…Russia is no longer in a position to dictate the terms of energy trading arrangements and must adapt to the shifting dynamics of interstate relationships. Russia’s attempt to take part in regional energy projects and in the development of Afghanistan’s energy sector seems to fall under this adaptation strategy. … because Russia’s monopoly in Central Asia’s energy sector is being taken over by China, Russia is forced to compete with another major regional power for regaining its leverage, which might be a difficult task to accomplish.
Bishkek Project –– The Arnold A. Saltzman Institute of War and Peace Studies, Columbia University and the OSCE Academy!
The dissolution of the Soviet Union did not completely break off century-old ties between Central Asian countries and Russia. In fact, having somewhat recovered from the Soviet collapse, Russia has started to revive its traditional influence. One of its priority targets was the energy sector. Within the energy transportation infrastructure inherited from Soviet times, Russian pipeline networks provided the sole way for land-locked Central Asian exporters to reach external markets. The largest gas pipeline network in the region, Central Asia–Center, had been constructed to move Turkmen gas to and through Russia, to the former Soviet republics and European consumers. Russia also was, and remains today, the major transit country for Kazakh oil headed for Europe. And even though the Central Asian power grid was designed to operate on its own (except in Kazakhstan’s north), Central Asian governments have until recently largely counted on Moscow to contribute to large hydropower development projects and to secure intra–Central Asian electricity trade.
Over time, Russia has taken full advantage of its monopoly position in transporting Central Asian resources to external markets. Its policy toward regional energy producers pursues three main objectives: extracting economic gains using its transit leverage, keeping away other great powers interested in the region’s resources, and using its energy leverage to strengthen its political influence. In the late 2000s, however, Russia’s monopoly over energy export infrastructure began to be challenged. New pipeline networks were constructed by China, while an economic downturn in Russia itself, compounded by European sanctions, has taken all major Russian investment projects in Central Asian energy off the table. But even though declining Russian influence offers some prospects for stronger intra–Central Asian energy cooperation, regional producers have so far failed to use this opportunity. Instead, they are falling into the same trap of excessive dependence on a single external energy market—in this case, China’s. Meanwhile, Russia is not willing to entirely abandon the Central Asian energy sector. In its search for ways to engage in Central Asian energy politics, one alternative seems to be energy cooperation between Central Asia and South Asia.
Russia no longer dictating terms of Central Asian gas trade
Over the past decade, energy relations between Russia and Central Asian states, with the possible exception of Kazakhstan, have undergone major shifts. To move resources to external markets, the Soviet government had designed the natural gas pipeline network in Central Asia to operate in parallel with the Russian pipelines. Post-Soviet Russia then secured its monopolist status by controlling all five lines of the Central Asia–Center pipeline network, the largest at the time (its current capacity is 45 billion cubic meters, but its initial design was for 90 billion), and the Bukhara–Ural gas pipeline (8 billion cubic meters). In the 2000s, Moscow’s expectation that gas trade with Central Asia would continue expanding led to two developments. In 2003, it signed a long-term agreement with the region’s largest gas supplier, Turkmenistan, to increase its export volumes up to 80 billion cubic meters per year, and in 2007 it proposed to construct the Pre–Caspian gas pipeline that would boost the capacity of Russian pipeline networks. However, gas exports from Central Asia never reached target levels, and the Pre–Caspian pipeline project was frozen. Today, the changing dynamics between Russia and its suppliers Turkmenistan and Uzbekistan underscore Moscow’s declining influence.
The Russian government has used the dependence of Central Asian exporters on Russian pipelines to promote its economic and political interests. Although Central Asian gas was rarely meant to reach customers beyond Russia, it played an important role in helping Moscow meet the demand of European and former Soviet countries and to retain influence over them. Due to their heavy reliance on Russian pipeline infrastructure, Central Asian producers had to sell their gas to Russia, which then used some of it to supply its southern regions and re-exported the rest to Europe at double and sometimes triple the price. In fact, price disputes were a major reason that regional producers began searching for alternative markets and moving to diversify their gas export routes.
