Project Suspension Hurts Kazakhs; Investment Climate Chilled by Halt to Oil Field expansion.(WORLD)(BRIEFING: WESTERN ASIA)

The Washington Times (Washington, DC), November 30, 2002 | Go to article overview

Project Suspension Hurts Kazakhs; Investment Climate Chilled by Halt to Oil Field expansion.(WORLD)(BRIEFING: WESTERN ASIA)


Byline: Christopher Pala, THE WASHINGTON TIMES

ALMATY, Kazakhstan - The surprise suspension of the biggest construction project in the former Soviet Union earlier this month has thrown into doubt Kazakhstan's attractiveness to foreign investors, bankers and oilmen here said.

Kazakhstan may be as corrupt and bureaucratic as anywhere in the former Soviet Union, foreign investors say, but it has two major advantages over Russia: There is virtually no mafia-style violence and the government - which often is synonymous with the family of President Nursultan Nazarbayev - has the ability to get its decisions carried out in the provinces.

But on Nov. 15, Tengizchevroil (TCO), a joint venture of leading Western oil companies and the state-owned oil company, caused consternation in Kazakhstan when it stopped work on a nine-year, $3.5 billion project aimed at nearly doubling production at the vast Tengiz oil field on the shores of the Caspian Sea.

The field is Kazakhstan's biggest single source of revenue, accounting for 15 percent of the country's budget. The planned three-year expansion was expected to boost production from 12 million tons of light crude annually to 22 million tons.

ChevronTexaco owns half of TCO, ExxonMobil (25 percent), Kazakhstan state oil company Kazmunaigaz (20 percent) and LukArco (5 percent).

In a telephone interview from TCO offices in Atyrau, director Tom Winterton declined to discuss the reasons for the suspension.

He said that the existing investment in Tengiz, estimated at more than $2 billion, had been financed mostly through sales of crude.

"This is a big project and there's going to be a need for a direct infusion of money from the partners, under the most realistic oil-price scenario," he said.

In the weeks since the startling announcement, top Kazakh officials rushed to reassure investors of the long-term viability of the project and give more details on the government's decision to take a hard line.

"All the partners are in favor of moving ahead," Deputy Prime Minister Karim Massimov told The Washington Times in an interview during a visit to Washington last week. "From my point of view, we are talking here more about accounting and taxation problems than anything else."

But the level of U.S. concern about the project snag was evident in a private meeting between Mr. Massimov and Commerce Secretary Donald L. Evans, in which Mr. Evans urged the Kazakh government to resolve the dispute quickly.

Mr. Massimov said he expected the dispute would be resolved soon.

"Whatever will be done will be done within the framework of existing contracts," he said.

Kazakh Energy Minister Vladimir Shkolnik said in a Nov. 19 press conference in the Kazakh capital of Astana that the crux of the dispute was the joint venture's handling of its tax payments. The oil companies hope to plow revenues back into the project, but the government fears that would lower its tax revenues by $1 billion over the next five years.

Mr. Shkolnik attacked those who said the impasse had dealt Kazakh-stan a black eye.

"The decision to suspend the project and the investment climate in Kazakhstan are not at all connected," he said. …

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