Russia’s and China’s Energy Policies in Central Asia

The independent Central Asia, which is defined as “global Balkans” by some authors [1; p.62] or “backwater” [2] by the others, having emerged after the disintegration of the USSR, suddenly found itself in the middle of the struggle among the great powers. Isolated from the world during the USSR period, the region was drawn into the projects and strategies prepared by those from the other parts of the world. The importance of Central Asia results from its geographical location right beside the regional powers that emerged after the collapse of the USSR. This strategic importance originates from the fact that the region is located in the area where regional hegemons are emerging. Since big players such as Japan, the EU and most notably the USA are not interested in emergence of new rivals in other regions, their policy will be preventive.

In this context, the most plausible explanation of the attention paid by the world powers is that Central Asia is a region where the smaller players like India and Iran alongside with bigger powers such as Russia and China are present and, therefore, can be observed and influenced, but not the natural resources of the region per se.

Russia’s Energy Policy in Central Asia

As the European countries’ biggest energy supplier, Russia intends to increase the amount of the fuels it purchases from the countries in the region. Russia’s National Security Strategy (2009) points out that in the long term the international rivalry for controlling the energy resources in the Middle East, the North Pole, the Caspian Sea, and Central Asia shall intensify. The document warns that the possibility the efforts could be taken to solve the problems arising from this competition through the military means shall not be ignored. In such a case, “the balance that has been achieved around the borders of the Russian Federation and its allies can be upset” [3].

The Energy Strategy until 2020 published in 2003 explains Russia’s strategic interests in the region. They are joining the energy and transportation infrastructure in the areas of Europe and Asia that border on Russia, development of the international energy transfer systems and having a transit system that would be non- discriminatory. To this end, the government is panning the assist the Russian companies in the development and implementation of a number of large-scale international gas, oil, and hydroelectric projects [4]. Here, the role that Central Asian countries are to play, while Russia is becoming a global energy power, is also explained. The Strategy lists the reasons why the energy factor is Russia’s major focus; the importance of the energy problems on the global scale and increasing politicization of the energy issues as well as Russia’s dominant role in the world energy system. The Strategy, then, states that Russia’s intentions in the long term are to include Central Asian energy resources into its own energy system in order to ensure that the gas deposits in the northern Russia are saved for the future generations and to ease the pressure on the markets that have strategic importance for the country [4].

For Russia, which began to emerge as a rising power due to the energy sector of its economy, the natural resources of the region are important both for maintaining this status and for restricting other powers’ access to these resources. Therefore, Russia has been engaged in comprehensive economic cooperation with the countries of the region.

With the disintegration of the USSR, Central Asia emerged as a rival for energy-rich Russia due to the resources the countries possess. Being interested in keeping the relations with these newly independent states and considering the passage of the transportation routes through its territory as an advantage, Russia tried to take this opportunity. To the end of making the countries of the region dependent on Russia, Moscow concluded a number of long-term contracts with the governments of Central Asian countries. Apart from the comprehensive natural gas agreement with Turkmenistan, the contracts stipulated for tripling the amount of natural gas transported through Kazakhstan within three years and for subsiding Azerbaijan with two billion cubic meters of natural gas. Russia’s discourse and policies were aimed at becoming more active in the Caspian region as well. The inclusion of former Energy Minister in the foreign policy decision-making mechanism as a deputy Foreign Minister and the Representative for the Caspian Affairs, greater cooperation with Turkey in the Blue Stream project and increasing importance of the energy factor in the relations with Europe are among the facts and factors that should be considered within this context [5].

The reason why Russia attaches such an importance to the energy sector in the countries of Central Asia is that the other powers, operating in the region are in search of the alternative routes of transportation that would bypass Russia. Therefore, Russia has changed its policy and now Moscow major strategy is to make the countries of Central Asia its major trade partners. To this end, it invests into maintenance and increase of the capacity of the pipelines in the countries of the region.

The volume of the investment that Russia had made by the end of 2007 in the gas and oil sector in Central Asia reached $4 to $5.2 billion. A large part of these investments (80-85 %) were in Kazakhstan ($3.4-4.1 billion) and Uzbekistan ($0.5 -1 billion). Turkmenistan, Tajikistan, and Kyrgyzstan were able to attract about $50 million of Russian investment. On the other hand, Russian firms are planning to make the investments worth $14-16 billion in the next five years.

A large portion of these investments will be into the pipeline infrastructure as well as exploration and production [6].

