Transition to a Resource-Efficient Pattern of Growth in Energy Sector

Tashkent, 2015

Uzbekistan: New Development Goals Towards 2030

Development goals and trends towards 2030:

• Ultimate goal – to ensure sustainable economic growth at 7-8% per annum; • Transformation of GDP structure by increasing the share of

manufacturing from 9% in 2012 to 22% in 2030; shift towards production of more sophisticated services;

• Transformation of pattern of enterprises: more large and medium enterprises;

• Population growth, change in the demographic pattern and growth of personal income;

• Transformation of employment pattern and related social transformations contributing to the change of the lifestyle, consumption pattern, behavioral stereotypes;

All this will expand the demand for energy resources to 6.88% per annum

To cope with the new challenges and employ the emerging opportunities the revision of the existing pattern of energy consumption may be required

9,1 9 17 22 14,1

26,4 19,4 15

28 19,5 10,5 8

48,9 45,1 52 55

0%

20%

40%

60%

80%

100%

2005 2012 2020 2030

Processing industry Mining industry

Agriculture Services

Uzbekistan: Transformation of GDP structure to 2030, %

Population Growth and Transformation of Demographic

Structure: 2012 vs 2030

2,3

18,2

9,1

5,1

22,1

10

0

5

10

15

20

25

Above theworking age

Working-agepeople

Below theworking age

2012 2030

44,5

32,3

19,1

4,1

0

10

20

30

40

50

2015 2020 2025 2030

Transformation of the pattern of enterprises: Value added

Uzbekistan: Transformation of the Structure of Society

Transition to the Energy-Efficient Growth Pattern: 2 Viable Options

• Two viable options of transition to the resource-efficient model in energy sector:

• Option 1 – phased approach: increase in extraction of energy resources by 1.5%, while reducing energy intensity down to 40% by 2030 Energy balance shortage at 31.9%, maximum economic growth of 5% towards 2030.

• Option 2 – fast-track: growth in extraction of energy resources by 2%, combined with reduction of energy intensity by 2.3-fold until 2030 5.5% surplus of the energy balance; growth at more than 8% per annum.

Option 2 will enable to attain the goals of the Strategy

Option Annual growth

of production

of energy

resources, %

Annual

growth of

energy

efficiency, %

Structure of energy balance Energy

balance,

%

Maximum

economic

growth?

%

Phased approach

1.5

2.8

33.5% of demand covered by expansion of production &

energy efficiency 0.6 % - by solar energy, 0.4% -

by biogas, shale oil, etc.

- 31.9

5

Fast – track approach

2

4.7

70 % of demand covered by expansion of production &

energy efficiency 0.6 % - by solar energy, 0.4% -

by biogas, shale oil, etc.

+5.5

Over 8%

How to implement Resource-Efficient Growth Pattern in Energy Sector: Improve Energy Efficiency of Economy

Strategies to improve energy efficiency towards 2030:

1. Complete phase-out of incandescent bulbs, upgrade outdated heating boilers and pumps in all sectors;

2. Introduce within 2 years special systems to track energy and financial flows in the sector (ERP systems, electronic trading, IFRS reporting);

3. Introduce online system of monitoring and billing for households (the integrated system of metering of energy consumption), change the principles of settling accounts with farmers;

4. Introduce technologies to monitor energy flows while transportation (SCADA); complete modernization of power distribution networks and transformers by 2020;

How to implement Resource-Efficient Growth Pattern in Energy Sector: Develop Solar Energy

• Solar energy should become the key driver of energy sector development and account for 6% in the power balance in 2030.

• Potential of renewables in Uzbekistan is 3.1 times as high as the current production of primary energy resources.

• Development of solar energy will generate direct and multiplier effects by boosting demand in the associated sectors, expanding consumption and thus, generating demand for labor and accelerating transformation processes.

2020 2025 2030

Generation of solar energy

(3000 MW), GWt 1827.7

3655.

4

5483.

1

Total amount of electricity

generated 67500 78600 90100

Share of solar energy in energy

balance 2.7% 4.7% 6.1%

Share of solar energy could grow to 6% by 2030

Multiplier effects to be generated from solar energy

Effects of solar energy development

2013-2030

Direct and first level multiplier effects

3.5 bln USD

Second-level multiplier effects 0.87 bln USD

Gas savings 2.9 bln USD

Net benefit (annual) 204.5 mln USD

Energy source Technical

potential

Employed

potential

Hydro 2.32 0.72

Solar 176.8 appr. 0

Wind 0.4 appr. 0

Biomass 0.5 appr. 0

Total 182.3 0.72

Potential of Renewables in Uzbekistan, mln t.o.e.

How to implement Resource-Efficient Growth Pattern in Energy Sector: Institutional Reforms

1. Implementation of the suggested solutions is not possible without the institutional reforms

2. To identify the strategies for institutional reforms in Uzbekistan, we looked at the experience of countries, that encountered with the problem of scarcity of energy resources - net importers of energy resources

What does experience of net importers suggest?

Regulatory function not performed by NOC

NOC budget is not approved by Government

Chairman is not a minister of energy and not

appointed by government officials

Competition

Privatization in the system of energy distribution

Emphasis on energy efficiency, prices for energy are higher than in net exporters

What we recommend for Uzbekistan?

Split up business functions from regulatory functions in the energy sector. This requires to set up one regulatory body (Ministry of Energy) and leave companies to explicitly focus on business operations

Gradually reduce the difference between prices for domestic consumers and export prices of gas by raising domestic tariffs (with mechanisms to ensure affordability for low-income group)

After 2020 gradual privatization in the system of energy distribution and transmission could be started to attract private investments into the sector.

Effective Solutions for Institutional Reforms: Net Exporters VS Net Importers of Energy Resources

Korea

China

Malaysia

Vietnam

KOGAS CNPC SINOPEC CNOOC Petronas

PetroVietna

m

Ownership

(public vs private)

60,9 vs

39,1

86.29 vs

13.71 76 vs 24

66% vs

34% 100% public 100% public

Competition

Yes, a number of

foreign companies on

the market

Yes, main competitors

–Chinese companies,

foreign companies.

Competition

is limited

No

competition

Is chairman also minister of energy

or appointed by head of state? No No No No Yes Yes

Institutional structure score: 100 -

regulatory function not performed

by NOC; 0 – All the regulatory

functions are performed by NOC

66 66 66 66 45 40

Independence of NOC capital and

budget process: 100 - No

governmental approval of NOC

budget required; 25 - NOC budget

is approved by central government

75 75 75 75 50 50

Performance: E&P production

growth, % (2008) 6,62 1,99 15,5 3,67

Reserves replacement rate, % 121,25 80,39 68 90

Road Map Towards 2030

Questions for discussion

• Are we on the right path?

• Are there any dimensions, critical issues which were omitted, should get considered in more detail?

• What approaches, methods and indicators need to be revised?

• What’s next? How can we jump to formulating the detailed Action Plan and Road Map for the Vision? Suggested formats and models.

• Are there windows for synergies?

Thank you!

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