What the financing scheme conceals, which has been questioned by other foreign partners
On March 15, 2023, the Ambassador of the Republic of Kazakhstan to Spain, Danat MUSAEV, announced on his Twitter that he had a meeting with the President of the Spanish chemical company MAXAM, Johe Manuel VARGAS, and discussed further expanding of investment in Kazakhstan.
On April 5, 2023, KAZAKH INVEST NC JSC posted a press release on its website about that business meeting in Astana with the Executive Director of the Spanish chemical company MAXAM Juan Carlos GARCIA: "The Chairman of the Investment Committee of the Ministry of Foreign Affairs of the Republic of Kazakhstan Ardak ZEBESHEV and and the Chairman of the Board of "NC "KAZAKH INVEST" JSC Meirzhan YUSUPOV held a meeting with the Chief Operating Officer of the Spanish chemical company MAXAM Juan Carlos Garcia. During the negotiations, the parties discussed the implementation of an investment project for the production of special components for mining operations in the country”.
The company has been present in the Kazakh market since 2002, and its main clients are mining companies such as Kazakhmys, ArcelorMittal, Kazcink, as well as Bogatyr Access Komir and CentralAsiaCement.
MAXAM's Chief Operating Officer Juan Carlos Garcia explained that due to the geopolitical situation in the region, the company has been experiencing difficulties in transporting its products and accessing raw materials. Therefore, the company is considering the possibility of relocating its production facilities from Russia to Kazakhstan. He stated that the amount of investment could be more than $15 million.
The Chairman of the Investment Committee of the Ministry of Foreign Affairs of the Republic of Kazakhstan, Ardak Zebeshev, talked about the advantages of investing in Kazakhstan, the favorable business climate of the country, and the measures of state support for the implementation of investment projects.
In turn, the Chairman of the Board of Kazakh Invest, Meirzhan Yussupov, talked about the activities of the national company and invited the Spanish company to expand investment cooperation.
The visit of the Spanish company was organized by Kazakh Invest and the Embassy of the Republic of Kazakhstan in the Kingdom of Spain".
Pay attention to how the accents have been put on the merits of the meeting organizers - JSC "NC "KAZAKH INVEST" and the Embassy of the Republic of Kazakhstan in the Kingdom of Spain. Also, we have popular messages about the challenging geopolitical situation and the $15 million investment. At the National Bank's rate, this amounts to approximately 6.75 billion tenge.
Almost immediately, the news was taken up by Kazakh publications like Forbes and Kursiv, citing the full press release.
So, the news entered the media space on a high level and fell into the right information field needed for successful promotion in the offices of the capital.
The Spanish chemical company MAXAM in Kazakhstan holds a majority shareholding in MAXAM Kazakhstan LLP, LLP has been operating in the Karaganda region for more than 15 years.
The founders of MAXAM Kazakhstan LLP are two foreign companies - MAXAMCORP INTERNATIONAL, S.L., which owns a 90% share, and PORTOLA CYPRUS LIMITED, which has a 10% share of the LPP.
According to adata.kz, since 2015 the corporation has paid over 16.5 billion tenge in taxes. Moreover, in 2023 there was a significant increase in deductions to 4.7 billion tenge, although, over the previous three years, this amount was between 2 and 2.6 billion tenge. In other words, there was a rise in production and profits.
It is hardly possible, given such indicators, not to believe that the founders decided to increase production in Kazakhstan and to add new investments. It is known from open sources that MAXAMCORP INTERNATIONAL, S.L. intends to shut down production in Russia. We do not need to explain to anyone why - the risk of falling under sanctions due to Russia's war in Ukraine. In the context of growing tensions in Asia, we can suppose that soon MAXAMCORP INTERNATIONAL, S.L. in China can be closed. Is it not in Kazakhstan that they want to place production lines from closed divisions?
The company also has shares in two enterprises in the chemical industry in Uzbekistan. In 2007, 49% of the Chirchik nitrogen fertilizer plant was transferred to MAXAMCORP INTERNATIONAL, S.L., shortly after they created MaxamChirchiq JSC and Ammophos-Maxam JSC, owned by the state companies Uzkimyosanoat JSC and MAXAMCORP INTERNATIONAL, S.L. At the beginning of 2023, the Spanish company applied to international arbitration in London to resolve a dispute with Uzbekistan, which allegedly arose due to a constant breach of the contract.
The issue is that, while the heads of MAXAMCORP INTERNATIONAL, S.L. informed Kazakh officials that they plan to invest $15 million in the development of production, another member of MAKSAM Kazakhstan LLP - PORTOLA CYPRUS LIMITED - filed a lawsuit to the Specialized Interdistrict Economic Court of the Karaganda region "to invalidate the decision of the Supervisory Board of a limited liability partnership and suppress actions violating rights or threatening to violate it". The court's ruling is available to the public and can be uploaded for review.
