Astana Claims $1.6bn from Karachaganak Partners
Authorities in Kazakhstan have demanded that the Karachaganak Petroleum Operating (KPO) consortium should pay $1.6bn for violating its production -haring agreement (PSA).
Similar claims in 2010 by Astana led to the partnership handing over a 10% equity stake in the giant Karachaganak gas and condensate field to Kazakhstan. Analysts believe that this year the fine is an attempt to increase transfers from KPO to the state budget, rather than to wrest more equity from the consortium.
Lukoil, which holds 13.5% in the Karachaganak consortium, wrote in its report that it could pay $214mn but that “this will not have a significant negative impact on the financial condition.” The reason for the claims is that Kazakhstan is not happy with the consortium’s working conditions: the dispute is about “compensation of costs and calculation of the “fairness index” of the PSA.
Bloomberg reported in October 2015 that Kazakhstan had accused the consortium of violating the PSA terms and conditions and it then fined the consortium $1.8bn.
Lukoil wrote in its report that “talks are in progress to settle the dispute.” Kazakhstan's finance ministry told Russian daily Kommersant that “the tax agencies have no claims to the consortium” but that the claims are related to environmental damage.
The Karachaganak field was discovered in 1979 and its development began in 1984. It produces almost 45% of Kazakhstan's gas and 16% of the country's liquid hydrocarbons.
In 1997 the Kazakhstan government signed a 40-year PSA with Karachaganak Petroleum Operating, whose shareholders now are the Anglo-Dutch major Shell (formerly BG) and Italian Eni each with 29.25%, Chevron with 18%, Lukoil has 13.5% and state KazMunaiGas 10%.
According to the partnership, since the start of the field's development until the end of 2015, $20.6bn were invested in the project and Kazakhstan’s budget received $13.6bn. In the past three years about 140mn bbls of oil equivalent/yr have been extracted from the field.
Azerbaijan Desk