Nepotism and Nationalism in Kazakhstan

Amid Growing Wealth, Nepotism and Nationalism in Kazakhstan - New York Times:

By ANDREW E. KRAMER

The building of the Luxor, which opened in March, tells a lot about how business is done these days in this former Soviet republic, a swath of arid steppe between Russia and China that is endowed with vast oil reserves. Fueled with growing wealth from energy exports, Kazakhstan's economy reflects an intermingling of politics and business, widespread corruption and - perhaps more than in any oil state outside the Middle East - a prominent role for members of the president's family.

Kazakhstan holds two-thirds of the crude reserves in the Caspian Sea region. The country exports a million barrels of oil a day and plans to triple output within 10 years as the Kashagan field comes online. Exxon Mobil, Chevron and the oil services firm Halliburton are active in Kazakhstan.

In the early decades of the 20th century, Juan Vicente Gómez, a dictator who ruled oil-rich Venezuela for 27 years, personally enriched himself with the help of his extended family. The government was so inbred and violent that his brother, the vice president, was killed by a member of his own family in a power struggle.

The Saudi royal family, now including about 7,000 princes, has had a lock on oil since production picked up there after World War II. And after the breakup of the Soviet Union, the ruling Aliyev family in Azerbaijan, across the Caspian Sea from Kazakhstan, has controlled the government and the flow of oil there.

Ilham Aliyev succeeded his father, Heydar Aliyev, as president in 2003. But some Western oil executives worry that a creeping nationalization is under way in Kazakhstan - similar to what is taking place in Russia, where the Kremlin in the past year has gained control of two large oil companies.

Under Kazakh law, the state oil company, KazMunaiGaz, has a pre-emptive right to buy oil fields. That right was asserted during the sale this fall of PetroKazakhstan, a Canadian-owned company, to the China National Petroleum Corporation, the biggest oil deal in Kazakhstan this year.

The deal was only approved after the Chinese concern agreed to sell assets, including a refinery, to KazMunaiGaz, where the vice president was, until recently, Timur Kulibayev.

Mr. Kulibayev is married to Dinara N. Nazarbayeva, another of the president's daughters. Mr. Kulibayev resigned from KazMunaiGaz during the presidential campaign this fall.

Marriage has been a means to extend the empire. Aliya Nazarbayeva, a slender woman who sometimes dyes her black hair blond, married Aidar Akayev, the eldest son of the former president of neighboring Kyrgyzstan in 1998, when she was 18. Commentators called it the first dynastic marriage between Central Asia's ruling families.

They have since divorced, though, and Kyrgyzstan's president, Askar Akayev, was deposed in a popular uprising in March.

But Aliya still wields influence over the construction business through her company, Elitstroi, according to a report by Moscow's Aton brokerage house.

The nepotism extends even further. Aliya's eldest sister, Dariga N. Nazarbayeva, and brother-in-law, Rakhat Aliyev, Kazakhstan's deputy foreign minister, control a media empire, according to the Aton report. Dariga is said to have left active business when she became a member of Parliament in 2004; some analysts here say she is being groomed in politics as a successor to her father.

According to a filing in a court in the United States, Mr. Nazarbayev, the president, accepted millions of dollars from an intermediary, James H. Giffen, who worked on behalf of American oil majors during contract talks in the 1990's. Mr. Giffen faces Foreign Corrupt Practices Act charges; the trial is scheduled to open next year.

Mr. Nazarbayev paid $45,000 from these funds for private school tuition in Switzerland for one of his daughters, according to court papers.

The political opposition remains weak, with little ability to get its message out because its access to the media is strictly controlled. It complains that the intermingling of business and politics is fostering a system of growing economic inequality. Zharmakhan Tuyakbai, who lost the presidential election here, predicted that eventually social unrest would increase sharply, perhaps leading to revolution.

Anton Artemyev, director of Kazakhstan Revenue Watch, a nonprofit financed with money from George Soros, the investor, is pushing for oil companies and the Kazakh government to clean up their act.

The first step, Mr. Artemyev said, is public disclosure of the deals. The initiative is called Publish What You Pay.

In the fall, Kazakhstan signed a modified version of this agreement, which discloses aggregate payments from oil companies but not the details of individual deals.