In the early 1990s, Russia’s near-monopolist control over major gas pipelines allowed it to dictate the terms of gas trading arrangements. It particularly benefited from bartering Central Asian gas for goods, continuing this practice through the end of the decade when it allowed Turkmenistan to receive 40 percent of its payment in hard currency. Even after introducing full monetary payments, however, Russia used discriminatory pricing against Central Asian exporters, reselling their resources for two to three times the price it paid itself. When the former Turkmen President Saparmurat Niyazov insisted on a price of $42 to $45 per thousand cubic meters of gas in 2000, Russia offered only $36 despite charging $85 for its exports. Further price disputes in the 2000s as well as clashes between Russia and Ukraine (which affected the former’s ability to re–export Central Asian gas) dragged trade volumes down. Having imported 42.6 billion cubic meters of Turkmen gas in 2007, Russia reduced the volume to around 11 billion in 2009. From January 2016 on, a price dispute resulted in a complete cutoff of Turkmen supply. Meanwhile, Uzbek gas supplies—which reached 15 billion cubic meters in 2008—dropped to just 3.5 billion cubic meters in 2015.
To various degrees, Central Asian producers have managed to reduce their dependence on Russia with the completion of three out of four lines of the Central Asia–China gas pipeline, which has a total capacity of 85 billion cubic meters. The network’s lines A, B, and C—which run in parallel from Turkmenistan to China through Uzbekistan and Kazakhstan and carry 55 billion cubic meters of gas per year—were finished in 2009, 2010, and 2015, respectively. To increase gas export capacity of the network by another 30 billion cubic meters annually, China signed new agreements with Turkmenistan, Uzbekistan, Tajikistan, and Kyrgyzstan in 2013 to build Line D. For all these new routes, which cost roughly $7 billion per line, China covered 50 percent of the price. The other half took the form of Chinese loans to exporting countries, which would later be recouped with resources.
Because they can now send their gas to China, regional producers are able to bargain for better arrangements with Russia. The downside of this export diversification, however, is that the Central Asian producers have basically replaced one overly dominant export market with another: all Turkmen and Uzbek gas is now headed in China’s direction.Nevertheless, the way Turkmenistan positioned itself in recent disputes with Gazprom—calling it “insolvent” and forcing it to file a case at the international arbitration court in Stockholm to demand a price adjustment—clearly illustrates that it has gained new leverage. Russia is no longer in a position to dictate the terms of the gas trade as it used to.
Large hydropower projects off the table
Russia’s loss of dominance extends beyond natural gas. To some extent, the region’s electric power sectors present another example. In Soviet times, the regional electricity grid, the Central Asian Power System, was formally part of the Soviet Union’s unified energy system. But in practice it was physically isolated from the Russian grid and controlled from a separate dispatch center in Tashkent—which nevertheless still had to report to Moscow and received financing from the Soviet ministry of energy. As a legacy of the Soviet system, Russia has since assumed responsibility for the completion of large hydropower plants in Tajikistan and Kyrgyzstan.
In September 2012, the governments of Russia and Kyrgyzstan signed an agreement to build and exploit a cascade of four hydropower plants on the upper Naryn river (Naryn HPP-1, Naryn HPP-2, Naryn HPP-3, and Akbulun HPP). More importantly, Kyrgyzstan was counting on Russian support in building another hydropower plant on Naryn known as Kambarata-I. This plant was designed to be the largest power-generating facility in the country with the capacity of around 1,900 megawatts and promised to considerably increase winter electricity production. But due to the ruble crisis and the profound costs of Western sanctions on the Russian economy, this project was effectively brought to a halt. Citing Russia’s failure to provide financing, Bishkek has recently revoked its hydropower agreements with Moscow, and construction of both Kambarata-I and the Naryn cascade is now postponed indefinitely.
