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Central Asia Report: February 14, 2002


14 February 2002, Volume 2, Number 6

GREAT GAME MOVES SOUTH AS KARZAI CALLS FOR GAS PIPELINE. During his first state visit to Islamabad on 8 February, Afghan interim leader Hamid Karzai said that the construction of a pipeline carrying natural gas from Turkmenistan across his country to Pakistan was "very essential," and announced that he and Pakistani President Pervez Musharraf agreed it would be "advantageous not only for our countries but for the entire region," Reuters reported. The implication was that Karzai and Musharraf would work together to make the pipeline project a reality. Such a project was drawn up in the 1990s by a consortium led by the U.S. major Unocal but abandoned in 1998 while civil war still raged between the Taliban and Northern Alliance. The plan had been for a $1.9 billion, 1,400-kilometer pipeline, about half of which would traverse Afghan territory.

Turkmen President Saparmurat Niyazov immediately welcomed the announcement on 8 February, saying: "Peace is finally being installed in Afghanistan. And we can now build a pipeline to Pakistan across its territory," according to Turkmen television. Turkmen officials said that Niyazov and Karzai would soon be exploring the idea in more detail, Reuters reported, adding that it had also been a major topic of discussion two weeks ago between the Turkmen president and visiting U.S. Assistant Secretary of State for European and Eurasian Affairs Elizabeth Jones in the Turkmen capital Ashgabat.

At present, despite possessing the world's fifth-largest gas reserves, Turkmenistan is limited by Soviet-era pipeline infrastructure to exporting its gas almost exclusively via Russia, with impoverished Ukraine as its main customer. Russia's strategic advantage in this regard underpinned President Vladimir Putin's self-serving proposal to Niyazov last month to help forge a regional alliance of gas-producing nations, whose ability to export to hard-currency markets in Europe would depend almost completely on Moscow (see "RFE/RL Central Asia Report," 24 January 2002).

Thus a new hydrocarbon route from Central to South Asia across Afghanistan would greatly reduce Russian leverage over the region, and efforts in that direction should now bee seen as part and parcel of the sharpening U.S.-Russian competition for influence in Central Asia, the "Toronto Star" said on 10 February. Admittedly, Unocal issued a statement on 14 September denying any ambitions to revive its pipeline plan for Afghanistan. But the newspaper quoted Pakistani analyst Ahmed Rashid, who confidently averred, "When peace and a stable government eventually comes to Kabul, U.S. oil companies will be looking closely at Afghanistan."

Meanwhile Russian newspapers have grown increasingly affirmative that the Pentagon and Wall Street are in cahoots in Central Asia, emboldened by the flat statement on 23 January by the leading Russian business paper "Kommersant": "The main goal of [America's] military presence is to uphold the economic interests of U.S. companies, primarily in the oil and gas sectors." Other influential Russian papers have consequently endorsed Putin's pitch for a Russian-led alliance of gas-producing nations, encouraging him to "snatch up the initiative" from Washington and exert control over the configuration of Central Asian energy politics, as EurasiaNet reported on 5 February.

In reality, however, American firms may well hesitate to plunge into massive infrastructure projects in Afghanistan, where peace remains fragile, and the new backers of a Turkmen-Pakistani pipeline project could actually be Russian companies, the "Star" said on 10 February, noting that Russian oil and gas giants and their private shareholders (or government stakeholders) would likely be willing to accept more risks and smaller profits than their Western competitors. Russian oilmen were, in fact, on the ground in Pakistan to talk about a pipeline soon after Unocal pulled out in 1998. More recently they have been looking to invest in other Western-backed hydrocarbon projects like the Baku-Ceyhan pipeline, rather than boycotting them on the grounds that they represent challenges to Russian regional interests.

Meanwhile Turkmenistan continues to increase both its gas exports and production capacity, according to local and Russian news sources. Last week the Turkmen State Institute for Statistics and Information claimed that national gas production for January amounted to 6.1 billion cubic meters (bcm), while 4.3 bcm were exported. These number represent increases of 24 percent and 37 percent respectively over the equivalent figures posted for January 2001. Interfax reported on 11 February that Ashgabat posted trade turnover for last year at $4.97 billion, with natural gas exports comprising 57 percent of the total.

