Awhile ago, I received an email from an old source about some documents that could be had in London. They regarded a well-worn story, he said – the business dealings of the first family in Kazakhstan.
I flew out, and walked into a conference room, where I was given a four-inch-thick stack of contracts, loan documents, and emails surrounding the country's leading oilman, Timur Kulibayev, the powerful second son-in-law of President Nursultan Nazarbayev. The leaker was a former executive of a Kulibayev-controlled company who had a falling-out with the 43-year-old official. He asked not to be identified out of fear for the safety of his family.
Many of the documents involved Chinese oil companies, and the Kazakh portion of Beijing's resource buying binge around the world. For years, China has swept up energy assets, paying tens of billions of dollars for prize oil and metals properties, including a half dozen Kazakh fields totaling 1.7 billion barrels of oil. This has provoked allegations of market manipulation and fears of resource shortages. But a transaction described in the documents illustrates one of the techniques in the Chinese arsenal – cutting locally powerful political figures into the windfall profits.
The details of the deal are labyrinthine in a way similar to those surrounding the freezing of Nazarbayev's bank accounts in Switzerland. I broke that story in The New York Times in 1999. A few years later, Nazarbayev was declared an unindicted co-conspirator in U.S. federal court in what his opponents had dubbed "Kazakhgate." James Giffen, Nazarbayev's American oil adviser, remains charged in the case in New York.
The latest documents involve numerous companies registered in secretive tax havens – mostly the British Virgin Islands. They are almost all shell companies that permits the beneficial owner to be disguised publicly. Even when one digs into the documents, one cannot be certain that the named parties are truly the company owners. Though his name isn't present everywhere, Kulibayev is the common denominator in the companies and parties in virtually all of the documents.
Kulibayev, a billionaire on the Forbes list of the world's wealthiest people, is Kazakhstan's most powerful oilman – his approval is required on most substantive energy deals in the country. He is married to the second of Nazarbayev's three daughters, Dinara, and has held numerous senior government positions in the energy sector. Currently, Kulibayev is deputy head of Samruk-Kazyna, Kazakhstan's sovereign wealth fund, which owns KazMunaigas, the Kazakh oil company, among other state enterprises. He also is something of a playboy, having fathered a child with a London socialite named Goga Ashkenazi, a friend of Prince Andrew.
The documents chronicle the 2003 sale of a 25% share of Aktobe Petroleum, a company that controls some 822 million barrels of oil in northwest Kazakhstan, near the Russian border. Nazarbayev announced the winning bid of $150.1 million by China National Petroleum Corp., which already possessed 60.2% of the company. What wasn't announced was the identity of CNPC's partner in the deal: interests close to Kulibayev.
A company close to Kulibayev called Darley Investment Services received a $25.9 million payment from CNPC and a 20% share of the acquisition, according to the documents. For this, Darley contributed all of $49 to the deal, the documents say. The documents detail how CNPC ultimately bought out its partner for another $140 million, bringing the payday for the presidential son-in-law's interests to a total of $165.9 million (details below). CNPC has denied any wrongdoing.
Some of the documents were posted on the Web site of a weekly newspaper owned by Mukhtar Ablyazov, a controversial Kazakh banker seeking political asylum in Britain. Ablyazov's United Kingdom assets have been frozen since last summer, when Kazakh prosecutors accused him of embezzling more than $300 million while BTA Bank, of which he was chairman until February 2009, lost more than $6 billion. Ablyazov, living in London, denies the accusations. Meanwhile, he is in a death grip with Kulibayev.
