KYRGYZ PM WELCOMES U.S. ENERGY FIRM AES

C O N F I D E N T I A L SECTION 01 OF 02 BISHKEK 000730

SIPDIS

DEPT FOR SCA/CEN

E.O. 12958: DECL: 07/15/2018
TAGS: ENRG ECON PREL PGOV SOCI KG
SUBJECT: KYRGYZ PM WELCOMES U.S. ENERGY FIRM AES

REF: A. BISHKEK 721

B. BISHKEK 712

C. BISHKEK 699

D. BISHKEK 501

BISHKEK 00000730 001.2 OF 002


Classified By: CDA Lee Litzenberger, Reasons 1.4 (b) and (d).


1. (C) Summary: Visiting AES representatives reported a
positive July 8 meeting with PM Chudinov, who encouraged AES
interest in three major Bishkek-based energy sector assets.
Any AES proposal would envision significant investment in
return for a minority stake in the enterprises, and a
long-term management contract. However, the tender process
for the three assets may be delayed until September. AES
personnel also toured the Bishkek thermal plant and reported
that, while there is no evidence of preparatory maintenance
for the upcoming winter, the facility is in better shape than
expected. However, the delayed tender process will likely
mean no investment in or upgrades to the Bishkek-based assets
until the end of the year at the earliest. End summary.

Prime Minister Encourages AES
--------------


2. (C) Following their July 7 meeting with Energy Minister
Balkibekov (reftel B),representatives of U.S. energy firm
AES met Prime Minister Chudinov July 8 and presented an
outline of AES objectives and issues related to any AES
proposal for three energy sector assets: 1) the Bishkek
thermal plant, 2) the Bishkek heating and hot water network,
and 3) Severelectro electricity distribution company. AES
representatives briefed Emboff after the Chudinov meeting,
and reported that Chudinov appreciated the "transparent"
outline, indicated that AES was "asking the right questions,"
and viewed the outline as heading in the "right direction."


3. (C) Chudinov reportedly confirmed that the government
would have documentation prepared by August 10 for a tender
process for the three assets which would begin on September

10. According to AES representatives, Chudinov said that AES
would be competing against two other companies. (Note: One
of the companies is expected to be Kazakh investor Alexander
Maskeyevich's firm. End note.) Chudinov summed up the
meeting by noting that the AES outline presented "exactly
what we need."


4. (C) AES Vice President Michael Jonagan (Amcit, please
protect) told Emboff he was very optimistic after the
Chudinov meeting, and believed that given AES's very liquid
capital position his management would endorse pursuing the
Kyrgyz assets. The AES proposal envisions significant
investment in return for a minority stake in the Kyrgyz
enterprises, and a long-term management contract. (Comment:
Recent statements from the Kyrgyz indicate that full
privatization is not desired, so the AES approach seems to
fit into current Kyrgyz thinking. End comment.) Jonagan
said AES would likely have a proposed contract available in
time for the opening of the tender, and planned to return one
of its staff to Bishkek to work related issues. (Note: AES
mothballed its Bishkek office in early 2008 when it appeared
that Kyrgyz energy sector reforms had stalled. End note.)
According to Jonagan, PM Chudinov designated Minister of
Energy Balkibekov (who is currently in the U.S. on a
USAID-organized trip) as the point person for answering any
AES questions. Jonagan said there had been only minor
disagreement during the Chudinov meeting on the issue of
dispatching electricity, which Jonagan said could be easily
resolved in any contract.

Bishkek Plant in Better Shape Than Expected
--------------


5. (C) Prior to the Chudinov meeting, AES representatives
toured the Bishkek thermal plant. Jonagan told Emboff the

BISHKEK 00000730 002.2 OF 002


condition of the facility, which burns expensive fossil fuels
when the country's hydroelectric facilities cannot cope with
electricity demand, was better than he expected. He noted
that the Bishkek plant was nicely painted, and that he did
not find any leaks. However, Jonagan expressed concern that
there was no maintenance activity in preparation for the
upcoming winter season. He said that plant managers told him
that of their annual requests for about $20 million for
repairs, the plant had only been receiving $4-7 million.
Given the delayed tender process, Jonagan reasoned that an
outside investor could only have an impact in December or
January. As a result, Kyrgyz authorities would need to rely
on current arrangements until that date.

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


6. (C) The AES outline seems to have received a positive
reception from PM Chudinov, and based on President Bakiyev's
Chief of Staff's remarks (reftel A) to the Ambassador AES's
interest appears to have the encouragement of the
presidential administration. While Kyrgyz authorities could
conceivably be seeking to bid up a counter-offer from another
investor by stoking AES interest, the Kyrgyz Republic faces
severe energy challenges this winter (reftel D). The AES
visit was initiated by Kyrgyz officials, and comes roughly
two months after AES reportedly was advised not to consider
these three assets. This change in Kyrgyz sentiment may
reflect the need for reliable investment in the energy
sector. Limited hydroelectric capabilities (due to low water
reservoir levels) have amplified the reliance on, and
weaknesses of, the Bishkek municipal energy system. Although
USAID programming will assist the Kyrgyz with longer-term
energy sector policy issues, we will also be monitoring
Kyrgyz efforts to recruit a reliable, experienced company to
aid with short-term challenges and longer-term solutions.
LITZENBERGER