A Brief Review of Kazakhstan’s Post-Soviet History and its Relations among International Companies

2.1.2.3 A Brief Review of Kazakhstan’s Post-Soviet History and its Relations among International Companies

Kazakhstan declared its independence in 1991. Nursultan Nazarbayev, served as

Kazakhstan’s first president. Nazarbayev won the presidential election in 2005 and 2011 and has been the president of Kazakhstan till now. Kazakhstan under his leadership has adopted a balanced foreign policy, by which to promote Kazakhstan’s economy, particularly its energy industries. In Kazakhstan the major financially and technically intensive projects of joint venture partnership are with Western companies, particularly from the United States. The three major Kazakh oil field development projects, Tengiz, Karachaganak and Kashagan, all are led by Western companies. After March 2000 when Vladimir Putin was elected president of Russia, the energy resources in Kazakhstan became more important to Russia. Russia would like to re-establish an export route monopoly (the 'Atyrau-Samara' oil pipeline and the 'Tengiz-Novorossiysk' oil pipeline’) in Kazakhstan. The more alternatives for export routes that Kazakhstan can choose from, the less profit Russia could gain from Western Europe and East Asia’s regional markets. As a late comer to Central Asia, at first China could only choose from relatively less abundant and more isolated oil fields in Kazakhstan. To solve this problem, there were only two options: the acquisition of the properties of Kazakh oil fields owned by Western oil companies (such as the 2005 Canadian oil company PetroKazakhstan merger), or construction of its own oil pipelines through which China could gradually turn the tide (such as the completion of the China-Kazakhstan oil pipeline).

2.1.2.3.1 A Brief Overview of Kazakhstan’s Post-Soviet History

On December 16th, 1991 Kazakhstan declared its independence after the collapse of the Soviet Union. The leader of the Kazakh S.S.R. during the Communist era, Nursultan Nazarbayev, served as Kazakhistan’s first president. In 1998 the capital of Kazakhstan was moved from Almaty, the country's largest city, to Astana. On December 4, 2005, Nursultan Nazarbayev was re-elected as the President of Kazakhstan. In 2010, President Nazarbayev

(accessed: 20110227).

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rejected a call from constituents to hold a referendum to keep him in office (until 2020) and instead insisted on presidential elections (for another five-year term.) In a vote held on 3 April 2011, President Nazarbayev received 95.54% of the vote and was again elected President of Kazakhstan. ³¹

Nazarbayev has maintained strong political control of the country, characterized as a monopoly. Kazakhstan under his leadership has adopted a balanced foreign policy, by which to promote Kazakhstan’s economy, particularly in the field of its energy industries. ³²

Since the reign of Joseph Stalin, the Soviet Union was subject to the implementation of a

“mass deportation” strategy in which it served as a destination. Consequently, Kazakhstan possesses great ethnic and cultural differences. Kazakhstan’s population is about 16.6 million and includes Kazakhs, Russians, Ukrainians, Germans, Uzbeks, Tatars, and Uyghurs.

Approximately 63% of the population is Kazakh. The proportion of people who believe in Islam is about 70% while Christians comprise about 26%. ³³

2.1.2.3.2 Kazakhstan’s Relations with Western Companies

Kazakhstan has abundant natural resources, attracting Western companies to invest primarily in the energy section, including iron, food processing and tobacco industry. The major capital intensive projects of joint venture partnerships are with Western companies, particularly from the United States. ³⁴

The technology and equipment used in the energy industry are left over from the Soviet Era, and considering that relatively old equipment, development cannot proceed at a pace to

31 “Nursultan Nazarbayev,” The Moscow Times, Mar 28, 2011, available at:

http://www.themoscowtimes.com/people/article/nursultan-nazarbayev/433930.html, (accessed: 20140513).

32 Voloshin, Georgiy, “Domestic Stability to Remain Kazakhstan’s Main Priority in 2013,” The Jamestown Foundation, Jan 16, 2013, available at:

http://www.jamestown.org/programs/edm/single/?tx_ttnews%5Btt_news%5D=40311&cHash=83858f319a98de2 3a6bef2ff54b33e82, (accessed: 20140513).

33 Joanna Lillis, “Kazakhstan: Museum Recalls Stalin’s Devastating Legacy,” EurasiaNet.org, Jul 25, 2013, available at: http://www.eurasianet.org/node/67300, (accessed: 20140513).

