Development of an Energy Conservation Programme summer substantial hydro power generation is wasted by spilling water from the Nurek dam, due to a lower demand for electricity in summer

THE ASIAN DEVELOPMENT BANK

REPUBLIC OF TAJIIUSTAN

MINISTRY OF ENERGY

FINAL REPORT

DEVELOPMENT OF A N ENERGY CONSERVATION PROGRAMME

PROJECT NUMBER: CONTRACTS NUMBERS:

SSTA NO. 3981- TAJ COCS/03-370 and COCS/03-555

TABLE OF CONTENTS

EXECUTIVE SUMMARY

PART I. STUDY FRAMEWORK

PART II. CONCLUSIONS AND RECOMMENDATIONS

2.1 Energy Conservation

2.2 Sources of Energy Losses

2.3 conclusion and Suggestions for energy conservation

PART III. ACTION PLAN

3.1 Project No.1 - Establishing inside the MOE a statistic department and an energy sector data base.

3.2 Project No.2 - Review the ESPS of 1998. Assistance to the moe for the formulation of a clear and comprehensive energy sector policy and strategy.

3.3 Project No.3 - Assistance to Establish a Coherent and Comprehensive Energy Sector Legal Framework

3.4 Project No. 4 - Assistance to the Government WOE) to implement the Policy and strategy formulated and accepted by the government of tajikistan

3.5 Project No. 5 - Installation of Meters to All electricity Consumers

3.6 Project No. 6 - set up a Nation Wide System of Billing and Collection for the power subsector

3.7 Project No. 7 - Establishing an Energy Regulatory Authority (Era) and an Antimonopoly & Competition Agency

3.8 Project No. 8 - Organisation of a Central Asia Energy Sector Round Table

3.9 Project No. 9 - demand Management and River Basin Reservoir Management for Energy Conservation

3.10 Project No. 10 - Reducing the Electricity Technical Losses to a Reasonable Level

3.11 Project No. 11 - Setting Up a National Council for Standards

PART N. THE LEGAL ASPECTS

4.1 Introduction

4.2 The legal and policy framework for energy efficiency in Tajikistan 4.2.1 International legal commitments relating to energy efficiency

Energy Charter Treaty The Tajik Energy Sector Policy Statement of 1998 Analysis of compliance with PEEREA UNFCCC EU-Tajikistan relations Other international commitments' related to energy efficiency

4.2.2 National legal and regulatory framework relating to energy efficiency Competition legislation and secondary measures (relating to the setting of tariffs for energy) Energy legislation and secondary measures (relating to energy consumption and conservation) Technical norms and standards Measures relating to the state energy supervision body "Tajikenergonadzor" Measures relating to the inter-agency consultative committee of the energy sector Measures relating to the status of other energy companies and related governmental entities Legislation relating to certain investments in the energy sector Legislation relating to sustainable development Draft legislation that may affect the energy sector The licensing regime applicable to energy enterprises

4.3 Analysis of energy efficiency programmes by sector 4.3.1 BUILDINGS

Existing measures and policies on energy efficiency in buildings in Tajikistan A possible programme on energy certification of buildings What is energy pedormance certification? How could such a programme be implemented in Tajikistan?

4.3.2 METERING and billing on basis of actual consumption Existing measures and programmes in Tajikistan

4.3.3 INDUSTRY Existing policies and programmes on energy efficiency in industry in Tajikistan Existing legal provisions A possible programme on energy efficiency in industry

4.3.4 EQUIPMENT and appliances Existing measures and programmes on energy-efficient equipment in Tajikistan Possible legal measures to promote energy-efficient equipment and appliances

4.4 APPENDIX Policy-making procedures in the Czech Republic Policy-making procedures in Poland Analysis of policy-making procedures for energy efficiency in Tajikistan English unofficial translation of the Law of the energy sector of the Republic of

Tajikistan English unofficial translation of the Law on energy saving of the Republic of

Tajikistan English unofficial translation of the draft Decree of august 2003 on state energy

sector supervision of the Ministry of Energy of the Republic of Tajikistan

English unofficial translation of the Decree no. 465 of 17 october 1996 on state energy supervision of the Republic of Tajikistan

0 PART V. THE TECHNICAL, ECONOMIC AND FINANCIAL ASPECTS

5.1 The Actual Generation, Transmission and Distribution Losses Table No. 1 Technical Losses in the Two Power Grids of Barki Tajik (Year 2002) Table No. 2 Barki Tajik Transmission and Distribution Losses in 2002 (Technical and Non-Technical Losses) Table No. 3 Certification of the Technical Losses per Region Table No. 4 Tajikistan Electricity Generation and ImpodExport Table No. 5 TADAZ Debt to Barki Tajik for Years 20001200112002 Table No. 6 Dushanbe Distribution Large Debtors 200012002 Table No. 7 Pamir Generation for Year 2002 Table No. 8 Cost of the Lifeline Programme (December 2002) Table No. 9 Cost of the Lifeline Programme (June 2003)

5.2 The Load Cuwes by Sector (Residential, Industrial, Commercial and Agriculture)

5.2.1 Demand Management 5.2.2 For the Northern Grid

Load Curves for the Northern Grid Table No. 10 Load Curve for Year 2002 Northern Non-Industrial Consumers Peak MWh Table No. 13 Load Curve for Year 2002 Northern Region Peak MWh Table No. 14 Load Curve for Year 2002 Northern Agriculture Peak MWh Data on the Hourly Demand for the Northern Grid Table No. 15 Load Curve for Year 2002 (Northern Grid - Industrial) Peak MW Table No. 16 Load Curve for Year 2002 (Northern Grid - Residential) Peak MW Table No. 17 Load Curve for Year 2002 (Northern Grid - Commercial) Peak MW Table No. 18 Load Curve for Year 2002 (Northern Grid - Non-Industrial Consumers) Peak MW Table No. 19 Load Curve for Year 2002 (Northern Grid - Agricultural) Peak MW

5.2.3 For the Southern Grid Load Curves for the Southern Grid Table No. 25 Load Curve for Year 2002 Southern Grid Agriculture Peak MWh Data on the Hourly Demand for the Southern Grid Table No. 26 Load Curve for Year 2002 (Southern Grid - Commercial) Peak MW Table No. 27 Load Curve for Year 2002 (Southern Grid - Industrial) Peak MW Table No. 28 Load Curve for Year 2002 (Southern Grid - Residential) Peak MW Table No. 29 Load Curve for Year 2002 (Southern Grid - Agriculture) Peak MW Table No. 30 Load Curve for Year 2002 (Southern Grid) Peak MW

5.2.4 Appendix to the Load Management

5.3 The Specific Consumption per Class of Consumers 5.3.1 Regional Distribution of Energy Consumption

Table No. 3 1 Tajikistan Power Grid - Specific Consumption of Consumers per Oblast and Cities (2002)

5.4 The Current Tariffs Structure and Level 5.4.1 Suggestions of Measures to Promote Electricity Efficiency

Measures/Consewation Table No. 32 Evolution of the Tariffs for the Electricity from 1997 until 2003 in US $ (Cents) Table No. 33 BT Electricity Sales and Average Revenue for 2002 and Effective Average Tariff per KWh Table No. 34 Consumption, Taxes and Payments Received for the Electricity Sold by Barki Tajik from 1997 to 1999 Table No. 35 Consumption, Taxes and Payments Received for the Electricity Sold by Barki Tajik from 2000 to 2002

5.4.2 Analysis of the Current Tariff System Table NO. 36 Pamir Electricity ~ a r i f f structure and Level 132

5.4.3 Suggestions 5.4.4 Appendix to the Pamir Tariff System 5.4.5 Appendix to the Tariff Structure and Level

5.5 MISCELLANEOUS APPENDIXES RELEVANT TO ENERGY CONSERVATION

EXECUTIVE SUMMARY

In the Energy sector, conservation of the energy resources is part of the objective of achieving sector optimal economic efficiency. Tajikistan has potential significant hydropower resources, yet is lacking in other energy resources such as; petrol, gas and wood. Some coal resources exist but they are difficult to access, as a result Tajikistan is having an energy balance deficit. Consequently energy efficiency and conservation is an economic necessity.

Hydro electricity is the main energy resource currently available to Tajikistan, its full potential utilisation is constrained by the fact that the national peak electricity demand occurs in winter when the power generation is at its nadir and obliges Tajikistan to either import electricity or practice load shedding. In summer substantial hydro power generation is wasted by spilling water from the Nurek dam, due to a lower demand for electricity in summer and impediment to exportation the available surplus to the other republics.

Prior to the independence of Tajikistan in the early 90's the Central Asia energy resources development was made at the regional level to capture the economy of scale and even out the Central @ Asia republics' energy products surplus and deficits, to achieve regional economic efficiency in

/ energy resources utilisation. The lack of energy sector cooperation at the regional level is probably the main obstacle to the efficient development of Tajikistan's substantial hydropower energy resources and the result is that other republics are using non-renewable energy products, when during the summer in Tajikistan, the surplus water, which cannot be stored in reservoirs, is wasted by spilling it. The potential of energy conservation at the regional level through cooperation deserves to be explored.

The development of the energy resources is in general very capital intensive and the Tajik economy is not generating enough capital for investment in the energy sector. The Government of Tajikistan promulgated by decree (No 417 of 27 October 1998) an Energy Sector Policy Statement (ESPS) indicating that its' policy is to encourage the private sector to invest financial resources for the development of the energy sector and we quote: "This policy statement is designed to provide a framework for an effective transition to a competitive energy sector .... that is responsive to and meets the needs of a market-based economy. The key in the promotion of competition is an increased role for the private sector in responding to informed consumer choices." The private sector responded and the electricity subsector of the Pamir region has been given to a private operator (Pamir Energy Corporation, i.e. PEC) on a long term concession. This operator immediately implemented a tariff and billing reform, which is the first step in establishing a sound energy saving/conservation strategy and obtaining the resources for future grid expansion. In parallel, in the Dushanbe region, a project of billing and collection has been implemented to improve the revenues of Bark Tajik by improving billing and reducing the non-payments, this project will likely improve electricity conservation.

Energy conservation to be effective, must review the potential energy saving at four different levels of the energy sector. It is important to approach the analysis in a logical order, which is beginning at the policy level to insure that a large national, if not regional, consensus exists, then in succession the three other levels, which need to be addressed by decreasing order of priority.

First, at the policy level. A national or regional energy policy followed by a sound strategy to implement the policy must focus on the security of supply of energy products in sufficient quantity to sustain the optimal economic development of the nation, promote economic efficiency in the energy sector, which includes energy conservation at all levels (exploration, generation, transmission, distribution and consumption). Policy and strategy formulation requires access to accurate information and data from the regional and national energy inventories and energy balances. To a large extent, the inventories and the balances will influence the policy and the strategy to be adopted. Another important aspect for policy formulation is the role of the government and the private sector in a the development of the sector and its operations. We understand from the current ESPS that the

government favours "a transition to a competitive energy sector" and a "market economy" with "an increased role for the private sector". This policy is clearly expressed; however, the implications it involves, such as having anti-monopoly and regulatory authorities with a gradual disengagement of the government, need to be consistent with the policy. Needed is a review of the ESPS to insure that the policy and the strategy for the energy sector are well supported by the necessary mechanisms and instruments to facilitate the implementation of the strategy, which must support the policy without any contradiction or even ambiguity.

Second, at the legal framework level. After the government has decided on a clear policy and a strategy to implement its' policy, then it is necessary to write and promulgate a set of legal documents to insure that the development of the energy sector will follow clear and comprehensive legal guidelines. When the policy and the strategy for the energy sector have been approved by the Executive and Legislative branches, the next step is the writing and promulgation of an Energy Sector Law, which expresses in legal terms the government's policy and strategy and describes the roles, rights and duties of all the actors, operators and stakeholders in the sector. In Tajikistan an ESPS and an Energy Law already exist and will be reviewed in the chapter IV. In general the Energy Law could be supplemented by an Electricity Act, a Petrol and Gas Act and other Acts for the other subsectors. The purpose of these subsectors' Acts is to focus more precisely on the particularities of each

<) subsector. For instance, the Electricity Act could express the degree of competition needed among the / operators and may create a regulatory system with the duty to promote energy competition where ever

possible, regulate natural monopolies, protect the consumers and promote energy conservation.

Third, at the managerial and operational level. Energy conservation could be promoted by the Regulator insisting on obtaining optimal efficiency by having effective competition, regulating the natural monopolistic aspects of a particular subsector and promoting conservation measures through economic incentives or penalties for inefficient operators such as a lack of demand management etc. Load management, reduction of technical losses and efficient billing and collection are other tools for the efficient management of a power grid.

Fourth, at the efficiency norms and technical standards level. When the costs of the energy products have been set at their economic optimal efficiency levels, and effective competition and regulation of the natural monopolies have been established, the next necessary step for energy conservation is to decide on the technical norms and standards for insulation of buildings as well as industrial/domestic appliances' energy efficiency consumption. A National Council for Standards generally has this responsibility. These technical standards must be adapted to the local conditions and

0 be supported by strong economic justifications.

The four above-mentioned levels, where energy conservation could be achieved, have been reviewed by the Project Team and suggestions have been made for implementing some conservation measures.

During the missions in Tajikistan and discussions with the counterparts and the head of the AsDB local office, the Project Team decided to add to its original mandate two chapters. One listing some important conclusions and recommendations and the other an Action Plan to assist in identifying the activities, which, in the Project Team opinion, deserve to be considered by the Government of Tajikistan for implementation. Furthermore, the Action Plan could assist in the request for TA assistance for project preparation and detail planning. The activities listed in the Action Plan are, in the opinion of the Project Team, necessary to promote energy conservation at the four above-mentioned levels. The 11 projects listed in the Action Plan, include most of the suggestions made in the Chapter 11. Conclusions and Recommendations.

As mentioned in the report (chapters I MI) an important measure to be initiated in priority by the government of Tajikistan is a review and clearer formulation of its policy and strategy for the energy sector. A clear policy statement is a prerequisite for the writing of a clear and comprehensive legal framework necessary for the reform of the energy sector. All the operators and stakeholders of the energy sector must know precisely their roles, duties and right within a comprehensive set of laws, by- laws and decrees. The private investors and operators will insist on having well written accords,

agreements, and contracts to protect their capital investment andlor operational activities in the context of a clear legal framework.

In order to provide useful guidance to the beneficiaries, the report includes additional analysis and recommendations on the legal, regulatory, institutional and policy framework for energy conservation in Tajikistan, including an overview of its current international legal commitments.

The project Team met with significant difficulties to access information and data during the course of the missions in Tajikistan. We suggest that a central depository for all energy sector data and information is created inside one Ministry, with full authority to obtain the necessary data pertaining to the energy sector from all other ministries, departments, utilities, industrial companies, consumers etc. The quality of the outputs of a study and of a project depends on the quantity and quality of the inputs.

The Pamir Energy Company (PEC) is now responsible, under a long term concession agreement granted by the Tajik government, for the generation, transmission and distribution of the electricity in the Pamir region. During the Project Team's meetings with the new management full cooperation was received. The PEC was most cooperative in supplying information and data on their current project to reform the tariffs' structure and level as well as the billing and collection system to promote conservation and increase revenues. This concession agreement with Pamir Energy is the first private

,J sector involvement in the power subsector of Tajikistan. Another interesting development is the reform of the billing and collection system of the Dushanbe region by a company, the Carana Corporation, under contract with the AsDB. Those two pilot projects (Carana and Pamir energy) on reforming the billing and collection system are already rich in lessons learned for energy conservation, in spite of a rather difficult economic and social context.

PART I. STUDY FRAMEWORK

The present study was performed by the international experts Alain Gertsen-Briand and Eugene Cross with the support of the local experts Mr. Kamolov and Mr. Davlatov.

To propose an energy conservation programme for the electricity subsector as specified in the study's TOR, easy access to a set of reliable statistics is required. The main goal of the project consisted in assessing where the electricity losses take place in the transmission and distribution grids, assess the amount of non-technical losses and distinguish between the different types of non-technical losses. Considering that the fastest and least cost way to savelconserve electricity is to reduce the non- technical losses the study tried to ascertain ways and means to reduce these losses. In fact, the proceeds from the elimination of the non-technical losses may generate enough funds to finance a programme of reduction of the technical losses.

A comprehensive energy conservation programme needs to be supported by a legal framework to sustain the government stated policy and strategy for the sector with clear indications of the objective and goals for energy conservation in and precise indications of the entities having the authority and responsibility to achieve the objective of optimising the energy sector's efficiency.

,/ From April 20th until May 3rd 2003 during the first mission to Dushanbe to meet the counterpart, i.e. the MoE, a set of questionnaires were prepared and translated into Russian. These questionnaires covered all the aspects mentioned in the TOR, with a significant increase in the scope of work suggested by the energy sector specialist, namely:

i) Networks' technical losses. For 2002, obtain and review the actual total energy generation (kwh) in the Northern and Southern grids. Assessment of the potential generation (nominal) and the real generation (actual) and identification of the causes for any difference between the two results. Review of the statistics for 2002 on import and export of electricity with the neighbouring countries. Assessment of the technical losses in transmission between the power plants or the border points for importJexport to the distribution substations. Provided the data are available, assess the losses from the distribution substations to the consumers to identify the distribution related technical losses, and the non-technical losses.

ii) The Load curves per class of consumers. The seasonal and hourly load curve for both grids will be drawn and reviewed to assess if transmission grid congestion occurs during the peak demand periods. Then the load curves for the four main classes of consumers (residential, industrial, commercial and agriculture) will be derived from the data collected and analysed with a view of assessing if one class of consumers contributes excessively to the peak load and is the source of congestion in the transmission and distribution grids.

iii) Specific consumption per class of consumers. The purpose of finding the specific consumption per class of consumers is to identify which class of consumers has an abnormal consumption pattern and could be the target of a campaign for reducing their consumption and improving their efficiency.

iv) Review the current tariff structure. Any energy conservation programme begins with setting the tariffs structure and level at the adequate economic level to send the proper economic signal to the consumers. The tariffs structure and level should be as near as possible to the LRMC of electricity (capacity and energy) for each type of consumer. Without a sound tariff system in place a conservation programme will not be very effective.

The answers to the questionnaires prepared during the first mission were incomplete and after review were found them wanting for accuracy. All statistics related to the load curves per class of consumers were apparently non-existent, and data related to the grid losses was not available. Thanks to the

@ dedication of the local experts, the necessary data to establish the load curve were ultimately obtained

and the curves could be drawn. More difficult was to access and acquire the data on the technical losses par voltage level of the two Barki Tajik grids.

During the first mission, the two existing Tajik laws related to the energy sector were obtained and translated from Russian to English. Furthermore, a copy in English of the government's energy sector policy statement (ESPS) was extracted from the report on "Institutional Strengthening of the Transport and Energy sectors" (TA No. 3 114-TAJ). Later, another copy, in English, was obtained from the AsDB local office; however both copies were substantially different from one another. Soon after, we were told by the local legal expert that both copies were not conforming to the official Russian version. During the second mission, a thorough review of the legal framework of the energy sector of Tajikistan was done by the legal expert. A significant number of legal documents (decrees, by-laws, companies' statuses, executive orders, etc.) related to some aspects of the energy sector needed to be translated. From these documents it is not clear, which department has responsibility for energy saving, efficiency and conservation. Similarly, finding information and assigning responsibility for the down-stream side of energy conservation, such as standards for building insulation and the electrical apparatus efficiency labelling, and determining responsibility was difficult.

The report component on the legal framework for energy conservation in Tajikistan has been designed

I' in accordance with the TOR of the Asian Development Bank project TA No. 398 1-TAJ. The TOR were significantly updated in the Work Plan submitted by the experts in July 28, 2003 and approved by the Asian Development Bank, on July 29, 2003 The TOR require that the Legal Expert undertakes the following tasks:

i) Review the energy sector law on matters relating to energy conservation, including the roles of the and Ministry of Energy, and the energy companies.

ii) Propose possible amendments to law(s). take into account the current policy of the Government; review the legal status of other energy companies, propose a list of laws, by- laws, decrees, etc. to be written in the future with a view to complete the Energy Sector's legal framework relating to energy conservation

iii) Propose a list of measures to be written in the future to augment the legal framework relating to energy conservation.

iv) Propose incentives and/or subsidies (i.e. funding and financing mechanisms) for development of energy conservation

It has been necessary for the project team to engage in extensive data collection and translation of the relevant legal and regulatory framework for the Tajik energy sector. The Ministry of Energy provided the project team with English translations of Tajik Energy Law of 2000 and the Energy Conservation Law of 2002, both documents needed to be retranslated for purposes of improving their accuracy. No other laws or by-laws directly addressing the energy sector were provided in English translation to the project team. , The original language versions of many Tajik legal measures, and some interpretation thereof, was kindly provided by Mr. Davlatov, the attorney-at-law for the National Bank of Tajikistan and from local legal consultant assisting the Project Team.

The project team received the full cooperation from the project counterpart, inside the MoE and we are grateful for the assistance provided. The Barki Tajik top echelon management, when asked for access to accurate data on technical losses was forthcoming and gave the Project Team its full cooperation. Carana Corporation supplied the Project team with a wealth of data and information regarding the billing and collection problems of the Dushanbe region, we are much grateful to all of them.

PART 11. CONCLUSIONS AND RECOMMENDATIONS

2.1 ENERGY CONSERVATION

Energy conservation is a complex activity encompassing almost all the technical, economic, taxation legal and financial aspects of the energy sector ranging from exploration, productionlgeneration and transmission to distribution and efficient consumption by the consumers. A well thought out energy conservation programme needs to consider and take into account most of the following aspects:

i) The sector institutional organisation, which department is responsible for formulating the sector policy and strategy and secure a plentiful supply and the least cost energy products to insure the optimal economic development.

ii) Is the legislation/legal framework correctly translating and supporting the implementation of the government's policy and strategy for the sector and the subsectors? Have all the actors and operators in the sector a clear and detailed legal mandate for efficient operation?

/' iii) Is the sector organised for efficient operation, is the economic viability of the operators within a dynamic competitive environment insured in a fair manner and is transparency and consumer protection insured effectively by the regulatory system?

iv) In the context of competitive market, which actors are responsible for the economic regulation, repression or mitigation of the negative aspects of the natural monopolies? Which, organisation is responsible 'for setting the norms and standards for buildings, power apparatus, industrial equipment and consumer goods?

In the context of the Tajikistan current energy sector situation, some important issues at the strategic level deserve consideration before developing an energy conservation programme focused on achieving technical losses reduction.

The following three issues should be discussed and a consensus developed between the authorities and the stockholders with a view of having a clear vision of the priorities for energy conservation.

A) At the strategic regional level:

First, Tajikistan's energy supply was organised from the beginning of the country's industrial development at the Central Asia regional level. In fact, Tajikistan's power grid is still physically part of the Central Asian power grid. Lack of cooperation between regional utilities could result in energy wastage, while effective cooperation could produce significant energy conservation benefits. Establishing a, effective regional cooperation should be on the top of the priorities when proposing an energy conservation programme. Second, is the energy efficient usage promoted by an open and competitive market at national and regional levels? Is trading of electricity impeded by barriers to entry, is the national and regional peak power demand not supplied by the least cost generation? Significant amounts of energy could be wasted (like spilling water from a reservoir when thermal plants are burning oil and gas) if regional trading is subjected to barriers to exchange of energy products.

B) At the national institutional level:

Is the government's policy (competitive market) and strategy (unbundling and privatisation) supportive of energy conservation by having an efficient institutional set up? Does each actor/operator (the ministry, the regulator, the generators, the market operator, the system operator

e and the distributors, etc ...) in the sector know their rights and duties and are they supported/securised by a clear legal framework? Are the norms and standard for building insulation, industrial processes, transport efficiency, domestic and industrial apparatus set at the economic efficiency level by the means of costs /benefits analysis?

C) At the managerialloperational level:

Are the distributors supported by the Regulator for promoting demand management through economic incentives to insure the efficient utilisation of the existing infrastructure and minimising generation cost? Do the distributors have latitude to implement load management? Is the tariff setting (structure and level) for the natural monopolies set at the optimal economic level by the Regulator through a transparent, consistent and fair system? In an open and competitive market the cost of traded energy should be determined by competition between the national and regional Generators, under the vigilant monitoring of the Regulator(s). Then billing and collection must be done diligently and efficiently. Finally, fraud suppression must be pursued with effectiveness with the support of the Regulator and the legal system. When all the above prerequisites for energy conservation have been set in place and operated efficiently and the legitimate demand for energy

, is satisfied with tariffs set at the economic level, an energy conservation programme can be implemented with reasonable chances of success. This programme can be directed to the end users like the industrial and domestic consumers for the purpose of reducing energy consumption and saving the consumers money, and then conservation measures could indeed successfully reduce the level of demand and save energy.

2.2 SOURCES OF ENERGY LOSSES

The project team has identified the main sources of energy losses in the power subsector as required by the TOR.

A) At the strategic/regional level Tajikistan is not receiving a just compensation for the energy exchanges with the other republics of Central Asia. Lack of cooperation results, in summer time, of water spilling at the Nurek dam,'whereas the neighbouring republics are generating more expensive energy by burning oil and gas, which are non renewable energy products. Barki Tajik's water management of the Nurek reservoir is not optimal and results in expensive foreign purchasing of peak power from thermal power plants during winter peak periods.

a B) At the managerial level, loadldemand management2 is not efficiently practised . The findings of the Project Team indicate that substantial saving could be achieved with a dynamic load management programme. This will require time-of-the-day metering to be able to send the right economic signals to the consumers through a dual tariff structure.

C) A prerequisite for energy conservation is a tariff set at the economic efficiency level. Secondly, insuring efficient billing and collection and dynamic fraud repression. Currently the tariffs' structure and level have no sound economic justification. Recently some progress were made in billing and collection, this should be pursued with force at the national level. In 2002, about 30% of the energy delivered was unpaid for, in spite of the low tariffs. This situation is not sustainable.

1 The Nurek dam cannot regularise at 100 % of the river flow of the Wakhsh river. During the summer the reservoir overflows due to lower local electricity demand and in winter, with significantly reduced inflow of water, Nurek cannot generate at full capacity when the local demand for electricity is at its peak. The Rogunskaya dam was supposed to regularise the river. See the histogram of the river monthly discharge, wish demonstrates the amplitude of the problem and the need for river basin management. . 2 A Load Management project could derive significant benefices with a high benefits/costs ration. It is why we suggest a project to ascertain the merit of this solution to high peaky demand.

D) The technical losses on the Barki Tajik grid are above the 15% mark, which indicates a serious level of deterioration of the transmission and distribution infrastructures and most likely serious thermal overloading of the lines during peak periods. The transmission and distribution operators need sufficient revenues from adequate tariffs and efficient bills collection to be able to maintain the existing infrastructure and replace aged or inefficient power apparatus after their useful life.

E) The energy losses that result from inefficient building insulation practices and energy wasteful electrical apparatus and domestic appliances, is currently unknown and could only be ascertained through a national survey.

F) The current institutional set-up and the legal framework are not conducive to efficient formulation and implementation of energy conservation programmes. Responsibilities are diffusedlfragmented among too many entities/departments3 and the mandates of the entities are not clear with resulting confusion.

2.3 CONCLUSION AND SUGGESTIONS FOR ENERGY CONSERVATION

The following conclusions and suggestions are proposed to correct the principal causes of the energy , losses identified by the Project Team during the mission and to mitigate some of their effects:

1. The validity of the 1998 Energy Sector Policy Statement (ESPS) is now subject to some uncertainty due to several developments, it will be well advised to review it in the near future. The Government could restate and clarify its earlier objective and goals to establish an open and competitive energy market at the national and regional level. This objective needs to be supplemented by a strategy to implement concrete results with a timetable for attaining the intended goals.

2. The 1998 Tajik ESPS has not been fully implemented, particularly with respect to its competition- related aspects. While some form of unbundling of its accounts is reportedly considered, Barki Tajik remains a vertically integrated enterprise with a lack of transparency between the three main functions, i.e. generation, transmission and distribution4. The operation of the Tajik electricity transmission and distribution system is not independent, in terms of decision-making, from activities not relating to transmission and distribution. No electricity tariffs based on sound

0 economic principles exist and are applicable objectively to all consumers without discrimination. There is also apparently no system of regulated access to the network based on published tariffs, applicable to all eligible customers and applied objectively and without discrimination between system users. There is no electricity law or other law in Tajikistan that requires the designation of an electricity network operator(s) or which sets forth the duties of such operator(s). In light of the intentions stated in the 1998 ESPS, as well as international best practices, all the above aspects can be regarded as major deficiencies in the legal framework for the power subsector.

3. An updating of the 1998 Energy Policy Statement could include a national energy efficiency strategy with some consideration for its interaction with the National Action Plan for Climate Change, the UNFCCC and related legal commitments, as well as the desired level of international co-operation.

3 Barki Tajik has a de facto responsibility to reduce its losses to the economic optimal level. The MoE has a de jure responsibility to fix some norms for energy efficiency. The department of building standards in the Ministry of Construction has a responsibility and his trying to fix some norms for energy saving. The Ministry of economy has a interest in energy saving and Tajikenergonadzor believes energy saving /efficiency is one of their main responsibility. 4 Unbundling of the three main functions of a vertically monopoly is the first step to find out where are the revenues and the costs, the benefits and the financial losses, then where are the technical losses. With this information an efficiency assessment can be done and improvements targeted where they are needed.

a 4. The procedures for adoption, assessment, and implementation of energy efficiency policy should be included in the Energy Law and/or the Energy Conservation Law. The latter should provide the legal basis for the systematic development of national programmes that promote energy conservation. These new provisions should set forth the responsibilities of the different authorities in charge of the adoption, implementation and evaluation of the relevant policies and programmes, and they should include the corresponding time schedules for periodic review of their implementation (e.g. bi-annual written assessment). The Energy Law could be revised to regulate the adoption of energy policy guidelines in a general sense, while the Energy Conservation Law could regulate the adoption of separate guidelines and programmes relating to energy efficiency. Keeping the Acts separate in this manner (rather than seeking to create a combined "energy and energy efficiency act") would be in line with recent legislative drafting trends in the European countries in transition.

5. In respect of the two previous recommendations, besides the review and updating of the existing Energy Law, there is a need for an Electricity Act to translate the government policy to establish a competitive market for the power subsector. Preliminary work on this task was envisaged by the Asian Development Bank in the late 1990s, but apparently the project was never implemented. A new Tajik electricity law should be designed according to international best practice and tailored

/' to the Tajik context. As part of this effort, the Energy Law and Energy Conservation Law should be revised accordingly. The Electricity Act will identify all the required actors and operators necessary to obtain an efficient competitive and open energy market and set forth the duties of all operators in the context of a clear mandate for each of them. The Electricity Act will establish an efficient regulatory system to insure competition and fairness among the operators and insure the protection of the consumers. Furthermore, the Law on Energy Conservation should be revised to fully address the duties and rights of entities/operators/actors involved in the generation, transmission, distribution, conversion, selling, consumption of energy and the role/duties of sector regulation. The revised legal framework will include provisions related to the treatment of independent producers, the use of alternative energy sources, and should specify the duties and responsibilities of the Regulatory Authority necessary for having an open and competitive market in the energy sector. The Electricity Act will, as well, address the development of a coherent system of licences and licence conditions, including licence conditions related to activities in the area of energy efficiency. Certain existing provisions in the Energy Law that may limit the powers of the Government to regulate energy enterprises or delegate this activity to a Regulator, according to international best practice, should be revised or removed.

6 . The institutional framework and allocation of decision-making authority relating to energy saving policy and programmes should be fbrther clarified, as the two main energy laws have some inconsistencies with each other. Further analysis should be made of the overall allocation of ministerial and governmental responsibilities over energy efficiency actions and programmes in Tajikistan.

Given the crucial importance of energy pricing mechanisms in any energy conservation programme, as well as the decisive importance of energy tariffs to promote energy efficiency, it is recommended that the project for the establishment of a regulatory system for the energy sector includes a study to determine the method to set up the electricity tariffs' structure and level for the natural monopolies. Currently tariffs for the electricity are set without reference to any generally accepted economic methods (LRMC or rate of return) consequently the legitimate economic demand (and forecast) for electricity cannot be ascertained with accuracy. It is suggested, as a temporary measure before the regulatory system is established and operational, that the MoE sets gradually the electricity tariffs to insure a normal rate of return on the Barki Tajik's assets5, this action will be an effective initial step to promote energy conservation and allow better maintenance of the existing infrastructures.

5 evaluated at their replacement value

8. To implement the reform of the power subsector inferred in the government's ESPS, it is suggested that the MoE and the Anti-monopoly Agency receive substantial technical assistance (TA) to enable them to carry out the power subsector reorganisation toward a more efficient Each entity is in great need to have a clear detailed mandate as to their respective role in the context of the ESPS to establish a competitive sector. This project of TA should include a component for the establishment of a separate Energy Regulatory Authority (ERA) with a clear mandate to promote competition, wherever feasible, with broad competence for economic regulation and licensing of all the operators in the sector.

9. Accurate metering, billing and collection on the basis of actual consumption should be applied everywhere and to all consumers, without exception. Energy conservation begins with the consumers getting the right economic signals. Some encouraging progress in metering, billing and collection practices has been reported in 2003 under two pilot projects. One project, one in the Dushanbe area and the other in the Pamir region, both already show interesting results. Efficient bills collection in conjunction with adequate tariffs is a prerequisite for improvement in sustainable energy conservation, since paying consumers naturally have an economic incentive to save energy, whereas non-paying consumers do not. It is recommended that the lessons learned from these ongoing projects are extended to the whole country. All consumers should have a meter, so each of them knows exactly his level of consumption and the resulting costs. To allow

,' efficient load management, time-of-the-day metering should be given full consideration. All consumers should be billed their exact consumption at the appropriate tariff. Any reduction in tariff, for social reason, would be invoiced to and immediately paid by the government. In a competitive market, asking private operators to indirectly finance social programmes is not efficient and is economically counterproductive. Social programmes are financed by the taxes paid by profitable companies and taxes payers. Both Barki Tajik's distribution grids and Pamir Energy could request and receive loans at favourable conditions to purchase and install meters to all their consumers/customers/clients.

10. It is recommended that the DES (Dushanbe Energy Sales) Unit be corporatised and later possibly privatised as a collection agency. The Pamir Energy could do the same for its billing and collecting unit. Then all the Tajikistan distribution grids could set up a similar system of independent billing and collection units with a view to corporatisation and privatisation. This will create a competitive system for billing and collection where all agencies could regularly be called to bid for the collection system of a distribution grid on the basis of a percentage of the money collected. This will be an incentive for efficiency in billing and collection that the ERA could promote, supported by the Antimonopoly Agency and monitored closely to insure fairness. a

11. Even if the primary energy legislation appears to provide adequate legal basis for programmes to be introduced in some of the energy efficiency sectors (e.g. buildings, industry, and equipment), it is recommended that amendments be considered to make the relevant obligations on energy efficiency more clear and transparent and identify the responsible partieslauthorities. This can be particularly important if the government intends to impose additional mandatory obligations or programmes relating to energy efficiency that affects private persons.

12. The policy framework in Tajikistan relating to energy efficiency is generally not in compliance with the legal commitments, policy recommendations, and accepted practices under the Energy Charter Treaty's Protocol on Energy Eficiency and Related Environmental Aspects (PEEREA). The MOE should take a more active role in ensuring the co-operation with the ECT Secretariat and compliance with the treaty obligations. Basic concepts on energy efficiency should be better integrated into the policy and regulatory framework for the Tajik energy sector.

13. In light of the recent experience of a "single electricity marketyy between the Eastern Europe power grid and the West European power grid, valuable experience could be used in the establishment of

a a regional energy market among the Central Asian Republics. Some actions and programmes developed pursuant to EU directives to overcome barriers to energy trading and improve power grids efficiency through cooperation, could be analysed and considered by Tajikistan.

14. The institutional framework and allocation of decision-making authority relating to energy efficiency policy and conservation programmes needs to be clarified. The 1998 ESPS infers that the Tajik government policy is to have an open and competitive energy market. The two main existing energy laws have some inconsistencies with each other and the stated intent of the government to establish a competitive market, which requires a clear repartition of responsibilities and authority between the main actors/operators, is not mentioned. Further analysis should be made of the overall allocation of responsibilities in the sector. In the context of the transfer of "Tajikenergonadzor" responsibilities and to the MOE. Consideration should be given to transfer the "Tajikenergonadzor "economic regulatory functions to the ERA and the creation of a separate department/council of industrial norms and standards for energy conservation, efficiency and security. This new department will not create new standards (very costly) but select from existing ones (at the international level) the most suitable for the Tajik conditions. It will not develop standards or verify the conformity of products or services to standards, but it will accredit the organisations, which specialise in this activities. The Council could approve selected standards as the National Standards of Tajikistan and represent Tajikistan in international standards' forums, and serve as Tajikistan's best source for standards' information. This Standards Council could be an independent agency reporting to a ministry (industry, trade or economy?) for accountability

.$ purpose.

/ 15. The use of special licence conditions within the MOE, relating to standards of performance on

energy efficiency appears to be an unlikely prospect, for the short term. Such obligations are usually imposed on distribution companies, and therefore this could be done through the distribution licences to be issued by the Regulator. Provided that an Energy Regulatory Authority (ERA) is established with the power to issue licence conditions under a broad mandate from the Government.

16. There is no reported government policy or programme on energy efficiency in the buildings sector. One department in the Ministry of Construction uses ex Soviet Union norms and new norms from the Russian Federation for building construction and auxiliary equipments, those norms need to be adapted to the Tajik conditions. The development and implementation of a programme on energy certification of buildings in Tajikistan would entail a complex and time- consuming process. It is not simply a matter of adopting an amendment to the Energy Conservation Law or in adopting a new decree. Instead, it would have to be facilitated through a specific project providing technical assistance to selected departments within the Government of Tajikistan.

9 17. Given that the MOE is currently the main governmental department designated to oversee the

energy sector, it is recommended that the MOE should assime the resp&sibility for working systematically with other authorities regarding the implementation of an energy efficiency for buildings. In order to ensure legal consistency and effectiveness, the MOE should review the relevant legal and regulatory measures. After a policy direction is determined by the Government, consideration could be given to possible modifications to the various legal/regulatory measures that implicate the buildings sector. This could include consideration of the relevant provisions in the Civil Code, rules on electricity consumption, building regulations, landlordtenant law, laws relating to housing and building maintenance and rules on preferential financing terms for energy efficiency investments. The development of measures and programmes should be designed to facilitate the implementation of energy efficiency investments by the market actors or consumers. If affirmative obligations regarding building certification are to be placed on private persons, such as the owners of buildings, it may be necessary to amend the Energy Conservation Law or to adopt other legislation

18. When a programme on energy certification of buildings, is developed and implemented in

a Tajikistan, it must be embedded into the Tajik legal framework. Construction standards for new buildings would be implicated, as well as standards for the major renovations of existing buildings over a certain size. Compulsory requirements on maintenance of buildings might also have to be

developed. The development of these technical norms is essential but must be done as part of the overall process of policy and programme formulation for the sector. This process must take into account the relevant characteristics relating to the housing and building stock of Tajikistan.

19. Development of a low-cost programme for certification of buildings is recommended. However, the funding mechanism for such a programme is problematic. There is no existing governmental energy saving fund through which financial resources could be made available to homeowners, and the establishment of such off-budget funds is currently not allowed in Tajikistan. The 1998 rules on electricity consumption prohibit the imposition of levies on residential consumers for any additional charges above the established electricity tariffs. In other words, a flat consumption tax on electricity, or even a small "energy efficiency levy" of one Somoni, charged to all electricity consumers, would be in conflict with the 1998 rules. Moreover, suggestions made by the Project Team to the MoE and its advisors for a possible electricity consumption tax or consumer levy, as the basis for an energy saving fund, were not readily accepted. There are other possible financing modalities, such as direct governmental grants or loan guarantees, but these are unlikely to be budgeted by the current government. External sources of funds and technical assistance would probably be necessary at least in the initial stage in order to establish the programme.

) 20. The Tajik building norms need to be updated and made relevant to the Tajik environment, but the

i relevant committee within the Ministry of Construction is short of the necessary resources and in need of technical assistance to undertake this task. The project team has provided an example of a technical requirement norm for the thermal technique of envelopes of buildings, issued by the Lithuanian Ministry of Environment in 1999, as an example of a possible design requirement for buildings that could be adapted for Tajikistan. Any follow-up project covering the area of building norms should include a component for translation, training and technical assistance on the development of such technical norms and standards.

21. Needed is a clear policy for promoting energy efficiency in the industrial sector, The Energy Conservation Law defines, which enterprises are subject to audits, although this could perhaps be interpreted as a discretionary governmental task. The law should place affirmative obligations on industrial and commercial undertakings to submit themselves to energy audits from licensed specialised firms of auditors. Under such a system, regulations on the qualifications, licensing, and remuneration of energy auditors would be advisable. The imposition of such obligations on undertakings and other persons would be consistent with the concept that the responsibility for energy conservation falls on all members of society, not only on the government. However, the imposition of such affirmative legal obligations would result in certain (up-front) costs for the

0 enterprises.

22. An alternative to an obligatory system of energy audits of industrial enterprises in Tajikistan is a voluntary system. The Government should negotiate long-term industry-wide agreements on energy efficiency on a voluntary basis. This process is usually initiated by the relevant Ministry responsible for energy, which then monitors and publishes the results. A voluntary approach does not require the adoption of new laws or regulations, although it is usually driven by some incentive, such as an energy tax exemption or reduction, or possibly through a subsidisation of the energy audit itself. In the latter case, a regime of energy auditing must be in place. However, given the present uncertainty about the institutional framework and of the financing of energy auditing activities, it is difficult to make a recommendation on how to proceed in terms of new laws or regulations. It is recommended that a voluntary programme on energy auditing of industrial and commercial enterprises in Tajikistan is addressed in a future project.

23. A customs duty exemption under the Customs Code for energy-efficient equipment could be an appropriate measure to adopt in Tajikistan. A similar measure that has been under consideration in the Russian Federation might be a model to consider.

24. The energy labelling rules used in the EU member states and candidate countries could be considered for Tajikistan, provided that the Government accepts the European labelling legislation

and standards, as well as the related requirements for free movement of goods that meet these standards. This is a prerogative of the Government of Tajikistan (and not the MOE) and might be given consideration pursuant to a dialogue between the appropriate Governmental and EU representatives over a possible EU-Tajikistan Partnership and Co-operation Agreement.

