JSC “Samruk Energo.”
- As soon as the European Union (EU) cross-border carbon import duty mechanism comes into force, and it accounts for almost half of Kazakhstan’s exports, the economy will lose millions of dollars in export earnings per year. Therefore, local companies will have to carry out emission inventories, prepare reports, and look for emission reduction opportunities to make their products cheaper.
Water Management
National and regional development programs that are meant to improve access to drinking water and centralize supply in cities and rural areas have yet to perform successfully. In cities, the level of program implementation remains at 80%, and in rural areas, it is only about 11%. The main challenge is underfunding. On average, only 30% of the necessary funds are available.
The predicted shortage of quality drinking water is a real threat to Kazakhstan today. Providing urban and rural populations with access to safe drinking water is a priority. For context, Kazakhstan ranks eighth in water scarcity among Asian countries, falling behind Bangladesh, India, and China. Kazakhstan does not have its own water resources and depends on its neighboring states as well as on inter-state rivers. In Atyrau, Kyzylorda, and Mangystau, almost two million people do not have access to sources of fresh water. Most of the water is not used for drinking or household needs but for irrigation, where almost half of the water supply is wasted. Since 2011, funding has been allocated to address some of these challenges, yet residents of 51% of rural settlements do not have access to clean drinking water. Out of Kazakhstan’s 87 cities, only 58 cities have sewage treatment facilities. These structures are nonexistent in approximately 29 cities.
The “Water Code” from 2004 is the primary policy document in water management. The sector is mostly governed by state enterprises. Overall, the government failed to get private sector involvement in Kazakhstan’s water management. Since 2018, only four licenses in the country have been operating within the sector.
Opportunities
- The government of Kazakhstan intends to invest an average of $530 million in water management between 2021 and 2030.
- The oil and gas industry still poses a threat to the Caspian Sea Basin due to oil spills and other leaks.
- “Atyrau Oil Refinery Plant” JSC plans to modernize wastewater treatment facilities and reclaim sections of diversion canals and evaporation fields with the support of the EBRD for $80 million until 2023.
- “KazTransOil” JSC will carry out technical and biological reclamation of 4 hectares of land on the main oil pipeline in 2021, allocating USD$1 million.
- ADB and EBRD will allocate USD$76 million for the construction and modernization of sewage treatment facilities in 53 cities starting 2021.
Waste Management
Progress in waste management had started with the Chapter on Extended Obligations for the companies but was criticized for the lack of transparency and the presence of only one national operator. Amendments were made to expand the list of types of waste prohibited for disposal at landfills. Since 2018, landfills have stopped accepting plastic and polyethylene, paper and cardboard, and cullet. Additionally, since December 31, 2020, waste of construction materials and food waste is also prohibited.
Recently, the government introduced a new requirement to equip all vehicles carrying out the removal of solid household waste with satellite navigation systems.
Before, the only document with specific waste management indicators was the “2013 Concept for the transition of the Republic of Kazakhstan to the Green Economy.” However, the new 2021 Ecological Code introduces a new waste classification, corresponding to the European catalog and aiming at the gradual and circular waste management: minimization of waste generation, reuse of generated waste, recycling, disposal, and disposal at landfills. In addition, a licensing procedure is being introduced for the implementation of activities for the processing, utilization, and destruction of hazardous waste.
Opportunities
- At the moment, only 15% of five million tons of municipal solid waste is processed annually in Kazakhstan. Spontaneous landfills and the lack of modern landfills are a key problem in the modernization of solid waste processing systems.
- More than 300 million tons of hazardous waste have been accumulated in ash and slag dumps today.
- The Ministry of Ecology, Geology and Natural Resources of the Republic of Kazakhstan plans to attract USD$420 million of private investment for the construction of European standard waste incineration plants in six cities between 2021 and 2024.
- The ministry also plans to build 84 new landfills in the country.
- On November 21, 2020, a legislation on the implementation of the Waste-to-Energy mechanism was introduced in an effort to reduce waste and comply with world practice. It is planned to attract at least USD$435 million of private investment.
- States promote investment preferences and PPP mechanisms to increase the profitability of commercial projects in waste management.
