Kazakhstan to investigate all strategic asset sales in wake of Kazatomprom scandal

analysis

Kazakhstan to investigate all strategic asset sales in wake of Kazatomprom scandal

By SRI ⋅ June 3, 2009 ⋅

(SRI) - Kazakhstan’s state holding company Samruk-Kazyna will review all asset sales in the country’s strategic sectors after the state’s security agency allegedly uncovered a huge-cale fraud in the state nuclear company Kazatomprom, Kazakh officials said on Monday.

Last week, the National Security Committee (KNB), the country’s intelligence service, accused Kazatomprom’s former manager Mukhtar Dzhakishev of illegally selling lucrative state assets to obscure offshore companies. Later, the KNB specified that Dzhakishev stole more than 60 percent of Kazakhstan’s nuclear reserves, effectively defrauding the country of tens of billions of dollars.

This has prompted the KNB to investigate all deals closed by Dzhakishev during his long tenure at the helm of Kazatomprom - a move that has seen foreign investors fear about the future of their lucrative contracts in Kazakhstan. Uranium One, a Canadian uranium miner which operates a joint venture with Kazatomprom specifically named in KNB’s findings, has seen the value of its stock price drop by almost 40 percent following KNB’s announcement.

Samruk-Kazyna, meanwhile, said in a statement it will review all asset sales in sectors ranging from oil and gas to banks and telecoms. Samruk-Kazyna is the umrella holding for most of Kazakhstan’s strategic assets (although excluding Kazatomprom) like KazMunaiGas, the national oil company, Air Astana, the national airline, TemirZholy, the national railway operator, and scores of others.

Samruk-Kazyna’s review will include cases where joint ventures were created or assets were transferred to establish new companies but also an audit of the procurement process KazMunaiGas and TemirZholy. Both of these companies came into public spotlight when their leaders were sentenced to lengthy jail terms for alleged corruption amid cries that both processes were politically motivated.

What’s behind the Kazatomprom probe?

Kazakhstan’s government has recently announced an anti-corruption drive but many critics have dismissed it as just another round of inter-elite infighting for influence.

The uranium probe in Kazakhstan, which sits on the second largest uranium reserves in the world, comes at a time of higher demand for the radioactive metal due to the world’s renewed interest in nuclear energy. Kazatomprom under Dzhakishev concluded numerous joint ventures with global nuclear companies from Japan, Canada, Australia and France, giving them access to Kazakhstan’s reserves in exchange for technology and export markets.

Uranium One, the only foreign company so far publicly named as having participated in an illegal deal, said it was collaborating with Kazakhstan’s investigation.

Kazakhstan’s opposition claims the case is politically motivated, and the country’s leading businessman publicly called for a transparent trial in a rare showcase of dissent.

Many observers, meanwhile, question how the theft of billions of dollars worth of uranium deposits could have gone undetected in a tightly regulated industry like uranium mining. According to Neal Froneman, the Uranium One’s CEO when the company entered Kazakhstan, the government had approved all owneship changes of the country’s nuclear assets.

“The government has approved ownership changes with those assets twice now. When [Uranium One] bought them, that was approved, and then prior to that the previous company had it approved as well,” Froneman said.