Identifier
Created
Classification
Origin
08BISHKEK699
2008-07-03 10:32:00
CONFIDENTIAL
Embassy Bishkek
Cable title:  

KYRGYZ MINISTER SEES OUTSIDERS AIDING ELECTRICITY

Tags:  ENRG ECON PREL SOCI KG 
pdf how-to read a cable
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RUCNDT/USMISSION USUN NEW YORK 2355
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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 000699 

SIPDIS

DEPT FOR SCA/CEN (GEHRENBECK/DEUTSCH)

E.O. 12958: DECL: 07/03/2018
TAGS: ENRG ECON PREL SOCI KG
SUBJECT: KYRGYZ MINISTER SEES OUTSIDERS AIDING ELECTRICITY
SECTOR

REF: A. BISHKEK 593

B. BISHKEK 501

C. BISHKEK 195

D. 07 BISHKEK 1395

E. 07 BISHKEK 966

F. 06 BISHKEK 1792

BISHKEK 00000699 001.2 OF 003


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

C O N F I D E N T I A L SECTION 01 OF 03 BISHKEK 000699

SIPDIS

DEPT FOR SCA/CEN (GEHRENBECK/DEUTSCH)

E.O. 12958: DECL: 07/03/2018
TAGS: ENRG ECON PREL SOCI KG
SUBJECT: KYRGYZ MINISTER SEES OUTSIDERS AIDING ELECTRICITY
SECTOR

REF: A. BISHKEK 593

B. BISHKEK 501

C. BISHKEK 195

D. 07 BISHKEK 1395

E. 07 BISHKEK 966

F. 06 BISHKEK 1792

BISHKEK 00000699 001.2 OF 003


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


1. (C) Summary: With reservoirs at the main hydroelectric
network far below last year's levels, Kyrgyz authorities have
instituted forced blackouts to conserve water and reduce
electricity consumption. Energy Minister Balkibekov has
confirmed plans to privatize the Bishkek thermal plant, the
Severelectro electricity distribution company, and a third
asset to one investor by September or October. The Minister
hoped that the investor would inject capital into the
electricity infrastructure in time to increase power supply
for the winter months. The short fuse for investor action
coincides with continued disagreement among the countries in
the region over water management, which Balkibekov said could
be adjudicated by the United Nations, but he feared the
Uzbeks would not agree. Balkibekov also opined that more
competitive pricing for electricity destined for South Asia
would help rejuvenate Kyrgyz enthusiasm for the CASAREM
initiative. However, in the short term, electricity cuts,
delayed maintenance at the Bishkek thermal plant, and
uncertainty over Uzbek natural gas supplies highlight
potential difficulties this winter. End summary.

Short-Term Problems
--------------


2. (C) Minister of Energy, Industry and Fuel Resources
Saparbek Balkibekov confirmed to the Ambassador and USAID
Director June 25 that continued low water supplies would
force blackouts throughout the Kyrgyz Republic within days.
(Note: Kyrgyz media later reported the restart of
"electricity consumption restrictions" June 29. The Kyrgyz
Republic relies heavily on hydroelectric power. End note)
Balkibekov acknowledged the damage these power cuts would
have on industry, hotels, food processing operations and
other sectors of the economy, but concluded that conserving
water supplies for winter power generation was of greater

importance to the country. The magnitude of the planned
summer blackouts is not certain.


3. (SBU) According to Ministry data, water supply in the
main Toktogul hydroelectric reservoir as of June 26 was 8.75
billion cubic meters, far below the 12.96 billion cubic
meters reported at this time last year. Last year marked the
beginning of a low water cycle, which also saw low reservoir
levels. The reservoir has a capacity of 19.5 billion cubic
meters, but water levels below 5.5 billion cubic meters
render the hydroelectric network inoperable.


4. (C) Balkibekov identified the Bishkek thermal power
station (TETS) as a potential source for augmenting
electricity generated by the hydroelectric network this
winter. Although the Bishkek TETS has an installed capacity
of 660 megawatts which can generate five billion kilowatt
hours of electricity, Balkibekov said that the Bishkek TETS
currently generates only one billion kilowatt hours. The
high cost of Bishkek TETS power generation dissuaded
authorities from increasing its production, he added, and
partially explains why the Kyrgyz government hopes to
privatize the Bishkek TETS quickly. (Comment: As tariffs do
not cover Bishkek TETS power generation costs, costly
purchases of additional coal and natural gas needed to boost
electricity production will likely be delayed until the
situation becomes extremely critical. End comment.)

