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Analysis: Kazakhstan's hydroelectric potential attracts foreign investment

By JOHN C.K. DALY, UPI International Correspondent   |   March 27, 2009 at 5:47 PM   |   Comments

WASHINGTON, March 27 (UPI) -- To most Westerners, the terms Kazakhstan and energy are synonymous with the country's dramatic rise as a petro-state since the 1991 collapse of the Soviet Union.

Like its oil industry, though, Kazakhstan's hydroelectric industry has roots in the Soviet era, and today the country's efforts to develop its hydroelectric potential are entangled with the conflicting policies of the other post-Soviet "stans," Turkmenistan, Uzbekistan, Tajikistan and Kyrgyzstan, which effectively control the flow of the majority of the region's rivers. Unlike its neighbors to the east, however, Kazakhstan's hydroelectric industry contributes only a small percentage to the nation's electricity grid, currently providing about 14 percent of the country's total energy output.

Vladimir Lenin placed a high priority on developing the Soviet Union's energy potential and said in 1920, "Communism is all power to the Soviets plus the electrification of the whole country." The Eighth All-Russia Congress of Soviets, held in Moscow in December 1920, subsequently adopted a plan for the electrification of the country, worked out on Lenin's initiative and instructions, the first long-range economic plan of the Soviet state, which Lenin called "the second Party Program."

The 5.63-megawatt Khariuzovskaia hydroelectric power station on the Khariuzovka River in eastern Kazakhstan was a centerpiece of the Soviet Union's first Five-Year Plan inaugurated under Lenin's successor Josef Stalin and the second built in the Soviet Union, after the Volhovskaia hydroelectric facility, coming online June 14, 1928. The facility would eventually be joined by other hydroelectric facilities on the Gromatuha and Ulba rivers as part of the Leninogorsk hydroelectric cascade built during the next two decades. It had a total installed capacity of 14 megawatts, and the power was used in industrial and mining enterprises.

By the time the Soviet Union collapsed, two-thirds of Kazakhstan's electricity was generated by coal-fired plants as Soviet planners decided to developed the union's Central Asian hydroelectric facilities farther east, in Tajikistan and Kyrgyzstan. Those regions used the headwaters of Central Asia's largest rivers, the Amu Darya and Syr Darya, for power generation. Under the Soviet system, the alpine republics regulated their water flows to the downstream republics -- Uzbekistan, Kazakhstan and Turkmenistan -- for agrarian use in return for electrical and hydrocarbon supplies in the winter months from their westerly neighbors.

The arrangement collapsed along with the Soviet Union, leaving the downstream states flooded in the winter and parched in the summer as Kyrgyzstan and Tajikistan, both hydrocarbon-poor, increasingly resorted to water releases to generate electricity during the bitter winters. With the fall of the Soviet Union electricity, production in Central Asia fell dramatically, and projects for new power stations were scrapped. In the resulting economic chaos, nationalist positions among the new states hardened. Energy exchanges between the region's countries fell by more than half between 1990 and 2000.

The ensuing feud over water and energy has heightened tensions among all five nations. Kazakhstan now has 54 fossil-fueled plants; its five hydroelectric power stations produce about 14 percent of the country's electrical needs. As the richest of the Central Asian nations, Kazakhstan does not require water for power generation as much as for its agriculture. In line with President Nursultan Nazarbayev's pragmatic, multi-vector foreign policy, it has attempted to assist in mediating the regional water disputes, which have waxed and waned for nearly 20 years.

While seeking to expand its hydrocarbon exports as rapidly as possible, a key goal in Kazakhstan's strategic development is Astana's efforts to avoid the so-called Dutch Syndrome, where overreliance on hydrocarbon exports as a major source of government revenue can lead to a rise in the exchange rate, which in turn can negatively affect the country's exports sector. Accordingly, diversifying the country's sources of power is a high priority, even though hydroelectricity currently remains a relatively underdeveloped sector of the national economy.

As in its oil industry, Kazakhstan has sought international funding for its hydroelectric projects, particularly to complete its 300-megawatt Moinak hydroelectric plant on the Charyn River, 93 miles east of the former capital Almaty. Construction of the Moinak plant began in 1985 but was suspended in 1992, the year after the collapse of the Soviet Union, due to a lack of financing.

The Moinak plant was designed to house two 150-megawatt turbines capable of generating 1.27 billion kilowatt-hours of electricity per year and was intended to end the energy shortages plaguing southern Kazakhstan by providing reliable energy to promote rapid growth in the region's industrial sector.

In March 2006, Prime Minister Daniyal Akhmetov's office announced that the Kazakh government intended to raise loans on the international markets to complete the Moinak facility, saying in a news release, "According to the (state) development bank, talks are being held with the European Bank for Reconstruction and Development, Islamic Development Bank, and other international financial institutions to borrow $200 million to build the main facilities of the plant."

The cost of Moinak's first stage was put at $50 million; the Kazakhstan Development Bank provided an initial loan for $25 million and and sought financing for the remainder. Moinak's international savior came from Beijing, with the China Development Bank providing a $200 million credit.

While hydroelectric power currently provides a small percentage of the country's energy needs, interest in it will continue, as it provides power diversification and helps the country ensure energy security. At a June meeting of the 19th plenary session of the Foreign Investors Council, Nazarbayev urged his government to address the need for developing renewable energy in Kazakhstan.

Not that Kazakhstan is solely looking to China to finance its hydroelectric sector; as Nazarbayev told his audience, "We will significantly boost our energy security with the launch of the Balkhash thermal power station, the Moinak hydropower plant, the expansion of the Ekibastuz-1 and Ekibastuz-2 hydropower plants, and the Aksu hydropower plant. However, to implement these large-scale projects we need to create an attractive investment climate." For savvy Western investors looking beyond Kazakhstan's oil and gas sector, the country's hydroelectric industry would seem about as safe a bet as any in Central Asia amid the global economic downturn.

© 2009 United Press International, Inc. All Rights Reserved. Any reproduction, republication, redistribution and/or modification of any UPI content is expressly prohibited without UPI's prior written consent.
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