Dialogue January-March, 2005, Volume 6 No. 3
Basic Directions and Mechanisms in the Formation of a Joint Power Market of the Central Asian States#
The governments of Central Asian Region namely Kazakhstan, Kyrghyztan, Tajikistan, Turkmenistan and Uzbekistan have created a joint power market with the strategic aim of establishing an integrated cooperation between the states.
Utmost priority to such cooperation comes out of the need for establishing and developing mutually profitable economic ties in the power sector targeting domestic market with cheap electric power resources, meeting requirements of their consumers and increasing export potential to the third world countries.
In the framework of the Central Asian Region (CAR), a defined legal base has already been created for expanding integrated cooperation in the power sector. However, even after several talks and agreements in this regard, the development of integrated cooperation has not gathered the desired tempo. The main reason being that the competent organs of CAR have not yet worked out a concrete strategy for the realization of the plans.
Thus, in the present context, the need to chalk out a legal mechanism for the installation and smooth functioning of a joint power market has become a matter of utmost importance. For realisation of this mechanism, concrete measures need to be taken to strengthen cooperation in the power sector and achieve a balance between supply and demand of power resources in the domestic market. This will enhance transit potential of the Central Asian states and will create more opportunities for energy export to the third world countries.
1. Analysis of the condition of Units dealing in Fuel - Energy in the Car States
1.1. Analysis of The Power Condition In CAR States
The break up of traditional economic ties in the beginning of the 90s had a negative impact on the power situation in the CAR countries. With the disintegration of a united national economy, practically all links between energy systems of the former state got snapped. Economic crisis in CIS states due to recession in the industrial production became the main factor for the reduction in the consumption of power in the former United Republics, which, in turn, affected its production. Details of power production in CAR countries are given in Table 1.
Power production in CAR countries (In billion kWh)
Kaz-n* 81.8 79.2 74.5 64.0 66.5 58.9 52.2 49.1 51.6 55.4
Kyrg-n* 12.0 11.3 12.9 12.3 13.8 12.6 11.6 13.1 14.9 13.6
Taj-n* 16.8 17.7 17.0 14.8 15.0 14.0 14.4 15.8 14.3 14.3
Turk-n** 13.2 12.6 10.5 9.9 10.1 9.5 9.3 8.8 9.8 10.5
Uzbek-n* 50.9 49.1 47.8 47.4 45.4 46.0 45.9 45.3 46.8 48.1
* Information from International statistics Committee CIS
** Accounts data from the report of the World Bank on Turkmenistan for the year 1998 and Executive Committee of CIS on Electric Power.
Analysis of the dynamics of energy production indicates the relative stabilisation of the electric energy sector of CAR states in the late 90s.
The deepening of economic crisis in the CIS states and Central Asia, and the escalation of the disintegration processes affected the parallel work going on in the power systems and acted as an obstacle in the development of power units of CAR states in the beginning of the 90s. The exit of power systems from joint venture became the main reason for the reduced efficiency of their work, for irregularity in power supply, for decrease in the volume of interstate power flow and irrational use of transit potential in CAR countries.
The governments of Central Asian states took appropriate measures to overcome the economic crisis in this area and developed integrated cooperation in the power sector.
The main achievements of the CAR in the power sector are as follows:
1. Creating a defined normative-law base for the functioning of power and passing appropriate laws on electric power and its storage.
Realization of the indicated normative-law base documents facilitated market reforms in the power sector of CAR, the essence of which lies in breaking the monopoly of power blocks (power line, power transport) from (power generation and its sale).
Amongst the CAR and all CIS states, Kazakhstan is recognized as the undisputed leader in the redeployment of the units where an optimal organizational structure was created consisting of:
(a) National power system formed on the basis of interstate and intersystem power networks 220-500-1150KW controlled by AO “KEGOC”;
(b) Regional electric network companies (REK) containing distribution network of 110 kW and less and responsible for power supply at regional level.
(c) Electric energy producers - independent or integrated by powerful industrial users of power stations in the form of joint-stock companies.
Presence of the given structure facilitated the formation of wholesale and retail markets of electrical energy and power controlled by ZAO ‘KOREM’ established in the year 2000.
The main purposes of the creation and development of wholesale electrical energy and power market in Kazakhstan are providing free choice of power suppliers to end users, promoting competition between power producing industries, and ensuring transparency in laying tariff on electric power.
This way, in the energy sector in Kazakhstan, a favourable competitive ambience has been created resulting in an increased tempo of the development of units, stabilization of power supply of consumers and decreased tariff rates. In particular, the medium tariff on power in Kazakhstan equals to 1 cent / kWh.
Source: Program for development of electric power till the year 2030, confirmed by the resolution passed by the Government of the Republic of Kazakhstan on 9 April 1999. No. 384.
2. Adopting normative laws at the inter-governmental level for creation of a Common Economic Area
On 30 April 1994, an agreement was signed between Kazakhstan, Kyrghyztan and Uzbekistan on the creation of a Common Economic Area. It laid the legal foundation for economic cooperation in the Central Asian states and ensured free mixing of goods, services, capital, work force and for enforcing the mutually agreed upon policies on payment, budget, taxation, tariff, custom duties and exchange rates. In the agreement, special emphasis was given to intensification of integrated cooperation between the participant states for the creation of a Common Economic Area.
On March 26th, 1998 the Republic of Tajikistan also joined hands with other states in creating a Common Economic Area and became a full-fledged participant of the agreement. In the same year on June 17th the “four” decided to form Central Asian Economic Society (CAES).
With the aim of realizing the agreement mentioned above on an international level, a program was chalked out for creating a common economic space and another one for economic integration CAES states by the year 2000. The program defined measures to be taken for intensifying integrated cooperation between state participants in all economic spheres including the electric energy sector.
3. Passing a resolution on parallel work of energy systems between Kazakhstan and Kyrghyztan Republics and Republics of Tajikistan and Uzbekistan.
This agreement played an important role in stabilizing electric power units, enhancing stability in the working of power systems, increasing interstate power flow and transit, thereby, successfully meeting the demands of consumers.
4. Creation of legal base for implementing mutually acceptable policy on hydroelectric power.
On 17 March 1998, a long-term agreement was signed by the governments of Republics of Kazakhstan, Kyrghyztan and Uzbekistan for exploiting hydroelectric resources of the basins of the river Sirdarya. A year later the Republic of Tajikistan also joined in. This agreement will serve to stabilize water situation and power supply in the Central Asian Region.
However, even after creation of a legal base in this regard, the development of integrated cooperation could not reach the desired height and the problems of power sector of the Central Asian countries could not be fully resolved.
The main problems of power sector of the Central Asian Region countries are:
1. Insufficient level of cooperation between the energy systems and the absence of normative legal base.
Implementation of the agreement on parallel work in energy systems between CAES countries, in full capacity, required formulation of basic legal norms with fixed conditions and duties on the part of each state on payment of transit power in the network of CAES states, maintaining power systems of standard frequency, emergence and removal from the network during an emergency. The absence of a legal base will give rise to conflicts and hinder the project of uniting electric power in Central Asia.
Insertion - 2
In particular, in 2002, OAO “KEGOC” had cut off interstate electricity flow of 500 and 220 kW uniting single energy system of Kazakhstan and united energy system (OEC) of Central Asia.
The main reason behind the conflict was the regular occurrence of emergency situations in Uzbekistan, which threatened the stability of transit 500 - 220 kW in north-south Kazakhstan and similarly non- payment of electric power transit services by Kyrghyztan, according to “KEGOC”.
