Although Kyrgyzstan does not have significant reserves of petroleum and natural gas like its Central Asian neighbors, the country has great potential for hydroelectric power generation. Information contained in this report is the best available as of February 2001 and is subject to change.
General Background: After seven decades of Soviet rule, Kyrgyzstan emerged as an independent state with the collapse of the Soviet Union in 1991.
A small, mountainous country with a predominantly agricultural economy, Kyrgyzstan has been the most progressive country in Central Asia in enacting market reforms, selling off state-owned enterprises, and adopting democratic principles.
Despite some progress, Kyrgyzstan remains one of the poorest countries of the former Soviet Union.
Kyrgyzstan's economy contracted sharply in the early 1990s, and while foreign assistance played a substantial role in the country's economic turnaround in the mid-1990s, Kyrgyzstan suffered severe economic aftershocks from the August 1998 financial crisis in Russia.
The Kyrgyz government has enacted a number of measures to combat the country's economic problems, including efforts to stabilize rampant inflation, boost stagnant industrial production, and stimulate growth.
In 2000, Kyrgyzstan's inflation rate was reduced to a manageable 9.5 percent (down from 39.9 percent in 1999) and its GDP grew 5.6 percent as industrial production expanded 8.6 percent compared to 1999.
Still, the country's nominal GDP in 2000 was just $1.2 billion, giving the country's 4.9 million people a per capita annual income of approximately $240.
Kyrgyz President Askar Akayev, who has been praised by the West for his market reforms, is beginning to lose favor with the international community due to the appearance that he is backsliding on the country's commitment to democracy.
President Akayev was re-elected to a third term in office in October 2000 with 74 percent of the popular vote in an election in which the main opposition candidates were prevented from running.
International organizations have expressed concern that Akayev is becoming more authoritarian, tarnishing Kyrgyzstan's reputation as the most liberal country in Central Asia.
In the energy sector, Kyrgyzstan's lack of oil and gas reserves has left the country dependent on imports for its energy supplies, particularly natural gas from Uzbekistan.
Yet, with an abundance of mountain rivers, Kyrgyzstan has significant hydroelectric potential, and with sufficient capital investment, Kyrgyzstan may be able to harness more power to meet the country's energy needs.
In July 2000, the World Bank approved a $5-million credit to Kyrgyzstan under a technical assistance project to reform the country's fuel and energy sector, strengthen the financial position of Kyrgyzgaz, the state natural gas joint-stock company, and purchase necessary equipment, such as gas meters and spare parts.
Oil: Kyrgystan is not endowed with large-scale oil reserves like its northern neighbor, Kazakhstan. With estimated reserves of only 40 million barrels, Kyrgyzstan is reliant on imports to meet domestic supply.
Kyrgyzstan contains seven developed oil fields and two oil/gas fields, but due to the country's mountainous topography, extraction is difficult, and water encroachment means that recovery rates are low.
In 2000, Kyrgyzstan produced an estimated 4,400 barrels per day (bbl/d) of oil. Although the country's oil consumption has declined sharply since 1992, when Kyrgyzstan consumed 32,500 bbl/d, Kyrgyzstan's estimated oil consumption in 2000 of 11,000 bbl/d still required imported supplies to meet domestic demand.
In November 2000, a team of specialists, who conducted an oilfield survey for the Kyrgyz government, forecast that Kyrgyzstan soon could supply itself with enough oil to meet its domestic needs.
Oil reserves in the Fergana Valley are estimated at 100 million tons (over 700 million barrels), while 200-300 million tons (1.5-2.2 billion barrels) are thought to be deposited in the Chuy, Alay, Issyk-Kul, and At-Bashi depressions.
Previously, Kyrgyzstan did not need to consider drilling in these deposits because neighboring countries kept up a steady supply of oil.
Since independence, petroleum products and natural gas have featured significantly among Kyrgyzstan's imports, and in part because Kazakhstan, Russia, and Uzbekistan are seeking to export their oil to Western markets for hard currency, Kyrgyzstan's suppliers are not as reliable as in the past.
Kyrgyzstan is looking to increase its oil production, with the government planning to start intensive extraction of oil and gas in 5-6 years.
