KAZAKHSTAN-RUSSIA SUMMIT SEEKS DEEPER COOPERATION

By Robert M. Cutler (10/12/2010 issue of the CACI Analyst)

Presidents Nursultan Nazarbayev of Kazakhstan and Dmitry Medvedev of Russia held a two-day summit in early September, at the two countries’ Seventh Forum on Interregional Cooperation in Oskemen (settled by order of Peter the Great in 1720, called Ust’-Kamenogorsk from the mid-nineteenth century until 1992), the capital of the East-Kazakhstan province. While some agreements to implement existing agreements for joint energy development of the Khvalynskoe and Imashevskoe deposits were reached, the summit was mainly notable for being less superficial than other such meetings in the recent past.

BACKGROUND: There are two main areas of historical Russian concentration within the borders of contemporary Kazakhstan. First there is an historically settled area, shadowing the present-day border in the north, of industrial concentrations connected with natural resource exploitation and heavy industry. Second, the agricultural “virgin lands” of the Khrushchev era stretch much further south, almost to the central part of the country. In addition, the province of Eastern Kazakhstan is historically and demographically linked with the northern part of the Virgin Lands area, although it was settled much earlier and is economically distinct from it. In summary, waves of Russian settlement came in the extreme east and extreme north during the mid-eighteenth century, in the northeast and the north-center during the early and mid-nineteenth century, and in the north and center during the mid-twentieth century.

Despite significant ethnic Russian out-migration from Kazakhstan since the country’s independence, the two national economies remain inevitably and inextricably linked, not least in the energy sector. Lukoil and Gazprom have a strong presence in the country, and oil from the Tengiz deposit in northwestern Kazakhstan reaches world markets only through the pipeline of the Caspian Pipeline Consortium (CPC) which ends in Russia’s Black Sea port of Novorossiisk. Still, there are some frictions, as for example Russian commitments to double the CPC’s capacity have never been realized. At the Oskemen meeting, agreements were nevertheless reached to implement decisions concerning joint development of certain onshore and offshore fields in the Caspian Sea.

Russia and Kazakhstan were the first two Caspian littoral states to agree on how to delimit the seabed bilaterally for natural-resource rights between them. They accomplished this in 1998, although the agreement took a few years to implement. For that purpose they used the “modified median line” principle, a standard in international law sometimes also called the “equidistance” principle because a line is drawn equidistant (thus “median”) from the closest mainland points of each of the two countries. Small adjustments are then made to the resulting line (therefore “modified”) so as to take into account any existing de facto boundaries, and also if necessary to avoid splitting individual oil or gas fields between the two states. Since then, in 2001, Russia and Azerbaijan agreed on a bilateral delimitation of their respective seabed sectors following the same principle (the resulting Azerbaijan-Kazakhstan line has been accepted too), and also Kazakhstan and Turkmenistan have a partial bilateral agreement.

In the case of Russia and Kazakhstan, there was not only a bilateral agreement on the modified median line principle a dozen years ago, but the decision was also taken to jointly develop certain deposits straddling the border. Thus half of the Kurmangazy exploration and production company is owned by KazMunaiGaz (KMG) and a quarter by Rosneft, with the last quarter still to be assigned. This project has been slowed by the need for geophysical reassessments due to drilling results not conforming with modeled projections. In the case of the Khvalynskoe deposit, a 2002 protocol from the 1998 agreement on offshore delimitation provides specifically for joint development. (Khvalynskoe is estimated to hold 322 billion cubic meters of natural gas, 17 million tons of gas condensate, and 266 million barrels of oil.)

IMPLICATIONS: In 2005, about the time Kurmangazy’s joint venture was structured, KMG and Lukoil created a joint venture for Khvalynskoe. KMG was given the right to participate while having to compete in a tender offer and it was agreed that the laws of the Russian Federation would govern the development project. However, since bureaucratic obstacles had stymied the implementation of these decisions, the Khvalynskoe venture was the subject of specific discussions between Nazarbayev and Medvedev, who took a further decision to apply the necessary political will; and, so far, this appears to be in process.

