Wednesday, 15 April 2015

Azerbaijan and the Iran Agreement

Published in Field Reports

By Mina Muradova (04/15/2015 issue of the CACI Analyst)

While it is too early to anticipate whether the April framework agreement between Iran and the six world powers will lead to a permanent deal, Baku expects business ties between the neighbors to grow after international sanctions on Iran are lifted.

On April 3, Azerbaijan’s Foreign Ministry expressed its belief that “this political framework will provide an opportunity in furthering the peace, security and stability in the region and beyond.”

Fikret Sadykhov, a political analyst, believes the Lausanne agreements with Iran will be beneficial for Baku, which was always against a military settlement of the conflict. “Over recent years, Azerbaijan has been affected by the military rhetoric of both the West and Iran as well as blamed for becoming a so-called platform for military attacks against Iran, all this had a negative impact on bilateral relations between Baku and Tehran,” said Sadykhov.

Rasim Musabekov, a member of parliament, told Vestnik Kavkaza that agreements will have a long-term effect not only on bilateral relations between Baku and Tehran, but also in the region. “If anti-Iranian sanctions are lifted, there are several projects that can be implemented between Iran and Azerbaijan. Trade turnover and economic contacts with Iran will develop in a better way. The project of constructing the North-South Railway will be fulfilled intensively. So, there are prospects for improvement in the trade and economic sphere.”

According to Ilham Shaban, head of the Center for Oil Studies, in 2010 trade turnover between the countries was about US$ 600 million, while in 2014 it was only US$ 220 million, as a result of sanctions.

Baku and Ankara have already expressed their interest in developing economic ties between the three countries, especially in transporting Iranian oil and gas through their territories. The Iranian, Turkish and Azerbaijani Foreign Ministers will soon hold a trilateral meeting in Tehran.

Rovnag Abdullayev President of Azerbaijan’s State oil company SOCAR, claimed that Tehran was interested in the Trans-Anatolian Gas Pipeline (TANAP) project, which will carry gas from Azerbaijan to Europe via Turkey. He noted that Iran closely monitors the TANAP project. Speaking to the Azeri press, Abdullayev said Iran wants to purchase a share of TANAP, and that SOCAR, which is the principal stakeholder in the project, intends to sell shares if they receive a “proper” offer. Underlining that Iran’s need for this project will increase, Abdullayev said Tehran will produce more natural gas and it has no other alternatives to TANAP to carry it to Europe.

“It will be possible for Iran to take a stake in the TANAP project as long as certain commercial conditions are fulfilled,” Turkish Energy Minister Taner Yıldız said on April 9. He added that other countries also want a stake in the project, following a signing ceremony in Ankara between Turkish and Georgian authorities on energy.

According to plans, TANAP will connect to the Trans-Adriatic Pipeline (TAP) to bring the gas into Europe. The cost of building TANAP is estimated to between US$ 10 and 11 billion. SOCAR owns 58 percent of the project, Turkey’s Botas 30 percent, and BP owns the remaining 12 percent. EU officials also support the idea of Iran joining to the project, which has the potential to diversify energy supplies and decreasing Europe’s dependence on Russian gas.

“TAP is open to new shareholders, which can add strategic value to the project,” Lisa Givert, TAP's communication head, told reporters in Baku, commenting on the possible interest from Iran. The pipeline aims to start transportation of gas from Azerbaijan’s Shah Deniz II field in the Caspian Sea, one of the world’s largest gas fields, in 2018-2019. The 870 kilometer (545 mile) pipeline will connect to TANAP near the Turkish-Greek border at Kipoi, and cross Greece, Albania and the Adriatic Sea before reaching southern Italy. “For any additional volumes that come on stream, TAP will comply with the EU regulation and relevant sanctions,” Givert said. Azerbaijan aims to transport 16 billion cubic meters (bcm) of gas a year from its Shah Deniz II field in the Caspian Sea to Turkey and on to Europe.

Economic analyst Ilham Shaban believes the decision to transit Iranian gas through TANAP will be political rather than commercial. “TANAP might be used only for some small volume of Iranian gas as the pipeline is not designed for transit of huge resources. If we share capacity with Iran, then what happens to export of gas from fields like Absheron, Umid-Babak and the deep-water section of Azeri-Chirag-Guneshli (ACG) to the European market in the future? Are we going to build another export pipeline? … I think the issue of transit of Iranian gas through Turkey will be discussed only within the political context.”

Iran’s gas resources are impressive. According to BP’s review, the country has the world’s largest proven gas reserves at 33.8 trillion cubic meters (tcm). Russia's reserves are marginally lower at 31.3 tcm. Shaban believes that Iran will need to use alternative routes to transport its gas to Europe. “The Nabucco-West pipeline with a capacity of transporting 20 billion cubic meters of gas could be such an opportunity,” the analyst said.

