RUSSIAN ECONOMIC TIES WITH UZBEKISTAN HIT TURBULENCE

Russian Prime Minister Mikhail Fradkov traveled to Tashkent on March 7 in a bid to prop up the Russia-Uzbek economic partnership, but the trip also served to highlight unresolved economic issues between the two countries.

Russian Prime Minister Mikhail Fradkov’s March 7 visit to Uzbekistan was the first by a Russian prime minister since 1999. Both sides reiterated their interest in strengthening their bilateral partnership, Fradkov said after talks with Uzbek President Islam Karimov. However, Fradkov conceded that the alliance should be backed up with greater economic commitment, and he pledged to prioritize energy cooperation (Interfax, RIA-Novosti, March 7).

Uzbek officials received Fradkov with traditionally optimistic pronouncements. Karimov reportedly welcomed Fradkov’s arrival as a confirmation of dynamic developments in bilateral relations, while Uzbek Prime Minister Shavkat Mirziyev hailed positive changes in economic ties (Interfax, RIA-Novosti, March 7).

Following Tashkent’s policy shift toward Moscow, trade between Russia and Uzbekistan has grown rapidly. Bilateral turnover reached some $3 billion in 2006. Russia is now Uzbekistan’s top foreign trade partner, accounting for nearly 25% of Uzbekistan’s total foreign trade turnover. In 2005, bilateral trade exceeded $2 billion, up from $1.6 billion in 2004.

However, several thorny issues remain. Russia’s deputy economic development and trade minister, Andrei Sharonov, voiced concern over the imbalance in automobile production. In 2006, UzDaewoo exported 67,000 cars to Russia out of its total output of 110,000, while Russia sold to Uzbekistan only 3,500 cars made by VAZ, GAZ, and UAZ (Interfax, March 7).

Bilateral economic relations have been also adversely affected by Uzbek debt to Russia, estimated at about $700 million. Russian deputy Finance Minister Sergei Storchak said that both sides had agreed to resume negotiations on the debt issue. Uzbekistan had not serviced its debt since 1998 (Interfax, March 7).

In recent years, Moscow has moved to build stronger economic relations with Karimov’s regime. In June 2004, President Vladimir Putin and Karimov met in Tashkent and signed a partnership agreement, accompanied by a $1 billion 35-year production-sharing agreement to develop Uzbekistan’s natural gas deposits. Under the PSA, top Russian oil producer Lukoil was to develop gas fields in the south of the country, estimated to have 280 bcm of reserves. Lukoil has a 90% share in the project, with Uzbekneftegaz holding the remaining 10%. The project is expected to yield some 11 billion cubic meters per year.

This year, Lukoil plans to invest $300 million to develop the Kandym-Khauzak-Shady-Kungrad PSA project, Andrei Podbolotov, head of the Lukoil Overseas office in Tashkent announced on March 6. Lukoil has already invested $218 million, he said, and the project cost could reach $2 billion — double the original estimate. Podbolotov also said that Lukoil could build a gas-processing plant in Kandym by 2011 (Interfax, March 6).

Russian energy projects appear to enjoy strong government backing from Moscow. Lukoil and Gazprom have long-term plans to work in Uzbekistan, Fradkov reiterated during his trip to Tashkent (Interfax, March 7). However, Uzbek officials are not so happy about Russian ventures in their country.

Uzbek officials apparently criticized the slow pace of Gazprom’s investments. Some $300 million is expected, but only 10% has been disbursed so far. Sharonov defended Gazprom, arguing that it had received Uzbek licenses only in December 2006 (Interfax, March 7).

This year Gazprom plans to import 13 bcm of gas from Uzbekistan, nearly 33% more than last year, according to Maksut Anderzhanov, head of the Zarubezhneftegaz Tashkent office. Last year, Uzbekistan exported some 9 bcm of gas to Russia, up from 8.15 bcm in 2005 and 7 bcm in 2004. This year, Gazprom plans to invest about $100 million to search for gas in Ustyurt region. New investments would total $400 million over the next five years, he said (Interfax, February 19).

Russia’s Gazprom has long eyed Uzbek natural gas riches. In April 2006, Uzneftegaz and Gazprom started a $1 billion venture to explore and develop oil and gas deposits in the Ustyurt plains in Karakalpakiya region. The new deposits are expected to yield up to five bcm of gas annually.

Gazprom has previously indicated its interest in acquiring a 44% percent stake in the Uzbek pipeline monopoly Uzbektransgaz. The deal was supposed to facilitate supplies of Turkmen gas to Russia via Uzbek pipelines. However, Gazprom’s acquisition of the Uzbektransgaz stake reportedly was not discussed during Fradkov’s visit to Tashkent.

Moscow and Tashkent have also struggled to cooperate on joint aircraft production. In November 2006, Russian officials indicated plans to move production of Il-76 military transport planes from Tashkent to the Russian town of Ulyanovsk. Russian had complained that Tashkent was slow to fulfill a $1 billion contract to supply 38 Il-76 military transport planes and Il-78 refuellers to China (Interfax, March 7).

Boris Alyoshin, head of Rosprom industrial development agency, said that China’s contract was discussed and Uzbekistan indicated cost overruns. The Uzbek government may bear extra costs to produce military transport planes, but the contract may still lag behind schedule, he said. However, Alyoshin said that both sides had decided to set up a new UzRosAvia joint venture to repair Mi-8 and Mi-24 helicopters at the Cherchik plant in Uzbekistan. Russia would have a 51% stake in this venture (Interfax, March 7).

Russia and Uzbekistan are also pursuing military ties. After talks in Tashkent, Fradkov said there were “positive prospects” for bilateral military and technical cooperation. However, he did not discuss opening a Russian air base in Uzbekistan (Interfax, March 7).

Both countries are facing problems with illegal Uzbek aliens in Russia. Konstantin Romodanovsky, head of Russia’s Federal Migration Service suggested concluding migration agreements with Uzbekistan in April this year. According to official data, there were about 100,000 registered Uzbek nationals in Russia, while the number of illegal Uzbek migrants was estimated at 1-1.5 million (Interfax, March 7).

Therefore, Fradkov’s visit to Uzbekistan came as an indication that Moscow’s efforts to boost economic ties with Uzbekistan have brought mixed results, even in the lucrative energy sector.