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2007-06-28

TURKMENISTAN: TEMPORARY PIPELINE DELAY OR FUNDAMENTAL PROBLEM? [08:48:00]

Could there be trouble in energy paradise? It looks like it. In May, it seemed like Russia and Turkmenistan had become partners for eternity after Russian leader Vladimir Putin agreed to a deal with his Turkmen counterpart, Gurbanguly Berdymukhammedov, on the refurbishment and expansion of the Prikaspiisky natural gas pipeline. [For background see the Eurasia Insight archive]. Now, it appears Berdymukhammedov is having second thoughts about the Prikaspiisky deal, perhaps out of concern that Ashgabat won’t get its fair share of the profits under deal as presently envisioned. The chief sign that Turkmenistan may be reconsidering its energy allegiance was the postponement of a visit by a Russian delegation to be led by Vice Prime Minister Sergei Naryshkin. Naryshkin was to have participated in a session of the Russian-Turkmen Inter-Governmental Commission, which had been scheduled for June 22 in Ashgabat. Those talks were supposed to have hammered out details of a comprehensive Prikaspiisky pact. After agreeing in principle to the deal in May, both Putin and Berdymukhammedov indicated that the formal agreement would be ready for signing in September. But it is uncertain whether that timetable still holds. Just days before the start of the visit, Turkmen officials put off the meeting without immediately supplying a reason. According to a report posted June 23 on semi-official Turkmen web site Turkmenistan.ru, Naryshkin’s visit has been rescheduled for July 10. The site attributed the postponement to a scheduling conflict involving Turkmen Foreign Minister Rashid Meredov. Though there is no way of determining for sure, all available evidence suggests the postponement was not a mutual decision. On June 19, just three days before the inter-governmental commission was to convene, the Itar-Tass news agency distributed a report in which Putin told Naryshkin that "it must be ensured that such high-level meetings make long strides forward, identify problems that hinder progress, and eliminate them." Given Putin’s attitude on the Prikaspiisky deal, the abrupt and opaque manner in which Ashgabat acted could only have been a source of embarrassment for the Kremlin. There is likewise no way of knowing for sure what prompted Berdymukhammedov to act as he did. Was it simply a negotiating tactic, or was the Turkmen leader thinking about backing out of the pact altogether? Heightening the intrigue was the fact that Berdymukhammedov met with a top US military official, Adm. William Fallon, on June 21 in Ashgabat. During those talks the Turkmen leader expressed a desire to bolster economic and security cooperation between the United States and Turkmenistan. Berdymukhammedov also endorsed the idea of Turkmen participation in a trans-Caspian gas pipeline (TCP), the construction of which is strongly supported by Washington. [For background see the Eurasia Insight archive]. The TCP route is acknowledged to be the direct competitor of the Prikaspiisky pipeline. The TCP route would also circumvent Russia, and thus its construction, and use by Turkmenistan and Kazakhstan, would deal a staggering blow to the Kremlin’s regional energy policy. On June 26, Berdymukhammedov met with visiting US Deputy Assistant Secretary of State Evan Feigenbaum and reiterated Ashgabat’s commitment to exploring the feasibility of Turkmenistan ’s participation in the TCP project. At the very least, Berdymukhammedov seems to have ripped a page out of the playbook of his predecessor, Saparmurat Niyazov, who had a reputation for mercurial behavior and a preoccupation with keeping the country’s geopolitical options open. Some experts believe the postponement was intended by Ashgabat as a signal of displeasure over the Kremlin’s perceived high-handed approach to the Prikaspiisky deal. Turkmen officials were reportedly miffed by the fact that the Russian-Turkmen Inter-governmental Commission meeting did not have a well-defined agenda. That led some in Ashgabat to suspect that Russia was making unfounded assumptions about Turkmenistan’s position v that Naryshkin might show up in Ashgabat expecting to dictate the details of the agreement. If this accurately reflects Turkmen concerns, then the postponement tells the Putin administration that Turkmenistan’s cooperation cannot be taken for granted, and that Ashgabat may not be inclined to give Russia the type of discounts that the Kremlin perhaps feels entitled to. For Putin, a man increasingly used to getting his way both at home and abroad, the recent turn of events is no doubt a source of consternation. They could prove much more for Naryshkin, who in recent months has been touted as one of several possible presidential successors to Putin in Russia. Thus, the outcome of the Prikaspiisky negotiations could end up influencing domestic Russian politics. Earlier this year, presidential aide Igor Shuvalov fueled speculation that Naryshkin could be a surprise candidate, and one backed by the incumbent. "People speak about two possible [presidential] candidates [First Vice Prime Minister Sergei Ivanov and Vice Prime Minister Dmitri Medvedyev], but my president may give a surprise, and later this year you may learn the name of another possible figure," Shuvalov said." Naryshkin has enjoyed Putin’s apparent favor and has received heavy coverage by the pro-government Russian media recently. Just ahead of the Turkmen visit, he was also appointed President Putin’s special representative for integration and cooperation with CIS states. For Naryshkin, then, more than just energy exports is at stake over whether Berdymukhammedov allows him to visit Ashgabat. This, of course, provides the Turkmen leader with additional negotiating leverage.

