Being a country rich in hydropower resources, Kyrgyzstan is in the process of expanding its electricity production capacity. Thus, new investors were recently brought for the development of the Upper Naryn hydroelectric complex. Meanwhile, leaders of the countries involved in the CASA-1000 cross-border distribution project (Central Asia-South Asia power project) met recently, July 6, in Tajikistan, and the project will probably begin in the first part of 2018. There are also positive signs regarding the construction of the Kambarata-1 hydropower complex, still in its planning stage. However, the project is still looking for funding.
The Naryn River is the longest river on the territory of Kyrgyzstan, with a length of 807 kilometers. Along its route, the relief is predominantly mountainous (80% of the Kyrgyz territory). Several lakes lay on Naryn, Toktogul being the biggest, with a volume of 19 billion cubic meters. The average annual water flow is 27 km3 and the river is considered to be well suited for the development of hydropower projects.
Most of the hydropower infrastructure was developed during the Soviet period. It is worth mentioning the expansion during the Soviet period – from 1940 to 1989, electricity production increased from 52 million kWh to 15 billion kWh, largely due to the capitalisation of the hydropower potential.
The most important energy asset of the country is the Toktogul reservoir’s dam, given the capacity of the 1 200 MWh Toktogul hydropower plant. It generates around 40% – 50% of the total energy produced in Kyrgyzstan. Next in importance on the Naryn river is Kurpsai hydroelectric power plant, with a capacity of 800 MWh, followed by the Tash-Kumyr power plant, which produces 450 MW, Shamaldysai – 240 MW and Uch-Kurgan – 180 MW. The At-Bashy Hydropower Plant is located on Naryin’s upstream, with a capacity of 40 MW.
The latest project, Kambarata-2, upstream of the Toktogul reservoir, has a capacity of 360 MWh and was completed in 2010. The work at Kambarata-2 started in the Soviet period but the project was abandoned in the ‘90s. Only by 2007 the work at Kambarata-2 started again. All of these hydropower facilities enlisted above are located along the Naryn River. The Naryn power plants account for about 90% of the country’s electricity production.
It is important to mention that Kyrgyzstan had an installed capacity of 3,786 MWh in 2015. According to a government document in 2014, Kyrgyzstan is among the first countries globally in terms of hydro-power potential, but from its hydro-power resources with a potential to generate 142 billion kWh, only 10% or less are currently used. Thus, 12-15 billion kWh are generated annually.
The country owns 73% of the water resources of the entire Syr-Darya basin (through the Naryn River, Syr-Darya’s source) and 25% of all the Central Asian water resources. The neighboring state, Tajikistan, holds nearly 60% of the region’s water resources. Thus, at the level of the Commonwealth of Independent States (CIS), Kyrgyzstan is the third player in terms of hydro-energetic potential, after Russia and Tajikistan.
The Need for Export Infrastructure – Current Developments of the CASA-1000
The energy potential translates into export potential. For example, in 2014, domestic demand for energy consumption was below production, with a consumption of 11.31 billion kWh compared to a production of 14.639 billion kWh. However, the losses in the distribution system, about 3 billion kWh, must be mentioned. In addition, other key market features are the lack of investment and frequent blackouts. Regarding export potential, in reality, figures show that in 2014, 307 million kWh were exported, while imports accounted for 36 million kWh.
The direction taken in this regard is to conclude a partnership with Tajikistan for opening the energy market towards South Asia. [1.] The two states have agreed to develop high-voltage distribution channels (750 km) to neighboring countries, Pakistan and Afghanistan. The four states started this initiative in May 2016 with an agreement reached in Istanbul. Thus, the project CASA-1000 (Central Asia-South Asia power project) was born, former Pakistani Prime Minister Nawaz Sharif, calling the project an important step towards achieving the Central Asia-South Asia Regional Electricity Market. Nawaz Sharif said in 2016 that “the program is a good example of promoting energy-poor South Asia’s cooperation and energy-rich Central Asia.” The distribution project has a value of 1.17 billion dollars, while the World Bank will cover half of the cost. It is estimated that the project will generate electricity worth of 1,000 MW for Pakistan and 300 MW for Afghanistan mostly during summer time, the period of the year when consumption reaches a high point in those two states.
