- - Friday, March 30, 2012

BISHKEK, Kyrgyzstan — The Kyrgyz government is pushing to speed the construction of a trans-Asia railway, but the massive foreign investment needed to build Kyrgyzstan’s stretch of the project has sparked a heated debate over the price the Central Asian nation would pay for the funding.

Lawmakers and analysts say the $2 billion-plus, 166-mile China-Kyrgyzstan-Uzbekistan railway project would provide this landlocked former Soviet republic access to seaports in China, as well as produce $200 million annually in transit fees.

In addition, the Ministry of Transport says that building the railway would create 20,000 jobs, and that 2,700 Kyrgyz workers would be employed on the railway once it becomes operational. It would carry an annual cargo of 15 million tons and up to 250,000 passengers.

But this small, mountainous country is struggling with its national debt, and likely cannot collect enough public revenue to fund its share of the project.

Prime Minister Omurbek Babanov has suggested forming a consortium or joint venture to attract funding from private investors, and analysts note that the most likely funding source is China, which would have much to gain from the project as one of the world’s largest exporters.

Yet some are wary of the price Kyrgyzstan will pay for the investment to improve its woefully inadequate transportation infrastructure.

Suspicions and doubt

“Past experience shows that Chinese loans normally come with Chinese labor as well, which means that the job opportunities created by the project may not be [beneficial for] Kyrgyzstan,” said Lilit Gevorgyan, an analyst at IHS Global Insight in London.

“Also it is unclear how big Kyrgyzstan’s share in profits generated by the rails operations in the future would be if they fail to contribute significantly to its construction,” Ms. Gevorgyan said.

In August, then-Prime Minister Almazbek Atambayev publicly admonished Minister of Natural Resources Zamirbek Esenamanov for suggesting in an interview with local media that the government could attract foreign investors by offering up Kyrgyzstan’s natural resources.

“I did not sign such an order, and never will,” said Mr. Atambayev, who now is president. “Of course we need the railroad but not this way, not according to this scheme.”

Nonetheless, many locals remain skeptical, noting that Mr. Atambayev has said he hopes to see the completion of the project during his tenure as president.

“Our government is not trustworthy, not at all since it says one thing today and completely another thing tomorrow,” said Kubat Toksobaev, a businessman from the Issyk-Kul region in northeast Kyrgyzstan.

“I think that Kyrgyzstan can develop without the Chinese railway, it has lots of potential. The Kyrgyz authorities lie to people. The facts are clear: The railway is being built to export our natural resources,” Mr. Toksobaev said.

Though impoverished, Kyrgyzstan holds significant deposits of gold, uranium, and rare earth metals and minerals that are critical in the manufacture of flat-screen televisions, cellphone batteries and other high-tech goods.

Some Kyrgyz have noted China’s hunger for resources such as oil, natural gas and rare earths to fuel its ever-growing economy.

“You probably know what Mao Zedong used to say: ‘Wherever a Chinese soldier steps is Chinese land,’” said former presidential candidate Tursunbai Bakir Uulu, addressing his opposition Ar-Namys Party. “If we let the Chinese build the railway here on their terms, they will rob our country.”

An alternative project

Analysts say there are foreign parties that would prefer not to see China extend its influence in Central Asia.

“Chinese economic influence over Central Asia is set to increase with the new railroad, something that Russia may not welcome,” Ms. Gevorgyan said. “But that said, Moscow is unlikely to seek active blockage of the project.”

Still, there are parties lobbying for Russian interests on the issue.

Kubat Rakhimov, a former adviser to Kazakhstan’s minister of transport, is one of a group of Russian and Kazakh transportation experts suggesting an alternative to the China-Kyrgyzstan-Uzbekistan project.

Mr. Rakhimov says that a “Trans Kyrgyz Chu-Fergana” railroad would link the most fertile and populous areas of Kyrgyzstan — the Chu Valley in the north and the Fergana Valley in the south — and would strengthen links and trade with neighboring Kazakhstan, Uzbekistan and Tajikistan.

It could then link up with Chinese rail networks, as well as railways through Afghanistan and Pakistan, he says.

“With the Chui-Fergana railway, Kyrgyzstan will keep and strengthen its relations with traditional allies — Russia, Kazakhstan, Uzbekistan, Tajikistan, and also with the U.S. and EU, who are interested geopolitical and geo-economical balance in the region,” Mr. Rakhimov says.

He admits that funding is an issue, and does not exclude the idea of working with China on the project. But he stresses it is important to find a balance with investment from Europe and countries such as the United States , Russia, South Korea and Japan.

Even so, the Kyrgyz government announced in January a “100-day plan” to come up with the financing for the China-Kyrgyzstan-Uzbekistan railway project.

But with the March 31 deadline looming, no one expects a concrete agreement to be on the table soon.

“For the project to materialize there should be a strong and continuous political backing by all participants coupled with finding adequate financial resources particularly by Kyrgyzstan,” Ms. Gevorgyan said.

“It appears that the political will is present but it will take some time to finalize the financing of this lucrative project.”

Louise Osborne in Berlin contributed to this report.

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