and west.225 Therefore, exports advantages to supply energy resources within the region are intertwined and balanced with the relatively unfavorable geographical location and dependency of Uzbekistan on regional infrastructure to reach the third countries. Therefore, it is a full set of political and economic factors, both domestic and regional, which could determine the essence of advantages/disadvantages of any state in the regional scale.
political neutrality, which gradually transformed into self-isolation, the republic did little well with domestic reforms.226 The economic growth was largely explained by huge exports of primary natural gas export, but not with qualitative changes in the economy. According to official data, the share of energy in total exports for the last years has been not less than 80%, the trend which is seemingly to sustain in the near future.227
In the past decade, the issues of energy supplies from Uzbekistan to Kyrgyzstan and Kazakhstan were hindered by a number of difficulties. In particular, the difficulties are related to water issue, namely for some countries water is a source of energy (Tadjikistan and Kyrgyzstan), while for the others it is a vital element in agricultural production (Uzbekistan and Kazakhstan). Lack of water resources and natural disasters significantly pre-determine the issue of energy exchanges in the region. As a result, pricing of energy exports has lost much of its economic meaning, frequently being inconsistent and politicized and subsequently exacerbating the situation.228 Although mutual supplies of energy among countries were mostly based on intergovernmental agreements, they were repeatedly violated, mainly for economic reasons, but also due to drought seasons. In the last years, because of disagreements over prices and the debt of Kyrgyzstan for the gas received, the regional states were seeking opportunities for extra gas supplies. Thus, Kyrgyzstan wanted some supplies from Russia, while Kazakhstan intended to develop its own Southern gas fields (Amangeldy and Airyktau) to meet domestic demands. By doing so, Kazakhstan plans to be independent from Uzbekistan’s gas supplies by 2005.229 It seeks for opportunities and investment to reconstruct existing, as well as to build new electricity lines, especially in electricity deficit Southern areas making dependency on electricity imports less significant.
However, though these efforts may have been driven by national priority and security concerns, it is going to contribute little to regional energy developments in the longer run. In particular, Russia may express weak interests in the gas projects in Kyrgyzstan which because of its mounting external debts could hardly guarantee stable payments for the supplied gas. In
226 Pomfret R., Anderson K.H. (1997) Uzbekistan: Welfare Impact of Slow Transition. Working Paper No 135, World Instutute for Development Economics Research, The United Nations University.
227 S.Tsalik. Caspian Oil Windfalls: Who Will Benefit?, Caspian Revenue Watch
228 For example, the price for southern Kazakhstan was $35-40 per 1000 m3 of gas, mainly for cash, while for Kyrgyzstan ranged between $40 and 54 per 1000 m3 in 2001, with half payment each in cash and barter. See:
Uzbekistan. Energy Sector: Issues, Analysis, and an Agenda for Reform. World Bank, June 2003. p.27.
Although it remains uncertain whether it is barter deals that pre-determine higher prices for Kyrgyzstan, or it is higher prices forcing to favor such a way of transaction, their adverse affect is evident for both states.
229 According to government’s plans, Kazakhstan plans to produce 35-40 bln.m3 by 2010 and about 70 bln.m3 by 2015. Because of relatively low levels of domestic gas consumption, the republic intends to be another huge gas exporter in Central Asia. See: S.Tsalik. Caspian Oil Windfalls: Who Will Benefit?, Caspian Revenue Watch, p.151
such case, economic costs may bring about long-run political consequences connected with the possible, not always adequate claims of the Russian business on economic assets of indebted energy economic units in Kyrgyzstan. As for Kazakhstan, its southern gas fields may not have sufficient reserves in the long-term perspective. According to some estimates, they may be sufficient for just over a decade only.230 The same is situation with Tadjikistan exacerbated by overconsumption and non-payments by individual consumers, but whose dependency on gas supplies from Uzbekistan, and partly from Turkmenistan remains high.
Finally, structural challenges have much to do with the internal developments in the energy sectors of each single country. Yet some similar features of these challenges affected their development could be set out. They were mainly as follows:
- high dependency on imports of power equipment that can be explained by the previous division of labour;
- obsolescence of a large portion of capital equipment in the fuel and energy industry;
- lack of investment, especially in power industry;
- increasing share of energy in the cost of industrial output of Central Asian countries, resulting from growing costs of energy and leading to a loss of competitive advantage in both external and domestic markets;
- the difficulty of finding staff for the fuel and energy industry and the power engineering industry;
- lack of information on the overall availability of energy resources throughout the region;
- high energy intensity of economy and, as a result, significant waste of fuel and energy across sectors.
To sum up, all the countries of the region met the independence with inefficient and uncompetitive domestic energy industries as a legacy of the Soviet past. Most of the equipment was outdated causing little efficiency in the use of domestic raw materials. Energy intensity reflecting the use of energy resources to produce $1000 of GDP was several times higher than in major industrialized countries and regions (Figure 3.1, Sub-chapter 3.2.1.4.), though the range of energy intensity was different in various countries, with Kazakhstan and Kyrgyzstan having reduced the given figure and the others having seen an increase in the energy intensity. But it should be noted that above-mentioned reductions in energy intensity in some countries occurred mostly as a result of a decline in industrial output and freight and
230 EIU. Uzbekistan Country Report 2000
passenger turnover in the public sector, as well as a fall in energy consumption for defence needs, rather than through efficient energy-saving policies of Central Asian countries.231 Besides, energy shortage of industry, households and the communal sector through disruption or failures in energy supply could be seen as another factor explaining this process. In other words, these reductions cannot yet be accepted as an outcome of sound and efficient fuel and energy policy measures to enhance the economy and population to saving and more efficient activities, but most probably were a consequence of decline in economic development and living standards.
In the light of the aforementioned trends, currently there are no long term contracts to provide price stability, and the opportunities for entering into such contracts are normally slim, given the general knowledge in the industry and the region about unreliable production levels and therefore, supplies. Moreover, for Uzbekistan and other concerned Central Asian states to favor even economically the most viable energy route in the Southern direction looks uneasy in these terms. In particular, it will require (a) first and foremost, guarantees of security and stability in the Southern countries (Afghanistan, Pakistan); (b) be competitive with potential contenders (such as Iran, or Afghanistan, for example, with their own mineral reserves); (c) the restoration almost fully destroyed energy infrastructure in Afghanistan;232 (d) huge foreign investments; (e) capabilities of export markets to pay for the energy supplied.