OIL FACTOR IN CONFLICT AND DEMOCRACY DEFICIT IN AZERBAIJAN, KAZAKHSTAN AND RUSSIA.

 

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Center for National and International Studies. Oil Factor in Conflict and Democracy Deficit in Azerbaijan, Kazakhstan and Russia. Baku, 2014. Editor: Leila Alieva Language Editor: Ana Mchedlishvili The cover page: Painting by Turakhanim Aghabayova © CNIS-2014- all rights reserved. 1

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Azerbaijan Democratic Republic -96 OIL FACTOR IN CONFLICT AND DEMOCRACY DEFICIT IN AZERBAIJAN, KAZAKHSTAN AND RUSSIA. Edited by Leila Alieva CNIS-2014 2

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Content. Editor’s note ………………………………………………………………………………...…...4 Introduction ………………………………………………………………………………...……5 Part 1. Factors of Political Stability in the Resource Rich States: Case Studies of Russia, Kazakhstan and Azerbaijan Russian Oil Wealth vs Democratic Institutions: How Resources Have Fueled Authoritarianism (Vladimir Milov) ………………………………………………………..…..8 The Influence of Oil Companies On Internal Processes in the Republic of Kazakhstan (Sergey Solyanik) ……………………………………………………………………………....12 Assessment of the Abuse of Administrative (Financial) Resources During Elections - Case Study of Azerbaijan ( Gubad Ibadoglu) ……………………………...…………………..…..19 Part 2. The West’s Energy Interests and Democracy Promotion: Is it Possible to Resolve the Dilemma? Russia Has "Gone Crazy" Again? ( Arkadiy Dubnov) …………………………………...…26 Oil and Democracy Conundrum: U.S. - Azerbaijan Relations ( Jeyhun Veliyev) ………....34 The Energy and Geopolitical Interests of the EU in Azerbaijan and Problems with Democracy: Factors Influencing Decision-Making ( Shahin Abbasov) ………………..…..50 The Energy Interests of the West and Support for Democracy in the Countries of the Caspian Region: Promotion of Values or "Real Politik"?(Yevgeny Zhovtis)………..…….58 Part 3. Is Oil a Factor in the Conflicts in the Caspian Region? The Influence of Energy Resources on Conflicts in Kazakhstan (Amirzhan Kossanov) ….68 Russian-Style Political Rent, or the Price of a Conflict in Barrels ( Vadim Dubnov) ……..74 This Changeable Oil Factor ( Togrul Juvarli) ……………………………………………….84 ABOUT AUTHORS …………………………………………………………………………...93 ………………………………………………………………….………………………………..97 3

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Editor’s note Preparation of this publication was not easy. In fact, the editing took place mostly in exile and on voluntary basis. This book is a collection of papers based on the presentations at three conferences, held by the Center for National and International Studies in 2013-2014 as a continuation of the series devoted to the anniversary of ADR (Azerbaijan Democratic Republic of 1918-1920). Conducting these conferences that successfully started in 2005 and continued as ADR round tables into 2008-2014, was eventually been transformed into a challenging task due to the increasingly restrictive environment for the activities of civil society. While initially in 2008 the organizers had certain freedom in bringing debates to the regions of the country and only the access to some regions was restricted, by 2012 the Center had faced problems along with other independent organizations even when trying to rent venues for their conferences in the capital city Baku. The informal restriction was extended to the most, if not all, of the international hotel branches such as Radisson, Hyatt, and Park Inn, for the independent NGOs and “think tanks”. For instance, the last conference in this series took place in the reduced format owing to the last minute cancellation of the hall rented in Radisson because of the “power cut” in the hotel. This was just before the major crackdown on civil society in 2014 when in one sweeping move most active civil society organizations and their leaders appeared either behind the bars or had to leave the country. Besides the fact that during more than six years the round tables brought about 200 prominent experts, researchers, academics, NGOs and political activists together to discuss various actual topics related to the politics and economics in the region, they had other important aspects as well. They have brought the best experts from Baku to the regions, often to the very distant areas, where both local participants and visitors had an inspiring exchange of ideas. They also introduced the best regional intellectuals and prominent activists – from Turkey, Kazakhstan and Russia - to the society of Azerbaijan and vice versa. Most importantly, they served several significant goals – promoting culture of open public debates, exchanging and tolerance to the diverse ideas and positions, popularizing most actual scholarly concepts and helping people to get rid of the hardest soviet legacies through “opening minds” and realization of their rich creative and democratic potential. And last, but not least, the ADR round tables allowed to keep in focus the aspects of people’s identity related to their democratic past, constituting their pride. They were thoroughly re-written first by the Soviets, and later, attempts were made by the current post-Soviet leadership, for whom ADR memories and symbols were perceived as obstacles to the restoration of the old regime. The CNIS would like to express its deep gratitude to the sponsor of the project during six years - to National Endowment for Democracy. The CNIS also extends its profound appreciation to all participants of the project and contributors to the conferences and the book – to national experts and colleagues and guests from Kazakhstan and Russia. Publication of this book would have been impossible without hard and courageous work and devotion of the staff of the CNIS, whose contribution is highly acknowledged. 4

