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Kazakhstan: Astana Plans To Boost Energy Exports To West

After years of uncertainty, Kazakhstan says it will support the Baku-Tbilisi-Ceyhan pipeline, both as a sponsor of the U.S.-backed project and a shipper of oil. The country is seeking new export outlets, despite a dispute with foreign oil companies that may derail its double-digit growth.

Boston, 6 December 2002 (RFE/RL) -- Despite storm clouds threatening its foreign investment, Kazakhstan is suddenly pushing ahead with plans to increase its oil and gas exports to the West.

In recent days, Kazakh officials have made clear that the country wants to export major volumes of oil through the Baku-Tbilisi-Ceyhan (BTC) pipeline, the U.S.-backed project that has sought Astana's support for several years.

On 3 December, Kazakhstan's ambassador to Azerbaijan, Andar Shukputov, told President Heidar Aliev, "Finally, the BTC pipeline is becoming a reality," the AFX news service reported. Shukputov added, "Kazakhstan wants to be involved in this project."

Yesterday, Azerbaijan said that Kazakhstan had made an official request not only to ship oil through the pipeline but to sponsor the $2.9 billion project, which is scheduled to start construction next spring. Natiq Aliev, president of the Azerbaijani state oil company SOCAR, told the Interfax news agency that BTC officials will meet today with U.S. sponsors in London on Kazakhstan's last-minute bid for shares.

Since last month, Kazakhstan's state petroleum company KazMunaiGaz has been in intensive talks with the BTC consortium, led by Britain's BP oil company. KazMunaiGaz transport manager Kairgeldy Kabyldin said, "We are now considering an agreement between Azerbaijan and Kazakhstan which would guarantee Kazakh firms' participation in the Baku-Ceyhan pipeline," Reuters reported. Kabyldin said Kazakhstan could commit up to 400,000 barrels of oil per day.

BP has said it would welcome a role for Kazakhstan. The consortium has long insisted that it has enough oil in Azerbaijan to fill the 1 million-barrels-per-day line, but it has not turned Kazakhstan away. An intergovernmental agreement is reportedly being prepared.

The progress coincides with a breakthrough on 2 December, when Georgia approved the pipeline on its territory despite concerns about its path near sensitive water resources. Georgia's decision is seen as "removing the last major obstacle to the project," AFX said.

The developments may mean that the BTC project has put two months of dark days behind it. A push by environmental groups threatened to sway Georgia against the plan or cause a costly rerouting. An announcement that Russia's LUKoil would sell its share in the Azerbaijani oil fields for the project also raised doubts.

But with Kazakhstan's interest, BTC's viability seems to have bounced back up. Its pledge of oil also ends three years of uncertainty about its support. President Nursultan Nazarbaev previously promised the same amount of oil in 1999 at an Organization for Security and Cooperation in Europe summit in Istanbul, but later backed away, saying he was pressured into signing the deal.

This time, Kazakhstan is eager to join the project, citing future flows from its giant Kashagan oil field in the Caspian Sea. Four members of the BTC group have stakes in Kashagan, although the formal decision on shipping the oil across the Caucasus to Turkey's Mediterranean port of Ceyhan seems to belong to Kazakhstan through its monopoly over exports.

But the new promise also comes curiously on the heels of a huge blowup with foreign investors in the nation's oldest oil venture at the Tengiz field and a reported threat to put Kashagan on hold. Last month, the U.S.-led Tengizchevroil consortium shelved a $3 billion expansion project after arguments with KazMunaiGaz about funding and tax revenues from the deal.

The dispute deepened on 4 December as a Kazakh court upheld a fine of 11 billion tenge ($71 million) against Tengizchevroil for open storage of sulphur extracted from its exported oil. Company officials have argued that the government knew from the start about the sulphur and storage plans.

Foreign companies see the fine as having less to do with pollution than with the business environment, which has suffered from Kazakhstan's efforts to pressure them into renegotiating terms of their contracts. Last month, Kashagan investors also suggested that they would postpone their project unless the government dropped plans for a new law that would limit their rights to appeal disputes.

Kazakhstan's new interest in BTC could mean that it is preparing to mend its rift with investors, since without the two projects, the country's astonishing 22 percent growth in oil exports could soon stop.

Another possibility is that the government is seeking more leverage with Russia, which controls nearly all of its current export routes. This week, the industry newsletter "Petroleum Argus" reported friction with Russian energy officials over Kazakhstan's demands that it should be able to control the volumes and destinations of its oil shipments through the Russian pipeline system. In other words, the country's influence has grown to the point where it wants to play the oil market, as Russia does.

A Russian official reportedly responded, "If they want equal treatment, they should start supplying oil to the Russian domestic market as our producers do." Russian companies must sell to the home market at a cheap subsidized price.

On the surface, relations with Russia have been free of such complaints. Yesterday, Nazarbaev met in Astana with Aleksei Miller, the chief executive of Russian gas monopoly Gazprom, about boosting sales of Kazakh gas abroad. The two countries are also working on plans to raise Kazakh oil transit by 50 percent with a pipeline expansion project starting next year.

But problems beneath the surface seem to be driving Kazakhstan to look elsewhere for its future, including to projects like BTC. The government may also be starting to worry that its demands on foreign investors and Russia will involve it in too many disputes at once.