Meanwhile, Russia has secured some influence over Kyrgyzstan’s energy sector in a middleman role. The Russian lobby forced the Kyrgyz government to repeal the law prohibiting bailouts of strategic facilities in the country. The result was a 2014 agreement that transferred to Gazprom the ownership of Kyrgyzstan’s entire gas sector—including the troubled state company Kyrgyzgaz, gas pipelines, gas distribution stations, and underground storage facilities—for the price of one dollar. In exchange, Gazprom promised to forgive Kyrgyzgaz debts and, more importantly, to serve as a mediator between Kyrgyzstan and its gas supplier Uzbekistan to ensure stable deliveries. Bishkek officials used this reasoning to combat criticism that the deal gave Russia excessive political leverage over the country. Speaking in 2013, for example, the Kyrgyz prime minister’s spokesman argued that “Kyrgyzstan needs gas, not Kyrgyzgaz,” adding that Gazprom would provide an uninterrupted supply and “maybe even for a cheaper price.” In turn, Gazprom Chairman Alexey Miller has promised that the company “[now] guarantees a stable gas supply” for Kyrgyzstan. These statements obscured the fact that from a cost-benefit perspective, it made little sense for Russia to get into Kyrgyzstan’s unprofitable energy sector. In this context, Gazprom’s takeover represented a strategic attempt at buying influence, not a pursuit of economic profit.
Russia might further enhance its influence using the yet-to-be-established common energy markets of the Eurasian Economic Union (EAEU), which includes Kazakhstan and Kyrgyzstan. At present, however, Russia’s own internal energy policy is a barrier. Of the 140 products in the natural-resource-focused Group 27 of the EAEU customs code, six most important entries—including natural gas in a gasified form, crude oil, and oil products and electricity—do not fall under the union’s regulation. Having placed strategic interest in energy resources as an instrument for influencing both EAEU member states and potential candidates (as well as for earning high customs revenues), Russia is not willing to liberalize its energy market quite yet.
The realization of this idea is thus still far away. The program for common energy markets will not be developed before 2018 at the earliest. A common electricity market is planned to follow by 2019 and the oil and gas market not before 2025. Even though Russia currently applies preferential energy pricing and a tariff-free policy toward EAEU countries, most of the organization’s member states will remain vulnerable in the absence of effective multilateral mechanisms to ensure free movement of energy resources. But Russia has good reason to allow the common energy markets to be formed; they could help to keep the union afloat, revive its influence over the region, and attract new member states. One potential candidate in particular is Tajikistan, and the promise of common energy markets could encourage Dushanbe to apply. Even if Russia approves common energy markets, however, the lack of proper energy infrastructure connecting all EAEU member states would pose a major challenge to swift implementation. In the past, Uzbekistan has served as a hub tying together the Central Asian energy system, but it currently shows no interest in joining the organization.
In 2004 the Russian company Rusal signed an agreement with the Tajik government to complete the construction of the Rogun hydropower dam. The 335-meter dam is strategically important for Dushanbe: it could nearly double the country’s power production (currently at 16.5 billion kilowatt-hours per year) by adding an additional 13 billion kilowatt-hours annually. But the dam could take 16 years to fill, and it is also a major source of conflict with the downstream Uzbekistan: the project would limit water supply on which its agriculture vitally depends. These security risks deter prospective investors, forcing Tajikistan to consider unfavourable terms. Tajik authorities have rejected Rusal’s proposal—which demanded a higher stake (75 percent) in the profits and a 50-meter reduction of the dam’s height—and have been searching for other takers since 2007.
The fact that the Russian economy is heavily burdened by sanctions makes it unwilling to participate in the Rogun project at the moment. Yet unless Moscow resolves the water–energy nexus problem, it will remain eager and to some extent able to gain leverage in the region’s energy sectors—or to circumvent them if that suits its interests.
