Kyrgyzstan Makes Progress on Electricity Sector Reform

This post was written with Sarah Lupberger, Project Coordinator with WRI's Electricity Governance Initiative.

A year and a half has passed since a political uprising rocked the central Asian country of Kyrgyzstan. The violent protests in April 2010 were in part a response to mismanagement of the energy sector and a loss of public trust in the government’s ability to provide essential services like electricity. These protests eventually grew into a revolution that ousted President Bakiyev.

Today, electricity sector reforms and engagement with civil society groups have begun to show signs of progress, according to WRI’s partners in the Electricity Governance Initiative (EGI). The country had been in an energy crisis since 2008, with rolling blackouts, extreme price increases, and a growing awareness of corruption. A 2009 assessment of electricity governance in Kyrgyzstan conducted by EGI found that the legislative framework for governance of the energy sector had not been applied in practice, and that there had been backsliding in the implementations of transparency provisions. Decision-making and governance processes in the sector remained opaque and unaccountable to the public.

The Fuel and Energy Sector Transparency Initiative (FESTI)

After the revolution, Interim President Roza Otunbaeva made energy sector reform a priority for the new government. In June 20, 2011, she signed a Decree on a “Fuel and Energy Sector Transparency Initiative” (FESTI), which aims to increase transparency, accountability, and opportunities for civic engagement in energy sector governance.

Civic Foundation Unison, the core Kyrgyz partner of WRI’s Electricity Governance Initiative (and a member of the group that had conducted the energy sector assessment) was elected as civil society co-chair.

Since January, the Supervisory Board (SB) on FESTI has started 25 distinct programs. These include creating transparent procedures for defining tariff methodologies and setting tariffs, as well as creating special escrow accounts for funds received from the export of electricity.

Early Success in Increasing Transparency and Public Scrutiny

So far, 20 of these programs have already seen positive results.

• Increased transparency has led to US$200 million of cost-saving in transmission line costs. According to FESTI, in 2011, there has been approximately US$200 million of cost-saving in publically funded development projects that can be attributed to FESTI’s work. The Government of Kyrgyzstan had estimated a need of $962 million in investment costs for upgrading and building transmission lines, including the CASA 1000 line to export power to Afghanistan and Pakistan. These investments would need to be covered through a combination of loans and tariff increases, with implications for tax payers and consumers. The increased transparency afforded by FESTI allowed consumer and other civil society organizations to review the cost assumptions on which these projections were based, resulting in a downward revision of these figures. However, Kyrgyzstan still lacks a long term integrated power development plan which could be shared with the public for review.

• FESTI has also conducted an in-depth analysis of Kyrgyzstan’s public procurement system. The analysis documented pervasive lapses in procedure and its implications for bidding processes in energy companies of Kyrgyzstan. A participant at a September FESTI conference (see box) from the Anti-corruption Business Council (Kyrgyzstan) noted that the request from the civil society representatives in FESTI resulted in the first in-depth study of the public procurement system in Kyrgyzstan. This was the first time civil society had made such a request, and this public pressure allows transparency advocates within the government to have more traction when they push for reform.

• FESTI reports that electricity distribution losses in Kyrgyzstan dropped to 22.2% of production volume, a 5.7% decrease compared to the same period in 2010. This reduction is due to a FESTI-initiated agreement between energy companies and the Ministry of Energy in which the companies agreed to more accurately report their commercial losses. It has become an acknowledged fact that technical losses have been exaggerated in order to conceal commercial losses – an umbrella term for electricity that has been consumed but not been paid for, including due to theft and corruption. Since the cost of losses can be passed on to consumers in the form of tariff increases, public oversight of loss reduction is an important function of FESTI, especially in the absence of an open tariff review process.

The Future of Electricity Reform in Kyrgyzstan

In December 2011, the newly elected president, Almazbek Atambayev, was inaugurated. Despite FESTI’s success so far, its role in the new executive government is uncertain. The best way to ensure that FESTI continues to effectively implement its activities is to build the strength and capacity of Kyrgyz civil society to continue to demand transparency and accountability in the energy sector, as well as to engage more of the public in energy sector decision-making.

FESTI is a creative interim solution in a country where far reaching investment and tariff decisions are made behind closed doors. In this sense, it is a multi-stakeholder forum analogous to the Extractive Industries Transparency Initiative (EITI), which also functions in Kyrgyzstan. Ultimately, these multi-stakeholder forums should be seen a step in the road towards formal procedures for public oversight of the energy sector rather than an end in themselves.

EGI will continue to work with FESTI and Civic Foundation Unison on a number of activities, including building the capacity of a broader NGO consortium to substantively participate in sector processes and building consumer understanding of the roots of service delivery problems.

Background information:

• Electricity Governance in Kyrgyzstan: An Assessment
• Electricity Plays Key Role in Kyrgyzstan Uprising
• NEWS: Unison Appointed Co-Chair of FESTI Supervisory Board in Kyrgyzstan
• FESTI International Conference page on EGI website (with conference materials and EGI partner papers and presentations)
• Conference Report on Unison’s website

The following key FESTI reports will be available shortly:

• Improvements in governmental procurement systems in the electric power sector
• Improving transparency and access to information through improving of corporate governance in energy companies
• Analysis of electricity losses in distribution companies
• Analysis of Centers of Quality Service Improvement