Kyrgyz Mull Risks of Russian Gas Deal

Plans to sell Kyrgyzstan’s national gas company to Russian energy giant Gazprom have left some analysts concerned about the risks of allowing Moscow to dominate the energy market.



Others, however, argue that cash-strapped Kyrgyzstan has few other options, and the Russian heavyweight may bring much-needed stability and investment to the local gas industry.



The Russian ambassador in Bishkek, Valentin Vlasov, gave a press conference on November 6 to brief local journalists on progress in finalising the sale of Kyrgyzgaz, a deal which he described as a breakthrough.



A memorandum of understanding signed on October 9 by Gazprom and the Kyrgyz ministry for industry and energy envisages the sale of 75 per cent plus one share in Kyrgyzgaz.



A three-month period has been set aside to finalise the terms of the deal, for instance the price Gazprom will pay.



The document was signed during a visit to Bishkek by Russian president Dmitry Medvedev. The Russian state owns a controlling stake in Gazprom, which is not only the world’s largest producer of natural gas but also has extensive interests in related areas – for example, a retail network of petrol stations in Kyrgyzstan.



Kyrgyzgas is a distribution and retail monopoly, and also controls the modest amount of gas production which provides just two per cent of Kyrgyzstan’s gas needs. As part of the acquisition, Gazprom has promised to conduct exploration and boost production in the country. It acquired licenses to explore for gas in Kyrgyzstan earlier this year.



As discussions on the fine detail of the deal continue, some observers in Kyrgyzstan have protested that it is a sell-out that will make their country a political vassal of the Kremlin.



“Given that Gazprom is a state organisation, we [Kyrgyzstan] are automatically going to become dependent on the Russian government,” warned Bishkek-based political analyst Valentin Bogatyrev.



Noting that the Russian firm is already a major player in the Kyrgyz fuel retail market through its subsidiary GazpromNeftAsia, Bogatyrev argues that from the national security perspective, it would have been better to select a truly private company to buy Kyrgyzgas.



Energy expert Raimbek Mamyrov agrees that the Gazprom bid reflects Russia’s desire to build up its presence in the Central Asian energy sector, as shown by other acquisitions and deals it has made in the region.



Mamyrov is, however, less alarmed about what Russia’s regional ambitions might mean for Kyrgyzstan. Unlike Kazakstan, Turkmenistan and Uzbekistan, the Kyrgyz do not have significant oil and gas reserves and have always been reliant on imports, so Gazprom’s entry to the market simply provides them with a major new source of gas.



Other observers agree that the presence of quasi-state Russian companies like Gazprom could bring Kyrgyzstan real benefits, political as well as economic.



In particular, they note that the availability of Russian gas could undercut the position of Uzbekistan, which is currently Kyrgyzstan’s main source of gas and which has in the past reduced supplies during periods of political tension between the two states.



Mars Sariev, a local political analyst, argues that one immediate result of the Russian-Kyrgyz memorandum was that Uzbekistan promised that the supply of gas would not be interrupted over the coming winter.



“The fact is that [Russian president] Medvedev promised to provide gas to Kyrgyzstan, and it was only then that Uzbekistan expressed a desire to increase gas supplies to Kyrgyzstan,” said Sariev. “A competitor had emerged, and Uzbekistan realised this instantaneously. Prior to this, Uzbekistan used to behave however it pleased on the gas issue.”



Azarbay Mambetov, who heads the Association of Oil Traders of Kyrgyzstan, says Gazprom is already playing a beneficial role in another market – petrol and other fuels.



Until recently, Kyrgyzstan was dependent on petroleum products from its neighbour Kazakstan, a major oil producer. But deliveries could become erratic when Kazakstan was experiencing a spike in domestic demand. “Every time the harvesting season grew imminent, Kazakstan used to ban exports of oil [products], or else impose quotas,” said Mambetov.



These days, says Mambetov, the emergence of GazPromNeftAsia’s fuel retail network has stabilised the situation.



Another reason why Mambetov favours a Gazprom take-over is that the national gas firm is in a dire financial situation.



“For several years now, Kyrgyzgas has been in a state of bankruptcy and up to its neck in debt. It owes 20 million dollars to Kazakstan alone,” he said. “It can only be beneficial for our economy if the company is bought out by the world-class Gazprom when it’s going through such a difficult time.”



Chinara Karimova is an IWPR-trained journalist in Kyrgyzstan.