Stable Russia–Kazakhstan energy relations
Of all Central Asian states, only Kazakhstan has maintained stable export–import relations with Russia in the energy sector with no significant changes in the past two decades. Kazakhstan has an export-oriented economy, and crude oil and oil products account for 73 percent of its exports. Roughly 85 percent of its oil exports (or some 80 million tons) goes to Europe, mostly via pipelines passing through Russian territory. An alternative route is now offered by the recently built Kazakhstan–China oil pipeline, which has the capacity of 20 million tons. Kazakhstan’s oil export to China, however, never reached this volume—they stand at 11 million tons—and the country remains highly dependent on the Russia–controlled pipeline infrastructure.
Even the bilateral gas trade has seen no major shifts. The volume of Kazakh gas exports accounted for 8.5 billion cubic meters in 2007, 10.1 billion cubic meters in 2009, 11.87 billion in 2013, and around 11 billion in 2014 and 2015. Kazakhstan exports gas to Russia from its largest field, Karachaganak, for processing at a plant in Orenburg before the lion’s share of it gets returned to the Kazakh market.
Efforts to regain energy leverage in Central Asia and Afghanistan
From Russia’s perspective, all Central Asian energy projects have political and economic components. Now that changing energy trading dynamics have pushed Russia to the sidelines of many energy initiatives in Central Asia, it is considering all possibilities to get back in the game. One such opening could be offered by regional efforts to connect Central Asian resource with South Asian markets. Perhaps by expressing willingness for more active engagement in these plans, Russian authorities are attempting to restore Moscow’s influence in the region’s energy sectors. It is not certain, however, what the extent of the Russian engagement would be—both on the regional level and in Afghanistan’s energy sector in particular.
Before Afghanistan was thrown into turmoil by the 1978 coup, the country was the third largest recipient of Soviet development aid. Since the 1920s and up until the mid-1980s, Soviet assistance was critical to the development of its infrastructure, helping construct 70 percent of Afghan industrial facilities, over 60 percent of transportation facilities, and up to 80 percent of its energy facilities. Three decades later, Russia decided to revive its interest in Afghanistan’s energy.
At the first meeting of the Russian–Afghan intergovernmental commission on trade and economic cooperation, held in Moscow in March 2016, high-level officials agreed that energy would be at the core of future bilateral initiatives. The Russian deputy energy minister called energy cooperation “a priority,” emphasizing that Afghanistan has set an ambitious goal to achieve energy independence, and that Russian businesses are interested in taking part in all energy projects. So far, Russia has made four notable offers. First, in the hydropower area, it offered to take part in the construction of a Surubi hydropower station and the modernization of Pul-e-Khumri hydropower plant. Second, it can conduct studies further exploring the potential of hydrocarbon reserves in the country, in addition to sharing the results of old geological surveys conducted during the Soviet time archived in Moscow. Third, it could supply up to 1.5 million tons of oil products to Afghanistan, which would account for one quarter of its current demand.Fourth and most important, it is interested to participate in the ongoing regional energy projects such as the Turkmenistan–Afghanistan–Pakistan–India (TAPI) gas pipeline and the Central Asia–South Asia (CASA–1000) power transmission line.
Russia first expressed willingness to take part in the TAPI project back in 2010, the year its Turkmen gas imports declined from around 40 billion cubic meters to 10 billion. Russia knew that Turkmenistan would look for alternative energy markets and wanted to remain in play. But when Moscow came up with four possible frameworks for its participation in TAPI, Turkmen authorities declined them all. By seeking ways to engage in Afghanistan’s energy projects, Russia now aims to strengthen its positions in the region’s energy sectors. Thus, all subsequent Russian claims regarding closer cooperation on Afghan energy can be considered further maneuvering in the great-power rivalries over Central Asian and South Asian countries.
