WASHINGTON, Dec. 31 (UPI) -- The noted Mexican novelist Carlos Fuentes once wrote, "Poor Mexico, so far from God, so close to the United States." Substitute "Central Asia" for "Mexico" and "Russia" for the "United States," and one begins to have an idea of the energy exports problems facing Uzbekistan, Tajikistan and Kyrgyzstan. For the three easternmost former Soviet "Stan" republics, 2008 has been a year of stress and possibility. Given their geographic isolation, despite their independence, all three nations have been forced to acknowledge the reality of Russia's ongoing regional influence, despite the collapse of communism in 1991. Russia's state-owned monopoly Gazprom remains the largest player in the region's energy market, as foreign investors largely remain fixated farther west on the immense Caspian hydrocarbon reserves of Azerbaijan, Kazakhstan and Turkmenistan.
Further complicating the energy picture for Kyrgyzstan, Tajikistan and Uzbekistan are their tangled interstate relationships, dominated by one single issue -- water. Hydrocarbon-poor but rich in aquatic resources, both Kyrgyzstan and Tajikistan recently have tried to use their dominant position controlling the headwaters of Central Asia's largest rivers, the Amu Darya and Syr Darya, to both generate hydroelectric power and negotiate favorable energy import arrangements with their western downstream neighbors Uzbekistan, Kazakhstan and Turkmenistan, all of whom need the water for their immense irrigation networks.
Bedeviled by energy shortages during the autumn and winter months, Kyrgyzstan and Tajikistan increasingly have taken to releasing water from their reservoirs through their hydroelectric cascades to generate power, playing havoc with the growing seasons of their downstream western neighbors, whose need for water peaks during the spring and summer planting and growing season. Attempts by Kyrgyzstan and Tajikistan to get their neighbors to agree to pay for water or enter into barter arrangements for fuel and power imports have been unavailing up to now, leaving both countries facing the prospect of blackouts and economic hardships in the upcoming months.
Further complicating the picture, while Russia remains the dominant regional player, a few hardy Western firms have been making tentative steps to enter the three countries' internal markets, and to the east, China is waiting in the wings as well. At a time of global recession, the only certainty for the three nations' attempts to lessen Russian influence and achieve energy independence is that the current situation is negatively impacted by the world's economic slowdown, and the future is uncertain at best. For many in Kyrgyzstan and Tajikistan, the question is not so much when the global economy will recover as simply surviving a winter of increased energy prices and blackouts.
With a population of 27 million, Uzbekistan is Central Asia's most populous and dominant power. A conservative fiscal policy since 1991, including inconvertibility of the national currency, the som, has shielded its citizens from the hyperinflation that ravaged other former Soviet republics, but the policies have also diminished potential foreign investment.
Like neighboring Turkmenistan, Uzbekistan's current oil production is modest, at about 100,000 barrels per day. Uzbekistan's natural gas reserves are another matter, however. With reserves estimated earlier this year at 1.84 trillion cubic meters, with sufficient investment Tashkent has the possibility of becoming a significant player in the regional energy market. Uzbekistan currently produces 60 billion cubic meters (bcm) of natural gas annually, an amount nearly equal to Turkmenistan's production.
Unlike Turkmenistan, however, nearly 80 percent of Uzbekistan's production, about 48.4 bcm, is currently reserved for domestic use at heavily subsidized rates. Of the 12 billion bcm Uzbekistan exports, more than half currently goes to Russia, with the remainder to neighboring Central Asian states. Like other former Soviet republics, the Uzbek government chafed under Gazprom's "buy cheap, sell dear" policies and earlier this month scored a significant negotiating success with Gazprom by getting an agreement that in 2009 Gazprom will pay $305 per thousand cubic meters (tcm). To put the accomplishment in perspective, Uzbekneftegaz sold gas to Gazprom for $130 per tcm in the first half of 2008, which then rose to $160 in the second half of 2008.
Uzbekistan also has been successful in attracting foreign investment to develop its energy industry, most notably with Malaysia's Petronas, since 2006. Last month Uzbek President Islam Karimov announced that Petronas and its Uzbek joint venture partner NHC Uzbekneftegaz were investing not only $750 million in projects but an additional $2 billion to implement a large petrochemical project to produce synthetic liquid fuel in Uzbekistan.
Flush from its success with Gazprom, Uzbekistan in turn recently negotiated with both Kyrgyzstan and Tajikistan to raise its natural gas prices. Last January Uzbekistan raised the price of its gas exports to both countries from $100 to $145 per tcm. Kyrgyzstan, which currently produces about 30 million cubic meters (mcm) a year, about 4 percent of its annual consumption, had little choice but to agree, as did Tajikistan.
Tajikistan subsequently ran up a $7 million debt, and on Dec. 29 Tashkent reduced gas supplies to Tajikistan by 45 percent, from 40 tcm of gas per hour to around 22 tcm. Uztransgaz is seeking a new price of $300 per tcm from Tajikgaz for gas supplies to Tajikistan in 2009, a price that Tajikgaz head Fatkhiddin Mukhsiddinov hopes is negotiable. As Uzbekistan is the sole exporter of gas to Tajikistan, Dushanbe's room to maneuver is limited. Whatever the eventual outcome of the negotiations, passing along the price increases to consumers, Tajikistan will increase electricity charges by 25 percent beginning Jan. 1.
Kyrgyzstan was marginally more fortunate in its discussions with Tashkent, which originally wanted $300 per tcm. In three separate rounds of negotiations, Bishkek managed to get the price lowered to $250 per tcm. Putting a brave face on things, on Dec. 30 Kyrgyz Minister of Industry, Energy and Fuel Resources Ilias Davydov told journalists, before returning to Tashkent for further discussions: "The agreement was reached during the official gas talks in Tashkent. The price is quite acceptable, when Uzbekistan sells gas to Russia at $326 per tcm."
In truth, the Kyrgyz natural gas industry is bankrupt, and in October the government announced it was studying selling Gazprom about 75 percent of the country's state-owned natural-gas company Kyrgyzgaz. Stating the obvious, in a Dec. 28 interview with the Russian media, Kyrgyz President Kurmanbek Bakiyev said, "Russia was always, is and will be the most important strategic partner of Kyrgyzstan."
Both countries have high hopes that foreign investors will increase their hydrocarbon production, eventually making them self-sufficient. David Robson, boss of Tethys Tajikistan Petroleum Ltd., a subsidiary of Cayman Islands-registered Tethys Ltd., has stated that Tajikistan has all opportunities to fully meet its demands in natural gas within two to three years. Bishkek has similar hopes, as well, for output from its foreign joint ventures, but its immediate concern is how its citizens will survive the cold, and to that end, in the short term their hydroelectric cascades will be running regardless of their downstream neighbors' concerns.
Last winter was the coldest in the region in 40 years, and both Tajikistan and Kyrgyzstan have already imposed massive power blackouts in a frantic effort to conserve energy and reduce costs.
As the "Stans" gradually shed their communist past and integrate into the global economy, their drive for prosperity and energy independence does not lessen their Soviet legacy of interdependence. Central Asian leaders should heed the chaos enveloping Wall Street, where a relentless drive for maximum short-term profits has led to a global recession. Instead of viewing their neighbors' populations as a resource to be exploited to the max, they should regard it as a finite resource to be carefully husbanded and nurtured, whose careful use can provide rising prosperity for all.
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