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IV. TRADE POLICIES BY SECTOR 
(1) INTRODUCTION  
1. The Kyrgyz Republic remains dependent on agriculture.  The sector has rebounded 
substantially since shrinking in the early stages of tr ansition, but its relative importance has declined.  
Agricultural products, especially cotton, tobacco, fru it, vegetables, and foods tuffs, account for some 
10% of exports.  Services have e xpanded, fuelled mainly by wholesal e and retail trade, and transport 
and communications.  Hydro-electricity generation is a major activity, but exports have declined 
despite substantial untapped potential that the Govern ment is keen to exploit, including by attracting 
foreign investment.  The other mainstay of the economy, gold processing, by far the main industrial 
activity, usually accounts for around 40% of exports.  Expanding mining and processing is a major 
government goal, especially given the expected clos ure of the Kumtor gold mine within the next 
ten years.  While the largely privatized, non-gol d-mining manufacturing sector has successful export 
segments, it was hard hit by transition, and has ge nerally under-performed.  Manufacturing is widely 
dispersed across many small activities, and reli es on low-valued added agri-processing (which still 
has significant state-owned companies), machinery an d equipment, and non-meta llic products, such as 
glass and light bulbs.  A government priority  is to revitalize the textiles industry.  
2. GDP compositional changes reflect the substantial ongoing restructuring of the economy, 
largely in response to the comprehensive trade a nd other economic reforms undertaken for transition 
to a market economy.  Opening the economy to fore ign trade and investment were central to these 
reforms, and the economy is one of the most ope n in the region.  Increased commercialization of 
agriculture during the 1990s, boosted by accelerat ed land and market reforms, including price 
deregulation and removal of most subsidies, turn ed around the sector's production.  While agricultural 
productivity is still low by international standards, it has improved due to the large influx of small 
private (peasant) farmers.  Nevertheless, high-cost  and poorly developed mark eting chains and other 
impediments, such as remaining land rigidities,  farmers' limited access to credit, poor and 
deteriorating rural infrastructure, declining invest ment, outdated equipment, and low mechanization, 
continue to penalize the sector.  Research, fa rm extension services, land reform, and rural 
infrastructure maintenance and deve lopment are insufficiently funded. 
3. Agricultural policy is based on raising rural in comes and achieving food security by 2010.  
Food security, defined as self-sufficiency, is to be achieved in grain (especia lly hard-grained wheat), 
poultry, eggs, dairy products, vege tables (including potatoes), lamb, beef and other meat, sugar, and 
vegetable oils.  However, care is needed to ensure  that policies to further this goal, such as increasing 
the Government's role by setting production targets, providing support, including trade protection, and directing farmers what to produce, do not, in prac tice, encourage inefficient agriculture that would 
undermine rather than enhance food security by rais ing food prices, as this would hurt the poor most. 
4. The Government participates directly in the mining sector through equity holdings of the 
state-owned mining company, KyrgyzAltyn.  Its 66% equity in the Kumtor gold mine was reduced to 
33.3% in 2005 and subsequently to 15.7%.  Kyrg yzAltyn's role has expanded;  it forms voluntary 
joint ventures with private mining companies, especially foreign.  The improved 1997 mining legislation still provides the government  with substantial discretionary authority and control.  The tax 
code of 1996 removed the Government's authority to  extend special tax treatment to separate mining 
projects.  However, the Kumtor gold mine had nego tiated special treatment be fore then and continued 
to receive it until 2004, when it signed an invest ment agreement and starte d operating under general 
tax treatment. WT/TPR/S/170 Trade Policy Review 
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5. The energy sector is dominated by state-owned entities.  Restructuring of the unprofitable 
state utility monopoly, Kyrgyzenergo, started in 2001 when its operations were unbundled into state monopoly generation and transmission operations, and four distribution companies that were to be 
privatized.  However, reforms stalled when Parlia ment stopped an internatio nal tender to privatize 
Severelectro.  Power reforms, including privatiza tion, are again a government priority, and regulated 
electricity prices are to achieve cost recovery by 2010.  The State Energy Agency (SEA), created in 
1997 to regulate the sector, was abolished in 2006 a nd its functions transferred to the Anti-Monopoly 
Agency, which is of questionable independen ce.  The state-owned gas company monopolist, 
Kyrgyzgas, owns and operates the transmission and distri bution network.  It is to be restructured into 
a separate transmission joint-stock company, and sever al distribution companies are to be formed and 
privatized.  The state-owned national oil and gas company, KyrgyznefteGas, responsible for 
exploration, production, processing, transport, and st orage, participates in joint ventures, including 
production-sharing contracts. 
6. The Kyrgyz Republic made comprehensive liberalizing GATS commitments during WTO 
accession.  Several banking crises occurred in the 199 0s, and restoring public confidence in banks is a 
key government priority, including ongoing rationa lization and strengthening of the financial and 
banking sectors.  While the health and profitabilit y of banks has improved substantially, financial 
(including bank) intermediation remains low and cost ly.  Prudential requirements and supervision by 
the National Bank are being strengthened along with institutional capacities and corporate 
governance, based on international practices, e.g. the Basel Principles.  There are no non-prudential 
restrictions on foreign banks or other financial in stitutions, including insurance companies, which are 
privately owned.  Bank privatization is well advanc ed;  one state-owned bank remains.  Foreign bank 
ownership is increasingly high at over 60%.  Politici zation of the banking sector continues to raise 
certain risks.  The major non-bank financial ins titution, Kyrgyz Agricultural Finance Corporation 
(KAFC), is to be privatized by end 2006 and conver ted into a bank.  The capital market is thin and 
undeveloped.  The State Agency for Financia l Supervision and Reporting replaced the State 
Commission on Securities Markets as regulator in 2005. 
7. The telecommunications market was liberalized  in line with WTO commitments from early 
2003 (instead of 2008) when Kyrgyztelecom's m onopoly on international and long-distance calls 
terminated.  The regulatory regime has been strengthe ned to safeguard competition, administered by a  
seemingly more independent regulator, the National Communications Agency.  However, many of the 
regulatory functions (including ove r prices) were seemingly transferred to the Anti-monopoly Agency 
in 2006, and their respective roles are unclear.  Kyrgyz telecom is to be fully privatized;  Parliament 
terminated plans to sell 51% in 2003. 
8. Transport services, other than road, are heavily re gulated.  Inter-city road transport is largely 
privatized.  Cabotage (passengers and cargo) is prohi bited.  The national air carrier and railways are 
state-owned and only limited air transport and railw ay restructuring has occurred.  A new national 
airline is to be established.  Tourism, a priority sector, is mainly privately run, with some foreign 
participation. 
(2) A
GRICULTURE AND RELATED ACTIVITIES  
9. The contribution of agriculture (including hunting and forestry) to GDP declined during the 
late 1990s, from 44.9% in 1995 to 37.2% in 2001, a nd fell sharply in 2004 before rising slightly to 
34.1% in 2005 (Table I.3).  This diverse sector acc ounts for well over half of registered employment;  
this rose substantially in the late 1990s as priva tized industrial firms shed labour (Table I.4).  
Agricultural growth reached 20% annually in the early stages of recovery from 1996, and output had Kyrgyz Republic WT/TPR/S/170 
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surpassed 1990 levels by 2002, even though the ar ea of sown arable land had declined.1  While still 
low by international standards, agricultural effici ency has increased due to improved land productivity 
and, to a lesser extent, labour productivity.2  Crops, mainly staples of wheat, barley, maize, rice, 
potatoes, and vegetables, as well as cash products of cotton, sugar, tobacco, vegetable oils (e.g. 
sunflower), fodder, fruit and vege tables, contributed most to agri cultural expansion, and account for 
some two thirds of the value of agricultural outpu t (Table IV.1).  The livestock sector has also 
expanded, especially for meat, milk, and poultry.   Agricultural products, especially cotton, tobacco, 
fruit, vegetables, and foodstuffs, account for some 10% of exports (20% excluding gold) (Chart I.1 
and Table IV.2).   Although agricultural growth and rising rura l incomes have helped alleviate poverty, 
it remains a major social and economic problem.  Tw o thirds of the population and 70% of the poor 
live in rural areas.  Agricultural production in 2005 was affected by poor weather conditions.    
Table IV.1 
Agricultural production, 2001-05  
(Per cent and '000 tonnes) 
Commodity GDP sharea 2001 2002 2003 2004 2005 
Grains 9.4 1,824 1,753 1,671 1,747 1,667 
Wheat .. 1,191 1,163 1,014 998 950 
Barley .. 140 149 198 233 214  
Corn .. 443 374 399 453 478  
Rice .. 17 21 18 18 17  
Cotton 2.5 98 106 106 122 118  
Sugar beet 0.2 287 522 812 642 289  
Tobacco 0.8 24 6 9 13 13  
Fodder 2.0 .. .. .. .. .. 
Vegetable oil crops .. 59 72 78 94 88  
Potatoes 3.0 1,168 1,244 1,308 1,363 1,141  
Vegetables 3.8 815 456 678 742 737  
Melons .. 84 42 85 88 86  
Fruits and berries 1.9 161 153 142 176 147  
Grapes .. 27 15 12 15 11  
Meat (slaughtered) 6.3 200 200 194 188 335  
Milk 3.2 1,142 1,173 1,192 1,185 1,198  
Cheese .. 1.7 2.2 2.4 2.6 2.6 
Butter .. 1.9 1.5 1.8 2.0 3.9 
Eggs (million) 0.6 228 243 268 299 318  
Wool 0.1 12 12 12 11 11  
Cattle hides and sheep skins .. 15.6 15.2 15.9 .. .. 
.. Not available. 
a Modelling estimates (World Bank).   Figures are for 2001.   
Source:  National Statistics Committee. 
                                                      
1 Agricultural output had plummeted to 75% of 1990 levels by 1995. 
2 Land productivity exceeded  1990 levels in 1997.  Labour productivity, while some one third higher 
than 1995 levels, remains about a quarter below 1990 levels (World Bank, 2004a, p. 17). WT/TPR/S/170 Trade Policy Review 
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Table IV.2 
Exports and imports, 2001-05 
(US$ million) 
2001 2002 2003 2004 2005 
Product 
Exports Imports Exports Imports Exports Imports Exports Imports Exports Imports 
Live animals and animal products 3.2 3.3 3.8 3.3 8.1 5.9 12.0 7.9 18.1 12.0 
Vegetable products 13.3 15.5 19.9 21.7 18.9 16.2 26.2 23.0 19.9 40.6 
Vegetables and fruit 10.9 1.9 16.2 2.8 14.6 4.0 21.9 7.5 19.7 11.7 
Food, beverages, and tobacco 32.7 35.8 30.1 47.4 25.8 59.5 42.9 83.0 37.2 101.3 
Beverages 0.6 6.1 0.4 9.6 0.8 14.4 4.4 19.3 6,1 20,6 
Raw tobacco 25.6 2.0 19.8 1.7 12.5 2.3 11.6 3.3 11,5 3,1 
Cereal and cereal products 1.3 11.3 0.8 20.4 1.6 14.8 0.9 20.3 1.0 35.1 
Sugar, sugarware, and 
honey 2.6 7.6 5.8 15.3 8.7 14.5 22.1 23.2 11.7 27.9 
Coffee, tea, cocoa, and 
spices 0.5 8.6 2.2 7.3 2.5 9.6 2.9 12.2 2.1 15.1 
Mineral products 58.4 129.5 62.4 163.4 74.7 195.6 94.1 273.3 96.8 334.0 
Oil and oil products 7.4 70.7 35.4 85.6 47.9 126.1 58.8 203.2 58.3 262.6 
Coal, coke, and briquettes -a 6.4 -a 13.9 -a 22.1 -a 18.3 -a 18.5 
Natural gas -a 33.2 -a 41.8 -a 30.8 -a 32.8 -a 32.6 
Chemicals 18.0 67.3 25.2 78.4 9.7 91.7 21.7 112.9 13.5 130.8 
Plastics and rubber 4.0 22.0 5.1 24.9 6.9 38.3 12.6 55.7 17.1 60.1 
Textile and fabrics 29.5 28.8 59. 8 38.9 69.9 47.3 79. 5 42.6 77.4 36.6 
Rock products 5.7 6.7 10.4 6.9 10.2 32.1 14.4 47.6 59.3 20.6 
Wood and related articles -a 5.2 -a 6.6 -a 10.5 -a 17.2 -a 21.6 
Paper 1.2 12.8 0.5 13.4 1.3 17.5 2.6 22.6 2.4 24.0 
Precious metals 226.7 -a 164.8 -a 262.1 -a 291.2 -a 236.2 -a 
Non-precious metals 15.3 27.3 23.4 29.7 19.8 43.5 31.7 65.0 23.2 66.5 
Machinery and equipment 28.5 56.5 26.9 89.6 28.2 89.1 35.5 107.3 32.1 156.1 
Motor vehicles and 
equipment 26.5 31.8 21.2 32.1 14.5 51.2 14.8 70.3 18.5 41.4 
Electricity 46.8 9.8 22.0 9.7 19.2 0.5 21.9 0.2 20.4 -a 
Total (including other) 476.2 467.2 485.5 586.8 581.7 717.0 718.8 941.0 672.0 1,101.3b 
- Negligible. 
a Included in total as "other". 
b Figure differs slightly from that in Charts I.1 and I.3 due to revised data received from the Kyrgyz authorities. 
Note:  Exports are valued free-on-board (f.o.b) and imports cost-insurance-freight (c.i.f). 
Source:  National Statistics Committee. 
10. Increased commercialization of agriculture, boosted by accelerated land and market reforms 
from the mid 1990s, turned around the sector’s produc tion, and increased farm surpluses were sold in 
urban markets.  Land privatization was fundament al to the recovery as private farms drove the 
sector’s transformation.3  By 2002, 71% of agricultural land was operated by private (or peasant) 
                                                      
