Inogate status report en

STATUS REPORT 2011

INOGATE PrOGrAmmE

AN ENErGy rEvIEw Of ThE INOGATE PArTNEr COuNTrIEs

2 | INOGATE | Status Report 2011

The INOGATE Programme is supported by the European Union.

Inquiries can be sent to:

European Commission

Development and Cooperation - EuropeAid

B - 1049 Brussels

Belgium

Fax : + 32-2-295 56 65

E-mail: [email protected]

and

INOGATE Technical Secretariat

E-mail: [email protected]

The full report in English and Russian is also available on the internet at: www.inogate.org

Hard copies of the report in English and Russian are available on request [email protected]

October 2012

This report has been prepared by experts of the INOGATE Technical Secretariat, with the assistance of the European

Commission. The contents of this report are the sole responsibility of the consortium implementing the EU-funded

project “INOGATE Technical Secretariat & Integrated Programme in support of the Baku Initiative and the Eastern

Partnership energy objectives”, namely, Ramboll Denmark A/S, EIR Development Partners Ltd., LDK Consultants

Engineers and Planners S.A., MVV decon GmbH, The British Standards Institution, ICF Consulting Limited, Statistics

Denmark, and Energy Institute Hrvoje Pozar, and it is no way be taken to reflect the views of the European Union and

its Institutions.

Printed on chlorine-free white paper.

Reproduction is authorized provided the source is acknowledged.

Status Report 2011 | INOGATE | 3

Table of Contents1. INTRODUCTION .............................................................................................................................................. 8

2. CURRENT STATUS IN THE FOUR AREAS OF COOPERATION ............................................................................ 10

2.1. OVERVIEW OF INDICATORS ...................................................................................................................... 10

2.2. 1ST AREA OF COOPERATION: ENERGY MARKETS CONVERGENCE ....................................................... 11

2.2.1. Third party access ................................................................................................................... 11

2.2.2. Unbundling .............................................................................................................................. 12

2.2.3. Independent energy regulators .............................................................................................. 13

2.2.4. Tariff policy/Role of regulators ............................................................................................... 14

2.2.5. Technical rules ........................................................................................................................ 17

2.2.6. Integrated regional markets ................................................................................................... 17

2.3. 2ND AREA OF COOPERATION: ENERGY SECURITY ................................................................................. 19

2.3.1. Maintenance ............................................................................................................................ 19

2.3.2. Rehabilitation/Upgrading ........................................................................................................ 19

2.3.3. New energy infrastructures .................................................................................................... 20

2.3.4. Metering and billing (electricity/gas) ...................................................................................... 21

2.4. 3RD AREA OF COOPERATION: SUSTAINABLE DEVELOPMENT .............................................................. 23

2.4.1. Political commitments and adopted strategy or policy .......................................................... 23

2.4.2. EE/RES framework development ........................................................................................... 23

2.4.3. EE/RES action plans and measures ....................................................................................... 24

2.4.4. Creation of energy agencies ................................................................................................... 25

2.4.5. Environmental assessments/energy auditing/environmental standards .............................. 25

2.4.6. Kyoto Protocol mechanisms ................................................................................................... 25

2.4.7. Gas flaring reduction .............................................................................................................. 26

2.5. 4TH AREA OF COOPERATION: INVESTMENT ATTRACTION .................................................................... 28

2.5.1. Investment framework............................................................................................................ 28

2.5.2. Investment climate ................................................................................................................. 29

2.5.3. Investment planning ............................................................................................................... 29

3. RESULTS .................................................................................................................................................. 32

ANNEXES .................................................................................................................................................. 32

ANNEX I: DEFINITION OF INDICATORS AND CRITERIA FOR EVALUATION ..................................................... 37

ANNEX II: ASTANA MINISTERIAL DECLARATION & ENERGY ROAD MAP ........................................................ 45

ANNEX III: PROFILES OF INOGATE PARTNER COUNTRIES ............................................................................... 53

Republic of Armenia ......................................................................................................................... 54

Republic of Azerbaijan ...................................................................................................................... 64

Republic of Belarus .......................................................................................................................... 76

Georgia .............................................................................................................................................. 86

Republic of Kazakhstan .................................................................................................................... 96

Kyrgyz Republic ................................................................................................................................. 107

Republic of Moldova .......................................................................................................................... 116

Republic of Tajikistan ........................................................................................................................ 126

Turkmenistan .................................................................................................................................... 136

Ukraine .............................................................................................................................................. 144

Republic of Uzbekistan ..................................................................................................................... 156

ANNEX IV: EU SUPPORT TO ENERGY COOPERATION IN INOGATE PARTNER COUNTRIES ................................ 169


LIST OF TABLES

TABLE 1: INOGATE OBJECTIVES AND AREAS OF COOPERATION .......................................................................... 10

TABLE 2: OVERVIEW OF INDICATORS UNDER EACH AREA OF COOPERATION ..................................................... 10

TABLE 3: THIRD PARTY ACCESS STATUS IN PARTNER COUNTRIES ..................................................................... 12

TABLE 4: STATUS OF UNBUNDLING STATUS IN THE ELECTRICITY AND GAS SECTORS OF

PARTNER COUNTRIES ............................................................................................................................. 12

TABLE 5: REGULATORY BODIES’ STATE OF DEVELOPMENT AND LEVEL OF INDEPENDENCE IN

PARTNER COUNTRIES ............................................................................................................................. 14

TABLE 6: TARIFF STATUS IN PARTNER COUNTRIES .............................................................................................. 15

TABLE 7: AVERAGE PRICES FOR ELECTRICITY AND GAS PAID BY HOUSEHOLDS IN

THE INOGATE PARTNER COUNTRIES...................................................................................................... 15

TABLE 8: MEMBERSHIP STATUS OF INOGATE PARTNER COUNTRIES IN

EU STANDARDISATION ORGANISATIONS ................................................................................................ 17

TABLE 9: SUMMARY OF STATUS OF INDICATORS FOR THE 1ST AREA OF COOPERATION:

ENERGY MARKETS CONVERGENCE ........................................................................................................ 18

TABLE 10: STATUS OF ELECTRICITY AND GAS LOSSES IN PARTNER COUNTRIES ................................................ 20

TABLE 11: STATUS OF METERING AND BILLING IN PARTNER COUNTRIES ........................................................... 21

TABLE 12: SUMMARY OF STATUS OF INDICATORS FOR THE 2ND AREA OF COOPERATION:

ENERGY SECURITY ................................................................................................................................... 22

TABLE 13: POLITICAL COMMITMENTS AND STRATEGIES / POLICIES ADOPTED FOR

SUSTAINABLE ENERGY............................................................................................................................ 23

TABLE 14: RES SHARE OF TOTAL PRIMARY ENERGY SUPPLY IN 2009DATE........................................................... 24

TABLE 15: STATUS OF CDM / JI PROJECTS IN INOGATE PARTNER COUNTRIES .................................................... 26

TABLE 16: SUMMARY OF STATUS OF INDICATORS FOR THE 3RD AREA OF COOPERATION:

SUSTAINABLE DEVELOPMENT ................................................................................................................ 27

TABLE 17: EASE OF DOING BUSINESS RANKING 2011 ............................................................................................ 28

TABLE 18: SUMMARY OF STATUS OF INDICATORS FOR THE 4TH AREA OF COOPERATION:

INVESTMENT ATTRACTION ...................................................................................................................... 31

LIST OF FIGURES

FIGURE 1: OVERVIEW OF THIRD PARTY ACCESS IN THE ELECTRICITY SECTOR IN PARTNER COUNTRIES .......... 11

FIGURE 2: OVERVIEW OF THIRD PARTY ACCESS IN THE GAS SECTOR IN PARTNER COUNTRIES ........................ 12

FIGURE 3: UNBUNDLING STATUS IN THE ELECTRICITY SECTOR OF PARTNER COUNTRIES ................................ 13

FIGURE 4: UNBUNDLING STATUS IN GAS SECTOR OF PARTNER COUNTRIES....................................................... 13

FIGURE 5: TYPES OF REGULATORY BODIES IN PARTNER COUNTRIES .................................................................. 14

FIGURE 6: AVERAGE ELECTRICITY PRICES FOR HOUSEHOLDS (€/KWH) ............................................................... 16

FIGURE 7: AVERAGE GAS PRICES FOR HOUSEHOLDS (€/GJ) .................................................................................. 16

FIGURE 8: STATUS OF MAINTENANCE IN PARTNER COUNTRIES ........................................................................... 19

FIGURE 9: STATUS OF REHABILITATION IN PARTNER COUNTRIES ........................................................................ 19

FIGURE 10: EE/RES FRAMEWORK DEVELOPMENT IN PARTNER COUNTRIES ......................................................... 23


LIST OF ABBREVIATIONS

AGRI Azerbaijan-Georgia-Romania Interconnector

AGRP Associated Gas Recovery Plan

AMD Armenian Dram

AMDAS Automated Metering and Data Acquisition System

ANMR Agency of the Republic of Kazakhstan on Regulation of Natural Monopolies

ANRE National Energy Regulatory Agency (Moldova)

AO KOREM Kazakhstan Operator of the Electricity Market

ArmSEFF Armenian Sustainable Energy Financing Facility

BIT Bilateral Investment Treaty

BSC Business Support Council

CIS Commonwealth of Independent States

CDM Clean Development Mechanism

CEN European Committee for Standardisation

CENELEC European Committee for Electrotechnical Standardisation

CERs Certified Emission Reduction credits

CHPPs Combined Heat Power Plants

CIS EPC Electric Power Council of the CIS

COOMET Euro-Asian Cooperation of National Metrological Institutions

CPC Caspian Pipeline Consortium

DSO Distribution System Operator

EBRD European Bank for Reconstruction and Development

EE Energy Efficiency

EEC European Economic Community

EASC Euro-Asian Council for Standardization (EASC)

ECT Energy Charter Treaty

EIA Environmental Impact Assessment

EIB European Investment Bank

EITI Extractive Industries Transparency Initiative

EMS Energy management systems

ENP European Neighbourhood Policy

ENPI European Neighbourhood Partnership Instrument

ENRTP Thematic Programme for Environment and Sustainable Management of Natural Resources

including Energy

ENTSO-E European Network of Transmission System Operators for Electricity

EPMOGI INOGATE Project “Enhancement of environmental protection measures in the oil/gas industry

of Central Asia”

ERRA Energy Regulators Regional Association

ERUs Emission Reduction Units

ESC Energy Strategy Centre

ESCOs Energy Service Companies

ESIB INOGATE Project “Energy Saving Initiative in the Building Sector in the Eastern European and

Central Asian Countries”


EU European Union

EURELECTRIC Union of Electricity Industry

GEEP Georgian Energy Efficiency Project

GDP Gross domestic product

GGFR Global Gas Flaring Reduction Partnership

GEOSTM Georgian National Agency for Standards, Technical Regulations and Metrology

GGTC Georgian Transportation Corporation

GHG Greenhouse gas

GJ Gigajoule

GNERC Georgian National Energy and Water Supply Regulatory Commission

GOGC Georgian Oil and Gas Corporation

GOST Gosudarstvennyy standard (state standard)

GSE Georgian State Electrosystem

HGA Host Government Agreement

HPPs Hydro Power Plant(s)

HV High voltage

IAP Istanbul Action Plan

ICSID International Centre for the Settlement of Investment Disputes

IEA International Energy Agency

IEC International Electrotechnical Commission

IFCA Investment Facility for Central Asia

IFI(s) International Financial Institutions

IFK Investment Fund of Kazakhstan

IMF International Monetary Fund

IPS Integrated Power System

ISO International Organization for Standardization

ITGI Interconnector Turkey-Greece-Italy

ITS INOGATE Technical Secretariat

JI Joint Implementation

JIP Joint Implementation Projects

JRC Joint Research Centre

KAZINST Kazakh Institute for Standardization

KCTS Kazakhstan Caspian Transportation System

KING Kazakh Institute of Oil and Gas

ktoe 1000 tons of oil equivalent

kV Kilovolts

KW Kilowatt

KWh Kilowatts per hour

LNG Liquefied natural gas

MIGA Multilateral Investment Guarantee Agency

MoSEFF Moldovan Sustainable Energy Financing Facility

MoU Memorandum of Understanding

MTEF Medium-Term Expenditure Framework


MTMF Medium-Term Macroeconomic Framework

MW Megawatt

NAEC National Agency for Energy Conservation (Moldova)

NAER National Agency of Ukraine for Efficient Use of Energy Resources (Ukraine)

NATELI New Applied Technology Efficiency and Lighting Initiative (Georgia)

NBU National Bank of Ukraine

NEIA National Environmental Investment Agency (Ukraine)

NERC (Moldova) National Electricity Regulatory Commission (Moldova)

NERC (Ukraine) National Electricity Regulatory Commission of Ukraine

NESK National Electric Grid Company (Kyrgyzstan)

NGOs Non-governmental organization(s)

NIF Neighbourhood Investment Facility

NISM National Institute of Standard and Metrology (Kyrgyzstan)

OECD Organisation for Economic Co-operation and Development

PIMS Pipeline Integrity Management System

PIP Public Investment Plan

PSA Production sharing agreement

PSRC Public Services Regulatory Commission of Armenia

R2E2 Armenia Renewable Resources and Energy Efficiency Fund

RES Renewable Energy Sources

SAARES State Agency of Alternative and Renewable Energy Resources (Azerbaijan)

SAEEEC State Agency for Energy Efficiency and Energy Conservation (Ukraine)

SCADA Supervisory control and data acquisition

SEMISE Support to the Energy Market Integration and Sustainable Energy in the NIS

SEFF Sustainable Energy Financing Facility

SHPPs Small hydro power plants

SKPI Support to Kyoto Protocol Implementation

SME Small and medium-sized enterprises

TA Technical Assistance

TAP Trans-Adriatic Pipeline

TPA Third-party access

TPES Total primary energy supply

TSO Transmission System Operator

TPP Thermal power plants

UN United Nations

UNDP United Nations Development Programme

UNFCCC UN Framework Convention on Climate Change

USTR United States Trade Representative

VAT Value added tax

WTO World Trade Organization


1. IntroductionINOGATE is the energy technical cooperation programme between the European Union (EU), Eastern Europe, the

Caucasus and Central Asia. Started in 1996 and expanded in 2004 through the ‘Baku Initiative’ policy framework, the

Programme’s four objectives are: convergence of energy markets on the basis of EU principles, enhancing energy

security, supporting sustainable energy development, and attracting investment towards energy projects of common

and regional interest.

The INOGATE Status Report 2011 presents the status of the energy sector reforms in relation to these four objectives,

in the INOGATE Partner Countries1, namely, the Republic of Armenia, the Republic Azerbaijan, the Republic of

Belarus, Georgia, the Republic of Kazakhstan, Kyrgyz Republic, the Republic of Moldova, the Republic of Tajikistan,

Turkmenistan, Ukraine and the Republic of Uzbekistan2. The evolution of the energy sector in these countries has

been analysed through a set of criteria as determined by the framework of the current regional policy dialogues

between these countries and the European Union.

While the ‘Baku Initiative’ is the main regional energy policy dialogue under which the technical assistance of

INOGATE is channelled, INOGATE also supports: the uptake of the objectives of the Eastern Partnership and in

particular the Energy Security Platform; the extension and implementation of the Energy Community Treaty in the

Partner Countries and, where possible, the implementation of the bilateral Energy Memoranda of Understanding

that were signed between the EU and Azerbaijan, Kazakhstan, Turkmenistan, Ukraine and Uzbekistan, respectively.

The ‘Baku Initiative’ policy dialogue aims to enhance the energy cooperation between the European Union and

countries of the Black Sea, the Caspian Basin and their neighbours. The overarching objective of the initiative is

the progressive convergence of the energy markets of the Black and Caspian Sea regions and of the EU. Such a

process implies progressively integrating energy policies on issues of trade, transit, and technical and environmental

standards. The INOGATE Technical Secretariat was designated as the coordinating mechanism to facilitate the ‘Baku

Initiative’.

At the 2nd Energy Ministerial Conference of the ‘Baku Initiative’ held in Astana, Kazakhstan in 2006, the EU and

the governments of the INOGATE Partner Countries adopted an Energy Road Map setting out a plan of actions for

enhanced energy cooperation between the partners. The Energy Road Map defined the objectives for the regional

energy cooperation and set out a plan of indicative actions to attain the long-term vision. In addition, all parties

agreed to make every effort to mobilise private and public financial resources from Partner Countries, EU technical

assistance and International Financial Institutions (IFIs) to support this process. The Ministerial Declaration setting

out the detailed Energy Road Map is appended as Annex II.

In this same Ministerial Declaration, it was agreed3 that all parties would ‘support the European Commission in

its monitoring role for the implementation of the Road Map, with the technical support of INOGATE’. The INOGATE

Technical Secretariat has therefore undertaken the present review in accordance with this mandate at the request of

the European Commission, and in accordance with the remit provided at the INOGATE Country Coordinators’ Meeting

of October 2010.

The purpose of the review is to assist the INOGATE partners to assess the state of play in achieving the objectives of

the Astana Ministerial Declaration’s Energy Road Map. These objectives are the basis for recording any development

and/or progress in the Partner Countries. The indicators used in the review are derived directly from the Energy Road

Map. In those cases where indicators are not directly related to the Energy Road Map objectives (that is, where the

1 Turkey, which is also an INOGATE Partner Country, has not been included in this report as it is not a beneficiary of the European Neighbourhood Policy Instrument under which this review has been funded. Russia has an observer status within the INOGATE programme and is therefore also not included in this report.

2 For the purposes of this report, the simplified names of the Partner Countries will be used: i.e. Armenia, Azerbaijan, Belarus, Kazakhstan, Kyrgyzstan, Moldova, Tajikistan and Uzbekistan.

3 Point 5 of Ministerial Declaration


Energy Road Map includes a more generic or long-term objective that cannot itself be used as an indicator), then

the indicators are defined using EU principles as reference points. The application of these indicators to the status of

Partner Countries, as included in the country profiles, provides the evidential basis for the review.

Annex I provides the specific definitions of the indicators applied as well as the explanation of the evaluation

methodology used in preparing this review.

The INOGATE Status Report 2011 takes into account the status of energy reforms carried out by the Partner Countries

up to and including December 2011. The present INOGATE Status Report 2011 forms the baseline for future annual

reviews.

The present assessment of the state of energy reforms will provide information relevant to the energy dialogue

within the frameworks of the ‘Baku Initiative’ and Eastern Partnership, helping to identify needs for future technical

assistance under the INOGATE Programme. An overview of all EU support to the energy cooperation with the

INOGATE Partner Countries in the period 2010-2011 is included in Annex IV.

Ultimately, INOGATE’s vision is to support the cooperation of the EU and the INOGATE Partner Countries to secure,

clean, sustainable, adequate and reliable energy resources for their citizens at affordable prices.


2. Current status in the four areas of cooperation2.1. Overview of indicators

The four INOGATE objectives form the basis for the four areas of cooperation under the programme.

Table 1: INOGATE Objectives and Areas of Cooperation

INOGATE Area of Cooperation INOGATE Objective

1st Area of cooperation: Energy Markets Convergence

2nd Area of cooperation: Energy Security

3rd Area of cooperation: Sustainable development

4th Area of cooperation: Investment Attraction

Converging of energy markets on the basis of the EU internal energy market principles taking into account the particularities of the Partner Countries

Enhancing energy security by addressing the issues of energy exports/imports, supply diversification, energy transit and energy demand

Supporting sustainable energy development, including the development of energy efficiency, renewable energy sources and demand side management

Attracting investment towards energy projects of common and regional interest

In order to undertake an analytic assessment of the state of progress towards the objectives in the Energy Road Map, a set of indicators has been defined (definitions included in Annex I) under each of these four programme objectives.

Table 2: Overview of indicators under each area of cooperation

1st Area of cooperation: Energy market convergence

1. Third-party access2. Unbundling3. Independent energy regulators4. Technical rules 5. Integrated regional markets

2nd Area of cooperation: Energy security

1. Maintenance2. Rehabilitation/Upgrading3. New energy infrastructures4. Metering and billing


1. Policy commitment2. Energy Efficiency & Renewable Energy Sources (EE/RES) framework development3. EE/RES action plans and measures4. Creation of energy agencies5. Environmental assessments and Environmental standards6. Kyoto Protocol mechanisms7. Gas flaring reduction

4th Area of cooperation: Investment attraction

1. Investment framework2. Investment climate3. Investment planning


For each of these indicators, the INOGATE Partner Country has been ranked in terms of its stage of development as follows:1. Basic2. Developing3. Advanced4. Mature

The definitions of the stages of development for each indicator are set out in Annex I while the detailed review for each Partner Country assessment is included in Annex III.

The following sections summarise, by area of cooperation, the status of the Energy Road Map objectives in the INOGATE Partner Countries.

2.2. 1st Area of cooperation: Energy markets convergence

2.2.1. Third party access

In all Partner Countries, there exist a Transmission System Operator (TSO4) and at least one Distribution System Operator (DSO5). However in the majority of the countries, the TSO and/or DSO is not an independent operator acting in a liberalised energy market, but is a state-owned company, acting in most cases under the direction of the country’s ministry in charge of energy. In most of the Partner Countries, the energy sector is controlled by the state, while the energy transmission / distribution networks are considered state property.

Figure 1: Overview of third party access in the electricity sector in Partner Countries

4 Transmission System Operator as defined under the EU Directive is responsible for operating, ensuring the maintenance of and, if necessary, developing the transmission system in a given area and, where applicable, its interconnections with other systems, and for ensuring the long-term ability of the system to meet reasonable demands for the transmission of electricity/gas.

5 Distribution System Operator as defined under the EU Directive on electricity and gas is responsible for operating, ensuring the maintenance of and, if necessary, developing the distribution system in a given area and, where applicable, its interconnections with other systems and for ensuring the long-term ability of the system to meet reasonable demands for the distribution of electricity/gas.

Thus, the operation of these networks is also controlled by the state. Only in some cases in the electricity sector, can a development be noted toward a transparent system of third-party access (TPA) to the network, namely when the distribution sector is partly or entirely privatised. However effective barriers (e.g. underdeveloped secondary legislation, the need for special permits and discouraging rules) make such access very difficult. The Partner Country that has been identified as ‘developing’ in the electricity sector is Ukraine, while Armenia, Georgia, Kazakhstan and Moldova have all been identified as ‘advanced’.

With the exceptions of Armenia and Georgia, where third-party access to the gas networks is allowed under a regulated regime, TPA to gas transmission networks is generally not encouraged in the Partner Countries and in many cases not allowed under existing legislation.

allowed under regulated regime

theoretically allowed - barriers

not allowed

TPA in electricity sector


Table 3: Third party access status in Partner Countries

Armenia

Azerbaijan

Belarus

Georgia

Kazakhstan

Kyrgyzstan

Moldova

Tajikistan

Turkmenistan

Ukraine

Uzbekistan

Country Electricity Gas

allowed under regulated regime allowed under regulated regime

allowed under regulated regimeallowed under regulated regime



not allowed not allowed

not allowed

not allowed

not allowed

not allowed

not allowed

not allowed

not allowed

not allowed

not allowed

not allowed

not allowed




Armenia

Azerbaijan

Belarus

Georgia

Kazakhstan

Kyrgyzstan

Moldova

Tajikistan

Turkmenistan

Ukraine

Uzbekistan

Country Electricity Gas

legal unbundling No unbundling

legal unbundlinglegal unbundling

legal unbundling

legal unbundling

No unbundling No unbundling

No unbundling

No unbundling

financial unbundling

No unbundling

No unbundling


No unbundling

legal unbundling

No unbundling

No unbundling


legal unbundling

legal unbundling


Figure 2: Overview of third-party access in the gas sector in Partner Countries



not allowed

TPA in gas sector

2.2.2. UnbundlingUnbundling (i.e. structural separation between transmission activities and production/supply activities of vertically integrated companies) may be disaggregated according to the following definitions:

• Financial unbundling - is the first stage of the unbundling process and refers to the unbundling of accounts of the TSO/DSO; • Legal unbundling – is where the TSO/DSO are legally separated undertakings usually through a process of corporatisation but still not yet fully in line with the requirements of the EU Acquis; and • Ownership unbundling – which is fully in line with the principles of the EU Acquis.

Table 4: Status of unbundling status in the electricity and gas sectors of Partner Countries


In these respects six of the Partner Countries (Armenia, Georgia, Kazakhstan, Kyrgyzstan, Moldova and Ukraine) have unbundled its electricity sectors and thus could be considered as having reached the ‘advanced’ status.

Figure 3: Unbundling status in the electricity sector of Partner Countries

legal unbundling

legal unbundling

No unbundling

No unbundling



Unbundling status in electricity sector

Unbundling status in gas sector

In the gas sector, only Georgia and Kazakhstan have implemented a legal unbundling of their transmission and distribution systems. Moldova, Tajikistan and Uzbekistan have financially unbundled their TSO/DSO gas companies, while in the rest of the Partner Countries this process is either under consideration, or is not foreseen in the near future.

Figure 4: Unbundling status in gas sector of Partner Countries

2.2.3. Independent energy regulators

a) Establishment of energy regulatory bodyAn energy regulatory body exists in all Partner Countries. The regulators are classified in the following 3 categories:

1. The role of the regulator is played by a department of the ministry in charge of energy. Belarus, Kyrgyzstan, Turkmenistan and Uzbekistan follow this model; 2. The regulator is an individual entity, acting under the supervision and/or control of a ministry (usually either the ministry in charge of economy, the ministry in charge of energy, or referring directly to the President of the Country). Azerbaijan and Tajikistan have regulators in this category; 3. The regulator is an individual entity, acting in a freer environment; however, in these cases the nomination of regulatory authority members and the funding of the organisation (both key issues for independence) still depend on the State/Government. Armenia, Georgia, Kazakhstan, Moldova and Ukraine generally follow this model.


Ministry acting as regulator

Regulator acts

Regulator under Ministy’s control

Regulator types

Figure 5: Types of regulatory bodies in Partner Countries

b) Level of independenceAlthough in all Partner Countries a regulatory body exists, in over half of them this body is either a department of the ministry in charge of energy, or is controlled directly or indirectly by the state. In these cases therefore, either independence may not be said to exist at all or there is only limited scope for the regulators to act independently and regulate the energy market according to EU principles. A relatively higher degree of independence is demonstrated by the energy regulators in Armenia, Georgia, Moldova and Ukraine. These regulators have the authorisation to set and approve the tariffs in their countries (Armenia, Georgia, Moldova and Ukraine), without any direct intervention from the state, while their budget is either approved directly by the parliament (Armenia, Kazakhstan, Ukraine) or derived from regulatory fees (Georgia, Moldova). The members of the regulatory board are approved by the President or the Prime Minister (Armenia, Georgia, Kazakhstan, Ukraine), or the Parliament (Moldova).

Table 5: Regulatory bodies’ state of development and level of independence in Partner Countries

Armenia

Azerbaijan

Belarus

Georgia

Kazakhstan

Kyrgyzstan

Moldova

Tajikistan

Turkmenistan

Ukraine

Uzbekistan

Country Establishment Independence

Yes Broadly

BroadlyYes

Yes

Yes

Yes Controlled by the Ministry of Economy

Controlled by the Ministry of Economy

Controlled by the Ministry of Energy

Controlled by the Government

Controlled by the Government

Broadly

Economy with Finance

By Ministry of Economy

By Ministry of Energy

Yes

By the Government

By Ministry of Finance

Yes

Broadly

Broadly

2.2.4. Tariff policy/Role of regulators

a) Tariff setting policy/typesIn most countries, tariffs are constructed from a model based on actual costs. However, in some of the Partner Countries, energy tariffs are inextricably linked to the government’s social policy. In these cases, the energy regulator plays a secondary role and the level of energy tariffs is set by governmental social policy. Usually these tariffs are either ‘flat rate’ or ‘cap’ type tariffs.

Only in Armenia, Georgia, Kazakhstan, Moldova and Ukraine are the setting and the approval of tariffs carried out by regulatory bodies, while in the other countries final approval is a state responsibility (either of a ministry or of the government).

The table below summarises the status for the tariff type and policy setting institution in the Partner Countries.


Armenia

Armenia

Azerbaijan

Azerbaijan

Belarus

Belarus

Georgia

Georgia

Kazakhstan

Kazakhstan

Kyrgyzstan

Kyrgyzstan

Moldova

Moldova

Tajikistan

Tajikistan

Turkmenistan

Turkmenistan

Ukraine

Ukraine

Uzbekistan

Uzbekistan

Country

Country

Type

Electricity (€/kWh)

Setting policy

Gas (€/Gj)

Cost reflective

€ 0.05

By regulator setting & approval

€ 5.2


€ 6.36

Cost reflective

€ 0.07

Cost reflective

€ 0.04

Cost reflective

€ 0.08

Not clear-subsidised

€ 0.06

Determined by regulator, approved by Ministry of Economy

€ 2.9

Beltopgas/Belenergo propose, Ministry of Energy comments, Counil of Ministers approves

€ 2.12

Setting by Ministry of Energy, approval by Government

€ 8.1

Tajiktransgas/Barki Tojik setting, approvalby regulator

€ 4.39

By the Government

Free of charge (for up to 50 m3 per person per month)


€ 2.1

By Ministry of Finance setting & approval

€ 0.94

Subsidised

€ 0.02

Not clear-subsidised

€ 0.02

Cost reflective

€ 0.01

Subsidised

Free of charge (for up to 35KWh per person per month)

Cost reflective/Partially subsidesed

€ 0.035

Cost plus

€ 0.02


€ 1.29


€ 7.8

Table 6: Tariff status in Partner Countries

The average price tariffs for both electricity and gas sectors for households are shown in the figures and table below.

Table 7: Average prices for electricity and gas paid by households in the Partner Countries

Note: Data derived from the agreed Country Profiles of the Partner Countries (Annex III)


Figure 6: Average electricity prices for households (€/kWh)

Armen

ia

Azerb

aijan

Belaru

s

Georg

iaKaz

akhs

tan

Kyrgyz

stan

Moldov

a

Tajik

istan

Ukrain

eUzb

ekist

an

EU - 27

Eur

osta

t Ave

rage

Electricity Households Prices (€/kWh)

€ 0.20

€ 0.05€ 0.06

€ 0.02

€ 0.07

€ 0.04

€ 0.02

€ 0.08

€ 0.01 € 0.02

€ 0.035

€ 0.184

€ 0.16

€ 0.12

€ 0.08

€ 0.04

€ 0.00

Armen

ia

Azerb

aijan

Belaru

s

Georg

iaKaz

akhs

tan

Kyrgyz

stan

Moldov

a

Tajik

istan

Ukrain

eUzb

ekist

an

EU - 27

Eur

osta

t Ave

rage

Gas Households Prices (€/GJ)

€ 18

€ 5.20

€ 2.90€ 2.12

€ 6.36

€ 1.29

€ 8.10 € 7,80

€ 4,39

€ 2,10€ 0.94

€ 17,77

€ 15

€12

€ 9

€ 6

€ 3

€ 0

Figure 7: Average gas prices for households (€/GJ)

b) TransparencyIn the vast majority of the Partner Countries, the tariffs are made available to the public. However, the tariff structure is not always fully transparent or easily understandable by the ordinary customer. In relatively few cases are the utility bills explained in depth to the customers, which therefore limits the level of tariff transparency as, many customers fail to understand how their bills are calculated.


2.2.5. Technical rules

a) Harmonisation of standardsIn the past few years, there has been a notable increase in interest by the Partner Countries in approaching harmonisation with EU codes, standards and energy directives. A few countries are advanced in this area and have already established processes for harmonising their standards with those of the EU and with international standards, principally in the oil and gas sectors. Armenia, Georgia, Kazakhstan and Moldova are in this category, while Belarus, Ukraine and Uzbekistan have undertaken the first steps in this process. In the electricity sector, the more developed countries are Armenia, Azerbaijan, Georgia and Kazakhstan, while Belarus, Ukraine and Moldova have commenced the first steps in this process, and Uzbekistan has recently started cooperation with CEN/CENELEC6. In the gas sector, Armenia, Georgia, Kazakhstan, Moldova, Ukraine and Uzbekistan have commenced the first steps in the harmonisation process.

Partner Countries’ membership in the EU organisations for standardisation is presented in the following table.

Table 8: Membership status of INOGATE Partner Countries in EU standardisation organisations

Armenia

Azerbaijan

Belarus

Georgia

Kazakhstan

Kyrgyzstan

Moldova

Tajikistan

Turkmenistan

Ukraine

Uzbekistan

Country ISO CEN/CENELEC COOMET EASC

Yes Yes Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

YesYes

Yes

YesYes

Yes

Yes

Yes Yes

Yes

No

No

No No

Yes

No

Yes

Yes

Yes

Yes

Yes

Yes

No

Yes

All Partner Countries are members of the International Standards Organisation (ISO), while all Partner Countries with the exception of Turkmenistan are members or affiliates of the Euro-Asian Cooperation of National Metrological Institutions (COOMET). Moreover all countries are members of Euro-Asian Standardisation Council (EASC). Armenia, Azerbaijan, Belarus, Georgia, Moldova and Ukraine are also members of CEN/CENELEC.

This area of cooperation is considered to have potential for further growth in the coming years.

2.2.6. Integrated regional markets

An increased interest in developing regional energy markets is evident. Particular interest is registered from transit countries - for example, Georgia (for both gas and electricity), Moldova (for electricity) and Ukraine (for both gas and electricity) – as such markets can stabilise their status in energy transit corridors. Energy producing countries (for example, Kazakhstan – oil and gas, Uzbekistan – gas and Turkmenistan – oil and gas) are also interested in increasing their energy exports to wider energy markets, thus contributing to their country’s development. However due to outside policy barriers (e.g. external relations between the countries such as water resource disputes in Central Asia) substantial further development of regional energy markets is not foreseen in the short-term.

6CEN is the European Committee for Standardisation; CENELEC is the European Committee for Electrotechnical Standardisation.

Membership status


The

findi

ngs

and

the

‘Roa

d M

ap s

tatu

s’ o

f the

Par

tner

Cou

ntri

es, a

ccor

ding

to th

e ag

reed

indi

cato

rs a

nd c

rite

ria

for

the

1st A

rea

of e

nerg

y co

oper

atio

n, ‘E

nerg

y M

arke

t Con

verg

ence

’ are

as

foll

ows:

Tabl

e 9:

Sum

mar

y of

sta

tus

of in

dica

tors

for

the

1st A

rea

of c

oope

ratio

n: E

nerg

y m

arke

ts c

onve

rgen

ce


2.3. 2nd Area of cooperation: Energy security

2.3.1. Maintenance

Most of the Partner Countries pay a great deal of attention to the maintenance of the existing energy infrastructure; 9 out of 11 of the Partner Countries have a status of either ‘advanced’ or ‘developing’, while only 2 have a ‘basic’ status.

Figure 8: Status of maintenance in Partner Countries

Advanced

Developing

Basic

Status for maintenance

In principle, all Partner Countries are interested in maintaining their energy infrastructure, which is widely considered a national asset. However the development of this sector in some countries such as Kyrgyzstan and Tajikistan is not optimal for a number of reasons, which include lack of investment, limited personnel capacity or know-how and absence of harmonised standards and rules.

In Armenia, Belarus, Kazakhstan, Moldova, Georgia, Turkmenistan and Ukraine, the operating companies carry responsibility for annual maintenance programmes. However in the case of Armenia, Belarus, Kazakhstan and Moldova the annual maintenance programmes are also monitored by the energy regulator or competent ministry.

In Azerbaijan, maintenance programmes take place with a fixed budget in the gas, oil and electricity sectors. In Belarus, strict rules on implementing annual maintenance programmes exist, including potential criminal responsibility for negligence where inadequate maintenance leading to damage or personal injury is proved.

2.3.2. Rehabilitation/Upgrading

a) Long and medium term rehabilitation programmesAs above, all Partner Countries are concerned to rehabilitate and modernise their energy infrastructures. However, largely due to insufficient funding which in some cases as a result of a high level of non-technical losses and in other cases a regime of artificially low tariffs, high operating costs and inadequate budget transfers to the utility or some combination of all, rehabilitation is still underdeveloped in many Partner Countries.

Figure 9: Status of rehabilitation in Partner Countries

Advanced

Developing

Basic

Status for Rehabilitation

Armenia, Azerbaijan, Georgia, Kazakhstan, Moldova, Turkmenistan and Uzbekistan are running rehabilitation programmes for their energy infrastructure (both gas and electricity sectors), while Belarus and Tajikistan are running relevant programmes in the electricity sector and Ukraine in the gas sector.


Table 10: Status of electricity and gas losses in Partner Countries

Electricity GasDistribution DistributionTransmission Transmission

Country

1.50%

under 10%

13.00%

up to 20% 9-10%

3.50% 2.00%

up to 9%

up to 30%

2.00% NAD*

NAD* NAD*

5.38%

12.00%

6-7% 15-17%

up to 3% 10,4-13,6%

17-18%

0.50%0.50%

NAD*

NAD*

NAD* NAD*NAD*

Some regions distribution losses up to 30%. NAD*

about 20%0.20% 4.90%

up to 17%

2.30%2.11% 2.40%

* NAD=Not available dataNote: Data derived from the agreed Country Profiles of the Partner Countries (Annex III)

2.3.3. New energy infrastructuresAll Partner Countries are seeking investment funds to develop their energy infrastructure by constructing new facilities (both production and transmission). However in some countries (Kyrgyzstan, Moldova and Tajikistan), due to the lack of funds investments in the energy sector are limited.

Most energy producing countries (Azerbaijan, Kazakhstan, Turkmenistan and Uzbekistan) and also transit countries (Belarus, Georgia, Ukraine) are interested in erecting new transit lines (in both the electricity and gas sectors). The following elaborates some of the main planned investment programmes in the Partner Countries:

• Azerbaijan plans new extraction/expansion of gas fields and new transmission pipelines; • Kazakhstan plans to reconstruct 2 existing gas storage facilities and expand/modernise existing gas and oil pipelines; • Turkmenistan intends to expand energy production and gas exporting facilities; • Ukraine plans to increase the transmission capacity of the existing transit system and to interconnect with the ENTSO-E (European Network of Transmission System Operators for Electricity) grid; • Uzbekistan will develop new gas production fields, and expand exporting capacity in both gas and electricity sectors.

Other Partner Countries are interested in building new energy producing and transmission facilities, in order to enhance the security of their energy supplies and/or to reduce energy imports. Such schemes include the following examples:

• Armenia’s extension of underground gas storage and extension of gas and electricity import lines; • Belarus’s extension of underground gas storage and electricity production units from renewable sources; and • Georgia’s construction of underground gas storage, electricity transmission lines and gas transmission pipelines.

b) Minimisation of outage and lossesAll Partner Countries are attempting to limit energy losses and provide their citizens with an uninterrupted energy supply. However, in many countries (Armenia - electricity sector, Azerbaijan - electricity sector, Kazakhstan - gas sector, Kyrgyzstan - both gas and electricity sectors, Tajikistan - both gas and electricity sectors, Ukraine - electricity sector and Uzbekistan - electricity sector) the percentage of losses is still over 10%, and further measures should be taken to minimise these.

The table below summarises losses in the gas and electricity sectors in the Partner Countries.

Armenia

Azerbaijan

Belarus

Georgia

Kazakhstan

Kyrgyzstan

Moldova

Tajikistan

Turkmenistan

Ukraine

Uzbekistan


Electricity GasCollection rate Collection rateMetering Metering

Country

Armenia

Azerbaijan

Belarus

Georgia

Kazakhstan

Kyrgyzstan

Moldova

Tajikistan

Turkmenistan

Ukraine

Uzbekistan

* NAD=Not available data

Note: Data derived from the agreed Country Profiles of the Partner Countries (Annex III)

100.00%

100.00%

100.00%

100.00%

100.00% 100.00% 100.00%

100.00%

100.00%

100.00%

100.00%

100.00%

100%

about 90%

NAD*-most consumers

close to 100%

close to 100%

93.00%

over 95%

98.00%

low

85-95%free of charge up

35 kWh/person/month

98.40%89%

about 98%

NAD*-good

70% domestic-100% industry

90-98%

85.00%97-100%

0% free of charge at 50 m3/person, month

87.00%

73%

98.00%

85.00%

over 70%

close to 100%

close to 100%

close to 100%

close to 100%

57,9% domestic-96.1% industry92.30%

2.3.4. Metering and billing (electricity/gas)

a) Metering systems at end-usersNearly all Partner Countries are taking measures to ensure accurate measurement of the electrical energy consumed. The most advanced cases are Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Moldova and Ukraine. In Turkmenistan, although all consumers have electricity meters, the collection rate still remains low and is not enforced.

In the gas sector, all countries are metering the end users. In Turkmenistan, since gas is supplied free of charge, no metering facilities have been installed at the low-pressure distribution grid.

Georgia and Moldova employ electronic billing systems to increase tariff collection.

Table 11: Status of metering and billing in Partner Countries.

b) Tariff collection systemsThose countries that are energy producers and also subsidise energy tariffs (i.e. Turkmenistan in the gas sector) have underdeveloped tariff collection systems and the collection rate is low. In Azerbaijan the collection rate has improved in the last 5 years.

The other countries are taking measures to increase the tariff collection rate, or to switch to more accurate metering and billing systems (or both).

The findings and the Energy Road Map status of the Partner Countries, according to the agreed indicators and criteria for the 2nd Area of energy cooperation, ‘Energy Security’ are as follows:


Tabl

e 12

: Sum

mar

y of

sta

tus

of in

dica

tors

for

the

2nd

Area

of c

oope

ratio

n: E

nerg

y se

curi

ty

The

findi

ngs

and

the

Ener

gy R

oad

Map

sta

tus

of th

e Pa

rtne

r Co

untr

ies,

acc

ordi

ng to

the

agre

ed in

dica

tors

and

cri

teri

a fo

r th

e2n

d A

rea

of e

nerg

y co

oper

atio

n, ‘E

nerg

y Se

curi

ty’ a

re a

s fo

llow

s:


2.4. 3rd Area of cooperation: Sustainable development

2.4.1. Political commitments and adopted strategy or policy

In a great many of the Partner Countries, there is a clear and firm political commitment to the development of renewable energy sources and an increase of energy efficiency. The table below shows the status of the strategies/programmes adopted by the Partner Countries regarding sustainable energy (EE and RES).

Commitment Strategy / PolicyCountry

Political commitments and adopted strategy or policy

Armenia

Azerbaijan

Belarus

Georgia

Kazakhstan

Kyrgyzstan

Moldova

Tajikistan

Turkmenistan

Ukraine

Uzbekistan

Yes

Yes

Yes

Yes

Yes

Yes

Yes

YesΝοYes

Yes

Table 13: Political commitments and strategies / policies adopted for sustainable energy

National energy programme/Strategy for fuel & energy sector development

No specific policy or programme

National energy strategyNo specific policy or programme

Programme for use of renewable energy

National energy strategy/Law on energy efficiency

Law on supporting the use of Renewables

State Programme for RenewablesNational Programme on Energy Efficiency/Law on Renewables

State Programme for Renewables

National Programme for Renewables & Energy Efficiency

2.4.2. EE/RES framework development

Although most of the Partner Countries have committed to developing a sustainable energy policy (see above), in some the legal and institutional framework for realising this policy is not yet in place or is underdeveloped (i.e. Azerbaijan, Georgia, Kazakhstan, Tajikistan, Uzbekistan and Turkmenistan). More developed energy efficiency and renewable energy legal frameworks are noted in Armenia, Belarus, Kyrgyzstan, Moldova and Ukraine. It is assumed however that in the coming years legal and institutional frameworks will be developed, allowing a greater increase of renewable energy development.

Figure 10: EE/RES Framework development in Partner Countries

Basic

Developing

EE/RES framework development in Partner Countries


Renewables NotesCountry

Armenia

Azerbaijan

Belarus

Georgia

Kazakhstan

Kyrgyzstan

Moldova

Tajikistan

Turkmenistan

Ukraine

Uzbekistan

6.7%

Only hydro

Only hydro

Only hydro

1.6%

6.0%

33.3%1.1%

28.4%

3.5%

58.6%

0.0%1.6%

1.6%

2.4.3. EE/RES action plans and measures

The share of total primary energy supply (TPES) from renewable resources in the Partner Countries according to International Energy Agency (IEA) energy statistics in 2009 is shown below:

Table 14: RES share of total primary energy supply* in 2009

* Share of TPES excludes electricity trade. Data retrieved from IEA Energy Statistics © OECD/IEA 2010

The relevant EU-27 figure in 2009 was 18.3% (Source: Eurostat Pocketbook 2009 edition).Most of the Partner Countries have not yet developed and adopted either on-going programmes or action plans for renewable energy and energy efficiency. Only in some countries (Armenia, Tajikistan and Ukraine) have measures fostering the utilisation of renewable energies been undertaken and action plans been adopted. To give specific examples:

• Armenia has, since 2007, operated a national programme for renewable energy and energy efficiency, while its Diversification Strategy has set targets for the development of renewable resources aiming to cover 30% of its electricity needs by RES by 2025; moreover in 2010, a national energy efficiency action plan was developed. Clear targets till the year 2020 have been set for energy efficiency ranging from 14% to 23% for residential, private and public sectors, industry, transport and agriculture. • In 2011, Azerbaijan developed a strategy for renewable energy development, while the Ministry of Industry and Energy has included in the State Programme wind parks with a total capacity of 250 MW. Indicative medium-term targets have been discussed by the Ministry of Industry and Energy and State Agency of Alternative and Renewable Energy Resources (SAARES), i.e. by 2020 20% of total share of electricity will be produced by renewable energy. • Belarus has set a target of 25% of electricity and heat production from local fuel types, secondary energy resources and renewable energy by 2012. • Georgia plans to further develop renewable resources and the ministry has offered a list of potential HPPs for international investors under an attractive investment regime. • In Kazakhstan, the Ministry of Environment has set a target of 4% sustainable energy in the energy use mix by 2020, while the new draft law on energy saving and improvement of energy efficiency aims to reduce the gross domestic product (GDP) energy intensity by 25% by 2020. • In Kyrgyzstan, the Strategy for the Fuel and Energy Sector Development (covering the period 2010-2025) calls for the rapid expansion of hydro as a priority for energy sector development and foresees the construction of around 100 small hydroelectric plants with a total capacity of approximately 180 MW. • In Moldova, the Government has set targets for a 20% reduction of the primary energy consumption by 2020, a 20% reduction of Greenhouse gas (GHG) emissions by 2020, an increase of the share of renewable energy sources in the overall energy balance from 6% in 2010 up to 20% in 2020 and an increase in the share of biofuels to at least 10% of the total amount of fuels used in 2020.


• Tajikistan has been operating a programme on the use of renewable energy since 2007, which is financed by the state budget. The Ministry of Energy and Industry reported that 43 new small hydro power stations with a capacity 4.400 KW have been put into operation since 2009. • Finally Ukraine has adopted an ambitious national energy strategy extending to 2030 with a goal to reduce imports from 55% (in 2005) to 12% (in 2030), by switching to alternative energy sources as well as by a 52% reduction in energy intensity. A law on ‘green tariffs’ was adopted in April 2009, while new legislation on renewable energy was adopted in the period 2008-2009.

No information campaigns or awareness raising activities have been noted in the Partner Countries, apart from those that are implemented by the INOGATE or other donor projects.

In almost all countries there is an assessment of the potential of renewable energy resources; however, the potential for energy efficiency has so far not been clearly identified.

2.4.4. Creation of energy agencies

In a few Partner Countries, energy agencies have been established and are in operation. More specifically, in Azerbaijan, the Agency for Renewable and Alternative Energy Sources (SAARES) was established in 2009; in Moldova, the National Agency for Energy Conservation (NAEC) has been operational since 2006 and in 2010, was renamed the Agency of Energy Efficiency; and in Ukraine, the National Agency of Ukraine for Efficient Use of Energy Resources (NAER) has been operational since 2006. Armenia has the intention to create such an agency by 2013.

In most cases, the ministry in charge of energy in the Partner Countries is responsible for energy efficiency and renewable energy issues (i.e. in Armenia, Georgia, Kazakhstan, Kyrgyzstan, and Tajikistan). In Belarus the energy efficiency department of the State Statistics Committee is responsible, while in Turkmenistan the responsibility lies with the government and in Uzbekistan the establishment of an energy agency is under consideration by the government.

2.4.5. Environmental assessments/energy auditing/environmental standards

In almost all countries, the framework for environmental assessments is underdeveloped. In some of the Partner Countries, the relevant legislative framework is currently under development, whilst in a few cases energy auditing of buildings has been highlighted. Best cases are noted in Belarus and Ukraine, while in Moldova a Centre of Energy Audits has been established.

In the majority of the countries, environmental standards are not presently taken into consideration. Environmental standards have only been adopted in Belarus.

2.4.6. Kyoto Protocol mechanisms

The Kyoto Protocol has been ratified by all INOGATE Partner Countries and the relevant designated National Authorities are in place. However the Clean Development Mechanism (CDM) is still underdeveloped. Many Partner Countries are active in CDM projects, with projects in an implementation, evaluation, or preparation phase. These countries are Armenia, Azerbaijan, Georgia, Kyrgyzstan, Moldova, Tajikistan and Uzbekistan. Joint Implementation (JI) projects have not been identified, except in Ukraine.

The table below shows the CDM /JI projects that are either under implementation, or that have been validated (or determined if referring to JI projects).


Under implementation CDM projects validated /JI projects determined

Armenia

Azerbaijan

Belarus

Georgia

Kazakhstan

Kyrgyzstan

Moldova

Tajikistan

Turkmenistan

Ukraine

Uzbekistan

5

80

5

0

0

8

0

22

5

1

4

1 registered

02 registered

0

0

4 registered

0

040 (JI mechanism)

10 registered

Country

CDM / JI projects status in INOGATE Partner Countries

2.4.7. Gas flaring reductionThis indicator is only applicable to the oil and/or gas producing countries (Azerbaijan, Kazakhstan, Turkmenistan and Uzbekistan). For these countries, it seems that in the last 5 years a gas flaring reduction policy has been adopted and in one case (Kazakhstan) an ambitious target has been set to eliminate gas flaring by 2012; however, no information is available so far as to the results of this policy.

Azerbaijan, Kazakhstan and Uzbekistan are members of the ‘World Bank Global Gas Flaring Reduction Initiative’.

Table 15: Status of CDM / JI projects in the Partner Countries


The

findi

ngs

and

the

Roa

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tatu

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the

Part

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Coun

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coop

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tain

able

Dev

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t’ a

re a

s fo

llow

s:

Tabl

e 16

: Sum

mar

y of

sta

tus

of in

dica

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for

the

3rd

Area

of c

oope

ratio

n: S

usta

inab

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ent

Bas

icB

asic

Bas

ic

Bas

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Bas

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Bas

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Bas

ic

Bas

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Bas

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Bas

ic

Bas

ic

Bas

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Bas

ic

Bas

ic

Bas

ic

Bas

ic

Bas

ic

Bas

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Bas

ic

Bas

ic

Bas

ic

Bas

ic

Bas

ic

Bas

ic

Bas

icB

asic

Bas

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Bas

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Bas

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Bas

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Bas

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Bas

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Bas

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Bas

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asic

NOT

APP

LICA

BLE

NOT

APP

LICA

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NOT

APP

LICA

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NOT

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Bas

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Bas

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Dev

elop

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Dev

elop

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Dev

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Dev

elop

ing

Dev

elop

ing

Dev

elop

ing

Dev

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ing

Dev

elop

ing

Dev

elop

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Dev

elop

ing

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elop

ing

Dev

elop

ing

Dev

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Dev

elop

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nced

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nced

Adva

nced

Adva

nced


2.5. 4th Area of cooperation: Investment Attraction

2.5.1. Investment framework

a) Legal - regulatory framework developmentAll Partner Countries have developed legal and regulatory frameworks for investment. Key issues and basic rights of investors, such as ‘protection of investors and their assets’, as well as ‘investment guarantees’, are covered in the legal codes of almost all countries. However, the inconsistent implementation of existing laws and regulations at all levels and contradictions between them remain a significant obstacle for investment.Armenia, Georgia, Kyrgyzstan, Moldova, Tajikistan Ukraine and Uzbekistan have more developed legal and regulatory frameworks for investments, and can be cited as best cases.

b) Stability, transparency and adequacyAlthough, as noted above, in some cases there is a developed legal-regulatory framework, this regulatory environment is not necessarily conducive to starting and operating a business. The stability of the framework and the transparency and the adequacy of the existing legal - regulatory framework also play a significant role in attracting investment.

According to the ‘Ease of Doing Business Ranking 2011’ published by the World Bank and the International Finance Corporation, the Partner Countries are ranked as follows (where the higher the ranking, the easier it is to do business):

Table 17: ‘Ease of doing business’ ranking 2011

Under implementation

Georgia

Kazakhstan

Armenia

Azerbaijan

Belarus

Kyrgyzstan

Moldova

Tajikistan

Ukraine

Uzbekistan

Turkmenistan

16

47

5566

69

70

81

147

152166

n/a

Country

Source: World Bank, International Financial Corporation

According to this ranking, only three countries (Georgia, Kazakhstan and Armenia) came above 60th place in a ranking of 1-180 countries.

Key issues for attracting investment are transparency and bureaucracy. Most countries still suffer from the red tape phenomenon, while in some cases the state interprets the existing laws in an ambiguous way.

None of the Partner Countries has signed the Organisation’s for Economic Co-operation and Development (OECD) Anti-Bribery convention. However Armenia, Azerbaijan, Georgia, Kazakhstan, Kyrgyzstan, Tajikistan, Ukraine, and Uzbekistan endorsed the Istanbul Action Plan (IAP) in 2003, which is an Anti-Corruption Action Plan in the framework of the Anti-Corruption Network for Eastern Europe and Central Asia of the OECD. As such these countries have committed to taking measures to fight corruption. Nevertheless the Partner Countries still score low on Transparency International’s Corruption Perceptions Index. For example in 2011, all Partner Countries, with the exception of Georgia who scores at 4.1, have a score of less than 3 on a 1-10 scale where 10 represents maximum transparency.

c) PrivatisationIn some Partner Countries the privatisation process is well advanced (Armenia, Georgia and Moldova); while in Kazakhstan, following an initial boom the privatisation process is now frozen, or the speed of the process has slowed dramatically. In some of the Partner Countries (Azerbaijan, Belarus, Kyrgyzstan, Tajikistan, Turkmenistan, Ukraine,


and Uzbekistan) energy infrastructure is considered a national and strategic asset and the privatisation of the energy sector is moving very slowly or not at all.

d) Institutional reformsAll Partner Countries understand that without reforming and restructuring their institutional framework, attracting investment will remain an unfulfilled objective. As a result, all countries are trying in various ways to proceed with some reforms of their national state institutions that are involved with investment. However this restructuring process is moving very slowly.

