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Business discussed pressing issues with the Cabinet leadership

April 21, 2022

At the meeting of Deputy Chairman of the Cabinet of Ministers of the Kyrgyz Republic Bakyt Torobaev with representatives of export-oriented and IT enterprises, Executive Director of the International Business Council Askar Sydykov voiced topical business issues and proposed their solution.

“The meeting, which lasted more than three hours, took place in a good working atmosphere. We discussed not only all the issues on the agenda, but the participants also had the opportunity to raise additional issues, discuss them and await protocol instructions following the discussions,” said the IBC head.

Product labeling should be postponed

By a resolution of the Cabinet of Ministers in March 2022, a pilot project was introduced in Kyrgyzstan to label certain types of food products, such as natural bottled water, water with additives, and energy drinks. The opinion of the business community was not fully taken into account when making this decision.

In the current conditions, the introduction of marking seems to be very difficult due to the high cost of equipment, the unavailability of the infrastructure to read and process information about labeled products, a possible shortage of equipment and components for them, the subsequent rise in the cost of manufactured products, as well as other issues, the solution of which is entirely entrusted to business.

At the same time, other EAEU member countries are in no hurry to introduce labeling.

“We continue to receive appeals from bottled water producers that it is necessary to postpone the labeling to a later date or even for an indefinite period, to protect the interests of domestic producers in order to prevent the risks of closing production enterprises,” said the IBC head.

Business arguments were heard at the meeting, and a protocol order was made to consider the possibility of postponing the pilot project specified in the relevant resolution.

How to make SEZ investment attractive

From January 1, 2022, a new electricity tariff was introduced for the Bishkek FEZ, which is higher by 0.43 soms per one kWh compared to enterprises outside the FEZ.

Rising electricity prices have a negative impact on the profitability of FEZ enterprises Operating expenses are rising which affects wages, investment opportunities and modernization of production.

“Conditions inside the FEZ should not be worse than outside its territory. They should be better. However, the example with the extra charge for electricity indicates the opposite,” Sydykov said.

Due to high electricity fees, the FEZ is losing its competitiveness, and it would be easier for enterprises to operate outside its territory. However, it should be borne in mind that investors have long invested in production facilities in the SEZ, and it will be difficult to transfer them.

The Energy Ministry was instructed to study the possibility of equalizing electricity tariffs for enterprises operating in the Bishkek FEZ with other enterprises in the country.

The infrastructure of Kyrgyzstan’s FEZs is not attractive to investors.

“FEZs enterprises and other businesses tell us that it is necessary to expand the scope of FEZs including services. Now they are engaged only in the production of goods, but they need to expand. It's the call of the times,” said IBC Executive Director.

The creative industry is growing all over the world. Industrial parks, special economic zones are being created, innovations are being introduced.

“In our country, the main framework of the FEZ activity has remained unchanged since the 90s. This needs to be changed, to consider the possibility of building infrastructure facilities for services, as well as attracting a management company to more effectively manage the FEZ. This requires legal grounds,” Sydykov explained.

Recently, an official response came from the Ministry of Economy and Commerce that a new draft law on the SEZ is being developed and business proposals will be taken into account.

“We hope that in the new bill we will see both services and the possibility of building infrastructure for services, and attracting a management company based on international experience,” the IBC head concluded.

Subsoil users need support

A number of normative legal acts have recently been adopted in Kyrgyzstan. The NLAs are relating to the financial and economic activities of subsoil users including an increase in income tax rates, license retention fees and others. Mining enterprises see in these initiatives a trend of unreasonable financial burden on their activities and a contradiction to the investment protection policy, which forces foreign investors to suspend investment projects in the country.

In September 2021, the Cabinet of Ministers approved new rates for the retention of licenses for the subsoil use rights, which are significantly higher than those in force since 2015. For example, there is a thousandfold increase in the rates for geological prospecting.

According to the Natural Resources Ministry, at the beginning of April 2022, more than 100 applications for license cancellation were submitted due to high rates for the retention of licenses for the subsoil use rights.

“We recently met with representatives of the Department of Geology and Subsoil Use under the Natural Resources Ministry. We found an understanding from them, and now a draft amendment is being developed to reduce the rates for the retention of licenses. We hope for the support of the leadership of the Cabinet of Ministers in accelerating this process,” said Sydykov.

In October last year, the Cabinet approved a new procedure for collecting fees for the use of surface water resources in the Kyrgyz Republic. For the mining industry, rates of 100 soms and 60 soms per one cubic meter of water were introduced, depending on the height above sea level. Previously, this rate was 0.025 soms per one cubic meter.

If this rate to be increased, this must be confirmed by calculations, justifications and taking into account international practice.

According to subsoil users, the introduction of new rates is not sufficiently justified, does not take into account international practice and forces companies to revise the budget and make additional costs.

Based on the results of the discussions, the Natural Resources Ministry was instructed to develop documents providing for a reduction in the rates of fees for withholding licenses and rates for the use of surface waters.

At the meeting, representatives of business associations also raised the issues of developing the Leilek FEZ, light industry, reducing the burden of foreign economic activity participants, abolishing the 12% tax for residents of the High Technology Park, registering IT specialists arriving in Kyrgyzstan, investing in innovative start-ups in the Kyrgyz Republic, resuming full-fledged work of domestic suppliers on the Wildberries marketplace, and others.