Astana, Kazakhstan: city of black gold.

Astana, Kazakhstan: city of black gold.

Astana, Kazakhstan: city of black gold.

Notes from different corners of the world.
July 19 2004 8:11 AM

Dispatch From Kazakhstan

Astana, city of black gold.

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Goldfinger: The handprint of Nazabayev reaches out over Astana

The first things you notice about Astana, Kazakhstan's capital, are not the grandiose, glistening new government buildings that dominate the skyline for miles around, nor the vast tracts of flat desert steppe that cast that skyline into such sharp relief. No, the city's most abundant physical feature is the good old construction crane—scores and scores of them dotted across the city like some sort of mechanical aviary.

Astana is caught up in an oil-fueled public works construction boom, the like of which would have made the Romans proud. In 1997, just as Kazakhstan began to reap the rewards from its Caspian Sea oil deposits, President Nursaltan Nazarbayev signed a decree moving the country's seat of government away from the leafy, cosmopolitan centre of Almaty in the foothills of the Himalayas to barren, dusty Aqmola, since renamed Astana (Kazakh for "capital city"), some 600 miles to the north.

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The centerpiece of the new city is a mile-long rectangular boulevard of gardens and fountains around which Kazakhstan's governmental hub will soon sit. At one end of the boulevard is the soon-to-be-completed presidential palace, an ostentatious, overpowering slab of authority that resembles a super-sized architectural amalgam of the U.S. White House and Capitol. The middle of the boulevard is home to a 350-foot-high tower known as the Tree of Life. Every day, hundreds of local people take the elevator to the top of the tower to marvel at the way their new city is taking shape. In the tower's crown, they place their hands in a gold handprint made by Nazarbayev—a sign of loyalty to the man, known universally as Papa, who has run Kazakhstan since its independence in 1991 as what can charitably be called a "strong-arm democracy." At the opposite end of the boulevard, the imperial black and gray glass headquarters of Kazmunaigaz, the state oil company, looms large.

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Locals stroll in front of the oil ministry and communications tower

No one really knows how much it is going to cost Kazakhstan to establish Astana as central Asia's pre-eminent city. The official figure put on all the new construction is $1 billion, but that is surely an underestimate. With billions of dollars flowing into the country's coffers from Caspian oil and gas projects, President Nazarbayev is pouring a lot of that money into his dream of a new capital without ever having to account for what is spent. Astana may be the ultimate instant city—just add oil.

Luckily, Kazakhstan has a lot of oil. According to the U.S. government's Energy Information Agency *, the country has proven oil reserves of between 9 billion and 17.6 billion barrels. That, says the EIA, means Kazakhstan "is poised to become a significant player in world oil markets over the next decade." By 2010, Kazakhstan is destined to be one of the world's five largest oil producers.

As oil companies and the major oil-consuming nations search for new oil and gas resources outside the volatile Middle East, they increasingly pin their hopes on the Caspian region, and in particular on Kazakhstan. This has elevated Kazakhstan into the role of a main player in everyone's favorite geopolitical game—energy security. In just 10 years, foreign investment in the former down-at-heel Soviet republic has exploded. U.S. giants ChevronTexaco and ExxonMobil—with the full encouragement of both the Clinton and Bush administrations—have invested billions of dollars securing potentially lucrative oil exploration and production contracts in Kazakhstan. Today, the trappings of this foreign oil cash are easy to spot. Top-model Mercedes sedans and luxury SUVs (including the occasional Hummer) muscle Soviet-era Ladas off the streets of Almaty and Astana. Boutiques stocked with Fendi and Armani cater to an eager elite clientele, and casinos have popped up on what appears to be every street corner.

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The universal hope of Kazakhstan's people is that oil revenues will transform their nation into an economic powerhouse, raising salaries and living conditions in the process. But if history is any indication, oil is as likely to be Kazakhstan's damnation as it is its savior.

Angola, Ecuador, Nigeria, Venezuela, and a host of Middle East countries have all made a fortune from oil over the last 50 years. Yet none of these countries have actually seen real economic improvements during that time. Oil revenues have been skimmed off by the ruling elites rather than being invested into the country's economy and, as a result, standards of living have fallen while national debts have grown in these supposedly oil-rich nations. In the worst cases—Nigeria being the most egregious example—oil has been seen to foster and exacerbate a succession of ethnic conflicts and even outright civil wars.

It would be premature to call Kazakhstan a failure at this point. Nazarbayev's government is keen to stress that it will use oil revenues to help diversify the nation's economy. In 2001, Nazarbayev also announced the creation of the National Fund, an investment project for oil revenues that would promote social development and maintain a reserve fund to bail out Kazakhstan if the price of oil plummets in the future.

So far, $3.5 billion has gone into the fund. But the ultimate authority over investing and distributing the reserves lies with Nazarbayev himself. And, despite his paternal commitment to his people, Papa doesn't exactly have the best reputation when it comes to managing Kazakhstan's oil riches. In 2002, Nazarbayev admitted that he had deposited a $1 billion payment from Mobil into a Swiss bank account. At the time, he said he had put the money there to safeguard the Kazakh economy from being destabilized by such a large infusion of cash. This fall, there could be more revelations about oil payments when Nazarbayev's longtime business consultant, James Giffen, goes on trial in New York under the Foreign Corrupt Practices Act. He is charged with funneling more than $78 million in unlawful U.S. oil company payments to Nazarbayev and his former prime minister. Both men have denied any wrongdoing.

Nowadays, Nazarbayev seems to be intent on showing his commitment to Kazakhstan's national good by taking a leaf out of Vladimir Putin's state ownership handbook. Last month, the Kazakh government demanded that the state-run oil company, Kazmunaigaz, be allowed to buy a 16 percent stake in the Kashagan oil field (the largest oil discovery in over 30 years anywhere in the world) that is currently owned by British Gas. The British company is part of a production consortium—it includes ExxonMobil, Shell, and AGIP—that was contracted by the Kazakhstan government to drill for oil in the Caspian Sea. Under the terms of that agreement, these companies insist that they have the sole right to purchase BG's share. "All we want to do is exercise our right to buy into our own oil deposit," claims Kazmunaigaz's president.

For many Kazakhs, the government's stance marks a welcome, if belated, attempt to reclaim Kazakhstan's natural resources from what they view as the sweetheart deals Western oil companies negotiated in the early 1990s when the country was desperate for foreign investment. Whether the Kazakh people ever taste the fruit of the country's natural resource wealth remains to be seen.

Correction, July 20, 2004: This article originally and incorrectly referred to the Energy Information Agency as the Energy Intelligence Agency. (Return to corrected sentence.)