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Introduction This book is an attempt to review some key aspects of the possible effects of the natural resources on state and democracy building in three Caspian states – Russia, Kazakhstan and Azerbaijan. The topic is a logical continuation of the previous studies of the CNIS reflecting upon influence of the oil rich economies on political institutions building. The usual approach to groupings of the states based on geographic regional principle, such as for instance the South Caucasus, should also be supplemented by other indicators - based on structural characteristics of the political economy of the states. In classical study of Terry Lynn Karl, it is not so much geography, or culture which determines similar trends in political and economic development in the resource based states, but the structure of political economy and the nature of relations with external actors. Thus, there is much in common in politics and economics between the countries, she proves, which are located far from each other geographically, but are united by the similar type of political economy. In this regards, Azerbaijan, for instance, besides sharing characteristics with the states of the South Caucasus, due to its resource dependent economy has also some common significant characteristics with the other Caspian states. To make a comparison between three Caspian states – Russia, Azerbaijan and Kazakhstan- three major areas were chosen for analysis: the role of hydrocarbon resources in political stability of regimes ( Vladimir Milov, Sergey Solyanik and GubadIbadoglu), the influence of the EU and US energy interests on democracy promotion agenda in the oil rich states ( ArkadiyDubnov, YevgeniyZhovtis, ShahinAbbasov and JeyhunVeliyev), and the role of oil factor in conflicts in the region ( TogrulJuvarli, VadimDubnov and AmirzhanKossanov). While the book represents a mixture of journalistic essays and policy papers, there is one obvious advantage of such approach, when the authors complement and enrich each other by looking at the subject from diverse angles and from the theoretical as well as the empirical perspectives. Regarding the role of natural resources in the political stability all three authors stress the stabilizing effect of the natural resources in their countries, but rather in a short term and partial perspective. Indeed, none of the three states are comparable in their ratio of oil and gas resources per capita to Kuwait or Saudi Arabia to provide for relatively long term stability, which urges a necessity of the rulers to adjust policies to the potential and actual challenges to stability. But there is also a factor of legacies of the Soviet past, when autocrats avoid distribution of resources which would improve wellbeing of the population to the level of an independent from state middle class. Yet, in spite of the Constitutional provisions on the conflict of interests, the leaders of the Caspian states very similarly abuse administrative resources to prolong their political life through highly controlled elections. As the study of GubadIbadoglu proves, control over the major natural resources through the state ownership allowed IlhamAliyev to skillfully utilize raising salaries and pensions in the country right before, during and after the elections. Interestingly, the trend of “political” salary raise reveals the basis of the current power, which prioritizes the raise of welfare of the law enforcement sector over health or education sector. Sergey Solyanik warns of simplistic view on stability in Kazakhstan, showing that unfair distribution of the resources and corruption leads to the emergence of numerous conflicts, whether in the area of labor rights, or in the intra-elite relations, or in the relations with the external actors. While so far, the 5

