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Central Asia Report: February 28, 2002

28 February 2002, Volume 2, Number 8

FOCUS ON KAZAKHSTAN'S NEW HYDROCARBON BEHEMOTH. Following Kazakh President Nursultan Nazarbaev's decree on 19 February that merged the country's two major oil-producing and oil-transporting corporations to create a new entity, the closed joint-stock company KazMunayGaz (Kazakh Oil and Gas), more details emerged about the thinking behind the decision, as well as some insights into the new company's strategic vision and financing plans.

The two companies that were merged were Kazakhoil and Transport Nefti i Gaza (Oil and Gas Transportation), or TNG. The former was Kazakhstan's biggest state-owned oil company, producing 6.5 million metric tons of oil in 2001, or 15 percent of the nation's total output, Khabar TV reported on 21 February. Meanwhile, TNG, an entity formed nine months ago as a result of incorporating two state pipeline companies, KazTransOil and KazTransGaz, operated most of the country's pipeline infrastructure -- over 6,400 kilometers of oil pipelines -- and was responsible for transporting as much as 80 percent of its oil.

It is unclear to what extent the merger might lead to a genuine shake-up of personnel, or merely a game of musical chairs among Kazakhstan's oil-industry elite. Lazzat Kiinov, 52, who had been the governor of oil-rich Mangistau Region in western Kazakhstan, was appointed president of KazMunayGaz. Although he did not come out of either of the merged companies, as an experienced oilman he hardly represents an infusion of fresh blood. Interfax-Kazakhstan reported on 20 February that Kiinov's replacement as governor of Mangistau will be Bolat Palymbetov, who was deputy chairman of TNG. The ex-head of KazTransOil (and Nazarbaev's son-in-law) Timur Kulibaev became first vice president of KazMunayGaz. The only major loser appeared to be Nurlan Balghymbaev, the former president of KazakhOil, which he had headed since resigning as prime minister in October 1999. Apparently no position in the new company has been envisaged for him. Nevertheless, according to a KazakhOil press release on 21 February, reported by Interfax-Kazakhstan and Caspian News Agency, Balghymbaev said that he fully supports the merger and in fact has frequently urged the idea of a single, unified hydrocarbon company himself in letters to Nazarbaev. Balghymbaev emphasized that he does not want "to lay the blame on anyone, but within two years KazakhOil was turned from a powerful company into a structure with antiquated assets" and that consequently he "repeatedly wrote to the president that a powerful integrated company needed to be set up." He implicitly gave much of the credit for pushing the measure through to the new prime minister: "So with the advent of a new government led by Imangali Tasmagambetov -- who has an inside knowledge of the oil business -- this is happening," Balghymbaev said.

While introducing KazMunayGaz and its new executives to Kazakh lawmakers on 21 February, Tasmagambetov called it "a single, vertically integrated national company" whose creation was necessary "as we move on to the next stage in the establishment of the national oil industry [and] we face global challenges of developing the Caspian shelf," the Kazakhstan News Bulletin said. On the same day, Deputy Premier Karim Masimov told journalists in the Kazakh capital that the merger was an economic necessity. He further alluded to the advantages of economies of scale when he said the merger may widen investment opportunities for the oil-producing sector and that the concentration of control over oil extraction and transportation would improve the coordination of operations in the sector (see "RFE/RL Kazakh Report," 22 February 2002). Masimov said a program on offering tenders to investors to develop Kazakhstan's offshore oil fields has been drafted but awaits formal government endorsement. Once adopted, the next step will be to deal with the actual problems of developing the Kazakh sector of the Caspian shelf, but he noted that, "I still cannot specify if that will happen this year or next year," Interfax-Kazakhstan reported on 22 February.

Echoing Masimov, Kiinov told the same news agency that the new company had been set up to be competitive with major international oil companies in forthcoming development projects on the Caspian shelf. He further revealed that KazMunayGaz will retain a 51 percent stake in new hydrocarbon contracts -- in other words, the Kazakh state will be the main shareholder in the development of all new deposits. But Kiinov stressed that contracts signed in the past between international investors and KazakhOil and TNG will not be revised; he said that Kazakh government shares in joint ventures under those (now defunct) companies will "pass automatically" to KazMunayGaz.

