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.
The energy self-sufficiency of the region depends not only on its primary energy base but also on the ratio between its annual generation and consumption. The ratio for 1999, for instance, exceeded 1.0 for the whole region (1.43), with Kazakhstan achieving 1.67 and Turkmenistan, 2.33. Kyrgyzstan and Tajikistan, who are net importers of energy resources, are obviously less self-sufficient, while Tajikistan had the worst rating (0.4).234 Yet in terms of the hidden potential for expected economic growth, with a further emphasis to continue with industrialisation in each country, consumption of energy will steadily rise and therefore, require sustainable production patterns too.
Nevertheless, past development has seen a decline in the energy security for the region. Some critical measures are thus needed to reverse the trend in individual countries and the entire region. These measures, in particular, may include:
• policies seeking to increase intensive economic use of domestic energy potential through construction of new fuel and energy processing facilities, enhancing the energy efficiency of the economy;
• intensification of efforts to involve bi- and multilateral foreign investors in prospecting and developing new hydrocarbon deposits, building pipelines and power grids, building new generating facilities for oil and gas networks and overhaul of existing ones together with their infrastructure;
• the search for partners and new transport routes for energy exports from the region;
• market reforms in the energy sector and improvements in tariff policy;
• strengthening of cooperation in energy across the region.
Both the energy sector and the entire economy of the region face a major task of steering their efforts towards sound and efficient use of available fuel and energy. The rational and efficient use of fuel and energy in terms of its current status and likely development, would imply, first and foremost, the optimisation of the regional balance of fuel and energy and, more directly, enhanced efficiency of fuel and energy use at all stages of the energy cycle from the extraction of raw materials to the consumption of final energy in all economic sectors.
Energy efficiency in Central Asian economies could, in particular, be improved through:
• the recording and monitoring of fuel and energy consumption;
234 Diagnostic Report on Energy Resources in Central Asia, http://centrasia.cintech.ru/energy-eng.pdf
• further measures on persistent modernisation and upgrading of energy-consuming equipment;
• improvements in the location of production networks by reducing the distance from the producer of energy to its consumer;
• reduction material and energy intensity in manufacturing, including through improvements in the quality of raw materials and large-scale recycling of production waste;
• using more efficient and environmentally clean technologies in final consumption.
In other words, better efficiency is strongly correlated to adequate policy measures on energy conservation. Central Asian countries have built up significant potential for energy conservation235 and need to proceed to its objective assessment and efficient implementation so as to facilitate development through conservation of energy, stimulate economic growth and reduce environmental tensions. Significant savings of fuel and energy could be achieved through economic restructuring that would focus on increasing the share of less energy-intensive production units. The above measures would require sound investment and a solid legal framework as well as trained and competent personnel and broad-based information campaign to facilitate participation in conservation measures of both consumers and producers of fuel and energy.
In addition to the aforementioned steps at the national level in each of the countries, optimum use of the resource potential could and should be achieved through broad intra-regional cooperation in the energy sector. This condition is indispensable with any efforts seeking to strengthen the self-sufficiency of Central Asia in terms of energy supply, increase its energy export potential, save investment resources for further increase in the production capacity of fuel and energy complexes and for fuel and energy imports, and to reduce environmental pressures both regionally and globally. In particular, these policies should be directed on:
• establishment of regional energy market to secure guaranteed and economically viable supply of required amounts of energy to meet the needs of the economy and population of the region;
235 According to some estimates, these figures might amount 30% of the overall primary use of energy in the late 1990s. See Diagnostic Report on Energy Resources in Central Asia, http://centrasia.cintech.ru/energy-eng.pdf
• joint funding of projects involving the exploration and development of new fuel deposits, building new hydroelectric power stations (and modernising existing ones) as well as identifying and establishing new energy transport routes;
• avoidance of setbacks in non-discriminatory transit of energy through the region for intra-regional and external needs;
• efficient intra-regional energy exchange as a prerequisite for the utilization of available energy capacity at maximum efficiency;
• sustainable operation of Central Asian power grids that would enhance reliability of power supply at the national and regional levels;
• development and implementation of concerted policies in external energy markets;
• implementation of wide-ranging energy-conservation programs on a national scale and development of intra-regional cooperation in this sphere (harmonisation of laws and regulations, information exchange, etc.);
• coordination of regional efforts for the development and implementation of common investment policy, with a particular emphasis on foreign capital, to undertake regional and national structural reforms.