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government managed to control overall stability, there is a growing concern on how sustainable it is, as opacity and secrecy of the oil contracts led to the personalization of the relations of the Kazakh president and oil corporations, “Chevronization” of the country and weakening of “checks and balances” institutions. Oil and gas revenues helped Putin to boost his political power, as the paper of Vladimir Milov shows, when the oil price rise helped his to significantly reduce foreign debt and increase social spending. As Vladimir Milov puts it, the combination of strong economic performance, control over leading media and crackdown on political opponents helped Putin’ United Russia to achieve the “ Constitutional majority” in State Duma, which in turn allowed him to adopt number of increasingly restrictive legislations. The author stresses, that a political grip on power in 2000s would not be possible without massive inflow of oil revenues. The role of the external factors in the promotion of democracy in three Caspian states is the topic of the second chapter of the book. While all three states are Post-Soviet and have significant oil dependence, there is a different context in which the role of the West is assessed. Of all three, the issue is the most sensitive in Azerbaijan. Probably, because Russia is a big state with high ambitions viewing itself equal to EU or the US, the issue of democracy promotion did not come up as outstanding in the presented paper. In contrast, both authors from Azerbaijan noted in details the influence of interests of the West on its democracy promotion efforts in the country. Probably, the difference lies in the fact, that Azerbaijan is the only country of three, which has been participant of the EU and NATO integration programmes. And although the government’s attitude since 1990s has already cooled off, the public still has high level of expectations from the West in terms of its support for democracy. Thus, the acuteness of perception of the West’s inconsistency in the promotion of democracy in the country is higher in Azerbaijani papers, as compared to the other two. JeyhunVeliyev tracks the US official policies starting from the early 90s and their controversies and inconsistencies reaching its peak during the Bush administration. He stresses that in spite of the rhetoric and official statements, they never had substantial influence on the behavior of IlhamAliyev, who did not feel any negative consequences of the poor democracy record for bilateral relations strongly cemented by the energy and security interests. While JeyhunVeliyev focuses mainly on responsibility of the Western states in democracy promotion, ShahinAbbasov, analyzing EU policies in Azerbaijan, suggests that the lack of the mass mobilization in Azerbaijan around EU integration issues contributes to the indifference of the EU to democracy promotion in the country. The euphoria from the end of the Cold War, considers YevgeniyZhovtis, explains the fact, that the West’s policies in the former Soviet Union states have been “short sighted and ineffective”. He shows that in fact the West tolerated brutal violations of human rights practically in all Central Asian states, especially Turkmenistan and Uzbekistan, in spite of their ratification of the international conventions, writing it off on the “oriental mentality”, while successfully cooperating in the energy and security areas. According to the words of Zhovtis, “today democracy has four “enemies” – oil, gas, terrorism and geopolitical considerations”. ArkadiyDubnov considers the failure of the Yeltsin’s liberal reforms as having far -reaching consequences for the Russian domestic developments as well as for its relations with the West. Among the pillars of Putin’s policy, he names “closed minds” and oil being the assets which Putin successfully manipulated in his favor. However, by doing so he continues to fall even deeper to the trap of the resource based economy, which prevents country’s modernization, so needed to meet rising standards of the world competition. 6

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And last but not least, this chapter tries to test the role of the natural resources on the conflicts in the region- both at national and regional level. As in the other areas, there are schools of thought attributing the major role in inciting conflicts to the natural resources. While some of the conflicts are indeed caused by the competition over the lucrative or scarce resources, the influence of the oil on the identity conflicts in the region is unclear. Three authors - from Azerbaijan, Russia and Kazakhstan – try to analyze the influence of the resources on the conflicts directly not related to the competition over oil or gas. In fact, the disputes over the oil fields in the Caspian, unlike what is known as the “identity conflicts”, so far have been approached in a relatively peaceful way, although sometimes reaching a dangerous edge. The complex interplay between the energy interests and stability in NagornoKarabagh is the subject of TogrulJuvarli’s paper. The thorough historical analysis of the conflict development and trans regional energy projects allows him to conclude that “oil factor” was “stepping in” during the critical periods of the conflict evolution, which might have had an impact on the energy interests. He explores the role of oil not only in stability, but overall in security, as it was utilized by the consequent leadership of the country. The answer to the question is not unambiguous – “the oil can strengthen the security, but also can weaken it”, concludes the author. He stresses that the outcome of the influence is dependent on the political setting it operates in. VadimDubnov proves some inter influence of the oil factor and the conflicts in Russia and waged by Russia – Chechnia, Georgia, Ukraine, but denies its strategic nature. While asserting, that the oil price fall in 1986 predetermined the fall of the Soviet Union, he suggests that because Russia inherited major institutions of the Soviet Union – first of all centralized economy- it is not immune to the similar shocks as was experienced by its predecessor. So called reforms of privatization were in fact not denationalization of the property, but rather “denationalization of an official (a bureaucrat)”. This explains the fact that the structure of the resource based economy did not change, but only the principle of the rent distribution did. The accumulation of the capital in the hands of the narrow circle combined with the large scale of the capital flight is a permanent source of conflicts, where “oil aggravates contradictions.” Similarly, the paper by AmirzhanKosanov on Kazakhstan stresses some role of oil in the internal conflicts, but warns from attributing the energy as a driving force to all or major conflicts. He argues, that while the energy interests affect domestic conflicts – social-political protests in response to the unfair distribution of the resources, like events in Janaozen, or even some disagreements to the foreign policy, the emerging trend of the increasing role of the alternative sources of energy will reduce the impact of oil and gas factor on the conflicts in the world. Thus, the debates in this book confirm a complicated nature of the influence of oil factor on stability and democracy building in the countries of the Caspian. While specificities may differ from country to country, one thing is clear – the resource dependent economies combined with the Soviet legacies create much greater challenges on the way to stability and democracy, as compared to the resource poor states. The controversy of oil factor is well reflected, although symbolically, on the book’s cover page by the modern female artist from Azerbaijan. Indeed, mirrored in the image of the mermaid, symbolizing a blessing and a romantic image of oil from the external perspective, it is, however, limited to the tail part, while turning into an exhausted, ugly and degraded man on top, apparently resembling the controversies of the social impact of the oil industry on the producing states. This also correlates to a rather sober assessment of the influence of oil on the politics in the region as rendered by the authors of this book. Leila Alieva. 7

