FACTBOX-Key political risks to watch in Kazakhstan

ALMATY Wed Jan 5, 2011 4:56am EST

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ALMATY Jan 5 (Reuters) - Kazakhstan, fresh from holding the rotating chair of Europe's top democracy body, the OSCE, is set to extend its veteran leader Nursultan Nazarbayev's rule until 2020 through a referendum, bypassing an election due in 2012.

Nazarbayev, 70, who has led Kazakhstan for more than 20 years since before its independence from the Soviet Union, has yet to give his final word after the docile legislature appealed to him on Dec. 29 to hold a plebiscite and prolong his rule.

If it takes place, the referendum will further consolidate Nazarbayev's authoritarian grip on his resource-rich Central Asian country -- while tarnishing its international image.

The United States has criticised the referendum plan and urged Kazakhstan to hold presidential elections. [ID:nLDE7030VS]

Nazarbayev, a former steelworker, paid little heed to criticism by human rights bodies of Kazakhstan's backtracking on democracy during the year of its chairmanship of the Organisation for Security and Cooperation in Europe.

The absence of a clear succession plan for Nazarbayev remains the single biggest threat to political stability in the vast steppe republic of 16 million people. A tougher stance on foreign companies has also fuelled investor concerns.

Kazakhstan is the world's largest uranium miner and home to the biggest oil discovery in more than 40 years. It has attracted more than $150 billion in foreign investment since gaining independence in the breakup of the Soviet Union in 1991.

Below is a list of key political risks in Kazakhstan:

SUCCESSION

Rumours of Nazarbayev's possible departure surfaced after he was declared "Leader of the Nation" by parliament on June 15. This status grants the president immunity from prosecution and the right to shape policy even after his retirement.

Analysts have said Nazarbayev might use the law to groom a pliant successor and step into the background. By easily extending his term through a referendum, the president would buy time to settle on a hand-picked successor.

His top adviser Yermukhamet Yertysbayev has said Nazarbayev could actually extend his stay in power through a referendum until 2022, skipping two consecutive elections for five-year terms -- in 2012 and 2017.

Nazarbayev has three daughters but no sons who might make obvious succession candidates in the mainly Muslim country.

According to the constitution, if Nazarbayev died, the speaker of the Senate, the upper chamber of parliament, would assume his powers for the rest of the term.

Second in line is the speaker of the lower house, the Mazhilis, followed by the prime minister.

What to watch:

-- Nazarbayev's health. He is firmly in control and appears regularly in public around the country. Any prolonged absence, or less frequent appearances, might signal something is wrong.

-- The emergence of a possible successor. Nazarbayev is unlikely to name a successor early but increased responsibility for members of his inner circle might reveal his favourites.

Analysts say possible successors include:

* Kasym-Zhomart Tokayev, speaker of the Senate

* Imangali Tasmagambetov, mayor of the capital Astana

* Timur Kulibayev, Nazarbayev's son-in-law and chairman of the state energy firm KazMunaiGaz (KMGq.L) and the national rail monopoly

ELITE INFIGHTING

If Nazarbayev wins clear support for another decade in power through a plebiscite, this is likely to dampen infighting among possible successors, although several groups led by Nazarbayev's allies will continue to compete for influence.

Some of the president's closest associates are in their 70s, and younger associates may find a place in the president's inner circle.

Some members of this elite have fallen out with Nazarbayev and left Kazakhstan, which has led to reshuffles in the government and changes in asset ownership.

Nazarbayev's former son-in-law, Rakhat Aliyev, fled Kazakhstan in 2007 and accused the president of usurping power. His departure led to a purge of security services and a government takeover of several media outlets. What to watch:

-- High-profile corruption cases, which have become a common tool of the domestic political struggle. Any high-profile criminal cases or accusations could shed light on who in Nazarbayev's inner circle might be falling out of favour.

RESOURCE NATIONALISM

The government has taken steps in the last few years to expand its role in the energy sector, buying stakes in some of the largest domestic projects run by foreign majors.

The government has said it will revise production sharing agreements with foreign energy majors that were signed in the chaotic post-Soviet years, when the country was short of cash and more inclined to make concessions to lure foreign investors.

Government acquisitions have often followed campaigns in which officials accused companies of environmental violations or tax evasion or breaking contract terms.

Foreign shareholders in the Karachaganak venture, a lucrative gas field still in the early stages of development, are preparing to cut their stakes to allow the state to acquire a 10 percent share, sources have told Reuters.

The project owners, including Italy's Eni SpA (ENI.MI) and Britain's Bg Group (BG.L), had been accused of tax evasion.

One such episode -- a tax case against the Chevron-led (CVX.N) Tengizchevroil project -- was dropped in August.

But a government official said on Nov. 19 that Agip, a unit of Eni, of a $110 million was suspected of fraud in connection with the Kashagan oil project. A criminal investigation is under way. Eni has declined to comment.

Investors and diplomats have in private expressed concern over such tactics, saying they could scare off investment at a time when the economy needs fresh capital to start new projects.

The government also plans to double an export tax on crude oil to $40 per tonne from Jan. 1, less than six months after reimposing a tax scrapped during the global financial crisis.

What to watch:

-- How the Karachaganak episode unfolds, as well as the fate of the Kashagan oil field. Kashagan, yet to start production, is the biggest oil find in the world since the 1960s and is managed by a group of foreign investors including Eni, Total (TOTF.PA), Shell (RDSa.L), ConocoPhillips (COP.N), ExxonMobil (XOM.N) and Inpex (1605.T).

-- Legislative changes. Further moves to raise the export duty on oil are possible, and moves to toughen regulation in sectors such as mining could signal increasing government interest in industries beyond the oil and gas sector.

UNREST NEXT DOOR

Unrest in a neighbouring country, such as Uzbekistan or Kyrgyzstan, could provoke tensions in adjacent southern regions of Kazakhstan.

What to watch:

-- The situation in Kyrgyzstan, where a new government now leads the first parliamentary democracy in Central Asia. (Editing by Kevin Liffey)

For political risks to watch in other countries, please double click on [ID:nEMEARISK] (Editing by Kevin Liffey)

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