AMBASSADOR REVIEWS RAMP AND ENERGY ISSUES WITH

C O N F I D E N T I A L SECTION 01 OF 03 BISHKEK 000712

SIPDIS

DEPT FOR SCA (GEHRENBECK/DEUTSCH)

E.O. 12958: DECL: 07/08/2018
TAGS: PREL MARR ENRG ECON SOCI KG
SUBJECT: AMBASSADOR REVIEWS RAMP AND ENERGY ISSUES WITH
KYRGYZ PM

REF: A. BISHKEK 709

B. BISHKEK 699

C. BISHKEK 680

D. BISHKEK 501

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Classified By: Amb. Marie L. Yovanovitch, Reason 1.4 (b) and (d).


1. (C) Summary: During the Ambassador's July 7 farewell
call, Prime Minister Chudinov expressed surprise to learn
that President Bakiyev had delegated the Manas Airbase ramp
project decision to him. After digesting this news, Chudinov
surmised that the ramp project was no longer just a proposal,
but a "real project" -- which we interpret as a positive
development. Chudinov acknowledged a "slowdown" in energy
sector privatization prospects, outlined scenarios that would
allow for tariff increases while maintaining government
control of the assets, and said he would be meeting with U.S.
energy firm AES July 8. He expressed concern that the
opposition would use the privatization issue against the
government in protests this autumn. Chudinov also feared
that the Uzbeks would more than double natural gas prices to
$306 per thousand cubic meters, a step which would force the
government to increase subsidies to Kyrgyzgaz up to $250
million. He confirmed Kyrgyz participation in a new
International Monetary Fund program. End summary.

Spreading News about the Ramp Project
--------------


2. (C) The Ambassador paid a farewell call on Prime Minister
Igor Chudinov July 7. After the initial pleasantries, a very
relaxed Chudinov asked the Ambassador about her July 3
meeting with President Bakiyev. (Note: See reftel A for
details of the Bakiyev meeting. End note.) When the
Ambassador mentioned that she discussed the proposed ramp
project at Manas Airbase with Bakiyev, Chudinov asked, "What
did he say?" After expressing some surprise at learning that
Bakiyev had delegated the issue to him, Chudinov said that
Bakiyev had been in Astana over the weekend, and that after
his return to Bishkek late on July 7 he hoped to meet with
him and discuss the issue.


3. (C) The Ambassador reviewed the tight timeline for a
Kyrgyz decision on the ramp project in order to secure the
available funding. Chudinov asked the Ambassador whether
Bakiyev had actually meant to delegate the issue instead to
the Kyrgyz Security Council Secretary. The Ambassador
assured Chudinov that Bakiyev had mentioned Chudinov's name
several times regarding this tasking. When the Ambassador
mentioned that Manas Airbase leadership would be available to
show Chudinov the area proposed for the project, Chudinov
remarked he had already been there. Chudinov explained that
at a previous time he had visited the base on an unrelated
issue. To clarify his understanding of the proposed project,
the Ambassador subsequently outlined the location and scale
of the ramp project and left him additional documentation for
review.


4. (C) In an apparent positive development, Chudinov
concluded that "if the president delegated this issue to me,
then it is a 'realni proekt.'" (Comment: Previous
government references to the ramp termed the project a
"proposal." The "realni proekt" reference gives the project
much more weight. End comment.) However, Chudinov
speculated that Bakiyev may have delayed action on the ramp
project decision due to the discomfort of having to address
the issue at Commonwealth of Independent States and Shanghai
Cooperation Organization summits later this year. He then
noted that "the president doesn't discuss this with me,"
referring to the political sensitivities involved.


5. (C) Chudinov then inquired about money Manas airport
would "lose" in parking fees not being collected from

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Coalition aircraft. The Ambassador responded that if this is
a real issue to let the Embassy know so that the issue can be
forwarded for consideration by officials at CENTCOM and in
Washington. Chudinov said he was merely raising all possible
issues.

Energy Troubles
--------------


6. (C) Turning to domestic economic and energy concerns,
Chudinov noted that the energy sector privatization process
had "slowed down." "Personally," Chudinov commented, he was
not sure if he wanted the Bishkek thermal power plant
privatized. (Note: See reftel B for the Energy Minister's
recent comments on privatization and related matters. End
note.) He noted that he would be meeting with
representatives of U.S. energy firm AES July 8. (See
paragraph 11.)


