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Uranium One in a Central Asian twilight zone

By: Keith Campbell

5th June 2009

Toronto- and Johannesburg-listed uranium-miner Uranium One is not the first foreign resources company to be linked to allegations of improper conduct in the Central Asian country of Kazakhstan.

The Kazakh National Security Committee (known by its Russian initials, KNB) recently stated that it was investigating alleged illegal sales of uranium assets by Mukhtar Dzhakishev, former CEO of State-owned nuclear energy company Kazatomprom.

The KNB identified the sale of 30% of the Kyzylkum joint venture, which owns the Kharasan uranium mine, as one of the transactions under investigation. Uranium One owns 30% of Kyzylkum, which it gained when it bought UrAsia, and UrAsia, in turn, acquired its share from Kazakh investors, not Kazatomprom.

In August 2007, the Kazakh-stan government ordered an international consortium led by Italian oil group Eni to stop work on developing the giant Kashagan oilfield for at least three months. The decision was announced by the country’s Environment Minister and the reason given was "environmental violations". At the same time, construction of a refinery by Eni was stopped because safety rules had allegedly been breached, and a criminal investigation was opened into a unit of the Italian company following allegations that it had violated customs regulations. At the time, observers in Russia saw this as a move by the Kazakhstan government to increase its control over the country’s natural resources.

The result was some 15 months of reportedly tense negotiations between the Eni-led consortium and the Kazakh authorities. These led, in October last year, to a revised agreement on the development of Kashagan, which increased the profits the central Asian country will get from the exploitation of the oil and doubled the share in the consortium of Kazakhstan’s State oil and gas company, Kazmunaigaz, from 8,33%, to 16,81%.

There is significant political risk in doing business in or with Kazakhstan, particularly in politic- ally strategic sectors such as oil, gas and uranium. In January 2007, the country imposed a two-year ban on the granting of oil licences to Chinese companies, to curb Chinese influence in the country’s hydrocarbons sector. In September 2008, Kazakhstan suddenly pulled out of multibillion-dollar business deals with Georgia, ostensibly for economic reasons, although Russian observers believed it was due to political pressure from Moscow. Kazakh-stan is a key Russian ally and Georgia and Russia fought a brief war last year.

Kazakhstan has been described as an authoritarian Presidential State, with little power residing outside the executive branch. The 2005 Presidential elections, which re-elected President Nursultan Nazarbayev, were described by the Organisation for Security and Cooperation in Europe as seriously flawed. (The next Presidential elections are due in 2012; by law, Nazarbayev can stand as many times as he wishes.)

The government and its allies control the printing presses and most newspapers, radio and TV stations. Privately owned and opposition media are harassed and censored, and journalists are often threatened with lawsuits and, quite frequently, violence (one journalist, a woman, disappeared in 2007 and is feared murdered; she was investigating a politically sensitive story at the time). Insulting the President and government officials is a criminal offence. The courts cannot be relied upon to protect rights formally enshrined in the Constitution.

On its website, the US State Department’s Bureau of Con-sular Affairs, on the page for Kazakhstan, states: "Kazakhstani security personnel may at times place foreign visitors under surveillance. Hotel rooms, tele-phones and fax machines may be monitored, and personal possessions in hotel rooms may be searched." Human Rights Watch reported in May that "government has made no effort to liberalise legislation on public assemblies, which remain tightly controlled in Kazakhstan".

Kazakhstan contains the world’s second-largest reserves of uranium. And now there is a proposal to site what is being called a Nuclear Fuel Bank in the country. This idea, derived from a Russian concept, is that a complete nuclear fuel production cycle be established, producing low- enriched uranium for nuclear power plants. This fuel would be owned and sold worldwide by the International Atomic Energy Agency, thus assuring countries of reliability of supply with a guarantee of no political interference. In return, customer countries would not set up – because they would not need to set up – their own uranium enrichment facilities, thereby greatly reduc- ing the risk of the proliferation of nuclear weapons.

The concept has the support of US President Barack Obama, and the US, the European Union and some other governments have allocated $100- million as seed money for the idea, while US business icon Warren Buffett has pledged another $50-million. Nazarbayev has said that his country would consider hosting such a Nuclear Fuel Bank, and there is influential support in the US for the facility to be located in Kazakhstan.

There is clearly a lot at stake in Kazakh-stan’s uranium sector, and very powerful forces are at play, but there is little transparency. Uranium One may very well be innocent of any wrongdoing, but it might still get badly burnt.

Edited by: Martin Zhuwakinyu