1. Kyrgyzstan’s Energy Sector: A Poverty and Social Impact Assessment
Commissioned by UNDP’s Regional Bureau for Europe and CIS
Draft for comments, not citation.
April 2011
Authors: Rafkat Hasanov, Kemal Izmailov
Editor: Ben Slay

2. TABLE OF CONTENTS
List of acronyms ............................................................................................................................... 3
List of figures and tables ................................................................................................................... 5
Executive summary........................................................................................................................... 7
I Economy and poverty ..................................................................................................................... 9
Recent economic trends ................................................................................................................ 9
Poverty trends ............................................................................................................................. 10
II Kyrgyzstan’s energy sector.......................................................................................................... 15
Electricity ................................................................................................................................... 16
Thermal power ............................................................................................................................ 24
Gas ............................................................................................................................................. 27
Coal ............................................................................................................................................ 29
Decentralized renewables ............................................................................................................ 32
Energy tariffs and costs ............................................................................................................... 34
Legal and regulatory framework.................................................................................................. 39
Policy reform to date ................................................................................................................... 40
Energy sector development: future scenarios ............................................................................... 42
Conclusions ................................................................................................................................ 46
III. Poverty and household access to energy .................................................................................... 48
Data issues .................................................................................................................................. 48
Household energy expenditures ................................................................................................... 49
Conclusions ................................................................................................................................ 55
IV. Social protection and the energy sector ..................................................................................... 56
Overview .................................................................................................................................... 56
Social policy instruments ............................................................................................................ 57
Effectiveness of social protection ................................................................................................ 60
Social protection and the energy sector ....................................................................................... 62
Conclusions .................................................................................................................................... 64
Bibliography ................................................................................................................................... 71
2

3. List of Acronyms
ADB Asian Development Bank
GDP Gross Domestic Product
SC State Company
OJSC Open Joint Stock Company
QFD Quasi Fiscal Deficit
CAIPS Integrated Power System of Central Asia
UE Utility Enterprise
IDA International Development Association
CAUPS Central Asian United Power System
FEC Fuel and Energy Complex
CHPP Heating and Power Plants
HPP Hydropower Plants
AIMSCEM Automated Information and Measurement System for Commercial
Electricity Metering
JEA Joint Economic Assessment
JICA Japanese Agency of International Cooperation
RES Renewable Energy Sources
FES Fuel and Energy Sector
NEP National Energy Program
EITI Extractive Industries Transparency Initiative
FESTI Transparency Initiative in the Fuel and Energy Sector of the Kyrgyz
Republic
ACGRKS Automatic Commercial Gas Record Keeping System
WB World Bank
HVTL High-voltage Transmission Line
NGO Non-Governmental Organization
USAID United States Agency for International Development
IDB Islamic Development Bank
KR Kyrgyz Republic
MW Minimum Wage
GMCL Guaranteed Minimum Consumption Level
GMI Guaranteed Minimum Income
LSGs Local Self-Governments
MSBs Monthly Social Benefits
PFMB Monthly Benefit to Poor Families with Children
UMB Unified Monthly Benefit
AMFI Average Monthly Per Capita Family Income
GPW Great Patriotic War
CAPP Chernobyl Atomic Power Plant
PESAC Public Enterprise Structural Adjustment Credit
SPD Social Protection Bodies
MLSD Ministry of Level and Social Development
USB Unified Social Benefit
MSEC Medical-Social Experts Commission
HIV Human Immunodeficiency Virus
AIDS Acquired Immunodeficiency Syndrome
SSEA The State Agency for Social Support under the KRG
DSP&HA The Department of Social Protection and Humanitarian Aid
RSPDs Rayon Social Protection Departments
TSPDs Town Social Protection Departments
3

4. LSGs Local Self-Governments
A/O The Aiyl Okmotu
SBs State Benefits
HUS&E Housing and Utility Services and Energy
4

5. List of Figures and Tables
Chapter I Economy and Poverty
Figures:
Figure 1. Annual GDP Growth Rates (2002-2010)
Figure 2. Poverty Trends in Kyrgyzstan (2000-2009)
Figure 3. Poverty Rates: Actual and Predicted
Figure 4. Changes in Key Indicators Affecting Household Incomes (2005=1)
Figure 5. Kyrgyzstan: Increases in External Migration, Remittance Inflows, in 2010
Tables:
Table 1. Macroeconomic Indicators, Kyrgyzstan (2007-2010)
Table 2. Fiscal, Social Policy Trends in Kyrgyzstan (2008-2011)
Chapter II Kyrgyzstan’s energy sector
Figures:
Figure 6. Trends in Energy Consumption (oil equivalent)
Figure 7. Consumption of Energy Goods (2005=100)
Figure 8. Effective Household Electricity Tariffs in the Former Soviet Republics (2007)
Figure 9. Trends in Energy Production, Consumption (2007-2010)
Figure 10. Household Energy Price Inflation Trends (2007-2010)
Figure 11. Electricity Production, Consumption, Losses, and Exports (in million kWh, 2005-2010)
Figure 12. Financial Results for Power Generation, Distribution Companies (in million som, 2006-2009)
Figure 13. Collection Rates in the Electricity Sector (2007-2009)
Figure 14. Electricity Sector Quasi-Fiscal Deficit (2002-2009
Figure 15. Trends in Electricity Generation, and in Water Volumes at the Toktogul Hydropower Reservoir
(2008-2010)
Figure 16. Thermal Power Production, Consumption, Losses, and Exports (in thousand gigacalories, 2006-
2010)
Figure 17. Financial Results for Thermal Power Companies (in million som, 2006-2009)
Figure 18. Gas Supply, Consumption, and Losses (in thousand meters3, 2006-2010)
Figure 19. Gas Sector Financials (2007-2009, in million som)
Figure 20. Gas, Consumer Price Trends (2007-2010)
Figure 21. Fixed Assets (by book value) in the Gas Sector (2006-2009, in million soms)
Figure 22. Trends in Fixed Asset Depreciation, Cash Collections (2006-2009)
Figure 23. Coal Production, Consumption, Imports and Exports (in thousand tons, 2006-2010)
Figure 24. Financial Results for Coal Companies (in million som, 2006-2009)
Figure 25. Actual Versus Planned Household Electricity tariffs (per kWh, 2006-2012)
Figure 26. Cost Share Trends in the Electric Power Sector (2006-2009)
Figure 27. Actual Versus Planned Household Thermal Power Tariffs (per gigacal., 2007-2012)
Figure 28. Cost Share Trends in the Thermal Power Sector (2006-2009)
Figure 29. Shares of Material Costs in the Thermal Power Sector (2006-2009)
Tables:
Table 3. Main Energy Indicators of the Central Asian Countries in 2008
Table 4. Energy Sector Privatization Chronology
Table 5. End use of Electricity Generated in Kyrgyzstan (2005-2010)
Table 6. Addition tariff for renewables to the maximum tariff
Table 7. Full cost of electricity generation in renewable small power plants
Table 8. Prices for 1 kWh electricity for 4 groups of selected plants
5

