Game-Changing Central Asian Railway Project Faces Setbacks

The China-Kyrgyz-Uzbek railway project lacks clarity on financing and construction timeline, despite claims of completion.
China holds a controlling interest in the project, with Kyrgyzstan and Uzbekistan having minority shares
Kyrgyzstan’s debt rating was upgraded to medium-risk to facilitate Chinese funding, but questions remain about Kyrgyzstan’s ability to contribute its share of construction costs.

The more officials from China, Kyrgyzstan and Uzbekistan try to provide clarity about a multi-billion-dollar railway project, the more it appears to be a case of putting the train before the track.

Construction of the China-Kyrgyz-Uzbek railway had long been planned, but little done, mainly due to questions about financing. But in early June, the three countries’ leaders unveiled a construction consortium to build the route, asserting that all the pesky details had finally been hammered out. There was one problem, however: none of the three countries immediately published the document that provided specifics on the consortium’s operations.

China’s State Council information service published a commentary by a former Kyrgyz prime minister, Djoomart Otorbaev, touting the project as capable of turning Central Asia into a trade hub. “The new railway [is] a beacon of hope and optimism,” Otorbaev trumpeted.

Days after the initial announcement, Kyrgyzstan’s parliament published the agreement, which contains 13 provisions. The document portrayed the railway project as an outgrowth of the “long-term interests of the sides to develop strategic cooperation.” While it shed light on the composition of the construction consortium, it did not directly address the main issues of financing and construction timeline.

To no one’s surprise, the document shows that China enjoys a controlling interest in the project, responsible for 51 percent of construction costs. Kyrgyzstan and Uzbekistan each have a 24.5 percent share. Chinese entities are given responsibility for the actual construction of the railway on Kyrgyz territory, with Kyrgyzstan granting Beijing a degree of extraterritoriality, waiving visa requirements and taxation rules for Chinese workers and equipment engaged in the project.

According to a local media report, China had to upgrade Kyrgyzstan’s debt rating to medium-risk from high-risk to open the way for financing the deal.

On June 18, the head of Kyrgyz railways, Azamat Sakiev, appeared at a Kyrgyz parliamentary hearing to answer MPs’ questions about the project, which President Sadyr Japarov has described as a vital link connecting landlocked Kyrgyzstan to world markets.

Sakiev’s responses during the two-hour session resolved some questions but raised others. He did address the financing issue, but the numbers didn’t seem to square. He pegged the overall construction cost at $4.7 billion, adding that the Chinese government had pledged to give the consortium a $2.35 billion low-interest loan, covering about half the project’s final bill. That loan, given the consortium’s financing responsibility framework, would cover just about all of China’s financing share.

Sakiev proceeded to say Kyrgyzstan would need to find $700 million to cover its construction costs, a number that doesn’t align with the country’s 24.5 percent financing share. A quarter of the remaining estimated construction cost comes to about $576 million. A MP during the session said Kyrgyzstan might be responsible for contributing up to $1 billion to the project, a number that Sakiev did not challenge. He also revealed that Kyrgyzstan was negotiating with two Chinese banks to obtain a construction loan for an unspecified amount.

To muddle matters, an Uzbek media outlet, Spot.uz, reported June 19 that the Uzbek and Kyrgyz obligations were each $573 million, a figure more in line with the agreement’s framework. While amounts have been floated, there have been no reports of any financing arrangements being finalized.

Sakiev reasserted what other Kyrgyz officials have said earlier, stating that railway construction would commence in October and would take six years to build. Uzbek officials have also mentioned October as the start date.

While the start of the project seems set, the railway route remains uncertain. Most of the uncertainty concerns the Kyrgyz section of the railway, which will commence in the western Chinese city of Kashgar, cross into Kyrgyzstan and terminate in the Uzbek city of Andijan. The gauge of the rails will widen at Makmal, in Kyrgyzstan, requiring cargo to be reloaded from one train to another.

The route through Kyrgyzstan will require the construction of dozens of bridges and tunnels, the exact number of which is apparently matter of contention. The official Kabar news agency reported that the Kyrgyz sector will have 81 bridges and 41 tunnels. But the Tazarbek news service pegged the numbers at 95 bridges and 48 tunnels.

Sakiev said construction will consider the potential impact on local environments, stressing the Kyrgyz section will not traverse any nature reserves. Kyrgyz MPs were highly critical of the agreement provision allowing for Chinese contractors to build the entire route. One MP, Baktybek Sadykov, insisted both Kyrgyz and Uzbek companies were capable of doing the work, saying it was “deeply offensive” that they are precluded from gaining contracts.

By Eurasianet.org