The Kyrgyztan government took steps in 1998 and 1999 to set the legal foundation for the development of Kyrgyzstan's energy market, with the intention of leading to the commercialization and privatization of Kyrgyzstan's energy sector. Laws were adopted related to electric power, oil & gas, energy conservation, and licensing, and private ownership of land. There was also a law enacted concerning foreign investment. The Kyrgyz State Energy Agency worked out guidelines for rate policies, and set up rules for users of electricity and district heat.
Kyrgyzstan's energy policy is heavily weighted toward development of its large hydroelectric power resources and expansion of its electricity grid. Kyrgyzstan also has significant amounts of brown coal, and development of a large mine at Kara-Keche could produce enough coal to offset imported coal that is being used at the country's largest thermal power plant, in Bishkek.
Energy sector reform in Kyrgyzstan will more or less mirror similar reforms that have already taken place in countries in Central and Eastern Europe -- reduction of energy use by removal of state subsidies (and, therefore, greater cost to the consumer), promoting the financial health of utility companies through better billing practices, and promotion of private sector participation that will inject needed capital into the system. Removal of tariff subsidies has been and will continue to be gradual.
Kyrgyzstan has 3.6 gigawatts (GWe) of generating capacity, about 80% of which is hydroelectric. A new hydroelectric plant on the Naryn River at Kambar–Ata would supply power to parts of China and Russia, improving Kyrgyzstan’s export situation and domestic energy supply. However, in 2006 that project, which would include one of the largest hydroelectric dams in the world, remained incomplete because of lack of investment.
Kyrgyzstan contains seven developed oil fields and two oil/gas. Kyrgyzneftgaz is the state-owned joint stock company responsible for production of oil and gas, and is presently looking for a foreign partner to introduce modern methods of oil and gas drilling. During the year 2000, Kyrgyzstan has had oilfield surveys by a team of specialists which, in November 2000, forecasted that Kyrgyzstan could become self-sufficient in oil by exploiting various reserves. In the Fergana Valley, there is an estimated reserve of over 700 million barrels, and the combined reserves of depressions at Chuy, Alay, Issyk-Kul, and At-Bashi could be as much as 1.5 to 2.2 billion barrels. These are not yet proved yet, however, and Kyrgyzstan's known proved crude oil reserves are presently only 40 million barrels.
In the Soviet days, Kyrgyzstan had not fully exploited its domestic reserves, since it depended on Russia, Kazakhstan, and Uzbekistan for oil and gas imports. However, these neighboring countries are now increasingly exporting to world markets, where they can get higher prices. In this new environment, Kyrgyzstan is planning for increased reliance on domestic fuels. The Kyrgyz government has launched an initiative to begin large scale domestic oil extraction in the 2006 to 2007 time frame, with the first well anticipated by the end of 2001. It costs as much as $120,000 to drill a single well, so Kyrgyzstan is seeking investors for this venture, as well as multilateral development bank financing. A Dutch-Kyrgyz joint venture has been exploring for oil and gas since 1998.
There is one oil refinery in Kyrgyzstan, at Dzhalal-abad, approximately 150 miles south of Bishkek. It was built in 1997, has a capacity of 10,000 barrel-per-day (b/d), and is now operated by the Kyrgyz Petroleum Company (KPC), a joint venture of the British firm Petrofac Resources International, Ltd. and Kyrgyzneftgaz, the state-owned oil company. Petrofac Resources acquired its interest in the refinery from the Canadian firm Kyrgoil in June 2000. The KPC Dzhalal-abad refinery has had problems in obtaining sufficient crude from neighboring countries, especially Kazakhstan. This has led to reduced outputs of heavy fuel, diesel, and gasoline.
Two plants for converting condensed gas into gasoline were constructed in the 1990s, in the Chui oblast of Kyrgyzstan, by the Kyrgyz-American company Vostok. These plants have the capability to supply approximately 40% of Kyrgyzstan's gasoline needs. There is currently a monopoly in petroleum products for the state-owned enterprise Munay. It was created by a presidential edict on March 9, 1999, which stated that only Munay can import or sell petroleum products in Kyrgyzstan. Munay is also responsible for licensing other companies for importing petroleum products and selling them wholesale. There are approximately 60 companies distributing petroleum products in Kyrgyzstan.
Kyrgyzstan is dependent on Uzbekistan for natural gas. During the winter, Uzbekistan often raises the price of gas and turns off the pipelines when Kyrgyzstan cannot pay. In the 1990s natural gas accounted for almost 30% of Kyrgyzstan's total energy consumption. Kyrgyzstan consumed 67 billion cubic feet (Bcf) of natural gas in 1999, and 71 billion cubic feet (Bcf) of natural gas in 2001. Consumption declined sharply in the following years, falling to 26 Bcf in 2003, and 14 Bcf in 2011. Almost all this natural gas came from imports; Kyrgyzstan's own natural gas production in 1999 was 0.35 Bcf. Kyrgyzstan has estimated natural gas reserves of about 200 Bcf, but these reserves are hard to exploit. At present, Kyrgyzstan does not have the infrastructure for increased natural gas operations nor the capital to exploit these reserves.
