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Kazakhstan ignores investor
concerns
By Michael Lelyveld
BOSTON - Kazakh President Nursultan Nazarbaev
seems to have brushed aside the objections of foreign
oil companies in signing a new investment statute into
law last week.
Foreign firms have been fighting
for nearly three years against the legislation, which
replaces the country's 1994 investment code. The law,
which was initially planned to take effect in January
2001, will be put into force with publication following
the signing, Interfax news agency says. Kazakhstan's
parliament passed the final version last month after
numerous drafts.
The new measure represents a
compromise on early proposals that set off even stronger
opposition. The law would uphold the terms of past
government contracts with foreign companies against
future legal changes, but it would not extend those
protections to new agreements with either domestic or
foreign entities.
Kazakh officials have argued
that the changes are needed to create more local
opportunity and redress the generous allowances granted
to foreign companies in the past decade, when
Kazakhstan's rich oil fields drew the lion's share of
investment in the Central Independent States.
But critics have argued that the legal changes
are part of broader pressures on foreign companies that
go beyond the letter of the law. While the government
has given repeated assurances, it has also sought
concessions on dozens of existing contracts. Investment
sources say that growing rights violations and the
jailing of opposition leaders has added to the fears of
foreign businesses, which normally shun political
affairs.
While investors are concerned about
contract protections, they have had even less success on
the issue of arbitration. The old law gave foreign
companies the right to take legal disputes in Kazakhstan
to international arbitration courts. The new law implies
that government approval could be needed for such
appeals from now on.
The question is pressing
because Kazakhstan's biggest investors are in the midst
of just such a dispute. In November, foreign companies
shelved a US$3-billion expansion project for the Tengiz
oil field after splitting with the government over
funding and some $600 million in tax payments. US-based
ChevronTexaco is the operator of the Tengizchevroil
joint venture, which has been the largest single
taxpayer in Kazakhstan.
Speaking shortly after
the dispute became public, Kazakh Finance Minister
Zeinullah Kakimzhanov suggested the possibility of
arbitration, saying, "If it will be necessary to bring
some problems to the international arbitration
authorities, as the authorized tax body, I say that if
this need arises then we will go in this direction."
It is unclear whether the recourse is still
available under the new law.
Kazakhstan has also
fined Tengizchevroil more than $70 million for storing 5
million tons of sulfur that was separated from oil
extracted at Tengiz. Although the joint venture has
appealed the penalty, it is now questionable whether it
can take the appeal outside Kazakh courts.
Daniel Witt, president of the International Tax
and Investment Center in Washington, an independent
foundation representing investors, told RFE/RL in a
phone interview that there may be a bright side to the
changes on contract protection, if it means that
Kazakhstan will pursue stable tax policies from now on.
Witt said, "It looks really bad. As I read it,
it does look bad. But at the same time, I'd rather have
pressure driving the Kazakh government to maintain the
normal, stable laws that don't require individual
contracts to protect investors. You shouldn't have to
contract your tax regime."
Investors may be just
as worried about the context of conditions in Kazakhstan
that led to the passage of the new law as the
legislation itself. Witt said, "All of these pieces
together paint a rather troubling picture." He added,
"It's the whole investment environment, and that's the
message I've been sharing with the Kazakhs."
Witt said that much will depend on the
government's next steps. Now that the law is in place,
foreign companies will be waiting to see how it will be
applied. Companies could prove reluctant to sign new
contracts if arbitrary measures increase. Witt said,
"There will be a market test there. If this is onerous,
the Kazakhs will pay a price for that."
Copyright (c) 2002, RFE/RL Inc. Reprinted
with the permission of Radio Free Europe/Radio
Liberty, 1201 Connecticut Ave NW, Washington DC
20036
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