In this issue:

4.Uzbek mineral resources wait for exploration

1. POINT OF VIEW: Kyrgyzstan provisional government to prove itself (Kyrgyzstan, April 22, 2010-issue 613) By Giorgio Fiacconi TCA publisher

BISHKEK (TCA) — Iskhak Masaliev, a member of the now dissolved Kyrgyz parliament, is head of the Communist Party of Kyrgyzstan. Speaking to reporters, he said that “the new authorities are not in control” of the situation.

Five more people have been killed this week, many homes and cars have been burned in the villages near Bishkek and hundreds of acres of land have been illegally seized. Unrest continues also in the south, and in the meantime, police have announced that they will go on strike if their demands are not met. The provisional government is made up of many leaders and optimism must prevail if the coalition is to last, but to be practical, many expect that within the six-month timeframe the coalition will break and just before elections, each leader will go a separate way. Today it is unclear who is in command; various members of the provisional government are speaking in different ways, rhetoric abounds, but what about real business and a united coalition for the sake of the country? Various approaches create serious implications of credibility for Kyrgyzstan internally and externally as the situation is being carefully watched by neighbouring countries, as well as the United States, Europe, Russia and China. International organizations send their envoys and everybody announces the will to help, but it is Kyrgyzstan itself that must prove that it deserves such support. Today, given the geo-political importance of Kyrgyzstan, everybody is looking to the situation with serious concern. Tourism will be greatly affected, crops are in jeopardy for lack of fuel, trade with China has been seriously affected. The economy will be battered and more jobs will be at risk. The unrest may increase. The country needs to be fast in recovering stability. When will the turmoil be over and the new government take full control? When will people feel safe again, in their persons and their property? When will the rule of law and fair, democratic elections be implemented? Should a non-partisan report be made today, it would conclude that unrest has not passed, that the provisional government is not in control of the entire territory and that seeds of further problems are germinating. Bakiyev’s supporters probably would like to take the turmoil to the street and create further panic, but the new provisional government is gaining consensus. Although they do not yet have full control, certain people in certain areas are taking steps to reach normalization.

For sure, commitment exists, but now is the time for priorities, not just announcements of trials and manhunts for members of the Bakiyev family and associates. The country needs a plan for the institution of a proper rule of law with the introduction of a clear democratic principle for future elections of Parliament and President. Kyrgyzstan needs to return to normal life and to speed up the recovery of peace between north and south, and by all means, to avoid an ethnic conflict. Presently, the powers of the provisional government are so extensive that it would be difficult to monitor their activity and we know by past experience that more power in fewer hands increases the possibility of abuse. If sign of exuberance for the ousted President has been visible, the present situation is far from being comfortable. It is clear that the country suffers from an enormous social problem. Those rural citizens, along with opportunists and criminals who at present are seizing various plots of land, feel that is in their right. Someone said that protesters were promised many benefits before the unrest began. Someone spread the illusion that if Bakiyev were to be ousted, the property of Bakiyev and of his clan would be redistributed to the protesters. Whoever made such promises clearly did so in bad faith and manipulated these rural people to take advantage of their support for the seizure of power. The hope of obtaining land in Bishkek might have drawn them to act as there is little work in the villages. All roads lead to Bishkek. It seems that in the city everything is easier, but there is the crime and under-employment. These problems and difficulties may seem irrelevant compared to what they experience in the villages. Kyrgyzstan is a large country, but when people don’t expatriate, the easiest alternative is to move to Bishkek. Today, Bishkek probably has double the population that can be supported by infrastructure. Gambling, prostitution and organized crime are on the rise and authorities have been sitting back and watching. A few kilometers outside Bishkek, you can see numerous unfinished mud-brick homes that look like barracks. The only thing necessary is to call in the bulldozers and start over. Recently, people have been building shelter everywhere. Bishkek has plenty of land to the north, west and east of the city. There is no reason why a proper plan cannot be created to offer a plot of land to the many people that really need it and are able to submit necessary documents. The land can be offered at special discounted and subsidized prices and on long-term payments, within the frame of a proper legal plan. If this were announced, the illegal seizure of land and the related turmoil would stop and new opportunities would be created. All should be done in proper order without abuses and in coordination with various authorities to avoid the dirty, unhealthy situation that has already been created in various outskirts of Bishkek where people have been allowed to illegally build villages without roads, sewage, water and often no electricity. It seems the only priority of the media is to capture fugitive leaders, but in the meantime chaos continues, and the same short-sighted policies of the past prevail. Kyrgyzstan needs investment, local and foreign, but investment requires security. Today, we have none and the government must consider once and for all an adequate, long term plan fore legal freedom, elimination of corrupted bureaucracy, introduction of tax incentives for those willing to invest in underdeveloped areas, creation of jobs and so on. The new government should heed the advice of experts within international organizations. For once, the government should listen to the representatives of the business community and all those that are doing the business instead of imposing on them elaborate proposals and formulas. The priority is not searching for Bakiyev or the extradition of his associates, but rather establishing the rule of law and proper security, gaining international credibility, building ties with world powers such as China, the United States, Europe and Russia, not to mention generating jobs, mainly outside of Bishkek. There is no reason to wait any longer. The provisional government can rule by decree as the country doesn’t need new laws, only serious implementation of those which already exist. The challenge stands before them, but will the provisional government have the political will to accept it? That remains to be seen.