Kyrgyzstan imports most of its natural gas from Uzbekistan. This commercial relationship has been difficult for both countries, with Kyrgyzstan often paying late and Uzbekistan often cutting off the supply. This has caused problems for Kyrgyzstan in the winters, when imported natural gas is used for both heating and electricity production.
The officials of Kyrgyzstan and Uzbekistan have inked several natural gas supply contracts, usually involving barter. None of these deals have worked in the long run, however. In the round of negotiations which concluded in October 2000, an agreement was reached where Kyrgyzstan would cover 50% of its natural gas purchases with hard currency and barter electricity and water for the remaining 50%. However, starting on December 25, 2000, Uzbekistan cut off natural gas to Kyrgyzstan for several days, due to slow repayment of the debt, which had reached $1.6 million bt the beginning of December 2000. The cutoff occurred when Uzbekistan requested that Kyrgyzstan speed up payment; 33% of the gas already delivered had not yet been paid for. Kyrgyzstan again lost its gas supply in January 2001, when an accident disrupted the pipeline in the Bukhara region of Uzbekistan. A dispute between Uzbekistan and Kyrgyzstan in October 2001 over Kyrgyzstan's slow payment of back debts from gas purchases resulted in yet another cutoff of gas supply for several days.In July 2000, the World Bank gave Kyrgyzstan $5 million in credit under a technical assistance project; the purpose of the project was to reform Kyrgyzstan's energy sector, especially Kyrgyzgaz, the state-owned joint-stock natural gas company. The money has strengthened the financial position of Kyrgyzgaz, allowing them to buy gas meters, spare parts, and other equipment.
In December 2006 Kyrgyz-Uzbek negotiators agreed on a $100 per thousand cubic meter rate for Uzbek natural gas for 2007, nearly doubling the current price. In response, the Kyrgyz government announced a 44% hike in natural gas rates for consumers to absorb the price increase. In a related deal, Kyrgyzstan will export 1.3 billion kilowatt hours of electricity (plus a lot of water) to Uzbekistan most likely at a relatively low 1.1 cent per kilowatt hour rate. Thus, in spite of President Bakiyev's much publicized visit to Uzbekistan earlier in the fall to help facilitate a gas price deal, Uzbekistan appears to come out the clear winner - more natural gas revenue, cheap electricity and a predictable water supply for the 2007 agricultural season.
The Kyrgyz Republic imported nearly $123 million in natural gas, mostly from Uzbekistan, in 2008, and, based on an agreed tariff rise from $145 to $240 per thousand cubic meters, may pay up to $204 million for a similar volume in 2009. Despite President Bakiyev's February 11 pledge to increase electricity export prices to offset the higher natural gas bill, the low level of the hydroelectric reservoirs will limit the amount of excess electricity available for export in 2009.
Energy Transmission Infrastructure
Kyrgyzstan has been negotiating with Gazprom and Itera of Russia to supply natural gas from Turkmenistan via the Uzbek pipeline. Two additional pipelines which had been started several years ago but had never been completed are also under consideration as potential projects. One of these uncompleted pipelines is a second branch of the Uzbek pipeline which was begun in Soviet times, but was suspended because of lack of money; about $16 million in construction funding is still needed. There is also a second partially completed pipeline from Russia to Kyrgyzstan, which has had no construction activity since 1991. Kyrgyzstan is talking with Russia and Kazakhstan about completing this pipeline, which would require an additional $60 million.
The Kyrgyzstan electricity grid consists of more than 10,000 kilometers of power transmission lines of 35-kilovolts or greater and more than 58,000 kilometers of high voltage lines of 0.4-10 kilovolts. There are more than 500 operating substations of 35-500 kilovolt capacity.
Kyrgyzstan has identified construction of a new 500 kilovolt (kV) transmission line from Frunzenskaya to Kemin as a strategic need for the country. Implementation would help improve the reliability of electricity supply to the northern part of the country. The German bank KfW has financed a fesibility study for the project, and might be one of the financiers.
Kyrgyzstan's electricity distribution grid is in need of rehabilitation, as not enough resources have been allocated in previous years for maintenance. As much as $180 million could be required for this upgrade. The result of these years of neglect is that there are substantial electricity losses of up to 25% that occur during transmission through the grid. Grid management is also in need of improvement; non-payment of electricity is common (especially in Bishkek), and there are payment privileges for certain customers. Overall, almost half of all electricity generated does not produce any revenue. An estimated 45 percent of electricity generated is diverted illegally or leaks from the transmission system.
Kyrgyzstan exports over 10% of the electricity it produces, and increased exports are planned. However, Kyrgyzstan currently lacks the transmission lines to implement this. The possibilities for constructing transmission lines to China is being studied. Kyrgyzstan has tried to improve its electric system. In July 2000, the Ala-Archa substation on the outskirts of Bishkek was opened, an $11 million project partly funded by the Asian Development Bank. The substation is intended to prevent interruption of service to people in Bishkek and northern Kyrgyzstan.
Four regional electricity distribution companies are coming into existence (as independent joint stock companies). Vostokelectoset will serve the eastern part of Kyrgyzstan and will incorporate the distribution grids of the Naryn and Issyk-Kul regions. Oshelectro will service the Osh region of the country, Djalal-Abadelectro will service the southern Djalal-Abad region, and Sevelectro will service the Bishkek, Chu, and Talas regions.
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