Russia puts business before politics in Kazakhstan

By Sergei Blagov


MOSCOW - Annoyed by Western criticism over human rights and endemic graft in Kazakhstan, President Nursultan Nazarbayev appears intent on fostering better ties with Moscow. Russian President Vladimir Putin's visit to Kazakhstan's capital, Astana, on January 9-10 once again underscored the evolution in Nazarbayev's orientation, as Western pressure pushes Kazakhstan closer to Russia.

Kazakhstan and Russia have "a high level of political partnership", Nazarbayev stated as the two countries pledged to boost bilateral military cooperation and view it as a strategic factor in maintaining regional security. At their summit meeting, the two leaders ordered their governments to settle an on-going border issue by the end of 2004.

And importantly, Russia and Kazakhstan clinched a major oil deal. The head of Russia's LUKoil company, Vagit Alekperov, and the president of Kazakhstan's main oil firm KazMunaigaz, Uzakbai Karabalin, signed an agreement to explore Kazakhstan's Tyub-Karagan and Atash off-shore sectors of the Caspian Sea.

LUKoil acquired a 50 percent interest in a production-sharing 40-year contract to develop the Tyub-Karagan field, which has estimated oil reserves of 100 million tons, LUKoil said in a statement. The Tyub-Karagan and Atashskaya blocs are part of the Dostyk project, in which LUKoil investments could eventually reach US$3 billion. Over the past eight years, LUKoil has invested $1.5 billion in Kazakhstan, making it Russia's biggest investor there, Alekperov said.

The work on these new projects will start in 2004. The implementation of the projects is divided into two stages. The first stage will include exploration and drilling of test bore wells, and the second stage envisages development and use of the fields.

Russia's oil lobbyists advocate increased investment in the Kazakh hydrocarbon sector. Russia should invest no less than $1 billion a year in the energy sector of Kazakhstan, the head of the Russian Oil and Gas Union, Yuri Shafranik said on January 9.

Shafranik argued that Russia's massive investments would prevent Kazakhstan from becoming Russia's "serious rival" in the global oil game. Kazakhstan produced only 20 million tons of oil in 1994, and the country pumped more than 50 million tons in 2003, while its crude fuel exports have increased five-fold, said Shafranik, Russia's former energy minister.

The current energy minister, Igor Yusufov, hailed the LUKoil- KazMunaigaz deal and urged other Russian companies, including state-controlled gas monopoly Gazprom, to beef up investments in the Kazakh energy sector.

Russian energy ministry experts have argued that Russian investments in Kazakhstan's oil sector could help to avoid the over-exploitation of oil fields in the Russian north.

This year, Russian and Kazakh companies will start to develop the Kurmangazy, Central and Khvalynskoye off-shore oil fields, including exploratory drilling at Kurmangazy, Russian deputy Prime Minister Viktor Khristenko told journalists in Astana.

A bilateral pact reached in May 2002 on the division of the Caspian Sea played a pivotal role in improving economic cooperation between Astana and Moscow. The deal implies that three hydrocarbon fields divided by the median line, Kurmangazy, Central and Khvalynskoye, would be exploited on parity basis. Yet discussions on a comprehensive Caspian Sea convention covering all five littoral states (Kazakhstan, Russia, Azerbaijan, Iran and Turkmenistan) remain stalemated.

Russia has been eager to maintain its influence over energy transit routes in the Caspian Basin. Russian officials pressed Nazarbayev to agree to a 15-year deal under which Kazakhstan would commit to exporting at least 15 million tons of crude oil per year via the Baku-Novorossisk pipeline.

Russia and Kazakhstan were drafting a long-term 2004-2020 blueprint on Kazakh crude oil transit through Russian territory, Khristenko stated in Astana. Not surprisingly, Kazakh officials sounded keen to reassure Moscow.

