Strategy and Work Plan (2016–2020) for Regional Cooperation in the Energy Sector of CAREC Countries

September 2015

Table of Contents

I. Introduction 1

II. Long-Term Vision for the Sector 1

III. Strategic Approach to Regional Cooperation 1

Principles for regional cooperation 2

Benefits from regional cooperation 2

Technology adoption and sustainable energy 3

IV. Strategic Components and Priorities 3

Investment measures for regional cooperation 4

Capacity building and knowledge sharing 5

Policy support 5

V. Strategy Implementation and Monitoring 6

Annex: Energy Sector Coordinating Committee Work Plan: 2016–2020 8

I. Introduction 8

II. Regional Energy Sector Context 9

III. Progress of the Energy Work Plan for 2013–2015 10

Element 1: Developing the East-Central Asia-South Asia Corridor 11

Element 2: Resolving Regional Energy Dispatch and Trade Issues 14

Element 3: Managing Energy-Water Linkages 15

Element 4: Mobilizing Funds for Building Energy Assets 17

Element 5: Implementation of Energy Sector Priority Projects 18

Element 6: Capacity Building and Knowledge Management 19

IV. Energy Work Plan for 2016–2020 20

Element 1: Developing the East-Central Asia-South Asia corridor 22

Element 2: Promoting Regional Electricity Trade and Harmonization 23

Element 3: Managing Energy-Water Linkages 24

Element 4: Mobilizing Financing for Priority Projects 24

Element 5: Capacity Development and Knowledge Management 25

Element 6: Promoting and Prioritizing Clean Energy Technologies 25

Appendix A Description of Energy Sector Output Indicators 27

Appendix A 2013–2015 Capacity Building and Knowledge Sharing Activities 29

Appendix B Existing Interrelationships between CAREC Countries 31

Appendix C Evolving Energy Inter-relationships among CAREC Countries 32

List of Acronyms

ADB          –          Asian Development Bank

AFG          –          Afghanistan

AGE          –          Afghan Gas Enterprise

APMP          –          Afghanistan Power Master Plan

AralDIF          –          Aral Sea Basin Dynamic Information Framework

BEAM          –          Basin Economic Allocation Model

CA          –          Central Asia

CAEWP-KP          –          Central Asia Energy-Water Knowledge Portal

CAPS          –          Central Asian Power System

CAR          –          Central Asian Republics

CAREC          –          Central Asia Regional Economic Cooperation Program

CASA          –          Central Asia South Asia

CCGT          –          combined cycle gas turbine

CDC          –          Coordination and Dispatch Center

CDM          –          Clean Development Mechanism

DC          –          direct current

EAP          –          Energy Action Plan

E-C       ASAREM          –          East-Central-South Asia Regional Electricity Market

ESCC          –          Energy Sector Coordinating Committee

EUR          –          Euro

EWP          –          Energy Work Plan

GAIL          –          GAIL (India) Limited

GHG          –          greenhouse gas

GSPA          –          gas sales and purchase agreement

HVDC          –          high voltage direct current

IFAS          –          International Fund for Saving the Aral Sea

IGC          –          Intergovernmental Council

ISGS          –          Inter State Gas Systems Limited

JICA          –          Japan International Cooperation Agency

KAZ          –          Kazakhstan

KM          –          Kilometer

kV          –          Kilovolts

KYR          –          Kyrgyz Republic

MC          –          Ministerial Conference

MTPP          –          Medium-Term Priority Projects

MVA          –          megavolt amperes

MW          –          Megawatt

MWh          –          megawatt per hour

PPP          –          public-private-partnership

PVC          –          crystalline photovoltaic cells

RDF          –          Uzbek Reconstruction and Redevelopment Fund

RECA – Regional Cooperation in Central and South Asia

RESET – Regional Energy Security,  Efficiency and Trade RPMP – Regional Power Master Plan

SDC          –          Swiss Agency for Development and Cooperation

SOM          –          Senior Officials Meeting

SPCC          –          special purpose consortium company

TA          –          technical assistance

TAJ – Tajikistan

TAPI          –          Turkmenistan-Afghanistan-Pakistan-India

TPCL          –          TAPI Company Limited

TPP – thermal power plant

TUTAP          –          Turkmenistan-Uzbekistan-Tajikistan-Afghanistan-Pakistan

UNDP          –          United Nations Development Programme

UNECE – United Nations Economic Commission in Europe

UNESCAP – United Nations Economic and Social Commission for Asia and the Pacific

UNRCCA – United Nation’s Regional Center for Preventive Diplomacy for Central Asia

US – United States

USAID          –          United States Agency for International Development

UZB          –          Uzbekistan

WBI – World Bank Institute

1. Introduction

1. The member countries participating in the Central Asia Regional Economic Cooperation (CAREC) Program embrace the Program’s mission of development through cooperation and join efforts to bring to fruition the shared vision of ―Good Neighbors, Good Partners and Good Prospects‖.

1. Regional economic cooperation is an important vehicle for enhancing national development strategies of the participating countries and realizing the countries’ immense development potential in the context of increasingly integrating Eurasia. Infrastructure is a key pillar supporting the participating countries’ drive for development through cooperation, with energy infrastructure being vital to ensuring overall economic growth and prosperity.

1. This Energy Strategy is an update to the 2008 Energy Strategy, which was endorsed at the 5th Ministerial Conference on CAREC. This updated strategy reflects accomplishments made by CAREC since 2008, changes in the energy sectors of the CAREC member countries, and current trends in the energy sector in the region, and globally. The strategy has been drafted based on guidance provided by CAREC member countries at June 2015 Senior  Officials Meeting (SOM) in Bangkok, Thailand. It seeks to enable the development of solutions to meet future energy demand and to promote development of sustainable energy resources  for the region, and for export, by cultivating the potential for mutually beneficial gains among participating countries.

