Civil society questions about the ENRC OR THE “EURASIAN GROUP” require an immediate response

The his­to­ry of ERG (also known as ENRC or the “Eurasian Group”) in our coun­try began with the arrival in 1994 of a group of “for­eign” investors rep­re­sent­ed by Ivedon International Ltd, Japan Chrome and Whiteswan Ltd, behind which were non-trans­par­ent Russian struc­tures and two British busi­ness­men Simon and David Reuben.

The Government of the Republic of Kazakhstan trans­ferred to them free of charge the Sokolovsk-Sarbay Mining and Production Association (SSGPO), the largest pro­duc­er of iron ore con­cen­trates and pel­lets in the ter­ri­to­ry of the for­mer USSR, Kazchrome (Don Mining and Processing Plant, Aksu Ferroalloy Plant, Aktobe Ferroalloy Plant, coal, ener­gy) and JSC Pavlodar Aluminum Smelter (alu­mi­na pro­duc­tion, baux­ite mines, ener­gy). As it turned out lat­er, Japan Chrome had noth­ing to do with Japan.

After that, the stage of unfair pri­va­ti­za­tion began. For exam­ple, in 1996, half of the shares in JSC Sokolovsk-Sarbay Mining and Production Association were sold to new man­agers for $50 mil­lion, of which the state under­took to return back $25 million.

In the ensu­ing show­down between the man­agers with­in the group, the polit­i­cal lead­er­ship of Kazakhstan sup­port­ed the group, which includ­ed Alexander Mashkevich, Alijan Ibragimov and Patokh Shodiyev, as evi­denced by the deci­sion of the Supreme Court of the coun­try from 1999.

A series of manip­u­la­tions with stakes in enter­pris­es led to the cre­ation of the Eurasian Industrial Association (EIA), which in 2006 was trans­formed into the Eurasian Natural Resources Corporation (ENRC), which includ­ed JSC Sokolovsk-Sarbay Mining and Production Association, Aluminum of Kazakhstan and Kazchrome and a num­ber of oth­er impor­tant assets.

In December 2007, the com­pa­ny places its shares on the London Stock Exchange. At the time of the IPO, ENRC’s mar­ket val­ue was $13.6 bil­lion, while the state’s stake had fall­en to 20%. Simple arith­metic shows that the bud­get of the Republic of Kazakhstan should have received at least $10 bil­lion from the sale of shares of these enter­pris­es. However, there are big doubts about the receipt of even a tenth of this amount.

The activ­i­ties of the for­mer man­agers, who lat­er became the own­ers of strate­gi­cal­ly impor­tant largest Kazakhstani enter­pris­es, can hard­ly be called high-qual­i­ty and pos­i­tive. For exam­ple, by 2012, the com­pa­ny’s cap­i­tal­iza­tion fell three times, and debts rose to $5.1 bil­lion. And by 2013, ENRC’s finan­cial per­for­mance dete­ri­o­rat­ed com­plete­ly: in the report­ing peri­od of 2012, the com­pa­ny suf­fered loss­es of $852 mil­lion, and the val­ue of its shares fell by 80 % com­pared to 2010. In 2011, with a $2 bil­lion loan from Samruk-Kazyna National Welfare Fund, the new own­ers promised to build an iron bri­quet­ting plant and expand pel­let pro­duc­tion capac­i­ty at SSGPO. None of these projects were imple­ment­ed. In addi­tion, in 2018 the Development Bank of Kazakhstan (DBK) issued a $360 mil­lion loan to JSC Eurasian Energy Corporation, a sub­sidiary of ERG.

Subsequently, for rea­sons that can be only guessed, ENRC delist­ed from the London Stock Exchange, which was not with­out cost to our state.

Currently, the par­ent com­pa­ny ERG, in which 40% is owned by the Government of the Republic of Kazakhstan, is reg­is­tered in the State of Luxembourg. The cur­rent state of the com­pa­ny is alarm­ing due to the high debt bur­den of pri­mar­i­ly Kazakhstani assets, which rais­es a num­ber of seri­ous questions.

1. How much did the cur­rent own­ers of ERG pay to the bud­get of the Republic of Kazakhstan for the ini­tial 80% of state shares?

2. In 2007, the state’s share in ENRC was 20%; cur­rent­ly, the Government of the Republic of Kazakhstan owns 40% of ERG’s shares. What amount was paid by our state for an addi­tion­al 20% of the shares?

3. For what rea­son did the sit­u­a­tion arise when ERG is a group of com­pa­nies con­sist­ing of two parts, in which one part (Kazakhstani) — Kazakhstani enter­pris­es — real pro­duc­ers, extract­ing the nat­ur­al resources of our coun­try and pay­ing exor­bi­tant debts on loans from for­eign banks, and the oth­er part (for­eign) – is a par­ent com­pa­ny with multi­bil­lion-dol­lar income, reg­is­tered in a for­eign tax juris­dic­tion? Is it some inten­tion­al redis­tri­b­u­tion of finan­cial assets to the detri­ment of the inter­ests of the Republic of Kazakhstan?

