This interview was originally published in Russian by Kabar.kg on February 5, 2024. This text has been edited for clarity.
In the Kyrgyz Republic, energy is one of the key sectors of the economy. In recent years, the country has faced a number of problems in this area, such as deteriorating infrastructure, electricity shortages and dependence on imports. We discussed these issues with the head of the World Bank office in the Kyrgyz Republic, Naveed Hassan Naqvi.
KABAR: What measures is the Kyrgyz Republic undertaking to reform, modernize and develop its energy, and is the World Bank engaged?
MR. NAQVI: It is important to remember that energy issues are important not just for this country, but for the [Central Asian] region as a whole. The Kyrgyz Republic's energy sector and the development needs of the energy sector impact not just the population of the Kyrgyz Republic, but also downstream countries.
As you know, the installed capacity in the Kyrgyz Republic is about 3,900 megawatts. Of this, around 800 megawatts is the Bishkek coal power plant [CHP]. And the rest of it is largely hydro. The important thing to note is that more than half or about 60% of the transmission and distribution network is past its useful life and needs to be replaced. Similar numbers concern hydropower plants and their machinery: more than half of the installed capacity needs repair or replacement.
This was the situation in which the country found itself when the current government took over in 2021. Since then, the leadership – this includes the President, Mr. Sadyr Japarov; Chairman of the Cabinet of Ministers Mr. Akylbek Zhaparov; and Mr. Taalaibek Ibrayev, who has been in the energy sector for a long time and has served as the Minister for about two years now – identified energy sector reform as a key priority for the country.
Our first serious conversation about this with Mr. Akylbek Zhaparov took place in April 2021 when he was finance minister. He asked the World Bank to provide assistance and support in both developing and then financing and supporting the energy reform agenda.
Since then, we have done a lot, but I want to take this opportunity to thank the Government, particularly Chairman Akylbek Zhaparov and Energy Minister Taalaibek Ibrayev, for leading this work. It is extremely politically difficult to tackle.
I want to highlight a few things. The Kyrgyz Republic’s energy tariffs were the fifth lowest in the world. The government was subsidizing it to the tune of 2 to 3% of GDP every year, while tariffs had not been increased for a long time. Most of the energy is consumed in the residential sector, and those tariffs have almost never gone up – not in the last decade anyway. Therefore, our conversation with Mr. Akylbek Zhaparov was about how to move forward in a sustainable way.
Between September of 2021 and April of 2022, with our support, the government prepared a white paper on the energy sector, which included a strategy for putting the energy sector on the modernization path.
Then in April, there was an international energy sector conference. The government invited not just the World Bank, but also representatives from other international financial institutions (AIIB, ADB, EBRD), bilateral organizations (Switzerland’s SECO), China, and others.
Then the government went to Washington. The Prime Minister led the delegation to the World Bank Spring Meetings, where he shared their plans with the World Bank leadership. As a result, we were able to approve $50 million of World Bank funding in June of 2022. At the same time, $8 million of bilateral grant funding was provided by SECO. This funding is aimed at modernizing the low voltage infrastructure transformers, transmission lines, as well as installing smart meters in parts of the country to improve the efficiency of the energy sector.
As a result of our close dialogue and cooperation with the government, we started working on a number of things, including tariff reforms, but also an assessment of what kind of installed capacity the country will need by 2050. Our assessment revealed that the current installed capacity is around 3,900 megawatts, but that the country will need 10,000 megawatts by 2050. And this of course, is an enormously important strategic priority for the country. The President himself took charge of this issue, and in January of 2023, announced the strategy to the general population, including the increase of tariffs across the board for government agencies, businesses, and residential households. This was all implemented in May of 2023. At the same time, the Government introduced social protection measures for low-income households.
The President also clearly identified Kambarata-1 as the country's most important and urgent priority.
The most impressive thing about the Government's intention to transform the energy sector was that they were looking beyond hydro. Taalaibek Ibrayev and Akylbek Zhaparov asked us for best ways to diversify the country’s energy sources. Our private sector arm, the International Finance Corporation (IFC), together with the World Bank, started looking at solar energy and wind energy as possible sources of additional energy generation. We also started looking at the energy sector in the regional context. In March of 2023, a [Central Asia] regional conference on energy was organized in London with high-level delegations from Kazakhstan, Uzbekistan, Kyrgyz Republic, and Tajikistan.
Under the leadership of the Government of the Kyrgyz Republic, we are making rapid progress in setting up a regional energy market, which will benefit not just the Kyrgyz Republic, but also all the other countries in Central Asia, and also potentially countries in South Asia like Pakistan and China, who are potential clients for the energy that is produced in Central Asia.
Thanks to this, in June 2023, we were able to approve another project in the amount of $80 million, with $67 million of highly concessional financing from the World Bank and another $13 million in grant funding from the Green Climate Fund. This funding is aimed at improving the transmission network and supporting small hydro dams.
With this clarity on the government side that energy and water is where they would want to make rapid progress over the next few years, these two sectors became our priority for our five-year plan for the country. This five-year plan was approved on October 31 of 2023 by the World Bank Board of Executive Directors. On the same day, the Board approved technical assistance of $5 million for updating the Kambarata-1 feasibility study – this work is now rapidly advancing.