The analysis has revealed that a number of factors stood behind the decline in Uzbekistan’s exports of both natural gas and other energy products over the last years. This decline particularly, occurred due to (a) specifics of domestic policies on self-sufficiency and the necessity to meet first and foremost domestic demand; (b) declining domestic production and structural challenges; (c) deteriorating infrastructure facilities, particularly gas transmission;
(d) inter-state disagreements on price and energy supplies across the region exacerbated domestic challenges of political and economic character. Yet Uzbekistan needs and still capable to improve the reliability and timeliness of energy, primarily gas supply to its neighbors, otherwise the chances to loose the markets seem to be high. For this purpose, the countries must find the way to improve current mechanism of energy trade, favoring commercial conditions and overcoming ineffective barter transactions. Subsequently strengthening economic criteria, one also needs to reduce and ultimately de-link it from intergovernmental agreements on irrigation and transit services between the countries. It is also critical to enhance direct horizontal linkages between the energy consumers and producers throughout the region by holding talks and signing agreements between the immediate parties concerned in each country. The expansion of private investment into sector
development in Uzbekistan would be in line with the facilitation of their role in further export development within and beyond the region.
Central Asia, thus, may possess that energy potential which could be enough for the region to be self-sufficient in the future. It is true that further increase in fuel and energy output cannot be absorbed by intra-regional markets only. It means that sustainability and progress of the energy sector and the whole economy are expected to be much dependent on the possibilities of export expansion, searching for new markets and a diversified pipeline network to and out of the region. But this task looks to be uneasy, especially in terms of geopolitical and geoeconomic imperatives around Central Asia.
4.4. Growing International Interests 4.4.1. General Patterns
The geopolitical and strategic importance of Central Asia was reiterated a few times by both regional and non-regional politicians and academicians on different levels. The President of Uzbekistan I.Karimov, for instance, related this significance to the system of global politics.
“The balance of power on the vast space across the world depends, to a considerable extent, on the path which the new states of Central Asia will choose to move ahead. And those who participate in the development of a qualitatively new order of international relations today can not have confirming this fact…Uzbekistan is a strategical centre of the peninsula that includes extremely rich fields of oil and gas of the Persian Gulf, the Caspian Sea, and the Tarin Basin. Therefore, in terms of the world’s shortage of energy, the peninsula is surrounded by the energy reserves which are going to play a key role for Eurasia and the entire world in the nearest future”.236
Equally, former US President National Security Assistant Zb.Brzezinski suggested that the region’s perspectives in the global international network of interests would be, among other factors, defined by its mineral-resource base. To put it literally: “Availability of the resources of the region represents those goals which rouse national ambitions, stipulate for corporate interests, revive historical claims, restore imperial intentions and rekindle international rivalry…”.237
236Translated by the author from I.Karimov (1997) Uzbekiston XXI asr bosagasida: havfsizlikka tahdid, barqarorlik shartlari va tarraqiyot kafolatlari. Extract from the collection „Uzbekiston – buyuk kelajak sari“. Tashkent, 1998. pp.421-424.
237Translated by the author from Tsentralnaya Aziya: Geoekonomika, Geopolitika, Bezopasnost. Group of authors (2002), Tashkent. p.89. Original quotation from Brzezinski Zb. The Grand Chessboard.American Primacy and its Geostrategic Imperatives (Basic Books –Harper Collins Publishers, Inc, 1997).
As it has been emphasized before, the resource-rich countries are expected to have more opportunities for economic and socio-political development provided on appropriate domestic policy of the government. That is why, after the collapse of the Soviet Union, the ex-Soviet republics of Central Asia, especially those with rich mineral resource base, have been trying to exploit their natural resources as the means for providing economic and political environment for the further development. However, Central Asia’s remoteness from the main world markets, as well as lack of pipeline infrastructure to export strategic energy resources (oil, gas, and electricity) to consumers outside the region, was a major challenge to to those efforts. In addition, since the region was integrated into the common economic system under the Soviet rule, all the states in many ways remained dependent on each other, including energy supplies.
