The Toxic Kazmunaigas

International corporation Royal Dutch Shell has backed out of buying Kazmunaigas’ shares. Bloomberg released this information citing its own sources. The reason for Shell’s decision lies in the ties of the Kazakhstan national company with Nursultan Nazarbayev’s son-in-law.

Shell has based its decision on Deboise & Plimpton’s legal report on the purchase risk assessment conducted at the company’s request.

The main conclusion of the report (leaked to Bloomberg by three anonymous sources) is this: Kazmunaigas (KMG) exists under the control of Timur Kulibayev, Nurslutan Nazarbayev’s con-in-law, the husband of the President’s second daughter Dinara. In other words, despite the fact that, legally, Kulibayev has long ceased to be a part of KMG, according to the report, he has preserved the unofficial ways to control the state company.

Although no official comment on this development has been made, it is clear that Bloomberg would not have published this information not having received an independent confirmation of the report’s conclusions.

Changing Directions

The offer to participate in the privatization of KMG was made to Royal Dutch Shell several months ago by state holding Samruk-Kazyna, the only shareholder of the national oil holding. The transaction was to take place before the public placement of KMG’s shares thus giving a certain Western veneer and charm to the latter and a big profit from selling the shares to retail investors as well as the general growth of the capitalization to Samruk-Kazyna.

This is how it has usually been done in the recent history of Kazakhstan that is considered the model example of an oil pearl lost in the steppes of Central Asia. The participation in such projects of the representatives of the state elite and the President’s relatives was not a disadvantage; quite the opposite, it served as the guarantor of the profit-making more than any official promises.

For example, this is how, in 2012, the London stock market players perceived the information that Timur Kulibayev was noted among the company’s shareholders. The stock quotes were growing. And the «owner» of the company, in his 2012 Bloomberg interview, was eager to inform that, even though «they (Kulibayev’s people — kz.expert) are not involved in making the operative decisions, they help us navigate the local landscape».

Now, as we can see, the situation has changed and the presence of the «influential people» in the oil business is becoming a serious burden.

The Risky Business

Royal Dutch Shell’s business in Kazakhstan is serious and complex.

The company is participating (29.25%) in the development of the Karachaganak gas-condensate field — one of the biggest ones in the world. Apart from that, the Dutch KMOK (Kaspi Meruerty Operating Company B.V.) in which Shell controls 55% is the operator of the Pearls PSA contract area.

By the way, KMG’s affiliated company is the second participant in this project. Once, KMG was its sole owner but then the controlling stake went on to Shell.

However, Royal Dutch Shell’s key asset in Kazakhstan is field Kashagan of which it owns 16,81%. This is the most complex project both for Shell and for Kazakhstan since it has a potential to turn into a Panama of our time burying everyone who has participated in its launch.

But even these risks seem miniscule against the backdrop of the general geopolitics of the Caspian where all Shell’s Kazakhstan assets are located. In August 2018, Azerbaijan, Iran, Kazakhstan, Russia, and Turkmenistan signed the Convention on the legal status of the Caspian Sea that has radically changed the rules of the game in the region replacing the Soviet-Iranian 1921 and 1940 agreements. The Convention does not allow for the presence of the military forces of the countries that are not a part of the agreement while the responsibility for the sea’s security and the management of its resources is placed on the five Caspian states.

In reality, of course, it will be just one state — Russia that is in complete control of the Caspian territory. Russia also controls the main oil artery of the region, the Caspian Pipeline Consortium (CPC) that delivers oil to Novorossiysk. Shell’s total share in CPC equals 7,4% of which 3,75% belongs to Shell’s and Rosneft’s joint venture company.

In other words, all the keys to the oil welfare lie not so much in the oil itself as in the means of its transportation and the general safety of the region. In this situation, for Shell, Kazmunaigas, instead of an asset, may become a burden that diminishes the international giant’s negotiating power.

The Caspian Deja Vu

As strange as it sounds, but Shell’s latest decision repeats the events that happened a hundred years ago.

The thing is that, in 1912, Shell already made one fatal purchase having bought the shares of the Caspian-Black Sea Oil Company, the biggest player of the region that belonged to the French branch of the Rothschild family. The company controlled not only the oil but the transportation monopoly, the Baku-Batumi pipeline.

Strictly speaking, the Baku Rothschilds oil deliveries ensured the transformation of the Marcus Samuel trading house that used to sell seashells (hence the corporate logo) into an oil business of the international magnitude. Note that Shell used to sell the Caspian oil products to the entire world not having access to the oilfields.

It all changed in 1907 when the Dutch ‘Royal Dutch’ with its oilfields located in the present-day Indonesia merged with the British Shell trading company. Five years later, the corporation was joined by the French Rothschilds who had exchanged their Baku business for a share in the joint company.

Then followed the war and the revolutions that annihilated the purchase giving food for the thoughts of several generations of the conspiracy theory aficionados.

Foreseeing the Future

So, Shell has learned the lesson that every option must be counted. Literally. It is this company that has become the pioneer of the strategic planning in business and of implementing these strategies into its management system.

The first real accomplishment of Shell’s strategic planning department was the correct prediction of the OPEC creation and the appearance (as a reaction to it) of the oil spot-market.

At the start of the 980s, when working out the scenarios of the USSR development, the company’s analysts predicted a soon arrival at the Soviet political arena of a young leader capable of conducting dramatic changes in the country. Back then, this idea made a splash in the expert community and became the object of criticism and even jokes on the part of the oracles from the US and the British Intelligence. And when this scenario had turned out to be prophetic, the same experts started talking about an inside information presented as an analytical work.

Be as it may, but all of it only strengthens the grounds for Shell’s decision to back off. As an asset, Kazmunaugas has turned out to be toxic due to its affiliation with Timur Kulibayev. For Akorda, this should serve as a serious warning.

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