EURASIA_NET

2007-06-25

EUROPE: EXPERTS SAY RUSSIA DEPENDABLE ENERGY SUPPLIER, BUT URGE CAUTION [09:12:00]

Europe needs reliable energy supplies for the future and Russia can fill the bill -- but the European Union would nevertheless be wise to seek alternatives. That was the general consensus of top international experts assembled at the Global Energy Leaders Summit organized this week in London by the "Financial Times" newspaper. EU Energy Commissioner Andris Piebalgs told RFE/RL that there is no reason to doubt Russia’s dependability as a supplier, as it is in the country’s financial interests to deliver on its promises. However, he stressed that Russia can be expected to do what is good for Russia. Hedging Bets "I think we should be positive," Piebalgs said. "At the same time, I think we should always know that Russia will follow its own interests. So, whatever they will supply to the market will be according to Russian state strategies, and it will not always be according to our strategies." Because of this, Piebalgs explains, the European Union should seek alternative sources of oil to offset any "unpredictable developments." This approach can provide the EU with the advantage of knowing that "not all the eggs have been put just in one basket." Claude Mandil, executive director of the International Energy Agency (IEA), told RFE/RL that diversification is a good course of action for energy importers and exporters alike. "I think that safe energies security policy means more diversity and that’s true for everybody," Mandil said. "That’s true for Europe, that’s true for other countries, that’s true for Russia, too, which needs perhaps to have more clients than only in Europe." Mandil notes the opportunity Russia has to export energy to its east and south, positioning itself as a key supplier to China and India while lessening its dependence on the European market. As far as Europe is concerned, Mandil says the International Energy Agency would like to see Moscow invest more in infrastructure and has expressed its concerns to Moscow. The fear is that as pipelines become obsolete or inoperable as they age, they could hinder Russia’s ability to meet its contractual obligations to Europe. Alternative Challenges EU Energy Commissioner Piebalgs points out that one of the challenges Europe faces in diversifying its energy supplies is that the amount of energy currently provided by alternative sources is insufficient. For example, while the EU receives some 150 billion cubic meters of natural gas from Russia it gets just 40 billion cubic meters of gas via Turkey -- an amount that falls far short of Europe’s needs. "I think it is important really to develop this Trans-Caspian line, [and] we will get this year [for the] first time gas from Azerbaijan," Piebalgs said. "Definitely, our hopes are that we could resolve the uranium-enrichment issue with Iran, because Iran has huge potential supply, and also Iraq would supply us with gas. At the same time we should develop a lot of LNG [liquefied natural gas]. So, on gas, I think it will be always challenging." The IEA’s Mandil says many experts are looking to liquefied natural gas as part of the solution. Because LNG can be shipped by sea over long distances, it offers the possibility of importing supplies from gas exporters like Algeria or Libya without depending on pipelines. Russia’s Powerful Pipelines This is especially important considering that some of the most viable alternative energy suppliers -- those in the Caucasus and Central Asia -- depend on Russian pipeline to carry their energy exports to Europe. "If the only way of reaching this gas is through Gazprom pipelines, and if the market reform fails in Russia, that means if there is no unbundling between the pipelines and the business activities, well, it becomes Russian gas," Mandil said. All this uncertainty linked to deliveries from Russia -- as well as attempts to switch to cleaner energy sources in an effort to slow global warming -- is also leading Europe to look to renewable energy sources as a means of reducing its dependence on foreign energy. The development of such alternative fuels, combined with new suppliers and sources of traditional energy supplies could go a long way in assuaging Europe’s fears over the future.

EURASIA_NET

2007-06-22

US CONCERNED BY ARMENIA’S ENERGY TIES WITH IRAN [09:19:00]

