Monday, 28 October 2019 10:43

$30 billion is planned to be attracted into the oil-gas industry of Uzbekistan

Caspian Energy (CE): Mr. Sultanov, how would you assess the current level and prospects of cooperation between Uzbekistan and Azerbaijan in the energy field?
Alisher Sultanov, Advisor to the Prime Minister, Minister of Energy of Uzbekistan: Uzbekistan is cooperating with the Azerbaijani company SOCAR in two directions: in conduction of geological survey and increase of hydrocarbon production in the fields of the Republic of Uzbekistan. The cooperation on geological survey at the investment blocks of Uzbekistan was established in May 2018 with the signing of the memorandum of understanding. SOCAR together with BP studied the materials about the investment blocks.
Signed in the course of the 23rd International exhibition and conference “Oil and Gas of Uzbekistan OGU – 2019” hosted in Tashkent on May 15-17 was a three sided agreement on assessment of the exploratory potential of three investment blocks in Ustyurt region such as the Uzbek sector of the Aral Sea, Bayterek and Samsk-Kosbulak blocks. The document envisages re-processing of 2D seismic survey data, core and drilling mud analysis, geo-chemical analysis of fluid data (gas, oil, formation waters). It will help to get an exact assessment of the investment blocks’ potential, including the potential of Paleozoic deposits, and facilitate further promotion of geological exploration work in Ustyurt region of the Republic.
Thorough work on analysis of materials has to be carried out, including the organization of work on legal, commercial and technical lines of cooperation. Given a wide work experience of SOCAR and BP, Uzbekneftgaz JSC expects positive results from the joint work in the field of geological exploration.
As far as the second line of cooperation is concerned, following the results of the preliminary work carried out jointly with SOCAR’s subsidiary LLC “NIPI NEFTEGAZ”, signed on May 16, 2019 was an agreement on increase of production at fields of Kashkadarya region of Uzbekistan. The agreement envisages ensuring the oil production growth at fields using advanced methods and technologies from SOCAR.

CE: What work is underway within the framework of the agreement on joint development of fields, signed between SOCAR and Uzbekneftegaz?
Alisher Sultanov: The joint work with SOCAR over examining the possibility of joint exploration and development of Uzbekistan fields is running on basis of the memorandum of mutual understanding signed on 16 May 2018. As a result of the work carried out, an agreement on increase of production at Garbiy Tashli and Sharkiy Tashli, Shimoliy Shurtan and Garmiston fields in Kashkadarya region of Uzbekistan was signed with SOCAR’s subsidiary LLC “NIPI NEFTEGAZ”.
The agreement provides for ensuring oil production growth at fields by using experience and technologies from SOCAR.
At present a group of specialists of Uzbekneftegaz JSC is actively cooperating with the team of LLC “NIPI NEFTEGAZ” in order to determine the scope of works, develop financial-economic model and define terms of further cooperation between the parties.

CE: To what extent is the Southern Gas Corridor promising for transporting natural gas from Central Asian countries, including Uzbekistan? To what degree the international transport corridors, such as Baku-Tbilisi-Kars, Baku International Sea Trade Port and others are attractive for transporting Uzbek energy resources?
Alisher Sultanov: Nowadays, transportation of Uzbek gas via the Southern Gas Corridor is not considered due to the lack of the necessary infrastructure. 

CE: Uzbekistan is one of the leading gas exporters. Do you plan to diversify export markets?
Alisher Sultanov: Nowadays Uzbekistan is exporting natural gas to Russia, Kazakhstan, China, Kyrgyzstan and Tajikistan. Meanwhile, Uzbekneftegaz JSC is facing the task to increase export of value-added products – not the natural gas itself, but products obtained through its deep processing.
In this regard Uzbekneftegaz JSC is attracting leading foreign companies for joint deep processing of gas. For instance, one of the large projects is the construction of the gas-chemical cluster based on MTO technology with a deep processing of 1.6 bcm. The cluster will ensure production of over 1.1 million tonnes of polymer and chemical products per annum, demanded both in the domestic market and external markets.
Considering the implementation of deep gas processing projects, by 2025 the volume of 100% gas monetization in Uzbekistan shall increase from 1.4 up to 6.6bcm per annum. About 40% of produced chemical products will go for export. 
It is noteworthy that Uzbekistan has a high transit potential for transportation of over 100bcm per annum, including 55 bcm along the north route, 50 bcm via the east route and 3.2 bcm along the south route.

