U.S. companies have stood by Kazakhstan through times and bad. Peter Galuszka looks at the countries’ economic partnership and the role of U.S. investment
WHEN THE SOVIET Union fell apart in 1991, U.S. companies led the way in investing in newly independent Kazakhstan. The pioneer was Chevron, which began developing the Tengiz oil field in 1993. Since then, a host of other U.S. companies, ranging from energy and transportation to banking and legal services have flocked to Almaty, Astana, and Atyrau, among other places.
So far, U.S. investment totals about $23 billion, or nearly one-fifth of the $100 billion that foreign firms have invested in the country. The next largest group come from the European Union – the Netherlands, Britain, France, Germany and Italy – as well as from South Korea, with China coming on strong of late.
American corporations have stuck with Kazakhstan through good and bad. They have ridden out the regional controversies regarding placing oil pipelines, have rolled with the country’s double-digit inflation in its early years, and have helped with the formerly Communist government’s learning curve in developing laws and tax policies. Most recently, they have hung on as Kazakhstan considers changes in decades-old production-sharing agreements for petroleum and works its way out of recession.
At the nuclear summit meeting in Washington, D.C. in April, President Barack Obama and President Nursultan Nazarbayev “reconfirmed the importance of the long-term energy partnership between the two countries,” according to a joint statement, and pledged bilateral commercial cooperation in alternative energy and agriculture. Obama lauded Kazakhstan’s cooperation on nuclear non-proliferation, energy development, and allowing U.S. military flights over its territory to resupply troops in Afghanistan.
Kazakhstan has mitigated economic damage from the dip in world oil prices and positioned itself for more diverse and sustainable growth. Projections for 2010 show slow-but-steady improvement as foreign money flows into the country faster and key projects gather steam. Several major U.S. manufacturers and tech companies have been “taking this slow period to do due diligence,” says Richard E. Hoagland, the U.S. ambassador to Astana. “They’ve targeted Kazakhstan as a key strategic investment for the future.”
Doris Bradbury, executive director of the American Chamber of Commerce in Almaty, says membership applications were up 30 percent in the first few months of 2010, after falling during the recession. “They’re looking for the next big thing, and the next big thing is Kazakhstan,” she says.
The crown jewel of U.S. investment is the Tengiz oil field, the world’s sixth-largest with estimated capacity of 26 billion barrels. Development began in 1993 and has been led by Chevron (50 percent); ExxonMobil (25 percent); KazMunaiGas (20 percent); and LukArco (5 percent).
Chevron’s Tengizchevroil venture has so far put $36 billion – including wages, taxes, local sourcing, and other costs – into the country and has just completed a $7 billion upgrade to further eliminate sour gas common in Tengiz crude. Chevron and its partners are now contemplating billions more in investments that would take Tengiz output from 540,000 barrels a day today to about 900,000 within a few years. “The investment climate has been successful for long-term projects,” says Kurt Glaubitz, a Chevron representative. In 2009, Tengizchevroil reported income of about $4 billion before taxes or other expenses, Glaubitz notes.
Chevron is also a major investor in the Karchaganak field, one of the world’s largest deposits of gas condensate with reserves estimated to be 42.4 trillion cubic feet. The California-based company is the largest private shareholder in the $2.7 billion Caspian Pipeline Consortium (CPC), which takes petroleum from the Korolev and Tengiz fields to the Russian port of Novorossisk on the Black Sea, where it is transferred to oil tankers. CPC plans to double its current daily capacity from 700,000 million barrels a day to 1.4 billion within a year.
ExxonMobil has a 16.8 percent share in the offshore Kashagan oil field with estimated reserves of up to 16 billion barrels, scheduled to begin production in 2012.
Kazakhstan wants to exploit another natural advantage – uranium. Government nuclear agency Kazatomprom owns 10 percent of Westinghouse, the now Japanese-owned but still Pennsylvania-headquartered builder of commercial nuclear reactors. NUKEM Inc., a Danbury, Connecticut-based subsidiary of Germany’s NUKEM GmbH, which has been active in the country since 1992, has ten contracts with Kazakh concerns to market uranium. “We’ve had a very positive experience there,” says Tim McGraw, executive vice president.
Transportation is another key part of Kazakhstan’s economic diversification. In July 2009, a new assembly plant for the 310 Evolution Series energy-efficient locomotive made by General Electric opened near Astana, with capacity for 100 locomotives a year for local and export markets. “Kazakhstan is an incredibly dynamic economy,” says GE spokesman Stephan Roller, “and that’s why we want to be there.”
American companies are also involved in Kazakh agriculture. North Dakota’s farm equipment manufacturers exported more than $40 million in machinery to Kazakhstan in 2009, making it the state’s fourth-largest trading partner – though that’s just one-quarter of the amount tallied by the largest exporting state, Texas, with $160 million out of $599 million total for all U.S. states. The North Dakota Trade Office has a representative in Astana working on equipment and livestock deals, and plans to announce a major investment this year. “North Dakota has a similar soil, climate and crops,” says spokesman Jeff Zent in Fargo.
There are problems, to be sure. BTA Bank, Kazakhstan’s second-largest, filed for bankruptcy protection from U.S. creditors in March while restructuring $11.6 billion in debt. Foreign
energy firms are reeling over plans by the Kazakh government to alter oil and gas production-sharing agreements.
But relatively speaking, Kazakhstan remains a good place for investment, having climbed the ranks of the World Bank’s ease-of-doing-business index last year. “It’s not just that [Kazakhstan] wants new investment, but it is creating conditions for it,” says Ambassador Hoagland.
Investors can find a country with a “modern outlook and youthful, broad-minded officials,” says Erlan A. Idrissov, the Kazakh ambassador in Washington. “The average age is 35.” ?
Peter Galuszka is formerly a Moscow-based correspondent for BusinessWeek, and is now based in Virginia.
SOURCE: Invest in Kazakhstan 2010