The Project will erect new high-voltage transmission assets to secure the power supply to Fergana Valley and implement institutional changes in the power utility company, Uzbekenergo. The project will increase energy security through the diversification and expansion of energy supply routes. It will improve power supply reliability in the country and, in particular, the Namangan, Fergana and Andijon provinces; reduce transmission losses; and improve operational efficiency of the power sector.
The establishment of a Central Asian transmission system started during the Soviet era in the 1960s. The transmission lines connecting the power plants and substations feeding the load centers are on the 500 kV and 220 kV levels. The transmission system was designed following the technical and geographical requirements so as to benefit from the diversified energy and water resources in Central Asia. Yet, the locations of the substations and the line routing did not consider the countries' borders, as these were considered not relevant at that time.
The power grid of Uzbekistan is a major component of the integrated and synchronized high-voltage power transmission network of the Central Asian Power System. Network operation and planning are managed by the Coordinating Dispatch Center in Tashkent. Trading arrangements between the countries are currently constrained by an ageing infrastructure, as well as varied energy sector development priorities of each participating country after the independence. The reliable and secured operation of the network is a prerequisite for power trade to reduce economic cost of electricity for Uzbekistan and its neighbors.
Poorly designed transmission grid and associated capacity constraint became an acute problem particularly for the most densely populated region of Uzbekistan, Fergana Valley. More than 8 million people and several large industries in the region are currently supplied from the main Uzbek grid (400 megawatt [MW]), Kyrgyz Republic (1,300 MW) and the generation in Fergana (100 MW). As demand increases, the underdeveloped local transmission grid impedes the reliable supply of power to domestic customers. During the three-month summer period, the peak demand reaches 2,000 MW, creating overload in the current 220 kV transmission system that leads to a voltage drop of 185 kV. This results in a responsive action by Uzbekenergo: disconnecting the customers on a daily basis to reduce the load by an average of 150 MW. Registered cases of voltage drops to 100 kV have resulted in disconnection of 80% of customers in Fergana and followed by a cascading effect of disconnections even in Kazakhstan. Regular maintenance of the grid is also impossible without disconnection of a significant number of customers. Additional transmission capacity is, therefore, urgently needed to satisfy current and future power demand and undertake proper maintenance, which contributes to high voltage grid stability in Uzbekistan and its neighbors.
Facing the challenges in the energy security, deteriorating infrastructure and unreliable power supply, the government has taken various initiatives. A five-year rolling investment plan amounting to $5 billion was approved by the government to rehabilitate and upgrade energy infrastructure. The government also commenced institutional improvements to increase transparency and operational efficiency of the electricity sector. It reorganized and reinforced the investment unit at the vertically integrated state-owned power utility company, Uzbekenergo, to implement new investment projects more effectively. A loss-reduction program was initiated by adopting advanced meters to increase financial sustainability. Cost centers for generation, transmission and distribution have been split. Each unit has a separate accounting department and implementation of International Financial Reporting Standards-based financial statements to improve financial management is ongoing. Electricity tariffs have been gradually increasing to ensure cost recovery level.
However, despite these institutional changes, external expertise and support are needed to improve the operational performance of Uzbekenergo. Uzbekenergo has requested assistance in the reorganization of the transmission asset management department to improve efficient budget provisioning for maintenance and optimize scheduling. The transmission system planning department is also inadequate to meet present sector needs. Lack of modern tools and skills makes it impossible to plan an optimal system and thus optimize investments. Both departments need to be restructured, equipped with modern technologies and trained personnel.
The project is a priority for the government. A recently prepared power sector master plan for Central Asia assessed the project as the least-cost solution for Fergana since the region does not have hydro or fossil fuel reserves for new local generation and no additional power import is available from the Kyrgyz Republic. The master plan identified the project as having principal importance for the Central Asian transmission grid.
The government requested the Asian Development Bank (ADB) to provide financial support. The Project is included in ADB's Country Operation Business Plan 2011-2013 and consistent with ADB's Strategy 2020. It will be the third project loan intervention in the power sector of Uzbekistan.