Central and South Asia // Analysis

26 april 2012

Energy industry in Central Asia – challenges and prospects

Igor Tomberg Doctor of Economics, Director of the Centre for Energy and Transport of the RAS Institute of Oriental Studies

Photo:
REUTERS / Shamil Zhumatov
A view of the Nurek hydroelectric power plant
on Vakhsh river in central Tajikistan May 29, 2008.

Rich in energy and water resources Central Asia draws keen attention of both immediate neighbors and geographically remote US and EU. At the same time CA states are poor, overpopulated, and suffer from lack of water and electric power. The reconstruction of CA united power system is discussed against the backdrop of ongoing conflicts over water and energy. Problems with electricity in the region can hardly be resolved without big investments and strengthening of relations with neighboring countries who are major players on the energy market.

Challenging potential

In the Soviet era electric power grids of Central Asian countries were closely linked and made a part of the USSR United Energy System. An interconnected power system of Central Asia (CAPS) is a cluster of national grids connected by 220kV and 500kV lines operating in parallel with UES of Russia via Kazakhstan.

The operation of CA southern power system was (and still is) controlled by “Enegria” United Dispatch Center based in Tashkent.
This cluster includes the southern part of Kazakhstan UES and the grids of Uzbekistan, Tajikistan, Kirgizia and Turkmenistan. The Central Asian “electricity ring” includes nearly all power units of the former USSR republics with 83 power plants from Kazakhstan, Turkmenistan, Kirgizia, Uzbekistan and Tajikistan.

The operation of CA southern power system was (and still is) controlled by “Enegria” United Dispatch Center based in Tashkent. It oversees operation modes of the system and is responsible for its reliability and quality of power, i.e. compliance with frequency, voltage and other standards.

Currently there is no single political and economic center in Central Asia and the interests of independent states, including the interests in power sector, are often mutually exclusive.

In the Soviet times the development of hydropower and irrigation was interconnected. In Central Asian republics and in the southern part of Kazakhstan an integrated water and energy complex was created under the control of a single center in Uzbekistan. The system allowed equalizing seasonal fluctuations of demand for power and irrigation water with constantly changing level of water in mountainous rivers. In winter Kirgizia and Tajikistan accumulated water in storage reservoirs and imported electricity and fuel (coal and natural gas) from Kazakhstan, Turkmenistan and Uzbekistan. In summer Kirgizia and Tajikistan supplied water to Uzbekistan and Kazakhstan for irrigation. In addition Kirgizia and Tajikistan supplied neighboring countries with electricity from hydropower plants as soon as the generation exceeded domestic consumption. Currently there is no single political and economic center in Central Asia and the interests of independent states, including the interests in power sector, are often mutually exclusive. After the Soviet Union disintegration CAPS was unable to operate in the same way. The abolition of a single center resulted in uncontrolled outtakes of electricity that created conflicts and negatively impacted the safety of the system itself. Systemic violations and illegal outtake of power pose a serious threat to the stability and reliability of national electricity grids. The disequilibrium of a once common system already caused major accidents – e.g. in Tajikistan in November 2009. The southern part of Tajik power system suffered failure due to spontaneous shutdown of some units at Nurek HPP. As a result there was a day-long blackout in Tajikistan and the south of Uzbekistan. In 2009 Uzbekistan declared the withdrawal from the power “ring”. Turkmenistan left the power system even earlier (2003).

Not only Tajikistan and Kyrgyzstan will suffer from the disintegration of the power system, but Uzbekistan as well. If the disintegration does not go hand in hand with the implementation of interstate agreements on mutual supplies, the situation may take the wrong turn.

It can’t be ruled out that the withdrawal of Uzbekistan from CAPS was dictated by financial problems. Maybe Tashkent expected that the rupture of the “ring” would push the countries towards establishing contractual financial relations and thus prevent them from the illegal misappropriation of electricity. Moreover, Uzbekistan’s decision was a reaction to the super-projects to construct Rogun and Kambarata HPPs. With the launch of Rogun HPP Dushanbe was planning to sell excessive power to Afghanistan and Pakistan. With the disintegration of a united power system Tajikistan will have to build new power transmission lines which means the need of investments.