3 The number of farms and agricultural enterprises rose almost eight-fold from 1996 to 2003 (Kalashev, 
2006, p. 4). Kyrgyz Republic WT/TPR/S/170 
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farms (averaging 3.8 hectares) compared with 13%  by household plots (averaging 0.1 hectare), and 
5% by the larger, and still heavily state-owned, agricultural enterprises (averaging 222 hectares).  
Private farmers held over half of all livestock a nd accounted for 54% of agricultural production in 
2004, compared with 39% for householders, and 5% for agricultural enterprises.  Significant arable 
land (20% in 2004) remains state owned, held ma inly in the local-government-administered Land 
Redistribution Fund (LRF), but also as seed and livestock breeding farms (1.4%).  Private leasing has helped land rationalization, but farm holdings remain fragmented and usually too small for 
commercial viability.
4  Rising productivity by private farmers has outweighed the declining efficiency 
of householders and agricultural enterprises.  Privat e farms provide half and householders one third of 
agricultural employment, mainly as self-employed.   Agricultural enterprises provide most wage-
earning employment.  The main agricultural constrai nt is access to arable land;  only 7% of land is 
suitable for agriculture. 
11. High-cost and poorly developed marketing ch ains, and other impediments continue to 
penalize the sector;  these include incomplete land refo rms;  farmers' limited access to credit, poor and 
deteriorating rural infrastructure;  declining investme nt;  outdated equipment;  and low mechanization.   
Research, extension, land reform, and the mainte nance and development of rural infrastructure are 
insufficiently funded.5  The seed industry, while largely priv atized remains weak;  access to new 
foreign varieties is hindered by registration restricti ons, and the state seed farms are inefficient.  The 
Government still provides fertilizer and machinery services (Chapter III).  Access to rural credit has 
expanded through emergence of credit unions and ot her non-bank financial intermediaries, including 
the state-owned Kyrgyz Agricultural Finance Corporation (KAFC), but is restricted by weak 
collateral, contract enforcement laws, and legal procedures.  Irri gation reform which is another 
government priority has moved slowly;  it aims to  remove large farm subsidies by introducing user-
pay pricing and to fund urgent re habilitation of facilities (Chapter III).  A revised Water Code was 
adopted in January 2005 to facilitate  privatization and transfer of infrastructure to private water users 
through local and regional Water Users' Associations (WUA).6  The area of irrigated land is 
programmed to increase by 10% by 2010.  
(i) Policy framework and developments 
12. Agricultural prices and marketing were largely liberalized in the early 1990s, and budgetary 
subsidies have declined.7  The main subsidies are on pricing of  irrigation, power, and rail transport 
(Chapter III).  No government price support or guarantees are provided.8  Livestock growth has been 
driven mainly by price rises, of 20% to 45% si nce 2000-03, while for crops these were secondary to 
yield improvements.9  Rising livestock prices mainly reflected border increases rather than real 
exchange rate depreciations or re form-induced marketing efficiencies.  Forecasts suggest that while 
agricultural exports will contribute to the sector’s  growth, higher domestic demand will be the main 
source of expansion.10  Further restructuring of the sector, including better facilities (e.g. rehabilitating 
the irrigation network) and enhanci ng marketing and distribution channe ls, should raise efficiency and 
competitiveness.  In addition, local governments ha ve vast powers in determining agricultural land 
                                                      
4 One fifth of private farm land is leased, mainly from the LRF. 
5 World Bank (2004a). 
6 About 80% of the 900,000 hectares of arable land is irrigated.  The proposed arrangements require the 
Government to regulate and license water-use, based on demand and supply.  There are 406 registered WUAs 
(May 2006) covering 69% of irrigated land.  Their number is expected to rise to over 500 by 2010.  
7 World Bank, 2004a, p. 12. 
8 Kalashev (2006), p. 25. 
9 Yields rose by up to 40% on food crops, but increased only modestly on livestock products 
(World Bank, 2004a). 
10 World Bank (2004a), p. 25. WT/TPR/S/170 Trade Policy Review 
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use, and pastures are not used efficiently;  some 100,000 hectares of arable land is underused 
annually, according to the authorities.11 
13. Agricultural policy is based on raising rural incomes and achieving food security by 2010.12  
Food security, defined as self-sufficiency, is to be achieved in grain (especia lly hard-grained wheat), 
poultry, eggs, dairy products, vegeta bles (including potatoes), lamb, beef and other meat, sugar and 
vegetable oils.  Broad policy priorities and progr ammes are specified, including completion of land 
reforms and commitment to market-based reforms.   However, the Agrarian Policy Concept Paper 
advocates a continuing large and seemingly incr easing government role.  Production targets are 
proposed and certain cropping regions and crops  are designated for support, together with 
"reasonable" trade protection, especially to prevent exporters dumping on the Kyrgyz market or 
competing unfairly.  Government directives to farm ers on which crops to grow are supported, public 
procurement and food reserves are to increase, a nd crop insurance introduced.  A 1,000-tonne state 
wheat reserve is maintained, of which 60% is direct ed at keeping a strategic reserve and the rest at 
meeting food needs in remote areas.13  These measures may raise food prices and undermine rather 
than enhance food security.  Export opportunities are to focus on cotton, tobacco, tinned meat, 
vegetables, wool (washed) and fruit. 
14. Agri-processing and agri-business remain weak, dominated by a few large state-owned or 
privatized enterprises that are poorly managed and have significant excess capacity.  Food processing 
currently represents about one fifth of manufacturi ng.  Discriminatory taxation of medium and large 
agri-processing enterprises restri cts commercial agriculture.14  Only 15% of agricultural output is 
processed, and encouraging agri-processing as a catalyst for developing the agrarian sector by 2010 is 
seen as a key component of the concept paper.  Pr ocessing is to focus on cotton, potato, tomato, fruit, 
vegetable oils, meat, and beans, which are believed  to be competitive in CIS markets.  Government 
policy is to encourage production in agri-industria l complexes, which suffer from inadequate working 
capital and outdated equipment.15  Cooperatives legislation (June 2004) defined agri-cooperatives as 
voluntary independent legal entities that can lease land for profit-earning activities. The  Government 
Decree on Actions Proposed to Develop the Fo od and Processing Industry and the System of 
Procurement and Marketing of Agricultural Pr oduce for 2001-05 were adopted in December 2001.   
Foreign  joint ventures in agricultural processing have  increased, including Russian interests in 
dairying as well as Turkish and Chinese investment. 
                                                      
11 Local government authorities have influenced fa rmers to produce certain commodities through the 
leasing of LDF land, partly to meet indicative national government targets and agreem ents with foreign buyers 
to sell certain products (World Bank, 2004b, p. 149).  The Agrarian Policy Concept Paper also suggests the 
government allocate land to fruit growing. 
12 Presidential Decree on New Directions and Measur es of the Land and Agrari an Reform, April 2004, 
Presidential Decree on National Strategy on Comprehens ive Rural Development Until 2010, 23 June 2004, and 
the government-endorsed Agriculture Ministry's Agrarian Policy Concept to 2010, June 2004.  A National Policy of Food Security, developed with the European Commission, was adopted in 1999, along with a draft 
concept paper on agri-industrial policy from the EAEC Council on Agro-Industrial Policy in October 2004.  
13 The reserve is managed/coordinated by the State Agency on Government Procurement (formerly by 
the parastatal Kyrgyz DanAzyk).  Part of it is used to pay budget items, such as "universal monthly benefits", 
and 60-70% of the reserve is replenished annually.  Th e annual budget of the State Material Reserve Fund is 
about Som 40-50 million (World Bank, 2004b, p. 149).  The Government also distributes fuel from state 
reserves for harvesting (Sulaimanova, 2004, p. 11).  Such reserves  are in accordance with the Law on State 
Material Reserve, and are used to support various industries, enterprises, institutions, and organizations to stabilize the economy during temporary disruptions in the supply of key inputs and foodstuffs. 
14 World Bank (2004a), p. 41. 
15 For example, processing capacities have been incr eased at the Tokmak Milk Plant, and the Ak-Suu 
corn-processing and sugar plant has resumed operations. Kyrgyz Republic WT/TPR/S/170 
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(ii) Main subsectors 
(a) Livestock 
15. The livestock industry accounted for about 10% of GDP in 2001 (Table IV.1).  It consists 
mainly of sheep, cattle, horse, poultry, and goat me ats (6.3% of GDP), cattle and goat milk (3.2%), 
and other activities, especially eggs (0.6%) and w ool (0.1%).  The main animal husbandry activities 
are sheep and cattle grazing.16  The livestock composition has ch anged from wool-producing sheep to 
sheep and cattle for meat.  Livestock products are ex ported to mainly Kazakhstan.  However, 70% of 
poultry requirements are imported from Kazakhstan and the Russian Federation, and only four of the 
eleven Kyrgyz poultry factories are operational.  Substantial informal sale s (including exports) of 
animal products, e.g. wool, undermine the formal market. 
Sheep 
16. The wool industry has declined and production of greasy wool has fallen from 32,000 tonnes 
in 1991 to about 10,000 tonnes.  Small-scale private and public units each ac count for about 45% of 
all farms.  The remaining 10% are independent cooperative farms.  Productivity has been reduced 
through over-grazing, caused by unclear leasing arrang ements and lack of suitable pastures (especially 
in winter), poor breeding techniques, and in creased disease due to high veterinary costs.17  Fodder 
crops (e.g. lucerne and barley) are being replaced by wheat.  
17. The three main wool processors, producing worsted yarn, are former state-owned facilities.  
They are inefficient, use outdated technology an d are on average 75% under-utilized.  Woollen coats 
are sold mainly to the Government (e.g. as militar y clothing) or exported, mainly to the Russian 
Federation.18  Processing of hides has expanded as sheep slaughtering has increased.  Some one third 
of hides are of marginal quality.  The four significan t processors export mainly treated hides to China, 
South Korea, and other Asian markets. 
Dairying 
18. The main dairy products are butter, cheese, i ce cream, yoghurt, cream, and liquid and dried 
milk.  The dairy market is some US$7 million,  and products are exporte d regionally (Russian 
Federation, Pakistan, Afghanistan, and Kazakhstan) .  The industry has contracted, hampered by 
deteriorating milk quality, poor production techniques, and dec lining productivity.  However, 
processing plants with foreign equity now dominate, and this has helped to turn around the industry’s 
performance.19   
                                                      
16 In 2004, the total animal herd (including pigs but excluding chickens) was 5.1 million, of which 
about 60% were sheep and 20% cattle. 
17 The Constitution allows for 49-year leases, however,  there are currently shor t-term (5 years) and 
long-term (maximum 25 years) pasture grazing leases (Pasture Lease Law 1991).  Local governments manage pasture leases under the overall cont rol of the Agricultural Ministry.  
18 Barter between public and private enterprises is common, with produce exchanged for "in-kind" 
payments against electricity, water, sewerage charges, and taxes.   
19 Kalashev (2006), p. 20. WT/TPR/S/170 Trade Policy Review 
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(b) Crops 
Fruit and vegetables 
19. Fruit and vegetables accounted for about 10% of  GDP in 2001 (Table IV.1).  Potatoes are 
especially significant (3% of GDP), and a processing plant was recently established.  Other processing 
includes jams, juices, tomato paste, and spices (e .g. pepper).  There is considerable excess capacity. 
Cotton 
20. Cotton accounted for 2.5% of GDP in 2001 (Table IV.1).  In 2005, it was grown on 
45,500 hectares and 148,000 tonnes of raw cotton was produced.  Almost 90% of cotton production is exported, mainly by rail. 
21. Private farmers produce some 80% of cotton, and output expanded rapidly after privatization 
and deregulation.  There are now about 30 ginneries,  some with Russian and Turkish equity.  The 
original ginneries, privatized in the early 1990s , still account for some 50% of production, dominated 
by one ginnery that exports all output.  Ginning capacity has risen from 88,000 tonnes to over 340,000 tonnes, and exceeds production threefold.  De teriorating quality of lint cotton reflects mainly 
old equipment.
20  Cotton is smuggled from Uzbekistan, where government-controlled prices are 
lower.21  The cotton industry has suffered from allega tions of money laundering and contractual 
breaches, and international traders have ceased to pr ovide grower finance.  Production is constrained 
by high input costs, especially fertilizers and chemicals.22  The industry is focusing on growing 
organic cotton to reduce fertilizer and pesticide costs and to develop a niche export market. 
22. The garments industry is highly disaggregated.  The major yarn producer, a former indebted 
state-owned enterprise, has contracted and operat es at about one fifth capacity.  It competes with 
imported yarn, mainly from the Russian Federation and China, but also smuggled from Uzbekistan. 
Other 
23. Grains, particularly wheat and barley, accounted for 9.4% of GDP in 2001.  They have 
expanded and cover about 60% of all cultivated land (40% for wheat), helped by the shift from 
traditional export-oriented to dom estic import substitution crops.  G overnment policy is to replace 
wheat cultivation with corn and reduce wheat acreage to a maximum 500,000 hectares by 2010.23  
Wheat production is still envisaged to rise due to  higher yields.  The Kyrgyz Republic generally 
imports about 100,000 to 1 50,000 tonnes annually, mainly from Kaza khstan, especially of hard wheat 
for making pasta and noodles.  Local, including stat e-owned, mills (18 large plants, including the 
Kyrgyz Agribusiness Company) process some 500,000 tonnes annually and have considerable excess 
capacity.24 
24. Foreign companies dominate the canning industr y, but most beans are exported unprocessed.  
The Government assisted farmers by accepting beans as payment for electricity in 2003 when prices 
                                                      
20 Ginneries have a low conversion ratio from raw to lint cotton of about 35%.  
21 Over 25% of Kyrgyz cotton is thought to be processed from smuggled Uzbekistan cotton.   
22 Fertilizers are imported from the Russia Federatio n, Kazakhstan, and Uzbekistan.  Some 50% of 
fertilizer is smuggled, mainly from Uzbekistan.  
23 Wheat cultivation more than doubled to over 505,000 hectares from 1990 to 2001,  but yields fell 
from 3.6 to 2.7 tonnes per hectare.  
24 Kalashev (2006), p. 10. Kyrgyz Republic WT/TPR/S/170 
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were low.25  Tobacco accounted for 0.8% of GDP in 2001.  While it is grown privately, processing 
companies are state-owned and local leaf is blended with imported leaf to manufacture cigarettes (one monopoly producer).  Up to 60% of raw tobacco is al so exported, to major foreign buyers, such as 
Daimen and Stansum.  The Government has set ambiti ous output targets for leaf, which is expected to 
increase from 13,400 tonnes in 2005 to 16,000 tonnes in 2006. 
25. Sugar beet production accounted for about 0.2% of GDP in 2001 (Table IV.1).  The same 
owner operates two beet-processing plants, and two ne w sugar refineries are planned.  The "Kant" 
programme was adopted in 2004 to develop the suga r industry until 2010.  It provides for sugar beet 
output to increase to the 1.2 million tonnes needed to  achieve self-sufficiency.  However, sugar beet 
production declined to 285,000 tonn es in 2005.  Farmers are hesitant to grow sugar beet because of 
the low prices offered by processing plants.  Sugar receives special tariff protection, which reflects its relative inefficiency and penalizes food processors (Chapter III).
26  Some 10-15,000 tonnes of refined 
sugar is exported annually to pay for coke and limestone used to process sugar.27 
(iii) Forestry 
26. In 2003, forests covered 0.86 million hectares.  Th e majority of Kyrgyz forests have limited 
commercial opportunities.  The Forest Code classifies forests into four zones (firry, archa, valley-and-
flood plain and nut), and is mainly concerned with forest conservation.  Felling and grass cutting for 
feeding are allowed under the Code based on l ease agreements with state forest inspectorate 
enterprises, which are responsible fo r forest surveillance.  There are no import or export restrictions 
on round logs or timber, which are mainly imported from the Russian Federation.  The key policy 
objective is to restore forests from 0.85 million h ectares (below 8% of land area) to 1.2 million 
hectares by 2025 (their 1930 size).  The National Forest Programme for 2001-05 provided for annual forest plantings of 3,000 hectares.  The State Fo restry Service is responsible for forest policy. 
(3) M
INING  
27. According to official figures mining (and quarrying) contributed below 1% of GDP in 2005;  
however, this excludes gold processing, which, statistically, is recorded as manufacturing.28  Including 
gold processing raises the sector’s GDP contributio n to around 9% (up fro m 1.5% in 1995), due 
almost entirely to the 1997 opening of the Kumtor gold mine, which accounts for over 7% of GDP and almost 45% of industrial production.
29  Gold is the main Kyrgyz export (over 40% of total 
exports);  it has benefited from recent world price rises, but this was offset by significantly reduced 
output in 2005.  The mining sector provides little government revenue.30  Other minerals (e.g. 
beryllium, molybdenum, uranium oxide, mercury, antimony, rare-earth elements, tungsten, tin and 
bismuth) are produced;  however, the expected contraction in the Kumtor mine's output, by half from 2009, and its possible closure by as soon as 2015, will have a large economic impact unless there are replacement mining projects.
31  Developing the mining sector is a government priority.   The Kyrgyz 
                                                      
