On Nazarbayev’s Energy Sector Investments

Judging by how the events have been unfolding after Askar Mamin’s October working visit to the UAE, the First President of the Republic of Kazakhstan and the “Leader of the Nation” Nursultan Nazarbayev has gotten very serious about bringing his fortune back to Kazakhstan.

You will recall that, as part of this visit, the parties have signed an inter-governmental agreement on a long-term strategic partnership in implementing projects in the high-priority fields of the economy. As part of this partnership, they are planning to attract foreign investments in the amount of $6.1 bln.

We have commented on this trip and the signed agreement in the article titled “What Is behind Mamin’s Visit to the UAE”.

In it, we come to the following conclusions (quoting).

“In our opinion, the only explanation for the modesty of Akorda, the Library and the government lies in the following: they do not want to attract the public attention to these particular investments. Because these investments are likely to come from the funds of the First President’s clan and of his allies; the funds that had been moved from the country to the offshore structures and, up until recently, kept in the UAE banks and foundations”. 

“It is very likely that, after the year 2020, Nursultan Nazarbayev can no longer visit the UAE (due to the health and other reasons) and there, right on the spot, make arrangements with those to whom he has entrusted his money savings. Now this sensitive yet extremely important for the Elbasy and his circle matter is being handled by Prime Minister of the Republic of Kazakhstan Askar Mamin”.

“Our conjecture can be indirectly confirmed by the fact that, exactly one year ago, Askar Mamin also visited the UAE. Back then we commented on his visit in our publication “On Tokayev’s Visit to the UAE”. You will recall that the matter also revolved around  the UAE investments in 21 Kazakh projects. The amount of the investments constituted US$6.1 bln. And back then there was no noise in the press, either.

It is highly likely that, both now and then, it was the same money. But, if a year ago, they only reached the first agreement on how and where it is going to be invested, then now they have signed specific deals on the investments. These deals are probably so watertight from the legal standpoint that, if the related authorities from the U.S. or the European Union impose personal sanctions against Nursultan Nazarbayev and the members of his clan, no one will be able to touch them and arrest the accounts, the securities, the investments and the projects”. 

Later, at the end of this October, two documents appeared in the Kazakh information space that are directly linked to the aforementioned working visit of Prime Minister Askar Mamin to the UAE and the inter-governmental agreement signed there.  

The first document is Decree No. 719 issued by the Kazakh government and titled “On Signing the Joint Declaration of the Government of the Republic of Kazakhstan and the Government of the United Arab Emirates on Establishing a Long-Term Strategic Partnership for the Purpose of Implementing Projects in the High-Priority Fields”.

The second one is a draft decree called “On the Draft Legislature on the Ratification of the Joint Declaration of the Government of the Republic of Kazakhstan and the Government of the United Arab Emirates on Establishing a Long-Term Strategic Partnership for the Purpose of Implementing Projects in the High-Priority Fields”.

Judging by the dates (the governmental decree approving the draft of the Joint Declaration and giving the authority to Minister of National Economy of the Republic of Kazakhstan Aset Irgaliyev to sign it is dated October 8th while the draft decree on the ratification legislature is dated October 13th), the Kazakh authorities are in a great hurry.

Given the Kazakh realia, this kind of hastiness can only mean one thing – it has to be beneficial for the person who has the plentitude of the power in the country, in other words, for Nursultan Nazarbayev. 

As for the text of the Joint Declaration, it clearly demonstrates that Akorda and the Library are going to fall into the same trap as a quarter of a century ago. In other words, they are not simply attracting foreign investors (in this particular case, those masquerading as such) but are offering them extraordinary privileges, advantages and benefits.

We see no point in commenting on this text. We will do it later when it is signed. We will, however, highlight the three key points that have political implications.

a) The investments will primarily affect the Kazakh energy sector that is of a strategic importance to the country and the other sectors of the national economy. The investments in the other fields are going to be minimal.

b) At the same time, the new power supply facilities with the total capacity of 5 GW will receive the exclusive right to sell the electricity they produce for the prices much higher than the existing ones.

For they will be guaranteed that the internal revenue rates (taking into consideration the  borrowed resources in the amount of at least 13%) will be tied to the price index and the currency fluctuations – (1) 100% in respect to the fluctuations of the Kazakh tenge against the U.S. dollar and (2) up to 30% in regard to the producer price index (PPI) depending on the type of the energy generation.

c) The National Welfare Fund of the Republic of Kazakhstan will become a co-investor in the power industry projects.

We at KZ.expert believe that, for the thirty years of the Republic of Kazakhstan’s existence, not a single investor (either foreign or local) has received the privileges, advantages and benefits mentioned in the Joint Declaration. In fact, we are talking about creating an offshore zone albeit not of a financial but an industrial nature. The Kazakh state is going to assume the responsibility for not only assisting the so-called foreign investors but for directly supporting them in terms of both administration and technology.  

Here is a quote from the Agreement:

(i) to select a governmental agency for coordinating the activities of the the state organisations and other parties involved in the implementation of the strategic investment projects in the energy sector;

(ii) in accordance with the Kazakh legislature, to cover the expenditures for constructing the infrastructure built to comply with the requirements related to connecting the objects located in the projects areas which includes but not limited to constructing the electric power network and the power transmission system, the telecommunication system, the power plants access roads, water-retaining constructions and other objects mentioned in the energy sale-purchasing agreements;

(iii) to supply the land parcels in accordance with the national law;

(iv) in order to achieve the goals of the implementation of the strategic projects in the energy sphere by the Government of the Republic of Kazakhstan that is a shareholder of the Samruk-Kazyna National Welfare Fund, Samruk-Kazyna is allowed to divest up to 39% of the shares of the Kazakhstan Electricity Grid Operating Company KEGOC and up to 49% of the Samruk-Energo group of companies and (or) the assets of the Samruk-Energo group of companies;

(v) to introduce changes in the rules and procedures related to the divestments mentioned in Section (iv) and above and carry the said divestments into effect;

(vi) to conclude long-term energy consumer agreements (up to 25 years) that will allow to use the mechanisms of project financing to create new capacities for generating power from gas as well as the renewable sources.

Based on this, only one conclusion can be made – being, for some serious reasons, preoccupied with preserving his fortune, the First President of the Republic of Kazakhstan and the “Leader of the Nation” has decided to move the money from the banks and funds located in the United Arab Emirates as well as in the other offshore zones and bring it back to Kazakhstan.

Albeit not on bank accounts that can easily be arrested based on the political will of the U.S. and the EU authorities. He has chosen to invest it in the economy.

However, Nursultan Nazarbayev has faced the fact that, today, Kazakhstan simply does not have other investment-demanding projects than the ones related to the energy sector. As for investing his billions in the processing industries and agriculture, the Elbasy and his aides chose not to rink pumping the money into them since, in that case, the number of the investment projects would raise dramatically; therefore, monitoring the use of the resources and the profitability of the business would be impossible.

If we turn a blind eye to where the “Leader of the Nation” has got these billions from, we may say that he is acting quite reasonably – hiding them in the way least accessible for external sanctions. On the other hand, if a revolution happens, these billions are guaranteed to be immediately confiscated. However, it looks like this scenario is what Nazarbayev least afraid of.  


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