ORDER OF THE GOVERNMENT OF THE KYRGYZ REPUBLIC

of September 2, 2004 No. 655

About approval of the report of the Government of the Kyrgyz Republic on results of accomplishment of actions of three stages of the Program of privatization and privatization of Kyrgyzenergo joint-stock company

According to Item 3 of the resolution of General Court of Jogorku Kenesh of the Kyrgyz Republic of March 24, 1999 No. 1358-I ZS "About the Program of privatization and privatization of Kyrgyzenergo joint-stock company, the Government of the Kyrgyz Republic decides:

1. Approve the enclosed report of the Government of the Kyrgyz Republic on results of accomplishment of actions of three stages of the Program of privatization and privatization of Kyrgyzenergo joint-stock company.

2. To the state committee of the Kyrgyz Republic on management of state-owned property to issue the report in the form of the brochure.

3. Send the above-stated report to Jogorku Kenesh of the Kyrgyz Republic as financial and economic reasons by results of realization of the I part of the Program of privatization and privatization of Kyrgyzenergo joint-stock company.

4. To impose control of execution of this resolution on management of economy, the industry and trade of the Office of the Prime Minister of the Kyrgyz Republic.

THE REPORT FOLLOWING THE RESULTS OF REALIZATION OF THREE STAGES OF THE PROGRAM OF PRIVATIZATION AND PRIVATIZATION OF KYRGYZENERGO JOINT-STOCK COMPANY

INTRODUCTION

This report is constituted according to Item 3 of the resolution of General Court of Jogorku Kenesh of the Kyrgyz Republic of March 24, 1999 No. 1358-I ZS "About the Program of privatization and privatization of Kyrgyzenergo joint-stock company.

In July, 2004 the draft of the resolution of General Court of Jogorku Kenesh of the Kyrgyz Republic "About approval of the II part of the Program of privatization and privatization of Kyrgyzenergo joint-stock company which received the consent of the Government of the Kyrgyz Republic according to the order of the Government of the Kyrgyz Republic of June 16, 2004 No. 443 "About drafts of resolutions of chambers of Jogorku Kenesh of the Kyrgyz Republic on entering of amendments and changes into the Program of privatization and privatization of Kyrgyzenergo joint-stock company was considered by General Court of Jogorku Kenesh of the Kyrgyz Republic. However during discussions at the plenary session of chamber by deputies the decision on postponement of consideration of the specified draft of the resolution on the autumn session of chamber was made. The draft of the resolution of the Meeting of national representatives of Jogorku Kenesh of the Kyrgyz Republic "About approval of the fourth stage of the Program of privatization and privatization of Kyrgyzenergo joint-stock company, also received consent by the above-stated order of the Government of the Kyrgyz Republic, was not included in the agenda of plenary session of chamber.

Deputies of both chambers of Jogorku Kenesh of the Kyrgyz Republic stated the requirement to submit the report of the Government by results of accomplishment of actions of three stages of the Program of privatization and privatization of Kyrgyzenergo joint-stock company. It is the compulsory provision of approval of the fourth stage of the above-stated Program both chambers of Jogorku Kenesh of the Kyrgyz Republic.

Approval of the fourth stage of the Program of privatization and privatization of JSC Kyrgyzenergo, in turn, is sales term of the Program of the consolidated credit for structural transformations (CSAC) on which accomplishment negotiations with the Paris Club on decrease and restructuring of external debt of the Kyrgyz Republic depend.

The enclosed report is prepared on the basis of information provided by the ministries and departments, and also electric utility companies of the Kyrgyz Republic. In the report the main questions concerning results of accomplishment of three stages of the Program of privatization and privatization of JSC Kyrgyzenergo are taken up. The main problems of electric utility sector of the Kyrgyz Republic are analyzed. On this basis the corresponding conclusions are developed and reasons for need of cession of property and assets of electrodistribution companies (РЭКов) in concession are given.

The report consists of introduction, six parts in which the main aspects of the first three stages of the Program of privatization and privatization of Kyrgyzenergo joint-stock company of actions which are carried out within realization are described the main problems of electric power industry are allocated, and on this basis reasons on the fourth stage of the specified Program are this.

1. IMPLEMENTATION OF ACTIONS OF THE PROGRAM OF PRIVATIZATION AND PRIVATIZATION OF KYRGYZENERGO JOINT-STOCK COMPANY

1.1. VALUE OF POWER INDUSTRY OF KYRGYZSTAN

Kyrgyzstan - mainly the highland having the considerable potential of hydroenergy resources in the region of Central Asia. By estimates of different domestic and foreign experts Kyrgyzstan in the long term can occupy niche of "the strategic electric power supplier" for the countries of the region.

