Vitaliy Bushuev, Valeriy Pervuhin, Energy Strategy Institute special for InfoSCO SCO energy club: what it should be? / SCO Shanghai Cooperation Organization

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SCO energy club: what it should be?
13.03.2012 10:00 Vitaliy Bushuev, Valeriy Pervuhin, Energy Strategy Institute special for InfoSCO

Last year the Shanghai Cooperation Organization has celebrated its tenth anniversary. There was no deficit in declamations and iridescent forecasts. SCO indeed has done significant work for formation, institutionalization, development and forming cooperation in basic trends of its activity in the sphere of safety, formation of infrastructure of trade and economical relations. International status of SCO has strengthened.

Moreover, starting from the first steps on formation of SCO, governments of countries-members of the organization have made decision regarding basic goals and trends of regional economic relationship and start-up of process on formation of favorable conditions in the scope off trade and investments. Program of diversified trade and economical collaboration of SCO members was approved in 2003. In 2004, the Board of SCO head of governments has approved plan of measures on fulfillment of the program. At the jubilee session of SOC held on June 15, 2011, heads of governments spoke out in favor of further intensification of trade and economic cooperation, as well as of investment interaction with attraction of potential of observing governments and dialogue partners.

The reason of SCO economic collaboration stucking

Notwithstanding the fact that economic collaboration was determined as the second most important hypostasis of SCO, it remains less developed. Diversified projects of economical collaboration are absent. Fifty out of several hundreds of applied SCO documents are related to economical interaction. SCO members have repeatedly declared on necessity of intensification of economical collaboration. It is also completely related to such establishing sector of SCO countries economic relations as power engineering.

Objective preconditions for activation of SCO countries economical collaboration, including power engineering, are quite favorable. Total area of countries of SCO members composes 3/5 of Eurasian territory with population above 1.5 bln of people. Gross Domestic Product of SCO countries reaches ¼ of world GDP ($12.4 trillion). About 25 % of world oil reserves, above 50 % of world gas reserves, 35 % of coal reserves and nearly a half of world explored uranium reserves are located on the territory of SCO countries. Governments-members of SCO are in active phase of economical development. They are attractive from investment point of view. The largest oil and gas pipelines are constructed, including: Caspian pipeline consortium (CPC), AtasuAlashankou, Eastern Siberia Pacific Ocean (ESPO), TurkmeniaChina gas pipe line.

If to examine SCO as part of Asia-Pacific Region (APR) then it is possible to trace dynamics of energy-power market development. As per estimate of International Energy Agency (IEA), growth of demand for oil in APR basic countries within the period from till 2025 shall be in advance for ¼ in relation to worldwide demand, demand for oil shall be twice in advance as compared to worldwide demand.

According to Nursultan Nazarbaev, President of Kazakhstan, business potential of SCO can be compared to BRIC (especially as two BRIC countries Russia and China are already members of SCO). Territory of the Shanghai organization represents vast market that, on the one hand, can stimulate economical growth of SCO countries and, on the other hand, provides great army of workforce.

SCO represents financially independent organization. Goldvalue reserves of SCO countries as of the end of 2010 composed above $3.6 trillion. Thus, SCO has all necessary means to become supporting point for global economics for post-crisis period, as well as serious political center for decision-making.

It is time to pass from something in mind to something in kind

Economic collaboration within SCO frames for Russia promotes for preservation and expansion of participation in economical development of Central Asia. Russia and countries of this region over many decennaries represented parts of unified economic system. To the present day they are economically complete one another in comparison to economics of Chine and countries located in Central Asia. If Russia proficiently use this opportunity then it shall more efficiently defend its interests in the region. Competition for influence on the region of Central Asia from the part of USA could not be neglected.

At the same time cooperation between Russia and China in SCO represents one of the main factors providing strengthening and development of the Organization. The countries however have different perception of SCO. Chinese government examines SCO as important economical integration project, as possibility to expand its economical influence for the purpose to provide its rapidly developing economics with energy power resources. Russia sees the main goal of the organization in provision of safety of the region. Since the main energy resources are of Eurasia are concentrated in Russia. Energy is examined as one of the main factors of Russian diplomacy. Russia tends to preserve its role in oil and gas sphere and in the sphere of transportation of hydrocarbons from the region.

Decisions made at the last meetings of head of governments and governments of SCO members allow making decision that SCO countries start to pass from something in mind to something in kind in relation to economical problems. There is an issue: Why does SCO activity economical trend not properly developed within 10 years of SCO existence in spite of formation of the corresponding organizational structures and presence of the program documents signed at the highest level?

