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DEVELOPMENT OF ENTREPRENEURIAL MANAGEMENT IN ENERGY SECTOR OF UZBEKISTAN
Jalilov Panji Toirovich Uzbekistan, Tashkent State University Of Economics
Abstract. Uzbekistan is endowed with considerable primary energy resources, particularly fossil fuels. The country has experienced rapid economic development over the past decade and is aiming at even higher growth targets in the future. Careful management of energy resources, provision of reliable supply and efficient end-use are critical for supporting Uzbekistan's economic growth and improving the welfare of its citizens. The energy sector should be conducive to economic growth and development and not become a constraint due to increasing operational inefficiencies, unreliable supply and high energy costs. The country is likely to face significant energy related challenges in the short- and long term. Therefore, it will be important that the Government, energy sector entities and donors recognize these challenges early on and work together to find appropriate solutions.
Introduction.
Uzbekistan has considerable primary energy resources, particularly fossil fuel. The proven reserves are estimated at about 1.8 trillion cubic meters (tcm) of gas, 0.6 billion barrels of oil, and 1.9 billion tons of coal. Most of the gas and oil reserves are located in the South-Western parts of the country. At current production rates, the proven reserves are estimated to last 31, 22 and 95 years respectively. The total undiscovered resources are estimated to be substantially larger.
Natural gas is the primary fuel in the energy supply mix. It accounts for 82 percent of total primary energy supply followed by oil, hydro, and coal. In 2001-2010, production of gas increased by 13 percent reaching 59 billion cubic meters (bcm), driven by substantial investments in exploration and development of gas fields. Gas exports reached 14 bcm in 2010 - a six-fold increase from 2001. Due to depletion of existing fields, production of oil reduced, reaching 87,000 barrels/day in 2010 - 50 percent decrease from 2001. As a result, Uzbekistan became a net crude oil importer since 2009. The Government recognizes the significance of the energy sector Energy sector accounts for 7 percent of GDP and nearly 50 percent of capital investments.2 Natural gas was the largest source of export revenue in 2010, accounting for 25 percent (US$3.2 billion) of total commodity exports. Given the importance of the energy sector to the economy, it is a key component of the; Government's investment program for 2011- 2015. The energy sector accounts for almost US$34 billion, or 72 percent, of the Government's investment program. Sustainable development of the sector will help the Government realize the development agenda under the
Economic Development Vision 2030, which aims to transform Uzbekistan into industrialized middle-income country by 2030. (Turkish weekly, 2014).
Sustainable development of the power sector will be critical to support Uzbekistan's development vision because:
•Ensuring adequate and reliable electricity supply is a prerequisite for sustainable economic growth and development. Growth of industry and its competitiveness depends critically on reliable electricity supply.
•The power sector has significant untapped potential for energy 1 Undeveloped gas, oil and coal resources are estimated at 4 tcm, 5.7 billion barrels, and 5.7 billion tons respectively. 2 As of 2011.v efficiency improvements in both the supply- and demand-side.
The Government initiated a number of important steps to support development of the energy sector: (a) secured foreign investments for exploration and development of new gas and oil fields; (b) initiated construction of gas-to-liquids (GTL) plants and developed fuelling stations and other infrastructure to support conversion of vehicles from gasoline to natural gas in order to reduce reliance on oil imports; (c) diversified gas exports by participating in the Central Asian Gas Pipeline Project; (d) secured financing for 42 percent (US$3.5 billion) of the critical power sector investments required by 2020; (e) initiated programs aimed at modernization of the energy sector and reduction of energy intensity of the economy; (f) increased end-user electricity tariffs by an average of 12 percent per year during 2004-2012, enabling UE to cover operating costs; (g) completed the functional unbundling of generation, transmission, distribution, and dispatch; (h) and retained experts with good technical skills and experience required for adequate operation and maintenance of assets.
Economic Importance of the Energy Sector in Uzbekistan.
