CENTRAL ASIA REGIONAL

	FY 1998 Actual	FY 1999 Estimate	FY 2000 Request
FREEDOM Support Act	$7,874,000	$11,300,000	$11,500,000

Introduction.

U.S. assistance to the Central Asian Republics affects our nation’s security, economic well-being and the global environment. As an energy-importing country, the U.S. requires a diversified energy supply and Central Asia has the potential to become a world class exporter of oil and gas. The region’s political and economic future depend on how these resources are managed and used. American business will have significant trade and investment opportunities in the region if the Central Asian Republics can establish market-based economies and a legal and regulatory environment which both protects investment and promotes efficient use of energy resources. The energy sector is also a major contributor to global greenhouse gases. Transboundary cooperation in addressing key environmental issues, especially water resource management, can help preserve regional political and economic stability.

The Development Challenge.

The regional nature of many of Central Asia’s development challenges, particularly in energy and the environment, require coordinated and integrated assistance from USAID. In the petroleum sector, regional approaches are required to deal with the legal, economic, technical and environmental concerns surrounding offshore drilling in the Caspian Sea and development of the Trans-Caspian and Trans-Eurasian export pipelines. Similarly, sustainable water management in the Aral Sea basin for: a) the competing seasonal uses of electricity generation and irrigation; and b) regional energy security and trade in electricity, can only be accomplished through regional cooperation among all five Central Asian republics.

Regional long-term water sharing agreements are required to address the competing demand for water for upstream power generation in Kyrgyzstan and Tajikistan against downstream irrigation needs in Kazakhstan, Uzbekistan, and Turkmenistan. Adherence to such agreements must be factored into the electricity sector privatization programs of the two upstream countries. Privatization in turn will support the creation of a regional wholesale power market for the hydropower generated upstream, creating an incentive for the upstream countries to enter into agreements on the release of water to the downstream countries. USAID technical advisors are working closely with the counterpart entities which oversee the water and energy subsectors in all five of the Central Asian Republics.

Other Donors.

The World Bank, the United Nations Development Program, and the European Union (EU) are heavily involved in environmental and energy reform efforts in the region. In addition, there is substantial collaboration with a wide range of officials and host country national and local organizations.

FY 2000 Program.

USAID’s regional work will continue its important focus on energy and environment. In energy the objective is to establish a more economically sound and environmentally sustainable energy system as the primary engine of regional economic growth. The focus is on legal and regulatory reform of the energy subsectors, and the facilitation of foreign investment in critical energy infrastructure, such as Trans-Caspian and Trans-Eurasian export pipelines. In Kazakhstan and Turkmenistan, work will continue to prepare and implement rules and regulations on the development of onshore oil/gas resources. Also, in Kazakhstan, work will continue to implement transparent, cost-of-service petroleum pipeline tariff methodologies. In Uzbekistan and Turkmenistan, USAID will support these governments in the implementation of petroleum laws designed to attract foreign investment. In all of the countries, USAID will work with state energy companies to prepare various assets for privatization. In the electricity area, legal and regulatory reform of the power subsector will continue, along with work to strengthen national and regional power markets, and to facilitate intra-regional energy trade and reliability in electricity.

In water management, the underlying causes of the Aral Sea disaster need to be addressed through regional long-term, international agreements for multipurpose (power vs. irrigation) management of dams, water sharing and quality. There needs to be further legal and regulatory reform particularly in water pricing and privatization of local water use rights as well as the organization of self-sustaining, non-governmental water user associations. This will require the passage of reform legislation and the implementation of rules and regulations to establish water user associations, waste management guidelines, and a pollution fines system.

Increasingly, USAID’s program is being expanded to respond to U.S. concerns about global climate change (GCC) and the reduction of greenhouse gases. Central Asia has been designated a "key" region for programming in climate change because of greenhouse gases produced, in main, by its energy sector. The program’s initial focus will be on Kazakhstan, which because of USAID advocacy, has committed to acceding to Annex 1 of Framework Convention on Climate Change (FCCC) and Annex B of the Kyoto Protocol on GCC. A priority will be the further development of national climate change action plans. These plans, primarily associated with energy, will need to establish procedures for monitoring emissions and supporting jointly implemented climate change projects. If resources are available, educational programs related to energy efficiency for industry and the general public will be initiated.