The United States has expressed concern about Armenia’s deepening economic relations with neighboring Iran, with a senior American diplomat warning that they might run counter to international sanctions imposed on Tehran over its controversial nuclear program. In an equally significant development, the US charge d’affaires in Yerevan, Anthony Godfrey, also indicated that Washington is ready, in principle, to help the South Caucasus nation build a new nuclear power plant. "We are very concerned about the increasing relations with Iran," Godfrey told a news conference on June 15, commenting on multimillion-dollar energy projects planned or already implemented by the two countries. "We are working with the rest of the international community to push Iran to comply with its international obligations [on nuclear non-proliferation]," he said. "And two new [United Nations] Security Council resolutions deal directly with investments in Iran, financial dealing with Iran. We have expressed our concerns to the government of Armenia on all levels." Armenia has until now maintained strong political and economic ties with Iran, while being a leading per-capita recipient of US government assistance. The Islamic Republic has served as one of Armenia’s few conduits to the outside world ever since the economic blockades imposed on the small landlocked country in the early 1990s by its more hostile neighbors, Azerbaijan and Turkey. Armenian leaders hope that joint projects with Tehran will also reduce Armenia’s strong dependence on Russia for energy resources. Godfrey was apparently the first senior US official to publicly and explicitly voice alarm over Armenian-Iranian cooperation. His remarks contrasted with what the former US ambassador in Yerevan, John Evans, said on the matter in February 2006. Washington, Evans said at a news conference, is "very sympathetic to Armenia’s efforts to diversify sources of energy," not least because they have not yet breached long-standing US sanctions against Iran. "Up to now, so far as we can tell, the American legislation has not been triggered by anything that Armenia has done," he said at the time. The Armenian-Iranian relationship, largely covering the energy sector, has since gained new momentum. The presidents of the two countries inaugurated last March the first Armenian section of a pipeline that will pump Iranian natural gas to Armenia. Armenian President Robert Kocharian hailed that as a "historic event," while his Iranian counterpart Mahmoud Ahmadinejad said the pipeline will "further reinforce friendship and ties between our peoples." Work on the pipeline’s second, much longer section is due to be complete by the end of next year. Armenia will then be able to import up to 2.3 billion cubic meters of Iranian gas a year, or nearly twice the current level of its gas deliveries from Russia. It is expected that the bulk of the imported Iranian gas will be converted into electricity that will in turn be exported to Iran. To that end, the Armenian and Iranian governments agreed last year to build a third high-voltage transmission line connecting the power grids of their countries. Construction of a major hydro-electric plant on the Arax River, which marks the Armenian-Iranian border, is also planned. In addition, Armenian, Iranian and Russian officials are scheduled to meet later this year to discuss an ambitious proposal to build an oil refinery in Armenia that would process Iranian crude. An oil subsidiary of Russia’s Gazprom energy conglomerate has shown interest in financing most of the project, which has an estimated cost of more than $1 billion. In Godfrey’s words, the US government is worried about these developments. "We do appreciate the transparent way in which the government of Armenia conducts its energy relations with Iran, and we appreciate the straightforward way that they tell us where they are going with their relations," he said. But the diplomat went on to urge the Kocharian administration to be a "more active partner" in US-led international efforts to prevent Iran from developing nuclear weapons. The Armenian government has avoided any criticism of Tehran’s nuclear program, contenting itself with general calls for a peaceful resolution of the dispute. Speaking to journalists on June 19, Armenian Foreign Minister Vartan Oskanian refrained from directly responding to the US concerns. He said only that they will not damage US-Armenian relations. For his part, Deputy Parliamentary Speaker Vahan Hovannisian, whose Armenian Revolutionary Federation party is a junior partner in the governing coalition, argued that Armenia is right to forge closer links with Iran. The country "doesn’t have much of a choice," given the continuing Azerbaijani and Turkish blockades, he said. Washington seems to have somewhat widened Armenia’s energy security options by publicly indicating its readiness to help the country replace its aging Metsamor nuclear power station with a new nuclear facility. [For background see the Eurasia Insight archive]. As Godfrey said, "We are working with the Armenian Ministry of Energy to develop a feasibility study as to just what would be the best replacement for this capacity." US diplomats, however, say that support for the project would not be conditional on Armenia putting the brakes on its energy cooperation with Iran. "Our position on Armenia’s need to replace Metsamor with a new power plant is independent of our concerns over Armenia’s cooperation with Iran," one State Department official told EurasiaNet. The Metsamor plant, which generates about 40 percent of Armenia’s electricity, was built in the late 1970s and was shut down following a catastrophic 1988 earthquake. It was reactivated in 1995 to end a severe energy crisis caused by the war with Azerbaijan over the disputed territory of Nagorno-Karabakh. The United States and the European Union strongly opposed the decision, saying that Metsamor’s Soviet-designed reactor is inherently unsafe. They both have spent tens of millions of dollars on upgrading the plant’s safety systems, while pressing successive governments in Yerevan to close the facility as soon as possible. The Kocharian government announced last year that Metsamor will be decommissioned by 2016. It also embarked on a search for potential foreign investors interested in providing an estimated $1 billion need for the construction of a new nuclear plant. The Russian government and energy companies promptly expressed their readiness to help to put the project into practice. The issue was high on the agenda of a late April visit to Yerevan by Sergei Kiriyenko, head of Russia’s Federal Agency on Atomic Energy. Kocharian reaffirmed his government’s far-reaching intentions as he chaired an annual meeting of his Council on Atomic Energy Security on May 30. The project to build a new plant is "justified both in terms of energy security and economically," he said. Editor-s Note: Emil Danielyan is a Yerevan-based journalist and political analyst.

EURASIA_NET

2007-06-18

IN TBILISI, IT’S BOOM TIME FOR BUILDING [08:54:00]

