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. Last Updated: 07/27/2016

Falling Satellites as Bargaining Chips

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The Baikonur Cosmodrome, gas from Turkmenistan and the Black Sea Fleet in Ukraine are all issues of national interest located outside the country's borders that have of late become the subject of negotiations with other members of the Commonwealth of Independent States.

While the other countries hold some serious bargaining chips in these negotiations, Russia is not dealing entirely from a position of weakness.

A Proton-M booster rocket carrying a Japanese JCSAT-11 commercial satellite crashed last week after lifting off from Baikonur, with some of the debris coming down 50 kilometers outside the city of Dzhezkazgan. The Kazakh government has already prohibited the launching of any version of the Proton rocket until the reasons for last week's accident have been determined. In keeping with the rental agreement for the site, Russia will be required to pay for any environmental damage caused by the accident. Viktor Khrapunov, Kazakhstan's emergency situations minister, said Monday that levels of contaminants contained in rocket fuel at the site where the Proton-M fell were from 1,100 to 5,200 times higher than normal, and that the full damage from the mishap had yet to be determined.

The matter doesn't end there: Kazakh Prime Minister Karim Masimov pointed indignantly to the fact that the launch occurred at the same time that Kazakh President Nursultan Nazarbayev was visiting Dzhezkazgan. The Kazakhs have subsequently prohibited any launch when the president is in an area falling under a rocket's planned trajectory, and they have indicated that they want an agreement with the Russian side on "securing the safety of the president of Kazakhstan during launches from Baikonur."

These announcements look like they were made as a signal that the Kazakh government is getting ready to lodge some serious complaints with Moscow. The complaints will undoubtedly come with a price tag.

Russia currently pays Kazakhstan $115 million per year in rent for the Baikonur site. The latest Proton launch alone was insured for $300 million, and the Federal Space Agency generates significant revenues from commercial launches. The Kazakh government wants to make sure that it gets its fair share.

There are a few strategies Kazakhstan might use to put a little pressure on Moscow. The temporary moratorium on Baikonur launches, for example, could force the space agency to alter its schedule. Four more Proton rocket launches are planned for the remainder of the year, carrying international satellites and elements of Russia's global navigation satellite system, which President Vladimir Putin has identified as a priority project.

Evidence that the Kazakhs are likely to be more demanding this time around can also be found in an example from another sector. Not long ago, the government suspended work on the country's largest oil field. The AgipKCO consortium, which was developing the Kashagan field, was hit with charges of a number of environmental violations. This came not long after the authorities announced that they wanted to review the conditions of the production-sharing agreement with the consortium, as the government has become concerned over the pushing back of the start date for production and rising costs.

The government's hard line can be explained by the threats to its plans for increased oil exports and the country's difficult financial situation, as it has significant exposure to the global liquidity crisis because of its banking sector's significant external debts and a growing current account balance deficit.

But there are some weak points in Kazakhstan's negotiating position when it comes to Baikonur. It is true that the site has unique characteristics that can't be reproduced at others, like Plesetsk, near Arkhangelsk, or Svobodny, in the Amur region. But if Russia balks at a rent hike, Kazakhstan will not be able to sell Baikonur to anyone else, something it tried to do, unsuccessfully, in the mid-1990s. So the cost of the rental agreement, which was recently extended to 2050, will likely rise, but not by as much as Kazakhstan would like.

The Baikonur problem is reminiscent of issues that have arisen with other neighbors as Moscow has shifted to a market approach in relations.

Ukraine, in another recent example, wants to review an agreement to station the Black Sea Fleet in Sevastopol. The current deal runs through 2017, and Kiev has so far had no success in getting it altered. Russia can use a number of levers in trying to pressure Ukraine, running from energy to politics, particularly through the influence of pro-Russian Prime Minister Viktor Yanukovych.

Turkmenistan, meanwhile, wants a higher price for the natural gas it sells to Gazprom and is threatening to sell it to China or Europe instead. But China isn't willing to pay any more than Gazprom is now, and there are still no pipelines to either China or Europe.

Interestingly enough, Kazakhstan depends on Russian pipelines as well.

This appeared as an editorial in Vedomosti.