6. Table 9. Differences between Planned and Actual Costs of Larger Power Enterprises (2009-2010)
Maps:
Map 1. Existing and Planned Hydropower Plants and High-Voltage Transmission Lines
Chapter III. Poverty and household access to energy
Figures:
Figure 30. Trends in Household Expenditures, Energy Consumption (2007-2009)
Figure 31. Share of Household Spending Absorbed by Energy Expenditures (2006-2010)
Figure 32. Household Energy Expenditures by Various Energy Sources (2006-2010)
Figure 33. Household Expenditures on Energy, by Deciles (2006-2010)
Figure 34. Shares of Household Energy Expenditures Devoted to Various Energy Sources (by Household
Deciles, 2009)
Figure 35. Shares of Household Energy Expenditures Devoted to Various Energy Sources (by household
location, 2009)
Figure 36. Share of Households Reporting Interruptions in Electricity Service (2006-2009)
Figure 37. Share of Households (by Income Decile) Experiencing Weekly (or More Frequent) Interruptions in
Electricity Service (2008-2009)
Figure 38. Share of Households (by Location) Experiencing Weekly (or More Frequent) Interruptions in
Electricity Service (2008-2009)
Tables:
Table 10. Monthly Per-Capita Household Expenditures (in som, 2006-2010)
Table 11. Average Per-Capita Monthly Energy Expenditures, by decile group (in som)
Chapter IV. Social Protection and the Energy Sector
Figures:
Figure 39. Ratio of Monthly Pension, Social Assistance Benefits to the National Monthly Subsistence
Minimum (2007-2009)
Figure 40. Trends in the Distribution of Social Benefits BY Household Deciles (2006-2010)
Figure 41. Trends in the Distribution of Pension Benefits by Household Deciles (2008-2010)
Figure 42. Trends in the Distribution of Categorical Benefits by Household Deciles (2008-2010)
Figure 43. Trends in the Distribution of PFMB benefits by Household Deciles (2008-2010)
Figure 44. Trends in the Distribution of MSB benefits by Household Deciles (2008-2010)
Tables:
Table 12. Kyrgyzstan’s Social Protection Instruments: Efficiency and Effectiveness (2005 data)
6

7. Executive summary
While the uprising that drove President Kurmanbek Bakiyev from power in April 2010 had
many causes, energy issues were among the most important. Dramatic increases in power and heat
tariffs introduced in January of that year, combined with two winters of electricity rationing, years of
rapid growth in household energy costs, and growing concerns about corruption and mismanagement
in the energy sector, were key drivers of tensions in Kyrgyzstan. This study explores the socio-
economic background to these events, and their aftermath, by assessing the poverty and social
implications of tariff increases and other policy reforms now being introduced (or considered) in
Kyrgyzstan’s energy sector.
These trends are playing out at a difficult time. While Kyrgyzstan was one of many countries
that experienced slowing economic growth in 2009 (with the impact of the global financial crisis), it
is one of the few to have reported a recession in 2010. The 1.4 percent decline in GDP officially
reported for last year was a direct result of the political upheavals Kyrgyzstan experienced during
April-June last year. While economic growth helped cut Kyrgyzstan’s income poverty rate in half
(from 62.6 to 31.7 percent) during 2000-2008, the poverty rate stabilized in 2009, even though 3
percent GDP growth was reported. Although the 2010 poverty data have not yet been released, the
recession could have raised the national poverty rate for the first time in a decade. Even before the
developments of 2010, however, winter energy insecurities were afflicting significant numbers of
households in Kyrgyzstan, particularly in urban areas. This reflects the impact of the severe winter of
2007-2008 and the subsequent drought of 2008 that reduced water levels in hydropower reservoirs
along the Naryn cascade, the depreciation of the country’s electric and thermal power infrastructure,
and the absence of decisive market reforms in the energy sector.
This study analyzes recent trends in the electricity, thermal, gas, and coal sectors, as well as
prospects for decentralized renewables in Kyrgyzstan. It focuses in particular on the commercial and
regulatory characteristics limiting the attainment of full cost recovery tariffs, as well as on prospects
for significant short- and medium-term improvements in management within these sectors. It notes
that tariffs for electric and thermal power are being pulled in opposite directions by social
acceptability and economic feasibility. Whereas natural gas tariffs depend on the price of imported
natural gas, the state sets power and heat tariffs. In so doing, the state is guided primarily by social
concerns—leaving many energy companies unprofitable.
These problems are exacerbated by the monopolistic structures found throughout the energy
sector (with the partial exception of coal). The absence of competition and market stimuli creates
preconditions for inefficiency and corruption. These problems are aggravated by high levels of fixed
asset depreciation, particularly in the power and gas sectors. Modernizing energy production,
transmission, and distribution in Kyrgyzstan will require billions of dollars in new investments—
which may not be forthcoming at current tariff levels, and with the current regulatory environment.
Despite having large coal reserves and reporting large increases in coal production during 2006-2009,
imports continue to cover between half and two thirds of Kyrgyzstan’s coal needs. Likewise, virtually
all of Kyrgyzstan’s natural gas is imported, from a single supplier (UzbekTransGaz).
The government that came to power following the April 2010 events has responded to these
problems by introducing the Fuel and Energy Sector Transparency Initiative. FESTI represents an
attempt to improve management and governance within the sector, by introducing greater measures of
public participation and transparency—but without raising tariffs, or further privatizing energy sector
assets, or significantly increasing the role of market forces. Compared to past policies, FESTI is an
important step forward, especially in terms of reducing corruption. But at the same time, by focusing
on reducing corruption in and improving the management of state-owned monopolies—rather than
transforming them into market actors capable of modernizing the energy sector—FESTI is also a
modest step forward.
7

8. Official household survey data (stretching into 2010) indicate that the energy crisis that began
in the winter of 2008 has decreased poor households’ access to electricity and other energy products
and services. These households have also been affected more by interruptions in electricity supplies.
Prior to 2010, significant efforts had been invested in reforming Kyrgyzstan’s social protection
system, in part to increase its ability to mitigate the impact of higher energy prices and tariffs or poor
and vulnerable households. Unfortunately, there is little evidence to indicate that the social protection
system provides these households with effective protection against higher energy costs. Instead,
household survey data suggest that Kyrgyzstan’s social protection system became more regressive
during 2008-2009, with growing shares of social benefits paid out to upper-income households. On
the other hand, these data indicate that households—low-income and otherwise—devote relatively
small shares of their budgets to energy productions and services.
In light of the above, this study makes the following recommendations:
The relatively small shares of household budgets devoted to energy expenditures, the small
likelihood that household electricity tariffs will be increased in the short (and possibly medium) term,
and the difficulties in targeting social benefits to poor households—these factors weaken the case for
more closely linking social and energy policies. The issue would instead seem to be one of adopting
policies to improve the functioning of the energy sector and the social protection system. In this
respect, important changes would include:
• More closely linking the poor family monthly benefit to the guaranteed minimum income,
which should itself be more closely linked to the minimum subsistence level;
• Means-testing the monthly social benefit and categorical benefits, to reduce their regressive
character; and
• Considering the reintroduction of lifeline electricity tariffs. Reductions in tariffs for small
volumes of household electricity consumption could be offset by higher tariffs for
consumption above this level, thereby leaving average tariff levels unchanged.
A number of important research questions have been identified in this report. These pertain to:
• Improvements in the quality of household survey and production/sales data regarding the
energy sector, in order to remove inconsistencies within and between these data sets;
• Developing possible scenarios for the future of Kyrgyzstan’s energy sector;
• Improving corporate governance in the energy sector;
• Identifying appropriate energy saving technologies, and policies and programmes to accelerate
their introduction;
• Strengthening the role of affordability analyses in regulating energy tariff increases;
• Analysis of obstacles to the accelerated development of small hydropower plants and other
decentralized renewable energy technologies, with proposed solutions;
• Analysis of the costs of electric and thermal power production and tariff setting; and
• Analysis of the results of the Fuel and Energy Sector Transparency Initiative.
8

