Energy policy, economic cooperation, and sustainable development in Central Asia [Elektronische Ressource] : the case of Uzbekistan / vorgelegt von Sagdullaev Djakhangir
335 Pages
English
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Energy policy, economic cooperation, and sustainable development in Central Asia [Elektronische Ressource] : the case of Uzbekistan / vorgelegt von Sagdullaev Djakhangir

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335 Pages
English

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Energy Policy, Economic Cooperation, and Sustainable Development in Central Asia: the case of Uzbekistan Dissertation zur Erlangung des Doktorgrades (Dr.rer.soc.) des Fachbereichs Gesellschaftswissenschaften der Justus-Liebig-Universität Vorgelegt von Sagdullaev Djakhangir aus Taschkent ii™™™™™™™CONTENTS Acknowledgements…………………………………………………………………………………….....v List of Diagrams and Boxes……………………………………………………………………………...vi List of Tables……………………………………………………………………………………………..vi List of Acronyms…………………………………………………………………………………….…..vii I. Introduction……………………………………………………………………………………………1 Chapter II. THE ESSENCE AND PRIORITIES OF ECONOMIC REFORMS IN UZBEKISTAN IN THE YEARS OF INDEPENDENCE 2.1. Uzbekistan under the Plan System: Process and Consequences……………………………………15 2.2. The Transformation Process and its Outcome in the Last Decade 2.2.1. The Choice of Further Development Strategy: Possibilities and Contradictions. The Essence of the “Uzbek Economic Model”………………………………………..………..27 2.2.2. The Key Spheres of Reforms during the First Phase (1991-1996) Determination of Priorities…………………………………………………………….....32 Fiscal and Monetary Policies……………………………..35 Institutional and Structural Reforms…………………………………………...39 2.2.3. Tasks for the Second Phase (1997-2002)……………………………………………………….

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Energy Policy, Economic Cooperation, and Sustainable
Development in Central Asia:
the case of Uzbekistan










Dissertation zur Erlangung des Doktorgrades (Dr.rer.soc.)
des Fachbereichs Gesellschaftswissenschaften der Justus-Liebig-
Universität








Vorgelegt von

Sagdullaev Djakhangir

aus Taschkent










iiCONTENTS

Acknowledgements…………………………………………………………………………………….....v

List of Diagrams and Boxes……………………………………………………………………………...vi

List of Tables……………………………………………………………………………………………..vi

List of Acronyms…………………………………………………………………………………….…..vii

I. Introduction……………………………………………………………………………………………1

Chapter II. THE ESSENCE AND PRIORITIES OF ECONOMIC REFORMS IN UZBEKISTAN IN THE
YEARS OF INDEPENDENCE
2.1. Uzbekistan under the Plan System: Process and Consequences……………………………………15

2.2. The Transformation Process and its Outcome in the Last Decade
2.2.1. The Choice of Further Development Strategy: Possibilities and Contradictions.
The Essence of the “Uzbek Economic Model”………………………………………..………..27
2.2.2. The Key Spheres of Reforms during the First Phase (1991-1996)
Determination of Priorities…………………………………………………………….....32
Fiscal and Monetary Policies……………………………..35
Institutional and Structural Reforms…………………………………………...39
2.2.3. Tasks for the Second Phase (1997-2002)……………………………………………………….42
Deepening Structural Transformation………………………………………………………43
The Priorities of Investment Policy…………………………45
Overview of Changes in the External Sector………….………………………………….…48
New Opportunities for Small and Medium-size Enterprises…………..51
2.3. Against the Challenges of Transition
2.3.1. Discourses on the Overall Strategy of Reforms………………………………………………...54
2.3.2. Unemployment…………………………………………………………….62
2.3.3. Income and Poverty……………………………………………..64
2.3.4. Structural Changes and SMB……………………………………………...66
2.3.5. Challenges in the Financial Sector………………………………………..68
2.3.6. Availability of Data and Statistics………………………………………………………………71
2.3.7. The Staff Monitored Programme of the IMF…………………………………………………...72
2.4. Summary…………………………………………………………………………………………….74

Chapter III. THE ENERGY SPHERE IN THE CONTEXT OF NATIONAL DEVELOPMENT IN
UZBEKISTAN
3.1. The Energy Sphere as Integral Part of the Development Strategy
3.1.1. National Priorities in the Energy Sector after Independence…………………………………...76
3.1.2. Organization of Decision-Making in the Energy Sector………………………………………..82
3.1.3. Main Producers in the Energy Sector…………………………..87
iii
???????3.1.4. Main Consumers of Energy Resources…………………………………………………………92
3.1.5. Contemporary Challenges in the Energy Sector…………………………..95
3.1.6. Strategy for Further Development
Urgent Tasks…………………………………………………………………………….98
Complementary Measures……………………………..101
3.2. Perspectives for Resource-Based Industrialization
3.2.1. Mineral Base…………………………………………………………………………………...105
3.2.2. What May It Bring ?……………………..108
3.3. Possible Scenarios of Development…….................................……………………………………111
3.4. Between Constraints and Opportunities…………………………………………………………...113
3.5. Summary…………………………………………………………………………………………...115

