WORLD BANK PUTS IN DOUBT KYRGYZ ROLE IN REGIONAL

C O N F I D E N T I A L SECTION 01 OF 02 BISHKEK 000361 SIPDIS DEPT FOR SCA/CEN DEPT PLEASE PASS TO USTDA - DAN STEIN E.O. 12958: DECL: 04/16/2019 TAGS: ENRG ECON PREL KG SUBJECT: WORLD BANK PUTS IN DOUBT KYRGYZ ROLE IN REGIONAL ELECTRICITY PROJECT BISHKEK 00000361 001.2 OF 002 Classified By: Deputy Chief of Mission Lee Litzenberger, Reason 1.4 (b) and (d). ¶1. (SBU) Summary: Following the Asian Development Bank (ADB) decision to suspend funding the Central Asia-South Asia (CASA) electricity transmission project, World Bank officials have unilaterally attempted to delay Kyrgyz participation in CASA. The World Bank now envisions Tajikistan alone fulfilling initial CASA electricity demand, and has offered the Kyrgyz assistance in renovating the main Bishkek thermal plant in exchange for withdrawing from CASA's initial implementation. While the World Bank rethink may have some benefits, it has not been coordinated with CASA participants or adequately detailed to determine financial or technical feasibility. According to press reports, Pakistan has decided to delay CASA until tariff and feasibility issues are resolved. Kyrgyz officials are concerned, and have pitched an alternative project to build a coal-fired plant near the Kara Keche coal field. The proposal is promising, but would benefit from a feasibility study. Embassy would welcome Washington views on the apparent shifts in the CASA initiative. End summary. Is CASA Under Threat? -------------- ¶2. (SBU) Following the Asian Development Bank (ADB) decision to suspend funding the Central Asia-South Asia (CASA) electricity transmission project, questions have arisen regarding CASA's future. (Note: With mostly ADB, World Bank, and Islamic Development Bank support, CASA aims to sell surplus power from the Kyrgyz Republic and Tajikistan to consumers in Pakistan via Afghanistan. End note.) ADB planned to fund 40% of the project, and ADB's withdrawal led World Bank officials to devise a cheaper implementation plan that weakens the viability and regional nature of the project. Kyrgyz officials have reiterated their desire to sell electricity through CASA, but are also aware that Pakistan, the proposed customer, is not active at the CASA Intergovernmental Working Group Secretariat in Kabul. According to press reports, Pakistan's Cabinet has delayed Pakistan's participation in the project until tariff, economic feasibility, and other issues are resolved. World Bank Freelancing -------------- �A; ¶3. (C) The World Bank's lead representative on CASA, Raghu Sharma, recommended that the Kyrgyz Republic be dropped from the initial stage of the CASA project, and asked the Kyrgyz Minister of Energy to postpone the Kyrgyz leg of the project apparently in exchange for Sharma's personal assurance that the World Bank would later fund the Kyrgyz segment of CASA and refurbish Bishkek thermal plant facilities. (Note: World Bank Kyrgyz Republic Country Manager Roger Robinson later raised the thermal plant idea to the donor community in the Kyrgyz Republic. Donor-financed renovation of the state-owned thermal plant facilities might sideline private sector interest, including from U.S. firm AES, in the thermal plant. End note.) The Minister reportedly rejected this suggestion, and reiterated the Kyrgyz Republic's interest in proceeding as previously agreed. ¶4. (C) Sharma's unilateral approach triggered Kyrgyz concern about lack of consultation with the participating parties. While a phased approach to the project may have some benefits, technical, financial, and political issues that impact the project's viability have not been reviewed. Sharma's reliance on supply from Tajikistan, which alone may be unable to generate sufficient supplies, is worrying. In addition, resultant infrastructure changes and related costs for a phased project have not been addressed. BISHKEK 00000361 002.2 OF 002 Coal Project Tops Kyrgyz List -------------- ¶5. (SBU) Rather than donor-funded work on the Bishkek thermal plant, Kyrgyz officials told USAID that they would prefer donors focus on aiding the Kyrgyz Republic build a coal-fired power plant near Kara Keche, the site of a large coal field. Developing a power plant near Kara Keche does have disadvantages, to include its remoteness and questions of the environmental impact of such a project, but it would be close to the planned Datka-Kemin transmission line and would utilize cleaner-burning coal than what is used now at the Bishkek thermal plant. In addition, with Russia possibly gaining control of the Kyrgyz hydroelectric system through its planned investment in the Kambarata hydroelectric project, and with the Kyrgyz Republic overly-dependent on hydropower, a coal-fired power plant using local coal would diversify the Kyrgyz Republic's power generation capacity. The Kara Keche proposal would benefit from a feasibility study, which would complement a similar U.S. Trade and Development Agency study currently being conducted in Tajikistan. Separate, But Related, News on REMAP -------------- ¶6. (SBU) The USAID Contracting Office in Almaty recently notified Embassy USAID personnel that the next installment of the Regional Energy Market Assistance Project (REMAP) will be delayed due to a protest filed by the losing party in the contracting process. REMAP goals have closely coincided with CASA objectives, and we understand that the contract protest may take an extended period of time to resolve. Should this be the case, it will likely unintentionally send a further signal to the Kyrgyz that our interest in regional energy markets is waning. Comment -------------- ¶7. (SBU) ADB's withdrawal and the World Bank's actions undermine the basic foundations of the CASA initiative. The World Bank's plans may have merit, but they lack coordination with participants and should be discussed more broadly before the World Bank attempts to implement its own strategy unilaterally. Embassy would welcome insights from Washington regarding these apparent shifts in the CASA initiative. GFOELLER