|Project Rationale and Linkage to Country/Regional Strategy
The Kyrgyz Republic power sector is characterized by aging assets, high commercial losses, below-cost tariffs, and poor performance of sector companies. The project addresses these issues by (i) rehabilitating the 1,200-megawatt Toktogul HEPP, which is critical for national and regional power supply; (ii) establishing the Kyrgyz electricity settlement center (KESC), which will reduce commercial losses and improve sector financial performance; (iii) assessing the safety condition of dams on the Naryn cascade and identifying remedial measures; and (iv) conducting a public information program to gain support for sector reforms.
The Kyrgyz Republic is a landlocked Central Asian country with a low per capita income (ranked 186 in the world); small area (200,000 square kilometers); and low population (5.55 million). The country enjoys abundant hydropower potential owing to its mountainous terrain covering 80% of the country. The Kyrgyz Republic is a net exporter of electricity to the regional Central Asian power system (CAPS).
Total installed generation capacity is 3,863 megawatts, of which 81% comes from HEPPs and 19% from thermal combined heat and power plants (CHPPs). Toktogul HEPP and other HEPPs in the downstream Naryn cascade have produced an average of 92% of the total country electricity output since 2002. Almost 100% of the population is connected to the electric grid. Toktogul HEPP, with multiyear storage capacity and producing 50% of the average electricity output, plays a critical role as an export source and a frequency regulator of the CAPS.
The country is the largest net exporter of electricity to the CAPS, with average annual exports of 2,100 gigawatt-hours (GWh) since 2002. Exports of hydro-based electricity occur during summer when electricity is produced above domestic demand; this is associated with water release for regional irrigation needs. Coal, oil, and gas are imported during winter to supply CHPPs. However, winter demand is not met because of (i) limitation of hydro generation caused by water release constraints, (ii) insufficient CHPP capacity, and (iii) lack of import sources with surplus electricity. Unserved winter demand is estimated at 20% of total supply or 1,200 GWh.
7. Power assets are generally over 30 years old and approaching the end of their economic life. This results in reed reliability and high system technical losses (15% of net supply). Despite modest domestic growth forecast at 1.5% per annum, major rehabilitation, replacement, and augmentation of power sector assets is required. The sector also suffers from high commercial losses (25% of net supply), poor financial management and performance, and tariffs below cost recovery.
The Government of the Kyrgyz Republic has identified $4 billion of planned investments in the power sector from 2012 to 2017 This is consistent with required investments of $6 billion from 2012 to 2022, as identified in a sector study financed by the Asian Development Bank (ADB). Required investments include rehabilitation and construction of new thermal and hydropower plants and transmission and distribution assets. Financing for future sector investments is being coordinated through the ADB-sponsored Central Asia Regional Economic Cooperation program. The project addresses a time slice of required sector investments.
Considering the extent of financing available and the critical importance of HEPPs, the government identified rehabilitation of HEPPs as a top priority. An assessment of HEPPs on the Naryn cascade was conducted and it was concluded that all HEPPs require rehabilitation; rehabilitation of Toktogul HEPP was identified as the first priority. Failure of Toktogul HEPP would affect the stability of the CAPS and be catastrophic for the Kyrgyz Republic's electric supply. Toktogul HEPP has been in operation for over 35 years, but no large rehabilitation has been undertaken. Critical equipment is failing, resulting in availability dropping to 80%. It is considered that availability rates will continue to drop in the absence of rehabilitation. A complete rehabilitation of primary and secondary electrical and mechanical equipment is required.
A phased rehabilitation program of Toktogul HEPP has been prepared. The project includes the replacement of secondary electrical and mechanical equipment, which has been identified as the first priority. Replacement of this equipment is critical as failure could result in loss of the total station output for over 1 year. Following completion of the priority phase, further rehabilitation should be done on a turbine and generator unit basis as part of future sector investments. The rehabilitation work to be carried out under the project is independent of future phases and is required regardless of timing of implementation of future phases.
Except for Kambarata 2, dams on the Naryn cascade were designed and built from 1960 to 1980. Since then, international design criteria for dam hydrological and seismic safety have become more stringent. Naryn hydropower plants lie in an active seismic zone, increasing the geological hazard of rockfalls and landslides. Furthermore, existing dam designs may not cater for the impact of climate change on hydrology and variation in seasonal flow rates. The structural safety of the dams needs to be assessed and dam monitoring procedures reviewed. A dam safety assessment study of Naryn cascade dams is essential to identify required remedial measures and is proposed as part of the project. Impacts of climate change will be identified in a separate study to be financed by the Global Environment Fund.
Tariffs are below cost recovery, with a weighted average consumer tariff of $0.022 per kilowatt-hour. It is estimated that a weighted average tariff of $0.05 per kilowatt-hour is required for full cost recovery. A review of the tariff policy is being conducted, with general acceptance from all sections of the government that tariffs must be raised. The Ministry of Energy and Industry (MOE) draft energy strategy includes a target of reaching the full cost recovery tariff by 2016. Nevertheless, the government is concerned about implementing tariff reform after negative public reaction in 2010 following tariff increases (which have since been partly reversed). A public information program as part of the project will be carried out in 2013 to inform the population on (i) experiences in similar countries, (ii) ongoing sector developments and reforms, and (iii) benefits to be achieved from an effective tariff policy.
High commercial losses and poor sector financial performance are partly attributable to inadequate wholesale and retail metering; and poor procedures for distribution of sector revenues to generation, transmission, and distribution companies. Reliable and current data on energy flows are not available, which impedes identification of losses. In addition, distribution of sector revenues by the MOE is based on operational priorities and carried out in an inconsistent manner preventing proper financial planning by power companies, including open joint-stock company Electric Power Plants (EPP), the owner of Toktogul HEPP.
Projects to improve retail metering, under funding from the Government of Germany, and wholesale metering, under ADB funding, are under implementation. The wholesale metering project will introduce an automated metering and data acquisition system that will identify domestic and international energy flows. Also under implementation under the ADB project is a study on the corporate structure, organizational design, and technical system configuration for the proposed KESC.