The Times of Central Asia - update of April 30, 2010

In this issue:

4. Uzbeks effectively close market for foreign cars

1. Kyrgyz interim government, business community unite to cope with crisis (Kyrgyzstan, April 30, 2010-issue 614) BY LIDIA SAVINA

BISHKEK (TCA) — "The Provisional Government of the Kyrgyz Republic declares its commitment to the rule of law, protection of private property and foreign investment, as well as the principles of a socially-oriented market economy," said Chairperson of the Provisional Government Roza Otunbayeva at a round table held in Bishkek last week. Otunbayeva urged participants of the round table to open a dialogue for building a democratic, prosperous State.

On April 23, the International Business Council based in Bishkek conducted the round table with participation of leadership of the Provisional Government. Business representatives spoke about the problems their companies faced after the events of April 7-8, 2010. Thus, the Chairman of the IBC Mineral Resources Committee Julian Evanochko, talked about the difficulties faced by the companies operating in the mining sector, particularly in the Talas Oblast. Ulanbek Akmatbaev, first deputy chairman of the IBC Management Board, general director of Reemtsma Kyrgyzstan JSC, noted problems of his company, which is one of the most successful projects of European investments in the country. Before the events of April 7, 2010, the company experienced raider attack, during which the whole arsenal of administrative resources was used. Recently a local TV station reported that the company allegedly was related to the family of the former President Bakiyev. "I want to assure you that this is baseless,” said Akmatbaev. Nevertheless, the existence of a list of Bakiyev’s property or Bakiyev’s companies might lead to a witch hunt. In the absence of transparency in monitoring, such action may deteriorate the business climate in the country. Giyaz Khalilov, head of the Lina furniture company, asked about the closed borders. What is the reason for closing the border with Kazakhstan? "We suffer losses, we are incurring penalties for non-fulfillment of our contracts," he said. In addition, Khalilov proposed that at least every other day, the deputy head of the Provisional Government should communicate with people live via TV. In such difficult times, people must feel that the authorities are trying to care about them. The participants not only discussed their problems, but also suggested real solutions to the problems. The president of the ITMC Tien-Shan company, Vladimir Komissarov, who spoke on behalf of the tourist sector, offered to remove the visa regime for a number of countries, as well as to conduct a proactive information campaign. Komissarov also made specific suggestions for reviving the economy as a whole and saving the tourist season of 2010. Today, the future of the economy is being shaped. If the new government continues the policies that stood before April 7th, many of the former shortcomings will be repeated. One of the significant steps taken to address the administration and corruption is a shift to self-regulation of the economy, he noted. At present, the foreign media are given a very negative message about Kyrgyzstan. Therefore, the Provisional Government should issue a statement that a trip to Kyrgyzstan is not dangerous. The Provisional Government is ready to cooperate with the business community, it is open for it and wants to know its problems, assured Roza Otunbayeva. “In the near future, the country will hold a referendum for the adoption of a new Constitution, and then parliamentary elections will be held. Therefore, the Provisional Government will have a lot in politics. We hope that such a decisive turn will enable businesses to breathe freely and to work successfully,” she added. In the near future, the materials of the meeting will be compiled and submitted to the Provisional Government for consideration.

2. Korea seeks Kazakh uranium, grain (Kazakhstan, April 30, 2010-issue 614)

SEOUL — Business cooperation topped the agenda during a summit between the leaders of South Korea and Kazakhstan in Seoul last week. Korean President Lee Myung-bak sat down with Kazakhstan President Nursultan Nazarbayev, who was on a three-day state visit to South Korea.

They signed 23 business agreements worth US $8 billion in total in areas ranging from joint development of uranium to information technology and agriculture. Lee praised Kazakhstan’s efforts to diversify and modernize its industries and expressed willingness to share Korea’s experience of swift economic development. His Kazakh counterpart expressed hopes that Korean businesses can invest more in the Central Asian country.

Uranium export

Kazakhstan, the world’s No.1 uranium producer, said its uranium exports will rise to 40 percent of South Korea’s demand from a current 26 percent. "Both presidents via summit exchanged in-depth opinions over energy, resources, construction, infrastructure, agriculture and IT sectors to improve the bilateral cooperation," a statement from the South Korean presidential office said. The statement added the two will cooperate in developing uranium and studying Korean-type small- and medium-sized nuclear power reactors, under a bilateral agreement between national companies. A statement from state-run Korea Electric Power Corp (KEPCO) said it had signed a memorandum of understanding (MoU) with Kazakhstan’s state-run KazAtomProm to enhance the cooperation in the nuclear power sector by developing and producing uranium from KazAtomProm mines. "KazAtomProm should suggest a uranium mine under development or at production stage within one month after signing the MoU, and the Korean party will conduct feasibility study," the KEPCO statement said. South Korea is the world’s sixth biggest uranium consumer, consuming 4,000 tonnes in 2009 and is expected to use 6,000 tonnes by 2016 for an additional 8 nuclear reactors.

