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 KAZAKHSTAN International Business Magazine №3/4, 2001
 Russia and Kazakhstan: the Outcomes and Prospects of Economic Co-operation
Russia and Kazakhstan: the Outcomes and Prospects of Economic Co-operation
Yury Kazachenko, Trade Representative of Russia in the Republic of Kazakhstan, answers the questions of our magazine
What is the main objective of Russia’s politics and economic activities in Kazakhstan and Central Asia?
Kazakhstan has always been Russia’s strategic partner in Central Asia. Over the last two years, political interaction between our countries intensified. Due to the positive economic trends in both Russia and Kazakhstan, trade and economic activity also experienced an upsurge. In 2000, commodity turnover between Russia and Kazakhstan exceeded the 1999 level by 1.7 times, and totalled $4.2 billion. During the first half of 2001, the turnover further grew by 31% as compared to the same period in 2000.
Investment co-operation also broadened considerably. Today, there are 461 companies operating in Kazakhstan utilising Russian capital. Direct Russian investment in the Kazakh economy doubled in 2000.
An important area of Russian-Kazakh co-operation is the energy sector. The completion, in 2000, of the reconstructed Atyrau-Samara oil pipeline allowed for the transportation of Kazakh oil to be increased to 15 million tonnes per annum. Another increase in the export of hydrocarbons is expected to occur after the launch of the Tengiz-Novorossiysk (CPC) pipeline.
The Russian company Lukoil, an active player in the Kazakh oil sector, is involved in such big projects as Karachaganak, Tengiz and Kumkol, and a second Russian oil company, Rosneft, has demonstrated its significant interest in the development of Kazakh oil and gas fields.
EES Rossiyi, which occupies a prominent role in the Kazakh energy market, has been supplying electricity from Russia to those regions of Kazakhstan which lack their own electricity production capacity, and, since 2001, is transferring energy from Kazakhstan to similar regions of Russia. In addition, the company is developing the Severny coal mine, and part of the Bogatyr’ mine in Ekibastuz, and exports coal to Russia (particularly, to South Ural power stations).
Co-operation is also broadening in the nuclear energy sector. In July 2001, TVEL of Russia, Kazatomprom of Kazakhstan, and Energoatom of Ukraine, signed an agreement to create a joint venture which will produce nuclear fuel for nuclear power stations. Another Russian-Kazakh joint venture will be founded for the development of uranium deposits in Kazakhstan.
A potentially beneficial area of co-operation is the use of the transit capacity of both Kazakhstan and Russia–namely the formation of the so-called North-South Transportation Route. Apart from Russia, Kazakhstan, Belarus and Oman have all joined the project. A committee comprising representatives of transport ministries of the involved states is already working on the organisation of the route.
Air transit routes, and water transport also represent important areas for potential mutually beneficial co-operation.
Russia’s proportion in Kazakhstan’s foreign trade reduced from 34% in 1998 to 26.5% in 1999, but then increased to 29.9% in 2000. How would you interpret these fluctuations?
The year 1999 saw a decrease of nearly $1-billion in the turnover of Russian-Kazakh trade, and there were several reasons for this. Firstly, both Russia and Kazakhstan experienced a decline in industrial production, especially in the processing industries.The mutual indebtedness of companies was growing. As a result, the solvent demand in the Kazakh market dropped, and a similar scenario developed in Russia. Under such circumstances, a natural impulse was to turn to new market outlets, stable and solvent ones. Therefore, most newly independent states switched the focus of their foreign trade to the European Union, and to USA.
Secondly, the financial crisis of 1998-1999 had a bearing on the situation. After the fall of the rouble exchange rate against the US dollar in August 1998, the National Bank of Kazakhstan continued to maintain the artificially high tenge rate against hard currencies, which rendered Kazakh exports non-competitive in Russia, and pushed Russian customers to seek new suppliers, especially in the domestic market. The most adverse implications were felt in Kazakhstan’s key export commodities, which were intended for the Russian market. During this time, Kazakh export of coal, ores, grain, ferrous metals and machinery to Russia decreased by 2-3 times.
