CENTRAL ASIA

REGIONAL ELECTRICITY EXPORT POTENTIAL STUDY

EUROPE AND CENTRAL ASIA REGION WORLD BANK, WASHINGTON, D.C. DECEMBER 2004

The views expressed in this paper are the views of the authors and do not necessarily reflect the views or policies of the Asian Development Bank (ADB), or its Board of Governors, or the governments they represent. ADB does not guarantee the accuracy of the data included in this paper and accepts no responsibility for any consequence of their use. Terminology used may not necessarily be consistent with ADB official terms.

CENTRAL ASIA REGIONAL ELECTRICITY EXPORTS POTENTIAL STUDY

December 2004

________________________________________ Europe and Central Asia Region The World Bank Washington, D.C.

ACRONYMS AND ABBREVIATIONS

ADB BCM CACO CAPS CARs CHP GDP GWh HV IGIAs JBIC KEA kV kWh LV MW RAO UES REC REEPS RESW T&D TWh UNDP USAID WEC

Asian Development Bank billion cubic meters Central Asian Cooperation Organization Central Asian Power System Central Asian Republics Combined Heat and Power Gross Domestic Product Gigawatt-hour High Voltage Inter-Governmental Irrigation Agreements Japan Bank for International Cooperation Kazakhstan Electricity Association Kilovolt kilo Watt hour Low Voltage Megawatt Russian Joint-Stock Company Unified Energy System Regional Electricity Companies Regional Electricity Export Potential Study Regional Economic and Sector Work Transmission and Distribution Terawatt-hour United Nations Development Program United State Agency for International Development Water Energy Consortium

CENTRAL ASIA REGIONAL ELECTRICITY EXPORTS POTENTIAL STUDY Table of Contents

ACKNOWLEDGEMENT ............................................................................................................... i EXECUTIVE SUMMARY ............................................................................................................ ii CHAPTER I: INTRODUCTION................................................................................................... 1 CHAPTER II: THE WATER ENERGY NEXUS IN THE SYR DARYA BASIN ....................... 4 B. The Regional Electricity Export Potential Study................................................................ 7 CHAPTER III: CURRENT STATUS OF THE POWER SECTOR IN THE CENTRAL ASIAN REPUBLICS ................................................................................................................................... 8 A. Power System Characteristics............................................................................................. 8 B. Policy Reforms in the Power Sectors of CARs ................................................................ 10 Policies to be Pursued Going Forward...................................................................................... 14 CHAPTER IV: DEMAND SUPPLY BALANCEAND POTENTIAL FOR ELECTRICITY EXPORTS..................................................................................................................................... 15 A. Demand Forecast.................................................................................................................. 15 B. Supply Options.................................................................................................................... 19 C. Demand and Supply Balance and Export Potential ............................................................. 25 CHAPTER V: ASSESSMENT OF NEW GENERATION OPTIONS....................................... 28 A. Technical Assessment .......................................................................................................... 28 B. Economic Assessment.......................................................................................................... 29 C. Financial Assessment ........................................................................................................... 31 D. Sensitivity Analysis.............................................................................................................. 32 Financial Sensitivity Analyses.................................................................................................. 33 E. Competitiveness Assessment................................................................................................ 34 Transmission Needs for Electricity Trade ................................................................................ 34 Competitiveness of Central Asian Electricity........................................................................... 36 Key Conclusions ....................................................................................................................... 36 CHAPTER VI: PROFILE OF THE POTENTIAL EXPORT MARKETS ................................. 38 A. Afghanistan .......................................................................................................................... 38 B. China .................................................................................................................................... 41 C. Iran ....................................................................................................................................... 43 D. Pakistan ................................................................................................................................ 46 E. Russia ................................................................................................................................... 49 CHAPTER VII: INSTITUTIONAL ISSUES.............................................................................. 52 A. Water and Energy Nexus Related Issues ............................................................................ 52 B. Power System Operation Related Issues............................................................................. 52 C. Investment and Related Institutional Issues ........................................................................ 54 CHAPTER VIII: BENEFITS, RISKS AND THE WAY FORWARD ....................................... 62 A. Benefits ............................................................................................................................. 62 B. Risks.................................................................................................................................. 62 C. The Way Forward ............................................................................................................. 65

TABLES Table ES 1: Gross Electricity Demand Projections ....................................................................... vi Table ES 2: Projected Electricity Supply Increments (TWh)........................................................ vi Table ES 3: Supply Costs from Generation Options ..................................................................... x Table ES 4: Marginal Costs of Generation in Target Markets versus Import Costs ..................... x Table 1. 1: Primary Energy Resources in Central Asia ................................................................. 1 Table 3. 1: Installed Capacities and Supply/Demand Balances of CARs in 2002 ........................ 8 Table 3. 2: Seasonality of the Electricity Consumption of the CARs in 2002 ............................... 9 Table 3. 3: Losses, Billing and Collections in the CARs in 2002 ............................................... 10 Table 3. 4: Electricity Tariffs in the CARs in 2003..................................................................... 12 Table 3. 5: Shifts in Electricity Trade in Central Asian Power System 1990-2000 .................... 13 Table 4. 1: Table 4. 2: Table 4. 3: Table 4. 4: Table 4. 5: Table 4. 6: Gross Electricity Demand Projections: Base Case .................................................... 17 Results of Sensitivity Analyses on Demand Forecast ............................................... 18 Current and Targeted Electricity Loss Levels in CARs ............................................ 19 Composition of the Annual Incremental Supplies..................................................... 25 Surplus Electricity Available for Trade (GWh)......................................................... 26 Investment in Loss Reduction and Generation Rehabilitation in CARs ................... 27

Table 5. 1: Physical and Technical Details of New Generation Projects .................................... 28 Table 5. 2: Comparison of Economic Cost of Supply with Marginal Costs in Exporting/Importing Countries and Status of Cost Competitiveness ........................................... 30 Table 5. 3: Levelized Tariffs for Generation Options................................................................... 31 Table 5. 4: Results of Sensitivity Analyses on Levelized Tariffs of Generation Projects........... 34 Table 5. 5: Economic and Financial Analysis of Transmission Options...................................... 36 Table 5. 6: Marginal Costs of Generation in Target Markets versus Import Costs ..................... 36 Table 6. 1: Current Electricity Imports by Afghanistan .............................................................. 39 Table 6. 2: Afghanistan Summary of Energy Demand (GWh) and Peak Load (MW) Forecast ....................................................................................................................................................... 40 Table 6. 3: Current Electricity Tariffs in Afghanistan................................................................. 40 Table 6.4: Pakistan Electricity and Peak Demand Projections .................................................... 48 Table 7. 1: Summary of the Central Asia Countries Investment Plans ....................................... 54

FIGURES Figure ES 1: Central Asia Republics Power Development and Trade Strategy ............................ v Figure 4. 1: Gross Electricity Demand in CARs, Monthly Totals, 2005 - 2025 ......................... 18 Figure 4. 2: Kyrgyz Power System and Location of Kambarata schemes................................... 22 Figure 4. 3: Planned and Existing Hydro Schemes on Vaksh River in Tajikistan ...................... 23

Figure 4.4: Central Asia Export Surpluses .................................................................................. 26 Figure 5. 1: Economic Output Costs of New Projects at different Plant Factors Vs. Average Incremental Costs of National Systems of CARs ......................................................................... 32 Figure 5. 2: Economic Output Cost of New Projects at Different Plant Factors Vs. Generation costs in Target Markets (Excluding Transmission Cost).............................................................. 33 Figure 5. 3: New Transmission Lines Needed For Exports......................................................... 35 Figure 6. 1: Afghanistans Cross-Border Electricity Interconnections........................................ 38 Figure 6. 2: Seasonal Load Curve in Iran in 2001 ....................................................................... 44 Figure 6. 3: Power Exports and Imports of Iran .......................................................................... 45 Figure 7. 1: Suggestions for an Institutional Framework for Water Energy Consortium............ 57 Figure 7. 2: Financial Scheme for Development of New Regional Infrastructure ...................... 60 Figure 8. 1 ..................................................................................................................................... 66

BOXES Box 2. 1: A Brief Summary of the Findings of the CAWENS Report.......................................... 4 Box 7. 1: Two Examples of Jointly owned Hydropower Projects............................................... 59 Box 7. 2: Power links Transmission Project in India................................................................... 61 APPENDIXES (In separate Volume) Appendix 3.1: Current Status of Power Sectors in Central Asian Republics Appendix 4.1: Electricity Demand Forecasts Appendix 4.2: Incremental and Total Supplies from Supply Options Appendix 4.3: Electricity Demand Supply Balances Appendix 5.1: Economic Analysis of Supply Options Appendix 5.2: Economic Analysis of Transmission Line Options for Exports Appendix 5.3: Financial Analysis of Generation and Transmission Options Appendix 7.1: Establishment of Water Energy Consortium-Conceptual Approaches Appendix 7.2: Laos Theun-Hinboun Hydropower Project Appendix 8.1: Options for De-congesting Southern Central Asian Power System

ACKNOWLEDGEMENT
This report was prepared by a team led by Raghuveer Sharma and comprised Anil Markandya, Aman Sachdeva, Marat Iskakov, Venkataraman Krishnaswamy, Nikolay Nikolov and Ms. Suzette Pedroso. The work is part of the wider effort by the World Bank, together with its Development Partners, aimed at improved regional cooperation in Central Asia. The team is grateful to: Mamta Murthi, Mangesh Hoskote and Barry Trembath, who peer reviewed the work; to Martin Raiser and Peter Thomson for providing extensive managerial inputs and quality oversight; and to Dennis de Tray (Director, Central Asia Regional Office) and Hossein Razavi (Director, Infrastructure and Energy Services, ECA Region & Director, Infrastructure Economics and Finance), for providing strategic direction to the work. The team is also grateful to Shigeo Katsu, Vice President, Europe and Central Asia (ECA) Region, for the encouragement and engagement at higher levels of client governments on this high profile topic. The team would like to gratefully recognize the contributions of Matthew Buresch, Natalia Charkova, Yukari Tsuchiya, for helping shape the report to its current form.

Central Asia Regional Electricity Exports Potential Study EXECUTIVE SUMMARY

Introduction and Key Conclusions 1. The Central Asian Republics1 are endowed with significant energy related natural resources. However, the distribution of these resources is highly skewed. The Kyrgyz Republic and Tajikistan have abundant hydropower potential but negligible amounts of commercially exploitable fossil fuels. In contrast, Kazakhstan has significant reserves of oil, gas and coal; Uzbekistan has substantial gas reserves as well as some oil and coal and Turkmenistan also has substantial gas reserves together with some oil. 2. During the Soviet Union era these resources were managed on a regional basis. The hydropower resources in the Kyrgyz Republic and Tajikistan were operated primarily as an irrigation system with power generation being secondary. Energy systems were then designed to take account of the location of various energy sources. The result was a system in which energy was exchanged regionally among the various republics. Following the break-up of the Soviet Union, however, the scope of regional exchanges, which were turned into trade in energy, has declined as the individual republics have focused on achieving a greater level of energy self sufficiency. 3. The fossil fuel rich countries, especially Kazakhstan, have been able to leverage their energy resources into a significant volume of energy exports, accessing markets outside Central Asia. In contrast, the Kyrgyz Republic and Tajikistan face energy shortages in the winter and attempts to secure major export markets for their summer hydropower surpluses have not succeeded. The political changes in Afghanistan and sustained economic growth in other neighboring countries such as China, Iran, Pakistan and Russia, however, have raised expectations in the region that opportunities may materialize to export significant amounts of hydropower outside the region. Such an expectation has further raised hopes that support can be obtained for investment in major new generation facilities. 4. The Central Asian republics have asked the World Bank to help identify the potential for electricity exports outside the region and also the impediments that need to be addressed to realize such potential. However, these countries also need to assess how best to meet their own future requirements for electricity. This study, therefore, addresses (i) options for meeting future electricity demand within the region; (ii) the potential scope and location of export markets outside the region and (iii) the prospects for accessing these markets.

Kazakhstan, the Kyrgyz Republic, Tajikistan, Turkmenistan and Uzbekistan.

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Key Conclusions 5. The key conclusions of the study may briefly be summarized as follows:

Meeting Regional Demand i. Annual domestic demand in the Central Asian Republics can be met until about 2020 through the implementation of loss reduction measures, the rehabilitation of existing generation capacity and regional trade at the margin. Seasonal supply shortages in the winter will persist. While the most cost effective option to meet this shortfall will be to trade at the margin, some new generation will be needed to meet winter demand requirements. The most attractive new generation options to meet the winter demand requirements are the Talimardjan Thermal Power I Project in Uzbekistan that is largely complete, and the Bishkek II Thermal Power Project in the Kyrgyz Republic, which is partially constructed. The Bishkek II Thermal Power project represents a more cost effective and quicker option to meet the Kyrgyz Republics future requirements than the Kambarata hydropower projects in the Kyrgyz Republic. These two thermal power plant projects, however, are both dependent upon the availability of gas in Uzbekistan. In addition, some upgrading of the transmission facilities will be required to facilitate intra-regional trade, including the construction of the North South Line in Kazakhstan, and the reduction of transmission bottlenecks in the southern part of the Central Asian grid. Increased intra-regional trade will provide significant benefits. In order to take full advantage of this, appropriate agreements are required among the countries in the region. In all likelihood these will have to be negotiated on a bi-lateral basis, in which case efforts should be made to ensure that the agreements among the various parties are based on consistent principles. A consistent approach to electricity trade by the various countries would facilitate the development of intra-regional trade. Once agreements are in place they will then have to be carefully managed to ensure the benefits from intraregional trade are optimized.

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Export Markets Outside the Region i. Afghanistan, Pakistan, Iran, China and Russia are all potential markets for electricity produced in Central Asia. Pakistan and Iran have the added attraction of experiencing their peak demand in the summer when the largest potential electricity surpluses exist in Central Asia. Access to these markets will particularly benefit the Kyrgyz Republic and Tajikistan since they are the countries with the potential to export significant quantities of

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electricity. Uzbekistan (and to some extent Kazakhstan), have the potential to export thermal power in the winter and also benefit in their role as prospective transit countries and as potential power traders2. iii. Accessing these markets, however, will face a number of constraints. Afghanistan has potential demand but is constrained in its ability to pay for imports. Access to the Pakistan market would involve transit and the associated construction of transmission facilities through Afghanistan. The demand growth in China is centered on the population centers of the East Coast, a considerable distance from Central Asia. Access to the Russian market will require access to the North-South transmission line across Kazakhstan that is under construction and would likely be dependent on RAO UES interest and willingness to purchase supplies. Supplies to Iran from the Kyrgyz Republic and/or Tajikistan will likely have to compete with supplies from Turkmenistan and will have to transit Afghanistan or Turkmenistan as well as, potentially, Uzbekistan. Moreover, access to export markets would, in many instances, require agreement on power transit among the Central Asian countries themselves.

Potential Access to the Export Markets i. Major new generation projects in Central Asia will likely only be feasible if there is assured access to export markets outside the region. Electricity from Central Asia has the potential to compete in cost terms with marginal generation costs in each of the targeted markets outside the region. The cost advantage, however, is not overwhelming and, in several cases, may not be sufficient to overcome security of supply concerns. The development of export markets for electricity from Central Asia will be very much demand driven. Initially such trade will be limited to seasonally based activity. The more extensive level of trade that would justify the construction of major facilities focused on the export markets will be predicated on the alleviation of supply security concerns on the part of the importing countries, the existence of transmission infrastructure to access the markets and a politically stable environment. Perceptions of risk among potential investors and importers vary. Western investors currently view the new generation projects as high risk ventures. RAO UES of Russia, on the other hand believes that it can mitigate many of the risks and has expressed particular interest in some of the proposed hydropower projects. RAO UES represents the best opportunity for at least one of the proposed hydropower projects to be implemented in the medium term.

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The power trader role could, for example, take the form of importing hydropower and exporting thermal power taking advantage of relative logistics and relative peaking times.

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Summary Conclusions i. Extensive investment in new capacity, for example the proposed Rogun and Talimardjan II projects, will be predicated on the ability to access markets beyond the immediate region and will, therefore, likely be a longer term proposition. A possible scenario for development of Central Asias electricity generation and trading activity is shown schematically in Figure ES 1 below. This contemplates the phased introduction of measures to make capacity available beginning with the introduction of loss reduction programs to be followed by construction of new capacity needed to meet winter demand within the region (Talimardjan and Bishkek II) and the completion of the transmission link to Russia through Kazakhstan. These activities should be completed in a medium term time frame (up to 10 years). These phases have a relatively high probability of going ahead. The outlook for implementation of new projects focused on the export markets that could occur in a subsequent phase is too uncertain at this time to justify the commitment of significant resources to the large generation projects3. Instead efforts should be focused on (a) developing intra-regional trade; and (b) promoting the introduction of a business climate that will support future investments in generation.

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INTERIM CG MEETING
Copenhagen April 29, 2002

Central Asian Republics Power Development and Trade Strategy

Pakistan Afghanistan
Export Capacity PPP: Rogun & Talimardjan II South Transmission Links Development Export Market Negotiation Power Trading Capacity: Sangtuda Transmission Links: North-South Project Domestic & Regional Capacity Balance: Bishkek II & Talimardjan I

High

Level of Risk

Iran

China?

Russia

Low

Loss Reduction & Rehab. Programs

Near-Term 1- 5 yrs

Medium -Term 3 - 10 yrs

Long -Term 8 - 15 yrs

Time Frame
Figure ES 1: Central Asia Republics Power Development and Trade Strategy

The one possible exception to this is Russian involvement in Sangtuda I hydropower project in Tajikistan.

Meeting Regional Demand 6. Table ES1 summarizes the base case4 gross electricity demand projections for Kazakhstan, the Kyrgyz Republic, Tajikistan and Uzbekistan through 2025. Table ES 1: Gross Electricity Demand Projections
Country 2003 Kazakhstan The Kyrgyz Republic Tajikistan Uzbekistan All four countries 58,944 12,145 16,348 48,691 136,128 2010 72,056 9,222 11,267 46,597 139,142 Forecast Demand (GWh) 2015 84,034 10,033 12,410 51,255 157,731 2020 98,367 11,296 13,972 56,589 180,225 2025 115,146 12,719 15,731 62,479 206,075

Source: World Bank analysis

7. The projections show that demand will grow during the 2005-2010 timeframe only in Kazakhstan where economic growth is likely to be high, and needed electricity pricing adjustments are minimal. In contrast, demand is projected to decline in the 2005 to 2010 timeframe in the other three countries, a reflection of lower GDP growth forecasts, the impact on demand of substantial increases in real effective tariffs and, in Uzbekistan, the effect of the gasification program of the past few years. 8. Demand growth can be met through a combination of loss reduction measures, rehabilitation of existing generation facilities and the addition of new capacity from projects that have already been identified. Table ES2 summarizes the potential supply increases from these sources. Table ES 2: Projected Electricity Supply Increments (TWh)
Available Supply 2003* Loss Reduction Rehabilitation of Existing Facilities New Facilities Potential Supply Level in 2025 138.7 14.4 26.9 49.3 229.3

*Based on 5-year average hydro generation Source: World Bank analysis

9. Table ES2 indicates that regional demand can be covered until about 2020 without the addition of new generating capacity. Investments would be needed in transmission and distribution facilities in the Kyrgyz Republic and in Tajikistan to reduce technical losses. Investments in Kazakhstan and in Uzbekistan can be justified for generation rehabilitation and to reduce technical losses in transmission and distribution. These investments to upgrade existing facilities generally offer the most cost effective increments of electricity supply in the various
4

The report considered alternative demand projections and these are addressed in the main body of the text. The selected base case projection is shown in the Executive Summary. The main conclusions of the report, however, will not be significantly affected by the different demand scenarios. What will change is the timing of the requirement for the various increments of new generation capacity, not the overall thrust of the conclusions.

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countries. However, seasonal shortages during the winter will remain an issue, while a significant level of net exports would require the addition of new capacity. 10. The region, and more specifically the Kyrgyz Republic and Tajikistan, have several options for dealing with the winter shortages: i. The Kyrgyz Republic, and, to some extent Tajikistan can potentially operate their hydropower facilities in a power generation mode to increase the availability of electricity in the winter. Such operation, however, carries the risk of downstream flooding during the winter and shortfalls in the availability of water for irrigation in the summer. The 1998 Framework Agreement deals with the issue of the water/energy nexus and sets out terms for operating the hydropower facilities in an irrigation mode (to the benefit of the downstream riparian countries) in exchange for the provision of energy in the winter by the downstream riparian countries. The agreement, however, is not optimal. Even if the agreement were optimized, the region overall would still face a potential shortage in the winter. The Kyrgyz Republic and Tajikistan both have the potential to generate surplus power in the summer. Iran experiences peak power demand in the summer and may have some surplus generating capacity in the winter, creating the potential to enter into seasonal trading arrangements. In order to enter into such arrangements, however, transit arrangements would have to be negotiated and such arrangements would involve transit of either Afghanistan or Turkmenistan and potentially Uzbekistan. The construction of some new capacity would also allow the region to meet its winter shortfall. The two projects that would most logically be able to serve this function are the 800 MW Talimardjan Thermal Power Project I in Uzbekistan and the 400 MW Bishkek II Thermal Power Project in the Kyrgyz Republic. The 670 MW Sangtuda I hydropower project in Tajikistan also has the potential to contribute to meeting winter demand. Enhanced intra-regional trade in electricity would also yield benefits: It would allow individual countries to meet future demand at a lower cost than if they were to rely solely on their indigenous resources. The countries could optimize their cost of supply on a seasonal basis by taking advantage of intra-regional trade opportunities. For example, Kazakhstan and Uzbekistan could both benefit from importing hydro electricity from existing hydropower stations in the summer rather than generate power in their own thermal power stations. This would have the benefits of providing electricity at a lower cost while saving fossil fuel resources and reducing emissions, thereby, creating the potential to benefit from carbon trading.

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12. Enhanced intra-regional trade would, however, require some investment in transmission facilities such as the Kazakhstan North-South line (which would also support exports to Russia). This would also require the introduction of a number of institutional reforms including:

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Negotiation of updated agreements to govern electricity trading between countries. These are likely to be bi-lateral arrangements. However, if these arrangements are all based on a consistent set of principles, they will facilitate increased intra-regional trade. Among the items these agreements need to address are the legal and policy framework for third party access to transmission systems and transmission pricing arrangements. Introduction of a much greater level of transparency associated with the electricity sectors in the various countries is an important pre-requisite to making informed decisions about electricity trading opportunities. Careful coordination between the management of electricity resources and the management of water resources will be an important adjunct to effective intra-regional trade in electricity.

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The CARs have decided to establish the Water Energy Consortium (WEC) under the Central Asian Cooperation Organization (CACO) umbrella to provide the institutional framework and eventually the legal framework to address these issues. A key first step is that CACO members should reconcile the differing views each of them currently has on the role of WEC. Export Markets Outside the Region 13. Afghanistan, Pakistan, Iran, China and Russia are all potential markets for electricity produced in Central Asia. There are, however, certain constraints that will have to be overcome to access any of these markets. 14. Afghanistan currently experiences severe power shortages. It has a small supply base and it lacks resources to build new capacity. Imports represent a near term option to meet its demand requirements. However, its lack of resources also translates into difficulty in paying for electricity imports. Consequently, while some trading activity between Central Asia and Afghanistan can be expected, it is unlikely to represent a significant market outlet for Central Asian exports. 15. Pakistan is projected to face power supply shortages. Imports may well represent the least cost option to meet future demand. Of particular note is the fact that Pakistan experiences its peak demand in the summer when Central Asia has substantial surplus generating capacity. However, in order to access the Pakistan market a 500 kV transmission line will have to be constructed. Pakistan has expressed considerable interest in securing access to electricity supplies from Central Asia and this may ultimately help mobilize the funding needed to construct the transmission line across Afghanistan, but construction of such a line is a key hurdle that will have to be overcome. 16. Iran experiences supply shortages during the summer. It purchases some electricity from Turkmenistan but could also have an interest in supplies from other Central Asian countries. In order to access the Iranian market, however, such supplies will have to transit either Afghanistan or Turkmenistan and Uzbekistan.

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17. China is experiencing a severe power shortage currently and Central Asian electricity has the potential to be an inexpensive import option to meet demand in the Urumqui area of the Xingjian province. The major growth in demand, however, will be in the population centers on the east coast of China where transmission distances for supplies from Central Asia become an issue. 18. Russia has an interest in balancing its system at the border with Central Asia (i.e. the border with Kazakhstan). It also views Central Asia as a potential source of inexpensive electricity supply that could support its ambitions to expand electricity exports to Europe. A 500 kV north-south transmission line is under construction in Kazakhstan. In addition to facilitating intra-regional trade this line could be used to transmit electricity from the Kyrgyz Republic, Tajikistan and Kazakhstan to Russia. RAO UES of Russia has expressed particular interest in securing access to electricity supplies in the future from Central Asia and has made specific commitments to Tajikistan concerning the Sangtuda I hydropower project. Potential Access to These Markets 19. A number of new generation projects have been identified in Central Asia and developed to the point where they could be constructed. Indeed, several of these projects have been partially completed. For example: construction of hydropower projects at Kambarata in the Kyrgyz Republic and at Sangtuda I and Rogun in Tajikistan were under construction during the Soviet era. Following the break-up of the Soviet Union, however, construction on these projects ceased. 20. While projects such as the Talimardjan Thermal Power Project I in Uzbekistan and the Bishkek II Thermal Power project in the Kyrgyz Republic may be able to proceed on the basis of demand requirements within Central Asia, the economic viability of the majority of the identified projects is predicated on securing assured access for a substantial portion of their electricity production to markets outside the immediate Central Asia region. Accessing these markets is likely to be very much a demand driven process. 21. Table ES3 summarizes the economic and financial costs of the electricity generated from these projects5:

These calculations are made on a base case set of assumptions. Sensitivities are discussed in the main body of the report

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Table ES 3: Supply Costs from Generation Options

No. 1 2 3 4 5 6 7 8 9 Kazakhstan Tajikistan The Kyrgyz Republic Country Supply Option Talimardjan Thermal Power Project I Talimardjan Thermal Power Project II Bishkek II Thermal Power Project Kambarata Hydropower Project I Kambarata Hydropower Project II Sangtuda I Hydropower Project Rogun Hydropower Project Phase I Rogun Hydropower Project Phases I and II New Ekibastuz Thermal Power Project Capacity in MW 800 2,400 400 1,900 360 670 1,200 3,600 1,000 Economic cost/kWh in Cents 1.68 2.76 2.55 7.17 3.72 1.97 2.46 2.83 4.54 Financial cost/kWh in Cents 1.75 2.92 2.67 8.54 3.95 2.44 2.91 3.24 5.05 Rank 1 5 4 9 7 2 3 6 8

Uzbekistan

Source: World Bank analysis

22. All of these projects except Kambarata I and the new Ekibastuz project are partially constructed Talimardjan is the furthest along and Kambarata II the least progressed. These projects have the advantage that only incremental costs needed to effect completion must be recovered and there are no liabilities associated with the projects. 23. After the addition of transmission costs, most of these projects would be competitive in the identified export markets. The clear exception is Kambarata I. A comparison of marginal costs of generation and projected import costs (based on the financial costs of the projects and transmission lines) in the various markets is shown in Table ES4. Table ES 4: Marginal Costs of Generation in Target Markets versus Import Costs (cents/kWh)
Target Market Afghanistan Iran Pakistan China Russia Marginal Generation Cost in Target Market 3.7 3.6 5.6 3.6 3.0 Supply Options Sangtuda I, Rogun I, Talimardjan I and II Sangtuda I, Rogun I, Talimardjan I and II Sangtuda I, Rogun, Talimardjan I and II, Kambarata II Sangtuda I, Talimardjan I Sangtuda I, Talimardjan I Transmission Cost 0.51 0.54 0.51 0.72 0.55 Total Landed Cost of Imports 2.26 3.43 2.29 3.46 2.26 3.75 2.47 3.16 2.30 2.99

Source: World Bank analysis

24. While Central Asian supplies should be cost competitive in these markets, the cost advantage is not overwhelming. Electricity trade is more politically sensitive than general trade since electricity supply is often viewed as a national security issue. Also, trade of significant amounts of electricity requires long-term commitments and a clear perception, in the importing countries, that the supplier can be relied upon to fulfill its commitments. The level of trade that will justify the construction of major facilities to service the export markets and the associated commitment of capital will be predicated on the alleviation of supply security concerns on the part of the importing countries and an associated perception that the political climate and the business environment in the exporting countries are stable.

25. It appears likely, therefore, that trade with the markets outside the immediate Central Asia region will initially be limited to seasonally based activity at the margin. However, as trade in electricity establishes a positive track record, the potential for expanded activity will increase. Consequently, the Central Asian suppliers of electricity should approach the issue of expanded export activities with the recognition that a significant expansion in export levels will take some time to develop, and they should, therefore, focus on the objective of building towards this longer term goal in a phased fashion.

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CHAPTER I: INTRODUCTION
1.01 The Central Asian Republics (CARs) consisting of Kazakhstan, the Kyrgyz Republic, Tajikistan, Turkmenistan and Uzbekistan are endowed with significant energy resources. However, as Table 1.1 indicates there is considerable disparity in the specific endowments. While Kazakhstan, Uzbekistan and Turkmenistan enjoy world class endowments of fossil fuel resources, the Kyrgyz Republic and Tajikistan enjoy very limited access to these resources but do have significant endowments of water resources. Table 1. 1: Primary Energy Resources in Central Asia
Fossil Fuel Reserves Crude Oil Natural Gas Coal Total % of Total Hydro Potential % of Total GWh/year MTOE/year Unit MTOE MTOE MTOE MTOE Kazakhstan 1,100 1,500 24,300 26,900 77.4 27,000 2.3 5.2 Kyrgyz Republic 5.5 5 580 591 1.7 163,000 14 31.1 Tajikistan 1.7 5 500 507 1.5 317,000 27.3 60.5 Turkmenistan 75 2,252 Insignificant 2,327 6.7 2,000 0.2 0.4 Uzbekistan 82 1,476 2,851 4,409 12.7 15,000 1.3 2.9 Total 1,264.20 5,238 28,231 34,734 100 524,000 45.1 100

1.02 The energy and water infrastructure assets that these countries inherited reflect the regional approach employed by the central planners of the Soviet Union. This infrastructure implicitly contemplated energy and water transfers across administrative boundaries that have since become national borders and the design reflected perceived needs within the region. 1.03 The water management system was designed primarily as an irrigation system, with power generation being incorporated as a by-product. Energy systems were then designed to take account of the location of various energy sources and resulted in the following key elements: The Central Asia Transmission System was designed as a regional power grid, utilizing hydropower exports from the Kyrgyz Republic and Tajikistan as well as allowing interchange of power among all the countries. The dispatch center for this system was and is located in Uzbekistan. The gas pipeline network was designed to allow delivery of gas to the southern portion of Kazakhstan, to the Kyrgyz Republic and to Tajikistan from Turkmenistan and Uzbekistan. Oil refineries were located in the more significant oil producers Kazakhstan, Uzbekistan and Turkmenistan with refined products being transported into the Kyrgyz Republic and Tajikistan. Coal consumption was largely tied to the local availability of coal and to the ability to use the rail network for coal transportation.

1.04 At the time of the break-up of the Soviet Union a number of power generation projects were under construction in the Central Asian republics. These included large hydro-projects such as Rogun and Sangtuda I in Tajikistan and, to a lesser extent, Kambarata in the Kyrgyz 1

Republic. Investments had also been made in a number of large thermal power projects such as Talimardjan in Uzbekistan, Ekibastuz in Kazakhstan and a second combined heat and power (CHP) plant at Bishkek in the Kyrgyz Republic. 1.05 With the break-up of the Soviet Union, these countries inherited extensive energy networks that had been designed to function on a regional basis, but they also inherited a substantial amount of partially constructed infrastructure that had also been predicated on the continuation of a regional approach to managing energy and water issues. At that point, each of the countries was faced with the need to establish formal relations with the other countries in the region covering energy trade and water resource transfers. In addition, they had to take over responsibility for the operation and maintenance of the infrastructure facilities within their own countries and are faced with having to define the optimum means of financing and constructing the new infrastructure facilities that will be required to sustain the energy and water sectors in the region over the longer term (i.e. beyond 2020). 1.06 A key consequence of the new environment that emerged after the break up of the Soviet Union has been a move towards increasing energy self-sufficiency at the expense of regional synergies. 1.07 All the countries, with the possible exception Kazakhstan (which has been able to attract significant private sector participation in the sector), have been keen that the World Bank and other multilateral/bilateral financiers help them finance expansion of generation facilities, including some of the projects that had been under construction at the time of the break-up of the Soviet Union. However, these requests have made within the context of the policies of national self-sufficiency being pursued by the CARs. The World Banks view is that all these large projects would be feasible only in the context of: (a) significantly enhanced electricity trade, both within the CARs and with external electricity markets; (b) a significantly increased level of regional cooperation among the riparian states relating to the rivers on which such projects would be located; (c) adoption of innovative measures to structure the entities to construct, own and operate these assets; and (d) serious efforts to attract foreign private investments, especially in the context of most of these countries being already highly indebted. 1.08 Of late, there has been an increasing recognition of the need for regional cooperation among the countries in various sectors such as energy, water, transport and food security. The formation of the Central Asian Cooperation Organization (CACO) in 2002, overseen by a Council of the Heads of States of four of these countries6, for this purpose is a clear indication of the importance they attach to the promotion of such cooperation. In his letter dated September 8, 2003, the President of Kazakhstan, writing on behalf of all four Heads of State, confirmed their intention to enhance regional cooperation in the above areas and invited the World Bank to take the lead in assisting to set up the Water and Energy Consortium, the twin objectives of which are enabling cooperative water usage and enhancement of internal trade and export of electricity.

Turkmenistan is not a member of CACO. Since May 2003, it is not a part of the Central Asian Power System and operates in an island mode. This Study therefore does not cover Turkmenistan and deals largely only with the remaining four countries.

1.09 The World Bank, working closely with other multilateral and bilateral financiers (a.k.a. Development Partners) has followed a two-track approach. The first track had been directed at the near term objective of solving the problems caused by the water-energy nexus, by securing multi-lateral agreement to a series of measures to improve the 1998 Framework Agreement. Key recommendations were contained in the World Banks report on the Water and Energy Nexus in Central Asia that was distributed to governments of the four countries prior to the consultations that took place earlier this year. Details of the findings arising from this work are presented in Chapter III. 1.10 The second track addressed longer term measures including preparation of this Regional Electricity Export Potential Study, continuation of efforts, in coordination with Development Partners, to promote energy and water sector reforms, estimation of investment requirements for major projects, and exploration of ways to include Russia in the regional cooperation process. 1.11 The CARs have asked the World Bank to help identify the potential for electricity exports outside the region and also the impediments that need to be addressed to realize such potential. However, these countries also need to assess how best to meet their own future requirements for electricity. This study, therefore, addresses (a) options for meeting future electricity demand within the region; (b) the potential scope and location of export markets outside the region and (c) the prospects for accessing these markets. 1.12 The remainder of this Study: reviews the current state of the electricity systems in each of the CARs (Chapter III); assesses the long-term (20-year) domestic demand for electricity and available supply options within each republic and therefore of the region (Chapter IV); undertakes an in depth assessment of the large projects that form a significant part of supply options and identifies broadly the costs of transmission required to reach the target markets (Chapter V); reviews the possible export markets for Central Asian electricity (Chapter VI); identifies an institutional framework for the countries to have a more coordinated and integrated development of their energy resources and water use (Chapter VII); and clarifies the benefits and more importantly the risks, that the countries need to overcome, as well as the way forward to realize the potential (Chapter VIII).

CHAPTER II: THE WATER ENERGY NEXUS IN THE SYR DARYA BASIN
2.01 The Banks report, Water Energy Nexus in Central Asia, focusing on the Syr Darya Basin, complements the significant amount of work done earlier on water resources earlier under the Aral Sea Water and Environmental Management Project. Its key findings and recommendations are summarized in Box 2.1.
Box 2. 1: A Brief Summary of the Findings of the CAWENS Report Toktogul reservoir in the Kyrgyz Republic was designed during the Soviet rule as a multi-year storage facility to enable the storage of water inflows in wet years, for irrigation use in downstream countries during the normal and dry years. The irrigation oriented operating regime called for the release of 75% of the annual releases of water from the reservoir in summer months and for restricting the releases during the winter season to 25% of the annual release. Power generation followed the irrigation regime and the excess power produced in summer was fed into the Central Asian Power System for use by Kazakhstan and Uzbekistan and winter deficits in energy in the Kyrgyz Republic was met by allocation of fossil fuels needed for heat and electricity from Uzbekistan and Kazakhstan. Once the Soviet Union was dissolved and these countries became independent, these arrangements came under great strain. Toktogul reservoir came to be increasingly used to meet the power needs of the Kyrgyz Republic, reducing summer releases and increasing winter releases of water causing irrigation problems in summer and flooding problems in winter in the downstream countries. To mitigate this problem, a 1998 Framework Agreement among the upstream and downstream riparian countries sought to compensate the former by the latter for the annual and multiyear water storage services through the purchase of surplus summer electricity from the Kyrgyz Republic and supply of fossil fuels needed for Kyrgyz winter needs. In actual practice the annual agreements concluded under this arrangement proved unsatisfactory and difficult to enforce. The Banks CAWENS report carried out an economic analysis which demonstrated that net Syr Darya basin benefits are substantially higher under the irrigation regime of reservoir operation (i.e., a minimum of 6 BCM of water releases in summer and a maximum of 3 BCM of water releases in winter) than under the power regime (i.e., reduced summer releases and increased winter releases). While it duly recognized the major contribution made by the Framework Agreement in an attempt to restore the sensible reservoir operating regime, it pointed out the key areas in which the Framework Agreement should be improved to ensure better implementation. These relate to: (a) the need to pay explicitly for the water storage services in cash; (b) the need to use a multi-year rather than annual perspective to take into account unusually wet and dry years as well as normal years; (c) the need to divide the compensation package for water storage services into a fixed and a variable component; (d) the need to link the fixed portion of the compensation to the value of the Kyrgyz fossil fuel needs for the winter months; and (e) the need to have a monitoring and guarantee mechanism to ensure compliance with agreed obligations. Further, the Study highlighted the areas for institutional improvement to ensure more effective water and energy coordination, regulation, monitoring and enforcement.

2.02 This report was discussed in a conference of Development Partners held in February 2004. Following this conference, the Bank carried out consultations with the CARs in March 2004 to identify key areas where additional work is needed to build consensus among the parties involved. 2.03 The country consultations revealed that each riparian country has a somewhat differing position regarding operation of the Naryn Cascade and Syr Darya: The Kyrgyz Republic is of the view that water should be sold to the downstream countries and has adopted national legislation for the sale of water to other countries.

 Tajikistan, while acknowledging that its role is small, views its role as crucial nevertheless, for a balanced operation of the entire basin facilities. Uzbekistan believes that solutions should be based on an international legal framework of trans-boundary waters such as the Helsinki Agreement, essentially implying that monetizing the compensation mechanisms in the 1998 Framework Agreement, them are not acceptable. Uzbekistan also favors the construction of re-regulating structures downstream on its own territories to ensure irrigation supplies, to lessen the dependence on other countries, especially the Kyrgyz Republic with respect to Toktogul operations. While Kazakhstan does not currently have any firm plans to build re-regulating structures on its territory, it has not ruled this option out. The downstream riparian states (Uzbekistan and Kazakhstan) highlighted the structural deficits in winter energy supply that would be likely to compel the Kyrgyz Republic to be non-compliant with the 1998 Agreement even if the downstream countries were fully compliant. 2.04 In addition, more recently, downstream countries have initiated the following efforts, which have changed the parameters for Toktogul reservoir operations: Kazakhstan has promoted works towards increasing the conveyance capacity of the Syr Darya River to pass flows to Northern Aral Sea in winter. Uzbekistan, meanwhile, has intensified efforts to increase its downstream waterregulating reservoir capacity in the Fergana valley.7 The completion of these reservoirs could provide additional storage of about 2.5 BCM downstream, which could absorb the equivalent additional discharge from Toktogul in winter and subsequently release the same quantity of water again in summer for downstream irrigation. Furthermore, the dam safety of Kairakum and Shardara dams is being enhanced allowing better re-regulation of water in these facilities, while current usage of available winter water downstream for leaching and growing winter wheat also helps absorb greater winter releases from upstream. Large reserves of underground water in Fergana valley also offer possibilities to increase irrigation supply in summer through groundwater development on a sustainable basis.

2.05 At the same time, the latest hydrologic analysis prepared by USAID suggests that the average annual inflows to the Toktogul reservoir are about 12 billion cubic meters (BCM). The implication of the efforts by the downstream countries is that, with the benefit of improved downstream storage and carrying capacity, Toktogul can be operated under a modified irrigation regime making higher releases during winter for energy generation for the Kyrgyz Republic, without endangering the irrigation water supplies during summer. Taking account of seasonal variation and optimum reservoir levels for power generation, winter releases of around 4.5 BCM are considered sustainable.
7

Uzbekistan is proceeding with the design of new water storage capacity {Karamansay reservoir of 0.690 billion cubic meters (BCM)}, and is also continuing the construction of Razaksay (0.650-0.750 BCM) and Kangkulsay (0.3 BCM) reservoirs in addition to the existing storage reservoir of 0.8 BCM in the Arnasai depression.

2.06 Meeting the Kyrgyz Republics energy deficits in the winter is a key to overcome the current problems induced by the water-energy nexus. The additional 1.5 BCM released would cover around half of the current energy deficit in the winter, while energy efficiency gains in transmission and distribution could feasibly absorb another 20% of the winter deficit. To meet the remaining winter energy shortage, one of the most economic and a relatively quick option would be to invest in an additional 400 MW of thermal generation capacity in Bishkek by finishing the partly constructed Bishkek II power plant (discussed in Chapters IV and V). This would enable the Kyrgyz power system to produce both summer and winter surplus by 2010; and, together with loss reduction efforts and modified irrigation operation of Toktogul, would be able to meet the Kyrgyz Republics electricity year round until 2020. 2.07 The revised cooperation basis on the Syr Darya basin does imply enhanced electricity trade in the short term. Electricity trade would occur on a commercial basis (i.e., not linked to water releases) and at prices determined by market principles. In addition to possibilities of intraCAR trade, Russia has indeed become a serious importer of Central Asian electricity, especially the cheaper hydropower from the Kyrgyz Republic and Tajikistan (and it has been exchanging power with northern Kazakhstan for a few years now). To enable this trade with Russia in particular, there is a need to complete the North South transmission line in Kazakhstan, and equally important, access to transmission grids in Uzbekistan and Kazakhstan by the Kyrgyz Republic and Tajikistan are necessary. A. Revised Approach by the Bank and its Development Partners 2.08 Considering the above changes and developments, the approach for the Bank and its Development Partners should remain the same in regard to the long-term track, i.e. mobilizing donor support and resources to help Central Asian countries develop their energy resources in a sustainable manner. However, the strategy with regard to the short-term track should change. Instead of the previously planned efforts to encourage multi-country consensus and contractual agreements in all areas, the focus should be on working to address the institutional, managerial and financial constraints related to power and water at the national level and promote intra-state cooperation on water sharing and energy exchange between the Syr Darya riparian states. Such an approach will have three components: a) Work with individual countries on solving power and water management issues. This is already a component of the World Banks Country Assistance Strategies. The particular aspects related to energy-water cooperation are: (i) reduction of electricity losses in all four countries by reinforcement and rehabilitation of transmission and particularly distribution networks; and (ii) increasing ground water development in the Ferghana Valley in Uzbekistan and in Tajikistan, along with improving the safety of the Kairakum reservoir and improving its re-regulation capacity. Also, continued support in improving the conveyance capacity of the Syr Darya River, improvements to the Shardara dam, delta lakes, and Northern Aral Sea, and irrigation and drainage system improvements in each country will improve the water use efficiency.

b) Work with Kazakhstan, the Kyrgyz Republic and Tajikistan to improve the energy cooperation among the three countries. In addition to providing analytical support, financing options for eliminating the winter energy deficit in the Kyrgyz Republic and strengthening the electricity transmission network in Kazakhstan should be pursued. In particular, consideration should be given to: (i) the completion of the partly constructed Bishkek II power plant, which could potentially export surplus electricity to Russia during Kyrgyz off-peak seasons; and (ii) the construction of the second phase of the 500 kV North-South transmission line in Kazakhstan that is necessary from the point of view of load flow, system stability and ease of transmission for electricity exports to Russia. c) Work with all countries to analyze the long-term energy potentials, provide international experience in water-energy cooperation, and to improve the operational plans at the Toktogul reservoir. The World Bank has already proposed an institutional set up for the Water-Energy Consortium (WEC) to the working group dealing with this matter within the Central Asia Cooperation Organization (CACO). Once approved by the CACO Heads of Sate, further support should be mobilized in setting up the WEC, including technical assistance and funding for consensus building. The technical assistance could include provision of further advice on the institutional and legal framework of the Consortium, training and provision of venues for continuing the Consortium dialogue, redesign of the operating rules of the Toktogul reservoir as well as further extension of the analysis of regional power demand, options for expanding the regional power grid, and consequently enhancing the regional exports potential through specific investment projects. 2.09 The Bank and the development partners should give full consideration to the views of all the riparian states and should also incorporate Russia in the dialogue to ensure synergy between the above activity and the ongoing relevant initiatives supported by Russia. B. The Regional Electricity Export Potential Study

2.10 This Regional Electricity Export Potential Study (REEPS) is a part of the Banks shortand long-term assistance approaches discussed above. As such, this study is a second (after the Water Energy Nexus Study) in a series of Regional Economic and Sector Work (RESW) initiatives being undertaken by the Bank to assist the CARs in developing a regional approach to meeting their development objectives.

