EDB pushes energy cooperation in CIS

By bne IntelliNews October 5, 2010

Clare Nuttal in Almaty -

Well known for its abundance of fossil fuels, the Commonwealth of Independent States (CIS) also has immense hydroelectric power resources. But to fully develop its energy potential, the region's various states need to cooperate more and so new infrastructure to support this integration is now being built.

According to Vladimir Yasinksky, director of the strategy and research department at the Eurasian Development Bank, which already counts Russia, Kazakhstan and Tajikistan among its members, "energy is a pivotal factor for economic integration," and consequently, an important strategic area for the bank. "The bank's member states possess ample natural energy resources - enough to last for decades," Yasinsky says. "The problem is not physical deficiency, but the absence of conditions for efficient use of this potential. By this I mean investment in expanding the energy resource base, building and modernising transport infrastructure, energy-saving technology, renewable and alternative energy sources, and nuclear power."

The EDB has already made a number of investments in the energy sector. One of its major commitments is the construction of the third generating unit at the Ekibastuz GRES 2 power plant in Kazakhstan, which has an installed capacity of 500 megawatts (MW). This is being funded by a $770m multi-currency loan from the EDB and Russia's Vneshekonombank. The EDB has also funded a programme for rehabilitation of the plant, at a cost of $93.5m.

The Ekibastuz GRES-2 project has an integration dimension, since the power plant is co-owned by Russian and Kazakh shareholders. Located in north Kazakhstan, the plant supplies most of its electricity to the unified Russian grid system, and equipment for the new unit will be provided by Russian companies. "This sizeable project will help reunite the Russian and Kazakh grids, and contribute to integration and development of a common power market in EurAsEC. Mutual trade and investments will be stimulated," says Yasinsky.

The scale of projects in the energy infrastructure sector mean that international development banks - including since its launch the EDB - have an important role to play in their funding. The need, in some cases, to balance the needs of several different countries has also meant that an international approach is important. This is of particular urgency in Central Asia, where a lack of funding and disagreements between the five post-Soviet republics there caused the disintegration of the once-functional Central Asian common electricity system. "We understand that the rehabilitation of the common power system in Central Asia in a new format will require first of all a common energy market infrastructure and we are developing our plans accordingly," says Yasinsky.

The EDB co-financed the construction of the North-Kazakhstan-Aktubinsk Oblast 500 kilowatt power transmission line that has a total length of about 500 kilometres, and it's considering some other opportunities in this area.

The EurAsEC Anti-Crisis fund may also commit funds. "In the late 1960s, there was a Central Asian common electricity grid. Since then, the regional network had been under-invested in and the sector is in disrepair, which affects the quality of the electricity supply. This is a major factor in economic growth, in fact there is a linear relationship between stability of electricity supply and growth," says Sergei Shatalov, the fund's managing director. "Kazakhstan wants a second loop to help Kyrgyzstan and Tajikistan, which have power generation capacity in abundance, to export electricity to them. Kazakhstan will have major power shortages when economic growth returns to pre-crisis levels."

The new grid will also help stabilise the power supply situation in the region after last year's accident at the Sayano-Shushenskaya hydroelectric power plant in south Siberia, one of the world's largest power plants, which left 75 people dead and much of the plant's equipment destroyed.

Water fall

However, when considering ways to increase hydropower generation in Central Asia, the need for water and energy resources has to be carefully balanced between the interests of different countries. Investment in unleashing its hydropower potential must take into account the needs of the whole region, and look at the benefits - and the possible drawbacks - for all parties.

Lacking the large hydrocarbon deposits of their neighbours, Kyrgyzstan and Tajikistan are looking to the hydropower sector for their future energy security and economic prosperity. "Once the available hydropower potential is realised, Kyrgyzstan and Tajikistan will be in a position to export power to their northern [Kazakhstan, Russia, Uzbekistan] and southern [Afghanistan, Pakistan, India] neighbours," points out Yasinsky.

However, he stresses that, especially for major new facilities such as the Roghun plant on the Vakhsh in Tajikistan, the needs of all countries involved must be taken into account. "The development of hydropower potential in upstream areas should in no way be detrimental to downstream water use systems, bearing in mind that irrigated farming is of critical socio-economic importance to this region," Yasinsky says. "The countries involved must cooperate closely in preventing the potential negative downstream impact of hydraulic facilities."

This is rendered more complex by the impact of climate change on the Central Asian region. According to a study financed by the EDB, by 2050 the run-off of the region's two great rivers, the Amudarya and Syrdarya, will shrink by 10-15% and 6-10% respectively. In 1960-2005, the Pamir-Altai mountains lost more than 1,000 glaciers and the Zhailaysky Alatau mountains about 100 glaciers. "The hydropower and agriculture sectors are highly sensitive to climate change, as any changes in river run-off affect them directly... investment proposals must take climate change into account." says Yasinsky.

As the high costs of such projects may require support from a consortium of international development banks - or private financial institutions - it is all the more important for a broad international consensus between the interests of upstream and downstream countries to be reached.

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