PART 111. ACTION PLAN

From the recommendations of the preceding chapter, regrouped in a logical way and by order of priority for implementation, the following actiondprojects are suggested to improve energy efficiency and conservation in Tajikistan.

The following Action Plan is a list of suggestions to the Ministry of Energy, which could after due consideration to all the implications and their perception of Tajikistan priorities decides to request some TA projects from various donors.

Even if our TOR did not ask us to submit an Action Plan, the Project Team thought that the MoE might appreciate to have some indications on what to do next to promote energy conservation in Tajikistan.

The following potential actions to be initiated by the MoE will need to be appraised and a detailed project preparation done to estimate the budget required and prepare the TOR for the experts, who will be invited to take the responsibility of the projects. Furthermore, for each project the counterparts must be identified and their willingness to actively participate to the success of each project firmly

0 ascertained.

3.1 PROJECT NO.l - ESTABLISHING INSIDE THE MOE A STATISTIC DEPARTMENT AND AN ENERGY SECTOR DATA BASE. Duration, about I year - Two specialists, W M 24 - Plus equipment and operational expenses.

A significant amount of information and data exists on the Tajikistan energy sector, the MoE should become the depository of all this information for easy access for future studies and avoiding duplication of efforts. All information and data from the time of the Soviet Union especially the energy inventory data must be identified, collected and stored in a special department inside the MoE All hydrology information on the river basins of Tajikistan must be retrieved, the cost of doing again the collection of the hydrology data could be enormous and very time consuming. All the work done to establish the hydrographs, the mass curves and duration curves must as well be secured for hture studies. On the petrol and gas side and coal deposits, the Tack study of 1997, which includes an embryonic national energy inventory, must be upgraded. A Russian version of this study is now inside the MoE, it should be gradually updated. Copies of the studies done in the past, project designs and all drawings with calculation sheets for projects detailed design done or initiated during the Soviet Union period, need to be repatriated in Tajikistan, some of them are dispersed among many Technical a Institutes in the Russian Federation.

An energy sector statistics department for gathering, storing, classification and retrieving data must be set up inside the MoE. This will facilitate future energy sector policy and strategy formulation and insuredhat they are based on solid facts and be implemented with reasonable chances of success.

3.2 PROJECT N0.2 - REVIEW THE ESPS OF 1998. ASSISTANCE TO THE MOE FOR THE FORMULATION OF A CLEAR AND COMPREHENSIVE ENERGY SECTOR POLICY AND STRATEGY. Duration 6 months - One specialist in policy and strategy formulation W M 6 (180 W D ) - plus operational expenses.

The currently in force ESPS was formulated in 1998, by the Tajik government, based on the information/statistic available at that time and the political will of the government to gradually install a competitive energy market in Tajikistan. During the mission of summer 2003, little progress could be noticed toward the realisation of the government strategy of 1998, with the exception of the concession agreement with Pamir Energy. Furthermore, it appears that the English versions/translations of the Russian version of the ESPS document are not exactly conforming to each

other. Even if the first chapter of the ESPS present clearly the government policy, the following chapters, i.e. objective, strategy, role of government, structure, public investment, private investment, state-owned enterprises, regulation, legislation and pricing are not completely supporting the policy stated in the first chapter. One chapter even contracting another.

A specialist in policy and strategy formulation after reviewing the national energy inventory and energy balance could show the MoE staff how to approach policy formulation and methodically develop a sound strategy to suit the needs of the country in the larger context of the region.

When the updating of the ESPS of 1998 is done, what is probably needed to assist the MoE with its duty in relation to the implementation of the government strategy is an Action Plan with a detailed implementation work programme, including with target dates for realisation of the priority tasks. Without being exhaustive some of the tasks will be to assist the MoE to establish a legal and regulatory frameworks, setting up a National Energy Advisory Council (NEAC), translate in legal terms the government policy and strategy, set up a regulatory system etc.

3.3 PROJECT No.3 - ASSISTANCE TO ESTABLISH A COHERENT AND COMPREHENSIVE ENERGY SECTOR LEGAL FRAMEWORK Duration, about I year - One legal expert with extensive experience with all legal aspects of the energy sector assisted by an energy econontist. 18 M M - plus operational expenses.

After the completion of the Project No. 2, when the Policy and the Sector Strategy is approved by the government of Tajikistan, the legal expert will review the current legal framework and propose all the necessary amendments to insure the revised legal framework translate accurately the government's policy and strategy for the energy sector and its subsectors. For the efficient implementation of the Policy and strategy it is crucial that all actors and operators in the sector have a clear and detailed legal mandate. A reviewhpdating of the energy conservation law in the wider context of the Energy sector legal framework will be done. To insure that for the short and medium term the energy conservation law match the economic and financial constraints of Tajikistan, the legal expert will be assisted by an energy economist who will carry out the necessary costslbenefits studies.

At the institutional level the legal mandate/work of the legal expert will include a review of the government's policy (competitive market) and strategy (unbundling and privatisation) supportive of energy conservation to ascertain that all the actortoperators mandates accurately interpret without ambiguity the government policy. Preparation of the legal mandates (laws, by-laws, decrees etc.)for the main actors (the Ministry, the Regulator, and the Anti-monopoly Agency) and the operators (generators, market operator, system operator and the distributors etc.) in the sector know their rights and duties in the context of a clear legal framework. Furthermore, the legal aspects related to standard for buildings' insulation, industrial processes, transportation efficiency, domestic appliance labelling and industrial apparatus will be written in conformity with norms suitable to the Tajikistan local conditions. (For more details, see Recommendations 5, 11, 17, and 18)

3.4 PROJECT NO. 4 - ASSISTANCE TO THE GOVERNMENT WOE) TO IMPLEMENT THE POLICY AND STRATEGY FORMULATED AND ACCEPTED BY THE GOVERNMENT OF TAJIKISTAN Duration, about 18 months - Expert($ with experience in an open and competitive energy sector. One legal expert with experience in writing company status/charters in an open and competitive energy sector. 24 MM- Plus operational expenses.

Supply assistance to the Government/MoE/Anti-monopoly and Competition Agency to implement the Energy Sector Policy and Strategy with due consideration to the new legal framework for the energy sector. Within the scope of the strategy decided by the government and of the legal framework prepare the company status/charters of the operators which will gradually implement the strategy to establish

an open and competitive market (assuming it is still the government policy) at the national level and assist in promoting the concept of technical and economic cooperation at the regional level. Establish clearly the role, responsibilities and duties of each actor and operator in the energy sector with each entity having a clear and detailed operational and legal mandate. Supply technical assistance to set up the necessary administrative systems for the efficient operation of the main actors responsible to implement the policy and strategy of the government.

The current institutional set-up and the legal framework are not conducive to efficient formulation and implementation of energy conservation programmes. Responsibilities are diffused/fragmented among too many entities and the mandates of the entities are not clear ~ i t h ' r e s u l t i n ~ confusion. Furthermore, TA is needed to expand the internal knowledge of the existing institutions and assist them in the implementation of their mandate. The ESPS of 1998 when updated will clarify the objective and goals of the government in relation to establishing an open and competitive market and will indicate, which entity will be responsible for energy conservation.

Tajikistan's energy supply was organised since the beginning of the region/country's industrial development at the Central Asia regional level, with a view of capturing the economy of scale, in fact at the operational level the Tajikistan power grid is still part of the Central Asia power grid, controlled from Tashkent, Lack of cooperation between regional utilities could result in sub-optimal utilisation of the regional energy resources, conversely cooperation to take advantage of variations in the demand pattern and the different characteristics of the generation of each republic's power system could result in significant energy conservation. Furthermore, better energy efficiency can be obtained and promoted by having an open and competitive market at the national and regional levels. Efficient electricity trading should not be impeded by barriers to entry, the national and regional peak power demand most be supplied at all time by the least cost regional source of generation. Significant amounts of energy could be wasted (like spilling water from a reservoir) if regional trading (dispatching by order of merit) is subjected to barriers to exchange of energy products. Someone must take the initiative to establish an energy sector regional round table, to set up the modalities for efficient cooperation at the region level to conserve energy resources.

The MoE of Tajikistan should be well prepared to contribute to regional energy sector cooperation and dynamically submit proposals based on sound technical and economic rationales. Initially the MoE will need some TA to become knowledgeable with the intricacy of the economic parameters used in the economic assessment of benefits resulting fro regional cooperation. We are told that the frequency control and the stability of the Central Asia grid depends to a large extend on the Nurek power plant, which thank to inherent inertia of the hydro-power plant stabilise the grid. An economic study using the with/without criterion will quickly determine the economic benefit of this service. We understand that currently Tajikistan receives nothing for this valuable service.

3.5 PROJECT NO. 5 - INSTALLATION OF METERS TO ALL ELECTRICITY CONSUMERS Duration about one month- One expertporn apower utility or a manufacturer of meters (or both) to assess the situation in the Tajikpower grids regarding meter reading and billing facility - 2 W M (60 M/D), plus operational expenses.

All consumers, domestic, industrial and government ofices should have, as soon as possible, a meter installed to stop the cumbersome, inefficient and litigious system of assuming /guessing the consumption based on non-objective criteria, resulting in most of the cases in an incentive ,to over- consumption. Furthermore, serious consideration should be given to install time-of-the-day meters with capacity peak demand limitation (adjustable breaker)6. This action will permit load management, with resulting significant benefits. Installation of meters and an efficient billing and collection system

6 For the customers with a solid record of non-payments, then a pre-payment meter is an alternative to be

@ considered. For consumer subventioned by the government for social reasons the card for the prepayment is a efficient solution for the Utility. Pre-payment meter with seasonal and time- of-the-day are more expensive but allows demand management.

are pre-requisites for an effective energy conservation programme. Both the Barki Tajik and Pamir .@ Energy's distribution grids should apply for and receive loans at favourable conditions to purchase and install meters to all their consumers/customers/clients.

The first step will be to assess the exact need of the national grid in relation of the type of meter needed to permit efficient load management. Ownership versus rental of the meters is another question to be reviewed. Currently, the Pamir Energy is purchasing its meters, at a reasonable price, from another Central Asia Republic. Barki Tajik has a subsidiary assembling meters. One mistake to avoid is to have a multiplicity of meters of different types and models, which will render calibration and inspection dificult, time consuming and costly.

3.6 PROJECT NO. 6 - SET UP A NATION WIDE SYSTEM OF BILLING AND COLLECTION FOR THE POWER SUBSECTOR Duration about 24 months. A c0mpan.y with extensive experience in modern billing and collection for power utilities. About 100 W M plus assistance of Barki Tajik personnel already trained. Plus equipment hardware and software (IT) as well as operational expenses.

This particular project does need to wait for any of the preceding projects. The reform of the billing and collection system in Tajikistan is already under way in the Pamir region and in the Dushanbe area. It is suggested that Barki Tajik, with the assistance of experts in billing and collection system, set up for each regional distribution grid of Tajikistan an independent systeddepartmenthnit for billing and collection. The lessons already learned in the Pamir and in Dushanbe area (DES) need to be taken into account. These billing and collection units should be set up with a view for corporatisation and future privatisation, within a competitive environment to be monitored by the Regulator.

Accurate metering, billing and collection on the basis of actual consumption should be applied everywhere and to all consumers without exception. Conservation begins with the consumers getting the right economic signal. Efficient bills collection in conjunction with adequate tariffs is a prerequisite for improvement in sustainable energy conservation, since paying consumers naturally have an economic incentive to save energy, whereas non-paying consumers do not. It is recommended that the lessons learned from the ongoing projects are extended to the entire country. All consumers should have a meter so each of them knows exactly his level of consumption and the resulting costs. Furthermore, to allow load management time-of-the-day metering should be privileged for all classes of consumers after a costbenefit study. All consumers should be billed their exact consumption at the appropriate tariff with a notice of advice on energy saving. Any reduction in tariff, for social reasons, must be paid by the government. In a competitive market asking private operators to finance directly or indirectly social programmes is not efficient and is economically counterproductive.

The DES (Dushanbe Energy Sales) unit, when fully operational, could be corporatised and privatised as an independent collection agency; the Pamir Energy could do the same for its billing and collecting unit. Then all the Tajikistan distribution grids could set up a similar system of independent billing and collection units with a view to corporatisation and privatisation. This will create a competitive system for billing and collecting where all agencies could regularly be called to bid for the collection system of a distribution grid on the basis of a percentage of the money collected. This will be an incentive for efficiency in billing and collection that the ERA will monitor closely to insure efficiency and fairness. All consumers having a right to present an appeal to the Regulator, when objecting to a decision of a collection agency or an operator.

3.7 PROJECT NO. 7 - ESTABLISHING AN ENERGY REGULATORY AUTHORITY (ERA) AND AN ANTIMONOPOLY & COMPETITION AGENCY Duration 2 years- A consulting company with ac&owledged success@l experience in setting up an ERA supported by an energy sector Regulator of a country with similarity with Tajikistan. About 100 W M of foreign expertise - Plus equipment and software and operational expenses.

@ Assist in establishing an energy sector regulatory system (The Regulator) to promote active competition wherever possible to obtain optimal economic efficiency and regulate fairly the natural monopolies and protect the consumers. The Regulator will assist the Antimonopoly and Competition Agency and the MoE in unbundling the power subsector in its main functions i.e. generation, transmission and distribution. The Regulator will set up an Independent Market Operator (IMO) and an independent system operator (ISO) to be most likely combined originally with the operation of the transmission grid. In the context of a competitive market, the Regulator is responsible for the economic regulation and the repression or mitigation of the negative aspects of all natural monopolies?

Another important prerequisite for energy conservation is to have effective competition, the natural monopolies tariffs set at the economic level in conjunction with insuring efficient billing and collection. Currently in Tajikistan the tariffs' structure and level have no apparent sound economic justification. Recently some progress were made in billing and collection, this improvement should be energetically pursued at the national level

Considering the importance of the energy pricing mechanisms in any energy conservation programme, as well as the crucial importance of energy tariffs to promote energy efficiency, the establishment of the regulatory system for the energy sector could include a study to determine the method to set up the electricity tariffs' structure and level for the natural monopolies. Currently tariffs for the electricity are set without reference to any generally accepted economic methods (LRMC or rate of return) consequently the legitimate economic demand (and forecast) for electricity cannot be ascertained with accuracy. As a temporary measure before the regulatory system is established and operational, the MoE could fix the electricity tariffs to a reasonable level to insure a reasonable rate of return on the Barki Tajik's assets, evaluated at their replacement value. This will be an efficient way to promote energy conservation.

Both the MoE and the Anti-monopoly agency need substantial technical assistance to enable them to carry out the subsector reorganisation toward an open and competitive system. Each entity needs a clear detailed mandate as to their respective role in the context of a competitive sector. This project as a priority must include a component for the establishment of an Energy Regulatory Authority (ERA) with a clear mandate to promote competition wherever feasible with broad competence for economic regulation and licensing of all the operators in the sector.

3.8 PROJECT NO. 8 - ORGANISATION OF A CENTRAL ASIA ENERGY SECTOR ROUND TABLE Duration, first phase, one year. If successful, followed by a second phase of one more year. A senior energy sector with a strong energy economic background with one assistant, plus a local counterpart in each republic. For phase one, 24 W M (60 WD). Plus equipment and operational expenses.

Significant amount of energy could be saved with a more dynamic cooperation between the republics of Central Asia. For instance, spilling water from a dam reservoir when the next grid uses non- renewable energy products to generate more expensive k w h is not efficient either at the national or regional level. The economy of scale obtained during the former regime has been lost and could be retrieved with effective cooperation. A regional energy inventory and balance could be done to assist in setting up a regional energy sector strategy. Moreover, energy forecast and regional power expansion programme (least cost and maximum economic benefits) could be done in comparison with the individual national power expansion programmes with a view of assessing the benefits resulting form an active regional cooperation. Ideally, trading (volume and cost) of energy products should be fixed by an open and competitive market supervised by a regional Regulator.

To achieve the above mentioned objective of economic efficiency at the regional level it is suggested to endeavour to set up a Regional Energy Sector Round Table (at the Ministry level) with a permanent secretariat, aiming at recapturing through an open and competitive regional market, the economy of

e scale lost in the early 1990s.

3.9 PROJECT NO. 9 - DEMAND MANAGEMENT AND RIVER BASIN RESERVOIR MANAGEMENT FOR ENERGY CONSERVATION Duration, 6 months- ONE specialist in load management (2 months) ji-om a power utility with a power generation mix of hydro and thermal plants. Another specialist (4 months) in river basin management 6 M/M (180 WD) plus software programs for demand management and simulation programsfor river basin simulations. Plus operational expenses.

When all the consumers have a meter preferably with time-of-the-day capability and peak demand limitation, a project to assist BT and the regional distributors to establish a system of demand management could be implemented. This project will suggest ways and means to develop some economic incentives to insure the efficient utilisation of the existing infrastructure and minimising peak generation cost to the system and conserve energy. Currently, the BT management believes that advising the consumers not to heat their houseslapartments during the two hours of the daily peak periods of the winter will not produce positive results. The BT current practice is not to load shed during the two daily peak periods but to load shed between the two peak periods. This is unfortunately an incentive to increase the two winter daily peak periods, since consumers aware that after the morning and the evening peak periods BT will load-shed for a few hours, increase their heating, washing and cooking during the two peak periods.7

When the prerequisites for energy conservation have been realised at the policy and strategic level and the legitimate economic demand for energy is satisfied with tariffs set gradually at their economic level, an energy conservation programme through load management directed to the industrial and domestic consumers could be implemented. Meeting sharp peaks of electricity demand is very expensive fron the generation side and when the distribution lines are over loaded the losses are significantly higher. The purpose of reducing the level of demand during the peak periods could generate substantial saving. .

Reservoir management is another option to conservelsave energy. During wintertime, BT could use efficiently the potential of the Nurekskaya reservoir to store low cost energy during the night and use it for peak periods when guarantylpeak energy is expensive. During the night low demand period, BT could purchase low cost thermal base-load energy from the neighbouring republics to meet the nightly local demand (like Tadaz) and reduce the generation of Nurek power plant to a minimum (a good incentive to be paid for frequency and voltage control) and accumulate water in the Nurekskaya reservoir. During winter morning and evening peak periods, Nurekskaya could supply the expensive peak demand by releasing the water accumulated during the night. Today, methods exist to manage a river basin with reservoirs and run-of-the- river power plants to optimise the management of a largely thermal system. See Appendix 5.2.4

3.10 PROJECT NO. 10 - REDUCING THE ELECTRICITY TECHNICAL LOSSES TO A REASONABLE LEVEL Duration about one year. An expert with a sound knowledge/experience in reducing technical losses in apower grid, based on cost/bene$t economic analysis (6 MIM, i.e. 180 WD) . Two local experts, one of them with IT capability (12 MMfor the two local experts). Plus equipment, software programs and operational expenses.

The technical losses in the Barki Tajik transmission and distribution grids are probably well above the 15% mark, which indicates a significant level of deterioration of the transmission and distribution

7 The load curve given in table 10 onward, demonstrate that the BT grid is very peaky. If load shedding is

@ necessary, it should be done in a selective way during the peak periods. Non essential services and industrial clients with heavy load should be encouraged to reduce their demand during the peak periods. Load shedding during the off- peak periods will save energy in the Nurek reservoir, but will not help with the peak demand.

@ infrastructures and most likely serious overloading of the transmission and distribution lines during peak winter periods. We understand that BT measures the losses of electricity at all voltage levels from the generation to the head of all distribution circuits, however, this information is stock piled in hand written bloc-notes and it is not easily available and need to be downloaded in computers. Apparently, BT measurements even discriminate between thermal and corona losses, full load and no load losses of the Tx. Unfortunately, all these data are not readily available, they need to be retrieved and compiled by hand and transferred on computers, which is time consuming. The local expert working for the Project Team, estimated that it will take at least 6 months of hard work to do the task of transferring all this information and raw data in a computer.

An electricity technical losses' reduction project could ascertain the exact amount of losses at all levels of the grids (ge:neration, transmission and distribution down to large consumers) and determine where the losses are abnormal and the reasons for this deficiency. Through an economic study a rehabilitationhmprovelment of the lines and substations may justify correcting and mitigating measures, which may generate economic benefits. A prerequisite will be a load management to mitigate the thermal overloading of the distribution lines during peak periods and having the tariffs set at their economic level, or use shadow prices, otherwise justification of improvements will be difficult, if not impossible, with the current tariff level. To keep and even improve the infrastructure inherited from the former regime, the transmission and distribution operators need sufficient revenues from adequate tariffs to be able to maintain the existing infrastructure and replace power apparatus after their useful life.

The 2002 amount of losses in the transmission and distribution grids of Tajikistan, was about 2 300 GWh and represented 14% of the total amount of energy delivered to the grids. By cutting this amount of losses by 50% and taking an opportunity cost of 3 cents per kwh8, the potential saving is about $ 30 millions per year. Enough to justify an energy conservation project to improve the efficiency of the transmission and distribution lines.

3.1 1 PROJECT NO. 11 - SETTING UP A NATIONAL COUNCIL FOR STANDARDS

Duration of Phase I , the planning of the Council, 4 W M (120WD). A expert from a National Standard and Norms Council, from a country with a size similar to Tajikistan, will assess the Tajik current capability to set norms and standards and propose a system, which will consider the real needs ( short , medium and long terms) of Tajikistan. One local expert plus one interpreter, to establish the contacts with all the current entitieddepartments with partial responsibilities for norm application. (8 WM). Plus operational expenses. The phase two will be the establishment o f a Tajik Council for Standards (2nd Norms.

The energy losses, resulting from inefficient building practices and energy wasteful electrical apparatus and domestic appliances, are unknown and could only be ascertained through a national survey. As a prelimina~y step a Council of Standards could be set up to take the responsibility of this function. To begin with, the institutional framework and allocation of decision-making authority relating to energy efficiency policy and conservation programmes for the buildings, industrial process and electrical apparatus to name a few need to be clarified.

In the context of the transfer of some of the "Tajikenergonadzor" responsibilities to the MOE, consideration should be given to create a Council or Agency having authority for the setting of the buildings, the technical, the industrial norms and standards for energy conservation, efficiency and security. This new Council/Agency needs not create new standards but could select from existing international one the most suitable for the Tajik conditions with adequate amendments. The Council

8 In Dushanbe organisations/commercial companies , which cannot affordlendure black outlload shedding, have

,

installed diesel driven generators. Their willingness to pay, i.e. their cost, for this security of supply is above 3 centsIkWh. In the Pamir region, since 2003, the electricity tariff for the commercial consumers is about 3 cents kwh

could approve selected standards as the National Standards of Tajikistan and represent Tajikistan in international standards' forums, and serve as Tajikistan's best source for standards' information. For accountability purpose, this Standards' Council for Standards could be independent but reporting to a Ministry for accountability.

The development and implementation of a programme on energy certification of buildings in Tajikistan would entail a rather complex and lengthy process. Nonetheless, to jump start the process some TA is needed to train specialists. Initially it would have to be facilitated through a specific project providing technical assistance to selected departments within the government administration. The department within the Ministry of Construction responsible for this activity is short of the necessary technical resources to plan the project it will need technical assistance to undertake this assignment.

a PART IV. THE LEGAL ASPECTS

4.1 INTRODUCTION

The community of international donors has been active in providing technical assistance to the Tajik Government under various projects on energy sector reform since the early 1990s.~ Nevertheless, none of these projects seem to have given much attention to the issue of energy conservation or the development of related policies and programmes.'0

Representatives of both the Tajik Government and the international community have regarded energy efficiency as a high priority for Tajikistan. In legal terms, this priority is already reflected in the Tajik Energy Conservation Law of 2002 as well as in international legal commitments the Tajik Government has made pursuant to the Energy Charter Treaty. The latter was signed in 1997, and the energy conservation law existed in draft form as early as 1998. However, progress on development of the legal, regulatory, and institutional fkameworks for energy efficiency in Tajikistan has been limited since 1998, except for the adoption of the Energy Law of 2000" and the Energy Conservation Law of 2002.

The Asian Development Bank, in consultation with the Ministry of Energy of Tajikistan, has funded the present project to provide technical assistance on the establishment of an energy conservation programme for Tajikistan. The legal component of this project is designed, inter alia, to review the energy sector law relating to energy conservation and to propose legal measures towards completing this legal framework.

This part of the report on the legal aspects is designed to meet that objective. Paragraph 4.1 describes and analyses the existing legal, policy and institutional framework in Tajikistan relating to the energy efficiency, taking into account the country's international legal commitments and its current national energy regime. Paragraph 4.2 provides a legal analysis of energy efficiency programmes by sector, focusing on the provisions in the Tajik energy laws and secondary measures relating to the main subjects of energy conservation programmes: buildings, industry, and equipment. This analysis also considers financing and funding issues. Finally, Paragraph 4.4 Appendixes provides some documents of interest to the legal aspects of energy conservation.

9 See, e.g., Final Report, TACIS Project No. 9401 "Advice to the Government and Preparation of Strategy Plan for Energy" ( 1 5 May 1997) (ENEL Consortium). Various ADB-funded projects and activities for Tajikistan having a legal dimension in the energy sector have been completed and reported. See, e.g., Draft Final Report, Asian Development Bank TA No. 31 14-TAJ, "Institutional Strengthening of the Transport and Energy Sectors" (August 2000) (Volume 111 - The Energy Sector) (Louis Berger SA, Louis Berger International Inc., and SMEC International Pty. Ltd.) [hereinafter referred to as "Institutional Strengthening Report"]. 10 The Tacis Project No 9401 (1997) had a chapterlactivity focused on energy conservation. However, the energy conservation expert, after considering the uneconomic tariff level for electricity and the fact that more than 60% of the consumers at that time were not paying their bills, suggested to postpone the activity. " The Tajik energy law is sometimes referred to in some reports as the law power engineering". Tajikistan has no law that could properly be characterized as an "electricity law".

4.2 THE LEGAL AND POLICY FRAMEWORK FOR ENERGY EFFICIENCY IN TAJIKISTAN

4.2.1 INTERNATIONAL LEGAL COMMITMENTS RELATING TO ENERGY EFFICIENCY

Energy Charter Treaty

On 25 June 1997, the Republic of Tajikistan deposited in the Depository of the Energy Charter Secretariat instruments of ratification for the Energy Charter Treaty (ECT) as well as its Protocol on Energy Efficiency and Related Environmental Aspects (PEEREA). This Protocol entered into force at the same time as the Treaty - 16 April 1998. The PEEREA includes specific commitments essential to improving energy efficiency. It expressly stipulates that governments shall:

9 Formulate strategies and policy aims (Article 5) Establish energy efficiency policies (Article 3.2) Develop, implement and update programmes (Article 8.1) Create the necessary legal (Article 3.2), regulatory (Article 3.2) and institutional (Article 8.3) framework Co-operate and assist internationally (Article 3.1)

In other words, each contracting party to the PEEREA is required to prepare an energy efficiency strategy and implement related programmes. However, as the ECT Secretariat readily admits, internal needs should provide the main motivation for elaborating such a strategy.

The Tajik Energy Sector Policy Statement of 1998

A remarkably brief statement of Tajik energy sector policy, adopted by decree in 1998,12 states a variety of forward-looking objectives for energy sector reform. Regarding strategy, the Energy Sector Policy Statement ("ESPS') indicates generally that the energy policy and legallregulatory framework @ should be conducive to a market-based energy system in which, inter aha, energy consumption should not be "distorted by Government price controls, subsidies and other interventions". Moreover, it calls for measures "introducing an energy pricing policy that encourages efficient use of energy and sustains the sector's development while taking into account social objectives." However, it does not set quantitative targets for energy efficiency and does not set forth any specific objectives for particular sectors, such as industry, buildings, appliances, or transport.

12 The two versions of English translations of this Energy Sector Policy Statement ("ESPS"), as set forth in previous project reports made to the ADB, have significant differences relevant to the institutional framework for energy regulation (e.g., one version called for establishment of a regulatory authority for electricity and gas, whereas the other did not). Therefore, it was necessary under the present project to seek a re-translation of the original decree to confirm which version was valid. It was determined that neither translation matches exactly to the official version of the ESPS adopted by Government Decree No 417 of 27 October 1998. It can be noted briefly that the official version does not include references to either a regulatory authority (as indicated by one translation) or to a duty of the Ministry of Energy (MOE) to "monitor business behaviour to curb use of monopoly powers" (as indicated by the other translation).

It should be noted further that the validity of the 1998 ESPS is presently subject to some uncertainty due to several factors, including (i) the potential effect of a subsequent Government Decision (No. 318 of 3 August 2002) regarding a new "conception" for the energy sector, (ii) the effect of the passage of time (five years), and (iii) the adoption of two Tajik energy laws, which, read together, do not fully reflect the terms of the 1998 ESPS.

a The 1998 ESPS is only four to five pages long. While the trend during the past decade among the European countries in transition is towards shorter, more decisive, and more focused versions of national energy policy statements (e.g., recently tending to be 25- 45 pages),'3 none is as brief as the ESPS.

Analysis of compliance with PEEREA

It appears that the policy framework in Tajikistan relating to energy efficiency is generally not in compliance with the legal commitments, policy recommendations, and accepted practices under the PEEREA of the Energy Charter Treaty. Despite Tajikistan's ratification of the ECT and the PEEREA in 1997, there is no indication in the project reports provided by the Asian Development Bank that this pre-existing international legal commitment was taken into account in designing or commenting upon the Tajik Energy ~ a w . ' ~

This gap in the policy framework for energy efficiency in Tajikistan has become readily apparent at the Secretariat of the ECT, which has recently identified Tajikistan as one of only three countries out

@ of 50 + signatories that has not adopted an energy efficiency strategy.'' As discussed in further detail below, the present lack of energy efficiency strategy in Tajikistan may be attributable in part to the design of the energy sector laws relating to energy conservation. Although the primary aim stated in Energy Conservation Law of 2002 is "to establish the legal basis for a Government policy and strategy to implement in the field of energy saving" (Art. l), there appears to be no provision therein that actually requires the adoption of an energy efficiency programme, policy or strategy. Similarly, there is no rule requiring the adoption of an energy policy or strategy in the Tajik Energy Act of 2000.

While the Tajik Energy Conservation Law indicates the intention to establish a legal basis for a "policy and strategy to [be] implement[ed] in the field of energy saving", it does not refer specifically to the ECT or its protocol. This can be contrasted, for example, with the energy efficiency act of 2000 of Romania, one of the other signatories of the Energy Charter Treaty. Article 1 of the Romanian energy efficiency act states its purpose in very clear terms, and it specifically refers to the country's international treaty obligations:

13 See Eugene D. Cross, "Guidelines and Strategies for Energy Policies in Transition Countries" in Proceedings @ of the IEARMDP workshop on New Energy Policies in Southeast Europe, 1-2 October 2002 (IEA website publication: htt~://www.iea.org). 14 See "Institutional Strengthening Report", supra note 1. Under the programme for the Post-Conflict Infiastructure Program Loan, approved on 10 December 1998, for $20 million (Loan 1651-TAJ (Special Funds)), the enactment of an energy law in a form acceptable to the Asian Development Bank was one of the conditions for the release of the second tranche. In addition, enactment of the energy law and establishment of the Ministry of Energy were conditions precedent to proceeding to loan negotiations for the Power Rehabilitation Project. See Asian Development Bank, Memorandum of Understanding, Power Rehabilitation Project, Appendix 20, page 1. The ADB's proposed changes to the draft energy law are set forth on pages 1-2 of said Appendix 20. See also Loan TAJ (SF): Post-Conflict Infiastructure Program Loan, Terms Of Reference (TOR) for Staff Consultant Energy Sector Policy and Restructuring Expert (1998) (requiring, infer alia, draft Energy and Electricity laws to create an enabling framework for economic growth in a market economy, and a review of the draft ESPS). l5 Energy Charter Secretariat, "The Road Towards an Energy-Eficient Future" (May 2003), at page 50. In this study covering 50+ signatory countries, the Secretariat of the ECT identified only five countries that "do not have energy efficiency strategies or energy strategies that clearly give a priority to energy efficiency." And of these five countries, two were reported to have a draft strategy in place awaiting final governmental approval. This leaves only three countries that have ratified the ECT but which are reported to have no energy efficiency strategy: Tajikistan, Turkmenistan, and the Federation of Bosnia and Herzegovina. In reaching this conclusion,

@ the ECT Secretariat has not overlooked the Tajik Energy Sector Policy Statement of 1998. Ibid at 120. However, ECT Secretariat was apparently unaware of the Tajik Energy Conservation Law of 2002. See ibid. at 126.

Article 1, Romanian Energy Efficiency Act of 2000: I. "The purpose of this law is to create the legal framework required for the setting up

and enforcing of a national policy for the efficient use of energy, according to the Energy Charter Treaty, the Protocol of the Energy Charter regarding energy efficiency and environmental protection as well as the principles of sustainable development.

2. This law sets obligations and establishes stimulating measures for energy producers and consumers regarding the efficient use of energy."

As mentioned above, the Secretariat of the ECT acknowledges that the main motivation for an energy efficiency strategy must come from within a country. The Secretariat's view is that while the market conditions and price levels will serve to achieve a certain level of energy savings in all countries, certain barriers will prevent the rest of the economic potential from being achieved. These are the problems that must be explained and addressed in a comprehensive manner by an energy efficiency strategy. Moreover, it must be made clear that the responsibility for energy conservation falls on all members of society, not only the government.

As described in more detail below, these basic concepts on energy efficiency should be better integrated into the policy and regulatory framework for the energy sector of Tajikistan. The main tenet of energy strategy imposed on the Tajik Government in 1998 was that "[c]onsumers should be free to select among competing suppliers of energy at market-determined prices, and energy enterprises should be given the maximum degree of autonomy to take responsibility for operational results.'" This pro-market orientation does not appear to reflect the need to use regulatory measures to overcome the various barriers to the achievement of energy saving potential.

UNFCCC

The Republic of Tajikistan joined the UN Framework Convention on Climate Change (UNFCCC) on 7 January 1998 and accepted its commitments, as a Party not included in Annex 1 of the Convention. It has not signed the Kyoto Protocol.

In September 2002, the Ministry for Nature Protection submitted Tajikistan's first national communication under the UNFCCC.'~ This National Communication indicates that a National Action Plan for Climate Change has been adopted. The first item indicated in the National Action Plan for fulfilment of Articles 4 and 12 of the UNFCCC (reduction of GHG emissions) is "enhancement of energy efficiency in relevant sectors of the national economy."" Response measures are to be targeted at all relevant sectors: energy, transport, agriculture, forestry and wastes. For the energy sector, the National Communication mentions the need for enhancement of electricity networks, stations and transmission lines, and thermal insulation of buildings, as well as promotion of renewable energy such as hydropower. Specific industries have been targeted with recommendations for improved technologies.

It is therefore recommended that any follow-up project to update the national energy strategy and/or national energy efficiency strategy or programmes should necessarily involve an analysis of their consistency and interaction with the National Action Plan for Climate Change. Similarly, any such follow-up project in Tajikistan to update the national energy (or energy efficiency) strategy or to adopt energy efficiency related programmes should take into account any Governmental commitment relating to carbon credits and the UNFCCC made pursuant to the Pamir Concession ~ ~ r e e r n e n t " or

16 Tajikistan's National Communication can be found at: httu://unfccc.intlresource/docs/natc/tainc I .pdf 17 Ibid. at 17. The National Action Plan for Climate Change has been requested from the Ministry of Nature Protection but has not yet been provided for purposes of this review. 18 The Concession Agreement of 24 may 2002 between the Government and the Pamir Energy Company requires that, "on such terms as the Parties may agree, the Parties undertake to consider establishing a mechanism for the sale of "Emission Reduction Units" (and the possible sharing of benefits arising from such

any other applicable legal instrument. Given the role of the Ministry of Nature Protection in this context, the overall allocation of ministerial and governmental responsibilities over energy efficiency actions and programmes in Tajikistan should also be analysed in any such follow-up project.

EU-Tajikistan relations

Unlike some of its neighbouring countries, Tajikistan is not a party to a Partnership and Co-operation Agreement with the EU. These agreements, which are distinct from Association Agreements being negotiated with 12 Mediterranean Partners, have been negotiated with a variety of partner countries to the EU, such as Kazakhstan, the Kyrgyz Republic, and Azerbaijan. Typically, these agreements contain obligations on co-operation in the field of energy efficiency. Discussions on energy cooperation with such countries have started within the framework of these agreements, in addition to the energy-related technical assistance performed under the EU's TACIS programme.

Meanwhile, the Russian-EU Energy Dialogue has entered a new phase, having already opened in- depth discussions to identify the actions necessary by both parties to progressively reach equivalent levels of energy market opening, fair market access, and environmental and safety protection. The 0 Russian Federation is strongly advocating synchronous connection between the UCTE and the RAO- UES electricity systems, and the European Commission has stated the intention to define the terms of reference for a full feasibility study to examine the technical aspects of interconnecting the networks. The Commission believes that the interconnection project should be declared a Priority Project of European Interest, which would make it eligible for support funding under the Trans-European Network mechanism. The long-term vision is of a common regulatory space and a common EU- Russia economic area. Co-operation on energy conservation under the EU-Russia Partnership has now been formalised in a legal agreement dating to October 2000. In the three-year period under this Iong- term institutionalised partnership, there have been various pilot programmes on energy efficiency, and work is now underway to define specifications for technical assistance under the TACIS 2003 programme on energy efficiency.

Most of the European countries in transition, particularly those exhibiting a relatively high level of energy consumption measured on a per capita basis, have recognized that governmental intervention in the market for the purpose of reducing energy consumption is nece~sary. '~ Their recognition is based in part upon the experience under the wide variety of energy efficiency measures and practices in place within the EU member states, as well as upon the EU legal requirements on energy efficiency

e programmes,20 which the EU candidate countries are obliged to implement.

In light of the above international developments, and of the possible future creation of a fully- integrated EU-Russian "single electricity market" adjacent to the regional energy market being developed among the Central Asian Republics, it is recommended that any follow-up project to update the national energy strategy and/or national energy efficiency strategy or programmes should necessarily involve an analysis of the current level of international co-operation with the EU and the possible need to augment the legal, regulatory and institutional framework of Tajikistan related to energy and energy efficiency. The actions and programmes used in the EU and candidate countries to overcome related barriers to energy efficiency should be considered for Tajikistan in appropriate cases.

sales) resulting from the implementation of the project in accordance with the "Clean Development Mechanism" pursuant to and as such terms are defined in the United Nations Framework Convention On Climate Change." 19 See, e.g., Czech Republic, Justification Report for the Draft Energy Management Act, 23 February 1999, at 3. 20 see Council Directive 93176iEEC to limit carbon dioxide emissions by improving energy efficiency (OJ L 237/28), designed to promote the rational use of energy. See also Directive 2002/91/EC of the European Parliament and of the Council of 16 December 2002 on the energy performance of buildings (OJ L 1/65).

Other international commitments related to energy eficiency

Finally, there are a few other international agreements applicable to Tajikistan with aspects related to energy efficiency.21 In addition, there are a number of commitments in the area of sustainable development that may have certain aspects related to energy efficiency.22 However, no such additional international commitments at the level of significance of the PEEREA or the UNFCCC have been identified. Because not all of these international commitments have been reviewed in detail for purposes of this project, further analysis of their energy-efficiency related aspects could also be recommended in any follow-up project.

4.2.2 NATIONAL LEGAL AND REGULATORY FRAMEWORK RELATING TO ENERGY EFFICIENCY

In addition to the various international legal commitments indicated above, there are many Tajik legal measures that also comprise the legal and regulatory framework relating to energy efficiency. The terms of reference of this project requires a review of "the energy sector law and the organisation o f the [Ministry of Energy] and status of other energy companies". However, in addition to the energy sector law, there is a wide range of other legal measures that can have an impact on energy conservation in Tajikistan. Since no previous analysis of the legal framework for the Tajik energy sector seems to have been completed subsequent to the adoption of the Energy Act of 2000, it is useful to provide the identification and analysis of energy-related legislation and measures, apparently for the first time.23 Consistent with the terms of reference, this survey and analysis is organised and directed towards the energy-efficiency related aspects of the national legal regime. It is divided into several parts below.

Competition legislation and secondary measures (relating to the setting of tariffs for energy)

Government Decree No. 441 of 25 March 1996 "on the management of state-owned enterprises" established the general principle that "the government has no right to interfere in the day-to-day operational and financial affairs of state enterprises and shall not set prices or control the sale of goods produced, except as authorised by existing legislation." (Art, 2(2)).24 AS in most countries, pricing by

--

21 See, e.g., Agreement of 14 February 1992 on the Co-ordination of Interstate Relations in the Field of @ Electricity of the Commonwealth of Independent States, Article 2.13 (relating to recommendations on energy conservation). See also Agreement of 25 November 1998 on the Co-ordination in the Field of Electricity by the Members of the Commonwealth of Independent States. 22 The Ministry of Nature Protection has reported a number of multilateral declarations and statements on sustainable development. The Nukus Declaration (1995), adopted by the heads of five Central Asian States, confirmed the devotion of Central Asian region to strive for sustainable development of the region and to promote economic co-operation and development in an ecologically benign manner. The Almaty Declaration (1997) envisaged the creation of a regional strategy on sustainable development. A 1998 agreement "On cooperation in the field of nature protection and rational utilization of natural resources" is reportedly the basis for development of regional activities in this direction. Moreover, devotion to regional sustainable development progress is reflected in the Joint Statement on the fourth conference on nature protection (1998) and the UN Commission on economic and social issues for Asia and Pacific (Tehran, 2000). 23 NO previous project report (presented to the ADB) provides any recent description or analysis of the laws and decrees comprising the legal framework relating to the Tajik energy sector. The FITCHNER report of March 2002, which relates to regional electricity transmission modernisation, presents a five-country review of power sector status, government plans and policy dialogue. This report includes a few brief and general statements about the Tajik energy law of 2000 and anti-monopoly policy, but these statements are not always accurate or are ambiguous. See Draft Final Report, Regional Power Transmission Modernization Project in the Central Asian Republics, TA No. 5960-RETA, Main Report, Volume 2 (March 2002) (FITCHNERI David Butcher & Associates) at pages 33-34,41, 50. 24 This decree was made void by or pursuant to the Civil Code (1999). A replacement measure has been under development for several years but is still under consideration.

