International financial institutions continue recommending that Tajikistan raise electricity rates, noting that they are lower than the cost-recovery level. Meanwhile, the government raised electricity rates on average by 15 percent just three months ago.
Different rates
Recall, Tajikistan: Heightened Vulnerabilities, Despite Sustained Growth, a report released by the World Bank on December 28 notes that the Tajik authorities have prioritized energy sector reform given the sector’s strategic importance in ensuring the country’s overall economic development.
However, despite the strategic objectives and policy measures already underway (including an 18 percent increase to average tariffs since October 2016), the sector reportedly remains in financial distress. Although some efficiency improvements have been realized by the energy company, Barqi Tojik (Tajikistan’s national integrated power company), including higher collection rates and a reduction in inventory turnover, the company is still experiencing operational cash shortages due to: 1) below cost-recovery tariffs; 2) low collection rates; and 3) excessive electricity losses.
On the cost-recovery tariffs, the report, in particular, notes that the average tariff is estimated to be at 45 percent of the cost-recovery level. Debt service costs have a significant impact on cost-recovery tariff levels because over 90 percent of long-term and short-term debt is denominated in foreign currency. The depreciation of the somoni in 2017 led to a significant rise in debt servicing costs because Barqi Tojik’s revenues are in somoni; there has been no exchange rate-based tariff adjustment. An additional 12 percent average tariff increase took effect from October 2017.
Concerning low collection rates, the report says the average collection rate for billed electricity reached 86 percent in 2017. However, nearly 10 percent of sales still do not generate revenue for the company.
As far as excessive electricity losses are concerned, the report says losses are believed to be around 17 percent.
The World Bank recommended in 2012 that Tajikistan should gradually raise electricity rates to 3.5 cents for the purpose of encouraging rationalization of electricity consumption; today residential customers pay almost 2.00 cents for 1 one kWh of electricity.
The Tajikistan: Promoting Export Diversification and Growth study released by the Asian Development Bank (ADB) in August 2016 says Tajikistan’s electricity system is strained financially by low tariffs, poor collection, and large receivables from major consumers, including TALCO.
The study notes that Tajikistan’s electricity prices were kept very low until 2007, and while they have gradually increased since then, the prices are still below the cost of supply and remain among the lowest in the world.
According to the study, the lack of provisioning for uninterrupted and sufficient power supply is a critical constraint for growth in Tajikistan. The government therefore needs to focus on maximizing efficiencies at its existing hydropower plants and minimizing transmission losses. On top of this, it needs to rationalize electricity tariffs and subsidies so it can provide electricity to as many productive stakeholders as possible rather than skewing the supply to a few preferred heavy power users, the study says.
A report by the European Bank for Reconstruction and Development (EBRD), Transition Report 2017-18: Sustaining Growth, notes that efforts should be further accelerated to restructure the vertically integrated electricity company Barqi Tojik and rationalize the tariff-setting in the sector.
Cost transparency for electricity generation, transmission and distribution needs to be enhanced, and ultimately the three parts should be unbundled and tariffs adjusted gradually over time, while related social issues need to be addressed, according to the report.
The report also says that securing the completion of CASA-1000 and more transparency in the management of the Roghun project will also be important going forward.
Tajikistan raises electricity rates practically every year. For the last time, Tajikistan raised electricity rates on October 1, 2017.
Current prices for 1 kWh of electricity are 16.85 dirams (15 percent increase) for residential customers, 40.00 dirams for industrial and non-industrial customers, and 16.85 dirams for federally funded institutions, including public utilities and sports complexes,
Electricity rates for pumping stations for mechanized irrigation and repair-and-production bases of the Agency for Land Reclamation and Irrigation under the Government of Tajikistan rose to 5.86 dirams for the period from April 1 to September 30 and to 16.85 dirams for the period from October 1 to March 31.
The price of one KWh of electricity for vertical drainage wells and land reclamation pumping stations was raised to 5.8 dirams.
Electricity rates for electric boilers, hot water supply and heating system rose to 101.54 dirams for non-federal sphere and to 30.13 dirams for federally funded institutions.
Meanwhile, prices for the Tajik Aluminum Plant (TALCO) remained unchanged – 7.20 dirams for period from May 1 to September 30 and 11.80 dirams for the period from October 1 to April 30.
Since 2009, electricity rates for residential customers have risen 80 percent from 6 dirams in 2009 to 16.85 dirams this year.
In the coming three years, the authorities plan to raise electricity rates by another 33.3 percent. According to forecast of the key macroeconomic indicators for 2018-2020 that was endorsed by the government last summer, electricity rates are expected to rise 9.9 percent in 2018, 8.4 percent in 2019 and 15 percent in 2020.
The electricity prices are the lowest but the wage is not so high
The Tajik authorities have repeatedly reiterated that Tajikistan has the lowest energy rates in the world. Thus, in a statement delivered at the joint session of both house sof parliament, President Emomali Rahmon noted on December 22 that an average price of one kWh of electricity for residential customers in the other member nations of the CIS nations is higher than in Tajikistan. For example, in Kazakhstan it is equal to 30 dirams, in Russia – 30-40 dirams, in Belarus – 44-45 dirams, in Uzbekistan – 53-55 dirams, and in Armenia – 80 dirams. In the European countries, an average price of one kWh of electricity for residential customers is even higher, fluctuating from 2.80 somoni to 3.00 somoni. “In Tajikistan, an average price of one kWh of electricity for residential customers is only 17 dirmas,” Rahmon noted.
But the authorities do not take into consideration an average monthly wage in the mentioned countries is higher than in Tajikistan. In Kazakhstan, an average monthly wage is equal to some 500 USD, in Russia – nearly 600 USD, In Belarus – 350 USD, and in Armenia – 320 USD, not to mention monthly wages in the European countries.
In Tajikistan, the current average nominal monthly wage is equal to only 130 USD.
Meanwhile, there ought to proceed from that fact that in Armenia, Belarus, Kazakhstan, Moldova and Uzbekistan electricity is generated mainly by heat power plants, while in Tajikistan, electricity is generated by hydroelectric power plants and the electricity generation cost in Tajikistan is 11 dirams.
Who benefits from electricity price hike?
Some local experts say that it is necessary to raise electricity rates in order to recoup investments made to build hydropower plants and power transmission lines. According to them, the price of one kWh of electricity for residential customers should not be lower than 3 cents.
Meanwhile, economist Khurshed Saidov believes that the current crisis in the energy sector is the result of the purposeful work seeking bankruptcy of Barqi Tojik (the national integrated power company of Tajikistan).
“A certain circle of persons is interested in bankruptcy of Barqi Tojik. Realizing the huge potential of the country’s hydropower sector they want to lay hands on it,” said Saidov. “After restructuring the company will be sold in parts at cheap prices to “necessary people.”
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