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).