Uzbekistan : Sustainable Energy Access – Distribution Network Modernization Program

Energy / Electricity transmission and distribution

The Uzbekistan economy is at the crossroads. Weakening commodity export prices and a downturn in trading partners import demand is slowing down the economic growth from its average rate of 8% to 5% in 2017. In turn, Uzbekistan embarked on a series of far-reaching reforms to boost its economy including liberalization of foreign exchanges and initiation of structural reforms of state enterprises. The energy sector underpinned Uzbekistan s sustained growth, contributing to 10% of its gross domestic product and a quarter of its exports. The sector is also facing challenges to be more open and market-oriented as the essential first step to lowering the burden on the national budget and to continue urgent investments at scale in critical infrastructure. Uzbekistan s aging and dilapidated infrastructure in the whole power supply chain increasingly results in system inefficiencies, unreliable electricity supply that dampens the economic development and business confidence, and uneven access to electricity across provinces contributing towards widening regional income disparities.

Uzbekistan has more than 230,000 km of transmission and distribution lines of which 213,400 km is distribution grid. In the low voltage distribution systems, more than 80% of low voltage cables are under operation over 30 years and 30% of substation transformers require urgent replacement. The obsolete distribution system has developed serious problems overtime, such as overloads, voltage drops related to increased load demand and increasingly frequent blackouts especially during peak demand times in the winter. In urban areas, the backouts still occur for several hours per day due to faults in the distribution system and in some remote villages, disruption of electricity supplies last for days and weeks, putting social service systems such as education and health care at risk.

Investment constrains in the transmission and distribution system is largely attributable to high electricity losses, estimated at 20% of net generation. This level is nearly five times the level of losses of high-income countries. Technical losses account for 13.7% of net generation and most of the losses occur on the distribution system at 0.4 to 35kV, which are about three times higher than what could be expected from well performing distribution companies. Investment in distribution networks will help to reduce overloading, improve supply reliability and significantly reduce electricity losses. The additional benefits of distribution network improvements are reduction of carbon emissions through energy efficiency and increased receptivity for greater penetration of renewable resources in the power system, given that 85% of electricity supply in Uzbekistan relies on the combustion of natural gases.

The Government has already undertaken steps to improve reliability of its power system through modernization of its power plants, transmission lines and substations between major plants and load centers. The ongoing advanced metering projects will enable reduction of non-technical losses and improvement of financial sustainability of Uzbekenergo, the vertically integrated state-owned power utility. In 2018, the Government launched an integrated economic development initiative that can revitalize the rural economy and help build modern infrastructure in rural and remote areas to ensure that all members of society can participate in and benefit from growth. One of the pillars of this bold program is to improve access to reliable electricity services by modernizing the distribution network. The Government requested ADB s assistance to apply innovative and country-based system to improve the results of this initiative.

The overall investment needs for generation, transmission and distribution under Uzbekenergo's Electric Power Industry Development Strategy 2030 is more than $20 billion and the distribution network modernization only accounts for $2 billion. As the first step, the Government has embarked on the program of distribution modernization of $830 million in the next 3 years. The proposed $300 million result-based loan (RBL) program aims to support the first phase of modernizing the distribution networks to improve the reliability of access to electricity and enhance the quality of life in the remote areas by the sustainable use of electricity as a key driver of increased economic activity.

The proposed program will use PBL as a lending modality to harmonize policy actions. The PBL is a suitable instrument for the program as it will (i) strengthen sector governance by policy level intervention and implementation of unbundling; (ii) improve financial sustainability and reduce technical losses; (iii) secure a commitment to low-carbon transformation of the energy sector with tangible measures; (iv) a modern power distribution system in rural areas; and (v) stimulate rural development through targeted approach.

ADB's value addition to this program include (i) effective gender mainstreaming; (ii) Sector Development Program approach policy level intervention + investment in critical infrastructure; (iii) high technology application dispatching operation modernization, integration of Advance Electric Metering infrastructure; and (iv) potential climate financing with policy actions.

This program is part of an overall programmatic approach and is embedded within the Government's policy to transform Uzbekenergo into a financially sustainable entity, which is an essential first step in larger sector reforms. This program is well aligned with the operational priorities in ADB's Strategy 2030 and is included in the Country Operations Business Plan 20192021.