Foreign Minister Seeks to Keep Kazakhstan's Energy Export Options Open

Kazakhstani President Nursultan Nazarbayev recently convened a session of his Council of Foreign Investors to discuss economic development issues. Council members broadly praised Kazakhstan as the "most attractive" state for investment among CIS countries, Khabar Television in Almaty reported. At the same time, some leading international bankers and executives, including the EBRD head Jean Lemierre, called on Kazakhstan to improve the implementation of existing legislation. The arbitrary application of legislation is currently a major concern for foreign investors, Lemierre told a news conference July 5. Nazarbayev, meanwhile, urged foreign investors to examine possibilities beyond the oil and gas sector, specifically citing the transportation infrastructure and the agricultural sector as needing infusions of capital.

In recent months, Nazarbayev's administration has faced calls from leading politicians and business executives in Kazakhstan to ease its tight grip over the country's political and economic life. [For background see the EurasiaNet Business and Economics archive]. Nazarbayev has acted resolutely to squelch such calls. [For additional information see the EurasiaNet Civil Society archives]. In a televised interview on July 6, Nazarbayev stressed that political stability was needed to ensure the country's stable development. "My task is to strengthen Kazakhstan and to ensure that the country has a firm foundation," Nazarbayev said. "I think Kazakhstan will need a strong system of statehood for quite some time, and a strong state management system."

On July 1-2, a Kazakhstani delegation including the ministers of foreign affairs, energy and mineral resources and agriculture traveled to the United States to promote trade and investment. As the principle host of the conference, Senator Sam Brownback, Republican of Kansas, cited Kazakhstan's strategic importance to the United States as an energy-rich state bordering countries such as China, Iran, and Uzbekistan and its participation in the ongoing campaign against terrorism. During the conference, EurasiaNet contributor Zeyno Baran interviewed Kazakhstan's Foreign Minister, Kassymzhomart Tokaev, about recent oil and gas sector developments and other investment-related issues. The full text of his comments follows:

EurasiaNet: Sanctity of contracts is a key concern for foreign investors. Both President Nazarbayev and you have recently stated that Kazakhstan will not revise contracts it signed with foreign investors over the last decade. While this is reassuring, there are other bureaucratic hurdles such as repeated visits from the local tax authorities and health inspectors that could drive away foreign investors. Can you please describe what measures your government is taking against those kinds of actions?
Tokaev: Kazakhstan is fully committed to sanctity of contracts. We have reached a point of no return in our reform process. At the same time, there are unfortunately some government agencies that undertake the kinds of actions you mentioned. My recommendation is that foreign companies respect the laws of Kazakhstan and carry on activities consistent with the laws. If there is a problem, then they need to find proper mechanism for consultations and negotiations.

EurasiaNet: The recent announcement that the Kashagan field is holding between 7-9 billion barrels of oil makes this field the largest oil discovery in the last couple of decades. With it comes the question of how you'll transport all that oil to world markets.
Tokaev: Kazakhstan is landlocked – we need to use pipelines to transport our oil to markets. Currently oil from the large Tengiz field is transported via a new pipeline – CPC [Caspian Pipeline Consorium] – to the Russian port of Novorossisk. For additional oil, such as Kashagan, we are looking at many directions.

EurasiaNet: One of the areas for US-Kazakhstani energy cooperation covers the transport of Kazakh oil via the Baku-Tbilisi-Ceyhan pipeline. [For additional information see the EurasiaNet Business and Economics archive]. Do you have any preference for this route?
Tokaev: President Nazarbayev signed the Ankara Declaration in Turkey to join BTC, and Kazakhstan is still very interested in this project. We need to see more US companies show interest in the next phase of BTC, which would be Aktau-BTC, or ABTC. There would not be a need for a pipeline; oil would be shipped by barge from Kazakhstan across the Caspian to Azerbaijan. I think there is a feasibility study the Turks conducted on ABTC, and I hope US companies give it proper attention.

EurasiaNet: Kazakhstan has recently reached a 15-year agreement with Russia to export oil via the existing Russian network. Your national company KazMunayGaz also formed a joint venture with Gazprom in June to transport gas via Russian infrastructure to Europe. What long-term implication do you see in these agreements?
Tokaev: For us using the existing networks to transport our oil and gas makes great sense. CPC is now working and ChevronTexaco informed us last month that so far 1 million tons of oil has been shipped to Black Sea via this line. The gas joint venture will help us get our gas to Russia and the European markets.

EurasiaNet: Following the Ashgabat summit on Caspian Sea, President [Saparmyrat] Niyazov of Turkmenistan was quoted as saying that the Caspian smelt of "blood." Russia, which already has the largest naval force, wants to increase its forces and the United States is providing maritime assistance to Azerbaijan, all within the context of the war against terrorism [For background see the Eurasia Insight archive]. What is your position on these recent developments?
Tokaev: It is very important to enhance security and stability of the Caspian region. Last July's tension between Iran and Azerbaijan and the ongoing tension between Turkmenistan and Azerbaijan are worrisome. I believe all littoral states need to work out the issues in this potentially one of the richest areas of the world. I was very disappointed in the Ashgabat summit in April, and following that meeting, we have reached a bilateral agreement with Russia in the north Caspian. I am not in favor of increased militarization in the Caspian; I would like to see peace, stability and eventually cooperation in the Caspian.

EurasiaNet: As you know countries that have rich oil reserves often fail to develop other sectors of their economy. Your economy is already highly dependent on oil and gas revenues, and with Kashagan, the dependence will probably increase even more. What are some measures you are taking to diversify your economy to avoid the so-called Dutch disease?
Tokaev: Kazakhstan is the leading economic power in the region based on our GDP, hard currency reserves, structural reforms and liberalization of the economy. Now our task is to have stable and predictable relations with all its neighbors. Kazakhstan has long borders, and it is absolutely important to ensure a favorable environment for future economic growth. We are committed in diversifying our economy, and that is why we came to Kansas for this trade and investment conference. One of our main priorities is to promote SMEs [small and medium enterprises], as well as investment in our agriculture sector, especially in the food-processing sector.

EurasiaNet: While the United States has declared Kazakhstan a strategic partner, some of the domestic developments in Kazakhstan, such as increasing pressure on the media, and the new political party legislation, if passed, could seriously hurt the prospects of enhanced cooperation in the future. [Editor's Note: on July 5, Nazarbayev declined to sign the law on political parties, pending further review. if approved, the law will increase the minimum number of a party's members required for its registration from the current 3,000 to 50,000. Parties would also need to have more than 700 members in each of the 14 regions and two towns controlled by the republic's authorities. There are only two or three parties that would be able to fulfill these requirements. All of these are pro-government parties].
Tokaev: Kazakhstan has only 15 million people, but more than 10 political parties. The United States with its 275 million has two main parties. The new law is not aimed at limiting participation, but will help consolidate the parties. There will be probably five parties, and the opposition groups can come together in one party and still be active in politics.