EU-Kazakhstan Raw Material Cooperation Prior to the MoU
The EU’s relationship with Kazakhstan, stretching back to the early 1990s after Kazakhstan’s independence, began to gain real momentum after 2019 with the New EU Strategy on Central Asia. This momentum was further bolstered by the signing of their Enhanced Partnership and Cooperation Agreement (EPCA) which came into effect on 1 March 2020. These agreements not only aimed to bring the parties closer economically and politically but also hold significant importance in implementing long-term sustainable green policies.
Green initiatives play a pivotal role in addressing environmental concerns and mitigating the impacts of climate change, for the EU in particular in light of the Green Deal and the Paris Agreement. However, the transition towards green policies is increasing the demand for critical raw materials such as copper, lithium, nickel, cobalt, and rare earth elements, essential for the development of sustainable energy solutions such as batteries and wind turbines. Therefore, countries are aiming to increase their domestic capacities in mining, processing, and refining, while also engaging in diplomatic efforts with trade and partnership agreements to secure their related supply chains. The signatory parties recognise the EPCA as a significant diplomatic initiative to promote collaboration between the EU and Kazakhstan across various domains, including facilitating partnerships and cooperation opportunities in energy goods and raw materials as indicated in its Article 148.
Another noteworthy endeavour on the EU’s part to enhance the significance of the Kazakhstan-EU relationship concerning critical raw materials was the unveiling of the European Commission’s Action Plan on Raw Materials in 2020. One of the primary objectives (Action-9) of this action plan was to enhance collaboration with like-minded and resource-rich countries like Kazakhstan, aiming to enhance the resilience of the EU’s green industry as per the REPowerEU Plan, which also fosters the development of green industry value chains in partner countries. In this context, Kazakhstan, renowned for its abundant underground resources and positively evolving relationship with the EU, emerges as a pivotal player, presenting an opportunity for the EU to challenge China’s dominance in the upstream of the green industry value chain and to diversify its supply sources.
The EU is Kazakhstan’s biggest trade partner and foreign investor. Kazakhstan also holds the strongest relationship with the EU among the countries of Central Asia and was the first among the EU’s Central Asian partners to conclude an EPCA. When it comes to underground resources, Kazakhstan is listed among the top 20 nations with proven reserves of chrome, zinc, lead, copper, gold, titanium, iron, manganese, cadmium, and bauxite. Over 50% of the critical materials listed by the EU are already produced in Kazakhstan. Moreover, the country is considered to hold significant potential reserves of other minerals like lithium. According to World Bank calculations, Kazakhstan is home to over 5,000 undiscovered deposits with an estimated value exceeding 46 trillion USD.
It also demonstrates the high level of importance of the issue for the EU. The period leading up to 2030 is expected to pose significant challenges for its metal supply, particularly concerning copper, lithium, nickel, cobalt, and rare earth elements, to be able to meet the criteria of the Paris Agreement. Thus, in a broader sense, the MoU should be considered as a complementary component of the Paris Agreement, European Green Deal and New EU Strategy on Central Asia.
Progress Made since the MoU
The MoU is the latest development in the critical raw material cooperation’s field between Kazakhstan and the EU. Signed on 22 November 2022, it became operational on 18 May 2023 and highlights a commitment to set up joint investment projects, closer cooperation in geological exploration and research, the integration of raw materials, hydrogen and battery value chains, as well as the utilisation of funding instruments and aligning high environmental, social and governance (ESG) standards. As the first anniversary of the MoU’s entering into force approaches, it is a useful exercise to conduct an assessment of its impacts and determine the extent to which the intended objectives have been realised. As specified in the MoU, dedicated working groups and high-level meetings have been designated as means to ensure its smooth implementation. Additionally, the agreement’s implementation objectives were supposed to be detailed in the roadmap, foreseen to be published within 6 months after the signing of the agreement, and supposed to outline the objectives and concrete actions for the 2023-2024 period. Nevertheless, neither the roadmap nor the working group decisions have been made publicly available to date. Thus, only an assessment of recent developments can be made, as well as an attempted evaluation of its effectiveness so far.
The Kazakh government has officially announced that EU investments in Kazakhstan in 2023 totalled 7.8 billion USD across various sectors, including CRM, despite a minor decrease in EU investments compared to the previous year (2022).
More concretely, European companies and consortia significantly increased their lithium exploration efforts in Kazakh fields during the period after the signing of the MoU. For instance, in June 2023, Kazakhstan and Germany signed 23 agreements in a variety of areas worth a total of 1.7 billion USD in which German company HMS Bergbau signed a 200 million USD investment agreement in lithium exploration, extraction and processing in Kazakhstan. Germany was followed by France in November 2023, which signed agreements in several areas worth 1.7 billion USD and which continues to search for new opportunities, specifically in relation to critical minerals. In January 2024, German companies formed a consortium for lithium mining in Kazakhstan. These recent developments between the EU and Kazakhstan, including mining investments, were also articulated by the Kazakh Deputy Foreign Minister Roman Vassilenko during the 38th meeting of the Berlin Eurasian Club in Brussels on 19 October 2023.
Significant developments are also observed in supporting logistics projects critical for the transportation of raw materials to Europe. The European Investment Bank (EIB) has entered into MoUs with the Central Asian countries on 29 January 2024, including with Kazakhstan, to co-finance transport projects to implement the Global Gateway initiative.
