Since the beginning of the 1990s, South Korea has positioned itself as one of the main Asian allies of the Central Asian states. Today, it is the fourth largest commercial partner of Uzbekistan, with US$ 904 million in exchanges in 2008, and the ninth-largest of Kazakhstan, with US$ 864 million worth of exchanges. Often presented as one of the rising regional powers in Central Asia, Seoul continues to invest in strategic fields such as uranium and to aid the opening up of the region in terms of transport.
BACKGROUND: Since the 1990s, Seoul has aimed chiefly at Uzbekistan. After 1992, it quickly became the foremost foreign investor in the Uzbek economy, with over a billion dollars of investments, mainly in the famous automobile construction joint-venture Uzdaewoo, based in Andijan, as well as in Daewoo Unitel for telecommunications, and in Babool Textiles Ltd. Today, these joint ventures no longer have any South Korean capital: Seoul had to cede its shares in the automobile factory in Tashkent after the economic crisis of 1998, as well as those of Babool, under rather obscure conditions and apparently under pressure from the Uzbek authorities.
South Korea is interested in Central Asian gold, tungsten, and also coal, and is looking to establish itself on the Uzbek banking services market. However, it is in the energy domain – hydrocarbons and uranium – that the South Korean authorities have placed all their hopes. A memorandum of understanding was signed with Astana for the exploration of fields in the Caspian Sea. The Korean Consortium of the Caspian Oil Project, led by Korea National Oil Corporation and including SK Corporation, LG International, Daesung Industrial and Samsung, went through with the acquisition of 27 percent of the shares of the Zhambyl offshore oil block for US$ 85 million. Exploration will be conducted jointly with the Kazakh state company KazMunaiGas and, in accordance with the results, the Korean consortium will be able to acquire as much as half the drilling rights.
Uzbekistan has not been left aside. In 2006, Korea National Oil Corp., Korea Gas Corp. and Uzbekneftegaz signed a memorandum of understanding giving Korean companies exclusive exploration and exploitation rights for two oil and gas deposits, Chust-Pap and Namangan-Terachi. The Korea National Oil Corp. is also part of the international consortium leading the exploration of Aral Sea deposits, alongside Lukoil, Petronas and CNPC. In 2008, the Korean gas company KOGAS and Uzbekneftegaz came to an agreement for the joint exploration and exploitation of the Surgil gas site on the Ustyurt Plateau, for a total estimated cost of US$ 1.84 billion. For its part, Daewoo International, which is attempting to invest in hydrocarbons, signed an agreement with Uzbekneftegaz for the exploration and development of two other blocks on the Ustyurt Plateau, Kushkuduk and Ashibulok. Recently established in Turkmenistan, Seoul is looking to develop its activities. In 2009, LG and Hyundai won a tender bid for the construction of a gas treatment factory close to the large Yolotan deposit for a value of US$ 1.48 billion.
Korea is also gaining interest in Kazakh and Uzbek uranium. The country is in fact dependent on nuclear energy for 40 percent of its electricity, has twenty operational nuclear power plants and plans to construct six more. However, Seoul has arrived somewhat late on the Central Asian market compared to China and Japan. The Korea Resources Corp. is developing the Uzbek deposit of Zhantuar in partnership with the State Committee for mineral resources. In 2008, Korea Electric Power Corp. (KEPCO) signed an agreement with Tashkent for the purchase of 2,600 tons of uranium (or about 9 percent to Korea’s total consumption) by 2015, for a total cost of US$ 400 million. The same year, Seoul reached an agreement with Kazakhstan to import a little more than 3,000 tons of uranium between 2011 and 2017.
IMPLICATIONS: Nevertheless, the South Korean project that is perhaps the most ambitious in terms of opening up Central Asia is currently taking place in Navoi. The Uzbek authorities have decided to create a great transport hub in the town of Navoi, one of the country’s economic bastions, for it is the location of the immense mining combine which treats the quasi-totality of gold and uranium extracted in Uzbekistan. The idea of a great international logistics center has a domestic function: that of attracting foreign investors to a region with strong economic potential but which is in need of cheap transport in order to facilitate the export of minerals. To carry this great hub project to term, the Uzbek authorities signed a memorandum of understanding with South Korea in 2008.
Many South Korean companies will henceforth play an active part in the future Uzbek logistics center: Korean Air is to contribute, in partnership with Uzbekistan Airways, to modernizing the Navoi airport and to transforming it into an air hub. In May 2009, the Hanjin Group was put in charge of operations of industrial advice concerning the logistics center, in order to broaden the airport cooperation to the domain of land transport. The quantity of passengers and commodities transported via the Navoi airport regularly increases, even if it remains modest: in the first trimester of 2010, 14,800 tons of freight and 4,200 passengers transited through it, an increase of 13.5 percent compared to the same period in 2009. Similarly, according to the statistics of Ozbekistan Temir Yollari, the volume of railway transit in 2008 reached 8.6 million tons, an increase of 6 percent compared to 2005, and the figures continue to expand today.
Since South Korea’s arrival to the scene in 2009, some Boeing cargo 747-400 planes fly from Incheon to Navoi and Milan, at the rate of three flights per week. A passenger flight between Incheon and Tashkent, also at the rate of three flights per week, was likewise inaugurated. Two flights departing from Navoi toward Bangkok and Mumbai have been opened. The airport now receives 14 international flights per week from Bangkok, Delhi, Mumbai, Frankfurt, Incheon, Seoul, Brussels and Milan. Korean Air hopes to obtain the benefit of being the “first occupant” on the Uzbek air cargo market, which is bound to grow in coming years. For Uzbekistan, the project is much larger than a simple logistical center: the point is to create a new free industrial and economic zone, but these noble intentions appear to have little credibility in the short term, taking the current investment climate into account.
CONCLUSIONS: Korea is currently playing a major card in Uzbekistan: if, in years to come, Navoi becomes one of Central Asia’s hubs for cargo freight, Seoul will have shown the capacity open to regional powers without geopolitical ambitions of global dimensions to influence economic development in Central Asia positively. In addition, Tashkent and Astana regularly look to Asia and their positive references to the South Korean, Malaysian or Singaporean model have become part of their geopolitical standard.AUTHOR’S BIO: Sébastien Peyrouse, Ph.D., is a Senior Research Fellow with the Central Asia-Caucasus Institute & Silk Road Studies Program, a Joint Center affiliated with Johns Hopkins University’s School of Advanced International Studies, Washington DC, and the Institute for Security and Development Policy, Stockholm. He is one of the authors of Into Eurasia. Monitoring the EU’s Central Asia Strategy. Report of the EUCAM Monitoring, with M. Emerson, J. Boonstra (rapporteurs), N. Hasanova, and M. Laruelle.