Kazakhstan points route out of crisis
By Robert M Cutler
MONTREAL - French President Nicolas Sarkozy's visit to Kazakhstan for the
signing of an energy pipeline deal marked a week that included two other
significant events, including a novel approach to bank restructuring, that
trace how the embattled country is seeking to surmount the economic crisis.
Kazakhstan, Central Asia's largest economy, has moved to reinforce its banking
system, hard hit by the world economic crisis, by agreeing with the creditors
of Alliance Bank on terms for restructuring the financial institution. This is
the first time that such a deal has been struck without the bank first having
been taken under the state's protection. It also provides that a restructuring
agreement requires the approval only of two-thirds of creditors for it to be
binding on all creditors, while imposing
significant losses and debt-for-equity swaps on them across the board.
The second event is the purchase by China Investment Corporation, that
country's sovereign wealth fund, of 11% of KazMunaiGas Exploration Production
(KMG), the oil-production subsidiary of the national energy champion of the
same name.
The deal, costing nearly US$1 billion, closed over the past two-and-a-half
months, was executed through the purchase of global depository receipts of the
London-listed KMG. This is in line with China's continuing purchase of energy
resources around the world, including half of the Kazakhstani firm
Mangistaumunaigaz earlier this year. (See
China deal helps out Kazakhs, Asia Times Online, April 30, 2009).
The third and potentially furthest-reaching event is the agreement by
Kazakhstan with a consortium of French companies on the routing of a pipeline
to transport oil from the huge offshore Kashagan deposit to Baku.
The deposit, the largest discovered in the world since Prudhoe Bay in Alaska in
the 1960s, is being developed by the French company Total in a consortium with
Eni, Kazmunaigaz, ExxonMobil, and Shell.
Signed this week in Astana in the presence of Presidents Nursultan Nazarbaev of
Kazakhstan and Sarkozy of France, it states that a French consortium composed
of Spie, Manesmann-France, Europipe, GTS, and Arcelor-Mittal will have for one
year the exclusive right to negotiate the terms of construction with their
Kazakh partner. The contract would have a value of US$3 billion, of which more
than half would go to French companies, creating several thousand jobs for
French workers.
The pipeline will run from Eskene in northwest Kazakhstan to Kuryk on its
western coast, whence the oil would be taken, presumably by tanker, to Baku so
as to enter the existing Baku-Tbilisi-Ceyhan (BTC) pipeline ending on the
eastern Mediterranean coast of Turkey. It will represent the main section of
the previously announced Kazakhstan-Caspian Transport System, or KCTS. (See
Four-way street in Kazakhstan, Asia Times Online, September 18, 2009.)
The specific terms of the banking arrangement first mentioned also have the
potential to be far reaching. It represents an approach to financial
restructuring that appears to have been tried nowhere else, including Europe
and North America.
The deal was constructed within the framework of new Kazakhstani law, which
entered into force over the course of the past year, statutorily limiting the
prerogatives of creditors.
Even the US model has relied exclusively on either letting banks completely
fail or on bailing them out with taxpayers' money, all the while guarding the
prerogatives of creditors as integrally as possible. The Kazakhstani example
demonstrates that with adequate will, the central political executive of a
state can overcome creditors' resistance to such measures.
The other two events are in line with the continuing development of Kazakhstani
energy resources, although the sale of limited ownership in industrial firms is
relatively new for Astana and something that the leadership would probably have
preferred to avoid.
Indeed, Kazakhstan has preferred to negotiate the increase its own stakes in
existing projects such as Kashagan, where it successfully imposed new
conditions on KMG's Western partners just a year or two ago. The world economic
crisis unleashed since then, however, gives added negotiating power to
financially stronger players such as China and its state companies.
Finally, the negotiation of construction of the KCTS suggests that even in
present economic conditions, strong states will find ways to continue to
promote energy exploration and production through economically beneficial
industrial cooperation.
Dr Robert M Cutler (http://www.robertcutler.org), educated at the
Massachusetts Institute of Technology and The University of Michigan, has
researched and taught at universities in the United States, Canada, France,
Switzerland, and Russia. Now senior research fellow in the Institute of
European, Russian and Eurasian Studies, Carleton University, Canada, he also
consults privately in a variety of fields.
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