The government of the Kyrgyz Republic pulled out all the stops as it presented an ambitious energy sector reform drive and showcased its $5bn flagship investment project, Kambarata-1 hydropower power plant (Kambarata-1 HPP). This mega infrastructure, once built, will increase the country’s installed power capacity by half and provide the energy to further fuel the economic boom the small Central Asian country is enjoying.

The Kyrgyz Republic Energy Forum (KREF) was held in Vienna on June 10. Organised by the Kyrgyz Government and World Bank and co-hosted by the Austrian Finance Ministry, it commenced with a video message from Krygyzstan’s President Sadyr Japarov, who took office in 2021.

Amongst the first things Japarov did as president was target the energy sector for urgent modernisation. The country’s power infrastructure has barely been touched since Soviet days. Almost two thirds of the generating capacity and transmission lines are well past their sell-by date.

At KREF in Vienna, Chairman of Kyrgyzstan’s Cabinet of Ministers Akylbek Japarov led the presentations given to the assembled international financial institutions (IFIs), development banks, private investors and Western power companies.

The top priority was to raise investment for Kambarata-1, a massive hydropower project on the Naryn river. It will have the capacity to finally solve the country’s perennial energy deficit.

“The forum will be an important step towards sustainable development and a bright beginning of the path that will lead us to a green and prosperous world,” Akylbek Japarov told delegates in his opening address.

“Let this forum open up opportunities for many successful projects and initiatives aimed at improving the quality of life and preserving the natural resources of our planet,” he added.

The forum was attended by representatives and the management of more than 200 international financial organisations, delegations from Central Asia, Europe and the Middle East as well as private investors. French energy company Electricite de France (EDF) and head of the UAE state-owned renewables energy company Masdar were present. Both are already heavily involved in the republic.

“The Kyrgyz Republic today has a high potential for energy generation. Almost all the energy generated in Kyrgyzstan is green, as it comes from hydropower. We have so far only used about 13% of our existing potential. Taking into account global challenges and trends in the development of green energy, the Cabinet of Ministers has actively begun implementing infrastructure energy projects. The strategically important large-scale project for the construction of Kambarata-1, which is important to the whole region, is also gaining a new pace of development,” Akylbek Japarov observed.

Kyrgyzstan's Chairman of the Cabinet of Ministers Akylbek Japarov led the energy reform presentations given to international investors at the Kyrgyz Republic Energy Forum (KREF) in Vienna

Central Asia energy coming of age

Kyrgyzstan is booming. Economic growth is running at 7-8% a year and the government’s tax revenue doubled in the last year on a combination of reforms and mushrooming trade, Japarov said.

“Average GDP amounted to 7% and accelerated to 8.8% in the first quarter of 2024,” he noted, reeling off an impressive array of macroeconomic results, including a doubling of tax revenues in the last year. He added that Moody’s rating agency recently upgraded the outlook on Kyrgyzstan’s credit rating from negative to a stable B3.

However, the nominal GDP of the country is still only $14bn, making Kyrgyzstan one of the smaller countries in Central Asia, with the region having a collective GDP of around $450bn. Nevertheless, all the macroeconomic indicators are rapidly improving, particularly inflation, which has fallen from the double digits, caused by the effects of the recent polycrisis, to 4% this year.

Japarov said the government is hoping to double the size of the economy to $30bn by 2030 – but that will take energy.

The plan is to more than double installed capacity from 3.9GW to 10GW by 2050. While Kambarata-1 will provide the necessary energy in the short to medium term, a slew of smaller HPP projects being developed in parallel, which will cost an estimated $16bn, will provide the remaining capacity.

And the power is urgently needed. The vast majority of Central Asia is taking off economically and the larger nations of the region, namely Kyrgyzstan’s neighbours Kazakhstan and Uzbekistan, have been suffering from power shortages for two years. The Kyrgyz Republic thus has the opportunity of not only solving its own energy problems, but becoming a major source of energy for the whole region, with the other countries also reforming their energy sectors to take advantage of potential.