2.5.2. Investment climate

a) TaxationThe tax system is evolving in almost all Partner Countries through a system of reforms designed to simplify the existing tax system and improve tax legislation in general. However inconsistency, complexity, transparency and corruption are still challenges to be faced by the Partner Countries. The Armenian Government has committed itself to eliminate corruption; Azerbaijan modernised the entire taxation system and criminalised active and passive bribery; Belarus is also moving towards a simplification of the taxation system; Georgia overhauled the tax code in 2010 by simplifying the taxation system; Kazakhstan in 2009 adopted a new tax code applying international models; Kyrgyzstan updated its existing tax code to be more liberal; whilst Tajikistan and Uzbekistan are also moving towards international accounting norms for taxation and taking measures against bribery.

b) Financial and banking systemsBanking systems in the Partner Countries are in most cases underdeveloped and much remains to be done to develop systems that will support project financing. However recent years have seen positive developments, with the banking systems in some countries becoming increasingly open, liberal and more compliant with international standards (e.g. Armenian commitment to preserving the stability of its banking system; Azerbaijan’s banking system growth; Georgia’s stable banking system; Kazakhstan’s 2009 reforms strengthening its banking system; and the rapid growth of the Ukrainian banking system).

c) Disputes settlementIn theory almost all countries acknowledge international arbitration systems and processes. However in most countries a reliable and impartial mechanism for resolving disputes is either not in place, or cannot be relied upon. In many countries, although international arbitration decisions are recognised, in practice such decisions can be very difficult to enforce in the country and in national courts (i.e. Azerbaijan, Belarus, Kazakhstan, Tajikistan, Turkmenistan, Ukraine and Uzbekistan). In this context confidence in contractual rights still needs to be assured to a greater extent. Armenia, Georgia and Moldova recognise and accept international arbitration and international courts for resolving disputes with foreign companies.

d) Tariffs and energy pricing systemExisting tariff systems cannot be considered a positive element in fostering a favourable climate for foreign investment. The instability of tariff setting systems, and in some cases the lack of transparency, constitute significant barriers to attracting investment in the energy sector. However, the adoption and use of cost reflective type tariffs in Armenia, Georgia, Kazakhstan, Moldova, Tajikistan and Ukraine provides a positive environment for doing business in the energy sector in these countries. Moreover ‘green tariffs’ in Armenia, Belarus, Georgia, Moldova and Ukraine support sustainable development and renewable energy investment.

2.5.3. Investment planning

a) Development of investment strategy and planningAll Partner Countries are keen to attract investment. Most of the Partner Countries pay significant attention to investment planning, and in many cases specific institutions for investment strategy have been established. Energy strategies and investment strategies have been adopted by many countries; however, it remains to be seen how these strategies will be implemented and funded.b) Projects of strategic interestMany interconnection lines, in both the electricity and gas sectors, are either under implementation or under consideration.


Key interconnections in the electricity sector that are under construction or in the pipeline are: • Georgia-Turkey 500/400 kV interconnector • Interconnections Moldova- Romania and Ukraine - Moldova

Key interconnections in the electricity sector that are under consideration by the governments of the involved countries are: • Azerbaijan-Georgia-Turkey interconnection • Georgia-Armenia 400 kV interconnector

In the gas sector strategic projects are considered the following: • Southern Gas Corridor • Azerbaijan-Georgia-Romania (AGRI) interconnector

The regional character of all these interconnection lines will contribute to a positive environment for the creation of regional energy markets. The funding of all these energy project proposals remains a challenge.


The

findi

ngs

and

the

‘Roa

d M

ap s

tatu

s’ o

f the

Par

tner

Cou

ntri

es, a

ccor

ding

to th

e ag

reed

indi

cato

rs a

nd c

rite

ria

for

the

4th

Are

a of

ene

rgy

coop

erat

ion,

‘Inv

estm

ent A

ttra

ctio

n’ a

re a

s fo

llow

s:

Tabl

e 18

: Sum

mar

y of

sta

tus

of in

dica

tors

for

the

4th

Area

of c

oope

ratio

n: In

vest

men

t att

ract

ion


3. Results3.1. Summary of FindingsThe INOGATE Status Report 2011 provides an in-depth assessment of the existing situation in the Partner Countries as measured against their energy cooperation commitments under the Astana Energy Road Map. The INOGATE Status Report 2011 is necessarily a ‘snapshot’ of progress against the Astana targets at a given point in time rather than a comparative year-on-year assessment of progress made over the preceding period.

In general, the Status Report reveals a variable state-of-play among the Partner Countries in all key cooperation areas that have been assessed over the past year. In essence, this means that all Partner Countries are, broadly speaking moving in the same direction towards the objectives set out in the Astana Energy Road Map, but at widely differing paces and according to the particular set of political, socio-economic and geopolitical situations in which they find themselves. The following section provides a summary of the state-of-play of the Partner Countries in 2011 according to the four areas of cooperation as defined in the Astana Energy Road Map.

a) 1st Area of Cooperation (Energy Markets Convergence)While some significant progress has been achieved in Partner Countries such as Armenia, Georgia, Kazakhstan and Moldova and particularly in the field of third party access (TPA) and unbundling, nevertheless the overall picture remains one of modest achievement. The majority of the Partner Countries are considered as ‘basic’, which generally means that although reforms in areas such as unbundling, TPA or establishment of independent energy regulators are under consideration, yet no definitive action or official agreement has been reached. The reforms therefore, are mooted rather than enacted. The areas where progress has generally been slowest is in the creation of independent regulators, TPA for gas transmission networks and creation of integrated regional energy markets. Conversely, the areas where most significant progress has been made are generally restricted to those Partner Countries cited above and mainly in the field of TPA for the electricity sector and unbundling of vertically integrated utilities.

Those Partner Countries that have still made limited progress in the field energy market convergence based on the EU principles are, Azerbaijan and Turkmenistan which are both considered at a ‘basic ‘ level of development across each of the targets identified in this area. These Partner Countries are followed by Belarus and Tajikistan who have been adjudged to be ‘developing’ (i.e. definitive action for reforms and trade agreements have been agreed but not yet enacted) in one area and as ‘basic’ for all the remaining areas. Between the leading Partner Countries (Armenia, Georgia, Kazakhstan, Moldova) and those facing greater challenges (Azerbaijan, Turkmenistan, Tajikistan and Belarus) the remainder of the Partner Countries (Kyrgyzstan, Ukraine and Uzbekistan) occupy the middle ground revealing that reforms and agreements are generally agreed but no discernable actions have yet been taken to implement them.

The overall picture for the 1st Area of Cooperation is graphically represented in Table 9 in this report (page 18).

b) 2nd Area of Cooperation (Energy Security)The overall picture for the Energy Security area of cooperation appears more optimistic with most of the Partner Countries being judged as either ‘developing’ (i.e. some budgets for maintenance and investment have been allocated) or ‘advanced’ (i.e. more comprehensive maintenance, metering and infrastructure investment programmes exist but are not yet fully in-line with EU and international standards). Only in a relatively few cases such as Kyrgyzstan and Tajikistan is the general performance still considered as largely ‘basic’ (i.e. policies are in place but not matched by budgets and are not implemented). Three partner Countries, Armenia, Belarus and Moldova are assessed as being ‘advanced’ with respect to system maintenance.

The finding of the Status Report is that the majority of the Partner Countries are considered to be investing in their energy infrastructures, either by maintaining the existing structures or by developing new ones (or in some cases, both). In terms of revenue protection (expressed in the metering and billing indicator), a significant majority of the Partner Countries have been assessed as ‘developing’ meaning that some metering has been introduced in most industrial and residential end-use sectors, although this is still considered to be inadequate and does not fully comply with EU and international standards.

The overall conclusion is that there is an important development in the promotion of energy security although greater effort and resources need to be allocated in this important key area in the Partner Countries in order to achieve full compliance with EU and international standards. As a general rule, those Partner Countries who in the future will be


best able to protect the revenues of their energy sector enterprises are also likely to be those able to attract private sector investment and will therefore, be better equipped to meet future infrastructure development needs.

The overall picture for the 2nd Area of Cooperation is graphically represented in Table 12 above in this report (page 22).

c) 3rd Area of Cooperation (Sustainable Development)As with the 1st Area of Cooperation (Energy Markets Convergence), the current status in the Sustainable Development area is generally basic. While there are certain spheres where progress has been made, specifically in terms of stated policy commitments to sustainable energy development and with respect to Kyoto Protocol mechanisms, the overall picture remains one of only modest progress. Most of the Partner Countries are found to be at the ‘basic’ level of development (i.e. official commitments have been made but no actions have been taken) across the majority of indicators for this area of cooperation. Four of the Partner Countries (Armenia, Georgia, Ukraine, Uzbekistan) are considered as ‘advanced’ with respect to implementing Kyoto Protocol mechanisms (i.e. the Kyoto protocol is ratified, for Annex 1 countries, Emission Reduction Units (ERUs) are issued and for non-Annex I countries and CDM Certified Reduction Units (CERs) are issued). This may be at least partially explained by the fact that Kyoto, once ratified by state legislatures is an internationally binding agreement.

Some Partner Countries such as Georgia, which in the other cooperation areas of energy market convergence and energy security, has been performing well is nevertheless lagging behind other Partner Countries with respect to sustainable development. Also a country such as Turkmenistan, which is a major potential gas trade partner for Europe, does not yet prioritise sustainable development and this is reflected in its ‘basic’ level in each of the seven applicable indicators of this cooperation area. In contrast, Ukraine is the Partner Country, which leads the others in terms of sustainable development where it is considered as ‘developing’1 in most indicators and as ‘advanced’ with regard to the Kyoto Protocol (see above).

The overall impression is that while policy commitment to sustainable energy development exists in all the Partner Countries, this has only been translated into actions which could include for example, the adoption of a set of RES targets in some of them such as Armenia, Belarus, Georgia, Kyrgyzstan, Moldova, Tajikistan and Ukraine. Yet, even in these countries, the ambitious goals for sustainable development have not yet been matched by determined action such as the imposition of legally binding targets. In other words, in general while the policy commitment exists, it has yet to be matched by actions that would move the Partner Country closer to its stated goals and objectives for sustainable development.

The overall picture for the 3rd Area of Cooperation is graphically represented in Table 16 above in this report (Page 27).

d) 4th Area of Cooperation (Investment Attraction)The assessment of the Status Report 2011 regarding investment attraction reveals a generally more favourable situation than for the sustainable development cooperation area. Nearly all of the Partner Countries are considered as ‘developing’ across at least 2 of the 3 indicators defined for this cooperation area. Some Partner Countries however, including those of Armenia, Georgia, Moldova, Tajikistan, Ukraine and Uzbekistan are deemed to be ‘developing’ across all three of the indicators, meaning that legislative frameworks favouring investment and improvements to the overall investment climate are presently under development and a formal investment strategy setting targets and measures is underway.

An exception to this is Turkmenistan, which remains at a ‘basic’ level in the area of investment attraction. Turkmenistan has not put the general legislative framework in place in the field of investment framework (i.e. the legislative framework favouring investment is not in place in terms of clarity, transparency, stability, adequacy, few or no privatisations underway, institutional reforms under discussion or on-going) and investment climate (i.e there remains a largely restrictive investment climate characterised by inequitable and unpredictable rule of law with regard to contractual and property rights, bankruptcy, financial markets; secure transactions to internationally acceptable standards; lack of transparency; complexity of registration and licensing procedures; absence of fair and business-oriented taxation system; uncertain stability of banking system; unclear disputes settlement mechanism

1 The ‘developing’ indicator here refers to the following: Politically ambitious targets on RES are set by governments; Secondary EE/RES legislation is in place; An RES/EE Action Plan is under development but no budget allocation; An Energy Agency exists, but is not in full operation; Legislative basis for audits/assessment in place; The Kyoto Protocol ratified, for Annex 1 countries, more than 1 JI projects determination is achieved for non-Annex I countries, more than one CDM project validation is achieved and Gas flaring reduction measures under development but no budget allocation


etc.). For these reasons, Turkmenistan is therefore considered to be at the ‘basic’ level in this cooperation area.Even though it is encouraging that most of the Partner Countries have progressed beyond the ‘basic’ level, nevertheless much remains to be done to improve the overall investment climate in the Partner Countries. Unlike in the other cooperation areas, no Partner Country is currently assessed to be at the ‘advanced’ level (i.e. legal frameworks are in place). In practice, there is still a need to provide the right set of incentives for investors whilst at the same time removing the often formidable array of financial, legal and administrative obstacles that prevent these much-needed investments.

Such obstacles as have been identified would include the following: • Existence of excessive levels of bureaucracy and red tape with little or no coherence and consistency between various administrative and permitting institutions; • Low energy tariffs with no independent energy regulator to apply transparent, cost-covering, predictable and consistent energy tariff regime; • Poor payment discipline among consumers and low collection levels in some of the Partner Countries; • Restrictions to private investment attraction in energy infrastructure as many Partner countries consider this to be an area of strategic importance (e.g. in Azerbaijan, Belarus, Kyrgyzstan, Tajikistan, Turkmenistan, Ukraine, and Uzbekistan). In these countries, the privatisation of the energy sector is either moving very slowly or not at all; • Generally slow pace of institutional reform designed to address investment constraints and remove administrative and economic barriers; • Generally poor arbitration and disputes settlement procedures and legislation. Although almost all countries acknowledge international arbitration systems and processes, in general a reliable and impartial mechanism for resolving disputes is either not in place or cannot be relied upon.

The overall picture for the 4th Area of Cooperation is graphically represented in Table 18 above in this report (page 31).

3.2. ConclusionsThe Status Report provides a very mixed review of the progress of the Partner Countries in achieving their objectives as agreed under the Astana Road Energy Map.

In general and taking the Partner Countries as a whole, progress is more marked in the spheres of energy security and investment attraction and less so for energy market convergence and sustainable development. This rather broad statement is based on a simple overview of the level of development in each of the cooperation areas. For example, with respect to energy security and investment attraction, the Partner Countries taken together, are largely considered as ‘developing’ (73% and 79% respectively). However, for energy market convergence and sustainable development, the situation is reversed, with the Partner Countries largely being considered as ‘basic’ (52% and 56% respectively). Within these broad categories however, there are some Partner Countries who counter the trend and are either deemed to be more or less successful than the majority of others across a range of selected indicators.

Moreover, there does not appear to be any strong correlation between the position of the Partner Country in its role as an energy exporter, importer or transit country and its overall level of development in relevant cooperation areas. For example, with respect to energy market convergence, the four major exporting countries display varying levels of development. Azerbaijan for example, is mainly considered as ‘basic’, Kazakhstan as ‘developing’ to ‘advanced’, Uzbekistan as ‘basic’ to ‘developing’ and Turkmenistan as mostly ‘basic.

In summary, the conclusion remains unavoidable that more work, resources and support must be devoted to the process of cooperation both to maintain momentum that already exists and to intensify assistance to the Partner Countries to make those changes that will enable them to make progress towards their stated goals. Naturally, all of this must be underpinned by the continued or even enhanced policy commitment in the Partner Countries.

For its part, the INOGATE Programme has played an important role in working with the Partner Countries to achieve their objectives through strengthening the capacity and competences of staff in the energy regulatory authorities, ministries in charge of energy, energy industry, agencies, NGOs and other institutions in the areas of legislation and tariff setting, and the harmonisation of standards and rules in the oil, gas and electricity sectors.


To date, more than 7,000 people in the Partner Countries have been trained on a broad range of relevant energy issues that has effectively transferred EU know-how to the countries. Furthermore, INOGATE has provided the know-how for policy changes and legislative support in all areas, recently with a strong focus on sustainable energy. The INOGATE programme has also aimed to be a catalyst for investment in the energy sector and as such it has contributed to investment promotion in cooperation with the banking sector and IFIs. Furthermore, it has introduced the newest technologies in areas such as energy metrology, pipeline management and detection of gas losses. Notably in the area of gas losses, an INOGATE project involving the inspecting of 700 km worth of gas pipelines and two compression stations showed that through the use of relatively inexpensive technologies, annual gas losses worth millions of Euros could be detected and prevented thereby saving energy resources, money and reducing harmful environmental emissions all in one action.

The INOGATE Programme expects to remain at the cutting edge of ensuring that the most appropriate assistance is provided to the Partner Countries in those cooperation areas in most need of such support and to continue to work together with them to achieve the jointly agreed objectives under the Baku Initiative.

Annexes

Annex I: Definition of indicators and criteria for evaluation Annex II: Astana Ministerial Declaration & Energy Road Map Annex III: Profiles of INOGATE Partner Countries Republic of Armenia Republic of Azerbaijan Republic of Belarus Georgia Republic of Kazakhstan Kyrgyz Republic Republic of Moldova Republic of Tajikistan Turkmenistan Ukraine Republic of Uzbekistan

Annex IV: EU support to energy cooperation in INOGATE Partner Countries


ANNEX I | Definition of indicators and criteria for evaluation | 37

ANNEX IDEFINITION OF INDICATORS AND

CRITERIA FOR EVALUATION

38 | ANNEX I | Definition of indicators and criteria for evaluation

1. IntroductionThe objectives of the Energy Road Map agreed during the Astana Energy Ministerial Conference of 30 November 2006 are the basis for recording any development and/or progress in the Partner Countries (Annex II). The present INOGATE Status Report 2011 forms the baseline for future annual reviews.

The ‘Status Report’ assessment system was founded on the structure of the Astana Ministerial Declaration’s four priority areas of cooperation, namely: a. Converging of energy markets on the basis of the EU internal energy market principles taking into account the particularities of the Partner Countries b. Enhancing energy security by addressing the issues of energy exports/imports, supply diversification, energy transit and energy demand c. Supporting sustainable energy development, including the development of energy efficiency, renewable energy sources and demand side management d. Attracting investment towards energy projects of common and regional interest

2. IndicatorsThe indicators were agreed by the Partner Countries at the meeting of the INOGATE Country Coordinators and Working Group 1 members which took place on 20 October 2010 in Tbilisi. The indicators are mostly derived directly from the Energy Road Map (wherever the Road Map includes a specific objective). In those cases where indicators are not directly related to the Energy Road Map objectives (that is, where the Energy Road Map includes a more generic or long-term objective that cannot be used itself as indicator), the indicators are defined using EU principles as reference points. The application of these indicators to the status of Partner Countries, as included in the country reports, provides the evidential basis for the benchmarking process.

It should be noted that these indicators refer to all the energy sectors that INOGATE deals with, i.e. gas, oil, electricity, renewable energy and energy efficiency sectors.

1st Area of cooperation: Energy market convergenceThe Energy Road Map refers to energy market convergence. However, since “energy market convergence” has a very broad meaning, it was decided to use some indicators that refer to various specific elements that constitute an “open market”, using EU principles as reference points. Thus the indicators for understanding how market convergence is processed include “Third Party Access” to energy networks (for both gas and electricity sectors), and the adoption of measures that favour “unbundling” of energy networks.

a. Third Party AccessThe extent to which a third party is allowed to have access to energy networks (either electricity or gas) constitutes an indicator that energy market opening is in process in the country concerned. The existing legal framework and any measures that have been adopted favouring access to the energy networks, and which is being followed up, are considered as indicators of energy market opening and further of convergence with the EU energy market.

b. UnbundlingThe adoption of measures that favour unbundling is also an indicator of energy market opening in the partner countries. The unbundling of accounts of the transmission and distribution system operators (either gas or electricity companies), and as a further development, the unbundling of ownership, is taken into account in evaluating the progress in this field.

c. Independent energy regulatorsThe establishment and operation of an independent energy regulatory authority, as well as the extent of governmental involvement in, or overruling of, regulators’ tasks and operation, is also an indicator derived from the Energy Road Map. Moreover, the structure of the tariff policy in force and the role of the energy regulators in setting tariffs, are also important indicators, reflecting the extent of the energy regulator’s independence.

d. Technical rulesThis indicator assesses the progress of a country in harmonising existing energy rules and standards with the EU. It also reflects the relationship of the country’s institutions with the relevant European and international standardization bodies.


e. Integrated regional marketsIndicators used to measure the integration of regional markets include any action plan for the creation of an integrated energy market that is under implementation or preparation, or any potential governmental decision to facilitate the preparation of such action plan.

2nd Area of cooperation: Energy securitya. MaintenanceThis indicator assesses the development of a preventive energy infrastructure maintenance strategy (including financial provision for such actions), the development of maintenance guidelines, the development of training programmes, and also of maintenance recording systems.

b. Rehabilitation/UpgradingThis indicator assesses the adoption and implementation of long and medium term energy infrastructure rehabilitation programmes (including appropriate financial provisions), as well as the development of outage and loss reporting systems and statistics.

c. New energy infrastructuresThe Road Map specifies the objective of diversification of energy transit infrastructure, including the development of alternative oil and gas transit routes towards Europe. The indicators used consist of: the status of negotiations with neighbouring countries for future development of energy infrastructures; the legislative framework; any awareness and employment of modern international standards (including environmental); any actual or potential cooperation with relevant EU agencies; incentives for energy infrastructure investment; and any cooperation agreements with partner countries for energy transit protocols and cross-border metering.

d. Metering and billingThis indicator assesses the actual or potential use of end-user metering facilities (domestic and commercial) for electricity and gas, in accordance with international standards.

3rd Area of cooperation: Sustainable developmenta. Policy commitmentThe Road Map calls for the promotion of the energy sector based on the principles of security of supply, competitiveness and environmental sustainability, as well as building up a stable, sustainable energy policy framework in all beneficiary countries and enhancing institutional capacity. In this context, the indicator used assesses any political commitments to sustainable energy development and to any adopted strategies or policies that support such development.

b. EE/RES framework developmentIndicators used include the development of legal, institutional and financial frameworks which will promote and foster energy efficiency and renewable energy in the country.

c. EE/RES action plans and measuresIndicators used include the assessment of potential for energy efficiency and renewable/sustainable energy; as well as the existence of any programme and/or action plans, including information campaigns, and training and awareness based on best practices, (including measures to promote convergence with EU standards and norms).

d. Creation of energy agenciesIndicators used include information on the establishment and the operation of energy agencies including set-up, efficient operation, training programmes and other measures that support their efficient and independent operation.

e. Environmental assessments and Environmental standardsIndicators used include the implementation of environmental assessments and assessments of renewable sources potential by relevant industries/institutions. They further cover the implementation of energy auditing, including records of such audit results. The Road Map also calls for setting up environmental standards for energy utilities approaching to EU levels, and supports the implementation of related demonstration projects. In this context, setting up any concrete and measurable targets, or the institution of incentives for developing renewables and undertaking energy efficiency measures, will also be taken into consideration as positive progress.


f. Kyoto Protocol mechanismsThis refers to the development of the Kyoto Protocol mechanisms (CDM, JIP, emissions trading) and the realization or planning of projects under this framework.

g. Gas flaring reductionThe implementation of gas flaring reduction measures, as well as ”methane to market” measures, is regarded as positive steps in this context.

4th Area of cooperation: Investment attractiona. Investment frameworkIndicators used to determine the development of a favourable investment framework include the status of legal and regulatory framework development; stability, transparency and adequacy of this framework, progress in the privatisation process, and relevant institutional reforms.

b. Investment climateIndicators used include the development of the taxation system (adequacy, simplification, transparency, corruption), of the financial and banking system (privatisation, transparency, stability), of the disputes settlement system (adequacy, bureaucracy, corruption) and also the extent to which production tariffs and energy pricing system favour investments.

c. Investment planningIndicators used include the development of an investment strategy and planning by the country (either existing or in preparation), any negotiations with neighbouring countries for future development of common projects, agreements of intent and/or cooperation with other countries for new energy transit routes, and the participation in any international forum for energy transit.

3. Benchmarking report criteria, information collection and evaluationThe ‘State of Play’ of the Partner Countries in achieving the objectives of the Energy Road Map was derived in a three-step process, as follows:

1. Step 1 - Information collection: The INOGATE Secretariat collected all required information on the agreed ‘indicators’ described above. The questionnaire agreed by the Partner Countries at the Country Coordinators and Working Group 1 members meeting of 20 October 2010 in Tbilisi, was used by the INOGATE Secretariat as a guide for gathering the required information on the ‘state of play’. The INOGATE Secretariat used the collected information to prepare for each Partner Country a ‘Country Profile’ containing all gathered information, as well as a preliminary estimation of the ‘state of play’ of the country in reference. This was a desk study task completed by the ITS experts.

2. Step 2 – Validation: The INOGATE Technical Secretariat (ITS) validated the Country Profiles and the relevant collected information on the indicators with the INOGATE Country Coordinators and the Working Group members in technical meetings that were organised in all the Partner Countries. During these meetings the ITS experts in cooperation with the Country Coordinators and the Working Group members reviewed and validated the Country Profile of each partner country. Following the meetings the ITS experts updated the country profiles up to the point that these were fully accepted by the individual Country Coordinators. This process included a round of comments on the country profiles by the Country Coordinators and the deliverable of this step was the ‘agreed’ country profiles.

3. Step 3 – Categorisation: The INOGATE Secretariat allocated the final progress categories to each country, based on the findings on the indicators of the final agreed Country Profiles. The INOGATE Secretariat also prepared the present report summarizing the findings on the progress of the partner countries on the Astana ‘Energy Road Map’ objectives.

The benchmarking criteria used for to define the ‘state of play’ definition agreed in the Country Coordinators and Working Group Members’ Meeting that was held on 16-17 May 2010 in Brussels and re-confirmed in the meeting that was held on 19-20 October 2010 in Tbilisi.

These criteria are presented in the table that follows.


Stat

e of

pla

y de

finiti

on

Indi

cato

rsB

asic

Dev

elop

ing

Adva

nced

Mat

ure

d)

Tec

hnic

al r

ules

.Po

licy

on h

arm

oniz

atio

n w

ith E

Uan

d In

tern

atio

nal s

tand

ards

exi

sts,

but n

o im

plem

enta

tion

mea

sure

sta

ken.

Har

mon

isat

ion

with

EU

and

Inte

rnat

iona

l sta

ndar

ds o

ngoi

ng.

Sign

ifica

nt p

rogr

ess

has

been

mad

e to

war

ds h

arm

oniz

atio

n w

ithEU

Acq

uis

and

othe

r in

tern

atio

nal

stan

dard

s; h

owev

er a

var

iety

of

furt

her

mea

sure

s ar

e re

quir

ed to

com

plet

e th

e ha

rmon

izat

ion.

Har

mon

izat

ion

with

EU

Acq

uis

and

othe

r in

tern

atio

nal s

tand

ards

is c

ompl

ete.

Exi

stin

g pr

actic

e fu

lly a

dher

es to

app

licab

le E

urop

ean

and

inte

rnat

iona

l sta

ndar

ds.

c)

Inde

pend

ent e

nerg

y re

gula

tors

.

a)

Thi

rd P

arty

Acc

ess.

o

Elec

tric

ity

o G

as

Thir

d Pa

rty

Acce

ss li

mite

d or

non-

exis

tent

.Th

ird

Part

y Ac

cess

is fo

rese

en,

but

rest

rict

ions

on

tran

spar

ency

or

prin

cipl

e of

non

-dis

crim

inat

ion.

Thir

d Pa

rty

Acce

ss e

xist

s; p

rese

ntpr

actic

e ho

wev

er d

oes

not y

et fu

llyco

mpl

y w

ith re

quir

emen

ts o

f EU

Acqu

is.

Thir

d Pa

rty

Acce

ss e

xist

s;re

leva

nt p

ract

ice

fully

com

plie

s w

ith re

quir

emen

ts o

f EU

Acq

uis.

b)

Unb

undl

ing.

o

Elec

tric

ity

o G

as

No

unbu

ndlin

g of

TSO

and

DSO

inpl

ace.

Unb

undl

ing

of a

ccou

nts

of T

SO/

DSO

in p

lace

.Le

gal u

nbun

dlin

g ex

ists

, how

ever

is n

ot y

et fu

lly in

line

with

the

requ

irem

ents

of t

he E

U A

cqui

s (n

oow

ners

hip

unbu

ndlin

g).

Lega

l and

ow

ners

hip

unbu

ndlin

gex

ists

and

fully

com

plie

s w

ithre

quir

emen

ts o

f EU

Acq

uis.

egul

ator

y au

thor

ity e

xist

s, b

utno

t ind

epen

dent

and

with

lim

ited

auth

ority

.

Inde

pend

ent R

egul

ator

exi

sts

but

with

lim

ited

auth

ority

.In

depe

nden

t Reg

ulat

ory

Auth

ority

with

a w

ide

rang

e of

pow

ers

exis

ts; g

rant

ed c

ompe

tenc

es a

ndin

terv

entio

n m

echa

nism

s ho

wev

erto

dat

e st

ill fa

ll sh

ort o

f com

plyi

ngw

ith e

xist

ing

Euro

pean

and

inte

rnat

iona

l bes

t pra

ctic

e in

term

sof

inde

pend

ence

, com

pete

nces

and

inte

rven

tion

mec

hani

sms.

An in

depe

nden

t Reg

ulat

ory

Auth

ority

exi

sts

that

fully

com

plie

sw

ith e

xist

ing

Euro

pean

and

inte

rnat

iona

l bes

t pra

ctic

e in

term

sof

inde

pend

ence

, com

pete

nces

and

inte

rven

tion

mec

hani

sms.

e)

Inte

grat

ed re

gion

al m

arke

ts.

Dis

cuss

ions

on

inte

grat

ed m

arke

tson

goin

g, b

ut n

o of

ficia

l ag

reem

ent

in p

lace

.

Agre

emen

ts w

ithne

ighb

ours

on

inte

grat

ed m

arke

tex

ist;

impl

emen

tatio

n of

agre

emen

ts h

owev

er h

as n

ot y

etst

arte

d.

Agre

emen

ts w

ith n

eigh

bour

ing

coun

trie

s ex

ist.

Coop

erat

ion

has

star

ted;

the

inte

grat

ed m

arke

t is

how

ever

not

yet

fully

func

tiona

l.

Agre

emen

ts o

n in

tegr

ated

mar

kets

with

nei

ghbo

urin

g co

untr

ies

have

been

fully

impl

emen

ted.

Ful

lm

arke

t int

egra

tion

with

neig

hbou

ring

cou

ntri

es h

as b

een

achi

eved

.

1st A

rea

of c

oope

ratio

n1 : Ene

rgy

mar

ket c

onve

rgen

ce

1 Cri

teri

a ap

ply

to e

lect

rici

ty a

nd g

as


Indi

cato

rsB

asic

Dev

elop

ing

Adva

nced

Mat

ure

d)

Met

erin

g an

d bi

lling

.Po

licy

to in

trod

uce

met

erin

g fo

r in

dust

ry a

nd h

ouse

hold

s bu

t onl

yfe

w im

plem

enta

tion

mea

sure

sta

ken.

Som

e m

eter

ing

intr

oduc

ed in

maj

ority

of i

ndus

try

and

hous

ehol

ds.

Met

erin

g in

indu

stry

and

hous

ehol

ds is

car

ried

out

; pre

sent

met

erin

g pr

actic

e ho

wev

er d

oes

not y

et c

ompl

y w

ith p

ertin

ent E

Uan

d in

tern

atio

nal s

tand

ards

.

Met

erin

g pr

actic

e in

indu

stry

and

hous

ehol

ds fu

lly c

ompl

ies

with

per

tinen

t EU

and

inte

rnat

iona

lst

anda

rds.

c)

New

ene

rgy

infr

astr

uctu

res.

a)

Mai

nten

ance

.Po

licie

s ex

ist o

n m

aint

enan

ce b

utno

impl

emen

tatio

n m

easu

res

take

n.B

udge

ts a

re a

lloca

ted

for

mai

nten

ance

.M

aint

enan

ce p

rogr

amm

es a

re

bein

g im

plem

ente

d; e

xist

ing

pro

gram

mes

how

ever

do

not

yet

com

ply

with

per

tinen

t EU

and

inte

rnat

iona

l sta

ndar

ds.

Exis

ting

mai

nten

ance

pro

gram

mes

fully

com

ply

with

per

tinen

t EU

and

inte

rnat

iona

l sta

ndar

ds.

b)

Reh

abili

tatio

n/U

pgra

ding

.Po

licie

s ex

ist o

n re

habi

litat

ion

and

upgr

adin

g bu

t no

impl

emen

tatio

nm

easu

res

take

n.

Bud

gets

are

allo

cate

d fo

rre

habi

litat

ion

and

upgr

adin

g.R

ehab

ilita

tion/

Upg

radi

ngpr

ogra

mm

es a

re b

eing

ipl

emen

ted;

exi

stin

g pr

ogra

mm

esho

wev

er d

o no

t yet

com

ply

with

pert

inen

t EU

and

inte

rnat

iona

lst

anda

rds.

Exis

ting

reha

bilit

atio

n/up

grad

ing

prog

ram

mes

fully

com

ply

with

pert

inen

t EU

and

inte

rnat

iona

lst

anda

rds.

Polic

ies

exis

t for

new

infr

astr

uctu

rebu

t no

impl

emen

tatio

n m

easu

res

take

n.

Som

e in

vest

men

t mea

sure

s ar

eta

ken

but s

erio

us li

mita

tions

stil

l

hind

er in

vest

men

t.

Ener

gy tr

ansi

t inf

rast

ruct

ure

inve

stm

ent n

eeds

are

sat

isfie

d;ho

wev

er p

rese

nt in

fras

truc

ture

does

not

yet

mee

t the

requ

irem

ents

of th

e R

oad

Map

.

Ener

gy tr

ansi

t inf

rast

ruct

ure

fully

mee

t the

requ

irem

ents

of t

he R

oad

Map

.

2nd

Are

a of

coo

pera

tion:

Ene

rgy

secu

rity

Stat

e of

pla

y de

finiti

on


Indi

cato

rsB

asic

Dev

elop

ing

Adva

nced

Mat

ure

d)

Cre

atio

n of

ene

rgy

agen

cies

.

f)

Kyot

o Pr

otoc

ol m

echa

nism

s.

g)

Gas

flar

ing

redu

ctio

n.

Polit

ical

com

mitm

ent t

o es

tabl

ish

ener

gy a

genc

y.

Polic

y on

aud

iting

ene

rgy

effic

ienc

yex

ists

.

Kyot

o pr

otoc

ol m

echa

nism

rat

ified

.

Polit

ical

com

mitm

ent t

o ad

dres

sga

s fla

ring

.

Ener

gy a

genc

y ex

ists

, but

not

in fu

llop

erat

ion.

Legi

slat

ive

basi

s fo

r au

dits

asse

ssm

ent i

n pl

ace.

yoto

pro

toco

l rat

ified

, for

Ann

ex1

coun

trie

s, m

ore

than

1 J

I pro

ject

sde

term

inat

ion

is a

chie

ved

for

non

Anne

x I c

ount

ries

, mor

e th

an o

neCD

M p

roje

ct v

alid

atio

n is

ach

ieve

d.

Gas

flar

ing

redu

ctio

n m

easu

res

unde

r de

velo

pmen

t but

no

budg

etal

loca

tion.

Ener

gy a

genc

y is

act

ive,

how

ever

agen

cy d

oes

not y

et a

ssum

e ke

yro

le in

the

impl

emen

tatio

n of

the

natio

nal E

E/R

ES s

trat

egy.

Ener

gy a

udits

are

car

ried

out

,ho

wev

er e

xist

ing

rule

s no

t yet

com

plia

nt w

ith E

U &

inte

rnat

iona

lst

anda

rds.

1 co

untr

ies,

JI p

roje

ct E

mis

sion

Red

uctio

n U

nits

(ER

Us)

are

issu

edan

d fo

r no

n-An

nex

I cou

ntri

es, C

DM

Cert

ified

Red

uctio

n U

nits

(CER

s)ar

e is

sued

.

Gas

flar

ing

redu

ctio

n m

easu

res

bein

g im

plem

ente

d, re

leva

ntm

easu

res

how

ever

do

not y

etfu

lly c

ompl

y w

ith re

quir

emen

ts o

fEU

Acq

uis

and

othe

r in

tern

atio

nal

stan

dard

s.

Ener

gy a

genc

y is

act

ive

and

assu

mes

a k

ey ro

le in

the

impl

emen

tatio

n of

the

natio

nal E

ER

ES s

trat

egy.

Ener

gy a

udits

are

car

ried

out

in fu

llco

mpl

ianc

e w

ith E

U &

inte

rnat

iona

lst

anda

rds.

Kyot

o pr

otoc

ol is

fully

impl

emen

ted.

Gas

flar

ing

redu

ctio

n m

easu

res

are

carr

ied

out i

n fu

ll co

mpl

ianc

e w

ithre

quir

emen

ts o

f EU

Acq

uis

and

othe

r in

tern

atio

nal s

tand

ards

.

c)

EE/

RES

act

ion

plan

s an

d

mea

sure

s.

a)

Polic

y co

mm

itmen

t.Po

litic

al c

omm

itmen

t on

rene

wab

leen

ergy

targ

ets.

Polit

ical

ly a

mbi

tious

targ

ets

on R

ESse

t.Le

gally

bin

ding

nat

iona

l tar

gets

set;

mon

itori

ng m

echa

nism

und

erde

velo

pmen

t.

Lega

lly b

indi

ng n

atio

nal R

ESta

rget

s ex

ist,

mon

itori

ngm

echa

nism

to m

easu

re p

rogr

ess

tow

ards

full

achi

evem

ent o

f RES

targ

ets

impl

emen

ted.

b)

EE/

RES

fram

ewor

k

eve

lopm

ent.

Prim

ary

RES

legi

slat

ion

in p

lace

.Se

cond

ary

legi

slat

ion

in p

lace

.Pr

imar

y an

d se

cond

ary

RES

legi

slat

ion

in p

lace

, how

ever

exis

ting

legi

slat

ion

not f

ully

com

plia

nt w

ith E

U A

cqui

s (in

part

icul

ar D

irec

tive

28/2

009/

EC).

Prim

ary

and

seco

ndar

y R

ESle

gisl

atio

n is

fully

com

plia

nt w

ithEU

Acq

uis.

RES

/EE

Polic

y / S

trat

egy

in p

lace

.R

ES/E

E Ac

tion

Plan

und

erde

velo

pmen

t but

no

budg

etal

loca

tion.

RES

/EE

Actio

n pl

an e

xist

ent;

how

ever

Act

ion

Plan

to d

ate

not

com

plia

nt w

ith re

quir

emen

ts o

f EU

Acqu

is (i

n pa

rtic

ular

requ

irem

ents

for

tem

plat

es fo

r na

tiona

lre

new

able

ene

rgy

actio

n pl

ans)

.

RES

Act

ion

Plan

fully

com

plia

ntw

ith E

U A

cqui

s.

3rd

Are

a of

coo

pera

tion:

Sus

tain

able

dev

elop

men

t

Stat

e of

pla

y de

finiti

on

e)

Env

iron

men

tal a

sses

smen

ts

and

Env

iron

men

tal s

tand

ards

.


Indi

cato

rsB

asic

Dev

elop

ing

Adva

nced

Mat

ure

c)

Inve

stm

ent p

lann

ing.

a)

Inve

stm

ent f

ram

ewor

k.

b)

Inve

stm

ent c

limat

e.

4th

Are

a of

coo

pera

tion:

Inve

stm

ent a

ttra

ctio

n

Stat

e of

pla

y de

finiti

on

Legi

slat

ive

fram

ewor

k fa

vour

ing

inve

stm

ent i

s no

t in

plac

e (in

term

sof

cla

rity

, tra

nspa

renc

y, st

abili

ty,

adeq

uacy

), fe

w o

r no

pri

vatis

atio

nsun

derw

ay, i

nstit

utio

nal r

efor

ms

unde

r di

scus

sion

or

ongo

ing.

Larg

ely

rest

rict

ive

inve

stm

ent

clim

ate

(ineq

uita

ble

and

unpr

edic

tabl

e ru

le o

f law

with

rega

rd to

con

trac

tual

and

pro

pert

yri

ghts

, ban

krup

tcy,

finan

cial

mar

kets

; sec

ure

tran

sact

ions

toin

tern

atio

nally

acc

epta

ble

stan

dard

s; la

ck o

f tra

nspa

renc

y;co

mpl

exity

of r

egis

trat

ion

and

licen

sing

pro

cedu

res;

abs

ence

of

fair

and

bus

ines

s-or

ient

ed ta

xatio

nsy

stem

; unc

erta

in s

tabi

lity

ofba

nkin

g sy

stem

; unc

lear

dis

pute

sse

ttle

men

t mec

hani

sm).

No

adop

ted

inve

stm

ent p

lann

ing

stra

tegy

; no,

or

limite

d, e

nerg

ypr

ojec

ts o

f com

mon

inte

rest

prop

osed

.

Legi

slat

ive

fram

ewor

k fa

vour

ing

inve

stm

ent u

nder

dev

elop

men

t(M

easu

res

unde

rway

for

clar

ity,

tran

spar

ency

, sta

bilit

y, ad

equa

cy),

polic

y fo

r in

vest

ors

to p

artic

ipat

e in

ext

ensi

ve o

ngoi

ng p

riva

tizat

ion,

exte

nsiv

e in

stitu

tiona

l ref

orm

s o

ngoi

ng.

Inve

stm

ent c

limat

e un

der

deve

lopm

ent (

mea

sure

s an

dde

velo

pmen

t of a

n in

vest

ors’

frie

ndly

inve

stm

ent c

limat

e in

term

sof

equ

itabl

e an

d pr

edic

tabl

e ru

le o

fla

w w

ith re

gard

to c

ontr

actu

al a

ndpr

oper

ty r

ight

s, b

ankr

uptc

y,fin

anci

al m

arke

ts; s

ecur

etr

ansa

ctio

ns to

inte

rnat

iona

llyac

cept

able

sta

ndar

ds; t

rans

pare

ncy;

com

plex

ity o

f reg

istr

atio

n an

dlic

ensi

ng p

roce

dure

s; fa

ir a

ndbu

sine

ss-o

rien

ted

taxa

tion

syst

em;,

stab

ility

of b

anki

ng s

yste

m; d

ispu

tes

sett

lem

ent m

echa

nism

).

Form

al in

vest

men

t str

ateg

ypu

blis

hed

sett

ing

targ

ets

and

mea

sure

s; in

vest

men

t pro

gram

me

on g

oing

; pro

ject

s of

com

mon

inte

rest

und

erw

ay.

Lega

l fra

mew

ork

for

inve

stm

ents

in th

e en

ergy

sec

tor

in p

lace

;

rele

vant

fram

ewor

k ho

wev

er d

oes

no

t yet

fully

com

ply

with

app

licab

le

inte

rnat

iona

l sta

ndar

ds a

nd b

est

pr

actic

e.

Sign

ifica

nt p

rogr

ess

tow

ards

atta

inin

g an

favo

urab

lein

vest

men

t clim

ate;

how

ever

furt

her

impr

ovem

ents

/alig

nmen

tsof

rele

vant

lega

l fra

mew

ork

with

rele

vant

inte

rnat

iona

l sta

ndar

dsbe

st p

ract

ice

on in

vest

men

tsre

quir

ed.

Sign

ifica

nt p

rogr

ess

in d

evel

opm

ent

and

impl

emen

tatio

n of

an

effe

ctiv

ein

vest

men

t str

ateg

y.

Lega

l fra

mew

ork

for

inve

stm

ents

inth

e en

ergy

sec

tor

fully

com

plie

sw

ith a

pplic

able

inte

rnat

iona

lst

anda

rds

and

best

pra

ctic

e.

Fully

favo

urab

le in

vest

men

tcl

imat

e; in

vest

men

t clim

ate

base

don

lega

l fra

mew

ork

cond

ition

s th

atfu

lly a

dher

e to

rele

vant

inte

rnat

iona

l sta

ndar

ds/ b

est

prac

tice

on in

vest

men

ts.

Effe

ctiv

e in

vest

men

t str

ateg

y in

plac

e an

d im

plem

ente

d.

ANNEX ΙΙ | Astana Ministerial Declaration & Energy Road Map | 45

ANNEX IIASTANA MINISTERIAL DECLARATION

& ENERGY ROAD MAP

46 | ANNEX II | Astana Ministerial Declaration & Energy Road Map

Ministerial Declarationon Enhanced energy co-operation between the EU, the Littoral States of the Black and Caspian Seas and their neighbouring countriesUpon the initiative of and following the invitation from the European Commission to participate to the 2nd Energy Ministerial Conference, kindly hosted by the Government of Kazakhstan in Astana, on 30 November 2006, • the Littoral States of the Black and Caspian Seas, namely, Republic of Azerbaijan, Georgia, Republic of Kazakhstan, Republic of Moldova, Republic of Turkey, and Ukraine as well as their neighbouring countries, namely, Republic of Armenia, Republic of Belarus, Kyrgyz Republic, Republic of Tajikistan and Republic of Uzbekistan; hereinafter referred to as the Partner Countries; and

• the Russian Federation as an observer met with the EU Presidency, the European Commission, EU Member States, in the presence of EU Acceding countries, EIB, EBRD and the World Bank.

The EU and the Partner Countries have agreed the following:

1. to endorse the Road Map outlined in the annex which has been jointly developed by the ‘Baku Initiative’ participating countries and the European Commission in the framework of this enhanced energy co-operation.

2. to focus their co-operation on the objectives set out by the Road Map namely: a. Converging of energy markets on the basis of the EU internal energy market principles taking into account the particularities of the Partner Countries b. Enhancing energy security by addressing the issues of energy exports/imports, supply diversification, energy transit and energy demand c. Supporting sustainable energy development, including the development of energy efficiency, renewable energy sources and demand side management d. Attracting investment towards energy projects of common and regional interest

3. to maintain regular meetings of the 4 existing working groups of experts, set up on the occasion of the 2004 Baku Ministerial Conference, with a view to implementing the Road Map and its related actions,

4. to enhance the role of the INOGATE Technical Secretariat in Kiev and its two Regional offices in Central Asia (Almaty) and South Caucasus (Tbilisi) while extending its scope of activities to fully cover all energy sub-sectors and priorities of the ‘Baku Initiative’, to denominate it the “EU-Black Sea and Caspian Sea Basin and its Neighbouring Countries Energy Cooperation Secretariat” and keep the short name “Inogate”,

5. to support the European Commission in its monitoring role for the implementation of the Road map, with the technical support of Inogate

6. to make every effort to facilitate and mobilise private and/or public financial resources from relevant Partner Countries, EU assistance and IFIs with a view to implementing the approved actions set out in the Road Map.

7. For the short term, priority should be given to the: • Development of a Capacity Building Programme for relevant energy authorities including regulators with a view to increasing their understanding on the EU energy legislation and practice and in this way, supporting the convergence of energy markets;

• Preparation of regional electricity, gas, oil, renewable energy and energy efficiency action plans for Partner Countries, covering the identification of the key legal, regulatory and technical issues to be addressed and the development of detailed technical action programmes and support of intra-regional cooperation; and

• Enhancing energy security of the ‘Baku Initiative’ Partner Countries through the support of upgrading of the existing oil, gas and electricity networks as well as the development of additional new supply routes and relevant infrastructures for the transportation of energy resources including oil and gas pipelines and LNG.


EU assistance will focus on these priorities for the period 2007-2010.

8. to hold the 3rd Ministerial Conference in 2008 to review the implementation of the Road Map and set out the institutional framework for the long-term implementation of the energy co-operation between the EU, the Littoral States of the Black and Caspian Seas and their neighbouring countries.

Done in Astana, on 30th November 2006 in English and Russian languages. Both texts are equally valid.

Attachments: • Road Map for the Energy Co-operation between the EU, the Littoral States of the Black and Caspian Seas and their neighbouring countries. (Annex 1) • Statements of Participating Countries (Annex 2)


ANNEX 1 TO THE MINISTERIAL DECLARATION OF30 NOVEMBER 2006ROAD MAPThe present Road Map draws on work carried out by the four Working Groups established at the 2004 Baku Ministerial Conference and coordinated through the INOGATE Technical Secretariat, with the assistance of the European Commission. These Working Groups, have reviewed the current energy sector situation in the Partner Countries, defined long-term objectives for the regional energy cooperation, and set out a plan of actions to bridge the gap between the current situation and the long-term vision.

The four following priority areas were identified for future energy cooperation between the EU, the Littoral States of the Black and Caspian Seas and their neighbouring countries in the upcoming period1 :

1. Converging of energy markets on the basis of the EU internal energy market principles taking into account the particularities of the Partner Countries Under this area of cooperation, the participants decided to work jointly towards the following objectives:• Short to medium-term objective: Gradual convergence of energy markets with the principles of the EU internal energy market, respecting fair competition, high environmental, efficiency and safety standards, including nuclear safety; • Long-term objective: Creation of integrated regional energy markets and their progressive integration with the EU internal energy market (where applicable).

1 For the purposes of defining regional actions in the context of the energy cooperation between the Partner Countries and the EU , the following definitions were used for the rgions:• Eastern Europe region is defined as Belarus, Moldova and Ukraine• Caucasus region is defined as Armenia, Azerbaijan and Georgia • Central Asia region is defined as Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and UzbekistanTurkey is included in all the regions. The Russian Federation is included as an observer.

Arrangements reached within the 1st Area of Cooperation: Convergence of energy marketsARRANGEMENT ON WORKING TOWARDS CONVERGENCE OF ENERGY MARKETS THROUGH:• Gradual opening of the internal electricity, oil & gas markets • establishing independent energy regulators• establishing common methodologies for tariff setting policy / role of regulators for gas & electricity markets, based on the EU principles• ensuring full, effective and transparent implementation of the relevant legislation supporting the integration/convergence of the energy markets with the principles of the EU internal energy market, in particular environmental and safety standards including nuclear safety• Taking into account the joint work of EURELECTRIC (Union of Electricity Industry) and CIS EPC (Electric Power Council of CIS) on their Roadmaps as the basis for gradually converging the technical rules and creating compatible electricity markets in the EU and CIS regions.• Supporting the functionality of a monitoring mechanism with yearly reporting on progress through the working groups.• Developing a capacity building programme for relevant energy authorities including regulators with a view to increasing their understanding on the EU energy legislation and practice and in this way, supporting the convergence of energy markets


APPROVED ACTIONS FOR EASTERN EUROPE, CAUCASUSAND CENTRAL ASIA REGIONS• Preparation of an Action Plan for creating integrated regional markets in the electricity, gas and oil sectors in line with EU energy market principles and objectives. This could include the identification of the key legal, regulatory and technical issues and the development of a detailed technical roadmap to address them, as well as the review of the existing legal framework in order to speed up the administrative authorisation procedures, and develop a regulatory environment more conducive to investment projects.• Creation of integrated regional energy markets, converging towards the adoption of the principles of the EU internal energy market including environmental and safety standards.

2. Enhancing energy security by addressing energy exports/imports, supply diversification, energy transit and energy demand issuesWith regard to this area of cooperation, the participants decided to work jointly towards the following objective:

• Enhancing energy security in the region by addressing energy exports, energy transit and energy demand issues.

Arrangements reached within the 2nd Area of Cooperation: Enhancing Energy SecurityARRANGEMENT ON ENHANCING ENERGY SECURITY THROUGH:• Enhancing cooperation on open and non-discriminatory access to energy resources and networks• Minimising the deterioration of the energy networks, developing appropriate network maintenance practices and enhancing network safety and security• Supporting and actively promoting both rehabilitation of the existing infrastructures and development of new energy infrastructures, including LNG option with the appropriate government financial support, involvement of IFIs and technical and financial support of the European Union.

APPROVED ACTIONS FOR THE EASTERN EUROPEAN REGION• Rehabilitation of existing gas, oil and electricity networks• Diversification of energy transit infrastructure in the region including the development of alternative oil and gas transit routes towards Europe, including LNG options• Installation of new gas and oil metering facilities in accordance with international standards• Implementation of preventive maintenance practices for the existing infrastructure

APPROVED ACTIONS FOR CAUCASUS REGION• Rehabilitation of existing gas, oil and electricity networks, taking into consideration the role of South Caucasus for energy transit towards the EU• Implementation of preventive maintenance practices for the existing energy infrastructure• Diversification of energy transit infrastructure in the region including the development of alternative oil and gas transit routes towards Europe, including LNG options• Installation of new gas and oil metering facilities in accordance with international standards

APPROVED ACTIONS FOR CENTRAL ASIA REGION• Rehabilitation of existing gas, oil and electricity transportation networks. • Facilitation of new economically viable and environmentally sustainable energy export routes towards Partner Countries including Black Sea and European markets.• Implementation of preventive maintenance practices for the existing energy infrastructure.• Installation of new gas and oil metering facilities in accordance with international standards


3. Sustainable energy development including by developing energy efficiency and renewable energy sources With regard to this area of energy cooperation, the participants approved to work jointly towards the following objectives:

• Diversification of the energy mix while respecting the Partner Countries’ national choices• Increased use of renewable energy sources• Promotion of energy demand management, including the implementation of energy efficiency and energy saving measures

Arrangement reached within the 3rd Area of Cooperation: Supporting sustainable energy development, including the development of energy efficiency, renewable energy sources and demand side managementARRANGEMENT ON PROMOTING SUSTAINABLE ENERGY DEVELOPMENT BY:• Promoting the development of the energy sector based on the principles of security of supply, competitiveness and environmental sustainability• Building up of a stable, sustainable energy policy framework in all beneficiary countries as well as enhancing institutional capacity, • Fostering the market penetration of renewable energy sources in the overall energy mix • Developing the legal, institutional and financial frameworks with the aim of promoting energy efficiency and renewable energy in all participating countries.• Participating in international initiatives related to sustainable energy development

APPROVED ACTIONS FOR EASTERN EUROPE, CAUCASUS ANDCENTRAL ASIA REGIONS• Development of policy, legislative and institutional frameworks for sustainable energy, including through convergence with EU standards and norms• Information campaigns supporting sustainable energy development, including dissemination of information, training and awareness raising on best practices• Creation of energy agencies fostering energy efficiency measures and the use of renewable energy sources. • Promoting research and development activities as well as the market uptake of energy efficiency, renewable energy and clean energy technologies• Supporting the implementation of environmental assessments as well as assessments of renewable sources potential by the relevant industries/institutions• Setting up environmental standards getting progressively closer to EU levels, for energy utilities and supporting the implementation of related energy demonstration projects • Further developing the Kyoto Protocol mechanisms such as CDM, Joint Implementation Projects and emissions trading schemes (where applicable)• Implementing gas flaring reduction as well as “methane to market” measures and participating if appropriate in related international initiatives.