@ energy enterprises in Tajikistan is subject to both energy legislation and competition legislation. However, Tajikistan still lacks an energy regulatory authority. There are two main laws relating to the regulation of monopolies in Tajikistan:

Law on Natural Monopoly of 13 December 1997, as amended by Law No. 5 of 12 May 200 1 Anti-Monopoly Law No. 1 1 of 2000, as amended

Pursuant to these laws, the Anti-monopoly Committee has the power, inter alia, to set or modify tariffs for regulated services falling its within area of competence, which includes electricity enterprises.25 Article 3 of the Law on Natural Monopoly specifically refers to electricity and gas transportation. Article 5 of the Law on Natural Monopoly sets forth the reasons acceptable for a revision of tariffs for regulated services:

"The reason to revise the tariffs for regulated services can be one of the following cases, or severaI of them:

development and improvement of the services provided in the applicant branch; transfer to regulation of the tariffs for the services by separate categories of consumers and separate types of services; tariffs for the services do not cover their expenses and inhibit the development of the services and the monopoly itselc modification of the volumes of expenses referable to the cost of services, obligatory deductions and payments according to budgets, after the adoption of certain legislative and normative acts; inflation and change of other factors, affecting the cost of the products, consumed by the enterpriseslmonopoly'"

These appear to be fairly broad grounds for consideration of various proposed revisions to the tariffs. The Committee currently has seven (7) persons working on the setting of tariffs for electricity. A comprehensive list of the current and draft decrees issued or pending before the anti-monopoly committee is not available, but this would include the following:

Decree No. 27 of 27 May 2002 [of the State Anti-monopoly Committee] on the establishment of simultaneous charges for connection of consumers' electric power to the electricity networks. [Draft] Decree of August 2003 relating to special charges for reconnection of electricity consumers (not yet numbered in draft form).

In addition, the Government has issued various decrees on energy tariffs and on the activities of the Anti-monopoly Committee. The Committee mandate appears to be based on Article 4 of the Law of Natural Monopoly, which enables the Government to define the body responsible for regulation of natural monopolies. The decrees setting tariffs for electricity and heat obviously have an impact on energy consumption. They include the following:

Government Decree No. 153 of 3 April 2000 on tariffs for electricity and heat energy Government Decree No. 422 of 1 November 2000 on alteration and amendments to the decree No. 153 of 3 April 2000 "On tariffs for electric and heat energy" Government Decree No. 155 of 2 April 2002 on tariffs for electricity and heat energy

25 In August 2003, the Anti-Monopoly Committee reported to the project team that, since its establishment, it has not received any complaint on monopolistic abuse of market power and that the Agency has not yet issued any ruling to mitigate monopoly power of either private or state-owned enterprises. This perhaps indicates that its establishment may have been pre-mature or that it requires technical assistance to augment or redefine its competencies.

Decree No. 75 of 14 February 2001 on questions of the state agency on anti-monopoly policy and assistance of undertakings under the Government of RT, adopted pursuant Decree No. 449 of 1 1 January 2001

Furthermore, the state unitary enterprise, called "Household Services" or "Housekeeping Units", has power to establish tariffs for heat energy and other services that it provides to buildings and to public and municipal enterprises. This power is enumerated under section three of its charter.

Given the overall importance of energy pricing mechanisms in any energy regime, as well as the relevance of energy tariffs and prices to energy efficiency, it is recommended that any follow-up project relating to the development of the legal/regulatory or policy framework for the energy sector include an analysis of the current system of formation and regulation of energy prices in Tajikistan and of possible alternative systems. This should include consideration of the possible establishment of a separate energy regulatory authority with competence over price regulation.

Energy legislation and secondary measures (relating to energy consumption and conservation)

The Tajik Civil Code provisions, legislation and other measures directly relating to issues of energy consumption and conservation (or referring explicitly to the efficient use of energy) include the following:

- Civil Code, Part I1 (1999) (sections relating to energy supply ) - Energy Law of 29 November 2000 - Energy Conservation Law of 10 May 2002 - Government Decree No. 465 of 17 October 1996 on state energy supervision - Government Resolution No. 572 of 3 1 December 1997 on the main provisions on rationing

expenditures on power and heat in the national economy - Government Decree No. 84 of 6 March 1998 adopting rules on utilization of electric energy - Decree No. 422 of 7 September 2001 on the inter-agency consulting commission of the energy

sector - Government Decree No. 3 18 of 3 August 2002 on a conception for the development of the

energy sector of the Republic of Tajikistan for the period of 2003-20 15 - Government Decree No. 154 of 3 1 March 2003, amending Decree No. 240 of 5 July 2002 on

consumption of natural gas

e - Government Document No. 12.3-1 of 11 March 2003 (Ministry of Energy Registration No. 24 1 of 14 March 2003) on a draft action plan of the Government Policy and Strategy for Poverty Mitigation

These laws and decrees are analysed in more detail in the relevant sections below in the appropriate contexts.

Technical norms and standards

There are various technical norms and standards that may have an impact on energy consumption. The Ministry of Construction, for example, has a section on standards for "ventilation, heating and insulation" which is responsible for norms and technical standards for the construction of buildings. The relevant committee does not establish new Tajik norms and standards, but rather it exclusively uses those of the Soviet Union and now of the Russian Federation. In particular, the committee has indicated the relevance of heating norm No 2 04 05 86, ventilation norms No 2 08 02 89 and No 2 04 05 91, and building norm No 2 08 02 89. These building norms need to be updated and made relevant to the Tajik environment, but the committee is short of the necessary resources and in need of

e, technical &stance to undertake this task.

The project team has provided an example of a technical requirement norm for the thermal technique of envelopes of buildings, issued by the Lithuanian Ministry of Environment in 1999, as an example of a possible design requirement for buildings that could be adapted for Tajikistan. Any follow-up project to this one should include a component for translation, training and technical assistance on the development of such technical norms and standards.

Measures relating to the state energy supenision body "Tajikeenergonndzor"

The role and status of the so-called State Energy Supervision Body "Tajikenergonadzor" has been defined the 1996 Government Decree mentioned above.26 According to the accompanying "Statement" approved by this decree, "Tajikenergonadzor" includes regional, urban and district supervision agencies. The Statement provides that the Director General of "Tajikenergonadzor" is simultaneously the State Inspector assigned by Barki Tajik in concordance with the ~ o v e r n m e n t . ~ ~ The leaders of the regional agencies are the Deputy General State Energy Inspectors of Tajikistan. Because of the various and numerous local agencies, the organisation as a whole is often referred to in the plural as the "state energy supervision agencies".

0 According to the organisational chart provided by "Tajikenergonadzor", the entity has 13 different departments, including two main inspection departments comprised of numerous local inspection agencies, the inspection department for the Pamir region, as well as ten specialized departments dealing with such as energy conservation, legal affairs, economic studies, power grid inspection, printing, and the department of information and analysis of work done by the various inspectors. In general terms, its main task is the control, inspection and monitoring of the technical norms, standards and quality of electricity supply. It employs more than 200 persons of which 166 are inspectors in the field. The annual budget is reported to be 500 000 Somoni ($159 OOO), provided directly by Barki Tajik. This budget is more than twice that of the MOE which has about 75 employees.

As defined in the 1996 decree, "Tajikenergonadzor" appears to be the closest entity to an energy conservation agency that Tajikistan presently has. Its functions are various but are defined in the applicable regulation to include energy saving activities such as "generalising and encouraging measures for rational use and economy of electricity and heat carried out by consumers", "making proposals to the corresponding ministries and departments to correct the defects revealed", and "issuing literature/books and placards in the established order concerning power economy and safe operation of electrical and heating installations". In practice, its activities in the field of energy conservation appear to be rather limited, although it claims to have engaged in certain energy audits of 0 industrial enterprises ( e g , of TADAZ which resulted in a decrease in electricity consumption per ton of aluminium). This can be contrasted with the activities of the MOE, which appears neither to engage in any such energy auditing nor to monitor such effort^.^'

Under Government Decree No. 590 of 2001, the MOE was required to prepare new rules applicable to "Tajikenergonadzor" within three months (art. 6). However, this has not yet been done. The reason given by representative of the MOE is that since the year 2000, the Government has not made any decision on the treatment of "Tajikenergonadzor", and therefore the MOE could not adopt the required rules.

There is currently a proposal to merge major elements of "Tajikenergonadzor" into the MOE, and a draft decree to this effect has been signed by several Ministers and awaits final approval by the Government. This draft decree would approve a set of rules, entitled "Regulations on state energy

26 Government Decree No. 465 of 17 October 1996 on the State Energy Supervision. 27 In a recent interview with the legal department of Barki Tajik (BT), it was stipulated that "Tajikenergonadzor" is "a division of B Y but also part of the Government. 28 In an interview held in August 2003, the head of the electricity department of the MOE was not aware of any energy audits or any other activities by the MOE to reduce energy consumption in Tajikistan. Other officials of MOE were also asked about details of activities of the MOE in the area of energy conservation.

sector supervision of the Ministry of Energy of the Republic of Tajikistan". This measure defines the functions, rights and responsibilities of "state energy supervision", a concept which is defined to include as its main task the "control over rational and effective usage of energy resources in the sphere of their generation, transportation, transmission, distribution, storage and use, as well as "observance of norms of consumption of energy resources". The proposed measure would transfer many of the functions and powers of "Tajikenergonadzor" to the MOE. The issues of transfer of personnel would have to be resolved within a month afler its adoption. The "rights" of state energy sector supervision, as defined in part three of the rules, include broad powers of the MOE of, inter alia, inspection, free access, and injunction. These perhaps carry a risk that the MOE will appear in the future to be some kind of "energy police".

Previous consultants have already presented the Asian Development Bank with an analysis of options and specific recommendations for the corporatisation of the state energy supervision agencies that comprise the entity "~aj ikener~onadzor" .~~ The stated rationale varies but one clear justification for these specific recommendations is apparently that the bulk of the "professional technical services" provided by the energy inspectors and other employees are "largely contestable". The consultants have stipulated that this state energy inspectorate should be a corporation whose shares can be sold or acquired and that privatisation can take place at a later stage. Alternative recommendations were made to suggest dividing "TajikenergonadzorY' into more than one governmental body. No consideration was apparently given to transforming elements of this entity into an energy conservation agency.

The Energy Conservation Law specifically mentions the powers and duties of the entity responsible for state energy supervision in Articles 10, 12 and 20, and these include monitoring and sanctioning powers. While the Energy Conservation Law therefore clarifies the role and activities of "Tajikenergonadzor", it also appears to define more generally the various subjects and activities covered by the phrase "State energy supervision" (Article 7) and to include a general enabling provision to allow the Government to assign these functions to a specialized state entit (ies) established for this purpose (Article 8). The fact that neither Article 7 nor Article 8 would appear to specifically refer to "Tajikenergonadzor" presumably means that these powers and could be assigned in part or in whole by Government decree (amending or replacing Decree No. 465 of 17 October 1996 on the State Energy Supervision) to a different entity (such as the MOE) pursuant to Article 8 without the need for new legislation. This interpretation of the enabling clause has been acknowledged by the MOE to the project team, and probably forms the legal basis for the draft decree mentioned above that would transfer such responsibilities to the MOE.

The organisation of governmental functions, such as those assigned to "Tajikenergonadzor", is a @ prerogative of the Government of Tajikistan. It can be noted, however, that many countries in

transition have taken a path that differs from the one being adopted presently for "Tajikenergonadzor". Many countries have established a separate energy conservation agency (e.g., Bulgaria's SEEA or Poland's KAPE). Other countries have created an "energy agency" within a Ministry of Economy or a Ministry of Industry and Trade, responsible for developing policies and programmes on energy conservation on an inter-Ministerial basis (e.g., Lithuania), in some cases leaving energy inspection activities to a distinct "state energy inspectorate" (e.g., Czech Republic). In Hungary, the Energy Centre established in 2000 is jointly owned by the Ministry of Economic Affairs, the Ministry of Environment and the Hungarian Energy Office (the energy regulatory agency). In Romania, the Agency for Energy Conservation (ARCE) is a legal body with financial and administrative autonomy, subordinated to the Ministry of Industry and Resources.

It is therefore recommended that further consideration be given to possible alternative models for the institutional framework for energy conservation in Tajikistan. As described in more detail below, this

29 See "Institutional Strengthening Report", supra note 1, at 28-36 (Appendix 3-1) (August 2000) (Louis Berger SA, Louis Berger International Inc., and SMEC International Pty. Ltd (recommending that "Tajikenergonadzor" be corporatized instead of transferring it into the MOE or another Ministry). The envisaged new commercial role was "to provide valued services to Government, Barki Tajik and potentially to industry generally". Ibid. at page 34.

institutional framework is poorly defined at present in Tajikistan. The lack of clear allocation of responsibilities relating to the institutional framework for energy efficiency and the uncertainty as to the independence and future role of "Tajikenergonadzor" constitute significant barriers for energy efficiency improvements in Tajikistan. Therefore, further analysis and development of this institutional framework should be a component of any follow-up project.

Measures relating to the inter-agency consultative committee of the energy sector

The "Inter-agency Consultative Committee for Energy" (hereinafter "Committee"), headed by the Minister of Energy, is mentioned in the Energy Act of 2000 (Article 8), but not in the Energy Conservation Law of 2002. Pursuant to Article 8 of the Energy Act, the Committee was established in September 200 1 by Government decree. Under the applicable regulation approved by the decree, the Committee is required to be comprised of the representatives of the executive authority at the local level, ministries, agencies, scientific and design institutes, energy enterprises and consumers. Its structure is to be approved by the government of RT upon the submission by the Minister of Energy. Decision-making is by majority vote, in open meetings held at least twice a year, and its decisions must be published in the official gazette. However, according to the decree, its members are to serve without any compensation.

Part I1 of the regulation on this Committee defines its rights, responsibilities and functions:

The Committee considers the proposals and prepares the recommendations for the following issues:

state regulation of the branches in order to supply electric and heat energy, oil and oil products, gas and coal to the population, according to economically based, socially acceptable prices all over Tajikistan;

encouragement of energy market development and inspiration of competitive producers;

provision of the balance of producers' interests and users of all types of energy resources;

prevention of negative consequences of monopoly activity in energy sector;

strategic planning and forecast to improve the financial issues and involve local and foreign investors into the energy sector;

efficient use of electric and heat energy, gas, coal and oil products;

export and import of energy resources and products;

development of renewable and non-conventional energy sources;

design and adopt directive methodical instructions, normative acts in energy sector regarding utilisation improvement, effectiveness increase and safety of electric equipment.

The Regulation also requires that, at the latest of 30 days after the calendar year ends, the committee should prepare the annual report of the work done with its following submission to the Government and Ministry of Economy and Trade.

In summary, the Committee does not appear to establish energy policy, but rather to "consider various proposals and make recommendations". These recommendations may relate to matters such as efficient use of energy or the development of renewable and non-conventional energy sources. Its member and officials are not entitled to receive any compensation for their work for the Committee,

@ which would appear to be a limit on its effectiveness. Its decisions are published, and it is required to submit an annual report in January each year.

In light of the above, one can query as to which entity is legally responsible for the setting of energy efficiency policy. The Energy Law appears to make the Ministry of Energy responsible for implementing "programmes" on energy saving (Art. 7) but not for developing "policy", except to the extent that it prepares such programmes for "approval and control" by the Government (Art. 6). Article 8 requires the Government to establish the "Inter-agency Consultative Committee for Energy", headed by the Minister of Energy, "in order to review proposals related to the energy sector and ways to improve efficiency.. .". But the law does make clear which entity or entities would make these "proposals".

The lack of provisions relating to the adoption, assessment and implementation of energy or energy efficiency policy may well explain why there has not been any update or assessment of the five-year old, four-page "energy sector policy statement", at least not publicly. This can be viewed as a significant gap in the two energy laws that seems to have been overlooked. Previous project reports regarding the contents of the draft energy law make no mention of this issue, and project reports written subsequent to the adoption of the Energy Law of 2000 appear to assume that the MOE sets

@ energy policy.30

In addition to this gap in the legislation, the two main energy laws are not consistent with each other in their allocation of duties relating to energy saving policy. The Energy Conservation Law makes no mention of the "Inter-agency Consultative Committee for Energy" and indeed, it makes no reference to any specific ministry, not even the Ministry of Energy, whose role on energy saving is defined in the Energy Law. Neither law explicitly defines the relationship between the MOE and the "Tajikenergonadzor". In fact, the Energy Conservation Law appears to assign monitoring functions (Article 10) and sanctioning powers (Article 20) to the entity responsible for "state energy supervision", rather than to the MOE. This vague approach to legal drafting may perhaps serve to maximize flexibility in public administration under the law, but it has done little to ensure systematic inter-ministerial co-ordination or support for implementation on energy conservation. Thus, the overall impression of an analysis of the two Tajik energy laws is that the institutional framework relating to energy conservation remains poorly defined.

It is therefore recommended that the Government of Tajikistan undertake to fill these gaps and to clarify the ambiguities in the legal framework regarding the adoption, assessment and implementation of energy and energy efficiency policy. Any project to redraft the primary Tajik energy legislation on these points should consider the relevance and usefulness to Tajikistan of the legislative models from countries in transition in Eastern Europe, such as the Polish Energy Act of 1997, and the Czech Energy Management Act of 2000. These laws contain provisions forrnalising the time schedules for adoption, assessment, and implementation of an energy policy or strategy on a bi-annual basis. These laws make clear which parties should be involved, which procedures and schedules should be followed, and how assessment should take place. They also reflect the recognition in certain countries of the importance of local energy planning concepts. Further discussion of this matter is set forth in the Appendix of this section.

Measures relating to the status of other energy companies and related governmental entities

Six energy enterprises/utilities are currently related to the MOE. Three of these enterprises are joint- stock companies, and three are "state unitary enterprises". The most important of these is the state

30 See Draft Final Report, Asian Development Bank, Regional Power Transmission Modernization Project TA No. 5960-RETA, FICHTNERJ David Butcher & Associates, Volume 2, Main Report, at page 34 (stating unambiguously that the Energy Law does not stipulates that energy policy and regulation is the responsibility of the MOE).

@ joint-stock holding company, Barki Tajik, which has at least eleven divisions, and which is wholly owned by the Government.

While some form of unbundling of its accounts is reportedly underway, Barki Tajik remains a vertically integrated enterprise. The operation of the Tajik electricity transmission and distribution system is not independent, in terms of decision-making, from activities not relating to transmission or, respectively, distribution. There is also apparently no system of regulated access to the network based on published tariffs, applicable to all eligible customers and applied objectively and without discrimination between system users. There is no electricity law or other law in Tajikistan which requires the designation of an electricity network operator or which sets forth the duties of such an operator. In light of the intentions stated in the 1998 ESPS, all the above aspects can be regarded as major deficiencies in the legal framework for the power sector.

The other two joint-stock companies related to the MOE are the companies, Sangtudin and Nafrason. The three "state unitary enterprises" related to the MOE are Tajikgas, Tajikneftegas, and Tajikangisht.

There are numerous decrees and company charters (or by-laws) that relate to these energy enterprises and to the state management of energy enterprises generally. These measures are too numerous to list comprehensively, but include the following:

Government Decree No. 484 of 29 December 2000 "on the Ministry of Energy of the Republic of Tajikistan" " and the regulation of the Ministry of Energy of RT, approved by this decree Government Decree No. 590 of 30 December 2001 "on the introduction of changes to Government Decree No. 484 of 29 December 2000 on the Ministry of Energy of the Republic of Tajikistan" Presidential Decree No. 964 of 18 January 2003 "on some changes in the state management system" Presidential Decree No. 52 of 5 February 2003 "on the measures of the realisation of the Presidential Decree No. 964 of 18 January 2003 on some changes in the state management system" Government Decree No. 140 of 1 1 April 2001 on the establishment of the state-owned enterprise "Tajikangisht" Government Decree No. 357 of 3 1 July 2001 on the state unitary enterprise "household services" Charter (200 1) of the state unitary enterprise "Household Services" Government Decree No. 354 of 25 July 2001 on measures to ensure financial rehabilitation and strengthening the material and technical basis of SSHK "Barki Tajik" Government Decree No. 492 of 3 November 2001 on the open joint stock (holding) company "Barki Tajik" Charter (2001) of the open joint stock (holding) company "Barki Tajik" Government Decree No. 236 of 7 June 200 1 on the adoption of the charter on the state unitary enterprise "Tajikneftegas" Charter (200 1) of the state unitary enterprise "Tajikneftegas"

Legislation relating to certain investments in the energy sector

Other existing primary legislation that would be relevant to investment in certain energy-efficient production facilities (such as investment in geothermal-based district heating) would include the following laws:

Foreign Investment Law of 1993, as amended Mining Law of 1994

a Concessions Law No. 430 of 15 May 1997, as amended

@ Legislation relating to sustainable development

The Ministry of Nature Protection has identified. a number of additional legal commitments, both domestic and multilateral, which relate to sustainable d e ~ e l o ~ m e n t . ~ ' These measures have not been reviewed for purposes of this project but they may have certain energy-efficiency related aspects:

Law on customs tariffs (1995); Law No. 329 of 13 December 1996 "On safeguarded natural territories" Law of 13 November 1998 "on public service" Law on foreign economic activities (1999) Nature protection laws (6 laws) Decrees of the President of the Republic of Tajikistan related to stimulation and development of private entrepreneurship, small and medium business International documents on sustainable development: Global Agenda 2 1 and Recommendations of the Rio de-Janeiro Conference (1992) Treaty on creation of Common Economic Space between the Republics of Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan - Central Asian Economic Community (1994)

e Draft legislation that may affect the energy sector

In addition to the measures mentioned above, draft legislation reportedly under consideration by the Government that may affect the ownership, market structure, or regulation of the energy sector includes the following:

State Enterprise Law Joint Stock Companies Law Privatisation of State Property Law

The licensing regime applicable to energy enterprises

The Energy Law of 2000 provides for an energy regime based on both concessions and licenses. This has been implemented in practice in an overlapping way that may pose special regulatory issues for an energy regulatory authority, should one be established in the hture. This dual system is perhaps based upon the recognition of the pre-existing regime consisting of the 1997 Tajik law on concessions @ (mentioned above), as well as Law No. 450 of 23 December 1992 on "Entrepreneurial ~ctivity".'~ An alternative explanation is that, in addition to the need to maintain a licensing regime, perhaps there was some anticipation of the need to grant long-term concessions in the future for electricity supply in certain relatively unpopulated regions of the country, such as the Pamir. In any event, the dual system is now in place.

The licensing regime is still under development, although an estimated 600 licences have been issued by the MOE in the past two years. The Energy Law lacks a prohibition on unlicensed activities, and it does not set forth criteria for the issuance of licences or the related appeal procedures. Application procedures are set forth in Government Decree No. 591 of 2001.

-

3' Ministry of Nature Protection, "National Sustainable Development Report Rio +lo" (2002). No expert from the Ministry of Energy listed as a contributor to this national report, which may indicate a lack of co-operation on energy-related issues. Little consideration seems to have been given in said report to measures to reduce energy consumption except perhaps for the transport sector and in the context of recommendations on use of renewables-based electricity production. 32 Law No. 450 of 23 December 1992 sets forth guarantees for the freedom of such activities, but made certain activities conditional on a licence granted by the government, such as for "prospecting and exploitation of minerals" and "activities of central gas stations, the distribution of natural gas; and the assembling of gas bottles for vehicles".

The MOE reports that it has issued licences to governmental entities, such as ccTajiEnerg~Nad~oor", and to entities holding energy concessions, such as the Pamir Energy Company. This type of overlapping concession/license regime is unusual at least among European or Western Asian countries, but it may be explained by the relative lack of substantive content in the licences. According to the head of the licensing department of the MOE, all of these licences are accompanied by a set of standard licence conditions as an "addendum" to the licence. The licence itself is a multi-coloured certificate with several forms of "security" to prevent forgery of the certificate.

The substantive elements of the licence are therefore included in the standard licence conditions, which are said to apply to all the licences issued by the MOE. These licence conditions are as follows:

adherence to the current legislation of the Republic of Tajikistan availability of certificates for production that is subject to mandatory certification in cases established by law observing the requirements in the exploitation of equipment listed in instructions, rules, standards and other normative-technical documentation refraining from activities that threaten life, health and safety of people and harming the interests of state, the economy, and property; securing management of promised and uninterrupted electricity supply; observance of qualifying requirements; observance of requirements relating to environment and fire safety; presentation in due time of complete information relating to organizational and technical and technological changes influencing the safety of licensed activities, incidents and deadly accidents taking place during the carrying out of the activity; informing within 10 days of any changes the Ministry of Energy of RT or the local TPLs (referring to paragraph 19 of the "Ordinance on licensing rules").

The Government sets licensing policy and procedures, not the MOE. There seems to be low interest within the licensing department of the MOE in conducting a proposed comparison of the contents of Tajik licences with the standard licence conditions used in other countries. There also appears to be little acceptance within the licensing department of the MOE of the potential use of licences as a flexible and dynamic tool for energy regulation. The MOE's licences are renewed automatically on an annual basis upon payment of the licence fee (set at 390 somoni in the first year), which is apparently set at a level to provide funding of approximately 50 per cent of the defined budget for the MOE, with the balance of the fee revenue accruing to the ~ o v e r n m e n t . ~ ~

w

The Government is reportedly drafting a new licensing law that would apply to all licences (not only energy licenses) issued in Tajikistan. This draft law is reportedly designed to streamline the application procedures, and it would require a change in the present rules on energy licensing.

The creation and use of special licence conditions relating to standards of performance on energy efficiency, as has been done with successful results for energy conservation in some countries, therefore appears to be an unlikely prospect for fruitful work within the MOE in the short term. Such obligations are usually imposed on distribution companies, and therefore this could be done through the distribution licences. This might be a possible device to consider in the future, provided that a Tajik energy regulatory body is established with the power to determine new licence conditions under a broad mandate from the Government.

33 The Licensing Department of the MOE indicated a 50/5O ratio. However, Article 5 of the Licensing Decree (No. 591 of 2001) indicates a 60140 ratio may be in force. This may be ftamed in terms of a duty on the Ministry of Finance, but the wording of the translation of the decree is unclear.

4.3 ANALYSIS OF ENERGY EFFICIENCY PROGRAMMES BY SECTOR

4.3.1 BUILDINGS

Existing measures and policies on energy efficiency in buildings in Tajikistan

The Energy Conservation Law provides a general legal basis for possible new programmes to be developed in Tajikistan on energy conservation in the buildings sector (as well as for other specific sectors). The relevant provisions on buildings are worded in fairly general terms, thereby providing some scope for governmental programmes and actions, while not imposing specific obligations on either governmental entities or on private persons. This approach to legal drafting may provide the necessary flexibility to the government, but it also requires initiative on the part of the relevant governmental entities to take the necessary actions and programmes to achieve positive results. For example, Article 9 states that governmental monitoring (or expertise) on energy saving includes:

of new andor project expansion, rehabilitation, buildings, enterprises, and structures including

- Article 13 clearly refers to technical norms and standards for relating to power-consuming production, including equipment, household applianc.es, structures and heat-insulating materials, and housing (comprising energy use for heating, ventilation, hot water supply, lighting of buildings, and transport fuels).

While the Energy Conservation Law makes these references to the housing and building sector, as well as to construction design and specifications, it does not appear to require the adoption of specific programmes to promote energy efficiency in buildings. The MOE has indicated to the project team that there is no existing programme for this. This probably reflects the fact that there is no reported government policy on energy efficiency in the buildings sector. Given the absence of any energy efficiency policy or any required programme for buildings under the Energy Conservation Law, it is difficult "to propose legal amendments to take into account the current policy of the Government", as is required under the TOR of the project. Therefore, as an alternative, some possible solutions and approaches are analysed below.

A possible programme on energy certification of buildings

Many countries have developed programmes on "energy performance certification" of buildings, which results in an "energy label" or "energy passport" that describes the energy characteristics of buildings. In countries in transition that were once part of the Soviet Union, this instrument has several functions. On the one hand, it is used to assess energy efficiency in buildings and to suggest improvements to the owners. On the other hand, it can serve as a means to promote improvements in the building stock, through a linkage to programmes on building maintenance. This can, in turn, have a positive influence on real estate values. Such requirements and programmes have been or are being implemented across the EU and its candidate countries pursuant to Community legislation on buildings dating from 1993, as supplemented by a more recent Directive on energy performance of buildings.

What is energy performance certification?

The energyperformance of a building is the total energy efficiency of a building, reflected in one or more numeric indicators which have been calculated, taking into account insulation, installation characteristics, design and positioning, self-generation, and other factors that influence the net energy demand in a building. The energy peyformance cer@cate of a building is an officially recognised certificate in which the result of calculation of the energy performance of a building is presented. In

order to be effective, the certificate should provide information to prospective users (or potential buyers) about a building's energy characteristics. The certification process requires an energy audit of the building, which may also provide information to the owners about the possible improvement of these energy characteristics. Based on the calculation method and a possible point system, buildings can be ranked in terms of their energy characteristics such that comparisons among buildings can be made.

How could such a programme be implemented in Tajikistan?

The development and implementation of a programme on energy certification of buildings in Tajikistan would entail a complex and time-consuming process. It is not simply of matter of adopting an amendment to the Energy Conservation Law or in adopting a new decree. Instead, it would have to be facilitated through a specific follow-up project providing technical assistance to selected bodies within the Government of Tajikistan.

There are several alternative types of projects of technical assistance that could be developed to address the area of energy efficiency in buildings. One possible alternative would be a pilot project, such as the Energy Efficiency Housing Pilot Projects that have been funded by the World Bank. Such projects could be designed in order to provide loans for energy efficiency improvements in the residential sector and to demonstrate the value of the programme within Tajikistan. Another and better alternative would be a project supported by the necessary technicaI, financial, economic and legal expertise to institute a long-term and sustainable programme for buildings, embedded within the legal, regulatory, and policy framework for energy efficiency in Tajikistan. Any such project would have to address the numerous and current barriers to energy efficiency in buildings in Tajikistan, including political and institutional barriers, financial and economic barriers, legal barriers, and social barriers. A third possibility would be to fund a project to define an overall energy efficiency strategy and action plan for Tajikistan, in consultation with representatives of all relevant parties and stakeholders. A necessary component of such a project would be the buildings sector.

In terms of governmental participation, any such policy or programme for the buildings sector should be developed on a consultative, inter-ministerial basis, involving at a minimum the Ministries of Construction, Energy, Nature Protection, and Finance. It would also have to involve the other state entities that have a role in measuring, monitoring, and auditing the energy use in buildings, such as "Tajikenergonadzor" (or its successor), the enterprise "Housekeeping Units", as well as the energy distribution companies. Other relevant entities would be the "homeowners associations" or "living organisations", to the extent that they have a role in the maintenance of the multi-family apartment buildings, as well as any relevant municipal or local governmental authorities, and architectural or construction experts or institutions. This is perhaps an issue that could be taken up by the "Inter- agency Consultative Committee for Energy", although the scope for robust activity within that committee appears to be limited.

Given that the MOE is currently the main governmental department designated to oversee the energy sector, it is recommended that the MOE should assume the responsibility for working systematically with other public authorities regarding the implementation of an energy efficiency policy for buildings. In order to ensure legal consistency and effectiveness, the MOE should review the relevant legal and regulatory measures relating to buildings that have been identified herein and discuss possible improvements with the other public authorities. After a policy direction is determined by the Government, consideration should be given to possible modifications to the various 1egaYregulato1-y measures that implicate the buildings sector. This might include consideration of the relevant provisions in the Civil Code, rules on electricity consumption, building regulations, landlordltenant law, laws relating to housing and building maintenance and rules on preferential financing terms for energy efficiency investments. The development of measures and programmes should be designed to facilitate the implementation of energy efficiency investments by the market actors or consumers. If affirmative obligations regarding building certification are to be placed on private persons, such as the

@ owners of buildings, it may be necessary to amend the Energy Conservation Law.

Discussion of a programme on energy certification of buildings will give rise to questions of who pays and how much. A programme could be instituted on a purely voluntary basis, or it could be voluntary but supported with some incentives, grants or loans. It could also be obligatory for some building categories (such as new buildings or buildings over a certain size that are undergoing a major renovation). In any case, it is recommended that a low-cost solution should be developed. If cost of the energy audit and certification of buildings were too high, then there would be a high risk that the general public would not accept programme.

One of the most problematic areas for any building certification programme would be in its application to the multi-family apartment buildings in Tajikistan. Complete and exact statistics on the country's building stock have not yet been identified, but the company Dushanbe Energy Sales has stated that 75% of persons in Dushanbe live in apartment buildings (about 108,000 buildings), and that the other 25% live in single family homes (about 36,000 homes). Most of the multi-family buildings in the country were constructed during the Soviet period using cement, and the designers paid little regard to energy efficiency, except perhaps in providing district heating, which is now largely disconnected. The apparent lack of maintenance for buildings during the past decade seems to have resulted in a significant deterioration in the common areas and exterior of many buildings.

Although the 1998 rules on electricity consumption indicate the possibility that some of the multi- family buildings may have homeowner association^,^^ there appears to be no housing maintenance law or other measure that requires the formation of such associations. No person interviewed seemed to be aware of any particular homeowner association. Rather, it has been stipulated that maintenance of such buildings is the responsibility of the individual owners, who may request that the state entity "Housekeeping Units" provide maintenance to common areas. The lack of homeowners associations, and the lack of a legal obligation to create such associations, may be one of the legal barriers to energy efficiency that would have to be addressed. This would require a review of the relevant provisions of the Civil Code and other rules relating to housing and building maintenance.

The general rules on these issues of building maintenance seems to be set forth in Law No. 114 of 4 November 1995 "on privatisation of housing" which provided in Article 3, second paragraph, that "[tlhe owners of multi-occupant dwellings (such as apartment buildings) shall become tenants in common of all plant, equipment an common areas of such premises.". Service and repair of privatised housing is addressed under Articles 18-23. Article 18 states:

"Service and repair of privatised housing shall be at the expense of their owners and in compliance with mandatory regulations and norms comparable to those established by the local authority of competent jurisdiction. For the purpose of servicing and maintaining their property, owners may form co-operative associations."

However, it should be noted that Article 22 states that "Management of repairs and service to privatised dwellings shall be the responsibility of the local hukumat (local state authority). Other and more recent rules on rights and obligations of homeowners are probably included in the Civil Code of 1999, although the relevant provisions have not yet been translated or analysed.

Other barriers to implementation of such a programme are of a financial type. According to the lawyer for the National Bank of Tajikistan, there is no programme to encourage commercial banks to provide loans for of financing of energy efficiency investments. Some type of financing scheme would obviously facilitate the acceptance of such a programme by homeowners' associations or other persons responsible for building maintenance. Without the involvement of local financial institutions in providing credits for upgrading of common property in buildings, it will be impossible to have a sustainable programme for existing residential apartment buildings. The ability of individuals to finance energy conservation measures is very limited.

" see ~overnment ~ e c r e e NO. 84 of 6 March 1998 adopting rules on utilization of electric energy, Sections 4.2.7, 5.2.3, and 5.4.1 .

The funding mechanism for such a programme is problematic. There is no existing governmental energy saving fund through which financial resources could be made available to homeowners, and the establishment of such off-budget funds is currently not allowed in Tajikistan. The 1998 rules on electricity consumption prohibit the imposition of levies on residential consumers for any additional charges above the established electricity tariffs.35 In other words, a flat consumption tax on electricity, or even a small "energy efficiency levy" of one somoni, charged to all electricity consumers, would be in conflict with the 1998 rules. Moreover, suggestions made by the project team to the MOE and its advisors for a possible electricity consumption tax or consumer levy, as the basis for an energy saving fund, were not readily accepted. There are other possible financing modalities, such as the direct governmental grants or loan guarantees, but these are unlikely to be budgeted by the current government. As suggested above, external sources of funds and technical assistance would probably be necessary in the initial stage in order to establish the programme.

A programme on energy certification of buildings, if it is to be developed and implemented in Tajikistan, should be embedded into the Tajik legal framework. Construction standards for new buildings would be implicated, as well as standards for the major renovations of existing buildings over a certain size. Compulsory requirements on maintenance of buildings might also have to be developed. The development of these technical norms is essential but must be done as part of the

@ overall process of policy and programme formulation for the sector. This process must take into account the relevant characteristics relating to the housing and building stock of Tajikistan.

4.3.2 METERING AND BILLING ON BASIS OF ACTUAL CONSUMPTION

Existing measures and programmes in Tajikistan

There are a number of legal provisions in place in Tajikistan relating to metering and billing on the basis of actual consumption, and there are two pilot projects are currently underway to improve billing and collection procedures in the electricity sector.36 Previous recommendations on improved metering practices have been made under earlier projects funded by Tacis and the Asian Development ~ a n k . ~ '

The Energy Conservation Law is not clear as to the whether energy companies are obliged to install meters to measure actual consumption of energy which would enable accurate metering and billing on the basis of the actual consumption. Instead, the law states a general principle of "obligatory compilation (or measurement)" and refers to related standards and norms:

Article 11. Calculation of the energy resources utilisation [Tajikistan Energy Conservation Law]

The whole volume and@ quantity of extracted, produced, processed, and transported, stored and consumed energy resources are subjected to obligatory compilation. The type and condition of the equipment utilised by the producers of energy products with the type of devices for registering the consumption, as well as the method of utilisation of electric and thermal power, natural and liquefied gas, products of oil- refining are established by the government of the Republic of Tajikistan.

3 5 See Government Decree No. 84 of 6 March 1998 adopting rules on utilization of electric energy, Section 5.5. 36 See Draft Final Report, Improving Barki Tajik's Billing and Collections System, Asian Development Bank TA No 3600-TAJ (CARANA Corp.) (draft of 22 July 2003). 37 See Draft Final Report, Asian Development Bank TA No. 31 14-TAJ, "Institutional Strengthening of the Transport and Energy Sectors" (August 2000) (Volume 111 - The Energy Sector) (Louis Berger SA, Louis Berger International Inc., and SMEC International Pty. Ltd.), Appendix 7-1 (page 29) (recommending that consideration be given to installation of meters in every household or commercial premises, and that ownership of meters be transferred to Barki Tajik. Recognising the high cost of installing meters where no meter exists, the consultants recommended an initial implementation in a pilot region, combined with review and redesign of meter reading procedures and training of meter reading staff).

@ Calculation of the consumed energy resources is carried out in accordance with the established government standards and norms and measuring accuracy.

More detailed rules on metering and billing for energy supply were established in previous decrees and measures. The 1998 rules on electricity consumption contain a set of detailed provisions on the calculation of consumer debts to the electricity supplier. The general rule is that "settlements for electric energy are made by tariffs for appropriate consumers groups on the basis of meters readings for settlement period." In cases where meter readings are not being provided, settlements are based on average daily energy expenditure for the previous period.

Regarding residential consumers and homeowners' associations, the rules on meters are more complex. There are general rules applicable on installation, use and maintenance of electricity meters for privately-owned homes and for "state and co-operative houses" (para. 1.7 of the rules). However, there is also a set of special rules for installation of meters in multi-family apartment buildings and for privileged customers, as set forth in rules 5.3.2- 5.3.3:

"5.3.2 In communal flats of houses where live several families as well as houses with common meter, the interested persons at their own expenses can install controlling meters for energy calculation between separate families. - Authorization of Energy Supply Company is not required for installation of controlling electric meters. The personnel of the given housing organization cany out the formal acceptance of the installation of the controlling meters.'"

5.3.3 Installation of separate meters is provided for personal pensioners, invalids of the Great Patriotic War of I;II, HI groups, privileged persons and their families living with them in communal flats and houses of hotel type by owqers of above-mentioned [ ] with the consent of energy supply company.

The leading (wire) to the above-mentioned electric meters is to be made in accordance with energy supply company's instructions at the housing orgqization expenses.

There are additional rules about how homeowners associations should settle bills with the energy supply company prior to the installation of separate meters in every flat (i.e. using the tariff for housing estates). The various privileged customers pay a special tariff, apparently with a reduction of either 100% or 50%, which obviously would reduce any incentive to conserve electricity (or to seek 9 the installation of meters).

The rules provide that the cost allocation principle applicable to electricity use in common areas is based upon the number of actual residents. In other words, the bill for common areas in multi-family buildings is allocated among the separate families on the basis of "actually residing residents" and there is no fixed component/variable component.

Among the various functions assigned to "Tajikenergonadzor" under its 1996 mandate is to "Manage the activities regarding to the improvement of power metering of substations, transmission lines and consumption meters" (section 6.1 1) and to certify meters consistent with the Tajik state entity for standardization and metrology (section 6.14). More significantly, it is charged with the task of "obliging consumers to install metering and control devices needed to accurately measure electricity and heat consumed" (section 7.8). It is also charged with "obliging the directors and staff of the distribution companies to switch off the consumers illegally connected to the power lines" (section 7.15). It does not appear to be charged with the task of obliging distribution companies to install meters.

As mentioned above, "Tajikenergonadzor" is currently part of Barki Tajik as well as being part of the @ government, although the certain functions of "Tajikenergonadzor" may be transferred to the MOE.

The draft measure proposing the transfer of these functions to the MOE does not include the

@ provisions cited in the paragraph above relating to metering, although it does include some other general duties and powers relating to control over consumption. Thus, under the proposed measure, the MOE would be made responsible for "conditions of the calculation of the generation and consumption of energy resources by the power supply organisations and consumers" and for "controlling the work of improving the calculation of the expenditure and consumption of gas, electric and heat energy".

At present, Barki Tajik is engaged in the manufacturing of electrical meters, and decision-making about programmes for the installation of these meters appear to rest with the company or (with the Government generally) rather than the MOE. The proposed dissolution of "Tajikenergonadzor" and proposed transfer of certain functions related to measurement of energy consumption to the MOE might constitute a shift in the allocation of decision-making authority over programmes for the installation of electricity (and heat) meters. However, it is not clear from the proposal what functions relating to metering are to be retained by the part of the entity "Tajikenergonadzor" that would not be transferred to the MOE. Therefore, it is somewhat difficult to determine which entity in the future will have the decision-making authority over programmes for the installation of new electricity (and heat) meters.

