Ablyazov/Dzhakishev: is there a connection?

by Charles van der Leeuw, KZW senior contributor

Most of Kazakhstan’s long-fingered gentry with the law at their heels is on the run these days. Top figure among the alleged white-collar criminals is Mukhtar Ablyazov, the former head of Bank TuranAlem who is believed to have created much of the multi-billion hole the troubled bank is faced with today. While he leads a lavish life as an exile in London’s plush, his long-time associate and as prosecutors think brother in crime Mukhtar Dzhakishev is firmly behind bars, waiting for trial. Victims of political turmoil in Kazakhstan’s top state circles — as both accused and their advocates affirm? Looking at facts and figures, the argument seems hard to hold.

There is little doubt that personal relationships between the two Mukhtars goes back to Soviet days. Both studied at the Moscow Institute for Physics Engineering at the time of Gorbachov and according to several reports were roommates at the students’ dormitory. Both got their degree in 1990, on the eve of the break-up of the Soviet Union, and returned to Kazakhstan the next year. Both of them appeared to look for opportunities to do what many of their Russian peers tried to do — in some cases at least for a while successfully — and gather enough political clout in the new regimes under formation to take control of former Soviet assets future ownership of which was far from clear.

As for Dzhakishev, his career started with the post as finance director of an oil- , gas- and mining-related joint stock company for logistics and infrastructure by the name of Butya in 1992. Later on, he made it general director and eventually president of the enterprise. In 1997 he became president of AlauTransGaz, which runs part of Kazakhstan’s gas pipeline network. In 1998, he reached the summit of his career by becoming the head of KazAtomProm, the inheritor of Kazakhstan’s atomic industry. His function brought him to the post of deputy minister for energy and mineral resources in 2001. He was to leave politics and return to KazAtomProm the following year. Back in his seat, he started building up a high profile by freely talking to journalists and becoming very visible in Kazakhstan’s plush entertainment circles for the rich.

His endeavour made him, among other things, a world celebrity. “Dzhakishev, 44 years old, is a rare breed: a Moscow-educated entrepreneur who took over a floundering mining industry — and the world’s largest uranium deposit outside Australia — when the Soviets broke camp here,” America’s business glamour magazine wrote about him back in March 2008. “Now, after three years of skyrocketing uranium prices, he has found himself at the forefront of a global uranium boom that is fast making him one of the most powerful men in the country — and increasingly influential beyond it. Kazakhstan’s ascendancy is far from assured, but Dzhakishev, described by colleagues as Kasparov-sharp and poker-faced, makes it sound as if he already has it all wrapped up. […] In the past few months Dzhakishev has gone on a high-profile international deal-signing tear, landing agreements aimed at transforming Kazatomprom from an obscure Third World mining group to a full-fledged, integrated nuclear energy powerhouse. […] ‘It’s been honeymoon, honeymoon, honeymoon,’ he gloats.”

“Kazatomprom has a reputation for integrity, but Dzhakishev has faced questions about his personal dealings,” Fortune’s article reads further down. “He was a groomsman at the wedding of Nazarbayev’s son-in-law Rakhat Aliyev, now accused of kidnapping and corruption, charges he has denied. Last spring former Parliament member Tatyana Kvyatkovskaya accused Dzhakishev of funneling some of Kazakhstan’s net uranium worth to offshore accounts or obscure foreign interests. Dzhakishev also raised eyebrows when some of his mines ended up in the hands of financier Frank Giustra, founder of Lionsgate Films and a friend of Bill Clinton. Giustra’s group acquired a large share of two big uranium mines from a Kazakh investment group headed by Moukhtar Ablyazov, a former Energy Minister. It seems Ablyazov purchased the deposits from Kazatomprom when uranium prices were in the gutter. Ablyazov profited handsomely, as did Giustra, when Canadian company UrAsia subsequently acquired the properties. Dzhakishev says all his business dealings have been legitimate.”

