Policy Consultation on Uzbekistan's Industry Innovation Strategy
ISBN 978-89-8063-742-3 ISBN 978-89-8063-739-3(set) Policy Consultation on Uzbekistan’s Industry Innovation Strategy Policy Consultation on Uzbekistan’s Industry Innovation Strategy
Project Title Policy Consultation on Uzbekistan's Industry Innovation Strategy
Prepared by Korea Development Institute (KDI)
Supported by Ministry of Strategy and Finance (MOSF), Republic of Korea
Prepared for The Government of Uzbekistan
In cooperation with Institute of Forecasting and Macroeconomic Research, Republic of Uzbekistan Committee for Coordination of Science and Technology Development, Republic of Uzbekistan
Program Directors Hong Tack Chun, Executive Director, Center for International Development (CID), KDI MoonJoong Tcha, Senior Advisor to Deputy Prime Minister and Minister of Strategy and Finance, Former Executive Director, CID, KDI Taihee Lee, Director, Division of KSP Consultation, CID, KDI
Program Officer Yejin Kim, Research Associate, Division of KSP Consultation, CID, KDI
Senior Advisor Kab Won Oh, Former Commissioner of Statistics Korea (KOSTAT)
Project Manager Sunyang Chung, Professor, Konkuk University
Authors Chapter 1. Tae Gu Kang, Director, Korea Energy Management Corporation Do Youn Yim, Team Manager, Korea Energy Management Corporation Chapter 2. Hoicheol Kim, Team Manager, Korea Energy Management Corporation Young Jae Jeon, Manager, Korea Energy Management Corporation Chapter 3. Chang Ho Sim, Director, Korea Energy Management Corporation Kilnam Paek, Manager, Korea Energy Management Corporation Chapter 4. Kyung Ryang Kim, Professor, Kangwon National University Chapter 5. Kwangsuck Lee, Professor, Sungkyunkwan University Chapter 6. Sunyang Chung, Professor, Konkuk University
English Editor Keeon Jung Freelance Editor Jaehyun Yoon Freelance Editor
Policy Consultation on Uzbekistan’s Industry Innovation Strategy
2013 Preface
In the 21st century, knowledge became one of the key determinants of a country’s level of socio-economic development. Driven by this recognition, Korea’s Knowledge Sharing Program (KSP) was launched in 2004 by the Ministry of Strategy and Finance (MOSF) and the Korea Development Institute (KDI).
KSP aims to share Korea’s development experience and knowledge accumulated over the past decades to assist socio-economic development of our partner countries. Former high-ranking government officials are directly involved in policy consultations to inherit their intimate knowledge of development challenges, and they complement analytical work of policy experts and specialists who have extensive experience in their fields. Government officials and practitioners pair up effectively with their counterparts in development partner countries to work jointly on pressing policy challenges and share development knowledge in the process. The Program includes policy research, consultation and capacity-building activities, all in all to provide comprehensive, tailored assistance to the partner country in building a stable foundation and fostering capabilities to pursue self-sustainable growth.
2012 marked the sixth year to conduct KSP with Uzbekistan, and the third year to conduct Strategic Development Partner Country (SDPC) KSP. Based on the written demand survey as well as the discussion with the Uzbekistan government, the program, entitled ‘Policy consultation on Uzbekistan’s Industry Innovation Strategy,’ was launched in June, 2012, focusing on the following six topics: energy efficiency improvement, development of renewable energy sector, development, standardization and deployment of solar energy in Uzbekistan, agriculture and marketing for the agricultural processing industry development, development of agro-processing industry, and diffusion of S&T information.
I would like to take this opportunity to express my sincere gratitude to Senior Advisor Mr. Gab Won Oh, Project Manager Dr. Sunyang Chung, as well as all the project consultants including Dr. Tae Gu Kang, Dr. Hoicheol Kim, Dr. Chang Ho Sim, Dr. Kyung Ryang Kim, and Dr. Kwangsuck Lee for their immense efforts in successfully completing the 2012 KSP with Uzbekistan. I am also grateful to Executive Director Dr. Hong Tack Chun, Former Executive Director Dr. MoonJoong Tcha, Program Director Dr. Taehee Lee and Program Officer Ms. Yejin Kim, all the members of the Center for International Development, KDI, for their hard work and dedication to this Program. Lastly, I extend my warmest thanks to the Institute of Forecasting and Macroeconomic Research and Committee for Coordination of Science and Technology Development and other related Uzbekistan government agencies, local consultants, program officers and participants for showing active cooperation and great support.
In your hands is the publication of the results of the 2012 KSP with Uzbekistan. I believe that KSP will serve as a valuable opportunity to further elevate mutual economic cooperation of Uzbekistan and Korea to a new level. I sincerely hope the final research results including policy recommendations on the selected areas could be fully utilized to help Uzbekistan in achieving economic development in priority areas in the near future.
Joon-Kyung Kim President Korea Development Institute Contents
2012 KSP with Uzbekistan……………………………………………………………………………………………………………………………………………………………………………… 18
Executive Summary… ………………………………………………………………………………………………………………………………………………………………………………………… 24 dChapter 1 Recommendations for the Development of Renewable Energy Sector in Uzbekistan
Appendix… ………………………………………………………………………………………………………………………………………………………………………………………………………………… 58 Chapter 2 Strategies for Improving Energy Efficiency in Uzbekistan
3. Korean Experience of Agricultural Development and Marketing �������������������������� 158 3.1. Agricultural Development Process and Experience of Korea……………………………………………………………………… 158
3.2. Agricultural Production and Infrastructure Developments… ……………………………………………………………………… 159
3.2.1. Land Utilization… ………………………………………………………………………………………………………………………………………………………… 160
Appendix… ……………………………………………………………………………………………………………………………………………………………………………………………………………… 220 ChapteraD 6 Diffusion of S&T information on National Innovation System (NIS) in Uzbekistan
The SWOT Analysis of the Agro-processing Industry in Uzbekistan………………………………………………… 201
Paradigm Shift of Agricultural Policy of Korea………………………………………………………………………………………………… 203 Contents | LIST of Tables
Clustering Strategy of Agro-processing Industry… ……………………………………………………………………………………… 213 dChapter 6
Information and library institutions in Uzbekistan… …………………………………………………………………………………… 234
Purposes and contents of the Law for Nurturing KORSTIC… ………………………………………………………………… 236
Organizational structure of KORSTIC… ………………………………………………………………………………………………………………… 237
Major contents of the Law for KINITI… ………………………………………………………………………………………………………………… 239
Organizational structure of KINITI in 1999………………………………………………………………………………………………………… 240
Number of S&T information held by KINITI… …………………………………………………………………………………………………… 241
Stage goals of KORDIC… ………………………………………………………………………………………………………………………………………………… 242
Organizational structure of KORDIC… …………………………………………………………………………………………………………………… 243
Organizational structure of KISTI……………………………………………………………………………………………………………………………… 245
Trend of KISTI’s number of employees… ……………………………………………………………………………………………………………… 247
Trend of KISTI’s budget…………………………………………………………………………………………………………………………………………………… 248
Summary of the development of Korean S&T information system… ……………………………………………… 249
Step-wise strategies for Uzbekistan national S&T information system…………………………………………… 252 Contents | LIST of Figures
dChapter 2
Primary CO₂ Reduction Options by 2030… ………………………………………………………………………………………………………… 82
Increasing Trend in Energy Consumption… ……………………………………………………………………………………………………… 85
Trends in Primary Energy Consumption……………………………………………………………………………………………………………… 85
Energy Consumption Tendencies in Different Types of Buildings (million toe… …………………… 100
dChapter 3
Cumulative Installation of PV (GW)……………………………………………………………………………………………………………………… 111
Installation Ratio in 2011… ………………………………………………………………………………………………………………………………………… 112
Total Capacity of Solar Thermal Power Plant in 2009… …………………………………………………………………………… 112
Outline of Desertec Project… …………………………………………………………………………………………………………………………………… 113
Electric Production Price Comparison According to NRE Technologies… …………………………………… 120
Deployment Portion by NRE resources in 2011 and Deployment Trends by year… …………… 122
dChapter 4
Map of Uzbekistan…………………………………………………………………………………………………………………………………………………………… 135
GDP growth rate, 2000-2011… ………………………………………………………………………………………………………………………………… 137
Composition of food consumption, 1990-2010 (kg/capita)………………………………………………………………… 138
Composition of food consumption, 1990-2010 (kg/capita)………………………………………………………………… 139
The structure of agricultural production in Uzbekistan… ……………………………………………………………………… 140
Share of cotton and other crops in total irrigated land (1990-2010)……………………………………………… 142
Structure of crop areas, %…………………………………………………………………………………………………………………………………………… 145
Production structure by type of farms, % (1991-2011)…………………………………………………………………………… 145
The share of agriculture in GDP, in %… ……………………………………………………………………………………………………………… 151
The share of agriculture and industrial sector in GDP growth…………………………………………………………… 151
Dynamics of production of the main food products per capita (kg/per capita)…………………… 154
Self-sufficiency of major agricultural products… ………………………………………………………………………………………… 154
Gross yields of fruits and vegetables, 2011… ………………………………………………………………………………………………… 175
Levels of processing by province, 2011………………………………………………………………………………………………………………… 175 dChapter 5 The Structural Transformation of Shares of Agriculture and Agribusiness compared
with the Changes of per capita Income…………………………………………………………………………………………………………… 184
Distribution of Farms by Agricultural Enterprise… ……………………………………………………………………………………… 186
Forecasted Acreage of Potato, Vegetables, and Melons in Uzbekistan………………………………………… 187
Production of fruit and vegetables per capita by region in 201… …………………………………………………… 189
Regional Allocation of Potential Agro-processing Clustering in Uzbekistan… ………………………… 196
Location and Outline of National Food Clusters of Korea… ………………………………………………………………… 206 dChapter 6
S&T information and national innovation system……………………………………………………………………………………… 227
Process of S&T informatizion… ………………………………………………………………………………………………………………………………… 228
Organizational structure of the Center for S&T Information… …………………………………………………………… 232
S&T information and national innovation system……………………………………………………………………………………… 235
2012 KSP with Uzbekistan
YeJin Kim (Program officer, KDI)
The GDP (Gross Domestic Product) of Uzbekistan enjoyed an annual 8% growth between 2007~2010 through rapid industrialization and has neared $38.95 billion in 2010. The inflation rate hovered at an annual 4~5% while government budget was 26~27% compared to the GDP during the same period. It has also gradually intensified its reform policy through encouragement of private investment, tax reform to attract foreign capital, vitalization of the capital market, expansion of financial freedom, liberalization of import and export and others.
The Uzbekistan economy shows high dependency on primary industries which is typical of developing countries. The agricultural industry accounts for 17.5% of the GDP and more than 50% of the working population works in this industry. Cotton, Uzbek’s largest agricultural production, was 11.3% of total export (approx. $1.5billion) following energy and raw material (approx. $3.2 billion) at the end of 2010. The manufacturing sector remains weak because the agricultural sector was the main industry thanks to Uzbek’s role as the food supplier for the Soviet Union.
The mid-term industrial and infrastructure development plan seeks to increase efficiency and competitiveness of the industry through balanced industrial development, diversification through structural reform, expansion of exports, modernization of production facilities and procurement of technology.
Uzbek’s gold and natural gas reserve is widely known and is working as an important growth engine for the economy. The government has designated the ‘Program to boost the real economy’ as a critical policy in December 2008 as a measure to overcome the global economic crisis. It is
018 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy also testing various policies to improve development technology for new regeneration energies such as solar energy.
2012 KSP with Uzbekistan began with this background and is in its sixth year since having begun its partnership in 2004. Highly satisfied with past consultations, the Uzbekistan government requested additional programs as a Strategic Development Partner. As a result, the Ministry of Strategy and Finance and KDI provided policy consultations on “the mid and long-term plan for the innovation based and sustainable economic development" in 2010.
In January 2011, KSP agreed to focus on strengthening the national innovative system through discussion with Uzbekistan. Based on the written demand survey sent by Uzbekistan, we had a discussion with the local partner institution IFMR (Institute of Forecasting and Macroeconomic Research) and decided on the top five prioritized areas.
Uzbekistan KSP record
Year Project
Strengthening Uzbekistan’s National Innovation System National Science and Technology Policy in Uzbekistan S&T Human Resource Development Policy: Lessons from the Korean Experience
2011 A Study of Building Policy Infrastructure for Technology Transfer, Commercialization and Promoting the Technology Innovation Activities in Uzbekistan: based on the Experience of Korea’s Policy Implementation Establishment and Promotion of Regional Innovation System in Uzbekistan Development of Export-Oriented Small and Medium Enterprises Mid- and Long-Term Plan for Promoting Innovation and Sustainable Economic Growth in Uzbekistan
Strategies for Transforming into Innovation-based Economy 1. National Innovation System and Innovation-based Economy 2. Technology, Incubation and Private Sector Development 3. Promotion of Innovation Clusters and Network Development among Industry, University and Research Institute
Strategies for Promoting Export Sectors and Industrial Development 2010 1. Export Financing in Uzbekistan: Lessons from the Korean Experience 2. Human Resources Development for Export-oriented Industries 3. Strategy for Modernization of the Uzbek Customs Clearance System
Strategies for Managing Macroeconomic Stability and Sustainable Economic Growth 1. Monetary Policy Based on Korea’s Experiences 2. Development of the Mid-term Public Budget Plan: Korean Practices and their Implications for Uzbekistan
2012 KSP with Uzbekistan ● 019 3. Strategy for Modernization of the Uzbek Customs Clearance System
Strategies for Managing Macroeconomic Stability and Sustainable Economic Growth 1. Monetary Policy Based on Korea’s Experiences 2. Development of the Mid-term Public Budget Plan: Korean Practices and their Implications for Uzbekistan 3. Capacity Building for Economic Forecasting and Statistics
Development of Navoi Free Industrial Economic Zone Analysis of Uzbekistan’s Export Structure and its Implications on Industrial Composition in Navoi FIEZ 2009 Investment Promotion Strategy and Systemization Operation System and Policies for the Success of Navoi FIEZ An Analysis of the Legal Aspects of Navoi FIEZ Feasibility study on the establishment of a Uzbekistan Special Economic Zone (KIEP) Experience and implications of the Korean Special Economic Zone (SEZ) Uzbekistan economic conditions and prospects 2007 Uzbekistan environmental promotion of SEZ Location requirement and evaluation Calculation of the SEZ’s economic impact Methods to create a SEZ Industrial Development and Export Promotion Policy for Uzbekistan Uzbekistan’s Development Strategy and Lessons from Korea’s Experience In Search of Uzbekistan’s Industrialization and Export Promotion Strategies 2004 Macroeconomic and Financial Policies for Industrialization of Uzbekistan: Lessons from Korean Experience Reform of Public Finance in Uzbekistan: Lessons from Korea Strategy for Harmonization of Industrial Policy and Trade Liberalization
The written demand survey for 2012 KSP was delivered in December 2011 for the 2012 KSP and was examined at the High-level Policy Discussions and Final Reporting Seminar of 2011. The two nations agreed on five primary topics (energy, agriculture, science and technology) for the 2012 KSP. Korea formed its policy consultation team (Professor Sunyang Chung, Research PM and nine other staffs) for the finalized topics.
Six topics were finalized during the Demand Survey and Pilot Study trip between 17 June – 23 June under the main theme of ‘Uzbekistan’s Industry Innovation Strategy’: ① Development of Renewable Energy Sector in Uzbekistan, ② Strategy of Energy Efficiency Improvement in Uzbekistan, ③ Development, Standardization and Deployment of Solar Energy in Uzbekistan,
020 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy ④ Agriculture and Marketing for the Agricultural Processing Industry Development in Uzbekistan, ⑤ Development of Agro-Processing Industry in Uzbekistan and, ⑥ Study on the Diffusion of S&T Information in the Uzbekistan National Innovation System. Topics and research team members are described in Table 2.
2012 Uzbekistan KSP Korea Consultation Team and Topics
Topic Name Affiliation Academic background Technology business Dean, Miller MOT PM Sunyang Chung administration∙Politics, University of School, Konkuk Univ. Stuttgart Director, Metal and new materials engineer- Korea Energy Manage- Tae Gu Kang ing, ment Corporation Kyungbuk Univ. ① (KEMCO) Electric engineering, DoYoun Yim Team Manager, KEMCO Dongguk Univ.
Hoicheol Kim Team Manager, KEMCO Electric engineering, Konkuk Univ. ② Manager, Electric engineering, YoungJae Jeon KEMCO Sungsil Univ. Director, Business administration, Aju Univer- ChangHo Sim KEMCO sity ③ Manager, Resource engineering, Kilnam Paek KEMCO Cheonbuk Univ. Professor, Agricultural economics, ④ Kyung Ryang Kim Kangwon National University of Göttingen Univ. Professor, Agricultural and resource economics, ⑤ Kwangsuck Lee Sungkyunkwan Univ. University of Hawaii Technology business Director, Miller MOT ⑥ Sunyang Chung administration∙Politics, University of School, Konkuk Univ. Stuttgart
The two countries continued joint research through in-depth dialogue with the local consultants, conducting the additional pilot study between 10-18 August, 2012. High-level Uzbek government officials were invited to the research presentations during the event. Their participation increased interest and cooperation of the government and helped to determine local partner institutions for each sub topic. After the pilot study, the Korean team and external professionals complemented research contents through a second round of inspections.
Afterwards, 16 Uzbek local consultants and policy personnel were invited to Korea for the
2012 KSP with Uzbekistan ● 021 interim reporting seminar and policy practitioners’ workshop between 21-26 October. The purpose of the workshop was to reinforce research presentations of the policy seminar based on feedb acks from the local consultants and policy practitioners, and to offer them a chance to visit relevant institutions to experience Korea’s development and grow practical skills. The six-day program started with the reporting seminar held on the 23rd at KDI followed by study tours to 11 relevant public and private institutions. Study tours were divided into two teams of energy and science and technology, and agriculture. They visited the Korea Institute of Energy Research, S-energy, Yuyang, KEMCO, Korea Institute of Science and Technology Information, Nonghyup, Lotte Chilsung Ansung Factory, Ansung Nonghyup Fruits Businesses, Gangwon University, Kooksoondang, Seowon Nonghyup and others.
CCSTD had requested a capacity building workshop for planning science and technology policies at KDI during the high-level policy discussion in January. Between 10-15 February, 2013 the workshop was held separately from the 2012 KSP consultation topics at the Miller MOT School of Konkuk University where Dr. Chung, the research PM, assumed Dean. The workshop, with the topic ‘Uzbekistan’s science and technology policy training program,’ invited 15 practi- tioners. The program consisted of technology management, technology policies, and general information on the Korean economy. It was held for 3 days in addition to a day of visiting related institutions. Practical theories on Korea’s technology managing skills and field trips to relevant institutions offered Uzbek participants a chance to strengthen capacity on science and technology development and understand the overall process of technology management that is expected to be applied in Uzbekistan.
The consultation team examined the research materials through three rounds of inspections and notified Uzbek policy decision makers about the outcomes of policy consultations. The Final Reporting Seminar and High-level Policy Dialogue was held in Tashkent during 15-21 February, 2013 to share research with relerant personnel in the government, academia, press and others and to discuss plans for 2013.
The policy discussion was held with the Mirzo Ulugbek National University, Chamber of Commerce and Toshshakartranshizmat for two days in 18-19 February for the 2013 demand survey. There was a heated discussion at the meeting with the National University with 15 members including the President, director of international affairs, economics professor, professor of biology and others. The deputy-chief of the department relevant to the demand survey attended the meeting at the Chamber of Commerce where discussions on the status of Uzbek’s ICT industry were held. The team also dealt with the KSP and automation system with the Vice-President of the Toshshakartranshizmat.
On 20 February, around 100 people were invited to the Final Reporting Seminar at the IFMR Grand Meeting Room to share research results. The invited people included embassy personnel, IFMR Director and Deputy-Director, university professors and others. Others came from public research institutions and international organizations to participate in the discussions.
022 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy High-level policy dialogues were held at the Ministry of Agriculture and Water Resources and CCSTD on the 21st and at Uzbekenergo on the 22nd. Director Ibragimov and Deputy-Director Mr. Mamarasulov of the Ministry of Agriculture and Water Resources showed great interest in KSP and agreed to send additional demand surveys for the 2013 program. Undersecretary Parpiev of CCSTD noted that the Innovation Law had been enacted due to KSP influence and provided suggestions on future KSP directions. Some serious points on Uzbek’s energy development policies including the introduction of power systems were considered at the Uzbekenergo.
Lastly, Director Sadikov of IFMR, Deputy-Director Shukhrat and local Project Officer Mr. Vladlen Kim joined the team at the wrap-up meeting to congratulate the successful 2012 KSP. Moreover, the team talked over plans to hold a capacity building workshop and seminar for the Uzbek 2030 Economic and Social Deverlpment Plan in April.
2012 KSP with Uzbekistan ● 023
Executive Summary
Sunyang Chung (Konkuk University)
The title of 2012 KSP with Uzbekistan is “Industrial Innovation Strategies for Uzbekistan”. It focuses on identifying innovation strategies for several industrial sectors in Uzbekistan. The title reflects the experiences of the KSP in 2011 which focused on how to strengthen Uzbekistan’s national innovation system. In order to effectively strengthen and develop Uzbekistan’s national innovation system and national economy as a whole, innovation in industrial sectors should be pursued. Under this background, two major industrial sectors, i.e., renewable energy and agricultural sector, and one additional important area, i.e., S&T information, are selected in the study in 2012. The renewable energy is a future-oriented sector, while the agricultural sector is a traditional sector. Both industrial sectors are expected to play an important role for the development of the Uzbekistan’s national economy. The S&T information is essential for effective implementation of the national innovation system in Uzbekistan. As for the renewable energy sector, the following three specific areas are identified: development of renewable energy, strategies for improving energy efficiency, and development of solar energy. Regarding the agricultural sector, the following two specific areas are studied: development of agriculture and agricultural marketing and development of agro-processing industry. As a result, 2012 KSP with Uzbekistan is composed of six areas as follows:
1. Development of Renewable Energy Sector
Uzbekistan’s economic structure is highly energy-intensive, but most of its distribution
024 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy infrastructure is inefficient and vulnerable. Although the country has large reserves of natural gas, its commercialization is another challenge. In order to solve these problems, the government is paying much attention to developing renewable energy. However, it is hard to adopt foreign technologies or attract capital investment due to the rigid regulatory environment, and this makes the development of resource and the improvement of energy infrastructure even harder.
Uzbekistan has an Anglo-American legal system, adhering to the principle of separation of three powers. There is no special law legislated for renewable energy area yet, but the Laws on the Rational Use of Energy, the Laws on Electroenergetics and many other existing laws have some provisions regarding renewable energy. Currently, the draft law on “Alternative and Renewable Energy Resources” initiated by Association of Alternative and Renewable Energy and “Uzbekenergo” SJSC is being circulated within related ministries. Once enacted, the law is going to be the most important legal framework for renewable energy in Uzbekistan. In this report, we recommend this law specify the definition of renewable energy, stipulate the establishment of a special institution for renewable energy, provide rationales for renewable energy promotion policies, and obligate public organizations to use renewable energy in their new buildings, etc.
The government is involved in many parts of renewable energy, but apparently, not functioning as a control tower. Although it certainly is desirable that every ministry collaborate and make a joint effort for promoting renewable energy, there should be one particular organization that can do a role of a control tower to carry forward more focused promotion policies. In this report, we are recommending establishing a legal framework that can define what the roles of and rationales for the specialized renewable energy institution are, where in the government structure it should be located, and how the stability of its personnel and finance can be secured.
Uzbekistan has received various financial or technical aids in renewable energy sector from international organizations (UNEP, UNDP) and MDBs (WB, ADB), but most of them ended up being just one-time events. According to a SWOT analysis on Uzbekistan’s renewable energy, the country has abundant resources, but the low energy prices are making renewable energy less economically feasible; they have basic technologies but not enough for commercialization. This report recommends making it mandatory for the public organization to use a certain amount of renewable energy so that they can take the initiative in renewable energy investments. It is also advisable to aggressively invite foreign capital in order to create and develop a market for renewable energy. In addition, considering its low economic feasibility, renewable energy should be supplied to remote areas where the central distribution line for gas or electricity cannot reach, instead of competing with traditional energy sources.
As for human resource development, Uzbekistan is operating several institutions of higher education in renewable energy by the order of the Ministry of Higher and Secondary Special Education. The Faculty of Energy in Tashkent State University of Technology Uzbekistan is leading the researches on renewable energy and providing undergraduate and master’s courses. Also,
Executive Summary ● 025 Tashkent University of Agriculture and other universities are conducting various researches for different uses, and making efforts for HRD in this sphere. In this regard, we suggest that they need to have different strategies for different groups: public officials, students and engineers, and they should make good use of international funding sources such as IRENA’s Abu Dhabi fund.
2. Strategies for Improving Energy Efficiency
Uzbekistan’s GDP Per Capita has been increasing rapidly since 2007 by more than 8%. Uzbekistan produces and exports natural gas and is the second largest electricity producing country in Central Asia. At the same time, it is the most energy consuming country in Central Asia, of which the CO2 emission is twice larger than Russia, more than three times larger than the average of the countries in East Europe and Central Asia. Energy resources are actively exploited, but the decrepit energy infrastructure causes huge losses, resulting in high level energy intensity, 10~20% level of major developed countries, which is quite high for a Central Asian country.
In Uzbekistan, several suppliers of each energy source and related government ministries are sharing the responsibilities of energy efficiency improvement, but there is no separate organization directly involved, and the institutional and legal framework for energy efficiency is relatively weak. In order to achieve energy efficiency, the policies influencing technology development, market mechanism, government policies and numerous energy users from large companies to individual households should be all harmonized. In addition, they need to establish total governance for energy efficiency covering the various stakeholders including: ⒜ the implementing agency that supports the government in designing the national energy efficiency improvement plans and executes the programs, systems and legal framework; ⒝ energy producing/consuming enterprises; and ⒞ energy equipment manufacturers. To this end, there are several measures Uzbekistan can take:
First, the country needs a comprehensive national plan that consolidates the energy efficiency goals at the national level and the policies for accomplishing them, such as European Energy Efficiency Action Plan (EEAP) and Korea’s Energy Use Rationalization Basic Plan. In the process of establishing, implementing and evaluating national plans, the country might be able to establish laws, systems, and policies or secure budget for energy efficiency, which will empower the government to consistently promote their medium-and long-term plan. Moreover, the government’s role is especially important in the case of Uzbekistan where private sector market is relatively not vitalized.
Second, a special institution to support the government in establishing energy efficiency policies and to actually implement the policies is needed as an important pillar of energy efficiency governance. Most countries have special institutions under the government ministries
026 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy for energy efficiency, such as DENA (German), ADEME (France), DEA (Spain), and KEMCO (Korea). These agencies take charge of supporting R&D, enforcing the regulations, providing incentives and subsidies, promotion and education on energy, and international cooperation, etc. Also, they can be a mediator among the various stakeholders: the government, energy producers and consumers, energy equipment manufacturers and importers, and general consumers.
Third, as Uzbekistan has abundant energy resources, the government can raise a significant amount of fund by charging a certain percentage of money on electricity bills just like Korea is doing. As a result, the energy price will rise and the people will be motivated to save energy and improve efficiency. Also, infrastructure building and industry promotion projects developed by the state government will be able to attract more investment. The raised funds can be best used in R&D, test/verification infrastructure, human resources training, and loans for facilities manufacturing high efficiency products first. If supported enough to create a virtuous cycle between R&D and supply of new products, they will be able to consolidate the foundation for energy efficiency improvement in a short period of time.
Fourth, considering the economic structure of Uzbekistan, the energy efficiency improvement should be focused on building sector. The overall energy consumption in building sector is determined by climate and the insulation of the building, so new buildings should be built to satisfy at least a certain level of insulation from the construction stages. For this, the government needs to establish energy-saving design criteria based on the building code and other related laws so that only new buildings fulfilling the criteria can get permission for construction. In addition, they should manage energy efficiency in building sector by phasing in measures like energy saving obligations for public organizations and/or building certification system, in order that energy saving efforts started from public sector can be extended to private sector.
Lastly, in Uzbekistan’s energy consumption structure, building sector consumes nearly 50% of energy, and agricultural sector consumes 30%. Besides, 85% of the energy source used in Uzbekistan is gas. Therefore, labeling scheme or high efficiency appliance certification program needs to be introduced for household gas boilers or motors in agricultural pumps first, and establishment of official standards and test infrastructures for major product groups should be accompanied.
3. Development, Standardization and Dissemination of Solar Energy
The solar energy potential in Uzbekistan is estimated to be 51 billion TOE, among which 179 million TOE is considered to be technically available. Although the country has a positive prospect and ample resources for solar power in comparison to other renewable resources like hydropower and wind power, it has been barely developed or utilized. For that reason, active development and deployment of the industry are highly recommended.
Executive Summary ● 027 Although researches on renewable energy have been conducted in Uzbekistan, there exists a limit in terms of commercialization and deployment of solar power technologies. Studies on materials at high temperature and measures for solar energy utilization were carried out using the solar furnace that was established by the former Soviet Union. Also, the Physics-Sun Institute in the country has developed photovoltaic technologies focusing on materials and solar cells. Nonetheless, these efforts remain on research level that the manufacturing infrastructure needs to be prepared for the commercialization and deployment of solar energy.
Sufficient radiation and the large land mass have offered Uzbekistan a desirable environment for solar power generation. Uzbekistan’s solar energy is predicted to partly replace the demand for natural gas. However, in order to actually utilize this renewable source, international cooperation is necessary as the country does not have adequate technologies and enough capital. The Asia Development Bank’s recent cooperation program and loan support are excellent examples of international cooperative activities for the development of the solar industry. Considering the fact that rural areas accounted for 60% of the whole country, it would be advisable to support the deployment of stand-alone photovoltaic power plants and solar thermal hot water supply facilities with a focus on the districts with poor connection to power grids or without access to natural gas.
Among new and renewable energy sectors, the creation of new markets in the solar industry is especially tough without the support from the government due to the high costs of electricity generation. For that reason, the existence of big industries that yield economies of scale is imperative in promoting solar power in the country and achieving an export-led industrialization. In order to create new markets, policies concerning prices and demands must be taken into consideration. The government could provide subsidies for renewable equipment and facilities with the intention of driving down power production costs. This, however, could lead to a great amount of financial pressure on government spending. On the other hand, demand-side management in power system could create the demand for renewable energy artificially through programs such as the Renewable Energy Facility Installation program.
In countries with the barely developed renewable industry and markets, it is recommendable to introduce the Public Institutions Renewable Obligation program beforehand for the purpose of creating new markets, and later offer government subsidies. In addition, the standards regarding renewable technologies and construction process should be set to sustain market confidence. The programs for certification and performance evaluation of solar equipment are also required to prevent market disruptions that could be potentially caused by the import of uncertified products. To ensure the proper operation of installed facilities, comprehensive supervising programs during the installation process must be in place. The government support systems with precise goals and tax incentives would be necessary for the creation of new markets. In this regards, departments supervising government policies and operating agencies such as the New and Renewable Energy Center in Korea need to be established.
028 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy 4. Development of Agriculture and Agricultural Marketing
Uzbekistan is an agrarian country with agriculture still contributing a good share in the overall economy of the nation despite its consistent decline in its contribution. The development of the sector has been constrained in many ways including the slow transition from a command of economic policy from the Soviet era; problems related to degradation of land resources due mainly to salinity problems and deteriorating soil fertility; natural calamities caused by the drying up of the Aral Sea and the associated problem of dwindling water sources for irrigation; infrastructural problems in rural areas and underutilization of existing infrastructure; underdevel- oped agricultural marketing system and associated inefficiencies, among others.
Traditionally the agricultural production in Uzbekistan has been dominated by cotton and wheat cultivation and is as such less diversified. However, the country is gradually diversifying strategic production away from cotton through the expansion of high-value crops like fruits and vegetables. In particular, the growth of incomes overtime has brought opportunities for the cultivation and marketing of high-value agricultural products including fruits, vegetables and livestock products. During the period 2000 – 2010, horticultural products (fruits, vegetables and viticulture subsectors) contributed significantly to Uzbekistan’s agricultural output. This further enhances related agro-processing businesses through forward and backward linkages. Conse- quently, agro-processing of fruits and vegetables is also becoming an important domain.
Although recent reforms have provided opportunities for liberalization, especially for the fruits and vegetable subsectors, these are still not sufficient. Therefore, modernization of the agricultural marketing system in Uzbekistan is a precondition for the development of agricul- tural processing in the country. The aim of this study was to review the development of the agricultural sector of Uzbekistan and that of Korea and draw lessons from the Korean experience that could be used as an input in designing and improving the development of the sector in Uzbekistan. In particular, the study focuses on assessing the agricultural marketing systems in the two countries, with emphasis on marketing of fruits and vegetables to draw useful implica- tions and recommendation for designing a better policy for Uzbekistan’s agricultural marketing system. In doing so, major constraints and challenges in the agricultural sector in general and the agricultural marketing system in particular have been identified, and recommendation and policy suggestions were forwarded based on the experience of Korea.
The policy suggestions are proposed for implementation in phases/stages; namely, the initial/ preliminary stage (to stimulate the development and introduction new varieties of plants and breeds of animal, agro-technology and enhance the productivities of crops and livestock); the diversification stage (to enhance the structure of sown areas through increasing areas under competitive crops); take-off stage (to create new enterprises based on modern technology and technological renovation export and processing agricultural products) and finally, matura-
Executive Summary ● 029 tion stage (for the implementation of measures to promote sustainable development and modernization of agriculture). Specific recommendations were given pertaining to some of the constraints identified; namely, agricultural production and productivity, quality of land resources, irrigation, reforms, R&D, extension, rural finance, and agricultural marketing.
5. Development of Agro-processing Industry
Uzbekistan has a great potential to attain economic values added by processing fruits and vegetables which enjoy comparative advantages in terms of favorable natural environment. However, the full potential of agro-processing industries has not yet been realized in Uzbekistan. In this respect, a special attention needs to be given to the agro-processing industries in Uzbekistan.
This study intends to analyze the current situation of agro-processing in Uzbekistan with special attention to fruits and vegetables and to suggest policy alternatives for the development of the industries. In order to draw policy suggestions for the Uzbek case, we reviewed the Korean experience of the agro-processing industries and examined the paradigm shift of Korea’s agro-food policy.
Generally, the key challenges that developing countries including Uzbekistan must consider when preparing the development of agro-processing industries include (1) New Positioning with Structural Change; (2) Infrastructure; (3) Physical and Human Capital; (4) Strategic Approach for Strategic Objectives; and (4) Globalizing Trade Regimes.
Uzbekistan seems not free from the challenges faced by agro-processing industries in most developing countries. However, the most imminent sources of obstacle to the development of agro-processing industries in Uzbekistan can be categorized by (1) agro-processing industry itself; (2) availability or supply of raw materials (agricultural products); and (3) infrastructures supporting the above two contents.
The agro-processing industry in Uzbekistan is regionally differentiated with respect to production and processing. The production of fruits and vegetables in Uzbekistan shows a wide difference by region. On the basis of per capita production, Andijan recorded the highest level of fruits and berries. For vegetables, the highest per capita production was marked by Tashkent followed by Andijan and Samarkand. Samarkand shows the top level of per capita grapes production in the same year. Since the production of fruits and vegetables varies considerably across the different regions of Uzbekistan, it would be of paramount importance to review the patterns of production and processing.
In this respect, the coefficients of regional clustering of agro-processing were estimated in this study. The estimated coefficients would help identify those regions that have comparative
030 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy advantage in specific products and draw implications for clustering and commercialization of agricultural sector. According to this estimation, in both vegetable and fruits processing, Samarkand shows the highest coefficients. And the coefficients for Tashkent, Namangan, and Andijan are larger than other regions in the case of vegetable processing. Along with the highest coefficient in Samarkand for the fruits processing, Andijan, Namangan, and Fergana are relatively high ranked. The regions with higher clustering coefficients are mostly located in the eastern area of Uzbekistan.
The Korea’s food policy and ‘special region’ policy would be a good reference for Uzbekistan to take into account the regional differentiation of agricultural production and processing when designing policy alternatives in this sector. The changing conditions that Korean agro-food industries face include the strengthening consumer power for high-quality and diversified food and the deepening international competition. This requires modifications in Korea’s agricultural policy. A paradigm shift has resulted in Korea’s agricultural and food/agro-processing policies, which are reflected in the legal frameworks such as food industry promotion law. Especially, the food industry promotion law of 2010 clarifies the clustering of food industries in the title of “National Food Industry Clusters.”
In addition, the “special zone” system is currently adopted in Korea to foster local economy through implementing special business or project which has comparative advantage on the basis of regional specificity. When a region is selected as a “special zone”, the region will be given various favors including financial supports and waives of legal restrictions from local governments. The “special zone” system was launched by enacting “the law of special waives for special development region” in 2004.
Consequently, along with the general guidelines of policy recommendation, we recommend clustering strategy for the development of agro-processing industry in Uzbekistan. When considering the importance of linkage between agricultural production and processing, we can recommend that agricultural processing plants should not only be located in rural areas and but in the form of clustering. Clustering agro-processing industry or regional specialization of agro-processing in Uzbekistan can allow efficient use of resources with advantageous soil and climatic conditions, also with traditions and mentality of the people in rural areas. The clustering of the agro-processing can be outlined with the suggested strategy for different stage of development which includes strengthening infrastructure (first stage), industrializing agro-processing industry (second stage), and internationalizing agro-processing industry (third stage).
Executive Summary ● 031 6. Diffusion of S&T information on National Innovation System (NIS)
S&T information has occupied an important position academically and practically for building up S&T capabilities and national development. However, the role of S&T information in a national innovation system and national economic development was not discussed sufficiently. This study aims at providing policy suggestions on how to improve the Uzbek S&T information system and to diffuse S&T information within the Uzbek national innovation system, based on the Korean experiences. This study will focus on the roles of core institutes in the national S&T information system, particularly whether they cover the whole process of the S&T informatization: gathering, processing, and diffusing S&T information.
Theoretically, there have been lots of discussions on the legitimation of governmental intervention in S&T information. First of all, S&T information system could produce new information, which has characteristics of public goods. Secondly, private sectors do sub-optimal information activities, which bring out the need for government involvement on national S&T information system. Thirdly, S&T information is asymmetrical by nature, so that big enterprises can take most benefits from the information. This is not good for national innovation system (NIS) as a whole and SMEs, which are very in need of S&T information. Therefore, governments should intervene in S&T information and implement a good national S&T information system.
In this sense, the establishment and implementation of national S&T information system is a very important institutional change for developing countries like Uzbekistan. It is a prerequisite to the diffusion of S&T information within a national innovation system. The system starts from the establishment of public research institute for S&T information. In order to effectively utilize the national S&T information system, it is important to fully understand, maintain, and support the stages of S&T informatization process: information gathering → information processing → information diffusion. In particular, it is very important to investigate whether the national S&T information system covers the whole stages of the S&T informatization process.
Uzbekistan has started to implement a national S&T information system since 2009. The Uzbek government established the Center for Scientific and Technical (S&T) Information under the Committee for Coordination of Science and Technology Development (CCSTD). The center has a good legal base and is expected to cover the whole process of the S&T informatization. However, it has heavily focused on simple information gathering from relevant agencies and ministries all over the country. The center has played no active role in processing and diffusing S&T information. Therefore, it should extend its roles also to other functions in order to function effectively as a national S&T information center, by increasing its investment in S&T information and recruiting much more staffs.
032 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy Korea has a long history of national S&T information system. The Korean S&T information system started from the establishment of the Korea Scientific and Technological Information Center (KORSTIC) in 1962. KORSTIC focused heavily on gathering S&T information but it extended its role to processing and diffusion of the information. In the beginning of the 1990s, the Korean government established and operated the Korea Institute of Industry and Technology Information (KINITI) and the Korea Research & Development Information Center (KORDIC). From this period, both institutes could focus on gathering, processing, and diffusing S&T information with balance. At the beginning of the 2000s, two institutes merged and established the Korea Institute of Science and Technology Information (KISTI). As of December, 2012, KISTI has operated eight different S&T information centers which cover the whole phases of the S&T informatization process. Based on these organizational settings, KISTI has made a great contri- bution to the development of Korean S&T and economy as a whole. According to our analysis, the Korean S&T information system, which has developed in the middle of public institutes like KIST, has had good legal frameworks and enough resources and covered the whole phases of the S&T informatization process, especially since the beginning of the 1990s.
Based on our analysis, we can suggest some policy implications for Uzbekistan. The suggestions could be divided into general policy directions and step-wise strategies. As policy directions, we suggest that the importance of S&T information should be appreciated by the Uzbek government, the Uzbek Center for S&T Information under CCSTD should be grown up and extend its function to cover all phases of S&T informatization process including gathering, processing, and diffusing information, and every actor in the Uzbek national innovation system, e.g., universities, public research institutes, and industrial companies, should recognize the importance of S&T information in technological, economic and social development of the country. In order to develop the national S&T information system, Uzbekistan needs to adopt step-wise strategies which are composed of short-term, mid-term and long-term strategies. These three strategies are interrelated and can be overlapped in implementing strategies.
In order to implement a successful system, Uzbekistan should benchmark foreign advanced S&T information system and strengthen the collaboration with them. The Korea Institute of Science and Technology Information (KISTI) in Korea will be one of the best collaboration partners, as Korea has good experiences of developing a national S&T information system, and KISTI has been in the center of the Korean system.
Uzbekistan has been pouring great efforts to develop its national economy in terms of technological innovations. Considering the rapid changes in economic and technological en- vironment, Uzbekistan needs to develop not only high-tech industries but also traditional indus- tries. In this sense, it seems to be appropriate to select two major industries for 2012 KSP with Uzbekistan. The renewable energy sector is high-technology area, while the agricultural sector is traditional industry. Both industrial sectors are very important for the Uzbek national economy. In this study, we also conduct a study on how to construct a national S&T information system and diffuse S&T information in national innovation system in Uzbekistan. We expect that those three
Executive Summary ● 033 areas, i.e., renewable energy, agriculture, and S&T information, will make a great contribution to the development of the Uzbek industries. First, Uzbekistan will formulate and refine institutional arrangements for developing renewable energy, improving energy efficiency, and dissemination solar energy. Second, this country will increase the productivity of agricultural industry, improve the marketing system of agricultural products, and develop the agro-processing industry as one of the new strategic industries in Uzbekistan. Third, Uzbekistan will also refine and develop the national S&T information system and improve the diffusion of S&T information in Uzbekistan’s major industries including renewable energy and agricultural industries. In particular, the innovation of two major industries analyzed in this study will also stimulate the innovation activities in other industries in Uzbekistan. As a result, our study in 2012 will play an important role for Uzbekistan in its transforming into an innovation-oriented economy in the near future.
034 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy
Policy Consultation on Uzbekistan’s Industry Innovation Strategy Chapter 1
Recommendations for the Development of Renewable Energy Sector in Uzbekistan
1. The Status of Renewable Energy and Policies in Uzbekistan 2. The Legislation Process and the Current State of Renewable Energy Law in Uzbekistan 3. Establishing a Renewable Energy Specialized Institution 4. Recommendations for Initial Business Plans 5. Building an HRD System in Uzbekistan Chapter 01
Recommendations for the Development of Renewable Energy Sector in Uzbekistan
Taegu Kang (Korea Energy Management Corporation) Doyoun Yim (Korea Energy Management Corporation) Saidakbar Askarov (Scientific and Technical Information Center) Ilyos Rakhmatullaev (CCSTD)
Summary
Uzbekistan’s economic structure is highly energy-intensive, but most of its distribution infrastructure is inefficient and vulnerable. Although the country has large reserves of natural gas, its commercialization is another challenge. In order to solve these problems, the government is paying much attention to developing renewable energy. However, it is hard to adopt foreign technologies or attract capital investment due to the rigid regulatory environment, and this makes the development of resource and the improvement of energy infrastructure even harder.
Uzbekistan has an Anglo-American legal system, adhering to the principle of separation of three powers. There is no special law legislated for renewable energy area yet, but the Laws on the Rational Use of Energy, the Laws on Electroenergetics and many other existing laws have some provisions regarding renewable energy. Currently, the draft law on “Alternative and Renewable Energy Resources” initiated by Association of Alternative and Renewable Energy and “Uzbekenergo” SJSC is being circulated within related ministries. Once enacted, the law is going to be the most important legal framework for renewable energy in Uzbekistan. In this report, we recommend this law specify the definition of renewable energy, stipulate the establishment of a special institution for renewable energy, provide rationales for renewable energy promotion policies, and obligate public organizations to use renewable energy in their new buildings, etc.
The government is involved in many parts of renewable energy, but apparently, it is not functioning as a control tower. Although it certainly is desirable that every ministry collaborate
036 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy and make a joint effort for promoting renewable energy, there should be one particular organization that can function as a control tower to carry forward more focused promotion policies. In this report, we recommend establishing a legal framework that can define what the roles of and rationales for the specialized renewable energy institution are, where in the government structure it should be located, and how the stability of its personnel and finance can be secured.
Uzbekistan has received various financial or technical aids in renewable energy sector from international organizations (UNEP, UNDP) and MDBs (WB, ADB) but most of them ended up being just one-time events. According to a SWOT analysis on Uzbekistan’s renewable energy, the country has abundant resources, but the low energy prices are making renewable energy less economically feasible; they have basic technologies but not enough for commercialization. This report recommends making it mandatory for the public organization to use a certain amount of renewable energy so that they can take the initiative in renewable energy investments. It is also advisable to aggressively invite foreign capital in order to create and develop a market for renewable energy. In addition, considering its low economic feasibility, renewable energy should be supplied to remote areas where the central distribution line for gas or electricity can’t reach, instead of competing with traditional energy sources.
As for human resource development, Uzbekistan is operating several institutions of higher education in renewable energy by the order of the Ministry of Higher and Secondary Special Education of the Republic of Uzbekistan. The Faculty of Energy in Tashkent State University of Technology is leading research on renewable energy in Uzbekistan and providing undergraduate and master’s courses. Tashkent University of Agriculture and other universities are conducting various researches for different uses, and making efforts for HRD in this sphere as well. In this regard, we suggest that they need to have different strategies for different groups: public officials, students and engineers, and they should make good use of international funding sources such as IRENA’s Abu Dhabi fund.
1. The Status of Renewable Energy and Policies in Uzbekistan
Uzbek’s economic structure is highly energy-intensive, but most of its distribution infrastructure is inefficient and vulnerable. Although the country has large reserves of natural gas, its commercialization is another challenge. Geographically, Uzbek is completely landlocked and relatively distant from end-user market. There are not sufficient gas pipelines for export, and the overall energy infrastructure is not very efficient. Moreover, it is hard to adopt foreign technologies or attract capital investment due to the rigid regulatory environment, and this makes the development of resource and the improvement of energy infrastructure even harder.
Chapter 1 _ Recommendations for the Development of Renewable Energy Sector in Uzbekistan ● 037
TPES (Total Primary Energy Supply) in Uzbekistan 2000 F/Y 2005 F/Y 2010 F/Y Source amount amount amount % % % (1,000 toe) (1,000 toe) (1,000 toe) All 53,765.1 100 55,344.2 100 58,282.6 100 Natural gas 45,752.5 85,1 49,091.2 88.7 53,499.5 91.8 Oil and gas condensate 7,575.2 14,1 5,611.1 10.1 4,058.2 7.0 Coal 0.8 0,002 0.8 0.002 0.8 0.001 Large hydropower 365.2 0,7 519.4 0.9 563.1 1.0 Small hydropower 69.3 0,1 119.9 0.2 159.2 0.3 Other sources 2,1 0.004 1.7 0.003 1.7 0.003
Source: KSP local consultant’s presentation, 2012
As seen in the table above, the dependence on natural gas is consistently increasing, and this makes it hard to secure resources for export and brings problems for the energy balance of Uzbekistan.
The Uzbek government is promoting policies for reducing the high dependence on natural gas and expanding the deployment of its abundant renewable energy resources, in order to achieve sustainable socio-economic development of the country and establish a rational production/distribution channel of energy. The Uzbek government and the state stock power company ‘Uzbekenergo’ are considering the development of renewable energy as a solution for efficient electricity supply to the off-grid remote agricultural regions.
The main direction of Uzbek government’s energy policies is to support energy sector effectively for Uzbek’s industrial and socio-economic development while ensuring energy security of the country. For this, the government focuses on the following tasks:
• Achieve energy independence by increasing petroleum and natural gas condensate production • Attract foreign investment in energy sector • Efficient use of energy resources • Make provision for legal framework in energy sector • Facilitate competition by adopting market system
038 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy 2. The Legislation Process and the Current State of Renewable Energy Law in Uzbekistan
2.1. Uzbekistan’s Law-Making Procedure
In fact, one of the most important things to implement a policy in a country is setting up a legal framework. It is important that the basic laws of the country clarify the direction of national policies, provide a legal basis for promoting the industry, and establish an enabling environment to attract foreign investment.
The system of government of the Republic of Uzbekistan is based on the principle of the separation of powers between the legislative, executive and judicial.
The President of the Republic of Uzbekistan, the Republic of Karakalpakstan in the name of its higher representative body of the state power, the deputies of the Legislative Chamber of the Oliy Majlis of the Republic of Uzbekistan, the Cabinet of Ministers of the Republic of Uzbekistan, the Constitutional Court, the Supreme Court, the Highest Economic Court and the Procurator-General of the Republic of Uzbekistan shall have the right of legislative initiative; the subjects of the right of legislative initiative shall exercise such right by the submission of draft law to the Legislative Chamber of the Oliy Majlis of the Republic of Uzbekistan.
Usually, Cabinet of Ministers through the Ministry of Justice, in some cases itself, makes a list of needs for law by asking the ministers and agencies about the need of new law or other normative documents. Most of the law proposals begin from the lower level to upper. For instance, interested organization can propose the need for a new law and gives it to the related ministry or a MP. The ministry informs about it the Cabinet of Ministers and MP the Parliament (Oliy Majlis). If the Cabinet of Ministers or Parliament finds the proposal reasonable, they ask the related ministers and agencies to prepare the draft of the law. The draft can be prepared by related ministry or several interested agencies or departments. But all the draft forms need to be circulated to the interested organizations and to be discussed within the related ministers and agencies’ members. In some cases, Cabinet of Ministers can receive several forms of drafts of a law and choose one of them or make one draft from several by asking the ministry or agency.
The law shall become legally effective if it is passed by the Legislative Chamber, approved by the Senate, signed by the President of the Republic of Uzbekistan and is promulgated in official editions in keeping with the established procedure. The law passed by the Legislative Chamber of the Oliy Majlis of the Republic of Uzbekistan shall be forwarded to the Senate of the Oliy Majlis of the Republic of Uzbekistan no later than ten days after the date when the law is passed. The law approved by the Senate of the Oliy Majlis of the Republic of Uzbekistan shall be forwarded to the President of the Republic of Uzbekistan within ten days for signing and promulgation. The President of the Republic of Uzbekistan shall sign and promulgate the law within thirty days.
Chapter 1 _ Recommendations for the Development of Renewable Energy Sector in Uzbekistan ● 039 The law rejected by the Senate of the Oliy Majlis of the Republic of Uzbekistan, shall be returned to the Legislative Chamber of the Oliy Majlis of the Republic of Uzbekistan. In case where upon repeated consideration of the law, rejected by the Senate of the Oliy Majlis of the Republic of Uzbekistan, the Legislative Chamber shall approve the law anew by 2/3 of votes of a total number of deputies, the law shall be considered passed by the Oliy Majlis of the Republic of Uzbekistan and shall be forwarded by the Legislative Chamber to the President of the Republic of Uzbekistan for signing and promulgation. In rehard to the law rejected by the Senate of the Oliy Majlis of the Republic of Uzbekistan, the Legislative Chamber and the Senate may form, on an equal footing, a conciliatory commission from among the deputies of the Legislative Chamber and the members of the Senate to negotiate disagreements arisen. Upon acceptance of proposals by the conciliatory commission, the law shall be considered in the course of work. The President of the Republic of Uzbekistan shall have the right to return the law with his objections to the Oliy Majlis of the Republic of Uzbekistan.
In case where the law has been approved in early passed version by no less than 2/3 of votes of the total number of deputies of the Legislative Chamber and members of the Senate of the Oliy Majlis of the Republic of Uzbekistan respectively, the law shall be subject to signing by the President of the Republic of Uzbekistan within fourteen days and promulgation. Promulgation of laws and other normative and legal acts shall be a compulsory condition for their enforcement.
2.2. Analysis of the Existing Laws Regulating Renewable Energy in Uzbek
Uzbekistan has so far adopted no special normative-legal documents pertaining to the development of renewable energy sector, although a number of umbrella documents regulating relations in this sphere do exist.
Laws of the Republic of Uzbekistan regulating individual renewable energy development issues include:
• On Competition and Limiting Monopolism in Commodity Markets, 1996 • On the Rational Use of Energy, 1997 • On Natural Monopolies, 1997 • On Licensing Certain Kinds of Activities, 2000 • On “Electroenergetics”, 2009 • (Draft) On “Alternative and Renewable Energy Resources”, 2011
The Law of the Republic of Uzbekistan on the Rational Use of Energy (1997) serves as the cornerstone for the development and functioning of the entire energy sector, including renewable energy. It sets forth the general legal framework for conserving the nation’s energy resources and for making efficient use of its existing production potential, fuel and energy.
040 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy The provisions of the Law apply to legal and physical persons associated with the extraction, production, refining, storage, transport, distribution and consumption of fuel and energy.
