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№5 (238) 11 - 24 March 2009

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Main theme:     Afghan corridor
A decision of Obama to sent troops to Afghanistan may result in the growing demand for different supplies to serve the needs of the peace keeping army. New routes of transportations may open. Between late January and early February the West and Russia managed to reach international agreements on free transit of non military cargo (materials food, fuel) for Western coalition army via Russian, Kazakhstan and Central Asian countries. Kazakh carriers are engaged in fierce but covert competition tocontracts for transportation of goods from to Europe and Afghanistan and visa versa

Alexey Ikonnikov
Almaty

New directions: price of the contract

Transportation industry in Kazakhstan can take heart from the number of trends that may help in the short and medium term. Obama decision to send more American soldiers to Afghanistan opens new opportunities for local transportation companies that have great potential that until now hasn't been realized at home let alone in big international projects. As if defying the forecast, that the prospects of transportation companies throughout the world are really bleak, Kazakh companies may only win from the future presence of NATO forces on the territory of Afghanistan. This market is the most appetizing chunk of the pie for national carriers. By winning international contracts local transportation companies will manage to withstand a crisis that paralyzed all major industries in practically all countries of the globe.

The price of the contract will be enormous as the clients have no choice. The rise in orders is likely to follow due to the fact that traditionally Kazakhstan is regarded as the safest way to Afghanistan. It seems that the option for the safe route of transportation will narrow to Kazakhstan alone given turmoil and terror acts that occur here and there in Pakistan. Billion contracts for national transportation companies are at stake. Sources say that in late February while negotiations on future agreements had been in full swing, it became evident that there wasn't enough room for containers due to be sent to Afghanistan. 1200 big containers were stored in the warehouses of Riga marine port. New cargo ships are still arriving. It is generally acknowledged that Baltic states- Russia- Kazakhstan route is the safest from the existent ones. By March 2009 the countries agreed on price and for transition of goods for NATO soldiers by the railroad. The agreement has come into force, and contracts signed within a framework of international treaties are being executed now.

Сommercial information on terms of delivery and price of such contracts is confidential. Meanwhile attempts were made to figure it out with the help of the analysis. According to independent survey delivery of each container to the place where the troops are deployed will bring the contractor transportation company up to $10 000. Transportation fee of the national railway company Kazakhstan Temir Zholi may exceed $1 500. This is the roughly estimated price of the contract.

The issue about transit of goods got urgency not so long ago. Until now, the alternative road for transportation of goods (in addition to Pakistani one) to Afghanistan hasn't been considered so seriously. For the first time the matter of the alternative road leading to Afghanistan was brought to the agenda in 2007. That very year the peace keeping forces of NATO encountered the problem of the delay in delivery of goods from Pakistan caused by the sudden raids of Taliban units unto the territory of Afghanistan. In 2008 there was a new spike of activity of Taliban insurgents on the Pakistan- Afghanistan boundaries. That is why the coalition of peacekeepers had to lay a ground for the agreement on transportation of non military cargo through the territory of Russia and Central Asia. In early April, all interested parties managed to reach compromise and negotiate the international treaty. On April 4th, at the session of NATO - Russia held in Bucharest , Moscow had to concede and give its permission to transportation of materials and commodities not military though, via its territory. By February 2009 all central Asian countries joined the treaty and ratified it.

In the interview to New York Times given on January 21 st, 2009 Omar Nessar, the director of Moscow Center for Afghanistan Studies revealed some facts about the behind the scenes talks on routes of transportation. He stated that in the spring 2008 Russia figured in the American list as the main future supplier of fuel to vehicles of NATO contingent. Moscow also agreed to free flow of materials for ISAF forces via its territory as well. Meanwhile those days the basic and traditional route of transportation via Pakistan was more popular. The West made an attempt to speed up negotiations after the more frequent attacks of Taliban militants had led to a virtual blockage of Haibersky pass- which had been regarded as the basic route of transportation by the West . "For a long time the West have seen the Haibersky pass as the solution of all the supplies related problems. The months that followed appeared to be Taliban riposte. Pakistani regular Army lost its control over basic mountain passages after the dismissal of Pervez Musharaff." The US wilted under the pressure and finally it had to take the only reasonable decision: open new route of transportation. The resolution adopted at the Bucharest summit on the transit bridge via Russian territory helped Americans to solve their problems with regular supplies for the needs of the NATO more or less successfully.

