The Bear's Lair

Kazakhstan is a partner that we can work with, even if not necessarily an easy one

(EU Commission Official – 2010).

The EU’s operations in Kazakhstan try to be both pragmatic and values-based. Like the US and China, Brussels has been keen to bolster economic and energy cooperation with a fast-growing regional giant. On the other hand, the EU also tries to promote its traditional objectives of good governance, human rights and the rule of law. The results to date have been decidedly mixed and leave much for the EU to mull over as they negotiate a new Partnership and Cooperation Agreement (PCA) with Astana.

Soap opera politics

Similar to its activities in other neighboring countries, the EU has sought to help Kazakhstan improve its electoral process and respect for human rights, rule of law and civil society. It has done so by initiating various bilateral dialogues and by implementing small-scale technical assistance projects.

A quick glance at the results does not paint a pretty picture. Regarding electoral process, President Nursultan Nazarbayev, now enjoying his third decade in charge, was recently reelected with a rather embarrassing “Soviet score” of 95%. To date he has twice altered the constitution to remove age and term limits. Parliamentary elections are worse still. In 2007 every single seat was won by the president’s Nur Oltan party – a situation that made Kazakhstan’s presidency of the OSCE in 2010 look pretty farcical.

Behind the scenes, lurid tales are aplenty. Rakhat Aliyev, Nazarbayev’s son in-law was previously tipped to succeed him. However after claiming that he had information implicating Nazarbayev in both the murder of a political opponent and the ‘Kashgate’ scandal (see below), Aliev fled Kazakhstan and successfully sought asylum in Austria. He remains there to this day, despite huge Kazakh pressure on Austria to extradite him. In 2009, Aliev released a book, “The God Father-in-Law” which featured an array of allegations against Nazararbayev.

Corruption in Kazakhstan is endemic. According to Dosym Satpaev, the country is no more than a “functioning kleptocracy” where practically all major companies are controlled by the president’s immediate family. In the “Kazakhgate” bribery scandal, James Giffen, an American advisor to Nazarbayev, was alleged to have paid over $80 million in bribes, on behalf of western oil companies, to Nazarbayev and members of the Kazakh elite, in order to gain access to the to the huge Tengiz oil field.

For human rights and the rule of law the story is no less grim. Kazakh human rights campaigners bemoan the regular locking up of campaigners such as Yevgeny Zhovtis on trumped up charges. The media is run by close-knit supporters and family of Nazarbayev and was recently ranked 131 out of 167 on the Worldwide Press Freedom Index. The fact that Kazakhstan is “not as bad” as its neighbours Uzbekistan or Kygrystan, seems to have stymied much international criticism.

The EU, for its part, likes to talk about its role in encouraging Kazakhstan to sign international agreements such as the International Covenant on Civil and Political Rights. It is particularly pleased about Kazakhstan’s 2009 decision to repeal a new law that the EU saw as curtailing religious freedom. Under its EIDHR umbrella, Brussels has dispensed some EUR 8 million on over 100 projects in Kazakhstan, with progress being claimed in areas such as disability rights.

However in private EU officials readily acknowledge their limited impact. With no EU membership or even entry to the European Neighborhood Policy (ENP) to offer, the EU’s normal leverage is severely curtailed. Their cause is further weakened by a chronic lack off funds and a lack of focus among member states who regularly put democratic concerns to one side when chasing bilateral energy deals with Astana (see below). Even the EU’s special representative to Central Asia, Pierre Morel, has clearly taken on energy cooperation as his raison d’etre in the region.

However the EU’s biggest challenge remains convincing Nazarbayev and his coterie of the need for reforms. As Nazarbayev argues, neighboring countries such as Kyrgyzstan, who have dallied with democracy, have floundered in repeated instability while Kazakhstan has remained remarkably stable

Pipeline Fever

The Southern Corridor is our Mantra

(EU Commission Official 2010)

Kazakhstan’s oil reserves are its main energy resources and EU companies have been active here since the early ’90s. However with Kazakh oil available on the spot market, and easily shipped by tanker, there has been little need for the EU to get involved. Gas, on the other hand, has been the dominant topic in the EU’s energy dialogue with Kazakhstan.

