Playing the Game or Changing the Rules of the Game: Chinese and European Approaches to Energy Cooperation in Central Eurasia
As a region rich in energy resources, Central Eurasia has received much attention from importers such as China and the European Union. Recent years have seen Beijing develop and extend energy corridors out of Central Eurasia by means of several infrastructure interconnection projects carried out under the aegis of the Shanghai Cooperation Organisation. This article analyses the characteristics of Chinese engagement with Central Eurasia and contrasts these with the approach to energy cooperation taken by the European Union. These include the prominence of political and economic considerations in decisions about infrastructure development, the level of involvement of actors below the state, and the tendency to bilateralise and multilateralise cooperation around infrastructure. It is argued that China pursues a geographic or corridor approach to the development of the region’s resource economies. This is contrasted with the horizontal or sectoral approach adopted by the EU. Whereas Brussels has sought to reform the Central Asian energy market in line with its own standards and interests—and has in the process challenged established patterns of state ownership and control in the region—Beijing has adjusted itself to the developmental needs of its partners and has focused on opening new conduits for energy exports out of the landlocked region. The article uses official statements and press releases by Chinese and EU diplomatic missions in the region, annual reports of state-owned enterprises operating there, and confidential interviews conducted in Brussels, Geneva and one of the Central Asian capitals.
KeywordsEnergy infrastructure China European Union Central Eurasia
Chinese overseas investment has been gaining momentum ever since Beijing announced its Going Global Strategy a decade and a half ago. This investment accelerated with the launch in 2013 of the Belt and Road Initiative. Chinese companies have increased their activity in different regions of the world, expanding their presence in a variety of sectors, from mineral resource extraction to complex manufacturing to financial services. One region that has received significant attention from China is that of Central Eurasia. The term Central Eurasia is used here to describe the geographic centre of the Eurasian landmass, a region encompassing not only the former Soviet republics of Kazakhstan, Kyrgyzstan, Uzbekistan, Tajikistan, and Turkmenistan, but also the adjacent Chinese and Russian borderlands. Unlike the term Central Asia used to denote the above-mentioned five states and their interactions, Central Eurasia is a more encompassing term that connotes the transnational, as opposed to international, activities that are the focus of this inquiry.
This article analyses the characteristics of Chinese energy outreach towards Central Eurasia and contrasts these with the approach to energy cooperation taken by the European Union. These include the prominence of political and economic considerations in decisions about infrastructure development, the level of involvement of actors below the state, and the tendency to bilateralise and multilateralise cooperation around infrastructure. It is argued that China pursues a geographic or corridor approach to the development of the region’s resource economies. This is contrasted with the horizontal or sectoral approach adopted by the EU. Whereas Brussels has sought to reform the Central Asian energy market in line with its own standards and interests—and has in the process challenged established patterns of state ownership and control in the region—Beijing has adjusted itself to the developmental needs of its partners and has focused on opening new conduits for energy exports out of the landlocked region.
The distinction between corridor and sectoral approach to energy cooperation is closely bound up with the issue of liberalisation in the energy sector. An energy corridor is a direct point-to-point conduit between producers and consumers of energy. Corridors have a clear spatial or geographical dimension and take the form of oil and gas pipelines, electricity lines and related infrastructure (Escribano and Garcia-Verdugo 2012: p. 32). Because of the cost involved in their construction, supply corridors normally entail long-term contracts at fixed prices, take-or-pay obligations and no-resale clauses. These provisions seek to guarantee both the security of supply and security of demand for the actors involved in the transaction (Padgett 2011: p. 1071).
A sectoral approach to energy cooperation, on the other hand, does not have a clear spatial dimension; rather it involves the reform of a country’s or a region’s entire energy sector and is in that sense horizontal. Liberalising an economic sector such as energy involves the fragmentation and privatisation of vertically integrated state-owned enterprises, the unbundling of energy infrastructure, and the creation of spot markets for energy. This is done with a view to increasing competition among producers and altering the allocation of risk to the disadvantage of producers (Padgett 2011: p. 1071). Because market reforms in the energy sector tend to have a cascading effect throughout the economy, a horizontal approach entails a different type of economic governance.
The analysis presented in this article aims to contribute to the literature on regional cooperation. Regionalism can be defined as “a policy whereby states and non-state actors cooperate and coordinate strategy within a given region”. Its aim is to pursue common goals in one or more issue areas by formulating shared “norms, rules and procedures around which the expectations of [regional] actors can converge” (Fawcett 2004: p. 433). Regionalism can take different organisational forms ranging from “formal inter-state co-operation for the purposes of creating region-wide regimes and policies in certain issue areas” to regional integration aimed at “overcoming, by common accord, political, physical, economic and social barriers that divide countries from their neighbours” (Farrell 2009: p. 1166). The former operates at the level of the state and has few implications for its sovereignty. It is more common in those parts of the world, such as Central Eurasia, in which regionalism is of relatively recent vintage and “where state-building itself remains incomplete” (Fawcett 2004: p. 431). It is to this form of regionalism that the present analysis speaks.
