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Wednesday, 17 February 2016

Bishkek denounces agreement with Moscow on power plants

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By Arslan Sabyrbekov

February 17th, the CACI Analyst

On January 22, Kyrgyzstan’s President Almazbek Atambayev signed a law denunciating the agreement with Russia on the construction and operation of the Kambarata-1 hydropower plant (HPP) and the Upper Naryn HPPs cascade. The expected decision officially put an end to Kyrgyzstan’s prospects of attaining energy independence in the foreseeable future.


kg-hpp-ruYet this is easier said than done. According to local experts, Kyrgyzstan could turn to China or India as potential investors. However, given the low profitability of the project, neither Beijing nor to New Delhi are likely to be interested. According to Bishkek-based energy analyst Ernest Karybekov, “in order for both hydropower plants to be capable of generating a profit and thereby become attractive to investors, Kyrgyzstan will have to significantly increase the prices for energy, a move that the government will be highly unlikely to make given the very sensitivity of the issue for the general population.” The government’s previous decision to increase prices for public commodities led to a series of public uprisings and discontent.

The agreement on the construction of the hydropower plants was signed in 2012, during Russian President Vladimir Putin’s visit to Bishkek. The agreement assigned the task of constructing the US$ 3 billion Kambar-Ata-1 facility, with a capacity of 1,860 MW, to Russia’s state owned company Inter RAO together with RusHydro. RusHydro was contracted to build four additional smaller hydropower plants with a total output of 237.7 MW. According to preliminary estimates, the realization of this agreement required funding at around US$ 720 million. Over the course of these years, the Russian companies have invested only US$ 37 million, which the Kyrgyz side now has to pay back after its denunciation of the agreement. Kyrgyzstan’s former Minister of Justice and currently serving Member of Parliament Almambet Shykmamatov stated that he was recently at the construction site and did not see anything worth even US$ 5 million. In an interview to the local bureau of Radio Liberty, the MP said that he will now advocate the creation of a special Parliamentary Commission to investigate how these financial resources were spent. Conversely, Kyrgyz vice Prime Minister Oleg Pankratov stated that the money transferred was used transparently, and that the start of the construction will serve as input for future investors.

Moscow’s inability to finance the project and most importantly to keep its promises has met varying reactions. Moscow-based political analyst Mikhail Krutikhin argued that the decision is not of a political nature, but a purely financial one. “Russia’s refusal to finance the hydropower projects in Kyrgyzstan is not the only big project cancelled. Gazprom has also now refrained from building a Caspian pipeline, a promise given to Kazakhstan and Turkmenistan. The company also refused to repair the gas pipeline system Central Asia-Center,” noted Krutikhin. Nevertheless, despite the pledge of the Russian side that it may reconsider investing in the construction project in the future, Bishkek has firmly stated that it will find a new investor within the next six months, a highly challenging task indeed.

These developments have also fueled the argument that Moscow promised to finance a number of significant projects in Kyrgyzstan, knowing à priori that it cannot and will not finance them, in order to draw Bishkek to the Eurasian Economic Union – which according to recent statistical data has even led to a decrease in the trade turnover among its four members. In addition to the deteriorating economic situation in Russia itself, this poses a serious challenge to the Kremlin’s ability to maintain the Union. 

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