OSH TRIP: MEMBERS OF BUSINESS COMMUNITY DISCUSS

C O N F I D E N T I A L SECTION 01 OF 02 BISHKEK 000994

SIPDIS

DEPT FOR SCA/CEN

E.O. 12958: DECL: 09/29/2018
TAGS: PGOV PREL PINR KG
SUBJECT: OSH TRIP: MEMBERS OF BUSINESS COMMUNITY DISCUSS
ECONOMY WITH AMBASSADOR

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Classified By: Ambassador Tatiana C. Gfoeller for Reasons 1.4 (b) and (
d).


1. (C) Summary: On September 17, representatives of Osh
Oblast's business community met with Ambassador to convey
their concerns about the overall business climate in the
south. The participants discussed a range of topics,
including efforts to prepare for the upcoming winter, the
difficulties obtaining small business loans, the effects of
frequent power outages, new legislation governing the
treatment of businesses, and U.S. assistance to the region.
The participants provided an insider's perspective on the
many obstacles facing small and medium businesses and how the
coming winter's expected food and energy shortages may drive
local entrepreneurs, and the wider population, to the brink.
End summary.

LOBBYING GOVERNMENT ON BEHALF OF LOCAL BUSINESSES
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2. (C) Ambassador traveled September 16-17 to the southern
city of Osh. She held a roundtable discussion with local
business leaders. Aziza Yuldasheva, Executive Director of
the Association of Agribusinessmen of Kyrgyzstan (AAK),a
business lobbying group, described the pitfalls farmers face
when applying for small business loans. Yuldasheva said that
farmers need "affordable" loans to support their operations,
and she noted that community banks refuse loans to farmers
because they are "high risk applicants" and not recognized as
established businesses. She asserted that "even Bay Tushum,"
a microfinance agency initially started with USAID funding,
charges borrowers 30 per cent interest, making loans
"unaffordable" for farmers and other small businesses.
(Note: Bay Tushum, along with two other USAID-established
micro-finance organizations, approves a significant number of
loans for farmers; market rates are currently around 30 per
cent. End note.)

POWER OUTAGES AFFECT BUSINESS COMMUNITY
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3. (C) Yuldasheva described how frequent power cuts have led
to reduced output and the loss of perishable products for
local businesses. She said that milk products are no longer
sold in the stores because of problems with refrigeration.
Milk products sold on the street, Yuldasheva continued, are
dangerous due to poor quality controls. She said that food
processors are limiting their purchases of raw fruits and
vegetables because of reduced operating hours and the lack of
proper storage facilities. The end result, she added, is
that both processors and farmers are incurring significant
losses due to the power cuts.

OSH PREPS FOR THE UPCOMING WINTER
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4. (C) Abdusatar Sarybayev, Director of the Osh branch of the
National Chamber of Commerce, concurred with Yuldasheva and
added that the rest of the population saw heating their homes
as the greatest challenge this winter. Sarybayev said that
citizens have opted to build smaller homes and install
coal-burning stoves as the main source of heat. He noted
that the price of coal has risen in the south, where
homeowners pay twice as much as their northern compatriots.
Sarybayev said that city apartment dwellers do not have the
option of switching to coal and are completely dependent on
the Osh thermal power station (TETS). He speculated that the
government's inability to deal with heat and electricity
shortages could spark public unrest or even a "revolution."


5. (C) Khusanbay Saliyev, President of the Young Lawyers'
Association, which provides legal consultation to
entrepreneurs, said that some Osh City residents had chosen

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to close their TETS hot water heating lines and install
electric heating systems for their apartment buildings.
Saliyev said that citizens in the Osh suburbs were frustrated
last winter by low water temperatures from TETS, which proved
to be an ineffective source of heat. These same citizens, he
claimed, are now faced with a difficult decision: whether to
rely on the poor output from TETS or risk inconsistent
electric heating due to reduced power supply.

NEW GOVERNMENT REGULATIONS WELCOMED BY BUSINESSES
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6. (C) Saliyev applauded the government's adoption of new
regulations governing registration and a law on business
inspections. Saliyev said that the government introduced a
"single window" concept for business registration, which
offers a one-stop shop that facilitates the approval of
charter applications within ten working days. Saliyev said
that businesses appreciated the government's adoption of the
law regulating the inspection business structures, which
limits the amount of checks the government can conduct on a
business each year. Saliyev warned that parliament was
currently reviewing a new national tax code, which allows for
a higher limit of business inspections. He believed that the
code would take precedence over the law on business
inspections.

APPRECIATION FOR U.S. ASSISTANCE
--------------


7. (C) Ambassador asked for suggestions from the group on
ways the U.S. could help the Kyrgyz population overcome the
winter. Although appreciative of U.S. assistance, Yuldasheva
quickly noted that they did not want "aid that comes for
free, without any requirements placed on the government" for
reforms. Regarding USAID plans to provide up to 280,000 tons
of seed to local farmers, Yuldasheva said that the Ministry
of Agriculture (MOA) rejected the proposal that agricultural
associations distribute the seeds, instead demanding that
distribution be controlled by the Ministry. She noted that
control of the assistance would allow for corrupt practices
on the part of the Ministry. (Note: Since this meeting, the
MOA has rescinded its request and USAID implementers are once
again in charge of seed distribution. End note.)

COMMENT
--------------


8. (C) Ambassador welcomed the candid discussion from members
of the Osh business community. The latest reforms on the
treatment of businesses seem to be a step in the right
direction. While listening to the group describe the impact
of power outages on businesses across the south was
troubling, hearing about citizens taking charge and
proactively preparing their homes with coal-burning heating
systems was encouraging. The group agree that there were no
good options for the significant amount of Osh City apartment
dwellers that rely solely on the TETS for heat.
GFOELLER