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C O N F I D E N T I A L SECTION 01 OF 02 BISHKEK 000010 
 
SIPDIS 
 
DEPT FOR SCA/CEN 
 
E.O. 12958: DECL: 09/09/2018 
TAGS: ENRG ECON PREL KG
SUBJECT: KYRGYZSTAN'S ENERGY INFRASTRUCTURE INVESTMENT PLANS 
 
REF: A. BISHKEK 007 
     ¶B. 2009 TASHKENT 1904 
 
Classified By: CDA Larry L. Memmott, Reason 1.4 (b) and (d). 
 
¶1. (C)  Summary: The Kyrgyz Government plans to make large 
investments in its electricity infrastructure over the next 
few years in order to increase generation capacity, create an 
electricity transmission system that would be potentially 
independent of its neighbors, and upgrade its distribution 
network.  The price tag for these planned investments, on the 
order of $3 billion, is quite large relative to the size of 
the Kyrgyz economy. The financing for these projects are to 
come from a combination of higher energy prices (ref A), 
loans from the Chinese and Russian governments, and 
privatization of some of the state owned electricity and 
heating companies.   End summary. 
 
New Energy Generation 
--------------------- 
 
¶2. (SBU) In order to meet domestic electricity demand and 
generate export revenue the Kyrgyz government has long 
planned the construction of two new hydropower plants, 
Kambarata-1 and 2.  Kambarata-2, with a projected capacity of 
360 megawatts, was originally scheduled to begin operation in 
December 2009 but the first of three units is now scheduled 
to begin operation in June 2010.  The Kyrgyz government 
announced in October that it did not have enough money to 
complete construction as planned.  In response, the Kyrgyz 
government's Economic Development Fund is loaning Kambarata-2 
a total of $100 million.  Completing construction of 
Kambarata-1, with a projected capacity of 1,900 MW, would 
cost approximately $2 billion.  At present, the financing for 
this project is still in question. 
 
Creating An Independent Electricity Transmission System 
--------------------------------------------- ---------- 
 
¶3. (C) The Kyrgyz Government also plans to invest in the 
country's electricity transmission system.  Kyrgyzstan faces 
the threat that Uzbekistan and Kazakhstan will withdraw from 
the United Central Asian Power System, the Soviet era 
regional electricity transmission grid, effectively reducing 
the country's electricity supplies (ref B).  Currently, 
electricity from Kyrgyzstan's hydropower plants in the north 
of the country must pass through Uzbekistan to reach southern 
Kyrgyzstan.  Uzbekistan can therefore shut off the supply of 
electricity to southern Kyrgyzstan.  Uzbekistan has demanded 
higher fees for transmitting electricity for Kyrgyzstan and 
the Kyrgyz Government has apparently agreed, though the 
agreement has not been made public.  Kyrgyzstan also depends 
on both the Uzbek and Kazakh grids to transmit electricity to 
parts of northern Kyrgyzstan. 
 
¶4. (U) In order to create an independent electricity 
transmission system, the Kyrgyz Government plans to build new 
north-south high-voltage transmission lines. The U.S. Trade 
and Development Agency financed two feasibility studies of 
the proposed transmission lines which estimate the total 
construction cost will be over $500 million. 
 
Investment In Maintenance And Upgrades 
-------------------------------------- 
 
¶5. (U) In addition to building new electricity 
infrastructure, Kyrgyzstan's existing electricicy 
infrastructure also requires significant investment.  Due to 
years of underinvestment (ref A), much of the electricity 
infrastructure is relatively old and poorly maintained, 
leading to frequent breakdowns and poor service.  As well as 
investment in the existing hardware infrastructure, the 
electricity distribution companies require investment in 
their metering, billing, and customer information systems to 
improve the management of electricity distribution, which 
would also help address theft and corruption problems. 
 
BISHKEK 00000010  002 OF 002 
 
 
 
Paying For It All: Higher Rates, Privatization, Loans 
--------------------------------------------- -------- 
 
¶6. (U) In order to pay for all the projected investments, the 
Kyrgyz Government is counting on charging higher prices, 
privatization of some energy assets, and large loans from the 
Chinese and Russian governments.  The Kyrgyz Government 
announced steep increases in electricity and heating prices 
in 2010 to cover more of the system's costs (ref A).  In 
order to generate revenue and bring in private sector 
investment and management, the Kyrgyz government has 
unsuccessfully attempted  to privatize some of the state 
owned electricity companies, including the Bishkek combined 
heat and power plant, and the four regional electricity 
distribution companies. 
 
¶7. (U)  The government once again tried to privatize the four 
electricity distribution companies in December 2009, but only 
the largest distribution company, which covers Bishkek, 
received bids.  Three companies bid, from Kazakhstan, Russia, 
and Kyrgyzstan, none of them internationally renowned 
companies.  The amounts of the bids have not yet been made 
public. The increased prices of electricity, especially if 
fully implemented, could make these companies more enticing 
for private investors both because their short-term 
profitability is increased and because the government has 
shown the political will necessary to increase prices to a 
level at which profitability is possible. 
 
¶8. (C)  The Kyrgyz Government is also looking to low-interest 
loans from Russia and China to help finance its planned 
investments.  The Russian government, as part of the aid 
package it gave to Kyrgyzstan in 2009, agreed to lend 
Kyrgyzstan $1.7 billion for construction of Kambarata-1, 
though the Russian government's commitment to this loan 
appears questionable.  The Kyrgyz government is also 
discussing a $900 million loan with the Chinese government to 
pay for energy infrastructure, including new transmission 
lines and new metering equipment.  The U.S. Trade and 
Development Agency contractor who is completing a feasibility 
study on new high-voltage transmission lines told us that 
Kyrgyz officials insisted the study's section on financing 
costs use a 2 percent interest rate and a 20-year payback, 
which are the terms the Kyrgyz hope to get from the Chinese. 
 
¶9. (U) The cost of these proposed investments would be quite 
significant relative to the small size of the Kyrgyz economy. 
 It appears the total investment required for these projects 
would be roughly $3 billion, including approximately $2.1 
billion for completion of Kambarata-1 and 2 and $900 million 
of Chinese financed investment in the transmission and 
distribution systems.  This investment would equal 
approximately 55 percent of Kyrgyzstan's Government projected 
$5.45 billion 2010 GDP.  However, given almost two decades 
without significant investment in the energy infrastructure 
of the country, and the blackouts to which the country has 
been subject each of the past few winters, that investment 
seems necessary. 
MEMMOTT