Energy


If the flow of gas from Turkmenistan to Ukraine is to resume, the decisive factors will be political not economic, and they will be decided in Moscow, not Kiev or Ashgabat.
And so Ukrainian President Viktor Yanukovych’s visit to Moscow this week will be watched with interest for developments over energy cooperation.
Yanukovych set an apparently combative tone Friday when he told reporters that Kiev would not “sacrifice it’s sovereignty” while negotiating on the price paid for Russian gas.
Ukraine is currently bound by a 10-year take-or-pay deal with Russia’s Gazprom that leaves it open to punishing claims if it fails to buy less than given quantities of gas over a particular year.
A perceived shortfall in gas imports from Russia last year last month prompted Gazprom to claim $7 billion from state-run Naftogaz Ukrainy. The sum is clearly purposeful in its unrealism.
 Ukraine currently pays around $430 per 1,000 cubic meters for Russian gas.
“It’s clear that we have to make concessions and find a price that Russia will accept to change the contract,” Yanukovych said Friday.
Indulging in some creative thinking, Ukraine now speaks of developing its substantial reserves of shale gas and, on Friday, of bypassing Bosphorous routes for liquified natural gas imports.
“We see there is such an opportunity, the building of a gas terminal in the Mediterranean in front of the Bosporus, so that it does not go through the Bosporus, and build a terminal there,” Yanukovych said. “If we are able to do this — we are now working on this — we will have another opportunity to transport up to 10 billion, 7 to 10 billion cubic meters from these liquefied gas terminals,” he said.
Bringing cheaper Central Asian gas into the mix is evidently what Ukraine sees as another route out of the impasse.
What is abundantly clear is that this is most likely to happen if Kiev relinquishes control over its domestic natural pipeline network. Such a scenario was firmly resisted in the past, but has now evolved into a certainty that explains Yanukovych’s need to protest that he will protect his country’s sovereignty.
The proposal in the air is that a consortium involving Gazprom would operate the pipelines, finally giving Moscow the control over transit that is has so long sought. Yanukovych plaintively stated Friday that Kiev would seek assurances that it would still be able to make the call on what gas could transit to Europe.
“We want for the Ukrainian (gas transportation system) to work reliably, for it to be able to pump certain amounts of gas to Europe — the more, the better. And we want it to be technically modernised,” he said.
And, going by what Ukrainian officials said last month during Yanukovych’s visit to Ashgabat, some of that gas should be Turkmen and sold onward to Western Europe for Kiev’s profit.
Yanukovych is now also talking about “de-monopolising” the gas market, which sounds a signal for allowing in Russian and other investors. He has also made more positive noises about the Moscow-dominated Customs Union, tentatively committing his nation’s fate eastward.
The European Union, meanwhile, looks on with a degree of trepidation. Interfax cited the EU envoy to Ukraine, Jan Tombinski, as saying Friday that one option was was a three-way EU-Russian-Ukrainian consortium running the pipelines.
Whatever the outcome, the Ukrainian pipeline taboo is now broken, and that could set the stage for Turkmenistan’s long-held ambition to see its gas delivered to European households.
The finer details of the arrangement — which will be mired in the standard opaqueness and doubtless subject to all manner of financial chicanery — are yet to be decided.

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For all its fabulous wealth, Turkmenistan has stooped once more to asking the Chinese for a staggering $4.1 billion loan to develop the huge and untapped South Yolotan field. Not wanting for a brass neck, President Gurbanguli Berdymukhamedov ordered his cowering minions to begin negotiations with the China State Development Bank for a loan on preferential terms.

The debt will pile on top of the $4 billion, of which $3 billion is also for developing South Yolotan, China has lent Turkmenistan last year. But why does a country supposedly awash with gas money and whose outlays on the provision of social services are seemingly risible suddenly need all this cash? Will China puts its hands in its pockets and where is the money likely to end up?

Turkmenistan is unwilling to embrace the more unmanageable aspects of modernity like an open society or the even vaguely comprehensive provision of healthcare, but it is striving nonetheless to convey the notion that it is speeding ahead towards the ranks of developed nations. Accordingly, state television and newspapers are little more than a wall-to-wall eulogy to the wisdom of Turkmenistan’s leader, the greatness of the country’s textile industry, the wonderfulness of its schools, the sterling dynamism of its army, the modernity of its confectionery factories, and so on and so forth. The most visible, and expensive, aspect of this tireless striving to some indefinable historical apotheosis has manifested itself in a gargantuan construction boom in the weird capital city, Ashgabat, and the utterly potty Caspian resort town of Awaza.

