APPENDIX 30
Memorandum submitted by Independent Power
Corporation PLC
BACKGROUND
The Independent Power Corporation (IPC) is a
British public company formed in late 1995. Its aim is to take
advantage of the move to independent power projects in a number
of emerging markets. IPC has a significant interest in developing,
owning and operating power generation facilities in Central Asia.
The company maintains an office in Almaty, Kazakhstan from where
it runs its regional operation.
In Kazakhstan, IPC has worked in partnership
with Samsung Deutschland GmbH. In October 1996, IPC's subsidiary,
Kazakh Power Partners Ltd, won the privatisation tender for Karaganda
GRES 2, a 608 MW coal-fired plant. In July 1997, an IPC subsidiary,
Kazakh Independent Power Ltd, lodged the highest bid in the privatisation
tender for Ekibastus GRES 2, a 1,000 MW coal-fired plant in north-eastern
Kazakhstan. This privatisation has yet to be completed.
In Kyrgyzstan, IPC intends to be a participant
in the privatisation by Kyrgyzenergo of various hydro-electric
projects on the Naryn River and initial discussions have been
held with the Government of Uzbekistan for IPC to take a position
in their power sector. Furthermore, IPC maintains an active interest
in power-generation projects in all countries in the region. This
paper presented to the Foreign Affairs Committee draws on the
experience and knowledge of our senior management team active
in the area to provide our perspective of potential developments.
In summary, we view the potential as being enormous, the obstacles
formidable and the need for Britain to be in constructive political
and economic engagement with the countries of the region as vital.
POLITICAL OVERVIEW
Unlike other regions, Central Asia has moved
from one extreme case of central planning to a market structure.
In many cases unrealistic reform agendas have had far-reaching
political and social consequences, with too much dependence on
arm-twisting. Additionally many people who thrived under the old
regime now suffer under the new. Thus while there has been substantial
progress in some aspects of the economy, such as the energy sector,
there has been limited progress in protecting the poor.
In the immediate aftermath of the Soviet Union's
demise there was a school of thought within Whitehall arguing
that in order to demonstrate an effective presence in Central
Asia, a single Embassy sited somewhere in the Region would be
sufficient . Such a move, it was thought, for all purposes including
support to Britain's commercial interests, would have considerable
financial advantages.
However, the influx of US diplomats into the
Region spearheaded by the then Secretary of State James Baker,
caused a major rethink in Government. As a result, the newly-independent
Republics of Central Asia and the Caucasus eventually merited
British diplomatic recognition, (although two of the Republics—Kyrgyzstan
and Tajikistan—did not receive resident British Ambassadors).
The Embassy in Kazakhstan became the first-ever shared diplomatic
facility with British, German and French diplomats.
Douglas Hurd's decision to recognise the independence
of all 15 Republics of the Former Soviet Union may have stretched
the FCO's budget at the time. However the wisdom of his move is
indisputable now, when the CIS political structure is disintegrating
and it is becoming more important than ever to be able to monitor
political and commercial developments in these countries from
the local Embassies.
It is customary to talk about the Region's tremendous
resource potential. The less well publicised fact is that, according
to the Red Cross, at least half a million people across the Region
are in desperate need of help and that over 15 million are living
below the poverty line. Supporting the development of energy policies
in the region therefore has significant social implications.
Bearing in mind that Britain on its own can
do relatively little to alleviate the plight of these people in
the immediate future, this paper seeks to address how IPC views
the long term role of the FCO in promoting British interests and
relations with these countries.
POLITICAL LINKS
British interests are primarily promoted in
the region through low to medium level exchanges of politicians,
parliamentarians, military personnel, academics and students.
The activities of the Know How Fund, the British Council and the
BBC World Service are almost universally acknowledged and cited
as the "best of British" and their reputation has certainly
served to benefit British commercial interests.
A milestone in relations between Britain and
the Central Asian states was reached in November 1996, when HRH
the Prince of Wales visited Kazakstan, Kyrgyzstan and Uzbekistan.
Eyewitness accounts at the time suggest that the sheer presence
of the Prince of Wales proved to the people of Central Asia that
"Britain takes them seriously".
In October 1998, Joyce Quin, MP, as Minister
of State at the FCO, visited Central Asia and was received at
the highest level.
Anecdotal evidence reaching IPC suggests that
some British diplomats in the Region are perhaps more renowned
for their intellectual capacity than their linguistic skills or
ability to promote British business interests. But at the same
time, when it comes to questions of human rights, parliamentary
democracy, civil service or English language training, British
Embassies invariably become the first port of call and British
diplomats are seen as uncontested authorities.