In any event, the MOEYs discretion in the area of programmes on metering would appear to be constrained in part by the 1998 rules on energy consumption, discussed above, and also in part by the general principle set forth in Article 10 of the Tajik Energy Law of 2000, which provides that "[elnergy integrated enterprises are given independence in management of their economic and operational activities". The latter is a questionable provision in light of the dynamic energy regulatory regimes for the utilities sector in most European countries, under which electricity (and gas and heat) enterprises are made subject to a wide range of regulatory and governmental determinations that affect their economic and operational activities. Energy enterprises should clearly be subject to the various duties imposed upon them pursuant to the laws, regulations, and licences under which they operate, and there should be no blanket exception to this principle. Reconsideration of Article 10 of the energy law is therefore recommended, although this goes to the core of the regulatory concept developed for the Tajikistan energy sector by previous consultants.

As far as the actual practices on metering, billing and collection, significant progress is reported in the Dushanbe area under the pilot programme being implemented during 2003. 38 It is anticipated that this

39 programme will be extended to other areas of the country. In addition, a pilot project in the Pamir region to improve billing and collections has demonstrated important progress. Evidently these programmes not only serve to improve energy conservation but are a prerequisite to any energy conservation project since paying customers naturally have an economic incentive to save energy whereas non-paying customers do not. It is recommended that the positive lessons from these two programmes be extended for the benefit of other parts of the country.

4.3.3 INDUSTRY

Existing policies and programmes on energy efficiency in industry in Tajikistan

The Ministry of Industry has reported that there are more than 90 branches of industry and types of production, including metallurgical, mining, chemical, machine building ( e g , 100 enterprises and 7.4% of industrial sector), textile, food, breweries and other i n d u ~ t r i e s . ~ ~ In terms of energy

38 See Draft Final Report, Improving Barki Tajik's Billing and Collections System, Asian Development Bank TA No 3600-TAJ (CARANA Corp.) (draft of 22 July 2003), and materials presented at final presentation of the report on 22 August 2003. 39 The Tacis Project No 9401 (1997) had a chapterlactivity focused on energy conservation. However, the energy conservation expert, after considering the un-economic tariff level for electricity and the fact that more than 60% of the consumers at that time were not paying their bills, suggested to postpone the activity until the tariffs were set at their economic level and an efficient billing and collection system was hnctioning. 40 Ministry of Economy and Trade, "Economy and Investments Guidebook for Investors", No. 4 (2001).

@ consumption, the aluminium smelting company, TADAZ, represents the largest single user of electricity.

There appears to be no published policy for promoting energy efficiency in the industrial sector. However, the state entity "Tajikenergonadzor" claims to be engaged in the practice of energy audits of industrial enterprises. Its representatives informed the project team that the energy audit of TADAZ (done by outside consultants) resulted in a decrease in electricity consumption per ton of aluminium from 18 000 kwh per ton to 15 500 kwh per ton of aluminium. However, the representatives of "Tajikenergonadzor" provided no other examples of energy audits of industrial enterprises.

The MOE does not appear to have any programme to monitor energy audits of industrial enterprises or to otherwise promote energy conservation within the industrial sector. The head of the electricity department of MOE was not aware of the energy audit conducted by "Tajikenergonadzor" of TADAZ and could not explain why the energy consumption was reduced.

Existing legal provisions

@ The Energy Conservation Law provides powers to the Government to regulate energy consumption by industrial and commercial undertakings. The consumption threshold used in Tajikistan to define the undertakings that are subject to obligatory controls is relatively low in comparison to the countries whose laws served as model for the Tajik Energy Conservation Law ( e g , 300 tons of fuel equivalent, as compared to the 1500-ton rule in Belarus). It is somewhat useful to compare the available translations of the Tajik law with that of the Belarussian law on Energy Conservation:

Article 10. Energy Investigation of Enterprises (Tajik Energy Conservation Law of 2002)

Energy investigation of enterprises, offices and organizations, and execution of a certitlcate is carried out to evaluate the efficiency of energy use and to decrease demand of power recourses and products in equal costs.

Energy investigation is carried out by the State Supervision Agencies, The Government establishes the procedure and terms of the investigation. +

The enterprises, o s c e s and organizations irrespective of their authority with the annual consumption of the equivalent &el more than 300 tons of fuel equivalent are subject to the essential energy investigation.

Energy investigation "of the enterprises, omces and organizations with the annual power consumption less th"an 300 tons of fuel equivalent is implemented by the decision of the State Supervision Agencies.

Article 14 Energy inspection of enterprises, institutions and organizations @3elarus Energy Conservation Law of 19981

Energy inspection of enterprises, institutions and organizations situated on the territory of the Republic of Belarus is performed for evaluating efficiency of using fuel and energy resources and ensuring their saving.

Enterprises, institutions and organizations are subject to obligatory energy inspection if their annual consumption of &el and energy resources exceeds 1,5 thousand tons of fuel equivalent.

The order of inspection of enterprises, institutions and organizations is established by the government of the Republic of Belarus.

@ In light of the above, it can be concluded that the Tajik Energy Conservation Law provides the legal basis for the state energy supervision body, currently "Tajikenergonadzor", to subject large consumers (consuming 300 tons of fuel equivalent per annum) to energy audits. It is not clear, however, how much discretion "Tajikenergonadzor" has in this respect: what happens if it does not subject large energy consumers to energy audits? The law seems to expressly provide discretion to "Tajikenergonadzor" to undertake audits of entities with an annual consumption less than the threshold of 300 tons of fuel equivalent, which may suggest that it does not have discretion for consumers above the threshold. However, the law does not state that the energy audit is compulsory above the threshold. Most likely, it is a question of actual practice: "Tajikenergonadzor " has indicated that it is not engaged in the systematic auditing of all consumers above the threshold.

It is clear that the Tajik Energy Conservation Law does not include obligations directed at the undertakings themselves. This can be contrasted with affirmative obligations placed on industrial and commercial undertakings under energy efficiency laws applicable in other countries in transition, such as Romania and the Czech Republic. For example, some energy laws require industrial enterprises to appoint an energy manager responsible for energy saving activities and to submit to (and pay for) an energy audit from a licensed auditor. In such cases, rules on the qualifications, licensing, and remuneration of energy auditors would be advisable. The imposition of such obligations on

@ undertakings and other persons would be consistent with the concept that the responsibility for energy conservation falls on all members of society, not only the government. However, the imposition of such affirmative legal obligations would result in certain (up-front) costs for the enterprises.

A possible programme on energy eficiency in industry

An alternative to an obligatory system of energy audits of industrial enterprises in Tajikistan is a voluntary system. One approach used successfully in some countries is for the Government to negotiate long-term industry-wide agreements on energy efficiency on a voluntary basis. This process is usually initiated by the relevant Ministry responsible for the energy sector, which then monitors and publishes the results. A voluntary approach does not require the adoption of new laws or regulations, although it is usually driven by some incentive, such as an energy tax exemption or reduction, or possibly through a subsidisation of the energy audit itself. In the latter case, a regime of energy auditing must be in place.

If the proposed transfer of the energy auditing functions of "Tajikenergonadzor" to the MOE is approved, the MOE would have the role of energy auditor itself rather than being a monitor of the progress being made in energy auditing. In such a case, the MOE would apparently have the discretion to engage in energy audits under the Energy Conservation Law. Alternatively, as suggested above, the Energy Conservation Law could be interpreted to mean that there is a duty to undertake energy audits of large consumers over the consumption threshold. In any case, if the transfer of "Tajikenergonadzor" to the MOE is completed, it may be that the MOE would not be willing to negotiate voluntary agreements with industry. Then again, since energy auditing will cost time and money, it is not clear whether this activity by the MOE would be adequately budgeted. Given the present uncertainty about the institutional framework and of the financing of energy auditing activities, it is difficult to make a recommendation on how to proceed in terms of new legal measures. Therefore, it is recommended that possible voluntary programmes on energy auditing of industrial and commercial enterprises in Tajikistan should be addressed in a follow-up project, at which time the proposed re-organisation of governmental functions probably would be completed.

4.3.4 EQUIPMENT AM) APPLIANCES

Existing measures and programmes on energy-efficient equipment in Tajikistan

@ There are manufacturers of household appliances in Tajikistan. For example, the Dushanbe Refrigerator Factory "Pamir", a joint stock company, manufactures washing machines, refrigerators,

and various other electrical household appliances. These types of appliances are also imported into Tajikistan. While there is no published policy on the subject, the Energy Conservation Law appears to provide a general legal basis for labelling of equipment and appliances. Article 15 of the law refers to certification and obligatory marking of equipment:

ARTICLE 15: Certification [Tajikistan Energy Conservation Law] Energy consuming production and energy resources are subject to obligatory certification on the energy efficiency exponents. The compulsory certification is carried out in accordance of the Law of the Republic of Tajikistan and the order established by the Government of the Republic of Tajikistan. In accordance of the manufactured household equipment with the requirements established by the government stan'dards on indices of energy consumption is confirmed through the obligatory marking on the mentioned equipment.

However, it could not be confirmed whether the programme on energy efficiency labelling is in fact in place for appliances that are manufactured in Tajikistan. No one interviewed under this project knew of such a label in use, and the appropriate representatives of the Dushanbe Refrigerator Factory "Pamiryy could not be reached for comment.

Regarding imported equipment, there is an applicable customs duty pursuant to the Tajik Customs Code. This Code has not been translated for purposes of this project, but the local legal expert has stipulated that there is no exemption or reduction from the normal customs duty for imported equipment meeting certain criteria for energy efficiency. The local legal expert has suggested that a customs duty exemption for energy-efficient equipment would be an appropriate measure to adopt in Tajikistan, particularly since a similar measure is under consideration or has been adopted in the Russian Federation.

Possible legal measures to promote energy-efficient equipment and appliances

In addition to a customs code exemption, the MOE could give consideration to pursuing a possible VAT reduction or exemption to provide support to the market for energy-efficient equipment within Tajikistan. In some countries, the energy distribution companies are involved in this process through the provision of a rebate to customers who purchase such equipment. However, these types of tax exemptions can often be complex and costly to administer, and there are probably more cost-effective

@ ways to achieve energy savings in Tajikistan.

In the area of energy efficiency labelling, the obligations under the Energy Conservation Law could be made clearer and the related programme could be better defined pursuant to measures and standards adopted pursuant to Article 15. This Article refers to a Government order and Government standards, but these have not yet been identified. It is therefore possible that the labelling rules applicable to domestic manufacturers and importers of energy-consuming appliances have not been adequately defined.

There are many examples of energy labelling rules in the EU member states and candidate countries that could be considered for Tajikistan, provided that the Government accepts the European labelling legislation and standards, as well as the related requirements for free movement of goods that meet these standards. This is a prerogative of the Government of Tajikistan (and not the MOE) and might be given consideration pursuant to a dialogue between the appropriate Governmental and EU representatives over a possible EU-Tajikistan Partnership and Co-operation Agreement, as suggested in Paragraph 4.2 above.41

41 See infia part 1 on EU-Tajikistan relations.

4.4 APPENDIX

As indicated in the analysis above, there are gaps in the national legal framework for Tajikistan relating to the adoption, assessment and implementation of energy and energy efficiency strategies.

A component of a follow-up project to amend or redraft the Tajik energy legislation in this respect could consider the relevance and usefulness to Tajikistan of the legislative models from European countries in transition, such as the Czech Energy Management Act of 2000 and the Polish Energy Act of 1997.

POLICY-MAKING PROCEDURES IN THE CZECH REPUBLIC In the case of the Czech Republic, the Energy Management Act (No. 40612000) requires the Ministry of Industry and Trade (MIT) to work out the national energy policy and submit it to the Government for approval (Art. 3(2)). In addition, the MZT, in agreement with the Ministry of Environment, must

@ also elaborate a four-year National Programme for Energy Efficiency and Use of Renewable and Secondary Resources for the Czech Republic, which is subject to governmental approval (Art, S(2)). Assessments of the National Programme must be made at least once every two years by the two Ministries, which may result in proposals to change the Programme. The Czech Energy Management Act also obliges the Czech regional and local authorities to adopt local energy policies, which must contain an energy management blueprint for the region, although such authorities have been given more time to comply (five years).

As is the case in Tajikistan, the Czech Republic maintains two major acts in the energy sector. In addition to the Energy Management Act, the Czech Energy Act (No, 458/2000) sets forth the basic legal framework applicable to the energy sector (e.g., the functions of the regulator, the market opening requirements, and the duties of the market participants). However, the Tajik Energy Law compares poorly to the Czech Energy Act in almost every aspect.

POLICY-MAKING PROCEDURES IN POLAND In Poland, where the national commitment to energy conservation policy has led to the creation of a National Energy Conservation Agency (KAPE), the responsibilities for energy policy development

@ and monitoring functions are regulated under the 1997 Energy Act and take place at several levels:

1. At the central level, the Minister of Economy (MoE) is responsible for periodically presenting guidelines of the state energy policy accompanied by long-term energy forecast (at least 15-year period) to the Council of Ministers for its approval. These state energy policy guidelines are required to determine, inter alia, an assessment of the energy security of the state, energy forecasts, an investment policy, environmental protection activities, a licensing policy, a pricing policy, and rationalization policy with respect to the use of fuels and energy, in particular taking into account the promotion of energy-saving construction. (Art. 15). Every two years, the Council of Ministers is obliged to assess the implementation of the guidelines, make proposals for their correction, if necessary, and prepare a short-term forecast (up to the 5-year period) and submit it to the lower house of the Parliament (Sejm) (Art. 13).42

2. At the local government level (gminas) - the local authorities are responsible for elaborating guidelines for the local energy supply plans. These rules are specified in the provisions of the

34 In February 2000 the Council of Ministers accepted the Energy policy guidelines of Poland up to the year 2020 (ZPE2020), and in April 2002 the Council of Ministers - formed by a new coalition - assessed its implementation. Subsequently, a new document was presented, for the first time, to the Lower House of Parliament, assessing the implementation and accompanied by a new forecast up to the year 2005.

Article 18 - 20 of the Energy Law. Actions and tasks of a regional level (an area covering several gminas) are co-ordinated and verified by the regional authorities. These are separate by two independent bodies- the President of province self-government, and Voivode- the only person representing Polish government in each province. Both of them are obliged to ensure compatibility of local energy plans with the national energy policy guidelines (Art. 17).

3. At the enterprise level, natural monopoly utilities (electricity, gas and heat) are obliged to prepare draft development plans for at least three-year period by (Art. 16). Such plans must cover, inter alia, "projects aimed at saving fuels and energy by customers". Draft plans consulted with the Polish energy regulatory authority to ensure their compatibility with the local self-governments' guidelines to the energy plans (mentioned in point 2) as well as with the state energy policy. The utilities' development plans play a significant role in the approval of tariffs by the regulatory authority, as the commitments made there under represent a major cost component of the utilities.

4. At the svstems operator level, obligations are based upon the amended Energy Law (mainly after amendments of 24 July 2002), as well as from specific terms defined in the licence granted by the regulatory authority. It has been reported that the licences issued under the Energy Law create a real possibility to enforce an increase of energy efficiency, higher protection of the environment and permanent improving of quality standards of energy services delivered to customers

ANALYSIS OF POLICY-MAKING PROCEDURES FOR ENERGY EFFICIENCY IN TAJIKISTAN

The Energy Conservation Law of 2002 for Tajikistan indicates the drafters' intentions to establish a legal basis for a "policy and strategy to implement in the field of energy saving". Its provisions seek to define the ways and means that legislation, monitoring and control over energy saving should be carried out. However, there appears to be no specific obligation or timetable for the proposal, adoption, or assessment of an energy efficiency strategy.

The issue of policy-making procedures for the energy sector, of course, has a scope that is.wider than energy conservation. The Tajik energy legislation should also address the formulation of security of supply policy, fuel policy, pricing policy, licensing policy, environmental policy, privatisation and market liberalisation policies, and other important policy aspects. Therefore, specific recommendations for new provisions to be included the primary Tajik energy legislation in the area of adoption, implementation and assessment of energy policies and programmes are beyond the scope of work of this project. It should be noted; however, a component of any such redrafting exercise should be a rationalization of the contents of the two energy laws to address, inter aha, the inconsistencies and gaps on energy efficiency policy formulation and implementation noted above. If separate laws on energy and energy efficiency are to be maintained in Tajikistan, the scope of each law and the respective procedures for the adoption, implementation and assessment of the respective policies and programmes under each law should be carefully defined.

Another ambiguity in both Tajik energy laws relates to the role of regional or local authorities. Neither law provides for any involvement of regional or local authorities in the elaboration of either national or local energy efficiency policies or strategies. Concepts of local energy planning do not seem to have been considered. The Energy Conservation Law makes no specific mention of regional or local authorities or their role. Considering the existence of district heating networks, for example, this would appear to be an oversight. Article 9 of the Energy Law states simply that "The powers of state local executive bodies in fuel-and-energy complex are determined by the legislation of the Republic of Tajikistan". This provision was apparently included to facilitate the drafting exercise and to ensure legal flexibility. However, in some countries, the allocation of decision-making power among national, regional, and local authorities in the area of energy planning is a constitutional subject, and a legislative act cannot be used to re-allocate these powers and duties in a manner contrary to the constitutional provisions. A formal review of the Constitution of Tajikistan on issues of energy and natural resource management and allocation of decision-making power is the beyond the scope of work of this project, but it can be recommended as a component of a follow-up project to re-draft the Energy Law and the Energy Conservation Law.

ENGLISH UNOFFICIAL TRANSLATION OF THE LAW OF THE ENERGY SECTOR OF THE REPUBLIC OF TAJIKISTAN

LAW OF THE ENERGY SECTOR OF THE REPUBLIC OF TAJIKISTAN

This very Law determines the essential legal principles on the organisation and methods of regulatio~ of the economic activities of the energy sector of the Republic of Tajikistan.

Chapter I. General Regulations

Article 1. The aim of the Law

The aim of this Law is to provide a legal framework for the government policy in the field of enera sector of the Republic of Tajikistan, on the basis of market economic principles, institutional anc informative mechanisms so as to ensure the security and development of the energy supply as well a: protection of interests of energy consumers.

Article 2. Main concepts and definitions

The following definitions will be used in this Law:

Energy sector.

A sector of the economy, which includes exploration, extraction, production, transformation transportation, storage, transmission, distribution, trading and consumption of energy resources

Fuel and Energy Complex

Combination of intercommunicated branches of economics including governmental and non- governmental structures engaged in coal, oil, gas, heat and the structures that provide with electricit4 and use of it and territorial subsystems.

Energy field

A component of the energy sector related to a certain type of energy resources

Energy enterprise.

Is a juridical person engaged in one or several types of activities in the energy sector, including privately owned enterprise subjected to competition or natural monopolies irrespective of their types 3f ownership.

Energy utilities

4 special construction meant for the production, transformation, transportation, storage, transmission; ind distribution of energy resources. A power utility deals exclusively in the business of electricity. A ;as utility deals exclusively in gas trading etc.

4ctivities or functions.

Production, transportation, transmission, distribution, storage, processing, transformation, sale oi :nergy, energy resources and products

Znergy resource.

4n enerw product, which is used at present or can be beneficially used in future. It is subdivided into:

a) Renewed energy resources - the resources, which appear in the nature, they are con ti nu all^ renewed by nature (sun, natural movement of water and airflows, geothermal waters and biologics mass) and can be transformed into different types of energy. b) Primary energy resources - natural resources, which can be directly used as fuel (oil, natural gas, coal) or for production of different types of energy; c) Secondary energy resources - the resources obtained as kinds of by-products of the basi: production.

Energy products.

Different types of fuel, oil products, electrical and thermal energy generated from any type of energq resources.

Consumers.

Any physical juridical person irrespective that acquires and uses various types of energy resources without the intention to resell them.

Producers.

Any physical person or legal entity irrespective of types of ownership, producing any type of energy resources that can be a marketable product.

Energy economy

Rational and efficient utilisation and reduction of losses during its production, transformation, transportation and consumption.

Concession.

A contract on transferring for temporary operation under specified terms of the state-owned utilities to a foreign investor with the right to implement activities in energy sector.

Article 3. Legislation of the Republic of Tajikistan on energy sector

Legislation of the Republic of Tajikistan on energy sector is based on the Constitution of the Republic of Tajikistan and consists of present Law and other laws adopted in accordance with the present Law as well as international legal acts recognized by the Republic of Tajikistan.

Chapter 11. State Control of the energy sector

Article 4. State policy in the sphere of power Engineering

The main goals of the State policy of power engineering.

Reliable and qualitative provision of the Republic energy resources and products including energy security of the country.

Safeguarding of the environmental protection as well as the protection of population against adverse impacts from the activities of the energy sector;

Create necessary conditions for gradual transition of the energy sector to competitive market relation, attract domestic and foreign investments to the sector, give economic independence to energy enterprises and ensure their development on the basis of open and fair competitive market.

Article 5. Methods of State control of the energy sector

State control in the sphere of energy sector is implemented by means of legal guarantees, licensing taxation, crediting, financing, implementation of investment, social and scientific-technologica policies, taking into control the observation of the fuel and energy enterprises of the legislation of thc Republic of Tajikistan.

Any activities in the energy sector are carried out on the basis of permit (license) issued by the Ministry of Energy pursuant to the order prescribed by the Government of the Republic of Tajikistan Licenses are given out on a competitive basis with adherence to the principle of openness anc transparency in conducting a competitive process. Activities in the energy sector and provision o! energy services that cause damage to the interests of the Republic of Tajikistan are prohibited.

Projects and programmes of construction of large energy infrastructures are subjected to obligato0 government review and authorisation; the procedures of such review are determined by the Government of Tajikistan.

Article 6. Authorities of the Government of the Republic of Tajikistan

The authorities of the Government of the Republic of Tajikistan are as follows: To ensure the leading role of the government in the development of the energy sector. To manage the fuel and energy complex on the basis of competitive market mechanisms. To create conditions for free enterprise and development of all forms of property in the fuel

md energy complex in the sector of marketing strategy development. To encourage private sector participation in the fuel and energy complex, promote competition

in construction, maintenance, rehabilitation and operation of its enterprises in each sub-sector. To approve procedures for licensing of the activities of the fuel and energy complex. To establish procedures for conducting of the State examination of energy projects and

xogrammes on the construction of large energy infrastructure. To determine concessions in the energy sector. To implement general price and tariff policy for the energy-integrated enterprises. To control the operation and maintenance of renewable and primary energy resources. To create the conditions required attracting foreign investments in the energy-integrated

:nterprises. To initiate urgent measures for supplying consumers with energy resources under crisis

:onditions and emergency situations, introduce temporary restrictions when required. To coordinate the international activities needed for the development of the energy sector;

4pproval and control of the implementation of the following programmes:

Development of energy integrated enterprises in the Republic of Tajikistan. Standardisation, safety norms for protection of consumers, protection of the environment

gain st adverse impacts of activities of the fuel and energy complex. Abolition of monopolies and restructuring of fuel and energy complex Promotion and control on energy supply.

:awing out of other authorities envisaged by the present Law and some other laws of the republic of rajikistan

lrticle 7. Authorities of the Ministry of Energy

Improve the efficiency of energy enterprises on the basis of introduction of advanced technologies, energy saving and reduction of the specific expenditures of energy resources in the gross national product.

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The Ministry of Energy is the State administration body responsible for implementation of State policj and strategy in the sphere of power engineering.

The Government of the Republic of Tajikistan confirms the administrative rules of the Ministry o. Energy and its internal structure.

The structure of the Ministry of Energy comprises departments responsible for all energy sub-sector: as well as supporting administrative support divisions required for the normal functioning of thc Ministry.

The legal status of the departments of the Ministry of Energy is to be determined by the administrative rulings approved by the Minister of Energy of the Republic of Tajikistan.

The authorities of the Ministry of Energy are as follows:

Realisation of State policy in the sphere of energy - Planning and forecasting of the demand and supply of all energy resources, taking intc account and introducing changes on the supply side of the programmes under implementation,

Making assessments of investment requirements and identification of potential sources of financing and capital for investments.

Monitoring of the activities of the power engineering enterprises with a focus on their gradual transition to competitive market.

Encouragement for sustained private investments in the energy integrated enterprises and development of local and alternative energy resources, including management control and ownership of secondary energy resources and energy products at the final user.

Promotion of competition and ensuring equal opportunities and fair conditions for activities of energy enterprises of different types of ownership.

Giving out licenses to ensure further activities in the fuel and energy complex and control over keeping the conditions. .

Preparation and implementation of programmes on: Development of the fuel and energy complex. Standardisation, safety measures and protection of consumers. Protection of the environment

against adverse impacts of activities in the energy sector. Promotion of energy saving measures.

Realisation of other authorities envisaged by the laws of the Republic of Tajikistan.

Article 8. Inter-agency Energy Advisory Committee

In order to examine proposals related to the energy sector policy and ways of improving efficiency and economies in fuel-and-energy complex the Government of the Republic of Tajikistan is establishing an Inter-departmental Energy Advisory Committee that shall be headed by the Minister of Energy of the Republic of Tajikistan.

The Inter- departmental Energy Advisory Committee includes representatives of local executive authorities, other ministries, agencies, scientific institutions, energy enterprises and consumers at the discretion of the Government of the Republic of Tajikistan.

The Inter-departmental Energy Advisory Committee is carrying out its Regulation approved by the Government of the Republic of Tajikistan.

activities

Article 9. The authorities of the local government bodies in the energy sector

on the basis

The powers of state local executive bodies in fuel-and-energy complex are determined by the legislation of the Republic of Tajikistan.

Chapter 111. Particularities of the energy sector activities.

Article 10. Management of energy enterprises

Energy integrated enterprises are given independence in management of their economic anc operational activities.

All the activities of energy-integrated enterprises on the territory of Tajikistan are carried out ir accordance with the energy legislation of the Republic of Tajikistan.

Article 11. Protection of the ownership rights of energy enterprises

Energy enterprises on the territory of the Republic of Tajikistan may be created and operated on the basis of various types of ownership (State, private, corporate, mixed and joint ventures). The owners of energy enterprises are be equal before the law and equally protected by the law. The government will not discriminate energy enterprises no matter what forms of ownership they have.

Article 12. Protection of the energy consumer interests

Protection of interests of the energy consumers shall be carried out according to the laws and other normative-legal acts of the Republic of Tajikistan.

Article 13. Sources of financing in the energy sector

Financing in energy sector may be implemented at the expense of the government, private local and foreign investment sources.

Article 14. Foreign investments in energy sector

Attraction of foreign investments to the energy sector will be carried out in accordance with the legislation of the Republic of Tajikistan.

The legislation of the Republic of Tajikistan may prescribe additional tax andlor other privileged treatments for foreign investments in the energy sector.

Article 15. Pricing in energy sector

Prices and tariffs on energy products and services are free except for the cases envisaged by the legislation of the Republic of Tajikistan.

Article 16. Territorial and functional Concessions in the energy sector

Power and thermal generating stations, transmission and power distribution networks and associated facilities, oil and gas pipelines, utilities of gas infrastructure supplying natural and liquefied petroleum gas, oil-and-gas facilities, areas envisaged for future development of oil, gas and coal deposits may be transferred for concession by the Government in accordance with the legislation of the Republic of Tajikistan.

Concessions to foreign investors for exploration, development and operation of energy resources and implementation of other activities in the fuel and energy complex is carried out on the basis of :oncession agreements.

Article 17. Land use in energy sector

Land use in the energy sector is subjected to the Land Code and other laws of the Republic of Tajikistan.

Article 18. State-owned enterprises in the energy sector

State enterprises in the energy sector carry out their activities on a commercial basis as independent business units by entering into agreements with the Ministry of Energy. Such agreements concerning the state enterprise of the fuel and energy complex envisage:

Its required corporate and commercial status Operating schedule of its commercialisation Its degree of required financial and management autonomy Standards and criteria for performance and accountability of its management Principles and procedures for the structuring of its accounts including the preparation of

separate accounts for its different functional units, valuation and depreciation of assets. Identification and costing of the services performed for the government needs. Annual financial and operational performance indicators.

Chapter IV. State supervision of the energy sector and the responsibility for violation of the legislation of the energy sector

Article 19. State energy sector supervision

The State energy supervision shall be organised according to the procedures determined by the legislation of the Republic of Tajikistan in order to ensure compliance of all legal entities and physical persons with the set standards, norms and control in energy sector in the process of production, generation, transportation, transmission, processing, transformation, storage, consumption of energy resources and products and operation of energy utilities, plant and equipment.

The State energy sector supervision is implemented by the State specialised institutions.

Article 20. Responsibility for violation of the legislation of the energy sector

Person violating the legislation of the energy sector shall bear responsibility in accordance with procedures established by the law.

PRESIDENT of the REPUBLIC OF TAJIKISTAN E. RAHMONOV

Dushanbe, 29 November 2000

ENGLISH UNOFFICIAL TRANSLATION OF THE LAW ON ENERGY SAVING OF THE REPUBLIC OF TAJIKISTAN

THE LAW OF THE REPUBLIC OF TAJIKZSTAN ON ENERGY SAVING

The present law Regulates the relations arising in the process of activities of legal and physica persons in the field of energy saving with the purpose of efficient utilisation of energy resources anc products.

Chapter I. General provisions:

Article 1. The Purpose of the Present Law

The aim of the Law is to establish the legal basis for the State policy and strategy in the field of e n e r ~ saving in the Republic of Tajikistan, set of rules, norms and standards to protect the interests 01

consumers, suppliers and producers of energy resources. This aim will be achieved with the help 01 scientific assistance, introduction of energy efficient technologies and normative rules to increast effectiveness of the utilisation of energy resources. Energy saving is one of the policy priority of the State in the field of power engineering of thc Republic of Tajikistan

Article 2. Main concepts

The following terminology is used in the present Law:

Energy saving - Rational usage and reduction in the production, transformation, transportation, distribution and consumption of energy.

Alternative types of fuel - types of fuel (liquefied gas - generator gas, products of biomass processing, water-coal fuel and others) the usage of which reduces or substitutes consumption of more expensive and scarce types of power resources:

Effective usage of energy resources - ensuring of economically justified effectiveness of usage 01 power resources on the existent level of techniques and technology observing norms and regulations of environment protection

Index of energy-efficiency - absolute or specific quantity of consumption or losses of energy resources for production (work services) of any purpose, specified in comparison with the established state standards;

Unproductive expenditure of energy resources - Energy resources expenditure. stipulated by non- observance of requirements established by state standards or other normative acts, technological regulations or certificate data for the working equipment;

Losses of energy resources and products - difference between consumed and effectively used quantity of energy transmission, transformation, transportation and consumption, as well as losses as a result of their irrational usage

Conventional fuel - account unit of organic fuel used for comparing various types of fuel with combustion heat equal to 7000kcIkg;

Standards and norms of losses - approved in an established order level of energy resources losses.

Article 3. Legislation of the Republic of Tajikistan in the field of energy saving

The legislation of the Republic of Tajikistan on the energy saving is based on the Constitution of th, Republic of Tajikistan, the Law of the Republic of Tajikistan "On Power Engineering" and consist 01

the present Law, other normative legal acts of the Republic of Tajikistan as well as of Internationa Legal Acts of which the Republic of Tajikistanis is one of the signatory parties.

Chapter 11. Government Regulation and Control in the field of Energy Saving

Article 4. The rationale for the Government control in the field of Energy Saving

The object of government control in the field of energy saving is related to insuring thc implementation of it energy saving policy in all branches of economy and industrial sectors including:

Mining, processing, transportation, distribution, storage and usage of all types of energj resources.

Production and usage of secondary energy resources and alternative types of fuel. Usage of renewable energy resources. Carrying out scientific research, product design and experimental work aimed at increasine

effectiveness in energy resources efficient utilisation. Exercising government control over effective usage of energy resources. Securing accuracy, reliability and uniformity in measuring regarding accounted and consumed

energy resources. Information provision of the problems and usage of new power sources and types of fuel.

Article 5. Operators/Entities implicated in the field of the energy saving.

The operators in the field of energy saving are legal entities and physical persons (producers and users of energy resources) carrying out the following types of activities:

Mining, processing, transportation, transmission, distribution, storage, manufacturing, usage and utilisation of all types of energy resources.

Production and delivery of power-generating and power-consuming equipment, machinery, mechanisms as well as devices, for registering, control and regulating expenditure of energy resources.

Carrying out scientific-research, design-experimental, technological-experimental, expertises, specialised assembly, adjustment, repair and other types of work aimed at increasing efficiency of usage and saving of energy resources.

Realisation of the measures to promote the development and application of non-traditional and renewable energy sources, usage of secondary energy sources.

Development and introduction of effective system of control over energy saving and means of :ontrol over effective usage of energy resources.

Gathering of information on legal entities and physical persons in the field of energy saving. Training of personnel in the electrical engineering sphere

4rticle 6. Government Policy in the discipline of energy saving

3overnment policy in the field of energy is aimed at: Creation of the system of government control over activities aimed at increasing efficiency of

mergy resources in industrial and non-industrial sectors. Creation of legal and economic conditions for promoting interest of legal entities and physical

Iersons in energy saving. Creation of a State management for the control over energy saving. Development and realisation of projects and programmes on energy saving, utilisation of

.enewable sources of energy, alternative fuels and secondary energy resources. Increase of the efficiency of oil integrated companies on the basis of introduction of modern

echnologies in energy saving, reduction of specific consumption of energy resources in production of 1utputs.

State support of energy saving projects and programmes. International cooperation in the efficiency improvement of energy resources utilisation.

Article 7. State Regulation and management in the field of Energy Saving

State Regulation in the field of energy saving is carried out through legal decrees, taxation, credi allocation, financial incentives, realisation of investments, social and scientific-technical assistance implementation of normative-legal acts in the field of energy saving applying to commercia companies and enterprises involved in the energy sector and to the consumers.

The State management and control of energy saving are implemented by governmental officials authorities by the Government of the Republic of Tajikistan. State energy saving managemenl includes:

Working out of the efficiency trends in the realisation of the State energy saving policy. - Coordination of work on increasing efficiency of energy resources utilisation on national, regional and international levels. - Realisation of State programmes for the support and implementation of energy saving projects and programmes.

Insuring government control over the efficiency of utilisation of energy resources, including observation of the efficiency standards and norms in energy consumption;

Certification of indices of energy saving, energy consumption, energy saving and diagnostic equipment, materials, construction materials and transportation means.

Required energy efficiency expertise of project documentation of construction objects. . Surveillance of enterprises for the purpose of control over their effectiveness of energy

resources usage. - Classification of enterprises, institutions and organisations according the volume of their energy resource consumption with the aim of applying specific mitigatinglcorrective measures for stimulating energy saving;

Required registering and control over legal and physical persons for their produced and expended energy resources;

State statistical control over consumption of energy resources and measurement of the efficiency of their utilisation.

Article 8. State supervision of efficiency utilisation of the energy resources.

The State energy saving monitoring including energy efficiency utilisation of energy resources is carried out by special State organs set up for this specific purpose by the Government of Tajikistan. The Government of the Republic of Tajikistan approves Regulation of States energy monitoring and its structure is approved by Government of the Republic of Tajikistan. .

Article 9. State expertise in the field of energy saving

The main tasks of the energy saving expertise are; assessment of compliance to decrees, issuance of requirements for normative documents, standardisation of indices of efficiency as well as identification of the effectiveness of the improvement undertaken on energy saving.

The following types of activities and decisions are under State monitoring authority: Mining, transportation, distribution, processing, storage, manufacturing and utilisation of

:nergy resources. Construction documents for new and expanding project, reconstruction, technical

~mprovements, modernisation of existing buildings, enterprises and structures including information In the technique and technology applied.

Projects for the development of the economy sector. Projects of norm and standards, normative-technical acts, norms and regulations in the field of

:nergy saving. 'roviding government energy saving expertise is obligatory and is implemented according the rules of .he Government of the Republic of Tajikistan.

Article 10. Assessment of energy efficiency utilisation of companies, enterprises

Energy assessment of enterprises, institutions, and organisations with the energy saving certificates is providing the purpose of estimating the efficiency of utilisation of energy resources and energy

Tajikistan Enterprises, institutions, and organisations regardless of the type of ownership are subjected tc obligatory energy saving control if their annual consumption of energy resources makes up more thar 300 tons of conventional. Energy saving assessment of companies, institutions and organisations with less annual consumptior of energy resources is carried out by the decision of the State Energy Saving Control Board

Article 1 1. Calculation of the energy resources

The whole volume andlor quantity of extracted, produced, processed, and transported, stoked anc consumed energy resources are subjected to obligatory stocktaking. The type and condition of thc equipment utilised by the producers of energy products with the type of devices for registering thc consumption, as well as the method of utilisation of electric and thermal power, natural and liquefiec gas, products of oil-refining are established by the government of the Republic of Tajikistan. Calculation of the consumed energy resources is carried out in accordance with the establishec government standards and norms and measuring accuracy.

Article 12. Government Statistical monitoring of consumption of energy resources and efficiencq utilisation

Government statistical monitoring of the volume and structure of energy resources consumption and their effective usage is organised and carried out by the Energy Saving Control Board or authorised Statistics department indicated by the Government of the Republic of Tajikistan.

Chapter IU. Standardisation, certification and metrology in the energy saving sphere

Article 13. Standardisation

Normative documents for the standardisation of energy consumption, production, generation utilisation and other activities requiring the consumption of energy should be based on the modern scientific and technical achievement in of energy saving sphere. Consideration will be given to norms md rules regulating minimum consumption of energy resources and their saving. The normative iocuments and standards are prescribed by the law of the Republic of Tajikistan. [ndex of extraction, processing, transportation, storage, production, usage and utilisation are included into appropriate normative documents. lndex of efficiency of energy products consuming, including equipment, domestic instruments, :onstruction materials, heat insulating materials, index of energy resources expenditure in nanufacturing processes and housing (including energy expenditure for heating, ventilation, hot water j~pply, lighting of buildings, expenditure of fuel for transport) should be included in the appropriate lormative-technical documents.

4rticle 14. Norms and normative losses of energy resources.

Specification of normative energy resources losses should be obligatory included in technical jocuments of energy consuming equipment, means of transportation, distribution and storage of mergy resources, types of machinery, equipment and power apparatus. Amount of energy consumed ;hould be also indicated in energy certificate for each type of equipment, technical instructions on :xploitation as wdl as in technical certificates.

products for equal expenditure on supply. Energy efficiency assessment is carried out by the Government Energy Saving order and terms of energy efficiency should be approved by the Government

Control Board. The of the Republic of

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Until the introduction into force of a system of energy resources consumption norms, the currenl application of specifications and norms of energy resources losses established by the Government 01 the Republic of Tajikistan will apply.

Article 15. Certification

Energy consuming production, as well as energy resources are subjected to obligatory certification on the energy efficiency exponents. The compulsory certification is carried out in accordance of the Law of the Republic of Tajikistan and the order established by the Government of the Republic of Tajikistan. In accordance of the produced domestic equipment with the requirements established by the government standards on indices of energy consumption is confirmed through the obligatory marking on the mentioned equipment.

Article 16. Metrology

Metrological control and supervision is provided according the norm during extraction, production, processing, treatment, generation, transportation, distribution, storage and consumption of energy resources. Energy efficiency conformity with established standards and technical norms are done at the time of their certification and obligatory compliance control.

Chapter IV. Economic and Financial mechanisms of energy saving.

Article 17. Economic measures ensuring the energy saving

The purpose of economic measures of ensuring the energy saving are oriented to administrative, scientific, technical energy efficient management of enterprises, institutions and organisations and include the following measures:

Defining the order of financing of energy saving projects and programmes. Granting subsidies, loans to legal entities and physical persons to stimulate efficiency usage of

energy resources. Penalties for inefficient utilisation and unjustifiable losses of energy resources.

Article 18. Finance of programmes in the energy saving sphere

The finance of State programmes and also of scientific researches of energy saving projects and the measurement of increasing effectiveness of energy resources utilisation are coming from the government budget, local governments budgets, internal and/or outside funds of enterprises, foreign investors and coming from other sources as indicated in the order of the Government of the Republic of Tajikistan.

Article 19. Stimulation of the producers and consumers in the energy sphere

The stimulation for energy effectiveness of energy resources is provided by the Government of the Republic of Tajikistan in accordance with the law of the Republic of Tajikistan.

Introduction of short term and long-term credits. Establishment of seasonal price on natural gas and prices on electrical heating power and

differential price on daily usage. Stack-taking in prices on electrical resources, expense of inculcation of electrical activity,

expense on electrical equipment with renewing energy sources, set up in the frame of State programme and affecting the usage of energy.

State support of realisation of energy saving projects and programmes. Imported energy effected equipment and machines, devices, technical means, using during the

realisation of state programmes of energy supply could be released from the custom tax according the established rules.

Stimulating economic branches irrespective of their form of ownership in constructinl untraditional sources of energy objects connecting according the regulations to the energy system line! of the Republic of Tajikistan.

Article 20. Penalties in case of non-effective usage of energy resources

Penalty measures for non-compliance for the utilisation of energy resources are applied by the Enera Saving Control Board in accordance to the order set up by the Government of the Republic o: Tajikistan. The grounds for penalties for non-effective usage of energy resources are:

Unproductive expenditure of energy resources. Manufacturing non-efficient equipment anc materials.

Over-expenditure of fuel, electricity and thermal energy more than established norms 01 energy resources consumption.

Tardy installation of the equipment and devices registering the energy consumption. Utilisation of fuel, electricity and thermal energy against approved and established limits fol

the production of a unit of goods and services. Other infringements of the rules, norms and standards of energy resources utilisation.

Chapter V. International cooperation in the discipline of energy saving

Article 2 1. International cooperation in the of energy saving sphere

[nternational cooperation in the field of energy saving is accomplished in accordance with international legal acts adopted by Tajikistan and the legislation of the Republic of Tajikistan. The main directions of international cooperation in the field of energy saving are the following:

Mutually beneficial exchange of energy saving effective technologies with foreign and international organisations:

Participation of the Republic of Tajikistan in international projects in the energy saving sphere.

Co-ordination of energy efficiency is to envisage State standards of Republic of Tajikistan with requirements of international standards and mutual acknowledgement of certification results of both sides.

Chapter VI. Education, training of personnel and information gathering on activities in the field of Energy Saving

4rticle 22. Education and Training of Personnel

hstitutions of higher learning, secondary technical education, scientific and research institutions as well as institutions specialising in vocational training are to envisage in the programme of the kdamental basis of energy saving and efficient utilisation of energy resources.

