Energy outcome of SCO meeting in Dushanbe

MOSCOW. (Dr. Igor Tomberg for RIA Novosti) - The inception of the Asian Energy Club was one of the key topics (and a practical outcome) of the fifth meeting of the Heads of Government Council of the Shanghai Cooperation Organization held in Dushanbe, Tajikistan, on September 15.

SCO prime ministers focused on mechanisms of expanding business and banking communities' involvement in energy, telecommunications and transport projects. They also made decisions on implementing the initiative voiced by Russian President Vladimir Putin at the SCO summit last June, where he proposed to set up an SCO Energy Club, a mechanism that would unite energy producers, consumers and transit countries. The heads of government instructed a special working group to study the prospects of establishing the Energy Club as soon as possible.

Russia's initiative was supported by other meeting participants. Kazakh Prime Minister Danial Akhmetov said, "I believe that in the future we will focus on issues related to energy security and I think this will be the pivotal challenge for our countries' economic development. Development and implementation of this program, an energy strategy and an energy club - discussed at the SCO anniversary summit in Beijing - are fundamental tasks for our heads of government."

The Russian delegation came to Dushanbe with well thought out ideas and projects to define practical goals for the future club. Russian Prime Minister Mikhail Fradkov proposed to set up an international center within the SCO that would provide nuclear fuel cycle services. The SCO member states can cooperate on designing nuclear power plants, and also on production and supply of nuclear fuel, he said.

Russia is taking effective steps to develop power generation in Central Asia. It has signed an agreement to complete the construction of the Sangtudinskaya hydropower plant, is preparing a similar one on the Rogunskaya hydropower plant in Tajikistan and another one on the construction of the Kambaratinskaya hydropower plant in Kyrgyzstan. Another important issue is the creation of a power grid to transfer excessive electricity produced by Tajik and Kyrgyz power plants to Central and South Asia, Fradkov said. "It is important to ensure that SCO countries have mutual access to power grids, as well as to improve the existing and to build new gas shipment networks on their territory. Russian pipe producers are willing to take part in the project," he said.

So Russia's initiative to set up the Asian Energy Club has been launched. It will serve as a mechanism to unite oil, gas and electricity producers, consumers and transit countries. Apart from Russia, these are China, Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan. They are already implementing several bilateral and multilateral energy projects, such as oil and gas exploration, production and shipment and development of power grids to supply excess electricity to neighboring countries.

Russia's obvious interest in multilateral cooperation within the SCO Energy Club lies in diversification of export routes and reduction of price and political risks on the global oil and gas market. In addition, it would welcome the unification of a group of nations into a self-sufficient energy bloc. This causes obvious concerns in the West, which is actively trying to weaken Russia's and China's influence in this region, while simultaneously mounting its own expansion there.

Western assessments focus on the SCO increasingly becoming a mechanism to oust the United States and its Western allies from Central Asia. The Energy Club that has not been officially established yet is already perceived in the West as a prototype of Oriental gas OPEC. There are grounds to believe so. SCO oil reserves are not too great: they do not exceed 20% of the world's total even together with Iran, which has an observer status. The situation with gas is different. Aggregate gas reserves of Russia, Central Asia and Iran exceed 50% of the world's known reserves, according to some estimates. Iran's proposal to set gas prices and determine its major flows together with Russia only added fuel to the fire.

At the same time, SCO member countries that export oil and gas are so far not only partners, but also rivals on the promising markets in East and South Asia. China has been obviously mounting activity in the region. Chinese companies' efforts to get a foothold in the energy sectors of Turkmenistan, Kazakhstan and Uzbekistan are beginning to threaten Russia's position in Central Asia based on monopoly on export gas pipelines to Europe.

China has offered Ashkhabad to build an eastward-bound gas pipeline with an annual capacity of 30 billion cu m. It is also getting ready to sign a product-sharing agreement for the development of a new gas area on the right bank of the Amu Darya river, and is now more active in developing gas resources in Uzbekistan and Kazakhstan, meaning to ensure their shipment to China's western provinces. This is a new situation in the Caspian region, which gives Central Asian states more space for maneuvering. Even Western analysts have noticed that.

"We're not just talking about oil and gas going to the west, but also to the east and southeast. It's all going to happen," says Fred Starr of John Hopkins University." The region is coming out from under the monopoly control of Gazprom and, with the help of these other countries, going back to its traditional place as the center for transcontinental trade."

In this context, the above-mentioned quote of the Kazakh Prime Minister should be seen as elaborating on the view of Kazakh President Nursultan Nazarbayev, who said that "Kazakhstan is becoming an energy security factor in Asia and Europe." In fact, Kazakhstan is gradually beginning to realize and position itself as a great energy power. This inevitably leads to its confrontation with Russia. The SCO Energy Club will serve to coordinate moves and alleviate such tensions.

Today, however, the establishment of a cartel is very unlikely. Because of differences in their energy interests, the SCO member states would prefer setting up a coordination center rather than a cartel based on producing countries' common policies.

One should not overlook such an important factor in SCO development as competition between its largest founders, Russia and China. There is a consistent trend toward seizing the initiative within the organization. At the meeting of SCO prime ministers in September 2004, Chinese Prime Minister Wen Jiabao proposed to set up a common market within the SCO with necessary amendments to the tax, customs, immigration and other legislation. Russia did not declare its unequivocal support for the initiative at that time, proposing to move towards it gradually. This means that Moscow is not willing to open its own market for China and is also trying to avoid direct economic competition with Beijing in Central Asian countries - SCO members.

The Russian President's June 2006 initiative was a response to the Chinese idea of the SCO common market. So far, the Russian leadership has been very confident in the energy sphere, where an additional coordinating mechanism can be useful.

The Dushanbe meeting showed that Russia was successfully moving eastward, relying on its energy power. At the same time, ongoing changes in Russia's relations with Central Asian energy producers - Kazakhstan, Turkmenistan and Uzbekistan - make it look for new approaches. The gas pipeline monopoly is obviously losing its significance. Time is ripe for an investment "onslaught" in the region, for which Russia has both financial resources and political opportunities. Attractive projects and initiatives within the SCO Energy Club on the Russian government level should be supported by a dynamic and even aggressive investment policy of Russian corporations.

Dr. Igor Tomberg, senior research fellow with the Center for Energy Studies, the Institute of World Economy and International Relations at the Russian Academy of Sciences.

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