On July 6, 2017, a meeting took place between the leaders of the four states involved in the project, the Prime Minister of Kyrgyzstan and Pakistan, along with the Presidents of Tajikistan and Afghanistan, at Tursunzoda, in the vicinity of Dushanbe. Most likely, the project will enter the construction stage in early 2018. Major companies such as Siemens (Germany), ABB (Sweden) and Alstom (France) are already interested in this project.
New investments at Kambarata-2
Kyrgyzstan has obtained a 110 million dollars loan from the Eurasian Development Bank (BED) for the construction of the second unit of the Kambarata-2 power plant, which was ratified by the Kyrgyz President in July 2017. The new project represents a capacity increase of the plant up to 120 MWh. The total cost is estimated to 138 million dollars, and the loan was contracted from BED for up to 20 years.
Change of position of Uzbekistan and Kazakhstan regarding Kambarata-1. The project remains in search of investors
The Kambarata-1 project and the Upper Naryn complex are planned at the same time as CASA-1000 and Kambarata-2. In 2012, bilateral negotiations between Russia and Kyrgyzstan brought funding and developers to these two projects. For approximately 2 billion dollars, the Russian company Inter RAO UES had to develop the Kambarata-1 complex, and RusHydro won the contract for the Upper Naryn complex. Kambarata-1 is an ample project that wants to increase the capacity of hydroelectric production trough a single dam by 1900 MWh. It is estimated that production will reach 4.4 billion KWh/h annually, way above the capacity of the old Toktugul.
In 2015, the Russian side did not solve its problem with finding alternative financial sources. If the Kyrgyz side had funds through Russian loans, the two firms were delaying the work. On January 20, 2016, Kyrgyz President Atambayev announces the unilateral denunciation of contracts. The financial resources that the Russian counterpart was supposed to find were estimated at 3 billion USD. The reasons for not honoring the contract were of financial nature, the pressure of the oil price fall on the Russian economy diminishing the financial sources available on the market.
In July 2017, the situation remained unchanged for Kambarata-1. President Atambayev said after a state visit to Russia that investors are still being searched for this project, recalling that the Kambarata-1 project is the most important for the management of Central Asian water resources. Thus, the president revealed he was willing to build the hydro power plant in cooperation with the downstream states, Uzbekistan and Kazakhstan, declaring that the heads of state of Astana and Tashkent had given their preliminary agreement.
Earlier, the former president of Uzbekistan, Islam Karimov, stood firmly against the Kambarata-1 project and the Naryn de Sus complex. It is important to be mentioned that Uzbekistan’s interest is guided by its cotton industry, where there is a constant risk of the crops irrigation possibilities being reduced if any hydro-power complexes are built upstream of Syr Daria (Naryn).
Czech investors for Upper Naryn
The Upper Naryn project envisages the construction of four hydro-power plants with the following capacities: 87.4 MW at the Akbulun hydro-power plant, 47.7 MW at Naryn-1, 47.6 MW at Naryn-2 and 55 MW at Naryn- 3. In 2014, the total project costs were estimated at 727.65 million dollars while the project should produce 942.4 million KWh annually.
On July 10, 2017, the Kyrgyz President’s website announced that the project will be developed partially by the Czech company Liglass Trading CZ s.r.o. which has signed an agreement to develop two hydro-power plants, Naryn-1 and Akbulun. The preliminary costs of the first phase of the project are estimated at 230 million dollars. Subsequently, for Naryn-2 and Naryn-3, a separate contract with the Czech side will be signed after the start of the first phase of the works. In the second stage, the funds are to be obtained by accessing a loan. Meanwhile, the State Committee for Industry, Energy and Soil Resources assures that the loan will be in preferential terms while not bearing an interest. Preliminary estimates indicate that the first phase of the project (involving the construction of the first two hydropower plants) will take about 4 years. The project will start with a feasibility study that will last around 3 months. According to the preliminary data, the investment is to be recovered over a period of 8 years. During his visit to Kyrgyzstan on July 18, 2017, Jiří Vojtěchovský, the project director from the Czech company, said Liglass is ready to invest in those hydro-power plants around 500 million dollars.