However, Tehran has already signaled through Deputy Oil Minister Ali Majedi that it is ready to supply gas to Europe through Nabucco. Majedi stated that Iran was prepared to sign on as a supplier and added that “two visiting European delegations” had discussed potential routes to bring Iranian gas to Europe.

Iranian President Hassan Rouhani brought up the offer in a meeting with his Austrian counterpart Heinz Fischer in September on the sidelines of the UN General Assembly. Rouhani told Fischer that “the Islamic Republic can be a reliable supplier of energy for Europe” and mentioned the Nabucco pipeline. 

Published in Field Reports

By Arslan Sabyrbekov (04/15/2015 issue of the CACI Analyst)

On April 7, Kyrgyzstan commemorated the fifth anniversary of its popular revolution that put an end to the highly corrupt, criminalized and authoritarian regime of the ousted President Kurmanbek Bakiev. Alongside a number of high-ranking state officials, President Almazbek Atambayev took part in a solemn ceremony in Bishkek’s Central Square Ala-Too, at the site where nearly 100 demonstrators were shot dead by snipers on April 7, 2010.

In his emotional speech to the participants of the ceremony, President Atambayev stated once again that his predecessor established a highly corrupt regime, which robbed the whole country and described the system of the day as “monstrous,” referring to a number of killings of politicians, journalists and businessmen during Bakiev’s reign. The president went on to state that unlike a number of Arab countries and most recently Ukraine, which have all toppled similar regimes, Kyrgyzstan has in a short time managed to recover and is “currently on the right track of enhancing its democratic institutions, establishing justice and fighting corruption.”

Despite Atambayev’s positive remarks, the ideals of the April 2010 Revolution are very far from being met. Even after the president’s speech, dozens of participants of the ceremony demonstrated in front of the White House accusing the regime of failing to bring the perpetrators of bloodshed to justice, to systematically tackle corruption and bring back the assets stolen from the country. Indeed, none of the high-ranking officials of the Bakiev regime accused of direct involvement in the killings during the revolution are serving prison sentences. All are sentenced in absentia, including the former President himself, who is now residing in Belarus and leading a comfortable life. His son Maxim Bakiev, who has embezzled millions of state funds, now resides in London. According to a recent journalistic investigation by Global Witness, the son of the ousted President has purchased a house worth 3.5 million GBP. Kyrgyzstan’s continuous demand for their extradition has not been successful.

The revolution’s anniversary was also met with other critical comments from political and expert circles. In the words of Edil Baysalov, former Minister for Social Development and an active participant of the April 2010 events, “after 5 years, the country’s ruling political elite have failed to keep their promises; the country still suffers from widespread corruption, socio-economic challenges are growing, commitments to establish parliamentary democracy with a multiparty system have all been discredited.” Recent developments in the country tend to speak in favor of these remarks. None of the political parties, as driving forces behind a parliamentarian form of government, have managed to evolve as formal institutions and continue to represent informal unions of individuals guided by personal interests.

Furthermore, the commitment to address widespread corruption in the aftermath of the April 2010 events features a selective rather than a systematic approach. Despite the arrest of a number of high-ranking officials, corruption remains present at all levels and the latest Corruption Perception Index of Transparency International clearly demonstrates this fact.

Commenting on the anniversary of the April Revolution, the leader of the United Opposition Movement and MP Ravshan Jeenbekov noted that instead of carrying out democratic reforms, the country has on the contrary taken a big step back by adopting two controversial laws; one banning “gay propaganda;” another labelling foreign funded organizations as “foreign agents.” Both initiatives severely limit civil liberties and put the further development of civil society into great jeopardy. According to local civil society activists, this process of increasing authoritarianism is likely to flourish after Kyrgyzstan becomes a full-fledged member of the Moscow-led Eurasian integration project.

Indeed, each anniversary of the April 2010 events generates public debate on whether the country has reached its ideals and where it is moving further. So far, one can name the downfall of family rule, prevention of a large-scale ethnic conflict and the overall socio-political stability as major achievements of the past 5 years and the upcoming parliamentary elections in the autumn will be a key test for the country’s further stability.

The author writes in his personal capacity. The views expressed are his own and do not represent the views of the organization for which he works.

Published in Field Reports

By Arslan Sabyrbekov (04/01/2015 issue of the CACI Analyst)

The unofficial visit to Moldova’s capital Chisinau of Kyrgyzstan’s President, on the private jet of one of the country’s influential oligarchs, has spawned different opinions among the Kyrgyz public. The country’s leading opposition forces have sharply criticized the visit and demanded immediate clarification from the president.

