Category Archives: Central Asia & South Caucasus News

Georgia enters Association Agreement with the EU

TBILISI, JULY 1 2016 (The Conway Bulletin) — After two years of preparations, Georgia formally entered into an Association Agreement with the EU, a deal touted by its political leaders as another step towards EU membership and one which should also make it easier for Georgian companies to sell products to Europe.

Georgian PM Giorgi Kvirikashvili hailed the adoption of the Association Agreement as one of the most important days in the government’s stated mission of easing Georgia’s visa arrangements with the EU and even becoming an EU member state.

“It cements Georgia’s relations with a partner which, for years, has been our model and end destination”, he said in a press conference.

In a statement, the European Commission’s foreign affairs representative, Federica Mogherini, said the agreement will bring Georgia benefits but reforms were needed before more EU integration was possible.

“The EU is looking forward to further strengthening its cooperation with a country that is still working on crucial reforms in areas such as the rule of law, the accountability rules for public decision-makers and transparency,” she said.

At its core, the EU Association Agreement improves Georgian companies’ access to European markets in exchange for a commitment to improve the rule of law, health and safety standards and democracy.

The EU said that the benefits to Georgia are already being felt. It said that Georgian kiwis, blueberries, nuts, garlic and wine are more readily available in Europe.

On the streets of Tbilisi, most people welcomed further integration with the EU but were unaware of the details of the deal. Even those who had studied it said that it would take time for Georgian companies to get the most out of the agreement.

“The majority of Georgian companies are not ready to start exporting to the EU countries in terms of qualities and certificates,” said Ioseb Kobakhidze, managing director of Georgian Herbs, a dried fruit producer.

ENDS

(News report from Issue No. 288, published on July 8 2016)

Landslide blocks vital Armenia-Georgia-Russia road

TBILISI, JULY 7 2016 (The Conway Bulletin) — Emergency workers will, over the next few days, finish clearing a landslide that has blocked for a fortnight the only road linking Armenia and Georgia to Russia.

The landslide has exposed just how reliant Armenia, and to a lesser extent Georgia, is on the Upper Lars highway as a link to Russia. The only other direct land routes across the Caucasus mountains to Russia thread through the breakaway Georgian regions of South Ossetia and Abkhazia and are currently closed.

Georgian and Armenian officials said that the stretch of road near the border with Russia and Georgia should reopen on July 12. It has been blocked since the landslide hit on June 23.

And the blockage has forced politicians to look at how reliant they are on this single route into and out of Russia. At a cabinet meeting, Armenian PM Hovik Abrahamyan said that relying on the Upper Lars route was dangerous.

“It is time to explore alternative routes,” media quoted him as saying. Armenia is largely isolated in the South Caucasus. It borders two sworn enemies, Turkey and Azerbaijan, and sees Russia, through Georgia, and Iran, to its south, as its only possible partners.

While trade with Iran has improved and could grow further with the easing of Western sanctions on Iran, Armenia’s reliance on Russia has grown markedly.

Armenia turned down an Association Agreement with the EU in favour of joining the Kremlin-led Eurasian Economic Union. This also includes Belarus, Kazakhstan and Kyrgyzstan. Armenia is the only country that doesn’t share a border with other members.

In need of alternatives to the Upper Lars route, Armenia asked Georgia to consider opening routes through South Ossetia and Abkhazia, regions Georgian forces fought Russia for control over in a 2008 war.

Apparently appreciating the seriousness of the scenario, Georgia’s PM Giorgi Kvirikashvili agreed to start talks, marking a potential important shift in relations between Georgia and its rebel regions.

ENDS

(News report from Issue No. 288, published on July 8 2016)

Business comment: Contracts of the century

JULY 8 2016 (The Conway Bulletin) — After the fall of the Soviet Union, multinational oil companies flocked into Central Asia and the South Caucasus to strike new deals around the Caspian Sea.

Kazakhstan in 1993 and Azerbaijan in 1994 awarded two massive licenses to Chevron and BP respectively. Both contracts became known as “the contract of the century”.

They became the largest oil projects in Azerbaijan and Kazakhstan, both operated under Production Sharing Agreement schemes, which gave significant advantages to the multinational companies in recovering their initial capital expenditures.

In the new era of sustained low oil prices, however, the Azeri-Chirag-Guneshli (ACG) group of offshore oil fields in Azerbaijan has had a different fate from Tengizchevroil in west Kazakhstan.

Azerbaijan’s President Ilham Aliyev has repeatedly pushed BP and its partners to increase production and continue to invest in spite of lower returns. Since mid-2014, when oil prices started plunging, ACG’s output growth has been sluggish at best. Now a potential corporate war over ACG between BP and Exxon contrasts strikingly to the success story of Tengizchevroil.

After years of mulling over an expansion and balancing costs, the consortium decided to launch a $36.8b investment that will boost production by 2022. This is a relief for Kazakhstan.

Tengiz has one of the lowest production costs in the region, at around $5.3/barrel, which makes it an easy bet even when oil prices are so low.

After the hype of the 1990s, now it seems clearer which of the two really deserved to be called the “contract of the century”.