Source: materials collected in the sessions held by the Council of CIS on Electric Energy.
2. Presence of an ineffective system of customs control in interstate power flow.
The present system of customs (duty) on flow of electricity does not facilitate an effective functioning of power systems in a parallel set up. Therefore, during the exchange of regulatory power and transit power by the states, customs documentation of flow of electric energy takes place without taking into consideration balance-flow. Apart from this, in some countries of CAES (particularly in Kazakhstan), declaration of regulatory power takes place. Regulatory power does not come under the category of goods and is a service to maintain power systems of standard frequency and so, need not be declared. Declaration of regulatory power in Kazakhstan, to some extent, is impeding effective cooperation and affecting smooth functioning of power systems in a parallel regime.
3. Absence of united approach in formulating tariff plans on power transit.
Implementation of tariff policies, not agreed upon by all governments of CAR, also hinders, to some extent, the development of transit potential of the CAR countries.
4. Lack of coordination in the utilization of fuel-energy and water resources.
In accordance with the above mentioned agreement on the utilization of water resources of the basins of river Sirdarya, every year the governments of Central Asia conclude inter-governmental agreements by which Kazakhstan and Uzbekistan are committed to supply coal, fuel oil and gas to Kyrghyztan and Kyrghyztan in turn is obligated to make available to these countries its water resources.
However, due to incomplete supply of the products, i.e. non-fulfillment of the commitment by Kazakhstan and Uzbekistan (in accordance with the concluded inter-governmental agreements), the fuel stations of Kyrghyztan, in turn, could not produce the desired electricity. Due to this, the hydroelectric station of Naryn cascade had to bear an extra load. It also resulted in wastage of water from Toktogul dam resulting in decrease of water level. If this practice continues in future, it will lead to a decrease in the water level up to the critical “dead volume”.
Supply of water from Toktogul dam (in Kyrghyztan) in turn is accompanied by generation of electric power, which in adequate volume, should be accepted by power systems of Kazakhstan and Uzbekistan. This explains the need for strengthening cooperation between the power systems of CAR governments and enforcing mutually approved policies on power supply.
It is evident that for the economic growth of CAR countries, it is necessary to give top priority to expansion of integrated cooperation in power sector and formation of a joint power market with the aim of supplying cheap electric power to the CAR states and creating favorable conditions for its export to the third world countries. Special emphasis needs to be given to rational utilization of hydro-power resources, expansion of opportunities for interstate flow of energy and effective usage of transit potential of the CAR countries.
The given principles for creating a power market are reflected in important international agreements: European Energy Charter of 17 December1991 and the Agreement on Energy Charter (AEC) of 17 December 1994.
In the above-mentioned international documents, a special role is given to the creation of corresponding legal terms and conditions in the states, which facilitate:
l Stimulation and promotion of market reforms in power sector
l Development of mutually- profitable trading of power resources
l Attracting investments in the power sector
l Expanding transit power resources in the territory of the states and increasing transit supplies in the power deficient regions
l Enforcing approved tariff policy of the states in the transit of power resources, ensuring non-discriminating and fair transit conditions for all the participating countries supporting the present and constructing new transit infrastructure in the power sector.
Considering the above-mentioned principles for the formation of power market, the CAR states must plan out a general strategy for the development of power market. Main emphasis has to be laid on creation of approved a legal base in these states in order to accelerate development of business links between CAR countries in the field of electric power and to create necessary conditions for free and uninterrupted transit of power resources and enforcement of approved tariff policy of the countries in this field.
1.2 analysis of conditions of the oil and gas extraction units and oil and gas-processing plants in CAR countries.
The oil and gas extraction as well as the oil and gas-processing units constitute an important fuel energy complex of the power plants of the CAR countries. Their development has an important political significance especially for Kazakhstan, Uzbekistan and Turkmenistan.
An examination of the dynamics of oil extraction shows an uneven pattern of production. During the period 1992-1994 the production dropped by 12% to rise later up to 52%. On the whole, during the years1992-2002 oil extraction in the region doubled up to reach an absolute volume of 63.32 million tons in the year 2002 (table 2).
Kazakhstan, Turkmenistan and Uzbekistan are the leading producers of oil in the region. Oil extraction is carried out mainly in Chingiz, Uzen and Karachaganak regions of Kazakhstan; in the
Oil and gas condensate extraction in CAR countries
CAR 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Kaz-n* 25.8 23.0 20.3 20.5 23.0 25.8 25.9 30.0 35.3 40.6 47.2
Kyrg-n* 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1
Taj-n* 0.06 0.04 0.03 0.03 0.03 0.03 0.02 0.02 0.02 0.02 0.02
Turk-n** 5.2 ... 4.4 4.5 4.4 4.8 5.5 7.0 7.4 7.9 9.0
Uzbek-n* 3.3 ... 5.5 7.6 7.6 7.9 8.1 8.1 7.6 7.3 7.0
CAR 34.6 ... 30.33 32.73 35.11 38.63 39.62 45.22 50.42 55.92 63.32
* Information from International Statistics Committee of CIS on Kazakhstan, Kyrghyztan, Tajikistan and Uzbekistan and from the sites www.centran.ru, www.gazetsng.ru;
** Data from the Account of World Bank on Turkmenistan for 1998 and from site www.turkmenistan.ru.
Garashzuluk and Burun regions of Turkmenistan; and in the Kokdumalak, North Urtabulak and Kruk regions of Uzbekistan.
It can be inferred from Table-2 above that starting from the mid 90s there has been an increase in oil extraction. This increase can be attributed to favorable competitive world market of hydrocarbons and a growth in the volume of export. On the whole, in Kazakhstan, there has been a steady increase in oil extraction during recent years. Export of oil and gas condensate in the year 2002 made up to 38.7 million tons.
Between 1992-2002 oil production in Turkmenistan increased by 42%. Although till the year 1996 (inclusive) a decrease in oil production was noticed but since 1997 there has been a steady growth in its production. Turkmenistan falls into the category of oil rich states. In the year 1999 volume of production in the republic exceeded its domestic oil requirements by 40%.
In Uzbekistan between 1992-2002 oil extraction (with gas-condensate) increased 2.1 times and in 2002 it made up 7 million tons. This oil was utilized not only for meeting domestic demands for liquid fuel but was also exported.
Kyrghyztan and Tajikistan do not play any significant role in the development of oil and gas sector of CAR states.
According to the available figures in Kyrghyztan, in the year 2002, oil extraction was 77 thousand tons and 65 thousand tons had to be imported. In the same year 53.7 thousand tons diesel fuel was produced and 84.4 thousand tons was imported. In the case of motor petrol 72.5 thousand tons was produced and 46.4 thousand tons was imported and in the case of fuel oil 158.5 thousand tons was produced and 36.2 thousand tons imported. In the year 2002 national self-sufficiency in oil products was only 30%.
Industrial oil reserves are concentrated mainly in the Jalalabad and Osh regions. Intense work in the year 2002 changed the production by just 9% as compared to the previous year. The transport sector can be considered the leading consumer of oil products in 2002 as it consumed around 42.9% of total volume produced.
In Tajikistan, oil extraction dropped to an insignificant volume while the home-demand for oil and oil products increased to 25 times the volume of their production in 2002 (compared with 19.5 times in 1992).
