COMMENT: The water and energy nexus in Central Asia

COMMENT: The water and energy nexus in Central Asia
Climate change is real, and it calls for action. Extreme temperatures and the lack of water has put Central Asia on the front line of the Climate Crisis. / EDB
By Nikolai Podguzov Chairman of Eurasian Development Bank (EDB) September 1, 2023

Climate change is real, and it calls for action at the global, regional, and national levels. One of its impacts is additional water stress in addition to what many countries and regions experience already. Effective counteraction requires joint action.

Central Asian countries are among the world’s most vulnerable to the risks and threats of climate change. The region is expected to suffer a greater increase in temperature compared to the global average, leading to accelerated melting of glaciers, reduced snow cover, intensifying desertification, degradation, and salinization of land, loss of biodiversity, and increased deforestation. At the same time, the region has one of the lowest water use efficiencies in the world, and water stress (UN Sustainable Development Goal (SDG) 6.4.2) is high. Water stress is expected to increase by 2.8 times in some regions of Central Asia by 2040 (see Figure A).

The average water use efficiency (SDG 6.4.1) in the region is estimated at USD 2,5/m³, which is considerably lower than the global average of USD 19,01/m³. Significant water stress and low efficiency are attributed not only to global climate change but also to rapid population growth accompanied by urbanisation and the development of agriculture and industry. The expected deterioration of water resources will have a long-term negative impact on food, energy and environmental security in the region, and it may also increase competition for water among the countries in the region.

Efficient use and allocation of water and energy resources in Central Asia should be addressed within the context of the region as a whole. Collective approach is key. Limited water resources in Central Asia are used for irrigation and energy needs, and within the Aral Sea Basin, they come from two major transboundary rivers, Amu Darya and Syr Darya. However, these resources are unevenly distributed. 77% of the annual runoff is concentrated in the upstream countries, Tajikistan and Kyrgyzstan, while 85% of the water resources are used for irrigation in the downstream countries, Uzbekistan, Turkmenistan, and Kazakhstan (see Figure B).

Natural factors objectively substantiate the need to promote regional integration and joint management of transboundary river basins. Thus water and energy resources serve as a critical foundation for regional cooperation. Regional water and energy organisations, as well as Development Finance Institutions (DFIs), can act as a common link in this process. According to EDB estimates (in line with other international organisations’ estimates), the elimination of existing shortcomings in the water and energy complex through cooperation can lead to an additional increase in the growth rate of the regional GDP by 1.5% per year. The adoption of modern irrigation technologies and the modernisation of irrigation systems can increase water use efficiency by 40%, ensuring the safety of agricultural production. This is critical for regional food security.

Now there is a window of opportunity for significant progress in cooperation on the joint management of water and energy resources in Central Asia with the support of the Heads of States. President Kassym-Jomart Tokayev of Kazakhstan has stressed the need for establishing an International Water and Energy Consortium. In addition, regionalisation in Central Asia has received a boost from Uzbekistan's new policy of promoting confidence-building among the countries of the region. Bilateral cooperation between Uzbekistan and Kazakhstan, as well as between Uzbekistan and Tajikistan has intensified, in particular, in the field of co-financing the construction of the Rogun hydro power station and two stations on the Zeravshan River and restoration of the parallel operation of national grids, including the Central Asia Power System. Kyrgyzstan, Uzbekistan, and Kazakhstan are considering the possibility of joint implementation of the Kambarata HPP-1 project. Kazakhstan and Tajikistan are exploring the possibility of closer cooperation in the development of their power systems. Strengthening regional cooperation in Central Asia offers an opportunity to restructure the architecture of relationships in the water and energy sector to provide a collective solution to the growing scarcity of water and energy resources.

The EDB scrutinised the evolution of the regulatory landscape in the water and energy sector in Central Asia, covering the period from the Soviet era to the present day. The study also examined international best practices in the area. Based on this analysis, it is crucial to strengthen an open and constructive regional dialogue to establish general principles for regulating the water and energy complex in Central Asia. The most effective solution to implement these principles is to enhance the existing regional organisations involved in regulation. This primarily applies to the regulatory entities of the International Fund for Saving the Aral Sea (IFAS) and the Central Asia Power System (CAPS). It is necessary to ensure interaction among the bodies responsible for regional regulation under the auspices of IFAS, which should become a fully-fledged transboundary river organisation. This would ensure the coordinated development of the water and energy sectors, including the identification of regional priorities in the use of water and energy resources and the formulation of a comprehensive investment policy. To achieve this, it will be necessary to allocate more internationally funded resources to applied regional research and development (R&D) in the area.

Implementation of national and regional water and energy management programs and infrastructure projects requires sustained investment support. However, the countries in the region generally lack financial resources. Water and hydropower projects are among the world's most capital-intensive. DFIs could play a crucial role as financial agents to mobilise and pool funds from international donors and other stakeholders (such as China and Russia) for programs and projects. They could also participate in financing national and transboundary infrastructure projects in Central Asia. Establishing an International Water and Energy Consortium of Central Asia would facilitate an effective dialogue with investors. The consortium would assume the key function of seeking and providing financing infrastructure projects. Two options can be considered: the establishment of a fully-fledged international organisation or the establishment of project investment consortia for large-scale projects. The second option might be more practical as it would promote faster construction and more efficient implementation of large investment projects.

Developing an effective regulation and management of the Central Asian water and energy complex is an incredibly challenging task. However, it is essential to unlock the full potential of all transboundary river basins by establishing new efficient mechanisms for joint regional regulation. Strengthening cooperation among neighbouring countries is essential. Such measures will facilitate the effective management of the Central Asian water and energy resources, help address challenges of climate change, and put regional economic growth on a sustainable path.