7. (C) Recognizing the need to either raise electricity
tariffs or provide higher subsidies to whatever company might
purchase energy sector assets, Chudinov previewed some other
options for the Ambassador. One option included the creation
of a new company, "Bishkekelectro," that might incorporate
the Bishkek thermal plant and Teplosets (the hot water and
heating system). This company, he explained, could be
transferred to the Bishkek local government, which could then
raise tariffs. The government, he further suggested, could
then step in to offer financial assistance to disadvantaged
communities. Chudinov rationalized this arrangement as a
"market-based" solution to the sector's financial problems.
Chudinov questioned why privatization should proceed now,
when "we know privatization will be used against us in the
autumn" (presumably by the opposition).


8. (C) In another scenario, Chudinov said that World Bank
representatives had offered $100 million in assistance for
the Bishkek thermal plant over a 10-year period. He noted
that this money could fund two new turbines annually, permit
gradual increase of tariffs annually and keep the Bishkek
thermal plant in government hands.


9. (C) Chudinov acknowledged upcoming winter challenges, and
said that current negotiations with the Uzbeks over natural
gas supplies revealed that the Uzbeks wanted to raise prices
from $145 to $306 per thousand cubic meters of natural gas.
Chudinov calculated that such a price increase would increase
the annual government subsidy to Kyrgyzgaz to $200-$250
million.


10. (C) On a separate note, Chudinov lauded Kyrgyz
participation in the Central Asia South Asia Regional Energy
Market (CASAREM). However, he was concerned that the World
Bank was not inclined to include the Kyrgyz Republic in the
first phase of the project. The Ambassador suggested that
the upcoming visit by Kyrgyz Energy Minister Balkibekov to
the United States and Pakistan would provide the opportunity
to express Kyrgyz views on inclusion in the initial phase of
CASAREM electricity trade.

Enter AES (Again)
--------------


11. (C) Later on July 7, Emboff met AES representatives who
had been "urgently" summoned to Bishkek by Energy Minister
Balkibekov. In contrast to their last meeting (reftel D),
when their conversations steered AES towards rural
electricity distribution companies, Balkibekov this time
reportedly only wanted to discuss the Bishkek thermal plant
and related assets. The AES team told Emboff that the
intended Kazakh investor in the Bishkek assets, Alexander
Mashkeyevich, no longer had the capital necessary to inject
into the facilities, and that this development precipitated

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the Kyrgyz interest in discussing the Bishkek energy assets
with AES. The AES team leader outlined for Emboff a
potential proposal which would generate immediate capital
investment in the Bishkek thermal plant, leave the Kyrgyz
government with a majority stake in the assets, and provide
AES with a long-term management contract. AES confirmed
plans to meet PM Chudinov July 8, and promised to brief
Emboff regarding the results.

Economic Affairs of State
--------------


12. (C) Chudinov confirmed that the Kyrgyz Republic would
"definitely" participate in a new, three-year International
Monetary Fund (IMF) Poverty Reduction Growth Facility (PRGF).
(Note: The IMF concluded its last Kyrgyz PRGF program in
May. End note.) He claimed credit for convincing Bakiyev to
agree to the new program, but added that the new program
would be on "Kyrgyz terms." However, Chudinov said the
Kyrgyz expected the first draft of the program from the IMF
July 8.


13. (C) Chudinov acknowledged that worsening economic
conditions in Kazakhstan had caused construction activity in
the Kyrgyz Republic to halt and decreased the number of
Kazakh tourists in the country. He confirmed that three
working groups, tasked with studying the country's economic
problems arising from inflation and other ailments (reftel
C),had presented him with recommendations that day, which he
had not yet reviewed. Chudinov also lamented recent
information that Kyrgyz tax authorities were seeking advance
tax payments from companies.

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


14. (C) Chudinov was engaging and relatively unguarded in
his comments. His response to ramp project developments
reveal some of the communication shortcomings of the Kyrgyz
White House administration, but also indicate that there is
room for this project to proceed. We will continue to engage
with the Kyrgyz administration with an emphasis on the
infrastructure improvements, airport security and contract
benefits this project would generate. His views about the
state of the energy sector reflect his previous work as
energy minister and at Kyrgyzgaz, but also more likely
illustrate the government's concerns about the upcoming
winter. His comment about the opposition using energy sector
privatization against the government in the autumn echo other
comments we have been hearing about the potential for
demonstrations later this year. His concerns may also
reflect a waning interest in energy sector privatization,
particularly if associated with significant tariff increases
for the general public.
YOVANOVITCH