Energy Privatisation Stalled Over Investment Fears

The Kyrgyz parliament has postponed its decision on how to complete the privatisation of the state-run electricity company Kyrgyzenergo. NBCentralAsia experts say that although the power industry is flagging and the government may not really be in a position to negotiate, it should ensure that the final decision is in Kyrgyzstan’s best interests.



On May 28, members of parliament, who are unhappy with the way the Kyrgyzenergo privatisation process has gone so far, agreed to postpone their discussion on how to complete the process by one month.



A programme for denationalising and then privatising the Kyrgyzenergo was approved in 1998. Kyrgyzenergo was first turned into a joint-stock company in which the state retained a 94 per cent share, and then five distribution companies were hived off from it – the heat supply firm Bishkekteploset and four distributors of electricity. The state retains a controlling interest in all five.



A company to run power stations, Elektricheskie Stantsii, and Natsionalnaya Elektricheskaya Set, which manages the national grid, were also set up, but both remain fully state-owned.



The final stage of the strategy is to sell off the distribution side to a strategic investor, or alternatively lease it out or arrange an asset management deal.



Those who support a swift privatisation say there are already investors just waiting for this to happen before they invest 2.5 billion US dollars in building the Kambarata sequence of hydroelectric stations, which will boost the whole electricity industry. Their opponents – including the parliamentarians who voted to delay the process – say the earlier restructuring has made the power industry into a poor economic performer.



Opponents say that so far, the strategy has made the company less attractive to investors.



Experts polled by NBCentralAsia say the government needs a clearly defined strategy for how to develop the energy sector, and that it has to be ensure this final stage of the privatisation process is transparent if it is to attract enough investment.



According to Sapar Orozbakov, director of the Centre for Economic Analysis, the electricity industry will not change unless the political system itself is reformed. “Unless the right conditions are created for investors, they won’t come to Kyrgyzstan. They will only come in if they can acquire a controlling share,” he said.



However, economist Jumakadyr Akeneev believes it is possible to engage investors even if the state holds controlling shares.



Other analysts say the power industry needs to operate more efficiently before it can be fully privatised, but any new terms must be in Kyrgyzstan’s economic interests.



“Our energy system still depends on imported energy sources to function, and the price of these is rising every year,” explained economist Jyldyz Sarybaeva.



The heat-generation plants in Kyrgyzstan’s largest cities mainly burn coal and fuel oil imported from neighbouring countries.



Sarybaeva believes the key to reviving the power industry is to find ways of reducing commercial losses and cutting wastage.



Ularbek Mateev, formerly director of the government’s energy agency, says the easiest way to reduce losses and wastage is to forge ahead with the last stage of denationalisation and bring in investors to repair or modernise the worn-out infrastructure. Reducing commercial losses is another matter, however, as one major cause of this is the public’s inability to pay its bills.



(News Briefing Central Asia draws comment and analysis from a broad range of political observers across the region.)