The energy sector is critical for Uzbekistan's economic growth and development given the long-term economic development vision of the Government. Specifically, the Government is pursuing an industrial growth and export-led development strategy (to be formulated into Uzbekistan's Economic Development Vision 2030). The objective is to transform Uzbekistan into an industrialized middle-income country with per capita income of US$6,500 by 2030 and US$8,500 by 2040.To that end, in 2009, the Government embarked upon US$43 billion, six-year (2009-14) Industrial Modernization and Infrastructure Development Program (Energy Charter, 2014). The energy sector is estimated to account for US$33.7 billion or about 72 percent of the total planned investments. The program comprises over 500 large investment projects and aims to increase the industry's share of GDP from 24 percent in 2010 to 28 percent in 2015.
The energy sector is a major contributor to GDP and the largest export revenue generator. In 2010, the energy sector accounted for 6.7 percent of GDP and 27.7 percent of industrial output (US$3.0 billion). In 2010, energy exports (predominantly natural gas) accounted for 25 percent of total commodity exports (around US$3.2 billion).
The sector also accounts for a large share of total capital investments in the country. In 2009, capital investments (including Foreign Direct Investments) in the energy sector were estimated at US$1.7 billion10 or 49.5 percent of total capital investments, 8 Per capita GDP in 2011 was estimated at US$1,560 in current US$. 9 Uzbekistan Almanach 2011, Centre for Economic Research, Tashkent, 2012. Main Indicators of Development of Fuel and Energy Complex of Uzbekistan for 2001-2010, Informational and Analytical Review, Institute for Forecasting and Macroeconomic Research, Tashkent 2012. Calculated at official average annual 2009 nominal exchange rate: US$1= UZS1498.3 compared to 33.8 percent in 2005. Currently, the vertically integrated companies in the sector - Uzbekneftegaz and Uzbekenergo - are implementing over 70 major investment projects with a total value of more than US$23 billion. In 2010, foreign direct investments in oil and gas were estimated at US$495 million.
Uzbekistan has significant fossil fuel reserves with natural gas accounting for 70 percent in terms of energy content. Fossil fuels are currently the primary sources for electricity, heating and other uses in Uzbekistan.
Natural gas prevails in the energy supply mix. Specifically, it accounts for 82 percent of total primary energy supply while oil and coal contribute 10 percent and 3 percent, respectively. Renewable energy resource potential is estimated to be significant, but, with the exception of hydropower, is not yet exploited on a large scale.
The gas and oil sectors in Uzbekistan are run by the vertically integrated state-owned monopoly, the National Holding Company "Uzbekneftegaz" (UNG). UNG, through its subsidiaries, controls all major down- and upstream activities, including gas and oil exploration and production, processing, transmission, distribution and storage (see Appendix B for details). Exploration and production of gas and oil in Uzbekistan are mainly regulated by the Mining Law, the Concessions Law, the Law on Natural Monopolies and the Law on Production Sharing Agreements. Foreign investments in the sectors are primarily regulated by the Law on Foreign Investments, the Law on Guarantees and Measure on Protection
of Foreign Investor and the Law on Investment Activity, and the Law on Production Sharing. Presidential decrees complement the regulatory framework in the oil and gas sector.
Most exploration and production investments by foreign investors take the form of Joint Ventures (JV) or Production Sharing Agreements (PSA). In order to attract more foreign investments, the Government has introduced some incentives, such as tax concessions, to companies involved in exploration or production of hydrocarbons. For instance, companies engaged in JV for exploration and production of hydrocarbon are granted a 7-year exemption from the corporate income tax as well as exemptions from profit taxes adjusted for the stake in JV.
The key objective of the Government is to ensure reliable supply of gas and oil in order to meet domestic demand as well as to expand and diversify exports. In order to achieve the above objective, the Government identified the following key priorities for the oil and gas sectors:
• Expanding proven gas and oil reserves by increasing public financing as well as promoting foreign investments in exploration and development of new oil and gas fields.
• Increasing energy efficiency through modernization of gas and oil production, processing and transport infrastructure, reduction of gas flaring, as well as increasing recovery rates from existing oil and gas fields with priority attention paid to depleting and hard-to-reach fields.
