The recent arrest by Kazakhstan's security service of the former head of the country's state uranium company is raising alarm bells among foreign companies which have invested in uranium development there.

Mukhtar Dzhakishev, the head of the state uranium mining company KazAtomProm, along with seven of his senior executives was arrested on the grounds of making illegal sales of the country's uranium resources to overseas entities, and Canadian headquartered Uranium One (TSX and JSE: UUU), which has a 70% interest in a Joint Venture in Kazakhstan that owns the Akdala Uranium Mine, which is currently in operation and the South Inkai Uranium Project, which commenced pre-commercial production in 2007, has been named as one of the companies concerned. Uranium One also has a 30% interest in another  Joint Venture in Kazakhstan that is developing the Kharasan-1 uranium project which was officially opened last month.These projects were primarily negotiated by UrAsia Energy which merged with SXR Uranium One to form the present Uranium One in 2007.

Other overseas companies involved in Kazakh uranium which could be affected by the fallout from the arrests include Areva , Cameco and a consortium of Japanese companies which are co-owners with Uranium One and KazAtomProm of the Kharasan project, as well as Chinese and Russian organisations.

Meanwhile Kazakhstan's opposition Communist Party has claimed the arrests are politically-motivated.  Kazakh Communist Party leader Serikbolsyn Abdildin is reported by Radio Free Europe as saying that the arrest of Dzhakishev and his KazAtomProm associates is connected with the case of businessman Mukhtar Abliyazov whose BTA bank was nationalised by the government and a criminal case was launched into his alleged financial misdeeds earlier this year.  Abliyazov and other bank officials left Kazakhstan to avoid arrest.

Kazakhstan has been estimated to hold around 20% of currently known global uranium resources and may well become the world's No. 1 uranium producer this year.

KazAtomProm's dealings with foreign uranium miners/developers have resulted in rapid growth in the country's uranium production sector.  The biq question now is whether subsequent investigations will show whether fraudulent transactions have taken place and if so what will be the potential effects on current uranium mining agreements.

So far no comments have been forthcoming from any of the western companies which may be affected by the fallout from the arrests.