The article uses official statements and press releases by Chinese and EU diplomatic missions in the region, annual reports of state-owned enterprises operating there, the specialist literature on the subject, and twelve confidential interviews conducted in Brussels, Geneva and one of the Central Asian capitals.1 Interview respondents included officials from the European Commission Directorate General for Energy, the European External Action Service, the European Bank for Reconstruction and Development, and the Delegation or the European Union to the Republic of Kazakhstan. They also included officials from the United Nations Economic Commission for Europe, the United Nations Economic and Social Commission for Asia and the Pacific (Sub-regional Office for North and Central Asia), and the Asian Development Bank.
2 Chinese engagement with Central Eurasia
Several explanations have been offered as to why China has shown growing interest in Eurasian energy. Dorian, Wigdortz and Gladney link Chinese energy activity in Central Asia to Beijing’s desire to develop the western part of China, and particularly its restive Xinjiang Uygur Autonomous Region. By turning Xinjiang into an energy and industrial hub, and raising standards of living there, Beijing hopes to stabilise the region and ultimately resolve its ethinic problems (Dorian et al. 1997: p. 465). Another explanation for China’s growing interest in Eurasian energy resources can be found at the level of security of supply. Unable to guarantee the security of seaborne oil imports from the Persian Gulf, Beijing is increasingly turning to sources of energy closer to home over which it has more control. These are to be found in regions that are easily accessible from China by land and are therefore less vulnerable to American sea power (Marketos 2009: p. 105).
If China’s engagement with Central Eurasia has been explained with reference to internal instability and the exposure of international shipping lanes to geopolitical risk, the timing of this engagement has been linked to the 2008 financial crisis. One of the effects of the global financial crisis has been the intensification of Chinese investment in infrastructure undertaken in order to stimulate industrial activity. Infrastructure investment has taken place both at home and abroad in an attempt to alleviate some of the imbalances arising from loss of foreign trade. Through export of industrial overcapacity, Beijing has tried to deal with the domestic oversupply of steel, cement and other construction materials resulting from the economic slowdown in the wake of the crisis.
Investment in infrastructure was welcomed by the governments of countries in the region who were hard hit by the financial crisis. It perfectly fit in with their plans to diversify their export markets away from recessionary Europe and towards consumers in East Asia, preeminent among them China. Chinese engagement with suppliers in Central Eurasia since 2008 has manifested itself in several large energy infrastructure projects which this article will turn to next.
2.1 Kazakhstan–China Oil Pipeline
China’s engagement with Central Eurasia started in the late 1990s with the acquisition of shares in several oil fields and energy companies that gave it a foothold in the region’s energy market. In 1997 China’s state-owned National Petroleum Corporation (CNPC) acquired the Uzen oilfield in western Kazakhstan (Pham 2006: p. 57). CNPC later extended its presence in the Kazakh energy sector by acquiring development rights to the Kenkiyak, Zhanazhol and Kumkol oil fields in the west-central part of the country. It secured the latter by purchasing a controlling share of the Canadian-owned PetroKazakhstan company whose main asset was the licence to develop the Kumkol field. The $4.18 billion PetroKazakhstan deal was concluded in 2005 (Petelin 2011: p. 37). CNPC has also in the past purchased large shares in the Aktyubinsk oil company and the Shimkent refinery, and is currently participating in the development of the Kashagan offshore oil field in the Caspian sea as part of an international consortium of energy companies.
Because most of the oil assets acquired by Chinese firms in Kazakhstan are situated in the western part of the country, delivering the supplies to consumers in China required the construction of a pipeline corridor across Kazakhstan and into northwest China. Already in 1997, the Chinese and Kazakh governments agreed to route an oil pipeline between the town of Atyrau in western Kazakhstan and the border city of Alashankou in China’s Xinjiang province (Dorian et al. 1997: p. 467). The project’s estimated high costs caused the construction of the pipeline to be delayed for several years, and it was only after the two governments agreed to share that cost that work on the pipeline began in earnest in late 2004 (Sheives 2006: p. 216).
The first section of the pipeline from Atasu in central Kazakhstan to Alashankou in China was completed in December 2005 and put into commercial operation in July 2006. It stretches for almost 1000 km and passes through marshes and deserts, crossing four rivers, nine highways and two railway lines (CNPC 2012a). The pipeline was financed and built by CNPC and Kazakhstan’s state-owned energy company KazMunaiGas on the basis of a 50–50 joint investment agreement. It is operated by the KazTransOil joint venture which was established for that purpose. The pipeline’s annual capacity of 10 million tonnes of crude oil enables supplies to be shipped from fields in central Kazakhstan to China. Because these fields are in the early stages of development, CNPC and KazMunaiGas arranged for additional supplies of oil from western Kazakhstan and even Russia to be brought to Atasu by rail and then fed into the pipeline to Alashankou (Sheives 2006: p. 218).
In August 2007, the two companies signed an agreement on the construction and operation of a second section of the Kazakhstan–China crude oil pipeline (MOFA 2008). The section runs from the Kenkiyak oil field in western Kazakhstan to Kumkol in the central part of the country. From there it connects to the Atasu-Alashankou pipeline via an old pipeline between Kumkol and Atasu. The 800 km Kenkiyak-Kumkol section was completed in July 2009 3 months ahead of schedule (CNPC 2009a). It had an initial transportation capacity of 10 million tonnes of oil per year. CNPC and KazMunaiGas decided to double that capacity and signed an agreement to that effect in October 2009 (CNPC 2009b). Work to increase the throughput by installing additional pumping stations was completed in 2014. The pipeline currently transports 20 million tonnes of Kazakhs oil to western China per year.
