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. Last Updated: 07/27/2016

Oil Giants Fear Kazakh Changes

APNursultan Nazarbayev
ALMATY, Kazakhstan -- Western investors flocked to oil-rich Kazakhstan after the Soviet collapse. Now they worry that the leader under whom they have been building up their businesses here for more than a decade might be on his way out.

Popular uprisings in three ex-Soviet republics over the past year and a half have rattled the government of President Nursultan Nazarbayev, whose 16-year rule has been marred by allegations of corruption and stifling dissent -- the same sins opposition protesters pinned on the leaders they ousted from Georgia, Ukraine and Kyrgyzstan.

Kate Mallinson, Central Asia analyst at the London-based consulting firm Control Risks Group, said her organization has seen increased concern from clients about the possibility of a repeat in Kazakhstan of the March 24 ouster of the Kyrgyz president.

"Owing to the high level of foreign investment in the oil and gas sectors, and the current concern over security of hydrocarbon reserves, both the financial and political risks for the West are much higher in Kazakhstan than in countries like Kyrgyzstan and Georgia," she said.

That leads to political passivity among investors, said analyst Nurbolat Masanov, who asserts that fear of losing profitable oil deals in Kazakhstan deters the West from actively promoting democracy here.

"We are hostages of the [U.S.] Chevron-Nazarbayev relationship," he said. "The West must understand that oil reserves will be diminishing, and the postponement of democracy in oil-rich countries is just postponement of a crisis."

The media rights group Adil Soz has said that soon after the Kyrgyz uprising, the management of Tengizchevroil, a joint venture that is developing the huge Tengiz oil field, blocked Internet access for its staff to opposition newspapers' web sites. Tengizchevroil responded with a statement denying any change of its Internet access policy.

Kazakhstan boasts the highest per capita foreign investment rate among post-Soviet countries and some successful market reforms, which have allowed it to leave its Central Asian neighbors far behind.

According to the Kazakh Energy Ministry, between 1991 and 2004 the country of 15 million attracted more than $30 billion in direct foreign investment. Last year alone, transnational oil companies put $2.5 billion into three major Kazakh oil fields.

Observers say that despite the country's apparent relative prosperity and stability, Nazarbayev's reign is corroded by high-level corruption and nepotism -- which give his family and close circle huge enrichment opportunities -- and by a lack of democratic reforms and popular support.

Still, for Western investors, Kazakhstan has been one of the favorite destinations among ex-Soviet republics.

"Big foreign investors don't have much to complain about Nazarbayev. There is not much extortion by government agencies on that level," said Petr Svoik, a former government official who is now one of the leaders of the opposition movement For a Fair Kazakhstan.

On the other hand, investors have to rely on specific people, not institutions, Svoik said, singling out the metal and ore giants Eurasian Group and Ispat, and U.S.-based Chevron, which he said "need exclusive relations with the president, government and local governors" to secure their interests.

"Foreign investors are worried: How much more time does Nazarbayev have and what kind of system will be created when he goes?" Svoik said.

CRG's Mallinson said another reason why Nazarbayev's possible departure could worry investors was because Nazarbayev's family itself controls many of Kazakhstan's economic assets.

"There would undoubtedly be a redistribution of assets following any transfer of power, which could seriously affect foreign investors' interests," she said.

However, a member of the European Business Association of Kazakhstan said, on condition of anonymity, that if a distribution of assets happens in case of a change of power, it would not affect foreign investors "that acquired their interests in accordance with the law."

He also said that most investors in Kazakhstan "do not seem overly concerned" about a possible public uprising because it is "much more prosperous" than Kyrgyzstan.

There is also a wide public belief among Kazakhs that the oil contracts that Nazarbayev struck in the 1990s with transnational companies do not meet the nation's best interests, and any government replacing Nazarbayev's would be likely to seek to review those deals.

One of the opposition's main accusations against Nazarbayev is the lack of transparency in the energy sector and the fact that oil revenues do not reach ordinary Kazakhs. He was allegedly implicated in a bribery scandal involving his former U.S. adviser on oil contracts, James Giffen, who is accused of getting millions of dollars in kickbacks for himself and top Kazakh officials while negotiating the Tengiz deal for Chevron and Mobil. The trial against Giffen is due to begin in New York in January 2006.

Independent oil expert Vasiliy Lukyanchikov said, however, that it was unlikely that the opposition, if it took over, would want to spoil relations with foreign investors.