SCO members indeed objectively possess all conditions required for expansion of economical collaboration: geographic nearness, mutual agreements in many spheres, close political, economical and cultural relations. The majority of countries entered SCO during period of economical modernization. Development is the main goal for these countries. SCO may realize new concept of regional economic cooperation, for example, concept of economical safety, including power, financial, investment and even social.

Locomotive for economical acceleration

Development of integration collaboration within SCO frames for governments of Central Asia is, first of all, possibility of formation of conditions for stable economical growth, expansion of distribution areas and export potential development, preservation of stability related to domestic policy.

Modern stage of SCO development is being characterized not only by role intensification of collaboration economic factors but by necessity in passage to diversified format of common economic area formation discussion. Actuality of precisely this question formulation is being stipulated by the existing contradictions connected with different approaches to goals of participation and estimates of SCO perspectives on the part of leading members of the Organization.

At the same time considering differences in levels of development and economical structures, it is expedient to concentrate collaboration within SCO on fulfillment of large projects satisfying needs of the majority of countries. It is first of all referred to such spheres as power engineering, transport, formation of infrastructure, telecommunication and some other. Adjustment of mechanism for development of regional economics and timely prevention of crises shall represent additional factor of stable economical development of SCO members. However observing countries and dialogue partners shall be also attracted for performance of this work.

For the time being, the main SCO problem, in our opinion, is absence of coordinated economical strategy of the Organization. It is being worsened by in equivalence of potentials of members, by difference of their economical interests. Thus the majority of projects on cooperation of SCO countries are bilateral and their binding to SCO is provisional.

Bilateral and diversified cooperation should not inevitably be opposed. Moreover, the most important source of diversified cooperation are bilateral projects to which third countries can join to during fulfillment process. Cooperation in the format of SCO may be spoken of after it shall be conducted on diversified basis, resolving tasks determined by the organization in the whole. Existing system of pipelines located on SCO area and connecting Russia, countries of Central Asia and China may be provided as an example. According to Karim Masimov, Prime-Minister of Kazakhstan, this system is already represents serious basis for formation of unified energy space of SCO allowing harmonizing interests of producers, transporters and consumers of energy resources.

More perspective could be economic collaboration of SCO countries for the purpose to increase global and regional economic safety. Heads of SCO governments recognize necessity in increase of stability in the face of world financial crises and development of overcoming mechanisms Moreover, SCO is able to form system of its influence on global financial stability as basis of stable development. However at present, SCO has no clear strategy of economical partnership in the sphere of diversified investment and process exchange.

Starting of such strategy development could be expedient from energy constituent as primary and foundational element of regional cooperation. SCO indeed has combined both countries representing large producers of energy resources and import countries. From the one hand it makes them internally dependant but, from the other hand, forms basis for diversified cooperation.

Not elite club but platform for cooperation

Suitable platform for development, discussion and coordination of basic provisions of such draft document could be Energy Club of SCO.

Idea of such club is not new. Russia for the first time offered its formation in June 2005. At the meeting of heads of governments of SCO countries held in SaintPetersburg on November 07, 2011, Vladimir Putin underlined: Russia is ready for active cooperation in the Organization. It is related to expansion of trade and economical relations and collaboration.

SCO energy club is being formed first of all for adjustment and realization of expanded dialogue regarding issues of increase of energy safety, harmonization of energy strategies, coordination of efforts and full discussion in different branches of energy within interests of SCO members.

Activity of Energy club is not limited by these general tasks, if to examine it as not elite club for chosen six members of the Organization but as structure that is ready to interact with different countries, international organization and business communities. The more participants in SCO Energy club the greater benefit shall be provided for members of the Organization including possibilities on attraction of attention to problems of members and investment capabilities, deeper understanding of place in the system of microeconomic relations, finding of optimum partner relations starting from interests of own development and etc.

Experts provide different opinions in relation to configuration and format of Energy club. Some consider that the club should be sufficiently rough combination possessing supernational character which assumes delegation of sovereign powers. Others (the majority) offer to move from easy to difficult, i.e. find points of coincidence without running off far forward without running before the hounds.