There is yet the flip side of the problem. Not only Tajikistan and Kyrgyzstan will suffer from the disintegration of the power system, but Uzbekistan as well. If the disintegration does not go hand in hand with the implementation of interstate agreements on mutual supplies, the situation may take the wrong turn. In this case Tajikistan and Kyrgyzstan will be faced with problems in winter and Uzbekistan – in summer.

Water and energy complex of Central Asia region (CAR) has a large power generation potential estimated at 430-460 billion kWh/y. But its development is contained by a number of systemic problems. Nearly 85% of regional water resources are concentrated in Tajikistan and Kyrgyzstan. These countries, located in the upper basin of the Amu-Darya and the Syr-Darya are, first of all, willing to use the energy potential of mountainous rivers (Vaksh, Pyanj, Zeravshan and Naryn) that are the main tributaries to the flows of the Amy-Darya and the Syr-Darya. The irrigation is of secondary importance. As noted above the vegetation period (spring-summer) for these countries is mainly regarded as the time to accumulate in reservoirs (Nurek and Kairakum in Tajikistan and Toktogul in Kyrgyzstan) the water coming from the melting snow and glaciers. The period between vegetation (autumn-winter) is characterized by an increased consumption and active generation of power that requires a considerable discharge of water. For Kazakhstan, Uzbekistan and Turkmenistan the priority is given to the vegetation period when water is actively used for irrigation.

The interest to the projects of CA hydropower development is displayed by US, EU, China, Russia, Iran, India and Pakistan. Usually this interest of foreign partners is more geopolitical than commercial.

Bad balance between seasonal demand and difference in a hydrological regime from the view point of energy generation or irrigation cause the flooding of some lands in Kazakhstan and Uzbekistan in winter due to the operation of water reservoirs. It also causes the loss of water discharged to lower the level in reservoirs (the forced winter drainage of Toktogul reservoir only amounts on average to 3 km3 of water annually and in some years it reaches 9 km3) and entails grave environmental problems.

According to the report of the UN Special Program for the Economies of Central Asia (SPECA) the renewable hydro-potential of Central Asia is currently used only at 10% (see Table 1). The major part of this hydro-potential is located in Tajikistan (695) which ranks the eighth in the world after China, Russia, USA, Brazil, Zaire, India and Canada. Kyrgyzstan accounts for 22% of the regional hydro-potential.

Table 1.Hydro-energy potential of Central Asian rivers

Countries HPP Installed capacity, MW Electricity production at HPP (2005), billion kWh Economic hydro potential, billion kWh/y Utilization of hydro potential, per cent Percentage of the hydro potential of the CAR
Tajikistan 4037 17,1 317 6 69
Kyrgyzstan 2910 14,0 99 14 22
Kazakhstan 2248 7,9 27 29 6
Uzbekistan 1420 6,0 15 49 3
Turkmenistan 1 0 2 0 0
Total 10616 45.0 460 98 100

Source: Eurasian Development Bank .

Today the installed capacity of Central Asia Power System (CAPS) is about 25,000 MW in which 9,000 MW is attributable to hydro-plants (36%) and 16,000 MW to thermal plants (64%). But the real output is below 20,000 MW. The largest hydro-plants in this system are Nurek HPP in Tajikistan (3,000 MW) and Toktogul HPP in Kirgizstan (1,200 MW) [1].

International dimension of CA water and energy problems

Russia is interested in the development of regional hydropower as an importer, investor and equipment supplier (Russia definitely has some competitive advantages in such an industry as heavy power machinery-building).

The energy complex of Central Asia draws the attention of nearly all neighboring countries. The interest to the projects of CA hydropower development is displayed by US, EU, China, Russia, Iran, India and Pakistan. Usually this interest of foreign partners is more geopolitical than commercial. It’s rather the issue of competition for the increase of the presence and influence in the region.

International institutions and organizations contribute to the development of regional cooperation and act as arbitrators in complicated inter-state processes of managing water and energy resources of the region. They also carry out feasibility studies and provide consultations, analytical, technical and financial support to the projects. The largest of these institutions are the World Bank, Asian Development Bank, Islamic Development Bank, European Bank for Reconstruction and Development, US Agency for International Development (USAID) and the Global Environmental Fund.

