Kazakhstan announces new energy
directions By Robert M Cutler
Kazakhstan's Prime Minister Karim Masimov
has announced major energy-related decisions in
the wake of President Nursultan Nazarbaev's
address to the nation last week. First, and most
strikingly, he has ordered the suspension all
negotiations with foreign investors on
exploration, development and extraction of
subsurface natural resources pending the working
out of a new tax code.
Second, referring
to Kazakhstan's recent success in forcing
renegotiation of terms for development of the
Kashagan offshore oilfield, he has declared that
state policy on the "recovery of balance of the
country's interests" in "strategic objects" will
be continued. Third, he announced that there would
soon be created a state trust analogous to
KazMunaiGaz but operating "in the
sphere of solid [rather than
liquid] hydrocarbons", ie mainly oriented towards
coal rather than gas and oil. This trust will be
created within the existing structure of Samruk
Holding.
Elaborating on the first of these
three decisions, Masimov added that the government
would, on an order from Nazarbaev, simply cancel
contracts in the natural-resource sector in cases
where foreign partners are not meeting their legal
obligations. (These obligations could range from
the planned schedule for capital investment to
failure to observe Kazakhstani environmental law.)
This clarification from Masimov is merely an
extension of a law that entered into force last
year.
The Majilis (Kazakhstan's
Parliament) had, at the end of September 2007,
approved amendments to legislation on subsoil
resources, providing for annulment of contracts
judged not to be in accord with "national
security". At the time, the move was believed to
be a device for putting pressure on the Western
partners in Agip KCO, the consortium that is
developing the offshore Kashagan oil field.
When these negotiations were concluded in
mid-January, Astana had held firm on all its
demands and successfully compelled their
acceptance by the foreign partners: but not before
Nazarbaev had, in early November, signed the
amendments earlier passed by the Majilis. It is
these amendments to which Masimov makes implicit
reference.
Masimov's declarations follow
on Nazarbaev's programmatic re-assertion of
Kazakhstan's national interests as the point of
departure for economic decision making,
particularly concerning foreign direct investment
in Kazakhstan. In particular, the construction of
refining plants and production of "added-value
energy products" in the country will likely become
a negotiating demand on future foreign investors.
Nor is this is likely to be a mere bargaining
chip.
Nazarbaev identified the production
of refined hydrocarbon products as "the main issue
of our energy and petrochemical development"
because of its capacity to increase the sector's
profitability. And he left no doubt over whether
the recent political pressures forcing
renegotiation of the conditions of the Kashagan
consortium were an accident, adding that large
foreign investors in the natural-resource sector
needed to make a "greater and concrete
contribution to Kazakhstan's industrialization",
especially diversification of the country's
industrial base. And the government will, "if
there is a need, initiate relevant legislation".
At the same time, the government in Astana
plans to enhance its verification of foreign
partners' compliance with environmental
regulations both defined by contract and defined
by national law. It is likely that this oversight
will be integrated into, or coordinated with, a
national program for increasing energy efficiency.
In order to facilitate all this, there is
a declared intent to streamline, at least
somewhat, the administrative process for the
granting of rights to exploration and production,
reducing lists of documents required, for example,
and simplifying legal procedures. The preparation
and implementation of the streamlined procedures
will likely progress in tandem with the
formulation of a new integrated national energy
development strategy covering extraction and
export of both oil and gas. For export, the
country will target the world market as a whole
but focus attention on Russia, China, Central Asia
and the Caspian and Black Sea regions.
An
important part of this overall vision would be the
building up of the country's infrastructure,
including but not limited to all forms of
transportation of both people and goods. This
component of the vision is somewhat problematic,
however, despite (or because of) its emphasis on
market forces in what would be a state-constructed
plan, together with an at least rhetorical
emphasis on free competition in rail transport.
Demonopolization in telecommunications may be less
problematic, but it would be difficult to
guarantee more or less universal cellphone
coverage without some sort of state mandates.
Perhaps an even greater problem, is
assuring electrical power to some of the most
populous parts of the country, viz southern
Kazakhstan, Karaganda, Aqtobe (formerly
Aktyubinsk), Kostanai, and Almaty city. India and
Turkey have been trying separately for over 10
years to demonopolize their electricity sectors
and their interrelated but distinct subsectors
(such as power generation and power distribution,
to name but two). If neither of them has
succeeded, success for Kazakhstan in this endeavor
should not be taken for granted.
Yet power
generation and distribution are sine qua non for
economic production and development. The two
processes are in fact extremely intricate and
interrelated almost like chicken and egg. Given
the unhappy experience of Belgian firm Tractabel
in the late 1990s, it is not certain whether
Western investors will rush in.
Indeed,
Kazakhstan is counting less on them than on
state-driven integration of Central Asian energy
grids and, probably, take-or-pay natural gas
delivery contracts. The centrality of natural gas
to ecologically friendly energy generation is
surely why Kazakhstan has put a new accent on
formulating a comprehensive national natural gas
development and export policy (as well as
exploring possibilities for developing nuclear
energy).
It is no surprise, therefore,
that a new national strategy for the natural gas
industry in particular is to be prepared and given
a legislative basis. In this connection Kazakhstan
should, according to Nazarbaev, talk up the idea
of a Central Asian "complex system of state energy
networks" with its neighbors, looking to create a
Council of Energy Security that would create "a
market system providing regional and international
energy security". The contradiction between such a
market system and the state energy networks
remains to be resolved in practice.
Despite uncertainties, what emerges
clearly from all these indications is that
Kazakhstan seeks to assert itself as strongly as
possible as a pro-active player in Central
Eurasian energy and not just be a field on which
other states (and industrial trusts) play out
their opposing interests. Whether history will
follow the grand vision Nazarbaev has described,
however, will depend on variables beyond
Kazakhstan's control, including the attitude of
its neighbors to the form of practical
implementation of that design.
Robert M
Cutler is research
fellow, Institute of European, Russian and
Eurasian Studies, Carleton University,
Canada.
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