Masimov told a press conference on 22 February that the total value of KazMunayGaz's consolidated assets is "approximately" $2 billion but that the exact figure will emerge after an audit, scheduled to happen after the merger is been completed. The company's press service announced that it is issuing $125 million in Eurobonds, Interfax said on 25 February. However, the first sale was supposed to be delayed until 12 March to allow for clarification of the company's assets. Meanwhile, on 26 February KazakhOil was reportedly launching separately a five-year Eurobond paying 9 percent annual interest (see "RFE/RL Kazakh Report, 21 February 2002). Kazakh Commercial TV reported on 25 February, perhaps mistakenly, that KazMunayGaz had already put out $125 million of bonds on the world market. But the television went on to say that foreign financial agencies lack confidence in the new company and will require more information about its goals and "methods of operation." It cited concerns of the Fitch credit-rating agency, which allegedly is planning to reduce its credit rating for KazakhOil, with the attendant negative effect on finding buyers for its bond issue.

ASTANA'S THREE-YEAR ACTION PLAN. On 25 February in Astana, Kazakh Prime Minister Imangali Tasmagambetov addressed a large meeting of representatives from the nation's executive and legislative branches -- the president's cabinet, senators from the parliament's upper house, and deputies from the lower house -- to report on his government's action plan for the next three years, Kazakhstan-Today news agency said.

"The main aim is to improve the people's social and economic situation, to raise the spirits of the elderly and disabled, and put able-bodied people on their feet," Tasmagambetov said in opening remarks carried by Kazakh TV. "The time has come for the country's population to feel the effect of reforms on their everyday lives." To that end, the major objective between 2002 and 2004 is to achieve annual economic growth of 5-7 percent, and no less than 20 percent over the three-year period, he said. That would mean a per capita figure of about $1,600-1,700 a year. The prime minister acknowledged that "appreciable enhancement" of people's standard of living will require an annual growth figure that is five percentage points higher, but implied that is unrealistic under the circumstances, Interfax-Kazakhstan reported. He promised that the government will reduce the percentage of people living beneath the poverty line to less than 20 percent.

To achieve these goals, he said that Kazakhstan needs to "have stable social and economic development, create a more balanced economy, step up the movement of capital and its accumulation, and strengthen economic security," ITAR-TASS reported. It is important to move gradually from the export of raw materials to the export of semi-produced and manufactured goods, especially in the metallurgical and chemical industries, through the creation of "science-intensive industries," he said. Turning to agriculture, he admitted "the low competitiveness of agricultural production, insufficient understanding of market mechanisms, transportation problems, and a lack of modern processing facilities," Interfax-Kazakhstan reported. Answers lay in making land use in Kazakhstan conform better to the norms of a market economy, developing a network of agricultural credit unions, and helping farmers lease more modern equipment. Lastly, he announced a "reinventing government"-type program "to demarcate the functions and powers of state management bodies as part of the administrative and budget reform to avoid any duplication of their functions." In other words, to cut down on red tape.

YANKEES GO HOME, SOME KYRGYZ SAY. Criticism mounted last week in the Kyrgyz media about the U.S. military build-up at Manas airport, outside the Kyrgyz capital, Bishkek, with allegations that the Americans were behaving arrogantly, causing inconvenience to local people, harming the environment, and failing to pay the agreed amount for the use of Kyrgyz facilities. These prompted a rebuttal from a U.S. spokesman for the international troops stationed at the airport, who called the charges misleading and untrue.

At present, 1,100 troops are based at Manas airport, of whom 650 are American and most of the rest are French. Kyrgyzstan's parliamentary Committee on Foreign Relations gave permission in December for American, French, and Canadian forces to use the airport for both combat and humanitarian missions in connection with the ongoing operations in Afghanistan. Furthermore, the committee voted on 8 February to allow deployments from five other countries (Australia, Denmark, Italy, Spain, and Turkey), and it said yes to South Korea on 21 February, Kyrgyz radio reported. The first 20 Spanish servicemen arrived at Manas on 23 February, and the first French Mirage jet fighters landed at the airport this week (see "RFE/ RL Kyrgyz News," 25, 26 February 2002). Altogether the troop complement of the antiterrorist coalition is expected to reach as many as 5,000 men. Nevertheless, Kyrgyz journalists and ordinary citizens appear to regard the troops at their airport as essentially a Yankee force and have reserved their ire for the American members of the international coalition.

The newspaper "Vechernii Bishkek," the most popular and influential in Kyrgyzstan, began by complaining on 22 February that the area occupied by American troops at Manas, including their operational headquarters, housing, and storage space does not amount to "32 acres," as commonly reported, but 31.5 hectares (77.8 acres). Although the Pentagon have only leased one section of the terminal concourse, Kyrgyz vehicles and personnel entering it have been subjected to intensive and humiliating searches by the Americans; by contrast, Kyrgyz authorities only have limited rights to inspect the U.S. cargoes entering the country, the newspaper said. Further annoyances are the sight of heavily-armed Americans swaggering through the terminals, intimidating Kyrgyz passengers, while a tourist aircraft was re-routed away from Bishkek and forced to land in another airport because an American transport airplane needed the airspace at the time. The Russian-language Kazakh newspaper "Argumenty i Fakty Kazakhstan" described on 20 February how villagers living in the vicinity of the airport regularly get stopped by American patrols and are obliged to carry identification cards with them at all times. Moreover, the boost to the local economy is less than has been touted since U.S. soldiers do not eat in local restaurants or purchase local goods or services -- except prostitutes, whose numbers have boomed around the base. The newspaper "MN Novosti Nedeli" noted on the same day that leaflets have appeared in Kyrgyzstan condemning the deployment of Western troops, while media in Bishkek have reported graffiti on fences reading "Yankees go home!"

