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Central Asia Report: January 30, 2006

30 January 2006, Volume 6, Number 3

WEEK AT A GLANCE (16-22 January). Kazakh President Nursultan Nazarbaev reappointed Daniyal Akhmetov to the post of prime minister and preserved the bulk of the existing cabinet, reappointing most ministers to their posts. Recently freed opposition leader Ghalymzhan Zhaqiyanov gave a news conference, cautiously urging the president, who won a landslide reelection in December 2005 amid fraud charges, to keep his campaign promises. National gas transporter KazTransGaz announced plans to acquire Kyrgyz infrastructure assets in exchange for the $18 million Kyrgyzstan owes Kazakhstan for past gas shipments. The Committee to Protect Journalists voiced concern over the refusal of the printing company Dauir, which is run by a Nazarbaev relative, to print seven Almaty-based opposition newspapers. And Charles Wald, deputy commander of U.S. European Command, met with senior Kazakh officials and said that "we will do everything possible to conduct joint NATO-Kazakh military exercises."

Kyrgyz President Kurmanbek Bakiev issued a decree dismissing Jalalabad Governor Jusupjan Jeenbekov and replacing him with Talas Governor Iskander Aidaraliev. But protestors in Jalalabad refused to let Jeenbekov step down and prevented Aidaraliev from assuming his new post. Prosecutors effectively dropped murder charges against reputed mob boss Ryspek Akmatbaev, who drew nationwide attention in October 2005 when his brother, Tynychbek Akmatbaev, was killed while visiting a prison. Ryspek Akmatbaev subsequently led a series of demonstrations calling for the removal of Prime Minister Feliks Kulov. And the Central Election Commission announced that an initiative group headed by Topchubek Turgunaliev, leader of the Erkindik (Freedom) Party, failed to gather the 300,000 signatures needed to trigger a nationwide referendum to dissolve parliament.

Tajik President Imomali Rakhmonov returned home from visits to Iran and Turkey intended to bolster Tajikistan's ties with the two countries. Interior Minister Humdin Sharipov announced that the investigation of explosions that struck the Tajik capital on 31 January and 13 June 2005, killing one, has been completed. Sharipov identified one of the organizers as a member of the Islamic Movement of Uzbekistan, who "blew himself up in his own house while he was being detained," and said that two suspected organizers of the attacks remain at large. And the British Embassy in Tajikistan expressed concern over the suspension of the BBC's FM broadcasts in Tajikistan even as the Tajik Foreign Ministry insisted the shutdown resulted from a technical infringement of registration requirements.

Zhang Guobao, deputy minister of China's National Development and Reform Commission, visited Turkmenistan for talks as Turkmen President Saparmurat Niyazov told his cabinet that China is interested in building a pipeline to import 30 billion cubic meters of Turkmen gas a year. Niyazov later left for Russia to hold talks with Russian President Vladimir Putin on mutual energy concerns. A Russian newspaper had suggested that Niyazov would propose raising the price of the 30 billion cubic meters of gas Russia plans to buy from Turkmenistan in 2006 from $65 per 1,000 cubic meters to $85, but Turkmen diplomats denied the report. Aleksei Miller, chairman of Russia's Gazprom, reached an agreement with Uzbek President Islam Karimov for Russia to buy 9 billion cubic meters of Uzbek gas at $60 per 1,000 cubic meters in 2006. The price represents a 25-percent increase on Russia's 2005 gas purchases from Uzbekistan. Uzbekistan also announced that Russia plans to invest up to $1.5 billion in Uzbekistan's energy sector. Elsewhere on the Russian-Uzbek business front, Russian cellular operator Vimpelcom announced that it will pay $275 million to acquire Uzbek mobile operators Buztel and Unitel. Human Rights Watch issued a press release calling on the Uzbek government to clarify the fate of rights activist Saidjahon Zaynobiddinov, who was reportedly sentenced to a seven-year prison term for providing information to foreign journalists about the Uzbek authorities' violent suppression of unrest in Andijon in May 2005.

