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Kazakhstan/Ukraine: Report Says Potential For Cooperation Is Growing

London, 9 June 1998 (RFE/RL) -- A new report says there is "huge potential" for stepped-up economic cooperation between Kazakhstan and Ukraine, particularly in agriculture, energy and aerospace. It says this prospect offers both countries an alternative to trade with Russia.

The report, written by Ruslan Karpov, appears in the June edition of Eastern Economist, an English-language weekly magazine devoted to business and investment opportunities in Ukraine.

Kazakhstan and Ukraine have been hit by deep economic recessions since winning independence on the 1991 breakup of the Soviet Union. Both were suppliers of resources and arms to Russia, and were unable effectively to convert from military production.

They share several key advantages: large territories, rich resources and educated work forces. Both have a lot to offer each other. Ukraine's geopolitical situation could provide Kazakhstan an entry-point to new markets in Europe. In turn, Kazakhstan offers Ukraine a source of oil and gas as alternatives to Russian supplies.

After the break-up of the Soviet Union, the tight economic ties between Ukraine and Kazakhstan disintegrated. But the visit by President Leonid Kuchma to Kazakhstan last October helped accelerate a trend toward greater cooperation. It led to accords on aerospace developments and Kazakh crude oil exports to Ukrainian refineries.

Trade turnover between Kazakhstan and Ukraine rose by 30 percent last year (to $400 million). Kazakhstan exported oil and gas products and imported machinery, pipes and foods from Ukraine.

One source of impetus behind this cooperation is the presence in Kazakhstan of a large ethnic Ukrainian population -- estimated at 800,000 -- and another 600,000 who have resettled in Ukraine.

Kazakhstan offers Ukraine a huge market for products from its two most lucrative sectors, sugar and spirits, particularly given its reduced access to markets in Russia. Both can also work together in the launch of satellites from the Baikonur launch site in Kazakhstan.

But oil and gas offers probably the greatest potential for mutually beneficial links. Ukraine, which owes Russia's Gazprom $1.2 billion for gas, wants new oil and gas sources as alternatives to Russian supplies, and is hoping to cut a barter deal. Kazakhstan has the world's 13th largest oil and 15th largest gas reserves, and may be able to extract up to 140 million tons a year within two decades, say energy experts. But it needs the help of Ukrainian specialists to help it extract the maximum amount of crude oil out of the ground.

Kazakhstan faces a problem shared by all the landlocked Central Asian nations: how to get its energy exports to world markets. At present, its oil reaches Ukraine via a Russian pipeline, but the Russians have set a quota on such deliveries. Last year 40 percent of Kazakhstan's crude went to Ukraine by rail, driving up costs.

This reinforces the need for a new pipeline system to bring oil from the Caspian region. One of many plans is Ukraine's proposal to transit oil to Europe across its territory. Kyiv is also interested in development of a transit route from the Caspian across Russia to the Black Sea for on-shipment to Ukrainian and other European ports.

Will the cooperation between "distant cousins" lead to increased trade flows and greater prosperity? The report says the absence of good economic ties contributed to the depth of the recessions in Kazakhstan and Ukraine, but now prospects look much brighter.