US embassy cable - 09ASTANA943

KAZAKHSTAN: CHANGES AND CHARGES AT KAZATOMPROM

Identifier: 09ASTANA943
Wikileaks: View 09ASTANA943 at Wikileaks.org
Origin: Embassy Astana
Created: 2009-06-03 11:22:00
Classification: UNCLASSIFIED//FOR OFFICIAL USE ONLY
Tags: PGOV PREL PINR EMIN ENRG EINV ELAB KNNP KZ
Redacted: This cable was not redacted by Wikileaks.
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DE RUEHTA #0943/01 1541122
ZNR UUUUU ZZH
O 031122Z JUN 09
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 5526
INFO RUCNCIS/CIS COLLECTIVE 1627
RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 1004
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RUEHIT/AMCONSUL ISTANBUL 0140
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RUEHAST/USOFFICE ALMATY 1571
UNCLAS SECTION 01 OF 03 ASTANA 000943 
 
SENSITIVE 
SIPDIS 
 
STATE FOR SCA/CEN, T, ISN, INR 
 
E.O. 12958: N/A 
TAGS: PGOV, PREL, PINR, EMIN, ENRG, EINV, ELAB, KNNP, KZ 
SUBJECT:  KAZAKHSTAN:  CHANGES AND CHARGES AT KAZATOMPROM 
 
REF:   (A) ASTANA 0209 
 (B) ASTANA 0677 
 
ASTANA 00000943  001.2 OF 003 
 
 
1.  (U) Sensitive but unclassified.  Not for public Internet. 
 
2.  (SBU) SUMMARY:  On May 21, former Minister for Industry and 
Trade Vladimir Shkolnik replaced Mukhtar Dzhakishev as head of the 
state-owned nuclear company Kazatomprom (KAP).  On May 22, the 
45-year old Dzhakishev was arrested on embezzlement and corruption 
charges, which members of the opposition denounced as politically 
motivated and likely to damage Kazakhstan's investment climate. 
Dzhakishev had a close relationship with ousted BTA bank head 
Mukhtar Ablyazov, and was childhood friends with President 
Nazarbayev's estranged former son-in-law, Rakhat Aliyev.  The 
60-year old Shkolnik is a nuclear physicist and president of the 
Nuclear Society of Kazakhstan, who served previously as Deputy Prime 
Minister and Minister of Energy and Mineral Resources.  END 
SUMMARY. 
 
KNB ARRESTS DZHAKISHEV AND OTHER TOP LEADERS 
 
3.  (U) On May 21, Dzhakishev was replaced by former Minister of 
Industry and Trade Shkolnik as president of Kazatomprom.  The day 
after his dismissal, Dzhakishev was arrested, along with KAP vice 
presidents Dmitriy Parfenov (finance), Askar Kassabekov (uranium 
extraction), Malkhaz Tsotsoriya (strategic development), and 
Baurzhan Ibrayev.  The Committee for National Security (KNB) also 
arrested the presidents of two KAP subsidiaries:  Nurlan Mussin, 
head of the Ulba Metallurgical Plant, and Eshmurat Pirmatov, head of 
the Stepnogorsk Mining and Chemical Plant.  Of KAP's top seven 
managers, only two have not been detained, vice presidents Sergei 
Yashin and Nartay Dutbayev, the latter a former KNB chief.  On June 
2, Dzhakishev's lawyer, Daniyar Kanafin, said he did not know where 
his client was being held, nor on what charges.  "The transactions 
being reviewed by the KNB were transparent," he said.  "We would 
like to have access to the case file, and we question the legality 
of conducting the investigation in secret." 
 
ALLEGATIONS OF CORRUPTION AT KAZATOMPROM DATE FROM 2005 
 
4.  (U) On June 1, the KNB accused Dzhakishev of illegally 
transferring more than 60 percent of the state's uranium assets to 
offshore companies.  According to KNB spokesman Kenzhebulat 
Beknazarov, "Mukhtar Dzhakishev and other top managers abused their 
authority and caused damage to the state through the sale of state 
shares in several major uranium fields.  From 2004-07, they 
allegedly sold state shares in these uranium companies for the 
benefit of a number of private, offshore companies."  The KNB 
charged that Dzhakishev registered a company called Ken Dala KZ in 
2005, which later received a uranium production license for the 
Tsentralnyi (Central) section of the Mynkuduk field in Kyzylorda 
oblast, at no cost.  Also in 2005, according to the KNB, Kazatomprom 
sold a 30 percent share in Kyzylkum LLP (Kyzylorda oblast), to 
another offshore company for "the mere sum of 15.6 million tenge" 
(approximately $130,000 at the time). 
 
