Kyrgyzstan: Kremlin Lifts Punitive Fuel Tariff on Bishkek

A cargo train slowly passes through the customs station in Kayindy, Kyrgyzstan, near the border with Kazakhstan in October 2010. Three to four cargo trains per day cross the border from Kazakhstan to deliver mostly Russian jet fuel to the Transit Center at Manas, where KC-135 planes are based to refuel most of the military aircraft flying over Afghanistan, and where almost all US and NATO military forces transit in and out. (Photo: Dean C.K. Cox)

In a boost for Kyrgyzstan’s economic revival efforts, Russia has abolished an export tax on fuel. Imposed during the last days of former president Kurmanbek Bakiyev’s administration, the Russian fuel tariff was widely seen as a trigger for political upheaval that buffeted Kyrgyzstan in 2010.

The Russian tax, which initially cost $192 per ton of fuel in April, rising to $230 per ton by December, was lifted on January 1. The Kremlin’s move came just days after Kyrgyz Prime Minister Almazbek Atambayev visited Moscow.

Observers say the speed with which the Kremlin made good on its promise to lift the tariff is a nod of approval for the new Kyrgyz government.

Prices at gas stations across Kyrgyzstan have already dipped by 4 percent since January 6. “It is a very significant and positive factor for the Kyrgyz economy,” said Alexander Knyazev, a consultant with the Institute of Political Decisions in Almaty, Kazakhstan.

The tariff removal also applies to aviation fuel. But the main consumer of TS-1 jet fuel in Kyrgyzstan, the US-operated Manas Transit Center outside Bishkek, has been using fuel sourced from the Caucasus and beyond, not Russia.

Mina Corp, the Pentagon’s fuel contractor at Manas, was forced to look for non-Russian fuel after facing allegations that it was involved in a scheme to re-export cheap Russian TS-1 to third countries. A US Congressional investigation later implicated Mina Corp in the falsification of end-user certificates whereby Russian fuel was certified for domestic use in Kyrgyzstan, but instead used to fuel US air force planes.

“Jet fuel for the American air base generally doesn’t come from Russia any more. It comes via seaports, Georgia, Azerbaijan, Turkmenistan, even Estonia, Lithuania, Greece, Kuwait and Israel,” Bazarbai Mambetov, the head of the Kyrgyz Oil Traders Association said.

Both Azerbaijan and Turkmenistan have tax-free fuel arrangements with the United States. Under the terms of the Manas Transit Center leasing agreement, Mina Corp and other US government contractors are exempt from Kyrgyz taxes.

A recent effort by Kyrgyz authorities to introduce a local excise tax at a rate of $55 per ton of fuel continues to meet with stiff resistance. Taalaibek Okenov, the President of the Association of Civil Aviation Airlines, said; “Excise tax is absolutely non-feasible because as a member of the International Civil Aviation Organization no country should impose it.” The introduction of excise on aviation fuel would have a negative impact on the Kyrgyz civil aviation market, he added.

On January 24, Kyrgyzstan’s provisional president, Roza Otunbayeva, issued a statement reiterating her belief that Mina Corp entered into corrupt deals with Bakiyev’s business associates and family members. The following day, Mina Corp again denied any wrongdoing, pointing out that US congressional investigators had not found conclusive evidence of illegal dealings.

Separately, Marat Malataev is no longer head of the state-owned Manas Refueling Complex, the Kyrgyz enterprise poised to take up to 50 percent of Mina Corp’s Manas fuel contract. It is unclear if Malataev resigned or was dismissed in mid-January. His replacement is Maksat Sharipov, the former deputy director of retail sales at the Bishkek Oil Company (BNK.) BNK operates a chain of petrol stations in Bishkek and a fuel storage depot just 40 kilometers from the city. It was reportedly controlled by Maxim Bakiyev, the former president’s son, and swiftly nationalized last April.