In our understanding, the Energy club, which formation after repeated unsuccessful attempts finally starts to acquire visible outlines, shall start from real possibilities and readiness for informal exchange of opinions of the greatest number of interested parties. SCO system includes official authorities that make coordinated decisions but, nevertheless, diversified economical cooperation remains less developed trend in the activity of the Organization. We see the goal of Energy club in formation of atmosphere of openness, confidence in discussion of vital economic and legal problems, in unhindered exchange of opinions regarding methods of resolution, first of all at expert level, not limited by rough frames of established procedures. Specific offers for governmental structures of all levels may be finally formed in the result of these unhindered discussions. These structures shall make the corresponding political and economical decisions supported by sovereign rights of interested parties.

At the initial stage of Energy club establishment it should me clearly marked that membership in the club is not rough and obligatory even for the six of SCO. Previous attempts on formation of Energy club were unsuccessful not only due to absence of consensus between members. Moreover, Article 16 of the Shanghai Organization Charter allows bypassing this supposed obstacle. It states: In case of disinterest of one or several members in fulfillment of separate coordination projects representing interest to other members, nonparticipation of the mentioned members in the projects shall not hinder fulfillment of these projects by interested members and, moreover, shall not hinder the above mentioned members to join to fulfillment of the projects in the future.

Club format allows to maximally expand composition of experts participating in Energy club measures. In addition to members, observers and SCO dialogue partners, it is expedient to provide information regarding agenda and measures of the club to representatives of countries included into composition of international organization with which SCO has cooperation agreements, as well as worldwide energy community using mass media providing possibility to participate in activities of Energy club. This shall certainly require definite organizational measures and financial expenses, but final multiplicative effect shall compensate them with interest.

A sort of union of suppliers, transit establishments and consumers of energy resources may be formed in the name of Energy club. The union may become coordinating authority promoting development of economical and energy relations between governments and companies. Basis of such interaction at the given stage may be actualized Program of diversified trade and economical collaboration applied by heads of governments of SCO members. Basic trends of activity in the sphere of power engineering may be: modernization of the existing power capacities and networks; development of transport infrastructure in region; combined exploitation of new hydrocarbon deposits and geologic exploration; formation of conditions for mutual access to electric energy markets and electric energy transit; energy saving and energy efficiency; preparation and increase of experts qualification in the scope of power engineering.

Together with these general trends of cooperation that may become milestones upon formation of Energy club discussion agenda, it is expedient to introduce searching and discussion of specific projects in such spheres as power engineering industry, advanced processing of hydrocarbon material, atomic power engineering and hydroenergetics.

Energy Club could be the forerunner of a common energy space

As a result of extensive discussions, the participants may come to realize the necessity of forming a common energy space of the SCO. For instance, several years ago, Nursultan Nazarbayev, addressed the idea of creation of the Asian energy strategy. Of course, the concept of creating a common energy space will require coordination and harmonization of certain energy policies of the SCO Member States. And before one goes out with such proposals on the level of the governing bodies of the SCO, one shall discuss them within the Energy Club. In general, the issues of energy strategies of the SCO, their monitoring, permanent actualization, shall, as it seems, always be on the agenda of the Club.

In the end, forming of common energy space of the SCO will require political decisionmaking on issues such as price liberalization, standardization of tariffs for transportation of energy resources, development of unified common tax base, coordination of actions at the level of suppliers in order to avoid unnecessary competition between them. In addressing these and related problems the SCO countries can be helped by the experience of Russia, Kazakhstan and Belarus to form the Eurasian Economic Space.

Staying on the ground of reality, we should not rely on the fact that the Energy Club - due to objective reasons alone is certainly doomed to success. Previous attempts to create it showed that it is not. No matter how interesting may be the theoretical problems of economic and energy cooperation in the SCO space for participants in the debates within the Club, longterm and sustained interest in this area by business structures can be maintained only in case of specific bilateral and multilateral projects provided not only by investments but also by political support.

SCO Energy Club could contribute to the deepening of cooperation between energy producers (Russia, Kazakhstan, Uzbekistan, Iran) and consumers (China, Tajikistan, Kyrgyzstan, India, Pakistan, Mongolia). This would be a major step toward SCO becoming the selfsufficient players at both global and regional energy markets.

Thus, the activities of the Energy Club should be logistically built into the field of interstate relations between the SCO countries, including the formation of a regional security system and its essential elements - energy security. In conditions of continuing instability of the global economy the activation of the SCO energy policy would play a significant role not only in ensuring the sustainable growth of the countries, which are the members of this organization themselves. It would become a positive factor in the global economy.

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