Chapter IV. THE ENERGY ISSUE IN THE CENTRAL ASIAN REGION
4.1. Energy Potential of the Region…………………………………………………………………….118
4.2. Common Development Challenges……………………..124
4.3. Intra-regional Priorities……………………………………………………………………………127
4.4. Growing International Interests
4.4.1. General Patterns……………………………………………………………………………….131
The USA……………….133
Russia…………………………………………………………………………………..136
China…………………..141
Iran……………………………………………………………………………………..144
The EU……………………………146
Turkey………………………………………………………………………………….149
4.4.2. Geopolitical Implications…………………………………………………………………...…151
4.5. Summary…………………………………………………………………………………………...157

Chapter V. INTEGRATION WITH THE WORLD ECONOMIC COMMUNITY
5.1. New Pillars of Foreign Trade Policy………………………………………………………………160
5.1.1. Necessity for Import Policy Adjustment………………………………………………………163
5.1.2. Rethinking Commodity-Based Policy Behavior………………169
5.1.3. Domestic Potential for Export Expansion and Diversification………………………………..173

5.2. The Significance of Foreign Direct Investments (FDI) in the Foreign Economic Strategy of
Uzbekistan
5.2.1. Necessity, Role, and Advantages of FDI in Economic Development: Global Trends and
Features………………………………………………………………………………………...180
5.2.2. Driving Forces of FDI Inflows………………………………………………………………...185
5.2.3. Legislative Guarantees for FDI…………………….191
iv
????????5.2.4. Government Regulation: Where Are The Limits?…………………………………………….198
5.2.5. Domestic Policy Coherence……………………………………………...205
5.2.6. Foreign Investment Policy Statement………………………………………………………….209
5.2.7. Promotion Campaign, or Information Component in National Investment Strategy………….211

5.3. Free Economic Zones……………………………………………………………………………...216
5.4. Summary………………………………………………...221

Chapter VI. THE PROSPECTS FOR REGIONAL (CENTRAL ASIAN) COOPERATION
6.1. Theoretical Aspects of Regionalism
6.1.1. Definition and Theories of Regionalism….............……………………………………..……225
6.1.2. Lessons From the International Past………………………………………………………….229

6.2. Central Asia: Vision, Reality, Challenges Ahead
6.2.1. History of Institutionalization……….......…………………………………………………....234
6.2.2. Confronting Reality
6.2.2.1. Economic Constraints on Regional Efforts………….…………………………………..240
6.2.2.2. Non-Economic Determinants………………………………………246
6.2.3. Shaping the Premises of Central Asian Cooperation…………………………………………249

6.3. The Scenarios of Prospective Regional Trends in Central Asia:
Priorities, Forms, Nature
6.3.1. Determinants of the Scenarios………………………………………………………………..255
6.3.2. Features of the Scenarios
6.3.2.1. Economic Bilateralism vs Multilateral Cooperation……………………………………256
6.3.2.2. Common Interests and Common Projects: Huge, but Untapped Potential……………..258
6.3.2.3. New Constitutionalism in Central Asia?……………………….……………………….264
6.3.3. General and Specific Constraints…………………………………………………………….268

6.4. Contribution of Foreign Partners
6.4.1. Mutually Beneficial Relations With “Good Neighborhood”…………………………………270
6.4.2. Importance of Coordination Among Foreign Partners……………………………..272
6.4.3. Methods to Promote Regional Cooperation………………………………76

6.5. Summary…………………………………………………………………………………………...279

VII. Conclusion………………………………………………………………………………………..283

Annexes……………………………………………………………………………………………...…293

References...............................................................................................................................................312




