Identifier
Created
Classification
Origin
08BISHKEK195
2008-02-28 03:54:00
CONFIDENTIAL
Embassy Bishkek
Cable title:
KYRGYZ MINISTER OUTLINES ENERGY SECTOR PLANS
how-toVZCZCXRO9316 OO RUEHBI RUEHCI RUEHLH RUEHPW DE RUEHEK #0195/01 0590354 ZNY CCCCC ZZH O 280354Z FEB 08 FM AMEMBASSY BISHKEK TO RUEHC/SECSTATE WASHDC IMMEDIATE 0735 INFO RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE RUCNCIS/CIS COLLECTIVE RUEHBJ/AMEMBASSY BEIJING 2421 RHEFDIA/DIA WASHDC RUEKJCS/OSD WASHDC RUEAIIA/CIA WASHDC RHEHNSC/NSC WASHDC RUEKJCS/SECDEF WASHDC RUEKJCS/JOINT STAFF WASHDC RUEHGV/USMISSION GENEVA 0839 RUEHVEN/USMISSION USOSCE 2831 RUCNDT/USMISSION USUN NEW YORK 2216 RUEHNO/USMISSION USNATO BRUSSELS BE RUEHBS/USEU BRUSSELS RUEHLMC/MILLENNIUM CHALLENGE CORP RUMICEA/USCENTCOM INTEL CEN MACDILL AFB FL
C O N F I D E N T I A L SECTION 01 OF 03 BISHKEK 000195
SIPDIS
SIPDIS
DEPT FOR SCA/CEN
E.O. 12958: DECL: 02/27/2018
TAGS: PGOV PREL EAID ENRG KG
SUBJECT: KYRGYZ MINISTER OUTLINES ENERGY SECTOR PLANS
REF: DUSHANBE 168
BISHKEK 00000195 001.2 OF 003
Classified By: Amb. Marie L. Yovanovitch, Reasons 1.4 (b) and (d).
C O N F I D E N T I A L SECTION 01 OF 03 BISHKEK 000195
SIPDIS
SIPDIS
DEPT FOR SCA/CEN
E.O. 12958: DECL: 02/27/2018
TAGS: PGOV PREL EAID ENRG KG
SUBJECT: KYRGYZ MINISTER OUTLINES ENERGY SECTOR PLANS
REF: DUSHANBE 168
BISHKEK 00000195 001.2 OF 003
Classified By: Amb. Marie L. Yovanovitch, Reasons 1.4 (b) and (d).
1. (C) Summary: Kyrgyz Minister Energy Balkibekov told the
Ambassador and USAID Country Representative February 12 that
the government expects to adopt by this summer a new tariff
policy that would provide for annual increases to
electricity, heating, and hot water rates. He said the
government was working to change the social safety net system
to protect the neediest consumers. To improve the financial
conditions in the energy sector, Balkibekov said that the
government would proceed first with privatizing distribution
companies, and then privatize generation and transmission
assets at a later date. Balkibekov said there was sufficient
water in the Toktogul Reservior to meet generation needs this
year, even if there is low precipitation. Balkibekov said it
was pre-mature to try to develop a regional market for
electricity, but he welcomed USAID's upcoming assistance on
CASA-1000 and investment needs, which was narrower in scope
and Kyrygyzstan-specific. End Summary.
Government Plans Tariff Increases
--------------
2. (C) Minister Industry, Energy, and Fuel Resources Saparbek
Balkibekov told the Ambassador and USAID Country
Representative Shapiro February 12 that the government was
preparing a medium-term tariff policy that would more than
double electricity rates by 2012 to approximately 1.6 soms
(4.44 cents) per kilowatthour. The new policy, which he
expected to be adopted this summer, would provide for annual
increases to electricity, heating, and hot water rates, with
the tariffs for individual consumers initially rising more
gradually than for legal entities. Balkibekov said that
introducing tariff increases in the summer months would be
easier on customers, as usage is lower during the warmer
weather.