4. Investment Attraction of Energy Projects of Common InterestWith regard to this fourth area of energy cooperation, the EU and the Partner Countries decided to work jointly towards the following objectives:

• Further improvement of the investment climate in order to facilitate investment in the energy sector; and • Attraction of the necessary investments in the energy sector to support the development of the energy production, transmission and consumption infrastructure.

Arrangement reached within the 4th Area of Cooperation: Investment Attraction of Energy Projects of Common InterestARRANGEMENT ON • Development of a transparent, equitable, stable framework attracting the necessary investment as well as promoting sustainable development in the energy sector• Improvement of medium to long-term investment planning procedures and multi-country investment coordination and promotion, aiming in particular to develop cross-border energy interconnections, including gas infrastructure (transport and storage) as well as energy generation capacities• Enhanced cooperation with IFIs• Projects of common interest to be identified, on the basis of the following commonly accepted criteria:

o Project to conform, or as a minimum not to contradict, the national energy policy of the participating countries.o Project to be viable and bankable.o Project supporting the creation of an integrated regional energy market.o Project supporting regional energy cooperation in particular in the field of transport of energy products.o Project developing the existing energy resourceso Project improving the energy security at national and regional level and facilitating energy transit.o Project developing protection, monitoring and control systems in energy transit infrastructures.o Project aiming to increase the capacities of reception and storage of gas including for LNG.o Project aiming at developing LNG facilities.o Project supporting sustainable energy development, in particular energy efficiency projects.o Projects supporting the development of integrated energy networks with the EU.o Projects improving or developing energy infrastructures with full respect to environmental conditions.o Projects aiming to strengthen the relations with energy producing/transit countries.o Projects aiming to link landlocked and peripheral regions with other parts of the Partner Countries and the EUo Projects contributing to source and supply route diversification

• Areas of common interest that should be addressed are:o The modernization and development of energy infrastructureso Continuation of the restructuring and, where appropriate, privatisation process in the energy sector on a transparent and competitive basiso Unbundling of commercial and regulatory functions in state companieso Simplification of licensing and registration procedures o Legal framework reform with the objective to secure the proper implementation of transparent and consistent legislation with uniform applicationo The effective enforcement of property and contractual rights


o The stability of legislation for investorso The extension of the dispute settlement mechanisms to include international arbitrationo The development of a transparent and stable taxation systemo Harmonisation with EU customs and trade practiceso The harmonisation of laws regulating bankruptcy, financial markets and secure transactions to internationally acceptable standardso The fight against bureaucracy, lack of financial and market transparency and corruption

• Projects of common interest in the Eastern European region include the following:o The upgrading and construction of new cross-border gas and oil metering stations in accordance with the international standardso The rehabilitation of the existing gas, oil and electricity infrastructureso The development of new energy transport infrastructures including electricity interconnectionso The development of power generation and heating from renewable energy sources

• Projects of common interest in the Caucasus and Central Asia regions include the following:o The rehabilitation and development of the gas, oil and electricity infrastructures including gas storage facilitieso Electricity interconnectionso The construction of new power generation from renewable energy sourceso Use of energy saving technologies and renewables for the development of combined heatand power (CHP)

Annex 2 to the Ministerial Declaration of 30 November 2006REPUBLIC OF UZBEKISTANThe Republic of Uzbekistan requests the Partner Countries to take into consideration, when defining projects of common interest, the necessity to ensure that new hydropower generation facilities do not negatively affect the energy-related water downstream regime.

REPUBLIC OF TAJIKISTANThe Republic of Tajikistan does not support the proposal of the Republic of Uzbekistan to connect the issue of developing hydroenergetics in the region with the irrigative water downstream regime of Uzbekistan, which are not agreed between the Central Asian countries of the region.

ANNEX III | Status Report 2011 | 53

ANNEX IIICOUNTRY PROFILES

54 | INOGATE | Status Report 2011 | Country Profile Armenia

ARMENIA COUNTRY PROFILE


Market convergenceLegislative frameworkThe primary legislation of the Republic of Armenia is the Energy Law, which was adopted by parliament in March 2001 and since amended. It provides the principles for the electricity and gas sectors and regulates the relationships between government bodies, legal entities operating in the energy sector, and consumers of electricity, heat energy and natural gas in the Republic of Armenia.

Secondary legislation relating to electricity and gas is in place. Within this framework the Energy Regulator (Public Service Regulatory Commission), is responsible for regulating: • Tariffs; • Procedures for licensing activities in the energy sector; • Rules for licensing of power and natural gas import and export.

Third parties can enter the market; provisions allowing for this are included in the secondary legislation for licensing activities.

Relations with the European Union in the Energy Sector 1

• Regional Energy cooperation between Armenia and the EU takes place in the framework of the Baku Initiative, which provides for political dialogue between the EU and the countries of the littoral states of the Black and Caspian Seas and their neighbouring countries. • Armenia participates in the Eastern Partnership and its energy security platform. • Bilateral cooperation between the EU and Armenia takes place in the context of the European Neighbourhood Policy in line with the Partnership and Co-operation Agreement, and also covers energy cooperation. • In July 2010, the EU and Armenia launched negotiations on a future Association Agreement that includes provisions for energy cooperation. • Since October 2011 Armenia has an observer status in the Energy Community.

Establishment of TSO and DSOThe electricity transmission system operator (TSO) is Electro Power Systems Operator CJSC a 100% state-owned company and financially and legally unbundled. Electricity billing and metering services in the wholesale market are provided by CJSC Settlement Centre. High Voltage Electric Networks is a state-owned enterprise and owner of the transmission networks. Another company called Electric Networks of Armenia (owned 100% by the Russian company INTER RAO UES) is the only DSO in the country, with separate accounts and legal status.

In gas, Armrusgasprom (80% owned by the Russian company Gazprom and 20% owned by the Armenian state) deals with the import, transmission and supply of gas and plays the role of TSO and DSO. The company is vertically integrated. No reforms are foreseen in the near future with regard to the TSO/DSO structures in electricity and gas.

UnbundlingThe Energy Law foresees and allows for legal and financial or functional unbundling in the electricity sector. In the electricity sector, transmission and distribution activities have been legally unbundled.

Unbundling in the gas sector is not enforced by the secondary legislation and has thus not taken place. No reforms are foreseen in the near future with regard to unbundling in the gas sector. Determination of “Road Map” status Based on the “Unbundling” indicator, the current status for electricity sector is “advanced” and for gas sector is “basic”.

1 Nuclear energy is an important part of EU-Armenia energy cooperation. However, nuclear energy is not discussed in this report as it does not fall under the scope of the INOGATE programme.

Country Profile Armenia | Status Report 2011 | INOGATE | 55

Third party accessThird party access to the network in the electricity and gas sectors is allowed in Armenia for any legal entity registered in the country subject to licence issued by the Public Service Regulatory Commission. The Energy Law sets forth the transparent system of third party access to the transmission and distribution networks to be applied objectively and without discrimination between system users. In particular, all types of tariffs are published with 30 days prior notice before entry in force and the methodologies of its calculations are transparent.

Determination of “Road Map” statusBased on the “Third Party Access” indicator, the current status for electricity and gas sectors is “advanced”.

Independent energy regulatorsEstablishmentThe Public Services Regulatory Commission of Armenia (PSRC) has responsibility for energy regulatory functions.

Level of independenceUnder the Law on the Public Services Regulatory Body of 2003 (PSRC) the Energy Regulatory Commission (PSRC) is an independent body. However the five commissioners are proposed by the Prime Minister and approved by the President for five-year terms, one ending every year. The PSRC is financed from the national budget approved by parliament.

Tariff policy/Role of regulatorsTariff setting policy/typesThe PSRC sets the tariffs for electricity, thermal energy including natural gas, transmission, distribution, system operators, services provided in the energy market, and maximum tariffs for electricity and natural gas imports. There is a cost-based pricing methodology in place.

The PSRC uses different tariff setting methodologies depending on the tariff types. Most are cost reflective, including allowance for maintenance costs. Companies report to the commission on an annual basis on their maintenance costs, and in the event that these are lower than those provided for in the tariffs, the commission is entitled to revise the tariffs unilaterally.The PSRC is specifically authorised to set tariffs for natural gas. Tariff setting principles for natural gas are identical to those for power and heat. There are no cross subsidies between different categories of customers. Tariffs are developed by the Operation Licensee and submitted to the PSRC for approval. The PSRC may either approve or reject any tariffs proposed. New tariffs must be made public and become effective 30 days after public notice. Tariffs are available to the public on the Commission’s web site.

According to ERRA (Energy Regulators Regional Association), average prices in 2010, including taxes, for electricity and gas paid by households are: • Electricity: 0,05 €/kWh • Gas: 5,2 €/GJ

TransparencyOne of the measures ensuring transparency is that pricing systems (for both transmission and distribution) and methodologies are published on the web site of the Commission.

Determination of “Road Map” status Based on the “Independent energy regulators” indicator, the current status is “developing”.


Technical rulesHarmonisation of standardsStandards currently applied in the electricity and gas sectors are mostly old Soviet GOST and new GOST (after being harmonised within the CIS region).

In the electricity sector, the current strategy is to harmonise electricity standards with the EU and international agencies. The harmonisation process in electricity is still at the initial phase. Labels for energy efficiency measures are being introduced.

In the gas sector, the harmonisation process is currently ongoing in cooperation with EASC (Euro-Asian Council for Standardisation) and the INOGATE programme. More than 100 EU gas standards were translated into Russian, of which approximately 40 have been submitted for further consideration to key energy sector stakeholders. Armenia is currently using both GOST and Western standards for metering (upstream and downstream).

The harmonisation process includes translation of standards into Russian/Armenian. The National Institute of Standards in Armenia is a member of ISO (International Standards Organisation) and CEN (European Committee for Standardisation). Furthermore, Armenia is member of COOMET (Euro-Asian Cooperation of National Metrological Institutions) and an active member of EASC (Euro-Asian Council for Standardisation).

Determination of “Road Map” status Based on the “Technical rules” indicator, the current status is “developing”.

Integrated regional marketsArmenia has interconnections with Georgia and Iran in both the electricity and gas sectors. According to the Ministry of Energy and Natural Resources, Armenia is highly interested in developing a regional energy market, and discussions are ongoing between Armenia and Georgia in this direction. However no formal agreement has been reached. Measures taken towards integrating regional markets include the development of interconnections in electricity and gas with neighbours and signing of MoUs. Armenia and Georgia recently made progress in agreeing on the construction of the 400 kV Hrazdan-5 – Ksani power line. A newly formed joint Armenia – Georgia working group, responsible for planning the integrated operation of the respective power systems, included in its work plan a task to assess the adequacy of available legal and regulatory framework documents in terms of supporting parallel operation and export/import arrangements in the Armenian and Georgian power systems. Cooperation with Iran in electricity takes the form of exchange during summer/winter. With Iran there are also arrangements for the exchange of gas for electricity: Iran supplies gas and receives electricity from Armenia.

Determination of “Road Map” status Based on the “Integrated energy markets” indicator, the current status is “basic”.


MaintenanceIn the electricity sector there is an on-going preventive maintenance programme dating from 2005 for the low voltage network, which includes regular evaluation of the technical condition of the power network and maintenance work. It is performed by Electric Networks of Armenia (distributor). The preventive maintenance programme is updated yearly.

The implementation of a similar preventive maintenance programme for the high voltage network is the responsibility of the state-owned JSC High Voltage Grid. As all funds for implementation of both programmes are included in the electricity tariff, performance levels are high.

In the gas sector, the current maintenance strategy includes improving the legal and technical bases and introducing new safety measures. For the high pressure transmission system Transgas, a subsidiary company of Armrusgasprom, is responsible for maintenance, while the territorial structural departments of Armrusgazprom are responsible for the low pressure distribution system. On an annual basis all companies submit to the regulator (PSRC) their maintenance and investment planning for approval, before including these costs in the relevant tariffs.


Maintenance programmes are mostly directed to securing the household network. In 2009 a training programme on maintenance and technical exploitation was carried out by the Engineering Center (branch of Armrusgasprom) with the participation of 415 personnel. The relevant maintenance works were performed using modern technologies.

Determination of “Road Map” status Based on the “Maintenance” indicator, the current status is “advanced”.

Rehabilitation/Upgrading Long and medium term rehabilitation programmesIn the electricity sector the sole Armenian distributor - Electric Networks of Armenia – recently received (in 2009) a €64.5 mln loan from IFIs for the modernisation and rehabilitation of Armenia’s distribution system, as well as support for the reduction of losses in electricity networks.

In 2010, with the approval of a US$39 million loan from IFIs, CJSC High Voltage Electric Networks started to prepare tender documents for the rehabilitation/upgrading of a 230km 220 kV line from Hrazdan to the substation in Shinuair.In the gas sector the programme Gasification and Rehabilitation of Gas Supply has been ongoing since 2009. In the framework of this programme a total of AMD33.7 billion (€70 mln) has been invested, of which AMD19.2 billion (€40 mln) was used for reconstruction and rehabilitation of the main gas pipeline and AMD14.5 billion (€30 mln) for metering equipment. In addition, 4,978.4 km of the main pipeline has been rehabilitated since 2009.

Armenia is the first country where a safety system has been implemented throughout the gas network (low pressure). A SCADA system has also been installed.

Studies on the rehabilitation and expansion of the Abovyan underground gas storage (to be carried out in three stages by 2025 according to the country strategy) are ongoing. Currently under discussion is the final size of the expansion of the Abovyan UGS.

Status of outage and lossesIn the electricity sector losses in the transmission network are about 1.5% and in distribution about 13%. Targets are set in TSO and DSO licenses for reducing these loss levels. The methodology for loss evaluation has been developed and approved by the PSRC. Losses are periodically reported by the licensees and published on the PSRC web site.

In the gas sector the level of losses is about 2% in distribution and 3.5% in transmission. Losses are detected by regular site visits and by observing pressure variations. The main losses come from valves. A methodology for estimating gas losses exists. Losses are periodically reported by the licensees to the PSRC.

As of 2010, consumers have experienced on average 1 natural gas, of about 36 hours duration, and 7 electricity outages lasting about 7 hours each.

Determination of “Road Map” status Based on the “Rehabilitation/Upgrading” indicator, the current status is “developing”.

New energy infrastructuresArmenia is developing a legislative framework for interregional cooperation in electricity sector (specifically with Georgia). Currently there are 2 lines of 220 kV with Iran, whilst 2 more 400 kV lines are programmed for the future. With Georgia one 220 kV line and an additional 400 kV line are programmed.

In the gas sector there is basic legislation in place supporting international investors. However, legislation for regional cooperation and specifically for transit functions is not yet developed, though the IFIs are providing onoing assistance. In the framework of the agreement with Iran for the construction of the Iran – Armenia pipeline, Armrusgasprom finalised the construction of the Kadjaran-Ararat (188.5 km) section of the pipeline. Over the last couple of years Armrusgasprom has invested 1.4 billion AMD in the Abovyan underground gas storage facility. The funds are to be directed to the construction of a new underground reservoir with a capacity 1.5 times as much as that of the largest reservoir presently in operation. The new reservoir is to be put into operation in 2011 and represents the first stage of the programme for the rehabilitation and expansion of the Abovyan UGS that will continue till 2025.

Incentives for energy infrastructure investment are regulated by the Energy Regulatory Commission.


Determination of “Road Map” status Based on the “New energy infrastructure” indicator, the current status is “developing”.

Metering and billing (electricity/gas)Metering systems at end-usersIn the electricity sector, meters are installed for all electricity consumers (households and industry) in Armenia. Metering is performed according to the international standards. An automated metering system of electricity wholesale trade covers the whole country (14 power stations and the largest substations). The metering system is based on new metering technology software and hardware, enabling market players to engage in electricity purchase/sale, while giving authorities information on power generation, distribution and consumption.

In the gas sector, meters are installed for all gas consumers (households and industry) in Armenia and all are checked once every 5 years by the companies affiliated with Armrusgasprom.Border gas metering is done in accordance with EU standards; however, there are also various GOST standards in use.In 2008-2009, Armrusgasprom carried out a programme of installing modern metering systems, according to international standards, at main metering and gas underground storage points.

Tariff collection systemsThe electricity metering system is supported by an Automated Metering and Data Acquisition System (AMDAS) and a computerised customer billing system. Tamper-proof meters are installed throughout the residential power system. At the 110 kV level and above, the meters are automated digital meters connected by telephone lines to a centralised settlement centre. The collection rate is close to 100%.

Gas billing is performed on a monthly basis and payments must be made within 7 days of notice. The collection rate is close to 100%.

Determination of “Road Map” status Based on the “Metering and billing” indicator, the current status is “developing”.

3rd Area of cooperation: Sustainable development Diversification of energy mix Despite substantial potential, at present renewables account for a small share of the energy balance of the country. According to IEA statistics, renewables provide just 6.7% of the total energy consumed in Armenia in 2009, mainly from hydro (174 ktoe) and a little combustible RE and waste (1 ktoe). With regard to electricity generation, the total share of electricity produced from renewables was 35.7% in 2009 (source IEA). Almost all this generation was produced in hydro power plants (HPPs), which accounted for 2,019 GWh/year of the total 5,671 GWh/year total electricity production. Geothermal and wind have a minor additional share of 2 GWh/year each. In Armenia, the Road Map on RE potential development has been completed, and will serve as the basis for the development of the country’s renewable energy strategy. Armenia includes in its energy strategy the diversification of primary energy sources, aiming by 2025 to cover 30% of its electricity needs from renewables. Armenia is prepared to accept targets that will be set by the European Union after the current discussions on Armenian’s interest in signing an Association Agreement with the European Union.

Policy framework Armenia has declared its interest in developing its renewable energy capacity and in improving the energy efficiency of its energy production, transmission and distribution. The National Programme for Renewables and Energy Efficiency has been in place since 2007; it highlights the sectors with the largest energy efficiency potential and provides an outline of technical measures to be taken.In addition a Diversification Strategy Document has set targets for renewable resources development to be attained by 2025.

As to energy efficiency, in 2010 the National Energy Efficiency Action Plan was developed and complies with the commitment to adopt a time-bound plan under the development policy lending operations of the World Bank in Armenia.


The plan extends to 2020 and identifies priority energy efficiency measures in 5 economic areas, including a set of 20 horizontal and sectoral priorities, the most significant being: • Reinforcement of national energy statistics • Creation of a National Energy Agency for energy efficiency and renewables • Revision of National Building Code • Financial support for energy efficiency measures

Clearly defined energy efficiency targets (ranging from 14 to 23%) are present in this National Energy Efficiency Action Plan for the household, industry, transport, public & commercial and water sectors.

Determination of “Road Map” status Based on the “Policy framework” indicator, the current status is “developing”.

EE/RES framework development An Energy Efficiency and Renewables Law has been in force since 2004, stipulating that producers of electricity from renewables have guaranteed access to the grid for 15 years and a secured feed-in tariff, which is adjusted annually. The provisions for renewables under this law are general and thus the framework on renewables is largely dependent on the Energy Efficiency and Renewables Law and the subsequent regulations of the PSRC.

It should be noted that Resolution No598U of 2007 has already determined the price of electricity generated by renewables for small hydro, wind and biomass installations, and these prices are valid for the first 15 years after licensing. The main parameters involved in the tariff revision formula are the inflation rate and the exchange rate between the AMD with the Euro or US$ as the case might be.

The latest tariffs (2010) have been set by Decree 738 N dated 25 November 2009.

In Armenia secondary regulations which should meet the requirements of the National Energy Efficiency Action Plan mentioned above (e.g. a building code) are still pending.

Determination of “Road Map” status Based on the “EE/RES framework development” indicator, the current status is “developing”.

EE/RES Action Plan and Measures The renewables potential has been estimated and is well documented.

In November 2010, the IFIs (EBRD) launched the Armenian Sustainable Energy Financing Facility, (ArmSEFF) to help finance projects for energy efficiency and renewables from private businesses.

The IFIs have also approved financing of US$15 mln to a local bank to fund 8 small hydro power plants (SHPPs), of a total installed capacity of 26.1 MW.

No budget allocation has yet been provided for implementation of the National Energy Efficiency Action Plan (mentioned above).

Determination of “Road Map” status Based on the “Increasing renewable energies” indicator, the current status is “developing”.

Creation of energy agencies There is no dedicated agency with formal responsibilities for sustainable energy policies. Although it is a state policy to establish an energy agency, due to the lack of the funds this is still just a plan. The functions of an energy agency are presently assigned to the Fund of Renewable Resources and Energy Efficiency (R2E2).

The Ministry of Energy and Natural Resources has overall responsibility for the energy sector, including the reform process. It is supported by other organisations, such as the Energy Institute and the Energy Strategy Centre (ESC), as well as the Fund of Renewable Resources and Energy Efficiency (R2E2). The activities of the latter include the elaboration of energy policy, feasibility studies and audits of energy projects, demand-side management and renewable energy. Nevertheless, according to the National Energy Efficiency Action Plan, there is an intention to create a National Energy Agency for Energy Efficiency and Renewables by 2013. The responsibility for this lies with the Ministry of Energy and Natural Resources.

Determination of “Road Map” status Based on the “Creation of energy agencies” indicator, the current status is “basic”.


Environmental assessments/energy auditingThe draft Law on Introduction of Changes to the Law on Energy Saving and Renewable Energy has been submitted for approval by the National Assembly of the Republic of Armenia. In this draft law the principles for labelling of energy-consuming devices and carrying out of energy audits are formulated. Following its adoption, the government will approve the provision for labelling of energy-consuming devices and changes in the provisions for energy audits. Currently the legislation on self-regulation in carrying out these requirements is being developed. It will include provisions on environmental impact assessments and on the participation of the general public.

Environmental standardsThe Environment Action Plan for 2008-2012 is being implemented. Amendments and changes to legislation in the fields of air quality, water management and environmental fees were adopted during 2009, while in the same year a government decision was adopted to regulate the process of registering companies whose activities have a negative impact on the environment. Further governmental decisions were adopted in the field of prevention of water pollution, nature protection, proper disposal of chemicals and waste utilisation.

Determination of “Road Map” status Based on the “Environmental assessments and Environmental standards” indicator, the current status is “basic”.

Kyoto Protocol mechanisms Armenia participates in the Kyoto Protocol as a Non-Annex I country, having a status of acceptance. The Kyoto Protocol entered into force in February 2005. In total, 13 projects have been validated. Five projects have been registered within the mechanism: a landfill gas flaring and power generation project, a biogas plant and three small HPPs, and 5 additional projects have been approved by the Designated National Authority. During 2009 the Second National Communication to the UN Framework Convention on Climate Change (UNFCCC) was prepared. This included a greenhouse gas inventory, mitigation and adaptation measures. To date, Armenia has had 12,022 CERs (Certified Emission Reduction credits) issued.

Gas flaring reductionThis section is not applicable for Armenia.

Determination of “Road Map” status Based on the “Kyoto Protocol mechanisms/Gas flaring reduction” indicator, the current status is “advanced”.

4th Area of cooperation: Investment attraction Investment framework Legal - regulatory framework developmentThe law on foreign investment, adopted in July 1994, regulates foreign investment in Armenia. It provides guarantees to foreign investors and protects investors from changes in business-related laws for 5 years. In the period 1994-2004 a number of laws related to investment have been adopted but although in recent years Armenia has made notable reforms to its legal environment, the country continues to face considerable challenges from the entrenched legal rules, institutions and culture which hamper its successful transition to a market-oriented economy.

The investment legal-regulatory framework currently offers investment guarantees, no limitation on foreign ownership, competitive energy costs, no export duties, free foreign exchange conversion, free repatriation of profits, no restrictions on staff recruitment, and no restrictions on remittances.Moreover there is a strong Government commitment to attracting foreign investment for development; meanwhile Armenia offers a well-educated, skilled, easily trainable and productive workforce with extensive technical skills.

Stability, transparency and adequacyAll laws of the Republic of Armenia are published in the official State Bulletin. Ministries and agencies publish brochures (guidelines) on the legislation regulating their specific areas of competence. They also make this legislation available on their web sites.


In addition, in order to improve the transparency and planning of government operations, the government has introduced a medium-term expenditure framework (MTEF). The MTEF approved in August 2010 is geared to promoting growth, while placing public debt on a downward path and shifting spending toward social programmes and investment in key sectors.

The Business Support Council (BSC) is charged by Presidential Decree to provide an effective mechanism to monitor improvements in the investment climate.

Armenia has ratified and is a member of the UN Convention against Corruption since 8 March 2007. It has not signed the OECD Anti-Bribery convention.

Armenia is scored 2,6 in the 2010 table of the Corruption Perceptions Index prepared by Transparency International.

PrivatisationThe privatisation programme is the responsibility of the government’s Department of State Property Management.The privatisation framework in Armenia is defined by the Law on Privatisation of State Property, the Law on State Registration of Rights to Property, the Law on the State Registration of Legal Entities, the Law on Foreign Investments and the 2001-2003 Programme for State Property Privatisation.

The priorities of the privatisation programme include: securing and improving of cash flow in companies active on the wholesale power and making power generation companies attractive to investors. A further priority is the facilitation of the large investments in building power generation capacities, in line with the development of the country’s economy and integration into regional power markets.

Institutional reformsThe process of legal and institutional reform continues. Much of the reform is intended to improve the investment climate, governance, transparency and accountability: the Constitution was amended to improve the distribution of powers within the State; the Ministry of Economy became responsible for trade policy; and the State Revenue Committee took over responsibility for tax revenue and customs administration.

Armenia has nine trade agreements in force with other members of the Commonwealth of Independent States (CIS). Armenia is also working towards beginning negotiations on a deep and comprehensive trade agreement with the EU. Such an agreement would go beyond tariffs and would require close alignment with the EU’s laws in areas related to trade, including trade measures and intellectual property.

Determination of “Road Map” status Based on the “Investment framework” indicator, the current status is “developing”.

Investment climate TaxationThe Law on Taxes of 14 April 1997, the Law on Presumptive Payments, enacted in 1998 (which substitutes profit and value added taxes) and the Law on Simplified Tax enacted in 2000 constitute the main taxation legal framework in Armenia. Foreign companies investing in Armenia are subject to the same tax regime as Armenian companies.The Government is committed to eliminate corruption in Armenia.

Further improvements in the tax administration will be needed to support fiscal consolidation and achieve stronger growth.

Financial and banking systemsThe Central Bank of Armenia is the country’s governing bank. Currently, foreign participation in the capital of Armenian banking system is about 70%.

The Government has committed in its letter of intent to the IMF (in 2010) to preserve the stability of the Armenian banking system and to promote reforms to enhance its resilience and increase the efficiency of financial intermediation.


Disputes settlementAccording to article 24 of the Law on Foreign Investment, disputes arising between foreign investors and the Republic of Armenia in respect of foreign investment shall, in principle, be considered by the courts of the Republic of Armenia. However, since ratified international treaties are considered as superior to domestic legislation (with the exception of the country’s Constitution) foreign investors from countries having a Bilateral Investment Treaty (BIT) with Armenia have the right to resort to international dispute settlement mechanisms. Armenia also respects recourse to international arbitration under the Energy Charter Treaty.

Since Armenia’s accession as a full-time member to the WTO in February 2003, the possibility to use foreign-based procedures for dispute settlement as provided for in bilateral intergovernmental agreements on the protection and promotion of investments has been automatically extended to all 146 WTO member countries.

Armenia is also a signatory of the International Convention on Investment Disputes, which allows for resolution of disputes by the International Centre for the Settlement of Investment Disputes (ICSID).

Tariffs and energy pricing systemEfforts are made to improve regulatory and economic conditions to foster the development of the renewable energy sector through tax incentives, the review of tariff structures and methods, and legislation which demonstrates a commitment on the part of the government to incorporate clean technology into the energy system. Already, Armenia uses renewables to a large extent, primarily hydropower which meets 30% of the country’s electricity needs. In Armenia hydropower is very competitive since it benefits from existing tariff and sale incentives.

Solar and wind power are at an earlier stage of development than hydropower, and it is likely that similar incentives will be made available to project developers and investors in these sectors.

Determination of “Road Map” status Based on the “Investment climate” indicator, the current status is “developing”.

Investment planning Development of investment strategy and planningForeign direct investment into Armenia is the main strategy of the Government and is officially encouraged and seen as one of the key aspects of its economic development policy. According to the Armenian authorities, Armenia’s current investment policy seeks to remove administrative barriers, complete the legal framework that regulates investments, and develop the infrastructure that promotes investment (Ministry of Economy).

Projects of strategic interestArmenia and Georgia are planning to significantly increase the transfer capacity of their electricity system interconnections. This prospect creates new potential for cooperation and coordination in the operation of their electricity systems for mutual benefits from both reliability and economic standpoints. The agreement with Iran to build the Iran-Armenia oil products pipeline is progressing.

Determination of “Road Map” status Based on the “Investment planning” indicator, the current status is “developing”.


List of source of information:

1. ARMRUSGASPROM Annual Report, 2010, http://www.armrusgasprom.am/ 2. Energy Charter, Investment in Armenia, 2008 3. Ministry of Energy and Natural Resources of the Republic of Armenia web site (www.minenergy.am) 4. Public Service regulatory Commission of the Republic of Armenia (www.psrc.am) 5. International Centre for the Settlement of Investment Disputes, Information on Armenia 2010 6. EBRD web site (www.ebrd.com/downloads/research/factsheets/armenia.pdf) 7. Minutes of the Meetings, project “Identification of the INOGATE project “Energy Market Convergence and enhanced Efficiency in the Field of Electricity and Gas”, August 2010 8. US Department of State, Armenia investment climate statement, 2010 9. USAID, Armenia (http://www.usaid.gov/policy/budget/cbj2006/ee/am.html) 10. EBRD, Renewable Development Initiative, country profiles, http://www.ebrdrenewables.com/sites/renew/default.aspx 11. National Energy Efficiency Action Plan 2010 Republic of Armenia, Renewable Energy Week in Armenia, 5 October 2010, Andreas Karner, KWI Consultants, Austria 12. REEEP, (http://www.reeep.org/index.php?id=9353&text=policy-db&special=viewitem&cid=77) 13. IFC, Finding financing for energy efficiency projects through advisory services experience of IFC, based on selected projects in Armenia, Azerbaijan, Bosnia, Georgia, Serbia, Russia, Ukraine Rolf Behrndt Regional Business Line Leader Financial Markets. 14. Armenia Follow-up Review of the Investment Climate and Market Structure in the Energy Sector, Energy Charter Secretariat, 2008 15. Commission staff working document accompanying the Communication from the Commission to the European Parliament and the Council Taking stock of the European Neighbourhood Policy (ENP) Implementation of the European Neighbourhood Policy in 2009 Progress Report Armenia, Brussels, 12/5/2010 16. Improvement of energy efficiency in the housing sector, Republic of Armenia, Grachiya Tsugunian, Ministry of Energy and Natural Resources, Tbilisi 18-19 October 2010 17. Designated National Authority, Climate Change Information Center of Armenia (http://www.nature-ic.am/en/CDM_Projects_in_Armenia) 18. Armenian Electric Networks website (www.ena.am) 19. Meeting of ITS experts with CC, WGMs and RR on 18-19 April 2011 in Yerevan

64 | INOGATE | Status Report 2011 | Country Profile Azerbaijan

AZERBAIJAN COUNTRY PROFILE


Market convergenceLegislative frameworkThe primary energy legislation of Azerbaijan Republic includes the Law on Energy (adopted in 1998), the Law on Usage of Energy Resources (adopted in 1996), the Law on Power Industry (adopted April 3, 1998), the Law on Power Plants and Heat Generation Plants (adopted December 28, 1999), the Law on the Subsoil (2001), the Law on Gas Supply (adopted in 1998) and the Law on Natural Monopolies (adopted 15 December 1998).

Relevant primary and secondary legislation comprising several decrees relating to regulation of the energy sector have been issued by both the President of Azerbaijan and the Cabinet of Ministers.

The Law on Energy summarises the general principles of state regulation of the oil, gas and electricity sectors. In accordance with the Constitution, the state has exclusive ownership rights over the deposits of all primary energy resources and enjoys sole rights over exploration, development of deposits and production of energy material and products, construction and operation of underground storage facilities and construction and management of the main energy transportation and distribution systems.

Currently the legislation does not promote competition and market principles in line with the EU acquis communautaire.

In November 2006, a Memorandum of Understanding on Strategic Partnership in the Energy Sector was signed between Azerbaijan and the European Union. Following this MoU a twinning programme was put in place to prepare new draft laws “On Electricity” and “On Gas Supply” as well as codes of practice for electricity and gas networks in line with EU practices. The programme ended in June 2010. However, the laws have not yet been adopted as they have not yet been considered by parliament.

Third parties entering the market and wishing to engage in energy-related activities should, under the procedures established by law and on the basis of an energy contract, or by an application to the competent executive authority (Ministry of Economy), obtain a special permit. Any natural or legal person wishing to engage in new energy-related activities or substantially expand an existing activity should obtain a new special permit. Such a permit may be issued subject to the use of advanced technologies that are cost effective and enhance energy efficiency safety, health and environmental protection.

Relations with the European Union in the Energy Sector • A Memorandum of Understanding on a Strategic Partnership between the European Union and Azerbaijan in the field of Energy was signed in 2006. • Regional energy cooperation between Azerbaijan and the EU takes place in the framework of the Baku Initiative, which provides for political dialogue between the EU and the countries of the littoral states of the Black & Caspian Seas and their neighbouring countries. • Azerbaijan participates in the Eastern Partnership and its energy security platform. • Bilateral cooperation between the EU and Azerbaijan takes place in the context of the European Neighbourhood Policy in line with the Partnership and Co-operation Agreement. This also covers energy cooperation. • The EU and Azerbaijan launched negotiations in 2010 on a future Association Agreement, which will include provisions on energy security. • In January 2011 President Barroso and President Ilham Aliyev signed a Joint Declaration on the development of the Southern Gas Corridor, for which Azerbaijan is a contributor and enabler. • In September 2011 the European Commission was granted a mandate to negotiate the Trans-Caspian Pipeline system with Azerbaijan and Turkmenistan.

Country Profile Azerbaijan | Status Report 2011 | INOGATE | 65

Establishment of TSO and DSOThe establishment of TSOs or DSOs is not provided for in the current legislation. Accordingly there are no independent TSOs or DSOs.In the electricity sector, transmission and distribution services are provided by the state-owned Azerenergy OSC. There is also a presidential which established Baku Electric Distribution Grid SC (Bakielektrikshebeke) as distributor for the Baku region. In the gas sector, transmission and distribution activities are carried out by the state-owned Azerigaz, a subsidiary of SOCAR.

UnbundlingUnbundling and separation of activities has not been implemented in Azerbaijan. Energy companies are vertically integrated in a unified state monopoly. Extraction/generation, transmission and distribution of energy are undertaken by state-controlled entities. SOCAR is responsible for the oil industry; Azerigaz, a subsidiary of SOCAR, is responsible for the gas industry, and in the power industry the relevant companies are Azerenergy and Baku Electric Distribution Grid.In the short term, reforms that could ensure a functional and legal unbundling are possible, at least in the electricity sector.

Determination of “Road Map” status Based on the ‘Unbundling’ indicator, the current status for electricity and gas sectors is ‘basic’.

Third party accessIn the electricity sector, so far Azerbaijan has not implemented a transparent system of third party access to the transmission and distribution networks which can be applied objectively and without discrimination between system users. The current Law of the Azerbaijan Republic on Power Industry (03/04/1998, Article 3) provides for third party access to the network for generation and supply activities as follows: • The state-owned electricity company can buy power from producers and transporters, transport it through the (public) network, and engage in energy exchange operations with other countries; • As a legal entity an enterprise can buy electricity from the state electricity transmission and generation companies and sell it on to customers; • Independent power producers and legal entities with full economic and organisational independence who are not governed by the state electricity system, other independent power producers, state-owned industries or private companies can supply electricity to consumers on their own power grids as well as through those of the state transmission system.

However, third party access mechanisms are not provided for by current legislation. In theory such access would be possible given special permission, and legal reforms currently in preparation may allow for this in future.In the case of the gas sector third party access to the network is not allowed.

Determination of “Road Map” status Based on the ‘Third Party Access’ indicator, the current status for electricity and gas sectors is ‘basic’.

Independent energy regulatorsEstablishmentAn independent energy regulator does not exist in Azerbaijan. Individual regulatory functions and responsibilities are exercised either by the Ministry, which controls licensing procedures, or by the Tariff (Price) Council, which was established by the Presidential Decree of 26 December 2005 as an independent collegiate body. The Tariff Council is in charge of tariff regulation and submission of proposals to other state bodies with regard to the improvement of the legal and regulatory framework.

Currently the Tariff (Price) Council regulates prices for electricity and gas in accordance with Decision 178 of the Cabinet of Ministers of Azerbaijan, dated 28 September 2005, “List of goods (works, services), with prices regulated by the State”. This list covers 39 areas, including natural and state monopolies.

Level of independenceAs all members of the Council are appointed by the State (in fact members of the board are Vice-Ministers, whilst the chairman is the Minister of Economy), there is no independent regulation.


Tariff policy/Role of regulatorsTariff setting policy/typesThe Tariff Council’s main responsibilities include improvement of existing principles and of the normative and legal basis, to enable close state control on tariffs.

Prices for services on pipeline transportation, storage and distribution of natural gas are determined by the Tariff Council. Such prices are determined on the basis of proposals submitted by the Tariff Council’s secretariat. The procedure for setting tariffs is not clear, while the decision making process is not public. Decisions relating to tariff setting and imposing penalties for violations cannot be appealed because there is no corresponding mechanism.Because imports of natural gas are carried out only by the government, the rules for importing natural gas are governed by bilateral agreements.

The relationship between costs and tariff setting is non-transparent. However the tariff for each class of energy is uniform for all household and industrial consumers. It is recognised that significant reform is required in this area and work carried out by the INOGATE project Support to the Energy Market Integration and Sustainable Energy in the NIS (SEMISE) and by the bilateral Energy Reform Support Programme is targeted at preparing a new foundation for tariffs; however a significant reform in legislative framework (primary and secondary) may be necessary for this to be effective.


TransparencyThe tariffs system is generally not transparent, although relevant regulations are published on the web site of the Tariff (Price) Council.

Determination of “Road Map” status Based on the ‘Independent energy regulators’ indicator, the current status is ‘basic’.

Technical rulesHarmonisation of standardsBoth existing standards (GOST) and relevant EU standards are being utilised in the electricity sector. The national standardisation body of Azerbaijan, the State Committee of Azerbaijan on Standardization, Metrology and Patents, is currently working with INOGATE on harmonising standards with the EU in both the electricity and gas sectors together with the industry players (large international companies and equipment manufacturers). The INOGATE project ‘Harmonisation of Electricity Standards’ contributed to the harmonisation process.

In the gas sector, efforts are made to adhere to international standards. Under the INOGATE project Harmonisation of Oil and Gas Standards, more than 100 EU gas standards were translated into Russian of which ca. 40 were submitted for further consideration to the Ministry of Energy and Industry of Azerbaijan. None of these standards have not been adopted to date.

The assistance provided under the above mentioned projects has led to the desire to create a number of technical committees, which will report on their work to the State Committee for Standardization and to the Ministry of Industry and Energy. However so far, these technical committees have not been created. In addition to this, the development of any national action plan of standards harmonisation in the gas sector is not foreseen by the State Committee on Standardisation in the near perspective.

The new draft Law On Technical Regulation is still under consideration with no clear perspective of its adoption in 2012.

Azerbaijan has been a member of the International Organization for Standardization (ISO) since 2003, as well as an affiliated member of the European Committee for Standardization (CEN) since 2010. Currently, negotiations on the accession of Azerbaijan to the International Electrotechnical Commission (IEC) and the European Committee for Electrotechnical Standardisation (CENELEC) are underway. Azerbaijan is a member of COOMET (Euro-Asian Cooperation of National Metrological Institutions) and also an active member of EASC (Euro-Asian Council for Standardisation).


Within the framework of a European Twinning technical assistance, European regulations on low voltage and Electromagnetic Compatibility have been translated into Azeri. In the near future the requirements of these directives will be included in the legislation.

The State Committee on Standardization, Metrology and Patents of Azerbaijan Republic has prepared and submitted to the Cabinet of Ministers the draft “State Programme on development of standardisation in the areas of energy and energy efficiency in the years 2012-2014”.

Determination of “Road Map” status Based on the ‘Technical rules’ indicator, the current status is ‘basic’.

Integrated regional marketsIn the electricity sector, Azerbaijan is interconnected with Russia, Georgia, Iran and Turkey. Electricity exchange takes place between Azerbaijan and these countries on the basis of existing bilateral agreements, in which the state monopoly Azerenergy represents the country. Iran supplies electricity and gas to the Nakhchivan exclave. Azerbaijan supplies gas to Iran to match the Nakhchivan supply, and exports gas to Russia, Georgia and Turkey.

Cross-border trade tariffs are set by the Cabinet of Ministers.

Azerbaijan is a significant transit country for trans-Caspian energy transportation projects and therefore plays an important role in Black Sea basin energy initiatives.

Determination of “Road Map” status Based on the “Integrated energy markets” indicator, the current status is “basic”.

2nd Area of cooperation: Energy securityMaintenanceIn the electricity sector an extended period of under-investment and limited maintenance has now been countered by a detailed infrastructure maintenance programme in which over US$3 billion has been invested in recent years. All technical maintenance functions are carried out by Azerenergy (transmission and distribution networks) with one exception: maintenance of the electricity distribution network in Baku, which is the responsibility of JSC Baku Electric Distribution Grid.

In the gas sector, SOCAR deals with all oil and gas issues. Within the structure of the state-owned SOCAR, there are in all 23 enterprises dealing with gas and oil production. Azneft Production Union, a subsidiary of SOCAR, develops, equips and maintains oil and gas fields, and overhauls wells onshore and offshore. Azneft is composed of 16 enterprises, including 11 oil and gas production departments. There is an ongoing preventive maintenance programme carried out by Azneft, financed from its own revenues.

SOCAR subsidiary Azerigaz (and its subsidiaries) operates over 4000 km of transmission pipelines and 40,000 km of distribution pipelines. The old pipeline structure (largely pre-1986) has now been significantly modernized, with new compressor stations and other secondary infrastructure. Ongoing technical maintenance, including long-term and annual programmes, are financed by the company from its revenues.

Determination of “Road Map” status Based on the ‘Maintenance’ indicator, the current status is ‘developing’.

Rehabilitation/Upgrading Long and medium term rehabilitation programsThe State Programme on the Development of the Fuel and Energy Sector of the Republic of Azerbaijan (2005-2015) sets out the government’s investment programme covering the oil, gas and electricity sectors.

In the electricity sector, at present the generation capacity of Azerbaijan is circa 6000 MW. The sector will require an estimated investment of US$3.8 billion during 2005-2015 for the construction of new generation plants, modernisation of existing generation facilities and strengthening of the power transmission grid. With the increase of the government budget and financing resources secured from other donors, adequate investment in the power


generation and transmission sub-sectors is envisaged. However, the distribution sector still suffers from outages and service quality problems.

In the gas sector, through its subsidiaries, Azneft operates a series of longer-term maintenance programmes. For example, a special “Action Programme” was compiled to enhance oil and gas production on Absheronneft in 2008-2010. This included measures such as the drilling of additional wells, construction of new facilities, and refurbishment of existing infrastructure and communications. Similar programmes take place in other Azneft subsidiaries. Azerigaz and its subsidiaries have similar programmes. These initiatives cover not only maintenance of pipelines but also the rebuilding of wells and environmental improvements.

Status of outage and lossesIn the electricity sector, the vertically integrated companies Azerenergy and Baku Electric Distribution Grid suffer important technical losses (up to 20% in distribution, although under 10% in high voltage lines). Outages still take place, although the company sometimes gives advance notice.

In the gas sector, technical gas losses in the production and supply chain have been reduced greatly over the past 10 years and do not exceed 9-10%. Most losses occur during the replacement of pipeline sections where a leakage is identified. Modern technical equipment and processes are needed to remedy this. Gas losses are identified during regular field visits by the technicians who use special detection equipment. However, there is a need to implement additional measures and the state needs to provide the required technical and financial assistance.

Determination of “Road Map” status Based on the “Rehabilitation/Upgrading” indicator, the current status is “developing”.

New energy infrastructuresIn the electricity sector, under the State Programme on the Development of the Fuel and Energy Sector of the Republic of Azerbaijan, several new gas turbine electricity generation stations (with overall capacity of about 1000 MW) were built and commissioned in recent years. By the end of 2011 the commissioning of the new Sanub gas turbine electricity generation station is expected, with installed capacity of 780 MW.

Azerenergy also plans to build 11 new small hydro power plans with an overall capacity of 17 MW (construction of 6 of these has been already completed: Goychay (3MW), Valaken-1 (1,6 MW), Gusar (0,8 MW), Lenkoran (0,2 MW), Ismayilli (2,2 MW), and Oguz (1,7 MW). Together they account for about 86% of planned new small HPPs generation infrastructure.

In the gas sector, thanks to gas production expansion from the fields under development by SOCAR, which has seen an intensification of production in the Azeri-Chirag-Guneshli fields, and development and commissioning of the Shah-Deniz field, countrywide demand was completely satisfied in 2007, and the Azerbaijan Republic took steps towards entering the world market as an electricity and gas exporter. Additional substantial gas deposits were confirmed in 2010 in Umid and most recently in the Absheron fields.

Integrated plans exist for installation of additional gas pipelines and refurbishment of underground gas storage. This would enhance the countrywide gas collection, transportation and the distribution system. Construction of several pipelines has been completed in the past 3 years. SOCAR has an ongoing underground gas storage programme; a major 3 bcm facility is presently under construction.Energy transfers in the region have been diversified, through seven hydrocarbon transport systems (oil and gas pipelines).

Determination of “Road Map” status Based on the ‘New energy infrastructure’ indicator, the current status is ‘developing’.

Metering and billing (electricity/gas)Metering systems at end-usersIn Azerbaijan metering is already implemented in a wide scale and in Baku it has been modernised with the introduction of electronic billing.

In the electricity sector at present about 90% of electricity end-users (industry and households) have electricity meters installed.


In the gas sector, over 98% of natural gas end-users (industry and households) have meters installed (of various types). There is a programme for the installation of electronic gas meters (with pre-paid smart card) for natural gas end-users implemented by Azerigaz. Presently, about 1.3 million of end natural gas consumers are equipped with new meters. It is expected that by the end of 2013 all end-users in the Baku region will have new meters installed. Such meters offer more accurate and fair metering and bill processing, and more effective tariff collection.

Tariff collection systemsThe collection rate in the electricity and gas sector has significantly improved over recent years (in 2010 this had risen to 93% for electricity, over 70% for gas, and more than 70% for district heating services). Measures to improve the collection rate include the concession agreements of private operators and work on improving technical efficiency (e.g. by ongoing implementation of Supervisory Control and Data Acquisition software - SCADA). Billing, collection and payment systems still need to be modernised. Billing systems of the EU are the recognised model.

There is a programme for electronic meter installation in the Baku region for electricity end users. These new meters are equipped with GSM-modem and pre-paid cards, so the end consumer pre-pays for electricity consumption. This is a pilot project to test the system and in those areas where all end-users are already equipped with new meters (about 220.000 end consumers in the Gyanzha and Mingyachevir areas) the collection rate is 100%. If the above pilot project is successful, all end users of electricity in Azerbaijan will be equipped with these meters. A project to construct a factory for the production of these meters in Azerbaijan (to reduce costs) is under consideration.

Determination of “Road Map” status Based on the ‘Metering and billing’ indicator, the current status is ‘developing’.

3rd Area of cooperation: Sustainable developmentDiversification of energy mix There is considerable potential for renewable energy resources; however uptake has been modest to date. As a proportion of total primary energy supply, renewables corresponded to just over 1.6 % in 2009 (source IEA). The total share of electricity produced from renewable (hydro) sources was about 12% in 2009 (source IEA). In all, in 2009, over 2,300 GWh/year of the approx. 19,000 GWh/year total electricity production was generated from hydro sources. According to the State Agency of Alternative and Renewable Energy Resources (SAARES) the share has now risen to over 10%.

Currently six hydro power plants (HPPs) with an installed capacity of over 1000 MW, 2 mini hydro and 2 wind stations are in operation. This represents approximately 17% of total installed capacity (in terms of small hydro this figure is about 10%). The installed capacity of windmills is 1.5 MW (currently operational) and a further 2.7 MW is due on stream at the end of September 2011.

Policy framework The State Programme for Renewables 2005-2013, adopted in 2004, is the principal policy element in the development of renewables. To date the principal interest has been in wind-power and HPP.

SAARES is currently preparing a new National Programme of RES Development in Azerbaijan to the year 2020. According to this, the target is to generate 20% of the total share of electricity produced from RES by the year 2020. In 2010-2011, the state budget allocated $37.5 mln for the development of RES, and the relevant government resolution provides that investments in renewable energy (including wind power) will have tax benefits.Notably, no official targets have been specified by legislation; and no state subsidies for sustainable energy projects have been applied, save for tax relief on renewable energy investments approved by a decree of the Cabinet of Ministers.

Nevertheless the Government of Azerbaijan has publicly stressed its commitment towards creating a favourable environment for renewables and energy efficiency. Although there are no official targets the Ministry of Industry and Energy during a meeting in May 2011 with representatives of the INOGATE Secretariat noted the further intention for development of the electricity generation from renewables, particularly from wind and solar, as well as small hydro. However no timescale was given. Geothermal resources exist but, although perhaps sufficient for some heating projects, they are insufficient for power generation.

Within the framework of the bilateral Energy Support Reform Programme, Azerbaijan has been developing a comprehensive energy strategy focusing on renewable energy sources and energy efficiency.


Determination of “Road Map” status Based on the ‘Policy framework’ indicator, the current status is ‘basic’.

EE/RES framework development There is no specific law for renewables but some provisions are reflected in the existing energy laws. Key legislative acts relevant to energy efficiency and renewables during 2009-2010 have been:

• In 2009, the Tariff Council introduced a tariff for wind energy of 4,5 c€/KWh. However, this feed-in tariff is not considered high enough to attract investments. The government is currently considering developing a methodology for calculating preferential tariffs. • Presidential Decree N594 of 16 November 2009 on additional measures related to the use of alternative and renewables, assigned to both Azerenergy and the Ministry of Industry and Energy the responsibility to further scope the potential for renewables. • The Presidential Decree of 10 November 2009 on the Establishment of the State Agency of Alternative and Renewable Energy Resources (SAARES) at the Ministry of Industry and Energy.

In January 2011, with the support of international donors SAARES launched the project Promoting Development of Sustainable Energy in Azerbaijan. The project aims to assist the government to overcome barriers by reviewing and amending existing legal and institutional frameworks. These objectives will be achieved by capacity building for target groups and beneficiaries on sustainable energy; by assessing the potential for renewable power in Azerbaijan, particularly in remote and rural areas; by identifying which types of renewable energy will be economic or economic with minimal subsidies in each zone of the country; and by preparing at least one pilot project for each renewable type of energy. Implementation of the project will be a significant step in contributing to the achievement of Millennium Development Goals in Azerbaijan.

Moreover the EU Budget Support Programme for Energy Reforms, which will last until 2012 (budget - € 14 mln, including € 1 mln for technical assistance) supports these objectives, by assisting government efforts to develop a fully coherent, integrated and transparent energy strategy for the future. This support also focuses on the promotion of energy efficiency and renewable energy in Azerbaijan and building the capacity of SAARES.

Determination of “Road Map” status Based on the ‘EE/RES framework development’ indicator, the current status is ‘basic’.

EE/RES Action Plan and Measures Various studies have identified potential for wind, solar, small hydropower (potential is considerable), and biomass (potential is considerable, while one biogas CHP project has been developed).

Presidential Decree N594 of 16 November 2009 on additional measures related to the use of alternative and renewables, assigned to both Azerenergy and the Ministry of Industry and Energy the responsibility to further scope the potential for renewables.

In April 2010, the Ministry of Industry and Energy identified the first major (wind park) projects within the framework of the State Programme, with an overall capacity of 250 MW.

Azerenergy studied the potential of 11 small hydropower plants with a total capacity of 17 MW. Out of these, the following have been constructed: Goychay (3 MW), Valaken-1 (1.6 MW), Gusar (0.8 MW), Lenkoran (0.2 MW), Ismayilli (2.2 MW) and Oguz (1.7 MW).

Determination of “Road Map” status Based on the ‘EE/RES Action Plan and Measures’ indicator, the current status is ‘basic’.

Creation of energy agencies The Agency for Renewable and Alternative Energy Sources (SAARES) was established in 2009 by the Ministry of Industry and Energy as a key institution for accelerating the deployment of renewables.

Determination of “Road Map” status Based on the ‘Creation of energy agencies’ indicator, the current status is ‘developing’.


Environmental assessments/energy auditingLegislation on environmental impact assessment and amendments of legislation related to hazardous waste are under preparation. There are no norms and benchmarks for energy auditing currently in place. A draft law on environmental impact assessment has been announced.

Environmental standardsThe second phase of the Azerbaijan state programme on environment (commenced in 2006-2010) is still being implemented. The action plan on approximation of legislation to that of the EU, adopted in autumn 2009, foresees amendments to the law on access to information related to environment as well as revisions of existing legislation on pollution prevention and control.

The Law on Environmental Protection has been recently updated, and stipulates Environmental Impact Assessments prior to commencement of energy projects.

Determination of “Road Map” status Based on the “Environmental assessments and Environmental standards” indicator, the current status is “basic”.

