Kyrgyz to Pay High Price for Power Privatisation

As vulnerable groups struggle with food and gas price rises, imminent sell-off of electricity industry looks set to hit them even harder.

Kyrgyz to Pay High Price for Power Privatisation

As vulnerable groups struggle with food and gas price rises, imminent sell-off of electricity industry looks set to hit them even harder.

Experts warn that plans to privatise Kyrgyzstan’s electricity industry in order to attract much-needed investment will mean higher bills for consumers, hitting poor people the hardest.

The government has announced plans to sell off or grant concessionary management rights to several power companies by this summer. It says it has no option, as the industry is losing money hand over fist and its decrepit infrastructure needs investment on a scale that the state cannot support.

Addressing the country’s new parliament and cabinet in early January, Kyrgyz president Kurmanbek Bakiev urged the new government to make the rapid privatisation of power companies a priority.

He and his officials believe that concluding the privatisation process is the only way to bring more money into the sector, enabling Kyrgyzstan to renovate equipment, build new plants and so become self-sufficient in energy.

“Having worked as a manager for many years, I can say that the state is the most inefficient of all owners,” said Bakiev who went on to complain of “infinite amounts of theft, wasted money and borrowing” in the state system.

Denationalisation of the power industry, launched in 1998, has taken place in fits and starts over the years, beginning with the breakup of the monolithic state-run Kyrgyzenergo into several semi-commercialised constituent parts – one company to run the power stations, another in charge of the national grid, and others distributing electricity to consumers in various parts of the country.

The government is also placing great hopes in a half-built hydroelectric scheme consisting of two linked power stations called Kambarata-1 and -2. Last June, after some stalling, parliament passed a bill allowing foreign investors to come in, take control and finish work on the massive scheme.

Once completed, the Kambarata plants will churn out the equivalent of half the country’s current total electricity production, most of the surplus going for export. But analysts say it will take a steely investor to take the project on, as it will be years before it turns a profit. (See The Cost of Privatising Power in Kyrgyzstan, RCA No. 500, 06-Jul-07.)

Those in favour of seeing privatisation through to the end, including the government, insist this is the only way to salvage an loss-making and crumbling industry.

Opponents say the process to date has been mismanaged and less than transparent, and has actually left the power industry in worse shape than before.

The companies lined up for rapid sale or management lease include distributors Severelektro in the north of Kyrgyzstan and Oshelektro and Jalalabadelektro in the south.

Another major asset up for grabs is Bishkekteploset, which pipes hot water to the capital, and the big carbon fuel-fired power station that supplies the heating for this system as well as the city’s electricity.

Lev Vasiliev is director of this power station, and paints a grim picture of its current state, describing how the Bishkek plant is already subsidised by government but this state funding covers only a third of its basic maintenance costs, which run at upwards of 17 million US dollars.

Vasiliev says the power station’s potential to make a profit is undermined by its statutory obligation to provide the capital inhabitants with heating at low, below-market rates. This adds to the overall deficit, preventing the firm from carrying out long-overdue repairs to the plant’s boilers.

As matters stand, according to Vasiliev, only nine of the power station’s 24 boilers are in full working condition, far short of what is needed to keep the lights and heating on for the city’s million-strong population over the current icy winter.

“Everything points to the need for investment,” he said.

The national power station company, Elektricheskie Stantsii, says the Bishkek plant and another fuel-fired power station in Osh run at an annual loss of about 50 million dollars.

“Sixty or even 80 per cent of their facilities and systems are totally worn out,” complained company spokesperson Natalia Orlova.

Vasiliev admitted that prices would have to rise once denationalisation was completed, and said the government would need of ways of cushioning the blow for vulnerable groups.

Some experts believe charges for electricity and heating will jump by 30 per cent or more after private investors move in. Consumers fear it could get even worse.

Vasily Vishnyakov, a builder who lives in Bishkek, suspects prices will soar many times the current amount. His household now pays about 350 soms a month, about ten dollars, for electricity in the winter.

“I can pay more, but pensioners can’t,” he said. “In winter, they will be frozen and will have to wear three jackets just to stay warm. They will never turn on any additional heaters because they won’t be able to afford it.”

Pensioner Gulyanda Salimova falls into that category. She told IWPR she spends one-fifth of her small monthly pension, worth 35 dollars, on heating and electricity bills.

“If the rates go up, it will be a fatal blow to me,” she said. “Before placing the energy companies in private hands, the state should take care of pensioners and give us a few special privileges.”

The prospect of major electricity hikes comes a further blow to people in Kyrgyzstan, who are already reeling from last autumn’s steep rises in the costs of many staple foods. People are already aware that natural gas is about to go up in price after neighbouring Uzbekistan sharply raised its export price from 115 to 145 dollars per 1,000 cubic metres.

Nadezhda Alisheva, a lawyer at Bishkek’s Centre for Information Rights, says that in order to avoid a backlash from the public, the government must find way of increasing basic salaries and pensions to keep pace with the expected changes in energy prices.

“Any price increase, even a small one, leads to social tensions, so if gas and heating prices rise several times over, there are going to be consequences,” warned Alisheva.

Energy expert Ularbek Mateev said that given the social implications, the authorities would need to ensure the privatisation of power companies was conducted with complete transparency, in order to gain the public’s confidence in this delicate process.

“After these firms are given over to private hands, the resources to maintain these facilities won’t be drawn from the state budget but will come from consumers instead,” he said. “It’s obvious, therefore, that consumers are going to be against privatising the energy sector and that the whole process will have to be very transparent and accountable.”

Jyldyz Mamytova is an IWPR contributor in Bishkek. Elina Karakulova is an IWPR editor in Bishkek.

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