KYRGYZ RELIANT ON FRAYING WINTER POWER PATCHWORK

C O N F I D E N T I A L SECTION 01 OF 03 BISHKEK 001174 SIPDIS DEPT FOR SCA (GORKOWSKI/DEUTSCH) E.O. 12958: DECL: 11/18/2018 TAGS: ENRG ECON PREL SOCI KG SUBJECT: KYRGYZ RELIANT ON FRAYING WINTER POWER PATCHWORK REF: A. BISHKEK 593 ¶B. BISHKEK 501 BISHKEK 00001174 001.2 OF 003 Classified By: Amb. Tatiana Gfoeller, Reason 1.4 (b) and (d). ¶1. (C) Summary: The Kyrgyz Republic will be relying on a patchwork of external support, strained infrastructure, and good fortune to keep the lights on this winter. A Russian-brokered plan to ensure winter supplies of electricity in the Kyrgyz Republic is fraying as proposed imports of Kazakh and Turkmen electricity become increasingly elusive. Payment for Uzbek natural gas may be possible with IMF assistance and revenues from the sale of a majority stake in Kyrgyzgas to Gazprom, but will leave the Kyrgyz with fewer future options. The Kyrgyz Minister of Energy envisions a crisis by February due to shortfalls in the main Toktogul hydroelectric cascade reservoir and excessive electricity demand. The U.S. firm AES hopes to secure a long-term management contract for three Bishkek-based assets the Kyrgyz government has recently decided to largely privatize. However, with snow already blanketing the country and overloads shorting the electricity grid, the patchwork stitches together a system that risks failure in the midst of a challenging winter. End Summary. One for All, and All for One -------------- ¶2. (SBU) On the margins of the early October Commonwealth of Independent States summit in Bishkek, Russian officials apparently convinced Central Asian states to work collectively to avoid a complete breakdown of electricity supplies in the Kyrgyz Republic this winter. Components of the arrangement included reliable natural gas supplies from Uzbekistan, 250 million kilowatt hours of electricity from Kazakhstan and possibly some additional electricity from Turkmenistan. In a related development, Russia's Gazprom secured natural gas exploration rights in the Kyrgyz Republic as well as a 75% stake in the monopolistic Kyrgyz natural gas provider, Kyrgyzgas. Difficulties with Gas -------------- ¶3. (C) The Russian deal, however, must overcome some perennial hurdles. Previous Kyrgyz-Uzbek natural gas negotiations have been contentious, with debate encompassing governance of water supplies in the Toktogul hydroelectric cascade and sale of electricity. Russian control of the Kyrgyzgas infrastructure may give the Kyrgyz more leverage in future deals with the Uzbeks, but it relinquishes a greater portion of the Kyrgyz Republic's (energy) security to Russia. ¶4. (SBU) If Kyrgyz imports of Uzbek natural gas in 2009 match this year's estimated inflow of 850 million cubic meters, then Kyrgyz authorities will need to locate about $255 million to finance the natural gas imports at the new Uzbek price -- an amount more than double the 2008 bill and more than six percent of Kyrgyz gross domestic product. While the Kyrgyzgas sale and the International Monetary Fund (IMF) may provide funding for most of this bill (see paragraph nine),those resources will not be available in future years. Not Enough Watts -------------- ¶5. (C) Supply difficulties in southern Kazakhstan also raise questions about potential Kazakh electricity exports to the Kyrgyz Republic. Kazakhstan has previously relied on Kyrgyz electricity to meet shortfalls in southern Kazakhstan, and an AES official told Emboff November 7 that no new Kazakh BISHKEK 00001174 002.2 OF 003 generating capacity will come on line until 2012 at the earliest. (Note: AES is a U.S. firm, which has long been active in the Kazakh electricity sector. End note.) When asked how Kazakhstan would be able to supply the Kyrgyz with electricity amidst rising Kazakh demand, the AES official said that a running joke in Kazakhstan has the Kyrgyz and the Kazakhs exporting the same 250 million kilowatt hours of electricity to each other. This way, he surmised, officials from both countries can claim that they are supporting their neighbor. However, the AES official conceded that the Kazakhs should be able supply coal and mazut (heavy fuel oil) for the Bishkek thermal station. ¶6. (C) Prospects for Turkmen electricity exports are fading as political and technical difficulties regarding the transit of said electricity through Uzbekistan have made this option increasingly unworkable. Plus, it appears the Turkmen may have concluded a separate electricity deal with Tajikistan. Living on the Edge -------------- ¶7. (SBU) In the wake of Bishkek's second snowfall of the season, Kyrgyz electricity generation and transmission capabilities are already being stretched. The main reservoir in the