Energy Issues in Central Asia

Several patterns are consistent in looking at energy and power issues in the independent republics of Central Asia. Foremost among these is the dilapidated and undeveloped state of energy infrastructure in the republics. The vast majority of generators, power plants, pipelines, transmission, mining equipment and other infrastructure and materials associated with the energy industry was constructed between the 1960s and the 1980s, meaning that almost all of it is inefficient and coming to the end of its working life in the next decade. Little development of energy infrastructure has occurred post 1991 largely do to lack of capital available for investment in the region. Before independence, infrastructure – including energy infrastructure – had been maintained by reliance on a massive system of interconnected and mutually dependent industry with the USSR. Unfortunately, this system is now split up into 15 or more – dependent on how strongly one feels about self-determination – independent states, many of which have actively worked to disentangle themselves from Soviet manufacturing systems. Following independence, no post-Soviet state had by itself the necessary manufacturing or raw material capabilities to maintain its infrastructure, in fact centralized planning had discouraged the development of republic-level self-sufficiency to make independence seem less feasible. The Central Asian republics inherited an especially bad situation, as the region had a very strong raw goods and agricultural focus that left it with almost no manufacturing capabilities required to maintain its own infrastructure. Faced with this problem, the newly independent states are forced to seek foreign investment, but atmospheres of corruption and poor business environment mean that many of the republics are having trouble attract the requisite number of investors to carry out necessary projects. The prevalence of outdated energy infrastructure in Central Asia is a major drain on the efficiency and development of industry in all the republics, with energy costs and subsidies taking up an inordinate amount of budgets due to high operating costs per kilowatt-hour, and a general unreliability of consistent electricity supplies hurting business. The infrastructure is also built according to the needs of the Soviet Union, not individual republics, meaning that transit within a country is often slow, inefficient, and facilitated by rail rather than pipeline.

The Central Asian republics have also failed to diversify their energy sources, with each of the states being heavily dependent on a single source of energy or electricity for the entire republic. This is especially prevalent in the Kyrgyz Republic and Tajikistan, where hydroelectric power is the source of nearly all electricity, despite the international tensions that its use provokes and the seasonal fluctuations in power supply intrinsic to hydroelectricity. Electricity generation in the other republics is similarly concentrated in a single type of fuel usage, with the vast majority of electricity being produced by coal in Kazakhstan, and gas in Uzbekistan and Turkmenistan. This is a direct result of national policies stressing energy autarky immediately following independence. Even with the abundance of fossil fuels domestically in Kazakhstan, Uzbekistan, and Turkmenistan, their use in nearly all power generation and heating is unsustainable and leaves all countries in a dangerous position of dependence on limited fuel reserves – most of which are estimated to last under 50 years. This situation also makes each republic dependent on a small number of companies operating in biggest field – hydroelectricity in Tajikistan and the Kyrgyz Republic, gas in Uzbekistan and Turkmenistan, and oil and coal in Kazakhstan – which could be a serious problem considering the high level of corruption in all of the republics. Should the key agencies become too imbedded in corruption and become even more inefficient, the situation would have severe consequences for power and heating in the entire republic.

Because of their enormous energy resources, especially in the form of fossil fuels, most of the Central Asian republics are energy exporters, in both raw materials, processed fuels, and electricity. During the Soviet Union, these energy goods would head to Russia through a pipeline work straight to refineries in Siberia. After independence, however, Russia has lost some of its traditional importance to China and the other Central Asian states. Russia still is a big consumer of Central Asian resources, especially those in Kazakhstan, but active attempts are being made to diversify Central Asian export markets. Pipelines are currently under construction in Turkmenistan, Kazakhstan, Uzbekistan, and Kyrgyzstan to connect Chinese consumers to Central Asian oil and gas reserves. Central Asian states also appear to be more positive about trade with China, as they are more likely to purchase refined or processed fuels from Central Asia than the Russians, who are traditionally after raw resources. Russia as a market for exports also has the significant advantage of having existing pipeline infrastructure from Central Asian oil and gas fields to Russia. The cost of export along these routes is significantly lower than export by rail elsewhere. For many parts of Kazakhstan, Russia is the only readily available export market due to the location of gas and oil infrastructure, along the government is taken steps to mitigate this dependence by investing in new methods of export. Uzbekistan and Kazakhstan both also export gas and oil to their poorer neighbors Tajikistan and the Kyrgyz Republic. These states are the only Central Asian countries to be net energy importers and due to lack of other infrastructure are highly dependent on these imports, particularly from Uzbekistan, for heating and electricity during the winter when the rivers stop providing as much energy. Uzbekistan and Turkmenistan are also electricity exporters, providing power to their Eastern neighbors, as well as Afghanistan, Azerbaijan, and Iran. Because electricity transmitting infrastructure is easier to build than oil or gas transit, this export market is more secure in terms of diversification. Many regions of Tajikistan and the Kyrgyz Republic, however, are extremely dependent on foreign electricity imports, leaving areas like Osh and Xujand more connect to Turkmen or Uzbekistani electrical networks than to national ones.