Kyrgyzstan is well placed to export power to the whole of Central Asia and beyond.

All the countries of Central Asia are investing in their energy sectors to realise the potential for booming growth.

Right at the start of modernisation

Kyrgyzstan is right at the start of the process of modernising its energy sector. The republic has 3.9GW of installed capacity of which 800MW is provided by the coal-fired Bishkek Combined Heat and Power Plant (CHP) and 3.1GW stems from hydro.

However, the energy infrastructure has barely been touched since the fall of the Soviet Union and 60% of the transmission and distribution network is past its useful life, while 50% of the installed capacity needs repair or replacement, according to the World Bank.

“The installed capacity in the Kyrgyz Republic is about 3,900 megawatts. Of this, around 800 megawatts is from the Bishkek coal power plant [Bishkek 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,” head of the World Bank office in the Kyrgyz Republic, Naveed Hassan Naqvi, said in a recent interview.

The need for modernisation was highlighted by an accident that occurred at CHP earlier this year, which was nobody’s fault; the facility is simply so old it’s becoming prone to failures.

“In recent years, the country has faced a number of problems in this area, such as deteriorating infrastructure, electricity shortages and dependence on imports,” the World Bank said in a recent report.

President Japarov immediately focused on the need for a comprehensive modernisation of the energy sector after he took office. Within six months a white paper was drawn up and the IFIs were quickly brought in for help, advice and funding.

The president has taken personal charge of the five-year programme since January 2023. The details of the plan were announced to the population in May 2023.

A key element of the modernisation is to introduce a tariff reform to make the modernisation economically viable. As the population of Former Soviet Union (FSU) countries were used to receiving their power and winter heat for free, increasing charges for power remains a controversial political issue. From the start, a programme to subsidise utility costs for disadvantaged families was part of the reforms. Those that can afford to pay will be made to pay, although the tariffs are likely to remain subsidised to some extent for some time.

The team, led by Akylbek Japarov and Energy Minister Taalaibek Ibraev, are driving the reforms and have corralled the World Bank and others into the effort.

The next major step was an international energy conference organised in London in April 2023. It brought in an alphabet soup of agencies including the World Bank, AIIB, ADB and EBRD, as well as bilateral organisations such as Switzerland’s SECO, and China among others. Several grants to carry out technical studies and preparatory work have already been issued. More recently, the World Bank approved a plan to invest $500mn to build the first phase of Kambarata-1 to get the whole energy modernisation project off the ground.

The government is offering an array of investment guarentees and tax incentives to attract foreign investment.

Top priority, Kambarata-1

Located on the Naryn river, Kyrgyzstan's biggest river, this HPP has, in the words of the president, become the country's most urgent priority. It is expected to generate more than 5bn kWh of electricity a year.

Kambarata-1’s cost of $5bn means the project needs a regional dimension to be economically viable. It will also significantly affect the flow of water out of Kyrgyzstan into Uzbekistan and Kazakhstan, which depend on the flow to irrigate agricultural lands.

Water is indeed becoming a critical issue in Central Asia, with the use of it unevenly distributed: 77% of the annual runoff is concentrated in the two upstream countries, Tajikistan and Kyrgyzstan, while 85% of the water resources are used for irrigation in the three downstream countries, Uzbekistan, Turkmenistan and Kazakhstan. Water stress in Central Asia is already high, according to the UN, and it is expected to increase by 2.8 times in some regions of Central Asia by 2040 due to the effects of global warming, which is already causing severe droughts in the region.

The regional implications of the Kambarata-1 project were highlighted by the fact that the energy ministers of Uzbekistan, Kazakhstan, Tajikistan and Azerbaijan were all present at KREF.

Kyrgyzstan’s share in the project and authorised capital will be 34% of total equity, while Kazakhstan and Uzbekistan will hold 33% each. The preparatory work has started, and construction is expected to take around 10 years.

Of the $500mn investment put into initial construction, between $150mn to $200mn will be provided by the World Bank in the first phase. Other financiers will come in and meet the balance.