The cranes hanging over the steel frame of the once shoddy Hotel Iveria in downtown Tbilisi say it all. With limited attention to regulations and earthquake risks, Georgia’s capital city is rebuilding itself, and city officials say that the construction boom has only started. Hotel deals have grabbed the headlines. Aside from the $100 million Radisson Hotel project which will open in 2008 in the shell of the Iveria, an ex-Intourist Hotel that doubled for years as a refugee shelter, work has also started on a $200 million Park Hyatt project, due for completion in 2009. The Kempinsky and Intercontinental chains have also announced plans for hotels, and the central government has reportedly held talks with Hilton Hotels as well. The government puts it down to growing international interest in Georgia given its rapid pace of reform and steady rate of economic growth. A recent International Monetary Fund mission estimated Georgia’s 2006 growth at well over 9 percent and estimated that 2007 could see minimum growth rates of 10 percent. Within the city government, officials say that they see no end in sight for the Georgian capital’s construction boom, and concede that the building frenzy could well change the city’s look. Outdated zoning laws mean that little legal basis exists for managing the building frenzy, though city government representatives contend that they are in fact controlling the process. Papuna Dzidziguri, a city urban planning expert who is working on Tbilisi’s general construction development plan, believes that the concentration of construction work in the city center is likely to cause serious problems in the near future. "The center is not capable of handling the burden of too much construction," Dzidziguri said in an April interview with EurasiaNet. Traffic congestion and changes to the capital’s historical buildings are among the concerns, he said. "It’s now very important to find a new space for all the construction that is expected in Tbilisi. Otherwise, the new buildings will completely change the unique look of the old central parts of the city." Zoning laws, introduced in 1970, expired in 2000, Dzidziguri said, although the city continues to use them. Work is continuing on new regulations, he said, citing one that puts a three-storey cap on new buildings in certain parts of old Tbilisi. An overall construction development plan for the city is expected to come into force by the end of 2007. But how to balance investor demand with preservation concerns is a topic no official has mastered yet. Alexander Jobava, head of city planning for Tbilisi, states that the municipal government would like to encourage investors to build new apartment buildings 10 to 15 kilometers outside of town rather than in the city center, where space is relatively tight. Achieving this goal will be difficult, though, he added, in the face of "serious demand" for apartments near the center. According to economic development ministry officials, Arab businessmen plan to invest as much as $200 million in construction of elite residential complexes in Tabakhmela and Tsavkisi, two areas located close to the Tbilisi center. Next to the Arab project, Israeli investors plan to spend some $100 million on the construction of a dozen luxury town houses, said a source in the Tbilisi city government, who asked not to be named. Another significant investment is expected by Korean investors on Elia Mountain, a less populated area within walking distance of Tbilisi’s historic center, the source said. The city government states that there are some 30 construction companies now operating in Tbilisi, a city of about some 1.5 million people. "The number of companies continues to grow as construction is a very profitable business in Georgia," city urban planner Dzidziguri said. "There are certain companies that change their profile and switch to construction." According to the Georgian state department of statistics, the country’s construction sector brought in 1.61 billion lari (about $961.481 million) in turnover in 2006, while in 2001 it was only 243 million lari (about $145 million). Meanwhile, prices for the new apartment buildings built by these companies continue to soar. Prices for under-construction apartments range from $400 per square meter for an apartment in the outskirts to $2000 per square meter for an apartment in the center of town. By comparison, Georgia’s per capita gross national income in 2005 was estimated at $1,320, according to the World Bank. One former architect believes that the prices reflect the fact that demand is limited to the richest Georgians, who have far fewer restraints on their budgets than most ordinary citizens. "Georgian society is comprised of two major groups: very rich people and very poor people. The construction market is oriented toward those who are rich, and who are paying [for apartments] today," said Zviad Zarandia, an independent expert. The city government has presented the work done on updating Tbilisi v including a controversial plan to tax residents of historic districts to fund infrastructure reconstruction projects v as intended to inspire Tbilisi’s residents to take pride in their city once again. While pride is taken in some of the parks for children, street lighting, road improvements and painting, not all residents, though, are upbeat about the transformations. Mariam Papunashvili, a resident of one Tbilisi district where large-scale construction is going on, claims that vibrations from heavy trucks passing on the road outside her house all day have undermined her building’s structure. The district’s new buildings are surrounded by houses badly damaged from a 2002 earthquake. Homeowners have given their land to builders in exchange for new apartments. "I was told that they will not complete these buildings under construction until 2009. I will simply lose my house by then," Papunashvili worried. One woman in the central neighborhood of Mtatsminda takes a different approach. "They can build all they want to," she said, pointing to the skeleton of a hotel-apartment complex wedged between a church and a hotel on a ridge overlooking Tbilisi’s downtown. "But they need to understand that what goes up in this town can most definitely come down." Editor-s Note: Diana Petriashvili is a freelance business and political reporter in Tbilisi. Alexander Klimchuk is a freelance photographer also based in Tbilisi. Elizabeth Owen, EurasiaNet’s Caucasus News Editor in Tbilisi, added reporting to this story.

EURASIA_NET

2007-06-14

QUESTIONS CLOUD TURKISH-EU ENERGY COOPERATION [08:58:00]

