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New Europe: The Big Squeeze: Nazarbayev follows Putin’s M.O.

Author: Kostis Geropoulos
Giant Caspian oil field Kashagan is the bone of contention in a dispute between the Kazakh authorities and Italy’s ENI*

Nursultan Nazarbayev has learned from the best. Russian President Vladimir Putin may have given the Kazakh president a few pointers on how to squeeze foreign oil and gas companies extra hard, threatening to take away their prized assets, in order to work out a better deal for his country.

The Kazakh government’s decision on August 27 to suspend work on the ENI-operated Kashagan oil field for breaches of environmental regulations is eerily similar to the way Russia’s Kremlin muscled back Shell’s Sakhalin-II and BP’s Kovykta assets.

Kazakhstan is no longer happy with the contract it has signed over for Kashagan, the giant Caspian oil field that holds much promise for the former Soviet republic. With oil prices about three times higher than when Kashagan’s first well was drilled in 2000, Kazakhstan would receive just 10 percent of the project’s revenue and an 8.33 percent stake in the field through its national oil firm, KazMunaiGaz. The government is demanding a sweeping renegotiation of the contract with the Agip KCO consortium — which in addition to ENI is composed of Exxon Mobil, Royal Dutch Shell, ConocoPhillips, France’s Total and Inpex Holdings of Japan — and has threatened to revoke its licence.

So far, there has been no official statement from Agip.

Manouchehr Takin, senior analyst at the Centre for Global Energy Studies, told New Europe on August 29 Kazakhstan cannot develop the Kashagan field by itself. “I’m sure the Kazakh authorities know that, so, at the end, they would like to work with the same companies, especially with this consortium that has a collection of all the big companies, and has the best of knowledge, technology, planning and overall management,” Takin said.

Some analysts reckon that the Kazakh government has adopted the Kremlin’s Modus Operandi in dealing with foreign oil and gas companies to get the Kashagan Production Sharing Agreement (PSA) revised. “The Kazakhs I suspect see that as a good move themselves, but the style in which they are doing it sounds remarkably like the way the Russians are going about it in terms of environmental concerns and things like that — issues that the Kazakhs would have had absolutely no interest in before whatsoever,” Justin Urquhart Stewart, director at Seven Investment Management in London, told New Europe on August 29.

He opined that the close relationship between Nazarbayev and Putin may have played into this. “I would be astonished if it didn’t. There is a very, very similar logic in which they have gone about it, so I think that relationship is much closer than many people probably anticipated,” Urquhart Stewart said.

Kazakhstan’s deputy minister of finance, Daulet Ergozhin, dismissed any comparison between Russia’s Sakhalin-II and Kazakhstan’s Kashagan. “If you’re trying to compare us with this Sakhalin project, we want to say we’re not a copy machine. We’re not copying the Russian Federation. Today, we are requiring from the foreign investors to give us a real action plan because today the formula is not working. It’s not a matter of pressure; it is a matter of problems,” he told New Europe, in a telephone interview from Astana on August 31.

He accused the Agip consortium of cost overruns, as well as breaching environmental, security and labour regulations. Ergozhin said the Kazakh government wants the consortium to come up with a new proposal on how it is going to move the project forward, how it will compensate for losses in the Kazakh economy and how and when actually the commercial production in Kashagan will start. “Official negotiations started on August 29 and, in terms of negotiations, we’re asking questions but we’re not getting any answers. So we asked them to get a time out till the October 5 (deadline) and then approach us with a real proposal,” he said.

Italy’s Prime Minister Romano Prodi is set to visit Kazakhstan in October where, among other things, he will discuss the dispute over Kashagan.

Coincidence?  I think not!  But Ergozhin says otherwise.

“We’re not connecting an issue concerning some private company with matters of politics,” he stressed. “If any company would express a desire to settle the problem before the coming of one of the political leaders, such as Mr. Prodi, we will be glad to hear that in order to engineer our dialogue openly. And, even if we’re unable to settle the Kashagan issue, the Italian state and Italian government is going to remain our close allied partner.”

The Italians may not be particularly happy, as seen in that all too familiar obscene gesture!

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31 August 2007 – Issue : 745 and its sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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