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Vladimir Milov. Russian Oil Wealth vs Democratic Institutions: How Resources Have Fueled Authoritarianism Introduction. When Vladimir Putin had arrived at the top summit of power in Russia in 1999-2000, the country was still functioning as a democratic state, though imperfect. Various media outlets had been quite open in criticizing the incumbent authorities even after Putin was elected Russian President in 2000, which have been most visible during the Kursk nuclear submarine tragedy in August 2000. Russian Parliament, the State Duma, was quite diverse and competitive, containing of nine different factions and groups, none of which had controlled more than 25% of the votes – and, although the Parliament had largely maintained a pro-Presidential majority in most cases, legislative process was quite open and involved significant debate before new legislation was adopted, a significant number of Government’s legislative initiatives were either turned down or substantially amended before being adopted. During late 1980s and 1990s, Russia had badly suffered from low international oil prices – the oil price collapse of 1986 had greatly affected the economic collapse of the Soviet Union, whereas during the years of President Boris Yeltsin’s effective leadership, from August 1991 until December 1999, the average price of Urals crude oil was $16,70 per barrel. Low oil prices had dramatically hurt the industry’s output as well: in 1987, Russia was producing 11,5 million barrels of oil per day, whereas from 1988 onwards the output had badly fallen, bottoming up at around 6 million barrels per day in mid-1990s, almost a 50% decline. Oil factor in Putin’s policies. However, starting from 2000, this situation had – quite unexpectedly to most experts – changed: export price for Russian oil had remained within the corridor of $20-24 per barrel, plus the oil output had grown significantly, driven by risen profits and increased effectiveness due to oil industry privatization (growth in oil output in 2003 vs. 1999 was 40%). As a result, federal budget expenses had grown from around $30 billion in 2000 to around $80 billion in 2003, and, since 2000, for the first time in history of independent Russia federal budget had a surplus instead of deficit. The Government was able to successfully repay its foreign debts, which had been seen as a major problem when Putin had initially came to power in 2000 – experts and policy makers had been spending much time on the alarmist talk about the “Problem-2003”, a peak of foreign debt payments which had to occur in 2003. “You see, the country had repaid $17 billion [of foreign debt during 2003] and did not even notice,” said President Vladimir Putin to journalists in end-December 2003, highlighting overcoming of the major problem that have been seen as a major strategic threat of his early years. Russian foreign debt had reduced from around $140 billion in 1999 to $98 in 2004, with perspectives of further shrinking: the Government had started to develop proposals for early foreign debt repayment (ahead of previously set schedules) and creation of national wealth accumulation Stabilization fund. Foreign debt had further shrank to $40 billion by January 1st, 2007. GDP growth rates were at annual average of 6,8%, contrary to negative figures of the 1990s, and average monthly salary had grew from $70 in 1999 to $250 in 2004. These changes had significantly boosted both the public popularity of Putin, which in end-2003 – early 2004 had enjoyed its peak, being backed by strong economic performance. Growth of oil revenues had obviously been a major contributing factor to this. This had helped Vladimir Putin to escape the public pressure when he had established control over major media sources like ORT, NTV and TV6 television 8

