Unprecedented Tax Preferences, LRT and Sheraton Hotel: What Are Abu Dhabi Plaza’s Expensive Facades in Astana Hiding?

The first floors of Abu Dhabi Plaza have already been opened to the general public. They are still doing touch ups on the upper ones. There are office premises there. However, it is not yet known who will set up shop there. Orda has looked into the situation.

Preparation for the construction of the tallest building in Central Asia lasted about two years. For this purpose, ex-President Nursultan Nazarbayev visited the United Arab Emirates on March 16-17, 2009. As a result, on March 31, representatives of Kazakhstan and the UAE struck hands.

The memorandum on the construction of the multifunctional complex "Abu Dhabi Plaza" was signed by Vice-Minister of Industry and Trade, Edil Mamytbekov, and Astana’s deputy akim, Yerlan Kozhagapanov. On the other end of the deal – John Bullu, Executive Director of Aldar Properties PJSC. The company committed to starting the construction of the complex in 2010, while Kazakhstan was to provide all the necessary conditions. Aldar Properties PJSC (according to some documents in the Republic of Kazakhstan is called ALDAR – ed.) received a budget of $1.6 billion. The company was simultaneously an investor, a customer, and a developer.

Abu Dhabi Plaza is the tallest building in Kazakhstan and Central Asia. It consists of 75 floors. The multifunctional complex was designed as a "city within a city". It has everything from a supermarket and clothing stores to a beauty salon and an entertainment area for children. It includes the five-star Sheraton hotel, apartments, offices, and a shopping center with a food court.

The appearance of the first Islamic bank "Al Hilal" in Kazakhstan was also discussed along with the complex. The memorandum was signed by Vice Minister of Finance, Ruslan Dalenov, and Chairman of the Board of the financial institution, Ahmed al-Mazroui. Al Hilal Kazakhstan is the first Al Hilal branch outside the UAE. The bank operates in accordance with Kazakhstan’s legislation and the norms of Islamic Sharia.

Tax Exemption During Construction and The Following 20 Years of Operation

Apparently, the phrase "providing all conditions for construction" also includes the absence of most of the tax payments to our country’s treasury.

In May 2009, an intergovernmental agreement was signed between Kazakhstan and the UAE. The Government of the Republic of Kazakhstan granted unprecedented tax and customs preferences to the Arab company, providing a tax exemption not only to the company itself, but also related contractors and subcontractors.

In item 4 of the agreement, the time span has also been indicated: construction time plus 20 years of operation. The tax holidays are due to end on December 31, 2034. However, no one expected that the construction of the complex would take so long. It is therefore possible that the exact date stated in the documents will end up being different.

Corporate income tax (CIT) – the company is exempt from paying all types of income, including from value gains on the sale of shares and other property. After the end of the term, the company will pay CIT on the basis of accounting data.

Income tax withheld at the source of payment – the company and/or its founders and/or participants were exempted from all types of income, including dividends and remuneration under contracts. 

Value added tax - the company does not accrue or pay any VAT, including when purchasing services and works from a non-resident. Contractors are exempt from paying VAT on turnover from the sale of services and works, as well as when purchasing services and works from non-residents. Subcontractors are entitled to apply the zero VAT rate.

Import VAT and customs duties – goods and vehicles are exempt from payment (with the exception of alcoholic beverages, beer, tobacco products, gasoline and diesel fuel), as well as personal property imported by ALDAR’s staff and employees, its contractors and subcontractors (the latter two only for the construction period). They are subject to customs clearance without the application of non-tariff regulation measures and other requirements. They are exempt from customs duties, import VAT, anti-dumping, protective and countervailing duties and excise duties.

Other taxes – ALDAR will have no obligations to calculate and pay land tax or fees for the use of land plots, property tax and transport tax.

Customs regime stability – the agreement is not subject to both Kazakhstan’s legislation and international treaties regulating customs issues, except in cases where they are more favorable for ALDAR. The guarantee will not be revoked by the government during the term of the agreement.

At the same time, taxes and other obligations are paid that are not specified in the agreement, but are valid on the date of its entry into force. However, ALDAR is not obliged to pay any taxes and/or other mandatory payments introduced after the agreement’s entry into force.

The construction company has undertaken to prepare and submit tax reports, but is not obliged to disclose any confidential information under the agreement and/or memorandum of understanding dated March 31, 2009.

How The Subsidiary Manages The Hotel

In addition to ALDAR EURASIA, other organizations related to the enterprise have been registered in Kazakhstan: Aldar EuroAsia Hospitality LLP and ALDAR EUROASIA PROPERTY MANAGEMENT LLP.

