Uzbekistan’s energy sector at the threshold of major reforms

Uzbekistan’s turbulent past has left its mark on every aspect of the country’s economic and social life, but we are now looking to the future. The new government, headed by President Shavkat Mirziyoyev, is searching for ways to reform outdated managerial and technological practices and bring the country into the 21st century.

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Statement by Jurabek Mirzamahmudov, first deputy minister of energy

Several government decrees have been adopted recently aimed at radically increasing the efficiency of fuel and energy complex management as well as switching to modern methods of organising the production, transportation, distribution and marketing of electricity both within Uzbekistan and beyond its borders.

The energy sector rightly deserves special consideration. Uzbekistan is one of the most energy-intensive economies in the world and its industrial sector, which utilises inefficient and obsolete technology in its production processes, accounts for around 40% of total energy consumption. For years this sector was run using non-economic methods, a practice which is no longer sustainable.

In the power generation industry, the most critical problems are the growing shortfall of electricity supply and significant wear and tear on equipment, including the distribution networks. According to analysts, one of the main causes is the insufficiently effective management of the electricity industry and historical underinvestment into new technologies throughout the sector.

To help find solutions to the growing problems within the sector, a new Ministry of Energy was established, tasked by the state to deal with all issues related to the fuel and energy sector of the country.

The Ministry of Energy now directly includes the Uzatom Agency, Uzneftegazinspection, Uzenergoinspection, and the Implementation Group, which co-ordinates projects under production sharing agreements.

The Ministry also co-ordinates the activities of the Uzbekneftegaz, Uztransgaz and Regionalgaz joint stock companies, as well as the

entities created from Uzbekenergo JSC: Thermal Power Stations, National Electric Grids of Uzbekistan and Regional Electric Grids.

It is also important to address the expected shortage of natural gas, which is today the main raw material for electricity generation, along with the inadequate energy-saving measures by modern standards and the significant untapped potential for the use of renewable energy sources.

A significant role in ensuring the country’s energy efficiency is given to diversification of energy sources. To this end Uzbekistan has made a historic decision to begin the development of nuclear energy generation.

The Agency for the Development of Atomic Energy of Uzbekistan was founded in July 2018, and in October last year, a project was launched to build the country’s first nuclear power plant using Russian technology.

In May 2019, two new laws were adopted in Uzbekistan: “On the use of renewable energy sources” and “On public-private partnership”. This created a legislative basis for attracting investment in the energy industry, as well as a system of incentives for users and manufacturers of renewable energy equipment.

By 2025, the share of electricity production using renewable and alternative energy sources is planned to increase to at least 20% of total generation.

The fundamental reform of the fuel and energy complex also applies to the oil and gas industry. For decades, the industry has been driven by non-economic methods, which led to lags in the growth of hydrocarbon reserves and an increasing deficit in natural gas, especially in the private enterprise sector.

In July 2019, a resolution of the President was adopted, aimed at large-scale reform of the industry. During the restructuring, excessive intermediate management links have been reduced through the merger of sub-holding companies of Uzbekneftegaz and the withdrawal of Uztransgaz from this system.

Uzbekneftegaz’s stake in the authorised capital of Uztransgaz has been transferred to the state through the State Assets Management Agency.

Efficiency drive

Measures to improve the efficiency of processing, transportation and sale of natural gas, and analysis and optimisation of investment projects were identified. Uzbekneftegaz has begun the process of improving mechanisms for the sale of finished products, strengthening financial discipline and optimising pricing at enterprises in the oil and gas industry.

The process of reforming the fuel and energy sector is based on accumulated experience, analysis and support of the best international models. World experts in this area have been engaged and substantial assistance is being provided by international financial institutions (IFIs).

For example, the World Bank is supporting projects to increase the energy efficiency of district heating, develop the energy market, and modernise the mechanism of electric power transmission. Energy efficiency will help minimise operating and maintenance costs, improve productivity and generate real cashflows. It will also contribute to mitigation of the effects of climate change.

The Asian Development Bank is promoting regional co-operation projects to expand cross-border energy trade and integrate renewable energy sources into the grid, develop sustainable hydropower projects and increase the efficiency of electricity production.

The European Bank for Reconstruction and Development is participating in the implementation of the Talimarzhan energy project and modernisation of the Tashteplotsentral and Muruntau transmitting stations.

Uzbekistan’s economy has been developing rapidly in recent years, leading to a significant increase in energy consumption. Over the next 10 years we expect consumption to more than double. It is therefore crucial to ensure the country’s energy security, taking into account the constant growth of needs, reforming of managerial styles, attracting foreign investment and creating new jobs.

This complex and demanding work is being done today with the assistance of IFIs and consultants as well as dedicated efforts by the Uzbekistan government, its new Ministry of Energy and thousands of people in the sector who are building for future generations.