Russia mulls stronger partnership with Uzbekistan

Energy Trade

The Kremlin has moved to strengthen ties with Uzbekistan, Central Asia’s most populous nation, through the Russia-led Collective Security Treaty Organization (CSTO) as well as major energy projects.

CSTO Secretary General Nikolai Bordyuzha was in Tashkent from April 27 to 29 to meet top Uzbekistan officials, including the ministers of defense and internal affairs. Few details of the talks were announced, but officials were reported to have discussed military cooperation. The CSTO is due to evolve from its current status of a military-political organization into a multi-faceted international institution, Bordyuzha announced on April 29 (Interfax, RIA Novosti, April 29). The CSTO includes Armenia, Belarus, Kazakhstan, Kyrgyzstan, Russia, Tajikistan and Uzbekistan.

In 1992 Uzbekistan joined the post-Soviet security organization, then known as the Tashkent Treaty group, but left it in 1998. In December 2006 Uzbekistan revived its membership in the CSTO. Earlier this year, the CSTO came up with new initiatives in an apparent bid to prop up its regional clout. In January 2008 Bordyuzha announced an initiative to convene a top level meeting of the CSTO, the Commonwealth of Independent States (CIS), the Eurasian Economic Commonwealth (EEC), the OSCE and the Shanghai Cooperation Organization (SCO) in 2008.

In the wake of Tashkent’s policy shift in Moscow’s favor, Russia has been keen to build stronger relations with Uzbekistan. Bilateral ties are based on a partnership agreement, signed by Russian President Vladimir Putin and Uzbek President Islam Karimov in Tashkent in June 2004. In November 2005, Putin and Karimov signed a strategic alliance treaty. In January 2006 Uzbekistan formally joined the Russian-led EEC. In February Putin became the first leader to meet Karimov in Moscow, following his controversial re-election last December. 

Trade between Russia and Uzbekistan has been growing fast. In 2007 trade between the two countries amounted $4.2 billion, up 40% from the previous year, according to Uzbek statistics. Bilateral trade turnover was $1.6 billion in 2004, $2 billion in 2005, and $3 billion in 2006. There are more than 700 companies with Russian investments in Uzbekistan, including such major companies Gazprom, LUKoil, RAO UES, as well as smaller Russian firms.

Notably, Russia’s oil major LUKoil has been pursuing sizable investment projects in Uzbekistan. LUKoil is to invest $5.5 billion in Uzbekistan, aiming to produce 16 billion cubic meters (bcm) of gas a year by 2015, LUKoil CEO Vagit Alekperov announced on April 24 during a visit to Tashkent. LUKoil is confident in the potential of Uzbekistan’s gas reserves, Alekperov said, adding that the planned 16 bcm per year output would be based on already discovered deposits. Alekperov also said that the project at the Kandym gas fields would become operational in 2009 (Interfax, ITAR-TASS, RIA Novosti, April 24).

In late 2007 LUKoil started production at the Kandym, Khauzak and Shady gas fields and plan to produce 2.5 bcm there this year. LUKoil also plans to raise gas production there up to 15 bcm a year by 2012, build a new gas-processing plant in Kandym and export 12 bcm a year from these fields. In March LUKoil Overseas closed a $580 deal to acquire 7 gas deposits in Uzbekistan: Jarkuduk, Gumbulak, Amanata, Pachkamar, Adamtash, South Kyzylbairak and Koshkuduk. Combined reserves of these deposits are estimated at 100 bcm of gas and 6 million tons of oil, while gas production there is expected to reach 3 bcm per year by 2012 at an estimated cost of $700 million.

In 2004 the two sides signed a $1 billion, 35-year Production Sharing Agreement (PSA) to develop Uzbek natural gas deposits. Under the PSA, top Russian oil producer LUKoil is to develop the Kandym, Khauzak and Shady gas fields in the south of the country, which have 280 bcm of proven reserves. LUKoil controls a 90% share in the project, with Uzbekneftegaz holding the remaining 10%. By April LUKoil had reportedly invested more than $300 million in Khauzak. Moscow also moved to offer better terms for Uzbek gas exports. In March 2008 Russia agreed to raise the gas price for Turkmenistan, Kazakhstan and Uzbekistan to European levels from 2009 onward. The decision was announced following a meeting in Moscow on March 11 between Gazprom CEO Alexey Miller, KazMunaiGaz CEO Uzakbai Karabalin, Uzbekneftegaz CEO Nurmukhamad Akhmedov and Turkmengaz CEO Yagshigheldy Kakayev.

Gazprom reportedly expected gas export prices to Europe to reach about $350 per 1,000 cubic meters (tcm) by mid-2008 and up to $400 per tcm by the end of this year. The decision is understood to be aimed against the US-backed Trans-Caspian under water gas pipeline, which would bypass the Russian pipeline network by linking Kazakhstan and Turkmenistan directly to the West. Moscow indicated its willingness to pay more for Central Asian energy resources, presumably to undermine the competing Trans-Caspian pipeline project. 

In May 2007 the Russian, Kazakh, Turkmen and Uzbek leaders agreed to jointly develop gas pipeline networks in Central Asia. Their declaration agreement paved the way for reviving the Central Asia-Center pipeline network at its original capacity of about 100 bcm per year, aimed at funneling increased gas volumes from Turkmenistan, Kazakhstan and Uzbekistan. It was decided that the joint project should be launched in the H1 of 2008, but now implementation appears to be behind schedule. Increasing the Central Asia-Center pipeline network’s capacity up to 80 bcm per annum, or roughly doubling the current level, is expected to cost $2 billion, while a further increase up to 100 bcm would require another $1 billion, according to Russian estimates. Despite Moscow’s continuing efforts to develop multi-faceted ties with Uzbekistan, some bilateral projects have tended to take longer than expected. (Eurasia Daily Monitor/Jamestown)

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