EurasiaNet Business & Economics - Kyrgyzstan: High Gas Cost Could Become a Political Issue

BUSINESS & ECONOMICS

KYRGYZSTAN: HIGH GAS COST COULD BECOME A POLITICAL ISSUE
Umid Erkinov 3/25/09

Many Kyrgyz are grateful that Mother Nature took it easy on them this winter, which featured unseasonably mild weather for most of January and February. But that does not mean citizens in Kyrgyzstan do not have something to gripe about. Instead of the cold, attention is focusing on the high cost of heating fuel.

Since the start of 2009, consumers in Kyrgyzstan have been coping with a drastic price hike for energy, spurred by Uzbekistan’s decision to raise gas prices from $145 to $240 per thousand cubic meters (tcm). That increase is only part of the issue, though. The end cost that many Bishkek residents are paying works out to a rate of $321/tcm. It is the spread between the purchase rate and the consumer cost that is ticking a lot of people off. Some observers believe funny business is involved, and suggest the large overhead costs are somehow connected to a government plan to privatize the state-controlled gas company, Kyrgyzgas. The tender for the company is scheduled to open on March 27.

As President Kurmanbek Bakiyev and his rivals start gearing up for a snap presidential election in July, former foreign minister and opposition MP Roza Otunbayeva has sought to make a political issue of the gas price question. She publicly questioned the need for the large differential, and called on Kyrgyzgas executives to provide a detailed explanation about its expenses and pricing structure. Her comments seemed designed to stir up concerns about corrupt practices.

"Kyrgyzgas makes $10 million a year," the 24.kg news website recently quoted Otunbayeva as saying. "It is time to stop making a profit out of the people’s pockets."

Kyrgyzgas officials are downplaying Otunbayeva’s concerns. "It was a populist statement," said Lutsiya Razakova, the chief economist from Oshgas, a southern subsidiary of Kyrgyzgas.

Rauf Salikhov, the first deputy of Oshgas told EurasiaNet that the excess costs cover customs fees, taxes and maintenance of the gas delivery system.

Such an explanation may not be sufficient to satisfy consumers. Even a local official from the Osh city administration wondered where his money is going. "For Uzbek gas, which is $240, I pay $312," said the official, who spoke on condition of anonymity. "I understand that Kyrgyzgas should cover maintenance and transportation costs, but I can hardly believe that it takes $72 to transport gas from Andijan to Osh, a distance of only 50 kilometers." Gas is more expensive in northern provinces.

Beyond coping with price shock over the near term, many consumers worry about experiencing shortages in the future. "Prices for gas have almost doubled; the gas is much too expensive," Talaibek, a university student in Osh, told EurasiaNet last month. Noting last winter’s gas war between Russia and Ukraine, he expressed concern that Uzbekistan could follow Moscow’s lead and use gas as a political weapon. "Already, for many hours we have no electricity; if we don’t even have gas, how can we cook meals and make tea?"

In all fairness to Kyrgyzgas, many of its clients fail to pay their bills in a timely manner, if at all. That puts the company in a difficult position, especially as the country’s opposition is starting to seize on the energy crisis to rally support.

Janbolot Bakirov, the deputy chief of Bishkekgas, Kyrgyzgas’ northern distributor, said March 5 that the total debt of Bishkek customers is 118 million soms ($2.7 million). "Every day Bishkekgas cuts off 15 to 21 of those gas consumers whose debts are more than 4,000 soms ($94). To restore their gas supply, a consumer has to pay back his debt and about 3,000 soms ($70) more for the service," 24.kg quoted him as saying.

In Osh, gas company representatives have started to address the arrears issue by welding building supply lines shut, local television has shown.

According to Salikhov of Oshgas, only 30 percent of consumers in Osh province pay their bills on time. He says 56,000 homes have not cleared their gas debts. During raids, Oshgas authorities have found customers stealing gas by hiding pipes in their walls. "We have identified people who have not paid since 2004. In 2008, we sued 111 gas consumers, and so far have won 58 cases," while other cases are still in court, he said.

Kyrgyz authorities say privatization is needed to ensure adequate service in the future. At a National Country Strategic Development Council meeting in late February, President Bakiyev stressed the need to accelerate the privatization process for Kyrgyzgas. "Without serious investments, Kyrgyzgas will not be able to reach a high level of development," he said.

On March 27, the state will initiate a potential privatization of the company, opening a window during which qualified energy companies can make a bid for the government’s 88 percent stake in Kyrgyzgas. The government retains the option to proceed with privatization only if it is satisfied with the bid amount for Kyrgyzgas.

Independent experts say that privatization is unlikely to have the desired effect on Kyrgyzgas. Even in the best case scenario, Uzbekistan will exert considerable influence over the gas price.

Editor's Note: Umid Erkinov is the pseudonym for a Kyrgyz journalist.