The scope of the Law was designed to achieve the following aims:
• To provide for the efficient and environmentally safe use of energy in producing and consuming energy; • To foster the development and adoption of energy saving and lower cost technologies for extracting petroleum, natural gas, coal and other types of fuel and for producing pe troleum products; • To ensure the trustworthiness and uniformity of measurements used in accounting for the quantity and quality of energy produced and consumed; • To exercise government control and oversight for the efficient production and consumption of energy, energy quality, and technical maintenance of energy equipment as well as energy supply and consumption systems. • The Law was the first to lay down, in summary outline form, the directions of Government policy pertaining to the sound use of energy, including: • Implementing national, sector and regional goal-oriented programs • Making provisions for the stability of energy production and consumption that intensive development of the national economy requires; • Optimizing energy production and consumption modes, and energy accounting management; • Fostering the production of energy-saving equipment and products with minimum per unit expenditures of energy; • Including energy efficiency indicators for energy producing and energy consuming equipment and products in normative documents; • Establishing government control and oversight of energy quality, energy efficient production and energy consuming products; • Organizing energy efficiency studies of enterprises, firms and organizations; • Conducting energy assessments of products, facilities, technologies and equipment currently in use or being upgraded; • Creating demonstration zones to showcase projects featuring highly efficient use of energy; • Promoting the development of energy efficient and ecologically clean technologies and production; and • Organizing statistical surveys of energy production and consumption.
A special article in the Law sets forth overarching conditions in which renewable energy sources are to be used, with a view to promoting the development of renewable energy in Uzbekistan.
Chapter 1 _ Recommendations for the Development of Renewable Energy Sector in Uzbekistan ● 041 The special article grants independent electricity and thermal energy producers the right to release energy into power grids which are placed under obligation to accept the energy from the said independent producers at duly established prices. An authorized body – presently the Ministry of Finance of the Republic of Uzbekistan – establishes those prices.
An important stipulation of the Law on the Rational Use of Energy is establishing prices for electricity and thermal energy produced by independent producers so as to foster the adoption of renewable energy technologies. provision must be made for accelerating the return of capital invested to build facilities which use renewable energy sources.
For these same reasons, the Law makes provisions for granting subsidies from the Energy Saving Fund to legal and physical persons who take measures to reduce energy consumption and to use secondary energy resources and renewable energy sources.
Nevertheless, the process of creating an environment conducive to the development of renewable energy in Uzbekistan is now held back because documents the Law stipulates that are to be enacted have not been enacted - documents regulating: procedures, conditions and size of subsidies, conditions for gaining access to energy grids and procedures for establishing renewable energy prices.
In accordance with the Law on Licensing Certain Types of Activities (2000), at the present time only producers of electricity connected to a unified electric power grid can be licensed in Uzbekistan.
No licensing of any kind is required for producers of electricity not connected to a unified grid or producers of heat energy or biogas.
What makes it even more difficult for physical persons to obtain permission to produce electricity is that, under legislation now in force, only legal persons may be issued licenses to produce electricity.
Governmental unitary enterprises and firms are in the best position because they are established by the Cabinet of Ministers of the Republic of Uzbekistan and such are authorized to perform a licensable activity without having to obtain a license to perform the said licensable activity, so long as such licensable activity is specified in the charter documents of a unitary enterprise or firm.
Licenses conferring the right to produce electricity are issued per order of the government agency Uzgosenergonadzor Inspectorate, the working arm of the special Commission of the Cabinet of Ministers of the Republic of Uzbekistan that licenses the production of electricity at stationary electric power plants.
042 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy Another legal document in the sphere is Law on “Electroenergetics” from 2009. The Law has some related articles to the renewable energy resources, such as:
• Article 4 of the Law states that state policy is directed to the “development of renewable sources of electric Power” • Article 6 states that as a regulating organ in the sphere, the Cabinet of Ministers, “specifies the order of building, financing, installation and uninstallation the objects of electric power”, which means objects in the bases of renewable sources of energy • Article 25 states that the regulating organ in the sphere “realizes the development of renewable sources of energy.
However, the Law does not have an article about the financial mechanisms of supporting and developing renewable sources of energy.
There are other normative documents in the sphere, which are issued by the President and the Cabinet of Ministers of the Republic.
The Presidential Decree of the Republic of Uzbekistan dated Fed 22.2001, “On deepening of economic reforms in the energy sector of the Republic of Uzbekistan,“ and the Resolution of the Cabinet of Ministers of dated june 21,2004, define that the main tasks and activities of “Uzbekenergo” SJSC is “the development and implementation of renewable energy, including non-conventional sources of energy”.
Decision of the Cabinet of Ministers from on Fed 13, 2009 states that the Deputy Prime Minister of the Republic of Uzbekistan, “Uzbekenergo” SJSC, agency of “Uzkommunkhizmat“ and Fund for Reconstruction and Development of Uzbekistan are to ensure the proposal to the Cabinet of Ministers of the draft of government decision on the further development of the use of alternative and renewable energy sources and other measures to reduce energy consumption and the introduction of energy saving for the period 2009 - 2015“ (Paragraph 6).
Resolution #476 of the Cabinet of Ministers of the Republic of Uzbekistan, approved 28 December 1995, On the Development of Small Hydropower in the Republic of Uzbekistan, is another legal document that bears directly on the regulation of the use of renewable energy sources. The significant point about the Resolution is that it is the first document to make provision for regulation of certain issues associated with independent power producers using renewable energy technologies.
However, the Resolution applies only to hydro power plants belonging to the Ministry of Agriculture and Water Resources of the Republic of Uzbekistan and does not apply to other renewable energy technologies. Yet there is actual practical interaction going around between the power systems of specialized company Uzbekenergo and hydro power plants of the Ministry of Agriculture and Water Resources (i.e., independent power producers) expecting that the
Chapter 1 _ Recommendations for the Development of Renewable Energy Sector in Uzbekistan ● 043 Resolution could serve as the basis for drafting a more comprehensive normative act.
Legislation in the field according to the Law consists of this Law, the law on “Electroenergetics” from 2009, and other related laws. If an international treaty of the Republic of Uzbekistan stipulates rules other than those provided by the legislation of the Republic of Uzbekistan on alternative and renewable energy sources, the rules of the international treaty will be used.
The Law lays down, in a summary outline form, the main principles of Government policy pertaining to the sound use of alternative energy sources, including:
• Sustainable development in order to ensure preservation and efficient use of fossil fuels, as well as ecological safety and protection of environment; • To use the alternative and renewable energy resources as a priority and bring the level of their use in the country’s total power balances at least by 10 percent by 2020 and by 20 percent by 2030.
The government support stated the measures as follows:
• Implementation of new technologies • Construction of autonomous power systems based on alternative and renewable energy sources • Guaranteed connectivity facility of the operators of alternative energy installations to state electric networks
For subjects who produce and use alternative and renewable energy resources:
• Granting of preferential loans • Exemptions on customs • Tax deductions • Creation of favorable conditions for local and foreign investors
In the chapter about state regulation and management in the field, the Cabinet of Ministers is referred as a main coordinating organ in the field.
The specially authorized body, which is not specified in the Law:
• Develops national program of development in the field; • Develops standards, rules and regulations in the field; • Establishes state cadaster of alternative and renewable energy sources; • Issues the certificate of energy origin; • Gives a license for the activities of legal entities in the field; and
044 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy • Organizes the certification of technical devices in the field, etc.
In addition, the Law clearly states that licensing is required for the designing, construction, production and supply of energy and the installations that use alternative and renewable energy sources:
• wind power installations with a capacity greater than 30 kW; • photovoltaic installation with a capacity greater than 5 kW; • solar thermal installations with a capacity greater than 10 kW; and • micro hydro installations, plant based biomass, geothermal installations, and heat pump capacity greater than 20 kW.
Article 14 of the Law states that the rates for energy generated using alternative and renewable energy sources are regulated by a specially authorized body. Rates for energy generated by renewable energy installations are defined in an amount not exceeding the highest rate of traditional energy including covering the difference of operator’s costs of alternative energy installations of the state.
According to the Law, producers have right to:
• Protection against unfair competition; • Production and expansion (upgrade) installations; • Identify independently the areas for possible locations of alternative energy installations; and • Government support in accordance with the legislation etc.
Producers are obliged to:
• Effectively use the technology and facilities in the sphere; • Ensure the use of alternative and renewable energy sources in accordance with the mandatory requirements established by regulations; • Provide reliable information about energy, generated from alternative and renewable sources of energy, in accordance to the procedure established by legislation; and • Maintain documentation of the development of useful energy, fuel and by-products by the use of alternative and renewable energy sources, etc.
The final chapter of the Law states that funding the works in the sphere of use of alternative and renewable energy for the solution national problems realized on the basis of national development programs, financing the objects works which use alternative and renewable energy sources of public and private property realized by their holders of their own funds, funds of interested businesses and individuals, and other sources not prohibited by law and finally, the law highlights that legal entities involved in the implementation of development projects and the use of alternative and renewable energy sources, can be granted tax and other benefits.
Chapter 1 _ Recommendations for the Development of Renewable Energy Sector in Uzbekistan ● 045 2.3. Analysis on the Current State of the Renewable Energy Law
One of the most important laws in the sphere, which is directly related to the renewable energy sources, the Law on “Alternative and Renewable Energy Resources”, is currently in the stage of analysis in the related ministers and departments. The main initiators of the Law are Association of Alternative and Renewable Energy and “Uzbekenergo” SJSC. The Law is going to be the main regulating legal document in the sphere.
The Law consists of 5 chapters:
• General provisions • State policy principles in the field of alternative and renewable energy resources • State regulation and management in the field of alternative and renewable energy sources use • The rights and obligations of producers and consumers in the field of alternative and renewable energy sources • Final provisions.
The provisions of the Law apply to legal and physical persons associated with the extraction, production, refining, storage, transport, distribution and consumption of alternative and renewable energy sources.
The scope of the Law was designed to achieve the following objectives:
• Provision of a sustainable development by efficient use of alternative and renewable energy resources; • Preservation of nature and environment, including from the greenhouse gas emissions; • Regulation of the relations in the field of energy production and use on the basis of alternative and renewable energy resources
2.4. Recommendations on the Legislation of Renewable Energy Law
As stated above, Uzbekistan still doesn’t have a specific law for renewable energy. However, there are already several provisions regulating this sector in other existing laws, some of which are conflicting in details. The new law should be able to resolve these inconsistenies or conflicts, and serve as a primary standard for renewable energy sector.
First, the title of the law should be reviewed. The name of the draft law is ‘Alternative and Renewable Energy Law,’ which can cause confusions in the future. At the beginning, Korea and
046 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy the leading countries of renewable energy, also used the term ‘Alternative’ with the meaning of replacing fossil fuel, but as it has been since changed to ‘Renewable Energy’, it is recommended that Uzbekistan do the same by using it as the title of the law.
Second, the definition of renewable energy should be included in the law. The law has to clarify what kind of energy source can be recognized as renewable energy within the country. While IEA(International Energy Agency)’s definition of renewable energy covers PV, solar thermal, wind, hydropower, geothermal, biomass, ocean, and waste energy, etc., the leading countries have their own definition of renewable energy according to the particular circumstances within their countries. It is actually important to have a clear definition, especially for foreign investors who want to invest in renewable energy.
Third, all renewable energy regulations in other laws should be revised and integrated. As mentioned, there are a number of laws that are either regulating or promoting the renewable energy sector, such as The Law on the Rational Use of Energy and the Law on “Electroenergetics”. The drafted renewable energy law did have integrated many parts of them, but there are still several parts that are conflicting or contradicting. Therefore, the parts covered by this new renewable energy law should be deleted from where it is stated now in other laws or needs to be made clear by providing the indexes.
Fourth, a rationale for establishing a specialized institution for renewable energy should be provided. It is most reasonable for the legal basis of the institution to be presented in the Renewable Energy Law, and this will be addressed again in the latter part of this report. Also, the law should comprehensively present the role and the fund source of the institution, and define which organization the institution will belong to.
Fifth, a clear direction for promoting renewable energy should be demonstrated. Although the benefits provided to the renewable energy producers or consumers, for the purpose of encouraging the use of renewable energy, are stated in the Law on “Electroenergetics,” the specific ranges for loan advantage, tariff exception, or tax exemption are not defined. In addition, the Law on the Rational Use of Energy proclaims the subsidization, but it needs to be addressed in this law as each country applies different rate for the subsidies to renewable energy and energy efficiency.
Finally, the law should include compulsory use of renewable energy in newly-built buildings of public organizations, which is the most powerful means of forming the initial market. Because renewable energy is still less economical than fossil energy, starting with the public sector will be the most effective way to ensure the formation and the predictability of the renewable energy market for the evolution of the industry.
We have looked into the legal system of Uzbekistan and the new renewable energy law which is to be legislated. By analyzing it, the report suggested several recommendations that
Chapter 1 _ Recommendations for the Development of Renewable Energy Sector in Uzbekistan ● 047 should be included in the new law. It is still in the stage of collecting the opinions of govern- ment departments and public institutions, and these recommendations based on the practical example of Korea, which has been operating and maintaining a similar legal framework since 1988, will have to be reflected in the new law before it is enacted. The full text of the Korean law will be provided in the appendix of this report, expecting it can serve as a good reference and be applied to Uzbek’s specific conditions.
3. Establishing a Renewable Energy Specialized Institution
3.1. The Government Structure and Governance in Uzbekistan
The Ultimate responsibility for the renewable energy resources in Uzbekistan belongs to the head of the country, the President. The President can organize and direct the implementation of agencies and has the authority to either found or abolish governmental departments, national committees or other government agencies.
The Parliament(Oliy Majlis) of Uzbekistan, composed of Upper and Lower house, is in charge of the legislation of Uzbek’s law; the determination of directions for domestic policies; the adaptation of national strategic programs; legal arbitration on matters such as customs, currency and credit; and tax rate adjustment for tariffs and other compulsory payment.
The Cabinet committee, attended by the Prime Minister, the deputy Prime Minister, Ministers, and the chairman of committee, plans and determines effective social and economic policies; passes acts and government decrees; and implements presidential decrees. The information analysis department under the ministry of government develops and oversees the government projects in energy sector and handles the affairs related to geology, fuel energy complex, chemistry, petrochemistry and metal industry.
The roles and functions in energy industry sector that this information analysis department take are developing and implementing special programs for stable and balanced development of energy producers; increasing the production of competitive and export-oriented goods through hydrocarbon processing; maintaining production-consumption balance of energy resources in cooperation with related ministries or companies; supervising the implementing processes; analyzing and preparing for the development of technology and modernization of facilities; controlling the activities of government entities and economic units for preparing and implementing consistent national policies related to energy industry development; preparing or proposing the measures for improving the legal basis for demonopolization and the creation of competitive conditions of energy industry; preparing or proposing the measures for attracting foreign investment in energy industry; analyzing and assessing the projects or programs in energy
048 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy sector; controlling and monitoring the implementation stage of these projects or programs; and so on.
The government ministries and other entities relating to energy sector include the Special Cabinet Committee for Energy Resource Conservation, Ministry of Economy, Ministry of Finance, the National Committee for Deregulation and the Promotion of Competition, the National Electricity Supervisory Commission, the National Supervisory Commission on the Use of Petroleum Products and Gas, the National Supervisory Commission on the Safety of Industries, Mines and Apartment Houses, etc.
The Special Cabinet Committee for Energy Resource Conservation is headed by the Prime Minister of Uzbekistan and composed of working experts dispatched from government ministries, enterprises, research institutes or supervisory agencies. The Committee controls all the government organizations and the economic units’ activities in the field of energy mining, production, processing, storage, transmission, or consumption. In particular, it ensures the smooth functioning of the Law on the Rational Use of Energy; participates in the activities for establishing the legal basis for rational production and consumption; supervises the implementation of the remodeling or modernization projects for energy facilities; oversees the process of introducing energy saving technologies in socio-economic sector; and controls the activities of the institute that manages efficient use of energy and regional energy saving committees.
The roles of the Ministry of Economy regarding the energy sector are making provision for sectoral, divisional, and regional development programs as well as the short- and mid-term prospects, policies for energy price management, employment policies; restructuring and modernizing the energy industry and developing its technologies; making forecasts for the localization of technologies and machine equipments or the introduction of advanced technologies; and taking charge of policies for tax, budget, currency, foreign exchange, demonopolization, or natural monopoly.
The Ministry of Finance is responsible for building and operating the financial system for industrial development; cooperating in tax and price policies; monitoring the credit ratings of the country and the state-owned companies; managing the tax revenues of the government; providing financial support for R&D, industrial investment, and socio-economic development programs; administering the expenditures of government agencies or state companies; in energy sector.
The National Committee for Deregulation and the Promotion of Competition implements efficient demonopolization policies, restrains monopolistic activities, oversees compliance with the Law on Natural Monopolies, and solidifies the legal basis for setting competitive conditions; while the National Electricity Supervisory Commission establishes and approves the rules and regulations on the production, transmission and consumption of electricity, heat, coal, etc., supervises rational, efficient and stable production, transmission and consumption, and
Chapter 1 _ Recommendations for the Development of Renewable Energy Sector in Uzbekistan ● 049 conducts energy inspections and audit.
The National Supervisory Commission on the Use of Petroleum Products and Gas prescribes the regulations on the sales, use, mining, processing, transmission and storage of oil, gas and gas condensate. It implements national energy saving programs and projects for rational use of these resources as well.
The National Supervisory Commission on the Safety of Industries, Mines and Apartment Houses assumes responsibility for the activities of industries such as production, gas supply or consumption, conservation of resources, processing of energy resources, and geological prospecting; and for the safety management of public apartments and multiplex houses.
Also, there are state-operated enterprises that are related to energy such as Uzbekneftegaz in oil and gas sector, Uzbekenergo in electricity and coal sector, the Ministry of Agriculture and Water Resources in hydropower sector, and Uzhimprom in cogeneration sector. These state companies are implementing national policies of their own sectors with their subsidiary companies.
3.2. Renewable Energy Specialized Institution in Korea
Article 31 of the renewable energy law of Korea, “the Act on the Promotion of the Develop- ment, Use and Diffusion of New and Renewable Energy,” provides legal basis for establishing an institution specialized in new and renewable energy. The law stipulates that “For the purpose of facilitating the use and distribution of new and renewable energy in a specialized and efficient manner, the Minister of Trade, Industry and Energy may establish a new and renewable energy center(hereinafter referred to as “center”) in any energy-related institute prescribed by Presidential Decree, and may require the center to perform any of the following projects”:
1. Support for and management of those engaged in the use and distribution of new and renewable energy 2. Support for and management of building certification 3. Support for and management of affairs of a supply certification institution 4. Support for and management of facility certification 5. Technological support for new and renewable energy facilities already distributed 6. Support for and management of the international standardization of new and renewable energy technology 7. Support for and management of the commonization of new and renewable energy facilities and their components 8. Support for and management of a specialized new and renewable energy enterprise 9. Statistics management 10. Support for and management of the distribution projects for new and renewable energy 11. Support for and management of the commercialization of new and renewable energy
050 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy technology 12. Support for and management of education and publicity, and fostering of experts 13. Domestic/overseas investigation and research projects, and international joint projects 14. Projects incidental to subparagraphs 1 through 6 15. Other projects necessary for the facilitation of use and distribution of new and renewable energy which are entrusted by the Minister of Trade, Industry and Energy
It is also stipulated that, when the center implements a project, the Minister of Trade, Industry and Energy may contribute funds and provide other necessary support, and “Necessary matters concerning the organization, staffing, budget and operation of the center shall be prescribed by Ordinance of the Ministry of Trade, Industry and Energy.” This provides the grounds for the existence of the institution and builds legitimate reasons for the government to provide fund or any kind of support necessary for organization of such institution and budget thereof.
3.3. Recommendations for Specialized Renewable Energy Institution
It is desirable, of course, that all the government entities collaborate and pool their efforts to promote renewable energy. However, in order to implement intensive promotion policies, one particular organization needs to perform as a control tower.
First of all, it is essential to provide legal basis for existence of renewable energy specialized institution. The grounds should be placed in the new “Law on Alternative and Renewable Energy Resources” which is recently circulated in the government of Uzbekistan. In ‘the Law on the Rational Use of Energy’ of Uzbekistan, it is stated that ‘an entity with special authority’ takes charge of renewable energy, but there seems to be no clear grounds for its establishment yet.
Second, a renewable energy- specialized institutionthat is newly established should be positioned between the government and public enterprises — receiving directions from the government and leading the policies for the public enterprises. It is considered that most of the energy policies in Uzbekistan are legislated and implemented by Uzbekenergo. However, Uzbekenergo is not only in charge of electricity but also takes responsibility for gas and almost all the other energies. That is, it will be hard to expect them to actually concentrate on renewable energy. As seen in the case of Korea as well, public enterprises don’t have enough reason or motives to push ahead with renewable energy which is not very feasible in terms of economy.
Lastly, the stability of the institution is important. In the leading countries, by confining the implementing body of renewable energy policies to semi-governmental institution, they ensure the political base of the institution and financial stability by means of funds or other sources. Promotion of renewable energy will gain momentum only when the organization and the budget are secure.
Chapter 1 _ Recommendations for the Development of Renewable Energy Sector in Uzbekistan ● 051 4. Recommendations for Initial Business Plans
4.1. SWOT Analysis of Uzbekistan Renewable Energy
For promoting renewable energy in Uzbekistan, in-depth analysis on the conditions within the country is necessary. First, we requested a Local Consultant of this program to conduct a SWOT analysis on renewable energy in Uzbekistan from the internal point of view.
SWOT Analysis of Uzbekistan Renewable Energy in Uzbekistan
w S (Strengths) W (Weaknesses)
• Experience in building small hydropower plants in the country • Absence of a special representative body in the • Presence of technical experts with proven sphere renewable energy experience of installation • Absence of normative standard bases that are • Research experience in solar energy including adopted to the special conditions of Uzbek’s engines of Sterling nature • Ongoing development of the components for • Lack of independent test center, equipments the next generation solar energy collectors and methodologies • Possibility to produce major elements domesti- • Insufficient infrastructure for commercialization cally (solar panels, absorbers, wires and cables, of the R&D products pipes, the glass and others)
O (Opportunities) T (Threats)
• Abundant renewable energy resources distrib- uted nationwide • Favorable geographical situation • Huge potential for development of renewable • Lack of capital for the development of new energy market technologies • Possibility of the creation of new technologies • Low solvency of the population for producing the solar-wind or other alterna- • High cost of renewable energy equipment tive power installations which are adoptable to exploitation of conditions in Uzbekistan at sharply continental or dry subtropical climate
Source: KSP local consultant’s presentation, 2012
052 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy 4.2. CDM Projects in Uzbekistan
When a country does not have enough capital, one of the easiest ways to invite foreign capital is CDM (Clean Development Mechanism). The Uzbek government has made a committee for CDM under the Presidential Decree (PP-525) on Dec. 2, 2006. The Ministry of Economy, in charge of CDM, has prepared a series of CDM projects to attract investment and published them in a Cabinet decree on Jan. 10, 2007.
Following this, the Ministry of Economy of Uzbekistan prepared 63 projects in total in cooperation with UNDP, some of which are now under way. Many of the renewable energy projects are biomass and waste energy projects.
Basically, as agriculture and livestock industry constitute a large proportion of Uzbekistan industry, the demand for biomass projects is expected to keep increasing for a while. However, research on renewable energy resources and more active renewable energy equipment promotion programs using CDM will be necessary.
4.3. Korea’s Renewable Energy History
There are historical records that solar energy and wind energy were studied and used in Korea in the 1950s. After experiencing two times of severe oil crisis and realizing the necessity of stable foundation for energy distribution in a long term, the government started to pay much attention to research projects for active development and use of new and renewable energies and established public institutions for development and distribution as well as research institutes. These organizations have been contributing to the facilitation of specialization, commercialization and industrialization of the related technologies and their distribution in collaboration with universities and industries.
As for biomass, there is no written record available but according to some passing down stories, methane gas from waste had been used as secondary fuel at farmhouses in the early 20th century. The Rural Development Administration of Korea has supplied small-sized methane gas generators in rural areas every year since 1969, and the number of installation reached 444 in 1959, 740 in 1970, and 23,488 in 1975. However, the research on the nationwide utilization status of methane gas in July 1979 found that only 2,499 of the installed units were in operation, which is only 20% of the total number supplied throughout the country. The main reasons have turned out to be design deficiency, unskilled operation or poor maintenance of the equipments.
As for solar energy, since Korea suffered fuel shortage in 1950s, a series of experimental researches have been conducted in an effort to utilize solar energy and distribute it in rural communities. However, the oil crisis in 1973 called the attention to the importance of energy, and the research and utilization of solar energy were revalued and discussed at the national level. Starting with the Korea Atomic Energy Research Institute’s publication of the researches
Chapter 1 _ Recommendations for the Development of Renewable Energy Sector in Uzbekistan ● 053 on “the Performance of Solar Collectors” and “the installation and experiment of Solar House” in scientific journals in 1974, many researches and development efforts were ignited throughout the country. From 1963 to 1966, the Rural Development Administration carried out experiments on the technologies for collecting and utilizing solar energy. Meanwhile, from June to November in 1975, a research team of Korea Land & Housing Corporation conducted experiments with the Solar House by installing some imported collectors in the house exhibition hall. During that time, domestically produced thermal collectors, heat storage tanks and other equipments were installed in a 40m2 demonstration farmhouse and tested, being supplemented by other fuels. Around the year 1978 when solar energy was drawing greater attention than ever in Korea, Korea Institute of Science and Technology(KIST) launched a solar energy research institute as its affiliated institution in May 1, 1978, and the academic world and the industrial sectors were inspired by the research and development of solar energy.
Started this way and undergoing the first and second oil crisis, the researches on renewable energies began to become more comprehensive and systematic since the early 1980s. After the 「Alternative Energy Development Promotion Act」 was legislated in 1988, the development of renewable energy technology became very active, commercializing and distributing solar water heaters, PV systems, biomass or waste combustion furnaces and waste heat recovery systems. Since 2004, with priority on the three major energy resources including, solar, wind and PV energy, various promotion programs have been developed and promoted for the deployment of new and renewable energies.
Since The 3rd New and Renewable Energy Basic Plan in December 2008 set a goal of increasing the New and Renewable Energy supply up to 11% in the total primary energy supply by 2030, 1,959 billion won has been invested in total by 2009 for the implementation of 1 million green house program, general deployment subsidy programs, regional deployment subsidy programs, renewable energy mandatory use for public buildings, feed-in-tariffs, the certification and standardization of renewable energy equipments, renewable energy service companies, and special loans and tax incentive programs, etc.
4.4. Recommendations for Initial Business Plans
First, as seen in other leading countries’ examples, it is hard to expect the demands for renewable energy to emerge from the private sector in a developing market. Therefore, the government needs to take the initiative, and the most recommendable policy is to enforce ‘mandatory use of new and renewable energy for public buildings.’ This will ensure the stability and the predictability of the investments on renewable energy, thereby creating the initial market.
Second, renewable energy can be used in remote areas where traditional energy sources can’t reach. By providing renewable energy equipments as a decentralized power supply system in remote areas, the government can save the construction cost for distribution network and improve the welfare of the people in those areas at the same time. In addition, supplying the
054 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy small amount of power to stand-alone communication facilities or aids to navigation can be another significant role of renewable energy.
Third, it is necessary to summon more efforts to attract foreign investment. Particularly, by reviewing the results of the past projects supported by UNDP, WB or ADB objectively, the level of their supports, the management methods applied, and the pros and cons should be analyzed. Especially, promoting renewable energy through CDM businesses should be considered with special attention.
5. Building an HRD System in Uzbekistan
5.1. Current HRD System for Renewable Energy
By the order of the Ministry of Higher and Secondary Special Education of the Republic of Uzbekistan, Uzbekistan is operating several institutions in higher education on renewable energy.
Tashkent State University of Technology has undergraduate and master’s training courses for renewable energy, and they are also conducting renewable energy researches such as a research on ‘the Use of Thermal Energy Converted from Solar Energy’.
Tashkent University of Agriculture has a course on ‘the Use of Solar Energy in the Production and Processing of Agricultural Products’ in its curriculum; Karshi State University, Bukhara State University and Gulistan State University offers classes on ‘the Use of Solar Energy for the Processing of Agricultural Products’.
In general, the existing courses are merely delivering fragmentary knowledge that is in need at the moment, not providing overall and comprehensive education. Therefore, more systematic education with specific targets would be required for human resource development in renewable energy sector in Uzbekistan.
5.2. Recommendations on HRD for Renewable Energy
First of all, the public officials and the opinion leaders of Uzbekistan should read the global trends and know which direction the industry is heading for and find ways to apply them to the situation of Uzbekistan. The training programs and courses should not be limited to renewable energy but cover overall energy field, and they will need to make full use of international training programs for public officials that some East Asian countries including Korea are offering. The overseas training programs of ODA organizations such as KOICA and JAICA can help them read the development direction of other leading countries and learn about technology trends and the state of international affairs regarding climate change.
Chapter 1 _ Recommendations for the Development of Renewable Energy Sector in Uzbekistan ● 055 Second, it is advisable that the universities design their curricula in a way that the students in electrical, mechanical, chemical engineering can learn about renewable energy in their senior years rather than to establish new departments for renewable energy. In addition, most publications on new technologies are written in English these days, so students need more opportunities to improve their English. Especially, many countries around the world including Korea are providing support for the students from developing countries in the master’s courses of their universities, but most of the courses are delivered in English. Therefore, students who are confident in English need to take the initiative in going overseas to study this field, and these students can grow into actual human resources in the field of renewable energy.
Third, it is desirable that the education for experts in the installation or operation of renewable energy equipments take the form of social in-service trainings. In other words, it is advisable for the government to impose on any foreign enterprises who want to construct plants or power facilities on the land of Uzbekistan a condition that obligates them to train and produce more than a certain number of operating personnel. In this way, Uzbekistan can vigorously adopt foreign technologies at the early stage and build capacity of the existing energy experts through additional trainings, with a view to growing the local renewable energy industry.
Lastly, Uzbekistan should actively make use of international funds for capacity building. UNDP, WB, and ADB provided aids to Uzbekistan in the past, and these international organizations have special funds for capacity building in developing countries. There is also Abu Dhabi fund of IRENA (International Renewable Energy Agency), a newly established international organization.
Abu Dhabi fund, the Sovereign Wealth Fund of UAE, can be especially useful for Uzbekistan, because the UAE advertised that it would invest in economic and social development of developing countries if they are chosen to host IRENA.
In any case, the development of these programs should be fully discussed by the local educational institutions.
Recently, it was decided that the Green Climate Fund(GCF) will be hosted by Korea. Although it does not have detailed operation plans yet, as its objective is reducing GHG emission in developing countries, Uzbekistan should pay constant attention to utilizing it for the country’s RE promotion or HRD.
056 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy References
Law on Alternative and Renewable Energy Resources”(Draft), 2011
Ministry of Knowledge Economy, New & Renewable Energy Center, The White Paper of New & Renewable Energy (p.44-56, p104-115), 2012
Ministry of Knowledge Economy, 1st New & Renewable Energy Basic Plan 2008-2030, 2008. 12
Nasirov, alt, UNDP, The Outlook for Development of Renewable Energy in Uzbekistan, 2007
Saidova, alt((Analytical report 2011/03., the Center of economic researches, UNDP), Alternative energy sources: possibilities of use in Uzbekistan, 2011
The Association of Alternative and Renewable Energy Resources, Uzbekenergo SJSC, the Re- newable Energy Master Plan of Uzbekistan, 2011 http://www.motie.go.kr http://www.knrec.or.kr/knrec/15/KNREC150400.asp http://www.law.go.kr/engLsSc.do?menuId=0&subMenu=5&query=renewable#liBgcolor0
Chapter 1 _ Recommendations for the Development of Renewable Energy Sector in Uzbekistan ● 057 Appendix
Act on The Promotion of The Devleopment, Use, and Diffusion of New and Renewable Energy
Article 1 (Purpose)
The purpose of this Act is to contribute to the preservation of the environment, the sound and sus- tainable development of the national economy, and the promotion of national welfare by diversifying energy resources through the promotion of technological development, use, and diffusion of new en- ergy and renewable energy, and the activation of new energy and renewable energy industries, and by promoting the stable supply of energy, environmentally friendly conversion of the energy structure, and to the reduction of greenhouse gas emissions.
Article 2 (Definitions)
The definitions of terms used in this Act shall be as follows: 1. The term “new energy and renewable energy” (hereinafter referred to as “new and renew able energy”) means energy resources converted from existing fossil fuel resources or renewable energy sources, including the sun, water, geothermal heat, precipitation, and bio-organisms falling under the followings: (a) Solar energy; (b) Bio energy converted from biological resources, which falls under the criteria and range prescribed by Presidential Decree; (c) Wind power; (d) Water power; (e) Fuel cells; (f) Energy from liquefied or gasified coal, and from gasified heavy residual oil, which falls within the criteria and scope prescribed by Presidential Decree; (g) Energy from the ocean; (h) Energy from waste treatment, which falls under the criteria and scope prescribed by Presidential Decree; (i) Geothermal energy; (j) Hydrogenous energy; and (k) Sources of energy prescribed by Presidential Decree, other than petroleum, coal, nu clear power, or natural gas 2. The term “new and renewable energy facilities” means the facilities producing or utilizing new and renewable energy, which are prescribed by Ordinance of the Ministry of Trade, Industry and Energy; 3. The term “new and renewable energy power generation” means the generation of electricity by utilizing new and renewable energy; and
058 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy 4. The term “operator of a new and renewable energy power generation business” means a business operator carrying out a new and renewable energy power generation business that is an operator of an electric power generation business under subparagraph 4 of Article 2 of the Electric Business Act, or an installer of electric installations for private use under subparagraph 19 of the same Act.
Article 3 Deleted
Article 4 (Policy and Encouragement, etc.)
(1) The State shall formulate a policy for the promotion of technological development, use, and diffusion of new and renewable energy. (2) The State shall encourage, protect, and foster the voluntary technological development, use, and diffusion of new and renewable energy by local governments, public institutions under Article 2 of the Act on the Management of Public Institutions (hereinafter referred to as “public institutions”), and enterprises, etc.
Article 5 (Establishment of Basic Plan)
(1) The Minister of Trade, Industry and Energy shall formulate a basic plan for the promotion of technological development, use, and diffusion of new and renewable energy (hereinafter referred to as “basic plan”) through deliberation by the New and Renewable Energy Policy Council referred to in Article 8, after consulting with the head of the relevant central admin istrative agency. (2) The basic plan shall be for a period of at least ten years and address the following matters: 1. Purposes and duration of the basic plan; 2. Purposes of the technological development, use, and diffusion of new and renewable energy by energy source; 3. The target ratio of new and renewable energy power generation to total power generation; 4. Reduction target for greenhouse gas emissions under subparagraph 10 of Article 2 of the Energy Act; 5. Implementation method of the basic plan; 6. Assessment of the technological level, the prospects for diffusion, and the expected effects of new and renewable energy; 7. Support schemes for the technological development, use, and diffusion of new and rnewable energy; 8. Plans for training experts in the field of new and renewable energy; and 9. Other matters deemed necessary by the Minister of Trade, Industry and Energy to achieve the purposes of the basic plan. (3) The Minister of Trade, Industry and Energy may modify the basic plan, if deemed necessary
Chapter 1 _ Recommendations for the Development of Renewable Energy Sector in Uzbekistan ● 059 in the light of technological developments in new and renewable energy, changes in the supply and demand conditions of energy, or other circumstances, through deliberation of the New and Renewable Energy Policy Council referred to in Article 8, after consulting with the head of a relevant central administrative agency.
Article 6 (Yearly Implementation Plan)
(1) In order to achieve the objectives specified in the basic plan,The Minister of Trade, Industry and Energy shall devise and execute an implementation plan each year on the technologcal development, use, and diffusion of new and renewable energy and the supply of electricity generated by new and renewable energy power generation for each type of new and renewable energy sources (hereinafter referred to as “implementation plan”). (2) Where the Minister of Trade, Industry and Energy intends to formulate and perform an imple mentation plan, he/she shall consult in advance with the head of a relevant central admin istrative agency. (3) Where the Minister of Trade, Industry and Energy has formulated an implementation plan, he/she shall give public notice thereof.
Article 7 (Prior Consultations on Plans for Technological Development, etc. of New and Renewable Energy)
Where a State agency, local government, public institution, or other entity prescribed by Presidential Decree intends to formulate and implement a plan for the technological development, use and diffusion of new and renewable energy, he/she shall consult in advance with the Minister of Trade, Industry and Energy, as prescribed by Presidential Decree.
Article 8 (New and Renewable Energy Policy Council)
(1) In order to deliberate on important matters concerning the technological development, use, and diffusion of new and renewable energy, the New and Renewable Energy Policy Council (hereinafter referred to as “Council”) shall be established within the Ministry of Trade, Industry and Energy. (2) The Council shall deliberate on the following matters: 1. Matters on the formulation and alteration of the basic plan: Provided, that any alteration in insignificant matters prescribed by Presidential Decree, among the details of the basic plan, shall be excluded; 2. Important matters concerning the technological development, use, and diffusion of new and renewable energy; 3. Matters on the standard price for electricity supplied by new and renewable energy power generation, and its alterations; and
060 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy 4. Other matters deemed necessary by the Minister of Trade, Industry and Energy. (3) The composition and operation of the Council and other necessary matters shall be prescribed by Presidential Decree.
Article 9 (Funding Project for Technological Development, Use, and Diffusion of New and Renewable Energy)
The State shall appropriate in its budget for each fiscal year the project funds needed to perform an implementation plan.
Article 10 (Use of Project Funds)
The Minister of Trade, Industry and Energy shall use the project funds obtained pursuant to Article 9 for projects falling under any of the following subparagraph: 1. Survey of new and renewable energy resources and demand for new and renewable energy technology, and compilation of statistics thereon; 2. Research, development, and technological assessment of new and renewable energy; 3. Certification and subsequent management of structures using new and renewable energy; 4. Support for establishing the responsibility for the supply of new and renewable energy; 5. Performance assessment, certification, and subsequent management of new and renewable energy facilities; 6. Collection, analysis, and provision of technological information on new and renewable energy; 7. Guidance, education, and publicity on new and renewable energy technology; 8. Fostering of a specialized college and a research center for core technology in the field of new and renewable energy; 9. Training of experts in the field of new and renewable energy; 10. Support for companies that specialize in installing new and renewable energy facilities; 11. Pilot and diffusion projects for new and renewable energy; 12. Support for establishing the responsibility for the use of new and renewable energy; 13. International cooperation on new and renewable energy; 14. Support for the international standardization of new and renewable energy technology; 15. Support for the common use of new and renewable energy facilities and components; and 16. Other projects necessary for the technological development, use, and diffusion of new and renewable energy prescribed by Presidential Decree.
Article 11 (Execution of Projects)
(1) Where the Minister of Trade, Industry, and Energy deems it necessary to efficiently carry out
Chapter 1 _ Recommendations for the Development of Renewable Energy Sector in Uzbekistan ● 061 the projects under the subparagraphs of Article 10, he/she may enter into agreements with the following entities, and have such entities undertake such projects: 1. Specific research institutions under the Support of Specific Research Institutes Act; 2. Research institutes under companies under the Technology Development Promotion Act; 3. Industrial technology research cooperatives under the Act on the Support of the Industrial Technology Research Cooperatives; 4. Universities or junior colleges under the Higher Education Act; 5. State or public research institutes; 6. State agencies, local governments, and public institutions; and 7. Other entities recognized by the Minister of Trade, Industry and Energy as competent to perform technological development. (2) The Minister of Trade, Industry and Energy may contribute all or some of the funds required for technological development or projects for use or diffusion executed by an entity falling under any subparagraph of paragraph (1). (3) Matters necessary for the payment, use, management, etc. of the contribution under para graph (2) shall be prescribed by Presidential Decree.
Article 12 (Investment Recommendation in New and Renewable Energy Projects and Establishing Responsibility for Use of New and Renewable Energy)
(1) Where the Minister of Trade, Industry and Energy deems it necessary to promote the techno logical development, use, and diffusion of new and renewable energy, he/she may recom mend an entity engaged in an energy business to operate, invest in, or contribute to the business under any subparagraph of Article 10. (2) Where deemed necessary for promoting the use and diffusion of new and renewable energy and facilitating the new and renewable energy industry with regard to the structures that are newly built, expanded, or remodeled by an entity falling under any of the following sub paragraphs, the Minister of Trade, Industry and Energy may require such entities to install new and renewable energy facilities to use provided energy, using new and renewable en ergy for at least a certain percentage of expected energy usage that is calculated at the time of design, as prescribed by Presidential Decree: 1. State and local governments; 2. Public corporations under Article 5 of the Act on the Management of Public Institutions (hereinafter referred to as “public corporations”); 3. Government-funded institutions to which the State has contributed not less than the amount prescribed by Presidential Decree; 4. Government-invested corporations under subparagraph 6 of Article 2 of the State Properties Act; 5. Corporations to which a local government, or a public corporation, a government funded
062 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy institution or a government-invested corporation under subparagraphs 2 through 4 contributed at a ratio or the amount not less than that prescribed by Presidential Decree; and 6. Corporations established under a special Act. (3) The Minister of Trade, Industry and Energy may recommend that any factory, business place, collective housing complex, etc., which is deemed adequate to use new and renewable energy in consideration of the conditions to use new and renewable energy, use new and renewable energy as designated by him/her or install the appropriate facilities.
Article 12-2 (Certification, etc. of Structures Using New and Renewable Energy)
(1) Any entity that owns a structure not smaller than a certain scale prescribed by Presidential Decree may obtain certification for it as a structure using new and renewable energy (here inafter referred to as “certification of structure”), which means that it uses energy supplied by using new and renewable energy for a certain percentage or more of the total used energy, from an agency designated by the Minister of Trade, Industry and Energy (hereinafter referred to as “agency for certification of structure”). (2) Any entity that intends to obtain certification of structure under paragraph (1) shall file an application with the agency for certification of structure. (3) The Minister of Trade, Industry and Energy may designate an qualified entity to grant certi fication of structure, from among the new and renewable energy centers under Article 31 and other entities that engage in business for technological development, use, and diffusion of new and renewable energy, as an agency for certification of structure. (4) Upon receipt of an application for certification under paragraph (2), the agency for certification of structure shall examine it pursuant to the criteria for certification examination prescribed by Joint Ordinance of the Ministry of Trade, Industry and Energy and the Ministry of Land, Transport and Maritime Affairs, and thereafter, grant certification to the structure if it satisfies the applicable criteria. (5) The Minister of Trade, Industry and Energy may provide preferential treatment to entities with certification of structure in pursuing diffusion projects under Article 27 (1). (6) The scope of duties, certification procedures, follow-up management of certification of structure of the agency for certification of structure, designation procedures for certification of structure, follow-up management of certification of structure, and other matters necessary for certification of structure shall be prescribed by Joint Ordinance of the Ministry of Trade, Industry and Energy and the Ministry of Land, Transport, and Maritime Affairs.
Article 12-3 (Indication, etc. of Certification of Structure)
(1) Any entity that has obtained certification of structure under Article 12-2 may either display the certificate on the certified structure or give public notice of the certification.
Chapter 1 _ Recommendations for the Development of Renewable Energy Sector in Uzbekistan ● 063 (2) No entity that has failed to obtain certification of structure shall display or indicate certification of structure under paragraph (1) or make any indication similar thereto, or give any public notice for the effect of having received such certification.
Article 12-4 (Revocation of Certification of Structure)
When any entity has obtained certification of structure falling under any of the following subpara- graphs, the agency for certification of structure shall revoke such certification: Provided that the certi- fication shall be revoked when falling under subparagraph 1: 1. When the entity has obtained the certification by falsification or other illegal means; 2. When the entity returns the certification to the agency for certification of structure; 3. When approval of use of the structure with the certification is revoked; and 4. When the structure with the certification is found not to fulfill the criteria for certification examination under Article 12-2 (4).
Article 12-5 (Establishing Responsibility for Supply of New and Renew- able Energy, etc.)
(1) Where the Minister of Trade, Industry and Energy deems it necessary to promote use and diffusion of new and renewable energy and facilitate the new and renewable energy indus try, he/she may require an entity prescribed by Presidential Decree from among those falling under any of the following subparagraphs (hereinafter referred to as “responsible entity for supply”) to supply a certain or larger amount of power generation with new and renewable energy: 1. An operator of an electric power generation business under Article 2 of the Electric Business Act; 2. An entity deemed to have acquired a license to run an electric power generation business under Article 7 (1) of the Electricity Business Act in accordance with Articles 9 and 48 of the Integrated Energy Supply Act; and 3. Public institutions; (2) The total quantity of power that a responsible entity for supply should mandatorily supply by new and renewable energy under paragraph (1) (hereinafter referred to as “mandatory supply quantity”) shall be annually prescribed by Presidential Decree within 10% of the quantity of total power generation. With regard to the kinds of new and renewable energy that require balanced use and diffusion, part of the total mandatory supply quantity may be supplied using the appropriate kind of new and renewable energy, as prescribed by Presidential Decree. (3) The mandatory supply quantity of a responsible entity for supply shall be prescribed and publicly announced by the Minister of Trade, Industry and Energy for each responsible entity after hearing the opinions of the responsible entities. The Minister of Trade, Industry and
064 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy Energy shall consider the total amount of power generation of responsible entities, sources of power generation, etc. (4) Responsible entities for supply may defer their responsibility to supply in the following year as part of their mandatory supply quantity, as prescribed by Presidential Decree. The manda tory supply quantity deferred shall be supplied first during the following year. (5) Responsible entities for supply may meet the mandatory supply quantity by purchasing supply certification of new and renewable energy under Article 12-7. (6) To confirm implementation of the responsibility to supply under paragraph (1), the Minister of Trade, Industry and Energy may require the responsible entity for supply to provide nec essary data as prescribed by Presidential Decree or to present supply certification of new and renewable energy, which is purchased and used to satisfy the mandatory supply quan tity under Article 5 or is issued under Article 12-7 (1).
Article 12-6 (Penalty for Failure to Supply New and Renewable Energy)
(1) Where a responsible entity for fails to fully supply the mandatory supply quantity with new and renewable energy, the Minister of Trade, Industry and Energy may impose a penalty up to the amount calculated by multiplying the appropriate year’s average transaction price of supply certification of new and renewable energy under Article 12-7 by 150/100, for the shortage, as prescribed by Presidential Decree. (2) A responsible entity for supply that has paid a penalty under paragraph (1) shall be regarded as having supplied the mandatory supply quantity of the period for which the penalty was imposed. (3) If an entity levied with a penalty under paragraph (1) fails to pay it on or before the deadline of the payment, the Minister of Trade, Industry and Energy shall collect it in accordance with the precedents for dispositions on default of national taxes. (4) Any penalty collected under paragraphs (1) and (3) shall be reverted to the financial resources of the Electrical Industry Foundation Fund under the Electricity Business Act.
Article 12-7 (Supply Certification of New and Renewable Energy)
(1) Any entity that supplies energy using new and renewable energy (hereinafter referred to as “supplier of new and renewable energy”) may obtain certification for such supply (including certification in an electronic format; hereinafter referred as “supply certification”) from an agency designated by the Minister of Trade, Industry and Energy for certification of energy supply using new and renewable energy, etc. (hereinafter referred to as “supply certification agency”): Provided, that where State assistance prescribed by Presidential Decree is delivered as subsidy for price differences under Article 17 or assistance for new and renewable energy facilities, issuance of supply certification may be restricted as prescribed by Presidential Decree. (2) Any entity that intends to obtain supply certification shall file an application with the supply
Chapter 1 _ Recommendations for the Development of Renewable Energy Sector in Uzbekistan ● 065 certification agency, as prescribed by Presidential Decree. (3) Upon receipt of an application under paragraph (2), the supply certification agency shall check the supply quantity of each source of new and renewable energy, supply period, etc. and issue supply certification including the details of each of the following subparagraphs. With regard to the types of new and renewable energy that requires balanced use and diffu sion, promotion of technical development, etc., supply certification may be issued with a supply quantity that is the actual supply quantity multiplied by a weight, as prescribed by Presidential Decree: 1. Supplier of new and renewable energy; 2. Supply quantity and period of each source of new and renewable energy; and 3. Effective period. (4) The effective period of supply certification shall be three years from its issuance date, but supply certification purchased by a responsible entity for supply in order to satisfy the mandatory supply quantity or supply certification received and presented by such entity to the Minister of Trade, Industry and Energy pursuant to Article 12-5 (5) and (6) shall lose effect. In such cases, expired or ineffective supply certification shall be discarded. (5) For an entity that has received supply certification for trade, it shall do so in a trade market established by a supply certification agency as prescribed by the provisions on the issuance of supply certification and operation of a trade market under Article 12-9 (2) (hereinafter referred to as “trade market”). (6) When supply certification falls under any of the grounds prescribed by Ordinance of the Ministry of Trade, Industry and Energy such as supply certification issued for supplying energy by using larger than a certain scale of water power, the Minister of Trade, Industry and Energy may prevent such supply certification from being traded in consideration of fairness with other types of new and renewable energy.
Article 12-8 (Designation of Supply Certification Agency, etc.)
(1) The Minister of Trade, Industry and Energy shall designate as the supply certification agency, an entity falling under any of the following subparagraphs to handle supply certification tasks in a professional and efficient manner and ensure fair transactions of supply certifica-tions: 1. The new and renewable energy center under Article 31; 2. Korea Power Exchange under Article 35 of the Electricity Business Act; and 3. Any entity that satisfies the criteria prescribed by Presidential Decree including those for human resources, technical capacity, facilities, equipment, etc. required in handling the tasks of the supply certification agency under Article 12-9. (2) Any entity that intends to be designated as a supply certification agency pursuant to para-graph (1) shall file an application to the Minister of Trade, Industry and Energy. (3) The methods and procedures of designation of a supply certification agency and other matters necessary for such designation shall be prescribed by Ordinance of the Ministry of Trade,
066 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy Industry and Energy.
Article 12-9 (Tasks of Supply Certification Agency, etc.)
(1) The supply certification agency designated pursuant to Article 12-8 shall carry out the tasks under each of the following subparagraphs: 1. Issuance, registration, management, and disposal of supply certification; 2. Establishment of a trade market; 3. Providing information on supply certification; and 4. Other tasks related to issuance and trade of supply certification. (2) Before going into operation, the supply certification agency shall draft a rule on issuance of supply certification and operation of a trade market (hereinafter referred to as “operation rule”) and have it approved by the Minister of Trade, Industry and Energy as prescribed by Ordinance of the Ministry of Trade, Industry and Energy. The same shall apply to the amend ment or repeal of the operation rule (excluding any alteration to trivial matters prescribed by Ordinance of the Ministry of Trade, Industry and Energy). (3) The Minister of Trade, Industry and Energy may order the supply certification agency to report on the plan and results of the tasks under paragraph (1) or request for the submission of data. (4) The Minister of Trade, Industry and Energy may order the public certification agency falling under any of the following subparagraphs to take a corrective measure by a specific deadline: 1. Where it fails to observe an operation rule; 2. Where it fails to make a report under Paragraph (3) or makes a false report; and 3. Where it fails to comply with a request for submission of data under paragraph (3) or submits false data.
Article 12-10 (Revocation of Designation as Supply Certification Agen- cy, etc.)
(1) The Minister of Trade, Industry and Energy shall revoke the designation of the supply certi fication agency if it falls under any of the following subparagraphs or order it to suspend all or some of its business for a period of up to one year as prescribed by Ordinance of the Ministry of Trade, Industry and Energy: Provided, that if it falls under subparagraph 1 or 2, the designation shall be revoked: 1. Where the designation was obtained by false or other fraudulent means; 2. Where the agency continues to carry out business during a business suspension; 3. Where the agency no longer satisfies the designation criteria under Article 12-8 (1) 3; and 4. Where the agency fails to execute a correction order under Article 12-9 (4) by the deadline. (2) If the supply certification agency falls under paragraph (1) 3 or 4 and is subject to business suspension and such suspension is likely to cause serious inconvenience to its users, etc. or harm the public interest, the Minister of Trade, Industry and Energy may charge a penalty
Chapter 1 _ Recommendations for the Development of Renewable Energy Sector in Uzbekistan ● 067 a
not exceeding 50 million won instead of ordering a business suspension. (3) The amount of penalty to be imposed depending upon the types and severity of offences subject to penalties under paragraph (2), and other necessary matters shall be prescribed by Presidential Decree. (4) If an entity charged with a penalty under paragraph (2) fails to pay such penalty on or before the deadline of payment, the Minister of Trade, Industry and Energy shall collect it in accordance with the precedents for the disposition on default of national taxes.
Article 13 (Certification, etc. of New and Renewable Energy Facilities)
(1) Any entity that intends to manufacture or import and sell new and renewable energy facilities may obtain certification for such new and renewable energy facilities (hereinafter referred to as “certification of facilities”) from an agency designated by the Minister of Trade, Industry and Energy for certification of new and renewable energy facilities (hereinafter referred to as “agency for certification of facilities”). (2) Any entity that intends to obtain certification for new and renewable energy facilities under paragraph (1) shall file an application to the agency for certification of facilities. (3) When an entity applies for certification of facilities under paragraph (2), it shall undergo a performance evaluation by the performance evaluation agency designated by the Minister of Trade, Industry and Energy pursuant to the designation criteria prescribed by Presidential Decree (hereinafter referred to as “performance evaluation agency”), and submit to the agency for certification of facilities the written performance evaluation outcomes issued by the performance evaluation agency. (4) The Minister of Trade, Industry and Energy shall designate, as an agency for certification of facilities, the new and renewable energy center under Article 31 or an entity that is deemed qualified to grant certification from among entities engaged in facilitating technical develop ment, use, and diffusion of new and renewable energy. (5) Upon receipt of an application for certification of facilities under paragraph (2), the agency for certification of facilities shall examine it pursuant to the criteria for certification examination prescribed by Ordinance of the Ministry of Trade, Industry and Energy, based upon the written performance evaluation outcomes issued by the performance evaluation agency, and thereafter, shall grant certification to the new and renewable energy facilities that satisfy the applicable criteria. (6) The scope of duties of the agency for certification of facilities, certification procedures, subsequent management of certification of facilities, the designation procedures for the performance evaluation agency, and other matters necessary for certification of facilities shall be prescribed by Ordinance of the Ministry of Trade, Industry and Energy. (7) The Minister of Trade, Industry and Energy may subsidize some of the expenses incurred in the performance evaluation under paragraph (3) or provide the agency for certification of facilities designated under paragraph (4) with administrative support, etc. within the scope
068 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy necessary to achieve the purpose of designation, as prescribed by Ordinance of the Ministry of Trade, Industry and Energy.