CHAPTER III: CURRENT STATUS OF THE POWER SECTOR IN THE CENTRAL ASIAN REPUBLICS
A. Power System Characteristics

3.01 The power systems in the Kyrgyz Republic, Tajikistan, Turkmenistan, Uzbekistan and south Kazakhstan were developed and optimized as an integrated grid during the Soviet era as the Central Asian Power System (CAPS) which even now operates as a synchronized grid.8 Details of the power sector in each of the four countries9 in CAPS are provided in Appendix 3.1. 3.02 Capacities and Output. The capacities and output of the electricity sectors of the Central Asian Republics are summarized in Table 3.1. Two issues merit specific comment. First, the region was a net exporter of about 150 GWh. Second, while gross supply to the domestic market totaled 134,445 GWh, total sales in CAPS to domestic consumers only amounted to 97,984 GWh implying an overall average total system loss level of 27%. Table 3. 2: Installed Capacities and Supply/Demand Balances of CARs in 2002
Item Installed Capacity Hydro (MW) Installed Capacity Thermal (MW) Installed Capacity Total (MW) Available Capacity (MW) Peak Demand (MW) Generation Hydro (GWh) Generation Thermal (GWh) Generation Total (GWh) Exports (GWh) Imports (GWh) Gross supply to domestic Market (GWh) Domestic Billed Consumption Annual (GWh) Kyrgyz Rep. 2,950 763 3,713 About 3,100 2,687 10,778 1,115 11,893 1,216 430 11,107 6,836 Tajikistan 4,059 346 4,405 3,428 2,901 15,086 138 15,224 266 1,058 16,016 12,988 Uzbekistan 1,710 9,870 11,580 7,800 7,925 7,278 42,021 49,299 634 609 49,274 38,112 Kazakhstan 2,000 16,240 18,240 13,840 9,432 8,861 49,317 58,178 595 464 58,048 40,053 42,003 92,591 134,594 2,711 2,561 134,445 97,989 Total 10,719 27,219 37,938 25,068

3.03 The arithmetical sum of their peak demand amounted to 22,945 MW in 2002. Even though the total installed capacity is 40% higher than the system peak, the supply in all countries and especially in the Kyrgyz Republic and Tajikistan remains unreliable on account of the low availability of thermal plants, seasonal variations in water flows in the rivers, restrictions on reservoir operations arising from irrigation demand as well as seasonal variations in electricity demand. Supply shortages are acute in winter (October to March) especially in Tajikistan. 3.04 Seasonality of the Electricity Demand. As shown in Table 3.2, CAPS as a whole is a winter peaking system, where 56% of the total consumption occurs in the winter. Kazakhstan
8

Turkmenistans power system was also a part of CAPS from the days of the Soviet era. Since May 2003, however, Turkmenistan is operating in an island mode in relation to CAPS, and is operating in parallel with the Iranian power system and exports electricity to Iran. The reason for Turkmenistans action is not clear since export to Iran can take place even without such isolation from CAPS. 9 Hereafter, CARs and CAPS do not include Turkmenistan

and the Kyrgyz Republic have their annual peak in winter, which are substantially higher than their summer peaks. The electricity consumed in winter in the Kyrgyz Republic and Kazakhstan amounts to approximately 67% and 60% of their annual electricity consumption. In the Kyrgyz Republic this is caused by the high share of residential consumers in total electricity consumption and the use of electricity for space heating by households, most of which do not have access to any gas network or any reliable gas supply. South Kazakhstans winter shortages are caused by limitations of power flow from North Kazakhstan and non availability of export surplus from Tajikistan and the Kyrgyz Republic in winter. Table 3. 3: Seasonality of the Electricity Consumption of the CARs in 2002
Item Share of Consumption in Summer (%) Share of Consumption in Winter (%) The Kyrgyz Republic 33 67 Tajikistan 57 43 Uzbekistan 47 53 Kazakhstan 40 60 Total 44 56

3.05 The annual load curves of Uzbekistan and Tajikistan are relatively flat, since irrigation pumping loads of summer in these two countries balance the heat loads of winter. In Uzbekistan, availability of gas supply to most areas ensures that winter demand for electricity does not rise unduly. Additionally, in Tajikistan, the aluminum production accounts for the summer consumption being larger than winter consumption. 3.06 Power Market Trends and Structure of Demand. Due to the collapse of the Soviet Union and the resulting economic turmoil, electricity demand and generation in the CAPS fell dramatically during 1990-1998 and has still not been able to climb back to the level prevailing in 1990. Even more importantly, industrial demand dropped and the share of the residential consumers in total consumption rose dramatically, especially in Tajikistan and the Kyrgyz Republic. This resulted in inadequate loading of some High Voltage (HV) lines and overloading of the Low Voltage (LV) lines and the distribution system, contributing to high levels of technical losses and unreliability of supply. In the Kyrgyz Republic the residential consumption accounted for 58% of total in 2003. In Tajikistan, a state owned Aluminum smelter TADAZ consumes about a third of the total electricity and out of the remaining, nearly half goes to the residential consumers. The share of Tajikistans residential consumption in the total has risen from 8% in 1990 to 34% by 2001. 3.07 System Losses, Billing and Collection. These consist of technical losses (undelivered electricity) and commercial losses (delivered but unbilled consumption and uncollected bills). Technical losses have increased well beyond normative values, because of the changes in structure of demand, inadequate maintenance and lack of needed reinforcements of the transmission and distribution system. Unbilled losses arise from theft of electricity, defective metering, meter reading and billing and un-metered supplies billed on the basis of normative consumption. The separation of these components is difficult. It is broadly estimated that the technical loss level is about 18% in Kazakhstan and is 22 to 23% in the other three countries. The unbilled consumption is estimated to range from 5% to 18% in these countries. Nonpayment problem are pervasive and on average only about 70% to 85% of the bills are collected. However, these collection figures include payment through non-cash mechanisms such as barter and offsets, which are still widely prevalent, and cash collection is generally believed to be in the

range of 40% to 55% of the billings. Thus, out of the total electricity available, only about 50% is converted into revenues and only about 35% to 40% is converted into cash revenues . Within this overall framework, operational inefficiency varies a great deal among the countries and even among the many distribution companies in Kazakhstan. Data on System Losses, Billing and Collections are summarized in Table 3.3. Table 3. 4: Losses, Billing and Collections in the CARs in 2002
Item System Losses (GWh) System Losses (as a % of net supply) Total number of consumers (million) Billing (as a % of sales) Collection (as a % of billings) Non Cash payment The Kyrgyz Republic 4,271 38 1.1 80 80 55% Tajikistan 3,028 19* About 1.0 70 70 60% Uzbekistan 11,162 23 4.1 85 75 60% Kazakhstan 17,995 31 About 4.3 N/A 85 45%

* Including TADAZ

3.08 Regional System Operation. The backbone of the CAPS is the 500kV grid which totals 1400 kilometers in length, and almost all major power stations in the CARs are connected to the grid at this voltage. The grid includes a closed central loop connecting the major facilities, with nodal substations located in eastern Uzbekistan, Kazakhstan and the Kyrgyz Republic. Turkmenistan is connected to the CAPS by a 500 kV tie-line (Mari TPP-Karakul), as is southern Tajikistan (Regar-Guzar). In addition, all power systems are interconnected to various degrees through a 220 kV network. Tajikistan could supply electricity to its northern part from the southern part only through power exchanges with Uzbekistan on account of the highly inter twined geographic location of Tajikistan and Uzbekistan and on account of a lack of a northsouth transmission link within Tajikistan. Similarly inadequate transmission capacity and stability problems in the North-South 500 kV transmission line restrict the flow of power from the north Kazakhstan grid to the South Kazakhstan grid, which is a part of CAPS. 3.09 The Unified Dispatch Center, Energia, in Tashkent is responsible for maintaining the balanced and synchronized operation of the power transmission and distribution system. Energia also takes into account the irrigation and hydro power related obligations of the member countries (incorporated in the annual Inter-Governmental Irrigation Agreements or IGIAs), balances the real time demand and supply of the integrated grid and ensures system security by arranging for ancillary services such as system reserves, frequency and voltage regulation and reactive power compensation. Energias Dispatch Service performs the task of translating the quarterly power exchange plans prepared by Central Asian Power Council (CAPC) into daily schedules for generation unit commitment. Energias Energy Regime Service attempts to balance irrigation and hydropower requirements, which is a controversial issue in the region. Another of Energias core functions is ensuring overall system security. B. Policy Reforms in the Power Sectors of CARs

3.10 The CARs have in general adopted policy reforms that are moving the electricity sectors towards a market economy. However, the progress has been uneven among the countries. The

10

current status of policy reforms in each of the CARs is discussed below. Further details of the status of the reform effort in the four countries along with charts of the sector structure are provided in Appendix 3.1. 3.11 Legal/Regulatory Framework and Industry Structure. In all countries a new set of Energy Laws (actually a set of Presidential Decrees in Uzbekistan) have been enacted enabling sector restructuring, corporatization, separate regulation, competitive trading and private sector participation. The policy function has been assigned to the Government Ministries and electricity entities have been corporatized. However, progress beyond legislation and corporatization is very uneven among the four countries: Kazakhstan is the most advanced in this regard. More than 85% of the large generation assets (called national level generation) have been separated as independent power producers. The independent transmission company KEGOC is state owned and provides regulated third party access on the basis of regulated transmission tariffs. Distribution is handled by 21 Regional Electricity Companies (RECs), which have smaller embedded generation assets (called regional level generation), transmission at or below 110kV and distribution networks. These RECs are also being unbundled as appropriate and thus nine of the distribution networks have been separated. Price regulation is done by the AntiMonopoly State Committee. Trading and dispatch is on the basis of bilateral contracts. RECs, distribution companies and large industrial consumers can enter into contracts with generators. Recent innovations include adoption of a Grid Code and introduction of a day-ahead market and spot market. There has been progress in the Kyrgyz Republic but less than in Kazakhstan. The sector has been unbundled into one generation company, one transmission company and four distribution companies. There is an independent regulator. The transmission company acts as a common carrier with third party access based on regulated transmission tariffs. Distribution companies directly contract with the generation company. The latter handles exports. Progress in Uzbekistan is limited. The state owned joint stock company Uzbek Energo has fully owned subsidiaries for generation units, transmission and 15 distribution areas. The transmission subsidiary acts as a single buyer. Large consumers at 110 kV and above can buy directly from the generators on the basis of regulated tariffs. There is a regulatory body, the independence of which is quite limited. The progress is least in Tajikistan where only the modest power sector assets in the Gorno Badakshan region have been given on a 25 year concession to the privately owned Pamir Power Company, which will function as a vertically integrated utility. The power sector assets in the rest of the country remain with Barki Tajik, a state owned joint stock company functioning as a vertically integrated utility, with wholly owned subsidiaries for generation units, transmission and distribution, which for all practical purposes function as divisions of Barki Tajik. There is no independent regulation. The distinction between the government and Barki Tajik is somewhat fragile. A separate Joint stock company has been formed for the construction of the Sangtuda I Hydropower project with the objective of attracting equity from outside the government.

3.12 Electricity Tariffs. Posted electricity tariffs range from a low of 0.5 cents/kWh in Tajikistan to a high of 2.64 cents/kWh in Kazakhstan, but are below the cost recovery level in all 11

countries, as shown in Table 3.4. There are considerable subsidies in favor of residential consumption in all countries, especially in the Kyrgyz Republic and Tajikistan. Uzbekistan is the most serious in terms of pricing reforms, as it adopted a multi-year tariff adjustment policy that has been in effect since August 2001 (prices are increased by roughly 10% once every 2 months) and aims to reach full cost recovery levels by end 2005. Kazakh tariffs vary widely among the distribution companies and may have reached cost recovery levels in the case of a number of distribution companies. Table 3. 5: Electricity Tariffs in the CARs in 2003
Item Average tariff (Cents/kWh) Cost recovery level of Tariff (Cents/kWh)** Current Tariff as % of Cost Recovery Tariff The Kyrgyz Republic 1.40 2.30 61% Tajikistan 0.50 2.10 24% Uzbekistan 2.15* 3.50 61% Kazakhstan 2.64 2.80 94%

*Aug. 2004; ** See Chapter IV and Appendix 5.1 for details

3.13 Private Sector Participation. Kazakhstan has the most private sector participation. 85% of large generation plants (called national generators) are in private hands, as well as 9 distribution networks are privately operated. The policy objective is to privatize all distribution operations. Tajikistan has given out the investment, operations and management responsibility for the electricity operations in Gorno Badakshan Autonomous Oblast to a private operator under a 25-year concession. In the Kyrgyz Republic, all electricity distribution companies are to be privatized and one of the four distribution companies is planned to be awarded under a concession arrangement in the near future. Uzbekistan has put up four power plants (50% of installed capacity) and 4 distribution companies (30% of consumers) for privatization, and plans to offer 49% of the equity to private investors in generation and distribution companies 3.14 Electricity Trade. There has been a considerable reduction in the amount of electricity exchanged between the CARs since 1990, as shown in Table 3.5. The total export/import flow in 2000 was only 30% of the 1990 level, even though the consumption levels in each country has recovered to about 80% of the 1990 level. Until 1992 the electricity flows followed Soviet era commodity exchanges based on planned allocation of electricity, irrigation water, and fossil fuels to the regions, but from 1993 onwards the newly independent countries introduced a system of barter payments for the exchange of fossil fuels and electricity based on cash prices. As traded fossil fuel prices went up sharply and electricity prices remained low, the exchange became difficult and electricity trade suffered large declines. Pursuit of national energy self-sufficiency policies by the CARs is also a key reason for the decline in trade. Significant trade of electricity occurs only in the Syr Darya basin, with the Kyrgyz Republic being a net exporter to Uzbekistan and to southern Kazakhstan10. The Kyrgyz Republic and Tajikistan, due to their large hydro systems, provide frequency regulation to the wholes CAPS, and they earn fees for providing such services. In 2000, the total frequency regulation services amounted to about 5,000 MW over the 12 months period, which earned them about US$7 million.

10

However, given that there are many links at the medium and low voltage levels (at 35kV especially) across borders, there are transfers of energy between some countries (e.g., the Kyrgyz Republic and Almaty area) that are unrecorded.

12

Table 3. 6: Shifts in Electricity Trade in Central Asian Power System 1990-2000

Electricity Trade in 1990 (GWh) Imports Exports Kazakhstan The Kyrgyz Republic Tajikistan Turkmenistan Uzbekistan Outside CAPS* Total Imports Kazakhstan -697 0 0 8139 0 8836 The Kyrgyz Republic 277 -324 0 0 0 601 Tajikistan 0 0 -0 3927 0 3927 Imports Exports Kazakhstan The Kyrgyz Republic Tajikistan Turkmenistan Uzbekistan Outside CAPS* Total Imports Kazakhstan -1253 0 35 0 2224 3512 The Kyrgyz Republic 0 -126 0 195 0 320 Tajikistan 0 154 -819 729 0 1702 Turkmenistan 0 0 0 -32 0 32 Uzbekistan Outside CAPS* 0 1926 244 68 -0 2237 0 0 0 0 0 -0 Total Exports 0 3333 370 921 956 2224 Turkmenistan 0 0 0 -946 0 946 Uzbekistan Outside CAPS* 310 2383 2344 6066 -0 11103.2 0 0 0 0 0 -0 Total Exports 587 3080 2668 6066 13012 0

Electricity Trade in 2000 (GWh)

*Mainly northern Kazakhstan.

Over the 1990-2000 period, the changes in the electricity trade were as follows: Within CAPS, in Kazakhstan imports dropped by 85% from 8.8 TWh in 1990 to1.3 TWh in 2000. Although the Kyrgyz Republic, a traditional electricity exporter, registered an increase of exports of 6% in 2000 over 1990, the year 2000 was an exceptional year in terms of water needs of the downstream countries and therefore the electricity exports were high. In reality the exports average around 2 TWh per year, which implies a drop of about 35% in its exports. The Kyrgyz Republics imports dropped 50% from 0.6 TWh in 1990 to 0.3 TWh in 2000. In Tajikistan imports dropped by 56% from 3.9 TWh in 1990 to 1.7 TWh in 2000. In the same period the export went down by 85% from 2.7 TWh to 0.4 TWh. In Turkmenistan imports dropped by 97% from 0.9 TWh to 0.03 TWh and export dropped by 85% from 6.1 TWh to 0.9 TWh. In Uzbekistan from 1990 to 2000 the import dropped by 80% from 11.1 TWh in 1990 to 2.2 TWh in 2000. The exports dropped by 92% from 13.0 TWh in 1990 to 1.0 TWh in 2000.

3.15 The electricity trade that occurred in 2000 was actually a proxy for water exchanges and, therefore, is an unreliable source of revenue to the electricity exporting countries. Despite the pursuit of national energy self-sufficiency policies, the Kyrgyz Republic and Tajikistan are unable to meet their winter peaks demands for energy.

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Policies to be Pursued Going Forward 3.16 The current policy frameworks are generally pointed in the right direction in all countries, except that policy implementation needs to be accelerated to assist sector development. Specifically: As regards industry structure, third party access to transmission is an absolute necessity if electricity trade is to be enhanced; While independent regulation is a final objective (which may take many years to realize), nearer-term measures that should be pursued are: (a) bringing transparency to regulation; (b) providing multi-year regulatory certainty (e.g., adopting a tariff policy that covers several years); and (c) where private operators already exist, even handed treatment of public and private operators, is necessary. As regards pricing, especially for the Kyrgyz Republic and Tajikistan, it is useful to follow Uzbekistans example and implement a multi-year tariff path to reach cost recovery levels as soon as possible, after taking into account affordability consideration including the provision of a social safety net. In addition to providing the urgently needed resources for investments, proper pricing will also have a beneficial effect on demand, and will give the right signals for intra-CAR trade. Private Sector Participation will be important over time, in view of the huge investment need and the weak management capacity. There is a need to enhance electricity trade as an integral part of overall energy trade, since such trade would meet demand at the lowest possible cost, given the resource complementarities. However, it should be ensured that energy/electricity trade occurs based on market principles.

3.17 Trade within the region could increase if payments for electricity, water services, and fuels are fully monetized and if the annual IGIAs are based on least cost solutions for the river basins as a whole. Further increases in trade would arise when the transmission systems in all four countries provide non-discriminatory third party access on the basis of transparent transmission tariffs. Metering, payment discipline and settlement mechanisms have to be improved. Further, in order to arrive at rational trade decisions, prices of electricity in all four countries need to reflect the cost of supply.

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CHAPTER IV: DEMAND SUPPLY BALANCEAND POTENTIAL FOR ELECTRICITY EXPORTS

4.01 This chapter attempts to answer the following set of questions: what is the current and projected demand for electricity in each of the CARs; what are the supply options to meet such demand, and in turn what is the potential exportable surplus from the CARs. A. Demand Forecast (i) Issues in Demand Forecasting in CARs. 4.02 Trending, end-use analysis and macroeconomic modeling are the common approaches to electricity demand forecasting. Given the economic collapse following the dissolution of the Soviet Union and the continued decline in GDP and electricity consumption in the former Soviet Union countries, trending would be inappropriate in the CARs. End-use analysis is really what the countries need to do, but is currently difficult on account of paucity of data and is distorted by the excessively inefficient use of electricity. Demand projections made during the Soviet era and even in years immediately thereafter, were more in the nature of targets to be achieved than in the nature of forecasts. Given the central planning background and practices, price as a determinant of demand was largely ignored and concepts of price elasticity and income elasticity were not much in use. Kazakhstan Electricity Association a national industry associationhas recently commenced the practice of making long-term forecasts. There have also been recent forecasts made by consulting firms financed by International Financial Institutions such as ADB and UNDP, and some bilateral aid agencies in the context of their operations, which use macroeconomic modeling and also incorporate considerations of income elasticity and price elasticity. However they do not appear to have considered seasonal variations in demand adequately. Given the high degree of such seasonal variations, it is necessary to incorporate them in the demand projections to determine export surpluses. Also other key assumptions relating to GDP growth rates, electricity prices and possible efficiency improvements need to be updated. The forecast made in this report on the basis of macroeconomic modeling incorporates these elements. The model is based on a simple iso-elastic demand function of the type often used in such aggregate demand analysis. (ii) Key Determinants of Demand Growth 4.03 Demand forecasts have been made for the four countries at the aggregate level, by estimating the total sales in GWh for the sector as a whole (without going into the demand at the level of different classes of consumers) and adding to it the estimated transmission and distribution losses to arrive at the demand at the generation level.11 The details of the model, methodology and assumptions used are presented in Appendix 4.1. Some of the key determinants used are described below.

It is worth noting that this demand does not include auxiliary consumption or station use by the generating stations. This consumption could amount to 0.5% to 1% for hydro stations, 4% to 6% for gas fired thermal plants and 6% to 8% for coal fired thermal plants.

11

15

Income Elasticity or GDP elasticity of electricity demand: A range of available literature indicates that for most developing countries the GDP elasticity of electricity demand ranges between 1.2 and 1.4 (i.e., for every percentage increase in GDP, the electricity demand increases by 1.2 to 1.4 percent). However, most former Soviet Union states (and more so in the case of CARs) do not fit into this category as their electricity consumption is already very high relative to their GDP level. Therefore, it is expected that the relationship between GDP and electricity demand in CARs would be more akin to those prevailing in developed countries, which have exhibited a GDP elasticity of demand of 0.8. This value had been used in relation to CARs in this study. Price Elasticity: The estimates for price elasticity of demand for electricity in lower income countries generally are in the range of 0.1 to 0.2, implying that for every percentage increase in electricity price, the demand decreases by 0.1 to 0.2 percent. The elasticity levels for electricity are generally lower than those for other energy forms (e.g., petroleum products), reflecting: consumers inflexibility to switch from electricity to other forms of energy. This is particularly true of all types of consumers in the short term, and for industries, such as metallurgical and chemical, even in the long term; non-availability of other energy forms (e.g., gas), as is the case in the Kyrgyz Republic and Tajikistan; and the share of industrial consumption in overall consumption the higher the industrial consumption share as is the case with Kazakhstan and Uzbekistan, the lower the price elasticity of demand. It is also important to note that there is an inverse relationship between price elasticity of demand and a countrys income (GDP) level. At higher income levels, electricity demand becomes less and less elastic to electricity price changes as GDP increases. This is the case with Kazakhstan, where its higher level of GDP would tend to lower the price elasticity values. Considering all of the above, price elasticity values of 0.1 have been assumed in Kazakhstan and Uzbekistan and 0.3 in the Kyrgyz Republic and Tajikistan (where the needed price increases to reach financial viability are 80% and 300% respectively). Effective Tariffs: It was also recognized that the effective tariffs paid by the consumers were actually lower than the posted tariffs, due to the poor metering, billing and collection efficiencies. Therefore the applied prices to estimate demand were adjusted by the collection rate to arrive at the effective prices. (iii) Results of the Base Case

4.04 The results of the base case demand forecast exercise are summarized in Table 4.1 for each country and for Central Asia as a whole. In the short term (up to 2010) the total demand in all four CARs combined is expected to increase at a modest annual rate of 0.31%. Demand is actually projected to decline in Tajikistan, Uzbekistan and the Kyrgyz Republic, whereas in Kazakhstan, there would be a growth of about 2.94% per year. Over the longer term (up to 2025), all countries except Tajikistan would register an increase in demand, resulting in an annual compound growth rate of about 1.9% for the region. Kazakhstan would experience the highest annual rate of growth (3.09%), and demand in Tajikistan would actually decline at 0.17% p.a. compared to the 2003 level.

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Table 4. 1: Gross Electricity Demand Projections: Base Case

Country Kazakhstan The Kyrgyz Republic Tajikistan Uzbekistan All Four Countries Actual 2003 58,944 12,145 16,348 48,691 136,128 2010 72,056 9,222 11,267 46,597 139,142 Forecast Demand (GWh) 2015 84,034 10,033 12,410 51,255 157,731 2020 98,367 11,296 13,972 56,589 180,225 2025 115,146 12,719 15,731 62,479 206,075 2003-2010 2.91% -3.86% -5.18% -0.63% 0.31% Annual Growth rates 2003-2015 3.00% -1.58% -2.27% 0.43% 1.24% 2003-2020 3.06% -0.43% -0.92% 0.89% 1.66% 2003-2025 3.09% 0.21% -0.17% 1.14% 1.90%

4.05 Kazakhstans high growth rate in electricity demand among the four countries is on account of (i) the high sustained GDP growth projected over the period; and (ii) the fact that since its tariffs are already at 94% of cost recovery levels (Chapter III, Table 3.4), the effect of price increases on demand growth would be minimal. The Kyrgyz Republic would actually experience a contraction in demand during 2005-2020 as a result of significant increases in metering, billing and collection leading to a real effective tariff increase of 103% over the period, when collection rates are factored in. There would be modest demand growth thereafter. Tajikistans demand would also decline through 2025 for a similar reason - on account of its very low tariff base, tariff increases and improvement in collections would lead to real effective tariff increases of five times the level in 2003. Uzbekistans demand would also decline through 2010 but would experience a modest growth rate thereafter. The key reasons for a relatively flat demand curve in Uzbekistan are: (a) extensive gasification of the country in the 1990s, resulting in over 87% of the population having access to gas supplies; (b) relatively lower GDP growth rates, and (c) an assumed increase in real effective tariff of 37% over that period. (iv) Seasonal Variations in Demand 4.06 As discussed in Chapter III, seasonal variations in electricity demand are significant in the CARs. The CAR regions annual peak occurs in winter, and consumption during winter (October-March) is substantially higher than in summer (April-September) generally as a result of using electricity for space heating. The variation is highest in the Kyrgyz Republic followed by Kazakhstan, Tajikistan and Uzbekistan in that order. In the Kyrgyz Republic (and to a large extent in Kazakhstan also) gas distribution is limited and electricity is used for space heating. In Tajikistan the increased heat load in winter is somewhat balanced by the irrigation pumping load in summer. In Uzbekistan the seasonal variation is not pronounced on account of extensive gas distribution. For the region as a whole, 58% of the annual consumption takes place in winter (Fig 4.1). This need to be factored in and the supply demand balances need to be worked out on a monthly basis to plan for system expansion and for determining the exportable surplus.

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25,000 20,000 15,000 10,000 5,000 0 Jan Feb Mar Apr May Jun 2005 2010 2015 Jul Aug Sep Oct Nov Dec 2020 2025

Figure 4. 1: Gross Electricity Demand in CARs, Monthly Totals, 2005 - 2025 (v) Sensitivity Analysis 4.07 In view of the fact that the key determinants of demand, price and income elasticity levels chosen were based on experience elsewhere and not in the CARs, the demand projections were subjected to extensive sensitivity analyses by varying the key determinants of demand price and income elasticity in both directions. In addition, the projections were tested for delay or acceleration in reaching cost recovery tariffs. The results are summarized in Table 4.2 and elaborated in Appendix 4.1. Table 4. 2: Results of Sensitivity Analyses on Demand Forecast
Percentage Change in End-of-Period Demand for every Country Kazakhstan The Kyrgyz Republic Tajikistan Uzbekistan All four Countries 1% Change in Income Elasticity 0.74 0.53 0.64 0.45 0.63 1% Change in Price Elasticity 0.08 0.52 0.74 0.22 0.20

4.08 Sensitivity analyses showed that demand growth in the region overall is more sensitive to income elasticity values compared to price elasticity. Over the 2005 2025 period, every 1% decrease in income elasticity projected demand would decrease by 0.63% compared to 0.2% change in demand for every 1% change in price elasticity. However, projected demand in individual countries behaves differently. Projected demand in Kazakhstan is more sensitive to changes in income elasticity and least sensitive to changes in price elasticity, confirming the international experience that as incomes grow, electricity demand becomes less and less elastic

GWh

18

to price changes. Tajikistan, the poorest of the CARs, is more sensitive to price changes. Given the dominant size of the Kazakhstan and Uzbekistan systems within CARs, the regional demand growth patterns will reflect the growth patterns in these two systems. The changes in the timing of projected tariff increases had only a minor impact on projected demand. B. Supply Options 4.09 The supply options to meet the projected demand include (a) projects for rehabilitation of the transmission and distribution system to reduce the high level of Transmission and Distribution (T&D) losses; (b) projects for rehabilitating the existing generating units; and (c) construction of new generating plants. (i) Loss Reduction 4.10 Reduction of technical losses in the T&D system is the most economical method of meeting the incremental demand when the loss levels are high compared to industry standards. Table 4.3 below indicates the existing and targeted loss levels in the four countries and the volume of incremental demand such reduction would help to meet. Much of the losses are occurring in the low voltage distribution systems, since the consumption structure has shifted more towards residential consumption in all countries. This shift is most pronounced in the electricity dependant Kyrgyz Republic and Tajikistan. Though losses in the transmission systems, as reported at about 8%, are higher than the industry standard of 4% to 5%, most of the system is still carrying loads lower than their design capacity (the overall power transmitted in 2003 was still only 90% of the level it carried in 1990); and considerable investments have already been made in the transmission system12. Table 4. 3: Current and Targeted Electricity Loss Levels in CARs
Country Kazakhstan The Kyrgyz Republic Tajikistan Uzbekistan Current Losses* (%) (2004) 24 34 28 25 Target Loss Levels (%) 15 13 13 15 Time Period of the Projects 2004-2010 2004-2010 2004-2010 2004-2010 Additional Annual Electricity (GWh) in 2010 5,843 1,39213 1,988 4,064

*Includes technical losses mainly, but also some commercial (unbilled consumption) losses. 4.11 The focus of future investment thus would be more on distribution rehabilitation, reinforcements and expansion. The projects for the reduction of losses in all four countries implemented during 2005-2010 would make available an annual incremental supply of 13,287 GWh of electricity by 2010. The total value of investments on such transmission and distribution loss reduction projects in all four countries is estimated at $3,009 million in 2004 prices.

Roughly US$80 million of a foreign funding of power sector investments in Kyrgyz Republic has been spent on transmission, and ADB and EBRD are assisting Uzbekistan with its transmission system improvement, ADB is assisting Tajikistan to invest in rehabilitation of its transmission system; and World Bank is assisting Kazakhstan.
13

12

An additional 220 GWh would be realized in 2011.

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(ii) Rehabilitation of Generation 4.12 Major hydropower stations in the region are generally in reasonably good condition. Rehabilitation of Nurek hydropower station in Tajikistan has already been funded. In the Kyrgyz Republic the main thermal plant (Bishkek CHP-I) has already undergone feasible rehabilitation. The rehabilitation of the CHP units in Tajikistan would add relatively small amounts of electricity. On the other hand there is considerable scope for rehabilitation of thermal power stations in Uzbekistan and Kazakhstan to secure increased power generation from them. In Uzbekistan UzbekEnergo estimates that out of the total installed thermal generating capacity of 9,870 MW (consisting of 11 thermal plants) only about 8,200 MW is actually available. If units well beyond the age of 35 years and or 200,000 hours of operation are also excluded the available capacity would be even lower at 7,800 MW. UzbekEnergo, with considerable support from the Government, is undertaking rehabilitation of the countrys electric generation capacity through several projects, including an US$81 million loan from EBRD for the renovation of the Syrdarya plant and a US$200 million loan from Japan Bank for International Cooperation (JBIC) for the rehabilitation of Tashkent coal fired station. Further rehabilitation of two units at Syrdarya as well as the rehabilitation of the Angren, Navoi Angren units are planned. When all the planned rehabilitation of power plants is implemented over the 2004-2023 period at a cost of US$1.15 billion, the operational life of all major power plants would have been extended avoiding the loss of generation of about 32,000 GWh (during 2005-2025) due to retirements. In Kazakhstan, large thermal power plants (called National level power plants) provide considerable generation volumes of electric power. These are the Ekibastuz I and II, Aksu and Karaganda coal fired thermal power plants, There is a need for rehabilitation of the thermal power plants since all of them are operating at low plant use factors (29% at Ekibastuz I compared to a design value of 77%; 51% at Ekibastuz II; 52.5% at Aksu; and 54% at Karaganda); and 58% of the total installed thermal capacity or about 10,600 MW, will reach the end of its operational life before 2015. The rehabilitation of Ekibastuz I plant is expected to cost $440 million and result in the annual incremental generation of 11,283 GWh. The Kazakhstan Electricity Association (KEA) estimates that roughly US$1,070 million is needed to rehabilitate the thermal power plant (US$770 million for all other national power plants and $300 million for the regional plants owned by the Regional Electricity Companies) to extend the operational lives of the units and improve the plant factor to 60%. With such rehabilitation, the incremental annual generation from those plants would amount to 17,118 GWh. (iii) New Generation Projects 4.13 Large new power plant projects are contemplated in all four countries and they are briefly discussed below14.
It is important to note that the information on costs, time to completion of construction etc, are obtained from country authorities, and have not been independently verified. Such verification would come when investment commitments would be contemplated.
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New Ekibastuz Thermal Power Station in Kazakhstan15: The existing Ekibastuz II power station consists of two coal fired units of 500 MW each located in a site which has all the infrastructure and site facilities to accommodate easily two more units of 500 MW each. The original project planning was done during the Soviet era on this basis. A recent study has estimated the cost of construction of these additional units at $1,085 million.16 The implied cost per kW of about $1000 is lower than the international reference cost of $1300 per kW reflecting the availability of basic infrastructure.17 This project is expected to be implemented during 2008-2011 and is expected to result in an incremental annual generation of 7,446 GWh. Bishkek II Thermal Power Plant in the Kyrgyz Republic: This plant, referred to sometimes as Bishkek CHP II, is a plant that is partly constructed Its construction began in 1985, but has been put on hold since 1992. The original scheme was to develop a combined heat and power plant of 800 MW, including seven heat-only-boilers as Phase 1 of the plant. Two of the seven planned heat-only-boiler units, as well as the building housing the boilers, water treatment facilities, natural gas and fuel oil supply/storage installations, flue disposal structure (chimney) and a railway line within the land allocated to the plant of about 47 hectares have been installed. The plant is designed to use mainly natural gas from the Tashkent-Almaty gas pipeline. In addition, a newly equipped 220-kV substation is located just next to the plant site, which will facilitate the evacuation of power. Constructing a new gas fired 400 MW thermal plant using the combined cycle technology making the best use of the existing site facilities is perhaps the most cost-effective and rational solution to meet the winter power shortages of the Kyrgyz system. Allowing one year for engineering and raising finances, and two years for construction this plant could be commissioned in 2007, enabling an annual incremental generation of 2,453 GWh from 2007 or 2008. Taking into account the site facilities already available the capital cost is not expected to exceed $200 million.18 Kambarata I and Kambarata II Hydroelectric Projects in the Kyrgyz Republic are being actively pursued by the government. Kambarata I is a 1,900 MW storage hydroelectric facility, identified and designed during the Soviet era, located in the middle part of the Naryn river upstream of the Toktogul reservoir (see Figure 4.2). As proposed, it would be a 275 meter high dam built by controlled blasting and would include the associated power/spillway tunnels, penstocks and power generation facilities. The reservoir would have a live storage of about 3.4 BCM and would provide seasonal storage. The maximum net head of the dam would be 180 meters and annual energy generation would be about 5,000 GWh with a plant use factor of about 30%. Since it is located upstream of Toktogul reservoir (which has a much larger live storage of 14 BCM), water could be released from Kambarata I to generate almost all of its annual power output in the winter, thus

This is a state owned power plant in which 50% of the equity is believed to have been transferred to RAO UES of Russia in lieu of the electricity arrears, which Kazakhstan had owed to RAO UES for power imports from Russia. 16 RWE Solutions/Lahmeyer International: Feasibility Study for the Kazakhstan North-South Line 2002 17 However, it needs to be verified if this costs include environmental impact mitigation equipment. 18 Compared to the international reference price of $600 to $700 per kW for a green-field Combined Cycle plant, the plant proposed in Bishkek is likely to cost less than $500/kW.

15

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avoiding the release of water from Toktogul in the winter. Enabling additional generation of electricity during winter without releasing water from Toktogul would be the most significant contribution of this project. The estimated capital cost of Kambarata I is about US$1.67 billion, and together with transmission line costs needed to evacuate power (of about $265 million), the total costs would amount to $1.94 billion (or $1,000/kW). It is anticipated that it would take 8 years to prepare the project and 9 years to construct it and that power would be available starting in 2017, though the full output could be realized only in 2020.

C hui Glavnaya Tokmak K emin B alykchy

A lmaty

Jambal S hymkent

K ara B alta A la A rcha S emetey Talas Toktogul C ascade Frunzenskaya A la B el K ambarata 2

B ishkek TE T

Tamga A t B ashi Hydro Naryn A k K iya Upper Naryn Hydro

Tashkent

K urpsai Tash Kumyr Uch K urgan K rystal

Toktogul S hamaldi S ai D atka October Jalalabad

Lochin Osh TE T S tepnaya Uzlovaya S ubstations and Lines 500 kV E xisting A lai K ara B ulak A igul Tash B akten E xisting P ower S tations and Lines P roposed Existing P roposed P roposed 220 kV E xisting P roposed 110 kV 110 kV

Kambarata II

Kambarata I

Source: Kyrgyz Republic-UK DfID Tariff Policy Project, 2003

K YR GYZS T A N E LE CK Y R GYY ST AN E M C T R IC IT Y T R IC IT ZS YS T E LE SYST EM

Figure 4. 2: Kyrgyz Power System and Location of Kambarata schemes Kambarata II would be a run-of-the river hydro project downstream of Kambarata I but upstream of Toktogul (see Figure 4.2). The installed capacity would be 360 MW if Kambarata I is developed, or 240 MW if it is a stand-alone scheme. As proposed, it would be a 62 meter high dam built by controlled blasting, and would include the associated power/spillway tunnels, penstocks and power generation facilities. The average energy production would amount to about 1,100 GWh at 240 MW and 1260 GWh at 360 MW. Almost all the generation, when built as a stand alone project, would be in the summer. About 20% of the project had already been completed and the incremental costs for completing this project are estimated at about $280 million for a 240 MW plant, including the necessary transmission lines. On this basis, the cost per kW of Kambarata II would be about US$1,167. It is important to note that in the absence of Kambarata I, the Kambarata II project should be considered with caution as it would merely add to the summer surplus and would not help to remedy the winter shortage of electricity. However construction is proceeding, albeit slowly, and RAO UES of Russia has reportedly agreed to fund the effort to update the feasibility report and if construction is to begin in say 2008/09 it may be possible to commission it by 2012.

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Legend: Prospective HPPs Operating HPPs 1 - Rogun HPP (3600 MW) 2 Shurob HPP (750 MW) 3 Nurek HPP (3000 MW) 4 Baipaza HPP (600 MW) 5 Sangtuda I HPP (670 MW) 6 Sangtuda II HPP (220 MW) 7 Golovnaya HPP (240 MW) 8 Perepadnaya HPP (29.9 MW) 9 Central HPP (15.1 MW)

Figure 4. 3: Planned and Existing Hydro Schemes on Vaksh River in Tajikistan Rogun Hydropower Project of Tajikistan is located upstream of the existing Nurek hydropower cascade on the Vaksh river (see Figure 4.3). The project was planned to be constructed in two phases with an ultimate installed capacity of 3,600 MW. The dam to be built will be one of the highest in the world with a height of 335 meters. The construction of the project commenced during the Soviet era when all the construction machinery was assembled, construction colony was established, and diversion tunnels and most of the excavation needed for the project were completed at a cost of $800 million (as estimated by Tajik authorities). Since 1992 no further progress had been made for want of funds. The incremental costs required to complete this project are about $2.1 billion19. In Phase I the remaining works would involve the construction of the dam to two-thirds of its final height, repairing two existing tunnels; building a third new tunnel; creating the regulating reservoir and installing two generation units which would operate

The full costs are estimated by Tajik authorities at about $2.9 billion, of which they claim that $800 million has already been spent.

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with a capacity of 800 MW. The electricity output of this Phase I would be about 4,300 GWh, and it would also enable the generation of an additional 400 GWh at Nurek. The funds needed to complete this Phase I are estimated at $785 million. Phase II involving completion of the dam to its full height of 335 meters and installation of additional power capacities of 2,800 MW is expected to cost $ 1.67 billion. After completion of Phase II, the whole Rogun scheme would generate roughly 13,000 GWh and the additional generation at Nurek would increase to 1,300 GWh. Sangtuda I Hydropower Project in Tajikistan is a proposed to be located downstream of the existing Nurek hydropower cascade (see # 4 and 5 on Figure 4.3) on the Vaksh river. The construction of this project also commenced during the Soviet era and was suspended in 1992 for want of funds after completing a sizeable amount of work. The planned installed capacity on this run-of-the-river scheme is 670 MW and expected annual electricity generation would be about 2,700 GWh. About 60% of the generation would be in the summer months (April to September) and the remainder would be during the winter months. The total cost of the project is estimated to be about $482 million, and it is estimated that about $114 million has already been spent. Therefore, a further $368 million would need to be mobilized to complete the project. Talimardjan Thermal Power Project in Uzbekistan is a gas fired steam turbine plant with 4 units of 800 MW each. It is located in the Mubarek gas field, one of the larger producing gas fields in Uzbekistan. This project was also started during the Soviet times, and the basic infrastructure has been built for the four units. Since independence, Uzbekistan has been attempting to install and commission the first unit, which is expected to come on stream in 2005. It is estimated that about $100 million would be needed to commission this unit, which at a plant factor of 60% would annually produce about 4,537 GWh. This would complete the first phase. The amount of sunk cost already incurred is not readily available. The second phase would involve construction and commissioning of the three remaining units of 800 MW each and would likely to take place during 2009-2013 after firming up possible export sales agreements. The capital cost for this phase is estimated at $ 1.2 billion ($500/kW) taking into account the infrastructure which is already in place. These three units would provide an annual incremental generation of about 13,613 GWh. (iv) Overall supply increases

4.14 As a result of the implementation of the above mentioned projects the overall gross supply in all four countries would rise from 139 TWh in 2003 to 228 TWh in 2025. About 54% of this incremental supply would come from new generating units, about 16% from loss reduction programs and the balance 30% from the rehabilitation of old generating units (see Table 4.4). Kazakhstan would contribute 45% of the incremental supply, followed by Uzbekistan and Tajikistan (22% each) and the Kyrgyz Republic (9%). Appendix 4.2 contains a more detailed set of information for each country and for the different years.

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4.15 In addition to these supply increases, the Kyrgyz Republic and Tajikistan have some additional options to increase availability of electricity in winter from existing sources: In the Kyrgyz Republic, it is now possible to operate Toktogul cascade in a modified irrigation mode (see Chapter II) which will enable the release of an additional 1.5 BCM of water and thus generate an additional 1.5 billion kWh in the winter; In Tajikistan it is possible to shift the heat demand away from electricity to other resources (coal, gas, biomass), which is expected to make available roughly 860 GWh to meet electricity demand. Table 4. 4: Composition of the Annual Incremental Supplies
Country Loss reduction Kazakhstan The Kyrgyz Republic Tajikistan Uzbekistan Total 5843 1612 1,988 +860 4064 14,367 16% Incremental Supply (GWh) resulting from Projects Relating to: Generation Rehabilitation 28401 -1489 26,912 30% New Generation 6850 8509 16830 17062 49,251 54% Total 41,094 45% 10,121 11% 19,678 22% 19,637 22% 90,530 100%

Note: The negative number in column 3 above indicates reduction in generation due to retirements in Uzbekistan. Also 860 GWh is gained in Tajikistan due to replacement of electricity for heating in winter by other energy sources.

C. Demand and Supply Balance and Export Potential 4.16 The supplies for each country for each year during the period 2005-2025 (from existing level of supply, the incremental generation coming on stream and retirement of old generating units) are compared to the projected demand in Table 4.5 The results indicate that in 2005 there would an annual surplus 7.4 TWh. Once the new investments start yielding, the regional surplus would rise to 43.4 TWh in 2020. Towards 2025, surpluses would drop back to 16.5 TWh, as demand growth outstrips supply growth. All countries except Uzbekistan have a deficit in winter currently. With the new projects, the largest surpluses come from Uzbekistan (2015) and Tajikistan (2020). 4.17 The picture is different when variations between summer and winter conditions are considered. In the winter of 2005 the region as a whole has a shortage of 1.6 TWh (2% of winter demand), but these deficits would be turned around as new investments start yielding output. The winter surplus in 2010 amounts to 6.9 TWh and it rises to 15.5 TWh by 2020. New capacity may be needed to meet winter demand towards 2025. The Kyrgyz Republic would be able to meet its winter demand (and therefore annual demand) through 2020, without Kambarata I and II, but with Bishkek II. Kazakhstan faces winter shortages but these shortages can be met through trade. Tajikistan would experience sizeable winter surpluses from 2010. Uzbekistan, however, has winter surpluses right through (see Table 4.5 and Figure 4.3). 25

Table 4. 5: Surplus Electricity Available for Trade (GWh)

Country Kazakhstan Season Summer Winter Annual Summer The Kyrgyz Republic Winter Annual Summer Tajikistan Winter Annual Summer Uzbekistan Winter Annual Summer All Four Countries Winter Annual 2005 3198 -2504 694 4737 -2092 2645 1511 96 1607 1620 2862 4482 11066 -1637 9429 2010 3623 -2969 654 6283 1584 7866 4587 2841 7429 3904 5485 9389 18396 6942 25338 2015 6876 -130 6746 6863 1517 8381 6767 4287 11055 7635 9846 17481 28142 15521 43663 2020 3745 -5563 -1818 6406 5761 12167 12579 8308 20887 5088 7058 12147 27819 15564 43383 2025 -234 -12318 -12552 5991 4753 10744 11697 7431 19128 2091 3767 5858 19545 3633 23178

4.18 It should be borne in mind that this is an indicative analysis intended only to provide a broad understanding of the potential for exports. Further meaningful analysis would be possible when the simulation of the systems are done both in energy and capacity terms (taking into account the daily and seasonal variations in demand both in the producing and importing markets). This is likely to be undertaken during the second phase of this study.
GWh 30000 20000 10000 0 2005 -10000 Summer Winter 2010 2015 2020 2025

Figure 4.4: Central Asia Export Surpluses

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Economic Assessment of Loss Reduction and Generation Rehabilitation Investments 4.19 A major portion of the projected demand in the CARs can be met with loss reduction and generation rehabilitation. The investments needed in transmission and distribution for loss reduction and in generation rehabilitation in the CARs is summarized in Table 4.6. Investment needs in the Kyrgyz Republic and Tajikistan are in transmission and distribution for technical loss reduction projects, whereas in Kazakhstan and Uzbekistan investment in generation rehabilitation are also needed in addition to those in transmission and distribution. Accordingly, these two countries account for 90% of the investments needs in the region. Table 4. 6: Investment in Loss Reduction and Generation Rehabilitation in CARs (US$ million)
Investment Project Kazakhstan Transmission and Distribution Ekibastuz GRES-1 Rehabilitation Other Large and Medium Units Rehabilitation Kazakhstan Total The Kyrgyz Republic Transmission and Distribution The Kyrgyz Republic Total Tajikistan Transmission and Distribution Tajikistan Total Uzbekistan Transmission and Distribution Rehabilitation of Existing Generation Uzbekistan Total CARs Grand Total 172.9 87.0 259.9 658.9 691.8 522.0 1213.8 3374.7 288.2 246.8 535.0 1127.1 0.0 80.7 80.7 294.7 0.0 213.5 213.5 213.5 1153.0 1150.0 2303.0 5669.0 3.5 3.6 3.5 25.0 25.0 285.0 285.0 0.0 0.0 0.0 0.0 0.0 0.0 310.0 310.0 2.1 2.1 50.0 50.0 200.0 200.0 0.0 0.0 0.0 0.0 0.0 0.0 250.0 250.0 2.3 2.3 324.0 0.0 0.0 324.0 972.0 308.0 395.9 1675.9 0.0 132.0 460.1 592.1 0.0 0.0 214.0 214.0 0.0 0.0 0.0 0.0 1296.0 440.0 1070.0 2806.0 2.8 2.65 2.75 2.8 2004-2005 2006-2010 2011-2015 2016-2020 2021-2025 2004-2025 AIC (c/kWh)

4.20 Table 4.6 also summarizes the impact of the investments in loss reduction and generation rehabilitation on the cost/kWh of electricity for individual investment schemes as well as for the respective systems. As shown, these investments would result in a system average incremental costs/kWh (in 2004 prices) of 2.1 cents in Tajikistan; 2.3 cents in the Kyrgyz Republic; 2.8 cents in Kazakhstan and 3.5 cents in Uzbekistan. Details are provided in Appendix 4.1.

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CHAPTER V: ASSESSMENT OF NEW GENERATION OPTIONS

5.01 This chapter would try to answer the following set of questions: what are the economic and financial costs of the electricity generated from the new generation projects? What would be the transmission costs for the power to understand the landed cost of power in the target markets? How competitive would the landed power from CARs be in these target markets? A. Technical Assessment 5.02 A summary of physical and technical parameters of the new projects under consideration in Central Asia20 is provided in Table 5.1. All projects, except Kambarata I and the New Ekibastuz Thermal Plant, are partly constructed. Of these, Talimardjan is the most advanced (requires only one year to complete) and Kambarata II is the least advanced. Table 5. 1: Physical and Technical Details of New Generation Projects
Project Country Type Capital Costs ($ million) 370 785 $2,455 1,940 280 196 100 1,200 440 1,085 First Year of Output 2009 2014 2014 2017 2012 2007 2005 2011 2010 2020 Capacity MW 670 1,200 3,600 1,900 240 400 800 2,400 2,000 1,000 Steady State Generation (GWh) 2,700 4,690 14,300 5,100 1,116 2,453 4,537 13,613 12,264 7,446 Steady State Sales (GWh) 2,673 4,643 14,157 5,049 1,105 2,355 4,265 12,796 11,283 6,850

Sangtuda I Rogun I Rogun I&II Kambarata I Kambarata II Bishkek II Talimardjan I Talimardjan II Ekibastuz Rehabilitation New Ekibastuz Plant

Tajikistan Tajikistan Tajikistan The Kyrgyz Republic The Kyrgyz Republic The Kyrgyz Republic Uzbekistan Uzbekistan Kazakhstan Kazakhstan

Hydro (Run-of-River) Hydro (Storage) Hydro(Storage) Hydro (Storage) Hydro (Run-of-Rover) Thermal Gas CCGT Thermal Gas fired Steam Thermal Gas fired Steam Thermal Coal Fired Steam Thermal Coal Fired Steam

5.03 In terms of planned installed capacity Rogun I and II together would be the largest, at 3,600 MW, followed closely by both phases of Talimardjan in Uzbekistan, which would have a capacity of 3,200 MW. Partly due to its advanced state of construction, and partly due to the fact that the capital costs of thermal projects would be lower than for hydro projects, Talimardjan I has the lowest capital cost per kW of installed capacity, followed by Ekibastuz rehabilitation. In terms of electricity output, the Talimardjan scheme would have the highest output of 18,150 GWh, which represents a plant factor of about 65%. This plant factor could be higher (e.g. 85%), but there are technology issues21 and gas reserves issues22, which are likely to keep the plant

The list also includes rehabilitation of the 4 x 500 MW units at Ekibastuz I plant owned by US based AES, as this company has plans to rehabilitate and add substantial capacity at this location, assuming markets exists 21 Though each unit will have a nameplate capacity of 800 MW, the maximum plant factor is expected to be 65% only based on technical/operational experience in a few similar operating units in the former Soviet Union. Further, cooling water availability is a limiting factor for the first unit. Before proceeding with the three new units arrangements for additional water supply must be firmed up. 22 The plant is located at the Mubarek gas field, which is a reasonably large field. However, the field has been producing for more than 15 years now, there has not been an independent audit of the reserves to know what is the remaining recoverable reserves from this field.

