Analysis: Central Asian energy in 2009
by John C.K. Daly
As Eastern Europeans shiver because of Ukraine's obdurate refusal to pay world market prices for Russian natural gas,
much less pay off its debts, the era of cheap gas is also over in eastern Central Asia.
In 2009 many Central Asians and businesses will look back with some nostalgia on 2008 as a time when they could pay their energy bills without undue hardship. While in Eastern Europe Gazprom is being portrayed as the villain of the day, at the heart of the issue in Central Asia is the complex relationship between local gas superpower Uzbekistan and its poorer eastern neighbours Tajikistan and Kyrgyzstan, with Gazprom for the moment on the sidelines.
The complicated trilateral relationships have a significant undercurrent of energy issues beyond gas, as Tajikistan
and Kyrgyzstan currently generate the bulk of their power from Soviet-era hydroelectric facilities. What complicates
relations between Tajikistan and Kyrgyzstan with its larger neighbours to the west -- Uzbekistan, Kazakhstan and
Turkmenistan -- is that the trio is dependent on regular water flows from Central Asia's largest rivers, the Amu
Darya and Syr Darya, which originate in mountainous Kyrgyzstan and Tajikistan for irrigation.
During the Soviet era, the five "Stans" functioned as an agrarian centre for the entire Soviet Union, growing grain and cotton during the spring and summer and receiving in turn during the autumn and winter energy shipments to allow the rivers' outflow to be held in reservoirs for release in the growing season.
The arrangement collapsed, along with the Soviet Union, in December 1991, and 17 years of negotiations have yet to
resolve the tangled trade and energy issues that subsequently emerged. The last few years have seen Tajikistan and
Kyrgyzstan, the poorest of the former Soviet republics, increasingly hoarding water to generate hydroelectric power
during the cold months, causing havoc with their downstream neighbours' spring and summer growing seasons, while
massive autumn and winter discharges have resulted in downstream flooding.
Accordingly, several broad regional patterns for Central Asian energy issues for 2009 are already discernible.
The first is that, as 17 years of complex negotiations have yet definitively to resolve the complex hydrological
issues surrounding the Amu Darya and Syr Darya rivers, the ad hoc arrangements devised over the in 2008 will continue
to be used as a benchmark in the absence of anything more permanent.
On Oct. 18 in Almaty, the largest city in Kazakhstan, the deputy prime ministers of Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan signed provisional agreements regulating upstream water discharges and the provision by the downstream state of fuel and electricity exports to Kyrgyzstan and Tajikistan to cope with what Kazakh Vice Prime Minister Umirzak Shukeyev diplomatically called "the very difficult autumn-winter period of 2008-2009."
The concord resembled similar earlier agreements between Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan, but these
ended in 2004-2005 and were followed by a series of bilateral agreements delineating the distribution of water,
electricity and fuel, as well as the operation of the region's united energy system.
The October accord is the first such agreement between the five countries since 1991, but it finally postpones tackling the disputes rather than definitively resolving them. The upcoming year doubtless will be filled with meetings attempting to address the pertinent issues, but about the only certainty is that each nation will seek maximum advantage, rendering the possibility of concluding a long-term arrangement remote.
The second element dominating regional discussions will be rising energy prices. Earlier, Ashgabat and Tashkent
scored a notable victory when Gazprom signed gas contracts to buy Turkmen and Uzbek gas for more than $ 301 per tcm
during the first quarter of 2009.
Further east, Uzbekistan, as eastern Central Asia's sole gas-exporting nation, in turn has already negotiated substantial price increases with Kyrgyzstan and Tajikistan. According to Kyrgyz Minister of Industry, Energy and Fuel Resources Ilias Davydov, Bishkek and Tashkent earlier signed a gas agreement with Uzbekistan under which Kyrgyzstan will pay $ 240 per tcm in 2009; the price per tcm in 2008 was $ 145. The only silver lining for Kyrgyzstan during the protracted negotiation was that the Kyrgyz officials haggled the price down from Tashkent's original proposition of $ 300 per tcm.
Tajikistan has been subjected to similar price hikes, having also paid $ 145 per tcm for Uzbek natural gas imports in
2008, which since have risen to $ 240, and has suffered further short-term energy shortages as Turkmen electricity
exports to Tajikistan via Uzbekistan have been halted because of Uzbek maintenance work on transmission line LEP
Under a 2008 Tajik-Uzbek agreement, a contract was concluded for Tajik electricity imports from Turkmenistan of 1.2 bn kWh from November 2008 to March 2009. Further concentrating the minds of officials in Dushanbe is the fact that the situation may sharply worsen after an arctic cyclone forecast for later this month hits Tajikistan.
The third pattern marking Central Asian energy issues this year will be a mad scramble for foreign investment to
develop indigenous energy resources in order to lessen foreign dependency. Tajikistan's new 670-MW Sangtuda-1
hydroelectric plant is scheduled to come online in late March. Sangtuda-1, however, represents trading one foreign
master for another, as Russian capital in the facility accounts for 75 % of its cost.
Rising to the occasion, Moscow has expressed its willingness to build an additional two or three hydroelectric plants in Tajikistan as well as participate in completing the 3,600-MW Rogun plant. Iran is also entering the Tajik market, as the Sangtuda-2 plant being built with Iranian investment is scheduled to come online in 2012.
Tajikistan also has signed an agreement with China to build the $ 300 mm, 160-200 MW Nurobad-2 hydroelectric power
plant. Tajikistan has the largest hydroelectric capacity in Central Asia, with the estimated potential to produce
more than 300 bn kilowatt-hours of electricity annually.
Russia also is deeply interested in the Kyrgyz natural gas industry, and as Kyrgyzstan's gas industry is essentially bankrupt, its government is considering selling Gazprom nearly three-quarters of the state-owned natural gas company Kyrgyzgaz.
The upcoming year promises to see substantive changes in the power industries of Central Asia's two poorest former
Soviet republics. Uzbekistan's substantial gas reserves guarantee it a degree of autonomy in negotiating with foreign
companies that cash-strapped Tajikistan and Kyrgyzstan simply do not. Its contracts with Gazprom and its eastern
neighbours guarantee Tashkent a hefty revenue stream for the foreseeable future.
Farther east, come next autumn, the question will be not so much whether lights in Bishkek and Dushanbe remain on, but to what foreign entity Kyrgyz and Tajik consumers make their checks out to, leaving only the remaining minor regional question of water to be resolved, where doubtless Tajikistan and Kyrgyzstan will play hardball with their affluent, energy-rich neighbours.