Article 14 (Indication, etc. of Certification of New and Renewable Energy Facilities)
(1) Any entity that has obtained certification of facilities under Article 13 may either display this certification on the relevant new and renewable energy facilities or give public notice of receipt of the certification. (2) No entity that has failed to obtain certification of facilities shall display or indicate certification of facilities under paragraph (1) or make any indication similar thereto, or give any public notice that has the effect of having obtained such certification.
Article 15 (Revocation of Certification of Facilities and Revocation of Designation of Performance Evaluation Agency)
(1) When any entity has obtained certification of facilities by falsification or other fraudulent means, the agency for certification of facilities shall revoke such certification, and if it discovers that any new and renewable energy facilities that have been manufactured or imported and sold after obtaining certification fail to satisfy the certification examination criteria under Article 13 (5), it may revoke such certification. (2) When the performance evaluation agency falls under any of the following subparagraphs, the Minister of Trade, Industry and Energy shall either revoke such designation as prescribed by Presidential Decree or issue an order to suspend all or some of business for a period of up to one year: Provided, that in cases of falling under subparagraph 1, he/she shall revoke such designation: 1. When it obtained the designation by fraud or other illegal means; 2. When it has failed to commence the performance evaluation business within one year from the date of obtaining the designation without any justifiable grounds, or suspended the performance evaluation business for not less than one consecutive year; and 3. When it no longer satisfies the designation criteria under Article 13 (3).
Article 16 (Fees)
(1) The agency for certification of structure, the agency for certification of facilities, or the per formance evaluation agency may charge a fee to any entity that applies for certification of structure, certification of facilities, or performance evaluation, as prescribed by Ordinance of the Ministry of Trade, Industry and Energy. (2) The supply certification agency may charge a fee to any entity that applies for issuance of
Chapter 1 _ Recommendations for the Development of Renewable Energy Sector in Uzbekistan ● 069 supply certification or trades supply certification as prescribed by Ordinance of the Ministry of Trade, Industry and Energy.
Article 17 (Public Notification of Standard Price for New and Renewable Energy Power Generation and Subsidization of Differences)
(1) When prescribing the standard price of electricity supplied by new and renewable energy power generation by source for electricity generation, the Minister of Trade, Industry and Energy shall notify the public of such. The calculation criteria for the standard price shall be prescribed by Presidential Decree. (2) Where the power trade price of electricity supplied by new and renewable energy power generation (referring to the transaction price of electricity under Article 33 of the Electric Business Act) is lower than the standard price that the public was notified of under para graph (1), the Minister of Trade, Industry and Energy shall give preferential subsidies from the Electrical Industry Foundation Fund under Article 48 of the Electric Business Act for the dif ference between the standard price and the power trade price (hereinafter referred to as “power generation price difference”) to an operator of a new and renewable energy power generation business that has supplied the electricity. (3) When notifying the public of the standard price in accordance with paragraph (1), the Minister of Trade, Industry and Energy may make public notice of the period of subsidization for the power generation price difference. (4) The Minister of Trade, Industry and Energy may request an operator of a new and renewable energy power generation business that is subsidized for the power generation price difference to submit data necessary to establish the standard price, such as financial statements.
Article 18 (Suspension of Subsidies, etc.)
(1) Where an operator of a new and renewable energy power generation business that is subsidized for the power generation price difference falls under any of the following subparagraphs, the Minister of Trade, Industry and Energy may issue a warning or corrective order as prescribed by Ordinance of the Ministry of Trade, Industry and Energy, and suspend the subsidies for an entity that fails to comply therewith: 1. When it has obtained subsidy for the power generation price difference by fraud or other illegal means; and 2. When it has failed to comply with a request for the submission of data pursuant to Article 17 (4) or has submitted false data. (2) Where an operator of a new and renewable energy power generation business that is subsidized for the power generation price difference falls under paragraph (1) 1, the Minister of Trade, Industry and Energy may recover subsidies as prescribed by Ordinance of the Ministry of Trade, Industry and Energy. In such cases, if an entity subject to repayment of the power
070 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy generation price difference fails to repay it within 30 days, the Minister of Trade, Industry and Energy may collect it in accordance with the precedents for dispositions on default of national taxes.
Article 19 (Application for Ruling)
An operator of a new and renewable energy power generation business may apply for a ruling to the Electrical Affairs Commission under Article 53 of the Electric Business Act where it fails to reach an agreement with an operator of an electric transmission business under subparagraph 6 of Article 2 of the same Act or an operator of an electric distribution business under subparagraph 8 of the same Article of the same Act or where it finds it difficult to reach an agreement with an operator in supplying electricity generated by new and renewable energy power generation through the facili- ties for transmission or distribution to the Korea Power Exchange under Article 35 of the same Act or electricity users.
Article 20 (Support for International Standardization of New and Renew able Energy Technology)
(1) The Minister of Trade, Industry and Energy may extend necessary support for laying the foundation for standardization, international activities or such to the agency for certification of facilities so that new and renewable energy technologies already developed or still being developed domestically may conform to the international standards under subparagraph 2 of Article 3 of the Framework Act on National Standards. (2) Necessary matters regarding the scope of support, etc. under paragraph (1) shall be prescribed by Presidential Decree.
Article 21 (Common Use of New and Renewable Energy Facilities and Components)
(1) The Minister of Trade, Industry and Energy may designate and operate new and renewable energy facilities and components as common items in order to improve their compatibility as determined and announced by the Minister of Trade, Industry and Energy. (2) An entity that falls under any of the following subparagraphs may request the Minister of Trade, Industry and Energy to designate some items that need to be put to common use, from among new and renewable energy facilities and components, as common items: 1. The new and renewable energy center under Article 31; and 2. Other institutions or organizations designated by Ordinance of the Ministry of Trade, Industry and Energy. (3) The Minister of Trade, Industry and Energy may provide necessary support to efficiently put new and renewable energy facilities and components to common use.
Chapter 1 _ Recommendations for the Development of Renewable Energy Sector in Uzbekistan ● 071 (4) Necessary matters regarding the designation and operation of new and renewable energy facilities and components as common items, request for designation, criteria for support, etc. under paragraphs (1) through (3) shall be set forth by Presidential Decree.
Article 22 (Reporting of Companies Specialized in Installing New and Renewable Energy Facilities, etc.)
(1) An entity that intends to specialize in installing new and renewable energy facilities (hereinafter referred to as “specialized enterprise of new and renewable energy facilities”) shall make a report to the Minister of Trade, Industry and Energy regarding capital, technology personnel, etc. pursuant to the reporting criteria and procedures prescribed by Presidential Decree. (2) When a specialized enterprise of new and renewable energy facilities makes a report to the Minister of Trade, Industry and Energy shall under paragraph (1), he/she shall immediately issue a report certificate as prescribed by Ordinance of the Ministry of Trade, Industry and Energy. (3) When the Minister of Trade, Industry and Energy deems it necessary for the diffusion project under Article 27, he/she may extend support to a specialized enterprise of new and renewable energy facilities, in such ways as subsidizing some of the expenses incurred in the installation and maintenance of new and renewable energy facilities, as prescribed by Presidential Decree.
Article 23 Deleted
Article 24 (Hearings)
In order to impose a disposition under any of the following subparagraphs, the Minister of Trade, In- dustry and Energy shall hold a hearing: 1. Revocation of designation of a supply certification agency under Article 12-10 (1); and 2. Revocation of designation of a performance evaluation agency under Article 15 (2).
Article 25 (Compilation of Related Statistics, etc.)
(1) The Minister of Trade, Industry and Energy may research, compile, analyze, and manage statistics regarding the supply and demand of new and renewable energy at home and abroad, necessary for efficient formulation and implementation of the policies related to new and renewable energy including the basic plan under Article 5 and the implementation plan under Article 6, and may request the entities under Article 11 (1) or producers, installers, and users of the new and renewable energy facilities for data and information necessary therefor. (2) The Minister of Trade, Industry and Energy may designate a specialized institution to, fully or partially, perform research, compilation, analysis, and management of statistics under
072 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy paragraph (1) as prescribed by Ordinance of the Ministry of Trade, Industry and Energy.
Article 26 (Lease, etc. of State or Public Properties)
(1) Where deemed necessary for projects for the technological development, use, and diffusion of new and renewable energy, the State or a local government may enter into a lease contract on or give permission to use (hereinafter referred to as “lease”) in the form of a private contract, or dispose of a State or public property to entities conducting projects for the technological development, use, and diffusion of new and renewable energy, notwithstanding the provisions of the State Properties Act or the Public Property and Commodity Management Act. (2) Where the State or a local government leases out a State or public property pursuant to paragraph (1), it may allow construction of a permanent facility with a condition of voluntary demolition and deposit of demolition expenses, notwithstanding the provisions of the State Properties Act or the Public Property and Commodity Management Act: Provided, that for construction of a permanent facility on a public property, agreement shall be acquired by a local assembly pursuant to the procedures prescribed by Municipal Ordinance. (3) The term of lease of a State or public property under paragraph (1) shall not exceed ten years. That of a State property may be renewed for a term not exceeding the term of the previous lease, and that of a public property may be extended once for not exceeding ten years when deemed necessary by the head of a local government. (4) When an entity that has purchased or leased a State or public property under paragraph (1) fails to carry out a project for technological development, use, and diffusion of new and renewable energy on the property within two years from the date of such purchase or lease, the lease contract or permission to use may be revoked or the property may be repurchased.
Article 27 (Diffusion Project)
(1) Where the Minister of Trade, Industry and Energy deems it necessary for promoting the use and diffusion of new and renewable energy, he/she may execute each of the following diffusion projects as prescribed by Presidential Decree: 1. Application projects and pilot projects of new technology; 2. Projects to form environmentally-friendly new and renewable energy clusters and pilot complexes; 3. Diffusion projects carried out in collaboration with local governments; 4. Projects supporting the diffusion of new and renewable energy facilities put to practical use; and 5. Other projects necessary for the promotion of use and diffusion of new and renewable energy technologies determined by the Minister of Trade, Industry and Energy. (2) The Minister of Trade, Industry and Energy may give priority to the implementation of dif fusion projects under paragraph (1) where certification of facilities is obtained for developed
Chapter 1 _ Recommendations for the Development of Renewable Energy Sector in Uzbekistan ● 073 new and renewable energy facilities, new and renewable energy technology is internationally standardized, or new and renewable energy facilities and components are put to common use. (3) The head of a relevant central administrative agency may provide cooperation necessary for improving the environment and promoting the diffusion of new and renewable energy.
Article 28 (Commercialization of New and Renewable Energy Technology)
(1) The Minister of Trade, Industry and Energy may provide the following support, when deemed necessary for promoting the commercialization of technology developed independently or through the subsidization of projects under Article 10: 1. Lending of funds required for producing prototypes and investment in facilities; 2. Gratuitous concession of industrial property rights acquired by the State through de velopment projects for new and renewable energy technology; 3. Education and publicity of developed new and renewable energy technology; and 4. Other supporting projects deemed necessary for commercialization of developed new and renewable energy technology, determined by the Minister of Trade, Industry and Energy. (2) The subjects, scope, conditions, and procedures for support under paragraph (1) or other necessary matters shall be prescribed by Ordinance of the Ministry of Trade, Industry and Energy.
Article 29 (Financial Measures, etc.)
The State shall take necessary measures, such as providing financial or tax support, where it is neces- sary, to an entity that is recommended pursuant to Article 12 or that must comply with duties, an entity engaged in the technological development, use, and diffusion of new and renewable energy, or an entity that has obtained certification of facilities under Article 13.
Article 30 (Education and Publicity on New and Renewable Energy, and Fostering of Experts)
(1) The State shall endeavor to seek understanding and cooperation from the public with regard to the technological development, use, and diffusion of new and renewable energy, through education and publicity. (2) The Minister of Trade, Industry and Energy may designate, foster and support a specialized college and a research center for core technology in the field of new and renewable energy for the purpose of nurturing experts in the field of new and renewable energy.
074 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy Article 31 (New and Renewable Energy Center)
(1) The Minister of Trade, Industry and Energy may establish a new and renewable energy center (hereinafter referred to as “Center”) under an energy agency prescribed by Presidential Decree, in order to professionally and efficiently promote the use and diffusion of new and renewable energy, and may have the Center perform the following projects: 1. Support and management of entities that execute projects to technically develop, use and diffuse new and renewable energy under Article 11 (1); 2. Support and management of certification of structure under Article 12-2; 3. Support and management of the tasks of the supply certification agency under Article 12-9; 4. Support and management of certification of facilities under Article 13; 5. Technological support for new and renewable energy facilities already diffused; 6. Support and management of the international standardization of new and renewable energy technology under Article 20; 7. Support and management of the common use of new and renewable energy facilities and components under Article 21; 8. Support and management of a specialized enterprise of new and renewable energy facilities under Article 22; 9. Management of statistics under Article 25; 10. Support and management of the diffusion project for new and renewable energy under Article 27; 11. Support and management of the commercialization of new and renewable energy technology under Article 28; 12. Support and management of education, publicity, and nurturing of experts under Article 30(1); 13. Projects for domestic and overseas investigation, research and international cooperation for new and renewable energy; 14. Projects incidental to those under subparagraphs 1 through 6; and 15. Other projects required for the promotion of use and diffusion of new and renewable energy, which are entrusted by the Minister of Trade, Industry and Energy. (2) When the Center executes projects under paragraph (1), the Minister of Trade, Industry and Energy may provide fund contributions and other necessary support thereto. (3) Matters necessary for the organization, staffing, budget, and operation of the Center shall be prescribed by Ordinance of the Ministry of Trade, Industry and Energy.
Article 32 (Delegation and Entrustment of Authority)
(1) Part of the authority of the Minister of Trade, Industry and Energy under this Act may be delegated to the head of any institution under his/her control, the Special Metropolitan City Mayor, Metropolitan City Mayors, or Do (province) Governors (hereinafter referred to as
Chapter 1 _ Recommendations for the Development of Renewable Energy Sector in Uzbekistan ● 075 “Mayor/Do Governor”), as prescribed by Presidential Decree. (2) Some of the duties of the Minister of Trade, Industry and Energy or Mayor/Do Governor under this Act may be entrusted to the Center or the Korea Institute of Energy Technology Evaluation and Planning under Article 13 of the Energy Act as prescribed by Presidential Decree.
Article 33 (Legal Fiction as Public Official in Applying Penal Provisions)
Any person falling under any of the following subparagraphs shall be deemed a public official in apply- ing Articles 129 through 132 of the Criminal Act. 1. Any officer or employee of an agency for certification of structure engaged in the duties of certification of structure; 2. Any officer or employee of a supply certification agency engaged in the duties of issuing and trading supply certification; 3. Any officer or employee of an agency for certification of facilities engaged in the duties of certification of facilities; and 4. Any officer or employee of a performance evaluation agency engaged in performance evaluation.
Article 34 (Penal Provisions)
(1) Any person who obtains subsidy for the power generation price difference under Article 17 by fraud or other illegal means, or who knowingly provides it in spite of his/her knowledge of such fact shall be punished by imprisonment for a term not exceeding three years or a fine not exceeding three times the subsidized amount. (2) A person who obtained supply certification by fraud or other illegal means, or who knowingly issued it in spite of his/her knowledge of such fact shall be punished by imprisonment for a term not exceeding three years or a fine not exceeding 30 million won. (3) A person who traded supply certification in a place other than a trade market established by a supply certification agency in violation of Article 12-7 (5) shall be punished by imprisonment for a term not exceeding two years or a fine not exceeding 20 million won. (4) If a representative of a corporation, or an agent, employee or any other employed person of a corporation or an individual commits any violation under paragraphs (1) through (3) in connection with the affairs of the corporation or the individual, not only shall such offender be punished accordingly, but the corporation or the individual shall be punished by a fine under the corresponding Articles: Provided, that the same shall not apply to cases where the corporation or the individual has exercised due care or diligently supervised the business in order to prevent such violation.
Article 35 (Fines for Negligence)
076 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy (1) Any person falling under any of the following subparagraphs shall be imposed a fine for negligence not exceeding ten million won: 1. A person who has obtained certification of facilities by fraud or other illegal means; 2. A person who has indicated certification of structure or anything similar thereto or has given any public notice that has the effect that he/she obtained certification, without obtaining any certification from the certification agency; and 3. A person who has indicated certification of facilities or anything similar thereto or has given any public notice that has the effect that he/she obtained certification, without obtaining any certification from the certification agency. (2) Fines for negligence under paragraph (1) shall be imposed and collected by the Minister of Trade, Industry and Energy as prescribed by Presidential Decree.
Addenda
Article 1 (Enforcement Date) This Act shall enter into force on the date of its promulgation: Provided, that the amended provisions of Articles 5 (2) and 32 (2) shall enter into force on April 14, 2010; the amended provisions of Articles 22 and 23 shall enter into force three months after the date of its promulgation; the amended provisions of subparagraph 3 of Article 10, parts other than each subparagraph of Article 12 (2), Articles 12-2 through 12-4, 13, 15 (1), 16 (1), 20 (1), 31 (1) 2, and subparagraphs 1, 3, and 4 of Article 33 shall enter into force one year after the date of its promulgation; and the amended provisions of subparagraph 4 of Article 10, Articles 12-5 through 12-10, 16 (2), subparagraph 1 of Article 24, Article 31 (1) 3, subparagraph 2 of Article 33, and Article 34 (2) and (3), and Article 5 of the Addenda shall enter into force on January 1, 2012. Article 2 (Effective Period concerning Subsidization of Difference) (1) The provisions of Article 17 shall apply until December 31, 2011. (2) An operator of a new and renewable energy power generation business who is subsidized for the power generation price difference under the superseded Article 17 at the time when the effect of para- graph (1) expires shall continue to be subsidized for such in accordance with the previous provisions during the subsidization period announced under paragraph (3) of the same Article. Article 3 (Applicability) The amended provisions in the parts other than each subparagraph of Article 12 (2) shall apply, starting with the first structure that is newly built, expanded, or remodeled with approval for the project plan or permission for construction after the amended provisions in the parts other than each subparagraph of Article 12 (2) enter into force pursuant to the proviso to Article 1 of the Addenda. Any entity registered as a specialized enterprise of new and renewable Article 4 (Transitional Measures concerning Specialized Enterprise of New and Renewable Energy) Any entity registered as specialized enterprise of new and renewable energy under the previous Article 22 (1) and (2) when the amended provisions of Article 22 enter into force pursuant to the proviso to Article 1 of the Addenda shall be regarded as any entity that completed the report of a specialized enterprise of new and renewable energy facilities pursuant to the amended provisions of Article 22 (1) and (2).
Chapter 1 _ Recommendations for the Development of Renewable Energy Sector in Uzbekistan ● 077
Policy Consultation on Uzbekistan’s Industry Innovation Strategy Chapter 2
Strategies for Improving Energy Efficiency in Uzbekistan
1. The Importance of Improving National Energy Efficiency 2. The Energy Sector Governance in Uzbekistan 3. National Planning for Energy Efficiency Improvement 4. Establishing a Specialized Institution for the Implementation of Energy Efficient Policies 5. Securing Funding for Energy Efficiency Improvement 6. Energy Efficiency Improvement in Buildings 7. Introduction of Labeling Scheme Chapter 02
Strategies for Improving Energy Efficiency in Uzbekistan
Hoicheol Kim (Korea Energy Management Corporation) Youngjae Jeon (Korea Energy Management Corporation) Elvira Bikeyeva (IFMR) Zulfiya Asfandiyarova (IFMR) Djamshid Abdusalomov (Uzbekenergo)
Summary
Uzbekistan’s GDP Per Capita has been increasing rapidly since 2007 by more than 8%. Uzbekistan produces and exports natural gas, and is the second largest electricity producing country in Central Asia. At the same time, it is the most energy consuming country in Central Asia. It s, CO2 emission is twice larger than Russia, more than three times larger than the average of the countries in East Europe and Central Asia. Energy resources are actively exploited but the decrepit energy infrastructure causes huge losses, resulting in high level energy intensity, 10~20% level of major developed countries', which is quite high for a Central Asian country.
In Uzbekistan, several suppliers of each energy source and related government ministries are sharing the responsibilities of energy efficiency improvement, but there is no separate organization directly involved, and the institutional and legal framework for energy efficiency is relatively weak. In order to achieve energy efficiency, it is necessary that the policies influencing technology development, market mechanism, government policies and numerous energy users from large companies to individual households should be all harmonized. In addition, they need to establish a total governance for energy efficiency covering the various stakeholders including: (a) the implementing agency that supports the government in designing the national energy efficiency improvement plans and executes the programs, systems and legal framework; (b) energy producing/consuming enterprises; (c) energy equipment manufacturers. To this end, there are several measures Uzbekistan can take:
080 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy First, the country needs a comprehensive national plan that consolidates the energy efficiency goals at the national level and policies for accomplishing them, such as European Energy Efficiency Action Plan (EEAP) and Korea’s Energy Use Rationalization Basic Plan. In the process of establishing, implementing and evaluating national plans, the country would be able to establish laws, systems and policies or secure budget for energy efficiency, which are expected to empower the government to consistently promote their medium-and long-term plan. Moreover, the government’s role is especially important in the case of Uzbekistan where private sector market is relatively not vitalized.
Second, a special institution to support the government in establishing energy efficiency policies and to actually implement the policies is needed as an important pillar of the energy efficiency governance. Most countries have special institutions under government ministries for energy efficiency, such as DENA (German), ADEME (France), DEA (Spain), and KEMCO (Korea). These agencies are responsible for supporting R&D, enforcing regulations, providing incentives and subsidies, promotion and education on energy, and international cooperation, etc. They can be a mediator among the various stakeholders the government, energy producers and consumers, energy equipment manufacturers and importers, and general consumers.
Third, with Uzbekistan’s abundant energy resources, the government can raise a significant amount of fund by charging a certain percentage of money on electricity bills just as Korea is doing. The expected results of this are; that the energy price will rise and the people will be motivated to save energy and improve efficiency; Infrastructure building and industry promotion projects developed by the state government will be able to attract more investment; the raised funds can be best used in R&D, test/verification infrastructure, human resources training, and loans for facilities manufacturing high efficiency products. If supported enough to create a virtuous cycle between R&D and supply of new products, they will be able to consolidate the foundation for energy efficiency improvement in a short period of time.
Fourth, considering the economic structure of Uzbekistan, the energy efficiency improvement should be focused on the building sector. The overall energy consumption in the building sector is determined by climate and the insulation of a building, so new buildings should be built to satisfy at least a certain level of insulation from the construction stages. For this, the government needs to establish energy-saving design criteria based on the building code and other related laws so that only new buildings fulfilling the criteria can obtain permission for construction. In addition, they should manage energy efficiency in the building sector by phasing in measures like energy saving obligations for public organizations and/or building certification system, which are anticipated that energy saving efforts started from public sector can be extended to private sector.
Lastly, in Uzbekistan’s energy consumption structure, the building sector consumes nearly 50% of the total energy , followed by agricultural sector consuming 30% of energy. Besides, gas accounts for 85% of the energy source used in Uzbekistan. Therefore, labeling scheme or high
Chapter 2 _ Strategies for Improving Energy Efficiency in Uzbekistan ● 081 efficiency appliance certification program needs be introduced for household gas boilers or motors in agricultural pumps first, and establishment of official standards and test infrastructures for major product groups should be accompanied.
1. The Importance of Improving National Energy Efficiency
Energy demand-side management (DSM) by energy saving or energy efficiency improvement is now emphasized globally as the most cost-effective way for low carbon and green growth. It also carries significance for energy security as well as for greenhouse gas reduction.
Primary CO₂ Reduction Options by 2030
Gt 42 Reference Senario World abatement by technology 40 2020 2030 38 3.8Gt 13.8Gt OECDOECD++ 36
IEA (2009) puts emphasis on energy efficiency improvement as the primary measure for reducing greenhouse gas emission, expecting that approximately 57% of total greenhouse gas reduction can be achieved through energy saving and energy efficiency improvement (Figure 2-1).
For the same reason, the major consuming nations have set up key energy strategies to tackle climate change and high oil price and to enhance the energy security, establishing and implementing numerous comprehensive measures (Table 2-1). Korea also has a goal of improving energy efficiency by 46% compared to BAU (Business As Usual) by 2030, under its 1st National Energy Master Plan established in 2008.
However, in order to ⒜ improve national energy efficiency, ⒝ to address climate change,
082 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy
EE Roadmap of Major Consuming Countries
Country Academic background
Strategic Energy Plan of Japan (‘10) JAPAN -Enhancing EE in the industrial sector at the highest level in the world.
National Action Plan for EE (‘08) USA -Promobing sufficient, timely, and stable program funding for EE -Accomplishing goals by capturing cost-effective efficiency by 2025
12th Five-Year Plan (‘11) CHINA -Strengthening industrial energy saving and advancing it in construction industry
New energy policy (‘07.1) EU -20% reduction compared to BAU By 2020
APEC Leader’s 2007 Sydney Declaration (‘07) APEC -Reduction of energy intensity by 25% in 2030 with 2005
Source: IEA, 25 Energy Efficiency Policies 2011 and ⒞ to prevent air pollution, as well as ⒟ to attain energy security and sustainable economic growth, it is essential to decouple economic growth from energy consumption. This can be achieved more quickly by developing and distributing energy efficiency improvement technologies in major energy consuming sectors - building, industry, and transportation. Especially, the development and diffusion of energy efficiency technologies is regarded as a cost-effective way that can alleviate the risk of climate change and atmospheric contamination while enhancing economic productivity.
Chapter 2 _ Strategies for Improving Energy Efficiency in Uzbekistan ● 083
IEA’s Recommendations for Energy Efficiency Policies
Cross-sectoral • Data collection and indicator • Strategy and action plans • Competitive engergy markets, with appropriate regulation • Private investment in energy ef ficiency • Monitoring, enforcement and evaluation
Building Appliance & equipment Lighting • Mandatory building code and • Mandatory MEPS and labels • Phase-out of ineffcient lighting MEPS • Test standards and measurement products • Net-zero energy consumption in protocol • Energy-efficiency lighting systems building • Market transformation policles • Improved energy efficiency in existing buildings • Building energy lables or certifi cates • Energy performance of building components and system
Transport Industry Energy utilities • Mandatory vehicle fuel-effciency • Energy management • Utillty end-use energy efficiency standards • High-efficiency industrial equlip scheme • Measures to improve vehicle fuel ment and system efficiency • Energy efficiency services for SMEs • Fuel-efficient non-engline com • Complementary policles to sup- ponents port industrial energy efficiency • Eco-driving • Effisient transportation system
Source: IEA, 25 Energy Efficiency Policies 2011
IEA also presents energy efficiency policies (Table 2-2) in their report. They show in each major sector - building, appliance, lighting, transport, industry, energy utilities and cross-sectoral - that implementing and disseminating the policies and technologies for energy DSM is a cost- effective way to improve energy efficiency, and especially that the energy saving and energy efficiency measures and technologies will bring economic benefits.
084 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy Increasing Trend in Energy Consumption
Natural Gas, billion M3 Oil(with condensate), million tones
3.7
63.0 2.8 56.4
41.9
1991 2000 2011 1991 2011
Coal, million tones Electric power, bill kWh
3.8 46.8 52.4
2.8
2000 2011 2000 2011
Source: KSP local expert’s presentation, 2012
Uzbekistan’s GDP Per Capita has been soaring since 2007 by more than 8%. The nation produces and exports natural gas, and is the second largest electricity producing country in Central Asia. At the same time, it is the most energy consuming country that emits greenhouse gases twice larger than Russia, more than three times larger than the average of the countries in East Europe and Central Asia. This is partly because of the increase in its coal consumption, which increased the most in comparison with 2011 (Figure 2-2) . The industrial sector has the largest consumption rate and increasing rate (Figure 2-3).
Trends in Primary Energy Consumption
Dynamics of primary energy The structure of primary energy consumption resources consumption, MTOE by sectors and economic spheres
40 0.8% 0.7% 2000 2011 35 1995 2000 2005 2011 проуке сФера Успчг(жкх, транспорт) сельское хозяйство промыщленность
Source: KSP local expert’s presentation, 2012
Chapter 2 _ Strategies for Improving Energy Efficiency in Uzbekistan ● 085 Improving energy efficiency in the production process and reducing energy consumption will (a) make the Uzbekistan industry more competitive, (b) save more gas resource available for export to Russia, and (c) reduce greenhouse gas emission. With this expectation, the government now recognizes the necessity of energy efficiency policies, and is compelling industries to save energy as top priorities in main economic policies.
On that account, the country should reflect current conditions and the recent policy trends of emphasizing the importance of demand management through energy saving and energy efficiency improvement, and investments and supports for the development and implementation of energy policies are urgently needed.
2. The Energy Sector Governance in Uzbekistan
In Korea, energy sector is not governed by one particular ministry, but by cooperation of several organizations. Particularly, most of energy demand management is under the responsibility of the Ministry of Trade, Industry and Energy, but implemented by comprehensive governance which encompasses the Ministry of Land, Transport and Maritime Affairs as well as the Ministry of Environment.
• Ministry of Trade, Industry and Energy : energy policies (Energy Efficiency Bureau) • Ministry of Environment : environment policies • Ministry of Land, Transport and Maritime Affairs : energy issues in building, transport, and city construction sector
For more powerful implementation of various energy policies, in June 2005, the Korean government launched two vice minister system in the Ministry of Commerce, Industry and Energy (consolidated into Ministry of Knowledge Economy later in Feb 2008, then reorganized as Ministry of Trade, Industry and Energy in Mar 2013) so that one of two vice-ministers can assume the responsibility of overall energy and resource policies. An organization for climate change response was added, and now the Vice Minister for Trade and Energy leads the Office of International Trade & Investment, Office of International Affairs and Global Industrial Cooperation and Office of Energy & Resources. For energy demand management and resource development responsibilities, there are Climate Change and Energy Resource Development Policy Bureau, Energy Industry Policies Bureau, Nuclear Power Industry Policy Bureau and Energy Efficiency Bureau under the Office of Energy & Resources (Table 2-3).
086 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy
Main Responsibilities of the Office of Energy and Resources of the Ministry of Trade, Industry and Energy
Bureau Division Responsibilities Energy and Resources Policy ∙ Design and implementation of the national energy Division master plan Green Growth Climate Change ∙ Design and adjustment of energy supply plan and analy- Climate Policy Division sis on consumption situations Change ∙ Management and promotion of policies for the develop- and Energy Resource Development Strat- ment and deployment of new and renewable energy Resource egy Division technologies Developm- ent Policy ∙ Establishment of basic plans for climate change response New and Renewable Energy Bureau and GHG reduction in energy/industry sector and energy Division mix analysis
Energy Technology Team ∙ Formulation and adjustment of major energy policies ∙ Design and implementation of major policies on natural Oil Industry Division gas and LPG ∙ Design and implementation of major policies on electric power such as Basic Plan on Electricity Demand and Sup- Gas Industry Division ply and Electric Power Industry Infrastructure Formation Energy Plan Industry Electric Power Industry Divi- ∙ Design and implementation of major policies on safety Policies sion for gas·electricity·oil pipeline Bureau ∙ Design and implementation of policies for the develop- Electric Power Promotion ment of domestic and foreign energy or mineral re- Division sources ∙ Determination of the sea border line and joint develop- Coal Industry Division ment of the continental shelf with neighboring countries
Nuclear Power Industry Policy ∙ Design and implementation of major policies on coal Division industry such as a comprehensive plan for coal industry Nuclear ∙ Supervision and control of nuclear-power-related works / Power NPP Export Promotion Division Industry Design and implementation of major policies on NPP Policy Radioactive Waste Manage- ∙ Design and implementation of policies on radioactive Bureau ment Division waste management ∙ Supervision and implementation of energy conservation Energy Security Team policies Energy Efficiency Policy Divi- ∙ Design and implementation of policies on energy conser- sion vation in industrial sector Energy Energy Efficiency Manage- Efficiency ∙ Energy efficiency management ment Division Bureau Energy Conservation Coopera- ∙ Design and implementation of policies on energy conser- tion Division vation in building and transport sector
Chapter 2 _ Strategies for Improving Energy Efficiency in Uzbekistan ● 087 Energy Efficiency Bureau assumes full responsibility of the national energy demand management. It designs and promotes sectoral policies and systems for energy saving and energy efficiency improvement in major sector such as industry, building and transport. operates all the national policies for energy conservation. manages and evaluates the energy conservation plan and the performance of each ministry and public organization. introduces economic instruments for energy conservation and energy efficiency improvement in industrial sector. and implements energy saving policies in building, transport and public sector in collaboration with other ministries or municipalities.
Besides, supporting the government organizations’ work, Korea Energy Economics Institute is in charge of research on new policies for energy demand management, Korea Energy Management Corporation is in charge of the implementation of the policies, and Korea Institute of Energy Technology Evaluation and Planning is in charge of energy technology development separately.
A centralized energy supply system like this helps stable supply of energy, but easily fails in DSM and causes environmental and/or social inequality problems in the production or transmission process. Moreover, the inequality resulted from the dualization and disparity of energy production and consumption can increase dependency on imported energy from the outside of consumption regions and bring social or economic issues such as facility siting conflicts and accompanying problems like power dissipation.
In order to make this centralized energy supplying system more sustainable, it needs to be decentralized. For decentralization of the energy supplying system, each part of the country has to drop the idea that energy policies are just the central government’s job and manage its energy demand in the region. Given that DSM by the central government is not effective realistically for compulsory mediation, efforts should be made at the regional level for improving the effectiveness of the policies.
In Korea, to overcome the shortcomings of the centralized energy supply system, the nation has municipalities establish their own plans for rational use of energy and evaluate their yearly plans and performance. However, being too dependent on governmental funds, it couldn’t form a cycle system driven by market mechanism. In addition, the current demand management is based on merely inadequate sectoral research on energy status and cursory regional data provided by the central government, so establishing independent regional systems is acutely required.
In Uzbekistan, in order to pursue the country’s medium-and long-term strategies for energy efficiency, various types of efforts were made to improve the management and efficiency of the energy sector, and as a result, three government-affiliated institutes were established. First, State Joint Stock Company “Uzbekenergo” convened all the enterprises and organizations of the electricity sector. Second, Stock Association “Uzbek Coal” combines the coal industry. Third,
088 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy National Holding Company “Uzbekenergo” was founded on the basis of oil, oil-refining and gas industry.
“Uzbekenergo” practices generation, transmission and distribution of electrical energy in the country and abroad. The main activities are:
• Sustainable provision of the economy and population with the electric power and coal, and regulation and coordination of power setting; • The development of short- and long-term forecasts and electric power development programs, participation in shaping the balance of production and consumption of electricity and coal; • Realization of the reconstruction and modernization of power generating facilities and power grids; • Reconstruction and modernization of the coal industry on the basis of the modern equip- ment and advanced technology, including foreign investments.
“Development Prospects and New Technologies in Power Industry” department under “Uzbekenergo” is responsible for the development of energy saving programs, innovative activities in the power sector and other aspects related to energy efficiency.
“Uzbekneftegaz” company operates the exploration, production, transportation, processing and marketing of natural gas and petroleum products. The main activities are:
• The development of current and long-term forecasts, task economic, scientific and technical programs of oil, gas and oil-refining industry, the efficient use of natural resources and the existing production capacity; • Demand analysis on the economy and population in oil and gas; • Identification and coordination of strategic and priority exploration for oil and gas, the introduction of effective systems and methods for developing oil and gas fields; • Other activities related to natural gas or oil.
Complex on Geology, Fuel and Energy, Chemical, Petrochemical and Metallurgical Industries of the Cabinet of Ministers mainly controls the following areas:
• Determination of main directions of development of industries, including energy sector, and coordination of their activities; • Development of proposals to improve governance structures of industries; • Implementation of measures for the development of science and technology in these sectors, management of natural resources; • Ensuring the monitoring of state programs of industries implementation, including fuel and energy sector, as well as enforcement of laws and regulations, government decisions at all levels of government and economic management;
Chapter 2 _ Strategies for Improving Energy Efficiency in Uzbekistan ● 089 • Other areas related to general issues of fuel and energy complex.
There is the Department of Fuel & Energy Sector Development under the Ministry of Economy, and the main activities are as follows:
• Participation in the policy development of the fuel and energy complex; • Initiation of the development of national, sectoral, regional programs and investment projects in the energy sector; • Development and ensuring of the implementation of short-term and medium-term forecasts of the fuel-energy sector; • Organization of the development of energy resources production and consumption balances; • Participation in the development of proposals on various aspects of energy sector.
State Inspectorate for Supervision of Electricity (Uzgosenergonadzor) is an independent government agency, which serves for the state control and supervision of the rational and efficient generation, transmission and consumption of electricity, heat energy and coal.
Uzbek State Inspection for Monitoring the Use of Oil Products and Gas under the Cabinet of Ministers (Uzgosneftegazinspektsiya) is a government body specifically authorized in the field of state control over the use of oil products and gas, as well as compliance with technical requirements for installation and operation of production, refining, transportation, and storage facilities.
The activities of all aforementioned organizations are indirectly related to energy inefficiency. However, an independent agency directly involved in energy saving and energy efficiency does not exist in Uzbekistan.
Currently, the institutional and regulatory framework for energy efficiency remains relatively weak. There are many agencies involved in the implementation of tasks on energy saving and energy efficiency (listed above), but their activities in the field of energy efficiency is very weak and slow because these institutions have other issues that need to be addressed beforehand.
Although energy governance exists in Uzbekistan, there seems to be a lack of systematic structure for energy efficiency improvement. Therefore the country is in urgent need of a central government agency and local government agencies which can manage the nation’s energy demand, a total governance of a policy development research institute to support these agencies, a research support organization to develop equipment for improving energy efficiency and a specialized agency to implement the policies. Also, a powerful committee to maintain a systematic and close cooperative relation among these central government agencies should be established in order to improve the energy efficiency of the country.
090 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy 3. National Planning for Energy Efficiency Improvement
Korea’s energy conservation and efficiency improvement policies have been changing and evolving to meet the needs of times. Especially, the 1970s oil crisis raised awareness of energy conservation, and the foundation for energy conservation policies was established by modifying related rules and regulations and providing various supports.
Due to the outbreak of the first global oil crisis in 1973, the crude oil supply sharply shrank and Korea came up with emergency measures for national energy supply and took actions such as reducing broadcasting hours of TV stations, restraining public vehicles from driving, which were merely consumption control. In January 1974, 「Heat Management Law」 was established to designate and manage the target enterprises with heavy energy consumption.
When the second oil crisis occurred, 「Energy Use Rationalization Act」 was enacted in December 1979, and the Korea Energy Management Corporation was established in 1980 for the enforcement of the Act. This Act built a basic legal framework for energy saving in industrial, residential, commercial and transportation and all the other energy demand sectors and for rational use of energy recourses - oil, coal and gas; and the institutional bassis for the energy policies attempted at that time was able to settle down within the framework.
Faced with high oil prices and the global economic crisis in 2008, Korea declared ‘Green Growth’ as a national task for decoupling its economic growth from increase in energy consumption, and amended laws and systems as needed. Since the 1st National Energy Basic Plan was established, there has been much progress on energy efficiency improvement and Greenhouse gas (GHG) emission reduction such as legislating the Basic Act on Low Carbon Green Growth(2009), establishing the National Green Growth Strategy and Five-Year Plan(2009), setting up the National GHG Emissions Reduction Target (2010) and approving the GHG Emission Trading Act(2012) (Table 2-4).
Chapter 2 _ Strategies for Improving Energy Efficiency in Uzbekistan ● 091
The National Energy Master Plan and the Sub-plans
ENERGY BASIC PLAN (FRAMEWORK ACT ON LOW CARBON, GREEN GROWTH Article41)
5year-cycle(20year and over)
NRE BASIC PLAN ENERGY USE RATIONALIZATION LOCAL ENERGY PLAN (ACT ON THE PROMOTION OF THE ENERGY TECHNOLOGY BASIC PLAN (FRAMEWORK ACT ON ENERGY DEVELOPMENT, USE, AND DEVELOPMENT PLAN (ENERGY USE RATIONALIZATION Article7) DIFFUSION OF NEW AND (FRAMEWORK ACT ON ACT Article4) RENEWABLE ENERGY Article5) ENERGY Article11) 5year-cycle 5year-cycle 5year-cycle (5year and over) (10year and over) (10year and over)
NRE PRACTICE PLAN (ACT ON THE PROMOTION OF ENERGY USE RATIONALIZATION IMPLIMENTAION PLAN ANNUAL PRACTICE PLAN THE DEVELOPMENT, (ENERGY USE RATIONALIZATION ACT Article6) (FRAMEWORK ACT ON USE, AND DIFFUSION OF NEW AND ENERGY Article8) RENEWABLE ENERGY Article6) every year(policy and local government plan) every year every year
Energy Saving, EE Improvement, NRE, Greenhouse Gas Reduction
Source: Korea Energy Management Corporation
As the global oil prices turned downward in 1983, Korea’s energy conservation policies shifted into a way that establishes and implements medium-and long-term comprehensive plans based on the long-term vision. In the late 1980s and early 1990s, the Energy Efficiency Rating system and the Energy Service companies (ESCO) Program were adopted to promote and disseminate energy conservation using the market mechanism. In addition, starting from 1993, five-year basic plans for ‘energy use rationalization’ have been formulated and implemented. Especially, ‘the 4th Basic Plan for Energy Use Rationalization (2008~2012)’ was an action plan for the demand part in the ‘1st National Energy Basic Plan’ and established jointly by the related ministries (reviewed and approved on December 15, 2008, by 'the 17th National Energy Conservation Committee' which was presided over by the Prime Minister). Its main goal was to improve energy efficiency by 11.3% by 2012(2.4% per year) and contribute to achieving the goal of ‘the National Energy Basic Plan’, 46% improvement of energy efficiency by 2030.
The specific goal of ‘the 4th National Plan for Rational Use of Energy’ is to reduce the primary energy consumption annual growth rate from 3.1% of the last 5 years (‘02~’07) to 2.3% in the target years (‘07~’12), by ⒜ promoting R&D for energy efficiency⒝ innovating the sectoral demand management; ⒞ creating markets for high efficiency products and weeding out low efficiency products. It is expected that 16.3 billion US dollars will be spent by 2012 for the implementation of the sectoral policy actions, and it will save 34.2 million toe of energy if implemented without any problem. This is worth 8.5 billion dollars (with 10.3 billion dollar improvement in trade balance), and 69.0 million toe of CO2 can be saved as well.
These national energy conservation policies had only limited outcomes during the implementation period of the 1st to 4th energy use rationalization plans, due to ⒜ the
092 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy economic growth in 1990s focused on energy intensive industries like petrochemistry and steel; ⒝ the retention of low energy prices; ⒞ lack of awareness of energy conservation, etc. However, the rapid growth rate of energy owing to the economic growth has slackened, and the energy intensity and the energy mix of Korea seem to improve as seen in the table below (Table 2-5).
Key Indicators of Economy and Energy in Korea
increasing rate(%) unit ‘80 ‘90 ‘00 ‘09 ‘10 ‘81~’91 ‘91~’00 ‘01~’10 GDP Growth rate % -1.9 9.3 8.8 0.2 6 10.0 6.2 4.1 Primary Energy million toe 41.21 93.09 188.1 229.2 246.5 9.5 7.3 2.7 (Increasing rate) (%) (3.3) (17.9) (8.8) (1.0) (7.6) Final Energy million toe 31.3 64.9 127.1 147.8 157.4 7.6 7.8 2.2 (Increasing rate) (%) (2.6) (20.4) (7.8) (0.6) (6.5) Energy Intensity toe/1,000$ 0.289 0.258 0.277 0.239 0.246 - - - Import Amount billion$ 6.62 10.91 37.89 91.16 121.65 3.8 12.9 15.2 (Increasing rate) (%) (72.7) (45.1) (62.1) (-35.6) (33.4)
Source: Korea Energy Economics Institute(KERI) statistical year book
Uzbekistan has been promoting policies for improving demand side energy efficiency. In 2007, ‘the Law on Rational Use of Energy’ was revised so as to promote (a)efficient and environmentally friendly use of energy both on the production and consumption sides; (b) development and application of energy efficient technologies; (c)scientific measurement and billing according to it (Table 2-6).
Key Indicators of Economy and Energy in Uzbekistan
unit 1990 2000 2005 2008 2009 2010 GDP growth rate % 11.22 11.0 14.3 18.3 19.8 21.5 Primary Energy million toe 46.37 50.74 46.98 50.5 44.92 43.79 Final Energy million toe 34.95 37.28 33.77 37.62 32.24 31.1 Energy Intensity toe/1,000$ 4.13 4.62 3.28 2.76 2.27 2.04
Source: KSP local expert’s presentation, 2012
Along with this, modernization programs for power generating equipments and energy saving programs were implemented from 2009 to 2013, in order to (a) reduce energy consumption and improve energy efficiency in power generation by shutting down old, obsolete facilities and constructing new gas power plants with modern facilities; (b) reduce energy losses in transmission lines by modernizing them; (c) set up the standards for efficient use of energy in large industries; (d) enforce mandatory replacements of the equipment in the business using
Chapter 2 _ Strategies for Improving Energy Efficiency in Uzbekistan ● 093 large amounts of energy (Table 2-7).
Meanwhile, Uzbekenergo is phasing in the automated electricity meters starting with large enterprises in 2009, followed by urban areas in 2010~2012 and rural areas in 2012~2015. If this energy saving program is implemented successfully, it will reduce electricity losses and waste, and the program is also expected to increase power generation by 11.1% and decrease natural gas consumption by 6.6% by 2015.
Major Projects for Modernization of Power Industry Project Name Details • Construction of a combined cycle power plant with a capacity of Navoi Combined Cycle 476MW Power Plant Construction • To be completed in 2012 • Contracted by a consortium of a Spanish and a Turkish company
• To be completed in 2014 with a capacity of 375MW Tashkent Combined Cycle • Contracted by a consortium of a Slovak and a Canadian company Power Plant Construction • The project is suspended because of the Slovak company prosecuted for the submission of a forged bank guarantee
• Extension of two combined cycle power plants with a capacity of Talimarjan Combined Cycle 740~800MW Power Plant Modernization • Total amount to be invested : $ 710 million (ADB & JICA)
• The conversion of gas-fired units to coal-fired (Unit 1~5) is now in Novoangren Combined progress Cycle Power Plant Modern- • Unit 6~7 also to be converted in 2014~16 with 3000 million dollars’ ization investment
Tahiatash Combined Cycle • 330 million dollars will be invested for the modernization of the plant Power Plant Modernization in 2012~18
• Automated Power Consumption Meters will be installed for more Installation of Automated accurate measuring Power Consumption Meters • 4.4 million meters will be installed in houses and companies includ- ing power transmission centers
Modernization of Transmis- • 350 million dollars will be invested in the modernization of the sion lines 23,490km transmission line in 2010~2015
Wind Plant Demonstration • Construction of a demonstration wind power plant near Tashkent project (Lake Tcharvak) with 1.9 million dollar’s investment in 2011
Source: State Committee of Uzbekistan on Statistics.
094 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy The lighting lamp is one of the most common equipment using energy. According to Uzbekenergo and United Nations Environment Program (UNEP), Uzbekistan used 55 million incandescent lamps in 2009, which leads to calculation that if 5 million households had replaced one of 100W incandescent lamps in their house with an LED lamp, about 408 million m3 of natural gas could have been saved.
To this end, the government of Uzbekistan adopted the resolution for a presidential de- cree to promote use of energy saving lamps in houses and industries during 2011-2015. The government expects that the use rate of energy saving lamps will increase nearly to 100% by 2015 by the implementation of this program. Furthermore, the government is planning to set up and revise their annual lamp replacement plan so as to achieve energy efficiency goals, by mandating the use of energy saving light bulbs when building a new house and implement- ing energy saving street lighting projects in big cities like Tashkent and Samarkand. Although Uzbekistan is already working on enactment/revision of laws concerning the rational use of energy and executing related projects, the absence of a specialized institution that establishes and implements a comprehensive and systematic national energy basic plan still remains the government’s issue to solve.
Uzbekistan continues to pursue energy efficiency policies for stable supply of energy and en- ergy efficiency improvement. Recently, the country is working on projects for improving energy supply efficiency (power plants, transmission/distribution lines, gas pipelines, etc.) funded by multilateral development banks including World Bank. Especially, the “Power Generation Mod- ernization and Energy Saving Program” will be able to drastically reduce energy dissipation by installing automated electricity meters and inducing consumers to use less energy. The gov- ernment is also promoting CNG vehicles that use natural gas abundant in Uzbekistan, thereby reducing the consumption of oil that is relatively insufficient.
Uzbekistan already enacted the Energy Use Rationalization Act in 1997, but detailed ac- tions have not been sufficiently taken. Recently, with interest in national energy efficiency, the government is promoting the related projects. However, without clearly established goals for national energy demand management, it seems that these projects are implemented separately in different sectors. Therefore, the existing law on the rational use of energy should be revised to lay grounds to “establish a basic plan for rational use of energy.” Once the government sets the national goals for energy demand management, and establish and implement specific action plans based on it, it will be able to improve the national energy efficiency more economically and efficiently.
Chapter 2 _ Strategies for Improving Energy Efficiency in Uzbekistan ● 095 4. Establishing a Specialized Institution for the Implementation of Energy Efficient Policies
Korea introduced several energy conservation policies after experiencing the oil shocks in 1970s, but the policies were not very advanced quantitatively or qualitatively at that time. Energy use Ratianazation In the late 1970s,「Energy Use Rationalization Act」was legislated, launching the Korea Energy Management Corporation(KEMCO). With the establishment of KEMCO in July 1980, the energy conservation policies started to settle in, and KEMCO expanded its coverage nationwide as the District Heating Center was established in 1986. Also, KEMCO was accredited as a Designated Operational Entity (DOE) of CDM in November 2005, and all these efforts ensured its internal stability.
KEMCO is an institution specialized in energy DSM, the objective of which is to reduce CO2 emission, thereby contributing to the sound development of the national economy. Established based on Article 45 (‘Establishment, etc. of Energy Management Corporation’) of ‘Energy Use Rationalization Act’, it is a semi-government agency entrusted with the implementation of energy policies under the authority of the Ministry of Trade, Industry and Energy. Its main role and functions are energy audits, technical instructions, energy management diagnosis, R&D, energy-saving promotion and education, efficiency and safety management of energy-using equipments, financial supports for facilitating investments in energy saving facilities, new and renewable energy deployment, fostering green businesses, developing countermeasures against the convention on climate change, supporting industries for their GHG reduction activities, etc.
Article 57 of the Energy Use Rationalization Act stipulates the projects KEMCO shall carry out the followings:
1. Projects for the rationalization of energy use, thereby reducing the emission of greenhouse gases; 2. Development, introduction, guidance and dissemination of energy technology; 3. Loan and support of funds for the rationalization of energy use, development and dis- semination of new and renewable energy and collective energy supply projects; 4. Projects falling under each subparagraph of Article 25 (1); 5. Energy examination and energy management guidance; 6. Promotion of new and renewable energy development projects; 7. Investigation, research, education and public relations for energy control; 8. Acquisition, installation, operation, lease and transfer of land, buildings, facilities, etc. for the rationalization project of energy use; 9. Support and management for the promotion of collective energy projects under Article 2 of the Integrated Energy Supply Act; 10. Efficiency management of energy-using machinery, equipment or materials, and safety control of heat-using machinery, equipment or materials;
96 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy 11. Projects connected to project under subparagraphs 1 through 10; 12. Projects for the rationalization of energy use and for reducing the emission of greenhouse gases, other than those under subparagraphs 1 through 11, which are entrusted by the Minister of Trade, Industry and Energy, the Mayor/Do Governor, other agencies, etc.
Korea started to promote energy efficiency focused on regulation by promulgating ‘Energy Use Rationalization Act’ in the early 1980s, and has been establishing and implementing more organized ‘Basic Plans for Energy Use Rationalization’ since 1993. Likewise, to make Uzbekistan’s national efforts for energy efficiency improvement come to fruition at the end, the experience of Korea should be shared because Uzbekistan needs to establish comprehensive and methodical systems, plans, governance and specialized institution, not just for specific sectors but all the related parts.
In order to establish a specialized institution for implementation of energy efficiency policies just as Korea did, the first thing to do is to provide a legal basis for the establishment and specify the areas of the energy demand management policies. In addition, they need to establish a total governance for energy efficiency covering the various stakeholders including: ⒜ the implementing agency that supports the government in designing the national energy efficiency improvement plans and executes the programs, systems and legal framework;⒝ energy producing/consuming enterprises; ⒞ energy equipment manufacturers.
5. Securing Funding for Energy Efficiency Improvement
Compared to renewable energy, energy efficiency improvement has so much more economic feasibility that it can be the most cost-effective way for securing energy security, promoting the industries, and responding to climate change. One thing that shouldn’t be missed is that actual outcomes can’t be expected without creating a virtuous cycle established upon a certain level of infrastructure. Building an infrastructure may require many other components, but funding is of the most importance, so securing it effectively and sustainably will be the top priority for the improvement of energy efficiency.
