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Qishloq Ovozi

An aerial view shows artificial islands that have been built as part of the infrastructure for developing the Kashagan offshore oil field in the Caspian Sea. (file photo)
The setbacks for Kazakhstan's enormous Caspian oil field, Kashagan, seem to just keep coming.

Over the course of recent weeks, it was officially confirmed that production at the field, once targeted to start in 2005, will be delayed another two years, the head of the consortium operating the project resigned, Kazakhstan's state energy company restructured its participation in Kashagan, and now the structure of the companies operating the project is reportedly about to undergo a change.

Qishloq Ovozi noted earlier that the two pipelines leading from the offshore oil field to Kazakhstan's mainland, each some 90 kilometers long, would probably need to be entirely replaced. That has been officially confirmed since then. Now project officials, Kazakh officials, and oil industry analysts predict production will not start any sooner than the end of 2015 and possibly not until sometime in 2016.

Last autumn, as production was finally starting, the North Caspian Operating Company (NCOC), the international consortium running the Kashagan project, was targeting production of some eight million tons of oil from the field this year and some 12 million tons in 2015. Production started in September 2013 and was suspended weeks later when it was discovered the pipelines were leaking.

A May 11 report from the website canvassed analysts about the losses caused to Kazakhstan due to this latest delay. The figures ranged from $2 billion to more than $20 billion.

The announcement in the second half of April that the pipelines needed to be replaced seems to have set off a chain reaction of events.

RFE/RL's Kazakh Service, Azattyq, reported on April 23 that Pierre Offant, the managing director of NCOC announced he was resigning. He left the post on May 1.

On April 29, Kazakhstan's state oil and gas company KazMunaiGaz (KMG) announced on its website that it was withdrawing from the KMG Kashagan BV shareholders structure. KMG Kashagan BV is one of the partners in NCOC.

KMG said the decision was made on April 25 by the "Sole shareholder of KMG -- 'Samruk-Kazyna.'"

Samruk-Kazyna is Kazakhstan's sovereign wealth fund -- it is like the big winner in a game of Monopoly. It owns the railroad company (Kazakhstan Temir Zholy), the electric company (KEGOC), the nuclear company (Kazatomprom), KMG and all or part of other companies that include an airline and the postal service.

KMG Kashagan BV owns 16.8 percent of the Kashagan project. The KMG press release said the company has an interest in making a new deal on "agreement about contribution and transference of KMG Kashagan BV shares between KMG, CooperativeKazMunaiGaz and KMG Kashagan BV."

The significance of the transfer of KMG's shares in the project to two of its subsidiaries is not immediately clear. The Kazakh news website Ak Zhaik reported that "Kazakhstan's mass media are perplexed, why KMG requires to delegate the management of 16.8% shares in Kashagan project simultaneously to its two 'daughters.'"

Then, in early May, there were reports that NCOC was about to change the project's operator.

The current "agent companies," the four companies comprising NCOC, are Agip KCO, an affiliate of Italy's Eni, ExxonMobil Kazakhstan, Shell Development Kazakhstan, and the NC Production Operations Company (NCPOC), which pairs Shell and Kazakhstan's state energy company KazMunaiGaz. reported on May 4 that a new company incorporating Agip, NCOC, and NCPOC would be created. said NCOC had confirmed that information but no official statement about the plans has been made so far.

Most analysts in Kazakhstan said the move was natural given that the project has been a failure to date.

After the April announcement of this latest delay in production, Kazakhstan's Minister of Oil and Gas Sauat Mynbayev said it was "annoying that the simplest piece of equipment in the project [the pipeline] is the one that failed."

"We are hugely disappointed by the way the project is progressing," he added.

Hugely disappointed might be putting it mildly. As Jennifer DeLay of the Scotland-based FSU Oil & Gas Monitor told Qishloq Ovozi, Kashagan's operators knew from the start they would be working in a shallow area of the Caspian Sea that froze over in winter and that there were "serious technical challenges posed by high reservoir pressure and the high sulphur content of the oil from the field."

DeLay also recalled that the development of the Kashagan field was originally expected to be approximately $50 billion and that has since ballooned to some $136 billion, not counting the cost of removing the faulty pipeline and replacing it with a more durable, and expensive conduit.

And, before ending this look at the latest misfortunes of Kashagan, we must include the seemingly inevitable scandal that accompanies so many Central Asian energy deals.

