Medvedev Kicks Off Kazakhstan Courtship

With Kazakhstan the choice for Russian President Dmitry Medvedev's first official state visit, Russian and Kazakhstani officials are talking hard about plans to expand their governments' partnership. However, the two former Soviet states are understood to remain divided over some divergent interests, notably oil transit, despite Russian claims to the contrary.

On May 13, Kazakhstani President Nursultan Nazarbayev called Medvedev to discuss the agenda for the May 22-23 visit, and to congratulate him on the "successful" formation of a new government in Russia. Aside from "[b]ilateral relations and international issues," however, details about the trip's discussion topics have not yet been released by either side.

Nonetheless, close attention is being paid to what the visit will mean for strategic and energy ties between the two cash-rich states.

In an apparent gesture towards Moscow, Kazakhstani military officials have reportedly promised Russian arms exporters some lucrative contracts, according to a statement made by Kazakhstani Defense Minister Danial Akhmetov on May 12.

Kazakhstan has already selected Russia's arms export monopoly, Rosoboronexport, to act as the sole supplier for the Kazakhstani navy, Interfax reported Akhmetov as saying. Smaller naval vessels will be built at the Kazakhstani-Russian "Zenith" joint venture wharf in Uralsk, Western Kazakhstan, while larger vessels will be built in St. Petersburg and Tatarstan, he said. The year 2015 has been slotted as the target completion date for creation of a full-fledged Kazakhstani navy.

Kazakhstan is also giving priority to Russian weapon systems for its air defense system, Akhmetov said. He pledged to purchase the Russian-made S-300 Favorit missile system in the near future, and, eventually, the new S-400 Triumph.

Kazakhstani officials have also reiterated pledges for a bilateral "strategic" alliance. Medvedev's visit to Kazakhstan "confirms [the] high level of strategic partnership of our countries," Kazakhstani Foreign Ministry spokesman Yerzhan Ashikbayev announced on May 12.

The Russo-Kazakhstan partnership comes backed up by growing trade ties. In 2007, bilateral trade turnover reached $16.3 billion, a 27 percent increase over 2006, and nearly triple the size of the 2003 turnover of $5.5 billion. Much of the gain has been fueled by rising prices for hydrocarbons and agricultural products.

Those numbers look set to climb still further this year. In January-March 2008, trade between Russia and Kazakhstan amounted to $4.13 billion, a 26-percent increase from the same period last year, according to Kazakhstani government data.

However, trouble spots remain. Russia has been eager to maintain its influence over energy transit routes in the Caspian region. Russian officials have pressed Nazarbayev to agree to a 15-year deal under which Kazakhstan would commit to exporting at least 15 million tons of crude oil per year via the Baku-Novorossiysk pipeline, but, so far, without result.

With Medvedev, a former board chairman of energy giant Gazprom, now in office, that interest is only likely to deepen. The Kremlin, in fact, was so keen to clinch a transit deal with Kazakhstan on the pipeline that it dispatched a top-level official to Astana to hold talks on the day of Medvedev's May 7 inauguration.

The Russian Industry and Energy Ministry has since reported that its chief, Minister Viktor Khristenko, and Kazakhstani Energy and Mineral Resources Minister Sauat Mynbayev have reached a tentative agreement on increasing the capacity of the CPC from 32 million tons of oil per year to 50 million tons of oil per year, and up to 67 million tons per year by 2012. The reported agreement would be the follow-through to a 2006 deal in which Kazakhstan and Russia agreed to more than double crude oil deliveries via the CPC pipeline.

However, details of the agreement have not been disclosed. Russian newswires quoted Kazakhstani sources as saying that an agreement had not been reached at all. Both sides have agreed to continue expert-level discussions later in May. Feasibility studies on CPC expansion are scheduled for completion in September.

The CPC, in which Russia holds a 24 percent stake, has become a sore point for Russian officials, who have long complained about the Consortium's debt, currently estimated to stand at some $5 billion, according to government figures. In 2007, the CPC pumped 32.6 million tons of oil.

By lobbying in favor of the CPC deal, Russia was understood to be trying to prevent Kazakhstan from committing itself to the $3 billion Kazakhstan Caspian Transportation System, a project to ship Kazakhstan's oil across the Caspian Sea for the Baku-Tbilisi-Ceyhan in Azerbaijan. In February 2008, as an additional incentive to a CPC deal, Russia's Industry and Energy Ministry also pledged to funnel Kazakhstani oil via the Baltic Pipeline System.

Earlier Kazakhstani pledges to make heavier use of Russian transit routes were seen as detrimental to the rival BTC pipeline and Ukraine's Odessa-Brody pipeline, running from the Black Sea port of Odessa to Brody on the Polish border.

Shortly after Medvedev's March election, another blow was dealt -- an agreement by Gazprom to raise prices paid for gas from Turkmenistan, Kazakhstan and Uzbekistan up to European levels by 2009.

The decision is seen as aimed at the US and European Union-backed trans-Caspian gas pipeline, an underwater route that would bypass the Russian pipeline network by linking Kazakhstan, Azerbaijan and Turkmenistan directly to the West. In recent months, Moscow has been wary of Astana's and Ashgabat's interest in the project, seen by Russia as an attempt to circumvent its pipeline networks.

At the same time, while paying court to Kazakhstan, Medvedev has also not neglected the region's other primary gas producer, Turkmenistan. The Russian leader has accepted an invitation to visit the Turkmen capital, Ashgabat, although an exact date has not yet been announced. Turkmenistani President Gurbanguly Berdymukhamedov, in turn, reportedly plans to attend the June 6-8 International Economic Forum in St. Petersburg.