Russia is sponsoring a number of the large- scale projects in Tajikistan and Kyrgyzstan as these countries are poor in respect of the fossil fuel but rich in terms of their hydro potential. Russia owns 75% of the Sagduta-1 hydroelectric power plant in Tajikistan that had been constructed since the 1980s before starting to operate in July 2009 during the visit of President Medvedev of Russia to Tajikistan. It has the capacity of 670 Mw and costs $700 million. Moreover, wishing to construct three more medium-size power stations in the country, Russia became the most important strategic partner for Tajikistan, the latter has faced serious power shortages in the recent years. Today, half of the investments in Tajikistan are being made by Russia [7]. However, the investments of Russian companies such as Rusal and RAO EES come under harsh criticism domestically because, instead of contributing to the development of the country and increase of employment, they just enable to sell abroad the energy produced in Tajikistan or to use it for the production of aluminum because it is so cheap [8; p.70].

In Kyrgyzstan, in May 2003, Gazprom and the Kyrgyz government signed the 25-year Cooperation Agreement [9]. A decade after, Russia’s took over Kyrgyzstan’s natural gas network and pledged to invest billions of roubles to upgrade the gas infrastructure in Kyrgyzstan and ensure a stable supply. The agreement stipulated that Russia’s gas export monopoly Gazprom would guarantee the development and upgrading of Kyrgyzstan’s gas equipment and pipelines infrastructure as well as uninterrupted supplies of gas to the local consumers [10]. The Gazprom CEO Alexey Miller stated that these steps were taken to ease Kyrgyzstan’s “dependence on gas”. Since 2015 in the next three years, Gazprom plans to invest about $758 million in various projects in Kyrgyzstan [11].

China’s Energy Policy in Central Asia

According BP Statistical Review of World Energy 2014, China accounts for 22.4% of the world’s total energy consumption [12] and 49% of net global growth [13]. Hence, China is taking measures to ensure its energy security via meeting its energy demands. This means investing into the projects of exploration and operation of the oil fields abroad, negotiations on building more international oil and gas pipelines, maintenance of the strategic reserves of oil, building of the refineries to process the oil imported from the Middle East, development of the natural gas industry and gradual opening of its own off-shore fields to the foreign companies.

China is concerned about its dependence on the imported energy because this may be used by those who wish to influence or pressure on China. The commonly shared opinion is that the USA is the major threat as it prevents China from rising and, therefore, its dependence on the USA must be reduced to minimum. In a world where the USA is the sole superpower, China’s position is especially important. If the relations between the two countries deteriorate, the USA, which controls the oil imports from the Gulf to the South Chinese Sea, may use its superior military power to cease China’s oil supplies [14].

China’s Investments in Central Asia

China’s policy in the energy sector is aimed at both controlling the production and ensuring long-term supply through buying the stocks in the companies. For example, because China, un-

like its western counterparts, does not trust the markets, it is making investments in the stocks in the exploration companies and concludes long-term contracts on energy transportation. Some suggest that the fundamental view of the Chinese government is that the energy security of the country requires secured access both to the resources in the soil and the transportation routs [15; p.44]. To this end, China is spending considerable amounts of money to purchase the bulk in the oil and gas transportation infrastructure or even buy the entire pipelines in the Gulf, Central Asia and Russia [16; p.102]. The reason for this is that China will not be able to build the navy fleet soon enough to defend its tankers transporting the oil form the Middle East [17].

The Chinese oil companies, operating abroad, act very pragmatically. Firstly, Chinese companies buy the stocks of the fields with proven reserves only and those that have already started the extraction in order to reduce the exploration costs to minimum. Secondly, within the joint ventures, the Chinese attempts to obtain the controlling stake or buy out the company altogether when it is possible. These actions of the Chinese companies indicate that they are directly motivated by China’s energy security considerations [18]. When the overall control is impossible, a solution is to seek for diversification of the energy resources supply from all over the globe. To this end, China sells the weapons, including missile technologies, to the countries from which it imports the fuel (i.e. Iran, Iraq, Sudan, Saudi Arabia). The military cooperation of China with Central Asian within the SCO could be regarded in this context as well [16; p.101].

Thus, the energy resources of Central Asia and Russia are the most convenient for China. However, its unsuccessful negotiations with Russia regarding the construction of the pipeline from East Siberia to North-East China led Beijing to seek for the opportunities to implement joint energy projects with certain Central Asian countries instead [19; p.33]. In other words, Central Asia holds significance for China in terms of its ability to reach the energy resources and diversify the transportation routes because it is considered safer than the maritime routes that are controlled by the USA. The countries of Central Asia, in their turn, are to engage in the energy cooperation with China rather than with the USA due to the geographical proximity of the former.