2. LETTER FROM THE STEPPE Wheat: prices down, weird sales practices suspected (Kazakhstan, April 22, 2010-issue 613) By Charles van der Leeuw special for TCA

ALMATY — In a recent speech while visiting farmers, Kazakhstan’s President Nursultan Nazarbayev called upon them to double their labor productivity within the next couple of years. Recent output boosts have pushed Kazakhstan into the ranks of the world’s leading grain exporters. Probably well-intended, but nevertheless, it calls for a fair amount of caution. As has happened with apartments, as well as office and shopping space in Kazakhstan (in Astana and Almaty in particular), increasing availability without analyzing demand can break any business, even in the food sector.

Kazakhstan is sitting on a grain bubble - mainly consisting of wheat. The country’s grain reserves as of January 1st, amounted to 16.45 million tons, a 54.3 percent increase from last year, the Kiev-based agro-news agency Agrimarket reports quoting the National Statistics Agency (NSA). This means that in a country which for most of the past decade the government had to subsidize farmers and limit (sometimes suspend) exports in order to prevent a price explosion on the domestic market for people’s daily bread, now the overall trend has been reversed. Rather than barring grain from leaving the country, Kazakh exporters now wonder how to get it out without losing too much on external sales. Between September of last year and early spring, Kazakhstan exported no more than 5.5 million tons of grain - almost all of which was wheat. Price settings for Kazakhstan’s external grain sales have seen a drop of 12.7 percent on average through calendar year 2009, according to Agrimarket quoting the NSA as of January 11th this year. In December, gross revenue on sales dropped by 23 percent year-on-year. Export prices for Kazakh wheat dropped by 29.1 percent through 2009, followed by barley and corn which fell 25.1 and 4.1 percent respectively. Price-setting developments roughly follow global trends. Through the first three months of this year, benchmark wheat on Europe’s LIFFE fell 8 percent, after having been relatively flat throughout 2009. But LIFFE wheat is of superior quality to Kazakh wheat, being more comparable to US "black" wheat futures which are traded on the Chicago Board of Trade. From the end of 2008 through the end of this March, the US benchmark dropped from $6.1075 to $4.505 cents per bushel. Output constraints seem to be the only short-term remedy to prevent a global grain glut caused by unlimited boosts in production. Here, nature is offering a little help. According to the Ukraine-based agency AgroConsult, the harsh and persisting winter weather that most of the northern hemisphere is suffering from will cause a setback in harvests for the upcoming summer. As a result, according to the agency’s forecast, harvests in Ukraine, Russia and Kazakhstan which together make up an ex-Soviet grain-exporting troika, will be reduced to 18 million tons for Kazakhstan, 88 million tons for Russia and 43.9 million tons for Ukraine, down from last year’s 20.83, 97.1 and 45.39 million tons respectively. Recently, the government of Kazakhstan announced that for the upcoming harvest season, subsidies for grain export will be doubled from a current $20 to $40 per ton. This should render a net sales price more attractive for customers - but at least in one case the opposite seems to be the case. If one is to believe an Agrimarket report published last September, Kyrgyzstan had purchased close to 50,000 tons of wheat from Kazakhstan at the cost of more than four times the market price. "In 2009, Kyrgyzstan purchased 49,200 tons of wheat from Kazakhstan, declared Kambaraly Kasymov, Secretary of State of the Ministry of Agriculture, Water and Processing industry of the Kyrgyz Republic, on September 14," the news report read. "According to him, the government paid $33.8 million. Further, the country imported 15,400 tons of flour." The report leaves it unclear whether the flour is included in the amount. If not, the price amounts to the astounding price of $687 per ton. According to a report by a US monitoring agency called Agromoney dated April 14th, this winter Russia won a bid for an export contract with Egypt at a price of $167.70 per ton from the Black Sea. Could it be a misprint? If not, there could well have been a formidable kickback here, in which case it is unlikely to have been the only one of its kind in Central Asia. In any case, it looks very much like just one of many cases involving the prior regime which the newly installed authorities of Kyrgyzstan will have to investigate.