Connecting with Investors

BISHKEK 00000699 002.2 OF 003


--------------


5. (C) While admitting that time is running out, Balkibekov
hoped that privatization of the Bishkek TETS, by no later
than September or October, would permit an investor to
prepare for the upcoming heating season. He said that if the
process could not be completed by October, no investor would
take the "risk," since the Kyrgyz government will demand a
doubling of Bishkek TETS power output as a condition of the
sale. Balkibekov confirmed government plans to sell the
Bishkek TETS along with two other assets to one investor. As
the Bishkek TETS is "unprofitable," Balkibekov noted that
adding the "profitable" SeverElectro (the northern
electricity distribution company serving the Bishkek area)
would make the transaction more attractive. He suggested
that the third asset, Teploset, which distributes hot water
and heat to the city, cannot be technically separated from
the Bishkek TETS. (Note: The Bishkek TETS was originally
designed to generate hot water, heating and electricity. End
note.)


6. (C) Balkibekov claimed the government wanted an investor
who would inject cash into the network, and not cash into the
government budget. He said the State Property Committee
would conduct the asset privatization process, with minimal
technical and logistical support from his Ministry.
(Comment: As reported reftel B, a potential U.S. investor was
told not to bother with the tender due to an apparent
pre-determined outcome. Kazakh businessman Alexander
Mashkevich, who has coal industry experience in Kazakhstan,
has been identified as the likely "winner" of the tender.
Mashkevich has been previously associated with Bakiyev family
interests. End comment.)

Connecting with the Neighbors
--------------


7. (C) Shifting to the water shortages, Balkibekov blamed
Uzbekistan for the lack of a regional water agreement.
Uzbekistan continues to object to a multilateral agreement,
and the Kyrgyz Republic does not favor a bilateral
arrangement. Due to limited water supplies, the Kyrgyz
Republic is not currently generating excess electricity for
export to Kazakhstan. And without a multilateral agreement,
water released by the Kyrgyz Republic intended for Kazakhstan
might be fully diverted by Uzbekistan. In anticipation of
water shortages, Uzbekistan, Balkibekov noted, had planted
less cotton this year. Uzbekistan, he added, is creating
water caches to collect water Kyrgyz hydroelectric stations
would be releasing this winter.


8. (C) He reiterated the sensitivity of the water issue, and
believed that international organizations like the United
Nations would need to get involved to secure an agreement.
Balkibekov reasoned that Russia would not become involved due
to concerns about its own bilateral relations in the region.
After collecting more information about regional water issues
elsewhere, he said that the Kyrgyz Republic might approach
the United Nations for assistance. Balkibekov admitted,
however, that it was unlikely Uzbekistan would agree to
international mediation.


9. (C) With respect to the Central Asia South Asia Regional
Energy Market (CASAREM) initiative, Balkibekov noted that
increased attempts by Kazakhstan to secure its own domestic
electricity supplies caused the Kyrgyz Republic to consider
alternate markets for any future electricity exports.
However, he claimed that unattractive World Bank pricing
models showing Kyrgyz electricity getting 2.2 cents per
kilowatt hour had curbed Kyrgyz enthusiasm for the CASAREM
initiative. Balkibekov noted that Kazakhstan had been
offering 4.5 cents per kilowatt hour of Kyrgyz electricity
(which current water shortfalls prevent the Kyrgyz from

BISHKEK 00000699 003.2 OF 003


supplying.)


10. (C) Although Balkibekov believed the low World Bank
pricing had been designed to allow for a greater return on
investment for the risky Afghan portion of the transmission
line, he thought that his request for more competitive
pricing models in a June 24 conference call with other
CASAREM players would trigger positive changes. (Comment:
Balkibekov may have misunderstood previous World Bank pricing
explanations, but now appears more satisfied with the pricing
scheme. End comment.) He told the Ambassador that the issue
should be discussed and finalized at an upcoming CASAREM
meeting in Islamabad, where he will be leading the Kyrgyz
delegation.

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


11. (C) Kyrgyz government attempts to curb electricity
demand through forced blackouts this summer are strong
indicators of the worry with which the government views the
possibility of shortfalls during a cold winter. Although it
is believed that the Bishkek TETS and Severelectro are
destined for a favored investor (with some energy sector
background ) Mashkevich),the government could be risking a
lot if an inexperienced operator is awarded the facilities so
soon before the start of the heating season. Given the
typical slowdown in Kyrgyz government bureaucracy during July
and August, an experienced operator will not have sufficient
time to be awarded the assets, survey them and enact repairs
for the winter. This difficulty could be compounded by
disagreement with Uzbekistan over natural gas supplies this
winter. While the privatization process will likely not be
transparent, it is a positive step for opening up the energy
sector to private investment.


12. (C) Balkibekov's newfound enthusiasm for CASAREM is
refreshing, but could lapse if the Kyrgyz do not realize
higher price guarantees for their potential electricity
exports to South Asia. However, additional questions, such
as the sales vehicle for Kyrgyz electricity exports and
capacity upgrades to the Kyrgyz grid, are also pending.
Given rising demand and stagnating production, heavy
investment will be needed in the Kyrgyz electricity sector in
the coming years to transition the Kyrgyz into a reliable
supplier for the CASAREM initiative.


13. (SBU) Balkibekov is scheduled to visit the United States
under a USAID-organized study tour later this month.
YOVANOVITCH