1. Long-Term Vision for the Sector

1. The long-term vision for the region’s energy sector is to ensure: (a) energy security through the balanced development of the region’s energy infrastructure and institutions, (b) stronger integration of the region’s energy markets to ensure that all physical and juridical persons have access to adequate volumes of commercial energy that is reliable, affordable, financially sustainable and environmentally sound; and (c) economic growth through energy trade.

1. Strategic Approach to Regional Cooperation

1. Regional energy cooperation is driven by the need to overcome the impact of uneven distribution of energy resources among the CAREC countries by increasing integration of the energy markets, optimizing existing energy interrelationships, and  achieving  least-cost solutions to energy constraints.

1. There are also external drivers for regional energy cooperation. These drivers include new energy markets in eastern and southern China, Pakistan, India and Iran, and new  strategic transit opportunities for oil and gas through Turkey, Georgia, and Russia, which are supported by strong interest from Chinese, Russian and other investors. Rising global energy prices also enhance the attractiveness of the large hydropower project options in Kyrgyzstan and Tajikistan. Regional energy cooperation is especially important for these projects as they are of interest to all countries situated along trans-boundary watercourses.

1. Regional  energy cooperation  will  be  advanced  through developing  market relations, transit arrangements, investments, agreements to jointly utilize infrastructure, knowledge- sharing, and joint use and protection of trans-border rivers and sea-bed resources.

Principles for regional cooperation

1. Regional energy cooperation will be promoted in good faith and in observance of the following principles:

1. Sustained political will for reforms and cooperation;
   1. Bilateralism and multilateralism;
   2. Mutual benefits for all;
   3. Gradualism, voluntarism, and consensus;
   4. Prudent, marginal and diversified dependence on outside energy resources to maintain adequate energy security;
   5. Mutually compatible regulatory arrangements based on evolving experience, including specific legal and regulatory framework for each cooperation venture based on international cooperation practices;
   6. Pursuit of sector reforms, governance and operations conducive to regional cooperation on a commercial basis;
      1. Adherence to adequate level of transparency and disclosure standards:
      2. Respect for environment through collective action with regards to clean energy, transboundary watercourses; climate change and littoral space;
      3. Fair and rational use of natural resources, including transboundary watercourses, and minerals, and
         1. Consideration of the concerns of the neighboring countries.

Benefits from regional cooperation

1. The participating countries will pursue benefits from developing new energy market opportunities, receiving transit revenues and achieving least-cost development solutions through a rational sharing of resources.

1. In this context, the participating countries look forward to evolving medium-to long-term inter-relationships resulting in:

1. Access to energy export markets and revenues to support export-led growth   for states with sufficient resources to export energy, including electricity, oil, gas, and coal. Azerbaijan, Kazakhstan, and Uzbekistan could benefit from the export of hydrocarbons and electricity generated by thermal resources, while  the Kyrgyz Republic and Tajikistan could benefit from exporting electricity from hydropower resources;
2. Revenue for transit countries such as Afghanistan and Mongolia, from transit and transmission fees. Mongolia has the potential to become an alternative energy transit route between Russia and China and an exporter of coal, and possibly electricity, to China;
3. China increasing imports from the region, including oil and natural gas from Kazakhstan, natural gas from Uzbekistan and Turkmenistan, and coal from Mongolia
4. Azerbaijan trading larger volumes of power with Russia, Turkey (via Georgia), and Iran; and
5. Central Asian countries exporting power and natural gas to South Asia (see Appendix 2).

Technology adoption and sustainable energy

1. The strategic approach for 2016–2020 will emphasize the adoption and use of new electricity sector technologies that have undergone dramatic advances and dramatic cost reductions since the 2008 Strategy. The new technologies include renewable energy technologies (for example, solar power with storage), and energy efficient lighting and appliances, and advanced metering technology.

1. Strategic Components and Priorities

1. This strategy describes how the long-term vision for the energy sector will be achieved through three components to the strategy: Investment measures, capacity building and knowledge-sharing, and support for effective policy environments. The first component will  drive economically and financially sound domestic and cross-border investment measures, which take into account the interests of all states in the region. The second component, Capacity building and knowledge-sharing measures will facilitate the identification and implementation of such investment projects. Lastly, there will be efforts to support the development and maintenance of effective policy environments to ensure the sustainability of such investments, and the attraction of private sector financing for investments.

1. Experience since approval of the previous Strategy has helped shape priorities for the future. Much of the 2008 Strategy remains relevant but several priorities will shape the actions of CAREC members in the short- and medium-term. Figure 1 summarizes the strategic components as well as the thematic priorities under each strategic component. It also shows how the thematic priorities correspond to the elements in the Energy Work Plan for 2016-2020 (EWP) contained in Appendix A. The thematic priorities are discussed in more detail in the subsections below. They were decided at the June 2015 Senior Officials Meeting (SOM) in Bangkok, Thailand.

Figure 1. Strategic Components, Thematic Priorities and EWP Elements

 Note: The corresponding element in the Energy Work Plan, is described as E.[element number]. For example, element one is indicated as “E.1”

Investment measures for regional cooperation

1. Investment in domestic and cross-border energy infrastructure is critical to achieving CAREC’s vision of better energy security, stronger regional integration, and economic growth through energy trade. Specifically, investment measures should prioritize clean energy technologies, including renewable energy and energy efficiency, and development of cross- border transmission infrastructure.

1. Domestic investments will focus on energy efficiency and clean energy. Energy efficiency investments will improve efficiency in energy production, transportation, distribution and energy use. Investments will cover areas such as: (i) loss reduction; (ii)  asset  rehabilitation; (iii) least-cost system expansion and operation; (iv) introduction of appropriate heating options; (v) commercialization of energy operations (investments in  metering  and billing systems, for example); and (vi) upgrades to end-use equipment, facilities and buildings (including other demand side management measures). Clean energy investments will include aspects such as: (i) introduction of retrofits for pollution mitigation; (ii) reduction of fuel resources used per unit of goods produced; (iii) elimination of gas flaring; and (iv) development of alternative and renewable energy sources.