9. I Economy and poverty
Recent economic trends
In the years between the Russian financial crisis of 1998-1999 and onset of the global
1998 1999
economic crisis in 2009, Kyrgyzstan reported average annual GDP growth of around 5 percent.
average
However, as the data in Figure 1 indicate, this growth was rather unstable, with strong economic
expansions (2000-2001, 2003-2004, 2007-2008) being followed by slowdowns or recessions (2002,
2001, 2003 2008)
2005). This growth pattern reflects the impact of a number of internal and external shocks, of both an
tern
economic and political nature (e.g., popular uprisings in 2005 and 2010). As a small open economy,
Kyrgyzstan is very dependent on other countries—not only for exports and imp
countries not imports, but also, and
increasingly, remittances from migrant workers. Whereas remittances were reported at 8 percent of
GDP in 2002, preliminary data indicate that they had risen to 27 percent of GDP in 2010.
Figure 1—Annual GDP Growth Rates (2002-2010)
1
8.5%
7.6%
7.0% 7.0%
5.4% 5.3%
3.1% 2.9%
0.0% -0.2% -1.4%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: State Statistical Committee.
Difficulties in the business and investment climate, and other market distortions, are key
reasons for this slow growth.1 As 2010 International Financial Corporation report found that, while
recent reforms had improved the investment climate, these improvements, and their effects, were
ved
rather moderate.2 These difficulties limit inflows of foreign capital, technology, and know-how,
know
especially outside of the non-ferrous metallurgical sector, thereby inhibiting the broa
ferrous broader industrial and
agricultural modernization that Kyrgyzstan needs. High rates of unemployment and under under-
employment (particularly in subsistence agriculture, which is the economy’s largest sector in terms of
employment) and the inability of growing sectors to absorb “redundant” labor from agriculture and
sectors
elsewhere, has resulted into growing internal and external migration.
The global crisis had a significant negative impact on Kyrgyzstan. While the low degree of
integration with the international economy protected its financial system, GDP growth in 2009
dropped to under 3 percent, on the back of a 15 percent reported decline in remittances (see Table 1).
1
While Kyrgyzstan moved up in the World Bank “Doing business” ranking during this time, little progress was registered
in the global competiveness index, or in Transparency International's Corruption Perceptions Index.
2
“Investment Climate in the Kyrgyz Republic as Seen by Small and Medium Enterprises”, IFC, 2010, p.10
Republic
9

10. Soaring food prices, which rose by a third in 2008, also contributed to the hardships experienced by
vulnerable families. GDP end use data point to a 14 percent decline in personal consumption in 2009.
Table 1—Macroeconomic Indicators, Kyrgyzstan (2007-2010)
2007 2008 2009 2010
GDP growth rates 8.5% 8.4% 2.9% -1.4%
Inflation rates (annual averages):
- Consumer prices 10% 25% 7% 8%
- Foodstuffs 15% 33% 2% 7%
- Electricity, gas, heat, other fuels 8% 30% 22% 14%
Remittances (millions) $688 $1,138 $967 $1,245
Remittances (% to GDP) 18% 22% 21% 27%
Change in remittances 60% 65% -15% 29%
Source: National Statistical Committee data, UNDP calculations.
As in many other countries, the government of Kyrgyzstan responded to the crisis by
loosening its fiscal and social policy purse strings. As the IMF data in Table 2 below show, the share
of GDP devoted to public expenditures rose from 26.2 percent in 2008 to a projected 40.5 percent in
2010. Rising social expenditures—particularly pensions—accounted for almost half of this increase.
While budget support and other grants from donors soared during this time (from 2 to 11 percent of
GDP), so did Kyrgyzstan’s fiscal deficit and public debt. The increases in social protection spending
that cushioned the blows from the crisis and then the events of 2010 may not, therefore, be
sustainable.
Table 2—Fiscal, social policy trends in Kyrgyzstan (2008-2011)
Share of GDP devoted to: 2008 2009 2010 2011
Budget revenues 25.9% 28.5% 29.6% 30.0%
- Grants 1.9% 5.3% 11.0% 1.9%
Budget expenditures 26.2% 36.6% 40.5% 34.2%
- Social fund expenditures 5.0% 6.8% 9.4% 9.0%
- Pensions 4.4% 6.1% 9.0% 8.6%
Budget deficit -0.3% -8.1% -10.9% -8.2%
Public debt 48.5% 59.4% 70.0% 68.2%
Source: IMF country report, Kyrgyzstan (October 2010).
While GDP end use data are not yet available for 2010, the large increase in the budget deficit,
social expenditures, and remittances suggest that final consumption may have increased last year. For
2011, the government has projected 6.3 percent GDP growth.
Poverty trends
As the data in Figure 2 below indicate, Kyrgyzstan’s official income poverty rate dropped
from 62.6 percent in 2000 to 31.7 percent in 2008, before bottoming out in 2009. Kyrgyzstan’s
national Millennium Development Goals Progress Report 20103 argues that GDP growth and final
3
The Kyrgyz Republic, the Second Progress Report on the Millennium Development Goals, Second Edition, (Revised
and Amended), Bishkek 2010
10

11. consumption growth have been main factors of the poverty reduction. Survey on impact of the global
financial crisis on labor migration from Kyrgyzstan to Russia4 says that increase in private
consumption (gross consumption of households) which is the most important component of G GDP, is
positively correlated with the flow of migrant remittances (see Box 1). Likewise, the 15 percent
decline in remittances registered in 2009 corresponds to a 15 percent decline in individual
consumption reported in that year.
Figure 2—Poverty Trends in Kyrgyzstan (2000-2009)
68% National
63% 62% 60% Rural
56% 57% 56%
53% 55%
51% Urban
50%
45% 46% 48%
45% 43% 42%
40%
36% 37% 37%
35%
30% 32% 32%
28% 27%
23% 23% 22%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Source: State Statistical Committee.
An econometric analysis of the relationship between the national poverty rate, GDP growth,
and trends in social spending and remittances is presented in Box 1 and in Figures 3 and 4 below.
Box 1—Forecasting the Poverty Rate: Results of Econometric Exercise
Forecasting
Changes of poverty rates can be forecast depending on changes in GDP, remittances, and social transfers,
using the below equation:
Pov=-1.77*GDP - 0.35*Soc - 0.14*Rem + 10.69
(-2.59) (-
-3.46) (-2.82) – t-statistics
Where Pov = change in the poverty rate
GDP = real GDP per capita growth rate
Soc = real growth in social protection expenditures
Rem = Lagged remittance growth rate
The data used for this analysis come from Kyrgyzstan’s balance of payments, and from the official
s
national accounts data.
4
Irina Lukashova, Irina Makenbaeva, “Impact of the global financial crisis on labour migration from Kyrgyzstan to
Russia. Qualitative overview and quantitative survey”, CASE Kyrgyzstan, OSCE. Centre in Bishkek, ACTED, European
Commission. Bishkek, 2009, p. 55.
11

12. While there are some drawbacks to this model, its specification is reasonable. It avoids non-stationarity
issues and the adjusted R-squared = 0.59.
The following figure 3 illustrates the predictive power of the model.
Figure 3—Poverty rates: actual and predicted
30
25
20
15
10
5
0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
-5
-10
-15
actual data results of modeling
This model indicates that the national poverty rate in 2010 may have fallen, as the effects of
the moderate decline in GDP may have been offset by increases in social spending and the rebound in
remittances.
Figure 4—Changes in key indicators affecting household incomes (2005 = 1)
2,5 4,5
4
2 3,5
GDP level (2005=1)
3
1,5
2,5 Social protection
2 level (2005=1)
1
1,5 Remittances level
(2005=1)
0,5 1
0,5
0 0
2005 2006 2007 2008 2009 2010
Notwithstanding the progress reported during 2001-2010, Kyrgyzstan continues to face
significant poverty reduction challenges. Recent years have seen poverty rates rising in Issyk-Kul and
Chui oblasts, and in Bishkek. The average share of remittances in household incomes in the southern
Osh, Jalalabad, and Batken oblasts exceeds 20 percent, while in northern regions this indicator does
not exceed 1 percent of household. This makes living standards in the southern regions—which were
12