3. (C) The Ambassador asked about plans for a "safety net" to
protect more vulnerable consumers, and the USAID Country
Representative added that some donors were prepared to
assist. Balkibekov said that the government, and in
particular the Ministry of Social Protection, was working on
establishing an "effective system" by 2012. He said that
currently there were separate laws providing protection to
different categories of people (e.g., veterans, people living
in mountainous areas),and these laws need to be revised to
create a system that addresses the needs of the poorest
consumers. Balkibekov said that pensions and other
allowances would be increased in step with the tariff
increases.
Privatizing Distribution First
--------------
4. (C) Balkibekov said that to improve the financial
condition of the energy sector, the government was proceeding
with plans to reorganize and privatize energy assets. He
said that the State Committee on State Property had the lead,
and distribution assets would be privatized first, because
the distribution companies "have the most problems" which new
owners can solve. With the exception of the Bishkek "TETS"
generation and hot water facility, which is also slated for
privatization, generation and transmission assets would be
privatized at a later date. (Note: Separately, the Chair of
the State Property Committee, Tursun Turdumambetov, told the
Ambassador February 19 that the Committee is currently
involved in the privatization of strategic state enterprises,
including large electricity distribution companies in Talas,
Osh, Chui Oblast, and Bishkek. End Note.)
5. (C) Asked about the participation of foreign investors,
Balkibekov said that the initial stage of privatization would
BISHKEK 00000195 002.2 OF 003
likely involve only foreign investors, as local investors did
not have sufficient funds to buy large distribution assets
such as "SeverElectro" (although Kyrgyz firms might bid on
smaller distribution companies, such as "JalalabadElectro").
Balkibekov said that the main criterion in evaluating bids
would not be the sale price, but rather how much the investor
would commit to rehabilitating the assets. Dismissing as
"rumors" reports that parliament would be excluded from the
process, Balkibekov assured that parliament would be involved
in discussing the tenders and investment proposals. (Note:
On January 23, Prime Minister Chudinov told the Ambassador
that the President had requested the privatization process be
speeded up, and the best way to do this was to eliminate
parliament's role. End Note.) Balkibekov added that the
government would take advantage of proffered World Bank
assistance in evaluating assets and preparing them for
privatization.
Meeting Peak Demand
--------------
6. (C) Balkibekov said that Kyrgyzstan needed to add new
power generation, as well as introduce energy conservation
measures, in order to meet winter peak demand. Currently,
wintertime consumption was 3.5 times greater than during the
summer months, with high usage at night throughout the year.
He said that consumers needed to be educated about "more
rational" use of power, but upgrading meters throughout the
country would be very expensive. He added that the German
KfW was already implementing a project to upgrade meters for
"SeverElectro" consumers. (Note: Balkibekov has since asked
USAID for assistance on implementing a pilot project to
combine metering with other automated and more intensive
collection methods to illustrate how collections can be
increased. End Note.)
Toktogul Has Sufficient Water
--------------
7. (C) Balkibekov said there was sufficient water in the
Toktogul Reservior to meet generation needs through next
winter, even if there is low precipitation this year.
However, he noted that there could be problems next year, as
there has not been heavy snow in the high mountains this
winter. He said that the current level in the reservoir is
8.4 billion cubic meters, with the "dead level" for power
generation being 5.4 billion cubic meters.
8. (C) Asked about control of water release from Toktogul,
Balkibekov commented that water management remains a critical
issue. He said that in the winter, Kazakhstan requests lower
water releases to prevent flooding in the Kyzyl-Orda region,
but in the summer, Kazakhstan asks for increased releases.
Balkibekov said that a regional commission previously met
each year to determine how much water to release and when.
The commission had not met for the past two years, but he
planned to take part in a meeting of regional energy and
water ministers in Astana February 15. Press reports
indicate that the ministers will convene once again on
February 29 in Bishkek.
No Electricity for Tajikistan
--------------
9. (C) Balkibekov clarified that, although Kyrgyzstan
initiated increased energy exports to Tajikistan (to aid
their energy crisis) on February 1, the GOKG decided to cease
doing so one week later, after the Tajik Government failed to
confirm that it would export an agreed amount of electricity
to Kyrgyzstan in May (reftel).
