Countries and Regions

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p. 12 of 22 BACK | NEXT I. Summary II. Background and Rationale III. The ADB Initiative Towards Economic Cooperation in Central Asia IV. Sector Priorities and the Proposed Program 2001-2003 A. Trade B. Energy C. Transportation V. Addressing Poverty and Governance and other Cross-Cutting Concerns VI. Issues and Challenges

Central Asian Regional Economic Cooperation : IV. Sector Priorities and the Proposed Program 2001-2003

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B. Energy

29. Economic cooperation is especially natural in the energy sector where resource complementarity among the countries creates a strong incentive for trade in products such as oil, gas, coal, and electricity.⁷ For example, Xinjiang, PRC imports oil to support its economic development; on the other hand, Kazakhstan seeks market diversification for its oil. The Kyrgyz Republic and Tajikistan are potential suppliers of hydroelectric energy. Uzbekistan’s gas has a natural market in neighboring countries. Cooperation in the energy sector can help the region become an exporter of energy resources while helping the countries meet their own needs through the lowest cost resource alternatives.

30. Complementarities in the energy sector have already led the countries to seek mutual solutions to meet their respective energy needs. The PRC has invested in Kazakhstan oil production and is committed to developing rail and pipeline infrastructure for shipping oil to Xinjiang, PRC for processing and downstream exports. The Kyrgyz Republic and the PRC have actively explored opportunities to share electrical generating capacity. The CARs have negotiated complex gas, oil, water, and electricity trade and pricing agreements.

31. Despite such efforts, however, intra-regional energy trade is constrained to a great extent by a number of factors including national policies favoring self-sufficiency and deficiencies in physical infrastructure.

• National policies generally favor self-sufficiency and import substitution at the expense of trade and rationalization of energy use. Every Central Asian country has taken steps to encourage energy exports and discourage energy imports. These policies inhibit rationalization of energy use, limit markets, and raise the real resource costs of energy. Addressing this would require, among other things, commercialization of energy companies and the use of market-oriented pricing.

• Physical infrastructure such as new pipelines and electric transmission lines, as well as improved rail capacity and storage facilities would be required in some cases to expand trade. These infrastructure projects are expensive, and detailed studies would be needed to determine their economic feasibility. In other cases, a coordinated program of rehabilitation and operation is necessary.

32. The opportunities for cooperation sometimes involve the construction or rehabilitation of infrastructure to transport energy more efficiently. For instance, one of the proposed projects given high priority by the governments is the rehabilitation and improvement of the interconnected electric power grid in the Central Asian republics. Under Phase II, potential projects in this area are being identified. Investment in this area will provide the basis for expanding electricity production and export as well as stabilize electricity supplies throughout the region. Another proposed project is the completion and renovation of the gas pipeline from Turkmenistan and Uzbekistan through the Kyrgyz Republic to Almaty in Kazakhstan. It is expected that any infrastructure project would be undertaken in the context of specific improvements in the policy environment relevant to the project.

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