WELCOME TO IWPR'S REPORTING CENTRAL ASIA, No. 543, April 28, 2008 KYRGYZSTAN FAST-TRACKS ENERGY SELL-OFF Parliament gives away its right to block controversial privatisation deals in the electricity industry. By IWPR staff in Bishkek
TURKMEN CURRENCY REFORM TAKES STEP FORWARD Moving away from a system where prices and exchange rates are held at unrealistic levels by government is going to be a slow and difficult process. By Inga Sikorskaya in Bishkek **** IWPR RESOURCES ****************************************************************** CROSS CAUCASUS JOURNALISM NETWORK. IWPR has launched the website of a unique Caucasus-wide programme, funded by the EU and the Finnish government, forming a network of more than 50 journalists from across the North and South Caucasus. They are meeting and collaborating in all parts of the region over the next three years. www.crosscaucasus.net SAHAR JOURNALISTS ASSISTANCE FUND: IWPR is establishing a fund, in honour of Sahar al-Haideri, to support journalist participants in its training and reporting programmes around the world. 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For more information about how you can support IWPR go to: http://www.iwpr.net/donate.html **** www.iwpr.net ******************************************************************** KYRGYZSTAN FAST-TRACKS ENERGY SELL-OFF Parliament gives away its right to block controversial privatisation deals in the electricity industry. By IWPR staff in Bishkek Legislative changes allowing the Kyrgyz government to privatise the potentially lucrative energy sector without consulting parliament have raised concerns that it wants to speed ahead with sales with little accountability or transparency. On April 18, parliament passed three bills relating to energy privatisation in the course of a single day. The key law signs away parliaments right to be consulted before privatisation programmes are approved. In past years, it would have been difficult to get such bills passed so easily. In its previous incarnation, the legislature frequently raised objections to plans to sell power stations and other energy-sector assets because members felt the process was botched and was not in Kyrgyzstans best interests. That changed after the December election, when the newly-created Ak Jol party swept the board and gave President Kurbanbek Bakiev and his allies the majority they needed to pass bills effectively unopposed. The two other parties represented in parliament the Social Democrats and the Communists, with 20 of the 90 seats between them were unable to slow the rapid progress of the privatisation bills rapid progress, let along block them. RUSH TO THE FINISH In January, Bakiev told his government to make the rapid sell-off of power companies a priority. (For more on this, see Kyrgyz to Pay High Price for Power Privatisation, RCA No. 528, 25-Jan-08.) Kyrgyzstan's mountainous terrain means it has the potential to produce enough hydroelectricity to meet its own needs and for export as well. For now, the cash-strapped authorities argue that privatisation is the only way of attracting investment to renovate infrastructure, build new plants and eventually become self-sufficient in electricity, and that the state does not have the funds to sustain current losses, let alone fund new projects. Denationalisation of the power industry, launched in 1998, has been a protracted process, beginning with the breakup of the state-run Kyrgyzenergo into several constituent parts one company to run the power stations, another in charge of the national grid, and others distributing electricity to consumers in various parts of the country. The companies that have now been lined up for sale, or alternatively a management lease arrangement, under the current fast-track programme include the electricity distributors Severelektro in the north of Kyrgyzstan and Oshelektro and Jalalabadelektro in the south. Other assets on offer are Bishkekteploset, which pipes hot water to the capital, and the power station that supplies the heating for this system as well as the citys electricity. Apart from massive inefficiencies, theft and unpaid bills, Kyrgyzstans power industry is just recovering from an unusually harsh winter which placed a huge strain on existing generating capacity. Low water levels in the Toktogul reservoir, where one hydroelectric scheme accounts for 40 per cent of the power generated in the country, are continuing to create blackouts of up to 14 hours a day in many regions and even in Bishkek. Pro-Bakiev members of parliament have defended the decision to cede control of the privatisation process. Ak Jol deputy Osmonali Attokurov told IWPR that the decision placed responsibility for the process firmly on the government, where it belonged. I personally think the government was right to assume this responsibility, he said. Now it is entirely answerable for its own actions and will not shift responsibility onto parliament. Since it is proposing the energy-sector development programme, it should be responsible for the consequences. Tursun Turdumambetov, head of the government agency in charge of state property, was a strong advocate of the change and was pleased to see it sail through. Privatising any asset requires speed. The republic loses potential investors because of the long-drawn-out procedures for approving decisions, he said. Thats why we removed [parliaments right of] approval, so that government can work with speed and agility. He added that ministers would remain accountable to parliament, whose members would be able to look into the privatisation process any time they wanted. We arent concealing anything from the public, he said. Opponents of the new arrangement disagree. Tolekan Ismailova, the head of the Citizens Against Corruption group, told IWPR that the people have lost their