Key energy projects may lose special tax status - Nazarbayev

energy

Key energy projects may lose special tax status - Nazarbayev

By SRI ⋅ January 25, 2010 ⋅

(SRI) - Without naming specific projects, Kazakh President Nursultan Nazarbayev warned on Friday that foreign ventures enjoying special protective status may lose their immunity from changes in tax legislation.

A number of Western energy majors operate in Kazakhstan under production-sharing agreements (PSAs) negotiated in the 1990’s. The agreements, signed when Kazakhstan struggled to lure foreign investors into the country, have provided the companies with stable tax regimes for the duration of the contracts, running as long as 40 years.

Kazakhstan’s three largest projects - Tengiz, Karachaganak and Kashagan - operate under PSAs.

“We have to […] depart from this arrangement of immunity so that everyone works in line with the same legislative changes that will happen in the future,” Nazarbayev told a government meeting said. “All the contracts currently operate in accordance with the legislation that was in place at the time of their signing […] Times are changing and life is changing in the entire world, and state interests are pushing us in this direction. We have to work more thoroughly and constructively.”

In efforts to diversify its commodity-based economy, Kazakhstan has introduced a mineral extraction tax last year but projects operated under PSAs with stable tax regimes have been exempt. As one exception, Karachaganak Operating, the operator of the Karachaganak gas condensate field, was forced to pay the tax. Currently, the company is seeking a refund of more than $1 billion from the government, claiming that the tax was unlawful.

Kazakhstan has begun to reclaim its influence over its vast hydrocarbon wealth in recent years, seeking a greater role for the state oil and gas company KazMunaiGas and restricting the role of foreign investors. Western majors, operating under the original PSAs, have so far been forced to make few concessions, but calls to abandon the agreements, based on what many call unjust deals signed in the chaotic years following the collapse of the Soviet Union, have become louder as Kazakhstan asserted itself as an oil and gas power.