Construction and operation of the 100 MW Kulanak Hydropower Plant Naryn Production Enterprise

The project aims to construct and operate the diversion/run-of-river Kulanak hydropower plant (Kulanak HPP), with an installed capacity of 100 MW, on the Naryn River, near the village of Kulanak, Naryn District, Naryn Region, Kyrgyz Republic, to generate 435 million kWh of electricity per year on average.

The plant is expected to occupy 485.41 hectares, 0.8 km below the confluence of the Naryn and At-Bashy rivers and 40 km west of the city of Naryn – the administrative centre of the Kyrgyz Republic’s Naryn Region and Naryn District. Electricity will be sold to local consumers in the Naryn Region (via Elektricheskiye Stantsii) at KGS 3.52 per kWh, a tariff established by Order 178 of the State Agency for the Regulation of the Fuel and Energy Sector at the Kyrgyz Republic’s Ministry of Energy and Industry on 19 November 2021. The tariff is valid for 15 years from commissioning, with an annual adjustment for inflation.

The project value is US $117,989,262 (the Bank’s authorised bodies are requested to consider an increase to US $128 million).

Financing structure:

• the EDB – US $44,000,000

• the Russian-Kyrgyz Development Fund – US $44,000,000

• the Borrower’s own funds – not less than US $29,989,262

1) The project is of regional and national significance. The planned 100 MW Kulanak HPP, with an average annual electricity generation of 435 million kWh, is expected to cover the basic part of the electrical load schedules of the Kyrgyz Republic’s energy system.

2) The project receives the following types of government support:

• The project is included in the Cabinet of Ministers’ Action Plan on the Kyrgyz Republic’s 2026 National Development Programme, approved by the Cabinet of Ministers’ Resolution 352 dated 25 December 2021 (clauses 272 and 471).

• The project is included in the Register of Preferential Tariffs established by Clause 7.1.11 of the Customs Union Commission’s Resolution 130B dated 27 November 2009 (in accordance with the Kyrgyz Government’s Resolution 503 On Establishing Priority Activities/Sectors for Investment Projects, dated 26 October 2018).

• The Cabinet of Ministers’ Resolution 191, dated 8 April 2022, authorises the Naryn Production Enterprise to implement the project and recommends Elektricheskiye Stantsii to purchase electricity supplied by the Borrower after the Kulanak HPP is commissioned.

• The Cabinet of Ministers’ Resolution 196, dated 8 April 2022, provides the Naryn Production Enterprise with land to construct and operate the 100 MW Kulanak HPP.

3) The State Agency for the Regulation of the Fuel and Energy Sector’s Order 178, dated 19 November 2021, sets a tariff of KGS 3.52 per kWh generated by the Naryn Production Enterprise at the Kulanak HPP for 15 years from commissioning, with an annual adjustment for inflation.

3. The project aligns with the Bank’s key objectives and priorities:

• Green economy is a priority outlined in the Bank’s 2026 Strategy. In particular, The Bank aims to finance sustainable development projects that improve the environment, conserve natural resources, and have a positive social impact. The implementation of the Bank’s strategic objectives (Priorities 1.4 and 4.2) will contribute significantly to the member states’ efforts in this area. The Bank intends to become a leader in PPP and green economy projects and in structuring complex transactions.

• In accordance with the Bank’s 2026 Strategy, the project is part of the Water and Energy Complex key investment mega-project and is expected to maximise the region’s integrated development.

• The project aligns with the Bank’s 2022–2026 Country Strategy for the Kyrgyz Republic, envisioning the implementation of one key investment mega-project (KIMP) in the country – specifically, Priority 1.1, Modernising and constructing hydroelectric facilities and grid infrastructure, under Objective 1 Development of basic infrastructure for regional integration and sustainable development.

• In 2020, the Bank’s Council approved the 2024 Renewable Energy Programme, with up to US $600 million in funding for 500 MW of renewable energy projects, which expects the Bank to build up its renewable energy and continue to support its member states in promoting green energy.

4) The project envisages the use of project finance, one of the Bank’s key products.

5) The project is expected to foster sustainable economic growth in the Kyrgyz Republic. It will generate 770 jobs during the construction phase and 65 jobs during the operation of the Kulanak HPP. It will also contribute to an increase in output (by US $16.5 million per year on average) and tax revenues (approximately US $42 million from 2022 to 2042). Utilising renewable energy will have a positive environmental effect, reducing greenhouse gas emissions and expanding the area of irrigated agricultural land from 4,650 to 6,769 hectares.

6) The project helps to enhance the Kyrgyz Republic’s energy efficiency and contributes to modernisation and energy security. It will cut power shortages in the energy-deficient region (which has only one hydropower plant with a capacity of 40 MW) and improve energy supplies (the Kyrgyz Republic’s power sector suffers from significant wear and tear of energy facilities, which have outlived their useful life).

7) The supplier of hydroelectric equipment is one of Europe and world’s leaders.

The Bank’s TAF has financed US $200,000 of the Borrower’s expenses (80% of the contract value) to involve:

• a financial and technical consultant (project fintech audit and zero report preparation);

• a verification consultant to prepare the Green Finance Framework and a second-party opinion; and

• a legal consultant.

In accordance with its Minutes 1066 dated 20 July 2023, the Bank’s Management Board approved the provision of TAF financing to subsidise the project interest rate (up to 2.1% per annum), with subsidies totalling up to US $4 million, within five years after the first interest payment under the financing agreement.