DESPITE CORRUPTION CONCERNS, KYRGYZSTAN’S ENERGY SECTOR WILL BE PRIVATIZED

On June 19 the Kyrgyz parliament voted to privatize the 1,900 MW Kambarata-1 and 240 MW Kambarata-2 hydropower plants on the Naryn River. The two plants have annual generation capacities of 5,100 million kWh and 1,100 million kWh, respectively. The country’s largest Thermal Power Plant-1 (TPP-1) in Bishkek, the Kyrgyz capital, will be privatized as well. Together, all three comprise the key sites of Kyrgyzstan’s hydropower sector.

Most pro-presidential MPs backed privatization, while their opposition counterparts refused to show up at the vote. Their boycott was widely interpreted as an expression of disagreement with President Kurmanbek Bakiyev’s politics in the energy sector.

While all political forces in Kyrgyzstan admit that the energy sector requires long-term foreign investments and administrative reform, many also fear that privatization of the sector will be marred by corruption deals and eventually bankrupt it (see EDM, September 27, 2006).

Today, hydropower is one of Kyrgyzstan’s main strategic sectors, but it is plagued by large-scale corruption. Tensions around the sector have been mounting since evidence of its corruption was made public after the March 24 Tulip Revolution in 2005. Due to elaborate pyramid schemes benefiting only a select few in the sector, Kyrgyzstan collects only 30% of payments due for its hydropower generation, while rough estimates indicate that more than $40 million in profit is embezzled every year.

Bakiyev rushed to assure the parliament that he has no personal interest in the hydropower plants or the TPP. “When new electricity plants are built in Naryn, Bakiyev will no longer be a president,” he told the parliament, hinting at the fact that his term of office will soon expire, and thus he will not be in a position to benefit from the sector. Bakiyev also suggested that several investors should be invited to fund construction of both Kambarata plants, with the government overseeing the process (Akipress.kg, June 19).

As it stands today, both Kambarata plants and the Bishkek TPP-1 are economically unattractive sites. However, they all have a vast potential, given that there will be a demand for hydroelectricity. According to expert estimates, it will take 3-4 years to negotiate economic, technical, financial, and legal aspects of the Kambarata plants before spending another seven years to build them. The initial renovation of the TPP-1 will require $2 billion and the Kambarata plants several billion more.

Yet, even if these tasks are accomplished, the problem of building trade relations between Kyrgyzstan and its neighbors to export electricity remains. The region’s future market capacity is uncertain, and it is unclear whether other Central Asian states will agree to negotiate new terms of cooperation in the energy sector. One Kyrgyz public official complained to Jamestown that negotiating higher prices and more sophisticated trade deals are complicated in the Central Asian region, especially when dealing with Uzbekistan.

Both Kambarata plants have the potential to become highly lucrative for Kyrgyzstan, as they will allow the country to control almost 100% of water from the Naryn River to downstream countries. They will also allow effective peak-load regulation to Uzbekistan and domestically. The Kambarata-2 plant’s potential capacity is contingent on the effectiveness of Kambarata-1. The generation costs for Kambarata plants will comprise 8-9 cents per kWh plus the cost of transportation to dealers before the final consumer price is calculated. In order for the plants to be economically attractive, a market able to pay at least 12-15 cents per kWh is necessary.

Today it remains difficult to predict if the regional market will be able to pay such high prices. Kyrgyzstan’s current average price for electricity comprises roughly 1.7 cents, compared with less than 1.0 cent in Tajikistan and 4.5 cents in Russia. According to the U.S. government, average prices for electricity in the United States comprises roughly 8.0 cents (eia.doe.gov). In the Central Asian region, China and Kazakhstan are most likely to become potential clients for Kyrgyzstan’s electricity.

Future investors into the Kambarata plants, whether Russian, Kazakh, or Chinese, will probably pursue their political interests in Kyrgyzstan and the region. In a worst-case scenario, domestic or foreign investors might seek short-term benefits and lead Kyrgyzstan’s electricity sector into greater despair. As one Kyrgyz NGO leader explained to Jamestown, it is important to develop public-private participation to secure transparency and effectiveness in constructing the Kambarata plants as well as reforming the TPP-1.