Power Shortages in Central Asia’s Lands of Abundant Energy
by robert looney
Photo: mining cryptocurrency in Kazakhstan
bob looney teaches economics at the Naval Postgraduate School in California.
Published April 15, 2022
With global energy demand surging and the invasion of Ukraine sending oil and gas distributors scrambling for supplies, these should be days of wine and roses for countries with energy potential to spare. The “stans” of Central Asia — the ones they made you memorize in geography class — ought to qualify. Kazakhstan has huge fossil fuel reserves, while Kyrgyzstan and Tajikistan possess vast hydropower potential, and both Uzbekistan and Turkmenistan are sitting on major gas reserves. Instead, the region faces episodic energy shortages, already marked by electricity outages.
Why? In part because all five republics inherited the Soviet mentality in which cheap power was treated as a fundamental right. Today, their governments remain stuck on cheap power, believing it contributes to regime stability despite economists’ warnings that it is not sustainable. Further intensifying the problem: a toxic mix of chronic underinvestment, incompetent management and a legacy of corruption. Add new challenges such as climate change and the bizarre entrance of cheap-electricity-hungry “cryptocurrency miners,” and you have a recipe for intermittent but ever-more-serious economic and political crises.
Central Asia Is Special
Central Asia has extreme geography, with Kyrgyzstan and Tajikistan’s high-mountain glacier-fed rivers crucial not only for generating electricity but for irrigating the vast expanses of semi-arid lowland Kazakhstan, Uzbekistan and Turkmenistan. In a region always short of rain and subject to huge variations in seasonal temperatures, climate change models predict major problems early and often.
In 2021, the region was already experiencing crop failures and water shortages as extreme heat combined with drought. That was just a taste of what’s to come. A December 2018 report by the UN’s Expert Working Group on Climate-Related Security Risks suggests average annual temperatures in the region could further rise by as much as 5.7 degrees Celsius by 2085.
Meanwhile in the near-term, climate change will act as a threat multiplier increasing the risks of power failures and associated political instability. Take Kazakhstan. Although it’s the richest of the Central Asian republics thanks to abundant mineral deposits, nearly one-third of its electricity generation facilities are more than 30 years old and ill-equipped to cope with rapidly rising demand.
The vulnerability is already manifest. In July 2019, Almaty, Kazakhstan’s largest metro with a population of 1.8 million, experienced a city-wide blackout due to a heat-related surge in electricity demand.
Climate change is also threatening to sunder the delicate regional bonds based on hydropower. Stalin built an electric grid connecting all the Central Asian republics and making them economically interdependent. Water-rich, mountainous Tajikistan and Kyrgyzstan, whose hydro-generating capacity declines in the winter months, made up the difference by importing power from hydrocarbon-rich lowland Kazakhstan, Uzbekistan and Turkmenistan. In return, the lowland countries received irrigation water during their spring-summer dry season.
This agreement has eroded since independence, with Uzbekistan and Kurdistan pulling out of the grid completely. Tajikistan and Kyrgyzstan have shifted their foci to generating more hydropower in winter by replenishing their reservoirs in summer, thus limiting the release of irrigation water to their lowland neighbors. To replace their agricultural exports and earn badly needed foreign exchange, downstream Kazakhstan, Uzbekistan, and Turkmenistan have begun exporting more oil and gas, primarily to China.
Power outages in Kyrgyzstan have to date been blamed on aging infrastructure; the Tajik government has managed its power instability by denying it exists. But media reports suggest that climate change is already resulting in low water levels at Tajik power dams. In October 2021, power to all of Tajikistan, except the capital and a few regional centers, began to be switched off at night and for approximately eight hours during the day to ration electricity.
Central Asian regional organizations are too weak to successfully mediate highland-lowland conflicts of interest. Uzbekistan’s late strongman Islam Karimov hinted at war over the construction of Tajikistan’s massive Roghun hydropower plant, which threatens irrigation downstreamw. While Karimov’s successor backed down, the conflict festers.
A vicious cycle appears to be underway in which the unrealistically low prices charged to power customers, combined with wretched governance and pervasive corruption, discourage foreign direct investment needed to increase supply.
Spanner in the Works
Further intensifying the regional energy crisis are cryptocurrency miners, who use vast amounts of electricity to solve computer algorithms that generate cryptocurrency. Many of them moved operations to Kazakhstan after neighboring China wisely banned the enterprise in June 2021 as part of a broader effect to curb greenhouse gas emissions.
Kazakhstan now ranks as the world’s second-largest source of cryptocurrency mining after the U.S., with an 18 percent share of global mining. Some 50 miners are officially registered, but many more work illegally. The additional strain on electricity supply comes even as Kazakhstan, 70 percent of whose gigawatts are derived from coal, has committed to net-zero carbon emissions by 2060.
Cryptocurrency mining may be bizarre, but nobody’s laughing in Kazakhstan. Electricity consumption rose by 7.4 percent in the first nine months of 2021, compared to 1 percent to 2 percent in previous years. By January 2022, when a multi-day power outage spread from Kazakhstan to Kyrgyzstan and Uzbekistan, legal crypto mining accounted for 8 percent of all electricity consumption. In response, the government plans to raise the rates legal crypto miners pay for power, while cracking down on unregistered miners believed to be using twice as much electricity — and at low, low rates.
Power outages added to seething discontent over corruption and growing inequality. In January 2022, protests in western Kazakhstan over a sharp rise in the price of liquefied petroleum gas, the condensate from natural gas production widely used as vehicle fuel. The protests led to looting of government buildings and shops in Almaty after rioters overwhelmed the police.
Kazakhstan’s current strongman, worried that his predecessor’s family was staging a comeback, appealed for assistance to the Collective Security Trade Organization, a Putin-run organization whose main function seems to be preservation of autocrats. Russian airborne troops quickly quieted the poorly organized opposition.
There is little reason to believe Central Asia’s energy crisis will be resolved any time soon. Climate change will continue to exacerbate drought, which makes Tajikistan, Kyrgyzstan and, to a lesser extent, Uzbekistan’s focus on hydropower increasingly problematic. The needed upgrades to existing power infrastructure across Central Asia are costly and would take years to complete. Much the same can be said for the nuclear power plants proposed in Uzbekistan and Kazakhstan.
The only sustainable fixes available in the medium term are wind and solar. But renewables require a lot of upfront capital. And private investors are leery of taking big stakes in a region that is internally divided and unaccustomed to paying the real cost of electricity. Not to mention badly governed.
Dark at the End of the Tunnel
Is there any reason for optimism? It’s hard to spot one. A vicious cycle appears to be underway in which the unrealistically low prices charged to power customers, combined with wretched governance and pervasive corruption, discourage foreign direct investment needed to increase supply. This, in turn, can be expected to increase public discontent and make foreigners (including international lending agencies) even more reluctant to invest.
One could argue that other failing economies have dug themselves out of similar traps. India, for example. But India always had underlying strengths ranging from elite higher education, high savingsrates, an affluent diaspora and the advantages that flow from democracy. Central Asia, for its part, remains a pawn in Russia’s heavy-handed game of thrones, with Vladimir Putin as grandmaster. The wine and roses will have to wait.