Kazakhstan’s Ministry of Justice says the country is not obligated to comply with an interim ruling issued by the U.N. Commission on International Trade Law (UNCITRAL) arbitration tribunal. As a result, shareholders in the Kashagan consortium could still be required to pay a 2.3 trillion tenge environmental fine, along with an enforcement fee equal to 10% of the amount if payment is not made on time.
The case stemmed from a 2022 fine imposed by Kazakh authorities over excessive sulfur storage at the field. Kashagan’s high-sulfur crude requires safe processing and removal, and Kazakh regulators claimed that open-air sulfur storage violated environmental laws.
Ministry rejects NCOC’s interpretation
The ministry was responding to a statement by the North Caspian Operating Company (NCOC), the operator of the Kashagan oil field, which said the UNCITRAL tribunal’s interim measures restricted Kazakhstan from enforcing the environmental penalty.
According to the ministry, the fine was imposed for violating Kazakhstan’s environmental laws, and its legality has already been upheld by Kazakh courts.
UNCITRAL does not override state authority
The ministry argued that UNCITRAL commercial arbitration differs from investment arbitration under the investor-state dispute settlement (ISDS) system. It said commercial arbitration tribunals resolve private contractual disputes and do not have the authority to restrict a state’s sovereign powers.
It also noted that interim measures issued by a foreign commercial arbitration tribunal do not automatically take effect in Kazakhstan. Under the New York Convention, such rulings must first be recognized and enforced by Kazakhstan’s competent courts.
Environmental enforcement takes precedence
According to the ministry, Kazakh authorities are legally required to enforce final domestic court rulings concerning environmental violations.
«An interim measure granted by a foreign commercial arbitration tribunal does not take precedence over mandatory provisions of the Republic’s legislation, does not impede the enforcement of a final judicial decision on the collection of an environmental fine, and does not limit the state’s exercise of its sovereign powers to protect the environment and public interests,» the ministry said.
Additional enforcement fee possible
The ministry warned that if the NCOC consortium fails to comply with the Atyrau Regional Court’s decision by July 20, enforcement proceedings could begin against the consortium and its contractors.
In that case, an additional enforcement fee equal to 10% of the amount collected — approximately 230 billion tenge — could also be imposed.
The shareholders in the NCOC consortium are KMG Kashagan B.V. (16.877%), Shell Kazakhstan Development B.V. (16.807%), Total EP Kazakhstan (16.807%), Agip Caspian Sea B.V. (16.807%), ExxonMobil Kazakhstan Inc. (16.807%), CNPC Kazakhstan B.V. (8.333%) and INPEX North Caspian Sea Ltd. (7.563%).