The numbers speak for themselves. Lording over his terrified browbeaten Cabinet, perennially smug-looking Berdymukhamedov announced in January that no less than $23.6 billion will be spent on hundreds of new buildings over the coming two years. Laughably, he suggested that some of this money would wash in courtesy of foreign investors. The only foreigner that would dream of parting with cash for Turkmen real estate, probably in Awaza, would do so exclusively in the hope it might put them in good stead when bidding for some government tender. Heaven only knows what proportion of the country’s economy that eats up, although with an official real gross domestic product of around $16 billion in 2009, it is safe to say that Turkmenistan may be spending a little beyond its means on things that it probably doesn’t really need. Plus ca change.

The bulk of construction work in Ashgabat appears to be focused on residential apartments, although no Turkmen building boom would be complete without a fair share of waste. As usual, dictator-serving French construction titan Bouygues has cornered the market for official buildings with its orders for a new Oil and Gas Institute, Makhtumkuli University, the Sport and Tourism Institute and extra premises for the oh-so-busy parliament.

Presumably, Ashgabat thinks that $4 billion here or there will come out in the wash, and that it can always offset the debt against future sales of gas. Because, of course, by the time the pipeline to China is pumping 40 billion cubic meters of gas annually, the country’s economy will be fully diversified, what with German teenagers clamoring for Turkmen-made jeans, Turkish children nibbling on Ashgabat choccies and German tourists hogging the sun-beds along the Caspian coastline. At least this is the hazy vision that appears to Berdymukhamedov in his sleep, amid dreams of grateful subjects willfully prostrating themselves at his diminutive frame as his pudgy face beams contentedly. Chinese economic policy is made of somewhat more reality-bound stuff, and they will likely part with requested cash as much of it will end up in their own pockets anyhow.

In December, the Turkmen state media announced that the government had awarded $9.7 billion to several foreign companies to develop South Yolotan. Among those companies was CNPC Chuanqing Drilling Engineering Company, which won a $3.13 billion deal to produce 10 billion cubic metres of gas annually. That is to say, please lend us $4 billion, so we can pay a company you own $3 billion to do work in our own country.

On the face of it, none of this necessarily makes bad economic sense, but being that it is Turkmenistan we are dealing with here, much room must be reserved for pessimism and cynicism.

The electricity crisis in Tajikistan has taken yet a further turn for the worse, as state power company Barki Tojik announces that supplies to the capital, Dushanbe, will henceforth be limited to 15 hours per day. Even worse, those parts of the country currently receiving two-three hours of electricity daily _ namely the Sogd and Khatlon regions _ face yet further cuts.

Luxury Goods Sale in Tajikistan

Luxury Goods Sale in Tajikistan

The most desperate aspect of all this hardship, however, is that it is eminently avoidable and has been caused in part by an unpleasant episode of customary Central Asian bickering.

Back in October, Tajikistan sealed a deal with Turkmenistan to import electricity at $0.03 per kilowatt hour. As agreed, 400 million kilowatt hours of electricity were delivered between November and the end of last year. Under the agreement, the Turkmens agreed to supply a further 1.2 billion kilowatt hours of electricity annually until 2012. While not meeting the disastrous shortfall in power supplies, the agreement would have given the Tajiks much-needed relief and avoided the scale of power cuts seen last year, which virtually brought the country to a standstill as it suffered one of its worst winters in living memory.

Anyway, that deal was scuppered at the start of the month by Uzbekistan, which lies between the two countries and has seemingly refused to agree to a new transit agreement.

Beyond mere comic book villainy, there is a back-story to all this that should shed some light on why it is exactly that Tashkent is behaving the way it is.

According to their official version, the Uzbeks have had technical problems at a local substation, making electricity transits impossible.

Tajik officials, however, are skeptical and say that their requests to visit the site and inspect the pace of repair have been abruptly rebuffed.

Furthermore, Tajik Deputy Energy Minister Pulod Muhiddinov says the Uzbeks promised not to halt Turkmen electricity deliveries if Tajikistan would agreed to buy gas for $249 per 1,000 cubic meters, a pretty hefty sum for Dushanbe.

Tajikistan duly agreed to that arrangement at the end of December, only for the Uzbeks to renege on their word, says Muhiddinov.

Writing at Ferghana.ru, Sanobar Shermatova suggests a further kink in the tale (link in Russian):

The conflict of interests reached its ultimatum at the end of last year, when Kazakhstan, Kyrgyzstan and Tajikistan agreed on sharing water, gas and fuel without consulting Uzbekistan. The reaction came immediately: Uzbekistan announced it would suspend its membership in the Eurasian Economic Community (Eurasec), closed its border with Tajikistan, and increased its gas prices to Kyrgyzstan and Tajikistan. The offence even reached the Russian leadership, which was called upon to act as referee as Uzbekistan sought Moscow’s support in its neighborly dispute.

The specifics of this account are not altogether clear or certain, not least the supposed tri-partite agreement from late last year, which does not appear to have been reported anywhere. What is certain, however, is that Uzbekistan has chosen to throw itself into open hostility with its neighbors.

