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KAZAKHSTAN: BUSINESS CLIMATE GROWS GLOOMY AMID ARBITRARY ARREST CONTROVERSY
Joanna Lillis
Eurasianet
http://www.eurasianet.org
June 10, 2009
Foreign investors and Kazakhstan's business elite have been shaken
by the arrest of one of the country's most respected and successful
entrepreneurs. As investors look on nervously and some of the country's
top executives protest openly, a probe of all state companies has been
ordered. So great has been the controversy stirred by the arrest of
Mukhtar Dzhakishev, former head of the state nuclear agency, that
President Nursultan Nazarbayev felt compelled to intervene.
Dzhakishev was fired as head of Kazatomprom on May 21 and officially
arrested four days later on suspicion of stealing state property. (His
wife insists he was actually arrested on May 21).
According to the National Security Committee (NSC), he is accused of
appropriating as his personal property 60 percent of Kazakhstan's
uranium deposits worth tens of billions of dollars. The NSC says
Dzhakishev committed the alleged crimes in collusion with fugitive
banker Mukhtar Ablyazov, his longtime associate. Separately, Ablyazov
is accused of running an organized crime ring at BTA Bank, which he
owned until the financial institution was forcibly nationalized in
February. [For background see the Eurasia Insight archive].
On June 1, the NSC showed journalists a video of three former
Kazatomprom vice presidents, Malkhaz Tsotsoria, Askar Kasabekov and
Dmitriy Parfenov, relating how offshore companies and joint ventures
were allegedly set up to misappropriate vast uranium deposits,
including those at Akdala, Southern Inkay, Central Mynkuduk and the
Khorasan mines. The three vice presidents are now state witnesses in
the case rather than suspects, the Kazakhstan's National Security
Committee says. A fourth vice president, former NSC chairman and
Nazarbayev associate Nartay Dutbayev, is not under investigation.
More arrests are possible: the NSC officer leading the investigation,
Vladimir Petrovsky, said "famous" names have been implicated. He also
denied allegations by relatives of the accused that the investigation
was tainted by irregularities, including suspects' lack of access to
legal counsel.
One foreign investor affected by the case is the Canadian-based Uranium
One Inc. Investigators are examining the sale of a 30 percent stake in
the Khorasan mine, the country's largest, seeking to determine whether
it was disposed of for a supposedly token price of 15.6 million tenge,
now worth some $104,000. Officials have not named Uranium One as
a target of the investigation, and the company is cooperating with
the Kazakhstani probe. It asserts that its 30 percent stake in the
mine was acquired via a fair-market-value purchase of $75 million. A
Japanese consortium owns 40 percent, and Kazatomprom owns the remaining
share. News of the investigation sent Uranium One shares plunging on
the Toronto Stock Exchange.
Dzhakishev, a well-respected figure in Kazakhstan's business circles,
has steadily built up the uranium sector in the country: Kazakhstan
is pitching to become the world's largest uranium exporter, aiming
to produce 12,826 tons this year. His arrest prompted rare public
comments from some of the country's top executives, who assert that
their colleague is the victim of an arbitrary manipulation of the law.
"Mukhtar Dzhakishev is known as an honest and talented top manager,
who in 10 years has put the Kazatomprom company among the world's
nuclear industry leaders. . . . Mukhtar Dzhakishev has never been
involved in corruption scandals, and his reputation is untainted," said
an open letter to Nazarbayev, signed by 22 high-profile executives,
including Nurlan Smagulov, head of the Astana Motors; Kazkommertsbank's
board chairman Nurzhan Sukhanberdin; former finance minister Zeynulla
Kakimzhanov; and Armanzhan Baytasov, who heads the Nur Media group
that operates outlets for Nazarbayev's Nur Otan party.
The open letter went on to state that Dzhakishev's arrest was having
a detrimental impact on Kazakhstan's business climate. "Kazakhstani
entrepreneurs no longer feel protected by the law," the letter
stated. It also accused state agencies of launching "a large-scale
offensive against business, killing the free spirit of entrepreneurship
and persecuting the best representatives of business."
The fact that business leaders publicly protested is
significant. Entrepreneurs have kept their heads down since a group of
prominent businessmen and officials banded together in the Democratic
Choice of Kazakhstan movement in 2001 to urge reform. This sparked
a power struggle that ended with Ablyazov serving a prison sentence,
from which he gained early release in 2003. [For background see the
Eurasia Insight archive].