Thirty wells at the Kerpicli gas condensate field are being reconstructed and upgraded in order to increase production of natural and liquefied gas in the east of the country, Turkmen television said on 7 February. On the same day, Turkmenistan.ru reported that a small joint stock company, capitalized to the tune of about $25 million, has been set up between Tracer Petroleum, a Canadian company, and the American firm Canneft to explore and develop gas deposits in southwestern Turkmenistan -- specifically, the Ajyyp bloc that covers 2,000 square kilometers along the border with Iran.

Finally, Reuters noted that on 8 February, the day when Karzai was in Islamabad to discuss a Turkmen gas pipeline, Niyazov was in the Mary Region east of Ashgabat in order to inaugurate a $120 million gas compressor station. The station has an annual capacity of 20 bcm, which happens to be same capacity envisaged by the projected Unocal pipeline. At the compressor station's launch Niyazov pointed out that one day it might be pumping gas to Pakistan, Reuters reported.

Kazakhstan is no less aware of the possibilities for exporting its energy southwards that a stable Afghanistan would offer. Kazakh President Nursultan Nazarbaev, on an official visit to India, held talks with Indian Prime Minister Atal Behari Vajpayee on 12 February, "The Hindu" newspaper reported, after which they issued a joint statement noting that "Kazakhstan with its substantial hydrocarbon resources could become an important source of energy to India, which is expected to become one of the largest energy consumers in the world." Furthermore Nazarbaev suggested that India join the Shanghai Cooperation Organization, at present a loose, six-member economic and security grouping comprising Kazakhstan, Kyrgyzstan, Tajikistan, Uzbekistan, Russia, and China. The SCO is due to draw up a formal charter at a meeting in St. Petersburg in June, when it will also consider opening its doors to new members. Pakistan has already applied to join.

TASHKENT UNVEILS NEW REFORM PLAN. A new macroeconomic and structural reform plan has been worked out by the Uzbek government in consultation with IMF staff, UPI reported on 8 February. Details of the program emerged last week with the public release of a letter of intent sent by Uzbek Minister of Macroeconomics and Statistics Rustam Azimov, Minister of Finance Mamarizo Nurmurodov, and Chairman of the Central Bank Fayzulla Mullajonov to IMF Managing Director Horst Koehler at the beginning of February. An accompanying Memorandum of Economic and Financial Policies, posted at imf.org, described the program. It called for the "gradual removal" of all restrictions on access to foreign exchange for current-account transactions, presently limited to $750 per transaction, due to increase to $1,000 per transaction from 1 April 2002. Furthermore, the plan envisaged the unification of the exchange rates of the Uzbek sum by the first day of July. Aside from the black-market rate, there are still two separate, artificially low rates in the country: a free off-exchange rate and a cash rate for individuals exchanging hard currency at the state banks (see "RFE/RL Central Asia Report," 15 November 2001). Agricultural sector reforms and measures to improve the nations' banking system were also mentioned in the Memorandum. It predicted, however, that implementing the reform measures, in tandem with the global economic slowdown, would push GDP growth for 2002 down to about 2 percent, three points below the latest official forecast.

In spring 2001 the IMF pulled out of Uzbekistan, which had joined the organization in September 1992, in frustration at its refusal to implement certain market reforms mandated by the Fund. Its willingness to re-engage Tashkent now is "a remarkable turnaround," IWPR noted on 8 February, recalling the exasperation last year of the IMF representative to the ex-Soviet republic who complained, "The economy of Uzbekistan is corrupt through to the core."

It has been widely suspected that the IMF's decision to reopen negotiations followed some arm-twisting from the Bush administration, mindful of Uzbek President Islam Karimov's support for the U.S.-led operations in Afghanistan. At a State Department press conference on 11 February, Assistant Secretary Elizabeth Jones confirmed that Washington was actively brokering talks between its new Central Asian ally and international financial institutions: "A lot of that discussion is going on between Uzbekistan and the IMF and the World Bank. That's where the heavy-duty work is being done, facilitated to a great extent, to an expert extent, by Nancy Lee, deputy assistant secretary at Treasury," Jones told reporters, adding that Lee had been part of her delegation to Tashkent a fortnight ago. Nongovernmental human rights groups have criticized the U.S. government for its financial and political support of President Karimov's regime when some 7,000 political prisoners are believed to be held in Uzbek prisons. But Jones said that, although Washington recently pledged $160 million of loans and grants to Uzbekistan, practically all the money would be going to private civil society groups and NGOs, and virtually none to the Uzbek government itself.

