|Project Rationale and Linkage to Country/Regional Strategy
Uzbekistan is one of the fastest-growing economies in Central Asia, aspiring to become an upper-middle-income country by 2020. The economy has sustained a high growth rate averaging at 8% for 2010 -2014. Generally, stable macroeconomic conditions and robust growth are set to continue as Uzbekistan aims for a highly developed and diversified industrial and export base. The Karakalpakstan and Khorezm regions, inhabited by 3.3 million people (or 12% of the total population) and located in the western part of Uzbekistan, will continue to attract large scale industrial investment projects. Reliable power supply is critical to support industrial development in these regions. These regions expect power demand to grow at 3%, double the expected medium-term national average rate of 1.5%.
The country has ample primary energy resources. The total installed capacity for power generation in the country is about 13,500 megawatts (MW) including thermal power 86% and hydropower 14%. In 2014, the country generated about 54,400 gigawatt-hours (GWh) of electric power, of which it exported 1,400 GWh or 2.6%. Uzbekistan''s power transmission system consists of 1,850 km of 500 kV lines, 6,200 km of 220 kV lines, and 15,300 km of 110 kV lines. The government owns and manages the energy sector in Uzbekistan. The Joint Stock Company-Uzbekenergo, a vertically integrated and publicly owned monopoly (in charge of electricity generation, transmission, and distribution), operates under the supervision and regulation of the Cabinet of Ministers. The sector is corporatized with separate business units, and further commercialization of Uzbekenergo is planned.
Uzbekistan''s development priorities stress structural change and greater productivity. Energy efficiency is a key part of the energy sector strategy. The government adopted policy and legal frameworks with clear goals to reduce energy intensity and losses; and action plans covering investments and institutional change. In March 2015, the government approved a 5-year rolling Program of Measures to Promote Structural Reforms, Modernization and Diversification of Production in 2015- 2019. The program aims to ensure adequate and reliable power system; and improved management, operations, and performance of utilities based on commercial principles. To improve energy efficiency, one combined-cycle gas turbine (CCGT) unit was commissioned in Navoi thermal power plant (TPP) and four more combined-cycle gas turbine units are under preparation with confirmed funding from Asian Development Bank (ADB) for replacement of old and inefficient gas-fired steam turbine generation units. A loss-reduction program was initiated by adopting advanced meters to increase collections and reduce losses. The electricity tariffs have been steadily raised since 2004 to ensure financial sustainability. Financial transparency has improved since Uzbekenergo, with the assistance of ADB, adopted external audits based on the International Standards of Auditing starting from Fiscal Year (FY) 2011.
The key challenges in the sector are deteriorating infrastructure and unreliable power supply. The existing Takhiatash TPP is the only power station located in the northwest region. ADB has approved a loan to finance construction of two CCGT units (230- 280 MW each) in Takhiatash TPP for replacement of old and inefficient gas-fired steam turbine generation units. However, the existing power transmission network has limited capacities to transmit additional power because of inadequate investments in the past. The power transmission system was designed during the Soviet era with the objective to leverage the diversified energy and water resources in the region. The resulting location of the substations and the line routings did not take into consideration the countries'' geographical borders, as these were irrelevant at that time. The existing transmission line from Takhiatash to Navoi passes through Turkmenistan. Although the transmission assets belong to Uzbekistan, the difficulty to maintain them causes frequent and prolonged outages which bring down production rate, and hamper socioeconomic development leading to people''s dissatisfaction. Due to the transmission capacity limitation the excess production of TPP can hardly be evacuated and the Takhiatash TPP must accommodate its production to the highly variable local demand, which leads to a technical wear and aging of generation blocks and makes the operation of the power plant economically inefficient.
In addition, most of the transmission facilities are aging which now require rehabilitation and modernization. The Khorezm substation commissioned in 1969 is now more than 40 years old. The poor condition of these assets leads to a higher risk of system outages, poor energy services, higher maintenance costs, and increased transmission losses. A strong transmission system is therefore essential to the provision of an efficient, reliable, and flexible infrastructure that meets the ever growing demand of electricity consumers.
The project fits within the ADB's Country Partnership Strategy for Uzbekistan, which includes focus on energy efficiency and reliable power supply. It is also consistent with ADB''s Strategy 2020 and ADB''s Energy Policy (2009). The project is included in the draft Country Operations Business Plan: Uzbekistan 2015 -2017.