right to scrutinise the privatisation process by means of an elected parliament. The decision to implement the programme without going through parliament is anti-constitutional and it will be easy to contest it in court, said Ismailova. Parliament is now closed, and no longer exists as a public institution. Ismailova and some other human rights activists were ejected from parliament on April 16 when the amendments were being discussed in committee. According to Azimbek Beknazarov, a leading opposition figure from the Asaba party, recalled how the previous parliament, of which he was a member, used to be the scene of robust debates on this issue. By contrast, he said, The current tame parliament does what its told. The authorities now do whatever they want, and its useless to resist them as they do not listen to anyone elses opinion. All the key decisions are made in private. Isa Omurkulov, a member of parliament for the Social Democratic Party, told reporters on April 23 that the only option now might be to seek a national referendum on the issue of privatisation. Today we, the parliament, have absolutely no influence over these processes. Thanks to a certain group of deputies we know who they are were unable to monitor the implementation of this programme, said Omurkulov. The government is currently developing two energy-related documents a programme lasting until 2010 and a strategy for 2025, both of which are currently before parliament. Public hearings were held on the two papers on April 23, during which industry and energy minister Saparbek Balkibekov said the energy sector needed at least five billion US dollars in investment, and this kind of money could only come from commercial investors. FEARS THAT NEW PRIVATE FIRMS WILL HIKE PRICES For critics of Bakievs policies, the underlying concern is that once private companies come in most likely from more powerful countries like Russia and Kazakstan they will simply replace the state monopoly with one of their own, and proceed to bump up utility prices as a way of recouping their investment. These fears will be heightened if the bidding process is less than transparent. At the moment there are believed to be four prospective investors waiting in the wings for privatisation to move forward, but the government has not revealed their identity. Officials insist that electricity prices will be held down once the private sector takes over, but local human rights groups doubt it will have the legal mechanisms at its disposal to ensure this happens. The is a strong possibility that an investor will increase prices and start cutting off the power to hospitals and other public-service institutions, said Aziza Abdirasulova, head of the Kalym Shamy human rights centre. One of the other laws passed last week designates electricity as a commodity rather than a service. This might seem an academic distinction, but it has become yet another bone of contention between the government and its critics Those in favour of the re-designation say it is consistent with other pieces of legislation, while minister Balkibekov argues that it will make it easier to prosecute those who steal or waste electricity. or default on unpaid bills Yury Danilov, an Ak Jol member who chairs the parliamentary committee on energy affairs, told IWPR that the law was in the best interests of the public. Until now, electricity has been regarded as a service, so [offences were] only punishable by administrative [civil] law. Now that it is designated a commodity, the criminal code is applicable and it can be dealt with as theft of property, he explained. This law is in the interests of honest electricity consumers who dont steal it, but pay for it, Activist Anara Dautalieva said the change deprived people of one of their basic rights. Electricity and water are not goods, they are services of social importance to the population; this is about access to a local resource that we produce ourselves, she said. Why have a state at all, if the president says the state cannot be an efficient manager and everything should be handed over to private ownership? TURKMEN CURRENCY REFORM TAKES STEP FORWARD Moving away from a system where prices and exchange rates are held at unrealistic levels by government is going to be a slow and difficult process. By Inga Sikorskaya in Bishkek Turkmenistans first step along the road of monetary revaluation has had the curious effect of making the national currency suddenly look more attractive than the countrys unofficial favourite, the US dollar. On April 14, President Gurbanguly Berdymuhammedov told cabinet ministers that a new official exchange rate for the manat would come into effect on May 1, in preparation for a re-denomination next year which will knock three zeros off the current face value. Five days later the Central Bank increased the value of the manat by changing its commercial bank exchange rate from 20,000 to the dollar to 17,600 for sale and 17,430 to one for purchases. The immediate reaction was long queues at currency exchanges as people tried to turn dollars into Turkmen banknotes at the new, more favourable rate. The rush to dump American money was so intense that many exchange offices would only buy 100 dollars per customer. Foreign currency is available, but not manats. These queues are bizarre; were having to wait for two or three hours to exchange no more than 100 US dollars, said one Ashgabat resident waiting in line. The stir led to unprecedented scenes in places like Ashgabats Russian Bazaar, with dollars changing hands for ten or 12 thousand manats much less than the banks were offering. Until the change, the dollar was worth around 20,000 manats on the black market. In an inflationary environment where people are reluctant to put their money in the bank, the American dollar has long been used to