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Kazakhstan: Law Changes Spark Investor Concern

Kazakhstan's Prime Minister Kasymzhomart Tokaev tried to assure foreign investors last week that their assets will not be nationalized under a new law. But business fears are growing following a report that a commission may review past contracts. Our correspondent Michael Lelyveld reports.

Boston, 12 June 2001 (RFE/RL) -- Concern is rising over political pressures on investors in Kazakhstan as the country pushes ahead with a series of changes in its laws.

On 8 June, Prime Minister Kasymzhomart Tokaev sought to reassure foreign companies that their holdings will not be taken over as the result of a new investment statute.

Tokaev told the Reuters news agency, "It is not going to be so." He said, "The point is we have to meet the demands of the local business community, because they are demanding the same privileges for them to explore opportunities, so they can be equal with foreign investors in (the) future."

Tokaev's comment may calm some of the fears over the draft law, which is set to replace Kazakhstan's 1994 investment code at the start of next year. But it may also be seen as a measure of how far the worries have spread through the business community.

The new law would end preferential tax breaks for foreign ventures, while making it easier to nationalize their assets. It would also make it harder to take disputes to international arbitration.

The concerns were compounded in recent days when the Kazakhstan Press agency reported that a new special commission on subsurface development could review past agreements "with an eye on canceling those contracts deemed 'disadvantageous' for Kazakhstan." The report was relayed by the BISNIS commercial service of the U.S. Commerce Department last week.

It is unclear whether any actions will be taken against foreign investors, but the new law and the commission could give President Nursultan Nazarbaev the tools to act if he chooses to do so. Industry analysts say that apprehension is running high, but foreign companies are reluctant to speak out for fear of making matters worse.

The outcome could have huge importance both for business and Kazakhstan, which has attracted some $13 billion in foreign investment in the past decade. The country has been a center for energy development with two of the world's biggest discoveries at the Tengiz and Kashagan oil fields.

But tensions have grown since reports last year that U.S. agencies are investigating Nazarbaev and other officials over alleged payoffs from the oil industry. The response to the U.S. State Department's annual report on human rights has also been hostile.

In past months, foreign oil firms have come under fire for environmental and labor practices, as well as failure to use enough local suppliers. But despite the obvious pressure, the question of whether the government is only seeking to restore a balance for domestic interests has been hard to sort out.

Last month, the London-based Institute for War and Peace Reporting said that the new investment law "seems likely to have a sharp impact on the freedom of overseas companies to run their operations in Kazakhstan."

The report said that experts believe the law "would give Kazakh authorities power to nationalize any company it liked on grounds of environmental damage or poor treatment of local workers."

There are also questions about the nature of the domestic interests that would be served. Foreign oil companies have been fighting in vain against an export monopoly which has concentrated power in the hands of Nazarbaev's son-in-law, Timur Kulibaev.

Last month, the government established a holding company called Oil and Gas Transport to control the country's pipelines. Kulibaev was appointed chief executive.

In a Reuters interview, Kulibaev said: "We are not trying to set up a super-monopoly. We are guided purely by economic reasons." He also denied that the new company would merge the assets of two state-owned entities, KazTransOil and KazTransGaz.

But according to the Interfax news agency, the company was established by a resolution that transferred the state's shares in both KazTransOil and KazTransGaz, as well as the shipping company Kazmortransflot, the Atyrau airport and other oil and gas companies. Kulibaev also controls the country's biggest bank, which expanded through another merger last month.

As his power grows, so does the fear that Kulibaev will command all of the country's transport so that he can set tariffs at will. Foreign oil companies could feel the pressure, whether their assets are nationalized or not.