Turkey’s heartland of Anatolia v the massive plateau that serves as a natural land bridge between Asia and Europe v is dotted with the remains of 13th century inns, built by the Ottoman Turks’ predecessors to host the caravans that once traversed the fabled Silk Road from China. Some 800 years later, modern Turkey is once again trying to take advantage of its strategic location, only instead of caravansaries, as the inns were called, it is building pipelines. Instead of silk and spices, the chief commodities moving from East to West are oil and natural gas. Turkey’s strategy of establishing itself as a transit hub for natural resources is a key component of its efforts to join the European Union. At a recent conference in Istanbul aimed at strengthening Turkish-EU energy cooperation, officials from both Brussels and Ankara spoke in glowing terms about the potential for joint activity, while emphasizing Turkey’s strategic importance in the energy sphere. "Turkey needs the European Union and the European Union needs Turkey. This is especially true in the field of energy," Andris Piebalgs, the EU’s energy commissioner, told the conference’s attendants. "Turkey is a link, a bridge, a corridor for our region’s energy supplies." Turkey’s chief EU negotiator, Ali Babacan, told the same audience that "energy cooperation will bring us closer and create a situation where Turkey and the EU are stronger in the region." Despite the positive rhetoric, experts say serious questions are clouding Turkey’s plans. Several oil and gas pipeline projects that would help link Turkey and the EU are struggling to get off the ground. Meanwhile, recent Russian moves in the Caspian and Black Sea regions seem to have put a lock on the resources that would fill those pipelines up. [For background see the Eurasia Insight archive]. At the same time pipeline plans have hit snags, Turkish-EU accession negotiations have stalled in several areas, and there are now worries that those strains might soon affect the energy sphere. [For background see the Eurasia Insight archive]. Turkey’s strategy of setting itself up as a transit hub is "being called into question these days," says Gareth Winrow, an expert on energy issues at Istanbul’s Bilgi University. "It was a gamble that Turkish officials made to portray Turkey as a transit state when they hadn’t yet realized it and they haven’t gotten projects of the ground. It sounds good and they can’t backtrack on it, but reality on the ground, especially regarding gas, is that there are serious problems." The extent to which Turkey’s will be able to funnel energy westward may still be unclear, but the EU’s growing need for energy is beyond doubt. EU countries as a whole currently import about 50 percent of their energy needs, a figure that is expected to rise to 70 percent by 2030. Russian oil and gas presently account for 25 percent of the EU’s supplies, and Moscow’s share is projected to rise to 40 percent in 2030. The Middle East provides about a 45 percent share of the EU’s energy. Brussels is uncomfortable with the notion of Moscow being a major supplier. Thus, EU officials have started to probe for alternate sources. The easiest solution, at least on paper, would be tapping into the large oil and gas reserves in Central Asia and the Caspian region, something in which Turkey would play a central role. But since the EU lacks a unified energy policy, efforts to pursue Caspian Basin supplies have lagged. Russia has also taken steps to maintain its current stranglehold on energy exports from Turkmenistan and Kazakhstan. [For background see the Eurasia Insight archive]. At one point, EU diversification hopes rested heavily on a planned 3,300 kilometer-long (2,050 mile) pipeline, dubbed Nabucco, which would bring Central Asian gas to Austria via Turkey, Bulgaria, Romania and Hungary. However, Nabucco’s future has grown increasingly dim in recent months, especially after Russia recently struck an export deal with Kazakhstan and Turkmenistan v two counties which would be key suppliers for the Nabucco pipeline v which effectively locked up their gas supplies for years to come. [For background see the Eurasia Insight archive]. Gazprom, Russia’s state-owned energy giant, has also been holding talks with Hungary and Austria about building large depots in their countries to store Russian gas, which observers see as another attempt to undermine the Nabucco project. Turkey, meanwhile, has long been eager to build a pipeline that would bypass the congested Bosphorus Straits and would ease the shipping of oil to the west. Recently, though, Russia announced it will be part of building another bypass pipeline, one that goes through Bulgaria and Greece, promising to fill it with Russian and Kazakh oil. Although Turkey has started construction of its bypass pipeline, which goes from the Black Sea port of Samsun to the Mediterranean oil and gas terminal at Ceyhan, it so far has no guaranteed oil supplies to pump through once it’s completed. Turkey’s most significant accomplishment in the energy field has been the successful completion of the $4 billion, 1760 kilometer-long (1093 miles) Baku-Tbilisi-Ceyhan (BTC) oil pipeline and the slightly shorter Baku-Tbilisi-Erzerum (BTE) gas pipeline. Both pipelines are currently only transporting Azeri oil and gas, but energy experts warn that the pipelines will only viable v both financially and in terms of truly helping diversify Europe’s energy supplies v if they also start carrying resources from other Caspian producers, particularly Kazakhstan. Turkish and western efforts to get the Kazakhs to agree to the construction of an underwater Caspian pipeline that would link up with the BTE have so far been unsuccessful, to a large part because of Russian opposition to the project. [For background see the Eurasia Insight archive]. "Central Asia is the new region for power politics," says Lt. Col. Marcel de Haas, a security expert at the Netherlands Institute of International Relations. "The problem is that Gazprom is directed by one voice, that of the Kremlin/[President Vladimir] Putin, which is not the case in the EU where energy policy is not a common course but mostly a case of individual states that make energy deals with Gazprom or other producers." "As a result of Putin’s recent actions in Kazakhstan and Turkmenistan, Europe’s plans for direct pipelines from Central Asia to the West seem to be blocked," de Haas added. Mitat Balkan, energy coordinator at Turkey’s ministry of foreign affairs, suggested that if the EU wanted to obtain Caspian Basin energy, Brussels needs to launch a diplomatic offensive. "The European Union needs to go [Central Asia] at both the [European] Commission level and at the member-state political level to show the interest to attract them more to cooperation with Europe." There are concerns that Ankara and Brussels’s cooperation in the energy field could become the victim of troubles facing other areas of Turkey’s EU membership bid. EU leaders have been critical in what they see as a slowdown in Turkey’s EU-related reform process and Brussels partially froze accessions negotiations late last year after Turkey refused to open up its ports to vessels from Cyprus, a member of the European bloc. The elections of Nicholas Sarkozy in France and Angela Merkel in Germany, both of whom have expressed their opposition to Turkey’s EU membership bid, do not inspire confidence in Ankara that accession talks can quickly get back on track. Turkish analysts say that with its EU negotiations in trouble, Ankara is now starting to look at energy issues as way of increasing its leverage with Brussels. For example, Turkey has so far resisted the EU’s invitation to join the newly formed European Energy Community, a body that aims to bring southeastern European countries v including those that are not EU members v into a single regulatory framework for trading energy. Turkish officials have said that they need to get Turkey’s internal energy market in order before joining the EEC, but Bulent Aras, a professor of international relations at Istanbul’s Isik University and an expert on energy issues, sees something else at work. "There is a change in Turkish attitudes. In the past, Turkey was following the line of going along with bilateral agreements [with the EU] on energy projects. But now the Turkish line is to use its position as a transit country and energy issues as a bargaining chip regarding European Union membership," Aras said.

