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C O N F I D E N T I A L SECTION 01 OF 03 BISHKEK 000007 
 
SIPDIS 
 
DEPT FOR SCA/CEN 
 
E.O. 12958: DECL: 09/09/2018 
TAGS: ECON ENRG SOCI PGOV KG
SUBJECT: KYRGYZSTAN DRAMATICALLY INCREASES ENERGY PRICES 
 
Classified By: CDA Larry L. Memmott, Reason 1.4 (b) and (d). 
 
¶1. (C)  Starting January 1, the Kyrgyz Government more than 
doubled the prices for electricity, central heating and hot 
water, and the prices are scheduled to rise again in July. 
Kyrgyzstan's state-owned electricity and central heating 
systems have been starved for revenue for several years due 
to artificially low prices, poor bill collection, and 
corruption.  While the collection rate has increased 
dramatically due to better enforcement, revenue has still 
been insufficient to maintain and modernize the system.  Low 
water levels at the largest hydropower plant have also 
necessitated blackouts again this winter.  The government's 
decision to raise prices is broadly unpopular, but it remains 
to be seen over the coming months, and especially next winter 
when the steepest price increases will be felt, whether they 
have political implications. 
 
Dramatic, And Unpopular, Price Increases 
---------------------------------------- 
 
¶2. (U) Prime Minister Daniyar Usenov announced in November 
that the Government would significantly raise the prices for 
electricity,  central heating and hot water starting January 
1, 2010 in order to help cover the systems' costs. 
Electricity rates for individual consumers more than doubled, 
increasing from 1.6 cents/kilowatt hour (kWh) to 3.4 
cents/kWh. Electricity prices will be raised again in July 
2010 to 4.3 cents/kWh.  Heating prices for consumers using 
the central heating system doubled on January 1 and will 
increase to five times the 2009 rate next winter.  The cost 
of centrally supplied hot water increased more than four-fold 
on January 1, and will increase to ten times the 2009 rate in 
July 2010. 
 
¶3. (C)  The political opposition has strongly criticized the 
price hikes, arguing that many people will not be able to 
afford the new prices.  Roza Otunbayeva told Charge recently 
that the energy price increase will be "our major issue" for 
2010, and that she expected it would benefit the opposition 
substantially.  When it announced the new rates, the 
government tried to blunt criticism by also announcing that 
it will provide cash payments to the poorest households to 
offset some of the price increases.  Another criticism has 
been that the sharp price increases will lead to increased 
corruption as more consumers bribe meter readers to avoid 
paying higher bills.  Experts have also criticized the 
government's decision since in the current system individuals 
cannot regulate their personal consumption of heat, so the 
price increase may not lead to greater conservation of 
heating, and the steep increases in the central heating costs 
may drive some consumers to switch to electric heating, which 
will further increase electricity demand in the winter. 
 
¶4. (C) The decision to dramatically increase the energy 
prices reportedly came from the top of the government. One 
independent local energy expert, Ularbek Mateev, told Emboff 
that the Ministry of Energy had proposed phasing in the price 
increases over a period of a few years, but that Prime 
Minister Usenov ordered that the increases be implemented 
over the next few months.  There were also assertions in the 
media that the price increases came after pressure from the 
World Bank, which the World Bank later publicly denied. 
World Bank Country Manager Roger Robinson told Emboff that he 
had been surprised by the government's decision, and that he 
believes the government leadership decided that they were 
politically secure enough to weather any criticism in the 
short-run, and were betting that any discontent would subside 
as the government's economic policies pay off with higher 
economic growth and standards of living. 
 
Cash Starved Electricity And Heating Systems 
-------------------------------------------- 
 
¶5. (SBU) The Government has limited resources available to 
repair or replace the existing energy infrastructure because 
 
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the system has not generated enough revenue to cover even the 
on-going operational costs.  In the past the government kept 
electricity and heating prices artificially low for political 
reasons.  Even with the low prices, a significant number of 
customers reportedly bribe electricity company employees 
rather than paying their bills.  The Government has been 
successful in reducing the non-payment of the bills that are 
on the books (though due to corruption and theft, a portion 
of energy consumption is not recorded), with a collection 
rate of 96 percent, up from 83 percent in 2007.  This has 
been reflected in a significant decrease in  losses due to 
all sources (i.e., technical losses, theft, corruption and 
non-payment), which have fallen from roughly 75 percent in 
2003 to approximately 28 percent in 2009. 
 
¶6. (U) Much of Kyrgyzstan's existing electricity and heating 
infrastructure was built during the time of the Soviet Union, 
and inadequate funding for maintenance has led to high energy 
losses and frequent equipment breakdowns.  The latest sign of 
problems with Kyrgyzstan's aging energy infrastructure was 
the failure on December 7 of two of the four turbines at the 
Toktogul hydropower plant, the largest power plant in the 
country with a capacity of 1,200 megawatts that started 
operation in 1974.  The turbines were repaired and back in 
operation by December 12.  Another example of the old and 
poorly maintained energy infrastructure is Bishkek's combined 
heat and power plant, which provides most of Bishkek's heat 
during the winter and a portion of the city's electricity, 
which began operation in 1961. According to the World Bank, 
the power plant began the winter season this year with only 
one third of its boilers operational. 
 
Blackouts This Winter Fewer Than Last Year 
------------------------------------------ 
 
¶7. (C) While the price of electricity is increasing, the 
supply remains unreliable.  During the winter months 
Kyrgyzstan has not been able to meet domestic electricity 
demand because imported electricity is expensive and the 
water level at the reservoir for the Toktogul hydropower 
plant is not high enough to allow the plant to run at full 
capacity.  The Government has been rationing electricity this 
winter by instituting rolling blackouts for much of the 
country from midnight to 5:00 am.  In the south of the 
country, electricity is often out several hours during the 
day as well.  Electricity consumption in the cities of 
Bishkek and Osh in November and December exceeded their 
targets, meaning that the distribution companies have had to 
increase blackouts in rural areas to meet their overall 
consumption targets. 
 
¶8. (U) Electricity rationing this winter has been less severe 
than last winter as the water level of the Toktogul reservoir 
is currently higher than last winter.  Thus far the winter 
has been milder than average, perhaps relieving pressure on 
the system, though the decreased precipitation may result in 
future difficulties.  The reservoir's low water level in 2008 
prompted widespread speculation that there had been 
unregistered export of electricity, since the weather had not 
been significantly dryer than in previous years.  Overall 
electricity consumption in the autumn/winter period in 
2008-2009 decreased by 28 percent compared to the same period 
in 2007-2008, with most of that decrease due to intentional 
blackouts. 
 
 
COMMENT: Biting The Bullet - Risky But Necessary? 
--------------------------------------------- ---- 
 
¶9. (C) The Kyrgyz Government is taking a calculated risk by 
increasing energy prices so quickly.  If the proceeds are 
invested in upgrading energy infrastructure (and we will 
report on plans for doing so septel), the increase is 
economically justified.  However, the impact on poverty will 
be significant, as many poor households will have a difficult 
time managing the steep price increases, especially as higher 
 
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energy prices will also fuel a higher overall inflation rate 
as businesses pass on their higher costs to consumers.  We do 
not believe that the opposition will make much progress in 
efforts to turn discontent about price increases into 
political channels.  If the government did feel some heat 
from the public on this issue, President Bakiyev always has 
the option of canceling or scaling back some of the future 
increase. 
MEMMOTT