Kyoto Protocol mechanisms The Kyoto Protocol was ratified by Azerbaijan in September 2000 and brought into force in February 2005. The Ministry of Environment and Natural Recourses is the Designated National Authority (DNA). To date 28 project proposals have been prepared, and submitted for a DNA letter of approval, of which 16 are traditional energy sector projects and and 12 are in EE/RES. As of June 2011 one Clean Development Mechanism (CDM) project has been registered (Yeni Yashma Wind Farm).

As of today 8 projects are at the validation stage, corresponding to 7.16 million Certified Emission Reductions, comprising among others two combined cycle gas turbines, one hydro power plant and two gas flaring reduction projects.

Gas flaring reductionThe country began participation in the World Bank Global Gas Flaring Reduction (GGFR) Partnership in 2008. A workgroup on an Associated Gas Recovery Plan (AGRP) has been established under the Ministry of Industry and Energy and a plan has been developed jointly with the Ministries of Ecology and Natural Resources and of Industry and Energy, and gas and electricity operators. SOCAR’s collection and utilisation of associated gas with small compressors is 375 million cubic meters per annum.

Determination of “Road Map” status Based on the “Kyoto Protocol mechanisms/Gas flaring reduction” indicator, the current status is “developing”.


Investment framework Legal - regulatory framework developmentThe basic legal framework for investment activities in Azerbaijan is established by two main laws: the Law on Protection of Foreign Investment (1992), and the Law on Investment Activity (1995).

The Law on Protection of Foreign Investment (shortly due for review) includes a definition of “foreign investment” and determines the forms in which foreign investment may be made. It stipulates that the legal status of foreign investment must not be less favourable than that for domestic enterprises. Foreign investors may engage in any economic activity not banned by the legislation of Azerbaijan.

The Law on Investment Activities deals with the general social, economic and legal environment for investment activities in general (i.e. not limited to foreign investment). It defines the terms “investment”, “investment activities and their objects”, and “investors”. It also contains a number of basic rights for investors, such as the right to make an investment, to own, use and dispose of it, and to participate in privatisation. The Law establishes the principle of non-discrimination of investors with regard to such activities, and includes provisions on investment protection.Azerbaijani legislation is evolving in accordance with the strategic goal of the government to implement a “welcoming policy” for foreign businesses.


The new Foreign Investment Bill that is currently being discussed in parliament is expected to reinforce certain guarantees for the investors as well as to introduce new legal instruments to protect foreign businesses.

In addition, the state-owned Azerbaijan Investment Company offers support to energy investments through its Entrepreneurs Fund.

Stability, transparency and adequacyAzerbaijan has carried out extensive legal reform over the last 10 years with the adoption of a new Tax Code, Civil and Civil Procedure Codes, Land Code, Labour Code, Customs Code, Foreign Exchange Law and the Law on International Arbitration. This has made the system more transparent, stable and friendly for local and foreign businesses.

Azerbaijan was ratified as a member of the UN Convention against Corruption on 1 November 2005. It has not signed the OECD Anti-Bribery convention. Azerbaijan is scored 2,4 in the 2010 table of the Corruption Perceptions Index prepared by Transparency International.

Azerbaijan has made progress in implementing important anti-corruption measures, including a New National Anti-Corruption Strategy and Anti-Corruption Action Plan, criminalizing active and passive bribery and building capacity to enforce criminal legislation. It has strengthened rules for merit-based, competitive employment for civil servants; and is building government capacity to prevent money-laundering.

The major areas of improvement in transparency included establishing a one-stop shop for business registration, streamlining property registration and transfer procedures, automation of key tax administration processes, broadened coverage of the credit registry system, and improved corporate governance guidelines.

Azerbaijan has signalled its intention to implement the Extractive Industries Transparency Initiative (EITI), and currently is working to meet the five sign-up requirements. The Board of EITI designated Azerbaijan as EITI compliant on 16 February 2009 and it will be revalidated within 5 years of this date (i.e. by 15 February 2014).

PrivatisationThe privatisation law was adopted in May 2000 and the President approved the second privatisation programme shortly thereafter. A list containing nearly 450 enterprises open for privatisation to both foreign and domestic investors included enterprises in the fuel and energy sectors.

The privatisation law envisaged international tenders to be run on a case-by-case basis for the largest state-owned enterprises. In the period between the initialization of privatization and 1 July 2004 several thousand small enterprises and facilities were privatised, including industrial enterprises, construction enterprises, trade enterprises, and more than 10 thousand enterprises in the services sector. There has been no privatisation in the energy production sector, apart from nine small hydropower plants. In 2005 the government engaged in discussions with potential investors on the transfer of Azerbaijan’s electricity distribution companies to new long-term management; however this initiative did not succeed.

Institutional reformsAzerbaijan is not yet a member of the World Trade Organization, but the government, with much international technical assistance, has been working to amend existing legislation. The Ministry of Economic Development has been tasked to lead the WTO accession process, and Azerbaijan held two WTO Working Party Meetings in Geneva in 2008, in addition to bilateral discussions with USTR and the EU.Despite considerable gains in regulatory reform and economic diversification led by the services sectors, substantial challenges remain, particularly in implementing more institutional and systemic reforms. Property rights and freedom from corruption remain weak and government interference and control hurt overall monetary stability and foreign investment.

Determination of “Road Map” status Based on the ‘Investment framework’ indicator, the current status is ‘basic’.


Investment climate TaxationForeign investors in Azerbaijan are subject to three different forms of taxation, depending on the type of investment or business. If the investor has entered into a production sharing agreement (PSA), the PSA will stipulate the tax rules relevant to that particular investment. With the enactment of a Host Government Agreement (HGA) governing activities on the Main Export Pipeline BTC running from Azerbaijan through Georgia to Turkey, Azerbaijan introduced a new tax regime applicable to companies working in connection with this pipeline. Investors operating outside PSAs and HGAs are subject to a statutory tax regime based on the tax code.

Since 2001, the government has implemented a number of reforms aimed at establishing a strong foundation for modern tax administration. The reforms have included: (i) the enactment of a consolidated tax code; (ii) the establishment of a large taxpayers unit; (iii) the adoption of automated systems in several functions, and (iv) the creation of a taxpayers services program.

Since 2005, the modernisation process has included: (i) the tightening of the VAT registration controls; (ii) the implementation of an integrated computer system for all taxes; (iii) the introduction of electronic filing; (iv) the establishment of a one-stop shop business registration in early 2008; and (v) the strengthening of human resources management and performance measurement.

On 1 January 2008 the use of a single deposit account for VAT and use of appropriate software was instituted. From 1 January 2010 electronic tax invoices were introduced, whilst in March 2010 a system of online outsourcing was put in place. Also in 2010 a system was introduced whereby taxpayers’ cash registers can be remotely monitored by the installation of special chips.

Financial and banking systemsAzerbaijan’s banking sector has been growing rapidly. Bank credit has expanded by more than 50 percent per year since 2004. Prudential regulation and supervision have been the Central Bank’s priority to contain potential risks from the rapid expansion. Private banks have grown faster than state-owned banks and account for around 60 percent of total assets. However, availability of long-term financial instruments remains limited. The market for government and corporate bonds remains small and illiquid. There are no limits on foreign ownership of domestic banks, and some international banks have opened representative offices. The state-owned International Bank of Azerbaijan still dominates the banking sector. The government sold a 50 percent stake in the state-owned Kapital Bank in 2007 and further privatised the bank in 2008.

Disputes settlementDispute settlement mechanisms exist in Azerbaijan, but effective means of protecting and enforcing property and contractual rights are still to be assured to a better extent. The Civil Procedure Code of September 2000 sets forth basic civil legislation.

Since 2000, the Law on International Arbitration provides for the possibility of local arbitration in international commercial matters. However, in practice arbitration is seldom used to resolve disputes.

Azerbaijan is a party to the World Bank Convention on the Settlement of Investment Disputes between States and Nationals of Other States and is also a member of the Multilateral Investment Guarantee Agency (MIGA). Azerbaijan is also a party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which provides for binding international arbitration of investment disputes between foreign investors and the state.

Tariffs and energy pricing systemEfforts by the Government to raise the collection rate, to establish cost-reflective tariffs and to reduce state subsidies seem necessary in order to create more attractive conditions for private investors in the gas and power sector. However, much will depend on the actual outcome of the re-organization of the state companies SOCAR and Azerenergy, and whether a coherent strategy will be set up concerning the restructuring of the power generation and transmission sector, including the establishment of an independent regulator.

Determination of “Road Map” status Based on the ‘Investment climate’ indicator, the current status is ‘developing’.


Investment planning Development of investment strategy and planningOver the past decade or so the Government of Azerbaijan had adopted a number of new instruments and practices - for example, the Medium-Term Macroeconomic Framework (MTMF), Medium-Term Expenditure Framework (MTEF), and sector development reports - but mostly on an ad hoc basis; the new tools were used by some agencies but not others, and without an encompassing framework. As a result, there was little effective linkage between planning and budgeting instruments.

In 2006, the Ministry of Economic Development (MOED) was given the clear mandate to lead the process of public investment planning and project appraisal. A unit within the Ministry (Public Investment (PI) Department) was created specifically to drive the process of reviewing public investment plans.

In 2010 with the help of IFIs the Government of Azerbaijan began the adoption and institutionalisation of effective tools to strengthen its long-term planning, macroeconomic analysis, public investment, and project development program.

Projects of strategic interestIn the electricity sector a number of measures are being implemented in order to prepare parallel operation as both a transit country and electrical energy exporter. There are plans to expand electricity exchange with Iran as well as with Russia. Refurbishment of the protection system and the development of the hierarchical national power dispatching centre equipped to high standards are continuing.

A large-scale power transmission proposal from Azerbaijan to Turkey via the “energy bridge” of Azerbaijan-Georgia-Turkey gives the potential not only of considerable economic benefits, but would also raise the quality of these countries power systems. This project is currently under consideration by the Cabinet of Ministers. It involves a new 500kV line to Georgia. Also on-going is the construction of a new 330 kV/220kV Parsabad-Astara line from Iran to Azerbaijan (350 km).

Azerbaijan is in a position to build on the success of the Baku-Tbilisi-Ceyhan main oil export pipeline as well as the Baku-Tbilisi-Erzurum gas pipeline.

In the gas sector, President Aliyev and President Barroso signed in January 2011 a Joint Declaration in which they expressed their common objective to see the Southern Gas Corridor established and operational as soon as possible and to establish the Republic of Azerbaijan as a substantial contributor to and enabler of the Corridor.

Azerbaijan and a consortium of companies are currently engaged in negotiations with prospective European buyers for gas from the Shah-Deniz-II gas field. The buyers are often directly linked to specific transportation projects including Nabucco, Interconnector Turkey-Greece-Italy (ITGI), and the Trans-Adriatic Pipeline (TAP). The Azerbaijan-Georgia-Romania Interconnector (AGRI) also represents a potential project of strategic interest.

Determination of “Road Map” status Based on the ‘Investment planning’ indicator, the current status is ‘developing’.



1. Ministry of Energy and Industry, http://azerbaijan.az/_StatePower/_MinistersCabinet/_ministersCabinet_e.html 2. Azerenergy, http://www.azerenerji.com/index.php?section=1&lng=en 3. Tariff (Price) Council, www.tariff.gov.az 4. SOCAR, www.socar.az 5. Minutes of the Meetings, project: Identification of the INOGATE project “Energy Market Convergence and enhanced Efficiency in the Field of Electricity and Gas”. August 2010 6. US department of State, Azerbaijan investment climate statement, 2009 7. IMF Working papers, http://www.oecd.org/dataoecd/8/11/44996103.pdf 8. USAID, Azerbaijan http://www.usaid.gov/locations/asia/countries/azerbaijan/ 9. EBRD, Azerbaijan, http://www.ebrd.com/pages/country/azerbaijan.shtml 10. Energy Charter, In-Depth Review of the Investment Climate and Market Structure in the Energy Sector 11. Renewable Energies in Central Asia Regional Report on Potentials and Markets – 8 Country Analyses Energy policy Framework Papers, Section »Energy and Transport, GTZ, 2009 12. Commission staff working document “Accompanying the communication from the Commission to the European Parliament and the Council “Taking stock of the European Neighbourhood Policy (ENP) Implementation of the European Neighbourhood Policy in 2009: Progress Report Azerbaijan”, Brussels, 12/05/2010 13. CDM/JI Pipeline Analysis and Database, UNEP, Risoe Centre, http://cdmpipeline.org/ 14. Azeri News, http://www.news.az/articles/economy/3796 15. UNDP-AZ website, http://www.un-az.org/ 16. Discussions between ITS and Azeri experts, 28-29 April 2011. 17. Additional comments by INOGATE CC for Azerbaijan in May 2011.

76 | INOGATE | Status Report 2011 | Country Profile Belarus


Market convergenceLegislative framework: The primary legislation of the energy sector in Belarus includes the Law on Gas Supply (2003), the Law on Energy Saving (1998), Presidential Directive No. 3 Economy and Thrift are the Main Factors for the Economic Security of the State (2007) and the Law On Renewable and Non-traditional Sources of Energy (2011).There is no explicit electricity law in Belarus. New laws governing electricity, and heat supply and the regulation of electricity and heating tariffs are currently being developed.

According to the Law on Gas Supply the President defines the state policy of the energy sector. The Council of Ministers governs the gas supply sector.

The laws which specify activities limited to state enterprises do not include electricity generation, and third parties therefore can and do operate in this sector. They include, for example, the Iranian-Belarus joint venture Prilesye. Such companies are required to sell their output to the state distribution system (Belenergo).

The secondary legislation comprises a number of governmental decrees, with the most important and recent (2010) being the Energy Potential Strategy Development of the Republic of Belarus covering electricity and gas. Additional measures include the 2007 ‘Programme of development of the system of technical regulation standardisation and conformity assessment in energy-saving’, and the National Energy Saving Programme for 2011-2015 approved on 24 December 2010.

Relations with the European Union in the Energy Sector • Regional energy cooperation between Belarus and the EU takes place in the framework of the Baku Initiative, which provides for political dialogue between the EU and the countries of the littoral states of the Black & Caspian Seas and their neighbouring countries. • Belarus participates in the Eastern Partnership and its energy security platform. • The EU - Belarus bilateral energy dialogue continues. The most recent energy meeting took place in Minsk in September 2011.

Establishment of TSO and DSOIn the electricity sector Belarus has no specially appointed Transmission System Operator (TSO). The functions of a TSO are distributed between the holding company Belenergo (100% state owned), and its subsidiaries: the Central Dispatch Unit and 6 regional power system companies or Oblenergos. The Oblenergos – also carry out the functions of a DSO.

Two companies operate in the gas sector: Beltransgas, now 100% owned by Gazprom, operates the transmisson Yamal-Europe gas pipeline running from Russia to Western Europe as well as all other transmission gas pipelines in the country. Therefore Beltransgas assumes the role of TSO. The 100% state-owned Beltopgas which is responsible for operation of natural gas distribution system in Belarus performs the role of DSO. The establishment of independent TSOs or DSOs is not foreseen under current legislation.

UnbundlingBoth Belenergo and Beltopgas are directly controlled by the state via the Ministry of Energy. Both undertakings are vertically integrated companies which carry out all activities in the energy supply chain.

The Government of Belarus has indicated in its energy strategy documents its intention to de-monopolize and unbundle the electricity sector.

At present, the unbundling of the gas sector is not foreseen by the Government.

BELARUS COUNTRY PROFILE

Country Profile Belarus | Status Report 2011 | INOGATE | 77


Third party accessIn the electricity sector, a transparent system of third party access (TPA) to the transmission or distribution networks is not in place.

Private companies can enter the electricity market only as generators. The independent electricity generating companies (Belenergia is a foreign owned limited liability company) are obliged to sell the electricity produced to the state transmission and distribution system (Belenergo) at a fixed tariff. At present some 70 legal entities (private and state-owned) are involved in this activity.

In the gas sector, third party access to transmission or distribution networks is not disallowed by the Law On Gas Supply. However, TPA mechanisms are not provided for by current legislation. The Law On Gas Supply clearly defines the exclusive right of state in setting of prices and tariffs for transmission, distribution and consumption. Methodologies of such tariffs and prices calculation are not transparent and are not made public.


Independent energy regulatorsEstablishmentThe Tariff Department of the Ministry of Economy is responsible for determining energy tariffs in both the electricity and gas sectors for both industry and households.

According to the Law on Gas Supply the President carries out the state regulatory functions for gas supply.

Level of independenceThere is no independent energy regulator in Belarus.

Tariff policy/Role of regulatorsTariff setting policy/typesIn the electricity sector, the tariff setting process is as follows: Belenergo and Beltopgas submit cost-based tariff proposals to the Ministry of Energy. The Ministry refers these proposals with comments to the Tariff Department of the Ministry of Economy. Following further interdepartmental consultations, a final proposal is sent to the Council of Ministers for ratification.

Belenergo is required by law to purchase electricity generated by third-parties on the basis of this tariff.In the gas sector, the price of imported gas is determined by contract between Gazprom (which owns Beltransgas) and the Ministry of Energy. The state regulates the price of liquefied natural gas, the tariffs for gas transmission and distribution, and the tariffs for transmission of petroleum and petroleum products. After consultation with the companies operating in the sector, the Ministry of Economy approves the tariffs in a special document, which sets out the tariffs, costs and mark-ups.

Current prices in 2011 including taxes, for electricity and gas paid by households are: • Electricity: 0.0176 €/kWh • Gas: 2.12 €/GJ

Households represent only 8% of total electricity consumption. Tariffs for industries and agriculture in 2011 were about 0.10 €/kWh. There is a significant cross subsidisation by industry of households. Households cover only 30% of the real costs of the electricity they consume, while industry pays a premium.

TransparencyAlthough a cost-based tariff methodology is used (the details of which are not made public), they involve some cross-subsidy for domestic heating and electricity. The overall process is not clarified publicly. However, tariffs are available on government websites and are publicised through the media. All tariffs (for industrial and household consumers) enter into force by Resolution of the Cabinet of Ministers of Belarus. Special low tariffs are only available for specific categories of consumers (i.e. strategic investors with large scale industrial projects or industrial plants of strategic importance for Belarus). Each case is considered separately and a relevant presidential decree is issued.



Technical rulesHarmonisation of standardsBelarus has established a process under the State Committee for Standardization for integrating and harmonising national with international standards. ISO/IEC guides 21.1.2005 and 21.2.2005 are fully applicable.

The Law on Technical Norms and Standardisation’ (2004) includes technical energy standards.

GOST standards are still in use in both the electricity and gas sectors. However Goststandart of Belarus cooperates with EU standardisation bodies. The state construction authorities are directly involved in developing national codes of practice, which are usually in line with CEN/CENELEC (European Committee for Standardisation/European Committee for Electromechanical Standardisation) and ISO (International Standards Organisation) standards.

Belarus is a member of ISO (International Standards Organisation) and an affiliated member of CEN (European Committee for Standardisation) and CENELEC. Belarus is a member of COOMET (Euro-Asian Cooperation of National Metrological Institutions) and also an active member of EASC.

In the gas sector, the harmonisation process is currently ongoing in cooperation with EASC (Euro-Asian Council for Standardisation) and the INOGATE programme. More than 100 EU gas standards were translated into Russian, of which approximately 40 have been submitted for further consideration to key energy sector stakeholders.

Beltransgas also uses Gazprom standards where appropriate as the main Yamal-Europe gas pipeline itself belongs to Gazprom.

Determination of “Road Map” status Based on the ‘Technical rules’ indicator, the current status is ‘developing’.

Integrated regional marketsIn the electricity sector, the energy needs of Belarus are covered by domestic generation that is essentially produced from gas and electricity imports from Russia. The Belarus electricity grid is fully connected to the Russian, Polish, Ukrainian and Lithuanian grids. The State Production Association Belenergo provides transit for Russian electricity to Lithuania. Electricity is occasionally exported to Poland.

In the gas sector, the transmission system of Belarus is interconnected with the gas transmission systems of the neighbouring European countries and provides transit of Russian gas to Ukraine, Poland, and Lithuania, as well as to the Kaliningrad region of the Russian Federation (via Lithuania).

Beltransgas operates the Yamal-Europe transmission pipeline providing gas to Germany. Belarus is located on the gas transit route for Russian gas to Europe and is the second largest transit country for Russian gas by volume after Ukraine.

Beltransgas does not participate in the work of the European Network of Transmission System Operators for Gas to prepare Ten Year Network Development Plans for Transmission Systems and Network Codes.

Determination of “Road Map” status Based on the ‘Integrated energy markets’ indicator, the current status is ‘basic’.


MaintenanceBelarus legislation requires the TSO and DSO companies to maintain and repair the electricity and gas infrastructure. This legislation extends to administrative and in some cases criminal responsibility. Relevant departments of the Ministry of Energy and energy organisations are responsible for ensuring maintenance standards.

The state companies responsible for design, research, installation and maintenance of the electricity and gas sectors have well-educated professionals and appropriate equipment to carry out their work.


In the electricity sector, Belenergo has annual and 5-year maintenance programmes, including training activities with allocated budgets to cover its responsibilities for maintenance and engineering of thermal power plants, the power grid and the heat network. Local authorities also have some responsibilities for their district heating networks.

In the gas sector, Beltransgas and Beltopgas have their own annual and five-year maintenance programmes, including training activities with allocated budgets.In both electricity and gas sectors, the maintenance programmes are being implemented and meet the full needs.

Determination of “Road Map” status Based on the ‘Maintenance’ indicator, the current status is ‘advanced’.

Rehabilitation/Upgrading Long and medium term rehabilitation programsIn the electricity sector, the Government adopted the State Comprehensive Programme of Energy System Upgrading (2006-2010). The main objectives of the Programme were the upgrading of key generation and transmission infrastructure; undertaking the energy efficiency measures in electricity sector in order to minimise losses and the wider use of national sources of energy (i.e. peat etc).A new programme extending to 2016 is currently under preparation.

The programme covers: centralised management of all stages of production, transmission and utilisation of energy, state regulation of tariffs, a balanced renovation and development of generating sources, electricity and heating networks, the implementation of industrial and regional programs for energy conservation, a mechanism stimulating the application of energy efficient technologies and equipment to all branches of the economy, cost reduction for supply, transmission and consumption of all types of fuel, heating and electricity, and the gradual diversification of fuel types and development of local fuels and renewables.

In the gas sector, in accordance with their different responsibilities and remits, Beltopgas and Beltransgas are responsible for the construction of transmission and distribution pipelines and associated gas facilities (distribution stations, underground storage, compressor stations and administration facilities), as well as for the reconstruction and rehabilitation of existing facilities. Among the major problems facing these enterprises are their depleted assets (much capital equipment has been in service for more than half of its normative life). The main source of investment (about USD 60mln annually) is a special state “amortization fund”. Investment decisions for Beltopgas are often driven by social considerations.

Status of outage and lossesThe average level of electricity losses in Belarus does not exceed 9%. Outages in the Belarusian electricity grid are rare. Outages are reported to the government and a statistical database is kept; however statistics about outages are treated as confidential.

In the gas sector, the average level of gas losses in transmission gas pipelines is about 0,5%. There are no gas outages. Both Beltransgas and Beltopgas have established targets for permissible levels of gas losses.

Determination of “Road Map” status Based on the ‘Rehabilitation/Upgrading’ indicator, the current status is ‘basic’.

New energy infrastructuresIn the electricity sector, Decree No. 575 established a comprehensive national programme for upgrading the basic production assets of the Belarusian energy system, and encouraging energy conservation and broader usage of the Republic’s indigenous fuel and energy resources in the period to 2011. This provides incentives for investment in the electricity infrastructure. In the framework of the programme for electricity industry development, it was envisaged to develop thermal power plants with the help of foreign investments. These were defined as ‘other assets’ for construction by third parties. There is no substantial new electricity infrastructure project planned in Belarus, except the planned construction of the new 400kV Ross-Belostok line from Belarus to Poland for electricity exports.

In the gas sector, Belarus currently has three underground gas storage facilities, with a capacity of 0.98 bcm of gas. By the end of 2020 Belarus intends to increase the capacity of its underground gas storage facilities to 4.5 bcm.



Metering and billing (electricity/gas)Metering systems at end-usersIn the electricity sector, most end users have meters installed (commercial, households). The meters are in line with European standards.

In the gas sector, meters have been installed for all gas consumers.

Tariff collection systemsAt present collection rates for both electricity and gas are close to 100%. However, debts for unpaid consumption (industry and agriculture) in previous years are considerable, and undermine Belenergo’s financial situation. In 2011 Belarus incurred a debt USD 145 mln with Gazprom for gas consumed.


3rd Area of cooperation: Sustainable developmentDiversification of energy mix The 2007 Presidential Decree on the Concept of Energy Security addresses the issue of the energy mix, calling for a diversification of energy balance by the year 2020. Studies have revealed some potential for HPP and for biomass in Belarus, but at present only biomass combustion plants are widely developed. As of 2009 about 6,0% of total primary energy supply (ca. 1600 ktoe) originated from renewables (source: IEA statistics).

The total share of electricity produced from RES in Belarus is 0.6%. According to IEA in 2009, 187 GWh of the 30,376 GWh produced came from RES (60 GWh biomass, 82 GWh waste, 44 GWh Hydro and 1 GWh wind).

The greatest potential source of renewable energy in Belarus is biomass. Geothermal potential exists only to the extent that it may be able to assist in heating. Wind power development is not viable.

Policy framework Belarus’s main energy policies are reflected in the following programmes: • The National Programme On Energy Saving for 2006-2010 which was amended by Directive No. 2050 from 30 12 2008, and is now superseded by the Programme On Energy Saving 2011-15 approved by the Council of Ministers in December 2010. • The National Programme to Transform Boilers to Mini-CHP, 2007–2010.

Presidential Directive No. 3, “Economy and Thrift are the main factors for economic security of the country”, foresees a minimum of 25% of electricity and heat energy being produced from local fuel sources, secondary energy resources and alternative energy by 2012. Particular matters of EE and RES are respectively addressed in the Law On Energy Saving (1998) and the Law On Renewable Energy Sources, which was adopted by the Parliament in 2010 and came into force in January 2011.

In accordance with Energy Potential Strategy Development of the Republic of Belarus (2010) the Belarusian GDP energy intensity compared to 2005 shall be 26-30.4% lower in 2010, at least 50% lower in 2015, and at least 60% lower in 2020. Furthermore, the share of the Belarus’ own energy resources (including RES) in total heat and electricity production shall be at least 20.5% in 2010, at least 25.0% in 2012, at least 28.8% in 2015 and at least 32.0% in 2020.

Determination of “Road Map” status Based on the ‘Policy framework’ indicator, the current status is ‘developing’.

EE/RES framework development The following recent regulatory developments support the promotion of EE/RES:

• Resolution of the Ministry of Economy No 20, dated 20 January 2010 (amending the Decree of the Ministry of Economy No 91, dated 31 May 2006), which establishes price premium coefficients on electricity generated


by renewables installations. These coefficients multiplied with the base tariff, represent preferential tariffs for renewable energy producers. • A Law on Renewables was adopted in January 2011, which incorporates key provisions for the promotion of renewables, such as long-term renewables tariffs, tariff differentiation among renewables technologies, additional financial incentives, grid connection etc. The effectiveness of the law will depend on the development of secondary legislation. • The Energy Potential Strategy Development of the Republic of Belarus (2010) • On 24 December 2010, the Council of Ministers of the Republic of Belarus approved a National Energy Saving Programme for 2011-2015, which foresees various measures to improve energy efficiency and promote energy savings in different sectors (e.g. public sector, industry, building, agriculture).

The development of technical standards and norms is an area to which particular attention has been given. This is reflected in the 2007 Programme of Development of the System of Technical Regulation Standardisation and Conformity Assessment in Energy-saving.

Determination of “Road Map” status Based on the ‘EE/RES framework development’ indicator, the current status is ‘developing’.

EE/RES Action Plan and Measures The following programmes are currently ongoing in Belarus:

• The National Programme On Energy Saving for 2006-2010: This was amended by Directive No. 2050 from 30 12 2008 and is now superseded by the Programme On Energy Saving 2011-2015 approved by the Council of Ministers in December 2010. This programme lists enterprises which will realize energy saving measures or switch to local and renewable energy sources. The investments will be funded from the state budget and enterprises’ own sources (or loans); • The National Programme to Transform Boilers to Mini-CHP, 2007–2010, which is now concluded). • The National Programme for Development of Renewable Sources of Energy for 2011-2015, adopted in December 2009

The above Programmes are indicative and do not contain exact budget allocations; however they are to be funded by the national budget on an annual basis, subject to availability of funds.

In May 2009, Belarus received the approval of the IFIs for a US$125 million loan to improve energy efficiency in heat energy and electricity manufacturing in some cities. The main goal of the loan is to convert existing heating boilers into CHP plants in several towns. The conversion should provide approximately 90 MW of additional electric power.In 2011, in Grodno Region, a wind power plant with the capacity of 1.5 MW was initiated.


Creation of energy agencies The Energy Efficiency Department (EED) of the State Standardisation Committee is the sole entity responsible for enforcing and monitoring the implementation of energy saving, energy efficiency and renewable energy policies. Among its duties the Energy Efficiency Department develops technical regulations and standardisation of energy equipment, provides state supervision of the efficient use of energy and develops legal and financial measures to stimulate energy efficiency.

In addition, on 29 October 2010 an International Energy Centre was inaugurated in Minsk to attract domestic and foreign investment for long-term energy efficiency projects in Belarus. The Centre will take an active part in designing national, departmental and regional energy efficiency programmes and contribute to identifying potential project activities in this area.

Determination of “Road Map” status Based on the ‘Creation of energy agencies’ indicator, the current status is ‘basic’.


Environmental assessments/energy auditingLegislation on energy audits and certification has been adopted in Belarus. The Energy Efficiency Department is required to carry out energy audits on governmental buildings.

Environmental standardsDevelopment of technical standards and norms is one of the priorities for Belarusian energy efficiency and renewables policy. A special Development Programme of Systems for Technical Rate Setting, Standardisation and Compliance Assessment in the Energy Saving Field has been elaborated. 129 technical standards have been developed in 2007-2010 according to the Programme of Development of the System of Technical Regulation, Standardization and Conformity Assessment of Energy Saving. More than 80 of these standards have been harmonised with International and European requirements.

Determination of “Road Map” status Based on the ‘Environmental assessments and Environmental standards’ indicator, the current status is ‘developing’.

Kyoto Protocol mechanisms The Kyoto Protocol was accepted in August 2005 and entered into force in November 2005. The Ministry of Natural Resources and Environmental Protection of the Republic of Belarus is the Designated Focal Point for Joint Implementation (JI) projects. Belarus is not included in Annex B countries. In 2006 Belarus submitted a relevant amendment to the Kyoto Protocol, which was adopted at the 12th Kyoto Conference in Kenya in 2006, but is still not ratified by some countries. There is little significant potential for qualifying projects in the energy sector, given the present good status of pipelines and limited potential for renewables.

Gas flaring reductionThis section is not applicable to Belarus.

Determination of “Road Map” status Based on the ‘Kyoto Protocol mechanisms/Gas flaring reduction’ indicator, the current status is ‘basic’.


Investment framework Legal - regulatory framework developmentBelarus adopted an “Investment Code” in 2001 which is a fundamental document regulating national and foreign investments. The Investment Code protects the proprietary rights of local and foreign investors and promotes favorable conditions for their activity. Foreign investors enjoy additional guarantees within the framework of bilateral agreements of the Republic of Belarus with other countries.

The Consultative Council for Foreign Investments headed by the Prime Minister plays an important role in creating a favorable investment climate in the Republic of Belarus. It comprises officials from governmental organisations, international agencies and also foreign investors operating in the Belarusian market. A National Investment and Privatisation Agency and National Investment site has been established.

Belarus is a signatory to numerous international investment agreements.

Stability, transparency and adequacyThe Government of Belarus announced measures to reduce bureaucracy and red tape. Nevertheless bureaucratic procedures, including those for licenses and permits, are neither sufficiently streamlined nor transparent and red tape still remains a problem.

Public discussion of all laws is obligatory before their adoption. Draft laws are published on government websites.Belarus signed and ratified the Civil Law Convention on Corruption on 26 December 2005, the UN Anticorruption Convention on 25 November 2004, the Criminal Law Convention on Corruption on 26 May 2003 and the UN Convention against Transnational Organised Crime on 3 May 2003.

Belarus was ratified as a member of the UN Convention against Corruption on 17 February 2005. It has not signed the OECD Anti-Bribery convention.


Belarus is scored 2,5 in the 2010 table of the Corruption Perceptions Index prepared by Transparency International (ranked 127th out of 178).

PrivatisationIn 2008, the government launched an enlarged privatisation programme and committed to privatise more attractive SME assets in a transparent and open manner. However, the assets of the main energy sectors were not included in the list. In addition, all major privatisation projects require presidential approval and are not transparent. Nevertheless some of the subsidiaries of these companies are open to private investment or partnership.

Institutional reforms Market competition operates under an unclear institutional framework. Nevertheless, the World Bank counted Belarus among its top 10 regulatory reformers in 2009. While property registration is only a minor aspect of privatisation, the country created a one-stop shop for property registration and introduced a broad administrative simplification program that set strict registration time limits and computerised its records. As a result, the time required to register property in Belarus fell from 231 days to just 3 in 2010.


Investment climate TaxationChanges in the general part of the Tax Code of the Republic of Belarus provide for electronic filing of tax returns and a simplified procedure for registering organisations and individuals with tax bodies.Preparation is ongoing of normative legal acts aimed at further simplifying the tax system and improvement of tax legislation of the Republic of Belarus.

Decree number 1 of the President dated 28 January 2008 “On stimulation of production and sale of goods (works, services)” aims at encouraging the economic development of regions of Belarus and foreign investment.The Law on Amending some Laws of the Republic of Belarus on the Issues of Taxation has also ensured the implementation of a set of measures to further simplify the tax system of the Republic of Belarus and the improvement of the practical conditions of application-specific taxes and fees.

Financial and banking systemsAt present the banking sector comprises over 30 banks. These include 8 representative offices of foreign banks, (including banks from Russia, Lithuania, Latvia, and Germany), as well as representation offices of the EBRD and the World Bank. Foreign capital is present in the statutory funds of 25 banks, 8 of which are 100% based on foreign capital.

In 2008, 4 banks were registered of which 3 were predominantly owned by foreign investors. These were the JSC Belarusian Small Business Bank (United Kingdom, the Netherlands, the U.S. and other investors), ZAO Zepter Bank (Switzerland) and the JSC LC Bank (Iran).

Disputes settlementBelarus is a member of the International Center for the Settlement of Investment Disputes (ICSID) (Washington Convention). It is also a member of the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. The Government of Belarus may accept binding international arbitration of investment disputes between foreign investors and the state. In practice there have been no such cases to date.

Tariffs and energy pricing systemThe status of the tariff and energy pricing system is discussed above. Pricing is determined by the government.On June 30, 2011, the Ministry of Economy of the Republic of Belarus issued a Decision # 100 On the Tariffs for the Electricity Produced from Renewables. This feed-in tariff is calculated on the basis of a formula that is directly linked to the tariff for industrial consumers of up to 750 kVA connected capacity. This end user tariff is adjusted and updated in order to include deviations of the Belarus Rouble exchange rate to the US Dollar. An average pay-back period of 20 years was assumed for all the RES installations. According to the above mentioned Decision, for the first 10 years after commissioning, for all the RES installations (except solar), an enhancing coefficient of 1.3 is applicable (in case of solar installations this coefficient is 3.0), while for the next ten years that coefficient for all the RES installations is lowered to 0.85.



Investment planning

Development of investment strategy and planningLaw 157-3 of 1998 on State Planning and Programmes of Social and Economic Development of the Republic of Belarus defines the mechanisms for the development of investment strategies and planning. Short- (one-year), medium- (five-year) and long-term (15-year) plans are drafted at national and regional levels. They are frequently complemented by specific sectoral plans adopted at the regional level and consistent with the broader national and regional plans. Together they constitute a comprehensive hierarchy of targets and forecasts for the economic development of the country.

At present the most significant documents governing the energy sector are the Presidential Decree ’Concept of Energy Security’ (2007), covering the period up to 2020, and the Council of Ministers Regulation 1180 of 2010 approved Energy Potential Strategy Development of the Republic of Belarus. The above documents define the medium-term priorities of national energy sector development through the improvement of energy efficiency, wider use of domestic energy resources including RES, diversification of key energy resources supplies, improvement of pricing and tariff policy as well as related regulatory framework. It also covers the priorities of electricity and gas sectors development. According to the Energy Strategy, the implementation of the above measures up to the year 2020 will require about US$46 billion including funds of IFIs.

Projects of strategic interestA list of investment projects in the electricity sector is published on the web site of Belenergo (http://www.energo.by/inv/p53.htm). These projects are proposed to domestic and foreign investors. The projects include construction of new power plants and electrical lines and reconstruction of the existing power network.Practical difficulties exist in the implementation. For example, the German investment programme of € 350 mln with ENERTRAG for a wind-park is blocked by the government’s failure to approve matters such as site selection and financial issues including tariffs.

Determination of “Road Map” status Based on the ‘Investment planning’ indicator, the current status is ‘basic’.



1. Ministry of Energy of the Republic of Belarus web site (http://www.minenergo.gov.by/en/about/direction) 2. Belenergo web site (http://www.belenergo.by/) 3. Ministry of Foreign Affairs of the Republic of Belarus (http://www.mfa.gov.by/en/) 4. Minutes of the Meetings, project “Identification of the INOGATE project “Energy Market Convergence and enhanced Efficiency in the Field of Electricity and Gas”, August 2010 5. US Department of State. Moldova investment climate statement, 2009 6. Future Costs of Heat and Electricity in Belarus. International Network for Sustainable Energy Europe May 2009. 7. Invest Belarus (http://invest.belarus.by/en/) 8. The Official Internet Portal of the President of the Republic of Belarus (http://president.gov.by/en/press10663.html) 9. USAID, Belarus (http://belarus.usaid.gov/) 10. EBRD, Belarus (http://www.ebrd.com/pages/country/belarus.shtml) 11. The national complex program of updating the basic production assets of the Belarusian energy system, power savings and raising the share of domestic types of fuels used in the Republic for the period up to 2011 12. EBRD, Renewable Development Initiative, country profiles, http://www.ebrdrenewables.com/sites/renew/default.aspx 13. Energy sector in Belarus: Focus on wood and peat fuels, Yuri Gerasimov, Working Papers of the Finnish Forest Research Institute, 2010. 14. UNDP/GEF/ECE Project “Removing barriers to energy efficiency improvements in the state sector in Belarus”, Ina Yeliseyeva, 11 June 2010, 21st Session of the Steering Committee of the Energy Efficiency 21 Programme, Geneva. 15. Meeting of ITS experts with CC and local experts, 5-6 May 2011.

86 | INOGATE | Status Report 2011 | Country Profile Georgia


Market convergenceLegislative frameworkThe principal energy sector primary legislation in Georgia is the Law on Electricity & Natural Gas (1997), which incorporates some elements of energy regulation and market rules in line with EU principles. This law also stipulates the establishment and functioning of the Energy Regulator. The law has been amended many times over the past 3 years to include regulations and decrees improving the market rules in line with EU energy market principles such as a clear definition of responsibilities of the Regulatory Authority, introduction of wholesale electricity market and key principles of its operations, definition of third party access to electricity and gas networks and other provisions.

Secondary legislation comprises different statutory acts such as government resolutions, ministers’ orders, and Georgian National Energy and Water Supply Regulatory Commission (GNEWRC) resolutions. Recently notable examples include the methodology on electricity and natural gas tariff approval and setting (1998-1999 with amendments in the period 2002-2010), and supply and consumption rules which determine retail market and power supply conditions for consumers.

Significant changes were introduced recently (2006-2010) governing the organisation of the wholesale electricity market, contributing to more transparency and competitiveness. The electricity market is based on bilateral contracts at regulated prices, however small HPPs (less than 13 MW installed capacity) or newly built power plants can directly sell electricity to any retail customer at unregulated tariffs.

Any third party can enter the energy market (including consumers using a minimum of 8 GWh per year) if it meets the requirements laid down in the ‘Law on Electricity and Natural Gas’, and complies with state policy, and the relevant GNEWRC regulations.

Relations with the European Union in the Energy Sector • Regional Energy cooperation between Georgia and the EU takes place in the framework of the Baku Initiative, which provides for political dialogue between the EU and the countries of the littoral states of the Black & Caspian Seas and their neighbouring countries. • Georgia participates in the Eastern Partnership and its energy security platform. • Bilateral cooperation between the EU and Georgia takes place in the context of the European Neighbourhood Policy in line with the Partnership and Co-operation Agreement. This also covers energy cooperation. • EU-Georgia negotiations are under way on an Association Agreement, which will include energy issues. • Georgia has observer status under the Energy Community Treaty.

Establishment of TSO and DSOIn the electricity sector there are three TSOs: the Georgian State Electrosystem (GSE) is 100% state owned; Energotrans Ltd (GSE is the 100% owner of Energotrans, which itself owns 500/400 KV Black Sea Transmission Line. This line will connect Turkey to Georgian grid); and SACRUSENRGO, a 50/50 joint venture owned by the Georgian government and Russia’s Inter-RAO. SACRUSENRGO only operates the 500 kV line crossing the country from the north. Although all three TSOs provide a transmission service, only GSE has a dispatch license and is the body responsible for the dispatch (operating) service.

The three DSOs, Energo-Pro Georgia, Telasi and Kakheti Energy Distribution, are privatised and owned by Inter-RAO (Russia), Energo-pro (Czech Republic), and Akhema Group (Lithuania). All three provide power distribution, operation and supply services. In addition, small HPPs (under 13 MW) have the right to supply electricity to end users.In the gas sector the Georgian Oil and Gas Corporation (GOGC), a 100% state-owned corporation, deals with imports, while its subsidiary Georgian Transportation Corporation (GGTC) is in charge of high pressure transmission. GGTC is in effect a TSO. GGTC has a transportation license and provides transportation and operation services. However since its license does not allow supply services to customers, it is not a DSO.

GEORGIA COUNTRY PROFILE

Country Profile Georgia | Status Report 2011 | INOGATE | 87

There are many gas DSOs in Georgia, all of them are private. The biggest DSO is Kaztransgas (owned by the state and Kazakh investors), which is in charge of gas distribution in Tbilisi. The distribution license covers operation of the gas network and transportation through the distribution network, but does not include supply.

No license is needed to supply gas to customers in Georgia, and any interested party is allowed to do so. Thus, there are many private gas retail companies in Georgia operating on the market.

UnbundlingThe Law on Electricity & Natural Gas makes specific provision for unbundling of the energy industry. This includes article 3 of the law – “Promotion of efficient restructuring and privatization of state owned enterprises in the energy sector, also support of competition development in electricity and natural gas sectors, etc”, and article 5 governing “Licenses and licensing procedures”.

In the electricity sector all TSOs are legally unbundled. Their accounts are based on international accounting standards.

In the gas sector the transmission, distribution and supply businesses are also legally unbundled. Energy enterprises carrying out any other activities are obliged to have separate financial accounting for these activities.

Determination of “Road Map” status Based on the ‘Unbundling’ indicator, the current status for electricity and gas sectors is ‘advanced’.

Third party accessA transparent system of third party access to the distribution and transmission networks is in place in Georgia both for electricity and gas sectors.

As an example of the implementation of this system, in the electricity sector a big number of independent companies carry out generation activities. There are 46 power plants which are privately owned, with owners including Inter-RAO (Russia); Energo-pro (Czech Republic); EPC (China); and a range of German, Ukrainian and other foreign and Georgian companies.

Determination of “Road Map” status Based on the ‘Third Party Access’ indicator, the current status for electricity and gas sectors is ‘advanced’.

Independent energy regulatorsEstablishmentThe GNEWRC is responsible for energy regulatory functions. The legal basis for the Commission’s activities include the Georgian Constitution, International Treaties, the Law on Electricity and Natural Gas, Energy Policy, and the Charter of the Commission. When setting the tariffs, the GNEWRC has a right to consider relevant agreements concluded by the State.

Level of independenceThe GNEWRC is an entity defined under the Law of Georgia on “Independent Regulatory Bodies”. The law provides for the independence of the regulatory authorities in Georgia from any political power, government or other influence.The President appoints the Chairman and the Commissioners for a six-year term. The term can be extended once for 6 years.

The GNEWRC is financed through regulatory fees.

The GNERWC has a right to effect decisions, to follow-up issues and fine violators, and in case of default it can appoint a special manager for specified purposes.

Tariff policy/Role of regulatorsTariff setting policy/typesThere is a common principle governing the methodology for setting natural gas and electricity tariffs. In the electricity sector, tariffs for generation, dispatch, transmission, distribution and consumption are defined by regulatory resolutions (developed jointly by the GNEWRC and private stakeholders) on the basis of a published tariff methodology.


Generation tariffs differ depending on the size and ownership of the power plants as follows: • Tariff for all new constructed power plants (after august 2008) and for HPPs under 13 MW are deregulated. In general, an investor is free to choose the market and the price to sell the power generated at the new plant. Export of electricity is totally deregulated. No license is required to export the electricity and there is no tariff set. The investor needs just to find a buyer and conclude a direct power purchase agreement. • Generation tariffs for Enguri/Vardnili HPP, which is the largest HPP in Georgia, are regulated by GNEWRC • Tariff caps are defined for the rest of power plants, including gas fired power plants.

The tariffs for TSOs are regulated by the GNEWRC. The distribution tariffs are also approved by the GNEWRC based on proposals received from the distribution companies. The companies are entitled to submit a tariff application.The tariff methodology for end-users prices is based on the principle of full cost recovery for production and supply. Depending on the category of customer the tariff methodology provides for seasonal tariffs, peak load (day and night) tariffs, block tariffs (based on consumption volume), long-term pre-set tariffs and tariff caps.

Electricity service costs are recovered from each category of customer in proportion to the costs of serving that category.

In the gas sector, the methodology is based on the principle of recovery of justified costs for natural gas supply, transportation and distribution, taking into account the interests of financial stability and improvement of the investment environment. Tariffs should encourage effective use of operating assets according to actual load. Allowable costs of supply, transportation and distribution services include expenses related to gross revenue, taxes and profit. The GNEWRC allows licensees the opportunity to recover responsibly incurred costs related to their licensed activity.

Gas tariffs and tariff methodologies are approved by the GNEWRC. Tariffs for supply to the wholesale market and for consumers connected to the network after 2007 are deregulated.According to ERRA (Energy Regulators Regional Association), average prices in 2010, including taxes, for electricity and gas paid by households are: • Electricity: 0,07 €/kWh • Gas: 6,36 €/GJ

TransparencyThe pricing methodology is published on the official web page of the GNEWRC and also on the web pages of other related bodies. Price transparency is also reflected in the relevant tariff methodologies.

Determination of “Road Map” status Based on the ‘Independent energy regulators’ indicator, the current status is ‘developing’.

Technical rulesHarmonisation of standardsThe Georgian National Agency for Standards, Technical Regulations and Metrology (GEOSTM) has been established within the authority of the Ministry of Economy. In recent years the convergence of legislation with EU electricity and gas standards has been progressing, led by the Prime Minister’s office.

In the gas sector, the harmonisation process is on-going in cooperation with EASC (Euro-Asian Council for Standardisation) and the INOGATE programme. More than 100 EU gas standards have been translated into Russian, of which approximately 40 have been submitted for further consideration to key local energy sector stakeholders.

A number of the EU gas standards have been adapted using the “coverage translation” method (when a title of the standard is translated into the local language). GOST standards still exist but are being repealed. Although the GEOSTM has no formal information as to which technical standards are used in practice at present in Georgia, in general GOST standards are used for existing and rehabilitated energy infrastructure; while in new international projects (mainly oil and gas pipelines) international standards are applied.

In June 2010, the GEOSTM became an affiliate of CENELEC (European Committee for Electrotechnical Standardisation).


Georgia is a corresponding member of ISO (International Standards Organisation) and an active member of EASC. It is a member of COOMET (Euro-Asian Cooperation of National Metrological Institutions) and an affiliated member of CEN.


Integrated regional marketsIn the electricity sector Georgia is connected with Russia, Azerbaijan, Armenia and Turkey. Georgia has cross-border electricity trade with Azerbaijan and Russia (export and import operations) as well as Armenia and Turkey (export operations only). Cross border agreements are usually led by the relevant enterprises. The Electricity System Commercial Operator has the authority to trade electricity with neighbouring countries in order to balance the needs of the Georgian market. For technical issues the responsible body is the TSO (GSE). Regional agreements are made in the form of bilateral agreements and involve the signing of Memorandums of Understanding. The TSO ensures operations with the individual neighboring countries and signs relevant agreements on technical issues. Ongoing strategically important projects are the 500/400 kV connection with Turkey (estimated completion in 2012), the 500 kV connection with Azerbaijan and the 400 kV connection with Armenia.

In the gas sector Georgia is connected by pipeline to, Armenia, Azerbaijan, Russia and Turkey. Georgia imports natural gas from Azerbaijan and Russia. Cross border agreements are implemented by gas traders in Georgia such as SOCAR & ITERA. Georgia is focused on the development of several projects relating to the Southern Corridor. The new Azerbaijan-Georgia-Romania Interconnector project (AGRI), the Euro-Asian Oil Transportation Corridor project (EAOTC), and the White Stream Project (GUEU) are designed to provide Caspian resources to the European energy market. Regional cooperation is also based on bilateral and multilateral agreements.

Determination of “Road Map” status Based on the ‘Integrated energy markets’ indicator, the current status is ‘developing’.


MaintenanceIn the electricity sector an intensive improvement/maintenance programme was launched in 2010 by Georgian State Electrosystem (TSO) that fully repaired and refurbished 14 substations and 3 service centers. The supporting fleet of vehicles was also renewed. Specialists have undergone training that included study tours.

In the gas sector efforts are being made to increase capacity building for maintenance, surveillance and construction staff. The GOGC subsidiary Georgian Gas Transportation Company (GGTC) has advanced pipeline maintenance systems; GOGC also has a database of maintenance procedures and statistics about leakages that occur. There are also written reports of stitch-welding and emergency repair activities from the years 2001-2010 and documentation of emergency repairs performed in the last 10 years, including geographical location and amounts of gas lost through pipeline blowups. GOGC internal procedures advising staff how to identify, classify and repair leaks, including a summary of the required equipment, are available. Training programmes related to preventive maintenance are performed and are often supported by international donors.


Rehabilitation/Upgrading Long and medium term rehabilitation programsIn the electricity sector, the Georgian State Electrosystem (TSO) developed in 2008 a rehabilitation plan which sets out the strategic targets for the company for the next 15 years (up to 2023). JSC Telasi is seeking a loan of up to €25 million from the IFIs to finance their investment needs. Telasi is the electricity distribution and supply company that serves the Tbilisi region in Georgia. The main purpose of these investments is to improve the quality and reliability of supply and reduce losses in the distribution network.


In the gas sector, within the framework of the three-way agreement signed by the Ministry of Economic Development of Georgia, SOCAR, and GOGC, significant work has been carried out for the construction of new gas pipelines and rehabilitation of existing networks in various regions of Georgia. Over the last 2-3 years most internal network and distribution lines have been under rehabilitation, while new gas pipelines to various villages have been constructed or are under construction. However, no official medium or long term rehabilitation programmes have been published.

Status of outage and lossesIn the electricity sector, the level of factual losses in the electricity transmission network is not more than 2%. There are no commercial losses, while the collection rate, especially in the Tbilisi area is close to 100%. Most energy waste is the result of old and damaged systems. Outages and losses are reported to GNEWRC as part of the license obligations.

The level of technical losses in the gas sector is about 0.5% in the transmission network. Detection of losses is performed using GSM and also during regular field visits. Equipment for loss detection includes some advanced leak detection technologies and leakage metering equipment. Outages and loses are reported to GNEWRC as part of the license obligations.

According to the Ministry of Energy and Natural Resources there have been no outages in either the electricity or gas sectors as result of rehabilitation activities during recent years which have resulted in a substantial improvement in its reliability and sustainability.

Determination of “Road Map” status Based on the ‘Rehabilitation/Upgrading’ indicator, the current status is ‘developing’.

New energy infrastructuresIn the electricity sector, the ongoing project of regional importance is the 500/400 kV Georgia-Turkey connection, co-financed by the EU and the European Banks. Through the implementation of this project Georgia will export “Green Energy” not only to Turkey but potentially also to EU member states.

Georgia and Azerbaijan have been exchanging power on a seasonal and sometimes even on a regular basis. The construction of a 500-kV interconnection is planned, which would boost power transfer capacity substantially, including the possibility of electricity exports from Azerbaijan via Georgia to Turkey.

The construction of a 400 KV electricity transmission line between Georgia and Armenia is a significant ongoing project in terms of regional cooperation between the two countries.

In the gas sector, studies on construction of a gas underground storage facility near the village of Ninotsminda are underway. The Ninotsminda Gas Storage, with an estimated capacity of approximately 450 million cubic meters, will be able to meet Georgia’s strategic gas storage, seasonal balancing and operative gas management requirements.The new Azerbaijan-Georgia-Romania Interconnector project (AGRI) is also under consideration.


Metering and billing (electricity/gas)Metering systems at end-usersIn the electricity sector individual meters in line with international standards are installed for all consumers (commercial and households) in the cities. In rural areas there are still cases of communal meters serving more than one household.

In rural areas the DSOs Energo-Pro Georgia and Kakheti Distribution Company are carrying out re-metering projects and by 2013 this is due to be completed. The re-metering programme includes installation of individual meters in each household in line with EU standards. At present almost 90% of the country’s population has been re-metered.

In the gas sector, individual and domestic counters are usually installed outside apartments in order to allow inspectors from the DSOs to have access to them at any time. GOGC (Georgian Oil and Gas Corporation) has installed and implemented an advanced metering and monitoring system for the gas network.


Tariff collection systemsThe collection rate in the electricity sector is more than 95% in Georgia. Electricity bills can be paid at service centre payment points, dedicated bank branches and post offices.

Key issues in the gas sector include increasing the collection rate (about 85% currently), improving metering systems for natural gas, and reducing natural gas commercial losses.



