KYRGYZ WELCOME REGIONAL ELECTRICITY INITIATIVE

C O N F I D E N T I A L SECTION 01 OF 03 BISHKEK 001588

SIPDIS

SIPDIS

DEPT FOR SCA/CEN, SCA FOR DEUTSCH

E.O. 12958: DECL: 11/12/2016
TAGS: ECON ENRG PREL KG
SUBJECT: KYRGYZ WELCOME REGIONAL ELECTRICITY INITIATIVE

REF: A. DUSHANBE 2019

B. BISHKEK 1568

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Classified By: Amb. Marie L. Yovanovitch, Reason 1.4 (b) and (d).


1. (C) Summary: During the October 30-31 visit of SCA Senior
Advisor Robert Deutsch and SCA RAO Leo Gallagher to Bishkek,
Kyrgyz officials expressed support for developing
infrastructure to export electricity, reform of the power
sector and foreign investment in the Kyrgyz energy sector.
However, current legislation limits the private sector's role
in the energy sector and ongoing political turmoil may delay
the government's evolving reform agenda.


2. (C) Summary continued: The national electricity grid
operator lobbied for another USTDA-funded feasibility study
for a high voltage line linking the Datka substation to
Khujand in Tajikistan. The national power generating
company, however, lacks the capacity to export significant
amounts of electricity during the winter months. Progress on
energy reform and the recently signed memorandum with AES on
transmission line construction must overcome opposition
forces seeking to stymie the government's agenda. End
summary.

Meeting the Players in Kyrgyzstan
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3. (U) During meetings held October 30-31 in Bishkek, SCA
Senior Advisor Robert Deutsch and SCA Regional Affairs
Officer Leo Gallagher conferred with representatives from the
President's Economic Policy Department; the Prime Minister's
office; Parliament; the Ministry of Industry, Trade and
Tourism; the Ministry of Transport and Communications; the
Ministry of Foreign Affairs; the national electric grid; the
national power generating company; the Asian Development
Bank; the World Bank and the American Chamber of Commerce.
Deutsch briefed the representatives on the agreement signed
in Dushanbe on the development of the "Central Asia South
Asia Regional Electricity Market" (see reftel A) and
conversed with his interlocutors on topics relating to this
energy initiative.

Government Supports Electricity Reforms and Exports
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4. (C) Kurmanbek Ukolov, Chief of the President's Economic
Policy Department, told Deutsch that President Bakiyev has
endorsed a "government strategy and pricing policy" for the
energy sector, but cautioned that the "rate of reform is
dependent on our public." Ukolov welcomed investment in the
energy sector, and added that privatization of regional
distribution companies, thermal power stations and incomplete
hydroelectric stations was possible. He noted upcoming talks
with a World Bank delegation to review tariff policy and
investment protection.


5. (C) Prime Minister Kulov's economic advisor Janybek
Omorov expressed support for electricity sector reform and
the AES proposal to add grid capacity linking Kyrgyzstan to
Kazakhstan and Tajikistan. Omorov identified two goals for
Kyrgyzstan: 1) cutting losses in the electricity sector and
2) developing the electricity export market through an
improved investment environment.

The Politics of Electricity
--------------


6. (C) Parliament Vice Speaker Tairbek Sarpashev outlined
the political undercurrents complicating reform of the Kyrgyz
electricity sector. Sarpashev said parliamentarians in 2001
believed that international financial institutions would
seize Kyrgyzstan's hydroelectric power stations if the
country defaulted on its debt. This belief, Sarpashev

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remarked, politicized electricity and led to legislation
placing the hydroelectric stations in "perpetual government
ownership." He noted the existing laws only relate to
existing stations, and added that the two hydroelectric
stations under construction since the Soviet era might be
offered to investors.


7. (C) Sarpashev, recalling opposition arguments in 2003 and
2004 equating the sale of energy sector assets to "selling
your motherland," said the current government (the opposition
in 2003-04) is unable to advocate the privatization of assets
without sounding hypocritical. He added that government
proposals must include more than reforms relating to
electricity distribution companies. (Note: The exact content
of government energy reforms is unclear, as parliamentary
hearings scheduled for the government to outline its plans
have been delayed amidst the current political turmoil. The
wording of existing legislation also provides for different
interpretations of the role of private investors in
Kyrgyzstan's energy sector. End note.)