EURASIA_NET

2007-05-17

RUSSIA CELEBRATES ITS CENTRAL ASIAN ENERGY COUP [08:58:00]

Russian officials and experts can barely conceal their glee over the signing of pacts that give the Kremlin a seemingly unbreakable stranglehold over Central Asia’s energy resources. The main deal, forged May 12 in the Turkmen city of Turkmenbashi, would upgrade the Prikaspiiski natural gas pipeline that skirts the Caspian shoreline, enabling Russia to virtually corner Turkmenistan’s gas exports. [For background see the Eurasia Insight archive]. Western experts generally view the deal to be a disaster for US and European Union energy plans in the Caspian Basin, in particular the construction of trans-Caspian pipelines to tap into Central Asia’s oil and gas reserves. These pipelines would enable Central Asian exporters to circumvent Russian-controlled routes. [For background see the Eurasia Insight archive]. After the signing of the preliminary agreement, various Russian media outlets quoted an unnamed Kremlin official as saying the May 12 trilateral summit v bringing together Russian leader Vladimir Putin, Turkmen boss Gurbanguly Berdymukhammedov and Kazakhstani President Nursultan Nazarbayev v had "exceeded expectations." In addition to the Prikaspiisky deal, the three states, along with Uzbekistan, agreed to refurbish two additional natural gas pipelines. When all the works are completed, Russia stands to almost double its imports of Central Asian gas to roughly 90 billion cubic meters (bcm), up from the present level of about 50 bcm. To demonstrate their commitment to the project, both Turkmenistan and Kazakhstan agreed to finance construction of their respective portions of the pipeline without Russian assistance, Russian-language media outlets reported. Putin on May 14 ordered his Kremlin underlings into action, demanding that immediate follow-up action be taken. "This work [the May 12 accord] is very important for our ties with the Central Asian region," Putin was quoted as saying at a cabinet meeting. Specifically, Putin ordered feasibility studies for new ferry and rail links between Russia and Central Asian states. At the summit, Berdymukhammedov expressed a keen desire to develop such links. Many observers in Moscow now believe, with the emergence of the Prikaspiisky option, the bell is tolling for the US-backed trans-Caspian pipeline (TCP) project. The fact that Russia appears to have outmaneuvered the United States in the contest over Turkmenistan’s resources is no small source of satisfaction inside Moscow’s Ring Road. "These results are especially valuable, because they were achieved with a backdrop of a strong opposition from the West," said Andrei Kokoshin, who heads the Russian Duma’s Committee on CIS Affairs. Russian policy planners make no secret of wanting to use the Prikaspiisky deal to achieve several immediate objectives; to deliver a coup de grace against the TCP project; to block the efforts of Russia’s antagonists to create alternative energy-supply routes that the Kremlin can’t control; and to place the EU in an energy-supply vice. A Russian-EU energy summit is scheduled to take place in the Volga River city of Samara on May 17-18. EU officials have voiced a desire to diversify the group’s sources of energy. The recent deals, however, would appear to deprive the EU of negotiating leverage. The Prikaspiisky pact also appears to have dashed the dreams of several formerly Communist countries in Central Europe v including Poland, Lithuania and Ukraine v of breaking their energy dependence on Russia. Representatives of those states, along with Georgian and Azerbaijani leaders, gathered for a meeting in Krakow, Poland, on May 11, during which they discussed ways to gain access to Caspian Basin energy without it having to cross Russian territory. Attempts to build alternative routes that avoid Russia will now just be "a waste of money," said Igor Pushkarev, a member of Russia’s Federation Council, referring to the Krakow meeting, which ended early after news of the Prikaspiisky pact spread. Other observers were far blunter in their assessment. A commentary appearing on the Newsinfo.ru website derided Russia’s opponents in the Caspian Energy game: "The US Department of State tried to use its twerps from the former Soviet bloc v Poland, Lithuania, and other political dwarfs v to bring pressure upon Moscow. The key point in the struggle for energy markets was the Krakow summit. - But the summit failed in a most disgraceful manner for Russophobes." While confident that the Prikaspiiski pact will effectively preclude TCP from ever becoming a serious threat to Russia’s energy hegemony, most Moscow officials are reluctant to proclaim a total victory on this front. That’s because Berdymukhammedov said May 12 that Turkmenistan retained interest in TCP. That Berdymukhammedov made such a clear commitment to deepening energy cooperation with Russia took many Western observers by surprise. The Turkmen leader’s position perhaps comes into clearer focus when considering that just a few days after the announcement of the Prikaspiisky deal, Berdymukhammedov purged Turkmenistan’s security supremo, Akmurat Rejepov. The sacking stands to significantly enhance the new president’s domestic political position. It’s unlikely that Berdymukhammedov would have moved against such a potent political rival unless he was absolutely sure he had the political muscle to succeed. It may well be that Putin provided such assurances of political support. Russia is also moving assertively to lock up Central Asian oil supplies. Russia and Kazakhstan have announced an intention to expand the Caspian Pipeline Consortium route, up from its present capacity of 23 million tons annually to 40 million tons. Kazakhstan also agreed to supply up to 17 million tons of oil per year for a Russian-controlled 280-kilometer pipeline that is envisioned to run from Bulgaria’s Black Sea port of Burgas to Alexandroupolis in Greece. Following May 10 talks in Astana, Nazarbayev told reporters that his country "was absolutely committed to funneling the bulk of our hydrocarbons, if not all, via Russia’s territory." "Last year, we shipped 52.2 million tons of Kazakhstani oil, of which 42 million tons funneled via Russia," Nazarbayev said. Editor-s Note: Sergei Blagov is a Moscow-based specialist in CIS political affairs.

