China, Russia and the Tussle for Influence in Kazakhstan – by Arthur Guschin (The Diplomat – March 23, 2015)

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The two powers are pursuing competing interests in Central Asia.

Until recently, Central Asia played only a modest role in world politics, a reflection of its economic weakness, domestic problems, and distrust of integration. Russia’s presence in the region as the primary political mediator and economic partner was incontestable. In the last few years, though, China’s growing economic interest in Central Asia has come to be seen in Moscow as a threat to its influence. Russia is watching closely the Silk Road Economic Belt initiative, which would give Beijing the dominant role and could supplant the Eurasian Economic Union. With Kazakhstan the core state in any integration project in the region, it looks set to become the frontlines of the tussle between China and Russia for regional influence.

Russian Interests

Driving Russian policy in Kazakhstan are the activities of four major Russian energy companies: Gazprom, Lukoil, Transneft and Rosneft. These companies allow Moscow to keep Astana within the sphere of Russian interests and help prevent Beijing from dominating Kazakhstan’s economy. Their participation in local energy projects gives Russia access to oil and gas reserves, while binding the two countries in the energy, transport, space and agriculture sectors.

The basis of the partnership rests on agreements covering petroleum contracts and energy supplies transiting through Kazakhstani and Russian territory to European or Chinese markets. Currently, the leading Russian investor in Kazakhstan is Lukoil, which operates seven projects and has a stake in the cross-country pipeline Caspian Pipeline Consortium (CPC). In 2013, 32.7 million tons of oil was pumped through the pipeline, 28.7 million tons of it exported from Kazakhstan.

Since January 1, 2014, Rosneft has been able to transport 7 million tons of oil each year via the Priirtyshsk-Atasu-Alashankou route under an intergovernmental agreement on sending Russian oil to China via Kazakhstan, which was inked at a meeting of the Supreme Eurasian Economic Council on December 24, 2013. Russian authorities have stated that the transported amount can be increased to 10 million tons. This will allow Moscow to expand long-term economic cooperation with Astana and guarantee the latter additional budget revenues of 54.6 million dollars as a transit charge. Moreover, the agreement extended the Atasu-Alashankou pipeline capacity from 12 to 20 million tons of oil per year.

The third important pipeline of Russia and Kazakhstan is the Atyrau-Samara route, which transfers Kazakh oil to Russia and then on to Europe. In 2013, 15.4 million tons of oil was transported via this route.

Finally, Russian and Kazakhstan use a maritime route in the Caspian Sea between Aktau and Makhachkala to deliver 2.7 million tons of oil.

This stable energy partnership is also evident in the gas sector. Two crucial gas pipelines – Central Asia-Center and Bukhara-Ural – that run through Kazakhstan territory let Gazprom expand its resource portfolio and guarantee an uninterrupted gas supply abroad. Gazprom’s ambitions also encompass field development and joint ventures. Thus, KazMunayGaz and Gazprom established LLP KazRosGas with a 50/50 stake in 2002 to consolidate efforts across a number of new projects.

As a result of Russian investment over the last fifteen years, Moscow has developed a robust position in Kazakhstan fuel and energy, and guaranteed a consistent transit of energy resources. The participation of Russian companies in strategic energy sectors force Astana to consider Moscow’s interests and policies. Cooperation between Russia and Kazakhstan in promising fields and the potential construction of the Pre-Caspian gas pipeline form a future cooperation vector that means new investment for Kazakhstan while allowing Russia to keep Chinese influence at bay.

Apart from oil and gas, Russia is also competitive in the nuclear industry, and here as well Moscow is seeking to expand its footprint in Kazakhstan. Currently, there are five joint uranium mining ventures, with Russia represented by the company Uranium One. In 2013, the joint output totaled 4,545 tons, with plans to increase that to 6,000 tons. In addition, Moscow and Astana launched a joint Russian-Kazakh commercial center for uranium enrichment on the base of the OJSC Ural Electrochemical plant (the world’s largest). Kazatomprom also has a 10 percent share in The International Uranium Enrichment Center in Angarsk.

The Kazakh uranium market is competitive, with France, China, and Japan also involved. With that in mind, last year Russian President Vladimir Putin signed agreements with his Kazakhstani counterpart Nursultan Nazarbayev under which Moscow will build a nuclear power plant in Kazakhstan with a capacity range 300-1200 MW and deliver nuclear fuel to it. Russia is ready to offer operating and maintenance services and staff training. In addition, the two countries agreed to a road map for the development of potentially productive uranium mines under a joint venture. Russia will benefit from these initiatives: It is economical for both parties, Russia gains access to potential sources of uranium, Kazakhstan is bound tightly to Russia, and Uranium One has the opportunity to exchange assets with other uranium mining companies.

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