preserve the value of cash savings, and it has generally in high demand in Turkmenistan. As well as the commercial bank rate, there exists an official exchange rate unchanged at only 6,250 to the dollar which is unavailable to all but a lucky few. Both these exchange rates are believed to be artificially low compared with demand for the dollar, and this has created the thriving black market. Monetary reform might have been expected to relax exchange rate controls so to allow the manat to move gradually towards a more realistic, lesser market value, and eventually to become a free-floating, fully convertible currency. However, the authorities decision to boost the manats value appears to confound that logic. The explanation came in the presidents April 14 speech, when he said a new exchange rate would be established from May 1. Without saying what it might be, he said it would take international factors into account, adding, Turkmenistan will build its [currency] pricing policy based on an assumption of favourable conditions created by a consistent increase in world demand for Turkmen energy. Berdymuhammedovs remarks clearly show he is anticipating a strengthening of the manat as his country exports more of its vast natural gas resources to a more diverse range of energy-hungry countries in coming years. That forecast looks reasonable based on the experience of other countries oil-rich Kazakstan, for example, underwent currency appreciation as the country benefited from investment and rising hard-currency export revenues. Monetary reform has been one of Berdymuhammedovs policies since he was elected last February. In November, he spoke of the immense losses the state was suffering by having such a huge spread between official and black-market rates. In the textile and oil and gas industries we price products at the official rate but use the black market rate to buy imported equipment, he said. Soon after that speech, the authorities made an attempt to close the gap, apparently by injecting additional dollars to strengthen the manat. However, this experiment quickly failed, and exchange rates went back to where they were before. (See Turkmen Economy Needs Real, Not Superficial Reform, RCA No. 526, 11-Jan-08.) Berdymuhammedov is clearly unhappy with the financial authorities record on putting his reforms into practice. According to RFE/RL, at the April 14 cabinet meeting, he sacked the Central Bank chairman Geldymurat Abilov for general failure to institute changes, saying he could not understand the job we gave him. Cynics say there has to be a catch, saying the change to a more advantageous exchange rate could just be a short-term ploy to trick people into selling their hard-earned dollars to the state. Theyre looking for ways to fleece us, said one civil society activist in Ashgabat. However, one economist working with a non-government organisation in Turkmenistan believes the move shows the authorities are serious about monetary reform. As far back as January, Berdymuhammedov pledged to unify the black and white [official] rates and to prepare for re-denomination, and now were waiting for it to happen, he said. The economist recalled that in February, the authorities started gradually adjusting the prices of goods that had been held at artificially low levels due to the monetary policies of Berdymuhammedovs predecessor, Saparmurat Niazov. As a first step, they raised the price of petrol from 400 manats to 3,100 manats per litre (from two to about 50 US cents) ignoring public concern about the change. (For a report on this, see Petrol Price Shakeup Panics Turkmen Drivers, RCA No. 532, 15-Feb-08.) A civil servant agreed that the government was right to take tough measures to adjust domestic prices and exchange rates, even it this would hit ordinary peoples pockets. The population will of course suffer, but the situation cannot continue as it is. For example, people from Russian, Kazakstan and many other places fly with our airlines because the tickets are so cheap. At a dollar and a half for a flight on a Boeing, it cannot be right, he said. Annadurdy Khadjiev, a Turkmen economist based in Bulgaria, warned that making these adjustments would not be easy because with its unreformed, state-controlled economy, Turkmenistan was in no shape to endure the shock of adjusting completely to global prices. Even at the new price, petrol prices are only a fifth of the world average. He said trying to implement exchange-rate and price liberalisation as long as the government continued directing and interfering with pricing policy would lead to imbalance and chaos in market mechanisms and in the economy itself, and will again create rising inflation, a weakening of the manat and a fall in its exchange rate. In particular, Khadjiev said, the government had yet to put proper arrangements in place to allow banks to trade foreign currency with each other. He said that only if a broad package of monetary and economic reforms, including measures to limit their social impact, was implemented could the planned re-denomination take place safely. Otherwise the problems will automatically transfer to the new banknotes and it will turn out that after the re-denomination, the manats real rate will be artificially undervalued, he said. >From January next year, Turkmenistan is to get new banknotes with a face value >1,000 times less than the current one. Thus, the biggest note now in >circulation, 10,000 manats, will be replaced by one worth ten manats. The old notes all carried portraits of Niazov, whose image was everywhere in Turkmenistan as part of a carefully fostered personality cult. His face will still appear on the biggest of the new notes, worth 500 manats, but others will depict a variety of Turkmen historical personalities. 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