Grain imports

Nazarbayev also told a news briefing held with President Lee Myung-bak that South Korea will import two million tonnes of grains from the Central Asian country. South Korea’s Samsung C&T, which has no grain trading business, said on April 22 it was considering importing grain from Kazakhstan. The South Korean trading house and Kazakhstan’s state-run company Kazagro signed a MoU on the grain business. Asked if Samsung C&T would import grain from Kazakhstan, Chi Sung-ha, the firm’s president and CEO, told Reuters: "We are considering it." Samsung C&T and state-run Korea Electric Power Corp in March last year won a $2.5-billion power plant order from Kazakhstan, with the deal signed last May when South Korean President Lee Myung-bak visited Kazakhstan. Industry sources said earlier this month South Korean milling wheat buyers, major customers of U.S., Australian and Canadian producers, were considering wheat imports from Kazakhstan for the first time but imports might be capped due to poor quality and additional processing costs. (With Reuters and Korean agency reports)

3. Tajik Air to upgrade fleet of planes (Tajikistan, April 30, 2010-issue 614) By Rakhim Nazarov

DUSHANBE (TCA) — Tajik Air (Tajikistan’s national airline) is expanding its route network and upgrading its fleet.

Currently, the airline is negotiating with Brazil’s Embraer aircraft manufacturer for the lease of two airplanes. According to Valery Sharipov, Tajik Air’s first deputy general director, these huge planes made in Brazil belong to the Boeing-190 and -145 classes. “The Embraer company provides a package of services, in particular, on the first stage, these airplanes will be managed by a Brazilian crew,” said Sharipov. It is expected that Embraer representatives will visit Dushanbe soon to discuss issues concerning management, flight routes, and technical issues. In the last two years, Tajik Air has held several rounds of talks with Chinese aircraft manufacturers for the purchase of MA-60 airplanes. At that time, China also promised various benefits to go along with the lease of their planes, in particular, the option to purchase the planes in a long-term loan. However, Sharipov said that the issue about the purchase of MA-60 Chinese airplanes is closed. "We have conducted several rounds of talks with representatives of the Chinese aviation plant. At the beginning, we planned to acquire Chinese airplanes for domestic flights, and to Central Asia. Most of all, we were interested in whether MA-60s could fly to Khorog, the administrative center of Gorno-Badakhshan Autonomous Region. Chinese experts have studied the Dushanbe-Khorog route, and we came to the conclusion that due to some technical parameters, this type of airplanes is disadvantageous for us. Instead, airplanes of Embraer, which can carry from 54 to 60 people, are a good alternative to carry out these flights,” explained Sharipov. Representatives of Tajik Air also noted that they will purchase another Boeing 757-200 on lease. This plane carries up to 189 people. To cover operational costs, the airline began leasing its Russian-made planes and helicopters. In February, Tajik Air leased two helicopters to Afghanistan’s CAAS airline. Tajik Air uses the profits from these helicopters to maintain its old Russian-made aircrafts. According to Sharipov, the number of flights carried out by Russian-made planes reduced significantly due to the growing demand for comfortable and cost-effective airplanes of western production. “Considering this factor, Tajik Air has leased two Tu-154 planes to Iran’s Taban Air, bringing additional revenue to the Tajik company,” Sharipov noted. Currently, the aircraft fleet of Tajik Air includes two Boeings 737-500, two Tu-154 Ms, one An-28, two Yak-40 planes and two Mi-8 MTV helicopters. Tajik Air said that in the first quarter of this year, 286,400 passengers were transported by air in Tajikistan, of which 168,300 passengers (58.8 percent) were transported by local air companies – Tajik Air, Somon Air and East Air. Tajik Air’s share in total air transportation made up 49.2 percent. All Tajik airlines state that currently they do not have shortages of aviation fuel due to the delay of rail freight in Uzbekistan. Moreover, not a single airline has raised prices for tickets on either domestic or international flights.

4. Uzbeks effectively close market for foreign cars (Uzbekistan, April 30, 2010-issue 614) By Dilshod Ashurmatov

TASHKENT (TCA) — From April 1, Uzbekistan has introduced new customs fees on cars imported to Uzbekistan, effectively closing the market for imported cars.

