Kyrgyz hydro projects hit rocks as Russia rethinks economic plans for Central Asia

MOSCOW–As a mountainous nation of Kyrgyzstan jettisoned a major energy deal with Russia, the move appeared to indicate Moscow’s continued economic disengagement from Central Asia. What’s more, Russia is indicating reluctance to support ambitious foreign projects by refraining from new lending to other nations in the region.

Old Toktogul Dam in Kyrgyz Republic

Old Toktogul Dam in Kyrgyz Republic

In the face of is apparently less than keen Russian implementation of hydropower projects in Kyrgyzstan, President Almazbek Atambayev formally discontinued these deals, citing slow pace of works. On Jan. 22, he signed into law bills to annul agreements with Russia to build the Verkhne-Narynsky cascade of hydropower plants and the Kambaratin-1 hydropower project.

This decision concluded a protracted saga of Russia’s energy involvement in mountainous Central Asia. In early 2000s, Kyrgyz officials repeatedly indicated interest in Russian investments in the construction of major hydropower plants, 1900 MW Kambaratin-1 and 360 MW Kambaratin 2. Combined Russian investments in Kambaratin-1 and Kambaratin-2 could have exceeded $2 billion.

Kambaratin-2 plant’s first 120 MW bloc was launched in 2010. But this plant needed Kambaratin-1 in order for the hydroelectric water cascade to become fully operational. In 2012, Russia and Kyrgyzstan signed an agreement to build Kambaratin-1 plant but the project became subject to delays.

Loan slowdown

The Verkhne-Narynsky cascade was due to include 4 plants with total capacity of 240 MW. In September 2012, Russia and Kyrgyzstan clinched a deal to develop the Verkhne-Narynsky project. In June 2013, preparation works started at the first two plants of the cascade, Akbulunsk and Narynsk-1. The cascade was previously expected to be completed in 2016-2019 but the project has been subject to delays.

In August 2015, Russia pledged to expedite works to build the Verkhne-Narynsky cascade and Kambaratin-1 . However, Russian contractors disbursed only about $37 million to finance the project.

Bishkek apparently expected preferential loans promised by Russia to finance these projects. However, Moscow has remained slow to disburse the promised loans. However, Russian contractors argued that the projects’ development has been hindered by a slow pace of land allocation by the local authorities.

In recent years, Moscow has repeatedly pledged to develop stronger economic relations with Kyrgyzstan. Russia has remained Kyrgyzstan’s top trade partner, responsible for nearly one third of Kyrgyzstan’s total foreign trade turnover. In September 2005, Moscow agreed to restructure Kyrgyzstan’s $184 million debt and extended repayment period up to 33 years.

So Kyrgyzstan remains dependent on Russia, financially and logistically. The country consumes about one million tons/year of fuel and oil products supplied from Russian refineries. In the past, the Russian authorities levied export duties on oil products supplied to Kyrgyzstan thus effectively blocking exports and putting pressures on the Kyrgyz authorities. However, this time Russia did not try to save its energy deal and refrained from blocking fuel exports to Kyrgyzstan.

The Russian promises to fund hydropower projects were intended as incentives to mountainous Kyrgyzstan and Tajikistan, but these pledges simultaneously served as irritants to upset lowland nations. Russia has insisted that the project would not adversely affect downstream Central Asian nations, Uzbekistan and Kazakhstan. However, the authorities of Uzbekistan have repeatedly voiced objections against upstream hydropower projects in Kyrgyzstan and Tajikistan.

In recent years, Russia was trying to balance its ties with upstream and downstream Central Asian nations. However, the end of hydropower projects in Kyrgyzstan was hardly a Russian gesture towards Uzbekistan and Kazakhstan, as Moscow’s relations with these Central Asian states have remained frosty.

New role for China?

Furthermore, Russia pledged to refrain from new lending to other countries. On Jan. 25, Russia’s deputy finance minister Sergei Storchak announced the country’s had no plans to offer new foreign lending in 2016. Facing decreasing financial inflows to its state coffers caused by low international oil prices, the Kremlin apparently aims to refrain from ambitious foreign economic ventures.

The annulment of hydropower projects in Kyrgyzstan followed Moscow’s recent move to halt imports of Turkmen natural gas. Both developments arguably indicated Moscow’s economic disengagement from Central Asia. Such a disengagement seems to open way for China’s increased economic role in the region.

Sergei Blagov is a Moscow-based independent journalist and researcher. In the past three decades, he has been covering Asian affairs from Moscow, Russia, as well as Hanoi, Vietnam and Vientiane, Laos. He is the author of non-fiction books on Vietnam, and a contributor of a handbook for reporters.

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