Belgian Firm Taking Heat in Almaty

ALMATY, Kazakhstan -- When power failures left thousands in the dark and bitter cold in Almaty, less than 300 kilometers from the Chinese border, Belgians got the blame.


Tractebel, Belgium's leading power company, became one of the first foreign monopolies in the former Soviet Union in August when it took over the assets of the state-owned Almatyenergo, the producer and distributor of heat and electricity in the Kazakh capital of Almaty and the surrounding province. Tractebel paid only $5 million plus part of the outstanding debts and pledged to invest $270 million.


Since then, however, Tractebel has run into almost every imaginable pitfall of investing in the former Soviet Union. The result -- until turning a corner last month -- was that homes and offices in Almaty were left in the dark and cold for much of the early winter months.


"When these new owners came in, I breathed a sigh of relief -- now there would be light and heat without interruptions," a pensioner wrote to a local paper in November. "After all, they are foreigners. They've got things in order at home. And what turns out? Light is on and off. ... Where's their famous order?"


"I think we underestimated the effort it would take," Jan Bens, managing director of Almaty Power Consolidated, Tractebel's venture in Almaty, said in an interview in November. "We didn't have time to study it all thoroughly."


Tractebel made itself unpopular from the very start. Because it bought only the assets, Tractebel was free to dismiss staff at will, and laid off 500 of Almatyenergo's 9,000 employees. One of those fired committed suicide by setting himself ablaze in front of the company's office. A campaign to boost payment discipline by cutting off electricity whenever bills were overdue, badly needed to boost revenues, reinforced communist-bred fears of cold-blooded capitalism at its worst.


Tractebel found out the equipment it had bought was even more decrepit and outdated than it had expected. It also found that coal and fuel oil supplies were close to zero with only months to go before winter.


Privatization of a major mine delayed coal supplies, and when contracts were reconfirmed the dilapidated railways could not deliver coal quickly enough.


Tractebel had counted on gas for its heating plants, but neighboring Uzbekistan cut off supplies because of outstanding Kazakh government debts. Supplies of fuel oil, the only alternative, proved even harder to get.


"It's a land rich with oil so we thought getting fuel oil would be no problem," Bens said. "We saw a refinery 800 kilometers away, so we thought we didn't need a stock of fuel oil. We had contracts after all. But the problem is not the contract. It's the physical delivery." Supplies from this refinery take three days; the next Kazakh refinery is eight days away.


Supplementary electricity supplies from outside the province failed to arrive as well. "The whole Soviet power grid was well-organized," Bens said. "But it fell apart along borders that had nothing to do with the power system."


Russia and Kyrgyzstan cut off electricity because of outstanding debts, causing power plants in much of Kazakhstan to shut down frequently; Tractebel appealed to a power plant in the Kazakh town of Dzhambul but found that power lines passed through Kyrgyzstan, which was not cooperating. "Since then we're basically sitting on an island," Bens said.


The result was that Tractebel was 36 percent short on electricity at peak hours just when the first heavy frost set in early November. "The plan was to cut off on rotation, but at peak hours we had to cut everything we could possibly cut," Bens said. As the city's gas system was off as well many families ended up cooking meals on bonfires in the courtyard.


Tractebel's popularity sank well below freezing point. And so far it has put in about $55 million with zero returns, despite a guarantee that the company should be able to cover all costs in its tariffs and still make a 25 percent profit.


"The contract gives the company the right to incorporate reasonable expenses," countered Nikolai Radostovets, chairman of the Pricing and Anti-Monopoly Committee. "They are monopolists from the power station to the individual consumer. Of course their expenses have to be reasonable."


Radostovets accused Tractebel of "providing false information" on some expenses and balked at counting non-payment of bills and a one-time payment of salaries owed by Almatyenergo before Tractebel took over.


Neither Radostovets nor other officials have called for a cancellation of the contract with Tractebel, however, fully aware that many of the problems are not of Tractebel's making.


"I am overjoyed by this deal," Radostovets said without a hint of sarcasm. "It allows us to attract investment, boost capacity, introduce new technologies and, not least of all, improvemanagement."


"We had to learn how to do business in Kazakhstan," says Bens. "It's difficult now but I have faith that we can make this work."


By December, Tractebel had solved most of its problems, although parts of the city still faced power cuts. Just before Kazakhstan celebrated its fifth independence day on Dec. 16, city officials decorated buildings, lightposts and trees with Christmas lights.


And with the city, the future of Tractebel in Kazakhstan looked a little brighter.