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Black Blood of Kazakhstan. The Nazarbayev Era. Year 1994: Winds of Change Blew from Atyrau
We present an excerpt from the new book by the well-known Kazakhstani journalist, oil and gas industry analyst, and publisher of the Petroleum Journal, Oleg Chervinskiy, "Black Blood of Kazakhstan. The Nazarbayev Era."
The oil chronicle covers the period from the declaration of the Republic of Kazakhstan's state sovereignty to March 2019, when the country's first president, Nursultan Nazarbayev, announced his resignation. The book can be described as a fine documentary-adventure novel featuring its heroes and anti-heroes, grand ambitions and equally large sums of money, geopolitical and spy games, mysterious deaths, and sudden wealth.
The book was published in Almaty in Russian in February 2023. To order the book, write to the journal's editorial office at email: office@petroleumjournal.kz
Представляем вниманию наших читателей отрывок из новой книги известного казахстанского журналиста, аналитика нефтегазовой отрасли, издателя журнала Petroleum Олега Червинского «Чёрная кровь Казахстана. Эпоха Назарбаева».
Нефтяная хроника охватывает период с провозглашения государственного суверенитета Республики Казахстан до марта 2019 года, когда первый президент страны Нурсултан Назарбаев объявил о своей отставке.
Книгу можно назвать хорошим документально-авантюрным романом, в котором есть свои герои и антигерои, большие амбиции и не менее большие деньги, геополитические и шпионские игры, таинственные смерти и внезапное богатство.
Книга вышла в Алматы на русском языке в феврале 2023 года. Для заказа книги пишите в редакцию журнала на мейл: office@petroleumjournal.kz

Year 1994: Winds of Change Blew from Atyrau
“You must share it!”
In 1994 the industry hit the bottom and such date became a benchmark in own way, while the country produced as little as 20.3 million tons of oil and gas condensate. That was the lowest rate since the collapse of the Soviet Union. The export situation was even worse: in May 1997, the quota for the Kazakh oil in the Atyrau-Samara pipeline granted by the Russians made zero point zero tenths. Payment defaults were [further] smashing the industry. Oil companies and their workers were awaiting months and months to be paid for the exported oil and oil products, to be subsequently given sugar, overalls, cars or French perfume instead of cash. If that were not enough, each spring and autumn, following the slogan Bread Above All the government was forcing Munai Onimderi corporation to supply free gasoline and diesel fuel for agriculture, i.e. during sowing and harvesting campaigns, with payment deferred for years or with no payment occurring at all.
Even the insignificant currency earnings landing on the oil producers accounts with the state-owned AlemBank, in the spirit of "surplus-appropriation" 1 , were seized by government orders to the state revenue for the emergency needs.
Tengizchevroil JV annually invested $500 million in the field development, however, the Tengiz production was paradoxically falling instead of growing! The reason was difficulties with oil delivery to buyers. Russia refused to export the Tengiz oil by the Atyrau-Samara pipeline, referring to the high content of mercaptans, which, according to the Russian experts, would lead to corrosion of pipes. If before the joint venture establishment, 330 thousand tons a month had been produced at Tengiz, now it was only 120 thousand tons, although the technical capabilities were allowing to swiftly double production.
As per the experts, behind the Russia's hostile moves was its unwillingness to admit a new competitor on the global oil market. The other reason was the Russia’s urge to demonstrate own power followed by a request to be given a share in the lucrative Caspian projects. The Kazakhstan President Nursultan Nazarbayev would later write in his memoirs: "Once, during a meeting in Moscow, Yeltsin said to me: 'Give Russia the Tengiz field.' I looked at him and could see he was hardly joking. I returned with: "Well, then Russia to give us back the Orenburg region, because Orenburg was once the capital of Kazakhstan."
"Do you have any territorial claims against Russia?", he went on. “Not really”, was my reply. He laughed, and so did I."
Jokes aside, the "muscles-flexing" was tasked to show that friendly relations between the leaders of the former Soviet republics not to set aside the global economic competition between the now independent states and, as a result, the Russian Lukoil, then favored by the Kremlin, received a 5% stake in the Tengiz project.
In 2000, the book The Godfather of the Kremlin: Boris Berezovsky and the Looting of Russia was published in English. It was straight away translated into Russian, German, French, Polish and Hungarian and sold in those countries. The author of the political bestseller was Paul Klebnikov, an American journalist of the Russian descent, editor-in-chief of the Forbes edition in Russian. Four years later Paul would be shot dead by a contract killer Moscow. The crime has not been solved until now. Several pages in the book were devoted to the Tengiz project. Talking about the business empire of Lukoil, Paul Klebnikov was assertive that among its shareholders were Yuri Shafranik, the then Minister of Fuel and Energy of Russia and Alexander Putilov, president and chairman of the Rosneft board of directors.