For that reason, Korea installed and has been operating “Energy and Resources Special Account” which integrated six existing funds (the petroleum business fund, coal industry promotion fund, coal industry stabilization fund, energy use rationalization fund, overseas mineral exploit fund and gas safety management fund) in order to stabilize energy supply and energy prices as well as to effectively implement projects related to energy or resources. The fund managed by Korea National Oil Corporation is raised by imposing 16 Korean won per liter on imported oil or oil products, and 15,480 won per ton on imported LNG. Besides, “Electric Power Industry Base Fund” was created in order to secure funding for sustainable development of power industry and build a foundation for the industry. The fund supports new and renewable
Chapter 2 _ Strategies for Improving Energy Efficiency in Uzbekistan ● 97 energy production support projects, electricity demand side management projects, projects for facilitating the development in rural areas, electric power supply projects for remote areas, R&D projects, coal, gas and group energy projects related to power industry, research and promotion project on electrical safety, power plant neighboring area support projects. The fund managed by the Electric Power Public Tasks Evaluation & Planning Center (Table 2-8) is raised by charging 37‰ on monthly electricity bills. The 2013 budget of “Electric Power Industry Base Fund” is 2,567 billion won (2.3 billion USD) including the DSM budget of 312 billion won (280 million USD); The 2013 budget of “Energy and Resources Special Account” is 5,687 billion won (5.7 billion USD) including 554 billion won (495 million USD) for DSM, so total DSM budget of 775 million US dollars is under their management this year.
Energy Funds in Korea
Energy Special Fund Power Industry Funds Act on the Accounts for the Energy & Law Electricity Business Act Resources Business Fund 2.87 billion $ 1.38 billion $ (EE past) (0.53 billion $) (0.63 billion &) - tax on imported oil and oil product 3.7% of electric bills Financing 16won per liter (each month) - tax on imported LNG 15,480won per ton - Energy Support Business - Alternative Energy Production Support - Energy Safety Management Business Project - Energy Stable Supply Business Major - Power demand management projects - Industrial Convergence Technology project - power Development Business Development - power Supply Business - New Makret Creating Projects - Research & Development Projects - Infrastructure Development Project Source: State Committee of Uzbekistan on Statistics.
If Uzbekistan charges a certain percentage of money on electricity bills the same way Korea does, a significant amount of fund can be raised thanks to the country’s abundant energy resources. One of the effects of creating funds this way is that the raised price can serve as an inducement to save energy and improve efficiency. Also, plenty of other policy effects can be expected including infrastructure building and industry promotion by investing money in various projects developed by the state government.
Once the fund is established, the operation agency (i.e. the Ministry of Economy or other energy-related ministries) should create an affiliated organization that can take responsibility for managing the fund, or delegate it to other institutions that are already handling energy efficiency issues. It is because that if the projects are implemented by too many different management agencies without one particular agency in charge, funds leakage or poor management can easily take place and it is unlikely that the funds will be distributed efficiently. Therefore, setting up a management framework by which the projects can be systematically
98 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy planned, evaluated, followed-up and refined comes first before everything.
The raised funds can be utilized in various areas, but in Uzbekistan, they can be best used in R&D, test/verification infrastructure, human resources training, and loans for facilities manufacturing high efficiency products first. If a new product can be developed by the R&D support and tested, verified, certificated and manufactured with the support of the funds, it will create a virtuous cycle and consolidate the foundation for energy efficiency improvement in a short period of time. 6. Energy Efficiency Improvement in Buildings
The subjects and methods of GHG emission reductions in building sector are more complicated than in other sectors. In order to improve the energy efficiency of a building, the efficiencies of all sorts of electronic appliances used in the building as well as the building itself should be enhanced and energy use for heating or hot water should be reduced, too. Besides, not only those who construct the building but also the owner of the building, who actually decides whether to invest in energy saving technologies, and those who actually use the building should all cooperate to realize energy saving. This is the reason it was not so easy to reduce the energy consumption in buildings even in developed countries. However, these countries were at least well aware of the importance of energy saving in buildings, so they have been promoting various policies to improve energy efficiency in buildings, especially houses and public buildings.
Benchmarking these countries, Korea is also promoting many policies for new buildings based on its Building Codes and for existing buildings based on the Energy Use Rationalization Act. Korea has set mandatory energy-saving design criteria for new buildings over a certain size: they evaluate the insulation, mechanical aspect and electric aspect of the building, and only the buildings with total scores above 60 are permitted for construction. As for existing buildings, energy glutton buildings are subject to GHG & Energy Target Management system that limits their GHG emissions and energy consumption. There is also a building certification system that encourages people to voluntarily construct energy saving buildings. For public organizations, energy savings in both new and existing public buildings are enforced by the energy saving guidelines.
For more coherent and systematic implementation of existing policies, ‘the Construction Support Act for Green Buildings’ was established in 2012 and will be enacted from 2013. It is designed to prepare a foundation for comprehensive and systematic promotion of green buildings by setting up the goal of 26.9% reduction in GHG emissions of buildings by 2020. Under this Act, total annual energy use management system, energy saving plan submission system, Certification System for Green Buildings and energy consumption certificate system are going to be newly implemented.
Chapter 2 _ Strategies for Improving Energy Efficiency in Uzbekistan ● 99 In Uzbekistan, the building sector occupies more than half (17 million toe) of the nation’s total energy consumption since most of the buildings were constructed 30~60 years ago and their energy efficiency level is low. The most energy consuming part in buildings is heating, followed by hot water supply, cooking and household appliance, which leads to conclusion that it is imperative to improve the insulation and increase the efficiency of heating equipments (Figure 2-4).
Energy Consumption Tendencies in Different Types of Buildings (million toe)
Structure of Energy Consumption in Different Types of Buildings
Same as in many other countries, energy efficiency improvements in existing buildings is more effective for reducing overall energy consumption than in new buildings because of a low percentage of new buildings in Uzbekistan. However, it is not a viable option to support costs for renovating existing buildings, because it can put a strain on the government. Thus, it is important to establish the basis, determine priorities and carry out the policies consistently based on the reality and limits.
Given the political, economic and social circumstances of Uzbekistan, the priority area should be new buildings in the public sector. The public sector should take an initiating role in energy saving efforts and create even a small market where the renewable energy industry can be fostered, by using high efficiency insulation methods, installing high efficiency appliances and operating renewable energy facilities. To increase the effectiveness of these efforts the government should establish regulations like Korea’s ‘Regulations on the Promotion of Energy Use Rationalization in Public Organizations’ which will be applied to the government ministries, local governments and government agencies by developing, implementing, analyzing and evaluating the energy saving plans and inspecting the implementation status in major municipalities or public organizations. Furthermore, by replacing electric equipments for heating large and medium size buildings with gas equipments, Uzbekistan will be able to improve energy use efficiency as well as to save more energy to export.
100 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy The next priority should be new buildings in the private sector. It is important to establish and apply energy efficiency design criteria from the designing stage so that these new buildings can use enhanced insulations, high efficiency appliances and renewable energy equipments. One of the effective ways to improve energy efficiency in new buildings is to make building owners who want to construct new buildings submit their own energy saving plans, according to the energy-saving design criteria based on the building codes which are under examina- tion and approval by the local government or a specialized energy institution. Furthermore, the government, by announcing its goal based on the long-term plan and consistently raising the standards toward the goal, can encourage the stakeholders, including the constructing companies, construction materials suppliers and building owners, to invest in improving the energy efficiency of their buildings.
In addition to the aforementioned operating systems, it is also necessary to strengthen the foundation for designing and implementing the policies. Basically, it is critical to compile a database of energy consumption quantities and major energy sources according to the purpose, constructed year and type of the building based on accurate measurement and investigation. The infrastructure for standards, tests and certification should be established as well to be able to correctly figure out performance of insulation or efficiency of equipments. In addition to this, test, design and construction manpower should be trained for smooth implementation of new systems by the government.
7. Introduction of Labeling Scheme
Minimum Energy Performance Standards (MEPS) and labeling system are such effective ways to improve the efficiencies of energy equipments that are currently implemented in more than 60 countries throughout the world. In Korea, we have (a) Energy Efficiency Standards & Labeling Program that includes MEPS; (b) High Efficiency Appliance Certification Program; and (c) ‘e-Standby’, a standby power reduction program.
The Eenergy Efficiency Standards & Labeling program is applied to 35 target products including TVs, refrigerators, washing machines, air-conditioners and gas boilers. The Energy Efficiency Label (rated grade 1 to 5) should be attached on the surfaces of the products, and production or sales of the products that fall below the 5th grade are prohibited from sales, regarded as violation of MEPS. ‘E-Standby program’ is applied to 22 product groups: products satisfying the standby power standard suggested by the government are entitled to bear the Energy Saving Label, and products that fail to meet the level should be attached with mandatory warning label. The goal is to limit standby power below 1W by 2010, and 0.5W by 2015. The High Efficiency Appliance Certification Program is applied to 39 product groups, providing various benefits such as subsidies, tax incentives, and preferential government procurement.
In Uzbekistan’s energy consumption structure, the building sector uses nearly 50% of
Chapter 2 _ Strategies for Improving Energy Efficiency in Uzbekistan ● 101 national total energy, and more than 85% of the energy sources are gas. Besides, agricultural sector constitutes 30% of total consumption of electricity. Therefore, a significant amount of energy can be saved if the efficiency of major equipment used in buildings, gas-using equipment, or agricultural pumps. Considering the conditions of equipment in Uzbekistan, introduction of a standby power reduction program is not appropriate at this point of time, and it is advisable to introduce a labeling scheme or high efficiency appliance certification system.
As for the labeling scheme, it is necessary to gradually expand the target products starting with the following five items: doors and windows that take up 30~40% of overall energy loss in buildings; boilers and water heaters using gas fuel; TVs and refrigerators, the most energy consuming household appliances (Table 2-9). Eventually, it would be desirable to adopt higher than the fifth grade like other countries including Korea. In early stages, however, it would be better to start by either applying MEPS solely or operating a simplified labeling system with three grades(Good-Average-Bad) until the circumstances are ready for the full implementation.
The Numbers of Home Appliances in Use
units per 100households Growth, times(teh period 2000-2010) 2000 2010 Televisions 88 132 1.50 Refrigerators 86 99 1.15 Air-conditioners 11 18 1.68 Vacuum sweepers 30 37 1.23 Personal computers 0.2 12 60.0 VCRs, video players, DVD players 31 64 2.06 Washing machines 69 75 1.09
Source: KSP local expert’s presentation, 2012
Electric motors, which are the main components of pumps and consume more than 40% of total electricity in developed countries as well as in Korea. The energy efficiency of pumps can be improved by 10~30% depending on the inverters installed in them. That’s why many countries are applying MEPS on electric motors and providing incentives for promoting high efficiency motors and inverters. Uzbekistan, too, needs support for electric motors and inverters in order to reduce electricity consumption by pumps in agricultural sector and to prepare for future increase of electric motors in industrial sector. If the Uzbekistan government certificates the motors or inverters that satisfy a certain level of efficiency and provides benefits to them such as government procurement, tax exemption, or loan as in the High Efficiency Appliance Certification system in Korea, it may bring forward effects of attracting foreign investments and fostering relative industries.
For an effective operation of a labeling scheme, the structure of the three organizations
102 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy should be well shaped: the organization for standardization that manages the national standards, the organization for certification that implements national policies and the organization for evaluation takes responsibility for evaluation. Especially, the role of the organization for examination that conducts tests on products and precisely evaluates their efficiency is a matter of paramount importance. For the capacity building of the organization for examination, it needs to be equipped with test equipments, testing professionals, and O&M system suitable for international standards. It will require expanded international interchanges and cooperation with other test/certification institutions in developed countries.
Labeling and certification system can improve efficiency of products, and not only the fundamental effects such as saving energy and reducing GHG emissions, it can also enhance the competency of local products and promote the industry. Thus, earlier introduction and implementation of a labeling system even just for a few main product groups will enable Uzbekistan achieve energy conservation and industry promotion.
Chapter 2 _ Strategies for Improving Energy Efficiency in Uzbekistan ● 103 References
Arab Guideline on Electricity Efficiency Improvement and Rational Consumption of End-users, 2012
IEA, Energy Technology Perspective, 2008
IEA, World Energy Outlook, 2010
IEA, Energy Balances of Non-OECD Countries, 2011
IEA, 25 Energy Efficiency Policy Recommendations (2011 update), 2011
Korea Government, 1st National Energy Master Plan, 2008
Korea Government, 4th Energy Using Rationalization Master Plan, 2008
Korea Assembly, Energy Using Rationalization Act
Korea Assembly, Support for Green Building Act
Korea Energy Economics Institute, Yearbook of Energy Statistics 2012, 2013
Korea Energy Economics Institute, Research on Energy Demand-side Management Innovation and Policy Governance Improvement Measures, 2012.8,
KEXIM (the Export-Import Bank of Korea) Overseas Economics Research Institute, Industrial Modernization Status and Implications of Uzbekistan, 2011.5.
KEXIM Overseas Economics Research Institute, Industrial Modernization Status in Uzbekistan and the Prospects, 2011.5.
Tashkent KBC, Research on Renewable Energy Market in Uzbekistan, 2011.8
Uzbekistan Assembly, Laws on the Rational Use of Energy, 2007
104 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy Uzbekistan Energy Sector Issues Note, Worldbank, June 2012
Yonsei University, Research on the Legal Systems for Green Growth in Asian Countries and Possibility of Inter-national Interchanges and Support, 2011
Chapter 2 _ Strategies for Improving Energy Efficiency in Uzbekistan ● 105
Policy Consultation on Uzbekistan’s Industry Innovation Strategy Chapter 3
Measures to Develop, Standardize and Disseminate Solar Energy in Uzbekistan
1. Introduction 2. Outline of Solar Energy 3. Current Status and Analysis of Uzbekistan 4. Experience of Korea 5. Policy Recommendations Chapter 03
Measures to Develop, Standardize and Disseminate Solar Energy in Uzbekistan
Changho Sim (Korea Energy Management Corporation) Kilnam Paek (Korea Energy Management Corporation) Oskar Tukhfatulin (Physical-Technical Institute of Scientific Production Association) Anvar Anarbaev (Institute of Energy and Automation) Daulatbek Rismukhamedov (Tashkent National University)
Summary
The solar energy potential in Uzbekistan is estimated to be 51 billion TOE among which 179 million TOE is considered to be technically available. Although the country has a positive prospect and ample resources for solar power in comparison to other renewable resources as hydropower and wind power, it has been barely developed or utilized. For that reason, active development and deployment of the industry is highly recommended.
Despite researches on renewable energy that have been conducted in Uzbekistan, there exists a limit in terms of commercialization and deployment of solar power technologies. Studies on materials at high temperature and measures for solar energy utilization were carried out using the solar furnace that was established by the former Soviet Union. Also, the Physics-Sun Institute in the country has developed photovoltaic technologies focusing on materials and solar cells. Nonetheless, these efforts remain on the research level that the manufacturing infrastructure needs to be prepared for the commercialization and deployment of solar energy.
Sufficient radiation and the large land mass have offered Uzbekistan a desirable environment for solar power generation. Uzbekistan’s solar energy is predicted to partly replace the demand for natural gas. However, in order to actually utilize this renewable energy source, international cooperation is necessary given the fact that the country does not have adequate technologies nor enough capital. The Asia Development Bank’s recent cooperation program and loan support are an excellent example of international cooperative activities for the development of the solar
108 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy industry. Considering the fact that rural areas accounted for 60% of the whole country, it would be advisable to support the deployment of stand-alone photovoltaic power plants and solar thermal hot water supply facilities with a focus on the districts with poor connection to power grids or without access to natural gas.
Among renewable energy sectors, the creation of new markets in the solar industry is especially tough without the support from the government due to the high costs of electricity generation. That’s why the existence of big industries that yield economies of scale is imperative in promoting solar power in the country and achieving an export-driven industrialization. In order to create new markets, policies concerning prices and demands must be taken into consideration. The government can provide subsidies for renewable equipment and facilities with the intention of driving down power production costs. This, however, may lead to a great amount of financial pressure on government spending. On the other hand, demand-side management in power system can create the demand for renewable energy artificially through programs such as the Renewable Energy Facility Installation program.
In countries with barely developed industries and markets for renewable energy, it is recommendable to introduce the Public Institutions Renewable Obligation Program beforehand for the purpose of creating new markets, and later offer government subsidies. Additionally, the standards regarding renewable technologies and construction process should be set to sustain market confidence. The programs for certification and performance evaluation of solar equipment are also required to prevent market disruptions that could be potentially caused by the import of uncertified products. To ensure the proper operation of installed facilities, comprehensive supervising programs during the installation process must be in place. The government support systems with precise goals and tax incentives would be necessary for the creation of new markets. In this regards, departments supervising government policies and operating agencies such as the New and Renewable Energy Center in Korea need to be established.
1. Introduction
The world’s renewable energy market is rapidly replacing the previous reliance on fossil fuels. In the face of global warming and fierce competition over stable sources of energy, the renewable energy sector has grown phenomenally around the world followed by its designation as new growth engine. The developed countries set vigorous goals to disseminate new and renewable energy and implemented various programs to that end. The United States formulated a strategy to enhance renewable energy supply up to 25% of total electricity use by 2025, introducing measures such as tax incentives, the renewable portfolio standards system, and the renewable fuel standard program. On the continent, the European Union declared to provie 20% of energy from renewable resources by 2020. Asian countries such as China and Japan also showed their ambitions announcing the dissemination goals of each country; China up to 15% and Japan 10% by 2012. In hopes of fulfilling their respective goals, countries around the
Chapter 3 _ Measures to Develop, Standardize and Disseminate Solar Energy in Uzbekistan ● 109 globe adopted relevant programs: China, England and Italy have operated both the renewable portfolio standards system and the feed-in-tariff scheme; on the other hand, Germerny, Spain and Japan adopted the renewable portfolio standards system.
Joining the global effort in promoting sustainable energy, the Korean government has also developed a variety of policies and support systems, designating renewable energy as the country’s new growth engine. As a result of the previous endeavor to develop and disseminate renewable energy technologies, Korea' renewable energy sector, with the focus on photovoltaic and wind industry, has neared to an export-oriente industrialization. As Uzbekistan has significant potential in solar power generation, the future of the relevant industry and its dissemination are exceedingly bright. This report intends to present a formula for the development and active deployment of solar energy in Uzbekistan with an in-depth analysis on the country’s ongoing solar power projects as well as knowledge sharing on Korea’s policy in the related sector.
2. Outline of Solar Energy
2.1. Technical Classification of Solar Energy
According to the utilization method, solar energy is divided into two forms: photovoltaic energy and solar thermal energy. Photovoltaic technologies are used in concentrating solar energy for lighting and transforming photoelectric energy into electricity. The core component of photovoltaic system is a semiconductor device called solar cell that converts the energy of light directly into electricity. Solar cells are classified into crystalline silicon, amorphous silicon, organic and inorganic compounds in accordance with the nature of substance. The value chain of crystalline silicon module goes in order of polysilicon, ingot, wafer, cell, module and system construction. Photovoltaic system comprised of module, array, inverter and structure, exists in different forms: grid-connected one and stand-alone one combined with electricity storage system.
Solar thermal system is a technology for harnessing solar radiation to transform it into thermal energy and store it for the purpose of water heating, heating, cooling and electricity generation. In general, solar thermal system consists of collector part, thermal storage part, and use element. Solar water heater, a combination of plate, vacuum tube, compound parabolic concentrator and water heating system, collects thermal energy at relatively low temperature (below 90℃). On the other hand, solar heating system which is made up of plate, vacuum tube, compound parabolic concentrator, parabolic trough collector and heating system gathers heat at middle and low temperature (below 150℃ ). Solar cooling system, a composite of vacuum tube, compound parabolic concentrator, parabolic trough collector and absorption chiller, stores heat at high and middle temperature (below 300℃). Solar electric generation system consisting of parabolic trough collector, dish, central receiver system and generation system collects heat at relatively high temperature(above 300℃).
110 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy Solar energy technologies are applied in association with various technologies in different sectors, a phenomenon called hybrid technology or technological convergence. Photovoltaic system combined with heat pump is used in cooling, heating, gardening, and low temperature storage. Solar thermal energy utilized in absorption refrigerating machine contributes to electricity supplies for it can be employed as water heater in winter and air-conditioner in summer. Likewise, solar energy can be harnessed for various purposes in combination of diverse technologies, such as photovoltaic system with either wind power or LED lighting.
2.2. Current Status of Solar Energy
2.2.1. World PV Deployment Status
Recently, the installed capacity of photovoltaic power system is rapidly increasing on account of technological innovation and dropped module prices. As of 2011, the total capacity amounted to 70 gigawatts and is expected to display sustainable growth until the number reaches 400 to 600 gigawatts by 2020. The 2011 photovoltaic energy market was dominated up to 90 percent by 10 major producing countries including Germany and Italy.
Chapter 3 _ Measures to Develop, Standardize and Disseminate Solar Energy in Uzbekistan ● 111 Installation Ratio in 2011
Rest of World 6.9% Other EU 4.1% Australia 1.9% Czech Republic 2.8% Belgium Rest of World 35.6% 2.9% France 4.1% China 4.4% USA 5.7%
Spain 6.5%
Italy 18.3% Japan 7.1%
Source: Renewables21 Global Status Report (REN21), 2012
2.2.2. World Solar Thermal Deployment Status
The market creation and commercialization of the world’s solar thermal industry are centered on hot-water supply and heating as those sectors are high in collector efficiency and low in manufacturing cost. The global solar thermal market is now led by 14 high-ranking countries including China, the United States, Germany, Turkey and Japan. By the end of 2009, an area of 246 million m2 was dotted with solar collectors worldwide, bringing the total capacity up to 172.4 gigawatt-hour. China accounted for 58.9% of solar thermal market followed by European countries (18.9%) and North America (8.7%).
Total Capacity of Solar Thermal Power Plant in 2009
United States and Canada Europe 8.7% 18.9% Australia and New Zealand 3.0%
Central and South America Others 2.7% 22.2% Asia China 2.7% 58.9% Japan 2.5%
Middle East 2.0%
Africa 0.6% Africa: Namibia, South Africa, Tunisia, Zimbabwe Asia: India, South Korea, Taiwan, Thailand Central + South America: Barbados, Brazil, Chile, MeXico, Uruguay Europe: EU 27, Albania, Former Yugoslay Repulbic of Macedonia, Norway, Switzerland, Turkey Middle East: Israel, Jordan
Source: Solar Heat Worldwide (SHC), 2011
112 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy 2.2.3. Concentrated Solar Power Status
Concentrated solar power technology is suitable for large-scale centralized generation system rather than small-scale one. Through heat storage mechanism, concentrated solar power technology enables providers to generate electricity as needed so that both heat and electricity can be produced. While Korea’s direct solar radiation of approximately 1,000 kilowatt-hour/m2 per year on average is not quite a desirable condition for solar power, Central Asia, the Middle East and Africa have an ample opportunity for solar power as the radiation of those regions is incomparably abundant. As of 2011, solar power plants with the total capacity of over 1.2 gigawatts were installed across the world, though most of which were located in Spain and the United States. Recently, Middle Eastern and North African countries with high level of direct solar radiation formed Desertec Foundation (DF) in association with European countries. The Desertec project is now underway, the activities of which includes establishing plants in the Middle East and Africa and connecting them to the power grid in European region.
Outline of Desertec Project
Source: http://www.desertec.org
Due to poor solar radiation condition, Korea’s concentrated solar power technology has remained in the process of mere research and development. In 2011, Daesung Energy Co,. Ltd. established central receiver solar power plant with a capacity of 200 kilowatts in Daegu. The construction of 100 kilowatt parabolic trough solar plant is under way by SundaKorea Co,. Ltd as well. The pilot project on 10 kilowatt dish plant deployment is also in progress.
Chapter 3 _ Measures to Develop, Standardize and Disseminate Solar Energy in Uzbekistan ● 113 3. Current Status and Analysis of Uzbekistan
3.1. Solar Energy Potential
The solar energy potential in Uzbekistan is estimated to be 51 billion TOE, among which 179 million TOE is considered to be technically available. Although the country has a positive prospect and ample resources for solar power in comparison to other renewable resources as hydropower and wind power, it has been barely developed or utilized. Therefore, active development and deployment of the industry is highly recommended.
Solar Energy Potential of Uzbekistan Type(million TOE) Potential Total(million TOE) Hydro Solar Wind Geo Total amount 50,984.6 9.2 50,973.0 2.2 - Technically available 179.0 1.8 176.8 0.4 0.3 Developed 0.6 0.6 - - - Source: UNDP, “Review Study to draft National Strategy for Development of Renewable Energy in Uzbekistan”, 2006
As solar radiation condition in Uzbekistan is quite reliable throughout the country including its capital, Tashkent, few problems are expected to arise with regard to climatic circumstances. Nevertheless, it is advisable to conduct an in-depth analysis beforehand on the background of potential plant sites.
Solar Radiation in Uzbekistan(kWh/㎡)
Area Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Year Tashkent 59 74 112 152 209 236 243 216 166 111 65 46 1,688 Samarkand 69 79 117 152 217 243 247 226 175 120 76 58 1,777 Termez 72 89 130 169 227 244 246 226 180 138 88 66 1,876
Source: EBRD, 2009
3.2. Geopolitical Condition for Solar Power
Solar energy is harnessed for diverse purposes as stated in the previous part. The modes of solar power consumption are largely divided into two parts: power generation through photovoltaic modules; and generation, cooling and heating through collected solar thermal energy. Uzbekistan has an area of 447,400 square kilometers which is twice the size of Korea. The country has a desert climate with dry and high temperature. The country’s characteristic dryness
114 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy arises from its low yearly precipitation that is outpaced by the evaporation rate. Quite often, the daytime temperature of Uzbekistan exceeds 40℃. The average temperature in January is -8℃ in the north and -3℃ in the south-eastern part. The geographical and climatic advantage offers the country a huge potential for solar power. Therefore, the identification, development, and deployment of solar technologies suitable to the climate of Uzbekistan need to be studied and conducted accordingly.
The photovoltaic module widely used across the world has a standardized test condition of 25℃ with the exception of mono-crystalline modules in which the condition would be more or less 16%. If the condition rises over 40℃, 25% of power efficiency would be diminished. Considering this feature, it would be cost-effective to apply a photovoltaic module to stand-alone systems in the remote area beyond the reach of electricity. In order to overcome the weakness of photovoltaic module and benefit from the climatic advantage of Uzbekistan which has high direct solar radiation and dry and high temperature, large-scale collected solar thermal power generation is recommendable in the grid-connected area. This method can yield the plentiful collection of solar energy during the high solar radiation with hot temperature, and shows the effectiveness in economic feasibilities compared to a photovoltaic module. Meanwhile, farmhouses without access to electricity or gas will be able to use a supply system with a photovoltaic module for the purpose of lighting and powering television. In this case, the deployment of LED lamps will help declining electricity consumption and yet obtaining similar effect. The replacement of incandescent light bulbs with LED lamps can reduce up to 90% of previous power consumption and, consequently, decrease investments in stand-alone power supply system.
Uzbekistan’s well-equipped gas grid, desert climate, and the large temperature gap between summer and winter gives the country the perfect condition for cooling and heating facilities. The heating by solar thermal energy can be employed for water heating or heating in farmhouses. On the other hand, bigger commercial buildings can make use of the cooling and heating facilities powered by solar thermal energy or natural gas. Solar energy can also be used in the processing, drying and cooling of agricultural products.
3.3. Technological Development, Deployment and Industrial Status of Solar Energy
Uzbekistan has long been studying the development of solar energy. The country has operated 1,000 kilowatt solar furnace with the focus temperature of 3,000℃ that was established in the late 1980s. With science institutes of solar thermal energy, the former Soviet Union nation has high-level research and development capacity in basic and applied branches. With the support of Asia Development Bank, the construction of International Solar Energy Institute in Uzbekistan was decided in February 2012. In addition, as a part of the solar energy development project, five to six plants with a capacity ranging from 20 to 60 megawatts will be established around the country according to the analysis on solar energy potential.
Chapter 3 _ Measures to Develop, Standardize and Disseminate Solar Energy in Uzbekistan ● 115 Up to now, solar energy has been barely deployed in Uzbekistan. It has been reported that about 100 stand-alone photovoltaic power generation facilities with a capacity of 30 kilowatts and 1,000 solar thermal water heaters with the total collector area of 50,000m2 were built up in rural areas. Russia’s oil company Lukoil announced that it planned on participating in the country’s solar plant construction project with a capacity of 100 megawatts.
Nowadays, Uzbekistan’s solar thermal energy is used mostly in water heating. Domestic solar thermal collector producers such as Uzgeliokurilish, Encom and Photon are known to make flat plate collectors. President of Uzbekistan declared an investment plan for the deployment of 10,000 solar thermal water heaters and 500 kilowatts of photovoltaic module starting from 2012. The Physical-Technical Iinstitute of Scientific Production Association produces 280 watt photovoltaic modules. At present, 70% of module components and 80% of inverters are imported from abroad whereas most of connecting lines and parts are produced domestically.
3.4. Economic Feasibility of Solar Energy
Uzbekistan’s power rates are controlled by the government and have remained at low level in comparison to not only advanced countries but also to the former Soviet Union countries. The country charges differentiated electricity rates according to final consumers which are divided into 10 categories. The electricity charges for large-scale industrial facilities are 3.80 cents per kilowatt-hour whereas 4.48 cents are imposed for agricultural and small-scale industrial use, 4.93 cents for service industry, and 2.42 cents for residential use. Through comparative analysis on the economic feasibility of photovoltaic facilities in Korea and Uzbekistan, it was discovered that Uzbekistan’s payback period gets extremely longer due to cheap electricity prices. Although, for accurate analysis, the measurement of deliberate utilization ratio and power rate system should be considered in the calculation, the simplified estimation clearly demostrates a correlation between the payback period and electricity rates.
For the purpose of decreasing the payback period, the Korean government provides subsidies up to 40% of the installation fee for the construction of grid-connected system for self-consumption of power. In contrast, heavy energy consuming households in Korea are burdened with high electricity charges through progressive electricity rate system which imposes increasing unit price in proportion to their electricity use. For example, if a household consumed 300 kilowatt-hour in a month, the price of 57.3 won per unit would be applied to initial 100 kilowatt-hour, then 118.4 won for the next 100 kilowatt-hour and 175.0 won for another bringing the total electricity charges to 35,070 won. In this case, power rates per kilowatt-hour are 116.9 won which is more or less the same with the average residential electricity price.
However, if a household consumed more than 300 kilowatt-hour in a month, 258.7 won would be applied per kilowatt-hour, and 381.5 won for over 400 kilowatt-hour. A household that consumed over 500 kilowatt-hour would be subjected to an expensive rate of 670.6 won per unit. On the other hand, households with monthly consumption of over 600 kilowatt-hour are
116 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy ruled out from extra subsidies from 2012 since economic feasibilities are obvious. The comparative table at the bottom presents the economic feasibility in relation to electricity prices. While Korea’s photovoltaic devices for residential use have the invariable installed capacity of 3 kilowatts, electricity supply companies under control of the renewable portfolio standards sys- tem or the feed-in-tariff scheme have plants with a capacity ranging from kilowatts to mega- watts. However, we compared each sectors’ power facilities with a capacity of 3 kilowatts for easy understanding. The study excluded Korea’s stand- alone residential photovoltaic facilities because those are not the object of subsidies. For easy understanding, Uzbekistan’s grid-connected facilities are also set to 3 kilowatts, with the exception of 1 kilowatt small-scale photovoltaic facilities which deliver electricity to remote places without access to the grid. The analysis was conducted on the assumption that the installed capacity, utilization ratio and generation capacity are equal. In conclusion, Korea’s residential photovoltaic facilities have the payback period of 10 years without subsidies, and the electricity supply companies about 7 years. Uzbekistan has the longer payback period due to cheap electricity charges per unit.
For electricity supplies for remote places beyond the reach of the grid, the installation of stand-alone photovoltaic system is necessary. For stand-alone facilities, additional electricity storage system is required in order to supplement the grid. Currently, lead accumulators, nickel-cadmium batteries, nickel metal hydrogen batteries, and lithium ion batteries are used in the accumulation of electricity. For a photovoltaic power plant with an installed capacity of 1 kilowatt, the daily generation capacity on average is 3 to 4 kilowatts. In this case, the battery capacity should be 10 kilowatts taking into consideration the number of sunless days and efficiency. Among batteries, lead accumulators are most popularly used for its low price of about 3,000 dollars for 10 kilowatts, though it lasts only 3 to 5 years. The lifespan of other batteries is twice as longer and the prices twice as higher. To sum up, for constructing 1 kilowatt stand-alone system, the initial investment fee amounts to be twice as higher as grid-connected system. Moreover, it comes with the additional burden of replacing the batteries every 3 to 5 years.
The numbers applied to the analysis are the simplified estimate on the basis of data in Korea. Therefore, there is a possibility of disparity in electricity output in Uzbekistan’s case depending on the country’s electricity prices, facility prices, and utilization ratio. Nevertheless it is easy to figure out from even the simplified analysis that the economic feasibility of photovoltaic facilities is greatly influenced by the electricity charges per unit. For stand-alone system, aside from the mere economic feasibilities, additional studies are required concerning the enhancement of the quality of local lives and the cost for the grid connection.
Chapter 3 _ Measures to Develop, Standardize and Disseminate Solar Energy in Uzbekistan ● 117
Economic Analysis of Photovoltaic Facilities Photovoltaic Facilities Korea Uzbekistan Area Stand- Grid(3kW) RPS(3kW) Grid(3kW) alone(1kW) Unit Price of System 3,000 $/kW 3,000 $/kW 3,000 $/kW 3,000 $/kW Battery - - - 3,000 $ Facility Price 9,000 $ 9,000 $ 9,000 $ 6,000 $ Utilization Ratio 16 % 16 % 16 % 16 % Yield(y) 4,200 kWh 4,200 kWh 4,200 kWh 1,400 kWh Unit Price of Power 0.2 $/kWh 0.3 $/kWh 0.05 $/kWh 0.05 $/kWh Total Power Price 840 $ 1,260 $ 210 $ 70 $ Payback Period 10 years 7 years 43 years 86 years
The deployment of solar thermal technologies can help reducing the natural gas consumption in Uzbekistan. The country consumes 65 billion m3 of natural gas every year, 60 percent of which was supplied to the domestic market. While about 12 billion m3 of natural gas is exported at 200 dollars per 1000 m3, the price offered to internal customers is mere 50 dollars. Differently put, the government provides domestic consumers with 150 dollars of subsidies. In conclusion, the economic feasibility of solar thermal power plants in a gas grid-connected area is extremely low because the cheap price of natural gas excessively prolongs the payback period.
For easy understanding, the study applied equal facility prices. Dae-jeon in Korea and Tashkent in Uzbekistan were selected for the comparison of the two countries’ irradiation. Collector areas, collection efficiency and piping losses were also supposed as same. According to this simplified comparison, the yearly generation capacity of Dae-jeon is estimated to be 3,991 kilowatt-hour per m2whereas Tashkent yields 4,558 kilowatt-hour. In short, Uzbekistan can generate 15 percent more electricity compared to Korea.
In addition, the study supposed same gas energy, system efficiency and piping losses for both countries’ natural gas production, and came to the conclusion that Dae-jeon requires 411m3 of fuel while Tashkent 469m3 in order to produce the equal amount of gas energy. This analysis indicates the role of the unit price of natural gas as a decisive factor in economic feasibilities. Korea’s payback period turns out to be more or less 10 years without government subsidies whereas Uzbekistan’s, despite of abundant solar energy, lasts 174 years due to cheap gas charges. Even if the exported price (0.2 $/m3) was applied in the calculation, the payback period would appear to be 43 years.
118 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy
Comparative Analysis on Economic Feasibilities of Solar Thermal Facilities Solar Thermal Facilities(Naturally Circulating Water Heater) South Korea Uzbekistan Area (Dae-jeon) (Tashkent) Facility Price 4,000 $ 4,000 $ Irradiation 1,478 kWh/m2·y 1,688 kWh/m2·y Collector Area 6 m2 6 m2 Environment Collection Efficiency 50 % 50 % Piping Losses 10 % 10 % Solar Energy(A) 3,991 kWh/y 4,558 kWh/y Gas Energy(B) 12 kWh/m3 12 kWh/m3 System Efficiency(C) 90 % 90 %
Natural Gas Boiler Piping Losses(D) 10 % 10 %
Equivalent Fuel 3 3 Consumption(A/BCD) 411 m /y 469 m /y Unit Price 1 $/m3 0.05 $/m3 Conversion Costs 411 $/y 23 $/y Payback Period 10 year 174 year
Considering the fact that the utilization ratio and system efficiency of solar thermal electricity generation is higher than that of photovoltaic power, the solar thermal power is predicted to be a more prospective model for Uzbekistan. The graph at the bottom represents the difference in unit prices of power production by renewable energy technology. Currently, the unit price for solar thermal generation is almost invariably high regardless of models including parabolic troughs, linear Fresnel reflectors, and towers and heliostats. However, the solar thermal industry is expected to have large potential in the future as indicated by the United States that invests harshly in the industry with a goal of lowering the unit price for power production down to 6 cent/kWh by 2020.
Chapter 3 _ Measures to Develop, Standardize and Disseminate Solar Energy in Uzbekistan ● 119 Electric Production Price Comparison According to NRE Technologies
Source: Global Trends in Renewable Energy Investment, 2012 Bloomberg
3.5. Current Status of Solar Industry in Uzbekistan
Although researches on renewable energy have been conducted in Uzbekistan, there exists a limit in terms of commercialization and deployment of solar power technologies. Studies on materials at high temperature and measures for solar energy utilization were carried out using the solar furnace established by the former Soviet Union. Also, the Physics-Sun Institute in the country has developed photovoltaic technologies focusing on materials and solar cells. Nonetheless, these efforts remain on the research level that the manufacturing infrastructure needs to be prepared for the commercialization and deployment of solar energy.
Sufficient radiation and the large land mass have offered Uzbekistan a desirable environment for solar power generation. Uzbekistan’s solar energy is predicted to partly replace the demand for natural gas. However, in order to actually utilize this renewable source, international cooperation is necessary given the fact that the country does not have adequate technologies nor enough capital. The Asia Development Bank’s recent cooperation program and loan support are an excellent example of international cooperative activities for the development of the solar industry. Considering the fact that rural areas accounted for 60% of the whole country, it would be advisable to support the deployment of stand-alone photovoltaic power plants and solar thermal hot water supply facilities with a focus on the districts with poor connection to power grids or without access to natural gas.
In addition to the deployment of photovoltaic power plants, comparative analysis on the renewable portfolio standards system and the feed-in-tariff scheme should be carried out in
120 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy order to adopt an adequate system that is suitable for Uzbekistan’s environment and likely to facilitate the deployment of solar thermal energy.
4. Experience of Korea
4.1. History of Development and Deployment of Solar Energy in Korea
Korea started to develop renewable energy in the wake of the outbreak of the first oil shock in the 1970s. During the early period, government institutes and universities studied solar thermal energy and biomass. As the government enacted the Promotion Act for New and Renewable Energy Development and Deployment in 1987, the support system for the analysis on renewable energy was established in Korea Energy Management Corporation, followed by the deployment of solar thermal water heaters and waste incineration plants. In 2003, photovoltaic power, wind power, and hydrogen fuel cells were appointed as three primary sectors subject to the intense government support. The law was revised in 2004 into the Promotion Act for New and Renewable Energy Development, Utilization and Deployment. In 2008, the 3rd Basic Plan for New and Renewable Energy Development, Utilization and Deployment was announced with an aim to enhance the renewable consumption to 11% of total energy use by 2030. In line with the basic plan, relevant policies were executed and renewable energy was designated as the country’s driving engine. The renewable portfolio standards system was introduced in 2012 to facilitate mass deployment of renewable energy by requiring power producers to provide certain percentages of electricity from renewable sources. As for photovoltaic power, a quota system exists to define the share of photovoltaic power generation so that the industry would continue the steady growth.
4.2. Current Status of Solar Energy Deployment
Renewable energy contributed to 2.75 percent of the total primary energy supply in 2011 and the ratio has shown increase every year. Still, most of the renewable energy consumption came from waste and hydropower. Currently, photovoltaic and solar thermal markets keep expanding with the help of various backing programs which form the basis of the industrial support. Even though the total amount of installed capacity of photovoltaic facilities had decreased year after year since 2008, the industry itself has enjoyed steady growth thanks to the governmental support systems such as the renewable portfolio standards system. By the end of 2011, the total amount of installed capacity of photovoltaic facilities was 729 megawatts among which 79 megawatts were from the year 2011. The total amount of power production from photovoltaic sources in 2011 was 917 gigawatt-hour.
Likewise, the demand for solar thermal has increased year after year and the facilities have been more broadly deployed. A total of 1.649 million m2 solar thermal power were deployed
Chapter 3 _ Measures to Develop, Standardize and Disseminate Solar Energy in Uzbekistan ● 121 by 2011. However, the number decreased in 2011 compared to a year earlier with an estimate amount of 27,000 toe on account of the antiquation of old equipments.
Deployment Portion by NRE resources in 2011 and Deployment Trends by year
Source: NRE Deployment Statistics (Korea Energy Management Corporation, 2012)
Deployment Status of Photovoltaic Power year 2007 2008 2009 2010 2011 total Capacity (MW) 45 276 167 127 79 729 Deployed (GWh) 71 284 566 723 917 -
Source: Deployment Statistics of New and Renewable Energy (Korea Energy Management Corporation, 2012)
Deployment Status of Solar Thermal Power year 2007 2008 2009 2010 2011 total Capacity (m2) 14 51 96 70 55 1,649 Deployed (1,000 toe) 29 28 30 29 27 -
Source: Deployment Statistics of New and Renewable Energy (Korea Energy Management Corporation, 2012)
4.3. Current Status of Solar Energy Industry
Korea’s solar industry has grown every year since 2007. Until now, the number of photovoltaic companies have increased by 3 times while employees enlarged 8 times, exportations 32 times and private investments 11 times. As the government and relevant businesses have made enormous investments in the photovoltaic industry, the sector has been successfully formed by value chain.
122 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy
Current Status of Photovoltaic Industry 2010 2011 Unit 2007 2009 rate Rate Company Number 30 81 91 12% 98 8% Employment Number 1,279 6,285 8,906 42% 10,600 19% Sale Billion KRW 441 2,719 5,859 115% 7,917 35% Export Million $ 142 1,723 3,744 117% 4,594 23% Invest Billion KRW 366 2,263 2,872 27% 4,205 46% Source: Deployment Statistics of New and Renewable Energy (Korea Energy Management Corporation, 2012)
Korea’s solar thermal industry had prospered from 2007 to 2010. Yet, it shrunk a little in 2011 due to the sluggish domestic demand. However, the industry is deemed to have a bright prospect for reinvigoration in coming 2012.
Current Status of Solar Thermal Industry 2010 2011 Unit 2007 2009 rate Rate Company Number 19 23 23 - 18 -28% Employment Number 311 349 389 11% 184 -111% Sale Billion KRW 39 87 90 2% 36 -150% Export Million $ - 1 2 100% - - Invest Billion KRW 1 3 6 100% 2 -200% Source: Deployment Statistics of New and Renewable Energy (Korea Energy Management Corporation, 2012)
4.4. Technological Deployment of Solar Energy
The Korean government has supported technological development of solar energy to secure original technology and achieve export-driven industrialization. In an attempt to facilitate the commercialization of solar products, the government has encouraged companies to invest in technological reform by setting the ratio of private investments and governmental one. As for photovoltaic industry, the government appointed it among three most important sectors along with wind and hydrogen fuel cells, making enormous investments in its technological development with a view to achieving an export-oriented industrialization. From 1988 to 2011, 194 research and development projects received support fund amounting to 447.8 billion won, among which the government provided 299.3 billion won. Mono-crystalline and poly-crystalline solar cells, now getting past the commercialization process, are in the research process for the development of cost-effective products and localization of components. At present, the government endeavors to commercialize various kinds of thin film solar cells such as multi-junction silicon thin film technique as well as wide and flexible CIG cell technology.
Chapter 3 _ Measures to Develop, Standardize and Disseminate Solar Energy in Uzbekistan ● 123 Meanwhile, 57.8 billion won was invested in 93 research and development projects on solar thermal generation, among which 41.1 billion won was from the government. The support for low temperature solar thermal power focused on the localization of absorb plates and systems through the acquisition of essential technologies, and it was put to practical use with the development of heating system in building sectors. The support for high and medium temperature solar thermal was centered on cooling and electricity generation with the intention of utilizing extra thermal energy in summer as well as enhancing the demand for solar thermal power.
4.5. Standardization and Certification of Solar Technology
In order to facilitate the deployment of renewable energy and achieve an export-oriented industrialization, it is imperative to build confidence in regard to renewable energy facilities through standardization and certification of relevant technologies. In particular, introducing construction criteria for solar facilities and performance confirmation system will serve as a strong tool in securing the products’ durability and credibility. The Korean government has placed top priority in strengthening the infrastructure for export-driven industrialization of the renewable industry, by setting the equipment standards such as IEC and KS for the purpose of adopting the international norms as well as expanding domestic ones into international markets. The government also supports the evaluation process by appointing the regional, industrial, academic and scholarly hub as a test bed to analyze, test and verify the technologies and equipment that are domestically produced.
The certification program was introduced with an intention of promoting advanced equipment in the country and granting advantages to renewable facilities that stay above certain criteria in the One Million Green Homes program and the renewable portfolio standards system. The photovoltaic and solar thermal industries have produced an increasing number of certified products year by year. By the end of 2012, 707 models in photovoltaic market obtained certifications and 58 models in solar thermal market.
124 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy
Certified Solar Energy Equipments in Korea The Number of Certified Products Sector Product Total ‘04~’06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 Grid-Connected Inverter 2 - 2 4 15 12 7 42 Photovol- Crystalline Solar Cell - - 11 70 135 210 223 649 taic Thin Film Solar Cell Module - - - 6 6 2 2 16 Total 2 0 13 80 156 224 232 707 Flat Plate Solar Collector 4 2 - 2 3 5 4 20 Vacuum tube solar collector 6 5 1 4 7 4 4 31 Naturally Circulated Solar Ther- Solar mal Water Heater 1 - - - 1 - 4 6 Thermal Artificially Circulated Solar Thermal Water Heater - - - - 1 - - 1 Total 11 7 1 6 12 9 12 58
Source: Statistics of New and Renewable Energy (Korea Energy Management Corporation, 2012)
4.6. Deployment of Solar Energy
In an attempt to speed up the deployment process of renewable energy in the country, the Korean government introduced various incentive programs, the renewable portfolio standards system, and various deployment schemes. The incentive programs include the feed-in-tariff scheme which compensates the additional costs incurred from power production by renewable sources in comparison to fossil-fueled power generation. The government offers tax reductions and long-term loans at low interest rates to businesses for installing renewable power facilities. The buildings certified for their renewable facilities are granted the acquisition tax cut as well as the raised floor area ratio. As the government had issues with bearing immense expense, the operation of feed-in-tariff scheme was ceased in 2011 and replaced with the renewable portfolio standards system. A total of 1,991 photovoltaic power plants with a production capacity of 2,536 gigawatts benefited from the feed-in-tariff scheme by the end of 2012. The renewable portfolio standards system requires power producers to provide certain percentages of electricity from renewable sources. Particularly, the share of photovoltaic power was also arranged in order to foster the solar industry.
The feed-in-tariff scheme prevents risky investments and invigorates the industry through the price adjustment by the government. After the pricing, the production capacity in the market is defined accordingly. In this scheme, the government is inevitably subjected to an enormous financial burden. In contrast, under the renewable portfolio standards system, the government decides production capacity and the market sets the price accordingly. It enables the government to predict electricity supply, and, therefore, dodge stupendous cost. Yet, it should be noted that the sufficient infrastructure building must precede the adoption of this scheme. Countries alternately choose the renewable portfolio standards system and feed-in-tariff
Chapter 3 _ Measures to Develop, Standardize and Disseminate Solar Energy in Uzbekistan ● 125 scheme according to their varied circumstances. At present, the renewable heat obligation policy is being developed in Korea with an aim to enhance renewable energy consumption in the thermal sector. Also in effect is the Public Institutions Renewable Obligation Program which requires public institutions with a floor space of over 1,000㎡ to use renewable energy up to 10% of total power consumption.
Various deployment programs are applied to different types of buildings and regions: the One Million Green Homes program for residential buildings; the General Subsidy Program for common buildings; and the Regional Deployment Subsidy Program for enhancing local energy supply. At the end of 2012, a total of 141,000 residential buildings were equipped with photovoltaic power facilities with the installed capacity of 122 megawatts. At the same time, common buildings were recorded with 16 megawatts of photovoltaic facilities and 94,000m2 of solar thermal areas with the help of the General Subsidy Program. The Regional Deployment Subsidy Program yielded 60 megawatts of photovoltaic facilities and 151,000m2 of solar thermal areas. The Public Institutions Renewable Obligation Program deployed 90 megawatts of photovoltaic facilities and 36,000 ㎡ of solar thermal areas.
Comparison between FIT and RPS system Feed in Tariff (FIT) Renewable Portfolio Standard (RPS) Price Adjustment by the Government Demand Adjustment by the Government Mechanism -> Generation decided in the Market Ac- -> Price decided in the market Accordingly cordingly Supply Target Uncertainty of the Amount of Supply Easy Prediction of Supply
Pricing Difficulty Price Decided and Changed in the Market Pricing Extra Incentives to Suppliers Competition among Suppliers
Country Germany, Spain, France, Denmark USA, UK, Sweden, Canada Security of Investment Competition -> Cost Down Advantage Industrial Growth through Stable Invest- Alleviation of Financial Burden ment Disproportionate Emphasis on Specific Financial Burden on the Government Disadvantage Sources according to Economic Feasibilities No Competition -> No Cost Down Infrastructure Building Required
Source: Statistics of New and Renewable Energy (Korea Energy Management Corporation, 2012)
Deployment of Solar Facilities by Program(Dec 2012)
Regional Public Institutions Green General Deployment Total Homes Subsidy Subsidy Renewable Obligation Photovoltaic Power(MW) 122 16 60 90 288 Solar Thermal(1,000m2) 179 94 151 36 460 Source: Statistics of New and Renewable Energy (Korea Energy Management Corporation, 2012)
126 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy 4.7. Promotion of Solar Energy Industry
The government operates the Renewable Energy Service Companies program to improve expertise of companies specializing in the installation of renewable energy facilities such as solar, wind and geothermal energy. The special companies are issued certificates according to their submitted report on their capital stock and expert workers. By 2012, 8,777 special companies applied for the certification since the program initiated, among which 7,794 firms are now operating as certified special companies.
Various organizations are conducting joint activities in support of an export-oriented indus- trialization. The Korea Trade-Investment Promotion Agency and the Korea Photovoltaic Industry Association worked for market researches and the identification of projects whereas Korea Ener- gy Management Corporation supports for the certification of renewable energy facilities abroad. Part of the efforts in exporting renewable technologies include global market analysis, overseas market expansion, capacity building abroad and the international exhibitions. Also, industrial complexes are established for supporting the deployment and exportation of domestic prod- ucts in addition to various complexes including theme parks for fostering relevant industries.
4.8. Stories of Failure and Redemption
The solar water heater market in Korea had enjoyed steady growth from the 1970s to 1990s with a notable amount of 180,000 water heaters deployment in 1999. Not long after, problems emerged. The industry had earned a bad reputation following the emergence of an increasing number of small and medium sized businesses with insufficient capital and technologies. Subsequently, consumer complaints increased in regards to freezing, bursting and leaking as well as scanty capacity of facilities. As a consequence, the government support shriveled and so did the relevant industries. Finally, the solar thermal power deployment program was shut down prematurely in 2004. The deployment program resumed in the late 2000s introducing several related programs such as the certification and standardization of components and the registration of the renewable energy service companies with a hope of keeping low-quality products away from the market. In addition, the government raised the incentives as well as strengthened and integrated after-sales service. Despite all this effort, the mistrust of consumers and the extra thermal energy sources in summer remained unsolved.
To avoid repetitive failure of solar thermal energy, the One Million Green Homes program was implemented along with certification programs, the enforcement of the use of certified products, and strict quality control systems. The photovoltaic industry secured the market confidence by setting strict construction standards and supervising their observance. As for manufacturers, the government granted tax incentives to attract investments and offers long-term loans at low interest rates for them to enhance their equipment standards. Through such support programs and quality control systems, the deployment of residential buildings powered by photovoltaic energy expanded into the One Million Green Homes program
Chapter 3 _ Measures to Develop, Standardize and Disseminate Solar Energy in Uzbekistan ● 127 covering solar thermal and geothermal energy.
5. Policy Recommendations
Among renewable energy sectors, the creation of new markets in the solar industry is especially tough without the support from the government due to the high costs of electricity generation. That’s why the existence of big industries that yield economies of scale is imperative in promoting solar power in the country and achieving an export-driven industrialization. In order to create new markets, policies concerning prices and demands must be taken into consideration. The government could provide subsidies for renewable equipments and facilities with an intention of reducing power production costs. This, however, can lead to a great amount of financial pressure on government spending. On the other hand, demand-side management in power system can create the demand for renewable energy artificially through programs such as the Renewable Energy Facility Installation program. In countries with barely developed renewable industries and markets, it is recommendable to introduce the Public Institutions Renewable Obligation program beforehand for the purpose of creating new markets, and later offer government subsidies. In addition, the standards regarding renewable technologies and construction process should be established to sustain market confidence. The programs for certification and performance evaluation of solar equipments are also required to prevent market disruptions that can be potentially caused by the import of uncertified products. To ensure the proper operation of installed facilities, comprehensive supervising programs during the installation process must be in place. The government support systems with precise goals and tax incentives will be necessary for the creation of new markets. In this regards, departments supervising government policies and operating agencies such as the New and Renewable Energy Center in Korea need to be established.
