Marat Musuraliev: Problems in the Electro-Energy Sector of Kyrgyzstan: Is There a Way Out?

Marat Musuraliev: Problems in the Electro-energy Sector of Kyrgyzstan: Is There a Way Out? “If the electro-sector of Kyrgyzstan is not able to resolve the problems occurred, it will lead to repeating electricity shortages in the country by 2017-2018, growth of social tensions, and up to another unconstitutional change of government, whereas the energy sector management personnel will be fully replaced”, – possible risks and challenges in the energy sector of Kyrgyzstan, are discussed by economist, deputy director of the “Smart Business Solutions Central Asia” Marat Musuraliev, exclusively for cabar.asia. Socio-economic and political effects on electro- energy sector of Kyrgyzstan. The energy sector is a socially significant theme in Kyrgyzstan, which periodically becomes subject of consideration for Government, Parliament and the Council of Defense. It may be noted that, electricity shortages were among the main causes of social protests in the society, leading to the overthrow of the Bakiev regime in April 2010. In general, energy issues are outlined by the Kyrgyz government, increasing deficit in power generation is becoming more explicit and conditionally the industry problems can be divided intotariff and production. In this article, I would like to focus more on production issues, which are not so often discussed by experts. Difficulties in building new generating capacity in the Kyrgyz Republic. Concerning the changes in the energy production sphere of Kyrgyzstan – the situation is much more complicated. Activities in this area require substantial financial resources, which Kyrgyzstan does not possess, coordination of actions in the energy-related industries, such as logistics, and reaching agreements with neighboring states. Currently, there are only two progressing projects in Kyrgyzstan. These are the construction of power transmission line (PTL) “Datka-Kemin” and reconstruction of thermal power station (TPS) in Bishkek. Both of the projects are financed by external loans from China and implemented by Chinese companies. Generally, it is objective, since neither the Kyrgyz energy sector nor Kyrgyzstan as a whole, have financial resources and production facilities Marat Musuraliev: Problems in the Electro-energy Sector of Kyrgyzstan: Is There a Way Out? for constructing large infrastructure projects. In addition, there will be no reliable data on the payback of loans and profitability of these projects posted and the statements of the politically exposed persons on PTL and TPS, as a rule, have flashy nature, with declarations on energy independency of the country. At the same time, it should be noted that according to the Ministry of Finance data, as for 2016 the external debt of Kyrgyzstan reached 3.6 billion dollars, makes about 60% of GDP – maximum allowable level, fixed at the legislative level. [1] Herewith, it is possible to note a key aspect that the greatest amount of foreign loans – 28% were directed to the transportation sector, mainly road repairing and 22% – to the energy sector. Considering the absence of connectivity between the directions of the majority external loans of Kyrgyzstan and their repayment sources, it can be supposed that the effectiveness degree of these loans – is a subject for discussion. In the Council of Defense decision, from 2015, concerning the energy sector the following is noted: “poor management of the coal industry is very disappointing. Existing potential of 70 major coal deposits amounts to 2.2 billion tons, but the fuel and energy complex has been unable to upgrade extraction technology, provide logistics, clear planning and other issues in the coal industry. Absence of state policy has led to uncontrolled extracting process of coal and distribution of coal by various companies, operating not in the public interest, which is particularly evident during the autumn-winter period …” That is, logistics problems for the coal industry have been noted. However, one could add that, these problems are well known even before. In Kyrgyzstan, nor under the Soviet Union, neither in 25 years after its collapse, no internal railway network was created. Railway lines in the country are only in Chui valley, which has defined concentration of majority industrial enterprises in the region until 1991, and subsequent mass of internal migration to the valley from all other regions. Whichever type of goods would be made outside the Chui Valley, its transportation to other parts of the country will make the majority of products more expensive and less competitive. For implementation of construction projects in energy sector is crucially important to resolve logistic issues. For instance, construction of, Kambar-Ata – 1 Hydro-Electric Power Plant (HEPP) is likely to