Unfortunately, the court ruling of April 20, 2023 does not provide details, but it can be understood that PORTOLA CYPRUS LIMITED does not agree to the investments and financing that MAXAMCORP INTERNATIONAL is trying to make: “The plaintiff applied to the court with a demand to invalidate the decision of the Supervisory Board of the LLP dated March 6, 2023, regarding the approval of the business plan of the LLP, relevant investments and financing, and also asked to prohibit actions that violate the plaintiff's right or threaten to violate it, including matters to amend the regulations of the LLP. In support of the claims, the plaintiff provided only the minutes of the extraordinary general meeting of the participants of the LLP (plaintiff indicated of the Supervisory Board ) dated March 6, 2023, which was not signed by any party. The plaintiff's representative explained to the court that he had received a draft of the protocol from one of the members of the Supervisory Board. The original of this project is missing, however, the plaintiff suggests from the content of this protocol it is obvious that the decisions indicated in it will be submitted for consideration by the general meeting of the LLP, and therefore the requirements are subject to consideration by the court”.
Ratel.kz sent a request to PORTOLA CYPRUS LIMITED for detailed information, as this could concern not only two foreign companies, but also Kazakhstan. For example, among the participants in the civil case, is the RGU "State Revenue Administration for the district named after Kazybek bi SRD in the Karaganda region." It can be assumed that the lawsuit is about some kind of tax avoidance scheme through investments, which PORTOLA CYPRUS LIMITED found out.
The court dismissed the case because it is not subject to consideration in civil proceedings: "The court believes that the claims of the plaintiff are not subject to independent challenge in court. The ground confirming the occurrence of legal facts is the decision of the participants in the general meeting, therefore, challenging actions and decisions that were not taken and had no consequences did not affect the rights and interests of the participant due to the absence of such decisions, they cannot be selected as independent requirements". Thus, the court ruled that MAXAMCORP INTERNATIONAL, S.L. must first make a decision and close the deal, and only then can file an application for cancellation. These are the specialties of the Kazakh judicial system.
Meanwhile, there is information that at the end of May 2023, MAXAMCORP Executive Director Juan Carlos Garcia will meet with the Minister of Industry and Infrastructure Development of Kazakhstan Marat KARABAYEV. Most likely, it will be discussion on future investments in production development in Kazakhstan.
But before promising anything to a foreign investor, we recommend that the minister request the civil case documentation.
Especially, we are alarmed by the very aggressive PR of all business contacts of MAXAMCORP INTERNATIONAL, S.L. It cannot be excluded that the deal is supported by guarantees from officials of the Ministry of Foreign Affairs and they want to wrap it up in a beautiful shell of investment in the economy of Kazakhstan only because it is not exactly legal. We hope there will be no bribes for some government officials in the capital and a corruption scandal.
By the way, it's time to remind the conflict between the company and the government of Uzbekistan. If MAXAMCORP INTERNATIONAL, S.L. reproaches the authorities of Uzbekistan for breach of the contract, the state also makes interesting claims in return.
In April 2023 the Uzbek media wrote, "Uzkimyosanoat" and the State Assets Management Agency declared that Maxam had failed to fulfill its obligations to attract investments and now refusing to fulfill them: "Maxam's claims are nothing but an attempt to hide its violations of obligations and avoid liability for poor management, failure to invest and non-compliance with legislation of Uzbekistan. At the same time, Uzkimyosanoat and the State Assets Management Agency expressed several claims against the Spanish company. They pointed out that Maxam was only interested in receiving dividends throughout its operations and had no objective to improve the efficiency of joint ventures. Maxam's commitments included modernizing the two joint ventures, providing modern technologies, upgrading production equipment, and providing technical support. The statement punctuate that Maxam has not fulfilled its obligations. This is also confirmed by the failure of the obsolete equipment that happened in October 2022 at the Maxam Chirchiq JSC plant".
According to the Uzbek media, the benefits of joint ventures have increased significantly in recent years as a result of the modernization of existing capabilities "only by the efforts of the Uzbek side without the involvement of the investor and its representatives".
Who can guarantee that investments in Kazakhstan will not entail the same supply of outdated equipment from closed subdivisions, which can be a threat to the life and health of our citizens working at the plant?
An interesting detail: according to the Uzbek media, quoting Spanish publications, Maxam's head office is located in Madrid, but since 2020 it has been owned by the American fund Rhone Capital.
Ratel.kz will continue to follow the developments around MAXAM Kazakhstan LLP. It is also important to understand the investment plan they are trying to implement in the business. It is also important to know the investment plan they are trying to implement at the enterprise. If it turns out to be questionable, to say the least, it will be helpful to check whether other foreign investors are using it. And may be Kazakhstan loses because of these schemes hundreds of millions, and even billions of dollars. In any case, the supervisory authorities should check all investment contracts concluded at least within the gap of the statute of limitations.