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Update No: 284 - (27/08/04)
Playing to the gallery
The Kazaks are in a different situation to the Russians. But events in Moscow
have a big impact in Astana for all that.
Kazakstan faces elections to parliament in September, just as Russia did last
year in December. It was hardly a co-incidence that Khodorkovsky was arrested
and the case against Yukos hotted up in late October just beforehand. The
government bloc, United Russia, duly romped home an easy victor in the
Something similar is under way in Kazakstan. The regime is not arresting anyone
or instituting any court case. But it is accusing a major foreign investor of
tax evasion, British Gas or more specifically its local subsidiary, BG
Karachaganak. The sums are piffling compared with those being demanded from
Yukos, which could bankrupt the Russian company. On July 19th, citing the
results of a March audit, the Kazak financial police accused it of failing to
pay $5.4m in customs dues on liquid natural gas it produced between 2001 and
2003 and sold to buyers in Russia. The retrospective nature of the demands and
their closeness to the elections are what are disturbing about them. Is BG to
become the sacrificial victim, as Yukos looks increasingly likely to be in
The answer is probably not. The government wants a bigger share of the energy
pie, that is assets, not just output and revenues. It recently announced its
intention to buy BG's stake in the multinational consortium to exploit the
Kashagan field in the Caspian sea, the largest field discovered in the last 30
years world-wide. It has proven reserves of 9-13bn barrels of oil, according to
the US Energy Information Administration Though output is not expected to flow
until 2008. Kashagan could by then be producing one million barrels per day by
2015, making Kazakstan one of the top five producers world-wide.
Chevron and Mobil moved into Kazakstan in the early 1990s, with Chevron's Tengiz
onshore field being a huge $20bn project. When Kashagan was found in 2000, the
Kazaks turned to BG to form a consortium with Eni,Shell, ExxonMobil, Total,
Conoco- Phillips and Inpex of Japan.
The environmental difficulties of the project are formidable and require the
latest technology to be tackled effectively. Hence the turn to the majors.
In winter the shallow waters of this part of the Caspian can turn into ice floes
that, if carried by high winds, can destroy whole oil rigs. Agip, the operating
arm of Italy's Eni, therefore, built concrete-and-steel islands from which to
Kashagan lies beneath the spawning grounds of the Caspian's beluga sturgeon, the
only source of the world renowned beluga caviar. Agip is making sure no waste
from its drilling is discharged into the sea. It has developed a technology to
recycle waste water, previously only employed in submarines. With all these
precautions the cost of the project is reckoned to be $29bn.
BG decided to sell its $1.2bn stake in Kashagan last year, offering it to two
Chinese firms first. But the government then stepped in and insisted on its own
right, as owner of the sub-soil, to buy the stake. It wants to be part of the
action, reasonably enough. This will enhance its political standing ahead of the
If a deal can be struck with BG, every party could be satisfied. BG is retaining
its 32.5% stake in the Karachaganak field, that has an estimated 6 billion
barrels of oil and gas.
Eni announced that a fifth promising field has been discovered on its
exploration patch. There is plenty of oil and gas in the Kazak part of the
Caspian and the majors are not likely to lose interest in it.
AVIATION & SPACE
Priozyorsk stations refurbished
Kazakstan plans to carry out a project next year to revive optical ground
stations for monitoring space satellites in Priozyorsk in the Karaganda Region,
New Europe reported recently.
"The government will assign 800m tenges for the revival and further
development of the optical stations in Priozyorsk," Prime Minister, Daniyal
Akhmetov, said at a news conference in Astana on August 2nd. "This is an
interesting idea and we will start implementing it as of next year," he
said. The cabinet is convinced that the project is commercially attractive for
both Kazakstan and nations that have communication satellites. Over 120
communication satellites fly over Kazak territory daily. "For seven hours,
when virtually all of them fly above Kazakstan, they are incapable of
transmitting information to the countries that own them," Akhmetov said. In
addition to commercial benefits, Kazakstan "will get a chance to monitor
all the satellites flying over it," he said. He added that Kazakstan's
first geo-stationary communication and broadcasting satellite, KazSat is
expected to be launched before the end of 2005.
Moody's upgrades Kazakstan's railways to Baa3 from Ba1
Moody's Investors Service on July 16th upgraded to Baa3 from Ba1 the long-term
issuer rating of Kazakstan Temir Zholy ("KTZ"), the national railway
company of the Republic of Kazakstan and the outlook for the rating is positive,
Interfax News Agency reported.
The upgrade reflects Moody's reassessment of the linkage between KTZ and the
former Soviet republic of Kazakstan and the likelihood of structural changes
that could lead to a change in the relationship with the State. Moody's said in
a press release that increasing visibility as to the final structure of KTZ,
based on the successful progression of the restructuring programme, has
reassured that KTZ will retain a strong connection to Kazakstan for the
foreseeable future. Moreover, the rating also takes into consideration the
remaining transition and event risk associated with the ongoing restructuring
process in the railway sector, which will ultimately transform the business
profile of KTZ from that of a full-spectrum rail services provider to that of a
more focused provider of infrastructure, cargo and locomotive services.
Specifically, KTZ will become a streamlined provider of rail services, with a
monopoly position in the management of the national rail infrastructure and
dispatching, as well as a competitive position in cargo and locomotive services.
Moody's expects KTZ's core revenues to face competitive threats arising from
alternative modes of transportation in particular, from the gradual build-up of
Kazakstan's oil pipeline system, which is likely to impact on KTZ's largest
freight commodity on a profit basis.
