KYRGYZSTAN: AMBASSADOR REACHES OUT TO BUSINESS

C O N F I D E N T I A L BISHKEK 001016

SIPDIS

DEPT FOR SCA/CEN (GORKOWSKI)
COMMERCE FOR DANICA STARKS

E.O. 12958: DECL: 10/03/2018
TAGS: BEXP BTIO ECON PGOV KG
SUBJECT: KYRGYZSTAN: AMBASSADOR REACHES OUT TO BUSINESS
COMMUNITY

Classified By: Amb. Tatiana Gfoeller, Reason 1.4 (b) and (d).


1. (C) Summary: In the past month, the Ambassador has met
American Chamber of Commerce (AmCham) members to gauge local
business conditions. Some AmCham members suspect that the
recent greater scrutiny of foreign companies is an attempt to
"squeeze" more funds from their operations. On a positive
note, the local Coca Cola plant is working at capacity,
despite electricity disruptions and the exodus of trained
staff to Russia and Kazakhstan, but is also seeking to avoid
land lease disputes with the Bishkek mayor by signing a new
agreement with the Kyrgyz prime minister. The investment
environment remains challenging, and actions by Kyrgyz
authorities perpetuate the difficulties of conducting
business in the Kyrgyz Republic. End summary.

American Chamber of Commerce Outreach
--------------


2. (SBU) The Ambassador hosted a September 10 lunch with the
Board and Executive Director of the American Chamber of
Commerce in the Kyrgyz Republic (AmCham). Board members
relayed to the Ambassador that foreign companies were under
greater scrutiny, and speculated that government authorities
wanted to "squeeze" additional funds from them. One company
executive added that government officials seemed unable to
comprehend that industrial production might vary during the
year, and thereby generate lower than expected tax revenues.
Another Board member described a slowdown in industrial
production throughout the Kyrgyz economy, and also cited the
closure and sale of various smaller firms by businesspeople
moving to Russia.

Visit to Coca Cola Bottling Plant
--------------


3. (SBU) On September 25, the Ambassador toured the
Turkish-run Coca Cola bottling plant, which produces several
product lines and represents a $33 million investment in the
Kyrgyz Republic. Currently operating at full capacity, the
Bishkek plant must import supplemental production from
Kazakhstan to meet local market demand. In 2007, the Bishkek
plant produced 35 million liters of products, and plans to
expand capacity to 100 million liters. Nearly 60% of sales
occur in the Bishkek region, 20% in Osh (the country's
second-largest city) with remaining sales elsewhere in the
country. The plant manager, Ezel Agaoglu, admitted that
skilled staff continue to leave for Russia and Kazakhstan,
and said that staff turnover is around 30% annually. In
response to the Ambassador's query, Agaoglu said that despite
some arrangements being made with the local electricity
authorities, cuts in electricity supplies had harmed
production.


4. (C) Agaoglu pointed out an adjacent plot of land which he
hopes to obtain via a long-term lease to expand the facility.
In an apparent attempt to avoid the land lease problems
experienced by the local Hyatt, Agaoglu said he planned to
bypass the Bishkek mayor and secure the land lease deal with
the Prime Minister. In response to a question about
inspections, he noted that government inspectors come once a
month, but claimed that they do not request bribes.

Comment
--------------


5. (SBU) The Kyrgyz Republic remains a challenging
environment for investors. The unresolved negotiations
between the government and the Canadian-run Kumtor gold
mining operation seem to be on the mind of many potential
investors Embassy meets. The summertime dispute between the
Bishkek mayor and the Hyatt which resulted in the destruction
by municipal workers of the Hyatt's security fence is another
negative factor affecting the environment. At the October 2
opening of the Bishkek trade fair, Kyrgyz security officers
slammed shut the entrance to the exhibit in the faces of
assembled dignitaries and businesspeople in order to provide
exclusive time for the government's chief trade promotion
official to tour the exhibits in private. Such actions will
continue to cause the Kyrgyz difficulty in attracting private
investment.


6. (U) The Ambassador plans to host an AmCham Members Day
event in mid-October to become even better acquainted with
the business community.
GFOELLER