20

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factor low. Rogun would have the next highest output of 14,300 GWh23, representing a plant factor of about 45%. This is rather high for hydro projects (which are typically in the 20 to 30% range) and reflects the assumed nature of the glacier-melt and snow-melt fed water flows in the Vaksh River, which currently average 20 BCM annually. The rehabilitated Ekibastuz I plant would be the third largest producer, with an annual output of 12,300 GWh, i.e., at a plant factor of 70%, typical for a coal-fired steam power plant. 5.04 Time needed to complete the remaining works and commission the plant would be the lowest for Talimardjan I followed by Bishkek II, which would require a year to prepare and two years to construct. The smaller hydro scheme at Sangtuda I, which is essentially a run-of-theriver scheme, could be completed in 4 years and could come online in 2009. The larger storage hydro schemes, Rogun and Kambarata I, would require a longer preparation time, typically 4-5 years, and a long construction time, typically 7 years. These large storage hydropower schemes on international rivers would need time to sort out environmental and riparian issues. Accordingly, it is estimated that the first units from Rogun could be put into operation in 2014, and those from Kambarata I in 2017. Kambarata II could come on stream in 2012, though its construction ahead of Kambarata I has to recognize certain risks 24. The new thermal power plants, Talimardjan II and the New Ekibastuz Plant, could come on stream after the rehabilitation of existing thermal plants. Accordingly, Talimardjan II construction could start in 2009 and the new units would commence generation in early 2011. The New Ekibastuz Plant construction could start in 2016 and units would be put into operation from 2019 onwards. B. Economic Assessment (i) Economic Cost of Generation 5.05 Based on the above technical parameters, the economic costs of output from each of the new projects are derived, as summarized in Table 5.2. The details of the computations are given in Appendix 5.1, including annual phasing of capital expenditures, fuel costs (where applicable), operation and maintenance (O&M) costs, as well as the energy sent out from the generating station (i.e., gross energy generated minus station use or auxiliary consumption). For projects partly constructed, capital costs shown are for completing the remaining works needed to commission the unit (i.e., sunk costs are not taken into account). For Kambarata I and the New Ekibastuz Thermal plant for which no cost has so far been incurred, full construction costs have been taken into account. All costs are stated in constant 2003 dollars. 5.06 Talimardjan I would have the lowest economic output costs, reflecting minimal incremental capital costs and a short construction timeframe. Sangtuda I has the next lowest output cost, followed by Bishkek II, reflecting the smaller capital outlays (compared to new projects of similar size), shorter construction period. From a Central Asian perspective, much of Sangtuda Is generation (60%) is in the summer, when there are already surpluses in Tajikistan

23 24

When combined with the additional generation of 1,300 GWh at Nurek. It is essentially a run-of-the river plant with very little storage and generates only in the summer, when there is already surplus electricity. Also, without Kambarata I, the sedimentation problems could become severe calling for expensive solutions.

29

as well as elsewhere in the region, but the thermal projects can generate electricity throughout the year, especially in winter, when there are shortages. 5.07 Among the large hydro schemes, Kambarata I would have the highest economic output price of 7.17 cents/kWh and is therefore the least attractive. Compared to Rogun, Kambaratas cost/kW installed is about 50% higher (US$1,021 compared to US$682) and its plant factor is much lower (31% compared to 41%). Rogun I would be able to generate power after five years of construction while Kambarata I will take eight years of construction before it could generate power. Further, Rogun also benefits from the fact that when it is built, the generation at the downstream Nurek reservoir would also increase. Table 5. 2: Comparison of Economic Cost of Supply with Marginal Costs in Exporting/Importing Countries and Status of Cost Competitiveness
New Project Economic Cost/kWh from the New Project 1.97 2.46 2.83 7.17 3.72 2.55 1.68 2.76 2.65 4.54 National system Marginal Cost /kWh without the New Project 2.1 2.1 2.1 2.3 2.3 2.3 3.5 3.5 2.8 2.8 Marginal Generation Costs in the Target Export Markets (cents/kWh) Afghanistan 3.7 yes yes yes no no yes yes yes yes no Iran 3.56 yes yes yes no no yes yes yes yes no Pakistan 5.6 yes yes yes no yes yes yes yes yes yes Russia 3.0 yes yes yes no no yes yes yes yes no China 3.6 to 4.0 yes yes yes no no yes yes yes yes no

Sangtuda I Rogun I Rogun I&II Kambarata I Kambarata II Bishkek II Talimardjan I Talimardjan II Ekibastuz I Rehabilitation New Ekibastuz Plant

5.08 The economic analysis determined the economic cost/kWh for each generation option at a discount rate of 10%. What this also implies is that if the output could be sold in the domestic or export markets at higher prices the internal Rate of Return would be higher than 10%. A comparison is also made in Table 5.2 between the economic output costs from the new projects and: (a) the average prices needed to recover the incremental costs of the relevant national power system without the new projects25; and (b) the estimated marginal generation costs in the target export markets. 5.09 The above table helps to judge, broadly whether the projects are reasonable economic choices in the national, regional and export electricity markets. Electricity from projects like Sangtuda I, and Talimardjan I and II have economic costs actually lower than the average incremental costs of their national systems26, and therefore these projects make sense as good capacity additions to the national grids if the incremental demand warrants such capacity addition. Actually, most of the projects except Kamabarata I and the New Ekibastuz Plant seem to be economic choices, purely based on generation cost consideration. Later in this chapter,
25

The incremental cost referred to here consists of investment costs, fuel, O&M costs of rehabilitation of generation, transmission and distribution, including loss reduction. 26 That is, average incremental costs of national system before the construction of these projects.

30

competitiveness analysis is carried out which considers costs of transmitting central Asian power to target market. C. Financial Assessment 5.10 The financial analysis is carried out to understand the financial cost of supply of electricity from each of the new supply options. A corporate finance approach is taken where it is assumed that each of these options would be developed as an independent power producer with private sector participation. Also, to enable comparability, a consistent set of assumptions is applied as regards financing structure, cost of capital etc. 5.11 The estimated costs used for the economic analyses (Table 5.1) are converted to nominal values and interest during construction (IDC) is considered to arrive at the financing needed for each project. The financing of each of these projects is based on a structure that would result in a post IDC financing structure of roughly 25% equity and 75% debt. This structure brings a balance between the lenders views (assurance that the debt service is adequately covered from annual net revenues) and investors views (minimize equity, also because equity is often costlier than debt which would drive up the output costs). The terms of debt assumed are an interest rate of 10%, a repayment period of 15 years including a five year grace period. The equity is expected to earn an internal rate of return (IRR) of 15% over the life of the investment, which translates to an annual rate of return on equity in the range of 17% to 24% in respect of these projects27. On this basis, the tariff/kWh required to service the debt and provide the return on equity for each year is computed for a 20-year period. These annual tariffs are then levelized28 to enable comparison among different financing options (for a given project) or among different projects. Such levelized tariff/kWh for the projects are summarized in Table 5.3. Table 5. 3: Levelized Tariffs for Generation Options
Project Sangtuda I Rogun I Rogun I &II Kambarata I Kambarata II Bishkek-II Talimardjan I Talimardjan II Ekibastuz Rehabilitation Ekibastuz New
27

Electricity output GWh 2,673 4,643 14,157 5,049 1,105 2,355 4,265 12,796 11,283 6,850

Levelized Tariff Cents/kWh 2.44 2.91 3.24 8.54 3.95 2.67 1.75 2.92 2.66 5.05

The level of annual Return on Equity varies among the projects, largely, as a function of the construction period. Longer construction periods make the investors wait for longer periods for cash inflows and thus raise the annual equity returns to achieve a 15% IRR on equity over the life of the investment. 28 Levelized tariffs are the smoothened tariffs for the whole period under consideration. It is a single tariff figure and it implies that the present value of the cash flow generated from the application of levelized tariff will be the same as the present value of the cash flow generated through the application of the actual tariff, which usually varies, sometimes significantly, from year to year.

31

5.12 As can be seen, the financial output costs are consistent with the economic costs analyses, in that Talimardjan I remains the most attractive, and Kambarata I the least. D. Sensitivity Analysis 5.13 Sensitivity analyses are carried out on from both economic and financial perspectives, to understand how the changes in key variables impact output costs. Economic Sensitivity Analyses 5.14 The above economic output costs assume that all the production from these new projects would be sold (either in the domestic market or in the export markets). However, it is possible that sometimes, not all of the power generated would be consumed. Therefore, a sensitivity analysis has been performed on each of the projects to understand the extent of impact on output costs, under different plant factors, and the results, in what are known as Screening curves, are shown in Figures 5.1 and 5.2.
AIC USc/kWh
10 9 8 7 6 5 4 3 2 1 0 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85

Kazakh AIC 2.8 /kWh Uzbek AIC 3.5 /kWh

Tajik AIC 2.1 /kWh

Kyrgyz AIC 2.3 /kWh

Plant Factor %

Sangtuda HPP Kambarata 1 HPP Talimatjan TPP Units #2-4 Kazakh New

Rogun HPP I Kambarata 2 HPP Bishkek 2

Rogun HPP I and II Talimatjan TPP Unit #1 Ekibastuz 1

Figure 5. 1: Economic Output Costs of New Projects at different Plant Factors Vs. Average Incremental Costs of National Systems of CARs

5.15 The curves in Figure 5.1 compare the economic output costs of power from the new projects at different plant factors with the average incremental costs of each system before the construction of the new projects. This indicates the limits of plant factors at which the marginal costs from the new projects remain conducive to internal trade within the CARs. As the plant factor is lowered, the volume of generation declines and the economic cost of output/kWh rises. Rates of such rise are notably lower in the case of thermal projects than in the case of hydro projects. A combination of these graphs and the marginal cost data of export markets give us an

32

indication of the range of demand within which these projects remain economic in the export markets (See Figure 5.2).
AIC USc/kWh
10 9 8 7 6 5 4 3 2

AIC USc/kWh
10 9 8 7 6 5 4 3

Generation costs in Pakistan 5.6 c/kWh

Generation costs in Afghanistan Iran and China 3.6 cents/kWh

Generation costs in Russia 3.0 c/kWh

2
0

1 10 0

15

20

25

30

35

40

45

50

55

60

65

70

75

80

85

Plant Factor %

Figure

Sangtuda HPP Rogun HPP I Rogun HPP I and II HPP 30 10 Kambarata 1 25 15 20 35 40 45 Kambarata 2 HPP 50 55 60 65 70 75 80 Talimatjan TPP Unit #1 85 Plant Factor % Talimatjan TPP Units #2-4 Bishkek 2 Ekibastuz 1 Sangtuda HPP Rogun HPP I Rogun HPP I and II Kazakh New Kambarata 1 HPP Kambarata 2 HPP Talimatjan TPP Unit #1 5. 2: Economic Output#2-4 of New Projects at Different PlantEkibastuz 1 Vs. Generation Factors Talimatjan TPP Units Cost Bishkek 2 Kazakh New in Target Markets (Excluding Transmission Cost)

costs

Financial Sensitivity Analyses 5.16 Sensitivity analysis on the financial assessments has been carried out for decreases in generation, for increases in capital expenditures, fuel cost, interest rate and rates of return on equity. The results are summarized in Table 5.4. Given the high cost per kW, long preparation and construction times and low load factors, the hydropower projects are much more sensitive to changes in respect of most parameters, than thermal power projects. Accordingly, unless firm export contracts are in place it would not make sense to invest in these projects. Thermal power projects would be able to deal with possible reductions in export demand much better than the hydro projects. However, thermal projects are also quite sensitive to fuel price increases. The high sensitivity value for fuel price changes for Talimardjan I is due to the fact that the considered capital costs is very small, since a large portion of it is sunk cost.

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Table 5. 4: Results of Sensitivity Analyses on Levelized Tariffs of Generation Projects

Project Base Case Levelized Tariff Cent/kWh 2.44 2.91 3.24 8.54 3.95 2.67 1.75 2.92 2.66 5.05 Percentage change in levelized tariff when there is 1.0% decrease in Generation 1.25% 1.25% 1.25% 1.25% 1.25% 0.83% 0.37% 0.81% 0.63% 0.60% 1.0% increase in Capital Expenditure 0.97% 0.99% 0.89% 1.00% 0.99% 0.46% 0.17% 0.59% 0.23% 0.59% 1.0% increase in Interest Rate* 0.70% 0.71% 0.79% 0.82% 0.38% 0.30% 0.09% 0.47% 0.18% 0.46% 1.0% increase in Return on Equity** 0.42% 0.45% 0.49% 0.52% 0.46% 0.21% 0.04% 0.31% 0.12% 0.50% 1.0% increase in Fuel Cost .. .. .. .. .. 0.34% 0.71% 0.17% 0.50% 0.29%

Sangtuda I Hydro Rogun I Hydro Rogun I &II Hydro Kambarata I Hydro Kambarata II Hydro Bishkek-II Talimardjan I Talimardjan II Ekibastuz Rehab Ekibastuz New

*1% of 10% or 10 basis points; **1% of assumed rate of return (17 basis points if the RoE is 17%).

E. Competitiveness Assessment 5.17 From the previous sections it appears that Central Asian power, including several of the new projects, could be competitive in the target export markets. However, to gain a better understanding of competitiveness, it is necessary to consider the landed costs of Central Asian power in the target markets and therefore the costs of transmission from Central Asian grid (CAPS) to each of these target markets should also be considered. Transmission Needs for Electricity Trade 5.18 On the face of it, it would appear that no major expansion of the grid is needed to accommodate power transfers from one part of the CAPS to the other since the electricity currently handled by the CAPS is currently 136 TWh (2003) compared to 184 TWh in 1990. However, this needs to be confirmed with studies of the present and projected load flows, and also an assessment of the condition of the network29. Nevertheless, one link that is considered strategic is the expansion of the North South transmission link in Kazakhstan to facilitate enhanced flows of power from north Kazakhstan to south Kazakhstan, and removal of bottlenecks for enabling exports to Russia. Part of this strategic link has already been funded by a recent EBRD loan. The funding and completion of the remaining sections of the this second link is of great importance to facilitate trade within CAPS and with its external market in Russia making full use of the large thermal plants in northern Kazakhstan for trade. 5.19 To supply power to markets other than Russia, new lines will be needed as shown in Figure 5.3 to complement the existing ones (which themselves need strengthening).

29

This is planned to be carried out in Phase II of the Study.

34

Figure 5. 3: New Transmission Lines Needed For Exports

5.20 Mazar-e-Sharif in Afghanistan, which is linked from Tajikistan and Uzbekistan (as well as Turkmenistan), has the potential to become a key node in northern Afghanistan to enable power transfers between Central Asia and Afghanistan, Iran and Pakistan. The line between Central Asia and Iran via Afghanistan would follow the Central Asia Mazar-e-Sharif - Herat (in western Afghanistan) route to where Iran is already constructing a 220 kV line from its network. Central Asia to Pakistan lines could follow the Central Asia Mazar-e-Sharif Kabul routing and then possibly to Tarbela in Pakistan. Alternatively, it could pass through Khandahar in southern Afghanistan and reach Karachi (via Quetta in western Pakistan). For exports to China, the optimal routing appears to be Almaty to Urumqui in the Xinxiang province. All the proposed new lines are considered to be double circuit 500 kV AC transmission lines with associated substations, with the exception of the Almaty Urumqui line which would be built as a 500 KV DC line with back to back converters. 5.21 Following a methodology similar to that adopted for generation projects, the economic and financial analyses of the transmission links are undertaken and the transmission cost/kWh in respect of these lines have been arrived at (see Appendix 5.2 for details). The results are summarized in Table 5.5.

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Table 5. 5: Economic and Financial Analysis of Transmission Options

Line Annual Number of Number of Investment Distance Voltage Line transm. new substations US$ km kV type GWh substations expansion million 1,050 515 360 1,150 490 900 500 500 500 500 500 500 DC 10,000 AC AC 5,000 3,000 1 2 1 4 2 3 1 1 1 1 1 1 390.0 153.0 90.5 320.0 138.2 226.6 Economic cost of transm. Cents/ kWh 0.66 0.43 0.44 0.53 0.40 0.84 Financial cost of transm. Cent/kWh 0.72 0.51 0.49 0.59 0.46 0.99

Almaty (Kazakhstan) - Urumqui (China) Surhan (Uzbekistan) - Kabul (Afghanistan) Kabul (Afghanistan) - Tarbela (Pakistan) Surhan (Uzbekistan) - Mashad (Iran) Kabul (Afghanistan) - Kandahar (Afghanistan) Kandahar (Afghanistan) - Karachi (Pakistan)

AC 10,000 Optional Lines AC AC 5,000 4,000

Competitiveness of Central Asian Electricity 5.22 The marginal generation costs in the target markets have been compared to the landed costs (generation costs of each envisaged projects in the CARs plus associated transmission costs) and the results are summarized Table 5.6. Sangtuda I in Tajikistan and Talimardjan I in Uzbekistan are likely to be competitive in all markets, where as Rogun I and Talimardjan II would be competitive in Afghanistan, Iran and Pakistan. In Pakistan, Rogun phase II as well as Kambarata II could also be competitive. Table 5. 6: Marginal Costs of Generation in Target Markets versus Import Costs (cents/kWh)
Target Market Afghanistan Iran Pakistan China Russia Marginal Generation Cost in Target Market 3.7 3.6 5.6 3.6 3.0 Supply Options Sangtuda I, Rogun I, Talimardjan I and II Sangtuda I, Rogun I, Talimardjan I and II Sangtuda I, Rogun, Talimardjan I and II, Kambarata II Sangtuda I, Talimardjan I Sangtuda I, Talimardjan I Transmission Cost 0.51 0.54 0.51 0.72 0.55 Total Landed Cost of Imports 2.26 3.43 2.29 3.46 2.26 3.75 2.47 3.16 2.30 2.99

Key Conclusions 5.23 It would perhaps be useful to recapture the key points from the discussions on demand/supply from the previous chapter, as well as the in-depth analysis of the supply options from this chapter: i. Annual domestic demand in the Central Asian Republics can be met roughly until about 2020 through the implementation of loss reduction measures, the rehabilitation of existing generation capacity; and complementary measures such as modified irrigation operation of Toktogul reservoir in the Kyrgyz Republic and shifting the demand for space heating in Tajikistan away from electricity.

36

ii.

Seasonal supply shortages in the winter will persist. The most cost effective option to meet this shortfall will be to trade at the margin. However, since there is a shortage of capacity in winter, some new generation will be needed to meet winter demand requirements. The most attractive new generation options to meet the winter demand requirements are the Talimardjan Thermal Power I Project in Uzbekistan that is largely complete, and the Bishkek II Thermal Power Project in the Kyrgyz Republic, which is partially constructed. The Bishkek II Thermal Power project represents a more cost effective and quicker option to meet the Kyrgyz Republics future requirements than the Kambarata hydropower projects in the Kyrgyz Republic. These two thermal power plant projects, however, are both dependent upon the availability of gas in Uzbekistan. In addition, some upgrading of the transmission facilities will be required to facilitate intra-regional trade, including the construction of the North South Line in Kazakhstan, and addressing any transmission bottlenecks in the southern part of the Central Asian grid. These additional transmission investments and generation capacity also make sense from an extra-regional perspective. In addition, the Sangtuda I hydroelectric scheme, which is quite competitive and makes some contribution to meeting winter demand, should also be considered a strategic investment with regional implications. Increased intra-regional trade will provide significant benefits. In addition to enabling the CARs to meet their respective demand at least costs. Uzbekistan, for example, can optimize seasonal fuel mix, conserve gas, benefit the environment, and perhaps even qualify for carbon emission credits. Major new generation projects in Central Asia, such as Rogun and Talimardjan II, will be feasible only if there is assured access to export markets outside the region. In this regard, electricity from Central Asia has the potential to compete in cost terms with marginal generation costs in each of the targeted markets outside the region. However, the cost advantage is not overwhelming, and may not be sufficient to overcome security of supply concerns.

iii.

iv.

v.

vi.

vii.

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CHAPTER VI: PROFILE OF THE POTENTIAL EXPORT MARKETS

A. Afghanistan 6.01 Infrastructure: Afghanistan has considerable energy resource endowments but uncertainty exists about the extent of the resources. Its fossil fuel resources are thought to comprise: some 30 billion cubic meters of gas reserves, 95 million barrels of oil and condensate reserves; and coal reserves in excess of 100 million tons based on historical geological reserves estimates. However, engineering, costs and market analysis work is needed to improve upon these reserves estimates and evaluate how much of these can be commercially exploited. Afghanistan also has considerable amount of hydroelectric potential. On account of the series of prolonged conflicts, the energy infrastructure of Afghanistan could not grow beyond the level at which it was in the mid 1970s and had in fact considerably deteriorated on account of war damages. As of 2003, its installed electricity generation capacity is reported to be 454 MW, while its operable capacity is believed to be only 285 MW30. There is no national electricity grid, and the system is made up of three isolated systems centered around the cities Kabul, Kandahar and Mazar-e-Sharif. The largest system is the one in Kabul, with installed capacity of 245 MW (200 MW Hydro and 45 MW diesel fired gas turbine). The hydroelectric units have a firm power output of only 65 MW, thus making electricity shortages more acute in winter. 6.02 The Afghan power system is connected to those of its northern neighbors, the Central Asian Republics of Tajikistan, Turkmenistan, and Uzbekistan, as shown in Figure 6.1. There is also a relatively small link (20 kV single current, between Zabol in Iran and Zaranji in Afghanistan) with Iran in the Herat area. In addition, 132 kV double circuit line from Tobat-eJam in Iran to Herat (a 150 km distance) is in operation.

Source: Asian Development Bank - Study for Power Interconnection for Regional Trade, March, 2003.

Figure 6. 1: Afghanistans Cross-Border Electricity Interconnections

30

Electricity Sector Policy, Ministry of Water and Power, Afghanistan, August 2003.

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6.03 Efforts are underway to strengthen and increase the interconnections, and some of these efforts are more concrete than others. The line between Turkmenistan and Herat was completed with Afghan government funds in May 2004. This line is built at 220 kV, but is currently operated at 110 kV. In addition, ADB will be financing the repair and reconstruction of the Termez (Uzbekistan) to Phul-e-Khumri and this will be a 241 km long two parallel single circuit lines. 6.04 Current Demand : The recently completed Power Sector Master Plan for Afghanistan estimates that the current demand is about 750 GWh and the present peak load is assumed to be 215 MW for all of Afghanistan. There may also be a suppressed demand, which is assumed to be 470 GWh in energy terms and 121 MW peak power needs. 6.05 Consumers and Consumption: A very low level of access to electricity is the most urgent energy issue in Afghanistan. Only 234,000 consumers in the country are connected to the electricity network. More than 202,000 of them were residential consumers. The grid around Kabul caters to about 76,000 consumers. On the whole only about 6% of the population have access to the electricity network. With the lack of generation capacity, even those connected to the grids do not enjoy reliable power, results in a per capita power consumption of only 16 kWh/year31, perhaps the lowest figure in the world. 6.06 System Loss and Collection: Given the damaged state of the transmission and distribution facilities, the transmission and distribution losses were estimated at 25% in 2002. In addition the non-technical losses in the distribution system were estimated at 20%. Thus 45% of the electricity generated is lost and does not get billed. Only about 54% of the value of the bills issued are actually collected. 6.07 Costs of Supply: Different parts of the Afghan power supply system incur varying levels of costs based on sources of power supply (hydro, thermal, imports etc), the density of the population and the extent of coverage of this population. As such, the Kabul area has the lowest costs of supply, (since it has the highest proportion of hydro-based supply, and more than 50% of the customer base is located here) followed by the Balkh, Kunduz and Herat areas. 6.08 Present Imports of Electricity: Afghanistan imports electricity from Iran, Uzbekistan, Tajikistan and Turkmenistan. . The information on current electricity imports is summarized in Table 6.1. Table 6. 1: Current Electricity Imports by Afghanistan
Iran Duration of Contract (years) Maximum Capacity (MW) Maximum Energy (million kWh) Price (US cents/kWh) 4 Tajikistan 1 Turkmenistan 10 Uzbekistan 1 150 NA 2

2 MW (Nimroz); Winter - 5 MW; 2 MW (Herat); 2MW (Herat) Summer - Unlimited 6 MW (Andkhoy)_ NA 2.25 NA 2 15 million kWh 2

Source: Afghanistan Ministry of Water and Power .

31

ADB Appraisal Report (No. AFG 36673) on Emergency Infrastructure Rehabilitation and Reconstruction Project, May 2003.

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6.09 The Protocol of Intentions between Afghanistan and Uzbekistan says that Uzbekistan will provide up to 150 MW for a 10-year period at a cost of 2.0 US cents/kWh for the first year. There are issues of payment by Afghanistan for its power imports Uzbekistan is owed funds for past supplies. 6.10 Projected Electricity Demand: The recently completed Power Sector Master Plan for Afghanistan also projects the demand for the 2020 period, which is summarized in Table 6.2. Table 6. 2: Afghanistan Summary of Energy Demand (GWh) and Peak Load (MW) Forecast
Region Present Load Demand Kabul Nangarhar Parwan Ghori Balkh Herat Kandahar Other Total 359 49 1 28 149 1 141 22 750 Peak Load 111 8 2 14 38 2 30 10 215 Suppressed Demand Demand 212 9 30 75 52 36 43 13 470 Peak Load 55 5 6 12 13 8 12 10 121 Forecast Basis Demand 571 58 31 103 201 37 184 35 1220 Peak Load 166 13 8 26 51 10 42 20 336 Basic Demand 1522 260 166 358 680 325 431 126 3868 Peak Load 347 54 38 80 155 74 90 67 905 Low Demand 1047 176 105 248 432 196 292 Peak Load 239 36 24 55 99 45 61 High Demand 2133 374 248 604 969 509 625 175 5637 Peak Load 487 78 57 129 221 111 130 92 1305

Source: Power Sector Master Plan for Afghanistan, 2004

6.11 In the Basic Forecast the energy demand is assumed to reach 3,868 GWh in the year 2020. This gives an average annual growth rate of 6.6% from the forecast basis (including suppressed demand) and 9.5% from the present (2002) load. In the High Forecast the energy demand is assumed to reach 5,636 GWh in the year 2020. This is 46% higher than the Basic Forecast and implies an average annual growth rate of 8.9% from the forecast basis (including suppressed demand) and 11.9% from the present (2002) load. 6.12 Institutional and Financial Aspects. Da Afghanistan Brishna Moassesa (DABM) is a state-owned vertically integrated utility that operates all the power facilities in Afghanistan. It is subject to supervision by the Ministry of Water and Power. Table 6. 3: Current Electricity Tariffs in Afghanistan
Kabul Category Residential 0-600 kWh/month 600-1200 kWh/month Above 1200 kWh/month Government Other Consumers Foreign NGOs etc. 0.5 1.6 2.5 5.0 5.0 5.0 1.0 3.3 5.1 10.2 10.2 10.2 5.5 5.5 6.0 11.3 11.3 12.3 5.0 5.0 10.0 10.2 10.2 20.5 7.0 7.0 10.0 14.3 14.3 20.5 Afs/kWh USc/kWh 2.0 Balkh Afs/kWh USc/kWh 4.1 2.5 Kunduz Afs/kWh USc/kWh 5.1 4.0 Herat Afs/kWh USc/kWh 8.2

Source: Securing Afghanistans Future Power Sector Technical Annex, December, 2003

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6.13 The present tariff structure in Afghanistan is summarized in Table 6.3. Although the posted tariffs appear high compared to the affordability level in Afghanistan, the average bills incurred by the residential consumers tend to be much lower, since most consumers do not get anything more than 600 kWh a month, due to supply shortages. 6.14 Afghanistans Emerging Power Supply Strategy: Subsequent to the finalization of Securing Afghanistans Future, the strategic document presented to the Donors in Berlin earlier this year, key elements of a strategy to meet electricity supply needs are beginning to emerge. These elements include, recognition that electricity imports are key to close the supply gap in the short term and imports would continue to play an important role in meeting power demand over time. The focus therefore in the short term is to address the problems of sub-optimal power purchase arrangements with Central Asian neighbors. In the medium to long term, Afghanistan would develop its own generation sources for strategic/developmental reasons, as well as one of energy security; and whether or not imports would constitute a serious option would depend on the availability of long term power priced competitively. 6.15 To sustain imports at least in the short term, Afghanistan has to ensure payments for the imported power, which is a challenge. In this regard, the Afghan authorities are willing to provide the exporting entities additional comfort regarding the payment obligations for power, most likely with support from international financial institutions (IFIs). This could possibly come from the Afghanistan Reconstruction Trust Fund (a multi-donor trust fund administered by the World Bank) although sufficient funds are not currently available. The ARTF is expected to be in place until 2010. Another alternative to consider could be a line of credit and/or guarantee from an IFI backstopping payment obligations. 6.16 Afghanistan as a Transit Country: Afghanistan has the potential to wheel power from the Central Asian Republics to Pakistan and to Iran via Herat, which is an important load center in Afghanistan. However, to be able to realize this potential, significantly more information and indications of serious interest on the part of all concerned would need to be available, and this may take some time B. China 6.17 Infrastructure: Xingjian province of China has a common border with the Central Asian Republics and could be a potential market for electricity exports. With a population of about 1.3 billion China has the second largest electricity industry in the world. Its total installed generation capacity at the end of 2002 was about 353 GW and total electricity generation in 2002 amounted to 1620 TWh. About 74% of the electricity generation is based mostly on coal and partly on gas. 24% is from hydroelectric stations. About 2% from nuclear power plants. 6.18 Market: More than 95% of the settlements in China are believed to have access to electricity. Industries consume 72% of total electricity, followed by households (12%), Agriculture (5%) and others (11%). 6.19 Demand Growth and Outlook: Though electricity demand growth decelerated during 1994-1998 and the country had excess capacity, the demand growth has accelerated considerably since then and 19 out of the 31 provinces are currently experiencing serious shortages of power 41

supply which is affecting industrial production. Given its rate of GDP growth projections, and its relatively low level of present per capita annual electricity consumption (1,062 kWh), the forecast long term electricity consumption growth rate of 4.5% p.a. through 2020 may yet prove conservative. 6.20 Tariffs: Tariffs differ from province to province and even within a province. Till recently a policy of new price for new plant was followed, resulting in a multiplicity of tariffs even within a province. Since 2000, China is moving on to unified tariffs based on average costs of generation, transmission and distribution. After the sector reforms of 2002, the generation tariff is expected to be on the basis of competition and retail tariffs would be a sum of competitive generation costs and regulated network tariffs. This is still in the process of evolution. Overall the level of average tariff at the level of SPC was around 4.5 cents/kWh in 2000. It is believed that tariffs had gone up notably since that time. 6.21 Sector Reform: Since the end of 2002, the Chinese power sector has undergone structural changes. The State Power Corporation has been unbundled into five large generation companies and several transmission and distribution companies to introduce competition in the power sector. A State Electricity Regulatory commission has been set up to regulate network tariffs. 6.22 Export Possibility to Xingjian Province: Xingjian Uyghur Autonomous Region has an area equal to one sixth of the total Chinese territory and has a population of 17.5 million growing at the rate of 1.28% per year. The interconnections among the eight regions of the Chinese power grid are not adequate to transfer fully the surplus of one region to another. Xingjian province is presently in the list of provinces with no special shortages or surplus of power. 6.23 Its installed generation capacity at the end of 2001 was 4,744 MW and its annual power generation is about 19.6 TWh. It experienced recently an annual electricity demand growth at the rate of about 8% compared to its annual GDP growth rate of 7.6%. Since 1993, it is reported to be receiving an annual supply of about 5GWh from the Kyrgyz Republic through a 10 kV line. 6.24 The well known Tarim Basin with significant oil32 and gas reserves lies in this province. A gas pipeline going from this province all the way to the east with a length of 2,600 miles and an estimated cost of $5.2 billion had been committed and the work is ongoing. When finished in 2007, it is expected to carry 12 million cubic meters of natural gas every year to the eastern provinces. The region is also believed to have notable coal reserves too. 6.25 It is reasonable to assume that on account of the oil and gas related activity the electricity demand in the province would continue to grow at about 7 to 8% per year. In that context, the Kyrgyz Republic and Tajikistan could hope to capture a part of this demand for the export of their hydroelectric power. 6.26 In the context of electricity prices in China rising as a result of the tightening of coal supplies and increasing oil and gas costs and in the context of electricity shortages, capture of a part of the Xingjian electricity market by the CARs is a possibility. However, the major growth in demand, and current deficits will be in the population centers on the East coast of China where
32

Potential oil reserve estimates vary from a low of a few billion barrels to 80 billion barrels.

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transmission distances for supplies from Central Asia become an issue. The Xingjian province at the moment can meet its demand with supplies within the province. C. Iran33 6.27 With a population of about 66 million (2003) and a per capita GDP of about $1,000, Iran is endowed with an abundance of energy resources. It is believed to have over 8.6% of the worlds oil reserves and 15% of the worlds gas reserves, besides substantial reserves of coal and about 42,000 MW of hydroelectric potential. Nonetheless, it is a potential market for exports of electricity from the Central Asian Power System on account of its summer electricity shortages as well as the isolated nature of the grid adjoining Turkmenistan. 6.28 Sector Structure: The Ministry of Energy is responsible for the energy policy. The operational responsibilities have recently been vested with Tavanir, which appears to be a holding company responsible for generation and transmission with 27 generation subsidiaries, transmission and dispatch subsidiaries. In addition there are 16 Regional Power companies and 39 Distribution companies reporting to the Ministry. There are also 27 companies for support services, 18 subsidiaries for engineering and management consulting services, 6 subsidiaries for training and research, 8 subsidiaries for financing and 27 subsidiaries for contracting for construction etc. reporting either to Tavanir or to the Ministry. 6.29 Infrastructure: The total installed power generation capacity in Iran in 2001 amounted to 34,222 MW, of which 1,998 MW was hydroelectric, and the rest was fossil fuel fired. The thermal plant capacity consisted of oil or gas fired steam turbines (14,402 MW), gas fired combined cycle plants (4,060 MW), open cycle gas turbines (7,038 MW) and diesel fueled generation sets (540 MW). It also included a capacity of 6,190 MW not owned by government electricity agencies. About 70% of the thermal capacity was gas fired. The peak demand of the system was 21,790 MW in 2001 and annual electricity generation amounted to 130,083 GWh of which only 5,077 GWh was from hydroelectric units. A nuclear power plant with a capacity of 1000 MW had been under construction at Bushehr for a long number of years with Russian assistance and was expected to be completed in the first half of 2004. 6.30 The power system consists of three major networks: (a) the Interconnected Network, which serves all of Iran except for remote eastern and southern areas, using 440-kV and 230-kV transmission lines; (b) the Khorassan Network, which serves the eastern Khorossan province; and (c) the Sistan and Baluchistan Network, which serves the remote southeastern provinces of Sistan and Baluchistan. The government goal is to join these three networks into one national grid. Currently, these three grids cover 43,000 villages and around 94% of Iranians are connected to the power grids. The transmission system consisted of 10,079 km of 400 kV lines, 20,444 km of 220 kV lines, 13,210 km of 132 kV lines and 30,264 km of 66kV lines. Iran also has power links to neighboring countries, including Azerbaijan, Turkmenistan (started August 2002), and Turkey.

Most of the information in this section is taken from the Iran Energy Environment Review Report prepared for the Bank in 2003. An exchange rate of 8000 Rials to a dollar had been adopted.

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6.31 System Loss: The overall electricity system losses in 2001 amounted to 21.3% consisting of auxiliary consumption of generating units (4.7%), transmission losses (3.7%) and distribution losses (12.9%). The distribution losses include an undetermined share of non-technical losses. 6.32 Power Market: There were over 16 million consumers in the country and the total sales of electricity to them amounted to 97,171 GWh in 2001. The residential consumers had a share of 33.8% of the total sales, followed by industrial consumers (31.4%), commercial consumers (18.9%), agricultural consumers (11.4%) and others (4.5%). The seasonal variations in the Iranian power system is characterized by high demands during June-October driven by airconditioning loads and relatively lower demands during November-May. The demand is highest in August and lowest in April as can be seen from the following Figure 6.2.
GWh 14,000 12,000 10,000 8,000 6,000 4,000 2,000
-

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Total Needs for 2001 126,902 GWh

Figure 6. 2: Seasonal Load Curve in Iran in 2001

6.33 Recent estimates are that the annual shortage in the Iranian system is about 6 billion kWh and most of this shortage arises during summer. 6.34 Demand Outlook: Electricity consumption during 1990-2000 grew at the average annual rate of 7.7%. A peak demand of 40,000 MW and an energy generation of 239 TWh are forecast for 2010. The installed capacity is planned to be tripled by 2020 to about 96,000. While the underlying demand projections appear somewhat optimistic and may need to be moderated on the basis of gradual reduction of price subsidies, the population growth and the scope for increases in specific consumption in the context of anticipated economic growth would prove to be a significant driver of the demand. The planned addition of 12,800 MW capacity during the Third Five Year Plan period (1999-2004) is reported to be lagging behind the target. The overall strategy is to add as much economic hydro generation capacity as possible and meet the remaining demand by gas fired combined cycle units and open cycle gas turbines. While fuel sources are available, financing for the new capacity is proving to be a major constraint. Invitations to private investors on a build, operate, and own (BOO) basis did not elicit much

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response. In November 2003 the first agreement for a 2000 MW open cycle gas turbine plant near Tehran on a build, operate and transfer (BOT) basis was signed. 6.35 Electricity Trade: Electricity trade with adjoining systems would be used to even out seasonal capacity and energy shortages. It will also come in handy in the context of financing constraints to add new capacity. Iran exchanges power with Armenia and Azerbaijan and also exports power to Turkey. It may be seen from the following Figure 6.3 that its imports are rising during 1998-2001.
1200 1104 1000 1116

1023 802

800 630 526 400 384 195 200 157 0 82 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 153 196 306 321

600

Export

Import

Figure 6. 3: Power Exports and Imports of Iran

6.36 Electricity from the Central Asian Power System could reach Iran in the Mashad area in the eastern province of Khorassan via Turkmenistan or via Afghanistan. Iran has entered into a 10-year power import contract with Tajikistan since mid-2002. Tajikistans exports would be during the summer months, and the purchaser on the Iranian side is a corporate entity (as opposed to the national utility). The electricity transmission would occur via the existing lines from Tajikistan (Regar) through Uzbekistan (Guzar and Karakul) and Turkmenistan (Mari). 6.37 Electricity Prices: Electricity prices in Iran lag behind supply costs. In 2000, the overall average electricity tariff was 88.5 Rials per kWh or 1.11 cents compared to an estimated supply cost of 195 Rials or 2.4 cents. The industrial tariff, at 121 Rials (1.51 cents) was subsidizing the residential tariff at 65.1 Rials (0.81 cents). Tariffs vary from province to province. The tariff prevailing in the Tehran area was as follows: Residential tariffs per kWh ranged from Rials 64 or 0.8 cents (for consumption below 300 kWh) to 559 Rials or 7.0 cents (for monthly consumption above 600 kWh). Industrial consumers paid a capacity cost of 108,000 Rials or $13.5 per kW per year and an energy cost of 102 Rials or 1.3 cents per kWh. Commercial consumers paid the same level of capacity cost, but an energy cost of 183 Rials or 2.3 Cents per kWh.

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6.38 Marginal Electricity Costs in the Iranian System: The least cost method of meeting incremental demand in the Iranian system is to add combined cycle gas turbines fuelled by natural gas. Based on a natural gas price of $ 1.5 /million BTU, and a capital cost of $700/kW for the combined cycle plant, the avoided cost/kWh at the generation level amounts to 3.56 cents.34 6.39 Iran appears to be considering electricity imports from Central Asia for several reasons. First, high rates of growth in electricity demand and the continued financing constraints to build the needed capacity in time to meet the demand is more than likely to result in the demand/supply gap widening if Iran remains solely dependant on indigenous supply. Second, the lack of a unified grid in the country will also hamper the ability to generate power where the necessary resources (e.g., gas and hydro) are available, and importing from neighbors (e.g., as is happening in the Mashad province) is often more economic. Third, entering into electricity trade relationships serves Irans foreign policy agenda (as is happening in Armenia, Azerbaijan and Turkey) and would serve commercial interests as well Iran has offered to help Tajikistan build the Sangtuda I hydro-power scheme, and given that Iran would have spare capacity (in the medium term) in the winter, can even export to its neighbors. D. Pakistan 6.40 Pakistan has an area of nearly 800,000 square kilometers, a population of 148 million (35% of them living below poverty line) and a per capita GNP of $470 (2003). It has oil reserves of 310 million barrels, gas reserves of 750 BCM, coal reserves of 2.5 billion tons and 27,000 MW of hydroelectric potential. It has a large and extensive power sector with reasonable economies of scale. Despite its large generating capacity (19.5 GW) and consumer base (14.5 million consumers), nearly 40% of the population has no access to electricity. The annual per capita electricity consumption remains low at around 320 kWh. 6.41 Infrastructure: Pakistans installed power generation capacity at the end of 2003 was 19,478 MW of which 65% was thermal, 33% hydroelectric and 2.4% nuclear. The thermal plants were fueled mostly by oil and natural gas. A large hydropower project (Ghazi Barotha) with 1,450 MW was commissioned in 2002-2003. The electricity generated in the fiscal year 20022003 (the fiscal year ends on 30 June in Pakistan) amounted to 73,961 GWh. 6.42 Market: The total number of consumers exceeded 14.5 million. Over 11 million of them were residential consumers. The share of the residential consumption in total sales was the largest at 46.7%, followed by industrial consumers (29.5%), agricultural consumers (10%), commercial consumers (5.8%) and others (8%). The system experienced some excess generation capacity during the last few years. Still power outages could not be avoided owing to transmission and distribution bottlenecks. 6.43 System Loss and Collection Efficiency: Auxiliary consumption of generation units and transmission and distribution losses were estimated at around 30%. A significant part of this is
The underlying assumptions for this computation are: (a) plant capacity of 300 MW; (b) Capital cost financed by 30% equity and 70% debt; (c) Return on equity of 15% and debt with a maturity of 20 years and an interest rate of 6% p.a; (d) Plant load factor of 70%; and (e) O&M Expenses of 1 c/kWh. The resulting per kWh avoided cost consists of: (a) 1.35 cents of fuel cost, (b) 1.21 cents of capacity cost, and (c) 1.0 cent of O&M cost.
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attributed to power theft. Collection problems are also severe and the two major utilities have accounts receivables valued in excess of several months sales. 6.44 Sector Structure and Institutions: The power wing of the Water and Power Development Authority (WAPDA) of Pakistan owns and operates 5009 MW of hydroelectric capacity and 5040 MW of thermal capacity. It also handles transmission and distribution in the entire country except the area around Karachi, which is handled by Karachi Electric supply Corporation (KESC). This corporation handles 1948 MW of thermal generation capacity as well as transmission and distribution in the Karachi area. Pakistan Atomic Energy Authority owns and operates two nuclear power plants with a total capacity of 462 MW. A large number of private independent power producers owned and operated 5,959 MW of thermal capacity and supplied power to WAPDA on the basis of government guaranteed and take or pay based power sales contracts. Distribution is organized in the form 8 Area Boards. 6.45 Sector Reform: Since 1997 the government has set up an autonomous regulatory body, the National Electric Power Regulatory Authority, to regulate sector tariffs. WAPDAs power wing has been separated and corporatized as the Pakistan Electric Power Corporation. The hydro assets would continue to be in the public sector. It has been further unbundled into 3 generation companies, one transmission and load dispatch company and 8 distribution companies. The generation and distribution companies are to be privatized and competition is to be introduced in stages on the basis of regulated transmission access to all generators, distributors and perhaps the large industrial consumers. The 1,600 MW thermal power plant of WAPDA at Kot Addu was privatized to a strategic investor, who purchased 36% of the shares and secured management control. KESC is being privatized as a vertically integrated utility through the sale of government shares. 6.46 Tariffs: The average retail electricity tariff in Pakistan in FY 2001-2002 was Rs 3.22/kWh or around 6 cents/kWh, compared to long run marginal cost estimates of about 7.3 to 7.4 cents/kWh. The price at which WAPDA buys power from IPPs, presently around 5.6 cents/kWh is a good proxy for marginal supply cost at the generation level. 6.47 Demand Outlook: During the 10 year period FY 1992-93 to FY 2002-03, demand grew at an average annual rate of 3.7%. The growth level was relatively modest as a result of the economic downturn and periodic political unrests experienced during a good part of the period. For the period 2000-2010, forecasts based on moderate GDP growth rates and peaceful conditions seem to indicate an average annual electricity demand growth rate of about 6%. These forecasts further indicate that notable capacity and energy shortages would appear in 2005-06 and that capacity shortages could grow from 411 MW in that year to about 5,500 MW by 20092010.

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Table 6.4: Pakistan Electricity and Peak Demand Projections

Year 2002 2003 2004 2005 2006 2007 2008 Growth Rate during 2002-08 2009 2010 2011 2012 2013 Growth Rate during 2008-13 2014 2015 2016 2017 2018 Growth Rate during 2013-18 2019 2020 2021 2022 2023 Growth Rate during 2018-23 Demand TWh 51 54 58 63 67 72 78 7.4% 83 89 96 103 110 7.2% 118 127 136 146 157 7.4% 168 180 192 205 220 6.9% 18.0% 18.0% 18.0% 18.0% 18.0% 4.0% 4.0% 4.0% 4.0% 4.0% 18.0% 18.0% 18.0% 18.0% 18.0% 4.0% 4.0% 4.0% 4.0% 4.0% 21.1% 20.3% 19.5% 18.7% 18.0% 4.0% 4.0% 4.0% 4.0% 4.0% T&D Losses % 28.1% 25.3% 24.6% 23.9% 23.3% 22.6% 22.0% Auxiliary % 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% Generation TWh 72 77 82 87 93 99 105 6.4% 111 118 125 133 141 6.1% 152 163 175 188 202 7.4% 216 230 246 263 281 6.9% Peak Demand MW 12334 13096 13895 14741 15640 16593 17604 6.1% 18682 19826 21039 22327 23694 6.1% 25446 27328 29349 31520 33851 7.4% 35184 38679 41345 44195 47242 6.9%

Source: Government of Pakistan Pakistan Atomic Energy Commission

6.48 Longer terms forecasts to the year 2023 have also been prepared for the Private Power Implementation Board (PPIB) of the Government of Pakistan, the results of which are summarized in Table 6.4. These forecasts show that demand for Grid based electricity will grow from 51 TWh to 220 TWh, i.e., at an annual average rate of 7.2%; and peak demand will increase from 12,344 MW in 2002 to 47,242 MW, amounting to an annual average growth rate of 6.6%. 6.49 The policy makers in Pakistan are fully aware that the indigenous energy resource base is insufficient to meet such demand over the medium and long term. Accordingly, they recognize that imports of energy would have to increase, and they are considering import of electricity from the Central Asian republics via Afghanistan as an option to meet their demand. The Government of Pakistan has requested the Bank to play a lead role to help them to analyze such options (among others) as the regional electricity trade with Central Asia.

