Sanctions in Exchange for Investments: Why Are Russians Building a Plant in Aqtobe?

Another heavy machinery plant will be built in Kazakhstan. Despite solid financial injections, this deal may go sideways. Orda looked into how such a situation has developed when foreign investments risk turning into secondary sanctions.

How It All Started

At the VII International Investment Forum "Investment Aktobe-2022", Akim of Aqtobe region Yeraly Tugzhanov signed a memorandum on the construction of a plant for the production of railway wheels.

Aktobestil LLP, which opened in October 2022, plans to start construction of this plant in early 2023.

The investment amount will be $278.6 million. The main technological equipment will be supplied by leading European manufacturers. The launch of production, which will employ 582 people, is scheduled for April 2025.

The enterprise with a capacity of 330 thousand wheels per year will produce products intended for both freight and passenger cars. In the future, the possibility of producing wheels that meet European and international standards is being considered.

Russian Imports

Orda's editorial staff already wrote about the pitfalls of this transaction in December, but now new details have been revealed.

At the time, it turned out that the roots were from Russia. The director of the LLP is Boris Bilonenko. His full namesake in 2018-2020 was listed as a legal consultant of the Zagorsk Pipe Plant (ZTZ). His obligations included performing the duties of a nominee director and representing the interests of the company in various judicial bodies of the Russian Federation.

His alleged father, Viktor Bilonenko, was until recently listed as Deputy Director for Technical Development of the Zagorsk Pipe Plant. At least, that's how he was presented in the media at the end of July 2022.

The founder of the LLP is Sergey Bandaev.

European Sanctions

The information about this memorandum went almost unnoticed in the Kazakhstani media, but German journalists and officials drew attention to it.

Website germanynews.net writes that a Russian oligarch of Kazakhstnai origin (from Temirtau) Denis Safin is behind Aktobestil LLP. He also owns the Zagorsk Pipe Plant and the Ural Steel enterprise.

The affiliation of Aqtobe LLP to the Safin empire demonstrates the identity of the plant director Boris Bilonenko, who is the legal representative of the Zagorsk Pipe Plant. European sanctions against metal products from the Russian Federation have affected Safin and his enterprises. It is logical that now manufacturers are looking for new ways to bypass them. Including Kazakhstan.

Meanwhile, the German Federal Office of Economics and Export Control (BAFA) became interested in this case. According to our sources, the organization has already received a letter demanding to check the Aqtobe deal for circumvention of sanctions. The German metallurgical company Eurolinex GmbH is concerned that Russia will receive high-precision European equipment. Then it will begin to supply its products to the EU under a Kazakhstani brand. If the audit establishes such a fact, sanctions may also be imposed on Kazakhstan.

Perhaps the Kazakh regional authorities should pay attention to this situation.

According to the World Steel Association, a total of 48.9 million tons of steel were produced in Russia from January to August 2022, which is 5.8% less than in the same period last year. The Ministry of Industry and Trade of Russia predicts an annual decline of 6-8%.

"The Russian economy is adapting to the reorientation of its exports mainly by changing export routes, and not by changing end consumers. Kazakhstan serves as a transit country for them, from where banned Russian metal is imported to Europe. It is no coincidence that Aktobestal announces the production of wheels that meet European standards. Thus, the Russian metal will enter the European market in the form of railway wheels manufactured in Aqtobe, and Kazakhstan will become an accomplice in illegal activities for circumventing sanctions,"

the German journalists say.

Kazakhstan's Market

Kazakhstan covers its internal need for railway wheels. Back in 2020, the Ekibazstuzs LLP "Prommashkomplekt" reported on the production of 100 thousand wheels. Since then, the capacity of the enterprise has only increased.

Journalists from Brittain have also written about how Russia bypasses Western sanctions by using parallel imports. They found out that household appliances, cars, spare parts and smartphones continue to be imported into the country through Kazakhstan, Armenia and Kyrgyzstan.

Original Author: Ilya Astakhov

DISCLAIMER: This is a translated piece, the text has been modified, the content is the same. Please refer to the original article in Russian for accuracy.