Proliferating projects, big and small

In all, projects are rapidly proliferating. The deputy head of Kyrgyzstan’s presidential service, for instance, presented the dozen smaller HPP projects that will be developed in parallel to Kambarata-1.

“The state has built and recently launched Bala-Saruu hydropower plant, which will provide electricity to the Talas region,” mentioned Akylbek Japarov.

The Kazarman HPP cascade and Kemin-Torugart power transmission line, with a capacity of 500 kilovolts, have been given national project status, and many more such projects are in the preparatory stage.

“Work is under way to implement energy projects as regards the construction of a cascade of HPPs on Chatkal river, as well as a cascade of Kazarman HPPs on Naryn river. Our country needs foreign investment to develop the energy sector, which is the main sector of the economy, and we are ready for close cooperation in this area. We invite foreign companies to consider participation in the construction of small and medium-sized HPPs and renewable energy sources [RES] in Kyrgyzstan,” Akylbek Japarov said.

In parallel with the hydropower projects, more than 50 smaller renewable energy projects have also been launched across the country.

Kyrgyzstan has enormous untapped renewable power generation potential.

Opening up the southern corridor

If seen as part of the pan-Central Asian $450bn economy, then the Kyrgyz power sector modernisation makes perfect sense. Already some of the solar power projects being developed will exclusively provide Uzbekistan with power as the sole off-taker.

Tajikistan, meanwhile, continues to build the analogous Rogun hydropower dam that will provide far more power than the country needs. Both Kyrgyzstan and neighbouring Tajikistan hope to become net exporters of electricity to not only the whole Central Asian region, but also to South Asia via Afghanistan.

The golden goose is the revival earlier this year of the $1.2bn Central Asia-South Asia Electricity Transmission and Trade Project, better known as the CASA-1000 transmission line, that is to run via Kabul in Afghanistan to link Central Asian power generation to the vast South Asia markets, such as that of Pakistan. The project stalled in August 2021 when the Taliban retook control of Afghanistan, but it has been revived by the World Bank after concerted lobbying from Kyrgyzstan, Pakistan and Tajikistan.

The World Bank says that around 18% of the transmission towers required in the Afghan section of the project had been erected at the point when work was paused. The Tajik and Kyrgyz sections are already near completion. Tajikistan will provide 70% of the power delivered via the CASA-1000 grid and Kyrgyzstan will provide the rest when Kambarata-1 comes online.

CASA-1000 is part of a more general trend to improve Central Asia’s electricity transmission systems, which were connected by the Soviets in the 1970s. However, only 2.5% of demand is currently met through electricity trade, amounting to about 40% of interconnection capacity. This low level of trade is due to the lack of a market platform, weak regional network management, ageing infrastructure and limited coordination. Trading in the Soviet-era Central Asian Power System is currently primarily based on bilateral agreements, but that will change as the new generation capacities come online.

Kyrgyzstan intends to export electricity to its power-hungry neighbours and further to Afghanistan and Pakistan in the future.

Tariff reform

Part of the energy reform programme includes tariff reforms to pay for all the new facilities. The Kyrgyz Republic’s energy tariffs were ranked the fifth lowest in the world. The government has been subsidising to the tune of 2-3% of GDP every year. Most of the energy is consumed in the residential sector, and those tariffs have almost never gone up – not in the last decade anyway, according to the World Bank’s Naqvi.

The tariffs will have to rise now, but the government has already launched a scheme of subsidies to protect the most socially vulnerable.

“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,” Naqvi recounted.

Tariffs have already been hiked, but there is still a lot of work to do on the scheme. Only 65 tyiyns are recovered for each som spent on providing power to houses. The government has to put in the other 35 tyiyns from the budget. In Uzbekistan, the figure is between 85% and 90%. The government has asked the World Bank to prepare a plan in which the poorest get support, but the principle remains that those that can pay for electricity, should pay.

You can find all the presentations given at KREF here.