As far as the development of gas-extraction industry is concerned, for the period 1992 to 2002, gas output in Central Asian Republics
Gas output in CAR countries
Countries 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Kaza-n* 8.1 6.7 4.5 5.9 6.5 8.1 8.2 10.8 11.5 12.0 13.1
Kyrg-n* 0.1 0.04 0.04 0.04 0.03 0.02 0.02 0.02 0.02 0.02 0.02
Taji-n* 0.1 0.05 0.03 0.04 0.05 0.04 0.03 0.04 0.02 0.02 0.02
Turk-n** 60.1 35.7 32.3 35.2 13.7 11.4 22.8 43.0 51.4 53.5
Uzb-n* 42.8 47.2 46.8 49.0 51.2 54.8 55.6 56.4 57.4 58.6
CAR 111.2 87.47 86.88 90.78 73.06 74.15 89.26 110.9 120.8 125.2
* Information from International Statistics Committee of CIS on Kazakhstan, Kyrghyztan, Tajikistan and Uzbekistan and from the sites www.centran.ru, www.gazetsng.ru;
** Data from the Accounts of the World Bank on Turkmenistan for 1998 and from the site www.turkmenistan.ru.
increased by 11.2%, and its absolute volume was 125.24 billion m3 in 2002. A considerable decrease in absolute volume of gas output in CAR was found in Turkmenistan, where it was 37.3 billion m3, which was, partly, because of a decrease in its supply from Ukraine in 1997-1998 due to its debts of about $1.5 billion. Moreover, there were specific disagreements between Turkmenian gas suppliers and RAO ‘Gasprom’ on pipe carrying gas to Ukraine, regarding payment for the transits. These disagreements were only settled by the end of 1998.
Table 3 depicts the details of gas production. An analysis of the dynamics of gas production shows that the basic major gas-producing states of CAR are Uzbekistan, Kazakhstan and Turkmenistan.
It was only in the second half of the period under consideration, more so from 1999 onwards that there was active gas production in Kazakhstan, while in Turkmenistan and Uzbekistan gas production has dynamically increased during the last 8 years.
For the period observed, consumption of natural gas decreased by 17.4% and in 2002 reached 60.37 billion m3. Till date, volume of home production of natural gas surpasses its consumption in Kazakhstan by more than 2 times, in Turkmenistan-by three times. Contrary to this, in 2002, the share of home production of gas compared with its consumption was 5% in Kyrghyztan, while it was only 0.6% in Tajikistan.
As far as the whole region is concerned, it may be called gas-surplus without hesitation, as the natural gas production in CAR as a whole was approximately 1.46 times its consumption in 2002.
Therefore, the gas resource industry present in this region promises a considerable increase in the gas output, and there are additional markets for its sale to which they have access.
Major gas deposits of Kazakhstan are spread along the boundaries of Caspian oil and gas province, South Mangeshlak and Turgaisk oil and gas regions, with more than 40% gas deposits concentrated in the Karachagan Region. In 1997, an international consortium, which included the companies “AGIP” (32.5% Italy), BG (32.5% Great Britain), Texaco (20% USA) and Lukoil (15% Russia), got the right to exploit these deposits within a period of 40 years. (The percentage refers to the division of the produce).
In Turkmenistan, the largest gas deposits are concentrated in the Amu-Daria gas province, where there is a gigantic deposit called Daulatabad-Donmez, in which almost half of all the gas reserves are accumulated. Similarly, large gas reserves are located at Murgab (Yashral deposits).
In Uzbekistan, large gas reserves are spread over the southeastern parts of the Republics (Shurtan and Kokdumalak).
Regarding Kyrghyztan and Tajikistan, it is worth noting that the oil-gas sector plays an insignificant role in the growth of the economy of these countries.
From 1992-2002, in Kyrghyztan natural gas output decreased significantly - by almost three times. Industrially extractable gas reserves are located in Jalalabad and Osh regions and are found at a depth of 700-2500 m. A look at the consumption pattern of natural gas in the republics shows that the public-domestic sector plays the main role, which, in 2002, had a share of 61.5% out of the total volume consumed. Remaining 34.3% of gas is used by industries, which includes 28.2% used in the production of construction materials. Kyrghyztan basic requirement of gas is met by its supply from Uzbekistan.
In Tajikistan, natural gas production is limited and home demand is met by importing gas from Uzbekistan and Turkmenistan.
Major achievements of the CAR states in oil-gas sector are as follows:
1. Taking measures to create favorable investment climate in CAR countries.
(a) In 1995, the Law “On oil and gas” was enacted in Kyrghyztan, which experts recognise as a very important step in the field of increasing foreign investments. It foresees, in particular, maintaining competition on getting licenses for extracting oil and gas. According to this law, the Government of Kazakhstan can give the right for exploration and extraction of deposits both through tenders, and through direct negotiations. Contracts can be formulated as joint enterprises, agreements on employment or agreements on division of products.
Insertion - 3
One of the major enterprises in this field including foreign capital is SP “Chingizchevrol”, established in 1993 jointly with American company Chevron. In 2000, they produced more than 13 million tons of oil from Chingiz deposits, reserves of which are estimated to be 750-1150 million tons. Around 90%, out of the produced raw oil was exported to the Russian pipeline system; part of the supplies was met by Chingiz-Aktay, where carrying capacity increased by 2.5 times till the end of 2000.
In the coming years, significant increase in oil output is already planned and a large part of it will be met by (SP “Chingizchevrol” and ‘Karachaganski Gas’ -condensing-heating consortium.
Source: Journal “Oil-gas Vertical” 2000, No.-2.
(b) In Turkmenistan, foreign investors are being actively wooed for solving the problems related to the oil industry.
Insertion - 4
In the oil sector, serious participation has been shown by companies such as “Mobil’, ‘Monument Oil’ as well as a number of other companies. Therefore, in July 1998, the ‘Monument Oil’ company signed two agreements with “Mobil” and with “Turkmenoil” on the division of produce, which referred to a concession on exploiting Garashzuluk in the Western Republic. Issues related to the distribution of duties and profits in the field of exploration and exploitation and oil gas production in an area of 4.5 thousand km in Nebit Dag region were specified in these agreements.
Turkmenistan has two main oil refineries located in the regions of Turkmenbash and Charzou. Not long ago, reconstruction of the Turkmenbash oil refinery complex was accomplished with the support of foreign interests.
Source: Material of RKK SPEAK session on issues of regional and effective use of power and water resources in Central Asia, 2002.
(c) Drawing Foreign Direct Investment into Uzbekistan is, similarly, one of the most important priorities in the development of the oil-gas sector of the Republic. On 28 April 2000 the President of Uzbekistan announced a decree “On measures to Attract Foreign Direct Investment in Exploration and Production of Oil and Gas”. According to this decree, recently found oil and gas deposits can be given to the foreign companies, who had carried out the geological surveys to locate them, with concession on exploitation for a period of 25 years, which can further be extended. It is evident that most favorable conditions have been offered to foreign countries to come and survey for gas and oil.
Insertion - 5
In 1996, in Uzbekistan, a joint enterprise including ‘Uzbekoil Refinery” and ‘Texaco’ was established on the basis of Fergana NPZ, for production of oil products (basically oils) out of locally available crude oil. The Fergana Oil Refinery was renovated and the most powerful de-sulphurising station of the region was installed there. Thereby, primacy was given to high quality world-class oil products.
The Government oil-gas company “Uzbekoil Gas” is participating in a joint project with “Baker Hagiz” on oil production from North Urtabulak deposits. “Baker Hagiz” is looking for an opportunity to carry out investment projects in Adamatash, South Karamga and Umid deposits.
Source: Material of RKK SPEAK session on issues of regional and effective use of power and water resources in Central Asia, 2002.