Climate Change
Increase in weather intensity and acceleration in the melting of glaciers are predicted. For Kazakhstan, this increases the likelihood of catastrophes and natural disasters, emergency on the roads, air pollution, reduced yields, food threat, floods, spread of diseases, and fresh water deficiency.
Almost 75% of the territory of Kazakhstan is at risk of environmental destabilization. Desertification, declining yields, soil erosion, land degradation, and locust infestations are already occurring and are damaging agricultural land.
Economic consequences of climate change in Kazakhstan:
- Deterioration of power grids
- Reduced potential of hydropower
- Industrial accidents
- Vulnerability of the mining sector (need a lot of water)
- Loss of 50-70% of wheat crop in Central Asia (largest agricultural segment of the region, ensures food security)
- Loss of cattle due to spread of bacteria
- Rising healthcare costs
Market Entry
Most exporters find using local distributors or product representatives as an easy first step for entering the Kazakhstani market. A local distributor is typically responsible for handling customs clearance, dealing with established wholesalers/retailers, marketing the product directly to major corporations or the government, distribution, and handling after-sales service if required. It is not uncommon to partner with a firm that is involved in several unrelated sectors. Other useful advice includes:
- Performing detailed market research to identify specific sector opportunities
- Conducting appropriate due diligence on potential partners
- Remaining cautious of exclusive distribution agreements with local partners. Keep in mind that Kazakhstan has a small population spread over a large landmass, and distribution channels should represent countrywide needs.
- Maintaining a long-term timeframe to implement plans and achieve positive results. Do not expect this to be an inexpensive market that can be entered quickly.
- Supporting local partners as appropriate
- Assisting buyers in obtaining financing
- Translating sales and marketing materials into the Russian language. Localized websites can also help reach potential partners/buyers in the market.
- Consulting attorneys in drawing up appropriate contracts and agreements and considering managing dispute settlement and/or arbitration in third countries
The Association of Environmental Organizations of Kazakhstan has a membership base of more than 150 private companies and non-commercial entities providing environmental services, products, and consulting. Some of them are official distributers of Xylem (USA), Remark Kayser (Poland), Kontram (Finland), Soler Palau (Spain), Grundfos (Deutschland), Wilo (Germany), Lowara (Italy), CNP (China), LEO (China), Pedrollo (Italy), SALHER (Spain), and leading Russian companies.
U.S. firms that meet one or more of the following criteria will have an edge in the Kazakhstani market:
- Export sales and emerging markets are an important part of the business
- Experience in eastern Europe, the Caucasus, Russia, or Ukraine
- Ability to invest company time, effort, and resources for the long term
- Flexibility to work with local partners to develop opportunities in foreign markets
Trade Barriers
Legislative
One of the most promising recent legislative changes was the introduction of the new Environmental Code from July 1, 2021 and the reestablishment of a separate, independent Ministry of Ecology and Environmental Protection. The new Code focuses on strengthening environmental regulation, investment, green technologies, government procurement, and subsidies.
The Code will make obtaining an Integrated Environmental Permit mandatory for Category 1 enterprises (those that have the most significant negative impact on the environment). Category 1 affects approximately 3,000 companies. Previously, this permit was voluntary for all businesses. An important component of this permit is the passing of mandatory environmental audit and introduction of Best Available Technologies (BAT). Special reference books will be developed for the use of new knowledge on BAT. The newly created BAT Bureau, which consists of 50 working groups, including 335 representatives of industry, government agencies, associations, universities, and international consultants, will create these reference books. By 2022, the bureau will write a total of nine reference books, and by 2025, there should be close to 30 books.
Taxes
In 2018, Kazakhstan’s Most Favored Nation (MFN) applied a tariff rate that averaged 7.1%. Kazakhstan applies a 0% rate on approximately 1,900 tariff lines, including livestock, pork, fish products, chemical and pharmaceutical products, cotton, textiles, machinery and equipment, medical vehicles, and some types of airplanes. Kazakhstan’s maximum World Trade Organization (WTO) bound tariff rate for industrial products is 19%, but not less than 0.68 Euros per cubic centimeter (approximately USD$0.77 per cubic centimeter).
