Central Asia Report: December 12, 2002

TENGIZ EXPANSION PLAN BACK ON THE TABLE. A huge financial row between the Kazakh government and the U.S.-led consortium participating in the Tengizchevroil joint venture appeared to be nearing settlement this week -- a row that threatened thousands of jobs in the short term and Kazakhstan's plans for economic expansion in the long term. Yet even if this dispute is patched up, it has damaged investor confidence by playing into long-standing concerns that contracts with Astana are not set in stone but subject to renegotiation and revision at President Nursultan Nazarbaev's pleasure.

Tengizchevroil (TCO), which is half-owned by U.S. major ChevronTexaco, was set up in 1993 as a 40-year venture to develop the massive onshore Tengiz oil field in western Kazakhstan. Tengiz is thought to have up to 9 billion barrels of recoverable reserves. The company announced last month, however, that it was postponing indefinitely the implementation of two projects valued at $3.3 billion representing the second phase of expansion at the oil field (see "RFE/RL Newsline," 18, 21, and 22 November 2002).

This expansion plan aimed to nearly double output from this year's anticipated 12.7 million tons of oil to 22 million tons after 2005. The reason for the plan's suspension was disagreement between Astana, represented by the state energy company KazMunaiGaz, which owns 20 percent of TCO, and the other shareholders about how the expansion should be funded. Its partners wanted to reinvest some $600 million in the second phase and pay no taxes on profits for the next three years until the initial investment had been recouped. KazMunaiGaz objected, arguing that the consortium should borrow abroad and continue to pay tax on its profits so that the Kazakh budget would not suffer a $600 million shortfall. The expansion plans of the TCO partners require unanimous consent. The other shareholders in the enterprise are U.S.-based ExxonMobil Corporation with 25 percent and U.S.-Russian LukArco with 5 percent.

Negotiations with ChevronTexaco to settle the row recommenced on 4 December. Speaking at the Foreign Investors Council in Astana two days later, Nazarbaev said he hoped for a swift resolution of the dispute while simultaneously indicating that the Kazakh side had no intention of letting $600 million slip from its fingers, Interfax Kazakhstan reported on 6 December. On the same day, Prime Minister Imanghaliy Tasmagambetov reiterated Astana's demand that the Tengiz expansion be financed with foreign loans, telling the weekly newspaper "Novoe pokolenie" that the TCO should have no problem securing capital given its $2.5 billion annual revenues from crude exports.

Meanwhile, the search for a rapprochement with TCO was curiously timed. Since TCO is the biggest producer in the country, conceivably Astana could have sought to smooth ruffled feathers in the run-up to talks and set the stage for amicable negotiations. Instead, the government landed a firm blow to TCO's chin only days before, when the district court in Atyrau upheld a huge fine of 11 billion tenges ($71 million) against the company for "inflicting ecological damage." TCO was storing some 6 million tons of sulfur blocks in the open steppe near oil-drilling sites in the western part of the country, RFE/RL and ITAR-TASS reported. Sulfur is a by-product of oil production. TCO had argued that the sulfur was a by-product, whereas the government said that it was waste and therefore required special permission for storage, the "Financial Times" noted on 4 December. TCO was given 15 days to appeal the decision. Company officials said the court -- widely presumed to be working under instructions from Astana, whatever the merits of the case -- was effectively revising a previous agreement, since the government had long known about and approved the sulfur storage.

This raised alarm bells throughout the community of foreign investors. As long as a year ago, a defensive Nazarbaev was pledging that deals would be honored (see "RFE/RL Central Asia Report," 20 December 2001). He took up the refrain again at the Foreign Investors Council, dismissing fears as unfounded but adding without elaboration that he thought private and state interests must be balanced (see "RFE/RL Newsline," 9 December 2002). Companies have also been resisting new investment legislation that would cut back on their rights to seek international arbitration of disputes. The government has sought concessions from the companies in their previously signed contracts, sparking complaints of arm-twisting (see "Kazakhstan: Oil Project Remains Murky," rferl.org, 11 December 2002). Some see the law and the fines as all part of the same pressure campaign. According to a Moscow-based analyst cited by the "Financial Times": "The Kazakh authorities want to show oil companies who is the boss. But this is very sad for the country and will undoubtedly make companies more cautious before investing in Kazakhstan in the future."

