The hand of state
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The hand of state

The return of “resource nationalism” in Kazakhstan has investors spooked. But the rationale is economic as much as political

By Julian Evans

The return of “resource nationalism” in Kazakhstan has investors spooked. But the rationale is economic as much as political


Energy has long been used as a geopolitical weapon. Russia, for instance, has often used natural gas supplies – and the threat of hiking prices – to exert influence over its neighbours. 

But when Kazakhstan last month announced a new crude oil export duty, the debate over the return of resource nationalism resurfaced with new vigour, as the central Asian state trained its sights squarely on foreign investors.   

The duty, which comes into force this month (May), is $109.9 per tonne, or 15% of the international oil price – “much lower than the initial indications of 25–27%, according to Deutsche bank analysts in Moscow. But the tax, which has yet to be reviewed by the president, is being scrutinized by investors, who fear the fallout from the new, hard-line sentiment. 

The duty is expected to fall on about 27 million tonnes of oil, less than half of Kazakhstan’s exports. Deputy energy minister Lyazzat Kiinov has said that Kazmunaigaz, the London-listed state-controlled production company, is likely to have to pay – while the western operators of the huge Tengiz and Karachaganak fields, including Chevron, Eni and BG, have been told they will be exempt.

On one interpretation, the government, struggling to cope with an economic crisis, is looking to increase its share of the extractive industries as a way to increase revenues and bolster its flagging popularity with voters. 

President Nursultan Nazarbayev declared in his state of the union address in February that resource nationalism was now official government policy: “The main dimension in the oil-and-gas sector is boosting the position of the state as an influential and responsible participant on international oil and energy markets,” he said. “Work must continue in this direction.”The government has suspended all negotiations with foreign energy companies on new projects until it agrees on a new tax code, likely to be finished in September, which will almost certainly raise taxes further. 

End of the PSA

In February, it also said it would no longer use production sharing agreements, or PSAs, for hydrocarbon projects. PSAs were the most common legal framework for energy deals in the CIS in the 1990s, when the legal regimes in the former Soviet Union were weak. 

But both Kazakhstan and Russia have announced they don’t intend to use the PSAs anymore, as they argue their regulatory regime is now mature enough for agreements to be done under domestic law. Kazakh prime minister Karim Massimov said in a February Cabinet meeting: “This is not the mid-90s, when everything was complicated and we invited investors in on any conditions.”

As in Russia, foreign investors who agreed relatively favourable oil and gas deals in the 1990s are now coming under pressure to renegotiate these deals to give the state more favourable terms. 

In January, state oil and gas firm Kazmunaigaz managed to persuade the foreign investors in the Kashagan consortium to sell it a controlling stake in the huge offshore oilfield for $1.78 billion, which some analysts suggested was below market value. The foreign investors, led by ENI, had come under pressure for failing to meet domestic environmental standards, just as Shell had done with the Sakhalin project in Russia. 

The consortium, led by Eni and including ExxonMobil, Royal Dutch Shell and Total, has also agreed to pay Kazakhstan between $2.5 and $4.5 billion to compensate for the project starting late: first production has been moved back from 2008 to 2011. The international oil companies (IOCs) will also double the stake held in the project company by Kazmunaigaz, the state-owned national oil company (NOC), to 16.8%.

The compensation, and increase in Kazmunaigaz’s share, is a considerable improvement in Kazakhstan’s terms. The PSA, first signed in 1997, reportedly pays only $120 million a year for the first 10 years after production starts, and its terms have not been changed as a result of the renegotiation.

Kazakhstan is still getting a raw deal, some observers argue. Platform, an oil industry watchdog, early this year published a report arguing that the terms of the contract – which has not been made public – will cost Kazakhstan $20 billion up to 2017. Consortium members dispute those figures.

The Kashagan dispute followed a similar clash between Russia and the IOCs involved in the Sakhalin II liquefied natural gas (LNG) project, which was resolved last year by Gazprom’s purchase of a 50% share. The deal was trumpeted in the local press. A headline in the Megapolis newspaper read: “Great Oil Victory...Kazmunaigaz and the government have shown who is boss.”

Prime minister Massimov warned that the state would nationalize any other projects that failed to meet their contractual obligations. “This work will be continued,” he told President Nazarbayev in televised comments. 

The multi-billion-dollar TengizChevroil project, controlled by Chevron, is now coming under pressure from environmental regulators, who have criticized the project’s practice of flaring gas and building up sulphur stockpiles. 

Domestic industrial groups are also coming under state pressure. On April 18 deputy finance minister Daulet Yergozhin told reporters that the government was considering imposing an export duty on metals products. He said that companies making a return of “above 25%” could fairly earn “20–22%”, and added that any metals duty would be lower than the oil duty. Eighteen of the largest Kazakh miners addressed an open letter to the government urging it to drop the plan.

Laying blame

But analysts think the state might also be looking to blame foreign and domestic investors for the country’s economic woes. Inflation is running at around 18% in the country, and the global credit crunch has hit the banking and real estate sectors hard. Real estate prices have fallen by around 40% this year, which has hit many Kazakh retail investors who speculated on the market by buying second apartments in Almaty. 

The Almaty-based Risk Evaluation Group suggested in a recent report that the state was now looking for scapegoats. The report’s author, Dosym Satpaev, says: “Determined to remain in control, the authorities might shift the blame onto local business structures... All blame is to be pinned on the banks.” Satpaev adds that foreign extractive companies are also coming into the firing line.  

Kate Mallison, senior analyst at Control Risks, agrees: “There’s rising discontent among the population, with inflation running very high. Accompanying it is a rising sense of nationalism, and a desire for the state to get more from its agreements with foreign investors.”

Yet at the same time, the government’s economic difficulties mean that it is, if anything, even more dependent on the goodwill of foreign investors, particularly foreign debt investors. Kazakh banks, for example, need to refinance $3 billion in bonds and loans every three months over the next 12 months. 

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