Thirdly, the decrease in trade was compounded by the ban on imports of a range of Russian commodities (in 20 commodity groups), which was imposed by the Kazakh Government in December 1998.
However in late 1999, the economic situation in Russia and Kazakhstan started to improve, and the tenge-rouble parity became nearly normal. As a result, trade intensified between the two countries. This trend has continued so far during this year and Russia’s share of Kazakhstan’s foreign trade accounts for almost 34%.
Presently, Russia is Kazakhstan’s principal trade partner, importing 90% of Kazakh meat and milk products, 4/5ths of its fruit and vegetable exports, almost all its coal and ores, and more than 50% of chemical and textile products, ferrous metals and machinery.
For Kazakhstan, the Russian markets are an important factor for sustained development in many of its industries.
Experts point to the high railway rates in Russia as one of the reasons for the decline in trade with Kazakhstan. What prospects for co-operation do our two countries have in the fields of transportation and communications?
Transport costs account for considerable portion of the commodity price. High railway rates rob Russian exports of room for competitiveness, especially when related to long-distance transportation. Therefore, commodities from the Central and European regions of Russia, not to mention the Far East, are not competitive in Kazakhstan. Kazakh exporters are facing the same problem. Therefore, the Transport Ministries of Russia and Kazakhstan have formed a joint working group, which has been assigned the task of developing proposals for the mutually beneficial adjustment of railway rates for transportation of selected commodities. This working group is elaborating on the tariff policy, and considering proposals from Kazakh and Russian companies. One of the outcomes of their efforts has been a considerable reduction in rates for export of grain, sulphur, and ferrous metals from Kazakhstan to third countries, and special rates for transportation of stove fuel and petrol along the Kaliningrad railway. This mission continues in 2001.
Resolution #81 of the Council of Government Heads of 17 February 2000 envisages a set of measures aimed at the establishment of a common energy space within the Eurasian Economic Union (EEU). Could you elaborate on this?
In June 2000, the parallel operation of the electric grids of Russia and Kazakhstan resumed, which is an important precondition for the further economic development of both countries. This was preceded by the paralleling of the Kazakh grid and the United Central Asian Grid in 1999. Thus, at present, all the grids of the EEU are operating in parallel mode, which increases their reliability.
At the same time, the legal and organisational practicalities of this merger are yet to be formulated. Therefore, a number of measures have been designed to assist the formation of the legal and institutional framework of an open and fair energy market in the EEU.
These measures include:
• unification of laws of EEU member states governing the energy sector, and provision of a uniformed legal basis for the development of the energy market;
• proposals on the unification of customs legislation governing overflow and power transit;
• provision of a uniformed rate calculation system for power transit;
• mutual aid in elimination of breakdowns in grids as a result of natural disasters;
• proposals on joint construction of facilities, including joint ventures.
The completion of the above measures became even more critical after Ukraine and Moldova joined the parallel operation of the EEU grids.
The Integration Committee of the EEU initiated the establishment of the Council for the Formation and Development of Common Energy Policy of the EEU, which will co-ordinate these activities, and handle all issues of the development of a common energy space within the EEU.
It is expected that the implementation of the above measures will precipitate the overall integration of all the member states.
Unfortunately, the launch of the CPC pipeline has been delayed again due to «formal reasons». What is the official position of the Russian party as regards this issue?
Russia’s position was stated by Viktor Kalyuzhny, Deputy Foreign Minister and special representative of the Russian President for the Caspian Region. Russia is interested in having the CPC Pipeline commissioned as soon as possible. Indeed, the enormous investments in the «pipe» should not be permitted to lie idle. There are apparently, some organisational reasons which prevent the pipeline from being launched.
The modern market for crude oil represents an oligopoly, where prices are being adjusted through agreements on reducing or boosting production. Russia is supportive of OPEC’s position towards rigging the crude oil market. In this context, does Russia’s export quota include Kazakh oil exports? Is Russia in favour of Kazakhstan’s having its own quota, rather than inclusion in the common EEU oil export quota?
Neither Russia nor Kazakhstan are OPEC members. Therefore, OPEC’s export quotas do not apply to them. Russia and Kazakhstan, as independent countries, make their decisions on oil exports independently, based solely on their own economic interests.

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