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E. Russia 6.50 Russian power system, one of the largest in the world, adjoins the Central Asian Power System and represents a market with significant potential. The recently funded and ongoing construction of the second 500 kV north-south line in Kazakhstan would greatly enhance the power transfer capability between the Russian system and CAPS. 6.51 Infrastructure: Russia is endowed with enormous energy resources such as oil reserves exceeding 60 billion barrels, gas reserves exceeding 47,000 BCM, coal reserves exceeding 157 billion tons and vast hydroelectric potential. Its installed power generating capacity at the end of 2002 was about 215 GW comprising 147 GW of thermal power plants fired by gas, oil or coal, 45 GW of hydroelectric capacity and 23 GW of nuclear power capacity. The total electricity generated in 2002 was about 890 TWh of which 584 TWh or about 65.5% was from thermal plants, 164 TWh or 18.5% was from hydroelectric units, and 142 TWh or 16% was from nuclear power plants. The power system had about 2.6 million km of high voltage and extra high voltage lines. Electricity demand, which declined from 1990 to 1998, resumed growth in 1999. The system is believed to have an excess capacity over demand of about 20% to 25%, but because of transmission bottlenecks in the vast system spread over several time zones, the actual system reserves tended to be around 10% to 15%. 6.52 Present Sector Structure: The Russian government owns 52.6% of the shares of RAO UES. About 35% of the shares are held by foreign and domestic institutional investors and the rest by individual shareholders. RAO UES owns the national power grid and national load dispatch facilities, as well as most of the large thermal and hydro plants. It also owns varying percentages of shares (on average 49%) in the 72 Regional Power companies called Energos, which are vertically integrated power utilities serving the regions with their own generation, transmission and distribution facilities. Though the remaining shares in the 72 Energos are held by other institutional and individual investors, RAO UES (as the holder of the largest block of shares) has full management control over the Energos. RAO UES, its generation, transmission and load dispatch subsidiaries as well as the 72 Energos are collectively referred to as RAO UES Holding. This holding company has 72.5% of generation capacity and 96.1% of the transmission facilities and accounts for 70% of the electricity generation in Russia. Nine of the 11 nuclear plants are owned by Rosenergatom, a 100% state-owned nuclear power company and the two remaining units are directly owned by the Ministry of Nuclear Energy. 6.53 Market: RAO UES operates the wholesale electricity market called FOREM, in which the sellers are the large hydro and thermal power plants owned by RAO UES and others, the nuclear plants owned by Rosenergatom and the Ministry, as well as four regional Energos which have surplus electricity to sell. Eight other Energos use the FOREM for energy exchanges through sales and purchases. The other buyers in the FOREM are 59 regional Energos which have demands in excess of their own capacities and large industrial consumers. Regional Energos handle retail sales to end consumers within their region. In 2002, the volume of electricity passing through the wholesale market amounted to about 299 TWh or about 38% of the total electricity supply in the country of 790 TWh.

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6.54 In the total retail sales (of 580 TWh) by the regional Energos, industries had a share of 48.9% followed by households, housing and communal services (22%), transport and telecommunications (11.5%), agriculture (3.4%), and others (14.2%). 6.55 Tariffs: Generation tariffs for the power plants owned by RAO UES or by the state supplying to the FOREM, as well as the transmission tariff for the national grid are regulated by the Federal Tariff Service (FTS). Retail tariffs for end consumers in the regions are regulated by Regional Energy Commissions which are administratively controlled by regional governments, but are guided by the relevant federal laws and guidelines issued by the FTS. 6.56 Electricity tariffs in Russia vary from region to region and had been rising in the last few years at a rate faster than the rise in the prices of industrial goods. Nonetheless the level of tariff is not adequate to cover full supply costs and subsidies to households, agriculture and state financed organizations persist. The average tariff for households after taking into account the price discounts mandated to different privileged classes of consumers amounted in 2002 to 48.77 kopecks/kWh or 1.63 cents/kWh. The tariff for large industrial consumers averaged at 64.85 kopecks/kWh or 2.16 cents/kWh. The overall average tariff/kWh for the 13 major Energos ranged from 34.5 kopecks to 80.2 kopecks. 6.57 Information from Energy Regulators Regional Association (ERRA) indicates that in Russia the electricity tariff per kWh at the producer level in the first quarter of 2003 was 1.45 cents. In the same quarter the clearing price in the wholesale market (FOREM) was 1.67 cents and the average end user price amounted to 2.78 cents. In terms of the Energy Strategy adopted by the government, the average end user price is expected to rise to 4.0 to 4.5 cents per kWh by 2020 corresponding to a generation level tariff of about 2.0 cents. Considering the marginal cost of generation in Russia estimated at 3.0, the question remains whether the projected end-user tariffs need to be increased more than envisaged. 6.58 Losses and Collection: Collection problems in the Russian power sector have largely been overcome. Collections ran at around 102% of bills for current consumption implying that some of the arrears are also being collected. Most of the collections are in the form of cash and the problem of barter and offset payments has been largely eliminated. RAO UES is implementing a comprehensive and result oriented Cost Management Program in which reduction of network losses and theft of power and improved metering and billing figure prominently. 15% of the total cost saving in 2002 of RUR 14.5 billion ($483 million) is attributed to network loss reduction efforts. 6.59 Sector Reforms: Russian power sector is in the process of being restructured to enable competition in the generation and supply35 segments and continuation of regulation of network services. This process is expected to be implemented first in the European part of Russia, and with suitable time lags in the Siberian and Far East regions. This process would also involve the eventual disappearance of RAO UES, as the separate Federal Grid Company, Energos, and generation companies become independent companies as part of Russias emerging competitive power market.
Distribution function would be unbundled into network services and supply services. The latter will be driven by competition and the former will function on the basis of regulated prices.
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6.60 Power Sector Outlook: Till now the demand growth in Russia had been moderate and a situation of excess capacity prevailed. However many large units (including many nuclear units) are reaching retirement age and demand growth has resumed and is expected to grow at an average annual rate of 2.54% through 2020. The present tariffs do not leave adequate internally generated cash to finance the new investments in generation and transmission, which are expected to become necessary in the relatively near future. RAO UES is revaluing its assets in order to have a realistic depreciation expense component in the tariff. It also promoting the concept of tariffs being driven by investment needs. Based on these considerations the average sale price in the wholesale market could go up significantly in the next five to six years. 6.61 Electricity Trade: Export of electricity is viewed as a priority by RAO UES as providing one of the sources of funds for investment. In 2002, RAO UES exported a total of 16.7 TWh of which 7.4 TWh went to former Soviet Union countries such as Azerbaijan, Belarus, Georgia, Kazakhstan, Moldova, and Ukraine. The remaining 9.3 TWh went to China, Latvia, Mongolia, Norway, Poland, Estonia, Turkey and Finland. The largest volume of export went to Finland (7.5 TWh). In terms of export receipts the first group of countries provided $117.46 million while the second group provided $175.30 million. The company aims to maximize its exports to west European destinations with higher electricity prices, and also get involved in retail sales in the importing markets to maximize export receipts. A recent forecast estimates that exports might grow to the level of 40 TWh by 2020. A new subsidiary RAO UES Inter had been formed to look after and manage exports. This company in turn sets up local subsidiaries in export markets to handle retail sales. 6.62 Strategies and Prospects: Russia seeks the Nordic markets through Baltic ring arrangements (known as Baltrel) and markets in Turkey through Georgia, and markets in Moldova, Romania and the Balkans (constituting the so called second UCTE systems) through Ukraine. It also has long term interests in supplying profitable markets in China, South Korea and Japan making use of the large hydro resources in the Far East Russian regions. It also aspires to synchronize its grid with West European systems in the not too distant future. In pursuit of its aims RAO UES has been acquiring generation and distribution assets in Georgia, Ukraine, and Kazakhstan. RAO UES Inter is also eyeing the possibility of importing inexpensive hydropower from CAPS, partly to balance the regional systems like Omsk and partly to augment its pool of exportable surplus. Acquisition of the generation assets at Ekibastuz in Kazakhstan, offers to buy summer power from the Kyrgyz Republic and Tajikistan, and offers of help to construct Kambarata and Rogun hydro power projects may all be part of this strategy. Operation of CAPS in synchronism with the Russian system and the new 500 kV line in Kazakhstan should greatly enhance the export possibilities of power from CAPS to Russia. It will however be driven by the competitive nature of the cost of power from CAPS. If Russia succeeds in exporting its electricity to the UCTE countries at prices around 4.0 cents/kWh then it would provide a rationale for import of power from CAPS at prices higher than its own cost of generation. Russias recent ratification of the Kyoto Protocol may also be a reason for Russia to be looking at importing hydroelectricity from the CARs.

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CHAPTER VII: INSTITUTIONAL ISSUES

7.01 Realization of the export potential of the CARs calls for tackling at least three groups of significant institutional issues. The first group of issues (the Water and Energy Nexus Issues) relate to the institutional arrangements necessary to operate the existing and proposed large multipurpose reservoirs and the associated hydropower facilities in a manner acceptable to all riparian states and for the optimal benefits of entire river basins. The second group of issues (Power System Operation Issues) relate to the need to reform and operate the power systems of the CARs to maximize electricity trade within CARs and with external electricity markets. The third group of issues (Investment Issues) relate to the organization and financing of the legal corporate entities to raise financial resources, construct, own and operate the new large hydro and thermal projects and market the electricity generated. Given the existing and anticipated dominant role for hydroelectric power in these systems, these three groups of issues are inseparably intertwined and call for a coherent resolution. Since a coherent resolution of these issues is indeed the objective of the proposed Water Energy Consortium under CACO, the last section discusses proposals for WECs structure, roles and functions. A. Water and Energy Nexus Related Issues 7.02 The large hydropower projects are to be built on international rivers and the construction of these projects would have significant and profound implications to the riparian states downstream. The need for securing agreements for water sharing and the regime of reservoir operation among all relevant riparian states is paramount, since without such agreements, security of the assets and projected revenues would be seriously compromised and it would not be possible to raise the resources needed for the investments. 7.03 Meaningful regional cooperation in the energy and water sectors is a major issue in the CARs. Under Soviet rule, they could operate multi-purpose reservoirs such as Toktogul in the irrigation mode for the benefit of irrigation in the downstream regions. The consequent electricity deficits in the upstream regions during winter were met by the synchronized integrated operation of the Central Asian Power System (CAPS) and by internal reallocation of fossil fuel supplies among the regions. Once CARs became independent states, these arrangements broke down and the subsequent efforts to restore some order encountered difficulties36. Solutions lie in operating the reservoirs for the maximum net benefit of the transboundary river basin, and would require a combination of updated agreements and key investments, as discussed in Chapter II (paragraphs 2.05 to 2.07). B. Power System Operation Related Issues 7.04 During the Soviet era CAPS was optimized and operated as an integrated system. After independence, though the constituent power systems operate synchronously, they function more like inter-connected systems, rather than as integrated systems. The analyses in this Report has
Discussions of these efforts, the difficulties encountered and proposed solutions have been dealt with extensively in the Water Energy Nexus in Central Asia Report of the World Bank.
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shown that it would be necessary to engage in seasonal trade to make full use of the existing generation capacities; and that the proposed large thermal and hydro capacity additions can only be justified for trade with external electricity systems. Institutional reforms are necessary for facilitating such expanded trade in order to realize the export potential. The necessary and desirable elements of such reform are presented below. It would be necessary: To ensure non-discriminatory third party access to the transmission system on the basis of transparently regulated and fair transmission tariffs. To operate the transmission systems to meet both national and regional needs. To form a regional association composed of the national transmission and dispatch operators (which are expected to remain in the public sector) underpinned by the necessary agreements, to achieve the above two steps. Such association would enable, without having to change ownership structures, the smooth regional operation37 of the transmission grids; and identification of the needed reinforcements and new transmission links (to relieve congestion and enable smooth regional and extra regional trade). Europes Union of Coordination of Transmission of Electricity (UCTE) provides a good model on which such an association can be based. While the above are necessary steps, it would also be desirable to: Separate the transmission and load dispatch functions from the rest of the utility operations (such as generation and distribution) into independent corporate entity for transmission and dispatch, since these transmission system operators (TSOs) would support trade more naturally than vertically integrated utilities. Implement the 1999 decision to create an integrated electricity market in the CARs and a power pool mechanism to facilitate the operation of the pool38 and convert Energia into the Pool operator. This would eventually enable the creation of a competitive electricity market at the regional level39. Create competent and independent regulatory bodies in each country whose mandate would include ensuring that electricity is being sourced from the cheapest source in the region. In addition, these national regulatory bodies could form a Regional Council of Regulatory Bodies and this Regional Council could encourage agreement upon regional matters such as the regional grid code, transmission tariffs for trade etc. Some of the desirable actions (separation of TSOs, separate regulatory bodies) have been realized in Kazakhstan and the Kyrgyz Republic.

Transparency is the key need for smooth operation Initially, dispatch would follow mostly bilateral contracts and the pool would essentially be a balancing pool. 39 This is the level at which competition would make sense, since some of the markets, for example the Kyrgyz Republic and Tajikistan, are (i) too small and (ii) have single dimension large assets to enable national level competitive electricity markets.
38

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C. Investment and Related Institutional Issues 7.05 The investment needs being considered in all the countries for rehabilitation of existing plants and networks are summarized in Table 7.1. As can be seen, the size of the proposed investments are large - the realization of all the projects identified, including rehabilitation of transmission and distribution and new projects need about US$13 billion in real terms over the next 20 years. Table 7. 1: Summary of the Central Asia Countries Investment Plans (in constant US$ million)
Investment Project Kazakhstan Transmission and Distribution Generation - Ekibastuz GRES-1 Rehabilitation Generation - Other Kazakh Large and Medium Units Rehabilitation New Generation Units Kazakhstan Total The Kyrgyz Republic Transmission and Distribution Generation - Bishkek CHP 2 Generation - Kambarata 1 HPP Generation Kambarata 2 HPP The Kyrgyz Republic Total Tajikistan Transmission and Distribution Generation - Sangtuda I HPP Generation - Rogun HPP, Phase I and II Tajikistan Total Uzbekistan Transmission and Distribution Generation - Talimardjan TPP Generation - Rehabilitation of the existing TPPs. Uzbekistan Total Total Central Asia 172.9 100.0 87.0 359.9 759.0 691.8 480.0 522.0 1693.8 4486.8 288.2 720.0 246.8 1255.0 4581.1 0.0 0.0 80.7 80.7 3091.9 0.0 0.0 213.5 213.5 376.3 1153.0 1300.0 1150.0 3603.0 13295.1 25.0 0.0 0.0 25.0 285.0 296.0 0.0 581.0 0.0 74.0 1453.0 1527.0 0.0 0.0 1002.0 1002.0 0.0 0.0 0.0 0.0 310.0 370.0 2455.0 3135.0 50.0 0.0 0.0 0.0 50.0 200.0 196.0 0.0 140.0 536.0 0.0 0.0 1067.0 140.0 1207.0 0.0 0.0 873.0 0.0 873.0 0.0 0.0 0.0 0.0 0.0 250.0 196.0 1940.0 280.0 2666.0 324.0 0.0 0.0 0.0 324.0 972.1 308.0 395.9 0.0 1676.0 0.0 132.0 460.1 0.0 592.1 0.0 0.0 214.0 922.3 1136.3 0.0 0.0 0.0 162.8 162.8 1296.1 440.0 1070.0 1085.0 3891.1 2004-2005 2006-2010 2011-2015 2016-2020 2021-2025 2004-2025

The prioritization of the investments needs for the countries should be: Focus on loss reduction first, followed by generation rehabilitation. Undertake, in parallel, electricity trade using existing surpluses both within and outside Central Asia. In this regard, Russia becoming a serious importer of hydro electricity from Kyrgyz and Tajikistan will require the completion of the North-South line in Kazakhstan. Then consider implementing the new projects, beginning with the smaller ones and those that do not need riparian agreement. This would include Talimardjan in Uzbekistan, Bishkek II in the Kyrgyz Republic, and Sangtuda I in Tajikistan. Uzbekistan is likely to complete Talimardjan I on its own, and the recent commitments of Iran (US$150 million) and Russia (US$50 million) towards 54

constructing Sangtuda I have significantly enhanced the chances of realization of this project. D. Proposals for the Formation of a Water and Energy Consortium

7.06 The recent formation of the high-level CACO and its focus on regional cooperation in the water and energy sectors through the establishment of a Water and Energy Consortium (WEC) seems to be an auspicious start to enable the operation of existing reservoirs to derive optimal benefit for all riparian states, and facilitate the construction and operation new multipurpose reservoirs. Kazakhstan, which has been nominated by CACO to take the lead in the energy and water sectors, has set up a technical experts working group with representation from all member countries, and this working group has prepared a Protocol on the Conceptual Approaches to the Formation of a Water Energy Consortium (Appendix 7.1). This Protocol envisages the organization of the WEC as a corporate entity. Further, all four member countries would have equal voting rights and decisions would be made only on the basis of full consensus. The main objectives of the WEC would be to: (a) ensure optimal operation of reservoirs in accordance with the Water Sharing and Reservoir Operation Agreements; (b) enable the mobilization of investments for rehabilitation of existing assets and for new construction of both water and hydropower facilities; and (c) create the conditions for coordination of hydro and thermal power generation and for expanding electricity export. It also envisages the establishment of regional task forces to develop these concepts further and to seek the help of international financial institutions to obtain advisory, technical and financial assistance for establishment of the WEC and for the preparation of feasibility reports for the new investment projects. Criteria for Evolving the Institutional Structure of WEC 7.07 However considering the complexity of the tasks (with political, economic and commercial dimensions) to be handled by WEC a more nuanced and a specialized set of institutional arrangements would appear to be called for. While corporate entities would be appropriate for the commercial tasks of raising financial resources, rehabilitating the existing assets, constructing, owning and operating new assets, and domestic and export sales, other forms of organization have to be considered. The political economy dimension needs to be addressed by concluding Water Sharing Agreements and Reservoir Operation and Water Release Agreements among the riparian member states, and effective multilateral monitoring and enforcement of these agreements needs to be arranged. Institutions with equal voting rights and consensus based decisions would be appropriate for the latter set of tasks, while they would be impractical and ineffective for commercial tasks. Further, the envisaged arrangements should look at the possibility of avoiding the creation of yet another new institution and make the best use of existing institutions by absorbing them where possible, or reshaping them to serve the desire objectives. The institutional political and economic framework needs to incorporate flexibility, such as allowing for changing basin priorities, incorporating public input, and applying new information and monitoring techniques and technologies. Examples of changing basin priorities would include recognition of secular increases in the level of annual water inflows in the basin and tailoring sustainable and reliable solutions to meet the power requirements of upstream countries in the region (especially during the winter) and addressing the environmental priorities (of Kazakhstan) that more and more of Syr Darya water should

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reach the Aral Sea. Finally the institutional framework should enable national structures to participate effectively in international/regional efforts and serve the regional objectives. Existing Institutions and Their Limitations 7.08 In the water sector, the need for a mechanism for regional water resource management was recognized very early after independence and an Interstate Commission for Water Coordination (ICWC), was established through an agreement reached in February 1992. The main functions of ICWC, as defined in its founding charter, are to: (a) determine water management policy for the region, as well as the limits on water consumption annually in the Basin for each republic and for the region as a whole; (b) allocate available water resources for various purposes, including the need for water to reach the Aral Sea and schedule water reservoir operations accordingly; (c) determine the future program for water supply and measures to implement the program; and (d) coordinate construction of major works. 7.09 The ICWC comprises officials (generally Ministers or Deputy Ministers) from the Ministries of Water and Water Resources Agencies of all the member countries. ICWCs decision making is based on the proposals formulated and analyzed by its secretariat located in Khodjent. Allocation of water and monitoring water flows are the responsibilities of the basin water management organizations, called BVOs, one each for the Syr Darya and Amu Darya basins. Scientific and information support at the interstate level is provided by the Scientific Information Center (SIC) of the ICWC. 7.10 In the electricity sector, the Central Asian Power Council (CAPC), comprising representatives from the electricity or grid companies of the CARs, has been established and this Council formulates quarterly power exchange schedules. There are also a number of multilateral and trilateral agreements between the upstream states (the Kyrgyz Republic and Tajikistan) and downstream states (Kazakhstan and Uzbekistan), which regulate the water and energy flows and set out a framework for mutual obligations and benefits. The Unified Dispatch Center, Energia, in Tashkent is responsible for maintaining the balanced and synchronized operation of the power transmission and distribution system. Energias Dispatch Service performs the task of translating the quarterly power exchange schedules into daily schedules for generation unit commitment. Energias Energy Regime Service attempts to balance irrigation and hydropower requirements, which is the most controversial issue in the region. Energia also has the responsibility for ensuring overall system security and for frequency regulation. 7.11 Limitations. ICWC is purely a water-focused body with no representation from the energy or environment sectors; this narrow focus has proven to be a major handicap in a system in which water and energy interests are intertwined. The BVOs and the Energia lack an international character, consist almost exclusively of staff and officers of the host nation and do not give the impression of functioning impartially among the constituent member countries. Their expenses as well as the expenses of the Secretariat of ICWC are met by the host nation only. Neither ICWC nor the BVOs and Energia have any power or mechanism to enforce the implementation of the Agreements.

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A Five-Tiered Structure for WEC 7.12 Under these circumstances it would perhaps be appropriate to consider a five- tiered institutional framework for the water and energy related issues. As shown in Figure 7.1, at the apex, there would be the Council of the Heads of State (of CACO) to provide the overall vision of regional cooperation, identify the specific areas of cooperation, the extent of such cooperation and lay down the basic governing principles. At the second level there would be the Council on Water and Energy Consortium consisting of Prime Ministers or Deputy Prime Ministers to decide on policy issues. At the third level there would be Supervisory Board for the WEC, comprising the Ministers of Water and Energy. At the fourth level would be the Executive Directorate of the WEC with departments for Water and Energy. At the fifth level there would be the corporate legal entities carrying out generation (including reservoir operation), transmission, and load dispatch. New hydro projects would be constructed and operated by similar corporate legal entities in accordance with the Agreements among the riparian states concerning water sharing and reservoir operation regimes.

INTERIM CG MEETING
Copenhagen April 29, 2002

CACO HEADS OF STATE

CENTRAL ASIAN WATER ENERGY ENVIRONMENT CONSORTIUM (CAWEC) COUNCIL IFAS ICWC, ICSD, & CAEC PRIME MINISTERS / DEPUTY PMs CAWEC - SUPERVISORY BOARD MINISTERS OF ENERGY, WATER
ASSOCIATION OF ENERGY REGULATORY AUTHORITIES

EXECUTIVE DIRECTOR

WATER WING DIRECTOR AND 2 PROFESSIONALS

ENERGY AND ENVIRONMENT WING DIRECTOR

GENERAL SERVICES WING DIRECTOR

OPERATION OF FACILITIES UDC Energia (Operator of the "pool" at the regional level) National Dispatch Individual Power Plants (jointly developed or on Transboundary rivers)

Association of CA Transmission Systems National Transmission Companies

Reservoirs

Figure 7. 1: Suggestions for an Institutional Framework for Water Energy Consortium 7.13 Somewhat on the lines on which G-8 functions, the Council of Heads of States would meet once a year. Prior to this meeting the WEC would have resolved most of the issues faced during the previous year and place before the Council only those issues that could not be resolved at the level of the WEC. The WEC is envisaged to meet once in six months, while the task forces of the Secretariat would meet as often as needed. There is no need to adopt a

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corporate structure at these three tiers. They could function as inter-governmental committees with equal representation for all member countries. Relationship with Existing Organizations and Other Institutional Issues 7.14 Consideration should be given to subsume ICWC into the WEC in the long term. In the short term, given its extant nature and links to national water organizations, the proposal is to have an association agreement on cooperation between ICWC and the WEC. Similar association arrangements are appropriate for CAPC in the short term. The WEC Executive Directorate needs to be staffed by competent professionals drawn equitably from all member countries and supported by international experts to the extent needed. The expenses of the WEC and its Executive Directorate, have to be met jointly by all governments40. It may also be appropriate for these agencies to be governed by a special charter approved by the parliaments of all member countries. Evolving a Legal Framework for WEC 7.15 A legal framework should be developed to underpin the work of the WEC and the associated bodies. For trans-boundary waters such as the Syr Darya and the Amu Darya, it is desired at the highest levels of the governments in the CARs that the sharing of trans-boundary waters should be done according to international law. It is useful to note that there is no international law governing transboundary waters, but the following is available: (i) the convention of the Protection and Use of Transboundary Watercourses and International Lakes signed in Helsinki in 1992 (commonly known as the Helsinki Convention) and (ii) the UN Convention on the Law of the Non-Navigational Uses on International Watercourses (commonly known as the UN Convention). As such, these are not laws by themselves, but only provide principles based on which the appropriate legal framework for specific situations can be developed. Therefore, while ratification of these conventions is desirable, what is really needed is incorporation of the principles of these Conventions into a specific Agreement to govern the WEC and the related water use agreements etc. It would, therefore, be useful to develop an overall Framework Agreement appropriate to the circumstances of CARs. WEC could develop specific agreements for water release regimes and reservoir operations for the proposed new hydro projects and transmission access agreements under the overall Framework Agreement. Institutional Aspects for Investments 7.16 The institutional structure most suitable for constructing and operating new generation and transmission projects is clearly that of a corporate entity. Each of the projects analyzed in this report are discussed from their institutional structure point of view. Large projects such as Rogun and Talimardjan II may need to be regional. The size of investments needed for them are beyond the financing capabilities of the countries themselves. Securing the large amounts of debt and equity financing needed from outside sources is contingent upon firm arrangements being in place to export the power

Part of the expenses of institutions like BVOs and Energia could be met from user fees. However depending on funds from IFIs or Donors for this purpose is not considered sustainable or desirable.

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to the power systems both within and outside the CAPS. Such large generation projects may therefore have to be conceived of as export oriented regional projects to be jointly owned by: (a) all the relevant riparian states (in the case of Rogun); (b) the importing countries; and, (c) where possible, private sector investors. Such joint ownership by several states would help the projects overcome the problems associated with level of external indebtedness and credit limits of individual countries such as Tajikistan. Joint ownership by riparian states would tend to minimize water related disputes and create greater understanding of, and confidence in, the adherence to the agreed operating regimes. It would also provide all states a measure of control over the reservoir operation. Joint ownership by the importing states could greatly improve their commitment to longterm imports, as has been demonstrated by other regional power projects in the developing world. Box 7.1 gives two examples of such projects in South America and Africa jointly developed by two or more riparian states. Another good example of inviting importers of power to be shareholders is provided by the Theun Hinboun Hydropower Project in Laos (see Appendix 7.2). It also highlights the efficacy of public private partnership and the useful role that an IFI (such as the ADB in the Laos case) can play in a project like this.
Box 7. 1: Two Examples of Jointly owned Hydropower Projects The Itaipu Hydroelectric project on the Parana River, with an installed generation capacity of 12,600 MW is the worlds largest hydroelectric project. It has been jointly developed by a joint stock company Itaipu Binacional owned by the Brazil and Paraguay and established under the Itaipu Treaty of 1973. The first unit was commissioned in 1983. In 2000 it generated 93.4 TWh of electricity and met 95% of the demand of Paraguay and 24% of the demand of Brazil. The agreement to develop the project needed to be reached among all three riparian countries, Brazil, Paraguay and Argentina. The company pays royalties to the governments of Brazil and Paraguay and sells the electricity to utilities in Brazil and Paraguay. Manatali Hydroelectric Project on the Senegal River is a joint development by three countries Mauritania, Mali and Senegal in West Africa. They have established a joint stock company proportionally owned by the three countries. This company has constructed the 200 MW facility and the related transmission lines.

Kambarata I hydro project in the Kyrgyz Republic appears to be highly capital intensive and uneconomic; and proceeding with Kambarata II hydro projects without first constructing Kambarata I should be very carefully examined as it entails many risks. Nonetheless, if it were to be pursued on the basis of the new feasibility studies recently commissioned with help from RAO UES International of Russia, it may have to be jointly owned by the governments of the Kyrgyz Republic, Uzbekistan, Kazakhstan and likely importing states such as Russia. Since the operating regimes of Kambarata I and II have to be strictly coordinated with that of Toktogul, the joint owners of the new project would have some measure of oversight and control over the operation of all these facilities, including Toktogul reservoir, though it is expected that it would continue to be fully owned by the Kyrgyz government. Bishkek II thermal power project which appears to be the best option to meet the winter electricity shortages in the Kyrgyz Republic calls for an investment of the order of $200 million and could conceivably be implemented on the basis of a Public Private Partnership approach. Since Uzbekistan and Kazakhstan perceive the augmentation of 59

winter electricity supply in the Kyrgyz Republic is the best insurance for the adherence by the Kyrgyz authorities to agreed water release regimes of Toktogul reservoir, they could conceivably be invited to make equity investments41 in this project. This might induce them to provide uninterrupted fossil fuel supplies to the project. Sangtuda I hydropower project, prima facie, appears to be economic. Given the significant commitment made to develop this project by Russia (US$50 million) and Iran (US$150 million) it would likely be multi-country endeavor. The large thermal projects Talimardjan I in Uzbekistan and Ekibastuz Rehabilitation could be constructed and operated by the existing power companies which own them as the investments needed to complete them are modest.

INTERIM CG M EETING
Copenhagen April 29, 2002

WATER-ENERGY CONSORTIUM POSSIBLE FINANCING SCHEME FOR DEVELOPMENT OF NEW REGIONAL INFRASTRUCTURE
SHAREHOLDERS
Kazakhstan Kyrgyz Republic Tajikistan Uzbekistan from Central Asia from neighbouring countries (Russia ?) PRIVATE INVESTORS Other International PURCHASERS OF POWER GENERATED FROM THE FACILITY IFC EBRD Others

GOVERNMENTS

INTERNATIONALINSTITUTIONS

Counter Guarantees

EQUITY

DEBT and / or GUARANTEES

International Private Infrastructure Development and Operating Company

CORPORATE FINANCE

MULTILATERAL FINANCIAL INSTITUTIONS World Bank Group Asian Development Bank Others

NATIONAL DEVELOPMENT BANKS

PRIVATE BANKS (national & international)

INTERNATIONAL FINANCIAL INSTITUTIONS IFC EBRD Others

Figure 7. 2: Financial Scheme for Development of New Regional Infrastructure

7.17 Private sector participation is quite necessary to realize these projects, and to enable this a proper investment climate needs to be created and sustained through the adoption of sound policy, legal, and regulatory framework. Private investors, supported by financiers such as EBRD and IFC, could be mobilized to complement public funding for financing the electricity
The equity could possibly come from the gas supply company of Uzbekistan and coal supply companies of Kazakhstan.
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distribution in all four countries, and for electricity generation in Uzbekistan and Kazakhstan, which can happen through concessions and/or outright privatizations. For the large projects, however, assuming that the regional/multi-investor approach is adopted, an international corporate entity needs to be formed with equity participation by several states as well as the private investor. IFIs like EBRD and IFC could mobilize non-sovereign guaranteed finance along with private investors. IFIs like World Bank and ADB could provide long term debt to the international company against the joint guarantees to be provided by the member governments holding equity stakes in the company. A schematic representation of the above three-element institutional structure for attracting the financing for large projects is shown in Figure 7.2. Transmission Investments 7.18 For transmission investments within the CARs, the state owned national corporate entities responsible for the transmission function would be the appropriate entities to undertake the construction of the new transmission projects to facilitate electricity exports. The equity financing needed for such transmission projects may have to be raised through internal generation of cash from the electricity sector through tariff adjustments and through efficiency improvements relating to loss reduction. The loans could then be raised from the world markets with the help of, and participation by, the IFIs and bilateral donors. 7.19 With respect to specific and radial transmission extension lines, dedicated to supply power to a export market such as the Almaty - Urumchi line or even the Surhan- Mashad line, an independent transmission project (ITP) approach, one in which equity participation by the exporting and importing states and by the private sector is possible, may be more appropriate. A good example of Public-Private participation in a transmission project is the Powerlinks Transmission Project in India (see Box 7.2).
Box 7. 2: Power links Transmission Project in India Tata Power Company (a private power company) and the Power Grid Corporation of India (a state owned transmission company) have invested 51% and 49% of the equity of $79.5 million and have raised long term loans from IFC ($75 million), ADB ($66.3 million) and local banks and financing institutions ($44.2 million) to finance the construction of five 400 kV and one 220 kV lines of about 1200 km length and 3000 MW of power transfer capacity between Siliguri of West Bengal and Mandaula of Uttar Pradesh near Delhi at a total cost of $265 million. The project is on the basis of a BOOT contract to build, own and operate the project for 30 years and transfer it thereafter to the Power Grid Corporation. The lines are under construction and are expected to be completed by July 2006. The entire transmission capacity will be placed at the disposal of the Power Grid Corporation under a Transmission Service Agreement.

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CHAPTER VIII: BENEFITS, RISKS AND THE WAY FORWARD

A. Benefits

8.01 The expected benefits are at least threefold. First, electricity trade within the region would enable the CARs to meet their demand at a lower cost than if they were to rely solely on their indigenous resources. For example, the Kyrgyz Republic plans to develop Kambarata I hydro scheme to meet its long term demand. However, this study demonstrates that electricity from Kambarata I would cost more than 7 cents/kWh, compared to the much less expensive electricity from Uzbekistan or Kazakhstan. Second, Kazakhstan and Uzbekistan would benefit from importing hydro electricity (from the existing hydroelectric stations) in summer from the Kyrgyz Republic and Tajikistan, as the economic costs of such hydroelectricity are lower than those of their own thermal power plants. By doing so, and by reducing fossil fuel based electricity generation on a seasonal basis, these countries can conserve their fossil fuel resources, and also might gain from carbon trading. Third, electricity exports beyond the region would indeed contribute significant economic benefits to the region as a whole. Not only the countries that generate and export electricity benefit, but also the transit countries e.g, Kazakhstan and Uzbekistan, would reap the benefits of transit income. Also, the building of large reservoirs like Rogun would help provide multi-year regulation of the Vaksh River, and therefore contribute to further developing irrigated agriculture, with its own attendant benefits. B. Risks

8.02 The development of the energy sectors of the CARs, both individually and collectively, is as important to be realized as part of realizing the export potential. In this regard, the CARs face several major risks, many of which belong to the realm of political economy. These risks can be categorized as Reform Risks, which essentially affect the development of the national energy sectors; Cooperation Risks that affect the development of national as well as regional trade; and Market Risks, which affect the realization of export potential beyond the region. These risks are discussed below. 8.03 Reform Risks. Although all countries have adopted some level of policy and institutional reforms of their energy sectors to transition to a market economy, the implementation of these reforms is very uneven. Kazakhstan has made most progress in reforming the industry structure, private sector participation, and pricing. Uzbekistan has become quite aggressive in pricing reforms, and has made progress in industry structure reform by creating a holding company structure with separate companies for generation, distribution and transmission. However, the Kyrgyz Republic and Tajikistan, where reforms are needed urgently, are lagging the most. Pricing reforms and private sector participation have become highly politicized in the Kyrgyz Republic in recent years, and the country is facing both Parliamentary and Presidential elections in 2005. In Tajikistan, a firm plan for reform of pricing, industry structure and private sector participation is yet to be adopted. 8.04 In addition, all countries need to put in place effective social protection schemes to accompany energy reforms. Equally important, the countries need to improve their investment climate to increase the chances of attracting private investments that are surely needed to realize

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the investments. Moreover, in view of the fact that trade at the margin would be needed to meet the demand at least cost, the countries should move away from the energy self-sufficiency policies. 8.05 Implementation of these reforms is within the control of the individual countries themselves, and are actually fundamental for national sectoral development as well as for electricity trade within Central Asia and with neighboring countries. Pricing reforms in the two hydro countries for example, would give them urgently needed resources for rehabilitating their power networks and reducing losses, which could lead to reduced demand and therefore have more surpluses for exports on a seasonal basis. 8.06 Cooperation Risks. This set of risks affect development of the national energy sectors as well as the possibility of enhanced electricity and water trade within the region. Water Energy Nexus Risk. This problem, in the Syr Darya basin, still exists, despite attempts to resolve it since 1998, and despite the many possible solutions that have been put forward. Resolution of this problem would have significant impact on meeting domestic electricity demand in the Kyrgyz Republic, and would involve expanded energy trade on commercial terms. However, each of the countries involved have different solutions to the problem (see Chapter II, paragraph 2.03) and reconciling these and implementing a solution satisfactory to all will be a challenge in the current environment. A solution to this problem is seen as a litmus test for regional cooperation. Riparian Risk. This is an extension of the Water Energy Nexus Risk as far as the Syr Darya basin is concerned, and will affect the building of the Kambarata schemes. Uzbekistan and Kazakhstan are unlikely to agree to Kambarata since building this scheme would increase the Kyrgyz Republics capability to regulate the Naryn river close to 100% (which means that the Kyrgyz Republic can in theory hold all the waters in Naryn in the Toktogul and Kambarata reservoirs), unless of course the downstream countries are given the operational rights to Toktogul. This, understandably, is not agreeable to the Kyrgyz Republic, thus diminishing the chances of Kambarata coming to fruition. Building the Rogun scheme would face a similar riparian risk as both Uzbekistan and Turkmenistan are downstream riparians on the Amu Darya. Turkmenistan is not a member of CACO (for example) and its views regarding the building of Rogun are not known. The solution lies in developing Rogun as a regional project, with the involvement of the riparians, who would have a say in the operation of the reservoir, but all of this needs to be worked out. Transmission Access Risk. The integrated nature of the CAPS grid and the landlocked status of the CARs makes these countries dependent on each other for transmission of power to reach parts of their own market (e.g., Tajikistan is dependent on the Uzbek grid to transmit power from its generation sources in the south of the country to the more industrialized north) and export markets. In order to supply Russia, the Kyrgyz Republic needs the access to the Kazakh grid). Such interdependence creates risks of capacity

63

Uzbekistan claims that there is no spare capacity in its part of the grid adjoining Tajikistan to transmit Tajik power (either for Tajiks own use or for export to Russia via the Kyrgyz Republic and Kazakhstan). This risk is manifest in Uzbekistans reluctance so far to sign the Power Trade Relations Agreement with Tajikistan enabling power trade between the two countries, despite its having initialed the draft contract in the context of negotiating a loan of $120 million from ADB and EBRD for the construction of transmission lines and substations. Also this gives rise to hold up risks Kazakhstan and Uzbekistan can indirectly dictate when and how much water can be released in the reservoirs in the Kyrgyz Republic and Tajikistan by refusing access to their electricity grids. When this is juxtaposed with the Kyrgyz Republics tendency to ensure that every drop of water released from the Toktogul reservoir produces electricity (i.e., if it cannot use or sell electricity it would tend not to release water), the risk is all too real and serious. Here too, the solutions lie in a combination of agreements and investments. Agreements are needed so that Kazakhstan and Uzbekistan give Third Party Access to their transmission grid; and by the Kyrgyz Republic and Tajikistan to observe optimally beneficial water release regimes. Investments are needed to complete the construction of the North South Line in Kazakhstan, which is needed to enable supply from the larger generation capacities to the CAPS in winter, and to enable exports to Russia in summer. Financing, in part by EBRD, for a section of this high priority line is in place, and the Kazakhstan government is planning to complete this line by 2008. Investments would also be needed to overcome the capacity problems that may exist in the southern part of CAPS (southern Uzbekistan, southern Kyrgyz Republic and Tajikistan), especially when Talimardjan I begins to dispatch. Recognizing this possibility and to create alternative transmission routes for their own power, the Kyrgyz Republic and Tajikistan are building a 54-km 220 kV transmission line between Kanibodom (in Tajikistan) and Batken (in the Kyrgyz Republic). It may be worthwhile to think of extending this line to link the Nurek cascade in Tajikistan and the Toktogul cascade in the Kyrgyz Republic, thus creating alternative transmission routing which would essentially link Kazakhstan (and therefore the Russian grid) via the Kyrgyz Republic with Tajikistan (and therefore Afghanistan) without going through Uzbekistan. Details of this scheme are discussed in Appendix 8.1. Resource Risk. Currently the supply of gas from Uzbekistan to the Kyrgyz Republic and to Tajikistan is not reliable for several reasons, the most important of which is the inability of the Kyrgyz/Tajik authorities to pay for the gas in cash and the need to rely on barter arrangements. In this context, the proposal that Bishkek II be based on Uzbek gas may be perceived from the Kyrgyz perspective as a gas supply risk. However, the Kyrgyz perspective may be driven by their efforts to try to promote the construction of the Kambarata schemes, which are seen as projects of national importance, and therefore adoption of Bishkek II to solve Kyrgyzs winter deficit problem (as opposed to Kambarata) is likely to be a politically tough decision.

64

Perceptions apart, in view of the fact that there has not been an independent evaluation of Uzbek gas reserves, the perception of this risk is likely to persist also for Talimardjan I and especially for Talimardjan II. Solutions lie in the Uzbek authorities quickly conducting an independent evaluation of their reserves, and continuing to attract private/foreign investment in order to increase the reserves. In addition, the Bishkek II plant needs to be structured as a commercially viable entity privately owned and managed and capable of contracting for gas and paying for it in cash. The gas supply entity, Uzbekneftegaz in Uzbekistan, is commercializing rapidly and is slated for privatization; it naturally prefers to export to cash paying customers. There may be other approaches for fuel supplies for Bishkek II it could be designed as a coal fired plant instead of gas, for example. 8.07 Market Risks. It is clear that the CARs do have the potential to provide electricity to markets outside the region. While Central Asian supplies should be cost competitive in these markets, the cost advantage is not overwhelming. Also, realization of electricity export potential is not just about economics. Electricity trade is politically more sensitive than general trade since electricity supply is often viewed as a national security issue. Also, trade of significant amounts of electricity requires long-term commitments and a clear perception, in the importing countries, that the supplier can be relied upon to fulfill its commitments. The level of trade that will justify the construction of major facilities to service the export markets and the associated commitment of capital will be predicated on the alleviation of supply security concerns on the part of the importing countries and an associated perception that the political climate and the business environment in the exporting countries are stable. 8.08 In addition to the above general risks that apply to long-term electricity trade, there are specific risks with each of the target markets. Afghanistan has potential demand but is constrained in its ability to pay for imports, and in any case is a small market in the immediate future for the larger new projects in the CARs. Access to the Pakistan market would involve transit and the associated construction of transmission facilities through Afghanistan and there would be questions of who will bear the responsibility for such transmission links, and also perceptions of security risks. The demand growth in China is centered on the population centers of the East Coast, a considerable distance from Central Asia. Access to the Russian market will require access to the North-South transmission line across Kazakhstan that is under construction and would be dependent on the interest and willingness to purchase power by RAO UES and later by whatever power companies that emerge from Russias power sector restructuring. CARs would also face the risk that supplies to Iran from the Kyrgyz Republic and/or Tajikistan will likely have to compete with supplies from Turkmenistan and will have to transit Afghanistan or Turkmenistan as well as Uzbekistan. C. The Way Forward

8.09 Addressing the risks and impediments to realize the full regional trading and export potential will require time and strong political will both within the CARs and in the target markets. While the international financial community is prepared to work with and support all the countries, such support cannot replace the political will needed to make the necessary

65

compromises for regional cooperation. The World Bank, in concert with other development partners is providing advice and technical assistance (including this report) to aid the formation of the Water-Energy Consortium, to help put in place the requisite legal, institutional, and financial framework. 8.10 The Central Asian suppliers of electricity should approach the issue of expanded export activities with the recognition that a significant expansion in export levels will take some time to develop, and they should, therefore, focus on the objective of building towards this longer term goal in a phased fashion. A possible scenario for development of Central Asias electricity generation and trading activity is shown schematically in Figure 8.1 below. This contemplates the phased introduction of measures to make capacity available beginning with the introduction of loss reduction programs to be followed by construction of new capacity needed to meet winter demand within the region (Talimardjan I and Bishkek II) and the completion of the transmission link to Russia through Kazakhstan. These activities should be completed in a medium term time frame (up to 10 years). These phases have a relatively high probability of going ahead.

INTERIM CG MEETING
Copenhagen April 29, 2002

Central Asian Republics Power Development and Trade Strategy

Pakistan Afghanistan
Export Capacity PPP: Rogun & Talimardjan II South Transmission Links Development Export Market Negotiation Power Trading Capacity: Sangtuda Transmission Links: North-South Project Domestic & Regional Capacity Balance: Bishkek II & Talimardjan I

High

Level of Risk

Iran

China?

Russia

Low

Loss Reduction & Rehab. Programs

Near-Term 1- 5 yrs

Medium -Term 3 - 10 yrs

Long -Term 8 - 15 yrs

Time Frame

Figure 8. 1 8.11 Integral to this process, the CARs will need to address the risks discussed earlier. The policy reforms will need to be accelerated in parallel with the loss reduction programs in fact the two are intertwined closely that one would not happen without the other. Bishkek II and Talimardjan I will contribute to the solution of the Cooperation Risks, which would require overcoming the political resistance to adopting Bishkek II (instead of Kambarata); and ensuring the necessary agreements on water releases and transmission access are in place. 8.12 The chances of realizing updated agreements to govern electricity trading between countries within the region would be higher if these were attempted on a bilateral basis in the initial phase, as is being done with the Batken Kanibodom line between the Kyrgyz Republic and Tajikistan, and between the Kyrgyz Republic and Kazakhstan on Kyrgyz exports to Russia. If 66

these arrangements are all based on a consistent set of principles they will facilitate increased intra-regional trade, and will reinforce the multilateral agreements that is now being explored (with little success to date). 8.13 As regards trade with the markets outside the immediate Central Asia region, it appears likely that such trade will initially be limited to seasonally based activity at the margin. The more extensive level of trade that would justify the construction of major facilities would be demand driven by the importing countries. Accordingly, the outlook for implementation of new projects focused on the export markets, e.g., Rogun and Talimardjan II that could occur in a subsequent phase is too uncertain at this time to justify the commitment of significant resources to these large generation projects. What is needed to realize these projects is the alleviation of supply security concerns on the part of the importing countries, the existence of transmission infrastructure to access the markets and a politically stable environment. 8.14 The one exception is the Sangtuda I hydro project in Tajikistan, where both Iran and Russia are making financial commitments to help develop this project. Russias role in the development of the large projects of the CARs needs to be better understood. At the moment, it is playing multiple roles as an importer of Central Asian electricity, as an investor, and as a strategic partner in construction and metals (aluminum) industry. It also became a member of CACO in 2004. Russias expanding role in the CIS energy sectors in general and Central Asia in particular may be due to the following reasons: Energy supply security - its own gas reserves and electricity generation capacities are declining and Russia may be aiming to shore up its now growing demand for energy, with (still) cheap electricity from CIS, especially Central Asia. With ratification of the Kyoto Protocol in early 2005, incentives will exist to shut down highly polluting coal capacity; Russia needs to fulfill its energy supply obligations to Western Europe. At present these are limited to gas but in future may include electricity; and While western investors currently view the new generation projects as high risk ventures, RAO UES of Russia, believes that it can mitigate many of the risks and has expressed particular interest in some of the proposed hydropower projects.

