A nodding donkey in Kyrgyzstan’s Batken Province, near Uzbekistan’s Sokh enclave.
Azerbaijan’s state oil company, SOCAR, is negotiating with authorities in Kyrgyzstan to set up a refinery in the country. While the project may help the Kyrgyz economy, it remains unclear whether it will help wean Bishkek off Russian energy supplies or force Kyrgyzstan simply to swap its dependence on Russian refined fuel for a dependence on Russian crude oil.
A delegation from SOCAR visited Bishkek in early March. According to Kyrgyzstan’s Ministry of Energy, the group was in Kyrgyzstan to survey locations in Chui Province, and discuss investment, tax, and trade regulations. Negotiations also touched on the country’s shaky electricity supply and its modest oil and gas reserves. The visit follows a January meeting between Kyrgyz President Almazbek Atambayev and SOCAR President Rovnag Abdullayev in Bishkek.
Under the proposed deal, SOCAR would complete construction by the end of 2013, at a cost of $100 million. The facility would have an annual output of 2 million tons of refined products. At least 40 percent of this would exceed Kyrgyzstan’s domestic demand and be designated for foreign markets. Tajikistan would be an obvious destination, as it, like Kyrgyzstan, is dependent on Russia for refined oil products, but the Azeri-Press Agency (APA) has said that China is also a likely market.
The refinery could help Kyrgyzstan insulate its market from fuel-price shocks, which have caused the country huge problems in the past. On April 1, 2010, Russia’s anger with then-President Kurmanbek Bakiyev led Moscow to suddenly cancel long-standing preferential export duties on fuel to Kyrgyzstan, resulting in an immediate 25 percent gasoline price increase. Bakiyev was ousted in a popular uprising within the week.
Currently, Russia has a near monopoly on Kyrgyzstan’s fuel supply, and the two countries are negotiating a new agreement that would make the monopoly total. Moscow has put continuous pressure on Kyrgyzstan to stop alleged re-exports of Russian duty-free fuels to Tajikistan and resale to the US air base at Manas.
A key question will be where the crude oil for the refinery comes from. Will it be supplied by Azerbaijan? Or will it come from Russia? If Bishkek intends to establish a refine-and-export arrangement with Russian crude, it may be walking into a situation similar to the one that has troubled Minsk: Belarus refines Russian oil and exports the products to Europe; Moscow has pressured Minsk to share these revenues, or give up control of the refineries altogether, arguing that, because Belarus receives the crude oil duty-free, exports of the refined products should be subject to Russian oil export duties.
Assuming Bishkek manages to navigate around any duty concerns in Moscow, an oil refinery could bring much needed employment, and perhaps price stability, to Kyrgyzstan. Of course, this is assuming SOCAR stays interested in a project powered by a Kyrgyz electrical grid suffering from chronic shortages.