Leonid Gusev, Timur Polyannikov: Europe – Central Asia: Energy pragmatism

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Until recently, Central Asia – for many reasons – was primarily the sphere of interests of Russia, and the peripheral. Recently, however, there are growing signs of gradual change that situation. First, the elite and the population of the former Soviet republics have gradually realized the fact of independence, and draw appropriate conclusions. (It should be remembered that Kazakhstan and its neighbors in the region until the end opposed the destruction of the Soviet Union.) Second, the region – due to economic and geographic reasons – has become an arena of competition the world's major “power centers” (US, EU, Russia, China and some Islamic states). To characterize the processes in Central Asia, some international experts have even used the term “New Great Game”. It knowingly causes the analogy with the “Great Game” of the late XIX century, when Russian and British Empires were competing for hegemony over this region. The fundamental difference is that the current “game” is, primarily, economic in nature.

For example, in recent years, the European Union, experiencing not so much a real energy shortages, how much fear about such a prospect, is desperately trying to diversify gas and oil markets. In this sense, should be considered a number of projects, wich European companies implement in the former Soviet republic located in the Caspian region. In a region long enough the Italian company ENI works, the operator serving several international projects in Kazakhstan. Most recently – at the deterioration of Russia-Turkmenistan relations – Western companies (led by German firm RWE) actively rushed to Turkmenistan. There are also a number of Western energy projects (albeit minor) for Uzbekistan.

Nevertheless, in a role of gateway to Central Asia for Western business until recently remained Kazakhstan. Soon since independence, it began to engage actively in the economic interaction with the EU countries. The interests of Astana consist in the broad involvement of European capital to regenerate the economy, in the solution of social and environmental problems, in expanding trade and economic relations and the use of EU integration experience in conducting its own foreign policy.

No doubts a key component of this cooperation is the energy factor. At present Kazakhstan annually exported to the European Union energy in excess of 10 billion dollars. Among the priorities of this cooperation – security of supply, diversification, intensification and expansion of deliver routes for Kazakh hydrocarbons. But it should be mentioned the greatest volume of deliveries (over 80 per cent) still goes through the territory of the Russian Federation.

However, in recent years, Kazakhstan and EU are working on several alternatives for piping (it, of course, worries Russia as a traditional partner of Kazakhstan in the energy business). Thus, it is planning Kazakhstan's participation in Pan-European Oil Pipeline (PEOP) project and its use as an alternative supply of hydrocarbons to markets in Europe. This pipeline, if realized, would relieve the Turkish straits of Bosphorus and Dardanelles, through which the bulk of Kazakh oil goes to the world markets now.

Furthermore, Kazakhstan is considering the purchase of Greece and Bulgaria share in the project Burgas-Alexandroupolis oil pipeline, which will deliver oil to Europe, also bypassing the Bosphorus. However, this project develops in line with Russian interests. Its implementation will allow for the transportation of Caspian oil from Russia and Black Sea ports of Russia, Ukraine and Georgia by tankers to the port of Burgas, then by pipeline to the port of Alexandroupolis, where the oil can be supplied by large tankers to markets in South-East Asia, India and the United States. (Negotiations with Bulgaria are already four years. In early 2007, negotiations began with Greece. The share of Kazakhstan in the project have not yet fully defined.)

Also Kazakhstan is following closely the progress of other alternative routes. Among them: the oil pipeline Constanta (Romania), Trieste (Italy). This implies further expansion of oil supplies from the known route Aktau-Baku-Tbilisi-Ceyhan pipeline.

Currently operating in Kazakhstan are the largest European energy companies as TotalFina, Agip, ENI, Shell, British Gas, British Petroleum. Obviously, over time, in the case of expanding economic presence of these companies in Kazakhstan's economy, will be the overall strengthening of EU positions in the country and in Central Asia as a whole.

Europe does not hide its interests. The Chairman of the House of Representatives of the Kingdom of Belgium Herman De Croo said explicitly that the European Union is interested in diversifying energy supplies: “We want to have more than one supplier of energy to ensure energy security.”

One of the major European companies, for many years working in the Kazakhstan oil and gas market, is the Italian concern ENI.
Currently, work is underway to create a unified Kazakhstan Caspian Transportation System (KCTS), intended for export growing volumes of Kazakh oil to be mined at Kashagan and Tengiz, via the Caspian Sea to international markets through an energy corridor “East-West” (under itinerary Kuryk-Baku-Tbilisi-Ceyhan).