Apart from such warning assigns, however, Mukhtar Dzhakiyev’s grand lifestyle did not raise too many eyebrows at the time. But looking back, if investigators have a point, Dzhakishev seems to have embezzled uranium mines and deposits in pretty much the same manner Ablyazov allegedly funneled cash out of the country. Or did Ablyazov lure the state-employed flash-manager into his web? Whatever the case — a web it was — meaning a web of offshore firms was installed to shroud legal ownership of them in veils. The names of five assets thus put into the shadow are known: Akdala, Southern Inkay, Central Mynkuduk, Kyzylkum and Khorasan. All of them are located in the deep south of Kazakhstan near the border with Uzbekistan, and together they are thought to account for 60 per cent of KazAtomProm’s total asset value. The eye-opener came much later, when in April 2009 a member of Parliament used her immunity to take a closer look at the books of KazAtomProm. In this way, Tatyana Kvyatkovskaya found out that Betpak Dala, an offshore holding allegedly personally controlled by the tandem Dzhakishev/Ablyazov, had been sold major stakes in the fields of Akdala, South Inkai and Khorassan for the hilarious total som of 64,000 Kazakh tenge — or 426 US dollar at the time. She passed the information on to the authorities — but not without presenting them at a press conference in the process.

The curtain fell for Dzhakishev in the last week of May this year, when he was sacked as head of KazAtomProm and arrested before he got a chance to flee from the country. Only over the summer, details about his clandestine network of offshore firms started to come out in the open. Among the transactions under investigation figures the Central Mynkuduk deposit, estimated worth in the order of 75 million US dollar in historic value, which was transferred to an offshore shell company called Ken Dala Kz, under control of Dzhakishev. The same happened with the nearby Kyzylkum deposit, which was eventually sold to a western-held company called UrAsia for the equivalent of hardly more than a hundred thousand US dollar. UrAsia in turn was bought out by Canada-based global uranium miner Uranium One for $75 million. It is now generally assumed that UrAsia in reality paid a lot more for the assets, with the difference having been channeled out of the country by Dzhakishev with the help of BTA’s Mukhtar Ablyazov and the latter’s associates. At present, Uranium One owns 30 per cent in the deposit which it bought through UrAsia for the mentioned 75 million dollar. A Japanese consortium owns 40 per cent with the remaining shares in the hands of KazAtomProm.

The association between Dzhakishev and Ablyazov brings a third player in Kazakhstan’s Shakespearian business drama to mind. Prosecutors are reportedly looking into the sum of $670,000 which at one point disappeared from BTA’s accounts only to pop up at the local account of KazAtomProm’s Vienna office. That office used to headed by the spouse of Vadim Koshlyak, a close associate of Rakhat Aliyev, then Kazakhstan’s ambassador to Austria until he was disclosed not only as a straightforward gangster but also as having prepared an armed coup in Kazakhstan. According to Kazakh news media, the mother of Elnara Shorazova, whom Aliyev married after his imposed divorce from President Nursultan Nazarbayev’s eldest daughter Dariga, was later appointed as the head of this office. If there is a scheme there as investigators believe there is, the dimension becomes sinister for Ablyazov and Dzhakishev and would turn them from suspects of white-collar crime into suspected accomplices of murder and political terror.

