GAZPROM MIGHT BUY KYRGYZGAZ IN COMING MONTHS

Kyrgyz President Kurmanbek Bakiyev recently announced his intention to privatize the last remaining state enterprises, including major hydropower facilities, Kyrgyzgaz, and Kyrgyz Telecom. All of these enterprises serve nation-wide needs and contain considerable economic potential.

However, given that Bakiyev’s new government is comprised mainly of his closest political allies, the transparency of the privatization process is questionable. With Bakiyev’s recent changes in the legislative and judicial branches, the new privatization plan will likely consist more of an informal division of the remaining large economic sectors in Kyrgyzstan among high-ranking political officials. Russian state companies are expected to be the predominant foreign investors in the new wave of privatization.

This week Kyrgyzstan’s newly appointed Prime Minister Igor Chudinov announced that Kyrgyzgaz will be sold in the next few months. Although no tender has been held yet, it is clear that Russia’s Gazprom will take partial or full ownership of Kyrgyzgaz. That move would make Russia’s potential presence in the Kyrgyz economy significantly greater, as Russian President Vladimir Putin has already announced plans to invest up to $2 billion into the Kyrgyz economy.

Beginning in February Gazprom will also have the right to develop gas resources in Kyrgyzstan. The country’s total potential gas resources amount to 6 billion cubic meters, with an annual production capacity of some 30-40 million cubic meters. According to Chudinov, during his meeting with Gazprom chief executive Alexei Miller, Gazprom hopes to acquire some 330 million cubic meters of gas by investing $300 million into the development of Kyrgyzstan’s gas sector. Chudinov announced these plans without prior approval from parliament.

Russian investors are also likely to privatize Kyrgyzstan’s hydroelectricity sector, primarily the Kambarata-1 and Kambarata-2 plants located on the Naryn River. Kyrgyzstan’s privatization of the two hydropower plants in summer 2007 was a controversial issue. At the time, the government insisted that any investor, be it domestic, Russian, U.S. or Chinese, would be able to compete in the privatization process. However, as it stands, the choice today is limited to only Russian investors.

Chudinov is a convenient middleman for Bakiyev to broker further deals with the Kremlin. Russia’s increased presence in Kyrgyzstan will indeed boost its influence throughout the region. Kyrgyzgaz transits Kazakh and Uzbek gas through its territory, and its activities are closely tied with the hydropower trade in neighboring states. Russia will be able to influence this new network of trade relations in the region.

Bakiyev and Chudinov’s plans are expected to be rubber stamped by the Kyrgyz parliament (see EDM, January 25). By introducing new internal discipline regulations for the parliament, Bakiyev has significantly reduced its ability to function as an independent institution. According to new regulations, parliamentarians will be allowed to speak up only if they initiate a question, represent a parliamentary committee, or represent a faction. This new regulation effectively prevents a majority of parliamentarians from taking an active part in parliamentary debates. Furthermore, by reappointing judges of all ranks, Bakiyev has made the judicial system entirely dependent on his regime.

Meanwhile, this winter has been exceptionally cold for the Central Asian countries, reminding leaders of the urgent necessity to develop cooperation in energy resources in order to prevent domestic crises (see EDM, January 10). Amid severe energy shortages in Tajikistan, the Tajik government asked Kyrgyzstan for emergency assistance in supplying electricity. However, Kyrgyzstan’s own energy resources are scarce this winter, as the Toktogul dam has a critically low level of water as a result of poor management last summer.

So far the energy trade between the two countries has followed a tit-for-tat strategy, whereby the hardening positions of one state provoke a negative reaction from another state. Uzbekistan’s recent increase of gas prices to Kyrgyzstan and Tajikistan (from $100 to $134-140 per cubic meter) provoked the Kyrgyz government to double tariffs for electricity exports from 1.5 cents to 3 cents per kWh in 2008.

It remains to be seen how Russia’s increased presence in the Central Asian internal energy market will influence interstate trade in energy resources. But it is clear that the privatization of Kyrgyzgaz is being masterminded by a few top officials in the Kyrgyz government.

(24.kg, Akipress.kg, January 25-30)