2.2 Central Asia–China Gas Pipeline
Natural gas is another commodity that has attracted large-scale Chinese investment to the region. Its concentration in fields in Turkmenistan and Uzbekistan whose only outlet until recently was the pipeline system to Europe via Russia required the construction of a network of new pipelines that would enable gas deliveries to East Asian markets. The idea of an eastbound pipeline from the Caspian region emerged nearly two decades ago and was reportedly announced by the first president of Turkmenistan, Saparmurat Niyazov, during a state visit to Beijing. Ambitious plans were drawn up by a group of energy firms including CNPC and Mitsubishi for the creation of a trans-Asian gas corridor that would not only bring Turkmen gas directly to China but would reach further east to Japan (Dorian et al. 1997: p. 468). The plans announced in 1996 were subsequently shelved because of the exorbitant costs associated with building a 8000 km pipeline from Central Eurasia to Japan. Difficult relations between the transit states of Kazakhstan and Uzbekistan also played a role in the decision to abandon the project (Petelin 2011: p. 33).
In the mid-2000s, China used a combination of bilateral and multilateral initiatives to revive the idea of direct gas imports from Central Asia. The creation of the Shanghai Cooperation Organisation in 2001 was conducive to the building of trust among its member states and facilitated dialogue on a range of security and economic issues, including energy cooperation (Aris 2011). Having secured political support for its plans among the SCO grouping, Beijing proceeded to sign individual agreements with supplier states in the region. In 2006, China contracted 30 billion cubic metres of Turkmen gas annually for a period of 30 years. The gas purchase and production sharing agreements between CNPC and the state-owned Turkmengaz were signed a year later during an official visit to Beijing by the President of Turkmenistan, Gurbanguly Berdymukhammedov (Petelin 2011: p. 39). Because the contracted gas would transit the territory of another Central Asian state, i.e. Uzbekistan, China signed an intergovernmental agreement with Tashkent in April 2007. The agreement governed the construction of a 530 km pipeline on the territory of Uzbekistan, as well as its operation by a joint venture company set up by CNPC and the state-owned Uzbekneftegaz (Petelin 2011: p. 39).
In addition to securing agreement with individual Central Asian states on the construction of the pipeline, China also set up a coordination committee for its management. The committee, active since 2010, is composed of representatives of national energy companies who meet on a regular basis in the capital of one of the participating states to discuss operational matters pertaining to the pipeline, including addressing any disagreements among the participants (Krasnopolsky 2019). China’s active engagement with the region laid the foundation for a major energy corridor that will bring large quantities of Central Asian natural gas directly to China’s doorstep.
The Central Asia–China Gas Pipeline became the biggest infrastructural project undertaken under the aegis of the SCO. It traverses several Central Asian states and is the product of joint ventures between Chinese state-owned energy firms and national energy companies from the region (CNPC 2008). The 3700 km pipeline consists of several sections that connect the gas producing countries of Turkmenistan, Uzbekistan and Kazakhstan with consumers in western China. The first section, known as Line A, was completed and became operational in December 2009. It starts at the Turkmen-Uzbek border town of Gedaim and crosses Uzbekistan and Kazakhstan before reaching the city of Horgos in China’s Xinjiang province some 1,800 km to the northeast where it connects to the Chinese grid. Line B of the Central Asia–China Gas Pipeline runs in parallel to Line A and became operational in October 2010 (CNPC 2012b). The initial capacity of the two sections was 30 billion cubic metres per annum in accordance with the Sino-Turkmen agreement of 2006 mentioned above. In 2010 this agreement was renegotiated to 40 billion cubic metres (MOFA 2010b). The additional volumes of natural gas are delivered through higher pressure in the pipeline which required the installation of additional compressor stations. The dual pipeline reached its full capacity in 2013 (Ericson 2012: p. 625).
The next section of the Central Asia–China Gas Pipeline known as Line C, or the Kazakhstan–China pipeline, increases the annual output of the pipeline system by 10 billion cubic metres of Kazakh gas which is the country’s entire annual gas output. Kazakh gas is mostly associated gas, a by-product of oil production. Line C starts at the city of Beyneu in western Kazakhstan and connects with Line A at Shymkent in South Kazakhstan some 1,500 km to the east. It feeds the dual pipeline between Turkmenistan and China and supplies gas to cities and industrial estates in southern Kazakhstan. An agreement on the routing, financing, construction and operation of the pipeline section was signed on 26 September 2011 in Astana between CNCP and KazMunaiGas (CNCP 2011). The two companies set up a joint venture to build and operate the pipeline. When Line C is completed, the capacity of the Central Asia–China Gas Pipeline is expected to reach 55 billion cubic metres per annum. By the end of 2012, the pipeline had transported more than 44 billion cubic metres of natural gas from Central Eurasia to China (CNPC 2012b).
