Electricity price shock for Kyrgyz consumers

News and Press Release
Originally published
View original
Government says it has no option but to charge more realistic rates.

By Asyl Osmonalieva in Bishkek (RCA No. 597, 05-Dec-09)

Plans for massive hikes in electricity and central heating prices have outraged consumers in Kyrgyzstan, who say they will be hard pressed to pay.

The government, which is struggling to cope with the effects of the world economic crisis, says it is forced to cut subsidies and pass on the real cost of energy. Analysts interviewed by IWPR counter that it would be better to address the systemic inefficiencies that make electricity so costly to produce.

The price hikes were unveiled at a cabinet meeting on November 12, and Prime Minister Daniyar Usenov issued a formal announcement two days later.

The increases will take place in two phases, the first in January and the second six months time after that. Electricity will end up costing nearly three times the current rate, while hot water prices will increase by 400 per cent.

Officials say it costs more to generate electricity and provide hot water than business and domestic customers pay. Tatyana Ankudovic, spokesperson for Kyrgyzstan's the industry and energy ministry told IWPR that electricity and hot water are currently being charged at about two-thirds just over one-fifth of their respective cost prices.

Like other parts of the former Soviet Union, Kyrgyzstan retains a centralised heating system for many urban areas where hot water taps and radiators are supplied from a network of mains pipes connected to a local power station.

"From the start of next year, we will be selling it at cost price," said Ankudevic.

To soften the blow, population groups identified as vulnerable such as pensioners and workers in the public sector, where wages remain low, will receive compensation drawn from a pot of 60 million US dollars which is being set aside in next year's budget.

The authorities have also introduced stiffer penalties for illegally siphoning off hot water and tapping electricity from the network, both of which are common.

Speaking at the November 12 cabinet meeting, Usenov said, the country's generation and distribution systems are in dire need of refurbishment, and will continue to suffer outages until this is done.

Appointed prime minister late last month following institutional reforms announced by President Kurmanbek Bakiev, Usenov said the previous government failed to tackle this key issue simply because it feared the inevitable public outcry.

Customers are already counting up what the increases will cost them.

Aida Osmonova, a teacher in the capital Bishkek, said the announcement came as a complete surprise, especially the scale of the price rises.

"I used to pay just over 45 dollars, but now it will be 230," she said, describing her outlay on hot water over the five winter months when the heating system is in operation.

Asylbekova earns around 160 dollars a month after taking on extra work at her school, and has pared her household budget down to a minimum.

"I fear that with the rise in utility prices, I will have to reduce the money I spend on my son," she said. "I will have to pay 50 dollars a month for heating, but I still have to pay for [cooking] gas and electricity, on top of putting aside money for the kindergarten, travel costs, food and clothes."

Gulnara Derbisheva, a member of parliament from President Bakiev's Ak Jol party, believes living standards will go down because of the extra costs people will have to meet.

"Even on my parliamentary salary, it will be hard for me to pay the new rates," she said. "All the more so for the average person."

Critics of the decision have warned that the higher utilities prices will affect the costs of producing and retailing foodstuff, and will inevitably cause inflation, thus driving people deeper into poverty.

The government has asked its anti-monopoly agency to monitor the prices of food and other basic items to ensure these are not raised without justification.

However, Communist parliamentarian Nikolai Bailo points out that the agency can do little to curb inflationary processes.

"We're living in a market economy, after all," he said.

No one denies that Kyrgyzstan's power industry is in trouble, and that in large part it is due, as officials say, to the infrastructure slowly falling apart after years of under-investment.

The result is that a percentage of the electricity generated in Kyrgyzstan's 17 power stations, by far the largest of which is the Toktogul hydroelectric scheme, is "lost" before it reaches the consumer.

Energy expert Nikolai Kravtsov explains that a proportion of electrical current is lost at every stage from the generators to the transmission lines and substations.

But the discrepancy between what is produced and what reaches the consumer also includes what he describes as "commercial loss, in other words theft of electricity".

Some years ago the wastage figure was put at 40 per cent, but Prime Minister Usenov told parliament on November 13 that this had been reduced to 25 per cent, and would be cut further to 15 per cent over the next three years.

Energy experts say even that end goal is high compared with more energy-efficient countries, and the target should ideally be a loss of between five and seven per cent of power produced.

They argue that before making customers pay extra to support the struggling power industry, it would be better to address the way the sector is managed.

Corruption pervades the system, from the householder who bribes the meter-reader into turning a blind eye to diverted electricity, to entire companies that pay off officials in order to obtain a reduced electricity bill. Above that are the energy sector officials who, Bailo believes, divert electricity from the state-owned power stations, sell it for personal gain, and then write off the loss as wastage in the accounts.

"If the government had begun tackling corruption, then maybe there wouldn't be any need for such a sharp increase in utility prices for the public," he said.

The hot water network is similarly plagued by technical inefficiencies due to worn out pipes, lack of pressure and leakage which all cause heat loss.

A staff member at Bishkek's municipal heating agency, who asked to remain anonymous, acknowledged that corruption was a problem in this sector, too, and mainly involved purchases of equipment for the network and coal for the city's power station.

"A certain volume of coal will be bought, but the actual delivery will be smaller," he said.

Kravtsov says that even the sums the government used to calculate energy production costs as a basis for price rises are suspect.

"We can't even get hold of information on the methodology that formed the basis for these calculations," he said.

"We don't have transparency in the energy sector and this creates opportunities for corruption."

Iskhak Masaliev, who heads the Communist Party, says there is no point in introducing a new pricing system when fundamental management problems have not been addressed. Parliament was well aware of the thefts but had not asked for any heads to roll in recent years, he said.

Asyl Osmonalieva is an IWPR-trained contributor in Kyrgyzstan.