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channels, effectively eroding criticism of the authorities from the federal TV screens by the beginning of State Duma re-election campaign in Autumn 2003. Another blow to political competition was the beginning of the series of arrests and criminal investigations against owners and top managers of the Yukos oil company, including the arrest of Yukos main owner, billionaire Mikhail Khodorkovsky in October 2003. These actions were supported by the widespread public campaign against “wealthy oligarchs” who were blamed for disproportionate influence over country’s political and economic course in the 1990s. And Putin have been promoting himself as the “protector of the people” against the interests of the super-rich, which have gained obvious support among the majority of the population. At the same time, Yukos was the main business structure that was supporting and financing a coalition of various political players who had the ability to potentially become some kind of anti-Putin coalition in the newly elected State Duma. This combination of strong economic performance, establishing control over major media and cracking down on political opponents under populist slogans had allowed Vladimir Putin to establish a “constitutional majority” in the State Duma following the December 2003 elections: Putin’s main loyalist party, United Russia, had won over 300 seats in the 450-seat parliament, more than two-third of the seats, which had allowed it to effectively establish control over legislative process and adopt new legislation in a unilateral manner, without consent of any other parties. Following seizure of almost complete control over state’s Parliament, the ruling group of Vladimir Putin had swiftly used it to dismantle democratic institutions in the country. Within months, new laws have been adopted that had severely cut basic media freedoms, freedom of assembly, freedom of political parties and associations, freedom of electoral process. Procedures for becoming an opposition candidate at elections of all levels had became extremely tedious, and imposed requirements – excessive. These restrictive legislation had culminated in adoption of amendments to the federal Budget Code on August 20th, 2004, which had deprived Russian regions from most of the tax revenues, that had to be from now on redistributed toward the federal center – leaving regional governors, once a powerful political force that had strongly counterweighed the federal political powers of President Boris Yeltsin back in late 1990s, effectively powerless and dependent on Moscow donations. Three weeks after signing these tax-redistribution amendments to the Budget Code, President Putin had announced abolishing of direct elections of regional governors, something which had completely eliminated any alternative centers of power in Russia counterweighing the authority of the President – thus completed the so-called “vertical of power”. (It is a widespread public belief that abolishing the elections of regional governors came as a momentarily reaction to the Beslan terrorist attack of September 1-3rd, 2004, but it’s quite clear that it would not have been possible without the adoption of the tax revenue redistribution amendments three weeks earlier.) The relevant legislation abolishing direct popular elections was adopted in December 2004. Thus, in 2004-2005 Russian political system had experienced a swift wave of political counter-reforms, scrambling media, civil and political freedoms and virtually centering all the state institutions around one figure, the President. The State Duma, with its “constitutional majority” controlled by a major pro President party, had effectively turned into a rubber-stamp parliament, which some critics have called “a department of Presidential administration on legislative affairs”. As a matter of fact, the number of Government-introduced laws turned down by this new Parliament had greatly reduced compared to the previous cadences of the State Duma, whereas a lot of new pieces of legislation have been focusing at voluntary transfer of powers to the President (including abolishing governor elections In the first place). New wave of restrictive counter-reforms took place in 2005-2006 following the “color revolutions” in 9

