Clare Nuttall in Almaty -

Russian gas deliveries to Kyrgyzstan and a cut in export duties for Tajikistan are bringing to an end the price hikes and fuel shortages that have crippled parts of Central Asia over the past few months.

Deliveries of fuel from Russia to Kyrgyzstan are scheduled to continue in August after Kyrgyzstan Prime Minister Almazbek Atambayev returned from Moscow on July 22 having secured an agreement that brought the country's two-month fuel crisis to an end. Under the agreement with Russian Prime Minister Vladimir Putin, gasoline deliveries to Kyrgyzstan have resumed, allowing rationing to be lifted. As of July 25, 4,000 tonnes of Al-92 and Al-95 grade fuel had already arrived from refineries in Bashkortostan and Tatarstan.

Kyrgyzstan's fuel shortages began in late May when Kazakhstan, which was concerned over its own supplies, cut exports of refined petroleum products. The crisis deepened in July when Gazprom Neft-Aziya's Omsk refinery stopped supplying fuel to countries outside the three Customs Union countries - Russia, Belarus and Kazakhstan. This was a shock for Kyrgyzstan since Gazprom Neft-Aziya accounts for around 70% of the country's gasoline imports, although shipments from refineries in Astrakhan, Kazan, and Salavat continued.

By late July, many petrol stations in the country were deserted, while drivers queued at Gazprom stations that sell their petrol on average 4-5 som ($0.09-11) per litre cheaper than other companies. Drivers in the Batken region in Kyrgyzstan's remote south-western tip told bne they had seen queues of up to 200 motorists at Gazprom stations. In the face of dwindling stocks of petrol, Gazprom started rationing its customers to just 10 litres each.

While oil prices most likely played a part in Russia's cut in exports, there is speculation that Moscow was also trying to put pressure on a wavering Kyrgyzstan to join the Customs Union. Cutting off energy supplies through state-owned Gazprom has been one of Russia's favourite ways of persuading its neighbours to fall in with its plans.

The other trigger for the cuts is understood to be the need to punish Kyrgyz traders for illegally selling on Russian imported fuel to Tajikistan. Smuggling through the porous Kyrgyz-Tajik border increased when Russia upped its fuel excise duties for Tajikistan in March.

Economic shock

The hike in excise duties was a shock for the Tajik economy, which in the last year had been recovering rapidly from the crisis. Combined with rising global food prices, the increase in fuel costs pushed food prices within Tajikistan up to record levels, says a report from the World Food Programme (WFP). In June, retail food prices reached their highest level since the WFP started monitoring in 2002. "High fuel prices were one of the main influences on inflation, with an especially strong impact on the services, industrial production and agricultural sectors," Jamshed Yusufiyon, first deputy chairman of the National Bank of Tajikistan, says in an interview with bne.

People have cut back as much as possible on fuel use, and petrol stations are virtually empty - it's more common to see the owner and his friends lounging on a tapchan (traditional Tajik bed) under the shade of the forecourt than any customers. In rural areas, the few cars on the roads are outnumbered by donkey carts. "This isn't Dushanbe. People here are poor, they don't have the money to be driving around all day," explains Rustam, resident of a village outside the southern town of Qurgonteppa.

Prices vary widely within the country, and are considerably lower in the north near the Kyrgyz border than in the south. In the capital Dushanbe prices for higher grade gasoline were pushing 6.5 somoni ($1.38) a litre.

There is an active black market on the main roads out of Dushanbe, where police turn a blind eye to the tankers lined up along the roadside, traders poised with hoses and funnels to supply passing motorists. Other Tajiks have in recent years converted their cars to use highly flammable but much cheaper gas rather than petrol. The airline industry is also suffering; Tajik Air recently announced it would be refuelling Russia-bound planes in Kazakhstan rather than at home since the costs of jet fuel in Tajikistan were prohibitively high.

Prices reached their peak in June following Russia's decision to increase export duties for petrol by 1.8% as of June 1. However, the situation has since been alleviated, as Moscow reduced export tariffs by 3.7% on July 1. And on August 1, duties on gasoline were lowered from $400.50 to $394.40 per tonne.

Kazakh cap

Unlike its southern neighbours, Kazakhstan has its own reserves of oil and gas. But Kazakhstan too has been struggling with high fuel prices. Throughout July, petrol station operators complained to the government that they were making losses due to high wholesale prices. Helios executives told an Almaty press conference that they were being forced to temporarily close down some petrol stations to avoid losing money.

On July 27, Kazakhstan's Ministry of Oil and Gas announced it had increased the maximum retail prices for fuel, which were set in July. They have upped the cap on AI-92 and AI-93 gasoline from 102 ($0.69) to 106 tenge ($0.72) per one litre, lower grade AI 80 petrol from 84 to 86 tenge, and diesel fuel from 87 to 90 tenge. Oil and Gas Minister Sauat Mynbayev also assured journalists that there would be no fuel shortage in Kazakhstan, and stressed that infringements of the price ceilings would be punished.

Mynbayev attributed the high prices to the rising cost of oil and an increase in the price of Brent crude oil in Russia. Although Kazakhstan is a producer of oil, the country does not yet have sufficient processing capacity so it has to export crude oil to Russia and re-import gasoline, aviation fuel and other fuels. Kazakhstan has launched a multi-billion dollar overhaul of its processing industry and is rebuilding the three main refineries at Atyrau, Shymkent and Pavlodar to increase quality, quantity and range of fuels, but these have not yet been completed.