ADB assesses effectiveness of work of PPP projects in Tajikistan

6 months ago Web Desk 0

A paper by Ziyodullo Parpiyev, a senior lecturer at the Economics Department of Westminster International University in Tashkent, and visiting lecturer at the Economics Department of the National University of Uzbekistan named after Mirzo Ulugbek, discusses two high-profile public–private partnership projects in Tajikistan—the Dushanbe–Chanak motor toll road and Pamir Energy hydropower projects.

 

The paper entitled “Are Public–Private Partnerships a Solution to the Infrastructure Backwardness of Tajikistan?” says the power and transport infrastructure of the country traditionally linked Tajikistan with other Soviet Union republics, but this northern orientation has become one of the major bottlenecks in the development of the country. The geographical backwardness of the country was exacerbated by difficult relationships with neighboring countries, most significantly with Uzbekistan. The Soviet infrastructure made Tajikistan dependent on Uzbekistan since natural gas pipelines, transit roads, railways, and electricity grids run across Uzbek territory.

 

Power Sector

 

The country reportedly relies heavily on hydropower for electricity. The electricity supply is hampered by frequent blackouts, especially in winter months. Businesses face frequent outages, incurring economic losses. The power sector is also characterized by significant swings in demand (high demand in winter and low demand in summer) and peak hours, making it difficult for the state-owned power company, Barqi Tojik, to meet the demand. Due to the rapid deterioration of the generation facilities and transmission and distribution grids, the technical losses are thought to be in double-digit figures.

 

In addition, Barqi Tojik is in serious financial distress due to operational inefficiencies and high debt burden.

 

According to the report, the main goal of the Pamir Energy Project in the Gorno Badakhshan Autonomous Region (GBAO) was to restore a reliable electricity supply to the geographically isolated inhabitants of eastern Tajikistan. Under the former Soviet Union, 60% of Tajikistan’s energy was provided by diesel-generated machinery running on imported fuel. After the collapse of the Soviet Union, power failures became widespread. The project was supposed to contribute to Tajikistan’s poverty reduction strategy by providing electricity to businesses and citizens.

 

The PPP agreement stipulates that the government remains the principal owner of all physical assets, while Pamir Private Power is responsible for all electricity generation, transmission, and distribution facilities through a special purpose vehicle company. The concessions agreement between the Government of Tajikistan and the Aga Khan Fund for Economic Development (AKFED) was signed in May 2002 for 25 years. The initial cost of the project was $26 million.

 

The report says the project had important social aspects since GBAO is the poorest region in Tajikistan. Some 98% of electricity in GBAO is consumed by households, and only 2% is consumed by businesses. In these circumstances, charging the full cost-recovery level of tariffs could potentially be burdensome for the most vulnerable population.

 

Therefore, the Government of Tajikistan, supported by a Swiss Government Grant in the amount of $4 million, decided to subsidize the cost of electricity for the most vulnerable. For this purpose, a special trust fund was established to subsidize the so-called “social tariff rate,” which was designed to grow over the next decade. That was thought to decrease the cost of electricity without harming the bottom line of Pamir Energy. The scheme was later amended so that it lasted more than 10 years it was initially designed for. This social protection scheme shows that it is possible to design a program so that it has strong social protection aspects to it.

 

The project reportedly assessed and mitigated emerging risks well. Also, emerging risks were shared between the public and private partners.

 

This project has shown that even in a relatively high-risk environment as in Tajikistan, successful private investments can bring necessary changes to people’s lives.

 

Roads

 

In the last decade, Tajikistan has invested significant funds into rehabilitation of the main roads, such as Dushanbe-Chanak (Uzbekistan border), Dushanbe-Kulma (PRC border), and Bokhtar-Panji Poyon (Afghan border). Apart from these high-profile projects, the government has also undertaken construction of tunnels and bridges in other parts of the country. The PRC has emerged as a major source of funding for road infrastructure rehabilitation with approximately $720 million since 2007.

 

Despite these efforts, road connectivity within the country remains poor and inadequate. Improving relations with Uzbekistan are expected to boost Tajikistan’s trade with Uzbekistan and the rest of the world. However, if the road networks cannot cope with the increasing traffic volumes and loads, the country will not reap the full extent of benefits from opening up.

 

According to the report, Tajikistan has invested approximately $296 million into the improvement of the road between Dushanbe and Khujand. A total of $281 million came from China in the form of a 20-year concessional loan at a 2% interest rate.

 

Upon the completion of the road renovation in early 2010, the Government of Tajikistan awarded the rights to manage the Dushanbe-Chanak (Sughd) toll road to a private sector company, Innovative Road Solutions (IRS) (registered in the British Virgin Islands and reportedly established by Tajik citizens). The Government of Tajikistan signed a concession agreement with IRS for 30 years, where the company was granted the right to equip the road with toll plazas and collect tolls from motorists. The company was also exempted from all taxes except social payments. The agreement between the government and the company was never made public. One of the reasons why it was not made public is that the awarding was done without any tendering process.

 

The Dushanbe-Chanak toll road was opened on April 1, 2010. The toll rates established at the beginning were in the region of 4 US cents per km for passenger cars and as high as $4 per km for heavy-duty trucks. The rates meant that to travel from Khujand to Dushanbe, cars had to pay roughly $11. The toll for trucks could reach $100. Over the years, the rates in US dollars have fallen due to the faster devaluation of the somoni, and in February 2020 traveling the same distance cost about $7 for cars, which roughly translates into approximately 2 US cents per km.

 

An impact evaluation exercise was conducted for the Dushanbe-Chanak road using difference-indifference estimates. The results show that the treatment regions’ (Sughd and DRS regions) gross regional product increased by 26% compared to the control regions (Khatlon and GBAO). The positive impact of the Dushanbe-Chanak toll road on regional budget revenues and expenditures is even larger, ranging from 29% to 42%.

 

The quantitative impact analysis shows that relatively high toll charges in the absence of a free alternative road may have prevented greater economic impact on the most vulnerable groups of the population.

 

Source: Asia Plus