25 Sulaimanova (2004), p. 9. 
26 Some 40% of sugar production is used in food and beverage processing (Kalashev (2006), p. 11). 
27 Kalashev (2006), p. 13. 
28 This section is based on World Bank (2002).  
29 Kumtor is one of the world’s largest gold mines, employing about 1,600 permanent employees, and 
producing some 5.5 million ounces from 1997-05 (Centerra online information.  Available at:  
http://www.centerragold.com/properties/kumtor/impact/]).  Gold is predominantly exported (US$236.2 million 
f.o.b. in 2005). 
30 Only about 3% of the sectors income accrues to the state budget; 80%-90% goes towards servicing 
external debt. 
31 Recent upward revisions of reserves are expected  to increased the mine’s life by three years.  WT/TPR/S/170 Trade Policy Review 
Page 92 
 
 
Republic adopted the Extractive Industries Transp arency Initiative (EITI) in May 2004 to improve 
governance and transparency of financial links between the Government and mining industries.32  The 
State Agency for Geology and Mineral Resources (State Geological Agency) is responsible for 
minerals policy, including licensing of exploration and exploitation activities.   It also controls and 
monitors state mines, including of the state-owne d gold mining company, Kyrgyzaltyn.  The Industry 
Ministry is responsible for implementing a uni form national policy on industry development, 
including mining and metallurgy. 
28. The Government participates directly in the sector through voluntary equity holdings of 
Kyrgyzaltyn, although this is not specifically required in the mining legislation (the 1997 Law on 
Subsoil Resources, last amended in 2001.  Its 66% e quity in Kumtor Gold Company (a joint venture 
with Cameco, a foreign uranium producer) was redu ced to 33.3% in 2005 and is currently 15.7%.33  
Kumtor Gold Company  initially received  generous tax concessions, including a tax holiday, but 
according to authorities, since 2004, when it signed a new investment agreement, it has been subject 
to standard tax treatment.  In 2001, all other state gold mining interests were transferred to 
Kyrgyzaltyn (Presidential Decree, March 2001), which fully owns and operates the Makmal gold 
mining plant, and has recently entered into join t ventures with foreign companies in several gold 
mines.  These include 40% equity with a Kazakhs tan company in the Taldy-Bulak Levoberejnyi joint 
venture (Government Resolution No. 124, 22 Februa ry 2006), and 37% ownership of the Jerui gold 
mine with an Austrian partner (Government Resolution No. 377, 23 May 2006), which is expected to 
commence production in early 2007.34  The central bank has the pre-emptive right to purchase all gold 
from KyrgyzAltyn at world prices, but this has not been exercised (Presidential Decree, June 1993).  
Most gold is exported as standard bullion, previous ly to the London Standard Bank but since April 
2006 to the Russian Nomosbank.  An insignificant share is sold for jewellery use, mainly to 
Switzerland and the Middle East.  
29. Although KyrgyzAltyn has no exclusive rights to buy, sell, export or import gold or other 
metals, its  role in mining was expanded in March 2001 when the Kara-Balta gold refinery  and the 
Sary-Jaz Rudoupravleniye tin and tungste n operations were transferred to it.35  The Government also 
has majority ownership in the Kara Balta mining facilities (72.5%), producing uranium oxide mainly 
from imported slurries and ores from Kazakhstan, and molybdenum from imported concentrates and 
scrap; the Hyderkhan operations (96.7%), prod ucing mercury compounds and calcium fluoride;  
Khaidarkhan Mercury Plant (99.8%);  and the Karabaltinskyi Mining Complex (72.2%).  Initial 
attempts during 2001-03 to privatize some mi ning operations (e.g. Kara-Balta, Kadamjai and 
Orlovka) were unsuccessful.  However, the 70.4% st ate equity in Kadamjai antimony plant, which 
was also transferred to KyrgyzAltyn in 2001, w as sold in 2005, as was its interest in Sary-Jaz 
Rudoupravleniye tin operations in December 2004.  The Kyrgyz Mining and Metallurgical "Orlovka" 
plant (70.06%), which processes rare-earth elements , was privatized at end 2004.  The Government's 
attempted privatization of the 72.28% state-owned  Kyrgyz Mining and Metallurgy Plant was rejected 
                                                      
32 The EITI was launched by the UK Prime Minister in  September 2002 to increase the transparency of 
payments by oil, gas, and mining companies to governments.  
33 Kumtor's ownership was transferred to a new Canadian-based public company, Centerra.  It owns 
100% of Kumtor gold mine through its wholly-owned subsidiary Kumtor Gold Company.  The Government has agreed to purchase all ore produced by the gold mine fo r domestic refining.  Kyrgyzaltyn purchases "dore" alloy 
for refining at its Kara-Balta  refinery, using a government revolving-credit facility that is repaid from gold sales. 
34 This follows the August 2004 decision by the St ate Geology Agency to revoke the licence issued to 
an overseas company to develop the Jerui gold mine due to non-compliance with the terms of the licensing 
agreement. 
35 KyrgyzAltyn was established in 1992 to increase gold production and to manage the State's 
participation in mining ventures.  It subsequently lost its non-gold interests.  Kyrgyz Republic WT/TPR/S/170 
 Page 93 
 
 
by Parliament in June 2005.  The Karabaltinsky Mining Complex and the Khaidarkhan Mercury Plant 
are to be privatized.  There are no plans to privatize KyrgyzAltyn. 
Licensing and taxation requirements 
30. The 1997 mining legislation specifies licensing arrangements, however, it still provides the 
Government with substantial discretionary authorit y and control, including in decisions by licensees.36  
Procedures for issuing exploration rights remain cumbersome and uncertain, and are valid for two 
years (extendable automatically to ten years) s ubject to minimum annual expenditure requirements.37  
While the discoverer has exclusive rights to obtain a licence for up to 20 years (extendable subject to mine's expected life) to develop deposits without te nder, and to export, such security of tenure falls 
below international standards a nd is based on direct negotiation.
38  The legislation, as amended in 
2002, also allows exploration and exploitation concessions to be i ssued by tender and auction.  
Licensing agreements for exploitation of deposits  require the miner to restore the mine site 
environmentally.   The draft tax code proposed a mineral re sources depletion allowance of 15% for 
mining companies.  The State Commission on Mi neral Reserves is responsible for assessing and 
recommending reserve levels, and approving exploitati on plans.  However, the use of a different 
reserve classification system from that adopted internationally may resu lt in overstated deposits. 
31. The Law On Agreements on Production Sharing, of  March 2002, became invalid in 2002.  It 
was unusual by international practice, as it allowed selective production sharing agreements (PSAs) to 
be negotiated on specific mining projects, for example,  on deposits that were technically difficult to 
exploit. 
32. Foreigners can hold expl oration and exploitation licences, and have the same rights as local 
companies.  Joint-venture arrangements with Kyrgyz Altyn are voluntary, in which case foreign equity 
levels are negotiated.  The issuing of licences do es not discriminate between private and state-owned 
enterprises.  
33. Substantial efforts have been made to intr oduce a general mining tax regime.  The 1996 tax 
code removed government authority to negotiate sp ecial tax treatment for separate mining projects.  
Moreover, the generous tax treatment, including a tax holiday, negotiated beforehand for Kumtor gold 
mine, was eliminated from 2004, when it signed an i nvestment agreement that included the standard 
right to a stable tax regime for ten years.39  Application and registration fees for exploration and 
exploitation licences are set at three times the minimum monthly wage (Som 100), and annual land 
and property fees are set by Parliament to cover the la nd’s "rental" cost (set at Som 7.7 per hectare for 
the Kumtor Gold Company).  Other mine taxes include the road tax (0.8% of gross sales); an 
Emergency Fund Payment of 1.5% of gross reve nue; a negotiated concession fee (US$4 per troy 
ounce for Kumtor); and a mineral royalty of 3% of net smelter return.40  The cumulative  impact of 
                                                      
36 The legislation covers large deposits of national importance.  Small and medium deposits are still 
concluded on a "parity" basis by bilateral licensing agreements. 
37 Licences are mineral-specific and several concurre nt licences may operate to explore for different 
minerals over the same area.   
38 The Government has the priority right to purchase minerals, but the legislation does not specify 
prices or terms. 
39 Kumtor Gold Company and Centerra Gold Inc also receive all rights granted under the Law on 
Concessions and Foreign Concessionary Entities.  
40 The draft tax code proposes raising the royalty rate to 5% for deposits with reserves exceeding 
50 tonnes (for smaller deposits the royalty will remain at 3%).   The Strategy for Improvement of Tax Policy in 
the Kyrgyz Republic for 2006-2008 envisages the elimination of non-market taxes, such as the tax for the Emergency Fund Payment and the road tax, but both have been included in the draft tax code.   WT/TPR/S/170 Trade Policy Review 
Page 94 
 
 
these taxes may be high, and miners also pay the st andard 20% company profit tax (to be reduced to 
10% from 2007). 
(4) ENERGY  
34. The energy sector accounted for an estimated 5.0% of GDP in 2005, and is government-
controlled, highly centralized and dominated by stat e-owned entities.  While the Kyrgyz Republic has 
large energy resources, especially hydro, it relies on imported oil, gas, and coal.  It ratified the 
European Energy Charter Treaty in July 1997.  Th is created a legal framework to promote long-term 
energy cooperation, including investment promotion and protection.  Development of the energy sector is a government priority.  The State Energy Agency (SEA), established in 1996 as the sector’s 
regulator, has been abolished, and from early 2006 the sector has been regulated by the Anti-
monopoly Agency. 
(i) Electricity 
35. The Kyrgyz Republic has substantial hydro capacity.
41  Hydro plants generate over 90% of 
electricity, and are linked in with the Toktogul reser voir to use released irrigation water.  Electricity, 
which is increasingly exported, mainly to the Russi an Federation (over 1.4 billion kWh in 2005) and 
Kazakhstan (1.2 billion kWh), remains the second singl e largest Kyrgyz export after gold;  some 17% 
of production was exported in 2005.42  Exports have declined considerably, however, since 2000, 
from 3.2 million kWh or US$79.8 million (15.8% of total exports) to 2.5 million kWh or 
US$20.4 million (3.0%) in 2005 (3.2 billion kWh in 2004) (Table IV.2).43  New hydro facilities at 
Kambarata HES-2 are being constructed, albeit sl owly, and negotiations ar e continuing with the 
Russian Federation to finance its completion and for the construction of Kambarata HES-1.  The 
Government is attempting to attract foreign investme nt in hydro-generation to boost exports.  China, 
Pakistan, Afghanistan,  and Iran  have substantial export potential.  El ectricity reforms stalled, but are 
again a government priority.  They also have imp lications for reforming the regional management of 
water supplies to place it on a more commercial ba sis, including replacing existing "energy swaps" 
with monetary transactions.44 
36. To encourage private sector investment, the 93% state-owned utility monopoly, 
Kyrgyzenergo, was unbundled in 2001 into a generation company, a transmission company (the National Grid), and four distribution companies (including Severelectro) to supply geographical 
regions (1998 Electric Energy Law).
45  Reforms were needed to re duce the escalating "quasi-fiscal 
deficit" (12% of GDP in 2002) from Kyrgyzenergo's lo sses.  It is expected to drop to Som 6.5 billion 
or 5.9% in 2006 (Som 7.4 billion or 7.6% in 2005) .  Average tariffs (US$0.137 per kWh in 2003 and 
US$0.145 in 2005) are well below cost (US$0.225 per kWh), and there are substantial transmission 
                                                      
41 Only 10% of potentially generated hydro power of 140 billion kWh is currently used. 
42 In 2005, 24.5 million kWh of electricity was exported to Tajikistan as countertrade 
(0.1 million kWh in 2004). 
43 The large decline in the value of exports main ly reflects the increasing exports to the Russian 
Federation at lower prices. 
44 The Kyrgyz Republic has annual agreements with neighbouring countries (e.g. Uzbekistan) on the 
release of irrigation water in summer in return for receiving sufficient fuel  (mainly gas and coal) to operate its 
two thermal power stations at Bishkek and Osh in winter (to meet the shortfall in power from not releasing more 
water in winter to generate hydro power).  Neighbouring countries also agree to purchase surplus hydro electricity in summer.  Electricity exports to Kazak hstan and Tajikistan under these arrangements have 
decreased in recent years. 
45 The two major generating plants are the 1.2 gigawatt hydro plant at Toktogul and the 0.76 gigawatt 
thermal plant at Bishkek.  Another thermal station is planned for Bishkek. Kyrgyz Republic WT/TPR/S/170 
 Page 95 
 
 
and distribution losses.46  While electricity consumption is highly subsidized, it declined slightly in 
2005;  partly because due to its poor quality and unr eliability, consumers switched to more expensive 
alternatives, such as wood, gas, and coal.47   
37. The 1998 legislation required power generation a nd transmission to remain state owned, but 
allowed the sale of up to 70% equity in the distribution companies to strategic investors.48  However, 
they have not been privatized.  Parliament stopped an international tender to privatize Severelectro, 
the largest company serving Bishkek, through a concession contract for up to 50 years.49  However, in 
June 2006, Parliament approved the privatization of all four distribution companies under the 2006-07 
privatization programme. 
38. The electricity legislation has general rules for licensing power companies;  requirements for 
generation, transmission, and distribution companies;  and the rights of the regulator (the Anti-Monopoly Agency) to balance energy producers' and consumers' interests.  The regulator 
approves contract terms for supplying electricity and sets tariffs.  Prices are to cover the full cost of 
generating and supplying power and cross-subsidies between consumers are to be removed.  The Mid-
term Tariff Policy in Power and Heating Energy for 2003-06 was adopted in 2003.  Electricity prices, 
which had been frozen since the 2002 increases, were unified across several consumer groups in April 
2006 at Som 0.62 per kWh, and are to achieve cost  recovery by 2010, subject to subsidies for low 
income consumers.
50  Substantial amounts of electricity are still exchanged by barter.  Cross-subsidies 
between hydro and thermal power remain, as well as  between the northern and southern regions, and 
industrial and residential consumers.  While th e SEA was to operate independently, its autonomy 
from the regulated power companies and government was questioned.51  The independence, in 
practice, of the current regulator, the Anti-monopoly Agency, is also unclear.  The criteria for issuing 
licences are the availability of qualified personnel;  meeting the required technical requirements and 
service quality levels;  and opportunities to attract investment. 
(ii) Petroleum and petroleum products 
39. Two thirds of petroleum products are importe d, mainly from Kazakhstan and the Russian 
Federation.  Kyrgyz crude oil output is around 70,000 tonnes annually, and exports of petroleum 
products have increased (Tables IV.2 and IV.3).   About 250,000 tonnes of  petroleum products are 
produced annually, mainly by the Kyrgyz Petroleum Company (equally owned by Kytgyzneftegas and a foreign company) at the Jalalabad City oil processing plant.  However, production has declined, 
due mainly to exhaustion of oil reserves, and curre nt capacity utilization is 35% (total annual capacity 
of 500,000 tonnes).  It produces pe trol, diesel fuel, and black oil.  Another joint-venture company, 
                                                     
