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Kazakhstan: Business Deal Turns Sour

Almaty, 27 August 1997 (RFE/RL) -- The major row which has developed between a Canadian mining company and the Kazakh government illustrates the continuing pitfalls in doing business in the Central Asian region.

The case, involving the privatization of the Stepnogorsk Uranium Production Plant in Kazakhstan's central Aqmola Oblast, appears likely to end in the international courts if the Canadians carry through their threat to sue the government.

In May last year the company concerned, Worldwide Minerals, was announced as a winner of the tender for purchase of Stepnogorsk. The tender had not attracted a lot of foreign companies, with only two western firms expressing interest in owning the run-down and indebted uranium plant.

Stepnogorsk had been through troubled times since the collapse of the Soviet Union. It had been taken over by a Kazakhstani state company called KATEP, but amid the generally declining economic conditions in Kazakhstan, KATEP had not been able to carry out the necessary revitalisation of the plant. So last year the government decided to look for a foreign buyer.

By 1 June Worldwide Minerals had been announced the winner of the tender. According to the agreement signed between the Kazakh government and Worldwide, the company was supposed to cover all the debts of the facility, including the overdue salaries to the workers of the plant.

For the first 5 months after signing the agreement, Worldwide was busy checking the debts of the facility in order to clarify the situation, and to enable a start to wage payments. That stage was completed, and for a following period of 3 months, the plant's workers received their salaries and about 50 tons of uranium were stockpiled at the facility.

However, Worldwide Minerals was not able to start making money, because export of the uranium required a special export licence from the Kazakh authorities. Getting that licence turned to a real Gordian knot for the Canadian company, which presumably had not foreseen any problems in this direction.

After consultations, Kazakh officials agreed to provide Worldwide with the necessary document, but the licence as issued allowed exports to begin only in 1998. It's not clear why Kazakh officialdom set this limitation, whether it was just bureaucratic thinking which did not take into account the company's need to earn revenues, or whether other, more opaque factors were involved.

At any rate a surprised and aggrieved Worldwide responded in a very definite way. It stopped paying salaries to the 5,000 workers at the plant. The workers in their turn started organizing strikes and demonstrations demanding that their salaries be paid.

On the principle that action brings reaction, the Kazakh government gave an equally definite response: earlier this month it simply announced that the original agreement signed with Worldwide was annulled.

Stepnogorsk Uranium Producing Plant has now become a property of the recently-established state agency Kazakhatom. So, far from being the object of a successful privatisation, Strepnogorsk returns to the fold of state ownership.

Kazakhatom also owns 64 percent of Qara-Balta Uranium Plant in neighboring Kyrgyzstan, the rest of which is owned by Kyrgyz government. In contrast to Stepnogorsk, the Qara Balta plant appears to be doing well. It is producing 1,000 tons of uranium annually, and plans to increase its annual output volume up to 2000 tons by the end of the next year.

The Canadians, turned out of the company they briefly owned, are in no mood to accept what has happened. They have lodged formal protests with the Almaty authorities, and announced their intention to sue the Kazakh government.