1. Cross-border investments will focus on production of ecologically clean energy and energy trade, and will be pursued with mutual agreement among all relevant parties in the following key areas: (i) cross border energy transmission; (ii) production for export; (iii) development  of  energy resources on a joint/cooperative  basis respecting  the  environmental protection laws of relevant states; (iv) physical integration of energy markets; (v) development  of projects under the Green Climate Fund and other climate investment funds; and (vi) investment to access energy resources abroad.

Capacity building and knowledge sharing

1. Capacity building and knowledge-sharing activities are important for increasing institutional capacity, which is important for the identification, implementation, and sustainability of physical investments over time. This component of the Strategy will be achieved through an exchange of knowledge and experience, both among participating countries and with recognized international sources of best practices. Capacity building and knowledge-sharing activities will prioritize the knowledge areas of energy trade, clean energy technologies, and climate change mitigation.

1. Capacity building and knowledge-sharing focusing on energy trade will focus on trade- related issues including negotiations, contracting (power purchase, power wheeling and transmission services) and regional dispatch and system control. Activities related to capacity building and knowledge-sharing for clean energy technologies will have two primary areas of emphasis: renewable energy and energy efficiency. Renewable energy activities will focus on resource surveys, and devising promotional and incentive arrangements. Energy efficiency activities, including Demand Side Management (DSM) and energy conservation, will focus on integrated resource planning, energy service companies and financing mechanisms. Climate change mitigation capacity building and knowledge-sharing will include, inter alia, discussions on riparian issues, with a focus on international experience in trans-boundary  river management and protection.

Policy support

1. Policy Support, the third component of the Strategy, is critical to attracting and ensuring the sustainability of investments and regional trade agreements. Under this component, CAREC will support measures that lead to a sound and appropriate policy environments. Specifically, CAREC will prioritize support for tariff, renewable energy, energy efficiency, and transmission third party access policies.

1. Policy support for renewable energy and energy efficiency will aim to increase uptake  of clean energy technologies in the region. CAREC will pursue renewable energy investment options, complemented by international incentives offered through the Green Climate fund and other climate investment funds. In order to ensure a level playing field between renewables   and conventional commercial energy, CAREC will also explore the possibility of minimizing the subsidies to conventional energy. Support for energy efficiency policies will aim to incentivize rational and economic use and trade of energy resources, introduce advanced technology and infrastructure and improve the financial viability of energy utilities. Operations under the Green Climate fund and other climate investment funds will also contribute to support for energy efficiency initiatives in the participating countries.

1. Policy support for cross-border energy trade will focus primarily on:

1. Third country access to regional transmission systems. Countries not directly connected  to  the  East-Central-South  Asia  Regional  Electricity  Market    (E-CASAREM) should have opportunity to sell into the market

1. Public Private Partnership (PPP) arrangements. Fiscal constraints in the region mean that much investment will need to be financed by private investors. Attracting private financing in power generation and transmission requires improvements in the still nascent legal and regulatory environment for PPPs.
2. Cooperation in using trans-boundary watercourses. Opportunities for cooperation in use of trans-boundary watercourses will be explored for the potential benefits offered in managing water resources, mitigating climate change, and generating power.

1. Strategy Implementation and Monitoring

1. This strategy will be implemented through the Energy Work Plan (EWP) for 2016–2020, included in Appendix A. The elements of the EWP were discussed at the Energy Sector Coordinating Committee working group meetings in March 2015 and at the SOM meeting in June 2015.

1. Achievements in the energy sector are currently measured through five indicators, intended to capture the contribution of CAREC’s physical infrastructure expansion and rehabilitation operations to energy security, energy efficiency, and the CAREC region’s ability  to enhance power trade as a result of completed projects. The indicators were first assessed in 2013, and they are expected to be evaluated annually in the CAREC Development Effectiveness Review (DEfR) process. In addition, seven new indicators were proposed during the September 2015 SOM meeting. Detailed descriptions of each indicator can be found in Appendix A. The energy sector output indicators and the energy sector results framework are presented in the following tables:

Table 1. Energy Sector Output Indicators

Projected

* Based on data received from AFG, KAZ, MON, PAK and UZB, as of 11 September 2015.

Table 2: New Energy Sector Output Indicators

* Targets will not be set initially for these indicators. The ESCC will instead monitor progress against these indicators in the coming years and decide whether targets should be set at some time in the future.

* Targets will not be set initially for these indicators. The ESCC will instead monitor progress against these indicators in the coming years and decide whether targets should be set at some time in the future.

1. The indicators will continue to be compiled for each country in the format given in Table 1 above, on the basis of official information to be given by each country and information from other sources. A regional table will be prepared on the basis of the country tables. It is recognized that reporting data for the indicators will be voluntary on the basis of best national efforts.

Annex: Energy Sector Coordinating Committee Work Plan: 2016–2020

1. Introduction

1. The Central Asia Regional Economic Cooperation (CAREC) Program is a partnership  of 10 countries and six multilateral development partners, which uses regional cooperation to promote economic growth and poverty reduction. The program facilitates practical, results- based regional projects, and policy initiatives critical to trade expansion and sustainable development. The Strategic Framework for the CAREC Program for 2011 to 2020 (CAREC 2020), which was endorsed at the 10th Ministerial Conference in November 2011, guides the CAREC program for the period until 2020 and highlights the need to accelerate progress  across core business areas, including the energy sector.

1. The Institutional framework of CAREC guides and strengthens the partnership in planning, prioritization, and implementation of all aspects of the Program. There are three principal levels of the governing structure of CAREC: the Ministerial Conference (MC), the Senior Officials’ Meeting (SOM) and the four CAREC priority areas, which are transport, trade facilitation, trade policy, and energy. Figure 2 shows the relationship between and the function  of each level of the governing structure.

Figure 2. Institutional Framework of CAREC

1. A number of strategy documents define the framework for the activities of the CAREC Program in the energy sector:

1. The Strategy for Regional Cooperation in the Energy Sector of CAREC Countries (―Energy Strategy‖), which was approved in November  of  2008, is  the flagship document defining the energy sector objectives of CAREC. The Energy Strategy provides direction for the development of the energy sector in the CAREC countries and helps crystallize the CAREC visions of energy security, energy market integration, and energy trade-driven growth.