EURASIA_NET

2007-05-15

RUSSIA’S CENTRAL ASIA ENERGY STRATEGY EXPERIENCES A FEW SETBACKS [09:38:00]

Russia has suffered several setbacks in its ongoing efforts to secure its energy dominance in Central Asia. Both Uzbek and Tajik officials have taken steps of late to reduce Russia’s energy position in their respective countries. Under a surprise deal signed late in April, Uzbekistan announced its intention to build a 530-kilometer natural gas pipeline to China. The route would have a capacity of 30 billion cubic meters (bcm) a year, an amount constituting roughly half of the Central Asian state’s annual gas production. If implemented, Uzbekistan would stoke energy competition between Russia and China, and presumably would secure for itself higher profits, as well as a greater degree of political leeway. Uzbekistan is world’s 13th largest natural-gas producer and the third largest producer among former Soviet states after Russia and Turkmenistan. The key Chinese partner in the new pipeline project is the China National Petroleum Corp. (CNPC). A statement announcing the pipeline plan was released on April 30, signed by Ma Kai, the director of China’s National Development and Reform Commission, and Uzbek Deputy Prime Minister Rustam Azimov. The statement did not provide details of the project, offering no information on costs, construction timeframe or the precise route. Uzbekistan does not share a border with China, and it’s unclear which of the three possibilities -- Kazakhstan, Kyrgyzstan or even Tajikistan v would be used as a transit country. Kazakhstan seems the likeliest bet, as it already has a pipeline connection to China’s "West-East" network, which supplies coastal regions via Xinjiang Province. Astana also appears eager to cast itself as a gateway for the export of Central Asian energy to China. On May 2, for example, Kazakh Prime Minister Karim Masimov discussed a pipeline extension with Turkmen leader Kurbanguly Berdymukhammedov during talks in Ashgabat. According to a Chinese-Turkmen pact, Ashgabat is expected to begin exporting gas to China by 2009. [For background see the Eurasia Insight archive]. If implemented, the Uzbek-Chinese pipeline would undermine Russia’s ability to manipulate Central Asia’s gas market. Uzbek authorities moved quickly to strengthen economic and political ties in the months following the 2005 Andijan massacre. [For background see the Eurasia Insight archive]. But recently, Tashkent seems to have soured on the idea of a special relationship with Moscow. A sign of an Uzbek shift came in 2006, when officials in Tashkent threatened to revoke an exploration license granted to the Russian conglomerate Gazprom, accusing the company of failing to fulfill investment commitments. Gazprom officials blamed the delay on the failure of Uzbek authorities to issue proper permits. Russian Prime Minister Mikhail Fradkov’s visit to Tashkent last March reportedly failed to resolve the Gazprom issue. Gazprom bought 9 bcm of gas from Uzbekistan in 2006, and convinced the Uzbek government to sell it 13 bcm in 2007. It has unsuccessfully tried for years to get Uzbekistan to boost its annual supplies to 17-18 bcm, although in 2006 Gazprom agreed to pay $100 per thousand cubic meters (TCM), up $60 per tcm. Chinese companies also have encountered trouble in the Uzbek energy market. Earlier in April, China’s state-run Sinopec reportedly withdrew from an oil & gas joint venture with Uzbekneftegas - because of high oil-extraction tax rates. After the signing, the project remained stalled. In 2005, Tashkent increased taxes from 12.3 percent for crude oil and 18.5 percent for natural gas to 32 percent and 58 percent respectively. Although the rates subsequently dropped to 20 percent and 30 percent respectively in 2007, they are still seen as prohibitively high. A potential obstacle to the realization of Tashkent’s pipeline plan is connected with Uzbekistan’s gas production capabilities. Uzbekistan’s total annual production stands at about 60 bcm, and much of it is used for domestic consumption. In 2006, Uzbekistan produced 62 bcm, but exported just a little over 12 bcm, including the 9 bcm purchased by Gazprom. The remainder went to neighboring states Kazakhstan, Kyrgyzstan and Tajikistan. Active exploration is underway in the Aral Sea region, but no major new findings have been announced recently. According to a report distributed by the Press-Uz.Info news agency, citing a presidential degree, a CNCP affiliate will supply Uzbekneftegas with over $209 million in drilling equipment. Of the total, $177.6 million will be covered by a 15-year loan by China’s Eximbank, and Uzbekneftegas will be responsible for only $31.5 million in financing. Meanwhile, Russian-Tajik tension revolves around hydropower. On April 26, Tajik officials announced the collapse of a $1-billion deal, under which the Russian aluminum concern OAO Rusal was to have built a hydropower plant, known as the Rogun Dam. Rusal is also embroiled in a dispute with Tajik officials over efforts to modernize a massive aluminum plant in Tursunzade, not far from the Uzbek border. Tajik authorities’ displeasure is rooted in suspicion that Uzbek political pressure prompted Rusal to scale back plans for Rogun construction and aluminum plant modernization. Both projects, if completed, would greatly enhance Tajikistan’s political leverage in its dealings with Uzbekistan. Uzbek authorities say an expansion of the Tajik facility would cause severe environmental harm to Uzbekistan. [For background see the Eurasia Insight archive]. With Tajikistan evidently souring on the prospects of cooperation with Russia, Dushanbe appears ready to turn to Iran for help. The topic of Iranian assistance for the Tursunzade plant came up during talks between Tajik officials and visiting Iranian Defense Minister Mustafa Mohammad Najjar in late April, the Ferghana.ru website reported. Tajik officials have indicated that any Russian firm, except Rusal, will be able to join an international consortium being assembled to complete the Rogun project. Another Russian state-controlled entity, United Energy Systems, has expressed interest in completing the Rogun hydropower plant.