On March 15, President Atambayev’s press service released official information on his upcoming visit to Saint Petersburg to hold bilateral talks with his Russian counterpart Vladimir Putin. Later, a number of media sources reported that before heading to Russia, Atambayev also visited Chisinau for several hours to speak with the local oligarch and deputy head of Moldova’s Democratic Party, Vlad Plahotniuc, who even provided his private jet to the Kyrgyz President.

During his short stay in Chisinau, Atambayev did not meet Moldova’s President Nicolae Timofti or any other high-ranking state officials, a gesture described by many experts to be highly undiplomatic. In explanation, Timofti’s press secretary told local media that Kyrgyzstan’s President was short on time to organize a meeting of two heads of states and confirmed that he instead met “someone” in Chisinau. That “someone’s” reputation in Moldova has raised further widespread criticism of the Kyrgyz President. According to Chisinau-based political analyst Igor Bocan, Atambayev’s interlocutor is considered Moldova’s richest man and one of the most influential figures in the country, controlling a number of economic spheres including the banking sector. Plahotniuc has earlier been involved in legal scandals related to his business activities in the United Kingdom and the Netherlands, noted Bocan.

The unannounced or rather secretive visit to Chisinau immediately activated the Kyrgyz opposition. During a session of the Kyrgyz Parliament, opposition MP and leader of the United Opposition Movement Ravshan Jeenbekov criticized the President for using someone’s private jet and demanded an explanation of the visit’s purpose. In his words, “as head of an independent state, the president has no right to use someone’s private jet and the Kyrgyz public has the full right to know where the Kyrgyz president was, which meetings he held and what subjects were discussed.” Jeenbekov has further suggested creating a special commission to investigate the matter and draw concrete conclusions. Following a number of similar critical remarks, the head of the Presidential Administration’s foreign relations department Sapar Isakov released a statement noting, “it is not yet time to comment Almazbek Atambayev’s unofficial meeting in Chisinau, but I could clearly state that this visit, just like all other activities of the president, was dictated by the national interests of the Kyrgyz Republic.” Isakov refrained from giving any further comments.

Kyrgyz and Moldovan news media are prodding the real purpose of the Kyrgyz president’s brief meeting with Moldova’s controversial oligarch and politician. A number of experts claim that the two might have discussed Moldova’s perspective of joining the Russia-led Eurasian Economic Union, with the Kyrgyz president being the Kremlin’s messenger. Others argue that the meeting exclusively focused on business related issues. Nevertheless, this is not the first time that Kyrgyzstan’s highest state official held secret talks with foreign oligarchs. During the tenure of the ousted President Kurmanbek Bakiev, media reported on his secret meeting with Russian oligarch Boris Berezovsky, who was then wanted by Russian prosecutors for a number of criminal charges, ranging from financial fraud to engineering a putsch.

After his controversial visit to Chisinau, Kyrgyzstan’s president flew on the same jet to Saint Petersburg to meet his Russian counterpart. This was Putin’s first public appearance in more than a week, leading to various rumors of his whereabouts. Atambayev said, “They are not very correct.” He added that “The Russian President not just goes out for strolls, but takes the seat at the wheel to take his guests for a fast ride.”

Currently, Kyrgyzstan’s president is paying official visits to a number of European countries and has met with the Austrian, Swiss and French presidents. The Kyrgyz delegation is expected to hold talks with German Chancellor Angela Merkel and President Joachim Gauck in Berlin in the beginning of April.

The author writes in his personal capacity. The views expressed are his own and do not represent the views of the organization for which he works.

Published in Field Reports

By Umida Hashimova (04/01/2015 issue of the CACI Analyst)

Privatization is a sore subject in Uzbekistan. Cases of expropriation of foreign and local companies in the past have painted a discouraging picture for private business in the country. Uzbekistan is also criticized for a government-controlled slow privatization process that has been continuing at a snail’s pace since the early days of independence. Uzbekistan’s import-substitution and export-oriented industrialization policy is also not popular among backers of a liberal economy.

Yet, privatization gained renewed attention when, on January 16, 2015, Uzbekistan’s President Islam Karimov requested the Cabinet of Ministries to develop a program on restructuring, modernization and diversification of production for 2015-2019 with a focus on privatization. This was the first presidential-level request for privatization and thus very important for elevating the topic’s importance. In a government like Uzbekistan, what the head of the country says today becomes law tomorrow with ensured follow-through.

The Program on Privatization is under development and is envisioned to encompass full-scale and pivotal analysis of the government’s presence in the economy, aiming to decrease the state presence and increase the share of the private sector. The program prescribes a three-fold reduction of state-owned enterprises: 534 companies that have state shares in nominal capital will be reduced to 147, and 660 non-working enterprises will later be sold to private individuals. The World Bank and the International Finance Corporation were for the first time actively included in the program development process to solicit their expert opinion on the privatization process, with the first round of meetings organized in March 2015.

