Uzbekistan : Distribution Network Modernization Project

Energy / Electricity transmission and distribution - Energy efficiency and conservation - Energy sector development and institutional reform

Uzbekistan's economy stands at the crossroads. Benefiting from high commodity prices, Uzbekistan has enjoyed high economic growth at the average rate of 8.4% over the past decade. Weakening external environment, compounded by internal structural challenges of extensive state control, weak governance, and limited foreign investments, has increasingly slowed down the economic growth, calling for far-reaching reforms to address major structural challenges in the economy and in the governance. The energy sector faces challenges of introducing market-oriented principles as an essential step to catalyze private sector investment, diversifying its energy resources while scaling up urgent investments in critical infrastructures. Despite rising government spending in recent years, Uzbekistan's core infrastructure, such as electricity, road networks, and telecommunications, has not kept pace with economic growth. The resultant infrastructure gap in terms of both quantity and quality undermines productivity, growth, competitiveness and poverty reduction efforts.

Over 230,000 kilometers of transmission and distribution lines, 213,400 kilometers are in the distribution grid. A significant part of low-voltage distribution grids was built during the Soviet electrification periods from 1950s to 1970s. More than 80% of low-voltage lines have operated for over 30 years and 30% of substation transformers urgently require replacement. The old and deteriorated distribution system has developed serious problems, such as high system losses, overloads, voltage drops related to increased load demand and increasingly frequent blackouts, especially during peak demand times in the winter. High electricity losses in the distribution system, estimated at 20% of net generation, offset the government continued efforts to modernize its power generation assets and result in missed opportunity costs for high value gas exports and exacerbation of greenhouse gas emissions considering 80% of its power generation is from burning natural gas.

Despite that the household electrification rate is almost 100% in Uzbekistan, the aging infrastructure and insufficient and inefficient investment increasingly widened the demand and supply gap and disrupted the supply of electricity. Old and deteriorated infrastructure outside the capital city, especially in small towns and in rural areas, which is home to half of the country's population, is a constraint to a vibrant economic growth. Enterprises report frequent outages and power outages are in particular severe in rural areas during the cold season (November-March) that last from six hours a day to weeks in some villages, disrupting the operations of local business enterprises. Limited access of, in particular, rural population to quality public services and infrastructure exacerbates urban rural disparities.

Driven by the dire needs of the sector, in 2019, the government launched an intensive and fast track structural reform introducing a series of legislative acts, such as, (i) supporting cost reflective tariff settings, (ii) breaking the monopoly of state-owned Uzbekenergo into generation, transmission and distribution utilities; and (iii) providing more space for a competitive market including private investments in power generation and distribution via enacting public private partnership (PPP) legislation and procedures. As a result of unbundling, a state-owned distribution company, Joint-Stock Company Regional Electric Networks (JSC REN), was created. The government placed a higher priority on establishing satisfactory corporate oversight, strengthening the corporate governance and improving enterprise management to ensure operational efficiency of a state-owned entity. The government requested ADB for early-stage intervention in implementing detailed action plans for the operationalization and commercialization of the unbundled JSC REN while continuing investments in the critical infrastructure.

The government adopted a power sector development plan comprising generation, transmission and distribution investment requirements covering the period of 2018-2022. The key objectives of this short-term investment program are to meet the economy's growing electricity demands while improving efficiency and reliability of supply and diversifying energy mix. The modernization of distribution grids and loss reduction is a priority investment program of the government in line with the government's ongoing Obod Qishloq (prosperous village) program to boost economic development in the rural and remote areas and improve access to the basic social infrastructures such as electricity, road, telecommunication. The results-based lending (RBL) program aims to support the government's rural economic development program and ongoing sector reforms.

Social and economic development of Uzbekistan's regions achieved.

Efficient and reliable electricity services to customers, particularly for vulnerable communities in the rural and remote area.

1. Distribution system modernized and augmented

2. Institutional capacity enhanced for improved sector

3. Renewable energy use promoted in the distribution system