On the 10th of July 2017, another side-agreement was signed given “Construction of mini-hydro-power plants in the Kyrgyz Republic”. It contains the financing, the conducting of feasibility studies, construction, testing and operation of 10 mini-hydro-power plants, signed with Liglass Trading CZ s.r.o. They will also be on the Naryn. Orto-Tokyo-1, Orto-Tokoy-2, Papan, Chon-Aksuu, Kirov, Kara-Suu 1 and 2 will reach completioned by December 30, 2019 and Sandyk-1 Sandyk-2 Sandyk-3 will be completed by the end of 2020.
According to the agreement between the Czech company and the Kyrgyz officials, Liglass Trading CZ sro will have to give back to HydroRus in the first 30 days from signing the contract 37 million dollars to buy the part HydroRus holds in this project, otherwise the contract will be cancelled.
The HydroRus development contract was signed in September 2012 during a visit by Russian President Vladimir Putin to Kyrgyzstan. In 2015, the Russian side failed to solve the problem of financing and found no funding sources for 2016. Thus, in January 2016, Kyrgyzstan denounced the agreement concluded with HydroRus.
After the agreement was canceled in 2016, the Kyrgyz side promised to compensate the Russian side for the resulted costs, only after an international audit. In this regard, a parliamentary committee concluded in December 2016 that 37 million USD is too high, with the real cost of the construction overestimated. Alexander Narvaes, the director of the Russian-Kyrgyz joint venture for the development of the Upper Naryn complex, argued that much of the cost, or about 800 million som (about 11.6 million dollars) was represented by the feasibility study. Another part of the sum was used to build the complex adjacent to the yard itself.
In addition to the prospects to continue the Upper Naryn project, the confusion was also caused by signing the contract with Liglass Trading CZ s.r.o. on July 10, 2017. The Kyrgyz and the Czech media reported that the Czech firm was bankrupt in 2016. Prior to these developments, the company’s website displayed its experience in post-Soviet space through a series of projects implemented in Armenia and Russia over time. There were also mentioned projects in Serbia, Italy and the Czech Republic. The Bishkek press and the Kyrgyz politician Edil Baisalov said, on the basis of their investigations, that the listed projects had an earlier date of completion, before the establishment of Liglass Trading, thus the allegation the firm did not develop those projects. In addition, Liglass’s anual turnover is low. A few months before signing the agreement, the Embassy of the Kyrgyz Republic in Austria, which had received a request from the Kyrgyz Ministry of Foreign Affairs to collect information about this firm, advised the state not to enter into an agreement with the Czech company. The Embassy failed to find evidence of successful implementation of Liglass Trading’s investment projects abroad.
However, Kyrgyzstan’s Industry Committee press secretary, Ryspek Tokonaliev, told the press that Liglass Trading holds 383 million euros in an account opened with Unicredit Bank. In addition, he said that after winning the tender for the construction of the 10 mini-hydro-power plants, the Czech company created a $ 1.15 million guarantee deposit. At a press conference held on July 24th, Kyrgyz President Almazbek Atambayev responded to journalists’ questions about Liglass Trading. Atambayev maintains that the agreement is a successful one for Kyrgyzstan, but if Liglass Trading does not make the payment to HydroRus until September, then another investor will be sought.
Journalists from the Ferghana publication are of the opinion that the Czech company is only a financial intermediary in the construction of the Upper Naryn complex, while the origin of funding remains unclear.
 Denoon, D (2015) “China, The United States, and the Future of Central Asia: U.S.-China Relations”, New York University Press, p.58