ENDS

(News report from Issue No. 288, published on July 8 2016)

China wants to build bank in Georgia

JULY 5 2016 (The Conway Bulletin) — The Chinese holding company Hualing wants to build the third largest bank in Georgia by merging Basisbank, of which it owns 90%, and Bank Republic, which it is looking to buy. France’s Societe Generale owns a 93.6% stake in Bank Republic and the EBRD owns the rest. If the agreement with Hualing goes through, Societe Generale will own an 8% stake in the merged bank and the EBRD will own a 3.9%. In recent months,Hualing has also heavily invested in Georgia’s construction sector.

ENDS

(News report from Issue No. 288, published on July 8 2016)

Border police stops Kyrgyzstan and Kazakhstan bound trucks

JULY 1 2016 (The Conway Bulletin) — The Russian border police stopped 43 goods trucks travelling from Ukraine to Central Asia at the border with Belarus. The trucks were bound for Kazakhstan and Kyrgyzstan, but were stopped because of new Eurasian Economic Union (EEU) regulation that appears designed as a retaliation forWestern imposed sanctions on Russia. The EEU is a Russia-led economic bloc that includes Kazakhstan, Kyrgyzstan, Armenia and Belarus.

ENDS

(News report from Issue No. 288, published on July 8 2016)

TCO approves $36.8b project for Tengiz oil field in Kazakhstan

JULY 5 2016 (The Conway Bulletin) — Tengizchevroil (TCO), a Chevron- led consortium, approved a $36.8b expansion project for the Tengiz oil field in west Kazakhstan. The consortium said the expansion will boost production by 45% to around 39m tonnes/year by 2022. Tengiz is Kazakhstan’s most profitable oil field.

ENDS

(News report from Issue No. 288, published on July 8 2016)

Kazakhstan’s Tengizchevroil approves $37 billion expansion plan

ALMATY, JULY 5 2016 (The Conway Bulletin) — After prevaricating for three years, Tengizchevroil (TCO), a Chevron-led consortium, approved the $36.8b expansion of the Tengiz oil field in west Kazakhstan.

Low oil prices had thrown the Tengiz expansion plans into doubt, so the decision will be a huge relief to the Kazakh government which has been looking for ways to stimulate output to beat slowing GDP growth.

The so-called Future Growth Project will boost production at TCO by 45% to 39m tonnes/year by 2022.

Government officials and company representatives lauded the deal, the largest private investment in the world’s oil industry for a decade.

“This decision made by major international companies re-affirms that the Republic of Kazakhstan is a country with favourable business climate where long-term investments can be made with confidence,” the Kazakh minister of energy Kanat Bozumbayev said in a press release.

Through its state-owned energy company Kazmunaigas, Kazakhstan owns 20% of TCO. The other shareholders are Chevron (50%), Exxon (25%) and Lukoil’s subsidiary LukArco (5%).

The development of the Tengiz oil field near Atyrau has been one of the West’s success stories in the former Soviet Union. It is Kazakhstan’s largest oil producer, pumping out a third of its total output, and exports via the CPC pipeline that sweeps through Russia, north of the Caspian Sea to Novorossiysk on the Black Sea.

This compares to the Kashagan oil project in the Caspian Sea which is years behind schedule and billions of dollars over budget.

Analysts said that TCO had decided that oil prices were steadily moving back up and that low steel prices and cheap labour made the timing right for expansion.

The consortium said the expansion will generate as many as 20,000 jobs during the peak construction phase.

ENDS

(News report from Issue No. 288, published on July 8 2016)

SFO to look into Kazakh ENRC

JULY 3 2016 (The Conway Bulletin) — The British government gave the Serious Frauds Office extra funding to complete its ongoing corruption investigation into ENRC, a Kazakh miner that quit the London Stock Exchange in 2013. The company is accused of having paid bribes to win contracts in Kazakhstan and Africa. Three prominent Kazakhstan-based businessmen, Alexander Mashkevich, Alijan Ibragimov and Patokh Chodiev, founded ENRC, now called Eurasian Resources Group.

ENDS

(News report from Issue No. 288, published on July 8 2016)

Georgians protest against hydro

JULY 4 2016 (The Conway Bulletin) — Residents of Chuberi, a small village in Georgia’s north-western province of Svaneti, held rallies against the construction of the Nenskra hydropower plant, saying that it would negatively impact their livelihood. Activists said that the power plant will sit in a dangerously seismic region and its construction on the Svaneti river could trigger landslides. The Nenskra plant will cost $1b to build and will be the second largest hydropower plant in the country when it is completed in 2019.

ENDS

(News report from Issue No. 288, published on July 8 2016)

Stock market: Central Asia Metals

JULY 4 2016 (The Conway Bulletin) — Central Asia Metals, a Kazakhstan-focused copper producer, jumped 5% on Monday after it announced that its Q2 production had increased by 20%, boosting investor confidence. It closed at 156p/share on Thursday.

The company can now boast a 27% growth in production and a 24% increase in sales for H1 2016, compared to the same period last year. Central Asia Metals is expanding its Kounrad project, a copper recovery plant, which should be expanded in H2 2016.

The past six months or so have been a rollercoaster for Central Asia Metals’ share price. It plunged to an 18-month low in January before rebounding back to above 160p/share in March. After a brief period of stability, though, the stock suffered the downward pressure of declining copper prices and spiraled down to around 145p/share.

Analysts said the nature of Central Asia Metals’ production makes it immune from copper price volatility, but, as shown in the graph, both the stock and the commodity have gained 10% since the beginning of the year.

ENDS

(News report from Issue No. 288, published on July 8 2016)