The final section of the Central Asia–China Gas Pipeline known as Line D or the Trans-Asia Gas Pipeline will be routed through Uzbekistan and Tajikistan. It will carry natural gas from fields in Uzbekistan to China. The political decision to build Line D was taken during the late Uzbek President Islam Karimov’s state visit to China in 2011. In March 2014 CNPC signed an agreement with the state-owned Tajiktransgaz on the construction of the pipeline section through Tajikistan which started in late 2014 (CNPC 2014). The project is financed by CNPC and the China Development Bank. When completed, Line D will transport 25 billion cubic metres of Uzbek gas to China each year. This is in addition to the 65 billion cubic metres supplied through Lines A, B and C. The total cost of the entire Central Asia–China Gas Pipeline, including the four segments discussed above, is expected to exceed $20 billion (MOFA 2010a). When completed in 2020, it will carry 80 billion cubic metres of natural gas from Central Asia to western China each year which accounts for over 40% of China’s current annual gas imports. The pipeline thus represents a major new corridor for the flow of energy across Eurasia and for this reason has been described by one observer as “the pipeline of the century” (Petelin 2011: p. 39).
2.3 Russia-China Gas Pipeline
The same epithet has been applied to another infrastructure project in the region because of its potential to revolutionise East–West energy relations. The world’s largest natural gas producer, Russia, and the world’s biggest energy consumer, China, have been in negotiations to build a cross-border pipeline between the two countries for the export of large quantities of Russian gas to China. For a long time, the negotiations were mired in disputes about price as well as the actual source of the Russian gas that would be exported to China. Whereas Moscow prefers this to be Altai gas (the Altai region of the Russian Federation is situated between eastern Kazakhstan and western Mongolia) that would put it in the position of a “swing supplier” between European and Chinese buyers, Beijing would prefer to import Russian gas from fields in Eastern Siberia (Paik 2013: p. 333). The advantage of East Siberian gas for China is that it would contribute to the revitalisation of its declining industrial northeast and would offset the high LNG prices that China and other northeast Asian importers of the commodity currently have to pay (Paik 2013: p. 336). Altering its energy mix in favour of natural gas will also help China to solve some of its environmental problems. Faced with a declining European gas market and difficult relations with transit states to its west, Moscow has been moving closer to Beijing’s position. This led observers like Keun-Wook Paik to believe that a breakthrough in the negotiations between the two countries was imminent (Paik 2013: p. 330).
The breakthrough came on 21 May 2014 when Gazprom signed a historic deal worth some $400 billion for the annual supply of 38 billion cubic metres of gas to China for a period of 30 years. The May 2014 Sino-Russian deal provided for imports of East Siberian gas that would flow through a dedicated pipeline to northeast China called “Power of Siberia”. This was a success for Beijing whose position vis-à-vis Moscow had been strengthened as a result of the Ukrainian crisis and Russia’s deteriorating relations with the West. That said, on 9 November 2014 at the APEC summit in Beijing, the presidents of Russia and China witnessed the signing of a Memorandum of Understanding between Gazprom and CNPC for the annual supply of 30 billion cubic metres of Altai gas to China (Paik 2014). This is a clear indication that Beijing has accepted Moscow’s preferred gas source, just as Moscow had agreed to Beijing’s terms half a year earlier. If and when these agreements come to fruition, China would be importing up to 70 billion cubic metres of pipeline gas from Russia per annum. This would have enormous implications not only for the Sino-Russian strategic partnership but also for the regional and global energy trade in the coming decades (Paik 2015).
2.4 Electricity Infrastructure
China’s energy activity in Central Eurasia is not limited to hydrocarbons. Beijing has also been investing in electricity infrastructure, with a focus on the construction of overhead power lines. The Central Asian country where this construction activity has had the greatest impact is Tajikistan. In order to address the electric power supply shortage in the south of the country, Tebian Electric Apparatus (TBEA), one of China’s largest manufacturers of power transformers and transmission equipment, built a non-synchronous 220 kV power transmission line between the Lolazor and Khatlon regions in the southwest of Tajikistan. The project was funded out of a Chinese government concessional, i.e. low interest, loan agreed in 2006 in the framework of the SCO. The $300 million loan disbursed by the Export–Import Bank of China supports projects that satisfy Tajikistan’s electricity requirements, particularly during the winter months when shortages are common (TBEA 2008).
At a signing ceremony in June 2009, TBEA and the Government of Tajikistan inaugurated the 220 kV power transmission line and extended their cooperation by agreeing to build another high voltage–power line in the country. The 350 km long 500 kV power transmission line integrated the previously separate electric grids of Tajikistan’s southern and northern provinces and allowed for electricity exports to other countries in the region (TBEA 2009). The project was financed by the Chinese government concessional loan mentioned above and cost $280 million to complete. The signing ceremony was witnessed by the Tajik President Emomali Rakhmon who acknowledged the contribution made by TBEA to the economic development of his country and spoke of the importance of the commercial and trade cooperation between Tajikistan and China for the whole Central Asia. This ringing endorsement of Beijing’s energy activity in the region speaks of a strong complementarity of interests between China and its western neighbours.
3 EU Energy Initiatives in the Region
China is not the only energy player in Central Eurasia. The European Union too has been active in the region’s energy market. While geographically remote, the EU has shown growing interest in Central Eurasia and has launched several bilateral and multilateral initiatives designed to reform the region’s energy industry in line with EU principles and thinking. The EU itself has an increasingly coherent set of internal energy policies that are driving through energy industry change. Broadly speaking, the direction of energy industry change in the EU has been from (1) monopoly to competition, i.e. unbundling; (2) centralised planning to price liberalisation, i.e. deregulation; and (3) state property to private property, i.e. privatisation. This liberalising agenda has been at the core of European Commission legislative and monitoring activity in recent decades (Eikeland 2011).
