Challenges of Electric-Power
Industry Reforming
Kyrgyzstan, Bishkek
June 15th, 2007
Current conditions of power industry
Power industry is not financially sustainable, does not provide required power
supply.
Growth of emergency outages: 1999 - 8000, 2000 - 10000 , 2001 - 13000.
2006 – electric power losses in REC-38% (3,8 bln. kWt/h).
Whilst energy output - 3,9 bln. Som, received 3 bln. som (79%).
Accounts receivable as of 2006 has been increased on 474 million Som
(17%).
Losses during 4 months of 2007 are equal to 41,5%, including commercial
losses - 19% (900 million. kWt/h, 560 million Som). Losses of RECs JSC
“Severelectro” – 46%, JSC “Vostokelectro” – 40%, JSC “Oshelectro – 36%,
JSC “Zhalalabatelectro” – 38%. RECs have collected 64% of funds.
Indebtedness has been increased on 377 million Som (12%) over 4 months.
In 1996, indebtedness for RECs were equal to 482 million Som. In 2006,
indebtedness was equal to 3 176 million Som. Over 1996-2006, indebtedness
has been increased on 2,7 bln Som. RECs run up a bill to electric power
suppliers and for transit - 5,9 bln. Som. From 2001, indebtedness was
increased on 5 billion Som per year. In 2002-2005, the companies sustained
more than 3 bln Som of losses.
Reconstruction works are implemented on 20-40%, depreciation is 70% and
more.
Problems in the sector











Stagnation in conduction of reforms in energy sector;
Imperfect tariff policy on electric, thermal energy and natural gas;
Inefficient state social protection of consumers;
Non-transparency of informational and financial activity of energy companies;
Absence of influence mechanisms on energy monopolists (from side of consumers,
court system and Government);
Energy companies got significantly behind of generally agreed standards on
technological indicators (specific fuel consumption, effective average of equipment,
work capacity of stations, etc.);
Absence of incentives for rational planning of energy production and consumption
regimes as well as energy saving and energy efficiency;
Outages of power supply take place in some districts, electric power insufficiency
leads to so-called “rotating blackout”, all signs of energetic crisis were observed;
There was a growth of emergency outages, there is a high possibility of major
accidents;
Payment discipline is absent, payment defaults are spread;
Access to energy sector is closed for new independent companies.
First steps towards the reform







To possess of political will of conduction of the reforms;
Consumers, including community, have to know and
support goals of the reforms;
To create required legislative and normative base;
To created required institutional environment;
To introduce market methodology of formation of tariffs;
Gradual decrease of state participation and increase of
private sector in development of energy system;
Implementation of tariff policy, creating conditions for
widened reproduction of power energy;





Change of ownership form and management of energy
distributing companies;
Taking technical and administrative measures on rapid
decrease of energy loss;
Development (under active attraction of private investors)
domestic infrastructure for transportation of electric
power and energy carriers, which will allow increase of
own energy resources and to decrease their import;
Adjustment of water use issues with neighboring
countries and increase of electric power export, as well as
transfer to market principles on reciprocal payment;
Thorough analysis and use of possibilities of domestic
production of oil products, coal and non-traditional
energy resources.
Goals of energy industry reforms







It is essential to make decisions on the following issues:
Gradual decrease of state participation and increase of private sector in
development of energy system;
Implementation of tariff policy, creating conditions for widened
reproduction of power energy;
Privatization of energy distributing companies;
Making technical and administrative measure on rapid decrease of electric
power loss;
Development (under active attraction of private investors) domestic
infrastructure for transportation of electric power and energy carriers,
which will allow increase of own energy resources and to decrease their
import;
Adjustment of water use issues with neighboring countries and increase
of electric power export, as well as transfer to market principles on
reciprocal payment;
Thorough analysis and use of possibilities of domestic production of oil
products, coal and non-traditional energy resources.
Restructuring of energy industry
Figure 1. Restructuring of the sector in 2001
Post-reform conditions
Pre-reform conditions
JSC “Kyrgyzenergo” Vertical integrated
company
In electric energy industry
Generative capacity
Production company
JSC “Electric Stations”
Providing company
JSC “National electric
networks of Kyrgyzstan
Distributing companies
National magistral electric
networks and dispatcher
Operation control
Distributing networks and sale
JSC “Severelectro”
JSC “Vostokelectro”
JSC “Oshelectro”
JSC “Zhalalabatelectro”
JSC “Bishkekteploset”
Stages of energy industry reforming
I.
II.
III.
IV.
Asset assessment of energy sector
Separation of subsidiary production and social
objects
Restructuring and creation and new stock
companies
Changing of ownership form and management
Management models of energy industry




Vertical integrated company
Single buyer – competition between producers
Competition of whole sale market (between
producers and distributors)
Competition on retail market –between all market
players there is an influence of consumer on all
companies of energy sector
Background of energy industry reforms