Under cross-cutting and special initiatives, FY 2000 funds are requested for a CAR performance fund to provide additional resources to activities achieving results and to respond to new opportunities for reform.

CENTRAL ASIA REGIONAL

FY 1999 PROGRAM SUMMARY*
(in Thousands of Dollars)

USAID Mission Director: Glenn Anders

Strategic Objectives	Economic Restructuring	Democratic Transition	Social Stabilization	Cross-cutting / Special Initiatives	Total
Privatization	--	--	--	--	--
Fiscal Reform	--	--	--	--	--
Private Enterprise	--	--	--	--	--
Financial Reform	--	--	--	--	--
Energy	3,600	--	--	--	3,600
Environmental Management	1,400	--	--	--	1,400
Citizens' Participation	--	--	--	--	--
Legal Systems	--	--	--	--	--
Local Government	--	--	--	--	--
Crises	--	--	--	--	--
Social Benefits	--	--	--	--	--
Environmental Health	--	--	--	--	--
Cross-cutting / Special Initiatives	--	--	--	6,500	6,500
TOTAL	5,000	--	--	6,500	11,500
*FREEDOM Support Act (FSA) funds

---

ACTIVITY DATA SHEET

PROGRAM: CAR Regional
TITLE: A More Economically Sound and Environmentally Sustainable Energy System, 110-S001.5
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCE: FY 2000:$3,600,000 Freedom Support Act
INITIAL OBLIGATION: FY 1996; ESTIMATED COMPLETION DATE: FY 2001

Summary: The formerly Soviet state-run energy institutions in the region have been struggling to become more economically sound and environmental sustainable. These industries (especially oil and gas) have the potential to be the primary engine for economic growth in the region in which the general populations of all five republics can benefit/participate. As Central Asia moves from state-run energy companies to private sector energy firms, the function of government changes from being the owner-operator to that of a regulator. In a market driven energy sector, the regulatory structure is very important to potential investors. The energy sectors of Central Asia need an independent regulatory agency that can represent in a transparent and balanced manner the energy interests of the government, the customers, and the investors. At least four working independent regulatory agencies need to be established, and over 20 state energy assets privatized, by the year 2001.

Key Results: The two key intermediate results necessary to achieve this objective are: (1) independent functioning regulatory agencies, and (2) state assets opened to private investment.

Performance and Prospects: Performance over the past year, particularly in the oil and gas sector, has been hampered by lower world energy prices. In spite of these lower prices, the governments have moved forward with some privatization activities. Significant work has been completed in the development of rules and regulations for petroleum operations in Turkmenistan.

The challenge is to develop and then implement a policy framework that is conducive to domestic and international private sector investment and a functioning market economy. Such a framework also needs to promote efficient, safe and environmentally sound resource recovery. In addition, work will continue on the development of new transportation routes required for the region to realize its potential as a major supplier of the world’s petroleum.

Overall, progress toward achieving a legal and regulatory environment conducive to private investment has been encouraging. Now the challenge is to see these regulatory agencies become fully effective, and to insure that they do not lapse back to the ways of the former Soviet Union.

Possible Adjustments to Plans: USAID will work with the new regulatory agencies to ensure that they have appropriate open and transparent operations that will attract economically sound, environmentally sustainable international investment.

Other Donor Programs: Other active bilateral and multilateral agencies include the World Bank, the European Bank for Reconstruction and Development, the Asian Development Bank, and the European Union.

Principal Contractors, Grantees, or Implementing Agencies: Hagler-Bailly is the principal implementor, but assistance is also being provided by Minerals Management Service, and the U.S. Energy Association. In addition various U.S. firms and regulators are partners with organizations in the region.