1. In October of 2009, the Eighth Ministerial Conference (MC) endorsed an  Energy Action Plan (EAP) Framework, which laid the foundation for the coordinated and effective development of the regional energy sector, through the prioritization of investments in Central Asia, and attention to key aspects of regional coordination of trade and to energy-water synergies. The first Energy Work Plan (EWP) for the period from 2013 to 2015 was the successor to the EAP and aimed to be a mechanism to facilitate the step-by-step realization of CAREC projects and programs in the energy sector. The 2013–2015 EWP is anchored in CAREC 2020 and the Energy Strategy, which together provide the basis for determining future priorities, and for tracking progress against the vision and targets in the sector.

1. This 2016–2020 EWP is a continuation of the first EWP for the period from 2013 to 2015, and is intended to guide CAREC activities in the energy sector until the end of the decade. Figure 3 shows the relationship between each of the policy documents governing the activities of the CAREC Program in the energy sector.

Figure 3. CAREC Energy Sector Strategy Documents

1. The remainder of this document is structured as follows: Section II describes the regional energy sector context in which the EWP was developed; Section III presents the results of the 2013–2015 EWP; and Section IV describes the elements and planned activities under the 2016–2020 EWP.

1. Regional Energy Sector Context

1. During the Soviet era, the energy system of the Central Asian Republics (CARs) was designed to take advantage of regional endowment of diverse energy resources. The CARs were interconnected to some extent by gas supply network and to a lesser extent by oil pipelines. The electrical interconnection, through the 500kV Central Asian Power System (CAPS), was the backbone of this energy exchange arrangement. Regional cooperation in the power sector mixed the thermal-based power systems of Kazakhstan, Turkmenistan, and Uzbekistan systems with the hydro-based systems of Tajikistan and the Kyrgyz Republic. Tajikistan and the Kyrgyz Republic exported energy during the summer when their ability to produce hydropower was at a maximum, and imported energy during winter when they were in energy deficit. The Tajikistan and Kyrgyz Republic water releases were coordinated to meet  the irrigation needs in the downstream countries.

1. Regional power trade collapsed in the early 1990s, from 25 TWh in 1990 to 3.4 TWh in 2011, as a result of the collapse of the Soviet Union, profoundly impacting the CARs. Water storage limitations resulted in frequent summer spillage in Tajikistan, yet both Tajikistan and  the Kyrgyz Republic face winter energy deficits because of demand growth, disconnection from CAPS, and reduction in gas imports. In recent years poor hydrologic conditions have made the winter energy deficit more pronounced, with the winter of 2007-2008 being particularly severe. Consequently, Kazakhstan, Uzbekistan and Turkmenistan are forced to generate electricity using expensive fossil fuels, such as natural gas coal and oil, instead of importing inexpensive surplus electricity generated from hydropower in neighboring countries; upstream countries are compelled to develop more expensive local resources to compensate for lack of winter generation from hydropower.

1. Operation and maintenance of the CAPS system is the responsibility of the Coordination and Dispatch Center (CDC) located in Tashkent, Uzbekistan. Turkmenistan withdrew from CAPS in 2003 and is now interconnected with Iran’s power system. Turkmenistan continued, for a time, to export to CAR countries from islanded power plants, but stopped doing so in 2009. Turkmenistan, Uzbekistan and Tajikistan export power to Afghanistan, which is also interested in joining CAPS and wishes to meet a part of its growing demand with imports from CAR countries. Energy trading is currently conducted on the basis   of bilateral arrangements, but these arrangements face constraints stemming from physical infrastructure limitations, political, and commercial barriers. CAREC’s vision and strategy for  the region’s energy sector, established in the Energy Strategy, was formulated to address  these problems.

1. Central Asian countries also face common challenges in their respective energy sectors, largely as a result of their shared history. Many difficulties that Central Asian countries face in managing domestic energy networks and regional linkages are rooted in energy and irrigation infrastructure systems inherited from the Soviet Union era. Poor infrastructure maintenance and divergent priorities within individual countries have further aggravated the situation. Work under the CAREC program has aimed to help countries find solutions to these national-level problems as well as to further develop regional power integration.

1. Progress of the Energy Work Plan for 2013–2015

1. The Energy Work Plan (EWP) provides a roadmap for CAREC activities in the energy sector based on the Energy Strategy and CAREC 2020. The EWP introduced six key elements of energy sector development: i) Developing the Central Asia-South Asia Corridor, ii) Resolving regional energy dispatch and trade issues, iii) Managing energy-water linkages, iv) Mobilizing funds for building energy assets, v) Implementation of energy sector priority projects, and vi) Capacity building and knowledge management. The progress and remaining issues of  EWP  for 2013-2015 are the basis for the EWP for 2016 to 2020.

1. Within the framework of EWP 2013–2015, achievements in the energy sector are measured through five indicators, intended to capture the contribution of CAREC’s physical infrastructure expansion and rehabilitation operations to energy security, energy efficiency, and the  CAREC region’s  ability to  enhance power  trade  as  a result  of  completed  projects. The energy sector output indicators are: installed or upgraded transmission lines (km), increased energy generation capacity (MW), rehabilitated generation capacity (MW), new substations (MVA), and upgraded substations (MVA). The indicators were first assessed in 2013. They are expected to be evaluated annually in the CAREC Development Effectiveness Review (DEfR) process; however, the indicators have not been reassessed since 2013 because sufficient data have not been provided from member countries. Provision of sufficient data that are also aligned among member countries remains an issue for the next EWP.