To support this thesis we have noted that:
— Since the middle of January 1999
British Civil Service experts are training the Armenian Prime
Minister's staff. The programme aims to help Armenia in streamlining
the Government apparatus;
— A grant of £250,000 has been
awarded by the FCO for a project on prison reform in Eastern Europe
and Central Asia. It will be undertaken by the International Centre
for Prison Studies, King's College, London (ICPS) and Penal Reform
International (PRI). This work should complement a prison management
project already run in Kazakhstan. The need for this work is indisputable.
In February 1999, some 26 prisoners in the penal colony of the
Kazakh city of Atyrau had cut their stomachs open in protest against
the harsh and degrading conditions of the Kazakh prisons;
— In 1996, Britain and the Republic
of Georgia signed a number of defence agreements. Since then,
Georgian officers, along with officers from other CIS countries
have been able to attend training courses in Britain;
— In 1998, at the request of President
E Shevardnadze of Georgia, the FCO facilitated the delivery of
a consignment of fresh and spent Highly Enriched Uranium fuel
from a civil research reactor in Tbilisi, Georgia to Dounreay.
In view of the political instability in Georgia the need for the
fuel to be moved out of the country as soon as possible was compelling;
— The Chevening programme organised
by the FCO facilitates higher education courses for three students
from Kyrgyzstan. The British Embassy in Kyrgyzstan (operating
from Almaty, Kazakhstan) is helping to set up a British faculty
at the Bishkek University;
— In February 1999, British experts
completed the long-term training programme aimed at providing
assistance in agricultural reform, land management and tenure
in Kyrgyzstan;
— British representatives are invariably
invited as independent observers to witness the fairness of the
elections in the Region. The British are renowned for their commitment
both to impartiality and to open reporting of any irregularities
in the electoral process, which are not uncommon;
DIFFICULTIES
If some of the Embassies or their activities
are not covered in this paper, it is not intended to imply that
IPC management perceive them to have been less diligent or proactive.
The progress achieved by the countries of Central Asia and the
Caucasus on the road to democracy is very uneven and in some cases,
notably in Uzbekistan and Turkmenistan, the very presence of British
diplomats has been a major achievement for British influence.
Those visiting Uzbekistan, and especially Turkmenistan,
could be forgiven for believing little has changed in these countries
since 1991. The authorities in these countries are at pains to
paint a picture of stability and success. However, on 16 February
1999, Uzbekistan—until recently a country of visible political
stability and almost total political control—was shaken
to the core by six simultaneous bomb blasts in Tashkent. Even
before an investigation could start in earnest the Government
blamed "Muslim fundamentalists, who are directed and financed
abroad."
President Karimov's fear of foreign interference
is not unfounded. In the south, Uzbekistan is facing the Taleban
movement, controlling neighbouring Afghanistan. In the south-east,
a war-torn Tajikistan has led to a serious and growing refugee
problem in Uzbekistan; immediately to the north—a complex
relationship with Kazakhstan, based on the "eternal regional
rivalry", causes unease in Tashkent. Further north in Russia,
the inability of some Russian politicians to reconcile themselves
to the independence of the Central Asian states worries neighbouring
countries.
Inside Uzbekistan we have noted the growing
religious assertiveness of Muslim activists who are opposed to
the pro-western policies of the President Karimov's Government.
In addition, a highly flammable ethnic mix populates Uzbekistan:
Uzbeks, Tajiks, Kyrgyz, Kazakhs, Koreans and Slavs, as well as
other minorities from often opposing cultural, religious and national
identities. The economic reforms in this predominantly agricultural
cotton-growing country have barely scratched the surface. So far
there has been limited British commercial success with the principal
exception in Uzbekistan being BAT.
In gas-rich Turkmenistan, there are, as one
observer put it, "no political parties, no unhappiness, no
dissent and no inflation". All that is by Presidential Decree.
A newly built tower in Ashgabat has been topped with the gold-plated
statue of President Saparmurad Niyazov, which rotates so that
it always faces the sun. A leading dissident, Mr Durdymurad Khoja-Mukhammedov,
who tried to found an independent party was incarcerated for two
years in a psychiatric hospital. After his release, Khoja-Mukhammedov
went to the British Embassy; in his judgement that was the most
natural thing to do. The authorities though begged to differ:
as he was leaving the Embassy he was severely beaten-up by three
"innocent bystanders".
In both Uzbekistan and Turkmenistan British
diplomats operate in exceptionally difficult conditions. Moreover,
the Ambassador to Uzbekistan (Ms Barbara Hay) is "enjoying"
an extra "privilege" of being additionally accredited
as an Ambassador to Tajikistan. This particular posting to a country
torn by civil war requires tremendous personal courage, which
can only be applauded.
