Investments in the water and energy complex of Central Asia
Vinokurov, E., Ahunbaev, A., Usmanov, N., Tsukarev, T., Sarsembekov, T.
(2021)
The Eurasian Development Bank has published a new analytical report "Investments in the water and energy complex of Central Asia".
The report's authors examined the current state of Central Asia's water and energy complex over the past 30 years since the independence of the five republics (Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan). They evaluated the level of cooperation among these countries in the water and energy complex, and identified the primary challenges that the Central Asian nations face in dealing with energy sector issues. Furthermore, the analysts conducted a comprehensive study of both ongoing and promising investment projects in the Central Asian energy sector. This involved analyzing the investment strategies of major players and government programs. Based on their findings, the report provides a preliminary assessment of the capital investment needs for energy and water infrastructure segments of the energy sector up until 2030.
Based on their analysis, the report's authors conclude that inadequate cooperation among the Central Asian countries in the water and energy complex, combined with insufficient technical and economic solutions, has resulted in significant economic losses. The report presents data indicating that the estimated annual economic damage and unrealized economic benefits are as high as $4.5 billion, which corresponds to 1.5% of the region's GDP. The losses in agriculture and the energy sector are estimated at 0.6% and 0.9% of Central Asian GDP, respectively.
(2021)
The Eurasian Development Bank has published a new analytical report "Investments in the water and energy complex of Central Asia".
The report's authors examined the current state of Central Asia's water and energy complex over the past 30 years since the independence of the five republics (Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan). They evaluated the level of cooperation among these countries in the water and energy complex, and identified the primary challenges that the Central Asian nations face in dealing with energy sector issues. Furthermore, the analysts conducted a comprehensive study of both ongoing and promising investment projects in the Central Asian energy sector. This involved analyzing the investment strategies of major players and government programs. Based on their findings, the report provides a preliminary assessment of the capital investment needs for energy and water infrastructure segments of the energy sector up until 2030.
Based on their analysis, the report's authors conclude that inadequate cooperation among the Central Asian countries in the water and energy complex, combined with insufficient technical and economic solutions, has resulted in significant economic losses. The report presents data indicating that the estimated annual economic damage and unrealized economic benefits are as high as $4.5 billion, which corresponds to 1.5% of the region's GDP. The losses in agriculture and the energy sector are estimated at 0.6% and 0.9% of Central Asian GDP, respectively.
Preliminary estimates from the EDB indicate that eliminating inefficiencies in the energy sector could have a significant positive impact on the GDP of Central Asia. Specifically, over a five-year period, the impact could be as much as 7% of the region's GDP or $22 billion. This improvement in the energy sector could also increase the economic growth rates of Central Asian countries by 1.5 percentage points compared to the scenario where no action is taken. Looking further ahead, the World Bank has estimated that the difference between the costs of the "business as usual" scenario and the benefits of a scenario that involves strengthening cooperation in the Central Asian energy sector could reach up to 20% of GDP by 2050.
During the 2000s, there was a significant increase in the burden on the energy sector in Central Asia, which coincided with a sharp decline in cooperation in the region. This increase was largely driven by a rise in the growth rate of energy-intensive industries, as well as a high rate of population growth. To cope with the increased demand, the Central Asian countries began to build new generating capacities and modernize existing ones, despite a significant decrease in the average annual flows of electricity among them. This approach allowed them to become more self-sufficient in terms of meeting their own energy needs over the past two decades. In essence, a policy of power system self-sufficiency has been pursued.
During the 2000s, there was a significant increase in the burden on the energy sector in Central Asia, which coincided with a sharp decline in cooperation in the region. This increase was largely driven by a rise in the growth rate of energy-intensive industries, as well as a high rate of population growth. To cope with the increased demand, the Central Asian countries began to build new generating capacities and modernize existing ones, despite a significant decrease in the average annual flows of electricity among them. This approach allowed them to become more self-sufficient in terms of meeting their own energy needs over the past two decades. In essence, a policy of power system self-sufficiency has been pursued.
Dynamics of installed capacity volumes in Central Asia, the Ministry of Internal Affairs
The Central Asian energy sector was developed in the context of regional state programs, with the ownership structure and investment projects reflecting the important role played by the state in this area. In terms of investment in the energy sector in 2020, Kazakhstan led the region with $2.783 billion, equivalent to 1.6% of its GDP, followed by Uzbekistan with $1.377 billion or 2.4% of its GDP. Meanwhile, investments in the water and energy complex capital in Tajikistan and Kyrgyzstan amounted to $507 million (6.3% of GDP) and $89 million (1.2% of GDP), respectively.
