ARE KAZAKHSTAN’S ECONOMIC BONDS WITH GEORGIA THE PRICE OF STRONGER TIES WITH RUSSIA?

Russian President Dmitry Medvedev used the annual meeting of border regions of Kazakhstan and Russia in Aktobe (western Kazakhstan) on September 22 to confer with Kazak President Nursultan Nazarbayev, one of the Kremlin’s few remaining allies in its tense relations with the West. Both sides carefully circumvented the thorny issue of South Ossetia; and Medvedev, unlike his muscle-flexing predecessor Vladimir Putin, did not fume over the “protection of ethnic Russians’ rights” in Kazakhstan and elsewhere in the “near abroad.” “We value the partnership with Kazakhstan,” the Russian president said, adding that Moscow and Astana shared identical views on “all issues on the international agenda” (Kazakhstanskaya Pravda, September 24).

Nazarbayev and Medvedev signed protocol agreements on the introduction of simplified procedures for cross-border trade, passport control at check-points, and boosting interaction between customs authorities and the national railway companies of Russia and Kazakhstan. The content of their talks and the protocols all point to Moscow’s intention to tighten its economic grip on Astana and to forge a new economic and political alliance in Central Asia. Speaking in Aktobe, Medvedev proposed to transform cooperation between border regions to regular business ties between the interior regions of Kazakhstan and Tatarstan, Chechnya, and the Altai Republic of Russia. Medvedev also offered close cooperation in the areas of nanotechnology, innovative industry, and the development of nuclear energy. A preliminary agreement was reached on construction of a transport corridor linking Russia with Western China via Kazakhstan. Nazarbayev stressed the importance of the increase of the pumping capacity of the Caspian Pipeline Consortium network, which would allow the transport of Kazakh oil “precisely through Russia.” Medvedev vaguely responded that Russia would construct new pipelines “when it is possible and profitable” (Panorama, September 26).

Given the ambiguity of the present state of Russian-Kazakh relations, Russian investors are obviously reluctant to pour money into the Kazakh oil industry. At best, Russia hopes to regain its once powerful position in Kazakhstan’s oil sector by modernizing and increasing the capacity of the existing oil transporting infrastructure. One of the convenient routes for Moscow is the 42 mile (700 kilometer) long Atyrau-Samara pipeline, of which a 300-mile (500-kilometer) stretch runs through Kazakhstan. Over the last 10 years, Kazakhstan’s KazTransOil has spent millions of dollars reconstructing the Kenkiyak-Atyrau, Alibekmola-Kenkiyak, and North Buzachi-Karazhanbas sections to increase the capacity of the pipelines; but a well-developed pipeline infrastructure has given Kazakhstan little help in gaining political independence from Russia in its oil routes diversification efforts.

At a recent cabinet meeting, Minister of Agriculture Assylbek Kurishbayev announced that the Kazakh government had decided to abandon the project of a grain terminal in Georgian Poti. The $10 million terminal, designed to handle 450 tons of grain per day, was considered an important chain in bringing Kazakh grain to European markets. The withdrawal from the terminal project evidently runs counter to the economic interests of Kazakhstan, which plans to export 5.5 million tons of grain this year. In a similar move, KazTransGas, the Kazakh national gas transporting company, as well as its mother company KazMunaiGas, backed out of its investment obligations. KazTransGas purchased Tbilgas, the Georgian gas distributing company, in May 2006 for $12.5 million and promised to invest $150 million into the company by 2011. KazMunaiGas committed itself to investing $1 billion to construct an oil refinery near the Batumi seaport. According to KazTransGas sources, the company decided to withdraw from the Georgian project after Georgian consumers, in protest over gas price rises last August, demanded that the Georgian government nationalize the assets of KazTransGas to force it out of the country (Liter, September 28).

However plausible, this is not the real cause of the conflict between Kazakh investors and the Georgian government. Only a month ago, at the height of Russian air raids on Georgian territory, the Kazakh Foreign Ministry stated that there was no direct threat to Kazakh investments and oil business in Georgia. The “concern” of state-controlled Kazakh companies over the alleged investment risks in Georgia was, in fact, only voiced on the eve of Medvedev’s visit to Kazakhstan. Whether it is a real fear generated by the aftermath of the Russian-Georgian war or a calculated sideshow designed to please Medvedev, the price of the game is too high for Astana. Kazakhstan has already invested around $2 billion in the Georgian economy, the largest investor being the TuranAlem Bank of Kazakhstan with $800 million funneled into Georgia’s oil infrastructure. Government sources estimate that Kazakhstan lost $10 billion in Georgia as investment money. By curtailing economic ties with Georgia, Kazakhstan risks irretrievably losing important oil export routes and a potentially huge investment market, something that Moscow will hardly be able to offer. Nor does the expanding military cooperation give Kazakhstan, which shares a vulnerable, nearly 360-mile (600-kilometer) border with its embittered and saber-rattling neighbor, a feeling of safety. But then, Astana has almost no alternative to this marriage of convenience with Moscow.