1. The remainder of this section describes progress made on each element under the 2013–2015 EWP.

Element 1: Developing the East-Central-South Asia Corridor

1. Central Asia enjoys abundant energy resources; however, the resources are not of the same nature nor are they evenly distributed. For instance, Kazakhstan has large oil and coal reserves, Uzbekistan and Turkmenistan have sizeable gas reserves, and Kyrgyz Republic and Tajikistan have substantial hydro power resources. This uneven distribution of resources justifies and qualifies regional cooperation. Given adequate regional cooperation, each country can import and export the most appropriate energy form at the appropriate time to mutual advantage, and differences in energy services can be optimally combined to reduce costs and mitigate supply risks. The objective of this element is to increase energy security, energy efficiency and trade by optimizing integrated transmission and generation infrastructure expansion.

1. The CAREC Energy Strategy identifies five potential energy corridors in Central Asia in need of investment: (i) Central Asia- East Asia; (ii) Central Asia-South Asia; (iii) Intra-Central Asia; (iv) Central Asia-Russian Federation; and (v) Central Asia-European Union. Given the very large combined power infrastructure needs of these sub-regions, the energy corridors needed to be prioritized. To do so, each corridor was ranked across the three key themes that were outlined in the EAP: (a) energy demand and supply balance and  infrastructure  constraints; (b) regional dispatch and regulatory development; and (c) energy- water linkage. The Central Asia-South Asia Corridor was identified as one of the two regions with the highest need and potential for integration. The other region was Intra-Central Asia, which is also critical to the development of the Central-South Asia corridor.

1. Various cross-border projects and programs aimed at increasing energy trade between Central Asia and East and South Asia are being implemented, or are under  active  consideration by CAREC member countries and multilateral institutions. Infrastructure development projects under implementation are the TAPI (Turkmenistan-Afghanistan- Pakistan-India) gas pipeline project, the CASA-1000 power transmission project, and the TUTAP (Turkmenistan-Uzbekistan-Tajikistan-Afghanistan-Pakistan)  power  transmission project. In addition, the East Asian Super Grid Project is currently under consideration.

1. The TAPI gas pipeline is a proposed 1,800 kilometer pipeline which will run from Turkmenistan to Afghanistan, Pakistan and India and is expected  to export up to 33 billion cubic meters of natural gas per year.
2. The CASA-1000 power transmission line is the first phase of the East-Central- South Asia Regional Electricity Market (E-CASAREM) development program, which envisions the creation of a shared power market among the countries of East, Central and South Asia. The line is expected to support up to 1,300  MW of clean electricity trade between Central Asia and South Asia.

1. The TUTAP power transmission project intends to use existing and planned assets in Afghanistan to connect Turkmenistan, Uzbekistan, Tajikistan and Pakistan to the Afghanistan power grid.
2. The East Asia Super Grid Project envisions connecting the power systems of Mongolia, Russia, China, South Korea, Japan, and possibly North Korea.
3. Table 3 describes achievements of each initiative under the 2013 to 2015 EWP.

Table 3: Achievements under 2013-2015 EWP: Element 1

1. All current power infrastructure development projects planned under CAREC transit through Afghanistan. An addendum to the Afghan Power Sector Master Plan was conducted under the 2013–2015 EWP to evaluate concerns about the impact of these projects on the Afghanistan power system configuration. The addendum considered the impact of CASA-1000 on future development needs of Afghanistan, including the impact of the delayed Turkmenistan interconnection, the Tajikistan-Afghanistan rating corrected to 600 MW, and options for Afghanistan to synchronize with neighboring countries. It also considered the impact of interconnection with Turkmenistan, a correction to the capacity rating of Tajikistan-Afghanistan line, and the options for Afghanistan to synchronize with neighboring countries. The findings of the addendum concluded that TUTAP and CASA-1000 complement each other, resulting in higher financial returns. Figure 4 shows the planned routes of the CASA-1000 and the TUTAP transmission lines.

Figure 4. Planned Power Transmission Line Routes: CASA-1000 (left) and TUTAP (right)

 Source: ADB, ―Central Asia-•‐South Asia Regional Energy Trade,‖ Regional Energy Trade Workshop, Manila, 8 September 2014.

Element 2: Resolving Regional Energy Dispatch and Trade Issues

1. There are strong power transmission networks in Central Asia, constituting approximately 1,600 km of 500 kV lines and 1,400 km of 220 kV lines.  This  network  is operated by the Coordinating Dispatcher Center for energy (CDC) in Tashkent, which controls and monitors the demand-supply balance, power voltage, and frequency. CDC is a nongovernment, noncommercial organization working under the apex power council, which is made up of heads of power utilities/ transmission companies of Kazakhstan, Kyrgyz Republic, Tajikistan and Uzbekistan.

1. Adequate utilization of an extensive transmission network like CAPS depends on development of facilities to dispatch and coordinate power flows, and a proper regulatory and institutional system to manage and maximize benefits to participants. The facilities at CDC are old and in need of significant investment to bring them up to par with modern control and dispatch centers. Kazakhstan has already initiated steps to modernize its national control  center and its nine regional control centers. Similar investments may also be needed in the national dispatch centers of all the member countries. To complement these facilities, institutional systems to regulate and manage the system through a central entity (having confidence of all the players) would be required.

1. The objective of this element of the EWP is to maximize the benefits of a unified CAPS operation. This entails moving towards the integrated planning of the transmission system on a regional basis, developing institutional capacity, and enhancing the role of CDC and national dispatch centers.

1. Multiple studies and events aimed at resolving regional energy dispatch and trade issues were completed under the 2013-2015 EWP. These activities are summarized in Table 4 below.

Table 4: Achievements under 2013-2015 EWP: Element 2

Element 3: Managing Energy-Water Linkages

1. Hydropower resources concentrated in the upstream republics of the Kyrgyz Republic and Tajikistan provide important energy services and complement other energy sources available in the rest of the region. However, given large existing and potential water storage capacity of hydropower projects, the role of the hydro resources extends beyond power generation. Other sectors such as drinking water and irrigation in both upstream and downstream countries are affected. Agriculture, the mainstay of several economies in the region, requires irrigation water during summer season. However, countries with large hydro potential (and extreme cold climates) have the ability to store water in summer in order to generate power to meet domestic needs for heating and lighting deficits in the winter.  Decisions in the management of water extend even beyond these direct uses, with both domestic and regional implications for water quality, climate change mitigation and adaptation, ecological protection and even water quantity through evapotranspiration.