4rticle 23. Information supply activity in the energy saving sphere

3upplying information in energy saving accomplished by:

Obtaining specialised scientific publications, magazines and statistical information on energy ;aving indices as well as economic and social indicators from other countries.

Discussing the State programme in energy saving sphere. Coordination of work on the design of pilot projects on f power effectiveness; Providing consumers of energy resources with information on energy saving problems and

ssues including normative-legal acts and on the laws with impacts on energy saving. Exhibitions of effective energy saving equipment and technology.

- Distribution of information on effective usage of energy resources including issuing specialized printed edition devoted to the problems of energy saving.

Propaganda on the effectiveness of energy resources usage.

Chapter VII. Responsibility for violating the Law on energy saving.

Article 24. Responsibility for violating the Law on energy saving.

Legal and physical persons bear responsibility for violating of the provisions of the present Law in accordance with the legislation of the Republic of Tajikistan.

President of the Republic of Tajikistan E. Rakhmonov

Date May 10, 2002 Registration No 29

ENGLISH UNOFFICIAL TRANSLATION OF THE DRAFT DECREE OF AUGUST 2003 ON STATE ENERGY SECTOR SUPERVISION OF THE MINISTRY OF ENERGY OF THE REPUBLIC OF TAJIKISTAN

THE GOVERNMENT OF THE REPUBLIC OF TAJIKISTAN (DRAFT OF AUGUST 2003) DECREE "ON STATE ENERGY SECTOR SUPERVISION OF THE MINISTRY OF ENERGY OF THE REPUBLIC OF TAJIKISTAN

In accordance with the laws of the Republic of Tajikistan "on energy sector" and "energy saving" and for the purpose of carrying out the state energy sector supervision on the effective usage of energq resources and products providing State energy sector supervision on the quality of rational usage ol electric and heat energy, oil, gas, coal, their technical and safety operation the Government of the Republic of Tajikistan decrees:

1 . to establish the State energy sector supervision on the basis of the "Tajikgosenergonadsor" enterprise SJSHC "Barky Tojik" of the Ministry of Energy of the Republic of Tajikistan ;

2. to approve the provisions and the structure of State energy sector supervision of the Ministry of Energy of the Republic of Tajikistan;

3. to ascertain the numbers of the employees of the State energy sector supervision in the quantity of 200 people (taking into account the staff);

4. the state ownership of the Republic of Tajikistan and SJSHC "Barki Tojik" within a month have to solve a question of transfer the numbers and funds of salaries, movable and unmovable property of the enterprise "Tajikgosenergonadsor" to the Ministry of Energy of the Republic of Tajikistan;

5. to establish that the maintenance of the State energy sector supervision and its bodies on the places shall carry out at the expense of the deduction from the incomes of those that are left at the disposal of state enterprises and joint-stock companies that carry out the activities in the energy sector, payment of the reactive power of electric energy and paid services, made by the State energy sector supervision as well as the sources of receipts, not contradicted the present legislation of the Republic of Tajikistan;

5. the Committee of the State energy sector supervision over the security providing works in the sphere of industry and mining control of the Government of the Republic of Tajikistan and the lgency on standardisation, metrology, certification, and inspection of the trade of Ministry of

Economy and Trade of the Republic of Tajikistan within a month shall give proposals on carrying ow ihe Provisions in accordance with the Decree;

7. the scheme of management of the Ministry of Energy of the Republic of Tajikistan approved by the decree of the Government of the Republic of Tajikistan from 29 December 2000 N 484 shall be supplemented by the words "State energy sector supervision";

B. to consider the Decree of the Government of the Republic of Tajikistan from 17 October 199t N: 465 "on the State energy sector supervision in the Republic of Tajikistan" as having lost its power.

Chairman of the Government 3f the Republic of Tajikistan

,'Approvedv by the Decree of the Government of the Republic of Tajikistan from 2003

Regulations

3n state energy sector supervision of the Ministry of Energy of the Republic of Tajikistan

1.General provisions.

1.1 State energy sector supervision carries out the control functions over the generation, :ransportation, transformation, distribution, storage and consumption of energy resources and products , operation of energy utilities , equipment by energy enterprises and all the consumers irrespective of ;he forms of ownership 1.2 State energy sector supervision in its activity follows the Constitution of the Republic of rajikistan , laws of the Republic of Tajikistan " on energy sector" and " on energy saving" , and other normative legal acts of the Republic of Tajikistan , as well as the acts of the Ministry of Energy of !he Republic of Tajikistan and the present Regulations. 1.3 The main task of state energy sector supervision control over rational and effective usage of :nergy resources in the sphere of their generation, transportation , transmission, distribution, storage md usage ; technical and safety operation of energy utilities of the producers and consumers; ~bservance of norms of consumption of energy resources; observance of normative legal acts of the Republic of Tajikistan , connected with the generation, transportation and distribution of energy :esources for all consumers irrespective of the forms of ownership. 1.4 State energy sector supervision is the legal entity, has the official stamp of the Republic of rajikistan with its title in Tajik and Russian languages.

11. Functions of state energy sector supervision.

2.1 State energy sector supervision controls over: .ational usage of electric, heat energy, gas, oil, coal during the processing, transportation, :ransmission, distribution, storage and consumption; :arrying out the measures of uninterrupted qualitative power supply over the power supply xganisations, observance of the norms of the quality of energy resources;

observance of state standards of the quality of energy products by the producers and consumers; carrying out the balance energy tests, that are active and bringing into the force over the consumers as well as the reconstructed and modernized energy equipments ; observance of the rules of technical operation of energy installation and other normative acts over tht consumers; carrying out the measures on the reduction of technical and commercial losses of energy resource: over the power supply organisations and consumers; conditions of the calculation of the generation and consumption of energy resources by the powel supply organisations and consumers; observance over the power supply organisations and consumers the order of distribution and carryin@ out the restrictions of consumption of energy resources; providing the optimum level of the compensation of reactive power of electric installations of thc industrial enterprises and consumers of electric energy compared to them; correct use of the current tariffs on gas, electric and heat energy , discounts on electric and heat energq and gas, as well as on implementation of optimum level of the compensation of reactive power, discounts from the cost of the energy in the case of overflow of the norms of condensate return ; organizing the works on technical security and technical operation; usage of secondary energy sources in the energy balance of the enterprise; 2.3 Makes selective expertise of the projects of reconstructed enterprises on the question 01 effective usage of energy, observes the security of energy equipment. 2.4 Prepares and submits into consideration of the Ministry of Energy of the Republic oi Tajikistan the proposals concerning energy saving. 2.5 Generalizes the work of all the groups of consumers on rational and effective usage of electrical and heat energy, gas, also introduces proposals to the ministries and agencies on removal oi revealed shortcomings. 2.6 Controls the activity of power supply organisations and takes measures over the consumers, that violate the established regime and restrictions on the consumption of energy, efficiency of measures on the reduction of loads. 2.7 Controls the work of improving the calculation of the expenditure and consumption of gas, electric and heat energy. 2.8 Analyses the power traumatisrn (from the action of gas, coal, electric and oil products) in the sphere of republic economy, working out the measures of its reduction. 2.9 Concludes treaties with legal and physical persons on fulfilment of the works. 2.10 Gives out conclusions for the licence receipt to all legal and physical persons that carry out the activity in energy sector. 2.1 1 Carries out training and education of personnel for the enterprises irrespective of forms of ownership. 2.12 Attests and issues appropriate certification to those who is responsible for energy economy of all groups of consumers. 2.13 Takes part in the activity of State committee on the acceptance to the operation of new and reconstructed objects of power supply organisations.

111. The rights of state energy sector supervision

3.1 In accordance with the rested on functions state energy sector supervision has a right: of free access in cases of necessity in any time of a day to the gas , oil, electric and heat installations, irrespective of departmental belonging and forms of ownership by showing the service card; to give injunctions on liquidation of infringements of unproductive consumption of energy resources; to require from the leaders of power supply organisations and all groups of consumers immediate disconnection of energy installations, discovering the infringements; to require from the producers and consumers in energy sector the observance of requirements of normative legal acts and normative technical documents in energy sector; to take measures on charging with the administrative and criminal duties persons that violated requirements of normative legal acts and normative technical documents;

to require from the leaders of power supply organisations disconnection of all groups of consumers in case of debts for the payment of energy resources; to check the reliability of the information of actual usage of energy resources; to prepare documents on revealed facts of extravagant expenditure and misappropriation of energy resources and to pass the documents to the appropriate organisations; to require from the enterprises, organisations, necessary information and documents on the questiol related to the competence of the bodies of state energy sector supervision; to attract specialists of scientific research and project institutions other organisations for carrying out expertises and giving conclusions on the questions introduced in the competence of thc bodies of state energy sector supervision ; to take part in the activity of commission on testing the knowledge of energy technical personnel an( power supply organisations; to give injunctions on disconnection of energy installations in case of absence of the staff.

IV. Responsibilities of state energy sector supervision.

4.1 Officials that control the energy sector bear responsibility for non-compliance of the duties anc incorrect usage of the established rights. 4.2 Activities of the officials that control the energy sector can be appealed to the superior bodies oi to the court.

V. Coordination of the activity of state energy sector supervision.

5.1 State energy sector supervision is headed by the director, who is appointed for the position and dismissed from the occupied position by the Ministry of Energy of the Republic of Tajikistan . 5.2 Director bear personal responsibility for fulfilment of tasks and functions of state energy sect01 supervision, determines the duties of deputies and leaders of territorial bodies, determines the degree of their responsibilities for fulfilment of their functions. 5.3 Director has deputies appointed for the position and dismissed from the position by the Ministry of Energy of the Republic of Tajikistan .

5.4 Director of state energy sector supervision is chief state inspector of the Republic ol Tajikistan on energy supervision. 5.5 The leaders of territorial organs are superior state inspectors on energy supervision. 5.6 Director within the framework of its competence issues orders and approves the instructions. 5.7 Director , his deputies, leaders of regional energy supervision are tested in the knowledge of the Rules by the attestation commission of the Ministry of Energy of the Republic of Tajikistan .

ENGLISH UNOFFICIAL TRANSLATION OF THE DECREE NO. 465 OF 17 OCTOBER 1996 ON STATE ENERGY SUPERVISION OF THE REPUBLIC OF TAJIKISTAN

GOVERNMENT OF THE REPUBLIC OF TAJIKISTAN DECREE Of 17 October 1996 No. 465 STATE ENERGY SUPERVISION

The Tajik Government decrees the following:

1. To approve the Statement of the State Energy Supervision proposed below. 2. The State Joint Stock Energy Company Barki Tojik will design the organisation scheme of the State Energy Supervision Subsidiaries in Tajikistan. State Energy Supervision Subsidiaries are maintained at the expense of cost of BT production. 3. To establish that BT confirms technical operation rules for electrical and heating installations obligatory for all heat and electricity consumers. 4. BT will design and submit to the Government of Tajikistan the rules of electricity and heat use.

Chairman of the Government of the Republic of Tajikistan E. Rakhmonov

STATEMENT OF THE STATE ENERGY SUPERVISION

1 . The primary objective of the Statement of the State energy supervision in Tajikistan is (i) to supervise the rational and efficient electricity and heat use in all fields of national economy and power generation; (ii) to control metering of electricity and heat production and consumption; (iii) to control the procedure of adoption and allocation of power limits; (iv) to monitor technical condition of power plants, lines and electrical and heating installations; (v) to observe the power consumption and quality regime; (vi) to implement measures providing safety maintenance of electrical and heating installations in enterprises, organisations and offices irrespective of their authority, as well as residential consumers.

2. The State Energy Supervision Body in Tajikistan is Tajikenergonadzor. Tajikenergonadzor includes regional, urban and district supervision agencies.

3. The General Director of Tajikenergonadzor is simultaneously the State Tajik Inspector assigned by BT in concordance with the Government. The leaders of the regional agencies are the Deputy General State Energy Inspectors of Tajikistan.

3.1 Other experts and inspectors in Tajikenergonadzor and in regional, district and urban supervision agencies are simultaneously the State energy supervision inspectors.

4. State energy supervision agencies follow in their activity the Constitution of the Republic of Tajikistan, the Laws of the Republic of Tajikistan, the Decrees Majlisi Oli, the decrees and instructions of the President of the Republic of Tajikistan, Decisions of the Tadjik Government, international legal deeds admitted by the Republic of Tajikistan, legal documents of BT and the present Statement.

5. The State Energy Supervision Bodies in accordance with the targets charged control the following:

5.1 Provision of regime and qualitative power supply measures for consumers; observing ol generation quality standards;

5.2 Observation of electric installation rules, safety regulations and technical operating rules, and electricity and heat use regulations;

5.3 Execution of the heat losses tests on power-intensive installations and equipment that operate or are being putted into operation, rehabilitated and/or modernized by societies (unions, associations3 companies, etc.) irrespective their subordination;

5.4 Design, approval and observation of electricity and heat rate by consumers;

5.5 Observing of power limit allocation and implementation requirement by power generation companies and all consumer groups;

5.6 Observing of electric installation rules, safety regulations, technical operating rules for electricity installations, and technical operating rules for heating installations, and electricity and heat use regulations by all power consumers.

5.7 Provision of the optimum level of the reactive power compensation in electricity and power installations of industrial enterprises and other equal power consumers;

5.8 Correct use of electricity and heat tariffs by energy distribution subsidiaries;

5.9 Correct establishment and implementation of condensate return and quality;

5.10 Energy production and consumption metering of power distribution subsidiaries and consumers.

6. Tajikenergonadzor provides energy supervision by:

6.1 Managing and controlling the regional, district and urban State Supervision agencies;

6.2 Making proposals to BT concerning the reduction of power limits due to wasteful expenditure of energy;

6.3 Demanding consumers to design and implement electricity and heat saving measures as well as to remove lack of use of this energy during supervision;

6.4 Generalising and encouraging measures for rational use and economy of electricity and heat carried out by consumers; making proposals to the corresponding ministries and departments to correct the defects revealed.

6.5 In concordance with the Ministries and departments, attracting their Energy services, research institutes and design organisations to work out the operating and installation rules, directions and instructions for heating and electrical installations and for economical use of heat and electricity; and awarding contracts with these organisations for implementation of corresponding works.

6.6 In a part with the interested ministries and departments, working out and confirming operating snd installation instructions for heating and electrical installations; heat and electricity rules :ompulsory for ministries, departments and consumers; electric installation code in concordance with he Architect and Construction Committee of the Tajik Government; and safety regulations for heating 3nd electrical installations in concordance with the Trade Union Federation Council of Tajikistan.

6.7 Demanding the corresponding ministries and departments, industrial and equal consumers any property to withdraw from production and review the technical conditions of the non-economic heating and electrical equipment that dissatisfy the safe operating and maintenance requirements.

6.8 Providing sampling inspection and making conclusions for electrical and heat parts of the typt plans of industrial enterprises, dwelling houses and installations of social and municipal impotence.

6.9 Issuing literature/books and placards in the established order concerning power economy anc safe operation of electrical and heating installations.

6.10 Controlling power distribution organisations that take measures against the consumers, whicl disturb existing energy regimes and limits, and preventing from appropriate designing an( implementation of the restriction and cut schedules, load reduction efficiency during the peak load public awareness measures during autumn-winter preparation, and Energy sailing activities.

6.11 Managing the activities regarding to the improvement of power metering of substations transmission lines and consumption meters.

6.12 Making analyses of injury frequency in national economy; work out injury reduction measures.

6.13 Registering and re-registering electro-technical vans and stations of consumers.

6.14 Certificating electrical installations, devices and meters and etc. in common with the Tajik Statc Standardization and Metrology Unit of the Tajik Government.

6.15 Issuing an explosion proof certificate in the quantity production stage.

6.16 Awarding contracts with juridical and physical persons for provision of works and services.

6.17 Providing staff training both for energy system and consumers.

6.18 Attesting and giving corresponding certificates to the officials responsible for power economy oj all electricity and heat consumers; in common with the Committee, participating in testing of electro- technical staff, consumers and energy distribution organizations.

6.19 Assisting the consumers in the power restriction and cut schedule to take bilateral acts oj emergency and technological power quote.

6.20 Assisting the State Committee in putting of new andlor reconstructed facilities into operation.

6.21 Putting into operation remobilized and/or rehabilitated electrical installations regardless of theil capacity and voltage of connection.

6.22 Controlling the execution of power lines defense requirements by the power distribution subsidiaries and consumers and citizens.

7. General state inspectors and their assistances, chief state inspectors and energy supervision inspectors were to afford the following rights:

7.1 Unobstructed access to electrical and heat installation at all hours on ID code.

7.2 Binding consumers to liquidate uncontrolled electricity and heat demand, and issuing manuals oi Aectricity installation use, heating and electrical instaIlation operation, safety regulations, and iirections for heat and electricity use.

7.3 Demand leaders of consumers to observe the power consumption conditions and limits, and tc implement power economy targets.

7.4 Demand directors of power distribution subsidiaries and consumers to switch off electricity and heat installations immediately in detecting of dangerous damages.

7.5 Demand energy distribution subsidiaries in the established order to limit power supply oi consumers, which failed to reduce power consumption.

7.6 Demand energy distribution subsidiaries to cut off consumers from power supply due to theil accounts receivable.

7.7 Develop measures in cooperation with consumers to reduce power demand during load peak hours.

7.8 Binding consumers to install metering and control devices needed to accurately measure electricity and heat consumed.

7.9 Revealing cases of wasteful expenditure of heat and electricity and reporting to the corresponding bodies.

7.10 Test attending staff; binding directors of power distribution subsidiaries and consumers to remove persons failed in the test.

7.1 1 Binding consumers to switch off the electrical and heating installation in absence of the attending staff.

7.12 Taking part, in established order, in the investigation of circumstances and reasons of the emergency and/or serious accident caused by heating and electrical installations.

7.13 Requesting ministries, departments and consumers about all data and materials needed within the state energy supervision.

7.14 Demand the distribution companies to submit the materials and information required within the state energy supervision.

7.1 5 Binding the directors and staff of the distribution companies to switch off the consumers illegally connected to the power lines.

7.16 Cancel records of testing and metering performed in the laboratories of consumers that did not pass the registration or re-registration.

7.17 Demand consumers to improve power supply scheme with allocation load of emergency and technological power quote for the reserving incoming lines as well as to separate power supply of technological, industrial and appliance load.

7.18 Limit energy demand of consumers less than emergency power quote.

8. Officials executing the state energy supervision, bear responsibility established by the legislation for non-execution of obligations and wrong use of rights entrusted.

9. The actions of officials executing the state energy supervision can be appealed to the higher official 3r in the Court.

10. State Energy Supervision Agencies implement their work in close cooperation with other State 4gencies.

@ - 1 1. Officials executing the state energy supervision have got ID card of common standard, distinctive- mark and form.

12. State Energy Supervision Agencies have got an official stamp with the Emblem of the Republic of Tajikistan, and accounts in the Banks.

a PART V. THE TECHNICAL, ECONOMIC AND FINANCIAL ASPECTS

5.1 THE ACTUAL GENERATION, TRANSMISSION AND DISTRIBUTION LOSSES

Recently a considerable effort has been made by Barki Tajik to measure and compile the losses on its two power grids. However, those statistics are not readily available to the public and some data have been stored hand written and have not yet been systematically analysed and compiled.

Currently it is the policy of Barki Tajik to measure the losses in their grid from the Power generating plants (that the only information available in 1995196) the HV lines the substations and down to the distribution grids. This is great progress comparing to the situation during the Tacis project done in 1997. At that time an activity on energy conservation was scheduled but was abandoned due to lack of information combined with low tariffs and serious non-payment, which were not conducive to energy conservation.

The project team would have liked to obtain the amount of energy delivered at the head of each distribution circuits and compare this information with the statistics on energy billed for the same circuit. We were told that these data exist inside Barki Tajik compiled by hand and stored for later analysis. To retrieve these data on the energy supply at the head of all distribution circuits and put them on an electronic format for treatment and easy analysis, will take an expert about 6 months of work.

Even the statistics the project team obtained had to be carefully reviewed to insure that they were not contradictory from one table to another Progress have been made in statistic gathering inside Barki Tajik, nonetheless the effort should be vigorously pursued. Furthermore a culture of transparency needs to be developed, so the public at large and certainly the MOE should be able to access these statistics on line. Currently in Tajikistan, with a state-owned vertically integrated power utility, even commercial information should be available to the public (like an Audited annual report) until a competitive market is established and require confidentiality of commercial data.

Table No.1 indicates that the total losses of the Barki Tajik two grids are about 14.7% of the total energy supply to the grid (national generation and importation) power. The bulk of the losses occurs at 220 and 110 kV. Not knowing the respective length of the lines at each voltage level it is difficult it is

0 difficult to assess the causes of these high losses.

Another manner to assess the amount of losses is to do an approximate calculation taking the Barki Tajik statistics on generation, payments and average price per kwh. From table No.2 it appears that the losses in the grid until the head of the distribution circuits is about 19.99% and the total losses (technical and non technical for 2002 could be as high as 43.39%. If a more rigorous assessment of the statistic confirm this preliminary finding, then Barki Tajik will well advised to reduce the non- technical losses to a normal level (little investment is needed to achieve spectacular results, like the Pamir Energy experiment in billing and collection system demonstrate). Then the proceeds from the billing and collection system could provide funds for the reduction of the technical losses beginning with the 220 and 110 kV lines improvement of the 110 and 220 kV lines and probably substations in need of rehabilitation.

Suppose that a vigorous programme of energy conservation is implemented to reduce the technical losses to a more reasonable level like reducing the technical losses by 10% and the non-technical losses by 18% (about a reduction of the losses by 50%) leaving 25% of losses to be reduced in a second stage. These 28% reduction in losses represents 4 510 576 000 kwh. The price in 2002 for the importation/exportation of electricity with the neighbouring republics was 1.4 cents p$ kWh. his is a reasonable price for surplus base load power coming from efficient generator (cost of energy not including a charge for capacity). This energy saving has a value-of about 63 million dollars.

Another case in point is the amount of technical losses of Tadaz. It is probably the main source of potential energy conservation in Tajikistan with the agriculture in summer time. The issue of non payment of Tadaz will be treated separately.

As the following extract from a report written in 1997 indicates, Tadaz was not at that time a very efficient aluminium smelter. Whereas, the European and North America aluminium smelters reach the level of efficiency of about 12 000 kwh per ton of aluminium, Tadaz was in 1996 in the range of 19 0000 kWh/t. With this difference of about 7 000 kwh per ton, assuming the production of Tadaz is 230 000 tons of aluminium per year that gave the amount of 1 610 000 000 kwh wasted each year due to inefficiency in the production process. To supply energy to Tadaz, especially in winter time Barki Tajik imports electricity from the neighbouring republics at about 1.4 cents per Kwh (2002 price). This represents $22.5 million per year.

Source: Tacis Project 1997: Advice to the Government and strate@pIan for the Energy sector

January 1997

Activity No. 18 Aluminium Plant Operational Audit

Name of visiting experts.

Messrs. Gertsen-Briand, Brun and Drouard

Local experts.

None were available due to security reasons in Tadaz. The report is in fact a desk-study done with all the data accumulated locally in the Dushanbe Enel/Sofreco offke.

Dates of the field mission. From September until November, 1996

Main findings.

It is quite possible that the project rational when locating a smelter in Tajikistan was to take advantage of the abundant hydraulic resources of the country. Unfortunately the situation has dramatically changed, the construction of the Rogunskaya (3,600 MW) and Sangtudingskaya power plants projects was stopped and a surplus of electrical power and energy has developed into a context of scarcity. In 1995, the total generation was only 13,524 GWh comparing to a potential of 16 543 GWh, the difference being due to numerous generation and transmission outages, resulting from a chronic lack of maintenance of the power plants and grid. From the 13,s TWh generated 5,044 GWh were supplied to TADAZ to produce aluminium. Beside electricity, the production of aluminium requires many other inputs, notably alumina (2 tons per ton of aluminium), anodes and cathodes components, fluor products, etc.

In the context of monetary union of the former Soviet Union, all the costs for the various inputs, including transport costs, were local costs. Consequently, export of aluminium to the western markets was a source of major benefits in terms of National Value Added (NVA). Currently, in the context of Central Asia, Tajikistan with its separate economy and monetary system must import all these inputs and on top of that local power generation is in deficit, there is no longer for Tajikistan a relative advantage to produce aluminium. Even the low cost of manpower is not a decisive advantage. Manpower cost is no longer a major cost in aluminium production. A modern smelter of 220,000 tons per year needs for its operation about 650 persons. This could be compared to the more or le&~13,000 employees O~TADAZ.

The real advantage of TADAZ, in comparison to a new plant, is the fact that the company has no long ,term debt and liabilities. (However the cash situation is critical and the plant is in very bad shape). Today, the investment costs for a new smelter are in the range of $4,000 to $5,000 per ton of aluminium production capacity. Financial charges to repay the money borrowed are therefore an important component of the cost of aluminium. However, in these modem smelters, the financial debt repayment burden is compensated by high productivity. To assess the current situation of Tadaz, many points have to be considered in an economic study: On the demand side, the quality of aluminium ingot produced by Tadaz is largely under the LME standard A7 (99,7% of pure Aluminium in the metal). Consequently the export price is reduced by an important discount of $100 to $300 per ton of aluminium depending on the quality. When adding the transport cost from Tadaz to Rotterdam warehouses, we consider that the ex-works sales price of Tad& is cuirently, LME less a discount of $300 1 t. The production cost for mid 1996, was evaluated by Tadaz itself at about $1,612 / t. This cost should be compared with a cost of $1,142 / t for a technically comparable European smelter and even less for a Canadian smelter. The main components of this difference of $470 / t are mostly high consumption of anodes, fluor products, and short life time of the cells. A very important factor for the production of Aluminium is the efficiency in the consumption of electricity and the cost at which this power is procured. Current power consumption of TADAZ for smelting is in the range of 19,000 kWh/t, to be compared to 13,400 KWh/t and even less for a recent European smelter. This difference of about 5,600 KWh/t, i.e. 42% it is significant for the cost of the end product. One of the reason for this high consumption rate is the fact that TADAZ is currently &king with 10 pot lines at 50% capacity with 50% cells stopped in each pot line, instead of working with 4 or 6 pot lines at full capacity, avoiding any inactive cell. Regarding cost, in general aluminium smelter are installed where power cost is low, like for example the smelters in the Gulf, with electricity generated by gas turbines, using gas which otherwise would be flared up. In Europe, occasionally a price of 1.6 to 2 cents per kwh can be obtained for smelters supplied &om excess capacity of base load power plants which can not have their power generation level reduced below a certain threshold, for instance the nuclear power plants. In the case of Tadm the power utility BARKI TAJIK supplies power at a price equivalent to 1.2 cents, and after July, 1996 0.85 cents 1 KWh. It is a price imposed by the government; it does not reflect the real economic cost.

I Conclusions

From a company internal financial point of view, the study indicates that Tadaz can not under the present circumstances become financially viable, unless the LME price for aluminium reaches the level of $1,90O/ton. Such a price has not been reached since 1988. Also the study of the balance sheet of Tadaz on 3 1 / 03 / 96, shows that the working capital is negative at the level of $44 million. The current cash situation of Tadaz is critical. The company needs an immediate re-capitalisation of $44 million. Furthermore, the present debt of Tadaz with Barki Tajik. According to the information received October 1996, this debt was about $43.3 millions ($1 .OO = TRb 300). This value is about the cost of the power for one year of aluminium production. This fact indicates that the cash flow problem of Tadaz is transferred to Barki Tajik through non payment of Tadaz electricity bills. . From an economic point of view, we consider the contribution of Tadaz to the National Value Added (NVA) of Tajikistan. It is the difference between resources and expenses in foreign currency generated by Tadaz. This is the most important aspect to consider, the ~ a j i k government could in our opinion tolerate on a short term basis, some financial losses for Tadaz, but not for very long a negative contribution to the NVA, without taking drastic corrective measures. Our assessment shows that in 1995, thanks to the high average level of the LME aluminium price of $1,700 It, the NVA generated by Tadaz was positive by $30 million for a production of 237,000 tons.

- Unfortunately in 1996, the LME price level dropped to $1,550 1 t and for the same level of production, the NVA will be negative by $19 million.

The above extract from a report written in 1997 indicates that significant amount of technical losses could be eliminated by increasing the efficiency of the process utilised by Tadaz to produce aluminium.

The amount wasted due to the inefficient process in use in Tadaz could be saved and would reduce the amount of non-technical losses (non-payments) which are so damageable to Barki Tajik.

In 2002 the tariff of the electricity for Tadaz was .61 cent per kwh this is much lower than the average electricity tariff paid by the European aluminium smelter. Electricity being such an important factor in the final cost of the Aluminium, that educated economic decisions have to be made on the pertinence to use electricity to produce aluminium or sale the electricity to other consumers willing to pay the market price. In North America some aluminium companies own the hydro power plants which supply their smelters. These hydro power plants are fully amortised and are in superb condition, due to first class maintenance practises. As a result the financial cost of the electricity is almost zero. Nonetheless, the economic price, i.e. the opportunity cost, is what the market will pay for those kwh and that is on average 5 cents per kwh, wholesale price. When the market price for aluminium is too low on the international metal market to justify using electricity at 5 cent per Kwh, the aluminium company are lowering the production of the smelters or even shutting down the less efficient and they sale the electricity on the open market.

Table No. 2 Barki Tajik Transmission and Distribution Losses in 2002 (Technical and Non-Technical Losses)

Somoni at the thousand of kwh technical and non-technical

Q Source of the data Barki Tajik (August 2003) a The approximate calculation for the losses in the distribution grid is derived by taking the energy paid divided by the average tariff

The above figures are only an approximation based on the data currently available in Barki Tajik To obtain more precise information on the losses at each voltage level will require months of work

* The above results should be considered as only an order of magnitude o For comparison purpose, the Finnish Regulator in its Annual Report of year 2002 laments the excessive losses in the Finnish MV grid,

which were in the vicinity of 3%.

Source: Statistics @om Barki Tajik

The Table No. 3 given below is interesting in showing a recent action by Barki Tzjik to measure md compile the technical losses per region (Oblast). This table, if accurate, indicates clearly, which region could become a priority for a distribution grid rehabilitation programme. In the case of the Garm region the amount of technical losses are so high, to the point of abnormality (36%) that the statistics for this region deserve to be reviewed carefully. Furthermore the figures for the total energy supplied do not add up with the other statistics for generation and total energy losses. Consequently the figures in the table should be considered with extreme caution. Nonetheless this table demonstrate an effort by Barki Tajik to consider seriously the issue of technical losses.

Table No. 3 Certification of the Technical Losses per Region

Technical losses in the Barki Tajjk grids in kwh over a 12 months (2002).

Source: Barki Tajik

Table No. 4 Tajikistan Electricity Generation and ImporVExport

I lmnnrt & b:wnnrt I I

1 Cost to Barki Tajik I I I $ 1 (4 421 000) 1 (15 697 000) 1 (12 455 000) 1 (2 L ., ...,, (Source: Barki Tajik) * Average tariff for all electricity importecUexported between the republics of Central Asia ** It is remarkable that the price for the electricity trading between Barki Tajik and its partners from the other republics id decreasing regulai last row epitomise the importance of and the resulting cost for energy conservation at the regional level.

rly. The figures on the

SO6 LZP ZP 18s LZ8 09 LO1 ESO 6s P69 ESS I L 9SZ 881 89 850 06E P9 LSO P91 6s 8P£ 8SL PS

OS'O S9'0 £9'0 LL'o PL'O IL'O L9'0 £9'0

ZOE Z86 6SP 8 PP8 9E0 80P 6 660 Z8P L8E 6 IES LLI E9Z 6 OPI LL0 091 6 6LE ISP IE0 6 988 OLZ 98L 8 899 PES IES 8

89i 682 0s SI ' I 199 LOP 81E O I L ' I 119 8ZL E OZL'I OZL'I OZI'I

JJ!JEL

SPZ ZZZ 0s S99 9LE LS PEL 6ZZ LS

!uomos

Z16 IOE ZZ L69 S E S Z PPP 618 1 E8Z L66 E 850 06L E SL8 9SE Z S99 1 S8 Z EPS P6L I

561 61P PLS P8S 9ZE POI 99L IEZ PS9 61 1 6EP

++ q"JI qpom aqljo pua aq? )I? a 3 u q s ~

11'2 92'1 EZ'I £2'1 1 1 OZ'I LI ' I ' 9

(a~ojaq q~uour aq$) aaualtrq aa!$qnmn3

~ ~ ' O ' S Z I ~ E E E Z P ~ 599 9LE LS PEL 6ZZ LS SOL 689 6P

!uOmoS

qluoly

IZ619LZI 281 628 E 0

!uomoS

uo!~a l lo3 d l q l u o ~ ~

LS'O 9S60

EP9 Z96 9S0 I ZZO Z6Z OOZ Z61 €91 8PI LL9 I IS SZE ZS6 LZZ €1 E LZZ 90P 961 066 PPL L91 596 IOL PSI

anuaaax blqyuom

OZO £19 PLO 01 Z I I OPL 811 01

qMX

~ 1 ~ ~ ~ ~ 8 ~ ~ LS'O ~ S ' O I S'O

JJ!JB&

PIC1 PI ' I 00'0

JJ!JE&

9EZ Z06 E I LI 01 E P £PI 189 01- IZL Z9E L 9SZ 88s L 9L8 Z8S L PL£ LSZ L EZL E9Z 9

OZO £19 PLO 01 ZI1 OPL 8LT 01 SSP 0Z9 6EL 6

q"JI

69Pt98LL6 t 961 £68 S E E 0

q"x

08S'E 056'1 0 ~ 8 ' 1 ~ I L ' I LI L'I L I L'I LIL ' I OZL'I

A1 I11 11 I

IOSL09S €11 9L6 E 620 OPS L

!"omoS

101 806 801 L9L 9P8 OZZ 09L L9P ZLZ 890 Z19 8Ztr El L ES8 IPP OZL 985 IPP 802 18P ZZP 086 888 E9E

18s LZ8 09 LO1 £SO 6s P69 ESS I L 9SZ $81 89 8SO 06E P9 LSO W I 6s 8PE 8SL PS 891 682 0s

59'0 £9'0 LL'o PL'O 1 L'O L9'0 £9'0 09'0

~8 9E0 809 6 660 Z8P L8E 6 I ES LL1 E9Z 6 OPI LLO 091 6 6LE ISP IEO 6 988 OLZ 981 8 899 PES IES 8 ES9 LPE ZZE 8

IIX 1X X XI

IlIA IIA IA A

The statistics on the amount of cumulated debt of Tadaz to Barki Tajik indicate a pattern of exceedingly poor commercial behaviours. This sort of practise will not be tolerated in a competitive market where a bankruptcy law exist. Considering that the Government, on behalf of the Tajik people, owes both Barki Tajik and Tadaz, must consider the economic impact of the policy to let Tadaz force Barki Tajik to dilapidate its infrastructures ( lack of proper maintenance) to subsidise the operations of Tadaz.

The table for the accumulated debt for 2002 indicates that Tadaz owed at the end of 2002 about $ 30 million to Barki Tajik. This amount does not represent the full debt of Tadaz to Barki Tajik because Barki Todjik in 2002 purchased electricity at 1.48 cents during the winter months and re-sold it to Tadaz for .60 cent per kwh. This indirect subsidy represents an amount of about $ 10 million which is reflected in the Barki Tajik negative balance of payment (import versus export). On top of this indirect subsidy Tadaz does not pay its bill in full on a regular basis.

Source: Carana Corporation

TADAZ debt to Barki Tajik for 2002 Month

I I1 I11 IV V VI VII VIII IX X XI XI1

Cumulative balance (the month before) Kwh *(I) 8 459 982 302 8689941617 8 607 837 796 8 352 341 891 8 138 221 934 8 398 320 824 8 45 1 824 973 7 827 359 026 7 905 020 409 8 072 894 073 8 207 679 633

826 008 365

* Energy of December 2001

Monthly Revenue

** Monthy consumption January

Tariff

0-50 0-54 0-55 0-55 0-57 0-59 0-61 0-60 0-62 0-64 0-70 0-75

Kwh ** (2) 263 561 492 187 075 35 1 218329231 406 649 623 448 504 570 436724383 448 448 697 451890705 435 857 166 454 201 072 440 015 633 361 145 817

Somoni 42 427 906 47 260 893 47619952 45 936 451 46 216 040 49566415 51 208 806 46932541 48 891 941 51 727 146 57 521 555 61 940 375

Monthly Collection Tariff

1-9 2-08 2-09 2-10 1-121 1-127 1-13 1-16 1-22 2-3 1 2-33 2-82

Kwh (3) 33 602 177

269 179 172 473 825 136 620 769 580 188 405 680 383 220 234

1 072 914 644 374229322 267 983 502 319 415 512 387686901 267 952 899

Balance at the end of the month Somoni 5 249 653 3 885 306 4 570 991 8 535 824 5 027 186 4 92 1 418

5058091-94 5252618 5 300 654

10 489 816 10272892 8 471 613

Kwh (4) 8689941617 8 607 837 796 8 352 341 891 8 138 221 934 8398320824 8451824973 7 827 359 026 7 905 020 409 8 072 894 073 8 207 679 633 8 260 008 365 8 353 201 283

Tariff

1-24 1-31 1-32 1-33 0-89 0-86 0-87 0-88 0-92 1-47 1-51 1-78

Somoni 416667

3 526 247 6 254 492 8 256 235 1676810 3279027 9 334 357 3 293 218 2 465 448 4 695 408 5 854 072 4 769 562

Tariff

0-54 0-55 0-55 0-57 0-59 0-61 0-60 0-62 0-64 0-70 0-75 0-78

Somoni 47260893 47 619 952 45 936 45 1 46 216 039 49566415 51 208 806 46 932 540 48 891 941 51 727 147 57 521 555 61 940 375 65 642 426

Table No. 6 Dushanbe Distribution Large Debtors 200012002

Source: Carana Corporation

The above tables indicate the amount of the money due to Dushanbe Energy Sales (DES) for 2000 and 2002 on a monthly basis. These non- technical losses are substantial and in a competitive market could not be tolerated for long. It demonstrates that a culture of non-payment of debts exist at all levels in Tajikistan for the power subsector. For the petrol subsector we assume that the consumers pay cash, up front, their purchase of gasoline?

Water Sewerage Adrasmons GOK Committee of Rate

We notice that the government is a large debtor to DES on account of reimbursement of the taxes on the VAT.

With the new policy put in force by DES and Pamir Energy to disconnect all consumers in arrear of payments it will be interesting in 2004 to see how the statistics on non-payments will reflect this change of policy.

846000 214500

1

867400 234800

702700 182400

849900 226600

715300 234800

737900 499900

758600 203000

758400 206300

749 200 209 700

I

766 600 210 200

Table No. 7 Pamir Generation for Year 2002

Generation by district of Pamir 2002 in MWh Some: Pamtr Energy

The Pamir Energy Company since taking over the Pamir Region concession has implemented a series of reform of the tariff structure and levels to be implemented over a period of a few years until the tariff generate enough revenues to cover the cost of the investment (rate of return to match the cost of the loans). In parallel a system of billing and collection is currently forcefully implemented to educate the consumers that the electricity is an expensive commodity and the survival of the power system is at stake.

District

Khorog

Shugnan

Rushan

Roshikala

Ishkashim

Darvoz

Vand j Murgab

The current reform for the tariff and the collection will force the consumers to review their priorities. Nonetheless gradually re setting one priority will not be sufficient to pay the electricity bills especially for the poorest segment of the population. It is the policy of the Government to insure access to the electricity to the poor people consequently a life line programme is put in place by the Pamir Energy company (PEC) on behalf of the government.

The PEC did set up a register of the Lifeline's programme cost to the company (the difference between the cost and the price at which the lifeline consumer pay their electricity consumption) as per the concession agreement PEC can invoice the government on a monthly basis for the cost of the programme. A special account was set up in the central bank to reimburse PEC.

Total MWh

82 819

14 929

4 125

4 263

5 818

6 350

6 043

626

This programme of electricity lifeline for social protection of the poorest segment of the population could be an example for the rest of the country. The impact of such programme on energy conservation needs to be monitored to obtain all the lessons which deserve to be learned.

January

9 662

858

227

63

0

229

574

52

February

8 764

535

273

57

122

180

393

24

March

7 984

483

274

49

403

283

507

52

April

8 621

788

312

248

502

268

701

62

May

652.

132~

June

5 589

1112

July

4468

958

296 473 475

420

675

796

520

67

38.

62'

1251

August

4 938

631

608

691

609

451

328

714

692

577

83

September

5 172

1055

58.

6'

410

334

696

769

442

44

547

64

October

5 940

1 160

326

458

400

523

358

16

November

6 888

2 514

December

8 268

3 511

245

538

48 1

432

304

58

361

771

510

313

535

37

Table No. 8 Cost of the Lifeline Programme (December 2002)

Social Protection Costs Calculation For the Month of December, 2002 Avg. exchange rate 2,998

District

- - -

~hugnan Rushan Roshtkala Ishkashim Darvaz Vanj Murgab

'2

TOTAL in $

1 Supplied Energy

(in MWh)

Residential 2

Aggregate Invoiced

Residential (in MWh)

Invoiced

Residential Non- Residential

(in Somoni) (in MWh) - 1 466

74 84

102 - 188

rota1 Invoiced 6 I 7

Total Invoiced I (in MWh) I

Supporting Table for Residential Consumption Calculation For the Month of December, 2002

District

Source: Pamir Energy

Households Residential (Somoni) Consumption

(MWh) (MWh)

Khorog 4 299 6 802 854 6 399

Shugnan 4 841 3 423 967 7 248

1 Number of

Rushan Roshtkala Ishkashim Darvaz Vanj Murgab TOTAL

2 Total

3 715 2 673 3 236 2 621 2 943 2 949 27 277

3 I 4 Lifeline Amount

316 668 315 202 341

13 12 080

5 I 6 1 7 Revenue from Lifeline Tariff

307 532 249 202 299

13 3 422

2 302 3 984 1 867 1514 2 240

9 7 25 651

Table No. 9 Cost of the Lifeline Programme (June 2003)

Social Protection Costs Calculation For the Month of June, 2003 Avg. exchange rate 3,09

J TOTAL 1 27590 1 8 841 1 1245 1 I 9618 1 I 1

Source: Pamir Energy

Residential

1 2 I 3 District Supplied Aggregate Invoiced

Energy Residential (in MWh) (in MWh)

- Khorog 3 099 1 980 Shugnan 1 998 1 925

Non Residential

4 1 5 Aggregate Invoiced

Non Residential

(mMWh) 1119

73 75 3 2

139 160 45 10

1 653

Rushan Roshtkala Ishkashim Darvaz Vanj Murgab TOTAL (9

Total Invoiced

642 1 000

990 2 071

604 90

6 Total Invoiced

(in MWh)

--- 3 099 1 998

642 1 000

990 2 071

604 90

567 968 85 1

1911 559 80

7

10494 1 8 841 10494 1

@ 5.2 THE LOAD CURVES BY SECTOR (RESIDENTIAL, INDUSTRIAL, COMMERCIAL AND AGRICULTURE)

5.2.1 DEMAND MANAGEMENT

Demand management is a low cost investment, which produces significant saving and assists greatly in energy conservation at critical juncture in the daily and seasonal operations of a power grid with a peaky demand.