2. Increase in extraction and refining of oil and gas resources from the middle of 90s.
The creation of a favourable investment climate and drawing significant investments into CAR countries, has contributed to an increase in oil and gas extraction.
In all, for the period 1992 to 2002, oil output in Kyrghyztan increased by 45.3%, while that in Turkmenistan increased by 42%, and in Uzbekistan - by 2.1%.
The corresponding increase in gas output for the above mentioned period was 38.2% in Kazakhstan, and 26.9% in Uzbekistan. In Turkmenistan, active gas extraction started only from 1999 onwards.
The rising trends of oil and gas resource extraction have stimulated the development of oil and gas processing industries in CAR countries.
Insertion - 6
Thus, for example, for Uzbekistan, one of the priorities is the economic development of the Republic, and the manufacturing oil products includes an import replacement policy. The Republic has already cut short the crude oil imports from Russia and of oil products from Kazakhstan and Russia. The export of oil products from Uzbekistan to the neighboring countries and sites on the Black Sea is carried out by means of trains and automobiles.
Source: Information from site www.uzland.uz.
However, in our viewpoint, the adopted policy of total import replacement by oil products manufactured in Uzbekistan, does not contribute to creating a competitive atmosphere in the domestic market. In fact it is, a definite hindrance in carrying out market reforms in the oil - gas sector of the Republic.
Insertion - 7
In Kazakhstan, a decrease in manufacture of oil products was observed for the first time (in all, the oil processors in the country in 2000 were only 35% of these in 1990). But from 2001, the production of oil products in Kazakhstan started stabilizing and in 2002, as compared to the previous year, 2.7% more diesel power and black oil were produced. The existing oil refining capacity can fully meet the requirements of the country’s economy in oil products.
Source: Kazakhstan in figures - Almaty. Kazakhstan Republic Agency on Statistics, 2002. - p. 225.
In Turkmenistan, the two major oil refining factories in Turkmenbash and Charzou produce oil products in such quantities that it is enough to meet the requirements of the domestic market and to increase their supplies for export.
In this way, increase in output of oil - gas resources and the number of their processing units has become a basic factor in stabilization of the economic conditions in the given countries, and in the achievement of a steady rate of economic growth and in development of their export potentials.
3. Adopting measures for effective utilization of the transport potential, for development of oil - gas transport infrastructure and for expanding export opportunities for supplying oil gas resources to third countries.
(a) Most significant results in the direction were achieved in Kazakhstan, where great attention was paid to widening integration and cooperation with CAR and CIS countries in the oil - gas area.
No less important is the role played by increase in transit of Kazakh oil through Russian territory, carried out through the Atirau-Samara oil-pipeline and further by the Transoil pipeline system towards Bylorussia.
In the year 2000, a principle agreement was reached with the Russian Federation on increasing the export of Kazakhstan oil to 15 million tons. This also addressed the issues of renovation and reconstruction of the Atirau-Samara pipeline and increasing its carrying capacity.
A key element of future oil transport infrastructure of Kazakhstan is the Caspian Pipeline Consortium project (CPC), which will ensure export of Kazakhstan oil to the export terminal of the Black Sea. The CPC would resolve one of the most important problems of the oil gas industry of Kazakhstan and Russia - as creation of enough capacity to export oil would give opportunity to develop projects of extracting oil at normal rate from the existing deposits. Realization of the given project will promote increase in exports of Kazakhstan and Russian oil to the world market. To begin with, the project is estimated to have a carrying capacity of 28 million tones a year, including 20.2 million tons a year from the Kazakhstan Republic. After expansion, the carrying capacity of the pipeline would increase to 67 million tons a year.
Also of significance is the construction of Kenkiak-Atirau pipeline for carrying oil from Aktubin deposits to Atirau NPZ, through Atirau-Samara and CPC pipelines for export.
Moreover, with the aim of increasing export of oil from Kazakhastan, the construction of oil tankers on elevated railways to Atas station has been started. The first oil tanker terminal with a capacity of 1 million tons a year in its first stage was commissioned in the year 2000. The realization of the given project would solve not only the problem of transporting oil from south-Turkey deposits, which supply to Pavlodar NPZ through NPS Atas, but also add to the capacity to export oil to China.
In export to third countries by Kazakhstan, the Chinese market is of prospective importance. In June 1997, an agreement was signed between Kazakhstan and China on constructing an 1800-mile oil-pipeline joining oil deposits of one country with the oil processing centres of the other, with China playing the role of an investor. The realization of the given project will undoubtedly become an important factor for development of the export potential of the Kazakhstan Republic.
(b) In March 1998, the Turkmenistan government reached an agreement with ‘Monument Oil’ company on taking oil from Burun deposits in west Turkmenistan to the northern boundary of Iran and its replacement with oil from the Persian Gulf.
In Dec 1997, a 250 km long pipeline was constructed connecting gas deposits in Korpeje in West Turkmenistan to the town of Kurt-Kui in northern Iran. For Turkmenistan, the given project opens opportunity to start natural gas export to Turkey through the network of Iranian pipelines.
In February 1998, the company “Royal Dutch/Shell” signed a protocol with Turkmenistan in accordance with which the company will carry out a TEO project to construct a gas pipeline connecting Turkmenistan with Turkey through Iran. The carrying capacity of this gas pipeline is estimated to be around 30-billion m3 gas per year. The construction of another pipeline having similar carrying capacity is also being planned, which would be running through the Caspian Sea bypassing Iran.
Similarly, there are also prospects of constructing a gas pipeline from Turkmenistan to Pakistan through Afghanistan.
Insertion - 8
In 1997, an agreement was signed between the Government of Turkmenistan and oil gas companies (“Unocal”, “Delta Oil”) to construct a 1300 km long gas pipeline with a carrying capacity of 20 billion m3, to connect Daulatabad deposits in Turkmenistan, The realization of this project seems a distant dream.
Source: Material of session RKK SPEAK on issues of regional and effective use of power and water resources in Central Asia. 2002.
(c) Uzbekistan becomes active in major international oil export projects
Insertion - 9
Uzbekistan signed a memorandum with Turkmenistan, Afghanistan and Pakistan on mutual understanding, and on opportunity of constructing a central Asian oil pipeline, which can carry oil from CAR to Pakistani ports.
However, because of unfavorable conditions in Afghanistan, realization of the given project seems a distant dream.
Similarly, Uzbekistan is interested in supplying oil to China. In case the 3000 km oil pipeline from Kazakhstan to China is constructed, it would call for concluding additional agreements with both the Kazakhstan and Chinese governments.
Source: Material of RKK SPEAK session on issues of regional and effective use of power and water resources in Central Asia, 2002.
In this way, one of the priorities for CAR governments is the issue of effective utilization of transit potential and increase in exports supplying oil - gas resources to the world markets.
However, its realization faces a series of problems, which are:
1. Presence of an ineffective system of tariff control of oil gas resource supplies in CAR countries.
With the existing system each CAR country with oil - gas resources has to declare tariff, and for further transit to the territory of any Central Asian state reformulation of the tariff is done, for which additional money is charged (for example, 4-8 cents for 1 ton of exported oil). This, undoubtedly, is a negative factor in the development of trade and economic cooperation of CAR countries in oil - gas sector.
2. Disagreement in formulating tariffs for transit of oil gas resources within CAR
CAR countries (and of the CIS in whole) have yet not worked out a single approach in formulating tariffs for transit of oil gas resources. For example, the Kazakh oil export tariffs are 2.5 times higher than Russian. At the same time, tariffs of Bylorussia are the same as that of Russia and Kazakhstan. Similarly, there is disagreement in tariff policies of CAR countries.
