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India and Kazakhstan: New Ways Ahead

Zakir Hussain is Research Assistant at the Institute for Defence Studies and Analyses, New Delhi.
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  • February 18, 2009

    The fourth consecutive visit of President Nursultan Nazarbayev culminated in his being the chief guest at India’s 60th Republic Day parade. This shows the increasing importance India attaches to its strategic ties with Kazakhstan, a fact that has also been acknowledged by President Nazarbayev. In fact, the custom of inviting a head of state, particularly on such an occasion, is an effort to showcase two facets of India. One, to provide a glimpse to the chief guest of vast opportunities that exists in Federal India. And second, to demonstrate its military capability and strategic attractiveness as a partner.

    During this visit, Kazakhstan and India signed five important agreements/MoUs, including cooperation in civil nuclear energy, space research, hydrocarbons and legislation covering an extradition treaty and a protocol on accession of Kazakhstan to the WTO. Besides, the visiting president also expressed his serious commitment to fight against the scourge of global and regional terrorism and religious extremism. India finds Kazakhstan significant for three main reasons – its strategic location, its vast energy and mineral resources, and its secular and composite social structure.

    Energy

    India attaches immense importance to Kazakhstan in the field of energy security. After Russia, Kazakhstan is the only country which is endowed to help meet India’s energy security. This includes nuclear fuel and hydrocarbons. It has huge reserves of uranium as well as oil and gas. Kazakhstan has the second largest deposits of uranium at 1.5 million tons, constituting approximately 17 per cent of the world total. It is poised to emerge as the number one supplier of uranium in the world. Astana is planning to add Uranium output capacity from the current 6,673 metric tons Uranium (MTU) to 30,000 tons MTU by the end of 2018. In 2008 the President of KazatomProm, the nodal national atomic company set up in 1997, announced that it aims to increase the share of Uranium supply from the present 12 per cent to 30 per cent of total world uranium output by 2015. This will be done through joint ventures with the following prospective shares in various segments: 12 per cent of uranium conversion market, 6 per cent of enrichment, and 30 per cent of the fuel fabrication market.

    The nuclear agreement signed with Kazakhstan makes it the fourth country besides the US, France, and Russia that would supply uranium to India for civilian energy purposes. Under the proposed agreement the NPCIL (Nuclear Power Corporation of India) will begin to import at least 120 tonnes annually of Kazakhstan’s uranium. The Kazakh news agency (Kazinform) adds that the “NPCIL is not putting all its eggs in the Kazakhstan basket, having recently signed agreements with France’s public Industrial AREVA and the Russian firm to import Uranium.” The Russian firm, TEVL, has also signed two agreements to supply India 2000 metric million tonnes of Uranium at a cost of $700 million. Given the growing needs of electricity in the country, the NPCIL plans to meet 20 to 25 per cent of the country’s total electricity requirements. To achieve that the NPCIL is expected to increase its capacity from the present 4120 mw to 22,000 mw in the next five years. To obtain this target, chairman and managing director of NPCIL S. K. Jain expects to import 10 additional reactors with a capacity of 1,000 mw each.

    It is significant here to underline that although the agreement signed with Kazakhstan assures long term uranium supply, the pricing policy should be carefully addressed. In recent years, uranium prices like that of oil have also suffered from erratic market fluctuations. During late 2000 to May 2008, spot prices of uranium fluctuated by 1840 per cent, from $7 a pound to $136 and currently hovers around $74. By looking at the expected growth in nuclear reactors all over the world, it is widely believed that the current uranium prices would neither be at the current level nor stable. According to Fortune magazine (March 27, 2008), “…worldwide, 34 new reactors are under construction, and 280 are being planned or proposed. That has raised questions about whether uranium producers can find enough of the element to fuel this long-term growth. In 2006 producers met only 62 per cent of demand.” The main reasons for this fluctuation in uranium prices are the rush for clean energy as well as to diversify the sources of energy due to spikes in hydrocarbon prices in recent years.

