Kazakhstan Ready for Kashagan Riches

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KARACHAGANAK, Kazakhstan Ч To reach this corner of northwestern Kazakhstan from the country's largest city, Almaty, first take your life in your hands and board a tiny and exceedingly uncomfortable Soviet-made Yak-40 aircraft.

Rattle over the vast and barren Central Asian steppe for nearly six hours to Uralsk, then drive an hour and a half to Aksai. From there it is a mere half hour to Karachaganak.

Remote it may be, peaceful it is not.

For here in the middle of the steppe, one of the world's largest construction projects is under way at a cost of more than $3.5 billion. Underground lie vast reserves of oil and gas, and an international consortium, Karachaganak Integrated Organization, is preparing to extract them.

At its peak the project will employ more than 10,000 people, mostly Kazakhs, and will place orders for a huge range of goods and services with Kazakh companies.

Already a complete city for the workers is being built, as well as a bewildering range of gleaming high-tech plants to process oil and gas.

Such scenes are being repeated, or soon will be, across the country.

Kazakhstan, the size of Western Europe but with just 15 million people, has colossal reserves of oil, gas and a whole host of other mineral resources, mainly metals.

It has also been conspicuously successful at attracting the huge sums of investment needed to develop them. Some of the world's largest oil and gas companies, the likes of ExxonMobil, Shell, BP Amoco, Chevron, BG PLC. and many others, are in Kazakhstan.

There is a long way to go. The biggest oilfield in the country, Kashagan, which may be the world's largest find in 30 years, is only now being explored and is years from producing.

Exports are limited by a lack of pipelines from the landlocked country to markets, and Russia, Iran and Turkey, backed by the United States, are vying to ensure the precious liquid passes through their favored route.

But already, 10 years after independence from the Soviet Union at the end of 1991, the Kazakh economy is picking up.

Expectations are high that within 10 to 15 years, and certainly by 2030 Ч an arbitrary date selected by the government Ч Kazakhstan should become rich in the way Gulf Arab states did on the back of oil from the 1970s onward.

The signs of coming wealth are everywhere.

Construction is going on at a relentless pace in the new capital, Astana, now being transformed from a sleepy steppe town into an impressive center following President Nursultan Nazarbayev's decision to move the government from Almaty.

Towns near the oilfields are also changing. Atyrau, the country's oil capital, is getting a facelift. Sleepy Uralsk, near the Karachaganak field, has new schools, hospitals and cultural centers provided by the consortium, which must spend $10 million a year on local social projects.

And life in the old capital, Almaty, with its wide tree-lined streets and a spectacular backdrop of readily accessible mountains, is becoming easier and more comfortable all the time as the economy improves.

Given the changes taking place, the country's central bank chairman, Grigory Marchenko, complained last month that the credit ratings assigned to Kazakhstan by international agencies were unjustifiably low.

"Some of our ratings are as low as in 1996. This can hardly be explained," he told a news briefing. Marchenko added that outsiders failed to distinguish properly between the differing pace of economic development in former Soviet republics.

As if on cue, 10 days later ratings agency Standard and Poor raised its assessments to reflect "significant improvement in the country's external liquidity Е and adherence to prudent fiscal and monetary policies."

It added that "the construction of new export routes Е and confirmation of new reserves of oil and gas in the Caspian Sea would also underpin the country's creditworthiness."

But while the economic indicators appear highly encouraging, nagging doubts remain about the political process in this country where the president tolerates little opposition and enjoys sweeping powers, and his family holds huge influence.

"The ratings on Kazakhstan continue to be constrained by the highly centralized decision-making process and weak democracy," says Standard and Poor's.

For German Foreign Minister Joschka Fischer, the call for more democracy was the main theme of a recent visit to Astana.

He told a group of opposition leaders, who complained to him of abuses in the democratic process, that future development of the economy demanded greater transparency, and that this was "impossible without a greater division of powers."

Kazakhstan has a freer press than most other countries in Central Asia, with frequent criticism of senior government ministers. But diplomats and local journalists say three subjects Ч the president himself, his family and the new capital Ч are broadly off-limits.

Nazarbayev, the country's sole ruler since independence, is in firm control. Long-term investors, for example in the energy sector, where projects can last 40 years or more, welcome the stability that this brings.

But political analysts say the lack of a clear successor, and hesitancy by some investors to come to Kazakhstan because of the perceived lack of political freedom, may act as a brake on the economy from booming as fast as it could, given the country's vast mineral wealth.

At Karachaganak, work proceeds apace as the consortium prepares to get its first oil out on schedule.

"If you come back in June 2003, that's when the first oil is due," said Mike Richardson, site supervisor at the main oil and gas-processing center. "And we'll be ready."