Extractive Industries (EI)
Kazakhstan is the largest country in Central Asia and possesses sizable amounts of oil and gas. Much of the IFI lending has been in the extractive industries (oil, gas and mining). IFI financing of extractive industry projects is a major concern for civil society because they often pose great risks for the environment and for communities in and around the area of extraction. BIC works with Kazakh civil society to monitor extractive projects, paying particularly close attention to issues of contract and revenue transparency, as well as environmental standards.
EI Transparency Issues
The IFIs have taken an interest in issues of transparency, as it concerns corporate governance and the Kazakhstani government. Most significant to recent transparency trends has been the Extractive Industries Transparency Initiative (EITI). EITI, created in 2002 by UK Prime Minister Tony Blair, aims to improve openness and transparency in company payments and in government revenues from extractive industries. An independent auditor reconciles payments from companies with revenues received by the government and issues a report on the findings.
Kazakhstan began its pursuit of EITI in 2005. The next year, a Memorandum of Understanding was signed, followed by the establishment of a National Stakeholders Council with input from representatives of civil society, companies, and government. In early 2008, Kazakhstan published its first EITI report and held an EITI conference in Astana in February. Nearly 100 companies participate in EITI, including KazMunaiGas (KMG), the state oil and gas company. Kazakhstan is currently a candidate country and will go through its validation period this year.
IFI involvement in Kazakhstan's EITI process has taken several forms. Mostly, IFIs have exerted influence by endorsing the initiative and encouraging borrowing countries to comply with EITI. The IFC and EBRD also require borrowers for EI projects to publicly disclose their payments to governments.
In September of 2007, the World Bank approved a $72,922.50 grant to Kazakhstan’s EITI Secretariat under the Ministry of Energy and Mineral Resources. Kazakhstan’s EITI program is part of the settlement reached in the Kazakhgate scandal. Funds seized by the U.S. and Swiss governments were placed into a trust, mainly for the Bota Foundation, a program administered by the World Bank to aid poor children and youth. The settlement also stipulated a requirement for the Kazakhstani government to undergo a financial management program and to form an EITI implementation strategy with the assistance of the World Bank before the funds could be released to the Bota Foundation. During a visit to Kazakhstan in June 2008, World Bank President Robert Zoellick commended Kazakhstan’s progress and committed to continue World Bank assistance for its EITI implementation process.
EITI Project Support (WB website)
Civil Forfeiture Action, United States Attorney’s Office, May 3, 2007 (Department of Justice website, Acrobat pdf)
World Bank Group President Praises Prudent Policies (WB website)
The Coalition “Oil Revenues - Under Public Oversight” has proposed an increase in the scope of EITI, known as EITI Plus. EITI Plus envisions reports of disaggregated data, public involvement in revenue management, and the inclusion of local social investments in EITI. Significantly, on April 12, 2008, the World Bank announced an Extractive Industries Transparency Initiative Plus Plus (EITI++) project, which will offer governments additional options and technical aid for improving revenue management. Civil society groups, such as Publish What You Pay, have endorsed the initiative.
EITI Plus Plus (WB website)
EITI in Kazakhstan, “Oil Revenues - Under Public Oversight!” Coalition, June 2007- February 2008 (Coalition website, Acrobat pdf)
While the EITI movement is a positive step, Kazakhstan has by no means achieved full transparency, nor have the IFIs committed wholeheartedly to ensuring the spirit behind EITI is upheld. Discrepancies continue, and the initiative does not yet cover sub-national levels of government. The World Bank’s EITI ++ project is an attempt to improve the process. Yet, before additional pluses are added, the IFIs can more effectively use their influence to promote transparent, accountable, and good governance for both its private borrowers and its government beneficiaries in Kazakhstan.
Besides EITI, Kazakhstan struggles with transparency in other areas. Although the National Fund of the Republic of Kazakhstan (NFRK), the state oil fund, has instituted certain transparency mechanisms, civil society actors have noted a lack of transparency in the operations of Kazakhstan’s state-owned Kazyna Development Fund. In June 2008, the European Bank for Reconstruction and Development and the Kazyna Development Fund jointly established a new fund, as part of the country’s economic diversification strategy. The Kazakhstan Growth Fund is intended to promote market-oriented and best practices through investments in non-extractive industries. EBRD has said that the fund will maintain the “highest standards of corporate governance.”
Kazakhstan Growth Fund (EBRD website)
Further Resources:
Kazakhstan Country Update #16 (BIC website)
Revenue Watch Institute (RWI website)
EITI (EITI website)
Oil Revenues - Under Public Oversight (NGO Coalition website)
EI Project Developments
With the eleventh largest endowment of oil in the world, Kazakhstan faces many opportunities in its extractive sector. Alongside these opportunities, developments in the extractive industries can also carry social and ecological ramifications. For this reason, BIC carefully monitors IFI involvement in the extractive sector, including ancillary industries and projects, such as pipelines and transport routes. BIC identifies projects posing significant risks and eliciting local concern as “problem projects.” Updates on these projects, not only in the extractive industries, can be found in BIC's Problem Projects section. A few of these projects are summarized below.
Problem Projects
Lukoil Overseas Karachaganak Oil and Gas Field, Kazakhstan
Bank: IFC
Project Description: This project consists of the expansion of an existing installation to double the production of oil and markedly increase gas exploitation in the Karachaganak oil condensate and gas fields.
Civil Society Concerns: Villages lying within a 5km radius of the fields complain of severe health and environmental impacts and question the involuntary resettlement process that has resettled some but left others out. Civil society groups recently won major victories in both Kazakhstan's Supreme Court and the IFC's own Office of Compliance, Advisor/Ombudsman.
