Reconnecting Afghanistan

EWI Board Member Ikram Sehgal, in an article published in The Express Tribune, discusses the need for economic resurgence in Afghanistan. Sehgal highlights EWI's recent Istanbul conference, which encouraged businesses in South and Central Asia to take necessary initiatives to unlock trade and kick-start the war-ravaged Afghan economy.

The lack of economic opportunities for the populace in Afghanistan is a major impediment to peace and stability. Without an adequate industrial base and/or agriculture infrastructure, guns-for-hire in abundance as a means to finding income is neither conducive for foreign direct investment nor for domestic entrepreneurial initiatives. That a small elite cabal with fixed mindsets returned after the fall of the Taliban to occupy seats of power in Kabul, does not help.

Economic resurgence for land-locked countries requires facilitating trade to and through their territory.  The EastWest Institute (EWI), a New York-based leading US think tank, headed by Ross Perot Junior, initiated the “Abu Dhabi Process” — a cross-border trade dialogue co-funded by Abu Dhabi and Germany — between Afghanistan and the countries on its periphery. Hosted by the EWI, the recent Istanbul conference encouraged businesses in South and Central Asia to themselves take necessary initiatives to unlock trade and kick-start the war-ravaged Afghan economy.

For the short-term, the recommended ways forward included: a) a regional business council comprising influential business leaders from Afghanistan, Pakistan, India, Iran, CARs, Turkey and Iran; b) one-window custom clearance systems by Afghanistan and improved border sources at Torghundi, Hairatan, Torkham, Chaman, Wagah and Sher Khan Bandar and other border points to reduce time and cost of crossing; c) a generous visa regime to enable businesses to move around easily (under Saarc for the short-term and the Economic Cooperation Organisation for the long-term); d) regional entrepreneurship exchange programmes to promote trade and investment opportunities.

The mid-term recommendations included: a) a unified transaction mechanism system and a regional banking framework; b) standardising the Afghan tax structure to entice business investment; and c) a free trade zone Fata. The long-term recommendations were: a) a regional infrastructure trust fund, with India, Turkey, China, Russia, Pakistan and Afghanistan as donors to invest in designing, developing and expanding transport means, such as railways; and b) the implementation of CASA-1000TAPI projects and other regional energy projects (without mention by name of the Iran-Pakistan (IP) gas pipeline). The threat of US sanctions remain, and while Pakistan has no intention of bucking that, the Iranian portion is in place at the border at two places, 70 kilometres from Gwadar and 250 kilometres to connect into the extensive Pakistani gas pipeline infrastructure, with planned connections into Fata and Swat.

Recent significant and symbolic events confirm that Ashraf Ghani is a game-changer in the context of the Pakistan-Afghanistan relationship.  To quote a recent article of mine,Throwing aside diplomatic norms, the Afghanistan’s President visited GHQ immediately after landing at Islamabad. A foreign Head of State heading straight towards a military HQ on arrival carries a lot more than ceremonial importance, the Afghan President means business because he well understands where the real power concerning national security rests. Ashraf Ghani described his discussions later with the Pakistani PM as ‘a shared vision to serve as the heart of Asia, ensuring economic integration by enhancing connectivity between South and Central Asia through energy, gas and oil pipelines becoming a reality and not remaining a dream. The narrative for the future must include the most neglected of our people to become stakeholders in a prosperous economy in stable and peaceful countries, our faiths are linked because terror knows no boundaries. We have overcome obstacles of 13 years in three days, we will not permit the past to destroy the future’.” How will the Afghan president overcome the ‘hate Pakistan’ mindset of a few Kabul diehards, some of these ingrates even born and educated in Pakistan, who must even now be conspiring to cut him down to size?

That the future would not be held hostage by the past was symbolised by the US repatriating (with Afghan consent) Latif Mehsud along with two other militant commanders from Bagram into Pakistani custody. In another one of my articles, I had said, “The capture of the senior leader of the Tehreek-e-Taliban Pakistan (TTP), Hakeemullah Mehsud’s No 2, by US Special Forces represents the ‘smoking gun’ about the Afghan regime’s sustained involvement in terrorism in Pakistan. In the company of the Afghan National Directorate of Security (NDS) agents taking their prized asset to Kabul to meet senior government officials, Latif Mehsud was simultaneously on the American ‘most wanted list’. India’s RAW is using the NDS as a proxy to sustain and support the TTP’s brutal campaign within Pakistan. To its credit, despite Karzai’s fury at the US for his capture (Daily Telegraph, October 13, 2013), this cut no ice with the US, and it signalled that as its enemy, Latif Mehsud would remain in its custody.” The act of handing over this terrorist is a confidence-building measure that will reduce the trust deficit and build on the excellent fast developing working relationship.