• Ensuring financial soundness of the sector and improving the legal and regulatory framework to promote foreign investments in the sector.
• Increasing and diversifying gas exports by improving energy efficiency of gas- fired generation and gradually substituting gas with coal for domestic consumption. In particular, the Government plans to increase the share of coal in the energy balance from 3 percent in 2011 to 11 percent by 2016. The Government is also planning to intensify participation in regional energy projects to further diversify gas exports.
• Reducing environmental impacts through reduction of oil and gas losses/leaks, reduction of gas flaring and further improvement of supply and demand-side energy efficiency.
As of 2010, the proven gas reserves were estimated at 1,841 bcm (0.8 percent of global gas reserves). Undiscovered gas resources are estimated at 4 tcm with exploratory work underway at some potential locations.
Uzbekistan is the second largest natural gas producer in the ECA region, after Russia. In 20012010, production of natural gas increased by 16 percent, or 8 bcm, reaching 59.1 bcm in 2010. This increase is mainly a result of significant domestic and foreign investments targeted at enhancing gas recovery from existing fields and exploring and developing new fields.
Total domestic supply in 2010 amounted to 45.5 bcm, including losses estimated at 2.7 bcm (6 percent of total production), reflecting the poor condition of some of the assets. Residential consumers and industry are the largest gas consumers in the country accounting respectively for 50 and 27 percent of total consumption respectively (Global Legal Group, 2013).
The residential sector is using gas primarily for cooking, water and space heating purposes. 85 percent of urban and 79 percent of rural households are connected to the gas supply network. More than 720,000 households in rural areas use liquefied petroleum gas (LPG) in LPG bottles to meet their domestic energy needs, particularly for cooking.
Electricity generation accounts for the largest share of industrial consumption. Since the mid-1960s, the country's reliance on natural gas for generation of electricity has been increasing. In 2010, gas-based electricity generation accounted for 88 percent of total generation. Other major industrial consumers include chemical plants, construction material producers and smelters.
Uzbekistan is a net exporter of natural gas. In 2010, gas exports were estimated at 14 bcm, which corresponds to a six-fold increase over 2001. Historically, Russia accounted for the largest share of gas exports. In 2002-2010, gas exports to Russia constituted at least 70 percent of total gas exports. During the same period, sales to Kyrgyz Republic and Tajikistan significantly reduced due to decrease in demand resulting from price increase and disputes about terms and conditions of the gas supply contracts. However, the country has made some progress with diversifying gas exports. Specifically, with commissioning of the first two sections of the Central Asian Gas Pipeline in 2009 and 2011, Uzbekistan plans to export up to 5 bcm/year of gas to China starting from 2013, which could gradually reduce the share of gas exports to Russia to 44 percent and increase the exports to the South to 27%.
Domestic supply is projected to increase by 33 percent, reaching 60 bcm by 2021, while the Government plans to increase exports by 220 percent to reach 45 bcm by 2021.
Principal Challenges in the Energy Sector of Uzbekistan
The energy sector faces a number of challenges that need to be addressed to ensure sustainable development of the sector.
The principal challenges are: supply reliability, especially during winter season; demand- and supply-side energy inefficiencies; financing large required investments with minimum impact on state budget; limited diversification of electricity generation mix with near-complete dependence on gas; and vulnerability to climate change. Supply Reliability. Aging infrastructure and insufficient investments have increasingly resulted in power supply reliability problems in recent years. Sporadic failures of old transmission and distribution infrastructure and transmission capacity bottlenecks contribute to electricity supply disruptions. These problems are especially acute in the southern and western regions. Blackouts are common for 2-6 hours a day in these regions during winter months when load is highest. Rolling blackouts in other regions also occur occasionally during periods of peak demand.36 Reliability problems appear to have increased throughout the country in 2012. According to some reports, there were rolling blackouts in nearly every part of Uzbekistan during the winter in 2012. In cities, the blackouts occurred for several hours per day and in some remote villages there was no electricity for weeks.