Six Months After Audit Report IFC Remains Out of Compliance At Karachaganak (BIC website)
IFC Compliance Victory (BIC website)
Supreme Court Victory (BIC website)
Other Projects
Kazakhstan Forest Protection and Reforestation Project (WB website)
Nura River Cleanup Project (WB Website)
For more details, see BIC's Problem Projects section on Kazakhstan.
Projects Under Watch
Besides problem projects, BIC also follows IFI activities or possible activities, which concern civil society actors but either have not been officially endorsed by an IFI or whose risks have not been adequately explored. These projects are listed below.
Pipelines
Kazakhstan’s oil deposits require routes to the world market, a seemingly constant concern for the large, land-locked nation. As a result, plans for oil and gas pipelines, as well as continued construction, constitute key developments in the country.
Trans-Caspian Oil Pipeline
Along with other Central Asian nations, Kazakhstan is actively considering a trans-Caspian transport option for its vast western oil deposits. Already, in May 2008, the government signed into law an agreement with Azerbaijan for the export of Kazakhstan’s oil through the Baku-Tbilisi-Ceyhan (BTC) pipeline. Although the oil will initially be sent to Baku via tankers, Kazakhstan reportedly plans to connect its oil directly to the BTC pipeline through a $3 billion pipeline construction program. Chevron and KazMunaiGaz are first planning to construct a $1.5 billion pipeline from Eskene, near Atyrau, to Kazakhstan’s port of Kuryk. The next phase is expected to include an undersea pipeline that would send oil across the Caspian Sea to Azerbaijan and the BTC pipeline.
A trans-Caspian pipeline is of particular concern to civil society actors in the region. Civil society groups have already documented serious environmental risks and social problems associated with the BTC pipeline. A trans-Caspian pipeline would also pose risks to the fragile Caspian environment.
This type of project would likely require IFI assistance. Although no formal plans have been made between the IFIs and Kazakhstan, discussions are reportedly underway. BIC is currently monitoring the situation for any new developments.
Kazakhstan signs BTC agreement into law, plans new pipelines (BIC website)
Kenkiyak-Atyrau Oil Pipeline
The Kenkiyak-Atyrau oil pipeline connects Aktube’s oil fields with the Caspian Pipeline Consortium (CPC) and Atyrau-Samara pipeline in Atyrau. The pipeline is owned by MunaiTas, a 51% KazMunaiGaz (KMG) and 49% China National Petroleum Corporation (CNPC) joint venture. Although both CNPC and KMG are party to EITI, civil society actors remain skeptical of CNPC’s commitment to transparency and good governance.
The European Bank for Reconstruction and Development (EBRD) has provided an $81.6 million loan to the joint venture for refinancing pipeline costs. Since the pipeline is already complete, EBRD views this as a Category C environmental project, rather than Category A, which the original pipeline construction would have received. This type of financing sets a dangerous precedent, as it allows projects to be completed without international monitoring and then retroactively funded.
Additionally, the Kenkiyak-Atyrau pipeline constitutes the first link in a more extensive Kazakhstan-China pipeline. Once the Kazakhstan-China pipeline is complete, oil will flow in the opposite direction, bringing oil from Atyrau to Kenkiyak and central Kazakhstan, CNPC’s stronghold, then around Lake Balkhash and into China’s Xinjiang Province. The sheer size of the pipeline poses potential environmental and social risk and puts greater pressure on already tense Uyghur relations in China.
Project Summary Doument, disclosed April 23, 2004 (EBRD website)
Environmental Impact Assessment, disclosed April 23, 2004 (EBRD website, Acrobat pdf)
Kazakhstan's Pipeline Dependence, by Silk Road Intelligence, September 19, 2007 (SRI website)
Country Strategies
The MDBs require that the government of each borrowing country develops a strategy for lending in the country. The Government of Kazakhstan has worked with the World Bank Group, EBRD, and the Asian Development Bank (ADB) to create the following strategies. For more information and a timetable of upcoming revisions of country strategies for the ECA region, including Kazakhstan, please see the document below:
IFI Country Strategies for Europe, Caucasus, & Central Asia: Overview, Schedule and Contacts, by Bank Information Center, June 2006 (Acrobat pdf 387 kb)
World Bank Group
Usually, the Bank’s overall strategy for assistance to a country is outlined in the Country Assistance Strategy (CAS). However, given the recent changes in Kazakhstan’s economy and decrease in need for assistance from the World Bank, the CAS has been replaced with the Country Partnership Strategy (CPS), shifting from a strategy of assistance to one of partnership.
A fundamental difference is that the projects and programs are often jointly funded by the government, giving the government both stronger ownership of and influence over the final product. The latest CPS for Kazakhstan was approved in August 2004 and covers the period 2004-2007.
Kazakhstan Country Partnership Strategy 2004-2007, by World Bank (Acrobat pdf, 871 KB)
European bank for reconstruction and development
The EBRD Country Strategy for Kazakhstan was approved November 21, 2006. It is available in English and in Russian.
EBRD Country Strategy for Kazakhstan, November 21, 2006 (Acrobat pdf 454 KB) (EBRD website)
Стратегия Деятельности ЕБРР в Казахстане, 21 ноября 2006г (Acrobat pdf 512 KB) (сайт ЕБРР)
Asian development bank
The ADB Country Strategy and Program (CSP) is usually prepared once every five years. A CSP update is prepared every year to reflect any important country developments and adjustments to the program. The Country Strategy 2004-2006 was approved in September 2003 and updated for 2005-2007, it is available online:
Kazakhstan Country Strategy and Program Update (2004-2006) (ADB Website)
Kazakhstan Country Strategy Update (2006-2008) (ADB Website)