Controversial Czech company threatens Kyrgyzstan with arbitration for loss of hydro contracts

Controversial Czech company threatens Kyrgyzstan with arbitration for loss of hydro contracts
Kyrgyzstan's Naryn river where Liglass was to have built two hydropower plants as part of a stalled project.
By bne IntelliNews September 20, 2017

Czech company Liglass Trading has threatened Kyrgyzstan with international arbitration for the annulling of contracts to build and run 12 hydroelectric power plants, Reuters reported on September 19.

Kyrgyz officials said on September 18 that they had cancelled the deal with Liglass to construct and operate two units of the stalled Upper Naryn cascade hydropower project as well as 10 small hydropower plants. The decision was taken because of the Czech contractor’s failure to make a $37mn payment on time and followed concerns that it appears the company does not have sufficient experience in the field it won the contracts for.

The news followed earlier reports that Liglass Trading was involved in legal proceedings, where the issue of bankruptcy was under consideration. Czech and Kyrgyz media reports have outlined extensive doubts about its actual financial turnover and capabilities. Kyrgyz officials said they failed to find any official data proving the company boasted any successful achievements with any international construction projects, RFE/RL reported on September 18.

However, Liglass is claiming that the contract, signed in July, provided the company with three months to make its $37mn payment - an amount Kyrgyzstan needs to pay Russia, which was its previous contractor on the project. The Czech company said the three-month period for settling contract disputes has not ended and that if Kyrgyzstan sends a notice of withdrawal, “in violation of article 7”, Liglass would seek international arbitration.

This is the second time the project has been halted. Kyrgyzstan officially terminated an intergovernmental agreement with Russia in August 2016 that was signed back in September 2012.

The economic crisis in Russia and Western sanctions imposed against Moscow made credit for the Russians expensive which, in turn, translated into expensive funding for the project, initially estimated to have a cost of $732mn. As a result, Kyrgyzstan decided to cancel the agreement and start looking for less expensive sources of funding. President Almazbek Atambayev has previously taken a different line with the issue, saying Russia was dragging out the start of construction.

The planned construction of the Upper Naryn cascade, along with another stalled project, Kambar-Ata hydropower plant, is aimed at increasing the country’s energy self-sufficiency. Moreover, the country is participating in the CASA-1000 regional electricity transmission project, which will export electricity from Kyrgyzstan and Tajikistan to Pakistan through Afghanistan.

Liglass Trading also agreed to construct 10 small hydropower units, but now that the agreement has been cancelled, the construction of these will also be postponed.

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