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Challenges of Electric-Power Industry ReformingKyrgyzstan,
Bishkek June 15th, 2007
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Current conditions of power industryPower industry is not
financially sustainable, does not provide required power supply.
Growth of emergency outages: 1999 - 8000, 2000 - 10000 , 2001 -
13000. 2006 electric power losses in REC-38% (3,8 bln. kWt/h).
Whilst energy output - 3,9 bln. Som, received 3 bln. som (79%).
Accounts receivable as of 2006 has been increased on 474 million
Som (17%). Losses during 4 months of 2007 are equal to 41,5%,
including commercial losses - 19% (900 million. kWt/h, 560 million
Som). Losses of RECs JSC Severelectro 46%, JSC Vostokelectro 40%,
JSC Oshelectro 36%, JSC Zhalalabatelectro 38%. RECs have collected
64% of funds. Indebtedness has been increased on 377 million Som
(12%) over 4 months. In 1996, indebtedness for RECs were equal to
482 million Som. In 2006, indebtedness was equal to 3 176 million
Som. Over 1996-2006, indebtedness has been increased on 2,7 bln
Som. RECs run up a bill to electric power suppliers and for transit
- 5,9 bln. Som. From 2001, indebtedness was increased on 5 billion
Som per year. In 2002-2005, the companies sustained more than 3 bln
Som of losses.Reconstruction works are implemented on 20-40%,
depreciation is 70% and more.
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Problems in the sector Stagnation in conduction of reforms in
energy sector;Imperfect tariff policy on electric, thermal energy
and natural gas; Inefficient state social protection of consumers;
Non-transparency of informational and financial activity of energy
companies; Absence of influence mechanisms on energy monopolists
(from side of consumers, court system and Government); Energy
companies got significantly behind of generally agreed standards on
technological indicators (specific fuel consumption, effective
average of equipment, work capacity of stations, etc.); Absence of
incentives for rational planning of energy production and
consumption regimes as well as energy saving and energy efficiency;
Outages of power supply take place in some districts, electric
power insufficiency leads to so-called rotating blackout, all signs
of energetic crisis were observed;There was a growth of emergency
outages, there is a high possibility of major accidents; Payment
discipline is absent, payment defaults are spread; Access to energy
sector is closed for new independent companies.
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First steps towards the reform To possess of political will of
conduction of the reforms; Consumers, including community, have to
know and support goals of the reforms;To create required
legislative and normative base;To created required institutional
environment; To introduce market methodology of formation of
tariffs; Gradual decrease of state participation and increase of
private sector in development of energy system; Implementation of
tariff policy, creating conditions for widened reproduction of
power energy;
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Change of ownership form and management of energy distributing
companies;Taking technical and administrative measures on rapid
decrease of energy loss;Development (under active attraction of
private investors) domestic infrastructure for transportation of
electric power and energy carriers, which will allow increase of
own energy resources and to decrease their import;Adjustment of
water use issues with neighboring countries and increase of
electric power export, as well as transfer to market principles on
reciprocal payment;Thorough analysis and use of possibilities of
domestic production of oil products, coal and non-traditional
energy resources.
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Goals of energy industry reforms It is essential to make
decisions on the following issues:Gradual decrease of state
participation and increase of private sector in development of
energy system;Implementation of tariff policy, creating conditions
for widened reproduction of power energy; Privatization of energy
distributing companies; Making technical and administrative measure
on rapid decrease of electric power loss;Development (under active
attraction of private investors) domestic infrastructure for
transportation of electric power and energy carriers, which will
allow increase of own energy resources and to decrease their
import;
Adjustment of water use issues with neighboring countries and
increase of electric power export, as well as transfer to market
principles on reciprocal payment; Thorough analysis and use of
possibilities of domestic production of oil products, coal and
non-traditional energy resources.
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Restructuring of energy industry
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Stages of energy industry reforming Asset assessment of energy
sector Separation of subsidiary production and social
objectsRestructuring and creation and new stock companiesChanging
of ownership form and management
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Management models of energy industryVertical integrated
companySingle buyer competition between producersCompetition of
whole sale market (between producers and distributors)Competition
on retail market between all market players there is an influence
of consumer on all companies of energy sector
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Background of energy industry reforms Collapse of the USSR
Choice democratic community and transition to market
economyHyperinflationPrice increase on energy resourcesTransition
to electric power for domestic useLack of financial resourcesNeed
in financial borrowings Negotiations with international financial
institutionsIncurrence of liability for international
institutions.
