Russia and China Set to Clash Over Kyrgyzstan’s Energy

By: Georgiy Voloshin

September 11, 2014 

On the eve of a new round of anti-Russian sanctions unveiled by the European Union on September 9, Gazprom’s CEO, Alexei Miller, kicked off a two-day visit to Kyrgyzstan. The head of the Russian natural gas giant and Vladimir Putin’s close advisor had previously visited the country twice in August and April 2014, but Gazprom’s representatives are known to have been actively lobbying for the company’s local interests since last December (RIA Novosti, September 9; kginform.com, September 8).

In mid-April, Gazprom officially become the single owner of Kyrgyzstan’s national gas operator, KyrgyzGas. Although the amount paid for the takeover was purely symbolic—$1—Moscow has since publicly committed itself to repaying KyrgyzGas’s debt to Kazakhstan and Uzbekistan, both of which remain the major suppliers of natural gas to their small Central Asian neighbor. One of Gazprom’s initial and most important promises has been to modernize the Kyrgyz Republic’s gas infrastructure by investing more than $540 million into its complete overhaul. Despite the mounting pressure on the Russian economy, whose growth prospects are close to zero this year, the gas firm has repeatedly said that it intends to go forward with its financial obligations toward Kyrgyzstan (rbc.ru, April 10).

Miller’s latest visit to Bishkek actually sheds some new light on Russia’s strategy for Kyrgyzstan’s troubled energy sector. Given recurrent gas shortages throughout the country, especially in the south, Kyrgyzstani President Almazbek Atambayev earlier asked Moscow for assistance in the construction of a north-south pipeline. While this project has already been discussed at length for some time now, Russia’s interest in its implementation does not have a long history. It is clear that as Bishkek is readying itself to join the Customs Union of Russia, Kazakhstan and Belarus, which is expected to become the Eurasian Economic Union (EEU) as of next January, Kyrgyzstan’s strategic significance for Moscow will only grow. This obviously makes the Kremlin more receptive to Bishkek’s economic needs (tks.ru, September 4).

According to Alexei Miller, Gazprom has identified six different routes for the future north-south pipeline that is planned to run from Issyk-Kul province to the region of Osh. The length of the pipeline may reach 600 kilometers and its full throughput capacity would be approximately 240 million cubic meters per annum. Meanwhile, the cost of construction may well exceed $1.2 billion—more than twice the amount of Russia’s total investments into the Kyrgyzstani gas industry within the next five years. “Kyrgyzstan’s population has access to natural gas only in 25 percent of the entire territory so that the development of local distribution networks is and will be a top priority for us in the near future,” said Miller (Fergananews.com, September 9; Gazprom.ru, September 8).

Russia’s generosity is, however, not limited to the pipeline issue. Last month, President Atambayev told the media that Gazprom has agreed to supply gas to northern Kyrgyzstan at a rate of $165 per thousand cubic meters, starting on October 1, instead of $224 the Central Asian state has been paying until now. The president’s speech was delivered at the annual Independence Day celebrations and was no doubt aimed at reassuring ordinary Kyrgyzstanis of a forthcoming positive change in their livelihoods. Yet, the head of state acknowledged that gas shortages in the south could only be dealt with in the presence of a functioning pipeline carrying gas down from the north. For this to happen, the residents of Osh, Batken and Jalalabad provinces would still have to wait until the end of 2016, as per the most optimistic forecasts (Gezitter.org, September 2).

As Moscow is making new overtures to Kyrgyzstan in a bid to win its support to further economic and political integration within the EEU, Bishkek’s relations with its Central Asian neighbors are fraught with tensions. Since April, almost 480 wagons loaded with Russian fuel have been blocked at the border between Kazakhstan and Kyrgyzstan. This is due to the fact that, back in January 2014, Kazakhstan introduced a six-month ban on the re-export of fuel and lubricants in order to ease speculative pressures on its domestic fuel market. Therefore, the Kyrgyzstan-bound fuel is officially considered to be contraband by Kazakhstan’s customs officials. According to local observers, this situation could have been avoided if Kyrgyzstan were already a member of the Customs Union because intra-union trade is not subject to import/export bans of any kind (kabar.kg, July 25).

As regards Kyrgyzstan’s relations with Uzbekistan, they have been extremely tense since April, when Tashkent unilaterally cut off natural gas supplies to the neighboring republic, arguing that the existing supply contract left no room for the change of ownership, thus referring to what had recently happened to KyrgyzGas. President Atambaev has even accused the Uzbekistani authorities of seeking to foment social unrest in southern Kyrgyzstan by jeopardizing local households in the winter season. Direct talks between Gazprom and UzTransGas have been largely unsuccessful so far, with Tashkent openly refusing to sign a new contract with Gazprom Kyrgyzstan, as KyrgyzGas is currently formally known (Neftegaz.ru, April 15).

Despite its strong position in Kyrgyzstan, Russia may not be completely secure as far as China’s energy diplomacy is concerned. In September 2013, Bishkek and Beijing signed an inter-governmental agreement for the construction of a fourth branch (D) of the Central Asia–China gas pipeline, which would begin in Turkmenistan and then cross Uzbekistan and Kyrgyzstan before arriving in Xinjiang. It is expected that the China National Petroleum Corporation (CNPC) will invest some $1.2 billion into this international project. Construction is scheduled to finish by late 2016 (kig.kg, May 5).

In July 2014, two Chinese firms already wrestled the future control over Manas International Airport out of Rosneft’s hands. The Russian oil company initially planned to acquire 51 percent of the airport for $1 billion but backed out of the deal for unknown reasons. Instead, China will work on the transformation of the facility, which has until recently been used by the armed forces of the United States, into a regional commercial and transit hub. Russia’s growing economic problems, in particular with regard to the Western sanctions, are likely to further increase Kyrgyzstan’s interest in diversifying its foreign policy partnerships, choosing China as a privileged interlocutor (gazeta.ru, July 3; Rosneft.ru, February 19).