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Reference ID Created Released Classification Origin
06ASTANA90 2006-10-16 08:56 2011-08-30 01:44 CONFIDENTIAL//NOFORN Embassy Astana

DE RUEHTA #0090/01 2890856
P 160856Z OCT 06

C O N F I D E N T I A L SECTION 01 OF 02 ASTANA 000090 
E.O. 12958: DECL: 10/12/2015 
     B. 05 ALMATY 3857 
     C. ALMATY 2301 
Classified By: Charge d'Affaires Kevin Milas; Reasons 1.5(b) and (d). 
1. (C) Summary:  The Canada-based "NationsEnergy" oil 
company, whose Kazakhstani subsidiary, "Karazhambasmunai JV" 
(KBM), owns a 50,000 barrel per day oil field, recently won 
an appeal in Kazakhstani court against an individual claiming 
nearly 50% of KBM by virtue of a dispute with former 
NationsEnergy shareholders.  Nations Energy Vice President 
Patrick O'Mara recently told Econoff that he believes the 
claimant, Zoran Savicic, is cooperating with well-placed 
Kazakhstanis in a plot to either win 50% of KBM in court, or, 
failing that, to drive down NationsEnergy's price before an 
acquisition bid.  With a rumored asking price of $2 billion, 
NationsEnergy is entertaining numerous potential buyers, both 
Kazakhstani and international.  End Summary. 
Anatomy of the Legal Assault 
2.  (C) NationsEnergy won an August 19 decision in Mangistau 
Oblast Appeals Court which reversed an April ruling, by a 
Specialized Economic Court, granting Zoran Savicic, a Serbian 
citizen, 17.9% of KBM.  Savicic's claim arose out of a 1994 
agreement with individuals who later became NationsEnergy 
shareholders.  Savicic's claim appears to have survived to 
date against long odds.  Court documents suggest that, not 
only does Savicic appear not to have fulfilled his side of 
the 1994 agreement, but he also managed to void a 1998 
settlement agreement by arguing that he had been coerced into 
signing.  In 2006, Savicic managed to secure a default 
judgment against the defendants in Nevada court, allegedly by 
providing process servers with an incorrect address for the 
principal defendant.  Rather than seek collection of the 
judgment in U.S. courts, however, Savicic chose to transfer 
the case to Kazakhstan (convincing a Kazakhstani judge to 
accept jurisdiction by switching his target from the 
Nevada-registered NationsEnergy to KBM) -- where, 
NationsEnergy lawyers maintain, he helped secure the 
favorable April verdict by misrepresenting the significance 
of the Nevada court's judgment, even after being enjoined 
from doing so.  Savicic's legal victories, however, came to a 
halt in August in the Mangistau Court of Appeals. 
Accusations of Kazakhstani Insider Involvement 
--------------------------------------------- - 
3. (C) On September 16, O'Mara told Econoff that he is 
convinced that a group of well-placed Kazakhstani insiders, 
including Timur Kulibayev (the president's son-in-law), Askar 
Balzhanov (General Director of "KazMunaiGaz (KMG) Exploration 
and Production", Zhakyp Marabayev (Managing Director of KMG), 
and Adilbek Dzhaksybekov (Head of the Presidential 
Administration), were behind Savicic's assault on KBM in 
Kazakhstani courts.  O'Mara suspects that the idea to 
transfer the case to Kazakhstani courts took form in 2004, 
when rumors began to break that NationsEnergy was available 
for sale (ref A).  O'Mara surmises that the aim of the plot 
was first and foremost to win 50% of KBM with the help of 
corrupt judges and, failing that, to drive down 
NationsEnergy's asking price for a potential acquisition bid. 
CNPC Refuses to Cooperate with Plot 
4. (C) O'Mara told Econoff that, in November 2005, in the 
midst of NationsEnergy's negotiations to sell the company to 
the Chinese National Petroleum Company (CNPC), CNPC officials 
forwarded him text messages from Marabayev and Balzhanov 
aimed at convincing the Chinese to hold-off buying 
NationsEnergy (for a reported $2 billion), in order to give 
Kulibayev's group time to "knock $700-$800" off the price 
"with fines and legal actions."  The Kazakhstanis would then 
buy NationsEnergy and re-sell at least part of the company to 
the Chinese.  O'Mara also claimed that Kulibayev has a 
history of dealing with Savicic (whom, he says, was a subject 
of interest in the Serbian War Crimes Tribunals), having 
partnered with the Serbian to profit from illegal sales of 
oil under embargo of Saddam Hussein's regime. 
Ace in the Hole: Threatening to Go Public 
ASTANA 00000090  002 OF 002 
5. (C) O'Mara credits NationsEnergy's success in the appeals 
court both to the overwhelming weight of legal evidence in 
the company's favor and to his own efforts to tacitly warn 
the Kazakhstani insiders that he was aware of their actions 
and would denounce them publicly if faced with losing a large 
share of the company.  (The case has thus far not entered the 
Kazakhstani media.  The threat of publicity, O'Mara believes, 
is what will keep Savicic from appealing the August court 
decision, though he has a year in which to do so.)  O'Mara 
told Econoff that he had communicated most of his suspicions 
and warnings to
 Deputy Prime Minister Masimov -- who, O'Mara 
recounted, eventually confirmed O'Mara's claims of insider 
involvement (without naming names), and then professed to 
have put an end to the plot.  Smiling, O'Mara told Econoff 
that, in what he termed "Kulibayev's revenge," the financial 
police had raided NationsEnergy's offices on September 11, 
and the Subsoil User's Inspection Office had come calling two 
days later. 
Suitors Still Flocking to Buy NationsEnergy 
6. (C) Meanwhile, O'Mara said, potential buyers continued to 
court NationsEnergy.  Since November, he said, several groups 
had shown up unannounced at NationsEnergy's Almaty offices, 
some to bluff, others to threaten, and a few to make 
legitimate offers.  While the Chinese continued to make the 
best offer, O'Mara said, he had the increasing feeling that 
the GOK would prefer a different buyer.  Masimov, he said, 
was trying to set up a sale to Vladimir Kim of Kazakhmys (a 
London-based copper mining company) -- but so far the offer 
was too low.  BankTuranAlem had made the best offer among 
Kazakhstani buyers, O'Mara noted, while Occidental Petroleum 
(a U.S.company) appeared to be putting together an attractive 
offer in conjunction with a Dubai sheikh.  Asked about news 
reports of an offer by India's ONGC-Mittal Energy 
Corporation, O'Mara waved it off, telling Econoff that, while 
Kulibayev was pushing a deal with the Mittal group, ONGC "had 
not given the slightest indication that they knew how to do 
7. (C) Comment: O'Mara's thesis -- that predatory buyers are 
using Kazakhstan's legal system to drive down the purchase 
price of an attractive oil and gas asset -- is a familiar 
one. (See Ref B on PetroKazakhstan, and Ref C on Parker 
Drilling, for recent cases which share this element in common 
with the NationsEnergy case.)  Although NationsEnergy has 
managed so far to keep its legal problems out of the press, 
it will be interesting to see if the company can succeed in 
finalizing its sale prior to the expiration of Savicic's 
year-long appeal period.  While we cannot vouch for the 
veracity of O'Mara's accusations -- and suspect that he would 
be hard-pressed to offer any proof of his allegations -- we 
view him as a generally credible individual. End Comment. 


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