From the load curves per class of consumers for the year 2002 prepared by the project team it appears that the Tajik grids (North and South) have a problem with the peak demand especially in winter time when the inflows in the Nurekskaya reservoir are limited by the cold season43. For the Northern grid in February 2002 we notice a peak of about 700 MW in the morning and 400 MW in the evening with a low demand of 150 MW during the mid-day). In summer (August) the Northern grid see a dramatic increase in demand with on mild peak of 73 1 MW in the evening and one of 632 Mw in the morning with a low demand of 473 MW during the night. Strangely the summer average demand is significantly higher than the winter demand with a brief exception for the morning peak of the winter. In the Southern grid the two load curves are similar in @ shape winter and summer with the demand in winter always superior (2300 MW) to the summer peak demand (2025 M W ~ ~ ) whereas in the North the summer is almost all the time superior to the demand from the winter.

5.2.2 FOR THE NORTHERN GRID

In the Northern grid the major difference between the winter and the summer demands is coming from the agriculture sector. We notice for the winter 2002 a variance of about 500 MW between the peak and the low demand during mid-day with a sharp shoulder for both morning and evening peak. Moreover, the agriculture summer demand represents 516 of the total demand (83%) for electricity. The good aspect is that the demand from the agriculture sector is without marked sharp peaks. However, the difference in demand between winter and summer is large at about 500 MW. That means the grid capacity is used by the agriculture sector for only about 50% of the time (only summer), which is costly and should be reflected in the tariffs structure for this sector.

In the North the Industrial sector has a load curve shape similar between the summer and the winter with a

a difference of about 36% more demand in winter (January) without marked peaks.

The Commercial sector in the Northern grid has only one peak period in the morning around 11 .OO in February 2002, which is the month with the maximum demand of about 8.5 MW and a low demand of 2.5 MW in the morning and evening, whereas November is the month with the lowest demand with only 1 MW in the early morning and late evening with a small increase in mid day up to 2.5 MW. Furthermore, this class of consumers does not consume much energy with a low demand of 2.5 MW in November and a maximum peak of 8 MW in February.

The non-industrial consumers sector has a winter (December) typical two peak periods between 7 and 9 in the morning and between 5.30 and 10.00 PM for the evening. In summer (July) the curve is flat at 20 MW all day long. In December the low demand is about 40 MW with two peaks of almost 100 MW.

43 See the hydro graph of the Wakhsh river at the Rogun dam site hydrologic station.

A demand of 2 1 18 MW in May is suspicious for its non conformity with the balance of the demand for the same day.

For the residential consumers, the demand in January 2002 was a low demand of 100 MW with a peak in the evening of 340 MW and in the morning 300 MW. The low demand occurs in October with a shape of the curve similar to January but with two peaks significantly lower, 150 MW in the morning and 175 MW in the evening. In January and October the low mid day and night demands is similar with about 100 MW.

Analysis

In the Northern grid the demand curves are considerably different from the winter and summer in magnitude and shape. In summer, the demand is high, reaching 720 MW with a low of MW 472 (a difference of 35%) during the night. In winter a sharp and narrow peak of 741 MW and a low of 184 MW (a difference of 75%). The summer high demand is created by the agriculture sector, which has a variation in demand between winter and summer of about 16 times or 1500% increases. This should be reflected in the tariff with a capacity charge, albeit in summer the energy is less costly. The winter two peak periods are generated by the residential and the non-industrial consumers, each with two concurrent peaks, which amplifies the phenomena. The variation for the residential sector between the October and January is 84% higher for January and for the non-industrial a variation of 288% between July and December.

Suggestions

@ The agriculture sector should have a tariff with a charge for the capacity and another for the energy. If both are set at their economic levels, then the agriculture sector will have an economic incentive to conserve energy. For the residential and non-industrial sectors a time of the day tariff with a separate capacity and energy charge set at a sufficient level to cover the real costs will send the right economic signal to the consumers. This signal should induce the consumers to lower their consumption during the morning and evening peak periods, like cutting the heating for one or two hours during the peak periods.

In summer the agriculture represent 66% of all the demand in the northern grid. In winter the residential sector represent 46% of the total consumption and the non-industrial 13%. Both sectors combined represent about 55% of the total demand.

A demand management project could on a priority basis concentrate on finding ways to limit the agriculture sector demand in summer and suggest means to promote conservation. The same project could explore methods to limit the peak demand of the winter for the residential and the non-industrial sectors; it is where the most significant saving could be achieved.

a Load Curves for the Northern Grid

(Source of all the statistics: Barki Tajik)

Data on the Hourly Demand for the Northern Grid

Source of all the statistics: Barki Tajik

0 Y Table No. 15 Load Curve for Year 2002 (Northern Grid -Industrial) Peak MW

Table No. 16 h a d Curve for Year 2002 (Northern Grid -Residential) Peak MW

Source: Barki Tajik

Table No. 117 Load Curve for Year 2002 (Northern Grid - Commercial) Peak MW

January

February

March

April

June

July

August ~ - - ~

September

October

November

December

Source: Barki Tajik

Table No. 18 h a d Curve for Year 2002 (Northern Grid - Non-Industrial Consumers) Peak MW

January

February 21.1 20.6 -1- March

April 120.1)19.9

August 1 23.2 1 22.9

October

-

Source: Barki tajik

Table No. 19 Load Curve for Year 2002 (Northern Grid - Agricultural) Peak MW

January 14,9 14,3 l-t February 13,5 13,7 T March

August 1 254 258

September 1 157 1 161

October .* Source: Barki Tajik

5,2.3 FOR THE SOUTHERN GRID

In 2002, January was the month with the morning highest peak demand and September with the lowest peak demand. These two months have a similar load curve shape the only difference is a morning peak of 724 MW superior in January than in September and during the evening a higher peak of 354 MW for January than September. In January the peak was 2 320 MW and the low demand early in the morning was 1 182 MW that is a 96% increase in less than two hours.

For load management purpose the question is, which sector is creating the peaks in the morning and the evening, by how much and what can be done to reduce the peak demand. The load curve of each sector of the Southern grid indicates that three sectors are the main contributors to the peak demand and they are time wise reinforcing each other. The residential sector adds 350 MW to the morning peak. The non-industrial sector adds another 60 MW to the peak and the industrial sector from 6.00 hour until 18.00 hour adds another 200 MW. In the southern grid the agriculture sector had in 2002 a 200 MW peak in summer from a low 48 MW peak demand in winter. This is significantly inferior to the Northern grid agriculture sector with a load of 500 MW added to the peak in summer time.

In the southern grid the Tadaz smelter load demand for winter and summer is almost flat without peaks but it - adds about 400 MW to the load curve on a 24 hours basis.

- The commercial sector fiom a peak load of about 8 MW in winter goes up to 18 MW in summer but does add up much to the morning and evening peaks since the maximum load is from 8.00 in the morning until 6.00 in the afternoon, with a bell-shaped peak curve at mid-day.

Analysis

In winter 2002, the demand went from a low demand of 1 182 MW to a peak of 2320 MW (96% increase) in a couple of hours. This is very demanding operationally and even less on economic ground for any power system even for a hydro-power dominant power generation system. Another aspect is the fact that the peak demand is reaching the limit of the generating capacity of the Tajik power system. The Nurek power plant, which is the backbone of the system, is not able to generate at full capacity since 2000. For 2000, 2001 and 2002 the real capacity of Nurek power plant was 2 100 MW and not the installed (nominal) capacity of 3000 MW. The alternative to load shedding and load management is costly importation of electricity from the neighbouring republics. That is feasible if the transmission and distribution grids have the technical capacity to transmit the load. Currently in winter to save energy and allow accumulation of water in the Nurek reservoir to meet the load demand of the two peak periods, load shedding is practised in between the two daily peak periods in a selective way. The regions with a bad record for paying their consumption are cut first. The side effect of this practise is to increase the two peak load of the morning and evening, since the consumers who could cut the heating during the two brief peak period have no choice but heat their houses during the peak periods since they are cut during the day.

The Tadaz aluminium smelter (industrial sector) could be an excellent consumer if it was paying its bills and if the tariff was set up at the e~onomic level, which unfortunately is not the case. The Tadaz load is constant, winter and summer, day and night, at about 400 MW. Furthermore, Tadaz is supplied directly from the Nurek power plant with a 500 kV line. An aluminium smelter cannot reduce quickly its load, but on a seasonal basis with precise planning it is feasible. Tadaz could increase its production in summer when the energy is available and could reduce marginally its production during the 4 critical months of winter (doing the maintenance), when the Nurek reservoir is at a low level when the water shed is in the grip of winter?

In the current situation Barki Tajik has little alternative but introduce a vigorous load management programme to reduce the demand peak level especially in winter when a deficit of capacity and of energy supply occur. The residential and non-industrial sector must be disciplined through economic incentives or penalties with a view of reducing the peak levels.

Suggestions

A load management department could be set up inside Barki Tajik distribution departments (after the unbundling the distribution utilities, DISCO) with the assistance of experts in this discipline to analyse in detail the load curves of each sector and identi@ precisely the main contributors to the peak periods and the causes for their pattern of consumption. Then case by case a load management programme could be introduced to mitigate the problems with a campaign of sensibilisation to explain to the consumers the reasons for the economic incentives (economic signal) introduced in the tariffs.

The demand pattern of Tadaz could be assessed to find out if any possibilities exist for modulation of the demand on a seasonal basis to increase the production in summer time and reduce it during the four critical months of the winter. Economic incentive could be provided to induce Tadaz to a flexible schedule of production.

To avoid load shedding (when the tariffs are set to their economic levels) as much as possible Barki Tajik (the generating utility after unbundling the GENCO) could assess the real cost of capacity and energy on a seasonal and daily basis. All kwh are not born equal! In summer spilled m3 of water have no economic value (unless recycled down stream by another power plant), whereas the same m3 of water if transformed in kWh and sold in another neighbouring grid could reach a high value for peak guaranty energy or even base load.

@ In winter, during the night, buying cheap base load energy from thermal plants (the most efficient, which - cannot be stopped) from the neighbouring republics and accumulating water in the hydropower plants reservoirs to be used for the national or regional peak periods could be advantageous for all parties. These energy conservation opportunities will be automatically enhanced when an open and competitive power market is established at the regional level.

The installation of time-of-the-day meters, to all consumers, in parallel with the introduction of a tariffs structure and level reflecting the real economic cost of the energy (economic signal) will go a long way to reduce the magnitude of the peak demand by levelling or postponing the electricity consumption over a longer period of time instead of having sharp peaks for the demand.

Load management for meeting the peak periods could be facilitated by an optimal management of the reservoirs in combination with the purchasing of low cost base load energy when available in the neighbouring grids. Reservoir management of a river basin not fully regulated on a yearly basis with down stream power plants in cascade require modelling and simulation of various scenarii to take into account the hydrology of a given year and the demand characteristics.

All the reforms to establish an economically efficient pattern of consumption will have to be accompanied by an awareness campaign to explain to all consumers (all classes of consumers) the possibilities to conserve @ energy and therefore saving money.

Load Curves for the Southern Grid

Source of all the statistics: Barki Tajik

Data on the Hourly Demand for the Southern Grid

Source of all the statistics : Barki Tajik

d 6 Table No. 26 Load Curve for Year 2002 (Southern Grid - Commercial) Peak MW

January 5,7 5,4 5,6

Source: Barki Tajik

0;

Table No. 27 Load Curve for Year 2002 (Southern Grid - Industrial) Peak MW

7 I -

January 505 513

February 463 466

March 478 480

April 544 532

585 585

June 573 579

July 1 589 1 584

September 1 574 1 568

October 1 610 1 610

November I 600 1 603

December 634 637 L L L Source: Barki Tajik

Table No. 28 Load Curve for Year 2002 (Southern Grid -Residential) Peak MW

Source: Barki Tajik

Table No. 29 Load Curve for Year 2002 (Southern Grid - Agriculture) Peak MW

January

February

March

April

June

July

August

September

October

November

December

Source: Barki Tajik

-m Table No. 30 Load Curve for Year 2002 (Southern Grid) Peak MW

I

February 1343 1317 1285 1292 1443 1966 1931 1827 1382 1351

March 1239 1251 1234 1263 1362 1985 2208 1920 1263 1244

Source: Barki Tajik

3 5.2.4 APPENDIX TO THE LOAD MANAGEMENT

Reservoir management to assist in meeting the peak load demand

RIVER BASIN AND RESERVOIR MANAGEMENT FOR HYDROELECTRIC PROJECTS

Numerical tools and new technologies offer an integrated approach to River basin Management and Water resource planning. Dam owners are facing a growing demand for sharing real-time information with the different watershed users and for decision support systems to help them deal efficiently to meet the energy competitive market demand and environmental constraints. Numerical modelling solutions can be developed to address any of the following aspects of river basin management for efficient hydroelectric developments and operations:

Real-time monitoring of plant generation, water levels, inflows and outflows and optimal balance. Inflow forecasting on a watershed. Power Plant optimisation at the unit level (short-term planning) to meet the market peak demand and optimise the value of the water stored. River power generation optimisation and derivation of maximum benefits, subject to operational and environmental constraints (short-term to long-term planning). River management simulation taking into account various inflows models and demand scenarii. Flood management and alarm system.

Ad hoc numerical solutions can be developed to meet the precise needs and constraints of a specific basidwatershed from the simple to the more complex solutions. For example, in the case of a river with a single head reservoir with total or partial yearly regulation capability and a few run-of-river downstream power plants, it is a rather simple application where energy generation can be optimised to meet an energy/peak capacity demand profile with varying alternative energy prices.

5.3 THE SPECIFIC CONSUMPTION PER CLASS OF CONSUMERS

5.3.1 REGIONAL DISTRIBUTION OF ENERGY CONSUMPTION

From the statistics compiled by Barki Tajik and given to the project team, the total consumption for all regions of Tajikistan is 8 059 012 239 kwh for the year 2002. This does not match the other statistics supplied by Barki Tajik giving for the total energy billed 12 889 329 000 kwh for 2002, this is a difference of about 4 830 316 761 kwh that is 37.5% between the two Figures. This is we assume the consumption of the Tadaz smelter, which has not be taken into account in the table

Based on the document for the consumption of energy per region the specific consumption is as follow:

REGIONS CONSUMPTION

DUSHANBE CITY

CENTRAL OBLAST

SOUTHERN OBLAST

I KURGAN TUBE ClTY 1 140 608 849 1

1680440574

820 564 644

1 201 639 821

KHULIAB OBLAST

KHULIAB ClTY

1 KHUDJAN SODJ I I

I 1412961 385 1

466 430 412

179 398 391

OBLAST KHUDJAN CITY

TOTAL CONSUMPTION

10.12% (5) 6 785 (8)

356 525 725

URA TUBE OBLAST

PYANDJKENT OBLAST

TURSUZADE OBLAST

GARM OBLAST

TOTAL

Dushanbe City is with 20.73% of the total consumption of Tajikistan by far the largest consumer and on a specific consumption basis, the top consumer. Then second, is the Khudjan Oblast with 17.43% of the total consumption but ranking 5 for the specific consumption. The southern Oblast is the third for the consumption but the 2 for the specific consumption.

1 I92332046

252 736 695

193 264 017

162 109 680

8 059 012 239

Source : Barki Tajik

Table No. 31 Tajikistan Power Grid - Specific Consumption of Consumers per Oblast and Cities (2002)

DIJSf?ANBE City power distribution grid (Year 2002) (kwh )

INDUSTRY OTHER THAN INDUSTRIAL AGRICULTURE DOMESTIC1 URBAN Total

CENTRAL OBLAST power distribution grid ( k w h )

Source: Barki Tajik


Total consumption 227 72 1 363 164 152 893

1 094 953 1 287 471 365 1680440574

Total consumption 38 534 978

101 054 351 48 823 103

632 152 212 820 564 644

Nb of customers 256

5365 1

130 141 135 763

Nb of customers 127 425 175

120 206 120 933

Specific consumption 889 536 30 597 9 893

1 094 953 12 378

Non-budgetary 227 72 1 363 50 856 494 1 094 953

1287471365 1567144175

Specific consumption 303 425 303 425 278 989

5 258 6 785

Non-budgetary 38 534 978 49 982 998

? - - - - - - 48 826 103 632 152 212 769 793 321

KULIAR OBLAST power distribution grid ( k w h )


KULIAB CITY power distribution grid (kwh )

INDUSTRY

AGRICULTURE DOMESTIC1 URBAN Total

Total consumption 32 036 830 36 921 096

81 896 739 315 575 747 466 430 412 ,

KUKGAN TLIBI: City p m e r distribution grid (hWli )

Source: Barki Tajik

OTHER THAN 25 130 258 5 5 456 913 11 175 913


11 885 725 135 726 084 179 398 391

INDUSTRY OTHER THAN INDUSTRIAL

- AGRICULTURE DOMESTIC1 URBAN Total

Nb of customers 105 278

102 81 042 81 527

Nb of customers 3 7

8 23 836 23 936


13 037 661

488 564 117 335 368 140 608 849

Specific consumption 305 112 132 809

802 909 3 894

, 5 721 -

Non-budgetary 32 036 830 4 896 380

81 896 739 3 15 575 747 434 405 696

Specific consumption 179 901

1485 715 5 670 7 495


7 15 074 15 478

Non-budgetary 6 656 324

11 885 725 135 726 084 165 444 046


69 795 7 784 9 084

Non-budgetary 9 747 256 4 497 540

488 564 117 335 368 132 068 728

KFIULIJAND - SOGD OBLAST pmver distributioti grid (kwh )

INDUSTRY OTHER THAN INDUSTRIAL AGRICULTURE DOMESTIC/ URBAN Total

I INDUSTRIAL I 1 I I

KHUDJAND City power distribution grid (kwh )

I )MESTIC/ URBAN 182 077 380 1 4 5 800 1- 1 975


512 186 616 626 472 458

1412961385

INDUSTRY OTHER THAN

Source: Barki Tajik


96 155 513 156 230


Specific consumption 1 155 138 284 728

5 335 277 4 028 9 044

Nb of customers 64

592

Non-budgetary 129 375 450 94 588 413

512 186 616 626 472 458 1 362 622 937

Specific consumption 1 799 048 100 184

Non-budgetary 115 139 089 11 404 359

TlJRSUZADE OBLAST power distribrrtion grid (kwh )

Source: Barki Tajik

INDUSTRY OTHER THAN INDUSTRIAL AGRICULTURE DOMESTIC/ URBAN Total

GARM PBLAST p m e r distribution grid (hW11 )

INDUSTRY OTHER THAN INDUSTRIAL AGRICULTURE

- DOMESTIC/ URBAN - Total


20 355 880 8 607 395

157 402 022 193264017


10 041 224 2 575 539

148 310 094 162 109 680

Nb of customers 6

97 11

30 000 . 30 114

Nb of customers 4 1

184 74

29 768 30 067

Specific consumption 1 149 787 209 854 782 490 5 246

, 6 418

Non-budgetary 6 898 720 10 21 1 244 8 607 395

157 402 022 183 119 381

Specific consumption 28 849 54 571 34 804 4 982 5 391

Non-budgetary 1 182 823 882 574

2 575 539 148 310 094 152 951 030

BARK1 TAJlK TOTAL energy distribution for the year 2002 in k w h .

Source: Barki Tajik

INDUSTRY OTHER THAN INDUSTRIAL AGRICULTURE DOME STIC/URB AN

I I I

TOTAL 8 059 012 239 1 954 570 1 8 442


1 998 306 405 4424617107

7 553 867 678

Nb of customers 1242

21 946 1201

930 181


1663 868 4757

Non-budgetary 816 787 455 313 856 681

1 998 306 405 4424617 107

a 5.4 THE CURRENT TARIFFS STRUCTURE AND LEVEL

The current tariffs structure and level. Potential impact of adequate tariffs to send the proper economic signal for promoting energy conservation.

5.4.1 SUGGESTIONS OF MEASURES TO PROMOTE ELECTRICITY EFFICIENCY MEASURES/CONSERVATION

As per our mandate the project team tried to find out, which method was utilised by the Tajik authority responsible to establish the electricity tariff policy for setting the structure and the level of the tariffs.

The most important prerequisite to establish an effective energy conservation programme is to set the tariffs at its economic level. Secondly the billing and the collection must be efficient and the frauds and non-payment kept at a minimum level.

During the two missions realised by the project team, only one government agency, i.e. the Antimonopoly committee, admitted to be involved in doing some work on the electricity tariffs. However, when asked which method they were using, no precise answer could be obtained.

We understand that the tariffs for the electricity are reviewed by a committee of two or three senior ministers with the participation of the highest level in the government. During the two missions of May and July, nobody could supply the project team with a clear explanation of the rational for setting the tariffs for the electricity.

How to set the tariff for the electricity on generally accepted principles is not new in Tajikistan. To our knowledge the first study to establish a tariff system on a sound economic basis (LRMC) was done by a Danish consultant (financed by Tacis) in 1994. Unfortunately, this study was not completed due to the civil war.

In 1996197 another Tacis project to supply advice to the government and preparing a strategy for the development of the energy sector, identified the two main causes for the accelerated deterioration of the power subsector infrastructures and mentioned the consequences of this state of affairs. The two main causes for the deterioration of the infrastructures in the power subsector were: A) The Tariffs were set too low and were not based on solid economic principles. B) The billing and collection system were wanting

a and produced little results.

To mitigate the consequences of inadequate tariff the Tacis project TL sent advice to the Ministry of Economy and to the PM on the necessity to increase the tariffs. Positive action resulted; the tariffs were increased in 1997 as shown in the Appendix 5.4.5. Unfortunately the year after, in 1998, the tariffs were reduced to their previous low level.

In 2002 the tariffs for electricity in US $ term were reduced by about - 42% from the level of 1997. In 2003, an increase in the average tariff was implemented and the repartition of the increase per class of consumers shows some increases and for other decreases. Unfortunately nobody could explain to us the rationale for either the increases or decreases and the rationale for the new structure of the tariffs.

In 2000 a Consultant (Louis Berger SA & SMEC Int. Pty) was asked by the AsDB to review the electricity tariff situation in Tajikistan and suggest a tariffs structure and level to achieve cost recovery levels for all consumers. The GOT was bound to implement the following timetable for full cost (100%) recovery for the Industry and Agriculture sectors by the end of 2000 and for the household sector 100% by the end of year 2000. The Consultant tried to estimate the LRMC based on the replacement cost of all existing infrastructures of the power subsector. (Chapter 8 from page 8-1 to 8-31). However, this exercise

was subjected to a few assumptions like the real cost for the replacement of all infrastructure, which at the time was difficult to ascertain since no new major constructions was done from the early 1990 onward and at that time the numeraire was the soviet currency.

Nonetheless, the Consultant did produce a set of tariffs (page 8-8) for various classes of consumers for the year 2000, which can be summed up as follows in column one and compared with the year 2002 and 2003:

Class of Consumers Year 2000 Year 2002 Year 2003

General Industry 1.35 cents 1.03 cents 1.03 cents Budget organisations .14 cent .09 cent .62 cent Commercial sector 1.3 5 cents .62 cent 1.03 cents Agriculture irrigation .14 cent .13 cent .62 cent Other agriculture 1.35 cents .15 cent 1.83 cents Households below 150 kWh .27 cent .62 cent (750 kwh) .58 cent (below 750 Kwh) Households over 150 kWh .59 cent .62 cent (750 kWh) .99 cent (above 750 kwh)

In the case of the tariff structure for the year 2000 presented by the Consultant the structure of the tariff and the level per class of consumer follow the principle of LRMC based on the estimated value of the

@ replacement of the exiting infrastructures. What is not clear with the structure suggested is the fact that on page 8-2 of the report the Consultant mentions that the LRMC of supply for Tadaz is 1.26 cents per kwh and it is 1.51 cents for the industry (HV) and 1.65 cents per kwh for all consumers supplied at low voltage. These findings are not reflected in the tariff structure suggested for the year 2000 by the same Consultant. Evidently the Consultant had to make quite,a few assumptions like the load forecasting, what will be the next investment to rehabilitate the power system, the cost of the replacement of the current assets and the real cost of the BT operations. One assumption has a significant impact on the calculation made it is the cost of replacement of the existing assets of BT. The current bidding for the rehabilitation programme financed by the AsDB should result in a better appreciation of the real costs for construction in the power subsector in Tajikistan for 2003.

Table No. 32 Evolution of the Tariffs for the Electricity from 1997 until 2003 in US $ (Cents)

When comparing the tariffs between 1997 and 2003 we notice that the Tadaz smelter has a diminution of its tariff of -22%

The government (budget) organisations have an increase of +588% albeit from almost nothing .09 cent in 97

The industrial sector enjoys a diminution of -1 8% and the consumers over 750 kWh a diminution of - 22%

However the Urban transport (trolley bus) sees it tariff increases by +277% the Agriculture irrigation +588% and the agriculture in general 863%

Table No. 33 BT Electricity Sales and Average Revenue for 2002 and Effective Average Tariff per Kwh

For year 2002 Thousands of Thousands Ainount Somot1 i % of dirnnl ccntdhWh E ffcctivc kwh uf K w h Billed in collected consumpticm /hWh Ccnts /KW h

generated billed somoni collected I~otal Electrical nerd 15944200 12 716577 119414200 88852400 1 00,00% 0,94 .30 018 *

- - -

Total Industrial 5 416 166 91 586 300 42.6% 1,70 .55 Tadaz 4 552 403 77 036 100 35.8% ** 1,69 .55 - Industrial (other than Tadaz) 863 763 14 550 200 6.8% 1,73 .56 BT consuinption 22 853 .18% 2.34 .75

Other Agricultural I 41 748 1 435 300 0.33% 3,43 1.11 HouseholdNrban 4 565 480 13 466 200 35.9% ** 0.30 .10

I$ = 3,1 somonis 1 cent = 3 , l dirams Source: Barki Tajik

* Even if the tariff is already very low, when taking into account the technical and non-technical losses the real /effective average tariff BT is getting for each generated or purchased kwh, is only .I8 cent per kwh (probably a world record?)

** Tadaz and the household together represent about 72% of the total consumption of electricity in Tajikistan.

Table No. 34 Consumption, Taxes and Payments Received for the Electricity Sold by Barki Tajik from 1997 to 1999

I 1 1998 I 1999

Average 1 Consumption 1 Taxes in 1 Average I Consumption Average tariff in

Taxes in thousand of

somoni

Taxes in thousand of

somoni

Consumption 1 I n t h o ~ d tariff in In thousand of thousand of tariff in in thousand of diram I kWh I somoni I diram 1 k w h CLASS OF diram

CONSUMERS

TAL (1+4+5+6+7) 11 982 894

1. INDUSTRY

Including internal BT 27 295 consumption

2. TADAZ I 3 926 688

3. MDUSTRY I 101 568 without Tadaz I

4. NON 1NDUSTRIAL 1 644 852

a) Budget b) Non Budget

212 424 5. AGIUCULTURE

2 430 278 a) Pump stations

b) Agriculture general p 6. Household Urban 3403522

7. OTHER 1 475986 I

(Source Barki Tajik)

Table No. 35 Consumption, Taxes and Payments Received for the Electricity Sold by Barki Tajik from 2000 to 2002

I 2000 1 2001 I 2002

CLASS OF

without TADAZ

rNDUSTRIAL

3. Household 4 178 549 8 089 0,19 3986175 11149 0,28 8 377 4 565 480 13 466,2 0,30 8 530,7 Urban - -

7. Other 189 643 802,7 (Source Barki Tajik)

e 5.4.2 ANALYSIS OF THE CURRENT TARIFF SYSTEM

In Tajikistan the methodology for setting the tariffs structures and level for the electricity is not available. The only Tajik authority claiming some responsibility for the tariff was the Antimonopoly Agency, which could not explain the method they were utilising to set the tariffs.

From the current tariffs structure and level it is not apparent that a generally accepted method is utilised to set the tariffs on sound economic principles. Nonetheless, the Tajik authorities have already received advice on the tariffs setting at least three times in the past.

The previous studies done by a Danish consultant (SRC) for Tacis (94), the advice given during the second Tacis project (97) for the energy sector and the suggested structure and level for the electricity tariff done by the Louis Berger & SMEC Consultant, were not followed by the GOT.

The latest study (TA No. 3 1 14-TAJ) financed by the AsDB tried to establish a system of tariffs aiming at insuring full cost recovery. The Consultant using a few assumptions, tried to determine the LRMC for the generation, transmission and for the distribution systems. A structure for a new tariff was suggested for implementation in 2000. Tadaz was supposed to pay 1.26 cents per kwh, the industry 1.5 1 cents per kwh

@ and for the low voltage consumers 1.65 cents per kwh. This recommendation has not yet been implemented as the Table No. 32 demonstrates. In fact the tariffs for the electricity in Tajikistan has been decreasing in real term since 1995 until 2002 (taking into account the tariffs in $ term).

Furthermore, the tariff suggested by the Consultant is based on estimated/assumed costs for construction in the Tajik power subsector. These costs will need to be updated in the light of the latest bidding for the first emergency rehabilitation programme financed by the AsDB.

The current tariff for electricity in Tajikistan is way out of the international average tariff (above 5 cents par kwh) currently applied in the power subsector. For the Central Asia and some Eastern Europe countries tariffs see page 8- 12 of the TA No. 3 1 14-TAJ report.

The Pamir Energy company which has a concession for the Pamir region to operate and develop the power subsector for 25 years has recently published a new tariff table for all details see the next table. . . . . It will be difficult to the GOT not to establish a similar system for the tariff of the electricity for the rest of Tajikistan considering that the poorest region of Tajikistan is leading the way to reasonable tariff with a view of insuring cost recovery for investments and operational costs. In the Tariff set up by the Pamir

. Energy company an important aspect is the Lifeline Tariff for the poor consumers.

"A Lifeline Tarlff is to be established, it is the Government's intention to ensure a level of social protection for the consumers in the PamidGBAO by covering the difference between the residential tariffs and a tarr#(the "Lifeline Tariff") of US40.25 per Kwh for the first 200 Kwh per month of each residential customer's consumption during the period of November 1 through March 31 and for thefirst 50 KWhper month per residential customer during the period of April 1 through October 31. These levels of consumption are herein called the "Lifeline Amounts". The Pamir Energy Company will bill the residential customers for consumption up to these Lifeline Amounts, with such customers being billed at the Lifeline Tar% For amounts over the Lifeline Amounts, such customers will be billed in full according to the tar18 otherwise applicable. A separate invoice detailing the volume of residential consumption and subtracting the amounts billed directly at the Lifeline Tarlff will be sent to and paid by the Government. In support of this obligation to pay, the Government will agree to establish a bank account (the "Social Protection Account') solely for this purpose. "

Table No. 36 Pamir Electricity Tariff Structure and Level

Source: Parnir Energy

Russian army

The stated policy of the government is to have an open and competitive market for the energy sector. To implement this policy will require some time. A first step on the road of the development of the power subsector will be to establish a tariff system based on sound economic principles and insure an efficient billing and collection. When the real cost for the rehabilitation of the Barki Tajik grids is established trough the bidding process then a tentative LRMC tariff study could be done based on the cost of maintaining the current system. When the tariffs are set at their economic levels then a demand forecast could be done followed by a power expansion and finally a LRMC taking into account all the investments needed for the generation, transport and distribution.

5.4.3 SUGGESTIONS

The GOT is committed (Loan covenant with the AsDB page 8-1 of the BergerISMEC report) to increase the tariffs for the electricity to achieve cost recovery levels for all consumers according to the following timetable: i) 75% cost recovery for the industrial sector by 200 1. ii) Full cost recovery for the industrial sector by 2002. iii) Full cost recovery for the domestic/household sector by 2005. As soon as a more accurate estimate of the real costs of the infrastructureslassets of BT can be established when the bidding for the current rehabilitation programme of the BT grid is completed a new schedule of tariffs per class of consumers could done to achieve full cost recovery.

a 1.55

The Pamir region is going ahead with a drastic reform of its tariffs system for the electricity and of its billing and collection organisation. This example should be an inspiration for the rest of the country and an awareness campaign to explain to the consumers why a reform of the tariff system is needed to save the existing infrastructure and improve the quality of the service.

Household .54 .68

@ The responsibility to set up tariffs for the energy sector is for the Regulator. Currently no Regulator has been established in Tajikistan to implement the GOT policy of establishing a competitive market. As an intermediary measure a small cell (later to be transferred to the Regulator) inside the MOE could be trained in the discipline of setting tariffs for the power

1.55 .84

.54 .68 1.03 1.12 1.66

.84 1.03 1.12 1.88 2.11

1.66 1.88 2.11

subsector. Doing tariffs studies require experience and complex analytical tools, it is recommended that those studies are farmed out to specialised consulting firms. During these studies the individuals of the tariff cell, inside the MoE and later the Regulator, will be trained during those studies and later they be in charge of the implementation of the results of the studies.

Seminar on the methods of setting tariffs for the power subsector would be beneficial to all Tajik personnel involved in this discipline. The project team noticed a certain amount of incomprehension of the basic concepts needed to set up tariffs (structure and level) on economic principles.

In parallel with a reform of the tariff system and the improvement of the billing and collection a campaign to inform the consumers of the real economic costs of producing, transmitting and distributing electricity would certainly improve the comprehension of the consumers on the rational for reforming the tariff system to reflect the real cost of the power supply. The fairness of the new system should be explained.

In relation with fairness all class of privileged consumers should be abolished (including the privileges enjoyed by the BT employees). Considering the intent of the GOT to have, as soon as feasible, a competitive market in the power subsector it is not possible to continue social programmes financed by the power companies to be soon in a competitive environment. Like in the Pamir, all consumers must be billed as per a common tariff and on their real consumption. The cost of the social programmes to assist the poor segment of the population, i.e. the "Lifeline" must be paid by the government treasury. To establish a perception that the tariff and the billing systems are fair complete transparency must be the rule and friendly consumer's relation an important goal. Vigorous suppression of frauds and non-payments is part of the fairness process.

5.4.4 APPENDIX TO THE PAMIR TARIFF SYSTEM

The following dociment is an extract#om the concession contract for the Pamir Energy Company. The chapter on the tar28 is instructive when looking to the tarzf increase timetable. The paragraph 8 indicates that the methodology retained to set the tariff level, was cost recovery of all investments plus operational costs. The Lifline chapter is interesting; the concept in all fairness could be applied to all regions of ~aji'kistan. The question is, can the rest of Tajikistan not be required to follow the example of the Pamir and reform its tarzfSstructure and levels?

7

PAMlR ENERGY TARIFFS STRUCTURE AND LEVELS

RATES FOR ELECTRIC POWER

I . General Principles. The electricity prices to be applied by the Project Company are intended to achieve three objectives:

a. Be sufficiently high to enable financing of the Project pursuant to the Detailed Plans and Specifications and the provisions of Appendix C;

b. Be affordable to the citizens of the GBAO; and

c. Be in accordance with the general principles negotiated between the Government and the Asian Development Bank.

2. Invoicing. The Project Company will invoice, on the first day of each calendar month, the electricity sold to customers during the previous month at electricity rates where the Weighted

Average (defined below) does not exceed the Maximum Average Price (defined below). The electricity rates will be determined in United States Dollars but will be applied in Tajik Somoni, and the conversion of electricity rates from United States Dollars to Tajik Somoni will be determined on the first day of each month at the average exchange rate of United States Dollars to Tajik Somoni for the previous month as published in Business and Politics, a newspaper published in Dushanbe, Tajikistan, or in another comparable newspaper of significant circulation published in a given month; provided, however, that if no such newspaper is published in a given month or if such newspaper is otherwise not available, the applicable exchange rate shall be the rate of United States Dollars to Tajik Somoni for the relevant month as notified in writing by any branch of the Central Bank of Tajikistan. The "Weighted Average" of the rates will be the sum of the products of the electricity rates applicable to each category of consumer and the proportion of consumption by that category of consumer. Payments for electricity consumed shall be due within thirty (30) days from the date of the relevant invoice.

3. Maximum Average Price for Electricity. The maximum authorised average price ("Maximum Average Price") that can be charged to customers during any twelve-month period from January 1 to December 3 1 of any year listed below is as follows:

Year Price in United States Cents (USt) per Kwh

2002 2003 2004 2005 2006 2007 2008 2009

20 10 and beyond

4. Starting Tariff. The Government undertakes to increase the Weighted Average price charged to customers in the GBAO to the amount set forth for 2002 in Section 3 of this Appendix E prior to the Effective Date.

5. Adiustment for Inflation. The Maximum Average Price for years 2005 and beyond will be adjusted no more than once per calendar year for price inflation, and then only when the annual Inflation Index (as determined by the following methodology) exceeds 1.02 for such year:

I1 = (0.33 * CPI, 1 CPI,-l + 0.67 * PPI, 1 PPI,-,)

Where:

I1 = Inflation Index; I

CPI, = Consumer Price Index, as published by the Bureau of Labour Statistics of the US Department of Labour, corresponding to the month "m-2", "m" being the first month of the year n;

CPI,-I = Consumer Price Index, as published by the Bureau of Labour Statistics of the US Department of Labour, corresponding to the month "m-2", "m" being the first month of the year n- 1 ;

PPI, = Producer Price Index, as published by the Bureau of ~abour'statistics of the US Department of Labour, corresponding to the month "m-2", "m" being the first month of the year n; and

PPI,., = Producer Price Index, as published by the Bureau of Labour Statistics of the US Department of Labour, corresponding to the month "m-2", "m" being the first month of the year n- 1.

6 . Tariff Structure Supplement. No later than three (3) months after the date set forth in the preamble, the Project Company shall provide the Government with a supplement to this Appendix E describing in detail the structure (by consumer category and season) of the rates to be charged by the Project Company under the Concession, and which will elaborate further on, and be consistent in all respects with, the provisions of this Appendix E.

7. Lifeline Tariff. This Section 7 summarizes the anticipated structure of the Lifeline Tariff to be established under the IDA Loan Documents. It is the Government's intention to ensure a level of social protection for the consumers in the GBAO by covering the difference between the residential tariffs contemplated by this Appendix E and a tariff (the "Lifeline Tariff') of USgO.25 per Kwh for the first 200 Kwh per month of each residential customer's consumption during the period of November 1 through March 3 1 and for the first 50 Kwh per month per residential customer during the period of April 1 through October 31. These levels of consumption are herein called the "Lifeline Amounts". The Project Company will bill the residential customers for consumption up to these Lifeline Amounts, with such customers being billed at the Lifeline Tariff. For amounts over the Lifeline Amounts, such customers will be billed in full according to the tariff otherwise applicable under this Appendix E. A separate invoice detailing the volume of residential consumption and subtracting the amounts billed directly at the Lifeline Tariff will be sent to and paid by the Government. In support of this obligation to pay, the Government will agree to establish a bank account (the "Social Protection Account") solely for this purpose pursuant to the IDA Loan Documents.

To meet the costs of this programme, the Government will agree to fund the Social Protection Account as follows. Initially, the funding will come from two sources. First, the difference between the interest rate payable by the Government to IDA under the IDA Loan Documents and the rate at which the Government on lends this credit to the Project Company shall be paid into the Social Protection Account. Second, the Social Protection Account shall be supplemented by a grant support from the government of the Swiss Federation to the Republic (expected to be approximately US$5 million), which is not required for the Early Years Tariff (described below). Funds in the Social Protection Account are expected to be adequate to ensure the Lifeline Amounts can be provided for 7 - 10 years. The first source of these funds, the spread between the IDA rate to Government and the on lending rate, will continue for 10 years, after which the spread will no longer be channelled through the Social Protection Account. The second source, Swiss Government support to the Republic, will continue until the initial amount and any interest earned on it has been fully disbursed in supporting the Lifeline Amounts and the Early Years Tariff. After depletion of the Social Protection Account, the Government will work to ensure that new arrangements are in place to provide an adequate lifeline amount to residential customers.

As an additional measure of social protection and to shield consumers from an increase in tariffs which is too rapid, the Government, through the Social Protection Account, will agree to cover the difference between the tariffs under this Appendix E and those agreed between the Republic and the Asian Development Bank for the period from the Effective Date until the earlier of December 3 1, 2007 and the date of revision of the agreement with the Asian Development Bank (the "Early Years Tariff').

8. Tariff Adjustment for Actual Proiect Costs. For each one percent that Actual Project Costs are greater than Estimated Project Costs up to a maximum of ten (10) percent, the Maximum Average

Price in each year from 2005 and beyond will be adjusted upwards by 0.5 percent. For each one percent that Actual Project Costs are less than Estimated Project Costs, the Maximum Average Price in each year will be reduced by 0.5 percent. However, prior to implementing any adjustment described herein, the Project Company shall deliver to the Empowered Agency an audited accounting of Actual Project Costs and other appropriate documentation sufficient to establish the basis for such adjustment. Thereafter, applicable tariff adjustments shall take effect as of the next billing date, subject to further notification requirements imposed by Applicable Law.

9. Minimum Tariff. The Maximum Average Price shall always be the greater of the amount listed in Section 3 of this Appendix E plus applicable adjustments and the Weighted Average price charged to customers in Dushanbe, Tajikistan.

10. Purchase Power from Barki Taiik. Electricity which is produced outside the GBAO and purchased by the Project Company from Barki Tajik shall be priced at an amount per kwh equal to the estimated sale price to the average end-consumer less the estimated cost of distribution and commercialisation. For initial purposes, this would be fixed at fifty (50) percent of the estimated resale cost.

