WRI’s Davida Wood answers questions on the current situation in Kyrgyzstan and its link to electricity governance.
The recent political upheaval and violent protests that rocked Kyrgyzstan – sparked in part by sharp hikes in tariffs for electricity and heat – serve as a reminder of the importance of the electric power sector in Central Asia.
In 2009, WRI’s Electricity Governance Initiative (EGI) supported local partners in Kyrgyzstan and Tajikistan to conduct the first comprehensive Electricity Governance Assessments in their countries. These assessments allow civil society to gather data on the transparency, accountability, and inclusivity of a country’s electricity sector.
What has led up to the current tensions in Kyrgyzstan?
Since President Bakiyev was elected in the wake of the Tulip Revolution in 2005, Kyrgyz citizens have been increasingly disappointed by the failure of the new government to improve economic opportunity and deliver on vital services. At the same time, there has been an erosion of civil liberties and a rising perception of increased corruption.
These trends were manifested in the electricity sector, where mismanagement of the privatization process resulted in poor sector performance. In 2008 Kyrygzstan entered an energy crisis and rolling blackouts were imposed throughout the country. One of the key issues that triggered this latest revolt was rising electricity tariffs. The price of electricity was set to increase 100% starting on January 1, 2010, with plans for further increases.
As electricity companies are writing off debt and electricity rations are being imposed, there are no mechanisms for holding the government accountable.
Why have electricity costs increased so much?
In the former Soviet Union, there was universal access to electricity, and the service was virtually free of charge to citizens. A challenge for the former Soviet republics has been to develop a tariff system where the prices for electricity gradually increase to the point where the revenues cover the costs of electricity. The problem is exacerbated because the Soviet-era equipment is badly in need of upgrading, and also because trading patterns have been disrupted. Fuel – which Kyrgyzstan used to have easy access to from neighboring Soviet republics in exchange for hydropower – is now a globally traded commodity. So Kyrgyzstan has to either find ways to pay near market prices, or become energy independent by increasing its capacity to generate hydropower. Both of these are expensive options. Hence the need to increase tariffs.
Why are people so upset about the tariffs?
There is strong suspicion that tariff revenues are not being put to good use. Electricity companies continue to run at a loss, and services have deteriorated. Fundamental to the expectation that people pay for services is public confidence in the institutions which set prices, plan for improvements, and oversee sector performance. But basic good governance procedures have been withdrawn. Annual reports from the Ministry for Industry, Energy and Fuel Resources – once posted on the ministry website – are no longer publically available. The regulatory department has been weakened and the practice of public hearings for tariff increases has been suspended. So at the same time as electricity companies are writing off debt and electricity rations are being imposed, there are no mechanisms for holding the government accountable. People do not believe that the increased prices will help improve sector performance until financial oversight is improved and corruption is addressed.
Will privatization of electricity companies help with corruption?
It is possible. But the government will still have to play a role in issuing licenses, approving tariff revisions, and monitoring service quality. Kyrgyzstan’s privatization process is not off to a good start. SeverElectro, the first of the four state-owned distribution companies to be privatized, is said to have been sold for $3 million, well below what the public believes to be its true value, given investment in this company and the value of its assets. The problem is that there has been no transparency around asset valuation, nor around the criteria for selecting a buyer. This is another key issue that has fueled public anger. The basic ingredients of a credible market-based democracy are still lacking. Under these circumstances, privatization is not the answer.
Is there any optimism that the situation would improve under a new government?
Roza Otunbaeva, the interim President, has been at the forefront of the critique of mismanagement of the electricity sector. She has made statements that reflect a grasp of the governance issues that need to be addressed, and has been supportive of civil society working on these issues, including WRI’s Electricity Governance Initiative (EGI) partners in Kyrgyzstan. In her remarks at the launch of EGI’s governance assessment report (which she attended in her capacity as Deputy of Parliament), she stated that:
Transparent, reasonable, competent governance of the energy sector is a public issue, and it is necessary to discuss it, not only by means of barricades, posters and slogans, but also by means of governance principles. I was very glad to hear there are some approaches and initiatives that exist and are practiced in the energy sector, which will lead us to competent public participation.
The interim government, which Otunbaeva heads, needs to ensure that the necessary framework to enable informed public participation in electric power sector decision making is created. Without such participation, building a more transparent, accountable and efficient sector is impossible in Kyrgyzstan. EGI’s tools are designed to foster precisely these improvements.
EGI’s lead partner in Kyrgyzstan, Civic Environmental Foundation UNISON, continues to publish monthly updates and analysis on electricity issues (available in English here), as well as a detailed chronology of events.
EGI’s Kyrgyz and Tajik partners will be speaking at a policy forum on this topic sponsored by the Open Society Institute on April 28 in Washington, DC.