RAO UES, in combination with Iran (and perhaps Kazakhstan) represents the best opportunity for the Sangtuda I project to be implemented in the medium term. Next Steps 8.15 Further analytical and technical assistance work is needed to continue to build consensus for the power sector development and trade strategy identified in this report. Future phases of this work should focus on: (a) helping to prepare more detailed demand projections (using an end-user approach) and help prepare Least Cost Investment Programs for each of the CARs; (b) undertaking a transmission system assessment including the load flows on a projected basis to understand the bottlenecks, investment needs and costs of service; (c) through country visits to the target markets, confirming the willingness and modus operandi of importing Central Asian electricity in the short, medium and long term; (d) developing commercially oriented contractual

67

documents (e.g., power purchase agreements and transmission service agreements) for intraCentral Asian trade and for extra-Central Asian trade; (e) developing viable PPP financing structures for chosen projects; and (f) developing institutional options for this regional approach to energy development.

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CENTRAL ASIA
REGIONAL ELECTRICITY EXPORT POTENTIAL STUDY

Appendix Volume

EUROPE AND CENTRAL ASIA REGION WORLD BANK, WASHINGTON, D.C. DECEMBER 2004

The views expressed in this paper are the views of the authors and do not necessarily reflect the views or policies of the Asian Development Bank (ADB), or its Board of Governors, or the governments they represent. ADB does not guarantee the accuracy of the data included in this paper and accepts no responsibility for any consequence of their use. Terminology used may not necessarily be consistent with ADB official terms.

List of Appendixes
Appendix 3.1: Appendix 4.1: Appendix 4.2: Appendix 4.3: Appendix 5.1: Appendix 5.2: Appendix 5.3: Appendix 7.1: Appendix 7.2: Appendix 8.1: Current Status of Power Sectors in Central Asian Republics Electricity Demand Forecasts Incremental and Total Supplies from Supply Options Electricity Demand Supply Balances Economic Analysis of Supply Options Economic Analysis of Transmission Line Options for Exports Financial Analysis of Generation and Transmission Options Establishment of Water Energy ConsortiumConceptual Approaches Laos Theun-Hinboun Hydropower Project Options for De-congesting Southern Central Asian Power System

Appendix 3.1 Central Asia Regional Electricity Export Potential Study Current Status of Power Sectors in Central Asian Republics Kazakhstan Infrastructure: Kazakhstan is endowed with enormous fossil fuel resources. Its oil reserves are estimated in the range of 0.8 to 2.5 billion tons. Its gas reserves exceed 1,950 BCM and its coal reserves exceed 185 billion tons. Its hydroelectric potential is about 20,000 MW of which only 10% had been developed. The installed electricity generation capacity is estimated at 18,240 MW consisting of 4 large thermal power plants (8,630 MW), 12 hydroelectric plants (2000 MW), and 38 combined heat and power (CHP) plants (7,610 MW). Due to their age and lack of maintenance the available capacity is estimated available capacity is around 13,840 MW. The rehabilitation of the two large Ekibastuz thermal power stations would add considerably to the available capacity. Kazakhstans power system consists of the northern grid (which is well integrated with the Russian grid) and the southern grid (which is an integral part of the CAPS). A single circuit 500 kV line interconnects these two grids, but because of stability problems the line is sometimes kept open. Plans to reinforce the interconnection by another 500 kV line are being actively pursued, and a part of it is already funded with help from an EBRD loan. Table A3.1: Kazakhstan: Generation, Trade, and Consumption of Electricity
Indicators Peak Demand Domestic Generation Hydropower Pants Thermal Power Plants Total Domestic Generation Exports to Russia Uzbekistan The Kyrgyz Republic Exports total Imports from Russia Uzbekistan The Kyrgyz Republic Tajikistan Turkmenistan Imports total Net Supply to Domestic Market Domestic Consumption System Losses Losses as a % of Net Supply 5)
1)

Units MW GWh GWh GWh GWh GWh GWh GWh GWh GWh GWh GWh GWh GWh GWh GWh GWh %

1998

1999

2000

2001 1) 9,318

2002 1) 9,432 8,861 49,317 58,178 595

2003 2)

6,100 3) 40,400 46,600 3)

3)

6,100 3) 38,900
3)

7,500 3) 41,400 3) 48,900 3)

8,057 47,174 55,231

45,000 3)

63,700

130 3)

90 3)

90 3)

322

595

4,119

970 4) 2 4,000 3) 50,470 33,815 16,655 33%

4)

1,2534) 35 4) 3,100 3) 51,910 35,299 16,611 32%

1,095 9 1,426 56,657 39,094 17,564 31%

433 31 464 58,048 40,053 17,995 31%

1,389 360 2,448 62,029 43,420 18,609 30%

321 4) 3,070 3) 47,980 32,626 15,354 32%

Energy sector and Fuel Resources of Kazakhstan, March 2003. 2) Kazakhstan Electricity Association, Energy Industry Bulletin 3-2004. 3) Fossil Energy International, An Energy Overview of the Republic of Kazakhstan, October 2003. 4) UDC "Energiya", Annual Reports. 5) WBs estimate based on Environmental Performance Review of Kazakhstan, UN, Economic Commission for Europe, Committee on Environmental Policy, September 2000 and Regional Review of Social Safety Net Approaches, USAID, October 2003 (see Appendix 5: Energy Reform and Social Protection in Kazakhstan)

Generation, Trade and Consumption. Table A3.1 shows the historical data for electricity generation, trade and consumption from the year 1998 to 2002 in Kazakhstan. Generation from thermal plants accounted for 85% of overall generation, while hydro plants accounted for the remainder. The northern system was a net exporter of electricity in 2002, where as the southern system is a net importer. Imports in the south are from the Kyrgyz Republic mainly as a result of obligations under the annual IGIAs relating to the operation of the Toktogul reservoir in the Kyrgyz Republic. Domestic consumption, which was declining from 1990 to 1999, resumed growth in the subsequent years reflecting the economic growth experienced by the country and the region. A growth of 23% in domestic consumption of electricity occurred during 1999-2002. The annual peak demand is in the month of January and the summer peak in July is generally around 60% of the winter peak. System Loss, Billing and Collections: Overall system loss is reported at 30% for the country as a whole. However, there is considerable variation in the loss levels among the distribution entities. In many distribution companies, the loss levels are as high as 35% of the electricity supply received by them. Similar variations in billing and collection efficiencies are reported to exist among these agencies. While overall collection levels are reported to be around 85% of billings, overall cash collection levels appear to be around 55% of billings.
Policy Ministry of Energy, Industry and Trade Private Power Plants 85 percent capacity State Power Plants

State Property and Privatization Committee

Committee on Natural Monopolies

KEGOC

Private Distribution Companies

Public Distribution Companies

Public Distribution Companies

Public Distribution Companies

Final Consumers

Source: ADB Report on Regional Power Transmission Modernization Project

Figure A3.1: Structure of the Kazakhstan Electricity Supply Industry Sector Structure: Kazakhstan is one of the earliest former Soviet Union countries that pursued structural reforms to enable privatization of sector assets. The sector has been unbundled into generation, transmission and distribution since 1996 (See Figure A3.1). Transmission at 220 kV and above and dispatch are being handled by the state owned joint stock company KEGOC. There are 21 Regional Energy Companies, which own smaller sized generation units1 (mostly combined heat and power plants), transmission at 110 kV level and
The total capacity of such regional level units in Kazakhstan as a whole amounts to 8,860 MW or 48.6% of the total installed capacity in the country.
1

electricity distribution networks and heat distribution networks. Not all of them have been unbundled and some continue to retain the status of vertically integrated utilities. These RECs are owned by different levels of government. Eleven of them have state ownership, six have communal ownership, and four have trust management ownership. Regulation of the industry is carried out by the State Committee for Regulation of Natural Monopolies and Protection of Competition. The regulatory bodies at the oblast level have also a major role to play in regulation of tariffs. Private Sector Participation: Significant portion of the large sized generation assets (referred to as national level power plants) have been privatized to foreign and local strategic investors. The large hydroelectric generation units have been given on concession basis to private investors. Nine of the electricity distribution networks from the unbundled RECs have been privatized adopting a concessions approach. Regulatory problems have resulted in notable cases of disinvestment by international private investors from distribution business. Market Operations: Distributors and generators are linked by a system of bilateral contracts. Major industries, connected to the HV transmission grid, as well as RECs and privatized distribution companies are free to contract directly with generators, as third party access to the national grid is legally ensured. A contract trading market has been introduced and determines wholesale prices. Contracts for basic capacity, peak and off peak capacity, standby capacity and reactive capacity are provided. The final consumer pays a tariff which is a sum of the cost of energy, national, regional and distribution network charges, technical losses and maintenance charge. An experimental market trading organization, KOREM, has been set up, and a trial electricity market trading is already taking place. With assistance form a World Bank/EBRD financed US$190 million loan a Grid Code was prepared during 2001 and has since been approved by the Ministry of Justice; market rules are being finalized; measures for the operation of a day ahead and spot markets for the real time balancing of supply and demand in a largely bilateral contract driven market are being pursued. Further privatization of distribution is also being pursued. Electricity Pricing: Since the Kazakhstan power system has multiple generators and multiple distributors, it has a complex tariff system, featuring different generation tariffs, as well as a three-part transmission tariff. Wholesale tariffs presently range from 0.5 US/kWh to just below 1 US/kWh. Transmission tariffs applied by KEGOC and subject to quarterly review by the regulator are currently at about to 0.7 Tenge/kWh (0.4 US/kWh). Retail tariffs are charged by RECs, and tariff levels are generally higher for privatized RECs than for those still remaining in government ownership. Energy Regulators Regional Association (ERRA) reports that the unweighted overall average of all RECs is 2.64 US/kWh. In general residential consumers pay more than the industrial consumers, indicating some decline in the cross subsidy. The Kyrgyz Republic Infrastructure: Though only 10% of its hydroelectric potential has so far been developed, the Kyrgyz power system is predominantly hydroelectric. It has an installed power generation capacity of 3,713 MW, of which 2,950 MW (79.5) is hydroelectric and 763 MW (20.5%) is thermal. The hydropower units of the Toktogul storage reservoir and those in the downstream

Naryn2 cascade account for 97% of the hydro capacity and 78% of the total installed power generation capacity in the country. They account for 90% (or 11 to 12 TWh) of the total electricity generation. The thermal capacity consisting of two combined heat and power plants (CHP) fueled by gas, fuel oil or coal generate only about 1.1 to 1.2 TWh though their design outputs were rated at around 4.1 TWh, as a result of lack of fuel and their poor condition. Transmission voltages include 500 kV, 220 kV and 110 kV. Distribution is at 35 kV, 10 kV, 6 kV, and 0.4 kV. Generation, Sales and Trade: Data relating to generation, exports, imports, domestic consumption and sales in the Kyrgyz Republic are summarized in Table A3.2. Table A3.2: The Kyrgyz Republic: Generation, Trade, and Consumption of Electricity.
Indicators Peak Demand Domestic Generation Hydropower Pants Thermal Power Plants Total Domestic Generation Exports to Uzbekistan Kazakhstan Tajikistan Exports total Imports from Uzbekistan Kazakhstan Tajikistan Turkmenistan Imports total Net Supply to Domestic Market Domestic Sales Losses Losses (as a % of Net supply) GWh GWh GWh GWh GWh GWh GWh GWh % 320 10,847 6,624 4,223 39 2 0 137 49 188 11,218 7,251 3,967 35 195 0 126 0 321 11,234 7,779 3,455 31 287 0 35 0 322 11,548 6,641 4,907 42 267 0 163 0 430 11,107 6,836 4,271 38 188 0 115 12 316 11,191 7,026 4,165 37 GWh GWh GWh GWh 1,043 970 970 149 2,089 1,926 1,253 154 3,333 1,038 1,264 78 2,380 523 575 118 1,216 1,114 1,016 125 2,012 GWh GWh GWh 9,939 1,631 11,570 12,137 982 13,119 13,024 1,222 14,246 12,391 1,215 13,606 10,778 1,115 11,893 11,654 1,233 12,887 Units MW 1998 2633 1999 2554 2000 2622 2001 2775 2002 2687 5 year Average 2,661

On the basis of five-year (1998-2002) averages total generation was about 12.9 TWh of which more than 90% was hydroelectric. About 15.6% of the total generation was exported mainly to Uzbekistan and south Kazakhstan in terms of the annual IGIAs relating to Toktogul reservoir operation; and partly to Tajikistan. Imports are modest and are mainly for technical exchanges needed for system stability and balancing purposes. Net supply to the domestic market amounted to about 11.2 TWh, but domestic sales amounted to only 7.0 TWh implying a system loss level of about 37% of the net supply. Since Toktogul reservoir provides multi year storage facility for irrigation and agriculture in the downstream countries, water releases from it are subject to annual IGIA. This leads to substantial release of water and export of electricity in summer and limited release of water and import of fuels in winter. Thus to a large extent, trade in electricity is a byproduct of water release agreements.
2

Naryn is the major tributary of Syr Darya River

Power Market: The country is fully electrified and the total number of consumers is about 1.08 million, more than 95% of which are residential consumers. Though the level of electricity consumption by the year 2000 reached the level prevailing in 1990 (before the dissolution of the Soviet Union), the structure of consumption has changed dramatically. Industrial consumption declined sharply and the share of the residential consumers rose from 15% to about 60% of the total consumption.3 The main reasons for the surge in the residential consumption were the lack of indigenous fossil fuels, the quick rise in the price of imported fossil fuels to internationally traded levels, the scarcity of imported fuels for want of cash to pay for imports, and consequent behavior of residential consumers in switching from fossil fuels to electricity for space heating, cooking and hot water, encouraged by the continued low and highly subsidized price of electricity. Thus seasonal variations in demand became pronounced. The system peak demand occurs in the height of winter and the summer peak demand is only about 55% of the winter peak demand. About 2/3 of the annual electricity consumption takes place in the first and the fourth quarters of the year (winter and fall), as a result of the increased heat demand. System Loss, Billing and Collection: The total system loss level averages to about 37%. The technical losses in the transmission and distribution network have increased on account of the dramatic change in the structure of demand. The network also needs extensive rehabilitation. A substantial portion of the losses (more than 50%) is attributable to unmetered supplies, defective meters and theft of power. Billing and Collection efficiencies are poor at around 80% each, and the sector is still beset with problems of nonpayment and payment in barter. Sector Structure: The Kyrgyz Republic electricity system was unbundled in 2001 creating the Electricity Supply Industry (ESI) comprising: one generation company; one transmission company and four distribution companies (See Figure A3.2). The State Energy Agency is the regulatory body for the whole energy sector, while the policy formulation is in the hands of the Department of Fuel and Energy Complex under the Prime Minister. Market Operations: According to the Electricity Market Rules adopted by the Government in 2000, the transmission company is a common carrier with no responsibility for buying and selling electricity4 (other than very small quantities for maintaining system stability and to follow the instructions of the Unified Dispatch Center in Tashkent). The distribution companies trade directly with the generation company for their electricity purchases and pay a transmission service fee to the transmission company. The generation company is responsible for the exports of electricity.

3 4

Average annual consumption of the residential consumer in 2003 was about 4,560 kWh

However, the Government later made a decision that, on an exceptional basis and during a transitional period only, the transmission company would be allowed to sell directly to the Kumtor Gold Mining Company.

Policy
PM Department of FuelEnergy, Infrastructure and Communications

JSC Electric Power Plants

State Commission on Property, Investment

owner of all electricity supply facilities

State Energy Agency

JSC National Grid

Serva (North) Electra (Bishkek, Chuj and Talas oblasts)

Vastock (East) Electro (Issyk-Kul and Naryn Oblasts)

Oshelectro (Osh Oblast)

Jalal-Abadelectro (Jalal-Abad Oblast)

Final Consumers
Source: ADB Report on Regional Power Transmission Modernization Project

Figure A3.2: The Kyrgyz Republic Electricity Supply Industry Structure Private Sector Participation: The Government has committed itself to seek private sector participation in electricity distribution and in small hydro schemes. Two small hydro schemes, Chakan and Kalinin, have been handed over to private investors. The implementation of the decision to offer Severelectro, one of the four distribution companies, to the private sector on the basis of concessions is still in the preparatory stage. Electricity Pricing: Though tariffs have been revised several times since 1999 and the overall average tariff in the Kyrgyz Republic power sector in 2003 amounted to 1.42 US cents/kWh5, it still lagged behind the cost recovery tariff level of about 2.3 US cents. In addition, there is a significant cross subsidization of the residential consumers by industrial consumers. SEA regulates the generation, transmission and distribution tariffs. Tajikistan Infrastructure: Tajik power system is also predominantly hydroelectric. The hydroelectric potential of the country is estimated at 40,000 MW with an annual energy content of 527 TWh, and of this only 10% has so far been developed. The total nominal installed power generation capacity is about 4,405 MW consisting of seven large and several small hydroelectric stations (4,059MW) and two fossil fuel fired CHP units (346 MW). The available capacity,
5

The generation company realizes a tariff of 23 to 26 tyins /kWh from the distribution companies and 71.3 tyins/kWh from the 14 large Industrial consumers to whom it supplies power at 110 kV. Industrial consumers receiving supplies at 35 kV and 10 kV pay to the distribution company a tariff of 80 tyins/kWh. The transmission charge amounted to an average of 8.7 tyins/kWh. Residential consumers pay to the distribution company 43 tyins/kWh for the first 150 kWh per month (lifeline rate) and 80 tyins/kWh for consumption above that limit. The government is examining the possibility of removing the lifeline rate and charging a unified tariff for all residential consumers.

however, is much lower at about 3,428 MW (comprising 3,218 MW of hydro and 220 MW of CHP capacity). The Nurek hydropower cascade, comprising the Nurek reservoir and power houses at Nurek and Baipaza with combined capacity of 3,600 MW and an annual energy capability of 15 TWh is the most important generation asset. Tajik power system comprises essentially three separate grids. The grid in the northern part (Sogd region) and that in the southern part, (Khatlon region) are not directly interconnected within the country because of the high mountain range that divides them. The grid in the eastern part (Gorno Badakhshan Autonomous Region) is connected to the southern grid by a long 35 kV line with a very limited transfer capacity. Most of the generation is concentrated in the southern grid and major load centers are in the northern grid. The southern and northern grids are however interconnected with the power grid of Uzbekistan at several voltage levels and there is thus a continuous exchange of power between Tajikistan and Uzbekistan. Tajik power system meets its domestic demand mostly by domestic generation and partly by net imports. Its transmission system consists of 226 km of 500 kV lines, 1,203 km of 220 kV lines, 2,839 km of 110 kV lines. Distribution is by 35 kV, 10 kV, 6 kV, and 0.4 kV lines. Electrification of the country is nearly complete and almost every household has access to the electricity grid. Its annual per capita electricity consumption in 2000 amounted to 2473 kWh. Table A3.3: Tajikistan Electricity Generation, Trade, Consumption and Losses
Indicators Peak Demand Domestic Generation Hydropower Plants Thermal Power Plants Total Domestic Generation Exports to Uzbekistan The Kyrgyz Republic Turkmenistan Exports total Imports from Uzbekistan The Kyrgyz Republic Turkmenistan Imports total Net Supply to Domestic Market Domestic electricity sales System Losses GWh GWh GWh GWh GWh GWh % 3,927 3,927 19,351 18,109 6% 3,619 350 3,969 14,663 12,495 15% 3,493 149 3,642 15,607 13,310 15% 729 154 819 1,702 15,579 12,040 23% 569 78 1,037 1,684 15,686 12,165 22% 360 118 580 1,058 16,016 12,988 19% 1,754 100 557 2,411 15,510 12,600 19% GWh GWh GWh GWh 2,344 324 2,668 3,600 124 3,724 3,691 137 2 3,830 244 126 370 299 35 334 72 163 31 266 1,581 117 7 1,705 GWh GWh GWh 17,459 633 18,092 14,147 271 14,418 15,426 369 15,795 14,025 222 14,247 14,206 130 14,336 15,086 138 15,224 14,578 226 14,804 Units MW 1990 1998 2,352 1999 2,605 2000 2,723 2001 2,750 2002 2,901 5-year Average 2,666

Source: Barki Tajik

Generation, Sales and Trade: Data relating to generation, sales, trade and losses are summarized in Table A3.3. Domestic generation declined from about 18 TWh in 1990 to about 14 TWh during 1995-1998 on account of: (a) the mothballing of the CHP plant at Yavan caused by the shortage of fuels, non-operation for prolonged periods and lack of funds for maintenance; (b) reduction of the Nurek Hydro reservoir capacity caused by silting; and (c) the need to shut down some of the hydro units for lack of spare parts and funds for maintenance. Rehabilitation of some of the hydro units has resulted in some improved hydro output in the later years. Trade

is the result of the annual Inter Governmental Irrigation Agreements (IGIA) made under the Framework Agreement of 1998 among the riparian states of Syr Darya River basin.6 Tajikistan is obliged under these agreements to store a minimum of 3.4 BCM of water in the Kairakkum reservoir7 on Syr Darya River during the winter season to enable the flow of adequate water for irrigation in the summer season in Uzbekistan. For this storage service, Uzbekistan is obliged to receive 250 GWh of electricity from Tajikistan in summer and transfer 200 GWh in winter to Tajikistan. Trade above the levels mentioned in the IGIAs has to be paid for in cash. Exports from Tajikistan declined over the decade on account of the energy self sufficiency policy followed by Uzbekistan and imports by Tajikistan declined as a function of its inability to pay in cash for such imports. Power Market: The decline in domestic sales by 33% during 1990-2001 was on account of the economic turmoil following the dissolution of Soviet Union and the ensuing internal conflicts within Tajikistan. TADAZ one of the largest Aluminum smelters in the world is located in Tajikistan and it accounts for about 32% of total domestic sales of electricity. Residential consumers account for 34% of the sales, followed by agriculture and irrigation pumping (21%) other industries (7%) and government consumers (6%). During the decade the share of industry (including TADAZ) fell from 68% to 39%, while the share of the residential consumers rose from 8% to 34%. As in the Kyrgyz Republic, and for the same reasons, residential consumers switched from fossil fuels to electricity for heating and cooking during winter. However, the seasonal variations in the demand for electricity in Tajikistan are not as pronounced as in the Kyrgyz Republic due to aluminum production and demand for irrigation water pumping balances. The share of the winter consumption in the total annual consumption is actually only 43% and shortages are acute, mainly owing to lack of supply, as flows in the rivers are reduced significantly, and the storage capacity in the reservoirs is limited. Regional consumption pattern is such that about 40% of the energy is consumed in the northern region followed by southern region (25%), capital region (18%) and others (17%). System Loss, Billing and Collection: The overall loss for 2001 is reported at 22% in Table A3.4. However, nearly 32% of the total sales (3,916 GWh) was to the Aluminum smelter TADAZ at 220 kV. The loss here can not be any higher than 1.0 % thus the losses on the remaining sales of 8,249 GWh amounts to nearly 30%. It is estimated that out of the 30% of losses about one half is attributable to technical losses in the transmission and distribution system and the rest is attributable to non-technical losses arising from theft, defective metering, use of norms based billing for consumers without meters, non-billing or inadequate billing. Billing inefficiencies are so high that only about 70% of the consumption gets billed. Collections are at around 70% of the amounts billed. Only 40% of the collections are in cash, the rest being in barter and offsets. Sector Structure, Market Operation and Private Sector Participation: Barki Tajik (BT), the state owned vertically integrated utility was responsible for generation, transmission and distribution in the whole of Tajikistan till recently (See Figure A3.3). After the privately owned Pamir Energy Company was given a 25-year concession in the end of 2002 for the operation of all power facilities in the Gorno Badakshan Autonomous Region (GBAO), BTs responsibilities cover the remaining areas of the country. BT is registered as a state owned Joint Holding
6 7

Kyrgyz Republic, Uzbekistan, Kazakhstan and Tajikistan It is a 126 MW storage hydro power station in the northern Grid of Tajikistan.

10

Company (SJHC) and has 28 subsidiary companies within its holding. There are several generation subsidiaries, one transmission and dispatch subsidiary and 11 distribution subsidiaries, in addition to subsidiary companies for maintenance, design, research etc. Though from a legal point of view the generation, transmission and distribution entities are separate companies, BT functions for all practical purposes as a vertically integrated utility and these units function mostly as divisions of BT, especially in terms of system operations and finance. In addition to these, a new Sangtuda I Joint Stock Company (JSC) has been formed for completing the construction of the large run-of river Sangtuda I hydroelectric project downstream of Nurek-Baipaza cascade and later its operation.

Policy and Regulation

Ministry of Energy Electricity Department

Inter-Agency Commitee

State Commission on Property, Investment

owner of all electricity supply facilities

State Joint Holding Company (SJHC) Barki Tajik

Generation and Distribution Company Northern, Southern and Eastern

10 repair, construction, materialtechnical provision enterprises

Final Consumers
Source: ADB Report on Regional Power Transmission Modernization Project

Figure A3.3: Electricity Industry Structure in Tajikistan (2002) Tariffs: The weighted average tariff in 2003 was of the order of 0.49 US cent/kWh compared to the cost recovery level of 2.1 US cents/kWh. Seasonal tariffs with higher rates for winter than in summer have been introduced in 2003. Lifeline rates for residential consumers is at 0.41 cents Industries and Residential consumption above the lifeline rate limits are charged at around 0.68 and 0.69 cents /kWh. However the limit for the lifeline rate has recently been raised from 150 kWh to 250 kWh per month. Uzbekistan Infrastructure: Uzbekistan has oil reserves of 82 million tons, gas reserves of 1,875 BCM and coal reserves of 4 billion tons and a modest hydroelectric potential of 15,000 GWh/year. Its nominal installed power generation capacity at 11,580 MW is nearly 50% of the total generating capacity in CAPS. It consists of 11 thermal plants totaling 9,870 MW and 31 hydroelectric units totaling 1, 700 MW. The large natural gas fueled power plants include Syrdarya (3,000 MW), Tashkent (1,860 MW), and Navoi (1,250 MW). The large coal fired plants include Angren (600

11

MW) and Novo-Angren (2,100 MW). The largest hydroelectric plant is Charvak (620 MW). Large 800 MW gas fired units are under construction at Talimardjan. It has an extensive transmission system with 500 kV (1,700km) and 220 kV lines (5,100km) and has also a 220 kV line connecting it to Afghanistan.8 Generation, Trade, and Consumption. Data relating to generation, trade, sales, consumption and losses are summarized in Table A3.4. Table A3.4: Uzbekistan: Generation, Trade, and Consumption of Electricity.
Indicators Peak Demand Domestic Generation Hydropower Pants Thermal Power Plants Total Domestic Generation Exports to The Kyrgyz Republic Kazakhstan Tajikistan Turkmenistan Outside CA (Afghanistan) Exports total Imports from The Kyrgyz Republic Kazakhstan Tajikistan Turkmenistan Imports total Net Supply to Domestic Market Domestic Consumption System Losses System Losses as a % of Net Supply GWh GWh GWh GWh GWh GWh GWh GWh % 658 46,090 38,311 7,779 17 970 0 558 126 1,654 46,533 37,927 8,606 18 1,926 0 244 68 2,238 48,122 39,465 8,657 18 1,038 0 299 13 1,350 48,422 37,935 10,487 22 523 0 72 14 609 49,274 38,112 11,162 23 1,114 0 293 55 1,302 47,688 38,350 9,338 20 GWh GWh GWh GWh GWh GWh 482 2 0 361 77 0 440 195 0 729 33 0 957 287 0 569 0 0 856 267 0 360 7 63 634 188 0 505 29 16 674 GWh GWh GWh 7,269 38,645 45,914 6,585 38,734 45,319 4,909 41,932 46,841 5,354 42,574 47,928 7,278 42,021 49,299 6,279 40,781 47,060 Units MW 1998 7,603 1999 7,494 2000 7,571 2001 7,674 2002 7925 5-year Average 7653

About 77% of the total electricity generated is from gas fired thermal plants, 7% from fuel oil fired thermal plants, 3.5% from coal fired thermal plants, and 12.5% from hydroelectric plants. Its electricity trade with the Kyrgyz Republic and Tajikistan is a result of the obligations under the annual IGIAs relating to the irrigation flows in Syr Darya River regulated by Toktogul and Kairakum reservoirs in those countries. Unlike in the Kyrgyz Republic, the difference between the summer and winter peak demands in Uzbekistan is insignificant. In the year 2000, for example, the summer peak at 6882 MW was about 91% of the winter peak demand of 7,571 MW. Irrigation pumping loads in spring and summer compensate for the heating loads in fall and winter. Despite the large nominal installed capacity of 11.6 GW, Uzbekistan has difficulties in meeting its peak demand ranging from 6.9 GW to 7.7 GW, because of the poor availability of its generation units (which significantly reduces the effective reserve margin) and the relatively low percentage of the peaking plants in the generation mix. The poor plant availability is attributable to the old age of many large plants (most are 30 years old and many are over 40
8

Presently this line can operate only at 110 kV on account of transformer limitations at the Substation located in Mazar-i-Sharif.

12

years old), the need for extensive rehabilitation, and poor electricity tariffs inadequate to generate internal cash to carry out rehabilitation. Capacity shortages of the order of 1000 MW are being met by rolling power outages or by imports from neighboring countries. Power Market: Like the Kyrgyz Republic and Tajikistan, Uzbekistan is also fully electrified and all areas and households have access to electricity. The total number of consumers as of 2001 was about 4 million. Based on 2002 data, unlike in the other two countries, the share of the residential consumers in total electricity consumption in Uzbekistan is low at 15.3%. Since most households have natural gas supply, residential households do not depend on electricity for cooking and heating. Industrial consumers have a share of 47.5%, followed by agricultural and irrigation pumping loads (30.6%) and others such as government entities, commercial consumers and transport (6.6%). System Loss, Billing and Collection: System loss as a difference of gross domestic available supply and billed sales was about 23% in 2002. Approximately half of this is attributable to the transmission and distribution network losses and the rest attributable to defective metering, unmetered supplies and theft of power. No recent data on collection efficiency is available. Based on partial data of 2000, it is estimated that only about 75% of the bills are collected. Payment in barter and offsets is also a major problem as only 40% of the collection is in cash Sector Structure: Uzbekistan is one of the last former Soviet Union countries to transfer the responsibility for the operational aspects of the electricity system from the government to a legal entity organized on a commercial basis. In 2001, the Uzbekistan Electricity Supply Industry (UESI) was created by abolishing the Ministry of Energy and Electrification and creating a state owned joint stock company UzbekEnergo JSC (See Figure A3.4). UzbekEnergo has three affiliated companies Ugol, in charge of coal mining; UzEnergoSet, for the transmission of energy and one UzEnergoSbyt, as the single buyer and single seller of electricity. In addition, there are subsidiaries for, among others, 7 thermal power plants, 6 hydropower plants, 3 combined heat-and-power plants, and 15 distribution companies. Four of the thermal generation plants (Syrdarya, Fergana, Tashkent, Mubarek) and all the 15 Distribution companies have been registered as independent Joint Stock Companies. UzbekEnergo JSC holds all the shares in them as a holding company. Large industrial consumers receiving supply at 110 kV and above are allowed to buy directly from the generating companies, though at regulated tariffs. A state agency for the technical regulation of the operations of the energy sector, UzGosEnergoNadzor, has also been established. This regulatory agency has authority over electricity, coal and heat energy. It reports to the Cabinet of Ministers, but the economic regulation remains with the Ministry of Finance. Market Operations: UzEnergoSbyt acts as the single buyer for all generated electricity and a single seller to the distribution companies. In effect it is a clearing house accounting for all electricity flows from generators to the distribution companies and large industrial consumers through the national transmission grid. It is also responsible for electricity trade (both imports and exports). Further, the distribution companies remit to the account of UzEnergoSbyt, the difference between their purchase and sale price of electricity. UzEnergoSbyt then allocates the total revenues among the generating companies and transmission company on the basis of power flows. It is a non profit organization and therefore any surplus left with it is remitted to UzbekEnergo. In the context of low rates of collection and extensive use of barter, the system of

13

settlement does not always work logically and available cash is distributed among the participants of the market using ad hoc formulae.
Policy
Cabinet of Ministers determines

JSC Uzbekenergo

Regulatory Uzgosenergonadzor

Affiliated Companies Generation; UzEnergoSbyt (single buyer / seller) Affiliated Companies UzelectroSet (transmission system)

Coal JSC

Design, constructionerection, repair and other enterprises

Affiliated Companies 16Generation, 15 Distribution etc

Final Consumers

Source: ADB Report on Regional Power Transmission Modernization Project

Figure 3.4: Structure of the Uzbekistan Electricity Supply Industry Private Sector Participation: The Government plans to offer up to 49% of the shares in four generation plants and four distribution companies for private investors. However management control by private investor is not envisaged. While there is a possibility for further private sector involvement in generation and distribution, the Governments current plans call for the continued state-ownership of all hydropower plants, transmission network, communications system, UzElectroSet as well as UzEnergoSbyt. Electricity Pricing: The weighted average tariff in 2001 was 0.5 US/kWh at curb market exchange rates. However, since then, the government has been implementing an aggressive tariff adjustment policy for all energy commodities, as a part of which electricity prices have been increased roughly once every two months. As a result, as of August 2004 the posted average tariff was 2.15 US cents /kWh compared to an estimated cost recovery tariff level of 3.5 US cents. The posted tariff structure also appeared to have reduced cross subsidies to some extent. The Ministry of Finance reviews and approves unbundled tariff proposals for generation, transmission and distribution. The retail tariffs for end consumers are uniform all over the country. Each generating unit /company has a separate regulated tariff. Transmission service has a regulated transmission tariff. The retail tariff is the sum of generation and transmission tariffs, and the purchase price of each distribution company from UzEnergoSbyt is derived on the basis of consumer mix, density of load and a desired level of profit.

14

Appendix 4.1 Central Asia Regional Electricity Export Potential Study Electricity Demand Forecasts I. Background and Methodology Trending, end-use analysis and macroeconomic modeling are the common approaches to electricity demand forecasting. Given the economic collapse following the dissolution of the Soviet Union and the continued decline in GDP and electricity consumption in the former Soviet Union countries, trending would be inappropriate in CARs. End-use analysis is difficult on account of paucity of data and is distorted by the excessively inefficient use of electricity. Demand projections made during the Soviet rule and even in years immediately thereafter, were more in the nature of targets to be achieved than in the nature of forecasts. Given the central planning background and practices, price as a determinant of demand was largely ignored and concepts of price elasticity and income elasticity were not much in use. Kazakhstan Electricity Association a national industry associationhas recently commenced the practice of making long-term forecasts. There have also been recent forecasts made by consulting firms financed by International Financial Institutions such as ADB and UNDP, and some bilateral aid agencies in the context of their operations, which use macroeconomic modeling and also incorporate considerations of income elasticity and price elasticity. However they do not appear to have considered seasonal variations in demand adequately. Given the high degree of such seasonal variations, it is necessary to incorporate them in the demand projections to determine export surpluses. Also other key assumptions relating to GDP growth rates, electricity prices and possible efficiency improvements need to be updated. The forecast made in this report on the basis of macroeconomic modeling incorporates these elements. The model is based on a simple iso-elastic demand function of the type often used in such aggregate demand analysis. II. Key Determinants of Demand Growth and Assumptions Income and price elasticity of electricity demand are the key determinants to demand growth in such aggregated demand analysis. An attempt was made to derive the elasticities from the historical data of the four countries, but this did not prove possible the statistical series are too short, have too many gaps and reflect a period that is not typical in terms of economic activity. Hence, the above elasticities of demand were adopted after a review of a number of studies in the region and elsewhere. o Income Elasticity or GDP elasticity of electricity demand: The range of available literature indicates that for most developing countries the GDP elasticity of electricity demand ranges between 1.2 and 1.4 (i.e., for every percentage increase in GDP, the electricity demand increases by 1.2 to 1.4 percent). However, most former Soviet Union states (and more so in the case of CARs) do not fit into this category as their electricity consumption is already very high relative to their GDP level. Therefore, it is expected that the relationship between GDP and electricity demand in CARs would be more akin to those prevailing in developed countries, which have exhibited a GDP elasticity of demand of 0.8. This value had been used in relation to CARs in this study.

15

o Price Elasticity: The estimates for price elasticity of demand for electricity in lower income countries generally are in the range of 0.1 to 0.2, implying that for every percentage increase in electricity price, the demand decreases by 0.1 to 0.2 percent. The price elasticity levels for electricity are generally lower than those for other energy forms (e.g., petroleum products), reflecting: consumers inflexibility to switch from electricity to other forms of energy. This is particularly true of all types of consumers in the short term, and for industries, such as metallurgical and chemical, even in the long term; non-availability of other energy forms (e.g., gas), as is the case in the Kyrgyz Republic and Tajikistan; and the share of industrial consumption in overall consumption - higher the industrial consumption share as is the case with Kazakhstan and Uzbekistan, lower the price elasticity of demand. It is also important to note that there is an inverse relationship between price elasticity of demand and a countrys income (GDP) level. At higher income levels, electricity demand becomes less and less elastic to electricity price changes as GDP increases. This is the case with Kazakhstan, where its higher level of GDP would tend to lower the price elasticity values. Considering all of the above, a price elasticity values of 0.1 has been assumed in Kazakhstan and Uzbekistan and 0.3 for the Kyrgyz Republic and Tajikistan (where the needed price increases to reach financial viability are 80% and 300% respectively) are used. Other Assumptions A. Table A4.1 shows the periods where the GDP data are available and where the values were estimated. Also shown are the GDP growth rates used in the electricity demand projections. GDP growth rates from 2007 to 2025 were estimated by the Team based on previous experience in the four countries and assessments of acceptable growth rates for these 19 years. Table A4.1: Gross domestic product, 4 CARs, data source and growth rates
GDP growth rates Country Data Source 2004-2006: SIMA, IMF 20072025: Estimate 2004-2006: SIMA, IMF 20072025: Estimate 2004-2006: SIMA, IMF 20072025: Estimate 2004-2025: Estimate 2004 0.072 0.041 0.153 0.04 2005 0.07 0.045 0.066 0.04 2006 0.075 0.051 0.067 0.04 2007-2025 0.04 0.03 0.03 0.025

KAZ KYR TAJ UZB

B. The electricity tariffs were determined in two stages. The first was to reach the average incremental cost by a certain date and the second was to maintain that tariff in US dollar terms thereafter. In the first stage, the tariffs and dates were taken as in Table A4.2. The tariffs for each year, from 2003 to the date given in Table A4.2, are determined by interpolating linearly between the years.

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Table A4.2: Long Run Average Incremental Cost

Country Kazakhstan The Kyrgyz Republic Tajikistan Uzbekistan Long Run Average Incremental Tariff (US/kWh) 2.9 2.45 2.1 3.5 Average Tariff in 2003 (US/kWh) 2.64 1.42 0.47 1.29 Date to Reach Long Run Tariff 2006 2009 2009 2006

C. It was also recognized that the effective tariffs paid by the consumers were actually lower than the posted tariffs, due to the poor metering, billing and collection efficiencies. Therefore the applied prices to estimate demand were adjusted by the collection rate to arrive at the effective prices. From the posted average tariff, an effective tariff was determined based on the amount actually collected. More precisely, the effective or adjusted electricity tariff for a given country and year was taken as: Adjusted electricity tariff = Electricity tariff x Collection rate The following assumptions are used to derive the rates for the remaining years:9All countries except the Kyrgyz Republic would achieve 98% collection rate by 2010; and the Kyrgyz Republic would reach this level by 2011; and 2011 thru 2025: 98% for all countries. Table A4.3 presents each countrys yearly collection rates from 2003 thru 2025. Table A4.3: Collection rates per year, 4 CARs, 2003 to 2025
Country Kazakhstan The Kyrgyz Republic Tajikistan Uzbekistan 2003 50% 40% 70% 50% 2004 57% 48% 70% 57% 2005 64% 56% 74% 64% 2006 71% 64% 78% 71% 2007 77% 71% 82% 77% 2008 84% 79% 86% 84% 2009 91% 87% 90% 91% 2010 98% 95% 98% 98% 2011-2025 98% 98% 98% 98%

D. The monthly electricity demand of the 4 countries for five years (2005, 2010, 2015, 2020 and 2025) were estimated using the average monthly rates of power consumption by the Central Asian Power Systems and Kazakhstan in 1999-2003 (Tables A4.4 and A4.5)10, which were obtained from the Unified Load Dispatch Center in Tashkent. Table A4.4: Monthly Power Consumption by Central Asian Power Systems and Kazakhstan, Average in 1999-2003
Power System Kazakhstan The Kyrgyz Republic Tajikistan Uzbekistan Jan 6,320 1,636 1,417 4,462 Feb 5,877 1,445 1,256 3,995 Mar 5,404 1,284 1,191 4,250 Apr 3,940 854 1,171 3,791 May 3,602 623 1,389 3,891 Jun 3,639 528 1,363 3,789 Jul 3,747 542 1,434 4,084 Aug 3,561 535 1,445 4,055 Sep 3,786 528 1,287 3,546 Oct 4,923 809 1,185 3,762 Nov 5,285 1,178 1,287 4,048 Dec 6,061 1,610 1,424 4,518 Year 56,144 11,572 15,850 48,192

Note that the collection rate refers to cash collections only. The assumption of the monthly demand structure remaining constant over 25 years should be treated with caution, as it is unlikely to remain constant for such as long timeframe.
10

17

Table A4.5: CAPS Monthly Consumption, Average in 1999-2003 (%)

Power System Kazakhstan The Kyrgyz Republic Tajikistan Uzbekistan Jan 11 14 9 9 Feb 10 12 8 8 Mar 10 11 8 9 Apr 7 7 7 8 May 6 5 9 8 Jun 6 5 9 8 Jul 7 5 9 8 Aug 6 5 9 8 Sep 7 5 8 7 Oct 9 7 7 8 Nov 9 10 8 8 Dec 11 14 9 9 Year 100 100 100 100

III.

Resulting Estimates of Demand

The resulting forecast electricity demands are given in annual terms (see Table A4.6) for each country separately and for the region as a whole, as well as in monthly values (see Table A4.7 through A4.9). The tables show: a. A decrease in demand to 2010 everywhere, except Kazakhstan. This is due to the tariff increases that take effect while the economies demonstrate modest growth. During the first five-year period, the electricity demand in Kazakhstan increases by 2.91 percent p.a., while the demand in the Kyrgyz, Tajikistan and Uzbekistan decreases by 3.86 percent, 5.18 percent and 0.63 percent p.a., respectively; b. From 2005 to 2025, the annual growth rate of demand compared to 2003 at the aggregate level is about 1.90 percent, with Kazakhstan showing the highest growth (3.09%), and Tajikistan showing a decline compared to 2003 (-0.17%); Table A4.6: Gross Electricity Demand Projections, in GWh, 2005-2025
Country Kazakhstan Kyrgyz Republic Tajikistan Uzbekistan All Four Countries Actual 2003 58,944 12,145 16,348 48,691 136,128 2010 72,056 9,222 11,267 46,597 139,142 Demand forecast (GWh) 2015 84,034 10,033 12,410 51,255 157,731 2020 98,367 11,296 13,972 56,589 180,225 2025 115,146 12,719 15,731 62,479 206,075 2003-2010 2.91% -3.86% -5.18% -0.63% 0.31% Annual Growth rates 2003-2015 3.00% -1.58% -2.27% 0.43% 1.24% 2003-2020 3.06% -0.43% -0.92% 0.89% 1.66% 2003-2025 3.09% 0.21% -0.17% 1.14% 1.90%

c. The monthly demands for all countries except Uzbekistan show winter peaking, with Kazakhstan showing the greatest winter peak while the Kyrgyz Republic and Tajikistan showing the least peaking demand. In Uzbekistan there is virtually no seasonal variation in demand. (Tables A4.7 through A4.9)

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Table A4.7: Seasonal electricity demand (gross) in Kazakhstan and the Kyrgyz Republic, in GWh, 2005-2025
Kazakhstan Monthly Cons. (%)* Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total 11% 10% 10% 7% 6% 6% 7% 6% 7% 9% 9% 11% 100% 2005 7,033 6,540 6,013 4,384 4,008 4,049 4,169 3,963 4,213 5,479 5,880 6,744 62,475 2010 8,111 7,543 6,935 5,056 4,623 4,670 4,809 4,571 4,859 6,319 6,782 7,778 72,056 2015 9,460 8,797 8,088 5,896 5,392 5,446 5,608 5,331 5,666 7,369 7,910 9,071 84,034 2020 11,073 10,297 9,467 6,902 6,311 6,375 6,565 6,240 6,633 8,626 9,259 10,619 98,367 2025 12,962 12,053 11,082 8,080 7,388 7,463 7,684 7,304 7,764 10,098 10,838 12,430 115,146 Monthly Cons. (%)* 14% 13% 11% 6% 5% 5% 5% 5% 4% 8% 11% 14% 100% 2005 1,502 1,450 1,236 675 538 511 513 501 486 918 1,217 1,521 11,069 The Kyrgyz Republic 2010 1,251 1,208 1,030 563 448 426 428 417 405 765 1,014 1,268 9,222 2015 1,361 1,314 1,121 612 488 463 465 454 441 832 1,104 1,379 10,033 2020 1,533 1,479 1,262 689 549 521 524 511 496 937 1,242 1,553 11,296 2025 1,726 1,665 1,421 776 618 587 590 575 558 1,055 1,399 1,748 12,719

Table A4.8: Seasonal electricity demand (gross) in Tajikistan and Uzbekistan, in GWh, 2005-2025
Tajikistan Monthly Cons. (%)* Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total 10% 9% 7% 7% 9% 9% 9% 9% 8% 7% 8% 9% 100% 2005 1,351 1,253 1,000 987 1,283 1,247 1,267 1,274 1,071 1,048 1,135 1,300 14,216 2010 1,071 993 792 783 1,017 988 1,004 1,009 849 830 900 1,030 11,267 2015 1,180 1,094 873 862 1,120 1,088 1,106 1,112 935 914 991 1,135 12,410 2020 1,328 1,232 982 970 1,261 1,226 1,245 1,252 1,053 1,030 1,115 1,278 13,972 2025 1,495 1,387 1,106 1,093 1,420 1,380 1,402 1,409 1,185 1,159 1,256 1,438 15,731 Monthly Cons. (%)* 9% 9% 9% 8% 8% 8% 8% 8% 7% 8% 8% 9% 100% 2005 4,275 3,916 4,132 3,585 3,773 3,621 3,814 3,742 3,326 3,626 3,849 4,135 45,794 Uzbekistan 2010 4,350 3,985 4,204 3,648 3,839 3,685 3,881 3,808 3,384 3,690 3,916 4,208 46,597 2015 4,784 4,383 4,625 4,013 4,223 4,053 4,269 4,188 3,722 4,059 4,308 4,628 51,255 2020 5,282 4,839 5,106 4,431 4,662 4,475 4,713 4,624 4,110 4,481 4,756 5,110 56,589 2025 5,832 5,343 5,638 4,892 5,148 4,941 5,203 5,106 4,537 4,948 5,251 5,642 62,479

19

Table A4.9: Seasonal electricity demand (gross) in Central Asian Republics, in GWh, 20052025
2005 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Total 14,161 13,158 12,381 9,632 9,603 9,428 9,764 9,480 9,095 11,071 12,082 13,700 133,554 2010 14,783 13,728 12,962 10,050 9,928 9,768 10,121 9,805 9,496 11,604 12,612 14,284 139,142 2015 16,785 15,587 14,706 11,384 11,222 11,051 11,448 11,085 10,764 13,175 14,312 16,213 157,731 2020 19,216 17,847 16,818 12,993 12,784 12,597 13,047 12,627 12,291 15,074 16,373 18,559 180,225 2025 22,015 20,448 19,247 14,840 14,574 14,370 14,880 14,395 14,045 17,260 18,744 21,258 206,075

IV. Results by Country Kazakhstan Demand increases from about 60,100 GWh in 2005 to 104,255 GWh in 2025, representing an annual growth rate over the period of 3.09% (compared to 2003). This is the highest rate of all the four countries and is the result of: (a) the highest sustained growth in GDP over the period, (b) the fact that there are no large tariff increases expected with respect to the 2004 levels, to cause a reduction in demand. The forecasts can be compared with those derived from other sources (Table A4.10). Table A4.10: Alternative Forecasts for Kazakhstan (Terawatt hours)
Source This Study ADB Kazakh Energy Association 2005 62.5 62.6-66.1 62.5-67.0 2010 72.1 66.0-75.4 75.0-82.0 2015 84.0 72.0-86.7 86.0-95.0 2020 98.4 77.6-98.1 n.a.