EU policies for reforming its energy sector have an important external dimension (Padgett 2011). The Union’s efforts to reform the internal market for energy require it to redefine its relations with energy markets and suppliers outside its borders. This is most obvious in the case of EU relations with Russia where the latter’s unwillingness to embrace Brussels’ liberalising agenda has become a growing source of conflict (Hadfield and Amkhan-Bayno 2013). Post-Soviet Central Asia too occupies an important place in EU strategic thinking because of its position in the East–West energy trade. The Union’s attention to the region has translated into programmes and initiatives designed to advance the collective commercial interests of its member states as importers of energy. Their aim has been to reorganise, as far as possible, the region’s energy sector away from its post-Soviet model of development and simultaneously fold it with the physical, regulatory and institutional networks centred on the EU.
The EU promotes its energy regulations in Central Asia by involving them in projects of energy sector reform. As one European Commission official explained, this process should be understood as a continuation of its Neighbourhood Policy (Interview, 24 October 2014). Designed as a mechanism for drawing its closest neighbours—some of who have membership prospects—into its internal market, the policy promotes the wholesale transfer of EU laws and regulations in multiple sectors (collectively known as the acquis) to target countries. Brussels’ ambitions for energy sector reform in Central Asia are much more limited than in the Caucasus or Eastern Europe. The Union does not aim for full harmonisation in all areas as the Central Asian states are not candidates for EU membership. But where energy policy is concerned, there is a clear continuation of the neighbourhood policy.
The selective transfer of EU energy regulations is achieved through a combination of bilateral and multilateral agreements concluded between the European Commission and individual states in the region. The EU has bilateral Memorandums of Understanding on cooperation in the field of energy with Kazakhstan, Turkmenistan and Uzbekistan signed in 2006, 2008 and 2011, respectively. These agreements register the political intent of individual Central Asian states to adopt sections of the EU energy acquis in areas specific to each state. The Union’s differentiated approach to countries in the region is also complemented by a more holistic regional mechanism for energy cooperation with Central Asia.
At present the EU runs three multilateral energy initiatives in Central Asia. The Interstate Oil and Gas Transport to Europe (INOGATE) initiative is the main instrument for energy sector reform in the region. It is complemented by the Central Asia Sustainable Energy Programme (CASEP) which supports sustainable energy projects and by the Investment Facility for Central Asia (IFCA) which promotes additional investments and key infrastructure in the field of energy. Because the INOGATE initiative is the EU’s main tool for bringing about change in the Central Asian regional energy market, this article will focus on it next.
Although the acronym INOGATE stands for “Interstate Oil and Gas Transport to Europe”, its outreach extends far beyond the European continent. In addition to the countries situated along the EU’s eastern border, the initiative covers the states in the South Caucasus as well as those in Central Asia. Nor is INOGATE limited to oil and gas only as it also includes electricity and renewables. The programme is funded by the EU and steered by the European Commission in the sense that the latter implements and manages the projects within its remit. One Commission official described it as a “development cooperation programme” that seeks broad energy market convergence based on EU standards so as to facilitate connectivity of regional energy markets (Interview, 23 July 2014).
INOGATE’s stated objective is to advance energy cooperation between the EU and its member states, on the one hand, and strategically important energy producer and transit states, on the other. To that end, INOGATE organises activities that facilitate the implementation of energy and energy-related projects. These activities include networking and promotional events at which EU officials provide introductions with donors, international financial institutions, and the private sector. They also include the rending of technical assistance through seminars and training sessions (INOGATE 2014). Essentially, INOGATE acts as a consultancy striving to create the right conditions for projects to attract investment and succeed.
The assistance and support the EU provides through its INOGATE initiative ultimately serves its enlightened self-interest. Padgett notes that “in developing its relations with producer and transit countries, the EU attempts to persuade them to align their energy sectors with the internal European market” (2011: p. 1066). The Union is unambiguous about its intentions when it declares “achieving convergence of energy markets on the basis of the principles of the EU’s internal energy market” as one of its priorities under INOGATE (2014). “Supporting partner countries in the identification of priority projects” represents another way in which the EU uses the initiative to advance its commercial and geoeconomic interests. In the context of growing tensions with its main supplier, i.e. Moscow, the Union has been trying for some time to open up a new corridor of gas supplies from Central Asia. The INOGATE initiative has thus been a vehicle for cultivating a relationship with suppliers that excludes Russia. The latter is not party to the initiative. By assisting its partners to define the ends and means of their energy security, the EU is attempting to influence the planning and implementation of new infrastructure that would connect regional energy markets in Europe and Central Asia.
If one of the aims of the INOGATE initiative has been to create a conduit for energy supplies to Europe that bypass Russia, then it has been spectacularly unsuccessful in that respect. As pointed out by one observer, the “two major projects upon which significant political prestige was wagered, Nabucco and the Trans-Caspian Pipeline, are unlikely to be realised anytime soon” (Johnson 2014: p. 120). Sensing the futility of developing new energy corridors for which it has neither the budget nor the strategic resolve, in recent years the EU has focused on energy efficiency and renewables (Interview, 24 October 2015). Its technical assistance activities in the region currently consist in sharing of experience and best practice in areas such as sustainable energy and “the green economy”. In this sense, INOGATE is increasingly a development cooperation programme that concerns itself more with the optimisation of existing energy networks than with the development of new infrastructure connecting regional energy markets.
