The visit of German chancellor Olaf Scholz from September 15 to 17 in Kazakhstan and Uzbekistan has drawn up many different reactions on a global scale. On one hand, the fact that the German head of state visits the region for the first time in the last 14 years constitutes a historic shift for the relations between Berlin and the Central Asian countries, resulting also in a shift in the overall EU-Central Asia relations. On the other hand, comments such as the ones posed by Kazakh President Tokayev about how Russia is considered “invincible” from a military perspective might point towards lack of interest over further engagement with Germany and the EU. Despite the ambiguity of the overall outcome of meetings of President Scholz with his Central Asian counterparts, what can be said with certainty is that (renewable) energy has been at the top of the agenda. Discussion over critical raw materials and green hydrogen dominated the thematology in Astana and Samarkand, hinting towards the notion that Central Asia is one of the key partners for the energy transition at a German - and European - level. It is important to examine, however, to what extent these ambitions are realistic, what kind of partnerships are expected and what challenges might come on the way.
Germany in Central Asia’s Energy & Mining Sector - Opportunities for the Z5+1 partnership to flourish
Germany is not a stranger to the Central Asian green energy-related sectors. Germany has been among the first countries that established the C5+1 (or Z5+1 in German) approach in Central Asia, bringing together all regional partners for dialogue Berlin has built on the EU approach in the region, which started in November 2022, when the EU and Kazakhstan signed a strategic partnership around green hydrogen and critical raw materials. Following that development, in July 2023, German Federal President Frank-Walter Steinmeier and Kazakh Prime Minister Alikhan Smailov launched the first test drilling procedures at a major green hydrogen production plant in the Karakiya district of the Mangystau region. Green hydrogen projects have already been agreed upon with German companies, such as Svevind, who signed an investment agreement with Kazakhstan for a green hydrogen initiative worth more than $50bn in October 2022, part of the Hyrasia One project launched by Svevind. Uzbekistan follows a slightly different procedure, searching in Germany for a partner that can provide investment support for small-scale projects. More specifically, in May, the German Investment Cooperation pledged to support ACWA Power to develop a green hydrogen power plant in the Bukhara province of Uzbekistan, with a loan of $25 mn.
Correspondingly, critical raw materials is also a field that Germany has already pursued in Central Asia over the previous years, as in September 2023, German mining company HMS Bergenbau announced plans of $700mn for lithium mining purposes in East Kazakhstan, however those plans have not flourished yet and no other proposals have been put on the table, whereas for the rest of the Central Asian countries did not witness any interest on behalf of Berlin for their own mining sector, despite their riches in critical raw materials.
The approach of Germany in Central Asia is undoubtedly promising and timely, considering that the energy transition will require a plethora of critical raw materials, as well as the supply of green hydrogen and Berlin has become eager to revitalize its industrial sector which, if it is expected to become a green industrial sector, will unquestionably require the aforementioned materials, as well as green hydrogen. The importance of hydrogen can be underpinned by the fact that it is used as feedstock in the chemicals industry, as well as in fertilizer, and both sectors are of uttermost importance for Kazakhstan, Uzbekistan, Turkmenistan, but also, to a smaller extent, Kyrgyzstan and Tajikistan.
Obstacles and Challenges
While the aforementioned support the claim that the visit of Scholz is a timely one for the energy transition and green economic development in Europe and Central Asia, at the same time, nonetheless, it faces substantial challenges. The first and most crucial one is the lack of investment. Hyrasia One requires financing of $50bn and currently neither institutional nor private financing sources have shown interest, while the project developers themselves expect to revise the investment amount needed in 2026, highlighting the uncertain nature of this endeavor. Similarly, for Uzbekistan, ambitions are set excessively high, aiming at a 27GW green hydrogen plant, whilst the overall amount that German investors were able to pledge is enough solely for a small-scale project of around 30MW. It is unclear what the financing source will be so far and there needs to be commitment from European financial institutions if any progress is to be made. Reflecting on the global trend, according to which only 5% of green hydrogen projects manage to get full-scale investment for development, there is low level of confidence for the finalization of the aforementioned initiatives. This is also highlighted by the fact that, out of all agreements of $6.3bn in total that were signed between Kazakhstan and Germany, only one MoU on scientific cooperation around green hydrogen was relevant.
A second challenge is expected to emerge from EU frameworks aiming at corporate due diligence, social and environmental responsibility, such as CBAM and CSDDD. Companies operating in Africa already reported that these frameworks are expected to result in a $25 bn loss of GDP in the continent and, on a similar level, if the EU expands its investment presence in Central Asia using these frameworks, similar losses might be expected, or even political dissatisfaction at the bureaucratic burden that these frameworks entail. Potential revisions, on the other hand, could result in an increase in the environmental and societal impact of EU, which is contradicting to the way the EU operates.
Finally, a major challenge has been proven to be the inclusivity and involvement of all Central Asian states. Tajik President Emomali Rahmon, for example, proposed the involvement of German entities to hydro projects in the country. Kyrgyz president Sadyr Japarov, on the other had, stressed the importance of energy efficiency projects and reducing energy poverty in the region, whilst Turkmen President was the least engaged delegate during these discussions, with Ashgabat’s cooperation with European stakeholders remaining at small-scale projects looking to equip policymakers for the energy transition, namely around capacity building. A fragmented approach by Berlin in Central Asia might lead to fragmentation over views of Central Asian states over the EU and will expose the overall strategy to geopolitical turbulence. Moreover, Central Asian states are among the ones that are hit the hardest by the adverse effects of climate change and would substantially benefit from infrastructure that would help them reduce their environmental footprint and not just become exporters of green energy, such as hydro power plants, nuclear power plants(regardless that Germany phased out its own), energy efficiency infrastructure and smart/green mobility. Germany could be a strong partner providing technical expertise in the sector.
Overall, the Scholz visit to Kazakhstan and Uzbekistan certainly raised expectations over the energy transition, both for Central Asia and for Europe. Ambitious projects that can reshape the energy sector in Astana and Tashkent, while converting them into strategic exporters of critical raw materials and green hydrogen, were unveiled and important agreements were signed. Nevertheless, for these ambitions to become reality, there are many challenges that ought to be overcome. The investment gap currently is excessively big and there are several ways that this can be overcome. As part of the shift to a multipolar world, Germany has to seek partnerships. These can either come through an EU investment fund for Central Asia or, amidst the economic stagnation in Europe, Germany can partner with active mid-level players in the region, such as Japan and South Korea, who share interest in green hydrogen and critical raw materials, for joint investment ventures. Another issue that arises is the burden that CBAM and CSDDD present for the economy, the way they are currently structured. Berlin should initiate the dialogue in the European Commission and Parliament for revisions that will help maintain the interest to protect the environment and the importance of corporate due diligence, all while minimizing regulatory obstacles and bureaucratic burdens. Finally, the visit of Chancellor Scholz lacked an inclusive approach towards all Central Asian states, while especially the smaller ones, such as Tajikistan and Kyrgyzstan, substantially require technical and scientific expertise to reduce their environmental footprint. To mitigate the risk of fragmentation in the Z5+1 relations, a more inclusive and comprehensive agenda will be required. The first visit of a German Chancellor, in short, left many promises, but a long road ahead is expected for these promises to bear fruit.
Written by: Dimitris Symeonidis
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