In Kazakhstan, Russia still dominates the uranium market, although it faces some competition from Japanese and Chinese firms that have made inroads in recent years. The majority of mining rights and processing centers are still owned, however, by Russian companies collectively controlled by Rosatom. The Kyrgyz Republic has stopped uranium mining, but still maintains a processing facility for developing tailings from Soviet projects. This facility is run by another Russian firm controlled by Rosatom. Next to Kazakhstan, Uzbekistan is the next major player in uranium production in Central Asia. It maintains a number of mines in Navoiy province, but unlike Kazakhstan it sells almost no uranium to Russian firms. The vast majority of Uzbekistani uranium is sold to a Canadian firm and resold to reactors in the West. The other significant part of Uzbekistani uranium is sold to Japanese and Chinese companies for use in their reactors. Turkmenistan and Tajikistan have discontinued all uranium mining, developing, and/or processing activities.

Considering the near complete Russian domination of Eastern European energy markets, especially in natural gas, the issues of energy security is also very important for the Central Asian republics. Despite its former presence as a de-facto colonial power, however, Russia exerts surprisingly little influence in the energy sector outside of Kazakhstan. Almost all deposits, processing capabilities, and infrastructure is nationally controlled. Russia mainly exerts force in Central Asian energy through its position as a major importer, although this power is being challenged by the development of new pipelines that will allow for diversified export opportunities. The primary investors and stakeholders in energy projects – when that information is publically available – are Chinese, Korean, Japanese, and European firms. The exceptions to this statement are the presence of Gazprom, Lukoil, and RusHydro. Gazprom and Lukoil are both major players in Central Asian gas and oil markets respectively, but they do not command anywhere near the market domination they enjoy in Eastern Europe and certainly do not having controlling power in Central Asian energy markets, even in Kazakhstan. Because of the popularity of investment in Central Asian mineral resources, RusHydro is likely the Russian company with the most control over its specific market as it maintains, operates, and builds most dams in Tajikistan and the Kyrgyz Republic, thus making it partly responsible for the vast majority of energy production in those countries. The extent to which RusHydro could “shut down” these dams and associated infrastructure – as gas infrastructure is rumored to be in the Baltic States – is limited, however, due to strict if corrupt supervision by Kyrgyz and Tajikistani officials. As mentioned previously, the dependence of each of the republics on a single source of energy leaves them exposed to shortages that can have a devastating effect on the economy because of the centrality of the resource. Although Kazakhstan, Uzbekistan, and Turkmenistan produce all of their key fuels domestically, it is easy to imagine a scenario where the corruption and complexity of the energy networks in a republic lead to the malfunction of some key bottleneck mechanism, and result in deficiencies in energy supply. Tajikistan and the Kyrgyz Republic face both this issue of an overdependence on a singular source of energy – compounded by a system of energy organization and management that makes Uzbekistan or Turkmenistan look simple and transparent by comparison – and a dependence on imports for heating and winter fuel from very few potential exporters. Since infrastructure with China is lacking and Afghanistan does not show any potential to export energy resources, the vast majority of energy imports to Tajikistan and the Kyrgyz Republic come from Uzbekistan. Dependence on a single importer is always a dangerous situation, but in this case it is aggravated by the antagonistic political situation between Uzbekistan and its neighbors. Uzbekistan views dam construction in the Kyrgyz Republic and especially Tajikistan to be endangering its water supply and thus potentially causing both a fail in the lucrative cotton harvest and a shortage of drinking water for Uzbekistanis in the far West. Uzbekistan has exerted political pressure through gas imports before and continues to suddenly stop exports when either republic makes a political move not to its liking. The strategy of appeasement on issues of hydroelectricity adopted by the latest Kyrgyz president versus the aggression of the Tajikistani president is clear through gas prices charged to each nation, with Tajikistan paying a price close to three times as large as its Northern neighbor. The situation is especially precarious because it involves hydroelectricity, the main and sometimes sole source of electricity, meaning that Tajikistan and the Kyrgyz Republic must choose between improving their sole sources of electricity and simultaneously losing their source of heating fuel, and supplying their countries with fuel during winter at the cost of ignoring the paramount part of their energy infrastructure.

— Eunice Noh, August 2015