Too Soon for Regional Energy Markets
--------------
BISHKEK 00000195 003.2 OF 003
10. (C) Reviewing a summary of USAID's Regional Energy
Markets Assistance Program (REMAP),Balkibekov said that the
project's original design had been flawed because the region
was not ready to establish a regional electricity market. He
noted that REMAP, which is drawing to a close, had recently
narrowed its focus to developing trade with Kazakhstan. He
added that he was supportive of USAID's new energy program
that was Kyrgyzstan-specific, and he welcomed having USAID
involve the Ministry in designing future programs. (Note:
During the week of February 18, USAID energy experts met with
ministry officials regarding the future REMAP program. End
Note.)
Comment
--------------
11. (C) The Kyrgyz have made progress over the last few years
in the energy sector. Most notably, they have accepted a
market orientation, as evidenced by their participation in
regional electricity sales, as well as steps towards
privatization and a more rational tariff policy. How they
implement these next steps will be crucial, as it is not
clear the Kyrgyz have accepted the principle of transparency
with the same ardor.
YOVANOVITCH
SIPDIS
SIPDIS
DEPT FOR SCA/CEN
E.O. 12958: DECL: 02/27/2018
TAGS: PGOV PREL EAID ENRG KG
SUBJECT: KYRGYZ MINISTER OUTLINES ENERGY SECTOR PLANS
REF: DUSHANBE 168
BISHKEK 00000195 001.2 OF 003
Classified By: Amb. Marie L. Yovanovitch, Reasons 1.4 (b) and (d).
1. (C) Summary: Kyrgyz Minister Energy Balkibekov told the
Ambassador and USAID Country Representative February 12 that
the government expects to adopt by this summer a new tariff
policy that would provide for annual increases to
electricity, heating, and hot water rates. He said the
government was working to change the social safety net system
to protect the neediest consumers. To improve the financial
conditions in the energy sector, Balkibekov said that the
government would proceed first with privatizing distribution
companies, and then privatize generation and transmission
assets at a later date. Balkibekov said there was sufficient
water in the Toktogul Reservior to meet generation needs this
year, even if there is low precipitation. Balkibekov said it
was pre-mature to try to develop a regional market for
electricity, but he welcomed USAID's upcoming assistance on
CASA-1000 and investment needs, which was narrower in scope
and Kyrygyzstan-specific. End Summary.
Government Plans Tariff Increases
--------------
2. (C) Minister Industry, Energy, and Fuel Resources Saparbek
Balkibekov told the Ambassador and USAID Country
Representative Shapiro February 12 that the government was
preparing a medium-term tariff policy that would more than
double electricity rates by 2012 to approximately 1.6 soms
(4.44 cents) per kilowatthour. The new policy, which he
expected to be adopted this summer, would provide for annual
increases to electricity, heating, and hot water rates, with
the tariffs for individual consumers initially rising more
gradually than for legal entities. Balkibekov said that
introducing tariff increases in the summer months would be
easier on customers, as usage is lower during the warmer
weather.
3. (C) The Ambassador asked about plans for a "safety net" to
protect more vulnerable consumers, and the USAID Country
Representative added that some donors were prepared to
assist. Balkibekov said that the government, and in
particular the Ministry of Social Protection, was working on
establishing an "effective system" by 2012. He said that
currently there were separate laws providing protection to
different categories of people (e.g., veterans, people living
in mountainous areas),and these laws need to be revised to
create a system that addresses the needs of the poorest
consumers. Balkibekov said that pensions and other
allowances would be increased in step with the tariff
increases.
Privatizing Distribution First
--------------
4. (C) Balkibekov said that to improve the financial
condition of the energy sector, the government was proceeding
with plans to reorganize and privatize energy assets. He
said that the State Committee on State Property had the lead,
and distribution assets would be privatized first, because
the distribution companies "have the most problems" which new
owners can solve. With the exception of the Bishkek "TETS"
generation and hot water facility, which is also slated for
privatization, generation and transmission assets would be
privatized at a later date. (Note: Separately, the Chair of
the State Property Committee, Tursun Turdumambetov, told the
Ambassador February 19 that the Committee is currently
involved in the privatization of strategic state enterprises,
including large electricity distribution companies in Talas,
Osh, Chui Oblast, and Bishkek. End Note.)
