Economist speaks about causes of “energy crisis”

Blogger and lawyer Khushnudbek Khudoyberdiyev interviewed economist Otabek Bakirov about the energy crisis. Kun.uz cites the views of the economist regarding the root of the problem.

“Production has not increased over the years”

- The energy crisis did not happen overnight, it was caused by several years and mistakes. Since 2003-2004, in the energy sector in Uzbekistan, both gas production and electricity production have completely stopped. If we calculate, almost no growth has been observed since 19 years, around 62-64 billion cubic meters of gas were extracted, and electricity generation was produced around 56-58 billion cubic meters per hour. This standard was maintained until 2018-2019.

Population and industry grew, but production did not. Per capita electricity generation is highly correlated, if not proportional, to living conditions and economic growth.

In the case of Uzbekistan, this did not work until 2017. After 2017, the new policy realized that this is the main thing. Very big goals were set for Uzbekistan – moving towards an open market, integration into the world economy. None of this can be achieved without energy reform.

Today’s problems arise because we are lagging behind in solving some issues in the energy sector.

“Investments have not been attracted to the sector”

- Investments in the energy sector were insufficient. For many years, according to statistics, there was economic growth, but electricity and gas production did not grow, and money was not allocated to it. No money was spent on mining, generation, or geological exploration.

This problem has been solved since 2017. If we take the total amount of foreign debt and investments, we have attracted the largest investments and debts in oil, gas and electricity generation. The resolution of this issue has begun. Energy industry leaders also say the losses are not related to infrastructure.

In the past, it was said that our technology was outdated and that we could not deliver everything. Now these reasons, there is no issue with the transformers.

“No account problem has been solved”

- The second issue was the issue of lack of account. That is, since we did not enter the market after the 90s, we did not have an account. There was no account of the end consumer either. Starting from 2020, the system has been put into operation in both electricity and gas sphere.

“The deficit problem was not solved, the market was not stimulated”

- The third issue remains: to solve any deficit issue, it should be encouraged. If there is a shortage of bread, it is necessary to increase the production of bread, if there is a shortage of wheat, it is necessary to encourage the cultivation of wheat. If there is no incentive, no matter how much you plan, how much staff you organize, it will not increase.

In 2019, we did not give the manufacturer, seller and buyer incentives related to prices. There is no single energy market all over the world, there are regional markets. For example, there is one in Eastern Europe, one in the West, and in America itself, there are regional markets in the north and south.

At least we had to bring our prices to the prices of energy available in the markets of the post-Soviet area in our region. At the expense of this, first of all, we would invest in the industry. So far we have been borrowing for the energy sector, but not investing. Investors showed their interest and began betting – both on mining and electricity generation.

Second, another important thing – if the price of any scarce commodity is multiple times the market price, you will not encourage yourself to save it – whether you are a citizen or a business representative.

For example, media reports revealed that the plant used gas for the production of lime. That is, they also did not see an incentive to use alternative energy because the price of gas is cheap. Because gas was the cheapest and free.

Another example, when the first draft of the introduction of differentiated energy categories was announced this summer, dozens of people around me said: “My gas boiler in my house consumes too much gas, I need to renew it”. I have done this. However, in July, nine people withdrew after the project’s composition changed and the launch was delayed. Because it is more beneficial to use the gas remaining at the price of 380 soums than to spend money on replacing the boiler.

Why are we producing less gas?

- There are 9 major gas producers, the largest being Uzbekneftgaz, followed by Lukoil. There are also smaller companies. But their share is quite large. They need money to sell the gas they produce and cover the costs, new technologies for gas extraction and new geological exploration in the coming years.

That is, the gas we are digging out is extracted from wells that have already been invested and reached. We need to increase mining, but there is no incentive for that, roughly speaking, no money. There is no money either in the state or in private business.

If you get the same profit from producing one ton of wheat as from two tons of wheat, you have no incentive to produce wheat.

The second is that if we import gas, if we buy gas at $250 and sell it at an average of $60, the rest must be covered from somewhere. Until now, the budget has been covering it, because the economic growth was high, and secondly, we had external sources, sources of external debt accumulation. The skyrocketing debt prices made our options impossible. This is where the problem comes from.

The question is whether it will be beneficial if we bring the tariffs closer to the market. This is a tough question. The market will not suddenly balance, the production will not rapidly increase, we will not be able to swiftly extract 5 billion cubic meters of gas from abroad under a contract, and we will not be able to abruptly do this work. We will balance in 1.5-2 years with short steps.