Stan together

By bne IntelliNews July 26, 2010

Clare Nuttall in Almaty -

The former Soviet republics of Central Asia are growing in importance as suppliers of electricity, grain and construction materials to Afghanistan. It is hoped that new roads and railways criss-crossing Afghanistan will provide a shorter route to South Asia and the Gulf for these exports, but the security problem is keeping a lid on such optimism.

Afghanistan's first railway is a 75-kilometre line between the northern city of Mazar-e-Sharif and Hairaton on the Uzbek border. The line, built by Uzbekistan's state rail company Uzbekistan Temir Yollari with a $165m grant from the Asian Development Bank (ADB), opened on May 25. "It represents Afghanistan's emergence as a regional crossroad for trade and commerce and most importantly the aspirations of Afghanistan's people to redefine their country's role in the region and in the world," the ADB's president, Harujiko Kuroda, said at the opening ceremony. In future, the line will be extended to Sher Khan Bandar on the Tajik border, and another link to Turkmenistan Railways at Towraghoni is being planned.

Uzbekistan's role in its war-torn neighbour is growing in other areas too. It started exporting electricity in 2009 and by April was supplying electricity to Kabul round the clock. "For the first time, Kabul has electricity 24 hours a day thanks to the imports from Uzbekistan," Juan Miranda, director general of the ADB's Central and West Asia department, tells bne.

While the $1.28bn reconstruction of Uzbekistan's Talimarjan power plant is expected to boost electricity exports further when it is completed, Tajikistan and Turkmenistan are also looking at ways to benefit from Afghanistan's demand for power. Capacity at Turkmenistan's Balkanabat power plant has been tripled, which will allow surplus energy to be exported to neighbouring countries.

Turkmenistan is also a supplier of oil to Afghanistan. Exports of oil are currently made by tanker, although plans for a new gas pipeline running from the Turkmen gasfields through Afghanistan to Pakistan and onto India have been under consideration for some 15 years. The TAPI (Turkmenistan, Afghanistan, Pakistan, India) pipeline is expected to cost around $7.6bn to build, but the route runs through the Taliban heartland in western and southern Afghanistan.

Tajikistan also hopes to generate much-needed income by exporting surplus hydroelectric power to its neighbours during the summer months. Construction of the Roghun dam will considerably increase production, but with much of the Tajik population still without regular supplies and the country's decrepit transmission infrastructure, questions have been raised about when or even if Tajikistan can actually become a major electricity exporter.

Outside the energy sphere, Central Asian businesses have also benefited to an extent from the ongoing reconstruction of Afghanistan. For example, Afghanistan currently accounts for around 17% of Uzbekistan's cement exports. It is also one of the largest importers of Kazakh grain outside the Commonwealth of Independent States (CIS), according to Zhanna Baitemirova, head of analytics at KazAgroMarketing. Exports rose almost 10-fold from 33,000 tonnes of grain in 2006 to 3.16m in 2009. The construction of a mill elevator complex at Beyneu in Kazakhstan's western Mangystau region "will help provide transportation of breadstuffs and grain by road and railway to Uzbekistan, Turkmenistan and Afghanistan," says Baitemirova.

Frontier investing

The increase in trade has been helped by the generally more stable situation in northern Afghanistan, the area that borders on Tajikistan, Turkmenistan and Uzbekistan, in contrast to the dangerous southern provinces of Helmand and Kandahar. However, over 350 Nato soldiers have been killed since the start of this year, and June saw the highest number of deaths among foreign troops serving in the country since 2001.

Then there is the endemic corruption, allegations about which were behind the US decision on July 1 to reduce aid to the country by $4bn, which is most likely to result in cuts to infrastructure investment in order to maintain military and humanitarian spending.

But the possibilities for investing into Afghanistan are still being evaluated by the boldest. A study reported widely in the US press in June revealed that Afghanistan has mineral deposits worth between $900m up to $1 trillion, including large deposits of iron, copper, lithium (widely used in batteries) and niobium (for the production of hardened steel).

Even before the study's release, some investors had entered other segments of the economy. Among the largest of these is a CIS-based business, Azerbaijan Methanol Company (AzMeCo), the founder of Afghanistan's first oil refinery. "We all know about Afghanistan from the news, but when you start to dig deeper, you understand that it is a big country full of natural resources," AzMeCo's CEO Nasib Piriyev tells bne. "Of course, we envisaged there would be problems with starting up a proper industrial project in Afghanistan, but it turned out not to be as difficult as we expected."

Piriyev attributes this to the company's experience in other frontier markets, as well as the efforts of the US and other international players to promote a free market.

Another important aspect of the reconstruction is the building of new rail and road links that will allow the transport of goods between Central and South Asia. There are many obstacles - both technical and political. Recently, the Pakistan Trade Council complained that Afghanistan's transit tariffs are too high, while freight cars bound for Tajikistan and Afghanistan have been held up on the Tajik-Uzbek border. However, over the last decade there has been a concerted push for more transport links through the Central Asia Regional Economic Cooperation (Carec) programme, which involves four of the Central Asian republics, in addition to Afghanistan, Azerbaijan, China and Mongolia, with support from several major international financial organisations.

"Central Asia needs to get its products to market. We are looking at links not just within Central Asia, but in the whole region. The Carec project is a central DNA for the region, facilitating trade from north to south and east to west," says the ADB's Miranda. "We have two high-profile flagship projects in Afghanistan's transport sector - construction of the first railway line and a ringroad of more than 1,000 kilometres around the country - that will give access between Afghan towns and will also be the main conduit for Central Asian trade to Iran and Pakistan."

Stan together

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