IMPLICATIONS OF THE NORTHERN DISTRIBUTION NETWORK IN CENTRAL ASIA

By Cornelius Graubner (09/01/2009 issue of the CACI Analyst)

The activities of the Obama administration hint that the main U.S. interest in Central Asia continues to be in its function as a military transit and supply hub. Political and economic realities of the regional states suggest the hopes that payments within the framework of the northern distribution network will function as an engine for regional development are wishful thinking at best. More likely than base-related expenses trickling down to the economic benefit of the broader local population is a scenario where much of the funds will end up benefitting patronage networks that serve as the backbones of the regimes of the region.

BACKGROUND: Starting in the summer of 2008, increasingly brazen attacks by Pakistani Taliban on the vital southern supply routes from Karachi through Peshawar and the Khyber Pass to Afghanistan shocked U.S. and NATO military planners. The attacks on convoys on the 1,200-mile route – through which over 70 percent of the supplies for the international forces in Afghanistan are transported – started off as merely annoying petty thefts but became ever more organized and coordinated with gunmen regularly blowing up bridges, roads, and trucks.

17,000 additional U.S. troops in Afghanistan added further pressure on military planners to come up with alternatives to the southern routes, which have become an increasingly unpredictable variable in Allied logistic calculations. Accordingly, U.S. military and civilian diplomacy hustled to secure a continuing supply of OEF and ISAF troops in Afghanistan by opening up a northern distribution network that would move supplies from Western Europe and the Baltic States through Russia and Central Asia. It did not take long to reap the benefits of these activities: In January the Commander of the U.S. Central Command General David Petraeus announced that transit agreements had been signed with Russia, Kazakhstan and Uzbekistan. In March, it transpired that the Uzbek government had allowed U.S. soldiers to be transferred to Afghanistan via the German base at Termez in Luftwaffe planes, and May saw the establishment of a de-facto U.S. supply hub at the Uzbek airport of Navoi using a South Korean transport firm as proxy. In June, it was announced that the lease agreement for the U.S. base in at Manas in Kyrgyzstan would be extended after earlier announcements that the Americans would have to leave in August, and finally in July it became public knowledge that the U.S. Air Force was running a small refuelling and resupply operation at an unspecified location in Turkmenistan. While this has now become public knowledge, the costs attached are much less known. Judging from the case of the base at Manas – where the package included a US$117 million deal to upgrade airport facilities and rental fees tripled to US$60 million in addition to an earlier significant increase in U.S. aid and a conspicuously long official silence after the obviously flawed presidential elections in July – one can quite safely assume that the deals with the other countries did not come cheap either. Even more substantial than these direct costs will be expenses incurred for buying supplies such as jet fuel or water from local providers, or for construction firms to build or repair the infrastructure necessary for smooth supply operations. The jet fuel supply contracts for the Manas Transit Center alone are estimated to be worth up to US$170 million per year.

IMPLICATIONS: Will these payments serve as much needed investment into the weak economies of the countries in Central Asia and work to ensure regional economic cooperation, sustained economic growth, the enlargement of the middle class, and ultimately foster the transition of these countries to liberal, democratic and well governed polities? Experience suggest this is unlikely in the absence of a deliberate strategy to that effect.

All five states of Central Asia are autocracies, with varying degrees of competitive elements. A key structural feature in each of these countries is the persistence of the “shadow state”, a network of informal institutions that work behind the façade of formal institutions to regulate the distribution of resources, loyalty, hierarchies and other means to project power. In such political setups the countries’ income-generating assets are typically tied to the incumbent regime; the ultimate goal of economic activity is usually not to further general economic development but rather to secure regime survival. Within this logic, regional economic integration does not make sense for the autocrats as it moves economic decisions out of their direct sphere of influence – this goes partly to explain why Western schemes to promote regional economic development have stalled so far. In Turkmenistan and Kazakhstan the key income generating sector has been hydrocarbons, in Uzbekistan cotton is of regime-stabilizing importance, while in Kyrgyzstan and Tajikistan foreign aid has been used to fuel the patronage logic of the incumbent regimes. There is much reason to expect that payments related to the northern distribution network will serve that same purpose.

The stories of the K2 base in Uzbekistan and the base at Manas in Kyrgyzstan which have been discussed among Central Asia experts at length – the latest contribution being Alexander Cooley’s excellent monograph “Base Politics” – are illustrative to this point. In the case of Manas, an FBI investigation in 2005 uncovered the embezzlement of tens of millions of dollars of base-related revenues from fuel contracts awarded by the Pentagon through companies controlled by then-president Askar Akayev’s son Aidar and son-in-law Adil Toiganbaev. After President Akayev’s ouster the lucrative fuel contracts went to entities that are believed to be controlled by the current President’s son, Maksim Bakiev. In Uzbekistan, the U.S. spent large sums in weapons and security services to the Uzbek army in 2002 alone. Added to that were US$15 million for directly base-related costs, while development aid payments were more than tripled from 2001 to 2002. Rather than to generate economic growth, incomes from base contracts have either strengthened repressive regimes or ended up on offshore accounts in these cases.

CONCLUSIONS: Transit and service agreements are some of the largest investments that the West has undertaken in the region. If the Obama administration wants to make sure base-related payments and contracts indeed promote sustained economic growth and – by helping to enlarge the middle class in these countries – democratizing tendencies, it should make sure that funds dispersed by the Pentagon for base rents, supplies and transport infrastructure actually end up in proper entities that pay their taxes and thus benefit official state institutions rather than in informal patronage networks operating in the shadows of state structures. However, this might prove difficult given that in the countries in question most enterprises are tied to the ruling regime in one way or the other. The Pentagon does not have rules that would bar contracts with companies that have ties to foreign leaders. Under these circumstances the administration must at least make sure that all payments and agreements related to the northern distribution network in Central Asia are fully transparent. This would entail allowing only companies that agree to fully disclose their payments to local subcontractors to bid for supply contracts. Such measures would enable interested citizens in the countries of Central Asia to hold their governments accountable over the whereabouts of base-related payments. It may be necessary to establish some sort of effort that would monitor the dealings of foreign militaries in Central Asian states in a more systematic manner – not only those of the Pentagon, but of other countries as well.  

AUTHOR’S BIO: Cornelius Graubner is a Program Officer at the Open Society Institute’s Central Eurasia Project in New York. The views expressed this article are his own and do not represent the views of the Open Society Institute or the Soros Foundation Network.