At the end of March 2012, State Secretary Hillary Clinton presented a new initiative implying the creation in the US of a public-private partnership for the improvement of water management in the world. The initiative is based on the report “Global Water Security” prepared by US intelligence community, consisting of 17 federal agencies. The report states, inter alia, that in 30 years water problems in the basins of the Amu-Darya and the Syr-Darya may cause “the growth of regional tension over water resources”. And already “in the coming ten years the probability that water will be used as a terrorist weapon will increase”. According to Hillary Clinton, “as the countries become more water stressed, or nations face water-related crises, they are increasingly turning to the United States for assistance”. She is convinced that American diplomacy and technical expertise will ensure the US leadership in this area.

The Russian leadership highlights the need to take into account the interests of all CA states during the construction of large HPPs.

An example of this political tool application is the project aimed at the creation of a regional model of electricity transfer, developed by USAID experts and much advertized in the region. This project was developed within the Regional Electricity Markets Assistance Program (REMAP). It is based on the experience of Scandinavian countries in the creation of electricity market (NordPool power exchange). Scandinavia today has the most properly organized common energy market and the transboundary flows can be arranged only at Nordpool exchange. СA states are offered a computer model of the power system that in view of developers will simplify access to the information about the throughput capacity in each region of CAPS and allow more efficient planning of power generation and flows between four segments of CAPS – Kyrgyzstan, Uzbekistan, Tajikistan and south of Kazakhstan. There is no doubt that this project could become an important step towards the re-integration of power grids in the region. Though the replication of Scandinavian experience should effected with caution – it’s well known that only 11% of power supply contracts concluded at Nordpool end up with actual (physical) transfer of electricity supply and the remaining 90% are – paper-and-pencil or speculation contracts.

Russia is interested in the development of regional hydropower as an importer, investor and equipment supplier (Russia definitely has some competitive advantages in such an industry as heavy power machinery-building). Russian policy for the protection of its national interests in CAR is logically linked with the promotion of the regional integration within the frames of various structures, first of all EuAzEC. It is aimed at securing an efficient comprehensive resolution of water and energy problems.

It should be mentioned that political activities of Moscow on water and energy issues of the region pursue the goal of sustainable development of the region. The Russian leadership highlights the need to take into account the interests of all CA states during the construction of large HPPs. Moscow suspended the issuance of the 1.7 bln.USD loan to Kyrgyzstan for the construction of Kambrata-1 HPP waiting for the results of the relevant expert assessment as previously demanded by Uzbekistan. This message of Tashkent was supported by President of Russia D. Medevedev. In January 2009, during the official visit to Uzbekistan he said that all decisions about power plant construction on trans-boundary rivers should be agreed with all stakeholders.

Another aspect of complicated water and energy problems of CAR are the interests of business that ensures practical implementation of projects and intergovernmental agreements. Very often it’s difficult to compromise these opposing interests.

The most recent example is another contradictory issue between Kyrgyzstan and Russia worth 2 bln.USD. It’s the construction project for Kambarata HPP-1 (capacity 1.9 GW) and a cascade of HPPs on the Naryn River. The participation of Russia in the construction of Kambarata HPP-1 and HPP2, the cascade of HPPs on the Sary-Dzhaz river and Verkhnenaryn series of HPPs was a part of Russia-Kirgizia inter-governmental agreement of 2008. Moscow seeks the revision of the agreement with Bishkek, asking already for 75% of stake in future plants (instead of previously agreed 50%) in return to billions of investments. Inter RAO and RusHydro companies that will build new HPPs believe that while they undertake the construction, the 50:50 ratio does not reflect the real contribution of the parties. The point is that Russian companies should get 75% of stake while the Kirgiz party remains a minority partner.

If the parties fail to agree, the most probable claimant on energy assets of Kirgizia will be China who actively looks for the power projects in Central Asia. PRC Ministry of Foreign Affairs confirmed the potential interest of Beijing to the construction of an HPP in Kyrgyzstan [2]. Moscow must think of subtle political moves that could make Bishkek accept concessions (e.g. to explore such topics as a risk for Bishkek to become dependent from a giant neighbor or a traditional aptitude of the regional leadership to pursue a multi-vector policy).