In this context, the Sustainable Energy Programme for Central Asia, an EU-funded multi-annual initiative for regional energy cooperation, has risen in prominence. With a technical assistance budget of four million Euro, the programme focuses on developing proposals for improvement of the legal, regulatory and institutional frameworks of the Central Asian countries pertaining to energy conservation (CASEP 2013). This concerns energy efficiency, better insulation, more efficient transportation of energy, repairing leaking pipelines, etc. (Interview, 23 July 2014). Central Asians are interested in energy saving technologies and the development of renewable sources of energy which can free up more hydrocarbons for export. A European Commission official reported that policy advice on solar, wind and geothermal power generation has been particularly welcome. Central Asians are receptive to technology transfers in these areas. The hydroelectric power sector, on the other hand, is considered too sensitive because of its track record of generating interstate conflict in Central Asia (Interview, 22 July 2014).
Despite the sustained effort, attempts by the EU to advance its own notions of good governance in the Central Asian energy sector have so far made limited headway. That is because countries in the region are interested in infrastructure modernisation and development rather than market reform (Interview, 22 July 2014). Central Asians have shown resistance to legal harmonisation in the energy sector and downright hostility towards privatisation, deregulation and unbundling. They have expressed some interest in areas of cooperation where the European Commission and EU-based industry have expertise. These concern above all energy efficiency on the supply side, for example, reducing gas flaring, decentralised production in the form of off-grid installations, and the development of non-hydrocarbon sources of energy (Interview, 22 July 2014). But for the resource rich and landlocked countries of Central Eurasia energy efficiency and the green economy are at best secondary concerns. Their strategic plans are centred above all on the development of resource-based economies which requires enormous capital investment in production and processing capacity, secure markets and the rapid deployment of infrastructure required to access these markets (Petelin 2011: p. 42).
This is exactly what China has been able to offer. Beijing’s energy activity has infused the region with a massive inflow of capital investment in physical infrastructure. It has extended lines of credit in the form of cheap long-term loans and provided the technical expertise necessary to develop the networks that connect regional producers and consumers of energy. Above all, China has offered states in the region security of demand for their main export commodity. The substantial up-front commitment made by China in the form of capital investment and the contracting of large volumes of oil and gas over long periods of time are proof of that. Beijing has thus reassured its partners that the commercial transaction between them is going to be long-term. This has bolstered the confidence of the Central Asian republics that China’s commercial interests in the region are compatible with their economic development strategies and conducive to their long-term viability as independent states (Pham 2006: p. 62).
Maintaining the autonomy of its partners is crucial to explaining the success of China’s engagement with states in the region. Marc Lanteigne argues that China has shown no interest in playing a direct role in energy sector governance (Lanteigne 2010: p. 110). Quite the contrary, Beijing has upheld the sovereignty of Central Asian countries by working primarily with state actors. The data presented in this article are not sufficiently fine grained to establish whether the subcontractors in the energy deals signed by China have been public or private entities. But the general contractors have inevitably been state-owned enterprises, such as KazMunaiGas, Uzbekneftegaz, Turkmengaz, and Tajiktransgaz. Ryan Kennedy has shown how Chinese investment in Kazakhstan has actually led to the expansion of the Kazakh state in the country’s energy sector (Kennedy 2010). Working with national champions has been auspicious because the Central Asian countries exercise strong government control over their energy sectors (Nurmakov 2010). China’s own energy industry is state owned and operates monopolistically (Zha and Breslin 2010: p. 69). This makes Chinese energy investment in the region an exercise in government-to-government relations among officials who share similar outlook and priorities. Securing approval at the highest level by involving the presidents of Russia and the Central Asian republics in the signing of agreements has also contributed to the success of China’s energy activity in the region.
The political process accompanying China’s commercial expansion in Central Eurasia has had a strong multilateral component. Sheives points out that “China’s involvement in the region has not been a mere mix of bilateral relationships, but a focused, multilateral engagement, primarily through an institutional framework, the SCO” (Sheives 2006: p. 224). The SCO began as a security organisation whose remit expanded from border issues to security challenges from non-state actors to non-traditional threats like narcotics and organised crime (Lanteigne 2006; Aris 2009). Until the mid-2000s, the organisation was exclusively focused on security but has since developed an economic dimension (SCO 2009). The SCO functions primarily on an inter-state, rather than a supra-state, basis (Aris 2011). The general pattern is that political decisions are reached at SCO prime ministerial and ministerial meetings while the implementation is left to the commercial sector, which normally involves state-owned enterprises from China, Russia and the Central Asian states.
