Case Study – Afghanistan Reconstruction Effort: Uzbekistan’s Views and Activities

July 2007

By Jahangir Kakharov, Bisnis Representative in Uzbekistan.

SUMMARY

Since the beginning of the anti-terror campaign in Afghanistan, Uzbekistan has actively participated in military operations and provided humanitarian aid to the Afghan population. The United States military base near Khanabad and German air base and bridge in Termez have been crucial in achieving these ends. Many analysts believe Uzbekistan’s assistance played a critical role in toppling the Taliban regime. The regime’s demise was a boon for the Uzbek government, lowering the regional threat level and opening up avenues for trade and investment.

For a number of centuries, there have been strong cultural and economic ties between Uzbekistan and Afghanistan. It is estimated that 1.6 million ethnic Uzbeks live in Northern Afghanistan, where about 2/3 of the nation’s industrial resources are located. The presence of a significant Uzbek ethnic minority in the northern regions of Afghanistan, especially in the area near Mazar-e-Sharif, has boosted the role of Uzbekistan in the Afghan reconstruction process.

Uzbekistan and Afghanistan are especially interested cooperating in the areas of transport infrastructure, power, construction, oil & gas, and food processing. Uzbekistan has either already been participating in reconstruction efforts in these sectors or is planning to do so in the near future.

Uzbekistan intends to team up with Russia for some of its projects. During an international expo (Afghanistan Reconstruction 2005) organized within the framework of the ECO (Economic Cooperation Organization consisting of Turkey, Iran, Pakistan, Afghanistan, Tajikistan, Kazakhstan, Kyrgyzstan, and Uzbekistan), “Russian Trade House” sponsored participation of 16 Russian enterprises. In addition to this, “Russian Trade House” represented products of Uzbek enterprises such as “Sovplastital”, “TTZ”and “Horijqurilish”.

“Russian Trade House” signed a few agreements during the expo including those related to projects in exploration and extraction of water in the Northern regions of Afghanistan, delivery of cement and plywood, metals, pipes, oil products, and maintenance & servicing of power equipment. “Russian Trade House” also plans to set up a clinic in Mazar-e-Sharif. In all these projects, Russia plans to use its production facilities as well as tap into the qualified Uzbek work force.

DIPLOMATIC RELATIONS

Diplomatic relations between Uzbekistan and Afghanistan were established in October 1992 during President Burhanuddin Rabbani’s visit to Uzbekistan. The president’s trip resulted in two important diplomatic measures. First, the Afghan Consulate General’s duties were integrated into the Embassy of the Islamic State of Afghanistan and second, the Uzbek consular branch in Afghanistan became a full-fledged consular office in 1994. The consulate didn’t function during the Afghan Civil War and under the Taliban regime, resuming its activities in mid - January 2002.

On August 6, 2002 the Uzbek Ambassador to Afghanistan Mr. A. Akhmedjanov turned in his credentials to the chairman of the transition government of Mr. H. Karzai and the Uzbek Embassy in Afghanistan started its activities in Kabul. In November of the same year , Afghanistan’s Embassy also resumed its work in Tashkent.

During a summit of Central Asian leaders at the end December 2001, Uzbekistan initiated a resolution expressing support for the transitional administration of Karzai.

ECONOMIC BACKGROUND

Economic and trade relations between the countries in the post-Taliban era have been developing well since 2005. Uzbekistan has shown a strong interest in the Afghan reconstruction process and would like to play a more active role in local markets. The following numbers illustrate the trends in trade relations between the countries:

Table 1. Trade Turnover between Uzbekistan and Afghanistan (in millions of US$)

Year	Trade turnover	Exports from Uzbekistan	Exports from Afghanistan
2002	61.5	61.3	0.2
2003	89.6	89.4	0.2
2004	130.1	126.2	3.9
2005	160
2006	163.7
2007 (Jan-May)	106.2

Sources: Reconstruction of Afghanistan and Afghan-Uzbek relations, by Vladimir Paramonov and Sergey Strokov, Conflict Research Center, Defense Academy of the UK, June 2006 and newspaper Biznes Vestnik Vostoka, July 21, 2007.

The table below helps to compare Uzbekistan’s share of trade turnover in Afghanistan with that of other neighboring countries and the rest of the world.

Table 2. Afghanistan’s trade with its neighboring countries: Iran, Pakistan, Uzbekistan, Turkmenistan, and Tajikistan for 2002 and 2004 (in millions of US$ with the exception of the last column)

Year	Afghanistan’s exports to the 5 neighboring countries	Afghanistan’s imports from the 5 neighboring countries	Total trade turnover of Afghanistan with the 5 neighboring countries	The share of Uzbekistan among the 5 neighboring countries in the total foreign trade of Afghanistan in %
2002	28	284	312	19,7
2004	19	314	333	39

Source: Reconstruction of Afghanistan and Afghan-Uzbek relations, by Vladimir Paramonov and Sergey Strokov, Conflict Research Center, Defense Academy of the UK, June 2006.

