Just appointed – just resigned

On August 20th 2008, Serik Burkitbayev, who has been appointed as the president of KazMunaiGas less than three months ago, was dismissed from his office without explanations. This position was given to Kairgeldy Kabyldin, who before was deputy chairman of the board of JSC “Kazakhstan holding managing governmental assets “Samruk””. Presenting new chief to the personnel, Prime Minister Karim Masimov assigned him three main tasks: to complete negotiations with international consortium regarding development of “Kashagan” oil field within two months, victoriously complete deal regarding purchase from off-shore owners controlling volume of shares of the “MangistauMunayGas” and prepare the company for new tax system in the sphere of oil exports, guaranteeing stability of internal petroleum market.
Candidacy of Kabyldin as most likely pretender for this position was mentioned by experts already in spring. However, at that time unexpected decision was made, appointing mathematician Serik Burkitbayev to “control oil”.
Today “KazMunaiGas” is not only the largest player in the oil and gas market but Company also brings more than billion dollars profit to the budget annually. KazMunayGas extracts 16% of oil in the country; it owns 60% of overall oil transportation capacity, 100% of arterial gas pipelines and 30% capacity of oil processing. Such subsidiaries as “KazMorTransFlot” and “Teniz – Service” are the only companies in Kazakhstan providing tanker transportation of oil and supporting oil operations in Caspian Sea.   
So, what has happened and most important why it happened?
Let’s start from fact that Serik Burkitbayev is type of record holder regarding shortness of his period as the head of “KazMunaiGas” – could not even go through probation period. This record holds not only for this position but for any other top positions as well, either in governmental bodies or in other national companies. Moreover, Burkitbayev’s last appointment, according to trustworthy sources, happened due to order of top governmental officials without taking into consideration his lack of experience working in sphere of hydrocarbons. 

Reason №1 – did not fit the environment 
It is probably not good when amateur in the oil field is appointed as the boss of KazMunayGas. But with current lack of personnel almost anybody in any field could be appointed as a boss except for professionals. Serik Minavarovich once noticed that age of professionals has passed underlining that today is age of managers.    
However, oil field is not just very important part of economy in the realities of Kazakhstan having a large amount of the work, but it also has many professional nuances, specific tools in choosing personnel and their trainings, and finally certain traditions. Uzakbai Karabalin was well experienced in all these peculiarities. In reality, his position on this post was not determined by his professional skills but rather by support of influential group. Experts have been considering him to be the person close to Timur Kulibayev, but most powerful son-in-law of the President starts to lose President’s trust and thus his group lost most of the power. That is why news regarding dismissal of Karabalin could not be considered as sensation. Real sensation was appointment of Serik Burkitbayev as head of almost all oil operations in the country – person who has even never smelt oil. His professional skills in physics and mathematics probably could not give much of optimism. There have been many versions on why this happened. Most interesting one was that this appointment was lobbied by Kayrat Kelimbetov, good friend of Burkitbayev, who is considered to be in favor of the President.
However, according to insider information, new appointed figure is not supported by so called “old guards” in KMG, which, however, in last years lost many of its figures. In addition, Serik Minavarovich’s behavior on new position, especially regarding personnel management questions was not very elegant 

Reason №2 – Personnel revision
When Serik Burkitbayev was just appointed to this position, one of the most widespread assumptions was that his main task was to get things put in the order in the company, which fell into hiring through connections, relative relationships and fights between oil clans. 
Unfortunately, in modern Kazakhstan any boss starts his activities from appointing his people in the office he has been trusted, getting rid of somebody else’s people. It is understood that highly experienced apparatchik, which Burkitbayev is considered to be, would not start radical changes in the personnel without strong support from people above. However, he has been mistaken. For example, such story happened with general director of JSC “KazTransGas” Yesenali Uskenov. Only after ten days of Burkitbayev’s appointment he initiated changes in one of the most important figure in “KazMunayGas” structures. It has to be mentioned that it was good time for that because chief of “Samruk” Kanat Bozumbayev was on vacation. However, reaction time did not take too long, just after few days Uskenov returned to his office. Basing for that was not difficult to find, according to juridical check-up of the Holding it was decided that his dismissal violated such law as “About Joint Stock Companies”. Now it is being asked what is the need of president for national companies and board of directors if they are taken away their most influencing management tools on their subsidiaries?  