 
46 Technical losses in transmissi on and distribution due to obsole te equipment reached 24% of 
generated electricity in 2004.  In addition, commer cial losses of 25% resulted from under-billing due to 
inefficient metering and poor collection (DFID, 2003).  Corruption and associated under-estimation by inspectors of electricity usage is also reportedly common. 
47 Blackouts are common, and power surges and low voltage can damage electrical appliances. 
48 Also Law on Special Status of Toktogul Hydro Electric Power Stations and National High Voltage 
Transmission Facilities, January 2002.  Chakan Hydroel ectric Power Station was privatized in early 2006. 
49 The open tender concession was released in 200 4 and required the successful bidder to invest 
US$80-100 million in the power sector over five years. 
50 Government Resolution No. 169, 16 March 2002 and Law on Electric Power.  The average tariff for 
2006 is expected to be US$0.156 per kWh.  From May 2006, monthly subsidies to pensioners were increased from Som 30 to 60, and pensions were raised (Preside ntial Decree No. 192 on Additional Measures for Social 
Support of Vulnerable Population Layers in Terms of  Introducing the Unified Tariff for Electric Power, 
28 April 2006, and Law on State Pension Social Insurance). 
51 IPA (2001). WT/TPR/S/170 Trade Policy Review 
Page 96 
 
 
Vostock, which has an annual production capacity of 180,000 tonnes, is currently under bankruptcy.52  
Oil and gas products are not  competitive with imports.53  Imports of petroleum products and prices are 
regulated by the Anti-monopoly Agency (Chapter III).  
Table IV.3 
Extraction of fuels and minerals, 2000-05  
 2000 2001 2002 2003 2004 2005 
Number of enterprises 34 29 36 36 49 49 
Number of personnel ('000) 4.1 4.2 4.1 4.5 4.6 4.6 
Crude oil ('000 tonnes) 77.1 75.5 75.5 69.5 73.8 74.4 
Natural gas (million m3) 32.2 32.8 30.1 27.1 28.9 24.7 
Coal and lignite ('000 tonnes) 425.0 475.0 459.0 411.0 456.3 332.0 
Cement ('000 tonnes) 452.9 468.9 532.8 757.3 869.7 975.1 
Source:  National Statistics Committee. 
40. The majority (85.16%) state-owned national oil and gas company, KyrgyznefteGas (KNG), is 
responsible for petroleum and natural gas explor ation, and production and processing, transport, 
storage, and sale of petroleum products.  KNG fo rms joint ventures, including production-sharing 
contracts, on oil exploration and production.  It is the only owner of boreholes for the production of 
crude oil, which is processed by the Kyrgyz Petr oleum Company, and of natural gas in the Kyrgyz 
Republic;  it explores 12 deposits.   In September 2005, it signed a Memorandum of Understanding 
with a foreign company to negotiate a production- sharing agreement for an oil field and a joint-
venture agreement for two exploration areas.54  KNG is a sanctioned natural monopoly in black oil for 
anti-monopoly purposes.  It has no exclusive right to import natural or liquefied gas.  KNG's 
management by the Russian state company, Gazprom,  and the transfer to Gazprom of the state share 
is still being considered. 
41. Licences for oil prospecting and exploitation ar e issued by the State Geology Agency in 
conjunction with Kyrgyzneftegas.  Prospecting leases are limited to 1,000 km2, for two or three years, 
subject to minimum annual investment of either US$50 per m2 or US$100 per m2, depending on the 
lease.  Exploitation licences are issued for ten years subject to annual reporting requirements. 
(iii) Coal 
42. Several state-owned companies, such as the Ko mur Company, operate small coal mines.  
Output declined from 3.7 million tonnes in 1990 to  under 0.4 million tonnes in 2005 (Table IV.3).  
Unsuccessful efforts to privatize coal mines mainly reflect poor commercial viability.  Coal mining 
relies on subsidies.55  Coal companies are listed as sa nctioned monopolies, and the Anti-monopoly 
Agency approves wholesale coal prices. 
43. Coal imports are unrestricted and, according to authorities, there are no requirements for state 
entities to use domestic coal. 
                                                      
52 Another small processing plant run by Kara-Archa Ltd (annual capacity of 7,000 tonnes) is currently 
closed. 
53 Kyrgyz Government (2006), p. 25. 
54 News Release, Groundstar Executes Memorandum of Understanding with KyrgyznefteGas , 
23 September 2005.  Available at:  http://www.g roundstarresources.com/new s/news.php?newsID=11. 
55 Kyrgyz Government (2006), p. 25. Kyrgyz Republic WT/TPR/S/170 
 Page 97 
 
 
(iv) Gas 
44. Most gas is imported, mainly from Uzbekistan, under various agreements.56  In 2005, Kyrgyz 
natural gas output was 24.7 million cubic metres, and has fallen steadily since 2000 (Table IV.3).  The 
state-owned gas company monopolist, Kyrgyzgas, owns and operates the transmission and 
distribution network, and is responsible for tran smitting Uzbek gas to Almaty (Kazakhstan).  The 
largest northern pipeline system supplies Bishkek a nd is linked to the Uzbekistan-Almaty pipeline.  
Two smaller southern networks, at  Osh and Jalalabad, use Uzbek and Kyrgyz gas.  Under a joint 
venture formed in November 2004 (KyrKazGaz), with Kazakhstan’s state gas company, KazTransGaz, KazTransGaz is to invest US$17.5 million in the Kyrgyz pipeline network by 2008. 
45. Kyrgyzgaz consists of transmission and distribution enterprises based on geographical areas.  
It supplies large customers and gas traders directly.  It is a sanctioned monopoly for anti-monopoly 
purposes.  The Anti-monopoly Agency sets tariffs, based on cost recovery and profit margins, and licenses gas enterprises.  Reforms are aimed at rest ructuring Kyrgyzgaz for privatization to improve 
efficiency and attract private investment needed  to repair and modernize gas facilities.  The 
Government approved its privatization in  March 2006 (Government Resolution No. 172, 
16 March 2006), and parliamentary approval was obtain ed.  The plan is to separate Kyrgyzgaz into 
three separate private companies:  Kyrgyztransg az, which will transport, supply, and sell gas 
nationally;  and Severgaz and Yuggaz, which will perform these activities in the south and north, 
respectively. 
(5) M
ANUFACTURING  
46. While manufacturing's share in GDP dropped from 19.0% in 2001 to 14.1% in 2005, it had 
rebounded temporarily to 17.1% in 2004 and remains a bove the 1995 level of 12 .8%.  Its performance 
depends heavily on gold processing, however, which represented about half of the sector’s GDP contribution in 2005.  The sector collapsed after i ndependence.  While priva tization of manufacturing 
activities has been largely completed, a number of  state-owned enterprises are still significant in 
several activities, especially agri-p rocessing and textiles (Table IV.4).
57  Agri-processing accounts for 
a major share of the industrial workforce. 
Table IV.4 
Manufacturing (excluding mineral pro cessing) state-owned enterprises, 2006 
(Per cent) 
Name of enterprise Type of activity State share 
JS Setun Precision mechanical  and electronic devices 58.5 
JS Corporation KEMZ Electrical and mechanical appliances 34.3 
JS Janar Various household items 40.3 
JS TNC Dastan .. 37.7 
JS Bulgaary Leather processing and related goods 0.2 
JS Kubanych .. 0.2 
SJS Bishkeke meat-packing plant Food processing 16.2 
Table IV.4 (cont'd)
                                                      
56 Uzbekistan agreed to supply 350 million cubic metres of natural gas to the Kyrgyz Republic at 
US$42 per 1,000 cubic metres in 2005.  See online information available at:  
http://www.u zbekistan.org/news/a rchive/256/.  Recent supply problems w ith Uzbekistan have  resulted in the 
Kyrgyz Republic sourcing more Uzbe k gas indirectly from Kazakhstan. 
57 For example, some 30% of equity in food processing companies appears to be state-owned, 70% in 
grain processing, 80% in tobacco leaf processing, and 60% in light industry (textiles and raw materials processing). WT/TPR/S/170 Trade Policy Review 
Page 98 
 
 
Name of enterprise Type of activity State share 
SJC Kyrgyztamekisi Tobacco 99.1 
JS BMZ Mechanical devices 75.9 
JS Tustes .. 46.5 
JS Kyrgyzpoligraf Printing and publishing 72.7 
JS Aidan Farma Pharmaceuticals 100.0 
JS Kyrgyzcabel Cables 24.8 
JS Ak-Bula .. 51.0 
JS Uzak .. 0.7 
SJS Elita .. 73.1 
SJS Ainek Glass and related products 70.0 
SJS Bagan .. 0.7 
SJS Semetei .. 70.6 
JS ZCI .. 72.2 
JS Azamat .. 26.8 
SJS NAIMAN .. 70.2 
SJS Bugu-Ene .. 70.2 
SJS Issyk-Nan Food processing 14.8 
SJS SAP Min-Bulak Non-al coholic beverages 19.1 
JS Azyk Food processing 72.6 
JS AK-Kula .. 70.3 
SJS Ushker .. 95.0 
JS Momo-Jemish .. 33.5 
JS Ala-Buka Sutazyk Food processing 77.4 
JS Pchelosovhoz Besh-Aral Food processing 30.0 
SJS Tash-Kumyr Ata-Nan Food processing 5.0 
JS Bahat .. 68.2 
JS Nazik .. 95.0 
Kyzyl-Kii Tabakfernet Plant Tobacco 20.4 
.. Not available. 
Source:  Kyrgyz authorities. 
47. The sector is widely dispersed across many sm all-scale activities (Tables IV.5 and IV.6).  
Excluding mineral (gold) production, the main areas are cotton and wool processing (e.g. knitted 
items and clothing, cotton ginning and yarn and cotton fabrics), agri-processing (e.g. flour milling, 
meat, dairy and other processing, alcoholic bevera ges, cigarettes, and sugar refining), and heavy 
manufacturing (e.g. furniture and other wood processi ng, paper and chemicals, rubber and plastics, 
metals and machinery, light bulbs, glass and other non-metallic mineral products, such as cement and 
construction materials).  Other major manufactur ed exports (excluding petroleum products) are 
machinery and transport equipment (including components used in the Daewoo car factory in 
Uzbekistan), foodstuffs, textiles and fabrics, building materials, inorganic chem icals, filament lamps, 
rolled glass sheets and metal tanks (Table IV.2).  Ex cept for metallurgy (mai nly gold production) and 
metal and non-metallic mineral pr oducts, industrial production involves mainly low-value-added 
activities, but certain successful areas have emerged.58 
                                                      