5. (C) Asked about the participation of foreign investors,
Balkibekov said that the initial stage of privatization would
BISHKEK 00000195 002.2 OF 003
likely involve only foreign investors, as local investors did
not have sufficient funds to buy large distribution assets
such as "SeverElectro" (although Kyrgyz firms might bid on
smaller distribution companies, such as "JalalabadElectro").
Balkibekov said that the main criterion in evaluating bids
would not be the sale price, but rather how much the investor
would commit to rehabilitating the assets. Dismissing as
"rumors" reports that parliament would be excluded from the
process, Balkibekov assured that parliament would be involved
in discussing the tenders and investment proposals. (Note:
On January 23, Prime Minister Chudinov told the Ambassador
that the President had requested the privatization process be
speeded up, and the best way to do this was to eliminate
parliament's role. End Note.) Balkibekov added that the
government would take advantage of proffered World Bank
assistance in evaluating assets and preparing them for
privatization.
Meeting Peak Demand
--------------
6. (C) Balkibekov said that Kyrgyzstan needed to add new
power generation, as well as introduce energy conservation
measures, in order to meet winter peak demand. Currently,
wintertime consumption was 3.5 times greater than during the
summer months, with high usage at night throughout the year.
He said that consumers needed to be educated about "more
rational" use of power, but upgrading meters throughout the
country would be very expensive. He added that the German
KfW was already implementing a project to upgrade meters for
"SeverElectro" consumers. (Note: Balkibekov has since asked
USAID for assistance on implementing a pilot project to
combine metering with other automated and more intensive
collection methods to illustrate how collections can be
increased. End Note.)
Toktogul Has Sufficient Water
--------------
7. (C) Balkibekov said there was sufficient water in the
Toktogul Reservior to meet generation needs through next
winter, even if there is low precipitation this year.
However, he noted that there could be problems next year, as
there has not been heavy snow in the high mountains this
winter. He said that the current level in the reservoir is
8.4 billion cubic meters, with the "dead level" for power
generation being 5.4 billion cubic meters.
8. (C) Asked about control of water release from Toktogul,
Balkibekov commented that water management remains a critical
issue. He said that in the winter, Kazakhstan requests lower
water releases to prevent flooding in the Kyzyl-Orda region,
but in the summer, Kazakhstan asks for increased releases.
Balkibekov said that a regional commission previously met
each year to determine how much water to release and when.
The commission had not met for the past two years, but he
planned to take part in a meeting of regional energy and
water ministers in Astana February 15. Press reports
indicate that the ministers will convene once again on
February 29 in Bishkek.
No Electricity for Tajikistan
--------------
9. (C) Balkibekov clarified that, although Kyrgyzstan
initiated increased energy exports to Tajikistan (to aid
their energy crisis) on February 1, the GOKG decided to cease
doing so one week later, after the Tajik Government failed to
confirm that it would export an agreed amount of electricity
to Kyrgyzstan in May (reftel).
Too Soon for Regional Energy Markets
--------------
BISHKEK 00000195 003.2 OF 003
10. (C) Reviewing a summary of USAID's Regional Energy
Markets Assistance Program (REMAP),Balkibekov said that the
project's original design had been flawed because the region
was not ready to establish a regional electricity market. He
noted that REMAP, which is drawing to a close, had recently
narrowed its focus to developing trade with Kazakhstan. He
added that he was supportive of USAID's new energy program
that was Kyrgyzstan-specific, and he welcomed having USAID
involve the Ministry in designing future programs. (Note:
During the week of February 18, USAID energy experts met with
ministry officials regarding the future REMAP program. End
Note.)
Comment
--------------
11. (C) The Kyrgyz have made progress over the last few years
in the energy sector. Most notably, they have accepted a
market orientation, as evidenced by their participation in
regional electricity sales, as well as steps towards
privatization and a more rational tariff policy. How they
implement these next steps will be crucial, as it is not
clear the Kyrgyz have accepted the principle of transparency
with the same ardor.
YOVANOVITCH