Kazakhstan wants to control Karachaganak spending

March 10. Reuters. ASTANA

By Raushan Nurshayeva

* Govt seeks stake or way to control expenditures
* Unhappy with tax stability clause

Kazakhstan wants to control Karachaganak spendingKazakhstan wants more say in running its huge Karachaganak gas field operated by a group of Western energy companies, a senior official said on Wednesday.

Seeking to boost budget revenues, the energy-rich Caspian nation has sought to bolster its role in the strategic oil and gas sector currently dominated by foreign energy giants.

The government says it wants a stake in Karachaganak and has accused Kazakhstan’s biggest gas project, led by BG and Eni, of tax evasion. The group says its operations comply with Kazakh law.

On Wednesday, Energy Ministry Permanent Secretary Kanatbek Safinov said the government wanted to exert more control over how Karachaganak partners ran the project and spent their money. 

“We would like to be part of the project, not as a regulator but as a partner,” Safinov told reporters. “But even if we do not get a stake we will still come up with an efficient arrangement to control all capital expenditures …”

As part of its drive to diversify its economy away from oil and metals, Kazakhstan has insisted that foreign investors – who have poured about $100 billion into its economy – buy more Kazakh goods and contract more services locally.

The government also wants to strip projects such as Karachaganak of immunity to tax changes as it increases tax rates in the energy and mining sectors. BG has criticised the proposed measure.

“With many large contracts we have imbalances where the subsoil user appears to be paying taxes and giving us a share of profit oil, but buys all goods and services abroad,” Safinov said separately in parliament.

“The balance of interests is effectively broken. Kazakhstan does not get the return it had expected from these projects.

“Therefore, if such economic interests are ignored Kazakhstan may raise the question of cancelling contracts.”

The Karachaganak group, which also includes U.S. firm Chevron and Russia’s LUKOIL, is the only large energy consortium in Kazakhstan where the former Soviet republic’s government does not have a stake.

Like other large energy deals, the Karachaganak contract was signed in the 1990s when Kazakhstan was desperate for more foreign investment for its economy shaking off the legacy of seventy years of Soviet rule.

Anaysts say the government now considers such contracts as skewed in favour of the foreign investors and wants to rewrite them to bring more cash into the budget. 

“Claims against oil sector players who arrived here in the 1990s and long enjoyed very favourable terms are on the rise,” said Meruert Makhmutova, director of Public Policy Research Centre, a local think tank.

Makhmutova said increasing pressure on Western companies could benefit China whose state energy firm CNPC has already partnered with Kazakh state company KazMunaiGas twice to buy oil assets in the country.

“I have a feeling the rules are being changed in favour of, let’s say, other players,” she said. “Maybe this will lead to greater Chinese presence in the oil and gas sector.”