According to the letter from Minister Azimov et al. to the IMF, President Karimov has been informed of the measures included in the memorandum and supports its objectives. Clearly, one of the reform program's objectives is to open the door to further Western-funded reform programs: if its new economic and financial policies are successfully implemented, the letter said, then hopefully "[it] would create the conditions for the granting of financial assistance from other international financial institutions, bilateral agencies, and the international financial community as a whole."

INTERNATIONAL LENDERS REVIEW KYRGYZ, TAJIK ASSISTANCE PROGRAMS. Neighboring Kyrgyzstan was also visited recently by IMF and World Bank officials. According to some analysts, Kyrgyz authorities have reckoned that they deserve increased Western political and financial assistance no less than the Uzbeks, since Kyrgyz President Askar Akaev granted permission to various NATO forces to use the Manas air base, outside the Kyrgyz capital Bishkek, in connection with the counter-terrorism and humanitarian operations in Afghanistan. Currently there are about 500 American and 200 French servicemen on the base, which is being prepared to receive as many as 3,500 Western troops in the near future. On 13 February Akaev announced that the lease allowing Western troops to be stationed at Manas for one year had officially been signed, RFE/RL reported. He said that the lease was not conditional on any foreign aid.

The IMF delegation led by Tapio Saavolainen was received by Prime Minister Kurmanbek Bakiev on 6 February to discuss the country's latest macroeconomic indicators, which Saavolainen reportedly praised. New Finance Minister Bolot Abildaev (appointed 23 January) announced some of those indicators to the cabinet on 11 February. He said there had been 5.3 percent GDP growth in 2001, and only 3.7 percent inflation. The latter figure is the lowest reported in Kyrgyzstan for a decade. Saavolainen, while generally positive about the country's economic performance, noted that salaries and pensions needed to be raised in anticipation of a scheduled 25 percent price hike for electricity which kicks in on 1 April. The government has said that it plans to increase the salaries of employees in state enterprises by 25-30 percent (but not necessarily before 1 April.) In fact, Finance Minister Abildaev told the 11 February cabinet session that reducing poverty and raising wages were among this year's economic priorities. Yet simultaneously he admitted that the government currently owes its people a total of about $3.8 million in pensions and wage arrears, RFE/RL's Bishkek bureau reported.

In a further suggestion of the parlous state of the nation's finances, the Foreign Ministry acknowledged on 8 February that Kyrgyzstan had been stripped on its right to vote in the UN General Assembly because of its failure to pay dues for the second year running, Kabar news agency reported. The money owed for 2000-01, including membership dues and contributions to peacekeeping operations, amounts to $204,900. Kyrgyzstan is the third Central Asian country to be deprived of UN voting rights for not paying dues after Tajikistan and Uzbekistan, which owe over $1 million.

Bakiev then held talks with a World Bank delegation led by Dennis de Tray, the bank's director for Central Asia, on 12 February. Talks focused on the financing of joint projects in Kyrgyzstan, where the World Bank has put up $620 million in order to support a total of 28 projects, 11 of which have been completed, RFE/RL's Bishkek bureau reported. Subsequently at a press conference attended by the prime minister, de Tray publicly criticized Bakiev and his government for not putting up sufficient funds for its part of the ongoing projects, and for hamstringing the projects with intrusive inspections and excessive bureaucracy.

De Tray was also in the Tajik capital Dushanbe on 7 February, ITAR-TASS said, for discussions with President Imomali Rakhmonov, to whom he expressed concern that Tajikistan's foreign debt now exceeds $1 billion. On the same day Tajik television added that he attended a seminar at the National Bank with Prime Minister Oqil Oqilov to review the course of World Bank projects in the country. A speech there by Oqilov extolled successes in economic structural reforms supported by the bank, in investments in the agricultural and social sectors, and in the development of local government. He was more vague about failures, but alluded to "new problems that call for amendments to be made to projects during implementation" arising from the sheer increase in the number of investment projects � probably a reference to Dushanbe's growing inability to finance its side of joint projects to which it has committed with foreign lenders.

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