A recent agreement stands out as it is the first fully privately funded project in the Uzbek energy sector and also the largest EU private sector investment in Uzbekistan, writes Alberto Turkstra.

Alberto Turkstra is a project manager at the Diplomatic World Institute.

the recent announcement a $ 1.2 billion deal between the Uzbekistan Ministry of Energy and the Dutch company Stone City Energy for the construction of a thermal power plant (TPP) in the Surkhandarya region in the south-east of Uzbekistan, is important in many ways.

Stone City Energy will be responsible for the design, financing, construction, commissioning, operation and management of the 1,560 MW power plant for a period of 25 years and will use the latest technologies manufactured. by Siemens Energy. This plant will increase the stability, reliability and robustness of the national grid and create more than 2,000 jobs.

This agreement represents an important step for the community of foreign investors and a living proof of the economic openness of Uzbekistan and the resulting stable and reliable investment climate, energy being one of the most attractive sectors. .

The statistics speak for themselves: Uzbekistan climbs dramatically in the statistical indices on the investment climate.

To be ranked 87^e in 2016 in the World Bank Doing Business Report, Uzbekistan improved to 69th place^e by 2020, ranking particularly well in subcategories such as ‘starting a business’, ‘protecting minority investors’ and ‘enforcing contracts’ – all areas that investors consider carefully before deciding to enter a market, in addition to political stability and a strong rule of law.

Uzbekistan is the largest power producer in Central Asia – with a total installed capacity of over 12 GW – and energy consumption is expected to double over the next decade, requiring $ 26 billion in investment and a 17 GW of additional production capacity to reach this goal.

However, the electricity generation infrastructure is aging and inefficient and almost exclusively based on natural gas. The aging of the electricity network leads to high transmission and distribution losses. Uzbekistan is one of the most energy-intensive savings, measured by energy intensity per unit of GDP.

The average efficiency of thermal power stations is around 28 to 33%. A significant part of the distribution lines and power plants were built during the Soviet era, and these are now in urgent need of modernization and replacement.

In this context, the Uzbek government has, since 2019, set up a Ilarge-scale transformation and liberalization of its energy sector, the primary objectives being the dismantling of monopoly practices, the creation of an environment conducive to private sector participation and a more favorable regulatory framework for foreign investors.

One of the key institutional innovations to highlight in the overhaul of the energy sector is the development of first law on public-private partnerships (PPP), including the establishment of a dedicated PPP agency. In 2019, IFC helped the government of Uzbekistan to structure and implement the first-ever PPP project in the energy sector.

The project was awarded to a UAE-based company Masdar’s own energy for the construction of a photovoltaic (PV) farm near the town of Navoi.

In 2019, the Uzbek government further decided to Uzbekenergo unbundling, the state-owned electricity company providing electricity to Uzbekistan with a legally endowed monopoly in charge of the production, transmission and distribution of electricity.

Uzbekenergo had struggled to meet rapidly growing electricity demands and in 2017 made losses of $ 840 million (absorbed by the government). As part of the restructuring of the energy sector, in 2019, the Ministry of Energy was formed to “develop and implement a single state policy in the oil, gas and electricity industry aimed at ensuring the country’s energy security”.

The establishment of a independent energy regulator (in charge of electricity and natural gas) is also expected in the near future, which will be subordinate to the President and Parliament.

To this end, several frameworks, decrees and strategies have been implemented including (1) the Transition Strategy towards a Green Economy for the Period 2019-2030, (2) The Concept Note for the supply of electric energy 2020-2030 , (3) A low carbon roadmap for the electricity sector in the Republic of Uzbekistan until 2050, developed with the support of the EBRD and the Government of Japan, exploring the feasibility of a carbon neutral power generation sector in Uzbekistan by 2050.

The themes common to these documents are the need to increase the power generation capacity of Uzbekistan; increase the efficiency of power generation assets; and the overall greening of the sector through the expansion of renewable energy sources.

According to the key performance indicators of the roadmap, until 2030, Uzbekistan must build 8 GW of new renewable capacity and modernize 10 GW of existing capacity in natural gas.

To achieve the clean energy transition, the capacity of wind and solar power plants will be increased at 3 GW (representing 10.4% of the country’s production capacity) and 5 GW (17.3%), respectively. The government is also planning to build its first nuclear power plant with a capacity of 2.4 GW, or 7.5% of the country’s total production capacity.

By 2030, an overall reduction in greenhouse gas emissions per unit of GDP of 10% from 2010 levels is envisaged (as indicated in the Nationally determined contribution from 2017) and a doubling of energy efficiency.

By 2030, the country’s dependence on natural gas is expected to increase from 76% to 50% and renewable energy sources are expected to represent at least 25% of the total volume of electricity production in Uzbekistan.

High-efficiency thermal power plants such as the TPP in Surkhandarya therefore play a vital role in the early stages of Uzbekistan’s energy transition, replacing the more carbon-intensive plants built in Soviet times, absorbing the growing demand for energy. electricity while renewable energies are still unable to meet a significant portion of the country’s energy needs.

Gradually, regulatory and institutional reforms will allow the development of renewable energy sources in Uzbekistan, mobilizing investments from national and international actors and taking advantage of the fact that the cost of wind and solar technologies has fallen sharply over the past decade. .

At this point it is worth mentioning the country new investment law of 2019 which retains many of the guarantees and incentives provided by the previous law dating from 1998, such as non-discrimination, non-interference by state organs, transfer and repatriation of funds, protection against nationalization and against unfavorable changes in legislation.

In addition to this, it also introduces new mechanisms to support investors such as the investment tax credit and grants. The law attributes to the Ministry of Investment and Foreign Trade the role of “one-stop-shop” for foreign investors in order to reduce the channels of communication with the multiple organs of the State.

In conclusion, reliable and affordable electricity supply is fundamental to advance economic growth and push Uzbekistan to the next stage of its development.

The announcement of the TPP in the Surkhandarya region as the first fully private investment in Uzbekistan’s energy sector is proof that the comprehensive reforms launched by President Shavkat Mirziyoyev are starting to bear fruit.

This project, in short, shows the way forward for the Uzbek energy sector.