The Carpetbaggers

Following the collapse of the Soviet Union in December 1991, the 15 constituent states faced the challenge of transitioning from controlled economy to a free market. This represented untold opportunities not only for the former Soviet republics themselves, but also for the western investors and speculators who were eager to open and exploit new markets.

Inevitably, this modern day gold rush attracted its share of carpetbaggers, keen to take advantage of the unstable social, financial, and political climate. Many of the Soviet republics actually did not fully appreciate the value of the resources they were sitting on: the speculators certainly did, and vast fortunes were to be made, and often lost.

It was in this climate that the Canadian company World Wide Minerals (WWM), based in Toronto, struck a deal with the government of Kazakhstan to manage that country’s main uranium enterprise. Kazakhstan has vast uranium reserves.

As part of this deal, the Canadians promised to invest at least $100 million in the industry as well as undertaking to restore and maintain the entire social infrastructure associated with the industry, including the kindergartens and heating systems of workers’ residences. In addition, WWM promised that Kazakh employees would not only keep their jobs but would also be sent to Canada for training.

However, not only was the infrastructure completely neglected, but the workers themselves endured protracted periods without receiving salaries. The industry, which had been modestly profitable prior to the arrival on the scene of WWM, quickly went into decline with output falling by a massive 60%.

Rather than investment and development, it appeared that the Canadians were really only interested in selling raw materials for a fast profit. Despite controls set in place by the US to prevent their market being swamped with cheap uranium, WWM also wanted Kazakhstan to issue them an export licence for that country, something that was impossible at the time, and which the Canadians would have been well aware of when they entered into the contract.

This was all a huge blow to the Kazakhs, who at that time lacked the financial resources to develop what was a major strategic industry. The agreement had initially seemed most attractive.

The contract with WWM was subsequently terminated, with the state assuming control. WWM’s assets were sold off, and the company went into bankruptcy.

For Kazakhstan, there was a happy ending, as the country quickly adapted to the realities of free market economics and is now the fastest growing and most stable economy in Central Asia. It is also one of the world’s main suppliers of uranium, and is now supplying the US market leader Westinghouse, as well as Russia, Japan, China, Canada, India, and France. Had WWM gone for the long game, they would now be in a very strong position indeed.

Citing an agreement between the governments of Canada and the Soviet Union, concluded in Moscow in 1989, guaranteeing the protection of Canadian investments, WWM are now seeking compensation from Kazakhstan through the courts.

However, after the dissolution of the Soviet Union, Russia assumed the mantle of “legal successor”, taking on all liabilities for contracts and treaties entered into by the USSR. This seemingly generous act was largely a ploy to ensure that Russia would inherit the Soviet Union’s permanent seat on the UN Security Council.

WWM had originally claimed compensation of $1 billion. However, after a ruling by a Canadian tribunal in October 2015 that Kazakhstan was liable in this case under the terms of the 1989 treaty, the amount of the claim was doubled.

This is the only occasion on which Russia’s liability as legal successor has ever been questioned. One might be forgiven for jumping to the conclusion that the Canadian tribunal was not acting with the impartiality that would normally be expected of such an august body.

Over the coming months, the case, which is now becoming something of a travelling circus, will be taken to the International Court of Arbitration in London, where it is expected that Russia’s status as legal successor to the Soviet Union will be confirmed, a judgement that would bring a sense of relief not only to Kazakhstan, but to the other former republics of the USSR.