Kazakhstan and Kyrgyzstan Ink Critical Energy Agreement
Astana has promised to save Kyrgyzstan from near-certain energy crisis this winter, committing to supply over a billion kilowatt-hours of electricity and releasing several Kyrgyzstan-bound oil tankers stuck on the border between the two countries since April. But questions remain about the terms of the deal signed by Kazakhstan’s Nursultan Nazarbayev and Kyrgyzstan’s Almazbek Atambayev on November 7.
Chiefly, how will Kyrgyzstan finance the difference between the cost of the electricity it is buying from Kazakhstan and the low rates its own citizens expect to pay—lower, according to energy officials, than the cost of production?
In other words, Kyrgyzstan has agreed to pay Kazakhstan far more than it charges its citizens per kilowatt-hour. Most of the energy will be subsidized by the impoverished government, Nurbek Elebaev, director of Kyrgyzstan’s State Department for the Regulation of the Fuel and Energy Complex, told Vechernii Bishkek on October 31. (Note: $1 is about 58 soms at current rates.) He said:
It is worth noting that the cost of the imported energy is 5.13 soms for a kilowatt-hour. Accordingly, every kilowatt-hour will be subsidized [by Kyrgyzstan] by around 3 soms. Moreover, 5.13 soms is the cost of electricity up to the Kazakh border. The cost of transit from the border to the consumer will be borne by [Kyrgyzstan’s] energy company. How the company will cover the financial deficit will be decided by the government. The cabinet will need to borrow money. This tariff will apply to 1 billion kilowatt-hours of electricity. A further 400 million kilowatt-hours will be determined by an exchange in kind.
On November 8, Elebaev’s deputy, Mirgul Aidarova, said that those 400 million kilowatt-hours would be paid for with water. This statement is curious, since low rainfall and thus a lower level at Kyrgyzstan’s main reservoir, which feeds its main hydropower dam, is one of the chief reasons the country faces an energy deficit this winter in the first place.
Tariffs are a sore point for many Kyrgyz consumers, accustomed to a Soviet-style subsidy. But that subsidy has left the domestic energy system underfunded and crumbling since independence, and ensured the market for alternative forms of energy is stunted. Attempts to hike electricity prices in 2010 helped smooth the way for the bloody exit of the country’s venal president, Kurmanbek Bakiyev, and his family.
When the government last tried to push through a tariff change, in October, a Bishkek court declared it illegal due to a lack of public consultation.
Certainly good news for Bishkek was Nazarbayev’s pledge that Rosneft wagons carrying petrol to Kyrgyzstan, a country with almost no domestic production capacity, will be allowed to pass after their seven-month unexplained delay at the Kazakh border. The delay contributed to an increase in domestic petrol prices, helping drive up inflation. Astana offered no explanation for the holdup.
Nazarbayev likewise reiterated his pledge to provide up to $100 million in aid to help Kyrgyzstan prepare for entry into the Customs Union and Eurasian Economic Union.