"Alekperov, together with Shafranik, began to subjugate both Chevron and Kazakhstan, which were developing a giant field in Tengiz," as Paul Klebnikov wrote in his controversial book. “Tengiz oil reserves (9 billion barrels) were about three-quarters of Alaska's reserves at the time of discovery of the Alaska field in 1967. By early 1995, Chevron had invested $700 million in the Tengiz field and committed to invest $10 billion more over next twenty years. Whereas the first results were disappointing.”
"Such projects should not be made solus," Alekperov allegedly said. "You must share it [with us]." Alekperov and Shafranik arranged for Chevron to be entitled to use only a third of the Russian pipeline capacity promised for export from Tengiz; Chevron was forced to transport oil by Russian railway. "If we are accepted into the Tengiz consortium, we undertake to solve the problem with the pipeline," Alekperov said in late 1995. A few months later, Chevron agreed to LUKOIL's participation in the Tengiz project. It was a wise decision."
In the meantime, Tengiz was in a vise-like grip. On some days, oil processing capacity was used only by 30%. "To put it bluntly, this is a political moment," Charles Auermann, manager of Tengizchevroil JV, then told Newsweek."Previously, Russians would accept 330,000 tons of mercaptan oil per month and suddenly they became environmentally conscious."
TCO commenced constructing a $40 million mercaptan refinery at Tengiz to meet the Transneft's requirements. In the interim time the production was exported by by rail.

Winds of Change Blew from Atyrau
Meanwhile, the industry management system was again under reform. In April, the Cabinet of Ministers resolved that the Ministry of Geology and Subsoil Protection to be appointed as the working body for administering subsoil use and exploration and production of minerals. Later in June, the Ministry of Energy and Fuel Resources was split into two ministries: the Oil and Gas Industry and the Energy and Coal Industries. Ravil Cherdabayev from an influential oil dynasty -whose cumulative work experience in the industry exceeded a thousand years - became the first minister of the national oil and gas industry for the initial four months. Before the appointment, he was the Tengizchevroil JV director from the Kazakh side.
On the very first working day, the new minister attended a Cabinet of Ministers session chaired by the Prime Minister Serhiy Tereshchenko. The agenda was as simple as to read: Securing the 1994 Harvest.
"It was mid-June, and the temperature at the meeting felt much hotter than outside," as Ravil Cherdabayev was recalling later in one of the interviews. "Everyone, without exception, from the heads of the regions to the Minister of Agriculture, spoke about the catastrophic shortage of fuels and lubricants, first, due to low production, and secondly, due to the farmers being short in money to pay for them.
Responding to the question put to me, I explained the situation and reported on the measures we had planned. After the meeting, I aligned with Tereshchenko and went to see the regions with upstream, midstream and downstream companies. A weeklong visit to Pavlodar, South Kazakhstan, Kyzylorda and four western regions, where met companies and their staff, paid a call to each akimat, went to see the endless grain fields. In situ, all issues with fuel and lubricants supplies would be solved. And I must say, the harvest that year was amazing, and all fields could be harvested on time."
The new minister and his team started drafting a strategic plan for the industry development, but he was not allowed to complete the work. Next October he was nominated by the President as the Atyrau region akim.
Down in Atyrau, the first private oil company ANAKO (which stands for the Russian equivalent of Atyrau Oil Joint-Stock Company) was founded. ANACO obtained an exploration and production license for Kyrykmyltyk field and was the first private oil contract to enter into a contract with the government. Still, the identity of the first domestic private oil producer was not much surprise to anyone: Sagat Tugelbayev, who by that time contrived to be the head of the Joint Ventures Department of Tengizneftegaz, deputy chairman of the Economic Reform Committee at the Supreme Council of the Republic of Kazakhstan (in 1990-1992), and finally, since February 1992, the head of the Atyrau regional administration. 2
In 1997, Kyrykmyltyk started producing oil, by 2000 the daily production reached three hundred tons. The initial financing of the project was by a consortium of European banks led by Raiffeisen Bank. Revenues from the oil production let pay back loans and kick-off diversifying the business. The "oil money" gave a start in life to theTugelbayev's company Zaman Energo, rendering drilling and maintenance services to the Atyrau producing companies, but was also used to acquire the flat-broke Petrovsky plant, which by that time was longer than 80 years engaged in manufacturing equipment and spare parts for oil and gas for the entire Soviet area. The plant was given a second life and rebranded to Atyrauneftemash.

Amangeldy Gas Help You
In the south of the country, in Shymkent, people survive by cooking meal on open fire. By 1994, gas supply to southern regions became a pressing issue. And it was not about supplies to industrial enterprises, there was literally no gas in households of Almaty and Shymkent. Residents would bring propane/butane cylinders right into own apartments in tower-blocks, even though strictly prohibited by any and all safety standards. Newspapers report on a regular basis about explosions in apartments, knocking out the entire walls. Residents of Shymkent cook food on open fire, for which trees are massively cut down.
