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Russia, Kazakhstan deals elusive
By Sergei Blagov
Russia and Kazakhstan's leadership have reiterated pledges to boost their
bilateral economic and energy partnership. However, they remain divided over
some divergent interests, notably in gas processing and oil transit.
During a meeting of Russian President Dmitry Medvedev and his Kazakh
counterpart, Nursultan Nazarbayev, at a conference on regional economic
cooperation held in Orenburg on September 11, Medvedev and Nazarbayev agreed to
develop their bilateral energy partnership. Medvedev announced that both sides
aimed to create a joint company to develop civilian nuclear power projects.
The bilateral summit was followed by other high-level exchanges
between Russia and Kazakhstan. On September 17, Yuri Luzhkov, the mayor of
Moscow, traveled to Aktau, on Kazakhstan's Caspian coast, and hailed bilateral
economic ties. He argued that Kazakh producers proved to be reliable suppliers
of grain and other food produce to the Russian capital.
Furthermore, in an apparent demonstration of closer bilateral ties the Russian
and Kazakh leaders have remained in regular contact. On September 18, Medvedev
and Nazarbayev held telephone talks to discuss bilateral cooperation and
international security. Nazarbayev reportedly hailed President Barack Obama's
decision on ballistic missile defense and Medvedev's commitment to continue his
dialogue with the US.
During the Orenburg summit, both sides signed agreements on energy, including a
project to upgrade the Ekibastuz power plant, and further enhance their
military cooperation. Medvedev suggested integrating the power supply systems
of both countries, while Nazarbayev promised to increase electricity supplies
from Kazakhstan to the Siberian regions in Russia. On September 18, Nazarbayev
repeated earlier promises to supply 500 megawatts (mw) of electricity from the
Ekibastuz power plant to Russia in order to help tackle power shortages in
Siberia in the wake of the Sayano-Shushenskaya hydropower plant disaster. [1]
In Orenburg, Medvedev praised existing joint ventures, including the Orenburg
gas processing plant. On September 10, Orenburg governor Alexey Chernyshev
announced that the Orenburg gas processing plant was expected to process 17.6
billion cubic meters (bcm) annually of Kazakh gas by 2012. The project is
expected to require 18 billion roubles (US$590 million) in joint investment, he
said.
Moreover, on September 11, Kazakhstan's Energy and Mineral Resources Minister
Sauat Mynbayev announced that Gazprom's joint venture with Kazakhstan's state
oil and gas company KazMunaiGas to process gas at the Orenburg gas plant could
be further delayed because the development of the Karachaganak gas field has
taken longer than expected. Mynbayev added that Karachaganak's future would be
clarified by the end of 2009.
The total investment in the modernization of the Orenburg plant and the
construction of a gas pipeline from Kazakhstan was estimated at $300 million to
$320 million, while the cost of Kazakhstan's alternative project to build its
own gas processing plant at Karachaganak was estimated at $1.3 billion.
In March 2005, Gazprom first indicated its plan to set up a joint venture with
KazMunaiGas to process at the Orenburg gas plant the natural gas from the
Karachaganak field, near the Russian border in northwestern Kazakhstan. In May
2006, Gazprom said the joint venture would process up to 15 bcm per year from
Karachaganak at its Orenburg plant. In December 2007, KazMunaiGaz announced
that it expected the creation of the Orenburg joint venture in mid-2008. Yet,
more than four years after the original announcement, the final joint venture
deal still appeared to remain elusive, as the parties involved apparently
struggled to agree on the venture's financial terms.
During the summit meeting in Orenburg on September 11, Medvedev also urged
stronger bilateral cooperation on the Caspian Pipeline Consortium (CPC).
However, in recent years both sides have struggled to agree on the issues
connected with the Baku-Novorossiysk pipeline owned by the CPC. The CPC has
operated at relatively low rates, partly due to Kazakhstan's reluctance to
commit more crude to the pipeline. The CPC, in which Russia owns a 24% stake,
has reportedly gained close to nothing for Moscow. Russian officials have long
complained that the CPC was making losses, and the consortium's debt has
remained at some US$5 billion.
In April 2006, then president Vladimir Putin and Nazarbayev announced a major
agreement on the Caspian crude transit from Kazakh oil fields through Russia to
Europe. Russia and Kazakhstan agreed to more than double crude oil deliveries
via the CPC from 28 million tons a year in 2005. In May 2008, Russia and
Kazakhstan confirmed the agreement on increasing the capacity of the CPC from
32 million tons per year up to 50 million tons annually at the first stage of
the expansion project and up to 67 million tons by 2012.
Moscow has been eager to maintain its influence over energy transit routes in
the Caspian region. Russian officials pressed Nazarbayev to agree to a 15-year
deal under which Kazakhstan would commit to exporting more crude oil via
Russian pipelines. However, a binding oil transit deal between Russia and
Kazakhstan has proven elusive. Therefore, during their summit in Orenburg, the
Russian and Kazakh leaders faced the challenging task of discussing some
divisive issues. Despite the officially optimistic pronouncements, bilateral
gas processing and oil transit deals still appear to remain some way off.
Note:
1. The station, Russia's largest and reportedly the world's sixth-largest
hydroelectric plant, on August 17, 2009, suffered an accident that caused
flooding of the engine and turbine rooms and a transformer explosion, killing
at least 74 people. Power generation from the station ceased completely.
According to the BBC, the station, about 3,000 kilometers east of Moscow,
provides a quarter of RusHydro output and is a major supplier of power to at
least two smelters owned by United Company Rusal, the world's largest aluminium
producer. All Rusal plants were operating as normal with alternative power
supplies, the BBC reported on August 17, citing the company.
Dr Sergei Blagov was a newswire reporter prior to working as a
Moscow-based independent researcher and journalist. He spent nearly seven years
reporting from Hanoi, Vietnam, between 1983 and 1997.
(This article first appeared in The Jamestown
Foundation. Used with permission. Note added.)
(Copyright 2009 The Jamestown Foundation.)
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