CENTRAL ASIAN GAS POWERS REGIONAL ASPIRATIONS. Russia's international debut as a natural-gas power took place on 1 January. On that day, shipments of Russian gas to Western Europe suddenly dwindled in a chain reaction triggered when Russia shut off gas supplies to Ukraine in the midst of a price spat between the two countries.

Supplies were soon restored, but a hastily fashioned agreement between Russia and Ukraine on 4 January revealed the growing importance of Central Asian gas to Russia. Subsequent talks between top-level Russian negotiators, including President Vladimir Putin, and the leaders of Uzbekistan and Turkmenistan drove the point home -- Central Asia's gas reserves are now poised to play a decisive role not only in the region's relations with Russia, but in Eurasian geopolitics as well.

Russia's rising appetite for Central Asian gas is a direct result of the shifting fortunes of Gazprom, the state-run Russian company that controls lucrative exports. The company's total gas production has flatlined at around 550 billion cubic meters (bcm) a year. With major fields yielding less as they age, Gazprom has chosen to maintain its all-important gas balance by purchasing gas on the side -- from independent producers in Russia and from Russia's Central Asian neighbors -- instead of investing in the lengthy and costly development of untapped Arctic fields, former Deputy Energy Minister Vladimir Milov explained in a 26 December article in "Novaya gazeta."

Maintaining the gas balance is crucial because Gazprom needs to keep up both domestic shipments, which serve to preserve social stability and subsidize the Russian economy, and exports, which produce profits. Domestic shipments at regulated, reduced prices totaled 258 bcm in 2004 and 325 bcm in 2005, when they generated losses of nearly $1 billion, Prime-TASS reported on 29 November. Exports to the West, which account for the bulk of Gazprom's profits, are planned at 151 bcm in 2006 and set to rise to 163 bcm by 2008, Prime-TASS reported on 23 November.

Faced with declining yields at home and rising demand across the board, Gazprom is looking south to make up the difference. In an October 2005 book titled "The Future Of Russian Gas And Gazprom," Professor Jonathan Stern, director of gas research at the Oxford Institute for Energy Studies, argues that Gazprom will undergo a signal shift in coming years, with dependence on Russian production giving way to "imports of around 100 bcm [a year] from Central Asian countries -- Turkmenistan, Kazakhstan, and Uzbekistan."

Publicly available plans confirm the upward tendency of Stern's projections. Gazprom plans to buy 9 bcm from Uzbekistan and 30 bcm from Turkmenistan in 2006, reported on 23 January. Purchases from Turkmenistan are slated to go to 70-80 bcm a year by 2007-08, Prime-TASS reported on 30 November. With these boosts looming on the horizon, Gazprom hopes to expand the capacity of the Central Asia-Center pipeline, which links Turkmenistan and Russia through Uzbekistan and Kazakhstan, from current levels of 42 bcm/year to 55 bcm/year, and is considering another project linking Central Asia and Russia with throughput capacity of 30 bcm/year, Prime-TASS reported.

But the raw figures tell just one part of the story: Russia's increasing dependence on Central Asian gas. Price is another crucial factor in the equation, while politics is perhaps the most important factor of all. Both have been on prominent display in recent high-level contacts among Uzbekistan, Turkmenistan, and Russia.

Uzbekistan, a minor supplier of Central Asian gas and a major transit country for shipments to Russia from the region, has seen a deep freeze descend on its relations with the West after the violent suppression of unrest in Andijon in May. At the same time, Tashkent and Moscow have bolstered ties and brokered deals.

Uzbekistan expelled the United States from its air base at Karshi-Khanabad in July amid U.S. calls for an independent international investigation of eyewitness accounts that Uzbek security forces massacred hundreds of unarmed demonstrators in Andijon. Russia, by contrast, strongly supported Uzbek President Islam Karimov's actions in Andijon, and in November Karimov and Putin inked a treaty that provides for mutual military assistance in the event of "aggression."

