Public procurement: “green” and energy and resource efficient procurement (Part 1)

Tashkent, Uzbekistan (UzDaily.com) -- "Green public procurement" is procurement that involves efficient and optimal spending of public funds using market opportunities in order to significantly increase the environmental and social benefits at the local and national levels.

The urgency of introducing the concept of "green" public procurement in Uzbekistan is primarily dictated by the excessive energy and resource intensity of its economy, degradation of soil resources, increasing water shortages, and so on. The inefficient use of energy and other resources is a major obstacle to achieving sustainable economic growth of the national economy. According to the World Bank and the UN, only because of the low efficiency of economy, Uzbekistan annually loses about 4.5% of GDP.

In view of the above, reducing high energy and resource intensity of the economy is among the most important tasks of social and economic policy of the government. The main activities in this area include the modernization of power engineering, agriculture and water management system, the creation of an effective system of energy saving, and the reduction of material costs in the production process.

Applying the mechanism of "green" and energy and resource-efficient public procurement (EREPP) is a necessary condition for implementing measures aimed at improving energy and resource efficiency (ERE) in the economy. According to the World Bank calculations, the cost of increasing energy efficiency in industry is 2-4 times less than the cost of putting into operation new primary energy sources.

In addition to the above, applying “green” public procurement will support the import substitution program, stimulate the innovative production, solve environmental problems, and provide water, food and energy security in the country. “Green” procurement concept is complex that is why it is advisable to focus on energy and resource efficient procurement first. Besides, in contrast to “green” PP, energy and resource-efficient public procurement in Uzbekistan entails a clear and large economic and financial effect.

To assess the benefits and costs of applying EREPP in Uzbekistan, the project "Budget System Reform in Uzbekistan" has prepared a report entitled "Green procurement: international experience, perspectives for application in Uzbekistan and gains for the state budget".

The report describes international experience and expertise in applying EREPP, as well as in implementing measures to improve energy and resource efficiency of Uzbekistan’s economy. It presents complex calculations of costs and benefits, as well as obstacles in implementing the above mentioned measures, and based on that, the report proposes recommendations on using EREPP in Uzbekistan. Let’s consider the main findings of the report.

Uzbekistan’s experience in implementing measures to improve energy and resource efficiency of the economy

Uzbekistan is implementing a number of measures to improve energy and resource efficiency. These include investment projects for replacement of obsolete equipment in the power industry, pilot initiatives for the reconstruction of public buildings, the use of drip irrigation, and etc.

The authors of the above-mentioned report made a comprehensive estimation of the long-term loss of profit under the current public procurement system calculated on the basis of five pilot schools where the experiment on making ERE decisions was conducted. According to these calculations, while spending 305.7 million soums for making ERE decision, the benefit obtained in 10 years makes 954.5 million soums or a net positive cash flow amounts to 648.8 million soums. But in future the estimates of budgetary organizations are reduced exactly to the amount saved as a result of applying energy-efficient solutions and this thing does not create incentives for the budgetary organizations. Another example shows the distribution of the benefits resulted from applying EREPP between different actors. The calculations based on the modernization of thermal power plants (TPP) show that only 16.5% of the benefits gained by applying EREPP go to TPPs, and the rest go to the state budget, state funds and "Uzbekneftegaz". As for the costs for implementing energy efficient solutions, they are born by TPPs alone.

One more example relates to the use of drip irrigation in the low-yielding lands on which cotton is grown. Calculations have shown that in this case farmers who introduced drip irrigation receive 12.5% of the total gain. Such rules of budget planning and distribution of benefits de-stimulates applying of ERE solutions in this country. In addition, energy and resource-efficient products are usually more expensive, but pay off with interest in the process of operation. The established practice of purchasing the cheapest items, while ignoring qualitative parameters, complicates the purchase of energy and resource-efficient products.

Based on the analysis, the report proposed the main directions of applying EREPP in Uzbekistan.

Further details of implementing the "green" procurement concept in Uzbekistan will be considered in the second part of this article.