Kazakhstan is a world of extremes. It’s cold, cold, cold in the winter and hot in the summer. Vast energy reserves and plentiful supplies of minerals and metals represent an enormous treasure just waiting to be tapped, but severe industrial pollution cripples some cities and toxic radioactive sites are scattered throughout the country.
Winter smog moving up the hill in Almaty, Kazakhstan.
Kazakhstan gained its independence in 1991 after more than 50 years of Communist rule. Now the country is trying to define its national identity and strengthen relations with neighboring states and other foreign powers. To fuel economic growth, the country needs to build critical infrastructure and to attract new investment, government leaders have been working to put the legal and regulatory framework in place. AES Ekibastuz, one of the largest coal-fired plants in the world, is part of that growth picture.
C.E. “Cal” Payne, Jr., traveled to Kazakhstan as a consultant for AES Kazakhstan. Payne has a combination of treasury, finance, training and control experience gained in the course of a 25-year career at companies including Transco Energy, UtiliCorp. and subsequently Aquila, where he served as chief risk officer. We asked Payne, now with UtiliPoint Innternational, to tell us about his experience in Kazakhstan with the people and the business culture there.
This was a comprehensive project. It took place over seven months, and of that time I spent two and a half months in country in basically two- and three- week increments. The bulk of that time was in the winter and that’s not like winter in Kansas. When I was in Ekibastuz, it was 40 degrees below zero.
I don’t speak Cossack or Russian, so I had to have an interpreter and I also had to have a driver at all times. I’d never drive in that city because of the traffic and the way people drive there. They don’t follow streets the way they do in the U.S. The sidewalks don’t get shoveled, and they don’t have handrails on the stairs. I saw people fall all the time. There I’d be, carrying a computer, shuffling along like George Burns, hoping not to fall on the ice.
I spent most of my time in Almaty and traveled north to Ekibastuz, close to the Russian border. That’s where AES’ coal plant is. It’s 4,000 MW and you cannot imagine how big it is. It’s six-tenths of a kilometer to walk from one end to the other and it has eight 500 MW turbines, right in a row.
At some of the plants, they still have an armored car deliver cash. They pay people in hard, cold cash. The idea of an electronic funds transfer is foreign to them and of course in many cases they don’t even have a bank account.
In Ekibastuz, 4,000 employees were cut back to 700. The changes they had to make are mind-boggling. They had one person who was paid to do nothing but fold napkins for the cafeteria. That was the full employment mindset of the Soviet Union.
Something as simple as trying to get a conference phone installed: You have to go to the government to get the conference phone itself approved before you can bring it into the country and install it. If you want to move fast, it’s hard.
Because Kazakhstan was part of the Soviet state, everything is done on a centralized basis. A central heating plant would heat all the homes in a particular area or region. Typically that’s a coal-burning facility. Essentially, they’re heating hot water and one of the by-products is power. (See photo of a heat net connection in a Kazakhstani neighborhood, page 8)
But that means the air quality is terrible in the winter because they have all these central heating plants without any scrubbers, and the cars don’t have the pollution controls we have in the states. In some of the poorer sections that weren’t on the heat net, they burned tires to stay warm. Our offices were in one of the higher sections of town. The air was crystal clear in the morning, but you could watch the smog move up the hill every day. It got better as it got warmer and they shut down the plants.
The people smoke like chimneys; even if there was a non-smoking section in the restaurants, people came in and smoked anyway. There’s no entertainment-my entertainment was working out and watching some of the English-speaking TV channels. They play the same programs over and over.
I was very fortunate to be in a beautiful hotel, the finest one in Almaty, so it was very comfortable, but food was a challenge. It’s hard to be on a reasonable diet. There’s a lot of starch and not much in the way of fresh salad. They eat a lot of cheese, and meat. They do a good “shashlyk,” which is sort of like shish kabob. I ate horse there.
Is the risk of investing overseas worth the reward? One theory, of course, is that being a first mover is where you have the most opportunity. You have to have the stomach and the capabilities and the staying power.