Key exports to Afghanistan include construction materials, fertilizers, food, metals and related products, services, mineral fuels, oil and oil products, and consumer goods. Afghanistan primary exports to Uzbekistan are fruits, nuts, and olives.

An Uzbek – Afghan joint venture aimed at processing fruits and vegetables in the Surkhandarya region was initiated in 2004. The Uzbek partner “Uzmevasabzovot” has provided production facilities, equipment, and technology, while Afghan entrepreneurs from Mazar-e-Sharif have provided the raw materials (fruits and vegetables).

GOVERNMENT POLICY

The first official visit of the new Afghan administration headed by Mr. H. Mukhkkik , the Deputy Chairman of the Karzai administration, took place from January 28-30, 2002. The negotiations outlined sectors of the economy with the greatest potential for cooperation and national reconstruction: transport, irrigation, power supply and oil.

Uzbekistan and Afghanistan signed an agreement of economic cooperation and in the area of railway transportation on December 8, 2003 in Kabul. This agreement was approved the government of Uzbekistan in January 2004.

The first visit of the Chairman of the transition administration of Afghanistan Mr. Karzai took place on March 4-5 2002. During the meetings with President Karimov of Uzbekistan, both parties reviewed issues related to cooperation in the area of reconstruction of the water supply system, power, agriculture, transport infrastructure, construction, health care in Afghanistan.

SECTORS OF INTEREST

Transport Infrastructure

Uzbekistan is one of the most important transit countries for directing humanitarian aid and commercial cargo into Afghanistan. Since the Taliban’s demise, the government of Uzbekistan, by opening the Hairaton Bridge on December 16, 2001, has facilitated the delivery of international humanitarian aid. In 2002, Uzbek enterprises built and repaired 11 bridges connecting Hairaton with Kabul. The Norwegian government funded these construction projects. Commercial trade has also felt the effects of improvements in transport infrastructure. During 2002-2003 Afghanistan received 2.5 million tons of cargo via Uzbekistan.

As a landlocked nation, Uzbekistan is interested in gaining access to a seaport in the most economical and efficient way. Seaports in Iran represent close and attractive alternatives to other ports that Uzbekistan currently utilizes (e.g. Baltic and Black sea ports). Given difficult relations between Uzbekistan and Turkmenistan, (another southern neighbor of Uzbekistan on the way to Iranian seaports) Uzbekistan has undertaken significant efforts to develop roads and railways in Afghanistan. The Uzbek government believes that this route would bring significant savings in transportation costs for the nation’s international trade. For the Afghans, this would generate significant transit fees for their economy. Uzbekistan has worked intensively with its neighbors and multilateral institutions, such as The Asian Development Bank, to develop this route. Representatives from Uzbekistan, Afghanistan, and Iran convened for a trilateral meeting in Tashkent on December 25 – 26, 2002 resulting in the signing of a Memorandum of Cooperation in highway reconstruction linking the cities of Termez, Mazar-e-Sharif and Dugarun. The negotiations involving Uzbekistan, Tajikistan, Iran, and Afghanistan in June 2003 resulted in provisional agreements to construct more than 5500 kilometers of highway linking Tashkent and Termez and going in three directions from there: via Mazar-e-Sharif to Tegeran, via Heart to Charbahar, and to Bandar in Iran. The parties also agreed to consider construction of a railway network connecting these countries.

Hairaton Bridge, over the Amudarya River, is an important link connecting Afghanistan with Uzbekistan as well as with the rest of the world. It was constructed in the beginning of 80s and was called the “Friendship Bridge” until 1989, when it was renamed the Hairaton Bridge. In the spring of 1997, after Taliban took over in Afghanistan, the Uzbek government closed traffic along the bridge. In December 2001, the government of Uzbekistan and the UN signed a protocol to assist in delivering humanitarian aid to Afghanistan. Hairaton Bridge was re-opened in February 2002, initially only for delivery of food, medicine and humanitarian aid. Currently, movement along the bridge is open without any limitations to both sides. In January 2002, the Uzbek government with via a special resolution approved low rates for commercial cargo transported to Afghanistan from Termez station in Uzbekistan to Hairaton station in Afghanistan. The Uzbek party charges $180 per-wagon (one 40 ton container) and $90 per 20-ton container. Until June 2007, transit of one truck used to cost $5. However in June 2007, the Uzbek government increased tariffs for transit of one truck through the territory of Uzbekistan to Afghanistan. This rate went up from $5 to $50 for a truck carrying commercial cargo.

According to the State Customs Committee of Uzbekistan, over 80% of cargo transported into Afghanistan through Uzbek territory is by truck. According a resolution put forth by the government of Uzbekistan, tariffs were raised “in order to increase the efficiency of export and transit shipments of cargo to Afghanistan and timely implementation of measures on technical maintenance and exploitation of the bridge connecting Termez and Hairaton”.

In July 2006, The Islamic Development Bank and The Japanese Bank for International Cooperation expressed interest in providing Uzbekistan with two loans totaling $16 million to renovate railway networks connecting territory between the two countries. The reconstruction of the bridge Hairaton is also foreseen within the scope of the project. Feasibility studies for the project are currently being conducted.