The deals have not lagged far behind. Gazprom head Aleksei Miller recently reached an agreement with President Karimov for Russia to buy 9 bcm of Uzbek gas at $60 per 1,000 cubic meters in 2006, when Uzbekistan joined the Eurasian Economic Community (Belarus, Kazakhstan, Kyrgyzstan, Russia, and Tajikistan) at a summit in St. Petersburg, Russia, Gazprom was expected to sign two agreements with Uzbekistan pledging $1.5 billion in Russian investments in Uzbekistan's energy sector, AP reported.

Turkmenistan, a far more important source of gas for Russia in coming years, has proven a tougher nut to crack. Mercurial Turkmen President Saparmurat Niyazov, whose self-obsessed initiatives have included renaming the months of the year after himself and members of his family, is a notoriously slippery negotiating partner. The tentative 4 January compromise between Russian and Ukraine depends on affordable Turkmen gas, but the actual contracts are not yet set in stone.

A Turkmen-Ukraine agreement for Ukraine to buy 40 bcm of Turkmen gas at $50 per 1,000 cubic meters in 2006 exists "only in verbal form," according to Russia's "Vremya novostei." Meanwhile, questions surround a Russian agreement to buy 30 bcm of Turkmen gas at $65 per 1,000 cubic meters in 2006. For one, it is unclear how the amounts tally, since official statistics put Turkmenistan's total production in 2005 at 63 bcm, with exports amounting to 45 bcm (see "RFE/RL Newsline," 12 January 2006). Second, Russia's "Vedomosti" reported on 13 January that Turkmenistan would like to raise its export price for Russia to $85 per 1,000 cubic meters, which would torpedo the carefully calibrated Russian-Ukrainian compromise. While Turkmen diplomats denied the "Vedomosti" report, a 23 January meeting between Presidents Niyazov and Putin failed to clarify the prices and volumes of Turkmen gas exports to Russia and Ukraine in 2006, "Kommersant" reported on 24 January.

Further complicating the Turkmen situation are Niyazov's plans to expand exports against a backdrop of untested production capacity and murky information about reserves. Shortly before Niyazov traveled to Moscow, Zhang Guobao, deputy minister of China's National Development and Reform Commission, visited Ashgabat to draft an agreement for Turkmenistan to export 30 bcm a year to China via a projected pipeline through Uzbekistan (see "RFE/RL Newsline," 18 January 2006). Gas-hungry Pakistan is also eager to see a pipeline through Afghanistan, security considerations permitting, to carry an equal amount of Turkmen gas.

When Platts Oilgram News queried Christof Van Agt, the International Energy Agency's Central Asia administrator, on 4 January about President Niyazov's ambitious plans, Van Agt replied: "If Turkmenistan is to meet Chinese and South Asian aspirations of 30 bcm/year apiece, while maintaining historic Ukrainian and Russian deliveries, production will have to double to around 130 to 140 bcm/year, or roughly 50 percent above pre-independence capacity of 90 bcm/year."

While Turkmenistan's ability to ramp up production remains as unclear as the true extent of its gas reserves, the existence of other customers and export routes could prove a powerful bargaining chip in future price negotiations with existing partners, like Russia. In a pointed hint, a report on the publicly inconclusive 23 January Putin-Niyazov meeting by Turkmenistan's official TDH news agency mentioned not only recent Chinese-Turkmen talks, but also meetings between Turkmen officials and Turkish Energy Minister Mehmet Hilmi Guler, whose country could provide an alternate export route for Turkmen gas through a trans-Caspian pipeline.

Yet another factor in Russia's increasing energy dependency on Central Asia is the internal political situation in Turkmenistan and Uzbekistan, both undemocratic regimes ruled by aging strongmen. In Turkmenistan, where Niyazov has effectively reduced the political system to his own person, the short-term and long-term prospects for stability come with serious caveats. Similar concerns affect Uzbekistan. Succession remains an unresolved issue in both countries.