Collapse of the USSR
Choice – democratic community and transition to
market economy
Hyperinflation
Price increase on energy resources
Transition to electric power for domestic use
Lack of financial resources
Need in financial borrowings
Negotiations with international financial institutions
Incurrence of liability for international institutions.
Legislative and institutional base


Laws “On energy”, “On electric energy”, “On licensing”, “On
antimonopoly regulation”
Bodies involved in energy management











Parliament, Government, President
Foundation of the State property management
Antimonopoly regulation body
Corruption control agency
State regulator
Ministry of Labor and Social Protection
Ministry of economic development and trade
Ministry of Justice
Ministry of Finance
State organ on technical supervision in energy sector
Water Department
Regional cooperation







Decrease of loss - RK 9% 5843HWt/h, KR 11% -1392HWt/h, RT 15% 1988 HWt/h, RU 10%-4064HWt/h, in addition, annually - 13 287 HWt/h
Investments to decrease of loss during transfer and distributions in all four
countries – 3 00 million US dollars.
Rehabilitation of producing assets of Syr-Darya, Angren Hydro-Electro
Stations, Tashkent Thermal Electric Station would need 1,15 bln US dollars,
generation - 32000 Hwt/h. Ekibastuz HES I and II, Aksu and Karaganda HES
would need 1,070 million US dollars, will be equal to 17 118 Hwt/h.
New projects on generation – Ekibastuz HES II, Bishkek TESII, Kambarata,
Kambarata II, Rogunskaya HES, Sangutdinsky HES, Talimardzhanskaya
In four countries it is possible to increase from 139 TWt/h up to 228 TWt/h.
54% of additional electric energy in new stations, 16% of additional electric
energy due to decrease of losses, as well as remaining 30% - due to
rehabilitation of the old generating aggregates.
Contribution of additional generation of RK -45%, RU, RT- 22% each and
KR-9%.
Investments will lead to average additional costs on 1kWt/h on 2,1 cent in
RT; 2,3 –KR; 2,8- RK; 3,5 –RU. Total- 13 bln. US dollars for 20 years.
Tariff policy in energy
electric power industry
Goal of tariff policy
Goal of tariff policy is remaining on generation, Целью
тарифной политики остается разработка, setting up
and implementation of economically reasonable price
and tariff formation, introduction of more efficient
structure of tariffs and bringing them in line with real
costs, as well as annual decrease of quasi-fiscal deficit
in electric power industry to the level recommended by
the International Monetary Fund (goal of the Mid-term
tariff policy on electric and thermal energy for 20032006 and 2007-2010).
Principles of tariff policy
Fundamental principle of tariff policy is
introduction of self-sufficiency principles of
energy sector and lies in taking measures on
creation of investment attractive
environment in energetic sector of economy.
Main principles of tariff policy:
Tariffs have to reflect full cost of production, transmission and
distribution of electric and thermal energy, including costs for
exploitation and technical services, as well as compensation of invested
capital;
Tariffs for each group of consumers have to reflect all costs for electric
and thermal supply on that category of consumers;
Existing cross-subsidizing from one group of consumers into the other
group should be gradually excluded;
Subsidies should be devoted to the consumers (community) with low
level of income through programs of social protection;
Minimal volume of energy consumption for provision with vital needs
with taking into consideration of electric food making has to stay in
limits up to 150 kWt/h per month and all other benefits should be
reconsidered or called off (principle of Basing tariff policy on electric
and thermal power energy for 1998-2000).
Existing Methods of tariff calculation for final consumers
Prognosis
Generation, kW/h
Loss level, %
Sale, kW/h
100
22%
Fact
100
42%
100
42%
78
58
58
0,62
0,83
0,62
Income, Som
48,36
48,36
35,96
Costs, Som
48,36
48,36
35,96
14,51
14,51
5,51
New construction
9,67
9,67
1,93
Credit repayment
5,80
5,80
5,80
Income tax
0,97
0,97
0,70
Tariff, Som/kWh
including
repairs
Dividends of paper
6,71
At the moment, there has been implementation only of principles of
exclusion of consumptions sills for community due to analysis data:



