China’s decision to speed up construction of the D gas pipeline Turkmenistan-China running through the territory of Kyrgyzstan and Tajikistan marks a significant step in expanding its participation in the power sector of Central Asia.
Speaking of Kyrgyzstan, China integrated into the power sector of the republic a long time ago. Almost every large-scale power project in the Kyrgyz Republic is implemented with the participation of China. According to latest data provided by the ministry of finance, the total debt of energy companies of Kyrgyzstan to China was 1 billion dollars as of May 1, 2022, including 48.79 billion Kyrgyz som (557.47 million dollars) of debt of NESK, and 32.02 billion Kyrgyz som (364.94 million dollars) of “Power Plants”.
Despite huge obligations of the power sector to China, Kyrgyzstan continues to ask for money from its neighbour to resolve issues in the power sector. In particular, the heads of Kyrgyzstan and China discussed cooperation in power and other spheres during negotiations in Beijing, when President Sadyr Zhaparov was in the capital of China on a working visit in early February 2022.
Back then, the Kyrgyz party stated that it hoped to encourage investment from China to the power sector in the following three-four years.
Negotiations have resulted in the first successes. China will build a wind farm this year in Kyrgyzstan. Construction work will be carried out according to the public-private partnership. Investments by the Chinese party are estimated to amount to 100 million dollars.
Moreover, after the meeting of the chair of the cabinet of ministers Akylbek Zhaparov, and the secretary of the Communist Party Committee of China Ma Xingrui, a number of documents were signed in March to build a 500-kilovolt power transmission line and small hydropower plants in the republic using China’s money.
However, there is an opinion that Kyrgyzstan will not get a single kilowatt generated by power transmission lines and small hydropower plants build with China’s participation. To some extent, it turns out to be true because the republic is going to supply electricity to China. Today the Kyrgyz Republic does not have extra kilowatts and it has to import up to 2.5 billion kWh from its neighbours.
According to Kubatbek Rakhimov, doctor of economic sciences, China is primarily interested in the power sector of Kyrgyzstan as some project, which can receive loans against government guarantees. According to him, energy facilities are perfect projects to invest money in against government guarantees.
“The point is that one needs to provide loans against government guarantees in order to enter the power sector. In fact, China has only one goal here – to provide loans with no strings attached, to issue generous grants and commissions. It turns out that money is provided, the bank earns from commissions, and Chinese companies close to the Eximbank and the party act as suppliers and contractors. In other words, they all make money,” Rakhimov said.
According to the Ministry of Finance of the Kyrgyz Republic, the largest creditor of Kyrgyzstan as of May 2023 was the Export-Import Bank of China. The republic’s debt to it amounts to 1.78 billion dollars.
Coal interest
According to recent statistical data, gas exports from Kyrgyzstan in January to April 2023 were intended mainly for Europe and Uzbekistan. China is not even on the list of the top three importers; it is on the fourth place with 2.4 thousand tonnes.
Coal supplies from Kyrgyzstan to China amount to 0.3 percent of total volume. However, the growth was 2.8 times (up to 803 tonnes) compared to the similar period of 2022, when coal supplies to China amounted to 282.2 tonnes. Brown coal exports to China are higher, 3.3 percent of total volume, and amount to 9 thousand 243.7 tonnes, which is almost 23 times higher than in 2022.
The increase in coal supplies to China proves its growing presence in the coal sector. However, Kyrgyzstan exported the most significant amount of coal to Europe (101 thousand 198.3 tonnes), while Romania (36.9 thousand tonnes) became the largest European buyer.
Nevertheless, according to Kubatbek Rakhimov, coal is quite a valuable resource for China and the environmental agenda does not reduce interest for it.
“The coal is still important in most parts of China. Coal generation is very important for China’s economy, especially for Xingjian. Therefore, coal is rather a marketable commodity for our bilateral relations. And production of particular types of coal is very important for the Chinese party. As for the brown coal, we could use China’s potential to the maximum,” he said.
It is important to say that Kyrgyzstan is not the only country where China actively invests in various projects to ensure security of energy resources and expand its influence in the global energy market.
China takes part in various global energy cooperation projects, including joint ventures, partnerships and technology transfer. China cooperates with other countries and international organisations to improve energy security, promote clean energy technologies, and facilitate regional energy integration. Examples include China-Russia energy cooperation and China-Africa energy partnership.
China also invests money in petroleum and gas. National petroleum companies of China such as China National Petroleum Corporation (CNPC), and China National Offshore Oil Corporation (CNOOC), have invested significant funds in petroleum and gas assets all around the world. These investments include acquisition of stakes in oil and gas fields, participation in exploration and production projects, as well as conclusion of long-term supply agreements. China takes an active part in such countries as Angola, Sudan, Iraq and Russia.
The ambitious initiative “One Belt One Road” contains numerous energy infrastructure projects in Asia, Europe, Africa, such as pipelines, power plants, and power transmission lines. These initiatives facilitate energy trade, improve energy security and strengthen the influence of China in respective regions. It shows that China’s participation in the energy sector is based on a well-defined strategy.
However, economist Iskender Sharsheyev believes that Central Asia should not fear the growing economic presence of China. According to him, it can boost trade and regional development of countries in the region.
“The growing consumption and trade intensity caused by the active participation of China can potentially create favourable economic conditions both in Kyrgyzstan and in the region,” he said.
However, there are still political risks that are mainly related to the ability of national elites to effectively protect interests of their countries.
“China’s approach to loan repayment causes concern because it ignores sovereign rights of states that are unable to meet their financial obligations. The national elites must hold talks with caution in order not to fall into debt dependency that can lead to economic and political vulnerability. To reduce such risks it is very important to reach economic parity by involving private sector investments to joint projects and by ensuring a more reliable ground for cooperation,” Sharsheyev said.
Analysis of penetration into the energy sector and the global context shows us the long-term strategy of China and its consistent efforts to deepen its involvement in the region. Since China continues to expand its presence, Kyrgyzstan and other Central Asian states need to have a reasonable approach to this interaction by ensuring sustainable agreements and economic partnerships that would protect our interests and yield benefits from China’s integration into the energy sector.