58 Kalashev (2006). Kyrgyz Republic WT/TPR/S/170 
 Page 99 
 
 
Table IV.5 
GDP and employment shares for major manufacturing activities, 2001 
(Per cent) 
Type of manufacturing activity Share of GDPa Share of employment 
Light manufacturing 4.0 3.1 
Cotton and wool processing 1.1 0.6 
Cotton ginning and yarn 0.3 0.1 
Cotton fabrics 0.1 0.1 
Wool yarn and fabrics 0.1 .. 
Knitted items and clothing 0.5 0.3 
Other textile industry 0.1 .. 
Agri-processing 2.9 2.5 
Flour milling 1.6 1.5 
Sugar refining 0.2 0.2 
Meat, dairy, and other processing 0.6 .. 
Beer, vodka, and mineral water 0.2 0.1 
Tobacco and other food processing 0.4 0.2 
Heavy manufacturing 4.0 1.9 
Timber, paper, and chemicals 0.2 0.2 
Rubber and plastic 0.1 .. 
Metals and machinery 1.1 0.9 
Bulbs and glass 0.4 0.3 
Total 8.0 5.0 
.. Not available. 
a Modelling estimates (World Bank). 
Source:  World Bank, Country Economic Memorandum, Report No. 29150-KG, 24 January 2005, Table 1.9, p. 13. 
Table IV.6 
Non-mining industrial production, 2000-05 
Commodity 2000 2001 2002 2003 2004 2005 
Vegetable oils ('000 tonnes) 8,737.1 6,920.9 9,154.6 11 12.3 15.2 
Refined sugar ('000 tonnes)  50.2 188.0 165.0 76.0 88.0 27.5 
Alcoholic drinks (beer and 
vodka)(hectolitres) 26.1 29.9 31.4 32.0 33.4 30.6 
Cigarettes (million pieces) 3,168.6 3,013.4 2927.3 3,102. 0 3,170.0 3,164.7 
Electric engines ('000 tonnes) 425 475 186 250 71 53 
Steel-cutting machines (units) 3 0 2 9 0 0 
Stamping machines (units) 6 0 4 12 25 0 
Centrifugal pumps ('000) 740 845 207 1,102 1,047 53 
Cement ('000 tonnes) 453 469 533 757 870 975.1 
Window glass (million m2) 0 0 6 14.2 20.2 22.3 
Roofing sheets (million tonnes) 138.0 213.0 224.0 549.7 1,481.1 2,750.9 
Rugs ('000 m2) 22.0 18.0 11.0 13.6 18.4 22.0 
Textiles ('000 m2) 8,703 8,013 5,546 1,810 1,265 1,921.2 
Shoes ('000 pairs) 128.8 189 171 244.2 248.4 120.0 
Stockings and socks ('000 pairs) 3,580 4,127 2,028 1093.3 553.2 264.4 
Light bulbs (million) 232 253 282 290.0 277.9 198.9 
Source:  IMF (2005), Kyrgyz Republic: St atistical Appendix , Country Report No. 05/31, February, table 5, p. 7;  National 
Statistics Committee;  and Kyrgyz authorities. WT/TPR/S/170 Trade Policy Review 
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48. The clothing and textiles industry has contract ed substantially and faces intense competition 
from more efficient suppliers, such as China, Pakistan, and Turkey.  Fabric production fell by 
two thirds in 2003.  Domestic firms special ize mainly in sewing, knitting, and leather 
production/processing.59  Revitalization of the textile and clot hing industry is a government priority.  
Policies for 2006-08 include further privatization,  modernization of technology and equipment, and 
increased competitiveness, including preventing smuggled imports and reducing input tariffs. 
49. A mid-term industry development programme adopted in 1998 was aimed at doubling output 
by 2001.  Priority sectors were metallurgy (gold and other precious and rare-earth metals), energy and 
fuels, food processing, and textiles and clothing.  Industrial policy is currently aimed mainly at 
achieving sustainable annual growth of 5-7% through diversification and increased domestic 
processing (Programme for Sustainable Developmen t of Industry for 1999-05 and Programme for 
Development of Industry in Medium-Term Pe rspective 2002-04).  Manufacturing profitability 
increased on average six-fold from 2002-04, and food  processing in particular has expanded.  A new 
programme of industrial development for 2006-08 is being developed;  it will focus on further 
diversifying the sector and strengthening traditiona l areas, such as gold production, energy, food 
processing, and non-metallic mineral products.  It  will provide for selective support to priority 
industries involved in processing local raw materi als and other high-value-added activities, including 
exports, and the substitution of imports. 
50. Manufacturing tariffs, although relatively low, pr ovide much wider disparities in effective 
rate terms.60  Effective rates are estimated to be 33% and 18% for towels and butter (both have 10% 
tariffs), and -3% and -11% for cotton yarn and ice cream, respectively.61  Reduced and low tariffs on 
industrial and agricultural inputs have helped Kyrg yz manufacturing firms revitalize operations, such 
as production of plastics, textiles and clothing, and assembly of computers.62   
(6) SERVICES (OTHER THAN ENERGY ) 
51. Services have grown to account for 51.1% of GDP in 2005, up from 43.1% in 2001.  The 
largest subsectors in 2005 were wholesale and retail trade (19.9% of GDP), transport and 
communications (7.6%), government management (4 .8%), education (3.9%), electricity, gas, and 
water (3.4%), and construction and real estate (each 2.8%).  
52. The Kyrgyz Republic made significant GATS co mmitments on most services, including 
telecommunications and financial services, during WTO accession (Table AIV.1).63  It made no MFN 
exemptions.  The authorities indicate that out of 99 sectors and nearly 600 subsectors covered by the 
UN CPC, the Kyrgyz Republic undertook commitm ents on 545 subsectors and activities during 
accession, including no market access or national treat ment restrictions under almost all sectors and 
modes of supply (except for a small number of strate gic services and mode 4) .  Delegations withdrew 
initial market access requests in th e Doha negotiations mainly in re cognition that the Kyrgyz Republic 
had already made extensive liberal commitments on  accession.  The authorities indicated that the 
Kyrgyz Republic could not further liberali ze market access commitments on services under these 
negotiations. 
                                                      
59 E. Kalashev (2006), p. 30. 
60 The effective rate of protection (assistance) is th e percentage increase in an activities' value added 
resulting from government intervention.  Measuring net assistance is a better indicator of the extent to which tariffs and other import restrictions distort producer incentives and resource-use efficiency. 
61 ADB (2006), p. 34. 
62 Kalashev (2006), p. 48. 
63 WTO document WT/ACC/MNG/9/Add.2, 27 June 1996. Kyrgyz Republic WT/TPR/S/170 
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(i) Financial services 
(a) Introduction 
53. The financial sector, including banking, is  poorly developed and fragile.  The 
Kyrgyz Republic began developing a market-based fi nancial system early in transition by introducing 
a two-tiered banking structure in 1992-93 of comme rcial banks overseen by a central bank (NBKR).  
However, further restructuring and deepening of the financial sector, including banking, is required.  
Financial services accounted for only 0.7% of GDP in 2005 (the same as in 2002), and while the ratio 
of broad money (M2) to GDP (a measure of financia l deepening) has risen it was still relatively low at 
23.8% in 2005 (17.8% using M2X i.e. excluding foreign currency deposits).  Money and capital 
markets are thin, and the Kyrgyz Stock Exchange (KSE), established in 1994, remains weak.  
Reviving the capital market would deepen fina ncial intermediation, improve the economy’s 
efficiency, and provide competition for banks to lowe r interest rates.  Continued bank rehabilitation is 
essential for this, as banks account for about 80% of financial sector assets.  Recent developments 
have been favourable, with the measure of intermed iation (total financial sector loans to GDP) rising 
from 7.3% in 2004 to 10.2% in 2005, primarily due to increased bank lending.  However, the banking 
sector remains heavily "dollarized".  Foreign curre ncy (mainly U.S. dollars) loans as a share of bank 
loans increased to 71.5% in 2005.  Priority  NBKR objectives are to increase bank financial 
intermediation, and strengthen the role of non-bank financial and credit institutions (NBFCIs) to 
reduce the high costs of financial intermediation. 
(b) Banking 
54. Bank lending remains primarily short term (two thirds of bank loans in 2005 were up to 
one year) and heavily collateralized.  Loans, whic h had fallen from 6.5% of GDP in 1995 to 3.8% in 
2001, rose to 7.7% in 2005.  Bank liquidity remains quite high and rose to 86.9% in 2005 and, while a 
low risk, indicates continued bank reluctance to increase intermediation.  Following the banking 
sector's contraction after the 1998 Russian crisis, bank assets as a share of GDP rose from 6.8% in January 2001 to 21.9% in December 2005 (18.8%  in January 2004).  The number of commercial 
("universal" and "specialized") banks
64 fell from 24 in December 1998 to 19 at July 2002, the same as 
at 1 January 2006.65  One public bank, the full state-owned "specialized" Settlement and Savings Bank 
(SSC), remains after the Kairat Bank was privatized in 2004, when restrictions on its lending operations were removed.
66  This reduced the share of bank assets held by state-owned banks from 
12% to 5%.  Foreign participation, especia lly from Kazakhstan, has increased, and overseas 
ownership of banks averaged 62.7% in 2005.  Fi fteen banks have foreign equity, of which 11 are 
majority overseas owned.67  Three banks are 100% foreign owne d (the Demir Kyrgyz International 
Bank, the Bank of Asia, and the Kairat Bank, whic h now operates as a subsidiary of Khalyk Bank of 
Kazakhstan).  There are also Bishkek branches of  two non-resident banks, and three foreign bank 
representative offices (January 2006). 
                                                      
64 Banks may be licensed as either "universal" or "specialized".  Universal banks perform all types of 
banking operations, including investment.  Specialized banks offer limited banking services stipulated in their 
licence.  All, including state-owned banks, are subject to the same prudential controls and regulation.  
65 The number rose to 20 in January 2006 with the commencement of FinanceCreditBank. 
66 Created in 1999, the Kairat Ba nk took over the operations of three failed state banks after the 
Russian crisis.  The SSC's lending operations are restricted  to investing in government securities.  Formed in 
1996, it has the largest branch network (50 branches) and its ownership by the NBKR, an apparent breach of the 
1999 Law on Banks and Banking Activities, wa s transferred to the Government in 2003. 
67 In 1998, seven banks had foreign participation, and accounted for 21% of total bank assets.  Foreign 
investment in banks rose by over Som 900 million during 2003-05. WT/TPR/S/170 Trade Policy Review 
Page 102 
 
 
55. The high incidence of bank non-performing loans (NPLs) has fallen substantially 
(Table IV.7).68  After jumping to almost 30.9% of total loans at end-1999, they continued to drop to 
13.4% at end 2000 and 6.0% in January 2005, but ro se to 7.7% at end-2005. Larger banks appeared, 
on average, to have higher NPLs.  The share of ba nk assets exposed to high credit risk has also fallen, 
from 6.3% in July 2003 to 3.3% at beginning of 2005.  This reduced credit risk also reflects greater 
loan diversification.  However, some banks rema in exposed to loans conc entrated in vulnerable 
sectors, such as construction and real estate.  Ba nk profitability has increased overall since returning 
positive in 2001, and was 2.6%, measured by return on assets, as at end-2005. 
Table IV.7 
Indicators of the banking system's financial strength, end-2000-05 
Indicator 2000 2001 2002 2003 2004 2005 
Total assets (som million) 4,721 5,029 7,860 11,385 17,703 21,957 
Total capital (som million) 966 1,581 1,827 2,110 2,693 3,506 
Risk bearing assets (som m illion) 2,224 2,318 5, 432 10,000 16,197 19,506 
Non-classified 1,985 2,105 5,063 9,530 15,739 18,815 
Classified 238 213 369 470 458 690 
Loan portfolio quality (som million)       
Problem (non-performing) loansa 195 208 268 324 356 591 
Provisions against problem loans 97 98 137 152 180 287 
Problem loans/total loans (%) 13.4 13.4 13.3 11.2 6.1 7.7 
Problem loans/total assets 4.1 4.1 3.4 2.8 2.0 2.7 
Total provisions/problem loans  68.6 63.5 67.0 69.9 95.6 82.7 
Portfolio performance       
Average return on assets -1.1 1.4 1.1 1.6 2.5 2.6 
Capital adequacy       
Total capital/total assets 20.5 31.4 23.2 18.5 15.2 16.0 
Risk-weighted 30.5 52.2 36.4 35.3 23.0 27.5   
a As determined by Banking Supervision, taking into account credit performance and collateral. 
Source:  National Bank of Kyrgyz Republic.  
56. The recent rapid rise in bank credit has raised prudential challenges to ensure that bank risk 
practices are sound.69  The NBKR supervises and prudentially regulates banks.70  It is required to 
conduct these and other legislative functions inde pendently, without govern ment interference.  
Government or public sector influence over commercia l banks is also prohibited, and officials cannot 
participate in governing bodies of non-state banks, including holding and/or controlling 10% of voting 
shares in a bank or bank holding company (5% until December 2001).  Anti-competitive conduct by banks is outlawed.  They are prohibited from usin g associations (including holding companies) to 
reach agreements aimed at restricting compe tition, or monopolization of banking operations, 
including fixing interest and commission rates or setti ng other requirements detr imental to customers.  
Banks may not make transactions or carry out activ ities that provide them or other entities with a 
dominant position in the capital, monetary or fore ign exchange markets, or engage in specific 
activities or different types of operations that w ould provide them or third parties with unfair 
advantages (anti-monopoly legislation).  The NB KR supervises observance of the anti-monopoly 
                                                     
 
68 The authorities indicate that the non-performing loan classification system used by the NBKR 
complies with the Basel Core Principles. 
69 IMF (2005), p. 18. 
70 1997 Law on the National Bank and 1997 Law on Bank and Banking Activities, last amended in 
2006.  Kyrgyz Republic WT/TPR/S/170 
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legislation with regard to banks and the other financial institutions it regulates.  It has developed a 
Policy and Major Principles of Antimonopoly Regula tion, Competition Promotion and Protection of 
Consumer Rights (NBKR Resolution, 2 March 2005, a nd registered with the Ministry of Justice on 
1 April 2005).  
57. The Kyrgyz banking sector does not seem to be overly concentrated.  However, the share of 
deposits and credits of the four largest banks totalle d 57.8% and 80.5%, respectively, as at July 2005, 
and the large increase in these shar es recently, especially for loans, indicates increasing concentration, 
although this may not mean a less competitive banking market. 
Policy objectives and framework 
58. The first reforms were in 1996, when the sect or was restructured after the 1995 financial 
crisis, resulting in major banks being closed and reha bilitated.  The Russian cr isis seriously set back 
financial reforms.71  The Debt Recovery Agency (DEBRA ), created in 1996 within the finance 
ministry, manages failed banks through asset recove ry and liquidation.  Since 2002, in compliance 
with the bankruptcy legislation, DEBRA has been th e sole liquidator (special administrator) of failed 
banks.  Bank liquidation procedures require it to dispose of all the failed bank's assets without 
unjustified delays for appropriate prices to meet  creditors' needs, in acco rdance with the Law on 
Conservation, Liquidation and Bankruptcy of  Bank, February 2004.  Since 1999, DEBRA  has handled 
the liquidation of 17 banks, including several large state-owned banks.  Its existence has been extended several times.  However, DEBRA’s effe ctiveness in recovering assets has been increasingly 
limited by funding shortages, unclear legal st atus and weaknesses in technical and operational 
capacities.
72  Some bank liquidations commenced befo re 1999 and are  still to be finalized. 
59. A comprehensive banking sector reform programme commenced in 2002.  Restoring public 
confidence in banks is a key government priority , including ongoing rationalization and strengthening 
of the financial and banking sectors.73  Politicization of the banking sector continues to raise certain 
risks.74  Bank margins remain wide, reflecting the hi gh cost of financial intermediation and bank 
inefficiency.  The interest rate spread was 16.6% on new foreign loans and 23.4% on national 
currency loans in 2005 (Chart IV.1). 
60. The SSC's licence for micro-lending operations is expected to be  expanded to permit 
micro-credits for up to Som 50 million in 2006.   The KAFC will remain a non-bank institution until 
privatized at end-2006 when it will be converted to a "universal" bank. 75   
61. Although deferred in 2004, a Deposit Protection Syst em is to be introduced in no less than 
two years from the adoption of the legislation (b y 2009, provided at least 15% of the Deposit 
Protection Fund's target value of insured deposits is  reached), as part of the Banking System Reform 
Strategy to help improve the stability of and conf idence in the banking system.  The NBKR released a 
                                                      
71 Exchange rate volatility and interest rate pressures stemming from the Russian crisis had a heavy 
impact on the banking sector in particular because of excessive lending by banks to KyrgyzGazMunaizat 
(KGM), the collapsed state oil and distribution company, using government securities as collateral.  Bank loans 
to KGM totaled US$18.5 million from November 1997 to September 1998, and four of the largest banks went 
bankrupt as a result. 
72 IMF (2003), p. 17. 
73 Kyrgyz Government and NBKR, Joint St atement on Economic Policy for 2004. 
74 Kyrgyz Government (2006), p. 16. 
75 The non-deposit-taking KAFC, a commercially orie nted non-banking agency , was formed after the 
state-run credit agency was liquidated in 1997.  Substantial gove rnment debt is still to be repaid.  It is the largest 
NBFCI and biggest agricultural lender, relying on subsidized funding supported by international aid donors.  It on-lends to farmers and agricultural proces sors at concessional interest rates.  WT/TPR/S/170 Trade Policy Review 
Page 104 
 
 
Concept Paper in 2004 and subsequently prep ared a draft law on protection of deposits.76  T h e  
legislation is to be submitted to the Government s hortly.  The proposed mandatory scheme is to cover 
all commercial banks, including state-owned, fo reign subsidiaries, and branches, and will be 
administered by an independent Deposit Protection Agency.  A depositor compensation scheme 
(covering deposits of the former Soviet Savings  Bank and three failed state-owned banks), was 
introduced in November 2003 and subsequently extended.77  It compensated depositors for cash 
deposits of up to Som 10,000 in bankrupted co mmercial banks by converting deposits into 
government securities, which were to be issued by April 2004, but this deadline was extended 
repeatedly until end-June 2006.  Deposits excee ding Som 10,000 and those of depositors not 
registered for compensation will be repaid from funds received by DEBRA through asset recovery of 
bankrupted banks. 
1012141618202224262830
2001 2002 2003 2004 2005Chart IV.1   
Interest rate spreads of commercial banks, 2001-05
Per cent 
Source :     National Bank of Kyrgyz Republic.National currency loans
Foreign currency loans
Note:          Interest rate spreads ca lculated by comparing total-weighted interes t rate on all new bank loans and deposits.
 