13. the flashpoints for the ethnic tensions in May-June 2010—particularly vulnerable to decline in
May particularly declines
remittance inflows. Seen in this context, the stunning increases in external migration outflows from
Kyrgyzstan’s southern regions officially reported for 2010 (see Figure 5), combined with the record
),
high remittance inflows reported for the country as a whole, may be important factors for social
as
stability.
Figure 5—Kyrgyzstan: Increases in external migration, remittance inflows in 2010
Kyrgyzstan: nflows,
Relative to 2009. State Statistical Committee data, UNDP calculations.
Other important characteristics of poverty in Kyrgyzstan include the following:
Significant differences in regional poverty rates. In Bishkek, the extreme poverty rate in
2008 was 2.1 percent, while in Naryn and Issyk Kul oblasts, this rate was 11.6 and 16.9 percent,
Issyk-Kul 1
respectively. Whereas the overall poverty rate in Bishkek in 2008 was 15.2 percent, in most other
regions it exceeded 40 percent. Much of the pre-2009 progress in poverty reduction was due to
pre 2009
developments in Bishkek and Chui oblast.
Feminization of poverty. In 2008 women accounted for the vast majority of pensioners (67
ion omen
percent of those over retirement age), and of employees in the education and health sectors (76 and 79
percent, respectively). The average salary in these “female” sectors, and the average retirement
pension for women, are below the subsistence minimum. Women working in these sectors receive
lower salaries than do men working in these sectors: in 2008 a woman’s average salary in the
education and health sectors is only 78 and 62 percent, respective, of a man’s average salary in these
sectors.5
Poverty is concentrated in rural areas. Almost three-quarters of Kyrgyzstan poor live in
quarters Kyrgyzstan’s
rural areas; in 2009 37.1 percent of the rural population lives below the national poverty line
(compared to 21.9 percent of the urban population). Children, people living in large households with
many children, in households headed by women, in rural areas, and living by themselves face the
women,
5
“Women and men of the Kyrgyz Republic: A collection of gender-disaggregated statistics,” Bishkek, 2009, pp. 46, 87,
disaggregated
115.
13

14. greatest poverty risks. This is mainly due to limited opportunities for well paid employment.6 Access
to water and communal services is also much lower in rural areas, due in part to the difficulties of
delivering these services in mountainous regions. In urban areas, by contrast, households are much
more likely to have access to central heating, gas, and hot water, improved water and sanitation,
fixed-line telecommunications, and the internet. However, at least a third of the urban non-poor do
not have access to at least one of these services. Limited access to these services is a particular burden
for women in poor households, many of whom can not afford to purchase labor-saving household
appliances.
Child poverty rates are high. According to the findings of the integrated household sample
survey conducted in 2006, 48.5 percent of children under 18 lived in poverty and 12 percent of these
are extremely poor. The number of underweight children is still high and in 2009 was 4.6 percent.7
Limited opportunities for the poor to create their own capital. Poor households in
Kyrgyzstan generally do not have access to the banking system or financial services. In rural areas the
poor generally have smaller plots of land than those who are better-off and due to the fact that the
land market is not developed they are not able to use their lands as collateral.
6
The need to make a thorough analysis of the position of rural women was one of the key recommendations of the UN
Committee on the Elimination of Discrimination Against Women in the third periodic report of the Kyrgyz Republic on
compliance with the UN Convention on the Elimination of all Forms of Discrimination Against Women, articles 41-42.
7
Source: NSC, http://212.42.101.124:1041/stat1.kg/index.php?option=com_content&task=view&id=45&Itemid=100
14

15. II Kyrgyzstan’s energy sector
Prior to the energy crisis that began in early 2008, Kyrgyzstan’s energy sector suffered from
benign neglect. Market reforms had largely ended in the early years of the decade; state-owned
state
monopolies continued to dominate the sector; attempts to attract private capital and foreign
private
investment had met with limited success; and effective electricity tariffs were among the lowest in the
region (see Figure 6). The focus was instead on the state mobilization for the construction of new
).
large hydro-power stations (such as Kambarata-1 and -2 on the Naryn cascade), and adding to
Kambarata 2
electricity transmission capacity (e.g., via the construction of the Datka-Kemin high voltage power
Datka Kemin
line).
Figure 6—Effective Household Electricity Tariffs in the Former Soviet Republics (2007)
$0.09
$0.07 Nominal tariff (per kWh)
$0.06 times collection rate
$0.05
$0.04 $0.04 $0.04
$0.02
$0.01 $0.01
Source: EBRD data, UNDP calculations.
The energy crisis that began in 2008 was something of a wakeup call. As a result of cold
temperatures and low water levels in the hydropower stations along the Naryn cascade, electricity
blackouts increased abruptly, while sharply higher import prices made gas unaffordable for many
households and businesses. These trends are apparent in Figure 7, which show that electricity
,
generation and consumption (generation less net exports and losses) dropped by some 2 and 13
25
percent, respectively, during 2007-2010. Gas consumption dropped by almost two thirds, as prices of
2007 2010.
gas imported from Uzbekistan rose from $100 to $240 per 1000 cubic meters during 2007 2007-2009.
Faced with growing shortages of centrally supplied electricity and unaffordable gas, many
electricity
households, businesses, and public institutions switched to coal-fired boilers. Domestic coal
coal fired
production rose some 41 percent during 2007-2010; apparent consumption (production less net
2007 2010;
exports) rose 57 percent.
In addition to encouraging the “dash to coal”, the government responded to these
ion
developments by permitting energy prices and tariffs to rise at rates well above consumer price
inflation (see Figure 8). It introduced a programme of anti-crisis measures (including rotating
). anti crisis
blackouts and brownouts), raised electricity collection rates, reduced electricity losses,8 and
8
Commercial and technical losses (in kWh), as well as accounts payable (in som) in the electricity sector declined during
2006-2009, while the ratio of accounts receivable to gross income in the electricity sector also fell.
2009,
15

16. accelerated the development of small hydropower plants. The government also tried to reinvigorate
privatization processes in the energy sector by putting stakes in six state-owned energy companies up
for sale. Last but not least, in January 2010 it doubled household electricity tariffs (from $0.017 to
$0.034 per kWh), and quadrupled household thermal power tariffs (from $5.9 to $23.7 per gcal).
These tariff hikes fed into the growing popular dissatisfaction with President Kurmanbek Bakiyev,
who was driven from power by unrest and demonstrations in April 2010.
Figure 7—Trends in energy production, consumption (2007-2010)
160
Electricity generation
140
Electricity consumption*
120
Thermal generation
100
Thermal consumption**
80
60 Coal production
40 Coal consumption***
20 Gas supply^
0 Gas consumption~
2007 2008 2009 2010
Source: State Statistical Committee data, UNDP calculations
* Generation less exports and losses.
** Generation less losses.
*** Production less net exports.
^ Imports plus domestic production.
~ Gas supply less losses.
Following Bakiyev’s departure, these large tariff hikes were scaled back or rescinded,
lessening the impact on vulnerable households. Allegations of mismanagement and corruption led to
the cancellation of the energy sector privatizations (see Box 2), as well as to the introduction of the
Fuel and Energy Sector Transparency Initiative. Nonetheless, despite this more “social” orientation of
energy policy, household energy prices in 2010 continued to rise at rates well above consumer price
inflation.
Electricity
Production, consumption, and losses. The vertically integrated Kyrgyzenergo was dissolved in
2001 into a single generation company, a single transmission company, and four distribution
companies. All these companies are state-owned;9 competitive pressures are weak. Virtually all of
Kyrgyzstan’s power generation assets belong to the “Power Plants” company, including 15 large
hydropower plants, two combined power and thermal plants, and dozens of small-scale power
9
As of 2010, the Ministry of State Property held 80.5 percent equity stakes in “Power Plants” (generation), “Power Grid”
(transmission), and in the electricity distribution companies. The Social Fund held another 13.2 percent of the shares in
these companies.
16

