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Update No: 287 - (29/11/04)
Growing Russian influence in Central Asia
Under President Putin, Russia is aiming to establish a stronger position in the
region with emphasis on greater cooperation in the energy and military sectors;
this is signified by a series of bilateral and multilateral agreements into
which Russia has recently entered.
Having lost its superpower status, Russia still remains an important player in
world politics. Given the changing contours of Moscow's regional dynamics,
accentuated by increasing U.S. and Chinese influence and the creeping engagement
of the European Union in the Caucasus and Central Asia, it is obvious that
Russia cannot afford to be a bystander to the changing military and strategic
balance of power in its backyard.
Following NATO's recent policy announcements of increased engagement in the
Caucasus and Central Asia, Moscow leaders such as Konstantin Kosachev, the
influential head of the Russian State Duma's Committee for Foreign Affairs, have
argued that Russia should use its influence in the region to encourage democracy
and show local governments that the Kremlin does not want to re-impose
Soviet-style military and economic dominance on the region. Kosachev has stated
that Russian clout with the domestic political processes in these countries
should be used to promote the development of truly democratic states.
It is important to highlight that, traditionally, Russia has considered the
region as a strategic buffer against outside threats; consequently, many
strategic interests compel Russia to retain Central Asia within its sphere of
influence. Moscow's major objectives and interests could be ascribed as:
· Help transform the Central Asian Republics (CAR) into politically and
economically viable states with friendly policies towards Russia.
· Strengthen Russia's role in the system of intergovernmental political and
· Extend and further institutionalise integration among the member states of
the Commonwealth of Independent States (CIS).
· Secure Russian economic interests in the region.
· Maintain Russian hold over regional energy resources, in addition to Caspian
Sea oil transportation routes that will be advantageous to Russia.
· Counter the threat of religious extremism while encouraging the prevention of
drug trafficking and arms smuggling.
· Ensure Central Asia's ecological security, especially concerning
environmental disasters in the Aral and Caspian Sea.
· Protect the rights of Russians living in the region.
Safeguarding Russian economic interests is one of the most important objectives
of Moscow's CAR policy. In order to protect these interests, Russia has kept a
tight rein on the states it considers most critical, particularly Kazakhstan.
Kazakhstan is the single most important country for Russia, both politically and
economically. It is the home of significant ex-Soviet defence/industrial
facilities including the Baikonur space launch complex and a nuclear weapons
Kazakstan is the second largest oil producer after Russia in the former Soviet
Union. Control over its energy resources and their means of transportation
provides Russia tremendous strategic and economic leverage. Similarly, there are
large enterprises in Russia that are dependent on cotton imports from
Uzbekistan. Overall, there is a great amount of interdependence in the economic
sector between Russia and CAR.
Russia also has vital interests in the oil and gas complexes of Central Asia.
The region possesses enormous reserves, making it important for Moscow to pursue
economic advantages while simultaneously fulfilling the strategic role of
ensuring Russian control in the sphere of oil and gas production and
transportation in its near abroad. In addition, Russia seeks to avoid economic
isolation by building new pipelines across its territory. The activities of
Russian oil and gas companies in Central Asia are growing in Kazakhstan, where
the struggle for control of oil exports has already started. This is true to a
lesser degree in Turkmenistan and Uzbekistan.
Russian political analysts tend to look at their country as a status quo power
in Central Asia that prefers gradual transformation as a choice between rapid
transition to democracy and maintaining stability. They prefer a process of
gradual transformation underscored by stability rather than attempts at the
imposition of Western-style democratic models alien to these states.
Changing contours of Russian engagement
Concerned with the growing American and Chinese influence, and given its
strategic interests in the region, Russia has been incrementally enhancing its
engagement with the intention of expanding, consolidating and further
strengthening its relations with C.A.R. Under President Putin, Russia is aiming
to establish a stronger position in the region with emphasis on greater
cooperation in the energy and military sectors; this is signified by a series of
bilateral and multilateral agreements into which Russia has recently entered.