NATO paid extra attention to the issue after Obama had decided to fulfill its pledge and increase the number of American soldiers in Afghanistan by 20 000 - 30 000 people. In mid January David Petreus, the Chief Commander of the US Military forces visited practically all Central Asian states. Tajikistan was his final point of destination. He pursued only one goal: he had to convince all the countries to participate in Afghanistan transit program. In the American view, Tajikistan and Uzbekistan had to become the key transportation hubs for the goods designated for NATO soldiers. This might prove to be a costly undertaking if compared to Pakistani project. Meanwhile, Americans attribute great meaning to safety that is why they have no alternative to Uzbekistan and Tajikistan.

In the winter time snowfalls create additional hindrance to free movement of big trucks that carry cargo to the army. The newly asphalted road, constructed between Kunduz and Kabul is critical for free flow of goods. Big bridges that connect Tajikistan and Afghanistan are equally important elements of the transportation system. Construction of bridges over Pyange passage began in 2001. The US put hefty sum into it. In fact it was the US, the only country that funded the project. Hamrikon Zarivi, the Tajik Minister of transportation suggested that the Pyange bridges will become the terminals through which the lion share of cargo will reach NATO Army. "Seven years ago nobody could believe that the bridges in Pyange would ever become the key element of transportation network in the region, and the only hope of the US military forces deployed in Afghanistan", says Omar Nessar.

Even Tajik direction- automobile route that leads to Afghanistan via Pyange bridge is far from being safe and smooth one. Trip in this direction carries risks. "The cargo that is sent in this direction has to cross four mountain passages, the highest of which is 3000 above the sea level ", notes our interviewee , the employee in the international transportation company which has affiliate in Almaty. The high mountain road is so narrow that it would be very difficult for two trucks to pass one another. In the winter and autumn periods these passages are often closed. There is another route - via Uzbekistan and Turkmenistan to Gerat. The roads are asphalted and can allow of heavier traffic and higher speeds. Till the official visit of Mr Petreus to Tashkent , the government of Uzbekistan didn't bother to lift embargo on the transit of cargo designated for NATO units. The problem has been already solved.

Many Kazakh carriers are lobbying hard to get a share in the long term transportation projects. We have to weigh the chances of the national forwarding agencies to get their chunk of the pie.

Eastern peculiarities

Local forwarding agencies and transportation companies cooperate with Afghanistan for quite a long time. They ensure delivery of different humanitarian and commercial cargo to different Afghani provinces. Our country signed international treaties and assumed responsibility for the future of Afghanistan. Astana provides humanitarian aid on the annual basis. It sends to Afghanistan 400 tons of wheat, construction materials, equipment for hospital and schools. In the years, preceding the crisis the state has been holding talks with local investors who supposedly could provide funds for construction of the railroad Termez- Torham, and other links. All these projects exist only on paper now, because of the crisis that hit all markets, meanwhile Kazakhstan continues to supply Afghans with all necessary commodities. The cargo is usually shipped via the Tajik corridor to Afghanistan. Kazakhs businessmen noted out that the world crisis hasn't taken its final toll on Afghanistan. The Afghan partners are able to pay in cash for furnished goods. No wonder, Afghan economy depends not on the humanitarian aid, generosity of the international institutions and foreign borrowings, but on the opium poppy agriculture. This is a disaster but on the other hand business solvency of Afghan partners is somehow a bonus for Kazakh companies.