This study has forecasts that are somewhat lower than KEAs forecasts for 2005-2015; and are towards the higher range of ADB forecast (Study for the Regional Power Transmission Modernization Project) figures. The differences with the national forecasts cannot be analyzed as the basis for them was not available, but the reasons for the differences with the ADB forecasts are as follows:

There are no further price increases beyond 2.9 c/kWh after 2006 assumed in this study, whereas in the ADB study tariffs go up to 6 c/kWh. The ADB study assumed GDP growth falls to 3% p.a. after 2015, in their basic scenario (i.e. the mean of the range given) while this study assumes continuing growth at 4% p.a. to 2025.

20

The Kyrgyz Republic Demand decreases from around 12,145 GWh in 2003 to 10,000 GWh in 2015, after which it grows slowly, reaching 11,300 GWh in 2020 and 12,700 in 2025. The reasons for the negative growth to 2010 are: (a) substantial increases in tariffs and collections, which cause the effective tariff rate to rise by 103 percent between 2005 and 2010. Table A4.11 shows a comparison of this studys forecasts with those from other sources. Table A4.11: Alternative Forecasts for the Kyrgyz Republic (Terawatt hours)
Source This Study ADB 2005 11.1 12.3-13.2 2010 9.2 13.3-15.6 2015 10.0 14.6-18.2 2020 11.3 15.7-20.5

The forecasts in this study are lower than the mean of the ADB forecasts by about 13 percent for 2005, 36 percent for 2010, 39 percent for 2015 and 38 percent for 2020. The reasons for the differences with the ADB forecasts are due to higher income elasticity in the ADB Study (1.1 versus 0.8 in this study) and higher GDP growth rates in the ADB Study (4.0% through 2015 compared to 3% in this study); and higher price elasticity in this Study (-0.3), which have a substantial impact on generation 2010. Tajikistan Demand would decline from 14,348 GWh in 2003 and even in 2025 will be lower than 2003 level indicating a declining level of demand of 0.17% through the period. The main reason for the decline of demand is the substantial increase in tariffs, which, combined with a large increase in collections, causes the effective tariff rate to rise by almost 4 times more than the 2003 levels. Table A4.12: Alternative Forecasts for Tajikistan (Terawatt hours)
Source This Study ADB Study 2005 14.2 15.7-17.0 2010 11.3 16.8-19.8 2015 12.4 18.3-22.8 2020 14.0 19.7-25.7

Forecasts from this study are compared with those estimated in other sources (see Table A4.12). The forecasts calculated here are lower than the mean of the ADB forecasts in 2005 by 13 percent, thru 2010 by 38 percent, thru 2015 by 40 percent, thru 2020 by 38 percent. The reason for the lower growth rate of demand in this study is the lower assumed growth in GDP after 2006 (3% versus 4% in the ADB study); and higher price elasticity (-0.3). Uzbekistan Demand increases from about 44,700 GWh in 2003 to about 62,500 GWh in 2025, representing an annual growth rate over the period of about 1.14 percent. In the first 5 years, the annual growth is a negative 0.63 percent due to increase in collection rate and therefore effective tariff between 2005 and 2010.

21

Table A4.13: Alternative Forecasts for Uzbekistan (Terawatt hours)

Source This Study ADB Study JBIC's Forecast 2005 45.8 47.8-51.7 50.7 2010 46.6 52.8-62.6 55.9 2015 51.3 59.6-75.0 61.8 2020 56.6 65.2-86.1

Table A4.13 presents this studys demand forecasts as well as those from other sources. This study has forecasts that are considerably lower than the mean ADB estimates11: 8 percent lower in 2005, 14 percent lower in 2010, 24 percent lower in 2015 and 24 percent lower in 2020. The very substantial differences can be attributed to the higher income elasticity in the ADB study (1.1 versus 0.8 in this Study) and higher GDP growth rates in ADB Study (4% p.a. up to 2015 and 3 % thereafter compared to 2.5% in this study for 2007-2025).
TWh 250.0 200.0 150.0 100.0 50.0 0.0 2005 2010 2015 2020

World Bank estimates

ADB estimates

Figure A4.1: Comparison of ADB estimates and WB estimates, Gross Electricity Demand of CARs, 2005-2020 Overall Forecasts Comparison. Overall, therefore, compared with the ADB estimates, this study predicts a lower growth in demand for the region from 2005 to 2020. This can be seen in Figure A4.1. V. Sensitivity Analysis In view of the fact that the key determinants of demand, price and income elasticity levels chosen were based on experience elsewhere and not in the CARs, the demand projections were subjected to extensive sensitivity analyses by varying the key determinants of demand price and income elasticity in both directions. In addition, the projections were tested for delay or acceleration in reaching cost recovery tariffs. The primary objective of the sensitivity analyses is to ensure that unnecessary investments in new generation would need to be avoided in the CARs, and secondarily to understand the impact of the changes in demand on the exportable surpluses. The following cases were examined and with each case, the demand was matched with supplies from the existing and future supply sources.
11

as well as the Japan Bank for International Cooperation estimates, and the mean figures of ADB forecasts and those of JBIC are close to each other.

22

(i)

(ii)

(iii)

(iv)

(v)

(vi)

High case 1: The proposed tariff adjustments were delayed to 2015 (instead of 2010) for the Kyrgyz Republic and Tajikistan, where the tariff adjustments needed are the highest. The impacts are: the 2003-2025 compounded annual average growth rate (CAGR) of demand is higher by 0.04%; the 2025 demand is higher by about 0.8%; and the exportable surplus is lower by 0.7%. The winter deficits are slightly larger in the 20052010 period, confirming the need for new thermal generation sources. High case 2: Price elasticity values were reduced in the Kyrgyz Republic and Tajikistan, where the poverty levels as well as tariff adjustments needed are the highest. The impacts are: the 2003-2025 CAGR of demand is higher by 8% (2.05% versus 1.9%); the 2025 demand is higher by about 3.25%; and the 2025 exportable surplus is lower by 29%. The winter deficits continue in the 2005-2010 period. High Case 3: Income elasticity values were increased in all countries. The impacts are: the 2003-2025 CAGR of demand is higher by 20% (2.26% versus 1.9%); the 2025 demand is higher by about 8.23%; and the 2025 exportable surplus is lower by 73%. However, the peak surpluses during the 2010 through 2020 are in the 21.2 TWh to 36.3 TWh range and seasonal surpluses will continue. Low Case 1: The proposed tariff adjustments were brought forward to 2006 for the Kyrgyz Republic and Tajikistan, where the tariff adjustments needed are the highest. The impacts are: the 2003-2025 compounded annual average growth rate (CAGR) of demand is lower by 2.5% (1.85% versus 1.0); the 2025 demand is lower by about 1.1%; and the exportable surplus is higher by 10%. The winter deficits continue to persist despite reduced demand in the Kyrgyz Republic. Low Case 2: Income elasticity values were reduced in all countries. The impacts are: the 2003-2025 CAGR of demand is lower by 19% (1.54% versus 1.9%); the 2025 demand is lower by about 7%; and the 2025 exportable surplus is higher by 32%. The winter deficits continue to persist in the Kyrgyz Republic and Kazakhstan in the 2005-2010 period, confirming the need for new thermal generation. Low Case 3: Price elasticity values were increased in all countries. The impacts are: the 2003-2025 CAGR of demand is lower by 34%% (1.25% versus 1.9%); the 2025 demand is lower by about 13%; and the 2025 exportable surplus is higher by 120%. However, despite the significantly lowered demand, winter deficits continue to persist in the Kyrgyz Republic and Kazakhstan in the 2005-2010 period, confirming the need for new thermal generation. Table 4.14: Results of Sensitivity Analyses on Demand Forecast
Percentage Change in End-of-Period Demand for every Country Kazakhstan The Kyrgyz Republic Tajikistan Uzbekistan All four Countries 1% Change in Income Elasticity 0.74 0.53 0.64 0.45 0.63 1% Change in Price Elasticity 0.08 0.52 0.74 0.22 0.20

The result of the sensitivity analyses, summarized in Table A4.14 shows that demand growth in the region overall is more sensitive to income elasticity values compared to price elasticity. Over

23

the 2005 2025 period, every 1% decrease in income elasticity projected demand would decrease by 0.63% compared to 0.2% change in demand for every 1% change in price elasticity. However, projected demand in individual countries behaves differently. Projected demand in Kazakhstan is more sensitive to changes in income elasticity and least sensitive to changes in price elasticity, confirming the international experience that as incomes grow, electricity demand becomes less and less elastic to price changes. Tajikistan, the poorest of the CARs, is more sensitive to price changes. The changes in the timing of projected tariff increases had only a minor impact on projected demand. The analyses also confirmed that even if demand were to be lower than projected, the new thermal capacity, especially Bishkek II, will still be needed. What would change is the timing of the requirement for the various increments of new generation capacity.

24

Demand Forecasts: Sensitivity Analysis Key Parameters: Base Case

Cost Recovery Tariff Country Kazakhstan The Kyrgyz Republic Tajikistan Uzbekistan Price Elasticity -0.1 -0.3 -0.3 -0.1 Income Elasticity Level USc/kWh 0.8 0.8 0.8 0.8 2.90 2.45 2.10 3.50 Year Tariffs reach Cost Recovery Level 2006 2010 2010 2006 GDP Growth in 2007-2025 p.a. 1.040 1.030 1.030 1.025

Table A4.15: Gross Electricity Demand Projections, Base Case

Actual Country 2003 Kazakhstan The Kyrgyz Republic Tajikistan Uzbekistan All Four Countries 58,944 12,145 16,348 48,691 136,128 2005 62,475 11,069 14,216 45,794 133,554 2010 72,056 9,222 11,267 46,597 139,142 2015 84,034 10,033 12,410 51,255 157,731 2020 98,367 11,296 13,972 56,589 180,225 2025 115,146 12,719 15,731 62,479 206,075 2003-2010 2.91% -3.86% -5.18% -0.63% 0.31% 2003-2015 3.00% -1.58% -2.27% 0.43% 1.24% 2003-2020 3.06% -0.43% -0.92% 0.89% 1.66% 2003-2025 3.09% 0.21% -0.17% 1.14% 1.90% Demand forecast (GWh) Annual Growth rates

Table A4.16: Kazakhstan. Electricity Demand Supply Balance in 2005-2025

Year Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) 2005 27984 24786 3198 35185 37689 -2504 63169 62475 694 2010 32211 28588 3623 40500 43468 -2969 72710 72056 654 2015 40215 33340 6876 50564 50694 -130 90780 84034 6746 2020 42771 39026 3745 53778 59341 -5563 96550 98367 -1818 2025 45449 45683 -234 57145 69463 -12318 102594 115146 -12552

Table A4.17: The Kyrgyz Republic. Electricity Demand Supply Balance in 2005-2025
Summer Year Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) 2005 7961 3224 4737 5754 7845 -2092 13714 11069 2645 2010 8969 2686 6283 8120 6536 1584 17089 9222 7866 2015 9786 2922 6863 8628 7111 1517 18414 10033 8381 2020 9696 3290 6406 13767 8006 5761 23463 11296 12167 2025 9696 3705 5991 13767 9014 4753 23463 12719 10744

Summer

Winter

Winter

Annual

Annual

Table A4.18: Tajikistan. Electricity Demand Supply Balance in 2005-2025

Year Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) 2005 9158 7648 1511 6665 6569 96 15823 14216 1607 2010 10821 6233 4587 7875 5033 2841 18695 11267 7429 2015 13581 6814 6767 9883 5596 4287 23464 12410 11055 2020 20176 7597 12579 14683 6375 8308 34859 13972 20887 2025 20176 8479 11697 14683 7252 7431 34859 15731 19128

Table A4.19: Uzbekistan. Electricity Demand Supply Balance in 2005-2025

Year Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) 2005 23482 21862 1620 26794 23932 2862 50277 45794 4483 2010 26149 22245 3904 29837 24352 5485 55986 46597 9389 2015 32104 24469 7635 36632 26786 9846 68736 51255 17481 2020 32104 27016 5088 36632 29574 7058 68736 56589 12147 2025 31918 29827 2091 36419 32652 3767 68337 62479 5858

Summer

Summer

Winter

Winter

Annual

Annual

Table A4.20: All Four CA Countries. Electricity Demand Supply Balances in 2005-2025
Summer Year Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) 2005 68585 57520 11066 74398 76035 -1637 142984 133554 9430 2010 78149 59753 18396 86331 79390 6942 164480 139142 25338 2015 95686 67544 28142 105708 90187 15521 201394 157731 43663 2020 104748 76929 27819 118860 103296 15564 223608 180225 43383 2025 107239 87694 19545 122014 118381 3633 229253 206075 23178

Winter

Annual

25

Demand Forecast: Sensitivity Analysis Key Parameters: High Case 1

Cost Recovery Tariff Country Kazakhstan The Kyrgyz Republic Tajikistan Uzbekistan Price Elasticity -0.1 -0.3 -0.3 -0.1 Income Elasticity Level USc/kWh 0.8 0.8 0.8 0.8 2.90 2.45 2.10 3.50 Year Tariffs reach Cost Recovery Level 2006 2015 2015 2006 GDP Growth in 2007-2025 p.a. 1.040 1.030 1.030 1.025

Table A4.21: Gross Electricity Demand Projections, High Case 1

Actual Country 2003 Kazakhstan The Kyrgyz Republic Tajikistan Uzbekistan All Four Countries 58,944 12,145 16,348 48,691 136,128 2005 62,475 11,409 17,532 45,794 137,209 2010 72,056 10,067 15,238 46,597 143,958 2015 84,034 10,305 13,771 51,255 159,364 2020 98,367 11,528 15,199 56,589 181,684 2025 115,146 12,980 17,113 62,479 207,718 Demand forecast (GWh) 20032010 2.91% -2.65% -1.00% -0.63% 0.80% Annual Growth rates 20032015 3.00% -1.36% -1.42% 0.43% 1.32% 20032020 3.06% -0.31% -0.43% 0.89% 1.71% 20032025 3.09% 0.30% 0.21% 1.14% 1.94%

Table A4.22: Kazakhstan. Electricity Demand Supply Balance in 2005-2025

Year Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) 2005 27984 24786 3198 35185 37689 -2504 63169 62475 694 2010 32211 28588 3623 40500 43468 -2969 72710 72056 654 2015 40215 33340 6876 50564 50694 -130 90780 84034 6746 2020 42771 39026 3745 53778 59341 -5563 96550 98367 -1818 2025 45449 45683 -234 57145 69463 -12318 102594 115146 -12552

Table A4.23: The Kyrgyz Republic. Electricity Demand Supply Balance in 2005-2025
Summer Year Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) 2005 7961 3323 4638 5754 8086 -2332 13714 11409 2305 2010 8969 2932 6037 8120 7135 985 17089 10067 7022 2015 9786 3001 6784 8628 7303 1325 18414 10305 8109 2020 9696 3358 6338 13767 8171 5596 23463 11528 11935 2025 9696 3781 5915 13767 9199 4568 23463 12980 10483

Summer

Winter

Winter

Annual

Annual

Table A4.24: Tajikistan. Electricity Demand Supply Balance in 2005-2025

Year Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) 2005 9158 9431 -273 6665 8101 -1436 15823 17532 -1709 2010 10821 8431 2390 7875 6807 1067 18695 15238 3457 2015 13581 7561 6020 9883 6210 3674 23464 13771 9694 2020 20176 8264 11912 14683 6935 7748 34859 15199 19660 2025 20176 9224 10952 14683 7889 6794 34859 17113 17747

Table A4.25: Uzbekistan. Electricity Demand Supply Balance in 2005-2025

Year Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) 2005 23482 21862 1620 26794 23932 2862 50277 45794 4483 2010 26149 22245 3904 29837 24352 5485 55986 46597 9389 2015 32104 24469 7635 36632 26786 9846 68736 51255 17481 2020 32104 27016 5088 36632 29574 7058 68736 56589 12147 2025 31918 29827 2091 36419 32652 3767 68337 62479 5858

Summer

Summer

Winter

Winter

Annual

Annual

Table A4.26: All Four CA Countries. Electricity Demand Supply Balances in 2005-2025
Summer Year Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) 2005 68585 59402 9183 74398 77807 -3409 142983 137209 5774 2010 78149 62196 15953 86331 81762 4569 164480 143958 20522 2015 95686 68371 27315 105708 90993 14715 201394 159364 42030 2020 104748 77664 27084 118860 104020 14840 223608 181684 41924 2025 107239 88515 18725 122014 119203 2811 229253 207718 21536

Winter

Annual

26

Demand Forecast: Sensitivity Analysis Key Parameters: High Case 2

Cost Recovery Tariff Country Kazakhstan The Kyrgyz Republic Tajikistan Uzbekistan Price Elasticity -0.1 -0.2 -0.2 -0.1 Income Elasticity Level USc/kWh 0.8 0.8 0.8 0.8 2.90 2.45 2.10 3.50 Year Tariffs reach Cost Recovery Level 2006 2010 2010 2006 GDP Growth in 2007-2025 p.a. 1.040 1.030 1.030 1.025

Table A4.27: Gross Electricity Demand Projections, High Case 2

Actual Country 2003 Kazakhstan The Kyrgyz Republic Tajikistan Uzbekistan All Four Countries 58,944 12,145 16,348 48,691 136,128 2005 62,475 11,625 15,699 45,794 135,593 2010 72,056 10,815 14,254 46,597 143,722 2015 84,034 11,904 15,818 51,255 163,010 2020 98,367 13,403 17,809 56,589 186,169 2025 115,146 15,090 20,051 62,479 212,767 Demand forecast (GWh) 20032010 2.91% -1.64% -1.94% -0.63% 0.78% Annual Growth rates 20032015 3.00% -0.17% -0.27% 0.43% 1.51% 20032020 3.06% 0.58% 0.50% 0.89% 1.86% 20032025 3.09% 0.99% 0.93% 1.14% 2.05%

Table A4.28: Kazakhstan. Electricity Demand Supply Balance in 2005-2025

Year Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) 2005 27984 24786 3198 35185 37689 -2504 63169 62475 694 2010 32211 28588 3623 40500 43468 -2969 72710 72056 654 2015 40215 33340 6876 50564 50694 -130 90780 84034 6746 2020 42771 39026 3745 53778 59341 -5563 96550 98367 -1818 2025 45449 45683 -234 57145 69463 -12318 102594 115146 -12552

Table A4.29: The Kyrgyz Republic. Electricity Demand Supply Balance in 2005-2025
Summer Year Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) 2005 7961 3386 4575 5754 8239 -2485 13714 11625 2090 2010 8969 3150 5819 8120 7665 455 17089 10815 6273 2015 9786 3467 6319 8628 8437 191 18414 11904 6510 2020 9696 3904 5792 13767 9499 4268 23463 13403 10060 2025 9696 4396 5300 13767 10695 3072 23463 15090 8373

Summer

Winter

Winter

Annual

Annual

Table A4.30: Tajikistan. Electricity Demand Supply Balance in 2005-2025

Year Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) 2005 9158 8446 713 6665 7254 -589 15823 15699 124 2010 10821 7886 2934 7875 6368 1507 18695 14254 4441 2015 13581 8685 4896 9883 7133 2751 23464 15818 7647 2020 20176 9683 10493 14683 8126 6557 34859 17809 17050 2025 20176 10808 9368 14683 9244 5439 34859 20051 14808

Table A4.31: Uzbekistan. Electricity Demand Supply Balance in 2005-2025

Year Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) 2005 23482 21862 1620 26794 23932 2862 50277 45794 4483 2010 26149 22245 3904 29837 24352 5485 55986 46597 9389 2015 32104 24469 7635 36632 26786 9846 68736 51255 17481 2020 32104 27016 5088 36632 29574 7058 68736 56589 12147 2025 31918 29827 2091 36419 32652 3767 68337 62479 5858

Summer

Summer

Winter

Winter

Annual

Annual

Table A4.32: All Four CA Countries. Electricity Demand Supply Balances in 2005-2025
Summer Year Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) 2005 68585 58479 10106 74398 77113 -2716 142983 135593 7390 2010 78149 61869 16279 86331 81853 4478 164480 143722 20758 2015 95686 69960 25726 105708 93050 12658 201394 163010 38384 2020 104748 79629 25119 118860 106540 12320 223608 186169 37439 2025 107239 90714 16526 122014 122053 -40 229253 212767 16486

Winter

Annual

27

Demand Forecast: Sensitivity Analysis Key Parameters: High Case 3

Cost Recovery Tariff Country Kazakhstan The Kyrgyz Republic Tajikistan Uzbekistan Price Elasticity -0.1 -0.3 -0.3 -0.1 Income Elasticity Level USc/kWh 0.9 0.9 0.9 0.9 2.90 2.45 2.10 3.50 Year Tariffs reach Cost Recovery Level 2006 2010 2010 2006 GDP Growth in 2007-2025 p.a. 1.040 1.030 1.030 1.025

Table A4.33: Gross Electricity Demand Projections, High Case 3

Country Actual 2003 Kazakhstan The Kyrgyz Republic Tajikistan Uzbekistan All Four Countries 58,944 12,145 16,348 48,691 136,128 2005 63,113 11,137 14,453 46,059 134,762 Demand forecast (GWh) 2010 74,549 9,441 11,684 47,547 143,220 2015 88,639 10,422 13,059 52,944 165,064 2020 105,785 11,908 14,920 59,174 191,787 2025 126,248 13,604 17,046 66,138 223,035 20032010 3.41% -3.53% -4.69% -0.34% 0.73% Annual Growth rates 20032015 3.46% -1.27% -1.85% 0.70% 1.62% 20032020 3.50% -0.12% -0.54% 1.15% 2.04% 20032025 3.52% 0.52% 0.19% 1.40% 2.27%

Table A4.34: Kazakhstan. Electricity Demand Supply Balance in 2005-2025

Year Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) 2005 27984 25039 2945 35185 38074 -2888 63169 63113 57 2010 32211 29577 2634 40500 44972 -4472 72710 74549 -1839 2015 40215 35167 5049 50564 53472 -2908 90780 88639 2140 2020 42771 41969 802 53778 63816 -10038 96550 105785 -9235 2025 45449 50087 -4638 57145 76160 -19015 102594 126248 -23653

Table A4.35: The Kyrgyz Republic. Electricity Demand Supply Balance in 2005-2025
Summer Year Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) 2005 7961 3244 4717 5754 7893 -2139 13714 11137 2577 2010 8969 2750 6219 8120 6691 1429 17089 9441 7648 2015 9786 3036 6750 8628 7387 1241 18414 10422 7991 2020 9696 3468 6228 13767 8439 5327 23463 11908 11555 2025 9696 3963 5733 13767 9642 4125 23463 13604 9859

Summer

Winter

Winter

Annual

Annual

Table A4.36: Tajikistan. Electricity Demand Supply Balance in 2005-2025

Year Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) 2005 9158 7775 1383 6665 6678 -13 15823 14453 1370 2010 10821 6464 4356 7875 5219 2655 18695 11684 7011 2015 13581 7170 6411 9883 5889 3995 23464 13059 10405 2020 20176 8112 12064 14683 6807 7876 34859 14920 19939 2025 20176 9188 10989 14683 7858 6825 34859 17046 17814

Table A4.37: Uzbekistan. Electricity Demand Supply Balance in 2005-2025

Year Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) 2005 23482 21988 1494 26794 24071 2723 50277 46059 4218 2010 26149 22699 3450 29837 24848 4989 55986 47547 8439 2015 32104 25275 6829 36632 27669 8963 68736 52944 15792 2020 32104 28250 3854 36632 30925 5707 68736 59174 9562 2025 31918 31574 344 36419 34564 1855 68337 66138 2199

Summer

Summer

Winter

Winter

Annual

Annual

Table A4.38: All Four CA Countries. Electricity Demand Supply Balances in 2005-2025
Summer Year Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) 2005 68585 58047 10539 74398 76715 -2318 142983 134762 8221 2010 78149 61490 16659 86331 81731 4600 164480 143220 21260 2015 95686 70648 25038 105708 94417 11291 201394 165064 36329 2020 104748 81799 22948 118860 109987 8873 223608 191787 31821 2025 107239 94812 12428 122014 128224 -6210 229253 223035 6218

Winter

Annual

28

Demand Forecast: Sensitivity Analysis Key Parameters: Low Case 1

Cost Recovery Tariff Country Kazakhstan The Kyrgyz Republic Tajikistan Uzbekistan Price Elasticity -0.1 -0.3 -0.3 -0.1 Income Elasticity Level USc/kWh 0.8 0.8 0.8 0.8 2.90 2.45 2.10 3.50 Year Tariffs reach Cost Recovery Level 2006 2006 2006 2006 GDP Growth in 2007-2025 p.a. 1.040 1.030 1.030 1.025

Table A4.39: Gross Electricity Demand Projections, Low Case 1

Actual Country 2003 Kazakhstan The Kyrgyz Republic Tajikistan Uzbekistan All Four Countries 58,944 12,145 16,348 48,691 136,128 2005 62,475 11,069 14,216 45,794 133,554 2010 72,056 8,813 9,809 46,597 137,275 2015 84,034 9,695 10,896 51,255 155,879 2020 98,367 10,915 12,268 56,589 178,140 2025 115,146 12,290 13,812 62,479 203,728 Demand forecast (GWh) 20032010 2.91% -4.48% -7.04% -0.63% 0.12% Annual Growth rates 20032015 3.00% -1.86% -3.32% 0.43% 1.14% 20032020 3.06% -0.63% -1.67% 0.89% 1.59% 20032025 3.09% 0.05% -0.76% 1.14% 1.85%

Table A4.40: Kazakhstan. Electricity Demand Supply Balance in 2005-2025

Year Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) 2005 27984 24786 3198 35185 37689 -2504 63169 62475 694 2010 32211 28588 3623 40500 43468 -2969 72710 72056 654 2015 40215 33340 6876 50564 50694 -130 90780 84034 6746 2020 42771 39026 3745 53778 59341 -5563 96550 98367 -1818 2025 45449 45683 -234 57145 69463 -12318 102594 115146 -12552

Table A4.41: The Kyrgyz Republic. Electricity Demand Supply Balance in 2005-2025
Summer Year Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) 2005 7961 3224 4737 5754 7845 -2092 13714 11069 2645 2010 8969 2567 6402 8120 6246 1874 17089 8813 8276 2015 9786 2824 6962 8628 6871 1757 18414 9695 8719 2020 9696 3179 6517 13767 7736 6031 23463 10915 12547 2025 9696 3580 6116 13767 8710 5057 23463 12290 11173

Summer

Winter

Winter

Annual

Annual

Table A4.42: Tajikistan. Electricity Demand Supply Balance in 2005-2025

Year Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) 2005 9158 7648 1511 6665 6569 96 15823 14216 1607 2010 10821 5427 5394 7875 4382 3493 18695 9809 8886 2015 13581 5983 7598 9883 4913 4970 23464 10896 12568 2020 20176 6670 13506 14683 5597 9086 34859 12268 22591 2025 20176 7445 12731 14683 6368 8315 34859 13812 21047

Table A4.43: Uzbekistan. Electricity Demand Supply Balance in 2005-2025

Year Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) 2005 23482 21862 1620 26794 23932 2862 50277 45794 4483 2010 26149 22245 3904 29837 24352 5485 55986 46597 9389 2015 32104 24469 7635 36632 26786 9846 68736 51255 17481 2020 32104 27016 5088 36632 29574 7058 68736 56589 12147 2025 31918 29827 2091 36419 32652 3767 68337 62479 5858

Summer

Summer

Winter

Winter

Annual

Annual

Table A4.44: All Four CA Countries. Electricity Demand Supply Balances in 2005-2025
Summer Year Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) 2005 68585 57520 11066 74398 76035 -1637 142983 133554 9429 2010 78149 58827 19322 86331 78448 7883 164480 137275 27205 2015 95686 66615 29071 105708 89265 16443 201394 155879 45515 2020 104748 75892 28856 118860 102249 16611 223608 178140 45468 2025 107239 86535 20704 122014 117193 4821 229253 203728 25526

Winter

Annual

29

Demand Forecast: Sensitivity Analysis Key Parameters: Low case 2

Cost Recovery Tariff Country Kazakhstan The Kyrgyz Republic Tajikistan Uzbekistan Price Elasticity -0.1 -0.3 -0.3 -0.1 Income Elasticity Level USc/kWh 0.7 0.7 0.7 0.7 2.90 2.45 2.10 3.50 Year Tariffs reach Cost Recovery Level 2006 2010 2010 2006 GDP Growth in 2007-2025 p.a. 1.040 1.030 1.030 1.025

Table A4.45: Gross Electricity Demand Projections, Low Case 2

Actual Country 2003 Kazakhstan The Kyrgyz Republic Tajikistan Uzbekistan All Four Countries 58,944 12,145 16,348 48,691 136,128 2005 61,840 11,002 13,981 45,529 132,352 2010 69,634 9,008 10,861 45,663 135,167 2015 79,646 9,657 11,788 49,615 150,706 2020 91,439 10,715 13,079 54,111 169,343 2025 104,978 11,888 14,512 59,014 190,391 Demand forecast (GWh) 20032010 2.41% -4.18% -5.67% -0.91% -0.10% Annual Growth rates 20032015 2.54% -1.89% -2.69% 0.16% 0.85% 20032020 2.62% -0.73% -1.30% 0.62% 1.29% 20032025 2.66% -0.10% -0.54% 0.88% 1.54%

Table A4.46: Kazakhstan. Electricity Demand Supply Balance in 2005-2025

Year Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) 2005 27984 24534 3450 35185 37306 -2120 63169 61840 1329 2010 32211 27627 4584 40500 42007 -1507 72710 69634 3076 2015 40215 31599 8616 50564 48047 2517 90780 79646 11133 2020 42771 36278 6494 53778 55161 -1383 96550 91439 5111 2025 45449 41649 3800 57145 63329 -6184 102594 104978 -2384

Table A4.47: The Kyrgyz Republic. Electricity Demand Supply Balance in 2005-2025
Summer Year Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) 2005 7961 3205 4756 5754 7798 -2044 13714 11002 2712 2010 8969 2624 6345 8120 6385 1736 17089 9008 8080 2015 9786 2813 6973 8628 6844 1784 18414 9657 8757 2020 9696 3121 6575 13767 7594 6173 23463 10715 12748 2025 9696 3463 6233 13767 8425 5342 23463 11888 11575

Summer

Winter

Winter

Annual

Annual

Table A4.48 Tajikistan. Electricity Demand Supply Balance in 2005-2025

Year Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) 2005 9158 7521 1637 6665 6460 205 15823 13981 1843 2010 10821 6009 4811 7875 4852 3023 18695 10861 7834 2015 13581 6473 7108 9883 5316 4568 23464 11788 11676 2020 20176 7112 13065 14683 5968 8715 34859 13079 21780 2025 20176 7822 12354 14683 6690 7993 34859 14512 20348

Table A4.49: Uzbekistan. Electricity Demand Supply Balance in 2005-2025

Year Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) 2005 23482 21735 1747 26794 23793 3001 50277 45529 4748 2010 26149 21799 4350 29837 23864 5973 55986 45663 10323 2015 32104 23686 8418 36632 25929 10703 68736 49615 19121 2020 32104 25832 6272 36632 28278 8354 68736 54111 14625 2025 31918 28173 3745 36419 30841 5578 68337 59014 9323

Summer

Summer

Winter

Winter

Annual

Annual

Table A4.50: All Four CA Countries. Electricity Demand Supply Balances in 2005-2025
Summer Year Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) 2005 68585 56995 11590 74398 75357 -959 142983 132352 10631 2010 78149 58059 20090 86331 77107 9224 164480 135167 29314 2015 95686 64570 31116 105708 86136 19571 201394 150706 50687 2020 104748 72342 32406 118860 97001 21859 223608 169343 54264 2025 107239 81106 26133 122014 109285 12729 229253 190391 38862

Winter

Annual

30

Demand Forecast: Sensitivity Analysis Key Parameters: Low case 3

Cost Recovery Tariff Country Kazakhstan The Kyrgyz Republic Tajikistan Uzbekistan Price Elasticity -0.2 -0.4 -0.4 -0.2 Income Elasticity Level USc/kWh 0.8 0.8 0.8 0.8 2.90 2.45 2.10 3.50 Year Tariffs reach Cost Recovery Level 2006 2010 2010 2006 GDP Growth in 2007-2025 p.a. 1.040 1.030 1.030 1.025

Table A4.51: Gross Electricity Demand Projections, Low Case 3

Actual Country 2003 Kazakhstan The Kyrgyz Republic Tajikistan Uzbekistan All Four Countries 58,944 12,145 16,348 48,691 136,128 2005 60,883 10,526 12,789 40,750 124,948 2010 66,563 7,830 8,799 37,388 120,580 2015 77,335 8,418 9,618 40,969 136,340 2020 90,526 9,478 10,829 45,233 156,066 2025 105,968 10,671 12,192 49,941 178,772 Demand forecast (GWh) 20032010 1.75% -6.08% -8.47% -3.70% -1.72% Annual Growth rates 20032015 2.29% -3.01% -4.32% -1.43% 0.01% 20032020 2.56% -1.45% -2.39% -0.43% 0.81% 20032025 2.70% -0.59% -1.32% 0.12% 1.25%

Table A4.52: Kazakhstan. Electricity Demand Supply Balance in 2005-2025

Year Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) 2005 27984 24155 3830 35185 36729 -1543 63169 60883 2286 2010 32211 26408 5802 40500 40154 345 72710 66563 6148 2015 40215 30682 9533 50564 46653 3911 90780 77335 13445 2020 42771 35916 6856 53778 54611 -833 96550 90526 6023 2025 45449 42041 3408 57145 63926 -6781 102594 105968 -3374

Table A4.53: The Kyrgyz Republic. Electricity Demand Supply Balance in 2005-2025
Summer Year Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) 2005 7961 3066 4895 5754 7460 -1706 13714 10526 3189 2010 8969 2281 6688 8120 5550 2570 17089 7830 9258 2015 9786 2452 7334 8628 5966 2662 18414 8418 9996 2020 9696 2760 6936 13767 6717 7049 23463 9478 13985 2025 9696 3108 6588 13767 7563 6204 23463 10671 12792

Summer

Winter

Winter

Annual

Annual

Table A4.54 Tajikistan. Electricity Demand Supply Balance in 2005-2025

Year Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) 2005 9158 6880 2279 6665 5909 756 15823 12789 3034 2010 10821 4868 5952 7875 3931 3944 18695 8799 9896 2015 13581 5281 8300 9883 4337 5546 23464 9618 13847 2020 20176 5888 14288 14683 4941 9742 34859 10829 24031 2025 20176 6572 13605 14683 5620 9063 34859 12192 22667

Table A4.55: Uzbekistan. Electricity Demand Supply Balance in 2005-2025

Year Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) 2005 23482 19454 4028 26794 21296 5498 50277 40750 9527 2010 26149 17849 8300 29837 19539 10298 55986 37388 18598 2015 32104 19558 12546 36632 21411 15221 68736 40969 27767 2020 32104 21594 10510 36632 23639 12993 68736 45233 23503 2025 31918 23842 8076 36419 26099 10320 68337 49941 18396

Summer

Summer

Winter

Winter

Annual

Annual

Table A4.56: All Four CA Countries. Electricity Demand Supply Balances in 2005-2025
Summer Year Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) 2005 68585 53554 15031 74398 71394 3004 142983 124948 18036 2010 78149 51406 26743 86331 69174 17158 164480 120580 43901 2015 95686 57973 37713 105708 78367 27341 201394 136340 65054 2020 104748 66158 38590 118860 89908 28952 223608 156066 67542 2025 107239 75563 31676 122014 103209 18805 229253 178772 50481

Winter

Annual

31

Demand Forecast: Sensitivity Analysis Key Parameters: Alternative Demand case

Country Kazakhstan The Kyrgyz Republic Tajikistan Uzbekistan Changes in Electricity Intensity p.a. in % 2005-2009 -2.0 -2.0 -2.0 -2.0 2010-2014 -1.5 -1.5 -1.5 -1.5 2015-2025 -1.0 -1.0 -1.0 -1.0

Table A4.57: Gross Electricity Demand Projections, Alternative Scenario

Actual Country 2003 Kazakhstan The Kyrgyz Republic Tajikistan Uzbekistan All Four Countries 58,994 12,145 16,348 48,691 136,178 2010 75,706 13,915 21,485 53,828 164,934 2015 85,837 15,033 23,211 56,756 180,837 2020 99,316 16,573 25,589 61,067 202,545 2025 114,911 18,271 28,211 65,705 227,099 Demand forecast (GWh) 20032010 3.63% 1.96% 3.98% 1.44% 2.77% Annual Growth rates 20032015 3.17% 1.79% 2.96% 1.29% 2.39% 20032020 3.11% 1.85% 2.67% 1.34% 2.36% 2003-2025 3.08% 1.87% 2.51% 1.37% 2.35%

Table A4.58: Kazakhstan. Electricity Demand Supply Balance in 2005-2025

Year Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) 2005 27984 23405 4579 35185 42854 -7669 63169 66259 -3090 2010 32211 30036 2175 40500 45670 -5170 72710 75706 -2995 2015 40215 34055 6160 50564 51782 -1218 90780 85837 4943 2020 42771 39403 3369 53778 59913 -6135 96550 99316 -2766 2025 45449 45589 -140 57145 69321 -12176 102594 114911 -12317

Table A4.59: The Kyrgyz Republic. Electricity Demand Supply Balance in 2005-2025
Summer Year Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) 2005 7961 3538 4423 5754 9410 -3657 13714 12948 766 2010 8969 4053 4916 8120 9862 -1742 17089 13915 3174 2015 9786 4378 5407 8628 10655 -2026 18414 15033 3381 2020 9696 4827 4869 13767 11746 2021 23463 16573 6890 2025 9696 5322 4374 13767 12949 818 23463 18271 5191

Summer

Winter

Winter

Annual

Annual

Table A4.60 Tajikistan. Electricity Demand Supply Balance in 2005-2025

Year Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) 2005 9158 8794 364 6665 10897 -4232 15823 19691 -3868 2010 10821 11887 -1066 7875 9598 -1723 18695 21485 -2790 2015 13581 12744 837 9883 10467 -583 23464 23211 253 2020 20176 13914 6263 14683 11676 3007 34859 25589 9270 2025 20176 15206 4970 14683 13005 1678 34859 28211 6648

Table A4.61: Uzbekistan. Electricity Demand Supply Balance in 2005-2025

Year Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) 2005 23482 23245 237 26794 28366 -1572 50276 51611 -1335 2010 26149 25697 452 29837 28131 1706 55986 53828 2158 2015 32104 27095 5009 36632 29661 6971 68736 56756 11980 2020 32104 29153 2951 36632 31914 4718 68736 61067 7669 2025 31918 31368 550 36419 34338 2081 68337 65705 2632

Summer

Summer

Winter

Winter

Annual

Annual

Table A4.62: All Four CA Countries. Electricity Demand Supply Balances in 20052025
Summer Year Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) Supply Demand Surplus (+) / Deficit (-) 2005 68585 58982 9603 74398 91527 -17129 142983 150509 -7526 2010 78149 71673 6476 86331 93261 -6930 164480 164934 -454 2015 95686 78273 17413 105708 102564 3144 201394 180837 20557 2020 104748 87296 17451 118860 115249 3611 223608 202545 21063 2025 107239 97485 9754 122014 129614 -7600 229253 227099 2155

Winter

Annual

32

Appendix 4.2 Central Asia Regional Electricity Export Potential Study Incremental and Total Supplies from Supply Options The incremental and total power supplies available from the supply options in each of the countries are presented in this Annex. The supply options to meet the projected demand include (a) projects for rehabilitation of the transmission and distribution system to reduce the high level of T&D losses; (b) projects for rehabilitating the existing generating units; and (c) construction of new generating plants. Table A4.63: Kazakhstan. Incremental Power Supply and Total Supply (GWh)
Incremental Supply from Investment Projects in: Year Current Generation 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 835 1,669 2,504 3,339 4,174 5,008 5,843 5,843 5,843 5,843 5,843 5,843 5,843 5,843 5,843 5,843 5,843 5,843 5,843 5,843 5,843 5,843 403 3,224 6,447 11,283 11,283 11,283 11,283 11,283 11,283 11,283 11,283 11,283 11,283 11,283 11,283 11,283 856 2,225 3,595 4,964 6,334 7,703 9,072 10,613 12,154 13,694 15,406 17,118 17,118 17,118 17,118 17,118 17,118 17,118 17,118 806 4,231 6,850 6,850 6,850 6,850 Transmission and Distribution Ekibastuz GRES-1 Rehabilitation Other TPPs' Units Rehabilitation New Generation Units Total Kazakhstan Supply 61,500 62,335 63,169 64,004 65,695 67,899 70,103 72,710 76,901 81,493 87,698 89,239 90,780 92,320 94,032 95,744 95,744 96,550 99,975 102,594 102,594 102,594 102,594

33

Table A4.64: The Kyrgyz Republic. Incremental Power Supply and Total Supply (GWh)
Incremental Supply from Investment Projects in: Year Current Generation 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Notes: The current generation shown (13,342 GWh) is the average generation over the 1999-2003 period, which included a good combination of normal, wet and dry hydrological years. Also it encompasses the modified irrigation mode (recommended for Toktogul operation) since modified mode is a split in seasonal generation and there would not be a change in annual generation. 184 372 566 764 968 1,177 1,392 1,612 1,612 1,612 1,612 1,612 1,612 1,612 1,612 1,612 1,612 1,612 1,612 1,612 1,612 1,612 353 1,531 2,355 2,355 2,355 2,355 2,355 2,355 2,355 2,355 2,355 2,355 2,355 2,355 2,355 2,355 1,183 1,183 2,355 221 1,105 1,105 1,105 1,105 1,105 1,105 1,105 1,105 1,105 1,105 1,105 1,105 1,105 252 1,515 3,029 5,049 5,049 5,049 5,049 5,049 5,049 Transmission and Distribution Bishkek CHP2 Kambarata 2 HPP Kambarata 1 HPP Total Kyrgyzstan Gross Supply 13,342 13,526 13,714 13,908 14,459 15,841 16,874 17,089 17,309 17,530 18,414 18,414 18,414 18,414 18,666 19,929 21,443 23,463 23,463 23,463 22,291 22,291 23,463

34

Table A4.65: Tajikistan. Incremental Power Supply and Total Supply (GWh)
Incremental supply from Investment Projects in: Year Current Generation 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Notes: The current generation shown (15,181 GWh) is the average generation over the 1999-2003 period, which included a good combination of different hydrological years. DSM involves shifting space heating load away from electricity. 266 537 815 1,099 1,389 1,685 1,988 1,988 1,988 1,988 1,988 1,988 1,988 1,988 1,988 1,988 1,988 1,988 1,988 1,988 1,988 1,988 105 225 523 572 631 724 751 778 806 833 860 860 860 860 860 860 860 860 860 860 860 134 802 1,470 2,138 2,673 2,673 2,673 2,673 2,673 2,673 2,673 2,673 2,673 2,673 2,673 2,673 2,673 515 2,762 4,643 5,282 7,712 10,712 14,157 14,157 14,157 14,157 14,157 14,157 Transmission & Distribution Total Tajikistan Supply DSM Sangtuda I HPP Rogun HPP, Phase I and II 15,181 15,447 15,823 16,221 16,803 17,142 17,631 18,695 19,390 20,085 20,648 21,190 23,464 25,345 25,984 28,414 31,414 34,859 34,859 34,859 34,859 34,859 34,859

35

Table A4.66: Uzbekistan. Incremental Power Supply and Total Supply (GWh)
Incremental supply from Investment Projects in: Year 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 555 1,118 1,690 2,270 2,860 3,457 4,064 4,064 4,064 4,064 4,064 4,064 4,064 4,064 4,064 4,064 4,064 4,064 4,064 4,064 4,064 4,064 609 1,828 4,265 4,265 4,265 4,265 4,265 4,265 4,265 4,265 4,265 4,265 4,265 4,265 4,265 4,265 4,265 4,265 4,265 4,265 4,265 609 2,437 6,703 10,359 12,796 12,796 12,796 12,796 12,796 12,796 12,796 12,796 12,796 12,796 12,796 250 110 100 160 55 55 110 (151) (435) (849) (1,044) (1,044) (1,044) (1,044) (1,044) (1,067) (1,067) (1,090) (1,090) (1,090) (1,090) (1,090) (1,090) (1,489) (1,489) (1,489) (1,489) (1,489) Transmission and Distribution Talimarjan TPP Unit #1 Talimarjan TPP Units #2-4 Retirement Loss of Capacity MW Loss of Generation GWh Total Uzbekistan Supply 48,700 49,255 50,277 51,783 54,387 54,781 55,379 55,986 56,595 58,423 62,665 66,322 68,736 68,736 68,736 68,736 68,736 68,736 68,337 68,337 68,337 68,337 68,337

36

Table A4.67: All Four CA Republics. Incremental Power Supply and Total Supply (GWh) From Power Investment Program
Year Current Generation 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Kazakhstan 61,500 62,335 63,169 64,004 65,695 67,899 70,103 72,710 76,901 81,493 87,698 89,239 90,780 92,320 94,032 95,744 95,744 96,550 99,975 102,594 102,594 102,594 102,594 The Kyrgyz Republic 13,342 13,526 13,714 13,908 14,459 15,841 16,874 17,089 17,309 17,530 18,414 18,414 18,414 18,414 18,666 19,929 21,443 23,463 23,463 23,463 22,291 22,291 23,463 Tajikistan 15,181 15,447 15,823 16,221 16,803 17,142 17,631 18,695 19,390 20,085 20,648 21,190 23,464 25,345 25,984 28,414 31,414 34,859 34,859 34,859 34,859 34,859 34,859 Uzbekistan 48,700 49,255 50,277 51,783 54,386 54,781 55,378 55,986 56,595 58,423 62,666 66,322 68,736 68,736 68,736 68,736 68,736 68,736 68,337 68,337 68,337 68,337 68,337 Total CA Supply 138,723 140,563 142,983 145,916 151,343 155,663 159,986 164,480 170,195 177,531 189,426 195,165 201,394 204,815 207,418 212,823 217,337 223,608 226,634 229,253 228,081 228,081 229,253

37

Appendix 4.3 Central Asia Regional Electricity Export Potential Study Electricity Demand Supply Balances The supplies from the supply options are matched with the projected demand (Base Case) for each of the CARs to arrive at the demand supply balances both on a seasonal (summer and winter) and annual basis in this Annex. Kazakhstan Supply Demand Balances Table A4.68: Kazakhstan. Electricity Demand Supply Balance in 2003-2025
Year Supply Summer Demand Surplus (+) / Deficit (-) Supply Winter Demand Surplus (+) / Deficit (-) Supply Annual Demand Surplus (+) / Deficit (-) 2003 27245 23385 3859 34256 35559 -1303 61500 58944 2556 2005 27984 24786 3198 35185 37689 -2504 63169 62475 694 2010 32211 28588 3623 40500 43468 -2969 72710 72056 654 2015 40215 33340 6876 50564 50694 -130 90780 84034 6746 2020 42771 39026 3745 53778 59341 -5563 96550 98367 -1818 2025 45449 45683 -234 57145 69463 -12318 102594 115146 -12552

Figure A4.2: Summer GWh 60000 40000 20000 0 2005 2010 2015 2020 Demand 2025 GWh 80000 60000 40000 20000 0 2005

Figure A4.3: Winter

2010 Supply

2015

2020

2025

Supply

Demand

GWh 150000 100000 50000 0 2003

Figure A4.4: Annual

Figure A4.5: Export Surplus GWh 8000 4000 0 -4000 2005 2010 -8000 -12000 -16000 Summer

2015

2020

2025

2005

2010 Supply

2015

2020

2025

Winter

Demand

38

The Kyrgyz Republic Supply Demand Balances Table A4.69: The Kyrgyz Republic Electricity Demand Supply Balance in 2003-2025
Year Supply Summer Demand Surplus (+) / Deficit (-) Supply Winter Demand Surplus (+) / Deficit (-) Supply Annual Demand Surplus (+) / Deficit (-) 2003 4430 3538 892 8912 8607 305 13342 12145 1197 2005 7961 3224 4737 5754 7845 -2092 13714 11069 2645 2010 8969 2686 6282 8120 6536 1584 17089 9222 7866 2015 9786 2922 6863 8628 7111 1517 18414 10033 8381 2020 9696 3290 6406 13767 8006 5761 23463 11296 12167 2025 9696 3705 5991 13767 9014 4753 23463 12719 10744

Figure A4.6: Summer GWh 15000 10000 5000 0 2003 2005 2010 2015 2020 2025 Supply Demand GWh 15000 10000 5000 0 2003

Figure A4.7: Winter

2005 Supply

2010

2015

2020

2025

Demand

Figure A4.8: Annual GWh 30000 20000

4000 GWh 8000

Figure A4.9: Export Surplus

10000 0 2003 2005 2010 2015 2020 2025

0 2003 -4000 Summer Winter 2005 2010 2015 2020 2025

Supply

Demand

39

Tajikistan Supply Demand Balances Table A4.70: Tajikistan Electricity Demand Supply Balance in 2003-2025
Year Supply Summer Demand Surplus (+) / Deficit (-) Supply Winter Demand Surplus (+) / Deficit (-) Supply Annual Demand Surplus (+) / Deficit (-) 2003 8835 8794 41 6346 7554 -1208 15181 16348 -1167 2005 9158 7648 1511 6665 6569 96 15823 14216 1607 2010 10821 6233 4587 7875 5033 2841 18695 11267 7429 2015 13581 6814 6767 9883 5596 4287 23464 12410 11055 2020 20176 7597 12579 14683 6375 8308 34859 13972 20887 2025 20176 8479 11697 14683 7252 7431 34859 15731 19128

Figure A4.10: Summer GWh 30000 20000 10000 0 2003 2005 2010 2015 2020 2025 Supply Demand
GWh 20000 15000 10000 5000 0 2003

Figure A4.11: Winter

2005 Supply

2010

2015 Demand

2020

2025

Figure A4.12: Annual GWh 40000 20000 0 2003 2005 2010 2015 2020 2025 Supply Demand

Figure A4.13: Export Surplus

GWh 16000 12000 8000 4000 0 -4000 2003

2005 2010 Summer

2015 2020 2025 Winter

40

Uzbekistan Supply Demand Balances Table A4.71: Uzbekistan Electricity Demand Supply Balance in 2003-2025
Year Supply Summer Demand Surplus (+) / Deficit (-) Supply Winter Demand Surplus (+) / Deficit (-) Supply Annual Demand Surplus (+) / Deficit (-) 2003 22746 23245 -499 25,954 25,446 508 48,700 48,691 9 2005 23482 21862 1620 26,795 23,932 2863 50,277 45,794 4483 2010 26149 22245 3904 29,837 24,352 5484 55,986 46,597 9388 2015 32104 24468 7636 36,632 26,786 9846 68,736 51,255 17481 2020 32104 27015 5089 36,632 29,574 7058 68,736 56,589 12147 2025 31918 29827 2091 36,419 32,652 3767 68,337 62,479 5858

Figure A4.14: Summer GWh 40000 30000 20000 10000 0 2003 2005 2010 2015 2020 2025 Supply Demand Figure A4.16: Annual GWh 80000 60000 40000 20000 0 2003 2005 Supply 2010 2015 2020 2025

GWh 40000 30000 20000 10000 0 2003

Figure A4.15: Winter

2005

2010 Supply

2015

2020

2025

Demand

Figure A4.17: Export Surplus GWh 12000 8000 4000 0 -4000 2003 2005 2010 2015 Winter 2020 2025

Demand

Summer

41

All Four CA Countries Supply Demand Balances Table A4.72: All Four CA Countries Electricity Demand Supply Balance in 2003-2025
Year Supply Summer Demand Surplus (+) / Deficit (-) Supply Winter Demand Surplus (+) / Deficit (-) Supply Annual Demand Surplus (+) / Deficit (-) 2003 63255 58962 4293 75468 77166 -1698 138723 136128 2595 2005 68585 57519 11066 74399 76035 -1636 142984 133554 9429 2010 78149 59752 18396 86331 79390 6941 164480 139142 25338 2015 95686 67544 28142 105708 90187 15521 201394 157731 43663 2020 104748 76929 27819 118860 103296 15564 223608 180225 43383 2025 107239 87694 19546 122014 118381 3633 229253 206075 23178

Figure A4.18: Summer GWh 150000 100000 50000 0 2003 2005 2010 2015 2020 2025 Supply Demand
GWh 150000 100000 50000 0 2003

Figure A4.19: Winter

2005

2010

2015 Demand

2020

2025

Supply

Figure A4.20: Annual

GWh 250000 200000 150000 100000 50000 0 2003 2005 2010 2015 2020 2025

Figure A4.21: Export Surplus GWh 32000 24000 16000 8000 0 -8000 2003 2005 2010 2015 2020 2025 Summer Winter

Supply

Demand

42

Appendix 5.1 Central Asia Regional Electricity Export Potential Study Economic Analysis of Supply Options

Economic costs of output from each of the supply options are derived in this Appendix. The key determinants are annual phasing of capital expenditures, fuel costs (where applicable), operation and maintenance (O&M) costs, as well as incremental sales (as losses are reduced) in the case of transmission and distribution investments and the energy sent out from the generating station (i.e., gross energy generated minus station use or auxiliary consumption) in the case of generation plants.12 Fuel costs are computed on the basis of gas prices at $35/KCM (the current traded price of Uzbek gas to Kazakhstan)13; and coal prices at $20/ton (the current border price for Kazakh coal to Kyrgyz). To arrive at the economic output cost per kWh, the capital, fuel and O&M costs incurred and energy sent out by the plant each year (GWh) are discounted over a 20year period to the present using a discount rate of 10% (which is considered the opportunity cost of capital in CARs) and discounted costs are divided by the discounted electricity units sent out.