Following the US denial of aid to President Islam Karimov of Uzbekistan due to
his government's dismal human rights record, Russia seized the opportunity to
formalize economic and military agreements with Uzbekistan that are likely to
not only enhance its standing with Uzbekistan but in all of Central Asia. Under
the terms of the agreement, the two countries are to develop a wide-ranging
security system that encompasses ministries of defence, interior, foreign
affairs and security councils. Tackling terrorism, weapons of mass destruction,
narcotics trade and organized crime are some of the stated objectives of the
This has been followed by a breakthrough in relations with Tajikistan. A recent
bilateral agreement will create the establishment of a Russian military base,
border cooperation wherein Russia will assist Tajikistan in development and
performance of its border guard structures, as well as military aid.
Furthermore, Russia's Federal Security Service will establish a border
operations group to coordinate such partnership and assist Tajikistan in
guarding its border. At the signing ceremony in Dushanbe, Putin stressed that a
Russian military presence in Tajikistan will guarantee Russian investments and
overall stability in the region.
Another prong of Russia's multi-pronged regional engagement strategy has been
its formal joining of the Central Asian Cooperation Organization (CACO) on
October 18, 2004. Set up in 1994 as a purely economic organization, CACO is now
being transformed into an all-encompassing regional set up with an agenda that
includes political, economic and anti-terror issues. This move is increasingly
seen as a check of the U.S. and Chinese push into the region.
Similarly, Russia, as mentioned earlier, has extensive economic and political
linkages with Kazakhstan, renewing the lease deal of the Baikonur space centre
for the next fifty years. It is also discussing Kazak gas exports to Europe
through Gazprom. Russia has also developed significant military and economic
ties with Kyrgyzstan by opening a military base near the city of Kant.
Beyond this economic and military bilateral engagement, Russia is enhancing its
hold through the Collective Security Treaty (CST), now transformed into the
Collective Security Treaty Organization (CSTO), making Russia a dominant player
in this arrangement. Russia is also forging close ties with the Shanghai
Cooperation Organization (SCO) to keep Chinese influence in check. As part of
the increasing security interaction, Russia has promised to hold large CSTO
exercises in Tajikistan during the first half of 2005.
On the energy front, despite moves made by the US and China to exercise control
over energy routes, Russia still has an edge. Most of the existing Central Asian
pipelines pass through Russia. At present, Russia contributes nearly 15 per cent
of the oil supplied to the US According to Russia's Minister of Economic
Development and Trade German Gref, Russia can start to freely compete with the
Arab oil-producing countries to supplement the American market.
Moscow aims for stability
Russia's approach in enhancing its influence and engagement with CAR is
centred around fundamental premises. Attempts at territorial domination of
erstwhile CIS states no longer play a significant role in Russian strategy.
Moscow's aim appears to be to use the plank of stability as a dominant foreign
policy formulation within which Russian national interests are best served by
exploitation of economic and military levers of influence. The stability factor
is also central in persuading the large, ethnic Russian population to remain in
the region rather than to immigrate to the Russian Federation. The ethnic
Russian diaspora in Central Asia is looked upon as a key asset in attempts to
tie regional economies to Russia's.
Russia, in spite of relatively good relations with the US, remains circumspect
about the long-term consequences of increasing American presence and influence
in the region. It would not like to see the region overly aligning with Western
interests. Military and economic linkages, including energy, remain significant
to Russian national security interests. This is reflected in the statement of
Russian Colonel General Valery Manilov, that, "if Washington does move to
set up a permanent military base in Uzbekistan or Kyrgyzstan, the new situation
will be viewed within the context of an integrated system for formulating the
Kremlin's overall political strategy for asserting our national interest."
This, however, does not underscore the fact that Russia does not want
confrontation with the U.S. It is most likely to work out a mutually acceptable
and accommodative agreement.
Interestingly, Russia has of late hardened its approach towards China. In the
October 2004 meeting of the SCO, it vetoed the idea of a free trade area
suggested earlier by China, a move that was endorsed by other members of the
organization. It appears that Russia is concerned about Beijing's growing
economic and military influence, which is likely to subvert its own interests
given China's increasing economic clout.
Kazakstan has its own priorities in respect of China. With a 1700km frontier and
650,000 Kazaks across the border in XinKiang, with China offering massive
potential to Kazak oil, the Kazak government, whilst mindful of Moscow will not
be dictated to where China is concerned.
AVIATION & SPACE
Progress spacecraft to take off for ISS in December
Another launch of the Progress-M cargo spacecraft to the International Space
Station (ISS) is lined up for late December this year, a Baikonur Space Centre
official said recently, Interfax News Agency reported.