128 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy References
Bloomberg, Global Trends in Renewable Energy Investment, 2012.
KEMCO, New & Renewable Energy Statistics 2011, 2012.
MKE & KEMCO, NEW & Renewable Energy, 2012.
REN21, Global Status Report, 2012.
SHC, Solar Heat Worldwide(Markets and Contribution to the Energy Supply 2009), 2011
UNDP, The Outlook for Development of Renewable Energy in Uzbekistan, 2007. http://www.desertec.org http://www.undp.org http://www.ebrd.com http://www.knrec.or.kr http://www.adb.org
Chapter 3 _ Measures to Develop, Standardize and Disseminate Solar Energy in Uzbekistan ● 129
Policy Consultation on Uzbekistan’s Industry Innovation Strategy Chapter 4
Agriculture and Marketing for the Agricultural Processing Industry Development in Uzbekistan
1. Introduction 2. Overview of Agriculture in Uzbekistan 3. Korean Experience of Agriculture Development and Marketing 4. Overview of Uzbekistan's Agricultural Marketing 5. Obstacles to Uzbekistan's Agricultural Development and Marketing 6. Policy Recommendations for Uzbekistan's Agricultural and Marketing Development Chapter 04
Agriculture and Marketing for the Agricultural Processing Industry Development in Uzbekistan
Kyung Ryang Kim (Kangwon National University) Chori Murodov (IFMR) Darya Ilina (IFMR) Shavkat Hasanov (Samarkand Agricultural Institute/University)
Summary
Uzbekistan is an agrarian country, with the agricultural sector still contributing a good share to its overall economy despite the nation’s consistent decline in its contribution. The development of the sector has been constrained in many ways including the slow transition out of a command economic policy from the Soviet era; issues related to degradation of land resources mainly due to salinity problems and deteriorating soil fertility; natural calamities caused by the drying up of the Aral Sea and the related stumbling blocks of dwindling water sources for irrigation; infrastructural problems in rural areas and underutilization of existing infrastructure; underdeveloped agricultural marketing system and the related inefficiencies, among others.
Traditionally the agricultural production in Uzbekistan has been dominated by cotton and wheat cultivation and is less diversified than other countries. However, the country is gradually diversifying strategic production away from cotton through the expansion of high-value crops like fruits and vegetables. In particular, the growth of incomes has brought opportunities for the cultivation and marketing of high-value agricultural products including fruits, vegetables and livestock products. During the period of 2000 – 2010, horticultural products (fruits, vegetables and viticulture subsectors) made a significant contribution to Uzbekistan’s agricultural output. This further enhances related agro-processing businesses through forward and backward linkages. Consequently, agro-processing of fruits and vegetables also has become an important domain.
132 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy Although recent reforms have provided opportunities for liberalization particularly for the fruits and vegetable subsectors, these are not enough to achieve the nation’s goal. Therefore, modernization of the agricultural marketing system in Uzbekistan is a precondition for the development of agricultural processing in the country. The aim of this study was to review the development of the agricultural sector in Uzbekistan and that of Korea, and draw lessons from the Korean experience that could be used as an input in designing and improving the development of the sector in Uzbekistan. In particular, the study focused on assessing the agricultural marketing systems of the two countries, with emphasis on the marketing of fruits and vegetables to draw useful implications and recommendations for planning a better policy for Uzbekistan’s agricultural marketing system. In doing so, major constraints and challenges in the agricultural sector in general and the agricultural marketing system in particular have been identified, and recommendation and policy suggestions were forwarded based on the experience of Korea.
The policy suggestions are proposed for implementation in phases/stages; namely, the initial/preliminary stage (to stimulate the development and introduction of new varieties of plants and breeds of animal, agro-technology and enhance the productivities of crops and livestock); the diversification stage (to enhance the structure of sown areas through increasing areas under competitive crops); take-off stage (to create new enterprises based on modern technology and technological renovation export and processing agricultural products); and, finally, maturation stage (for the implementation of measures to promote sustainable development and modernization of agriculture). Specific recommendations were given pertaining to some of the constraints identified: agricultural production and productivity, quality of land resources, irrigation, reforms, R&D, extension, rural finance, and agricultural marketing.
1. Introduction
1.1. Background of the study
Uzbekistan is a doubly-landlocked country located in the heart of Central Asia. It is the most populous country in the region, rich in resources and has a strong agricultural base. The country has chosen gradual reform path for the purpose of social stability, based on strong preferences for national independence, government control and self-sufficiency. While cotton and grain are the most important crops in Uzbekistan, horticultural products (fruits, vegetables and viticulture subsectors) contributed significantly to Uzbekistan’s agricultural output during the period of 2000 - 2010. Agro-processing of fruits and vegetables also has become an important domain.
Modernization of a privatized horticulture sector will lead to sustainable rural economic growth combined with significant rural welfare improvement. Horticultural produce for domestic markets is already dominated by small-scale household plot/dekhan farm production, contributing significantly to increasing the incomes of less advantaged households. Modernization of
Chapter 4 _ Agriculture and Marketing for the Agricultural Processing Industry Development in Uzbekistan ● 133 current systems of horticultural production is expected to result in productivity and quality gains. Such modernization involves various support schemes to upgrade planting varieties; to improve knowledge and skills of small-scale producers, market services providers and agrifirms; and adopt modern technologies and relevant financial products. These will, in turn, lead to enlarged access to domestic and export markets, strengthened food security and safety and increased incomes for small-scale producers and market service providers. Enhanced productivity and market access will offer opportunities for further entrants from the rural unemployed into production as operators or as wage labor at different levels of the horticultural value chain.
Product markets and input supply channels were largely controlled by the state organization under the command economic framework of Soviet Union. The missing market signals under this system have resulted in inefficiencies in agricultural marketing and processing industries. Although recent reforms have brought liberalization of the economy, especially for the fruits and vegetable subsectors, these are not enough. Therefore, modernization of the agricultural marketing system in Uzbekistan is a precondition for the development of agricultural processing in the country.
1.2. Objectives of the study
The objective of the study is to assess the agricultural development and marketing system of Uzbekistan, with particular reference to the fruits and vegetables subsectors. The study also seeks to explore ways toimprove the marketing system to help develop agricultural processing in the sector. Specifically, the study aims to review the agricultural sector of Uzbekistan with the purpose of identifying the constraints and the potentials of the fruits and vegetables subsector for agro processing. In doing so, the experience of the marketing system of Korea would be reviewed to draw important lessons and implications for Uzbekistan. In line with studying the importance of the fruits and vegetables subsectors in improving the income of agricultural producers in Uzbekistan, the study also aims to examine possibilities for the clustering and commercialization of the production, marketing and processing of these products.
1.3. Organization of the study
The study is divided into six sections. With a brief introduction given in the section one, the next section will provide an overview of Uzbekistan’s agricultural sector. This section outlines the importance of the sector in the economy, the organization and trends of agricultural production, and the situation of fruits and vegetables production in the country. The section three is devoted to the discussion of Korean experience of agricultural development and marketing system. The section four demonstrates an overview the agricultural marketing system in Uzbekistan. The section five presents major obstacles faced in Uzbekistan’s agriculture and marketing system. Finally, the section six charts out the policy recommendations for the agricultural and marketing development in Uzbekistan. The idea of clustering the production and processing of fruits and vegetables would also be discussed in this section.
134 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy 2. Overview of Agriculture in Uzbekistan
2.1. Uzbekistan’s Agriculture and the Economy
Uzbekistan is a country of vast land with rich natural and oil resources. It is a dry, landlocked country, 11% of which consists of intensely cultivated, irrigated river valleys. More than 60% of its population lives in densely populated rural communities. Uzbekistan is now the world’s second largest cotton exporter and fifth largest cotton producer, a large producer of gold and oil, and a regionally significant producer of chemicals and machinery. Uzbekistan enjoyed a bumper cotton crop in 2010 amidst record high prices, but is gradually diversifying strategic products away from cotton toward more high-value fruits and vegetables. Following independence in September 1991, the government sought to support its Soviet-style command economy with subsidies and tight controls on production and prices. The deepening of inequality of income distribution has hurt the lower ranks of society since independence.
Faced with high rates of inflation, however, the government began to carry out the reform in mid-1994. The reform included introducing tighter monetary policies, expanding privatization, reducing slightly the role of the state in the economy, and improving the environment for foreign investors. The state continues to be the dominant party in the economy, though it has so far failed to bring about much-needed structural changes¹⁾.
Map of Uzbekistan
Source: Statistics of New and Renewable Energy (Korea Energy Management Corporation, 2012)
1) CIA-the world factbook, 2012
Chapter 4 _ Agriculture and Marketing for the Agricultural Processing Industry Development in Uzbekistan ● 135 Uzbekistan has responded to unfavorable external conditions generated by the Asian and Russian financial crises, by tightening export and implementing currency controls even though the nation has already been considered as a closed economy. Economic policies that have repelled foreign investment are the major factors for the economy’s stagnation. A growing debt burden, persistent inflation, and poor business climate led to stagnant growth in the 2000s²⁾.
The country is gradually adopting market-oriented economic policies. Unlike Russia and Kazakhstan, however, Uzbekistan has not fervently demonstrated the desire for economic reform. Privatization of companies has been slow and attraction of foreign capital has not been aggressive.. Through revenues from primary commodity exports, the government is carrying out an industrial policy of substituting imports through fostering manufacturing industries (ADB [2006]).
Uzbekistan’s economy depends heavily on agricultural production. As late as 1992, roughly 40 percent of its net material product (NMP)³⁾ has been generated in the agricultural sector, although only about 10 percent of the country’s land area was cultivated. Agriculture is also the biggest industry, which accounted for 21.7% of GDP in 2007 and employed approximately 28% of labor force (WFP [2008]; Hasanov and Norman [2011]).
The State-led approach to reorienting the command economy through gradual introduction of market economy measures since the independence in 1991 reflects the government’s view that it is necessary to strengthen the domestic economy before competing with the global market while also maintaining social and political stability. It has been broadly successful in that Uzbekistan experienced a relatively modest decline in Gross Domestic Product (GDP) of around 20% in the first five years of its independence compared to an average fall of around 40% for other former Soviet countries. From 2004 onwards, annual growth rates averaged more than 7%, driven by liberalization of the economy, current account convertibility and a favorable external environment for the main export commodities of cotton, gold, oil and gas. The growth rate in 2010 was about 9%.
2 ) CIA-the world factbook, 2012 3 ) Net material product (NMP), the approach to national accounts introduced in the USSR in the 1920s, was adopted by all centrally planned economies. It is the conceptual equivalent of Gross Domestic Product (GDP), although it excludes services
136 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy GDP growth rate, 2000-2011
Source: IMF - World Economic Outlook, October 2012
The growth trend of each sector reveals that industry’s share of GDP has increased from 14% in 2000 to 24% in 2011 and the service sector from 37% in 2000 to 40% in 2011. Agriculture’s share of GDP has decreased from 30% in 2000 to 17.6% in 2011. However, agriculture still remains important: around 49% of the population is in rural areas and 25% of the national workforce is directly employed in the sector. Moreover, agriculture provides 90% of domestic demand for agricultural products and 70% of domestic trade. With a GNI per capita of US$ 1,100 in 2009, Uzbekistan is classified as an upper low-income country.
The structure of Uzbek economy (% composition in GDP)
Sector 2000 2005 2007 2011 Manufacturing 14.2 21.1 21 24 Agriculture 30.1 26.3 23.2 17.6 Construction 6.0 4.8 5.9 6.1 Transport and communication 7.7 10.6 11.3 11.7 Merchandise trade 10.8 8.8 9.4 8.8 Others 31.2 28.4 29.2 31.8
Source: State Statistics committee of Uzbekistan, 2012
With regard to food consumption, there have been significant changes over the years. In the 1990s, the country imported over 82% of the total consumption of grain, 50% of the meat and meat products, 60% of dairy products, 50% of potatoes, and 100% of sugar and powdered milk and baby food. Nowadays Uzbekistan provides its own population with all basic food products in the necessary volume in almost all products due to the development of domestic production (except for sugar).
Chapter 4 _ Agriculture and Marketing for the Agricultural Processing Industry Development in Uzbekistan ● 137 Composition of food consumption, 1990-2010 (kg/capita)
Source: Ministry of Economics Republic of Uzbekistan, 2011
The estimates suggest significant differences in income and food consumption between urban and rural areas, with a lower level of income in rural areas, and there is an obvious case for concentrating policy on this imbalance. Apparently, actions aimed at rural economic growth will place agriculture at their core, but emphasis on the wider rural economic development will also be important since worldwide experience shows that agricultural growth alone is insufficient to raise rural income substantially. This is because agricultural earnings accrue mainly to those with access to the key factors of production (land and water). Moreover, the link between agricultural growth and incomes in the rural sector as a whole are weak. As a result, addressing non-agricultural incomes and non-agricultural income sources is essential in rural development.
Overall, the agricultural sector accounts for approximately 34% of total employment in Uzbekistan and over 60% of the population lives in rural areas . Among the population living in rural areas, 93% of them earn less than $5 per day and are highly vulnerable to changes in agricultural income . As a result, the national economy remains inherently vulnerable to climate-related events that impact the agricultural sector.
2.2. Agricultural Land Use and Management
Uzbekistan covers about 450,000 square kilometers. A large area of land is used for agriculture, with natural pastures occupying 40% of the country and rain-fed and irrigated cropland accounting for an additional 12% (Figure 4-4). More than 85% of Uzbekistan’s cropland is irrigated, comprising approximately 10% of the land area.
4 ) ftp://ftp.fao.org/agl/agll/docs/fertuseuzbekistan.pdf 5 ) The World Bank, 2009. ECA Databank. Washington DC 6 ) Centre for Hydro-meteorological Service, Cabinet of Ministers, 2008. Second National Communication of the Republic of Uzbekistan under the United Nations Framework Convention on Climate Change, Tashkent
138 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy Composition of food consumption, 1990-2010 (kg/capita)
Other Raserve 5% land Irrigated 24% Land 10%
Rain-fed Forest crop land resources 2% 19% Natural Pastures and Rangelands 40%
Source: Centre for Hydro-meteorological Service, Cabinet of Ministers, 2008.
Main agricultural areas are located in the basins of the Amu Darya and the Syr Darya rivers, which supply about 70% of irrigation water. Large expansion of irrigated lands during 1960s to late 1980s resulted in excessive water takeoff from these rivers, which caused the drying out of the Aral Sea, increased soil salinity, and other adverse environmental impacts (WFP [2008]).
Farming is conducted by a permanent rental system. Privatization of land has not been enforced, and land is state-owned, except for special cases where law is enacted. Of the total land area, farmland is about 22,260,000ha and arable land is 4,450,000ha. In 2008, about 2,750,000 people worked in agricultural sectors and of the total population, 63% were living in rural areas. Major agricultural products are wheat and raw cotton. As a raw material to export finished textile products, raw cotton is the major earner of foreign currency in Uzbekistan.Wheat is also a major crop for food self-sufficiency and is mostly produced to fulfill domestic demand. Through Goszakas (a procurement system of products for the state and municipal), the government buys agricultural products at a low price in a forceful way and exports them at a high price exclusively. The profits made there from are redistributed as subsidies for domestic manufacturing sectors or are absorbed as government revenues.
Chapter 4 _ Agriculture and Marketing for the Agricultural Processing Industry Development in Uzbekistan ● 139 The structure of agricultural production in Uzbekistan
Source: State Statistics committee of Uzbekistan, 2011
Among the total crop cultivation area, wheat accounts for about 90% of the area, grown on 1,380,000ha. As the biggest export product in agriculture, Uzbekistan’s raw cotton ranks 5th in the world in terms of production volume following the U.S, India, China, and Pakistan and ranks second in terms of export volume. About 60% of its population is working in the raw cotton industry and, in 2010, raw cotton accounted for about 20% of Uzbekistan’s total export volume. As part of the Interim Welfare Improvement Strategy (I-WIS), the government has initiated agriculture and rural development strategies and endeavors to increase agricultural productivity and farm income based on mostly sustainable farming. Regarding the farming sector, the government has focused on increasing productivity and income through efficient marketing of raw cotton and wheat.
Sown area of crops (1,000ha)
1991 2000 2005 2011 Sown area, total 4,200.3 3,778.3 3,647.5 3,601.2 of which wheat 487.2 1,355.8 1,439.7 1,432.6 rice 159.6 131.8 52.5 23.1 maize 107.7 49.2 33.6 26.5 of which cotton 1,720.5 1,444.6 1,472.3 1,329.2 of which potatoes 40 52.2 49.8 73.6 vegetables 165.6 130 137.7 175.4 forage crops 1,065.7 429 290.3 313
Source: State Statistics committee of Uzbekistan, 2012
140 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy By area, cotton and wheat are the two major crops grown in Uzbekistan. Smaller areas are occupied by fodder crops, grapes, apples, barley, tomatoes, potatoes and rice. Although the area occupied by fruit and nut trees is relatively small in comparison to wheat and cotton, the prevailing climate conditions are suitable for the expansion of their production area.
At a commodity level, cotton lint, cattle meat, cow milk, wheat, tomatoes, grapes, and cottonseed brought the greatest contribution to the average value of agricultural production in Uzbekistan from 2005-2007. Approximately 60% of the value of agricultural production is derived from the annual and perennial crop sectors, while the livestock sector produces the remaining 40%. Although field crops like cotton and wheat are grown extensively and occupy a large percentage of the cropping land, other crops like tomatoes, grapes, potatoes and apples make enhance the value of agricultural production on a proportional basis, as they can garner higher price (UNDP [2010]).7)
Production of principal agricultural crops, 2004-2009 (1,000 tons)
During 1991 to 2011, sown area decreased by almost 600 thousand hectares. This was caused by poor amelioration condition of soil, which forced the withdrawal of affected farm lands out of agricultural production. The growth of irrigated agriculture, in particular for cotton, has been associated with a range of water-related environmental problems, including, most famously the shrinking of the Aral Sea, less publicized salinity and water-logging of irrigated lands throughout the Sea’s two river basins (Abdullaev et.al [2009]).
During the Soviet period, approximately 3–4 million tons of wheat was imported annually to the Uzbek Soviet Socialist Republic, primarily from other Soviet States, in exchange for cotton. After the collapse of the Soviet Union, the demand for cotton from traditional barter-based exchange markets (Russia and other FSU states), while still high, began to show a sharp decline in favor of cash-based markets elsewhere. Similarly, wheat could no longer be bartered
Chapter 4 _ Agriculture and Marketing for the Agricultural Processing Industry Development in Uzbekistan ● 141 for cotton, but had to be paid for in cash. Paying for these imports was a major challenge for the newly independent Uzbekistan and had implications for national food security. In response, the Uzbek government mandated a reduction of cotton production and an increase in production of wheat. Due to an overlap of the growing seasons of wheat and cotton, an increase in the wheat area meant a decrease in the cotton area (Abdullaev et al. [2009]).
Consequently, there have been significant changes in the structure of sown areas of crops. By reducing the area under cotton and forage crops, the share of areas under potatoes, vegetables and melons increased from 7.0% in 1991 to 8.2% in 2011; and grain crops from 25.7% to 44.6 % during the same period. Within the irrigated area as well, this shift is vivid as depicted in Figure 6 below. The share of cotton fields in total irrigated areas has declined to 30% in 2010 from 50% in 1990, whereas the share of other crops rose to 70% during the same period. Accordingly, this trend is a clear indication of policy shift towards water-saving strategies in the country.
Share of cotton and other crops in total irrigated land (1990-2010)
Cotton Other crops
50% 70%
50% 30%
1990 2010 Source: State Statistics committee of Uzbekistan, 2011
Such shifts have also enabled the government to avoid shortages and rising food prices in the face of global financial crisis. Development of selected seed varieties, the use of new high-yield crop varieties, and improvements in agriculture technologies have led to significant increases in the yield of food crops during the period of 1991 to 2011 (Table 4-5).
Average yield agricultural crops in all types of farming (ton/ha)
142 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy The arable land accounts for about 10% of the total land area or 4.4 million ha. Because most of the regions have annual rainfall of less than 200 mm due to the continental climate, agriculture without irrigation is difficult. The total area of irrigated land is 4.2 million ha, and 95% of Uzbekistan’s agriculture is irrigated agriculture using water from the Sir Darya and Amu Darya rivers that flow into the fast-shrinking Aral Sea.
The amount of the water used for the irrigation is now reaching the limit of available irrigation water supply that is decided by the related countries. Moreover, since its independence, the irrigation and drainage facilities have not been properly maintained, managed or rehabilitated by water users association due to lack of funds. The capacity of these facilities has been dwindling. This situation is further accelerating the damage caused by salinity issues. Therefore, in addition to paying heed to excessive groundwater development, crucial are tasks such as: the proper management of facilities through measures such as creation and use of the most effective irrigation areas, renewal of aging irrigation facilities, maintenance and management, planned utilization of water resources, and water saving cultivation techniques development. Although the maintenance and management of all irrigation waterways, with the exception of trunk ones, were transferred from the government control to a newly established water users’ association, they are not functioning well due to financial strains and the lack of machinery and technology.
Since the Soviet era, Uzbekistan has concentrated on planting specialized crops like cotton, and cotton farming still takes the priority for irrigation water use, fertilizers and agricultural machines. Furthermore, because farming loans by the agricultural financing institutions are limited to the growing of cotton and wheat, the diversification of crops has not made much progress.
Almost all of the cotton and half of the wheat are designated as crops for national procurement, and their production planning and procurement are subject to the rigorous government control. Consequently, as they are traded at rates lower than international prices, some point out that the system is hampering farmers’ willingness to produce more.
2.3. Organization of Agricultural Production
The Welfare Improvement Strategy 2008-2010 (WIS) is the government’s main growth and poverty reduction strategy. The development goals of WIS include: (i) gradual reorientation of export policies from raw materials to high-value products; (ii) continued economic liberalization, in particular focusing on the strengthening of private property and protection of property rights; (iii) financial sector development; (iv) promotion of innovations in large and small businesses and creation of mechanisms of technology transfer; and (v) comprehensive area-based development, which is expected to mitigate regional differences in economic development and welfare.
With regard to agriculture, the WIS includes strategies as followings; gradual improvement
Chapter 4 _ Agriculture and Marketing for the Agricultural Processing Industry Development in Uzbekistan ● 143 of crop selection in favor of cash crops with higher yields; use of new varieties of plants, agro-technologies and agricultural practices that enhance crop yield; substantial investment of capital into irrigation water supply and implementation of water efficient technologies; facilitation of the increase in land plots allocated to dekhan farms; creation of new forms of cooperation between farmers for storing and processing fruits and vegetables; improvement of private farmers’ access to credit; and support of train farmers.
With regard to rural finance, the WIS anticipates to involve both banks and non-bank financial institutions in the provision of microfinance. Regarding the environment, water supply and improved sanitation, the WIS foresees that poverty alleviation and improvements in public health are directly related to improvements of access to safe water and sanitation. Such access remains relatively low in rural areas and small towns. About 21% of the rural population does not have access to safe drinking water and 95% live without municipal sewerage (IFAD [2010]).
In 1998, the Uzbek government formulated the “Agricultural Economy Strengthening Program 1998- 2000”, and the government started agrarian reforms such as a long-term farmland leasing system aiming at increasing food production and gradual shift to the market economy of farm organizations. As a result, kolkhoz and sovkhoz of the Soviet-era were dismantled, and reorganized into a large-scale farmers’ cooperative known as shirkat, where members received a share of the land and other assets (UNDP [2010]). After that, parts of the shirkat were split and privatized, and a large number of smaller private farms called fermer were created. The presidential decree in October 2003 called for policies to split and demolish inefficient shirkat and turn them into fermer by 2006, which accelerates the country’s efforts to privatize the agricultural sector.
On the other hand, workers at shirkat that failed to become fermer lost their jobs and became unemployed or employed temporarily by the fermer. They constitute the majority of the poor population in the farming communities. They mainly grow crops at family-owned farms (dehkan) with a plot of less than 0.35 ha allocated to each family or raise livestock for their personal consumption . They are allowed to sell excess produce at bazaars to earn cash. These function as a sort of safety network alongside the agrarian reforms. The fermer, created as a result of subdivision of shirkat, is required to expand support to promote farmers’ self-management capacities such as legal consultation on its rights and obligations, education on farm management, introduction and spread of new cultivation techniques, and provision of market information. In addition, it is necessary to pay attention that the national procurement system should not block the development of the fermer.
However, free access to production and procurement methods (seeds, fertilizer, energy, agricultural water, etc.) and adoption of market economy in agricultural production (the gradual abolishment of the national procurement system and the liberalization of market) have made little progress and still remains limited. Although the Fermer Association, a nationwide body, provides support to farmers under government policies, important issues such as the availability of farming funds and agricultural machinery, the maintenance and management of irrigation
144 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy facilities, and the improvement of degraded soils are still major challenges (Gov. of Japan 2006).
Before 2004, the restructuring of agricultural output was focused on reducing cotton production and utilizing its place to increase the farming of wheat and other foodstuffs that had previously been imported. Simultaneously, major efforts were made to improve the varieties of both cotton and especially grain crops that corresponded to natural-climatic conditions of each region; the rehabilitation of evidence-based agriculture of cereals; the abolition of state procurement for most crops and reducing government procurement for cotton, wheat, and rice.
There have been significant changes in the structure of sown areas of crops. By reducing the area under cotton and forage crops, the share of areas under potatoes and vegetables and melons increased from 7.0% in 1991 to 8.2% in 2011, and grain crops from 25.7% to 44.6 % (Figure 4-7).
Source: State Statistics committee of Uzbekistan, 2012
8 ) Dehkan farms comprise very small land plots which average 0.17 ha and cannot exceed 0.35 ha if irrigated or 1 ha- if not irrigated
Chapter 4 _ Agriculture and Marketing for the Agricultural Processing Industry Development in Uzbekistan ● 145 Meanwhile, institutional reforms in the agricultural sector were slow until 2003. The shirkats (cooperatives) established to replace the kolkhozes (collective farms) were inefficient. The number of loss-making shirkats was as high as 40% of the total. To a certain extent this was due to the low procurement prices for cotton and wheat, which were frequently below the world prices in the period until 2004. The amount of the government and private investment into the agricultural sector was smaller than that into most industrial and social sectors, and as a result the technical capacity of land improvement systems and irrigation was not maintained(IMF [2008]).
During the period of 2003-2006, the government’s agricultural policy was concentrated on private farming sector development, setting up market and production infrastructure, improving provision of advance loans to farmers for agricultural production, and establishment of various forms of cooperatives by farmers.
The government has adopted a special program, according to which the conversion of shirkats into private farms was concluded in 2007. As a result of these reforms, as of January 1, 2007, the total number of active farms dropped to 87,500 in 2006 from 189,200 in 2003. The average land endowment per farm is 26.2 hectares. About 1.8 million workers are employed in private farms, which produced over 32% of gross agricultural output. Private farms accounted for 86.3% of raw cotton and 73% of grain crops.
The main indicators of Household (dekhkan) farm production in the country
Indicator Unit 2000 2005 2011 Household production share in whole % 66.0 61.7 63.7 agriculture Household production share in whole % 43.4 37.1 42.8 horticulture Household production share in whole % 89.0 92.6 92.2 livestock sector Number of households Number 3,243,602 4,544,420 4,792,717 Household land areas Thousand ha 401.5 441.9 462.4 Share of households crop land in whole crop area % 10.6 12.1 12.8
Source: State Statistics committee of Uzbekistan, 2012
146 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy
The main indicators of cooperatives farm production in the country
Indicator Unit 2000 2005 2011 Cooperatives production share in whole agriculture % 28.9 14.0 2.2 Cooperatives production share in whole horticulture % 48.1 21.3 1.2 Cooperatives production share in whole livestock sector % 9.4 4.7 3.6 Cooperatives land area Thousand ha 2,744.6 1,064.9 75.5 Share of cooperative crop land in whole crop area % 72.7 29.2 2.1
Source: State Statistics committee of Uzbekistan, 2012
The development of market and production infrastructure was designed to support the newly emerging farming sector. Companies providing plowing and planting, veterinarian, insurance and mini-banks services, as well as supplying chemical fertilizer, fuel and lubricants are being established everywhere. As a result, private farmers’ access to these services has been improved significantly. At the same time, there is huge untapped potential in developing the procurement system and improving the function of the wholesale agricultural markets. Despite the reorganization underway, a lot have to be done in terms of creating water user systems in compliance with market reforms and enhancing the effectiveness of the Water Users’ Association.
Disbursing advance payments directly from special Fund for payments, in line with the state procurement system, was gradually advanced in market conditions through bank loans. In rural areas, microloans to new farmers are becoming popular. Yet there are still issues on the access of agricultural producers to funding. Advance loans are mostly issued under the government procurement, and access to advances for products above the procurement quota is burdensome for many farmers. Microloans require a high level of collateral. Commercial banks are not always interested because of the high costs.
Farmers established various forms of cooperatives to process agricultural output, primarily livestock and horticultural farming products. The founding of agrifirms, specialized in production and the advanced processing of horticultural and vinticultural products, processing companies and other businesses, are widely underway as well. Further development of the farmer cooperatives requires the overcoming serious distrust amongst farmers in such cooperation because of lack of experience in the past, and also the expansion of farmers’ training on the skills necessary to spearhead effective market-based cooperation.
Although the production, distribution and pricing of fertilizers are largely under the government control, input supply in agriculture is carried out through both public and private entities including state-owned firms and private merchants. There is also remarkable public involvement in the
Chapter 4 _ Agriculture and Marketing for the Agricultural Processing Industry Development in Uzbekistan ● 147 provision of agricultural machinery, with state-owned machinery and tractor parks renting machinery to private farmers. In contrast, output marketing is mainly left to the private sector. Farms and merchants may also sell to agrifirms, while dehkan farmers often sell directly in wholesale and small retail markets, called dehkan markets (UNDP [2010]).
Efforts to expand the agrarian reform in the country created ample opportunities for the development of farms. When the reforms were implemented, a number of laws, decrees of the President of the Republic of Uzbekistan and the Cabinet of Ministers were adopted in the organization and development of farms. These reforms were primarily devised to support the development of farms and the necessary organizational, economic and legal conditions of land and water relations, financial and credit mechanism, the formation of the material and technical base of farms, service and legal services, and to improve the system of producing, processing and marketing, and labor relations and activities in the field of training. Farmers as the main producers of agricultural products now have expectations that they can increase the volume of production at the intensive basis, enhance processing of agricultural products, and improve the profitability of agriculture, which ultimately will significantly raise the living standard in the countryside. In order to strengthen the economic interest of agricultural producers, the government has facilitated the simplification of accounting and relief to farmers in the form of payment of the single (unified) land tax return payment together with all applicable national (except for excise tax) and local taxes and fees to agricultural producers. Additionally, for newly established farms, tax-free privileges of two years are granted for lands. In the case of development of unused farm land, it is exempt from the single land tax for a period of five years. Farms specialized in cultivation of fruits and grapes are also exempt from the single land tax for a period of five years. Imports of farm inputs and foreign technological equipment for own use, are similarly exempt from customs duties.
The forecasting of Uzbekistan’s farming structure
Farms Households(dekhkan) Cooperatives 2013 2014 2015 2020 2013 2014 2015 2020 2013 2014 2015 2020 Share of production in 36 37 38 40 62 61 60.5 59 2 2 1.5 1 agriculture Share of pro- duction in 57 58 59 60 42 41 40 39 1 1 1 1 horticulture Share of production in 5 6 7 8 92 91.5 91 90.5 3 2.5 2 1.5 livestock Share of crop areas 85 85 86 87 13 13 13.5 12.7 2 2 0.5 0.3
Source: State Statistics committee of Uzbekistan, 2012
148 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy The rural non-farm economy in Uzbekistan is dominated by agro-processing and services. Agro-processing mainly involves large processors, many of which are located close to Tashkent, although some fruit and vegetable processors are concentrated in the Fergana Valley. Some are former state-owned enterprises, which have been privatized, while others are newly established. The principal products from the larger processors are juices and concentrates, canned vegetables, frozen fruits and vegetables, teas, vegetable paste and puree, dried fruit and vegetables, meat and dairy products, oils and fats, and pasta.9) Production is both for domestic and overseas market, mainly to Russia and Kazakhstan, although data is not publically available on the value or volume of the export to the market abroad.
On the contrary, few small agro-processors in rural areas exist. There are some isolated examples in cheese production, meat processing, pasta making, fruit drying, and juice making. Some agro-processing is at household level and is thus informally conducted and the production is for local market with sales in fresh markets or to small local retailers. Little or no produce from these sources is sold to larger national retailers, partly because producers are not able to meet the volume requirements and they do not have access to bar codes or tax registration. The remainder of the non-farm rural economy involves service industries including retailing, wholesaling and trading; banking, credit unions and microfinance organizations; trading, transportation and other small services.
Rural finance: The banking sector is made up of state-owned banks and private and commercial banks, with a distinction between private and commercial banks on the basis of their status and ownership structure. In practice, there is little difference between the operations of private and commercial banks. Loans for agriculture are provided by banks, microfinance organizations, and credit unions. Under the Year of Rural Development, two existing state-owned banks were reorganized into the Rural Construction Bank and Agrobank, respectively. The latter will lend loans to farmers for cotton and wheat production at interest rates substantially below prevailing market rates.
Microfinance is currently provided through microfinance organizations, credit unions, and Microcredit Bank that is a state-owned bank which offers loans at below the base rates. Microfinance organizations provide loans at market rates (2.5% to 4-5% monthly) without collateral, usually on a group basis, with the exception of the lending by Microcredit Bank that offers subsidized collateralized individual loans. All of them offer step loans whereby, when all group members make entire payments on time and in full, group members are then able to borrow larger amounts in subsequent borrowings. Loan maturities are up to one year and repayment terms are tailored to individual microfinance products. Delinquency rates are very low, partly because of strong social pressure in Uzbekistan against personal indebtedness. A large portion of the borrowers (83%) are women.
9) Investment guide to the food processing sector
Chapter 4 _ Agriculture and Marketing for the Agricultural Processing Industry Development in Uzbekistan ● 149 With regard to rural facilities, almost all rural areas are served by the national grid and, therefore, people in the region can get access to the main electricity. In practice, however, blackouts are common, with electricity supply often erratic in rural areas. Most urban areas and some rural areas are connected to piped water and sewerage systems. The reality is, however, water supplies are unreliable, with availability only restricted to between 2 to 8 hours per day, and/or of poor quality, with consumers in some areas relying on water delivered by tankers.
2.4. Agricultural Production
Uzbekistan is predominantly a rural society and agriculture has been and still is the dominant sector of the Uzbek economy. While two thirds of Uzbekistan’s population, approximately 15 million people, lives in rural areas, agriculture employs about 60% of the rural population and 35% of the total active population in the country. The share of agriculture is nearly a third of the nation’s GDP, agricultural exports (in particular cotton fiber) accounting for approximately 40 % of total exports. Agriculture is also the key source of the government revenue, primarily cotton production and taxation. Moreover, the processing of primary agricultural output (food processing, dairy products production, cotton processing, etc.) represents a significant part of industrial activities, contributing to about 5% of the GDP (WFP [2008]; Abdullaev et al., [2009]).
In addition to its contribution to the employment and GDP, agriculture is also of vital importance in terms of improvements in rural livelihoods, food security and self-sustainability. After the nation’s independence in 1991, the country’s agricultural system underwent significant structural changes resulting in the fall of total agricultural output to 16% by 1996. However, the implementation of land distribution initiatives and the engagement of an increasing number of households in agriculture and crop diversification have brought a significant increase in output since then, surpassing the level attained in 1991¹⁰⁾. Structural changes adapted to the type of land tenure available following the restructuring of large collective and state farms have led to the formation of private farms and the expansion of small household plots, which are now responsible for much of the growth in agricultural output over recent years, thereby leading to increased household incomes thanks to the strong productivity gains (World Bank Country Note [2010], Cornia et al., [2003]).
Although the nation’s GDP declined from 1991 until 2000, Uzbekistan experienced a strong average annual growth rate of 6.2% from 2000-2007¹¹⁾. GDP reached US$32.8 billion in 2007 while GDP per capita was US$1,182.0. Agriculture has traditionally been a strong and relatively stable contributor to Uzbekistan’s economy. Between 2000 and 2007, the sector expanded at a robust average annual rate of 6.8%. Despite this growth rate, however, the sector’s share of GDP dwindled from 32% to 23% between 1995 and 2007, as other sectors of the economy such as industry and services grew at a faster pace. Even with this drop, 40% of Uzbekistan’s exports still come from the agricultural sector, highlighting the significance of agriculture to the country’s
10 ) World Development Indicators, 2009, The World Bank 11 ) World Development Indicators, 2009, The World Bank
150 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy economy. Cotton is the primary source of these exports, as Uzbekistan is the world’s fifth largest producer of cotton and second largest exporter of this commodity (after the USA)¹²⁾.
Source: State Statistics Committee of Uzbekistan, 2007
Despite the importance of agriculture to the overall economy, however, the share of agriculture is declining and, in 2010, it constituted just over 17% of GDP as compared to the average of nearly 26% per annum over the period 2000-2008. In 2010, the share of agriculture in GDP went down a little further to 17.5% as can be seen in table 3 below. It also registered the slowest rate of growth in value added of any sector in 2007 and 2008.
12 ) http://www.cotton.org/
Chapter 4 _ Agriculture and Marketing for the Agricultural Processing Industry Development in Uzbekistan ● 151
GDP composition by sector (%), 1990-2010 Measurements 1990 2000 2010 Total 100 100 100 Industry 17.6 14.2 24.0 Agriculture 33.4 30.1 17.5 Construction 5.8 6.0 6.4 Transportation and communications 5.2 7.7 12.4 Merchandise trade 4.5 10.8 9.0 Others 22.2 18.7 23.7 Source: MAWR –Ministry of Agriculture and Water Resources of Uzbekistan, 2011
Approximately 60 percent of the value of agricultural production comes from the crop sector and the remainder from the livestock sector. Cotton is the most important crop in terms of its contribution to the economy. This "strategic crop", produced in irrigated areas throughout the country, accounts for about 40 percent of cultivated land and makes up about 40 percent of export earnings. It makes Uzbekistan the fifth largest cotton producer and second largest cotton exporter in the world.
Cotton production carries great importance in achieving sustainable economic development of the country. It is quite well known that Uzbekistan is one of the world’s leading producers and exporters of cotton. Cotton fiber provides substantial part of the country’s foreign currency earnings. As was indicated before, the production of cotton in the period of 1991 to 2011 decreased by 24.7% due to the significant reduction of cultivated areas aimed at increasing food grain production for a rapidly growing population (Table 4-10).
Production value of main products (all types of farming), thousand ton In 2011 Products 1991 2000 2005 2011 comp. to 1991, % Raw cotton 4,646.0 3,002.4 3,728.4 3,500.0 75.3 Grain 1,908.2 4,101.4 6,401.8 7,140.1 374.2 Potato 351.2 731.1 924.2 1,862.4 530.3 Vegetables 3,348.0 2,644.7 3,517.5 6,993.7 208.9 Fruit and berryies 516.6 790.9 949.3 1,871.1 362.2 Grape 480.4 624.2 641.6 1,090.2 226.9 Melons 925.8 451.4 615.3 1,294.7 139.8 Source: State Committee of Statistics of Uzbekistan, 2012
152 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy After the nation’s independence, the government has set up a strategic goal to ensure the nation’s food grain self-sufficiency. As a result, grain has now become one of the major agricultural crops. During the 1991-2011, irrigated area under cereals increased by 5.2 times, and the gross yield by 3.7 times, and the realization of the grain for state needs use by 19.6 times. While the rise in the number of modern combiners shortened the duration of the season harvest, resulting in significantly reduced yield loss, it has also led to “food grain independence” within a relatively short period of time, turning Uzbekistan from a net grain importer to a net exporter.
In recent years, changes in climate and population growth have led to increased demand for horticultural products, potatoes, and other foods. Over the period of 1991 to 2011, potato production increased by 5.3 times, other vegetables by 2.5, melons by 1.4 times, fruit and berries by 3.6 times and grapes by 2.3 times (Table 4-10). Consequently, these crops have not only fully satisfied the government’s needs, but also have enhanced the status of exports.
The volume of processed commodity has also increased in recent years. Over the past five years, farmers, agricultural companies, processors and entrepreneurs have been importing small-scale technologies from abroad for processing fruits and vegetables. As a result, the volume of processed products increased by almost five-fold. The gardens for intensive farming (intensive gardens) is being created rapidly in the degraded land areas, gardens and various other farms.
Similarly, livestock became important as part of the sustainable development strategy of the national economy. The development of the livestock sector is one of the priorities in terms of satisfying the needs of the population with livestock products. This includes increasing the supply of meat, milk, eggs, fish, and other products to the market. The basis of these policy documents are the Presidential Resolution issued on March 23, 2006 "On measures to stimulate the increase in livestock in households, and farming enterprisers", and, on April 21, 2008, "On additional incentive measures to increase livestock in private subsidiary, household and farms, as well as increasing the production of livestock products.” The measures included construction of new infrastructure network to provide services of zoo veterinary and artificial insemination, as well as implementation of feed, and other services. With a view to the development of livestock on private plots and farm households’ lands, commercial banks and micro-credit providers have been lending loans for such purposes. As a result, production of livestock grew by 1.9 times, while the production of milk and eggs increased by 2 times, and 1.5 times, respectively.
Production of main livestock products in all types of farming
In 2011 comp. Products Unit 1991 2000 2005 2010 2011 to 1991, %
Meat (in live weight) Thousand ton 800.2 841.8 1,061.2 1,461.4 1,564.2 195.5 Milk Thousand ton 3,331.4 3,632.5 4,554.9 6,169.0 6,766.2 203.1 Eggs Mln. piece. 2,347.0 1,254.4 1,966.7 3,058.8 3,441.7 146.6 Source: State Committee of Statistics of Uzbekistan, 2012
Chapter 4 _ Agriculture and Marketing for the Agricultural Processing Industry Development in Uzbekistan ● 153 During the period of 1991-2010, the production of food crops per capita rose, implying that the growth rate of agricultural production exceeded the rate of growth of the population (Figure 4-11).
Dynamics of production of the main food products per capita (kg/per capita)
мясо яйца зерно овоши молко и ягоды виноград бахчевые картофель 1991 2000 2010 Grain Potato Vegetable Fruit Grape Melons Meat Milk Eggs Grain Potato Vegetable Fruit Grape Melons Meat Milk Eggs Source: IMRF calculation base on State Committee of Statistics of Uzbekistan data, 2011
Since the nation’s independence, wheat has become the second "strategic crop", thanks to the food self-sufficiency policy adopted by the Uzbek Government. It accounts for about 30 percent of the cultivated area. The rest of the cultivated area is used for growing fruits and vegetables (Uzbekistan continues to be one of the major suppliers of fresh and processed fruits and vegetables in the region), in addition to potatoes, tobacco and fodder crops. Animal husbandry in Uzbekistan is specialized not only in production of foodstuffs (meat, dairy products, eggs) but also in the production of raw materials that include cocoons of mulberry silkworms and karakul that have high demand in the world markets.
Self-sufficiency of major agricultural products
98.0 98.0 98.7 86.8 68.1 50.0 50.0 40.0
17.5 0.0
grain meat and meat milk and dairy potatoes sugar products products
Source: State Statistics committee of Uzbekistan, 19902011 2010
154 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy 2.5. Production of Vegetables and Fruits
The production of fruits and vegetables has a huge potential to improve the income of agricultural producers and rural inhabitants in Uzbekistan. During the period of 2000 – 2010, the fruits, vegetables and viticulture subsectors have enjoyed high growth rates.
In 2010, agricultural output was valued at US$8.9 billion and accounted for 21% of the exports. Cotton and grain remained as the most important crops, but horticultural products contributed significantly to Uzbekistan’s agricultural output as well in 2010. Table 12 below shows the contributions to GDP by type of agricultural product for the period of 1990 – 2010.
Shares of major agricultural products in GDP (%), 1990-2010 Product 1990 2000 2010 Share of agriculture in GDP 33.4 30.1 17.5 Raw cotton 15.9 3.6 19 Grain 1.4 3.4 2.0 Potato 0.3 0.8 1.4 Vegetables 1.3 2.4 2.3 Melons 0.5 0.3 0.3 Fruits 0.7 0.9 1.1 Grapes 0.8 0.8 0.9 Source: MAWR –Ministry of Agriculture and Water Resources of Uzbekistan, 2011
Significant contributors to horticultural production are dekhan farms, which are small plot of 0.35 hectare on irrigated lands, 0.5 ha on non-irrigated lands and 1 ha on land classified as desert. According to the State Statistics Committee, dekhan farms, originally introduced by the government as a food security measure, where small-scale farmers as private sector operators could grow for their own subsistence and sell surpluses to local markets, accounted for a 63% share of the total agricultural output in 2010 off 0.47 million ha of land. Private sector agriculture also includes leasehold farms made available under the government’s land reform and rural restructuring policies. There are around 81,000 private leasehold farms in the country, more than 1.5 million people employed on these lands, with an average size approaching 150 ha. In 2010, private farms amounted to 35% of total agricultural output off 3.14 million ha (IFAD [2010]).
The production of fruits and vegetables varies considerably across the different regions of Uzbekistan. Hence it would be of paramount importance to review the patterns of production and supply by region, with emphasis on three important regions with high potential for the production of fruits and vegetables. The review will help to identify which of these regions have comparative advantage in what specific product and to draw implications for clustering and commercialization of the marketing and processing of these products in the supply chain.
Chapter 4 _ Agriculture and Marketing for the Agricultural Processing Industry Development in Uzbekistan ● 155 2.5.1. Tashkent Region
The region has the greatest volume of vegetable production in the country. It has also comparative advantage in a big market. As the capital city, Tashkent is home to 3.5 million populations, with over 1 million people commuting into the city every day from suburbs. This indicates a good opportunity for producers of fruits and vegetables in the region. In addition, transportation, location of storage houses, processing, and energy provision are well developed compared to other regions.
Seven districts of the province (Ahangaran, Bostanlyk, Zangiata, Kibray, Parkent, Yangiyul and Tashkent) are specialized in the production of fruits and vegetables. Other districts are engaged in cotton and grain cultivation. Crops of cotton and wheat occupy three quarters of cultivated lands. In 2009, the cultivated area of the province was 386.7 thousand hectares. Farmers in the province produced 702.1 thousand tons of grain, 73.8 thousand tons of fruit, 60.2 thousand tons of grapes, 522.10 thousand tons of vegetables, 87.9 thousand tons of potatoes, and 71.1 thousand tons of water-melon cultures. On the basis of the aforementioned resources, cotton-refinery, clap-processing branches, textile and clothing industry, the food-processing industry, flour-grinding grain industry, wine industry, canning, confectionery and others have developed in the province¹³⁾.
2.5.2. Samarkand Region
Almost all kinds of fruits and vegetables grown in Uzbekistan are found in Samarkand region. During the 2010 production year, the province’s share of production of fruits, grapes and vegetables were 14 %, 38 % and 17 %, respectively, out of the total production in the country. Samarkand province is famous for its apple, apricot, peach, cherry, plums, persimmon, and pomegranate orchards. Historically, during the Amir Temur’s empire, each city in Samarkand has a distinct kind of orchard. The region is also noted for its production of tomato, potato, strawberry, cabbage, paper and other kind of vegetables.
About 60 % of the land area under fruits and vegetables belongs to household farms (smallholders), which produce more than 75 % of the total production in the region. The proportion of land area under commercial farms is expanding and increasingly substituting cotton and grain areas. However, the productivity remains still low.
The main problems of fruits and vegetables production in the region are related to post-harvest activities. About 25-33% of commodities is lost during and post-harvest season. Such losses are due to bad organization of the harvesting process, transportation, storage, etc. For instance, tomato is a easily perishable product. Due to lack of sufficient plastic boxes during the harvest, farmers usually use large metal containers, which lead to loss of much of the produce on the way to processing companies. Most farmers do not have special trucks to
13 ) Uzbekistan Information Portal, accessed on 12 March 2013 (http://touzbekistan.com/view_interesting.php?id=72 )
156 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy transport tomato. This, combined with the lack of storage houses in rural areas, has worsened the post-harvest losses. Other constraints include lack of resistant varieties, limited number of drying and processing companies, unstable contracts between growers and processors, etc.
2.5.3. Andijan Region
Andijan region, along with Tashkent and Samarkand in the country, is one of the three leaders in the production and processing of fruits and vegetables. The region grows cherries, apricots, plums, peaches, apples, pears, quince, pomegranates, figs and other crops. Due to the special climate conditions, many fruits and vegetables in the region have a unique taste. Andijan has produced fruits, vegetables, and potatoes 21.2%, 13.6%, and 9.6%, respectively, of the total production in the country. The share of grape production in the region is still insignificant (4.3%) nationwide, but it has unrealized great potential to be development through the creation of new vineyards.
Fruit and vegetable production during the period of 2000 to 2011 increased more than two-fold. The volume of fruit and vegetable production is sufficient to meet both domestic and overseas needs. Melons, potatoes, and vegetables are grown in the rural areas, as well as in other areas around the city. Uplands in the area are small. Gardening in the field of agriculture occupies a great portion of the region; especially, many gardens and vineyards are located in Andijan, Asaka and Hodzhaabad counties. The fact that a branch of the National Scientific Research Institute for Viticulture and Horticulture is located in the region has a huge implication for development of these areas.
The region has high potential and comparative advantage for the production and export of horticultural crops. Unfortunately, many of the products remain unprocessed, with only about 22% of the fruits and vegetables undergoing the processing. Due to lack of funds for the packaging and storage, a significant share of the produce is sold in the local market, which leads to excess supply and a sharp drop in prices. In addition, lack of refrigeration facility brings problems with regard to storage and marketing. Consequently the region’s huge export potential for fruits and vegetables is still a dream to be realized.
According to experts, about 25% of the crop is lost due to oversupply in the markets, inadequate logistics and lack of packaging materials. Efforts to reduce such losses require adjustments in the processing of fruits and vegetables, especially tomatoes processed into products with a higher added value, based on the abundance of high-quality varieties. There is also a strong demand for farm consultants, agronomists, specialists in chemical plant protection, economists, animal specialists, veterinarians, lawyers, etc. The limited financial resources do not allow farmers to hire such professionals on a permanent basis. The introduction of advanced technologies in the industry, combined with high quality local fruits and vegetables, will increase the competitiveness of products in foreign markets, thereby increasing the export potential of the region. Creation of new greenhouses, similar to those in developed countries will help small businesses use less
Chapter 4 _ Agriculture and Marketing for the Agricultural Processing Industry Development in Uzbekistan ● 157 energy and gain higher yields.
3. Korean Experience of Agricultural Development and Marketing
3.1. Agricultural Development Process and Experience of Korea
Korea’s rapid economic development has seen a changing role of the agricultural sector. Until the 1960s, agriculture generated almost half of Korea’s GDP while in the 1970s, the contribution of agricultural production to GDP fell by almost half, but the still made a significant portion of GDP (25.5% of GDP) and employed about 50.5% of the country’s total labor force. As the industrialization process progressed, however, the share of agriculture in the national economy further declined sharply. In 2005, the share of agricultural production in GDP was only 2.9% and the agricultural population accounted for only 7.1% of the total population. Nevertheless, despite this decline, agriculture continues to play an important role in the Korean national economy, accounting for a relatively large share of GDP, and also with a large rural population and employment as compared to other OECD countries(OECD [2008]).
Economic structure of Korea, 1970-2010
Share of agriculture in Share of agricultural Year Total GDP (100 mil. $) GDP, % employment in GDP, %
Korea has implemented various kinds of agricultural policies in order to attain self-sufficiency in rice and staple foods, alleviate rural poverty, and modernize the agricultural sector while rapidly developing the non-agricultural sector. In the 1960s to 1970s, when food was in shortage, production-boosting policy was implemented to attain food self-sufficiency. A marketing modernization policy was implemented after the late 1970s, and agricultural trade
158 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy liberalization began in the 1980s. In addition, direct payment systems were introduced to support farmers’ income since the 1990s. In short, key agricultural policies were changed to reflect the changing environments of the economy and agriculture.
3.2. Agricultural Production and Infrastructure Development
Irrigation is important for farming, especially for paddy farming, because farmland with irrigation facilities is usually productive. Korean agriculture was largely dependent on paddy farming. However, most farmers were engaged in rain-fed farming in the 1960s, and most production activities were dependent on rain and weather conditions. That is, irrigated land area was limited, with only 14 percent of total farmland covered under irrigation schemes. This indicates that Korean agriculture was very vulnerable to unfavorable weather conditions.
Therefore, expansion of irrigation facilities was urgently needed and it became one of the major farmland infrastructure projects, which included farmland expansion, farmland consolidation, expansion and pavement of farm roads, drainage improvement, etc. As a result of farmland infrastructure development projects, the irrigated paddy field increased from 538 thousand hectares in 1965 to 893 thousand hectares in 1980, and to 859 thousand hectares in 2006; the irrigated paddy of the total paddy field increased from 42 percent in 1965 to 79 percent in 2006. Table 15 below demonstrates these trends. Together with an increase in irrigated paddy field, rice farming became stable, regardless of weather conditions. Undoubtedly, this contributed to self-sufficiency in rice and to the “Green Revolution” in rice farming.
