N24 - January 17 2008 CO N T E N T S

P. 1 GEORGIA c An Uncertain Climate des-

Published every two weeks / International Edition

GEORGIA c An Uncertain Climate despite Saakashvilis Re-election

Mikheil Saakashvilis re-election as president of Georgia is a fragile victory in two ways. The first is that with 53.47% of the vote, the outgoing President has won a very narrow victory, which is likely to weaken him politically. The second reason is that the opposition is contesting the results and calling for a second round of election, undermining the Presidents legitimacy to a certain extent. The opposition believes that if it were not for fraud, Saakashvili would not have obtained 50% of the vote, and that he should therefore go into a runoff against Levan Gachechiladze, who came in second with 25.26% of the vote. The opposition has toughened its stance, rejecting the conclusion of the OSCE and the international communitys observer mission that any irregularities that did take place did not warrant calling into question the results of vote. On Sunday, January 13, the eve of the Orthodox New Year, at least 30,000 people gathered in Tbilisi in freezing cold weather under the banner of the united opposition. Yet the uncompromising attitude of the coalition, represented by Gachechiladze, spurred on by the Republican Partys Tinatin Khidasheli amongst others, could turn out to be disastrous. The coalition has little chance of making headway in its demand for a second round, especially since it will not continue to enjoy popular support. Why has it adopted such a hard-line attitude? Levan Gachechiladze met Mikheil Saakashvili on two occasions in the past days and not just once as he claims. Are negotiations taking place between the President and his main opponent? Most likely so, but the oppositions aim is probably to obtain guarantees for the parliamentary election due to be held at the end of April or in May. There is no doubt that the authorities have done everything to keep control of the electoral commission, especially by appointing Levan Tarkhnishvili to head the Central Election Commission. The parliamentary election involves considerable risk for President Saakashvili. His party, the National Movement, is so unpopular that it has no chance of winning. The antipathy is so great that Micha had to ban the partys main representatives from public broadcasts in order not to damage his campaign. Thus, parliamentarians Giga Bokeria and Maya Nadiradze were not to be seen on television screens in recent weeks. A defeat in the legislative election could usher in a political crisis, since the parliament has the power to ratify government nominees and approve the budget. It is because of the National Movements highly negative image that Mikheil Saakashvili vowed to change his staff and his politics, and to focus on social policies in particular. This explains the nomination, on November 16, of Lado Gurgenidze to the post of Prime Minister. Gurguenidze has been Chairman of the Supervisory Board of the Bank of Georgia since May 2006. He comes across as someone fresh and new, without any ties to political intrigue, and is a good enough economist to help Georgians finally feel the benefits of the 2003 Rose Revolution. But sidelining part of his inner circle could turn out to be dangerous for Mikheil Saakashvili. It is time to find acceptable roles for those strong figures greatly disliked by the general population such as the deputy Giga Bokeria, the Presidents eminence grise, Economy Minister Guiorgi Arveladze, and Kakha Bendukidze, State Minister for Coordinating Reforms. The task is all the trickier as rivalries have formed between various groups close to the President. Those enjoying popularity right now include the Mayor of Tbilisi, Guigui Ugulava and Interior Minister Vano Merabishvili who is poised to become the countrys strongman. When it comes to the media, the two have free reign of the countrys two most powerful channels, Mze and Rustavi 2, belonging to David Bezhuashvili, brother of the current Foreign Minister Guela Bezhuashvili. Politically they are backed by National Movement head David Kirkitadze, and David Bakradze, Minister for Conflict Resolution, who, according to rumors, is set to become Foreign Minster. On the other hand, Giga Bokeria, the regimes ideologist and, for a long time, the most influential man on Saakashvilis side, is losing ground. His staff members are losing popularity along with him, in particular Levan Tarkhnishvili, and Tamara Kints Urashvili, head of the State television First Channel, as are figures belonging to Georgian NGOs such as David Darchiashvili of d d d Continue page 4

pite Saakashvilis Re-election

P. 2

UZBEKISTAN cIslam Karimovs balancing game KYRGYZSTAN cA Russian Head of Government

P. 3 TAJIKISTAN cA Monopoly of the Emomali

Rakhmon Family? ALERTS cKashagan: End of the Crisis cThe Mystery Surrounding Turkmenistans Real Reserves
P. 4