Nurek Damn!

Nurek Damn!

In turn, Tajikistan has warned that now it is running short of electricity, it has been forced to drain additional supplies from the Nurek and Kairakkum reservoirs to generate hydropower. In doing so, it will cause a water shortage over the summer months in downstream nations _ namely Uzbekistan, Kazakhstan and Turkmenistan (ironically) _ and thereby possibly result in the ruin of vital cash crops in those countries. Uzbekistan in particular, with its heavy reliance on agricultural output for export revenue and internal consumption needs, could be catastrophically affected for yet another year.

Unwisely sticking his oar in and appearing to take a pro-Uzbek stance, Russian President Dimitry Medvedev also spoke out on the water issue while visiting Uzbekistan a few days ago by suggesting that Tajikistan’s grand plans to build a number of hydropower stations along its rivers could cause regional resource crises and should be discussed by all Central Asian nations. This is a particularly strange observation, since Russia is involved in building the giant Rogun power station on Vakhsh river _ a point not lost on the Tajik foreign ministry, which duly complained to the Russian embassy in Dushanbe.

This signal appeared to suggest that Moscow will likely favour Uzbek reasons in future regional disputes, which is yet another intriguing twist in the broader play for influence in Central Asia. Russia’s services as a fig-leaf for Uzbekistan’s gross human rights violations have become effectively redundant, since Tashkent clearly doesn’t give a damn what anyone thinks of it anyway. But Uzbekistan has now found this new purpose for its former Soviet comrade _ one that could avoid Karimov falling back into the arms of his erstwhile American sponsors. In return, Medvedev bagged a useful gas deal that will help replenish Gazprom export reserves and also secured a guarantee to expand the Central Asia-Center gas pipeline, which will be needed if Turkmenistan is to meet its ambitious gas contracts.

Not Tajik

Bob Hope: Not Tajik

To put a new spin on the old gag, the United States had Johnny Cash and Bob Hope; Tajikistan and Kyrgyzstan have no cash and no hope. Reliant on Russian largesse, they have little room for maneuver, with the slender exception of the water issue. Abusing of that, however, would be self-destructive in the extreme and ultimately pointless.

Of course, this whole ugly spectacle is fundamentally needless and another reminder of why the collapse of the Soviet Union was, if not a tragedy, a wretched inconvenience for this part of the world. Countless summits have been held over the years to regulate cooperation, but again and again, the rhetoric and high hopes have been dashed by petty disputes and pride.

And, if isn’t too trite to point out, the regular long-suffering citizens of Central Asia will be the ones that continue to bear the brunt.

Russian website Neft Rossii reports (link in Russian) that Kazakh state energy company KazMunaiGas (KMG) has finally sealed the deal with shady Indonesian company Central Asia Petroleum Ltd. to purchase just over 50 percent in MangistauMunaiGas (MMG), once the country’s largest oil producer.  

The deal needs the approval of the Kazakh anti-monopoly agency, which should be a mere formality, although it will in effect ensure that KMG gains an even more unwieldy grip over the country’s energy resources. Even more importantly, MMG controls the valuable Pavlodar refinery, which the Kazakh government has had its beady eyes on for some time. Just to be accurate, however, it should be noted that KMG already owns a 47 percent stake in the facility.

Complete control over that asset will in the long-term prove far more appealing than the relatively meagre 5.7 million tons of oil output that MMG accounted for in 2007. With domestic fuel prices _ which soared throughout most of last year _ becoming an increasingly sensitive topic, the facility to control supply of this precious commodity will be a useful political lever for Astana pull whenever it requires it. In a slightly inept spectacle, the Kazakh government announced in May that a temporary ban on the export of petroleum products to try and stem rising fuel costs, which in turn have a knock-on effect on the cost of agricultural produce.

Of course, what the country really needs is proper investment into refineries the government already owns, but there is not much sign of that. It is perhaps just as well that the crisis is dissuading many Kazakhs from investing in new and swanky cars, as the petrol on offer is usually so dismal that the vehicles invariably suffer from being watered with it.

Aliyev relaxing in a lair of undisclosed location

Aliyev relaxing in a lair of undisclosed location

On an even juicier note, the MMG deal has a whiff of intrigue about it, since it is widely speculated that none other than the hated Rakhat Aliyev, the president’s prodigal son-in-law and all-round thug, was the company’s main shareholder. Aliyev, formerly head of the successor agency to the KGB, now lives in exile in some unknown European state and has to look on as the Kazakh authorities slice up his patrimony. Or so it is alleged.

Russia’s Gazprom Neft sniffed around MMG for a while, but it never really stood a chance against Nursultan Nazarbayev and his cronies. Blood, after all, is thicker than water – even if it is only by marriage.