The first company was established in May 2018. Aldar EuroAsia Hospitality provides hotel services with restaurants. The organization belongs to Aldar Commercial Property Developments LLC and ALDAR EURASIA LLP.

The organization has won tenders on the public procurement website more than once, which are directly related to the Sheraton Hotel. Aldar EuroAsia Hospitality reportedly operates the five-star hotel.

In October 2020, QAZAQ AIR received hotel services provided to a crew. The airline paid 167.8 million tenge for this.

The remaining state contracts did not bring Aldar EuroAsia Hospitality such a large profit. It was essentially renting a room at the Sheraton hotel, organizing coffee breaks, lunch and dinner, or staying in rooms. Among the company's clients are the Ministry of Energy, the Ministry of Foreign Affairs, Astana’s Akimat, and even the Astana Ballet Theater. All contracts were concluded from one source.

Aldar EuroAsia Hospitality has also provided services to the capital’s administration worth 862 thousand tenge. Said provided services were connected to a foreign delegations' visit. Astana’s Akimat needed to provide lodging to CIS observers during Kazakhstan’s early presidential elections on November 20, 2022. The options - two hotels, Ramada by Wyndham or Sheraton. Among the services were accommodation, hall rental, motor transport, coffee breaks, and services related to the Akimat being able to meet with the guests. It is not known which of the above services was provided by Aldar EuroAsia Hospitality.

Apparently, regular earnings at the Sheraton hotel bring the company a decent profit. This year they have contributed 428 million tenge to the state treasury.

9 Thousand Tenge

After almost 1.5 years, ALDAR EURASIA and Aldar EuroAsia Hospitality have jointly established an enterprise – ALDAR EUROASIA PROPERTY MANAGEMENT. Now the company is engaged in leasing (sublease) and operation of leased real estate, but they were initially engaged in complex office administrative services.

It can be assumed that this organization is responsible for the retail premises.

It is worth mentioning that the company is also responsible for the exterior facade of the multifunctional complex. They were the ones who ordered the German film with UV printing for the facade.

Since 2019, the company has contributed 457 million tenge to the state treasury. Note that ALDAR EUROASIA PROPERTY MANAGEMENT has a small fine – 9,189 tenge. The enforcement document was issued by a representative of the Astana police in March 2023. The reason for the fine is not reported. It is also unclear why the company has not paid for it.

LRT

In 2008, ex-President Nursultan Nazarbayev instructed to prepare a light rail transport project. The LRT route was to run from the railway station to the new administrative center via a public-private partnership.

In 2011, Imangali Tasmagambetov became the Astana's Akim, and Karim Massimov, now convicted of treason - prime minister. The customer of the project was the structure subordinated to the Akimat – Astana LRT LLP. The project is a loopback: railway station – Abu Dhabi Plaza - railway station. It was divided into three lines with a total length of 41.81 km, but later the plan had to be adjusted.

According to some accounts, it was Arab investors who insisted on the construction of a light rail line from the airport to Abu Dhabi Plaza

The LRT later became one of the most notorious corruption scandals. Its pillars are the first thing that greets guests and residents of the capital arriving in Astana.

The Abu Dhabi Plaza prior opening and the failure to complete the LRT's construction entails serious consequences. This is a significant violation of the agreement. And it can lead not only to contract terminations, but also to court proceedings.

In March 2011, Kazakhstan, the Akim's Office of the capital, and Aldar Eurasia LLP (representative of the UAE government – ed.) signed an agreement on the complex’s construction.

According to it, the LRT should have been launched before the opening of Abu Dhabi Plaza. At the same time, the government decree No. 272-1, which regulated the agreement, came into force.

According to item 11.1, the Akim's Office of the capital guarantees, without the prior written consent of ALDAR, that it will not make any changes to the LRT construction plans that may have a negative impact on the complex.

In other words, it was not permitted to make any changes to the LRT project without the written permission of Abu Dhabi Plaza’s owners.

The document even stated that the Abu Dhabi Plaza Light rail station ("ADP") should be located in the middle of the road adjacent to the site’s northern profile, but not at the complex itself. 

According to the Chairman of the Board of City Transportation Systems LLP, Gani Tazhiyev, whose company is now responsible for the LRT, the transport complex will be launched in 2025.

This will be done in two stages. The first stage - 8 stations will be completed and 5 railway vehicles will be launched on the line. This part will cost the state $1.152 billion. The second stage will include the remaining 10 stations and 14 railway vehicles. The launch complex itself will cost $735 million. The LRT’s total length will be 22.4 km. The planned commissioning date is the end of 2026. Abu Dhabi Plaza is among the 18 stations.

Who Is The Owner?