Perspectives of energy complex development

Hydropower potential of the mountainous republics in Central Asia is huge. As estimated by experts from Eurasian Development Bank about 10GW can be commissioned within 10 years. But the same experts calculated that about 15 bln.USD will be needed for this purpose. In addition, the construction of transmission lines with high throughput and different grid facilities necessary for the interconnection of sections with different voltage should be taken into account. Currently this amount already reaches 20-25 bln.USD which is unaffordable for the countries in the region. Moreover the calculations are based on 2005 prices so the figure should be corrected in view of the price rise over the past years.

There is a high probability that in the absence of investments Kyrgyzstan and Tajikistan in the coming two decades will be faced with an uncontrolled destruction of generating facilities inherited from the Soviet Union.

Low economic growth rate of Kyrgyzstan and Tajikistan is determined among other things by the absence of domestic hydrocarbons. To a large extend this was the reason why both republics were put on the list of the least developed countries after the failure of the USSR. Today both countries link the development of the energy sector with the development of hydropower. The Tajik potential of hydropower generation is estimated at 264 TWh/y while in reality only 6% are used [3]. During all post-Soviet period Tajikistan and Kyrgyzstan developed plans for the large-scale construction of hydropower facilities to satisfy the domestic demand and to export electricity to neighbors (see Table 2). Kyrgyzstan expects to build new HPPs with the total power of 5667 MW that will require 7.6 bln.USA (prices of 2006). For Tajikistan the corresponding figures make 5344 MW and 9.5 bln.USD. [4].

Table 2.New large hydropower projects in Tajikistan and Kyrgyzstan

Project Capacity, MW Output, GW Estimated cost, million USD Investor Launch
Tajikistan
Sangtudin-1 670 2700 670 Russia 2009
Sangtudin-2 220 1000 220 Iran ?
Rogun 3600 13000 2200 ?
Nurabad-1 350 650 PRC ?
Kyrgyzstan
Kambarata-1 1900 2000 Russia ?
Kambarata-2 400 400 Russia Partially completed
Kekemeren-1 360 ?
Kekemeren-1 912 ?

Sources: Electricity in Central Asia. Market and Investment Opportunity Report; World Energy Council, July 2007.

These plans do not have a solid economic justification. In addition to an obvious non-commercial approach there are two obstacles to their implementation. First of all, neither Kyrgyzstan nor Tajikistan have financial funds and sufficient number of skilled manpower. The planned large-scale projects can be carried out only by external donors guided by political rather than economic interests. If the external resources are not found, Kirgizstan and Tajikistan will be faced with another round of social and economic degradation.

Secondly, as noted above Kyrgyzstan and Tajikistan are at headstreams of rivers providing water to all CAR. Countries located downstream (Kazakhstan and Uzbekistan in particular) use the water of transboundary rivers for irrigation. Accumulation of large water amounts in reservoirs for the generation of power will create problems for agricultural countries. Contradictions over the use of regional hydro-resources are especially sharp between Tajikistan and Uzbekistan.

So, there is a high probability that in the absence of investments Kyrgyzstan and Tajikistan in the coming two decades will be faced with an uncontrolled destruction of generating facilities inherited from the Soviet Union. The scenario of a modest economic growth and gradual increase of domestic demand for energy is realistic only with considerable investments into the Kirgiz and Tajik power industries. It’s obvious that without major investments and strengthening of ties with neighboring counties who are large players on the energy market, first of all with Russia and PRC, Central Asian countries will hardly be able to resolve the problems of electric power industry.

1. Vinokurov E. Investments and cooperation in hydropower of Central Asia// Continent of partnership. 2007, September, p.44.

2. Kommersant. Russia re-evaluated its contribution to Kirgizia. 26.03.2012.

3. World Energy Council. Survey of Energy Resources. 2007. P. 310.

4. Asian Energy Scenarios 2030: Monograph. — M. : Magistr, 2012. p. 247.

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