    Energy cooperation between Kazakhstan and India is not limited only to nuclear fuel. Kazakhstan has huge hydrocarbon reserves. It has approximately 40 billion barrels of oil reserves, which could well increase up to 100 billion barrels by 2015. Current annual production is 90 million tons, which is expected to increase more than 35 per cent by the end of 2012 to 140 million tons. Gas reserves in Kazakhstan are approximately 3 trillion cubic metres and expect to increase its annual gas output to roughly 70 billion cubic meters by 2015. The shelf lives of oil and gas is estimated to be around 50 years and 75 years respectively. During the visit, India and Kazakhstan signed hydrocarbon agreements raising the stake of OVL (ONGC Videsh Ltd.) and its partner OMEL’s (Mittal Energy Limited) stake in Satpayev oil field in the Caspian Sea from the present 10 per cent to 25 per cent. Rest of the 75 per cent will be retained by KazMunaiGas of Kazakhstan. It is estimated that three prospective oil fields, Satpayev, Eastern Satpayev and Karina, contain up to 253 million tons of recoverable deposits, which is equivalent to 1.85 billion barrels.

    Economic Relations

    Considering the potential, the current scale of economic interactions including trade and investment between the two countries is not big. However, there exists vast scope to expand and increase both the volume of trade as well as quantum of investment, a view shared by President Nazarbayev who said that “captains of Indian industry should not hesitate or be shy of taking advantage of the positive investment climate in Kazakhstan”. In fact, the potential for cooperation has largely remained untapped and therefore, the scope for bilateral commercial activity is huge. He also emphasized that both countries should “explore the possibilities of cooperation beyond hydrocarbons, oil and gas, and venture into areas like information technology, pharmaceuticals, metallurgy, agriculture, textiles, infrastructure, dairy sector and tourism.”

    The volume of bilateral trade between India and Kazakhstan is however insignificant. It is characterized by two features. One, Kazakhstan is the largest trading partner of India among the Central Asian Republics, approximately accounting for more than 70 per cent of total trade between India and the CARs. Second, trade has recently registered a faster growth than earlier. Total trade between India and Kazakhstan has more than doubled, from $84.07 million in 2003-04 to $188.74 million in 2007-08. Kazakhstan’s main exports consist of mineral products, leather and raw materials while imports from India include tea, pharmaceuticals, chemicals, plastic, machinery and equipment. Balance of trade is in favour of Kazakhstan, although this is quite recent due to the contribution of an Indian company, ‘ISPAT’, operating there in collaboration with KARMAT. In recent years, we also find the mention of nuclear reactors, boilers, machinery and mechanical appliances and parts in Kazakhstan’s list of imports from India. ''In absolute terms, this is not a big amount for countries with fast expanding economies, but we see this as a potential for growth,'' the Kazakh Ambassador Kairat Umarov said. Looking at the composition of trade between the two countries Ambassador Umarov said “there is vast scope for cooperation in various fields, including manufacturing sectors, such as textiles, construction materials, leatherwear, plastics, pharmaceuticals, IT, oil and gas and tourism. Though trade turnover between the two countries has expanded three times in the last year alone, in overall terms, he said, it was still small.”

    In the field of investment Kazakhstan offers huge scope. This was observed way back in 1955, when Prime Minister Jawaharlal Nehru visited Kazakhstan. He was fascinated by what he described as the “plenitude of resources” and noted that “almost every conceivable mineral is found there.” Currently, 280 companies are in business between Kazakhstan and India, including in the oil and natural gas sector. Indian investment in Kazakhstan has been about $38 million. Many Indian companies including Ispat, Punj Lloyd, OVL, Punjab National Bank, Mittal Steel etc. are already present in Kazakhstan. Kazakh companies including KazStroyService (infrastructure), Kaspian Shelf (oil exploration), TVL (retail equipment), STL (transportation and logistics) are also entering the Indian market.

    Information technology and pharmaceuticals provides rich ground for Indian companies in Kazakhstan. At Almaty, India has helped the establishment of IT Park which was facilitated by 2002 agreement. The Pharmaceutical industry in Kazakhstan provides a market of $500 million. Though some Indian pharmaceutical companies like Kazakhstanapharama, a joint venture, are doing business in Almaty, this is an appropriate time for Indian pharmaceutical industries to venture there in a big way. Kazakhstan offers huge scope for India to invest in areas like textile, information technology, steel, food processing, bio-energy, solar power, construction and hydrocarbons sector at a huge scale. According to the Economical and Commercial Report for Kazakhstan (2007) , “The most promising sub-sectors are the following: offshore/onshore oil and gas drilling and production equipment; turbines, compressors and pumps for pipeline applications; measurement and process control equipment for pipeline applications; industrial automation, control and monitoring systems for refineries, gas processing and petrochemical plants, seismic processing and interpretation, petroleum software development, sulphur removal and disposal technologies, well stimulation and field abandonment services.