vACKNOWLEDGEMENTS

This study was accomplished within the research project „Conflict management, security, and
economic cooperation in Central Asia“ at the Institute of Political Science, the University of
Giessen in 2002-2005. This work is another attempt to rethink some general issues of
transformation from the planned to market system in Uzbekistan through the prism of energy policy,
regional cooperation, and sustainable development. It can also be as background reading among
series of studies on the strategies of political and economic reforms for Central Asian transition
societies.
Taking this opportunity, I owe a substantial debt to all those who directly and indirectly assisted me
in writing and preparation of the given research. First and foremost, my sincere gratitude to
Pr.Dr.Reimund Seidelmann for his parent-like wise, patient, helpful and encouraging leadership
over the whole project and all related issues, as well as for reading and critical but useful comments
throughout a long way of the preparatory process of this study. I also thank the Volkswagen
Foundation for the provided interest and financial support to put our project into life.
I am grateful to the members of various institutions and scholars in the region, both former and
present, including Dr.Ravshan Alimov, Dr.Alisher Fayzullaev, as well as to the University of World
Economy and Diplomacy and the Center for Economic Research in Tashkent for their assistance
and contributions to my successful activities within the project.
I am also indebted to Dr.Kirsten Westphal for reading and commenting different parts of the
research, as well as for editory work. My particular thanks to Annedore Messner and Johannes
Rank for their invaluable assistance to prepare various versions of the study.
Some ideas in this work is a product of hot and frank debates during the two international
conferences in Giessen (May 2003) and Tashkent (September 2004), and those within our regular
team meetings with my friends and project colleagues Doerthe List, Khurshidbek Inomjonov,
Aynura Asakeeva and Azamat Nurmatov who set up an unprecedented favorable atmosphere to
enjoy the work and for which I am very much thankful too. I also appreciate all the contributions
made by the scholars and research fellows in fruitful discussions at the various meetings, seminars
and colloqiums at the Institute of Political Science in Giessen. I would like to thank the Justug
Liebig University of Giessen for institutional and technical support and hospitality during all my 2,5
years’ staying here in Germany.
Yet my greatest thanks must go to my family, especially to my father, my mother and sister, without
whose fundamental support, love, enhancement and created conditions it would have been
impossible to cope with this serious task. Despite physical distance, I always have felt their backing
throughout the time when writing this work.


Giessen, April 2005 Djakhangir Sagdullaev







viLIST OF BOXES AND DIAGRAMS

Comparative Data on Energy Intensity in Central Asia and developed
Diagram 3.1 96
economies
What is the investors' feeling on domestic policy? 211Box 5.1
Box 6.1 National Transport Priorities of Uzbekistan 262

LIST OF TABLES
Table 2.1 Average Annual Cotton Production in Central Asia 17
Table 2.2 Uzbekistan’s Annual Average Industrial Growth Rate 19
Table 2.3 Comparative data on volume of services per capita, 1990 24
Table 2.4 Fixed Capital Data by Forms of Ownership in Uzbekistan and the whole USSR 40
Table 3.1 Production of Energy Resources in Uzbekistan, selected years 81
Table 3.2 Electric Power Production and Consumption 91
Table 3.3 Assessment of Mineral and Energy Potential of the Republic of Uzbekistan 107
Table 4.1 Structure of Regional Energy Consumption 120
Table 4.2 Major Gas Export Markets of Uzbekistan 122
Table 4.3 U.S. Foreign Assistance to Central Asia 135
Table 4.4 Dependency on Imported Oil in China 143
Structure of EU-25 Energy Consumption by Fuel 148Table 4.5
Table 4.6 Prospects for EU-25 Natural Gas 148
Table 5.1 Changes in National Regulations of FDI, 1991-2002 198
Table 5.2 Types of Changes in FDI Laws and Regulations 199
Table 6.1 Share of Intra-regional Trade in Total Trade, various regions, 1928-2003 233
Table 6.2 Central Asian Economies, Basic Characteristics, 2002 249
Table 6.3 Projected Energy Surpluses and Deficits, by Country, for 2005 260
Official Development Aid to Central Asia in 2002 274Table 6.4



viiLIST OF ACRONIMS

ADB Asian Development Bank
APEC Asia-Pacific Economic Cooperation
AsDF Asian Development Fund
ASEAN Association of Southeast Asian Nations
CABCD Central Asian Bank on Cooperation and Development
CACO Central Asian Cooperation Organization
CAN Andean Community of Nations
CAP Common Agricultural Policy
CAPS Central Asian Power System (Central Asian Interconnected Power Grid)
CAREC Regional Economic Cooperation in Central Asia
CBU Central Bank of Uzbekistan
CIS Commonwealth of Independent States
CMEA Council for Mutual Economic Assistance
CPU Communist Party of Uzbekistan
EBRD European Bank for Reconstruction and Development
EC European Community
EIA Energy Information Administration
EU European Union
FDI Foreign Direct Investments
GATT General Agreement on Trade and Tariffs
GDP Gross Domestic Product
IDA International Development Agency
IEA International Energy Agency
IMF International Monetary Fund
INOGATE Interstate Oil and Gas to Europe
MERCOSUR Common Market of South
viiiNAFTA North American Free Trade Agreement
NGO Non-Governmental Organization
NIS Newly Industrialized States
NMP Net Material Product
ODA Official Development Assistance
OECD Organization for Economic Cooperation and Development
PCA Partnership and Cooperation Agreement
PIF Privatisation and Investment Fund
SBA Stand-by Arrangement
SCO Shanghai Cooperation Organization
SMB Small- and Medium-Sized Business
STF Systemic Transformation Facility
TACIS Technical Assistance for Commonwealth of Independent States
TRACECA Transport Corridor Europe-Caucasus-Asia
UDC Unified Dispatch Center
UNCTAD United Nations Conference on Trade and Development
UNDP United Nations Development Programme
UNFPA United Nations Population Fund
UNO United Nations Organizations
USSR Union of Soviet Socialist Republics
VAT Value Added Tax
WTO World Trade Organization







