From: Justin Burke (JBurke@sorosny.org)
Date: Mon Jan 31 2005 - 09:23:12 EST
Kazakh oil boss rejects oligarchy charges
The Kazakh national oil and gas company, KazMunayGaz, is not an
oligarchic structure, the company's deputy president, Makhambet
Batyrbayev, has told a newspaper, describing such charges as
"ridiculous". He said that the company was selling off its non-core
assets to focus on the main activities. On the company's plans,
Batyrbayev said that his company was currently working on becoming a
major player on Kazakhstan's oil market. The following is the text of
Batyrbayev's interview entitled "Megaholding by the will of the state"
by Yuliana Zhikhor published in the Kazakh newspaper Novoye Pokoleniye
on 7 January; subheadings have been inserted editorially
Kazakhstan is entering New Year with a new era of its sovereignty - war
against giant holding companies. But what does a giant holding company
really stand for and why is it so scary? Due to the fact that this term
is fairly new to the Kazakhs, we decided to have a closer look at it.
According to economic terminology, a giant holding company is a large
company with many subsidiaries which plays a significant role in the
economy of a state and owns non-core assets. Some economists ascribe an
oligarchic nature to giant holding companies. In accordance with this
definition, Kazakh observers have made their own list of giant holding
companies: Kazakhstan Temir Zholy [Railways], Kazakhtelecom, KazMunayGaz
[oil and gas], corporations belonging to foreign investors -
Tengizchevroil, Ispat-Karmet [Mittal Steel Temirtau], Kazakhmys [Kazakh
copper], Alyuminiy Kazakhstana [Aluminium of Kazakhstan], Kazkhrom
[Kazakh chromium], Kaztsink [Kazakh zinc], and Khabar [media holding],
which is partly owned by the state.
The Kazakh economy is based to a significant degree on extracting and
exporting hydrocarbons, which is why the KazMunayGaz national company
attracts particular interest. We have tried to learn about the company's
activities from its deputy president, Makhambet Demesh-uly Batyrbayev.
KazMunayGaz's role and activities
[Newspaper] Makhambet Demesh-uly, can you yourself think of KazMunayGaz
as a giant holding company?
[Makhambet Batyrbayev] In general, yes. Today, KazMunayGaz is a major
oil company in the country - its share is about 16 per cent of [the
country's total] oil output. In addition, KazMunayGaz transports 80 per
cent of oil through main pipelines and 100 per cent of gas and it
carries out 100 per cent of transportation by tankers. As a result,
KazMunayGaz is a major taxpayer. In 2004 alone, KazMunayGaz paid 82.9bn
tenge [some 640m dollars] to the budget, which is about 10 per cent of
GDP [as received, the budget]. One can say that KazMunayGaz is a major
budget contributor. In addition, KazMunayGaz is an important stabilizing
factor in the Kazakh economy. The state, by controlling the inflow of
funds from the sale of hydrocarbons, which is being done not to overheat
the economy, is channelling some of these funds into the National Fund
[which accumulates funds from the oil and other export-oriented sectors
of the economy].
This means if we proceed from the volumes of extracted oil and taxes
paid to the state budget, then, of course, KazMunayGaz could be
described as a giant holding company. In addition, we have subsidiaries
the possession of which, as far as I know, is a feature of a giant
holding company.
Our subsidiary, the Razvedka Dobycha [Prospecting and Extracting]
KazMunayGaz joint-stock company, is currently engaged in oil extraction
on behalf of KazMunayGaz. It was founded on 31 March 2004 by the merger
of the Uzenmunaygaz and Embamunaygaz joint-stock companies and it has
become Kazakhstan's second oil-extracting company in terms of oil
production and recoverable reserves. The company is developing 44 oil
and gas fields.
