The Kashagan dispute, which ended with Kazakhstan greatly expanding its role in the venture, enabled Astana to shed its junior partner status when it comes to interacting with foreign conglomerates. Victory in a dispute over the Kashagan oil field seems to have emboldened Kazakhstan’s government. -- article by Abdujalil Abdurasulov.
Astana is now mulling the possibility of imposing an energy export duty, which, if implemented, could take a significant chunk out of foreign corporate profits. Some industry watchers are now wondering how far Kazakhstan will go in its efforts to rework its oil-and-gas development framework?
The Kashagan dispute, which ended with Kazakhstan greatly expanding its role in the venture, enabled Astana to shed its junior partner status when it comes to interacting with foreign conglomerates. The message was clear: the days when foreigners could essentially dictate the terms of energy development were over. On January 29, Kazakhstan flexed its muscles yet again. Energy Minister Sauat Mynbayev, addressing a cabinet meeting, raised the possibility of the imposition of an oil export duty starting in 2009. He indicated a final decision could come within a month. While acknowledging that such action could complicate Kazakhstan’s dealings with energy companies, as well as hinder efforts to join the WTO, he emphasized that Kazakhstani leaders were determined to take steps that, as they see it, fulfilled the state’s best interests. “If we do not do it now, we will never do it,” Mynbayev said, referring to the export duty. “It is difficult, but possible.”
The duty, if imposed, would likely not apply to oil extracted under production sharing agreements, which often have taxation obligations clearly outlined. Thus, Mynbayev estimated that a duty would be applied to only roughly 40% of Kazakhstan’s oil exports. Sergey Smirnov, an energy expert from the journal Expert-Kazakhstan, points out that Kazakhstan is not alone in demanding a greater degree of control over its energy assets. Russia, Venezuela and the United Arab Emirates also have been moving in this direction in recent years. “The reason why [attempts to regain control over natural resources by the government] are happening is oil prices,” Smirnov said.
Some analysts draw parallels between Kazakhstan’s approach to Kashagan and the strong-arm tactics employed by Russia in late 2006 to force Royal Dutch Shell cede control of the Sakhalin-2 gas field to the state-controlled entity, Gazprom. However, Kazakhstan lacks the same level of leverage that Russia can exert in its dealings with energy multinationals, suggested John Roberts, an energy security specialist from Platts, a leading energy information agency. „Kazakhstan is landlocked and requires cooperation with international companies -- not only in development of its reserves, but in getting them to market in ways less dependent on Russia.” Even so, legislative changes introduced last September appear to give the Kazakhstani government authority to review any contract with a foreign entity, if the contract is deemed to pose a potential threat to national security.
Dmitriy Lyutyagin, an oil and gas analyst from a Moscow-based investment company Veles Capital, argued that the legislative changes will not damage Kazakhstan’s investment climate. “The law spells out the rules of the game. This makes the work in Kazakhstan more predictable,” he said. But Roberts differed with Lyutyagin, saying that the vagueness of the term „national security” left plenty of room for arbitrary action by Astana. The new legislation, he said, „sends a very negative message to international energy companies.” “It will particularly put medium-level investment in doubt,” he added. “The really big players, like China National Petroleum Corporation (CNPC), will rely on government support to counter the threat posed by such legislation; small companies will continue to hope, as ever, that they can operate under the radar.”
It may be too early to tell how President Nursultan Nazarbayev’s administration will interpret the new legislation, whether it will have a sweeping notion of national security, or not. For the time being at least, Roberts believes that Kazakhstan will not try to repeat its Kashagan tactics to alter the terms of other major deals. In particular, Roberts and others believe the Chinese project in Aktobe will continue in its present form, given the fact that CNPC is backed by the full force of the government in Beijing. Roberts also doubts that Astana is inclined to move against two other major ventures – the Tengiz oil field, which is being developed by a Chevron-led consortium, and the Karachaganak oil, gas and gas condensate field, operated by the BG Group and Eni SpA. Such moves, if they do occur down the road, will depend on „whether oil remains at current levels of relative scarcity and high prices”.
Tengiz is a joint venture under, which Chevron holds a 50% stake, ExxonMobil 25%, the Kazakhstani state oil company KazMunaiGaz 20% and LUKoil with 5%. Chevron was slapped with a $37 million fine in late 2007 for the improper storage of waste sulfur. Despite this, Chevron is in a stronger position than was Eni, which until the dispute with Astana headed the Kashagan consortium. Kazakhstan’s approach to Tengiz could be influenced by “what kind of tactful warnings come from the US government to remind Kazakhstan of what’s at stake,” Roberts suggested. Chevron also has 20% stake in the Karachaganak project. BG Group and Eni each have 32.5% stakes, while the Kazakh government has no ownership interest in the venture. In Karachaganak’s case, Roberts suggested that the consortium members would, over the medium and longer term, have to be careful to go along with „whatever combination of gas development policy options [that are] eventually adopted.” Smirnov said he believed that foreign companies were not inclined to adopt a hard-line stance to counter potential Kazakhstani pressure. The first inclination of most is to stay and try to negotiate a compromise. “If companies do not agree and leave, new ones are ready to take their places,” Smirnov said. (Energypublicher)
Abdujalil Abdurasulov is an independent journalist based in Almaty.