Oil firms draw the line on Kazakh demands
By Sabrina Tavernise
The New York Times
Monday, November 18, 2002
MOSCOW - The government of Kazakhstan found out last week just how far it could push the foreign oil companies who are working to develop its immense oil and gas reserves, analysts said.
When a consortium led by ChevronTexaco Corp. said Thursday that it was calling off a $3 billion expansion of production at the Tengiz oil field, one of the biggest and most important investment projects in any former Soviet republic, the official announcement cited an inability among the partners to agree on financing.
But people close to the negotiations and analysts who follow oil development in Central Asia said Friday that the real problem was the Kazakhstan government's escalating efforts to rewrite its 1993 agreement with the consortium to develop the field.
For example, a person close to the negotiations said, the government proposed changes in the way the project would account for depreciation, a technical issue that would nonetheless have "significantly affected the economics of the project."
Much of the Kazakh economy is built on the fruits of an oil boom. In the 1990s, the government did its best to attract foreign capital and skill to develop its energy riches, and it had a reputation as the most welcoming country in the region for foreign energy investors. Over the past decade, it drew about $10 billion of foreign direct investment, far more than its much bigger and richer neighbor, Russia.
ChevronTexaco bet heavily on Kazakhstan, and the Tengiz expansion project on the north shore of the Caspian Sea was hailed as an important part of the company's growth strategy.
Building on a decade of work in the former Soviet Union, the consortium is known as TengizChevroil and includes Exxon Mobil Corp., LukArco of Russia and a Kazakh company, KazMunaiGaz, as junior partners. It is already the leading foreign-run oil operation in the country, pumping 270,000 barrels of oil a day. The new project would have stepped up output to 430,000 barrels a day over three years.
But without an agreement on acceptable terms, "we had no option but to suspend all activity" on the expansion, Peter Robertson, vice chairman of ChevronTexaco, said. The friction with the government began after the discovery in 2000 of a huge oil reserve called Kashagan in the Kazakh portion of the Caspian Sea. Since then, analysts said, the Kazakh government has been trying to reopen the oil development agreements that it signed in the early 1990s to get better terms.
"There's a sense that Kazakhstan has been pushing and squeezing investors to find out how hard they could squeeze," said Laurent Ruseckas, a Caspian specialist at Cambridge Energy Research Associates in Paris. "Now they know."
Among other moves, the government has drafted legislation that would toughen conditions for foreign investors in Kazakhstan, including removing a clause in current law that specified tax and royalty rates for years into the future. As Kazakh officials became more confident in the country's reserves, their stance hardened, Ruseckas said.
Economic successes "gave them a sense of complacency," said Julia Nanay, a director at Petroleum Finance Co., a Washington-based consulting firm. "They had the view that heaven was the limit."
Kazakh officials say they are simply trying to bring their oil-sector laws, which now give foreign companies special treatment, into conformity with global standards.
"We are taking international experience into account in the new laws," said Yerlan Abildayev, chairman of the investment committee in Kazakhstan's Ministry of Industry and Trade. "In no way will this infringe on the rights of investors."
The TengizChevroil consortium has disagreed with the government in the past. An argument over tax payments was resolved last year. A $73 million fine imposed for storing sulfur near the field is being disputed in local courts.
Copyright © 2002 The International Herald Tribune |