Kyrgyzstan already is planning to drill the first well under this plan, perhaps as early as spring 2001. Due to the considerable costs (up to $120,000 to drill one well), Kyrgyzstan is starting to seek funds from multilateral development banks and foreign investors to increase production; already, in 1998, a Netherlands-Kyrgyz joint venture began oil and gas prospecting.
Refining: Kyrgyzstan has one crude oil refinery in Dzhalal-abad, about 150 miles south of Bishkek. The refinery, which was built in 1997, is run by the Kyrgyz Petroleum Company, a joint venture between Kyrgyzneftegaz, the country's state-owned oil company, and Petrofac Resources International Ltd. (U.K.), which bought its share from Canadian-based Kyrgoil in June 2000.
The 10,000-bbl/d-capacity refinery produces heavy fuel, diesel, and gasoline, but it has been hamstrung by difficulties in getting reliable supplies of crude oil from neighboring countries, especially Kazakhstan, amid the region's economic and political disorder.
Natural gas: Kyrgyzstan is heavily reliant on gas imports to meet domestic consumption requirements (67 billion cubic feet (Bcf) in 1999, mainly from Uzbekistan).
Kyrgyzstan's estimated natural gas reserves of 200 Bcf are difficult to recover, and the money and infrastructure to produce it are lacking. Despite this, Kyrgyzstan did produce its first gas (0.35 Bcf) in 1999.
Since Uzbekistan began charging higher rates for its natural gas in the mid-1990s, Kyrgyzstan has fallen into payment arrears, and Uzbekistan periodically has cut off gas to Kyrgyzstan in response.
While much of Kyrgyzstan's electricity is generated by hydropower in the warmer months of the year, natural gas is the primary fuel used in heating Kyrgyz cities and villages, as well as in electricity generation during winter. Thus, winter supply disruptions to Kyrgyzstan have resulted in blackouts and heating shortages.
Kyrgyz and Uzbek officials have negotiated several barter deals to exchange Kyrgyz electricity and goods for Uzbek gas, but these deals have often fallen through.
In October 2000, officials from both countries reached an agreement whereby Kyrgyzstan will cover 50 percent of the payment for gas in hard currency (and the rest in kind) in connection with the Uzbek debt to Kyrgyzstan for electricity supplies.
While the Kyrgyz side will receive the gas it needs, Kyrgyzstan will supply Uzbekistan with electricity, as well as water for the upcoming agricultural season.
On December 25, 2000, Uzbekistan cut off gas supplies to Kyrgyzstan due to slow repayment of its gas debt, which at the beginning of December 2000 stood at $1.6 million.
Uzbekistan had requested at the beginning of December that the Kyrgyz government speed up payment of overdue debts--it was estimated that Kyrgyzstan had not paid for almost 33 percent of the gas it had already received.
While the supply of gas resumed several days later, in late January 2001 it was cut off again, this time due to an accident on a gas pipeline in Uzbekistan's Bukhara region caused by the severe cold weather.
Nonetheless, the disruption left Kyrgyzstan short of gas to provide adequate heat and power to its citizens.
As a result of Kyrgyzstan's vulnerability to supply disruptions from Uzbekistan, the Kyrgyz government intends to start using alternative natural gas suppliers.
Talks with Russia's Gazprom and Itera on supplying natural gas from Turkmenistan via the existing gas pipeline through Uzbekistan are set to begin in mid-February 2001.
Construction of a second branch of the pipeline was begun during the Soviet era, but was stopped due to a lack of funds, although only $16 million is needed to finish construction.
In addition, the Kyrgyz government is negotiating with Kazakh and Russian authorities about the continuation of construction of the gas pipeline from Russia to Kyrgyzstan. Completing the pipeline, whose construction was halted in 1991, would require $60 million.
Coal: Since 1992, when Kyrgyzstan consumed 2.73 million short tons (Mmst) of coal, the country's coal consumption has plummeted. In 1999, Kyrgyz coal consumption was 1.22 Mmst--a 55 percent drop that would have been even more dramatic if consumption had not rebounded after it fell to just 0.82 Mmst in 1997.
Kyrgyzstan's coal production has dropped even more precipitously since independence and the end of Soviet subsidies to the Kyrgyz coal industry.