The Soyuz-TMA-5 spacecraft, carrying the 10th expedition crew, took off for the
ISS from Baikonur on October 14th. Commenting on the launch, Energia Space Co
president Yury Semyonov, said that space industry crews, which had participated
in preparing the launch, had demonstrated high skills and the capability of
working under stress.
"At the moment the fate of the ISS depends on the operation of the Gagarin
Launch (the launch pad at Baikonur from which Russia's first cosmonaut, Yury
Gagarin, lifted off), and I can rely on professional skills of space centre
crews," he noted.
Semyonov stressed that the deadline for resuming shuttle launches to ISS had
once again been shifted, so ISS could only be supplied by Soyuz and Progress
carrier rockets. In the meantime, in addition to the Progress launch, the
Baikonur Space Centre decided to conduct another four launches by the turn of
The Proton-M carrier rocket, equipped with the Briz-M booster and carrying the
US AMC-15 telecommunications satellite, was launched from Baikonur recently. The
Russian Express AM-1 telecommunications satellite launched on October 30th.
Moody's rates Kazkommerttsbank
Moody's Investors Service assigned a rating of Baa2 stable (outlook) to the
upcoming issue of senior unsecured notes by Kazkommerts International BV,
unconditionally and irrevocably guaranteed by Kazkommertsbank of Kazakstan, the
rating agency said in a statement on October 14th, Interfax News Agency
The amount of the placement is expected to be 300 million Euro, while the
maturity of bonds issues was expected to be five years. The ratings of the
senior unsecured bond issues have pierced Kakakstan's sovereign ceiling for
bonds of Baa3. The level of the rating reflects the important role the bank
plays in the country's economy. Moody's said the likelihood of Kazkommertsbank
receiving support from the government in case of distress is very high and is
the primary driver of the ratings. The ratings also take into account the fact
that Kazkommertsbank is the largest bank in Kazakstan, and over a relatively
short period have been able to develop an important franchise in the domestic
S&P gives Kazak bank BTA Ipoteka B+ rating
Standard & Poor's Ratings Services assigned a B+/B long- and short-term
counterparty credit and certificate of deposit ratings to the Kazakstan-based
BTA Ipoteka (BTAI) and gave a stable outlook, S&P said recently, New Europe
"The ratings on BTAI are based on its concentrated and wholesale funding,
untested performance, fast growth and start-up nature, and the generally risky
economic environment in Kazakstan," the Standard & Poor's credit
analyst, Magar Kouyoumdjian, said.
"The ratings benefit from BTAI's strong position in a lucrative niche
sector, fairly good financial position given its start-up nature, and its
supportive shareholder," the report read. Other key factors with a positive
impact on the company's rating are BTAI's strategic dependence on parent company
TuranAlem Bank and a regulatory and business environment favourable to mortgage
TuranAlem posted a 68.8 per cent year-on-year surge in net profit to over 6.2
billion tenges in January-September, the bank said. Bank assets stood at 464.7
billion tenges on October 1st, a 34 per cent increase from the same date in
2003. Equity was 41.5 billion tenges (up 58.6 per cent) and charter capital more
than 24.5 billion tenges (up 31.7 per cent).
TuranAlem management and staff own 21 per cent of the stock and Kazak investors
16 per cent. TuranAlem has 24 branches and 211 cash exchange offices. Its
shareholders are European Bank for Reconstruction and Development (EBRD),
Austria's Raiffeisen Bank, IFC, DEG and FMO, which own 22 per cent of the bank's
stock in aggregate.
Fitch assigns expected B+ to ATF Bank's Eurobond
International Rating Agency Fitch Ratings on October 22nd assigned Kazakstan-based
ATF Bank's (ATF) upcoming Eurobond an expected long-term B+ rating. ATF is rated
long-term B+ with a stable outlook, short-term B, individual D, and support 4,
New Europe reported.
The rating is dependent upon receipt of final documentation conforming
materially to information already received. The notes are to rank at least pari
passu with the claims of other unsecured creditors of ATF, save those preferred
by relevant legislation. Covenants prevent ATF entering into transactions of
US$3 million or more on other than market terms, and restrict dividend payments
to 50% of net income.
