The dramatic rise of prices for public utilities as electricity, heating and hot water supply has been a cause of heated discussions in Kyrgyzstan. The new government seems firm on the decision to increase rates despite a decidedly negative reaction from the masses.

On November 12, the Kyrgyz government approved multiple price increases for electricity, heating and hot water supply. Starting January 1, 2010, all customers will have to pay 1.5 soms (US$1 equals 43 soms) per kilowatt hour of electricity, which is twice the current price (0.7 soms). In July 2010 the utility rate will reach 1.9 soms. Heating and hot water supply seem even more problematic, as rates for these utilities are expected to increase by 5-10 times.

This is not the first time the government has sought to increase the rates for public utilities. In 2007, the Kyrgyz government introduced a medium-term tariff policy according to which prices for public utilities would increase by 12 percent every 6 months over the next five years. However, these initiatives were taken only on paper. The reasons for the previous failure were mostly political, such as the protracted political instability after Kurmanbek Bakiev’s accession to power, or the latest presidential elections. Kyrgyz authorities fearing public discontent kept postponing the price rise until “better times”. It now seems that these “better times” have come.

The government’s decision has caused wide public resentment. With the envisioned price increase for public utilities, most of an average family’s income will be spent for these payments. According to Natalya Abloba, Director of the Bureau on Human Rights in Kyrgyzstan, 70-80 percent of Kyrgyz citizens are vulnerable to poverty in face of the price increases.

The so called “shock therapy” was initiated by the new Prime Minister Daniyar Usenov, who has termed it a necessary measure, as a failure to introduce new utility prices would lead to a disaster in the energy sector. Usenov also informed that the most vulnerable parts of the population will be compensated and that around 1.5 billion soms (almost US$35 million) will be allocated for this purpose. However, doubts remain whether these small compensations will solve the problem. For instance, the compensation for such vulnerable categories of citizens as teachers and doctors will amount to 200 soms (US$4.50), which will obviously cover a very small part of the new utility fees.

Dozens of pensioners recently organized a demonstration in Bishkek protesting against the new tariffs and demanding that the newly-appointed Prime Minister resigns. Usenov, however, stays firm in his position despite public resentment. Political expert Alexander Knyazev thinks Usenov was chosen as a scapegoat for Bakiev’s unpopular reforms. Usenov’s previous loud statements and radical decisions have made him an unpopular figure among the public.

In justification of the initiative, Energy Minister Ilyas Davydov has explained that rates for utilities must be increased, since current prices do not meet production costs. According to Davydov, the current production cost for one kilowatt hour of electricity in Bishkek’s Combined Heating and Power Plant (CHPP) is 3.36 soms, while it is sold for 0.71 soms. “The production cost for one gigacalorie of heating energy is 2,500 soms, but at this moment we sell it for 500 soms. How we can talk about energy system development and modernization of infrastructure if prices do not cover production costs?” Davydov concluded.

While many realize that the Kyrgyz government must reform domestic electricity and heating rates in order to avoid a collapse of the energy sector, the sharp price increases envisioned remain puzzling to the public.

Most opposition leaders are critical of the new prices, which they consider too high and ungrounded. Opposition leader Bakyt Beshimov accuses the Kyrgyz authorities for the energy crisis the country is facing, and claims the main reason for the price increase is ineffective management. According to Beshimov, the energy sector is one of the most corrupt sectors in the country and it is therefore questionable whether the high prices will solve any problems.

Another opposition figure, Omurbek Tekebaev, stated in an interview to Azzatyk news agency that the tariff increase is a first step toward the privatization of Kyrgyzstan’s energy sector through making it self-sustainable, which he says has been recommended by the World Bank. The Kyrgyz government accepted the World Bank’s conditions in return for additional loans and grants. It is notable that a week before the government’s decision to raise the prices, the World Bank approved a list of grants and loans amounting to US$34 million. However, on November 16 the World Bank issued a statement refuting the allegations.

It seems that the Kyrgyz government has serious intentions this time. It could, however, do a better job explaining and promoting its decision to the public. It remains unclear how the initiative will be carried out in the face of public resentment.