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Key Economic Data 
 
  2003 2002 2001 Ranking(2003)
GDP
Millions of US $ 29,749 24,205 22,400 60
         
GNI per capita
 US $ 1,780 1,510 1,350 119
Ranking is given out of 208 nations - (data from the World Bank)

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Update No: 322 - (25/10/07)

The Caspian Sea Summit: A good start
The second summit of the Caspian Sea states in Tehran was deemed a reasonable success.

The primary result of the summit, which brought together the leaders of Azerbaijan, Iran, Kazakhstan, Russia and Turkmenistan, was a declaration of intent that offered something for everyone, while providing no clear timetable for the realization of goals envisioned in the document. The declaration affirmed the notion that outside powers should have no role in deciding how the sea's resources are utilized. It also emphasized that a legal framework for the sea's division would be reached through "consensus." 

"The sides hereby announce that only Caspian Sea littoral countries are allowed to use the resources of the sea," read an excerpt of the declaration published by the Tehran Times. 

The rough outlines of a breakthrough in Caspian negotiations could be seen taking shape at the Tehran gathering. On the territorial division question, Iran appears to be the chief stumbling bloc, given Tehran's insistence on an equal 20 percent share of the sea. Under a formula supported by Azerbaijan, Kazakhstan and Russia, Iran would end up with a roughly 13 percent share. 

However, Iran might be willing to modify its position, if it can receive security assurances from its Caspian neighbours - something that could help Tehran withstand US and European Union pressure connected to the country's nuclear programme. "There might be a quid pro quo somewhere down the line which entails a softening of the Iranian position on division, in exchange for some security guarantees on its northern flank," said Michael Denison, an expert on Caspian affairs at the University of Leeds in England. 

The leaders of Caspian littoral states agreed to meet in 2008 in Baku. Kazakh President Nursultan Nazarbayev voiced hope that a comprehensive territorial pact could be ready for signing by the time that summit convenes, but many experts believe such a scenario, despite the mutual expression of intent in Tehran, remains highly unlikely. 

Serious obstacles remain. Perhaps the most visible difference of opinion at the Tehran meeting concerned the construction of a trans-Caspian pipeline, a project strongly backed by the United States. Nazarbayev argued that such a pipeline should only require the approval of states directly involved in order to move forward. Putin, however, invoked environmental concerns in arguing that any major pipeline project concerning the Caspian must obtain the consent of all littoral states. Given that any trans-Caspian pipeline would break Russia's existing stranglehold over regional energy export routes, Moscow would not be expected to approve of the construction of a new route. 

A key to whether or not a Caspian treaty can be signed soon is connected to efforts by Azerbaijan and Turkmenistan to compromise on sectors of the sea claimed by both countries. Azerbaijan, Kazakhstan and Russia have already resolved their disputes regarding their respective Caspian sectors. If Azerbaijan and Turkmenistan can settle their differences, Iran would come under increasing pressure to revise its stance. 

Some experts say things have already reached a point where Iran is having trouble resisting the pressure of its neighbours. "The de facto situation is going to become the de jure situation," predicted Ustina Markus of the Kazakhstan Institute of Management, Economics and Strategic Research in Almaty. "There are too many vested interests there [in the Caspian Basin] now." 

Other observers believe that no matter what happens between Azerbaijan and Turkmenistan, a Caspian accord is unlikely to be signed in 2008. "It [an Azerbaijani-Turkmen pact] could bring the five [Caspian] countries closer to a convention on [the sea's] legal status," said Maria Disenova, an analyst at the Institute for Economic Strategies-Central Asia. ""But I am not positive that it will be signed during the next summit." 

Beyond the question of the sea's territorial division, Putin used the summit to try to extend Russia's influence over regional economic affairs. Putin advocated development of new transport routes, including a North-South rail corridor and new water routes between the Caspian and the Black Sea, including a possible second Volga-Don canal. 

Last June, Nazarbayev said Astana was prepared to seek investors for a new canal to connect the Caspian with the Black Sea. The so-called "Eurasia" canal could cost upwards of $6 billion. Though the concept would seem to have Putin's backing, some regional officials, including Vladimir Chub, governor of the Rostov Region, are on record as saying a second canal is not needed. 

Meanwhile at the summit, Iran, Kazakhstan and Turkmenistan pledged to take steps to connect their railway networks. Subsequently, Putin told Turkmen President Gurbanguly Berdymukhamedov that the planed trilateral railway link would be connected to Russia's railway system. 

"OGEC"
In Tehran, some experts also believe Putin pressed his Iranian counterpart for Tehran's participation in a Russia-led natural gas cartel. The formation of such a cartel is reportedly been a long-held goal of the Russian president's. "Now suppose Russia, Kazakhstan, Azerbaijan, Turkmenistan and Iran agree to coordinate their natural gas activities," said a commentary published October 16 by the Gazeta daily. "If this happens, then Venezuela and Algeria (both large natural gas exporters) will readily join - they will just have no choice other than to join." 

Sergei Prikhodko, a foreign policy aide to Russian President Vladimir Putin, hailed the declaration as a "very serious and useful document." Meanwhile, Kazakhstan's president, Nursultan Nazarbayev, characterized the document as a building block for a comprehensive agreement. "One can assert realistically that we, for the first time, have got things moving," the Interfax-Kazakhstan news agency quoted Nazarbayev as saying during a news conference in Tehran. 

The Kashagan Issue
The Kashagan field in the Caspian is the biggest find since Prudhoe Bay, 15bn barrels of oil. It has naturally attracted enormous foreign interest. But ownership of the drilling rights has become a matter of dispute, with the government, frustrated by slow progress, indicating that it may take back previously granted concessions. 