17. producers.10 Total power generation capacity is 3,740 megawatts; the large hydropower plants
account for 2,950 megawatts, while the combined power and thermal plants have a total capacity of
730 megawatts. The state-owned “National Power Grid” company manages the electricity
transmission infrastructure, while four regional distribution companies (“Severelektro”,
“Vostokelektro”, “Jalalabatelektro”, and “Oshelektro”) monopolize the supply of power in the areas
for which they are responsible.
Box 2—Energy sector privatization chronology11
Company Privatization process
Severelektro * A single tender for the privatization of the state-owned stakes in Severelectro, the
Power Bishkek Combined Heat and Power Plant, and the Bishkek District Heating
Distribution Distribution Company was initiated in late 2008, with a starting price of $137
Company million. The tender was voided due to a lack of bids by the January 2009 deadline.
* A second attempt to sell Severelectro separately was voided in July 2009, for the
same reason.
* A third attempt, without establishing a starting price, succeeded in December
2009, with the Chakan GES generating company announced the winner. Terms of
sale included up-front payment of $3 million and capital investments of some $70
million over 10 years. Reportedly, no performance conditions were included in the
tendering documents.
* Following allegations of corruption and mismanagement and the events of April
2010, the government nationalized Chakan GES.
Vostokelektro * Two privatization attempts were declared void for lack of bids. The starting price
Power was set at $41 million.
Distribution * The third attempt, without establishing a starting price, succeeded in February
Company 2010 with the same Chakan GES announced the winner. The terms of sale included
payment of about $1.2 million and investments of $30 million over 10 years.
* Following allegations of corruption and mismanagement and the events of April
2010, the government nationalized Chakan GES.
Oshelektro Power * Two attempts of privatization were voided due to lack of bids. The initial starting
Distribution price was set at $42 million.
Company
Jalalabadelektro Two attempts of privatization were voided due to lack of bids. The initial starting
Power price was set at $27 million.
Distribution
Company
Bishkek Combined * A single tender for the privatization of the state-owned stakes in Severelectro, the
Heat and Power Bishkek Combined Heat and Power Plant, and the Bishkek District Heating
Plant, and the Distribution Company was initiated in late 2008, with a starting price of $137
Bishkek District million.
Heating * The tender was voided due to a lack of bids by the January 2009 deadline.
Distribution * No further attempts have been made.
Company
The “Power Plants” generation company produces 99 percent of Kyrgyzstan’s electricity. Since
more than 90 percent of this is generated by hydropower plants on the Naryn cascade with uniform
hydrological conditions, market competition in power generation is difficult to imagine for the
foreseeable future. Longer term, however, the construction of large coal-fired power plants (such as
Kara-Keche), expansion of decentralized renewables, increased industrial co-generation, the
10
Other power generating companies include Chakan HPP, Koshoi, Kalinin HPP Ltd., and Ark Ltd.
11
Adapted from Joint Economic Assessment: Reconciliation, Recovery, and Reconstruction, World Bank, July 2010, p.
87.
17

18. introduction of more flexible management of the hydropower plants on the Naryn cascade, and the
possible creation of a regional electricity market, could offer prospects for competition in electricity
generation.
Figure 8—Household energy price inflation trends (2007-2010)
Household 2010)
2007
68%
2008
2009 53%
2010
38%
33% 32%
28%
25%
17%
13% 12%
10%
7% 8%
0% 0% 1%
Consumer prices Electricity tariffs Gas tariffs Heat tariffs
Annual average increases. Source: State Statistical Committee data, UNDP calculations.
Prospects for market competition in electricity transmission are even more constrained, owing
to significant associated economies of scale. The state-owned “National Power Grid” company,
state owned
which now performs this function, seems likely to remain a natural monopoly indefinitely.
Figure 9—Electricity production, consumption, losses, and exports (in million kWh, 2005
Electricity 2005-2010)
Generation Consumption
14523 14830
14891 Losses Exports
11789
11083
11070
7869 7551
7396 7299
7257 6862
4667 4582
4973 3693
2750
2662 2629
2460 2379 552 1579
1034
2005 2006 2007 2008 2009 2010
Source: State Statistical Committee.
: Committee
In addition, there is no market competition among electricity distribution companies, each of
which operates in its own territory and their territories do not overlap. While some 27 private
18

19. wholesalers/small distributors were licensed in 2009 to purchase electricity from “Power Plants” and
resell it, these wholesalers typically operate lower-voltage lines, and do not provide most users with
an effective alternative to the regional distribution companies. It is possible to imagine competition
among distribution companies—particularly in urban areas that are located close to the borders of one
of the existing distribution zones, and particularly if the wholesalers are able to expand their
activities. However, policy since April 2010 has emphasized strengthening state control over
distribution (and other electricity) companies, in order to improve management and reduce
corruption.
On the one hand, it is not surprising that all the companies produced by Kyrgyzelektro’s 2001
unbundling have been included into the state Monopoly Register.12 Their tariffs are therefore subject
to close scrutiny by the Antimonopoly Agency. On the other hand, the structural conditions now
prevailing in the power sector—under which a single state-owned monopoly has been replaced by
eight such companies, whose prospects for attracting the private capital needed for modernization are
quite uncertain—now seem particularly unfortunate.
Table 3—End uses of electricity generated in Kyrgyzstan (2005-2010)
2005 2006 2007 2008 2009 2010
Consumption 49% 51% 53% 64% 66% 62%
- Households n.a. n.a. 32% 37% 37% n.a.
- Others n.a. n.a. 21% 28% 29% n.a.
Losses 33% 32% 31% 31% 25% 24%
Exports 18% 17% 16% 5% 9% 14%
Source: State Statistical Committee, UNDP calculations.
The power sector is characterized by close technological links between production and
consumption; a problem in one link can immediately produce downstream ripple effects. Trends in
electricity generation and use, and in the distribution of electricity generated, across consumption
(and for households and other users), exports, and losses, are shown in Figure 9, and in Table 3.
These data indicate that electricity losses have declined since 2005 which, along with reductions in
the share of electricity going to exports, has helped to cushion households from the worst of the
decline in electricity generation.13 Losses in Kyrgyzstan nonetheless remain quite high by
international standards; losses in the 7-10 percent range are considered a “standard benchmark”.14
Most (70 percent in 2010) of these losses occur at the distribution stage, due primarily to obsolete
equipment, the absence or malfunctioning of meters, inaccurate metering of consumed electricity, as
well as outright theft.
In Kyrgyzstan, neither the generation, transmission, nor distribution companies are responsible
for cash management: payments from end-users are collected and accumulated in escrow accounts
and divided among the companies on the basis of percentages set monthly by the Ministry of
Energy’s Regulatory Department. Barter and offsets are also used in settlements between sector
12
According to Order No. 524 of the State Agency for Anti-Monopoly Regulation, dated 30 December 2009.
13
Losses exist in all power systems. Technical losses occur in electricity generation and transmission from the point of
generation to the point of final consumption; their size is determined by the distance over which the electricity is
transmitted and the quality of transmission equipment. Commercial losses represent the difference between the price
(tariff) of electricity supplied to the end user and the payment collected for its consumption.
14
Source: Electricity Loss Reduction Strategy for the Kyrgyz Power Sector, USAID, Bishkek, 25 March 2010 (revised 30
April 2010), pp. 11, 13.
19

20. entities, as well as between sector entities and end-users. In addition, trading figures covering the
end users.
same electricity flows reported by different utilities differ from each other.15
Figure 10—Financial results for power generation, distribution companies (in million som, 2006-
esults mpanies
2009)
Revenues Costs Profit (loss) 13406
11725 12067
11192
9395 9603
8538 8359
179
-208
2006 2007 2008 -533 2009 -1339
Source: Finances of Enterprises of the Kyrgyz Republic, State Statistical Committee, Bishkek, 2010; UNDP
calculations. The data include small-scale enterprises.
small
In light of these complications, power company finances are likewise rather complicated. In
general, these companies show rapid increases in both revenues and costs (in cash-flow terms), with
cash
cumulative growth in the latter (60 percent) outpacing the former (41 percent) during 2006
2006-2009. (By
contrast, cumulative growth in the GDP deflator and producer price index during this time was 46 and
58 percent, respectively.) As a result, the financial results reported by power sector companies
deteriorated sharply after 2006 (see Figure 10
harply 10).
Available data indicate that power sector companies responded to these trends by trying to
companies
tighten their finances. For example, accounts payable in this sector declined in absolute terms during
2006-2009, despite large increases in costs and revenues. While accounts receivable (more than half
2009,
of which are doubtful or unrecoverable debts) in the power sector grew during 2006
2006-2009, relative to
sectoral revenues they declined. Households account for about 70 percent of power sector receivables.
Collection rates increased during this time (see Figure 11), while the power sector’s quasi
1 quasi-fiscal
deficit continued to fall, dropping from nearly 13 percent of GDP to under 4 percent during 2008-2008
16
2009 (see Figure 12).
These trends are occurring against a backdrop of electricity tariffs that are still quite low by
regional standards (see Figure 6). However, the data analyzed above suggest that the financial
problems facing the power sector are not due solely, or perhaps even largely, to slow revenue growth
15
Reductions in electricity losses can be exaggerated, for example, when companies over-estimate billing and then
over estimate
accounts receivable.
16
The quasi-fiscal deficit is determined by the sum of: (1) “above-standard” electricity losses; (2) deviations from a 100
fiscal “above standard”
percent cash collection rate; and (3) the difference between tariffs and long-run marginal costs (includin investment
long run (including
costs), measured on a cash-flow basis. The quasi fiscal deficit therefore reflects the difference between the income needed
flow quasi-fiscal
to fully cover operating and capital costs in the sector versus actual revenues received. According to Kyrgyzstan’s
received
medium-term budget framework, this deficit is to drop below 2 percent of GDP by 2012.
term 2012
20