Such problems create economic losses for households and businesses. Specifically, unserved energy in 2010 was estimated at 860 GWh (1.7 percent of total consumption). The country is estimated to have incurred economic loss of US$52 million38 during the winter in 2010 because of unreliable supply. The blackouts impose economic and social costs on the society. Some of the consumers replace grid electricity with expensive back-up generation. As an alternative, several consumers use diesel-fired backup generation, which produce electricity at a cost of roughly US$0.23/kWh. This is almost four times the average retail electricity tariff in Uzbekistan.
Power shortages were ranked as the third most significant obstacle for doing business according to the Doing Business Report (2009). An EBRD-World Bank Survey (2010) found that dissatisfaction with quality of electricity service was higher in Uzbekistan than in other CIS countries. More than one-third responded that they were highly dissatisfied with electricity supply services in the country.
Demand- and Supply-side Energy Inefficiencies. Uzbekistan is the second most energy-intensive economy in the world as measured by energy intensity per unit of GDP .Uzbekistan uses two times more energy than Kazakhstan and nearly three times as much as the EC A average to produce a unit of GDP.
Uzbekistan has high level of energy intensity at all links of the energy sector value chain. The main sources of energy inefficiencies are gas flaring, low efficiency of TPPs, transmission and distribution losses arid low energy efficiency on demand side. Low energy efficiency is both a short- and long-term challenge. It is an immediate and pervasive problem, which is inherent to all end-users of electricity, and will persist if the following key obstacles are not eliminated: (a) lack of incentives to improve efficiency; (b) large investment needs and barriers to access financing for energy efficiency investments; (c) limited number of private companies involved in provision of energy efficiency services and manufacturing of energy efficient goods; (d) lack of capacity in commercial and industrial sector to assess the potential and viability of energy efficiency investments; (e) limited knowledge and awareness among end-users about the benefits of energy efficiency investments; and (f) underdeveloped legal, regulatory, policy and institutional framework for energy efficiency.
The following subsections describe the potential for improvements in energy efficiency at supply and demand side, focusing primarily on the power sector. Financing Large Required Investments with Minimum Impact on State Budget. Uzbekistan needs at least US$33.7 billion of new investment in the energy sector by 2015 to meet increasing demand and to replace/rehabilitate ageing and inefficient assets. The Government estimates that US$28.5 billion will be required to finance capital expenditure in the oil and gas sector lay 2015. The Government managed to attract sizeable foreign investments, which, coupled with TING own resources, helped to finance most of the priority gas and oil projects. The Government plans to further rely on UNG own resources and increasingly attract foreign investments to finance exploration and production to meet increasing domestic and export demand.
In the power sector, the Government has yet to utilize the potential for attracting funds for the required investments. Total financing required for the power sector by 2020 is estimated at US$8.4 billion. The investments are required for replacement of ageing and inefficient electricity generation plants as well as rehabilitation and replacement of electricity transmission and distribution assets to improve supply reliability and meet increasing demand. UE has secured 42 percent of the required investments (US$3.5 billion). From US$3.5 billion of projects with secured financing, US$2 billion worth of projects are under implementation. However, the sector is estimated to require additional US$4.9 billion by 2020. Appendix F: summarizes the investments planned in Uzbekistan's energy sector, and the status of financing. Without those investments, reliability of supply will be further jeopardized, and as described above, there are signs of strain already.
Power sector investments have historically been publicly funded. Predominantly public financing of power sector investments will not be feasible going forward and is not a sustainable economic strategy. The Government will need to explore other options, including ways to increase the sector's capacity to generate more cash internally and attract private investors.
The Government will need to further increase tariffs to gradually converge to long- run supply costs47 in order to increase self-financing of UE and attract private investments. The Government increased tariffs by an average annual nominal rate of 12 percent in 2004-2011, which enabled UE to cover its operating costs. Currently, the power sector pays US$62/tcm, which is lower than the export price, but estimated to be above the short-run supply cost for natural gas, thus, there are no financial subsidies in the sector.
