Kyrgyzstan: Government Presses Ahead with Controversial Plan to Privatize Electricity Grid

The Kyrgyz government is moving forward with plans to privatize the Central Asian nation's electricity industry, despite strong public disapproval.

Prime Minister Igor Chudinov announced in late March that the government will sell off several state-run electricity enterprises, or grant concessionary rights to private owners by the end of August. Among the state-run enterprises that stand to be privatized is Severelektro, which serves more than 50 percent of the country's consumers, along with Oshelektro and Jalalabadelektro, companies that supply electricity to southern regions. Authorities are also selling Bishkek-TEZ and Bishkekteploset, state run power stations that provide heating to Kyrgyzstan's capital Bishkek.

In addition to these companies, Kyrgyz officials are on the hunt for investors to finance two half-built and linked hydropower plants on the Naryn River - Kambarata 1 and Kambarata 2, which, when completed, would have a combined generating capacity of about 6,200 million kWh. According to some estimates, the plants could cost upwards of $2 billion to complete. To give an idea of the enormity of the project, Kyrgyzstan's state budget in 2007 was an estimated $684 million.

The recent severe winter highlighted the need for urgent action to increase Kyrgyzstan's power-generating capacity. In March, amid rising consumption rates, the water reservoir at the Toktogul hydro-power station, the country's largest, almost became depleted. Much of the Toktogul water went to downstream countries such as Uzbekistan and Kazakhstan, exacerbating flooding in some areas. [For background see the Eurasia Insight archive].

At a recent government meeting, Saparbek Balkibekov, Minister of Industry, Energy and Fuel Resources, called for immediate steps to curtail demand and to restore water levels at the Toktogul reservoir. Officials responded by announcing a 13 percent price hike for domestic users of electricity, and a similar hike for water.

Officials argue that the sale of state-run enterprises would generate much needed capital that could enable the government to make infrastructure improvements, and possibly even allow Kyrgyzstan to raise revenue in the future by exporting electricity. According to Chudinov, the renovation and basic maintenance costs of Bishkek-TEZ is 1.7 billion Kyrgyz soms (roughly $46 million), an amount that the state cannot afford to allocate.

Officials also hope that privatization can curb what is now a common practice of electricity theft by both individuals and enterprises. "We are now losing [annually] close to 40 percent of generated electricity, out of which 30 percent are commercial losses, and this amounts to 4 billion kilowatt per hour annually," Osmonbek Artykbayev, a deputy and a member of pro-presidential Ak Zhol Party, told a parliament meeting on April 3. "This [the amount of stolen electricity] equals approximately to what Toktogul GES [Toktogul Hydropower Station, Kyrgyzstan's largest station] alone generates per year."

Strong parliamentary opposition frustrated past privatization pushes. This time around, however, the legislature is dominated by Ak Zhol, the pro-presidential party. The government pushed through legislation in June 2007 that allows foreign ownership of the Kambarata projects. More recently, parliament endorsed a controversial border delimitation agreement with Kazakhstan on April 11, despite a public outcry. [For background see the Eurasia Insight archive].

President Kurmanbek Bakiyev's administration has already begun to collect bids from various foreign investors. At least four of them have been pre-selected. Kyrgyz government has refused to name them, but according to local observers, the potential buyers come from Russia, and possibly include RAO UES, a Russian state-run energy company.

Critics argue that privatization will cause inflation to spiral upward, reaching a level that could possibly spark social unrest. Kyrgyz citizens are already feeling squeezed by rapidly rising prices for food, gas, and heating. [For background see the Eurasia insight archive].

Even the announced hike for electricity is causing a lot of grumbling. "I am [deeply] in debt because everything has become so costly," said Dilbar Nazirova, a high-school instructor from Osh told EurasiaNet:. "In winter, I didn't pay for my electricity bills. In March they [controllers] came and imposed a big fine. After that they discontinued [electricity] supply to my house. I simply can't afford to pay them [electricity bills]."

The main stumbling block to privatization in 2008 could prove to be the faltering global economy, which will do nothing to increase the already flagging interest of international investors in Kyrgyzstan. In addition, the enterprises that the government seeks to sell off are saddled with millions of dollars in debts. To increase their attractiveness for potential buyers, the Kyrgyz government is considering writing the enterprises' debts off.

Seeking to revive their political fortunes, Kyrgyz opposition leaders appear poised to try to capitalize on public discontent over privatization plans. "Reforms that are being carried out by authorities will fail because they lack people's trust," said Omurbek Tekebayev, leader of Ata Meken Party. "Behind these changes are energy barons. They are seeking to acquire the [electricity] sector and they are the ones who ordered the constitutional reforms and the early parliamentary elections in December 2007. This all boils down to one thing – the sale of Kyrgyzstan's strategic sector."

Alisher Khamidov is a doctoral candidate at the School of Advanced International Studies (SAIS) of Johns Hopkins University in Washington, D.C.

Kyrgyzstan: Government Presses Ahead with Controversial Plan to Privatize Electricity Grid

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