Russia's Gazprom to Buy Kyrgyz State Energy Firm

3 MINS READJul 17, 2013 | 15:05 GMT
The CEO of Russian energy giant Gazprom, Alexei Miller, at a press conference in Moscow on June 28.

Russia's looming acquisition of a key energy company in Kyrgyzstan will boost its position in the strategic country, with economic and security implications for the broader Central Asian region. Kyrgyz state energy firm Kyrgyzgaz head Turgunbek Kulmurzayev said July 17 that Russia's Gazprom will acquire all assets of the company within 10 days. Gazprom will pay only a symbolic sum of $1 for Kyrgyzgaz, though it will also pay off the company's debt of $40 million.

Kyrgyzstan, a landlocked and mountainous country in Central Asia with few natural mineral resources or hydrocarbons, has struggled economically since its independence from the Soviet Union. The country is completely dependent on its neighbors — particularly Uzbekistan, Kazakhstan and Russia — for oil and natural gas supplies and has had issues paying for its energy imports from these countries. This has led to frequent cutoffs of oil and natural gas supplies, which causes regular blackouts throughout the country. While Kyrgyzstan is rich in water supplies and has attempted to derive energy from hydroelectric plants, downstream countries in Central Asia have opposed these projects.

One primary source of relief for Kyrgyzstan's economic problems has been Russia. Russia's position in Kyrgyzstan's economy is one of the strongest and most robust in the former Soviet space; Moscow controls many assets and supports operations in the country's energy, banking and transportation sectors. Furthermore, remittances from Kyrgyz migrants working in Russia also play an important role in the Kyrgyz economy, with Kyrgyz workers sending home the equivalent of around 30 percent of the country's gross domestic product. Kyrgyzstan has also formally applied to join Russia's Customs Union and will likely gain membership in 2014 before the bloc turns into the Eurasian Union in 2015. The acquisition of Kyrgyzgaz strengthens Russia's already substantial influence in the country, because the deal also gives Gazprom exclusive natural gas import rights in the country and protection from expropriation and nationalization of the company.

However, Moscow's position in Kyrgyzstan goes beyond the economy. Russia also has a military presence in the Kant air base near Bishkek, an important security outpost for Moscow in Central Asia. Russia has used its economic and security leverage to influence decision-making in Bishkek and advance its own interests. Along these lines, the Kyrgyz government has recently decided to close down the Manas air base, a strategic military facility used by the United States and located 50 kilometers (31 miles) from Kant, once the current lease expires in 2014. While this threat has been made several times by previous Kyrgyz governments only to be subsequently reversed, it is likely to go through this time since U.S. and NATO forces are scheduled to withdraw from Afghanistan in 2014. The acquisition of Kyrgyzgaz and the cancellation of the company's debts can be seen as an incentive from Russia to make sure Manas does indeed close down.

Another key aspect to this deal will be how it affects Kyrgyzstan's relationship with its neighbors in Central Asia. The region has seen much volatility in recent years. Kyrgyzstan has had two revolutions in the past eight years, and border skirmishes within the region are common. Kyrgyzstan has had a particularly contentious relationship with Uzbekistan, with large-scale ethnic violence along their border in 2010 and small flare-ups on a regular basis since then. Therefore, Uzbekistan's periodic cutoffs of natural gas supplies to Kyrgyzstan can be seen from not only an economic context, but also within the broader tensions between the two. Russia's acquisition of Kyrgyzgaz and its exclusive importing rights could lead Uzbekistan to reconsider its aggressive attitude toward Kyrgyzstan — particularly given Tashkent's complicated relationship with Moscow. While this will not eliminate tensions between the two countries entirely, Uzbekistan will be more careful in dealing with Russia than it has been with much smaller Kyrgyzstan.

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