According to the initial agreements, the ALDAR Properties PJSC group was engaged in the complex’s construction. The documents later clarified that ALDAR EURASIA LLP would represent the interests of the UAE side in Kazakhstan.

The company’s founder is a limited liability company "Aldar commercial property Developments". Alomayra Rashed Ali Hussein Ali occupies the director's chair. The company "ALDAR EURASIA" was created back in May 2008. Almost a year before Kazakhstan and the UAE struck hands. The LLP is engaged in the construction of residential buildings.

Despite the exemption from most taxes, ALDAR EURASIA has paid 242 million tenge in taxes since 2015. Starting in 2021, contributions to the state treasury slowly but surely began to decline. This year, the company contributed a little less than a million tenge.

Such preferences, i.e. exemption from most taxes and even the requirement to coordinate the LRT’s construction with the UAE side did not come from nowhere. There must be more to them than meets the eye – monetary promises or a gray cardinal, who came up with the idea.

There was a similar story with Arab investors when buying Ust-Kamenogorsk and Shulba hydroelectric power plants, transactions that never took place. At the end of 2020, former President Nursultan Nazarbayev and Prime Minister Askar Mamin visited the United Arab Emirates.

According to an official website, the parties reached "an agreement on the implementation of investment projects worth over $6 billion." They most likely agreed on the privatization of the HPP then.

Auctions for the sale of the power plants were planned in early May 2021. The well-known political scientist Peter Svoik called it a national crime. The auctions were later postponed.

In the autumn of 2021, the Government of Kazakhstan and the UAE signed a declaration on long-term strategic partnership for the development of projects in priority sectors. The document stated that our country intends to make "targeted sale of up to 100% of state shares in the authorized capital of Shulbinskaya HPP NPP LLP and Ust-Kamenogorsk HPP NPP LLP to a consortium of Abu Dhabi investors and Kazakhstani investors."

ADQ or Abu Dhabi Development Holding Company PJSC should have participated. The chairman of the Board of Directors at that time was the son of the founder of the UAE – Sheikh Tahnoon bin Zayed Al Nahyan. Kazakhstan’s participant was some local investor. According to the plan, starting from 2026, he would have received 50% of electricity from the Shulba and Ust-Kamenogorsk HPPs for his plants throughout Kazakhstan. The mystery investor’s name was never revealed.

Experts had expressed their opinion during the period after the signing of the agreement with the UAE and before Bloody January. They assumed that the money did not belong to the UAE investors. Allegedly, someone from Kazakhstan’s highest elite brought funds to the UAE. And in order not to be in the public eye, it was decided to invest in tempting and promising assets.

Mazhilis deputy, Kanat Nurov, spoke quite harshly about the sale of strategic objects. He raised the issue at a Financial Budget Committee. In the discussion, everyone agreed with Nurov's opinion that it is not permissible to give the hydroelectric power station up. However, when the voting took place, he was the only opposing party. His actions caused a delay nonetheless. And then Bloody January rocked the country.

"The KNB managed to open a case against me. They marked me as a target (for surveillance and investigation - Ed.). They were following me, and when they didn't find anything on me, they moved on to my son. They started digging there. It was generally an unpleasant feeling. They found a danger to the state in me. Naturally, the KNB cannot do this for no reason. So, the Prosecutor General has given some kind of sanction. Everyone told me: you understand that everything is coming from Karim (ex-head of the KNB Karim Massimov – editor's note), it is useless to interfere here. But I still interfered. If New Kazakhstan had lost in January, then maybe I would have been sitting in other places, not here. Why should the parliament approve the memorandum on the deal? Bring the deal and we will consider it. The memorandum stated that we were transferring the HPPs, Samruk-Energy, and also reimbursing investments to the Emirates. Karim Massimov was behind everything. He is an iron representative of the family, and you can be sure of it,”  he told Orda's editor-in-chief, Gulnara Bazhenova, in an interview.

As a result, it was Bloody January that stopped the sale of both HPPs. On January 13, 2022, Acting Prime Minister Alikhan Smailov withdrew the draft law "On ratification of the Joint Declaration of the Government of Kazakhstan and the Government of the United Arab Emirates on the creation of a long-term strategic partnership for the development of projects in priority sectors" from the Majilis.

That is, immediately after the Bloody January events, the government changed its mind about selling these assets. According to the e-government website, both LLPs belong to the national fund "Samruk-Kazyna".

 Perhaps the situation with the construction and operation of the Abu Dhabi Plaza complex was similar.

Orda's Investigation Department.kz will continue to cover the specifics of the construction, operation and sale of strategic facilities in Kazakhstan.

Original Author: Maria Gorbokonenko

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