New law leaves field clear for Kyrgyz privatisation agenda

By bne IntelliNews July 21, 2008

Clare Nuttall in Almaty -

Kyrgyzstan has adopted a new law that will allow the government to decide on most privatizations without waiting for the parliament to give its approval. By taking the politics out of privatization, the government hopes to speed up the process and attract more foreign buyers for Kyrgyzstan's state-owned assets, such as KyrgyzTelecom's sell-off set for August.

The impetus for speeding up the process comes right from the top. President Kurmanbek Bakiyev has put increasing emphasis on attracting foreign investment, as a cure for the cash strapped economy. At the beginning of this year, he told the government to make the sale of Kyrgyzstan's power companies a priority, arguing this would be the only way to attract investment for the country's crumbling infrastructure. Three laws relating to privatisation were then approved in April.

Bypassing parliament is a controversial move - or would be had the pro-Bakiyev Ak Zhol party not won a landslide victory in the December elections. The remaining seats are divided between the Social Democratic Party and the Communist Party, both of which are reasonably close to Bakiyev, allowing his government to push through the measure. It does have the caveat that the parliament's approval will be required for strategically important assets, but with a Bakiyev supporter in every seat, in the current parliament, this is academic.

By contrast, after the 2005 revolution it had been difficult to get the parliament to approve planned privatizations. "Confrontations between the main legislative body of the country with the government slowed down the decision-making process, in particular where it concerned the privatisation of strategically important objectives like Kyrgyztelecom," says Bakai Zhunushov, director of iCap Investment.

The changes, Zhunushov explains, will allow the government to independently define privatization priorities and accelerate the process. Aida Satylganova, a corporate lawyer at Bishkek-based law firm Kalikova & Associates, agrees: "Changes made to the privatization process will be important, as it facilitates the privatization process for certain state property objects. We consider that it is likely to speed up the process for the assets that are included in the government programme."

Satylganova also anticipates greater interest from foreign investors. "In general, taking into consideration the recent activities of the government on the improvement of the investment climate in the Kyrgyz Republic, we expect more interest from international investors in Kyrgyz companies," she says.

Calling the market

KyrgyzTelecom is a case in point. The sale of the national telecommunications operator has been in the works for several years. Back in 2003, Swedtel was selected as a buyer, but the Kyrgyz government failed to reach an agreement with the Swedish company. A new round of offers was invited; this time Arex-tech and Detecon International were the winners, but the parliament subsequently decided to call a halt to the tender process.

KyrgyzTelecom is now up for grabs again and this time there is greater confidence that the process will actually result in a sale. A decree on its privatization was adopted in May last year, and the State Property Committee has invited potential buyers to submit their proposals by August 27. The eventual buyer is most likely to be foreign, since few, if any, Kyrgyz companies would be able to meet the requirements. Among interested parties is German investment firm Axos Capital Partners, which is reported by the Kyrgyz press to have been in Bishkek recently checking out the company.

A full list of companies to be privatized in 2008-2012 has been drafted by the State Property Committee, and is awaiting approval by the government. The provisional list includes the electricity distribution companies Severelectro, Vostokelectro, Jalalabadelectro and Oshelectro. It also comprises Bishkektelepost, Kyrgyzaltyn and Aviacompany Kyrgyzstan (Kyrgyz Airlines). KyrgyzGas is due to be split into smaller gas distribution companies; a joint venture between KyrgyzGaz, KyrgyzNefteGaz and the Russian gas giant Gazprom is also planned.

The government is also pushing ahead with plans to attract private investment for the Kambarata-1 and Kambarata-2 hydroelectric power stations on the Naryn River near the border with Tajikistan. EDF and PricewaterhouseCoopers have been commissioned to carry out an investment study for the two HEP stations.

The privatisation of major companies, especially those in the energy sector, has historically been a source of concern to opponents of the government. With these companies currently crippled by outdated infrastructure and unpaid bills - resulting in frequent service blackouts across the country - the price the government gets is likely to be low.

iCap Investment's Zhunushov lists several concerns - the possibility of a small group of investors buying up assets resulting in an absence of competition and the creation of private monopolies, the loss of state control over energy policy, and the fear of selling state assets off too cheaply or to an incompetent investor. In the energy sector, there is also the risk of miscalculations leading to a steep increase in tariffs. "That can worsen the position of the needy, who make up almost 60% of the population, and can lead to a social crisis," he warns.

Send comments to The Editor

Related Articles

bne:Chart - Russia begins to steady the ship according to latest Despair Index

Henry Kirby in London - Ukraine and Russia’s latest “Despair Index” scores suggest that the two struggling economies could finally be turning the corner, following nearly two years of steady ... more

COMMMENT: Great challenges for Eurasia call for decisive solutions

Juha Kähkönen of the IMF - The Caucasus and Central Asia (CCA) region continues to navigate a wave of external shocks – the slump in global prices of oil and other key commodities, the slowdown ... more

IMF calls for Central Asia to tighten monetary policy

Naubet Bisenov in Almaty -   Caucasus and Central Asian (CCA) countries need to tighten their monetary policy to anchor inflation expectations, but excess tightening may weaken financial ... more

Register here to continue reading this article and 2 more for free or 12 months full access inc. Magazine and Weekly Newspaper for just $119/year.

If you have already registered, enter the information below with the same email you used previously and you will be granted immediate access.

IntelliNews Pro subscribers click here

Thank you. Please complete your registration by confirming your email address. A confirmation email has been sent to the email address you provided.

Thank you for purchasing a bne IntelliNews subscription. We look forward to serving you as one of our paid subscribers. An email confirmation will be sent to the email address you have provided.

To continue viewing our content you need to complete the registration process.

Please look for an email that was sent to with the subject line "Confirmation bne IntelliNews access". This email will have instructions on how to complete registration process. Please check in your "Junk" folder in case this communication was misdirected in your email system.

If you have any questions please contact us at

Subscribe to bne IntelliNews website and magazine

Subscribe to bne IntelliNews website and monthly magazine, the leading source of business, economic and financial news and commentary in emerging markets.

Your subscription includes:
  • Full access to the bne content daily news and features on the website
  • Newsletters direct to your mailbox
  • Print and digital subscription to the monthly bne magazine
  • Digital subscription to the weekly bne newspaper

IntelliNews Pro subscribers click here

bne IntelliNews
$119 per year

All prices are in US dollars net of applicable taxes.

If you have any questions please contact us at

Register for free to read bne IntelliNews Magazine. You'll receive a free digital subscription.

If you have already registered, enter the information below with the same email you used previously and you will be granted immediate access.

Thank you. Please complete your registration by confirming your email address. The confirmation email has been sent to the email address you provided.

IntelliNews Pro offers daily news updates delivered to your inbox and in-depth data reports.
Get the emerging markets newswire that financial professionals trust.

"No day starts for my team without IntelliNews Pro" — UBS

Thank-you for requesting an IntelliNews Pro trial. Our team will be in contact with you shortly.