Diversification of energy mix As a proportion of total primary energy supply, renewables corresponded to almost 34% in 2009 (source IEA). Hydro is the main renewable resource in Georgia and accounts for most of the electricity generated. Hydro resources are one of Georgia’s most important natural riches with 26,000 rivers on the territory of the country. Around 300 rivers are significant in terms of energy production, with a total annual potential capacity equivalent to 15000 MW and a production potential of 50 TWh. Hydroelectric power plants (HPPs) provide almost 87% of Georgia’s electricity with natural gas combustion generating the remaining 13% (source IEA). Georgia has been the principal electricity exporter in the region since 2007 delivering to all neighboring countries around the year.

The recently rehabilitated 1,300 MW Enguri large hydro facility is the backbone of the country’s electricity generation system. A number of medium and small hydro facilities totaling approximately 1,540 MW also provide domestic power, either on a regular basis or seasonally. In general the main objective for the long-term policy of the country has been to fully satisfy the country’s overall demand for electricity with domestic hydro resources. Besides tendering a number of new large HPPs, the Ministry of Energy and Natural Resources has sought foreign investments for the development of new small and medium HPPs. As a result of rehabilitation activities carried out on large HPPs, hydro generation of electricity has increased to 9.7 TWh in 2010. The Georgian government plans to facilitate further development of new renewable sources. There is a significant potential in Georgia to develop micro hydro power plants. With this in mind, under the “Electricity supply and consumption rules” GNEWRC has made it obligatory for distribution companies to ensure free access of micro power plants to the network. It has also established fixed tariffs for the purchase of electricity produced by micro power plants (“Electricity Supply and Consumption Rules”, GNEWRG Resolution #20, Article 25. 18/09/2008).

Policy framework A State Programme “Renewable Energy 2008” for construction of new renewables, particularly HPPs, has been in force since 2008. This programme regulates and supports the construction of new renewables projects of a total capacity of under 100 MW. The programme has improved the conditions for the development of new small and medium hydro plants, e.g. by offering purchase guarantees from the Government of Georgia at the request of the investor. In the case of such a request, an agreement should be signed between the government and the investor defining the conditions and price of guaranteed purchase of electricity from the newly-constructed power plant. To date the Government of Georgia has signed 15 MOUs on the construction, operation and ownership of HPPs with a total installed capacity of 2050 MW. Several IFIs have been active in the support of energy efficiency and renewables development. Donors have funded a variety of relevant activities including pilot projects, policy analysis, rehabilitation works, and training.

One of the main priorities of the Ministry of Energy of Georgia, according to the Resolution of the Parliament of Georgia (2006) on the “Main Directions of State Policy in the Power Sector of Georgia”, is to ensure efficient utilisation of the renewable energy resources and support energy efficiencies in the industrial and domestic spheres. It does this by creating a sound legislative basis and institutional framework for the improvement of energy efficiency in the country.

Neither document contains precise future National RES or EE targets.



EE/RES framework development There have been plans to draft a law on energy efficiency and a building code; however no relevant legislation has been passed during the last two years.

No further progress has been noted with respect to the drafting of renewables legislation, although this field is well regulated under different existing laws, resolutions and statutory acts. Further, the Ministry presently plans to start on the elaboration of a new renewable energy law under the ENP Action Plan for 2011.


EE/RES Action Plan and Measures With regards to renewables (other than large hydro) the country has significant small hydro, wind, solar and biomass potential. Estimates of renewable energy resource potential have been made by various entities.

Currently loans are provided by TBC bank and Bank of Georgia to physical persons for implementing energy efficiency measures. BP also provides 15% subsidy upon proof of investment in energy efficiency measures. With a US$35 EBRD credit line the Georgian Energy Efficiency Project (GEEP) is helping industrial and residential clients reduce their energy intensity and make greater use of renewable energy sources. It has also performed a number of seminars and trainings in the area of energy efficiency.


Creation of energy agencies There is no governmental entity with a mandate to follow up implementation of energy efficiency and renewable policies.

The Energy Efficiency Centre is an NGO, which deals with energy efficiency and renewables, and is the key partner responsible for providing reliable energy statistics for Georgia to the International Energy Agency. There is also a Sustainable Development and Policy Center (SDAP), a nongovernmental organisation involved in energy efficiency and energy audit and training.


Environmental assessments/energy auditingThere has been no development of the environmental impact assessment regulatory framework in the last two years. With respect to energy auditing, despite many capacity-building initiatives implemented through donor funded projects, there are no legal requirements for energy audits, formal standards or certification procedures established until now. The NATELI (New Applied Technology Efficiency and Lighting Initiative) programme implemented in 2010 was dedicated to promoting renewable energy and energy efficiency technologies in Georgia. NATELI completed energy audits for major hospitals and residential buildings and also developed an energy audit manual, accompanied by appropriate training. It is planned to implement a number of projects within the framework of the Sustainable Energy Action Plan of the City of Tbilisi, prepared under the “Covenant of Mayors” initiative.

Environmental standardsA second National Environmental Action Plan and strategy setting out the priorities for 2009-2013 has been prepared. Furthermore, a draft convergence plan on water has been elaborated.

A revised environment protection code was adopted in 2012, comprising a set of new framework laws on key environmental sectors, and some of the modifications are not in line with the EU environmental acquis. Nevertheless, as the revision of the above code happened after the cut-off date of the Status Report, it has not been taken into account in the assessment.

Determination of “Road Map” status Based on the ‘Environmental assessments and Environmental standards’ indicator, the current status is “basic”.


Kyoto Protocol mechanisms Since 2003, the Ministry of Environment Protection and Natural Resources of Georgia has been the Designated National Authority (DNA) for Kyoto Protocol purposes. As of December 2010, two CDM projects have been registered (a landfill gas and a gas leaks reduction project) within the mechanism and five more (four HPPs and one gas leak reduction) are at the validation stage. During 2009 the Second National Communication to the UN Framework Convention on Climate Change was prepared. To date, Georgia has had 53,138 CERs (Certified Emission Reduction credits) issued.

Gas flaring reductionThis section is not applicable for Georgia.

Determination of “Road Map” status Based on the ‘Kyoto Protocol mechanisms/Gas flaring reduction’ indicator, the current status is ‘advanced’.


Investment framework Legal - regulatory framework developmentThe cornerstone of the legislative framework is the Law on Investment Promotion and Guarantees (1996). Promoting investment is considered to be a primary goal of the state economic policy. Georgian legislation provides for the protection of investors and their assets through domestic regulations, as well as through a number of Bilateral Investment Treaties and international agreements with partner countries and organisations.

Georgia has one of the most liberal labor codes in the World. According to the Heritage Foundation, Georgia’s ranking on the Labor Freedom Index was 99.9.

Stability, transparency and adequacyThe legal framework has been strengthened with a new Law on Public Procurement (2006) and the Law on Conflict of Interest and Corruption (2007). Accountability mechanisms, such as the Chamber of Control and the Ombudsman, also help promote transparency and integrity in public service.

Georgia acceded to the UN Convention against Corruption on 4 November 2008, but is not yet a signatory. It has not signed the OECD Anti-Bribery convention.Georgia is scored at 3,8 in the 2010 table of the Corruption Perceptions Index prepared by Transparency International.

PrivatisationIn 1998 the process of privatisation in Georgia entered a new stage. A new amendment of the 1999 law introduced auctions without floor prices, which greatly simplified the privatisation process. At the same time, the Government developed a new privatisation strategy, which focused on large-scale enterprises and included nearly all infrastructure companies. The strategy and mechanisms of the privatisation process are governed by the Law on Privatization of State Property (adopted on 30 May 1997). The Ministry of Economic Development is the privatisation authority responsible for privatisation and management of state property.

Institutional reformsGeorgia has undertaken a number of profound institutional reforms aimed at modernising the economy and improving business climate. After the Law on Issuance of Licenses and Permits (2005) was introduced the number of activities subject to licensing was reduced from 909 to 159. A one-stop shop was created for license applications, so that now businesses can submit all documents there, with no verification by other agencies required. With unemployment around 15% and many unofficial jobs?, Georgia undertook a far-reaching reform of labor regulation. The new labor code was adopted on 25 May 2006. This law eases restrictions on the duration of term contracts and the number of overtime hours and discards the premium required for overtime work.

Determination of “Road Map” status Based on the ‘Investment framework’ indicator, the current status is ‘developing’.


Investment climate TaxationTo enhance Georgia’s investment & business climate, the Government has dramatically overhauled its tax system since 2004. By implementing a liberal reform agenda, Georgia has simplified its processes and has reduced the number of taxes from 21 in 2004 to only 6 today. The Government of Georgia adopted a new tax code in 2010 simplifying the taxation system. Internationally accepted methods and practices are in place and Double Tax Agreements are fully in line with OECD standards.

For investors interested in locating their industrial operations to Georgia, there are three tax-free regimes available (Free Industrial Zones, Free Warehouse Enterprise, International Finance Company). Georgia has seen a drastic fall in perceived corruption of tax officials.

Financial and banking systemsThe banking sector remains relatively stable, though it was challenged by the 2008 conflict and global financial crisis. The sector is open to foreign banks, and several are operating in Georgia, including ProCredit Bank, HSBC, and Bank Republic (Société Générale Group). International financial institutions and international banking institutions own equity shares in several of Georgia’s banks. Interest on commercial loans remains high, but has started to drop as competition for credit-worthy customers has increased. The economy continues to be credit-challenged, as the price of loans remains high and borrower eligibility requirements remain strict.

Disputes settlementAccording to the law on promotion and guarantees of investment related activities, any dispute arising out of, or in connection with investment activity between the Government of Georgia and a foreign investor shall be resolved by the courts of Georgia, unless otherwise agreed between the parties. However, the most commonly favoured tribunal is the International Centre of Settlement of Investment Disputes, the decisions of which are final and binding on the parties and are easily enforceable through the 1958 New York Convention on Recognition and Enforcement of Foreign Arbitral Awards, which Georgia joined on 2 June 1994.


Investment planning Development of investment strategy and planningThe investment strategy of the Georgian Government has focused on the construction of new gas routes and also realisation of energy production infrastructure from renewables. For new investments in the renewables sector the Government of Georgia provides the following incentives:

• All new constructions are totally deregulated and there is no tariff cap set for them; • A license for power production activity can be obtained “on the one stop shop principle”; • Investors are free to choose the market and the price at which they want to sell the power generated at the new plant; • Profitability of the projects can be even more increased through selling of carbon credits; • HPPs of up to 13 MW have the exceptional right to sell electricity to any retail customers; • Export of electricity is totally deregulated; • No license is required for exporting electricity and there is no tariff set; • Investors only need to find a buyer and conclude direct purchase power agreements (PPA); • Guaranteed purchase of electricity for three winter months can be also offered; • Free third-party access is provided to the grid;

Currently 51 HPPs (each up to 100 MW) are offered to potential investors by the Government of Georgia.

Projects of strategic interestIn the electricity sector regional projects of strategic interest are those that are already being implemented or considered, such as the 500 kV/400kV connection line to Turkey and the 400 KV Electricity Transmission Line project between Georgia and Armenia.


In addition, the Black Sea Energy Transmission System project is underway to provide a link between the power supply systems of the countries of the Southern Caucasus and Turkey and Europe. It will stabilise the domestic power supply systems, reduce transmission losses and make the region independent from single supply sources. The project has received an €8 mln NIF (Neighbourhood Investment Facility) grant from IFIs for a total project cost of ca. €220 mln.

Gas sector projects of strategic interest for Georgia include the new Azerbaijan-Georgia-Romania Interconnector project (AGRI), and the construction of the underground gas storage in Ninotsminda.


List of sources of information:

1. Ministry of Energy and Natural Resources of Georgia, http://www.menr.gov.ge/?lang=eng 2. Georgian Oil and Gas Corporation, www.gogc.ge/?lang=eng 3. “Georgian State Electrosystem”, http://www.gse.com.ge 4. TELASI www.telasi.ge/eng 5. Energo-Pro Georgia, www.energo-pro.ge 6. Georgian National Energy and Water Regulatory Commission, www.gnerc.org 7. Georgian National Agency for Standards, Technical Regulations and Metrology, www.gnims.caucasus.net 8. Minutes of the Meetings, project: Identification of the INOGATE project “Energy Market Convergence and enhanced Efficiency in the Field of Electricity and Gas”. August 2010 9. US department of State. Georgia investment climate statement, 2008, http://www.state.gov/e/eeb/ifd/2008/100871.htm 10. USAID, Georgia, http://www.usaid.gov/locations/asia/countries/georgia/ 11. EBRD, Georgia, http://www.ebrd.com/pages/country/georgia.shtml 12. Renewable Energies in Central Asia Regional Report on Potentials and Markets – 8 Country Analyses Energy-policy Framework Papers, Section »Energy and Transport, GTZ, 2009 13. Commission staff working document accompanying the Communication from the Commission to the European Parliament and the Council Taking stock of the European Neighbourhood Policy (ENP) Implementation of the European Neighbourhood Policy in 2009 Progress Report Georgia, Brussels, 12/5/2010

96 | INOGATE | Status Report 2011 | Country Profile Kazakhstan

ΚAZAKHSTAN COUNTRY PROFILE


Market convergenceLegislative frameworkThe primary energy legislation of the Republic of Kazakhstan comprises the Presidential Decree On Energy of December 1995 establishing the current structure of the electricity market and the May 1996 Programme of Privatisation and Restructuring of the Power Sector approved by the Government of Kazakhstan’s Resolution #663. The primary legislation also comprises the Law On Electricity, which came into effect in January 2009 which includes elements of EU energy market principles such as a clear definition of responsibilities of the Regulatory Authority, introduction of electricity markets (wholesale and retail markets) and key principles of their operations, the principle of consumer’s right to choose the electricity supplier and the principle of stated non interference into activities of generation, transmission and distribution.

KazTransGas developed a concept for a Law on Gas and Gas Supply in 2009, and the Prime Minister issued an order on 11 02 2010, registered N 17-24/601, to form a working group on this topic. It is foreseen that the law will regulate issues relating to the natural gas and LPG supply chains (i.e. from the wellhead to the burner tip), including design, construction and operational issues. The Law on Gas and Gas Supply was approved by the Majilis (lower-chamber of the Parliament) and is currently under consideration of the Senate (upper-Chamber of the Parliament).

The Law on Gas and Gas Supply has been developed to reflect international and EU practices. It meets specific national objectives to expand gasification in Kazakhstan and attract investment for the develoment of gas infrastructure.

Secondary legislation includes the Concept of Further Development of Market Relations in the Power Sector (2004), Rules of Organising and Operation of the Wholesale Power Market of the Republic of Kazakhstan (2004), the Rules for Providing Services by the System Operator and the Organization and Functioning of the Ancillary Services Market (2004), and the Rules for the Organisation and Functions of the Centralized Trading of Electric Energy in the Republic of Kazakhstan.

Relations with the European Union in the Energy Sector • An EU-Kazakhstan Memorandum of Understanding was signed on Cooperation in the field of Energy in 2006. • Bilateral cooperation with Kazakhstan is outlined in the Partnership and Cooperation Agreement with the EU, which includes energy cooperation. • Negotiations on a new enhanced Partnership and Co-operation Agreement with the EU were launched in June 2011; the first round of negotiations was held in October 2011. • Regional energy cooperation between Kazakhstan and the EU takes place in the framework of the Baku Initiative, which provides for political dialogue between the EU and the countries of the littoral states of the Black and Caspian Seas and their neighbouring countries.

Establishment of TSO and DSOIn the electricity sector, the national state-owned electric grid company JSC KEGOC is the TSO. There are 21 Regional Distribution Companies (REK) which play the role of DSOs. KEGOC operates nearly all high-voltage lines (over 150 kV). Under the law, these interregional lines cannot be privatised. Certain 220 kV lines may be operated by private undertakings, many of which represent connections to large (industrial) customers. The regional DSOs run lines of 110kV/35kV for local distribution.

In the gas sector, KazTransGas (an affiliate of the fully state-owned enterprise KazMunaiGaz) operates as TSO through its subsidiary Intergas Central Asia, which is in charge of transmission pipelines. Of Kazakhstan’s 14 regions, 9 are connected to the gas network. KazTransGas Aima (a subsidiary of KazTransGas) is the DSO in six regions of these regions. In the remaining gasified regions, a number of companies act as DSOs; in some regions, more than one company may act as DSO. Of these companies, some are private; some are state-owned.

Country Profile Kazakhstan | Status Report 2011 | INOGATE | 97

UnbundlingThe electricity sector was legally unbundled during 1995-1996.

In the gas sector KazTransGas is a vertically integrated TSO/DSO holding company. The gas TSO and gas DSO are independent legal entities with their own financial and accounting systems, and are operationally independent, therefore legal unbundling of the gas industry is in place.

Determination of “Road Map” status Based on the ‘Unbundling’ indicator, the current status for electricity sector and gas sectors is ‘advanced’.

Third party accessIn the electricity sector third party access to the transmission and distribution network is allowed, as long as requirements for safety and security are met.

Companies that want to carry out generation or distribution activities in Kazakhstan are required to get a specific license from the relevant ministry (generation), or from the Agency of the Republic of Kazakhstan on Regulation of Natural Monopolies (distribution). The Law on Licensing states that use of operating assets requires a license, whilst dealing with products does not; thus generation and transmission/distribution activities require licensing, whilst retail has no licensing requirements.

In the gas sector, access to the gas transportation system is also allowed. Limitations are imposed only in case of breach of contract obligations, when gas does not meet the required specifications, or in case of lack of free capacity and/or respective agreements on natural gas supply.

Determination of “Road Map” status Based on the ‘Third Party Access’ indicator, the current status for electricity sector is ‘advanced’ and for gas sector is ‘developing’.

Independent energy regulatorsEstablishmentThe Agency of the Republic of Kazakhstan on Regulation of Natural Monopolies (ANMR) acts as regulator. The ANMR is responsible for tariff setting and protection of competition among all natural monopolies. The Board of the ANMR is appointed by the Prime Minister, and the Agency is financed from the state budget.

Level of independenceAlthough the ANMR is a state body, its decisions are not contested by the government. Appeals against decisions of the ANMR may be made through the civil courts.

Tariff policy/Role of regulatorsTariff setting policy/typesThe ANMR regulates tariffs of monopolies, in particular, the tariff for transmission and distribution networks.

In the electricity sector, prices for electricity are determined by the market. According to the Law On Electricity, the electricity market consists of the wholesale and the retail markets. The wholesale market comprises the following segments: • Decentralised bilateral contracts (about 96% of power in the wholesale market in 2011); • Centrally managed electricity market of short, medium and long-term transactions (about 4% of power in the wholesale market); • Balancing real-time market (still operating in test mode). End user tariffs are defined by the regulator (ANMR) according to the following categories: • Household Consumers: there are three types of tariffs:(i) average tariff reflecting all costs and margin of DSO for each region of the country; (ii) tariff based on the electricity consumption volume of the customer and (iii) double-rate differentiated tariff (for night and day). Depending on the type of electricity meter installed the household consumers can select the tariff model up to their choice. • Industrial Consumer: only one tariff is applied which is based on a double-rate differentiated tariff (for night and day).

In the gas sector, tariffs for domestic gas supply are set by ANMR, under the Law On Natural Monopolies and the relevant normative legislative acts on natural monopolies. The new Law on Gas will confirm this responsibility.


Gas tariffs are calculated taking into account the delivered gas price, transmission, distribution and network losses costs. Tariffs differ for the various customer categories. Gas prices are regulated only for major suppliers, which in fact, according to the law On Gas (in force since 29 January 2012), have preferential rights to buy natural gas from gas production companies in order to cover the domestic supply. This regulated price includes all production and transmission costs, plus an additional 10% margin.

Average prices in 2010, including taxes, for electricity and gas paid by households are: • Electricity: 0,04 €/kWh • Gas: 1,29 €/GJ

TransparencyThe methodology for tariff calculation is published on the ANMR’s website. There is a legal requirement for tariffs to be discussed publicly by the ANMR, (including in the mass media); tariff decisions are preceded by consultations with industry, NGOs, and other relevant stakeholders. The ANMR is obliged to take account of these consultations, to answer comments and to provide a full rationale for its final decisions before these decisions can be registered as in force.


Technical rulesHarmonisation of standardsThe Law on Technical Regulation of the Republic of Kazakhstan constitutes the legislative framework for the adoption of international standards.

The Republic of Kazakhstan is an ISO Member and a Member of the Eurasian Standardisation Council (EASC), but not an affiliate of CEN/CENELEC.

There is no special technical committee for standardisation in electricity sector mirroring the CENELEC Technical Committee as the platform for standards implementation.

Kazakhstan as an ISO member operates ISO TC 67 materials, equipment and offshore structures for petroleum, petrochemical and natural gas industries. The National TC 49 based on the Kazakh Institute of Oil and Gas (KING) also deals with gas standards. Kazakhstan is also an active member of EASC (Euroasian Council for Standardisation).

The principal stakeholders involved in the standardisation process are the Ministry of Oil and Gas, the Kazakh Institute for Standardization (KAZINST), and KING.

National gas and electricity Codes of Practice are within the competence of the State Agency for Construction.During 2010 standards were adopted for oil products, including: safety requirements for gasoline, diesel and fuel oil (approved by the Government of the Republic of Kazakhstan dated 1 March 2010 No. 153); safety requirements for lubricants and specialty fluids for motor vehicles (approved by the Government of the Republic of Kazakhstan dated 12 June 2010, No. 563); safety requirements for additives to gasoline (approved by the Government of the Republic of Kazakhstan dated 23 June 2010, No. 634). Intergas Central Asia has introduced a part of the PIMS standard, the remainder is to follow.


Integrated regional marketsIn the electricity sector, the establishment of the company AO KOREM (Kazakhstan Operator of the Electricity Market) offers potential for regional market development in Central Asia. KOREM was established in April 2000 as a 100% state owned entity with the purpose of administering the day-ahead market, developing preliminary dispatch schedules and implementing actual supply/demand balances. KOREM successfully implements a centralized electric energy trading system using modern information technologies, including the internet.

The electricity grid of Kazakhstan is interconnected with the Russian Electricity Grid and with the Central Asia Interconnected Power Grid (Kazakhstan, Uzbekistan and Kyrgyzstan). Kazakhstan has cross-border electricity trade with Russia (export and import) and Kyrgyzstan (import operations only).


The majority of cross border electricity trading in Central Asia is conducted in accordance with inter-governmental agreements on electricity. These agreements serve as framework agreements from which bilateral agreements for the sale/purchase of electricity are negotiated. In the past, the energy supplies under these agreements were bartered against delivery of fossil fuel. During the last couple of years this practice has been largely abolished and the parties have adopted a strictly monetary method of payments.

In the gas sector, Kazakhstan imports natural gas from Uzbekistan for industrial and household consumers in the South-Kazakhstan oblast and from Turkmenistan for consumers in the Mangystau oblast during repairs of the transmission Okarem-Beyneu gas pipeline on a periodic basis. Kazakhstan exports its own natural gas only to Russia. The country provides transportation of natural gas from Turkmenistan and Uzbekistan to China through the Kazakh section of the Turkmenistan-China transportation gas pipeline. The establishment of cooperation with China is an important step that will diversify Kazakhstan’s transit potential.



MaintenanceIn the electricity sector, under the Law On Electricity, KEGOC is obliged to ensure maintenance and operational availability of the electric network. Although there is no comprehensive maintenance strategy in place, the TSO (KEGOC) implements a centralised maintenance programme to fulfil its wholesale contracts. The TSO (KEGOC) and the DSOs have annual maintenance programmes. These programmes are fully financed by the electricity companies with an implementation rate in the range of 98-100%. The technical level of staff for implementation of maintenance programmes is adequate. Companies are equipped with all necessary means for maintenance and carry out regular trainings of their staff.

The state agency Gosenergonadzor carries out infrastructure inspections, and can report insufficient maintenance to the Ministry of Industry and New Technology.

In the gas sector, the maintenance strategy is the responsibility of the gas companies operating the assets concerned. Regional divisions of the Ministry of Emergency Situations may also be involved in gas pipeline maintenance.

All gas companies (TSO and DSOs) have medium-term maintenance programmes. The allocation of funds and practical implementation of maintenance programmes is close to 100%. The technical level of staff to implement the maintenance programmes is adequate. Companies are equipped with all necessary means for maintenance; however the budgets for regular training programmes of maintenance staff are not sufficient and further developments in this area are necessary.

Both electricity and gas companies report on an annual basis to the relevant ministries regarding maintenance work undertaken.


Rehabilitation/Upgrading Long and medium term rehabilitation programsIn the electricity sector, Kazakhstan’s power industry needs considerable rehabilitation and upgrading to improve the efficiency of energy production and use. The on-going programme for Modernisation of the National Electric Grid of Kazakhstan aims to upgrade the power substations of the national grid, and ensure efficiency and security of its operations. The project will result in installation of modern high-voltage equipment, automation and relay protection facilities, a dispatch control system, monitoring and data processing (SCADA) and energy management systems (EMS), automated electricity metering system and a digital corporate telecommunication network. This project is now in its second phase (2010-2016). The main purpose of this phase of the projects is further upgrade power substations and relevant infrastructure of the national grid. It will also complete the switching to automatic systems.

The first phase, which was already completed, covered the period 2000-2009 and was financed by IFIs (US$ 185 mln)


and KEGOC (134 mln). The second (on-going) phase covers the period 2010-2014 and is financed by IFIs (€ 255 mln).In the gas sector, KazTransGas group (TSO) is now in the process of evaluating options to identify optimal arrangements to finance the urgent rehabilitation and reconstruction of the gas transmission networks. At the same time, the TSO wants to avoid any negative impacts that the implementation of these projects may have on the level of gas prices in the region.

The on-going governmental programme for the Rehabilitation of Regional Gas Distribution System in Southern Kazakhstan provides for the rehabilitation, reconstruction and technical upgrading of the gas distribution system in the town of Shymkent by replacing the steel pipes with modern polyethylene, and improving the gas supply scheme (to be completed by 2013).

There are other on-going projects, including: (i) the rehabilitation of the Makat Compressor Station (project for rehabilitation of Compressor Shop #4 including installation of 7 new gas turbines) which is currently in the initial stage of its implementation; (ii) the large-scale rehabilitation project of Central Asia – Center (5 transmission gas pipeline including Compressor Stations), which is presently under consideration; and (iii) the rehabilitation of UGS Bozoy which also under consideration.

Status of outage and lossesIn the electricity sector, total electricity losses in 2009 in the KEGOC’s transmission network were 5.38% (including electricity delivered to end users, electricity exported, cross-border transit and exchange flows). Transmisson losses excluding cross-border transit flow were 6.94%. Losses and outages are reported to the ANMR by the TSO and the DSOs. In 2010 there were 24 cases of electricity outages for industrial and household consumers. For the first eight months of 2011 the number of reported outages was 8.

In the gas sector, grid losses are significantly above the standard levels. The maximum acceptable level of losses which must not be exceeded (penalties would apply in such a case) are stipulated by ANMR. For many grid companies in the South Kazakhstan region the so-called gas use for internal needs and losses were as high as 30% in some compressors. Zhambyl region has registered several incidents of release of gas into the atmosphere due to the extremely poor condition of pipelines. Losses and outages are reported by KazTransGas to the ANMR.

In 2010 there was a partial outage of natural gas in Aktau city, due to an unexpected interruption of the natural gas supply from Turkmenistan at the same time as the repair of another transportation gas pipeline.


New energy infrastructuresIn the electricity sector, the government is planning to undertake a large-scale modernisation of existing electricity facilities and to construct new ones during 2015-2030, in accordance with the Action Plan for Development of Electric Power Industry of the Republic of Kazakhstan for 2007-2015, now superseded by the programme for 2010-14 which includes projects foreseen for later dates. The plan lists all the facilities that need to be constructed, renovated, or expanded until 2015, and outlines the measures to implement the plan.

In the gas sector, KazTransGas is planning to reconstruct its Poltoratskoye and Akyrtobe interconnected underground gas storage facilities. These facilities represent two of Kazakhstan’s three underground gas storage facilities, and are therefore crucial to guarantee the country’s ability to balance its seasonally variable gas demand with supply. Both facilities were built 15-20 years ago, and their major systems, such as gas compression, dehydration, and control automation need to be upgraded or replaced. These projects are on-going and should be completed in 2013/14. Kazakhstan started the construction of a new domestic Beyneu-Akbulak pipeline (West KAZ – South East KAZ) in July 2011, which will be linked to the Central Asia Gas Pipeline from Turkmenistan to China. Construction is expected to be completed by 2013.

Information on the strategic stocks of hydrocarbon resources is confidential. However there are legislative normative acts on this issue.



Metering and billing (electricity/gas)Metering systems at end-usersIn the electricity sector, all electricity consumers in Kazakhstan have installed electricity meters. Sixty percent of industrial consumers have electronic meters installed, while the remaining forty percent have old induction-type meters. These figures are inversed for household consumers where forty percent of them have electronic meters installed while sixty percent still have induction-type meters. The modernisation of the metering system is on-going. An automated electricity metering system is being installed as part of a larger US$798.4 mln project Modernisation of the National Electric Grid of Kazakhstan, partly financed by IFIs loans. In addition KEGOC (TSO) plans to refurbish transmission substations, including replacement of high voltage equipment at 27 substations, and to reinforce the remote system of metering.

The cross-border electricity infrastructure is fully equipped with modern electronic-type meters.

In the gas sector, less than 10% of Kazakhstan’s cities, towns and villages are connected to the gas pipeline network. Electricity and coal are used for heating, while gas is only used for cooking which makes gas metering difficult as meters are not very accurate when used for small volumes. The market for gas meters is however growing as the gas pipeline network expands. In the city of Shymkent, a first demonstration installation of gas meters has been made for 15,000 homes.

As of today about 70% of household and 100% of industrial consumers have gas meters installed.

The cross-border natural gas infrastructure is fully equipped with natural gas meters.

Tariff collection systemsIn cities and towns collection rates are close to 100%; there are tariff collection problems only in less densely-populated areas. In 2010 the overall collection rate of the National Electricity Grid Operator was 98,05%.



Diversification of energy mix Renewables currently play only a negligible role in the overall energy balance of Kazakhstan, despite the vast potential available in the country. According to IEA, in 2009, hydro and other renewables accounted for about 1,1% of total primary energy supply. Hydro power production makes up most of this percentage. The total share of electricity produced by renewable energy sources (mainly hydro) was about 9% in 2009 (source IEA). The Ministry of Industry and New Technologies is in charge of renewable energy and energy efficiency policy. The Ministry of Environmental Protection has responsibility for developing and implementing state policies for environmental protection and sustainable development.

Policy framework There is a general government strategy for the period from 2007 to 2024 to support sustainable economic development in general, which includes power generation from renewables and in process of wastes utilisation. A key initiative is the Programme of Wind Power Development by 2030 adopted by the government, which defines wind power development as one of the priority directions.

The Ministry of Environment has set a 4% target of the primary energy consumption by 2020.


EE/RES framework development The following legislation has recently been adopted: • The Law on Supporting the Use of Renewable Sources of Energy, which came into force on the 4th of July 2009, is currently being amended. The law provides for feed-in tariffs and renewables certificates to encourage renewable investment. However, secondary legislation to implement the above legislative provision will need to be developed.


• A draft Energy Efficiency Law was approved by Government Decree on 29 June 2009 but the final law has not yet been adopted, though official entry into force was due by the end of 2010. Following its adoption secondary legislation will need to be developed, such as energy efficiency norms and standards, a procedure for defining classes of energy efficiency, guidelines on conducting energy audits, specifications for auditing controlling bodies, etc. • A new draft Law On Energy Saving and Improvement of Energy Efficiency has been agreed with government and civil society stakeholders. It was approved by the Majilis (lower-chamber of the Parliament) and is currently under consideration of the Senate (upper-Chamber of the Parliament). Secondary legislation to enable the practical implementation of this law after adoption has also been prepared. This includes terms of reference for an action plan on energy efficiency. According to this draft law the target is to reduce GDP energy intensity by 25% by the year 2020.


EE/RES Action Plan and Measures Potential for renewables in the country has been assessed for most renewable energy sources including hydro, wind and solar.

On 29 November 2011, the Government of Kazakhstan approved a comprehensive Plan for Energy Efficiency 2011-2015, providing for a 10% reduction of the country’s energy consumption ratio by 2015 as compared to 2008.

Two large-scale EE projects are already on-going: 1) Energy Efficient Design and Construction of Residential Buildings: This has an overall budget of US$ 32,5 mln and the implementation period is 2010-2015. The project is co-financed by international donors (US$ 4.56 mln in total). Partners from the Kazakh side are the Agency for Construction and Communal Services, the Ministry of Environment, the Ministry of Industry and New Technologies and municipal authorities. 2) Improvement of EE of Municipal District Heating Systems: This has an overall budget US$ 7.8 mln and the implementation period is 2007-2013. The project is co-financed by international donors (US$ 3.29 mln), government (US$ 1.5 mln), private sector and other sources (US$ 3 mln). The main coordinator is the Agency for Construction and Communal Services.

Determination of “Road Map” status Based on the ‘EE/RES Action Plan and Measures’ indicator, the current status is ‘developing’.

Creation of energy agencies To date, the Council for Sustainable Development has been the advisory body within the Government assisting in formulation of the state policy for sustainable development, including sustainable energy.

The two recent laws on renewables and energy savings established a department responsible for energy saving and renewables within the Ministry of Industry and New Technologies. The department has two separate divisions: the Division of Energy Efficiency and Energy Saving, and the Division of Renewables. Additional regulations to govern the legal status, functions and missions of this department are still pending. There has been some discussion as to the possible merging of the two divisions.


Environmental assessments/energy auditingThe Division of Energy Efficiency and Energy Saving (established within the Ministry of Industry and New Technologies) is required to adopt, within two years following its establishment, a State Energy Saving Register and an energy auditing programme. This department is also expected to create and run a national programme for certification and training of energy auditors including the creation of competent training centers.


Environmental standardsMore than twenty international environmental treaties have been ratified. Based on these, a national environmental regulatory framework has been developed, which includes a package of national laws, presidential decrees and resolutions of the government, the responsible ministries, local agencies and executive bodies. However, there are no standards either on energy efficiency in industry, or on energy performance of buildings.


Kyoto Protocol mechanisms In June 2009 Kazakhstan ratified the Kyoto Protocol, as one of the last countries to do so. It entered into force in September 2009. Kazakhstan is a non-Annex I country under the Kyoto Protocol, although it has declared its intention to become an Annex I country. No Clean Development Mechanism (CDM) projects have been validated to date.

Gas flaring reductionThe country has set an ambitious target to eliminate gas flaring by 2012. New anti-flaring legislation was passed in June 2010, specifying that gas that would normally be flared should be used as raw material for the production of petrochemicals, and that licenses for oil production will be issued only to companies that agree to capture and use by-product gas. Over the past 5 years oil companies have already made efforts and the volume of gas flared has been reduced by almost half in the period 2005 - 2009.

Kazakhstan participates in the World Bank Global Gas Flaring Reduction Initiative.

Determination of “Road Map” status Based on the ‘Kyoto Protocol mechanisms’ indicator, the current status is ‘basic’; while for the ‘Gas flaring reduction’ indicator, the current status is ‘developing’.


Investment framework Legal - regulatory framework development

Four major acts of legislation affect foreign investment in Kazakhstan. These are: 1) the 2003 Law On Investment; 2) the 2003 Customs Code and the Customs Union Code approved in 2010; 3) the 2007 Law On Government Procurement, with 2008 amendments; and 4) the 2008 Tax Code. These four laws provide for non-expropriation, currency convertibility, guarantees of legal stability, transparent government procurement and incentives in certain priority sectors. However, inconsistent implementation of these laws and regulations at all levels of the state remains a significant obstacle to business in Kazakhstan.

No legislation or rules are in place covering international investment in electricity or gas transmission. The fiscal system provides certain incentives only for domestic investment in new infrastructure.

Stability, transparency and adequacyTransparency in the application of laws remains a major problem in Kazakhstan and an obstacle to expanded trade and investment. The 2003 Investment Law holds that contracts signed subsequent to its enactment may be subject to domestic legislative amendments and international treaty provisions that change “the procedure and conditions of the import, manufacture, and sale of goods subject to excise duties”. Regional authorities can create additional bureaucratic encumbrances, especially in the licensing and issuance of permits.

Kazakhstan acceded to the UN Convention against Corruption on 18 June 2008 but is not yet a signatory. It has not signed the OECD Anti-Bribery convention.

Kazakhstan has a score of 2,7 in the 2009 table of the Corruption Perceptions Index prepared by Transparency International.

On 14 December 2010, the Extractive Industries Transparency Initiative (EITI) Board designated Kazakhstan as an EITI Candidate country that is “Close to Compliant”. Kazakhstan was granted six months (until 12 June 2011) to complete the remedial actions needed to achieve compliance; however the deadline was not met. The EITI accession process has significantly slowed down over the last year.


PrivatisationThe State Committee on State Property and Privatization under the Ministry of Finance is the competent authority for privatisation in Kazakhstan. The privatisation process is governed by a presidential decree (having power of law) on privatisation signed in December 1995, the Programme of Privatisation and Management of State Property adopted in June 1999, and a number of government decrees and resolutions on the Blue Chips Privatisation Programme.

Although by 2001 Kazakhstan had privatised thousands of enterprises, several large important enterprises are still owned by the state. These large and very large enterprises, though few in number, dominate the Kazakh economy. According to the Statistical Office, less than half of the large and very large enterprises are fully privatised.

Institutional reformsKazakhstan’s institutional governance is weak, further adding to the problems of transparency in commercial transactions.

A 2007 Licensing Law established the legal framework for licensing activities in Kazakhstan. It requires the relevant agency to issue a license within one month of a company’s submission of all required documents. The 2007 law simplified procedural requirements for issuing licenses, reduced the number of licensed activities from 426 to 349, and introduced a mechanism to help prevent the extension of this list by other legal acts. Experts estimate that overall licensing for the period 2004-2009 was reduced three-fold. However, licensing remains problematic, particularly for small-and medium-sized enterprises.

New proposals (2011) exist to reduce the complexity of issuing licenses, including those in the oil and gas sector.

Determination of “Road Map” status Based on the ‘Investment framework’ indicator, the current status is ‘basic.

Investment climate TaxationAdopted in December 2008, and in effect as of January 2009, Kazakhstan’s new Tax Code lowered corporate-income and value-added taxes, replaced royalty payments with a mineral-extraction tax, and introduced excess-profits and rent taxes on the export of crude oil and natural gas. The new tax code applies taxes universally and allows only a limited set of exemptions. The code applies an international model of taxation, based on the principles of equity, economic neutrality and simplicity.

Since 2006, the Government has lowered the corporate income tax rate from 30% to 20%. Value-added tax (VAT) has been reduced gradually over the past several years from 16% in 2006 to 12% in 2009, where it remains.Kazakhstan reintroduced new export duties on oil products on 16 August 2010. Duty on crude oil was set at $ 20 per tonne and was increased to $ 40 per tonne as of 1 January 2011. This tax is in addition to the existing Mineral Extraction Tax and the Rent Tax.

Financial and banking systemsKazakhstan’s efforts to create a sound financial system and stable macroeconomic framework have been notable among former Soviet republics. Much progress has been made in the creation and implementation of an adequate legal framework. In comparison with other parts of the economy, reform of the financial system has been deep and effective. The financial system has started to mediate financial resource flows and direct them to the most promising parts of the economy.

In October 2008, the Government of Kazakhstan announced stabilisation plans that included the purchase of 25% ownership stakes of Kazakhstan’s four largest private banks, thereby injecting an additional $4 billion in to the banking system.International donor organisations and local analysts generally agree that the situation in the banking sector improved significantly in 2009.

Disputes settlementKazakhstan’s civil code establishes general commercial law principles. The 2003 Investment Law states that investment disputes with state bodies can be settled by negotiation, in Kazakhstani courts, or through international arbitration. Other disputes should be resolved in accordance with the laws of the Republic of Kazakhstan, thus restricting recourse to international arbitration in favour of the Kazakhstani judicial system. In December 2004,


Kazakhstan adopted a law on international arbitration. The law appears to give broad authority for judicial review of arbitral awards in Kazakhstan. Kazakhstan has been a member of the International Centre for the Settlement of Investment Disputes (ICSID) since December 2001.

Tariffs and energy pricing systemOn 1 January 2009, the Law of the Republic of Kazakhstan on Electricity came into effect. In accordance with this, a free pricing regime will operate for energy generating entities within the framework of tariff caps approved by the Government up to 2015. In order to change these price caps, energy generating entities have to conclude an agreement with the relevant ministry, which entails specific investment obligations.

Law No 223-IV of the Republic of Kazakhstan concerning the introduction of amendments and additions to certain legislative acts on imports became effective as of 22 January 2010. It significantly extends the obligation to purchase goods, works and services from local producers and to employ citizens of Kazakhstan.


Investment planning Development of investment strategy and planningThe Strategy of Industrial - Innovative Development of the Republic of Kazakhstan for 2003-2015 was approved by Decree of the President of the Republic of Kazakhstan of 17 May 2003. The purpose was to ensure stable development based on diversification and modernisation of the economy through creation of conditions for the production of competitive products and export growth. The Investment Fund of Kazakhstan (IFK) was consequently established as of 30 May 2003. The main goal of the IFK is to contribute to the implementation of the strategy by attracting investment to promising enterprises.

The IFK participates in financing investment projects targeted at the expansion, reconstruction, and technical upgrade of both existing and newly-established enterprises.

Projects of strategic interestA number of key investment projects are envisaged under the Action Plan for the Development of the Electric Power Industry of the Republic of Kazakhstan for 2007-2015. These include construction of power plants (both thermal and hydro plants), transmission lines (i.e. the 500-kV North-South Kazakhstan transmission line and transmission line between North Kazakhstan and Aktobe oblast) and modernisation of the National Electric Grid of Kazakhstan, as well as reconstruction of other transmission lines.

Three major oil and gas fields have been listed in the country’s strategic development plan by 2020, including Kashagan, Karachaganak and Tengiz. Furthermore, Kazakhstan and China agreed in June 2011 to increase the throughput capacity of the Kazakhstan-China transit gas pipeline by 25bcm.

About 80% of oil exports are directed through Russia, mainly via the Caspian Pipeline Consortium (CPC) and the Atyrau-Samara pipelines. On 15 December 2010, CPC shareholders made the Final Investment Decision on the CPC Expansion Project up to 67 m tonnes/year. If implemented, virtually all of Kazakhstan’s oil exports would be transported via Russia. Kazakhstan remains interested in the Kazakhstan Caspian Transportation System (KCTS) as a trans-Caspian route for future oil volumes, namely 2nd Kashagan development phase, currently postponed to 2017-2019.

Kazakhstan is working on increasing the capacity of the Kazakhstan-China oil pipeline.




1. Ministry of Oil and Gas (http://www.mng.gov.kz) 2. KEGOC (http://www.kegoc.kz/) 3. KazTransGas (www.kaztransgas.kz) 4. Minutes of the Meetings, project: Identification of the INOGATE project “Energy Market Convergence and enhanced Efficiency in the Field of Electricity and Gas”. August 2010 5. US department of State. Kazakhstan investment climate statement, 2010 6. USTDA, http://www.ustda.gov/about/index.asp 7. Embassy of Kazakhstan to US 8. USAID, Kazakhstan (http://www.usaid.gov/locations/asia/countries/kazakhstan/) 9. EBRD, Kazakhstan (http://www.ebrd.com/pages/country/kazakhstan.shtml) 10. REEEP, http://www.reeep.org/index.php?id=9353&text=policy&special=viewitem&cid=51 11. EBRD, Renewable Development Initiative, country profiles, http://www.ebrdrenewables.com/sites/renew/default.aspx 12. Renewable Energies in Central Asia Regional Report on Potentials and Markets – 8 Country Analyses Energy-policy Framework Papers, Section »Energy and Transport, GTZ, 2009 13. Central Asia News Wire, http://centralasianewswire.com/Energy/Kazakhstan-plansnbspto-end-eco unfriendly-39gas-flaring39-by-2012/viewstory.aspx?id=1380 14. US Department of State. Kazakhstan Investment Climate Statement, 2010 15. Discussions of ITS experts with CC and WGMs in Astana, 11-12 April 2011 16. Discussions of ITS experts at EU Delegation to Kazakhstan, Astana, 12 April 2011

Country Profile Kyrgyzstan | Status Report 2011 | INOGATE | 107


Market convergenceLegislative frameworkThe primary energy legislation of the Republic of Kyrgyzstan comprises the generic Law on Energy (1996), the Strategy for Fuel and Energy Sector Development (which covers the period to 2025 in two stages, 2010-15 and 2015-25) and the subsequent National Programme for 2008-2010 (approved 24/4/2008).

The following laws dealing with the electricity sector are in effect: • The Law on Electricity, dated 28/01/1997 and amended on 26/02/2003 • The Law on Energy Saving from 1998 (which also refers to energy efficiency and forms of renewable energy • The Law on the Special Status of the Toktogul Cascade of HPS and National High Voltage Grid, dated 21/01/2002 • The Law on Renewable Energy from 2008

The gas sector is legislated by a Law on Oil and Gas and a draft Law on the Gas Market has been developed but not passed. There is no road map for legislation on natural gas according to EU principles. The Law on Energy and the Law on Energy Saving also apply to the gas sector.

The secondary energy legislation includes the Rules of the National Energy Grid, the Rules of Supply and Use of Natural Gas and other documents adopted by the government.

The laws do not embrace EU principles for the electricity market and need updating, especially as regards the establishment of energy market mechanisms. A draft Law on the energy market has been presented but was not passed.

The Law on Natural and Authorised Monopolies dated 08 10 1999 (amended on 27/04/2009) established certain obligations for gas and electricity companies. However this law does not comply with the EU Acquis.In principle, third parties are able to enter the energy market.

Relations with the European Union in the Energy Sector • Bilateral cooperation with Kyrgyzstan is outlined in its Partnership and Co-operation Agreement with the EU, which includes energy cooperation. • Energy cooperation between Kyrgyzstan and the EU has a regional track in the framework of the Baku Initiative, which provides for political dialogue between the EU and the countries of the littoral states of the Black & Caspian Seas and their neighbouring countries.

Establishment of TSO and DSOIn the electricity sector, the state-owned National Electric Grid Company (“NESK”), which in turn owns the national transmission system and National Dispatch Service, assumes the role of TSO.

There are four DSOs (owned by the State Property Fund) set up on a regional basis. Sever Electro serves Bishkek and distributes 42% of electricity in the country; Vostok Electro serves Issik-Kul and Naryn oblasts and distributes 18% of electricity; Osh Electro serves the city of Osh, Osh and Batken oblasts and distributes 26% of electricity; and Djalal-Abad Electro serves Djalal-Abad oblast and distributes the remaining 14% of electricity. The DSOs are joint stock companies, 83% owned by the State and 17% by private sector investors.

In the gas sector, Kyrgyzgaz is the operator and distributor for gas in the country. It is 84% owned by the state, with 16% of the shares owned by private sector investors. The company is not unbundled at present and operates both gas transmission and distribution pipelines. KyrKazGaz, a 50/50 joint venture owned by Kyrgyzstan and Kazakhstan, is DSO for the northern pipeline. Kazakhstan is also the owner of the pipeline itself.

KYRGYZSTAN COUNTRY PROFILE

108 | INOGATE | Status Report 2011 | Country Profile Kyrgyzstan

UnbundlingIn the electricity sector, Kyrgyzstan has legally unbundled its electricity system.

In the gas sector, it is envisaged to unbundle Kyrgyzgaz (TSO). Kyrgyztransgaz would assume the transmission functions and a number of regional companies would take over the operation of distribution, but this has not happened to date.

Determination of “Road Map” status Based on the ‘Unbundling’ indicator, the current status for electricity sector is ‘advanced’ and for gas sector is “basic”.

Third party accessIn the electricity sector, so far Kyrgyzstan has not implemented yet a transparent system of third party access to the transmission and distribution networks which can be applied objectively and without discrimination between system users. The current Law of the Kyrgyz Republic on Electricity provides for third party access to the network for generation, transmission and supply activities on the basis of relevant licences issued by Energy Regulator. However, due to absence of relevant secondary legislation there are no third parties operating at present.

In the case of the gas sector third party access to the network is not allowed.


Independent energy regulatorsEstablishmentThe State Department of Regulation of the Fuel and Energy Complex was established in 2009 under the Ministry of Energy. It performs regulatory and tariff-setting functions.

Level of independenceThe regulatory authority is a state organisation under the Ministry of Energy.

Tariff policy/Role of regulatorsTariff setting policy/typesIn the electricity sector, the tariff methodology is established by the Ministry of Finance and approved by government decree. Tariff policies for electricity, natural gas and heat are developed by two departments in the Ministry of Energy, the Department of Regulation together with the State Department. An inter-ministerial board with members from the Ministry of Energy and the Ministry of Finance elaborates the tariff decisions, which are then presented for ratification first to the government and then to parliament. Approved fees cover all costs including profits.

In the gas sector, tariffs for consumers are calculated on the basis of total imports plus the cost of transit, distribution and losses. Tariffs for household and industrial consumers are differentiated.Prices for gas and tariffs for its transmission are set by the State Department for the Energy Sector Regulation at the Energy Ministry and are based on calculations provided by Kyrgyzgaz and KyrKazGaz. Cross-subsidies still persist in the gas sector, with household prices set at a lower level than industrial prices.


TransparencyOn July 2010, the provisional President signed a decree that was designed to “introduce transparency and public consultation into the management and regulation of the Fuel and Energy Sector.” The Inter-Ministerial Board is now required to hold public hearings and to take into account any representations made to it. The tariffs for all categories of consumers are published in mass-media, while the relevant methodologies are not made public.



Technical rulesHarmonisation of standardsThe principal stakeholders involved in the standardisation process include the Ministry of Energy, the National Institute of Standards and Metrology (NISM) and the gas and electricity companies. National gas and electricity codes of practice are within the competence of the State Construction Authority.

The Republic of Kyrgyzstan is a correspondent member of ISO (International Standards Organisation) but not an affiliate of CEN/CENELEC (European Committee for Electrotechnical Standardisation). Kyrgyzstan is also a member of COOMET (Euro-Asian Cooperation of National Metrological Institutions) and an active member of EASC (Euroasian Council for Standardisation).

In the electricity sector, no standards in Kyrgyzstan are currently harmonised with CENELEC standards. However the main challenge lies not in adopting and translating the standards but in implementing them. There is no dedicated Technical Committee for Standardisation in the electricity sector to oversee their implementation, although proposals to form such a body exist.

In the gas sector, the National Institute of Standard and Metrology (NISM) has provided the normative framework for standards and other harmonisation deliverables. The new National Standards KMC (2010) are harmonised with ISO/IEC GUIDE 21-1:2005 and ISO/IEC GUIDE 21-2:2005. This was the recommendation of the completed INOGATE project on harmonisation of oil and gas standards. However the harmonisation process in the industry is impeded by limited financial and human resources.


Integrated regional marketsIn the electricity sector, the grid of Kyrgyzstan is connected to the Central Asia Interconnected Power Grid (Kazakhstan, Kyrgyzstan and Uzbekistan). Kyrgyzstan has cross-border electricity trade with Kazakhstan, Russia (export) and Uzbekistan (export and import).

Under the framework of the Central Asia Interconnected Power Grid, Kyrgyzstan’s hydropower system was designed not only to produce electricity, but also to provide major ancillary services, frequency regulation and operating reserves. However due to the political situation this system is currently not in operation.

In the gas sector, Kyrgyzstan is fully dependent on Uzbek gas imports. Kyrgyzstan provides for transit of Uzbek gas to Southern Kazakhstan by a transit pipeline (operated by KyrKazGaz). There is no specific commitment from the side of the government towards the creation of a regional market in gas.



MaintenanceIn the electricity sector, the transmission and distribution systems have serious problems due to outdated equipment and inadequate maintenance. Reliability is poor. An annual maintenance programme is planned but due to lack of resources typically less than 70% is implemented every year. There is no comprehensive preventive maintenance strategy or programme in place. NESK (TSO) has a draft long-term maintenance programme, but finance for this has not been identified. Some preventive maintenance works have taken place in the past with the help of the IFI’s in major power stations and operational units.

In the gas sector, some maintenance works are currently underway in the transmission network; however there is no strategy or long-term programme in place. Although Kyrgyzgaz (TSO and DSO) proposes an annual maintenance programme, only around 10% of this is implemented due to lack of financial resources.Two government agencies - Gazenergoinspektsiya and Gosgortechnadzor – are responsible for inspecting the safety of the gas pipeline network.


Determination of “Road Map” status Based on the ‘Maintenance’ indicator, the current status is ‘basic’.

Rehabilitation/Upgrading Long and medium term rehabilitation programsKyrgyzstan’s electricity transmission and distribution networks are presently in need of rehabilitation, as not enough resources have been allocated in previous years for maintenance. As much as US$360 million could be required for this upgrade. There is an on-going programme of modernisation of power stations up to 2015. A programme for upgrading transmission lines and distribution equipment has been launched.

A massive investment is required to replace and rehabilite infrastructure needed to ensure an acceptable level of maintenance, safety and reliability of gas supply and to develop the gas sector. Medium pressure gas transmission lines do not have cathodic protection, and gas equipment wear and tear is up to 80%. There is an urgent need for investment in equipment. No on-going rehabilitation programme has been introduced. Less than 10% of the annual planned pipe replacement works proposed by the government are actually undertaken.

Status of outage and lossesIn the electricity sector, technical losses are due to technological flaws in the transmission system, commercial losses from energy thefts, and the wear and tear of the electrical grid. Technical losses in the transmission system are around 6-7%. The electricity losses in the distribution grid are of the order of 15-17%. Thefts are estimated at 8%. As stated by the Deputy Prime Minister in June 2011, total losses amount to 31%. A target had been set to reduce this to 19% by 2011. There is no effective system of reporting and recording of losses and outages.

In the gas sector, the permissible level of gas losses is 10% for distribution and 1.5% for transmission. The actual losses are around 20%. Measures to reduce system and commercial losses have not been fully implemented. There is no effective system of reporting and recording of losses and outages; the INOGATE “Enhancement of Environmental Protection Measures in the Oil and Gas Industry of Central Asia” (EPMOGI) project prepared proposals for such a system, which have not been adopted due to lack of investment resources.


New energy infrastructuresThe importance of enhancing the reliability and safety of the energy sector is reflected in the midterm and long-term energy policies envisaged by the National Energy Programme and Strategy for Fuel and Energy Sector Development 2010-2025. However, due to lack of investment resources, the government focuses on the rehabilitation of existing infrastructure.

