According to the testimonies of participants at a recent round table discussion, organized with the support of the Soros-Kyrgyzstan Foundation and UNDP, the population does not have enough of an objective understanding of the potential of domestic power engineering. Opinion on water and power potential, much publicized in the mass media, may lead to a faulty, overstated idea of power self-sufficiency, and even its abundance. In short, the following is a widespread opinion: they say that if our rivers are inexhaustible and the water is free then hydropower is unlimited and cheap.

Another mistake: we just need to direct the use of this potential on the right course and the "sick" economy of Kyrgyzstan will quickly recover.

It is mistaken to hope that the problems of our economy could be resolved through development of hydropower engineering alone. There is no need to repeat that this is one of the most promising industries. However, a lot of problems have emerged in recent years and their solution - even if not imminent or simple - depends on regional, intergovernmental, and national advances, including, paradoxically enough, us. Therefore we invite readers to examine the details of the situation, and perhaps tiring them somewhat with various figures.

Our huge plans...

The generation capabilities of the electrical power system include 17 power stations with the aggregate capacity of 3.68 million kWh, including 15 hydroelectric power stations with the capacity of 2.95 million kWh and two heat and power plants with the capacity of 0.73 million kWh. Over 70,000 kilometers of power lines of 0.4¸500 kilovolts and about 490 transformer substations of 35¸500 kilovolt with the aggregate capacity of over eight million kWh are stretched and located throughout the territory of Kyrgyzstan.

According to rough estimates, the population consumes up to 50% of electric power, whereas the agriculture consumes about 16%, industry - about 20%, and the remaining consumers about 14%. At present Kyrgyzstan provides itself fully with electric power. However, the much-awaited growth of the economy is impossible without rehabilitation and increasing generating capacity.

Naturally, considerable investment will be required for rehabilitation of the existing generating capacities from 2007-2010. Among the priority projects are the Bishkek Heat and Power Plant One (2.05 billion Kyrgyz soms), Uchkurgan Hydroelectric Power Station (615 million soms) and the Atbashy Hydroelectric Power Station (410 million soms).

In the longer term, till 2025, it is planned to develop the hydroelectric potential of the Naryn River. Among the priority projects of new construction, as it is listed in the strategic documents of the government, are the Kambarata Hydroelectric Power Station One, with an estimated construction cost of 83.2 billion soms, and Kambarata Hydroelectric Power Station Two at 11.48 billion soms. Besides these, it is possible that there will be construction of Upper-Naryn hydroelectric power stations: Akbulun at about 8.2 billion soms, and Jilanaryk at 90.2 billion soms. The investment for construction of the Kavak Hydroelectric Power Station is estimated at 45.1 billion soms. Under favorable investment conditions there is a possibility for the construction of Saryjaz hydroelectric power stations with an aggregate capacity of 1,000-1,200 megawatts. Putting into operation new capacities will allow for increasing the generation of electric power by 2010 at 18.4 billion kWh per year, and by 2025 at 38.5 billion kWh.

By 2010 it is proposed to undertake a technical reequipment of suspended minor hydroelectric power stations and construct several new ones, requiring about 8-9 billion soms.

Furthermore, delivery of the capacity of prospective electric power stations requires the development of the main network systems. To increase the transmission of electric power from the south to the north it is necessary to create a new delivery center. To get rid of energy dependency on neighboring states it is planned to construct the Datka Substation with its connection to the existing Lochin Hydroelectric Power Station (Uzbekistan), which should provide delivery of the capacity of the Lower-Naryn Cascade of hydroelectric power stations. It is proposed to reconstruct networks of 220 kilovolts with a total spread of 360 kilometers.

The volume of investment for the development of a national backbone network for the period up to 2010 is about 13.74 billion soms and includes: constructing the Kemin Substation - 10.5¸10.25 billion soms, and to develop the networks of the south - 2.25 billion soms. It is planned to complete the National Project entitled "Improvement of Power Supply in Batken Province", which costs 410 million soms, by 2010.

According to the forecasts of experts, there will be an increase in generation of electric power (compared to 2005) by a factor of 1.25, by 2015 - 1.9, by 2020 - 2.18, and by 2025 - 2.67. Correspondingly, there will be an increase in the consumption of electric power during 2006-2010 by 1.4 times with the average annual growth rate of 107%. These rates should fully provide for the development of real sectors of the economy, services and requirements of the population.

Towards tariffs - with understanding?

Any power-engineering specialist knows that the selection of an operating mode that ensures the profitability of hydroelectric power stations is very difficult. Moreover, hydroelectric power stations are unprofitable due to the consumption of electric power only in the domestic market, without export to the neighboring states. Besides, it is still unclear what the influence of big stations is on the environment, particularly with changes in seismic conditions. A hydroelectric power station of such a scale will also influence the condition of aquatic ecosystems and exert considerable physical pressure on the mountainous ecosystem.

It turns out that in a country of our scale to construct and successfully maintain hydroelectric power stations we need the understanding and support of the population. So for instance, to prevent threats of spontaneous natural and man-made impact it is necessary to conduct an array of protective measures, which require the investment of approximately 300 million soms. The volume of investment required for the technical re-equipment of high-voltage networks is estimated at 2.1 billion soms. Whereas the total volume of investment directed at modernization of distribution networks is estimated at 10.25 billion soms (it is clear that a phased reconstruction will allow for lower annual investment burden).