However, current average tariff of US$0.054/kWh is not high enough to enable UE to finance US$5 billion of required investments until 2020 with unsecured financing. In 2006-2011, US self-financed around US$400 million of projects and increased long term debt to US$1.2 billion (primarily power sector projects financed by IFIs and other donors), which will limit borrowing capacity without increase in revenues. Limited Diversification of Electricity Generation Mix with Nearcomplete Dependence on Gas. Uzbekistan is highly dependent on natural gas for electricity generation. The high dependence on natural gas poses three problems:
• Foregone revenue from gas exports. Each cubic meter of gas used to generate electricity is a cubic meter that cannot be exported. Therefore, using natural gas to generate electricity has an opportunity cost for Uzbekistan equal to the export price.
• Suboptimal load management. Excessive reliance on gas-fired electricity generation complicates load management. Specifically, most of the existing gasfired plants are designed as baseload generation and their efficiency reduces when operated for meeting the peak load.
• Higher vulnerability to climate change. In the long-term, the changing climate patterns in Uzbekistan might diminish availability of water for TPPs and impact their efficiency.
In order to address those challenges, Uzbekistan should explore other supply options, including coal, renewables, and trade with other countries.
Currently, the share of coal in electricity generation mix is 3 percent, but the Government intends to increase the share of coal-based electricity generation. Therefore, it is currently converting a number of generation units from gas- to coalfired and plans to convert additional units in the next few years.
Uzbekistan has significant renewable energy resource potential, including hydropower, solar, and wind. Some estimates of the technical potential of renewable energy resources have been made, but no comprehensive assessment of the economically and financially viable renewable energy potential has been done so far. The power systems of Uzbekistan and its neighboring countries became increasingly isolated. Turkmenistan disconnected from CAPS in 2003 and Tajikistan disconnected in 2010. Their power systems now operate in isolation and Uzbekistan has limited electricity trade within CAPS. Missed energy trade opportunities result in foregone electricity and gas export revenues as well as provision of efficient and least cost electricity supply to consumers. Limited trade may also result in less efficient system operation and reliability, which can be improved with greater diversity of electricity supply.
Most of Uzbekistan's thermal plants were designed for base-load generation in the regional system, but are currently being used for inter-hour power generation regulation or "load-following." Using these plants in such a way reduces their thermal efficiency. It can also cause outages and other reliability problems, because base-load thermal plants cannot be ramped up and down quickly to respond to rapid changes in demand. Additionally, the country could have imported lower cost electricity during 33 summer months from hydro-rich neighboring countries, which spill water due to limited export opportunities.
Vulnerability to Climate Change. Changes in hydrology, air temperature and extreme events are likely to affect energy security in the long term, with expected measurable impacts on energy supply in 2030.
Climate change impacts on the energy sector might materialize across the whole value chain and are likely to create additional costs for the sector if no mitigation and adaptation measures are put in place. In particular, climate change might affect the power sector through:
Reduction in electricity generation. Electricity generation will be affected primarily through:
•Reduced generation by TPPs. Climate change is expected to affect operation of TPPs through negative impacts of droughts and floods on the system reliability. Droughts may cause temporary unavailability of cooling water, while floods could overwhelm the cooling systems of these plants. Increased air temperatures are estimated to reduce generation of direct steam single-cycle TPPs by as much as 1 percent by 2030 and those of CCGTs by 0.5-0.9 percent. Reductions in average river flows after 2030 are expected to result in shortages of cooling water for TPPs, which will reduce their efficiency and potentially affect their reliability. Water shortages in the summer are already reported to affect the Syrdarya TPP.
•Variable generation by HPPs. HPP generation might tie affected by: (a) increased spring/summer runoff in some river basins by 2030 and (b) reduced runoff thereafter. In particular, rising temperatures will cause higher rates of snow-melt at glaciers feeding Amudarya and Syrdarya rivers and, thus, cause increased runoff. This might cause spill-over at HPPs and threaten dam security. Generation might reduce also due to increased rates of reservoir sedimentation caused by heavy rainfall and soil erosion. Forecast reduction in river runoff after 2030 will reduce availability of water for electricity generation.