Ablyazov alleges that Kulibayev is Darley's beneficial owner. In fact, a document lists another figure – an Indian national named Arvind Tiku – as the company's owner, but other documents, in addition to the public record, lend some weight to Ablyazov's assertion. First, Tiku has been known – including in research I've conducted over the years – to represent Kulibayev's oil interests; Tiku frequently represents himself, and is widely regarded, as Kulibayev's business representative on the ground in Kazakhstan, in London, and elsewhere. In addition, the ownership issue becomes a bit fuzzy in the papers. One document identifies Tiku as the sole shareholder of Cedar International, which according to the papers actually owns Darley. Yet, in another document, Darley's board gives Tiku power of attorney to sign papers on its behalf. Now, does this mean that Tiku named himself his own representative? Why does he need a board to give him the right to sign on behalf of his own company? (More on this below.)
Whatever the case, Ablyazov has published his allegations in media that he owns in Kazakhstan. At first, the Kazakhs attempted to muzzle this coverage. But, since Kazakhstan currently chairs the Organization for Security and Cooperation in Europe, it is vulnerable to pressure from Western governments and, under that spotlight, Kazakhstan's General Prosecutor ordered an investigation of Ablyazov's allegations. Kulibayev spokesman Gaziz Kulakhmetov declined to comment, saying Kulibayev would wait until after the investigation is concluded.
Aktobe was Kazakhstan's first energy deal with China, taking place in 1997. In 2003, Kazakhstan officials announced the auction for the state's 25% share of Aktobe, and CNPC decided to compete and add to its 60.2% stake. State and stock exchange officials publicly estimated that the May 28 auction would raise at least $300 million, a not-unreasonable expectation considering that the company reported $175 million in first-quarter revenue, with assets of $510 million.
Yet when the auction was over, glum officials said the shares hadn't immediately sold. It was only the next day that an unidentified party stepped forward with a bid for half the expected sum – $150.5 million. A week after that, President Nazarbayev disclosed that CNPC was the winning bidder. Later news accounts would disclose that CNPC won the bid in partnership with Darley, an until-then unknown BVI company. Darley's beneficial owner was wholly unstated.
The transaction as explained in the documents is complex: CNPC put up almost all the $150.5 million for 51% of the state share; Darley paid just $49 for its 49%. But then, 28 days after the transaction was completed, the Chinese company was obligated to pay $25.9 million to Darley for 29% of its $49 in holdings. That left the partnership at 80%-20% in favor of CNPC. Then came Darley's biggest payout – in October 2005, a little over two years after the acquisition, CNPC's publicly traded Hong Kong subsidiary bought out Darley entirely for $140 million.
In the end, that payment meant that CNPC laid out roughly Aktobe's originally estimated value, or about $315 million in all. But for the Chinese, the partnership had already paid off richly. Less than a month after the 2003 acquisition, the Kazakhs awarded Aktobe Petroleum the right to ship its oil out of the landlocked country to the Black Sea through the much-desired Caspian Pipeline Consortium. This line, built mostly to service Chevron's Tengiz oilfield, can cut more than $5 a barrel off the cost of shipping by rail, according to industry experts, a significant sum when the world oil price was roughly $30 a barrel. That year, Aktobe would record profits of $244 million.
According to financial records, among Darley's first steps after its 2005 windfall was to pay $50 million for a jet. The specific aircraft isn't identified in the documents. But on Nov. 19, 2005 -- or a month after the $140 million payout -- an amateur photographer posted a picture on the Internet of PK-4, a roughly $50 million Boeing 737 7EJ registered to a Kulibayev-associated company called Mint Juleps Investments, at Norwich International Airport, in eastern England.
I have been in touch with Tiku about the documents. He has welcomed questions by phone and email. Overall, Tiku said that the documents reflect "incomplete and inaccurate information."
"As mentioned on the telephone there are confidentiality obligations which limit what I can say about the Aktobe Munaigas transaction," Tiku said in an email. "However, I can tell you that the terms were entirely normal and reflected a process of negotiation, and your description of the transaction is not the true reflection of the deal."
Steve LeVine covers foreign affairs for Business Week. He previously was correspondent for Central Asia and the Caucasus for The Wall Street Journal and The New York Times for 11 years. His first book, The Oil and the Glory, a history of the former Soviet Union through the lens of oil, was published in October 2007.