Despite its vast reserves of oil and gas, Central Asia is facing a serious power shortage this winter and in 2009 as countries in the region fail to address rising demand for electricity.
The region's power sector is struggling to keep pace with the economic upturn witnessed in recent years, with governments slow to bring additional power-generation capacity online, favoring developments in the oil and gas industry instead.
Tajikistan has been struggling to supply enough electricity to its 5 million population for years despite the enormous hydro resources that it enjoys. Last winter was the most dramatic in the country's recent history, nearly seeing a complete blackout because of freezing temperatures, lack of sound infrastructure in its energy sector and no additional generation capacity added in recent years.
And now, senior Kazakh and Kyrgyz government officials warn that this coming winter won't be easy for the ex-Soviet region, a sign that the electricity shortage now threatens to put the brakes on economic growth in those countries.
Oil- and gas-rich Kazakhstan is facing a power deficit of 2 billion kilowatt hours this winter, Kazakh Energy and Mineral Resources Minister Sauat Mynbayev told an energy forum in the capital Astana last month.
He said that starting from 2009, the current capacity of 82 billion to 84 billion kilowatt hours would be exhausted and he warned that generation capacity wouldn't rise until 2011.
Kazakhstan's south has often relied on neighboring Kyrgyzstan, which is home to a major part of the region's hydropower resources.
But last winter, which was unusually cold, Kyrgyzstan relied extensively on the Toktogul hydropower station on the Naryn River, which also regulates the water level of the Toktogul water reservoir, the country's largest.
Kyrgyz Prime Minister Igor Chudinov told Dow Jones Newswires in an interview that overproduction of electricity at Toktogul last winter coincided with a cyclical downturn of incoming water to the Naryn River. That has hindered Kyrgyzstan's ability to meet full energy demand this fall and winter.
In a highly unpopular move, the Kyrgyz government cut the nationwide electricity supply by a third. Chudinov called that a last resort but indicated that similar moves are also necessary this year.
Chudinov said daily seven-hour electricity supply limitations, which include the capital Bishkek, are aimed at saving 3 billion kilowatt hours of power and increasing the water level at the Toktogul reservoir.
Despite the cuts, Kyrgyzstan continues to export electricity under contracts with neighboring Uzbekistan and Kazakhstan.
"The shortage of electricity in the region is serious. Drastic action must be taken," a regional energy expert with an international donor organization said on condition of anonymity.
"It's been brewing for about 10 years in hydropower-rich countries like Kyrgyzstan and Tajikistan and for five years in thermal power-rich countries such as Kazakhstan and Uzbekistan."
Electricity supply is a key political issue in Kyrgyzstan and could potentially stoke tensions in one of the most politically unstable countries in Central Asia.
The government's failure to meet electricity demand among the country's 5 million population could result in public discontent.
Kazakhstan, whose political system is more closed to public debate, has seen economic growth hit by the global credit crunch. Gross domestic product slowed to 8.5% in 2007 from 10.6% a year earlier and the government forecasts 5% to 7% this year.
The International Monetary Fund has cut its 2008 economic growth forecast for Kazakhstan to 4.5% from 5%, citing falling crude oil prices and renewed turbulence on international financial markets, on which Kazakh banks have relied in recent years for funds.
Tim Callen, head of the IMF's mission to Kazakhstan, told Dow Jones Newswires that electricity shortages haven't been factored into its projection for Kazakhstan at this stage.
"My understanding is that the impact (of an electricity shortage) is going to be much more severe in Kyrgyzstan than in Kazakhstan," Callen said. "But I would think the impact on Kazakhstan will be quite small because it's really limited to one area of the country (southern Kazakhstan)."
Kazakh President Nursultan Nazarbayev told his Cabinet Monday that it must speed up the signing of financing agreements with potential investors or decide to fund construction of new energy plants and additional generation capacity relying on state resources.
"The energy sector may slow our economic growth," Nazarbayev warned, blaming the government for failing to address the issue.
The Kazakh government still attributes slowing growth to international markets, but power shortages could have an impact on next year's figures.
Kyrgyz officials have remained silent on the subject in public. But privately, they say the energy crisis will lower GDP growth by a couple of percentage points.
Prime Minister Chudinov said his government had lowered its projection for this year to 6% from 8.3%. But he too blamed the global economic slowdown.
Experts consulting Kyrgyzstan's Economy Ministry on economic reforms said that the government would lose 4.2% of its annual tax income because of the energy crisis between September and March. That could reach $18.7 million.
Almasadam Satkaliyev, chief executive of state-owned Kazakhstan Electricity Grid Operating Co., sees Kazakhstan's electricity demand rising to 125 billion kilowatt hours by 2015 and to 140 billion kilowatt hours by 2012, up 80% from current levels. In 2007, Kazakhstan used 76.4 billion kilowatt hours, a 6.5% annual increase.
Satkaliyev said the electricity-generation sector needs investment of $23.5 billion by 2015.
City officials in Almaty, Kazakhstan's largest city and business hub, say they will do their best to prevent systemic cuts of electricity supplies this winter. Still, they admit the situation is tense. In the past, Kazakhstan and Tajikistan have helped Almaty overcome deficits but have also now decreased their supplies.
Kazakhstan, a big global uranium producer, plans to build a nuclear power station with 900,000 kilowatt capacity by 2015.
London-listed Kazakh miner Eurasia Natural Resources Corp. (ENRC.LN) will invest $1.25 billion to construct two coal-fired turbines with additional capacity of 1.2 million kilowatts. It will also expand coal-mine capacity by 5 million tons a year, Chief Operating Officer Felix Vulis told Dow Jones Newswires in September.
Kyrgyzstan is hoping to complete the first stage of its $2 billion hydropower plants Kambar-Ata 1 and Kambar-Ata 2 on the Naryn River by the end of next year. But it's still unclear how construction of the power plants, with combined capacity of over 2 million kilowatts, will be financed. Kazakhstan and Russia have expressed an interest in participating. But no concrete deal on construction of the power plants has been signed yet.
The Kambar-Ata power plants would also tighten Kyrgyzstan's grip on the region's hydro resources and would boost ambitions to become an important hydropower supplier in the region. Neighboring Uzbekistan and Kazakhstan are likely to be further frustrated with their increased dependence on Kyrgyzstan for hydro resources.