In this connection, forming concordant tariffs for transits of oil gas resources must become an important condition for forming a single thermal energy complex in CAR countries.
3. Unsteady development of oil gas transport infrastructure in CAR countries
(a) In Kazakhstan, for example, many large gas-producing territories including the Chingiz, Zhanazhol and Uritai territories, do not have access to gas-export pipelines.
In relation to this, for Kazakhstan (and similarly for other CAR countries) what is required is widening of cooperation in an integrated manner with the CIS countries - above all with Russia, and with other countries (for example with China). This is of utmost importance in order to develop the existing transport infrastructure and constructing new routes for gas - oil export.
Insertion - 10
In this connection the companies “Kazmunaigaz” and “Phillips” reached an understanding on constructing a plant in Atirao for liquefied gas. This plant is likely to be completed in 2004. There is a plan to transport around 1.5 million tons of liquefied gas every year through Turkmenistan and Caspian Sea to Baku, and then onwards to Georgian ports, and further to Turkey and to other Mediterranean states. Presently work is on at the Georgian port of Batumi where technical equipment is being installed.
Source: Material Council on Power Policies of the States of EurAsian EU, 2002.
(b) The deficit of routes of export and communication for transportation of energy carriers are also seriously being felt in Turkmenistan and Uzbekistan.
In Turkmenistan there is significant activity for finding and creation of new routes for transportation of energy resources from the Republic. Foreign companies and financial institution have already invested and are prepared to invest more in the energy-export infrastructure of the Republic.
Uzbekistan is a major transit centre of gas exported from Turkmenistan to Russia. It is also a transit centre for export of gas from Kazakhstan, Kyrghyztan, Russia and Turkmenistan. The possibility of gas export is still limited because of a single gas pipeline, which connects the Central Asian Republics with Central Russia and other countries of CIS.
Thus, an important priority of the economic policies of the Central Asian countries should be to make effective utilization of their transit potential by creating new transport systems as well as reconstruction of that which is already working, in order to increase the export flows of oil and gas to the internal and world markets.
From the above analysis of the conditions of the oil-gas field complex and of the main problems of its functioning, the following conclusions can be drawn:
(1) In the Central Asian Region, the main producers of oil-gas resources are Kazakhstan, Turkmenistan and Uzbekistan. The demands of Kyrghyztan, Tajikistan are also met by exports from the above-mentioned states.
(2) In this connection, strengthening of mutual cooperation of the CAR countries is required towards the formation of a common market of oil and gas. This is also important for their economic growth.
(3) In order to create this common oil-gas market in the CAR states, it is necessary for them to develop and effectively utilize their transit potentials as well as oil-gas transporting infrastructures.
(4) The economic basis for creation of this common oil-gas market of Central Asian countries has to be based upon agreed principles, customs, taxation and the Central Asian Republics’ state tariff policy in the area of energy (power) engineering.
Examples of industrially progressive countries, particularly the Western European countries, which in the current year are making serious efforts towards creating a competitive power-resource market within the framework of the European Union, are showing that regionalisation of the energy (power) markets is the most essential condition for the future successful development of energy (power). Emphasis is placed on the fact that even if any one particular country possess significant power resources, it cannot ensure power-security if it stays out of international integrated processes.
In creating the common oil-gas market, it is assumed that a balance would be achieved between the supply and demand of oil - gas resources, that payment would be made by the consumer at a sufficiently acceptable rate, and a strategic security would be created for the oil and gas reserves in CAR states, as well as conditions that would be favourable for increasing exports to other countries.
1.3. the analysis of condition of coal industry in the central asian region countries.
In 90’s the coal industry of Central Asian Region countries suffered a serious setback. During this decade, in all the Central Asian Republics there was a fall and then stabilisation in coal extraction. In Kazakhstan
Table - 4
Extraction of coal in the Central Asian Region countries
Countries of 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Kazakhstan * 127 112 105 83.3 76.8 72.6 69.8 58.2 72.4 72.9
Kyrghyztan* 2.2 1.7 0.8 0.5 0.4 0.5 0.4 0.8 0.4 0.5
Tajikistan* 0.2 0.2 0.1 0.03 0.02 0.02 0.01 0.02 0.02 0.02
Turkmenistan 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Uzbekistan* 4.7 3.9 3.8 3.1 2.8 2.9 3.0 3.0 3.0 3.0
CAR 134.0 117.8 109.0 86.0 80.0 76.0 73.2 61.8 75.82 76.42
* According to Information of Interstate Statistical Committee of CIS on Kazakhstan, Kyrghyztan, Tajikistan, and Uzbekistan.
coal extraction in the year 2001 dropped by 42.4% as compared to 1991, and the corresponding decrease in Kyrghyztan was by 77.2%; in Tajikistan it dropped by 15 times, and in Uzbekistan it dropped by 36%. The dynamics of the volume of coal extraction in the CAR countries are shown in Table -4.
Maximum fall in coal extraction was seen in its leading producer - Kazakhstan. The main reason of reduction in coal output of the Central Asian Republics is the fall in industrial production in all CAR countries. All Central Asian Republics are promoting the reduction in consumption of coal in real sectors of the economy, there is non-payment by consumers receiving coal, and the government subsidies on coalfields have been discontinued. Also, there was failure to achieve manufacturing capacities and in carrying out the basic groundwork, poor maintenance of mining equipment, difficulty in transporting from the hills, as well as high railway tariffs for the transit and supply of coal.
The beginning of 90’s saw the closure of all unprofitable coal extraction enterprises throughout the Central Asian Republics and consequent decrease in volume of coal produced. This also contributed to the escalation of social-tensions in these states. The lowered coal production also considerably affected the inter-state delivery of this fuel.
Specifically, the level of delivery of fuel from Kazakhstan to Russia decreased by 35% and to Kyrghyztan by 73%. There was also reduction in the export of coal from the CAR countries to other states of CIS resulting in a drop in its demand amongst the consumers leading to the closure of the main coalmines. At the same time there was a sharp rise in railway tariffs on delivery and transit of coal. (The increase in transport charges resulted in the cost of exported coal going up by even higher than 50%).
The developments in industrial coal extraction in each CAR state are analysed below:
In Kazakhstan the centres of coal extraction are “Karagandinski” and “Akibastuski” coal basins. In Karagandinski basin there are 13 large coal-extracting enterprises that produce high quality coking coal. The Akibastuski basin has the third largest coal deposits on the territories of the former USSR and produces high-energy coal.
In spite of the fall in the volume of extraction and export of coal in the 90’s, Kazakhstan continues to remain its major exporter and its coal is given first preference in Russian electric power stations. In Kazakhstan, coal accounts for about half of the total consumption of power resources. Over 80% of electricity in the Republic is generated by coal-fired thermal power stations.
Presently, 63% consumption of coal in Kazakhstan is by electric power stations and boiler rooms. Experts are of the view that by the year 2020 coal consumption by this sector will reduce to 57.7%, because of progress in the industrial, residential, and agricultural sectors.
In the beginning of the year 2000 coal extraction in Kazakhstan showed a tendency to stabilise.
In spite of considerable resources and surplus coal deposits in Kyrghyztan, the volume of coal extraction is negligible, having reduced almost 4 times from 2.2 million tons 1992 to 0.5 million tons in 2001. Kyrghyztan has to import coal to meet its needs.
Prospects of rising costs of power (electric power, black oil etc.) and growth in demand of fuel power resources necessitates the reviving of coal mining, specifically in the large Kara-Keche coalfields. As in Kazakhstan, in Kyrghyztan too, about 70% of coal demand is in the power sector. By the year 2020, experts estimate this to grow up to 83%.
