Translated material
"We have a plan B"
Kazakhstan demands that Eni appoint Kazmunaigas as a co-operator of Kashagan
Kazakhstan yesterday demanded that the shareholders of the project to develop the Kashagan oil field make the national Kazmunaigas a co-operator of the project along with the Italian Eni. As the country's Prime Minister Karim Masimov explained to journalists, this is being done “in accordance with the instructions and demands expressed by the President” Nursultan Nazarbayev. “Currently, friendly negotiations are ongoing until the situation is resolved. If they (Kashagan shareholders led by Eni. - Ed. ) do not agree to Kazakhstan’s demands, then we have a plan B, and I will announce it later,” the prime minister threatened. What will be the mechanism for transferring new rights in the project to Kazmunaigas, Mr. Masimov did not say. “I won’t talk about the percentage (of the national company’s participation in Kashagan) yet,” he said following the government meeting. However, so far the Kazakh prime minister has no one to negotiate with: Eni head Paolo Scaronni has not yet arrived in Astana, although he has been expected there since September 3.Kashagan shareholders are Eni, Total, ExxonMobil, Shell (18.52% each), ConocoPhillips (9.26%), Inpex and Kazmunaigas (8.33% each). The recoverable reserves of the shelf field are estimated at at least 7-9 billion barrels (1-1.2 billion tons), and the total geological reserves of the entire Kashagan oil-bearing structure are 38 billion barrels (5.4 billion tons). Eni postponed the commissioning of the field several times and also increased the project estimate. According to the latest report from Eni, sent to the government of Kazakhstan at the end of July, commercial oil production will begin at Kashagan no earlier than 2010, and the total costs of the project will increase from 57 to 136 billion dollars. This document served as the beginning of a loud conflict between the company and the authorities Kazakhstan. Officials conducted several unscheduled inspections at Kashagan facilities, as a result of which Eni was presented with a wide variety of claims - from the death of Caspian seals to additional tax charges amounting to over $14.3 million. Criminal cases were initiated against several project managers for evading payment of customs duties and fees amounting to more than $2.5 million for the illegal import of two civilian helicopters. But most importantly, at the request of the Ministry of Environment, the Kazakh authorities ordered a temporary halt to all work on the project.
“The delay in the start of commercial production of Kashagan oil and the more than doubling of costs for the development of the field threaten serious socio-economic consequences for Kazakhstan, and may also affect the reputation of Kazakhstan as a promising, reliable international partner that contributes to global energy security,” - Mr. Masimov said yesterday. “We believe that the economic balance was upset not in favor of the government of Kazakhstan and the corresponding demands were presented.”
According to preliminary estimates by the Kazakh authorities, announced in early September, the country's losses from the operator's actions could amount to tens of billions of dollars. As Deputy Minister of Finance of the Republic Daulet Ergozhin said last week, exact damage figures will be announced today. According to Kazakh media reports, the amount of damage could grow to $40 billion. It is possible that by plan “B”, Mr. Masimov meant precisely the requirements for the payment of these funds to the country’s treasury. In addition, he has previously repeatedly stated that he is ready to deprive Eni of its operator status.
However, apparently, Eni intends to negotiate and reach a compromise. According to Reuters, the Italian company said it was satisfied with the statement of the Kazakh prime minister. The parties are now agreeing on the time and terms of the meeting. Masimova and Scaroni.
It is possible that other members of the consortium are also putting pressure on the Italians. After all, a few years ago they also accused Eni of delaying the development of the project. Last Wednesday, Total CEO Christophe de Margerie called on Eni to begin negotiations with Astana as quickly as possible. “It is clear that the project must offer conditions that will contribute to our profitability in the long term. So we won't compromise. However, it is clear that the situation has changed and we will have to accept it, he said. “The priority is undoubtedly to quickly resume negotiations with the authorities and find acceptable solutions.”
At the same time, some Vremya Novostei sources in Italy indicated that, in their opinion, Nursultan Nazarbayev intends to derive political benefit from the conflict around Kashagan: he is going to meet with Italian Prime Minister Romano Prodi and raise the issue of assistance in Kazakhstan’s plans with him become the head of the Organization for Security and Cooperation in Europe (OSCE) in 2009. However, those involved in the oil project seem to be opposed to such plans: “Let's not delay the work, let's not interfere with politics. This is not connected in any way,” said, in particular, Mr. de Margerie.