In this case a single operator who performs the exploration and appraisal operations in the Kazakh sector of the Caspian Sea on behalf of seven international companies and under the North Caspian Sea Production Sharing Agreement (NCS PSA) is Agip KCO, which is part of the Italian group ENI. Also, ENI together with the British firm British Gas is involved in extraction of oil, gas and condensate at Karachaganak (a large deposit is located in the Northwest region of Kazakhstan). In accordance with the production sharing agreement, the development of this field will be conducted by a consortium of four companies (ENI, British Gas, Texaco and Lukoil of Russia) for 40 years.

Thus, the activities of ENI in Kazakhstan market shows an example of active and fairly flexible (up to cooperation with Russia's companies) the penetration of Europeans in Russia's traditional sphere of influence. Given the trends in the international economic situation, in the future level of penetration will only grow.

Western European countries tend to develop cooperation with other Central Asian states. In the foreground here Turkmenistan is. Its energy resources attract the attention of some major Western companies and, incidentally, stimulate a number of EU governments to look “blind eye” in flagrant violation of human rights in this country.

Thus, negotiations on the participation of German businesses in developing gas fields in Turkmenistan are from 2002. In that year a large group of businessmen from Germany, headed by the authorized government of Germany on foreign trade, State Secretary of the Federal Ministry of Economics and Technology Axel Gerlach, visited Ashgabat. The late President Niyazov proposed to the German companies involved in the construction of the coastal Caspian gas pipeline (that is, in principle, does not contradict the interests of Russia) and then representatives of Germany analyzed the possibility of its participation in promising projects in the gas industry.

German companies were involved in reconstruction (but rather, a radical restructuring and retooling) of the Turkmenbashi complex of oil refineries, which plays a strategic role in the national economy. Finally, the well known long-standing “special relationships” between the top elite of Turkmenistan and Deutshe Bank.

It should be noted that after the sudden death of Niyazov and came to power new President Gurbanguly Berdymukhammedov significantly strengthened the contacts of Turkmen authorities with German businessmen.

For example, in November 2008 during the visit of the new Turkmen President in Germany, energy was the main theme. As the Minister of Economy and Technologies of Germany Michael Glos, there is “a growing interest in Turkmenistan due to increase in the resource capabilities, as well as the open door policy and reforms in the economic sphere.” It was also noted that the results of the first phase of an international audit of Turkmen deposits Southern Yolotan-Osman and Yashlar (conducted by the British firm Gaffney, Cline & Associates) provide assurance to potential investors and make the Turkmen market very attractive to Western companies.

In the foreseeable future on the Turkmen market are ready to go and Italians. During the meeting held on 25 November 2009 in Rome, Italian Prime Minister Silvio Berlusconi and President Berdymukhammedov signed four major agreements on cooperation, including in the energy sector. “Italy for us – the open door to Europe,” the Turkmen President said, noting the importance of the signed agreements, especially in the field of security of energy supplies. In accordance with these agreements, the aforementioned Italian energy giant ENI and state concern Turkmendenizderyayollary “will conduct intelligence work, and then will begin joint production of gas, which involves the exchange of technology and increase production.”

Then, after a hiatus caused by the sharp reaction of the international community to the brutal suppression of an uprising in Andijan in May 2005, Western corporations (following politicians and the military) are beginning to “build bridges” with Uzbekistan. Emphasis is also placed on the energy (oil and gas) sector.

In any case, the policy of Western states toward the Central Asian region is characterized by pragmatism. It is interesting to note that, in a report entitled “Central Asia’s Energy Risks” from 2007 of the International Crisis Group (ICG stands as one of the leading centers of expertise for the European bureaucracy) it was said that the development of energy cooperation with Kazakhstan and Turkmenistan will gradually help to solve problems with human rights in these countries. Correspondingly, Western officials must be careful to criticize in these cases. At the same time, the absence of significant energy resources in Uzbekistan allows to directly criticize the present regime. Finally, this Western policy of “double standards” is characterized by the fact that in 2009 the European Union finally lifted sanctions against the regime of Uzbek President Islam Karimov.

Be that as it may, the fact is that the pragmatic policies of the European Union (as one of the major external players in the Central Asian region) meet a positive response from local regimes, wich are gradually asserting themselves on the world stage and practicing a so-called multi-vector policy. This policy involves finding a balance between the interests of the world's major “power centers”, and not just focuses on Russia as a traditional partner. Accordingly, to maintain its position in Central Asia, Russia needs significantly rethink and restructure its regional policy. Otherwise, the crisises in relations with Central Asian states, such as the recent Russo-Turkmen and Russo-Tajik, will be repeated and only deepen.

Leonid Gusev, senior fellow at the Institute of International Studies at the Foreign Ministry’s Moscow State Institute of International Relations

Timur Polyannikov, assistant professor at the Department of Philosophy at the Foreign Ministry’s Moscow State Institute of International Relations