Separation of consumption on sills and setting up of different prices
have led to distortion (manipulation) of companies’ reports and
decrease of income of the company (plundering); Деление
потребления на пороги и установление различных цен привело к
искажению (манипуляции) кампаниями отчетности и снижению
дохода кампании (хищение);
Thus, plundering have led to decrease of required funds for repairs and
replacement of energy equipment, decreasing efficiency of the
industry;
Social groups of community with higher level of income use sufficient
benefits. At the moment, that particular group is continuing to use low
tariffs due to weakness and insufficiency of social protection.
Allegations effecting on price formation
in the Kyrgyz Republic
MYTH OF ENERGY
INDEPENDENCY
SOCIAL PROTECTION
POLYTICAL WILL
TARIFFS
FALSE
REPRESENTATION
INCREASE
OF LOSSES
DECREASE OF
COLLECTION
Mineral fuel Unit
of Kazakhs
deposits
measure
tan
Kyrgyzst
an
Tajikista
n
Turkmen
istan
Uzbekist
an
Total
Crude oil
million
tones
1 100
5,5
1,7
75
82
1 264,2
Gas
million
tones
1 500
5,0
5,0
2 252
1 476
5 238
Coal
million
tones
24 300
580
Insignific
500
ant
2 851
28 231
Total
million
tones
26 900
591
507
2 327
4 409
34 733
77,4%
1,7%
1,5%
6,7%
12,7%
100%
27 000
163 000
317 000
2 000
15 000
524 000
Million
tones/year
2,3
14,0
27,3
0,2
1,3
45,1
%
5,2
31,1
60,5
0,4
2,9
100
% of Total
Hydropotential
% of Total
HW\h/year
Kyrgyzstan can become energy independent
1.
2.
3.
4.
5.
6.
Republic possesses insignificant deposits of hydrocarbon fuel;
Demand on energy carriers can be covered by only one energy
resource, hydro electric energy, in particular;
Republic possesses significant hydro potential, but it is only
used on 10%;
It is important to take into consideration that water resources are
dependant on climate conditions. There is significant time
repugnance between demand on electric energy and water
regimes.
Existing energy capacity in 5-7 years would hardly cover
growing demand in domestic market;
Further development of hydro potential requires large
investments which can not be provided by domestic resources of
the country.
%
Losses dynamics of distributing companies during 2001-2005
45
40
35
30
25
20
15
10
5
0
37,47
22
2001
35,9
22
2002
35,9
22
21
2003
Normative
Fact losses
38,9
38
2004
20
2005
Commercial losses include:



Unaccounted consumption of electric energy;
Consumers, having wrong bills or not paying fully actually
consumed electric energy;
Consumers, having right bills, but being careless towards their
payments.
Unaccounted consumption of electric energy includes
the following:




Plundering of electric energy by consumers through
interruption of counter functions of through shift of it;
Malfunctioning counters which do not register consumed
electric energy by proper order;
Plundering of electric energy through illegal connection of
unregistered consumers; and
Raising of bills and collection of payments on consumed
electric energy not based on figures of the counter, but on
“rate of consumption” (i.e. estimated usage depending on
accommodation area and quantity of residents.)
Collection of funds
120%
bills issued
15%
100%
paid bills
52%
80%
дефицит
денежных
средств
unpaid bills
60%
100%
40%
20%
0%
money
payment
85%
paid by mutual
payment and
barter
33%
67%
Technical conditions of electric networks 0,4-10 kW, carried on the
balance of distributing companies as of 01.01.2000
Measure
unit
Total
Good
Fair
Requires restoration
%
ВЛ 6-10 кВ
km
26959
12163
9779
5017
19%
ВЛ 0,4 кВ
km
27940
9556
10164
8220
29%
КЛ 6-10 кВ
km
1387
352
577
458
33%
КЛ 0,4 кВ
km
997
193
505
299
30%
Total length
km
57283
22264
21025
13994
24%
39%
37%
24%
7928
7835
3284
42%
41%
17%
Specific weight
TP 6-10/0,4kW
Specific weight
Units
19047
17%
Underrun comparison of fact tariff level from required level in CIS
countries
6
5
4
3,7
4,1
3,8
3,7
4
4,1
3,1
3
2,3
2,3
2
3,5
2,1
1,2
1
1
0,4
required tariff
fact tariff
n
zb
ek
ist
a
U
in
e
kr
a
U
sta
n
Ta
jik
i
a
do
v
M
ol
zs
ta
n
gy
K
yr
rg
ia
G
eo
n
ija
ze
rb
a
A
rm
en
ia
0
A
cent/kWh
5
5
Executive Summary
Need in generation of electric energy will be increasing due to
stabilization and growth of industrial sectors and agriculture,
whilst tariff control for community and agricultural consumers
on a low level and retaining of growth trend of energy losses in
networks and consumption by the community.
Problem of electric energy lack can not be resolved due to
resources of existing HES. In that case, if there is no decrease of
electric energy loss that it will be required to build new hydro
electro-stations of to increase generation on TES. All listed
measures require financial investments. Energy companies will
have to define what is more profitable, quicker pay back period,
ability or willingness of consumer to pay expenses.
Lack of capacity of generation can not be considered as an
argument for building of new electro stations or increase of
generation in TES. It hardly be economically reasoned under
existing problems in networks and current tariffs for electric
energy.
It is important to outline that transfer of
tariff reform to later terms will be less painful
for the whole community, due to the fact that
it will require higher level for increase of
tariffs and creation of expensive systems of
address social protection.