1. Water management, especially in the face of climate change, also links back to  energy security and system stability through the annual and year-over-year management of reservoirs for ancillary services such as power frequency regulation and reserve capacity. The objective  of this element is to strengthen regional cooperation by integrating energy and water analysis. This analysis will improve understanding of water-energy linkages and enable decision makers to query options and investments applying to both energy and water sectors. This work does  not encompass decision-making on water or energy sharing agreements. Institutionally, the energy-water analytical framework creates a focal point for dialogue based on a widely accepted, credible, and understood characterization of each sector, and their co-  dependencies.

1. Various studies and training activities aimed at improving the capacity to manage Central Asia’s energy-water linkages were completed under the 2013 to 2015 EWP. Table 5 summarizes these activities.

Table 5: Achievements under 2013-2015 EWP: Element 4

Element 4: Mobilizing Funds for Building Energy Assets

1. There is a substantial need to investment in energy assets in the CAREC region. The Regional Power Sector Master Plan (RPMP) estimates that a total of USD 35 billion is required to be invested in Central Asia Power systems of Kazakhstan, the Kyrgyz Republic, Tajikistan and Uzbekistan, from 2013 to 2022. The Power Sector Master Plan for Afghanistan estimates   a need for investment of USD 10 billion in the Afghan power sector from 2013 to 2032 (see Figure 5). However, these economies may not be able mobilize such investment requirements considering their current GDP and growth rate. For example, the average investment required for Kyrgyz Republic is almost 10% of its GDP. The limitation of national budgets and domestic capital markets in the CAREC countries necessitate practical investment  mobilization strategies.

Figure 5. Estimated Investment Required for Priority Project, by Country (2013-2022)

Source: ADB, ―Central Asia Regional Economic Cooperation: Power Sector Regional Master Plan,‖ 2012.

*Estimated investment needs for Afghanistan are based on the AFG Power Sector Master Plan and encompass the period from 2013-2032

1. The October 2013 CAREC SOM endorsed ADB’s proposed technical assistance (TA) to develop the CAREC Power Sector Financing Roadmap for CAREC member countries.  The TA aims to assess the capacity and willingness of CAREC countries to finance power infrastructure from their own resources, and from other potential sources of financing, for both national and cross-border projects. The project concept was approved and funding of US$1.5 million was sourced from ADB and the People’s Republic of China. The TA was approved in September 2014, and CAREC members have now been informed of the required inputs from countries for TA implementation.

Consultants to prepare the Financing Roadmap have been engaged and are currently making progress in completing the study. To date, the consultants have assessed,  inter alia, regional power sector investment and development plans, legal and institutional frameworks, and financing sources for power projects and potential power sector PPP projects.  The study is expected to be completed by early 2016.

Element 5: Implementation of Energy Sector Priority Projects

1. As described above, there is a considerable need to infrastructure investments in the energy sector of Central Asia. The CAREC Energy Secretariat has been preparing and updating a medium-term priority projects list for the energy sector since 2011.  The  consolidated list of priority projects is compiled using inputs from CAREC member countries. Projects included on the list are required to follow the following criteria:

1. Projects located in CAREC countries with grids interconnected with other CAREC countries;
2. With financing to be approved in 2013–2015; and
   1. Involving rehabilitation or installation of new generation (50 MW or above) or high voltage transmission (220 kV or above) assets.

1. Each member country has compiled the list of medium-term priority projects based on 10-year (2013–2022) national investment plans. Required investment for the priority projects is estimated to be USD 45.8 billion (see Figure 5), with nearly 75 percent of priority investments   in Kazakhstan, the Kyrgyz Republic, Tajikistan and Uzbekistan being for construction of new generation capacity to meet domestic demand. Figure 5 shows types of priority investments identified in the Regional Power Sector Master Plan.

Figure 6. Estimated Investment in CAPS, by Investment Type (2013-2022)

Source: ADB, ―Central Asia Regional Economic Cooperation: Power Sector Regional Master Plan‖ 2012. (Table 9.3-1 Summary Investment Costs)

Element 6: Capacity Building and Knowledge Management

1. Capacity building and knowledge-management are crucial for increasing institutional competence, which is important for, inter alia, the identification, implementation, and sustainability of physical investments over time. The objective of this element is to encourage information dissemination, sharing of best practices, and strengthening of institutional capacity.

1. The 2013 to 2015 EWP aimed to close the capacity gap in the CAREC countries  through a number of capacity-building opportunities. Table 6 describes capacity building and knowledge management activities, workshops and seminars implemented under CAREC since 2013. A more detailed list of capacity building and knowledge sharing activities can be found in Appendix A.

Table 6: Achievements under 2013–2015 EWP: Element 6

1. Energy Work Plan for 2016–2020

1. The Energy Work Plan for 2016-2020 has been developed taking into consideration progress under the 2013–2015 EWP as well as the current priorities and challenges of CAREC countries.

1. Before the March 2015 ESCC meeting, CAREC member countries shared with the CAREC secretariat the priorities and challenges they have in their respective energy sectors. The top priorities reported by CAREC countries were adding new generation, transmission and distribution  capacity  and  rehabilitating  existing  assets.  Other  commonly  reported priorities include implementing legal and regulatory reforms, increasing renewable energy generation  and improving sector management through capacity building. Most of the challenges reported by the CAREC countries were related to problems resulting from, or contributing to, aging infrastructure. Countries reported concerns about energy security and reliability, energy  intensity resulting from high losses and inefficient generation and the inability to obtain funding for new assets or rehabilitation of existing assets. Countries also expressed that insufficient human resource and management capacity was an additional challenge in their respective energy sectors. Table 7 and Table 8, respectively, show the priorities and challenges identified by the CAREC countries.

