The Eurasian Development Bank (EDB, Bank) has published a report titled Investment in the Water and Energy Complex of Central Asia. The report analyses Central Asia’s water and energy complex after 30 years of independence of the five Central Asian countries (Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan) and assesses their cooperation in the water and energy complex.
The analysts have also identified the key challenges facing the Central Asian countries in addressing water and energy issues and conducted an in-depth study of the ongoing and prospective investment projects in Central Asia’s water and energy complex, including an analysis of the key players’ investment strategies and government programs. Based on this analysis, the report preliminarily estimates the need for capital investment in the energy and water infrastructure until 2030.
The report argues that the lack of cooperation among the Central Asian countries in the water and energy complex and, consequently, the implementation of technical and economic solutions result in significant economic losses.
- According to the reported data, annual economic damage, and unrealized economic benefits are estimated at as high as US $4.5 billion, which is 1.5% of the regional GDP. Losses in agriculture and the energy sector are estimated at 0.6% and 0.9% of Central Asia’s GDP, respectively.
- The EDB preliminarily estimates that remedying inefficiencies in the water and energy complex might add 7% (the US $22 billion) to the region’s GDP over a five-year horizon. The region’s economies will grow by an additional 1.5 p.p. in five years (compared with the business-as-usual scenario).
- In the longer-term perspective (up to 2050), according to the World Bank estimates, the difference between the costs of the business-as-usual scenario and the benefits of the scenario envisaging stronger cooperation in Central Asia’s water and energy complex might reach 20% of GDP.
The drastic weakening of cooperation in Central Asia’s water and energy complex in the 2000s coincided with significant growth of the load on the energy sector. Net electricity consumption soared by 71.1% from a post-Soviet low of 108.1 TWh in 1999 to 184.9 TWh in 2020. This occurred in the context of accelerated growth in the energy-intensive industries as well as high population growth. With a significant decline in mutual average annual power flows, the Central Asian countries have been actively building new and upgrading existing generating capacities. This has made it possible to meet the increasing demand with in-country generation. In fact, the countries’ energy systems have become self-sufficient over the past two decades.
The energy sector in Central Asia developed in the context of government programs implemented in the region. Given the ownership structure and specific nature of water and energy investment projects, the governments play a key role in the development of the water and energy complex. The governments and state-owned companies are actively involved in formulating and implementing development concepts for the complex; setting tariff policies; searching for sources of finance; and implementing projects, among other activities. In 2020, the leaders in water and energy investments were Kazakhstan (US $2.783 billion, or 1.6% of GDP) and Uzbekistan (US $1.377 billion, or 2.4% of GDP). In Tajikistan and Kyrgyzstan, capital investments in the water and energy complex amounted to the US $507 million (6.3% of GDP) and US $89 million (1.2% of GDP), respectively. Budgetary constraints in Tajikistan have not precluded the government from implementing an active public investment policy with external borrowings. The low levels of water and energy investments in Kyrgyzstan were due to limited government revenues as well as low tariffs that do not cover the cost of electricity generation.
As in most Central Asian countries, the water and energy complex is insufficiently attractive for private and foreign investors, an important source of finance for public initiatives is multilateral development banks (MDBs). So far, 104 projects worth US $10.2 billion are in progress. The leading financier is the EBRD with a portfolio of US $3.3 billion, or 32.7% of total MDB financing in Central Asia. It is followed by the World Bank with the US $3.0 billion (29.6%) and the ADB with the US $2.6 billion (26.2%). The EDB and EFSD, the EIB, and the AIIB together account for the US $1.2 billion (11.5%). Despite struggling with the aftermath of the COVID-19 pandemic, MDBs continued to finance Central Asia’s water and energy complex. In 2020, they approved financing for 24 water and energy projects to the tune of US $1.8 billion.
In the longer term, EDB analysts expect GDP growth to remain relatively high in Central Asia. This will be associated with significant population growth (based on the UN forecast, the median growth of Central Asia’s population will increase from the current 74.4 million to 90.0 million in 2050) and with the development of manufacturing, services, and agriculture. As a result, the region is expected to boost electricity consumption, adding loads on the existing generation facilities and grids with already high rates of wear and tear. On the other hand, given the region’s geographical isolation and the respective closedness of its transboundary river basins, as well as growing climate change, greater water consumption is becoming the main factor determining inter-state water uses and, therefore, inter-state relations in the region.
The identified total investment proposals in the energy segment of Central Asia’s water and energy complex are currently estimated at the US $52.8 billion. Of these, generation accounts for US $45.4 billion (86.0%) and grids US $7.4 billion (14.0%). The key project objectives are to secure power supplies through the diversification of energy sources and the expansion of conventional generation facilities, access new electricity markets and strengthen in-country electricity connections.
The investment projects planned for the next decade are expected to help avoid power shortages in the region despite increased consumption. The region’s surplus electricity production will go up from 37.2 TWh in 2020 to 45.6 TWh in 2030, which will make it possible to export more electricity and will raise the question of where to market the surplus supplies.
In all the Central Asian countries, the identified investment projects are mostly aimed at meeting the needs of the national economy and do not necessarily factor in regional interests, which is a consequence of the uncoordinated development of the water and energy complex. Promoting cooperation in Central Asia’s water and energy complex would improve the region’s water and energy balance and optimize the amount and structure of investments.
The report notes that the distinctive feature of the Central Asian countries in the Aral Sea basin is that their socio-economic development is taking place in the context of depleting water resources, and this trend will determine relations among the region’s countries. In terms of water availability, they are in the category of water-stressed countries according to the international classification (1,405 cubic meters per person per year with a threshold of 1,700). EDB analysts argue that following the current moderate scenario for Central Asia this trend will continue in the longer term.