Eni, through Agip KCO, was appointed to act as the project's operator in 2001 after the Italian company pledged to launch production by 2005. Its failure to meet that goal led, eventually, to the formation of NCOC in early 2009.

On April 1, in an article titled "Kashagan to be ruined by Italian convict and our businessmen in ministerial chairs," the Atyrau-based newspaper "Ak Zhaik" cited reports from the Italian press about the Milan prosecutor's office investigating Eni in connection with at least $20 million in bribes paid to "a certain Kazakhstan politician" during the first stage of the project's development, which lasted until 2007.

The Milan prosecutor's office handed over information about the probe to Kazakh law enforcement officials who "showed no interest in the information from Italy and didn't start any investigation of who exactly in Astana got this money."

-- Bruce Pannier, with contributions from Yerzhan Karabek of RFE/RL's Kazakh Service
Afghans cross a bridge over the Pyanj River into Tajikistan and the the town of Lower Pyanj. (2007 photo)
What problems does Central Asia face when most of the foreign troops pull out of Afghanistan at the end of this year, and what is happening now along the Central Asian-Afghanistan border that is setting the stage for what comes next?

RFE/RL’s Turkmen Service, Azatlyk, organized a roundtable with people who closely follow events in the region to hear their views on the situation in Central Asia and Afghanistan, now and after January 1, 2015.

Azatlyk director Muhammad Tahir moderated the discussion. He assembled Alex Cooley from Columbia University, author of “Base Politics: Democratic Change and the U.S. Military Overseas” and “Great Games, Local Rules: The New Great Power Contest in Central Asia"; Artyom Ulunyan, head of the Balkan, Caucasus and Central Asia Studies Center of the General History Institute at the Russian Academy of Sciences; Joshua Kucera, long-time writer about Central Asia and security matters for EurasiaNet (his blog “The Bug Pit” is listed there in the upper righthand corner of this page); and Professor Wazir Safi of Kabul University.

Since Azatlyk was hosting the roundtable, the first topic was the situation along the Afghan-Turkmenistan border (see this previous "Qishloq Ovozi" post) and what Afghanistan’s future means for Turkmenistan.

Professor Safi said the news has “increased daily” about attacks in Afghanistan’s Faryab Province, one of the four Afghan provinces bordering Turkmenistan. He said recently there have been incidents of suicide bombings in Faryab and of influential local people being assassinated.

Azatlyk has reported about unrest in Faryab and also in the Jowzjan and Baghdis provinces. Safi said that in the Herat Province, the westernmost and fourth of the Afghan provinces bordering Turkmenistan, “there is some sporadic news about disorder and insecurity.”

Safi said reports of rockets fired into Afghanistan from Pakistan and other violence along Afghanistan’s eastern border come almost every day, but he said that “from the northern side [of Afghanistan], this is the first time that I hear it [this sort of news] in such a loud voice.”

That loud voice has also been heard on Turkmenistan’s side of the border. Three Turkmen border guards were killed in late February by militants who crossed over from Afghanistan.

The northwestern area of Afghanistan has not received much media attention in part because it is far from Kabul and Kandahar, but also because it has been relatively peaceful until recently. But Cooley noted the area has gone from a stable region of Central Asia’s border with Afghanistan to “the flash point” recently.

Cooley recalled that when the Taliban controlled the areas bordering Central Asia in the late 1990s, Turkmenistan’s government, alone among the Central Asian governments, had an amicable relationship with the Taliban. While noting this, he said the situation has changed. “There was just a tacit understanding...that Turkmenistan wouldn’t oppose the [Taliban] government or militarize the border in any kind of way, but that same sort of regime understanding, for whatever reason, doesn't seem to have materialized this time around.”

Safi said he believed economic interests, particularly gas-pipeline projects, as well as past relations would prod the Taliban into seeking some sort of understanding with Turkmenistan’s government should the Taliban ever find themselves as Turkmenistan’s neighbors again.

The conversation expanded to include the threat to Central Asia.

Ulunyan suggested the Central Asian governments should not be too concerned about the Taliban. “As far as the Taliban is concerned, they are interested only in strengthening their position in Afghanistan,” he said, though Ulunyan conceded that situation could change.

The real threat to Central Asia, Ulunyan said, comes from the Central Asian militant groups fighting alongside the Taliban in Afghanistan, and he named the Islamic Movement of Uzbekistan (IMU) as the primary group.