Tellingly, while both Turkmenistan and Uzbekistan are gas exporters, reports point to problems with domestic supplies. In one of President Niyazov's populist initiatives, gas is free inside Turkmenistan, but Deutsche Welle reported on 23 January that apartments have been chilly during a recent cold snap. Doctors in Ashgabat told Deutsche Welle that they are treating many patients for illnesses contracted as a result of cold conditions in unheated apartments. Similar hardship is evident in Uzbekistan, according to RFE/RL, where dozens of women blocked a road in Andijon on 21 January to protest a lack of gas and electricity. (By Daniel Kimmage. Originally published on 25 January.)

UZBEK MEMBERSHIP IN RUSSIA-LED GROUPING COMES AMID ISOLATION FROM THE WEST. Uzbekistan is due to officially join the Eurasian Economic Community (YeAES) at the group's meeting in St. Petersburg on 25 January. The move comes after Western governments heavily criticized Uzbekistan for rejecting an independent probe into the deadly violence that took place in the southern Uzbek city of Andijon in May 2005. Russia was among the few countries that endorsed Uzbek President Islam Karimov's crackdown in Andijon. Analysts say that as Tashkent joins the Moscow-dominated group, Russia's influence over Central Asia will increase.

Uzbek presidential spokesman Beruniy Olimov tells RFE/RL's Uzbek Service that Uzbekistan's accession to YeAES will open new cooperation opportunities. "Naturally, Uzbekistan's joining the Eurasian Economic Community will create favorable conditions for member states to strengthen mutual historical links," he said. "New prospects for cooperation in the field of economy, communication, and construction of international autos and railways will emerge."

Uzbekistan is to become the sixth member of YeAES -- which has sought since its founding in 2000 to establish an economic zone comprising Russia, Belarus, Kazakhstan, Kyrgyzstan, and Tajikistan. Moldova, Ukraine, and Armenia have observer status in the group.

Since acquiring independence in 1991, Uzbekistan has developed cooperation with the United States, Russia, and China in an attempt to keep a balance of power among the three in the region.

But now Uzbekistan seems to be fully embracing Russia and maintaining strong relations with China as Tashkent's ties to the West falter.

Analysts say Karimov decided to join the Moscow-led organization after the West condemned the Uzbek government for the way it dealt with the protesters in Andijon, which resulted in scores of civilian deaths.

Uzbekistan evicted U.S. forces from the military base in the country's south after Washington insisted on the conducting of an independent international investigation into the violence.

The European Union imposed a weapons embargo on Uzbekistan and in October banned a dozen Uzbek officials from entering the EU.

Moscow was one of the few -- along with Beijing -- to endorse the Uzbek troops' actions against the protesters in Andijon. Karimov then signed a treaty on "allied relations" with Russia during his November visit to Moscow. Now Uzbekistan's joining of YeAES gives Russia an opportunity to enhance its position in the energy-rich and strategically important Central Asian region.

Some observers predict that Tashkent is likely later this year to rejoin the Collective Security Treaty Organization that groups Russia, Belarus, Kazakhstan, Kyrgyzstan, Tajikistan, and Armenia. Tashkent withdrew from the group in 1999. Many analysts in the West see Uzbekistan's foreign policy reorientation as a success of Kremlin neo-imperialism.

Stephen Blank, professor of National Security Affairs at the Strategic Studies Institute of the U.S. Army War College, is one of them. "You see the Russian government making its No. 1 foreign priority the creation of a kind of neo-imperial bloc in the entire CIS based on energy and attempts to create military blocs, security blocs, and economic associations dominated by Russia which essentially diminishes the sovereignty of Transcaucasian and Central Asian governments."