 
Regulatory and prudential framework 
62. The NBKR, as sole supervisor and licensor of banks, has extensive legislative powers to issue 
general and specific regulations a nd instructions.  These cover capital standards, such as minimum 
authorized capital, own funds, capital adequacy ratio , maximum exposures and liquidity ratios.  It can 
impose a range of penalties and corrective acti on on non-complying banks, and may suspend or 
revoke licences.  Its Regulatory Response Policy (approved 31 October 2001) to promote early detection of problem banks, in order to devise corre ctive actions for rehabilitation or liquidation, was 
                                                     
 
76 NBKR (2004). 
77 Government Resolution No. 740, on Compensation of Deposits for the Depositors of Bankrupted 
Commercial Banks, 28 November 2003.  These were seve n-year marketable securities with an annual interest 
rate of 2%.  The estimated cost of meeting these claims is Som 700 million (0.8% of GDP) (IMF Report, 
June 2004).  Early redemption of these bonds for individuals born before 1939 started in 2005 (Government Resolution No. 179, 7 May 2005). Kyrgyz Republic WT/TPR/S/170 
 Page 105 
 
 
terminated in 2005 due to considerable inconsis tencies between it and other legislative changes. 
However, the NBKR maintained powers to apply corrective action.78  Nevertheless, challenges to its 
decisions in the civil court have yielded some  unpredictable outcomes and created uncertainty.  
NBKR officers are expected to obtain statutory legal protection in the execution of their duties. 
63. Bank licence applications must include all supporting documentation and founding 
shareholders and executives are subject to a "fit and proper" tests.  Applications must be processed 
within six months, but the NBKR can extend this for another six months if a foreign company is 
involved.  Foreign and domestic banks are subject to the same prudential and licensing requirements.  
Foreign banks wishing to establish a subsidiary or  branch may be requested to provide additional 
documentation, such as written approval from their ho me regulator, and each additional branch must 
be licensed.  Similar prudential requirements are set for a foreign subsidiary or branch.  Branches 
must meet normal minimum capital requirements and deposit reserves with the NBKR.79  Foreign 
banks can open representative offices with NBKR permission, and must provide at least two months advanced notice.  Foreign banks may operate as either  subsidiaries or joint ventures, with no foreign 
equity caps.  Thirteen bank licences have been revoked since 1998.
80  The number of banking 
licences, including foreign, licences is not fixed.   While no economic needs tests are applied in 
approving applications, applicants must submit a business plan that includes an assessment of the 
bank's economic feasibility and provides the strategy, directions, and scope of its activities for the first 
three years of operation.   
64. Foreign banks can offer the same services as Kyrgyz-owned banks, and the number of 
branches or their location is unrestricted.  Banks, domestic and foreign, can open branches based on 
written notification to the NBKR, which "registers " opening and closure of all branches.  Use of 
automatic teller machines by foreign or Kyrgyz banks is unrestricted.    
65. Minimum capital requirements for commercial ba nks have been increased progressively.  For 
existing local banks these were raised from Som 10 million to Som 15 million by end-1997 and to 
Som 20 million by end-1998 (NBKR Reso lution No. 30/8, 13 September 1996).81  The corresponding 
levels were increased to Som 15 million and Som 25 million for existing and new banks with 20% or 
more foreign equity, including foreign subsidia ries and branches, and to Som 30 million and 
Som 40 million for new local commercial banks. Minimum levels were raised again, to 
Som 300 million for new banks (including foreig n bank branches) from October 1999, and to 
Som 50 million and Som 100 million by 31 July 2000 a nd by 31 July 2001, respectively, for existing 
banks (including foreign bank branches) i rrespective of foreign ownership levels.82   
                                                      
78 NBKR Regulation No. 16/2 on Measures Applied to  Banks and Certain Finance and Credit 
Institutions Licensed by the National Bank, 19 May 2005.  
79 Non-resident banks must invest capital in branches opened in the Kyrgyz Republic, and are required 
to place a clear-of-debt  and unencumbered deposit with a financia l institution approved by NBKR in compliance 
with its requirements. According to the temporary proced ure for investing capital in branches by non-resident 
banks, they must invest capital in their branches in the form of a restricted deposit. 
80 Four licences have been return ed, including for AKB "Kyrgyzstan" Bank, which has been returned 
three times.  Its licence was last revoked in October 2005 and it is undergoing bankruptcy proceedings.   
81 These also covered subsidiary banks and branches established under international agreements 
involving the Kyrgyz Republic, unless otherwise specified in those agreements.  
82 National Bank Resolution No. 61/1, on Minimal Capital for Commercial Banks, 20 September 1999.  
WTO document S/C/114, 13 January 2000.  The Kyrg yz Republic had committed under GATS to remove by 
2003 the national treatment limitati on on "acceptance of deposits and othe r repayable funds from the public" 
whereby the minimum capital requirements for banks with  below 20% foreign participation were half those 
required for banks with 20% or more foreign equity.   WT/TPR/S/170 Trade Policy Review 
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66. The minimum risk-weighted total capital adequacy  ratio for commercial banks is 12% (set at 
8% from 1997 and raised in 1998), and 6% for Tier 1 capital.  In practice, the average total capital adequacy ratio is much higher;  it declined from 52.2% at end-2002 to 23% at end-2004, and rose to 27.5% at end-2005 (Table IV.7).  While this fall supports the trend towards greater financial 
intermediation it also suggests scope for improvement.     
67. The Kyrgyz prudential system did not fully comply with the Basel Core Principles for 
Effective Banking Supervision in 2002.
83  There were no legislative rules on risk management by 
banks, nor any NBKR guidelines.  Banks developed th eir own risk systems.  Consent from supervised 
banks was also needed to access confidential informat ion, and external auditors were required to have 
the bank’s permission to disclose information to th e NBKR, which had no authority to oppose or have 
replaced external bank auditors.  However, an NB KR Action Plan adopted since then has improved 
and strengthened bank supervision.84  Auditing requirements of banks were strengthened in line with 
international standards, and Ba sel requirements were applied in 2004 to help overcome these 
deficiencies (amendments to the Banking Law and NBKR Law).  The NBKR conducts regular 
extensive off- and on-site inspections, and these now in clude regular stress testi ng of banks as one of 
the external supervision methods.85  A supervisory framework for operational risk management was 
adopted in 2005 (NBKR Regulation on Minimal Risk Management in Banks).   A Bank Supervision 
Guide and a new bank supervision ma nual were adopted in early 2004.  Moreover, steps have been 
taken to improve corporate governance of banks an d to enhance the legal framework of creditor's 
rights and liquidating banks, such as changes to the bankruptcy law in June 2002.  Since 2003, 
commercial banks have published IAS-based (Int ernational Accounting Standards) financial 
statements quarterly, and the SSC has been aud ited by international auditors since 2004.   
68. Nevertheless, according to the Kyrgyz author ities, an IMF assessment of compliance with 
Basel Core Principles conducted in September 2005 revealed continued non-compliance in some 
areas, although noting favourable improveme nts in banking oversight in recent years.86  This would 
seem to confirm a 2004 EBRD assessment that concl uded "medium compliance" with the Basel Core 
Principles, the main deficiencies being in the transfer of ownership and major acquisitions, 
supervision of operations by dom estic banks overseas and foreign banks locally, risk management, 
and governance and auditing.87   
69. Since then, however, new NBKR regulations  have been adopted, aimed at further 
strengthening supervision and enfo rcement arrangements, and according to the Kyrgyz authorities, the 
recommendations of the latest IMF assessment have b een incorporated in NBKR plans.  Amendments 
to banking legislation in December 2005 provid e for consolidated supervision principles and 
enhanced procedures concerning direct and indirect acquisition and control of banks.   The NBKR 
must approve investments in a bank, inter alia , exceeding 10% of its equity or voting stock;  legal 
entities are prohibited from owning more than 10%  or 20%, depending on the arrangements.  The 
NBKR has also adopted regulatory guidelines for ba nks to manage risk.  Banks are to provide the 
                                                      
83 IMF (2003), pp. 34-39.   
84 According to the NBKR, banking supervision is built on international practice and applies the norms, 
directives, and recommendations of the Basel Committee on Banking Supervision, and is generally adequate for 
the regulation of licences and bank supervision (NBKR, 2004, p. 7). 
85 An early risk detection system has been approved for banks whereby the NBKR conducts stress 
testing when needed, the results of which are used to identify bank weaknesses (NBKR Resolution No. 56/5, 
29 May 2006).  These findings are given in a quarterly bank performance report. 
86 According to authorities, this assessment (not  seen by the WTO Secret ariat) had found full 
compliance with four of the Basel Core Principles, ge neral compliance with eight, significant non-compliance 
with four, and one principle (concerning global consolidated oversight of overseas banks) to be inapplicable.   
87 EBRD (2005).   Kyrgyz Republic WT/TPR/S/170 
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NBKR information on ownership and organizational structures, corporate governance and risk 
management systems, including on all significant risks faced.  Draft legislation has also been prepared 
to improve NBKR independence thr ough amendments to its legal stat us and budgeting.  Such changes 
are designed to harmonize Kyrgyz bank supervision practices with international norms and, in so 
doing, to establish equal conditions for competition between domestic and fo reign banks.  NBKR has 
also concluded bilateral agreemen ts on informational exchange a nd cooperation on prudential matters 
with home country regulators in Belarus, China, Kazakhstan, Russian Federation, Turkey, Pakistan, 
and Ukraine.  Anti-money-laundering legi slation was passed in June 2006.    
70. An independent credit information bureau (CIB) was established in 2003 in the form of an 
association of finance and credit institutions (r egistered with the Ministry of Justice on 
17 March 2003).  Its aim is to improve the financia l environment, especially the cost of obtaining 
finance for small- and medium-sized enterprises, by providing reliable information to finance and 
credit institutions on credit histories of potential borrowers.   
(c) Non-bank financial and cred it institutions (NBFCIs) 
71. The NBKR also supervises NBFCIs, including fi nance and credit companies, microfinance 
institutions, pawnshops, exchange bureaux, and credit unions.  As at end-2005, there were 320 credit 
unions, two specialised credit institutions, 136 micr o-financing organizations  (including 97 micro-
credit agencies), 263 exchange bureaux, and 139 pawn shops.  While increasing in importance as the 
main credit source for small- and medium-size firm s and rural borrowers, NBFCIs remain relatively 
minor.  Developing the NBFCI sector has focused on the expansion of micro-credit in line with the 
Medium Term Micro Finance Development St rategy for 2006-10, adopted in 2005.   
72. The NBKR regulates specialized finance and credit institutions, such as the KAFC and the 
Financial Company on Support and Development of  Credit Unions (FCSDCU), in accordance with 
the banking legislation, taking into account their specific activities.88  Banking supervision norms are 
applied to KAFC while special regulatory require ments apply to FCSDCU, which are detailed in 
NBKR regulations.  The 2002 Law on Micro-financing Organizations governs their regulation.  They 
are supervised "non-prudentially" using a simplifie d regime unless they are allowed to accept deposits 
from the public, when supervisory requirements similar to those for banks are applied (as specified in 
NBKR regulations).  Credit unions are regulated under the Law on Credit Unions.89  They are 
supervised "non-prudentially" unless financed by FCSDCU funds or members' deposits, when they 
are supervised prudentially in accordance with NB KR regulations.  Pawn shops are regulated non-
prudentially (Laws On the National Bank and On Pl edge), as are exchange bureaux (Laws on Foreign 
Currency Transactions and on the National Bank).   
Capital and stock markets 
73. The capital market is largely embryonic.  At  end-2005, it consisted of the KSE and other 
NBFCIs, such as two pension funds  (one private) and five investment funds.  Until the recent 
formation of the State Agency on Financial S upervision and Reporting (SAFSR) (see below), the 
Finance Ministry regulated the private pension fund in accordance with the 1991 Law on Non-Government Pension Funds.  The Russian crisis erod ed confidence in the capital market.  Government 
                                                     
 
88 The FCSDCU is an NBKR subsidiary that fina nces credit unions under the credit agreement made 
between the Kyrgyz Republic and the Asian Development Bank. 
89 The supervisory functions over credit unions were  transferred from the FCSDCU to the NBKR in 
2005.  Credit unions have been allowed to mobilize members’ deposits since November 2000, and NBKR licences for credit unions to do so were simplified in 2006.    WT/TPR/S/170 Trade Policy Review 
Page 108 
 
 
securities (especially NBKR notes and treasury bills ), held predominantly by banks and NBFCIs 
(mainly the state-owned SSC and KAFC), are the main securities traded. 
74. The SAFSR was established by Presidential Decree No. 419, on 30 September 2005 to 
reinforce financial market reforms and strengthe n its stability through enhanced regulation and 
supervision of NBFCIs and the capital market, sta ndards of financial reporting and auditing activity, 
and elaborate the appropriate legislative framework for the financial market.  It replaced the State 
Commission on Securities Markets, which had regulat ed the capital market but had limited financial 
and operational autonomy and suffered from weak capacities.90  No restrictions are applied to foreign 
companies or individuals performing professional activities in the securities market, and the 
legislation provides for equal treatment for dom estic and foreign entities in issuing licences. 
75. The Kyrgyz securities market legislation has "l ow compliance" with international standards 
(EBRD's 2004 Securities Market Legislation Assessme nt Project).  However, the Government plans 
to strengthen SAFSR's independence along with the institutional and legal frameworks for supervising 
the capital market.  According to Kyrgyz authorities, new draft legislation on the securities market 
complies with the minimum principles of the International Organization of Securities Commissions to 
ensure better governance and transparency, in pa rticular, improved disclosure requirements.  A 
Commission is to be established to review capital market supervision, along with a Coordination 
Council, which will examine related privatization.91   
76. The KSE is a self-regulating non-profit entity (a joint-stock company) owned by banks, 
brokerage houses, and three foreign companies (including the Istanbul and Kazakhstan stock 
exchanges).  Share trading must be undertaken on the KSE using licensed brokers (Presidential 
Decree, May 1999).  Nine companies are listed, and ca pitalization remains small, at Som 1.7 billion at 
end 2005 (1.7% of GDP).  Share turnover is concen trated in a few major privatized state-owned 
enterprises.  Corporate bonds, introduced in 2001, are th inly traded;  foreign participation is minimal.  
To strengthen investor protection, licensing conditions for stock exchanges are to be enhanced.  The SASFR is now the regulator of the stock exchange and of investment funds (1999 Law on Investment 
Funds).  There are no restrictions on foreign po rtfolio investment in the Kyrgyz Republic.  
Insurance 
77. The insurance market is small, especially fo r life assurance.  All insurance, including motor 
vehicle, is voluntary (except for state insurance of military personnel).  Insurance can be supplied only 
by joint-stock companies, and li censed companies may offer both lif e and non-life policies.  Only 
fully local-owned companies can provide mandatory  government insurance to military personnel.  
The total assets of insurance co mpanies amount to about 0.2% of GDP;  the number of firms has 
declined from 24 in 2002 to 11 (January 2006).  A ll are privately owned:  two are Russian joint 
ventures and two are fully British-owned.  The 49%  limit on foreign equity in insurance companies 
has been removed.
92  Most risks are reinsured with foreign co mpanies abroad;  insurers must reinsure 
at least 5% of the insured risk domestically.   
                                                      
