Ministry of Energy confirms multi-billion dollar legal claims against Kashagan and Karachaganak investors
Kazakhstan’s Minister of Energy Almasadam Satkaliyev confirmed that the PSA company has filed lawsuits against entities involved in the Kashagan and Karachaganak projects.
«The PSA company, which is acting as an authorized body of the government of Kazakhstan, has filed lawsuits through international arbitration against companies involved in the Karachaganak and Kashagan projects. I can’t provide further details but I can say that these lawsuits have been filed on behalf of the people of Kazakhstan. There are two lawsuits for $3.5 billion and $13 billion,» the minister told journalists after a government session.
At the same time, Satkaliyev highlighted that foreign investors play a crucial role in Kazakhstan.
«Concerning revising these agreements, this is an issue that falls under international law. We have to think about how to attract foreign investments into the country. We are strongly dependent on investments in our infrastructure. As you know, there is a lack of available funds in the world and the competition for the attention of qualified investors is quite high,» he noted.
Last week Bloomberg reported that the government of Kazakhstan filed lawsuits against two out of the three largest oil projects in Kazakhstan – Kashagan and Karachaganak.
People familiar with the matter told the American news agency that Kazakhstan wants its partners in the two oil projects not to deduct $13 billion of expenses in the case of Kashagan and $3.5 billion of expenses in the case of Karachaganak.
The country may significantly increase its revenue from these two oil fields under the product sharing agreement (PSA) if it succeeds with legal lawsuits.
The legal proceedings on Kashagan and Karachaganak are expected to take place in Geneva and Stockholm, respectively. Foreign investors haven’t yet appointed arbitrators, unlike Kazakhstan.
The lawsuits cover the periods from 2010 to 2018 for Kashagan and from 2010 to 2019 for Karachaganak. In both lawsuits, Kazakhstan accuses foreign companies of violating bidding procedures and not completing the work in full.
Earlier this year, President Kassym-Jomart Tokayev ordered the cabinet to make big commodity companies pay more taxes, including corporate income tax and value-added tax.
Some companies are ready to negotiate with the government. Kazchrome, a part of Eurasian Resources Group (ERG), controlled by moguls Alexander Mashkevitch, Patokh Chodiyev and the Ibragimov family, suggested $580 million in investments in exchange for tax stability until 2030. The Ministry of Foreign Affairs has also published a draft of a similar agreement with Shubarkol Komir, which is another subsidiary of ERG. In this project, the investor is ready to invest an additional $582 million in exchange for tax stability until 2030.
According to Bloomberg, apart from bigger revenue from oil companies, Kazakhstan intends to change the bidding system in favor of Kazakhstani subcontracting companies.
Kashagan investors (NCOC) have invested more than $50 billion in the project. Moreover, the project faces an environmental penalty of $5.1 billion. Some say that Kazakhstan is allegedly seeking ways to get a bigger stake in the Kashagan project. In the Karachaganak project, its biggest stakeholders Shell and Eni invested at least $27 billion so far.
Among NCOC shareholders are KMG Kashagan B.V. (16.877%), Shell Kazakhstan Development B.V. (16.807%), Total EP Kazakhstan (16.807%), AgipCaspian Sea B.V. (16.807%), ExxonMobil Kazakhstan Inc. (16.807%), CNPC Kazakhstan B.V. (8.333%) and Inpex NorthCaspian Sea Ltd. (7.563%).
