Questions concerning Kazakhstan’s future go beyond oil
by Charles Coe
When it’s said that something holds a lot of promise, it is generally taken to mean that positive things lie
ahead. But in Kazakhstan’s case, it is beginning to look as if the country’s promise for the future could
swing either way.
After only 10 years as an independent state, it’s been established that Kazakhstan has recoverable crude oil reserves of around 30 bn barrels. The country has attracted around $ 20 bn of foreign investment, mostly from Western energy companies. More investment is expected, and it looks very likely that by the end of the decade, Kazakhstan will establish itself as a major non-OPEC oil producer.
The downside to this is an apparent slide into political authoritarianism and efforts by President Nursultan Nazarbayev and his family to control the country’s hydrocarbon industry. Corruption, rumours of Swiss bank accounts, harassment of the independent media and silencing of the government’s political critics are now becoming hallmarks of the Kazakhstani regime. President Nazarbayev once compared Kazakhstan to Saudi Arabia. Perhaps he was referring to more than oil production.
In recent weeks, the co-founders of the Democratic Choice political party, both of whom are former government
officials, have been hauled into court on what are widely perceived to be trumped-up political charges. On 18 July,
Mukhtar Ablyazov, the former energy minister, was sentenced to six years in prison and a fine of $ 3.5 mm for abuse
of office. Galymzhan Zhakiyanov, the former governor of Pavlodar, cannot be expected to fare better.
On July 16, President Nazarbayev signed into law a bill that is expected to eliminate a good portion of what free political opposition might exist in Kazakhstan. The new law requires any officially registered political party to have 50,000 members rather than the previous 3,000. Only three political parties -- all of them loyal to the government -- are expected to qualify as recognized political organizations under this new law. Furthermore, all of Kazakhstan’s 19 political parties must re-register.
Meanwhile, the media has suffered harassment in the form of fire-bombings, power cuts, beaten journalists, threats of
future reprisals and the discovery of headless dogs on their premises. The United States, which recently received
permission from authorities in Astana to land aircraft in Kazakhstan when warranted by an emergency as part of its
war on terror, has picked up on the authoritarian trend in the country.
“In Kazakhstan, we are increasingly concerned about recent developments,” State Department spokesman Richard Boucher said on July 18. “We’ve seen restrictive legislation regarding political parties. There’s been ongoing harassment of opposition figures and the independent media. These things pose a serious threat to the democratic process in Kazakhstan. Senior officials from Washington as well as our embassy in Almaty have made our concerns clear to Kazakhstani authorities that we would like to see them reverse that anti-democratic trend and recommit to protecting and advancing the basic democratic tenets.”
But actions speak louder than words. Democracy is not a prerequisite for investment in a country’s oil industry
or purchases of crude oil. Despite the daily testimonial from Washington that the US government intends to overthrow
Iraq’s Saddam Hussein, the United States continues to import Iraqi crude. Democratic backsliding in Kazakhstan
is unlikely to curb the US desire to improve its profile in Central Asia.
Oil companies too have proved that the domestic political scene in a country makes little difference in their decisions to invest there. But it could be that in Kazakhstan’s case, small foreign investors might be wondering more than the big oil companies if they might have incurred more political risk than they originally expected.
Kazakhstan’s recent treatment of Canada’s Hurricane Hydrocarbons might be something of a litmus test.
Hurricane had been a week away from purchasing a 49.9 % share of Kazakhstan Pipeline Ventures (KPV) for $ 100 mm from
BP’s Production Company when the deal was halted by KazMunayGaz, which holds the other 50.1 % of KPV. A
shareholding in KPV would have given Hurricane a stake in the Caspian Pipeline Consortium (CPC) and the right to
export 64,000 bpd through the Tengiz-Novorossiisk pipeline, thus saving it millions of dollars every year in
But for some as yet to be disclosed reason, KazMunayGaz reversed its approval of the deal, saying that the Ministry of Energy and Mineral Resources must first approve Hurricane’s development plans in the South Turgai basin. As it was impossible to have the plans approved before the share deal’s deadline, Hurricane withdrew from its agreement with Amoco Production.
Earlier this month, Hurricane’s CEO Bernard Isautier said the company’s strategy for the future was being
put on hold. “We still don’t have all the answers we require,” Isautier said. “We were
extremely disappointed that an agreement given before was de facto withdrawn.” Since the agreement fell
through, Hurricane’s stock value on the Toronto stock exchange has slipped by more than 30 %.
“Until the CPC transaction fell through, we had a clear strategy of continued investment in Kazakhstan -- in upstream and downstream as well as other onshore acquisitions,” Isautier said. “This must now be revisited. It’s very difficult to operate when you are never sure that agreements will stick. To put it politely, it raises questions on investment in Kazakhstan.”