World Bank approves $50m project to support Kyrgyz Republic to improve electricity sector

The financing for the Electricity Sector Modernization and Sustainability Project is provided on highly concessional terms through the International Development Association (IDA).

The World Bank’s Board of Executive Directors approved today a $50 million project to support the Government of the Kyrgyz Republic in improving the financial performance and operational reliability of the electricity sector in the country.

The financing for the Electricity Sector Modernization and Sustainability Project is provided on highly concessional terms through the International Development Association (IDA). Half of the funding is allocated in the form of a grant, which requires no repayment, while the other half is a credit with a 0.75% administrative fee, the repayments of which are spread out over 38 years, with a six-year grace period. The project is also co-financed by the Swiss State Secretariat for Economic Affairs that will provide additional $8 million in grant funding.

The electricity sector in the Kyrgyz Republic faces challenges that have accumulated and worsened over the years. The country has an energy deficit driven by insufficient generation, especially in the winter when demand is 2.5-3 times higher than in summer. The total losses in the sector are about 20 percent of net generation, more than twice as high as commercial and technical losses in high- and some middle-income countries. About half of generation capacity and up to 70 percent of distribution assets are beyond their useful lives, leading to frequent supply disruptions due to equipment failures and overloading across the country.  Moreover, the Kyrgyz Republic has one of the lowest electricity tariff rates in the world. The sector is heavily indebted, with cumulative debt of above KGS 130 billion (equivalent to about $1.5 billion) or around 20 percent of the GDP, placing a heavy fiscal burden on the country.

“The Kyrgyz Republic announced an ambitious energy sector reform program during the Bishkek International Energy Forum in April 2022, and the World Bank is ready to support the Cabinet of Ministers in transforming the energy sector into a driver for economic growth, job creation, and improvement of the welfare of all citizens,” says Naveed Hassan Naqvi, World Bank Country Manager for the Kyrgyz Republic.  “The new Electricity Sector Modernization and Sustainability Project aims to help put the electricity sector on a sustainable path. The project will help improve the financial performance, ensure a reliable electricity supply for the people and businesses, and create a supportive social protection mechanism to the vulnerable groups.”

The project will finance soft and hard investments that are urgently needed to improve performance of the energy sector in four main areas:

Rehabilitation and Upgrade of Distribution Networks will help reduce technical losses in the distribution network and increase reliability of electricity services in selected areas of the distribution network, including rehabilitation and upgrade of distribution substations (including transformers) and lines, as well as construction and expansion of new substations and distribution lines.

Digitalization of Distribution Network though wide-scale introduction of smart meters, telecommunication equipment and modern information systems will enhance control over consumption, costs, and bills; reduce commercial losses; accelerate outage restoration; and increase the efficiency of utility operation.

Strengthening Social Protection Systems component will help reinforce the country’s social protection system through improved targeting, coverage, and benefit level of the social assistance system for the vulnerable people.

Institutional Development component will help the government design and implement priority energy sector reforms, strengthen energy sector governance and institutional performance, and develop the institutional capacity of energy stakeholders. The project will also have an important climate co-benefit in terms of reduced GHG emissions by above 300 thousand tCO2eq.

The Electricity Sector Modernization and Sustainability Project will be implemented through 2028. The Project will comply with relevant World Bank procedures and standards including procurement and financial management regulations and anti-corruption guidelines.

The World Bank’s overall mission in the Kyrgyz Republic is to reduce poverty and promote economic growth and shared prosperity.  The Bank’s financial assistance to the Kyrgyz Republic since 1992 amounts to $ 2.2 billion in the form of grants and highly concessional credits.