About “Bonus” Out of the Investor

Judging by the information from the public sources, Governor of the East-Kazakhstan region Daniyal Akhmetov, with his son Talgat’s assistance, has secured one of the top spots in the regional governors’ rating in terms of attracting foreign investments. One should not, however, expect a large-scale inflow of money into the region. Let us explain why it is so.

On the eve of the 8th of March holiday, the East-Kazakhstan Governor’s office released on its site an announcement later republished by many media-outlets and online-sources. We are talking about the information on Daniyal Akhmetov’s March 5-7 visit to the UK capital as part of the EBRD cooperation program.

Here is a quote from the press-release. “Concluding the meeting, Sir Suma Chakrabarti (EBRD President) noted that the East-Kazakhstan region is the leader among the Kazakhstan regions in terms of the quantity and the price of the implemented projects. He awarded the Thank You Latter and underscored the enormous contribution of Governor Daniyal Akhmetov to the implementation of the investment projects”.

Thus, Governor of the East-Kazakhstan region Daniyal Akhmetov (who, by the way, was the head of the Kazakhstan government in 2003 – 2007) has, first, demonstrated to his colleagues how one must work with big foreign investors, second, has definitely secured one of the top spots in the in the regional governors’ rating in terms of attracting foreign investments. Nonetheless, we believe one should not expect a large-scale inflow of money into the region.

The matter is that Daniyal Akhmetov belongs to that very type of governors that keep their jurisdictional territories under strict control that cannot be avoided even in the case if a foreign investor is being lobbied by a serious Kazakhstan business.

According to our insiders, the key figures determining who among foreign investors will receive the right to invest in the region, are Daniyal Akhmetov himself and his son Talgat Akhmetov (who, by the way, with his $145 mln fortune, holds the 35th place in the richest Kazakhstanis Forbes.kz rating).

Based on Forbes.kz, Daniyal Akhmetov’s son owns “…a number of the companies in the Pavlodar region including Kazenergokabel JSC (29.9%), Pavlodarskiy Khlebobulochnyi Kombinat LLP, KAZ InterGroup PV LLP, TASK Holding LLP, Temirzholshy LLP, Gloria-Farm LLP, Pavlodarskaya Konditerskaya Fabrika LLP as well as Ak Sunkar NT LLP and Engineering Supply Company LLP in Astana”. He is also a deputy of the local representative body of the East-Kazakhstan region.

The Kazakhstan media has exposed Talgat Akhmetov’s ways of operating in the region many times. For example, a year ago, the Ratel.kz online-resource published an article How Daniyal Akhmetov’s Son Made It to the Forbes.kz List . And, according to the information regularly received from the East-Kazakhstan region, nothing has changed since then. The story told by our insiders on how one of the world’s largest extracting companies Rio Tinto Group was planning to come to the region but eventually chose not to testifies to this fact.

The Mukashev family (25th place in the Forbes.kz rating, $215 mln fortune) was the one who first tried to bring this investor to the region. There was a talk of developing the Semey copper-porphyry ore field.

A joint venture 90% of which would belong to a company registered in an offshore zone or state with lower tax rates (the Netherlands, for instance) with Rio Tinto Group’s and the Mukashev family’s participation was supposed to be in charge of the project. The Ertis national company received 10%. However, eventually, Rio Tinto Group removed itself from the Kazakhstan project and chose to invest in Mongolia. The reason lied in the fact that the investor was demanded to pay a “commission” and met the other unofficial stipulations both on the regional and the republican level.

In particular, according to the insider information, a certain regional decision-maker (Talgat Akhmetov’s name was mentioned but we cannot state it for certain), acting through the Mukashev family, voiced the demand that the investor pays a “commission” in the amount of $2 mln and awards work contracts to the structures affiliated to him.

The demand to pay the “commission”, according to the insiders, was also supported by a representative of the Ministry for Investments and Development (the name of Timur Toktabayev, an NSC man, was mentioned, but, once again, we cannot confirm that). This person spoke not of $2 mln but of $3 mln.

Therefore, as we can see, inside the official mechanism of attracting foreign investments to Kazakhstan, there is a number of the unofficial systems of choosing the investors. And only the largest structures capable of directly lobbying their interests in Akorda or those who agrees to pay the “commission” can push through the harsh sieve.

As a result, we have in Kazakhstan a natural selection of foreign investors according to their moral (or rather immoral) qualities. Thanks to this, Kazakhstan only sees the companies and corporations that are prepared and able to violate their and our country’s laws as well as the existing corporate rules, and not afraid to do so.

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