Kazakh Crisis Blamed On Crime

The Kazakh Prosecutor General's Office said criminal activity by builders and lax government oversight contributed to a crisis in the former Soviet republic's construction industry.

Prosecutors reviewed 104 companies that are behind schedule on residential projects or have failed to begin work after receiving prepayment from homebuyers. They found "signs of criminal activity" in 25 cases, including theft of investors' money intended for construction, according to a report posted on the prosecutors' web site last week.

Only 47 of the companies are legitimate builders that fell behind schedule because of tight credit, prosecutors said. The remaining 32 companies fell behind because they lacked experience in construction.

Kazakhstan's $100 billion economy grew more than 10 percent annually from 2000 through 2006, sparking a building boom in the Central Asian country, which holds 3.2 percent of the world's proven oil reserves.

Growth slowed to 8.5 percent last year as banks curtailed lending amid the global credit crunch, leaving builders short of funds.

Prosecutors said the "complicated economic situation in the country and the world" isn't the only cause for the downturn in construction. Criminal activity by builders and a "lack of control from local authorities" played an equal role.

At least five companies were building without a license, and the authorities "took no measures to stop this illegal activity," prosecutors said. In some cases, unqualified companies paid bribes to obtain a license.

Seven people have been jailed as a result of prosecutors' probes, and another 27 criminal cases are underway.

A total of 285 companies are building 407 residential projects in Kazakhstan and have received 231 billion tenge ($1.9 billion) in prepayments from more than 50,000 individuals and companies, prosecutors said.

Kazakh Prime Minister Karim Masimov said on Sept. 10 that construction companies may face bankruptcy and their owners punishment if they fail to work out agreements with their creditors within two weeks to complete stalled projects.

Masimov said that if cash-strapped builders hand over control of specific projects to banks, the government will help them. If they won't work with the banks to get the projects built, "let the banks apply to have the companies declared bankrupt, and we'll send the people responsible, who didn't solve the problem, where they belong," the state-run Kazinform news service quoted him as saying.