Publication: Eurasia Daily Monitor Volume: 2 Issue: 45

On March 1, non-governmental activists staged two simultaneous demonstrations in Kyzylorda and Shymkent, crisis-ridden cities in south Kazakhstan, to call attention to the environmental threat allegedly posed by projects of PetroKazakhstan Inc., a Canadian oil company that has worked in Kazakhstan for seven years.

Around 500 demonstrators, mainly former employees, members of rescue teams that worked in the Chernobyl disaster zone, and local residents picketed the Kyzylorda office of PetroKazakhstan, waving placards that read, “PetroKazakhstan is an environmental time bomb!” Emotionally charged speeches accusing the Canadian company of neglecting the environmental safety of the local population and violating the state Labor Code might appear to be a spontaneous public outcry against the foreign company if not for the fact that demonstrations in both cities were stage-managed by Asar, the party set up by the daughter of President Nursultan Nazarbayev, Dariga Nazarbayeva, and the youth movement Vybor molodykh (“The Choice of the Young”).

Posing before a camera, Makhmut Izembetov, acting secretary of Asar’s Kyzylorda branch, captured the public mood, saying: “PetroKazakhstan Company exploits the local population, paying people meager wages. They do not allocate money for developing business or infrastructure in the region, they damage the environment, and all this compels the population to appeal to People’s Control” (a throwback to a Soviet inspection agency recently resurrected by Asar). A member of the local parliament lamented the sacking of 3,000 workers by PetroKazakhstan over the last year. In Shymkent, protesters loudly complained about price hikes for fuel oil. Representatives of PetroKazakhstan ignored these demonstrations and refused to conduct any talks with the protesters, who reportedly intend to take their demands to the government and the parliament (Khabar TV, March 1).

The Kyzylorda and Shymkent protests are only the discernible part of the ongoing tug of war between oligarchs. Increasingly the oligarchs are branching out from efforts to monopolize economic power in Kazakhstan and have begun to bring various political factions and cliques under their influence. In his recent public appearances, President Nazarbayev has repeatedly warned business people and company owners to stay away from politics.

PetroKazakhstan, formerly known as Hurricane Hydrocarbons, accounts for 15% of the country’s oil output. Lately it has fallen out of the government’s good graces. The company’s two subsidiaries — PetroKazakhstan Kumkol and PetroKazakhstan Oil Products — are seen as major monopolies in the oil business in south and central Kazakhstan. In addition, the Shymkent oil refinery, owned by PetroKazakhstan, has been linked, alongside the national companies Air Kazakhstan, the Kazakhstan Electricity Grid Operating Company, Kazakhoil, and others to Kazkommertsbank. The bank is headed by Nurzhan Subhanberdin, who is widely believed to be a financial sponsor of the Ak Zhol opposition party. Some commentators pejoratively refer to Kazkommertsbank and the companies linked to it to as “power hungry oligarchs” and “democratic investors” (Centrasia.ru, June 3, 2004).

Clouds began to gather over PetroKazakhstan after the controversial Oraz Zhandosov deserted the ranks of Ak Zhol to take up the government post of chairman of the State Anti-Monopoly Agency. In November 2003 the Anti-Monopoly Agency fined PetroKazakhstan 1.35 billion tenge ($91 million) for a number of alleged violations, such as hiking prices of fuel oil. The Agency also notified the company that $6.3 million that PetroKazakhstan had made from illegally selling oil products would be withdrawn from the company’s bank account. PetroKazakhstan protested the decision, arguing that in reality the fine should not exceed $4,000 (Moskovsky komsomolets, November 13, 2003).

This case triggered a long chain of litigation between PetroKazakhstan and state authorities. Last year Kazakhstan’s Ministry of Energy and Mineral Resources put more pressure on the Canadian company by drastically cutting the volume of oil that PetroKazakhstan could ship to Iran’s Rey oil terminal. According to the contract concluded with the Iranian national company Naftiran Intertrade, as of early 2003 PetroKazakhstan had pledged to annually deliver 1 million tons of Kumkol oil to Iran on a swap basis. Company executives found the Ministry of Energy and Mineral Resources decision to be damaging not only to the company’s economic interests, but also to those of Kazakhstan (Gazeta.kz, November 3, 2004).

Since the September 19 parliamentary elections the word “oligarchy” has become shorthand for “corruption” in Kazakhstan. The most frequently targeted “oligarchs” are almost always oil companies blamed for squandering the public wealth. Given the acuteness of the ecological problem in the southern regions of Kazakhstan and rising unemployment, it is easy for the authorities to divert public anger toward the oil companies.

Last year south Kazakhstan registered the lowest growth rates in the country, at 0.4%. The soaring fuel prices in this cotton-growing region may ruin many farmers this year. People are still storming the offices of PetroKazakhstan Inc., but often to no avail (KTK TV, March 2). The real cause of their woes obviously lies outside the doors of the Canadian company.