Books on Kazakstan
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
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]
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.
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
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
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,"
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,"
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
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.
memorandum was signed by the Chevron-led consortium, Tengizchevroil, and the Eni
SpA-led consortium, Agip KCO. DK.