Three key drivers of tensions in Kyrgyzstan were electricity rationing, rising household energy costs, and concerns about corruption in the energy sector. GDP growth has been unstable and impacted by internal and external economic and political shocks. The global financial crisis led to food price inflation, slowing GDP growth, drops in remittances and consumption. Political events in 2010 caused negative GDP growth. Energy inflation rates were above general inflation as electricity and gas consumption dropped. The energy sector is dominated by state-owned monopolies with losses and tariffs below cost recovery levels. Reforms improved collection rates and reduced the quasi-fiscal deficit but did not marketize monopolies or attract investment. Low-income households rely on coal and electricity for heating

1. Kyrgyzstan’s energy sector: Poverty and social impact assessment RafkatHasanovKemalIzmailov Almaty, 13 April 2011

2. Two winters of electricity rationing, years of rapid growth in household energy costs, and growing concerns about corruption and mismanagement in the energy sector, were key drivers of tensions in Kyrgyzstan.

4. Impact of internal, external shocks (economic and political)

5. Reliance on foreign trade, remittances

7. Poverty trends in Kyrgyzstan (2000-2009)

8. Energy inflation rates: well above consumer price inflation . . . Source: State Statistical Committee

9. . . . As electricity, gas consumption drop 2007 = 100

10. Energy sector: Key characteristics All sectors (except coal) dominated by state-owned monopolies Negative profitability, high technical and commercial losses High or growing depreciation rates (except gas) Tariffs below cost recovery levels—despite significant increases in recent years Household energy consumption subsidized by: State, municipal budgets Cross-subsidies from exports, industrial users Future generations

11. Recent reform efforts: Some successes Collection rates in electricity sector have improved The quasi-fiscal deficit has dropped Basic legal framework for decentralized renewable energy technologies has been introduced Fuel and Energy Sector Transparency Initiative: Focuses on: Better sectoral governance, regulation Increased civic engagement Does not focus on: marketizing state-owned monopolies Attracting FDI, technology transfer, modernization Modest step forward?

12. Poverty and household access to energy: Data issues Survey data do not always correspond to production and sales data provided by energy companies Survey data on household expenditures do not always agree with national income accounting data on consumption expenditure Survey data not always internally consistent

14. Energy consumption growth particularly rapid in:

15. poor and extremely poor households

16. households in urban areas

17. households headed by a single parent

18. The share of household expenditures devoted to energy:

19. increased during 2006-2009, but

20. are not particularly large (5.5-6.5 percent)

22. Shares of household energy expenditures devoted to various energy sources (by household decile, 2009) Low-income households, and households in rural and mountainous areas, have very limited access to: Gas Central heating Hot water They tend to rely almost exclusively on coal and electricity for heating, as well as illumination. This is particularly the case for first decile households Spending on electricity absorbs about half of energy expenditures

23. Shares of household energy expenditures devoted to various energy sources (by household decile, 2009)

24. Shares of households reporting interruptions in electricity service Shortages have broken the link between connection to the grid and access to reliable electricity supplies.

25. Shares of households experiencing weekly (at least) interruptions in electricity service Low-income households, and households in rural and mountainous areas, are most likely to experience interruptions

26. Actual payment Billed amount Electricity: Bills versus payments (monthly per capita expenses, in som)

27. Bills versus payments Households apparently pay more for electricity and gas than billing information suggests Corruptive collusion among households and bill collectors may be responsible for this discrepancy If so, this “corruption tax” seems to be a particularly heavy burden on low-income households

28. Ratio of monthly pension, social assistance benefits to the national monthly subsistence minimum

29. Effectiveness of social protection

30. Categorical benefits PFMB * The simplification and monetization of categorical benefits introduced in 2010 seems to have had a regressive character. * Social protection system has become less able to direct benefits to the most needy households. * Can social assistance protect vulnerable households from possible future increases in energy prices?

31. Social protection and the energy sector: Recommendations More closely link: PFMB to the guaranteed minimum income; and Guaranteed minimum income to the minimum subsistence level Means-test the MSB and categorical benefits, to reduce their regressive character Reintroduce lifeline electricity tariffs? Reductions in tariffs for small volumes of household electricity consumption could be offset by higher tariffs for consumption above this level, thereby leaving average tariff levels unchanged

32. Important future research topics Improvements in household survey and production/sales data regarding energy, to remove inconsistencies within and between these data sets Energy sector: possible future scenarios Improving energy sector corporate governance Energy saving technologies, and policies and programmes to accelerate their introduction Using affordability analyses in the energy sector Small hydro: prospects and obstacles Analysis of the costs of power production Fuel and Energy Sector Transparency Initiative

33. Thank you for your attention!