In Tajikistan the amount of coal extraction in the period under review was negligible - averaging about 200 thousand tons per year. This however, allowed it to fulfill its basic internal demand, which is primarily consumption by boilers and citizens. In the year 2000, coal extraction started in the coalfields of “Zidda”, “Nazar-Ailok”, “Mienadu”, and “Haqima”.
In Turkmenistan there is practically no coal production or consumption.
In Uzbekistan, the extraction of coal dropped in this period from 4.7 million tons to 3 million tons. The co-efficient of capacity to produce in the coal industry of the country (in mines) fell from 92% in 1985 to more than 30% at present. ‘Angren’ is one of the biggest and the main centres of coal production in Uzbekistan and this coal is mainly used in electric power stations. In addition to its own coal production, till 1997, Uzbekistan had to import coal to fulfill its domestic demands. However, since 1998, it has become self-sufficient in coal production and consumption. In the period 1990-2000, the demand as well as supply of good specific-gravity coal dropped to one third due to increase in the production and consumption of other energy resources such as liquid fuels and natural gas. In the year 2002, the demand for coal constituted 2.2% of the total energy needs of the country, whereas, the domestic coal production met 1.8% of the total energy needs. However, during the last few years, there has been a significant increase in the demand of good specific gravity coal by the electric power stations and boiler rooms, which has risen from 52% in 1990 to 93% in the year 2000.
An analysis of demand and extraction of coal in CAR countries as a whole shows that while Uzbekistan is self reliant in coal, Tajikistan and Kyrghyztan have to meet their domestic needs through imports from Kazakhstan and other CIS countries. In this context the main fact that emerges is that for the economic stability of CAR countries it is essential for them to widen their cooperation and to develop a common market for coal so as to fulfill their own domestic demands through heightened production, which would also enable them to export coal.
2. Basic directions in the formation of a common power market of the countries of Central Asian Region
The main step in the formation of a common market of power resources of CAR states is the development and functioning of an organised legal mechanism, which should lead to movement towards integrated cooperation in the field of power based upon the following:
(a) The Development of Mechanism to Saturate the Internal Market of the CAR States by Energy Resources and Expansion of Possibilities of Export to Third Countries.
This factor should form the basis of market reforms to achieve balance between demand and supply of energy resources in CAR states. This would not only fulfill internal consumer demand but will also lead to exports to third countries.
Its realization proposes:
(a) Joint venture between competitive organs of Central Asian countries for a common fuel-energy balance (FEB)
This would facilitate estimation of demand and production of energy resources and the possible export and transit volumes. Its realisation will lead to coordination between pre-agreed transit and export policies of energy resources as well as their availability in the internal and external markets.
In this context it is imperative to work at inter-governmental levels and reach agreements for the formation and realisation of such a common fuel-energy balance (FEB) in CAR states.
(b) The development of an optimum scheme for the transportation of energy resources within CAR, and the creation of new transport systems as well as the renovation of existing systems leading to growth of export of energy resources of CAR countries.
It is necessary to adopt these at an inter-government level:
l Concrete measures for defining and development of transportation routes.
In the sphere of the formation of an electric energy market
A programme for erecting a grid network for transportation and distribution of electricity within CAR and for export to third countries.
In the sphere of the formation of a common oil gas market
A programme for construction of a modern oil-gas transport infrastructure and renovation of the existing infrastructure through joint ventures within CAR countries.
In the sphere of the formation of a common coal market
A mutual programme for construction of railway tracks to deliver and distribute coal within CAR countries and for exporting coal to other countries.
2. Agreement on energy related tariffs, taxes, and customs policies between CAR countries
In the sphere of tariff policy it is necessary:
l To work out a common methodology for the calculation of tariffs for the transit of energy resources and to adopt agreements on the same;
l To optimize railway tariffs for the transit and delivery of coal within CAR and to other countries outside CAR; and to adopt agreements on equitable railway tariff policy.
In the sphere of tax policies it is necessary:
l To adopt measures to simplify the tax policies and increase their flexibility and adaptability
l To make a unified list of excisable goods
Insertion - 11
In the Republic of Kazakhstan, as compared with other CAR countries, electric energy is included under excisable goods, which leads to legal conflicts, and which is not conducive to the effective functioning of the power system in the parallel regime. Bilateral and multilateral agreements have been adopted to render help for prevention of accidents and emergencies in the power systems, and in case of such eventualities to help repair them, as well as there are provisions for return of a corresponding volume of electricity borrowed during the breakdown. However, in such a circumstance, since in Kazakhstan electric energy is taxable, when connection to the grid network OAO “KEGOC” is restored, tax is imposed on the additional value. In this context it is important to unify the tax regimes within CAR to create conditions favourable for the mutually beneficial development of the electric power sector.
Source: Materials from the Committee for Formation of a Common Electric Energy Market for the States of EurAsian EC.
In the sphere of customs policy it is necessary to:
l Work out normative legal documents, which simplify the customs procedures for export of electricity to third countries outside CAR (including the flow of electricity in the regime of parallel power system with reference to the volume of balance-flow).
l As a part of the interstate flow of electric energy, to adopt inter-government agreement regarding customs control, as well as registration of inter-state flow of electricity in the grid-networks of the CAR states. Herein, the following should be clearly defined:
(a) Non declaration of regularised power
(b) Declaring interstate flow of electric power and accounting for the balance - flow.
(c) Simplification of customs documents related to inter-state flow of electric energy in accident situations.
- To unify the list of export custom duties regarding the export of oil and gas to the third countries (outside CAR).
3. Adopting measures for unifying and harmonising national legislations in the field of power.
For the realisation of the above-mentioned interstate agreements leading to the formation of a power market, the need is to take steps to unify and harmonise national legislations. It is important to change customs codes by partly simplifying customs controls on the delivery of energy resources. This also applies to change in tax codes by partly changing tax policies so as to make them flexible. There is also need for legislation of power-sector tariff policies by CAR States governments.
4. The creation of a Council for the Formation and Development of Power Market in the Central Asian Region countries
In order to undertake the complex task of integrating the cooperation of CAR states in the field of power and to expedite the creation of a power market in CAR, it is imperative to create a Council for the Formation and Development of Power Market in the Central Asian Region countries.
The activities of the Council should be to solve the problems pertaining to electric energy complexes, coordinate development of oil - gas complexes as well as the coal industry; elaborate mechanisms for fulfillment (saturation) of internal markets of the Central Asian Region states by cheap power resources as well as promote the expansion of their export to third countries; and contribute in the creation of common economic area (union).
In the framework of this Council, committees for the formation of common markets of electric energy and power, oil, gas, and coal must be created the main task of which would be to elaborate the mechanisms of functioning of a common Fuel Energy Complex (FEC) (“?oplivno Energichiskovo Komplexa” - TEK).
5. The creation of a finance-industrial group and joint enterprises on the production and transit of energy resources, and production of related equipment.
The expansion of trade-economic links in the field of power is the main reason for the formation of a power market. Examples of such links are the development of the mutually beneficial Russian - Kazakh collaboration in the power sector that has resulted in the creation of SP “Ekibastuzkaya GRES-2”, ZAO “KazRosGas”, and the oil pipeline systems of Caspian Pipeline Consortium for the export of Kazakh oil; and the contract between Russian and Kazakh energy companies for the exploration and rights of the fuel of “Severnyi” coal reserves in Aikibastus, “9 Polye”, and a section of “ Bogatyr”. An example is also the restoration of the parallel working of power systems of Russia and Kazakhstan, securing the transit of electric power in the grid-networks for transmission of electricity from Kazakhstan to Russia, as also from Russia to Kazakhstan, and also from Central Asia to Russia.