On the other hand, increased world demand, especially from industrially developed countries of West and Asia, for energy resources from Central Asia, contributed to the fact that Caspian basin and Central Asia together are considered as new, tremendous potential source of energy products in the nearest future. Even though the accurate estimates of energy base of Central Asia are quite at variance in the world reports, sometimes even speculative, they might be impressive enough to attract much of international attention in the past decade.
At the same time the substance of the issue goes obviously much beyond the size of proven oil and gas reserves requiring some geopolitical scrutiny in terms of a new diversified system of pipelines needed to be built out of the region. The problem is how to give or not give Central Asia the possibilities to mitigate its land-locked situation by bringing its resources to the more diversified markets of final energy consumers. This issue is surely of priority significance for any of Central Asia’s republics and for the region as a whole.
The President I.Karimov’s words are adequately reflecting this desperately desired way in a labyrinth with multiple choices to capture the region: “The clear thing is that only if stability and geo-strategic balance are retained, the given region may face consequent and sustainable development and become an appropriate partner for the world community… The new states intend to be “equal among equal”, seeking for being integral part of the world”.238
What makes this task not so easily attainable is that international interests in Central Asia are characterized by a complex diversity of geopolitical and strategic goals of the third countries stipulated by their national foreign policy agenda. It subsequently reflects in the scale and
238 Karimov I. (1997) O’zbekiston XXI asr bo’saga’asida: xavfsizlikka tahdid, barqarorlik shartlari va taraqqiyot kafolatlari. Collection of works “Uzbekiston – buyuk kelajak sari”, Tashkent, 1998, p.417-422.
level of involvement in regional trends in Central Asia. The principle “Who will control the transport and energy infrastructure, will be able to take over the control over the “live artery”
of the region” caused a hidden rivalry between main international actors throughout the most part of the last decade. In other words, it was evident that international powers were seeking commercial interests in coupe with political, sometimes even outweighing interests of the regional states. Under such conditions, the energy endowment of Central Asia will not mean automatic social prosperity, as the sustainability and development of energy complex is going to fall under pressure of not only direct economic issues, but also a set of socio-political ones.
Thus, the development of energy resource base in the region does not confine to its local production only. The biggest challenge for foreign investors is still how to transport these resources to foreign markets. In terms of Central Asia’s land-lockedness, the determination of pipeline routes acquires a particular geopolitical meaning. In the last decade, there were only few possible choices to transport Central Asia energy resources outside the region. Yet the current century is expected to bring much new in energy developments across the region.
These changes should be obviously scrutinized through the prism of higher interests to the region from main regional and non-regional players; national factors of the past developments in those states; intensification of bi- and multilateral relations of the Central Asian states with these powers; and the level of cooperation or rivalry between these major powers. For this purpose, let us set out some main factors to represent the established network of these interests with a subsequent impact on regional energy patterns.
The USA
One of the key reasons of new trends and developments in Central Asia is without doubt the US policy relatively to the region. There are various views among US policymakers and academic circles on the types and levels of the American involvement into the region. These arguments even favor specific countries, namely Uzbekistan and Kazakhstan, which should allegedly receive the most US attention for comprehensive strategic (first country) or narrow commercial (second country) reasons. A closer look at US foreign policy, however, reveals its adherence to so called “full-spectrum dominance”. Reflecting the whole specter of political, military and economic, including energy implications, these interests could be summarized in the following main areas. They are: security, including reinforcement of independence of each of the Central Asian states and the fight against the terrorism, extremism and drug trafficking;
assistance in pursuing market economic and democratic reforms; integration into the world
community, including enhancement of active regional cooperation; and national energy interests.239
As the US sets are convinced, such an approach could finally serve to US national security concerns by fostering comprehensive development of the states, bring prosperity and economic growth, and alleviate the social distress exploited anti-Western extremist groups to fill in the economic and ideological vacuum. 240 Besides U.S. support for free market reforms directly serves U.S. national interests by opening new markets for U.S. goods and services and sources of energy and minerals. The Export-Import Bank (Eximbank) has obligated funds for short-term insurance, loans, or guarantees for export sales of industrial and agricultural equipment and bulk agricultural commodities to all the states except Tajikistan.241 The Overseas Private Investment Corporation (OPIC) has signed agreements with all the Central Asian states on insuring U.S. private investments overseas, and has obligated funds for financing or insurance in all the states except Tajikistan.