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Georgia and Ukraine – this time, the focus of restrictive measures was centered around NGOs, which were believed to be the potential source of finding and support of the anti-Putin activities. Oil had continued to play greater role in these developments. In 2004, average Russian oil export price had hit record $31 per barrel, in 2005 - $45, in 2006 - $56, in 2007 - $64, and a record high $91 in 2008. Oil export revenues were plentiful, so was the inflow of foreign capital, which had considered investments in Russia now secure given the improved macroeconomics and growing Stabilization fund. This have helped Putin and his group to effectively secure smooth passing of the 2007-2008 Parliamentary and Presidential elections, which were now held under almost complete administrative control: at the time of these elections, financial crisis of 2008 did not yet break out, and Putin-backed United Russia party and Presidential candidate (Dmitry Medvedev) had won record support numbers. Further on, however, the political environment had changed. Following the 2008 financial crisis, Russian GDP had fell by 8 per cent in 2009, which was among the worst cases in the global economy, and the worst case for Russia since 1994. Although the Government had tried its best to keep up the pace regarding the populist social spending, real disposable income growth had fell after the 2008 crisis to low single-digit numbers, in contrast to high rates of 2000-2008 (average annual real income growth for the Russian population in 2000-2008 was over 12% a year, an unimaginably high figure compared to previous decades). Due to enormous growth of the size of Government, it became much harder to balance the federal budget even under the oil price around $100 per barrel – but the state-run economy was not able to deliver the previous rates of growth. In 2010-2011, GDP growth was at 4-4,5% a year, much lower than the pre-crisis numbers, eventually slowing down to 3,4% in 2012 and 1,3% in 2013, with 2014 forecast balancing around zero growth, and the levels of output barely returning to the pre-crisis indicators. Much weaker economic performance during the period from 2009 and onwards have resulted in severe decline of the popularity of the ruling regime, which had eventually culminated in the ruling party United Russia receiving surprisingly weak 49% at the Parliamentary elections in December 2011, and the subsequent mass street protests in Moscow and other Russian cities during winter of 2011-2012. Vladimir Putin’s popularity had continued to decline over 2012-2013, boosting only recently following the decisive retake of Crimea from Ukraine. Such a sharp boost in Putin’s against the objective trend of the recent years have led to speculation that the new confrontational approach to relations with Ukraine and the West was at least partly intentional and planned with purpose to counterweigh the objective negative trend driven by deteriorating economic situation. It’s hard to tell whether such explanations are true or not, but it’s also clear that without such confrontational mobilization of the population, it wou ld have been very hard to resist the continuing trend of decline of Putin’s popularity due to economic concerns. However, the restrictive system and centralization of power instituted in the legislation adopted in 20042005 had proven to be quite effective and is very much operational by now. Now and then, the negativity against the authorities bursts out in popular vote against the incumbent candidates at direct elections of mayors of big cities, like Yaroslavl (April 1st, 2012), Yekaterinburg (September 8th, 2013), and, most recently, Novosibirsk (April 6th, 2014) – with the latter two being 4th and 3rd most populous Russian cities, respectively. This is one of the explanations why recently Putin had introduced a package of legislation abolishing direct elections of mayors of around 60 most populous Russian cities, which was adopted by the State Duma that is still very much a rubber-stamp parliament. 10

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Conclusions. It is very important to note that such a strong build-up of Government’s confidence and political grip over the country in 2000s would not have been possible without massive growth in incomes from the oil exports, which have risen from $25 billion in 2000 to over $100 billion in 2006, and reaching as high as over $180 billion in 2011-2012. Despite the fact that some kind of “crisis of expectations” is already taking place among the country’s population, driven by realization of Government’s inability to sustain the high rates of economic and income growth compared to the period of 2000-2008, the authorities, with their Central Bank monetary reserves at the level of almost $500 billion and near $400 billion annual federal budget, still have a lot of financial capability to manage economic difficulties and keep the current authoritarian political system afloat. 11

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Sergey Solyanik The Influence of Oil Companies On Internal Processes in the Republic of Kazakhstan Introduction. The Republic of Kazakhstan (RK) is the ninth largest country in the world and second in the CIS. With such a vast territory, the country's population is about 17 million people. Kazakhstan is rich in minerals and belongs to the category of leading oil producers in the world - more than 80 million tonnes of oil and gas condensate per year. Kazakhstan currently ranks 9th in proven oil reserves in the world.1 Two decades of the independent development of Kazakhstan showed that the country's economy strongly depends on raw materials due to the increasing use of natural resources. This has led to a hyper-growth in extractive industries, especially oil and gas, which increased disparities in the country's economic development. For example, in the years of independence, Kazakhstan's oil production increased by more than 3 times and gas production - 5 times.2 The share of the oil sector in the economy is significant. According to the Kazakh Statistics Agency, Kazakhstan's exports in 2012 amounted to more than 92 billion US dollars, of which 56.4 billion or 61 % was received from oil sales.3 However, the revenues from the rich resources of the country have not brought tangible benefits to the majority of citizens and have not improved their welfare. Moreover, during the years of independence, such previously unknown social phenomena such as unemployment, poverty, deep stratification, illiteracy and increased sickness rate became constant companions in the lives of ordinary Kazakhs. According to a 2011 study by Rosstat, 99.9 % of citizens in Kazakhstan cannot be attributed even to the middle-class segment of the population.4 Poverty thrives mainly in rural areas, where there is often a big problem with access to basic services such as drinking water, health and education. According to statistics, rural poverty in the major oil and gas producing regions of the country reaches 64 % in Mangistau Region, 24 % - in Kyzylorda Region and 17.5 % in Atyrau.5 Access to national natural resources. The reason for this situation is that officials manipulate and single-handedly manage national natural resources in their own interests, almost depriving people of their right to own them and benefit from their use. This is one of the main causes of poverty in Kazakhstan, although, according to the Constitution of 1995 (Article 6), natural resources are "public property" and theoretically all citizens should benefit from their exploitation. The government is now almost single-handedly using revenues from the production of natural resources, 1 http://www.akorda.kz/ru/category/kazakhstan08.12.2013. 2 «Министр нефти и газа рассказал о ситуации в отрасли», ortcom.kz, 18.09.2013. 3 «Нефть в Казахстане: развитие или стагнация?»,http://www.sarap.kz/index.php/ru/pol-ob/pol-ec/405.html, 23.07.2013. 4 Александр Кузнецов, «Почти все население Казахстана – нищие!», www.respublika-kaz.info, 02.06.2011. 5 http://integrity.kz, 29.06.2011. 12

