Deal with ArcelorMittal let Kazakhstan save money and reputation in front of investors – Minister Sharlapaev
The agreement signed with ArcelotMittal that it does not make any further claims against Kazakhstan let the country save both money and face in front of investors, Minister of Industry and Construction Kanat Sharlapaev said in an exclusive interview with Jibek Joly TV Channel.
Mr. Sharlapaev, on what terms the ownership of ArcelorMittal Temirtau was transferred to the government? Has all the money been paid out to former owner?
The amount of transaction totals $286 million for the assets. All transactions under the deal have been settled – be it money payments or transfer of all AMT shares to the ownership of the Kazakhstani state-controlled investment fund.
[ArcelorMittal’s] initial request was a staggering $3.5 billion. Kazakhstan managed to bring it down to $286 million. How did that happen? How did it become possible?
This has to do with the work that has been done during the negotiation process. We have conducted a financial assessment and technical audit of the enterprise. On top of that, we have conducted a detailed research of the market where ArcelorMittal Temirtau is operating. Following negotiations that spanned 11 months we have agreed the price. In this case, it has to do with two things – an in-depth analysis in the run-up to the negotiation process and the negotiation process itself.
What pivotal role does the enterprise play for Kazakhstan’s economy? You have also mentioned that it is the largest enterprise in Central Asia.
First and foremost, it is a backbone enterprise in Temirtau inhabited by 180 thousand people. The enterprise numbers some 32 thousand employees. It is an important employer in the Karaganda region. Any enterprise that boasts such number of workers, also provides work to people who supply equipment and perform other maintenance services. It can safely be said that one workplace creates three workplaces. Hence, life of some 100 thousand people depends on the ability of the enterprise to function. This is a huge enterprise in terms of social impact on the region, especially given the number of employees. What is equally important is that it is a 100% integrated steelmaking asset, producing 3.2 million tons of metal per year. It is second to none in Central Asia.
At the press briefing you have mentioned that Kazakhstan managed to reach an agreement that ArcelorMittal does not make any further legal claims against the country. How did you manage to achieve that? I know for a fact that France and Italy, for instance, failed to reach such agreements and they had to throw in the towel.
This is fairly simple. If the country somehow violates the rights of an investor and takes something without the permission, the investor has the right to make a legal claim and start prolonged legal disputes. ArcelorMittal has a reputation for not being afraid of speaking the language of costly lawsuits against governments, so to say. In this case, it was of paramount importance for us to make sure there will be no further legal claims when ArcelorMittal Temirtau ownership is transferred to the Republic of Kazakhstan. There is a myriad of international cases when investors relied on the international system and filed lawsuits not only against Kazakhstan, but also against other countries. The deal let Kazakhstan avoid prolonged international legal disputes and save money, first of all. Legal disputes at international courts do not come cheap. Secondly, it let Kazakhstan protect its reputation of an investment attractive country. Meaning there will be no legal disputes between ArcelorMittal and us. I would like to credit not only the work of the ministry of industry and construction. The colleagues from the ministry of justice and the prosecutor general’s office were heavily involved in the process as well. It is through concerted efforts that we got the ArcelorMittal’s guarantee there will be no further lawsuits.
Why did they resort to such a move?
It has to do with the nature of the negotiation process. They persisted in their stand, we persisted in ours. But eventually we have reached the deal.
ArcelorMittal Temirtau made a decision to make a contribution of 16 billion tenge to the Kazakhstan Khalkyna Foundation. This is a hefty sum of money. Why, in your opinion, did they do it?
Let me correct you on that. First of all, it wasn’t ArcelorMittal Temirtau, it wasn’t the Kazakhstan-based enterprise [that made a contribution]. The contribution was made by ArcelorMittal. It amounted to 16 billion tenge, you are absolutely right. This is the third largest contribution made in Kazakhstan Khalkyna Foundation’s history. I believe several factors came into play. We deemed it fair that the outgoing investor makes somewhat a farewell gift to boost the development of Temirtau. 50 per cent of the sum will be invested in the broader Karaganda region and 50 per cent in Temirtau. The agreed sum of the contribution was part of the negotiating position. We insisted the investor not only transferred the ownership of the assets, but also acted as a socially responsible investor and channeled funds into the region’s development.