More seriously, "Vechernii Bishkek" alleged in various articles that the U.S. is only paying $4,000-$5,000 for each takeoff and landing instead of the earlier agreed fee of $7,000. Kyrgyz radio repeated the information on 26 February, adding that the military has carried out 163 flights in the last three months. It also said the annual cost to the U.S. Air Force for land, office premises, and services at Manas would come to $1.5 million. Finally, the newspaper reported that the heavy military traffic in and out of the base is ruining roads and having a destructive effect on the local ecology. It asked what legal provisions have been established between Washington and Bishkek for compensation for environmental damage, in case Kyrgyz citizens are harmed by U.S. operations, or even if a local girl is assaulted by an American soldier (with the experience of American bases in Japan in mind). To the question of whether a legal document has been drawn up to address such eventualities, the newspaper concluded, "Having investigated the matter, we are sure that one hasn't."

Three days after the onslaught in the Kyrgyz media began, Captain Richard Esserly, an American public relations officer, rejected the allegations as incorrect and said they misled Kyrgyz citizens about the true nature of the antiterrorist coalition. Without addressing the various charges point by point, he assured local journalists that Western forces have nothing against the Kyrgyz people and are only in the country to complete their mission in Afghanistan (see "RFE/RL Kazakh News," 25 February 2002). Meanwhile, the U.S. Embassy in Bishkek reiterated that its military is paying the full $7,000 for the take-off and landing of each airplane, Khabar Television reported on 23 February. Refuting criticism that ordinary Kyrgyz are not benefiting from the Pentagon presence, the embassy added that its government has already invested $4.5 million in the Kyrgyz economy and will be investing more over time. General Chris Kelley, commander of the U.S. force in Kyrgyzstan, told the TV that American servicemen are indeed eating Kyrgyz food, which they buy from local suppliers.

It may be significant that the majority of the criticism directed against American troops, and by extension against the United States, for their insensitive and hegemonic ways, appeared in Russian-language media at a time when Russians are growing increasingly unhappy about Washington's large-scale presence in Central Asia, together with the reduction of Russian influence which that implies. Kyrgyz President Askar Akaev has been careful to reassure Moscow in recent public statements that the American presence is only temporary and does not, in fact, threaten Russian interests in the region. Unexpectedly, a similar call for balance came on 22 February from imprisoned former Vice President Feliks Kulov, Akaev's major political foe. In an interview with the Kyrgyz-language newspaper "Aghym," he argued that Kyrgyzstan should deploy Russian troops on its territory alongside the U.S. contingent and those belonging to other member states of the antiterrorism coalition (see "RFE/RL Newsline," 25 February 2002).

TURKO-KYRGYZ 'STRATEGIC PARTNERSHIP.' Kyrgyz President Askar Akaev ended state visits to Ankara and Istanbul on 22 February, at which he held bilateral talks with Turkish President Ahmet Necdet Sezer, Prime Minister Bulent Ecevit, and other senior officials. The visit was devoted to the tenth anniversary of the establishment of diplomatic relations and bilateral links between the two nations, the Kyrgyz-Press agency said. Akaev expressed the desire to establish "a strategic partnership," while President Sezer preferred to stress the need "to expand the economic dimension of our relations," according to the "Turkish Daily News" on 22 February.

A program of enhanced security collaboration was negotiated, the two sides signed a long-term program of economic cooperation and trade for 2002-10, and a cooperation protocol was signed between their ministries of justice, RFE/RL and ITAR-TASS reported. But only on 25 February did Kyrgyz TV report that Akaev came to a joint protocol on military and technical cooperation with the chief of the Turkish General Staff, General Huseyin Kivrikoglu. The five-year agreement runs from 2002 to 2006 and calls for Ankara to continue to supply Kyrgyzstan with military equipment and uniforms and make places in its military academies for Kyrgyz cadets. Turkey began to provide Bishkek with such equipment and supplies in 1999, when Islamist militants crossed into southern Kyrgyzstan's Batken Region from Tajikistan. General Kivrikoglu is due to travel to Bishkek to sign the protocol in the middle of March.