Due to the relatively low investment attractiveness of the VEC in most Central Asian countries for private and foreign investors, multilateral development banks (MDBs) have become a crucial source of financial resources for government initiatives in the region. Currently, there are 104 projects with a total value of $10.2 billion being implemented in the region. The leading provider of financing is the EBRD, which accounts for $3.3 billion or 32.7% of total MDB financing in Central Asia. Following closely behind are the World Bank with $3.0 billion (29.6%) and the ADB with $2.6 billion (26.2%). The remaining $1.2 billion (11.5%) is covered by the EDB, EFSR, EIB, and AIIB collectively.
Due to the relatively low investment attractiveness of the VEC in most Central Asian countries for private and foreign investors, multilateral development banks (MDBs) have become a crucial source of financial resources for government initiatives in the region. Currently, there are 104 projects with a total value of $10.2 billion being implemented in the region. The leading provider of financing is the EBRD, which accounts for $3.3 billion or 32.7% of total MDB financing in Central Asia. Following closely behind are the World Bank with $3.0 billion (29.6%) and the ADB with $2.6 billion (26.2%). The remaining $1.2 billion (11.5%) is covered by the EDB, EFSR, EIB, and AIIB collectively.
IBRD's participation in financing of EECCA investment projects
Currently, the total investment proposals in the energy segment of the Central Asian energy sector amount to $52.8 billion. The generation segment accounts for $45.4 billion (86.0%) of this, while the electric grid complex accounts for $7.4 billion (14.0%). The implementation of these investment projects over the next decade is expected to prevent a shortage of electricity in the region, despite the increase in its consumption. However, it is important to note that most of the identified investment projects in all Central Asian countries are mainly aimed at meeting the needs of their respective national economies and do not necessarily consider regional interests. This is a result of the uncoordinated nature of the development of the water and energy complex.
Volumes and structure of identified investment proposals in the Central Asian energy sector, USD million, %, as of 01.04.2021
The report's authors highlight that the Central Asian countries in the Aral Sea basin are characterized by their socio-economic development occurring amid water resource depletion, and this trend will shape interstate relations among the regional countries. In terms of international water resource availability standards, they fall into the "inadequately served" category, with 1405 m3 per person per year, below the threshold of 1700 m3 per person per year. EDB analysts' calculations indicate that, under a moderate scenario, this trend will persist in the long run.
The EDB's analysts have concluded that the sustainable socio-economic development of Central Asia is closely tied to the state of its water resources. According to Evgeny Vinokurov, Chief Economist of the EDB and the EFSR, each country in the region is searching for their own solutions to address the numerous challenges to the sustainability of the energy sector, but the primary issues in the Central Asian Energy Sector will likely arise from a growing scarcity of water resources. Vinokurov notes that the high growth rates in the usage of water resources in Central Asia are driven by demographic factors, as well as the growth of industry and agriculture, especially in the realm of irrigation.
The EDB's analysts have concluded that the sustainable socio-economic development of Central Asia is closely tied to the state of its water resources. According to Evgeny Vinokurov, Chief Economist of the EDB and the EFSR, each country in the region is searching for their own solutions to address the numerous challenges to the sustainability of the energy sector, but the primary issues in the Central Asian Energy Sector will likely arise from a growing scarcity of water resources. Vinokurov notes that the high growth rates in the usage of water resources in Central Asia are driven by demographic factors, as well as the growth of industry and agriculture, especially in the realm of irrigation.
Use of water and land resources in the Aral Sea basin
The task of achieving agreement on the distribution of transboundary water resources in interstate river basins is a crucial one that requires political determination and a comprehensive approach, taking into account the socio-economic and environmental changes and political conditions in neighboring countries. The process of reaching a consensus on the joint use of transboundary water resources cannot be separated from the economic development models of each country and regional economic cooperation as a whole. By enhancing economic cooperation and trade ties among the countries in the region and making water policy an active factor in economic integration, the problem of sharing transboundary water resources can be addressed.
More information about the content of the report "Investments in the Water and Energy complex of Central Asia" can be found on the EDB website.
More information about the content of the report "Investments in the Water and Energy complex of Central Asia" can be found on the EDB website.
