Kazakhstan: The Road to Independence Energy Policy and the Birth of a Nation Ariel Cohen Kazakhstan: The Road to Independence Energy Policy and the Birth of a Nation Ariel Cohen © Central Asia-Caucasus Institute & Silk Road Studies Program – A Joint Transatlantic Research and Policy Center Johns Hopkins University-SAIS, 1619 Massachusetts Ave. NW, Washington, D.C. 20036 Institute for Security and Development Policy, V. Finnbodav. 2, Stockholm-Nacka 13130, Sweden www.silkroadstudies.org "Kazakhstan: The Road to Independence" is a Monograph published by the Central Asia- Caucasus Institute & Silk Road Studies Program Joint Center. The Joint Center is a transatlantic independent research and policy center. It has offices in Washington and Stockholm and is affiliated with the Paul H. Nitze School of Advanced International Studies of Johns Hopkins University and the Stockholm-based Institute for Security and Development Policy. It is the first institution of its kind in Europe and North America, and is firmly established as a leading research and policy center, serving a large and diverse community of analysts, scholars, policy-watchers, business leaders, and journalists. The Joint Center is at the forefront of research on issues of conflict, security, and development in the region. Through its applied research, publications, research cooperation, public lectures, and seminars, it functions as a focal point for academic, policy, and public discussion regarding the region. The opinions and conclusions expressed are those of the author and do not necessarily reflect the views of the Central Asia-Caucasus Institute and Silk Road Studies Program. © Central Asia-Caucasus Institute & Silk Road Studies Program, 2008 ISBN: 978-91-85937-36-3 Printed in Singapore Cover photos: ©2008 Distributed in Europe by: The Silk Road Studies Program Institute for Security and Development Policy Västra Finnbodavägen 2, 131 30 Stockholm-Nacka, Sweden Email: [email protected] Distributed in North America by: The Central Asia-Caucasus Institute Paul H. Nitze School of Advanced International Studies 1619 Massachusetts Ave. NW, Washington, D.C. 20036 Tel. +1-202-663-7723; Fax. +1-202-663-7785 E-mail: [email protected] Editorial correspondence should be addressed to Dr. Svante Cornell, Director for Research and Publications, at [email protected] Table of Contents Table of Abbreviations .................................................................................................... 7 Acknowledgements .......................................................................................................... 9 Introduction ................................................................................................................... 11 Kazakhstan in an Energy Dependent World ............................................................ 11 The Geo-economics of Kazakhstan: from Nomadic Steppe to World-class Energy Exporter .......................................................................................................... 12 Part One: Seventeen Years Of Sovereign State Building ....................... 15 Challenges on the Road to Independence .................................................................... 17 Building the Kazakh Society ...................................................................................... 20 A School for Kazakh Diplomacy ............................................................................... 29 The Logic of Political Reforms .................................................................................... 35 Strengthening the Presidency .................................................................................... 37 Kazakh Political Opposition ...................................................................................... 38 Top-Down Political Reforms ..................................................................................... 45 The 2007 Constitutional Reform .............................................................................. 48 The 2007 Parliamentary Elections ............................................................................. 51 The Realignment of Political Forces ......................................................................... 56 The Kazakhgate Corruption Scandal ........................................................................ 59 Investing in Development ........................................................................................... 64 Through Energy to Global Competitiveness .......................................................... 67 The Development of Kazakhstan’s Financial Sector .............................................. 72 State Participation in the Economy ..........................................................................78 Roadmap for Kazakhstan ............................................................................................. 83 The New Great Game: Multi-Vector Energy Geopolitics .................................... 84 The Russian Vector ................................................................................................... 84 The Chinese Vector .................................................................................................... 91 The American Vector ................................................................................................ 94 The European Vector ................................................................................................ 98 Kazakhstan’s Regional Role .......................................................................................99 Caspian Sea Demarcation ........................................................................................ 108 Part Two: The Energy Policy Of Independent Kazakhstan................... 113 Kazakhstan’s Energy Strategy .................................................................................... 115 Early Energy Policymaking ...................................................................................... 117 Astana Tightens Its Grip on Natural Resources .................................................... 120 Oil and Gas Production and Export Challenges .................................................... 126 Energy Transportation: Pipeline Policy .................................................................... 129 The Caspian Pipeline Consortium (CPC) .............................................................. 134 The Baku-Tbilisi-Ceyhan (BTC) pipeline ............................................................. 140 The Trans-Caspian Oil Pipeline (TCP-oil) ............................................................ 143 Other Oil Transport Projects................................................................................... 144 Major Onshore and Offshore Oil Projects ................................................................ 147 The Tengiz Field ....................................................................................................... 147 The Karachaganak Field ............................................................................................ 152 The Kashagan Field ................................................................................................... 153 Marine Exploration .................................................................................................... 157 Major Gas Projects ...................................................................................................... 163 The Russian Gas Strategy and Gas Transit through Kazakhstan ....................... 167 Regional Gas Pipeline Infrastructure ...................................................................... 170 Gas Supply from Kazakhstan to China ................................................................... 173 Establishment of a Russian-led Gas Alliance ......................................................... 177 Electricity .................................................................................................................... 182 The Coal Industry ...................................................................................................... 186 The Kazakhstan-Russia Coal Industry Connection .............................................. 188 Uranium Mining and Nuclear Fuel Cooperation ..................................................... 190 Part Three: The Future Of Kazakhstan – A New Eurasian Tiger? ...... 199 Kazakhstan’s 2010 OSCE Chairmanship ................................................................... 201 Kazakhstan as a Model for Interethnic Relations ..................................................... 208 National Development Policy ................................................................................... 214 The Kazyna Sustainable Development Fund .......................................................... 215 Thirty Corporate Leaders of Kazakhstan ............................................................... 218 The Samruk State Holding Company .................................................................... 220 Kazakhstan’s Financial Sector and the Regional Financial Center of Almaty .... 221 Agricultural development and KazAgro National Holding ................................. 223 Kazakhstan’s Economic Outlook ............................................................................... 225 Accession to the World Trade Organization (WTO) .......................................... 226 Growing Resource Nationalism .............................................................................