Monday, October 24, 2011

Kyrgyzstan: Energy-Sector Reforms Show Promise, If Sustained

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Energy-Sector Reforms Show Promise, If Sustained

by Nate Schenkkan

There’s a presidential election in Kyrgyzstan in a few days, but with winter approaching, the troubled energy sector is in the back of many Kyrgyz minds. Some are worrying about a “catastrophic breakdown.” A transparency initiative, though, is generating hope that the troubled energy sector can be reformed.

The Fuel and Energy Sector Transparency Initiative, or FESTI, came into being during the summer of 2010, under a decree issued by provisional president Roza Otunbayeva. The decree itself was an outgrowth of funny business in the sector in late 2009 and early 2010, specifically the introduction of tariffs and privatization efforts -- moves that played a major role in former president Kurmanbek Bakiyev’s downfall.

The initiative’s most prominent feature is a public advisory council comprising eight civil society activists, four government officials, and four energy industry representatives. The council has helped the government save money, downwardly revising, for example, the cost estimate for the construction of a new transmission line in the country’s south. The government’s original estimate was $240 million. After review and criticism by the board, it was revised to $208 million.

The council has also become a vehicle for popular participation in the reform process. “We are like a bridge,” said Nurzat Abdurasulova, the council’s civil society co-chair.

In Abdurasulova’s view, the reform process is a dialogue. She said one of her chief aims is to convince customers not to steal by siphoning energy off through illegal lines, or by colluding with corrupt meter readers. Another important aspect of the council’s work is changing the popular perception that the energy sector is manipulated in order to benefit politically connected insiders. Such a shift would be needed to enhance the chances that future privatization efforts would be successful. “Most of all, we are trying to change the relationship between the companies and the consumers,” she said.

Just as important as promoting cost-savings and combatting graft, FESTI offers Bishkek a mean to attract much-needed foreign investment, according to Ben Slay, senior economist for the United Nations Development Program. FESTI, Slay said, “improves the investment environment for tomorrow.”

The Kyrgyz energy sector faces steep reform challenges after decades of neglect. A report commissioned last year by the Ministry of Energy found the system on the brink of “catastrophic breakdown.”

Although vertically integrated Kyrgyzenergo was broken into eight parts in 2001, the daughter companies operate in a semi-Soviet fashion, protected from competition and with little incentive to improve or even maintain service. Readings are taken manually and communicated by telephone, boosting corruption even at the lowest levels. Less-essential equipment is cannibalized to replace parts that break down. It’s not surprising, then, that the distribution system has 18,000 forced outages per year, almost 50 per day.

Observers say that without follow-up, FESTI alone cannot produce the fundamental changes the system needs. “The energy sector is [Kyrgyzstan’s] base for economic development, and right now it is at a critical tipping point,” said Joellyn Murphy, an energy consultant with extensive experience in Kyrgyzstan.

Future needs include giving the advisory council greater access to outside expert opinion and vesting it with “discovery” powers to acquire information from energy companies. In addition, the installation of modern metering systems is necessary to prevent manipulation of data concerning how energy produced and consumed. Ultimately, many advocate an independent regulator that would stand outside existing institutions to provide oversight and long-term planning.

With Otunbayeva leaving office by the end of the year, civil society boosters are worried about FESTI’s future. Although all leading candidates in the October 30 presidential election profess support for transparency, none is as invested in the issue as Otunbayeva, observers say.

FESTI’s public advisory council remains a fragile institution, and its authority depends on political backing. “Transparency is a constant process,” said Abdurasulova. “We can’t expect results in three months.” Support and even pressure from international donors will be essential to the new administration’s willingness to maintain and expand reforms.

“If they can sustain and continue to grow these kinds of changes, I think the Kyrgyz Republic can be a model for the region,” Murphy, the energy consultant said. “If not, they will stay stuck.”
Editor's note:
Nate Schenkkan is a Bishkek-based journalist.