For comprehensive information on trade barriers in Kazakhstan, please refer to the U.S. Trade Representative 2020 National Trade Estimates Report.
For more information and help with trade barriers, please contact the Commercial Section at the U.S. Embassy in Kazakhstan.
Standards
Environmental standards remain from the Soviet era and are expressed in the form of Maximum Allowable Concentrates. The national standard ST RK ISO 14001-2006 was introduced in 2006 and reissued in 2016, taking into account the new international version of ISO 14001-2015.
The law “On Public Procurements” of 2015 has a supplier criterion, requiring the presence of a certified environmental management system. This type of certification is more commonly used in sectors that depend on international markets. There are 140 such certificates operating in Kazakhstan, and the number of companies that provide consulting services to ensure compliance with international standards is slowly growing.
Finance
The environmental financing market itself is at the stage of formation. Governments as well as international donors EBRD and EDB continue to play a key role.
There are already tools such as co-financing, soft loans, and interest rate subsidies for green projects. Moreover, with the introduction of the Environmental Code, a taxonomy of green projects was created, defining “green finance” to include green loans, bonds, and other instruments. Thanks to this, financing will be understandable and affordable, making it possible to include clauses on environmental requirements in traditional investment mechanisms in large projects.
Government/International Institutions Financing
Between 2021 and 2025, the national project “Zhasyl Kazakhstan” will aim to improve the ecological environment in ten cities of Kazakhstan, improving water goals, increasing the processing of solid waste from 18% to 30-35%, reducing the energy intensity of the country’s GDP, preserving biodiversity, and planting two billion trees.
For the implementation of the Concept for the transition to a Green Economy, Kazakhstan is planned to attract $120 billion between 2014 and 2049. In 2015, a project on supporting Kazakhstan’s transition towards Green Economy model was launched. The project is funded by the EU and is implemented by the United Nations Development Programme (UNDP) as the lead organization, in partnership with the United Nations Economic Commission for Europe (UNECE).
The Ministry of Energy provides subsidies for projects to create standalone renewable energy plants. Imported equipment is exempt from customs duties.
The Ministry of Industrial Development and DAMU Fund have allocated USD$6 billion in loans for the implementation of energy-saving technologies and infrastructure development.
The EBRD will allocate USD$200 million for the development of renewable energy sources. Similarly, the GCF will allocate USD$100 million for the same purposes.
The Development Bank of Kazakhstan JSC has allocated USD$10.86 billion between 2001 and 2017.
Additionally, the Samruk Kazyna Foundation also invests in the RES projects.
The DAMU Fund, together with the UNDP, placed $200 million securities on the AIX stock exchange to finance SME projects on renewable energy.
There are PPP mechanisms to make waste processing plants and landfills construction projects more cost-effective.
Green Procurement
Government purchases are the main source of aggregate demand in Kazakhstan. In 2010, they accounted for 43% of total government expenditures. One of the criteria for selecting suppliers is the availability of certified environmental management systems. There is now also a discussion with the United Nations Environment Programme (UNEP) on the implementation of their methodology and the system of Kazakhs state procurement for greening the budget and transitioning to a green economy.
Astana International Financing Center (AIFC)
Green finance is also promoted by the AIFC, which has created the Green Finance Center platform as well as the Greentech platform for promoting green technologies and uniting market participants. The AIFC also works with the EBRD on the project “Kazakhstan: Green Financial System” to develop a “green bonds” market in the country.
Currency Risks
When it comes to local currency (tenge), it is worth considering the high base rate, which is difficult for green projects to compete with. Revenue in tenge and return on investment are highly dependent on the exchange rate. Therefore, it is beneficial to do turnkey projects: from engineering projects, procurement, and construction to full financing. By applying this approach, the country has attracted hundreds of millions of U.S. dollars to the economy.
Contact Us
Alem Abubakirova
Commercial Assistant
Environment, Transportation and Logistics
Foreign Commercial Service
Almaty, Kazakhstan
Email Alem Abubakirova
+77717895985
