|Project Rationale and Linkage to Country/Regional Strategy
Uzbekistan's economy grew at an annual average rate of 7% during 2004-2006 and 9% in 2007-2008. Despite the global financial and economic crisis, growth prospects for 2010 and beyond are expected to be within a range of 8%-9%. The country has taken a gradual rather than rapid shock approach to reform, and the response to the crisis was swift, balanced, and successful.
Uzbekistan has the most industrialized and energy intensive economy in Central Asia. For each dollar of gross domestic product, Uzbekistan uses 60% more energy than Azerbaijan and Kazakhstan, and four times more than the world average; this stems from (i) aging and dilapidated energy infrastructure, (ii) a low technological base, (iii) lack of investment, and (iv) inefficiency.
Energy efficiency is now a top strategic priority for Uzbekistan, as well as for the Asian Development Bank (ADB), and represents the best means (in terms of reducing cost and carbon intensity) to achieve energy security. It reduces the currently high levels of energy intensity, and increases energy productivity. The social and economic benefits are also high. Consumers spend less, power generation and dispatch costs fall and the financial return to the utilities increase. Increased revenues underpin more investment, better maintenance, and improved service quality.
The government has in place policy and legal frameworks to reduce energy intensity levels and cut losses, and has plans for significant clean technology investments and institutional reforms. In the short to medium term (2009-2014), power generation capacity will need to increase considerably to match electricity demand growth of 3.1% 5.4% a year. The construction of new and more efficient combined cycle gas turbine (CCGT) plants fit the strategy. Other actions include expanding renewable energy, energy efficiency programs, the replacement or rehabilitation of old and obsolete thermal power plants, and energy trade.
Investment in CCGT technology leads to high energy savings and environmental benefits. It is the cleanest fossil fuel-based method of power generation available, and CCGT power plants burning natural gas produce significantly less carbon emissions than do coal- and oil-fired thermal power plants.
Uzbekistan is rich in hydrocarbon resources. Another strategic priority is the processing (or value-added production) of these resources for both domestic and foreign markets. This strategy requires substantial investment and investors, with transactions most likely structured around a range of public and private initiatives, several of which are under consideration.
Increased energy production in Uzbekistan directly benefits several countries in the region. Afghanistan already gets most of its electricity from Uzbekistan. Other beneficiaries are Tajikistan and the Kyrgyz Republic, both of which are rich in hydro resources but prone to winter shortages. The Uzbek power transmission system also facilitates transfer of power supplies between these two countries and Turkmenistan. Uzbekistan is a natural gas exporter, including to the People's Republic of China. In the medium term, Uzbekistan will also pursue power exports to new energy-deficit markets such as Pakistan.
Uzbekistan is an active participant in the Central Asia Regional Economic Cooperation Program (CAREC), which includes Afghanistan, Azerbaijan, People's Republic of China, Kazakhstan, Kyrgyz Republic, Mongolia, and Tajikistan. In 2008, the CAREC countries agreed on a long-term strategy for developing the region's energy sector, which focuses on energy security and trade. In October 2009, the countries agreed on a framework action plan to expand the regional power network as a means to increase trade in power. ADB and other multilateral institutions participating in CAREC are cofinancing studies, capacity development, and investments. It was under this framework that Uzbekistan started exporting power to Afghanistan (up to 150 megawatts [MW]) in early 2009; these exports will soon rise to 300 MW.
Power generation. In 2008, Uzbekistan generated 50,254 gigawatt-hours (GWh) of electric power, imported 925 GWh from its neighbors, and exported about 630 GWh. The total installed capacity for power generation is 12,400 MW, but less than 10,000 MW are available. Thermal power plants (TPPs) represent 86% and hydropower plants 14% of the capacity. Natural gas is used for 94% of thermal power generation. All TPPs run on steam cycle technology with an efficiency rate of 31%, compared to 57% under advanced CCGT technology. Total losses (net generation output less invoiced energy) are 20% of generated energy. The heavy reliance on and inefficient use of fossil fuels in power generation creates negative environmental impacts, while CCGT power plants reduce greenhouse gas emissions.
Most assets are 40-50 years old, and require replacement and/or rehabilitation. Since 1991, only two power generation capacity expansion projects have been completed. By 2015, the government wants to replace 570 MW of inefficient (25% efficiency), outdated generation capacity and install three CCGT power plants totaling 1,600 MW. Construction of two such projects in Tashkent and Navoi began in 2009. The third project is the one proposed here.
Power transmission. The transmission system consists of 1,850 kilometers (km) of 500 kilovolt (kV) lines, 6,200 km of 220 kV lines, and 15,300 km of 110 kV lines. The high voltage system is connected to Kazakhstan, Kyrgyz Republic, Tajikistan, and Turkmenistan. It also has a 220 kV connection with Afghanistan. The transmission system is ageing and needs upgrading. Transmission bottlenecks are becoming a serious obstacle to the delivery of power to domestic and regional customers.
The southern region of Uzbekistan receives electricity from the northern region, where 70% of power generation is located. However, over 90% of gas production is located in the south. This means gas is transported to the north for conversion to electricity, which is then sent back to customers in the south. In 2009, the electricity peak demand in the southern region surpassed 2,000 MW, but the north-south transmission capacity is limited to about 1,600 MW, resulting in shortages during peak hours. This energy flow problem is compounded by growing industrialization in the south. The CCGT power plants to be constructed in Talimarjan and Navoi are located in the south, close to gas production fields. These investments will reduce gas and power transmission losses. They will also free up transmission capacity to supply neighboring countries.
The state joint stock company, Uzbekenergo, the sole power sector utility in the country, is a vertically integrated and publicly owned monopoly. It owns and operates 10 TPPs (including three cogeneration plants), and 28 hydropower plants. It owns and operates the power transmission network. It also distributes power to all categories of customers from its 14 regional distribution centers, which have 256 distribution units. A restructuring of Uzbekenergo is planned. The key objective is to commercialize its utility operations and introduce competition in various business lines.
To realize the power system modernization and rehabilitation program, Uzbekenergo will continue to seek investment from international lenders and the private sector. To secure finance, it plans to (i) modernize its accounting system with a financial management information system, (ii) improve financial transparency in line with international auditing standards and reporting practices, and (iii) review the internal financial management structure by establishing internal auditing.
Uzbekenergo wants to transform its management and operations to become a model power utility company in the region. This requires new skills, new business practices, and new technology. The management of Uzbekenergo is committed to change.