As for Dzhakishev, he has denied any wrongdoing whatsoever from the very moment of his arrest. His statements from prison filtered through to the public domain look diffuse. On one hand, he denies any involvement in kickbacks; on the other, he tends to suggest that if he did pass on Central Mynkuduk to UrAsia, he did so with the aim to grant westerners a stake in the deposit at the expense of Russian companies. The latter, they argued, would do anything in their power to prevent Kazakhstan from developing its own nuclear processing industry and keep it under control as a mere supplier of uranium. If there has been some truth in this wave of patriotism, it could well explain the role of an American lobby led by a high-flying maverick businessman by the name of Frank Giustra and no one less than former President Bill Clinton, with whom Dzhakishev stood in close contact. It does not look as though this has impressed Uranium One, since in June this year they bartered 19.95 per cent of their common stock against a 50 per cent stake in the operator of the Karatau deposit with Russia’s RosAtom subsidiary Atomredmetzoloto (ARMZ). “Uranium One has signed a definitive agreement to acquire a 50% interest in the Karatau Uranium Mine in Kazakhstan from ARMZ,” a press release dated June 15 read. “The purchase price will be paid by way of the issuance of 117 million common shares of Uranium One and a cash payment of $90 million (or equivalent promissory note). The agreement also provides for a contingent payment to ARMZ of up to $60 million, payable in three equal tranches over the period between 2010 and 2012 subject to certain post-closing tax related adjustments. The transaction is valued at approximately $451 million, based on the closing share price of Uranium One on June 12, 2009. […] Upon closing of the Karatau acquisition, ARMZ will hold an indirect 16.6% interest in Uranium One. ARMZ has agreed to a standstill covenant under which it may not, without Uranium One’s prior consent, for a period of at least five years from closing acquire more than 19.95% of Uranium One’s outstanding common shares.” On November 16 this year, the Kazakh government reportedly approved the deal, which was eventually clinched on December 15.

While sitting on about 15 per cent of the world’s uranium resources while nuclear energy is slowly coming back into vogue, KazAtomProm will be able to recover from financial losses suffered even though it is unlikely that a substantial part of the embezzled money can be traced back — let alone recuperated. Now under the command of economy and industry minister Vladimir Shkolnik, the company still aims at bringing Kazakhstan on top of the list of world uranium miners. The country’s output has gone steadily up from 5,279 tonne in 2006 to 6,637 tonne in 2007 and from there to 8,621 the following year. For this year, the target has been set at 13,800 and for the upcoming year at 15,000 tonne. Adding another 4,000 tonne would turn Kazakhstan into the world’s leader. Global output currently stands at around 40,000 tonne per annum. According to recent calculations by Kazatomprom, the breakdown of that amount over 2009 is projected to include 11,000 tons in Canada, 9,430 tons in Australia and 12,800 tons in Kazakhstan.

The figures shed a weird light on the case against Dzhakishev, against whom on December 15 this year formal charges were filed of having embezzled the equivalent of 670,000 US dollar. At the same time, with benchmark prices for uranium currently standing at 45,000 pound Sterling per tonne on the London market, Kazakhstan’s 2010 uranium output target would bring the overall revenue in the order of well over a billion US dollar. Looking at proven reserves in currently operative deposits (see table), which add up to the order of 1.5 million metric tonne of which 637,000 are under operation, existing operative and prospective assets should be priced at 67.5 billion and around 30 billion Sterling respectively in gross output sales value and given low production costs at not less than 70 per cent of those amounts in net value. Given the proportions of Dzhakiyev’s kickback schemes, $670,000 is an incredibly modest sum indeed.

This can only mean that there is still a lot hidden which prevents to unravel the overall scheme that is supposed to have taken place concerning KazAtomProm with all its players. Only once the entire volume of the scheme will have been established one can measure the threat to Kazakhstan’s economy, and, since sensitive atomic industry is involved, its public safety. The enterprise, which is listed at Kazakhstan’s Almaty Stock Exchange (KASE) has not reported any results, which according to regulations it should have, since October 2006. Trade in shares and bonds has been put on halt as a result. In their latest reports, Moody’s and Fitch have rated the company Baa3 and BBB- respectively, both near the bottom of the scale, with “negative” outlook. With only just over a billion US dollar worth in assets, regaining investors’ confidence must be on top of the agenda, but in reality it looks a long way off.

KAZATOMPROM’S KEY FINANCIALS AS OF OCTOBER 1, 2006
(in million Kazakh tenge)

KAZAKHSTAN’S PRESENT OPERATIVE URANIUM DEPOSITS

*) including Toshiba, TEPCO, Chubu, Tohoku, Kyushu and Marubeni
**) non-declared, based on current output capacity and a 25-year life-span
source: Reuters