However, despite a noticeable increase of EU investments in CRM last year, the question of whether investments have fully reached their expected level of engagement and anticipated pace remains a matter of debate. On 23 October 2023, the Kazakh side expressed the desire to accelerate progress at the 19th Central Asia-European Union Ministerial Meeting held in Luxembourg. In the course of time, President Tokayev also invited Italian businesses to collaborate in the extraction and processing of critical raw materials during the Kazakh-Italian roundtable in Rome on 18 January 2024. A similar call was made to German companies in September 2023 by President Tokayev.
Kazakhstan also started to take important steps to accelerate investments. On 5 March 2024, it opened an investment office in Brussels and hosted an inaugural event attended by over 60 high-ranking officials and key sector representatives from the EU. During the opening ceremony, Bauyrzhan Mukayev, who heads the office, explicitly stated that one of the primary motives behind establishing an investment office in Brussels was to attract investments for exploring critical raw materials. This declaration underscores Kazakhstan’s commitment to pursue a proactive strategy aimed at expediting EU investments for CRM in the country.
Kazakhstan’s Role in Meeting Future Demand for Critical Raw Materials
As the world embraces renewable energy and digitises its economies and societies, there is a forecasted surge in demand for specific critical raw materials in the coming decades. Thus, a global competition for CRM is underway, compelling countries to swiftly secure their supply chains. The EU has been actively engaging in significant trade and partnership agreements with its external partners. Trade agreements with Canada and Chile, along with partnership agreements with Namibia, Ukraine, and again Canada, are noteworthy initiatives in securing its critical raw material supply chain. The MoU signed with Kazakhstan is another step in achieving the EU’s goal of reducing dependency on China and diversifying its supply sources in order to reach the Paris climate targets and address the EU’s growing demand.
Nevertheless, the EU is not the sole actor in Kazakhstan. Several non-EU countries including South Korea, Indonesia, Canada and China are already continuing their investments in CRM exploration and extraction in the country. Kazakhstan also continues to increase economic relations with its neighbours like China, which has significantly increased its mineral trade with Kazakhstan in recent years, especially in minerals with relatively lower supply risks, such as molybdenum, zinc, copper, and lead, which are also used in renewable energy, battery production and electrical vehicles (EVs).
However, lithium emerges as one of the most risk-assessed minerals in the EU’s forecasts, which is particularly critical for the production of batteries used in energy storage systems (ESS) and electric vehicles, anticipated to experience an increase in demand of more than 10-fold by 2040 compared to 2020 levels. Chile, Australia, Argentina, and China stand out as the countries with the highest lithium reserves. Nevertheless, according to the International Renewable Energy Agency (IRENA), there is a projection that the demand for lithium will already exceed its supply by the year 2030 (see Figure-1). Consequently, the discovery of new production fields and reserve areas becomes essential to meet this rising demand, to which Kazakhstan could provide a solution.
Figure-1: Projected Demand and Supply for Lithium
Source: IRENA
Although Kazakhstan does not rank among the top 10 countries globally in terms of proven reserves, ongoing exploration activities in the country seem promising. Recently, the Korea Institute of Geoscience and Mineral Resources (KIGAM) announced the discovery of a significant lithium deposit (worth 15.7 billion USD) in the eastern part of Kazakhstan. The lithium exploration activities yielding positive results can strategically position Kazakhstan on the upstream of the green industry value chains and make significant contributions to the successful implementation of green and sustainable policies.
Future of the MoU
The relationship between EU and Kazakhstan on critical raw materials accelerated by the EPCA was anticipated to gain even more momentum with the MoU. However, the Kazakh side’s expressions of a desire for expedited action, coupled with its establishment of an office in Brussels aimed at attracting investments, can be interpreted as Kazakhstan recognising untapped potential for further growth in its relationships with the EU and attracting investments. Kazakhstan’s willingness should therefore be viewed as a significant opportunity for the EU.
On the other hand, the high demand of CRM driven by green policies is evident. Analyses also indicate that if the rate of supply growth does not keep up with the rate of demand growth, there will likely be a shortage of lithium over the next 10 years. Thus, to prevent supply crises in the near future, it is essential to enhance investment and collaboration related to lithium and other minerals in resource rich countries like Kazakhstan. In this sense, for the effectiveness of the MoU to be raised, there is a need to focus on some main areas, the first one being the need for the EU to become more proactive. The Kazakh investment office in Brussels is a significant step in this regard. To accelerate investments, however, the Kazakh side also needs to be more informative and proactive in reaching out to investors regarding the opportunities available and increasingly favourable investment environment in the country (such as subsidies, business environment, taxation, etc.) through events, publications, and informational materials distributed via multiple channels. The pitfalls, drawbacks, obstacles and any other barriers that risk to reduce the pace of investments will also need to be clearly identified and addressed. Additionally, the implementation of the MoU has to become more transparent. The roadmap has yet not been published and should be released as soon as possible. Lastly, there is scarce public information available regarding follow up and the decisions made by the MoU’s working groups. Transparency fosters investment, and sharing information enables investors to make more sound decisions.
Accelerating investments will thus be beneficial for both sides. Time is running out to achieve the goals of the Paris Agreement, and there is a serious ongoing struggle for the control of limited resources. The EU’s and Kazakhstan’s efforts, as well as taking more transparent and timely steps, will be crucial for achieving the desired potential in their relationships and investments. The opportunities are there, it is up to the EU and Kazakhstan to grasp them in a sustainable way, now rather than later.
Author: Umut Saglam, Visiting Researcher in Brussels
Photo credits: Pixabay