The dust has somewhat settled over the Kashagan issue after the visit of Italian Prime Minister Romano Prodi to Astana in October. No categorical statements were made, and the negotiations between the Kazakh government and the consortium have continued in a calmer environment. 

However, it seems like, linked to Kashagan, a new intrigue can be expected in the new future - the debates around the Bill "On Subsurface and Subsurface Use." 

The Kazakhstan Foreign Investors' Council Association, the Kazakhstan Petroleum Association, the International Tax and Investment Centre, the American Chamber of Commerce in Kazakhstan, and the European Business Association of Kazakhstan have written a letter to the President of Kazakhstan requesting him to veto the Bill "On Subsurface and Subsurface Use." 

The thing is the Kazakh legislators of both chambers of the Parliament reviewed and unanimously adopted, in a record time, a number of amendments to the subsurface law. 

In essence, the amendments grant to the government a unilateral right to modify or cancel energy contracts to "protect the national interests ... and economic security of Kazakstan." 
An interesting fact: when the proposed amendments were still discussed within the walls of the Parliament, foreign companies kept silent and did not react to the development in any way. They refused to comment on the bill when asked to do so by journalists. Most likely, without any sound legal homework, none of the investors ventured to speak their mind. 

The very first reaction to the legislative initiatives of Kazakhstan was heard from the Duke of Yorkshire at the KIOGE-2007 international conference in Almaty. "For Kazakhstan to achieve its goals, it should remain attractive for foreign investments. I urge the government of Kazakhstan to seriously think about how these amendments may affect the investment image of the country," he said. 

The Italian premier agreed with him: "Not only Italian but also international mass media as well as their business circles are concerned about this new legislation. I have asked (Kazakh President) Nursultan Nazarbayev to pay special attention to this." 

Gregory J. Vojack, the head of the international law company Bracewell & Giuliani LLP said: "If this amendment is approved by the Senate and signed by the President, it will have very serious and extensive consequences." 

A bit later, though, Vojack toned down his evaluation indicating that the amendments did not contain a compensation clause, which would have been necessary in the case of nationalisation. "The absence of this clause gives hope that, in the Kashagan case, the government of Kazakhstan does not aim at nationalising the project, as was the case with the Russian Sakhalin II," he added. 

According to some Kazakhstan bankers, apart from these public negative evaluations, the reaction to the amendments affected the investment rating of the country. On October 8, the international agency Standard & Poor's (S&P) reduced the credit ratings of Kazakhstan. 

Regarding the above-mentioned letter, the content is based on two concepts. First, the authors make it clear that rather than for the declared protection of the national interests, the bill creates conditions for bureaucratic raids. Second, the government-promoted document is at odds with the other legal acts of Kazakhstan, for example, the Constitution. As a result, the enactment of such law will reduce the investment flow into the country and will increase the political risks of the projects in Kazakhstan. 

The investors base their request to veto the bill on the country's main law, the Constitution. For example, according to article 26.3 of the Constitution "nobody can be deprived of their property other than by the trial of court, according to article 6.1 of the Constitution of the Republic of Kazakhstan that recognises and protects private property." 

On the whole, the right of the government to a unilateral and extra judicial termination of a contract without compensation is against the constitutional guarantees, the authors of the letter conclude. 
The amendments also contradict the Law "On Investments" and the Law "On Subsurface." While these laws guarantee legislative stability for the contracts, the amendments provide for a retrospective effect. That is, the right of the state to unilaterally terminate may extend to an indefinitely wide range of contracts, which would be a considerable deviation from the principles of stability and invariability of contracts declared by Kazakhstan. 

Leaving out the legal intricacies listed in the letter, it's worth quoting the closing phrase: "We are extremely concerned that the bill violates the earlier established guarantees of stability of contracts, the guarantees of dispute resolution in court or international arbitration, the constitutional guarantees of protection of property, and the guarantee of compensation in the case of expropriation. We are convinced that these amendments should be regarded as worsening the investment climate in Kazakhstan." 

Note that the letter was sent to the Kazakh president only after the bill had been approved by the two chambers and forwarded to the head of the state for signing. No word has been received so far from Ak-Orda that the bill has been signed. It is possible that the head of the state will veto this bill like he vetoed the Mass Media bill. It is equally possible that the bill will be signed. Some experts believe that in the latter scenario, the country will show teeth and determination in decision-making, and the investors will have to accept such decisions. There is a third possibility, though, that Nazarbayev will return the bill for a follow-up revision to the parliament. 

Partly, this question has been answered by the investors themselves in their speeches. "The new legislation was adopted to show to the foreign investors that they should fulfil their obligations if the investors want the state to do the same and to honour all conditions of the contracts," Vojack told New Europe during a break between the KIOGE - 2007 meetings. 

"For this reason, the enactment of the new law may not necessarily result in higher political and economic risks for the foreign investors carrying out business in Kazakhstan. However, it is of vital importance that the investors themselves do their best to show to the government that they fufil their contractual obligations," he said.

National oil company KazMunaiGaz announced in a press release on January 24 that it has signed a memorandum of understanding to deliver oil by tanker across the Caspian Sea for further shipment through the Baku-Tbilisi-Ceyhan pipeline, AP reported. 
The $3 billion Kazakh Caspian Transport System (KCTS) project is slated to launch operations in 2010-11, with an initial capacity of 25 million tons a year and eventual capacity of 38 million tons a year. "The memorandum is the first step in setting up the KCTS for oil, which will further diversify hydrocarbon export sources," KazMunaiGaz head Uzakbai Karabalin commented. The 
memorandum was signed by the Chevron-led consortium, Tengizchevroil, and the Eni SpA-led consortium, Agip KCO. DK.

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