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1 November 2023

Ambitious China-Kyrgyzstan-Uzbekistan Railway Project Faces Major Funding Challenges

The ambitious China-Kyrgyzstan-Uzbekistan (CKU) railway project is continuing to face major funding challenges, with the three participating countries yet to agree on a financing agreement.

Ambitious China-Kyrgyzstan-Uzbekistan Railway Project Faces Major Funding Challenges

Image: Vetlas/Shutterstock

(RFE.RL) During recent visits to the United States and Germany, Kyrgyz President Sadyr Japarov encouraged investors to participate in the China-Kyrgyzstan-Uzbekistan (CKU) railway project -- a crucial component of Xi Jinping's ambitious Belt and Road Initiative.

Kyrgyzstan's treasury is not bursting with money and Bishkek is in great need of cash to build its part of the monumental railway project -- expected to cost a few billion dollars -- that could bring big profits to its coffers.

But despite assurances given by Kyrgyz authorities on the imminent start of construction, the key question of financing remains unanswered, with the participating countries still trying to determine the various funding models and sources for this massive undertaking.

In September, Gennady Bessonov, the secretary-general of the International Coordinating Council for Trans-Eurasian Transport, listed the problems the project faced.

"The project is fully prepared, but as of now, Beijing, Bishkek, and Tashkent have not yet arrived at a mutual agreement concerning the financing aspects, particularly the distribution of funding responsibilities. This ongoing disagreement could potentially prolong the process,” he said. “It's worth noting that Kyrgyzstan and Uzbekistan currently face financial constraints that hinder their ability to independently finance the project. Although China possesses the capability to undertake the construction unilaterally, the railway project does not currently occupy a position of top priority for them.”

Bessonov added that a delay in the construction of the project could be to the benefit of Uzbekistan and Kyrgyzstan’s neighbor to the north.

"The current situation may prove advantageous for Kazakhstan, as this railway route was initially designed as an alternative means of transporting Chinese goods to Russia across the steppes, thereby circumventing Astana and minimizing customs clearance fees," he said.

But Kyrgyz Deputy Prime Minister Bakyt Torobaev painted a more positive view of the project, saying that "negotiations regarding the project's financing are still ongoing."

Kyrgyz Transport and Communications Minister Tilek Tekebaev also rejected any type of postponement of the CKU project due to funding questions.

"Information suggesting that 'the project is temporarily suspended' is inaccurate. We are actively engaged in discussions with China and Uzbekistan…[and] work will resume once the financing model for the project is finalized. It's essential to approach this extensive project with careful consideration," he told RFE/RL.

The railway project is an ambitious undertaking that covers some 454 kilometers, with its path traversing the challenging terrain of western China and Kyrgyzstan, characterized by altitudes ranging from 2,000 to 3,500 meters. This project will also involve the construction of more than 50 tunnels and 90 bridges through Kyrgyzstan’s highest mountains.

Kyrgyz officials previously said the Kyrgyzstan segment of the CKU railway, spanning about 280 kilometers, is planned to follow the Torugart-Arpa-Makmal-Jalal-Abad route and that Chinese engineers had done a comprehensive feasibility study that was to be paid for by the three participating countries. Kyrgyzstan reportedly allocated some 483 million soms ($5.4 million) for the study, finished in the summer, which estimated the cost of the part of the project in Kyrgyzstan at $4.7 billion.

Debt-Trap Skepticism In Finding Money

Rayimkul Mendekeev, director of the Scientific and Technical Center at Kyrgyz State Technical University, also notes the major challenge Kyrgyzstan faces in securing funds for the project, which is part of Beijing's worldwide Belt and Road Initiative. But he suggests two potential avenues for financing.

"The first option involves executing the project as a public-private partnership, attracting investors with government participation,” Mendekeev told National Radio. “The second option entails obtaining a loan, a method utilized in the past for funding railway construction."

He went on to explain that the second option is worse for Kyrgyzstan due to the existing debt that Bishkek has with China, which currently stands at some $2 billion.

In March 2021, Kyrgyz President Sadyr Japarov expressed concern regarding that debt, saying it was “significant threat” to the country’s sovereignty.

As of 2021, Bishkek's overall debt-to-GDP ratio was 60 percent, with 40 percent of Kyrgyzstan's total debt owed to China’s EXIM Bank.

Trains loaded with containers are seen at the Altynkol railway station in Kazakhstan near the Khorgos border crossing point on the border with China in 2021.

In the past decade, the EXIM Bank has extended several loans for major projects such as the refurbishment of the Bishkek Power Station, the construction of the Datka-Kemin electric transmission line, and the Alternative North-South Highway. Many of these projects have been plagued by corruption scandals among Kyrgyz officials.

Iskender Sharsheev, a Kyrgyz economic expert, says Bishkek faces a formidable challenge to attract foreign investment for the CKU railway.

The primary route for railway imports from China to Europe currently goes through Kazakhstan, Russia, and Belarus. Sharsheev notes the political impediments that exist for the railway project because of the business that would be siphoned from the current route, as Russia and Kazakhstan’s economic loss would be Kyrgyzstan and Uzbekistan’s gain.

"Uzbekistan may find it easier to secure financing because they will be responsible for constructing a railway segment of roughly 100 kilometers, which is less than half of the entire CKU project [and far less than the track’s length in Kyrgyzstan],” he told RFE/RL. “But for Kyrgyzstan this presents a significant challenge as we lack the necessary infrastructure to lay railway tracks. The government could gradually allocate funds from the budget [to build such an infrastructure], but this would extend the timeline for the completion of the project. Alternatively, [Kyrgyzstan] could seek external investors, in which case a substantial portion of the transit revenue would leave the country."

Feasibility studies for the CKU railway have been under way since the early 2000s, but tangible progress in construction remains elusive. On October 17-18, China hosted a summit marking the 10th anniversary of the Belt and Road Initiative, with participation from world leaders, including the presidents of Central Asian nations.

Notably, Japarov and Kyrgyz Prime Minister Akylbek Japarov did not attend the gathering, where leaders from the countries involved were available to discuss the future of the project.

Just days after the BRI anniversary summit, Chinese Prime Minister Li Qiang visited Bishkek for the Shanghai Cooperation Organization summit from October 24-27. He met with the Kyrgyz and Uzbek prime ministers and reportedly signed strategic cooperation agreements.

Reportedly among those deals was one related to the CKU project, though no details about the agreement were made public.