FIGHT AGAINST
DRUGS
Perhaps posing greater danger is the work undertaken
by British drug-control experts in the area. Although less publicised,
it is well appreciated. Bearing in mind that Central Asia has
become one of the world's main transit points for drugs which
are sold on the streets of Western Europe and Britain, the fight
against the drug industry is as important for Central Asian states
as it is for Britain. Britain is providing Uzbekistan with training
and detection equipment as well as innovative drug-destroying
technologies: in June 1998 the FCO through the UN Drug Control
Programmes funded a project aimed at destroying heroin by releasing
strains of fungi capable of killing off opium poppies. It is difficult
to overestimate the dangers of Central Asian drug trafficking:
some reports suggest that opium from Afghanistan moves through
Tajikistan, Kyrgyzstan and Russia to Western Europe at an estimated
rate of 100 kilograms per day.
ROOM FOR
IMPROVEMENTS
British diplomacy in the Region seems to be
less successful when it comes to promoting British business. There
are simply not enough diplomats with the necessary linguistic
and business skills to be effective and competitive in promoting
British trade.
That is one of the reasons why Britain is lagging
behind the United States and a number of our European partners
in increasing trade, since our competitors are more proactive
and aggressive in supporting private sector opportunities and
identifying the best local partners. The notable exception is
Azerbaijan, where BP is one of the largest investors in the Western
oil consortium and where the British Embassy and the DTI are actively
and effectively promoting British commercial interests.
It is also notable that business ethics in Central
Asia have less than solid foundations. An average British company
representative can easily find himself totally out of his depth
negotiating contracts in a part of the world where sharp practices
are often more the norm than the exception.
That applies not only to deals with private
companies since a report by the National Audit Office published
in July 1997 had qualified as "disastrous" a $6.5 million
contract between the HMSO and the Government of Uzbekistan. Reportedly,
only £210,000 was recovered from the proceeds of the deal,
which seems to have been concluded more "on the basis of
trust" rather than a solid and enforceable legal base.
British diplomacy—together with diplomats
from other Western countries—face yet another task of preventing
the countries of Central Asia from becoming "professional
beggars". Genuine economic hardships aside, all the countries
of the Region have tremendous potential for growth and self-sustenance.
Even Kyrgyzstan and Tajikistan—much less developed economically
than their neighbours—have strategic economic potential.
They are well endowed with the very precious commodity—water.
Should they adopt the right fiscal, regulatory
and legal policies, succeed in decreasing corruption levels (and
in the case of Tajikistan—quell the civil war), even the
poorest countries of the Region have every chance of becoming
powerhouses for the entire Region. Realistically however, there
is still a long way to go before that can happen.
In the meantime, the main focus of Western diplomacy
is more likely to concentrate on the oil and gas rich littoral
states of the Caspian Sea—Azerbaijan, Kazakhstan, Turkmenistan,
Iran and Russia.
THE PROSPECTS
Throughout modern history Central Asia and the
Caucasus were never far from the British foreign policy concerns.
The Anglo-Afghan War of 1878-80 was, to a large degree, caused
by the systematic Russian conquest of Turkistan, the region laying
to the south of the Kazakh steppes. The process, which began in
the 1860s, caused serious concern in London, fearful at the time
of the Russian interference in Afghanistan and its potential implications
to British rule in India.
Since then the situation has changed remarkably
little; it is as if the "Great Game" has never stopped
being played with the United States, Russia and China being the
principal players, and the significant difference being the growing
assertiveness of the local national leaders, fed by their understanding
of their countries' role as barriers on the way to Muslim fundamentalism
and Russian expansionism, as well as the desirability of their
mineral resources.
In the foreseeable future it is difficult to
see the countries of the area moving to become fully-fledged democracies.
It would be over-optimistic to expect the current leaders to adopt
the acceptable rules of power-transfer. In Azerbaijan, for instance,
they already talk about a "specific genetic code of a leader"
which makes the transfer of the Presidential power from the incumbent
Heydar Aliev to his son "logical".
In purely business terms, those of us working
in the region know only too well the extent to which high level
corruption as well as sheer incompetence hamper economic development
and Western investments in the region. In Kazakhstan, for example,
a Government Agency has been quite capable of privatising and
selling the same entity twice at the same time: recently a coal
mine in the north of the country seems to have been sold simultaneously
to a Russian state company and the American "Access Industries
Inc".
The recent global economic crisis in South-East
Asia followed by economic turmoil in Russia have demonstrated
the extent to which Central Asia and the Caucasus are susceptible
to the slightest change in the direction of the wind blowing either
from Seoul or Moscow.
Geographically this part of the world is deceptively
remote from London but its political and economic importance to
Britain is considerable and should not be underestimated.
April 1999
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