On behalf of the World Bank, I want to stress the importance of the alignment on energy sector reform in the country. The contribution of three people made this possible: on the technical side, Minister Taalaibek Ibraev ensures the planning and work of his specialists, Akylbek Zhaparov, with the assistance of the Ministry of Finance, the Ministry of Economy and the Cabinet of Ministers, has been a constant source of support, especially in difficult times. And of course, none of this would have been possible without the full political support of Taalaibek Ibraev and Akylbek Zhaparov by the country’s President Sadyr Japarov. The three of them act as a united front, and this allows the World Bank to think on a much larger scale than just providing technical assistance in updating the feasibility study for Kambarata-1 HPP. I am happy to report that we commenced the preparation for the first phase of Kambarata-1 investment, which will amount to around $500 million. Of this, between $150 to $200 million will be provided by the World Bank in the first phase, and other financiers will come in and meet the balance.
We are now expecting the Chairman of the Cabinet of Ministers Mr. Akylbek Zhaparov, his deputy Bakyt Torobayev, Minister of Energy Taalaibek Ibrayev, the Minister of Finance and the Minister of Economy to come to Washington, DC in April for technical discussions on energy, water, and agriculture – three key areas where we hope to see our partnership expand. That will be followed by an international conference on investment in the country’s energy sector. We are hoping for large-scale private sector interest in the energy sector here given the ongoing reform effort.
Attracting private investment in combination with financing from international institutions and the Republic’s budget will allow for a complete transformation of the energy industry not only in the field of generation, but also in the transmission and distribution of energy; not only in the field of hydropower, but also solar and wind energy; and create a framework within which the complete transformation of the sector will benefit not only the Kyrgyz Republic, but the entire region.
I want to say a couple of words about the [CHP] accident that happened in Bishkek. As I mentioned at the beginning of the interview, more than half, maybe 60% of the generation capacity and its infrastructure is past its useful life and needs to be replaced. It is also true of the Bishkek CHP. I know that a new segment was built with Chinese help seven years ago, but the other part of the plant is very old. It needs to be modernized. It cannot be modernized on its own it has to be modernized as part of the overall energy sector transformation. This is not a new problem. We've known of these problems for 30 years or more. And it is complicated to transform the sector; it is economically, technically and politically difficult. What I am confident in is the Government's intention to reform the sector. We have seen over the last two years complete alignment between the political leadership and the technical leadership and I'm fully confident that as part of this transformation and reform process, the outdated infrastructure will be modernized. I believe the leadership of the country will need the support of all people in this country. This is going to be expensive, but it is an investment in the future generations. I am confident that the country will respond to the accident effectively and rapidly. I'm confident in their long-term vision. I'm confident in their plan and in their alignment with each other. So, while the accident was a bit shocking, it was not unexpected given that the infrastructure in general is old and needs to be replaced. I'm fairly confident that the Government will do this systematically and make it part of their plan for the near future.
And lastly, I just want to reiterate that the World Bank was requested by the Government to be a lead partner in energy sector transformation. We were honored by that request. And we will stand by the Government as it moves forward to modernize the energy sector, add to its generation capacity thanks to Kambarata-1, and through various planned initiatives on solar energy. We will also help them improve the heating system, the transmission and distribution system in the country. But I think it is important to note that we will only be able to do this in partnership with government and also other international financial institutions with whom we have an advanced dialogue, particularly the ADB, the EBRD, and the Asian Infrastructure Investment Bank, important bilaterals such as SECO, the US and the UK, and their aid agencies. I'm confident that together we will be seeing greater success in the years to come.
How do you assess the increase in tariffs? Is this already having an effect on the energy sector?
Let me say that even with the tariff increase, only 65 tyiyns are recovered for each som. That is, for every som spent on energy, only 65 tyiyns come back to the Government, and the Government has to put in 35 tyiyns from the budget. In Uzbekistan, this figure is between 85 and 90%.
The Government has asked the World Bank to prepare a plan in which the poorest get support, but those that can pay for electricity should pay. And I see that they are steadfast in this, and they know that if you want investment in the energy sector, you have got to reform the tariff structure.
And the President has done a remarkable job of explaining this to his people and getting their support for what is a difficult reform. I don't think it could have been done without the people's support. I think everyone in the Kyrgyz Republic, whether they live in rural Osh or in Bishkek, or anywhere else, understands that if you want to have predictable energy, you've got to reform the sector. You can't attract investment until it's a sustainable, profitable sector. You can't do that with low tariffs.
How do you evaluate the work of the energy workers this heating season? If it were not for the accident at the thermal power plant and the low water level in the Toktogul reservoir, it seems that this winter would have been one of the calmest.
I have found the Ministry of Energy to be one of the most professional ministries in the country. It has effective leadership at the highest level. The Minister served as deputy minister and has worked in this sector all his life; he knows this area well, from the specialist level to the ministerial level. He has a good understanding of the technical side of problems and measures to mitigate them. I am confident that the country's political leadership and technical specialists are aware of the challenges that face them and are taking all possible measures to provide quality services to citizens.
The accident shows how worn out some infrastructure already is. And a similar situation is also in electricity transmission and distribution networks. We don't know exactly what happened. I understand that the Government has put together a commission to look into this, and we are waiting for the results of its work. But I am confident that the Government will get to the bottom of this and will take effective measures to prevent the risks facing the energy sector.