Central Asia

I wanted to go back to a previous post of last week on Kyrgyzstan’s potential hydropower development, because I couldn’t consider all the dilemmas in one post.  One dilemma I started to set up: much of the discussion concerns what kind of capacity would be needed in order to a. serve Kyrgyzstan; b. serve Central Asia’s power needs and develop energy commerce by exporting power. 

So, to paste in from before:  The Kyrgyz legislature has recently privatized two major hydropower installations:

MW Kambarata-1 with a 1900 MW capacity;
Kambarata-2 hydropower plant with a 240 MW capacity.

The two Kamabarata plants have annual generation capacities of 5,100 million kWh and 1,100 million kWh, respectively.  These two plants have the potential to control all of the Naryn River output, which makes them even more important in terms of flood control and a kind of lever against Uzbekistan.  In addition, a third plant, the Thermal Power Plant -1, in Bishkek, with a  MW capacity, is going to be privatized.

 This particular article by Ms. Marat also reports that lawmakers in Kyrgyzstan understand that they require foreign direct investment in order to achieve infrastructure improvement.  The problem lies in first, turning over the installations to some foreign business consortium, and second, meeting the conditions of such a consortium.

Serving Kyrgyzstan
According to IWPR, the plants are only about half-completed, and the existing Toktogul hydropower plants generate 80% of Kyrgyzstan’s current needs.  These plants however, have suffered disinvestment: needing repairs and upgrades.  As Kyrgyzstan develops–which it will–Toktugul plant output would not be able to maintain this 80% of required output, even with repairs.  Second, much of Kyrgyzstan is already underserved by utility grids.  Last of all, the twenty percent remaining is primarily served by Uzbekistan gas, which frequently gets turned off when Uzbekistan’s administration is not pleased with Kyrgyz policy.  To gain energy independence from Uzbekistan can only be a plus.  Yet one must factor in some disadvantages as well: large upgrades such as envisioned with Kambarata-1 and 2 involve a certain amount of speculation and risk.

Exporting power: risks and benefits
Customer base
Advantage: There’s definitely a market for excess utility wattage.  Possible customers for Kyrgyz power could include many neighbor states: Eastern Kazakhstan, Uzbekistan, Western China; with cooperation from Tajikistan, part of Pakistan and India could also be served.   

Though Kazakhstan, Uzbekistan, and the Xinjiang region of China are increasingly developing oil, and have coal, there would still be benefits to both in accessing Kyrgyz utility power.  First, there is an ease of distribution (locational advantages).  Second, China especially desires access to clean green power in order to mitigate the climate-changing effects of coal.  Other customers, still close but not contiguous, could be developed in partnership with other states.  For instance, in partnership with Tajikistan, the Kambarata projects could bring power to Pakistan and India’s most underserved areas.  Northern Afghanistan could, in the medium or long term, become a customer for Kyrgyz and Tajik hydropower.  In partnership with Uzbekistan, Southeast Turkmenistan could also access some of this hydropower capacity. 

Disadvantage: Yet many of these customers and some of the potential states for cooperation add to the elements of risk involved in this project.  The most underserved market is of course, Afghanistan, which is also the market with the most risk.

Ownership:
Disadvantage: One of the problems for a state that owns upstream water is that it also incurs obligations to downstream states, who have a right to water under international law.  Under such law, the conduct, flow, and so forth of water must be left much the same no matter the improvements or diversions made by the upstream state.  Therefore, water, surely more valuable than even hydrocarbons, cannot be said to have a clear title (international law has unfortunately added to the burdens of upstream states).  If one adds corporate rather than state ownership of dams, hydropower / hydroelectricity plants, it is easy to see why an upstream state like Kyrgyzstan would be protective of what title it does hold to water.

Advantage: At the same time, the ambiguous ownership between domestic and international claimants can be worked out through the use of international law through treaties and/or contracts.  I would think that a production sharing agreement (PSA), where Kyrgyzstan retains its rights to water and gets to buy a share of hydropower production (much like contractual arrangements in the oil industry) should work. 

This can also be attractive to corporations.  For the corporate interests involved, having some state ownership in the project allows them to access the World Bank’s International Finance Corporation, which loans to firms undertaking development, and its Multilateral Investment Guarantee Agency (MIGA) which insurance of parts of these types of projects.  The World Bank’s IFC also asks for structural reform at that time, i.e., it would require some anti-corruption measures such as separate funding for the project and third-party independent audits.  Income from Kyrgyzstan’s portion of the PSA would also be “earmarked” probably, under a World Bank- led lending syndicate. . .

Extent of debt:
Disadvantages: Understandably, Kyrgyzstan can look at the large costs of hydroelectric development and get cold feet.  The capacity that seems to be planned is in excess of what Kyrgyzstan can use.  Developing utility export customers such as Uzbekistan, Kazakhstan, and Afghanistan would also require further investment in infrastructure, such as power lines across mountains and substations in seismically active areas or areas of political unrest. 

Without debt, however, no revenue can be captured and no improvements made.

Engineering and revenue concerns
There is a three-way dilemma involved: what capacity is optimal for use domestically and for export in terms of technology?  What plant capacity (or range of capacities) is mandated by existing/future water flow? What plant capacity makes outside investment attractive?  These are engineering questions and revenue-forecasting questions for which there are answers, and opinions also can underlie these answers.  

Global warming adds to the risk
Environmental benefits and barriers also inform the power plant’s attractiveness to investment.  Some underlying factors include global warming, as glacier melt is expected to increase.  A well-engineered solution could aid Kyrgyzstan and downstream states in flood control.  When the glaciers significantly recede (maybe as soon as 40 years from now according to UNESCO-Almaty) river output to these plants will also dwindle.  That would mean that Kyrgyzstan could be saddled with debt long after the project operates below capacity.

Conclusions/ possible ways forward:
1. Basic and detailed engineering studies for not just the plants, but for utility corridors.
2. Financial studies for capacities versus debt versus revenue;
3. Consulting with third-party experts to verify these figures and studies.
4. Concentrate on least risky customers (Kazakhstan/China) for export figures.
5. Set up arrangements for transparent program, with sequestered funds and quicker payment of debt
6. Set up profit sharing arrangement so that Kyrgyzstan retains part title of infrastructure, full title of resources, and proportionate responsibility for debt.
7. Enjoy energy independence from Uzbekistan.

As far as I know, much of this may have already been done. 

And quite frankly, I’m hoping that some of the folks at NewEurasia-Tajikistan (Vadim, Tajik Boy, are you out there?) or Kyrgyzstan step up to the plate with comments, because several of the Tajikistan blogging community have educated themselves on dams and power wattages.  I am more or less self-educated on utility matters, primarily by subscribing to newsletters on the power industry and reading treatises that don’t stray too far into electrical engineering equations.  Anyone with some specialized knowledge is more than welcome to step in–from Kyrgyzstan, Tajikistan, the World Bank or anywhere, in the engineering or utility fields, or, hey, anyone from any field.

Map: Perry-Castaneda Library; Photos: XP.detritus.net; Geoinfo.amu.edu; Edmunds.com 

This entry was posted on Monday, July 16th, 2007 at 4:38 pm and is filed under Kyrgyzstan, Economy, Environment/Natural Disasters. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.