Investment strengthens Russian ties to Uzbekistan

Sergei Blagov

The Islamic militant threat in Uzbekistan is encouraging the strengthening of ties between Tashkent and Russia. From Uzbek President Islam Karimov’s standpoint, Russia is willing to provide economic and security assistance without attaching stringent conditions concerning the conduct of his administration. Moscow, in turn, is eager to make deals that help restore its geopolitical influence in Central Asia.

Islamic militant action so far in 2004 – including the July 30 suicide bombings in Tashkent, and with the late March violence that left at least 47 dead – suggests the Uzbek government may be facing a prolonged insurgency. [For background see the Eurasia Insight archive]. Karimov himself has not ruled out the possibility of another terrorist strike. "Nobody can provide any guarantee that [Islamic radicals] ... will not show up tomorrow," the Russian daily Nezavisimaya Gazeta quoted Karimov as saying.

As Uzbek authorities grapple with the Islamic radical threat, Tashkent’s relations with Western institutions and governments show signs of increasing strain. Frustration over Karimov’s reluctance to implement economic reforms has driven the International Monetary Fund to withdraw its representative from Tashkent, and the European Bank for Reconstruction and Development to scale back its assistance efforts. In July, Uzbekistan’s lackluster record on human rights and democratic reform led the US State Department to suspend up to $18 million in economic assistance. [For additional information see the Eurasia Insight archive].

Another major factor in the tense relationship between Uzbekistan and the West is the Karimov administration’s ongoing crackdown on individual liberty. [For additional information see the Eurasia Insight archive]. Given the rising Islamic radical threat, Karimov’s clampdown is unlikely to abate. Thus, the human rights issue will likely remain a sore spot in Uzbekistan’s interactions with the West.

Russia’s desire to project geopolitical influence in Central Asia seems to override any concern about Tashkent’s human rights practices. Therefore, Russia may be Uzbekistan’s only viable alternative as a source of investment and assistance. During a July 3 meeting in Moscow with Russian Prime Minister Mikhail Fradkov, Karimov seemed to confirm this view when he characterized Russia as a "priority partner." [For additional information see the Eurasia Insight archive].

So far, Moscow has shown a much greater interest in expanding trade ties than in bolstering its strategic presence in Uzbekistan. Most recently, attention has focused on the acquisition of Uzbek cell phone provider Uzdunrobita – an entity controlled by Karimov’s daughter, Gulnara – by the Moscow-based Mobile Telesystems (MTS). On July 16, MTS agreed to pay $121 million for a 74 percent stake in Uzdunrobita, which controls just over half of Uzbekistan’s small cell-phone market. MTS also agreed to an option to buy the remaining 26 percent for $38 million within the next three years. The deal is being touted as the largest direct investment ever in Uzbekistan by a Russian company.

The financial terms indicate that politics played a large role in the Uzdunrobita-MTS deal, effectively acting as an incentive for Uzbekistan to explore closer economic cooperation with Russia. According to a July 19 article in the English-language daily The Moscow Times, MTS agreed to pay roughly 33 times what Uzdunrobita itself estimated its worth to be in 2002.

The MTS deal may be part of Russian President Vladimir Putin’s drive to further integrate the economies of member states of the Commonwealth of Independent States (CIS); in particular, those of Central Asia, where the US military presence in Uzbekistan and Kyrgyzstan is seen as a threat to Russian interests. The Uzdunrobita agreement was signed just days before Putin declared that Moscow must push to expand cooperation with CIS states or risk "a total loss of interest" in the organization.

For Russia, energy is another important investment sphere. This June, Putin and Karimov signed a $1-billion, 35-year production-sharing agreement for the development of Uzbek natural gas deposits. Under the agreement, top Russian oil producer LUKoil will develop the southern gas fields of Kandym, Khauzak and Shady, which contain 280 billion cubic meters of proven reserves. LUKoil will take a 90 percent share in the project, with Uzbekistan’s Uzbekneftegaz holding the remaining 10 percent.

According to Putin, Russia’s natural gas monopoly Gazprom also plans to invest $1 billion in Uzbekistan. The energy giant has already begun natural gas production at Uzbekistan’s Shaxpaxty field, the Itar-Tass news agency reported August 3. In addition, Gazprom has indicated an interest in acquiring 44 percent of the Uzbek pipeline monopoly Uzbektransgas, but the purchase has yet to materialize.

While concentrating on trade ties, Moscow has also created space for the growth of security cooperation. The two countries signed a strategic partnership agreement in June, and plans for a Tashkent-based regional terrorism center were announced at a summit meeting of the Shanghai Cooperation Organization in Tashkent on June 17.

In the aftermath of the July 30 Tashkent bombings, some Russian experts suggest Moscow should take rapid action to help Uzbek authorities crush the Islamic radical threat before it spreads. A Moscow political scientist, Pavel Zolotarev, warned; "There is a great danger that [Islamic radicals] from Uzbekistan will infiltrate Russia."

Zolotarev, who is the deputy director of the USA-Canada Institute in Moscow, blamed the US-led invasion of Iraq for sparking a chain reaction of Islamic radical-inspired terror, including that which has hit Uzbekistan in 2004. (Uzbekistan is Washington’s most important strategic ally in Central Asia). "It was not possible to keep the United States from [taking] an erroneous step [in Iraq]," Zolotarev said in comments published by Nezavisimaya Gazeta on August 1. "Now we have to reap the fruits."

Editor’s Note: Sergei Blagov is a Moscow-based specialist in CIS political affairs.

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