While many Western investors remain fixated on somehow acquiring a slice of Turkmenistan’s natural gas riches, despite a recent scandal over the country’s actual reserves, there is another country further east whose energy and mineralogical reserves have been overlooked – Uzbekistan.

While a number of factors are responsible for this oversight, including
relative geographical isolation (Uzbekistan, along with Liechtenstein,
is one of the world’s doubly landlocked nations, requiring crossing two
other nations to gain access to the oceans), which currently limits
energy exports available for the global market, there are a number of
pluses that the country has for investors willing to “think outside the
box.”

With a population of 27 million, Uzbekistan is Central Asia’s most
populous and dominant power. A conservative fiscal policy since 1991,
including inconvertibility of the national currency, the som, has
shielded its citizens from the hyperinflation that ravaged other former
Soviet republics, but the policy previously diminished potential
foreign investment.

Since the global recession that began a year ago, however, Uzbekistan’s
fiscal conservatism, previously dismissed by the foreign investment
community, has looked more and more like a pragmatic policy that
isolated the country from the worst aspects of the recession in stark
contrast to other post-Soviet states that fervently embraced free
market capitalism like Lithuania, whose economy contracted 18.1% this
year and is expected to shrink further by 3.9% in 2010. In a move
certain to be welcomed by foreign investor Uzbekistan is slowly moving
towards making its currency convertible but whenever it happens, for
the present the country offers a fiscal stability unmatched by many of
its more free-market neighbors.

And now, the good news about the country’s resources. In 2006
Uzbekistan’s natural gas reserves were estimated at 1.798 trillion
cubic meters (tcm). During the Soviet era Uzbekistan was the USSR’s
third-largest producer of natural gas, accounting for more than 10% of
the Soviet Union’s production, trailing only Russia and Turkmenistan.
In 1992, the country’s first year of independence, Uzbekistan produced
42.8 billion cubic meters (bcm) of natural gas.

Uzbekistan currently produces 60 bcm of natural gas annually, an amount
nearly equal to Turkmenistan’s production. Uzbekistan’s reserves are
primarily concentrated in Qashqadaryo province and near Bukhara in the
country’s south-central region. During the 1970s Uzbekistan’s largest
natural gas deposit at Boyangora-Gadzhak was discovered in
Surkhandaryia province north of the Afghan border.

Unlike its energy-rich neighbors to the West, Kazakhstan and
Turkmenistan, nearly 80 percent of Uzbekistan’s production, about 48.4
bcm, is currently reserved for domestic use at heavily subsidized
rates. Of the remaining 12 bcm of natural gas that Uzbekistan exports,
more than half currently goes to Russia, with the remainder to
neighboring Central Asian states.

Under Uzbekistan’s fiercely patriotic President Islam Karimov relations
with Europe’s favorite b?te noire, Russia’s state-owned gas firm
Gazprom, have been subject to fierce negotiations to win an equitable
price for the country’s exports. Like other former Soviet republics,
the Uzbek government chafed under Gazprom’s “buy cheap, sell dear”
policies and in early December 2008 scored a significant negotiating
success by getting an agreement that in 2009 Gazprom would pay $305 per
thousand cubic meters (tcm). To put the accomplishment in perspective,
Uzbekistan’s state gas company Uzbekneftegaz sold gas to Gazprom for
$130 per tcm in the first half of 2008, which then rose to $160 in the
second half of 2008.

Those betting on the eventual pacification of Afghanistan and the
subsequent pipelines that would crisscross the country to deliver
Central Asian gas to the massive Pakistani and Indian markets would
also do well to take note of Uzbekistan’s persistent, low key policies
over more than a decade attempting to bring peace to its hapless
southern neighbor. The initiatives put forward by Uzbek President Islom
Karimov during the NATO summit in Bucharest in April 2008 take on
heightened importance as one of the few foreign policy ideas offering
some hope to quelling Afghanistan’s three decades of turmoil.

Nearly completely overshadowed by the Bush administration’s relentless
efforts to have Georgia and Ukraine join the alliance, Karimov proposed
that the UN’s Afghanistan “6 plus 2″ assembly, established in 1999, be
revived by expanding it into a “6 plus 3″ ensemble by including NATO
because of its anti-terrorist operations in Afghanistan among the “six”
members Uzbekistan, Tajikistan, Turkmenistan, Pakistan, China and Iran
and the “two,” the United States and Russia.

Noting that that it is impossible to solve Afghanistan’s problems
without the direct involvement of neighboring countries, which have
felt the destructive impact of the Afghan crisis for more than 30
years, as Afghanistan’s problems are now of global nature, Karimov told
his audience in Bucharest that their resolution must also be global,
with the participation of members of the international coalition that
comprise NATO’s International Security Assistance Force (ISAF). Karimov
concluded by noting that the current situation in Afghanistan precludes
a purely military solution and that while it is possible to continue
increasing the foreign military presence there, without a clear model
of national reconciliation it will be impossible to end the conflict.

Needless to say, one of the benefits of peace and the aforementioned
pipelines for Uzbekistan would be that it could export its surplus gas
through Afghanistan to southern Asian markets for a higher price than
it receives at home or Gazprom’s miserly accountants. Acting on
Tashkent’s belief that economic assistance is of greater utility than
military operations, Uzbekistan has become involved in a host of
reconstruction projects in Afghanistan, including railways, power
generation, mining, agriculture, irrigation, education and the exchange
of specialists as well as providing its neighbor with construction
materials, metals, fertilizer, food and other goods.

Uzbek companies and engineers have built 11 bridges in the
Mazar-e-Sharif-Kabul area and are finishing the construction of a
275-mile high-voltage line capable of transmitting 150 megawatts from
Termez to Kabul across some of the world’s most mountainous terrain,
which when it becomes fully operational next month, will provide power
and light not only to the capital but the country’s five northern
provinces.

For now, Uzbekistan remains largely a transit country rather than a net
energy exporter in its own right. But the fiercely independent
nationalist policy that Tashkent has followed since 1991 indicates that
any company whose policies most benefit the country will have an inside
track, and as the old saying goes, “fortune favors the bold.” Chinese,
Malaysian, Russian and South Korean companies have already begun
investing in Uzbekistan’s energy infrastructure – what do they
seemingly know that American and European companies do not?

Source: OilPrice

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