Reduction in efficiency of electricity transmission and distribution. Rising temperatures will impact the efficiency of electricity transmission and distribution by reducing ability of lines and other equipment to lose heat to the environment. Additionally, increased precipitation may increase the incidence of landslides and mudflows damaging transmission and distribution infrastructure (e.g. transmission pylons, substations).
Increase in electricity demand and changes in consumption patterns. Cooling loads in the residential, commercial and industrial sectors are expected to increase as the climate warms, which will drive increases in electricity consumption. However, heating requirements in winter months are expected to decrease due to rising temperatures. Overall, reductions in heating loads are expected to have a lower effect on electricity demand growth than increases in cooling loads in the winter, increasing temperatures will cause higher demand for electricity in the agricultural sector. Rates of evaporation in irrigation systems will be higher, requiring more water to irrigate crops and the amount of energy needed for water pumping.
Recommendations on Finding Solutions to Challenges by Using Entrepreneurial Management
In our opinion, the Government can immediately start implementing a number of key actions and programs by using entrepreneurial management to address the identified challenges:
Invest in T&D and use opportunities for regional trade. Supply reliability can be improved by investing in improvements of transmission and distribution lines and through more extensive seasonal trade with neighbors.
•Prioritize T&D infrastructure. UE has been investing in the transmission system since 2000, gradually adding and rehabilitating transmission lines and substations between major power plants and load centers. Further investments can help improve supply reliability. Around US$1.3 billion in investments are needed by 2020, including development and rehabilitation/modernization of transmission lines, substations, switchyards and new distribution-level infrastructure, such as bulk meters and advanced electrical meters for individual customers. Investments in distribution infrastructure should also focus on reducing technical losses, which will help the country to save around US$7.2 billion (0.5 percent of cumulative GDP) over the next 20 years. The Government may consider implementing a detailed study to plan for transmission network expansion, identity the transmission network bottlenecks and assess the investment needs.
•Use opportunities for regional trade. Currently, Uzbekistan's trade within Central Asia Power System (CAPS) does not exceed 2 percent of net domestic demand per year. Importing excess electricity from hydro-rich neighbors during summer and daily trading during winter months can create economic savings of at least US$60-70 million per year. The trading could allow deferring construction of around 500 MW of new capacity.
Expand demandside interventions and invest in supply-side efficiency. The Government should consider initiating the following key actions to further improve demand and supply-side energy efficiency.
• Bolster industrial and agricultural energy efficiency. The Government should continue its efforts to improve energy efficiency of industry and agriculture. Metallurgy, production of construction materials, mining are estimated to have the highest potential for electricity savings in the industrial sector. Even 15 percent reduction of electricity consumption in industry can save the country US$7.7 billion over a 20-year period (1.2 percent of cumulative GDP). Improvements in energy efficiency of irrigation pumps can substantially reduce electricity consumption in agriculture since irrigation pumps account for 70 percent of electricity consumption of the sector 25 percent improvement in agricultural energy efficiency can save the country US$4.6 billion over a 10-year period (0.3 percent) (BP Statistical Review of World Energy, 2014).
• Scale up efforts targeting energy efficiency improvements in residential and public sectors. The Government should scale-up its efforts to improve demand-side energy efficiency in other sectors, including residential and public. To that end, the Government needs to conduct an assessment of economically and financially viable energy efficiency potential in those sectors.
• Invest in supply-side energy efficiency. Building sufficient generation capacity is an important challenge, but it is also an opportunity. Investments in modem and efficient generation plants, would allow Uzbekistan to export gas, which is otherwise wasted in old and comparatively inefficient plants that could be used to meet the peak load. Portion of increased gas export revenues could be used to finance much needed power sector investments and mitigate the impact of rising electricity prices on the poor as the
Government starts gradually increasing tariffs to the level of long-term supply costs. This will complement above mentioned efficiency improvements in the T&D infrastructure to reduce losses. Capturing and utilizing or exporting the gas wasted due to flaring could provide significant economic and environmental benefits. To that end, the Government should conduct assessment of technical and economic viability of various options for flared gas capture and utilization at several gas fields with large flare volumes.