In the most recent World Bank and State Department reports, however, privatization and foreign investment did not receive high marks. In the Uzbekistan Country Program Snapshot for 2014, the World Bank mentions that the net inflow of foreign direct investments (FDI) has been decreasing in recent years. Cumulative per capita FDI inflows are low due to the government’s reluctance to fully open the economy and improve the foreign investment climate in some areas. The State Department’s Investment Climate report for 2014 pointed out that “access to currency conversion, debilitating red tape, an onerous system of taxation, overregulated banking, and punitive customs laws and procedures” are the most important issues mentioned by foreign and domestic investors, followed by expropriation cases and politically-motivated inspections of companies. The same report says that Uzbekistan’s investment legislation provides a range of guarantees for foreign investors, but the legislation is ambiguous and self-contradicting.

When this author raised these issues from the State Department report with Uzbek officials familiar with developments in the privatization area, they said (on condition of anonymity) that in most expropriation cases, companies seek to abuse domestic laws that allow tax-free import of machinery to Uzbekistan. They then fail to produce a final product through localized production as stipulated in the agreement signed by investors. The officials added that in some expropriation cases, the final product fails to materialize by the deadline of an agreement. Overall, they claimed Uzbekistan currently has around 31,000 private companies and the majority of them are working successfully.

When the author asked the same officials why the Privatization Program is being developed now, 24 years after the privatization process started in the early 1991s, they responded that the government is now more confident to give up state assets because it is certain that privatization can be implemented without disruptions. Unsuccessful early privatization processes in Russia and other former Soviet countries made Uzbekistan hesitant to rush into the privatization process. Furthermore, they added, the government focused on developing a legislative basis for privatization that among others things would protect socially vulnerable groups who could have been disadvantaged by privatization. In preparation for the privatization process, the government was also busy establishing colleges with foreign partners that would provide the younger generation with business-oriented education.

The State Department’s Investment Climate report recognized improvements, such as  amendments to the Law on Foreign Investments (effective January 20, 2014), which introduced a single-window process for the registration of businesses, requiring no more than seven days to finish registration from the submission of an application.

The recent developments in privatization at the presidential level might indicate that Uzbekistan’s government has depleted its measures to control the economy and is ready for the next step. However, the question remains if the economy’s modernization and market-oriented reforms will continue while the government is implementing strong import-substitution strategies. The development of the privatization program at the president’s request in partnership with international organizations is a signal that Uzbekistan’s government is increasingly interested in seriously improving the country’s investment and business climate as state assets are being prepared for divesture. 

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Joint Center Publications

Article S. Frederick Starr, "Why Central Asia Counts", Middle East Insights, November 6, 2017

Article Mamuka Tsereteli, “Russian Aggression in the Black Sea Cannot Go Unanswered” The Hill, September 11, 2017

Article Bilahari Kausikan, Fred Starr, and Yang Cheng, “Asia’s Game of Thrones, Central Asia: All Together Now.” The American Interest, June 16,2017

Article Svante E. Cornell “The Raucous Caucasus” The American Interest, May 2, 2017

Resource Page "Resources on Terrorism and Radical Islamism in Central Asia", Central Asia-Caucasus Institute & Silk Road Studies Program, April 11, 2017.

Silk Road Monograph Nicklas Norling, Party Problems and Factionalism in Soviet Uzbekistan: Evidence from the Communist Party Archives, March 2017.

Oped Svante E. Cornell, "Russia: An Enabler of Jihad?", W. Martens Center for European Studies, January 16, 2017.

Book Svante E. Cornell, ed., The International Politics of the Armenian-Azerbaijani Conflict: The Original 'Frozen Conflict' and European Security, Palgrave, 2017. 

Article Svante E. Cornell, The fallacy of ‘compartmentalisation’: the West and Russia from Ukraine to Syria, European View, Volume 15, Issue 1, June 2016.

Silk Road Paper Shirin Akiner, Kyrgyzstan 2010: Conflict and Context, July 2016. 

Silk Road Paper John C. K. Daly, Rush to Judgment: Western Media and the 2005 Andijan ViolenceMay 2016.

Silk Road Paper Jeffry Hartman, The May 2005 Andijan Uprising: What We KnowMay 2016.

Silk Road Paper Johanna Popjanevski, Retribution and the Rule of Law: The Politics of Justice in Georgia, June 2015.

Book S. Frederick Starr and Svante E. Cornell, eds., ·Putin's Grand Strategy: The Eurasian Union and its Discontents, Joint Center Monograph, September 2014.

The Central Asia-Caucasus Analyst is a biweekly publication of the Central Asia-Caucasus Institute & Silk Road Studies Program, a Joint Transatlantic Research and Policy Center affiliated with the American Foreign Policy Council, Washington DC., and the Institute for Security and Development Policy, Stockholm. For 15 years, the Analyst has brought cutting edge analysis of the region geared toward a practitioner audience.

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