3. Tajiks appeal to IMF in freight dispute with Uzbekistan (Tajikistan, April 22, 2010-issue 613) By Rakhim Nazarov

DUSHANBE (TCA) — The International Monetary Fund (IMF) will assist Tajikistan in resolving the issue of delayed rail freight in Uzbekistan. The IMF will discuss the issue of Tajik freight delays with Uzbekistan. According to Axel Schimmelpfennig, head of the IMF mission in Tajikistan, all countries included in the IMF must comply with the rules of free trade – one of the IMF’s basic principles.

Schimmelpfennig said that during a meeting last week, the Tajik president expressed concern on the delay of goods traveling through Uzbekistan, and “we promised to assist in resolving the situation”. Speaking about the delay of goods in Uzbekistan, Sukhrob Sharipov, director of the Center for Strategic Research (CSR) under the Tajik President, said that in the future when signing agreements between Tajikistan and Uzbekistan it should be provided that in case when one party fails to follow the agreement, the second party may appeal to international courts. “It will be a positive factor, since the delay of every railcar will be subject to a fine,” explained Sharipov. Tajikistan believes that delays in Uzbekistan (which now number over 2,000 railcars) are due to the disagreements between the two countries regarding the construction of the Rogun hydropower plant in Tajikistan.

According to Abdunabi Sattorzoda of CSR, Uzbekistan has three demands on the issue of the construction of Rogun: the conducting of an international assessment of the project, assurance that there will be no environmental problems, and assurance that there will be no effect on Uzbekistan’s irrigation system. “However, in spite of tense relations between Tajikistan and Uzbekistan, a compromise should be found. We are very close and are bound by a centuries-old relationship. Tajikistan, in contrast to its neighbor, has never demanded anything in dealing with controversial issues,” said Sattorzoda. Sharipov believes that examination of the Rogun project should remove disagreements between Tajikistan and Uzbekistan. Sharipov called Tajikistan’s cooperation with the World Bank [on Rogun’s examination] fruitful and said it was supported by other international organizations such as the IMF. “We are confident that examination results will be in favor of Tajikistan, as Rogun has already gone through all possible examinations. Though some changes might be introduced concerning the use of new technologies,” said Sharipov. Sharipov also noted that even if the results of examination would require introduction of some changes in the Rogun project, Tajikistan will not refuse its implementation. Changes may concern the use of some new technologies that would improve the plant’s effectiveness. The dam will be completed by the end of this year, added Sharipov. Speaking about the construction of Rogun, Mr. Schimmelpfennig said that the issues of the project’s financing had also been discussed during his meeting with the Tajik president. “Considering the economic component of the project, we recommend the Tajik government to cooperate closely with the World Bank, which prepared a feasibility study. Also, the Tajik government, together with the World Bank, should create an international consortium for Rogun. The IMF welcomes the Tajik government’s commitment on the proper management of the Rogun project, including the external audit of the Rogun public corporation and regular public reporting on the use of funds,” said Schimmelpfennig. According to the Tajik Ministry of Finance, the state budget provides the necessary funds for construction works on the Rogun project for the current year. Moreover, the amount from the sale of shares and share certificates of Rogun is approximately $185 million. However, these funds were not used because budget funds are enough for the project’s needs. Thus, there will be no problems with the project’s financing over the next two years. According to the project, the first two units with a capacity of 1,200 megawatts will be launched by the end of 2012. Tajikistan considering lawsuit against Uzbekistan in international court In an interview with Ferghana.ru, Olimdjon Salimzoda, chairman of the Committee for International Affairs, Public Associations and Information in Madzhlisi Namoyandagon (lower chamber of Tajikistan parliament), said that "the actions of Uzbekistan delaying railcars from being delivered to Tajikistan have forced us to appeal to international courts". He clarified that Tajikistan has not yet filed a suit against Uzbekistan because of "good-neighborly relations, support of centuries-long relations and peaceful co-existence in the region". However, according to Salimzoda, "the actions of Uzbekistan undermine the concept of good-neighborly relations in the Central Asian region". "It is common knowledge that railroad shipments are not going only to the Rogun hydropower plant. Most of them carry oil, lubricants, food and other commodities which are vitally important to the population. Most of the freight was ordered by entrepreneurs, not by the government," Salimzoda noted. He believes that the actions of Uzbek authorities are due to the implementation of the energy projects in Tajikistan. "The implementation of these projects is the sovereign right of Tajikistan. It meets both the regional interests — demand for cheap electricity and world community interest — solving global environmental problems. The energy produced by hydropower plants is renewable and it does not pollute the environment." He mentioned that all arguments made by downstream countries about negative environmental impact are not well-grounded. Further, Tajikistan announced its readiness to conduct an international examination of the Rogun project. Salimzoda highlighted that the Uzbek government "needs to reconsider its attitude and make proper conclusions. Otherwise, in order to safeguard its national interests, Tajikistan will have to file a lawsuit against Uzbekistan in international courts".