Some commentators point out that while “China’s preferred instrument for most political transactions in Central Asia is the SCO, [the organisation] has not figured much in Beijing’s energy acquisitions” (Marketos 2009: p. 107). Others call attention to the fact that although the SCO has an Energy Club, discussions in this club are limited to electricity and fuel transport, and deliberately exclude hydrocarbons (Mukanova 2013). It is true that SCO cooperation around energy is often bilateral, involving primarily China and one or more of the Central Asian states. The rampant bilateralism existing in the organisation, together with the multiplicity of micro-agendas pursued by its members, have even led some to suggest that the SCO is not an international organisation at all (Crosston 2013). While this argument may be a little extreme, it does highlight the loose institutional framework within which energy cooperation happens in the SCO. This maybe due to the fact that the trade in hydrocarbons does not concern some of the SCO member states, such as Kyrgyzstan and Tajikistan, and therefore need not be discussed at SCO meetings. It could also be that the transportation of petroleum and natural gas is a frequent source of disagreement among the member states and is therefore left outside the remit of the SCO so as not to spoil the atmosphere.
And yet, the organisation is mentioned as one of the key multilateral vehicles for advancing energy cooperation as part of the Belt and Road Initiative (NEA 2017). Without the political dialogue taking place in the organisation and the confidence building measures promoted by it, it is unlikely that China would have achieved so much purely on the basis on individual partnerships with Russia and the Central Asian republics. The Central Asia–China Gas Pipeline, for example, may not have been built without addressing some of the strains existing among countries in the region, something which requires sustained multilateral interaction (Kassenova 2010).
Whether predominantly bilateral or multilateral, China’s energy activity in the region will have long-term impact. Beijing is beginning to reorganise established patterns of interaction based on previously existing infrastructure. Until recently, the only pipeline outlet for Eurasian oil and natural gas was provided by Soviet-era infrastructure that links the region with Russia and the West (Ericson 2012: p. 624). By completing the crude oil pipeline from Kazakhstan and building the gas corridors from Central Asia and Russia, China is establishing new facts on the ground. The new infrastructure puts China in a privileged position by, eventually, giving it access to the Middle East via the Central Asian networks to which it is presently connecting. China also stands to gain by eventually becoming a bridge that connects the energy resources of Central Eurasia with the lucrative Japanese and Korean markets (Pham 2006: p. 58–59). But more importantly, the “obdurate infrastructure” under construction allows China to lock its Eurasian partners into long-term economic, social and political relationships that may transform the region in ways that are difficult to predict. Johnson argues that “large technical systems and material artifacts shape relationships long after they are built” (Johnson 2014: p. 111). The material linkages currently being established in Central Eurasia may structure the interactions of states in the region, enabling some policy choices and foreclosing others.
For these and other reasons China has been accused of opportunism and predation. The perceived predatory behaviour of Chinese companies in the region is purportedly evidenced by their desire to own both the means of production and transportation of energy resources. Marketos writes of a rapacious set of Chinese oil majors buying up assets in the region and seeking “control from wellhead to terminal” (Marketos 2009: p. 107). This flies in the face of the notion of unbundling advanced by the EU. The fact that these are state-owned enterprises, ostensibly acting as agents of the Beijing government, lends credence to the threat theory put forward by Marketos. As Zha and Breslin have pointed out, the state-led development of economic ties across national borders used by China creates an irresolvable uncertainty in the minds of Western observers whether these ties are for economic or political purposes. Are Chinese companies using the political support of the Chinese state to realise their commercial interests or has Beijing enlisted them in the service of its strategic national objectives (Zha and Breslin 2010: p. 70)? Others note that because not all the resources produced by Chinese corporations in Central Eurasia are necessarily destined for the Chinese market, China’s motivation is primarily economic (Petelin 2011: p. 37).
The EU approach to energy cooperation in Central Asia too can be seen as problematic. Because the energy market convergence promoted by initiatives such as INOGATE represents a one-way transfer of EU standards and policies to states in the region, the relationship between the two parties is fundamentally unequal. It can be seen as Western interference in the domestic affairs of sovereign Asian nations that carries overtones of neo-colonialism (Aris 2011: p. 41). By contrast, China’s energy deals in Central Eurasia serve to strengthen state structures (Kennedy 2010). In addition, attempts by Brussels to bypass or exclude Russia from energy projects create tensions in the region. Whereas Moscow’s interests are fully taken into account by China at SCO meetings, the lack of a similar forum for dialogue among the EU, Russia and the Central Asian states breeds suspicion and mistrust.
Unlike China, the EU, in its energy cooperation with the Central Asian countries, insists on involving private operators and civil society groups. This is disconcerting for political authorities in the region who experienced a wave of debilitating “Colour Revolutions” in the 2000s. EU has shown itself capable of creating oligarchic structures and vocal anti-government constituencies which it can mobilise in times of political crisis such as the one in Ukraine. Despite assurances by one EU diplomat in Kazakhstan that the Union is seen to not have a hidden agenda and therefore to be a benign presence in the region (Interview, 15 December 2014), the fear of a Ukraine-style Western intervention in the country’s political life is palpable on the streets of Astana. The implicit challenge of EU-induced reforms to established relations in the Central Asian energy sector has repercussions for state and regime security in the region. The potential threat to state sovereignty and regime security posed by EU energy activity in Central Asia has prompted governments to welcome China’s commercial presence in their energy markets.
China’s growing presence in the Central Asian energy market is recognised by the EU. An EU diplomat in the region interviewed by the author was confident that there was little competition between Brussels and Beijing in Central Asia. Chinese companies participate in international energy consortia alongside EU firms to develop oil fields, for example, in Kazakhstan. It was argued that the size of the region and the scale of its oil and gas reserves precluded any potential rivalry with China (Interview, 15 December 2014). Another official from the EU concurred that although China was an increasingly important player in the Central Asian energy market, there was no competition between it and the EU. What China was doing is diversifying infrastructure. This was an opportunity for the EU which has sought over the years to establish an alternative to old Soviet energy corridors and markets (Interview, 24 October 2014).