For example, under the Agreement signed with Kazakhstan in 1997, China should investment $11 billion in its energy sector [20]. China’s largest oil company China National Petroleum Corporation (CNPC) bought a large portion of the AktobeMunayGas company in West Kazakhstan region in 1997 and became its sole owner in May 2003 after buying the remaining shares for $150.2 million. CNPC seized control of the Northern Buzachi field on the Caspian coast in the same year^[4]. In 1998, CNPC bought Chev- ronTexaco’s shares in Kazahkstan but began the active operations only in 2002 extracting 327.6 tons of oil since. CNPC is planning to raise this figure to 1 million ton and transport the oil via the Kazakhstan - China pipeline [18]. Moreover, the Chinese companies are investing in development of the areas surrounding these pipeline routes (Northern Buzachi, Northern Kumkol and Karajanbas) [15; p.44]; 49% of the Kenkiyak-Atirau pipeline, which constitutes a part of Kazakhstan - China pipeline, belongs to the Chinese. CNPC also bought Canadian PetroKazakhstan for $4.2 billion in 2005 that extracts 9.5% of the oil in the country [18].

The increasing presence of the Chinese in the energy sector of Kazakhstan is not at all uncon- troversial. The news that CITIC, another Chinese company, would buy the shares of Kazakhstan’s Nations Energy Company was received rather negatively by the general public and the media. The main concern was the national security of Kazakhstan. The two sides were able to sing the Agreement on the Karajanbas oil field only when CITIC promised that it would give half of its shares to Kazakhstan’s KazMunayGas company within a year.

President Nazarbaev of Kazakhstan paid a five-day visit to the People’s Republic of China in late December in 2006. During this visit, which was the second one in the same year, a number of significant issues were considered by the two parties; namely the agreements were signed on the construction of the second part of the Atasu- Alashankou oil pipeline, which had been started in 2004 and the first section of which had been opened in 2005. These agreements stipulated that the former would be connected to the Kenkiyak- Atirau pipeline. Also, the terms of the agreement signed in 1997 were extended stipulating for having a pipeline that stretch from West Kazakhstan to West China [14]. As the project was completed, the pipeline capacity in 2008 was 10 million tons and increased to 12 million tons in 2011 finally reaching its capacity of 20 milliontons in 2014 [21].

Although some Chinese experts question the entire policy, stating that the building the pipelines is both too costly and unsecure and making the alternative proposition to transport liquefied natural gas from Australia and Indonesia to industrial cities of China [22; pp.184-5], Beijing views the 3000-km pipeline as essential for its energy import diversification strategy.

According to some researchers, China’s energy strategy is to connect the fields that the Chinese companies have bought to the pipelines that are being constructed [15; p.45]. The Kazakhstan- China pipeline constitutes a part of the four bigger projects of China with total of 13.500 in length to connect Russia and Central Asia to China. Beijing promised to invest $12.5 billion to implement the project [23; p.215].

Moreover, during Nazarbaev’s visit to China, the two sides agreed in principle to build a gas pipeline for transporting Turkmen gas to China via Kazakhstan. Thus, Russia’s monopoly on natural gas in the region ceased as soon as the project was successfully implemented. As the leadership in Turkmenistan changed, the concerns arose about the agreement concluded with Niyazov on annual export of 30 billion cubic meters of Turkmen gas to China.

The new leader, Berdımuhammedov reaffirmed the country’s commitments via signing

the 30-year agreement on the construction of Turkmenistan-China pipeline with 30 billion cubic meters capacity in April 2006; the additional protocols were signed during his visit to Beijing in July 2007 stipulating that the parties would increase the bilateral energy cooperation. CNPC and Turkmengas concluded the agreement on the Bagtiyarlik gas field on the Amu-

Derya River. The exports from Turkmenistan to China increased further reaching ten billion cubic meters by July 2009 [24]. Turkmenistan is currently China’s largest foreign supplier of natural gas with the figures being over 21.3 bil

lion cubic meters in 2012 comprising 51.4% the all energy imports [25].

Thus, Central Asia is now meeting nearly half of China’s needs for the imported gas with the major role played by Turkmenistan. [13]. The Central Asia - China pipeline broke Russia’s monopoly. The export to China has allowed the countries of Central Asia, Turkmenistan in particular, to increase substantially their production. Additionally, the construction of the fourth spur (Line D) via Tajikistan and Kyrgyzstan is due to begin in 2014 expanding the pipeline’s overall capacity to 80 billion cubic meters by 2020. The gas from the pipeline is to account for 40% of China’s gas imports. [26].