Since during the Soviet time the southern Kazakh regions were almost completely supplied with Uzbek gas, now each fall the newly independent neighbor played around with the gas valve and requested payment for the gas supplied before. The only thing, Kazakhstan was out of cash to pay. Constant gas shortages would become a sign of the times for southern regions for several years onwards.
Under these conditions, the government is trying to solve the problem of the country's energy security at the expense of explored gas reserves in the Zhambyl region. In 1975, 190 kilometers northwards the city of Zhambyl, geologists made a discovery on the Amangeldy field. At those time, due to the cheap Uzbek gas available Amangeldy was not developed. In June 1994, in order to "create a gas production industry in the Zhambyl region", the Cabinet of Ministers instructed the joint venture Dosbol, founded by the head of the Zhambyl regional administration, Senim and Kazakhgas, JSC "Zhambylaugaz" and Gazprom, to put into operation the Amangeldy gas field. After that, the composition of investors changed several times, and it was possible to start the production of Amangeldy gas only in 2003 by the national company KazTransGas.
In 2022, when the national company QazaqGaz is founded, Amangeldy Gas JSC will become the core central to its new subsidiary QazaqGaz Exploration and Production.
Caspian Watershed
The uncertainty of the legal status of the Caspian Sea was exposed by the willingness of the newly born Caspian states to actively develop the Caspian Sea resources. Until 1991, the Caspian Sea represented a subject of relationship between the USSR and Iran only, following the Soviet-Iranian treaty of 1940. As of 1994, the rights to the offshore natural resources were claimed by five independent states being Azerbaijan, Russia, Iran, Turkmenistan and Kazakhstan. The real stumbling block was the principle of dividing the reservoir into zones of national economic interests.
"Iran has the position that the Caspian Sea was to be divided equally, 20 percent to each of the five states, which was not supported by other parties, as the coastline passing through the Iranian land was much smaller compared to the other states. While the Russian position on the establishment of the territorial border from the shore or 15 miles away from the coast is not supported either", as Ravil Cherdabayev, Kazakhstan’s former special representative in international negotiations on the legal status of the Caspian Sea, commented on the fundamental disagreements of the parties. "We justify our suggestion to establish a 35-mile zone by sturgeons inhabiting the northern shelf."
In October 1994, the foreign ministries of all the Caspian States were represented for the first time in a meeting in Moscow. Subsequently such negotiations would linger on for decades as the jackpot at stake was nothing but huge. Nevertheless, neither Kazakhstan, nor Russia, nor Azerbaijan seemed to be disturbed by the unsettled legal status of the Caspian Sea, and each of those countries started oil exploration and production on the shelf, at sole risk in own domestic waters or jointly, under agreements with third parties.
Balgimbayev's Phenomenon
On 9 June, Nursultan Nazarbayev addressed the Supreme Council with a message Measures to Overcome the Crisis and Deepening the Market Reforms, by which he urged the parliamentarians to give the government a 15-month carte blanche to implement the so-called structural reforms. However, by fall the Cabinet was obviously not coping with the historical mission entrusted. On 11 October, Nursultan Nazarbayev received the report of Prime Minister Sergei Tereshchenko and gave it negative feedback. Next days the presidential newspaper Kazakhstanskaya Pravda described the atmosphere of the meeting as follows: "Nazarbayev's language was abrupt. He said bluntly to the premiere: "You don't have a team..." and then to the Minister of Finance: "The parliamentarians made you to adopt an inflated budget, and you, being an expert, could not reject it..." The final part of the president's speech was in particular shocking: "I believe that the entire government should resign. The cosmetic measures could not make a competent team..." Frozen faces and bitter silence in the room."
After such feedback, the entire cabinet of the Soviet partocrat Sergei Tereshchenko resigned. He was replaced by a 42-year-old Akezhan Kazhegeldin, regional businessman (and, as he later admitted in an interview, a former Soviet KGB agent). While Nurlan Balgimbayev took the the position of the Ministry of Oil and Gas Industry minister.
Balgimbayev was very much unlike the "experienced managers" type who were his predecessors in the industry. A native of the Atyrau region, coming from a long line of oilmen, who went through a career from as a field operator to the managing position in the Soviet oil ministry in Moscow. He spoke excellent English, after two years at the University of Massachusetts and work at the Chevron headquarters, had own programme how the industry should operate in the market economy. Balgimbayev was highly connected in the American oil establishment, and, through his work in the Ministry of Oil and Gas Industry of the USSR, he has good connections also in the Russian oil establishment.
On top of it, everyone was aware of his killer instinct – as early as while a Polytechnic Institute student in Alma-Ata, he had been professionally boxing and even won the city cup. He had a ready tongue, spoke communicate clearly and, not without obscenity, with oil workers toughened by the harsh climate and hard work.