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Financial Times: Row halts work on Kazakh oilfield

By Isabel Gorst in Moscowand Guy Dinmore in Rome
Published: August 28 2007 03:00 | Last updated: August 28 2007 03:00

Kazakhstan called a three-month halt to work at the Kashagan oilfield on Monday, claiming a consortium led by Italy’s Eni had broken environmental rules and evaded customs duties on imported equipment.

The action escalates a dispute that erupted after Eni announced a two-year delay to the start of production and soaring development costs at Kashagan.

It came as the consortium opened talks with the government about a revision to its contract, and a new Kazakh energy minister, Sauat Mynbaev, was appointed.

Oil companies are concerned by parallels with Russia’s dispute with Shell, which lost control of the Sakhalin-2 LNG project to Gazprom last year after Moscow complained of environmental abuse and soaring costs.

A person close to the consortium said Romano Prodi, Italy’s prime minister, was considering advancing his visit to Kazakhstan scheduled for October 8-9.

Separately, the Kazakh finance ministry announced a criminal investigation into an alleged $2.5m (£1.2m) tax evasion by subcontractors working for the Eni group.

Analysts said the action could be part of a tactic to force better terms out of Eni to compensate for losses the republic would incur because of the delay to its flagship oil development.

Kazakhstan threatened this month to Eni’s right to operate Kashagan.

Eni said: “In the past few days, we have received a letter asking for a friendly re-discussion of the contract.”

The field, estimated to hold 30bn barrels of oil, is critical to Kazakhstan’s plan to triple oil production.

Copyright The Financial Times Limited 2007

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