Questions Over Moscow's Role in Kyrgyz Power Projects

Monday, 9 March, 2009

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Chynara Karimova

Russia’s pledge to inject massive funds into the Kyrgyz power industry has raised hopes that the Central Asian state will one day be free of its chronic energy shortages. But some analysts worry that Kyrgyzstan could be giving away far too much management control over a crucial energy project.

During a visit to Moscow in February, Kyrgyz president Kurmanbek Bakiev signed a deal under which the Russian state is to invest 1.7 billion US dollars in a major hydroelectric scheme called Kambarata-1.

Once completed, Kambarata-1 and the related Kambarata-2 plant, which were originally begun in 1986 but halted due to lack of funds, will generate 6.1 billion kilowatt-hours of electricity a year. For comparison, the existing Toktogul scheme, which lies further downstream of Kambarata on the Naryn river, accounts for up to 90 per cent of total power generation in Kyrgyzstan, around 15 billion Kw/hours annually.

The Kambarata scheme is intended to produce enough energy to give Kyrgyzstan a surplus and turn it into a major exporter of electricity.

The money for the dam project is only part of a larger package that includes a 300-million-dollar loan to support the Kyrgyz government’s budget, additional financial assistance worth 150 million dollars and a write-off of 193 million dollars in sovereign debt, granted in exchange for a 48 per cent stake in a defence plant producing components for torpedoes.

Speaking on February 5, two days after the deal was signed, Kyrgyz prime minister Igor Chudinov said the investment would be assigned to a soon-to-be-created entity owned equally by Inter Rao UES (United Energy Systems of Russia) and the Kyrgyz state-owned Elektricheskie Stantsii.

Kubanychbek Isabekov, the deputy speaker of Kyrgyzstan’s parliament, welcomed the deal as a much-needed windfall at a time when the country is suffering economic problems.

“We could never have dreamed of getting two billion [dollars; total financial package] during the global financial crisis. New jobs will be created and tax revenue earned.”

Once completed, he added, Kambarata-1 will transform the country into a major regional player. “Kyrgyzstan will acquire strategic leverage on water issues,” he said.

According to Kyrgyz finance minister Marat Sultanov, the Russians, too, have much at stake in the deal. Some of the surplus electricity generated by Kambarata-1 can be exported to Russia, and Inter RAO UES will earn income from all sales.

Given that in the long term, Russia’s vast oil and gas reserves will begin to wane, Sultanov said, “By supporting Kyrgyzstan, Russia is helping itself.”

Some analysts are concerned both by the terms of the deal and its viability.

Ernest Karybekov, who heads the Bishkek-based Institute for Water Usage and Resources Study, said Moscow’s role was ambiguous since it owns, through the UES firm, half of the company to which it is giving money. Further, he says, “It needs to be clarified whether the 1.7 billion dollars is a loan or an investment.”

As Karybekov noted, the terms under which the money is provided remain unclear. Most sources have described it as investment, but a Kyrgyz foreign ministry source told IWPR that this might not be the case.

“No one really possesses accurate information about the agreement, and that’s why there are various interpretations of it. Everyone is discussing it sagaciously but avoiding the most important question – whether it’s a loan or investment. As far as I know that question remains open for the moment,” said the source, speaking on condition of anonymity. “I would say the money Russia has granted us is a loan because we are going to have to pay interest on it, which wouldn’t be the case if it were an investment.”

Some politicians and analysts warn that the arrangements for the joint Kambarata company leave scope for ownership to slip away from Kyrgyzstan entirely.

Muratbek Juraev, a member of parliament representing the opposition Social Democratic Party, says there is nothing to stop the authorities selling of the state’s 50 per cent share later on, after which the stock might find its way into Russian hands.

Economist Jyldyz Sarybaeva pointed to potential pitfalls in the management structure of the joint company. The firm is to be governed by a board of five directors where Russian representatives will outnumber those from Kyrgyzstan three to two. The balance on the executive management team will be the other way round.

The Kyrgyz prime minister has insisted there will be no conflict between these two bodies. The board of directors has the authority to veto decisions taken by the managers, but Chudinov said what was important was that the latter was dominated by Kyrgyzstan nationals, as its role includes holding tenders to contract out work.

Sarybaeva, however, says that under Kyrgyz law it is the board of directors that counts, and there was a risk that “when the big decisions are taken, it does not take Kyrgyzstan’s interests into account”.

Other objections to Russian involvement in the hydroelectric project concern the wider regional context.

Kyrgyzstan’s large neighbour Uzbekistan lies downstream on the Syr Darya, the major waterway of which the Naryn is a major tributary.

In recent years, the Uzbeks have consistently opposed Kyrgyz dam projects and similar ones on the Amu Darya in Tajikistan. Based on the experience of existing hydroelectric schemes such as the Toktogul dam that also lies on the Naryn, they fear that further restrictions to the natural water flow will dangerously reduce river levels, and deprive them of vital irrigation in summer as the Kyrgyz and Tajiks store up water to generate power over the winter.

Until recently, the Russian government appeared to favour support for Tajik and Kyrgyz dam projects over Uzbekistan’s interests. In January, however, President Dmitry Medvedov said during a trip to Tashkent that Russian-led projects to build hydroelectric power stations in the region would take into account the interests of all Central Asian states, not just the beneficiary countries.

Analysts argued that wider concerns over Tashkent’s ambitions to rebuild ties with the West – frozen after the Andijan violence of 2005 – had led Moscow to become more sensitive to Uzbek concerns about energy and water issues. 

According to Bishkek-based political analyst Valentin Bogatyrev, Russia’s apparent shift in position suggests it is a bad idea for Kyrgyzstan to place the Kambarata project in Russian hands.

“If the aim is to delay the process, the project might take five or six years. In the meantime everyone will be happy – the Kyrgyz authorities [since the project is formally under way], the Uzbeks and the Russians,” he said. “It would have been preferable not to hand over control of Kyrgyz energy resources to any one government, regardless of which country it is, Russia, the United States, Kazakstan or China.”

Experts differ on just how important Kambarata is in the sequence of hydropower schemes that affect water flows along the Syr Darya and hence to Uzbekistan.

“It is the Toktogul power station [downstream of Kambarata] that will regulate water distribution in the region for many years to come,” said energy expert Raimbek Mamyrov. “The important thing is that it remains in our hands.”

Juraev disagreed, saying, “Kambarata-1 will be built close to the source of the Naryn…. It’s even possible that Toktogul [reservoir] will be left without an inflow of water.”.

Karybekov said it was unlikely that the two Kambarata stations, once completed, would affect flows into the Toktogul reservoir, but said it was essential that the details of how the various schemes will operate were discussed and agreed by the Central Asian governments involved, and ratified by their parliaments.

Chynara Karimova and Estelle Erimova are pseudonyms for reporters working in Kyrgyzstan.