90 IMF (2003), p. 28.  The SAFSR also replaced the State Commission on Standards of Financial 
Reporting and Audit, and the Agency on Development of the Non-Banking Financial Sector of the Ministry of 
Finance. 
91 Presidential Decrees No. 163 on Establishment of  the Commission on Working Out the Regulatory 
Policy and Coordination of Supervisory Activity over Financial Market, 27 April 2006, and No. 162 on 
Establishment of the Consultative Council on Privati zation through the Securities Market, 27 April 2006. 
92 The Kyrgyz Republic committed under GATS to eliminate this market access limitation by 2002. Kyrgyz Republic WT/TPR/S/170 
 Page 109 
 
 
78. The SAFSR replaced the Finance Ministry as pr udential regulator of the insurance market 
(1998 Insurance Law).  Licensing procedures and requirements are specified in Government 
Regulation No. 260 on Licensing of Certain Typ es of Entrepreneurial Activities, May 2001.  
Applicants involving foreign companies must  also submit written confirmation from the home 
regulator that they are licensed insurers.  In 200 5, the minimum charter capital was increased to Som 
12 million and Som 7 million for new and existing insurance companies, respectively, up from Som 5 million and Som 1.5 million.
93  Technical reserves to cover losses are also required.94  At least 
80% of these reserves must be invested domestically and comply with certain rules, such as investing 
a maximum of 40% in real estate and no less than 10%  of insurance premiums in state securities.  
Foreign companies operating abroad cannot adverti se or offer insurance in the Kyrgyz Republic, 
including through domestic brokers or agents.  The Government aims to broa den insurance coverage 
by diversifying the types of insurance ava ilable, and improving acc ountability and disclosure 
requirements.   
(ii) Telecommunications 
79. Telephone density is low, averaging about 9% for fixed phone, including business phones 
(negligible in rural areas).  The mobile market has expanded rapidly, but from a low base, such that 
penetration rates remain low, averaging 10% in 2005.95  Mobile services are available in Bishkek, 
Osh, Jalal-Abad, Batken, Kara-Suu cities, and Chui, Issyk-Kul, Naryn, and Talas oblasts.  
Telecommunications policy is formulated by the Ministry of Transport and Communications.   
80. The telecommunications market has been liberalized in line with Kyrgyz WTO 
commitments.96  The Kyrgyz Republic has "full" competition in all major telecommunication 
markets.97  The monopoly on international and long distance calls of the majority (77.84%) 
state-owned national carrier, Kyrgyztelecom, was terminated from February 2003 in line with the country's GATS commitments, instead of by 2008 .  The Russian company, Saima Telecom, and 
Winline provide competing fixed line services, such  as local, long-distance and international calls, 
and data transmission.  A new competitor, Mintel, has entered the market.  There are several foreign-
owned operators of cellular and pa ging services, and the first foreign ISP was licensed in early 2003.
98  
There are no overseas ownership restrictions, and fo reign and domestic operators enjoy the same 
rights, including access to the public network.  While callback services remain prohibited (an 
overhang from Kyrgyztelecom's monopoly), its anti-co mpetitive impact has been diminished by the 
sector's liberalization.   
81. The regulatory regime has been strengthened to  safeguard competition, again in line with 
GATS commitments to adopt the Telecoms Referenc e Paper.  The National Communications Agency 
                                                      
93 Ministry of Finance Decree No. 200 On Approval of Minimum Amounts of Charter Capital of 
Newly Created Insurance Compan ies and Capital of Active Insurance Companies, August. 
94 Government Resolution No. 53 On Regulation on Procedure of Formation, Use and Placement of 
Insurance (Technical) Reserves of Insurance Companies, Fe bruary 2000.  The stipulated reserves are 100% for 
deposit components of life insurance, 60% for insura nce against personal life assurance, 75% for liability 
insurance, and 60% for property insurance. 
95 The number of mobile subscribers is forecast to double between 2005 and 2009, whereas growth in 
fixed network subscribers is expected to be 25%.  
96 1997 Law on Telecommunications and Posts, the 1998 Law on Telecommunications and Postal 
Services, and the 1999 Law on Information Communications and Technologies Development. 
97 ITU (2005). 
98 There are four licensed suppliers of long distan ce calls (Kyrgyztelecom, Katel, Saima-Telecom, and 
Winline).  In addition, several providers of IP-telephony also deal with international calls (the largest are ElCat 
and Asiainfo).  There are ten active providers of data transmission services.  The key suppliers of Internet 
services are Kyrgyztelecom (over 30% of the market), ElCat (30%), and Asiainfo (20%). WT/TPR/S/170 Trade Policy Review 
Page 110 
 
 
(NCA), established as the telecom regulator in 199 7, was re-formed in January 2006 (Presidential 
Decree No. 19, 19 January 2006).99  Interconnection rules were established in 2003, but raise some 
concerns.100  They provide procedures for interfacing the public network, terms and major principles 
for settling such arrangements betw een operators.  The NCA has the exclusive right to establish 
procedures for regulating or settlement of disputes.   Kyrgyztelecom has interconnection agreements 
with all operators, and the NCA frequently intervenes as arbiter in these negotiations. 
82. Telecom providers must be licensed by the NCA.101  Licences stipulate the type of services 
that can be provided.  Licensing agreements are not made public.  There is no fixed number of 
licences and foreigners receive licences on the same  basis and terms as Kyrgyz entities or persons.  
Licences are issued on an equal basis for all entities a nd cannot be issued to restrict competition or to 
favour any particular group, irrespective of ownership.   Certain licensees, especially of long-distance 
telephony and real-time packet-switched voice transmission services, are required to invest at least Som 20 million in telecommunications infrastructure within one year (Government Resolution No. 265, 7 May 2003).  Currently, 249 telecom providers operate under 313 licences (Table IV.8).  
Three additional fixed-line licences for providing international and long-distance calls were issued 
in 2003, but operate only in Bishkek.  Four cellula r carriers operate (locally owned Bitel has almost 
90% of the market, followed by the U.S. joint vent ure, Katel, with a market share of 8%).   
Table IV.8 
Telecommunication licences, 1998-05 
(Number) 
Type of activity licensed 1998 1999 2000 2001 2002 2003 2004 2005 Total 
Long-distance telephony 1 0 0 0 0 4 0 0 5 
Local telephony 3 0 3 1 1 4 5 3 20 
Data transmission 6 3 6 3 9 11 4 7 49 
Leasing communication 
channels 1 0 0 0 0 0 0 0 1 
Telegraph 2 0 0 0 0 0 1 0 3 
Cellular 2 2 1 0 0 3 0 0 8 
Radio signalling 1 1 1 0 1 1 0 1 6 
Radio telephony 6 0 0 0 0 1 1 0 8 
Radio broadcasting 10 3 5 5 3 2 9 0 37 
TV broadcasting 9 4 0 3 5 4 4 1 30 
Short wave communications 1 0 0 0 0 0 0 0 1 
Paging 3 0 2 3 0 0 1 0 9 
Telephony via payphones 
and call centres 1 0 1 0 2 2 7 9 22 
Postal communications 2 1 3 2 1 1 0 1 11 
Table IV.8 (cont'd) 
                                                      
99 In 2001, the NCA was reorganized into the Stat e Communications Agency, and in 2005 this was 
combined with the State Ag ency of Information Resources and Techno logies and restructured to form the 
National Agency for Information Resources, Technologies and Communications.  There has been criticism over 
the institutional separation of the NCA from the ministry and of possible favoritism for Kyrgyztelecom. 
100 World Bank (2005a), p. 53. 
101 Activities that require licensing are postal and el ectric communication, data transmission, TV and 
radio broadcasting, use of radio frequency spectrum, including design, production, construction, installation of 
required networks, lines, installations, systems and devices (Laws On Electric and Postal Communications 1998, and on Licensing 1997). Kyrgyz Republic WT/TPR/S/170 
 Page 111 
 
 
Type of activity licensed 1998 1999 2000 2001 2002 2003 2004 2005 Total 
Designing, manufacturing, 
construction and installation 
of telecom lines, structures, networks, systems and 
equipment 10 6 1 4 4 1 13 6 45 
Satellite communications 2 0 0 0 0 0 0 0 2 
Ancillary telecoms e.g. real-
time packet-based voice 
transmission 0 1 3 5 3 13 1 1 27 
Ancillary telecom services 
offered at public access sites 0 0 0 0 23 40 20 37 120 
Operating radio relaying 
lines 1 0 0 0 0 0 0 0 1 
Operating internal radio 
networks 13 3 2 0 1 0 1 1 21 
Operating satellite downlink 
stations 3 0 3 0 0 0 0 0 7 
Total issued since 1998 77 24 31 26 53 87 67 68 433 
suspended 0 1 0 0 1 0 1 1 4 
renewed 0 0 0 0 0 0 2 1 3 
withdrawn due to ref illing 0 0 0 8 3 4 4 5 24 
expired 0 0 0 5 8 7 15 19 54 
withdrawn by licensing 
authority 0 1 6 1 1 12 10 12 43 
Total effective cumulative 
number 77 99 124 136 176 240 280 313 313 
Source:  Kyrgyz authorities. 
83. Earlier efforts to privatize 49% ownership of Kyrgyztelecom for US$80 million received no 
interest, and Parliament terminated sub sequent plans in June 2003 to sell 51%.102  The Government 
has recently appointed consultants to assist in  its full privatization, a government priority 
(Government Resolution No. 590, 19 December 2005).103  Kyrgyztelecom is required to undertake 
statutory universal service obligations, including  providing national public communication services.  
A Strategy of Universal Access is being finalized.  
84. Kyrgyztelecom is considered a natural and permitted monopoly by the Anti-Monopoly 
Authority and the NCA regulates tariffs.104  Proposed tariffs are calculated by Kyrgyztelecom and 
submitted to the NCA for approval.  Internationa l charges cross-subsidize domestic calls.  Cross 
subsidies are being eliminated progressively by re-balancing tariffs.105  The plan envisages the gradual 
reduction of tariffs for international calls and increase in tariffs for c ity, rural, and long-distance calls.  
The NCA is also responsible for administering anti-monopoly legislation in the sector (Law on Restriction of Monopolistic Activities, Development and Protection of Compe tition).  However, many 
                                                     
 
102 Swedtel's offer of US$15.68 million was ruled the winner, but no agreement was reached, and the 
Government requested new financial offers.  The consor tium of Arex-tech and Detecon International offered the 
highest price (US$16.2 million) and agreed to inve st US$150 million in Kyrgyztelecom over ten years. 
103 Kyrgyztelecom was corporatized in 1997 and partially privatized in 2000 (12.51% was divested to 
the Social Fund, 6.9% to company employees and management, and 3.65% to private entities). 
104 State regulation and control of tariffs include subscriber fees on telephone use (local and long 
distance) and installation costs. 
105 Government Resolution No. 151, on the Plan of Tariff Policy to Re-Balancing of Tariff for Principal 
Electric Communications Services, 20 March 2003.   WT/TPR/S/170 Trade Policy Review 
Page 112 
 
 
of the regulatory functions, including over prices,  seem to have reverted to the Anti-monopoly 
Agency in 2006 (Chapter III).  The respective regulat ory roles are unclear to the Secretariat.      
(iii) Wholesale and resale trade 
85. Wholesale and retail trade is the largest servi ces subsector.  In 2005, retail trade turnover 
totalled Som 45.1 billion;  foodstuffs accounted for ove r half.  Three quarters of retail trade in 2004 
was conducted in market bazaars, mainly involvi ng small or family enterprises selling clothing and 
food.  State participation is minimal in retailing (apart from alcoholic beverages and tobacco) and 
wholesaling (except for alcoholic beverages, tobacco, firearms, and pharmaceuticals).  In line with its 
GATS commitments, apart from these exceptions, ther e are no market access or national treatment 
limitations on retailing or wholesaling for cross-bo rder trade, consumption abroad or commercial 
presence.  The Kyrgyz Republic also extended th e same commitments to commission agents and 
franchising (Table AIV.1).  
(iv) Transportation  
(a) Land transport 
86. The Kyrgyz Republic, a landlocked country, relies on land transport for trade and 
international access.106  High transport costs have constraine d trade, including reorientation towards 
new markets.107  The importance of transport and transit arrangements with neighbours, especially 
Uzbekistan, Kazakhstan, and China, is heightened by the interweaving of co untry borders that create 
enclaves, either as pockets in the territory of an  adjacent country or requiring crossing into another 
country to travel domestically, thereby necessitati ng several border crossings for international and 
domestic transportation.  For example, Uzbekist an and Tajikistan has enclaves with the Kyrgyz 
territory and the Kyrgyz Republic within Uzbek te rritory, especially in the Ferghana valley where 
travelling the direct route between major Kyrgyz centres requires crossing into Uzbekistan.108  A  
railway connecting Uzbekistan with China throu gh the Kyrgyz Republic is being considered. 
87. The Kyrgyz Republic has signed a number of conventions regulating international road 
transportation, and numerous bila teral and plurilateral agreements, most with CIS countries, on 
transportation and transit rights.109  Transit conditions, including transportation charges, between CIS 
states, for example, should observe the principle of "free transit", not be subject to "groundless delays 
or restrictions", and be non-discriminatory (1999  Agreement on Procedures of Transit Through the 
Territories of CIS States).  Transit arrangements among EAEC members are to comply with the 1998 Agreement on Unified Terms of Transit Through the Territories of the Custom Union, and a 
Transport Union is to be formed to ensu re free movement of freight and passengers.
110  Free transit 
among ECO members was listed as an essential provision for trade, and transport infrastructure was to 
be enhanced under the 1995 Transit Trade Agre ement (TTA) and the 1998 Transit Transport 
                                                      
