Gas supplies are flowing again from Uzbekistan to Kyrgyzstan following a more than week-long cutoff that created heating and electricity shortages in many Kyrgyz cities. Uzbekistan stopped supplying gas to exert pressure on Kyrgyzstan to pay off $1.35 million in debts for earlier deliveries.

The dispute underscores the tension that exists between upstream and downstream countries in Central Asia, which are locked in relationships of vital mutual dependence. Kyrgyzstan and Tajikistan, the upstream countries, possess more water than they need for domestic use and consume more power than they can produce themselves. In contrast, the downstream nations of Kazakhstan, Turkmenistan, and Uzbekistan have energy resources, but lack sufficient water supplies. These complementary conditions should promote mutually beneficial arrangements that foster regional growth and the rational use of natural resources. However, the experience of the past decade shows that discord has been more prevalent than agreement in Central Asia.

Why have the upstream and downstream countries of Central Asia not come to more stable understandings regarding their water and energy relations? The root cause is not a shortage of water or energy. Water supplies are plentiful in Central Asia, and the region is developing into an oil and gas hub. Thus, the Central Asian water and energy problem is one of distribution, not supply.

Kyrgyzstan and Tajikistan are now taking steps to alter current arrangements, attempting to make more efficient use of their water resources in order to boost domestic energy production. Successful implementation of the reforms could clear away major obstacles that hinder the rational use of water and energy resources in the region.

Like many of the other pressing public policy problems of the former communist world, the water and energy problem in Central Asia has its roots in the disjunction between the physical infrastructure and the new countries' desires to foster economic self-sufficiency, even at the cost of environmental security and cooperative arrangements with their neighbors.

During the Soviet period, decisions about the production and distribution of energy and the distribution of water were centralized, coming down from Moscow. Today, the countries compete for control of the resources. In the Kyrgyz-Uzbek case, authorities in Bishkek would prefer to utilize the water during peak electricity generating periods—particularly during the winter—to satisfy local demands for heat. Meanwhile, Uzbekistan, a major agricultural producer that relies heavily on a uniform supply of water for cotton cultivation, prefers to see the water remain in reservoirs during winter and used for irrigation during the summer.

To reach an accommodation between the competing uses of water and power, the countries of the region have developed an elaborate system of swaps. The Kyrgyz-Uzbek relationship is probably the most complex of these relationships. Payment problems have occasionally led to cutoffs in supplies, as in late January. Energy disruption, while by no means unusual in Kyrgyzstan, is one of the most widely unpopular consequences of current public policy. And just last December the two countries announced with great fanfare a rescheduling agreement that was designed to solve the payment problems.

The signs are plentiful that Kyrgyzstan is looking to diminish its dependency on Uzbek energy supplies. Kyrgyzstan currently produces only about one-fourth of the energy that it consumes. Kyrgyz officials have recently talked to their Kazakh, Russian and Turkmen counterparts in the search for new sources of gas supplies. At the same time, Bishkek is looking to develop it own enormous potential for hydroelectric generation. In addition, officials are trying to move toward the principle of monetizing its relations with its neighbors to minimize its reliance on barter relationships and swaps.

The Kyrgyz government has been moving slowly in the direction of privatizing its energy utilities, and shifting to a cost-recovery basis for the sale of energy for municipal users. But privatization has stalled because investors have been reluctant to put money in the state energy company, Kyrgyzenergo, without a guarantee that additional hydroelectric generating capacity will be added to the Kambarata generating station. A plan for restructuring Kyrgyzenergo was approved at a stockholders meeting on January 12, and has now been submitted to the Kyrgyz parliament for approval.

While the relationship between Kyrgyzstan and Uzbekistan is complex, an even more troubled relationship exists between Uzbekistan and Tajikistan. Tajikistan effectively has two electric grids, one in northern Leninabad oblast, the other in the southern part of the country. Tajikistan has only limited natural gas reserves and thus relies heavily upon imports of natural gas from Uzbekistan and Turkmenistan. Tajikistan and Uzbekistan have been exchanging gas and electricity under terms of a barter arrangement that also sets a monetary value for the use of the rail transport that connects Uzbekistan's Ferghana Valley to western Uzbekistan via a corridor in northern Tajikistan.

The irony of Tajikistan's position is that it is a leader in world per capita production of hydropower, and yet it must purchase electricity at international prices (from $0.025 to $0.05 for each KWt/h) from Turkmenistan and Uzbekistan.

As in Kyrgyzstan, Tajik officials are working to alter existing arrangements. Officials of the state-owned electric company, Barqi Tajik, are seeking development funds to bring into production the Sangtuda station, the fourth dam on the Vakhsh cascade. The projected capacity of the Sangtuda station is 600 MWt/year, an output level that would allow Tajikistan to cover its annual deficit of electric power. Barqi Tajik is also seeking to shift to a cost recovery basis for municipal energy supplies. Municipal power rates are scheduled to increase by 70 percent by the end of June 2001.

If Kyrgyzenergo and Barqi Tajik succeed in privatizing and shifting to a cost-recovery basis for the production and supply of energy to their domestic consumers, they may be able to enter into a larger Central Asian energy market on a monetized basis, leading to rational tradeoffs between water and power on a region-wide basis. This will surely lead to a more rational distribution system, but it will not necessarily address the urgent problem of making energy supplies available at affordable rates to the most vulnerable segments of population in the upstream countries. If privatization of the energy sector is to be successful, it will have to take into account the social costs.