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Bishkek brings itself into energy stalemate

Kyrgyzstan has denounced its agreement with Russia on construction of the Kambar-Ata-1 Hydro Power Plant and Upper-Naryn Hydropower Cascade. Just on the next day, the government of Kyrgyzstan adopted a decision to find investors in these projects. The funny thing about this is that Russia is again in the list of potential investors. Moreover, it runs in the group of the potential leaders immediately after China and on the same level with U.S. and Turkey. In fact, this demonstrates the stalemate Kyrgyzstan has found itself in. 

Most observers say no country wants to deal with complicate and financially intensive projects like the above hydro-technical facilities. In addition, the payback period of these projects is likely to be very long.  Kyrgyzstan is in extreme need for power generating capacities, and the problematic experience of foreign investors in the country makes matters even more complicated.

China that built Junda oil refinery has to buy real estate in a sanitary protection zone at a price three time as much after several years of operation.  It has repeatedly faced accusations in  violating of the environment code, rallies and protests of the nationalist organizations, and has probably regretted for its decision to build the oil refinery for many times already.  The ‘epic’ about Canadian investors in the Kumtor gold mine has become even more popular outside Kyrgyzstan.  The mine was blocked, disconnected from power supply. Even the legislation of the country was amended to deprive the Canadian company of the mine. There were hundreds of inspections by deputies and others. It would be a different matter if the facility was “bad,” but it ensures 7.4% of GDP. It is clear that in such unfavorable investment environment, few companies will want to start a business in Kyrgyzstan.  Furthermore, things were not good with the construction of Kambar-Ata-1 Hydro Power Plant and Upper-Naryn Hydropower Cascade from the very beginning.

“These projects are of geopolitical nature, which also reduces the chances of their implementation,” says Mars Sariyev, expert at Dalil Plus Analytical Center.

Reference: Naryn is the largest river in Kyrgyzstan. It joins Qoradaryo in the territory of Uzbekistan and forms Syr Darya. Experts say the river has an annual capacity of 36.5 billion kWh of electric power. In the Soviet times, Hydro Power Cascade of five plants was built on the river: Toktogul, Kurpsai, Tashkumyr, Shamaldysai and Uch-Kurgan. Another hydro power plant - Kambar-Ata-2 was designed in 1970s. The construction was launched in 1986. In early 1990s, the construction activities were suspended for lack of financing. In 2007, the construction was resumed. On August 30 2010, the first unit with a capacity of 120MW was launched. The designed capacity of the plant was 360MW: 3 units with a capacity of 120MW each. However, to operate at full scale, the hydro power plant was to work together with Kambar-Ata-1. It was designed as the upper part of the 1900MW Cascade and average annual generation of 5,088 billion kWh. Preparations were launched in 1986, but after the collapse of the Soviet Union the construction was suspended.

In 2012, Russia and Kyrgyzstan signed an agreement of joint implementation of the project. The construction was protracted for a series of reasons. Preliminary activities amounted to $37 million.  After long protraction of the project’s implementation, President Almazbek Atambayev said “the current state of the Russian economy will hold Moscow from investing in these facilities.” Afterwards, in the beginning of 2016, the parliament of Kyrgyzstan denounced the agreement and announced a decision to find new investors.

Zulfia Marat, Vice Chairman of the Kyrgyz International Public Fund “Institute for the Problems of Water Use and Water and Energy Resources of Central Asia” believes that Bishkek should not have denounced the agreements. It needed to reconsider the texts of the agreements of 2012 or suggest less expensive and more viable projects.  “It is obvious that Russia did not initiated the agreements. It was our proposal and it is we who need energy. Therefore, when difficulties emerged with Russia’s financing, we should have tried to reach a compromise instead of biting the hand that feeds us,” she told EADaily's correspondent.  Zulfia Marat believes that the denouncement will affect Kyrgyzstan’s relations with Russia that is able to make investments in other countries even despite crisis.

Mars Sariyev believes the situation with the denouncement is complicate, as Kyrgyzstan will now have to return the $37 million Russia has already invested in the project and find new investors. “Arab countries, China could become investors, but they will hardly agree to invest in a project with such long payback period and face force majeure situations,” Sariyev says.

Meantime, not everyone in the Kyrgyz leadership believes that the above millions should be returned to Russia. In particular, Prime Minister's Advisor for Energy Affairs Kubanychbek Turdubayev says there are no such commitments at the government level, so there is no one to make demands to.  Taalaybek Tolubayev, Director General at the Electric power stations OJSC cooperating with the developer of Kambar-Ata – RusHydro, says Kyrgyzstan owes nothing to Russia, as “implementation of the project was terminated through no fault of ours…there is agreement and it contains the commitments that they did not implement.”

Zulfia Marat indirectly urged Bishkek to “replay” the situation. She thinks it necessary to bring responsible, either politically or administratively, all the officials of Kyrgyzstan behind the preparations and implementation of the agreements of 2012 as they affected the allied relations of Bishkek and Moscow. It is necessary to inform Russia in a written form on the need of new talks to change the text of the Agreement of 2012 without stalemating ourselves with that “denouncement” and offer new options of energy projects.

“We need to learn to be a consistent partner and respect our own steps, if we made such to sign the Agreement on the construction of the HPPs,” she says. Marat disagrees with the statements by some experts who think that Bishkek is plotting another “big geopolitical U-turn.” “Breach of relations is impossible. We are in the EEU, there is a Russian-Kyrgyz Development Fund backed with real millions-worth financial tranches.  The reason of denunciation is beyond those projects, I think, it is in the general Russian-Kyrgyz relations and internal failure of the Kyrgyz authorities. The context of the allied relations is being exhausted,” Zulfia Marat says. The expert is sure that Bishkek will find no other investor in the above projects.

Similar remarks came from Ravshan Jeenbekov, the former parliamentarian, one of the leaders of Ar Namys Party. “Many investors who would like to deal with Kyrgyzstan understand that the Kremlin’s pressure on the Kyrgyz authorities is rather strong and at any moment, even if the Kyrgyz government transfers these projects to other investors, it may change its mind and create any obstacles to further implementation of the project. Therefore, many potential investors, for instance, China, are cautious and avoid such projects. European countries will not deal with such projects for the same reason. The situation is bad also because they do not trust in the Kyrgyz authorities – there are some reputational problems too,” Jeenbekov said.

Another problem is the stands of Kazakhstan and Uzbekistan. These countries are nervous over the projects of Hydro Power Plants on the regional rivers. They fear that operation of HPPs will create a deficit of water in lower reaches of the rivers.  Jeenbekov says it is naïve to think that Kazakhstan and Uzbekistan will help Kyrgyzstan build HPPs. “We must be thankful that they do not protest,” he says. Yet the problem is that they did not protest actively just because Russia was involved in those projects.

At the same time, Jeenbekov is skeptical about Kyrgyzstan’s EEU membership. “I see no union in the format of the EEU. Our businessmen complain that their products do not pass through the Kazakh border. Meantime, many Russian and Kazakh products are imported to Kyrgyzstan. This may lead the hardly operating local producers to bankruptcy,” Jeenbekov told EADaily's correspondent.  In his words, Bishkek will not denounce the EEU Treaty as it is too much dependent on Russia. “If Russia begins losing its positions in Kyrgyzstan and cutting its investments, we will have to search for other sponsor and other investors,” Jeenbekov said, adding that in such case China’s influence will grow in Kyrgyzstan amid falling influence of Russia.

EADaily Central Asian Bureau

Permalink: eadaily.com/en/news/2016/01/24/bishkek-brings-itself-into-energy-stalemate
Published on January 24th, 2016 06:56 PM
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