Ulunyan argued that groups like the IMU have always planned to topple Central Asian governments, even if, for now, they have remained in Afghanistan's and Pakistan’s tribal areas.

He said, for example, the “native, indigenous extremist Islamic movements are much more dangerous from the point of view of the Kremlin than the Taliban.”

Ulunyan said one of the problems Moscow faces is the difference in its relations with the five Central Asian states. Russia’s ties with Kazakhstan, Kyrgyzstan, and Tajikistan (all members of the Russian-led CIS Collective Security Treaty Organization) are good. But of the three, only Tajikistan borders Afghanistan.

Moscow’s relations with Turkmenistan and Uzbekistan, which both border Afghanistan, are much worse, and Ulunyan said he expects to see the Kremlin launch a diplomatic offensive toward these two countries in the coming months.

Safi mentioned that certainly as far as Turkmenistan is concerned, the Taliban is likely to urge the IMU and other Central Asian militant groups to hold back, for a time, their designs on Central Asia while the Taliban attempts to spread and solidify its influence in Afghanistan. Simply put, the Taliban wants less foreign interference in Afghanistan, and attacks by militants in Central Asia would draw more foreign parties into Central Asia and possibly farther south.

The introduction of Russia into the equation led the discussion to the subject of what the great powers should do to prop up and prepare Central Asia for what Cooley referred to as the possible “spillover” of Afghan problems across the border.

All the panelists agreed that, paradoxically, Central Asia will require help from the big powers but that there is little hope that will improve the situation while there is a distinct probability the presence of foreign powers will further complicate the situation in the region.

The post-2014 role of China was discussed. China has been an aggressive economic player in Central Asia for a bit more than a decade, mainly to get access to the region’s energy resources. Cooley pointed out that “going forward, China is not going to be able to free-ride any more on the security provided by the U.S.” that has allowed China to fund and construct long gas pipelines from Turkmenistan, some not far from the Afghan border, that stretch through the Central Asian states on route to China. Cooley said, “The question is: Is China willing to make independent security arrangements to preserve those deals and those pipelines? And we don’t have a sense of that yet.”

The U.S. presence in the region has been controversial for years now, and it is no secret that both Moscow and Beijing want the Americans out of Central Asia.

Cooley said that until recently “there was this type of Central Asian fatigue amongst most U.S. policy makers that the withdrawal from Afghanistan was also going to be accompanied by disengaging from Central Asia.” But he said that after the crisis in Ukraine started, “with some advocating, especially in D.C. circles, a kind of a more aggressive containment policy against Russia there may be a temptation to make a case for staying in the region as part of helping the Central Asian states have a hedge against Russia.”

The final comments go to Joshua Kucera, who has for many years been one of the best sources on the security situation in the Central Asia region as a whole and inside the respective countries.

Kucera first noted that any security failure in Turkmenistan could not be blamed on the United States -- or anyone else, actually, since Turkmenistan has hidden behind its UN-recognized status as a neutral country for years and shunned offers of outside military help.

More importantly, as critical as the security situation along the Central Asian-Afghan border is -- now and in the months to come -- the greatest security threats to Central Asia recently have come from within Central Asia.

“When we talk about stability in Central Asia, everybody wants to talk about Afghanistan and the Taliban and spillover, and this is what everyone's been talking about for a long time,” Kucera noted. “And yet what are the actual sources of instability that have appeared? We have border conflicts between Kyrgyzstan and Tajikistan, we have internal conflicts in Tajikistan in the Pamirs, we have labor revolts in Kazakhstan, we have ethnic pogroms in Osh. All these things that don’t have to do with Afghanistan."

The roundtable was much more detailed and ranging than Qishloq Ovozi could capture in one blog.

Here's an audio recording of the whole session for those who would like to hear more:
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-- Bruce Pannier

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About This Blog

Qishloq Ovozi is a blog by RFE/RL Central Asia specialist Bruce Pannier that aims to look at the events that are shaping Central Asia and its respective countries, connect the dots to shed light on why those processes are occurring, and identify the agents of change.

Content draws on the extensive knowledge and contacts of RFE/RL's Central Asian services but also allow scholars in the West, particularly younger scholars who will be tomorrow’s experts on the region, opportunities to share their views on the evolving situation at this Eurasian crossroad.

The name means "Village Voice" in Uzbek. But don't be fooled, Qishloq Ovozi is about all of Central Asia.


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