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Black Market in Fuel Damages Kyrgyz Economy

A burgeoning trade in petrol smuggling is costing the Kyrgyz government millions of dollars in lost taxes.
By IWPR

A new growth industry has emerged in the south of Kyrgyzstan. The smuggling and illicit sale of petrol from neighbouring Uzbekistan has developed on a scale estimated to have cost the state 538 million soms (about 11.5 million US dollars) in lost taxes during 2002.


The closure of the border by Uzbek authorities has done little to stem the flow of oil, as black market routes continue to operate unhindered. Uzbek women carry 20 to 30 litre cans of petrol and diesel through the fields on small handcarts. In the course of a day, each woman can move up to half a tonne of oil across the border.


Petrol smuggling is the only source of income for Mamlyakat's family. "I earn between 70 and 100 soms a day (under two dollars)," she says. "There are so many of us doing this. When the border guards catch us, they just take our money and let us go."


Small-scale smugglers may be raking in a few dollars at a time, but the overall income and cost of the illicit trade is huge. During 2002, smuggling is thought to account for over 70 per cent of the petrol, diesel fuel and other oil products consumed in Kyrgyzstan, according to the Kyrgyz association of oil traders.


"Last year alone, we lost about 1.4 million dollars because of smuggling," said Robert Brown, president of Kyrgyz Petroleum Products, KPC, in Jalalabad. A Kyrgyz- and Canadian-owned concern, it is the only refinery in the south of the country.


With 80 per cent of the Kyrgyz population living below the poverty line, there is a huge demand for smuggled diesel fuel, which is considerably cheaper than local fuel or fuel imported legally from Russia or Kazakhstan.


"It is quite natural that a farmer will want to buy the cheapest oil," said Jalalabad journalist Jalil Saparov. "Survival is his priority; he isn't going to worry about the effect on the Kyrgyz economy. Why should he?"


Moreover, KPC refinery does not have the capacity to satisfy the demand for oil. "Kyrgyzstan will never be able to stop the flow of illegal diesel fuel," admitted Robert Brown.


The senior inspector of the anti-contraband department of the Jalalabad customs office, Aaly Joldoshev, acknowledged the genuine demand for smuggled fuel.


"It is much cheaper than the local stuff, so it's accessible to people who couldn't afford the legal stuff," he said. "Certainly, we do arrest smugglers. But we seize only about a third of what is coming into the republic."


Smuggling on a large scale can only take place with the connivance of border guards and customs officials, as Ermek, a so-called "gasoline king" or organiser of the smugglers, acknowledged to IWPR.


"They help me to negotiate with Uzbek border guards and escort the car to a safe distance. They are happy if I use them again. Why shouldn't I? My profits exceed the bribes I pay several times over," he said.


Another gasoline king told IWPR that high-ranking officials often make deals with the smugglers.


"Officers from the public prosecutor's office, the national security service, the regional department of internal affairs, customs officials and tax inspectors provide cover for people engaged in petroleum contraband. They intervene if a car is stopped by inspection agencies. They get quite a significant percentage of the profits, but I don't mind because it means I can get on with my business," he said.


For their part, customs officials believe that the problem could be solved if the Kyrgyz and Uzbek governments would reach an accommodation with each other.


"If the prices were evened out, the need for smuggling would immediately disappear," said one officer.


However, the Kyrgyz government has already decided to reduce excise tax on imported oil products. Petrol traders hope this will increase the volume of legally imported products, but KPC president Robert Brown is sceptical, pointing out that increased imports will only hurt the Kyrgyz oil refinery industry.


"More than 50 million dollars of potential investment in Kyrgyzstan will shift to Kazakhstan and the state budget will lose huge amounts of money. As a result, the oil refining industry in Kyrgyzstan could disappear," he said.


"Lowering the excise tax on petroleum products is effectively a legalisation of smuggling," added another KPC employee. "In the end, such legally smuggled fuel will start to undercut the petrol and diesel fuel we produce here in Kyrgyzstan."


As spring arrives, farmers need diesel fuel for their machinery. While the government agonises over how to stem the smuggling trade, they will continue to shop around for the lowest price. For now, that means buying contraband fuel.


Ulugbek Babakulov is a human rights activist in Jalalabad


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