Toktogul hydroelectric cascade has 9.2 billion cubic meters of water, less than 70% of last year's level. Although the Kyrgyz government suspended its blackout schedule for Bishkek and called for cuts in areas exceeding their allowed consumption limits, Minister of Eneregy Saparbek Balkibekov announced November 11 that the Kyrgyz Republic would face an "energy crisis" by February if consumption is not sufficiently curtailed. As virtually all areas of the country are exceeding their electricity consumption limits, Balkibekov has proposed cutting supplies of electricity used for heating and cooking. Government officials are also considering reintroducing blackouts in Bishkek. Meanwhile, within the past week technical failures disrupted the main transmission line feeding Bishkek power from the Toktogul cascade and the line linking Central Asia with the Russian power grid. Donors Pledge Assistance -------------- ¶8. (SBU) In addition to USAID efforts to provide generators to critical care facilities at Kyrgyz hospitals lacking back-up power supplies, the World Bank has identified almost $11 million for mazut, bulldozers, piping and precipitators for use at the Bishkek thermal plant. (Note: After the Toktogul hydroelectric cascade, the Bishkek thermal plant is the most significant facility for generating electricity in the country. End note.) World Bank Resident Representative Roger Robinson briefed the Ambassador about this proposed assistance November 5, and noted that the mazut supplies would enable more boilers at the Bishkek thermal plant to be put to use. Currently, he added, only 160-180 megawatts (MW) of the 600 MW of installed capacity is used. The remainder either requires maintenance or lacks appropriate fuel. Robinson explained that the bulldozers would be used to shift coal around the plant. ¶9. (SBU) In a November 6 briefing to the Ambassador regarding the IMF's planned $100 million Exogenous Shocks Facility for the Kyrgyz Republic, IMF Resident Representative James McHugh confirmed that the Kyrgyz could conceivably allocate some of these funds to finance natural gas and electricity purchases for this winter, if energy supplies are available. Can the Private Sector Help? -------------- BISHKEK 00001174 003.2 OF 003 ¶10. (C) The AES official told Emboff that AES is still interested in a 15-20 year management contract for the three Bishkek-based energy sector assets: the Bishkek thermal plant, the Bishkek Teplosets (hot water and heating network), and Severelectro electricity distribution company. Although the Kyrgyz government recently announced plans to sell an 80% stake in these assets to the private sector, the AES official estimated that the official $470-$520 million valuation for the assets was too high to attract any real interest. He told Emboff that Kyrgyz privatization agency officials had been criticized for an earlier, much lower, estimate, and subsequently increased the valuation for the initial tender process. The AES official, who has visited the Bishkek thermal plant previously, estimated that the facilities required $300 million in investment, and believed that Russian firms and Israeli-Kazakh investor Alexander Mashkevich were no longer interested in these assets. The AES official hoped to convince Kyrgyz officials that the required investment would necessitate the long-term management contract just to recoup expenses. He believed that the Kyrgyz might reissue the tender with more favorable terms early next year. Comment -------------- ¶11. (C) While many are hopeful that the Kyrgyz, with significant outside assistance, will pull together enough energy to power the country through the winter, a strained and well-worn infrastructure and increasing energy costs make sustaining this patchwork increasingly difficult. (Note: Anecdotal evidence also indicates that less power consumption is being metered, which reduces revenues available for future maintenance. End note.) With overloads this season already causing the electricity grid to falter, it will be important for Kyrgyz authorities to make decisions on long-term solutions. However, finger-pointing within the government has accelerated as more bad news arrives each day. Plus, previous sales of electricity to Kazakhstan and repeated allegations of off-book sales of electricity continue to fuel charges of corruption in senior ranks. ¶12. (C) Kyrgyz authorities, including Prime Minister Chudinov, have previously expressed support for AES involvement in the Kyrgyz electricity sector. A senior AES team plans to visit Kyrgyzstan in late December. We hope to utilize that visit to highlight the importance of taking decisive action on electricity sector issues for the country's long-term benefit. GFOELLER