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in particular in the implementation of different kinds of prestigious projects such as the construction of Astana or the holding of various international forums and meetings. For example, according to some estimates, the international exhibition of products and technologies EXPO in Astana in summer 2017 will cost Kazakhstan 1.5 billion US dollars, while 1.65 billion US dollars were spent on the 7th Asian Winter Games held in 2011.6 Even the financing of programmes necessary for the population results in their inefficiency, high costs and high levels of corruption. For example, 2.3 billion US dollars had been allocated from the budget for the "Drinking Water" programme (2002-2010), which disappeared almost without a trace.7 The Prosecutor's Office of Kazakhstan has long recognized the "Drinking Water" programme as a den of corruption.8 A considerable part of the country's wealth is concentrated in the hands of a small group of individuals belonging to the family of the president of Kazakhstan and clans behind him. The opposition press keeps filing scandalous articles on the involvement of the president's family in embezzling state property, corrupt dealings and raider attacks on domestic and foreign businesses. In 2011, the Court of Arbitration at the World Bank admitted a raider attack by the son-in-law of the Kazakh president, T. Kulibayev, and ordered the government of Kazakhstan to pay 125 million US dollars to Turkish companies for the loss of business in the country.9 According to M. Ablyazov, a political opponent of the regime, President NursultanNazarbayev controls at least 80 % of the economy of Kazakhstan.10 President Nazarbayev also virtually alone determines the amount and purpose of assets of the National Fund of the Republic of Kazakhstan, which was created in 2000 to ensure sustainable socioeconomic development and the accumulation of financial resources for future generations.11 The assets of the National Fund are formed by funds received from major enterprises of the raw material sector of Kazakhstan, primarily oil and gas, and as of 1 April 2013, they amounted to 59.806 billion US dollars.12 Even the small amount of resources and benefits, which fell into the hands of ordinary citizens on the rights of private property, is not protected from all sorts of abuse on the part of officials and businessmen. A striking example is the manipulation of land after the adoption of the Land Code of 2003, under which the executive authorities were granted the right to manage one of the main natural resources. Behind the adoption of the Land Code of 2003 were major land owners close to the authorities, who lobbied for the law to take over the most fertile agricultural lands in the country. As a result of the manipulation of land plots, which were handed over to villagers after the breakup of former collective farms, more than one million citizens were deprived of land plots.13 An active role in the division of natural resources and income from their exploitation is played by multinational companies operating in the country. This is clearly seen in the oil and gas sector, where Chevron (USA) is the largest private oil company in Kazakhstan. 6 Светлана Глушкова, «Кибер-активисты подсчитывают расходы на ЭКСПО-2017», http://rus.azattyq.org/content/kazakhstan-activists-boycott-expo/24919566.html, 05.03.2013. 7 Ирина Севостьянова, «Правительство инициирует новую программу по обеспечению населения питьевой водой с многократным увеличением финансирования», Панорама, 16.07.2010. 8 АйнурБалакешова, «Сухой закон», Литер, 26.06.2009. 9 Тихон Алексеев, «Купил за тысячу, а продал за 350 000 000?», Голос Республики, №14, 15.04.2011. 10 Тимур Азамат, «Утемуратов «сдал» Назарбаева», Взгляд, №20, 01.06.2011. 11 Указ Президента Республики Казахстан от 23 августа 2000 года №402 «О Национальном фонде Республики Казахстан». Указ Президента РК от 28 декабря 2004 года №1509 «О некоторых вопросах Совета по управлению Национальным фондом Республики Казахстан». 12 «Доходность Национального фонда РК составила 3,33% в 2012 году», КазТАГ, 30.04.2013. 13 Владимир Катков, «Земельный комикс», Литер, 12.07.2008. 13