1 1 . Surcharge for Chan~e in Law. In the event of a Change in Law or a lapse of or modification to a consent that requires a material modification or a material capital addition to the Project or the Concession, the Project Company shall be entitled to charge a tariff surcharge in addition to the Maximum Average Price in an amount that will enable the Project Company to recover its costs of completing or operating the Project or Concession.

12. Future Expansion and Remote Area. In the event that the Project Company undertakes a rehabilitation investment program in the Remote Areas or a future expansion of assets beyond the Main Interconnected System, the Project Company will be allowed to renegotiate with the Government the Maximum Average Price or a special tariff for the affected area.

13. Tariff Adjustment for Value Added Taxes. If, pursuant to Section 6.8 of this Agreement, the exemption from value added taxes set forth in Article 6 of this Agreement is deemed to have terminated, the Project Company shall be entitled to adjust the Maximum Average Price in an amount that will enable the Project Company to pass through to consumers the actual costs of such taxes.

5.4.5 APPENDIX TO THE TARIFF STRUCTURE AND LEVEL

The foUowing memo was sent to the PM of Tajikistan in 1997 to sensibilise him to the consequences of inadequate tananffs fot the electricity. The content of this meeo is s f l valid today in 2003. FoUowing this message the t&s were r;u'sed The year after they were lo wered to their on@d low

MEMORANDUM (Source: Tacis 1997 Energy Sector Strategy Plan study)

TO: Mr. Nuriddin Azimov PM

From: Main Gertsen-Briand. Tacis-Energy Programme.

Date: February 4,1997.

Subject: Power sub-sector Object: Tariff policy

The current electricity tariff policy has no economic rational and is detrimental to the economy by encouraging the waste of a valuable resource. Financially, this policy does not supply enough revenues to Barki Tajlk to allow for the maintenance, the efficient operation and to secure financing for the network expansion. Bark Tajik does not generate the financial revenues to maintain its infrastructures inherited from the previous regune. The conservation of these valuables assets should be a priority. Since their replacement value is in the bdlions of dollars range. The generating power plants are in sorry state, Nurekskaya peak capacity for instance has already been significantly reduced and its dechne w d accelerate, unless quick actions are initiated. The transport and distribution networks are not faring better, to a large extend maintenance is done through a cannibalisation process, which quickly d reach its limit. The probable lost of Nurekskaya generation, almost a certainty in the medium term, wdl be a major blow to the ailing Tajik economy. Any energy saving programme based on convincing people that energy needs to be saved when it is almost free, will under the present circumstances be ineffective, and ltkely a waste of money. Attract investments without the assurance of a fair return is impossible. With the current tariff system any investment will have a negative return, ths preclude any serious discussions on investments. No investor can reasonably be interested to negotiate the loss of h s capital.

Takmg as reference the existing and sttU mostly valid tariff study financed by Tacis in 1994, and taking into account the probable LRMC of the future generation, improve as soon as possible the average tariff level and structure necessary to allow Barki Tajlk to assure the adequate maintenance of its productive assets. To defuse potential criticisms of some inefficiency inside Barh Tajk, realise an Operational and Financial AuQt of this power utility. Implement the recommendations for the improvement of the efficiency. The Government or an independent Regulator should closely monitor the uthsation of the cash flow generated, to assure the consumers, that the revenues generated by the tariff increases are uultsed for the improvement of the service, the security of the power supply and for the network expansion. Electricity stealing should be severely curtailed, and the guilty parties prosecuted with the full rigour of the law. Non-payment of electricity bdls should automatically be followed, after a reasonable period of grace, by service cutting.

0

Government departments should show the example, by paylng their electricity bills in full, within the time -

h t fured. @ All employees of Barla Tajlk should pay their electrici~ consumption, like any other consumers. Ideally, no exemption of payment of electricity payment should be granted to any consumer. If Tadaz cannot pay its consumption of electricity, when fured at its reasonable economic efficiency level, and stdl be competitive, then consideration should be given to close it down. The price Tadaz should pay for its electricity should be about 50% less than the average domestic consumer.

[~ustification of the suggestions.

One of the most important points for the efficient economic utihsation of costly infrastructures in the capital- intensive power sub-sector is the setting of the tariff of the electricity at the proper level. If the perfect competition existed, the economic efficient level for the tariff wdl be reached automatically. Unfortunately due to the natural monopoly aspect of the transmission network, it is not possible to acheve perfect competition at all levels. However, this is possible for the generation and distribution, where the private sector can and must be put into competition to acheve efficiency.

In the absence of complete and efficient competition, we have basically two methods to f~ the electricity tariff: e i) The accounting method. Past investments need to be reimbursed/amortised; cost of maintenance and operation must be covered. This method popular in the past satisfied the lenders of capital (l3anks and private investors), since they were mostly interested to get their capital back with adequate interests to cover the risk involved. T h s method is not any longer in use, since it does not make sense on economic ground. Why the current consumers should pay tariffs reflecting the pattern of consumption of the former generations, like their grand fathers?

ii) The Long Run Marginal Cost (LRMC) approach: Consumers pay a tariff, which reflects their current pattern of consumption (energy and capacity) proportional to the cost they impose on the economy. This method is now adopted everywhere in the world, and is in general a condition fiom the International Financial Institutions (IFI's), for makmg a loan for a project in the power sub-sector. Consequently without a tariff level and structure reflecting the real economic cost imposed by each class of consumers, no newinvestment ispossible, for the simple reason it will not be profitable, and capital may be wasted.

Pension funds, saving banks, mutual funds, etc. have a fiduciary duty to make sure the capital (the saving of someone else) they invest, will be reimbursed, with decent interest to cover the risk incurred, and the temporary privation of benefit, by the investors from their capital/saving. Only tariffs, whch guaranty the above return on the investment, can attract investors. The power sub-sector being not recogmsed as a social/ humanitarian/ charitable sector, no subvention or grant can be expected.

In the case of Tajikistan, it is not possible to make an accurate estimate of the LRMC without first, makmg a power expansion plan, which require an accurate demand forecast whch requires the tariff to be set at a reasonable economic level. Nonetheless, an educated guess could be made for the generation by retaining the assumption, that the next project to increase the power supply will be Sangtudiskaya I, a project of 670 Mw with 2.7 TWh of average annual generation, which has an estimated construction cost of US $ 800 d o n s . Then takmg a dscount rate of 10% and 50 years for the project life, we arrive to approximately 3 cents per kWh, but it is only for the generation. This price does not include the cost of any new transmission lines, substations or labour cost an; utility administrative overhead cost. ~ o n s e ~ u e n t l ~ - i t is a strict minimum, to be achieved as fast as the political constraints will permit, but certainly not in less than one year. This average electricity tariff level of 3 cents/kWh needs to be structured on the h e s suggested in the tariff study financed by Tacis in 1994. Regardmg the tariff structure, takmg the study, done by a Danish ftrm SRC (financed by TACIS) as reference, the HV clients should pay about 50% less than the domestic/household consumers, since they impose that much less cost on the network.

Should Barlil Tajlk receive the above mentioned tariff increases, it is then the duty of the, Government or the independent regulator, whatever the case may be, to see that the cash flow generated is not used to increase the number of employees, salaries or induect benefits, but for the maintenance and saving of the existing infrastructures, the improvement of the service, b d d up reserve for future invest&nts, pay taxes and dvidends to its shares holders, i.e. the Government.

When the tariffs have increased to the level indcated, the demand d automatically adjust to its economic efficiency level. At that time the IFI's and other investors will be inclined to consider the feasibdity of financing some power projects, since their two fundamental requirements would be met:

i ) Tariff fixed at the economic efficiency level. ii) A power demand increase, justified by tariffs set for each class of consumers at their optimal economic level.

For your information no investment project can be approved by the World Bank, unless the board is satisfied with respect to the following criteria (OMS 3.72 - SECTOR OPERATIONS):

'The JAR (itafappraisal repor() must indicate how the demandforecast was derived and m w t include an explicit ana&is and judgement on the role oftamffs in determining the demand This should include assessment not on4 ofthe role ofthe tamff set at the economic efJinen9 level, i.e. LRMC desegregated 63, consumer c h (including Large consumers served under special arrangements such as aluminium smelters), time ofthe dzy rates, seasonabihy, etc. "

Should the World Bank refuse to participate to the financing of a large capital-intensive project, after a thorough sector review, it is unhkely that any other financial institution d do it. Without meeting the above stated minimum criteria, no staff member, task manager, even regional directors of the Bank can go to the Board, and ask for approval of a financial package.

Even before thnkmg of futures investments, the urgent current priority is to save the existing valuable infrastructures Tajhstan has inherited from the previous regime. The replacement value of these infrastructures is far beyond the current borrowing capacity of Tajhstan. Maintaining these infrastructures should be a national economic priority. Imagine for a moment what d happen to the Tajlk economy if Nurek stopped to generate power even only partially? T h s is bound to happen sooner or later, probably sooner. Nurekskaya needs a major overall, after 6 years of almost complete neglect. The rehabhtation cost d be in the d o n s of dollars; Barki Tajik does not have the money, for two main reasons:

i) The tariff level is too low. ii) The consumers don't pay their bds even with a low tariff.

@ A culture of fraud and impunity has developed in the power sub-sector. For instance in mid 1995, more than 85% of the domestic consumers ddn't pay their electricity bds. Tadaz owned Barki Tajik in arrears about $ 40 d o n s . This debt, if ever repaid, will be enough to stop the slow deterioration of the Nurek HPP, and even may redress the situation to a normal level of operational efficiency. Due to lack of funds the power network is slowed cannibalised to maintain in operation, the most irnportant/vital parts of the grid. This process cannot continue for long, before it reaches the hearth of the system, then what?

Under the present circumstances, no investor d consider new investments unless as a prerequisite, a serious and sustained programme of rehabhtation financed in majority by funds coming from internal revenues is implemented. For your information, the electricity tariff in Kobenhavn (Copenhagen) is currently $80 p/y fur charge, plus 17 cents/kWh. In Niamey in the Niger, a country poorer than Tajikistan, the tariff was in December 96, about 16 cents/kWh, plus a $150 installation charge.

For comparison purpose in Lebanon (2003) a poor country with a population the same size than Tajikistan the tariffs structure and level were as follows on a monthly basis:

LV Up to 100 kWh 2.3 cents (plus a charge for capacity of 8 cents per kW of peak) Up to 300 kwh 3.7 cents Up to 400 kWh 5.3 cents Up to 500 kwh 8.0 cents Above 500 kwh 13.7 cents Agriculture 7.67 cents Commercial 7.67 cents

MV based on time-of-the-day

During the day 7.47 cents During peak period 21.0 cents 8.00 to 9 in the'moming and from 16.30 until 20.30 During the night 5.3 cents

5.5 MISCELLANEOUS APPENDIXES RELEVANT TO ENERGY CONSERVATION

Ministry of Energy - Organisation Chart

Mr. A. Erov

Mr. A.A. Kassimov

investments

Sectorial Analysis u making

Assistant DM I subsector

Oil & gas subsectors i Marketing m

Minister secretariat Personnel department

Assistant DM + i Economic Planning

Privatisation

Oil & gas Exploration & Extraction t

I I

renewable energy

protection

Legal Affairs Special Affairs

General Affairs I c Z I I I l

Dissolution of the TsjikGosEnergoNazdor?

THE GOVERNMENT OF THE REPUBLIC OF TAJIKISTAN

Project of a Decree

Dushanbe . . . . . . . . . . . . .

On the state energy sector supervision of the Mmistry of energy of the Republic of Tajdustan

In accordance with the laws of the Republic of Tajikistan "on energy sector" & "energy saving7' & for the purpose of carrying out the state energy sector supervision on the effective usage of energy resources & products providmg energy sector supervision on the quality of rational usage of electric & heat energy, oil, gas, coal, their technical & safety operation, the Government of the Republic of Tajllilstan decrees:

1. To establish the energy sector supervision on the base of the "TajikGosEnergoNadsor7' enterprise SJSHC "Barky Tojik" inside the Mmistry of Energy of the Republic of Tajikistan;

2. To approve the Provisions & the structure of the energy sector supervision of the Miustry of Energy of the Republic of Tajikistan;

3. To ascertain the numbers of the employees needed by the energy sector supervision in the number of 200 people (tahng into account the staff);

4. State owned SJSHC "Barky Tojik" with the Mimstry w i t h a month have to solve the question of the transfer of the number of employees, the funds required for salaries, transfer of movable and unmovable properties of the enterprise "TajikGosEnergoNadsorY' to the Ministry of Energy of the Republic of Tajllilstan ;

5. To establish that the maintenance of the energy sector supervision and its offices in the field shall be carry out at the expense of the deduction from the incomes that are left at the dsposal of state enterprises and joint-stock companies, that carry out the activity in the energy sector such as payments for reactive power of electric energy and other paid services, made by the energy sector supervision as well as the sources of receipts not contrachcted by the present legislation of the Republic of Tajllustan ;

6. The Committee of the energy sector supervision for security rendering services for the industry and

- mining under the control of the Govemment of the Republic of Tajikistan and the agency on for standardisation, metrology, certification and inspection for the Ministry of Economy and Trade of the Republic of Tajikistan within a month shall gme proposals on carrying out the Provisions in accordance with the Decree.

7. The mandate of the Mullstry of Energy of the Republic of Tajikistan, approved by the decree of the Government of the Republic of Tajikistan from 29 December 2000 No 484 shall add the sentence " Energy sector supervision "

8. To consider the Decree of the Government of the Republic of Tajikistan from 17 October 1996 No 465 "on the Energy Sector Supervision in the Republic of Tajikistan" as having be superseded.

The Chairman of the Govemment of the Republic of Tajikistan

"Approved" by the Decree of the Government of the Republic of Tajllilstan, on 2003

Regulations

On state energy sector supervision of the Ministry of Energy of the Republic of Tajhstan

1. General provisions.

State energy sector supervision carries out the control functions over the generation, transportation, transformation, distribution, storage & consumption of energy resources & products, operation of energy uttlities, equipment by energy enterprises & all the consumers irrespective of the forms of ownership

State energy sector supervision in its activity follows the Constitution of the Republic of Tajilustan , laws of the Republic of Tajikistan " on energy sector" & " on energy saving" , & other normative legal acts of the Republic of Tajikistan , as well as the acts of the Mullstry of Energy of the Republic of Tajikistan & the present Regulations.

The main task of state energy sector supervision control over rational & effective usage of energy resources in the sphere of their generation, transportation , transmission, disttibution, storage & usage ; technical & safety operation of energy utilities of the producers & consumers; observance of norms of consumption of energy resources; observance of normative legal acts of the Republic of Tajilclstan ,

, connected with the generation, transportation & dstribution of energy resources for all consumers irrespecrive of the forms of ownership.

State energy sector supervision is the legal entity, has the official stamp of the Republic of Tajilustan with its title in Tajlk & Russian languages.

11. Functions of state energy sector supervision.

2.1 State energy sector supervision controls over: rational usage of electric, heat energy, gas, oil, coal during the processing, transportation, transmission, distribution, storage & consumption; carrying out the measures of uninterrupted qualitative power supply over the power supply organisations, observance of the norms of the quality of energy resources; observance of state standards of the quality of energy products by the producers & consumers; carrymg out the balance energy tests, that are active & bringmg into the force over the consumers, as well as the reconstructed & modernized energy equipments; observance of the rules of technical operation of energy installation& other normative acts over the consumers;

. carrying out the measures on the reduction of technical & commercial losses of energy resources over the power supply organisations & consumers; conchtions of the calculation of the generation & consumption of energy resources by the power supply organisations & consumers; observance over the power supply organisations & consumers the order of distribution & carrying out the restrictions of consumption of energy resources; providmg the optimum level of the compensation of reactive power of electric installations of the industrial enterprises & consumers of electric energy compared to them; correct use of the current tariffs on gas, electric &heat energy, discounts on electric & heat energy & gas, as well as on implementation of optimum level of the compensation of reactive power, discounts from the cost of the energy in the case of overflow of the norms of condensate return ; organising the works on technical security & technical operation; usage of secondary energy sources in the energy balance of the enterprise;

Makes selective expertise of the projects of reconstructed enterprises on the question of effective usage of energy, observes the security of energy equipment.

Prepares & submits into consideration of the Mulistry of Energy of the Republic of Tajihstan the proposals concerning energy saving.

Generahes the work of all the groups of consumers on rational & effective usage of electrical & heat energy, gas, also introduces proposals to the ministries & agencies on removal of revealed shortcomings.

Controls the activity of power supply organisations & takes measures over the consumers that violate the established regime & restrictions on the consumption of energy, efficiency of measures on the reduction of loads.

Controls the work of improving the calculation of the expendture & consumption of gas, electric & heat energy.

Analyses the power traumatism (from the action of gas, coal, electric & oil products) in the sphere of republic economy, working out the measures of its reduction.

Concludes treaties with legal & physical persons on fulfilment of the works.

Gives out conclusions for the licence receipt to all legal & physical persons that carry out the activity in .J

energy sector.

Carries out training & education of personnel for the enterprises irrespective of forms of ownershp.

Attests & issues appropriate certification to those who is responsible for energy economy of all groups of consumers.

Takes part in the activity of State committee on the acceptance to the operation of new & reconstructed objects of power supply organisations.

111. The rights of state energy sector supervision

3.1 In accordance with the rested on functions state energy sector supervision has a right:

of free access in cases of necessity in any time of a day to the gas , oil, electric & heat installations, irrespective of departmental belongmg & forms of ownership by showing the service card;

@ to give injunctions on liquidation of infringements of unproductive consumption of energy resources; to require from the leaders of power supply organisations & all groups of consumers immediate dsconnection of energy installations, discovering the infringements; to require from the producers & consumers in energy sector the observance of requirements of normative legal acts & normative technical documents in energy sector; to take measures on charging with the admstrat ive & criminal duties persons that violated requirements of normative legal acts & normative technical documents; to require from the leaders of power supply organisations dsconnection of all groups of consumers in case of debts for the payment of energy resources; to check the reliability of the information of actual usage of energy resources; to prepare documents on revealed facts of extravagant expenditure & misappropriation of energy resources & to pass the documents to the appropriate organisations; to require from the enterprises, organisations, necessary information & documents on the question related to the competence of the bodies of state energy sector supervision; to attract speciahsts of scientific research & project institutions other organisations for carrying out expertises & giving conclusions on the questions introduced in the competence of the bodes of state energy sector supervision ;

to take part in the activity of commission on testing the knowledge of energy technical personnel & power supply organisations; to give injunctions on dtsconnection of energy installations in case of absence of the staff.

IV. Responsibilities of state energy sector supervision.

4.1 Officials that control the energy sector bear responsibility for non-compliance of the duties & incorrect usage of the established rights.

4.2 Activities of the officials that control the energy sector can be appealed to the superior bodes or to the court.

V. Coordination of the activity of state energy sector supervision.

5.1 State energy sector supervision is headed by the director, who is appointed for the position & dismissed from the occupied position by the Ministry of Energy of the Republic of Tajikistan.

@ 5.2 Director bear personal responsibhty for fulfilment of tasks & hnctions of state energy sector supervision, determines the duties of deputies & leaders of territorial bodies, determines the degree of their responsibhties for fulfilment of their functions.

5.3 Director has deputies appointed for the position & dsrnissed from the position by the Muistry of Energy of the Republic of Tajhstan.

5.4 Director of state energy sector supervision is chef state inspector of the Republic of Tajhstan on energy supervision.

5.5 The leaders of territorial organs are superior state inspectors on energy supervision.

5.6 Director w i t h the framework of its competence issues orders & approves the instructions.

5.7 The hector, his deputies, leaders of regonal energy supervision are tested in the knowledge of the Rules by the attestation commission of the Ministry of Energy of the Republic of Tajilustan.

MEETING MEMORANDUM

Ministry of Construction

Committee for the norms and technical standards for buildings

Tuesday August 26

Person visited

Galina Alexsandrovna Alekseekova ENG. Chief of the section for ventilation, heating and insulation

After a long research we were finally able to identify, which organisation fix the norms and technical, standards for the construction of buildings.

The committee does not create and establish Tajik norms it exclusively use the Soviet Union and now the Russian Federation norms and standards for building.

These norms are the same for all the Russian Federation but for the northern climate and the southern region some appendixes add or mitigate the main norms.

In theory every building household or industrial must receive a permit before construction certifying compliance with the norms. However, the committee does have the power of enforcement

During the Soviet area the need to construct quickly forced the construction companied to forget to insulate the houses. The Gosplan overruled the committee on the norms to apply.

The houses are in general not insulated but some material wherever possible with some insulation property were used.

The wood used for the widows and door was green and when drying the fitting became loose and resulted in draft

Currently the committee gives the norms but the constructors do what they want. During the soviet

@ area the committee had a department of inspection but no longer

When notified that a construction does not respect the norms the committee send a report to the Ministry of Construction for action. No feed back on what happened

The Committee would like to consider the European norms with the Russian Federation and develop a set of norms for Tajikistan. To do that some TA will be needed.

The committee has lost most of its specialists due to retirement or for reason of leaving the country and is a great need of an injection of specialist with a deep knowledge of the European norms.

Currently only the drawings for government buildings are scrutinised by the committee but no monitoring is done.

The expert left are doing their job thoroughly to make sure that outside experts could ever criticise the quality of their work.

The norms utilised are coming from the "Committee for the construction of the Russian Federation" Norms for heating No 2 04 05 86. For the ventilation No 2 08 02 89. For the building for government norm No 2 08 02 89 .For the ventilation a new norm was recently issued No 2 04 05 91

Tajikistan needs new norms but nobody in Dushanbe can do that task outside assistance will be needed.

During the Soviet Union the committee employed about 700 persons including the inspectors today the number of employees is 40.

The employees of the committee do not receive a fix salary they are paid from the fees coming from the approval of the building drawings. When they have work the employee could make up to $ 100 per month, some time in a period of lull of work they get nothing.

For what is left of the district heating the number of illegal connections is significant.

Commentaries and suggestions

No country can afford to be without construction norms for security and health purpose as well as for energy saving.

Tajikistan is left with a small core of aging specialists who know only the Soviet and Russian t Federation norms, which in moist cases are not adapted to the local conditions. A set of Tajikistan

norms need to be established and evidently enforced.

Whether it is for the norms for domestic appliances, industrial equipment and processes or for all type of buildings a review of the situation from specialists is needed to develop a policy and a strategy to give Tajikistan a modem well adapted set of norms and standards.

As already demonstrated the new department of norms and standard could be self finance provided enforcement is enforced universally.

Significant energy conservation could result if the norms to be developed are focused on energy saving, the potential is there.

MEETING MEMORANDUM

PAMIR ENERGY 1

Aga Khan Foundation / Pamir Energy

Friday August 1,2003

Person visited:

Mr. Matthew Scanlon - Project Manager -Aga Khan Fund for Economic Development Mr. Ashot Hovhannisyan - Director General - Pamir Energy Sheila MacWilliams - Investment Officer- Aga Khan Fund for Economic Development

Following a suggestion from the AsDB, the purpose of the meeting was to enquire about the current status of the new established Pamir Energy utility (December 2002) and the situation regarding electricity losses and saving /conservation.

Pamir Energy was established in December 2002 when the Tajik government gave for the entire Pamir region an exclusive Concession status to the Aga Khan foundation for a 25 years period. All the power generation, transmission and distribution assets were given to the management of Pamir Energy to be given back in 25 years in the same condition as delivered in December 2002. Any improvement during the next 25 year will be credited to the Aga Khan foundation.

The Aga Khan Foundation has borrowed a significant amount of money to complete the Pamir I project and the first priority is now to improve the management of the power grid beginning with a strong focus on billing and collection.

Before the Soviet regime, Parnir did not enjoy the benefit of electricity. During the Soviet area the main sources of energy products were imported coal (lorries/roads) for heating purpose during the winter and electricity generated from isolated diesel generator plants. The fuel oil was imported by lorries during the summer. In the late 80's the Soviet regime decided to construct the Pamir I hydro Power plant with 2 x14 MW installed, in the vicinity of Khorog. The completion of the Pamir I was financed by the USAid with an in service date of 1995. The Pamir I1 project consists in adding 2x14 MW turbine The main city of Pamir is Khorog with a population of about 30 000 persons. The estimated population of the Pamir region is about 253 000 persons. The Pamir region is divided in 8 districts. Beside the Pamir I &I1 power project the isolated districts have small hydro power plant of a capacity varying from 1 MW to 100 kW.

With the dissolution of the Soviet Union all the subsidies for importing coal and fuel oil disappeared and the only source of energy for heating in winter was and still is electricity. The demand outstrip the supply and the Pamir Energy new management is forced to establish load shedding during the peak period of winter and currently even in summer the demand cannot be satisfied. Due to this fact of continual load shedding the peak demand cannot be ascertained. As a result of the current situation the Pamir Energy management is since the beginning of 2003 focusing on load management, billing and collection.

The main problem facing the Pamir Energy management is to overcome an entrenched culture dating from the beginning of electricity availability, that electricity is a free public service supplied by the state. A difficult awareness campaign to explain to the consumer that electricity is like any other good purchased in the market took place in last April in the Pamir region without significant results. One problem the Pamir Energy has to tackle is the fact that few (1%) consumers have a meter. The cost of the electricity is estimated on a household basis, i.e., size of the house and number of resident in one house as well as number of appliances. In the spring of 2003 a test was done in a district with 900 consumers with a well established reputation to be more than reluctant to pay their electricity bills. After a campaign of awareness and explication on the necessity of a utility to obtain compensation. for the services rendered no positive results followed then the electricity was cut to the district. The guard

of the substation was beaten up and forced to re-establish the current it was cut again at the upstream @ substation, the consumers beat up in the street the utility controller and the car of the DG was stoned in the street. Pamir Energy asked 60 000 Somoni to cover the arrears of the district (66 Somoni per household) after one week about 20 000 Somoni were paid to Pamir Energy under the agreement that the balance of the sum overdue will be repaid before September or the electricity will be cut again (apparently almost all the money in late August is already paid) Following this example the collection has increased significantly. In early 2003 only 4 % of the people were paying their bills. In July 2003 50 % were paying their bills. In only July 2003, the Pamir Energy received more money, in one month, than Barki Tajik during the full 2002 year.

Pamir Energy officers

DG Mr. Ashot Hovhannisyan Assistant DG. Mr. Vladimir Smalosky

MSDSP -. Mgr. of the awareness campaign, Mr. Guy Mirza Ayod

@ Mgr. of the Public Relations, Mr. Khayol

Dushanbe August 2

Alain Gertsen-Briand Dr. Nazarbek Abdolov

The Aga Khan Foundation hostelry in Khorog

Mgr, Mr. Kadri Tel8 35 220 32 28

i ) MEETING MEMORANDUM

PAMIR ENERGY 11

Aga Khan Foundation / Pamir Energy

Saturday, Sunday and Monday August 9 to 12,2003

Person visited:

Mr. Vladimir Smalosky Deputy DG Pamir Energy Mr. Otamsho Khushka-Damov Commercial Director Mr. Soleh Saidmusalhmov Programmer IT specialist

Mountain Society Development Support Programme (energy conservation awareness) Mr. Khurshed Administrator

6 Following the discussion with Mr. Mr. Ashot Hovhannisyan in Dushanbe August . . . suggestion was made that a visit to Khorog to gather information on the pilot project initiated by Pamir Energy since early 2003 to educate the consumers on energy saving and conservation could be instructive. Two approaches were used, first the soft approach, i.e. the awareness campaign, then the muscular approach beginning with the first step viz. gradually setting the tariff at the economic level and collecting the bills of each consumer or disconnection if non-payment. This combined energy conservation pilot project was worth being assessed even if not yet fully completed.

A full fledged programme of energy conservation and saving is currently going on in the Pamir region. The first step consisted in trying the soft approach, i.e. convincing people to pay their electricity bills by organising TV programmes, Radio broadcasts, news papers advertisement, meetings and circulars letters, this approach had insignificant results in Khorog and nothing measurable in the country side. In Khorog, the Pamir energy gives credit to the Agency45 responsible of the awareness campaign of a few months for about 2% improvement in the collection rate. Pamir Energy could not wait much longer considering the slow improvement resulting from the awareness campaign taking into, account the low percentage of people paying their bills in early January 2003, less than 4%, and the growing accumulated bad debt ($240 000) since the transfer of the Pamir power grid to the new management of - Pamir Energy. The Agency responsible of the awareness campaign, i.e. MSDSP is part of the Aga

1) Khan group of companies. We understand that Pamir energy and the MSDPS could not reach an agreement on the cost of the awareness campaign.

The brief awareness campaign having not produced the expected result the Pamir Energy management decided that a cultural shock was needed to overcome the entrenched culture of non payment since the introduction of the electricity in the Pamir in the 1930's.

In April 2003, about 800 consumers in default of payments were disconnected, in May, about 2200, in June 12 000 and in July 13 450. In April only 2.5% of the consumers were paying their electricity bills, in July 2003, 50% did pay. The Pamir management is confident that by December 2003, the ratio of 90% of payment will be achieved. For the accumulated debt, Pamir Energy is trying first the soft approach. People paying all their debt to PE before September 1, will get a rebate of 20%, after that date they will have to pay the full amount or face disconnection. Billing and collection system

Pamir Energy like all investor owned power utilities know that an efficient system of billing and collection is the key to a company survival, maintenance and expansion of the system and to energy

45 The name of the Agency is "Mountain Society Development Support Programme" a NGO connected to the Aga Khan Foundation

saving by the consumers. Having set their priorities right, PE decided to have a computerised billing and collection system. It was done in about months.

The most interesting aspect of the new billing and collection is the fact that it is internally developed and installed without any outside assistance and it was done in a matter of few months. The core of the system is the computer program, which manage the database where all the consumers have their individual history dossier. A young Pamirian programmer, using the Visual B language developed a system, which perform currently satisfactorily and is improved daily to add new features and improve on the existing one. In only 4 months Pamir Energy on its own has developed, installed and now manage an excellent andefficient system of billing and collection, which cost probably less than $ 2000 per month to operate. This pilot project could probably be adapted to the rest of Tajikistan and even perhaps in other Central Asia countries?

The next step is crucial for the success of the energy conservation. Consumers must individually be accountable for their own pattern of electricity consumption. Currently in Pamir less than 1 % of the consumers have a meter in working condition. The present system is an incentive to excess consumption. So far billing was and still done on an estimated consumption per consumer. A distribution district is assumed to consume "x" kWh par month, this amount is divided by the number of connections and supplemented by an estimate of the surface of the houses and the number of appliances in each household. All this is not accurate, subjective and prone to contestations. In fact each household suspect their neighbours to consume more than their reasonable share of the district consumption quota and it is an incentive to consume more to insure to get even and not paying for its neighbour excess consumption, it is a push-pull effect on individual consumption. To break this non- virtuous circle only individual meter for each household can objectively measure the real consumption and if its pattern of consumption is economically efficient. Many types of meters are available to measure consumption. Time of the day, seasonally adjusted, prepayment meter for hard core recidivists or assisted consumers, demand limitation (peak kW) etc. evidently the cost varies with the complexity. PE can obtain currently 6 digits simple kwh meter from Kazakhstan for $ 25 FOB Khorog.

PE would like all consumers having a meter installed as soon as possible for precise billing and obtaining accurate data to allow load management and preparing a well focused energy conservation to the consumers with an abnormal pattern of consumption. PE recently, purchased 3000 meters of which 1000 are already sold and 2000 are being installed on lease to poor consumers who cannot afford the $25 up front needed to buy a meter. The cost of the lease is about 69 cents p/m, which means the consumer will own the meter in about 3 years time. To install simple meter to the 32 000

3 consumers of Pamir PE needs to borrow about $ 750 000 and is confident to be able to repay the loan in 3 to 5 years.

The repartition of the consumers in Pamir is well spread over the region and is as follows:

Total for Pamir Khorog Countryside

Household consumers Commercial Government (budget)

Meter installation project

PE needs to purchase 30 000 meters at $ 2 5 a piece. This is an expenditure of $750 000. To that price the cost of installation needs to be added, but could be covered by internal revenues from PE. We assume that PE borrows the money from an IF1 at favourable conditions viz. 5% one year grace and 10 years to reimburse. The amount to be added to the consumer monthly bill for their ownership of the meter will be about;

10 years @ 5% P N Monthly payment $ 6 382 for each consumer 20 cents per month.

5 years @ 5% PN Monthly payment $ 12 632 and for each consumer 39 cents per month

Interview with a consumer

The consumer is a chauffeur of a senior military officer. Salary 48 Somoni per month, a wife and two children.

Cost of electricity in 2002 (old tariff system of lump sum) was 9 Somoni per month in summer and 25 in winter, due to heating. In winter 2002, a cold one, 50% of the family revenues were spent for the electricity

The alternative is coal imported by truck during the summer from Ravnov (250 km). The cost for a 5 T capacity lorry is $350 or $70 per tonne.

In winter 2002, for 25 Somoni the consumer was obtaining 1200 kwh per month and for the 5 winter months about 6000 kwh, the coal equivalent is about one tonne or $70, in Somoni 220. At the tariff of winter 2002 for electricity, the coal was not competitive. At $%?per Tonne, for Russian army imported coal; the two energy products are marginally competitive. In the coming years the cost of electricity

& will go up by more than 20% per year on average, perhaps a well organised system of importation and distribution of coal could become attractive for heating?

Meeting with MSDSD (Mountain Society Development Support Programme)

We will never know if our awareness campaign was effective since the PE after a month started to disconnect the defaulting consumers. Telling people and convincing them to pay their bill is not easy, especially when they almost never did it before. It will be easier to advice them on how to save energy and money. They will listen to that. Perhaps with more time the awareness campaign would have succeeded at least in the cities, in the countries side it was far more difficult almost impossible. Without meters installed everywhere, we are talking in theoretical saving, with meters people will understand the exact number of kwh consumed and the resulting Somoni. The MSDSD will accept a promotion campaign remunerated on a % of the saving.

Comments & Suggestions:

@ PE did set its priorities right by tackling the fundamental problem of a culture of systemic non payment. PE could not afford the luxury of time, being a private commercial entity they have to get pay for the services they deliver or go bust. PE, internally, in 4 months developed (including the software) an efficient billing and collection system, with positive results with almost a 50% increase in collection in 3 months.

PE has beneficed of the summer period to implement its new system of payment or disconnection, the real test will be next winter 2003/2004 when the people of Pamir will have little alternative but using electricity for heating purpose and difficulties to balance again their household's budgetary priorities?

Installing meter in every consumer place and getting the data on who consumes what and when will be the beginning of a well focused campaign for energy saving. The gradual tariff increase to its economic level and the prompt payment are the two first steps toward an efficient energy saving policy. When the consumers realise the value of the electricity then they will be more inclined to listen to advice on conservation and saving.

The Pamir region is on its way to become the power subsector reform leader for Tajikistan and deserves all the necessary assistance to succeed. The installation of meters to all the consumers is the corner stone ofan eflcient distribution system. It is suggested that PE could borrow the money to purchase and insrail as soon as possible all the meters its needs. With meters installed, epch consumer will have the incentive to adjust its pattern of consumption to the tarzffstructure. Meters, with time-of

the-day and limit on the nzaxin~al capacity demand is useful for peak deniand shaving and necessary for energy saving and conservation. Pre-payment meters are now reasonably priced (about $50) and are the cure for nonpayment recidivists and useful for the consumers with privileges given by the government. The government will buy the magnetic cardji-onz the power utilities

The PE could consider offering their services for establishing a billing and collection system to other power utilities in Central Asia.

Over a period of 7 years the tariffs, per class of consumers, will increase by about 300%. Even then the tariffs will be still below the international average level.

The table on tariffs mentions "approved", we wonder approved by whom? In an open and competitive market, which is the stated policy of the Government it is the Regulator who fix the tariffs. What will happen when a regulatory system will be established?

Pamir Energy officers

DG Mr. Ashot Hovhannisyan (on holiday) Assistant DG. Mr. Vladimir Smalosky @ Commercial Director Otamsho Khushka-Damov Programmer: Soleh Saidmusalhmov

Mountain Society Development Support Programme Director Mr. Fatoulo (absent) Administrator. Mr. Khurshed Mgr. of the awareness campaign, Mr. Guy Mirza Ayod (absent) Mgr. of the Public Relations, Mr. Khayol (absent)

Khorog August 13

Alain Gertsen-Briand Dr. Nazarbek Abdolov The Aga Khan Foundation hostelry in Khorog Mr. Hamid Kadri Mgr. Tel8 35 220 32 28

MEETING MEMORANDUM - DUSHANBE ENERGY SALES

Date: Wednesday August 6,2003

AsDB Pilot project for improving the Electricity B h g and Collection System of the City of Dushanbe

Persons present: The director of Dushanbe sales and all h s managerial staff. Mr. Rustam Zorakov Saidovich Tel70 02 92

The Carana Draft Final Report was reviewed and unclear points clarified especially in relation of the meaning of the table. Most of the statistics mentioned in the report are coming from BT and some of them are approximations due mostly to the lack of meter with a sipficant numbers of consumers. Table NO1 is for the global grid of BT so DES does not know the details. The discrepancy between Total Revenues and Total Collection is coming from the Budget and Privileged consumers, who are bdled but do not pay their bills. The "set off' is another name for barter. It is now illegal to barter but apparently the practice hgers on. For 2002 BT, was supposed to get 120 741 000 Somoni in revenues ($ 33 330 476) based on the billing. BT got only 48 199 000 Somoni in cash (40%). About 31 582 000 Somoni are unpaid due to the Privileged consumer and Government non payments which represent about 26 % of the total expected revenues of BT. About 34% of the expected revenues of BT are promise to pay through barter, in spite of the fact that it is illegal to barter in Tajikistan so it is called "set off'. At the end of 2002 the accumulated receivable to BT were 136 598 000 Somoni ($44 d o n ) , this money is badly needed too insure the viabhty of the BT p d and the Nurek power plant. The impact of the DES project is positive and encouraging. In the year 2001, only 39% of the general consumers were paying their electricity bdls. In 2002, 75% of the Dushanbe consumers paid their electricity bills. DES expect and hope to achieve over 100% in 2003 taking into account that people will try to pay their arrears to avoid disconnection. DES tried first the soft approach to convince the consumers to pay their electricity bills, circular letters, news paper advertisements, TV and radio campaign, but to no a d , no impact whatsoever on the consumers. Then a muscular campaign of disconnections was initiated and the results were spectacular. It is apparent that the consumers value electricity only when they have no access to it! Even for the Government departments (budget consumers), whch are supposed to show the example to the public , only when the Muustry of Health was disconnected that the other departments thought advisable to review their expenditure priorities and started to pay their electricity bas. The Government departments are the main offender and their receivable account is the main drain on the DES cash flow.

@ The quesdon of meter ownershp and dwersity of models (57 different type of meters) and many meters for a single client (up to 20 meters for a single client) and the lack of metering for about 20% of the consumers of Dushanbe, render meter readtng, calibration and repair a difficult and expensive task. Meters installed outside for easy readtng are stolen or vandalised. The cost of a new meter manufactured in Tajilustan is 80 Somoni or about $25 About 27% of the consumers are privileged (in two classes, 100°h privileged, i.e. pay nothing and consume at wdl and 50% privileged, viz, pay only 50% of their consumption). In other word BT has been saddled with a huge social programme, which is not part of the normal mandate of a power uulity. Furthermore, tlvs programme is an incentive for wasting electricity since no limit is put on the amount of electricity to be consumed and some have no meter. To comply with the Presidential decree for the cornmerciahsation of BT, the privileged programme of electricity subsides needs to be transferred to the government social expenditure budget The question of privileged clients is a contentious issue, since many of the privileged clients cannot supply the proof of the privilege they are enjoying. The electronic database has facihtated the reviews of all the claimants for privileged consumption. Officially DES recognise 33 497 (in 2002) privileged clients but about 45 000 consumers claim they are entitled to be part of the privileged class. The cost to BT for these Dushanbe privileged class is approximately estimated at $ 700 000 for the first six months of 2003. However, since many of privileged consumers have no meter it is only an estimate, probably on the low

side.

The tariff structure with all sorts of privileges, exceptions or various tariff sub-structures dependmg on the type of consumers and the consumption volume make the billing a Qfficult task especially when it is compounded by so many consumers without meter. Even the software provided by Carana (Eldorado software) could not cope with these difficulties. Excel sub-routine were developed to simplify the data inputs before being fed to the computer. Currently, the last serious problem to have the new system performing as expected is the interface between the Banks and the DES computerised system of billing. The Banks are not delivering fast enough the hand written receipts and some customers are blued twice with penalties, whch result in numerous claims. Either the Banks would have to improve their manual system or an electronic o n - h e system needs be developed.

COMMENTS

The structure and level of the tariffs system must be based on sound economic principles and not for various political considerations. The tariffs system must be simple, fair and transparent for every body, easy to manage and very efficient. Tariffs structure complexity and opaqueness does not permit the consumers to get the economic signal a tariff system is supposed to send to them to allow the consumers to adjust their pattern of consumption and permit load management. The privileged class cost for the benefits received, should be transferred ASAP to the government budget. j It is not the function or in the mandate of a commercial entity like BT, whch is supposed to be soon operating in a competitive market to subsidise a social programme decided by the government. The DES is a prime canddate for corporatisation and privatisation. Its revenues should be a small but reasonable percentage of the money collected, to insure it has an incentive for performance. If DES cannot be put in competition with other smdar collecting agencies (water or gas for instance) then the Regulatory Authority d determine the reasonable level of revenues. he new electronic kquipment provided by the project is not installed in room adequately refurbished to insure the long term reliable operation of the system (TO, dust and humidity control) The bdling and collection system recently installed in Dushanbe needs to be extended to all the country, who will take the initiative?