In the electricity sector, the above mentioned strategy includes new energy infrastructure which is almost exclusively hydroelectric (large, medium and 100 small hydroelectric plants). This is largely because the return on investment from hydroelectric resources in Kyrgyzstan significantly exceeds the return from other renewable sources. The strategy also calls to wider use of solar, biogas and wind installations, however it does not include any concrete figures or specific projects in this field.

In the gas sector, Kyrgyzstan is a net hydrocarbon importer but there is no law on strategic stocks. There is scope for rehabilitation of several fields, gas pipelines and gas underground storage.

Determination of “Road Map” status Based on the ‘New energy infrastructure’ indicator, the current status is ‘basic’.

Metering and billing (electricity/gas)Metering systems at end-usersIn the electricity sector, 100% of industrial and household consumers have been supplied with three-phase meters. Current efforts of international donors are directed towards the supply of hardware and software systems for better billing, collection systems, management of arrears and associated training and business advisory services to the four distribution companies. Presently only about 5% of customers have smart meters. Measures to reduce system and commercial losses have not been implemented in full.


In the gas sector, as of 1st July 2011, 98,2% of private households from houses, 90% of multifamily buildings and about 100% of commercial premises have been provided with gas meters. Since the majority of the natural gas consumers (who still do not have installed gas meters) are living in multifamily buildings the average figure of private households with installed gas meters is estimated to be about 90%. All industrial consumers have installed gas meters.

Cross-border electricity and gas infrastructure is 100% equipped with electricity and gas meters.

Tariff collection systemsIn the electricity sector, although it has been reduced over recent years, a considerable amount of losses and non-payment persists. Currently there are a number of initiatives to raise public awareness about this issue, helped by international donors and agencies. In June 2011 the Deputy Prime Minister announced that the government is planning to install electronic electricity meters with smart cards for pre-paid electricity consumption for all categories of consumers.

In the gas sector, the collection rate for natural gas (household consumers) in 2011 was 98,9%. However a major problem for Kyrgyzgaz remains the collection of substantial arrears accumulated by industrial, residential and commercial customers for the natural gas consumed in the previous years (in total about US$10 mln by the end of 2011).

Determination of “Road Map” status Based on the ‘Metering and billing’ indicator, the current status is ‘developing’


Diversification of energy mix According to IEA in 2009 about 28.4% of total primary energy supply originated from renewable (hydro) resources. RES accounted for 89.2% of annual electricity production.

Yet only 10% of the large-hydro potential and 3% of the small-hydro potential is being exploited. Renewables other than hydro are not developed and represent a mere 0.06% of total energy supply.

Policy framework The National Energy Programme of Kyrgyzstan and the Strategy for the Fuel and Energy Sector Development (covering the period 2010-2025) are the key policies for sustainable energy development. The strategy calls for the rapid expansion of renewables and especially hydro as a priority for energy sector development. It foresees the construction of around 100 small hydroelectric plants with a total capacity of approximately 180 MW. The strategy foresees two large hydro projects at Kambarata, totalling 2260 MW, that would substantially increase the generation capacity of the country.

At the request of the Kyrgyz Government, the strategic planning of mini/small (10 MW or less) and medium (30 MW or less) hydro power plants is under development including recommendations for the investment/regulatory framework, preparation of pilot projects and a potential framework for financing products, as well as public tender assistance for the award of respective concessions.


EE/RES framework development The Law on Renewable Energy was adopted in December 2008. Relevant legislative acts introduced recently are: • The Decree of the President of the Kyrgyz Republic of 14 October 2008, by which the Programme for Development of Small and Medium Energy until 2012 was approved. • The Resolution of the Government of the Kyrgyz Republic in 28 July 2009, approving the Regulation of Procedures for Construction, Acceptance and Technological Connection of Small Hydro Power Plants to Electrical Networks. • A draft law on amendments and additions to the Law On Renewable Energy, providing for tariff premiums for each type of renewable energy.



EE/RES Action Plan and Measures The potential for renewable resources other than hydro have not been fully determined. However, the available data suggests that solar, biomass and wind potential also exist in the country.

To promote public awareness about renewable energy, booklets describing the benefits of small hydropower stations, and how to install a small hydropower plant, were distributed to rural communities. A revolving credit facility was established in Karakol by the NGO Issyk-Kul Activist with the aim to help farmers finance small hydropower plants for their farms or residences.


Creation of energy agencies There is no agency responsible for energy efficiency and renewables. The Ministry of Energy assumes the functions of monitoring and implementing energy efficiency and renewables policy. There were plans for restructuring and the creation of a new department dealing with energy efficiency and renewables, but no progress has been made.


Environmental assessments/energy auditingThe State Inspection on Energy and Gas is responsible for carrying out energy audits, which in practice consist of assessing whether companies are fulfilling their obligations in terms of energy efficiency according to state standards. However there is no formal certification or training mechanism established. Energy audits are currently being carried out at some heating plants. An ‘energy passport’ programme exists in the public sector, but could be extended to the private sector. Energonadzor, under the Ministry of Energy, is responsible for compliance.

In 2011, the INOGATE project Support to Energy Market Integration and Sustainable Energy in the NIS (SEMISE) developed a business plan for an institute in Bishkek to establish the feasibility of an energy auditor training center.

Environmental standardsThere is a State Committee on Environment but no action has been taken in this field.


Kyoto Protocol mechanisms The country ratified the Kyoto Protocol in February 2005. A Designated National Authority has been established (National Climate Change Committee); some Clean Development Mechanism (CDM) projects have been submitted but are not yet registered. Validation has been terminated for one candidate project for landfill gas capture and utilisation.

Gas flaring reductionThis section is not applicable to Kyrgyzstan.




Investment framework Legal - regulatory framework developmentThe Kyrgyz Republic has a liberal investment regime with a broad base of commercial laws. Unfortunately, these laws are not implemented consistently. Barriers include corruption.

A Law on Investments, enacted in 2003, provided a legal framework, stipulating fair and equal treatment for investors and protection of their investments. The law also regulates legal relationships between investors and governmental bodies, allowing investors to resolve disputes that may arise through international arbitration proceedings.

In 2001, the government established the Investment Promotion Centre (IPC) under the State Committee of the Kyrgyz Republic on State Property and Direct Investments, which acts as a one-stop shop to assist foreign investors.

Stability, transparency and adequacyThe legal and regulatory system of the Kyrgyz Republic continues to develop. The process of implementing regulations and court orders relating to commercial transactions remains inconsistent. Some court decisions, which appear to contradict established procedures, can be implemented expeditiously in certain cases. The Kyrgyz system is heavily bureaucratic and favours ‘red tape’.

There is an investment department at the Ministry of Economic Development and Trade, which assists investors with bureaucratic procedures. This department also consolidates information about potential investment projects in the Kyrgyz Republic. However, the ability of this office to steer firms through the system has not been fully demonstrated.In 2003, the Law on Combating Corruption was adopted. On 21 June 21 2005, the Kyrgyz Government adopted the National Anti-Corruption Strategy. On 29 June 29 2005, the Parliament of the Kyrgyz Republic ratified the UN Convention against Corruption. On 21 October 21 2005, the Kyrgyz Government founded the National Anti-Corruption Agency and the National Anti-Corruption Council, which were tasked with implementation of the Anti-Corruption Strategy.

In the annual progress report for 2010 prepared by the World Bank and the IMF in the framework of the Country Development Strategy 2007-2010, a number of issues were identified as needing to be addressed for a significant improvement of the investment climate and speeding up of the rate of economic growth. In order of importance for business these are: (i) the low quality of tax administration; (ii) the ambiguous and unpredictable changes in the economic policy of the state; (iii) the high level of corruption; (iv) the high cost of funding; (v) macroeconomic instability; (vi) the customs and foreign trade regulations; (v) crime and the absence of order; (vi) the low qualifications of human resources; (vii) uneasy access to funding and (x) judiciary system and conflict resolution. As regards transparency, the laws relating to investment are partly available to the public, including access from governmental websites.

Kyrgyzstan acceded to the UN Convention against Corruption on 4 November 2008, but is not yet a signatory. It has not signed the OECD Anti-Bribery convention. Kyrgyzstan is scored 2 in the 2010 table of the Corruption Perceptions Index prepared by the NGO Transparency International.

On 20 October 2010, the Extractive Industries Transparency Initiative (EITI) Board designated the Kyrgyz Republic as an EITI Candidate country that is “Close to Compliant”. The Kyrgyz Republic was granted six months (until 18 April 2011) to complete the remedial actions needed to achieve compliance. Having undertaken the corrective actions, the Kyrgyz Republic was accepted by the EITI Board as EITI Compliant on 1 March 2011.

PrivatisationThe general legislative framework for de-nationalisation and privatisation of the state property is set forth in two basic laws: (a) the Law On General Principles of De-Nationalisation, Privatisation and Entrepreneurial Activities in the Kyrgyz Republic of 20 December 1991, and (b) Law No. 1385-XII On De-nationalisation and Privatisation of State Property in the Kyrgyz Republic of 12 January 1994. Secondary legislation has also been developed, however privatisation levels are still low.

Institutional reformsSimilar to other countries in recent years, Kyrgyzstan introduced a ‘one-stop shop’ to simplify the procedures for foreign investment. A new institutional body named The Investment Council was established in February 2007


under the President of the Republic and this is taken as a strong signal of the intention to realise its mission with presidential support. The council members comprise not only government officers but also representatives of the business community and international donor organisations.

The country is striving to build an effective institutional framework in all areas of governance, but despite the on-going reform process since independence more than a decade ago the results have not been very satisfactory, as is manifested by the various international indexes of the perceived image of the country.


Investment climate TaxationThe Kyrgyz tax system is based by a number of legal regulations, the most important one being the Tax Code which was updated recently. It is a comprehensive law dealing with taxes in general, their administration and obligations of taxpayers on the territory of the Republic. According to the Law On Foreign Investments of 24 September 1997, foreign investors and foreign investments are treated equally with nationals under the tax legislation.

Financial and banking systemsThe National Bank of the Kyrgyz Republic is a nominally independent body, which intervened repeatedly in the market in 2007 to prevent the rapid appreciation of the Kyrgyz national currency, the Som, against the U.S. dollar.

Several 100% foreign-owned banks now operate in the Kyrgyz Republic, while other banks are co-owned by foreign investors.

Disputes settlementThe Law on Commercial Arbitration allows for international and domestic arbitration of disputes. If feasible, the arbitrator should be a neutral entity identified in the contract, along with the specific terms of arbitration. Establishing the terms for arbitration beforehand will prevent further complications in the event of a dispute.

The Kyrgyz Republic is a member of the International Centre for the Settlement of Investment Disputes (ICSID). It signed the agreement on 9 June 1995, and ratified it on 5 July 1997. The Kyrgyz Republic became a member of the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards on 18 March 1997.

Tariffs and energy pricing systemDue to the lack of full transparency in the tariff and pricing system and the absence of independent regulation, it is doubtful that investors will be confident about the consistency of future policy.


Investment planning Development of investment strategy and planningThe 2003 Law on Investment (prepared with the support of international expertise) establishes the framework for investment. However there is no mid- or long-term strategy for attracting investment, although the National Energy Programme 2010-2025 includes some investment targets.

Projects of strategic interestKyrgyzstan is interested to expand its electricity exports to Kazakhstan. The Kambarata HPP2, which is currently under construction, has a capacity of 360 MW making it the largest strategic investment project in Kyrgyzstan. This would be dwarfed by Kambarata 1, which with a capacity of 1900 MW would make Kyrgyzstan entirely self-sufficient. Investment for this development is currently being sought. There are over 14 projects proposals for the construction and operation of power stations.Strategic projects which may help provide diversity and security of gas supplies to Kyrgyzstan include partnerships with Russian Gazprom and connecting Kyrgyzstan to the Turkmenistan-China gas pipeline, which is currently under discussion.

Determination of “Road Map” status Based on the ‘Investment planning’ indicator, the current status is ‘basic’.



1. Government of Kyrgyzstan (http://www.gov.kg/) 2. IMF, 2010 (http://www.imf.org/external/pubs/ft/scr/2007/cr07193.pdf) 3. Minutes of the Meetings, project: Identification of the INOGATE project “Energy Market Convergence and enhanced Efficiency in the Field of Electricity and Gas”. August 2010 4. US department of State. Kirgizstan investment climate statement, 2009 5. USAID, Kyrgyzstan (http://www.usaid.gov/locations/europe_eurasia/car/kgpage.html) 6. EBRD, Kyrgyzstan (http://www.ebrd.com/pages/country/kyrgyzrepublic.shtml) 7. Developing the Potential for Energy Efficiency and Alternative Energy in the Kyrgyz Republic, Jefferson Institute, February 2009 8. Renewable Energies in Central Asia Regional Report on Potentials and Markets – 8 Country Analyses Energy-policy Framework Papers, Section »Energy and Transport, GTZ, 2009 9. Development of the Renewable Energy Sector in the Kyrgyz Republic Almaz Stamaliev September 2010 Astana 10. EBRD, Renewable Development Initiative, country profiles, http://www.ebrdrenewables.com/sites/renew/default.aspx 11. UNDP/GEF/ECE Project “Removing barriers to energy efficiency improvements in the state sector in Belarus”, Ina Yeliseyeva , 11 June 2010, 21th Session of the Steering Committee of the Energy Efficiency 21 Programme, Geneva. 12. Article in New Europe 30.1.2011 (see also INOGATE website regional news) 13. Meeting of ITS experts in Bishkek with CC and WGMs, April 2011

116 | INOGATE | Status Report 2011 | Country Profile Republic of Moldova


Market convergenceLegislative frameworkThe primary legislation of the Republic of Moldova comprises the Law on Energy (2008), the recently adopted (2010) Law on Electricity (which includes elements of EU Directive 2003/54/EC), the Law on Natural Gas (which includes elements of EU Directive 2003/55/EC) and the Law on Petroleum Products, and the 2010 “Energy Act” concerning efficient operation of the energy sector and a reliable energy supply to the national economy and population, (which includes the law on National Energy Regulatory Agency Regulation and Budget). These laws contain provisions allowing third parties to enter the market.

The secondary legislation includes: a) the Legal Acts Harmonisation Plan for the Energy Sector, and b) ANRE (National Energy Regulatory Agency) Decision no. 368 of 12 February 2009, which provided for the development of four normative acts and the amendment of six existing acts by the end of 2010. There are also a number of regulations on tariff methodology and grid codes referring to elements of EU energy market principles governing third party access and unbundling.

Moldova became a member of the Energy Community Treaty in May 2010, which implies further appropriate legislative development. On 1 January 2011 Moldova assumed the Presidency of the Energy Community for one year.Moldova is presently adopting a road map to prepare for membership of ENTSO-E (the European network of transmission system operators for electricity).

Preparatory documentation relating to Moldova’s application for EU accession also includes acceptance of the EU acquis on energy.

Relations with the European Union in the Energy Sector • Regional Energy cooperation between Moldova and the EU takes place in the framework of the Baku Initiative, which provides for political dialogue between the EU and the countries of the littoral states of the Black & Caspian Seas and their neighbouring countries. • Moldova participates in the Eastern Partnership and its energy security platform. • Bilateral cooperation between the EU and Moldova takes place in the context of the European Neighbourhood Policy in line with the Partnership and Co-operation Agreement, and also covers energy cooperation. • EU-Moldova negotiations are proceeding on an Association Agreement, which will include energy issues. • Moldova a member of the Energy Community Treaty.

Establishment of TSO and DSOThe state-owned Moldelectrica is TSO (Transport System Operator) for the electricity sector, and also central dispatcher for the Transnistria region. There are three DSOs (Distribution System Operators): RED Nord, a state-owned Joint Stock Company; RED Nord-Vest, also a state-owned Joint Stock Company; and RED Union Fenosa, a private company. Electricity distribution in the Transnistria region is carried out by 2 DSOs: RED Est and RED Sud-Est, both of which answer to the Transdnistrian authorities.

In the gas sector, Moldovagaz owns all transmission facility assets. Moldavatransgas, a subsidiary, operates the transmission system. The shareholder composition of Moldovagas is 50% Gazprom, 36.6% State and 13.4% the Transdnistria administration (internationally, a non-recognised entity). There are 27 gas distribution companies operating in Moldova, of which 12 are subsidiaries of Moldovagaz and 15 are private.

UnbundlingIn the electricity sector, the TSO and DSOs are financially and functionally unbundled and operate under market conditions. The relevant legislative base for unbundling is provided by the Law on Electricity. In the gas sector, unbundling is an ongoing process. The TSO is legally unbundled while the DSOs are only financially unbundled.

REPUBLIC OF MOLDOVA COUNTRY PROFILE

Country Profile Republic of Moldova | Status Report 2011 | INOGATE | 117

Determination of “Road Map” status Based on the ‘Unbundling’ indicator, the current status for electricity sector is ‘advanced’ and for gas sector is “developing”.

Third party accessAllowing third party access (TPA) is permitted under the recently adopted electricity and gas legislation.

In the electricity sector, TPA takes place in both the transmission and distribution electricity networks.

In the gas sector, TPA does not take place in practical terms, as the only gas wholesale supplier is Moldovagaz itself and no other applicants have been reported.

Determination of “Road Map” status Based on the ‘Third Party Access’ indicator, the current status for the electricity sector is ‘advanced’ and for gas sector is ‘developing’.

Independent energy regulatorsEstablishmentThe National Energy Regulatory Agency (ANRE) is responsible for licensing, regulating of enterprises in the electricity, gas and district heating sectors, tariff setting, establishing quality of service standards, consumer protection, and promoting competition and energy efficiency.

Level of independenceThe independence of ANRE is legislated by the Law on Energy (2008). The general director and four directors are appointed by Parliament for 6-year terms and can be reappointed for a second term. ANRE is financed from the annual payment of regulatory fees.

Tariff policy/Role of regulatorsTariff setting policy/typesIn the electricity sector, ANRE drafts and approves the methodologies for calculation, approval and application of tariffs for transmission, distribution and supply of electricity. The regulatory authority provides a detailed evaluation of the tariffs and the reasons for its decision. It applies a rate of return, according to the methodology set forth in the tariff regulation, and applies depreciation in accordance with international accounting standards. An electricity transmission tariff is adopted by ANRE, and distribution tariffs are planned to be adopted during 2012.

In the gas sector, adjustable tariffs are calculated and applied by relevant licensees according to a procedure approved by the ANRE. This procedure takes into account state energy policy regarding gas imports, exports and transit and also ensures that gas is supplied to consumers at minimal costs, and effective use of capacities. Appeals against tariff decisions of ANRE can be made through the national courts.


TransparencyTariffs and the tariff methodology are transparent. The proposed tariffs and methodologies for price calculation are published in the website of ANRE for public consultation.

Determination of “Road Map” status Based on the ‘Independent energy regulators’ indicator, the current status is ‘advanced’.

Technical rulesHarmonisation of standardsCurrently GOST standards are still in use in both the electricity and gas industries, although harmonisation of electricity and gas standards with the EU has commenced with the support of the relevant INOGATE projects. The Ministry of Economy of Moldova has however declared that harmonisation of energy regulations with EU’s standards is a priority.


In the gas sector, the harmonisation process is currently ongoing in cooperation with EASC (Euro-Asian Council for Standardisation) and the INOGATE programme. More than 100 EU gas standards were translated into Russian, of which approximately 40 have been submitted for further consideration to key energy sector stakeholders.

The Republic of Moldova is a corresponding member of ISO (International Standards Organisation) and CEN (European Committee for Standardisation), and also an active member of EASC.

The Moldovan National Institute of Standardisation and Metrology is a member of COOMET (Euro-Asian Cooperation of National Metrological Institutions). The Institute is also leader of the Electrotechnical Committee of Moldova which is preparing Moldova for membership of the International Electrotechnical Committee (IEC).

The Ministry of Construction deals with design and construction standards of the former Soviet Union (SNiPs). In accordance with the EU Directive on Building Production, 375 national standards have been harmonised with EU standards.

There are presently in Moldova no national technical committees mirroring those of CEN in the areas of gas and electricity which could participate in international harmonisation actions.


Integrated regional marketsThe electricity system of the Republic of Moldova operates synchronously with the Ukrainian electricity system. The system was designed and constructed in the Soviet era as an integral part of the Ukrainian electricity transmission system.

The electricity systems of Moldova and Ukraine have interconnections by 110 kV (14) and 330 kV (7) lines. The electricity systems of Moldova and Romania are also interconnected by 110 kV power lines (3) and a single 400 kV line, while the Moldovan network is interconnected with the Bulgarian power grid via a 400 kV line (CERSM - Isaccea - Dobrudja).

Moldova is a member of the Energy Community Treaty. It is also pursuing membership of ENTSO-E.

Moldova adopted in 2010 a National Energy Strategy to the year 2020, to be updated in 2011, which includes expression of Moldova’s concern to participate in regional energy markets.

Existing legislation allows for energy exports; however there is only limited export of electricity to Romania in passive island operation of the Romanian and Moldavian systems. There are two islands, one for the 110 kV interconnection lines and one for the 400 kV interconnection lines.

In the gas sector, Moldova has interconnections with Ukrainian gas transportation system. The interconnection with the Romanian gas transportation system (the Ungheni-Lasi pipeline) commenced construction in 2011. The cooperation with the neighbouring Ukrainian TSO is very limited. There is no cooperation in terms of regional market convergence.

Transmission of gas takes place through the territory of Moldova, but neither the gas nor the pipelines belong to Moldova.



MaintenanceMoldelectrica is responsible for the maintenance of the electricity transmission network in Moldova. The 3 DSOs (RED Nord, RED Nord-Vest and RED Union Fenosa) are mainly responsible for the development, maintenance and renovation of the electric power distribution equipment to ensure a quality service to customers that respects the principles of sustainable development and environmental protection. The costs of preventive maintenance activities are included in tariffs (approved by the National Energy Regulatory Agency) and in this way the realisation of the maintenance programme is safeguarded.


In the gas sector, a preventive maintenance strategy is included in the second part of Moldovagas’s investment programme. Currently this programme covers 1800 km of transmission and distribution gas pipelines, 92 gas transmission stations, five compressor stations and one gas metering station. Maintenance is also part of the National Programme of Gasification. The preventive maintenance costs are included in the tariffs (approved by the National Energy Regulatory Agency) and in this way the realisation of the maintenance programme is safeguarded.

Determination of “Road Map” status Based on the ‘Maintenance’ indicator, the current status is ‘advanced’.

Rehabilitation/Upgrading Long and medium term rehabilitation programmesIn the electricity sector, funding of the rehabilitation of the transmission and distribution networks is carried out with support from the IFIs. The recent rehabilitation programme of Moldelectrica included (a) investment in improved metering of the electricity transmission network, (b) rehabilitation and upgrade of the dispatch and telecommunications system, (c) priority rehabilitation actions on the electricity transmission network, (d) provision of technical assistance for financial restructuring and (e) corporate management of Moldelectrica, and (f) operational and institutional development and regulation of the electricity market.

RED Union Fenosa has completed the investment programme agreed as part of its privatisation package, which includes the construction of new power distribution capacities, as well as the rehabilitation and modernisation of already existing infrastructure.

RED Nord JSC and RED Nord-Vest JSC include in their annual programmes a budget for the rehabilitation and modernisation of the existing infrastructure. These upgrade costs are included in the electricity tariffs that have been approved by ANRE.

In the gas sector, Moldovagas develops an investment programme on an annual basis. Part of this programme is devoted to rehabilitation measures such as upgrade of the network, introduction of new technologies, etc. Currently there is a long-term rehabilitation programme underway that is partly supported by IFIs. The DSOs are also responsible for the rehabilitation and modernisation of the distribution networks.

Status of outage and lossesThe electricity sector operates under similar principles to those in the EU, including strong incentives to reduce losses. The level of losses is expected to be relatively low. Outages, which are infrequent, are reported by DSOs to ANRE as part of the reporting procedures, and they are required to undertake measures to avoid similar problems in future. The high voltage system losses are max 3%, while the losses in the low voltage systems are 13,6%, 10,4% and 12,9% respectively, against a set target of 13%.

In the gas sector, the TSO (Moldovagas) has merely established a permissible level of losses, whereas EU practice calls for a reduction to a minimum level of loss, supported by incentives. It is recognised that there is a lack of state-of-the-art tools to detect leakages. Outages, which are infrequent, are reported by DSOs to ANRE as a part of the reporting procedure, and they are required to take measures to avoid such problems in future. The losses in the transmission system are about 0,2%, but 4.9% in the distribution system.


New energy infrastructuresIn the electricity sector, a Memorandum of Understanding was signed between Moldelectrica (Moldova) and Transelectrica (Romania) in 2010. A joint application was submitted in March 2011 by Moldova, Ukraine and Romania to the EU supported Joint operational programme for funding the feasibility study on the conditions of Moldova and Ukraine to join ENTSO E. The application phase I was approved and phase II with a detailed project proposal was prepared for the Joint Programme decision in the second half of 2011.

New interconnection infrastructure includes a 400 kV Moldova (Balti) – Romania (Suceava) line which was launched in 2011 (the reconstruction of the 330 kV substation from Balti was realized); the Romania (Falciau) - Moldova (Gotesti) line which is at its final stage was to be completed by the end of 2011; and a feasibility study for the 300 kV interconnection Moldova (Balti) - Ukraine (Novodnestrovsc) line (of which the Moldovan section has been completed).


In the gas sector, due to limited resources, Moldova prioritises rehabilitation of existing structures over new development. However, the investment strategy programme of Moldovagas includes an investment programme.

Moldova has no gas storage facilities. Opportunities for natural gas storage will be considered in the areas of explored natural gas layers near the Zagarancea-Mânzesti-Unghenii de Jos villages and the Victorovca layers in the Cantemir district. The gas interconnection Ungheni-Iasi is currently under construction. At present there is only one regional agreement on gas transportation – with Gazprom.


Metering and billing (electricity/gas)Metering systems at end-usersIndividual meters are installed for all end-users in the electricity sector and for most users (about 85%) in the gas sector.

Investments have been made to automate the electricity and gas distribution system by installing remote controlled separators and re-closers, as well as a tele-transmission metering system.

In the electricity network the implementation of the SCADA system (remote control and data collection) is almost completed. This gives operators an overall picture of the technical condition of electric installations, enabling fast intervention when operational irregularities are found.

Gas distribution companies have a programme for extending metering to almost all customers.

Tariff collection systemsMetering data is being collected through a network of inspectors visiting households, but also through the SCADA system and remote-controlled separators. Payment is made through the banks, post offices, etc., and the collection rate is 100% in both the electricity and gas sectors, with the exception of the JSC Termokom (Chisinau District Heating Company), which owes Moldovagaz fees for the gas utilised.



Diversification of energy mix At present, according to Government of Moldova, the share of renewables in the country is about 6% of the gross final energy consumption in 2011.According to IEA in 2009 the share of RES in electricity production was 1.5%, (55 GWh of hydro out of a total 3600 GWh).

The legal framework provides for the following targets to be reached by the Republic of Moldova: • Reduction of the primary energy consumption by 20% by 2020 • Reduction of the GHG emissions by 20% by 2020 • Increase of the share of renewable energy sources in the overall energy balance from 6% in 2010 up to 20% in 2020 • Increase the share of biofuels to at least 10% in the total amount of fuels used in 2020.

Policy framework The National Energy Strategy 2020, which was approved in 2007, is a key policy document. This strategy aims, amongst other objectives, to increase the share of renewables in the country’s energy supply to 6% in 2010 and 20% in 2020. It also sets as a target a 20% increase in energy efficiency by 2020. The strategy, together with the 2010 Law on Energy Efficiency and the Law on Renewable Energy, foresees the development and implementation of sectoral energy efficiency and renewables programmes, as well as the creation of necessary primary and secondary legislation. To date, these tasks have been only partially accomplished.


In the area of energy efficiency a National Energy Saving Programme (2003-2010) is underway. In 2011, it is foreseen that the Energy Efficiency Agency and Fund will be established to support EE/RES actions. Actions will also be taken to develop a detailed Energy Efficiency Action Plan, furthering the 2011-2020 Programme for Energy Efficiency.

The Moldovan Sustainable Energy Financing Facility (MoSEFF), which provides financing to EE and RES projects, was initiated in 2009 and is supported by the INOGATE Programme.


EE/RES framework development Primary legislation supporting renewables is in place. There is a specific law for electricity and a dedicated law for renewables, Law 160/2007, which determines the scope of the state policy in the field of renewable energy resources. This seeks to enhance energy security and the independence of the state, and to reduce the negative impact of the energy sector on the environment through annual increase of the share of production and consumption of renewable energy fuels. A draft law that will modify the existing law on renewable sources (Nr.160 from 12 July 2007) has been also developed. New laws on gas (Nr. 123) and on electricity (Nr. 124) from 23 December 2009, have provisions for demand side energy efficiency management, as well as articles that provide mandatory access to the gas and electrical network by energy producers, including “clean energy” suppliers. This is crucial for promotion of RES energy. Part of the necessary secondary legislation needed has been also developed - specifically:

• On February 2009 ANRE introduced its methodology for calculating and setting tariffs for electricity produced using renewables (cost-plus method). In addition, standard contracts for renewables generators and Certification of Origin have also been adopted. Currently ANRE, with support from international experts is working on establishment of “feed in” tariffs for RES energy, which are expected to be in force by mid 2012. • The Parliament of Moldova passed a Law on Energy Efficiency on 2 July 2010. This law stipulates norms for energy efficiency and reducing energy losses, and for a greater use of renewables and energy generation from renewable sources. Mechanisms for financial support of energy efficiency and renewables projects are identified in the law.

Basic legislation on energy efficiency in buildings is under development and legal acts regulating norms in constructions, e.g. technical standards, are in force.

Other secondary legislation elements such as the law on ESCOs (Energy Service Companies) are under development. In addition, according to the Law on Renewables an Energy Efficiency Fund is to be created. The Fund will be an independent and financially autonomous legal entity, promoting the financing of energy efficiency and renewable energy projects in compliance with state strategies and programmes.


EE/RES Action Plan and Measures The renewables potential of Moldova has been established through various initiatives. It has been estimated that a well-planned and concerted implementation of an energy efficiency programme could reduce the financial impact of the energy sector on the gross domestic product by 1.6-1.7% per year.

A new sectoral and regional programme on energy efficiency and renewables development has been elaborated by the Ministry of Economy (National Program for the Energy Efficiency for 2010-2020) and very recently this programme has been submitted to the government and is currently under review.

The Agency for Energy Efficiency is also currently preparing the regulatory and procedural rules for an EE/RES fund, which is to be launched soon.



Creation of energy agencies A National Agency for Energy Conservation (NAEC) was operational until 2006. In 2011 this Agency was re-launched and renamed as the Agency for Energy Efficiency; the necessary legislation and normative measures for this have already been enacted. The Agency for Energy Efficiency is responsible for promoting renewables and energy efficiency policies and implementation of investments.


Environmental assessments/energy auditingFollowing the passage of the Law on Energy Efficiency, secondary legislation regulating energy audits and energy audit cost calculation is foreseen. A Centre of Energy Audit has been established in cooperation with the Technical University of Moldova. A regulation on Energy Auditors’ Certification has been prepared and it is subject to approval by the government.

A new environment framework law and new laws on environmental impact assessment, water and waste management are still under preparation.

Environmental standardsThe Law on Energy Efficiency is the legal basis for environmental assessment and energy auditing. However specific norms and rules for these aspects have not yet been developed. As a member of the Energy Community, Moldova will have the obligation to conform to the relevant EU directives and standards in these areas. The existing EU Budget Support Programme includes initiatives for carrying out energy audits in public buildings in 2012.


Kyoto Protocol mechanisms The Kyoto Protocol was accepted in April, 2003 and enforced in February 2005. A Designated National Authority for Clean Development Mechanism (CDM) was established in 2003. As of December 2010 four CDM projects have been registered within the mechanism (three energy efficiency in public buildings projects, and one reforestation project). Eight additional projects are at the validation stage (include landfill gas, biomass gasification, coal to gas etc.).

Gas flaring reductionThis section is not applicable for Moldova.

Determination of “Road Map” status Based on the ‘Kyoto Protocol mechanisms/Gas flaring reduction’ indicator, the current status is ‘developing’.


Investment framework Legal - regulatory framework developmentInternational treaties and Moldovan law regulate business activity, including foreign investments. The principal laws affecting foreign investment are the Civil Code, the Law on Property, the Law on Investment in Entrepreneurship, the Law on Entrepreneurship and Enterprises, the Law on Joint Stock Companies, the Law on Small Business Support, the Law on Financial Institutions, the Law on Franchising, the Tax Code, the Customs Code, the Law on Licensing Certain Activities and the Law on Insolvency. These laws have been adopted in the last 10 to 15 years. In 2010 national legislation was developed to provide more favourable conditions for the attraction of investment, including the development of business parks and a law on public-private partnership.

The Law on Technology Parks and Innovation Incubators, No. 138-XVI of 21 June 2007 provides several incentives for businesses (residents of the technology park), such as no value added tax or custom tax on import of goods and services, no value added tax on goods and services bought on the territory, and no profit tax for 3 years.The Law on Public-Private Partnerships (PPP), No 179 of 10 July 2008 allows businesses and local authorities to create PPPs: article 19 provides for the types of contracts (Build-Operate-Own-Transfer, Build-Operate-Transfer, etc.) and article 25 describes the procedure for PPP initiation.


Stability, transparency and adequacyBureaucratic procedures are not always transparent and red tape often makes processing unnecessarily long, costly and burdensome. Discretionary decisions by state functionaries also allow scope for corruption. The government has taken measures to fight corruption with the implementation of the “guillotine law”, which eliminated costly and obsolete regulations and forced the publication of all business-related regulations. All regulations and governmental decisions related to business activity have been published in a special business registry. These steps were intended to raise the awareness of business people about their rights, increase the transparency of business regulations, and help fight corruption. To enhance transparency in the drafting of laws and regulatory acts, the government started applying a Regulatory Impact Assessment to all draft laws and acts bearing on business activity. The government vetted 100 laws to reduce payments to regulatory and control bodies, to reduce licensing and certification, and to streamline business-licensing procedures and economic and financial controls.

The legal framework for anti-monopoly regulation is based on the Law on Protection of Competition. The law establishes fundamental principles for regulating the activity of enterprises with a ‘de facto’ monopoly and for support and development of competition. Moldova still lacks a Law on State Aid as required by the Energy Community Treaty.

The government is obliged to publish all proposed laws and regulations in draft form for public comment. The working group of the State Commission for Regulation of Entrepreneurial Activity, which was established as a filter to eliminate excessive business regulations, meets weekly to vet draft governmental regulations dealing with entrepreneurship.

A plan for reducing ‘red tape’ in the business process has been introduced with the aims of removing obstructions to the conduct of business, the de-monopolisation of import and export, and the introduction of new technology, so as to reduce costs, time and resources of business entities. Also, in the context of reform of the normative and legal basis of business practice, the “Guillotine 2+’ process will reduce bureaucratic interference in business.

Moldova was ratified as a member of the UN Convention against Corruption on 1 October 2007. It has not signed the OECD Anti-Bribery convention.

Moldova is scored 2,9 in the 2010 table of the Corruption Perceptions Index prepared by Transparency International.

PrivatisationMoldova launched its first privatisation process in 1994. In 2007, parliament passed a new privatisation law, which introduced a plan for privatising and managing state-owned assets with a priority on economic efficiency. The law includes a list of assets not subject to privatisation. Moldova also adopted regulations on the privatisation of state-owned non-agricultural land through commercial tenders. A list of assets subject to privatisation has been approved.

Institutional reformsThe new Cabinet (as of 2010) inherited an old and ineffective centralised administrative system. It plans to dismantle the top-down chain-of-command and apply European principles and standards to public administration. The convergence of Moldova with the European Union will be possible only if the highly hierarchical government structure is replaced by a decentralised, transparent and flexible structure, based on the rule of law and civil rights and liberties. The reform of central administration is expected to be combined with the reform of local government by transferring powers to local level, including budgets. Government plans include restructuring ministries, agencies and other institutions to eliminate inefficient state agencies, streamline their functions and reduce administrative costs. New regulations on administrative procedures will be adopted in accordance with the European drive towards decentralization.

In addition, several government agencies have undergone comprehensive restructuring initiated mainly by their own management. These reforms have improved the approximation of certain government institutions, such as the Ministry of Transport, to European standards and good governance practices.



Investment climate TaxationTaxation in the country is exercised on the basis of the Tax Code (1997) and other officially published tax regulations. Tax-related regulations have been issued by the government (in the last few years), the Ministry of Finance, the Principal State Tax Service, the Customs Department, and other central and local public authorities, which however cannot contradict the Tax Code or exceed its limits.

Financial and banking systemsMoldovan banks are the main source of business financing, with non-bank financing poorly developed, albeit growing. The banking system has two levels: the National Bank of Moldova and 15 commercial banks. The National Bank of Moldova supervises the commercial banks and reports to parliament. The government holds a controlling stake in one bank, Banca de Economii (a savings bank). As of 31 December 2010, the foreign investors’ share in Moldovan banks’ capital was almost 77 percent. The EBRD Moldova Sustainable Energy Financing Facility (MoSEFF) operates in Moldova with the support of the INOGATE Programme.

Disputes settlementThe Government accepts binding international arbitration of investment disputes between foreign investors and the state. By law, investment disputes can be solved through Moldovan courts or arbitration. In the event of ad hoc arbitration, the law requires following the rules of the United Nations Commission on International Trade Law rules, the Paris International Chamber of Commerce of January 1, 1998, and other rules, principles and norms agreed upon by the parties.

Moldova is a signatory to the Convention on the International Centre for the Settlement of Investment Disputes (Washington Convention) and the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. Moldova is also a party to the Geneva European Convention on International Commercial Arbitration of 21 April 1961, and the Paris Agreement relating to the application of the European Convention on International Commercial Arbitration of 17 December 1962.

Tariffs and energy pricing systemThe most recent modification of tariffs in electricity, gas and heat was performed by ANRE in January 2011. This took into account the requirements of EU Directives and IMF recommendations to set appropriate and non-discriminatory tariffs for all categories of consumer. An additional factor in this process was the increased price of gas.


Investment planning Development of investment strategy and planningThe National Development Strategy for 2008-2011, which documents the most important internal medium-term planning, sets out official investment plans and defines Moldova’s development objectives in the context of the budget process for this period. Under this strategy the pillar “enhancing the competitiveness of the national economy” calls for • the attraction of investment and focuses on policies to improve the business environment in order to encourage more investment activity; • technological innovation and modernisation; • promotion of the expansion of the small- and medium-enterprise sector; • increasing labour productivity; • improvement of state asset management; • development of public-private partnerships; • promotion of inclusion into international networks; and • addressing Moldova’s deteriorating infrastructure and reduction of its energy vulnerability.

Projects of strategic interestElectricity projects of interest include the electricity interconnection 400 kV line, “Suceava-Balti” between Romania and Moldova (length 139 km, cost €57 mln), the 330 kV line “Balti-Novodnestrovsk” between Moldova and Ukraine,


the 330 kV line “Balti –Straseni-Ungheni” (length 121,5 km, cost €28,5 mln), the interconnection “Ungheni–Iasi” between Romania and Moldova, and a coal power plant of 360 MW capacity.

Gas projects of interest include the Ungheni-Iasi interconnection pipeline (€20 mln), with an overall length of 40 km, and geological research in the south for gas resources.



1. MOLDOVAGAS web site (http://www.moldovagaz.md/) 2. MOLDELECTRICA web site (http://www.moldelectrica.md/) 3. ISC Red Union Fenoza web site (http://www.ufmoldova.com/Eng) 4. Ministry of Economy of Moldova web site (http://mec.gov.md/) 5. Ministry of Regional Development and Construction (http://www.mcdr.gov.md/) 6. Ministry of Ecology and Natural Resources (www.utm.md) 7. Agency for Export Promotion (http://www.miepo.md/index.php?l=en) 8. Ministry of Justice (for laws database) (www.justice.gov.md) 9. National Energy Regulatory Agency of Moldova (ANRE) (http://www.anre.md/index.php?vers=3) 10. EBRD, Moldova (http://www.ebrd.com/pages/country/moldova.shtml) 11. Minutes of the Meetings, project “Identification of the INOGATE project “Energy Market Convergence and enhanced Efficiency in the Field of Electricity and Gas”, August 2010 12. US Department of State, Moldova investment climate statement, 2010 13. USAID, Moldova (http://moldova.usaid.gov/) 14. Renewable Energy in Republic of Moldova, Doloscanu Tatiana Potsdam (Germany) Economic Forum 3rd of June 2010 15. EBRD, Renewable Development Initiative, country profiles, http://www.ebrdrenewables.com/sites/renew/default.aspx 16. Commission staff working document accompanying the Communication from the Commission to the European Parliament and the Council Taking stock of the European Neighbourhood Policy (ENP) Implementation of the European Neighbourhood Policy in 2009 Progress Report Republic of Moldova, Brussels, 12/5/2010 17. Republic of Moldova, Energy Profile, United Nations Economic Commission for Europe, Energy Efficiency 21 Programme, National Participating Institution / Climate Change Office under the Ministry of Environment, November, 2009 18. Discussions held between ITS experts and CC and WG Members, 22 March 2011

126 | INOGATE | Status Report 2011 | Country Profile Tajikistan


Market convergenceLegislative frameworkThe primary energy legislation of the Republic of Tajikistan consists of the Law On Energy No. 123, of 2000, the Law on Energy Saving (2002) and the Law on Renewable Energy (2010).

The Law On Energy covers different ownership forms (state, private, public, mixed and joint). It designates the government or government agencies as the principal agent to manage the energy sector. It also addresses specific functions, including monitoring the activities of energy companies, protection of property, consumer rights, tariff setting policies, and establishing the authority of the government to approve concession agreements over energy facilities, including concessions to foreign investors.

An old soviet time gas law is in force; a new gas law, in accordance with EU principles, has been developed in consultation with the INOGATE EPMOGI and SEMISE projects. Appropriate secondary legislation will follow when the new law has been passed.The following acts also determine aspects of the energy sector: • The Law On Privatisation of State Property dated 16 May 1997, with amendments and additions from 2002 and 2009. • The Order of the President On Additional Measures for Efficient Energy Use and Energy Saving dated 24 April 2009.

Access of third parties to the market is covered by the Law on Concessions and the Law on Foreign Investments (2007). Electricity distribution in the Gorno-Badakshan area is carried out on this basis, by a private DSO, Pamirenergy, which is owned by the Aga Khan Foundation.

Relations with the European Union in the Energy Sector • Bilateral cooperation with Tajikistan is outlined in its Partnership and Co-operation Agreement with the EU, which includes energy cooperation. • Energy cooperation between Tajikistan and the EU also has a regional track in the framework of the Baku Initiative, which provides for political dialogue between the EU and the countries of the littoral states of the Black and Caspian Seas and their neighbouring countries.

Establishment of TSO and DSOIn the electricity sector, Barki Tojik is a 100% state owned vertically integrated utility in charge of transmission and distribution. However, the eastern Gorno-Badakshan region is served by the DSO Pamirenergy, in a format devised with the support of the International Finance Corporation; the company has a 25-year contract starting from 2005.

In the gas sector, Tajikgas was unbundled in 2009 and separated into a state-owned TSO (Tajiktransgas) and 11 regional DSOs (also state owned). It is intended to privatise and sell off the DSOs.

UnbundlingIn the electricity sector, it is planned to unbundle the generation, transmission and distribution functions. Barki Tojik has proposed to set up three companies to manage the respective functions. A government decision on this is expected in 2011.

In the gas sector, the industry undertakings have implemented unbundling of accounts for their transmission and distribution activities.

Determination of “Road Map” status Based on the ‘Unbundling’ indicator, the current status for electricity sector is ‘basic’ and for gas sector is “developing”.

TAJIKISTAN COUNTRY PROFILE

Country Profile Tajikistan | Status Report 2011 | INOGATE | 127

Third party accessAppropriate regulatory practices for third party access have not been developed either in electricity, or in gas. It is recognised that this could be an obstacle to attracting investment.


Independent energy regulatorsA Presidential Decree of 9 March 2010 established the Antimonopoly Service of the Government of Tajikistan. By Cabinet Regulation of 3 May 2010 On Antimonopoly Service, this service is responsible for the regulation, definition of regulation procedures and determination of tariffs in the energy market.

The state agency Energonadzor regulates technological and maintenance issues in the energy sector.

Level of independenceThe existing regulatory body is established and overseen by the government, thus it cannot be considered independent.

Tariff policy/Role of regulatorsTariff setting policy/typesIn the electricity sector, Barki Tojik’s Planning Department determines the requirement to cover general establishment and administrative expenses, repair and maintenance, depreciation, and costs from revenues. Tariffs are submitted to the Antimonopoly Service for approval. It has been agreed to move towards tariff rationalisation and cost recovery. Over the past few years the government has been increasing national tariffs; an increase of 20% was introduced on 1 January 2010. The tariffs charged by Pamirenergy are established by a government memorandum, and the Antimonopoly Service is informed. According to this memorandum, the tariffs charged by Pamirenergy exceed the Barki Tojik’s tariffs.

In the gas sector, the tariff structure is based on the imported price of natural gas from Uzbekistan, according to an agreed formula. The formula is confidential; prices are reviewed on a quarterly basis. Tajiktransgas sets national tariffs which were approved by the Antimonopoly Service.

Average prices in 2010, including taxes, for electricity and gas paid by households are: • Electricity: 0,01 €/kWh • Gas: 4,39 €/GJ

TransparencyThere are no rules at present for publishing or consulting on tariffs. The INOGATE project Support to Energy Market Integration and Sustainable Energy in the NIS (SEMISE) has carried out some work on a gas tariff methodology, which may be adopted.


Technical rulesHarmonisation of standardsPresently, in both the electricity and gas sectors only GOST standards are applied in Tajikistan.

In the electricity sector, no standards in Tajikistan are harmonised with CENELEC standards. Furthermore, at present there is no special technical committee for standardisation in the electricity sector. However in a recently adopted Law on Standards, a legislative framework and establishment procedures for such a committee have been set out. The Ministry is therefore awaiting an initiative from local stakeholders to participate in the formation of a committee. In the gas sector, Tajiktransgas has received the four basic EN standards for gas transmission and distribution as deliverables from the completed INOGATE project “Harmonization of standards and practices in the oil and gas sector


of Central Asia”. However, implementation remains challenging, given the shortage of financial and capacity-building resources.

Three environmental standards from the series ISO 14000 Systems of environmental management for Tajikistan were developed by the INOGATE project “Enhancement of environmental protection measures in the oil/gas industry of Central Asia (EPMOGI)” and officially adopted by Tajikstandart in 2010.

Tajikistan is a corresponding member of ISO (International Standards Organisation) but not a member of CENELEC (European Committee for Electrotechnical Standardisation). It is a member of COOMET (Euro-Asian Cooperation of National Metrological Institutions) and of EASC (Euro-Asian Council for Standardisation).


Integrated regional marketsIn the electricity sector, in 2010 Tajikistan made no electricity cross-border trade operations (export or import). 100% of electricity consumed in the country was generated locally. At present only Kyrgyzstan is connected to Tajikistan’s electricity grid. The transmission line between Tajikistan and Turkmenistan has been disconnected by Uzbekistan. A new 500 kV line has been proposed, linking Tajikistan to Turkmenistan via Afghanistan. A line via Afghanistan to Pakistan is also under discussion.

The government has been assured by the governments of Afghanistan, Iran, and Pakistan of their great interest in importing Tajikistan’s hydro generated electricity. Predictable electricity prices in these countries, this would represent a potential for developing attractive export markets.

Relations with neighbouring countries have made cross-border trade a challenge and despite the available transmission infrastructure, the Central Asia Interconnected Power Grid does not include Tajikistan at present due to political differences.

In the gas sector, Tajikistan is almost fully dependent (95%) on imports from Uzbekistan, at near European prices. Tajikistan provided transit of Uzbek gas to Fergana Valley until Uzbekneftegaz commissioned its own pipeline supplying gas directly to the valley in 2009. Tajikistan has to prepay Uzbekistan for gas every 10 days, which represents a significant economic burden.

Tajikistan is a strong advocate of regional cooperation and integration. Its participation in CAREC (Central Asia Regional Economic Cooperation) underpins its energy, transport, and trade facilitation programmes.



MaintenanceThe Tajik Government has received a grant of US$ 10 mln from International Financial Institutions (IFIs) and international donors for restructuring both the gas and electricity sectors (US$ 9 mln for the electricity sector and US$ 1 mln for the gas sector). The grant was signed in 2005.

In the electricity sector, the government will consider all restructuring options and make the relevant official decisions by the end of 2011. Thus, the restructuring of the electricity sector is not yet complete. Part of the grant agreement requires Barki Tojik to operate and maintain its energy infrastructure. Under the grant, training has been provided. Barki Tojik produces an annual maintenance plan, based on availability of resources.

In the gas sector, the restructuring process is already completed. The gas network is centred on two separate systems. In the north, four sets of transport pipelines total 609 km. Only one of these is in use. The southern system contains 412 km of transport pipelines. As TSO, Tajiktransgas is responsible for maintaining these and implements an annual maintenance programme. DSOs are responsible for maintenance of the distribution pipelines to standards that can be set by Tajiktransgas. Energonadzor can also assess safety related maintenance standards. There are no specific medium/long term maintenance programmes for the gas sector.


Determination of “Road Map” status Based on the ‘Maintenance’ indicator, the current status is ‘basic’.

Rehabilitation/Upgrading Long and medium term rehabilitation programsIn the electricity sector, the government has formulated a rehabilitation plan that has been adopted as part of its Programme of Priorities passed in May 2010. The first priority is to rehabilitate existing energy facilities. In 2010, a US$122 mln grant from IFIs was approved to expand and modernise Tajikistan’s electricity transmission system. The grant will help the country boost energy trading with neighbouring countries and meet its winter shortages.

The work will include development of two new 220kV transmission lines and rehabilitation of substations. A real-time supervisory control and data acquisition system (SCADA) will replace the outdated and partially defunct Soviet telecommunication system, and there will be a network control centre to improve monitoring and decision making. The project will also support a series of reforms to restructure Barki Tojik, the state-owned national utility company, and make operational improvements across the sector to address issues such as poor planning and maintenance, low service quality and weak financial management.

In the gas sector in the framework of the relevant internal Rehabilitation Programme of Tajiktransgaz (adopted on an annual basis), all cross-border gas infrastructure and gas pipeline branches were equipped with modern ultrasonic meters in 2010-2011. Ongoing activities include gradual replacement of transmission gas pipeline sections (priority is given to pipeline sections in the worst condition), replacement of the old gas distribution stations, and rehabilitation of the gas distribution network. There is no large-scale rehabilitation/upgrade programme of the gas infrastructure; however these incremental activities have already had some positive effect.

Status of outage and lossesIn the electricity sector, losses are estimated at some 14% (during the year 2007 the losses were 17%-18%). Outages take place very often due to lack of electricity supply in winter time, which is a consequence of the seasonal water shortages in Tajikistan. Losses are recorded but an overall strategy and an enhanced procedure for collecting statistical data are needed.

In the gas sector, overall technical and commercial losses approach 17%, which is considered to be very high by international standards. Most of these losses are in the distribution pipelines; in the transmission pipelines losses have now been reduced to close to zero. Tajiktransgas is implementing a Loss Reduction Programme for the gas sector. This project has embraced the installation of bulk and individual gas meters to almost all customers. Further project activities have included introduction of international accounting standards and installation of modern billing systems.

There is an internal system for reporting the outages and losses within Tajiktransgas and reduction targets exist. Work on environmental aspects of gas losses in Tajikistan was carried out under the INOGATE EPMOGI project.


New energy infrastructuresMost of the investments in the energy infrastructure are carried out with the assistance of IFIs.

In the electricity sector, there are discussions with Turkmenistan, Pakistan, Iran and Afghanistan on construction of electricity interconnections for export of surplus electricity from Tajikistan. The Rogun hydroelectric plant is the largest energy development project presently under way.

In the gas sector, Tajikistan is currently discussing pipeline interconnections via Afghanistan. There is also potential to develop a gas field close to Dushanbe. Works on this may start in 2012.



Metering and billing (electricity/gas)Metering systems at end-usersIn the electricity sector, 100% of industrial and 100% of household consumers have electricity meters installed. New electronic meters are already installed in approximately 25% of households across the country (the majority of these meters are installed in Dushanbe).

In the gas sector, 100% of industrial consumers and about 97% of household consumers have gas meters installed. Indeed industrial consumers have 2 or even 3 gas meters (orifice, turbine and/or ultrasonic) installed to verify the consumption levels of natural gas.

All cross-border electricity and gas infrastructure have meters installed, providing 100% metering in both sectors.In both the electricity and gas sectors, the state enterprises Barki Tojik and Tajiktransgas are moving away from lifeline tariff regimes in favour of flatter, simpler, more transparent tariff structures combined with compensating cash subsidies for vulnerable customers.

Tariff collection systemsIn the electricity sector, in 2011 the collection rate for household consumers amounted to 85%, with the collection rate for businesses at around 95 %.

In the gas sector, a strict policy is implemented by Tajiktransgas of cutting off the gas of consumers who repeatedly fail to pay on time.

Currently the collection rate in the gas sector is: 1) 100% for industrial consumers (on a monthly basis they must pre-pay 100% of expected consumption volumes) 2) 100% for household consumers. Currently old debts for consumed natural gas in previous years are also being collected.A centralised billing system is already fully operational.



Diversification of energy mix Tajikistan has an installed generation capacity of around 5,070 MW of which 98% is hydroelectric. The predominance of hydroelectric energy creates a problem as hydropower production exceeds demand in summer and is reduced in winter when glacial melt is at its lowest and demand is at its peak. As a result, Tajikistan imports oil and gas in winter to meet its energy needs, and has excess electricity production during summer. Apart from hydro - including recent initiatives to develop small hydro - no other form of renewables has been developed in the country.

According to IEA in 2009 about 58,6% of total primary energy supply originated from renewable resources (hydro). The share of RES in annual electricity production is 98%.