It is important to note that in respect of all the partially completed projects, all costs incurred so far in the past are treated as sunk costs and are ignored for the purposes of this analysis, which essentially compares incremental costs to be incurred with the benefits that will accrue. 13 These prices indeed are low compared to the international prices of $80-120/KCM (e.g., long-term contract price of Gazprom to Western Europe), and the difference reflects the penalty that Uzbekistan pays for being land-locked, and for being far away from creditworthy markets.

12

43

A. Loss Reduction in Transmission and Distribution Systems 1. Kazakhstan

During 2004-2010, Kazakhstan plans to invest $258 million in transmission rehabilitation to reduce losses and to improve the reliability of its electricity supply.14 Its distribution rehabilitation investment needs are estimated at $1,038 million at the rate of $250 per low
Table A5.1: Kazakhstan. AIC for T&D Rehabilitation
Calendar Year 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Present Values Incremental Costs ($ million) discounted at 10% Incremental Sales (million kWh) discounted at 10% Average Incremental Costs (/kWh) 1016.7 36016 2.8 129.6 194.4 194.4 194.4 194.4 194.4 194.4 2.6 6.5 10.4 14.3 16.2 18.1 20.1 20.1 20.1 20.1 20.1 20.1 20.1 20.1 20.1 20.1 20.1 20.1 20.1 20.1 132.2 200.9 204.8 208.7 210.6 212.6 214.5 20.1 20.1 20.1 20.1 20.1 20.1 20.1 20.1 20.1 20.1 20.1 20.1 20.1 835 1669 2504 3339 4174 5008 5843 5843 5843 5843 5843 5843 5843 5843 5843 5843 5843 5843 5843 5843 Capital Investment ($ million) Incremental O&M Costs ($ million) Total Incremental Costs ($ million) Incremental Sales GWh

voltage consumer connection for 4,152,470 households.15 Incremental O&M expenditures are assumed at 2% of Capital Expenditure in year 1 through 4, but declining to 1% in year 5 through 716. The system losses are expected to come down from the present levels of 24% to 15% by 2010. The economic cost of additional supply resulting from the loss reduction project is estimated at 2.8 cents/kWh as shown in Table A5.1 by discounting incremental costs and incremental supplies at 10%.

This is the on-going World Bank and EBRD funded project DFID, IPA Energy Consulting, the Kyrgyz Republic, Azerbaijan, Georgia, Investigations on Electricity Distribution Capital Expenditures Requirements. See also USAID, Regional Review of Social Safety Net Approaches, Annex 5, Energy Reform and Social Protection in Kazakhstan 16 WBs estimate
15

14

44

2. The Kyrgyz Republic

During 2004-2010, the Kyrgyz Republic would spend $250 million in transmission and distribution rehabilitation to reduce technical losses from the present level of 34% to 13% by 2010. Almost the whole of this investment would be in the distribution system. Incremental O&M expenditures are assumed at 4% of Capital Expenditures in year 1, declining to 3% in year 2, and stabilizing at 2% year 3 onwards. The economic cost of additional supply arising from this project is estimated at 2.3 cents/kWh as shown in Table A5.2.
Table A5.2: The Kyrgyz Republic. AIC for T&D Rehabilitation
Calendar Year 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Present Values Incremental Costs (US$ million) Incremental Sales (million kWh) Average Incremental Costs (cents/kWh) 211.3 9280 2.3 20.0 30.0 50.0 60.0 50.0 30.0 10.0 0.8 1.7 2.7 3.9 4.9 5.5 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7 20.8 31.7 52.7 63.9 54.9 35.5 15.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7 184 372 566 764 968 1177 1392 1612 1612 1612 1612 1612 1612 1612 1612 1612 1612 1612 1612 1612 Capital Investment ($ million) Incremental O&M Costs ($ million) Total Incremental Costs ($ million) Incremental Sales GWh

45

3. Tajikistan
During 2004-2010, total investment in transmission and distribution rehabilitation in Tajikistan for

reducing technical losses from the present level of 28% to 13% by 2010 is estimated at US$310 million. Incremental O&M expenditures are estimated at 4% of capital expenditures in year 1 through 5, declining to 3% in year 6, and to 2% in year 7. On this basis the economic cost of the additional supply is estimated at 2.1 cents/kWh as shown in Table A5.3.
Table A5.3: Tajikistan. AIC for T&D Rehabilitation
Calendar Year 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Present Values Incremental Costs (US$ million) Incremental Sales (million kWh) Average Incremental Costs (cents/kWh) 254.6 12129 2.1 8.0 17.0 38.0 55.0 59.0 65.0 68.0 0.3 1.0 2.5 4.7 7.1 9.0 10.4 10.4 10.4 10.4 10.4 10.4 10.4 10.4 10.4 10.4 10.4 10.4 10.4 10.4 8.3 18.0 40.5 59.7 66.1 74.0 78.4 10.4 10.4 10.4 10.4 10.4 10.4 10.4 10.4 10.4 10.4 10.4 10.4 10.4 266 537 815 1099 1389 1685 1988 1988 1988 1988 1988 1988 1988 1988 1988 1988 1988 1988 1988 1988 Capital Investment ($ million) Incremental O&M Costs ($ million) Total Incremental Costs ($ million) Incremental Sales GWh

46

4. Uzbekistan

Transmission rehabilitation investments are estimated at $125 million, based on a loan from ADB for this purpose. The distribution rehabilitation needs are estimated at $ 1,028 on the basis of an investment at the rate of $250 per consumer connection for 4,111,860 households to reduce system losses from the present level of losses of 22% to 15% by 2010. Incremental O&M expenditure is assumed at 4% of the capital expenditures in year 1 through 2, declining to 3% in year 3 through 5, and to 2% in year 6 through 10. The economic cost of additional supplies are estimated at 3.5 cents/kWh.
Table A5.4: Uzbekistan. AIC for T&D Rehabilitation
Calendar Year 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Present Values Incremental Costs (US$ million) Incremental Sales (million kWh) Average Incremental Costs (cents/kWh) 873.7 24877 3.5 57.6 115.3 115.3 115.3 172.9 172.9 115.3 115.3 115.3 57.6 2.3 6.9 10.4 13.8 19.0 22.5 24.8 27.1 29.4 30.6 30.6 30.6 30.6 30.6 30.6 30.6 30.6 30.6 30.6 30.6 60.0 122.2 125.7 129.1 192.0 195.4 140.1 142.4 144.7 88.2 30.6 30.6 30.6 30.6 30.6 30.6 30.6 30.6 30.6 30.6 555 1118 1690 2270 2860 3457 4064 4064 4064 4064 4064 4064 4064 4064 4064 4064 4064 4064 4064 4064 Capital Investment ( $ million) Incremental O&M Costs ($ million) Total Incremental Costs ($ million) Incremental Sales (GWh)

47

B. Rehabilitation of Generating Units 1. Kazakhstan

(a) Investment in Ekibastuz TPP-1 Rehabilitation The coal fired Ekibastuz I thermal power plant is located at the mine mouth on the northern side of Kazakhstan, is currently owned by private investor AES, and has eight units of 500 MW each, of which only four are believed to be operational. The remaining four units need rehabilitation. The cost of such rehabilitation to restore the full 4,000 MW capacity of the plant is estimated at $440 million.17 The rehabilitation project would need three years to prepare (2005-2007), and four years to implement (2008-2011). The first year of generation from the rehabilitated units would be 2010.
Table A5.5: Kazakhstan. AIC for Ekibastuz I Plant Rehabilitation
Calendar Year Capital Investment US$ million 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 Present Values Incremental Costs (US$ million) Incremental Sales (million kWh) Average Incremental Costs (cents/kWh) 1582.6 59794 2.65 44.0 132.0 132.0 132.0 5.3 42.0 84.1 147.2 147.2 147.2 147.2 147.2 147.2 147.2 147.2 147.2 147.2 147.2 147.2 147.2 147.2 147.2 17.6 37.6 75.2 80.2 80.2 80.2 80.2 80.2 80.2 80.2 80.2 80.2 80.2 80.2 80.2 80.2 80.2 80.2 44.0 132.0 154.8 211.7 159.3 227.3 227.3 227.3 227.3 227.3 227.3 227.3 227.3 227.3 227.3 227.3 227.3 227.3 227.3 227.3 403 3224 6447 11283 11283 11283 11283 11283 11283 11283 11283 11283 11283 11283 11283 11283 11283 11283 Fuel Cost US$ million Incremental O&M Costs Excluding Fuel US$ million Total Incremental Costs US$ million Incremental Sales GWh

The net Heat Rate of the units is 9,600 kJ/kWh. The main fuel of the plant would be Ekibastuz coal with a calorific value of 16 GJ/ton with a price of $20/Ton, which is also the export price of coal from Kazakhstan. The fixed and variable O&M costs are based on calculations for similar
WBs estimate and RWE Solution, KEGOK, Kazakhstan North-South 500 kV Power Transmission Line Investment Pre-Feasibility Study
17

48

plants in the region.18 The plant factor for each unit is assumed to be 10% during the first year of operation and 70% in the following years. Plants self-consumption or auxiliary consumption is estimated at 8% of gross generation. The average incremental cost of supply from rehabilitated units is determined to be 2.65 cents/kWh., as can be seen from the Table A5.5. (b) Rehabilitation of Other National and Regional Level Generating Units.
Project preparation: 2005 Construction: 2006-2017 The first year of output: 2007

Table A5.6: Kazakhstan. AIC for Rehabilitation of the Other Large and Medium Units at the National and Local Level
Calendar Year Capital Investment $ million 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Present Values Incremental Costs (US$ million) Incremental Sales (million kWh) Average Incremental Costs (cents/kWh) 1861.7 67670 2.75 53.5 85.6 85.6 85.6 85.6 85.6 85.6 96.3 96.3 96.3 107.0 107.0 11.2 29.0 46.9 64.7 82.6 100.5 118.3 138.4 158.5 178.6 200.9 223.3 223.3 223.3 223.3 223.3 223.3 223.3 223.3 3.6 10.4 17.6 24.8 32.0 39.3 46.5 54.5 62.6 70.7 79.6 88.6 90.4 90.4 90.4 90.4 90.4 90.4 90.4 90.4 57.1 107.1 132.2 157.3 182.4 207.5 232.6 269.1 297.3 325.6 365.2 396.6 313.7 313.7 313.7 313.7 313.7 313.7 313.7 313.7 856 2225 3595 4964 6334 7703 9072 10613 12154 13694 15406 17118 17118 17118 17118 17118 17118 17118 17118 Fuel Cost $ million Incremental O&M Costs Excluding Fuel $ million Total Incremental Costs US$ million Incremental Sales GWh

From the total installed capacity of about 18,000 MW in Kazakhstan, about 9,870 MW of thermal plants would be retired by 2015 (including 2,700 MW by 2005, 2,500 MW by 2010, and 4,670 by 2015), reducing substantially the system reserve margin. The Kazakh authorities plan to invest $1,070 million in rehabilitation of these units to prolong their operating lives.19 The schedule of investment in rehabilitation of the TPPs large and medium units in general reflects the present retirement schedule. It is assumed that the involved units will consume coal from the Ekibastuz mine. The Heat Rate, coal calorific value, and coal price are thus the same as those
WB estimate and TACIS, Verbundplan-ESBI-Fichtner, Assistance to the Electricity Sector of the Republic of Uzbekistan 19 Kazakhstan, Plans on implementation of national policy of further power sector development
18

49

adopted for Ekibastuz I TPP. Fixed and Variable incremental O&M expenditures20 adopted are also similar to those adopted in Ekibastuz I plant. It is assumed that the Units Capacity Factor would increase by about 20% after rehabilitation21; Plants Own Needs (auxiliary consumption) is assumed at 8% of gross output. The details of AIC calculations are shown in Table A5.6.
2. Uzbekistan

Project Implementation period for the rehabilitation of existing thermal plants is 2004-2023. The installed capacity of the existing thermal power plants is about 10,000 MW.
Table A5.7: Uzbekistan. AIC for Rehabilitation of the existent TPPs.
Calendar Year 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Present Values Incremental Costs (US$ million) Incremental Sales (million kWh) Average Incremental Costs (cents/kWh) 561.0 15562 3.60 47.5 39.5 118.6 166.1 94.9 94.9 47.5 23.7 47.5 47.5 47.5 80.7 0.0 33.2 0.0 0.0 47.5 94.9 71.2 47.5 0 414 1338 4597 6415 3750 2200 1350 425 1350 1350 1350 2375 0 1025 0 0 940 1880 1365 Investment in TPPs Rehabilitation US$ million Avoided Decrease of Generation GWh

But according to the most recent consultants estimate22 the total available net capacity is about 7,800 MW. Majority of the plants were commissioned during 1960-1970 and some even earlier. They have all suffered for want of spare parts and regular maintenance since 1990.

WB estimate and TACIS, Verbundplan-ESBI-Fichtner, Assistance to the Electricity Sector of the Republic of Uzbekistan 21 WBs estimate 22 TACIS, Verbundplan-ESBI-Fichtner, Assistance to the Electricity Sector of the Republic of Uzbekistan, draft Final Report

20

50

The objective of the rehabilitation is to increase the lifetime, availability and the efficiency of TPPs and to upgrade the units so that they reach/approach the capacity they were originally designed for. The rehabilitation program will implement those measures, which should have been implemented within the maintenance schedules of the past years but were not. It will concentrate on mitigating the weak points and bottlenecks at the principal power plant components, mainly at the boilers, turbines, condensers, pre-heaters, piping, as well as instrumentation and control. At the damaged sections, the insulation has to be renewed and leakages have to be repaired.23 It was also assumed that units with installed capacity less than 60 MW would be retired as investments in rehabilitation of such units would not be economic and rational.

TACIS, Verbundplan-ESBI-Fichtner, Assistance to the Electricity Sector of the Republic of Uzbekistan, draft Final Report

23

51

C. Construction of New Generation Units 1. Uzbekistan

(a) Talimardjan Thermal Power Project I: Unit 1 This gas fired 800 MW steam turbine unit had been under construction since the late 1980s and it is now anticipated that it would be commissioned in 2005. Ignoring the sunk costs incurred so far, the cost for completing the project is estimated at $100 million. There are cooling water limitations and other problems based on the experience of similar units operating in Russia, which limit the plant factor to be around 60%- 65%. The unit will have a heat rate of 10,500 kJ/kWh. The calorific value of gas is 34.3 GJ/KCM. The gas price is assumed at $35/KCM which is the cash export price for Uzbek gas. Plant auxiliary consumption is assumed at 6% of the gross output. Fixed and variable O&M costs are based on consultant reports.24
Table A5.8: Uzbekistan. AIC of Electricity from Talimardjan Unit 1
Calendar Year Capital Investment $ million 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Present Values Incremental Costs (US$ million) Incremental Sales (million kWh) Average Incremental Costs (cents/kWh) 463.1 27583 1.68 90.0 10.0 Fuel Cost $ million 0.0 6.9 20.8 48.4 48.4 48.4 48.4 48.4 48.4 48.4 48.4 48.4 48.4 48.4 48.4 48.4 48.4 48.4 48.4 48.4 Incremental O&M Costs Excluding Fuel $ million 1.6 6.7 7.1 7.9 7.9 7.9 7.9 7.9 7.9 7.9 7.9 7.9 7.9 7.9 7.9 7.9 7.9 7.9 7.9 7.9 Total Incremental Costs $ million 91.6 23.6 27.9 56.3 56.3 56.3 56.3 56.3 56.3 56.3 56.3 56.3 56.3 56.3 56.3 56.3 56.3 56.3 56.3 56.3 Incremental net generation GWh 0 609 1828 4265 4265 4265 4265 4265 4265 4265 4265 4265 4265 4265 4265 4265 4265 4265 4265 4265

WB estimate and TACIS, Verbundplan-ESBI-Fichtner, Assistance to the Electricity Sector of the Republic of Uzbekistan

24

52

(b) Talimardjan Thermal Plant II: Units 2 to 4 All the site facilities at Talimardjan have been designed and constructed for locating four units of 800 MW each. It is assumed that the preparation for the construction of units 2 to 4 would be during 2005-2008 and that the construction would take place during 2009-2013, while Power will start flowing from 2011.Since all site facilities exist the additional investment needed is estimated at $ 1,200 million25. All other assumptions such as heat rate, calorific value of gas, gas price, level of auxiliary consumption, plant factor etc are the same as those for Unit 1.
Table A5.9: Uzbekistan. AIC of Electricity from Talimardjan Units #2-4
Calendar Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 Present Values Incremental Costs (US$ million) Incremental Sales (million kWh) Average Incremental Costs (cents/kWh) 1804.3 65343 2.76 120.0 360.0 400.0 280.0 40.0 6.9 27.7 76.1 117.6 145.3 145.3 145.3 145.3 145.3 145.3 145.3 145.3 145.3 145.3 145.3 145.3 145.3 145.3 6.7 13.8 21.7 22.9 23.7 23.7 23.7 23.7 23.7 23.7 23.7 23.7 23.7 23.7 23.7 23.7 23.7 23.7 120.0 360.0 413.6 321.5 137.8 140.5 168.9 168.9 168.9 168.9 168.9 168.9 168.9 168.9 168.9 168.9 168.9 168.9 168.9 168.9 609 2437 6703 10359 12796 12796 12796 12796 12796 12796 12796 12796 12796 12796 12796 12796 12796 12796 Capital Investment $ million Fuel Cost $ million Incremental O&M Costs Excluding Fuel $ million Total Incremental Costs $ million Incremental net generation GWh

2. The Kyrgyz Republic

(a) Bishkek II Thermal Power Plant The construction of two units of gas fired combined cycle power plant each with a capacity of about 200 MW in the same site as that of Bishkek CHP 2 plant would be an option to meet the chronic winter power deficit of Kyrgyz system. The project would be prepared and funding secured in 2005 and construction would proceed during 2006-2008. Initial output of power
25

TACIS, Verbundplan-ESBI-Fichtner, Assistance to the Electricity Sector of the Republic of Uzbekistan

53

would be in 2007. The international cost/ kW of installed capacity of such units is around $700. The Bishkek plant site already has all infrastructure natural gas connection, 110 kV electric power substation, drinking water and sewerage connections, access road, railway access, erection site, etc. It is assumed that existence of infrastructure would decrease cost per 1 kW of installed capacity by 30%. Total investment needed to complete this project is estimated, thus, at US$196 million. Combined cycle unit's efficiency is assumed as 50%; natural gas price for cash including transportation cost is estimated at $40/KCM; and the natural gas calorific value is 34.3 GJ/KCM26. Incremental O&M expenditures (excluding fuel cost) are assumed at 1% of capital expenditures in year 2, 8% of capital expenditures in year 3, and 10% of capital expenditures in year 4 and further. Capacity factor is assumed to be 70%; and annual electricity generation by plant is estimated at 2,450 GWh. Auxiliary consumption is estimated at 4% of the gross output.
Table A5.10: The Kyrgyz Republic. AIC of Electricity from Bishkek II
Calendar Year 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Present Values Incremental Costs (US$ million) Incremental Sales (million kWh) Average Incremental Costs (cents/kWh) 388.9 15231 2.55 78.4 58.8 58.8 3.1 13.4 20.6 20.6 20.6 20.6 20.6 20.6 20.6 20.6 20.6 20.6 20.6 20.6 20.6 20.6 10.4 10.4 20.6 0.8 1.3 7.1 12.4 12.4 12.4 12.4 12.4 12.4 12.4 12.4 12.4 12.4 12.4 12.4 12.4 12.4 12.4 12.4 12.4 79.2 63.1 79.3 33.0 33.0 33.0 33.0 33.0 33.0 33.0 33.0 33.0 33.0 33.0 33.0 33.0 33.0 22.8 22.8 33.0 353 1531 2355 2355 2355 2355 2355 2355 2355 2355 2355 2355 2355 2355 2355 2355 1183 1183 2355 Capital Investment $ million Fuel Cost $ million Incremental O&M Costs Excluding Fuel $ million Total Incremental Costs $ million Incremental net generation GWh

(b) Kambarata I Hydropower Plant. The site of Kambarata 1 plant is upstream of the Toktogul reservoir. The total installed capacity of this new hydro station would be 1900 MW (four units of 475 MW each). Total investment needed is estimated at $1,940 million, including $265million for 500 kV line that connects Kambarata-1 and substation Kemin in the North of Kyrgyzstan. The annual output from
26

Information from the Kyrgyz Authorities

54

Kambarata 1 is estimated at 5,100 GWh and auxiliary consumption is assumed at 1% of gross output. The plant factor of this station is 31%, but the large capacity enables it to meet efficiently the daily system peaks in the Kyrgyz and CAR systems. O&M cost are assumed at 0.1% of capital investment for each power unit after one year of guaranty operation; plus 0.1% of capital investment for dam after completion of the dam construction and one year of guaranty operation. Since agreements among riparian states have to be reached and financing secured, it will take six to seven years (2005-2011) to prepare the project, and it will need seven years of construction time (2012-2019). Initial flow of power could commence from 2017.
Table A5.11: The Kyrgyz Republic. AIC of Electricity from Kambarata 1
Calendar Year 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 Present Values Incremental Costs (US$ million) Incremental Sales (million kWh) Average Incremental Costs (cents/kWh) 1317.4 18382 7.17 194.0 291.0 291.0 291.0 291.0 194.0 194.0 194.0 0.1 0.2 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 194.0 291.0 291.0 291.0 291.0 194.0 194.1 194.2 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 252 1515 3029 5049 5049 5049 5049 5049 5049 5049 5049 5049 5049 5049 5049 Capital Investment $ million Incremental O&M Costs $ million Total Incremental Costs $ million Incremental net generation GWh

The incremental cost of power generation by Kambarata-1 at US7.17/kWh (see Table A5.11) is the highest among those from all the generation options available or contemplated in Central Asia.27. However, Kambarata 1 is a large storage hydro plant which enables electricity generation in winter, since the water released would be stored in downstream Toktogul reservoir. Thus it will enable Toktogul hydro units and the Naryn cascade hydro units operate following the irrigation regime as per international agreements.

27

JSC Electric Power Plants, Investment Projects, Bishkek, the Kyrgyz Republic

55

(c) Kamabarata II Hydropower Plant The site of Kambarata 2 project is also upstream of the Toktogul HPP and is situated between Toktogul and Kambarata-1 HPPs. Construction of Kambarata-2 was started in 1986 and about 30% of civil and erection works have been completed so far. According to estimates of the local experts it is necessary to invest US$280 million to complete this project, including US$18 million for construction of 500 kV connection line28. The project will be prepared for lining up funds etc during 2005-2008, and construction would be during 2009-2012. Annual generation of the Kambarata 2 is estimated at 1116 GWh based on the designed Plant Factor of 35%29.
Table A5.12: The Kyrgyz Republic. AIC of Electricity from Kambarata 2
Calendar Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 Present Values Incremental Costs (US$ million) Incremental Sales (million kWh) Average Incremental Costs (cents/kWh) 225.4 6055 3.72 56.0 84.0 84.0 56.0 0.1 0.1 0.4 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 56.0 84.1 84.1 56.4 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 0.6 221 1105 1105 1105 1105 1105 1105 1105 1105 1105 1105 1105 1105 1105 1105 1105 1105 Capital Investment $ million Incremental O&M Costs $ million Total Incremental Costs $ million Incremental Sales GWh

Though the marginal cost of generation is 3.72/kWh (see Table A5.12), its construction ahead of Kambarata 1 should be weighted carefully, as it does not have seasonal storage and would merely aggravates the problem of the Kyrgyz system with summer surplus and winter deficits.

28 29

JSC Electric Power Plants, Investment Projects, Bishkek, the Kyrgyz Republic JSC Electric Power Plants, Investment Projects, Bishkek, the Kyrgyz Republic

56

3. Tajikistan

(a) Sangtuda I Hydropower Plant The site of the project is downstream of the Nurek Cascade of hydropower plants on the Vaksh River. The installed capacity of this run-of the river project would be 670 MW and the annual electricity generation is estimated at 2,700 GWh at a plant factor 46%. The total cost of the project is estimated at about US$482 million, and, of this, about US$110 million already have been spent30. Project preparation would be during 2005-2007 and construction would be during 2007-2012. Power would start flowing from 2009. Incremental investment needed to complete construction would thus be about $368-$370 million. O&M expenses are assumed at 0.1% of capital investment for each power unit after the first year of guaranty operation; plus 0.1% of capital investment for dam after completion of the dam construction and one year of guaranty operation. The average incremental cost of electricity of this project at 1.97 cents/kWh is the lowest of all generation options available to the CARs.
Table A5.13: Tajikistan. AIC of Electricity from Sangtuda I
Calendar Year 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Present Values Incremental Costs (US$ million) Incremental Sales (million kWh) Average Incremental Costs (cents/kWh) 273.0 13883 1.97 37.0 55.5 111.0 92.5 55.5 18.5 0.0 0.1 0.1 0.2 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 37.0 55.5 111.0 92.6 55.6 18.7 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 134 802 1470 2138 2673 2673 2673 2673 2673 2673 2673 2673 2673 2673 2673 2673 2673 2673 Capital Investment $ million Incremental O&M Costs $ million Total Incremental Costs $ million Incremental Sales GWh

30

Information from the Tajik Authorities

57

(b) Rogun Hydropower Project, Phase I The site of this project is upstream of the existing Nurek reservoir on Vaksh River. Phase I of the project includes installation of two generation units of 600 MW each, construction of the dam up to a certain height, repairing the previously constructed, but damaged two tunnels; building a third new tunnel; creation of the regulating reservoir. According to Tajik authorities, a sum of $800 million had already been spent during Soviet era, before the construction was stalled for want of funds upon dissolution of the Soviet Union. There has been no progress in construction since 1991 and it is estimated that an additional US$785 million would be needed to complete Phase I. This is a major storage reservoir and it would also facilitate additional generation from the existing downstream hydropower stations. Reaching a fresh agreement among the riparian states would be necessary. Thus project preparation would be during 2005-2010 and construction would be during 2011-2015. Power could flow from 2014.
Table A5.14: Tajikistan. AIC of Electricity from Rogun HPP Phase I
Calendar Year 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Present Values Incremental Costs (US$ million) Incremental Sales (million kWh) Average Incremental Costs (cents/kWh) 590.4 23995 2.46 78.5 196.3 196.3 157.0 157.0 0.2 0.7 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 78.5 196.3 196.3 157.2 157.7 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 515 2762 4643 4643 4643 4643 4643 4643 4643 4643 4643 4643 4643 4643 4643 4643 4643 Capital Investment $ million Incremental O&M Costs $ million Total Incremental Costs $ million Incremental Sales GWh

The electricity output of Phase I is about 4,300 GWh; and it would also enable to generate of an additional 400 GWh of electricity at the existing downstream Nurek cascade. O&M cost are assumed at the same level as for Sangtuda I HPP: 0.1% of capital investment for each power unit after one year of guaranty operation; plus 0.1% of capital investment for dam after completion of the dam construction and one year of guaranty operation. The designed Plant Factor of the Phase I Rogun HPP is 41%. The AIC of power generation of this project is 2.46/kWh.

58

(c) Rogun Hydropower Project, Phase I and II In the second phase, the dam height will be raised to the full level of 335 meters, making it one of the tallest dams in the world, four more generating units (600 MW each) would be installed, raising the total capacity to 3,600 MW. In addition to $800 million believed to have been spent in the Soviet days, the total additional funds needed to complete both Phases I and II would be $2,450 million. The construction of phase II would go on till 2019 and full power output realized in 2020.
Table A5.15: Tajikistan. AIC of Electricity from Rogun HPP Phase I and II
Calendar Year 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Present Values Incremental Costs (US$ million) Incremental Sales (million kWh) Average Incremental Costs (cents/kWh) 1544.1 54535 2.83 78.5 196.3 196.3 491.0 491.0 417.5 250.5 167.0 167.0 0.2 0.7 0.9 0.9 1.4 1.5 2.6 2.6 2.6 2.6 2.6 2.6 2.6 2.6 2.6 2.6 2.6 78.5 196.3 196.3 491.2 491.7 418.4 251.4 168.4 168.5 2.6 2.6 2.6 2.6 2.6 2.6 2.6 2.6 2.6 2.6 2.6 515 2762 4643 5282 7712 10712 14157 14157 14157 14157 14157 14157 14157 14157 14157 14157 14157 Capital Investment $ million Incremental O&M Costs $ million Total Incremental Costs $ million Incremental Sales GWh

The completed project would produce roughly 13,000 GWh of electricity annually. It will totally eliminate spilling of water through the existent Nurek cascade of HPPs and enable them to produce an additional 1300 GWh of power. O&M cost are assumed at 0.1% of capital investment for each power unit after one year of guaranty operation; plus 0.1% of capital investment for dam after completion of the dam construction and one year of guaranty operation. The designed Plant Factor of the Phase I and II Rogun HPP is 41%. The AIC of power generation of this investment project is US2.83/kWh.
4. Kazakhstan

59

A New Coal Fired Generation Plant The supply/demand balance for Kazakhstan shows that in 2020s Kazakhstan will experience a notable shortage in power generation, unless action is taken to add at least about1000 MW of
Table A5.16: Kazakhstan. AIC of Electricity from the New TPP
Calendar Year 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 Present Values Incremental Costs (US$ million) Incremental Sales (million kWh) Average Incremental Costs (cents/kWh) 1424.2 31374 4.54 162.8 162.8 217.0 217.0 162.8 162.8 11.1 58.4 94.5 94.5 94.5 94.5 94.5 94.5 94.5 94.5 94.5 94.5 94.5 94.5 94.5 94.5 18.0 38.6 41.3 41.3 41.3 41.3 41.3 41.3 41.3 41.3 41.3 41.3 41.3 41.3 41.3 41.3 162.8 162.8 217.0 217.0 191.8 259.8 135.8 135.8 135.8 135.8 135.8 135.8 135.8 135.8 135.8 135.8 135.8 135.8 135.8 135.8 806 4231 6850 6850 6850 6850 6850 6850 6850 6850 6850 6850 6850 6850 6850 6850 Capital Investment $ million Fuel Cost $ million Incremental O&M Costs $ million Total Incremental Costs $ million Incremental Sales GWh

capacity by about 2020. These would be coal fired steam turbine units. One reasonable option would be to locate them in the site of the existing Ekibastuz II thermal plant31 which already has two units of 500 MW each. It will use Ekibastuz coal. The heat rate, fuel calorific value, fuel prices, and O&M costs and auxiliary consumption would be the same as those used for the rehabilitation of Ekibastuz I plant. The capital costs are estimated at $1,085 million32. Construction would be during 2016-2020 and the first year of output would be 2020. The Capacity Factor for each unit assumed at 20% during the first year of operation of each unit and at 85% in the follow up years. On the basis of the above-mentioned assumptions, the AIC of generation by the new units is expected to be 4.54/kWh (see Table A5.16).

31

50% of the equity in this existing Ekibastuz II power station is believed to have been transferred to RAO UES of Russia. 32 RWE Solution, KEGOK, Kazakhstan North-South 500 kV Power Transmission Line Investment Pre-Feasibility Study

60

Appendix 5.2 Central Asia Regional Export Potential Study Economic Analysis of Transmission Line Options for Exports

The economic analysis calculates the economic cost of transmission in respect of the proposed six export transmission line options using an 10% discount rate and using constant 2004 dollar price levels. The Basic Data on the proposed transmission lines are shown in the Table A5.17.
Table A5.17. Basic Data on Transmission Lines
Export Transmission Line Almaty (Kazakhstan) Urumqui (China) Surhan (Uzbekistan) - Kabul (Afghanistan) Kabul (Afghanistan) - Tarbela (Pakistan) Kabul (Afghanistan) Kandaghar (Afghanistan) Kandaghar (Afghanistan) Karachi (Pakistan) Surhan (Uzbekistan) - Mashad (Iran) Distance kilometers 1,050 515 360 490 900 1,150 Voltage kV 500 500 500 500 500 500 Line type DC AC AC AC AC AC Annual transmission (GWh) 10,000 5,000 3,000 5,000 4,000 10,000 Number of new SS 1 2 1 2 3 4 Number of expanded SS 1 1 1 1 1 1 Investment in US$ million 390.0 153.0 90.5 138.2 226.6 320.0

The following assumptions were assumed during AIC calculations for all Transmission Lines: The unit cost of the double circuit 500kV overhead transmission line is US$0.2 million per kilometer; Maximum load in the lines is estimated at about 2000 MVA, and average load at about 1000 MVA; Construction time is estimated at 24 to 30 months; An intermediate 500 kV substation is placed at intervals of 200 to 300 kilometers in the AC lines, inter alia, for reactive compensation purposes; Cost of each 500 kV substation is estimated at $20 million; Cost of expansion of each existing substation is estimated at $10 million; The designed power technical losses is at 1% of electricity transmitted for every 250 km; O&M expenses of transmission lines is estimated at 0.1% of the capital cost; The amount of power transferred is 10,000 GWh a year in each direction in respect of Almati-Urumqi and Surhan-Mashhad; and 5,000 in respect of Surhan-Kabul. Back-to-back DC conversion cost for DC lines is estimated at $150 million but no intermediate substations would be needed. The details of AIC calculations summarized in Table A5.18.

61

Table A5.18: Transmission Lines AIC Calculations

Almaty Urumqui Calendar Year Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 Year 13 Year 14 Year 15 Year 16 Year 17 Year 18 Year 19 Year 20 Year 21 Year 22 Year 23 Year 24 Year 25 Year 26 Year 27 Year 28 Year 29 Year 30 Year 31 Year 32 Year 33 Incremental Costs (US$ mil.) Incremental Sales (GWh) Economic Cost of Transmission (cents/kWh) 322.3 48531 0.66 264.5 53817 0.49 131.2 30521 0.43 77.6 18467 0.42 118.5 30552 0.39 97.5 156 136.5 477 2862 5724 9540 9540 9540 9540 9540 9540 9540 9540 9540 9540 9540 9540 9540 9540 9540 9540 9540 80 128 112 2832 6136 9440 9440 9440 9440 9440 9440 9440 9440 9440 9440 9440 9440 9440 9440 9440 9440 9440 9440 45.9 107.1 1460 3164 4867 4867 4867 4867 4867 4867 4867 4867 4867 4867 4867 4867 4867 4867 4867 4867 4867 4867 27.1 63.3 883 1914 2945 2945 2945 2945 2945 2945 2945 2945 2945 2945 2945 2945 2945 2945 2945 2945 2945 2945 41.5 96.7 1462 3167 4872 4872 4872 4872 4872 4872 4872 4872 4872 4872 4872 4872 4872 4872 4872 4872 4872 4872 68 158.6 1147 2486 3824 3824 3824 3824 3824 3824 3824 3824 3824 3824 3824 3824 3824 3824 3824 3824 3824 3824 194.3 23980 0.81 Invest. US$ mil Sales GWh Surhan Mashad Invest. US$ mil Sales GWh Surhan Kabul Invest. US$ mil Kabul Tarbela Invest. US$ mil Kabul Kandaghar Invest. US$ mil Sales GWh Kandaghar Karachi Invest. US$ mil

Sales GWh

Sales GWh

Sales GWh

62

Appendix 5.3 Central Asia Regional Export Potential Study Financial Analysis of Generation and Transmission Options

The financial analysis of the major supply options seeks to estimate the financial cost of supply of electricity to determine the competitiveness of these options, and to help the judge the attractiveness of these investment options in relation to both export and domestic markets. The analysis is limited to major hydroelectric supply options (Kambarata I and II, Sangtuda I, Rogun I and II) major thermal plant options (Talimardjan I and II, Bishkek II, Ekibastuz I rehabilitation and the New Ekibastuz units). Financing is based on a structure that will roughly result in 25% equity and 75% long term debt ratio after financing cost. The terms of debt are assumed to include a risk adjusted interest at 10%, a repayment period of 15 years including a five year grace period. The equity is expected to earn an internal rate of return (IRR) of 15% over the life of investment, which translates to an annual rate of return on equity in the range of 17% to 24% in respect of these projects. The level of annual Return on Equity varies among the projects, largely, as a function of the construction period. Longer construction periods make the investors wait for longer periods for cash inflows and thus raises the annual equity returns to achieve a 15% IRR on equity over the life of investment. On this basis, the tariff/kWh required to service the debt and provide the return on equity for each year is computed for a 20 year production period. These annual tariffs are then discounted to 2004 at 10% to arrive at the levelized tariff/kWh for the project. The capital costs used for economic analysis which are in constant 2004 dollars, are converted into nominal dollars using a MUV inflation index of 1.52% per year. O&M and Fuel expenses are also similarly inflated at 1.52 % per year for the financial analysis. Preparatory period is the estimate of the time needed for firming up markets and financing sources. The steady state sales in GWh are derived from the steady state generation by reducing from the gross generation, the volume of electricity consumed for the generation station use at the rate 8% for coal fired steam units, 6% for gas fired steam units, 4% for gas fired combined cycle plant and 1% for the hydro plants as per the industry practice. The levelized tariffs derived for the generation options enable comparison among the among the options and for a given scheme for different financing and output assumptions. Sensitivity analysis has been carried out for decrease in generation, for increases in capital expenditure, fuel cost, interest rate and rates of return on equity. Given their construction schedules and structure of financing they are most sensitive to increases in interest rates and significantly sensitive to increases in rate of return on equity. They are also markedly sensitive to decreases in output and increases in fuel (especially natural gas) prices. Given the high cost per kW, long preparation and construction times and low load factors the hydropower projects are much more sensitive to changes in respect of most parameters, than thermal power projects. Thermal power projects would thus be able to deal with possible reductions in export demand much better than the hydro projects. However thermal projects are also quite sensitive to fuel price increases.

63

Table A5.19: Financial Analysis of Sangtuda I Hydropower Project

Construction Period Year Capital Capital Debt Expenditures IDC Expenditures Funded without IDC with IDC ($ M) 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 Total $402 $91 $493 $379 $114 Levelized Tariff (c/kWh): 2.44 (in 2004 prices) $19 $39 $79 $80 $122 $62 ($ M) $1 $4 $9 $17 $26 $35 ($ M) $20 $43 $88 $97 $149 $97 ($ M) $17 $37 $76 $72 $122 $55 Equity Funded ($ M) $3 $6 $12 $25 $27 $42 $0.41 $0.41 $0.42 $0.42 $0.43 $0.44 $0.44 $0.45 $0.46 $0.46 $0.47 $0.48 $0.49 $0.49 $0.50 $0.51 $0.52 $0.52 $0.53 $0.54 $38 $38 $38 $38 $38 $69 $66 $63 $60 $57 $54 $51 $47 $44 $41 $13 $12 $11 $11 $10 $22 $22 $22 $22 $22 $22 $22 $22 $22 $22 $22 $22 $22 $22 $22 $22 $22 $22 $22 $22 $61 $61 $61 $61 $61 $92 $89 $86 $83 $80 $77 $73 $70 $67 $64 $36 $35 $34 $34 $33 2,538 2,538 2,538 2,538 2,538 2,538 2,538 2,538 2,538 2,538 2,538 2,538 2,538 2,538 2,538 2,538 2,538 2,538 2,538 2,538 2.40 2.40 2.40 2.40 2.40 3.64 3.52 3.39 3.27 3.14 3.02 2.90 2.77 2.65 2.52 1.40 1.38 1.35 1.33 1.31 Operating Period Debt Return Total O&M Service on Cash Generation Expenses Expenses Equity Outflow ($ M) ($ M) ($ M) ($ M) GWh Annual Tariff c/kWh

Table A5.20: Sangtuda I Sensitivity Analysis

Percentage Change in Parameter (%) Base Case Sensitivities (1) Change in Generation (2) Change in Interest Rates (3) Change in Return on Equity (4) Change in CapEx
a)

Levelized Tariff c/kWh 2.4350

Percentage Change Lev Tariff (%)

Sensitivity Index a

-20% 1% 1% 1%

3.0438 2.4521 2.4453 2.4587

25.0% 0.7% 0.4% 1.0%

(1.25) 0.70 0.42 0.97

Sensitivity index is the % change in parameter divided by % Change in Levelized Tariff.

64

Table A5.21: Financial Analysis of Rogun Hydropower Project Phase I

Construction Period Year Capital Expenditures without IDC ($ M) 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 Total $908 $196 $1,104 $839 $264 Levelized Tariff (c/kWh): 2.91 (2004 prices) $88 $223 $226 $184 $187 IDC ($ M) $4 $18 $39 $59 $76 Capital Expenditures with IDC ($ M) $92 $241 $265 $243 $263 Debt Funded ($ M) $75 $214 $194 $165 $191 Equity Funded ($ M) $16 $27 $71 $78 $72 $0.9 $0.9 $0.9 $1.0 $1.0 $1.0 $1.0 $1.0 $1.0 $1.0 $1.1 $1.1 $1.1 $1.1 $1.1 $1.1 $1.2 $1.2 $1.2 $1.2 $84 $84 $84 $84 $84 $154 $147 $140 $133 $126 $119 $112 $105 $98 $91 $28 $27 $25 $24 $22 $52 $52 $52 $52 $52 $52 $52 $52 $52 $52 $52 $52 $52 $52 $52 $52 $52 $52 $52 $52 $137 $137 $137 $137 $137 $207 $200 $193 $186 $179 $172 $165 $158 $151 $144 $81 $79 $78 $77 $75 4,643 4,643 4,643 4,643 4,643 4,643 4,643 4,643 4,643 4,643 4,643 4,643 4,643 4,643 4,643 4,643 4,643 4,643 4,643 4,643 2.94 2.94 2.94 2.94 2.94 4.45 4.30 4.15 4.00 3.85 3.70 3.55 3.40 3.25 3.10 1.74 1.71 1.68 1.65 1.62 Operating Period Debt Return Total O&M Service on Cash Expenses Expenses Equity Outflow ($ M) ($ M) ($ M) ($ M) Generation GWh Annual Tariff c/kWh

Table A5.22: Rogun Phase I Sensitivity Analysis

Percentage Change in Parameter (%) Base Case Sensitivities (1) Change in Generation (2) Change in Interest Rates (3) Change in Return on Equity (4) Change in CapEx
a)

Levelized Tariff c/kWh 2.9104

Percentage Change Lev Tariff (%)

Sensitivity Index a

-20% 1% 1% 1%

3.6380 2.9310 2.9235 2.9392

25.0% 0.7% 0.5% 1.0%

(1.25) 0.71 0.45 0.99

Sensitivity index is the % change in parameter divided by % Change in Levelized Tariff.