ixI. Introduction

1.1. National Tasks in Global Terms: Between Opportunities and Constraints

While international division of labor and internationalization was deepening across the globe
and thereby mutual dependencies among national economies through the institutionalization
of international trade, movements of capital and labor migration were strengthened, quite the
contrary was the case in the former socialist camp headed by the Soviet Union in the early
1990s. As a result of centrifugal trends, the Soviet republics which previously made up the
one common country, found themselves on their way to independence. Being an integral part
of the given process, Uzbekistan had also to face a choice of new development. The country
started searching for a new model which would reinforce its national sovereignty and identity,
but within the new rules of global economic and political order.
The new national development model suggested by the government was supposed to carry
through the set of transition reforms in the political, economical, social and other areas of
public life and reach the final strategic goal, i.e. a secular democratic state with a developed
socially-oriented market economy and an open foreign policy. Domestic macroeconomic
reforms, nation-building processes and integration within the world community were
considered as simultaneous and indivisible elements in the new development conception. The
president of Uzbekistan particularly emphasized that "integration into the world community is
only possible provided its conformity to the modern perceptions of a democratic state with a
developed market economic system. Equally, the country could be modernized on the
indispensable condition of its integration into the world community, i.e. through finding a
deserved place in the international division of labor and active participation in creation of
1regional and global security systems".
By the declaration of its openness, the republic, thus, officially admits the integrity of its
national development with sweeping global trends promoting interdependence and
complementarities in the world economy. Therefore, one of the most important pre-conditions
for the creation of efficient development mechanisms in Uzbekistan after independence is to
set up an open economic system which could not only be characterized by traditional high
ratio of import and export transactions in GDP, but also conceptually a model of national
development whose instruments of domestic and foreign policies are closely correlated with
and influenced by internationalization of world's economic life.

1 Translated by the author from Karimov I. Uzbekistan na Poroge XXI Veka: Ugrozy Bezopasnosti, Usloviya
Stabilnosti I Garantii Progressa. Tashkent, 1997, p.290.
1As experience of world economic development shows, the epoch of the secluded development
with the exclusive emphasis on internal sources is more and more outdated. Such an
orientation is basically related to the irrational use of national resources and therefore
becomes soon an impediment to economic and social progress on the way to a market
economy. After almost 70 years of isolationist development, the factor of openness is going to
play a positive economic and even more political role in pursuing domestic reforms. The
benefits of a more open strategy in foreign economic relations in particular, are mainly
connected to the following positive effects:
1. With the higher share of GDP involved into international turnover, the country may obtain
qualitatively new, additional opportunities for acceleration and increase in growth of national
income. Consequently, in such a case, foreign relations in general become a crucial factor of
intensive economic growth.
2. Through the establishment of relations with the world economy, a country may enhance
development of those market mechanisms and institutions which are either weak or absent at
all. These issues may include, for example, competition policy, privatization processes, stock
exchange, credit and insurance mechanisms which all together would promote the
establishment of a multistructural economy with diversified property forms.
3. Development of trade relations on the commonly admitted international commercial basis
allow to strengthen the price factor which is important in reducing serious trade distortions
widely developed in the former system of resource distribution.
4. Given national priorities, the country may improve the commodities structure in its export
by pursuing new structural policy. The share of products with high value added is steadily
increasing against the background of diversification of export and expansion of geography of
trade relations.
5. And finally, the most crucial thing is that the country takes the opportunity to develop bi-
and multilateral cooperations with any country concerned; it defines its policy within
international and regional organizations in accordance with its national priorities.
At the same time the process of globalization takes sometimes complex and controversial
forms. It is not realistic to expect that it bears positive changes only and therefore, is able to
solve all the existing problems. On the contrary, as further interdependence occurs between
countries and regions, the young countries have to confront with a number of new appeals
threatening their emerging economic and political systems. Economically, for instance,
Uzbekistan has to face with the consequences of world economic cycles which have had little
2