Realpolitik is the product of cold, calculated pragmatism based on economics. Afghanistan will make billions of dollars from system-collected royalties from the Central Asian Corridor passing through its geographical location. Without a continuous flow of gas and power, economic resurgence in Pakistan will remain moribund. The EWI’s Abu Dhabi Process emphasises that the entire region stands to gain exponentially from constructive trade and commerce engagement.

Afghanistan has finally found its man of destiny in Ghani. How long before a leader in Pakistan rises above selfishness and greed for the sake of the country? 

Food-Water-Energy Nexus Event Focuses on the Amu Darya River Basin

A Milestone Meeting in Istanbul

In “Triggering Cooperation across the Water-Energy-Food Nexus in Central Asia,” a first-of-its-kind meeting, 50 experts from the public and private sectors gathered in Istanbul on July 15-17, 2014. Participants exchanged best-practice ideas and collaboratively developed potential solutions appropriate for the Amu Darya River Basin, the largest river in Central Asia and part of the Aral Sea basin linking Tajikistan, Kyrgyzstan, Afghanistan, Turkmenistan and Uzbekistan.

The EastWest Institute (EWI) in partnership with the International Union for Conservation of Nature (IUCN) and the International Water Association (IWA) convened the event. It is a component of the Nexus Dialogues for Water Infrastructure Solutions, a global platform and call to action to those leading transformations in water infrastructure planning, financing and operation. “To make optimal use of increasingly scarce natural resources and avert conflict over them, cooperation must be strengthened not only across geographical boundaries but also across policy silos,” said Michele Ferenz, director of EWI’s Food-Water-Energy Nexus Program. “Convening stakeholders who don’t normally speak to each other to address sensitive issues is what EWI excels in,” she added.  

The Amu Darya is a key lifeline for the peoples and economies of Central Asia, as well as a conflict flashpoint. Many of today’s challenges originate in the break-up of the former Soviet Union and its unified planning system. Particularly problematic are persistent winter energy shortages in upstream areas and crumbling irrigation infrastructure regionally, resulting in possibly the lowest water use efficiency in the world. The dramatic shrinking of the Aral Sea, in the lower reaches of the Amu Darya, has long stood as a symbol of the global ecological crisis. 

At the same time, sustainably leveraging the region’s rich natural resource base is crucial to the economic and social renewal of the States of Central Asia and Afghanistan. The core workshop objective, therefore, was the identification of pragmatic steps in this direction, building on existing institutional frameworks as well as global best practice. 

Considerations of financing and market development were prominent in the discussion. Gary Lawrence, chief sustainability officer of AECOM noted that “the river is probably the most important economic asset in this entire region, and we don’t treat it as an asset. We treat it as a resource that has no value assigned to it.”

Indeed, mechanisms for payment of ecosystem services across users in the basin emerged as a concrete solution. Other proposals addressed regional information exchange among riparians, capacity building, developing training centers to improve irrigation techniques and promoting regional economic integration. 

Commenting on the future of the nexus in Central Asia, Iskandar Abdullaev, executive director of the Central Asian Regional Environmental Center (CAREC) said, “The nexus is still in early stages in the region. It is time to develop dynamic and concise, local level, solution oriented tools and instruments for the food-water-energy nexus.” 


Chinese Highway to Energy Heaven

Ikram Sehgal discusses Chinese-Pakistani trade relations in The Express Tribune.

Ikram Sehgal is an EWI board member, chairman of the Pathfinder Group and served many years in Pakistan's army. Writing for The Express Tribune, Mr. Sehgal disucsses the effects of Chinesse investment within Pakistan's energy sector.

Read the full article here.

Triggering Cooperation Across the Water-Energy-Food Nexus in Central Asia


The EastWest Institute is proud to partner with the International Water Association (IWA) as well as the International Union for the Conservation of Nature (IUCN) to engage in discussion about the current dilemmas in the Amu Darya Basin region. This three-day workshop will take place at the DoubleTree by Hilton Istanbul-Moda in Istanbul, Turkey, and will run from July 15-17, 2014.  

Mining Laws Passed

Afghanistan's new mining laws will set the stage for vital, regional economic growth. 

After two years of protracted deliberations in parliament, the Lower House (“Wolesi Jirga”) has finally adopted a series of new mining laws to provide a stronger legal framework for investment in Afghanistan’s mining sector. Among other provisions, the law enables corporate businesses, already investing in the exploration of Afghanistan’s natural resources, to bid for extraction. A subsequent addendum to the legislation requires 5 percent of mining revenues to be allocated for development projects in mining areas.  