4. Uzbek mineral resources wait for exploration (Uzbekistan, April 22, 2010-issue 613) By Dilshod Ashurmatov

TASHKENT (TCA) — This year Uzbekistan will draw foreign investment for the exploration of solid minerals in its western and southern regions. However, there are two obstacles for investors: little knowledge about the areas and the lack of a coherent policy from Tashkent. At the end of 2009, Uzbek authorities said they were ready to draw foreign investment in ten promising fields in these areas of Uzbekistan with gold reserves estimated at around 450 tons, as well as four million tons of copper and 400,000 tons of tungsten. Last month, Uzbekistan’s National Committee on Geology and Mineral Resources was going to announce a public tender for the exploration of seven uranium deposits in Central Kyzyl-Kum. At the same time, the Committee planned to start a bid for the exploration of copper and molybdenum ore at the Jengeldi field in the Severny Bukantau Mountains of the Navoi region.

Moreover, Uzbekistan has another 107 investment blocks with a total area of 6,400 square kilometers all across the country with precious metals, iron, tungsten, and molybdenum reserves. However, the Uzbek side decided to temporarily suspend bidding for the projects.

The economic crisis is one of the main reasons for the current situation. It has especially affected the promising industry of uranium mining. In the last two years, the Committee has signed agreements to explore uranium resources jointly with several Japanese and Korean companies. However, the project was frozen at the point of studying the provided materials. The Uzbek government quite reasonably believes that the economic situation may well change. In this case, attention should be paid to the Uz-China Uran joint venture, established last September jointly with the Chinese CGNPC Uranium Resources to develop uranium deposits in the Central Kyzyl-Kum. During his visit to Seoul this February, Uzbek President Islam Karimov signed an agreement providing for the investment of about $140 million by Korean companies over the next five years to explore and mine tungsten, lithium and silicon. However, all these projects are still under preliminary discussion, which shows that there is no guarantee of their implementation. There is almost no time left to explore new fields, believes Ilkhat Tushev, analyst at Central Asia Investments. “The research and estimation of reserves usually take from five to fifteen years – a period during which the previously discovered deposits reach their highest level of productivity and become depleted. Another ten years will be needed to launch a deposit assuming there is regular financing, availability of all the necessary equipment and technological materials,” said Tushev. Moreover, many market participants believe that except for the weak knowledge of deposits and a fear of getting a “pig in a poke”, investors are also concerned with the absence of a coherent geological policy in Tashkent.

Emptying storages

At first sight it may seem that there is no reason to worry since Uzbekistan has rich mineral resources, and it will be no problem with geological exploration. Scientists say that Uzbekistan now has about 3,000 mineral deposits, of which 1,100 are ready for development. Mineral resources in the country are estimated at $1.2 trillion. However, only 10 percent of them are involved in the economy.

Meanwhile, experienced geologists have a completely different opinion. According to Anvar Jumayev, an analyst, there are almost no significant deposits among the unexplored ones that might interest investors. “Now those fields discovered about twenty years ago, back in the Soviet time, are under operation or ready to be mined. Unfortunately, we are witnessing stagnation in the industry as those mines prepared by Soviet geologists are now actively being sold and the mineral resources are replenished only regarding hydrocarbons, gold, and uranium,” said Jumayev. Until 2006, the government had no time for geology as it mined old fields. In the fall of 2006, the government adopted a program to intensify geological exploration of mineral resources through 2011. The program includes the improved efficiency of drilling and tunneling, purchase of appropriate equipment, as well as the implementation of satellite imagery and software. Though a part of the budget funds were allocated for these purposes, the situation remains unchanged. Major state-owned companies through geological units have intensified exploration at previously discovered fields, while the study of little-known fields has been extremely slow. To somehow accelerate the process, the government has introduced some changes in the Committee by changing the committee’s head, and by appointing a special supervisor – First Vice-Premier and Finance Minister Rustam Azimov. He will head the new government commission which will thoroughly study the performance and effectiveness of exploration. According to experts, the creation of a new commission may suspend open bids and intensify the practice of direct negotiations with investors. “The practice of such commissions in related industries shows that the decision to grant a license for a particular field will be taken behind closed doors,” said expert Dilmurad Kholmatov. In such conditions, Kholmatov believes, major investors with links to the government will enter the market, or companies trying to speculate interests around the world prices for a particular commodity. In both cases the implementation of projects will depend on tacit agreements, rather than on their economic component.

For further information: The Times of Central Asia