However, Russian analyst Sergey Luzyanin at the Moscow Institute for International Relations (MGIMO) disagrees. He says the Kremlin's attempt to embrace the Central Asian countries is based on both pragmatic economic interests and political rationale: "In the last two to three years Russia hasn't been positioning itself as a former Soviet hegemony, as a donor. No, it has a very firm policy in Central Asia not as a donor, but as a very pragmatic and tough partner."

Experts agree that one of the reasons Russia tries to expand its influence over Central Asia is because of energy resources. Aleksei Miller, chief of Russia's Gazprom state monopoly, visited Tashkent last week for gas talks. Karimov on 24 January announced that Gazprom is planning to invest $1.5 billion to develop energy projects in Uzbekistan. Agreements on Gazprom's investment are also expected to be signed in St. Petersburg on 25 January.

Sanobar Shermatova, a Moscow-based journalist covering Central Asia, warns that Uzbekistan may soon lose its energy independence to Russia: "First of all, Gazprom monopolized not only the transfer of gas from Uzbekistan, but the whole gas system of Central Asia. Gazprom started these efforts long ago and now we see the final stage of the grand operation."

Despite Uzbekistan's current rhetoric, it is not clear to what extent Karimov will be cooperative. Experts say the Uzbek president has so far been a difficult and unpredictable partner. Stephen Blank says, "Well, [Central Asian leaders] are interested in maintaining their power and if the Russians are the only people who help them guarantee their power and their wealth, then, as in Karimov's case, they will make the deal. But Karimov has never been willing to sacrifice his own freedom to the Russians until now. So, I suspect he may try to get out of the deal. But, you know, once you start dancing with the devil you cannot get out of his grasp."

Analysts express skepticism about YeAES's efficiency and say that Uzbek-Russian relations will likely predominate over multilateral cooperation.

Meanwhile, Uzbek citizens seem to have contradicting opinions about closer cooperation with Russia. Some people hope the improved relations can help solve some economic problems as many Uzbeks go to Russia -- many as illegal laborers -- amid high unemployment in Uzbekistan.

Others warn of the danger of Uzbekistan becoming dependent on Russia again -- as it was while in the Soviet Union. Iskandar Khudoyberganov heads the Center of Democratic Initiatives in Tashkent. He said: "You see, if Uzbekistan will be closely linked to Russia's economy, it will hurt our economy seriously. I'll explain to you why. Russia's economy and agriculture need modernization. Uzbekistan needs the same. Russian plants producing machinery for agriculture, for example, will expand to Uzbek markets and, thus, provide their people with jobs. We, in our turn, will have to buy outmoded products and facilities. We won't get modern technologies simply because Russia does not have them itself."

Khudoyberganov and some others hope, however, that membership in YeAES will result in the elimination of visa regimes between Uzbekistan and its neighbors and boost cross-border trade -- which was the sole source of income for many Uzbek families until authorities cracked down on shuttle traders several years ago for what they say were security reasons. (By Gulnoza Saidazimova, with contribution from RFE/RL's Uzbek Service. Originally published on 25 January.)

KAZAKH ECONOMY EXPANDS, BUT EXPERTS SAY GROWTH UNSUSTAINABLE. Kazakhstan is one of the fastest growing economies among the former Soviet republics. Economic results for 2005 are not published yet, but some preliminary estimates suggest that the oil-rich country's gross domestic product grew by 9.2 percent in the past year. However, some experts say the country's economic growth is mainly due to high oil prices and, therefore, is unsustainable.

Kazakh President Nursultan Nazarbaev says his country will join the world's leading 50 economies in the next decade. He made the statement during his presidential campaign and reiterated it at his inauguration ceremony in Astana on 11 January.

"I have a long-time goal to lead Kazakhstan to become one of the world's 50 most competitive countries in the next decade," he said. "Development is defined not only by the economy, or income per capita, or gross domestic product. I am talking about four main dimensions in the development of the country. These dimensions are economic, political, social, and cultural and they will require a comprehensive program that involves serious economic, administrative, political, and legal changes."

