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
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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
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
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
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
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
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
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,
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
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
However, one economist working with a non-government organisation in
Turkmenistan believes the move shows the authorities are serious about monetary
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
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.
(Some of the names in this story have been withheld out of concern for
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