DZHAKISHEV HAD TIES TO ABLYAZOV... 
 
5.  (U) The Procurator General's Office launched its investigation 
on April 17, following accusations by ex-Mazhilis deputy Tatyana 
Kvyatkovskaya.  Kvyatkovskaya, now a member of the ruling Nur Otan 
party, said at a press conference on April 1 that Dzhakishev 
collaborated with former BTA bank chairman Mukhtar Ablyazov to sell 
state shares in key uranium mines such as Akdala, South Inkai, and 
Khorasan "for nothing."  Ablyazov fled the country in February and 
embezzlement charges were brought against him in March. 
Kvyatkovskaya alleged that the uranium mines were sold to Ablyazov's 
company Betpak Dala LLP, which was run by Rifat Rizoyev, a business 
associate of Ablyazov's who is also under investigation by the 
authorities in connection with the BTA bank case.  "As a result of 
these schemes," she said, "Kazakhstan now owns only 23 percent of 
the country's uranium fields."  Kvyatkovskaya made similar 
accusations two years ago, but an investigation at that time did not 
 
ASTANA 00000943  002.2 OF 003 
 
 
lead to an indictment. 
 
... AND RAKHAT ALIYEV 
 
6.  (U) In a radio interview on May 19, Dzhakishev refused to 
address comments made by President Nazarbayev's former son-in-law, 
Rakhat Aliyev, who claimed that Nazarbayev's family holds a stake in 
Kazatomprom.  "It is immoral to make comments about someone (Aliyev) 
whom I have known ever since kindergarten," he said.  Independent 
political analyst Dossym Satpayev nevertheless links Dzhakishev's 
arrest to his close affiliation with Aliyev and Ablyazov.  He noted 
that Dzhakishev and Ablyazov were close friends who studied together 
and were roommates.  Rakhat Aliyev on his personal website calls 
Dzhakishev, "a political detainee of Nazarbayev's regime."  Aliyev 
claims that, "Nazarbayev did not forget that when Ablyazov was 
charged back in 2002, Dzhakishev tried to defend him.  He has not 
forgotten that Dzhakishev was my friend too.  And most importantly, 
Mukhtar (Dzhakishev) was a personal witness to Nazarbayev's 
machinations." 
 
DZHAKISHEV DISMISSES "ABSURD" ALLEGATIONS 
 
7.  (U) On April 2, Dzhakishev told the opposition "Svoboda Slova" 
newspaper that, "Kvyatkovskaya's accusations that I am giving away 
state resources are total nonsense and show her incompetence in 
legal matters."  He suggested that she was acting on someone else's 
behalf in making such "absurd allegations."  Samarokov and Galym 
Nazarov, Director of KAP Treasury, told Vremya on May 26-27 that in 
exchange for a share in its uranium mines, KAP received advanced 
technology from Japanese, Canadian, and French partners, which they 
said was "much more valuable than money." 
 
KNB DENIES POLITICAL MOTIVE 
 
8.  (U) On June 1, KNB spokesman Beknazarov said, "The KNB denies 
that there is any political motivation behind this case."  He 
dismissed claims that Dzhakishev's arrest was "triggered by some 
sort of political instruction to persecute Dzhakishev for his former 
ties with Rakhat Aliyev and Mukhtar Ablyazov" and insisted that the 
investigation is being conducted "in strict compliance with the 
Constitution and the law, under the close supervision of the 
Procurator General's Office."  Beknazarov also announced that the 
trial would be open to the public. 
 
PROMINENT POLITICIANS AND BUSINESSMEN SUPPORT DZHAKISHEV 
 
9.  (U) On May 25, opposition leaders Vladimir Kozlov of the 
unregistered Alga party and Serikbolsyn Abdildin of the Communist 
party said that Dzhakishev's arrest is part of a plan to transfer 
the country's assets to "the Family" -- referring to the family of 
President Nazarbayev.  (COMMENT:  Alga is, in fact, financed by 
ousted BTA bank head Ablyazov.  END COMMENT.)  They compared the 
nighttime searches and arrests of KAP's top managers to the old 
Soviet methods used by the NKVD (i.e. the secret police) in the 
1930s.  On May 26, Azat opposition party leader Bulat Abilov told 
reporters that Dzhakishev's arrest would have an adverse affect on 
Kazakhstan's international image.  On May 28, dozens of prominent 
Kazakhstani businessmen, including Forum of Entrepreneurs President 
Raimbek Battalov, Kazkommertsbank Chairman Nurzhan Sukhbanberdin, 
and Astana Motors President Nurlan Smagulov, published an open 
letter to President Nazarbayev in defense of Dzhakishev in "Svoboda 
Slova."  "His arrest is inexplicable and negatively affects the 
country's business climate, as Kazakhstani entrepreneurs will no 
longer feel they are protected by the rule of law," they wrote. 
 
