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The Hydrogen "power" house

POLITICAL IMPACT
The Russian-Ukrainian war has led to unpredictable events and global tension. Military actions commenced around the world, which caused distrust among countries. As a result, economies of different states suffer extreme ups and downs. For instance, according to Eurostat, the statistical office of the European Union, in the first half of 2022, energy prices in Europe increased sharply compared with the same period in 2021, from €22.0 per 100 kWh to reach €25.3 per 100 kWh[1]. While average gas prices also increased compared with the same period in 2021 from €6.4 per 100 kWh to €8.6 per 100 kWh in the first half of 2022. In addition, the annual inflation rate hit a new record high of 10.7 per cent in October 2022. The war may last for years and years, and none of the parties is willing to yield, which means the energy crisis will not end in the predictable future.

A newly emerged Iron Curtain dramatically impacted the Western world and Russia. Currently, Putin is suffering economic sanctions, including various forms of trade barriers, tariffs, and restrictions on financial transactions. And while investors are fleeing Russia in the events of Western sanctions, its neighbour, Kazakhstan, is thriving and striving for the title of a new regional powerhouse. And one of the goals is to become literately a “power” house. A re-elected for a new term, President Tokayev has shown an openness for foreign direct investment (FDI) into evolving industries, such as “green” hydrogen produced by renewable energy sources, to turn the entire state into a “green hub”.
What two world’s major players in green hydrogen can teach us?
It will be a long-distance transformation from an oil-exporting country to the world’s “green hub”. However, recently, the government took its first steps by signing Framework agreements with two world’s major players in green hydrogen, Svevind and Fortescue Future Industries. The execution of these projects will significantly contribute to Kazakhstan achieving carbon neutrality by 2060. It will also benefit Europe in its bout against the energy crisis. Furthermore, a substantial share of the produced “green” hydrogen will be exported under a newly signed memorandum of understanding between Kazakhstan and the European Union on a strategic partnership in sustainable raw materials, batteries and green hydrogen value chains[2].
Another step to achieving Kazakhstan’s “green” energy goals was amending the state’s legislation to provide investors with more opportunities and incentives. The state is hastily developing its investment attractiveness for foreign investors. Currently, Kazakhstan’s legislation stipulates four types of investment contracts/agreements under which investment preferences can be provided to investors:
  • Model investment contract for the execution of an investment project (a standard form contract);
  • Model special investment contract (a standard form contract);
  • Agreement on investments (a non-standard form contract);
  • Agreement on investment obligations (a standard form contract).

For the “green” hydrogen investors, the land is a crucial matter. Investors may receive land plots as an incentive under the above-stated contracts/agreements. However, a standard form contract, where Kazakhstan’s government sets the terms and conditions of the contract, and the investor cannot negotiate a more favourable position, was not an option but only a temporary solution to obtain rights to use land plots. Foreign investors desired to sign a non-standard form contract with freedom of content. An investment agreement has the following features which are not provided by an investment contract:
  • no template form;
  • tax preferences for a more extended period;
  • exemption from VAT;
  • compensation by the state of up to 20% of the costs of construction and installation works and purchase of equipment;
  • possibility to sell final products to the Government of Kazakhstan through public procurements by the ‘from a single-source’ option.
However, before the end of October 2022, the list of priority activities identified for implementing investment priority projects within the framework of investment agreements did not include activities in such sectors as the production of renewable energy or the production of hydrogen. But considering the situation in the world and potential FDI inflow, the government added a new activity, chemicals production, to the list of priority activities. Chemical production activity includes the production of chemical gases, which also covers “green” hydrogen.

Based on the abovementioned, Svevind signed the investment agreement for USD 50 billion. The investment agreement will determine the terms of cooperation, the project’s framework, land use rights, infrastructure development, import and export matters, currency control, etc. Company projects generated a capacity of 2 million tonnes of “green” hydrogen per year,2030[3].

During the signing ceremony, Wolfgang Krupp, CEO of Svevind, said that Kazakhstan is an ideal location for clean energy and green hydrogen production. While Kazakhstan’s investment authority announced that they are working on two more “green” hydrogen production projects involving FDI.

Amending investment legislation and making it more attractive for FDI is a stepping stone towards regional domination. Kazakhstan is currently provided with the best conditions for transforming into another powerhouse. And the re-election of the President Tokayev, who openly defies Putin over his invasion of Ukraine, for another term is proof of stability in the state, which became attractive to foreign investors[4].
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