Kazakhstan prioritizes Russia in terms of funneling its crude oil to overseas markets, Nazarbayev stated at a joint press conference with Putin on January 9. Last year, the Caspian Pipeline Consortium (CPC) pumped 32 million tons of crude from the Northern Caspian, he said. A considerable increase of Kazakh exports is due no earlier than 2010, Nazarbayev stated, according to the Russian Information Agency, RIA.

Meanwhile, Moscow confirmed its reluctance to accept the idea of a rival project, the Baku-Tbilisi-Ceyhan pipeline. "We still believe this project is irrelevant in terms of both economic viability and our participation," RIA quoted government sources as saying over the weekend. This 1,767-kilometer pipeline will pass through Azerbaijan, Georgia and Turkey.

However, sources also conceded that the Moscow-backed CPC pipeline was still hemorrhaging red ink as it funnels only about half of its 60 million tons annual capacity. Russia owns a 24 percent stake in the CPC, but still gains nothing, sources said.

In the meantime, in 2003 bilateral trade between Russia and Kazakhstan reached $5.5 billion, a 30 percent increase as compared to 2002. Putin urged Nazarbayev to double bilateral trade "in a reasonably short period of time".

In February 2002, the Kremlin offered to help revive plans to construct a nuclear power plant at Balkhash. Kazakh officials had previously suspended the estimated $2 billion project, citing financial and ecological concerns. So far, no details on possible Russian assistance for the project have become available.

Putin and his Kazakh counterpart also agreed to extend a lease agreement for the Baikonur launch pad until the year 2050. Russia will pay $115 million a year for staying in Baikonur.

Kazakhstan inherited the site in the wake of the Soviet collapse in 1991, but Russian personnel still run the Baikonur. For security and financial reasons, Russia has been making more use of another launch site, Plesetsk in northern Russia, for its military satellites.

Built in the 1950s to test Russian ballistic missiles, in 2003 Baikonur became particularly important as it remains the only link to the International Space Station, since NASA grounded its manned space missions after the Columbia shuttle disaster.

Putin's Astana visit came at a time when the Kazakh government is under fire from the United States and international human rights organizations. Earlier this month, Washington made it clear that Kazakhstan was unlikely to become the first former Soviet republic to chair the Organization for Security and Cooperation in Europe (OSCE) unless progress in human rights was achieved. Secretary of State Colin Powell reportedly described Kazakhstan's human rights record as "poor".

"It is clear that any state wishing to assume the [OSCE] chairmanship must demonstrate that it can conduct free and fair elections for its national leadership," Powell said. He also reportedly urged Nazarbayev to demonstrate "public commitment to accelerate the building of democracy, the rule of law and civil society in Kazakhstan and to cooperate more closely with the OSCE."

The European Parliament has rebuked Kazakhstan for various rights abuses, including recent action to restrict opposition political activity and to muzzle independent journalists.

In addition to the criticism over Nazarbayev's crackdown on his domestic political opponents, the Kazakh leader has been grappling with a corruption scandal known as Kazakhgate. Separate investigations in Switzerland and the US are ongoing, probing possible illicit payments made by oil companies into private bank accounts allegedly controlled by Kazakh government officials.

In relations with Moscow, Nazarbayev has not encountered any criticism of his domestic policies. Instead, Putin and Nazarbayev tend to focus on promoting economic and political cooperation. Both leaders offer unqualified praise when discussing the state of bilateral relations.

Nazarbayev seems intent on trying to hedge Kazakhstan's bets concerning foreign investment in the country's oil and gas sector. Astana may now be interested in increasing Russian investment, given recent signs of tension between Kazakhstan and Western oil conglomerates.

In late 2002, for example, Tengizchevroil, a consortium led by ChevronTexaco, became embroiled in a dispute with Kazakhstan authorities over alleged ecological safety violations and taxation issues. The dispute was a factor in the consortium's decision in November 2002 to balk over continuing a $3 billion development project in the Tengiz field. The two sides in early 2003 eventually patched up their differences, agreeing that the project would proceed as planned.

(Copyright 2004 Asia Times Online Ltd. All rights reserved. Please contact content@atimes.com for information on our sales and syndication policies.)