EURASIA_NET

RUSSIA REGISTERS VICTORY IN CASPIAN BASIN ENERGY GAME [09:38:00]

In a significant geopolitical victory, Russia appears to have torpedoed Western hopes for a trans-Caspian natural gas pipeline. At a May 12 summit, Russian President Vladimir Putin convinced his Turkmen and Kazakhstani counterparts to go along with a Kremlin-backed plan to expand a pipeline that hugs the Caspian shoreline. Such a route would help Russia maintain its stranglehold on gas exports from Central Asia to Western Europe. [For background see the Eurasia Insight archive]. Putin, along with Turkmen leader Gurbanguly Berdymukhammedov and Kazakhstani President Nursultan Nazarbayev, are expected to sign a formal agreement on the pipeline upgrade in September. Experts from the three states will hash out details between now and then. The deal would expand a spur of a pipeline network linking Turkmenistan and Russia, known as Central Asia-Center. Nazarbayev is involved because the so-called Prikaspiisky spur travels across a section of Kazakhstani territory. At present the Prikaspiisky route is capable of handling a relatively small amount of natural gas, about 5 million cubic meters per day. The deal outlined by Putin envisions a large expansion of the spur’s capacity, up to an additional 20 billion cubic meters (bcm) by 2012. The deal, provided it is completed, would appear to lock up the bulk of Turkmenistan’s gas production for export via Russia. Under an existing agreement, Turkmenistan is due to supply the Russian energy giant Gazprom with 60 bcm of gas in 2007 and up to 70 bcm in 2008. The deal between Ashgabat and Gazprom runs through 2028. In addition, Turkmenistan has pledged to begin exporting up to 30 bcm to China annually, starting in 2009. [For background see the Eurasia Insight archive]. Following the death of former Turkmen dictator Saparmurat Niyazov, the United States, European Union and Azerbaijan lobbied his successor, Berdymukhammedov, to commit to a trans-Caspian pipeline (TCP) that would have circumvented Russia. [For background see the Eurasia Insight archive]. Berdymukhammedov appeared non-committal during a visit to Moscow in April, but was enthusiastic about the project following the tripartite summit on May 12, held in the Turkmen coastal city of Turkmenbashi. [For background see the Eurasia Insight archive]. It would seem that if Turkmenistan fulfills the Prikaspiisky pipeline’s export projections, as well as its other commitment to Russia and China, there would be little gas left over to make a TCP route profitable. Nevertheless, Berdymukhammedov insisted on May 12 that the TCP project was "still on the table." Some observers believe that the Turkmen leader’s comments were motivated by a desire to maintain leverage against Russia over the pricing of Turkmen gas. Nazarbayev, like Berdymukhammedov, seemed to still be thinking about TCP. At the news conference announcing the preliminary agreement on the Prikaspiisky upgrade, Nazarbayev made a gaffe, saying: "Here in the city of Turkmenbashi, we are signing a document on the establishment of the trans-Caspian Pipeline."

EURASIA_NET

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