Publication: Eurasia Daily Monitor Volume: 3 Issue: 19

Gazprom to pledge $1.5 billion for Uzbek energy assets

On January 25, at the St. Petersburg summit of the Eurasian Economic Community (EEC), Uzbekistan officially joined this Russia-led integration organization. This decision marked yet another stage in Uzbekistan’s geopolitical drift into Russia’s fold. But it also underscores the joint interest of Moscow and Tashkent in intensifying energy cooperation between the two countries.

While explaining his decision to join the EEC to journalists, Uzbek President Islam Karimov appeared to put more emphasis on the political motives behind the move. He mentioned the need to react to the “quickly changing situation in the Central Asian region and the world,” recalled the lessons of last year’s Andijan uprising, warned about the potential threat of establishing an Islamic caliphate in Uzbekistan, and pointed to the danger of finding oneself in strategic isolation. But the Uzbek ruler also said he wanted his country to more actively participate in multilateral economic projects.

Those are the kinds of comments that the Kremlin leadership loves to hear. Geopolitical loyalty and readiness to open for business with Moscow are, in the eyes of the Russian policy elite, the fundamental conditions of partnership relations with the ex-Soviet neighbors.

With the Kremlin’s ongoing efforts to enhance Russia’s international posture as an energy superpower, it came as no surprise that energy issues were at the heart of the talks Karimov had with Russian officials in St. Petersburg.

With Russia’s major gas reserves steadily depleting and development of the untapped fields in the Arctic being extremely costly, Gazprom, Russia’s state-run energy monopoly, is increasingly turning its gaze to Central Asia’s gas riches. Russia has already signed a massive gas pact with Turkmenistan, but the mercurial nature of Turkmen President Saparmurat Niyazov makes him an extremely inconvenient and unpredictable partner, which forces Moscow to look for a backup plan. In this sense, the Kremlin can only welcome Karimov’s interest in developing energy ties with Russia.

In St. Petersburg, Gazprom signed two agreements with Uzbekistan, pledging $1.5 billion in Russian investments in the Uzbek energy sector. In particular, Karimov and Gazprom CEO Alexei Miller agreed that Gazprom and Uzbekistan’s energy company, Uzbekneftegaz, would sign, by June 2006, a 25-year production sharing agreement on the development of the Ustyurt gas fields. Under the terms of the accord, the exclusive rights to market the gas found in Ustyurt will belong to Gazeksport, Gazprom’s export arm.

Most Russian energy analysts applauded the deal. Any investments Gazprom makes in the region, they argue, increase the company’s influence and make the local authorities more loyal. In addition, with the Ustyurt gas reserves in its possession, Gazprom will be able to at least partially protect its interests and keep its gas balance should Turkmen gas production drop. The deal is also attractive for Tashkent, the analysts say: Uzbekistan simply lacks funds for the exploration and development of its energy reserves and, more importantly, for the expansion of the throughput capacity of the Central Asia – Center pipeline’s Uzbek section to secure the export of fuel.

Remarkably, Russian President Vladimir Putin also welcomed his Uzbek guest into a nuclear alliance that is being forged under Russia’s aegis. “Russia is firmly determined to widen its cooperation within the Eurasian Economic Community in the field of global energy safety. One of the priorities here is the development of collaboration in the peaceful uses of nuclear energy,” Putin said.

In St. Petersburg, the Kremlin leader suggested that Russia become a site for an international nuclear fuel cycle service center that would be overseen by the International Atomic Energy Agency, in line with a recent proposal by the UN nuclear watchdog. Such a center would enrich uranium to be used as fuel at power stations and also recycle the irradiated waste that is produced by nuclear power stations when they burn uranium or plutonium. Having a center on Russian soil could help solve domestic nuclear fuel supply issues and prove tremendously lucrative, earning Russia tens of billions of dollars, analysts say.

Two weeks ago, Putin discussed nuclear energy cooperation with the presidents of Kazakhstan and Ukraine. Uzbekistan appears to be a crucial partner in the emerging Eurasian “nuclear bloc,” as the country has extensive uranium-ore reserves. As a major base of uranium ore in the Soviet Union, Uzbekistan will give Russia “additional long-term possibilities for the building of a stable nuclear fuel energy base,” Putin said.

(Vremya novostei, Vedomosti, Moscow Times, January 26; Interfax, RFE/RL, January 25; Kommersant, January 19)