Some Afghan politicians perceive Russian influence in Central Asia as substantial and thus consider Afghanistan’s extensive reliance on Central Asian supplies to be quite dangerous. Afghanistan’s domestic power generation accounted for only 22 percent of its consumption in 2015, amounting to slightly over 1,000 gigawatt–hours. The other 78 percent was imported from neighboring Tajikistan, Turkmenistan, Uzbekistan, and Iran.In the environment of deep mistrust and lack of cooperation, such dependence is seen as a threat to energy security.
Besides, in the absence of gas and oil production and refining capacities, Afghanistan must import around 10,000 tons of oil products per day—accounting for a full 97 percent of its needs—from Turkmenistan, Uzbekistan, Russia, Pakistan, and Iran. Despite Russia’s reduced leverage over Central Asian states when it comes to energy, it remains one of key regional powers determining energy politics in the region. Consequently, Afghanistan is interested in securing Russia’s support for stable and reliable energy supplies from its northern neighbors. There have been some setbacks—Afghanistan recently declined to purchase electricity via CASA–1000, which the Minister of Energy and Water Ali Akhmad Usmoni ascribed to limited domestic demand. But Afghan authorities can still benefit economically and gain political leverage from the project and thus are interested in the Russian support. By taking Russia on board, Afghan authorities might want to speed up the construction of the long–postponed TAPI and CASA-1000. It would be premature, however, to expect large-scale Russian engagement in these areas. Not only does Russia lack sufficient financial resources, but its engagement could create tensions between Afghanistan and its largest external donor, the United States, whose interests in the region conflict with Russia’s.
Russia has successfully used the dependence of Central Asian countries on the energy infrastructure it controls in order to obtain economic benefits and gain political leverage. Over the past decade, however, except for Kazakhstan, energy relationships between Russia and Central Asian states have undergone major changes. As a result, Russia is no longer in a position to dictate the terms of energy trading arrangements and must adapt to the shifting dynamics of interstate relationships. Russia’s attempt to take part in regional energy projects and in the development of Afghanistan’s energy sector seems to fall under this adaptation strategy. The full extent of Russia’s engagement in the regional energy projects, however, is yet to be determined. Meanwhile, because Russia’s monopoly in Central Asia’s energy sector is being taken over by China, Russia is forced to compete with another major regional power for regaining its leverage, which might be a difficult task to accomplish.
Editor’s note: Dr. Farkhod Aminjonov is deputy director and co-founder of the Central Asia Institute for Strategic Studies in Almaty, Kazakhstan. He is also an Assistant Professor at the Department of Political Science at Al–Farabi Kazakh National University. Dr. Aminjonov is an expert on energy security and trans–boundary water management, with a particular focus on Central Asia and the broader Eurasian region.
 Marat Gurt, “Turkmenistan Stifles U.S. Gas Plans,” Reuters, June 3, 2000.
 Sevinj Mammadova, “Changing Market Dynamics In Central Asia: Declining Russian Interests And Emerging Chinese Presence,” Caspian Center for Energy and Environment, March 2015,https://goo.gl/dWq0nU.
 Since January 4, 2017, Turkmenistan has stopped exporting gas to Iran and now 100 percent of Uzbek and Turkmen gas is heading toward China
 World Bank, “Draft Environment and Social Impact Assessment,” Fifth Consultation Meeting on the Assessment Studies of the Proposed Rogun Hydropower Project, Almaty, Kazakhstan, July 14, 2014.
 “Over 85 Percent of Kazakh Oil Exports,” 2015.
 Author interview with Ahmad Fawad Farzad, Project Coordinator, Friedrich-Ebert-Stiftung Afghanistan, February 20, 2016, Kabul, Afghanistan.
 Renewal Energy Department, “Call for Expression of Interest (EOI) For Implementation of 100 MW Grid Connected Renewable Energy Projects In Afghanistan,” Ministry of Energy and Water, January 2016, 2.https://goo.gl/UzQXh7.