Another subsidiary, the KazTransOil joint-stock company, specializes in
transporting oil through main pipelines in Kazakhstan. Thus, this
company in cooperation with the Caspian Pipeline Consortium [which runs
the Tengiz-Novorossiysk pipeline which links the major Tengiz field with
the Russian Black Sea port of Novorossiysk] transported almost 49m
tonnes of oil [last year]. According to preliminary data, KazTransOil
[alone] transported 38,239,000 tonnes in 2004, up by 4,047,000 tonnes on
2003. New oil transporting capacities, the Kenkiyak-Atyrau and
Kumkol-Zhosaly main oil pipelines, have been commissioned. We are
currently working on increasing the capacities of the Uzen
[Ozen]-Atyrau-Samara oil pipeline. The construction of the
Atasu-Alashankou pipeline, which serves as the final link of the
transcontinental transport corridor, has been launched. We are studying
the Kazakhstan-Turkmenistan-Iran oil route and completing negotiations
on Kazakhstan's involvement in the Baku-Tbilisi-Ceyhan project.
It turns out that all subsidiaries of KazMunayGaz are its integral part
because they are fulfilling objectives set for KazMunayGaz - extraction,
transportation, processing and the sale of oil and gas.
[Newspaper] Probably only the figures could tell us in detail about the
activities of KazMunayGaz and its subsidiaries. How did the company
finish off 2004 and what are its plans for the future?
[Makhambet Batyrbayev] According to preliminary data, KazMunayGaz
extracted 8,919,000 tonnes of oil and gas condensate in 2004, up by 12.7
per cent on 2003. We plan to extract 9,323,000 tonnes of hydrocarbons in
2005. The country is expected to produce 60m-61m tonnes in 2005 and
about 90m tonnes in 2010.
Future Caspian projects
KazMunayGaz has adopted complex production technologies to extract oil
in the sea which enables us to forecast oil production taking into
account the Caspian shelf by 2015 at over 150m tonnes. Considering the
fact that KazMunayGaz will be involved directly in all the Caspian
projects it will account for half of the Caspian output.
[Newspaper] Where does such confidence that KazMunayGaz will be involved
in all the projects come from? Do you not think that other companies may
also come on to the market?
[Makhambet Batyrbayev] The point is that the national company will be
directly involved in all the new oil projects on the Caspian Sea.
According to a draft law on production sharing agreements in Caspian
projects, which is currently being discussed in parliament, KazMunayGaz
will be given the right to represent Kazakhstan's interests in each
project as a holder of the state share (50 per cent) or as a
plenipotentiary body of the government in a production sharing
agreement. KazMunayGaz and a Korean Caspian consortium have signed a
protocol to cooperate on the Zhambyl field located in the northwestern
part of the Kazakh sector of the Caspian Sea. KazMunayGaz and LUKoil
signed a cooperation memorandum on mutual understanding in the sphere of
exploring and extracting hydrocarbons in the Kazakh and Russian sectors
of the Caspian Sea on 10 February 2003. KazMunayGaz's subsidiary, the
KazMunayTeniz closed joint-stock company and [Russia's] LUKoil are
jointly developing the Tupkaragan and Atash projects, in which they own
50 per cent each.
We can say that we deserve such high trust because our company is paying
great attention to educating and training staff, especially specialists
who will work in the sea. The Kazakh-British Technical University which
is a part of KazMunayGaz (KazMunayGaz owns 100 per cent in it) trains
high-class specialists who are in high demand in the oil and gas sector,
especially in large-scale offshore oil operations.
Subsidiaries
[Newspaper] There has been talk about the necessity of breaking up giant
holding companies and splitting subsidiaries from them. What can you say
on this matter?
[Makhambet Batyrbayev] Splitting subsidiaries from the company may lead
to the state losing control over major spheres for the country. In past
years, the state has been purposefully expanding its national company's
activities to protect its strategic interests. KazMunayGaz is closely
cooperating with ChevronTexaco on the Tengizchevroil limited liability
partnership [which develops the major Tengiz field in the country's
west], in which KazMunayGaz owns 20 per cent, to prevent foreign
investors from dominating the Kazakh oil industry. Under the production
sharing agreement on [the Kashagan] project in the northern Caspian Sea,
KazMunayGaz is cooperating with Agip ENI, British Gas, ExxonMobil,
Shell, TotalFinalElf, Inpex and ConocoPhillips.
