Topical issues of application of the mechanism of exchange trading to address water-energy problems of Central Asia
Material posted: Grinyaev SergeyPublication date: 28-10-2008

In the Central Asian region there are complex issues providing resources (water, electricity, gas, coal), the key element of which is water. In the USSR the problem of redistribution of resources between the republics of Central Asia and Kazakhstan were solved by administrative methods: set the volume of necessary supplies and appropriate tariffs for resources.

Of course, no one has used market-based instruments, did not talk about fair prices for energy carriers (water is generally considered to be free), but, nevertheless, the problem was solved, based on the need to maintain and improve the overall standard of living in the republics.

After the collapse of the USSR the Republic gained political and economic independence, began to pursue their own economic interests, often at the expense of neighbors.

Most of the effluent water generated in mountain areas of Tajikistan and Kyrgyzstan, are formed in summer. This is very useful for countries located in the downstream areas of the Aral sea basin, primarily Uzbekistan, because most of available opportunities on the water coincide with the vegetative period of agricultural crops.

In the warm season (spring-summer-autumn) when the maximum flow of the rivers of Tajikistan and Kyrgyzstan can produce large amounts of electricity from hydropower. The amount of electricity exceeds the energy needs of these countries in the warm period; so they sell electricity to Uzbekistan, Kazakhstan and Turkmenistan. Because no one else they can't sell, "lower" countries take advantage of the situation by buying electricity at very low prices. Moreover, they pay gas and coal, which are sold to Tajikistan and Kyrgyzstan at prices close to world (for example, in 2007, it is proposed to sell gas at $100 per 1000 m3). Often graphs of energy supplies to the "top" of the country is disturbed, which leads to the fact that in winter the inhabitants of these countries have access to electricity only a few hours a day.

Has created a paradoxical situation: the countries on whose territories the water resources are in a losing situation. The main cause is free water. And this goes on for over 15 years. Essentially the problem is not solved at the level of presidents and governments of the region (i.e. forums, conferences, symposiums, round tables - a lot, but no real result).

From some politicians, scientists and economists to hear that the current impasse is the introduction of market pricing mechanisms for the main resources of the region, including water. But in order for these mechanisms actually work, it is necessary the existence of alternative possibilities in the use of resources, primarily water and electricity.

Thus, to normalize economic situation in Central Asia it is advisable to establish interstate regional companies - international water-energy consortium, substantial financial resources and is able to pursue an independent economic policy.

For the functioning of the international water-energy consortium will need financial instruments of the regional Bank of Development, resource and raw material (commodity) exchange, industry. Mechanisms of functioning of such a system is standard: the company issue shares, conduct the IPO, shares are traded on the stock exchange on the trading result of the supply of electricity, gas, coal, produced the releases of water from reservoirs. To consider in more detail the features of the exchange mechanism (classical market, derivatives market: futures, options, etc.) at the present time is premature. Especially that first we should define the system standardize key resource in the Central Asian region is water.

The fact that the accumulated problems must be solved by market methods is beyond doubt. Water, as a key regional resource, should be given the price. So it is possible to estimate the real (fair) utility main resources of the region, to prevent potential negative consequences for the population, which can destabilize the situation and lead to serious negative consequences for Russia.

The content

  1. The structure and nature of the problem
  2. Conclusions and suggestions
  3. Appendix 1.Water resources of Central Asia
  4. Appendix 2. The use of water for irrigation
  5. Appendix 3. Hydropower use of water resources
  6. Annex 4. The problems of interstate relations in water resources use in Central Asia
  7. Annex 5. Projects diversion of part of Siberian rivers to Central Asia
  8. Annex 6. Climatic changes and their influence on the situation in Russia and water resources of the Central Asian region

Author: S. N. Grinyaev, A. N. Fomin

Tags: assessment , financial center , Russia , Central Asia