DES Organisation chart

Accounting department Personnel department

DES General population ~~~~* Agreement. distribution and control of electric Meter workshop & laboratory Admini\tration L)ep,ll-t~nt.~~[

and thermal energy (6)

0 TAJIKGOSENERGONADZOR

0 ORGANISATION CHART

Director General I I + Assistant DG for the region North - Assistant DG for the region South Deputy DG & Chief Engineer

b I

Department of inspection for the power and thermal distribution in Dushanbe

Technical production Department of information & department analysis of work done by the

inspectors

Department of the energy saving

P

Department of inspection of the Department of inspection of the power grid thermal projects

Department of accounting and Department of personnel & legal payrolVremuneration

I I

Department of printing and t~ P O ~ Y ~ P ~ Y

I Department of inspection of the power grid of the Pamir region

Department of analytical studies

Deprtrtme~~t for the inspection of I

Department of economic studies

the power and thcrnlal distribution in Khojent

- T'AJIKGOSENERGONADZOR ORGANISATION CHART

I Kurghan-Tube

Kurghan town Sarband Bokhtar Vaskhsh Gozimalik Khodja-maston Kolkhozabad Kumsaniguir Piandj Djtitkul Kabodion

I Shaartus Beshkent

Kulob (town) Kulob (region) Vocez Moskovskii Dangara Sovetskii Khovaling Muminabad Shurabas Baldjuvan Farkhar

Kafarnigan Rogun Tursunzade Varzob Leninskii Faizabad Sharhrinav Guissar Nurek Iovon Darband Rashi Tavildara Todj ikobod Dj irgatol

Kanibadam (town) Kanibadam (region) Isfara (town) Isfara (region) Shurab Gafurov (town) Gafurov (region) Asht Kairakum Schkalovk Tabashar

Istravshan Istravashan (region) Gamtsch Shahristan Zafarabad Matscho Drasulov Nau

Pandjakent (town) Panjakent (region) Aini Matscho (region)

MEETING MEMORANDUM

Energy saving control Board (TajikGosEnergoNadzor)

Friday August 1,2003

Person visited: Mrs. Uguloi IShodjaeva. Director General

The Energy Saving Control Board exists since 52 years.

Control, inspection and monitoring of the norms, standards and quality of electricity supply in Tajikistan are the responsibhty of TajlkGosEnergoNadzor. Currently, it is a subsidary of Barh Tajik, nonetheless its report to the government (MEO)

In 1996 (October) a decree No 465 established the Board as a Tajlk Agency.

During the Soviet regime it reported directly to a Soviet government department in Moskva.

The budget of the board for 2002 was 500 000 Somoni ($159 000). The funds are provided by BT

In comparison the budget of the MOE is 200 000 Somoni ($ 63 500), with the funds corning from the government budget.

The Board employs 204 persons of whlch 166 are inspectors in the field.

The inspectors give advice on energy saving wherever possible to indwiduals, commercial and industrial companies. TajikGosEnergoNadzor has the sMs and the knowledge that can be used in training inspectors to inspect equipment provides advice in energy management, dispute arbitration investigations. The services include as well approval of norms and standards and enforcement of legal obligations for udties, industries and for the consumers.

TajikGosEnergoNadzor assist Barlu Tajik with defaulting customer's in drsconnections and collect penalties for reactive power charge from consumers.

The Tajilustan is dwided in 8 inspectorate regions. The Directors of the eight regons sit on the Board of Directors.

The Director General report directly to the Government (PM). However, the current decree put BT between the Government and the Board.

The mandate of the Board is mostly about:

1) The security of the power dstribution grid down to the domestic consumers.

fl) The security of the power equipment and furing the technical norms

iii) Fixing the norms and standards for the electric household equipment.

iv) Fixing the efficiency norms for the electdc apparatus

v) Fixing the norms for the electricity efficiency of the manufacturing industry

vi) Inspection to ensure compliance with the technical norms

vii) Carryng out electricity consumption efficiency Au&t for the industry

Furthermore, the Board has the mandate of controlling the amount of losses in the power grid. However the Board cannot exercise this part of its mandate because they do have access to the statistics necessary to measure the losses from the MV down to the &stribution level. The main reason is that the statistics do not exist. The main reason is the fact that most of the domestic consumers do not have yet meters installed.

In 2002, 1900 pieces of equipment in the power distribution gnd were judged unsafe and removed from service. After disconnection an affidavit is send to BT, the industry or the indtvidual consumers that the equipment is impounded and must be replaced forthwith. In 2002 all equipment declared unsafe were replaced or repaired in all cases. When the inspectors decide that equipment is unsafe they have the power to immedately dsconnect the faulty piece of equipment put a notice under seal or impound the faulty equipment.

The Board carries out Energy Saving Audit of industrial plant like for instance the Tadaz smelter. As a result of this Audtt the consumption of electricity per ton of aluminium went down from 18 000 kWh per ton to 15 500 kWh per ton.

TajlkEnergoNadzor carries responsibhty and authority from the government to promote, inspect and investigate compliance with norms and standards for electrical and thermal energy dtstribution safety, uulity service quality standards and energy saving management.

The norms used as reference for the industrial energy consumption are the Soviet norms circa 1972. In September 2003 the Government in the context of the re-structuration of the Energy Sector will review the status of the Board and its reporting h e s and source of financing.

Dushanbe August 2


LIST OF PERSONS VISITED (during the missions of June and July/August 2003)

Mrs. Kazuko Motomura - AsDB Countrv Director

@ Mrs. l y u d d a Chernova - AsDB

hk. Pierre-Paul Anthemissens - Tacis Office

Ak. Abas Kasimov DM - MoE

Miss Zulfia Davlatbekova EC Delegation

hfr. Graeme Couch - ShEC

hk. Ordan urgenec - Fitchner

hk. Frank Bliss - Fitchner

bliss Nargis Akilova - Carana Corp.

Mr. Nazrulaev - Bar& Tajik

hk. Ruslan Sadikov - Barki Tadjlk

3 ,. Mr. Timur Valamat-Zade -MoE

Mr. Halim iikramov - MoE

hk. Kurbonali Kamolov - Local expert

Mr. Shamsullo Davlatov - Local expert

hhs. Ugloy Khojaeva - Energy Saving control Board

hlr. Matthew Scanlon AKFED

Ah. Ashot Hovhannisyan Pamir Energy DG

Mrs. Sheila McWilhams hKFED

hh. Bakhtyor Faiziev SDC

Mr. Vladimir Smalosky Pamir Energy DDG

hk. Oamsho khushka- Damov Pamir Energy Commercial Director

Mr. Soleh Saidmusalamov IT Programmer - Pamir Energy

hlr. Khurshed Administrator hlSDSP

Miss Oxsana Nazmieva AsDB Local office

Mr. Anvar Mahmudov AsDB Local office

hks. Vinogradova Mikhailova @a) BT Statistics

Ah. 1.1. Ousmanov BT Economic relations

Mr. Alexis Nikolaevich Silantiev BT

Mr. Albert Longy Tacis ( National coordinating unit )

Mr. Franqois-Vadim de Harting Tacis Programme Manager

@ hlr. Christian Lallement EDF Industry Mrs. Galina Alexsandrovna Aeksiekova Ministry of Construction - Building Standards

(Source: Tacis 1997. Energy sector. Strategy Plan )

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ACTIVITY No 23.

POWER SUB- SECTOR INSTITUTIONAL ASPECTS

FORE WORD

The following report covers principally the institutional aspects of the power sub-sector. The oil and gas institutional aspects are analysed in a separate report, activity No 15.

MAIN FINDINGS.

Tajikistan does not have a Ministry of Energy. Since the middle of 1997 a Deputy Prime Minister (DPM), co-ordinates and supervises the operations of the principal state-owned companies involved in the sector.

,2-b

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In Tajikistan the power sub-sector is the exclusive responsibility of Barki Tajik, a state owned vertically integrated power monopoly. In 1992, after the independence of the country and the dissolution of the Central Asian energy sector regional structure, the company statute was changed to make it a state-owned holding joint stock company, with a mandate limited to the Tajik territory. Currently the government own all the shares of this national power utility which has a complete monopoly on all power generation, transmission and distribution activities on the Tajikistan territory.

The president of Barki Tajik report directly to the Deputy Prime Minister (DPM) in charge of supervising the companies involved in the Industry and the Energy sectors. However, the coal sub-sector reports to another DPM. Fuel wood is not mentioned in the government organisation chart.

The current mandate of Barki Tajik does not include the usual functions a power utility in the West is familiar with, like: i) Earn commercially competitive rates of return on equity capital. ii) Assure a reliable and secure supply of power to the customers willing and able to pay for the service. iii) Pay interest and taxes. iv) Have full autonomy to manage their own budgets, borrowing, procurement, salaries, and condition pertaining to staff. On the other hand, Barki Tajik has the mandate to "contribute solving the social issues of

@ Barki Tajik collectives".

The electricity tariffs are not based on generally accepted economic principles. Their levels and structure are decided by a committee of ministers and senior advisors. A tariff study done in 1994 suggested a tariff which was not far from the LRMC (long run marginal cost) for the industry and the domestic sectors. The above tariff has not yet been put in force; as a result Barki Tajik does not have even enough money to maintain its network and its power plants. Not only the tariffs do not reflect the economic reality but few industrial companies, and even less, collective farms, regularly paid their bills. In early 1997 Tadaz the aluminium smelter owned more than $ 53 million to Barki Tajik.

Barki Tajik is organised to cope with a mixture of functional and geographic constraints. Seven V.P control and manage all the operations of the utility. The departure of many specialists during and after the social disturbances and recent conflict is probably a factor in the concentration of so many activities under a few individuals. Besides the departments responsible for the generation, transmission and regional power distribution, Barki Tajik owns and manages about 10 independents enterpriseslcompanies, the majority of which supply services in exclusivity to Barki Tajik, from project design to farminglfood supply. No annual financial report as per acceptable international accounting standardslnorms exists, to give a clear picture of the utility financial position.

The organisational structure of the power sub-sector is strongly controlled by the State, political considerations weight heavily in the decision process. The sector resources are not use rationally and efficiently, social and political constraints interfere with managerial, economic and financial performance. As it is today Barki Tajik is not in a position to face the challenge of a market economy. Much needed new investments in such a context are not feasible, worse Barki Tajik cannot even generate enough financial resources to maintain its existing generation, transmission and distribution infrastructures.

At the regional level the former institutional organisation of the Central Asia power grid is no longer in place. The only exception is the SCADA of Tashkent, which is still performing some non avoidable critical technical functions like voltage and frequency control. From the former regime Central Asia inherited an integrated HV power network, linking together all the power generation plants to the demand centres of the region, irrespective of the republic borders. Thank to this integrated HV network, economy of scale was feasible, regional least cost power generation was possible, and generation dispatching on decreasing merit order, could be done. With the sector division along the new national borders, these advantages are lost. Currently power and energy exchanges are done on ad hoc basis through personal contacts.

CONCLUSIONS.

Sector institutional reforms are needed first at the national and subsequently at the regional level. These reforms will be made easier after the break-up of the existing state owned monopolies in the power sub- 3 sector. In Tajikistan, it is unlikely, under the present circumstances, that International Financial Institutions (IFIs), bilateral organisations, or even less private capital, could contemplate financing major capital investments in the power sub-sector. Urgently needed to make new investments feasible, is a reform of the institutional organisation and progress on the tariffs side. As soon as it is politically possible, the tariffs must increase to reflect the real economic costs of the generation, transmission and distribution.

State-owned monopolies, especially vertically integrated ones, are generally inefficient and have difficulties to generate capital for new investments. Furthermore, tariffs fixed without reference to fundamental economic and financial principles, generally do not produce enough revenues to cover the costs of operation, maintenance and debt servicing. As a result they do not inspire confidence to institutional and private investors. Under the present circumstances, privatisation of Barki Tajik, if it is the goal of the government, must be preceded by quick actions on the tariffs and on the reorganisation of the sub-sector on more efficient lines.

Some components of the power sub-sector which are not a natural monopoly could be as a first step reorganised and when financially viable privatised. Then a healthy competitive environment promoted by an independent regulator, could gradually achieve a reasonable level of economic efficiency. However, privatised natural monopolies (power HV transmission grid) will require regulation by an independent Regulatory Agency (the regulator), with clear mandate to protect the public, ensure access to information and as much sector transparency as possible. A study with concurrent implementation of the principal recommendations, which most likely will include the separation of the three main functions of the sub-sector to achieve transparency and accountability, could as well suggest the subsequent reforms to be gradually implemented, with due considerations of the local situation and constraints.

A regional approach for the power sub-sector activities in parallel with the reform at the national level is necessary to re-capture the economy of scale achieved in Central Asia before the dissolution of the Soviet Union. The development of Tajikistan hydro-power resources to a large extent will depend on re-establishing a regional market for power generation. This could be achieved through a regional accord between the Republics of Central Asia, instructing their state-owned power monopolies to adopt a least cost approach for the development of the regional power generation resources. Alternatively, when all the regional republics have privatised their power sub-sector, the investor-owned utilities will certainly try to obtain access to the least cost source of power generation. Both alternatives require significant institutional changes and from the regional authorities, economic acumen, political will and wisdom. They will have to initiate the transformation to an energy common market and support the process. Ultimately the beneficiaries will be the consumers, the investors and the regional economy.

Government responsibility is the formulation of national and regional policies, long tern1 integrated strategic planning, fiscal policy and protection of the public against the potential abuses (market imperfections) of private companies, especially when the enjoy a monopoly activity, Ownership and operation of commercial entities like power generation, transmission grids and distribution networks are not Government's business, unless private capital refuses to be involved. Conversely, promoting competition at all level and establishing sub-sector regulation when needed are Government's responsibilities through an independent regulator. The current Tajik institutional organisation does not reflect this accepted clear separation between the role of the state and the private sector.

In the current context of Central Asia each state-owned power monopoly is unlikely even if they see the merit to do so, to establish an integrated energy strategy at the region level. What is lacking at the political level is a clear assessment and comprehension of the amount of wasted economic resources resulting from the loss of a regional common market for the energy sector. A point in case is the 1.5 TWh of hydro energy spilled in'the river, at Nurekskaya during the summer of 1996, because Uzbekpower didn't allow the passage of this energy on its network, Tajikistan loss more than $20 million in much needed revenues, Kazakhstan was obliged to consume higher cost non-renewable energy and Uzbekistan lost the wheeling charge. This sort of waste will not occur in a market economy with privatised power utilities or if a regional accord existed for power dispatching on decreasing economic merit. Before a free market for the energy is established at the regional level, some ways to obtain a minimum co-operation between the regional power utilities must be found. Needed is some sort of independent regional institutional organisation (a regional regulator with executive power) to promote the efficient utilisation of the energy resources of the region.

Gradual efficiency improvement measures can be achieved step by step leading gradually to a competitive energy market. Between the two extreme alternatives of a national strategy, supporting subsidised or money losing command-and-control state-owned monopoly suppliers that sell under priced energy to domestic consumers and to protected state enterprises that in turn engage in cost-plus pricing to final consumers, or the combination of public and private power suppljers wheeling power over common carrier transmission lines to competitive final consumers and local distribution companies, many gradual initiatives can be implemented, each of them an improvement on the previous situation. A first step could be the separation of the three main functions of generation, transmission and distribution in separate profit centres. This first step will establish financial accountability and stop cross-subsidies.

Without waiting for either a regional integrated strategy for the optimal utilisation of the energy resources or the privatisation of the economic operators in the sector, Tajikistan can improve the efficiency of its power sub-sector by implementing a mixture of structural changes and efficient energy pricing. Unless some rapid decisions are made, the power sub-sector performance will quickly decline and become an impediment to any economic recovery. Basic structural reforms are needed to create an institutional and legal framework that financial institutions and private investors will find suitable for investments.

SUGGESTIONS AND RECOMMENDATIONS.

From the present dramatic situation of the Tajik power sub-sector to a distant perfectly efficient regional markethystem where competition among private companies and independent regulatory authorities will promote economic efficiency at all levels, some initial steps could and should be implemented without delays. All of these steps will require foresight and political will, good communication with the public and commitment and dedication from the personnel active in the sub-sector. The following recommendations and suggestions could be implemented in the short or medium term.

Since the middle of 1996 a new governmental structure has been put in place to rationalise and streamline the state-owned companies reporting lines to the executive branch. One DPM co-ordinates and supervises the operations of the majority of the companies involved in the energy sector. In Tajikistan no Ministry of Energy exists, and it is doubtful one is really necessary. Nonetheless, what is necessary is a central point, a small cell of one or two experts to insure the government carry out the tasks and duties, which normally are the responsibility of a government. Without being exhaustive some of these governmental tasks are:

e Setting for the sector in general, and for each sub-sector in particular, objectives and goals. Prepare and articulate a coherent overall set of policies and strategy for all sub-sectors.

When necessary for one particular sub-sector setting up a regulatory agency. Prepare and assure the passage of a11 necessary legislative and legal decrees to establish the duties and responsibilities of each operator in the sector, and protect the interests of the various stakeholders and the public. Supervise and assure the regular updating of the national energy inventory. Produce each year the energy balance of the country, with sufficient details to assist in the formulation of future strategies and policies. Negotiate and enter into accords with other governments, like for instance negotiation of river basin treaties and regional co-operation agreements.

In the current context of Tajikistan it is quite possible that some technical assistance will be necessary to set up the government energy cell to advise the PM. More particularly the preparation of the energy inventory and its updating could be farmed out to a specialised firm. The same apply for the energy balance46.

The following actions to strengthen the organisation of the energy sector could be implemented in the short to medium terms, we present them in what we believe is a logical order. However, local constraints may influence their priority.

, As a first step a financial Audit of Barki Tajik as per the recognised accounting international standards, must be done to clearly assess the current financial situation of Barki Tajik. This activity will probably requires as

, a prerequisite a reorganisation of the current accounting procedures and on-the-job training of the personnel of Barki Tajik accounting and controller departments. Software and hardware to run the new accounting system would be needed.

Secondly, a study to re-structure the power sub-sector on efficient functional and geographical lines needs to be done by experts with considerable experience in the management of power utilities, operating in a competitive environment with independent regulation. This study with concurrent implementation of the suggestions should include all aspects of the administration, operation, management of Barki Tajik as well as the institutional aspects of the sub-sector. To achieve financial transparency, it is likely a separation of the sub-sector on functional lines might be recommended. Without prejudging the result of the study, it appears logical to separate the functions of generation, transmission and distribution in separate profit or loss centres. Distribution offer the potential of a further division on a geographic basis, this devolution will empower the local communities, and encourage more financial rigour and responsibilities. In a first temporary stage, generation and transmission could be lumped together. The merit of the above mentioned step in the institutional reform process will be to break the existing vertically integrated monopoly with its inherent financial opacity. Complete financial transparency between the three main functions of the sub-sector will probably lead to more reforms, based on precise knowledge of the real situation of the main operators. Policy

@ and strategy formulation will be easier and more precisely focused.

Institutional reform without sufficient financial means will be difficult. In depth reorganisation cost money. Consequently without waiting for an updating of the existing tariffs study, a gradual implementation of tariff levels and structure reflecting the real economic cost of the electricity is a priority. Taking as reference the existing and still mostly valid, tariff study financed by Tacis in 1994, and taking into account the probable LRMC of the future generation, it is recommended to raise as soon as possible the average tariff level to approximately 3 cents per kwh.. This price does not include the cost of any new transmission lines, substations, administrative and other overhead costs. The above increase is a strict minimum, to be achieved as fast as the political climate will allow, but certainly not in less than one year. This average electricity tariff level of 3 cents/kWh needs to be structured on the lines suggested in the tariff study of 1994. As reference, the I-IV clients should pay about 50 % less than the domestic/household consumers, since they impose that much less cost on the network.

The role and duties of the main economic operators in the power sub-sector need to be defined precisely and rules well understood by all. The creation of an institutional frame work to encourage efficient power generation and distribution is a first step. The second must include the creation of a transparent regulatory

46 For countries that do not have the local expertise to address restructuring and regulatory issues, Fl 's and bilateral organisations can provide funding for technical assistance.

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mechanism between the government and the power utilities. In a country like Tajikistan, where currently the government is the owner of a monopolistic utility, this structure leads to a mixing of the roles of owner, operator, manager, regulator and supervisor of the utility. As a result the government is draw into the day-today management of the utility, which generally result in political constraints having priority over economic realities, resulting in unwarranted intervention in the utility operations. It is why in most industrialised countries, an independent regulatory authority (the regulator) was established as a referee between the divergent interests of the various stakeholders.

When an energy market is liberalised and private investors are involved, the regulatory task become complex and requires a mix of expertise which generally does not exist inside a government. The role of the regulator is to define within the legal framework, the privilege and duties of the government, the investors, the operators, the consumers and other interested groups. One of the most important duties of a regulator is to analyse the merit of a request for tariff increase. In some countries public hearings are held on tariff increase, to give an opportunity to the consumers supported by experts to voice their opinions on the subject, in other country the regulator with his advisors make the decision after analysing all the facts. The other duties of a regulator are as follow; make decision on wheeling charge rates, promoting right of entry for new investors, monitoring the respect of the environment protection norms and standards; issuing licences for land expropriation and attribution of right of way; requesting financial audits of the utilities and other information to assess the merit of request for tariff increases and other claims. The power of the regulator is quasi judicial, his decision can be appealed only on a vice of form not on the substance of a decision. In some countries the regulator is named by the government for a fix term, other countries (in US it is states) the members are elected.

Some essential features of a Regulatory Agency are transparency, openness and independence from day-today government interventions. Other duties are; setting a clear, logical and predictable policy for tariff setting, establishing a legal structure that clearly defines the procedures for reducing government involvement in the sub-sector management, and increases the autonomy and accountability of the power utilities managers. Another responsibility of the regulator is to define clearly and fairly, entry and exit conditions for investors and competitive enterprises. Energy export contract are reviewed and approved by the regulator to insure sufficient generation is available for the local consumers. Complaints by the public for violation of security and environmental rules are the competence of the regulator with power of imposing fines. The budget of the Regulatory Agency is approved by the government and is funded by a small levy on each Kwh sold or exported.

LIST OF PRIORITIES

Realise a financial Audit of Barki Tajik, with some technical assistance to the accounting and controller

Increase the electricity tariffs. Improve the billing and collection system (could be farmed out), with in parallel a severe control of the non-technical losses.

Study ways and means of improving the power sub-sector efficiency with concurrent implementation of the recommendations. The goal of the activity is to prepare the sub-sector for a future privatisation of the principal economic operators. As a first step, to achieve accountability and transparency it is likely that the generation and transmission function will have to be separated from the distribution.

Set up inside the government a celydepartment to be responsible of the government natural responsibilities (Policy, strategy, energy resources inventory and balance).

Set up a regulatory authority/agency, to assure fairness in the power sub-sector, protection of the public and respect of the law and decrees.

Promote and if possible enter into agreements for an economic co-operation at the regional level. These accords and agreements must be institutionalised; keeping in mind the ultimate objective is to establish a Central Asian energy common market.

(Source: Tacis 1997 Energy sector. Strategy plan)

MEMORANDUM

TO The Muustry of the Economy To the attention of : Mr. T. G.Gafatov. Minister. Date September 6,1996 Subject Tajikistan-Electricity Tariffs

Object Adequate tariffs level and structure?

Dear Mr. Gafarov

Following our recent dtscussion and your request for an advice on the proper tariff level for the electricity, I have gven some though to the matter. As mentioned to you, we have basically two methods to fix the electricity tariff: i) The accounting method. Past investments need to be amortised, cost of maintenance and operation must be covered. This method in the past satisfied the lenders of capital, since they were mostly interested to get their capital back with adequate interests to cover the risk involved. This method is not in use anymore since it does not make sense on economic ground. Why the current consumers should pay tariffs reflecting the pattern of consumption of their grand fathers? ii ) The LRMC approach: Consumers pay a tariff which reflects their current pattern of consumption (energy and capacity) proportional to the cost they impose on the economy. This method is now adopted everywhere, it is generally a condition from the IFI's, before making a loan for a project in the power sub-sector.

In the case of Tajhstan, if we retain the assumption that the next project to increase the power generation will be Sangtudmgskaya. I (670 Mw with 2.7 TWh), which has an estimated construction cost of US $800 mihons. Then taking a discount rate of 10% and 50 years for the project life, we arrive to approximately 3 cents per kwh. Tlus price does not include the cost of any new transmission lines, sub-stations or utility overhead. Consequently it is a strict minimum, but a first step in the right direction. The average electricity tariff should be raised gradually to this level of 3 cents average. Regardmg the tariff structure, tahng the 1994 SRC tariff study, done by a Danish fm (financed by TACIS) as reference, the HV clients should pay 50 % less than the domestic/household consumers, since they impose that much less cost on the network.

Should Bark Todjlk receive the above mentioned tariff increases, it is then the duty of the Government or

@ the independent regulator, whatever the case may be, to see that the cash generated is not used to increase the number of employees, salaries or indirect benefits, but for the improvement of the service, bulld up reserve for future investments, pay taxes and dividends to its shares holders, i.e. the Government..

When the tariffs have increased to the level indcated, the demand will automatically adjust to its economic efficiency level. At that time the IFI's and other investors wdl be inched to consider the feasibhty of financing some power projects, since the two fundamental requirements would be met: i ) Tariffs fixed at their economic level. ii) A demand increases, justified by tariffs set for each class of consumers at their optimal economic level.

I hope the above considerations d answer your query. Be assured that at all time I am at your disposal for hrther discussions on thts vital tariff question.

Yours sincerely.

Alain Gertsen-Briand.

Discussion Paper March 7 I996

(Source: Tacis 1997, Energy sector. Strategy Plan) SUMMARY

ACTMTY No 10

TAJIKISTAN POTENTlAL FOR ELECTRICITY EXPORT

MAIN FINDINGS.

Geographically as well as for the physical aspect of its power grid Tajikistan is divided in two parts (electrically speaking both parts of Tajikistan are connected through the Central Asian power grid, electricity does not recognise political borders). The northern part, suffer from a significant power deficit, and the southern part has so far benefited most of the time from a hydro power generation surplus especially in summer. Ideally through the Central Asian Power Grid, the surplus in the south

1 ) could be transited to the northern part. Or alternatively the surplus from the southern part of Tajikistan could supply the demand in the southern part of Uzbekistan, in exchange for Uzbekistan supplying the northern part of Tajikistan.

Tajikistan northern part suffers from a chronic deficit in power generation. Only one small Hydro power plant by the name of Kairakumskaya generate on average about 740 GWh per year. The total demand of the northern part is with the current tariff system about 3.3 TWh, the difference is imported, and in 1996 it was 2.8 TWh. In the same year in July/August 1996, the Nurek power plant in the southern part of the country, spilled (wasted) about 1.5 TWh of surplus energy. The right for wheeling the Nurek surplus to a buyer in Kazakhstan was refused by Uzbekistan. This negative economic situation is the result of the dissolution of the energy common market which existed during the previous regime.

Significant power and energy exchange potential exist in Central Asia between the five republics Some have important non-renewable hydrocarbon resources, suitable for base load power generation, others have considerable hydro power resources (Tajikistan and Kyrgyzstan), especially high value firm energy and peak power capacity. These differences in the type of energy resources among the five republics create economic opportunities for importlexport at the regional level. This fact was recognised by the central planners of the former regime, it is why the Nurek and Rogun hydro power plants were over-equipped and have such a low power plant factor. They were designed to supply Central Asia with peak power capacity. Furthermore, to increase the firm energy of the Vaksh cascade hydro power plants, the study of the diversion of the Pyanjd river into the Vakhsh river, upstream of Rogunskaya was quite advanced. In exchange for this service to the region, Tajikistan had access to oil and gas resources from the other republics. Unfortunately, this plan came to an end with the independence of the 5 republics.

For 1996 the power balance for Tajikistan was as indicated in table I.

In the past and still today, Barki Tajik import and export energy on a regular basis. More important this utility supply on request from the Tashkent SCADA, capacity support to the regional grid to maintain the frequency and voltage in case of serious disturbances in the network. Export of surplus energy is possible during the summer months, when Nurekskaya reservoir is near to be overfilled, and another neighbouring utility is willing to buy the energy surplus. For the capacity support, to maintain the voltage and the frequency on the Central Asian grid, the 3000 MW of Nurek are almost indispensable to avoid costly load shedding.

What today is called the Tajikistan power grid is in fact, a part of the greater Central Asian power grid. Currently Tajikistan import energy from the regional grid through a 220 kV line to supply the load in

the Zaravshan valley. The northern part of Tajikistan separate the south eastern Uzbek territory, to supply power from one part to the other, Uzbek Power is obliged to use about 230 km of 500 kV transmission lines which belong to Barki Tajik, but are utilised exclusively by Uzbek Power. Finally, the Tajik northern grid is supplied from Uzbekistan through the 220 kV lines.

Currently the capacity of the transmission lines connecting Uzbekistan and Tajikistan can cope with the actual rate of exchange of power between the two grids. However, due to almost total lack of maintenance since 1990, the transmission grid is prone to interruptions, should a major power apparatus like a large transformer fail, and then the flow of power exchange could be curtailed for a long period of time.

The current nzodus operandi between the regional utilities is to exchange energy on a one to one basis, i.e. one k w h in summer against one kwh in winter. At the end of the year reconciliation is made, and the difference is paid as per the contract conditions. For the price of capacity export for peak periods or in case of serious generation outages in the grid, the rules are not clearly defined.

In the present context of Central Asia, no power expansion programme is done at the regional level, to select the least cost alternative for peak capacity and base load generation. Co-operation between all > the power utilities of the region is subjected to local political constraints. No long term supplyldemand

/ ' projections are done to identify future exportlimport potential, between the republics of the region. Consequently power export potential for Tajikistan is limited to the realm of assumptions of the "what if' type.

CONCLUSIONS.

To establish the power export potential of Tajikistan a minimum knowledge of the hydro potential of the existing and future power plants is needed i.e. a power expansion programme for Tajikistan. A reasonable knowledge of the power expansion programme of the other republics must be known. Furthermore, the future demand (energy and peak capacity) in Tajikistan and in the other republics must be ascertained with a reasonable degree of precision. In short the following information is needed.

i) A national load forecast for a reference year. ii) A knowledge of the load forecast of the other republics iii) A knowledge of the existing and planned power generation at the regional level, with

indication of the generation cost per power plant, preferably for each unit. iv) A national and regional hydro model implementation and hydro production planning,

through the year on a month-to-month basis. v) A calculation of monthly energy export possibilities, expressed as a difference

between the results of i) and iv) activities, taking into account ii) and iii). vi) A load-flow calculations to ascertain if these energylcapacity exports are compatible

with the safety of the regional transmission grid. Since none of the above information is currently available, some reasonable assumptions need to be made. The reference year retained is 2005. On the Tajik generation side, Sangtudiskaya I with 670 MW is completed and Rogunskaya is completed with a capacity of 2 400 MW. On the Uzbekistan side the Talimargian power plant has 3 x 800 MW in operation. A total of about 1 800 krn of 500 kV lines are build in Tajikistan and Uzbekistan. The load forecast for Tajikistan consider 3 scenarii, a low, medium and high demand forecast respectively 0.5, 1.5, and 2.5 %.

In the current context of Central Asia no accurate power export potential or interchange between the 5 republics can be forecasted with any degree of precision for the following reasons:

i) The demand in Tajikistan and most probably in the other republics is nor fixed by tariffs set on economic criteria. In the future any adjustment in the tariffs will have an impact on the level and shape of the demand (energy and capacity). Therefore, in the current context only assumptions can be made on supply and demand. As a result, the potential for importlexport of electricity between the Central Asian republics is only a theoretical exercise.

ii) In Tajikistan in particular no power expansion programme exists, and none can be made before the tariffs have been adjusted to reflect the real cost of generation, transmission and distribution. Then a basic knowledge of the level and shape of the demand in the other republics must be known, since a generation deficit in one republic is an opportunity for exportation from another.

iii) Without proper tariffs, the regional utilities have no revenues to finance a generation expansion programme and cannot borrow funds. As a result the current situation of short terms ad hoc accords for exchanges or export of electricity will continue, without any possibility of accurate planning of potential export.

RECOMMENDATIONS AND SUGGESTIONS.

Separate operation and expansion of the five republics power sub-sector without co-ordination will lead to a sub-optimal utilisation of the regional resources. A regional power generation expansion programme based on the least cost approach will allow determining ahead of time when a local generation surplus, temporary or permanent, can be transferred from one region to another.

3 Each national grid needs reserve capacity, especially when it is dominantly thermal (spinning, warm and cool reserves) whereas grids which are mostly hydro generation, due to an inherent higher reliability factor, need significantly less reserves. By combining all reserves at the regional level, great saving could be achieved in capital investments and in operation costs. This will lead to permanent or seasonal export between the national grids. Without a common generation planning and co-operation among the regional utilities it will be almost impossible to plan ahead of time power export. The current situation of ad hoc short term accords will be the only solution.

(Source: Tacis 1997 Energy sector. Strategy Plan)

MEMORANDUM

TO : Mr. Nuriddin Azimov PM From : Alain Gertsen-Briand. Tacis-Energy Programme I. Date : February 4,1997. Subject : Power sub-sector Object : Tariff policy

Conclusions.

The current electricity tariff policy has no economic rational and is detrimental to the economy by encouraging the waste of a valuable resource. Financially, this policy does not supply enough revenues to Barki Tajik to allow for the maintenance, the efficient operation and to secure financing for the network expansion. Barki Tajik does not generate the financial revenues to maintain its infrastructures inherited from the

-? previous regime. The conservation of these valuables assets should be a priority. Since their replacement ) value is in the billions of dollars range. ,, The generating power plants are in sorry state, Nurek peak capacity for instance has already been

significantly reduced and its decline will accelerate, unless quick actions are initiated. The transport and distribution networks are not faring better, to a large extend maintenance is done through a cannibalisation process, which quickly will reach its limit. The probable lost of Nurek generation, almost a certainty in the medium term, will be a major blow to the ailing Tajik economy. Any energy saving programme based on convincing people that energy needs to be saved when it is almost free, will under the present circumstances be ineffective, and likely a waste of money. Attract investments without an assurance of a fair return is impossible. With the current tariff system any investment will have a negative return, this preclude any serious discussions on investments. No investor can reasonably be interested to negotiate the loss of his capital.

Suggestions.

Taking as reference the existing and still mostly valid tariff study financed by Tacis in 1994, and taking into account the probable LRMC of the future generation, fix as soon as possible the average tariff level and a structure necessary, to allow Barki Tajik to assure the maintenance of its productive assets. To defuse potential criticisms of some inefficiency inside Barki Tajik, realise an Operational and Financial Audit of this power utility. Implement the recommendations for the improvement of the efficiency. The Government or an independent regulator should closely monitor the utilisation of the cash flow generated, to assure the consumers, that the revenues generated by the tariff increases are utilised for the improvement of the service, the security of the power supply and for the network expansion. Electricity stealing should be severely curtailed, and the guilty parties prosecuted with the full rigour of the law. Non-payment of electricity bills should automatically be followed, after a reasonable period of grace, by service cutting. Government departments should show the example, by paying their electricity bills in full, within the time limit fixed. All employees of Barki Tajik should pay their electricity consumption, like any other consumers. Ideally, no exemption of payment of electricity payment should be granted to any consumer. If Tadaz cannot pay its consumption of electricity, when fixed at its reasonable economic efficiency level, and still be competitive, then it should be closed down. The price Tadaz should pay for its electricity should be about 50 % less than the average domestic consumer.

Justification of the suggestions.

One of the most important points for the efficient economic utilisation of costly infrastructures in the capital- intensive power sub-sector is the setting of the tariff of the electricity at the proper level. If the perfect competition existed, the economic efficient level for the tariff will be reached automatically. Unfortunately

173 due to the natural monopoly aspect of the transmission network, it is not possible to achieve perfect competition at all levels. However, this is possible for the generation and distribution, where the private sector can and must be put into competition to achieve efficiency. In the absence of complete and efficient competition, we have basically two methods to fix the electricity tariff

The accounting method. Past investments need to be amortised, cost of maintenance and operation must be covered. This method in the past satisfied the lenders of capital (Banks and private investors), since they were mostly interested to get their capital back with adequate interests to cover the risk involved. This method is not anymore in use, since it does not make sense on economic ground. Why the current consumers should pay tariffs reflecting the pattern of consumption of their grand fathers? ii ) The Long run Marginal Cost (LRMC) approach: Consumers pay a tariff, which reflect their current

pattern of consumption (energy and capacity) proportional to the cost they impose on the economy. This method is now adopted everywhere in the world, and is in general a condition from the International Financial Institutions (IFl's), for making a loan for a project in the power sub-sector. Consequently without a tariff level and structure reflecting the real economic cost imposed by each class of consumers, no new investment ispossible, for the simple reason it will not be profitable, and capital does not like to be wasted.

Pension funds, saving banks, mutual funds, etc. have a fiduciary duty to make sure the capital (the saving of someone else) they invest, will be reimbursed, with decent interest to cover the risk incurred, and the temporary privation of benefit, by the investors from their capitallsaving. Only tariff, which guaranty the

, above return on the investment, can attract investors. The power sub-sector being not recognised as a social/ humanitarian/ charitable sector, no subvention or grant can be expected.

In the case of Tajikistan, it is not possible to make an accurate estimate of the LRMC without first, making a power expansion plan. Nonetheless, an educated guess could be made for the generation by retaining the assumption, that the next project to increase the power supply will be Sangtudingskaya I, a project of 670 Mw with 2.7 TWh, which has an estimated construction cost of US $ 800 millions. Then taking a discount rate of 10% and 50 years for the project life, we arrive to approximately 3 cents per kwh. But is only for the generation. This price does not include the cost of any new transmission lines, sub-stations or labour cost and utility administrative overhead cost. Consequently it is a strict minimum, to be achieved as fast as the political climate will permit, but certainly not in less than one year. This average electricity tariff level of 3 centslkwh needs to be structured on the lines suggested in the tariff study financed by Tacis in 1994. Regarding the tariff structure, taking the study, done by a Danish firm (financed by TACIS) as reference, the HV clients should pay 50 % less than the domesticlhousehold consumers, since they impose that much less cost on the network.

Should Barki Tajik receive the above mentioned tariff increases, it is then the duty of the Government or the @ independent regulator, whatever the case may be, to see that the cash flow generated is not used to increase

the number of employees, salaries or indirect benefits, but for the maintenance and saving of the existing infrastructures, the improvement of the service, build up reserve for future investments, pay taxes and dividends to its shares holders, i.e. the Government.

When the tariffs have increased to the level indicated, the demand will automatically adjust to its economic efficiency level. At that time the IFI's and other investors will be inclined to consider the feasibility of financing some power projects, since their two fundamental requirements would be met:

i ) Tariff fixed at the economic efficiency level.

ii) A power demand increases, justified by tariffs set for each class of consumers at their optimal economic level.

For your information no investment project can be approved by the World Bank, unless the board is satisfied of the respect of the foIlowing criteria (OMS 3.72 - SECTOR OPERATIONS):

" The SAR (stag appraisal report) must indicate how the demand forecast was derived and must include an explicit analysis andjudgement on the role of tarlf/s in determining the demand. This should include

174 assessment not only of the role of the tar~jfset at the economic eficiency level, i.e. L M C desegregated by consumer class (including large consumers sewed under special arrangements such as alun~iniutn snrelters), time of the day rates, seasonabilig, etc. "

Should the World Bank refuse to participate to the financing of a large capital-intensive project, after a thorough sector review, it is unlikely that any other financial institution will do it. Without meeting the above stated minimum criteria, no staff member, task manager, even regional directors of the Bank can go to'the Board, and ask for a financial package.

Even before thinking of futures investments, the urgent current priority is to save the existing valuable infrastructures Tajikistan has inherited from the previous regime. The replacement value of these infrastructures is far beyond the current borrowing capacity of Tajikistan. Maintaining these infrastructures should be a national economic priority. Imagine for a moment what will happen to the Tajik economy, if Nurek stopped to generate power. This is bound to happen sooner or later, probably sooner than later. Nurek needs a major overall, after 6 years of almost complete neglect. The rehabilitation cost will be in the millions of dollars, BT. does not have the money, for two main reasons:

i) The tariff level is too low. ii) The consumers don't pay even the low tariff.

) A culture of fraud and impunity has developed in the power sub-sector. For instance in mid 1995, more than ' 85 % of the domestic consumers didn't pay their electricity bills. Tadaz owned BT. in arrears about $ 40

millions. This debt, if ever repaid, will be enough to stop the slow shut down of Nurek, and even may redress the situation to a normal level of operational efficiency. Due to lack of funds the power network is slowed cannibalised to maintain in operation, the most important parts of the grid. This process cannot continue for long, before it reaches the earth of the system, then what?

Under the present circumstances, no investor in its right mind will consider new investments unless as a prerequisite, a serious and sustained programme of rehabilitation financed in majority by revenues coming from internal revenues is implemented.

For your information, the electricity tariff in Kcibenhavn (Copenhagen) is currently $ 80 ply fix charge, plus 17 centslkwh. In Niamey in the Niger, a country poorer than Tajikistan, the tariff was in December 96, about 16 centslkwh, plus a $ 150 installation charge.

MEETING MEMORANDUM

ANTIMONOPOLY AGENCY & SUPPORT T O ENTREPRENEURSHIP

August 20,2003

Person visited:

Mr. Amonullo Sh. Ashuroy DM Mr. Davlatnazar Kurbanov, Department Chief - Natural monopolies

The agency was established two year ago

The Head of the Agency report directly to the president of the Republic. The president nominates the head of the agency and h s assistants.

The number of employees is currently 77 of which 45 are situated in the head quarters and 32 in dtfferent part of the country.

The budget of the Agency is . . . . . . Somoni per year

Since its establishment, the Agency has not received any complaint on monopolistic abuse of market power and the Agency has not yet issued any ruling to mitigate monopoly power of private or state owned enterprise or uthties.

The Agency main activities are not related to the normal mandate of an Antimonopoly Agency. Currently the Agency has 7 persons worktng on establishing the tariffs for the electricity which is normally the responsibility of a Regulatory Authority.

Some preparatory work is done for the restructuring of the power subsector with a dead line of 2006. This activity is normally the responsibility of the Muustry of Energy for the implementation of the unbundhng of a vertically integrated state owned monopoly even if the initiative to proceed may come from the Antimonopoly Agency when the evidence of monopolistic power abuses are demonstrated.

Barki Tajik apparently has already submitted a proposal for unbundltng of its main functions

The Agency would hke to receive a comprehensive technical assistance project to insure that the Agency can effectively carry out its responsibilities to reduce the number of monopolies and establish transparency in the natural monopolies with a view to mitigate abuse of monopolistic market power.

From the discussion it is evident that much confbsion exists in the mind of our interlocutors on the respective roles of the Ministry of Energy, the Regulatory Authority and the Antimonopoly Agency.

The decree establishing the Agency and its mandate were given to us. No reference is made in it about an antimonopoly policy and all the text refers to the mandate of an Energy Regulatory Authority.

More infomation to come on budeet and organisation chart.

Dushanbe August 20