CHINA

cXinjiang, crossroads of trade

with Central Asia

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UZBEKISTAN c Islam Karimovs

balancing game
election. Amongst the main nominations, one of the most important is that of Rustam Azimov to the post of Deputy Prime Minister, Minister of Finance and Coordinator of Economic Policy and External Economic Relations. Azimov is one of the few Uzbek oligarchs to have succeeded in entering high-level civil service. He is director of Buyuk Ipak Yoli, one of the countrys most important banks. From 1991 to 1998 he was head of the National Bank of External Economic Relations. Through this post he established many relations in the West and built a large personal fortune, which provides him with the leverage he needs vis--vis the government to insure that he gets ahead. He was appointed Finance Minister for the first time in 1998. In 2005 he was promoted to the post of First Deputy Prime Minister and appointed head of the new Ministry of External Economic Relations, Investment and Trade. But Rustam Azimovs rise was brought to a halt after the events in Andizhan in May 2005. Indeed, he is considered to be the most important of the western figureheads within the Uzbek regime, favoring more free market economic reforms. He heads the Council for Encouraging and Developing Small and Medium Sized Companies and represents Uzbekistan within the EBRD. He has always been in favor of negotiations with western partners and with international institutions and has little regard for Islam Karimovs current attempts to court Russia. His return therefore to one of the highest positions in the country is a barometer of the Uzbek governments westernization. Aware of the countrys economic and diplomatic difficulties, Karimov appears to be in favor of a partial resumption of relations with the European Union and the United States in order to weaken Russias presence, and he is under pressure by local economic circles. It is probably for good reason that his candidacy was put forward by the Liberal Democratic Party of Uzbekistan, which has direct links with the business sector, and not by the highly official Peoples Democratic Party. However, the ruling circles incapacity to handle the issue of the presidents succession undermines, for the time being, any attempt at getting the country out of its impasse..d

While the ruling party in Kyrgyzstan only just managed to establish something of a verticality of power (CACI n23), Uzbekistan gave proof of its total control over the electoral system. Indeed, on December 23, 2007, Islam Karimov was re-elected for a third presidential mandate with 88% of the vote. The other candidates, Asliddin Rustamov of the Peoples Democratic Party, Diloram Tashmukhamedov of the Social Democratic Party and Akmal Saidov, the independent candidate, garnered only 3% of the vote each. After being elected in 1991 and in 2000, and extending his term on two occasions, Islam Karimov had no trouble defying the constitutional ban on a third mandate. Although falsified, the election results provide some information regarding the balance of powers within the ruling circles. Of the six declared candidates (two of whom did not run in the end), three are natives of Tashkent and three of Samarkand, a fact that confirms the division of power between these two regional clans. It also attests to the total political marginalization of the third clan, the one from Ferghana, despite the fact that half of the Uzbek population lives in the valley and the region is considered the nations hot spot and is vulnerable to all attempts at destabilization. Ever since the events in Andizhan in 2005, the discrepancy in the power of the clans has continued to grow to the advantage of the Tashkent clan, led by SNB chief Rustam Inoyatov, who has a grip on all the power ministries. The prospect of Dimitry Medvedev being elected Russian president plays in its favor since Gulnara Karimova and her mentor, Alisher Usmanov, both linked to the Tashkent clan, enjoy good relations with the assumed successor to Vladimir Putin. Yet although the pro-Russian lobby dominates today via the Tashkent clan, Islam Karimov is, as always, relying on a balance of power and is trying to play several cards at once. For example, he reconfirmed Prime Minister Shavkat Mirzieev in his post, which he has occupied since 2003. With the backing of Presidential Administration Chief, Zelimkhan Khaydarov, Mirzieev set himself up, ever since Zorkirzhon Almatov was ousted, as the new leader of the Samarkand clan. Meanwhile, in early January the President embarked on a staff reshuffle a traditional occurrence after each

