Kyrgyzstan: Russia Set to Take Major Stake in Kyrgyz Torpedo Plant

The April 1 announcement that Russia has transferred $150 million to Kyrgyzstan has thrust the geopolitical competition between Moscow and Washington back into the news. Many experts in Bishkek and elsewhere believe the Kremlin promise of aid for President Kurmanbek Bakiyev's ailing administration was responsible for the Kyrgyz government issuing an eviction order to US forces stationed at the Manas air base outside of Bishkek.

The $150 million transfer is perhaps the key component of the Russian aid package, as many local analysts say the money will be used by Bakiyev to boost his reelection chances in the July 23 presidential vote. [For background see the Eurasia Insight archive]. Government officials have indicated that a good portion of the Russian assistance will be used to fund initiatives to stimulate economic activity in Kyrgyzstan.

Another, less publicized aspect of the Russian assistance package is moving forward, involving a debt-for-assets swap. Specifically, Russia is ready to acquire a 48-percent stake in the Dastan munitions plant in exchange for writing off much of Bishkek's $193 million debt to Moscow.

Many analysts in Bishkek are applauding the deal, saying the Dastan facility in the Lake Issyk-Kul region was largely under Russian control anyways. But other analysts are wondering whether the Kyrgyz government is the legitimate owner of enough shares to make such a trade.

Dastan, formerly known as Fizpribor, is a joint stock company with shares owned jointly by the Kyrgyz government, a Kyrgyz-registered privately-held enterprise called Pod Klyuch, and private individuals. The plant employs more than a thousand workers. Dastan is the only manufacturer that is included in the Kyrgyz AB Index of corporate worth in the country.

As a former cog in the Soviet military-industrial complex, Dastan has always been heavily dependent on orders from Moscow, even though the company has made attempts to diversify its client base. The plant in recent years has obtained relatively minor contracts from other CIS countries and India.

Before the debt-for-assets agreement was reached, the Kyrgyz government appeared to control a far smaller stake in Dastan than the 48 percent that it is seemingly ready to transfer to Russia. According to the website of the Committee on State Property, in January the government owned only 37.6 percent of the company's stock. Where Bishkek acquired the other 10 percent share is now a source of intrigue.

A day before Bishkek formally offered the 48 percent share in Dastan, the government ruled a 1990s-era reissue of shares was illegal, said Finance Minister Marat Sultanov, according to the 24.kg news agency. This legal gerrymandering appears to have enabled the government to boost its stake from 37.6 percent to the requisite 48 percent level.

The price-setting process begs another question. At earlier stages of the bargaining process, the Kyrgyz valued its 37.6 percent stake at $32 million, while Russians considered the Kyrgyz shares to be worth only $20 million.

If any shareholders are unhappy with the deal, they are keeping quiet.

Despite the fuzzy math, Prime Minister Igor Chudinov defended the deal, noting the company is already dependent on Russian contracts. "Everything produced by the Dastan plant are technologies of Russia's military and industrial complex and they are the owners of these technologies," the AKIpress news agency quoted Chudinov as saying. "This plant is fully equipped with the technologies of the Russian defense complex, and the plant will not develop effectively without these technologies."

Most analysts that EurasiaNet contacted about the deal echoed Chudinov's opinion. "It is a normal market deal," said Asel Kyrgyzbaeva, an economics lecturer at the American University of Central Asia. "We had to pay our debts somehow and this is compensation." Dastan representatives declined to comment on the debt-for-assets swap.

The renewed interest in the plant may be a boon for the local economy, some local experts hope. "If the Russian side provides for more contracts and the development of the factory, it would be good for Kyrgyzstan," said a Kyrgyz economist, speaking on condition of anonymity.

Leonid Bondarets, a retired Kyrgyz colonel and an often-quoted military expert, is optimistic. Suggesting Kyrgyz industry is often at the whim of corrupt Kyrgyz officials, he told EurasiaNet that he sees new Russian leadership as protecting the interests of the business, and local jobs. "I hope that participation of the Russian investors will prevent [local] officials from ruining the factory, and meddling with its work."

Still, some are unhappy with the sale. Questioning Russian declarations of friendship to Kyrgyzstan, Social Democrat party leader Bakytbek Beshimov wonders why Moscow did not just write off the debt. "The Russian Federation wrote off foreign debts to countries like Nicaragua, Vietnam and Mongolia. Why can't they do the same [for] their strategic partner [Kyrgyzstan]?"