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#16 - JRL 7032
Asia Times
January 24, 2003
Russia's single-minded pursuit of energy
By Sergei Blagov

MOSCOW - All of a sudden, the Central Asian energy "great game" is being
echoed in Russia's media maneuvers. With the exit earlier this week of US
financier Boris Jordan as CEO of Russia's popular NTV channel, Russian
media outlets have speculated that his ouster might have been prompted by
NTV's critical coverage of Russia's energy ties with Central Asia, notably

Last December, Jordan approved airing of a special report, "Kazakhstan
Transit," which lashed out at the oil-export policies of Kazakhstan. Top
managers of Gazprom, Russia's natural gas monopoly, were outraged by the
report, which they viewed as detrimental to some major deals of Gazprom in
Central Asia.

Moreover, the incident took political coloration when on January 20, the US
ambassador to Russia, Alexander Vershbow, met Russia's deputy Foreign
Minister Georgy Mamedov to voice US concern over Jordan's demise. This
diplomatic move could have raised more eyebrows in Moscow as some of NTV's
critics alleged that by airing controversial reports, Jordan, a US citizen,
aimed at damaging Russia's energy interests in the region.

Subsequently, the Russian NG daily newspaper commented that Jordan was
swapped for 38 billion cubic meters of Turkmen and Uzbek gas, the amount
that would be transited every year under an upcoming deal between Gazprom
and KazTransGas, the Kazakh gas transit monopoly. Although the agreement is
yet to be finalized, notably the deal with Turkmenistan, the stakes are
clearly high.

For Russia, Kazakhstan is not just a Central Asian country of 15 million
people and 3 million square kilometers, a vast tract of empty steppe which
stretches from the Caspian Sea to China. It is also a nation with huge oil
reserves, as well as an important transit route from gas-rich Turkmenistan.

Not surprisingly, the Russian government has been keen to remain in charge
of lucrative business to transit oil from Central Asia. Last October,
Russia's deputy Prime Minister, Viktor Khristenko, announced that in 2003
Kazakhstan will funnel 19 million tons of crude oil through Russian
pipelines, compared to an estimated 17.5 million in 2002.

Some Russian oil firms moved to lobby against the Kazakh quota so as to
increase their own exports, but the Russian government seemingly remains
firm. On January 15, Khristenko stated that the Kazakh oil transit quota of
19 million tons "would not be reviewed".

Moscow also has defense interests in Kazakhstan. Last October, Russia
approved four agreements with Kazakhstan on the long-term lease of Russian
military facilities, "The Central State-Run Testing Site," Sary-Shagan and
Emba testing sites, as well as an airforce testing site, with lease
payments totaling more than US$20 million a year.

In recent years, Kazakhstan has tended to support Russia on a variety of
post-Soviet issues. For instance, last November some 2,000 Chechen refugees
asked Kazakhstan for asylum. Kazakh President Nursultan Nazarbayev replied
by stating that the issue of Chechen refugees is "an internal affair of
Russia, our neighbor and strategic partner".

In the meantime, Kazakhstan's romance with Western investors has dealt a
sensitive blow. Last December, a consortium led by ChevronTexaco announced
that it would shelve a long-planned $3 billion expansion project for the
Tengiz oil field on Kazakhstan's Caspian shore. ChevronTexaco, the largest
foreign investor in the former Soviet Union, owns half of the Tengiz
consortium, which has invested $2 billion so far in rehabilitating the
Tengiz field.

Under the expansion plan, Tengiz would produce 450,000 barrels per day by
2005, compared to 260,000 today, doubling revenues for all partners. In
addition to ChevronTexaco's 50 percent, ExxonMobil owns 25 percent, Kazakh
oil and gas monopoly KazMunaiGaz owns 20 percent and LukArco owns 5 percent.

The cancellation of the huge project - nearly double the size of
Kazakhstan's annual budget - came at an awkward time for the Kazakh
government - often synonymous with the family of President Nursultan
Nazarbayev. Moreover, foreign direct investments in Kazakhstan brought an
unwanted by-product: allegations of bribes and kickbacks, known as

Incidentally, Nazarbayev is in Switzerland from January 20-28, officially
for talks with Swiss officials and to attend the World Economic Forum in
Davos. However, Nazarbayev's opponents argued that the trip was designed to
deal with "Kazakhgate". Bank accounts in Swiss banks of some $60 million
reportedly held under the names of Nazarbayev and other leading Kazakh
government officials in Pictet and Credit Agricole banks in Geneva
reportedly remain frozen pending the Swiss investigation. A US grand jury
in New York is also conducting an inquiry into possible corruption
involving Kazakh officials.

The Eurasia web site, affiliated with Kazakh opposition leader Akezhan
Kazhegeldin, speculated that Nazarbayev's lawyers might explore a deal with
Swiss investigators under which the Kazakh president would be offered
immunity from prosecution in return for his testimony against others
implicated in the investigation.

"Kazakhgate" emerged in 2002 when in April Kazakh Prime Minister Imangali
Tasmagambetov conceded the existence of secret Swiss accounts in the
president's name, but he indicated that Kazhegeldin, who was prime minister
at the time, was responsible for opening these accounts without
Nazarbayev's knowledge.

Incidentally, the Kremlin had a similar experience. Two years ago, former
Kremlin kingmaker Pavel Borodin narrowly escaped trial in Switzerland on
money laundering charges, after three months in US jail. Under former
Russian president Boris Yeltsin, Borodin was in charge of the Kremlin's
real estate. He was arrested in New York in January 2001, as Swiss
prosecutors claimed they had evidence that Borodin had received at least
$25 million from a Swiss building company in exchange for lucrative
contracts for restoring the Kremlin worth of more than $500 million.

Swiss prosecutors failed to produce evidence and Borodin's case dropped
into irrelevance. However, Moscow arguably might be tempted to view
"Kazakhgate" and the cancellation of the Tengiz project as Kazakhstan's
weakness so as to secure more lucrative transit deals.

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