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How To Orient Energy Regulation towards Economic Cooperation

In March, the private U.S. consulting firm Legal Technical & Advisory Services will hold a training session for energy officials from Turkmenistan, Uzbekistan and Kazakhstan. This high-level, hands-on seminar will focus on legislation, policy and regulations of the oil and gas sectors. A particular advantage will be the simultaneous presence of leading officials from the three most important energy-producing countries in Central Asia.

It may serve both the interests of these countries, of the United States and those of the West generally to invite a representative or two of the Central Asian Union (CAU) to be present to observe. There are three parts to understanding why that is so. First, energy regulation complements economic cooperation. Second, such cooperation hurts no one and helps everyone. Third, the parties in Central Asia are ready for it.

1. Energy Regulation Complements Economic Cooperation

Energy payments and revenues account for such a large proportion of the national economies and foreign exchange of the newly independent states that these issues inevitably affect macroeconomic stabilization. Western leadership has already been required to solve important payments problems. In the mid-1990s, for example, large amounts of U.S. aid to Ukraine were handed over directly to Russia in payment for energy supplies.

The United States also set up and attended negotiating sessions in Turkmenistan conducted by IMF officials to settle differences over payments between Turkmenistan and Ukraine. This was no secret, and Washington encouraged it for purposes of political and economic stabilization. Indeed, where the West has not been involved, a barter system has made a partial comeback. Yet the renaissance of barter is only symptomatic of a whole range of transnational financial instabilities that threaten the living standard of the populations concerned, and therefore the political stability of the governments in place.

Payments issues are not ad hoc problems but recurrent structural disequilibria needing systematic attention. The significance of energy industries in these countries makes it important to consider how cooperative technical regulation of these countries' national energy industries might contribute to their transnational economic stabilization.

2. Such Cooperation Hurts No One and Helps Everyone

The LTAS meeting in Atyrau could also provide an informal opportunity to look for ways to enhance Central Asian cooperation at ministerial and subministerial levels. Indeed, over the last year the CAU's Committee of Prime Ministers has undertaken, at the direction of their national presidents yet without full success, to design plans for establishing multinational consortia in the areas of energy, water conservancy, unified telecommunications systems, mining and foodstuffs.

This ambitious agenda has not been fully realized. Yet the enlightened involvement of private Western entities such as LTAS could promote such a movement, conforming with the Central Asian countries' own expressed desires and in line with Western interests.

Such Central Asian cooperation is in the Western interest for three reasons. First, it would promote a tangible and material solidarity among the participants to complement their cultural community. Second, being incapable in present circumstances of creating a monolithic "bloc," it cannot threaten other powers such as Russia or China. Third, it cannot threaten the now well-established bilateral relations with Western powers; indeed, it can only enhance these relations.

3. The Parties in Central Asia Are Ready for It

With a little encouragement, such cooperation could even be institutionalized within the CAU. The union need not necessarily be such a focus, but this cooperation should have a multilateral angle.

As pointed out in this space last month, the main obstacle to the CAU's further development is at present the currency regime in Uzbekistan: The som is not freely convertible into foreign currencies, and the government still maintains multiple exchange rates. President Islam Karimov insists on following an "Uzbek model" of development, which gives pride of place to large-scale foreign investment while holding back on both real privatization and the domestic development of small and medium enterprises.

This economic policy is coupled with the authoritarianism that marked the development of a special South Asian profile for the Uzbekistan's diplomacy in the early and mid-1990s. An anti-fundamentalist policy was and still is part and parcel of that authoritarianism, on both cultural and political levels. After Karimov had quickly eliminated significant domestic opposition, the continuation of this whole complex of policies was due in large part to competition with Kazakhstan for Central Asian prestige.

By now, however, both Uzbekistan and Kazakhstan have well-defined and mutually distinct profiles in international diplomacy. Both should be at the stage where they can appreciate the benefits of multilateral cooperation with immediate neighbors in external affairs, as an enhancement to their own.

Copyright © Robert M. Cutler unless otherwise noted.
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This Web-based compilation: Copyright © Robert M. Cutler
URL:  http://www.robertcutler.org/blog/1999/02/how_to_orient_energy_regulatio.html
First published in FSU Oil & Gas Monitor, No. 18 (8 February 1999): 4–5.

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This page contains a single entry from the blog posted on February 8, 1999 9:30 PM.

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