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Legislative and institutional baseLaws On energy, On electric
energy, On licensing, On antimonopoly regulation Bodies involved in
energy management Parliament, Government, President Foundation of
the State property managementAntimonopoly regulation body
Corruption control agency State regulator Ministry of Labor and
Social Protection Ministry of economic development and trade
Ministry of Justice Ministry of Finance State organ on technical
supervision in energy sector Water Department
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Regional cooperation Decrease of loss - RK 9% 5843HWt/h, KR 11%
-1392HWt/h, RT 15% -1988 HWt/h, RU 10%-4064HWt/h, in addition,
annually - 13 287 HWt/h Investments to decrease of loss during
transfer and distributions in all four countries 3 00 million US
dollars.Rehabilitation of producing assets of Syr-Darya, Angren
Hydro-Electro Stations, Tashkent Thermal Electric Station would
need 1,15 bln US dollars, generation - 32000 Hwt/h. Ekibastuz HES I
and II, Aksu and Karaganda HES would need 1,070 million US dollars,
will be equal to 17 118 Hwt/h. New projects on generation Ekibastuz
HES II, Bishkek TESII, Kambarata, Kambarata II, Rogunskaya HES,
Sangutdinsky HES, Talimardzhanskaya In four countries it is
possible to increase from 139 TWt/h up to 228 TWt/h. 54% of
additional electric energy in new stations, 16% of additional
electric energy due to decrease of losses, as well as remaining 30%
- due to rehabilitation of the old generating aggregates.
Contribution of additional generation of RK -45%, RU, RT- 22% each
and KR-9%. Investments will lead to average additional costs on
1kWt/h on 2,1 cent in RT; 2,3 KR; 2,8- RK; 3,5 RU. Total- 13 bln.
US dollars for 20 years.
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Tariff policy in energy electric power industry
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Goal of tariff policyGoal of tariff policy is remaining on
generation, , setting up and implementation of economically
reasonable price and tariff formation, introduction of more
efficient structure of tariffs and bringing them in line with real
costs, as well as annual decrease of quasi-fiscal deficit in
electric power industry to the level recommended by the
International Monetary Fund (goal of the Mid-term tariff policy on
electric and thermal energy for 2003-2006 and 2007-2010).
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Principles of tariff policyFundamental principle of tariff
policy is introduction of self-sufficiency principles of energy
sector and lies in taking measures on creation of investment
attractive environment in energetic sector of economy.
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Main principles of tariff policy:Tariffs have to reflect full
cost of production, transmission and distribution of electric and
thermal energy, including costs for exploitation and technical
services, as well as compensation of invested capital;Tariffs for
each group of consumers have to reflect all costs for electric and
thermal supply on that category of consumers; Existing
cross-subsidizing from one group of consumers into the other group
should be gradually excluded; Subsidies should be devoted to the
consumers (community) with low level of income through programs of
social protection;Minimal volume of energy consumption for
provision with vital needs with taking into consideration of
electric food making has to stay in limits up to 150 kWt/h per
month and all other benefits should be reconsidered or called off
(principle of Basing tariff policy on electric and thermal power
energy for 1998-2000).
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Existing Methods of tariff calculation for final consumers
Prognosis FactGeneration, kW/h 100 100 100 Loss level,
%22%42%42%Sale, kW/h 78 58 58 Tariff, Som/kWh 0,62 0,83 0,62
Income, Som 48,36 48,36 35,96 Costs, Som 48,36 48,36 35,96
includingrepairs 14,51 14,51 5,51 New construction 9,67 9,67 1,93
Credit repayment 5,80 5,80 5,80 Income tax 0,97 0,97 0,70 Dividends
of paper 6,71
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At the moment, there has been implementation only of principles
of exclusion of consumptions sills for community due to analysis
data:Separation of consumption on sills and setting up of different
prices have led to distortion (manipulation) of companies reports
and decrease of income of the company (plundering); () ();Thus,
plundering have led to decrease of required funds for repairs and
replacement of energy equipment, decreasing efficiency of the
industry; Social groups of community with higher level of income
use sufficient benefits. At the moment, that particular group is
continuing to use low tariffs due to weakness and insufficiency of
social protection.