The argument that Chinese investment would link the landlocked Central Asian states with world energy markets was echoed by a third European Commission official who took the enlightened view that “it does not really matter which way—east or west—energy flows as long as it ultimately reaches global markets. Central Asian gas, and particularly oil, will take off the pressure on global energy prices because it will feed China’s galloping economy and will thus free up supplies elsewhere”. It was also suggested that China’s growing presence in the Central Asian energy market may even lead to China and Russia counterbalancing each other’s influence in the region, which may open up space for EU influence (Interview, 22 July 2014). While this may lead to the promotion of different standards—EU, Russian and Chinese ones—in Central Asia’s energy market, this was not seen as a problem. Central Asia was a transit region for goods and merchandise; why not in terms of standards as well (Interview, 24 October 2014).
As for the possibility of inter-institutional cooperation in energy matters, for example, in the format EU-SCO, currently the European Commission does not cooperate either institutionally or operationally with regional structures in Central Eurasia. An official from the European Commission in Brussels stated however that “We are in a period of reflection” regarding the proper institutional setup for cooperation with the SCO (Interview, 18 July 2014). Another interview respondent argued that EU-SCO cooperation was possible although the SCO had an underdeveloped mechanism for cooperation with other organisations which made such cooperation difficult (Interview, 15 December 2014). A third Brussels official stated that the EU did not have common objectives with the Shanghai Cooperation Organisation. Rather they pursued parallel objectives. The idea behind cooperation, if it ever occured, would be to avoid “continental rift” (Interview, 24 October 2014).
This article examined the patterns of Chinese investment in the energy sector of the states of Central Eurasia. It found that China pursues a geographic or corridor approach to the development of the region’s resource economies, and contrasted that with the horizontal or sectoral approach adopted by the EU. Whereas Brussels has sought to reform the Central Asian energy market in line with its own standards and interests—and in the process has challenged established patterns of state ownership and control in the region—Beijing has adjusted itself to the developmental needs of its partners and has focused on opening new conduits for energy exports out the landlocked region. This has prompted commentators like Kavalski to argue that “Beijing appears to project a better contextualised policy than Brussels” (Kavalski 2007: p. 51). As a result, China has been successful in realising its own objectives in Central Eurasia whereas the EU has not.
As an international actor China can be described as open and inclusive. It is not wedded to a particular geopolitical or ideological position. While it exhibits a predisposition to working with statist actors or entities that bear the imprint of a statist identity, this is done mainly for pragmatic reasons. Beijing pursues a flexible approach that combines elements of bilateralism and multilateralism and that is geared towards realising specific economic objectives. In this sense, China can be said to advance a type of pragmatic regionalism focused on achieving concrete results on the ground (Vinokurov and Libman 2012).
The EU displays different tendencies in its energy-related activities in Central Eurasia. It shows itself to be quite exclusionary when developing partnerships with the objective of diversifying economic activity away from Russia. Its approach of creating a hub-and-spoke system with its partners to the detriment of their relations with other regional powers chimes in with Hettne and Soderbaum’s description of EU foreign policy as hegemonic. The EU is often said to pursue “a norm-driven foreign policy which stems from the values promoted internally within the Union, such as social pluralism, the rule of law, democracy, and market economy etc. (Hettne and Söderbaum 2005: p. 540). This approach however is characterised by an instrumental or “strategic use of norms”. The Union projects its soft power and imposes conditionalities that patently serve its material interests. Because it has sought to impose its priorities on weaker parties, the EU has drawn criticism that its external policies represent a form of “soft imperialism” defined as the application of soft power in a hard way (Hettne and Söderbaum 2005: p. 540). The resultant type of hegemonic regionalism has sought to reinforce existing asymmetries between weak and strong states in the international system.
Brussels’ and Beijing’s engagement with the region could have several possible outcomes. Beijing’s energy corridor approach could eventually lead to a Chinese monopsony over the energy trade in the region. In this scenario, states in the region would choose to reorient their energy exports towards China as the latter successfully inscribes itself in the infrastructural landscape of Central Eurasia. To avoid a monopsonic dependence on China, Russia and the Cental Asian states may choose to coordinate their actions and negotiate with Beijing from the position of a single energy market. In this scenario, Beijing would have to work within the framework of the Eurasian Economic Union (EAEU) and conform to its legal and technical standards. As one Russian expert put it, China could provide the economic content to fill the institutional framework provided by the EAEU (Bordachev 2016). The possibility that EU involvement could lead to a concert of powers-type arrangement is unlikely at the moment given the current hostility in EU-Russia relations and the increasing difficulty between the EU and China as commercial partners. The likelihood that access to Central Eurasia’s energy resources will remain contested, however, is a near certainty.
The documentary analysis and elite interviews on which this article is based was supported by a small research grant provided by the Faculty of Social Sciences at the University of Nottingham Ningbo China. The author wishes to thank Peter Hofman, David Kiwuwa and two anonymous reviewers for their helpful suggestions and comments.
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