So, for the successful maintenance and development of the power sector we need a considerable amount of resources that Kyrgyzstan lacks and will not have in the immediate future. It should be noted that in many states the government and the private sector share this burden. To attract resources it is necessary to introduce market mechanisms into the power sector, primarily, in tariff setting, social protection, systems of metering, control and the collection of payments for consumed electric power.

It should be realized that under complete dependence on private hydroelectric power stations there is the danger of partial loss of management of the power sector. It is better to retain the state ownership of the existing hydroelectric power stations and allow private investors to build new hydroelectric power stations. When the economy of our state is more sustainable and able to provide effective social protection for the vulnerable sections of the population, the public will not see the problem of the privatization of generating stations so critically.

The fear of changing the system of management in the energy sector is not warranted. It is poor governance that should be feared. Our government lacks experience in the management of the energy sector in market conditions; therefore it would be good to attract top managers with high qualifications to implement market mechanisms before the sector collapses in a general mess. The experiences of a number of former socialist states provide prominent examples.

Setting economically sound tariffs is one of the main tasks of delivering the energy sector from the present financial and economic situation. The Government has developed a draft of a medium-term tariff policy for 2006-2010, which provides for a gradual increase in tariffs up to a level that covers expenses. It is expected that the increase will be twice a year, on April 1 and October 1: for industrial consumers by 10%, commercial - 14%, agricultural - 12%, consumers dependent on state budget - 10%, and the general population - 4.8 - 5%. We would like to stress that this is inevitable.

On the scales of the external market

Competitive advantage on the regional market of electric power is a necessary condition for the development of our country's power industry. It is easier for Kazakhstan, Uzbekistan, Turkmenistan and Tajikistan to integrate into the world power supply system than for Kyrgyzstan, which does not share borders with other foreign states except for China. Therefore it is important for us to fit into the power supply system of Central Asia and actively participate in processes of intergovernmental integration within the framework of the Eurasian Economic Community and on bilateral bases. Most likely in the immediate future there will be a common market for electric power and so it is extremely important to account for the export of electric power and the power supply of industries, which help increase the efficiency of the power sector and sustainable development of the country's economy.

First of all, the schema of exchange of energy resources between Kyrgyzstan, Kazakhstan, Tajikistan and Uzbekistan (which was created within the framework of the Central Asian Economic Community in 1998 when four heads of state signed agreements on the parallel functioning of a power supply system and use of water resources of the basin of rivers Naryn-Syrdariya) should be restored.

In accordance with those agreements, and in exchange for releasing water from the Toktogul Reservoir and electric power exported to Uzbekistan and Kazakhstan, Kyrgyzstan received natural gas, coal and fuel oil for the Bishkek Heat and Power Plant. However, specific mechanisms of decision-making for implementing decisions, and the development of integration processes simply did not achieve the desired results. It is time to finally secure admissions of commitments from Uzbekistan and Kazakhstan in paying for services of many years' accumulation of water, which Kyrgyzstan so far has been providing to the detriment of its economy. The agreement should provide for a more effective mechanism of resolution of disputes and disagreements with the use of international arbitrage.

Meanwhile Uzbekistan has implemented a number of water projects and practically refused to import electric power from Kyrgyzstan. Currently there is a program of interaction on the exchange of energy resources between Kyrgyzstan, Kazakhstan and Russia. The Russian Federation is the most likely participant in cooperation for the construction of the Kambarata hydroelectric power stations, and the People's Republic of China for the construction of hydroelectric power stations on the Naryn and Saryjaz rivers, as well as the Kavak State District Power Station.

According to the World Bank, the market for electric power in South Asia is promising for Kyrgyzstan in the summer when the Lower-Naryn Cascade of hydroelectric power stations operates in irrigation mode, and surplus power could be sold to Tajikistan and further on to Pakistan. The minimal price for Kyrgyz electric power is forecasted at .05 cents/kWh with the cost price at .03 cents.

Incidentally, we are lagging behind in competition with Tajikistan where terms for investment into the power sector are much more attractive.

Instead of a conclusion

Returning to our local problems (that do not require detailed account here as we have written a lot about them) it will be enough to mention a number of necessary measures. To exit the crisis of the financial and economic situation of the power companies it is necessary:
- to conduct a strict policy of reducing losses of electric power;
- to reduce commercial losses and theft of electric power to 3% by 2010 with subsequent full elimination in the future;
- to increase collection of payment in cash for electric power up to 98%;
- to reassess and capitalize assets of power companies to ensure their normal operation in market conditions;
- to eliminate arrears in payment between power companies and to fiscal authorities (restructuring of debts with a revision of the mechanisms to prevent such situation in the future is one of the ways of solving this problem);
- to lower expenses of companies for generation, transmission, distribution and sale of electric power and to ensure their transparency to the public;
- adaptation of the real sector of the economy with increase in tariffs and targeted compensation of socially vulnerable layers of population;
- the gradual elimination of cross subsidizing between groups of producers and consumers.