[A-List] Kazakhstan: state vs. western oil companies?

["Michael Keaney" <michael.keaney@xxxxxx>]

Kazakhs fine US-led oil consortium $70m
By David Stern in Baku and Matthew Jones in London
Financial Times: December 4 2002

A consortium led by ChevronTexaco of the US developing the multi-billion
dollar Tengiz field in western Kazakhstan has been fined up to $70m (£45m,
?70.2m) by a Kazakh court for environmental violations.

The penalty is the latest setback for Tengizchevroil (TCO), which recently
decided to halt indefinitely a $3bn expansion that would double production
to 22m tonnes a year by 2005, citing differences over how to finance the
project.

Analysts said it appeared to mark a deterioration in relations between
western oil companies and the Kazakh government in the oil-rich ex-Soviet
republic.

"The Kazakh authorities want to show oil companies who is the boss. But this
is very sad for the country and will undoubtably make companies more
cautious before investing in Kazakhstan in the future," said a Moscow-based
analyst.

A Kazakh official in the Atyrau region where TCO is based said a local court
had upheld a decision to fine the four-member consortium for violations in
storing sulphur, which is a by-product of the oil production.

TCO has produced around 6m tonnes of sulphur since the consortium was
created in 1993. The yellow substance is stacked in enormous blocks on the
vast Kazakh steppe, near the Tengiz oilfield south of Atyrau. TCO says the
sulphur is a product, whereas the Kazakhs say that it is waste and therefore
requires special permission for storage.

Tengiz, with up to 9bn barrels of recoverable reserves, is ChevronTexaco's
largest international holding. TCO officials declined to comment on the
timing of the verdict, saying only that they would review the legal
documents in the coming days. "TCO is very disappointed with the court's
decision," said a consortium spokesperson, who added that TCO took part in
the proceedings under "permanent protest".

Officials have said the main stumbling block over the expansion of Tengiz
was whether to reinvest revenues from the project to fund further expansion
or to seek outside financing. Kazakh authorities, for whom TCO is the single
largest source of tax revenue, said they could lose up to $200m if TCO's
plans were approved.