Economics, not politics is prompting Russia to get tough with Kyrgyzstan, a top Russian diplomat based in Bishkek tells EurasiaNet.org. At the same time, the diplomat blamed the Kyrgyz government for delays in a hydropower deal, asserting that officials in Bishkek were politicizing the issue.
Russian-Kyrgyz relations have hit some turbulence in recent months, with the Kremlin showing signs of obvious frustration with Kyrgyzstan’s efforts to obtain foreign aid from Moscow without offering much in the way of diplomatic loyalty in return. Amid rising tension, the two states are now haggling over terms of two large-scale strategic investments, one involving construction of a large hydropower facility on the Naryn River known as Kambarata-1, the other concerning at the Dastan torpedo factory.
Originally, Kambarata-1 was envisioned as a 1.9-gigawatt facility, but EurasiaNet.org has learned that Inter RAO, one of the prospective Russian backers of the project, is pushing to scale the facility’s annual generating capacity back to roughly 800-900 megawatts. In addition, Russia now wants to obtain 75 percent shares in both Kambarata and Dastan. Previously, Moscow was prepared to settle for less-than-majority shares in both ventures.
Kyrgyz leaders show no signs of giving in to what they believe to be Russian pressure tactics. Kyrgyz Prime Minister Omurbek Babanov stated in an interview with the Kommersant business daily on April 16 that Russia “is not fulfilling its obligations.”
The Russian stance is rooted mainly in fiscal realities, insisted Evgeny Terekhin, who serves as minister-counselor at the Russian Embassy in Bishkek.
“When everyone says ‘this big Russian bear is going to swallow small Kirgizia,’ it is not the full story,” Terekhin said. Both Kambarata and Dastan are intertwined with efforts to settle Kyrgyzstan’s debts to Russia. Part of the Kambarata deal, for example, involves a write-down of $180 million in Kyrgyz debt.
Terekhin asserted that Kyrgyz political leaders and local media are misrepresenting the terms of the Kambarata deal, which include a give-back of 25 percent of Russian owned shares to Kyrgyzstan once Kambarata-1 becomes profitable. Thus, ultimately Russia and Kyrgyzstan would end up with a 50-50 arrangement, he said.
“These negotiations have been going on for rather a long time. It’s a long story,” said Terekhin.
Uncertainty about the hydropower project’s profit point appears to be a significant factor in prompting Russian companies to want to scale back its scope. Energy insiders say the smaller version of the plant would be more economically viable and profitable over the long term. At the same time, insiders add that Kyrgyz officials are infatuated with the larger scale project, and are resisting Inter RAO’s new engineering proposals.
For Russia, the primary concern regarding Kambarata-1, along with another hydropower venture on the Naryn River, is limiting risk, the Russian diplomat stressed. “The position of our energy companies is simple. Both projects are rather expensive. One is estimated to be about $2 billion and the second between $4 billion and $5 billion,” Terekhin said. “The only investment by the Kyrgyz side would be represented by the water stream and river bank.”
“That is why they [Russian companies] ask for 75 percent [of Kambarata],” continued Terekhin. “But, as I have mentioned, this is not the full story. The full story is that they're asking for 75 percent of shares only for the period of repayment for this project. As soon as the expenditures are covered by the income from the sale of electric energy, the two parties return to 50-50 division of the shares.”
Terekhin suggested domestic political factors were limiting Kyrgyzstan’s negotiating flexibility. “It's not a secret to anybody that a wave of nationalism is rising up here [in Kyrgystan] and it would be difficult for anybody to withstand the pressure of this wave be it a president, or even the Lord himself,” Terekhin said.
“Everybody now is trying to play the role of the best patriot of his country, to be a better Catholic than the Pope,” he added. “I think that sooner or later this wave of emotion will go down and more calm and cold calculations will overcome. I think simply we - both parties - have to wait a little bit.”
Deirdre Tynan is a Bishkek-based reporter specializing in Central Asian affairs.