Turkmenistan, Uzbekistan Play Energy Games While Central Asia Shivers
The leaders of Turkmenistan and Uzbekistan are trying to extract the maximum benefit from their neighbors' misery. As the people of Central Asia shiver through the harshest winter in generations, Ashgabat and Tashkent are turning the screws, or shutting off the valves altogether, in a bid to obtain a higher price for their natural gas exports.
Temperatures of minus 20 degrees Celsius have prevailed this winter throughout Central Asia. The extreme cold has caught governments unprepared, as officials did not stockpile sufficient energy supplies to provide adequate heating and electricity. This flaw presented an opportunity to the leaders of Turkmenistan and Uzbekistan, two countries who serve as regional suppliers of natural gas. Turkmen leader, Gurbanguly Berdymukhamedov, and his Uzbek counterpart, Islam Karimov, held telephone negotiations on December 18, during which they agreed to coordinate their pricing strategy.
"Having stressed that energy resources were a strategic factor for the stable development of both states, and the increasing well-being of their peoples, the sides confirmed their readiness for close interaction" on pricing and other energy export-related issues, according to an account of the conversation distributed by the Turkmen State News Service. On January 12, Turkmen state television reported that Berdymukhamedov had signed a decree concerning Ashgabat's participation in a Turkmen-Uzbek inter-governmental commission "for trade, economic, scientific, technological and cultural cooperation."
Within days of the December 18 conversation, Uzbekistan imposed massive increases on Tajikistan and Kyrgyzstan, boosting the gas price from between $100-$115 per thousand cubic meters (tcm) to $145 tcm. As recently as 2006, Kyrgyzstan was paying Tashkent $55/tcm.
About the same time, Karimov's administration also began pressing Russia to pay a higher price. Russia is dependent on purchases of relatively cheap Central Asian energy to serve its domestic market, allowing Moscow to obtain ever-higher prices for Russian-produced oil and natural gas, which is shipped to foreign markets, especially Western Europe. Moscow also needs Central Asian energy to help meet its export obligations. Reports published by the official RIA Novosti news agency, quoting officials of the state-controlled energy conglomerate, Gazprom, have suggested that Russia's export price to Western European nations could rise from the present range of about $250 to as much as $400 in the coming year.
In late December, Russia quietly agreed to a sizable price hike for Uzbek gas, similar to the price it agreed to pay for Turkmen energy. Originally, Tashkent is believed to have sought $185/tcm from Moscow. According to an individual familiar with the negotiations, Russian negotiators eventually agreed to pay $130/tcm for the first half of 2008, and $150/tcm for the last six months of the year.
Interestingly, neither side has made a formal announcement about the new pricing structure. This fact has prompted some regional energy experts to believe that the deal is part of a larger framework that has not yet been finalized. Some point to a recent deal, involving the $110 million investment of a Russian entity, Stroytransgaz, in an Uzbek liquefied natural gas plant venture as evidence that such a framework is being worked out. Uzbekistan's ongoing desire to gain wider access to the Prikaspiisky pipeline project -- currently moving forward under the auspices of Russia, Turkmenistan and Kazakhstan -- also may be another key element in the framework. [For background see the Eurasia Insight archive].
Russia, which has the ability to pass along higher costs to its export consumers, has not quibbled with Tashkent's behavior. Russia also has a very powerful lever, namely access to the Prikaspiisky project, that it can use to force changes to Uzbekistan's negotiating position.
But Uzbek pricing demands have had significant repercussions in Tajikistan and Kyrgyzstan. Both countries lack the available funds to pay for the hike. Kyrgyz officials, for example, felt that the population could bear only a 30 percent hike in the consumer price, even though Uzbek export price rose by 45 percent. Tajik officials, meanwhile, announced a 50 percent increase in consumer gas prices. On top of the rising gas price, both Uzbekistan and Turkmenistan have significantly curtailed electricity exports to Tajikistan by roughly 50 percent.
"The Kyrgyz economy is bearing the price rise of Uzbek gas with difficulty," said a commentary posted on the Gazeta.kz website on January 3. "The people of Tajikistan will bear the most substantial losses. The poverty rate, which is already high, may increase. One could expect heightened activity of labor migration from Tajikistan to Kazakhstan and Russia. This will happen closer to the spring of 2008."
Some political analysts believe Uzbekistan, in its approach toward Tajikistan and Kyrgyzstan, is ripping a page from Russia's playbook -- trying to use the energy dependence of its negotiating partners for political purposes. Tashkent has long quarreled with Dushanbe, for example, over a variety of economic and political issues. [For background see the Eurasia insight archive]. Natural gas thus could prove the weapon with which the Karimov administration can compel Tajik officials to adhere to its wishes. "With a constant threat of increasing export prices, Tashkent will strengthen its political influence over Kyrgyzstan and Tajikistan," said Kazakhstani commentator Akram Asrorov, in an analysis posted by Gazeta.kz on December 29.
While Uzbekistan's pricing strategy has generally brought Tashkent the expected benefits, some of Turkmenistan's efforts to secure additional advantages appear to have backfired. In particular, Ashgabat now finds itself in an awkward position after it tried to force Iran to pay a higher gas price by cutting off supplies. Some areas of northern Iran, along the border with Turkmenistan, have now been without energy imports for over two weeks.
Iranian leaders have flatly refused to bow to Turkmenistan's pricing demand, and have even gone on the counter-offensive by threatening to abandon future purchases of Turkmen energy. On January 15, state radio broadcast comments by Deputy Iranian Oil Minister Akbar Torkan, who said it was "immoral" for Ashgabat to cut supplies during the depths of winter. Other Iranian leaders have said they will not begin to consider renegotiating the existing supply contract until Turkmenistan resumes exports. According to a report distributed by the Iranian Student News Agency, the country's oil and foreign ministries are preparing to appeal to an "international tribunal" to seek sanctions against Ashgabat.
Meanwhile, the higher energy prices reaped by Turkmenistan and Uzbekistan have yet to translate into improved living standards in either country. Severe shortages of gas and electricity are also plaguing Turkmenistan and Uzbekistan, as their respective governments have continued to emphasize exports, especially to Russia, over domestic needs. As a result, entire villages, according to some media reports, are being stripped of trees, as residents burn whatever they can get their hands on in order to stay warm.
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