Power

In March 2002, Uzbekistan assisted in reconstruction of power transmission lines between Surkhan and Mazar-e-Sharif to supply the Northern provinces of Afghanistan with power. As a result, the state joint stock company Uzbekenergo (Uzbek Power, former Ministry of Energy of Uzbekistan) and British company Derota Invest and Trading Corporation signed an agreement supplying power to Afghanistan the same year. This was the first agreement on power transmission between Uzbekistan and Afghanistan’s post Taliban government. The agreement was followed by regular power contracts between the countries. Currently, Uzbekistan and Tajikistan are the most important suppliers of electricity to Afghanistan. According to Viktor Abaturov’s article in the Uzbek magazine Economic Review (#2 (77), 2006, page 48), exports of electricity from Uzbekistan to Tajikistan reached 149.1 million kW in 2005. However, due to seasonal shortages in Tajikistan, Uzbekistan represents a more reliable and permanent source of power for Afghanistan. The main impediment hindering an increase in power exports from Uzbekistan to Afghanistan is the lack of power transmission lines in Afghanistan. Work is being carried out to solve this problem. A memorandum of cooperation in the energy sector was signed between the two countries in November 2006, foreseeing construction of the Hairaton and Surkhon substations in Afghanistan. Construction is in progress of a 420 kilometer power transmission line connecting Kabul with Hairaton. As of July 2007, 65% of work on this project is complete. This power line will connect the Afghan transmission line with the Uzbek power transmission line. It is projected that construction of this line will be complete in October 2008.

UzbekEnergo press service said if the Afghan side completes construction of substations and transmission lines, Uzbekistan would increase electric power flow to 300 MW. According to Viktor Abaturov’s article in the Uzbek magazine Economic Review (#2 (77), 2006, page 48), exports of electricity from Uzbekistan to Tajikistan reached 149.1 million kW in 2005.

A Delegation led by Minister of Energy and Water resources of the Islamic Republic of Afghanistan Muhammad Ismail-Khan visited Uzbekistan in the end of June 2007. Members of the delegation met with the chairman of "Uzbekenergo", B.Teshabaev. During the meeting they have discussed further broadening of cooperation between the two countries, particularly, ties in the area of energy. At the end of the visit Uzbekenergo announced that, Uzbekistan is prepared to participate in Afghanistan's recovery and will increase its supplies of electrical energy to the country.

Construction

The first delivery of construction materials, structures and equipment from Uzbekistan to Afghanistan was completed at the end of December 2002. In 2006, Uzbekistan exported 175,100 tons of cement to Afghanistan. Afghanistan is the third largest importer of Uzbek cement after Kazakhstan and Tajikistan. Uzbekistan is also interested in exports of other domestically produced construction materials as well.

Water Supply

In June-July 2002, Uzbek specialists visited the Northern areas of Afghanistan and started work on creating a system of wells to supply drinkable water. Uzbek specialists are also involved in the reconstruction of the Jalalabad irrigation complex and irrigation systems in Sarde and Kukcha. As mentioned above, Uzbekistan plans to participate in water supply projects in Afghanistan along with Russian companies.

Oil and Gas

Uzbekistan is also considering reconstruction projects in the oil & gas sector of Afghanistan. “Russian Trade House” plans to use Uzbek oil refineries to process crude oil from Central Asian countries for export to Afghanistan.

Another important issue is the construction of oil and gas pipelines through the territory of Afghanistan to Pakistan, India, and Iran. Uzbekistan has substantial gas reserves available for exports and could earn transit fees on exports of Kazakh oil as well. However, currently it is premature to contemplate the details of such a project.

Health Care

Joint projects in this area include the creation of a joint field hospital in Mazar-e-Sharif and production of certain types of medicine. Uzbekistan plans to team up with Russian institutions on implementing these projects.

CONCLUSION

Economic relations between Afghanistan and Uzbekistan have significantly improved in the post-Taliban era. The two countries share a 137-kilometer long border with a well-developed infrastructure. Uzbekistan has shown all indications of wanting to participate in Afghan reconstruction efforts. Although it cannot be considered a donor nation, its geographic proximity, resource capability, and qualified labor force make it an important resource for Afghanistan’s development. Despite these factors, the country’s potential remains underutilized.

Contact Information

U.S. companies and individuals interested in learning more about conducting business in Uzbekistan are encouraged to contact BISNIS office in Tashkent. BISNIS offers a wide range of advisory services and logistical support to assist U.S. companies to enter this market. For additional information about how BISNIS Tashkent can help your business, or for answers to specific questions regarding industry sectors, please direct inquiries to:

Jahangir Kakharov, BISNIS Representative in Uzbekistan

Tel.: (99871) 143-51-54
Fax : (99871) 143-51-54
E-mail: Jahangir.kakharov@mail.doc.gov

For more information on Uzbekistan, visit BISNIS online at http://www.bisnis.doc.gov/bisnis/country/Uzbekistan.cfm

BISNIS (www.bisnis.doc.gov) is part of the U.S. Commercial Service (www.export.gov).