|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 over 8% (2007 2013). Generally, stable macroeconomic conditions and robust growth are set to continue as Uzbekistan aims to develop a highly developed and diversified industrial and export base. In particular, the Karakalpakstan and Khorezm regions, inhabited by 3 million people and located in the western part of Uzbekistan, will continue to attract important investment projects. Reliable power supply is critical to support industrial development in these regions. Indeed, these regions expect power demand to grow at 3%, double the expected medium-term national average rate of 1.5%.
The Takhiatash TPP is the main source of power supply in the Karakalpakstan and Khorezm regions. In 2012, power consumption in these regions was 2,293 gigawatt-hours (GWh) with maximum load of 466 megawatts (MW). By 2020, the power consumption is expected to exceed 3,620 GWh, with maximum load of 620 MW. With 730 MW of installed capacity, the Takhiatash TPP now comprises five gas-fired steam turbine generation units. Three units totaling 310 MW have passed their designed economic life, and have been operating with derated capacity (130 MW), low thermal efficiency (23.7%), and limited plant availability (25%). The other two units, totaling 420 MW, are 26 years old or less. However, their capacity is derated by 15%, the efficiency is low at 31%, and they are overutilized to meet demand, which prevents regular maintenance.
To ensure reliable power supply, the government and Uzbekenergo, the state-owned power utility, identified the project as a priority, and decided to (i) construct two CCGT units (230 280 MW each); (ii) decommission three existing power units (Nos. 1 3); and (iii) maintain two power units (Nos. 7 8) for backup. This approach construction of energy-efficient units while decommissioning old and inefficient ones will be the first integrated modernization model and will pave the way to restructuring a power sector that faces acute issues with aging assets.
Indeed, Uzbekistan's power generation plants are generally old and inefficient, requiring urgent modernization. More than 75% of the power plant units are over 30 years old, reaching or exceeding their economic life. The thermal efficiency averages 31%, while that of energy-efficient CCGTs exceeds 50%. Replacing existing power generation assets with energy-efficient equipment is a key strategy for saving energy, securing reliable power supply, and reducing greenhouse gas (GHG) emission.
To date, Uzbekistan's power sector has shown steady progress in meeting new challenges. In an attempt to improve energy efficiency, one CCGT was commissioned in Navoi TPP and four more CCGT units are under preparation with confirmed funding. On the sector reform, the electricity tariffs have been steadily raised since 2004 to ensure financial sustainability. Financial transparency has improved since Uzbekenergo, with the assistance of the Asian Development Bank (ADB), adopted external audits based on the International Standards of Auditing (ISA) starting from fiscal year (FY) 2011. Further, to reduce high electricity losses and to spur demand-side energy efficiency improvement, Uzbekenergo has secured funding to introduce an advanced electricity metering program in nine of the 14 regions.
Nonetheless, further efforts to improve Uzbekenergo's corporate performance are necessary. The utility needs to develop a strategy and build the capacity to become more commercially bankable in the medium term. It needs to introduce a modern management system with performance accountability. Uzbekistan and Uzbekenergo will benefit from learning and adopting best international practices for tariff determination to improve efficiency and to ensure full cost recovery. Uzbekenergo's information technology infrastructure needs improvements in management information system.
The project is consistent with ADB's country partnership strategy, 2012 2016 for Uzbekistan, which includes a focus on energy efficiency and reliable power supply. The project is included in the country operations business plan, 2012 2014 for Uzbekistan.