Kazakstan, Halliburton to set up oil data bank
The Kazak Oil and Gas Institute and the US company, Halliburton, signed an
agreement in Astana recently to set up an equal joint company, Petrodata
Kazakstan, to act as the technical operator for a data bank set up on oil and
gas projects, Interfax News Agency reported.
The Kazak Oil and Gas Institute said that the data bank was being set up using
PetroBank technology, developed by Halliburton.
"The main task of the national data bank will be to manage data on oil and
gas projects being implemented in Kazakstan," Bolat Uzhkenov, chairman of
the Kazak geology and natural resource protection committee at the Kazak Energy
Ministry, said at a press conference.
He said that last year in October the committee and a number of oil companies
working in Kazakstan signed an agreement to set up a national data bank. These
include Petrom, YUKOS, Kazger Munai, KPO BV, Agip KCO, CNPC-Aktobemunaigaz,
PetroKazakstan, FIOC, ChevronTexaco, Turgai Petroleum and KazMunaiGaz. Uzhkenov
said that the participating oil companies would finance the national data bank.
In turn, the Kazak government would provide "historical information, stored
in the funds and archives of the geology committee." It is also planned to
integrate the data bank with the KazMunaiGaz corporate database.
Uzhkenov said that all the information accumulated in the national data bank
would be provided to participating oil companies on a commercial basis. The
central server for the databank would be located in Astana, and regional servers
would be in the southern and western regions.
Kazakstan to buy part of BG stake in Kashagan
Kazakstan might agree to purchase part of BG's 16.67 per cent stake in the Agip
KCO consortium, developer of the Kashagan deposit and some other deposits in the
Kazak sector of the Caspian Sea, Kazak Energy Minister, Vladimir Shkolnik, said,
Interfax News Agency reported.
"Maybe it will not be the entire stake, but we are hoping to buy the BG
stake in the project," Shkolnik said. Kazakstan is currently considering
various way of financing the possible purchase from BG.
"The question is how to buy. There are different financial mechanisms,
there are many of them. And we are considering the entire range of options and I
think we will choose the optimal one," Shkolnik said, adding that the money
for the deal would likely come from loan funds. It will depend "on the
stake we will be buying," he said.
Delhi and Astana explore cooperation possibilities
India and Kazakstan decided to expand cooperation in a host of fields, including
energy, during talks between Indian External Affairs Minister, K Natwar Singh,
and Kazak President, Nursultan Nazarbayev, in Almaty recently, New Europe
Singh also discussed various regional and international issues bedsides the ways
in which the two countries can strengthen their relationship.
Forging cooperation in the energy sector with Kazakstan, which is rich in
petrochemical products, was on of the major issues discussed during the meeting,
official sources said.
India realises the tremendous potential for cooperation in oil and natural gas
sector considering the immense quantity of reserves existing in this Central
Asian country for which Indian companies can conduct exploration. Other areas
that figured in the talks included trade in pharmaceuticals and tourism, the
sectors where India finds a considerable scope for cooperation.
Kazak IT association inks partnership deal with Microsoft
Kazakstan's association of IT companies and Microsoft's in-country
representatives signed a memorandum of partnership on October 12th with the main
goal of working together in developing Kazak industry and the country's
information technology market, Interfax News Agency reported.
"Signing a memorandum of partnership between the association and the
leading international software corporation is especially urgent in the run-up to
Kazakstan's joining the World Trade Organisation. We think we have to be
together in order to make the Kazak market civilised and progressive for the IT
industry," the IT company association's Executive Director, Amiret
Konysbayev, said during the signing ceremony. Konysbayev and the Director
General of Microsoft's offices in Kazakstan, Aidar Dauletov, signed the
document. Dauletov said that besides mutual expert and consultative assistance,
the parties are looking to do projects together aimed at creating information
technologies in Kazakstan and implementing an "Electronic Government"
MINERAL & METALS
Kazak gold and forex reserves to rise 11-12% in 2005
National Bank of Kazakstan estimates that its net gold and foreign currency
reserves will grow between 11% and 12% in 2005, New Europe reported.
"We need reserves sufficient for three-month imports, and 6.7bn Euro
(current net gold and foreign currency reserves of the National Bank) already
support 4-6 months' imports. Thus, we aim at a minor increase of gold and
foreign currency reserves next year, 11-12%," National Bank Deputy
Governor, Gulbanu Aimanbetova, said at a plenary meeting of the senate on
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