Policy framework The main policy for renewables development is set out in the Law on Alternative Energy Sources that was adopted in 2010 and the Law On Energy Saving No. 524 dated 06 February 2002. In addition to this, in January 2010 Tajikistan adopted a new Law on Renewable Energy Resources. This law does not indicate any precise RES targets; however national academic institutions are conducting a study on the use of wind, solar, geothermal and biogas sources, which is due to be completed in 2012. It is expected that RES targets will be set in 2012 after completion of the study. No integrated policy on energy efficiency exists at present.



EE/RES framework development A Law on Alternative Energy Sources was adopted in 2010. Currently the only support mechanism for renewables is preferential tariffs for small hydro plants. Electricity produced by these plants is bought by Barki Tojik at a premium. In addition secondary legislation, now partly developed, deals with the implementation of policies such as tariffs for renewables, ownership matters, licensing, financial incentives and other relevant issues.

The Law On Energy Saving regulates the activities of legal entities and individuals in a bid to raise the efficiency of energy consumption. The Order of the President On Additional Measures for Efficient Energy Use and Energy Saving dated 24 April 2009 also refers to energy efficiency and energy saving measures.

There is a need to complete secondary legislation on energy efficiency, and also for the elaboration of a National Programme on Energy Efficiency, for which the Ministry of Energy is responsible. A National Energy Council on Energy Efficiency has recently been established by presidential order. Its members include the Ministry of Energy, Tajikstandart, the State Agency on Construction, and Energonadzor. The Council has recently met to discuss energy standards in construction.


EE/RES Action Plan and Measures The potential for renewables is well documented and includes hydro (abundant resources), biomass, solar and geothermal resources. There is also a potential for wind power in this mountainous country.

A Programme on the Use of Renewable Energy has been in place since 2007, covering the period 2007-2015. The programme is financed partly from the state budget (25%), with the rest to be sourced from international partners and the private sector. The programme is supervised by the Academy of Sciences. In addition, a Programme for the Construction of Hydropower with an Overall Capacity of 113 MW for the period 2008-2020 has been adopted.

Several small hydro initiatives have been realized during the last years and are planned for the future. The Ministry of Energy and Industry reported that 43 new small hydro power stations with a capacity of 4 to 400 kW have started operations since the beginning of 2009.

At present there are not specific programmes or action plans to promote EE in Tajikistan.


Creation of energy agencies There is no independent energy agency responsible for energy efficiency and renewables policy. A presidential decree delegates responsibility for this to the Ministry of Energy and Industry.


Environmental assessments/energy auditingNo legal requirements for energy audits, formal standards or certification procedures have been established.

Environmental standardsThe government has adopted legislation on nature protection, protected areas etc., establishing water and pollution standards and penalties for their violation. In addition, Tajikistan has already joined and ratified a number of important international environmental agreements. The Ministry for Environment monitors electricity generation for compliance with environmental standards (including CO2 emissions). Tajikstandart, following support from the INOGATE EPMOGI project, has adopted a set of environmental management standards.



Kyoto Protocol mechanisms Tajikistan joined and ratified the Kyoto Protocol on October 21st 2008 and prepared the second National Communication for the United Nations Framework Convention on Climate Change in 2008. In 2009 the Government approved the establishment of the Interagency Council for implementation of Clean Development Mechanism (CDM) as well as the procedure for selection and approval of CDM projects. As of April 2011, several CDM projects have been proposed and are under consideration for registration, while one on hydropower generation has been validated.

Gas flaring reductionThis section is not applicable for Tajikistan.



Investment frameworkLegal - regulatory framework developmentAlthough the Government of Tajikistan is keen on foreign investment, private foreign investment has been minimal. The President has made numerous public and private statements calling for increased foreign investment, particularly in the hydropower sector. However, his administration has yet to implement the key reforms and regulations necessary to create an attractive business climate.

A new Investment Law was signed in May 2007. According to the law, foreign investors can: (a) own a share in existing companies, either jointly with other Tajik companies or citizens, (b) create a fully foreign-owned company under the laws of Tajikistan, (c) acquire assets, including shares and other securities, (d) acquire the right for use of land and other mineral resources, (e) exercise other property rights either independently or with other Tajik companies and citizens of Tajikistan and (f) conclude agreements with legal entities and citizens of Tajikistan providing for other forms of foreign investment.

The Law of the Republic of Tajikistan “On Concessions” was adopted in 2011 in the new edition, which regulates the relations connected with concessions, defines the powers of government, the conditions and procedure for the transfer of concession objects, rights and obligations of the owner of the concession, as well as other issues of transfer of state property concession.

The current investment law and tax code provide for a number of incentives, including a waiver on taxation on initial investment and VAT-free importation of industrial equipment.

In 2007, The President initiated creation of the Consultative Council on Improvement of Investment Climate to establish permanent and effective public-private dialogue and joint development recommendation to improve business environment and investment climate in the country.

In February 2012, a draft of the Law “On Public-Private Partnership” was prepared to be submitted to the Consultative Council on Improvement of Investment Climate in the first half of 2012. Adoption of such Law is needed to strengthen Public Private Partnership and contribute to resolving issues of vital sectors of the economy, including energy, transportation, construction, roads, housing - communal services and water supply, education and healthcare by attracting foreign and domestic investment.

Stability, transparency and adequacyTajikistan’s regulatory system has been growing more transparent. The Ministry of Justice registers all laws and ensures they are not in conflict with each other. All laws and normative acts are published and available in print and electronic formats from the Ministry of Finance, which also provides an update service. A recent law provides that new legislation cannot prejudice commercial enterprises and agreements set up under earlier conditions. Nonetheless most laws are lacking in detail and development of secondary legislation is necessary to improve clarity and transparency.


In February 2012, the Round Table at the Consultative Council on Improvement of Investment Climate with participation of representatives of domestic and foreign entrepreneurs emphasized the importance of simplifications of taxation system and reporting, strengthening of state-private partnership, simplification of inspections and other issues for improvement of the investment climate and creation of favourable conditions for entrepreneurship activity in the country.

An inspections law signed in 2006 and promoted extensively by the International Finance Corporation has begun to reduce red tape slightly. Corruption remains a problem for the government, despite the institution of an Anti-Corruption Committee and the recent passage of anti-corruption legislation.

Tajikistan acceded to the UN Convention against Corruption on 25 September 2006, but is not yet a signatory. It has not signed the OECD Anti-Bribery convention.

Tajikistan is scored 2,1 in the 2010 table of the Corruption Perceptions Index prepared by Transparency International.

PrivatisationPrivatisation of small and medium enterprises is mostly complete. Some of the largest enterprises belonging to Tajikistan’s transportation, infrastructure and electricity distribution and maintenance sectors are still government-owned but slated for restructuring.

The Law On Privatisation of State Property dated 16 May 1997, with amendments and additions from 2002 and 2009, specifically excludes the property of the hydroelectric plants Nurek, Rogun and the Tajik Aluminium Company.

In accordance with the Decree of the President of the Republic of Tajikistan «On improving the structure of central executive bodies of the Republic of Tajikistan» № 9 dated November 30, 2006, a State Committee on Investment and State Property Management (SCI) of the Republic of Tajikistan was created. Thus, the issues of creating a favourable investment climate and increasing the investment flow to the country, as well as the issues of foreign aid coordination and support for entrepreneurship development is concentrated in a unified public management body that ought to ensure their effective management.

For the purpose of privatization process acceleration and greater attraction of investments, a Strategic Plan for privatization of medium and large enterprises and restructuring the subjects of natural monopolies and large enterprises for 2003-2012 was approved by the decision of the Government of the Republic of Tajikistan as of November 7, 2003 (under № 486).

According to Annexes 1 and 2 of the Strategic Plan, there were four hundred twenty (420) state medium-size and large enterprises privatized from 2003 to 2009. To oversee the privatized large enterprises, which are of great economic importance for the country and as specified by the Annex 2 of the Strategic Plan, the sale of such shares is made only at investment tenders. As a result, the shares of sixty eight (68) companies were sold from 2004 to 2009. During this period, the investors have invested more than $17 million US dollars to develop the production and increase job places and they have created more than three thousand (3,000) new job places.

While the Government of Tajikistan has sold many formerly state-owned small and medium enterprises, several large enterprises remain under state control. These include the national electrical grid operator (Barki Tojik), the natural gas operator (Tojikgaz), and the Talco Aluminum Company, Tajikistan’s largest enterprise.

Institutional reformsIn order to improve the business climate Tajikistan undertook reforms between June 2008 and May 2009, which facilitated registration of business enterprises, construction permits, improved allocation of credits, investor protection and bankruptcy procedures. In order to further respond to the challenges the government endorsed a 200 Days Reform Programme aimed at improving the business climate in the country. On July 1, 2009, the government introduced a new law and simplified system for business registration through a one-stop shop facility. The number of procedures for business registration has been reduced significantly.



Investment climate TaxationThe Tax Code of 3 December 2004, (and since regularly reviewed and updated), is the basis for taxation in Tajikistan, and is consistent with WTO standards. Tajikistan’s tax code provides for 18 different types of taxes and numerous ways to calculate them. The government has plans to simplify this system. In 2009 it declared a two-year moratorium on tax inspections, which government officials had routinely used to extort bribes from business owners.

Tajikistan is also working towards adoption of international accounting norms; however, these have yet to be implemented. Specific incentives for energy investors exist, including exemption of duties on import of equipment, and on water charges for investors in small HPPs.

Financial and banking systemsTajikistan’s evolving banking sector faces numerous challenges: insufficient capital, limited banking services, and, more recently, fallout from the global financial crisis. The banking structure in Tajikistan is two-tiered: the National Bank of Tajikistan performs central bank functions, while commercial banks represent the second level.

As of October 1, 2009, there are 13 banks, 6 credit societies, 1 non-banking financial organization and 114 micro finance organizations in Tajikistan, as well as the National Bank of Tajikistan. Nine banks are joint stock companies, one is state-owned, and three are branches of foreign banks: Tijorat (Iran), KazCommerceBank (Kazakhstan) and First Micro Finance Bank of Tajikistan, owned jointly by the Aga Khan Fund for Economic Development and the International Finance Corporation.

Disputes settlementTajikistan has well-written commercial and bankruptcy laws. The country’s contract law is modelled on European laws. These laws are regulated under the country’s civil code.

Tajikistan is just starting to develop an Institute of International Arbitration. It has signed bilateral agreements with several countries on arbitration and investment disputes, but these agreements are not always enforced or recognised.

In 1993 Tajikistan became a member of the International Association on Investment Guarantees as well as the International Centre for the Settlement of Investment Disputes (Washington Convention). Tajikistan is not a party to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards.

Tariffs and energy pricing systemThe government is considering a revised energy pricing policy. In the power sector, despite tariff increases in the past few years, the current tariffs now reflect financial viability. The government introduced a gradual increase of the tariffs from January 2007 to bring them towards cost recovery levels. The government is also taking measures to ensure that large consumers pay their debts for electric power consumed and make advance payments for electricity in the future. It is recognised that some tariff reform is also necessary for favoured consumers, in particular the Tajik Aluminium Company, which consumes up to 50% of the country’s electricity.

In early 2010, the electricity tariffs in Tajikistan per 1 kW•hr were increased up to: 9 diram (2,06 US cents) for households, 21,3 diram (4,87 US cents) for industrial and non-industrial enterprises, 8,5 diram (1,95 US cents) for public and municipal consumers, 0,57 diram (0,13 US cents) for pumping stations and electric transport. The electricity tariff for TALCO Tajik Aluminium Company was 8,2 diram (1,86 US cents) per 1 kW•hr.

In 2011, seasonal electricity tariffs for certain consumers were introduced, including those for TALCO Tajik Aluminium Company: 5,7 diram (1,30 US cents) per 1 kW•hr in May-September inclusively and 8,2 diram (1,86 US cents) per 1 kW•hr October-April inclusively.

Starting April 1, 2012, another more than 20% increase in the electricity tariffs in Tajikistan per 1 kW•hr occurred up to: 11 diram (2,31 US cents) for households, 26,63 diram (5,59 US cents) for industrial and non-industrial enterprises, 10,63 diram (2,23 US cents) for public and municipal consumers, electric transport and sports facilities, 1,88 diram (0,40 US cents) for water wells and pumping stations. The summer and winter electricity tariffs for TALCO Tajik Aluminium Company were changed to 6,25 diram (1,40 US cents) and 10,25 diram (2,20 US cents) respectively.

Determination of “Road Map” status Based on the ‘Investment climate’ indicator, the current status is ‘developing’


Investment planning Development of investment strategy and planningThere is a national development and poverty reduction strategy in Tajikistan for the period 2006-2015, the updated version of which was approved in February 2010 by the government. It has one pillar that targets economic growth, improved investment climate and reforms, private sector development, and regional cooperation and integration; and a second pillar that focuses, amongst other issues, on energy security, efficiency and trade.

In energy, the government emphasizes three major investment programmes: (a) the Central Asia–South Asia Regional Electricity Market Project, a high-voltage power transmission line from Tajikistan to Pakistan via Afghanistan (b) a new 3,600 megawatt hydroelectric power station in Rogun and (c) the on-going commissioning of small HPP.

Projects of strategic interestIn the electricity sector, the construction of the Rogun reservoir on the Vakhsh River is considered of high importance. When operational, Rogun station will produce a massive 3,600 MW at peak capacity. A final environmental assessment of the Rogun project will be made in 2011. The first unit could commence generation in 2015.

In order to supply power from the Rogun and Sangtuda-1 HPPs, and to export electric power surplus in summer, the following projects are important: • For supporting the future operation of Rogun station a 500 kV South – North transmission line has been completed. • Also planned is the 500kV Obi-Garm – Sangtuda – Puli Khumri – Kabul transmission line.

Options are also being considered for construction of a 500 kV Khudjant –Shymkent (Kazakhstan) transmission line and a 500kV Khudjant – Datka (Kyrgyz Republic) transmission line connecting the country to South Kazakhstan and the Urals (Russian Federation). Further proposed transmission lines are the 750kV Obi-Garm – Khorog – Vakhan Corridor (Afghanistan) – Peshawar (Pakistan) the 500kV Obi-Garm – Sangtuda – Kunduz – Herat (Afghanistan) –Mashkhad (Iran), and a 500 kV line from Tajikistan to Turkmenistan via Afghanistan.

In the gas sector, Tajiktransgaz has also developed several options for tie-in to the planned Turkmenistan-Afghanistan-India gas transmission pipeline. Investors are also considering the rehabilitation of old wells and exploration for new wells.



1. Barki Tojik (www.barkitojik.tj/eng) 2. In-depth Review of the Investment Climate and Market Structure in the Energy Sector of Tajikistan, Energy Charter 2010 3. Asian Development Bank, Country Partnership Strategy 2010 4. Minutes of the Meetings, project: Identification of the INOGATE project “Energy Market Convergence and enhanced Efficiency in the Field of Electricity and Gas”. August 2010 5. US department of State. Tajikistan investment climate statement, 2010 6. USAID, Tajikistan (http://www.usaid.gov/locations/asia/countries/tajikistan/) 7. EBRD, Tajikistan (http://www.ebrd.com/pages/country/tajikistan.shtml) 8. Tajikistan, In-depth Review of the Investment Climate and Market Structure in the Energy Sector, Energy Charter Secretariat, 2010 9. Renewable Energies in Central Asia Regional Report on Potentials and Markets – 8 Country Analyses Energy-policy Framework Papers, Section »Energy and Transport, GTZ, 2009 10. The Consultative Council on Improvement of Investment Climate under the President of the Republic of Tajikistan (http://investmentcouncil.tj) 11. The State Committee on Investment and State Property Management (SCI) of the Republic of Tajikistan (http://www.gki.tj) 12. Meetings of ITS experts with local experts in Dushanbe, April 2011

136 | INOGATE | Status Report 2011 | Country Profile Turkmenistan

TURKMENISTAN COUNTRY PROFILE


Market convergenceLegislative frameworkThe primary energy legislation of Turkmenistan comprises the Law on Hydrocarbon Resources (2008), which covers the principles of oil and gas exploration and production. There is no specific law covering the electricity or gas sectors.

The secondary legislation includes various presidential decrees and regulations covering the rules on generation and use of electricity including tariffs, and the rational use of natural gas.

These regulations are not in accordance with EU principles for the energy market.

At present, a draft Law On Natural Gas is under consideration by local energy sector stakeholders. A draft Law On the Main Pipeline Transport is also being developed.

Third parties are not allowed to enter the energy market.

Relations with the European Union in the Energy Sector • A Memorandum of Understanding and Co-operation in the field of Energy between the European Union and Turkmenistan was signed in May 2008. • Regional energy cooperation between Turkmenistan and the EU takes place in the framework of the Baku Initiative, which provides for political dialogue between the EU and the countries of the littoral states of the Black & Caspian Seas and their neighbouring countries.

Establishment of TSO and DSOCurrent legislation does not provide for the establishment of TSOs and DSOs in electricity and gas; nor are such agencies envisaged in the near future.

In the electricity sector, the transmission and distribution activities are carried out by the vertically integrated state-owned TurkmenEnergo, which is under the Ministry of Energy and Industry.

In the gas sector, the transmission and distribution activities are carried out by the vertically integrated state-owned TurkmenGas, which is under the Ministry of Oil and Gas.

UnbundlingUnbundling is not foreseen in the near future in Turkmenistan.


Third party accessThird party access is not legal, in either the electricity or the gas sector.


Independent energy regulatorsEstablishmentThere is no body that assumes responsibility for energy regulatory functions.

Level of independenceSince no regulatory body has been established, the indicator is not applicable.

Country Profile Turkmenistan | Status Report 2011 | INOGATE | 137

Tariff policy/Role of regulatorsTariff setting policy/typesIn terms of tariffs, international tariffs are freely negotiated, while domestic tariffs are treated as tools of social policy.The transmission and distribution tariffs in Turkmenistan are generally low and are controlled by the government.

In the electricity sector, tariffs were set for the last time in 1998 by the government, and only minor changes have been made since then.

In the gas sector, natural gas is free for consumers up to a certain level of consumption; above this it costs US$1,26/1000 m3 for all consumer categories, including industry.

Average prices in 2010, including taxes, for electricity and gas paid by households are: • Electricity: Free of charge (for up to 35KWh per person per month) • Gas: Free of charge (for up to 50 m3 per person per month)

TransparencyEnergy prices and pricing systems are transparent to the extent that they are publically available and are published by order of the government.


Technical rulesHarmonisation of standardsCurrently only the old Soviet GOSTs and local Turkmen standards are in use. A programme on the development of standards until the year 2030 was adopted in 2009 and the government has expressed its intention to harmonise electricity and gas standards with those of the EU; however this process is only just beginning. Four standards, which were developed by the INOGATE project on harmonisation of oil and gas standards are now being considered. In the electricity sector, the process has not yet begun.

The process of adapting standards can be initiated by any local organisation or company by proposing the draft standards to the state agency Turkmenstandartlary, which is under the Cabinet of Ministers of Turkmenistan. Turkmenstandartlary is responsible for adoption of these standards. Bilateral agreements on standards exist between organisations in different industries.

Turkmenistan is a correspondent member of ISO (International Standards Organisation) but it is not a member of CEN (European Committee for Standardisation, or of COOMET (Euro-Asian Cooperation of National Metrological Institutions).


Integrated regional marketsIn the electricity sector, since May 2003 the Turkmenistan system has been operating synchronously with that of Iran but not with the rest of the Central Asian Power System (i.e. Kazakhstan, Kyrgyzstan, Uzbekistan and Tajikistan), although Turkmenistan does have interconnections with the electricity grid of Uzbekistan. As of today, Turkmenistan exports its electricity only to Iran. Cross-border trade is initiated at high governmental level; this is then supported by the signature of relevant documents such as MoUs, etc., and followed by meetings with specialists from TurkmenEnergo.

In the gas sector, the transmission system of Turkmenistan has interconnections with Kazakhstan, Uzbekistan and China (via Uzbekistan and Kazakhstan). Turkmenistan exports its natural gas to Iran, Russia, China and to Kazakhstan (only on a periodic basis during repairs of the gas Okarem – Beyneu gas transmission pipeline). The government has intensified its effort to diversify gas export routes by actively engaging in discussions about the Southern Corridor. Discussions about a gas pipeline project linking Turkmenistan, Afghanistan, Pakistan and India (TAPI) were also revived in July 2010, having remained largely dormant since 2008.

Turkmenistan participated in the Budapest Nabucco Summit (January 2009) as well as the Prague Southern Corridor Summit (May 2009).




MaintenanceIn the electricity sector a preventive maintenance programme is carried out by specialists of TurkmenEnergo and the Ministry of Energy and Industry; the programme is a part of the programme introduced in 2009 to modernise the technology and development the power industry (by 2020). Special training courses are provided to the specialists about the use of know-how from European companies.

In the gas sector all operation facilities are undergoing a special maintenance programme involving intensive training of TurkmenGas specialists in the use of new technologies provided by partner companies with local operational offices. The last maintenance programme was launched in 2009.


Rehabilitation/Upgrading Long and medium term rehabilitation programsIn the electricity sector, the programme to modernise technology and develop the power industry by 2020 is a key strategy for the national economy. In accordance with the Resolution of the President of Turkmenistan, the Ministry of Energy and Industry has been authorised to conclude a contract to increase the capacities of the Balkanabat gas-turbine power station. There is also a large-scale programme underway to modernise Ashgabat’s electrical supply system (introduced in 2009). The programme foresees constructing 16 minor 110 kV substations and twelve 35 kV substations.

Several international power companies have concluded an agreement for a US$3 billion investment to upgrade Turkmenistan’s power grid. The project will be implemented in several stages and is unlikely to be completed before 2020.

In the gas sector, dozens of existing production facilities are currently being reconstructed and modernised based on a series of agreements with international companies (as part of a long term programme for the development of the oil and gas industry by 2030). The upgraded facilities are fully computerised and use modern technologies. New facilities such as compressor stations, etc are constructed locally in cooperation with leading oil and gas companies.

Status of outage and lossesIn the electricity sector, there is no data available about the losses in transmission and distribution networks.

In the gas sector, technical losses in the natural gas networks are subject to maximum permissible norms and are significant in both the transmission and distribution networks. Losses in the transmission network have been detected and calculated; some of them by using equipment recently acquired from the INOGATE gas losses project. On the distribution side the lack of meters makes losses difficult to estimate or detect, however after recent procurement of some modern measuring equipment for control over gas flows for domestic consumption the situation may improve. Losses also occur in gas metering stations, some of which are not modernised.

There is no data available on outages in either the electricity or gas sector.


New energy infrastructuresIn the electricity sector a priority under the power industry development programme (2008), implemented by the Ministry of Energy and Industry of Turkmenistan, is to create a domestic power supply system compatible with the development of the national economy. It is planned to construct 18 substations and to replace overhead power transmission lines with underground cable network.


In the gas sector, domestic investment in new energy infrastructure is taking place. Up-to-date infrastructure in is being constructed with the know-how of foreign companies. The aim to increase the potential to supply natural gas to foreign markets is behind the strategy to invest in new infrastructure.

In December 2009 the authorities signed a service contract with a Chinese–South–Korean–United Arab Emirates (UAE) consortium for the development of Turkmenistan’s substantial South Yolotan field. EU companies were granted exploration rights in a license block in the Caspian Sea and have started seismic surveys and the drilling of an exploration well.

There are no underground gas storage facilities; all power stations are obliged to have reserve fuel in case of gas supply interruption.


Metering and billing (electricity/gas)Metering systems at end-usersIn the electricity sector meters have been installed for all end user consumers. These meters are in line with EU standards. Obtaining a meter is the responsibility of the consumer.

In the gas sector, gas is supplied free of charge to domestic users, therefore no meters are installed for residential consumers. Industrial consumers and export lines have installed gas meters.

Tariff collection systemsIn the electricity sector, the collection rate for the consumption exceding the level of 35 kWh per person and per month is not available. Below that consumption level electricity is free of charge.

In the gas sector, due to the lack of gas meters the collection rate gas consumption exceding 50 m3 per person and per month is difficult to assess. Below that consumption level gas is free of charge.

Determination of “Road Map” status Based on the ‘Metering and billing’ indicator, the current status is ‘basic’.


Diversification of energy mix At present all electricity generation is based on natural gas. There are also important reserves of crude oil, of which the surplus is exported. There are no coal reserves and almost no use is made of renewable energy sources since the gas reserves are sufficient for electricity production. Thus there has been no demand for renewables to date. However an interest in exploiting the considerable renewable potential for wind and solar power is emerging.

As of 2009 the total primary energy supply originating from renewable (hydro resources) is negligible. (source: IEA statistics). Moreover according to IEA in 2009 the share of RES (hydro resources only) in electricity production was only 0,02% (in total 3 GWh).

Policy framework There is no specific policy or programme for the promotion of energy efficiency and renewable energy sources. However, some efforts to establish effective policies for sustainable energy in the country have been made in the past.


EE/RES framework development Two presidential decrees from April and June 2009 call for sustainable development and a more robust co-operation with international organisations to increase the capacity of local ministries and staff.

In addition, a Law on Energy Saving is being developed that will define the framework for energy saving policies and will cover all aspects of energy saving in both energy production and consumption. Renewables might also be addressed under this law.


To date, due to the absence of relevant policies, there are no regulations in place governing licensing or other legal and regulatory issues related to renewables. The Ministry of Economy and Development is responsible for general licensing issues.


EE/RES Action Plan and Measures There is no electricity produced from renewables, despite the significant solar and wind energy potential. Small hydro is also promising. Energy use by end users is intensive, hence a significant potential for energy efficiency exists. At present, there are no action plans or measures initiated by the government for the RES/EE sector.


Creation of energy agencies The government has not developed any agency responsible for sustainable energy.


Environmental assessments/energy auditingNo legal requirements for energy audits are in place, nor are there any formal standards or certification procedures at present.

In accordance with the Law On State Ecological Expertise the State Ecological Expertise must be consulted with regard to all investment and economic activities. Before the implementation of any project that may have an impact on the environment, the investor must submit to the State Ecological Expertise the results of an Environmental Impact Assessment (EIA).

Environmental standardsThe national standard “Assessment of impact of proposed economic activity on the environment in Turkmenistan” was developed and has been in force since 2001.

The Law On Hydrocarbon Resources establishes the legal measures in place to protect the environment and human health and safety.

The rules for developing hydrocarbon deposits regulate how the process of exploring and producing hydrocarbon resources should protect the environment, including onshore and offshore areas.

Environmental monitoring is prescribed in accordance with the Law On Hydrocarbon Resources and rules for development of hydrocarbon resources deposits.

Determination of ‘Road Map’ status Based on the ‘Environmental assessments and Environmental standards’ indicator, the current status is ‘basic’.

Kyoto Protocol mechanisms A Designated National Authority for the Clean Development Mechanism (CDM) was established in May 2009 at the Office of Climate Change within Ministry of Nature Protection with the assistance of UNDP. To date, no CDM project has been registered or even validated.

Gas flaring reductionNo relevant information has been acquired. Turkmenistan does not participate in the World Bank Global Gas Flaring Reduction Initiative.




Investment framework Legal - regulatory framework developmentIncoming foreign investment is regulated by the Law on Foreign Investment (last amended in 2008), the Law On Hydrocarbon Resources (2008), the Law on Investments (last amended in 1993) and the Law on Corporations of 1999, with respect to start-up corporations, acquisitions, mergers and takeovers of corporations. Foreign-investment activities are affected by appropriate bilateral or multilateral investment treaties, and also by the Law on Enterprises of 2000, the Law on Business Activities (last amended in 2008), and the Land Code approved in 2004. Foreign investment in the oil and gas sectors is subject to the 2008 Petroleum Law. The 2000 Civil Code defines what constitutes a legal entity in Turkmenistan, as well as requirements for registration. Much foreign investment is governed by project-specific presidential resolutions, which may grant privileges not provided by the general legislation.

The President of Turkmenistan has expressed his intent to improve investment conditions, and since the beginning of 2008 the Government of Turkmenistan has adopted legal reforms on foreign investment and licensing. Nevertheless, the lack of established rule of law, inconsistent regulatory practices, and unfamiliarity with international business norms are major disincentives to foreign investment.

Stability, transparency and adequacyLaws make frequent references to by-laws that are often not publicly available. Most by-laws are passed in the form of presidential decrees. Such decrees are not categorised by subject, which makes it difficult to find relevant cross references. Moreover, cases have been noted in which government officials have acted on the president’s verbal instructions, rather than on written orders or governing legislation. Bureaucratic procedures are confusing. There is no single body that coordinates registration and activities of domestic and foreign private companies. When conducting due diligence in Turkmenistan, foreign companies face a time consuming process.

Turkmenistan acceded to the UN Convention against Corruption on 28 March 2005, but is not yet a signatory. It has not signed the OECD Anti-Bribery convention.

Turkmenistan is scored 1,6 in the 2010 table of the Corruption Perceptions Index prepared by Transparency International.

Turkmenistan does not participate in the Extractive Industries Transparency Initiative (EITI).

PrivatisationGovernment efforts since 1991 to privatise former state enterprises have attracted little foreign investment. The Law on Privatisation was passed in 1992. Privatisation has been limited to the service and trade sectors, with most industry still in state hands. Out-dated technology, poor business structures, and governmental obstacles make privatised firms unattractive as outright purchases for foreign investors.

All land is government-owned. Neither domestic nor foreign businesses can receive long-term land-use rights for “non-agricultural” purposes. Foreign companies or individuals are permitted to lease land for non-agricultural purposes, but only the President has the authority to grant the lease.

Institutional reformsThe new constitution, adopted on 26 September 2008, strengthened the already dominant institution of the presidency. The President appoints and dismisses judges without parliamentary review, forms the central election commission, and has the right to issue edicts that are mandatory. There are no presidential term limits.

In May 2010 the government adopted the National Programme for Socio-Economic Development of Turkmenistan for 2011-2030. The Programme envisages diversification of the economy, increased competition and recognises the importance of further market and institutional reforms. For the first time this explicitly includes privatisation of small and medium enterprises. Moreover, tenders to privatise some of the country’s public companies have recently been launched.



Investment climate TaxationThe 2004 Tax Code provides the legal framework for the taxation of foreign investment. Foreign investors in Turkmenistan are disadvantaged by higher tax rates than most local companies. The Tax Code is updated on an annual basis in order to make it closer to international practices, however most tax rates remain unchanged. The Value Added Tax is 15% income tax is 8% for joint ventures and 20% for wholly-owned foreign companies and state-owned enterprises.

Financial and banking systemsIn August 2010 the government submitted new draft laws on banking and currency regulation to parliament, aimed at improving the national banking system through the introduction of international reporting standards and increasing the transparency of banking operations.

Efforts are needed to increase the private sector share in the banking sector. It remains state-dominated and is characterised by state-directed lending. The ongoing reform of the banking law will contribute to better access to credit.

Disputes settlementTurkmenistan’s investment and commercial disputes have three common themes: non-payment of debts, non-delivery of goods or services, and contract renegotiations.

The commercial law enforcement system includes the Arbitration Court of Turkmenistan which tries 13 categories of disputes, both pre-contractual and post-contractual, including taxation, legal foundations and bankruptcy issues. The court does not interfere in enterprises’ economic relations, but considers disputes by request from either party involved. Appeals on decisions of the Arbitration Court can be filed at the Arbitration Committee of the Supreme Court of Turkmenistan.

Turkmenistan has not become a Party to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (Washington Convention) or the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards or any other internationally recognised arbitration agreement.

Tariffs and energy pricing systemThere are no recent developments in energy pricing that would favour investments.

Determination of “Road Map” status Based on the ‘Investment climate’ indicator, the current status is ‘basic’.

Investment planning Development of investment strategy and planningEconomic and investment planning is carried out in Turkmenistan through long-term programmes, the latest of which is the Strategy for Turkmenistan’s Economic, Political, and Cultural Development for the Period to 2020, which was adopted in 2003. One of the main objectives of this programme is attracting investment and increasing construction of industrial facilities.

Following the establishment of the Stabilisation Fund of Turkmenistan (SFT) in October 2008, the European Union has commenced an intensive fiscal advisory programme and the first proposals are expected to be published and presented to the legislative bodies towards the end of the year. The reserves of the Stabilisation Fund of Turkmenistan will help fund medium-term infrastructure investments, although relevant investment rules have yet to be disclosed.

Projects of strategic interestIn the electricity sector, the state priority is to export electricity since production capacities exceed domestic needs and gas produced locally is cheap. Construction of a power transmission line going through Turkmenistan, Afghanistan and Pakistan has already begun.

In the gas sector exports of gas to the EU via a Southern Corridor is currently under discussion. The Turkmenistan-China pipeline has already begun to function (2010).




1. Turkmenistan government (www.turkmenistan.gov.tm/_en) 2. Oil and Gas Industry of Turkmenistan, 2009 (issued by the Ministry of Oil and Gas) 3. Minutes of the Meetings, project: Identification of the INOGATE project “Energy Market Convergence and enhanced Efficiency in the Field of Electricity and Gas”, August 2010 4. US department of State. Turkmenistan investment climate statement, 2010 5. USAID, Turkmenistan (www.usaid.gov/locations/asia/countries/turkmenistan) 6. EBRD, Turkmenistan (http://www.ebrd.com/pages/country/turkmenistan.shtml) 7. Renewable Energies in Central Asia Regional Report on Potentials and Markets – 8 Country Analyses Energy-policy Framework Papers, Section Energy and Transport, GTZ, 2009

144 | INOGATE | Status Report 2011 | Country Profile Ukraine

UKRAINE COUNTRY PROFILE

Area of cooperation: Energy market convergence

Market convergenceLegislative frameworkThe primary legislation of Ukraine comprises the Law On Electric Power Industry No 575/97-ВР dated 10 October 1997, the Law On Oil and Gas No 2665-III dated 12 July 2001, the Law on the Principles of the Natural Gas Market Functioning No 2467-VI dated 08 July 2010, the Law On Coal Bed Methane No 1392-VI dated 21 May 2009, the Natural Resources Code of Ukraine No 132/94-ВР dated 27 July 1994, the Law on Electric Power Industry and the Law on Natural Monopolies, from 2003. A new Law on Principles of Natural Gas Market Functioning was signed by the President of Ukraine on 8 July 2010.

The secondary legislation covers regulation of the energy market (Rules of the Wholesale Electricity Market of Ukraine approved by NERC Resolution No 921 dated 12 September 2003). Part of the secondary legislation is also the methodological recommendations on setting tariffs for electricity developed by NERC (National Electricity Regulatory Commission of Ukraine). The Law ”On land for electric power plants and the legal status of special zones for power engineering facilities” No 2480-VI dated 09 July 2010 defines and classifies the territories used for electric power plants and stipulates that electricity transmission assets can be located on land plots of all land categories without changing their designation.

Relations with the European Union in the Energy Sector • A Memorandum of Understanding on cooperation in the field of energy between the European Union and Ukraine was signed in 2005. • Regional Energy cooperation between Ukraine and the EU takes place in the framework of the Baku Initiative, which provides for political dialogue between the EU and the countries of the littoral states of the Black & Caspian Seas and their neighbouring countries. • Ukraine participates in the Eastern Partnership and its energy security platform. • Bilateral cooperation between the EU and Ukraine takes place in the context of the European Neighbourhood Policy in line with the Partnership and Co-operation Agreement, and also covers energy cooperation. • EU-Ukraine negotiations are proceeding on an Association Agreement, which will include energy issues. • Ukraine is a member of the Energy Community as of February 2011.

Establishment of TSO and DSOIn the electricity sector the national TSO is the national electricity company Ukrenergo (100% state-owned, under the authority of the Ministry of Energy and Coal Industry). There are 47 distribution companies (DSOs) operating in Ukraine at the moment, including 40 regional “oblenergos” (one in each region or oblast), 2 DSOs serving the cities of Kyiv and Sevastopol, and five others. Kievoblenergo is one of the largest DSOs and is privatised, as are some others1.

In the gas sector the Naftogaz subsidiary JSC Ukrtransgaz and the state owned company NJSC Chernomorneftegaz operate as TSOs in Ukraine. 53 companies operate as gas DSOs; Naftogaz has shares of over 50% in 18 of these2.

UnbundlingThe electricity sector is legally unbundled, however the NJSC Energy Company of Ukraine still owns most of the power sector.

The gas sector is not unbundled. New gas legislation adopted in July 2010, which envisages legal unbundling is supposed to start the unbundling process on 1 January 2012 and would complete it by 1 January 2015.

Determination of “Road Map” status Based on the ‘Unbundling’ indicator, the current status for the electricity sector is ‘advanced’ and for the gas sector is ‘basic’.

1. Figures given by the Ministry of Energy and Coal Industry of Ukraine and refer to April 20112. Figures given by the Ministry of Energy and Coal Industry of Ukraine and refer to April 2011

Country Profile Ukraine | Status Report 2011 | INOGATE | 145

Third party accessIn the electricity sector, so far Ukraine has not yet implemented a fully transparent system of third party access to the transmission and distribution networks which can be applied objectively and without discrimination between system users in accordance with the EU principles for energy markets. Private companies can enter the electricity market as DSOs and generators. While third party access for DSOs to TSO network is foreseen, there are many restrictions on transparency and principle of non-discrimination for electricity traders to access the DSO networks.

In the gas sector, a Resolution On Approving the Procedure for Accessing the Unified Gas Transit System of Ukraine is currently being developed by the National Electricity Regulation Commission (NERC). In 2011, the Energy Community Secretariat commented on NERC’s draft rules implementing the right to third-party access. These rules are still far from complying with Directive 2003/55/EC and Regulation 1775/2005.

A market access procedure (Network Code) to the integrated gas transportation system of Ukraine has been developed by the National Electricity Regulation Commission (NERC), and is being agreed with relevant ministries.

Determination of “Road Map” status Based on the ‘Third Party Access’ indicator, the current status for electricity sector is ‘developing’ and for the gas sector is ‘basic’.

Independent energy regulatorsEstablishmentThe National Electricity Regulatory Commission of Ukraine (NERC) is responsible for energy regulation. The main NERC functions are (a) issuing licenses to business entities for electrical power production, (b) transmission and supplying of electrical power, (c) natural gas transmission, distribution, storage and supply, (d) oil transportation through main oil pipelines, and (e) transportation of natural and oil gas through pipelines. Six commissioners are appointed by the President of Ukraine for the term of six years. Commissioners can be re-appointed for a second term. The NERC is financed from the national budget. (In May 2011, the Ukrainian Parliament adopted a bill which amongst other clauses amended the rules to make NERC the “national commission in charge of the state regulation in the energy sector”).

Level of independenceThere is no single law governing the Regulatory Commission; the relevant regulations are fragmented and included in various parts of the energy legislation, which do not address the issue of independence. Since no single law on the Regulatory Commission exists so far and NERC is financed from the national budget, the regulator cannot be considered fully independent.

Tariff policy/Role of regulatorsTariff setting policy/typesIn the electricity sector, the electricity market is organised according to a single buyer model. The state enterprise Energorynok is the market operator, to which all electricity generated is to be sold.

Pursuant to article 15 of the Law On Electric Power Industry, all electricity generators with the exception of TPP and some CHPPs are obliged to sell the electricity at regulated prices set by NERC. Usually these prices reflect the electricity production costs of the different technologies. Only TPP and a few CHPP (one in Kharkiv and two in Kyiv) can operate on a competitive basis.

The wholesale tariff for electricity generators under the regulated prices (nuclear, HPP, all CHPP except those indicated above, gas turbine, steam gas turbine, wind, solar and other renewables) is based on a marginal price system and a number of prescribed costs.

The wholesale tariff for electricity generators in the competitive market (TPP and a few CHPP) is cost reflective and depends on price offers of each electricity producer to be submitted to the state enterprise Energorynok on a daily basis.

The base-load energy system demand is covered primarily by generators operating under regulated prices. Variable part of energy system demand is covered by the competitive market generators starting from that producer which offered the lowest price and so on until the energy system demand is fully satisfied.


There are two types of retail tariffs, a first category for customers connected to the network at more than 35 kV and a second category for those customers connected to less than 35 kV. Retail tariffs are set by distribution companies on the basis of average wholesale purchase prices, while network tariffs for the transmission and distribution activities are set by NERC. Retail electricity tariffs are developed on the basis of a “cost-plus” formula, which includes the market price of electricity at the wholesale market, transmission and distribution costs, losses, operating and maintenance costs, as well as a level of investment return admissible for transmission and distribution companies. Transit tariffs are elaborated exclusively by the Ministry of Energy and Coal Industry of Ukraine.

In the gas sector, the prices for households and CHP (district heating plants) are regulated by NERC; for industrial customers NERC establishes a price cap. Access tariffs for gas transportation, distribution, supply and storage are set by NERC. Tariffs for cross-border gas transit are not set by NERC, but are established by interstate agreements and negotiations between Gazprom and Naftogaz of Ukraine NJSC.

The tariffs are cross-subsidised, both in the gas and electricity sectors between different consumer categories. A new incentive-based tariff methodology is currently being developed by NERC in the gas sector.

According to ERRA (Energy Regulators Regional Association), average prices in 2010, including taxes, for electricity and gas paid by households are: • Electricity: 0,02€/kWh: • Gas: 2,10 €/GJ

TransparencyMethodologies for calculating electricity and natural gas tariffs are published by NERC.


Technical rulesHarmonisation of standardsIn the electricity sector the development of new technical standards is underway. However, EU equipment suppliers who have adopted voluntary standards may be the only entities in the country that satisfy the term “EU compliant standards”.

Ukraine has already attempted to harmonise its standards with EU technical specifications for transformers and transmission lines, but the process was halted for budgetary reasons and very few documents were formally adopted.

In the gas sector, the harmonisation process is ongoing in cooperation with EASC (Euro-Asian Council for Standardisation) and the INOGATE programme. More than 100 EU gas standards were translated into Russian, of which approximately 40 have been submitted for further consideration to key energy sector stakeholders; however the adaption process is slow. Presently the Eastern Ukrainian border crossing gas transit is handled under Russian regulations and rules. The Ukrainian technical regulation on metering has been harmonized with the EU Directive 2004/22/EC.

Ukraine is a member body of ISO as well as affiliated member of CEN/CENELEC. Moreover Ukraine is a member of COOMET (Euro-Asian Cooperation of National Metrological Institutions) and EASC (Euroasian Council for Standardisation).


Integrated regional marketsIn the electricity sector, Ukraine’s strategic objective is the full integration of the Ukrainian Integrated Power System (IPS) into the European grids within the ENTSO-E (EU – Ukraine Association Agreement). Currently the Ukrainian IPS is interconnected with the Russian, Belarusian and Moldovan grids. A study on opening the regional wholesale market financed by an IFI identifies the lack of an interconnection with the ENTSO-E grid as one of the main barriers for future integration into the 8th Electricity Market Region. According to their findings, Ukraine will not be able to meet the deadlines for opening a regional wholesale market.


The law permits exports of electrical power by licensed businesses operating on the domestic wholesale electricity market on an auction basis (“On Amendments to the Law of Electricity”, article 30: 19 March 2009). Would-be exporters must purchase electricity in Ukraine at the wholesale market price and bid for the right to export. Auctions are carried out at least once a month. Successful companies can independently determine the price for electricity to be exported, including profit margins.

Ukraine is interconnected and exports electricity to Belarus, Moldova, Poland, Slovakia, Hungary and Romania.

In the gas sector, Ukraine has a number of gas supply/transit agreements with its neighbouring countries. Ukraine is interconnected with the Russian Federation, Poland, Hungary and Moldova. However, this cooperation is limited to an ad-hoc exchange of technical experience and a dispatching agreement. No membership/association agreements are in place with the EU gas organisations such as Gas Infrastructure Europe (GIE), Marcogaz (the technical association of the European gas industry), EGIG (the European Gas pipeline Incident Data Group, and the European Pipeline Research Group (EPRG - a cooperation of European pipe manufacturers and gas transmission companies). Due to possible restructuring of NAK Naftogaz participation in ENTSO-G has not yet been considered by the government. This process may start only after completion of sector restructuring and provision of fully independent status to Ukrtransgas as separate legal entity. ENTSOG invited all Energy Community TSOs to apply for the status of Observer.



MaintenanceIn the electricity sector operation and maintenance of the backbone network is one of the main tasks of Ukrenergo (TSO), which carries out regular repairs and maintenance of the line. Ukrenergo also has a special maintenance recording system. The distribution networks in some areas are technologically obsolete and have deteriorated. The same applies to a large part of the electricity generation infrastructure which needs rehabilitation or replacement. Also all DSOs have annual maintenance programmes, which are approved by NERC.

In the gas sector, since 1992 Ukraine has been investing in the maintenance and reconstruction of Ukrainian gas transmission pipelines. Naftogaz of Ukraine NJSC (TSO) undertakes all necessary maintenance activities.

Distribution gas pipelines are examined under the long-term Programme for Examining and Monitoring the Technical Condition of the Distribution Gas Networks at Gas Supply and Gas Service Installation Enterprises in 2008-2012. The programme contains training activities and guidelines for personnel and maintenance procedures.


Rehabilitation/Upgrading Long and medium term rehabilitation programsIn the electricity sector due to a lack of investment in modernisation of power networks, the network is underperforming. The ‘National Energy Program of Ukraine to 2010’ refers to modernisation of the thermal power plant production capacities and the planned rehabilitation of thermal power plants (TPPs) in the ‘Energy Strategy of Ukraine to 2030’. However, these documents do not define how this modernisation will take place or how it will be financed. The only dedicated funding source is a surcharge to the tariff for electricity produced by TPPs, which was introduced in 2004 by the ‘National Energy Program of Ukraine to 2010’. However it is unlikely that the tariffs will be sufficient to have a significant positive impact in this direction.

In the gas sector Naftogaz is implementing a programme for the modernisation, technical re-equipment and introduction of European standards in gas pipelines and compressor stations, as well as applying energy-saving technologies and equipment. The main objectives of the programme include reconstruction and modernisation of linear pipelines, auxiliary objects, compressor stations, telemetry and communication systems, underground gas storage facilities and gas metering stations.


Status of outage and lossesTechnical losses in the electricity sector amount to 12%. Each licensee reports to NERC on losses and outages on a regular basis. The quality of service standards, indicating permissible levels of outages, is still to be developed by NERC.

Outages in the electricity sector are rare and mainly take place in rural areas as a result of unfavourable weather conditions and/or deteriorated distribution grids. During recent years Ukrainian TSO and regional DSOs have carried out active measures (construction of reserve lines, switching to ring connection schemes etc.) to eliminate electricity outages for end users.

In the gas sector losses are assessed at 2.3% of total transmission volumes.Reporting on losses and outages is done by the Naftogaz to NERC and the Ministry of Energy and Coal Industry on a regular basis.


New energy infrastructuresCurrently there is no specific legislation covering investment in new transmission infrastructure. The necessary investments for new infrastructure are to be covered by IFI loans.

In the electricity sector, in the past 3 years, Ukraine has actively concentrated on the technical, legal and standardisation aspects of interconnecting with the ENTSO-E network. It is expected that in the next several years Ukraine’s electricity grid will be ready to be connected up. However this is the subject of a high-level political decision, which has not been taken yet.

In the gas sector there are thirteen underground gas storage facilities with a working capacity of 32 bcm. These represent an important technological element of Ukraine’s gas transmission system. Connected by a network of pipelines, the underground gas storage facilities guarantee reliable operation of the entire gas transmission system, and provide a stable gas supply for domestic consumers and for transit of Russian gas to Europe.

In order to support its leading transit position, Naftogaz of Ukraine aims to increase the transit capacity of its gas pipeline network. New gas pipelines and gas compressor stations are being constructed to increase the transmission capacity. According to plans, the Ukrainian gas pipeline network would increase its transit potential almost by 60 bcm per year, rising to 200 bcm annual capacity.

New legislation is envisaged based on draft action plans and amendments to minimum gas stock reserves, and this issue is currently attracting significant discussion and attention.


Metering and billing (electricity/gas)Metering systems at end-usersIn the electricity sector meters are installed for each end user (commercial & household). Currently legislation requires all industrial consumers to use the automated system for control and metering of electricity (ASCM). This system allows control and management of a wide range of technical parameters (differentiated electricity metering, overall power control at consumer site, various types of statistics etc) and aim to increase the rational consumption of electricity by the consumer. Use of electricity and gas metering facilities is close to international standards (particularly in the big cities).

In the gas sector, the recent implementation of programmes to equip households with gas meters (operating in eleven oblasts of Ukraine as of 2009) and other initiatives has led to an increase in the proportion of residential homes with meters. The top priority for the gas meter installation programme is to ensure measurement of gas in apartments where gas is used for heating. Currently 97.9% of households in this category have meters installed. The system thus allows metering of about 87% of the total amount of natural gas consumed in Ukraine3.

3. Figures given by the Ministry of Energy and Coal Industry of Ukraine and refer to April 2011


All border gas metering stations (both in Ukraine and neighbouring countries) are equipped with automated electronic gas measurement systems (including backup systems) and automated flow devices determining gas quality parameters.

Tariff collection systemsIn the electricity sector industrial consumers are responsible for the highest non-payment rates. However official figures give collection rates of 98.4%.4

In the gas sector the level of payment for consumed natural gas for all categories of consumers of Ukraine is 92.3%.5



Diversification of energy mix Ukraine still heavily relies on fossil fuels, which account for over 98% of the country’s TPES in 2009. Large hydro is the main renewable energy source contributing to the energy supply of Ukraine, with an installed capacity of 5 GW. In addition to large hydro power plants, biomass is used for heating and plays a significant role in the energy mix. According to the Biomass Study conducted by CRES (Greece) for the Energy Community, in 2009 biomass consumption represented 4,2% of gross final energy consumption.

Numerous projects are under preparation or implementation. In particular, 80 MW installed capacity “Okhotnikovo” and 100 MW installed capacity “Perovo” PV solar installations have been recently commissioned in south regions of Ukraine. A new “Novoazovsky” wind farm of 25 MW installed capacity was commissioned in 2011 with plans of its extension up to 100 MW by 2014.

Policy framework An ambitious national energy strategy extending to 2030 was adopted in 2006. Its key goal is to reduce the share of energy imports from 55% in 2005 to 12% in 2030, and to reduce energy intensity by 52% compared to 2005. This document is currently under revision by the Ministry of Energy.

The strategy is the key document that determines mid-term state policy on energy efficiency and the development of renewable energy sources. It is aimed primarily at upgrading the national energy sector in order to improve energy efficiency, reduce energy losses and increase the share of renewable energy sources in the national energy balance. The objective of this state strategy is to lower the energy intensity of the Gross Domestic Product during the period covered by 20 % as compared with 2008 (annually – by 3,3 %) and to optimise the state’s energy mix by reducing in particular imported fossil fuels (especially natural gas), and replacing them with other resources, including alternative sources of energy and waste energy. Implementation of the programme will make it possible to (a) liquidate cross-subsidies in price- and tariff-setting; (b) create conditions for attracting the finance needed to renovate and modernise the production assets; (c) ensure a reduction of thermal energy costs in residential buildings and the premises of state funded organisations by 50%; and (d) reduce emissions by 15-20 %; and energy losses annually by 1-3%.

Moreover the State Target Economic Program for Energy Efficiency for the period of 2010-2015, approved in March 2010 addresses the issue of energy diversification: implementation of the programme should increase to 10% the share of renewable electricity in the country’s power generation.


EE/RES framework development In September 2008, the Ukrainian Parliament adopted a law on green tariffs entitled “On Amendments to Certain Laws of Ukraine Concerning the Introduction of a Green Tariff.” The green tariff includes wind power, hydropower, biomass, biogas, and several methane-capturing power producing activities. The NERC will approximately double the prices that energy producers in these sectors could normally charge for the next ten years.

4. Figures given by the Ministry of Energy and Coal Industry of Ukraine and refer to April 20115. Figures given by the Ministry of Energy and Coal Industry of Ukraine and refer to April 2011


A second law on “green” tariffs introduced amendments to the Law of On Electrical Power Industry” adopted on 1 April 2009, envisages differential tariffs for solar, wind, water and biomass energy. In accordance with this law the NERC will set a rebate tariff for electricity produced from renewable energy sources till 2030. For producers of such energy, tariffs are calculated according to the technology used for production. Other important decrees recently adopted are: • Law of Ukraine # 1220-VI of 1 April 2009. This introduces amendments to the Law on Electricity to provide incentives for alternative energy sources. In particular, “green” tariffs are determined for RES including solar energy. • Law of Ukraine # 1391-VI of 21 May 2009. This introduces amendments to the Laws of Ukraine Concerning Promotion of Production and Use of Biofuel” and provides incentives on measures for biofuel production and use. • Decree of the Cabinet of Ministers of Ukraine # 102-р of 4 February 2009 “On Activities on Alternative Energy Sources Use” • Decree of the Cabinet of Ministers of Ukraine # 276-p of 12 February 2009 “On Approval of Concept of the State Target Scientific-Technical Program of Production Development and Use of Biofuel”[1]

A 2011 law on so-called “local content” requires a gradual inclusion of up to 50% of local products or services in the total project costs, beginning from 2014. The objective is to protect the local market for products and services, potentially to the disadvantage of more efficient imported equipment, and to encourage utilisation of domestic renewable resources.

During 2008-2009 a further five orders and three decisions of the Cabinet of Ministers were issued on the topic of energy saving. Furthermore, three laws, two Decisions and one Order of the Cabinet of Ministers support different aspects of renewable energy.

With the aim of harmonising Ukrainian and EU Legislation, the National Energy Efficiency Agency (NAER) has prepared a draft Law On Alteration to Some Laws of Ukraine Related to Renewable Sources of Energy”.


EE/RES Action Plan and Measures There is substantial potential for renewables in almost all technologies, (namely wind, small hydro, biomass and geothermal), which has been mapped.

Legislative acts on energy efficiency have been developed and are being improved. For example, a draft Law on Efficient Use of Fuel and Energy Resources developed in April 2009 is expected to replace the Law on Energy Saving of 1994, (which offers tax incentives to enterprises that use equipment based on renewables and to producers of energy-saving equipment). In addition a Law on Energy Conservation enacted in 2005 defines the institutional, regulatory and economic mechanisms for energy conservation.

In accordance with the Tax Code of Ukraine, adopted by the Verkhovna Rada (parliament) of Ukraine in December 2010, tax incentives have been introduced for renewable energy sources enterprises. In particular, 80 % of income of producers of equipment, which utilises renewable sources of energy, materials, raw materials, equipment and components, or which will be used for the production of energy from renewable energy sources and energy efficiency applications, have been relieved from taxes for a period of 5 years.