21. because of “low tariffs”,17 or the power companies’ unwillingness/inability to collect tariffs or reduce
unwillingness/inability
electricity losses. They instead suggest that the key financial problem facing the power sector has
been rapid growth in costs. While some of this growth results from large capital outlays for
infrastructure investments, it may also reflect the inability of weak market forces or regulatory
estments,
oversight to contain costs.
Figure 11—Collection rates in the electric power sector (2007-2009)
Collection 2009)
2007 2008 2009
104%
99%
95%
90% 90% 89% 88% 90%
86%
82%
70%
65%
Overall Households Industry Agriculture
Source: Finances of Enterprises of the Kyrgyz Republic, State Statistical Committee, Bishkek, 2010. The data
include small-scale enterprises.
Hydropower challenges. Electricity generation in Kyrgyzstan is dominated by hydropower,
which provides more than 90 percent of total electricity output. Hydropower plants along the Naryn
cascade, with installed capacity of 2870 megawatts, account for about 78 percent of Kyrgyzstan’s
total generation capacity. The Toktogul power station, with 1200 megawatts of installed capacity, is
Central Asia’s largest hydropower station, and only multi-year hydropower water storage facility.
multi year
This reliance on hydropower leaves Kyrgyzstan vulnerable to changes in water levels alon the Naryn
along
cascade. This was particularly apparent in 2008, when drought conditions helped push water volumes
at Toktogul to extremely low levels (see Figure 13). The volume of electricity generated fell 21
percent in that year, and another 6 percent in 2009 as releases were limited by the need to restore
2009
water levels. However, because Toktogul is a multi-year storage facility, good management of the
multi year
water in its reservoir should provide some protection against droughts in the future.18
Investment projects and prospects. According to various estimates, Kyrgyzstan is not using
more than 10 percent of its total hydropower capacity, which is assessed at 140 billion kWh by the
“National Power Grid” company.19 The combination of abundant water resources and relia reliance on
hydro power poses a dilemma for policy makers in Kyrgyzstan. The construction of new hydro power
plants—both along the Naryn cascade and on smaller rivers—is an obvious way to increase capacity
both rivers is
for winter power generation, as well as boost exports and promote economic development. This is the
and
vision of the Central Asia and South Asia Regional Energy Market (CASAREM) project, which is
17
The reported 41 percent revenue growth combined with a 23 percent reported reduction in kWh sold during 2006 2006-2009
suggests that effective electricity tariffs rose by 85 percent during these years.
pe
18
According to data on the CA WaterInfo website (http://www.cawater-info.net/analysis/index_e.htm water inflows into
( info.net/analysis/index_e.htm),
Toktogul in 2007 were also well below historical averages. However, national statistical committee data indicate that
electricity generation rose 2 percent that year, while exports and losses absorbed almost half of the electricity produced
(see Table 3). This has given rise to claims that mismanagement, rather than drought, caused the sharp drops in water
mismanagement,
levels at Toktogul in 2007-2008, and then electricity shortages during subsequent winters.
2008,
19
Source: Small and Medium Sized Hydropower Development Programme, approved by presidential decree N 365, 14
October 2008.
21

22. supported by the donor community working in Central Asia, and to which the government of
Kyrgyzstan subscribes. The Ministry of Energy has conducted feasibility studies for constructing
Ministry
some 47 hydropower plants across the country.
Figure 12
2—Electricity sector quasi-fiscal deficit (2002-2009)
2009)
12.8%
As a share of GDP
7.6%
5.9%
4.9%
3.7% 3.9%
2002 2005 2006 2007 2008 2009
Source: Ministry of Energy.
Moreover, prospects for virtually all investment projects in the energy sector are constrained
by Kyrgyzstan’s relatively low electricity tariffs. In addition to reducing the cash flow power
companies need to finance investments within the sector directly, low electricity tariffs reduce the
commercial feasibility of energy projects in other sectors. This applies both to coal (the demand
for which is determined in part by the financial situation in the power sector) and to decentralized
renewables, the payback period for which shortens as electricity tariffs increase.
ck
Figure 13—Trends in electricity generation, and in water volumes at the Toktogul hydropower
lectricity
reservoir (2008-2010)
50%
Toktogul water volume (deviation from multi-year average*)
multi
40%
Year-on-year-change in electricity generated (kWh)
change
30%
20%
10%
2008 2009 2010
0%
-10%
-20%
-30%
-40%
-50%
* Calculated relative to the average volume for that month in previous years, going back to 1991-1992. A zero
1991
value means water volume in that month was at its multi year average (no deviation from normal).
multi-year
Sources: State Statistical Committee, CA WaterInfo website; UNDP calculations.
22

23. The Kambarata-1 and -2 hydropower projects are at present receiving the greatest attention and
assistance from the government. Kambarata-2, the costs of which were estimated at some $100
million in 2007, is under active construction—the first unit was installed in 2010, with construction to
be completed by 2015. Key parameters include: installed capacity—360 megawatts (three units of
120 megawatts each); power generation—1,148 million kWh; water reservoir capacity—70 million
m3. The construction is being financed by the government budget and an earmarked credit from the
Russian Federation.20 Kambarata HPP-1 would be significantly larger and more expensive: installed
capacity of 1,900 megawatts (4 units of 475 megawatts each); power generation of 5,088 million
kWh, and a water reservoir capacity of 4,650 million m3; and construction costs of some $1.7 billion.
The construction of the Kara-Keche coal-fired power station, with a capacity of at least 1200
megawatts, is also under discussion. This plant would generate electricity from coal that would be
mined from the Kavaksky lignite basin, where it would be located. In addition to helping to develop
the coal industry, Kara-Keche would diversify Kyrgyzstan’s generation capacity away from its near-
total reliance on hydropower. However, the sources of financing for the construction of this $1.3
billion project have not yet been identified.
Map 1—Existing and planned hydropower plants and high-voltage transmission lines
“Kemin-Almaty”
High-voltage
transmission line
Kara-Keche
“Datka-Kemin” high-
voltage transmission
line ($343 million)
“Datka” transmission
line ($229 million)
“Aigultash-Samat” high-voltage
transmission line ($12.9 million)
Source: Ministry of Energy.
Kyrgyzstan’s topography essentially divides the power transmission network into northern and
southern parts, which are linked by a high-voltage transmission line running from Toktogul in the
south to Frunzenskaya in the north. Because the Naryn cascade is in the south, Kyrgyzstan’s southern
regions have a power surplus, while the north is in deficit. However, some parts of the south—such as
Leilek in the western part of the Batken region—face power shortages (especially in the winter time)
because they are under-served by the existing transmission infrastructure. This problem is being
addressed by the construction of the 131 kilometer Aigultash-Samat transmission line, which is to be
completed in November of 2011. This project is financed by a $12 million credit from the Islamic
Development Bank, as well as $900K from the “National Power Grid” transmission company.
20
The Agreement between the Government of the Kyrgyz Republic and the Government of the Russian Federation as of
February 3, 2009 "On Construction of Kambarata HPP-1".
23