34 International Monetary Fund. Kazakhstan - Recent Economic Developments (EPub) (Washington, DC:

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be compared with Western countries which possess advanced technology. Since there are technical problems that cannot be solved regarding development and a lack of funds and other issues, hence the country needs considerable foreign investment of both capital and

technology, whether via getting funds from the Western capital markets, making strategic alliances with Western energy companies, or through production sharing agreement (PSA) projects. ³⁵

Due to the influence of the events of the 1990s regarding Kazakhstan’s policies, Western investors had doubts about the business investment environment in Kazakhstan as well as its stability and attractiveness, particularly in regard to transparency and the rule of law and other factors making it even more complicated. But with the change of Kazakhstan’s policies, gradually these intractable issues have been solved for the most part. With the establishment of the Caspian Pipeline Consortium (CPC) and the Baku-Tbilisi-Ceyhan (BTC) pipeline, Kazakhstan’s oil resources are able to be exported to world markets.³⁶

In the late 1990s, through a dialogue mechanism, Chevron became the first Western company to enter the country, and they established the Tengizchevroil (TCO) venture. The three major Kazakh oil field development projects, Tengiz, Karachaganak and Kashagan, all are led by Western companies. Due to the fact that Kazakhstan is highly dependent on

Western investment, Kazakhstan needs to be able to attract foreign investment in the long run and put effort into further development of their business environment. Consequently, the Kazakh government continues its economic reform, including viable monetary policy, banking reforms, and the establishment of an efficient tax system.³⁷

International Monetary Fund, September 23, 1998).

35 Feathers, Lori Ann. “Western Opportunities for Investment in the Oil Industry of the Former Soviet Union,”

American University College of Law Digital Commons, 1992, available at:

http://digitalcommons.wcl.american.edu/cgi/viewcontent.cgi?article=1546&context=auilr, (accessed:20140520)

36 Kalicki, Jan H. and Eugene K. Lawson. ed., Russian-Eurasian Renaissance? U.S. Trade and Investment in Russia and Eurasia (California: Stanford University Press, 2003), p. 174-175,185-189.

37 Kalicki, Jan H. and Eugene K. Lawson. ed., Russian-Eurasian Renaissance? U.S. Trade and Investment in

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2.1.2.3.3 Kazakhstan’s Relations with Russian Companies

In the 1990’s Russian energy companies invested to some degree in Kazakhstan, mainly in the 'Karachaganak' gas condensate field and 'Tengiz-Novorossiysk' oil pipeline. But after March 2000 when Vladimir Putin was elected president of Russia, and with hydrocarbons prices continuing to rise, for Russia, the energy resources in Central Asia became more important, especially those in Kazakhstan. Thus, Russian energy companies such as Lukoil, Gazprom and Rosneft increased considerably their investment in Kazakhstan, including in oil and gas field development and the pipeline system in the nation and including upgrading the

'Atyrau-Samara' oil pipeline and the 'Tengiz-Novorossiysk' oil pipeline’s capacity. ³⁸

During the Soviet Era, Moscow authorities avoided the development of oil fields in Kazakhstan when possible; instead, they concentrated on exploiting Western Siberia's oil fields. However, the pipelines built during the Soviet era allow transit of Kazakhstan's oil across Russia. Now Russia would like to re-establish an export route monopoly in Kazakhstan, with Russia's state-owned Transneft Company expanding its control of the Kazakh oil fields.

The reason why Russia wants to control Kazakhstan's oil exports is very simple; through Russia’s control of pipelines they can market Kazakhstan's oil first. To enter the export market, the more alternatives in export routes that Kazakhstan can choose from, the less profitable the extent of Russian control in regard to marketing Kazakhstan’s oil. For Russia, the control of Kazakhstan's oil exports will assist Russia to become the exclusive supplier of oil to Western Europe and East Asia’s regional markets. ³⁹

2.1.2.3.4 Kazakhstan’s Relations with Chinese Companies

As a late comer to Central Asia, at first China could only choose from relatively less abundant and more isolated oil fields in this nation since the market had been developed by Western

Russia and Eurasia (California: Stanford University Press, 2003), p. 189.

38 Paramonov, Vladimir and Aleksey Strokov. Russian Oil and Gas Projects and Investments in Central Asia (Defense Academy of the United Kingdom, May 2008), pp. 2.

39 Marten, Kimberly. “Disrupting the Balance, Russian Efforts to Control Kazakhstan’s Oil, Ponars Policy Memo No.428,” Columbia University (New York: December 2006), pp.1-2.

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interests during the 1990s and those interests had already occupied oil fields with a high yield.

The major three Kazakhstan oilfields, Tengiz, Karachaganak and Kashagan, all were being exploited by Western companies. To solve this problem, there were only two options: the acquisition of the properties of Kazakh oil fields owned by Western oil companies (such as the 2005 Canadian oil company PetroKazakhstan merger), or the construction of its own oil pipelines through which China could gradually turn the tide. With the completion of the China-Kazakhstan oil pipeline (from Atyrau to Alashankou), the quantity Kazakhstan’s oil supply to China has greatly improved. ⁴⁰

However, Kazakhstan has been becoming wary as China is expanding their grasp of oil resources. They reconsidered the existing oil arrangements and also forced a Chinese oil company's joint venture in the oil field to transfer certain of its shares to KazMunayGas. ⁴¹