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Economy

Russia tightens hold on Kyrgyzstan

BISHKEK -- As the U.S. prepares to close its sole military base in Central Asia in July, Russia is making sure the Americans won't be coming back.

Rosneft will invest up to $1 billion for a stake of at least 51% in Manas International Airport. (Courtesy of Ryskeldi Satke)

     Russian state-owned oil company Rosneft inked a preliminary deal Feb. 19 with the Kyrgyz government to invest up to $1 billion for a stake of at least 51% in Manas International Airport, which is both Kyrgyzstan's main international gateway and home to the U.S. base used to support NATO operations in Afghanistan. The investment, Rosneft said, is "aimed at the creation of a large-scale international logistics hub," although the company is not experienced in that area.

     "Rosneft's bid for Manas marks the culmination of Russia's recent methodical acquisition of Kyrgyzstan's key strategic assets," said Alexander Cooley, a political scientist specializing in Central Asia at Barnard College in New York. "Over the last two years, Moscow has sought to terminate Bishkek's security cooperation with the U.S. and become the Central Asian state's dominant and exclusive strategic partner. It is now clear that Moscow seeks to turn Kyrgyzstan into a client state."

     Russian state-owned energy companies have been leading the way. Alongside the Manas deal, Rosneft on Feb. 19 also signed a framework agreement to buy 100% of Bishkek Oil, which has a wholesale and retail gasoline business in the capital, and a 50% stake in the sole aviation fuel provider at Osh International Airport, Kyrgyzstan's second-largest airline hub.

     "We are interested in the all-round promotion of the Rosneft brand in the high-potential Kyrgyz market," said Igor Sechin, chairman of Rosneft and a close ally of Russian President Vladimir Putin. "I believe that this acquisition (of Bishkek Oil) will allow all Kyrgyz motorists to appreciate the high quality of our fuel."

Lock, stock barrel

     The same month, Gazprom moved closer to completing its acquisition of 100% of Kyrgyzgaz, operator of the country's natural gas network. The Russian gas giant is paying $1 for Kyrgyzgaz but will assume $40 million in debt and has pledged to invest 20 billion rubles ($551.4 million) to modernize its gas pipelines over the next five years. Gazprom has been involved in exploration in Kyrgyzstan since 2003 and also is the dominant provider of aviation fuel. It has a 70% share of the retail gasoline market.

     RusHydro, another partly state-owned Russian energy company, last year began construction on the first of a series of hydroelectric dams in Kyrgyzstan that it is also to manage. It is investing at least $205 million in the first four dams. Inter Rao UES, another Russian energy company, is leading the development, with support from RusHydro, of an even bigger dam project, which has raised tensions with neighboring Uzbekistan and is expected to cost at least $2 billion.

     While welcoming this flood of Russian capital, Kyrgyzstan is bargaining for more. In acceding to Russia's demands that the U.S. base close, Kyrgyzstan two years ago persuaded Moscow to write off $189 million in debt immediately with another $300 million to be forgiven through 2025. The deal, though, extended Russia's lease for its own air base near Bishkek by another 15 years.

     Kyrgyzstan has so far stalled on Russia's request that it join a Moscow-led trade bloc with Belarus and Kazakhstan, although Putin on March 5 said talks were "at a most advanced stage."

Turning the screws

     "Moscow's assertiveness and how it conceives its relationship with its partners in the former Soviet space pose a serious challenge for Bishkek and the sovereignty of Kyrgyzstan," said Nicolás de Pedro, a Central Asia specialist at the Barcelona Centre for International Affairs. "The presence of Kyrgyz migrants in Russia gives the Kremlin a quite effective tool to exert a critical influence over Bishkek at any time.

     "If Russia takes control of the few strategic assets that Bishkek has at its disposal, the Kyrgyz authorities will see their already narrow capacity of maneuver severely diminished," he said.

     But Kyrgyzstan still has some room to play Russia off against China. President Almazbek Atambayev last year proposed a new railway project to link his country with Russia, Kazakhstan and Tajikistan, then in December signaled cooling interest in borrowing from China to fund a long-discussed railway link that would run to China and Uzbekistan. In February, the government also suspended operations at a new $300 million oil refinery opened by Zhongda China Petrol after complaints about emissions and noise.

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