TRANSNATIONAL CORPORATIONS IN KAZAKHSTAN
Abstract
Obviously, transnational corporations (TNCs) with over 50 percent of world industrial production, over 60 percent of international trade, and nearly 90 percent of foreign direct investments
under their control exert considerable influence on the world economy. They have essentially all trade in raw materials under their thumb; Kazakhstan, a country rich in mineral wealth, is also within their range of influence. As an independent state, the republic was not only one of the first in the post-Soviet expanse to attract foreign capital by transferring large enterprises of basic industrial branches to trust management, which allowed subsequent privatization and the setting up of new facilities with 100 percent foreign money, but also relied on intensive mining and extraction as its economic cornerstone.
In 1994-1997, the TNCs began their active invasion of Kazakhstan’s economy: after supporting “director” or “bureaucratic” privatization, the government placed its stakes on large foreign investments for obvious reasons. Involvement of large TNCs not only placed the country on the economic map of the world and guaranteed a flow of investments, but also ensured domestic stability (due to interest in protecting property rights). This explains the unprecedentedly wide-scale (as compared to other countries with “transition” economies) involvement of large TNCs in the republic’s economy.
The government expected that foreign corporations’ involvement in the local economy through shares and long-term contracts on oil and gas production1 would contribute to the country’s eco- nomic upsurge. It was expected that “the new private owners would not only invest in production, but also introduce new marketing and management skills and, especially, new ideas typical of the market economy.”2
Foreign companies, however, not only and not so much “introduced” “new ideas typical of the market economy” and money, they gained political weight. For obvious reasons, foreign capital created pressure groups. While the country, in the clutches of an economic crisis, badly needed Western money, TNCs, acting as intermediaries between the government and the international financial structures, were primarily lobbying their own interests. Some of them even set up certain public and political movements and organizations. The Civil Party of Kazakhstan, created and supported with the help of the Eurasian Bank,3 is one such structure.
The following companies, well known across the world, have struck root in Kazakhstan: Glencore International AG (Kaztsink Open Joint-Stock Company), ENI, Total, Royal Dutch Shell, ExxonMobil, ConocoPhillips, Inpex (Agip KCO Joint-Stock Company), Chevron (Tengizchevroil Ltd.), Samsung (Kazakhmys Corporation), «Mittal Steel» (Mittal Steel Temirtau Joint-Stock Company),4 Philip Morris (Almaty Tobacco Factory Joint-Stock Company), Coca Cola (Coca Cola Almaty Bottlers Joint-Stock Company), and others.5 After settling in Kazakhstan, they promptly mastered the unofficial rules of doing business and fit into the local economic realities.
As owners of the largest enterprises, TNCs play an important role in Kazakhstan. Some experts believe that their daughter companies control over 80 percent of the republic’s production potential. For this reason, when dealing with the country’s leaders, they (as distinct from the local business community) are not alien to threats of withdrawing their assets6 from the country’s economy, thus inflicting considerable damage on it. This has happened more than once recently.
Orientation toward the interests of foreign corporations is obvious in many spheres: the TNCs are busy lobbying their interests through official and unofficial channels (through key figures in corresponding structures). In particular, the notorious conflict with Tengizchevroil over construction of a gas processing plant was resolved through open lobbying by the Foreign Investors Board.7 The Board was involved in another no less notorious case: at the Board’s plenary sitting held several years ago in the Mangystau Region, A. Mashkevich, President of the Eurasian Industrial Association, complained to President Nazarbaev that the Antimonopoly Committee and the Ministry of Transport had raised transportation tariffs for raw materials, thus infringing on the interests of his transnational industrial-financial conglomerate. The decision was promptly annulled on the basis of only one side’s arguments. It should be said, though, that all sorts of formal channels of cooperation (councils of foreign investors, recommendations on enterprise and investments, etc.) produce a much weaker impact.
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For example, under the agreement, the Karachaganak Petroleum Operating B.V. (the shares of the BG Group and ENI are 32.5 percent each; Chevron Texaco, 20 percent, LUKoil, 15 percent) is expected to manage the Karachaganakproject until 2038. This oil- and gas condensate field found in the Western Kazakhstan Region contains over 1.2 billion tons of oil and condensate and over 1.35 tcm of gas.
S. Kalmurzaev, “Peredacha v upravlenie kak odin iz putey pod’ema ekonomiki,” Azia—ekonomika i zhizn, April 1996.
The Eurasian Bank group controls such export branches as the aluminum and chromium industries—Kazkhrom,Aliuminiy Kazakhstana Joint-Stock Company, the Sokolovsko-Sarbayskiy Ore-Dressing Combine, the Aksu Ferroalloy Plant, the Eurasian Energy Corporation, the Ekibastuz Coal Colliery, the Ermakovo Hydropower Station, several thermal power stations, and some other structures. The Eurasian Bank (A. Mashkevich is chairman of the board of directors) is the heart of this business empire. According to different sources, it controls from 20 to 30 percent of the country’s GDP. Ac-cording to the Jerusalem Report of Israel, Mr. Mashkevich controls no less than one-fourth of Kazakhstan’s economy, or 70-80 percent of the country’s mining complex.
According to the company’s heads, the Kazakhstan combine “is one of the world’s most profitable steel produc-ers.” Experts believe that this was achieved because of low wages: the wage fund accounts for merely 18 percent of the cost structure. Six months after Mittal Steel bought the enterprise, its managers insisted on buying 15 state-owned coalmines of the Karaganda Coal Basin, a power station, and railroad line ends. They argued that the company needed the facilities to cheapen production by creating a closed production cycle. The company acquired them debt-free (these debts were shifted onto the state budget). Recently the company and the labor collective clashed over the dividends: the workers who had ordinary shares received annual dividends of 100 tenges (about $0.7).
According to UNCTAD, there are over 1,600 branches of such TNCs as Chevron, Shell, Agip, Samsung, and Philip Morris registered in Kazakhstan. Together they hire over 18,000 people.
Today, the agreements in the oil and gas sphere alone are worth over $40 billion.
The company is operating under the Production Sharing Agreement and cannot, therefore, enjoy the tax privileg-es applied within general tax legislation. Moreover, the construction project was envisaged by the Agreement, so the com-pany failed to live up to its obligations.
The following figures are relevant in this respect: the value of the Tengiz agreement is $20 billion; the value of three contracts on Shah Denis, Chirag, and Gunashli in the Southern Caspian is about $15 billion.
According to Russian researchers, 3-4 platforms with 10 to 12 wells each increase the risk of pollution by at least 1 MPC (maximum permissible concentration) a year over a quarter of the water area of the Northern Caspian (even taking into account the rate of self-purification).
“Kazakhstan’s share in projects” means that the project operators should invite local producers and suppliers to carry out contractual work; materials and equipment should be bought from local producers. For example, in 2003 the Kazakhstan share in Tengizchevroil JV was 42.2 percent. The main part was used to pay for the services and all types of jobs, while the remaining 2 percent was used to buy materials from the local producers. In 2004, Kazakhstan’s share in the Karachaganak Petroleum Operating (KPO) consortium was 40 percent.
See: [htpp: //www.transparency.de/documents].
See: Izvestia-Kazakhstan, 4 July, 2003.
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