By Philip P. Pan
Washington Post Foreign Service
Thursday, February 25, 2010; A12
TAIKONUR, KAZAKHSTAN -- The dry steppe stretches to the horizon in all directions from this remote outpost in southern Kazakhstan. But peeking out of the sandy soil, amid the sagebrush and desert shrub, are thousands of wells arranged in geometric patterns, each extracting radioactive treasure.
These desolate fields sit above one of the world's largest deposits of uranium, and with nuclear energy in a renaissance, a rough-and-tumble battle is underway for access to them.
The race echoes the geopolitical jockeying to control Central Asia's rich reserves of oil and natural gas -- a variation on Rudyard Kipling's Great Game, complete with corporate intrigue, a disgraced spy chief and an alleged plot by the Kremlin to keep this former Soviet republic under its thumb.
Leading energy and mining firms from Russia, China, Japan, France and Canada have already invested billions here. Kazakhstan, meanwhile, is seeking to leverage its ore into a larger role in the global nuclear industry and has taken a stake in the U.S.-based nuclear giant Westinghouse.
Long obscured by the country's opaque political system, the maneuvering for uranium burst into the open last year with the arrest of Mukhtar Dzhakishev, the highflying chief executive of the state nuclear firm Kazatomprom. The KNB, local successor to the KGB, accused him of transferring the rights to 60 percent of the nation's uranium deposits -- worth billions of dollars -- to offshore companies under his control.
He also dropped a bombshell: Russia, he alleged, had engineered his arrest to scuttle a series of pending deals and prevent Kazakhstan from becoming a more independent and formidable competitor.
"I've had plenty of time to think over the situation, and I've been trying to figure out who benefits from it," he said, addressing an unseen interrogator. "I came to the conclusion that it plays into the hands of the Russians."
Russian officials dismissed the allegation as nonsense. But Dzhakishev's words carry weight because he was one of Kazakhstan's most respected and dynamic businessmen, part of a younger generation recruited into government by the country's autocratic president, Nursultan Nazarbayev, to modernize a flagging post-Soviet economy. For more than a decade, he stood at the center of the Kazakh uranium rush, turning a near-bankrupt state firm paying employees with food rations into the world's top uranium producer, with annual profit of more than $300 million.
His success positioned Kazakhstan to take advantage of surging international interest in atomic energy as an alternative to fossil fuels linked to global warming. With 53 nuclear plants under construction worldwide and nearly 500 others planned or proposed to be operating by 2030, demand for uranium to fuel reactors has soared. Available stockpiles from dismantled weapons are dwindling, analysts say, and nobody can ramp up production as quickly as Kazakhstan.
Nazarbayev calls uranium a strategic asset as important to Kazakhstan as its $35 billion oil industry. Only the nation's fledgling environmental movement has dared object, pointing out that Kazakhstan has yet to recover from its days as the Soviet Union's main atomic test site.
The Soviets conducted 456 nuclear blasts in northeastern Kazakhstan, more than anyone else anywhere in the world. Much of the region remains contaminated, residents suffer elevated rates of cancer and other radiation-related illnesses, and babies continue to be born with deformities.
"Nothing good can come of the world's push for nuclear energy, and we should understand this better because of our past," said Mels Eleusizov, a veteran environmentalist who complains that the uranium industry is shrouded in secrecy, with no independent monitoring.
Kazatomprom and its foreign partners mine uranium primarily by injecting sulfuric acid into the ground, where it reacts with the ore. The solution is then pumped into a plant that distills it into a powder known as yellowcake. The process is cheaper than traditional pit mining, and officials say it is safer and cleaner.
Before his arrest, Dzhakishev struck a series of deals giving foreign firms access to uranium mines in exchange for help moving Kazakhstan into higher-end segments of the nuclear fuel cycle. Each made Kazakhstan less dependent on Russia, its traditional partner in the industry.
The Canadian mining giant Cameco agreed to establish a joint plant to prepare yellowcake for enrichment, the process that makes uranium capable of sustaining a nuclear chain reaction. A French and Japanese conglomerate signed on to help build the facilities that turn enriched uranium into fuel rods. Kazatomprom also landed agreements to become China's main supplier of nuclear fuel, and its Westinghouse stake gave it a piece of the reactor-construction business.
"The inducement for all of us to cooperate is access to the uranium resources and building that relationship with Kazatomprom," said Jerry Grandey, Cameco's president and chief executive.
Kazakhstan continued to rely on Russia for uranium enrichment, the most sensitive fuel stage because of proliferation risks, and the two nations began work on a joint enrichment facility in Siberia. They also opened talks to create a market goliath uniting Kazakh uranium and access to markets with Russian technology and facilities. The talks stalled, though, apparently over whether Kazakhstan would be an equal partner or a junior one.
In the leaked video, Dzhakishev said Russia began to pursue deals to edge Kazakhstan out of the Japanese market and guarantee a uranium supply through a Canadian producer, Uranium One. But he said he outmaneuvered Russia by persuading Japanese partners to take a blocking position in Uranium One and insist on a Kazakh role in the Japanese market.
In a sign of Moscow's frustration, Russian officials approached one of Dzhakishev's vice presidents and offered to help him oust his boss, according to a former Kazatomprom executive, who spoke on the condition of anonymity for fear of reprisals. But the vice president rejected the plan.
When the KNB began investigating Kazatomprom, Dzhakishev blamed officials who he said were upset at him for refusing to give them contracts or mining rights, friends said. Among those he had rebuffed was the powerful KNB chief himself, Amangeldy Shabdarbayev, according to Dzhakishev's brother, Yermek.
As the probe dragged on, Dzhakishev worried he had fallen out with Nazarbayev. Dzhakishev's wife, Zhamilya, said he declared his loyalty to the president in a May meeting and distanced himself from two old friends and Nazarbayev foes -- the president's exiled son-in-law, Rakhat Aliyev, and the tycoon Mukhtar Ablyazov, who had fled the country and accused Nazarbayev of stealing his business, Kazakhstan's largest bank.
Nazarbayev assured Dzhakishev that "everything would be fine," Zhamilya said. But two weeks later, on May 21, the KNB detained him and seven of his top executives. In a documentary on national television, the agency cast him as mastermind of a scheme to sell the nation's uranium to foreigners for personal profit.
The arrest unnerved Kazatomprom's partners and prompted a rare protest from the country's leading businessmen, who issued a letter defending Dzhakishev as a smart, honest entrepreneur. He had friends inside government, too; newspapers soon obtained documents showing that senior officials had approved his deals.
The KNB video was the most astonishing leak. Dzhakishev came across as worried about losing business in Japan and China more than losing his freedom, warning that Kazakhstan would be Russia's "raw materials appendage."
In a sensational news conference last month, Dzhakishev's wife asserted that the KNB chief personally passed her a copy of the video before it appeared on the Web and urged her to show it to the president. Shabdarbayev denied the claim but was removed from his job five days later.
Many of Dzhakishev's defenders said Russian agents manipulated Nazarbayev into approving his arrest. Others say he fell victim to a fight within the elite over uranium riches, and Russia just happened to benefit. He is languishing in a secret KNB prison, where his health has deteriorated sharply, his attorneys said.
Nazarbayev, meanwhile, has appointed a veteran bureaucrat to replace him; the official's son-in-law is chief of Russia's state uranium supplier.
Kazakh regulators recently approved the Uranium One deal that Dzhakishev opposed. "Everything that Mukhtar worked out, we can forget about now," said Galym Nazarov, Kazatomprom's former treasurer. "Gradually, Russia is replacing us in the market."
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