By Magomed Saaduev

General Data on Electric Power Sector

Kyrgyzstan (Kyrgyz Republic) is one the countries in Central Asia with enormous energy resources. The hydropower sector is the country’s major energy source, producing 90% of total electricity. By the amount of electric power produced at hydropower plants (“HPPs”), Kyrgyzstan is ranked third among CIS countries after Russia and Tajikistan.

The main power production facilities were built and put into operation during the 1960 – 1980 years.

As of today, Kyrgyz electricity grid consists of:

• power producing (generating) companies (mainly, Electric Stations OJSC, owning the cascade of Toktogul HPPs, Central Heating and Power Plants (“CHPPs”) of Bishkek and Osh cities);
• power transmitting companies (mainly, National Electric Grid of Kyrgyzstan OJSC, owning a countrywide network of high-voltage transmission lines);
• power distributing companies (Severelectro OJSC, Vostokelectro OJSC, Oshelectro OJSC, Jalalabatelectro OJSC, owning distribution networks in the provinces of Kyrgyzstan and supplying electricity to ultimate consumers: industrial enterprises, the general public, etc.) and one heat distribution company – Bishkekteploset OJSC.

All of the above power companies are controlled and owned by the state.

Aside from state-owned power companies, Kyrgyzstan has private corporations actively engaged in producing power at small and medium HPPs such as Chakan HPP JSC, Bystrovskaya and Kalininskaya HPPs. Kyrgyz electric power system consists of 17 electric power plants with the capacity of 3,680 MW, including 15 HPPs (2,950 MW) and two CHPPs (730 MW) in Bishkek and Osh. Average annual power production in Kyrgyzstan is 14.486 billion kWh. The electric power industry produces about 3.9% of GDP, 16% of industrial production volume, and 10% of the republican budget revenue.

However, whereas Kyrgyzstan’s hydropower industry has capacity to produce about 140 billion kWh per year, it is now producing not more than 10% of this amount.

Investment Potential of Electric Power Industry

The Kyrgyz Republic is making active efforts to develop its existing hydropower potential as one of the strategic goals of its economic policy.

For the purposes of modernisation and development of electric power industry and attracting investors, the Government adopted a decision to privatise all four power distributing companies of the country (Severelectro OJSC, Vostokelectro OJSC, Oshelectro OJSC, Jalalabatelectro OJSC). Also, there are plans to privatise the Bishkek CHPP which supplies power and heat to the capital of the Kyrgyz Republic.

One of the most actively promoted investment projects in the electric power industry is the construction of Kambarata HPPs 1 and 2, and Bishkek CHPP 2. Although the construction of Kambarata HPP 2 with the capacity of 360 MW is already underway, the Government keeps searching for investors ready to participate in the implementation of this project. Total investment of US$280 million is required to construct Kambarata HPP 2.

To make the electric power sector more attractive to investors, the Kyrgyz Government announced an increase in electricity tariffs. Starting from April 2010, all industrial, agricultural and other consumers except individual consumers and pumping plants in Kyrgyzstan shall pay a single rate of 1.32 Kyrgyz soms per 1 kWh (the official exchange rate of the National Bank of the Kyrgyz Republic on April 28, 2010 was 45.4686 KGS / 1 USD). The new electricity tariff is viewed as economically reasonable as it allows for full recovery of the costs of production, transmission and distribution of electricity, and for quick recouping of the costs of investments made into the electric power sector of Kyrgyzstan. The electricity tariff for individual consumers and pumping plants in Kyrgyzstan is 0.7 KGS per 1 kWt.

The result was not slow to arrive: in February 2010, the state shareholding in Severelectro OJSC was sold through tender to an investor who agreed to invest US$74 million within 10 years into the development and modernisation of this company.

Investments in Development of Small and Medium Hydropower Sector

More than 80% of electric power in the republic is produced by the Toktogul HPPs cascade. The remaining 20% is produced by thermal power plants. However, the share of the small and medium energy sector in the total production is insignificant at 0.5%. Furthermore, although the total estimated Kyrgyz hydropower production capacity is more than 80 billion kWh per year, the technically feasible capacity is only 5-8 billion kWh per year.

Kyrgyz hydropower experts estimate that there is a possibility of building 92 new small HPPs with the total capacity of 178 MW and average annual electricity output of up to 1 billion kWh. It is also possible to restore 39 existing small HPPs with the total capacity of 22 MW and average annual electricity output of up to 100 million kWh.

Relatively low costs and short terms of building small HPPs (one small HPP can be completed within 12-18 months) as well as the low cost of producing electricity at small HPPs make the construction and operation of small HPPs in Kyrgyzstan economically sound. Thus, for instance, the cost of producing electricity at the restored small HPPs may amount to 8.1-28.1 tyins/kWh (1 tyin is 0.01 Kyrgyz som), at the newly built small HPP – to 13.1-13.6 tyins/kWh, at the small HPPs built on irrigation reservoirs – to 22-44.9 tyins/kWh. With current electricity tariff, the recoupment period will not exceed 5 years.

For the purposes of promoting the small and medium energy sector in Kyrgyzstan, there was established the Directorate of the Project on Development of Small and Medium Energy Sector, which is responsible for attracting investors and assisting them to implement their hydropower projects (for example, assisting with the obtaining of land use rights necessary for construction of HPP, and other required permits, etc.).

Governmental Guarantees and Incentives for Investors

Kyrgyz laws provide to foreign investors equal rights with local investors, the opportunity to freely construct, operate and possess new energy facilities, and to sell electricity both within and outside Kyrgyzstan. The country has signed investment protection and promotion agreements with many states and ratified the Energy Charter Treaty, and has consistently complied with its international commitments.

To promote and encourage the development of ecologically clean renewable energy sources (“RES”), the Kyrgyz Republic grants to investors willing to invest into the hydropower sector of the country the following guarantees and incentives:

• entities operating electric and thermal power plants using RES are granted incentives in the form of exemption from customs duties during import and export of equipment, installations and parts for RES; and
• power produced by the plants using RES is subject to mandatory purchase by the power companies, i.e., all power produced is guaranteed to be sold.

According to the World Bank’s “Doing Business 2009” survey, Kyrgyzstan is ranked eleventh among the Best Countries for Business in the investor protection category.

As aforesaid, current electricity tariff in Kyrgyzstan enables investors to recover all their investments within a short period of time and to receive stable income thereafter. Furthermore, investors have an opportunity to export electricity to neighbouring countries such as China, Russia or Kazakhstan, whose need for electricity keeps growing from year to year. There are plans also to sell electricity to South Asian countries, including Pakistan. The Government will not set tariffs on export of electricity, thus allowing investors to sell electricity produced at world prices.

Thus, Kyrgyzstan’s electric power sector, with its enormous natural, technical and technological capacities, is seen as a promising area for investment. Attracting investments in the electric power industry and developing an immense hydropower potential is a top priority task for Kyrgyz leadership, which strives to establish and maintain fruitful and long-term cooperation with all those interested in investing their financial and material resources in the electric power infrastructure of the Kyrgyz Republic.