Kyrgyzstan's Controversial Winter Sale

The latest privatisation plan in Kyrgyzstan has run into strong opposition from critics who think strategic assets are going to be sold off at knock-down prices at the worst possible time, given the effects of global economic crisis.

A new round of privatisations announced in late November has sparked protests including a demonstration organised by the Ata-Meken party on December 19, which resulted in eight arrests.

Two of the eight people detained, including Asia Sasykbaeva, head of the human rights group Interbilim, were fined, while two others were sentenced to three days in jail plus a fine for breaching legislation on public meetings and failing to obey police.

Privatisation plans for the period until the end of 2012 were announced at a November 27 press conference by Tursun Turdumambetov, head of the State Committee for Managing State Property.

The list of 250 state-owned institutions and companies includes the national railway company, Kyrgyzstan Airlines, the post office, the Manas International Airport which serves Bishkek, the RSK savings bank, and a mineral exploration agency.

The government is also going to sell off three major power companies in northern Kyrgyzstan – the distribution firm Severelektro, Bishkekteploset, which pipes hot water to the capital, and a fuel-fired power station that supplies the heating for this system as well as the city’s electricity. (For an earlier report on energy privatisation, see Kyrgyzstan Fast-Tracks Energy Sell-Off, RCA No. 543, 25-Apr-08.)

Suyerkul Bakirov, an official from the state property committee, insisted that the government was not going to cede all control of vitally important firms.

“Assets of strategic importance won’t be privatised, and if [others] are sold, the government will be able to retain a 51 per cent controlling share,” he told IWPR.

Privatisation in Kyrgyzstan has come in for a lot of criticism over the years, with both the previous president Askar Akaev and his successor Kurmanbek Bakiev accused of presiding over a poorly-judged and far from transparent process.

This time, the gloomy economic prospects facing Kyrgyzstan because of the downturns in major partners like Russia and Kazakstan have added to those concerns.

“I congratulate everyone on Kyrgyzstan’s Christmas sale,” said Toktayim Umetalieva, head of the Association of Non-Government and Non-Commercial Organisation. “Only a few days left until the country is sold off completely.”

Umetalieva expressed fears that Kyrgyzstan’s mineral wealth, welfare infrastructure and even historical monuments would soon be put up for sale, in a process she suspected was driven by foreign interests rather than any real domestic need.

Isa Omurkulov, a member of parliament from the opposition Social Democratic Party, warned that the sell-offs were not in the national interest.

“Now the government has put up for sale… all assets of strategic importance,” he said. “That should never have been done under any circumstances, as it is not in the interests of the state.”

Nurlan Abdyshev, an analyst who writes for the AKIpress news agency’s Business Journal, is in favour of privatisation in principle, but argues that the authorities would have been wiser to ride out the world recession first.

“In putting all these assets on offer, the state is probably seeking to attract strategic investors from abroad, as there no big investors inside the country, but in the current situation investors will be pushing to get the prices reduced,” he said.

A local consultancy firm specialising in investment issues, iCap Investment, has studied the government’s privatisation plan and programme and concluded that while it could provide a much-needed boost to the manufacturing and energy industries, in particular, it could also have several downsides.

First, if the sell-offs simply hand control to a restricted circle of buyers, the new private businesses are likely to retain a monopoly hold over the sectors in which they operate, squashing any opportunity for market competition to emerge. And if the new managers fail to turn businesses around, the consequences could be disastrous.

Second, if the government gives up control of the hydroelectricity sector – one of the few areas where Kyrgyzstan has some advantage over its oil- and gas-rich neighbours – it will be effectively saying goodbye to the state’s position as an independent player in the Central Asian energy market. In addition, turning electricity generation into a profitable commercial business will inevitably mean higher prices for a population ill able to afford this.

Finally, iCap Investment warned that under-pricing industrial assets to ensure a quick sale will mean the state benefits less than it might have done in terms of income.

Bakirov of the state property committee said the government was well aware that levels of investor interest would be down as a result of the global crisis, in which potential buyers are likely to be pulling in their horns and banks are reluctant to lend on speculative investments.

He insisted that any sales made under privatisation would not be conducted hastily or at knock-down prices.

“Those assets that we can’t privatise in the scheduled time [to 2012] will be held over to the next stage of privatisation,” he added.

Asyl Osmonalieva is an IWPR-trained journalist in Bishkek.