Table 7. Common Energy Sector Priorities among CAREC Countries

Table 8. Common Energy Sector Challenges among CAREC Countries

1. The elements of the 2016–2020 EWP have been adapted from the 2013–2015 EWP. Revisions to the elements include minor changes to the language of Element 2 to better reflect activities under the element, combination of Elements 4 and 5 into a single Element, and addition of an element for the promotion of clean energy technologies. Figure 6 demonstrates the changes to the EWP elements that have been made in the 2016–2020 EWP.1

1 Changes to the EWP elements were agreed upon at the 19th CAREC ESCC meeting held from 30–31 March 30-312015 in Ulaanbaatar, Mongolia.

Figure 6. Changes to the Elements of the Energy Work Plan

Element 1: Developing the East-Central-South Asia corridor

1. Activities under element one, Developing the East-Central-South Asia corridor, will continue the work began under the 2013-2015 EWP. As described earlier, there are a number of cross-border energy infrastructure projects under implementation in the CAREC region. These projects are: i) the TAPI gas pipeline, ii) the CASA-1000 power transmission line, and iii) the TUTAP power transmission project. Implementation of these projects will continue under  the 2016–2020 EWP.

1. i) TAPI gas pipeline: The Steering Committee for the TAPI pipeline hopes to begin construction on the project in 2015; however a consortium leader must be selected before this can occur. A consortium leader was expected to be named after the February 2015 meeting of the TAPI steering committee; however this announcement has since been delayed. It is now estimated that a selection will be made by the end of 2015. Pending the selection of a consortium leader, the pipeline could be operational by 2018.2

1. ii) CASA-1000: During the 2016-2020 EWP, the CASA-100 project will continue work to secure remaining financing for the project, finalize operational agreements, develop ―open

2 Tanchum, Micha’el, ―A Breakthrough on the TAPI Pipeline?‖, The Diplomat, 20 March 2015. http://thediplomat.com/2015/03/a-breakthrough-on-the-tapi-pipeline/

access‖ arrangements, procure equipment and construct the line. Completion of the CASA- 1000 project is scheduled for the winter of 2017–2018.

1. The remaining financing gap of 25% (approx. US $300 million) is anticipated to be filled through financing from the Islamic Development Bank, the European Bank for Reconstruction and Development, other bilateral sources and additional World Bank funds.
2. The Power Purchase Agreement, Master Agreement and Coordination Agreement for the project have been largely agreed and are expected to be signed by mid-2015.
3. Development of "open access" rules and procedures to manage and facilitate the use of spare capacity of the CASA-1000 transmission system is underway and will be finalized during the 2016-2020 EWP.
4. Legal, procurement and finance committees for the CASA-1000 project have begun implementation of the project. Procurement of converter stations and operator for the CASA-1000 project;  High  Voltage  DC  line  for  Afghanistan and Owners’ engineers are progressing.

1. iii) TUTAP: Implementation of the TUTAP project is underway, and will continue progressing during the 2016-2020 EWP. The 220kV connections from  Tajikistan  to Afghanistan and Uzbekistan to Afghanistan exist and are currently supplying the Afghanistan network. In addition, implementation of the Turkmenistan-Afghanistan 500 kV interconnection, which will initially operate at 220 kV, has begun. The Turkmenistan component of the line is under construction and is estimated to be completed in 2019. Bids for the Afghanistan component of the line are under evaluation, and contracts are expected to be awarded by  2016. Within Afghanistan, ADB is preparing a 500-kV transmission line project from  Sheberghan to Pule Khumri (200 kM) including a 300 MW back to back  HVDC  converter station at Pule Khumri. The project will bridge the missing 500-kV link in northern Afghanistan  to extend the ADB-assisted 500-kV power interconnection from Turkmenistan to Kabul and provide 1,000 MW additional transmission capacity. The project is expected to be considered  by ADB Board in Q4 of 2015.
   1. iv) East Asia Super Grid: The ADB has proposed technical assistance to support the development of the East Asia Super grid, which will be part of  E-CASAREM.  Financing of US$1.75 million is being processed for the support of this project.

Element 2: Promoting Regional Electricity Trade and Harmonization

1. Activities under the second Element will be a continuation of work began under the  2013 to 2015 EWP. The Study on Regional Power Trade Development in Central Asia which will help promote power trade in Central Asia (CA) will continue being carried out during the 2016-2020 EWP, with financial support from the World Bank. The study will  evaluate  the current condition of the power market models, pricing rules, and tariff regulation mechanisms in the power sector. It will also analyze existing power sector agreements among  the Central Asian countries, including international infrastructure projects and trans-boundary trade mechanisms, and examine international best practice for establishing power markets. The  study will build on the results of the 2010 study on regional trade completed by Mercados and the 2012 Regional Power Sector Master Plan completed by Fichtner.

1. The consultants engaged by the World Bank will continue preparing the study during  the 2016-2020 EWP, with the support of the Working Group on regional market  arrangements. The consultants are expected to present a finalized model and a set of hypotheses to the Working Group in September 2015. Subsequently, they will complete the relevant modeling and prepare a study report by end November 2015.  During the  20th ESCC, the Central Asian countries were requested to expediently share the missing information on their respective power sectors with the consultants.

Element 3: Managing Energy-Water Linkages

1. A regional study on Energy Vulnerability to Climate Change began under the 2013 to 2015 EWP and is expected to be complete by December 2015. This study aims to support Central Asian countries in understanding climate change-induced energy sector vulnerabilities and building resilience to these vulnerabilities through the development of coordinated adaptation policies. The study will run hydrologic and economic models, which are specific to Central Asia and are thus well suited to articulate changes in the components of water flow (glacier melt, snow, and precipitation) and provide insight into energy sector adaptation  policies. Using the models and other resources, the study will consolidate a vulnerability assessment of the impacts, risks and adaptive capacity of the energy sector. The results of assessment will provide guidance for decision-makers on options for investments in and management of power generation, transmission, and distribution assets, with a focus on challenges and opportunities for effective regional coordination of climate change adaptation.