Source: Ministry for Food, Agriculture, Forestry and Fisheries, “Major Agricultural Statistics”, various years
Most of the infrastructure development projects were carried out under the responsibility of Korea Rural Community Corporation (KRC). The main responsibility of KRC was to construct and manage production infrastructure, carry out general (Large-scale Comprehensive Agricultural Development) projects such as the development of water resources, farmland consolidation, and reclamation of tidelands for specific areas centered upon river basins in order to effectively develop the foundation for agricultural production and to promote the establishment of a welfare rural community, by improving the farming environment and in agricultural productivity.
Chapter 4 _ Agriculture and Marketing for the Agricultural Processing Industry Development in Uzbekistan ● 159 Korea promoted the Enlarged Farming Project in order to secure stable production basis for staple grains. Enlargement and collectivization of farming enhances competitiveness of rice industry and help foster rice-specialized farmers. The aim of the project was to support Korea’s rice industry to secure competitiveness in the global market, where the government purchased or leased farmland from non-farmers and retiring farmers and sold or let out the land at low interest to young and competent farmers who are specialized in rice farming. In 2005, the total support was US$516 million for 11,907 ha. Korea also has been continuously promoting measures to improve the productivity by expanding agricultural infrastructures such as readjustment of arable lands, field improvement, expansion and pavement of farm roads for farm machines. The readjustment of arable land project was to readjust superior farmland on plain area into large section. Beginning with 5,000 ha in 1994, total of 96,000 ha had been readjusted until 2005 with US$2.6 billion. The aim of field improvement project was to enhance the productivity of farm produces and to improve the condition of fields with poor infrastructure. The project included development of water source well, construction of farm road, and readjustment of field. Until 2005, total US$1.68 billion had been invested for 69,000 ha field.
3.2.1. Land Utilization
As of 2008, 17.6% (1,759,000 ha) of Korea’s total territory was farmland. The farmland was divided into 1,046,000 ha of rice fields and 713,000 ha of coarse fields. Korea’s cultivated land per capita was 0.04 ha, one of the lowest compared to major advanced countries (U.S. 1.5 ha, France 0.5 ha, UK 0.3 ha). In other words, food self-sufficiency was very low, although that of rice, the staple crop, reached almost 100%. With the low self-sufficiency rate of food a considerable share of farmland under worsening farming conditions has become idle land or forest due to continued expansion of agricultural imports, and this trend was predicted to continue in the future. As a result, farmland continues kept decreasing despite the government’s efforts to create and preserve farmland (KREI [2010]).
According to the current Farmland Act, farmland is the foundation for supplying food and preserving territorial environment of the country, and, therefore, has to be properly managed in tune with public interest. The law explicitly stipulates that farmland cannot be owned by anyone other than those who use it or intend to use it for farming (KREI [2010]; Jeon and Kim [2000]). In particular, an acquisition qualification system that authorizes the acquisition of farmland to only eligible applicants has been adopted both in terms of certain predetermined criteria and ownership ceiling. The law has also introduced the ‘Disposition Order’ and ‘Charge of Forcing Execution’ as post-management tools to handle failure to comply with the original purpose of the acquisition. In other words, the land-to-tiller principle forms the basis of the land ownership and use (KREI [2010]).
This farmer-centered land ownership and use system were established through a farmland reform in 1950 in accordance with the Farmland Reform Act, mainly aimed to end the abuses of the past landlord-tenant system and to foster self-employed farmers as a means to build a
160 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy stable social foundation. The government bought farmlands from landlords and distributed a maximum of 3 ha to self-employed farmers. Acquisition of farmland by non-farmers and ownership of more than 3 ha of farmland were restricted. The government regulated this by issuing farmland transaction certificates, the basics of which have been maintained until recently.
In the 1960s and 1970s, physical expansion of farmland through reclamation and restoration of land was at the center of agricultural policy to address the worsening food shortage at the time. This was implemented mainly by developing uncultivated mountainous areas through the Reclamation Promotion Act in 1962.
In 1972, the government enacted the Farmland Preservation and Utilization Act in 1972, following the rapid increase in the use of farmland for purposes other than farming due to rapid urbanization in the 1960s and the fuel and food crisis in the 1970s. This Act mainly aimed at restricting the diversion of farmland for non-agricultural purposes. Accordingly, farmlands were selectively designated into ‘absolute’ and ‘relative’, with the ‘absolute’ reserved for mainly rice paddies and other farmlands that need protection, while the ‘relative’ was designated for other types of farmlands.
The government also required anyone who intended to use land for other purposes to obtain the government’s permission and pay a fee to the Farmland Management Fund to bear the ‘farmland creation cost’ in making alternative land available for farming. In spite of this requirement, the number of non-farmers owning farmland rose due to desertion of farming and inheritance of farmland, which resulted in soaring land prices relative to profitability of farming. It became difficult to ensure the proper implementation of the land-to-tiller principle that requires the reorganization and authorization of the legally banned farmland lease system from the perspective of reforming the agricultural structure. Consequently, the Farmland Lend-Lease Management Act was promulgated in 1986.
Moreover, with the opening of the domestic agricultural market in the late 1980s, there was growing attention to the need to foster competitive agricultural enterprises. This prompted the enactment of the Act on Special Measures for Development of Agricultural and Fishing Villages, authorizing farmland ownership of agricultural enterprises and relaxing regulations on farmland. This was driven by the Farmland Reform Act of the 1950s that only had recognized ownership and use of farmland by self-employed family farms while the Act prohibited farmland ownership of enterprises. This marked indeed a remarkable change and helped greatly in shaping the means of preserving farmland, by instituting a new system of designating good collectivized farmland termed as ‘agricultural development region’ replacing the old plot-based system introduced in 1972. In addition, the government eased restrictions on farmland use and conversion, and raised the ownership ceiling from 3 ha to 10 ha in order to flexibly respond to agricultural imports.
Chapter 4 _ Agriculture and Marketing for the Agricultural Processing Industry Development in Uzbekistan ● 161 3.2.2. Agricultural Input Industries
An increased use of agricultural inputs was another factor that helped to improve agricultural productivity and increase farm output. Industrialization through economic development brought more production of agricultural chemicals such as fertilizers and pesticides, and agricultural equipment and machineries. For example, as indicated in table 15 below, fertilizer production increased from 590 thousand tons in 1970 to 1,795 thousand tons in 1994. After that, fertilizer production underwent a downward trend to 1,159 thousand tons in 2006. Production of agricultural chemicals also increased from 8,642 tons in 1975 to 29,569 tons in 2000, and showed a downward trend to 22,847 tons in 2006. This recent downward trend in production of fertilizer and agricultural chemicals implied that an environment-friendly farming has begun to spread. Agricultural machinery holdings by farm households increased from 153 thousand in 1970 to 3.38 million in 2000, but faced a decreasing trend afterwards.
Holdings of Machinery and 152,699 1,069,213 2,475,119 3,386,883 2,504,554 2,059,981 Equipment (units)
Source: Ministry for Food, Agriculture, Forestry and Fisheries, “Major Agricultural Statistics”, various years
The increased use of agricultural inputs played a key role in improving agricultural productivity and boosting the agricultural production. More use of agricultural chemicals contributed to a rise in crop yield and farm output, and more use of agricultural machineries contributed to improving labor productivity by overcoming labor shortage caused by out-migration of rural population. That is, higher production of agricultural chemicals and machineries contributed greatly to an increase in agricultural productivity, and, finally, an increase in agricultural production. Rice production soared from 3.0 million tons in 1962 to more than 6 million tons in 1988. As the rice policy moved from production-boosting of the early 1990s to an emphasis on high quality, rice production suffered a downward trend, decreasing to 4.7 million tons in 2006. Vegetable production skyrocketed from 1.3 million tons in 1962 to 11.3 million tons in 2001, and declined to 10 million tons in 2006. Fruit production enjoyed a consistently upward trend from 196 thousand tons to 2.5 million tons over the same period.
3.2.3. White Revolution
Recently, the import of fruit and vegetables is on the rise along with increase in income. However, the supply of these products is often limited, especially, in winter when these products
162 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy are not grown. Since winter is cold and long in Korea, it is difficult to supply proper amount of fruits and vegetables during the season, bringing in greater fluctuation of prices. This suggests that higher production of fruits and vegetables is required to meet the rising trend in demand, even in winter.
However, despite the consistent demand for fresh fruits and vegetables and consumers’ willingness to pay higher prices, the Korean climate made it impossible, or at best, difficult to supply these foods during winter. Greenhouse cultivation with polyethylene film houses was introduced for winter farming of fruits and vegetables. Farmers were encouraged to engage in farming activity to create income during the winter. That is, greenhouse farming helped increase supply of the fresh produce even in winter and created greater income in agricultural sector. Greenhouse-farming activities spread quickly across the country, and production of fresh fruits and vegetables increased rapidly. This technological innovation was called the “White Revolution” in Korea. This revolution is necessary in Uzbekistan as well because the supply of fruits and vegetables is short during the winter, with a higher price. This revolution can be achieved if energy supply including electricity is stable and the government provides financial support to producers. Once the revolution began, agricultural production grew with a decline in imports of agricultural products, and higher income in the rural area.
3.3. The Evolution of Agricultural Marketing System in Korea
The agricultural structure in Korea was characterized by small family farms producing diverse products. However, rice was still the single major product in the sector. Members of agricultural cooperatives were comprised of farmers growing different products. Sales and distribution were limited to simple transportation and logistics rather than pooling of products. Products were sent to wholesale markets not under a single cooperative brand, but under individual farmers’ names, indicating the weak capabilities of Korean agricultural cooperatives in distribution at production sites.
As the agricultural market was liberalized further and the proportion of large retailers increased, measures were taken to strengthen the marketing capabilities of primary cooperatives. In the mid-1990s, pooling marketing cooperatives started to involve small-farm operators. A considerable number of local distribution and shipping organizations were established through government-supported packaging centers comprised of joint freezing, sorting, preliminary packaging, and direct sales of produce usually carried out at “Eup” and “Myeon” levels. With additional financial support, there were efforts to increase the size and scale of the marketing organizations at production sites to promote business relations with increasingly large retail stores and secure favorable bargaining positions. This has facilitated a significant increase in the scale of such operations beyond that of simple pooling to manage the stable supply chain. In order to enlarge the scale of marketing operations, membership had to be expanded to larger cities and provinces through the creation of a joint marketing system. Accordingly, primary cooperatives would work together at the regional level to take charge of agricultural products
Chapter 4 _ Agriculture and Marketing for the Agricultural Processing Industry Development in Uzbekistan ● 163 distribution and to sell certain groups of products that are selected and packaged by primary cooperatives.
Since 2000, city and provincial branches of the NACF led the formation of such joint marketing system. The NACF provided workforce and distribution services at low costs, linking local producers with NACF retail stores. As a result, joint marketing grew fast and a total of 124 organizations were in place by 2005. This system was successful in terms of scaling up the operations. However, joint marketing organizations started to show problems arising from the fact that they were not the main agent of transactions. They didn’t have their own equity, permanent staff with expertise, or ability to deal with risky transactions. In the end, the joint marketing system was unable to strengthen marketing capabilities in the production sites, nor create more value-additions to agricultural products.
In order to overcome the restrictions of joint marketing initiatives, cooperative corporations were established to build marketing cooperative with financing from primary cooperatives, transforming joint sales organizations into independent corporate subsidiaries. The new organizations focused on sales and marketing activities, whereas primary cooperatives focused on their banking and rural development services.
The rapid development of the Korean economy has led to drastic changes in the marketing channels. As the national income rose dramatically and consumption patterns shifted, diversification of marketing channels for agricultural products became crucial. With the establishment of 32 public wholesale markets after the mid-1980s and the increased number of large retailers after mid-1990s, the marketing system of agricultural products was remarkably changed. The utilization of marketing routes revealed that wholesale markets remained steady around 48% from 1998 to 2006, while pseudo-markets fell from 42% to 24%. On the other hand, large retailers have enjoyed considerable success, rising from 4% to 14%, with direct marketing and e-commerce from 6% to 15%.
At the production level, the largest number of items is shipped from local agricultural cooperatives, followed by individual suppliers and joint suppliers. Systematic shipping services are provided by agricultural cooperatives that carry out joint packaging and transportation, while joint suppliers provide joint grading, transportation and payment. Leafy and root vegetables are usually supplied by individuals or by systematic shipping system, while fruits and vegetables by joint or systematic shipment.
Local joint shipping organizations include local distribution organizations and associated marketing organizations that were established through the efforts of individual farmers and the government support. The role of local distribution is designated by the National Agricultural Cooperative Federation (NACF) and farming association corporations, which receive supports from the government for the construction of Agricultural Product Packing Center (APC) because
14 ) Korea Agro-Fisheries Corporation’s comprehensive evaluation report on local producer distribution organizations (2009)
164 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy of their active distribution activities. Associated marketing organizations conduct collective accorporations¹⁴⁾.
The APCs are equipped with grading and packaging machines and low-temperature storage to promote packaging and standardized shipment of fruits and vegetables. The government has supported the establishment of APCs in main production sites to serve as the center of local product marketing and to overcome the limitations often faced by small-scale farms by strengthening their market bargaining power through integration of production and marketing. They also allow producers to better respond to the rapidly changing environment.
3.3.1. Wholesale Markets
While several types of markets handle wholesale distribution of agricultural products, public wholesale markets, established and operated by regional governments, were financed by both the central and local governments according to the “Agricultural Product Distribution and Price Stabilization Act.” The first wholesale market was established in 1985 at Garak-dong in Seoul and a total of 32 markets were established by 2004. The transaction volume has increased to 6.5 million tons. The amount of fruits and vegetables that passed through public wholesale markets rose from 2.0 million tons in 1990 to 5.9 million tons in 2005. Over 50% of the total fruits and vegetables distribution is handled by public wholesale markets, indicating the importance of the facilities in the national agricultural marketing system.
Most transactions take the form of auctions and bids through consignments, but optional and unlisted transactions are used for cases of settled-price. Settled price and optional transactions are employed for some listed products bought into the market in only small amounts and are handled by a small number of middlemen, where wholesale market companies offer a fixed price to the middlemen in these transaction types. The majority of transactions today take the form of listed transactions, where suppliers sell their products through consignment to wholesale companies. The creation of the Market Wholesaler System in 2004 has led to increase in transactions. It was designated to carry out both the collection and distribution of agricultural products, serving as an intermediary and a wholesaler (a purchaser and consignee) in the market.
The wholesale markets have significantly improved the flow of agricultural products through wholesale marketing channels and building stable sale outlets for producers including small-scale farmers, allowed consistent supply for consumers and a steady payment settlement system for producers. However, wholesales transactions have stagnated in recent years due to a number of constraints. The limitations include lack of quick reaction to the rapid growth of retailers and changes in purchasing patterns, shortage of agricultural product transaction facilities equipped with advanced marketing system such as sufficient low-temperature systems and mechanization of handling equipment, lack of proper product collection and distribution capabilities. This brought about the need for liberalization of the service market, a measure later taken in 1996.
Chapter 4 _ Agriculture and Marketing for the Agricultural Processing Industry Development in Uzbekistan ● 165 3.3.2. Large Retailers
Following the liberalization measure, the number of large retailers has increased rapidly from 100 in 1999 to 386 in 2008, with sales reaching approximately 3 trillion won . Especially, the large retailers have risen drastically to dominate the retail market since 2000. They have strengthened their positions in the market through integrated purchasing and price leadership of their chain. These retailers utilize advanced market techniques and have begun to edge traditional markets and small and medium retailers out of the market. Traditional supermarkets’ share dropped from 75.7% in 1995 to 24.7% in 2005. Department stores also lost their share of the market from 16.0% to 6.1% during the same period. However, large retailers were able to increase their market share from 8.3% to 69.2% during the period. Foods are the main products handled by large retailers posing stiff competition to traditional supermarkets that accounts for a small portion.
The NACF runs 15 distribution centers that are supported by the government and provides agricultural products from producing districts for its retail network. The distribution centers have created new marketing channels, diversifying the distribution network and enhancing overall efficiency.
4. Overview of Uzbekistan’s Agricultural Marketing
Promotion of successful agricultural development does not only require improvements in agricultural productivity, but also efficient marketing. Although general agricultural marketing has long been a state-controlled domain in Uzbekistan, recent reforms have seen some liberalization especially in the fruits and vegetables sub-sectors, the cotton sub-sector still lagging behind in this regards. There have been different market arrangements in the fruits and vegetables sub-sector ranging from traders going door-to-door in specific villages where they have social networks, to households coming to bazars to sell in bulk, to relatively sophisticated contacts for fruits trees purchased at maturity and processed by traders. The development of the marketing system has been evolving over time, some of which will be reviewed in the following sub-sections.
4.1. Wholesale and Logistics
The wholesale of fruits and vegetables was carried out mainly by farming cooperatives established in the country to promote agricultural exports. These agricultural firms were specific forms of cooperatives, partially tax-exempt, and are responsible for wholesale trade in agricultural products, which were established by the government in order to facilitate the farmers to cooperate on various issues such as logistics, quality standards, storage and distribution.
The owners of these cooperatives were farmers and agribusiness enterprises are responsible
166 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy for processing fruits and vegetables located within a certain area. Some of these agricultural companies held monopoly on the wholesale trade within their specific regions. Being new to the business and having little professional experience, the companies did not work as efficiently as possible. Consequently, they were often bypassed as intermediaries between farmers and processors. Moreover, the sector suffered from a chronic lack of investment and partial monopoly. This has forced the food industry to organize their own logistics and establish direct relationships with individual farmers rather than to resort to the agricultural firms.
As for logistics and transportation, currently some elements of trade logistics and transportation of commodities began to emerge. There are measures being taken to develop a mechanism for the effective use of information technology and transportation infrastructure. However, the rate of introduction of modern methods and techniques employed in logistics and cargo management is insufficient. In fact, Uzbekistan does not have well-established marketing services or logistics centers providing a full range of services for the transportation, processing, storage and delivery of commodities for retailers. One of the reasons for this is the lack of strategy for developing trade and transport logistics.
The current capacity of Uzbek entrepreneurs is only available for organizing the simple delivery of goods from the supplier to the recipient, and is now under pressure of a strong demand for increasing the range of services on the organization of transport of goods - an organization of intermodal transport, delivery "from door to door", customs clearance, packaging, storage, supplies, etc. In this regard, there is an urgent need for institutional development of the logistics industry, improving the quality of services in the field of industrial, trade, information, transportation, inventory, management, and other related logistics services in a holistic manner. A closely related issue that needs to be addressed is the lack of qualified workforce in the field of logistics. Today, the development of logistics services is severely constrained without training and professional knowledge of domestic entrepreneurs, as well as academics.
The government attached great importance to developing international corridors passing through the territory of Uzbekistan, upgrading highways as well as improving the transport infrastructure in the country. This presents an excellent opportunity for the possibility of integration into the international transportation that transcends the nation. However, such an integrated development of the international transport of goods and transit traffic through the territory of the Republic requires significant effort and work to improve the quality of services provided by transport and logistics companies of the country. In this regard, one of the priorities should be the introduction of quality management systems that meets international standards.
Given the increasing annual volume of trade between the countries of South-East Asia and Europe, as well as Uzbekistan’s promising potential as a transport and transit hub in the region, it is crucial to be aware of the need to improve transport and trade infrastructure, which includes the creation of modern facilities for the storage, processing, warehousing and distribution of export- imported goods. Undoubtedly, these storage terminals will serve as internal and
Chapter 4 _ Agriculture and Marketing for the Agricultural Processing Industry Development in Uzbekistan ● 167 transit loads through Uzbekistan. Accordingly, establishing a logistics center with the features and all appropriate infrastructure of a "dry port" would be a good solution for the optimization of international freight.
The existing storage terminals in Uzbekistan are not well equipped, with only a small proportion of them meeting modern requirements for handling such complexities. Moreover, they are either only specialized in exports (for example, cotton terminals) or are created for freight and specialized free trade and industrial zones (FIEZ "Navoi" and PPE "Angren"). In addition to the problems in the railway and road transport, the facilities that could be used for the organization of storage, processing and packaging of export and import cargo, are underdeveloped. Consequently, over 50% of the products are rendered non-competitive in foreign markets, due to lack of logistics centers for processing, packaging and storage, etc., despite the significant amount of agricultural products (fruits and vegetables).
Recently, however, some modern intermodal logistics centers are established mainly for the international air cargo (association and assembly of goods) as aviation hub in the city of Navoi. Fresh vegetables account for the main share in the transportation of perishable goods by Uzbek Rail constitution, about 83-90% of the total exports. Uzbekistan is now one of the leading manufacturers and suppliers of fresh vegetables to the neighboring countries, such as Kazakhstan, the various regions of Russia, the Ural Mountains, Vladivostok, and other large cities like Moscow and St. Petersburg.
4.2. Packaging, Labeling and Meeting Quality Standards
Another important factor for the development of a successful marketing system is the availability and quality of packaging and labeling facilities. The circumstances in Uzbekistan are still relatively unfavorable in this regard. To ensure the international quality standards for agricultural product, significant investment is needed. Food industries also have to make significant efforts to ensure adequate supplies. There are several manufacturers of glass containers and other specialty products, but even such relatively simple products such as cardboard boxes for packaging fruit are still imported. The State program for localization could provide significant support for the promotion of investment in this area.
Suppliers of both agricultural and other products will have to devote a lot of efforts to bring products up to the level of meeting stringent quality standards. . In particular, for products the agricultural firms export to Russia and the EU, strict phytosanitary requirements should be satisfied, which in turn requires much additional work. Manufacturers of food products heavily dependent on the quality of products should work directly with agribusinesses so that farmers can ensure the adequate supply of high quality products. International quality standards such as ISO 9001 are gradually obtained in the country. To date, however, only a few companies have been certified.
168 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy 5. Obstacles to Uzbekistan’s Agricultural Development and Marketing
Some of the major issues related to the development of agriculture and marketing system are outlined below.
For decades Uzbekistan’s consumption of irrigation water has exceeded natural river flows, contributing to the desiccation of the Aral Sea. The use of irrigation water has not been efficient, and using the great amount of irrigation water together with poor drainage led to salinity problems. Such an irrational water use during the last 40-50 years caused the biggest environmental crisis in the region – the drying up of the Aral Sea. According to an assessment, the Aral Sea crisis has resulted in direct and indirect socioeconomic costs totaling US$144 million (nearly US$5.7 per capita or 1.8% of GDP)¹⁵⁾.
Uzbekistan has identified a number of adaptation options for agriculture, including improvement of weather and climate monitoring, development of new adapted varieties, revamp of agronomic practices including minimum tillage, increase in water efficiencies and catchment management involving all stakeholders, enhancement of pasture and fodder, and upgrade of new livestock breeds. It is currently in the early stages of integrating these options into agricultural policies and practices at a farm level and of moving from a “top down” support delivery system to one that is demand driven and pluralistic. Its agricultural strategy objectives concern the maintenance of export revenues, food security and improvements in rural living standards. Uzbekistan has moved with land reform, creating a favorable environment for private farmer investment in land productivity.
There are ongoing programs to improve irrigation and drainage management and wetland rehabilitation, especially near the mouth of the Amu Darya River, to enhance the water management in the fertile Ferghana Valley, and to encourage farm productivity and agri-business development including creating the appropriate environment for financial access. These programs will bring resilience, especially when combined with further measures to liberalize the agricultural economy.
The total area of agricultural land is 22.3 million hectares among which about 10% is arable land. In the last 15 years the area of agricultural land decreased by more than 5% and in per capita terms by 22%, mostly due to the creation of pastures, orchards, and vineyards. On average, there are 8 persons per each hectare of irrigated land. Demographic growth rates are far ahead of those of irrigated land, which has led to the reduction in irrigated farmland from 0.22 ha down to 0.13 ha per person. According to the ADB estimates, if the current trend persists, the acreage of irrigated land will further decrease by 20-25% in the next 30 years¹⁶⁾.
15 ) UNDP, “Water – a critical resource for the future of Uzbekistan”, Tashkent, 2006 16 ) UNDP, “Water – a critical resource for the future of Uzbekistan”, Tashkent 2006
Chapter 4 _ Agriculture and Marketing for the Agricultural Processing Industry Development in Uzbekistan ● 169 At the same time, the quality of agricultural land is deteriorating. Between 1990 and 2000, the average land quality grade fell from 58 to 55 (in bonitet score)¹⁷. More than 3 million hectares of the land is affected by soil erosion caused by wind and water – the average losses of fertile layer in a season has reached up to 80 tons per hectare. The area of pastures subject to erosion that resulted from overgrazing constitutes 7.4 million ha, while more than 5 million ha of pasture land is affected by desertification. Problematic issues related to water and wind erosion are worsening because of the reduction in the area of forests, which fell from 8.5 million ha in 2000 down to 8.1 million ha in 2004. About 54% of the land is polluted by pesticides, and more than 80% has a high content of pollutants (IMF [2008]).
Considering the limited land resources in the country, reductions in arable land per capita is likely to become a long term trend, and calls for strategic actions to be taken to enhance the effective use of limited land resources. According to the World Bank estimates, annual losses in agricultural output in Uzbekistan due to land salinity/degradation are estimated to equal US$31 million, while the economic losses because of agricultural land taken out of use equals roughly US$12 million¹⁸⁾. Activities to reduce land salinity incur major financial costs as well as labor, water, and technical resources. Even with the government’s support, there is an acute shortage of funding for land rehabilitation, preservation, and enhancing yields. Today at least half of all irrigated land is in immediate need of improvement (rehabilitation).
About half of the irrigated lands are supplied with water by pumping stations. The total area of irrigated land in the reconstruction of irrigation systems requires about 36% from total, needs works on reclamation of melioration, through construction, and repairing of vertical drainage for draining saline water. This will assist in keeping lower the underground water level and the salinity degree.
There are also some problems related to pasture use. There have been imbalances in the way pasture is used, wherein some pasture lands were extensively used for grazing leading to overgrazing while others were under-grazed. This, combined with the unfavorable ecological conditions in the area of the Aral Sea, led to the degradation of pastures as the natural forage. In addition, population growth and the transformation of irrigated farmland into settlement expansion resulted in the utilization of new and often non-suitable land for agricultural production. These were influenced by significant logistical costs. As a consequence economic efficiency of agricultural production diminished. Besides, lands not only reduce alfalfa forage for livestock, but also adversely affect soil fertility and the yields of major crops such as cotton and wheat.
The infrastructure needed to expand extension services has been put in place. However, the service provided to farmers is not enough. The existing infrastructure is largely limited to providing farm management and executing activities related to technological processes. Certain infrastructure does not satisfy the needs; organized mini banks did not fully provide services to
17 ) Land quality rating, relating to potential production of a basket of crops, best land awarded 100 points. 18 ) World Bank, “General state of the environment”, 2002
170 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy farmers because almost a third of them did not have internet connection; some of the sources on the realization of mineral fertilizers and fuel was not repaired and not equipped with modern equipment; most of the networks on the harvesting agricultural products and their implementation, as well as networks to provide information and consulting did not have financial stability. Currently, the service sector is experiencing difficulties due to lack of funds as well as ineffectiveness of the tax system. These worsened the efficiency of agricultural production, the unemployment issue, and the standard of living of the rural population. They are also predicted to result in imbalances in the supply and demand for certain types of services.
On the demand front for agricultural products, there is a need to develop new and highly productive crop varieties, improve the soil and climatic conditions of the regions, introduce modern farming techniques, provide local small tractors and agricultural machinery for the production of horticulture, viticulture, fruit and vegetables, etc. There are a number of difficulties in the implementation of and effective control over the quality of exported agricultural products. Lack of testing facilities and laboratories that satisfies the international standards should also be noticed.
Other issues that need to be addressed to enhance the role and importance of agriculture in the country's life include increasing the area of irrigated land, controlling pests and diseases, and improving logistics services in the agricultural sector.
Among the exported agricultural products, a significant proportion is composed of fresh vegetables, fruits, melons and beans (79.8%). This situation calls for better use of existing capacity of enterprises for processing, preservation and packaging of agricultural products. Russia is the main importer of fruits and vegetables, and the main exports of fruits and vegetables to Russia are fresh and dried grapes. Only the small amount of fruit and vegetables is exported to the European markets because of the limited access to transportation, considering the fact that Uzbekistan is a landlocked country located far away from the market, and the nation’s system of standardization and certification of products is imperfectly established. Food exports to the EU are also limited by the fact that Uzbekistan still cannot fulfill technical standards and does not meet EU standards on food safety and phytosanitary control.
Other unresolved problems are listed below.
• The existing legislation is insufficient to establish a framework to promote self-managment by farmers and support their activities, since they are mainly focused on increasing production. In addition, there is no unified basic law for regulating all trends of the sector. • In spite of the measures taken to optimize the farm size, there is fragmentation of land, which does not allow the use of well-planned crop rotation aimed at high yields and increase in funds for the purchase and use of a modern cost-effective technology • Procurement prices for agricultural products are quite low compared to the growing costs. The main reason for this is the rise in the cost of fuel and fertilizer
Chapter 4 _ Agriculture and Marketing for the Agricultural Processing Industry Development in Uzbekistan ● 171 • Bank loans are an important tool in the initiation and implementation of business plans by farmers, and acquisition of modern equipment and technology. But farmers are not willing to use the bank services despite their perceived benefits, since the applicable interest rates are quite high given their financial situation. There are difficulties as well in obtaining credit due to the high collateral requirement. • Amelioration conditions of irrigated land are of great concern. • The lack of stable and long-term partnerships with suppliers and processors as well as customers in the domestic and foreign markets is also of concern. • Lack of infrastructure for storage of agricultural products. • Sluggish progress in the transition from a system based on the State Standards to a system based on the international standards, hindering Uzbek products from being introduced to markets. • The relatively high dependence of the Republic on the water from neighboring countries. • Limited capacity and dispersion of the internal market and the low purchasing power of the traditional markets of the CIS countries.
6. Policy Recommendations for Uzbekistan’s Agricultural and Marketing Development
6.1. Major Policy Suggestions
Based on the review of the agricultural sector of Uzbekistan and experience of Korea, major policy suggestions drawn for Uzbekistan are outlined in this section.
The policy suggestions are proposed for implementation by stage. On the first stage (initial stage) there is a need to stimulate the development and introduction of new varieties of plants and breeds of animal, agro-technology as well as enhance the productivity of crops and livestock sectors. On the second stage (diversification stage), the structure of sown areas should be enhanced by increasing areas under high-value crops, particularly fruits and vegetables as well as livestock production. On the third stage (take-off stage), new enterprises need to be established based on modern technology and technological renovation, export and processing of agricultural products. On the final stage (the maturation stage), measures to promote sustainable development and modernization of agriculture should be taken action. Spinning these stages would be the idea of clustering in the production and processing of fruits and vegetables based on estimates of clustering potentials calculated in detail from a study carried out in parallel to this one. The key focus of these policy suggestions will have to be laid on improving the marketing system of agricultural products with special emphasis on fruits and vegetables. Detailed recommendations are outlined as follows.
172 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy 6.1.1. Agricultural production and productivity
The constraints related to agricultural production in Uzbekistan include less diversification and excessive dependence on water from neighboring countries. Moreover, soil fertility has fallen down on quality scores, which has reduced efficiency of production and productivity. Although measures have been taken to optimize its farm size, there is problem of fragmentation of land, which restricts the possibilities for evidence-based crop rotation aiming at high yields and limits the ability of farmers to raise their incomes and enhance the purchase and use of modern and cost-effective technology.
Consequently, it will be helpful to diversify the crop types according to agro-ecology. Taking into account the prediction that the reduction in the arable land and deterioration of the existing land resources will continue, strategies aimed at enhancing the effective use of the available but limited lands should be implemented. Production based on comparative advantages of each region would be helpful. Compiling the important information on exploring potentials of the regions has been conducted and will have to be continued. In particular, comparative advantages in each region with regard to the potentials for production of fruits and vegetables have been assessed and the outcomes of these assessments have been compiled and reported in a parallel work associated with this study. These estimates have identified the clustering potentials of the three key regions in Uzbekistan; Taskent, Andijan and Samarkand as will briefly be presented at the end of this section.
6.1.2. Quality of land resources and irrigation
The constraints identified in this topic include inefficient use and overuse of water, poor drainage, salinity problem, poor amelioration efforts, greater soil erosion and soil fertility. Accordingly, broadening measures like improved agronomic practices, water efficiency, catchment management, which are already being implemented by the government but still insufficient, are recommended to improve the situation. Moreover, setting-up demand-driven (bottom-up) or participatory support system is also being anticipated to address the issue. In this regard, Uzbek partners can derive a number of useful experiences from Korea’s Saemaul Undong movement in the 1970s.
6.1.3. Slow process of reform implementation
Despite various measures and reforms the government is taking, the implementation is very slow and far too little to have meaningful effects. Especially the marketing liberalization is very sluggish. The privatization process has been slow, too. Hence, there is an urgent need to broaden and deepen the liberalization process especially in the marketing sector. Moreover, fostering public-private partnership in the implementation of these processes would be beneficial. Therefore, the experience of the Korean agricultural marketing system outlined in section two appears appealing for replication through necessary adaptation and/or modification to suit the
Chapter 4 _ Agriculture and Marketing for the Agricultural Processing Industry Development in Uzbekistan ● 173 realities prevailing situation in Uzbekistan.
6.1.4. R&D and extension services
The R&D activities for modern technologies are not consistent with the needs of production. The extension services are not sufficient and the extension network is very limited. Accordingly, the link between research and extension must be strengthened. Moreover, the effective transmission and dissemination of research outputs and technology to farmers should be enhanced. There is also a need to increase the investment in research institutions and capacity building.
6.1.5. Rural finance
Farmers are not willing to use bank services. Access to credit is also restricted. Accordingly, it is recommended to expand and promote rural micro-financing schemes. It will also be helpful to implement micro-credits by cooperatives and NGOs are advised to consider the experience of NACF in Korea.
6.1.6. Agricultural marketing
Some of the constraints in this regard include poor motivation and less incentives and shortage of exposure to the modern marketing system, lack of advanced system in the marketing area, lack of skilled human resources, and lack of conducive infrastructure. Moreover, the quality and efficiency of wholesale and logistics remain low. Agri-firms responsible for processing of agricultural products and wholesale are less experienced and often bypassed thereby breaking the value chain and consequently creating inefficiencies. Accordingly, the agricultural marketing system needs reform. Measures like reducing or completely lifting restrictions on export marketing such as expanding agricultural marketing facilities with appropriate storage, washing, grading and other facilities would be crucial to alleviate the problems. The experience of Korean cooperatives (NACF) can also help on this front, particularly in promoting the joint marketing model. There is also a need for capacity building.
6.1.7. Clustering of production and processing of fruits and vegetables in Uzbekistan
Agro-food clusters can be established to ensure the achievement of sustainable agriculture and marketing system. The core principles underlying the clustering concept is networking and creation of value-added products based on R&D. Following the paradigm shift from processing intensive production system by individual enterprises targeting domestic markets to value-adding production and processing systems by networks of producers aimed at export-promotion, the implementation of clustering will make a huge contribution to enhancing the competitiveness of Uzbekistan’s agricultural and agro-food sector thereby ultimately helping achieve sustained
174 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy growth of the agricultural industry and improved livelihood in rural Uzbekistan.
The core strategies include:
• Establishing business friendly infrastructure • Establishing the enterprise innovation system and back-up for creating value-added products • Agro-food export base and “Comprehensive Growth” strategy • Promoting empowerment and supply of manpower • Strengthening investment attraction of enterprises and research Institute
The candidate regions for the clustering of agro-food processing special zones are Tashkent, Andijan and Samarkand. They were selected based on Potential Clustering Coefficient of Agro-Processing by Region (calculated by authors) and the Comparative Advantage in terms of production and processing.
Gross yields of fruits and vegetables, 2011 Gross yields of fruits and vegetables, 2011 Gross Yields of Fruils and Berries in 2011 province 000(one) shares B. 138.1(7.35%) Karakalpakistan Republic 27.4processed Rate(%)1.46% C. 251.2(13.37%) Andijan(A) 396.9 21.13% B. 138.1(7.35%) Bukhara 163.5 8.70% 14 Djizzakh 61.6 3.28% 1 7 Kashkadarya 80.6 4.29% 13 Navoiy 69.7 3.71% 12 6 2 4 Namangan(B) 138.1 7.35% 5 10 3 Samarkand(C) 251.2 13.37% 9 Surkhandarya 101.5 5.40% 8 Syrdarya 21.3 1.13% 11 Tashkent(D) 162.7 8.66% Fergana(E) 276.9 14.74% E. 276.9(14.74%) Khorasm 127.3 6.87% E. 161.7(8.66%) Total 1878.7 100.00%
Chapter 4 _ Agriculture and Marketing for the Agricultural Processing Industry Development in Uzbekistan ● 175
Key characteristics of the selected regions for agro-food clustering
Region Characteristics of the clustering region
Andijan Agricultural production and processing leader (with Tashkent and Samarkand) Plenty of gardens and vineyards Branch of the National Scientific Research Institute for Viticulture and Horticulture
Samarkand Has comparative advantage for greens • Climate • Agricultural traditions • Skilled workers • Market
Tashkent Market comparative advantage • Residence: 3.5 million • Commuting population: 1 million per day Developed infrastructure compared to other regions • Transportation • Location of storage houses • Processing • Energy provision Fast growing market for fruits and vegetables Growing demand for fresh and ecological produce
6.2. Conclusion
Uzbekistan is an agrarian country with agriculture still making a good share to the overall economy of the nation despite its consistent decline in its contribution. The development of the sector has been constrained in many fronts including the slow transition of coming out of a command-type of the economic policy from the past, problems related to degradation of land resources (salinity issues and deteriorating soil fertility), natural calamities like the drying up of the Aral Sea and the related problem of dwindling water sources for irrigation, infrastructural problems in rural areas and underutilization of existing infrastructure, underdeveloped
176 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy agricultural marketing system and associated inefficiencies, etc.
Traditionally the agricultural production in Uzbekistan has been less diversified, dominated by cotton and wheat cultivation. However, following a series of the reforms that have been implemented over time since the nation’s independence, the sector has been increasingly diversifying away from these major crops to other subsectors with high potentials for income generation of farmers. In particular, the growth of incomes overtime has brought opportunities for the cultivation and marketing of high-value agricultural products including fruits, vegetables and livestock products. This further enhances related agro-processing businesses through forward and backward linkages.
The aim of this study was to review the development of the agricultural sector of Uzbekistan and that of Korea and draw lessons from the Korean experience that can be used as an input in designing and improving the development of the sector in Uzbekistan. In particular, the study focused on assessing the agricultural marketing systems in the two countries, with emphasis on marketing of fruits and vegetables to draw useful implications and recommendation for designing a better policy for Uzbekistan’s agricultural marketing system. In doing so, major constraints and challenges in the agricultural sector in general and the agricultural marketing system in particular have been identified, and recommendation and policy suggestions were forwarded based on the experience of Korea.
The policy suggestions were proposed for implementation in phases/stages; the initial/ preliminary stage (to stimulate the development and introduction new varieties of plants and breeds of animal, agro-technology and enhance the productivities of crops and livestock); the diversification stage (to enhance the structure of sown areas through increasing areas under competitive crops); take-off stage (to create new enterprises based on modern technology and technological renovation export and processing agricultural products) and finally, maturation stage (for the implementation of measures to promote sustainable development and modernization of agriculture). Specific recommendations were given pertaining to some of the constraints identified; agricultural production and productivity, quality of land resources, irrigation, reforms, R&D, extension, rural finance, and agricultural marketing.
Chapter 4 _ Agriculture and Marketing for the Agricultural Processing Industry Development in Uzbekistan ● 177 References
Abdullaev, I., DeFraiture, C., Giordano, M., Yakubov, M., and Rasulov, A. (2009). Agricultural Water Use and Trade in Uzbekistan: Situation and Potential of Market Liberalization. Water Resources Development, Vol.4, No.1
ADB (2006). Uzbekistan: An Evaluation Study
Cornia, G.A., McKinley, T., Spoor, M., Kotz, D.M., Saidova, G., Nasritdinkhodjaev, Z., Khaitov, A., Abduganieva, Y., and A. Tukhanov (2003). Growth and Poverty Reduction in Uzbekistan in the Next Decade. A Report Commissioned by the Poverty Group
Government of Japan (2006). Country Assistance Program for the Republic of Uzbekistan
Hasanov S. and H.M. Norman (2011). Agricultural efficiency under resource scarcity in Uzbeki- stan: A data envelopment analysis. Business and Economic Horizons. Vol.4, No.11.
IFAD (2010). Republic of Uzbekistan Horticultural Support Project, A Final Report
IMF (2008). Republic of Uzbekistan: Poverty Reduction Strategy Paper. Country Report No. 08/34
Jeon, Y.D., and Kim, Y.Y. (2000). Land Reform, Income Redistribution, and Agricultural Produc- tion in Korea. Economic Development and Cultural Change, Vol. 48, No.2
KREI (2010). Agriculture in Korea. Korea Rural Economic Institute
WFP (2008). Poverty and Food Insecurity in Uzbekistan
World Bank (2010). Opportunities and Challenges for a Converging Agenda: Country Examples
178 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy
Policy Consultation on Uzbekistan’s Industry Innovation Strategy Chapter 5
Recommendations for the Development of Agro-processing Industry in Uzbekistan -With special reference to fruits and vegetables-
1. Introduction 2. The Importance of Agro-processing Industry 3. The Current Staus of Agro-processing Industry in Uzbekistan 4. Challenges and Constraints in Agro-processing Industry 5. Korea's Policy for Promoting Agro-processing Industry 6. Summary and Conclusion Chapter 05
Recommendations for the Develoment of Agro-processing Industry in Uzbekistan -With special reference to fruits and vegetables-
Kwangsuck Lee (Sungkyunkwan University) Khasan Mamarasulov (Ministry of Agriculture and Water Resources) Shavkat Hasanov (Samarkand Agricultural Institute/University) Shakhobiddin Ortikov (Association of Food Industry Enterprises)
Summary
Uzbekistan has great potential to attain economic values added by processing fruits and vegetables which enjoy comparative advantages in terms of favorable natural environment. However, the full potential of agro-processing industries has not yet been realized in Uzbekistan. In this respect, special attention needs to be given to the agro-processing industries in Uzbekistan.
This study intends to analyze the current situation of agro-processing in Uzbekistan with special attention to fruits and vegetables and to suggest policy alternatives for the development of the industries. In order to draw policy suggestions for the Uzbekistan case, we reviewed the Korean experience of the agro-processing industries and examined the paradigm shift of Korea’s agro-food policy.
Generally, the key challenges that developing countries including Uzbekistan must consider when preparing the development of agro-processing industries include (1) new positioning with structural change; (2) infrastructure; (3) physical and human capital; (4) strategic approach for strategic objectives; and (4) globalizing trade regimes.
Uzbekistan seems not free from the challenges faced by agro-processing industries in most developing countries. However, the most imminent sources of obstacle to the development of agro-processing industries in Uzbekistan can be categorized into (1) agro-processing industry itself; (2) availability or supply of raw materials (agricultural products); and (3) infrastructures
180 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy supporting the aforementioned two contents.
The agro-processing industry in Uzbekistan is regionally differentiated with respect to production and processing. The production of fruits and vegetables in Uzbekistan shows a wide difference by region. On the basis of per capita production, Andijan recorded the highest level of fruits and berries. For vegetables, the highest per capita production was marked by Tashkent followed by Andijan and Samarkand. Samarkand ranks the top in terms of per capita grapes production in the same year. Since the production of fruits and vegetables varies considerably across the different regions of Uzbekistan, it would be of paramount importance to review the patterns of production and processing.
In this respect, the coefficients of regional clustering of agro-processing were estimated in this study. The estimated coefficients would help identify the regions that have comparative advantage in specific products and draw implications for clustering and commercialization of agricultural sector. According to this estimation, in both vegetable and fruits processing, Samarkand shows the highest coefficients. The coefficients for Tashkent, Namangan, and Andijan are larger than other regions in the case of vegetable processing. Along with the highest coefficient in Samarkand for the fruits processing, Andijan, Namangan, and Fergana are relatively high ranked. The regions with higher clustering coefficients are mostly located in the eastern area of Uzbekistan.
Korea’s food policy and “special region” policy would be a good reference for Uzbekistan to take into account the regional differentiation of agricultural production and processing when designing policy alternatives in this sector. The changing conditions that Korean agro-food industries face include the strengthening consumer power for high-quality and diversified food and the deepening international competition. This requires modifications in the Korea’s agricultural policy. A paradigm shift has resulted in Korea’s agricultural and food/agro-processing policies, which are reflected in the legal frameworks such as the food industry promotion law. Especially, the food industry promotion law of 2010 clarifies the clustering of food industries in the title of “National Food Industry Clusters”.
In addition, the “special zone” system is currently adopted in Korea to foster local economy through special business or project that has comparative advantage on the basis of regional specificity. When a region is selected as a “special zone”, the region will be given various benefits including financial supports and waives of legal restrictions from local governments. The “special zone” system was launched by enacting “the law of special waives for special development region” in 2004.
Consequently, along with the general guidelines of policy suggestions, we recommend clustering strategy for the development of agro-processing industry in Uzbekistan. When considering the importance of link between agricultural production and processing, we recommend that agricultural processing plants should not only be located in rural areas and
Chapter 5 _ Recommendations for the Development of Agro-processing Industry in Uzbekistan ● 181 but in the form of clustering. Clustering agro-processing industry or regional specialization of agro-processing in Uzbekistan can allow efficient use of resources with advantageous soil and climatic conditions along with traditions and mentality of the people in rural areas. The clustering of the agro-processing can be outlined with the suggested strategy for different stage of development that includes strengthening infrastructure (first stage), industrializing agro-processing industry (second stage), and internationalizing agro-processing industry (third stage).
1. Introduction
Agriculture is considered a cornerstone of most developing economies. Unfortunately, however, agriculture cannot provide reliable support for the economies with growing population. Also the agricultural land alone cannot sufficiently support their livelihoods in the rural areas. Alternative or additional income generating activities are needed under this circumstance. Agro-processing has the potential to provide those opportunities by turning primary agricultural products into other value-added commodities.
Agro-processing industries have the potential to provide employment for the rural population not only in farming, but also in off-farm activities such as handling, packaging, processing, transporting and marketing of food and agricultural products. The overall potential of agro-processing is huge. It can reduce wastage, enhance food security, improve livelihoods for low-income groups and empower women in the region. In many developing countries, it is widely known that a large portion of the labor force finds part of its work in small scale food processing, and the majority of them are women.
However, there are a number of constraints that limit the further enhancement of agro-food processing in developing countries. The full potential of agro-processing industries as an engine for the economic development has not yet been realized in many developing countries. In this respect, this study intends to analyze the current circumstances of agro-processing in the Republic of Uzbekistan with special attention to fruits and vegetables and to suggest policy alternatives for the development of the industries. In order to draw policy suggestions for the Uzbekistan case, we review the Korean experience of the agro-processing industries and examine the process of governmental policy adoption. Particularly, the paradigm shift of Korea’s agro-food policy seems to provide a reliable reference to Uzbekistan in terms of designing policies for the development of future agro/food processing industries.
2. The Importance of Agro-processing Industry
2.1. Change of Agro-Food Demand Structure
New demands on agriculture for better-quality foods create visibility for agriculture in
182 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy development. Some recent health epidemics have been closely related to issues of important links between agriculture and health. The demand for food and agricultural products is changing in unprecedented ways. The demand for high-value commodities, processed products and ready-prepared foods increases in association with the increased per capita income and the expanded urbanization. In addition, the growing numbers of women in the workforce engender greater demand for those commodities (da Silva and Baker [2009]). The nature and extent of the changing structure of agro-food demand offer ample opportunities for diversification and value addition in agriculture, particularly in developing countries.
The changing consumer demand can be reflected in the diversification of production into non-traditional fruits and vegetables in developing countries. The share of developing countries in the world trade of non-traditional fruits and vegetables has rapidly increased in the recent years. The global processed foods sales per year were estimated at well over US$3 trillion, or approximately three-quarters of the total food sales globally (Rabobank [2008]). While most of these sales are from high-income countries, the percentages of global manufacturing value addition for the main agro-industry manufacturing product categories generated by developing countries have nearly doubled in the last 25 years (FAO [2007]).
The prospects for continued growth in demand for high value-added food constitute an incentive for increased attention to the development of agro/food industries within the context of agricultural development, food security, and economic growth. A particular concern is how countries can benefit from the links between agriculture and agro-industrial development and how agro-industry can contribute to economic development. De Janvry (2009) states that since the potential that agriculture can contribute to the development has been vastly under used especially in the last 25 years, there are opportunities to do better and, accordingly, we must identify those opportunities, confront the challenges associated with them and then ask ourselves: What are the policy entry points that can mobilize this potential in the context of new opportunities and challenges?
To understand the roles of agriculture in the economic development, it is necessary to examine the structural transformations as illustrated by the relationship between gross domestic product (GDP) per capita and the share of agriculture and agribusiness in GDP as shown in Figure 5-1. The horizontal axis of the graph represents GDP per capita and the vertical axis does the shares of GDP for particular sectors. The figure illustrates that the importance of agriculture declines as GDP per capita increases from, say, 50% at the low levels of income to approximately 5% at the high levels. But, interestingly, the trajectory for agribusiness (agro-industry and related services) shows that the share of agribusiness is not declining. In fact, it is rising at higher levels of GDP per capita, tending to slightly decline only later on. Agribusiness becomes much more important than agriculture as income increases.
Chapter 5 _ Recommendations for the Development of Agro-processing Industry in Uzbekistan ● 183 The Structural Transformation of Shares of Agriculture and Agribusiness compared with the Changes of per capita Income 60
50
40
30
20
10 Percentage shae of GDP
0 150 400 1100 3000 8100 GDP per capita, 2000 US$(log scale)
Source: de Janvry, p.254, 2009 Agriculture Agribusiness 2.2. Inter-industrial Linkage Effects of the Agro-processing Industry
Agro-processing includes manufacturing activities through which value is added to agricultural raw materials. Due to the biological nature of agricultural products characterized by seasonality and perishability, many agro-industrial plants and smaller-scale agro-processing enterprises tend to be located close to their major sources of raw materials. Accordingly, their immediate socio-economic impacts are likely to to be extended to rural areas.
The demand induced by an agro-industrial enterprise stimulates businesses well beyond the closest links with its direct input suppliers and product buyers. In addition, the entire range of ancillary services and supporting activities in the secondary and tertiary sectors of the economy are also positively impacted by the increased demand for the processed agro-food products. Agro-processing industries are, thus, known to be efficient engines of the economic growth and development.
The significance of any sector in the economy can be estimated by examining the inter-industry linkage effects. The sector uses inputs from other industries in its production process. This reflects the sector’s ‘backward linkage.’ Again, a sector may supply inputs to other industries. This indicates the ‘forward linkage’ of the sector with other industries to which it supplies inputs. The backward linkage as well as the forward linkage represents how an individual sector is woven into the structure of the economy and how crucial it is.
A key sector such as agro-processing industry is largely dependent on agricultural production sector. That is, it utilizes the products of agricultural sector (raw materials) in its production (processing) process. On the other hand, other sectors including restaurants, tourism,
184 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy supermarkets and other service businesses use its output (processed agro/food) as an intermediate product in their production processes. Investments in key sectors would thus initiate economic development due to the close interrelations with other production sectors.
The industries with large backward and forward linkages, there, play an important role in the development strategy of a country. The linkage effects can be expressed by ‘output multiplier’ or ‘production inducement coefficient.’ Output multiplier or production inducement coefficient indicates the output changes in overall industries of an economy induced by a change in demand for the final output of an industry. For example, the output multiplier of Food Industry in Korea was estimated by 2.92 in 2010. This carries an implication that a dollar increase in food export will induce $2.92 increase of outputs in overall industries. It shows how output is multiplied through the inter-industry linkages. Usually agro-processing industries are believed to have high linkage effects, which can be also evidenced by the case of Korea’s agro-food industries.
3. The Current Status of Agro-processing Industry in Uzbekistan
3.1. Changing agricultural structure in Uzbekistan
Agriculture in Uzbekistan plays a crucial role in ensuring the economic and social stability. The economy of Uzbekistan depends on the agricultural sector in terms of opportunities for improving rural welfare, ensuring the deficit-free economy, satisfying consumer demand, and so forth. In Uzbekistan, 52 percent of farms grow cotton and wheat and 32 percent of them cultivate fruits and vegetables in 2010, as seen in Figure 5-2.
Uzbekistan has taken institutional and structural reform for the sustainable development of the agricultural sector since 1990s. The transition of Uzbekistan agricultural policy includes the expansion efforts of production of fruits and vegetables while reducing the relative weight of cotton and wheat.
Especially away from the cotton-centric monoculture system, the Uzbek government endeavors to diversify agricultural production for achieving food self-sufficiency as well as to promote agro-processing industry for increasing value-added products in agricultural sector.
Chapter 5 _ Recommendations for the Development of Agro-processing Industry in Uzbekistan ● 185 Distribution of Farms by Agricultural Enterprise
45000 41900 (as of January 1, 2010) 40000 35000 30000 25000 22525 20000 15000 10000 6081 6748 4055 5000 0 1 2 3 4 5 3min. 381.4 213. 8thousand 78 .5thousand 1 min. 10.3 82 .9 thousand thousand ha. ha ha. thousand ha. ha. average 80.7 ha average 9.5 ha average 19.2 ha average 166.1 ha average 12.3 ha
Source: The State CommitteeCotton-wheat of Uzbekistanfruit-winery on Statistics vegetables melons Livestock Other (52%) (28%) (5%) (7%) (8%)
Uzbekistan's agricultural production has continued to grow since its independence from the Soviet Union in 1991. The trend of rapid increase in agricultural production is seen in Table 5-1. While the potato production has increased by more than 5 times during the period of 1991 to 2011, the production of fruits and vegetables has grown by more than 2 or 3 times. Uzbekistan is rich in the production of fruits and vegetables with unique taste and flavor. The cultivation of fruits and vegetables of healthy and high quality is allowed by the favorable environment and climate in this country.
