World Bank backs 'first' Uzbek
loan By Robert M Cutler
The World Bank Group has provided it first
political risk guarantee to Uzbekistan through its
Multilateral Investment Guarantee Agency (MIGA).
It backs a US$100 million loan from a
consortium of commercial banks having BNP Paribas
Suisse as agent, for development of natural gas
deposits in the Kandym Field group and the
Khauzak-Shady bloc, of which the latter is already
a producing reservoir, in the Bukhara-Khiva region
of southwestern Uzbekistan.
It is the
first time that "a consortium of international
banks ... [have] provide[d] project finance in
Uzbekistan", according to Abir
Burgul, a MIGA senior
underwriter speaking for the organization.
The announcement of the guarantee follows
the approval last December of the World Bank's
Country Partnership Strategy (CPS) by the
institution's board of directors. The CPS
establishes the framework for World Bank aid to
Uzbekistan up until 2015. MIGA's insurance of
political risk was a necessary condition for the
Khauzak-Shady project to receive the attention
from commercial banks that it has.
Underlining the growing development of
Uzbekistan's energy resources, the World Bank
guarantee follows by several weeks a separate
bilateral agreement between South Korea and
Uzbekistan for construction a gas and chemical
complex in the Surgil field, where 130 billion
cubic meters (bcm) of natural gas are estimated to
lie.
The Kandym Field and Khauzak-Shady
bloc form part of the larger
Kandym-Khausak-Shady-Kungrad project for which
Russia's Lukoil signed a production-sharing
agreement with the local firm Uzbekneftegaz in
2004. The Islamic Development Bank is providing
another $100 million to the Khauzak-Shady project;
in addition, Lukoil is investing $120 million
investment through its subsidiary, Lukoil Overseas
Uzbekistan (LOU).
Part of the
MIGA-guaranteed loan for Khauzak-Shady can also be
used for Kandym, which will be developed
principally with a $100 million loan from the
Asian Development Bank (ADB) to LOU, a $200
million commercial loan to be covered by an ADB
partial risk guarantee, and $145 million from
Lukoil by its own direct investment.
Uzbekistan's natural gas production
increased 40% from independence 1992 until 2010,
peaking in 2008 before declining slightly to just
over 63 bcm last year. Its natural gas reserves
are estimated to be on the order of 1.6-1.8
trillion cubic meters. According to the ministry
of foreign economic relations, fully 60% of all
foreign direct investment goes into the oil and
gas sector.
Uzbekistan is an important
natural gas producer, but with a population today
estimated at 28.1 million (nearly twice the size
of its neighbor, Kazakhstan) Uzbekistan consumes
75-80% of its production at home.
Consequently, although it surpassed its
better known neighbor Turkmenistan two years ago
in absolute quantities produced (and is second
only to Russia in the whole of Eurasia), it has
not had the same international profile and its
exports have had more of a "regional" than a
"strategic" economic character. In this
connection, the Tashkent-Bishkek-Almaty pipeline
has been an important instrument in Uzbekistan's
regional energy geo-economics.
Through it,
Uzbekistan has historically supplied gas to
southern Kazakhstan, but that region is now being
fed by gas from Kazakhstan's northwest through a
pipeline constructed with China's assistance that
will serve, after expansion, also to transit
Kazakhstan's own natural gas for export eastward.
Uzbekistan has used the
Tashkent-Bishkek-Almaty pipeline to sell gas to
Kyrgyzstan, with winter cutoffs in supply being a
chronic irritant in bilateral relations that have
been reciprocated by summer cutoffs of
hydroelectric power from Kyrgyzstan that it in
turn exports to Uzbekistan.
Gas currently
produced at Khauzak-Shady is sold to Russia's
Gazprom at the Uzbekistan-Kazakhstan border by
yearly renewed contracts paid in US dollars based
on a formula linked to European gas prices. LOU
has been trying to negotiate longer-term contracts
with Gazprom and is now exploring the possibility
of selling gas from Uzbekistan to China.
Uzbekistan is already integrated into the
pipeline carrying Turkmenistan's natural gas to
China and has just begun contributing its own to
the flow. The exact figures are a state secret,
but in June 2010 Uzbekistan signed an agreement
with China to deliver 10 bcm per year (bcm/y).
First deliveries to China were to have
begun two-and-a-half months ago but legal issues
have delayed the start-up. Uzbekistani officials
insist that the country will deliver 2-4 bcm to
China this year. Estimates suggest 25 bcm/y in the
more distant future as volumes ramp up.
The latter figure may be based on the
project capacity of the third line of the
Turkmenistan-China pipeline passing through
Uzbekistan. Uzbekneftegaz signed with Chinese
partners earlier this year a project to increase
the country's gas exports eastward. (They have
historically gone mostly to Russia.) The third
line is designed to enter into service in early
2014, bringing the total transmission capacity for
the complex to 55 bcm/y.
The World Bank
guarantee comes at a welcome time for Tashkent.
The State Statistics Committee announced just over
a month ago that foreign direct investment in the
country has continued to decline, down more than
50% during the first quarter of 2012 to $216
million, from $481 million during the equivalent
period in 2011.
A number of foreign firms
have quit the country in the last year, some in
rather high-profile exits (for example Oxus Gold,
Carlsberg Beer, a few Turkish concerns, and also
apparently an international hotel group). One can
easily believe the anonymous BNP Paribas Suisse
representative who told the press that the
Khauzak-Shady/Kandym deal would have never been
signed without the MIGA guarantee.
Dr
Robert M Cutler (http://www.robertcutler.org),
educated at the Massachusetts Institute of
Technology and The University of Michigan, has
researched and taught at universities in the
United States, Canada, France, Switzerland, and
Russia. Now senior research fellow in the
Institute of European, Russian and Eurasian
Studies, Carleton University, Canada, he also
consults privately in a variety of fields.
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