PRIVATIZATION OF KYRGYZSTAN’S HYDROPOWER SECTOR TAKES PLACE AMID UNCERTAINTY

Since January Kyrgyz President Kurmanbek Bakiyev, Prime Minister Igor Chudinov, and Minister of Energy Saparbek Balkibekov have been extensively promoting privatization of Kyrgyzstan’s hydropower sector. Little information about potential investors in the sector or the privatization conditions, however, has been revealed to the public. Even political officials, other than those directly involved in the hydropower sector, learn about the progress of privatization from rumors.

Kyrgyz experts and mass media outlets are currently discussing at least three possible scenarios about potential investors. All sources agree that uncertainty about privatization plans raises doubts about whether the president and government are making decisions that are in the national interest.

Russian companies as major investors in the hydropower sector have long been the primary guess among Kyrgyz experts. Former Russian President Vladimir Putin’s promise to invest $2 billion in the Kyrgyz economy was largely interpreted as the Kremlin’s interest in hydropower in Kyrgyzstan. Furthermore, Bakiyev and Chudinov have already allowed Gazprom to explore gas resources in Kyrgyzstan and potentially invest in them.

The second possibility, which increasingly seems more likely, involves Alexander Mashkevich, a Kyrgyz native and currently head of the Eurasia Group in Kazakhstan. According to experts from Bishkek, Mashkevich has been eyeing Kyrgyzstan’s hydropower sector for some time now. He is thought to be interested primarily in investing in the Bishkek Thermal Power Plant, Severoelectro and Bishkekelectroset. Mashkevich has extensive ties in Kyrgyz political circles, and a decision to invest in the hydropower sector might be supported by the Kazakh government.

Finally, both Kazakhstan and Uzbekistan are interested in managing water resources in Kyrgyzstan. At the April meeting between Kazakh President Nursultan Nazarbayev and Uzbek President Islom Karimov in Astana, both leaders demonstrated their fundamental disagreement about regional cooperation. In particular, Karimov made it clear that Nazarbayev’s initiative on a Central Asia Union was not acceptable for Uzbekistan.

Any external investor in water resources in Kyrgyzstan will have the possibility of exerting some political leverage over the downstream countries of Kazakhstan and Uzbekistan; but if representatives of either Kazakhstan or Uzbekistan control Kyrgyzstan’s hydropower sites, they might pursue their national strategic interests at the expense of the Kyrgyz economy.

Tajikistan faced a somewhat similar situation, when it sought investors for the construction of the Rogun hydropower plant. Russia was at first considered the likeliest main investor in Rogun, but the Tajik government later changed its policy in favor of a broader diversification of investors.

Whichever scenario proves true, the Kyrgyz government will continue to exercise some control over hydropower sites. Any external investors will want to see good returns on their investment, in contrast to the present situation in which the government has high losses because of poor management and corruption.

The Kyrgyz government might also diversify investors across various hydropower sites. Almost no one doubts, however, that the key decision-makers in the privatization process will to a large extent be guided by their personal interests. Privatization will most likely turn into a lucrative source of corruption among Kyrgyz politicians. When former Prime Minister Felix Kulov agreed to head a special project on the development of energy, this was generally regarded by the public as a desire for “informal revenues” from the privatization processes.

A number of local civil society organizations addressed a plea to the president to veto the privatization law adopted by parliament. The most important reason, they argued, was the strategic importance of some sites, especially the Toktogul dam. Mismanagement of these sites and their further deterioration might undermine national stability.

Normal citizens fear rapid price hikes after the sector is privatized. Although Kyrgyzstan’s prices for electricity are among the lowest in the world, the April price increase of 13 percent spawned discontent among the local population. If prices continue to increase, the poorest strata of society might not be able to afford electricity at all.

This year Kyrgyzstan will experience electricity shortages due to the low water level in the Toktogul dam. In most parts of Bishkek’s suburbs electricity already shuts down after midnight. These shortages could be avoided, according to one analyst from Bishkek. Essentially, the problem of economic downturns in Kyrgyzstan is a matter of “poor ethics and management,” he thinks (www.akipress.kg, Vecherny Bishkek, May 1-5).