The development of such mutually beneficial cooperation attracts and promotes investments in this area, the introduction of progressive and modern standards of management, exchange of experience, and renewal of technical bases.
In the context of CAR this would mean:
In the field of formation of common electric energy market:
(a) Functioning of International Hydropower Consortium.
This Consortium was created in 2002 with the objective of rationalizing the usage of hydropower resources.
It is a well-known fact that 86( of the water resources of Central Asia are formed in Kyrghyztan and Tajikistan, and naturally, these countries strive to develop hydroelectric energy. Kazakhstan, Uzbekistan and Turkmenistan have petroleum reserves as well as deposits of other economic minerals at their disposal, and they need water resources for the development of agriculture and industry. The mechanisms of the mutual supply of water and energy resources by the states of the Central Asian Region do not work effectively, corresponding inter-governmental agreements, being concluded every year, are not fulfilled in full capacity.
In this context it is necessary to develop - within the framework of a consortium - a legal mechanism, which would lay-down agreed upon means of implementation of a policy of distribution of hydropower resources.
(b) Joint construction of the Kambaratinskaya Hydroelectric Station-1, 2 in Kyrghyztan, Rogunskaya, and Sangtudinskaya Hydroelectric Station in Tajikistan. At the inter-governmental level, it is necessary to closely examine the possibility of partial participation on the given projects of the countries of the Central Asian Region and other states of CIS, or the necessity of additionally attracting foreign investments.
(c) Development of cooperation of power and machine-building enterprises of the CIS countries. It is important to unite the production and financial potential of the enterprises that produce power and electro-technical equipments and the creation of financial industrial groups. This would help solve the problem of inter-governmental supplies of equipment, its servicing and repair, and technical re-equipment of power complexes, as well as the renovation of plants and workshops.
In the sphere of formation of common oil and gas market:
(a) The creation of an international oil and gas consortium.
The main task of the consortium should be the execution of mutual decisions of the Union about the formation of a common power market of CAR states, in particular of a joint adoption of oil and gas resources, and to create a modern oil and gas transportation infrastructure. The countries of Central Asia and other countries of the CIS must become a part of this consortium. The activities of the consortium shall facilitate an effective development of: the division of oil and gas complex of the countries of Central Asia and the CIS, the adoption of agreed upon customs, tariff and taxation policies; and the creation of a contemporary oil and gas transportation infrastructure.
(b) The formation of joint enterprises for the production of oil and gas equipments.
Due to a strong depreciation of the main funds available with oil and gas complexes of the CAR countries and the need for their modernisation, the formation of joint enterprises for production of oil and gas equipments acquires a special significance. Keeping these objectives in view it is necessary to enact appropriate legal conditions to create a favourable climate conducive for investments and the development and manufacture of oil and gas equipments.
In the sphere of formation of a common coal market:
The formation of joint coal-extracting and coal-enriching enterprises.
A joint working of Kara-Keche (in Kirghizstan(, Zidda, Nazar-Ailok, Mienadu, Haqima (in Tajikistan( is of vital importance.
Developing integrated cooperation with other CIS countries is also equally important. In this process, an effective form of induction of capital can be from the exploitation of unrefined (raw) resources of the states of the Central Asian Region, and use of equipment produced in the Bylorussian Republic and the Russian Federation etc.
6. System of power exchange within the framework of the Central Asian Region.
The formation of a common market for energy resources suggests the creation of a power exchange, the data base for which should reflect the information about demand and supply of energy resources, presence of peak and reserve capacities, prices for the energy-holders (producers) which are being realized. Electric-power, oil, gas and coal exchanges must be included in the power exchange system in question.
The functioning of this exchange system shall help in meeting the consumers’ need for energy resources, the creation of a normal competitive environment in the market, the formulation of equal prices for energy resources, and the determination of price-indices, which are reviewed by the market itself.
The order and form of creation of this exchange must be reflected in the appropriate agreement.
7. Formation of a unified information site in the field of power for states of the Central Asian Region.
It is vital to create an appropriate website on the Internet about the activities of the various divisions of power sectors of the states of CAR. This website must contain official statistical, analytical and scientific information about the problem of creation of a common power area within the framework of CAR and other integrated unities. The presence of a common database shall facilitate increased unanimity of the CAR countries in the decisions of issues of appraisal and further growth of the common market of energy resources. For the creation of the above-mentioned site the adoption of an appropriate agreement is vital.
8. Improvement of technological base for formation of a common power market.
In the sphere of formation of a common electric power market:
(a) Ensuring functioning of electric power systems of the countries of Central Asian Region in a parallel working regime.
In order to realize the contract on working of parallel energy systems of Central Asian Electric Stations, it is necessary to draw out and fully accept at the inter-governmental level an agreement about the payment for the services for transit of electric-energy through electrical networks of the agreeing sides, for supporting in the electrical networks a standard frequency, and the prevention of accidental situations.
In relation to the above fact, the governments of these Electric Stations of Central Asian States have still not accepted such agreements; conflicts often arise between the sides regarding issues of functioning of the energy systems in a parallel regime. That is why working these agreements out and their rapid acceptance are of vital significance.
(b) The creation of new power capacities with the purpose of ensuring power security to the countries of the Central Asian Region and that of meeting the needs of states of the CAR for cheap electric energy.
The realization of this fact has a vital significance for the states of the Central Asian Region. Firstly, in relation to the marked tendency of macro stabilization and the economic growth in the countries of the CAR, the projected increase in electricity-consumption in these states would get realized. Secondly, the transition of energy systems of countries of the CAR to a parallel regime of work, would facilitate a rise in intergovernmental exchange of electric energy, its export supplies to third countries, fulfillment by the states of responsibilities for rendering each other operative help in case of accidents on electric stations, and exploitation of contemporary technologies of electric power production.
The above factors precondition the necessity for creation of new power capacities.
(c) Reconstruction and technical re-equipment of electric power enterprises.
The formation of a common market for electrical energy and capacity underlines the need for reconstruction and technical re-equipment of production capacities. A major part of electric-energy equipment calls for a capital repair (and somewhere even for a total replacement(. For a speedy process of modernization and reconstruction of generating capacities, it is necessary to create special conditions for profit and preferentially attracting investments, guaranteeing safety of investments, ensuring fulfillment by the investors of their investment responsibilities in the field of technical re-equipment of power plants.
In the sphere of formulation of a common oil and gas market:
(a) Increase in the depth of oil wells.
To be able to draw oil from greater depths it is necessary to introduce superior and effective technologies and use contemporary oil drilling and processing equipments. It is also necessary to improve the quality of scientific research in the field of oil processing.
The oil processing industry of the Central Asian Region has an excessive capacity for primary oil processing while there is a deficiency of secondary oil processing capacities - wherein the existing capacities are extremely worn out (by up to 80 ((. A low sale of the most expensive products of processing relatively lowers the average retail price of oil products received by the CAR countries from one ton of petroleum. This factor is a vital precondition for the realization of this objective.
(b) Further development of underground gas reservoirs is required for increasing the reliability and availability of gas supply to the consumer.
With the objective of guaranteeing stable supply of gas to the consumer state(s) of the Central Asian Region and formation of strategically important stocks of gas, it is vital to further develop underground gas reservoirs, which would also facilitate the consolidation of the ‘energy-independence’ of the Central Asian Region countries.
