INVESTMENT IN KYRGYZSTAN’S OIL INDUSTRY MAY HAVE JUST BECOME ENTICING.

Kyrgyzstan’s oil production currently meets only about 15 percent of total domestic demand. This means that the country imports about 85 percent of its requirements. In an effort to boost state revenues, the Kyrgyz parliament has unwisely decided to impose VAT on the existing excise tax, thus driving up the price of imported motor oil. Hence, the final result has been quite the opposite of what was hoped for. Imports of legal motor fuel and oils have fallen by roughly 75 percent, and the state treasury has been loosing about US$1.5 million a month since the beginning of the year.

Amazingly enough, there is still no shortage of fuel in the country. The explanation is very simple: Fifty percent of the fuel in Kyrgyzstan is contraband. The government is not reacting and apparently believes that it is pointless to intervene, given that prices of petrol and fuel are much lower in neighboring countries.

The next best thing to do might be to start investing in Kyrgyzstan’s potentially big oil production industry. In a country surviving mainly on agriculture and extraction of gold, oil production in the past few years was though to be a good alternative for a GDP boost. Kyrgyzstan has definite potential in that area; however, the country is poverty-stricken and debt-ridden; it is also in desperate need of foreign investment if it wants to develop the oil sector any further. The problems are classical: Kyrgyzneftegaz is the only company in the republic dealing with extraction of oil and gas. The existing oil wells have been depleted and the exploration of new fields is restrained due to lack of funds. The company miraculously continues to operate, but the present output is very low, with the firm extracts only about 0.8 tons daily. In comparison, wells in Russia that produce less than 10 tons a day are simply being closed. Kyrgyzstan simply cannot allow itself that luxury. Recently, some new large wells have been discovered in the southern parts of the country. Why are investors not pouring in? Because that part of the country has long been subject to terrorist attacks from Islamic extremist groups. Whoever summons the courage to begin exploring oil fields in those politically unstable areas may just emerge as winners (BBC Worldwide Monitoring, May 9, July 17; EIU Viewswire, July 21).

WAR OF NERVES IN KYRGYZSTAN?