The power sector accounts for about 7% of GDP and 35% of public investments. Reliable electricity supply is critical for the country’s economic growth. Electricity is a key input for the two largest exported commodities – aluminum and agriculture, which together account for around 20% of the country’s annual GDP and 50% of its exports. Next only to its abundant labor, Tajikistan’s vast hydropower potential makes it best suited for receiving scarce public resources. However, developing the export market would require significant reforms and strengthening of the electricity sector, ranging from making Barki Tojik’s operations financially viable, efficient, and transparent, to leveraging investments.

Barki Tojik’s financial health, despite regular tariff increases over the past years, is poor and the company is not able to collect the required cash from its revenues to meet current expenditures, much less the required level of investments needed in the system. This situation is leading to non-payment of debts to independent power producers (IPPs)and meeting the taxes and debt repayment obligations to Government of Tajikistan. In effect, the sector has significant contingent liability on the Government of Tajikistan, which is the owner of BT.   Non-payment to IPPs, is deteriorating the investment climate in the sector.

The lack of reliable electricity supply is a constraint to the development and diversification of the economy. The emergence of a viable micro-, small-, and medium-size enterprise sector relies on a stable supply of energy, and addressing shortages is important to create a good business environment. The World Bank’s Business Economic Environment Survey reported that 80 percent of firms cited power supply reliability as a major obstacle to doing business in Tajikistan. The agricultural sector is not affected by winter shortages, as demand is largely restricted to the summer months when water intensive crops such as cotton require irrigation.

The cost of unmet demand is estimated at US$200 million per year, or about 3 percent of GDP. As the economy grows it is also important to ensure that it benefits the whole population. The lack of energy supply to poor households is a major welfare issue, and improving energy reliability needs to go hand-in-hand with economic growth.