24. Although Kyrgyzstan imports virtually no electricity, the Toktogul-Frunzenskaya transmission
line runs through Uzbekistan and Kazakhstan (see Map 1). Uzbekistan’s and Kazakhstan’s November
2009 decision to withdrawal from—and therefore the de facto dissolution of—the integrated Central
Asian electricity transmission grid adds new potential uncertainty to power supplies in Kyrgyzstan’s
northern regions. This uncertainty is to be addressed by the construction of the $570 million Datka-
Kemin transmission line, the construction of which is expected to be co-financed by China’s Export-
Import Bank, the Asian Development Bank, and others. However, this financing was put on hold
following the April 2010 developments; it has not yet been secured.
A 1998 government resolution requires the distribution companies to install reliable and safe
meters at each service point, and to take regular meter readings. Virtually all electricity meters have
been transferred to the balance-sheet of the distribution companies, who must also finance the
installation of new meters for the population of the republic and their replacement are to be financed
by these enterprises. Thus, all responsibility for electricity metering is placed on distribution
enterprises. Offering reliable electricity services to growing numbers of migrant households—many
of which have an informal character—located in peri-urban areas are posing significant problems for
distribution companies. This is particularly the case for Severelektro, which serves Bishkek city.
As a result, since 2006 a number of projects (financed by the World Bank, KFW, and the Swiss
Economic Cooperation Organization), have helped the distribution companies to improve metering,
reduce losses, and extend services to new households. Procurement of meters and computer hardware
and software (for billing systems) has played a large role in these projects, which have helped reduce
losses and boost cash collection rates. Total financing for electricity sector projects, from
international organizations and from the state budget, amounts to about $98 million.
This is far short of what is necessary: the Joint Economic Assessment published by the World
Bank in mid-2010 assessed the immediate needs of the energy sector (i.e., for the winter of 2010-
2011) at $180 million. Out of this amount $124 million was to be allocated to essential and critical
repairs for heating plants, district heating systems and to ensure security in electricity generation.21
The funding needed for the generation and transmission projects mentioned above (e.g., Kambarata-1
and -2, Kemin-Datka, Kara-Keche) is estimated in the $5-6 billion range. It is not clear when,
whether, or from whom these funds could be obtained.
Thermal power
Two combined thermal and electric power plants are in operation in Bishkek and Osh cities,
covering 85 and 35-40 percent of the households in these two locations, respectively. In addition to
these cities, central heating systems are in place in the towns of Kyzyl-Kiya (covering 60 percent) and
Karakol (covering 26 percent).22 Small-scale thermal generation enterprises operate in many smaller
towns; and residents of stand-alone houses often have their own thermal generating equipment
(stoves, boilers, heaters, etc.).
Thermal power in Bishkek (most of which is generated by the Bishkek Combined Heat and
Power Plant) is delivered by the Bishkekteploset and Bishkekteploenergo enterprises; in Osh it is
supplied by the Osh combined heating and power plant. Thermal power to 95 percent of consumers in
cities and rayon centers is also produced by the state-owned Kyrgyzzhilkommunsoyuz enterprise. All
21
For more see, “The Kyrgyz Republic Joint Economic Assessment: Reconciliation, Recovery, and Reconstruction”,
ADB, IMF, the World Bank, 2010.
22
Source: Country Development Strategy for 2008-2011.
24

25. of these distribution companies are state-owned: Bishkekteploset’ takes the form of a joint
state owned: joint-stock
company in which 84 percent of the shares are state-owned; Bishkekteploenergo is a municipal
s owned;
enterprises under the Bishkek mayor’s office; while Kyrgyzzhilkommunsoyuz belongs to the Ministry
of Energy. Nor is there competition in distribution: each enterprise has its own non non-overlapping
territory of operations. As a result, Bishkekteploset, Bishkekteploenergo, and the territorial divisions
erations.
of Kyrgyzzhilkommunsoyuz have been included into the State Monopoly Register;23 their tariffs are
subject to close inspection by the Antimonopoly Agency.
But while important economies of scale are associated with the creation and maintenance of
mportant
thermal infrastructure, significant inter modal competitive forces are present, particularly at the retail
inter-modal
level. Consumers unhappy with district heating tariffs or service quality can rely more extensively on
quality
electric heaters, install gas- or coal fired boilers, or burn more firewood. There can be little doubt, for
coal-fired
example, that the ability to install coal fired boilers (and, in rural areas, burn firewood) has limited the
coal-fired
strains on vulnerable households presented by the large increases in electricity, gas, and thermal
ns
power tariffs since 2007. Exclusive treatment of thermal power as a natural monopoly whose tariffs
need to be kept low could distort competition among fuel sources—competition that can help limit
source competition
costs and price increases while also promoting the development of Kyrgyzstan’s energy sector.
Figure 14—Thermal power production consumption, losses, and exports (in thousand gigacalories,
roduction,
2006-2010)
Generation Consumption Losses
2933 2926 3015
2887 2815
2185 2165 2270 2209 2184
748 761 745 678 631
2006 2007 2008 2009 2010
Source: Finances of Enterprises of the Kyrgyz Republic, State Statistical Committee, Bishkek, 2010. The data
include small-scale enterprises.
Production, consumption, and losses. Kyrgyzstan’s thermal power facilities generate about 3
million gigacalories of thermal power annually (see Figure 14), two thirds of which come from the
1 ,
Bishkek Combined Heat and Power Plant. Kyrgyzzhilkommunsoyuz and the Osh Combined Heat and
Power Plant generate about 540,000 and 120,000 gigacalories annually, respectively As in the
respectively.
electricity sector, losses are endemic in thermal power, generally exceeding 20 percent of thermal
output. However, thanks to reductions in losses from 25 to 22 percent during 2008 2008-2010, the 4
percent cumulative decline in consumption reported for these years was less than the 7 percent
these
decline in production.
23
According to Order No. 524 of the State Agency for Anti-Monopoly Regulation, 30 December 2009.
Anti Monopoly
25

26. The high thermal power losses are due primarily to wear-and-tear of pipes and insulation of the
wear tear
network, as well as frequent service interruptions, which lead to high levels of condensation. Th The
depreciation of fixed assets in Kyrgyzstan’s thermal power sector is estimated at 60 percent.24 Thus,
according to the Ministry of Energy, the number of accidents in the OJSC Bishkekteploset’ in the first
month of the heating season of 2009-2010 increased by 60 percent as compared to the season of
2009
2007-2008. The insulation of the main and especially in-house heating networks practically does not
2008. in house
function and requires capital repairs. This is particularly an issue for Bishkektelposet’, where losses
increased to 48 percent in 2009.
d
Thermal sector finances. The financials of the enterprises supplying steam and hot water in
recent years have been even less favorable then in the power sector (see Figure 1 In 2008 some 588
15).
million som ($16.1 million) in losses were reported—40 percent of sectoral revenues
reported 40 revenues—before
dropping back to 343 million som ($8 million) in 2009. As is the case in the electricity sector, thermal
power companies reported very rapid growth in costs during 2006-2009— percent, while the
2006 —88
sector’s accounts payable also rose by 66 percent. (By way of comparison the industrial producer
price index reported a 58 percent cumulative increase during this time; the consumer price index
reported a 47 percent cumulative increase; while the GDP deflator rose 46 percent). While much much-
needed investments to refurbish Kyrgyzstan’s decaying thermal infrastructure can no doubt explain
much of this increase, they may not be able to explain all of it. The rapid growth in accounts payable
also contrasts with the electric power companies’ success in sharply reducing their payables (in real
so
terms) during 2006-2009. On the other hand, thermal power companies’ accounts receivable only
2009.
grew by 13 percent during 2006-2009 (a decline in real terms). While doubtful or unrecoverable
2006
household debts grew rapidly during this time, they comprised less than 10 percent of total
receivables in 2009.25
Figure 15—Financial results for thermal power companies (in million som, 2006-2009)
esults mpanies 2006
Revenues
2408
Costs
2042 2065
Profit (loss)
1530 1454
1280
1119
949
2006 -331 2007 2008 2009 -343
-411 -588
Source: Finances of Enterprises of the Kyrgyz Republic, State Statistical Committee, Bishkek, 2010; and
UNDP calculations. The data include small-scale enterprises.
small
24
Source: Finances of Enterprises of the Kyrgyz Republic, National Statistical Committee, Bishkek, 2010. Data on small
, small-
scale enterprises are not included.
25
By contrast, doubtful or unrecoverable household debts were 57 percent of power company receivables in 2009.
26