Reason №3 – Redistribution of the ownership
In the future this situation will go even further. In July “KazMunayGas” agreed to purchase 51% shares of “MangistauMunayGas” (MMG). Negotiations have been going for quite long. Information regarding price of the MMG shares, head of which was appointed Karabalin, ex-president of “KazMunayGas” was not open for public, which is of course not surprising. Analytics consider this deal to be not less than 3.5 billion dollars. It has to be underlined that before, Prime Minister Karim Masimov was saying about possibility to purchase 70% shares of MMG. Fate of the other shares, which attract interest of Russian “GasPromNeft” and “Lukoil”, is still unknown. Another thing that attracts our attention – according to official announcements “MangistauMunayGas”, which is one of ten largest oil companies in Kazakhstan and which owns 36 oil and gas fields, belongs to Indonesian company named Central Asia Petroleum Ltd. Moreover, it is also interesting to note that Rakhat Aliyev was several times mentioned as beneficiary of MMG.
At the times of making economical decisions prevalence of political reasons over economical, as strange it might be, is long time well known secret to everybody. In accordance, it could be considered that while purchasing controlling share of MMG main goal was to cut off disgraced son-in-law’s not only his financial-banking but also oil assets. It is understood that any body movements regarding redistribution of the property are very painful and this is put in mildly, moreover this is true if we are discussing it in the frame of large oil company with vertically integrated structure. Only an arrest of Sagyn Krymkulov, ex-general director of MMG charging him of fraud, explains us quite a lot. 

Reason №4 - Oil = Money = Power
In 2008-2010 years “Samruk” is planning to sell about 100 non-profile companies in which KMG has controlling portfolio of shares. It is well understood that privileges of such assets’ sale is real vein of gold, and there is real fight for this right. Interesting moment – in March, Zhaksybek Kulekeyev, president of another national company “Kazakhstan Railways”, which also holds many non-profile companies, was arrested in very suspicious conditions and was interchanged by Askar Mamin, ex-governor of Astana.
So, within the summer all events in the company it could be said happened in the frame of fight between Burkitbayev and Bozumbayev. First round with high privileges was won by head of “Samruk” who showed who is the boss in the house. But Serik Minavarovich was not satisfied with his position of “nominal general” hoping for high ranking supporters in Akorda. This all brought to such event as when Burkitbayev blocked official cars of Timur Kulibayev on one out of two car parking zones in headquarters of “KazMunayGas” in capital of the country. 
While hot confrontation with his direct chief in the face of “Samruk’s” president Burkitbayev did not notice that overall situation has changed and not for his side. After investors’ Council, which at those days took plays in Atyrau, observers were telling about “rehabilitation” of Kulibayev, who at that moment mainly was in the shadow. Reason – critics of the country’s President regarding non-satisfactory situation in “KazMunayGas”. Internal sources have been reporting that last years in the company there is chaos in the personnel management, almost all representatives of “old guards” have been fired and it must be noticed that they are experienced oil specialists with many years of work; they are professionals from Soviet school.
It is understood that by cavalry attack made by Burkitbayev it is not possible to get necessary effectiveness in the company which for today is unachievable. It is necessary to have balance, professionalism, and most important – strong hand. Few observers are explaining this as a main reason for Kabyldin’s appointment, who is considered as a person of non-official king in the Kazakhstan oil Timur Kulibayev.     

Reason №5 – Echo of war in Caucasus 
To tell the truth there is also another point of view that has right for existence. It is considered that interchange of Burkitbayev by Kabyldin, the person with good experience in “KazTransOil” in the first case is an echo of events in Northern Caucasus. Conflict between Georgia and South Osetia, which turned out into war showed that alternative direction for transporting Kazakh oil through “Baku-Tbilisi-Jeyhan” pipeline is under question. Recent explosion on the Turkish part of the pipeline, which supposedly was done by Kurdish separatists, now it seems to be not serious. Of course, we must consider that “Samruk” and “KazMunayGas” invested about 1 billions dollars in Georgian economy; however with current situation further investments are quite risky. If overall situation in the Caucasus will get only worse then it will strongly hit and change plans for extracting oil in Kashagan and Tengiz, because largest share of it was supposed to be transported through BTJ oil pipeline.
With such background, key question regarding sale of non-profile actives moved into second place. Most likely Kairgeldy Kabyldin is facing another more challenging problem requiring immediate solution – such as development of alternative routes for Kazakhstan oil export. He has great experience in such problems – he took part in almost all “oil negotiations” of Kazakhstan and he has good relations with many officials and decision makers in Russia, Azerbaijan, Georgia, Turkey, USA and Europe. 
Whatever the case might be, as the president of leading domestic oil industry there must be professional, person knowing his business. And it is not that important who is standing behind him. Most important are his skills and ability overcome different problems which “KazMunayGas” is facing with maximum help to the company; and finally he must be capable to restore corporate spirit.
“KazMunayGas” – is like a mirror of the society, which reflects all of its scabs: grouping, fight for influence, cynicism, and thirst for profit. They divide company on pieces destroying internal structure which is reflected on the effectiveness of giant structure. Now, we can only hope that Kairgeldy Kabyldin could clean up “Augean stables” and provide stable, smooth development of the company.