Exploring IGA model of renewables investment in Kazakhstan

Kazakhstan has been accelerating its renewable energy development in recent years. Under the Kazakhstan 2050 strategy, the country aims to increase the share of renewable energy to 15% by 2030. As of December 2024, Kazakhstan hosted about 148 renewable energy facilities, accounting for 6.7% of total power generation. Additionally, 172 renewable energy financial contracts have been signed, with a total installed capacity of about 4,050MW.

Kazakhstan’s Entrepreneurial Code and Civil Code guarantee national treatment for foreign investors, while the Investment Law imposes no restrictions on foreign investment in renewable energy projects.

Large-scale renewable energy projects in Kazakhstan are primarily implemented through the intergovernmental agreement (IGA) model, which is the focus of this article. Other options include: (1) the single-buyer model, where pricing is determined between investors and the Settlement and Financial Centre for Support of Renewable Energy Sources of Kazakhstan (FSC), based on market rates; (2) internal sales within industrial groups; and (3) point-to-point sales between power producers and private enterprises, which bypass the grid.

IGA model. The IGA model involves an intergovernmental agreement between the investor’s home country and Kazakhstan, alongside additional agreements on investment, power purchase, grid connection, and operation and maintenance between the investor and relevant Kazakh authorities.

This framework supports the entire life cycle of renewable energy projects, from investment and financing to construction and operation. The intergovernmental agreement requires the backing of the investor’s home government and is signed by both governments, while other agreements are concluded with Kazakh authorities.

However, the Renewable Energy Law restricts investors from securing terms on key issues such as land use rights, grid exclusivity, tariffs, payment conditions, minimum purchase volumes and financing guarantees in power purchase agreements (PPAs). To address this, investors should actively negotiate with counterparties and seek government support to secure favourable terms within the intergovernmental agreement.

The IGA model is categorised into two approaches, the auction-based and the non-auction-based. In the auction-based model, investors engage in the traditional auction (bidding) process and sign standardised contracts with the FSC to develop projects, typically receiving limited incentives.

The non-auction-based model, however, involves a direct intergovernmental agreement between the investor’s home country and Kazakhstan. Once approved by the Kazakh parliament, the agreement attains the status of an international treaty. This approach bypasses many restrictions under the Renewable Energy Law, offering investors greater negotiating flexibility and access to more favourable incentives and protective policies.

Investment agreements. Under the IGA model, investment agreements are typically signed between investors and the Kazakh Investment Committee, under the Ministry of Investment and Development, or the Kazakh Ministry of Energy, with an investment threshold of USD58.9 million.

Based on the authors’ experience, investors can secure multiple incentives through negotiations with the government. These include a 100% corporate income tax exemption on project revenue, zero tax rates on land and property used for the project, guarantees of legal and tax stability, and an agreement validity period of no less than 25 years.

PPAs. Under the IGA model, the FSC serves as the offtaker in PPAs. In similar projects globally, PPAs often contain protective provisions for energy producers, such as compensation and deadline extensions in the event of political force majeure, payment guarantees from the offtaker, tax reimbursements for legal changes, termination compensation and access to international arbitration.

However, the FSC’s current PPA template does not include such provisions. Investors are advised to negotiate the inclusion of these protections during initial discussions on intergovernmental agreements.

Additionally, the FSC’s reserve fund for securing electricity payments covers only 3% of the annual purchase price, thus offering limited protection. To mitigate potential payment defaults, investors are advised to request the inclusion of letters of credit and/or government guarantees in PPAs.

Dispute resolution. Dispute resolution under the IGA model has unique complexities. According to the Arbitration Law of Kazakhstan, state bodies, state-owned enterprises and entities with 50% or more state ownership must seek approval from relevant authorities or local administrations before including arbitration clauses in contracts, providing details of the estimated arbitration costs.

To safeguard economic security and national interests, approval may be denied, forcing investors to resolve disputes through litigation, which can be time-consuming and inefficient.

Collaboration in the renewable energy sector is a key aspect of aligning China’s Belt and Road Initiative with the Kazakhstan 2050 strategy. Strengthened by Kazakhstan’s favourable business environment, strong political ties with China and abundant renewable energy resources, co-operation between the two nations in the renewable energy sector is set to deepen. Investors entering Kazakhstan’s renewable energy market should select investment models tailored to project scale and requirements to maximise returns.

Cheng Jun is an equity partner and Li Meng is an associate at Zhong Lun Law Firm