Creation of energy agencies Since 2006, the National Agency of Ukraine for Efficient Use of Energy Resources (NAER) has been in operation as a state agency to support the implementation of national policies on energy efficiency and conservation, securing an increase in the share of renewable energy production; establishing a state system to monitor energy production, consumption, exports, and imports; improving the system of registering and controlling energy consumption; and ensuring the functionality of the system of industrial energy consumption norms.


The administrative reform launched in December 2010 had an impact on the NAER. The agency was renamed State Agency for Energy Efficiency and Energy Conservation (SAEEEC) and was moved from the former Ministry of Energy to the Ministry of Economic Development and Trade.


Environmental assessments/energy auditingBuilding codes and standard procedures for certification of energy auditors (from NAER) exist since 2006. As regards auditing norms, NAER formulated an order in May 2010 with recommendations for energy auditing procedures. Also training centres for energy efficiency and energy management (including energy audits) have already been established and certified by the Ministry of Science and Education. In addition, in accordance with the sectoral energy efficiency programme for the housing and utility sector adopted in 2009, it is envisaged that in the first phase of the programme (2010-2012) an energy audit system for industry will be developed. Finally, a draft law on energy audit is under preparation (currently registered at the parliament).

Environmental standardsIn February 2010 the Prime Minister signed a draft national environment strategy to 2020, which now needs to be approved by parliament. Some steps (i.e. National Environmental Plan for 2011-2015 was adopted by the Cabinet Direction #577-R of 25 May 2011) were taken to prepare a national environment action plan.

Presidential decrees were adopted on the safety of water resources and the quality of drinking water as well as on national parks and nature reserves. New laws on landscape and on integrated coastal zone management as well as amendments to the environment and ambient air laws and to the water code are under preparation.

Determination of “Road Map” status Based on the ‘Environmental assessments and Environmental standards’ indicator, the current status is ‘developing’.

Kyoto Protocol mechanisms Ukraine submitted its Fifth National Communication to the UN Framework Convention on Climate Change in December 2009. It includes a greenhouse gas inventory for 2007. Legislation was adopted on Joint Implementation (JI) projects by Cabinet of Ministers in 2006. However, legislation on emission trading is still under preparation. As of December 2010, 40 projects totalling 12,900 EURO have been registered under the JI mechanism and 22 more were being determined. Ukraine met requirements for the track1 JI projects validation procedure. The National Environmental Investment Agency (NEIA) established in 2007 is responsible for the validation procedure for JI projects in Ukraine.

Gas flaring reductionThis section is not applicable for Ukraine.



Investment framework Legal - regulatory framework developmentThe principal laws/rules affecting foreign investment are as follows: • The Law on the Foreign Investment Regime” (1996), which provides for equal treatment of foreign and Ukrainian-owned business with some restrictions in broadcasting and weapons manufacturing. • Both the Civil Code and the Commercial Code have been in effect since 1 January 2004. • The Land Code was passed by Parliament on 2001. • On 17 December 2008, parliament adopted an amendment to the Law on the Customs Tariff of Ukraine to implement the new, lower customs rates.


• Ukraine’s Anti-Monopoly Committee implements anti-monopoly, competition, and consumer protection legislation under the March 2002 Law on Protection of Economic Competition. • The Law On Alteration to Some Legislative Acts of Ukraine Concerning Foreign Investments and Lending Stimulation” (27 April 2010).

The Commercial Code has a number of provisions considered to be incompatible with market economics, and most experts believe it should revised. The Land Code continues to prohibit foreign ownership of farmland. Burdensome customs clearance procedures are a disincentive to investment in Ukraine.New companies and mergers/acquisitions face strict controls. Most investments, joint ventures with multiple partners, and share acquisitions require the approval of the Anti-Monopoly Committee. Legislation on State aid, as required under the Energy Community Treaty, is still missing.

Ukraine made important progress in becoming the 152nd member of the World Trade Organisation (WTO) on May 16, 2008. WTO accession will push Ukraine toward a more open and transparent trade regime and help improve the investment climate.

Stability, transparency and adequacyThe number of regulations, required certificates, and inspection regimes in Ukraine represents a regulatory burden for private enterprises. While the time and costs related to business registration have been reduced, the government still requires enterprises to obtain numerous permits to conduct business. The Law On Permits System in Economic Activity, which entered into force in January 2006, cancelled more than half of the required permits and increased the number of locations for obtaining permits. The government also tried to expand “One-stop Registration Shops” that allow new businesses to be registered within two to three days, instead of a month, as in the past. Laws and regulations are vague, with considerable room for interpretation, providing officials at every bureaucratic layer ample opportunities for rent seeking. Corruption remains a problem.

Ukraine was ratified as a member of the UN Convention against Corruption on 2 December 2009. It has not signed the OECD Anti-Bribery convention.

Ukraine is scored 2,4 in the 2010 table of the Corruption Perceptions Index prepared by Transparency International.

Ukraine has announced its intent of implementing the Extractive Industries Transparency Initiative (EITI).

PrivatisationThe State Property Fund oversees the privatisation process in Ukraine. Privatisation rules generally apply to both foreign and domestic investors. Few major, new privatisations have been conducted since the privatisation rush of 2004.

Ukrainian law authorises the government to set limits on foreign participation in “strategically important areas”. Some strategically important companies, including natural monopolies, producers of military equipment, and some fuel and energy companies, are excluded from privatisation and foreign ownership.

Institutional reformsThe on-going institutional reforms aim to consolidate public finances, restore the soundness of the banking system, and develop a more robust monetary policy framework. Changes to be introduced will involve tax and expenditure policies, pension and energy sector reforms, and measures to strengthen central bank independence and rehabilitate the banking system. Strict adherence to these policies will enhance market access, facilitating transition from state-funded financial support.

The economic reform program (adopted in 2008, extending to 2015) is intended to support the authorities’ agenda in four key areas: • Restore confidence and fiscal sustainability by reducing the general government deficit to 3.5 percent of GDP in 2011 and 2.5 percent in 2012, and setting public debt firmly on a downward path to 35 percent below its present levels by 2015; • Initiate reforms to modernise the gas sector and eliminate Naftogaz’s deficit as from 2011; • Restore and safeguard banks’ soundness by completing recapitalization plans by end-2010 and strengthening supervision, and • Develop a more robust monetary policy framework focused on domestic price stability under a flexible exchange rate regime to be implemented by a more independent National Bank of Ukraine.



Investment climate TaxationThe Ukrainian tax system is evolving rapidly. The direction of reform is generally positive, although sometimes unpredictable. Tax laws have been revised frequently, and there are still many issues that need to be addressed. The tax law is often poorly worded, which results in ambiguous interpretation and increases the risk of disagreements between taxpayers and tax authorities. In the recent “Paying Taxes” study released by PricewaterhouseCoopers and the World Bank, Ukraine was identified as having one of the least user-friendly tax regimes.

Financial and banking systemsThe National Bank of Ukraine (NBU) is responsible for monetary policy, licensing of commercial banks, and oversight of their activities. In January 2002, the Law On Banks and Banking Activity eliminated discrimination against foreign banks. It entrusted the NBU with issuing banking licenses and includes provisions to prevent money laundering.

Ukraine’s banking system grew rapidly in recent years, mostly on the back of strong foreign borrowing. There are 197 banks registered in Ukraine, including 50 with foreign equity participation. The five largest banks control 30% of the market, representing the lowest market concentration level in Central and Eastern Europe. Foreign banks now account for approximately 31% of bank capital in Ukraine.

Disputes settlementCurrently, there is no single institution in the Ukrainian government with the mandate to help resolve business and investment disputes involving foreign companies. The Ukrainian Centre for Foreign Investment Promotion, a state body commonly known as Invest Ukraine (http://www.investukraine.org), has tried to take on this role but has lacked the necessary clout within the government. In May 2010 Invest Ukraine was transferred to the management of the State Agency of Ukraine for Investments and Development, with the objective of enabling it to realize state investment policy in practice, but without any mandate on disputes settlement.

Commercial contracts may permit the parties to use international arbitration or specified foreign courts to settle disputes. Though Ukrainian legislation recognises international arbitration decisions, in practice such decisions can be very difficult to enforce. In early 2000 Ukraine ratified the Washington Convention, providing for use of the International Centre for Settlement of Investment Disputes (ICSID), an internationally recognized mechanism for resolving investment disputes between investors and the Government of Ukraine. Corruption continues to be an issue in many investor disputes.

Tariffs and energy pricing systemUkraine has introduced the Law On introduction of changes to certain laws of Ukraine as to establishment of a “green tariff No 601-VI dated 25 September 2008. The law guarantees grid access for renewable energy producers (small hydro up to 10 MW, wind, biomass, photovoltaic and geothermal). The feed-in tariffs for renewable power producers are set by the national regulator. In case of significant fluctuations of the national currency against the Euro, the feed-in tariff is adjusted to reflect the changes. On 1 April 2009 the Law of Ukraine “On Amendments to the Law of Ukraine On Electrical Power Industry as to stimulation of alternative energy sources use” was passed (entered into force as of 22 April 2009). This law brought significant changes to the system of green tariff’s.


Investment planning Development of investment strategy and planningIn March 2004 the Law on State Targeted Programs established a new targeted programmes framework. In 2009, the Ministry of Economy (MoE) created a Targeted Programmes Department to support the Cabinet of Ministers’ task of approving a list of targeted programmes, some of which also apply to the energy sector. There are currently 246 such programs, and many were adopted prior to the introduction of programme budgeting, thereby creating several problems. Currently, targeted programmes constitute less than 50 percent of total capital investment.


Generally, the Ministry of Finance has overall responsibility for budget preparation, including setting guidelines for the process, reviewing all spending proposals for conformity with policy and other guidelines, deciding what to include in the budget, and also defining what constitutes capital, recurrent expenditure, and other economic classification categories. The Ministry of Finance is responsible for providing guidance to spending units on preparing capital projects, collecting proposed projects, maintaining a database of current capital assets and new and on-going proposals, preparing the list of priority investment projects for the Council of Ministers, and monitoring project implementation.

Projects of strategic interestIn the electricity sector most Ukrainian high-voltage networks were constructed in the 1960s, when Ukraine started industrialisation. Approximately 40% of the equipment has twice exceeded its design service life. The deterioration of the high voltage network has resulted in a general decline in reliability and quality of electricity transmission. Therefore Ukraine gives high priority to the rehabilitation of the high voltage network.

Additionally, in order to improve the reliability of electricity supplies Ukraine started the implementation of the following interconnection projects of strategic interest: • Construction of a new 750 kV Rivne NPP – Kyiv line. Total project budget is €415,6 mln., of which €300 mln. is provided by the IFIs; • Construction of new 750 kV Zaporizhska NPP – Kahovka line. The total project budget is €500 mln., of which €350 mln. Euro is provided by the IFIs.

Furthermore Ukraine gives priority to using its hydropower potential and has developed a hydropower rehabilitation programme which is partly implemented through loans from the international financing Institutions and supported through the European Neighbourhood Investment Facility (NIF).

Ukraine also intends to construct a centralised spent nuclear waste storage facility in Ukraine.

In the gas sector the finalisation of the Metrological Centre in Boyarka continues with technical support from the EU provided under the INOGATE programme. Furthermore, the gas sector will also benefit from for the modernisation of Ukraine’s gas transit corridors and underground gas storage facilities for which a number of feasibility studies are currently being financed by the NIF. In particular, the development of a feasibility study for the rehabilitation of the Ukrainian section of the Urengoy-Pomary-Uzhgorod gas transmission pipeline is completed (total project budget is estimated in US$1,400 mln, with substantial funding coming from the IFIs).

Naftogaz jointly with the Ministry of Energy and Coal Industry of Ukraine is currently developing an investment project for the supply of liquefied natural gas (LNG) to the domestic market from countries of North Africa and the Middle East.



List of main sources of information:

1. Ministry of Energy and Coal Industry of Ukraine (http://www.kmu.gov.ua/control/en/publish/article?art_id=89307&cat_id=73007) 2. Naftogaz (http://www.naftogaz.com/www/2/nakweben.nsf/) 3. Ukrenergo (www.ukrenergo.energy.gov.ua) 4. National Electricity Regulatory Commission of Ukraine (www.nerc.gov.ua) 5. Minutes of the Meetings, project: Identification of the INOGATE project “Energy Market Convergence and enhanced Efficiency in the Field of Electricity and Gas”. August 2010 6. US Department of State. Ukraine investment climate statement, 2009 (http://www.state.gov/e/eeb/rls/othr/ics/2009/117173.htm) 7. USAID, Ukraine (http://www.usaid.gov/locations/asia/countries/Ukraine/) 8. EBRD, Ukraine (http://www.ebrd.com/pages/country/Ukraine.shtml) 9. Stocktaking report for regional assessment of renewable energy regional findings and country summaries, USAID, Review Draft, 2009 10. Energy efficiency policies and investment project development in Ukraine, Mykola Raptsun, Agency for rational energy use and ecology 11. Energy security challenges in Ukraine, International Centre for Policy Studies Policy Paper, 2010 12. State Policy and Legal Basis for Investment Incentives in Energy Efficiency and Renewables in Ukraine, Oleksandr Yerokhin, Deputy Executive Director ARENA – ECO, International Energy Efficiency Forum, September, 28-30, 2010, Astana, Kazakhstan 13. Communication from the Commission to the European Parliament and the Council Taking stock of the European Neighbourhood Policy (ENP) Implementation of the European Neighbourhood Policy in 2009 Progress Report Ukraine, Brussels, 12/5/2010 14. EBRD, Renewable Development Initiative, country profiles, http://www.ebrdrenewables.com/sites/renew/default.aspx 15. Energy Efficiency Governance, IEA, 2010 16. Energy Efficiency in Ukraine: Policy Implications for SIDA Assistance, SIPU report for the Swedish Internatonal Development Agency (SIDA) Nathaniel Copsey and Natalya Shapovalova, 10 February 2009 17. Ministry of Utility and Housing Infrastructure of Ukraine ESIB project «Energy Efficiency in the Building Sector in the Eastern Europe and Central Asia», INOGATE web portal, www.inogate.org 18. Communication from the Commission to the European Parliament and the Council Taking stock of the European Neighbourhood Policy (ENP) Implementation of the European Neighbourhood Policy in 2009 Progress Report Ukraine, Brussels, 12/5/2010 19. CDM/JI Pipeline Analysis and Database, UNEP, Risoe Centre, http://cdmpipeline.org/ 20. The World Bank “Doing Business 2009” report 21. PricewaterhouseCoopers site, http://www.pwc.com/ua/en/solutions/obg-tax-system.jhtml 22. IMF Report, 2010 23. Letter from the Ministry of Energy and Coal Industry of Ukraine, 29.4.2011

156 | INOGATE | Status Report 2011 | Country Profile Uzbekistan

UZBEKISTAN COUNTRY PROFILE


Market convergenceLegislative frameworkThe primary energy legislation of the Republic of Uzbekistan comprises the Law on Electricity (2009), the Law on Subsoil (2004), the Law on Concessions (1995), the Law on Natural Monopolies (1997), the Law on Rational Energy Use (1997) and the Law on Production Sharing Agreements.

The Law on Electricity which came into force on 30 September 2009 opens up the potential to unbundle the Uzbek electricity sector.

There is also a new Law on Gas Supply which is under study. This law seeks to identify wider legislative, economic and organisational criteria for the gas sector, establish priority issues of state policy regarding gas supply, and fix the rights and obligations for gas suppliers and consumers.

Energy secondary legislation includes numerous electricity and gas sector regulations adopted by the Cabinet of Ministers of Uzbekistan.

In the electricity sector, several regulations where adopted with the aim of making a gradual transition to market oriented principles. In particular, the regulatory framework for private operators of electricity distribution networks has been broadly established. However there is a need for further secondary legislation.

The Cabinet of Ministers Regulation of 22 August 2009 On Adoption of Rules for Use of Electricity and Heat Energy called for an enhanced market orientation in terms of division of technical and financial responsibilities between the key organisations of the electricity sector (i.e. generation, transmission and distribution).

There is also an official strategy adopted for the electricity sector which aims to create an independent and self-sustained industry by the year 2014 (i.e. the capacity of the domestic generation facilities and networks to fully satisfy the electricity needs of the national economy).

In the gas sector, the key regulatory framework includes the Presidential Decree of 8 August 2006 defining the functional responsibilities of Uztransgas, and the Cabinet of Ministers Regulation of 10 January 2000 adopting the rules of natural gas supply to domestic consumers and other documents.

Relations with the European Union in the Energy Sector • A Memorandum of Understanding on cooperation in the field of energy between the European Union and Uzbekistan was signed in 2011. • Bilateral cooperation with Uzbekistan is outlined in its Partnership and Co-operation Agreement with the EU, which includes energy cooperation. • Reginal energy cooperation between Uzbekistan and the EU takes place in the framework of the Baku Initiative, which provides for political dialogue between the EU and the countries of the littoral states of the Black & Caspian Seas and their neighbouring countries.

Establishment of TSO and DSOIn the electricity sector, following the Cabinet of Ministers Regulation of 21.06.2004 #290 On Improvement of Activities of Uzbekenergo all high voltage electricity networks are operated by the Uzbek Electricity Networks (Uzelektroset) (TSO) through its five regional branches. All 35 kV and 110 kV electricity distribution networks have been transferred to 14 local distribution companies. Uzbek Electricity Networks, including its 5 regional branches and 14 distribution companies belong to Uzbekenergo. Thus although they are legally and financially separate, in practice they do not operate independently.

Country Profile Uzbekistan | Status Report 2011 | INOGATE | 157

The Cabinet of Ministers Regulation of 04 July 2009 On Activities of Private [Electricity] Operators and On-time Payments for Electricity introduced the regulatory framework for private operators dealing with electricity, however there are no electricity TSOs or DSOs independent from the state.

At present minority shares of generating companies are being offered for sale. As an experiment the operation of some regional and city electricity grids has been transferred to independent operators – but this only represents a very small share of the total market.

In the gas sector, transmission services are provided by Uztransgas. The distribution networks are operated by 6 regional enterprises, all owned by Uztransgas. These enterprises are separate legal entities with their own financial accounts. Following the regulatory framework adopted in 2004 by the Ministry of Finance and State Tax Committee, these 6 enterprises collect payments from all household and industrial consumers (except for certain large industrial consumers), and transfer them each day to the relevant account of Uztransgas. Large industrial consumers with a direct connection to the medium pressure transmission gas pipelines must pre-pay their natural gas supplies directly to Uztransgas.

UnbundlingIn the electricity sector, the Law on Electricity paves the way for a gradual unbundling and transition to market principles. The government has already taken the first steps towards unbundling by legally and financially separating generation, TSOs and 14 DSOs. However, the electricity DSOs are still fully dependant on the parent TSO (Uzbekenergo) and only unbundling of accounts is in place.

In the gas sector, the six regional DSOs have their accounts unbundled, but nonetheless are owned and fully dependent on the parent TSO (Uztransgas).

Determination of “Road Map” status Based on the ‘Unbundling’ indicator, the current status for electricity and gas sectors is ‘developing’.

Third party accessA transparent system of third party access to the electricity and gas networks which can be applied objectively and without discrimination between system users has not been implemented in Uzbekistan.

In the electricity sector, according to the Electricity Law of 2009 and certain secondary legislation subsequently adopted, third parties can enter the electricity market only as generators (with some restrictions - third parties can access Thermal Power Plants (TPPs), Combined Heat Power Plants (CHPPs) and Renewable Energy Sources (RES) generation facilities, but not Hydro Power Plants (HPPs).

In the gas sector, in the absence of a Gas Law, regulations allow only Uzneftegazdobycha to explore and produce oil and gas, and Uztransgas to handle pipeline operation and distribution. Both of these companies are subsidiaries of the state-owned National Holding Company Uzbekneftegaz.

Third party access to hydrocarbon production in Uzbekistan is implemented on the basis of Production Sharing Agreements (PSA). In particular, the National Holding Company Uzbekneftegaz together with foreign investors is implementing the following investment projects based on PSAs:• PSA for redevelopment of the Shakhpakhty field with the consortium JSC Zarubezhneftegaz and Gas Project Development Central Asia AG, from 14 April 2004 (PSA Shakhpakhty);• PSA for the Kandym group of fields, including Khauzak, Shady, and Kungrad with the consortium OJSC Lukoil Oil Company and Uzbekneftegaz, from 16 June 2004 (PSA Kandym-Khauzakh-Shady);• PSA for the deposits in the south-western Hissar and Ustyurt region with Soyuzneftegaz Vostok Limited from 23 January 2007 (PSA South-western Hissar); • PSA for the Uzbek part of the Aral Sea with the consortium Uzbekneftegaz, Korean National Oil Corporation, Lukoil Overseas Holding Ltd. (Russia), Petronas Carigali Overseas Sdn. Bhd. (Malaysia), and CNPC International Ltd (China) from 30 August 2006 (PSA Aral Sea);• PSA for the Urga, Kuanysh and Akchalak group of sites in the Ustyurtsk region with Petronas Carigali Overseas Sdn. Bhd. (Malaysia) from 13 May 2008 (PSA Urga, Kuanysh, Akchalak)• PSA for Baisun Investment Block of Surahandyn region from 4 June 2010 (PSA Baisun)


Specific access has been granted to the Uzbek section of the new Turkmenistan-China transmission gas pipeline. This transmission pipeline was designed, constructed and is operated by the Joint Venture Asia Trans Gas Ltd., established in 2008 by NHC Uzbekneftegas and China National Petroleum Corporation (50%/50% joint-venture). Thus, on the basis of national legislation access to the gas transmission system is granted only to foreign companies dealing with gas production for export or domestic supplies in accordance with the provisions of each relevant PSA.


Independent energy regulatorsEstablishmentThere is no separate energy regulator in Uzbekistan.

In the electricity sector, state regulation is carried out by several bodies: • the Cabinet of Ministers of the Republic of Uzbekistan; • the State Company Uzbekenergo; • the State Inspectorate Uzenergonadzor; • local authorities; • the Ministry of Finance; and • the State Committee on Geology and Mineral Resources.

In the gas sector, following the Law On Natural Monopolies of 19 August 1999 all activities related to transportation of oil, gas and oil products are subject to state regulation. This state regulation is a responsibility of the Antimonopoly Committee (AC). The AC is also responsible for the development and implementation of state restructuring programmes of natural monopolies.

Exploration of hydrocarbons as well as construction and operation of UGSs is subject to licensing by the State Committee on Geology and Mineral Resources.

The licensing procedures are defined by the Law On Licensing of Some Separate Activities and the Cabinet Regulation On Licensing of Activities Related to Exploration, Processing and Sales of Oil, Gas and Gas condensate, Design, Construction, Operation and Repair of Main Oil, Gas and Oil Product Pipelines.

Level of independenceThere are no independent regulatory bodies in Uzbekistan for the electricity and gas sectors.

Tariff policy/Role of regulatorsTariff setting policy/typesIn accordance with a regulation of the Cabinet of Minister from October 2010, the Ministry of Finance is in charge of tariff regulation in the energy field.

For the electricity sector tariffs for generation, transmission, distribution and retail are set by the Ministry of Finance. Cross-border electricity tariffs are defined by inter-governmental agreements and relevant export/import contracts between Uzbekenergo and foreign electricity companies.

The end-user tariffs are published on the websites of the Ministry of Finance and Uzbekenergo. In case of tariff change, local distribution companies must inform consumers within a 15-day period.

There are 11 types of end-user electricity tariffs: 1. Tariff for household consumers; 2. Tariff for household consumers with cooking appliances; 3. Tariff for industrial consumers of up to 750 kVA connected capacity; 4. Tariff for industrial consumers of 750 kVA connected capacity and over; 5. Tariff for wholesale consumers in agriculture sector including water pumping stations; 6. Tariff for wholesale consumers representing railway and public transport; 7. Tariff for wholesale non-industrial consumers, organisations financed from the state budget and streets’ lighting; 8. Tariff for wholesale commercial consumers (shops, cafés, restaurants and service sector); 9. Tariff for wholesale consumers representing district heating sector;


10. Tariff for wholesale consumers dealing with luminal art; 11. Tariff for internal economic needs of TSO/DSOs.

The methodology for calculating generation tariffs takes into account the operational costs of the power plant, the cost of fuel, plus a margin to secure return on the investment and other costs. The tariffs are differentiated depending on the type of generation technology (thermal, hydro).

The methodology for setting the transmission tariff takes into account the “distance” costs, which cover all transmission losses between generation and distribution points. The methodology for setting distribution tariffs is very similar to that for transmission tariffs, but is weighted towards recovery of commercial losses as opposed to technical losses. It is differentiated by customer type.

Similarly, the Ministry of Finance also prepares tariffs for the gas sector for production, transmission, distribution and retail. Cross-border gas tariffs are defined by inter-governmental agreements and relevant export contracts between Uztransgas and foreign gas companies.

The methodologies for setting the transmission and distribution tariffs are not made public.

There are 4 types of end-user gas tariffs: 1. Tariff for household consumers with gas meters; 2. Tariff for household consumers without gas meters; 3. Tariff for wholesale consumers (i.e. industry); 4. Tariff for wholesale consumers representing district heating sector.

All energy tariffs for industrial and household consumers are published in the newspaper People’s Voice, on websites of the Ministry of Finance and NHC Uzbekneftegas (http://minfin.uz/ru/tarifs.html and http://www.ung.uz/ru/business/tarifs ), as well as on display stands in commercial banks and post offices.

Average prices in 2011, including taxes, for electricity and gas paid by households are: • Electricity (€/kWh): € 0.035 • Gas (€/m3): €0.034 per person per month

TransparencyThe general methodology for calculating tariffs on goods, works and services (including those provided by the natural monopolies) is adopted by the Cabinet of Minister’s Regulation #239 of 28 October 2010. However this document does not cover the methodology for calculating electricity and gas tariffs, the methodologies for which are not made public, contrary to EU principles.


Technical rulesHarmonisation of standardsIn the electricity sector GOST standards are mainly in use, although some are harmonised with ISO standards. National standards (O’z DSt) are also widely used.

Presently the electricity and gas sectors are operated on the basis of the national legislation and regulatory framework, which do not fully conform to European legislation principles.

In the gas sector, approximately 60% of the standards used are interstate GOST standards. Most of these were developed in 2008-2009 and are harmonised with relevant ISO and EN standards. Uzbek Standards are also used, some of which are harmonised with international ISO and Russian standards and adopted for use in the Republic of Uzbekistan (RST UZ).

All Uzbekneftegaz enterprises dealing with hydrocarbons production have ISO-9001-compliant quality management systems. Large enterprises have also implemented environmental management systems in line with the ISO 14000 series and occupational health and safety systems that meet OHSAS 18000 standards.

The new Law on Technical Regulation was adopted in Uzbekistan in 2009. In general, this law complies with EU principles of technical regulation. In particular, it introduces the principle of use of voluntary standards and mandatory minimum requirements for workers health and safety.


In accordance with the above law and the law on standardisation, the following governmental agencies are responsible within for technical regulation and standardisation: the agency Uzstandart, the Ministry of Health, the State Committee for Nature Protection, the State Committee on Architecture and Construction, and the Ministry of Defence.

Uzbekistan is an ISO Member, a Member of the Eurasian Standardization Council (EASC) and a member of COOMET, but not an affiliate of CEN/CENELEC. Cooperation with CEN/CENELEC has been established and Uzstandard is interested in establishing cooperation with other international organisations.


Integrated regional marketsIn the electricity sector Uzbekistan represents an important part of the Central Asian high voltage transmission network. The country hosts the regional dispatch centre of the Central Asia Interconnected Power Grid (Kazakhstan, Uzbekistan and Kyrgyzstan), which, during Soviet times, was in charge of the overall operation of the transmission networks in the region; the centre therefore also controlled and monitored the cross-border exchange of electricity. The electricity grid of Uzbekistan has interconnections with the electricity grids of Afghanistan, Kazakhstan, Kyrgyzstan and Turkmenistan. Uzbekistan exports its electricity only to Afghanistan on the basis of annual export contracts. The issue of electricity imports to Uzbekistan from Kyrgyzstan is under discussion at present between the governments of these countries.

In the gas sector, Uzbekistan engages in cross-border trade (based on bilateral agreements) with Russia, China, Tajikistan, Kyrgyzstan and Kazakhstan. Since 2005, following an agreement between Gazprom and Uztransgaz, Turkmen natural gas is transported to Russia via Uzbekistan and Kazakhstan. In 2009, Uzbekneftegaz signed an agreement with the South African company Sasol and the Malaysian company Petronas for the construction of plants to produce synthetic liquid fuels and another agreement with Export-Import Bank of Korea, Korea Export Insurance Corporation and a consortium of Korean Companies for a turnkey project to construct a gas chemical facility on the Ustyurt plateau.



MaintenanceIn the electricity sector, maintenance of generation facilities, transmissionss lines and distribution networks is performed by the TSO Uzelectroset and the local electricity network enterprises. There are three types of maintenance programmes: preventive (annual), current (5-year period) and overhaul repair (10-year period). All maintenance programmes are financed by Uzbekenergo. In 2011 the budget allocated for the implementation of maintenance programmes amounted US$ 120 mln.

In the gas sector maintenance of transmission pipelines and all related infrastructure is performed by the TSO Uztransgas. Maintenance of distribution networks is performed by the six regional unitary enterprises owned by Uztransgas (DSOs).

There are three types of maintenance programmes: annual, 5-year period and 10-year period. Planned maintenance programmes are fully financed by the TSO Uztransgas.


Rehabilitation/Upgrading Long and medium term rehabilitation programmesIn the electricity sector, Uzbekenergo has three priority areas of development: (a) technical re-equipment and modernisation of power facilities and introduction of advanced technologies, (b) reconstruction and further development of the electricity network and (c) construction of new generating capacities, to meet the projected growth in demand.


The rehabilitation/upgrading of the electricity sector is implemented in accordance with Presidential Resolution On Industrial Development Priorities of Uzbekistan in 2011-2015 adopted in December 2010 and with the Annual Governmental Investment Programme.

According to these documents, within a 5-year period, 44 projects with a total budget of US$5,2 billion should be implemented in the electricity sector, as follows: • 15 projects for upgrading and construction of TPPs facilities; • 9 projects upgrading and construction of HPPs facilities; • 15 projects for upgrading and construction of transmission and distribution networks • Other projects aimed at improving the electricity metering systems

Key on-going rehabilitation/modernisation projects include the upgrading of Tashkentskaya CHP (installation of new 27 MW gas turbines) and construction of a combined cycle gas turbine unit on Navoi Thermal Power Plant with a capacity of 478 MW.

In the gas sector, Uzbekneftegaz has two strategic priorities for modernisation/upgrading of the gas facilities in the country: (a) modernising the technological infrastructure of production facilities and hydrocarbon processing in order to increase the export potential and production of liquid hydrocarbons, and (b) reconstruction and modernisation of the natural gas transportation system in order to improve the reliability of domestic and export supplies. The planned rehabilitation/upgrading programmes are fully financed by Uzbekneftegas.

Status of outage and lossesIn the electricity sector, the maximum level of losses permitted is 4,01% for the transmission network and 10,28% for the distribution network. Actual technical losses in the Uzbek electricity system in fact amount to around 13% out of which about 25% are losses from the national sections of the 500kV regional network and about 75% are losses from the distribution network. Due to commercial losses the total losses in the Uzbek electricity systems are estimated to be well in excess of 30%.

Uzbekistan has a problem with electricity outages in its Eastern energy sub-system (Fergana valley area), in Samarkand-Bukhara and in Surhanddaryia. In autumn and winter periods the outages of electricity in these areas are regular and substantial. The problem is caused by lack of generation capacity in these areas.

In the gas sector, technical losses are mainly caused by pipeline corrosion and out-dated components such as valves. A special gas leakage database and methodology for statistical reporting systems were developed and transferred to Uzbekneftegaz in 2009 by the INOGATE project Technologies and Methodologies for Reducing Gas Losses of the Central Asian Gas Transit System at Central Asia. As a result Uztransgas has a reporting system in place and is keeping relevant statistical records. In 2011 the gas losses in the transmission gas pipelines were 2.11% and 2.40% in the distribution networks. Outages (due to technical reasons) are very rare.


New energy infrastructuresIn the electricity sector, Uzbekenergo focuses on the reconstruction and further development of the country’s electricity network, and on the construction of new generating capacity. A new 500 kV transmission line for exporting electricity to Afghanistan is under construction. Under the framework of the Programme for Development and Reconstruction of Generating Capacities in the Power Industry of the Republic of Uzbekistan for the period till 2010, the main result was the construction of power unit No 1 at Talimardjan TPP of 800 MW. This was, completed in 2005 and allowed for a reduction in transmission power losses. Uzbekenergo is now elaborating a strategy for the power system development for the period ending in 2020.

Completed key projects for the last years include: • A new 500 kV line Syrdaryinskaya TPP – Sogdiana (218 km); • A new 500 kV line Guzar-Surhan (197 km); • Construction of new 478 MW unit at Navoyskaya TPP • Modernisation of HV lines and related infrastructure for improvement of electricity supply to Tashkent; • Construction of two new 450 MW (each) CCGT units (combined cycle gas turbine) at Talimardjanskaya TPP; • A new 500 kV line Novo-Angrenskaya TPP – Uzbekistanskaya sub-station.


In the gas sector, the government focuses on the further development of new gas fields and the rehabilitation of existing gas facilities and networks. During the last five years the following new gas pipelines were commissioned:

• Transmission gas pipeline Ahangaran-Pungan (165 km); • Sections of the Central Asia-Center 4 transmission gas pipeline (overall length 133 km); • Section of the Central Asia-Center 2 transmission gas pipeline (overall length 68 km); • Sections of the Gazli-Nukus transmission gas pipeline (overall length 247 km); • Transmission gas pipeline Gazli-Sarymay (105 km); • Sections of the Gazli-Kagan transmission gas pipeline (overall length 51 km;) • Section of the transmission gas pipeline Bukhara-Ural (overall length 80 km); • New gas distribution networks in all regions (overall length of 585 km - low and medium pressure).


Metering and billing (electricity/gas)Metering systems for end-usersIn the electricity sector according to Uzbekenergo almost 100% of household and industrial consumers have electricity meters installed. Moreover at present Uzbekenergo is implementing a project to install smart meteris. This system will enable remote control of energy consumption and timely and full payments. Over 2 million new electric power meters have been installed so far.

All cross-border electricity infrastructure is equipped with electricity meters.

In the gas sector, as of 1st January 2011, 93,4 % of household consumers had gas meters installed. All wholesale gas consumers (industry, business entities, etc) have gas meters; moreover it is prohibited to supply natural gas to any wholesale consumer without installed gas meters.

All the cross-border gas infrastructure (29 export lines) is equipped with electronic gas meters in accordance with GOST 8.586.1-5-2005.

Tariff collection systemsIn the electricity sector, the collection rate by the end of 2011 was 88,5%, including 93,9% for industrial and commercial consumers and 71,7% for household consumers.

In the gas sector, by the end of 2011 the collection rate for household consumers was 57,9%, while the collection rate for industrial consumers was 96,1%.

Determination of “Road Map” status Based on the ‘Metering and billing’ indicator, the current status is ‘developing.’


Diversification of energy mix Uzbekistan has considerable potential for energy efficiency, particularly in the industrial sector. There is also a high potential for renewables (hydro, solar and wind), especially in remote off-grid areas.

Until now only large hydropower has been utilised with any great significance; it accounted for approximately 12% of total electricity generation in 2011. Renewable technologies are competing against fossil fuels with little governmental support. The total share of conventional generation in the total electricity mix is about 88%.

Policy framework In 2011 the Government of Uzbekistan issued a directive to Uzbekenergo to develop the National Strategy for Improvement of Energy Efficiency (EE). This process is on-going. However the issue of developing a Renewable Energy Sources (RES) Strategy has not yet been dealt with at national level.

The main body responsible for EE issues in the country is Uzbekenergo. Other state structures involved in this process are the following: Ministry of Economy, Ministry of Agriculture and Water Resources, the Academy of Sciences and the State Committee on Environmental Protection. A programme has been developed for upgrading the technical and technological equipment used for electricity generation for the period 2009-2015.



EE/RES framework development The Law on the Rational Use of Energy (1997) serves as the cornerstone for the development and functioning of the entire energy sector including renewables. This law requires distribution companies to accept energy from private generators at a transparent transaction rate, and makes provisions for the granting of subsidies from the Intersectoral Energy Conservation Fund. Nevertheless, for a large-scale and effective introduction of energy efficient methods and technologies, corresponding secondary legislation is still needed.

In 2008 the presidential resolution No4058, called for a Programme of Measures to Support Enterprises. Its aim was to increase the competitiveness of Uzbek industry through modernisation of processes and reducing of energy consumption.

In addition, the Electricity Law of 2009 supports the development and use of renewable energy and establishes rules for the construction, financing, commissioning and decommissioning of the power stations which use renewable energy sources.


EE/RES Action Plan and Measures No national Strategy or Action Plan for the EE/RES sector exists at present, although Uzbekenergo has been tasked to prepare an energy efficiency strategy. Some RES pilot programmes/projects have been adopted in Uzbekistan. In particular, in 2008 the Ministry of Agriculture of Uzbekistan adopted a Programme for Development of small HPPs to be used for electricity supplies in rural areas. It is planned to build 15 new small HPPs with a total capacity of 420 MW. The implementation of this programme is on-going.

Other pilot RES projects to be implemented cover the selection of sites for construction of solar stations and a pilot project for the construction of one wind farm.


Creation of energy agencies There is no dedicated governmental agency for sustainable energy within the structure of executive authorities yet, however the issue of its establishment is under consideration by the government.


Environmental assessments/energy auditingEnergy audits have been implemented in some sectors by Energonadzor (mostly for governmental installations) as well as by international initiatives. However, no formal certification or training mechanism for energy auditors has been established.

Environmental standardsUzbekistan applies the latest environmental standards of the former USSR. The majority of these documents were revised and approved as national environmental standards. These standards cover air pollution, water quality, soil quality etc.

Determination of “Road Map” status Based on the ‘Energy auditing” the current status is ‘basic’, while for the “Environmental standards’ indicator, the current status is ‘developing’.


Kyoto Protocol mechanisms The Kyoto Protocol was signed in November 1998, ratified in October 1999 and enforced in February 2005. As of January 2012, 13 CDM projects implemented in the Republic of Uzbekistan were registered in the Executive Council of the UN Framework Convention on Climate Change. These provide for a planned 6,273 mln t equivalent reduction of СО2 emissions per year. Six of the projects deal with reduction of N2O emissions, the rest cover landfill gas usage and natural gas leak reduction.

Gas flaring reductionDuring the recent years Uzbekistan reached considerable progress with regard to implementation of some gas flaring reduction measures. In particular, the level of flaring gas utilisation within the relevant project operated by Uzbek-Swiss-British Joint Venture “Ko’kdumaloq-Gaz” at Kokdumaloq oil and gas field reached 4.7 bcm/year. Other implemented projects at Northern Shurtan and Shakarbulak oil and gas fields reached the level of 0.35 bcm/year flaring gas reduction.

Negotiations are being finalised for a US$65 million from IFIs for the utilisation of associated gas at the oil fields of North Shurtan Garmiston, Kumchi and Shakarbulak in the Karshi region. The country is an active member of the Global Gas Flaring Reduction Partnership of the World Bank.



Investment framework Legal - regulatory framework developmentLegislation stipulates certain incentives and benefits for investors. In 2011, the President issued a decree On the Programme of Measures to Deepen and Extend the Reforms in the Economy of Uzbekistan for the Period of 2011-2015 on Identification and Implementation of the System of Criteria and Assessments for Formation of the Business Climate in the Country. It constitutes the basis for accelerating the modernisation and diversification of the economy by implementing a dynamic policy to create a favourable investment climate capable of stimulating domestic and foreign investments to renovate the means of production and introduce modern innovative technologies.

Implementation of the privatisation programme in 2007-2010 resulted in a significant liberalisation of approaches to the privatisation of enterprises in the main branches of economy, where the state maintains its participation only in some of the enterprises, while fully disposing of its shares in the rest.

Primary legislation that guarantees foreign investments includes the following laws: On Foreign Investments, On Guarantees and Measures of Protection of Foreign Investor’s Rights, On Guarantees of the Freedoms of Entrepreneurial Activity, and On Production Sharing Agreements.

Stability, transparency and adequacyDraft regulatory acts and laws are published on state portals and sites of ministries and agencies. Work is ongoing to make legal, regulatory, and accounting systems transparent and consistent with international norms.

Licensing procedures are regulated by the Law On Licensing of Certain Activities adopted in 2000 (with subsequent changes and amendments). Financial reporting obligations can be submitted to tax and statistics bodies in electronic format with the help of a special software product. This does not take much time and in general contributes to higher productivity; however bureaucratic procedures, in particular licensing, remain time-consuming.

In order to liberalise entrepreneurial activities, in April 2011 a presidential decree was issued On Additional Measures for Further Reduction of Audits and Improvement of the System of Organization of Control over Activities of Subjects of Entrepreneurship (# UP-4296), and in September 2011, the Law On Introduction of Changes and Amendments into Some Legislative Acts of the Republic of Uzbekistan in Connection with Reduction of Audits of Activities of Subjects of Entrepreneurship (ZRU-295) came into force.

Uzbekistan joined the UN Convention against corruption on 27 July 2008, however it is not a signatory of the OECD Convention on Combating Bribery.


Uzbekistan has a score of 1,8 in the 2009 table of the Corruption Perceptions Index prepared by the NGO Transparency International.

PrivatisationUzbekistan subscribes in principle to policies of institutional and economic reform, such as restructuring and privatisation, in order to attract more foreign investment.

A periodically updated Law On Denationalization and Privatization, adopted in 1991, constitutes the legal basis.

On the basis of “framework conditions” created by relevant legal documents, measures are being developed and adopted to attract foreign investments for the denationalisation and privatisation of enterprises. Those measures include the adoption of normative acts, changes and amendments to existing norms, and flexible approaches to reforming the ownership forms of state-owned enterprises.

Besides, a draft Programme of Privatization for 2011-2013 has been developed, which envisages among others, sale of state assets in industrial enterprises.

The share of private investment in different sectors of the economy is as follows: in industry – more than 80%; in construction - 84,4%; in communication - 94,4;, in agriculture - 41,1%; in trade - almost 100%. Today the private sector is predominant in all sectors and accounts for more than 82.5% of gross domestic product.

According to the latest data from the State Committee on Statistics, the share of registered enterprises without state ownership or participation is 96,5 percent. Of these 50,8 percent are private and “dekhkan” farms; 20,6 percent are private enterprises; 0,9 percent are enterprises with participation of foreign capital, 20,2 percent are other enterprises. i.e. just 7.5% of enterprises remain state-owned.

Institutional reformsOn 2 August 2005, the Cabinet of Ministers of Uzbekistan adopted Resolution # 180 On additional Measures for Implementation of Presidential Decree on Attraction of Foreign Investments to clearly formulate the rights and guarantees of the foreign investors in the Republic of Uzbekistan.

In 1998, the Law On Foreign Investments and the Law On Investment Activities were officially adopted, followed in January 2012 by the Law On Competition.

Since the adoption of the above legislation the investment climate in the country has been substantially improved. This also includes the established system of privileges, preferences and guarantees for foreign investors. However, additional measures are required for further improvement of the investment climate and removal of the existing bureaucratic barriers and practices such as unfavourable hard currency regulation and prevention of state and controlling bodies unlawful interference into activities of the enterprises with foreign investments.


Investment climate TaxationThe existing taxation system has undergone a number of changes. In particular, a new version of the Tax Code entered into force on 1 January 2008. This combined all issues relating to taxation into a single document, including approximately 117 normative acts which had previously existed as secondary legislation acts. To further simplify the Tax Code, modifications and changes to some 230 articles have since been introduced.

An expert council exists within the Taxation Committee to regulate issues of dispute with taxpayers. The latest version of the Tax and the Law On Production Sharing Agreement provide significant incentives and guarantees to foreign investors. In particular, foreign companies that implement oil and gas prospecting and exploration works, as well as foreign contractors and sub-contractors working on exploration projects are exempt from all taxes, charges and payments that are in force in the territory of Uzbekistan.

Preferences also exist for joint ventures involving foreign participation that engage in oil and gas production. Profits of foreign partners that invest directly in CDM projects, are exempt from the income (profit) tax in the territory of Uzbekistan.


Financial and banking systemsThe banking system of Uzbekistan in general meets the requirements of international standards. In August 2011 the rating agency Мoody’s re-confirmed its “stable” rating of the banking system of Uzbekistan. As a result of measures carried out to improve financial stability, 21 banks received a “stable” rating from Moody’s, Standard & Poor’s and Fitch Ratings; the assets of these banks comprise more than 95% of the cumulative assets of the banking system of the Republic of Uzbekistan.

However, the banking system is still dominated by large state-owned banks. According to ADB, out of 28 commercial banks, 12 with private domestic ownership, 7 with an inconsiderable share of state ownership, and 4 with foreign shareholders together have only a 35% share of the market.

In the end of 2010, the Programme for Further Deeper Reformation and Improved Stability of the Finance and Banking System of the Republic of Uzbekistan for 2011-2015 was adopted. This provides for cardinal changes in the approaches and system for evaluating the performance of banks and the whole financial and banking system’s activities. The new system raises the performance of bank activities in correspondence with generally accepted international norms, standards and evaluation indicators.

Disputes settlementThe mechanisms and methods of settling disputes are defined in the legislative acts and the regulatory framework of Uzbekistan as follows:

In accordance with The Law On Guarantees to Foreign Investors and Protection of their Rights disputes directly or indirectly associated with foreign investments can be settled by agreement of the parties or in consultation between them. If parties are unable to agree a solution, the dispute should be resolved either in the commercial court of Uzbekistan or by arbitration in accordance with the rules and procedures of the international covenants (agreements and conventions as described below) on settling investment disputes, which the Republic of Uzbekistan joined.

The parties involved in an investment dispute can, upon mutual agreement, determine the authority that will arbitrate the dispute, as well as the country of arbitration of the investment dispute.

Foreign investors’ disputes not associated with their investment activities in the territory of Uzbekistan are settled in accordance with the legislation of the Republic of Uzbekistan, unless a different procedure is provided for in the respective agreement, in accordance with the rules of international law.

Moreover, it is separately stated that in case of any discrepancy between the provisions of the law and other legislative acts or international agreements the Republic of Uzbekistan is a party to, provisions that are the most favorable for foreign investors shall prevail.

Uzbekistan is a member of the International Centre for the Settlement of Investment Disputes and is a party to: • the Convention on settlement of investment disputes between the states and nationals of other states (Washington, 18/03/1958); • the 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention). • the Hague Convention on issues of civil procedure (01 March 1954); • the Convention on usage and arbitration in the framework of Organization for Security and Cooperation in Europe (Stockholm, 15 December 1992); and others.

Tariffs and energy pricing systemThe general methodology for tariffs calculation on goods, works and services (including those provided by natural monopolies) was adopted by the Cabinet of Ministers Regulation #239 of 28 October 2010. However, although those procedures contribute to improved transparency and predictability of both the process of approving prices and of the activities of the bodies that regulate the prices, this document does not cover the methodology for calculating electricity and gas tariffs.



Investment planning Development of investment strategy and planningThe Ministry of Economy and the State Statistics Committee have prime responsibility for macroeconomic forecasting and statistics. The Ministry of Economy also prepares the Public Investment Plan (PIP), which is then integrated into the state budget. Uzbekistan’s PIP, which defines capital budgeting, is updated annually. The Public Investment Plan includes a list of high priority projects to meet the government’s strategies and objectives.

According to the Public Investment Plan for 2012, Uzbekistan is planning to attract foreign investments worth a total of US$3,198 billion for 144 projects. Of this US$2,179 billion will be invested in 43 projects in the fuel and energy sector, including direct investments by foreign companies of US$1,894 billion in 34 projects.

Projects of strategic interestAt present, the country strategy in the electricity sector is aimed at (i) modernising existing and constructing new generation facilities, (ii) improving energy supplies to Fergana, Surhandariya and Samarkand-Bukhara through rehabilitation of HV lines, transformation sub-stations and distribution networks and (iii) and increasing electricity exports to Afghanistan.

In the gas sector at the end of 2010, Uzbekistan announced its energy development programme for the next five years. This calls for investment of over US$23 billion, including for the development of 37 new projects, led principally by Uzbekneftegaz and in cooperation with foreign enterprises where appropriate.

At present, a considerable part of Uzbekistan’s gas flows to Russia, but the country is trying to diversify its export partners, particularly in the Asia-Pacific region and with special attention to China. Thus, as from 2007, Uzbekneftegaz cooperated with the Chinese National Petroleum Corporation (CNPC) in a joint venture to build Uzbekistan’s segment of the Turkmenistan-China gas pipeline that entered into service at the end of 2009. The second-stage construction will allow to use in full the capacity of Gazli underground gas storage in Uzbekistan for domestic consumption purposes. The infrastructure is being upgraded and additional compressor plants are being constructed with Chinese assistance.

Uzbekistan is also interested in exporting gas to Europe via the Southern corridor should this option become available in future.




1. Uzbekneftegaz (www.uzbekneftegaz.uz) 2. Uzbekenergo (www.uzbekenergo.uz/eng) 3. Ministry of Economy (www.gov.uz/en/authorities/ministries/1294) 4. Site of National body for CDM (www.mineconomy.uz/cdm) 5. Site of State Property Committee of the Republic of Uzbekistan (www.gki.uz) 6. Site of the State Tax Committee (www.soliq.uz) 7. National data base of the legislation of the Republic of Uzbekistan (www.lex.uz) 8. Minutes of the Meetings, project: Identification of the INOGATE project “Energy Market Convergence and enhanced Efficiency in the Field of Electricity and Gas”. August 2010 9. USAID, Uzbekistan (http://www.usaid.gov/locations/asia/countries/uzbekistan/) 10. EBRD, Uzbekistan (http://www.ebrd.com/pages/country/uzbekistan.shtml) 11. UNDP, Country Programme Action Plan 2010-2015 – Uzbekistan 12. EBRD, Renewable Development Initiative, country profiles, http://www.ebrdrenewables.com/sites/renew/default.aspx 13. IEA statistics 14. Renewable Energies in Central Asia Regional Report on Potentials and Markets – 8 Country Analyses Energy-policy Framework Papers, Section »Energy and Transport, GTZ, 2009 15. What Do Buyers Want from CDM Projects in Caucasus & Central Asia? Ash Sharma Head of Carbon Finance and Funds Nordic Environment Finance Corporation (NEFCO) Carbon Markets 2009 Conference, Istanbul, 29- 30 September 2009 16. Uzbekenergo investments, http://www.uzbekenergo.uz/eng/investment_policy/ 17. US department of State. Uzbekistan investment climate statement, 2010

ANNEX IV | EU support to energy cooperation in INOGATE Partner Countries | 169

ANNEX IVEU SUPPORT TO ENERGY

COOPERATION IN INOGATE PARTNER COUNTRIES

170 | ANNEX IV | EU support to energy cooperation in INOGATE Partner Countries



Area No.3

Area No.3

Area No.3

Area No.3

Area No.3

Area No.3

Areas No.1, 2, 3 & 4

Area No.3

Area No.3

Area No.3

Area No.3

Areas No.2& 4

Area No.3

02/2012 - 05/2013

02/2012 - 02/2013

02/2012 - 04/2013

02/2012 - 04/2013

02/2012 - 05/2013

01/2012 - 07/2013

12/2011 - 10/2012

12/2010 - 01/2015

ongoing (up to 2019)

12/2010 to 12/2014

12/2010 - 05/2012

12/2010 - 12/2012

11/2011 - 02/2015

€ 192.226

€ 200.000

€ 69.950

€ 100.500

€ 172.000

€ 1.250.000

€ 229.506

€ 10.000.000

€ 15.000.000

€ 1.400.000

€ 154.830

€ 1.400.000

€ 1.325.000

Water – Energy – Development

Municipal Partnership for Energy Efficiency in Zelenodolsk

Implementation of comprehensive energy efficiency measures in two Kopychyntsi schools of Husyatyn district.

Local Renewable Energy for Local Government – Borshchiv city biomass energy development

Energy Efficiency in public buildings of Zorynsk

Twinning Project with the State Agency for Energy Efficiency “Improvement of the Policy Framework in the Sphere of Energy Efficiency and its Approximation to the Requirements of the EU Legislation”

IEA In Depth Review

EC support to the creation of a E5P Donors’ fund (to finance, through a mix of loans and grants, projects aiming at improving energy efficiency) with EBRD as fund manager.

EC support to the creation of a E5P Donors’ fund (to finance, through a mix of loans and grants, projects aiming at improving energy efficiency) with EBRD as fund manager.

Building local capacity for domestic solar heating, hot water and insulation for rural and remote areas in the EEC region

Low carbon Opportunities for Industrial Regions of Ukraine (LCOIR-UA); Beneficiary-Donetsk National University

Demonstration. Dissemination and deployment of CCT and CCS in Ukraine; Beneficiary-Coal Energy Technology Institute of the Academny of Sciences of Ukraine

ENRTP Awareness raising campaign on energy efficiency for construction related stakeholders in Russia, Belarus, and the Ukraine

23

24

25

26

27

28

29

30

31

32

33

34

35

No.

Ukraine

Ukraine

Ukraine

Ukraine

Ukraine

Ukraine

Ukraine

Ukraine

Ukraine

Ukraine

Ukraine

Ukraine

Belarus, Russia, Ukraine

ENPI 2011

ENPI 2011

ENPI 2011

ENPI 2011

ENPI 2011

ENPI 2008

ENPI 2008

ENPI 2010

ENPI 2011

ENRTP* 2010

ENRTP* 2010

ENRTP* 2010

ENRTP* 2011

Country Project Title Budget Project DurationRelevant

INOGATE areas of cooperation

ActionProgramme

Annex IV-B: Bilateral Energy Cooperation in Partner CountriesOverview of bilateral projects active in the period 2010-2011

Total bilateral support € 273.824.771

* ENRTP: Thematic Programme for Environment and Sustainable Management of Natural Resources including Energy (ENRTP)

** CIUDAD: Cooperation in Urban Development and Dialogue (ENPI 2008)





Documents

Inogate status report en