CE: What are the top priorities of Uzbekistan in terms of development of the energy sector? Which areas are in need of investments and which projects can be of interest to foreign investors?
Alisher Sultanov: Concrete tasks regarding the development of the fuel-energy sector of the country have been assigned to the Ministry of Energy of Uzbekistan formed in February 2019. Among them are regulation of the energy sector, implementation of the production sharing agreements and control over their observance, drawing of the private capital into energy resource production and extraction, development of public and private partnership, improvement of the tariff policy so that to assist in forming competitive business environment, increasing and diversifying production of energy resources. The tasks also include an introduction of modern corporate management in the energy sector, including IFIs’ proposals envisaging optimization of production processes. The work over the energy road map which is carried out jointly with the Asia Development Bank and other international financial institutions is about to complete and aims at increasing of generation capacities, upgrading of electricity networks, improvement of  metering and control over electricity consumption. Major focus will be on introduction of renewable sources of energy.
The development of Uzbekistan’s fuel-energy complex strategy for 2020-2030 and a comprehensive program on power industry digitalization for 2019-2021, aimed at automating Enterprise Resource Planning (ERP) and Supervisory Control and Data Acquisition processes, is underway now. The important task facing the Ministry of Energy is to contribute to the comprehensive development of the country’s oil and gas sector, attraction of foreign direct investments into this sector, implementation of promising projects and introduction of innovations.
The oil-gas industry has an important place in the economy of the republic. It is not only energy, but also a key raw material base for producing fuel, petroleum, oil and lubricants, polymers, organic chemical substances, nitrogen mineral fertilizers and others products required for all sectors of economy. Geological exploration is a baseline for increasing the potential of the oil-gas industry. The company is actively working to increase the volume of exploration in the most promising areas with developed infrastructure in the Bukhara-Khivi, Ustyurt, Surkhandarya, Ferghana regions, using internal resources. We are also working with such companies as TOTAL (France), SOCAR (Azerbaijan), British Petroleum (Great Britain), Tatneft (Russia), Mubadala Petroleum (UAE), ONGC Videsh (India), etc., over expansion of geological exploration work on investment blocks that are poorly studied and feature a complex geological structure.
Currently, only 14% of natural gas is deeply processed in the oil and gas industry to produce products with high added value. There are all opportunities to increase this figure several times over the next 10 years. In this regard, JSC Uzbekneftegaz gives priority to implementation of petrochemical projects, which will help by 2030 to generate revenues exceeding those of gas export by 3 times, and increase the total export of the industry to $ 5.5 billion.

CE: Could you please tell about major details of the new long-term investment program on expansion, modernization and diversification of generating capacities for the period up to 2030?
Alisher Sultanov: The development of generating capacities in such areas as thermal power plants (TPPs) and renewable energy sources (RES) with the attraction of foreign direct investments is one of the main priority issues in development of power industry in Uzbekistan. The addressing of issues on implementation of a number of investment projects on basis of the public-private partnership (PPP) is starting nowadays.  The day of investors dedicated to the energy sector is held in Uzbekistan every Wednesday. Proposals of foreign companies are considered at such meetings. Implementation of promising projects is discussed. Prompt decisions on timely solution of existing matters are taken. 
The work on implementation of large investment projects is currently underway to increase generating capacities of the energy system for the period until 2030.  The projects are as follows:
1) construction of energy-efficient thermal generating capacities with a total volume of around 15 GW;
2) construction of modern combined cycle power plants with a total capacity of about 10 GW (at Syrdarya, Navoi, Talimarjan, Takhiatash, Turakurgan TPPs and others);
3) construction of maneuverable generating capacities based on gas reciprocating power units or aviation gas turbine plants with a total capacity of about 1.5 GW (at Syrdarya, Tasjkent TPPs, Musaberek TPP and other regions);
4) construction of power plants using renewable energy sources, bringing the total share of solar and wind power plants to 20%.
5) construction of a hydro power plant with a total capacity of 1.75 GW and a nuclear power plant with a capacity of 2.4 GW.
At the same time, by building new and modernizing existing coal power units, it is planned to diversify energy resources and increase the share of coal consumption from 6% to 19%. Apart from this, the Government of Uzbekistan has activated efforts to attract additional foreign investments so that to increase gas production by 17% by 2025.