KYRGYZSTAN c A Russian Head

of Government
There are several reasons behind his nomination. Bakiev appears decided on overcoming the instability in Kyrgyzstan that has been chronic since 2005 by stressing economic development - the countrys greatest problem. Igor Chudinov has indicated that he intends to develop the agricultural sector, to reduce exports of crude ore in favor of attempting to process the ore locally, and to reinforce the gold sector, which represents the countrys main source of currency. Moreover, appointing a Russian allows Bakiev to obtain Russian approval after the pro-Russian party, Sodruzhestvo was disbanded and swallowed up by Ak Jol. It also allows him to consolidate his countrys partnership with Moscow, which is supposed to invest two billion dollars in the Kyrgyz economy, as Vladimir Putin mentioned in August 2007. Chudinov is also known for his close ties with the former deputy director of the National Security Services, General Boris Poluetkov, who has his own network within Russias FSB. Last but not least, Chudinovs good understanding of the gas issue makes him the most suited to conduct thorny negotiations with Uzbekistan concerning the supply of gas, the price of which is to rise by nearly 40% in 2008. d January 17 2008

Kyrgyz President Kurmanbek Bakiev can rejoice following the early elections of December 16. Not only did his party, Ak Jol, win the election, obtaining more than two thirds of the seats in parliament, but he was also able to appoint a relatively unknown technocrat, Igor Chudinov, to the post of Prime Minister the sixteenth Kyrgyz Prime Minister in 17 years of independence. The Russianborn Chudinov does not speak Kyrgyz. He is therefore not eligible to run for president against the outgoing head of state. Bakiev made no secret of the highly political motives behind his choice of prime minister, saying he was tired of prime ministers who engage in politics. Chudinov does not belong to any clan, either from the north or the south, since he is not Kyrgyz, and considers himself to be one of the Presidents faithful lieutenants. After having held high-ranking positions in the Komsomol during the Soviet era, Chudinov went into business in the early 1990s and remained an obscure businessman until the Tulip Revolution of March 2005, when he was suddenly appointed Minister for Industry and Trade and was made head of the national gas company, KyrgyzGaz Central Asia & Caspian Intelligence N24

CENTRAL ASIA & CASPIAN INTELLIGENCE

TAJIKISTAN c A Monopoly

of the Emomali Rakhmon Family?

when they ousted Gaffor Mirzoev, one of the great heroes of the civil war, former commander of the Presidential Guard and former director of the agency in charge of fighting drug trafficking. Accused of an attempted coup detat in 2004, he was sentenced to life in prison and replaced by another faithful ally of the president, Radjabali Rakhmonaliev. d

As in all Central Asian nations, members of the Presidents family in Tajikistan control, to a large extent, the economy and politics of the country. Important positions are doled out by President Emomali Rakhmon almost exclusively to those who come from his home region of Khatlon, in the south of the country, or, better yet, to those from his native village of Dangara. Many of his cousins, nephews or more remote family members head strategic ministries, security bodies, customs and the tax department. The Presidents particularly large family (nine children, seven of whom are girls) share control of the country. One of the Presidents daughters, Ozoda, controls the Tajikistan Development Bank. She was appointed director of the Foreign Ministrys consular section and lived for a long time in Washington, where she and her husband managed the Familys US bank accounts. Another daughter, Firuza, controls a network of stores in Dushanbe, while a third daughter, Takhmina, commands the largest supermarket in the capital. Marrying one of the Presidents daughters is a guarantee of success. The father of one of the presidents sons-in-law heads the company that manages the State real estate property. A second heads the National Fruit and Vegetable Company, while the uncle of a third heads the National Railway Company. Meanwhile the Presidents uncle, Zaid Saidov is Minister of Industry, while Rakhmons eldest brother, Nuriddin, appointed domestic policy advisor, is known to distribute positions within the entire region of Khatlon. Nuriddin is, however, engaged in an open conflict with the Presidents brother-in-law, Khasan Sadulloev, the most important oligarch in the country, considered to be the main banker and investor for the Presidents family members. Barely 40 years old, he controls dozens of factories, public works companies, as well as the Soyuz company, which is in charge of distributing alcohol and luxury tobacco throughout the entire country. In 2001 he took over as director of the Tajikistan ore exchange and of Orient Bank, the countrys leading bank, of which he controls 60% of the shares. In accordance with a presidential decree, the bank handles the accounts of all the nations large companies such as the Tajik railway company, the state airline company Tajik Airs, the national electricity company Barki Tojik and the TadAz aluminium company, as well as foreign investment funds and the funding for external trade projects. He also heads an offshore company CDH the exclusive exporter of TadAz production - an enterprise that brings in about $200 million annually. The Presidents family is said to own goods estimated at over $500 million, the equivalent of the State budget, and, according to several sources, seems to be implicated in drug trafficking. Everything acquired illegally is reinvested in legal businesses, which explains the Presidents decision in 2003 to proclaim a capital amnesty and his call in 2006 for an amnesty on real estate and property. The Presidents relatives did not obtain their monopoly without encountering resistance from members of the regional elite, from former warlords and from those close to the president who were ousted by the family. Indeed Sadulloev was forced to distance Dushanbe mayor and upper house speaker of parliament Makhmadsaid Ubaydulloev from the President in order to take control of the capital and did the same with Khakim Soliev, Minister of Trade and External Economic Relations, and with National Bank head M. Alimardonov. Several close associates of the President were arrested: Yakub Salimov, who backed Rakhmons accession to power in the 1990s, Samsuddin Shamsiddinov, one of the main figures of the Islamic Renaissance Party and the oligarch Dzhamched Sieev, who conducted fruitful business with the daughters and sonsin-law of the President but made the mistake of signalling his presidential ambitions. The Family also took control of the power structures Central Asia & Caspian Intelligence N24