In the process of agricultural growth, the structure of agriculture in Uzbekistan also changed. The share of the cotton monoculture in the GDP declined from 15.9 percent in 1990 to 1.9 percent in 2010. During the same period, on the other hand, the shares of vegetables and fruits (including grape) have increased as indicated in Table 5-2. As a result, Uzbekistan becomes high ranked among the 20 world’s highest producers of specific food and agricultural commodities: i.e., apricots (3rd), turnips (4th), sweet cherry (9th), persimmon (7th), quince (3rd), cherries (11th), and tomatoes (12th). The structural change with the growth of these sectors was significantly influenced by a series of the Uzbek government’s efforts including the Presidential Decrees "On measures to enhance economic reforms in the fruit-vegetables and viticulture"¹⁹⁾ and "On measures to optimize the crop area and increase the production of food crops"²⁰⁾.
Chapter 5 _ Recommendations for the Development of Agro-processing Industry in Uzbekistan ● 187 3.2. The level of Agro-processing in Uzbekistan
Generally, agricultural sector not only supplies population with foodstuffs, but also serves as the main source of raw materials for other economic sectors such as agro-processing industry. Uzbekistan has a great potential to attain economic values added by processing fruits and vegetables which enjoy comparative advantages in terms of favorable natural environment. Especially when exported, these commodities can significantly contribute to the economy through the ‘multiplier effect’, which was explained previously in this chapter. In this respect, a special attention needs to be given to the agro-processing industries in Uzbekistan.
The exports of some processed agricultural commodities tend to rapidly rise in Uzbekistan after 2000. Table 5-3 shows the trend of exports of some processed fruits and vegetables from 2000 to 2008. Particularly, the exports of dried vegetables and fruits became over 34 million dollars and 21 million dollars, respectively in 2008. However, the export volumes of processed vegetables and fruits remain around 1 to 2 million dollar.
Exports of Selected Agro-processed Commodities in Uzbekistan (unit: 1,000 US$) Product 2000 2005 2006 2007 2008
Source: The State Committee of Statistics, Republic of Uzbekistan
Fruits and vegetables produced in Uzbekistan are believed to have a great potential to export to Russia, Kazakhstan, and the European markets. However, the proportion of processing out of their total production remains lower than the potential. Approximately 30 percent of the fruits and vegetables produced in Uzbekistan are known to be wasted without being properly handled or processed every year. This indicates that strategic plans are required to promote agro-processing industry particularly for fruits and vegetables.
The major non-agricultural sectors in Uzbekistan rural area are agro-processing and service sectors. Many of the agro-processing firms were originated during the period of the Soviet Union and privatized after the Independence. The processed commodities by these firms are mainly exported to Russia and Kazakhstan, which include fruits juice, concentrated fruits, canned vegetables, frozen fruits and vegetables, vegetable paste and puree, dried fruits and vegetables, tea, and so forth.
188 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy Other small-scale agro-processing units are usually operated by households and located in rural areas where they produce dried fruits, juice, and pasta. Their products are mostly traded unofficially so that they are isolated from the main stream of the marketing channel.
In 2011, 1,746 thousand tons of fruits were produced in Uzbekistan among which 320 thousand tons were processed, meaning 18.3 percent of processing rate. The processing rate of vegetables was 11.5 percent and that of grapes was 24.6 percent in 2011. As seen in Table 5-4, the increasing trend of processing rate of fruits and vegetables tends to remain stagnated after 2009.
The forecast does not suggest a significant increase in the rate of processing for fruits and vegetables in 2015. Table 5-5 shows the demand for vegetables for processing purposes is predicted to be 11.9 percent of the total production in 2015. This level is almost the same as in 2011. The forecasted processing rate of fruits is 20.2 percent in 2015. This is about 2 percent point increase compared with the level in 2011. The processing demand of grapes is expected to be 30.6 percent in 2015, which is 6 percent point higher than the figure in 2011.
Production and Processing of Fruits and Vegetables in Uzbekistan (unit: 1,000 ton) Vegetables Fruits Grapes
Source: State Committee of Statistics, Republic of Uzbekistan
Chapter 5 _ Recommendations for the Development of Agro-processing Industry in Uzbekistan ● 189
Production of and demand forecasts for fruits and vegetables in Uzbekistan
Forecasted for 2015 (1,000 ton) % to total production Total production a) vegetables 6,809.6 100.0 b) fruits 1,782.4 100.0 c) grapes 1,177.6 100.0 Demand for export a) vegetables 365.0 5.4 b) fruits 215.0 12.1 c) grapes 238.1 20.2 Demand for processing purposes a) vegetables 810.5 11.9 b) fruits 360.4 20.2 c) grapes 360.2 30.6
Source: U. Mukhitdinova, 2010
3.3. Regional Features of Agro-processing in Uzbekistan
The production of fruits and vegetables in Uzbekistan shows a wide difference by region. On the basis of per capita production, Andijan recorded the highest level of 139.5 kg of fruits and berries in 2010. For vegetables, the highest per capita production was marked by Tashkent (with 500.0kg) followed by Andijan and Samarkand (334.9 and 333.3 kg, respectively) in 2010. Samarkand enjoyed the top level of per capita grapes production in the same year. The average per capita production in Uzbekistan was 60.6 kg for fruits and berries, 224.8 kg for vegetables, and 35.0 kg for grapes. Since the production of fruits and vegetables varies considerably across the different regions of Uzbekistan, it would be of paramount importance to review the patterns of production and processing.
190 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy Production of fruit and vegetables per capita by region in 2010
DjizaK Navoi Andijan Bukhara Syrdarya Fergana Tashkent Khoresam NamanganSamarkand Kashkadarya Surkhandarya Karakalpakistan Average in country
Among the total 237 agro-processing plants in Uzbekistan in 2010, 168 companies specialized in fruits and vegetable processing along with other 69 companies processing grapes (Table 5-6). The 7 large grape processing enterprises are located in rural areas employing around 2,000 people. The Holding Company "Uzvinosanoat-holding" (Uzbekistan vine industry holding company) is one of the biggest agro-processing companies. The main enterprises are located in Andijan, Samarkand and Tashkent. The share of processing agricultural products in certain region of the country is extremely small. In 23 rural counties (rayon), there exist almost none of the agro-processing enterprises.
Chapter 5 _ Recommendations for the Development of Agro-processing Industry in Uzbekistan ● 191
Location of agro-processing plants in Uzbekistan, 2010
Regions Fruits/vegetables Grapes Uzbekistan Total 168 69 Karakalpakistan AR 5 - Provinces: Andijan 16 4 Bukhara 5 5 Djizakh 11 - Kashkadarya 17 3 Navoiy 2 1 Namangan 18 5 Samarkand 18 10 Surkhandarya 10 10 Syrdarya 2 2 Tashkent 19 25 Fergana 17 1 Khorasm 8 1 Tashkent city 20 2 Source: Ministry of Economics, Republic of Uzbekistan
Although their capacity is not comparable to the large processing enterprises, there exist 267 fruits-vegetables-oriented agricultural firms (agro-firms) in Uzbekistan in 2011. Agro-firms usually purchase fruits and vegetables produced by farmers and households (dekhkan) and also assist them in selling their products both in the domestic and foreign markets. From these agro-firms, only 81firms operate their own processing plants. The agro-firms with own processing units are mostly allocated in Samarkand, Fergana, Tashkent, Namangan, and Andijan province.
192 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy
Number of agrifirms with own processing plants in Uzbekistan, 2011
Number of agrifirms with Regions Number of agrifirms own processing plants Karakalpakistan AR 3 2 Provinces : Andijan 18 11 Bukhara 6 - Djuzakh 4 3 Kashkadarya 12 1 Navoiy 1 - Namangan 29 12 Syrdarya 3 0 Samarkand 80 16 Surkhandarya 21 0 Tashkent 60 15 Fergana 18 16 Khoresm 12 5 Total 267 81
Source: Ministry of Economics, Republic of Uzbekistan
The share of agro-processing by large scale processing enterprises is small as seen in Table 5-8. The average processed rate of fruits and vegetables by industrial way was only 6.3 percent in 2011. This figure is less than half of the national total. The rate of processing, however, varies widely by region. The highest rate was seen in Samarkand with 17.8 percent, followed by 14.7 percent in Namangan. Other regions’ rate of processing remains lower than 7 percent in the same year.
Chapter 5 _ Recommendations for the Development of Agro-processing Industry in Uzbekistan ● 193
Level of fruits and vegetables processing by industrial way by Province in Uzbekistan, 2011
Province Processed rate by Industrial way(%) Karakalpakistan Republic 3.2 Andijan 1.5 Bukhara 3.7 Jizzakh 6.1 Kashkadarya 5.7 Navoiy 2.3 Namangan 14.7 Samarkand 17.8 Surkhandarya 1.5 Syrdarya 4.9 Tashkent 4.0 Fergana 1.5 Khorazm 1.2 Total in Uzbekistan 6.3 Source: Ministry of Economics, Republic of Uzbekistan The regional clustering coefficients of agro-processing are calculated based on the regional features such as cultivation, production, processing, and population. The estimation formula for
this clustering coefficient is demonstrated below:
d d d ion, p d Cc = C.z · Cs · Caroc · Caca
where C c represents the coefficient of clustering potential; C a d shows the production coefficient;
C s denotes specialization coefficient;
C a d roc indicates processing industry coefficient; and
d C a c a d means per capita production coefficient.
The components of each coefficient are given as follows:
194 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy The estimated coefficients can provide very useful information regarding the possibility of regional clustering of agro-processing in Uzbekistan. In other words, the coefficients are expected to help identify those regions that have comparative advantage in specific products and draw implications for clustering and commercialization of agricultural sector.
If the estimated coefficient is greater than 1, it implies that the region has comparative advantage in the processing of the specific product. Table 5-9 indicates the estimated clustering coefficients of agro-processing by region in 2011. The estimated figures of Cc , Cp , Cs , Cproc and
Cpcp are presented in Appendix.
In both vegetables and fruits processing, Samarkand enjoys the highest coefficients: i.e., the estimated coefficients are 23.703 for the vegetables and 15.901 for the fruits. The coefficients for Tashkent (2.168), Namangan (1.556), and Andijan (1.435) are higher than 1 in the case of vegetable processing. Their coefficients are not comparable to Samarkand, though. Along with the highest coefficient in Samarkand for the fruits processing, Andijan (3.428), Namangan (1.770), and Fergana (1.020) are relatively ranked high. The regions with higher clustering coefficients are located in the eastern area of Uzbekistan as seen in Figure 5-5.
Estimated Coefficients of Clustering Potential for Processing Vegetables and Fruits in Uzbekistan, 2011
Source: Ministry of Economics, Republic of Uzbekistan
Chapter 5 _ Recommendations for the Development of Agro-processing Industry in Uzbekistan ● 195 Regional Allocation of Potential Agro-processing Clustering in Uzbekistan
Source: Ministry of Economics, Republic of Uzbekistan
4. Challenges and Constraints in Agro-process- ing Industry
4.1. Challenging Issues for Promoting Agro-processing Industries in Developing Countries
It is inevitable that the basis of competitiveness of agro-processing industries in developing countries in the future is different from that in the past. This requires the transition of existing enterprises and the adoption of new policies and approaches complying with the new business environment of the world. At the same time, this ‘new business world’ is creating significant opportunities for developing countries that are able to respond to new circumstances.
The challenge for developing countries in steering the development of agro-processing industry is to facilitate private investments that will bring about rapid evolution of agro-food systems. The issues of this concern lie not only within the narrow frame of the agro-processing in particular, but in the broader economic and institutional environment. The key challenges are demonstrated below that developing countries must consider when preparing the development of agro-processing industries.
4.1.1. New Positioning with Structural Change
Agro-processing industries in developing countries are being modernized within the context of agro-food systems that are increasingly globalized and themselves undergoing
196 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy organizational and institutional restructuring. While there are new opportunities widely open to developing countries in the form of value addition, they also pose challenges that must be tacked with new approaches to competitiveness.
Accordingly, different forms of agro-processing enterprise are expected to evolve in the future. This implies that the existing obsolete enterprises would be unable to compete in this new environment and finally shrivel away. Perhaps the most critical challenge for developing countries would be to identify where their agro-processing sectors fit into this new era. In other words, the status quo will not suffice.
Indeed, in many cases, agro-processing industries as well as the wider agro-food system will need an entire reorganization from ‘supply-push’ to ‘demand-pull.’ This requires the recognition of the primacy of consumers and dominant downstream buyers. Undoubtedly this poses huge challenges. Therefore, related processes of organizational and institutional restructuring are expected to extremely complicated.
It is crucial that developing countries recognize the new realities of the global agro-food economy and identify how they can position existing and/or new agro-processing industries within this reality. At the same time, the challenges that agro-processing enterprises confront in order to comply with stricter food safety and quality standards in international markets can serve as fundamental catalysts of change and strategic repositioning (Henson and Jaffee [2008]).
4.1.2. Infrastructure
Preconditions for the development of agro-processing industries include necessary storages, logistics, information and communication technologies, and supplies of key utilities such as electricity and water. In turn, the infrastructural constraints under which the agro-processing industries operates influence the cost and reliability of the physical movement of raw materials and of the quality of end products, efficiency of processing operations, responsiveness to customer demand, etc. Indeed, the level, quality and reliability of infrastructure have been critical determinants of export competitiveness for processed agro-food products (Crammer [1999]).
In many developing countries, and especially low-income countries, agro-processing industries may face unreliable and costly infrastructures. For instance, storage and logistic systems are usually insufficient and inefficient. Under such conditions agro-processing firms are not able to access major export markets. Likewise, unreliable and costly supplies of utilities can hamper agro-processing companies from operating at or near full capacity utilization. In sum, the existence of weak infrastructure will retard the rates of transitional and evolutional restructure of the agro-processing industries in developing countries.
In addition to basic infrastructures, more specific infrastructural needs of the agro-processing industries sector continue to develop. They are access to laboratory testing and certification
Chapter 5 _ Recommendations for the Development of Agro-processing Industry in Uzbekistan ● 197 services, new product development facilities, and so forth. In many developing countries such infrastructure is weak that even basic food safety and quality standards can be complied with.
4.1.3. Physical and Human Capital
When agro-processing enterprises attempt to grow and compete in the global markets, access to the required physical and human capital becomes more critical. The processes of agro-industrialization like agro-processing are closely related to technological changes through improved crops, new forms of processing, enhanced distribution systems, etc. Such technological changes are crucial in achieving improvements in efficiency, meeting the changing demand of consumers, and enhancing storability and transportability.
Agro-processing industries in developing countries often face significant restraints in gaining access to the technologies and skills they need in order to survive and compete in the rapidly changing agro-food economy. The essential technologies and skills are either not available domestically or costly if imported. This reflects that research and development expenditures in many developing countries are considerably low. Even when considering the import of these technologies, access to foreign exchange and high exchange rate can be significant impediments in many developing countries.
Level of skills per worker (human capital) becomes more critical as well for processing primary agricultural products in developing countries. Indeed, investments in general and skill-specific education are mandatory. It must be noted that while access to technology is critical, no technology can be employed unless there is appropriate human capital to operate it.
4.1.4. Strategic Approach
In recent history, agro-industrialization including agro-processing has underwent two broad stages of development especially in transitional economies. Prior to the era of structural adjustment, the central government played a dominant role in establishing large-scale and often publicly owned enterprises. Many of these efforts have failed.
However, the transition with structural change in the subsequent phase was arguably little better. In the pursuit of private investment, many developing countries have left the agro- processing sector to evolve with little or no strategic direction at the industrial level. It is argued that the government has simply observed the evolution of agro-processing industries without defining and steering the sector towards strategic objectives.
It is required that developing countries identify the most appropriate path for processes of agro-processing in their particular country. They should clarify areas where they can or cannot compete in domestic and global markets and also establish how the growth of agro-processing industries can contribute to economic development by creating employment, reducing market
198 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy prices, enhancing food safety and quality, etc.
Without the adoption of a strategic approach in this field, these development goals may not be achieved. The challenging issue that developing countries confront is to establish effective working relations between the public and private sectors in order to define a path for the development of the agro-processing sector. The government must recognize its responsibility, not in directing private sector investments, but in creating conditions that is conducive to private investment and innovation and in steering the development of the sector in the right direction.
4.1.5. Global Trade Regimes
While the expansion of domestic demand for higher-value agro-food products is likely to be an increasing catalyst of processes of agro-industrialization, the ability of developing countries to supply these products to global markets remains a critical issue (Diaz-Bonilla and Reca [2000]).
Especially in view of the rapid evolution of the global agro-food economy, traditional trade restrictions such as tariffs and quantitative restrictions pose a problem. At the same time, non-tariff measures, including food safety and quality standards, are creating other new challenges. This is especially true for developing countries where the critical food safety and quality management infrastructure is insufficient. This situation may not help them to exploit preferential market access.
When attempting to access the global markets for agro-processed products, developing countries might encounter a second impediment that is an advantage enjoyed by firms that already have a market presence through information networks and market linkages. This indicates that considerable time is required for agro-processing industries in developing countries to exploit trade opportunities.
4.2. Constraints to the Development of Agro-processing Industries in Uzbekistan
Uzbekistan seems not free from the challenges faced by agro-processing industries in most developing countries. However, the most imminent problems that currently the agro-processing sector is experiencing in Uzbekistan are described below.
A considerable amount of fruits and vegetables are known to be disposed without being properly handled or processed in Uzbekistan. This is primarily associated with the biological nature of the agricultural products characterized by seasonality, variability, and perishability as well as safety. Agricultural products are used as raw materials in agro-processing industries. If their biological features are not treated in an efficient way, the development potential of agro-processing industry will be largely restricted.
Chapter 5 _ Recommendations for the Development of Agro-processing Industry in Uzbekistan ● 199 The main sources of obstacle to the development of agro-processing industries in Uzbekistan can be categorized as follows: (1) agro-processing industry itself (2) vailability or supply of raw materials (agricultural products) (3) infrastructures supporting the above two contents
First, in Uzbekistan, a large proportion of existing agro-processing industries are operated with obsolete and worn-out equipment, mostly originated from the period of the Soviet Union. Approximately, 35 percent of the agro-processing companies survive under this circumstance in Uzbekistan, requiring tremendous investment. In many cases, the products produced by these enterprises located in rural areas are not competitive in terms of quality.
The agro-processing industries in Uzbekistan are not operated by highly-qualified workers. In addition, entrepreneurship is emerging as another constraint in this sector. Entrepreneurs confront many challenges, especially the uncertainty that exists over access to finance, advice and information, and reliable markets. In Uzbekistan, therefore, competent entrepreneurship in agro-processing companies needs to be nurtured to meet the challenge in the era of globalization.
Second, the current procurement system of raw materials for the purpose of processing in Uzbekistan is not stable. A large proportion of the raw materials (agricultural products) are not adequately delivered in terms of time, quantity, and quality. This is also due to the absence of stable and long-term partnerships between suppliers and processors.
While the packaging and labeling materials are also important raw materials in agro- processing, in most developing countries, the agro-processing sector has limited access to them. Uzbekistan also faces the limited access to appropriate packaging/labeling materials for processed product. Notwithstanding several manufacturers of glass containers and other specialty products in Uzbekistan, such a relatively simple product like cardboard boxes for packaging fruits and vegetables still depend on import.
Third, in the category of infrastructure, the storage facilities are insufficient for fruits and vegetables in Uzbekistan. Particularly, low-temperature storages are in need in order to keep the raw materials in fresh condition for a year-long until next harvest. The insufficiency of low-temperature storage system is one of the main reasons for not being able to utilize agro-processing facilities in Uzbekistan. Many agro-processing companies in this country operate their plants only for around 6 months a year. Their operating rates are normally known to be roughly 30 to 50 percent of the full capacity: not more than 50 percent and 30 percent, respectively, for canning and drying industry. The under-utilization of their facilities is also linked to another problem such as under-employment in rural areas.
The logistics for raw materials and processed commodities can also be counted as a constraint to the development of agro-processing industries. Uzbekistan produces a significant
200 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy amount of agricultural products including fruits and vegetables. However, due to lack of logistics centers for processing, packaging and storage, more than 50 percent of the products are incompetitive in foreign markets. That is, the current logistic practices are not enough to provide a full range of services including collecting, transporting, and final marketing to retailers and consumers. The presence of qualified personnel is also another issue in the field of logistics since the development of logistics services is not possible without professional knowledge of entrepreneurs. It seems that Uzbekistan will need more well-trained personnel in this field than ever.
The SWOT analysis on the agro-processing industries in Uzbekistan is charted in Table 5-10. This would well summarize the current situation of the agro-processing sector in this country.
The SWOT Analysis of the Agro-processing Industry in Uzbekistan
Strength Opportunity
• Great supply potential of fruits and vegetables for processing • Seasonal niche markets of processed agro/food • Agro-processing industry in growth trend since products in Russia and Europe 2000 with the new policy endeavor empow- • Expanding food market in Asia ered by the Presidential Decrees.
Weakness Threat
Consumers’ increasing concern on quality and • Lack of skilled labor force and entrepreneurship. • safety of food • Obsolete facilities and equipment • Requirement of international quality standards Insufficient storage and logistics System • such as ISO9001 Absence of stable raw material procurement • • Harmonization with national and international system regulatory frameworks
5. Korea’s Policy for Promoting Agro-processing Industry
5.1. Paradigm Shift of Korea’s Agricultural Policy
The Korean agriculture and agro-processing industries have rapidly developed since 1980s. Although the roles and functions of Korea’s food/agro-industries have greatly expanded, it cannot be denied that the underlying structure still faces weakness and challenges. The globalization and liberalization that began after 1980s provided a momentum for Korea to seek policy reforms and structural adjustments. The surrounding circumstances of Korea’s food/ agroindustries seemed to change even faster than before, which can be characterized as follows:
Chapter 5 _ Recommendations for the Development of Agro-processing Industry in Uzbekistan ● 201 (1) The opening of agricultural market will be further accelerated. The ongoing WTO negotiations are expected to focus on lowering trade barriers such as high-tariff and statemanaged international trade. Non-tariff measures including quarantine are also hot issues on the negotiation table.
(2) The initiative of agricultural and food market will be shifted from producers to consumers. Consumer sovereignty is strengthened. The product differentiation will be accelerated which is closely related to the diversified consumption of food. As household income grows, the dining industry is also anticipated to expand. In this trend, the roles of the storage and processing will continue to increase accompanied by the combined industrialization of the food industry through vertical integration.
Under the aforementioned circumstances, the role of Korea’s future agriculture and food industry can be envisaged as follows:
(1) The Korean agriculture must become a life industry that supplies cheap and high-quality food to people in safe and stable manners. Under this mission, the Korean agriculture must be equipped with a new system of production, distribution, and logistics that supports the needs of people engaged in the industry. As Korea’s fresh produce market grows into a 10 trillion-Korean won market, it will raise added values of agricultural produce through close linkages between domestic agriculture and food industry and develop into a “self-generating” agro-food industry as well.
(2) The Korean agriculture should contribute to the growth and stability of the national economy. Agriculture is one of the key industries that create jobs and value-added from its natural resources. It is also widely recognized that agriculture is the ground for traditional and regional culture as well as political and social stability.
In sum, the changing conditions that Korean agro-food industries face include strengthened consumer power for high-quality and diversified food and intensified global competition. In this regard, Korea’s policy for agriculture needs to be modified. This circumstance leads to a paradigm shift in Korea’s agricultural and food/agro-processing policies as summarized in Table 5-11.
The main characteristics of the paradigm shift are as follows:
(1) Agricultural policy should be transformed from a government-led policy to a market-oriented one. The government should facilitate the production, distribution, and consumption of agricultural products so that the products can function according to the market principle.
(2) The government must play the role of supporting related people in the pricing by providing information on such matters as harvest outlook and market conditions.
202 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy (3) The industrial restructuring must be undertaken to raise the competitiveness by nurturing the business management units in agro-industries. Quality advancement and marketing innovations must also be considered in this context.
Paradigm Shift of Agricultural Policy of Korea
Agricultural Policies (the 20th Century) Agricultural Policies (the 21st Century)
• food industry under the closed economy and • efficient food industry under open economy government protection • systemized industry combined with production, • simple primary industry producing raw material processing, and marketing • traditional industry relying on farmland and labor • mechanized industry combined with advanced • exploitation of the nature through heavy usage science technology and capital of chemicals • bio-industry that contributes to the preservation of natural resources and environment
safe, efficient, and stable supply of food self-sufficiency of staple food • • improvement of farmers’ income and welfare increase of farm households’ income • • enhancement of multifunctionality of agriculture improvement of housing and living environment • • and rural community
• agriculture that contributes to the national public • staple food based agriculture good • mostly small poor farms • securing of farmers’ profitability and develop- • rural villages as farmers’ production and living ment of regional agriculture space • rural communities as industrial and living space of the people
• open agricultural policies under the market economy government-protective closed policies • autonomous agricultural policy with decentral- standardized central-government-driven policies • • ized system government support based on average distribu- • selective and intensive supports according to tion system • development patterns • mixture of industrial and welfare policies • separation of industrial policy from social welfare policy
Source: Korea Rural Economic Institute, p.377, 2008
Chapter 5 _ Recommendations for the Development of Agro-processing Industry in Uzbekistan ● 203 5.2. The Legal Frameworks for Promoting Agro-processing Sector in Korea
5.2.1. The Law for Nurturing Agro-processing Industry
The initial attempt to foster agro-processing industry by the Korean government was originated from the law entitled “the Act of nurturing agro-processing industry and quality control” which was enacted in June 11, 1993. This law was designed to facilitate the value add basis of agro-processing by enhancing the competitiveness of processed commodities and realizing fair trade in this sector. In January 21, 1999, this law was renamed “the Act of nurturing agro-processing industry.”
The main guidelines of the law of nurturing agro-processing industry include the followings:
• The basic development plans for agro-processing industry should be formulated by the Minister of Agriculture. • The Minister of Agriculture can provide the necessary funds to agro-processors located in raw material production areas. • The Minister of Agriculture can request research institutes to develop technologies including packaging, containing, storing, processing, and machine inventing in order to assist the agro-processing industry. • The Minister of Agriculture can implement the management improvement programs for agro-processing firms. • The quality certificate system is implemented by the Minister of Agriculture in order to increase the quality of products, to promote production, and to protect consumers.
This law initiated the structural improvement of rural economy through the expanded investment in agro-processing industries as well as agricultural enterprises. However, many cases failed due to shortage of labor force and lack of entrepreneurship. In particular, marketing was not an easy task for a large part of agro-processers. To small and medium scale firms that accounted for the agro-processers, it was extremely high cost to utilize mass media such as TV and newspapers for advertising their products.
5.2.2. The Food Industry Promotion Laws
As the new millennium emerged with rapid growth of food industry including agro- processing, the Korean government believed that the law of nurturing agro-processing industry of 1999 was not enough to support the food industry especially to strengthen the linkages between the agricultural sector and food industry. New legal framework was required in this respect and the previous law of nurturing agro-processing industry was replaced by ”The Food Industry Promotion Act (Act No. 8796)” in 2007.
204 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy The main objective of this Act was, by strengthening the linkages between the agriculture and food industry, to promote a robust food industry with competitiveness, thus to provide people with diverse and safe foods, and to induce its ultimate contribution to improving people’s quality of life and to growing the national economy.
The distinctive contents of this law are as follows:
• Obligation of central and local governments: The governments are supposed to establish necessary plans to support the local food industry along with appropriate legal and financial measures.
• Formulation of basic plan for the food industry promotion: This plan must be established by the Minister of Agriculture, which is expected to realize the significant linkage effects of food industry.
• Clustering food industries: The Minister of Agriculture may build a food cluster by relocating firms, research institutes, colleges, and other related facilities in order to generate synergy effects in this industry.
The food industry promotion law was reinforced by the Act No. 10889 enacted in July 2012. The title of the law remains same as that of the previous Act No. 8796. The food industry promotion law of 2010 is particularly differentiated from the previous one in that it clarifies the clustering of food industries in the title of “National Food Industry Clusters”. This law provides more specific legal background to initiate the establishment of clusters. The location and outline of the Food Clusters are seen in Figure 5-6.
The necessity of establishing the Korea’s National Food Industry Cluster is based on the growth of Korean food market. The volume of the market is anticipated to reach $53.5 billion by 2013. Its growth is closely linked to the following factors:
• Growth of per capita expenditure on food • Fast economic recovery • Increased needs for high quality products-organic and premium food • Rapid growth of mass grocery retail
At the same time, the major food industries are moving toward the Asia-Pacific region. Northeast Asia is expected to grow steadily into a huge food market focused around China in particular.
The development plan of the Food Cluster consists of two steps of site development as summarized below:
Chapter 5 _ Recommendations for the Development of Agro-processing Industry in Uzbekistan ● 205 (1) First Step : 2010~2015 • Size to complete: 2,390,000m2 • Operator: Korea Land & Housing Corporation • Contents: Industrial zone, Supporting zone, Logistics zone and Public Care zone
(2) Second Step : After 2015 • Size to complete: 1,580,000㎡ • The local government will complete residences and commercial areas • The industrial zone will be catered in high energy efficiency system • The systems will meet the needs of food companies (Clean water supply and water drainage systems)
Location and Outline of National Food Clusters of Korea
Source: Korea Trade-Investment Promotion Agency
206 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy 5.3. The Special Zoning Law for Regional Development
5.3.1. Legal Background
The “special zone” system is adopted to foster local economy by implementing special business or project which has comparative advantage on the basis of regional specificity. This system is administered by the Ministry of Knowledge and Economy. When a region is selected as a “special zone”, the region will be granted various favors including financial supports and waives of legal restrictions from local government. The “special zone” system was launched by enacting “the Act of special waives for special development region” in 2004.
When applying for being selected as a special zone, the region must specify the followings: (1) autonomous development scheme (2) distinctive geographical, cultural and industrial characteristics
Although the special zone is selected by the central government (the Ministry of Knowledge and Economy), the local government is responsible for taking care of the zone with respect to performance of the project which is even being implemented autonomously.
5.3.2. Examples of Agro-processing Special Zone
Case 1: Raspberry Processing Special Zone in Gochang
The Gochang county, located in the south-western part of South Korea, was selected as a special zone for raspberry processing in 2008. The main characteristics of this special zone include:
• Gochang accounts for 40% of the total production acreage of raspberry in Korea (1,210㏊) • Raspberry wine was commercialized from 1995 • Raspberry Experimental Station was established in 2000 • Raspberry Research Institute was established in 2011
Case 2: Red Pepper Paste Special Zone in Sunchang
The Sunchang county is also located near Gochang county and was selected as “Paste processing valley” in 2004. The main features of this special zone are as follows:
• The 1st Special Zone entitled in 2004 • The zone initially began as village level processing zone for Pastes of Red Pepper and Soybean
Chapter 5 _ Recommendations for the Development of Agro-processing Industry in Uzbekistan ● 207 • Fermentation Research Center was established in 2006 • Paste Processing Exhibition Program has attracted over 60,000 Visitors since 2006 • The zone even became a tourism site
Case 3: OMIZA Special Zone in Munkyung
The Munkyun county is located in the south-eastern area of Korea and was designated as a special zone for OMIZA (Fruits of Maximowiczia typica) Clustering in 2006. This zone is characterized by the followings:
• Munkyung is the largest OMIZA production area in Korea (713ha) • The region’s OMIZA production accounts for 45% of its total production in Korea • The special zone was awarded the Outstanding Special Zone Prize by the Ministry of Knowledge and Economy in 2011 • Average farm household income reached over 100 Million KRW(US$ 91,000 equivalent) • OMIZA Theme Park is under construction
Case 4: Persimmon Special Zone in Sangju
The Sangju county, located near Munkyung, was named “Dried Persimmon Clustering Zone” in 2005, with the following characteristics:
• The 1st persimmon tree was planted in Korea, which is known as legend • Sangju is the largest persimmon production area in Korea • The production of persimmon in Sanju accounts for 60% of the total national production • A theme park will open soon with the legendary story of “Tiger and Dried Persimmon” • The dried persimmon festival is held every year
6. Policy Suggestions for the Development of Agro-processing Industry in Uzbekistan
6.1. Basic Principles
The basic conditions for success of agro-industry depend on the role of the government, the industrial capacity, and the international coordination. The first condition is the awareness by the governments and development agencies. The investment climate is normally managed by the state so that the government must have a good understanding of what the private sector needs are in order to be successful in investing in agriculture and agro-industry. Governance of agricultural industry needs to be redefined and the role of ministries of agriculture needs to be reconsidered. In order to enhance competitiveness of the industry, the government must put
208 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy feasible policies and competent institutions in place and improve infrastructure, particularly rural infrastructure.
Also, the government must be aware of the fact that the old ways will not work. The government, thus, must recognize that there is a need for new ideas, a need for experimenting with innovative ways such as strengthening community roles, reinforcing the important roles of the public sector, reshaping the investment climate, seeking value addition in agribusiness, and so on.
The second condition for the success of agro-processing industry is the capacity building. In order for agriculture and agro-processing to be effectively used for development, we need to build capacities, especially in terms of entrepreneurship. The investment in high-value activities and small or medium agro-industries requires entrepreneurship, business skills, and education, which is not easy.
Usually, small farmers or small entrepreneurs cannot succeed by themselves. They need to work together with producer organizations in order to make a successful competition. They also need leadership and analytical and managerial capacities at the level of their organizations. Systematic attention is required to build the capacity for acquiring and utilizing productivity- enhancing technologies. The capacity to introduce and apply advanced techniques for supply chain management and logistics is becoming prerequisite for achieving the competitiveness of agro-industries targeting global and regional markets.
The third condition is international coordination. No country can now succeed alone in using agriculture and agro-industry sector for the economic development. In the era of globalization, one emerging question is whether and how to harmonize national and international regulatory frameworks in the course of agro/food industrial development. There are too many international dimensions that have to be understood and supported. International support and coordination are essential and, thus, capacities have to be developed also at the level of international organizations.
6.2. Policy Suggestions to Promote the Agro-Processing Industry
6.2.1. General Guidelines
The Uzbekistan’s agro-processing industry plays a vital role in the national economy and has potential to meet the local needs and export requirements. Particularly, fruits and vegetables have great potential to attain economic values that can be added by processing. Although Uzbekistan cultivates fruits and vegetables with comparative advantages in terms of its favor- able natural environment, about 30 percent of the harvested fruits and vegetables are known to be disposed without being properly handled or processed every year. This indicates that
Chapter 5 _ Recommendations for the Development of Agro-processing Industry in Uzbekistan ● 209 there exist constraints in further developing the agro-processing sector especially in fruits and vegetables. In order to create the industry that can contribute to the nation’s economic development, policy priority must be set to relieve the constraints or obstacles that the agro-processing industry currently faces.
In an attempt to suggest policy alternatives for the development of agro-processing industry in Uzbekistan, we reviewed the current situation of agro-processing in Uzbekistan with special attention to fruits and vegetables, and also examined the Korean experience of the agro-processing industries along with the process of the governmental policy adjustment, particularly the paradigm shift of Korea’s agro-food policy. We recommend the followings as the basic contents that the government of Uzbekistan has to take into account for designing policy alternatives.
Investment and Technology
Means to raise technology level in agro-processing industry would include the tapping of the research and development capacities of multinational corporations by encouraging direct investment, promoting joint ventures, licensing and franchising arrangements, etc. Foreign manufactures of agro-processing machinery and equipment can be encouraged to establish plants or partnerships in Uzbekistan.
Foreign direct investment is a comprehensive way of improving technology level. The benefits of direct investment lie not only in attracting additional capital and skills, but also in expediting the transfer and assimilation of technology and managerial expertise as well as in acquiring readier access to international markets. An essential condition for attracting such investment is a generally favorable business. Specific measures aimed at encouraging direct investments include the lifting of restrictions on entry by foreign firms as well as on their access to foreign exchange, dividend and profit remittances, on foreign ownership of land and financial assets, and so forth.
Human Capital and Capacity Building
A large number of agro-processing industries in Uzbekistan consist of small and medium-scale producers located in rural areas. Small producers have limited resources and therefore limited capability to expand the market for their products. Furthermore, they have limited access to market information regarding the needs of consumers, particularly foreign consumers, and are even unfamiliar with the export procedures. In the context of the globalization process, these are huge limitations for the development of agro-processing industries in Uzbekistan. In this respect, regional agencies must help small producers to have ample opportunities to access the potential markets by organizing trade fairs or trade missions. In some cases, observation tours of ago-processers are recommended so that they can realize the needs of the consumers especially in foreign countries.
210 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy In the context of the international trade, capacity building of negotiation is also necessary for improving the export potential of agro-processing commodities. The contents of trade negotiations and commitments are not only about tax reductions and non-tariff removal, but also about policy reforms in establishing legal documents, customs, animal and plant inspection, food hygiene, intellectual property and protected origin principles.
Academics and research institutes are the main sources for improving human capital in the scientific field of agro-processing. In the long run, Uzbekistan will have to open the agro-food processing departments for master’s and doctoral degrees in many universities. Another suggestion is the establishment of research institute such as Food Research Institute in Korea. In the meantime, Uzbekistan can utilize international training programs under which many agro-processing specialists are sent to the developed countries to take either academic or practical courses.
Link between Producers and Processors
Since the sufficient raw materials in terms of quantity, quality, price, and time are the key element for the success of agro-processing firms, it is generally maintained that the agro- processing companies should be located mainly in rural areas. Likewise, the close link between agricultural producers and processors suggests the further development of agricultural sector. The required measures in this perspective are to:
• Improve productivity and quality of fruit-vegetables products by advancing technologies for breeding, conserving soil fertility, controlling disease and pests, and so forth; • Construct new vegetable and fruit-based storages at the farm and processing facilities, along with the sorting and packaging equipment; • Establish and enhance the extension services on a commercial basis and provide farm households and processing plants with up-dated market information; • Upgrade the mechanisms of credit for farmers and dehkan farms and increase the amount of subsidized loan allocations for purchasing or leasing mini-technologies and equipment; and • Provide low interest rate loans and reduced tax incentives to producers and processors.
Safety and Quality of Products
It is important for Uzbekistan to introduce and update the national food legislation. With a properly administered modern food law, consumers and traders will be assured that agro-products are qualified and safe for both domestic consumption and international trading. FAO/WHO suggests developing food control systems based on food law. Laws on food must be enacted with detailed specifications concerning food processing, food standards, hygienic practices, packaging and labeling. The national food control system can be achieved through specialized
Chapter 5 _ Recommendations for the Development of Agro-processing Industry in Uzbekistan ● 211 government agencies in public health, agriculture or trade, or, in some cases, through a single food-control agency with multidisciplinary subdivisions.
The production and handling of food throughout the food chain (from farm to table) must be carried out under appropriate conditions in compliance with established principles that are consistent, transparent and scientifically supported. Such principles should be an integral part of the national food standards and regulations. Many of these principles were established by the Codex Alimentarius Commission (CAC) in a harmonized manner using hazard analysis and risk assessment methods. They include the General Principles of Food Hygiene, a system of food safety based on the Guidelines on the Application of Hazard Analysis and Critical Control Point (HACCP), and the Good Manufacturing Practices. These guidelines and standards will serve as a benchmark for the Uzbek government in regulating and administering the agro-food industry. These standards must be observed in order to ensure the protection of public health and successful trade in both international and domestic markets.
6.2.2. Recommendation for Clustering
Implications
Considering the importance of link between agricultural production and processing, we recommend that agricultural processing plants should be located in rural areas in the form of clustering. Rural non-farm activities tend to cluster influenced by their geography and economic subsectors. Some recent literature on clusters has explored dynamic advantages of clustering, such as sharing the costs of technological change, sharing information on new designs, processes, products, and so forth (Schmitz and Nadvi [1999]; Schmitz [1995]).
Clustering agro-processing industry or regional specialization of agro-processing in Uzbekistan can allow efficient use of resources with advantageous soil and climatic conditions in addition with traditions and mentality of people in rural areas. The clustering potential of fruits and vegetable processing in Uzbekistan was analyzed in the previous part of this chapter in several contexts. Specifically the estimated coefficients for clustering agro-processing as seen in Table 5-9 suggest that there exist strong potential for clustering agro-processing industry for fruits and vegetables in some regions such as Samarkand, Andijan, Tashkent, Namangan, and Fergana. Mostly these regions are located in the eastern part of the Republic.
The effects of the clustering of Uzbekistan agro-processing industry can be expected as follows:
• Improvement of infrastructure • Development of innovative system for creating value-added • Maximization of linkage-effects between production and processing through increased export • Expansion of foreign direct investment
212 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy • Enhancement of competitiveness of agro/food industry with increased farm income
Stepwise Clustering Development Strategy
In this study, we can only draw a rough outline of clustering strategy for the agro-processing in Uzbekistan under the assumption that a certain region is designated as a clustering or specialization zone for agro-processing in 2013. However, if a specific region is selected for clustering, a more specific road map must be created through a detailed feasibility analysis.
The strategies that must be adopted in different stages with different targets or expected results are summarized in Table 5-12. The three stages are characterized as follows:
(1) Stage 1 for strengthening infrastructure (2) Stage 2 for industrializing agro-processing industry (3) Stage 3 for internationalizing agro-processing industry
Clustering Strategy of Agro-processing Industry
Stage Strategy Target/Expected Results
Stage 1: Improving Infrastructure 2013-2015 • Establish stable raw material procurement system Reducing losses after harvesting • Expand low-temperature logistics and storage
Diversifying Agro-processing Industrializing Agro-processing Industry Industry Support agro-industrial complexes (or agribusi- Stage 2: • Develop more consumer attracting ness companies), • 2015-2020 products (e.g. readymade, frozen, Address issues such as energy provision, roads • etc.) reconstruction, financial services, etc. • Increased level of processing • Operate training programs for skilled workers • New job creation in rural areas
Globalizing Agro-processing Industry Optimized Capacity of agro-pro- Stage 3: Induce to establish multinational Agro-processing • cessing 2020-2030 companies. Increased value-added Settle down Agro/Food Clusters with high-tech • • Increased farm income risk management and marketing •
7. Summary and Conclusion
Uzbekistan has a great potential to attain economic values added by processing fruits and vegetables which enjoy comparative advantages in terms of its favorable natural environment. Especially when exported, these commodities are expected to significantly contribute to the
Chapter 5 _ Recommendations for the Development of Agro-processing Industry in Uzbekistan ● 213 economy through the ‘multiplier effect.’
However, the full potential of agro-processing industries has not yet been realized in Uzbekistan. In this respect, a special attention needs to be given to the agro-processing industries in Uzbekistan.
This study intended to analyze the current situation of agro-processing in Uzbekistan with special attention to fruits and vegetables and to suggest policy alternatives for the development of the industries. In order to draw policy suggestions for the Uzbekistan case, we reviewed the Korean experience of the agro-processing industries and examined the paradigm shift of Korea’s agro-food policy.
Fruits and vegetables produced in Uzbekistan have a great potential to export to Russia, Kazakhstan, and the European markets. However, the proportion of processing out of their total production remains lower than the potential. Approximately 30 percent of the fruits and vegetables produced in Uzbekistan are wasted without being properly handled or processed every year.
The main sources of obstacle to the development of agro-processing industries in Uzbekistan can be categorized as follows:
First, in Uzbekistan, a large proportion of the existing agro-processing industries are operated with obsolete and worn-out equipment, mostly originated from the period of the former Soviet Union. Approximately, 35 percent of the agro-processing companies suffer this condition in Uzbekistan, requiring tremendous investment. In addition, the agro-processing industries in Uzbekistan are not operated by sufficient highly-qualified workers. Entrepreneurship emerges as another constraint in this sector.
Second, the current procurement system of raw materials for the purpose of processing in Uzbekistan is not stable. A large proportion of the raw materials (agricultural products) are not adequately delivered in terms of time, quantity, and quality. This is caused by the absence of stable and long-term partnerships between suppliers and processors. The packaging and labeling materials are important raw materials in agro-processing but, in most developing countries, the agro-processing sector has limited access to them. Uzbekistan also faces the limited access to appropriate packaging/labeling materials for processed product.
Third, in the category of infrastructure, the storage facilities are insufficient for fruits and vegetables in Uzbekistan. Particularly, low-temperature storages must keep the raw materials in fresh condition for a year until next harvest. The insufficiency of low-temperature storage system is one of the main reasons for the under-utilization of agro-processing facilities in Uzbekistan. Many agro-processing companies in this country operate their plants only for around 6 months a year. The under-utilization of their facilities is also connected with other problems such as
214 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy under-employment in rural areas.
The production of fruits and vegetables in Uzbekistan shows a wide difference by region. On the basis of per capita production, Andijan recorded the highest level of fruits and berries. For vegetables, the highest per capita production was marked by Tashkent followed by Andijan and Samarkand. Samarkand enjoys the top level of per capita grapes production in the same year. Since the production of fruits and vegetables varies considerably across the different regions of Uzbekistan, it would be of paramount importance to review the patterns of production and processing.
The coefficients of regional clustering of agro-processing were estimated in this study in an anticipation to obtain policy implications on the possibility of regional clustering of agro-processing in Uzbekistan. The estimated coefficients would help identify those regions that have comparative advantage in specific products and draw implications for clustering and commercialization of agricultural sector. According to this estimation, in both vegetable and fruits processing, Samarkand shows the highest coefficients. The coefficients for Tashkent, Namangan, and Andijan are higher than other regions in the vegetable processing. Along with the highest coefficient in Samarkand for the fruits processing, Andijan, Namangan, and Fergana are relatively high ranked as well. The regions with higher clustering coefficients are mostly located in the eastern area of Uzbekistan.
Although the roles and functions of the Korea’s food/agro-industries have greatly expanded since 1980s, it cannot be denied that the underlying structure still faces weakness and challenges. The globalization and liberalization that began after 1980s was a momentum for Korea to seek policy reforms and structural adjustments.
The changing conditions that the Korean agro-food industries face include the strengthening consumer power for high-quality and diversified food and the deepening international competition. This requires modifications in the Korea’s agricultural policy. A paradigm shift has resulted in Korea’s agricultural and food/agro-processing policies reflected in the legal frameworks such as food industry promotion law. Especially, the food industry promotion Act of 2010 clarifies the clustering of food industries in the title of “National Food Industry Clusters”.
In addition, the “special zone” system is adopted to foster local economy through implementing special business or project that has comparative advantage on the basis of regional specificity. When a region is selected as a “special zone”, it will be given various benefits including financial supports and waives of legal restrictions from local government. The “special zone” system was launched by enacting “the Act of special waives for special development region” in 2004. The examples of the special zone for agro-processing include “Raspberry Processing Special Zone in Gochang”, “Red Pepper Paste Special Zone in Sunchang”, “OMIZA (Fruits of Maximowiczia typica) Special Zone in Munkyung” and “ Persimmon Special Zone in Sangju”.
Chapter 5 _ Recommendations for the Development of Agro-processing Industry in Uzbekistan ● 215 In an attempt to suggest policy alternatives for the development of agro-processing industry in Uzbekistan, we reviewed the current situation of agro-processing in Uzbekistan with special attention to fruits and vegetables, and also examined the Korean experience of the agro-processing industries along with the process of governmental policy adjustment. We recommend the followings as the basic contents that the government of Uzbekistan has to take into account for designing policy alternatives:
(1) Investment and Technology improvement (2) Enhancement of Human Capital and Capacity Building (3) Strengthening Linkages between Producers and Processors (4) Considering Safety and Quality of Products
More specifically, we recommend clustering strategy for the development of agro-processing industry in Uzbekistan. Considering the importance of link between agricultural production and processing, we recommend that agricultural processing plants should be located in rural areas, in the form of clustering.
Clustering agro-processing industry or regional specialization of agro-processing in Uzbekistan will allow efficient use of resources with advantageous soil and climatic conditions in addition with traditions and mentality of the people in rural areas.
A rough outline of clustering strategy for the agro-processing in Uzbekistan was provided with the suggested strategy for different stage of development. The three stages with accompanying strategy are characterized as follows:
(1) Stage 1 for strengthening infrastructure (2) Stage 2 for industrializing agro-processing industry (3) Stage 3 for internationalizing agro-processing industry.
216 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy References
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Chapter 5 _ Recommendations for the Development of Agro-processing Industry in Uzbekistan ● 219 Appendix
Calculated Coefficients for Determining the Coefficient
of Clustering Potential (CC)
Calculated coefficients for determining the coefficient of clustering potential (CC )
Ср Cs Cproc Cpcp
Fruits veg- veg- veg- Region Fruits Fruits and veg- Fruits etables etables etables etables Republic of 0,27 0,19 0,7 0,5 0,1 0,36 0,25 Karakalpakstan
220 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy
Policy Consultation on Uzbekistan’s Industry Innovation Strategy Chapter 6
Diffusion of S&T information on National Innovation System (NIS) in Uzbekistan
1. S&T Information and Uzbekistan 2. Theoretical Background for National S&T Information System 3. Development of S&T Information System in Uzbekistan 4. The Development of S&T Information System in Korea 5. Conclusions and Implications Chapter 06
Diffusion of S&T information on National Innovation System (NIS) in Uzbekistan
S&T information has occupied an important position academically and practically for building up S&T capabilities and national development. However, the role of S&T information in a national innovation system and national economic development was not discussed sufficiently. This chapter aims at providing policy suggestions on how to improve the Uzbekistan S&T information system and to diffuse S&T information within the Uzbekistan national innovation system, based on the Korean experiences. This chapter will focus on the roles of core institutes in the national S&T information system, particularly on whether they cover the whole process of the S&T informatization: gathering, processing, and diffusing S&T information.
Theoretically, there have been lots of discussions on the legitimation of governmental intervention in S&T information. Above all, S&T information system could produce new information, which has characteristics of public goods. Second, private sectors do sub-optimal information activities, which bring out the need for government involvement on national S&T information system. Third, S&T information is asymmetrical by nature and, as a result big enterprises can take most benefits from the information. This is not good for national innovation system (NIS) as a whole and SMEs, which are in urgent need of S&T information. Therefore, governments should intervene in S&T information and implement a good national S&T information system.
In this sense, the establishment and implementation of a national S&T information sys-
222 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy tem is a crucial institutional change for developing countries like Uzbekistan. It is a prerequisite to the diffusion of S&T information within a national innovation system. The system starts from establishing public research institute for S&T information. In order to effectively utilize the national S&T information system, it is important to fully understand, maintain, and support the stages of S&T informatization process: information gathering 'information processing' information diffusion. In particular, it is very critical to investigate whether the national S&T information system covers the entire stages of the S&T informatization process.
Uzbekistan has started to implement a national S&T information system since 2009. The Uzbek government established the Center for Scientific and Technical (S&T) Information under the Committee for Coordination of Science and Technology Development (CCSTD). The Center has a reliable legal base and is expected to cover the whole process of the S&T informatization. However, it has heavily focused on simple information gathering from relevant agencies and ministries all over the country. The Center has played no active role in processing and diffusing S&T information. Therefore it should extend its roles to other functions in order to function effectively as a national S&T information center, by increasing its investment in S&T information and recruiting greater number of staffs.
Korea has a long history on the national S&T information system. The Korean S&T information system started from the establishment of the Korea Scientific and Technological Information Center (KORSTIC) in 1962. KORSTIC focused heavily on gathering S&T information but it extended its role to processing and diffusion of the information. In the beginning of the 1990s, the Korean government established and operated the Korea Institute of Industry and Technology Information (KINITI) and the Korea Research & Development Information Center (KORDIC). During this period, both institutes were able to focus on gathering, processing, and diffusing S&T information in balanced ways. At the beginning of the 2000s, the two institutes merged and established the Korea Institute of Science and Technology Information (KISTI). As of December, 2012, KISTI started operating eight different S&T information centers which covered the overall phases of the S&T informatization process. Based on these organizational settings, KISTI has made a great contribution to the development of Korean S&T and economy as a whole. According to our analysis, the Korean S&T information system, which has developed in the middle of public institutes like KIST, has had well-founded legal frameworks and enough resources, and covered the whole phases of the S&T informatization process, especially since the beginning of the 1990s.
Based on our analysis, we suggest some policy implications for Uzbekistan. The suggestions are divided into general policy directions and step-wise strategies. As policy directions, we suggest that the importance of S&T information should be appreciated by the Uzbek government, the Uzbekistan Center for S&T Information under CCSTD should be grown up and extend its function to cover all phases of S&T informatization process: gathering, processing, diffusing information, and every player in the Uzbekistan national innovation system, e.g. universities, public research institutes, and industrial companies, should recognize the significance of S&T information in technological, economic and social development of the country. In order to
Chapter 6 _ Diffusion of S&T information on National Innovation System (NIS) in Uzbekistan ● 223 develop the national S&T information system, Uzbekistan needs to adopt step-wise strategies composed of short-term, mid-term and long-term strategies. These three strategies are interrelated and can be overlapped in implementing strategies.
In order to implement a successful system, Uzbekistan should benchmark foreign advanced S&T information system and strengthen the collaboration with them. The Korea Institute of Sci- ence and Technology Information (KISTI) will be one of the best collaboration partners, as Korea has exemplary experiences of developing a national S&T information system and KISTI has been at the center of the Korean system.
1. S&T Information and Uzbekistan
In the 21st century, science and technology (S&T) information is one of the key factors to advance into the knowledge-based and information society, as well as to improve industrial competitiveness. In particular, it is vital to carry out effective acquisition, diffusion, and utilization of S&T information for national development. Recently, S&T information has occupied a critical position academically and practically for building up S&T capabilities and national development. However, the role of S&T information in a national innovation system and national economic development was not discussed sufficiently.