27. Revenues reported by thermal power companies increased even faster— 118 percent—during
faster—by
2006-2009. However, because thermal power tariffs only cover about 45 percent of service costs, the
2009.
bulk of these revenues come not from users, but from state and local budgets. In 2009, state budget
subsidies for communal service providers reached 1 billion soms ($23 million). For example, despite
reporting an improvement in 2010, Kyrgyzzhilkommunsoyuz only covered about 37 percent of its
costs from sales last year; the difference was financed by state budget, growth in accounts payable,
difference
fiscal debts, and the like. The 2011 state budget earmarks 740 million soms ($15 million) for
Kyrgyzzhilkommunsoyuz alone.26 The situation is similar with Bishkekteploenergo, which is
subsidized by the Bishkek city budget.27
Investment projects and prospects. Some $110 million in projects to reconstruct and modernize
Kyrgyzstan’s central heating system, co-funded by the Asian Development Bank, the World Bank,
co funded
and other international organizations (as well as the state budget) are currently being implemented.
These projects focus on modernizing the Bishkek and Osh combined heat and power plants replacing
plants,
inefficient heating boilers, and installing thermal meters (in apartment buildings). Higher prices for
heat and hot water (see Figure 8 have led many households to install meters on their own initiative.
8)
Gas
Natural gas—virtually all of which is imported from Uzbekistan—accounts for 30 percent of
virtually accounts
total energy consumption in Kyrgyzstan. Gas import, transportation, distribution, and sales are
import,
handled by the Kyrgyzgaz state-owned monopoly,28 whose assets include some 800 kilometers of
state
trunk pipelines and some 2300 kilometers retail pipeline infrastructure.
Figure 16—Gas supply consumption, and losses (in thousand meters3, 2006-2010)
upply, 2006
Imports + production
769 783 762
Consumption
671 648
644 Losses
340
294
247
214
106 97 97 80
77
2006 2007 2008 2009 2010*
* 2010 data for consumption, losses are UNDP estimates.
Source: State Statistical Committee.
: Committee
26
Resolution N 33 of the Government of the Kyrgyz Republic dated December 17 2010 “On Draft Law of the Kyrgyz
overnment
Republic on Republican Budget for 2011 and Forecast for 2012-2013”.
2012
27
By contrast, Bishkekteploset does not receive budget subsidies. Instead, it is cross-subsidized from r
cross subsidized revenues earned via
electricity exports by the “Power Plants” transmission company.
28
As of 2010, the Ministry of State Property held an 87.9 percent equity stakes in Kyrgyzgaz; the Social Fund held
another 5.4 percent.
27

28. There are 279,358 gas consumers, most of which (277,344) are households (approximately 1
(277,344)
million individuals); the remainder are utilities, industrial, and commercial entities (2,145 users); and
budget-financed organizations (129). About 97 percent of household gas users have meters
financed meters.
As it is the only major company involved in the purchase, transport, and distribution of gas in
Kyrgyzstan,29 it is not surprising that Kyrgyzgaz has been included in the monopoly register, and its
tariffs subjected to scrutiny by the Antimonopoly Agency. However, as with thermal, competitive
forces are present on the retail gas market: households can substitute electricity or coal
households coal-fired boilers
(and, in urban areas, district heating) for gas heat; gas-fired appliances can likewise be replaced by
gas fired
electric ones. Strengthening competition among these fuel sources can help hold costs and tariff tariffs
prices down.
Figure 17—Gas sector financials
ector Figure 18—Gas, consumer price inflation trends
onsumer
(2007-2009, in million som)
2009, (2007-2010)
2010)
Gross income 250
Gas import prices
Costs 4404 4532
Household gas tariffs
Profit (loss) 3789
Consumer price index
3320
3070 3045 200
150
25
2007 = 100
128
-128 100
2007 2008 2009 -469
2007 2008 2009 2010
Sources: State Statistical Committee, especially Finances of Enterprises of the Kyrgyz Republic, Bishkek,
2010; and UNDP calculations.
Imports, consumption, and losses. As the data in Figure 16 show, gas consumption in
Kyrgyzstan dropped precipitously during 2007-2009, as the price of gas imported from Uzbekistan
2007 ,
rose from $100 to $240 per thousand cubic meters. Preliminary data indicate that, while the import
price dropped slightly in 2010, imports and consumption continued to decline. The cumulative
decline in gas consumption during 2007-2010 seems to have been on the order of 68 percent, with
nsumption 2007 2010
particularly large drops reported in the industrial sector. Although household gas prices “only” rose
by 12 percent last year, 2010 was the seventh consecutive year in which hou
household gas prices rose at
rates in excess of consumer price inflation.
Losses in the gas sector are significant: in 2009 they comprised 23 percent of total gas supply
(imports plus domestic production), up from 12-14 percent in previous years. These losse reflect the
12 14 losses
debilitated condition of Kyrgyzstan’s gas pipelines, inaccurate metering, theft, and other factors. The
highest losses are recorded in the country’s southern regions.
Gas sector financials. Kyrgyzgaz’s financial performance is determined primarily by trends in
wholesale (imported) and retail gas prices, the procurement of which represents some three quarters
29
The KyrKazGaz joint venture company also performs gas transit functions in the territory of Kyrgyzstan.
28

29. of its total expenditures. As the data in Figures 17 and 18 show, Kyrgyzgaz’s finances deteriora
deteriorated
sharply during 2007-2009, when the price of gas imported from Uzbekistan rose from $100 to $240
2009,
per thousand cubic meters. Although retail gas prices also increased sharply (relative to consumer
prices) during this time, they were unable to keep pace with import prices. Exchange-rate effects
with Exchange
further added to these losses, as these gas purchases are priced in dollars, and the som depreciated in
nominal terms vis-à-vis the dollar by some 26 percent during 2008-2010. Fortunately, Uzbektransgaz
vis 2008 2010.
did not raise its export prices in 2010, allowing domestic gas prices (which rose another 12 percent
e
last year) to partially make up the lost ground. This suggests that a lower loss figure will be reported
for 2010.
Figure 19—Fixed assets (by book value) in the gas Figure 20—Trends in fixed asset depreciation,
Trends
sector (2006-2009, in million som)
2009, cash collections (2006-2009)
ollections
793 100%
733
80%
Share of depreciated fixed assets
496
60%
393 Cash collections
40%
20%
0%
2006 2007 2008 2009 2006 2007 2008 2009
Sources: Finances of Enterprises of the Kyrgyz Republic, State Statistical Committee, Bishkek, 2010; and
UNDP calculations.
Despite these losses, Kyrgyzgaz and its subsidiaries have managed to make significant
investments in Kyrgyzstan’s gas infrastructure. As the data in Figures 19 and 2 show, the book value
infrastr 20
of fixed assets doubled during 2006-2009, while the share of worn-out fixed assets dropped from 40
2006 t
to 28 percent. Kyrgyzgaz’s high rate (at least 90 percent) of cash collections contributed to financing
these capital expenditures.
Investment projects and prospects. Investment projects worth some $95 million are currently
underway in the gas sector—a figure that is five times the book value of the gas sector’s fixed assets.
a
Of this sum, $6 million reflects expenditures to repair damage to the gas distribution network in Osh
following the June 2010 events.30 These investments are mainly to replace unreliable gas pipelines
s
and construct new ones, and to improve metering at gas distribution stations.
Coal
Kyrgyzstan’s coal industry hosts 30 mining companies, which include both privately owned and
joint stock companies with significant state participation. However, the largest coal mining enterprise
30
For more see, “The Kyrgyz Republic Joint Economic Assessment: Reconciliation, Recovery, and Reconstruction”,
ADB, IMF, the World Bank, 2010.
29