Books on Kazakstan
Update No: 390 - (26/10/13)
Summary: China is fast proving itself to be a valuable customer and investor
in Kazakhstan, pushing out competition from Russia and India. But Astana still
relies on trade with the EU to keep it in petrodollars even though talks between
the two sides are strained over Kazakhstan's human rights and justice record.
On September 7, during a tour of Central Asia to secure hydrocarbons, Chinese
President Xi Jinping struck a deal with Kazakhstan, giving China a stake in its
enormous and lucrative Kashagan oil project. Kashagan is the world's largest oil
discovery in fifty years – holding estimated reserves of 35 billion barrels of
oil, with between 9 billion and 13 billion barrels that can be tapped – and that
deal was just one of 22 oil and gas agreements worth around $30 billion signed
by China across Central Asia during Xi's visit.
Under the Kashagan deal, Kazakhstan sold an 8.33 per cent stake in the offshore
oilfield in the Caspian Sea to China National Petroleum Corp for about $5
billion (a stake that came up for grabs in July when US oil major ConocoPhillips
sold it to Kazakhstan). CNPC also agreed to pay up to $3 billion to cover half
of Kazakhstan's costs of the second phase of Kashagan's development, which is
expected to start after 2020.
The deal has left India out in the cold. The 8.4-per cent stake originally sold
to Kazakhstan by ConocoPhillips was promised last year to India's ONGC overseas
oil company, but that can't happen now. Russia – once an imperial force with
Kazakhstan in its hand – also doesn't have a share. The field is developed by a
multinational consortium of other, largely Western, companies – Italy's ENI, US
major ExxonMobil, Royal Dutch Shell, France's Total and Japan's Inpex as well as
Kazakhstan's Kazmunaigaz. Between them, those companies have invested $50
billion over the past 13 years, making Kashagan the world's most expensive oil
project, and China's cash injection is clearly welcome.
Kazakhstan, which holds three per cent of the world's recoverable oil reserves,
still relies on Western expertise and investment to develop its oilfields
following the brain-drain that occurred after the collapse of the Soviet Union.
But in recent years it has vowed to gain greater control over how its energy
fields are managed and to take a larger slice of profits from sales. As a
business partner, China is favourable to Russia, which is prone to demanding
steermanship. But even though Kazakhstan is embracing cosier economic ties with
China, Europe is still its biggest partner.
Over 40 per cent of Kazakhstan’s exports go to the EU market – mostly oil and
uranium. But relations between the two sides have soured since Kazakhstan
chaired the OSCE in 2010 and faltered on promises to strengthen democracy. After
a year of relative silence between the two sides, on October 9-10, the European
Union and Kazakhstan re-ignited negotiations on an enhanced Partnership and
Cooperation Agreement. But the will to compromise in order to expand ties didn't
appear to be there. Negotiations focussed on “political dialogue, cooperation in
foreign and security policy, economic cooperation and justice and home affairs”,
and discussions were frayed due to disagreements on Kazakhstan’s poor record on
human rights, the way in which it administers justice and the fact that it has
not yet joined the World Trade Organisation.
As stated by the EU Central Asia Monitor, Europe wants a stable and reliable
partner in Central Asia, but it also wants that partner to have democratic
values, good governance and rule of law. The Kazakh government’s handling of the
Zhanaozen protests in late 2011 (see New Nations, January, 2012) has shown that
the country is failing on these points (witnesses and defendants were tortured
and verdicts were falsified). In its report published on September 30,
“Kazakhstan: Waiting for Change”, the International Crisis Group found that the
government of Kazakh President Nursultan Nazarbayev has spurred the country’s
role in the global energy sector but left it with weak political institutions,
corruption, censored media and frequent infringement of human rights.
The report summarises: “Since Kazakhstan hosted the 2010 OSCE summit, it has
enacted laws that systematically curtail political and personal liberties.
Opposition politicians, the media and civil society face fines and imprisonment
for criticising the government. The concentration of power in the hands of a
small group, the weakness of the political institutions and the overwhelming
concentration of economic growth in the cities of Astana and Almaty threaten to
undo gains made in the past two decades... In a post-Nazarbayev era, an
individual or group will likely need to tighten control in order to consolidate
power. Kazakhstan’s political institutions are not designed for competition or
pluralism. There is a strong danger of infighting, and thus further instability,
among the political and economic elites. In the event of popular protests,
demonstrators would run the risk of exciting security forces already prone to
Deirdre Tynan, Crisis Group’s Central Asia Project Director, said: “If it
doesn’t make a significant effort to push forward with political, social and
economic reforms, Kazakhstan risks becoming just another authoritarian regime
that squandered the advantages bestowed on it by abundant natural resources”.
Even so, because Kazakhstan currently enjoys strong economic growth from the
recovery and sale of its natural resources, it believes that it is the “stable”
partner in Central Asia that the EU is looking for. The economic relationship
between Kazakhstan and the EU is not evenly balanced – EU exports to Kazakhstan
account for roughly 0.4 per cent of the Union’s foreign trade turnover – and so
Europe has the upper hand. But if the EU decides to put democratic values ahead
of its need for Kazakh hydrocarbons and Kazakhstan can wrest more control over
its oil projects, China may begin to become an even more attractive alternative.
For now, Kazakhstan will continue to pay lip-service to the EU's rhetoric.