A new energy development programme that will liberalise gas and electricity prices and introduce social consumption norms is expected to be unveiled in September 2023. This was announced by the First Deputy Energy Minister Azim Akhmedkhadzhayev at an energy forum in Tashkent on 19 May, according to a Gazeta.uz correspondent.

According to him, one of the main goals of the government is to remove barriers to the efficient operation and growth of the electricity sector. The Ministry of Energy is working with international financial institutions and other organisations to develop a new regulatory framework for the entire sector, which will form the foundation for future reforms.

“We are preparing the basis for the transition to a competitive electricity market in Uzbekistan. Now we are working on a programme under which we will attract foreign companies and experience from abroad to transport electricity in the regions. We want to attract good management companies that will be able to show us a new approach to electricity generation and transmission to the end consumer,” the First Deputy Minister of Energy said.

The plan also envisages the establishment of a separate regulator that “will set tariffs and oversee the market-based relations between the energy producer and the consumer”. The ministry is studying the experience of Azerbaijan, Turkey and European countries.

“As for a regulator that will be independent, we are now studying a lot of good experiences that exist in the world. For instance, the experience of Azerbaijan, which is a new experience right now. We like the approach they have established. They have created a regulator, but for now this regulator is working under the roof of the Ministry of Energy. Why? Because they are now studying, testing and seeing how it works. And then they will allow this regulator to be independent,” he said.

By September 2023, the Energy Ministry plans to present a new energy development programme for Uzbekistan.

“And through this programme, we plan to liberalise energy prices and introduce social norms of consumption. To improve the efficiency of energy-intensive enterprises and to set long-term goals, we want to reduce energy costs and divide them into different tariffs, because at present one gas and electricity tariff is applied for each enterprise. So we want to separate them and make a separate approach to each entity, each business and each stratum of society in Uzbekistan”, Azim Ahmedhadzhaev said.

An attempt to liberalise the energy market

Gas and electricity tariffs were last increased by Uzbekistan in August 2019. However, the liberalisation of energy prices and the reform of the energy sector have been repeatedly delayed.

The government intended to hike electricity and gas tariffs in February-March 2020, but put off the measure due to the coronavirus pandemic. The President had instructed not to raise electricity tariffs in 2021−2022, said Ulugbek Mustafoyev, chairman of the Regional Electric Grid, in October 2020.

We wrote in May 2022 that Uzbekistan has 7.3 million electricity-consuming households, of whom 80% use up to 200 kWh of electricity per month on average. However, these households account for only 31% (5.7 billion kWh) of the total electricity consumed by the population.

85% of the 4 million gas subscribers consume on average up to 500 cubic metres per month. At the same time, they account for only 35% (4.5 bcm) of the total consumption of the population.

The government had intended to implement a social norm of energy consumption and impose limits from July 15, 2022, as most state subsidies benefit those who consume more, but later deferred the decision.

The President urged the adoption of market-based energy prices with support for vulnerable groups at the end of last year.

In February, the Central Bank’s deputy governor Bekhzod Khamraev said that electricity and gas prices were expected to be liberalised in May. However, in late March, Dilshod Sultanov, deputy chairman of the Ministry of Economic Development, said there are no plans to increase energy prices in 2023, but the matter is under discussion.

Economist Bekhzod Khoshimov pointed out that the current pricing policy in Uzbekistan’s energy sector makes the poor poorer and the rich richer. Billions of dollars in subsidies to energy companies to support non-market prices have encouraged the rich, he stressed.

Wholesale market

Uzbekistan aimed to transition to a wholesale competitive electricity market by 2025 in three stages. The first stage involved liberalising electricity enterprises and licensing private enterprises that wanted to sell electricity. This market-based approach was supposed to enhance product quality and lower prices.

In the second stage, an electricity distribution system operator would be established, and the function of selling electricity to consumers would be gradually transferred to suppliers. These suppliers would have the licence to sell electricity to consumers.

The third stage was “Intraday (hourly) sales”. Hourly electricity generation and consumption surpluses or deficits would be traded online on the trading platform.

Former Deputy Energy Minister Sherzod Khojaev said in June 2022 that according to the new concept, it would take four stages to transition to a competitive wholesale and retail electricity market. According to him, the President has authorized the approval of market rules so that a license can be granted to any business entity that wants to enter the market and define a clear procedure by which it can start its production.

The market for electricity sales was supposed to be opened to private companies from 2023. They would be allowed to sell electricity to legal entities in 14 districts and cities. There were also plans to adopt a new system of energy market management, establishing a company for wholesale purchase and sale of energy and an agency to regulate the sector. However, these plans have not been realised so far.