Kyrgystan is negotiating with Russia over supplying the republic with oil products on a mutually beneficial basis and a review of OJSC Gazprom Neft's (RTS: SIBN) monopoly on the supply of fuels and lubricants, Deputy Kyrgyz Prime Minister Dzhoomart Otorbayev, who oversees the economic block, has told Interfax.

The Kyrgyz authorities earlier planned to ink an agreement with Russia on cooperation in the area oil and oil-product supply, offering Gazprom Neft and companies associated with it the monopoly rights to supply oil and oil products to the country in 2012. But Kyrgyzstan's Oil Traders Association came out against this, considering the agreement discriminatory against Kyrgyz enterprises, was anti-market in nature, and had a built-in foundation for corruption.

"Russia's position on the delivery of fuels and lubricants is for the government of Kyrgyzstan principled, though the delivery of fuels and lubricants from Russia represents a monopoly of the oil-products market. Under national law, such a monopoly cannot be, because a monopoly is a negative influence for a market economy," Otorbayev said.

"Negotiations are underway with Russia for fuels and lubricants to be delivered on a mutually beneficial basis. I hope that they will have a healthy sense and that bilateral interests will be observed," he said.

The initiative to give Gazprom Neft monopoly rights was associated with the fact of oil products being smuggled from Kyrgyzstan into Tajikistan. "The position of the Kyrgyz government in this issue is unequivocal - there should be no illegal shipments of fuels and lubricants from Kyrgyzstan. Corresponding governmental resolutions have already been adopted and measures are being taken," Otorbayev said.

It is important that Kyrgyzstan maintain customs breaks on the fuel Russia supplies, he said. "If Russia does not offer customs break, then a price surge on fuels and lubricants is expected that will negatively tell on the economic situation and the population's standard of living," Otorbayev said.

Kyrgyzstan is negotiating several intergovernmental agreements with Russia, he said.

"Negotiations on transferring to Russia for Kyrgyz debt stock in the defense enterprise Dastan, on the building of hydropower stations, and delivering fuels and lubricants are taking placed in closed regime, but we're hoping their outcome will lead to mutually beneficial terms for the entire spectrum of issue," Otorbayev said.

He added that he had no information how the talks in Moscow are going.

Kyrgyzstan gets almost 100% of its oil products from Russia. An intergovernmental agreement was concluded last year on the duty-free delivery of fuel to Kyrgyzstan, and this year the republic is hoping to do another like it.

Kyrgyzstan needs as much as one million tonnes of gasoline a year. Seventy percent of its fuels and lubricants are supplied by Gazprom (RTS: GAZP) and the rest by other oil traders.

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 (Originally published April 11, 2012, by Interfax News Agency.)