News Roundup - August 13, 2007

BBC News: Kazakh Stake in Nuclear Company
Japanese firm Toshiba has sold a 10% stake in its majority-owned nuclear firm Westinghouse to uranium maker Kazatomprom for $540m…
Reuters: Toshiba Sells 10 Percent in Westinghouse for $540 Million
Japan’s Toshiba Corp. sold a 10 percent stake in U.S. company Westinghouse to Kazakh uranium producer Kazatomprom for $540 million on Monday…
NewEurasia.net: Transformation of Space in Almaty - Interview
You might have seen posts on Kazakhstan’s art scene by Daniel Gallegos, an American artist who is now in Almaty. I visited Daniel and his colleagues from the Artpologist project Zhanara, Aminotou and Gaisha at Soros Centre for Contemporary Art in Almaty…
International Press Institute: IPI Condemns Takeover of Kazakh newspaper Karavan
According to information provided to the International Press Institute (IPI), the weekly newspaper Karavan received a letter, dated 6 August, from the printing house Asia Press, which said it would no longer produce the paper…
Financial Times: Kazakh Banks
The reverberations from the credit crunch are spreading wider. Kazakhstan provides an opportune reminder that, during periods of financial turmoil, banks often end up being a contingent liability of governments, and credit ratings provide little comfort…
Interfax: Investment in Kazakh Fixed Assets Up 11.6% in Jan-July
Investment in fixed assets in Kazakhstan totaled 1.4982 trillion tenge in January-July, an 11.6% increase year-on-year…
Reuters: Indicators - Kazakhstan - August 13, 2007
Kazakhstan’s economic indicators based on data provided by the State Statistics Agency, government institutions, the central bank and exchanges…

Kazakhstan Stepping Up Pressure Over Kashagan

Last Monday, the government of Kazakhstan and Agip KCO began negotiating the conditions of the cost overruns and delays in commercial production of the giant Kashagan oil field. The goal of the negotiation that could take several weeks is the review of the production sharing agreement that was signed almost ten years ago in November of 2007. It is the second time Agip KCO announced that it could not fulfill the conditions of the PSA - this time, however, it is widely expected that the consortium will have to pay a heavier price than the $150 million in fine it was forced to pay in 2004 when the first delay in production became public. This time, it is reported, the authorities are determined to put the consortium under significant pressure and aim to seek not only a fine and a bigger share of the revenues but may also demand a new operator of the project or introduce the Kazakh national oil company KazMunaiGas as a cooperator.

At the end of July when Agip KCO first time announced the delay in commercial production, Kazakhstan energy and mineral resources minister Bakhtykozha Izmukhambetov announced that Kazakhstan will seek to increase it shares of revenues from the project from 10 percent to 40 percent. Last week on Wednesday, Kazakhstan’s prime minister Karim Masimov admitted in an interview to The Wall Street Journal that Kazakhstan may seek the removal of Eni as operator of the Kashagan project as a consequence of its failure to develop the project on the terms specified in the PSA. Mr Masimov was very sceptical about the proposed increase in costs to $136 billion; according to his statements made to The Wall Street Journal the more than twofold increase can be either a result of poor planning ot execution, or of bad intention.According to some Kazakhstani analysts, it is highly unlikely that the government will actually go ahead and replace Eni as operator of the project. It is almost certain that the government will impose a fine on the consortium and will seek a greater share of the future revenues - but a replacement of the operator would only lead to further complication and delays in commercial production. The government and Agip KCO have held an open dialogue on this topic ever since the the consortium announced the first delay in production in 2004. However, it is clear to both sides that finding and putting in place a new operator would hardly be beneficial for the whole project. In order to estabish a new operator of the field, the entire operational procedures would have to renegotiated - the timeline, budget, management… All in all, regardless of Eni’ shortcomings, if alleged or true, this far into the project there is hardly any alternative if the field is to be developed in a foreseeable future. The recent bashing by the energy minister and the prime minister of Kazakhstan can therefore be seen rather as another form of exercising pressure on the consortium than as a serious attempt to remove Eni from the project.

The other scenario that has been floated in Kazakh media is the establishment of KazMunaiGas as the cooperator of the field alongside Eni. This would give KazMunaiGas (and Kazakhstan) a greater share of the profits without having to bear the operation burden of the project. As I argued in an earlier article, KazMunaiGas does not have the necessary expertise to develop this notoriously difficult field entirely on its own; however, acting as a cooperator alongside an experienced Western company is an entirely different story.

The roots of the repeated delays could also lie in the still unresolved question of how the oil from the Kashagan field will be transported to the Western markets. Even though Kazakhstan and Azerbaijan signed a declaration of cooperation on creation of the Kazakhstan Caspian Transportation System (KCTS) as a part of the Baku-Tbilisi-Ceyhan pipeline, the construction of the Eskene-Kuryk pipeline that is to bring the oil from Kashagan to the tanker port of Kuryk and is an essential part of the project has not even begun. Besides the Eskene-Kuryk pipeline, the KCTS project consists of two tanker terminals in Turyk and in Baku and a system of tanker transportation across the Caspian. Sofar, however, KazTransOil, the Kazakh national oil transporation company, only announced a preliminary study of the project.

