By Arslan Sabyrbekov (05/07/2014 issue of the CACI Analyst)

On April 29, Kyrgyzstan’s newly nominated Prime Minister Djoomart Otorbaev paid his first official visit to Moscow. During his two days in the Russian capital, Otorbaev met with his Russian counterpart Dmitry Medvedev, and held talks with Gazprom’s Chief Executive Officer Alexey Miller and the new deputy Prime Minister Igor Shuvalov. After his official meetings, Otorbaev held a press conference with representatives of Russian media and met with Russian Central Asia experts to discuss the state of bilateral relations.

Kyrgyzstan’s entry into the Russia-led Customs Union was the main subject discussed between the Prime Ministers. In his meeting with Medvedev, Otorbaev stressed that Russia is and will remain Kyrgyzstan's strategic partner and that joining the Customs Union is a right step that will help his country tackle a number of economic and social challenges. Talking to Russian journalists, Otorbaev stated that Kyrgyzstan’s products, except for its gold, are mainly being exported to the Customs Union member states, i.e. Russia, Belarus and Kazakhstan and that it would therefore be wrong to close the borders to those countries. In his turn, the Russian Prime Minister welcomed his Kyrgyz colleague and expressed Moscow’s readiness to be flexible and if necessary, further negotiate Kyrgyzstan’s terms of entry into the Union.

As part of his official visit, Otorbaev met with representatives of the Eurasian Economic Commission to finalize the “road map” for Kyrgyzstan’s accession to the Customs Union. As a result of these talks, the new head of Kyrgyzstan’s government stated that the road map is practically completed and expressed his hope that it will be soon approved by the Board of the Eurasian Economic Commission. Only afterwards will Bishkek take further actions to finalize the entry into the Union.

At this stage, no one questions Bishkek’s accession to the Russia led Customs Union. Agreements have been reached, the road map is being finalized and Bishkek's preferences are being met. But despite of all these developments, opposition politicians and experts continue to express their concern over Kyrgyzstan’s membership. For them, the Customs Union is primarily a political project and a part of Moscow’s continuous effort to strengthen its influence over the former Soviet Republics or in its zone of “privileged interest,” as Medvedev once described it.

During his Moscow visit, Otorbaev also met with key representatives of the Russian business community and held talks with Gazprom CEO Miller, whose company has recently purchased the KyrgyzGaz Natural Gas Corporation for US$ 1. Miller reconfirmed his Company's full responsibility for the timely supply of gas to Kyrgyzstan. Besides its business activities in the country, Gazprom intends to engage actively in supporting and implementing social programs in all the country’s regions. In turn, Otorbaev expressed his government’s full support for Gazprom and all other international companies willing to invest and do business in Kyrgyzstan.

It should also be mentioned that Russia’s state oil company Rosneft recently refused to purchase a majority stake in Manas International Airport. Shortly before this announcement, Kyrgyzstan’s United Opposition Movement held its first rally and heavily criticized the government's deals with foreign companies to sell the country’s strategically important assets.

In his address to the population, President Atambayev blamed the opposition for damaging Kyrgyzstan’s investment climate and stated that the country has no other choice. “Those screaming that no shares can be given to Rosneft, they in fact want to put an end to the future of Manas,” said Atambayev. Indeed, with the U.S. shortly leaving the Airbase, the Kyrgyz government is preoccupied with replacing the financial loss, which is according to all estimates a substantial share of the country’s budget. Otorbaev’s visit to Moscow is yet another effort to assure that Kyrgyzstan is a safe place for Russian investments.

Kyrgyz experts and analysts express varying opinions of selling the country’s strategic assets to companies owned by a foreign government in return for promises of investment, modernization, and development of natural resources. According to Bishkek-based political analyst Marat Kazakpaev, “to abstain from these developments Kyrgyzstan should improve its investment climate and attract private foreign investors. The fact that both Gazprom and Rosneft are state owned companies and are purchasing our country’s strategic assets gives a political connotation to the situation. This is not business, but politics,” stated Kazakpaev.

By Tavus Rejepova (04/23/2014 issue of the CACI Analyst)

On April 10, Turkmenistan’s President, Gurbanguly Berdimuhamedov, chaired a special meeting with the leaders of the oil and gas sector of Turkmenistan. Following a report by the Chairman of the Supreme Control Chamber, Batyr Atdayev, on the results of his agency’s audit of the Ministry of Oil and Gas Industry & Mineral Resources, the State Concerns Turkmennebitgazgurlushyk (Turkmen oil and gas construction), Turkmengaz, Turkmennebit (Turkmen Oil), the State Corporation Turkmengeologiya (Turkmen Geology) and the Turkmenbashy complex of oil refineries, the president reshuffled high level oil sector officials and set a number of priority tasks before these energy sector agencies.

