Energy challenges in the Kyrgyz Republic: It’s time to act!

Last week, a technical failure occurred at Bishkek’s Heat and Power Plant, leaving parts of the capital city temporarily without power and heat supply. People residing in buildings connected to the district heating system experienced very cold and uncomfortable conditions, made worse by the exceptionally harsh winter this year. While the specific causes of the incident are still being investigated, it seems clear that old equipment at the Plant which is being operated well beyond its shelf-life was behind the failure.
 
I recall a similar incident in 2015 at the country’s largest power facility, Toktogul Power Plant. On that particular occasion, citizens were not severely affected by the breakdown thanks to the unusually warm winter. However, about half of the power generating equipment at the Plant subsequently lay idle for about three months; it was only through expedited delivery of the necessary parts (paid for with a loan from the Asian Development Bank) that the equipment was repaired within a relatively short period of time.
 
That same year, the World Bank conducted a survey for the Kyrgyz Republic which found that 70% of district heating equipment had been in use for over 25 years – which is way too long. Adding to this problem, residential heating tariffs cover only 30% of heat generation and distribution costs.
 
By subsidizing heating for all users for many years, the Kyrgyz Government has only been able to renovate and upgrade certain parts of the district heating equipment – which it does by requesting concessional funding from international financial institutions.

The World Bank, in cooperation with other development partners such as the Asian Development Bank and the Eurasian Development Bank, has been providing financial assistance to the Kyrgyz Republic’s energy sector for many years. In 2014, the World Bank approved US$ 25 million for the  Electricity Supply and Accountability Reliability Improvement Project, which supports construction of new substations in Bishkek and the introduction of modern information management systems and tools to enable faster and more effective responses to service interruptions and complaints from energy customers.
 
Just recently, in January, an agreement was signed for the  Heat Supply Improvement Project, with US$ 46 million earmarked for reconstruction of Bishkek TeploSet pipelines, installation of modern heat meters in apartment buildings, efficient heating stoves for households not connected to the district heating system, and improved energy efficiency of public buildings.

At the same time, we recognize that loans by themselves will not fundamentally resolve problems in the energy sector. The Kyrgyz energy sector should really be self-reliant from a financial standpoint, in order to be able to operate efficiently and to carry out regular maintenance and repairs. Today, however, the Kyrgyz energy sector is kept afloat through financial support from the national budget which, in turn, increases the debt burden – accumulated debt in the energy sector amounts to 20% of GDP.
 
The considerable budgetary resources that the country has to spend to keep the energy sector viable could be used instead for development priorities such as improvement of education and healthcare systems, increased pensions and allowances for the poor, and construction of new roads and kindergartens.

Moreover, instead of burdening the national budget, the energy sector could be an engine of economic growth and one of the largest revenue generators for the Kyrgyz economy, with a system that works so well that the country can export its electricity to the neighboring countries. Had tariffs been at cost recovery levels in 2016, for example, the energy sector would have had an additional US$ 34 million at its disposal.
 
These resources could be used to make sure all equipment is in good working order and to invest in additional generation capacity that would benefit the economy and feed into the CASA 1000 transmission line, connecting Kyrgyzstan with countries such as Pakistan which are willing to purchase Kyrgyz electricity.

To unleash the full potential of the Kyrgyz energy sector and to prevent further deterioration of its infrastructure, tariffs should be brought to recovery levels as soon as possible. This should be accompanied by implementation of energy efficiency policies and improved governance so that citizens can be confident that the money they pay to energy companies is well spent.
 
At the same time, however, it is also important when raising tariffs to provide support to vulnerable citizens – in the form of monetary allowances for poor families with children, compensation for electricity payments, or subsidies allowing partial payment for energy supply services. Such measures – aimed at the neediest, and especially those living in apartments connected to the district heating system – will provide targeted protection and substantially mitigate the pressure on family budgets.
 
It is also important to note that, even if tariffs are brought to recovery levels, the price of electricity in the Kyrgyz Republic will still be among the cheapest in the world - because the country is endowed with significant water resources that make its hydropower potential very high.
 
Nevertheless, without systemic changes that are based on the logic that revenues should cover costs, the Kyrgyz energy sector will continue to experience technical failures and incidents that impact the economy and ultimately the country’s citizens. The time to act is now.