By Ed Johnson/Bloomberg
Political corruption in Central Asia is preventing the region becoming a reliable supplier of energy to the European Union and from reducing the bloc’s dependence on Russia for gas and oil, the International Crisis Group said.
Turkmenistan, Kazakhstan and Uzbekistan are failing to develop strong democratic institutions and diversified economies and are a potential source of instability in the region, the Brussels-based group, which aims to resolve conflicts, said in a report on 24 May.
“Central Asia can make a contribution, a modest one, to helping resolve Europe’s energy security concerns,” said Charles Esser, the group’s energy analyst. “But only if outside investment is tied to the good governance that is needed to improve regional and human security.”
The European Union is concerned about the reliability of oil and gas supplies from Russia which some countries in the 27- nation bloc complain have been cut for political or economic reasons. A US-backed trans-Caspian pipeline aims to tap Central Asian gas and oil and lessen Europe’s dependence on Russia.
Russia’s hold on supplies to Europe was bolstered earlier this month when President Vladimir Putin signed an agreement to build a pipeline to import more natural gas from Turkmenistan.
The three Central Asian countries are showing signs of the “resource curse” under which energy-rich nations fail to thrive or develop distorted, unstable economies, the crisis group said in the report.
Kazakhstan, a country of 15.3 million people which has 3.3% of the world’s oil reserves, is “infused” with corruption and has spent more money on “Pharaoh-like projects” such as the construction of a new capital city than on health care and education, the group said. The economy is undiversified, manufacturing has been “stunted” by an overvalued currency and the whole country “will be subject to a shock if energy prices come down.”
Such problems are “even more extreme” in Turkmenistan, said the group. Most of the 5 million population lives in poverty, investment in energy has faltered and the largely desert country, which is bigger than California, lacks key skills. It remains to be seen whether this will change after the death of President Saparmurat Niyazov in December, the group said.
The country is the biggest natural-gas producer in the former Soviet Union after Russia. Its gas reserves are equal to about 102 trillion cubic feet, compared with Russia’s 1,688 trillion cubic feet, according to BP Plc.
In Uzbekistan, which is the third-largest natural-gas producer in the former Soviet Union, most of the energy revenue goes to the elite, while some is “used to support a massive and brutal security system,” according to the report. Domestic gas supplies are often cut in winter so it can be sold abroad, causing protests in the landlocked nation of 27.8 million people.
“The hard fact is there is no substitute for arrangements with Russia that stress mutual dependence on commercial oil and gas delivery,” said Michael Hall, the group’s Central Asia project director. “The international community needs to pay more attention to Central Asia as a security risk, without expecting it to solve its outside energy needs.”
The EU became Russia’s largest energy market in 2004. It imports about 63% of its natural gas, of which about 45% is from Russia, according to the report. Oil and gas make up more than 60% of Russian exports to Europe.
Russia shut an oil pipeline in January that crosses Belarus, accusing the country of illegal siphoning. The closure cut supplies to refineries across central Europe and renewed EU concerns about Russia as a reliable energy supplier.
The planned trans-Caspian pipeline would ease Europe’s dependence on Russia. It cannot “write Russia out of the European energy equation,” the group said.
“Coherent engagement with Russia is needed on many levels,” the group said. “As a Europe without gas imports from Russia is not foreseeable, steps to improve energy security with Russia are more of a priority than a Caspian shortcut.”