Kazakhstan is stepping up efforts to expand its reach over the country's lucrative energy sector, relying on policies that have foreign investors on the defensive.
In just the past few weeks President Nursultan Nazarbayev's administration has taken a controlling stake in one of Kazakhstan's top oil companies, engaged in an acrimonious war of words with the consortium developing the huge Kashagan oilfield and announced that another international consortium is paying a new crude export duty from which many foreign investors previously thought they were exempt.
The takeover involved MangystauMunayGaz (MMG), one of Kazakhstan's largest oil producers. Oilfields under its control have proven reserves of about 500 million barrels of oil and its annual output approaches 120,000 barrels. Kazakhstan's state energy giant, KazMunayGaz (KMG) announced July 9 it had concluded a long-sought deal to gain a controlling stake in MMG from Indonesia-based Central Asia Petroleum. Under preliminary terms, KMG will possess 51 percent of the oil company's shares. Russia's Gazprom Neft has expressed an interest in the remaining 49 percent. Gazprom officials conferred with KMG President Serik Burkitbayev on July 17 about the possibility of acquiring the minority stake in MMG.
Even as details of the acquisition remain to be hammered out, KMG is already in charge of MMG's operations. "MMG's operational management has been handed over to [KMG]," Burkitbayev, told a July 11 news conference in Astana in remarks quoted by Interfax-Kazakhstan news agency. KMG has already named a new director to the MMG board, Uzakbay Karabalin, who was Burkitbayev's predecessor at the state-controlled energy conglomerate.
MMG is a juicy prize for the state, according to local energy analysts. "Receiving a controlling stake in MangystauMunayGaz will help KMG increase its production, as MMG is one of the biggest oil producers in the country, and will also help it control Pavlodar oil refinery [in which MMG holds a controlling stake]," Maria Disenova, an analyst at the Institute for Economic Strategies-Central Asia, told EurasiaNet.
Press reports in Kazakhstan suggest MMG was at one time controlled by Rakhat Aliyev, Nazarbayev's disgraced former son-in-law, and that the takeover is part of ongoing moves to dismantle his empire of assets in Kazakhstan. "MMG Confiscated by the State," cried a headline in the Taszhargan newspaper, known for its anti-government line. [For background see the Eurasia Insight archive].
Fuelling speculation that the company was linked to Aliyev, who has been sentenced to 40 years in absentia in Kazakhstan on charges including coup plotting and running an organized crime ring, the former MMG director, Sagyn Krymkulov, was arrested in June on suspicion of involvement in organized crime.
The news of the MMG deal came less than two weeks after the Energy and Mineral Resources Ministry signed a new agreement with a consortium of foreign investors developing the massive Kashagan oilfield. The fresh agreement acknowledged that the start of production would be delayed yet again, to 2013 - eight years after the original target date, which first slipped from 2005 to 2008, then to 2010, then to 2011 in a deal reached only this January. That January pact saw KMG double its stake in Kashagan at the expense of foreign investors. [For background see the Eurasia Insight archive].
The new deal "substantially expands the boundaries of the agreements reached in December and January and opens the path to continue the development of the project," KMG said in a statement after the deal was reached June 27. "Alongside important changes in economic conditions, the new agreement also provides the Republic of Kazakhstan with significant assurances that the project will be implemented fully in line with the [existing] timetable."
Astana has been angered by the repeated production delays at Kashagan - the biggest oil discovery in three decades when found in 2000. The field has an estimated 13 billion barrels of recoverable reserves. The delays have jeopardized the government's plans to more than double oil output to 150 million tons per year by 2015 and become one of the world's top 10 energy producers. In a clear sign of its displeasure, the government rejected a consortium request to extend the production sharing agreement beyond 2041, and has threatened tough sanctions if the deadline slips again. "The government wanted to show the consortium who is the real boss," Disenova said. "I think that in general the terms of the new agreement benefit the government."
Consortium representatives and government officials have feuded since the project ran into trouble last August. The bickering reached a new peak on July 1, when Exxon Mobil's chief executive, Rex Tillerson, complained that government meddling was the primary cause of delays. The Energy Ministry hit back with a sharply worded statement that blamed the consortium for timetable setbacks.
As underscored by the events surrounding Kashagan, Kazakhstani officials are in no mood to compromise with foreign investors, who are increasingly anxious to preserve the advantageous contract terms they secured in the 1990s. The government now appears to be in the process of unilaterally revising the terms of some deals. For example, it emerged in mid-July that a major consortium operating the giant Karachaganak gas field was paying a new crude export duty of $109.91 introduced in mid-May. "I am officially announcing that Karachaganak Petroleum Operating has officially started paying the customs duty," Deputy Finance Minister Daulet Yergozhin told reporters July 14 in remarks quoted by Interfax-Kazakhstan, adding that the consortium had already shelled out 10 billion tenge - some $83 million. [For background see the Eurasia Insight archive]
"They [consortium members] have already paid the customs duty, although they are expressing their disagreement," Yergozhin said, adding that the government imposed the duty after receiving advice from foreign legal consultants.
The added income from the Karachaganak duty will give the state budget a much-needed boost, as Kazakhstan continues to weather the effects of the international credit crunch, analysts say. "Introducing the oil export duty for Karachaganak will boost revenue ... [that] the government needs to spend on construction projects that are frozen for the moment," said Disenova. "Of course, the government's policy is a bit inconsistent, as it said earlier that the oil export duty would not be imposed [on consortia] with stable tax regimes until 2009."
Major foreign consortia had hitherto been thought to be exempt from the crude export duty. But with the Karachaganak precedent firmly established, many observers expect that it won't be long before such duties are imposed on other projects. The duty may even be increased to stabilize soaring prices on the domestic oil market, Kazakh Energy Minister Sauat Mynbayev said 17 July in remarks quoted by Interfax-Kazakhstan.
Editor's Note: Joanna Lillis is a freelance writer who specializes in Central Asia.