65

Table A5.23: Financial Analysis of Rogun Hydropower Project Phases I&II

Construction Period Year Capital Expenditures without IDC ($ M) 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 Total $2,927 $816 $3,743 $2,795 $948 Levelized Tariff (c/kWh): 3.24 (in 2004 prices) $88 $223 $226 $575 $584 $504 $307 $208 $211 IDC ($ M) $4 $18 $39 $76 $127 $91 $129 $154 $178 Capital Debt Expenditures Funded with IDC ($ M) $92 $241 $265 $651 $711 $596 $436 $362 $389 ($ M) $75 $214 $194 $506 $527 $473 $273 $243 $290 Equity Funded ($ M) $16 $27 $71 $145 $184 $123 $163 $119 $99 $0.9 $0.9 $0.9 $1.0 $2.7 $2.7 $2.8 $2.8 $2.8 $2.9 $2.9 $3.0 $3.0 $3.1 $3.1 $3.2 $3.2 $3.3 $3.3 $3.4 $84 $84 $84 $84 $279 $349 $342 $335 $328 $321 $477 $454 $431 $408 $384 $305 $287 $270 $252 $234 $52 $52 $52 $52 $209 $209 $209 $209 $209 $209 $209 $209 $209 $209 $209 $209 $209 $209 $209 $209 $137 $137 $137 $137 $491 $561 $554 $547 $540 $533 $689 $666 $643 $620 $596 $517 $499 $482 $464 $446 4,643 4,643 4,643 4,643 14,157 14,157 14,157 14,157 14,157 14,157 14,157 14,157 14,157 14,157 14,157 14,157 14,157 14,157 14,157 14,157 2.94 2.94 2.94 2.94 3.47 3.96 3.91 3.86 3.82 3.77 4.87 4.70 4.54 4.38 4.21 3.65 3.53 3.40 3.28 3.15 O&M Expenses ($ M) Operating Period Total Return Debt Cash on Service Expenses Equity Outflow ($ M) ($ M) ($ M) Generation GWh Annual Tariff c/kWh

Table A5.24: Rogun Phases I & II Sensitivity Analysis

Percentage Change in Parameter(%) Base Case Sensitivities (1) Change in Generation (2) Change in Interest Rates (3) Change in Return on Equity (4) Change in CapEx
a)

Levelized Tariff c/kWh 3.2388

Percentage Change Lev Tariff(%)

Sensitivity Index a

-20% 1% 1% 1%

4.0485 3.2644 3.2547 3.2676

25.0% 0.8% 0.5% 0.9%

(1.25) 0.79 0.49 0.89

Sensitivity index is the % change in parameter divided by % Change in Levelized Tariff.

66

Table A5.25: Financial Analysis of Kambarata I Hydropower Project

Construction Period Year Capital Expenditures without IDC ($ M) 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 $221 $336 $341 $346 $351 $238 $241 $245 IDC ($ M) $10 $35 $65 $97 $132 $161 $174 $190 Capital Debt Expenditures Funded with IDC ($ M) $230 $370 $406 $443 $483 $398 $415 $435 ($ M) $193 $308 $305 $333 $363 $267 $307 $322 Equity Funded ($ M) $38 $63 $101 $111 $121 $131 $108 $113 $0.9 $0.9 $0.9 $1.0 $1.0 $1.0 $1.0 $1.0 $1.0 $1.0 $1.1 $1.1 $1.1 $1.1 $1.1 $1.1 $1.2 $1.2 $1.2 $1.2 Total $2,319 $864 $3,183 $2,398 $785 Levelized Tariff (c/kWh): 8.54 (in 2004 prices) $240 $240 $240 $240 $240 $440 $420 $400 $380 $360 $340 $320 $300 $280 $260 $80 $76 $72 $68 $64 $196 $196 $196 $196 $196 $196 $196 $196 $196 $196 $196 $196 $196 $196 $196 $196 $196 $196 $196 $196 $437 $437 $437 $437 $437 $637 $617 $597 $577 $557 $537 $517 $497 $477 $457 $277 $273 $269 $265 $261 5,049 5,049 5,049 5,049 5,049 5,049 5,049 5,049 5,049 5,049 5,049 5,049 5,049 5,049 5,049 5,049 5,049 5,049 5,049 5,049 8.65 8.65 8.65 8.65 8.65 12.61 12.22 11.82 11.43 11.03 10.64 10.24 9.84 9.45 9.05 5.49 5.41 5.33 5.26 5.18 Operating Period Debt Return Total O&M Service on Cash Generation Expenses Expenses Equity Outflow ($ M) ($ M) ($ M) ($ M) GWh Annual Tariff c/kWh

Table A5.26: Kamabarata I Sensitivity Analysis

Percentage Change in Parameter (%) Base Case Sensitivities (1) Change in Generation (2) Change in Interest Rates (3) Change in Return on Equity (4) Change in CapEx
a)

Levelized Tariff c/kWh 8.5445

Percentage Change Lev Tariff (%)

Sensitivity Index a

-20% 1% 1% 1%

10.6806 8.6143 8.5894 8.6298

25.0% 0.8% 0.5% 1.0%

(1.25) 0.82 0.52 1.00

Sensitivity index is the % change in parameter divided by % Change in Levelized Tariff.

67

Table A5.27: Financial Analysis of Kambarata II Hydropower Project

Construction Period Year Capital Expenditures without IDC ($ M) 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 $61 $93 $94 $64 IDC $ M) $3 $9 $18 $24 Capital Expenditures with IDC ($ M) $63 $102 $112 $88 Debt Funded ($ M) $52 $83 $82 $55 Equity Funded ($ M) $11 $19 $30 $33 $0.6 $0.6 $0.6 $0.7 $0.7 $0.7 $0.7 $0.7 $0.7 $0.7 $0.7 $0.7 $0.7 $0.8 $0.8 $0.8 $0.8 $0.8 $0.8 $0.8 $27 $27 $27 $27 $27 $50 $48 $45 $43 $41 $39 $36 $34 $32 $30 $9 $9 $8 $8 $7 $17 $17 $17 $17 $17 $17 $17 $17 $17 $17 $17 $17 $17 $17 $17 $17 $17 $17 $17 $17 $45 $45 $45 $45 $45 $68 $66 $64 $61 $59 $57 $54 $52 $50 $48 $27 $27 $26 $26 $26 1,105 1,105 1,105 1,105 1,105 1,105 1,105 1,105 1,105 1,105 1,105 1,105 1,105 1,105 1,105 1,105 1,105 1,105 1,105 1,105 4.10 4.10 4.10 4.10 4.10 6.16 5.95 5.75 5.54 5.34 5.14 4.93 4.73 4.52 4.32 2.47 2.43 2.39 2.35 2.31 O&M Expenses ($ M) Debt Service Expenses ($ M) Operating Period Return on Equity ($ M) Total Cash Outflow ($ M) Generation GWh Annual Tariff c/kWh

Total

$311

$54

$365

$272

$93

Levelized Tariff (c/kWh): 3.95 (in 2004 prices)

Table A5.28: Kambarata II Sensitivity Analysis

Percentage Change in Parameter (%) Base Case Sensitivities (1) Change in Generation (2) Change in Interest Rates (3) Change in Return on Equity (4) Change in CapEx
a)

Levelized Tariff c/kWh 3.9534

Percentage Change Lev Tariff (%)

Sensitivity Index a

-20% 1% 1% 1%

4.9418 3.9684 3.9716 3.9926

25.0% 0.4% 0.5% 1.0%

(1.25) 0.38 0.46 0.99

Sensitivity index is the % change in parameter divided by % Change in Levelized Tariff.

68

Table A5.29: Financial Analysis of Bishkek II Thermal Power Project

Construction Period Capital Capital Year Expend. Expend. Debt IDC Funded without with IDC IDC ($ M) 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Total $206 $27 $233 $169 $64 Levelized Tariff (c/kWh): 2.67 (in 2004 prices) $81 $62 $63 ($ M) ($ M) $3 $9 $14 $85 $71 $77 ($ M) $69 $45 $55 Equity Funded ($ M) $16 $26 $22 $12.6 $12.8 $13.0 $13.2 $13.4 $13.6 $13.8 $14.0 $14.2 $14.4 $14.6 $14.9 $15.1 $15.3 $15.6 $15.8 $16.0 $16.3 $16.5 $16.8 $21 $21 $21 $22 $22 $22 $23 $23 $23 $24 $24 $24 $25 $25 $25 $26 $26 $27 $27 $27 $17 $17 $17 $17 $17 $31 $30 $28 $27 $25 $24 $23 $21 $20 $18 $6 $5 $5 $5 $5 $12 $12 $12 $12 $12 $12 $12 $12 $12 $12 $12 $12 $12 $12 $12 $12 $12 $12 $12 $12 $62 $62 $63 $63 $64 $78 $77 $77 $76 $75 $74 $73 $72 $72 $71 $59 $59 $60 $60 $60 2,355 2,355 2,355 2,355 2,355 2,355 2,355 2,355 2,355 2,355 2,355 2,355 2,355 2,355 2,355 2,355 2,355 2,355 2,355 2,355 2.62 2.64 2.66 2.68 2.71 3.33 3.29 3.25 3.22 3.18 3.15 3.11 3.08 3.04 3.01 2.50 2.51 2.53 2.55 2.56 O&M Fuel Expenses Expenses ($ M) ($ M) Operating Period Debt Return Total Service on Cash Generation Expenses Equity Outflow ($ M) ($ M) ($ M) GWh

Annual Tariff c/kWh

Table A5.30: Bishkek II Sensitivity Analysis

Percentage Change in Parameter (%) Base Case Sensitivities (1) Change in Generation (2) Change in Interest Rates (3) Change in Return on Equity (4) Change in CapEx (5) Change in Fuel Price
a)

Levelized Tariff c/kWh 2.6743

Percentage Change Lev Tariff(%)

Sensitivity Index a

-20% 1% 1% 1% 1%

3.1178 2.6822 2.6800 2.6866 2.6833

16.6% 0.3% 0.2% 0.5% 0.3%

(0.83) 0.30 0.21 0.46 0.34

Sensitivity index is the % change in parameter divided by % Change in Levelized Tariff.

69

Table A5.31: Financial Analysis of Talimarjan - Phase I Power Project

Construction Period Year Debt IDC Capital Capital Expenditures Funded Expenditures with IDC without IDC ($ M) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Total $102 $6 $108 $85 $23 Levelized Tariff (c/kWh) : 1.75 (in 2004 prices) $102 ($ M) $6 ($ M) $108 ($ M) $85 Equity Funded ($ M) $23 $8.1 $8.2 $8.3 $8.4 $8.6 $8.7 $8.8 $9.0 $9.1 $9.2 $9.4 $9.5 $9.7 $9.8 $10.0 $10.1 $10.3 $10.4 $10.6 $10.7 $10.1 $10.3 $10.4 $10.6 $10.7 $48 $49 $50 $51 $51 $52 $53 $54 $55 $55 $56 $57 $58 $59 $60 $61 $62 $63 $63 $64 $61 $62 $63 $63 $64 $9 $9 $9 $9 $9 $16 $15 $15 $14 $13 $12 $12 $11 $10 $10 $3 $3 $3 $2 $2 $3 $3 $3 $2 $2 $3 $3 $3 $3 $3 $3 $3 $3 $3 $3 $3 $3 $3 $3 $3 $3 $3 $3 $3 $3 $3 $3 $3 $3 $3 $68 $69 $70 $71 $72 $80 $80 $80 $81 $81 $81 $81 $82 $82 $82 $77 $78 $79 $80 $81 $77 $78 $79 $80 $81 4,266 4,266 4,266 4,266 4,266 4,266 4,266 4,266 4,266 4,266 4,266 4,266 4,266 4,266 4,266 4,266 4,266 4,266 4,266 4,266 4,266 4,266 4,266 4,266 4,266 1.60 1.62 1.64 1.66 1.68 1.88 1.88 1.89 1.89 1.90 1.90 1.91 1.92 1.92 1.93 1.80 1.82 1.84 1.87 1.89 1.80 1.82 1.84 1.87 1.89 O&M Fuel Expenses Expenses ($ M) ($ M) Operating Period Generation Total Return Debt Cash on Service Expenses Equity Outflow ($ M) ($ M) ($ M) GWh Annual Tariff c/kWh

Table A5.32: Talimardjan Phase I Sensitivity Analysis

Percentage Change in Parameter(%) Base Case Sensitivities (1) Change in Generation (2) Change in Interest Rates (3) Change in Return on Equity (4) Change in CapEx (5) Change in Fuel Price
a)

Levelized Tariff c/kWh 1.7490

Percentage Change Lev Tariff (%)

Sensitivity Index a

-20% 1% 1% 1% 1%

1.8770 1.7506 1.7497 1.7520 1.7614

7.3% 0.1% 0.0% 0.2% 0.7%

(0.37) 0.09 0.04 0.17 0.71

Sensitivity index is the % change in parameter divided by % Change in Levelized Tariff.

70

Table A5.33: Financial Analysis of Talimarjan - Phase II Power Project

Construction Period Capital Year Expend. without IDC ($ M) 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 Total $1,340 $335 $1,675 $1,303 $372 Levelized Tariff (c/kWh): 2.92 (in 2004 prices) $130 $397 $448 $318 $46 $130 Capital Expend. with IDC ($ M) $136 $428 $518 $422 $170 $136 Debt Funded ($ M) $113 $390 $398 $277 $124 $113 Equity Funded ($ M) $23 $38 $120 $145 $46 $23 $24.2 $24.6 $24.9 $25.3 $25.7 $26.1 $26.5 $26.9 $27.3 $27.7 $28.1 $28.6 $29.0 $29.4 $29.9 $30.3 $30.8 $31.3 $31.7 $32.2 $30.3 $30.8 $31.3 $31.7 $145 $147 $150 $152 $154 $156 $159 $161 $164 $166 $169 $171 $174 $177 $179 $182 $185 $188 $190 $193 $182 $185 $188 $190 $130 $130 $130 $130 $130 $239 $228 $217 $206 $195 $185 $174 $163 $152 $141 $43 $41 $39 $37 $35 $43 $41 $39 $37 $75 $75 $75 $75 $75 $75 $75 $75 $75 $75 $75 $75 $75 $75 $75 $75 $75 $75 $75 $75 $75 $75 $75 $75 $375 $377 $380 $383 $385 $497 $488 $480 $472 $464 $457 $449 $441 $433 $425 $331 $332 $333 $334 $335 $331 $332 $333 $334 12,796 12,796 12,796 12,796 12,796 12,796 12,796 12,796 12,796 12,796 12,796 12,796 12,796 12,796 12,796 12,796 12,796 12,796 12,796 12,796 12,796 12,796 12,796 12,796 2.93 2.95 2.97 2.99 3.01 3.88 3.82 3.75 3.69 3.63 3.57 3.51 3.45 3.38 3.32 2.59 2.59 2.60 2.61 2.62 2.59 2.59 2.60 2.61 O&M Fuel Expenses Expenses ($ M) ($ M) Operating Period Debt Return Total Service on Cash Generation Expenses Equity Outflow ($ M) ($ M) ($ M) GWh

IDC ($ M) $6 $31 $70 $104 $124 $6

Annual Tariff c/kWh

Table A5.34: Talimardjan Phase II Sensitivity Analysis

Percentage Change in Parameter (%) Base Case Sensitivities (1) Change in Generation (2) Change in Interest Rates (3) Change in Return on Equity (4) Change in CapEx (5) Change in Fuel Price
a)

Levelized Tariff c/kWh 2.9168

Percentage Change Lev Tariff (%)

Sensitivity Index a

-20% 1% 1% 1% 1%

3.3893 2.9305 2.9258 2.9340 2.9217

16.2% 0.5% 0.3% 0.6% 0.2%

(0.81) 0.47 0.31 0.59 0.17

Sensitivity index is the % change in parameter divided by % Change in Levelized Tariff.

71

Table A5.35: Financial Analysis of Ekibastuz I Rehabilitation Project

Construction Period Year Capital Capital Expend. Expend. Debt IDC without with Funded IDC IDC ($ M) 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 Total $484 $71 $555 $416 $140 Levelized Tariff (c/kWh) : 2.66 (in 2004 prices) $47 $143 $146 $148 ($ M) $2 $11 $23 $35 ($ M) $49 $154 $169 $183 ($ M) $39 $137 $115 $124 Equity Funded ($ M) $10 $17 $54 $59 $81.4 $82.7 $83.9 $85.2 $86.5 $87.8 $89.1 $90.5 $91.9 $93.3 $94.7 $96.1 $97.6 $99.1 $100.6 $102.1 $103.7 $105.2 $106.8 $108.5 $147 $149 $151 $154 $156 $158 $161 $163 $166 $168 $171 $173 $176 $179 $181 $184 $187 $190 $193 $196 $42 $42 $42 $42 $42 $76 $73 $69 $66 $62 $59 $55 $52 $49 $45 $14 $13 $12 $12 $11 $25 $25 $25 $25 $25 $25 $25 $25 $25 $25 $25 $25 $25 $25 $25 $25 $25 $25 $25 $25 $295 $299 $302 $306 $310 $348 $348 $349 $349 $349 $350 $350 $351 $352 $353 $326 $329 $333 $337 $341 11,283 11,283 11,283 11,283 11,283 11,283 11,283 11,283 11,283 11,283 11,283 11,283 11,283 11,283 11,283 11,283 11,283 11,283 11,283 11,283 2.62 2.65 2.68 2.71 2.74 3.08 3.09 3.09 3.09 3.10 3.10 3.11 3.11 3.12 3.12 2.89 2.92 2.95 2.99 3.02 O&M Fuel Expenses Expenses ($ M) ($ M) Operating Period Total Return Debt Cash on Service Generation Expenses Equity Outflow ($ M) ($ M) ($ M) GWh

Annual Tariff c/kWh

Table A5.36: Ekibastuz I Rehabilitation Project Sensitivity Analysis

Percentage Change in Parameter (%) Base Case Sensitivities (1) Change in Generation (2) Change in Interest Rates (3) Change in Return on Equity (4) Change in CapEx (5) Change in Fuel Price
a)

Levelized Tariff c/kWh 2.6617

Percentage Change Lev Tariff (%)

Sensitivity Index a

-20% 1% 1% 1% 1%

2.9956 2.6665 2.6649 2.6677 2.6750

12.5% 0.2% 0.1% 0.2% 0.5%

(0.63) 0.18 0.12 0.23 0.50

Sensitivity index is the % change in parameter divided by % Change in Levelized Tariff.

72

Table A5.37: Financial Analysis of Kazakhstan New Ekibastuz Project

Construction Period Year Capital Expend. without IDC ($ M) 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 Total $1,361 $356 $1,717 $1,270 $447 Levelized Tariff (c/kWh): 5.05 (in 2004 prices) $197 $200 $270 $274 $209 $212 IDC Debt Capital Expend. Funded with IDC ($ M) $205 $225 $316 $345 $302 $324 ($ M) $169 $164 $250 $252 $200 $235 Equity Funded O&M Fuel Expenses Expenses Operating Period Total Return Debt Generation Cash on Service Expenses Equity Outflow ($ M) ($ M) ($ M) GWh Annual Tariff

($ M) $8 $25 $46 $71 $93 $112

($ M) $36 $60 $66 $93 $102 $89

($ M)

($ M)

c/kWh

$42 $42 $43 $44 $44 $45 $46 $46 $47 $48 $48 $49 $50 $51 $51 $52 $53 $54 $55 $55

$99 $101 $102 $104 $105 $107 $109 $110 $112 $114 $115 $117 $119 $121 $123 $124 $126 $128 $130 $132

$127 $127 $127 $127 $127 $233 $222 $212 $201 $190 $180 $169 $159 $148 $138 $42 $40 $38 $36 $34

$88 $88 $88 $88 $88 $88 $88 $88 $88 $88 $88 $88 $88 $88 $88 $88 $88 $88 $88 $88

$356 $358 $360 $363 $365 $473 $465 $456 $448 $440 $432 $424 $416 $408 $400 $307 $308 $308 $309 $310

6,850 6,850 6,850 6,850 6,850 6,850 6,850 6,850 6,850 6,850 6,850 6,850 6,850 6,850 6,850 6,850 6,850 6,850 6,850 6,850

5.20 5.23 5.26 5.29 5.33 6.90 6.78 6.66 6.54 6.42 6.31 6.19 6.07 5.95 5.84 4.48 4.49 4.50 4.51 4.52

Table A5.38: Kazakhstan New Ekibastuz Sensitivity Analysis

Percentage Change in Parameter (%) Base Case Sensitivities (1) Change in Generation (2) Change in Interest Rates (3) Change in Return on Equity (4) Change in CapEx (5) Change in Fuel Price
a)

Levelized Tariff c/kWh 5.0468

Percentage Change Lev Tariff (%)

Sensitivity Index a

-20% 1% 1% 1% 1%

5.6524 5.0700 5.0720 5.0766 5.0614

12.0% 0.5% 0.5% 0.6% 0.3%

(0.60) 0.46 0.50 0.59 0.29

Sensitivity index is the % change in parameter divided by % Change in Levelized Tariff.

73

Table A5.39: Financial Analysis of Surhan - Mashad Transmission Line Project

Construction Period Capital Capital Expend. Expend. Debt IDC Without With Funded IDC IDC ($ M) Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 Year 13 Year 14 Year 15 Year 16 Year 17 Year 18 Year 19 Year 20 Year 21 Year 22 Year 23 Total $225 $41 $266 $170 $96 Levelized Tariff (c/kWh) 0.54 $86 $139 $124 ($ M) $4 $13 $24 ($ M) $89 $152 $148 ($ M) $72 $123 $98 Equity Funded ($ M) $17 $29 $50 $0.3 $0.3 $0.3 $0.3 $0.3 $0.3 $0.3 $0.3 $0.3 $0.3 $0.4 $0.4 $0.4 $0.4 $0.4 $0.4 $0.4 $0.4 $0.4 $0.4 $29 $29 $29 $29 $29 $54 $51 $49 $47 $44 $42 $39 $37 $34 $32 $10 $9 $9 $8 $8 $17 $17 $17 $17 $17 $17 $17 $17 $17 $17 $17 $17 $17 $17 $17 $17 $17 $17 $17 $17 $47 $47 $47 $47 $47 $71 $69 $66 $64 $61 $59 $56 $54 $52 $49 $27 $27 $26 $26 $25 9,440 9,440 9,440 9,440 9,440 9,440 9,440 9,440 9,440 9,440 9,440 9,440 9,440 9,440 9,440 9,440 9,440 9,440 9,440 9,440 0.49 0.49 0.49 0.49 0.49 0.75 0.73 0.70 0.68 0.65 0.62 0.60 0.57 0.55 0.52 0.29 0.28 0.28 0.27 0.27 O&M Expenses ($ M) Operating Period Debt Return Total Service On Cash Transm Expenses Equity Outflow ($ M) ($ M) ($ M) GWh Annual Tariff c/kWh

Table A5.40: Surhan - Mashad Transmission Line Sensitivity Analysis

Percentage Change in Parameter (%) Base Case Sensitivities (1) Change in Generation (2) Change in Interest Rates (3) Change in Return on Equity (4) Change in CapEx
a)

Levelized Tariff c/kWh 0.5075

Percentage Change Lev Tariff (%)

Sensitivity Index a

-20% 1% 1% 1%

0.6344 0.5106 0.5094 0.5125

25.0% 0.6% 0.4% 1.0%

(1.25) 0.61 0.38 0.99

Sensitivity index is the % change in parameter divided by % Change in Levelized Tariff.

74

Table A5.41: Financial Analysis of Kandahar - Karachi Transmission Line Project

Construction Period Year Capital Capital Expend. Expend. Debt IDC without with Funded IDC IDC ($ M) Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 Year 13 Year 14 Year 15 Year 16 Year 17 Year 18 Year 19 Year 20 Year 21 Year 22 Total $285 $17 $302 $225 $77 Levelized Tariff (c/kWh): 1.03 $85 $200 ($ M) ($ M) $3 $14 $88 $215 ($ M) $59 $166 O&M Expenses ($ M) Operating Period Return Total Debt Cash Transm on Service Expenses Equity Outflow ($ M) ($ M) ($ M) GWh

Equity Funded ($ M) $29 $48

Annual Tariff c/kWh

$0.2 $0.2 $0.2 $0.2 $0.2 $0.2 $0.2 $0.2 $0.2 $0.2 $0.2 $0.2 $0.2 $0.2 $0.3 $0.3 $0.3 $0.3 $0.3 $0.3

$23 $23 $23 $23 $23 $41 $39 $38 $36 $34 $32 $30 $28 $26 $24 $15 $6 $6 $6 $5

$13 $13 $13 $13 $13 $13 $13 $13 $13 $13 $13 $13 $13 $13 $13 $13 $13 $13 $13 $13

$36 $36 $36 $36 $36 $55 $53 $51 $49 $47 $45 $43 $41 $40 $38 $28 $20 $19 $19 $19

3,824 3,824 3,824 3,824 3,824 3,824 3,824 3,824 3,824 3,824 3,824 3,824 3,824 3,824 3,824 3,824 3,824 3,824 3,824 3,824

0.94 0.94 0.94 0.94 0.94 1.43 1.38 1.33 1.28 1.23 1.18 1.13 1.08 1.04 0.99 0.74 0.52 0.51 0.50 0.49

Table A5.42: Kandahar - Karachi Transmission Line Sensitivity Analysis

Percentage Change in Parameter (%) Base Case Sensitivities (1) Change in Generation (2) Change in Interest Rates (3) Change in Return on Equity (4) Change in CapEx
a)

Levelized Tariff c/kWh 0.9839

Percentage Change Lev Tariff (%)

Sensitivity Index a

-20% 1% 1% 1%

1.2299 0.9892 0.9876 0.9937

25.0% 0.5% 0.4% 1.0%

(1.25) 0.54 0.37 0.99

Sensitivity index is the % change in parameter divided by % Change in Levelized Tariff.

75

Table A5.43: Financial Analysis of Kabul - Kandahar Transmission Line Project

Construction Period Year Capital Capital Expend. Expend. Debt IDC without with Funded IDC IDC ($ M) Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 Year 13 Year 14 Year 15 Year 16 Year 17 Year 18 Year 19 Year 20 Year 21 Year 22 Total $171 $10 $182 $135 $46 Levelized Tariff (c/kWh): 049 $51 $120 ($ M) ($ M) $2 $9 $53 $129 ($ M) $35 $100 O&M Expenses ($ M) Operating Period Return Total Debt Cash Transm on Service Expenses Equity Outflow ($ M) ($ M) ($ M) GWh

Equity Funded ($ M) $17 $29

Annual Tariff c/kWh

$0.1 $0.1 $0.1 $0.1 $0.1 $0.1 $0.1 $0.1 $0.1 $0.1 $0.1 $0.1 $0.1 $0.1 $0.1 $0.1 $0.1 $0.1 $0.1 $0.1

$14 $14 $14 $14 $14 $25 $24 $23 $21 $20 $19 $18 $17 $16 $15 $5 $4 $4 $4 $4

$8 $8 $8 $8 $8 $8 $8 $8 $8 $8 $8 $8 $8 $8 $8 $8 $8 $8 $8 $8

$21 $21 $21 $21 $21 $33 $32 $31 $29 $28 $27 $26 $25 $24 $23 $12 $12 $12 $12 $12

4,872 4,872 4,872 4,872 4,872 4,872 4,872 4,872 4,872 4,872 4,872 4,872 4,872 4,872 4,872 4,872 4,872 4,872 4,872 4,872

0.44 0.44 0.44 0.44 0.44 0.67 0.65 0.63 0.60 0.58 0.56 0.53 0.51 0.49 0.46 0.26 0.25 0.25 0.24 0.24

Table A5.44: Kabul - Kandahar Transmission Line Sensitivity Analysis

Percentage Change in Parameter (%) Base Case Sensitivities (1) Change in Generation (2) Change in Interest Rates (3) Change in Return on Equity (4) Change in CapEx
a)

Levelized Tariff c/kWh 0.4636

Percentage Change Lev Tariff (%)

Sensitivity Index a

-20% 1% 1% 1%

0.5795 0.4661 0.4653 0.4698

25.0% 0.5% 0.4% 1.3%

(1.25) 0.54 0.37 1.34

Sensitivity index is the % change in parameter divided by % Change in Levelized Tariff.

76

Table A5.45: Financial Analysis of Almaty - Urumqui Transmission Line Project

Construction Period Year Capital Expend. without IDC ($ M) Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 Year 13 Year 14 Year 15 Year 16 Year 17 Year 18 Year 19 Year 20 Year 21 Year 22 Year 23 Total $422 $50 $472 $350 $122 Levelized Tariff (c/kWh): 0.72 $104 $169 $150 Capital Expend with IDC ($ M) $108 $185 $179 Debt Funded ($ M) $86 $148 $116 O&M Expenses ($ M) Debt Service Expenses ($ M) Operating Period Return on Equity ($ M) Total Cash Outflow ($ M)

IDC ($ M) $4 $16 $29

Equity Funded ($ M) $22 $37 $63

Trans GWh

Annual Tariff c/kWh

$0.4 $0.4 $0.4 $0.4 $0.4 $0.4 $0.4 $0.5 $0.5 $0.5 $0.5 $0.5 $0.5 $0.5 $0.5 $0.5 $0.5 $0.5 $0.5 $0.5

$35 $35 $35 $35 $35 $64 $61 $58 $55 $53 $50 $47 $44 $41 $38 $12 $11 $11 $10 $9

$22 $22 $22 $22 $22 $22 $22 $22 $22 $22 $22 $22 $22 $22 $22 $22 $22 $22 $22 $22

$57 $57 $57 $57 $57 $87 $84 $81 $78 $75 $72 $69 $66 $63 $60 $34 $33 $33 $32 $32

9,540 9,540 9,540 9,540 9,540 9,540 9,540 9,540 9,540 9,540 9,540 9,540 9,540 9,540 9,540 9,540 9,540 9,540 9,540 9,540

0.60 0.60 0.60 0.60 0.60 0.91 0.88 0.85 0.82 0.78 0.75 0.72 0.69 0.66 0.63 0.36 0.35 0.34 0.34 0.33

Table A5.46: Almaty - Urumqui Transmission Line Sensitivity Analysis

Percentage Change in Parameter(%) Base Case Sensitivities (1) Change in Generation (2) Change in Interest Rates (3) Change in Return on Equity (4) Change in CapEx
a)

Levelized Tariff c/kWh 0.6176

Percentage Change Lev Tariff (%)

Sensitivity Index a

-20% 1% 1% 1%

0.7720 0.6212 0.6200 0.6237

25.0% 0.6% 0.4% 1.0%

(1.25) 0.59 0.39 0.99

Sensitivity index is the % change in parameter divided by % Change in Levelized Tariff.

77

Table A5.47: Financial Analysis of Kabul - Tarbela Transmission Line Project

Construction Period Year Capital Expend. without IDC ($ M) Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 Year 13 Year 14 Year 15 Year 16 Year 17 Year 18 Year 19 Year 20 Year 21 Year 22 Total $109 $7 $115 $86 $29 Levelized Tariff (c/kWh) 0.51 $32 $76 Capital Expend. Debt with Funded IDC ($ M) $33 $82 ($ M) $22 $64 O&M Expenses ($ M) Operating Period Return Total Debt Cash on Service Expenses Equity Outflow ($ M) ($ M) ($ M)

IDC ($ M) $1 $5

Equity Funded ($ M) $11 $18

Transm GWh

Annual Tariff c/kWh

$0.10 $0.11 $0.11 $0.11 $0.11 $0.11 $0.11 $0.12 $0.12 $0.12 $0.12 $0.12 $0.12 $0.13 $0.13 $0.13 $0.13 $0.13 $0.14 $0.14

$9 $9 $9 $9 $9 $16 $15 $14 $14 $13 $12 $11 $11 $10 $9 $3 $3 $3 $2 $2

$5 $5 $5 $5 $5 $5 $5 $5 $5 $5 $5 $5 $5 $5 $5 $5 $5 $5 $5 $5

$14 $14 $14 $14 $14 $21 $20 $19 $19 $18 $17 $17 $16 $15 $14 $8 $8 $8 $8 $7

2,946 2,946 2,946 2,946 2,946 2,946 2,946 2,946 2,946 2,946 2,946 2,946 2,946 2,946 2,946 2,946 2,946 2,946 2,946 2,946

0.46 0.46 0.46 0.46 0.46 0.71 0.68 0.66 0.63 0.61 0.59 0.56 0.54 0.51 0.49 0.27 0.27 0.26 0.26 0.25

Table A5.48: Kabul - Tarbela Transmission Line Sensitivity Analysis

Percentage Change in Parameter (%) Base Case Sensitivities (1) Change in Generation (2) Change in Interest Rates (3) Change in Return on Equity (4) Change in CapEx
a)

Levelized Tariff c/kWh 0.4878

Percentage Change Lev Tariff (%)

Sensitivity Index a

-20% 1% 1% 1%

0.6098 0.4905 0.4896 0.4927

25.0% 0.5% 0.4% 1.0%

(1.25) 0.54 0.37 0.99

Sensitivity index is the % change in parameter divided by % Change in Levelized Tariff.

78

Table A5.49: Financial Analysis of Surhan - Kabul Transmission Line Project

Construction Period Year Capital Capital Debt Expenditures IDC Expenditures Funded without IDC with IDC ($ M) Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 Year 13 Year 14 Year 15 Year 16 Year 17 Year 18 Year 19 Year 20 Year 21 Year 22 Total $171 $11 $182 $134 $48 Levelized Tariff (c/kWh) 0.51 $46 $125 ($ M) $2 $9 ($ M) $48 $134 ($ M) $30 $104 Equity Funded ($ M) $18 $30 $0.20 $0.21 $0.21 $0.21 $0.22 $0.22 $0.22 $0.23 $0.23 $0.23 $0.24 $0.24 $0.24 $0.25 $0.25 $0.25 $0.26 $0.26 $0.27 $0.27 $14 $14 $14 $14 $14 $26 $25 $24 $22 $21 $20 $19 $18 $16 $15 $5 $4 $4 $4 $4 $8 $8 $8 $8 $8 $8 $8 $8 $8 $8 $8 $8 $8 $8 $8 $8 $8 $8 $8 $8 $22 $22 $22 $23 $23 $34 $33 $32 $31 $30 $28 $27 $26 $25 $24 $13 $13 $13 $12 $12 4,865 4,865 4,865 4,865 4,865 4,865 4,865 4,865 4,865 4,865 4,865 4,865 4,865 4,865 4,865 4,865 4,865 4,865 4,865 4,865 0.46 0.46 0.46 0.46 0.46 0.70 0.68 0.65 0.63 0.61 0.58 0.56 0.53 0.51 0.48 0.27 0.26 0.26 0.25 0.25 O&M Expenses ($ M) Operating Period Return Total Debt Cash Trans on Service Expenses Equity Outflow ($ M) ($ M) ($ M) GWh Annual Tariff c/kWh

Table A5.50: Surhan - Kabul Transmission Line Sensitivity Analysis

Percentage Change in Parameter (%) Base Case Sensitivities (1) Change in Generation (2) Change in Interest Rates (3) Change in Return on Equity (4) Change in CapEx
a)

Levelized Tariff c/kWh 0.5061

Percentage Change Lev Tariff (%)

Sensitivity Index a

-20% 1% 1% 1%

0.6320 0.5087 0.5078 0.5111

25.0% 0.5% 0.4% 1.0%

(1.25) 0.54 0.37 0.99

Sensitivity index is the % change in parameter divided by % Change in Levelized Tariff.

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Appendix 7.1 Central Asia Regional Electricity Export Potential Study Establishment of Water Energy Consortium-Conceptual Approaches Conceptual Approaches of the Experts of the Republic of Kazakhstan, the Kyrgyz Republic, Tajikistan and Uzbekistan Towards Creation of Water and Energy Consortium

To implement the instructions of the heads of the Republic of Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan as of July 5-6, 2003, on the issues of creation of an International Water and Energy Consortium (hereinafter the IWEC) the following basic conceptual approaches are proposed:
1. Conditions of Creation

IWEC shall be created based on the intergovernmental agreement where each of the member countries determines the IWEC founders. It is important for the parties Governments to create necessary conditions of their founders for parity participation in the Consortium of the latter; IWEC shall be a legal entity with the charter, address, settlement and currency accounts, and other attributes of an interstate organization. Its activity shall be guided by the laws of the country of destination; It shall be generally managed by the Council (or Board) of the authorized Consortium representatives formed by equal representation of the parties. In the process of decision making each party shall have equal votes. The decisions shall be made on the assumption of full parties agreement; Within the framework of International Water and Energy Consortium distribution of water resources will be performed in the economic interests of the CACO member countries; All countries shall fulfill the common requirement on trans-border rivers; Legal status, start-up conditions, establishment conditions and the authorized fund size along with the other conditions of Consortium creation shall be defined by the intergovernmental agreement; The member countries of the Consortium when using trans-border waterways on all territory shall apply all appropriate measures to prevent damage to other countries in compliance with the principles and norms of International Law.
2. Goals and Objectives

(a) Ensuring optimum proportion between the energy and irrigation regimes for operation of cascades of water reservoirs in annual and perennial cycles breakdown with consideration of balances of fuel-energy resources of the IWEC member countries; (b) Ensuring implementation of international agreement of CACO member countries on the issues of cross-supply of water, energy and power sources;

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(c) Attracting investments for reconstruction of the existing and construction of new water and water-energy facilities for development and effective use of water and energy potential of the region; (d) Creating conditions for production and technological cooperation of water and fuelenergy sectors, expanding their export potential, and introduction of innovation technologies; (e) The other functions determined by the inter-state and inter-governmental agreements can be committed to the Consortium.
3. Main Activity Directions

Coordination of joint activity of water and fuel-energy entities of the member countries in the area of rational and effective use of water and energy resources within the competence provided by the founders; Creating conditions for ensuring economical and effective operation of energy systems, taking advantages of parallel operation, established regime of reservoirs operation, and interstate supplies of fuel-energy resources and flows of electric energy in volumes determined by the agreements and treaties; Preparing proposals on rapprochement of legislations, improvement of legal frameworks enabling the entities to implement their activities based on a single legislative framework in the area of rational use of water and energy resources with consideration of international law; Pursuing investment policy oriented on construction of new (Rogun hydropower station in Tajikistan, Kambarata hydropower stations in Kyrgyzstan, and other facilities) and rehabilitation, modernization of the existing capacities; Interacting with interstate and intergovernmental bodies, and state organizations, economic entities of the member-countries of the Consortium; Ensuring functioning of the coordinated mechanism of cross-payments and payment for interstate electric power flows and fuel-energy resources supplies; Participating in preparation of interstate and intergovernmental agreements on developing cooperation in the area of electric power and water; The other functions determined by the inter-state and inter-governmental agreements can be committed to the Consortium.
From Experts' Group of the Republic of Kazakhstan From Experts' Group of the Kyrgyz Republic From Experts' Group of the Republic of Tajikistan From Experts' Group of the Republic of Uzbekistan

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Opinions and Proposals of the Republic of Uzbekistan (in hand writing) Amu Darya and Naryn Syr Darya are the trans-border rivers. Any changes in their regimes enabled by previously approved documents on distribution of water resources are the breach of regime of water reservoirs cascade. Coordination with other countries is required. At time of creation of IWEC the charge for water resources has not been considered, and distribution of water resources cannot be performed for commercial purposes. <signature> 1.04.2004 Proposals of the national experts:

there is a need for establishing a regional working group to elaborate in details the Feasibility Study and the funding mechanisms considering the issues of related sectors cooperation, study of the legal framework, and determination of the share of each CACO Parties in this Consortium; during the preparation of the Feasibility Study it is also necessary to envisage the principle of financing the authorized fund being established, economic benefits from the activities of the consortium, and the principle of distribution of the benefits gained; it is necessary to address international financial institution with the request for practical and technical assistance, and financial assistance, if needed, for the preparation of the Feasibility Study for the establishment of the consortium.

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Appendix 7.2 Central Asia Regional Electricity Export Potential Study Theun-Hinboun Hydropower Project - Lao

Theun Hinboun hydropower project, is an inter-basin transfer scheme in the Lao Peoples Republic (Lao PDR) designed to export power to neighboring Thailand. The main objective of this project was to support economic growth in the Lao PDR by enhancing foreign exchange earnings through the export of power to Thailand. It diverts 110m3/sec of river flow from the Nam Theun basin into the Nam Hinboun basin (this combination gives the project its name) through a 5.2km headrace tunnel into a power station lying some 240m below the level of the reservoir created by the dam on the Nam Theun. The capacity of the plant is 210 MW and the average annual generation potential is 1,645 GWh. The Project is very good example of public private partnership, as well as of importers of power having equity stake in the generation company. The total estimated project cost of $240 M was funded by 46% equity and 54% debt. 60% of the equity was provided by the Lao PDR Government through its state owned power utility, Electricity du Laos (EdL). The other investors that make up the consortium are: MDX Lao Company Ltd. of Thailand (20%); and Nordic Hydropower AB of Sweden (20%), itself a consortium of the two largest Nordic hydro utilities, Norway's Statkraft and Sweden's Vattenfall each with equal shares in Nordic Hydropower. The debt funds were provided by the Government, Commercial Loans and Export Credit. Further Asian Development Bank partially financed the Lao PDR Governments equity through a $60 M loan from its soft loan window. The power is sold to Electricity Generating Authority of Thailand (EGAT) through a 25 year Power Purchase Agreement based on a take-or-pay principle by which EGAT undertook to purchase 95% of the Projects available energy output.

Figure A7.1: Ownership Structure of Theun-Hinboun Power Company

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Figure A7.2: Financial Structure of Theun-Hinboun Power Company

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Appendix 8.1 Central Asia Regional Electricity Export Potential Study Options For De-Congesting the Southern Central Asian Power System

At present Tajikistan supplies power from its southern part to its northern part and further to Kazakhstan through Uzbekistan, the latter often claims transmission capacity limitations. These capacity constraints are likely to be exacerbated once the Talimardjan I plant starts dispatching. Therefore Tajikistan is examining options to transmit its power generated in the south of the country to its north and beyond The construction of a north-south 500 kV transmission line from SS Regar to northern Tajikistan is one such option. At the same time, the Kyrgyz Republic and Tajikistan have decided to interconnect themselves in the Fergana valley and are building a 54 km 220 kV transmission line between Batken (the Kyrgyz Republic) and Kanibodom (Tajikistan). In view of the expected growth in demand in the region, new generation sources coming on stream (e.g., Sangtuda I) and new markets (e.g., Russia and Afghanistan) on a seasonal basis, it would make sense to examine the option of linking the Toktogul cascade in the Kyrgyz Republic with the Nurek cascade in Tajikistan. This would have the dual advantage of de-congesting southern CAPS and enhance exports on a seasonal basis. In order to complete this Naryn Nurek link, the key element is the South North Line in Tajikistan linking Nurek with Khodjand. In addition, some improvements to the associated 220 kV system in Tajikistan and the Kyrgyz Republic need to be done as follows: (see Figure A8.1 showing the locations):

A 220 kV line (a) between SS Aigul-Tash (Batken, Kyrgyzstan) SS Kanibodom (Tajikistan). SS Kanibodon has developed connections to the Southern Tajikistan power grid by 220 kV and 110 kV lines (b); A new 500/220 kV SS Dakta in Kyrgyzstan (c). As a Phase I, SS Datka could be constructed as a 220 kV switch yard; An 80 km length 220 kV line tap (d) from SS Datka to 220 kV line Kurpsay-Crystal; A 6 km length 220 kV line tap (e) from SS Datka to 220 kV line Kurpsay Oktiabrskaya; A new 120 km length 220 kV line(f) Osh Datka; and A 30 km length line tap (g) from SS Alay to 220 kV line Osh Lochin (Uzbekistan).

The first of these is already under construction by Kyrgyz and Tajik governments using their own resources. The other elements need to be funded and construction started. Some alternative configurations are also under study for these elements. These aspects will have to be studied further in detail.

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Figure A8.1: Tajikistan North South 500 kV Line and De-conjunction of the Power Transmission in the Southern CAPS Assessment of the North South Line in Tajikistan

This would be the key (and highest cost) element of the Toktogul-Nurek Link. The capital cost of constructing this 350 km line, a new substation and rehabilitating one existing substation is estimated at $ 145.6 million. The construction can be completed in three years. Conservatively it is assumed that the line will carry 3000 GWh annually even though, according to Fichtner International the maximum annual carrying capacity of the line is actually 8300 GWh. The line losses are assumed at 1.4% and substation losses are assumed at 0.4%. Incremental O&M expenses are assumed at 0.05% of the capital costs. On this basis, the average incremental cost (the economic cost) of transmission is estimated at 0.63 cents/kWh (see Table A8.1). At the initial likely levels of loading at about 3600 GWh/year the AIC will come down to 0.53 cents.

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Table A8.1: Tajikistan South North Transmission Line AIC (Economic) of Transmission
Year Incremental Capital Capital Incremental Investments O&M Exp. Investments Transmission (US$ (US$ (% of total) (GWh) Million) Million) Cumulative O&M Exp. (US$ Million) Total Incremental Costs (US$M) 0 30 40 30 900 2100 43.67 58.22 43.67 0.02 0.03 0.02 0.02 0.05 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07 Present Values (23 years) Incremental Costs (US$ million) Incremental Sales (million kWh) Average Incremental Costs of Transmission (cents/kWh) 121.2 191790 0.63 43.69 58.27 43.74 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0.07 0 0 884 2946 2946 2946 2946 2946 2946 2946 2946 2946 2946 2946 2946 2946 2946 2946 2946 2946 2946 2946 Incremental Sales (GWh)

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 Year 13 Year 14 Year 15 Year 16 Year 17 Year 18 Year 19 Year 20 Year 21 Year 22 Year 23

Data Source: Barki Tajik Report

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On the basis of financing assumptions similar to those employed for the financial analysis of all other export transmission lines elsewhere in this report, the levelized transmission tariff needed for the service by this line would be 0.92 cents/kWh (see Table A8.2).
Table A8.2: Tajikistan South North Transmission Line Levelized Tariff Calculations
Construction Period Year Capital Expend. Without IDC ($ M) Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Year 11 Year 12 Year 13 Year 14 Year 15 Year 16 Year 17 Year 18 Year 19 Year 20 Year 21 Year 22 Year 23 Total 171 17 187 101 86 Levelized Tariff (c/kWh): 0.92 50 68 52 IDC Capital Debt Expend. With IDC ($ M) 52 74 61 ($ M) 35 45 20 Equity O&M Expense Operating Period Net Return Total Debt Electricity Cash on Service Expense Equity Outflow Transmitted ($ M) ($ M) ($ M) GWh Annual Tariff c/kWh

($ M) 2 6 9

($ M) 17 29 41

($ M)

0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.03 0.03 0.03 0.03 0.03 0.03

10 10 10 10 18 18 17 16 15 14 13 13 12 11 3 3 3 3 3 3

15 15 15 15 15 15 15 15 15 15 15 15 15 15 15 15 15 15 15 15

26 26 26 26 34 33 32 31 31 30 29 28 27 26 19 19 19 18 18 18

2,946 2,946 2,946 2,946 2,946 2,946 2,946 2,946 2,946 2,946 2,946 2,946 2,946 2,946 2,946 2,946 2,946 2,946 2,946 2,946

0.87 0.87 0.87 0.87 1.15 1.12 1.10 1.07 1.04 1.01 0.98 0.95 0.92 0.90 0.64 0.63 0.63 0.62 0.62 0.62

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