1. Discussions will also continue on the possibility of establishing a working group to deal with water resource management issues. The working group would be composed of both water and energy experts from the countries in Central Asia. Its purpose of the working group will be to expose officials in CAREC member countries to principles of good practice in managing cross-border hydro resources.

Element 4: Mobilizing Financing for Priority Projects

1. The ESCC Secretariat has been consolidating and annually updating inputs from CAREC member countries to come up with a list of priority energy projects. This list will be compiled and regularly updated, based on the national investment plans of the member countries.

1. Work has begun on the Power Sector Financing Roadmap and will  be  completed during the 2016–2020 EWP. The Roadmap aims to examine potential sources of financing for power sector development in CAREC countries, covering both national and cross-border projects, and to identify potential projects that could be developed on a public–private partnership basis. The project will analyze the enabling environment in each country for private investment in the power sector, and identify modalities for financing priority projects.

1. For the projects identified as priority projects in the Power Sector Financing Roadmap, preparation can begin on feasibility studies, business cases, transaction strategies and (eventually) tender documents. This is a natural segue from the work of the consultants on the Power Sector Financing Roadmap. The World Bank and ADB will support the process and where projects are financed by the private sector (as many will be) will explore possibilities of assisting through transaction advisory.

1. In addition, CAREC will continue working to support an enabling environment  for private investment and attract financing for new infrastructure in the region. To this end, an investors’ forum will be held in 2016, coinciding with the ESCC meeting scheduled for the year. For this forum, one-page summaries of various energy data from each country will be developed and made available on the CAREC website as information to potential investors.

Element 5: Capacity Development and Knowledge Management

1. CAREC countries have proposed a number of common capacity building and  knowledge sharing activities for the future, including smart metering, solar power, energy efficiency technologies, demand forecasting, and tariff and regulatory reforms. Four general themes to be highlighted under this element during the 2016–2020 EWP are:

1. Knowledge        Sharing        (smart        meters,        project        management,        independent regulation, tariff policy, forecasting, planning and energy efficiency)
2. Technology Adoption (smart metering, solar power, battery storage, electric vehicles, energy efficiency)
3. Regulatory Issues (framework for independent regulation, tariff setting for time- of-use tariffs, pre-paid meters, IPPs tariffs, and benchmarking)
4. Training (demand management, forecasting, solar power, battery storage, energy efficiency, managing large transmission and distribution projects)

The ESCC will continue striving to ensure coordination of capacity building and knowledge sharing activities. As part of this effort, the ESCC will try to incorporate site visits and country presentation activities in meetings to encourage information dissemination and sharing of best practices among member countries.

1. Under the 2016–2020 EWP, the ESCC will also work to strengthen cooperation with other energy entities such as Energy Charter, International Energy Agency, International Hydropower Association, etc., especially on improving capacity building and knowledge management events for CAREC countries.

Element 6: Promoting and Prioritizing Clean Energy Technologies

1. Three technologies—Lithium-ion batteries, solar power and energy efficient appliances— have made a substantial impact in the energy sector of developed countries in recent years. This has largely been a result of the drastic decrease in the cost of solar power, the cost and weight of lithium-ion batteries, and the energy required to power appliances such as light bulbs, televisions, air conditioners and fans. In addition, these changes have had implications for rural electrification, in some cases making off-grid connection or decentralized grids more economically viable than extension of the main transmission and distribution networks.

1. Market penetration of these and other Clean Energy Technologies could follow in the footsteps of the expansion of mobile phone use, taking more than 10 years to reach the population of developing Asia, unless action is taken to accelerate technology adoption. The objective of Element 6 is to increase awareness of decision makers and opinion leaders about global energy trends and  recent  innovations in clean  energy technologies.  In  addition,  the element aims to promote adoption of new technologies and remove market barriers to take advantage of them.

1. This element will work to accelerate the adoption of new and appropriate technologies  in the region through three activities:

1. Raising awareness about the merits of selected new technologies and the importance of selecting appropriate technologies among key decision makers
2. Supporting planning of member countries by assisting with the development of action plans and projects to capture new opportunities brought about by the new technology.
3. Securing funding from various climate investment funds including the Green Climate Fund to finance large projects either in a country or a range of countries in the region.

1. Specifically, it is proposed that CAREC support new technology adoption during the 2016-2020 EWP through regional Technical Assistance to pilot new technology projects. It is envisioned that such activities could combine small markets and attract investors and companies.
2. Opportunities for clean energy technologies include, inter alia, off-grid and  on-grid power storage solutions, solar power, efficient lighting and appliances, and electric cars. These examples of clean energy technologies have the following benefits:

1. Off-grid and on grid storage solutions to shift peak demand, develop ancillary services and improve supply reliability.
2. Use of solar power can reduce the need for fossil fuel-based power generation to meet day-time peak demand.
3. Efficient lighting and appliances can reduce the evening peak demand, thus delaying the need for investment in additional distribution and transmission capacity.
4. Electric vehicles, in conjunction with solar power where feasible,  can reduce  the overall carbon foot print and improve energy self-sufficiency. 

Appendix A         Description of Energy Sector Output Indicators

4 High voltage is considered to be any transmission line or substation rated 110 kV or higher.

5 Upgrade or rehabilitation are, for the purpose of these indicators, considered to be any capital expenditure in an amount greater than US$500. This threshold is used to distinguish “capital expenditure” and “investment” from expenditure on maintenance.

6 MW net refers to net generation capacity. Net generation capacity is the electrical output of a power plant after deducting consumption of the plant itself (“own use”).

7 Both grid-connected and off-grid generation should be reported for solar and wind.

29

Appendix B        2013–2015 Capacity Building and Knowledge Sharing Activities

Appendix Table I: Capacity Building and Knowledge Sharing Activities, 2013-2015

Appendix B         31 

Appendix C       Existing Interrelationships between CAREC Countries

(Input to this table is requested to member countries in this review process. This table will be updated based on the inputs provided by member countries before the 20th ESCC meeting in September 2015. )

(Input to this table is requested to member countries in this review process. This table will be updated based on the inputs provided by member countries before the 20th ESCC meeting in September 2015. )