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Nazarbayev’s Reported Hospitalization Raises Succession Question

Kazakh President Nursultan Nazarbayev’s reported hospitalization in Germany is stoking concern about a succession in central Asia’s biggest energy producer, which he has ruled since 1989.

Nazarbayev, 71, had prostate surgery at University Medical Center Hamburg-Eppendorf in Germany, Bild newspaper reported today, without saying where it got the information. A Nazarbayev spokeswoman declined to comment on the president’s health yesterday, saying only that he was on vacation. Calls to the president’s press service weren’t answered today.

“Succession has been the gazillion dollar question for a very long time and remains one without an answer to date,” said Milena Ivanova-Venturini, head of Central Asia research at the Almaty unit of Renaissance Capital. “Expect to see nervousness inside and outside of the country until more becomes known.”

The oil-rich nation is facing its first transfer of power since the Soviet Union collapsed in 1991 and Nazarbayev extended his rule to the newly independent Kazakhstan. Nazarbayev won a new five-year term in April with 95.5 percent of the vote. He was named “leader of the nation” last year, giving him the power to dictate policy even after retirement.

Nazarbayev is expected to return to work tomorrow, Foreign Minister Erzhan Kazykhanov told reporters today in Berlin.

Timur Kulibayev, Nazarbayev’s son-in-law, was appointed to head the state-run National Wellbeing Fund Samruk-Kazyna in April and named to the board of OAO Gazprom, Russia’s state-owned gas export monopoly last month.

While the moves led to speculation about Kulibayev’s position, the question of Nazarbayev’s successor remains open, Ivanova-Venturini said yesterday in a note to clients.

‘Power Struggle’

The state-owned Development Bank of Kazakhstan in December cited the lack of a clear successor to Nazarbayev as a risk for a planned sale of $2 billion of bonds. Kazkommertsbank, the country’s largest lender by assets, also flagged political uncertainty as a risk for its own $2 billion bond program.

“Kazakhstan’s political stability is underpinned by Nazarbayev’s personality and political presence,” Lilit Gevorgyan, a London-based analyst at IHS Global Insight, said by e-mail. “If his health forces him to revisit his political plans, this is likely to destabilize Kazakhstan. It may trigger a power struggle on the top of the power pyramid, unnerving investors.”

Samruk-Kazyna and its subsidiaries employ 260,000 people, or 2 percent of Kazakhstan’s population, and has more than $71 billion in assets, equivalent to 52 percent of gross domestic product, according to a fund statement released June 7, 2010.

Assets ‘Under Pressure’

Kulibayev and his wife, Dinara, control Halyk Savings Bank, the nation’s second-largest by assets. The lender’s London-traded shares were unchanged today at $8.32 after falling 4.2 percent yesterday, their biggest drop since June 20.

“Kazakh asset prices are coming under downward pressure,” said Timothy Ash, head of emerging-market research at Royal Bank of Scotland Group Plc in London, in a note to clients.

Even so, the nation’s strategic value as an energy supplier and transit route for China, Russia and the U.S. will probably contain any instability during a succession, he said.

“I have some confidence that we would see a pretty smooth transition of power to someone in the inner circle,” Ash wrote.

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