DZHAKISHEV PRAISED AS AN EFFECTIVE LEADER AND MANAGER 
 
10.  (U) KAP's Nazarov defended Dzhakishev in an interview with the 
newspaper "Vremya" on May 26.  "When he arrived," said Nazarov, "the 
company was near bankruptcy."  At the time, KAP was producing only 
890 tons of uranium per year, and KAP's debts to banks, suppliers, 
and employees were equal to its revenues.  Nazarov said that KAP 
subsidiaries were paying employees' salaries in food stamps. 
 
ASTANA 00000943  003.2 OF 003 
 
 
"Dzhakishev created a world leader out of a bankrupt company," he 
asserted.  In response to allegations that Dzhakishev was merely 
lucky because he arrived at the company just before an increase in 
uranium prices, Nazarov said that when Dzhakishev joined KAP, one 
kilogram of uranium cost slightly more than $6, whereas now the 
price is $165.  According to Nazarov, uranium production is capital 
intensive, and no bank in 1998 wanted to lend KAP money, so 
Dzhakishev personally visited dozens of foreign banks, looking for 
loans.  Thanks to Dzhakishev, Nazarov said, Kazatomprom borrowed 
money at a low interest rate, cleared its bank debts in six months, 
paid employees' salaries on time, dramatically increased uranium 
production, and began to move the company up the value chain toward 
fuel cycle products. 
 
SHKOLNIK PROMISES TO CONDUCT BUSINESS AS USUAL 
 
11.  (SBU) On May 25, KAP's new president, Vladimir Shkolnik, told 
senior staff that President Nazarbayev considers the nuclear sector 
"just as important" to Kazakhstan's strategic development as the oil 
and gas sector.  He stressed that all existing strategic plans, 
commitments, and obligations would be honored and implemented.  The 
60-year old Shkolnik graduated from Moscow's Engineering and Physics 
Institute and worked for 20 years at the Mangistau Atomic Energy 
Complex, first as an engineer at the BN-350 plutonium breeder 
reactor, and ultimately as deputy director.  He also served as 
General Director of Kazakhstan's Atomic Energy Agency, President of 
the Academy of Sciences, Deputy Prime Minister, Deputy Head of the 
Presidential Administration, Minister of Energy and Mineral 
Resources, and Minister of Industry and Trade.  He possesses a rare 
combination of technical expertise, ministerial experience, and 
presidential confidence, which likely made the decision to replace 
Dzhakishev easier than it would have been otherwise.  Shkolnik also 
has close ties to Russia's nuclear company Rosatom -- his daughter 
is married to one of Rosatom's top managers.  On May 27, Rosatom 
president Sergei Kiriyenko said, "Shkolnik is a competent 
professional with vast political experience and expertise in nuclear 
energy.  He is held in high regard by nuclear energy specialists in 
both Russia and Kazakhstan." 
 
12.  (SBU) COMMENT:  There is much speculation and rumor surrounding 
the arrest of Mukhtar Dzhakishev, once a shining example of 
homegrown talent.  It is likely that his previous ties to Ablyazov 
finally caught up with him.  Dzhakishev's arrest also comes as 
President Nazarbayev has launched a high-profile, anti-corruption 
campaign (ref B) -- which some see as targeting officials who have 
gone too far with their corruption, and others believe is a means 
for rival clans to settle scores.  On June 2, the Ambassador asked 
another Western Ambassador, whose country has significant interests 
in mining Kazakhstan's uranium, if the rumors of Dzhakishev's 
corruption might be true.  The answer?  "Well, of course."  It is 
unclear what Dzhakishev's dismissal will mean for Kazatomprom.  He 
was undoubtedly a vocal, strident, and forceful leader, unafraid to 
make deals with foreign partners while pushing the company to add 
value and achieve ambitious production targets.  Shkolnik, while 
clearly capable, may be less aggressive, and less public, in his 
approach.  Dzhakishev's arrest has also created anxiety among KAP's 
many joint venture partners, including companies from Canada, 
France, and Japan.  There is a risk that the ongoing KNB 
investigation into KAP's joint ventures will call into question the 
legitimacy of existing uranium mining contracts and perhaps 
adversely affect the overall investment climate.  In fact, on June 
2, the Samruk-Kazyna National Welfare Fund announced that it will 
begin to review all previous transactions involving the sale of 
state assets to joint-venture companies.  The first companies to be 
audited will be national railway operator Temir Zholy and national 
oil company KazMunaiGas.  END COMMENT. 
 
HOAGLAND 

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