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Allegations effecting on price formation in the Kyrgyz
RepublicTARIFFSMYTH OF ENERGY INDEPENDENCY SOCIAL PROTECTION
POLYTICAL WILL FALSE REPRESENTATION INCREASE OF LOSSES DECREASE OF
COLLECTION
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Mineral fuel depositsUnit of
measureKazakhstanKyrgyzstanTajikistanTurkmenistanUzbekistanTotalCrude
oilmillion tones1 1005,51,775821 264,2Gasmillion tones1 5005,05,02
2521 4765 238Coalmillion tones24 300580500 Insignificant2 85128
231Totalmillion tones26 9005915072 3274 40934 733% of
Total77,4%1,7%1,5%6,7%12,7%100%Hydro-potentialHW\h/year27 000163
000317 0002 00015 000524 000Million
tones/year2,314,027,30,21,345,1% of Total%5,231,160,50,42,9100
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Kyrgyzstan can become energy independentRepublic possesses
insignificant deposits of hydrocarbon fuel;Demand on energy
carriers can be covered by only one energy resource, hydro electric
energy, in particular; Republic possesses significant hydro
potential, but it is only used on 10%; It is important to take into
consideration that water resources are dependant on climate
conditions. There is significant time repugnance between demand on
electric energy and water regimes. Existing energy capacity in 5-7
years would hardly cover growing demand in domestic market;Further
development of hydro potential requires large investments which can
not be provided by domestic resources of the country.
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Chart1
2237.47
2235.9
2235.9
2138
2038.9
Normative
Fact losses
%
Losses dynamics of distributing companies during 2001-2005
2
() " "
/20012002200320042005
1 ""38.7044.9640.0039.8041.00
2 ""35.9137.7435.5037.7035.40
3 "-"26.0024.9025.9030.3037.70
4 ""19.5023.9734.5039.3038.00
5 " "10.5110.038.156.346.05
200138.7019.5035.9126.0010.51
200244.9623.9737.7424.9010.03
200340.0034.5035.5025.908.15
200439.8039.3037.7030.306.34
200541.0038.0035.4037.706.05
20012002200320042005
Normative222222212019
Fact losses37.4735.935.93838.9
&R&"Arial Cyr,"&12&U 1
2
Normative
Fact losses
%
2001-2005
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Commercial losses include:Unaccounted consumption of electric
energy; Consumers, having wrong bills or not paying fully actually
consumed electric energy; Consumers, having right bills, but being
careless towards their payments.
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Unaccounted consumption of electric energy includes the
following: Plundering of electric energy by consumers through
interruption of counter functions of through shift of it;
Malfunctioning counters which do not register consumed electric
energy by proper order;Plundering of electric energy through
illegal connection of unregistered consumers; and Raising of bills
and collection of payments on consumed electric energy not based on
figures of the counter, but on rate of consumption (i.e. estimated
usage depending on accommodation area and quantity of
residents.)
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Collection of funds
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Technical conditions of electric networks 0,4-10 kW, carried on
the balance of distributing companies as of 01.01.2000
Measure unit TotalGoodFairRequires restoration% 6-10
km26959121639779501719% 0,4 km27940955610164822029% 6-10
km138735257745833% 0,4 km99719350529930%Total
lengthkm5728322264210251399424%Specific weight39%37%24%TP
6-10/0,4kWUnits 1904779287835328417%Specific weight42%41%17%
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Chart2
3.73.7
3.82.3
4.14.1
2.31.2
55
2.10.4
43.1
3.51
required tariff
fact tariff
cent/kWh
Underrun comparison of fact tariff level from required level in
CIS countries
Sheet1
(% ) (US/) (US/) (% ) (% -)
1.13.73.7901081.6
9.82.33.830517.2
5.54.14.135533.3
121.22.3333511.1
3.355751961
21.40.42.186513.9required tarifffact tariff
1.1%5.33.14871358.8Armenia3.73.7
9.8%15.913.5501812.3Azerbaijan3.82.3
5.5%Georgia4.14.1
12.0%Kyrgyzstan2.31.2
3.3%Moldova55
21.4%Tajikistan2.10.4
5.3%Ukraine43.1
15.9%Uzbekistan3.51
Sheet1
Sheet2
required tariff
fact tariff
/
Sheet3
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Executive Summary Need in generation of electric energy will be
increasing due to stabilization and growth of industrial sectors
and agriculture, whilst tariff control for community and
agricultural consumers on a low level and retaining of growth trend
of energy losses in networks and consumption by the community.
Problem of electric energy lack can not be resolved due to
resources of existing HES. In that case, if there is no decrease of
electric energy loss that it will be required to build new hydro
electro-stations of to increase generation on TES. All listed
measures require financial investments. Energy companies will have
to define what is more profitable, quicker pay back period, ability
or willingness of consumer to pay expenses. Lack of capacity of
generation can not be considered as an argument for building of new
electro stations or increase of generation in TES. It hardly be
economically reasoned under existing problems in networks and
current tariffs for electric energy.
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It is important to outline that transfer of tariff reform to
later terms will be less painful for the whole community, due to
the fact that it will require higher level for increase of tariffs
and creation of expensive systems of address social protection.