    President Nazarbayev’s visit has been viewed as successful in improving bilateral relations. The President noted: ''We have institutionalised our ties. There are bilateral cooperation mechanisms pushing forward our ties in various fields like Inter-Government Commission, Foreign Office consultations, Joint Working Groups on IT, Oil and Gas, Textile, Transport, Military and Technical Cooperation, Combating Terrorism and Sub-Committee on Science and Technology.”

    Looking at the wide scope for business between the two countries, the National Economic Chamber “Atameken Union” of Kazakhstan and the Confederation of Indian Industry (CII) of India signed an agreement for the development of Kazakh-Indian business cooperation. Under this, Almaty would host three events this year to explore, promote and expand bilateral contracts. The Chamber will organize a meeting of sellers and buyers of engineering products of India and also hold an exhibition on India in May and a tourist forum in June. Over 100 Kazakh business representatives were present during the recent CII-Atameken Union meeting in India. Azat Peruashev, President of the National Economic Chamber of Kazakhstan, said: “We hope to extend the political ties into greater economic cooperation, which at present stands at minuscule figures of 180 million dollars.”

    Space and Military

    Another significant agreement between India and Kazakhstan that was signed related to space research. The Indian Space Research Organisation (ISRO) and the National Space Agency of Kazakhstan have signed an agreement to help and co-operate with each other in space activities. Kazakhstan hosts the famous Baikonur Cosmodrome. Despite being a major centre for space research, Kazakhstan has more or less remained a passive partner of Russia. The current agreement signed between India and Kazakhstan is expected to assist the Kazakh space programme in a big way. Kazakhstan expects technology transfers from India in the space arena.

    Kazakhstan has also shown a keen interest in strengthening military ties with India, particularly boosting its arms exports and aerospace collaboration. In its 2006 defence policy document Kazakhstan focused on the Indo-Pacific region, including India and Egypt as export markets. It is a fact that being part of the former USSR, Kazakhstan holds some military interest in India. The Indian Navy is currently equipped with hundreds of torpedoes that were produced in Kazakhstan during the Soviet era. Kazakh specialists in this field are clearly expecting to carve out and foster their own niche within the Indian naval arms market. It is believed that Kazakhstan and India have been carrying out some joint projects aimed at modernizing and repairing the torpedoes of the Indian Navy. Kazakhstan has also claimed that it has designed a new torpedo called Kazy. India and Kazakhstan have also established a forum for "early action" in servicing and possibly modernizing Kazakh military hardware because a majority of India's defence equipment is of Soviet origin.

    Legislature and Protocols

    Another feature of the visit was the signing of an extradition treaty and the Protocol on the accession of Kazakhstan to the WTO. India has not only promised to facilitate Kazakhstan’s accession to the WTO but also offered to provide training facilities to Kazakh officials to deal with WTO matters. Past precedents indicate that India may benefit from Kazakhstan’s global and regional presence. Kazakhstan has backed India’s claim for a UN Security Council Seat, supported India’s NSG waiver at Vienna and persuaded India to be a member of CICA (Conference of International and Confidence Building Measures in Asia). Kazakhstan is also going to chair in 2010 the 56-nation Organisation for Security and Cooperation in Europe (OSCE) and the OIC (Organisation of Islamic Countries) in 2011. This would naturally provide India a friend to carry its message, particularly to the OIC about terrorism.

    Hurdles and way out

    A main obstacle in developing India’s relations with Kazakhstan is the absence of a direct means of transportation. Researchers like P. Stobdan feel that “economic growth in the Asian region and emerging opportunities for inter-regional trade are creating demand for viable transport connectivity, land-linking arrangements and important transit services.” At best, this can be achieved by reviving and restoring the legendry Silk Route. We may also consider exploring some new routes which could directly connect India, China and Central Asia as suggested by Professor Stobdan. Here, Kazakhstan can play a key role in developing this route into a reality as it has good relations with both China as well as India without irking Russia and the US. This would further improve the chances of increasing cooperation between South Asia, Central Asia and China, keeping India at the centre.

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