17 July 2008
Europe’s pursuit of new energy routes has helped secure Central Asia’s eligibility for funding from the European Investment Bank (EIB), leading to concerns about further extractive industry financing in the region.
In June 2007, the European Union (EU) set forth a new partnership strategy for Central Asia. The strategy prioritizes human rights, good governance, and democratic development in the region. It calls on the international financial institutions (IFIs) to intensify their work in Central Asia and provides a mandate for the European Investment Bank (EIB) to commence lending activities in the region.
In April 2008, in accordance with this mandate, the European Commission proposed that the Central Asian countries – Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan – be eligible for EIB financing. Despite these countries’ human rights records and problematic political development, the European Commission’s proposal states, “They have established statehood, safeguarded multi-ethnic understanding and inter-religious communication.” However, perhaps the true reason for enthusiastic European funding lies in pipeline politics.
The EU partnership strategy makes no secret of Europe’s energy interests in Central Asia, and the European Commission’s proposal, citing an earlier 2006 European Council decision, names “major energy supply and energy transport projects with cross-border implications,” as the focus for EIB activity. Moreover, it points to Central Asia’s “favourable geographical location for transport routes to European markets.”
Europe has shown a keen interest in pipelines bypassing Russia and connecting Central Asian oil and gas to Europe. According to an EU official, Turkmenistan has committed to sending 10 billion cubic meters of its gas to Europe starting in 2009. Turkmen gas is sought for the proposed Nabucco pipeline, to be built in 2010, which would run from Turkey to Austria. EU delegations have also discussed an impact assessment for a trans-Caspian pipeline. Kazakhstan is already actively considering a trans-Caspian transport option to connect its oil to the Baku-Tbilisi-Ceyhan (BTC) pipeline, while more tentative discussions have taken place between Turkmenistan and Azerbaijan over a possible trans-Caspian gas pipeline. The EU’s INOGATE (Interstate Oil and Gas Transport to Europe) program, which includes the Central Asian states, is primarily concerned with energy transport in the region and aims to attract both private and IFI investment in pipelines of interest to Europe.
The Council of the European Union approved the Commission’s proposal and the European Parliament is expected to do the same at its next plenary session, making the Central Asian nations eligible for EIB support. EIB operations are to be carried out in “close cooperation” with the European Bank for Reconstruction and Development (EBRD). The EBRD has been active in extractive industry funding, including the controversial BTC and South Caucasus pipelines and the Bautino Atash Marine and Supply Base in Kazakhstan.
Given the emphasis on energy transport in EIB and EU documents, civil society organizations (CSOs) are concerned about potential EIB funding of problematic pipelines and extractive projects in the region, particularly as the EIB lags behind other IFIs in its environmental and social safeguards. The EU is also interested in a number of hydropower projects, which can carry risks as well. Furthermore, CSOs point to the disparity between EU human rights and governance discourse and its support of repressive regimes through EIB financing.
Sources
A new great shame ahead?, by Desislava Stoyanova, July 15, 2008 (European Voice website)
Joint Progress Report by the Council and the European Commission to the European Council, European Commission, June 24, 2008 (European Commission website, Acrobat pdf)
Kazakhstan signs BTC agreement into law, plans new pipelines, Bank Information Center, June 10, 2008 (BIC website)
Proposal for a Council Decision on the eligibility of Central Asian countries, Commission of the European Communities, April 4, 2008 (EUR-Lex website)
European Union and Central Asia: Strategy for a New Partnership, Council of the European Union, October 2007 (Council of the EU website, Acrobat pdf)
Council Decision granting a community guarantee to the European Investment Bank, Council of the European Union, December 19, 2006 (EUR-Lex website, Acrobat pdf)
Azerbaijan - Key Issues, see Projects Under Watch section on pipelines, (BIC website)
EU, Turkmenistan sign agreement on energy cooperation, development, Associated Press, May 27, 2008 (International Herald Tribune website)
European Parliament Draft Report, European Parliament, June 3, 2008 (European Parliament website, Acrobat pdf)
Resources
BIC’s Europe and Central Asia page
INOGATE website (EU program on energy transport cooperation)
Counter Balance website (monitors the EIB)
EU's Relations with Central Asia (European Commission website)
EIB loans: Eligibility of Central Asian countries granting a Community guarantee to the EIB against losses under loans and loan guarantees for projects outside the Community (European Parliament website)