From a 1992 level of 2.37 Mmst, Kyrgyz coal production declined to 0.46 Mmst in 1999, making Kyrgyzstan a net coal importer.
A 1999 report for Kyrgyzstan's Ministry of Foreign Trade and Industry suggested that the country could overcome its coal deficit by exploiting the Kara-Keche deposit, one of Kyrgyzstan's 70 coal deposits.
Yet, while the Kara-Keche deposit would yield high-quality coal, high extraction costs and a lack of equipment have hindered development of the deposit.
Analysts have estimated the cost of developing the Kara-Keche deposit at $52 million, making it unlikely the Kyrgyz government will undertake the project unless it can attract sufficient foreign investment.
Hydropower: Kyrgyzstan's abundant water resources give it significant hydroelectric potential. The energy potential of Kyrgyzstan's mountain rivers is estimated at 163 Bkwh per year, of which only about 10 percent is currently exploited.
Hydroelectric energy meets approximately 20 percent of Kyrgyzstan's primary energy requirements and accounts for nearly 20 percent of its total exports.
With rapidly growing energy demand in neighboring Asian countries, Kyrgyzstan's hydroelectric power potential will likely become more attractive to foreign investors.
In May 2000, Turkish construction companies Entes and Kanalet signed a protocol of intent with Kyrgyzstan on construction of a hydroelectric station (Kambar-Atinskaya Hydroelectric Station-2) on the Naryn River.
The project will require investment of up to $1 billion, of which the two Turkish firms are prepared to invest $230 million.
Work on the station, which began during the Soviet era but was halted in the early 1990s due to a lack of funds, is 30 percent complete.
Since 1997, the World Bank has been involved in financing the modernization of Kyrgyzstan's hydropower sector. Four hydropower plants have been built within the framework of the $90-million World Bank program to upgrade the sector.
In October 2000, Kyrgyzstan began operating a 0.2-Bkwh-capacity hydropower station in the north of the country. The $11-million station, in which Kyrgyzenergo invested $1 million, will generate electricity for the northen part of the country and for Bishkek.
Privatization: Kyrgyzenergo, which is state-owned and holds a monopoly on Kyrgyzstan's power sector, is set to be restructured and privatized.
Kyrgyzstan is to start privatizing energy companies in 2001, according to Anatoly Makarov, first deputy CEO of the committee for the management of state property.
As part of a denationalization program, a number of electricity networks were separated from Kyrgyzenergo in mid-January 2001 and four grid companies were set up based on these networks.
Kyrgyzstan plans to announce an international tender for the privatization of the grid company Severelektro, which unites the electricity distribution networks of the three northern regions of the country.
Makarov said that energy companies from the U.S., France, the U.K., and Germany that already have experience in Eastern Europe and the Commonwealth of Independent States will take part in the tender.
Funds received from the privatization of Severelektro will be used to repair and reconstruct power grids in the country.
However, Prime Minister Kurmanbek Bakiyev, who took office in January 2001, has signaled his intention to fight the privatization unless his government has sufficient time to study all the details of the restructuring process.
The state has an 80.5 percent share of Kyrgyzenergo and a 15 percent share is fixed in the ownership of the Kyrgyz Social Fund and company employees.
The State Property Committee is planning to sell the remaining 4.5 percent at auction. Kyrgyzenergo's assets include 17 hydroelectric stations and two thermal electric stations in Kyrgyzstan.
In June 2000, former Prime Minister Amangeldi Muraliyev said in an interview to journalists that the large Toktogul hydropower station would remain under state control even after the structural reorganizations were carried out in the power engineering sector.
Energy Industry: Organization: Kyrgyzneftegaz (oil and gas production); Kyrgyznefteprodukt (petroleum products distribution); Kyrgyzgaz (natural gas distribution); Kyrgyzenergo (electric power generation, transmission, and distribution)
Refineries: Dzhalal-abad (10,000 bbl/d)
Power Stations (Type) (Capacity): Toktogul (Hydro) (1.2 gigawatts); Bishkek (Thermal) (0.76 gigawatts)
Source: United States Energy Information Administration.
© 2001 Mena Report (www.menareport.com)