According to the decree by Uzbek President Islam Karimov, the import duties for new cars increased from 20 to 30 percent, and on used cars from 30 to 40 percent. Also, the definition of ‘used cars’ in terms of time limits was reduced from three years old to two. This is the second recent increase in duties on car imports. In September 2009, specific duties — from $1.8 to $3 per cubic centimeter (based on engine capacity) — were added to customs fees on imported vehicles to Uzbekistan. Considering the fact that one also has to pay the old excise tax, VAT and a highway tax, the import of new cars becomes twice as expensive. From January 1st 2010, the Uzbek authorities also introduced a ban on the import of vehicles which do not meet the Euro-3 environmental requirements. There are no official statistics on car imports in Uzbekistan. In recent years, the import of cars to Uzbekistan decreased partially due to problems with converting currency. According to different estimates, the sale of imported new cars is between 6,000 and 10,000, while the market demands around 150,000 cars. Such a small proportion certainly could not satisfy Russian automobile producers, the main suppliers of foreign cars to the Uzbek market. In November 2009, Russian car makers AvtoVAZ, GAZ and Sollers petitioned the Russian government with a request to introduce restrictive measures on imports of Uzbek vehicles made by GM Uzbekistan (Asaka, Andijan region) in response to restrictions imposed by Uzbekistan upon the sale of foreign (Russian) cars in this country. According to Russian automobile manufacturers, Uzbekistan completely stopped currency converting for Russian car dealers in 2009, introduced a ban on consumer lending for purchasing foreign cars and imposed an additional road tax on imported cars. At the Uzbek-Russian Intergovernmental Commission for Economic Cooperation, held in Tashkent in late March, Uzbek representatives promised to develop a joint action plan by the end of this year to eliminate the existing trade barriers, many of which concern the supply of Russian cars. “However, considering that the document on raising taxes was adopted in early April, immediately after the commission’s meeting, there is little hope for Russian car manufacturers,” said Ilkhat Tushev, analyst for Central Asia Investments. Experts believe that, considering the crisis and reduction of exports of cars from GM Uzbekistan, Uzbekistan’s main car manufacturer, new fencing fees should further strengthen the position of the local car industry and expand the internal market. Today, despite the crisis, Uzbekistan does not have any shortage in new domestically produced cars. The plant in Asaka is increasing production. In 2010, GM Uzbekistan will raise production up to 220,000 cars from 205,000 in 2009. According to Uzavtoprom JSC (Uzbekistan’s major automobile producer), the increase is due to the popularity of the Lacetti car model, and the launch of an assembly-line plant where Chevrolet Spark compact cars will be produced. The new plant will be launched in August and will produce 50,000 cars per year. In a crisis where reduction of exports was almost three-fold, last year the Uzbek government managed to stimulate the domestic market by allowing foreign cars to be purchased for cash only while allowing Uzbek-made cars to be purchased through installment loans. As a result, car sales at GM Uzbekistan in 2009 almost doubled, totaling 180,000 cars. It’s no wonder that one can see rows of new Nexia, Damas, Matiz, Lacetti, Captiva and Epica models in car dealerships all across Uzbekistan. In spite of falling sales in both domestic and foreign markets, since April 1, the price for cars made by GM Uzbekistan has increased by approximately 12 percent. “It is clear that the price increase depends directly on the exchange rate of the U.S. dollar, which is rising,” analyst Dilmurad Kholmatov believes. “However, the domestic market may soon face a demand constraint.” In such circumstances, two methods should be applied: production localization and export diversification, said Kholmatov. In 2010, Uzavtoprom will launch 115 projects costing about $200 million for the production of car parts. This will increase the localization of production in the industry from 39.5 to 47.4 percent. Car producers count mainly on the launch of an engine production plant in the Tashkent region next year to assist in the import substitution policy. The building of the plant will require more than $600 million. This will not only satisfy domestic demand, but also will turn domestic cars into an attractive export product. However, external expansion in fierce protectionism does not have only positive perspectives. According to experts, it will be difficult to reach the goal of increasing exports in 2010 by 20 percent to 65,000 cars. “Tashkent’s measures to close the market may hit it like a boomerang,” believes analyst Anvar Jumayev. “The suspension of Uzbekistan’s membership in the Eurasian Economic Community (EurAsEC) can make it difficult for Uzbek goods to enter the markets of the Customs Union member countries.” Considering all the above mentioned, ambitious plans about entering new markets in Asia, the Middle East and South America remain just rhetoric.

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