8. (C) Sarpashev outlined three areas where he believed the
United States could help energy sector reform in Kyrgyzstan:
1) aiding in "legislation submission," 2) arranging a
conference in Parliament on energy sector reform, and 3)
helping Kyrgyzstan catch up with Tajikistan in attracting
foreign investment.

Electricity Generation and Grid Operators on Board
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9. (C) National Electric Grid JSC Director Salaydin Avazov
expressed support for grid expansion plans, welcomed the
involvement of AES and then delved into U.S. Trade and
Development Agency (TDA) grants. In addition to seeking
expedited action by TDA on approved feasibility studies, he
lobbied for a third TDA-financed feasibility study to
consider the building of a high voltage transmission line
from the substation at Datka to Khujand in Tajikistan.
Avazov and his deputy described infrastructure ownership )
the national grid company owns the major lines, while local
distribution companies own lower voltage lines. The national
grid also delivers power to some large companies directly.
When pressed on how the grid would finance major
infrastructure investments, Avazov reasoned that investors
would accept electricity in return.


10. (C) Electric Power Plants JSC Director Saparbek
Balkibekov praised the regional power plan agreed in
Dushanbe, but cautioned that Tajikistan and Kyrgyzstan
together did not have enough excess capacity in winter to
meet Pakistan's proposed electricity demand. Balkibekov said
Kyrgyzstan's electricity generating capacity is 3,660 MW, of
which 2,900 MW is hydroelectric and the remainder thermal
(using coal, natural gas and/or fuel oil.) The thermal
plants, which service Bishkek and Osh, generate only 7% of
the power supply, but generate more than 50% of the company's
operating costs. Current infrastructure spending amounts to
$5 million annually, which ignores the work needed to
complete two hydroelectric plants begun in the Soviet era.
Balkibekov said he supports increased electricity tariffs,
and opined that existing legislation needs to be modified to
allow new, private power plants.

Mixing Water, Gas and Electricity
--------------


11. (C) Turatbek Junushaliyev, Deputy Minster of Industry,
Trade and Tourism (with oversight of the energy sector),
welcomed electricity sector developments, but also tied
hydroelectric power generation, water policy and natural gas
supplies together. While initially de-linking compensation
for water stored for Uzbekistan from the increased price of
natural gas from Uzbekistan, he later raised the possibility

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of activating all the hydroelectric turbines and thereby
releasing more water than Uzbekistan can absorb. Uzbekistan,
he reasoned, would be more willing to negotiate, but then
added, "we don't support this approach, in general."

Transport Minister Raises Aviation Issues
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12. (C) Minister of Transport and Communications Nurlan
Sulaymanov, who is also chairman of the joint
Kyrgyzstan-Tajikistan Commission, spoke positively of the
regional power agreement reached in Dushanbe before turning
to aviation issues. Lamenting the "obsolete" condition of
Kyrgyz aircraft, Sulaymanov offered the prospect of a "joint
aviation venture" with the United States utilizing Manas
airport. Sulaymanov then engaged the Ambassador in a
discussion of the Manas airport accident and the subsequent
impact on presidential travel. He later touched on
Kyrgyzstan's road network, noting that only 2,500-3,000
kilometers of the 20,000 kilometer network are in "good
shape."

Comment
--------------


13. (C) Our interlocutors expressed support for regional
electricity projects, and endorsed reforms for the sector.
While the November 6 signing of a memorandum of understanding
between AES and the Kyrgyz Prime Minister on the construction
of transmission lines is promising (reftel B),political
turmoil continues to distract Kyrgyz officials from long-term
policy-making decisions. Even though political compromise
was found and the demonstrations have stopped, energy sector
reforms as envisioned by the government may become hostage to
political agendas. While international financial
institutions seem keen to proceed alongside the United States
in strengthening Kyrgyzstan's energy sector, Kyrgyz officials
must demonstrate their own commitment through reform and
implementation of the AES memorandum to realize the financial
benefits of electricity exports. End comment.

YOVANOVITCH