In the last five years, Kazakhstan's gross domestic product (GDP) has grown by an average of 9-10 percent annually.

The government's preliminary data seem to endorse Nazarbaev's ambitious goal, even though final economic results for 2005 are not available yet.

The head of Kazakhstan's National Statistics Agency, Kali Abdiyev, said (on 13 January) that the country's GDP for 2005 is expected to be about 9.2 percent.

As compared with 2000, GDP is expected to double in 2008, the official said. This is one of the highest rates of growth in the Commonwealth of Independent States.

Nazarbaev touted economic growth and high per-capita income as well as stability as he campaigned for presidential office. In the 4 December polls, he got an overwhelming 91 percent and was reelected for another seven-year term. Western observers announced that the election was flawed.

But some independent economists say Kazakhstan's rapid economic growth is not only due to the current leadership's reform policies.

Dafne Ter-Sakarian, a senior analyst with the London-based Economist Intelligence Unit (EIU), tells RFE/RL that Nazarbaev "happened to be a president" at a time when the world's oil prices are high: "The main factor [behind Kazakhstan's economic growth] is a good external environment which means that oil prices are very high, and this not only has an impact in terms of encouraging oil output but also encourages investment into the sector because it makes projects very attractive, especially because oil prices are expected to remain at high levels over the medium term, at least."

Dependence on natural resources and world prices makes a national economy vulnerable. Therefore, Kazakhstan's leadership announced that other -- non-oil sectors of the economy should be developed, too. Among them are the production of machinery for the energy sector, metallurgy, textiles, and telecommunications.

However, Ter-Sakarian says the government has yet to demonstrate the political will to implement the announced reforms. "The problem in Kazakhstan is implementation," she said. "You know, the government can say: 'We want these sectors to grow.' But the investment environment isn't great. There is a lot of corruption. This makes investment quite difficult. And equally, because the Nazarbaev family is so entrenched, you have to have [the] right connections to invest in Kazakhstan. And you also can't be sure the member of the Nazarbaev family won't come and take your business if it does very well."

In the early years of independence, Kazakhstan started developing the energy sector and privatizing banks with more vigor than its neighbors. It soon became a top reformer among the post-Soviet countries. Even some reformist Russian politicians have mentioned the necessity of emulating the "Kazakh experience of economic reforms."

However, the pace of economic reforms slowed down gradually. Ter-Sakarian says structural reforms have stopped now. Major economic sectors are controlled by family members and cronies of Nazarbaev.

Oraz Zhandosov, a cochairman of the opposition party Naghyz Ak Zhol (True Bright Path), is a former chairman of the Kazakh National Bank and a former finance minister.

He agrees and also cites corruption, nepotism, and state interference into the private sector as obstacles to further economic development. "One of the mistakes of government officials is a willingness to either get involved in production themselves or create favorable conditions for some sectors in terms of taxes or others," he said. "This is one of the bad practices that impede real progress. So the state interferes in one or another economic sector instead of developing a private sector."

Zhandosov tells RFE/RL that the judiciary is controlled by Nazarbaev and therefore leaves no room for challenging state interference into economic affairs.

In addition, he adds, the ailing education system is unable to produce high-quality specialists, and therefore the national economy is likely to face a scarcity of qualified resources in the future.

Because of these, Zhandosov says, Nazarbaev's promise to include Kazakhstan in the world's top 50 economic countries is unrealistic.

London's Economist Intelligence Unit forecasts that Kazakhstan will continue to have more than 8 percent GDP growth in the next few years, although the pace of economic expansion is expected to slow down this year and in 2007.

The think tank's experts also warn that the scale of Nazarbaev's victory in last month's presidential election suggests that his family members and friends are likely to further tighten their control over economic resources as well as to alienate some of his allies. This, in turn, will pose a threat to the country's stability in the near future. (By Gulnoza Saidazimova. Originally published on 23 January.)