Construction of a tunnel on the alternative route North-South. Source: Gov.kgOn 26 June 2018, the Fergana website published my investigation unveiling corruption schemes behind Kyrgyzstan’s biggest infrastructure project, an alternative 433km road linking the capital Bishkek in the North with the country’s main city in the South, Osh. The project has been funded with a 850 million USD loan from the Export-Import (Exim) Bank of China under the One Belt One Road Initiative, with the China Road and Bridge Corporation (CRBC) as the main implementing partner.
According to the documents published on Fergana, former Minister of Transport and Communications Kalykbek Sultanov and the current Minister Zhamshitbek Kalilov – the latter allegedly one of former Prime Minister Sapar Isakov’s protégés – were responsible for the project. The documents suggest these officials colluded with the contractor CRBC to embezzle funds from the Chinese government’s infrastructure investments. It appears that price tags were inflated by several orders of magnitude, from paying 1.1 USD per kilogramme of cement (cost on the local market: 0.07 USD) to paying 2,000 USD per month to provide office space to an engineer on the construction site.
In an interview with Azattyk, the Kyrgyz branch of Radio Free Europe/Radio Liberty, member of parliament and leader of the opposition Ata Meken party Almambet Shykmamatov stated that, given past cases of corruption in infrastructure projects, he does not believe “in the fairytale that not a cent was stolen” from the road construction contracts. In the same interview, officials from the Ministry of Transport and Communications threatened to press charges against me for the Fergana investigation.
Under former President Almazbek Atambayev’s six-year tenure, overpricing project costs appears to have been a widely implemented practice. Apart from road works, the same allegedly happened during the modernisation of the Bishkek Heat and Power Plant (HPP), which was also financed with a 386 million USD loan from China’s Exim Bank. As Fergana.ru reports, the Kyrgyz authorities and Chinese contractor TBEA (which was recommended by official Beijing for the modernisation work) signed accounting papers for $600 pliers, $14,000 video cameras and $1,500 fire extinguishers. A parliamentary committee concluded that approximately 100 million USD was embezzled in the operation. As a result, former Prime Ministers Jantoro Satybalidiev and Sapar Isakov have been arrested on corruption charges along with a number of other officials.
The BRI as China’s financial diplomacy
These projects have all been implemented through the One Belt One Road Initiative (OBOR), also known as the Belt and Road Initiative (BRI), the Chinese government’s paramount development strategy for connectivity and cooperation in Eurasia. The closure of the US military base at Kyrgyzstan’s Manas airport in summer 2014, through which most of the NATO-led International Security Assistance Force (ISAF) to Afghanistan passed, as well as the drawdown of USAID and other western donor activities in the country, has left a void which the Chinese government has been quick to fill with their own brand of public diplomacy, especially in the form of infrastructure development projects.
In Central Asia, the BRI was launched during Chinese leader Xi Jinping’s visit to Astana, Kazakhstan’s capital, and Southeast Asia in September and October 2013. Here, Xi Jinping proposed his vision of jointly building a “One Belt” land route through Eurasia and a 21st-Century maritime “One Road” from the South China Sea to the Mediterranean. The Economist has described the revolutionary potential of the initiative, which is viewed as “a challenge to the United States and its traditional way of thinking about world trade. In that view, there are two main trading blocs, the trans-Atlantic one and the trans-Pacific one, with Europe in the first, Asia in the second and America the focal point of each. Two proposed regional trade deals, the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership, embody this approach. But OBOR treats Asia and Europe as a single space, and China, not the United States, is its focal point.”
The Advancing the Development of OBOR Leading Group was formed in late 2014, with its leadership lineup revealed on February 1, 2015. This steering committee reports directly to the State Council of the People’s Republic of China and is composed of several political heavyweights, including the Council’s vice-premier Zhang Gaoli, evidence of the importance of the program to the government.
As argued in a June 2018 report funded by the US Department of State in partnership with the Asia Society Policy Institute and the Center for Strategic and International Studies, “(t)he effectiveness of China’s public diplomacy efforts ultimately rests on whether Beijing can influence public opinion and the behavior of political elites to the extent that it can secure economic gains, security concessions, and political wins from its counterparts (i.e., achieving a good neighbor dividend).” Moreover, the report continues, “while China’s financial support filled ‘a void left by the West’ …, critics raise the possibility that Beijing’s ready supply of capital may lead its recipients to debt insolvency as they enter into repayment.”
Sri Lanka is a case in point. Former President Mahinda Rajapaksa collected Chinese loans worth billions of dollars. As the country cannot repay them, it has been forced to sell the strategic Hambantota Port to a Chinese company for 1.1 billion USD to ease the debt burden. A similar situation can be observed in Uganda, where interest payments on current debt will eat up a staggering 17.5% of domestic revenues in 2018-2019. This includes approximately three billion USD in Chinese loans, with 2.3 billion more being currently negotiated. In Central Asia, Tajikistan repaid a debt it had incurred with China for the modernisation of the Dushanbe-2 thermal power plant, the largest in the country, by handing over the Upper Kumarg gold mine to Chinese contractor TBEA, the same company that appears to have been complicit in inflating prices during works at Bishkek Heat and Power Plant.
Does a good neighbour interfere?
As the Chinese state prepares to pour trillions of USD into infrastructure projects in Asia, Europe and Africa, a policy paper by the Washington-based Center for Global Development warns of the possible insolvency of borrower countries if current lending practices continue. Kyrgyzstan is listed along with seven other countries of “particular concern”. Obviously, the paper argues, the fear is that in the long term “(d)omestic spending on infrastructure and social services may be sacrificed in order to service the debt, with the problem compounded when governments borrow additional funds just to meet debt servicing needs.”
The key difference between Western donors and China is the latter’s principle of non-interference, which stands in stark contrast with the former’s conditionalities such as commitment to democracy, respect for human rights and the rule of law. For example, commenting on the Bishkek HPP corruption scandal, Chinese Ambassador to Kyrgyzstan Xiao Qinghua stated that “TBEA has accomplished its work within the project. And the investigation is an internal affair of Kyrgyzstan, and we do not interfere.”
Clearly, this makes collaborating with China extremely attractive for Kyrgyzstan’s elites, regardless of the knock-on effects of taking on unsustainable amounts of debt. However, as Chinese companies working in Kyrgyzstan are often state-owned or government-linked, for the average Kyrgyz they represent China, risking a backlash for Beijing’s public diplomacy efforts. Moreover, with the Atambayev’s presidency coming under increasing scrutiny, Beijing’s image could also be tarnished by association. In May 2018, parliament member Kanybek Imanaliev, also from the opposition Ata Meken party, called on parliament to investigate former PM Isakov’s collusion in a number of projects financed through Exim Bank, including contacts with CRBC.
Beijing’s adherence to non-interference in cases involving Chinese loans may be interpreted as support for corruption, lack of transparency and, ultimately, high debt servicing and possible state insolvency. It is high time for the Chinese authorities to actively investigate allegations of misuse of loans and to better regulate investments, lest scandals associated with Chinese funds and companies end up neutralising the ultimate objective of China’s public diplomacy.
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