The EastWest Institute welcomes the adoption of these laws as a significant achievement. The new legislation could not come at a more critical time—just a few weeks before the second round of presidential elections—as Afghanistan  prepares for a historical political transition, with potential consequences to regional security. In this time of uncertainty, EWI is about to release a new report, Afghanistan Reconnected: Regional Economic Security Beyond 2014—focusing on the country’s regional economic potential. This work has engaged leading private sector leaders, parliamentarians and governmental officials from Asia and beyond. EWI plans to launch the report officially on June 11, 2014, at the institute’s Brussels Center.

Ramazan Jumazada, MP from Afghanistan and member of EWI’s Parliamentarians Network for Conflict Prevention, says: “We do believe this will have a very significant impact on attracting domestic and foreign investment in Afghanistan. The mining sector is a very good alternative for Afghanistan’s sustainability and will help Afghanistan to reduce its dependency on foreign aid.”

The mining sector is Afghanistan’s largest medium and long term economic asset. Official sources have estimated $1 trillion in proven mineral resources and the potential for an additional $3 trillion. 

With the withdrawal of most foreign troops by the end of 2014 and the reduction of foreign aid, Afghanistan’s economy will have to become more self-sustaining and generate sufficient state revenue. To ensure this transition, Afghanistan must increase domestic and foreign investment in key industries, such as the mining sector. Developing Afghanistan’s mineral resources—including copper, iron ore, gold, oil and natural gas—will increase the potential for prosperity and economic growth. 

Why the Ukraine Crisis is a Political Earthquake and not an Energy Quake

EWI’s Danila Bochkarev busts some prevailing myths.

There is a common feeling that the ongoing Ukraine political crisis could negatively impact European energy supplies, and therefore worsen the post-2008 European economic malaise.

This is somehow a false perception based on misinterpretations of recent trends in European energy markets, and is leading to miscalculations of existing and potential risks. Ukraine certainly plays a central role in transiting Russian natural gas to Europe. In 2013, 86.1 billion cubic meters (bcm) or 52 percent of Russian gas sold to Europe and Turkey went through Ukraine’s territory. Kiev is also an important client of Gazprom, purchasing significant volumes of Russian gas. In 2013, the country has bought 27.7 billion cubic meters (bcm) of gas. The issue of gas pricing and debt to Russia’s Gazprom has complicated bilateral energy relations between the two countries. This friction began years before the current political crisis. In 2009, there was a two-week long interruption of Russian gas supplies, preceded by another supply crisis in 2006. Tensions amidst the current political crisis and the inability of Ukraine’s national gas company Naftogaz to pay its bill could indeed potentially lead to a temporary full-scale interruption of gas supplies. But this is unlikely due to the complexity of economic links between Russia and Ukraine.

The likelihood of a European gas crisis from supply cuts is also low, and if it were to happen, it would be short-lived. Any cuts would not significantly impact Europe’s security of supply and economic growth. There are two myths to dispel regarding Europe’s economic vulnerability.

Myth 1: Europe is critically dependent on Russian gas.

ExxonMobil’s Outlook for Energy 2014 estimates that Europe’s gas imports from outside of the European Economic Area (EU plus Norway) will rise to 60 percent of Europe’s entire gas consumption. European countries will need to look for new pipeline and liquefied natural gas (LNG) supplies elsewhere in the world to satisfy its energy hunger.

LNG alone might be too expensive to cover the supply gap and the EU Member States will have to look for additional pipeline imports from the Caspian and Russia. On one hand, one might think that this trend will increase dependence on Gazprom’s supplies. Indeed, last year Gazprom managed to improve its position by cutting prices. The company set a new record by selling 162.7 bcm of gas to Europe and Turkey, thus raising its market share to 30 percent. This represented a 16 percent year-on-year increase in Gazprom’s sales outside the FSU. 

On the other hand, European buyers preferred Gazprom’s gas to non-Russian suppliers for price reasons only, not due to a lack of alternative supplies. Many buyers benefited from the price reduction and increased the share of Gazprom’s gas in their supply portfolios. The Gazprom price was 20-30 percent lower than the average LNG import price. LNG capacity built to contribute to EU’s energy security and to reduce dependence on Russian gas therefore stayed idle. Its utilization was also very low—well below 30 percent. In 2013, Europe had the lowest level of LNG imports since 2004—European countries imported only 46.5 bcm of liquefied gas, well below the record set in 2011 - 88 bcm of LNG imports. These dynamics prove the relativity of Europe’s dependence on Russian gas.

Myth 2: Ukraine transit is vital for Europe’s security of natural gas supplies.

While a significant portion of Russian gas supplies to Europe are still transported via Ukraine’s pipeline system, the importance of this transit route has significantly decreased in the past decade. This trend is likely to continue in the years to come as alternative pipelines have come on stream. 