The Kazatomprom controversy sparked an unusual public intervention from
Nazarbayev, who ordered Prosecutor General Kayrat Mami on June 3 to
ensure the case is pursued in line with the law. The NSC, meanwhile,
has denied allegations that the case is politically motivated. "The
NSC resolutely denies any political reason behind this criminal case,"
press secretary Kenzhebulat Beknazarov told an Astana news conference
in remarks carried on the Zonakz.net website. There have also been
suggestions that Dzhakishev's arrest was sparked by someone's desire
for a slice of the lucrative nuclear industry pie as the financial
crisis sparks a re-division of spoils among Kazakhstan's elite. [For
background see the Eurasia Insight archive].
The investigation into Kazatomprom's practices echoes the experience
of BTA Bank, which officials now say was run for years by an organized
crime ring, and also that of Rakhat Aliyev, the president's former
son-in-law, who was found guilty in absentia of plotting a coup and
running an organized criminal group. [For background see the Eurasia
Insight archive].
The case is providing Kazakhstan with some unwanted international
publicity as the country gears up to chair the Organization for
Security and Cooperation in Europe in 2010. [For background see the
Eurasia Insight archive]. It also is raising questions about how
large-scale crimes could be carried out for so long in a top state
company without anyone noticing.
In the wake of the Kazatomprom investigation, the Samruk-Kazyna state
assets management fund ordered a probe of deals at all companies
under its control, starting with the KazMunayGaz energy firm and the
Kazakhstan Temir Zholy railroad company.
The June 1 announcement of the probe -- which will investigate possible
irregularities in the setting up of joint ventures and asset transfers
-- rattled investors. Meanwhile, Nazarbayev was enthusiastically
talking up the economy at a meeting on anti-crisis measures on June
8. "Economic rates are not getting worse, but getting better. There is
a possibility for the economy to level off according to the results
of the first half of the year and [for us] not to permit a fall in
our country's economic growth rates," he said in remarks quoted by
the Kazakhstan Today news agency.
However, even as Nazarbayev seeks to reassure investors about
Kazakhstan's economy, the storm over Dzhakishev's arrest risks
tarnishing the country's image as having a reliable investment climate.
Editor's Note: Joanna Lillis is a freelance writer who specializes
in Central Asia.
Joanna Lillis
Eurasianet
http://www.eurasianet.org
June 10, 2009
Foreign investors and Kazakhstan's business elite have been shaken
by the arrest of one of the country's most respected and successful
entrepreneurs. As investors look on nervously and some of the country's
top executives protest openly, a probe of all state companies has been
ordered. So great has been the controversy stirred by the arrest of
Mukhtar Dzhakishev, former head of the state nuclear agency, that
President Nursultan Nazarbayev felt compelled to intervene.
Dzhakishev was fired as head of Kazatomprom on May 21 and officially
arrested four days later on suspicion of stealing state property. (His
wife insists he was actually arrested on May 21).
According to the National Security Committee (NSC), he is accused of
appropriating as his personal property 60 percent of Kazakhstan's
uranium deposits worth tens of billions of dollars. The NSC says
Dzhakishev committed the alleged crimes in collusion with fugitive
banker Mukhtar Ablyazov, his longtime associate. Separately, Ablyazov
is accused of running an organized crime ring at BTA Bank, which he
owned until the financial institution was forcibly nationalized in
February. [For background see the Eurasia Insight archive].
On June 1, the NSC showed journalists a video of three former
Kazatomprom vice presidents, Malkhaz Tsotsoria, Askar Kasabekov and
Dmitriy Parfenov, relating how offshore companies and joint ventures
were allegedly set up to misappropriate vast uranium deposits,
including those at Akdala, Southern Inkay, Central Mynkuduk and the
Khorasan mines. The three vice presidents are now state witnesses in
the case rather than suspects, the Kazakhstan's National Security
Committee says. A fourth vice president, former NSC chairman and
Nazarbayev associate Nartay Dutbayev, is not under investigation.
More arrests are possible: the NSC officer leading the investigation,
Vladimir Petrovsky, said "famous" names have been implicated. He also
denied allegations by relatives of the accused that the investigation
was tainted by irregularities, including suspects' lack of access to
legal counsel.
