Investments in the energy sector of Central Asia: Corruption risk and policy implications

Abstract

The world is facing serious energy situation. The sense of urgency to guarantee energy security is constantly increasing for many countries. Exploiting foreign energy markets through international investment has become a significant strategy to resolve energy risks and optimize the distribution of energy sources. Central Asia, with the important geographical position and various abundant energy resources, has attracted the interest of the international community and become a popular destination of foreign investments. However, the corruption risk, inter alia, is a big concern for foreign investors, especially in the energy sector. The proportion of corruption in international investment arbitration cases with the five Central Asian countries as the Respondent is high up to 75% in the energy field. Choosing Central Asia as the investment destination in situations like these is a decision made after weighing both the opportunities and risks, with the purpose to establish resource-seeking investment. Against this backdrop, this paper aims to provide policy implications for government regulators, policy makers, and foreign investors. It is suggested to modify bilateral investment treaties, establish legal framework of Central Asian countries, adopt investment facilitation measures, strengthen self-discipline and self-protection of investors and strengthen investment guarantee system.