As it seems now, there is no final strategy on how Kashagan oil will get to the markets, especially considering that even in the best case scenario that the KCTS projet is up and running by the time Kashagan is ready to pump oil, it still would not solve the oil transport problem entirely. At the current state of affairs, only four companies of the consortium (ConacoPhiLlips, INPEX, Eni and Total) will be allowed to use the capacity of KCTS. And as the Tengiz field is also nearing its peak, by the time Kashagan is in production there will be vast quantities of oil in dire need of transport , and it seems reasonable to expect that the issue of a planned increase in capacity of the CPC pipeline and the Atyrau-Samara pipeline both of which go through Russian territory will not be solved in the near future.

As of now, the consortium has not commented on the issue besides a statement that it puts an emphasis on long-term cooperation with the Republic of Kazakhstan and will take part in talks on the future of the project scheduled for the month of August.

News Roundup - August 12, 2007

Reuters: Kazakhstan Names New Economic Minister
Kazakh President Nursultan Nazarbayev appointed Bakhyt Sultanov, 35, as economy minister in the oil-producing Central Asian state on Friday…
BBC Monitoring Central Asia: Kazakh Prosecutor’s Office Warns Against Calls for Protest after Elections
“The Prosecutor-General’s Office states that the law-enforcement agencies will not allow any violations of law and order, and will take all the measures prescribed by law to ensure public security and stability in the country during the 18 August elections to Majlis (lower chamber) of Kazakhstan’s parliament and maslikhats (local representative bodies of power) of all levels,” says the statement circulated by the prosecutor’s office on Saturday…
BBC Monitoring Central Asia: Ruling Party Supporters Double in Kazakhstan - Poll
According to the latest survey of the public foundation Institute for Central Asian Development [ICAD], the number of supporters of the ruling Nur Otan party among voters has almost doubled. “When questionnaires were completed at the first stage of the survey in May-June, 33.9 per cent of respondents were ready to vote for the Nur Otan party, 10.8 per cent for the Ak Zhol party and 1.2 per cent for the National Social Democratic Party [NSDP],” a leading expert of the ICAD, Valentina Kurganskaya, said at a news conference in Almaty today…
Sunday Telegraph: Kazakhstan election a ‘foregone conclusion’
Faced with an international perception of Kazakhstan as a backward dictatorship - as lampooned by the fictional television reporter Borat Sagdiyev - Mr Nazarbayev brought this month’s polls forward by two years as part of what is billed as a sweeping democratic makeover…
Washington Post: Kazakh Newspaper Supplanted
A popular Kazakhstan newspaper owned by the former son-in-law of President Nursultan Nazarbayev was forced to close last week, its editors said, and was replaced with a new, similarly styled weekly run by a man close to the president…
International Herald Tribune: Kazakhstan Calls for Criminal Proceedings Against Ex-Ambassador
Kazakhstan wants Austria to launch criminal proceedings against its former ambassador, a lawyer for the Central Asian nation said Friday, just days after the Alpine republic rejected an extradition request…
New York Times: Kazakhstan Says Austrians Erred in Extradition Ruling
The government of Kazakhstan accused an Austrian court on Thursday of ignoring irrefutable evidence in the court’s decision not to extradite Rakhat M. Aliyev, the former son-in-law of President Nursultan Nazarbayev, and said it would seek an appeal…
MarketWatch: Toshiba in Talks to Obtain Kazakhstan Uranium Mining Stake
Toshiba Corp. said Friday it is in talks with Marubeni Corp. and others on the possible purchase of part of a uranium mine stake in Kazakhstan…
New Europe: Kazakhstan Has Talks with Jordan over Mideast, Terrorism
Kazakhstan and Jordan have called for a peaceful settlement of the Palestinian-Israeli conflict, Kazakh President Nursultan Nazarbayev told a joint press conference with King Abdallah II of Jordan in Astana…
Kommersant: American Mortgage Crisis Hits Kazakhstan
Kazakhstan has become the first country in the CIS to feel the impact of the crisis in liquidity on the world market. Between August 1 and 8, the interest rate on interbank credit jumped 1.8 percent, the Kazakh tenge began to wobble and capital began to flow out of the country…
RBC Daily: The Government of Kazakhstan Is Going to Deprive Italian Eni of the Status of Operator
The government of Kazakhstan is going to deprive Italian Eni of the status of operator of the huge oil project Kashagan. Analysts do not rule out that the project will finally be managed by LUKoil because the company has accumulated large experience working in Kazakhstan.
On August 8, Prime Minister of Kazakhstan Karim Masimov announced that the government might deprive Eni of the status of operator of this project. Such a harsh reaction of the state official followed the official statement of the Italian company about postponement of beginning of commercial production at the Kashagan from 2008 until 2010, as well as about increase of the aggregate costs of the project from $57 billion to $137 billion.
Energy Business Review: KazMunayGas and Socar Strengthen Oil and Gas Co-operation
Kazakhstan’s and Azerbaijan’s respective state-owned oil companies, KazMunayGas and Socar, have signed a memorandum on joint implementation of the trans-Caspian project and an agreement to strengthen their strategic co-operation in the oil and gas industry…