Investment: Central Asia

Why come to Kazakhstan?

28 April 2007

This new money flows from Kazakhstan’s vast natural resources. The country’s topographical bleakness belies a wealth of minerals and energy. Uranium, tin, molybdenum, coal and zinc abound, as does a lot of very high-grade potassium (as the title song of Borat put it, ‘all other countries have inferior potassium’). And there’s oil by the sheikh-load — up to 125 billion barrels, much of it in the world’s last untapped super-giant field, Kashagan, straddling the Caspian Sea.

Ten years ago, Kazakh politicians welcomed foreign investors with open arms. Everyone from ExxonMobil to Shell rushed in, as did hundreds of smaller mining firms, many of them based in Canada. They paid taxes, built schools, and gradually refilled the central bank’s coffers. But the country’s self-confidence grew with its wealth — and so did the whispers within Astana’s bureaucracy. The foreigners didn’t pay enough tax or employ enough Kazakhs. They were hoarding information about the true mineral wealth under the land they leased from the government — a common charge that is almost impossible to disprove.

As these rants against foreign businesses became increasingly frenzied, many decided to leave. Two Canadian-owned firms, PetroKazakhstan and Nations Energy, sold out to Chinese corporations after being squeezed almost to death by government interference. British Gas sold its 17 per cent stake in the Kashagan oil field for $1.8 billion in April 2005. As one expat oil executive put it, ‘Why hang around when the bills and taxes and government inspections are mounting, and the field is continually being delayed?’

Even China’s state-run behemoths are not spared by Kazakhstan’s fickle authorities. In recent weeks, two officials in a local subsidiary of China National Petroleum Corporation were found guilty of hoarding information relating to oil and gas reserves. One former manager of a Canadian mining firm said his company was looking to sell out after being audited no fewer than 56 times in a single month. ‘There’d be one team going out the back door with a chunk of money that we’d paid them — and another group coming in the front, looking for their cut.’ In terms of corruption, incidentally, Kazakhstan ranked equal 111th in Transparency International’s global league for 2006 — above regional counterparts such as Russia, but alongside such paragons of business hygiene as Nicaragua, Albania and East Timor.