Although it has relatively limited gas reserves itself, Kazakhstan fits into the EU’s “Southern Corridor” initiative, a mesh of pipelines designed to ease the EU’s current reliance on Russian gas. Kazakhstan has been targeted by the EU mainly because of its potential role as a conduit and mediator with neighboring Turkmenistan (where gas reserves are considerably larger).

The first element is the beleaguered, EU-backed, Nabucco pipeline that is set to run from Turkey to Austria. Although the initial gas for Nabucco will come from Azerbaijan, it does not have the capacity to provide the full 30 bcm required. Given its sour relations with Iran, EU attention has turned across the Caspian. The idea is that Kazakh and Turkmenistan gas will be transported via a new trans-Caspian pipeline to Azerbaijan where it can hook into the Nabucco pipeline.

However progress on Nabucco has been painfully slow and was recently delayed for a further year. Kazakh Foreign Minister Kanat Saudabayev (like many others) remains unconvinced that Nabucco “makes sense financially”. Meanwhile a trans–Caspian pipeline remains largely an academic discussion. While Kazakhstan wants to diversify its delivery channels for gas away from Russia it also recognises that Russia will continue to be its dominant transport channel for the near and medium future.

Critics argue that the EU should stay away from pipelines and focus on what it does best in the energy sector, namely offering market experience, mediation and assistance with technology and infrastructure and. Here the EU has helped to modernise Kazakhstan’s energy infrastructure as part of its INOGATE program. Projects to date have included the training of Kazakh personnel, a project to update the Aqtau port and cooperation on sustainable development and clean energy mechanisms. Kazakhstan has also benefited from the EU’s Emissions Trading Scheme with European companies offsetting carbon emissions by launching emissions reduction projects in Kazakhstan.

Unbalanced Economic Cooperation

“Kazakhstan realise that they need to modernise their economy and they know that Europe is here for them, with experience”.

(EU Commission official – 2010)

This EU’s efforts to expand trade and investment with Kazakhstan began in earnest after the signing of its PCA in ’95. Today Kazakhstan benefits from the EU’s Generalised System of Preferences and Brussels has repeatedly supported its application to joint the WTO. The EU also has a stated goal of trying to help Kazakhstan to diversify and modernize its economy through the development of its SME sector. In addition, under its TRANCEA initiative, the EU has attempted to integrate Kazakhstan’s transport infrastructure into the EU’s existing Trans-European-Networks.

At first glance the EU’s objectives seem to been a roaring success. Since independence, Kazakhstan has carried out large-scale privatisation, financial liberalisation and labour market reforms. After a difficult adjustment period the Kazakh economy has flourished and between 1999 and 2008 enjoyed an unprecedented economic boon. GDP rose from $25 billion in 1991 to over $130 billion in 2008. Bilateral trade cooperation between the EU and Kazakhstan has increased exponentially. The EU is now the premier trading partner of Kazakhstan accounting for about 45% of its exports and 25% if its imports..

However these figures disguise a murkier reality. The EU-Kazakh trade relationship is considerably unbalanced with Kazakh exports to the EU totaling over EUR 17 billion in 2008 while Kazakh imports from the EU mustered just under EUR 5.5 billion. Kazakhstan’s entry into the WTO suffered a setback in 2010 when it decided to enter into a customs union with Russia and Belarus. Its membership of the EU’s GSP may also expire under purported new EU rules.

In addition despite EU attempts to develop Kazakhstan’s SME sector, Kazakh exports remain dominated by state energy and raw materials giants who provided over 80% of exports in 2008. A raw materials boom also fuelled a construction and real estate bubble whose implosion left Kazakh banks unable to meet their debt obligations.

Where to next for the EU?

It’s hard to be overly positive about the future of the EU’s strategy in Kazakhstan. It’s hard to escape the conclusion that Brussels has thrown the majority of its attention and resources at energy cooperation while human rights and good governance have gone out the window. However although Kazakh membership of the European Neighborhood Policy, or even the EU itself, remains off the table, relations remain cordial and Kazakhstan is vocal in its desire for closer cooperation. With negotiations on a new PCA ongoing, the EU needs to remember what it is best at and focus its attention there.

This is part 3 of a five part blog series that compares the strategies of the EU and China in Kazakhstan.
Part 1 and part 2 can be found here.

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