23 june 2017

Central Asia news

Kyrgyz neighbors take over its national economy and water resources

04.02.2008 12:38 msk

Nezavisimaya Gazeta

Analytics Kyrgyzstan

Total privatization awaits Kyrgyzstan in the near future. Strategic objects of the national economy will go under the hummer: sixteen hydroelectric power plants, two thermal power plants, and even natural resources. Not everyone in the meantime is happy with this strategy. Numerous critics of the government claim that potential foreign investors will end up with both economic and political leverage enabling them to manipulate Kyrgyzstan and all Central Asia.

Extensive privatization became possible with installation of a new regime in Kyrgyzstan in spring 2005. The Jogorku Kenesh (national parliament) had repelled every attempt of the executive branch of the government to sell strategic objects before that, assuming that they belonged to all of the people and not to a bunch of owners. The authorities of Kyrgyzstan had more pressing matters to attend until now. It was on January 10 that President Kurmanbek Bakiyev listed central principles of his new economic policy in a speech before the parliament. Privatization ranked high on Bakiyev's list of priorities. "Embezzlement, pilfering, and wastage are inevitable wherever the state is in charge," the president said. Privatization on the other hand implied modernization of an object or even the whole sector of economy. "Private owners in the meantime may be brought to answer," Bakiyev said. "It is therefore necessary to reorganize all state enterprises into joint-stock companies and put them up for sale in the market." The president's speech immediately drew the attention of local and foreign businessmen to objects of the Kyrgyz national economy.

Tenements, banks, and travel industry changed hands over the last two years and became privately owned. Kazakh businessmen became new owners of "the tastiest slices of the pie". Kazkommertsbank bought Kyrgyzavtobank (the largest bank in Kyrgyzstan) and set up Kazkommertsbank-Kyrgyzstan on its basis. Temirbank bought Ineximbank, Alma-Ata Trade and Financial Bank bought Energobank, and the Kazakh People's Bank bought Kairatbank. These days, the Kazakhs' attention is focused on the energy sector, transport, railroads, and telecommunications. They find Kyrgyzstan so attractive because of the liberal economic legislation (Kyrgyzstan is a member of the World Trade Organization) and because of the promises Bishkek makes to would-be investors.

Kyrgyz Prime Minister Igor Chudinov claims that the government has already launched preparations for the sale of its interest in major assets - power plants, Kyrgyztelecom, International Airport Manas, Severelektro, Bishkekteploset, Kyrgyzgaz, and international highways. Press service of the government reports that over 7,000 objects will be put up for sale.

First and foremost, energy

Kambarata hydroelectric power plants whose construction was never completed are earmarked for privatization. KazKuat and RAO Unified Energy Systems were contracted to draw new technical and economic assessments for these objects. China is certainly interested in Kambarata'1 Hydroelectric Power Plant. As for Kambarata'2, Kyrgyzstan intends to complete its construction on its own.

This endeavor requires 5 billion soms or almost $170 million. Bakiyev promised 3.5 billion soms ($100 million or so) from the budget and suggested long-term state bonds as a means of raising the remaining $70 million.

Official Bishkek's determination to complete construction of so expensive an object raised some eyebrows in the expert community. Budget deficit amounting to 3.3 billion soms (almost $100 million) is expected this year. Foreign debts of the country reached $1.25 billion. Nobody has an inkling of where Bakiyev believes he can find the 3.5 billion soms for Kambarata'2. His enemies maintain that the power plant will be actually built with Kazakh capitals but the news will be withheld from general public at first. It means that Kazakhstan will find itself controlling Kyrgyz energy sphere and, even more importantly, the seasonal water level in the Syrdarja. One of the largest rivers in the region running across Uzbekistan and Tajikistan into Kazakhstan, the Syrdarja is the principal source of drinking water. "Whoever owns the Kambarata hydroelectric power plants will control all of the region," Kyrgyz political scientist Nur Omarov said.

The Bishkek Thermal Power Plant is another lucrative object about to be put up for sale - even though its reconstruction will cost future owners $50 million. Experts do not doubt, however, that electric power tariffs will go up as soon as the power plant is bought and that modernization will actually be the least of the new owners' worries.

Kant Cement and Slating changed hands several times before ending up in the hands of Kazakh businessmen. The new owners were supposed to invest $16 million in the factory under the terms of the investment agreement but never bothered with it. "All cement produced there is shipped to Kazakhstan," ex-deputy Azimbek Beknazarov said. "The Kyrgyzes who need it badly are compelled to buy cement from China."

"This so called privatization is but another phase of embezzlement. In fact, it is the reckless sale of national resources that worries me," Omarov said. The state is the exclusive owner of natural resources by the constitution in lots of countries. It was so in Kyrgyzstan too, before the Constitution was amended. Its amendment benefited lawmakers of the third Jogorku Kenesh (2005-2007) mostly comprising major businessmen (by Kyrgyz standards, that was) interested in total privatization. According to what information this newspaper has compiled, a draft law on pastures was forwarded to the parliament of Kyrgyzstan not long ago. Ownership of pastures is to be decided by local self-government bodies. "Adoption of the law will foment corruption on an unprecedented scale," Omarov said. The Constitution in the meantime is somewhat vague on whether or not foreigners are permitted to buy land in Kyrgyzstan. General public is convinced that China will certainly use this loophole to buy all land in Kyrgyzstan is can lay its hands on.

Socialists object

Mostly comprising representatives of the pro-president Ak-Jol party, the parliament does include some enemies of the forthcoming privatization. Most of them are members of the Social Democratic Party faction. Isa Merkulov of the Social Democratic Party is convinced for example that it is wrong to sell energy sector to private businesses because of the effect it has on the national budget. The first three waves of privatization made Kyrgyzenergo bankrupt, with debts amounting to 1.5 billion soms. "Along with everything else, we object to privatization of gold-mining and -processing companies. Gold prices are spiralling in the world," the lawmaker said. In any event, the Socialists are unlikely to change anything.

All protests notwithstanding, Chudinov promised some serious changes in the sphere of natural resources. "We will begin with drawing a map where all fields will be pinpointed with whatever data are available on what they are believed to contain," he said. "Once that is done, we will start thinking what to do in every particular case." It is already known meanwhile that Gazprom intends to begin geological survey in Kyrgyzstan. It will invest $12 million in geological survey within the framework of Gazprom-Kyrgyzgaz joint venture. The Russian company is also expected to take part in privatization of Kyrgyzgaz's gas transportation network.

It is the widespread opinion in Bishkek that Chudinov is but relaying the ideas that originate in the circles close to the president. "They are setting him up," a former senior official of the Kyrgyz state said on the conditions of anonymity. "Chudinov is a Russian. He does not belong to any Kyrgyz clan and may therefore be framed. Once the pie is divided, he will be compelled to flee the country."

Source: Nezavisimaya Gazeta, No 19, February 4, 2008, p. 17. © Translated by Ferghana.Ru