Nevertheless, Moody's noted in the press release that company-specific
operational and competitive issues are out-weighed from a ratings perspective by
the expectation of continued government commitment and support. The positive
rating outlook is based on Moody's expectation that there will be no material
change in KTZ's link with the Kazak state (measured by the extent of government
and regulatory support) during the ongoing reform process and until it reaches
completion after 2009.
Eni division makes news discovery with Kairan-1
Eni SpA unit Agip KCO, operator of the North Caspian Sea production-sharing
agreement with Kazakstan's state-owned Kazmunaygas, made a new discovery with
the Kairan-1 exploration well in the Kazak sector of the Caspian Sea, Oil and
Gas Journal reported recently.
The well, which was drilled to 3,850m TD, encountered an oil pay zone exceeding
500m, Eni said. The well flowed on test at 4,100 b/d of 44 gravity oil through a
32/64-in choke. Additional appraisal studies currently are underway. Kairan is
the fifth discovered field on the 1.4m-acre PSA, following the world-class
Kashagan, which has estimated resources of 13bn bbl of oil, Kalamkas, Kashagan
Southwest, and Aktote. ENI holds a 16.67% interest in the project.
Atasu-Alashankou pipeline construction advances
Preparation work progress on the construction of the Atasu (Kazakstan)-Alashankou
(Western China) pipeline and other issues concerning this project were discussed
at another government session headed by Prime Minister, Danial Akhmetov, on July
29th, Kazinform reported.
Underlining the positive results of the activities of all concerned ministries,
institutions and departments implementing the project, he then focused their
attention on the fact that the construction of this project would offer
invaluable experience in the management of such a huge project.
It was reported at the session that there had been successful negotiations on
the main principles and conditions of financing with the Chinese partners of the
project. Founding documents for establishing the Kazak-Chinese pipeline joint
venture had been signed along with budget estimates and list of staff for the
joint venture. They had also had preliminary talks with some lender banks.
The construction of this 977.5km pipeline, with a throughput capacity of 10
million tonnes per annum, should begin this year and be completed by the end of
Before concluding the session Akhmetov instructed the ministries and departments
to accelerate work and fulfil the tasks set out by the president concerning the
construction of this pipeline.
Kazakstan to boost oil production by 9.1%
Kazakstan plans to produce 56 million tonnes of oil and gas condensate in 2004,
up 9.1 per cent from 51.3 million tonnes in 2003, Kazak Energy and Mineral
Resource Minister, Vladimir Shkolnik, said at an expanded government meeting
held on August 2nd in which Kazak President, Nursultan Nazarbayev, participated,
Interfax News Agency reported.
"According to the forecasts that we have, we will reach production of 56
million tonnes of oil, which means growth of 9.1 per cent by the end of the
year," Shkolnik said. He also said that this year the republic plans to
produce 16.2 billion cubic metres of natural gas, up 15.5 per cent on an annual
basis. He said that coal production would increase 2.0 per cent to 85 million
tonnes, and electricity production would increase 6.0 per cent.
Kazakstan may sign production deal with Rosneft
The government of Kazakstan expects to sign a production sharing agreement with
Russia on developing the Kurmangazy oilfield in the Kazak sector of the Caspian
Sea, Prime Minister, Daniyal Akhmetov, said in a news conference in Astana,
Interfax News Agency reported.
"I am absolutely convinced that the production sharing agreement on the
field will be signed at the end of the year," he said. According to
Akhmetov, there are no problems in the current negotiating process over the
issue and positive work is under way to protect national interests, the news
A Kazak government-working group comprised of representatives of various
ministries is negotiating the terms of the production with KazMunaiGaz and
Rosneft. Russia also hopes that the agreement will be signed in 2004.
MunaiTas gains 82m from EBRD for pipe project
The European Bank for Reconstruction and Development (EBRD) signed on July
29th a deal to provide MunaiTas with a loan worth 81.6m to refinance a
portion of Kazakstan's share in the Kenkiyak-Atyrau oil pipeline project,
Interfax News Agency reported recently.
The loan will be provided for 10 years under guarantees by KazTransOil but the
interest rate was not revealed. The money will be used to refinance a loan
provided by Halyk Savings Bank worth 81.6m for MunaiTas that was granted on
collateral for a deposit by KazTransOil due to the high interest rate. MunaiTas
agreed to draw up a plan for environmental protection and to prevent accidents,
and will introduce ISO standards in its operations under the loan deal.
MunaiTas Director General, Talgat Dzhumadilayev, said at a press conference
following the signing of the agreement that the Kazak share of more than 100m
in the Kenkiyak-Atyrau project had been fully paid. The Kazak company had
previously received a loan worth 23m from ABN Amro Bank to finance its share
in the project. The rest of the money for the project will come out of
Kazakstan's share in the net profit of MunaiTas.
The pipeline will cost 206.6m to build, but this could increase to 422.3m.
The Kenkiyak-Atyrau pipeline connects fields in Aktyubinsk and Atyrau regions in
western Kazakstan with existing export pipelines - the Atyrau-Samara pipeline
and the Caspian Pipeline Consortium system to Novorossiisk.
If the pipeline is used in reverse it would be the first section of a pipeline
from Kazakstan to China.
KazTransOil operates 6,400km of oil pipelines in Kazakstan and 3,140km of water
pipelines. It has storage for 1.243m cubic metres and owns several railroad
loading racks. The company transport about 80% of the oil produced in Kazakstan.
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