The Jamestown Foundation
Eurasia Daily Monitor
July 28, 2006
When Kazakh President Nursultan Nazarbayev visited Riga on July 18, the overriding topic of discussion was how best to send Kazakh oil to energy-hungry markets in Europe and Scandinavian via Latvia. Nazarbayev did his best to give the impression of a pragmatic leader unburdened by the political strains caused by the long-standing disputes between his closest ally — Moscow — and West European powers over energy issues. His time in Riga provided an impressive display of his multi-vector approach to interstate relations. Answering questions from Latvian journalists, Nazarbayev stressed that Kazakhstan has no intention of constructing a transportation route to deliver its hydrocarbons to Europe that would bypass Russia, and he noted that his country is quite satisfied with the present level of cooperation with Moscow, regarding the use of Russian pipelines for oil shipments. At the same time, he added, “We will look for other possibilities if these [Russian] routes do not satisfy us” (Kursiv, July 19).
The Kazakh president made clear that Astana does not wish to see its energy cooperation with foreign partners hampered by political predicaments and that Kazakhstan is ready to cooperate with anyone who offers better tariffs and economic benefits. Recent developments confirm the value of Kazakhstan’s pragmatic approach to energy policy. On May 4 European Union Energy Commissioner Andris Piebalgs met with Nazarbayev to discuss investments in energy sector transportation routes to the European Union. At the July 15-17 G-8 summit in St. Petersburg Nazarbayev and Russian President Vladimir Putin signed an agreement on setting up a joint venture at Russia’s Orenburg gas processing plant. It seems that the Latvian side hopes to use its burgeoning ties with Kazakhstan to mend fences with Moscow, particularly in regulating railway tariffs that Riga regards as highly discriminatory and economically damaging for grain imports from Kazakhstan (Diena, July 19).
The joint declaration signed by Nazarbayev and Latvian President Vaira Vike-Freiberga says that Kazakhstan can use the Latvian transit corridor for long-term exports of its hydrocarbons to European markets. No less promising is Kazakhstan’s bid to purchase state-owned and private shares in the Latvian Ventspils Nafta oil transit company and the Ventspils seaport, which should facilitate oil shipments. Ventspils Nafta has authorized capital of €150 million.
The Latvian government decided to sell its shares of the company in June 2005. The sale is expected to bring around 70 million lats (€100 million) to the Latvian budget. But the state owns only 38.62% of the shares in the company. Nazarbayev told journalists that the Kazakh government is conducting talks with private shareowners about purchasing them. Ventspils Nafta’s pipelines have been idle for many years, so the company would not be a great loss for the Latvian government. A few days before Nazarbayev’s arrival in Riga, the chair of Ventspils Nafta’s board of directors, Olga Petersone, doubted that the money received from potential buyers of the state-owned shares would solve the problem of empty pipelines. In 2005 Ventspils Nafta losses exceeded €32 million. Therefore, the only sensible thing for the Latvian government to do in such dire straits is to try to get, as the Latvian Minister of Economy Aigar Stokenbergs put it, “as much money as possible for the shares” (Liter, July 19).
>From the Latvian perspective, Kazakhstan is an authoritarian country, albeit one more successfully developed in economic terms than other Central Asian states. But in times of great hunger for energy resources, not only Latvia, but also EU countries as a whole have been willing to turn a blind eye to the lack of democracy in Kazakhstan. According to the Latvian Foreign Ministry, in 2005 Latvia’s export volume to Kazakhstan reached €13.5 million, which corresponds to 0.34% of Latvia’s total export volume. In the same period, Latvia imported €16.5 million worth of Kazakh goods (Diena, July 18). The Latvian president expressed her full support for Kazakhstan’s OSCE chairmanship bid in 2009. Vike-Freiberga also welcomed Kazakhstan’s plans to join the WTO. The two leaders stressed that Kazakhstan and Latvia have unresolved political problems and tactfully avoided the questions of mutual debts inherited from Soviet times.
On Vike-Freiberga’s visit to Kazakhstan in November 2004 the two sides focused mainly on grain exports from Kazakhstan. So far, the Ventspils Grain Terminal is cited as the only sizeable Kazakh investment in the Latvian economy. But grain shipments to Latvia are ruinous for Kazakh grain suppliers due to unreasonably high railway tariffs for transit through Russia. Astana has to put up with the grim prospect of Moscow using its transit-territory status to control Kazakhstan’s exports of energy resources and grain to the Baltic states. Under Russian pressure, the Kazakh national oil company KazMunayGaz recently closed its branch office in Lithuania. But close economic and political ties with the Baltic states are vital for Kazakhstan’s efforts to develop cooperation with the European Union.