On June 1, 2004, the U.S. Trade Representative signed a Trade and Investment Framework Agreement with ambassadors of the Central Asian states to establish a U.S.-Central Asia Council on Trade and Investment. The Council will meet at least yearly to address intellectual property, labor, environmental protection, and other issues that impede trade and private investment flows between the United States and Central Asia and that hamper intra-regional trade and economic development.
The USA increased and expanded the scale of military and development assistance to Central Asia after the events of September 11, 2001. The figures show that cumulative foreign aid budgeted to Central Asia for the period of 1992 - 2003 amounted to $3.2 billion, or about 13%
of the amount budgeted to all the Eurasian states, reflecting the lesser priority given to these states prior to 9/11. During 2002 spending for Central Asia was greatly boosted in absolute amounts ($584.13 million) and as a percent of total aid to Eurasia (25%). The aid amount for 2003, however, appeared to return to about the previous percentage level (Table 4.3.).
239 Osnovnye Napravleniya Tsentralnoaziatskoy politiki SshA. The Magazine Tsentral Asia and Caucasus, 1997, No 8. http://www.communike.se/cac/magazine/08_1997/st_13_kolinz.html
240 Nichol J. Central Asia: Regional Developments and Implications for U.S. Interests. Congressional Reserach Service, the Libraray of Congress. p.2. www.fas.org/man/crs/IB93108.pdf
241 For example, in 2002 the Eximbank of the USA approved the guarantees for export equipment and related products and services at $78 mln. for Navoi Mining Complex in Uzbekistan, and another $20 mln.for export of mining tracks and other construction equipment to replace the out-of-date equipment in Navoi complex.
Eksimbank SShA predostavlyaet garantii v podderjku eksporta oborudovaniya dlya NGMK. www.uza.uz, 12.02.2003
Table 4.3. U.S. Foreign Assistance to Central Asia (in millions of dollars)
Country Cumulative Funds Budgeted
FY1992-FY2003a
FY2003 Budgeteda
FY2004 Estimatea
FY2005 Requestc
Kazakhstan 1,054.4 100.43 68.6 40.22
Kyrgyzstan 697.35 54.71 44.08 39.54 Tajikistan 550.59 49.36 33.47 36.35 Turkmenistan 227.71 10.98 8.66 9.28 Uzbekistan 595.33 83.46 53.94 53.22 Total 3,188.83b 306.77b 208.75 178.61
Percent 13 15 14 27
a. FREEDOM Support Act and Agency funds.
b. Central Asian Regional funds are included in the total.
c. FREEDOM Support Act and other Function 150 funds, not including Defense or Energy Department funds; the FY2004 estimate and FY2005 request exclude funding for exchanges.
Source: Nichol J. Central Asia: Regional Developments and Implications for U.S. Interests. Congressional Reserach Service.
The aforementioned can bear at least two implications. On the one hand, it probably was a swift gesture of gratitude for the support from Central Asia for the US operation in Afghanistan. Yet in the longer run, the USA may attempt to seek for better security not only in terms of global fight against international terrorism, but also as the necessary condition for further economic liberalization and the development of Caspian-Central Asian energy resources.
The latter argument has much to do with a number of energy and geopolitical concerns. The USA leads the world in oil consumption, with about 20 mln.barrels a day half of which is imported oil. Even when the US found that dependence on oil imports threatens then US national security, American energy policy has changed little for the last decade. Instead of reduction in oil imports, the USA are seeking diversification of supply sources to avoid dependence on a single or a group of suppliers.242 In this respect, speculations on Central Asian energy resources gave the food for thought that the region was important to the extent to keep the oil prices down in international perspective. It may look like that after military intervention in Iraq, Central Asia has to somehow fell off out of energy attention of the USA.
Yet one must not forget that since significant increases in oil prices and inability of OPEC, as the main traditional partner of the USA to manage price volatilities on main world markets, it remains in strategic US interests to keep an eye on every possible source of energy out of the destabilized traditional Middle East. In addition, investments already made by US companies
242 The lion’s part of oil import comes from Saudi Arabia.