Publication: Eurasia Daily Monitor Volume: 4 Issue: 229

On December 6 Kazakh President Nursultan Nazarbayev appointed Nurlan Balgimbayev to be his advisor. Shortly before the announcement, a new wave of administrative reforms replaced several regional governors and top government officials, including the ministers of finance and energy and mineral resources.

Balgimbayev is one of the few unassailable rising stars in the hierarchal structure of the Kazakh establishment. He has never fallen out of favor with Nazarbayev, despite his independent views on economic issues. In the Soviet era he held responsible posts at the Soviet Ministry of the Oil and Gas Industry, and he was sent to the University of Massachusetts to become a highly qualified expert in the oil industry. He spent time working with Chevron, and in 1994 he was appointed to be Kazakhstan’s minister of the oil and gas industry. Later he headed Kazakhoil, and served as prime minister in 1997-99, after prime minister Akezhan Kazhegeldin fled the country and joined the opposition. Balgimbayev has carefully avoided contact with the media and eschewed making any political statements. He is widely credited for his skillful management during the 1999 economic crisis, when oil prices plummeted dramatically but Kazakhstan, for the first time since independence, recorded GDP growth.

Yet in 1999, when Kazakhstan’s still-ailing economy was gathering pace, Balgimbayev left his post as prime minister and went back to head Kazakhoil. Subsequently, he became chairman of the Kazakh Oil Investment Company. It is not a coincidence, some analysts point out, that Balgimbayev, an ardent advocate of nationalizing Kazakhstan’s oil sector, has returned to Nazarbayev’s inner circle amid the government’s ongoing debate with the Italian firm Agip KCO over the Kashagan oil field and mounting pressure on foreign oil companies operating in Kazakhstan. To limit the influence of foreign companies in Kazakhstan’s oil sector, Balgimbayev created KazMunayGaz in 2002, which claims no less than 50% of the shares in any future oil project to be developed with foreign participation. He justified this arm-twisting strategy as a “preventive measure in anticipation of a large-scale development of the Caspian resources” (Liter, December 7).

Although Balgimbayev is generally recognized as an uncompromising opponent of foreign expansion in Kazakhstan’s economy, he nevertheless has been linked to the “Kazakhgate” scandal about bribes from Western oil companies to unnamed top-level government officials. But as the campaign against Western oil companies reaches its climax, Nazarbayev needs Balgimbayev’s experience. Apparently, Nazarbayev intends to use Balgimbayev to defeat the remaining oligarchs in the oil industry. As far back as 2005 Balgimbayev warned that, with the beginning of political reforms in Kazakhstan, the state should put an end to the monopoly established by the influential elite. In his new capacity as a presidential advisor, Balgimbayev is expected to influence Kazakh oil policy behind the scenes (Aikyn, December 7).

KazMunayGaz, Balgimbayev’s brainchild, has proved to be an effective tool in advancing Kazakhstan’s global economic interests. Last month Uzakbay Karabalin, currently head of KazMunayGaz, announced that all legal procedures relating to the purchase of 75% shares in the Romanian firm Rompetrol have been completed, and KazMunayGaz is considering acquiring the remaining 25%. Recently KazMunayGaz officials visiting Ashgabat discussed the possibilities of Kazakhstan’s participation in Turkmen oil development projects, and talks with Russia on joint use of the Orenburg gas-processing plant that will wrap up this year (Express-K, December 7).

Balgimbayev is not alone in his zeal to put key energy sectors of Kazakhstan under strict state control. Many analysts think that Kazakhstan has passed the critical point when foreign investment money was crucial for economic development, and the time has come to squeeze more from the foreign oil companies. The government’s persistent efforts to impose new regulations and environmental standards on oil companies comes amid mounting public criticism of the government for failing to curb rising inflation and keep down food prices. The government apparently believes that shifting the blame for the worsening environmental and living conditions to foreign companies may neutralize possible social unrest against the regime. Last week Nazarbayev, addressing the Council of Foreign Investors, announced that the government intends to introduce an environmental tax, and he called on investors to work out their environment protection programs. According to new regulations, the government may suspend the operations of any company for non-compliance with environmental safety standards (Khabar TV, December 10).

Kazakhstan’s rising demands for environmental protection, better wages, improved working conditions for hired locals, and more allotments to social funds are just part of the toughening attitude toward foreign companies. It would be wrong to believe that Kazakhstan’s improving political ties with Europe, particularly its acceptance by the OSCE as the chairman of the organization in 2010, would have significant positive impact on the government’s complicated relations with Western companies. Kazakhstan is trying to convince the West that it deserves privileged treatment as an energy lifeline for EU countries.