On 9 December, Energy Minister Vladimir Shkolnik told Kazakh lawmakers that the government had struck a deal with TCO over the Tengiz project's second phase. Without offering details, he indicated that the foreign shareholders had compromised over their plan to finance the project by eliminating taxes and adopting an accelerated write-down of their costs, RFE/RL reported on 11 December. Yet TCO officials said that news was premature. According to "The New York Times" on 10 December, a company spokesman "denied that the consortium had reached an agreement."

An intriguing speculation about the $71 million penalty slapped on TCO is that Astana was actually playing hardball and that the fine, far from being ill-timed, figured in a strategy to force TCO officials back to the table. In fact, it is unclear whether the fine was discussed during talks to restart the expansion project, RFE/RL reported on 11 December. But if Nazarbaev ever intends to take on other foreign behemoths, he hinted what his method of attack would be by publicly slamming some of the country's largest investors for violating national legislation on protecting the environment. On 6 December, the president criticized Hurricane Kumkol Munai, the metals company Ispat Karmet, and the copper corporation Kazakhmys, Interfax Kazakhstan reported. "In my opinion, the measures you have been taking are insufficient, especially in light of the damage done to the environment," he told foreign investors. He urged them "to observe Kazakhstan's national interests, respect the country's natural resources, and use them rationally." Whether that might require certain contractual adjustments in the future in order to balance "private and state interests" remains to be seen.

MORE FALLOUT OVER TURKMEN ASSASSINATION PLAN. Turkmenistan's security services widened their nets in the roundup of suspects following the abortive attempt to kill President Saparmurat Niyazov on 25 November (see "RFE/RL Central Asia Report," 3 December 2002). The president gave them their cue on 5 December, when he told top officials in the Council for Religious Affairs that his enemies in exile could never have staged a terrorist attack on their own, Interfax reported. Hitherto, Niyazov had primarily fingered four of his opponents living abroad -- Deputy Agriculture Minister Saparmurat Iklymov, former Foreign Minister Boris Shikhmuradov, former central-bank chief Hudaiberdy Orazov; and former Ambassador to Turkey Nurmuhammed Hanamov -- as the ringleaders of the plot. But the president's remarks to the religious elders, carried on Turkmen television, sounded ominously like the beginning of a witch-hunt. He refuted Western media reports that he had launched mass arrests of suspected oppositionists, claiming there had been no more than 23 arrests following the assassination attempt. He added that such reports were dictated by plans to deprive Turkmenistan of its neutral status and benefit from its strategic location, good military airfields, and trillions of tons of oil and gas off its Caspian shores (see "RFE/RL Newsline," 9 December 2002). Yet Niyazov himself hinted that such a grand plot would require more than two dozen plotters and has now probably opened the door to a concerted effort to root out a network of fifth columnists allegedly active in the country.

The opposition website gundogar.org detailed new arrests on 10 December. The purge included Rejep Saparov, chief of the presidential administration, and Tagandurdy Halliev, the former parliamentary speaker, both of whom were picked up by the police on 9 December, the website said. It did not say why suspicion had fallen on them. It added that a former Foreign Ministry official, Rustem Djumaev, had been taken into custody, although on the day of the assassination attempt he was recovering from a heart attack in a hospital bed. Ostensibly, his only connection to the attack was the fact that he shared the same last name with another top suspect, the pharmaceuticals businessman Guvanch Djumaev. Meanwhile, the website reported a supposedly eyewitness account of two of Iklymov's relatives being tortured in jail. The witness was Iklymov's daughter-in-law Dzennet. Supposedly, she saw her husband and brother beaten and mutilated while handcuffed to a door -- and then she was released to tell the tale. Amnesty International said it had the names of at least 30 jailed members of Iklymov's family. Another case of alleged police abuse involving Davlatgeldi Annaniyazov, the brother of former political prisoner Gulgeldi Annaniyazov, who now lives in exile in Norway. Detained on 30 November in Ashgabat, Davlatgeldi was apparently beaten in front of his wife and children (see "Turkmenistan: Human Rights Officials Criticize Investigation Into Assassination Plot," rferl.org, 11 December 2002). Amnesty International added that Shikhmuradov's brother was arrested on 7 December.