Privatisation Fears for Kyrgyz Power Plants

Monday, 30 November, 2009

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Gulzat Abdurasulova

A law clearing the way for private investment in two major hydroelectric schemes in Kyrgyzstan has led to allegations that the authorities ultimately want to sell them off. Critics of the bill note that future decisions on how the construction work is funded will rest with agencies reporting to President Kurmanbek Bakiev rather than to the government, and they fear accountability and transparency will be lost in the process.

A law passed on October 9 and signed off by President Kurmanbek Bakiev three days later does away with previous legislation, dating from 2007, which stated that the uncompleted Kambarata-1 and -2 power stations were 100 per cent state-owned and not subject to sale.

Officials say the change is essential to getting outside investors to fund construction work which the government cannot afford to pay for itself.

The Kambarata-1 and -2 schemes, located on the river Naryn, a main tributary of the Syr Darya, were originally begun in 1986 but were halted in 2002 due to lack of funds in newly-independent Kyrgyzstan. Once completed, they will increase Kyrgyzstan’s generating capacity by a massive 60 per cent. The country currently has 17 power stations of various kinds, of which the Toktogul hydroelectric scheme, sitting downstream of Kambarata on the Naryn, is easily the biggest.

The Kambarata schemes are intended to give Kyrgyzstan – which is reliant on neighbouring states for oil, gas and coal – a surplus of energy for the first time, and allow it to start exporting electricity to its neighbours.

In February, President Kurmanbek Bakiev signed a deal under which Moscow is to invest 1.7 billion US dollars in Kambarata-1. The money was part of a larger package also including 450 million dollars in loans and aid and a debt write-off. Speaking shortly after the deal was signed, the then Kyrgyz prime minister Igor Chudinov said the investment would be assigned to an entity owned equally by United Energy Systems of Russia and the Kyrgyz state-owned Elektricheskie Stantsii.

The deal would see the Russians paying for the remaining construction work and recouping the costs once electricity starts being generated. Work on Kambarata-1 is expected to begin by the end of 2010, and will last several years. 

The dropping of legal protections has led some analysts and opposition members to fear that the Kyrgyz state might cede control of strategic assets which would otherwise make it self-sufficient, wealthy and a serious player on the regional energy market.

Presenting the bill to parliament on October 9, Tursun Turdumambetov, head of the government’s committee for state property, argued that the Kambarata assets needed to be freed up so as to make them attractive to potential investors.

While funding for Kambarata-1’s completion has been secured from Moscow, progress on the much cheaper Kambarata-2 is still obstructed by lack of funding.

The government has abandoned plans to finance the second Kambarata scheme itself, and wants the Kyrgyzstan Development Fund to find the first 100 million out of the estimated cost of 370 million dollars, enough to get the power plant partially working.

“It’s better if budget spending goes on social projects,” said Turdumambetov, explaining the decision not to invest government money change. “No investor is going to come and build roads, schools and kindergartens for the villages. But they will come in for big projects.”

The development fund was set up in 2007 to secure loans for priority areas of the economy, but officials say the agency will not be able to get money for Kambarata-2 unless its assets can be put up as collateral.

For the moment, the Bakiev administration’s longer-term plans, in particular for Kambarata-2, the smaller of the two plants, are unclear.

Outlining the conditions for seeking the 100 million dollar loan, the director-general of the Kyrgyzstan Development Fund, Alexei Yeliseev, said on October 9 that the state Elektricheskie Stantsii firm was to get a 100 per cent shareholding in Kambarata-2 with the right to sell the stock.

According to Anarbek Ismailov, an analyst with Consensus, a legal think-tank in Bishkek, these conditions effectively mean the power plant can be privatised.

But Dinara Moldosheva, a member of parliament from Bakiev’s Ak Jol party, says the changes are merely designed to facilitate better funding mechanisms for the power plants.

“Current legislation contains instruments that prevent these power stations from being privatised,” she told IWPR. “There’s the law on strategic assets which lists all the hydroelectric stations in the country, including Kambarata, among the items which cannot be privatised.”

During the parliamentary debate, whose outcome was a foregone conclusion given Ak Jol’s dominant position, opposition politicians voiced fears that Kyrgyzstan was on the verge of giving away its power stations, and that the process was unlikely to be transparent.

They voiced suspicions that the development agency would deliberately undervalue Kambarata-2, and that if a loan was secured through the fund, any default could force a sale of the power plant.

Turdumambetov countered that the development fund’s remit included making accurate valuations and minimising the risk of loan defaults.

Opposition politicians’ mistrust in the Kyrgyzstan Development Fund is based on their view that the agency is too close to President Bakiev and his entourage, and simply serves as a vehicle for them rather than fulfilling any real purpose.

Concerns grew when President Bakiev appointed his son, Maxim, as the head of newly created Central Agency for Development, Investment and Innovation, on October 29. The new agency was set up as a driving force for his economic reforms and will report directly to the president. 

The agency will take control of the Kyrgyzstan Development Fund, and Maxim Bakiev also becomes chairman of the fund’s board of directors, replacing the prime minister who previously carried out that role.

The central investment agency is part of the Presidential Institution, a powerful new structure under the direct control of the head of state which incorporates key decision-making functions, including some previously carried out by the prime minister and his government.

Isa Omurkulov, a member of parliament from the opposition Social Democrats, believes the new set-up looks suspiciously like a form of parallel government.

“The [central investment agency] effectively replaces the functions of the government, while the development fund accumulates various financial flows, including loans and grants. The central agency isn’t subordinate to the government and is effectively independent of it like, for example, the National Bank is,” “One has to ask oneself what the government is actually going to do when it doesn’t have access to the loans and grants to implement its programmes.”

When he unveiled his institutional reforms on October 20, the president said he intended to provide technocratic leadership to cut through red tape and get to grips with the problems created by global economic crisis.

Coupled with the law freeing the Kambarata plants’ assets from state control, the appointment of Bakiev junior to a role where he will have a pivotal say in what happens to the Kambarata power stations has left some wondering whether so much decision-making power on economic matters should be concentrated in the hands of officials accountable only to the president of state.

Gulzat Abdurasulova is an IWPR-trained journalist in Kyrgyzstan.