Publication: Eurasia Daily Monitor Volume: 3 Issue: 185

On October 3 Russian President Vladimir Putin and Kazakh President Nursultan Nazarbayev signed an agreement to set up a gas joint venture based at the Orenburg gas refinery.

For the first time Kazakhstan is making a major investment in the Russian economy, as Moscow is allowing Kazakhstan to acquire assets at the Orenburg gas refinery, according to Nazarbayev.

The joint venture is expected to process 30.6 billion cubic meters (bcm) in 2012, including 15 bcm from the Karachaganak gas field. Orenburg assets have been appraised at some $700 million, and Kazakhstan’s state-owned company KazMunayGaz pledged to buy out half of the assets.

On the sidelines of the G-8 summit in July, Putin and Nazarbayev signed a declaration on long-term cooperation in processing Karachaganak gas at Gazprom’s Orenburg plant. Both sides pledged to jointly develop the Karachaganak gas field and set up a joint gas-processing venture at Russia’s Orenburg plant to process no less than 15 bcm per year of Karachaganak gas for subsequent supplies to domestic consumers and export markets.

The Karachaganak gas field, with an estimated 1 trillion cubic meters of reserves, is located in the Urals region of Kazakhstan, less than 100 miles from the Orenburg plant. Gazprom now reportedly imports nearly 8 bcm/year of Karachaganak gas for the Orenburg plant. However, the members of the international Karachaganak Petroleum Operating (KPO) consortium have been understandably uneasy with the low prices offered by Gazprom. KPO hopes to raise gas output up to 25 bcm/year by 2012.

In June 2002, Gazprom and KazMunayGaz set up a Kazakh-registered trading joint venture, KazRosGaz, on a parity basis. On October 3, Gazprom CEO Alexei Miller and KazMunayGaz vice-president Makhambet Batyrbayev signed an agreement on gas supplies to Kazakh domestic market.

Now the KPO is expected to sell gas to KazRosGaz, which in turn will supply it to Orenburg. The Kazakh side will supply about 15 bcm of gas to Orenburg; 6 bcm of the processed gas will be supplied to Kazakh domestic market, while the remaining 9 bcm will either be supplied to Russia or exported to Europe via Gazprom’s subsidiary Gazexport.

Both sides are due to gain from the joint venture, NTV commented. Kazakhstan will not have to spend billions of dollars building its own refinery to process gas from the Karachaganak deposit, while Russia will receive 15 bcm of Kazakh gas every year (NTV, October 3).

However, the Russian Nezavisimaya gazeta newspaper has questioned the wisdom of the decisions to sell half of Orenburg’s assets to Kazakhstan and to supply Kazakh gas via a number of intermediaries. The daily speculated that Russia intended the scheme to prevent Kazakhstan from building a gas-processing plant of its own (Nezavisimaya gazeta, October 4).

Putin and Nazarbayev also discussed how to boost trade turnover and simplify freight transit across the border. Northern Kazakhstan shares a 1,500-km border with Russia. Border commerce accounts for 70% of the total trade between our countries, Putin said.

In 2005 bilateral trade turnover reached $9.7 billion, a nearly 40% increase over 2004. From January to July 2006, bilateral trade amounted to $6.5 billion or up some 20% over the same period in 2005, according to Russian government statistics.

Also on October 3, the transportation ministries of Russia and Kazakhstan signed an agreement to launch a rail-ferry link between the Russian port of Makhachkala, Dagestan, and the Kazakh port of Aktau.

In Uralsk, the Russian and Kazakh leaders also discussed cooperation within the framework of the Eurasian Economic Community, the Collective Security Treaty Organization, and the Shanghai Cooperation Organization (Channel One TV, NTV, RIA-Novosti, October 3).

The two countries are also exploring options in the banking sector. Russia and Kazakhstan signed an agreement on founding the Eurasian Development Bank on January 12. Russia’s share of the bank’s authorized capital is $1 billion and Kazakhstan’s is $500 million.

Russian officials have suggested turning the bilateral bank into a multilateral financial institution. According to Russian Minister of Industry and Energy Viktor Khristenko, “We are not closing the window of opportunity to new participants, as an agreement on founding the bank is open to other countries and international organizations.”

Khristenko predicted that the Eurasian Development Bank would become an “investment mechanism in the post-Soviet space.” He added that the bank’s list of investment projects under consideration includes the modernization and expansion of the Ekibastuz GRES-2 power plant in Kazakhstan, development of the Kazakh uranium deposit, Zarechnoye, and the completion of the construction of the Sangtudin GES-1 hydroelectric power plant in Tajikistan (RIA-Novosti, October 3).

In response to Putin’s recent remark that “the Russian government has not yet transferred money to the European Development Bank” and that the Kazakh side has not prepared all the necessary documents, Kazakh Industry and Trade Minister Vladimir Shkolnik said that the bank currently had $400 million in its account (RIA-Novosti, October 3).