CE: Which main priorities will underlie the new Concept of development of renewable sources of energy for the period of 2019-2023?
Alisher Sultanov: The main principles of the national policy of Uzbekistan in the field of renewable energy are to strengthen the country’s energy security, diversify the fuel and energy sector in order to increase the specific share of renewable energy, save primary energy resources, improve the ecological situation and meet the growing needs of the population and economy of the country through the introduction of market mechanisms when setting  tariffs for electricity generated out of renewables.
Among the priorities are also the expansion of cooperation with international companies and financial institutes for implementing renewables projects on the public-private partnership principles; training, retraining and skill improvement of national resources in this field. Laws on use of renewable sources of energy and on public-private partnership have been recently passed in Uzbekistan. These laws provide a firm legal framework to develop the renewables sector and attract private investments into the power industry sector of Uzbekistan in order to develop a market of independent power producers (IPP), mainly the generation facilities consuming renewables. Besides, the abovementioned laws define a set of mechanisms on provision of privileges and preferences both for producers of RES equipment and for producers of energy using RES. These significant steps are the result of fulfilling the Uzbekistan Republic President’s orders on the green energy sector development. By 2025 the Strategy for Innovative Development of the Republic of Uzbekistan for 2019-2021 provides for an increase in the share of electricity production out of renewable and alternative energy sources at a level of at least 20% of the total generation.
Modern Uzbekistan has a significant technical potential in the renewable energy sector. Of this total, solar energy accounts for 176.8 million tonnes of oil equivalent, wind energy accounts for up to 0.4 million tonnes of oil equivalent, biomass accounts for 0.5 million tonnes of oil equivalent and hydropower industry accounts for 2.3 million tonnes of oil equivalent. The resources of rivers flowing through the territory of Uzbekistan, numerous irrigation canals and water reservoirs provide high potential for the construction of small hydropower plants.
To develop renewable sources of energy for the period of 2019-2023 it is planned to introduce innovative technologies and development projects in the field of RES; expand production and localization of RES plants; to get business entities and investors involved in creation of generation capacities based on well-proven technologies of use of  solar, wind, bio-gas and geothermal energy; to cooperate and improve a legal framework in the field of the renewable energy sector development.

CE: What will be the future fate of the joint stock companies Uzbekenergo and Uzbekneftegaz after the restructuring?
Alisher Sultanov: As far as Uzbekenergo JSC is concerned, as a result of its reorganization, three structures have been created in compliance with modern methods of organization of production, transportation, distribution and sale of electricity. They are the Thermal Power Plants JSC, National Electric Networks of Uzbekistan JSC and Regional Electric Networks JSC.
Thermal Power Plants JSC is engaged in managing thermal power plants and electric power stations generating electricity and thermal energy. National Electric Networks of Uzbekistan JSC operates and develops main power transmission lines of the Republic of Uzbekistan, transportation of electricity along main power transmission lines of the Republic of Uzbekistan, as well as performs an interstate transit, export and import of electricity, and interaction with power industry systems of neighbor countries; a single supervisory control over electricity generating enterprises, including participation of private capital, as well as control over main and regional electrisity networks, functions as a single purchaser of electricity from enterprises producing electricity, as well as sells electricity to enterprises of regional electricity networks. Regional Electric Networks JSC manages enterprises of territorial electric grids distributing and selling electricity to ultimate customers. 
As far as Uzbekneftegaz is concerned, a scaled restructuring of the oil-gas system is planned to be carried out now. As a result, firstly, it is planned to reduce excessive intermediate links in the management system by linking subholding companies to Uzbekneftegaz JSC, except for Uztransgaz JSC which is being withdrawn from the structure of Uzbekneftegaz JSC, and its package of shares owned by the holding will be passed to the state. Secondly, oil and gas production organizations (LLC Mubarekneftegaz, LLC Shurtanneftegaz, LLC Ustyurtgaz, LLC Gazlineftegazdobycha, JSC Andijanneft, JSC Dzharkurganneft) will be transformed into structural divisions of JSC “Uzbekneftegaz” without the formation of a legal entity in order to to establish direct interaction with the production process. Thirdly, reorganization of individual enterprises of the industry is expected in order to streamline the structure of Uzbekneftegaz JSC. Fourthly, the shares of Uzbekneftegaz JSC and organizations operating within it through the authorized capital of service and other non-core organizations are transferred to the State Assets Management Agency for their further sale into private ownership
Thus, structural transformations in the management system of Uzbekneftegaz JSC will allow optimizing excessive production costs of enterprises, reducing the cost of work, increasing the profitability and competitiveness of the industry, improving corporate governance methods based on international experience.
Amid changes in Uzbekneftegaz JSC, it is also planned to introduce a public-private partnership in the gas distribution system.
A task on attraction of foreign funds for projects throughout the whole company has been set. Uzbekneftegaz JSC attracted $ 1.2 billion of foreign direct investment (FDI) in the first four months of 2019, which is twice more than the initial target of $550 million.
This is largely due to the fact that JSC Uzbekneftegaz is becoming a step-by-step an increasingly open company.
The plans are to increase gas production from 60bcm of 2018 up to 63.6bcm in 2019 and bring the production up to 70 bcm by 2025.

Thank you for the interview

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