Kazakhstan: Investors are unsure of energy opportunities

Michael Lelyveld

A EurasiaNet Partner Post from RFE/RL

Kazakhstan remains stuck in a standoff with foreign investors, two weeks after the government claimed it had reached an agreement with the country’s biggest oil consortium.

Despite a statement by Kazakhstan Energy Minister Vladimir Shkolnik, a spokesman for the US-based ChevronTexaco Corporation said last week that there is still no deal to restart a $3 billion project at the giant Tengiz oil field.

On December 9, Shkolnik told the country’s parliament that the Tengizchevroil (TCO) consortium had signed a document, resolving its dispute with the government over the project and agreeing to annual tax payments of $200 million over the next three years. But a ChevronTexaco spokesman denied the consortium had made the commitment.

Some news organizations have continued to report that the matter is resolved. But on December 27, ChevronTexaco spokesman Fred Gorell again told RFE/RL that the project is on hold. "No change. I don’t know what you’re reading. I can only speak for us."

The discrepancy has left the oldest and largest oil project in the former Soviet region in limbo. The planned expansion at Tengiz was expected to boost the field’s daily output from 254,000 barrels this year to 440,000 barrels in 2005. The suspension may cost thousands of workers their jobs.

Foreign members of the TCO group, led by ChevronTexaco, fell out with the Kazakh state oil company KazMunaiGaz last month over financing for the development. The firms planned to write off their expenses quickly and pay for the expansion project out of revenues. KazMunaiGaz objected, citing the loss to the national budget for the next three years. The government urged TCO to fund the project with loans instead.

ChevronTexaco holds 50 percent of TCO, followed by US-based ExxonMobil with 25 percent, KazMunaiGaz with 20 percent, and the Russian-American venture LukArco with 5 percent.

Shkolnik has yet to explain why he announced a breakthrough prematurely, but he previously took pains to deny that the disagreement stemmed from a deteriorating investment climate in Kazakhstan, the Interfax news agency said.

Despite Shkolnik’s attempt to portray the rift as an isolated incident, foreign investors have complained for over a year about government pressure to renegotiate their contracts. The companies have been fighting a draft investment law that could keep them from appealing disputes with the government to international arbitration courts. Taken together, the law and the pressure have clouded the investment outlook at a time when Kazakhstan’s oil output is poised to take off.

The picture recently darkened further as parliament passed a version of the long-awaited law that safeguards old contracts against legislative changes but not new ones. According to Interfax, a provision of the new law reads, "Benefits given under contracts with the state investment agency before this law entered into effect shall remain valid until the contract period expires."

Kazakh officials argued that the language should end all doubts about the security of doing business in the country. Kazakhstan Today and the Dow Jones news agency quoted Senator Yevgenii Aman as saying, "This law should reassure all investors that the government remains logical in its action and has no plans to change existing contracts."

But the refusal to extend the protections to new contracts is likely to raise the risks for new ventures, while making clear that the government would prefer not to be bound by the contracts it has signed. The language also appears to cover only contracts signed with the state investment agency, saying nothing of agreements with other parties.

Unlike the current investment law, the new legislation implies that government consent will be needed to take disputes to international arbitration, even on old agreements. It is also unclear whether contracts would retain their protected status if new terms are negotiated. The government has already approached dozens of firms for concessions, President Nursultan Nazarbaev has said. After two years of revising the legislation, Nazarbaev is expected to sign it into law, according to Dow Jones.

The legislation and the dispute with TCO both raise doubts that foreign interest in Kazakhstan will keep growing at the high rates of the past 11 years, despite the lure of giant oil fields like Tengiz.

Earlier in December, Shkolnik said that Kazakhstan plans to invest $51 billion by 2015 in order to triple the country’s oil output to 3 million barrels per day. But it is unclear how much will come from new contracts with foreign companies if the government keeps to its current course.

http://www.eurasianet.org/departments/business/articles/pp122902.shtml