According to its experiences of S&T development, Korea has been highly appreciating the effective acquisition, diffusion, and utilization of S&T information. S&T information has been greatly contributed to improvement of national S&T development and industrial progress. The Korean government tried to build up the S&T information system much earlier before implementing the sufficient national innovation system (NIS). The Korean government’s early acknowledgement of S&T information is considered an important determination factor for successful accumulation of S&T capabilities and economic development. In the beginning of 1960s, the Korean government founded an institute for S&T information and has started to collect and spread S&T information. The Korean experiments can deliver many implications to Uzbekistan and other developing countries.
In this regard, this chapter aims at providing policy suggestions on how to improve the Uzbekistan S&T information system and to diffuse S&T information within the Uzbekistan national innovation system. For this purpose, this study will analyze the present condition of the Uzbekistan’s national S&T information system. Considering the short history of S&T information system in Uzbekistan, this study will rather focus on the analysis of the formulation and improvement of national S&T information system in Uzbekistan, which is mandatory for the diffusion of S&T information in this country. We will also analyze the Korean S&T information system. By analyzing Korea’s past 50 years of experience with the S&T information system, this study will contribute to Uzbekistan’s efforts of formulating and implementing its national S&T information system.
224 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy For the effective analysis of Uzbekistan and Korean S&T information systems, we will focus on relevant S&T information-related institutes, their legal frameworks and resources. In addition, we will also analyze their relative roles in the S&T informatization process: gathering, processing, and diffusing of S&T information. Therefore, the basic research question of this chapter is as follows:
• What kinds of core institutes are in the national S&T information system in Uzbekistan and Korea? • Are there reliable legal frameworks for those institutes? • Do they have enough resources for effective functioning as core institutes of national S&T information system? • How well do they cover the each stage of the S&T informatization process, i.e. gathering, processing and diffusing S&T information?
This study is composed of five sections. Section 1 is an introduction and Section 2 will be a theoretical background of national S&T information. In this chapter, we will discuss rationale for governmental intervention in S&T information, relationship between national innovation system and national S&T information system, and analytical model of S&T information system. In particular, the analytical model will be adopted in the analysis of the Uzbekistan and Korean S&T information system. In Section 3, we will discuss the Uzbekistan’s newly adopted S&T information system. In this chapter we will analyze legal bases, relevant organizations and resources of national S&T information in Uzbekistan. In Section 4, the Korean S&T information system will be analyzed by especially focusing on the historical development of core institutes of the Korean system. We conduct historical analysis because the Korean experiences of developing its national S&T information institutes will be useful reference for Uzbekistan, which just established a relevant institute for S&T information. Finally, in Section 5, we will provide policy suggestions for the development of Uzbekistan S&T information system and the diffusion S&T information in Uzbekistan. In particular, step-wise policy suggestions will be identified according to the analytical model.
2. Theoretical Background for National S&T Information System
2.1. Government involvement in S&T information
Theoretically, there have been lots of discussions on the legitimation of governmental intervention in S&T and innovation (Bräunling & Harmsen [1975]; Fritsch et al [1993]; Chung [1996]; Meyer-Krahmer [1989]). Some of them can be applied to S&T information and government intervention in a national S&T information system can be justified based on several aspects.
First, S&T information system produces and deals with S&T information that has characteristics
Chapter 6 _ Diffusion of S&T information on National Innovation System (NIS) in Uzbekistan ● 225 of public goods. In principle, public goods are exempted from principle of exception and all economic players with interest can utilize them freely. S&T information has features of public goods. Private sectors do not actively engage in collecting, processing, and utilizing S&T information because the return of investment is not secured for them, while the process requires tremendous human and material resources. Therefore, the government has to take a large part of responsibility, by constructing and implementing national S&T system, in creating S&T information as well as in spreading S&T information throughout society and various sectors of the economy.
Second, private sectors do sub-optimal information activities, which brings out the need for government involvement on the national S&T information system. Collecting and processing S&T information entails cost. In other words, the information can be used by individual companies when the profit exceeds the cost of collecting and diffusing it. Otherwise, the information cannot be utilized at all or be used sub-optimally. As S&T activities contain a high level of technical and economic uncertainties, gathering and utilizing S&T information have a huge significance for R&D and innovation actors. Also, information has a great influence on the success of S&T activities. Yet, S&T information, which carries long-term and strategic significance, is only used by innovation actors at a sub-optimal level. Therefore, the government should build up necessary infrastructure and implement relevant policy measures in order to diffuse relevant S&T information among innovators as well as to strengthen the private sector’s R&D activities.
Third, S&T information is asymmetrical by nature and, as a result, big enterprises can take most benefits from the information. This is not beneficial for national innovation system (NIS) as a whole and SMEs are in urgent need of S&T information. In particular, this has a negative impact on R&D and innovation activities of SMEs, which will lower competitiveness of SMEs in domestic and international markets. Therefore, the government should intervene in correcting the asymmetrical nature of S&T information. The government should also prepare for relevant policy measures for SMEs’ active utilization of S&T information.
Therefore, the government should involve generation, utilization and diffusion of S&T information. Because of the aforementioned characteristics, S&T information might have more solid grounds for government intervention than S&T activities per se. In fact, most governments have implemented a series of policy measures to establish and implement their national S&T information system in order to create and diffuse S&T information.
2.2. S&T information and national innovation system (NIS)
National Innovation System (NIS) is a very important concept in the national S&T and economic development. In general, the NIS consists of private companies, universities, public research institutes, and governments. This concept emphasizes that a close relationship and collaboration among innovation actors lead to national S&T development and national competitiveness (Freeman [1988]; Lundvall [1992]; Nelson [1992]; Chung [1996; 2002]).
226 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy The study conducted until today on the national innovation system has been concentrated on analyzing R&D investment and manpower. There is no doubt that R&D investment and manpower play an important role in a national innovation system. However, there is another essential factor for establishing and implementing the national innovation system; S&T information. This is very important since S&T information is a starting point of S&T development. Innovation actors, i.e. enterprises, public research institutes, and universities, can start their R&D and innovation activities only when they acquire S&T information. Therefore, an effective collection and processing of S&T information is the first step of R&D and innovation activities. After then innovators can spread their S&T information. In this sense, S&T information has taken a role of real blood in establishing, operating, and developing the national innovation system. Therefore, the government should also efficiently build up and implement the national S&T information system (Figure 6-1).
Under these circumstances developing countries like Uzbekistan need to establish the national S&T information system. Based on the national S&T information system, their national innovation system is highly instrumental for national S&T and economic development (Freeman [1989]; Nelson [2007]) and will function well. In this respect, the national S&T information system is an essential constituent of the national innovation system. Therefore, the Uzbekistan government should establish and operate an efficient national S&T information system as soon as possible. In accordance with the development of its national innovation system, Uzbekistan should develop its national S&T information system too. Furthermore, the national S&T information system should lead the future development of innovators and national innovation system as a whole.
S&T information and national innovation system
Central Gov’t
Leading Funding
Performance Public Universities (Competiveness institutes Growth, S&T Job Creation) Innovation Information Actors
Companies
Source: Uzbekistan Co-author’s calculation
Chapter 6 _ Diffusion of S&T information on National Innovation System (NIS) in Uzbekistan ● 227 The national S&T information system is an important part of the national innovation system. Therefore, the government should involve in S&T information area and establish the national S&T information system. The system usually starts from the establishment of public research institute for S&T information because public research institute is one of best policy instruments for the governments in many countries. In fact, public research institutes are crucial components for the national innovation system, which is mainly composed of industrial companies, public research institutes, and universities. They are particularly crucial for developing countries. Regarding the importance of public research institutes for catching up by developing countries, Mazzoleni & Nelson (2007) emphasizes that the process of economic development is the result of deliberate efforts to modify and tailor technologies and practices to national conditions and public research organizations are key institutions supporting this process of catching up. Therefore, it will be a productive strategy for developing countries like Uzbekistan to establish and develop a public research institute for S&T information as a core organization of the national S&T information system.
2.3. Analytical model of S&T information system
Until now, there has been almost no research on S&T information system in S&T policy studies. The S&T policy studies have just focused on policies and program tools, R&D activities, human resources, R&D portfolio, policy evaluation, and so on. As S&T information has been serving as an important role in the national innovation system, however, there is a strong need for a comprehensive and systematic research on national S&T information system.
Several research methods can be adopted to analyze the S&T information system within the national innovation system. In general, S&T information is utilized by innovation actors in a process: information gathering → information processing → information diffusion. We call this process as S&T informatizion process and use it as an analytical model. How to manage individual phases and what kind of strategies and policy alternatives to be adopted are crucial choice to make in this process. In addition, we need to add S&T information infrastructure that will influence on each stages of the S&T informatizion process. This information infrastructure means establishment of relevant institutes or organizations, investment of information technologies and systems, and introduction of supercomputers to implement the S&T information systems. The S&T information infrastructure should be expanded and renovated as national S&T information system progresses. As a result, we can identify the S&T informatization process in Figure 6-2.
Process of S&T informatizion
S&T S&T S&T Information Information Information Gathering Processing Diffusion
S&T Information Infrastructure
228 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy To sum up, the national S&T information system should have at least four phases of informatization process. First, S&T information infrastructure, such as information technologies, research centers, computer systems, networks and so on should be established. This phase is of great importance to establish the national S&T information system, even though it influences the entire stages of the S&T informatization process. In addition, we need to upgrade the S&T infrastructure as the national innovation system develops. The second phase is S&T information gathering. National S&T information system should search, gather S&T information from within and outside the country and form sufficient S&T information contents. Third, the phase of S&T information processing should transform S&T data into usable information, e.g. Data Base System. Only then can users have an easy access to S&T information. Finally, the phase of information diffusion is to increase the rate of appropriation of S&T information. For example, information services for SMEs will be extended in terms of diverse instruments, e.g. forming the ASTI (Association of S&T Information) over the country.
Those four phases should be reciprocal and build up a virtuous cycle of S&T informatization process. In order to effectively utilize the S&T information for both the national innovation system (NIS) as a whole and innovators within the NIS, it is important to fully understand, maintain, and support the stages of S&T informatization process. In particular, the government should prepare for those functions or institutions in order to operate a reliable national S&T information system.
3. Development of S&T Information System in Uzbekistan
3.1. Introduction
The Republic of Uzbekistan has an experience of organizing and implementing the national S&T information system. It has established S&T information network based on internet technologies, database on various fields of S&T areas, and published lists of abstracts of S&T information including industry newsletters. It supported the exchange of information with the CIS countries and other world leading research centers.
The government of Uzbekistan decided to create the national S&T information system in 2009. The Committee for Coordination of Science and Technology Development (CCSTD) has developed the concept of creating a system of S&T information in Uzbekistan. This S&T information system is regarded as a national information center for scientific, technical and innovation activity, integrating scientific information resources of various ministries, departments and organizations, scientific and technical libraries, specializing in collecting and processing information, and providing access to information resources through a single portal for S&T information.
There are 11,616 information and library institutions in Uzbekistan. Among these, 80 libraries belong to the Ministry of Culture and Sports, 24 libraries to the Academy of Sciences, 209
Chapter 6 _ Diffusion of S&T information on National Innovation System (NIS) in Uzbekistan ● 229 libraries to the Ministry of Public Health, 8,201 libraries to the Ministry of Higher and Secondary Specialized Education, 113 libraries to the Ministry of Defense, and 14 information and library centers to the Uzbek Agency for Communication and Information. The Uzbek national S&T system has gathered S&T information from those institutions and libraries. However, it needs a better-equipped information gathering and processing system.
3.2. Legal framework for the Uzbek S&T information System
There are several laws related to S&T information. The main laws for Uzbekistan S&T information system are as follows:
• The Law of the Republic of Uzbekistan “On Informatization”; • The Law of the Republic of Uzbekistan “On Electronic Digital Signature”; • The Law of the Republic of Uzbekistan “On Electronic Document Management System”; and • The Decree of the President of the Republic of Uzbekistan “On Organizing of Information and Library Supplement of the Population of the Republic”.
Among those laws, the Law of the Republic of Uzbekistan “On Informatization” adopted in 2003 is the most important for the Uzbekistan S&T information system. It has aimed for promoting and regulating the field of informatization, especially the usage of information resources and information systems. Article 4 of this law aims to create a national information system, responding to the current world trends and development of information resources, information technologies and information systems. This law specifies the following issues on S&T information (CCSTD [2012]):
• Constitutional rights for everyone to freely receive and disseminate information and information resources; • Creation of integrated national information system, based on information systems of governmental, sectoral, and regional agencies; • Creation of the conditions for access to international information networks; • Formation of public information resources; • Facilitation of information gathering, information services, and information technology markets; and • Stimulating the development of S/Ws for S&T information system.
The Uzbekistan government understands that the main goal of creating the national S&T information system is to ensure the formation and effective usage of national S&T information resources, its integration with the global S&T information network, and the diffusion of information on technologies, markets, products and services. The Uzbekistan national S&T information system is expected to solve the following five main tasks (CCSTD [2012]):
230 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy 1. Developing scientific and methodological supports to the field of S&T information, in consideration of the global trend and international standards; 2. Developing software, data storage, and search/retrieval systems for S&T information; 3. Ensuring the generation of the S&T information resources; 4. Providing information services and access to S&T information resources; and 5. Including domestic S&T information resources in the international S&T information networks.
In order to accomplish those tasks, all of the S&T-related ministries and agencies in Uzbekistan should work together. The important organizations are the Academy of Sciences, Ministry of Higher and Secondary Specialized Education, Ministry of Public Health, Ministry of Agriculture, and Committee for Coordination of Science and Technology Development (CCSTD). In particular, the CCSTD has been leading the national S&T information system by establishing and implementing a Center for S&T Information in 2009.
3.3. Center for Scientific and Technical Information
Uzbekistan’s government established the Center for Scientific and Technical (S&T) Information under the Committee for Coordination of Science and Technology Development (CCSTD) in the legal form of the State Unitary Enterprise "Scientific and Technical Information", based on the Resolution of CCSTD under the Cabinet of Ministers (# 31 of November 5, 2009).
It aims to integrate S&T information resources of the various ministries, departments and organizations, libraries and institutions, to support collection and processing of S&T information, to prepare abstract information, survey and analysis, and to ensure the formation of sectoral S&T databases. In this sense, the Center will play a pivotal role in the Uzbekistan S&T information system. The detailed objectives of the Center are:
• Formation, storage and use of public resources of S&T information; • Collection and analysis of current domestic and foreign S&T literature; • Providing users with S&T information; • Analytical assessment of S&T and innovation potential of the country; and • Collecting, processing, classifying and recording of R&D results.
Chapter 6 _ Diffusion of S&T information on National Innovation System (NIS) in Uzbekistan ● 231 Organizational structure of the Center for S&T Information
DIRECTOR
DEPUTY DIRECTOR The administrative personnel
The bookkeeper Department The cashier on Department of Department Department on The lawyer development formation of of the development of The manager on of transfer of the State S&T International ICT systems work with the the S&T and information S&T and personnel economic resources cooperation technologies The technical information worker
The organizational structure of the Center is presented in Figure 6-3. It has four main departments: Formation of S&T Information, Transfer of S&T and Economic Information, Development of ICT Systems and Technologies, and International S&T cooperation. As of the end of December, 2012, the total number of employees is 43 people, of whom only 7 people are on full-time basis, the others work on part-time basis. The Center has been focusing on gathering S&T information and it cannot cover the whole process of S&T informatization process. Therefore, the Center of S&T Information should extend its role and recruit much more staffs in order to function effectively as a national S&T information center.
The funding mechanism of the Center’s operations is based on the State budget received in the form of grants on a competitive basis for research projects. The tasks of the Center are the creation, storage and dissemination of S&T information and the development of national standards and technical regulations for S&T information activities. These include: setting the quality standards for S&T information, implementing the quality management system, improving the state classification of S&T information, and codifying the S&T information. The Center also promotes effective protection of intellectual property rights in order to enhance transfer of knowledge and technology.
More specifically, the Center for Scientific and Technical Information provides the following services:
1) Information Services: • Analysis of the competitiveness of domestic scientific research; • Subject search of information by S&T areas; and • Preparing topical collection of S&T documents, analytical information, and materials at the customer's requests.
232 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy 2) Consulting services: • Consultation on preparing research documents, thesis, R&D reports; • Consultation on preparation of proposals for research projects; and • Consultations on procedures of R&D activities.
3) Analytical services: • Preparation of analytical reports on industrial sectors; • Marketing research on high-tech products; and • Publication of information and analytical reports.
4) Services to promote scientific research: • Providing presentation skills of innovative R&D projects; • Trainings on basic knowledge of marketing, business plan development, proposals for cooperation; • Investigation on specific innovative and technological products; and • Providing information on collaboration partners search.
These days, the Center creates electronic informational resources in the following areas:
• Policies in the field of science, technology and innovation; • Standards in science and engineering; • Major research programs; • Annotated records of scientific research; • Reports and publications from the state research programs; • Results of scientific research and innovation activities; • Materials of scientific conferences, workshops and round tables; • Materials of innovation fairs and exhibitions; • International scientific and technical programs; • Infrastructure of scientific organizations; and • Others.
Nowadays, there are 11,601 information and library institutions in Uzbekistan participating in and providing S&T information to the Center of S&T information (Table 6-1). The other institutions and agencies forming the national S&T information system include the Committee for Coordination of Science and Technology Development (CCSTD) under the Cabinet of Ministers, National Library of Uzbekistan named after Alisher Navoi, Technology Transfer Agency, Intellectual Property Agency, Agency "Uzarhiv", and Uzbek Agency for Press and Information.
Chapter 6 _ Diffusion of S&T information on National Innovation System (NIS) in Uzbekistan ● 233
Information and library institutions in Uzbekistan
№ Ministries / Agencies Number
1 Academy of Sciences 24
2 Ministry of Public Heath 209
3 Ministry of Culture and Sports 80
4 Ministry of Education 8,201
5 Ministry of Defence 113
6 Communications and Information Agency 14
7 Information and Resource Centers of the Educational Institutions 2,828
8 Branch Information Centers 132
Total 11,601
To summarize, Uzbekistan has a legal and institutional framework for the national S&T information system. It has established and implemented the Center for S&T Information, whose functions are well indicated and expected to cover the S&T informatization process: gathering, processing and diffusing of S&T information. However, the Center has been heavily focusing on gathering S&T information because of the lack of relevant S&T information resources. In this sense, in order to diffuse S&T information in the Uzbekistan national innovation system, Uzbekistan needs to develop the Center for S&T Information significantly and its functions by increasing manpower and investment in S&T information.
4. The Development of S&T Information System in Korea
4.1. Outline of the development
The Korean S&T information system has developed in accordance with the development of the Korean national innovation system. The Korean experiences will provide important implications for Uzbekistan. There are many studies about the development of Korean national innovation system (e.g. Chung [1996]; Chung [2001]; Chung & Lay [1997]; Kim [1992]). In the development of the Korean national innovation system, the Korean S&T information system has served a crucial role.
The overview of the development of the Korean S&T information system is depicted in Figure 6-4. The Korean S&T information system started from the establishment of the Korea Scientific and Technological Information Center (KORSTIC) in 1962. In the beginning of the 1990s, the
234 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy Korean government established and operated the Korea Institute of Industry and Technology Information (KINITI) and the Korea Research & Development Information Center (KORDIC). At the beginning of the 2000s, the two institutes merged and established the Korea Institute of Science and Technology Information (KISTI). The Korean S&T information system has developed in the middle of these public institutes since the Korean government has provided all of the functions of S&T informatization processes to them because S&T information is public goods. As a result, these institutes gathered, processed, and diffused S&T information, even though the relative focuses on the roles have been different due to the development of the institutes and the national S&T information system as a whole.
Over the past 50 years, the Korean S&T information system has progressed remarkably. This section will explore the development that Korea has made, on the basis of major institutions mentioned above. In particular, this chapter will analyze the background, mission and major activities of these institutes. Those analysis areas are critical benchmarking points for the Uzbekistan government in developing the Uzbekistan S&T information system and diffusing S&T information in the national innovation system. We will also investigate how well these institutions cover the stages of the S&T information process: gathering, processing, and diffusing of S&T information as well as S&T information infrastructure. We analyze the history of major institutes for S&T information because Uzbekistan has just established a relevant organization for S&T information under CCSTD and the Uzbekistan government has a strong interest in the development of Korean major institutions for S&T information.
S&T information and national innovation system
KISTI
KINITI
KORDIC KORSTIC
1962 1991 2001 1992
Note: KORSTIC: Korea Scientific and Technological Information Center KINITI: Korea Institute of Industry and Technology Information KORDIC: Korea Research & Development Information Center KISTI: Korea Institute of Science and Technology Information
Chapter 6 _ Diffusion of S&T information on National Innovation System (NIS) in Uzbekistan ● 235 4.2.Korea Scientific and Technological Information Center (KORSTIC)
4.2.1. Background of establishment and legal basis
The Korea Scientific and Technological Information Center (KORSTIC), the mother institute of the Korea Institute of Science and Technology Information (KISTI), was established on January 1, 1962, as a small division under the Korean Committee of the United Nations Educational, Scientific and Cultural Organization (UNESCO). It was operated as a part of the Korean Committee of UNESCO for two years and started to acquire the experiences and practices in the S&T information. After then, the Center became an independent legal entity in February 29, 1964.
In the 1960s, after successful implementation of the First Five-year Economic Development Plan, the Korean government expedited the Second Economic Development Plan. Along with the second plan, the Second Five-Years Plan for Promoting Science and Technology was initiated by the government, bringing an enormous transition for S&T development in Korea.
Purposes and contents of the Law for Nurturing KORSTIC
Law for Nurturing Korea Scientific and Technological Information Center
Founding the Korea Scientific and Technological Information Center that aims to making Purposes a contribution to promoting S&T and improving industrial technology by collecting and diffusing global S&T information
• The government can make grants and contributions to KORSTIC for building construction and operating expenses. • The government can loan national properties for free to KORSTIC for the construction of Major the Center. contents • When government agencies, local governments, national and public educational and research institutes publish S&T survey results, reports, articles, or journals, two copies of each of them must be submitted to KORSTIC, and upon KORSTIC’s request, preference to stored information must be given for peruse and copy of the information
The Korean government started to build up the national innovation system by establishing government-sponsored research institutes: Korea Institute of Science and Technology (KIST) in 1966. In January 16, 1967, the Korean government enacted and implemented a Act for Science and Technology Promotion , which provided a basis of initiating the Basic Plan for Promoting Science and Technology (S&T) very comprehensively. In 1967, the Ministry of Science and Technology (MOST) was established by the government to promote the development of S&T policy and R&D projects more effectively.
These changes in S&T policy environment influenced KORSTIC and this organization
236 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy extended its activities in order to support the Korean S&T development. KORSTIC was transferred under the Ministry of Science and Technology from the Ministry of Education. In response to the transfer, Act for Nurturing KORSTIC was enacted in May, 1969 (Table 6-2) and a new building was constructed for KORSTIC in August, 1967. Since then, KORSTIC had experienced continuous growth, but it had undergone several organizational shifts. KORSTIC had heavily focused on gathering S&T information including, books, dissertations, and research reports and so on.
4.2.2. Organizational structure and major activities
Organizational structure
KORSTIC had undergone several organizational changes from a division of the Korean Committee of UNESCO to an independent legal entity. During the transition, KORSTIC formed several organizational structures. Even after becoming an independent foundation in 1964, it had gone through a series of organizational changes. Figure 5 indicates the organizational structure just after the enactment of the Law for Nurturing Korea Scientific and Technological Information Center in 1969. At that time, KORSTIC consisted of the Board of Directors, Acting Director, and six divisions (General Affairs Operational Affairs, S&T Data, Information Processing, Survey and Retrieval) and Busan Branch (Table 6-3).
Organizational structure of KORSTIC
Classifications Divisions
Division of Information Processing S&T Information-related Divisions Division of Survey and Retrieval Division of Data Archives
Division of General Affairs Administrative Divisions Division of Operating Affairs Division of Planning and Management
Others Busan Branch
Source: Korea Institute of Science and Technology Information(KISTI) (2012), The 50 Years of History of the Korea Institute of Science and Technology Information, Daejon: KISTI (Korean).
Major activities
The purpose of establishment of KORSTIC in 1962 was to quickly provide researchers of universities and research institutes with up-to-date global S&T information. To accomplish this mission, KORSTIC had to collect S&T data from scratch. At the initial stage, KORSTIC started to gather basic S&T data, with only the small number of people. The basic S&T data were composed of survey results on advanced countries’ S&T information, dissertations of domestic master and
Chapter 6 _ Diffusion of S&T information on National Innovation System (NIS) in Uzbekistan ● 237 doctoral degrees in science and engineering fields. Based on these S&T data, KORSTIC was able to launch a series of services of providing S&T information. Upon the completion of a new building in Hongreung in 1970, these services were much more vitalized.
KORSTIC also translated important foreign S&T information into Korean, with registered translators at KORSTIC. It also extended its services for researchers to gain direct access to S&T information in the beginning of the 1970s. At that time, KORSTIC was the only institute for providing and diffusing S&T information, making a great effort to spread skills and techniques of information gathering and management. For this purpose, KORSTIC provided information management courses throughout the country. Since then, it had accumulated a great amount of experiences in S&T information services throughout the 1970s.
In January, 1982, KORSTIC merged into the Korea Institute for Industrial Economics and Technology (KIET). In the 1980s, KIET made a great contribution to gathering and diffusing S&T, industrial, and trade information in the Korean national innovation system.
4.3. Korea Institute of Industry and Technology Information (KINITI)
4.3.1. Background of establishment
The Korea Institute of Industry and Technology Information (KINITI) stemmed out from the Korea Institute for Industrial Economics and Technology (KIET) in January, 1991, as an independent institute that mainly dealt with S&T and industrial information. It was established because many fundamental problems, such as conflicts between industrial research departments and S&T information departments, had emerged throughout the 1980s after the forced merging of KORSTIC into KIET. In order to solve these problems, the government made a decision to operate an independent organization for S&T information. Therefore the organizational units for S&T information under KIET were separated and became an independent institute called the Korea Institute of Industry and Technology Information (KINITI) based on the Law for Korea Institute of Industry and Technology Information (Table 6-4).
KINITI conducted data-basing, data-mining and spreading of domestic and foreign information on industry, trade, and science and technology (S&T). KINITI facilitated information exchange between industries as well as between regions for enhancing the competitiveness of Korean industries. The institute formulated a long-term development plan in September, 1991. This plan had the following goals: 1) expansion of the ability to gather information, 2) strengthening of information production function, 3) the advancement of information distribution, 4) promotion regional informatization and quality improvement of its services. Based on the goals above, KINITI decided to set the basic direction of the institute as an organization to provide 'fast, accurate, and cheap information distribution system.
238 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy
Major contents of the Law for KINITI
Law for Korea Institute of Industry and Technology Information
• Facilitation of the distribution of value-added information on industry, trade, and technology in order to improve international competitiveness • Rapid response to the concerns on dependency of domestic industries on developed countries, which resulted from the early opening of information and communication Purposes markets • Rapid accumulation and management of S&T and industrial information requiring the great amount of capital and time • Active support and nurturing of information distribution businesses
• Separating the industrial & technology information sectors from KIET and making an independent legal entity called KINITI • KINITI can operate information centers in Korea and overseas. • KINITI performs the tasks of collecting, managing, and distributing information about industry, trade, and technology. • Regional centers of KINITI can cooperate with local governments to build regionspecific information distribution systems and, if necessary, local centers can be operated as Major independent legal entities. contents • To stimulate the creation of data base KINITI can plan and announce long-and shortterm plans, and it also can establish the National DB Center and National DB Promotion Funds. • KINITI can create the Committee for National Information Distribution to promote cooperation and coordination among information-related institutions. • Publishing at least one list of DB per year to accelerate the distribution of information by cooperating with domestic DB producers
Source: Korea Institute of Science and Technology Information(KISTI) (2012), The 50 Years of History of the Korea Institute of Science and Technology Information, Daejon: KISTI (Korean).
The long-term plan consists of the following three steps:
• The 1st step (1991-1993): This is the development stage. KINITI will build a foundation for efficient dissemination of industrial S&T information. • The 2nd step (1994-1995): This is the settlement stage. KINITI will establish nation-wide information distribution system. • The 3rd step (1996-1997): This is the mature stage. KINITI will facilitate the exchange of information with foreign institutions in order to strengthen its role in the international com-munity.
4.3.2. Organizational structure and major activities
Organizational structure
KINITI, established in 1991, built three main divisions: Division for Information Survey and Analysis, Division for Information Collection and Diffusion; and Division on Industry and Trade. In particular, the Division for Information Survey and Analysis consisted of small teams according to major S&T areas: Machinery and Metals, Life science and Technology,
Chapter 6 _ Diffusion of S&T information on National Innovation System (NIS) in Uzbekistan ● 239 Electronics and Electrical Technologies, Chemistry and Chemical Engineering, and Resources, Environment and Construction.
Organizational structure of KINITI in 1999
Classifications Divisions
Division of Information Processing • Department of Analyzing Technology Information • Department of Analyzing Industrial Information • Department of Technology Transfer • Department of Intellectual Property Division of Information Contents • Department of Contents Archives S&T Information-related • Department of Contents Development Divisions Division of Information Technologies • Department of Information Systems • Department of Information Business Division of Information Services • Information Center for Seoul and the Outskirts • Information Center for Middle Area • Information Center for Honam Area • Information Center for Youngnam Area
Division of Policy and Planning Administrative Divisions Division of Administrative Management
Source: Korea Institute of Science and Technology Information(KISTI) (2012), The 50 Years of History of the Korea Institute of Science and Technology Information, Daejon: KISTI (Korean).
KINITI had operated at this time based on the S&T information services according to major S&T areas. After 1994, the teams for S&T fields turned to divisions, e.g. Division for Machinery and Metals. In addition, new divisions for patent intelligence, industry and trade, education and research as well as information and consulting were established. In 1999, KINITI re-organized its divisions into the four headquarters: Patent Intelligence, Information Contents, Information Analysis, and Information Services (Table 6-5). These headquarters were managed under the classification of basic function and information service function. In particular, the Headquarter of Information Services was divided into local divisions in order to provide better information services.
Major activities
KINITI endeavored to develop and expand information resources to become an advanced information institute. Its initial step for the effort was the systemization of information collection and management techniques. At this time, the techniques were not much different from the previous ones. For example, the conventional methods of data collection, such as purchase, donation, exchange, and imports through foreign embassies, were utilized as it had been used.
240 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy In the late of 1990s, however, there was a big transformation of foreign data collection due to IT development: materials and books were able to be attained rapidly through the Internet and on-line bookstores. In addition, the number of information donation and exchange has steadily increased since then.
KINITI provided a series of information services to external users, such as companies, research institutes, universities, etc. Major services are information guidance, browsing, copying, and others. As a result, the number of KINITI’s S&T information increased by a large scale in the 1990s (Table 6-6).
Source: Korea Institute of Science and Technology Information(KISTI) (2012), The 50 Years of History of the Korea Institute of Science and Technology Information, Daejon: KISTI (Korean).
KINITI implemented the KINITI-Library Information System (KINITI-LIS) by computerizing DBs in order to increase the efficiency of information services. As the number and volume of S&T information increased, the need for creating and operating information management system was increased for efficient searching, processing, browsing and managing S&T information. To enhance information services capability, KINITI purchased and implemented seven domestic DBs and ten international DBs. Also, KINITI actively extended its collaboration with domestic academic and research organizations in order to maximize the utilization of its information resources.
4.4. Korea Research & Development Information Center (KORDIC)
4.4.1. Background of establishment
Due to the intense technological competition among countries in the beginning of the 1990s, the S&T information system that covered collection, process, and distribution of information became a main issue for the Korean government. After intensive discussions among
Chapter 6 _ Diffusion of S&T information on National Innovation System (NIS) in Uzbekistan ● 241 the experts regarding the issue, the Presidential Advisory Committee for S&T prepared a Comprehensive Plan of Management and Support System of S&T Information in 1992 and suggested to the President of Korea that the government should establish a new organization to vitalize S&T information distribution.
Stage goals of KORDIC
Areas Start-up(1996∼1999) Growth-up (2000s)
Optimization of the distribution system Build-up of global S&T information of S&T information network • Build-up of the distribution system in institutes, universities, and private Distribution of companies High quality of S&T information S&T information Build-up of DB of public information • services Build-up of electronic library system • Visualization of S&T information Build-up of the cooperation system • • Virtual library with foreign information agencies • • Automatic information processing • Service upgrade by the supercomput- ers and S&T computer network
Research for intelligence and human Research on intelligent and human- Research on interface technology centered technology information • Intelligent agent • Sensitized agent science • Techniques of human information • Techniques of cyber communica- processing technology tion
Source: Korea Institute of Science and Technology Information(KISTI) (2012), The 50 Years of History of the Korea Institute of Science and Technology Information, Daejon: KISTI (Korean).
Based on the Advisory Committee’s suggestion, the Korean government created the Korea Research & Development Information Center (KORDIC) under the Korea Institute of Science and Technology (KIST) to collect, process, distribute, manage and coordinate S&T information comprehensively. KORDIC was established under KIST since KIST had a supercomputer for the first time in Korea and KORDIC was expected to utilize it.
KORDIC was created, based on the Law for Promoting Science and Technology , and Article 10 of the Law stipulates that “the Ministry of Science and Technology (MOST) prepares policy measures and plans on nurturing S&T information institute and establishing S&T information distribution system to accelerate the creation, distribution, and utilization of S&T information.” As soon as it was established, KORDIC announced its organizational restructuring and development plan in order to distribute national S&T information as well as to effectively respond to the changes in domestic and foreign S&T and the economic environment.
4.2.2. Organizational structure and main activities
Organizational structure
242 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy Organizational and operational restructuring took place in KORDIC during the 1990s in order to achieve its long-term goals and vision. As seen in Table 6-8, KORDIC was operated under the four divisions: Information Business, Information Support, and Super-computing Business, as well as Planning and Operation. KORDIC devoted efforts to recruit well-qualified manpower and train its researchers and technicians. In particular, the Supercomputing Business Division played an important role in developing Korean science and technology and contributed to upgrading the Korean S&T information system.
Main activities
KORDIC was at the center position in developing national S&T information system. In particular, it aggressively established the national S&T information distribution system by stage. Database creation, information collection, information service, and information distribution system were refined year by year. In addition, KORDIC finally established foreign and domestic S&T information acquisition system. KORDIC’s major database consisted of information on S&T documents, S&T books, government funded reports, academic journals, S&T field information, S&T statistics, S&T manpower, S&T equipment, foreign S&T information, and in-depth studies of S&T information.
Organizational structure of KORDIC
Classifications Divisions
Division of Information Business • Department of Common Information Business • Department of Literature Information Business • Department of Actual Information Business Division of Information Supports • Department of Information Services • Department of Supporting Information Search • Department of Operating Research Networks S&T Information-related Divisions Division of Supercomputing Business • Department of Supercomputing Research • Department of Supercomputing Application • Department of Technical Support for High-speed Networks Division of Information Services • Information Center for Seoul and its Outskirts • Information Center for Middle Area • Information Center for Honam Area • Information Center for Youngnam Area
Division of Planning and Administration Administrative Divisions • Department of Planning and Budgets • Department of Operational Affairs
Source: Korea Institute of Science and Technology Information(KISTI) (2012), The 50 Years of History of the Korea Institute of Science and Technology Information, Daejon: KISTI (Korean).
Chapter 6 _ Diffusion of S&T information on National Innovation System (NIS) in Uzbekistan ● 243 Also, KORDIC started on-line service for about 250 R&D institutes and universities via computer network and public communications network. KORDIC launched original document service via S&T information database (SATURN) so that users can easily access S&T information and documents needed. Furthermore, it created database for technical terms for S&T and provided multi-language service (English, Japanese, etc.) for each term for better understanding.
4.5. Korea Institute of Science and Technology Information (KISTI)
4.5.1. Organizational foundation
On January 1st 2001, the Korea Institute of Science and Technology Information (KISTI) was established. In February, 2000, the Board of Directors of the Korea Research Council for Public Technology, an umbrella organization of KORDIC, decided to integrate KINITI and KORDIC. As a result, KISTI was established under the Law for Establishing, Nurturing, and Operating Government-sponsored Research Institutes. The institute assumed responsibility for the national S&T information system. Article 2 of KISTI statute prescribes its purpose of KISTI as follows:
“KISTI was founded under the 1st Clause of Article 8 of the Act for Establishing, Nurturing, and Operating Government-sponsored Research Institutes, and its purpose is to collect, analyze, and manage S&T and related industrial information comprehensively, to survey and research technology, policy, and standardization of management and distribution of information, and to establish and operate R&D infrastructure systematically, so that it will contribute to the development of national S&T and industry.”
Prior to the merger into KISTI, KINITI was under the Ministry of Commerce and Industry, while KORDIC was under the Ministry of Science and Technology. They provided science, technology and industry information service independently. The merger implied more than just the combination of two different organizations. In the new millennium, the national S&T information system needed to be strengthened in order to effectively respond to knowledge and information society. KISTI has become much more important, representing the Korean S&T information system.
Founded in 2001, KISTI formulated an ambitious goal of becoming the top 5 S&T information institute in the world, and set up and implemented its ‘Vision 2010’ plan. The ‘Vision 2010’ was to become the center of national S&T innovation by leading S&T knowledge infrastructure and activating service innovation to fulfill customers’ needs. The KISTI’s goal and core strategies were presented as well. KISTI set up its goal of the year 2010 as “the establishment of research support system for national e-R&D program that is platform for future S&T development”. To attain the goal, it established a web portal system for the national S&T information and grid system and provided a combination service of S&T database, high performance computer, and ultra-speed network. This vision and goal became a cornerstone for managing KISTI in its early years.
244 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy
4.5.2. Organizational structure and main activities
Organizational structure
KISTI was restructured and scaled down from seven divisions, one center, four regional centers, twelve local branches, and eight departments before the merger into four divisions, three centers, one regional center, three branches, and six departments. In particular, twelve local branches throughout the country were reduced to three branches in Busan, Daegu, and Gwangju.
Organizational structure of KISTI
Classifications Divisions Information Service Center • Department of NDSL • Department of Foreign S&T Information • Team for Domestic S&T information NTIS Center • Department for Developing R&D System • Team for Converging R&D Information • Team for NTIS Business Information and S/W Research Center • Department of S/W Research • Team for Scientific Data Research TCI Center • Department for Analyzing Industrial Information • Department of Technology Commercialization Information Information Analysis Center • Department for Analyzing Technology Information S&T Information- • Team for Researching Technology Opportunities related Divisions SMB Knowledge Support Center • Team for ASTI Business • Branch of Busan, Ulsan and Gyongnam • Branch of Honam • Branch of Gyonggi and Inchon • Branch of Choongchong • Branch of Seoul • Team for Industrial Supercomputing Super Computing Center • Department for Supporting Supercomputing Research • Department for Developing Next-generation Research Environment • Department of Large Volume Data Hub • Department for Developing Applied Research Services • Department for Supercomputing Research Advanced KREONET Center • Department for Advanced Research Network Services • Department for S&T Information Protection • Department for Developing Advanced Research Networks Dept. of Policy Research Others National Nanotechnology Policy Center Team for International Cooperation Source: Korea Institute of Science and Technology (KISTI) (2012), The 50 Years of History of the Korea Institute of Science and Tech- nology Information, Daejon: KISTI (Korean).
Chapter 6 _ Diffusion of S&T information on National Innovation System (NIS) in Uzbekistan ● 245 The restructuring was carried out successfully. During the 2000s, KISTI went through more restructurings. The organizational structure in October, 2012 consisted of eight main centers, focusing on policy research on S&T information. Fundamentally, KISTI provided a wide range of businesses and services in S&T and industrial information, as it derived from the merger of two different organizations, KINITI and KORDIC. The major centers and departments in December, 2012 are in Table 6-9. KISTI covered the entire process of the S&T informatization from collecting to processing and diffusing S&T information. In addition, KISTI operated a series of S&T information infrastructures: the NTIS Center, Supercomputing Center, Advanced Research Network Center, Information Software Research Center and other.
Main activities
S&T information in the 21st century is becoming more specialized and segmented and the volume of S&T information is increasing exponentially. Due to the rapid development of IT technology including performance advancement of the PC and wide usage of the Internet, the method of gathering, processing and controlling S&T information has been transformed. This transformation caused the need for national level information management and information distribution system. In response to these challenges, KISTI stood at the core position of the central S&T information center of the nation by actively sharing and networking domestic and foreign core information.
KISTI set up its portal service ‘yes KISTI’(http://www.yeskisti.net) in 2004 and strengthened its S&T information ‘one-stop’ service. Prior to building the portal, KISTI relied on few separate web-pages, but after the portal was launched, users’ accessibility and convenience were improved significantly. The analysis of strategic S&T information was also propelled under the goal of rapid creation of national infrastructure of information analysis since 2001. With regards to this goal, KISTI carried out in-depth analyses in four areas: analysis of information sources and subjects, trend analysis, in-depth analysis, and technology transfer and assessment. Based on these analyses KISTI published a series of reports and provided them to users, especially SMEs.
246 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy
Source: Korea Institute of Science and Technology Information (KISTI) (2012), The 50 Years of History of the Korea Institute of Science and Technology Information, Daejon: KISTI (Korean).
In addition, in order to encourage policy studies on S&T information, KISTI established the Division for Research on Knowledge Information Infrastructure. It carried out policy research on three main areas: policy, evaluation, and standardization of S&T information. Later, KISTI restructured and transferred standardization research to the Information Distribution Division and built the Department of Policy Research that focused on policy research and evaluation of S&T information.
Human resources and budget of KISTI
KISTI enjoyed remarkable development. Table 6-10 shows KISTI’s growth of manpower from the beginning of 1990. In 1993 there were 265 workers both in KINITI and KORDIC, the institutes before the merger to KISTI. But after about 20 years from then, the total number of KISTI'S employees amounted to 340. Considering that the Korean government has not allowed the increase in the number of employees for government-sponsored research institutes, this is
Chapter 6 _ Diffusion of S&T information on National Innovation System (NIS) in Uzbekistan ● 247 a remarkable growth. This implies that the role of KISTI has also expanded during the period.
Trend of KISTI’s budget (Unit: Million Won) Governmental Year grants Self-financing Others Total 1993 7,291 2,907 55 10,253 1994 10,052 4,180 - 14,232 1995 14,172 5,604 495 20,271 1996 16,619 5,787 731 23,137 1997 19,334 6,695 1,370 27,399 1998 19,633 10,653 4,724 35,010 1999 21,301 12,044 4,002 40,347 2000 35,420 18,619 7,473 61,512 2001 45,090 18,283 9,965 73,338 2002 50,466 19,608 13,235 83,309 2003 54,417 23,579 10,439 88,435 2004 55,879 20,756 6,540 83,175 2005 57,933 27,111 6,993 92,037 2006 54,939 33,329 1,401 89,669 2007 63,843 35,151 4,243 103,237 2008 66,377 32,134 3,395 101,906 2009 74,375 35,110 215 109,700 2010 81,632 42,314 136 124,082 2011 87,040 34,563 1,102 122,678 Source: Korea Institute of Science and Technology Information (KISTI) (2012), The 50 Years of History of the Korea Institute of Science and Technology Information, Daejon: KISTI (Korean).
Also, the share of researchers in total employees increased from 71% in 1993 to 80% in 2011. The number of Ph. D holders increased from 12 persons to 123 persons during the same period. This indicates that KISTI had not only recruited well-qualified researchers but also trained existing staffs intensively. This also means that KISTI increased its S&T information research capabilities on a large scale.
The development of KISTI is also confirmed by the changes in its budget (Table 6-11). KISTI’s budget increased from 10.3 billion won in 1993 to 122.6 billion won in 2011, about 10 times increase. As of 2011, 71% of its total budget was from the government and the rest 29% was self-financing from the contract projects outside. Unlike other government-sponsored research institutes in Korea, KISTI has had a strong capability to raise its own budget through information related projects and services. In fact, KISTI has extended its business areas into S&T information related services to other innovation actors and organizations. This highlights the importance of KISTI within the Korean national innovation system, as a core of the national S&T information system.
248 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy 4.6. Summary of the Korean S&T information system
The development of the Korea’s S&T information system, which has been discussed in the middle of core S&T-related institutes, can be summarized according to the S&T informatization process: gathering, processing, and diffusing information. In this chapter, we placed information infrastructure between processing and diffusion, because the infrastructure is needed to accelerate the diffusion of S&T information. The infrastructure will also play an essential role in the upgrade of national S&T information system.
The Korean national S&T information system started 50 years ago by establishing KORSTIC in 1962. Since then, the Korean system has developed remarkably and enlarged its capabilities so that it could be considered to be one of the world’s best national information. However, it also has experienced a variety of difficulties throughout its history due to the development of related institutes, the sudden merger because of political reasons, strong self-interest of relevant ministries, and so on.
Table 6-12 briefly summarizes the informatization process of Korea’s science and technology, based on the major institutes discussed above. The functional departments or divisions are presented according to the informatization process, especially from the beginning of the 1970s, when the national S&T system started to function satisfactorily. This analysis on major functions will have many implications for Uzbekistan, because the nation should secure those functions in its national S&T information system.
Summary of the development of Korean S&T information system
Information Information Information Information Gathering Processing Infrastructure Diffusion Survey and Information KORSTIC (1971) Retrieval Processing Information Information Information Information KINITI (1999) Analysis Contents Technology Services Supercomputing Information KORDIC (1999) Information Business Business Support Information Information TCI NTIS Analysis Services Information S/W Knowledge KISTI (2012) Research Support for SMEs
(Center-Level) Supercomputing
Advanced KREONET
Chapter 6 _ Diffusion of S&T information on National Innovation System (NIS) in Uzbekistan ● 249 In the beginning of the 1970s, the Korean S&T information was run by KORSTIC. KORSTIC focused on simple gathering and processing of S&T information, by operating mainly two departments: Department of Survey and Retrieval and Department of Information Processing. This reflects that there was not enough demand for S&T information, as the Korean national innovation system was still under - developed.
However in the late 1990s, S&T information saw remarkable development. In this period, the Korean S&T information system was divided into and operated under two different organizations: KINITI and KORDIC. KINITI was operated with a comprehensive information system from gathering through processing to diffusing industrial information with having relevant departments. KORDIC also had major divisions such as Information Business, Supercomputing, and Information Diffusion. It deserves to be brought into attention that KORDIC made great efforts to establish and implement S&T information infrastructure by operating the Supercomputing Division.
After the merger of KINITI and KORDIC, KISTI was created. KISTI has implemented a very systematic process of S&T information. Exploring into the organizational structure as of December, 2012, KISTI has implemented eight different S&T information centers that collected, processed, and distributed S&T information. It covered the whole process of S&T informatization process. In addition, KISTI operated a series of S&T information infrastructures: NTIS Center, Supercomputing Center, Advanced Research Network Center, Information Software Research Center, etc. These infrastructures would make a great contribution to the development of the future-oriented Korean S&T information system.
Based on our analysis on the Korean S&T information system, we can identify several characteristics of the Korean system as follows:
• Korea recognized the importance of S&T information very early. With help from UNESCO, it established KORSTIC in 1962 in order to support S&T and the economic development in Korea. • The Korean S&T information system has evolved successfully from simple organization to world-class comprehensive S&T information organizations. • In order to develop the Korean S&T information system, the Korean government established relevant legal frameworks and increased its investment in S&T information on a large scale. • Since the beginning of the 2000s, Korea has utilized a comprehensive S&T information system covering both S&T information as well as industrial and market information. Before then, two areas of information were handled by two different organizations under two different ministries, i.e. KINITI and KORDIC. • The Korean S&T information system has developed very rapidly since the middle of the 1990s as Korea has formulated and implemented world-level national innovation system. It presents that the development of a national S&T information system highly depends on
250 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy the development of national innovation system. • KISTI is a very big and comprehensive S&T information institute, that covers from information gathering, processing and diffusing all over Korea. KISTI has eight centers involved in information gathering, processing and diffusing, and it has a policy research center conducting research on S&T information policies. • These days, KISTI is actively supporting technology commercialization of Korean SMEs through the Association of S&T Information (ASTI) which is national network organization for S&T information diffusion and appropriation.
5. Conclusions and Implications
In this chapter, we analyzed the Uzbekistan and Korean S&T information system in detail. Uzbekistan has just started to establish its national S&T information system, while Korea has about 50 years of history in S&T information. Based on our analysis, we can suggest some policy implications for Uzbekistan. The suggestions are divided into general policy directions and step-wise strategies.
We suggest policy directions as follows:
• In order to establish a competent national S&T information system, the importance of S&T information should be appreciated by the Uzbekistan government. Based on the active support by the government Uzbekistan should have an evolutionary approach to develop its national S&T information system. • Uzbekistan’s Center for S&T Information under CCSTD should grow as soon as possible. It should extend its function to cover all phases of informatization process: gathering, processing, and diffusing information. For this purpose, the Center should increase its staffs, especially with skilled expertise in S&T information, and also train them effectively. • Uzbekistan should make an aggressive investment in formulating and implementing the national S&T information system (e.g. DB, supercomputers, manpower, etc). S&T information infrastructure is very essential to the development of the national S&T information system. • Uzbekistan’s Center for S&T Information should have an ambidextrous strategy: It should aim at gathering and diffusing not only S&T information but also industrial and market in- formation for industrial enterprises. In order to develop its national economy, Uzbekistan should generate synergy effects between S&T and industrial & trade information. • Uzbekistan’s Center for S&T Information should have local branches in order to diffuse S&T information in local and regional innovation actors, e.g. universities, SMEs. According to Korea’s experiences, this local information service is urgently needed because local innova- tion actors have much more disadvantage in gathering and utilizing S&T information. • In order to generate synergy effects, Uzbekistan’s national innovation system should be well developed. In particular, industrial enterprises should accumulate their technological capabilities. Only then, their needs on S&T information will increase exponentially.
Chapter 6 _ Diffusion of S&T information on National Innovation System (NIS) in Uzbekistan ● 251 • Basically, every actor in Uzbekistan’s national innovation system including universities, public research institutes, and industrial companies should recognize the importance of S&T information in technological, economic and social development of the country. Their demand for S&T information will be the most effective stimulus for the development of national S&T information system and the diffusion of S&T information in Uzbekistan.
Based on Korea’s experiences of national S&T information system, we can also suggest step-wise strategies composed of short-term, mid-term and long-term strategies (Table 6-13). These three strategies are crucial considering the short history of Uzbekistan’s S&T information system. They are interrelated and can be overlapped in implementing strategies. They will be helpful not only for Uzbekistan but also for other developing countries.
Step-wise strategies for Uzbekistan national S&T information system
Establishing the base of Operating the self-sustaining Implementing the worldclass Goals national S&T information S&T information system S&T information system system
• Increasing investment in • Increasing investment in • Increasing investment in S&T information S&T information S&T information • Building DB for S&T • Building S&T Information • Further building ad- information infrastructure vanced S&T information • Building the domestic • Increasing staffs for S&T infrastructure (e.g. super- branches of the S&T information computers) information system • Building the effective • Increasing quality staffs Initiating the collabora- processing system of S&T for S&T information (Ph. Major • tion with foreign institutes information Ds) strategies • Building the network with • Building the effective foreign S&T information diffusion system of S&T system information (e.g. ASTI) • Reinforcing collaboration • Strengthening the link with foreign institutes with global S&T informtion system • Strengthening collaboration with foreign institutes
The short-term strategies should be implemented within five years, aim at establishing the foundation of Uzbekistan national S&T information system. The followings should be implemented at least:
• Increase the government’s investment in S&T information system; • Building of DB for S&T information that can be utilized by existing innovation actors; • Building of the domestic branches of the national S&T information system which are essential for R&D and innovation activities of local innovation actors; and • Starting of the collaboration with relevant foreign S&T information institutes like KISTI,
252 ● Policy Consultation on Uzbekistan’s Industry Innovation Strategy especially focusing on S&T information gathering and training of staffs on information man agement.
The mid-term strategies will be implemented in between five and ten years, aim at implementing a self-sustaining national S&T information system and placing its right position in the natioanl innovation system. The following detailed strategies should be implemented:
• Further increase of investment in S&T information, especially computer systems, networks, data bases, and so on; • Active building of S&T information infrastructure all over the country; • Increase of the staffs for S&T information and active training them on information gather- ing, processing and management; • Building of the effective processing system of S&T information in order to provide quality information to users; and • Building of productive networks and strengthening collaboration with foreign S&T infor- mation systems like KISTI.
Finally, the long-term strategies for the development of Uzbekistan’s national S&T information system should be based on the short- and mid-term strategies. The long-term strategies aim at upgrading the system and implementing the world-class national S&T information system. The following strategies can be implemented:
• Further increase of investment in S&T information, especially for establishing advanced S&T information infrastructure (e.g. supercomputers); • Increase of well-qualified staffs, e.g. Ph.Ds for diverse areas S&T information and intensifying the training of existing staffs; • Building of the effective diffusion system of S&T information all over the country (e.g. ASTI (Association of S&T Information) in Korea); and • Strengthening of the link with the global network of S&T information system by intensifying the collaboration with foreign advanced S&T information system.
It will take time to implement the strategies discussed above and implement a competent national S&T information system. In order to put into practice a successful system successfully, Uzbekistan should benchmark foreign advanced S&T information systems and strengthen the collaboration with them. According to Korea’s experiences, such benchmarking and collaboration are indispensable for the development of the national S&T information system. In this sense, the Korea Institute of Science and Technology Information (KISTI) will be one of the best collaboration partners, as Korea has exemplary experiences of developing the national S&T information system and KISTI has been at the center of the Korean system.
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