Selected Performance Measures:

	Baseline	Target
Number of independent regulatory agencies established	0 (1994)	4 (2001)
Number of energy assets opened to private investment	0 (1994)	20 (2001)

---

ACTIVITY DATA SHEET

PROGRAM: CAR Regional
TITLE: Increased Environmental Management Capacity to Support Sustainable Economic Growth, 110-S001.6
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCE: FY 2000: $1,400,000 Freedom Support Act
INITIAL OBLIGATION: FY 1998; ESTIMATED COMPLETION DATE: FY 2002

Summary: The overall objective is improved environmental management capacity to promote sustainable growth. The Environmental Policies and Institutions for Central Asia (EPIC) Program of USAID/CAR has the following foci: a) water resource management for the Aral Sea basin; and b) global climate change (GCC). The EPIC Program represents the third phase of USAID environmental assistance to Central Asia. The first phase was a humanitarian aid program for the Aral Sea ecological disaster zone with projects designed to provide potable water system upgrades to affected Kazakhstan, Turkmenistan, and Uzbekistan communities. The second phase focused on projects to promote interstate cooperation in water and energy resources management. The third phase consists of: a) negotiation and implementation of interstate agreements on water/energy use in the Syr Darya river basin; b) national and local market-based water pricing in Amu Darya and Syr Darya river basins; and c) support of national, regional, and global environmental policy coordination efforts, primarily through on-going National Environmental Action Plan processes and GCC activities.

Key Results: Over the next two years, key results include: 1) the preparation and implementation of international water and energy agreements which are essential for achieving sustainable water use for the Aral Sea Basin; 2) drafting of an international agreement on water quality standards for the Aral Sea Basin; 3) generating revenues for the operation and maintenance costs of river basin facilities; 4) development of Water User Associations to price and collect water fees, and manage water conservation and irrigation systems at the local level; 5) assistance to Kazakhstan to prepare to fully accede to Annex B of the Kyoto Protocol and to participate in international carbon trading schemes; and 6) strengthening National Environmental Action Planning Centers so that they can develop and support projects in pollution mitigation and global warming.

Performance and Prospects: A major milestone was the signing by the Central Asian Prime Ministers of Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan of a multi-year, multi-national agreement on the Naryn Syr Darya cascade of hydroelectric dams. This requires a legal framework for implementation and improved means of pricing water so that operation and maintenance costs can be recovered.

USAID/EPIC accomplishments over the past year include: establishment and training of an experts' group on water resource modeling for optimal water resource use decision-making in the Aral Sea basin; training of water officials in developing systems to assess, calculate and recover operation and maintenance costs for hydroelectric facilities; formation of an initial working group to assist in the formation of water quality standards; and assessments of the strength of Water User Associations and the state of legal and regulatory legislation in each CAR republic and the development of plans on how best to privatize and further develop the associations.

The next steps in water resource development include additional training as well as adoption of a common mechanism to calculate and recover operations and maintenance costs across the region and high-level meetings of water and environment officials to agree on water quality standards and present them to the governments of the region. The activities in Global Climate Change include consultations with high-level groups of Kazakhstani decision-makers on the development of a national strategy for participation in the Kyoto Protocol, further technical assistance with modeling of industrial and economic forecasting required, and assistance to the Government in preparing for global emissions trading and joint implementation projects. USAID will also working with environmental officials from Kyrgyzstan, Kazakhstan and Uzbekistan to develop priority environmental projects for funding by IFIs as part of the National Environmental Action Plans.

Possible Adjustments to Plans: As part of global climate change, USAID needs to increase support for Kazakhstan’s full participation in international emissions trading, a U.S. priority. Additional assistance will also be required for the Amu Darya, the other main river basin feeding the Aral Sea, if the Prime Ministers sign the agreement on water and energy exchanges as they did for the Syr Darya River.

Other Donor Programs: USAID works closely with the World Bank on different components of the Global Environmental Fund project for the Aral Sea Basin. There has also been good collaboration with EU-TACIS on regional water management issues. USAID will also work closely with the new European Union and World Bank program on climate change to ensure that our efforts are mutually supportive.

Principal Contractors, Grantees, or Agencies: Harvard Institute for International Development, International Resources Group, and Hagler Bailly Consulting.

Selected Performance Measures:

	Baseline	Target
Multilateral agreements on sustainable water use management	0 (1997)	3 (2002)
Water pricing measures enacted	0 (1997)	4 (2002)
Water User Associations formed	10 (1997)	200 (2001)
Number of water experts trained in water system management modeling	0 (1998)	50 (2001)
Countries accede to Annex B	0 (1998)	1 (2001)
Joint implementation project is conducted	0 (1998)	2 (2001)

FOIA Requests : Privacy Policy : Email This Page Plug-ins : FAQs : Help Desk : Contact Us : Site Map : En Español