Russia sanctions complicate Uzbek energy sector overhaul

Russia sanctions complicate Uzbek energy sector overhaul
By Clare Nuttall in Tashkent July 10, 2022

Western sanctions imposed on Russia after the invasion of Ukraine are holding up investments in energy projects in Uzbekistan as the delivery of key equipment is delayed, government officials and industry representatives told bne IntelliNews in Tashkent at the end of June. 

One of the world’s only two double-landlocked countries, the main route for transporting large and heavy equipment into Uzbekistan is across the Black and Caspian seas to neighbouring Kazakhstan, then on into Uzbekistan. However, the war in Ukraine has pushed the costs of insuring Black Sea shipping to prohibitive levels. In addition, while Uzbekistan has not imposed sanctions on Moscow, some of its suppliers face issues sending goods across Russia. 

This comes at a time when Uzbekistan has embarked on ambitious energy infrastructure construction projects, both renewables installations and gas-powered projects intended to work alongside them.  

In one example, the delivery of turbines for combined cycle gas turbine (CCGT) power stations has been held up as the main route via the Sea of Azov is blocked, while an alternative route via St Petersburg is complicated by the sanctions, Bakhrom Umarbekov, director of special projects at Uzbekistan’s energy ministry, told journalists on the sidelines of the Uzbekistan Energy Forum in Tashkent. 

In answer to a question from bne IntelliNews about the impact of sanctions on Uzbekistan’s energy sector, Umarbekov said: “It was affected negatively to our dismay because those CCGT turbines … are outsize and overweight.” 

The potential route via the Black Sea and Sea of Azov, through internal Russian water channels, across the Caspian Sea to the Kazakh port of Aktau then overland to Uzbekistan, is currently blocked, Umarbekov said. 

Speaking at a press briefing in Tashkent on June 24, Uzbekistan’s Deputy Energy Minister Sherzod Khodjaev said that while equipment could still reach Uzbekistan, the situation is “more uncomfortable”. He added that Tashkent is exploring alternatives such as the route via St Petersburg.  The northern route via St Petersburg, however, is considerably longer and, according to Umarbekov, "sanctions against Russia are creating problems for us”.

Uzbekistan is planning investments into CCGT plants as backup power sources to complement its growing renewable energy sector. The government aims to achieve carbon neutrality by 2050. 

Among the CCGT projects in Uzbekistan, in December 2021, the Ministry of Energy announced that a consortium of Electricite de France (EDF), Nebras Power Q.S.C. and Sojitz Corporation had won an international tender to build a CCGT plant in the Syrdarya region to help to cope with rising electricity demand in Central Asia’s most populous country. Earlier the same year, Turkish power company Aksa Enerji said it was expanding the scope of its CCGT power investments by building two more plants in Uzbekistan

Optimising logistics 

Nigora Ibadova, head of the Gas Chemical Complex MTO that when completed will convert methanol to olefins, said that there are issues with both logistics and high demand for equipment needed for the new plant. 

“Worldwide we see all the facilities are quite busy because there is a booming industry, the commodity prices are volatile so many big premises are occupied,” Ibadova told a briefing with journalists. However, as the project managers moved early on to source equipment, this is not expected to result in delays. Commenting on the logistics of getting goods into Uzbekistan, Ibadova added: “From a logistic point of view there may be some challenges which we could face for some of the equipment.” 

However, she added, “Now we are creating new corridors and new ways of transportation. To mitigate these kinds of risks we are making plan to optimise our logistics.” Moreover, Ibadova says, there are plans to localise production of some items in Uzbekistan.

Sanctions impact 

Umarbekov told journalists that while the impact of the sanctions on Uzbekistan was not intentional, “I hope the sanctions will be corrected for this type of goods to be transported easily to Uzbekistan.” 

The Central Asian nations either abstained or did not vote at the emergency session of the United Nations General Assembly on March 2 when UN members voted overwhelmingly to condemn Russia’s invasion of Ukraine.

As bne IntelliNews reported at the time, countries in the region have significant economic ties with Russia. Uzbekistan’s situation is especially complicated, as it co-operates with Russia as the country that guarantees Central Asian security, especially relevant in the face of the Taliban resurgence in Afghanistan, but is trying to maintain some distance from Moscow and balance the interests of the major powers in Central Asia.

In June, Uzbekistan twice suffered damage as a result of US sanctions aimed at Russia’s economy. On June 18 the US Department of Commerce placed secondary sanctions on Uzbek company Promcomplektlogistic, with the department’s Industrial Safety Bureau saying it suspected the firm was engaged in supplying enterprises of the "military-industrial complex of Russia”. Then on June 27 Russian private lender Sovcombank said that Ukraine war sanctions had thwarted its efforts to buy Uzbek state bank Uzagroexportbank.