If to speak about electric power industry of Kyrgyzstan in general, then it should be noted that its main benefits are:

- Strategic arrangement in relation to neighboring countries (first of all to China, Uzbekistan, Kazakhstan);

- Dominance of huge hydroenergy inventories (the country Kyrgyzstangornaya with large reserves of the glacial water which is flowing down on the rivers, and being basis for production of electricity);

- The considerable export potential (the industry is capable to satisfy not only internal requirements, but also to make the electric power for export); Relative low cost of the electric power (availability practically of all components for production and electricity trading reduces costs).

It demonstrates that in the medium term the electric power industry of Kyrgyzstan can become the main export components of economic independence of the country.

The electrical energy, in fact, becomes strategic goods in the conditions of globalization of economy and development of the competition in the twenty first century. It will promote strengthening of both the "economic", and "political" weight of the country. However in order that in practice to realize the available opportunities, it is necessary to create conditions for effective functioning of infrastructure of power industry. In other words, it is required to create and develop production system, transfers and electricity distributions both on internal, and in the foreign market.

The government of the Kyrgyz Republic realizes importance of role of electric power industry for the future of the country. Owing to this fact, the companies of electric power industry of economy of Kyrgyzstan treat the strategic objects which are essential for stable and sustainable development of the country.

1.2. IMPLEMENTATION OF ACTIONS OF THE FIRST THREE STAGES OF THE PROGRAM OF PRIVATIZATION AND PRIVATIZATION OF KYRGYZENERGO JOINT-STOCK COMPANY

Process of privatization, privatization and reforming of electric power industry in the Kyrgyz Republic was performed according to the laws of the Kyrgyz Republic "About privatization and privatization of state-owned property in the Kyrgyz Republic", "About power", "About power industry", and also according to the Program of privatization and the privatization of JSC Kyrgyzenergo approved by the order of the Government of the Kyrgyz Republic of June 5, 1998 No. 333.

Particular purposes and tasks, procedure, the sequence and stages of transformations, criteria, basic approaches to carrying out privatization of JSC Kyrgyzenergo were the program. Besides, the financial model of restructuring of Kyrgyzenergo joint-stock company which is the document supplementing the Program of privatization and privatization of JSC Kyrgyzenergo was developed and approved by the order of the Government of the Kyrgyz Republic of April 22, 1998 No. 212.

Main goal of the Program is increase in efficiency of activities of national electrical power complex by its restructuring and creation of real conditions for development of competitive environment in the domestic market of producers of electrical and heat energy. The program was provided to be carried out in 4 steps.

The program was considered by both Chambers of Jogorku Kenesh of the Kyrgyz Republic. At the same time by the resolution of the Meeting of national representatives of Jogorku Kenesh of the Kyrgyz Republic of November 6, 1998 it was agreed to reorganization of JSC Kyrgyzenergo by allocation from its structure of electrodistribution companies taking into account regional features.

However, the resolution of General Court of Jogorku Kenesh of the Kyrgyz Republic of March 24, 1999 introduced additional restrictions in the program of privatization and privatization of JSC Kyrgyzenergo. So, having agreed with restructuring of JSC Kyrgyzenergo and allocation of electrodistribution companies, in the resolution their further privatization is completely denied.

For the purpose of step-by-step accomplishment of the Program of privatization and privatization of JSC Kyrgyzenergo it was performed:

1. Allocation from structure of JSC Kyrgyzenergo of Kyrgyzenergoremont and Kyrgyzenergospetsremont repair shops, the cascade of Alamedinsky hydroelectric power stations (based on which JSC Chakan GES is formed afterwards).

2. Transfer on balance of local executive bodies of some subjects to housing-and-municipal and social appointment.

3. On January 12, 2001 JSC Kyrgyzenergo general shareholder meeting at which the decision on allocation from structure of JSC Kyrgyzenergo of four electric distribution companies and one thermal distribution company was made was carried out:

- JSC Severelektro (based on distribution networks of the Chuya, Bishkek and Talas PES),

- JSC Vostokelektro (based on distribution networks of the Issyk kul and Naryn PES),

- JSC Oshelektro (based on the Osh PES),

- JSC Jalal-Abadelektro (based on the Jalal-Abad PES),

- JSC Bishkekteploset (based on the Bishkek company of thermal networks).

4. On September 7, 2001 general shareholder meeting made the decision on further reorganization of JSC Kyrgyzenergo by education:

- JSC Elektricheskiye stantsii with functions of development of electrical and heat energy based on the Cascade of the Toktogul hydroelectric power stations, the Company of hydroelectric power stations Under construction, the At-Bashi hydroelectric power station, combined heat and power plant Bishkek and combined heat and power plant Osh.

- JSC Natsionalnaya elektricheskaya set Kyrgyzstana with functions of transfer of electrical energy based on high-voltage part of all PES and Training center.

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