The audit of these state agencies was conducted on President Berdimuhamedov’s orders. Following the findings, the President severely reprimanded the long-serving Deputy Chairman for Oil and Gas Baymyrad Hojamuhamedov for poor performance of his official duties and warned that if he fails to correct the flaws promptly, he will be relieved of his duties. The president also issued a reprimand to Tachberdi Tagiyev, General Director of the Turkmenbashy complex of oil refineries, for poor performance of his duties and shortcomings in his work. The deputy Chairman of the State Concern TurkmenOil, Hydyrberdi Mammetnazarov was fired for what has been officially reported as serious shortcomings in his work. Berdimuhamedov also demoted the Chairman of the State Concern TurkmenOil, Rejepgeldi Ilamanov, to the position Head of the Oil and Gas Department within the Cabinet of Ministers of Turkmenistan. Since the government has not released any information to the public, it is unclear what might have caused such a big reshuffle and reprimands in the energy sector.

Going forward, the president laid out the key priority tasks for each state oil and gas sector agency and also emphasized Turkmenistan’s commitments to completing its international pipeline projects. For instance, the Ministry of Oil and Gas and Mineral Resources of Turkmenistan was given specific instructions to develop strategic plans for the production of petroleum products and other manufactured goods that are in great demand in world markets. The president said that the Ministry should take all necessary measures for the development of the onshore fields and make long-term plans for the development of deposits in the Turkmen sector of the Caspian Sea. Certain foreign analysts claim that negotiations over the Southern Gas Corridor, which includes the Trans-Caspian project and remains a priority for Brussels, might soon be reactivated especially given the renewed Ashgabat-Baku relations and President Berdimuhamedov’s recent invitation to Ilham Aliev to pay an official visit to Turkmenistan.

The State Concern Turkmengas was tasked to fully complete by 2016 the 766 kilometer East-West gas pipeline that will have a capacity to carry 30bcm from the eastern to the western parts of the country. To meet international standards, it is necessary to build gas purification plants on the existing major gas deposits, said the president. Berdimuhamedov also noted that in 2014, Turkmengas needs to fully prepare all the documents associated with the project construction of the Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline and undertake the necessary work to sign these documents and begin construction of the pipeline in 2015. The President also stressed the importance of continuing work on the Trans-Caspian gas pipeline, completing the fourth line from Turkmenistan to China as scheduled until 2018, and moving forward with connections to Russia and Iran, as per earlier intergovernmental agreements.

To implement the framework agreements reached in September 2013 in Japan, the President instructed the Turkmengas chairman to sign the relevant contracts with Japanese companies before July 1, 2014, and begin construction of two plants for the production of gasoline from natural gas, each with a capacity of 600,000 tons per year. The signing of contracts will also include the construction of a plant for the production of diesel and jet fuel from natural gas with a capacity of 2.6 million tons, and a plant for the production of synthetic crude oil from the associated gas. Turkmengaz was also tasked to ensure the timely construction of a major facility to produce 381 tons of polyethylene and 81,000 tons of polypropylene per year. In addition, the president said, it is necessary to develop an integrated project for the development of the Galkynysh gas field and to ensure the timely completion of the second phase jointly with China’s CNPC for producing 30 billion cubic meters of natural gas by 2018.

The head of state also tasked the State Concern Turkmengaz to work effectively with scientists from the Institute of Oil and Gas under Turkmengaz and their colleagues from leading institutions in the region and other countries in the world. He noted that Turkmenistan’s scientists and experts should also participate in the annual Oil and Gas of Turkmenistan (OGT) conference. Speaking to the chairman of the Turkmen oil and gas construction concern, President Berdimuhamedov ordered the development of capacity for producing fiber out of quartz sand and basalt and supplying the manufacturing enterprises with high quality pipes, the arrangement of export to foreign markets, and setting up production of coating materials for ongoing construction facilities from mining solid materials. 

