This article originally appeared in Fuel Cycle Week #329, 5/27/09
By Nancy E. Roth, Managing Editor, Fuel Cycle Week
By all appearances, the first months of 2009 were exceptionally fruitful for the state-owned uranium producer Kazatomprom. If in fact one were watching the uranium industry in isolation from the rest of the Kazakh economy during this period, the past week’s sudden removal and later arrest of Kazatomprom chief Mukhtar Dzhakishev and several other high-level executives might come as quite a jolt.
Since January Kazatomprom has signed a momentous and lucrative nuclear cooperative agreement with India (FCW #313, Feb. 4); begun two new mining ventures with China Guangdong National Power (FCW #314, Feb. 11); sold a 50% stake in its Budyonnovskoye deposit to Russian state-owned miner ARMZ (FCW #320, March 25); approved the ramp-up to commercial production at South Inkai, its joint venture with Canada’s Uranium One (FCW #309, Jan. 7)—plus launched operations at the Kharasan-1 mine, which it co-owns with Uranium One and a Japanese consortium (FCW #325, April 29). Meanwhile Uranium One’s two commercially producing mines in Kazakhstan, in each of which Kazatomprom owns a 30% stake, bumped their first-quarter 2009 output up 62% over that of the same quarter in 2008 (FCW #327, May 13).
Similar successes throughout Dzhakishev’s years at the helm of Kazatomprom have ushered Kazakhstan into the spotlight as a key player in the global uranium market. Last year the company announced plans to generate 30% of world uranium supply by 2015. It reported a total 2008 output of 8,500 tU (22.1 million pounds U3O8) and set a production goal 12,000 tU (31.2 million pounds U3O8) this year. When Dzhakishev took over in 1998, the nearly bankrupt Kazatomprom produced 1,073 tU (2.8 million pounds U3O8), according to the World Nuclear Association.
Economic Woes Plague Government
Nevertheless, the Kazakh economy, which had been racing along at double-digit growth rates, veered off track and crashed in the global recession. The teetering banking sector, particularly the country’s largest bank, BTA, barely survived. In February the government of Nursultan Nazarbaev stepped in and nationalized BTA, reportedly investing about $2 billion in it to date.
The head of the bank’s board of directors, Mukhtar Ablyazov, who may or may not have mismanaged the institution, quickly became a target for the government, which appears to be seeking scapegoats. Accused of criminal activities that allegedly drove the bank to its near collapse, Ablyazov, reportedly a personal friend of Dzhakishev, fled the country with his family in March. This week some in the Kazakh opposition have pointed to the personal connection in casting Dzhakishev’s later arrest as politically motivated.
Indeed, his position rapidly unraveled only weeks after Tatyana Kvyatkovskaya, a prominent former member of parliament, publicly accused him of collaborating with Abliazov to deprive the state of its most valuable uranium assets by selling them at a ridiculously low price to foreign concerns.
One of Dzhakishev’s central strategies in building Kazatomprom was to establish joint ventures with foreign partners that could offer skills and technology that would equip Kazakhstan with capabilities in producing higher-value products, such as fuel pellets and fuel assemblies. This would free the nation from its role as only the origin point for raw uranium resources and help diversify its economic base.
Over the last few years the uranium producer struck commercial agreements with companies from Japan, India, China and Canada in pursuit of these technologies. Its nuclear cooperation deal with India, which was sealed in January, illustrates Kazakhstan’s interest in India’s nuclear technology and expertise. Ironically, it was these joint ventures that emerged as a factor in Dzhakishev’s expulsion.
After sacking him on May 21, Kazakh officials arrested him on Monday, apparently detaining him on suspicion of wrongdoing rather than lodging specific charges as yet. The press has speculated that he will be charged with a range of crimes, including theft, embezzlement, corruption and collaboration with Ablyazov. Vladimer Shkol’nik, the former Kazakh minister of industry, was named as Dzhakishev’s replacement.
“Business as Usual” for Miners
Miners with projects operating or in development in Kazakhstan told FCW that they were alert to the full range of scenarios that could develop. But they thought the government’s actions were “all motivated by other issues,” as Uranium One Executive Vice President Fletcher Newton said.
Newton, speaking by phone from Moscow, said he was more concerned about rumors raised by speculative press reports than by anything the government has done to date. “We’re not concerned,” he said. “We’re not named in any official press release,” including the most recent on the state security service.
“We have never bought anything from Kazatomprom. ... We feel very strongly we paid full value for the properties and the deal was approved by the Kazakh government.”
He acknowledged that the government did not offer the most transparent environment for doing business. “They can monkey around with [the agreement] if they want to,” Newton said. “But they have to understand this: we have 30 million pounds of their material under contract. If something happens to that they will become a pariah in the industry.”
But Newton thought the appointment of Shkol’nik, who he said has “experience, is very measured, very solid.” Shkol’nik in fact had signed on behalf of the government the property purchase agreement with Uranium One.
In a statement released today, Uranium One noted that some press reports had indicated that the Kazakh investigation was focusing on the Kyzulkum joint venture, in which the company owns a 30% stake.
“Uranium One’s Kazakh assets were acquired in November 2005 from a group of Kazakh investors by UrAsia Energy Ltd., which became a subsidiary of Uranium One in April 2007. UrAsia paid full value for those assets,” the statement said.
Cameco spokesman Lyle Krahn said the company was also not worried about the new development. “We have no reason to be concerned,” he told FCW. “We are aware that things can change quickly. We’re experienced in dealing with similar situations.”
In Cameco’s view the key to success lies in its policy of developing long-term local relationships, and to be “open and transparent” in all its dealings, said Krahn. “We have relationships going back to the 1990s. We know how the country operates. These situations occur from time to time. It’s business as usual.”
Asked if Cameco still expected its Inkai mine to achieve commercial production in 2009, the spokesman said, “That’s still correct.”
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