Eurasia Note #15 - Kazakh Riches And Rivals

Some foreign investors flee, citing business conditions: regular corruption or pillage?

Jan 09, 2022

UPDATE
Former president Nursultan Nazarbayev last seen in public on Dec 28
Nazarbayev spokeman insisted he was still in the country, as of Jan 8
Former intelligence chief Masimov arrested, held for “treason”
President Tokayev has blamed unrest on foreign fighters
Kyrgyz resident tells media he was paid $200 to protest
Interior ministry says 16 security officials killed and 1,300 injured
Petrol/gas stations reopen, internet services are not yet fully restored
Flights still disrupted; largest airport, Almaty, not yet fully open

Kazakh president Kassym-Jomart Tokayev with predecessor, longstanding president Nursultan Nazarbayev (left)

Tbilisi, Jan 9, 2021

A political realignment may be behind the violent unrest in Kazakhstan. Whether it will oust incompetence in official ranks — or simply rearrange the hands on the cash register — remains to be seen.

With an intelligence chief under arrest, Kazakhstan’s president Kassym-Jomart Tokayev continues to argue that foreign insurgents led the unrest.

Former prime minister Karim Masimov is being held for treason, as of Jan 8th. He was removed as head of the country’s counter-intelligence service, the National Security Council or KNB on Jan 5th after reports that the agency knew militants were training in the Kazakh mountains and that it stood down security cordons during the riots.

The protests began in the western oil cities but the connection with black gold may go deeper. A number of international companies have quit Kazakhstan over the past 18 months, a sign of a worsening business climate in the wealthiest Central Asian country.

BP and Royal Dutch Shell are among the oil majors to close operations in Kazakhstan, while Austrian petrochemical firm Borealis abandoned a deal worth almost $7 billion.

It could be a sign of corruption and poor management by officials, or it may be that Kazakh elites have become more grasping and kleptocratic as they jockey in The Great Reset, which is after all, about power and lucre.

They would not be alone in that regard among the international political and business elite. America’s richest added more than $1 trillion to their wealth in the pandemic — much of it from government contracts or from lockdown rules that favoured big business — while U.S. poverty is rising at its fastest in half a century.

Swapping seats

Masimov was a long-serving prime minister under former president Nursultan Nazarbayev. It leaves open the possibility that Masimov may have tried to displace president Tokayev or his allies — or that Tokayev took the opportunity to strengthen his position. The head of his personal protection service Ermek Sagimbayev is the new head of the KNB.

As “father of the nation” 30-year ruler Nazarbayev commands considerable loyalty. Tokayev removed Nazarbayev as chairman of the Security Council on the same day that he fired Masimov.

Ex-Minister of Culture and Information Ermukhamet Ertysbayev has alleged that security officers were ordered to stand down as militants took over Almaty airport and key official buildings.

For more on who’s who in Kazakh politics see the excellent insights of Joanna Lillis at Eurasianet. [1]

Mopping up

Kazakh cities remain under curfew and in the capital, Nur-Sultan (formerly Astana) residents are advised to stay indoors and report any sightings of suspicious persons. Police in the largest city Almaty said they had arrested terrorists and seized an arsenal of guns, along with petrol bombs and foreign passports.

Kazakh media published a video in which one detainee claimed that he flew from Kyrgyzstan and was paid the equivalent of $200 by "unknown people" to participate in a rally. He was given an apartment in Almaty together with people from Uzbekistan and Tajikistan.

On the other hand it’s hardly surprising to find foreigners in the country. Kazakhstan is the most economically developed Central Asian country and like Russia attracts workers from Tajikistan, Uzbekistan and Kyrgyzstan.

Oil and politics

As we pointed out in Note #14 the oil towns in the west of the country saw the first protests. Workers in Zhanaozen rallied against rising fuel prices. Rail lines were disrupted on Jan 6th, reducing output. Now comes news that a labor dispute at the Tengiz oil field has been settled with a pay rise for workers. Chevron is the largest foreign oil producer in Kazakhstan with a 50 per cent stake in the Tengizchevroil (TCO) joint venture.

Other oil companies have left or reduced operations. BP was the latest, in Mar 2021, to abandon three oil projects. It said it had changed its focus to renewable energy — and walked away after 18 months of work on the offshore blocks in the Caspian Sea. In Oct 2020 Royal Dutch Shell exited two project in the Kashagan field, saying it judged them uneconomic.

At the time, industry analysts said falling oil prices had lowered break-even costs but those costs include licence fees to local governments as well as less formal payments.

In Dec 2020 OMV Petrom, an Austrian-Romanian consortium, sold its assets Kom-Munai and Tasbulat Oil in the western Mangistau region where it had operated since 1998, saying that it would instead operate in the Black Sea.

As an example of financial machinations and opaque dealing in natural resources, Tasbulat was at one time owned through the secretive holding companies in the British Virgin Islands and Cyprus.

Wojciech Ostrowski, author of “Oil and Politics in Kazakhstan” (2010), wrote that joint ventures which look from the outside like a partnership with foreigners are often in fact a Kazakh-Kazakh company.

“In a well-rehearsed pattern, the Kazakh partner provided access to the oilfields (licences) and the outside interests would provide the much-needed capital. However, whereas in some cases foreign capital seemed to be truly foreign, for instance Hungarian, in other cases this ‘foreign’ capital was most likely Kazakh.”

OMV sold the Mangistau fields to Magnetic Oil, which was apparently set up in Oct 2020 by two Kazakh individuals for the purpose of the purchase. The price was not even disclosed. [2]

Foreigners are not merely fleeing a downturn in the oil price, however. In 2018 an Austrian company Borealis struck a deal to build a $6.8 billion petrochemical plant in Atyrau region, to use its patented technolgy to produce polyethylene from the giant Tengiz oil and gas.

After two years of planning it cancelled the 50:50 joint venture with Kazakh state-owned United Chemical Company, citing Covid. [3]

Cost of business

Back in my days as a reporter in Moscow I spoke to the overseas executive of an oilfield services company about his experience with corruption, which is unavoidable in some places, whatever the U.S. Department of Commerce may say. He regarded it as a cost of doing business. What mattered was how disruptive it was to the operation.

For example in Russia he would be approached by someone in the security services. In return for a fee all obstacles would be smoothed. There would be no further extortion or disruption to supplies, greedy mayors or bothersome inspectors. In Latin America, in contrast, politicians would still be trying to renegotiate their “commission” after the project was complete.

Kazakhstan will be somewhere on this sliderule and being in the top dozen oil producers, there’s a lot at stake. When companies start using words like “uneconomic” about some of the world’s biggest oil reserves that can reflect human and institutional obstacles as opposed to efficiency.

Dénouement

Specialists in the region are now assessing whether Kazakhstan’s relationship with Russia will be refreshed by the recent assistance of Collective Security Treaty Organization forces.

Like many in the post-Soviet space the country has toyed with promoting its native tongue over Russian, even though the latter remains the business language in much of the region. This can get too much attention — Russia finds it diplomatically more astute to manage relations with economically-powerful countries like China and Kazakhstan precisely through the dialect of business.

Talk of foreign fighters, security forces being stood down and the arrest of an intelligence chief will become clearer in coming days. It was a far cry from its origins as a protest about fuel, food and vaccine mandates. Nor did it follow the color revolution script of street theater and costumed people handing out flowers.

Whatever happened, the rapidity of the CSTO’s intervention nipped it in the bud (forgive the pun). Russia seems ready to take firm action against regime change.

Thanks to KazTAG and Sputnik Kazakhstan for collating information on Telegram.

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