One foreign investor affected by the case is the Canadian-based Uranium
One Inc. Investigators are examining the sale of a 30 percent stake in
the Khorasan mine, the country's largest, seeking to determine whether
it was disposed of for a supposedly token price of 15.6 million tenge,
now worth some $104,000. Officials have not named Uranium One as
a target of the investigation, and the company is cooperating with
the Kazakhstani probe. It asserts that its 30 percent stake in the
mine was acquired via a fair-market-value purchase of $75 million. A
Japanese consortium owns 40 percent, and Kazatomprom owns the remaining
share. News of the investigation sent Uranium One shares plunging on
the Toronto Stock Exchange.
Dzhakishev, a well-respected figure in Kazakhstan's business circles,
has steadily built up the uranium sector in the country: Kazakhstan
is pitching to become the world's largest uranium exporter, aiming
to produce 12,826 tons this year. His arrest prompted rare public
comments from some of the country's top executives, who assert that
their colleague is the victim of an arbitrary manipulation of the law.
"Mukhtar Dzhakishev is known as an honest and talented top manager,
who in 10 years has put the Kazatomprom company among the world's
nuclear industry leaders. . . . Mukhtar Dzhakishev has never been
involved in corruption scandals, and his reputation is untainted," said
an open letter to Nazarbayev, signed by 22 high-profile executives,
including Nurlan Smagulov, head of the Astana Motors; Kazkommertsbank's
board chairman Nurzhan Sukhanberdin; former finance minister Zeynulla
Kakimzhanov; and Armanzhan Baytasov, who heads the Nur Media group
that operates outlets for Nazarbayev's Nur Otan party.
The open letter went on to state that Dzhakishev's arrest was having
a detrimental impact on Kazakhstan's business climate. "Kazakhstani
entrepreneurs no longer feel protected by the law," the letter
stated. It also accused state agencies of launching "a large-scale
offensive against business, killing the free spirit of entrepreneurship
and persecuting the best representatives of business."
The fact that business leaders publicly protested is
significant. Entrepreneurs have kept their heads down since a group of
prominent businessmen and officials banded together in the Democratic
Choice of Kazakhstan movement in 2001 to urge reform. This sparked
a power struggle that ended with Ablyazov serving a prison sentence,
from which he gained early release in 2003. [For background see the
Eurasia Insight archive].
The Kazatomprom controversy sparked an unusual public intervention from
Nazarbayev, who ordered Prosecutor General Kayrat Mami on June 3 to
ensure the case is pursued in line with the law. The NSC, meanwhile,
has denied allegations that the case is politically motivated. "The
NSC resolutely denies any political reason behind this criminal case,"
press secretary Kenzhebulat Beknazarov told an Astana news conference
in remarks carried on the Zonakz.net website. There have also been
suggestions that Dzhakishev's arrest was sparked by someone's desire
for a slice of the lucrative nuclear industry pie as the financial
crisis sparks a re-division of spoils among Kazakhstan's elite. [For
background see the Eurasia Insight archive].
The investigation into Kazatomprom's practices echoes the experience
of BTA Bank, which officials now say was run for years by an organized
crime ring, and also that of Rakhat Aliyev, the president's former
son-in-law, who was found guilty in absentia of plotting a coup and
running an organized criminal group. [For background see the Eurasia
Insight archive].
The case is providing Kazakhstan with some unwanted international
publicity as the country gears up to chair the Organization for
Security and Cooperation in Europe in 2010. [For background see the
Eurasia Insight archive]. It also is raising questions about how
large-scale crimes could be carried out for so long in a top state
company without anyone noticing.
In the wake of the Kazatomprom investigation, the Samruk-Kazyna state
assets management fund ordered a probe of deals at all companies
under its control, starting with the KazMunayGaz energy firm and the
Kazakhstan Temir Zholy railroad company.
The June 1 announcement of the probe -- which will investigate possible
irregularities in the setting up of joint ventures and asset transfers
-- rattled investors. Meanwhile, Nazarbayev was enthusiastically
talking up the economy at a meeting on anti-crisis measures on June
8. "Economic rates are not getting worse, but getting better. There is
a possibility for the economy to level off according to the results
of the first half of the year and [for us] not to permit a fall in
our country's economic growth rates," he said in remarks quoted by
the Kazakhstan Today news agency.
However, even as Nazarbayev seeks to reassure investors about
Kazakhstan's economy, the storm over Dzhakishev's arrest risks
tarnishing the country's image as having a reliable investment climate.
Editor's Note: Joanna Lillis is a freelance writer who specializes
in Central Asia.