Environment and Security: Transforming risks into cooperation

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Environment and Security

Natural capital, energy resources, and wealth distribution Changing livelihoods in the eastern Caspian region

The World Bank estimates that oil and gas-related financial flows in Kazakhstan could reach up to US$7 billion a year in two decades (World Bank, 2005). Turk- menistan has also benefited from high world prices for oil (reaching US$136 a barrel in June 2008), boosting its foreign currency reserves and cutting external debt. Turkmenistan also gained from the improvement in the terms of payment 26 for its natural gas exports to Russia and Ukraine, two key commercial partners for the country. Furthermore, the long-term agreements with Russia and China for nat- ural gas exports will guarantee the influx of foreign exchange into Turkmenistan for the next three decades.

Though oil-related revenue helps reduce cash constraints for the state budget, there are sev- eral risks associated with rising oil revenue. The Kazakh government is aware of these challenges and a large share of oil revenue is allocated to the National Oil Fund of the Republic of Kazakhstan. The National Fund was established in 2001 with the main ob- jectives of reducing the impact of volatile world prices and smoothing the distribution of oil-wealth over generations. The fund’s capital comes from a share of government income from the oil sector, royalties, bo- nuses and revenues from Production Shar- ing Agreement (PSA). The fund is invested in foreign equities. By the end of 2007 the fund had accumulated over US$21 billion 27 . At the same time the oil and state-owned sectors of the economy still attract the larg- est investments in Kazakhstan, while ag- riculture, tourism and other sectors of the economy show signs of disinvestment 28 . Oil remains the main driving force and a strong factor in the vulnerability of the economy. In Kazakhstan, as in most oil exporting coun- tries, oil is produced in only a few regions of the country: five out of fourteen oblasts, with 21 oil-producing districts out of a total of 158 districts (not including cities). The Atyrau and Mangystau provinces play an important role in the country’s economy: in 2006–7 two-thirds of Kazakhstan’s crude oil 29 and a third of natural gas 30 were produced in the Caspian region. Their combined output ac- counted for 16.5% of Kazakhstan’s Gross Domestic Product in 2006 (Agency of the Republic of Kazakhstan on statistics). Indus- try, mainly the oil and gas sector, contributes 70–90% of Gross Regional Product followed by transport 31 and services.

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