August 2, 2010 / 11:23 AM / 9 years ago

FACTBOX-Key political risks to watch in Kazakhstan

ALMATY, Aug 2 (Reuters) - An intensifying succession struggle among Kazakhstan’s political elite and the government’s increasingly tough stance on foreign companies have fuelled investor concerns in Central Asia’s biggest oil producer.

Kazakhstan, the world’s largest uranium miner and home to the biggest oil discovery in 40 years, has attracted more than $100 billion in foreign investment since it gained independence in the breakup of the Soviet Union in 1991.

Central Asia’s largest economy expects a further $10 billion in foreign direct investment in 2010 alone.

Yet, an unclear succession plan for its veteran leader and aggressive steps by the government to increase the state’s role in the oil and gas sector have alarmed foreign investors in the vast steppe nation of 16 million.

Below is a list of key political risks in Kazakhstan.

SUCCESSION

President Nursultan Nazarbayev, who turned 70 on July 6, has been in charge for 21 years. His current term in office ends in 2012 but he can run for an unlimited number of terms under constitutional changes his political party introduced in 2007.

Nazarbayev has not identified any potential successors and this issue, according to analysts, is the biggest long-term risk in Kazakhstan.

Nazarbayev has three daughters but no sons who could make obvious succession candidates in the mainly Muslim nation.

Nazarbayev was declared “Leader of the Nation” on June 15 after parliament passed a law granting him the right to shape policy after retirement and immunity from prosecution.

Analysts say the move signals the start of Nazarbayev’s gradual departure from the presidency by creating a framework within which he could groom a pliant successor.

Nazarbayev had earlier rejected the bill, citing Kazakhstan’s role as chair of security and democracy watchdog the Organisation for Security and Cooperation in Europe (OSCE) among his reasons. But he never officially vetoed the draft, leaving a legal loophole for officials to enforce it anyway.

According to the constitution, in the case of Nazarbayev’s death, the speaker of the Senate, the upper chamber of parliament, would assume his powers for the rest of the term.

If the Senate speaker is unable to do so, the speaker of the lower house, Mazhilis, would take over. The prime minister is third in line.

What to watch:

— Nazarbayev’s health. He seems to be firmly in control and appears regularly in public. His absence for a prolonged time, or less frequent appearances, could spark worries.

— The election campaign. Should Nazarbayev choose a successor for the next poll, the candidate would have to be formally nominated by Nazarbayev’s Nur Otan political party.

Analysts say possible successors include:

* Kasym-Zhomart Tokayev, speaker of the Senate (who would automatically assume the presidency in the event of Nazarbayev’s death);

* Imangali Tasmagambetov, mayor of the capital Astana;

* Timur Kulibayev, Nazarbayev’s son-in-law and chairman of state energy firm KazMunaiGas and the national rail monopoly.

Foreign companies, who invested in Kazakhstan heavily throughout its post-Soviet history despite Western concerns about its patchy human rights record, are likely to embrace any candidate who would guarantee the continuity of their contracts.

ELITE INFIGHTING

Several groups led by Nazarbayev’s relatives and allies are competing for influence with the veteran leader.

Some members of the “inner circle” have fallen out with Nazarbayev and left Kazakhstan, which has led to reshuffles in the government, changes in asset ownership and brief periods of political instability.

In one such case, Nazarbayev’s former son-in-law, Rakhat Aliyev, fled Kazakhstan in 2007 and accused the president of usurping power after being accused of kidnapping local bankers and planning a state coup.

Aliyev’s departure led to a purge in security services and a government takeover of several media outlets.

In another case, the former head of state uranium miner Kazatomprom was sentenced in March to 14 years in prison on charges of corruption, theft and the illegal sale of assets to foreign companies.

Mukhtar Dzhakishev, who denied the accusations, was once hailed as the architect of the many partnerships between Kazatomprom and foreign miners to develop Kazakhstan’s uranium reserves, which are second in size only to Australia’s.

What to watch:

— High-profile corruption cases which have become a common tool of the domestic political struggle, analysts say. Any high-profile criminal cases or accusations could shed light on who in Nazarbayev’s inner circle might be falling out of favour.

— Government reshuffles could signal the weakening of one group and the strengthening of another.

RESOURCE NATIONALISM

The government has taken steps in the last few years to raise its role in the energy sector, buying stakes in some of the largest domestic projects run by foreign majors.

Acquisitions usually followed campaigns in which the government accused companies of environmental violations or tax evasion or breaking contract terms.

In a recent case, the government has said it wants a 10 percent stake in the consortium developing the Karachaganak oil and gas field, after having accused it of tax evasion. [ID:nLDE6520OC]

Kazakhstan’s financial police has also said it suspects the Tengizchevroil venture, led by U.S. oil major Chevron (CVX.N), of extracting $1.4 billion worth of oil above levels agreed with the state. [ID:nLDE6671BI] Chevron says it is in compliance.

Investors and diplomats have in private expressed concern over the government’s tactics, saying it could scare off investment at a time when the economy needs fresh liquidity to kickstart new projects.

What to watch:

— How the Karachaganak and Tengizchevroil episodes unfold.

— Legislative changes. Moves to toughen regulation in sectors such as mining could signal increasing government interest in industries beyond the strategic oil and gas sector.

UNREST NEXT DOOR

Unrest in a neighbouring country, such as Uzbekistan or Kyrgyzstan, could provoke tensions in southern regions of Kazakhstan which border the two nations.

Kazakhstan reacted to the April 7 revolt in Kyrgyzstan by closing the border. It reopened it only after Kyrgyzstan threatened to shut off water supplies used for irrigation. The border remained largely open during a period of ethnic bloodshed in Kyrgyzstan in June, although security has been tightened.

Any border closure would not have a major impact on Kazakhstan’s economy, dominated by oil and metals exports to Russia, China and Western markets, although some cross-border trade in farming and consumer goods would be hit.

What to watch:

— The situation in Kyrgyzstan. The interim government, led by ex-foreign minister Roza Otunbayeva, won a mandate on June 27 to form a parliamentary democracy but Russia, among others, is concerned as to how successful this will be in restoring calm in the volatile and impoverished country.

The fear is that radical Islamist groups may use any power vacuum to gain strength, particularly in the Ferghana valley straddling Kyrgyzstan, Uzbekistan and Tajikistan.

— Developments in Uzbekistan. Like Nazarbayev, Uzbek leader Islam Karimov, in power since 1989, has not picked a successor. More populous than Kazakhstan, Uzbekistan is however much poorer and less developed, which exacerbates social tensions.

For political risks to watch in other countries, please click on [ID:nEMEARISK] (Editing by Maria Golovnina)

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