Key political risks to watch in Kazakhstan

Kazakhstan's long-serving leaderhas announced his intention to stay at the helm of CentralAsia's largest economy for a third decade, erasing concernsabout the possibility of a destabilising succession struggle.

President Nursultan Nazarbayev, 70, has led Kazakhstan sincebefore its independence from the Soviet Union, and will stand ina 2012 election that he is almost certain to win.

But the absence of a clear succession plan for the veteranleader remains the single biggest threat to political stabilityin the vast steppe nation of 16 million. A tougher stance onforeign companies has also fuelled investor concerns.

Kazakhstan is the world's largest uranium miner and home tothe biggest oil discovery in more than 40 years. It hasattracted more than $150 billion in foreign investment since itgained independence in the breakup of the Soviet Union in 1991.

Below is a list of key political risks in Kazakhstan.


Yermukhamet Yertysbayev, a trusted adviser to the president,said on Sept. 16 that Nazarbayev had no plans to step down andsaw no rivals to his retaining power after the next elections.

Rumours of his possible departure surfaced after Nazarbayevwas declared "Leader of the Nation" by parliament on June 15.This status grants the president immunity from prosecution andthe right to shape policy even after his retirement.

Nazarbayev had earlier rejected the bill, citingKazakhstan's role as chair of security and democracy watchdogthe Organisation for Security and Cooperation in Europe (OSCE)among his reasons. But he never officially vetoed the draft.
Analysts have said Nazarbayev, who has cited Singapore as anexample for Asian states, might use the law to groom a pliantsuccessor and step into the background in a manner similar toSingapore's founding prime minister, Lee Kuan Yew.

But his readiness to stand again for election sends a strongmessage to the opposition and the political elite that has beenengaged in a behind-the-scenes power struggle.

It also buys the president time to settle on a hand-pickedsuccessor. The president, who has three daughters but no sonswho could make obvious succession candidates in the mainlyMuslim nation, has never identified his chosen replacement.

According to the constitution, in the case of Nazarbayev'sdeath, the speaker of the Senate, the upper chamber ofparliament, would assume his powers for the rest of the term.

Second in line is the speaker of the lower house, theMazhilis. The prime minister is third in line.

What to watch:

-- Nazarbayev's health. He is firmly in control and appearsregularly in public around the country. Any prolonged absence,or less frequent appearances, might signal something is wrong.

-- The emergence of a possible successor. Nazarbayev will bewary of naming a successor too early, but increasedresponsibility for members of his inner circle might provideclues as to his favourites.

Analysts say possible successors include:

* Kasym-Zhomart Tokayev, speaker of the Senate (who wouldautomatically assume the presidency in the event of Nazarbayev'sdeath);

* Timur Kulibayev, Nazarbayev's son-in-law and chairman ofstate energy firm KazMunaiGas and the national rail monopoly.

Foreign companies, who invested in Kazakhstan heavilythroughout its post-Soviet history despite Western concernsabout its patchy human rights record, are likely to embrace anycandidate who would guarantee the continuity of their contracts.


By signalling he will run again for election, Nazarbayev haseffectively called a halt to political infighting between thosewho might push to replace him but would never stand against him.

But several groups led by Nazarbayev's relatives and allieswill continue to compete for influence. Some of the president'sclosest associates are also in their seventies, and youngerassociates may find a place in the president's inner circle.

Some members of this elite have fallen out with Nazarbayevand left Kazakhstan, which has led to reshuffles in thegovernment and changes in asset ownership.

In one such case, Nazarbayev's former son-in-law, RakhatAliyev, fled Kazakhstan in 2007 and accused the president ofusurping power. His departure led to a purge in securityservices and a government takeover of several media outlets.

In a separate case, Mukhtar Ablyazov, the former head ofKazakh bank BTA, fled to Britain in 2009 after being accused offraud and embezzlement. Ablyazov, who denies all charges against him, told Reutersin an interview on Aug. 25 that he wanted to work withopposition leaders to push for political change. In a third case, the former head of state uranium minerKazatomprom was sentenced in March to 14 years in prison oncharges of corruption, theft and the illegal sale of assets.

Mukhtar Dzhakishev, who denied the accusations, was oncehailed as the architect of the many partnerships betweenKazatomprom and foreign miners to develop Kazakhstan's uraniumreserves, which are second in size only to Australia's.

What to watch:

-- High-profile corruption cases, which have become a commontool of the domestic political struggle. Any high-profilecriminal cases or accusations could shed light on who inNazarbayev's inner circle might be falling out of favour.
-- Government reshuffles could signal the weakening of onegroup and the strengthening of another.


The government has taken steps in the last few years toraise its role in the energy sector, buying stakes in some ofthe largest domestic projects run by foreign majors.

Acquisitions usually followed campaigns in which thegovernment accused companies of environmental violations or taxevasion or breaking contract terms.
Foreign shareholders in the Karachaganak venture, alucrative gas field still in the early stages of development,are preparing to cut their stakes to allow the state to acquirea 10 percent share, sources have told Reuters.

The project owners, including Italy's Eni SpA and Britain'sBG Group, had been accused of tax evasion.

Kazakhstan's financial police has also said it suspects theTengizchevroil venture of extracting $1.4 billion worth of oilabove levels agreed with the state.

The project is led by U.S. oil major Chevron, which says itis in compliance with all agreements.

Investors and diplomats have in private expressed concernover such tactics, saying it could scare off investment at atime when the economy needs fresh capital to start new projects.

The government also plans to double an export tax on crudeoil to $40 per tonne from Jan. 1, less than six months afterreimposing a tax scrapped during the global financial crisis.

What to watch:

-- How the Karachaganak and Tengizchevroil episodes unfold,as well as the fate of the Kashagan oil field. Kashagan, yet tostart production, is the biggest oil find in the world since the1960s and is managed by a group of foreign investors.

-- Legislative changes. Further moves to raise the exportduty on oil are possible, and moves to toughen regulation insectors such as mining could signal increasing governmentinterest in industries beyond the strategic oil and gas sector.


Unrest in a neighbouring country, such as Uzbekistan orKyrgyzstan, could provoke tensions in southern regions ofKazakhstan which border the two nations.

Kazakhstan reacted to the April 7 revolt in Kyrgyzstan byclosing the border. It reopened it only after Kyrgyzstanthreatened to shut off water supplies used for irrigation.

Any border closure would not have a major impact onKazakhstan's economy, dominated by oil and metals exports toRussia, China and Western markets, although some cross-bordertrade in farming and consumer goods would be hit.
What to watch:

-- The situation in Kyrgyzstan. The interim government, ledby ex-foreign minister Roza Otunbayeva, plans elections on Oct.10 that would create the first parliamentary democracy inCentral Asia, but its grip on power remains fragile.

Radical Islamist groups may use any power vacuum to gainstrength, particularly in the Ferghana valley straddlingKyrgyzstan, Uzbekistan and Tajikistan.

-- Developments in Uzbekistan. Like Nazarbayev, Uzbek leaderIslam Karimov, in power since 1989, has not picked a successor.More populous than Kazakhstan, Uzbekistan is however much poorerand less developed, which exacerbates social tensions. (Editing by Sonya Hepinstall)


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