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“Republic of Chevron” Chevron was the first major foreign company to get the opportunity to work in Kazakhstan after the signing of the agreement on Tengiz in 1993.14 The company has a 50 % stake in Tengizchevroil (TCO), which is developing the Tengiz and Korolev fields15, and 18 % in Karachaganak Petroleum Operating B.V. (KPO) in the Karachaganak field16. Chevron also has a 15 % stake in the Caspian Pipeline Consortium (CPC), which is the main export route for crude oil from these fields.17 The share of TCO is more than 30% of oil produced in the country.18 The company provides up to 15% of the budget revenues of Kazakhstan.19 From 1993 to 2012, TCO's direct financial payments to the Republic of Kazakhstan totalled 74.2 billion US dollars.20 The company itself is none the worse. Just by participating in TCO, Chevron received 4,614 billion dollars in net profit in 2012, which amounted to almost 18 % of the company's revenues in the world this year.21 Now Kazakhstan is truly a diamond in the crown of Chevron, where 21 % of the company's proven reserves in the world are concentrated.22 The stable position of the company in the oil business in Kazakhstan is largely due to long-standing close ties between Chevron and President NursultanNazarbayev, which began to take shape in the Soviet era when talks were held on the Tengiz and Korolev fields. Rumours that representatives of Chevron had to return NursultanNazarbayev and his entourage's kindness in order to get Tengiz have a long history. We only know that persistent opponents of the contract with Chevron suddenly became its supporters overnight23, and J. Giffen, an official adviser to MrNazarbayev and mediator in the negotiations, began to receive 7.5 cents for every barrel of oil at Tengiz.24 Although the country's public has a lot of questions for MrNazarbayev and officials related to the contract with Chevron, all of them remain unanswered. The contract and any attachments thereto are under the veil of a "commercial secret" and are unavailable to the general public25, although the issue is about national natural resources. The Tengiz deal with Chevron helped to strengthen the political situation of NursultanNazarbayev in the country when he publicly announced in the autumn of 1991that an investment boom and an increase in the welfare of the people await the republic in the coming years in connection with the arrival of American capital and technology, while empty Soviet stores would turn into Western supermarkets. These promises played a role in the victory of NursultanNazarbayev in the first presidential election in December 1991. However, American technology never came to Kazakhstan, and the country was doomed to the export of raw materials.26 With the arrival of Chevron, the practice of "revolving doors", which corporations actively use in the US and other countries, became widespread in Kazakhstan - when government officials get a job in a corporation and vice-versa - the most experienced company employees get a seat in the government. This flow of people back and forth serves the interests of the firm when it is necessary to lobby for another 14 15 http://www.tengizchevroil.com/ru/about/tco_history.asp, 14.06.2012. http://www.tengizchevroil.com/ru/about/the_tco_field.asp, 02.08.2012. 16 http://www.kpo.kz/about-kpo.html?&L=1, 29.04.2013. 17 Chevron, 2012 AnnualReport, p.47. 18 Тенгизшевройл цифры и факты, Итоги 2012 года, www.tengizchevroil.com, 21.04.2013. 19 Письмо «Шеврон Мунайгаз Инк.», 08.05.2013. 20 Тенгизшевройл цифры и факты, Итоги 2012 года, www.tengizchevroil.com, 21.04.2013. 21 Chevron, 2012 Annual Report, p.46. 22 Form 10-K, Chevron Corporation, December 31, 2012, p.29. 23 СагындыкМендыбаев, Виктор Шелгунов, «Клептократия.Казахгейт. Новое расследование», http://neweurasia.info/archive/book/kleptocratia/part4_2.htm, 21.06. 2012. 24 Steve LeVine and Bill Powell, A President and His Counselor, Newsweek, 2 July 2000. 25 М.Адилов, «Коммерческие тайны» Тенгизского двора», Республика, 24.10.2003. 26 СагындыкМендыбаев, Виктор Шелгунов, «Клептократия.Казахгейт. Новое расследование», http://neweurasia.info/archive/book/kleptocratia/part4_2.htm, 21.06. 2012. 14

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