(c) Reconstruction and technical re-equipment of oil and gas extracting enterprises and of the main pipelines is required along with the creation of new capacities and introduction of modern technologies.
Realization of this objective has a vital significance for enhancing the effectiveness of geological explorations, and the extraction and transportation of oil and gas resources. A high level of wearing out of the equipments leads to accidents in the enterprises and pipelines and to the lowering of the ecological security of the oil and gas extracting regions of the CAR.
Apart from this, the development of the transit potential of CAR states indicates the need for creation of a capable oil and gas transportation infrastructure.
The above stated factors are a pre-condition for the vitality of the movement towards a common market, the realization of which also necessitates the implementation of flexible taxation policies by states of the CAR, which in turn would facilitate the attraction of investments in the oil and gas sector of the Central Asian countries.
In the sphere of forming a common coal market:
(a) Improving the quality of coal production. Enhancing the quality of coal.
Today, the main consumers of coal as a fuel are the thermal-electric stations, development of which depends upon a stable supply of high quality coal to them. A low level of enrichment characterises the coal resources used in power and other divisions of the industries. Not matching up to international standards, the coal exported by states of the Central Asian Regions fetches quite a low price in the external markets. Apart from this, there are increasing ecological concerns regarding the burning of this as fuel. In this context, for the formation of a common coal market in CAR countries, it is inevitable to enhance the quality of coal. However, to attract active investments in this sector it is necessary for the CAR states to enforce flexible taxation policies, for only then will there be a realization of investment projects.
For the reconstruction and technical re-equipment of coal extracting enterprises the following need to be undertaken:
l Reconstruction and technical re-equipment of coal extracting enterprises
l Introduction of modern equipments and technologies in these enterprises
l Increasing the cooperation between coal extracting and machine building enterprises of the CAR and CIS states, and restoration of mutually beneficial economic links among these countries
l Creation of a favourable investment climate in CAR states through the implementation of flexible tax policies by these countries, which would enable an active attraction of investments into the coal extracting and machine building sector.
9. Creation of joint scientific and technical programmes on development of power in the CAR countries.
For a sound functioning of power market in the CAR states the following are of a vital importance:
l Development and introduction of highly effective and ecologically safe technologies for production of energy resources
l Increase in the reliability and effectiveness of the transport systems of different kinds of energy for ensuring the functioning of unified systems of electric-power, gas and coal supplies, provision of petroleum and oil products
l Modernization of automated systems of management by national electrical networks with the use of numeral technologies
l Introduction of modern systems of financial accounting of energy resources
l Adoption of technologies of extraction of methane from coal layers, and its increased use for industrial purposes
l Increasing the effectiveness of exploration, extraction, and development of reservoirs of fuel-energy resources keeping in mind ecological concerns
l Development and introduction of modern technologies of processing of oil and gas resources
l Working out a mechanism for floating tenders of power resources on reciprocal basis
10. Providing trained and experienced personnel for the formation of a common energy market
A Centre for preparing specialists in the power field must be established.
The main task before the Centre shall be:
l Enhancing the level of qualification of the workers of power sector
l Mutual exchange of experiences
l Interaction with the leading international power organizations
l Conducting international conferences on the problem of forming a common energy resources market
l In order to do so, it is vital to adopt corresponding agreements at an international level
11. Safeguarding investments for formation of a common power market.
It is vital to enforce appropriate laws to ensure:
l Safety of investments
l Implementations of flexible taxation policies in order to create a favorable investment climate
l Speedy development of the fund market in the CAR states with the participation of power sector in it
l A simplified process of registration of joint enterprises and financial industrial groups
l Observing payment discipline on the transactions in the power market
12. Implementation of an accepted ecological policy
Today, the pollution of the air, water resources, and the accumulation of harmful and toxic substances pose a serious ecological problem. The further increase in Electro-Fuel cooperation of the CAR states will bring with it the load of pollutants released from its enterprises into the surrounding atmosphere.
The solutions of main ecological problems are possible by:
l Creating laws for environmental protection, including the ecological orientation of taxation of the Electro-Fuel cooperation enterprises, and harmonizing the national ecological and energy saving legislations
l Introducing renewable sources of energy into fuel - power balance in order to lessen the negative impact of power-related activities on the environment and to conserve the potential of non-renewable energy resources for future generations
l Improving the environmental -monitoring systems in the power enterprises
l Modernizing the power objects
l Lowering the emission of harmful substances as well as hot gases into the surroundings
l Introducing ecological insurance
One of the most important directions of development of world economy in present times is the tendency towards its globalization and regionalisation, particularly, through the creation of regional power markets and unions for the purpose of fuel power. It is already clear today that not a single country in the world, not even the ones that are abundantly provided with fuel energy resources, by not participating in the integrating international processes in the sphere of power, is in a condition to provide the needed security level for its power.
This development is particularly vital for the countries with a transitional economy, where the following are needed for their stable development:
l Wide influx of foreign investments
l Presence of external market demands of the manufactured goods
l Provision for secure and fair transport and transit of the energy holders via the territory of third countries
l Working and realization of an agreeable and political line at the international markets for energy holders, etc.
An analysis of the socio-economical situation in the Central Asian Region (CAR) states led to the following inferences:
1. CAR is such a region, for which integrated processes in economy, especially in its power sector, was and will continue to be a vital necessity.
Such a system was in existence for many years even during the existence of former USSR when there was a unified domestic complex. At that time there was a system of high and complimentary interdependence in the power sector between the republics of the USSR including those of the Central Asian Region. In our opinion, even now things are the same as far as the complex inter-industrial contacts are concerned, which were broken as a result of the disintegration of the USSR and were neither resumed in the perestroika period nor in the recently started process of reformation of markets.
2. The main aim of deepening of integrated interaction of the CAR states must be the creation of a unified economic area, a main element of which is the common power market for the countries of Central Asia.
Its formation would result in the preservation and development of inter beneficiary industrial contacts between the CAR states in the field of power, saturation of internal market by cheap fuel energy resources, and the widening of opportunities for export of energy resources to third countries.
3. In this regard, creation of mechanism of formation and development of power market for the CAR states is of vital importance.
4. An important step in the process of creation of the above mechanism for the formation of a common market for energy resources within the framework of CAR, is the conceptualization and preparation of following documents at the inter-governmental level:
l Conception of formation of a common electric-power market for the CAR states
l Conception of formation of a common oil and gas market for the CAR states
l Conception of formation of a common coal market for the CAR states
In the above mentioned documents the main tasks for creation of a common power market and the durations for its realization must be defined. In order to achieve the goal of a common power market, in our opinion, the following priorities need to be addressed:
l Joint creation by competent organs of the CAR states of a common fuel energy balance
l Formulation of acceptable principles of trade, tax and tariff policies of the CAR states in the field of electric power and that of oil and gas complex and coal industries
l Functioning of energy systems of Central Asia in a parallel regime
l Rational use of transit potential of the CAR countries
l Widening of construction of electrical grid-networks and creation of an effective oil and gas transportation infrastructure
l Rational use of hydro-power resources of the CAR states
l Creation of joint electric-energy, oil and gas as well as coal enterprises
The realization of above mentioned directions will facilitate the deepening of integrated interaction of Central Asian Republic states in the field of power and formation of a common power market, which shall later become the base for a stable economic growth of these countries as well as for the creation of a unified economic area within the framework of the CAR.
The solution of the stated issues calls for a joint effort by competent organs, by international organizations and by institutes through the creation and realization of practical means for the formation of a common inter-complementary fuel and power complex within the framework of the Central Asian Region.