By Oleg Salimov (04/23/2014 issue of the CACI Analyst)

Tajikistan’s Anti-corruption agency has initiated legal proceedings against Ukrainian businessman Dmitry Firtash, the owner of Group DF. Firtash, recently arrested in Austria on bribery charges at the request of the FBI, maintains economic ties with Tajikistan through ownership of the clothing factory Guliston and the joint-stock company TajikAzot (TajikNitrogen), one of the largest producers of agricultural fertilizers in Central Asia. Allegedly possessing high political connections throughout Central Asia, Ukraine, and Russia, Firtash is in Tajikistan linked to the businessman Zaid Saidov, who was recently imprisoned in a case widely considered to be politically motivated.

Firtash was arrested in Vienna on March 12, 2014, and released on a 125 million Euro bail two days later. Firtash is accused of criminal collusion and bribery of state officials in India, allowing him access to titanium mining business. Following Firtash’s arrest, Tajikistan’s Anticorruption agency charged him on March 15 with the illegal privatization of the Guliston clothing factory in 2002. Firtash owned 95 percent of the stock, while Zaid Saidov owned the remaining 5 percent. In a swift decision, the Economic Court of Dushanbe granted the claim on April 2, in the absence of either the defendants or their representatives. The Economic Court transferred the factory ownership to the Tajik Ministry of Industry and Innovations.

The second set of actions taken against Firtash was the revision of the joint-stock company TajikAzot, one fourth of which belongs to Tajikistan while Firtash owns the rest. The Anticorruption agency accuses Firtash of illegal privatization of the company in 2002 and misappropriation of funds. TajikAzot was modernized Under Firtash’s ownership but experienced production difficulties from 2008 to 2011 due to energy shortages and high input expenses. In 2011, the Tajik parliament reduced the value-added tax for TajikAzot from 18 to 9 percent in an effort to reignite the production and increase the company’s competitiveness. Currently, the company’s economic profile looks bleak and can be revitalized only if Tajikistan resolves its energy problems.

The motivations behind the Tajik government’s actions against Firtash can be economic as well as political. From an economic standpoint, the Tajik government is afraid that the U.S. will freeze Firtash’s assets in Tajikistan as part of a far ranging investigation. In such a case, Tajikistan risks losing everything and thus decided to act first. Also, the Tajik government interpreted Firtash’s arrest as an opportunity for financial gain. In 2012, Tajikistan’s Anticorruption agency successfully claimed the Special Engineering Bureau on Construction and Technology owned by Kazakh businessmen.

From a political standpoint, the Tajik government continues to persecute Saidov’s supporters and business partners. Saidov’s lawyer, Fakhriddin Zokirov was arrested on charges of fraud on March 10, 2014, at the request of the Anticorruption agency, three months after Saidov was convicted to a 26-year prison sentence. Saidov’s other lawyers have also complained about anonymous threats and warnings. Therefore, the expropriation of Firtash’s assets serves as demonstration by the Tajik government of its persistence in dealing with political opposition.

The Anticorruption agency argued that Saidov was involved in the fraudulent privatization of Guliston and TajikAzot. Since Saidov’s trial was classified by Tajikistan’s Supreme Court, it is difficult to ascertain whether the companies were part of the accusations against Saidov. Saidov’s verdict contains unspecified counts of bribery and fraud, which provide an opportunity for selective investigations of his activities and a-priori assumptions of their illegal character, as seen in Firtash’s case.

The timing is another question in the Guliston and TajikAzot cases. Article 206 of Tajikistan’s Civil Code defines a three-year limitation of action term on void contracts from the start of the contract. The privatization of Guliston and TajikAzot took place in 2002 – well beyond the three-year limitation term. Presumably, the Anticorruption agency used Saidov’s verdict to return property obtained as a result of illegal activity. Yet, there is little clarity, as required by legal norms, what property and activities are to be considered illegal. Saidov’s case reveals serious deficiencies and ambiguities, which are in turn transferred into Firtash’s case.

The number of legal ambiguities regarding the foundation of the accusations, the rapid decisions, and the timing of the accusations raise questions regarding the Tajik government’s actions. Firtash’s case undoubtedly provided an opportunity for the Tajik government. Not only did Firtash compromise his standing with the Tajik ruling elite through his connections with Zaid Saidov, but Firtash is also allegedly arrested for financial crimes at the FBI’s request. Although Firtash’s case has yet to be tried in court, it seems that the Tajik government saw his conviction as a done deal and have already decided the fate of his assets in Tajikistan. However, the Tajik government’s actions send a strong repulsive message to businessmen and potential investors in the Tajik economy. The outcome of fast but poorly thought-out decisions can negatively affect the fragile Tajik economy.