4. As it is known, Mr. Zhumangarin — Deputy Prime Minister — Minister of Trade and Integration of the Republic of Kazakhstan and Mr. Zhamaubaev — Deputy Prime Minister — Minister of Finance of the Republic of Kazakhstan are mem­bers of the Board of Directors of Eurasian Resources Group S.a.r.l. (Luxembourg) (ERG). At the same time, a Limited Liability Partnership (LLP) with the same name was reg­is­tered in Kazakhstan, in the gov­ern­ing bod­ies of which there are no rep­re­sen­ta­tives of our state, and it actu­al­ly man­ages the activ­i­ties of Kazakhstani enter­pris­es includ­ed in the Group. Then what are the func­tions of these mem­bers of our Government in man­ag­ing 40% of the shares belong­ing to Kazakhstan?

5. According to avail­able infor­ma­tion, for the peri­od start­ing as of 2017 – and 9 months of 2020, the Kazakh enter­pris­es of the Group paid about 2 tril­lion tenge in the form of div­i­dends in favor of the par­ent com­pa­ny. The share of our state (40%) was to be 797 bil­lion tenge (more than $2 bil­lion at the exchange rate of that time). How much mon­ey did the bud­get of our coun­try receive? (Judging by the fact that only $48 mil­lion was blocked as div­i­dends from ERG in favor of the Republic of Kazakhstan in the “Stati case”, expec­ta­tions are skeptical).

6. What is the rea­son for the high debt bur­den of the ERG, whose con­sol­i­dat­ed debt as of the end of 2020 was more than $8 bil­lion, of which about $5 bil­lion is account­ed for by Kazakhstani assets? Is this the result of inept man­age­ment or is it a delib­er­ate pol­i­cy of enslave­ment, giv­en that the Group did not open new pro­duc­tion facil­i­ties in Kazakhstan for such an amount?

7. Given that the main cred­i­tors of the ERG group are the sanc­tioned Russian banks VTB and Sberbank, will any breach of con­trac­tu­al oblig­a­tions lead to the fact that the strate­gic enter­pris­es of the coun­try will become the prop­er­ty of these for­eign banks? Could oth­er for­eign assets relat­ed prob­lems of the Group lead to this?

8. Data as of the end of 2020 indi­cate that Kazakhstani enti­ties of the group issued loans to the par­ent com­pa­ny reg­is­tered in Luxembourg and oth­er com­pa­nies under the com­mon con­trol of ERG in the amount of more than $2 bil­lion, while these enter­pris­es them­selves have out­stand­ing debts to the Russian banks. In addi­tion, JSC SSGPO, JSC Aluminum of Kazakhstan, JSC Kazakhstan Electrolysis Plant and JSC Eurasian Energy Corporation have debts of hun­dreds of mil­lions of dol­lars on loans received from JSC Development Bank of Kazakhstan and JSC Eurasian Bank of Development, one of the founders of which is the Government of the Republic of Kazakhstan. Isn’t this a “legal­ized” way to with­draw mon­ey out­side of Kazakhstan?

9. As of June 30, 2020, JSC TNK Kazchrome, JSC SSGPO, JSC Shubarkol Komir and oth­er enter­pris­es of the Group invest­ed more than 32.8 bil­lion tenge in Eurasian Digital Ventures 1 Limited Partnership, reg­is­tered with the AIFC (Astana International Financial Center). What is the mean­ing of these invest­ments and what is their sta­tus at the moment?

10. Does the Government of the Republic of Kazakhstan, as the own­er of 40% of ERG, mon­i­tor the state of the Group’s for­eign assets (Africa, South America, etc.), does it assess the threats and risks asso­ci­at­ed with ERG’s activ­i­ties out­side Kazakhstan?

In con­nec­tion with the above, we ask you to ana­lyze the activ­i­ties of the ERG Group since the ini­tial trans­fer of Kazakhstani enter­pris­es to man­age­ment, includ­ing the legal­i­ty of their pri­va­ti­za­tion, pro­vide answers to the ques­tions raised above and con­sid­er the pos­si­bil­i­ty of with­draw­ing from the founders of the Group with the trans­fer to the own­er­ship of the Republic of Kazakhstan of all Kazakhstani assets – the local enter­pris­es (ful­ly cleared of debts pri­or to that) in exchange for the state-owned 40% of the shares of the Group.

Elge Qaitaru Foundation to:

President of the Republic of Kazakhstan Tokayev K‑Zh.K.

Prime Minister of the Republic of Kazakhstan, Mr. Smailov A.A.

Chairman of the National Security Committee of the Republic of Kazakhstan, Mr. Sagimbaev E.A.

Prosecutor General of the Republic of Kazakhstan, Mr. Asylov B.N.

Chairman of the Anti-Corruption Agency of the Republic of Kazakhstan, Mr. Bektenov O.A.

Chairman of the Agency of the Republic of Kazakhstan for Financial Monitoring, Mr. Elimanov Zh.K.

The Public Foundation Elge Qaitaru address­es you on issues relat­ed to the activ­i­ties of the Eurasian Resource Group (ERG).