ALERTS 3 Kashagan: End of the Crisis

The conflict over the conditions for developing the Kashagan offshore field is over. The Kazakh authorities and the Agip KCO consortium signed a final agreement on January 14. As a reminder, under pressure from Astana, the projects operator, Italys ENI, began negotiations with its partners Total, Royal Dutch Shell, ConocoPhillips, Inpex and ExxonMobil. In the end Kazakhstan succeeded in increasing KazMunaiGazs stake in the project from 8.33% to 16.8% in exchange for $1.8 billion. ExxonMobil was the only one to lay down conditions, with the hopes of replacing ENI as the projects main operator. During the World Energy Congress, held in November in Rome, Samuel Bodman, US Secretary for Energy, went so far as to promise Sauat Mynbaev, the Kazakh Minister for Energy and Mineral Resources, technological and financial aid from the United States if ExxonMobil was chosen. If Astana had agreed to the change, US companies (ExxonMobil and Tengizchevroil) would have controlled 70% of Kazakhstans oil production. But ExxonMobil finally agreed to the Kazakh request although it has not yet decided on the price of its shares, whereas the other partners have already negotiated theirs. Moreover, the consortium is to pay Kazakhstan between $2 billion and $4 billion to compensate for the delay in getting the development project underway (it is set for the second half of 2010). d

3 The Mystery Surrounding Turkmenistans Real Reserves

President Gurbanguly Berdymukhammedov appears intent on continuing with the policy of his predecessor when it comes to Turkmenistans repeated refusal to accept independent audits of its gas and oil reserves. Thus, despite a 2002 bilateral economic agreement with China, Chinese companies that intended to conduct studies of the countrys resources where forbidden access to the fields and had to make do with official figures provided by the Ministry for Oil and Gas Industry. Although the president has repeatedly mentioned the need to call on foreign investors, Turkmenistan cannot resign itself to ending its isolationist policy in this domain. This has led to an intensification of rumors that it is overestimating the total amount of its resources. As a result, Beijing confirmed that it will refuse to invest large sums on unknown fields and is limiting itself to those on the right bank of the Amu Daria, which were studied during the Soviet era. But not all of Ashgabats partners are so badly off. The Arab-British company, Dragon Oil, announced in late December a 50% increase in production compared to 2006: it extracted 1.5 million tons of oil in 2007 thanks to a1999 production sharing agreement on the Chekelen peninsula (the Djeitan and Djigalybek fields). d