The Imashevskoe gas deposit on the border between the two countries, estimated to hold 128.7 billion cubic meters of gas and 20.7 million tons of gas condensate, was also the subject of discussions between Medvedev and Nazarbayev. It had been agreed in 2005 at a bilateral summit meeting that Imashevskoe would be jointly developed by Gazprom and KMG, and that they would share the exploration costs and together choose the project’s operator. The Imashevskoe field lies almost but not entirely on the Kazakhstani side of the common border; in return for half ownership, the Russian side this month formally and officially renounced all claims to any of Kazakhstan’s northern territories; also Kazakhstan ceded a fairly small salient of pastoral land to Russia’s Astrakhan region.

In Oskemen, the only measure agreed between Kazakhstan and Russia for the promotion of the Customs Union within the Eurasian Economic Community was to further the integration of the railroad networks of the two countries. Nazarbayev even re-raised the possibility of implementing a Soviet-era project to reverse the flow of Siberian rivers from the north to the south, in order to irrigate farmland in Kazakhstan. The Ob, Irtysh, and Yenisei rivers flow northward although their sources are not far from Kazakhstan or even in the country. Originally conceived under Stalin, planning for the project intensified under Brezhnev but was abandoned in the mid-1980s due to environmental objections and an absence of financial means. Various bilateral and multilateral summits including other Central Asian countries and China have seen this project raised again throughout the past decade. However, this year, regions in western Kazakhstan were affected by the drought and fires that accompanied the summer heat wave in Russia, adding urgency. Nazarbayev called for institutionalizing cooperation over natural catastrophes and also mentioned that the river-diversion project could help ease disputes among Kyrgyzstan, Tajikistan, and Uzbekistan over hydroelectric power vs. irrigation and drinking water. Pre-summit reports in the Russian press had anticipated bilateral agreements for sharing the water resources of the Irtysh and Ural rivers, but it is not clear whether these were reached.

Kazakhstan’s president Nursultan Nazarbayev was strongly indicated to become Gorbachev’s second in command had the mid-1991 project for a Union of Sovereign States been implemented, and he was not happy to see the Soviet Union disappear. His insistence on Central Asian participation in the Commonwealth of Independent States prevented the grouping from devolving into a Slavic Union. With the proliferation of “oligarchic” and other private economic interests following their own purposes, it has proved increasingly difficult for Kazakhstan to manage its relations with Russia. The Eurasian Economic Community is just another incarnation of the CIS Group of Four (Belarus, Kazakhstan, Kyrgyzstan, Russia) with slightly different membership, and for Kazakhstan it is just another instrument through which Nazarbayev hopes to achieve some multilateral leverage for managing Kazakhstan’s relations with Russia.

CONCLUSIONS: Russia remains an important, indeed inescapable, direction in Kazakhstan’s “multivectoral” foreign policy. However, Nazarbayev’s frustration with the difficulty of overcoming bureaucratic Russian obstacles to state-to-state cooperation on the one hand, and with the imbalances enforced upon the national economy by energy resource development on the other hand (by Western firms as well as Russian firms, it should be noted), is all too evident. The Kazakhstani press opined that the most important result of the meeting was that the bilateral interregional forum, as an institution, was reinvigorated and that the depth and breadth of consultations between the two top leaders, which had “declined over the past decade” once again reached the intensity of the 1990s (i.e. the Yeltsin era). This is probably an accurate indicator of elite and leadership attitudes.

AUTHOR’S BIO: Dr Robert M Cutler (http://www.robertcutler.org), educated at the Massachusetts Institute of Technology and The University of Michigan, has researched and taught at universities in the United States, Canada, France, Switzerland, and Russia. Now senior research fellow in the Institute of European, Russian and Eurasian Studies, Carleton University, Canada, he also consults privately in a variety of fields.