Oil Boom Kazakstan Oil Boom*
[Reviewed]

July 25, 2001

A Once-Decrepit River Outpost

Gets a Western-Style Overhaul

By STEVE LEVINE

Staff Reporter of THE WALL STREET JOURNAL

ATYRAU, Kazakstan -- Wielding a retractable pointer, Samarbek Bukebayev, chief architect of the oil industry's latest city of dreams, stands in front of a scale model of his vision.

Downtown, bulldozers will raze 1,777 decrepit buildings, preserving just 23 of them "as historical monuments," says the 48-year-old Mr. Bukebayev, waving the pointer across his grand design. Those structures will be replaced by a new 25-acre complex of 16-story office and apartment buildings, a 1,000-room luxury hotel, a supermarket and a bigger city hall.

"We've already done more here in 18 months than anyone else in the previous 80 years," adds Mr. Bukebayev, who works for the Kazak government. For him, the project is an architect's fantasy: "to be able to see a whole city go up, from start to finish." Houston may need to move over and make room for Atyrau. Thanks to some of the richest oil finds in decades, this grimy sturgeon-fishing stronghold just upstream from the Caspian Sea is the world's newest oil boomtown. Already, oil giants such as Chevron Corp. of the U.S. and ENI SpA of Italy have put down roots here and begun to transform the place.

Two years ago, foreign and local companies financed a much-needed municipal facelift. Workers filled about 60 rail cars with garbage, hauling away years' worth of household refuse and rusted hulks of cars and boats that lined the city's streets and riverbanks. Others paved roads, painted miles of apartment blocks in pastels and browns and built new parks. Before long, developers were building dozens of large homes, along with modern multistory office buildings, in the city's first private-construction boom ever.

Even so, the streets of Atyrau turn into rivers of mud in a good rain. Dust fills the air in the stifling summer heat. Busts of Lenin and Stalin still stand in one park. And the city remains among the poorest places in Kazakstan, where an estimated half the population of 14.9 million lives on $30 or less a month.

For years, Atyrau, a Ural River port city of 160,000, was a minor oil center known as Guryev, after Mikhail Guryev, the Russian trader who founded it in 1645. In 1993, Chevron put the city on the global petroleum map by acquiring a 50% interest in the nearby Tengiz oil field. Then came an even more momentous oil discovery, an offshore field called Kashagan.

Situated southwest of the city, a few miles off the Caspian coast, Kashagan appears to contain a continuous expanse of oil at least 25 miles long. That's an immense deposit in a business where a one-mile expanse is considered impressive. If survey results prove correct, Kashagan would be the biggest oil discovery in 30 years, industry officials say.

Atyrau also is the staging point for two major pipelines. Crude oil from the first one is scheduled to be loaded onto a ship at the Black Sea port of Novorossisk, Russia, next month. The second pipeline, still on the drawing board, may run east to Turkey or south to Iran.

What it still lacks in amenities, Atyrau makes up for in promise. "It's the Wild West here -- in a nice way," says Steve Bannister, a 51-year-old manager for medical-services company International SOS who has lived here on and off since 1994. "It's a land of opportunity."

The dreams the new Atyrau has inspired aren't confined to the oil companies. Poaching catfish in his backyard on the Ural, Yevgeny Karamashin fantasizes about the day he sells his home. He even has a price in mind: $35,000.

With that sum, he and the dozen relatives he lives with could afford another place, one with an indoor toilet and one that, unlike many older homes here, isn't sinking into the clayish earth. City officials "promised 10 years ago to move us from here. Now, maybe it will really happen," says the 27-year-old Mr. Karamashin, whose ramshackle home is one of several along a rutted dirt track called Petrovsky Street. "The old people don't want to leave. But the youth, of course, do."

A Suburban Island

Just two years ago, much of Atyrau looked like Petrovsky Street. Now, upriver from Mr. Karamashin, workers have nearly finished two red-brick mansions for government officials. Downriver, a Turkish construction company is putting the final touches on the "American village," a luxury complex for Chevron executives and their families. It consists of 86 four-bedroom townhouses, two swimming pools, tennis courts, a clubhouse and a school -- all enclosed by a tall fence.

Surrounded by concrete-and-brick tenements plagued with water shortages, the $50 million complex promises to be an island of American suburbia. In summer, Chevron families will splash in pools fed by a self-contained water-purification system, within earshot of Atyrau's parched streets.

The developers "sliced off the very best neighborhood of the city. Where there are the very best conditions, they built their homes, and they aren't going to allow anyone in," says Sagat Satkanov, a local construction engineer.

"I think people will always complain," says Maria Karazhigitova, a spokeswoman for the Chevron-led consortium, "but we think [the village] is a good idea. Someone has to start things out. It's always difficult for pioneers. We do a lot for the community."

Wealth Gap

The gap between Petrovsky Street and its rich neighbors underscores the biggest challenge for Kazak leaders as the nation begins cashing in on its oil riches. Since the Soviet collapse, Kazakstan has lavished about $2 billion on a new capital, Astana. And by 2005, the country plans to spend $500 million more to rebuild Atyrau. Western companies also are pouring money into the area. Chevron has spent about $60 million since 1993 on public projects like new hospitals and bridge refurbishment.

Yet relatively little has been spent in the rest of the vast republic, which is just as desperately in need of roads, schools and clinics. That worries some U.S. officials and businesspeople, who fret that the widening disparity could lead to instability. So far, says American business consultant John Mann, "there's not a lot of trickle down."

Many locals are more upbeat. Aigul Solovyova, a chemist, arrived here four years ago from eastern Kazakstan to buy a rundown milk-processing plant for about $140,000. She had a simple idea: "I thought that these oil-company men would have to drink milk." But her customers complained of a not-so-simple problem. The milk smelled and tasted awful.

So, Ms. Solovyova revamped her factory and found better milking cows -- no small feat in a region where camels predominate. She visited dairy farms in Minnesota and Wisconsin, and brought in U.S. consultants. This month, Chevron placed an initial order for about a half ton of her milk products.

"I never had a cow in my life," Ms. Solovyova says, "Can you imagine that now I'm working with milk?"

Write to Steve LeVine at steve.levine@wsj.com

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