Under the import substitution programme, all [foreign] oil-extracting
companies in their projects should involve Kazakh partners and
subcontractors, the duties of which have sometimes been carried out by
KazMunayGaz's subsidiaries. We all remember that at that moment there
was a situation when investors imported everything from drilling
equipment to brooms for cleaners duty-free to Kazakhstan.
Therefore, the enlargement of the national oil company is a very natural
legal desire of the state to defend its own interests. There are enough
precedents in the modern world, for example, Norway's Statoil company.
[Newspaper] However, you own a number of non-core assets. Is it really
that hard to work without them in extracting oil?
[Makhambet Batyrbayev] You are right, we have non-core assets. Those
which are not directly linked to extracting or processing of oil are
telecommunications, air, construction and other companies. However, I
want to say that such subsidiaries were, one can say, a stark choice in
the first years of the company's existence. Service companies which link
various industries were the first to be destroyed when the Kazakh
economy stagnated. That is why a big company had to set up its own
infrastructure and maintenance services for its fully-fledged
functioning. What the opponents of major companies are currently
considering as non-core assets was just a response to the demands of
that time.
Economic growth in the country has boosted the development of other
sectors. As a result, major companies got a chance to get rid of
non-core units, transferring them to small and medium-sized businesses.
For example, we, under the programme for optimizing assets, have reduced
the number of companies with KazMunayGaz's direct involvement from 52 to
44. In the second quarter of year 2004, the national company sold its
stake (3,5 per cent) in the G Media company. Non-core assets like
Kazakhinstrakh and Aksaygazservis have also been sold. An auction to
sell Kazakhstanskaya Systema Bezopasnosti Group and Embavedoil will be
held again. Under this programme, the company sold some of its core
assets - Karakudukmunay, Arman, Gyural, KazMunayGaz-Telf. Over the next
two years, the company will reduce the number of subsidiaries with its
direct involvement from 44 to 28.
KazMunayGaz has practically got rid of unnecessary assets preferring to
get involved only in the commitments it has been delegated.
Rejects oligarchy charges
[Newspaper] Economists believe that another important feature of a giant
holding company is its oligarchic nature. Certain Kazakh observers
attach this to you too.
[Makhambet Batyrbayev] That is ridiculous! Yukos, for instance, was a
major oil holding company in Russia and the term "giant holding company"
was directly linked to its owner - oligarch Mikhail Khodorkhovskiy. Our
owner is the state. The Energy and Mineral Resources Ministry exercises
direct control over our activities. The company's management could not
be described as oligarchs because they do not have access to revenues
from its operations - everything goes to the budget. By the way, the
republican budget commission, which includes government officials and
MPs, adopts KazMunayGaz's budget and, consequently, its fulfilment is
fully reported to the state. Taking this into account, you decide
yourself whether KazMunayGaz could be described as an oligarchic
structure or not.
[Newspaper] Many believe that oligarchy is almost a defining feature of
a giant holding company.
[Makhambet Batyrbayev] We are a production holding company. KazMunayGaz
is a major company in Kazakhstan which is operating in the basic sector
of the country at the moment. I believe our company is playing a
stabilizing role in the country's economy and it is employing highly
professional staff. KazMunayGaz also owns subsidiaries. However, we
should remember that the state did not only control the enlargement of
the national company and its transformation into a giant holding company
but it was also directly involved in these processes as its only owner.
So you can describe it as a giant holding company, but only from the
economic point of view.
Source: Novoye Pokoleniye, Almaty, in Russian 7 Jan 05 p 4
BBC Mon CAU 290105 jl/nb/md
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