Improve prioritization, try IPPs, increase UE cash flows. The Government can secure additional financing for power sector investments by initiating a number of actions: •Introduce contract-based independent power producer (IPP) projects. The government can attract private financing into the sector by implementing IPP type projects, which can be regulated through contracts. The Government may start with few IPP projects to test the market and design rules for large scale future private participation. Specifically, competitive international tenders for Build-Operate- Transfer (ВОТ) or Build-Own-Operate (BOO) arrangements can attract private investment, while not requiring major changes to institutional and structural arrangements for UE as would the privatization of assets. However, attracting competitive and high-quality bids will require better disclosure and transparency in the sector (in particular, better information about the operating and financial performance of UE and its subsidiaries) as well as improvement of the Government capacity to prepare and implement such tenders.
•Improve prioritization of investments. The government should prioritize investments through sound techno-economic and feasibility studies to select the projects with highest net economic benefits to the country within existing funding constraints.
•Explore options to increase UE revenues. Electricity tariff increases, coupled with operational improvements (e.g. loss reduction), will allow UE to finance large share of required investments through its cash flows and improve borrowing capacity of UE. At current level of losses and tariff increase equal to the rate of projected average annual inflation, 5 UE will be able to finance only around 30 percent (US$1.5 billion) of investments with unsecured financing by 2020. 6 However, if annual tariff increase exceeds the projected inflation rate by 4 percent and losses reduce from 19 to 13 percent, UE would be able to finance up to 50 percent (US$2.5 billion) of investments with unsecured financing (Business Monitor International, Uzbekistan Oil & Gas Report, 2013). The potential tariff increases should be coupled with: (a) tariff structure improvements to promote efficient use of electricity, and (b) appropriate social assistance mechanisms to mitigate the impact on vulnerable groups of consumers.
Start planning for diversification. The Government should consider carrying out a planning study to determine the optimal electricity generation mix in order to reduce reliance on gas for domestic generation and save it for higher value exports. There are opportunities for diversifying into renewables (e.g. wind end solar) and more efficient coal-fired generation. However, decisions about diversification should carefully consider a number of important technical, economic and environmental factors, including possibility of importing summer electricity surplus from neighboring countries.
Start adapting to climate change. The Government should consider a number of adaptation measures that can be introduced over time to enhance power sector resilience against climate change impacts: (a) diversification of electricity generation mix; (b) improvement of energy efficiency; (c) improvement of water resource management; (d) improvement of energy asset maintenance and disaster risk management; and (e) improvement of knowledge and strengthening of key responsible institutions.
Conclusion. In conclusion, we'd like to say that going forward, the Government will need to make decisions on type of new generation to add considering a range of economic, social and other factors, including the priority of substantially increasing gas exports and diversifying electricity generation mix. To that end the Government needs to consider investments in generation capacity, which uses fuels other than gas. Gas must be compared to other fuels in economic terms, including the negative Externalities (principally, local and global pollution) associated with natural gas and other fossilfuels.
Entrepreneurial management will be very helpful to implement these efforts. Nowadays, Uzbekistan facilitates its subjects of energy sector to be more competitive not only in local market, but also in international markets. The role of entrepreneurial management in implementation of such strategy is very high.
REFERENCES
1. Turkish weekly, Oil and gas sector as basis of Uzbekistan's energy independence, 17 June 2014.
2. Energy Charter, Uzbekistan, In-Depth Review of the Investment Climate and Market Structure in the Energy Sector, 2014.
3. Global Legal Group, the international comparative legal guide to gas regulation, 2013.
4. BP Statistical Review of World Energy, June 2014.
5. Business Monitor International, Uzbekistan Oil & Gas Report, Q3 2014.
