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Kazakhstan: Oil Project Remains Murky

  • Michael Lelyveld

Kazakhstan claimed this week that it has reached agreement with foreign companies to restart a project at its giant Tengiz oil field. But U.S.-based ChevronTexaco said talks are still continuing, while analysts remain concerned about government pressures on foreign firms.

Boston, 11 December 2002 (RFE/RL) -- Kazakhstan said it has settled a dispute with its top oil investor, but the company would not confirm an agreement, leaving analysts unsure that fights with foreign firms have come to an end.

On 9 December, Energy Minister Vladimir Shkolnik told Kazakh lawmakers that the government had reached a compromise with companies developing the giant Tengiz oil field after a month-long delay in their $3 billion expansion project.

Shkolnik said the Tengizchevroil venture, known as TCO, had agreed to a plan that would yield $200 million a year in taxes for the federal budget, the Reuters news agency reported.

The U.S.-led consortium halted its project to nearly double the output from Tengiz last month after Kazakhstan's state-owned oil company objected to financing that would eliminate tax payments for the next three years. The impasse has threatened thousands of jobs. According to Shkolnik, that risk has now been averted. "We have found a mutually acceptable scheme of financing for the project's second phase, and signed the necessary documents Friday [6 December]," AP reported.

He refused to disclose details, saying, "That's not a matter for the public, that's the business of the partners." But Interfax quoted Shkolnik as saying that the companies had agreed to drop accounting plans that included an accelerated write-down of their costs in order to pay for the project quickly. The government wants them to keep taxes high by funding the expansion with loans.

The issue has been closely watched because TCO is the oldest and largest foreign oil venture in the former Soviet region, while western nations are looking to Kazakhstan as a growing source of oil.

But while Shkolnik's remarks were widely reported, they were not verified by the U.S.-based ChevronTexaco oil company, the consortium's leader, and talk of an agreement seemed premature.

Yesterday, "The New York Times" said a spokesman "denied that the consortium had reached an agreement." Fred Gorell, a ChevronTexaco spokesman at company headquarters in San Francisco, told RFE/RL that "discussions between TCO partners are ongoing. If and when the partners reach an agreement, we expect that TCO would issue a statement."

Gorell said the company would not discuss confidential details of negotiations but welcomed the "positive remarks" of Kazakh officials. He added, "We also are bringing a positive attitude to our discussions."

Shkolnik's statement may be a measure of high expectations. Last week, President Nursultan Nazarbaev told an investors' meeting that he believed "a consensus will be found very soon." Nazarbaev called the expansion "a very profitable undertaking for Kazakhstan and the company."

State-owned KazMunaiGaz owns 20 percent of the venture, while ChevronTexaco holds 50 percent. U.S.-based ExxonMobil Corporation has 25 percent and U.S.-Russian LukArco has 5 percent. The expansion plans of the TCO partners require unanimous consent.

But the issue at Tengiz goes far beyond the expansion project, and few analysts expect that a settlement will end all the frictions with foreign investors that have grown over the past two years.

This month, a court upheld a huge fine of 11 billion tenge ($71 million) against TCO for storing sulfur removed from Tengiz oil. Although TCO officials have argued that the government initially approved of the storage, Nazarbaev slammed foreign companies last week, saying they "continue to violate Kazakhstan's environmental protection legislation." It is unclear whether the fine has figured in negotiations over the new project at Tengiz.

Companies have also been resisting new investment legislation that would cut back on their rights to seek international arbitration of disputes. The government has sought concessions from the companies in their previously signed contracts, sparking complaints of arm-twisting. Some see the law and the fines as all part of the same pressure campaign.

In an RFE/RL interview, Robert Ebel, director of the energy and national security program at the Center for Strategic and International Studies in Washington, questioned whether the showdown over Tengiz and taxes would be a watershed event that would solve all of the investors' problems. "Do they stop nibbling around the edges of the contracts? Hard to say."

But the issue has come as Kazakhstan stands on the brink of major growth. This week, Shkolnik said that the country's oil output would rise this year to 47 million tons, or about 1 million barrels per day. The country plans to launch a project at its mammoth Kashagan field, which could be even bigger than Tengiz, but foreign investors there are also said to be balking at government pressures.

On 9 December, Shkolnik said the country would invest $51 billion in its oil industry by 2015 in hopes of matching Saudi Arabia's output of 8 million barrels per day by 2020, the AFP news agency reported.

Ebel suggested that the expectations are high, saying, "These guys got a little carried away." It appears that officials may also have announced a solution to the problem at Tengiz too soon.