Kyrgyz Petrol Price Cuts Fail to Curb Inflation

A fall in petrol prices in Kyrgyzstan has so far failed to live up to hopes that it would curb galloping inflation in the wider economy.

In January, the price of the standard type of petrol went down from the equivalent of 76 US cents per litre to 68 cents after Russia – the main supplier – agreed to drop export duties for Kyrgyzstan.

The newly-formed coalition government hailed the agreement as a major success, as rising fuel costs over the last year had affected transport costs and spurred overall inflation rates.

Kyrgyzstan began experiencing a scarcity of fuel after neighbouring states closed their borders following the unrest of April 2010 which led to a change of regime and the ousting of President Kurmanbek Bakiev. At around the same time, Russia began implementing new regulations for its customs union with Kazakstan and Belarus, which meant that non-members were subject to higher export tariffs and had to pay much more for fuel. As a result of both developments, petrol prices rose by about 20 per cent in Kyrgyzstan.

At a February 3 press conference, Kyrgyzstan’s first deputy prime minister Omurbek Babanov promised a further cut in petrol prices later in the month, so that the overall reduction would come to 20 cents.

Officials are especially concerned about fuel costs because of the impact they have on the price of consumer goods and foodstuffs. The finance ministry says prices rose by 19 per cent last year, although economists like Jumakadyr Akeneev believe the increase was nearer to 25 per cent.

The owner of a cafe in the capital Bishkek who introduced himself as Azim described the knock-on effect that last year’s high petrol prices had on his business.

“Food prices shot up. We had to increase staff wages at the cafe because they were reluctant to work for what they were earning,” he said.

Retailers and others interviewed by IWPR said the fuel cost reduction to date had been too small to prompt them to cut their own prices.

A Bishkek resident who gave his name Kadyr, a former engineer turned taxi driver, said he was unable to start charging lower fares.

“The prices of everything else like food have stayed the same, and I have to provide for my family,” he said.

Zebo, a trader from the southern city of Osh who exports goods to Tajikistan, said that the business she was in was very sensitive to fuel price changes, but that for the moment the truck drivers she used as transport had not lowered the fees they were asking.

“As I’m a wholesale trader and there are some prices I can’t increase, I’m in danger of making no profit at all,” she said, adding that some retailers might end up cutting corners by selling low-quality versions of goods but keeping prices where they were.

Analysts say there are numerous factors outside the government’s control that limit its ability to curb inflation by holding fuel prices down.

For one thing, global oil prices have risen as a result of the recent unrest in Egypt, which controls the Suez Canal, a major route used by tankers.

Askar Beshimov, who heads an economic forecasting unit called Future Projection, believes petrol prices in Kyrgyzstan can only go up because of the global oil market and because Russian domestic fuel prices have risen.

“I doubt Russia is going to sell to Kyrgyzstan for less than its domestic consumers are paying,” he said.

Another factor is that some private fuel traders in Kyrgyzstan have not passed on the price cuts to their customers. They argue that they are still selling stocks purchased when the high Russian export tariffs were still in place. But Bakay Junushev, director of iCap Investment, a financial services firm in Bishkek, suspects some traders are happy to exploit the price cut and pocket the difference.

If prices remain high, farmers like Sapar, from the Panfilov district of Chui region, say it will impact the food market.

“The sowing season begins soon and our outgoings will depend on fuel prices,” he said. "No one should be surprised if our market prices are high, since we’ll have to incorporate these costs into the price of our produce.”

Kyrgyzstan is entirely reliant on foreign imports of petroleum products, mainly from Russia but also from its neighbour Kazakstan. The government is therefore looking at options for buying from other countries as well. Late last year, deputy prime minister Babanov paid a visit to Azerbaijan, a major oil exporter.

According to Bazarbay Mambetov, who chairs the national Oil Traders’ Association, “We’re hoping deliveries of petroleum products from Azerbaijan... will start by the end of this year. Their prices will be lower because their export duties are lower.”

Asyl Osmonalieva is an IWPR-trained journalist in Kyrgyzstan. Additional reporting was provided by Nina Muzaffarova, an IWPR intern in Bishkek.

This article was produced jointly under two IWPR projects: Building Central Asian Human Rights Protection & Education Through the Media, funded by the European Commission; and the Human Rights Reporting, Confidence Building and Conflict Information Programme, funded by the Foreign Ministry of Norway.

The contents of this article are the sole responsibility of IWPR and can in no way be taken to reflect the views of either the European Union or the Foreign Ministry of Norway.