have negotiations with neighboring countries, including the transportation issues as well. Under USSR, all the non-standard heavy equipment alike transformers, turbine wheel and others, weighing several hundred tons each, for Toktogul and other HEPPs of the country were imported by railway through Uzbekistan. It is well known that Tashkent opposes the Marat Musuraliev: Problems in the Electro-energy Sector of Kyrgyzstan: Is There a Way Out? construction of hydropower plants on trans-border rivers. Therefore, it is doubtful that this time it will be able to bring such equipment, for example, the replacement for Toktogul HEPP through Uzbekistan. Along the road by Chui valley through the passes, the polybasic trawls managed to bring one aggregate for Kambar-Ata HEPP-2, weighing about 100 tons. However, the aggregates for Toktogul and Kambar-Ata HEPP-1 – are more powerful and therefore 3-4 times heavier. In Kyrgyzstan, there are no automobile bridges, which could withstand such weight loads. Probably the Kyrgyz Government hopes to transport the equipment through so-called “alternative road”, which is intended to build on the expense of external loan from China, which is 1 billion US dollars? However, as mentioned above, Kyrgyzstan is already close maximum allowable level of the external loans amount – 60% of GDP. That is, receiving more loans will make the situation problematic. Nevertheless, if receiving the loan will be possible, then the following question appears- how to ensure repayment of the loan by the alternative road? Will the Kyrgyz government make it a toll highway? Officially, this information has not been published yet. As a possible option, the HEPP equipment transportation can be done by internal railways until the “alternative road”, but these railways have unsatisfactory technical conditions, as it was noted on the government resolution released on September 30, 2014 № 558: “… The low service speed of the Kyrgyz railways is due to the high degree of deterioration of the most critical sections of the railway infrastructure. Thus, the threshold degree of deterioration is 50-55%, deterioration of fixed assets, including buildings and structures, machinery and equipment and track facilities, is making up 71%, in electricity system- 50%, in the signaling system and communication – 63%. Over 30% of the rails, being in operation, have overweigh in tonnage and more than 50% of the wood crossties are worn. “[2] It is doubtful that these kind of railways would be able to carry overloaded weights of energy equipment for HEPP. In addition, it is necessary to point out that by spring 2016 the construction of not only the Upper-Naryn cascade, but also the larger Kambar – Ata HEPP-1 is actually suspended. Moreover, this scenario became evident in early 2014, when, due to the Ukraine crisis, the Western countries closed their capital markets to Russian entities. In 2014-2015, in Russia, the process of double national currency devaluation occurred, GDP decline and a decline in state budget revenue due to unfavorable price conjecture on the main export commodities: Marat Musuraliev: Problems in the Electro-energy Sector of Kyrgyzstan: Is There a Way Out? energy and metals. As a result, the Russian government and its companies with state shares in their capital went to review their expenditures and started to postpone some projects to subsequent years. Therefore, it has become apparent that Kyrgyzstan should not rely on construction continuation of these projects by Russian Federation. In January 2016, the authorities of the Kyrgyz Republic have denounced the agreement between Kyrgyzstan and Russia on the construction and operation of Kambar-Ata HEPP-1 and Upper-Naryn cascade. [3] At the same time, not only production figures of Kambar-Ata -1 remain controversial but also the logistics of building materials and equipment, political risk associated with the position of Uzbekistan, as well as the financial indicators: profitability of the project is low and the payback period is extensive. In order to solve these problems, Kyrgyzstan should start negotiating with its neighboring countries and start building an internal railway network. However, promotion in these areas has not been observed yet. What is also generally objective: the construction of one- kilometer railways is worth around $ 2 million, the support-span construction – from $ 10 million per km and tunnel construction – from $ 15 million per km., Kyrgyzstan does not possess such funds and production potential for implementing such construction projects. In addition, there is no progress on HEPP negotiation processes with neighboring countries. Accordingly, the solution of industrial problems on new generating capacities in Naryn cascade is not yet to be implemented. At the same

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