106 In particular, Kazakhstan is a transit country be tween Kyrgyz Republic, Tajikistan and Uzbekistan 
and the Russian Federation.  The Kyrgyz Republic has little transit traffic and is primarily the arrival or 
destination point of such traffic, but is a transit country for trade between Uzbekistan and China.   
107 ADB (2006). 
108 The Jalal-Abad-Uzgen road has been upgraded at a cost of US$12 million to link Osh and Jalal-
Abad without having to pass through Uzbekistan. 
109 Conventions include the Customs Convention on the International Transport of Goods under Cover 
of TIR Carnets (1975), and the Convention on the Harmonization of Frontier Controls of Goods (1982). 
110 Belarus is still to ratify the Road Transport Union of ECAC (1998), which reaffirmed national 
treatment for both road and rail transport. Kyrgyz Republic WT/TPR/S/170 
 Page 113 
 
 
Framework Agreement (TTFA).111  Bilateral FTAs with CIS states also cover transportation and 
transit arrangements, providing for free transit on terms no "worse" than domestic operators and 
transport transit charges to be "economically substa ntiated".  However, such  agreements have been 
ineffective.  The application by CIS states has be en poor, for commitments on national treatment of 
transport companies and transit fees that re flect costs, especially for road transport.112 The success of 
such agreements also hinges on reforming restri ctive customs (including visa) procedures, and 
improving logistics and infrastructure at border crossing.   
88. A new transit agreement with Kazakhstan in March 2004 has improved transport and transit 
arrangements by exempting Kyrgyz trucks from Ka zakh customs duties, taxes, fees, and non-tariff 
regulatory measures.113  Kazakhstan has eliminated all extra ra ilway tariff charges on Kyrgyz traders, 
and charges domestic rates.  In January 2005 it ra tified the 1998 International Transport Agreement 
allowing permit-free transit of Kyrgyz trucks.  Si nce March 2005, Kyrgyz transiting trucks no longer 
have to pay a deposit at the border or have a cust oms escort.  A similar bilateral transit agreement 
signed with Tajikistan in July 2005 was ratified by the Kyrgyz Republic in March 2006 (Agreement 
On Transit of Goods by Motor Transport, 22 July 2005).  Transit arrangements with Uzbekistan are 
still restrictive (Chapter III).114   
89. A 2005 Agreement on  Transit Shipments between Kazakhs tan, China, Pakistan, and the 
Kyrgyz Republic providing a single permit for inte rnational transit shipments is not operational 
because China has not removed char geable escorts on such traffic.115  The Kyrgyz Republic and other 
CAREC members (Azerbaijan, Kazakhstan, Tajikista n, and Uzbekistan) have adopted the Regional 
Transport Sector Road Map to formulate prior ities for regional cooperation in land transport.116 
Road 
90. Domestic cargo and passengers are transported predominantly by road.  The total road 
network is 34,000 kilometres, and consists of an inter-city network of about 10,000 kilometres 
(4,000 kilometres of national roads and the rest re gional roads).  About 40% of the total network is 
paved, and 60% requires urgent repair;  only 20% of  roads are in good condition, and not all of these 
are suitable for heavy trucks.  The poor condition of major roads adds substantially to road 
                                                      
111 The TTA covers road, rail, air, and sea transport, and requires goods transported in transit to be free 
of payment or deposit of import or export duties or taxes.   Transit goods as a general rule should be free from 
customs examination.  While all signature members have ratified the TTA, it is not being implemented due to procedural formalities (i.e. nomination of guaranteeing as sociations, lack of institutional experience with regard 
to these associations, and issues related to the ECO Pa ssage Document).  The TTFA is aimed at facilitating the 
movement of goods, luggage, and passengers across member states by, inter alia , avoiding unnecessary delays, 
exemption of road transport from customs duties, taxes, and other charges (except those for specific services 
rendered under domestic legislation, such as road tolls and road maintenance fees), and ensuring access to 
transit facilities in accordance with the Agreement.  Only  five members, including the Kyrgyz Republic, have 
ratified the TTFA:  one more is needed for it to enter into force.  The Dushanbe Declaration  emphasized its 
urgent implementation to promote regional trade and transport. 
112 World Bank (2005a), p. 61.  See also Cuthbertson and Jones (2000).    
113 Despite the 1993 bilateral transit and road transport agreements with Kazakhstan, restrictions 
remained, including local taxes and fees imposed on road transit (IMF, 2005, p. 19).  Kyrgyz drivers passing through Kazakhstan experienced delays of two to seve n days at various checkpoin ts, compared with two to 
13 hours for Kazakh drivers (USAID/Pragma, 2002).   
114 Uzbekistan withdrew from the 1996  bilateral road transit agreement. 
115 It has been estimated that increased regional coop eration in transport and customs transit in 2006 
would raise Kyrgyz cumulative real GDP by US$2.1 billi on (in 2002 prices) or by 112% for the period 2006-15 
(ADB, 2006, p. 81). 
116 The Central Asia Regional Economic Cooperation Program (ADB, 2006). WT/TPR/S/170 Trade Policy Review 
Page 114 
 
 
transportation costs.  A Road Fund was formed in  1998.  Roads are state owned, and are under the 
responsibility of the Ministry of Transport and Communications (Road Department).   
91. Privatization of inter-city road transport is we ll advanced.  Private operators carry about half 
of total freight and about three quarters of passengers.117  Freight rates are set by the market;  
passenger transport is government-regulated.118  Currently there are no state enterprises involved in 
cargo or non-urban passenger transport.  Public service obligations are imposed on bus companies 
(inter-city and urban), such as carrying "privilege" non-paying customers, for which they are partially compensated by the Government (Ministry of Labour  and Social Protection).  They must operate from 
state-owned bus stations and meet mandatory service levels.  Five-year licences to provide inter-city 
and urban bus services are tendered.  According to the authorities, foreigners can apply for licences 
and no joint venture or foreign equity restrictions  exist.  The Anti-Monopoly Agency sets bus fares, 
which are submitted by operators for approval.   City bus operators, in particular,  incur large 
government losses.  Government subsidies are limited to bus services, including inter-city operators.  
Road transport demand has contracted and too ma ny trucks appear to be operating;  further 
rationalization is likely. 
92. Special permits for transiting the Kyrgyz Repub lic are issued by the Ministry of Transport 
and Communications (Kyrgyzintrans, the Division fo r International Road Carriers) based on bilateral 
agreements.  The Association of International Ca rriers (KyrgyzsASMAP) issues TIR-carnets.  Entry 
and transit of foreign vehicles in the Kyrgyz Re public without permission blanks are charged US$50.   
Foreign carriers are to register within three days of arrival and may stay the necessary time;  Iranian 
carriers are limited to 20 days.   Foreign trucks using the Bishkek-Osh tu nnel are subject to tolls five to 
ten times higher than for domestic trucks (set by the Anti-monopoly Agency).
119  They are also 
subject to a pollution fee of US$3 to US$30, unless fr om a country that does not impose such fees on 
Kyrgyz haulers.  A fee of US$250 is charged at  the border for foreign trucks passing through the 
Kyrgyz Republic without a permit.  Cabotage r estrictions prevent foreign trucks and buses from 
carrying domestic cargo and passengers.  
Rail 
93. The Kyrgyz railway network is relatively small,  totalling about 420 kilometres, and in poor 
condition.  Passenger and freight traffic has dec lined substantially, until recently.  Low value bulk 
items (e.g. cement, construction materials, sugar a nd sugar beets, coal, grains, and timber) are mainly 
transported by rail.  
94. The state-owned Kyrgyz Railways is a statutory monopoly and provides all rail services.  
International freight services are profitable as rates are deregulated.  However, passenger services run 
at a loss, with fares as well as domestic freight ra tes set by the Anti-monopoly Agency, with Kyrgyz 
Railways listed as a sanctioned natural monopolist.  Ov erall, rail operations ma ke a small surplus, but 
labour productivity remains low.  The Government provides no funding to railways, according to the 
authorities.   
                                                      
117 The share of international freight forwarding services provided by st ate-owned companies is 
estimated at 20% (ADB, 2006, p. 57). 
118 Includes urban bus services, except for the Trolley Bus Company in Osh. 
119 ADB (2006), p. 56.  The authorities indicate that the impact of this on foreign carriers was minimal 
since they had little need to use the tunnel. Kyrgyz Republic WT/TPR/S/170 
 Page 115 
 
 
(b) Air transport  
95. The Ministry of Transport and Communications (Department of Civil Aviation since 2001) is 
responsible for civil aviation policy and the sect or's regulation (Government Resolution No. 610, 
October 1997).  The state enterprise "Kyrgyzair onavigatsiya" handles airspace utilization and air 
traffic control.  In May 2001, the civil aviation sector was restructured into independent entities for 
the national airline, the airports, and air navigation.  Air transport demand has declined.  
96. Little air transport restructuring has occurred.120  The national airline (NACKAZ) was 
corporatized in 1999 and partially privatized in 2002,  with 8.5% transferred to the Social Fund and 
10.1% sold privately using coupons.  It provides very  few domestic and international services (it has 
only one aircraft).  The Government has plans to pr ivatize its remaining 81.4% stake.  All air carriers 
registered in the Kyrgyz Republic are licensed to provide international services, but no such carriers 
operate.  Several of the 28 licensed domestic car riers provide limited services, mainly between 
Bishkek and Osh.  One of these, Altin Air, is fu lly owned by the state-owned Kyrgyzaltin.  The 
Government does not subsidize any airline, incl uding the national carrier, but domestic operators, 
most of which make losses, receive a 50% discount on air navigation and airport fees to help 
compensate for the cost of having to meet social obj ectives.  Domestic air fares are regulated by the 
Anti-monopoly Agency.  Companies that provide air ser vices in the Kyrgyz Republic must be at least 
51% domestically owned (Article 113 of the Air Code).  The Government is currently forming a new 
national airline by merging the existing largely defu nct public national carrier with the private Altyn 
Air to create Kyrgyzstan Airline (Presidential Decree No. 517, 4 November 2005 and Government 
Resolution, 11 January 2006). 
97. International air services are governed by b ilateral air services agreements.  The Kyrgyz 
Republic has 25 of these, but only 11 are operati onal (with Kazakhstan, Russian Federation, 
Uzbekistan, Tajikistan, Pakistan, Germany, Turkey , China, India, Iran, and the United Kingdom).  
Cabotage is not allowed, although this is technically impossible as there is only one significant international airport. 
98. The Manas International Airport Company (a n open, joint-stock company) operates the 
country's three international airports at Bishke k (Manas), Osh, and Issyk-kul.  Manas, with its 
international operations, including of  foreign military aircraft, is pr ofitable and cross-subsidizes the 
other two airports.  It is 87.5% state owned.  Th ere are a number of other domestic airports, including 
at Karakol, Naryn, Karavan, Jalalabad, and Batk en (owned by Batken State Administration). 
99. Companies repairing and maintaining aircraft  must be at least 51% domestically owned.
121   
(v) Tourism 
100. Tourism accounted for 3.5% of GDP in 2005.  It is seen as a key industry with significant 
growth potential.  Tourist revenue fell from US $75.6 million in 2004 to US$70.5 million in 2005.  
Forty-one tourist and recreational projects, predomin antly located in the Lake Issyk-Kul region, have 
been privatized since 2001, at a total value of  Som 146 million.  While gr owing, tourism remains 
small and heavily reliant on visitors from Kazakhs tan, but also from Uzbekistan and the Russian 
Federation (Table IV.9).  Restricted and expensiv e international air access is a major constraint on 
tourism, along with political instability, sub-standa rd tourism facilities, as well as inadequate and 
expensive key services, such as transport, finance, and telecommunications. 
                                                      
120 Kyrgyz Government (2006), p. 26. 
121 According to Kyrgyz GATS commitments, this requirement was to be eliminated by 2005. WT/TPR/S/170 Trade Policy Review 
Page 116 
 
 
Table IV.9 
Tourism indicators, 2000-05  
Indicator 2000 2001 2002 2003 2004 2005 
Revenues from foreign visito rs 15.3 24.4 35.7 47.8 75.6 70.5 
CIS visitors (US$ million) 8.8 14.5 16.9 28.1 53.5 46.0 
Non-CIS visitors (US$ milli on) 6.5 9.9 18. 8 19.7 22.1 24.5 
Hotel operations       
Number of hotels 95 91 83 79 120 120 
Guests ('000 persons): 131.9 103.7 123.7 127.9 149.4 126.7 
Foreign  30.2 32.1 44.2 46.1 48.9 34.4 
CIS 13.7 14.5 17.2 20.4 22.3 21.4 
Non-CIS 16.5 17.6 27.0 25.7 26.6 13.0 
Source: National Statistics Committee.. 
101. According to authorities, foreign investment in tourism has increased and is unrestricted.122  
There are 104 active tourist operators and travel agen ts (as at January 2006).  Foreigners can freely 
provide tourism services, and a number do. 
102. The Ministry of Industry, Trade and Tour ism is responsible for tourism policy and 
implementation.  Licensing of tourist facilities was cancelled in 2001 and the only regulatory 
functions currently performed are coordination and m onitoring.  Differential entry fees apply to local 
and foreign-registered cars in the Lake Issyk-Kul region.123  Moreover, foreigners cannot own tourist 
facilities in this region, and must lease them for 49 y ears, subject to parliamentary approval.  At least 
90% of their personnel must be Kyrgyz citizens.  Government policy is to double tourist numbers 
within three years. 
                                                      
122 A proposed law on tourism was to have limited foreign investment in tourist facilities to 49%, 
required the investment manager to be a Kyrgyz nationa l, and limited the number of foreigners in management 
to one third (Laesser, 2002, p. 13).   However, this legislation was not passed. 
123 Fees are Som 100 for local trucks and buses and So m 50 for local cars.  Fees on foreign-registered 
vehicles are Som 500.  The Kyrgyz authorities indicate th at these higher fees fall almost exclusively on Kazakh 
tourists.  Kyrgyz Republic WT/TPR/S/170 
 Page 117 
 
 
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ADB (2002), Performance Audit on the Agriculture Sector Program,  Report No. PPA:  KGZ 28394, 
October. 
ADB (2003), Performance Audit on the Agriculture Sector Program,  Report No. PPA:  KGZ 29149, 
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ADB (2006), Central Asia, Increasing Gains from Trade  Through Regional Cooperation in Trade 
Policy, Transport, and Customs Transit,  Manila. 
Cuthbertson S. and Jones C. (2000), Trade and Export Promotion Study, Report for Kyrgyz Ministries 
of Finance and External Trade and Industry, and the ADB, October. 
DFID (2003), Non-Technical Losses in the Electricity Sector , Discussion Note 40.  Available at:  
www.kyrgyztariff.org. 
EBRD (2005a), Country Fact Sheet for the Kyrgyz Republic .  Available at:  
http://www.ebrd.com/pubs/factsh/country/kyrgyz.pdf. 
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