January 17 2008

CENTRAL ASIA & CASPIAN INTELLIGENCE

CHINA c Xinjiang,

crossroads of trade with Central Asia

of Almaty, has quickly become the main transit post, responsible for 50% of all trade between Kazakhstan and China and 90% of the border trade. Apart from the Sino-Kazakh pipeline, there is an important railway trade (16 million tons in 2007) linking the port of Lianyungang on the eastern side of China to Lanzhou, Urumqi and on to Russia and Western Europe. This line will soon have a transport capacity of 40 million tons per year. It is financed by Hong Kong companies interested in the prospect of a land connection with Europe. While Dostyk dominates in rail transportation, Khorgos has become the main Sino-Kazakh road transit point. In 2006, trade here reached over one billion dollars, a 35% increase over the previous year. Once the Shihezi-Yining-Khorgos route is restored, the distance between Urumqi and Almaty will be reduced by 200 km, which will increase the routes profitability. Khorgos is the foremost free trade zone in Xinjiang: over 200 firms specializing in new technology and manufactured goods have set up on the Chinese side. A new railway line linking Urumqi to Almaty via Khorgos is to start operating in 2009. The Uighurs were ousted from these trade ties as of the second half of the 1990s. Today, the Sino-Central Asian market is controlled by the Hans from the maritime provinces. Many come from Zhejiang, in particular from the city of Wenzhu, which is considered to be one of the leading centers of Chinese entrepreneurship. Over 80,000 tradesmen from Whenzhu are said to be in Xinjiang mainly in Kashgar, and half of them are believed to do business with Central Asia. Thus, since the boom in Sino-Central Asian ties, China has become a leading trading partner for Central Asia, second in importance after Russia and far ahead of Iran and Turkey. If one takes into account the large-scale cross-border trade and contraband, the volume of trade between the three border nations (Kazakhstan, Kyrgyzstan and Tajikistan) with China is already higher than trade with Russia, confirming the general reorientation of Central Asian companies towards Beijing. d

Trade between China and Central Asia tripled between 2002 and 2005 and continues to grow rapidly. China today accounts for nearly 40% of Kyrgyzstans foreign trade and 20% of Kazakhstans. China announced over $13 million in trade for 2006 official statistics that scarcely take into account the reality of small-time border trade and takes no account of contraband networks. Sino-Central Asian trade is based mainly on trade between China and Kazakhstan (50%-70% of the total), and more precisely, trade between Kazakhstan and Xinjiang. Astana is Chinas second most important CIS partner after Moscow and the leading partner of Xinjiang for the past several years. Xinjiang is set to become the rising economic power in the greater Central Asian region, with a GNP four times higher than that of all five Central Asian nations combined. This dynamism is largely the result of the Great West development plan launched by Beijing in 2000. The regional capital of Urumqi is still one of the main passage points between Central Asia and China although the growing importance of Kashgar is becoming increasingly clear. This is due to Kashgars proximity to the Torugart Pass, which leads to Kyrgyzstan and the Karakorum Highway, revitalized in Chinas relations with Pakistan. In order to counter the geographic isolation of the border posts, which are all located in isolated mountainous areas, China opened several free trade zones. Xinjiang has about twenty of these which host industrial exhibition parks, such as the one in Urumqi (3,000 square meters of exhibition space). There is also one in the city of Yining and in the small railway town of Kuytun. The Chinese government also granted special status to the city of Shihezi, located 150 km from Urumqi, which serves as a crossroads for both the Xinjiang-Central Asia route and the Urumqi-Almaty railway. Customs formalities have been eased for those living on the border allowing people going to the free trade zones for the day to cross over without a visa. Most of the trade between Kazakhstan and Xinjiang passes through two border posts. Dostyk-Alatau, located in the region

d d d From page 1 the Soros Foundation, Levan Ramishvili of the Liberty Institute and Ghia Nodia of the Caucasian Institute for Peace, Democracy and Development. Guiorgui Arveladzes staff, of which Kakha Bendukidze is the most eminent representative, is also losing influence.

If Badri Patarkatsishvili were to come back into the Georgian fray, it would complicate the struggle for influence going on around the President. But such a possibility is not to be ruled out, despite appearances. Rumor has it in Tbilisi that the oligarch and former associate of Boris Berezovski in the Russia of the 1990s is in dis-

cussion with Saakashvili via enterprising businessmen in Georgia. Last autumns events prove that the Georgian leadership is frightened of the shadowy billionaire who was determined to bring down Sakaashvili. This explains the usefully exaggerated accusations against Patarkatsishvili that he was planning a coup detat. Meanwhile, another Georgian oligarch, the very discreet Bidzina Ivanishvili who has a strong dislike for Patarkatsishvili was willing to help finance the outgoing presidents campaign in the hopes of ensuring his victory, or at least frustrating the plans of Berezovskis former right hand man. d

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