Having reached the agreement with Kazakhstan and Turkmenistan on building of the ChinaCentral Asia gas pipeline, China’s national CNPC signed the contract with Uzbekneftegaz in October 2011 on exploration of the Mingbulak filed in Namangan province. The Chinese are toinvest $212 million into the project. It is being planned to produce 200,000 tons per year [27].

Apart from the fossil fuels, Central Asia is rich in the hydropower resources that which have not been fully explored. Hence some Chinese experts suggest that that the water resources of the Amu Darya, Panj and Vakhsh rivers in Tajikistan may attract the attention of China as well. The 64 million-kilowatt hydropower potential of the rivers of Tajikistan is almost three times as large as that of the Three Gorges project. This makes Tajikistan the world leader in terms of the hydropower resources per capita. Kyrgyzstan has 252 rivers of various sizes including the Syr Darya that originates from the western Tianshan glaciers with the potential to generate 18.5 million kilowatts of hydro-electricity nationwide. In this regard, the amount of the exploited hydropower in the abovementioned two Central Asian countries has yet to account for one-tenth of their reserves [13].

The current state of the hydro-energy infrastructure in the region dating from the Soviet era is similar to that in the oil and gas sectors. In terms of cooperation in the hydro energy, China, unlike Russia, is involved in small and medium size projects. Beijing made a landmark decision to undertake the construction of the Moinak power station on the Charin River in Kazakhstan [15; pp.48, 49]. In addition, China signed the agreement concerning the use of the Sari-Caz hydro-energy resources in Kyrgyzstan. Additionally, in 2002, Beijing made the $300-million promise and $70 million transfer to Uzbekistan to extract its oil and gas [28].

China is also interested in the uranium of Central Asia. Kazakhstan has 12% of the world’s uranium resources, in 2009 it became the world’s leading uranium producer with almost 28% that increased to 33% in 2010 and reached 38% in 2013 [29]. Uzbekistan is another country that possesses significant uranium deposits. According the International Atomic Agency, Uzbekistan ranks the world’s seventh in terms of uranium supply and is expanding its production [30].

China signed numerous agreements concerning the development of the atomic energy. For example, during the visit of Chinese Prime Minister Wen Jiabao to Kazakhstan in 2008, Kazakhstan’s KazAtomProm and China’s Nuclear Guangdong Power Corp (CGNPG) as well as China’s National Nuclear Corp (CNNC) signed a series of long term cooperation agreements on joint extraction of uranium and production of uranium fuel for the power stations and building of new facilities.

In 2009 KazAtomProm signed the agreement with CGNPC to construct a number of nuclear power plants in China. However, since Kazakh is currently working with Russia’s AtomStroy-

Export, the projects aimed at manufacturing of small and medium-sized reactors have been suspended. There have been no any significant moves in this direction except for the joint feasibility study in mid-2009 so far. In mid-2014 KazAtomProm said that 55% of the uranium produced in Kazakhstan was exported to China [29]. In May 2014 China’s CGNPC agreed to buy uranium from Kazakhstan for $800 million until 2021. According to the Chinese customs reports, Uzbekistan is the second largest uranium exporter after Kazakhstan. In 2013, 1663 tons of uranium was imported by China [30].

The policy discussed above bears considerable advantages for the both sides as it reduces China’s dependence on the USA and Central Asian dependence on Russia. At the same time China’s influence in the region is likely to increase because the countries of the region perceive China as a gateway to the energy markets of the Asia-Pacific and further. In this context, due to the mutual economic benefits and increas ing interdependence, the attitude towards the economic presence of China in Central Asia has changed [31; p.8].

Conclusion

The competition among the great powers for Central Asia, which is of huge strategic significance, has manifested itself in the field of energy as well as military security. Today, the energy issue is not longer of economic nature; it is dealt together with security issues because energy is not limited to the extraction of the raw materials only, the pipelines construction and overall investments are also included. However, no great power wishes the current balance in the region to be disturbed especially if it is in favor of its rivals. Therefore, when one of the key actors gains strength, the other two take measures to prevent it from getting even stronger through short or long term alliances. Thus, the strategic balance in the region is restored. Mearsheimer once described constant desire of states to increase their power as “tragedy” [32]. The same can be said about the great powers’ constant labor to maintain the balance in Central Asia because if the balance is lost the chaos will emerge and this is something none of the great powers will or can afford.

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