If any Kazakh company wants to deal with Afghans it should be aware of the peculiarities of such a partnership. Not all Kazakh businessmen succeed in their business when they have to rely on Afghan partners. There is an increase in orders for firms that appoint descendents from Afganistan to the top managerial posts or if there are Afghani names in the list of founders. Kazindusty LLP based in Kapchagai led by Mohhamad Daud ethnic Afghan is a perfect example of how things are going with such a specific business like transportation of cargo. The company specializes in transportation of goods from China to Afghanistan. Mr Daud says that there is steady and growing demand for metals, woods, fossils, grains in Afghanistan. Afghan partners mainly government based in Kabul are ready to place large orders for grains and wheat. Last winter Pakistan imposed embargo on export of grains and flour to Afghanistan. This provoked shortfall in grains and population of many provinces of Afghanistan was virtually on the verge of dying of starvation. Optimists believe that due to the "Northern corridor" Kabul will grow less dependent on Pakistan and this allow it to prepare local food market to supplies from Central Asia. That is why such transportation companies as Kazindustry and the like are flourishing nowadays in spite of world crisis. They are likely to remain on the same trajectory due to the new orders of NATO coalition forces.

Local transportation companies will have to engage in fierce competition with international ones for NATO chunk of the pie and a right to ship goods to Americans though. To be fair, the chances of local companies to win international contracts are slim. International holdings have a reputation of reliable businessmen and the West can trust them more than to local companies either run by Afghans or linked to Afghan tribes in this or that way. In addition foreign transportation companies have vast experience in transportation field and they owe sufficient labor and financial resources to provide steady shipments of goods and materials for international troops based in Afghanistan.

Today more than 10 companies vie for international contracts on delivery of non military goods to Afghanistan. Some of them such as Russian railways and Kazakhstan Temir Zholi will have their certain stake in the projects. Some main big international holdings can hope for victory. They are Agility (international company that opened office in Kazakhstan ), Transcontainer etc. The price of the contract will depend on the quantity of the produce due to be transported and big quantity will mean lower price. The client company will use other criteria to evaluate potential contractors. For example, Agility a company which has already office in Kazakhstan is one of the biggest and the most reliable companies , operating in logistics and transportation field. It may count on certain benefits as since 1991 since the storm in the desert operation it has been providing NATO troops with different kind of necessities. At the very beginning the PWC firm headquartered in Kuwait won the contract. After series of mergers and acquisitions (for example PWC and Geologistic) Agility group entered the market. Its main offices are in Kuwait. In 2007 Agility struck a deal with Pentagon. Under the contract it had to ship goods to aviation war base located in the suburbs of Manas (Kyrgyzstan). Its trains delivered everything to the base from food to laundry equipment. The company owns 6000 heavy trucks in Kuwait. 1000 of them run the roads of Iraq.

Even the independent experts hired by such giants as Agility are not inclined to believe that the best is yet to come for the company. They hope for the better future but they are not sure that even Agility will be able to win a contract due to the intense rivalry surrounding Afghan project. It is still unclear whether one company will get exclusive right to serve the needs of the US troops in Afghanistan( like Agility in Iraq) or stakes in the projects will be distributed among several applicants. The survey showed that it would be reasonable to accept the second variant due to the quantities of goods and mixed character of transportation (railway automobile highways). What companies will be included in the list of applicants? Final corrections will be made on the basis of final orders placed on the market and transportation fees proposed by the contractors to the client. Much will matter from the route junctions. Domestic transportation companies are interested in contracts for transportations of goods via Tajik- Afghan part of the corridor and mountain passages over Pyange. There are firms which seek to break a monopoly of KTZ for shipping of goods by rail. Other companies such as local affiliates of international companies and national companies intend to fight for the place under the sun. The price of the country is approximately estimated at 100 million of USD a year. Local businesses will be able to raise considerable profits. The governments will also engage in bids to advance interests of the domestic market players. Behind the scenes negotiations will also continue. As the result, we will have international contracts signed. It is just a matter of time.



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