The share of Russian gas supplies to Europe transiting via Ukraine already decreased from 95 percent in 2008 to 52 percent in 2013, mostly due to the construction of new direct pipelines such as the Blue Stream to Turkey, Nord Stream to Germany and Yamal–Europe to Poland and Germany. One of the routes, Nord Stream, is still half empty, mostly due to unresolved regulatory issues between Brussels and Moscow. The full utilization of direct pipelines might further reduce the share of Russian gas transiting via Ukraine to 35 percent of Gazprom’s sales in Europe and Turkey.

Furthermore, the construction of interconnectors in the European Union allowed connecting “energy islands,” such as the Czech Republic, which exclusively depended on Russian gas, to the alternative gas supplies. This process is one of the key priorities of EU’s energy policy, and is expected to be completed within the next three-to-five years, so buyers will have the ability to choose from a large variety of supplies. New interconnectors will also allow customers to access Gazprom’s gas from alternative pipelines, avoiding Ukraine’s territory.

Last but not least: European energy companies also have enough gas in underground storage to survive a total interruption of supplies via Ukraine’s territory for at least a month.

There is also a commonly held belief that energy supply issues will worsen Russia-Ukraine relations. In fact, economic interdependence is more likely to contribute to conflict reduction.

Myth 3: Russia-Ukraine economic relations will be hostage to political turmoil.

Economics might indeed become hostage to political tensions. However, while political links between Moscow and Kiev are virtually nonexistent, business contacts continue even though they are not always smooth. Nagtogaz’s CEO Andrey Kobolev is in regular contact with Gazprom’s CEO Alexei Miller. Both managers recently met in Moscow. 

Despite the non-payment issue, Ukraine keeps receiving Russian gas. For numerous reasons, including internal non-payment issues and a (relatively) high price level set by Gazprom, Naftogaz accumulated substantial debt to Gazprom. The price discount agreed in December 2013—$268.5 per 1000 cubic meters or roughly 70 percent of EU average price—was conditioned, on timely payments of Ukraine’s gas bills. The lack of progress in repayment of Ukraine’s debt (currently $2.2 billion) gave Gazprom a formal pretext to cancel the discount beginning April 1, 2014. Nagtogaz is struggling to pay its bills at the discounted price and is currently unable to pay Gazprom. 

This has not lead to a cut in gas. As requested by the Ukrainians, from April 1 through April 12, Naftogaz received 0.81 bcm of Gazprom’s gas. This shows that even serious tactical disagreements between the two companies did not impact the economic relationship. Indeed, long-term commercial interests are more important than temporary disagreements. 

Economic interdependence has the potential to help Russia and Ukraine overcome political disagreements. Ongoing industrial cooperation in aeronautics, machinery and civil nuclear areas are key examples. “Fixing” the economy, urgently necessary for both Russia and Ukraine, will help to “fix” politics and promote more stable and prosperous societies. 


Read an abridged version of the article on The Moscow Times

Read an abridged version of the article on Natural Gas Europe

Read an abridged version of the article on EurActiv


Photo credit: World Bank Photo Collection/Flickr 

Afghanistan Reconnected: Linking Energy Supplies to Consumers in Asia

In Afghanistan Reconnected: Linking Energy Supplies to Consumers in Asia, EWI Fellow Danila Bochkarev proposes that a trans-Afghan “energy bridge” could ease the transition by bringing new investment and trading opportunities to Afghanistan.

Afghanistan’s social and political development is at a critical juncture—as NATO troops withdraw this year and elections are to occur next month. In Afghanistan Reconnected: Linking Energy Supplies to Consumers in Asia, EWI Fellow Danila Bochkarev proposes that a trans-Afghan “energy bridge” could ease the transition by bringing new investment and trading opportunities to Afghanistan.

Investing in connecting the rapidly industrialized-South Asia with the resource-rich Central Asia will raise Afghanistan’s living standards across the board, Bochkarev argues. Local and regional businesses will grow and new revenues will be generated. The energy-bridge approach will reconnect Afghanistan with its neighbors and help Kabul promote joint undertakings, including interconnections with Central Asia’s electricity grids and power generation projects. 

“Examples demonstrate that the benefits of the cross-border cooperation may outweigh political disagreements and intra-state disputes, especially if there is sufficient political will and a readily available framework for cooperation,” Bochkarev explained. “In recent years, energy cooperation in various conflict environments helped secure vibrant trade relations and significantly reduced existing tensions. This was the case in the Barents Sea region, the South Caucasus and in relations between Turkey and Iraqi Kurdistan.”

Afghanistan Reconnected illustrates how this energy infrastructure would strengthen economic, political and social ties between Central Asia and South Asia and contribute to a more stable Afghanistan for years to come.

Click here for the full report: Afghanistan Reconnected 


Read an opinion piece on the report, on The Hill's Congress Blog.  


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