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Bloomberg: Kazakh Parliament Amends Subsoil Law Amid Eni Dispute (Update3)

By Nariman Gizitdinov

Sept. 26 (Bloomberg) — Kazakhstan’s lower chamber of parliament approved changing a law to let the government cancel contracts with oil companies, raising the stakes in a dispute with Eni SpA over the Kashagan venture.

“The new amendments were approved unanimously without any changes,” Yerlan Nigmatulin, a lower-chamber deputy and member of President Nursultan Nazarbayev’s NurOtan party, said today in an interview from the capital, Astana. The amendments are expected to be approved by the upper chamber tomorrow and then signed by the president, he said.

The law would enable the government to enforce contract changes to “restore the economic interests of Kazakhstan,” the parliament said Sept. 12.

The Eni-led venture at Kashagan, the world’s biggest oil discovery in three decades, is being pushed to cede a larger stake in the project to state energy company KazMunaiGaz National Co. International oil companies including Royal Dutch Shell Plc and Rome-based Eni are being forced to renegotiate exploration contracts with resource-rich countries demanding more profits from surging oil prices.

Yesterday, BG Group Plc Chief Executive Officer Frank Chapman discussed the company’s operations in Kazakhstan with Prime Minister Karim Masimov in Astana. Masimov gave a “high appraisal” of BG’s role in the country’s oil and gas industry, according to a statement posted on the government’s Web site.

Chevron Talks

The meeting with Chapman followed talks on Sept. 21 with Chevron Corp. Chief Executive David O’Reilly, during which Masimov said he “thinks highly” of the U.S. company’s work.

Nazarbayev and Italian Prime Minister Romano Prodi said the Kashagan issue is “exclusively business” and “must not be politicized,” according to a statement posted on the president’s Web site late yesterday after the two leaders met in New York.

The project “is an example of the investors’ violations of law and creation of a threat to the Kazakh national interests, but there are some other companies as well,” said Nigmatulin, who also heads the parliamentary committee on ecology.

The new law would allow the government to annul contracts if “the contractor does not provide a written agreement to negotiate contract changes within two months,” the parliament said. Contracts may also be canceled if the two sides don’t subsequently reach agreement over four months of talks, it said. The parties then have a further six months to sign any changes. This gives the investor as much as a year to settle terms, parliament said Sept. 12.

`Strategic Significance’

The bill can be applied to contracts that have already been signed if they have “strategic significance,” it said. The government may unilaterally cancel contracts if they threaten national security, it said, without elaborating.

“Now Kazakhstan will talk with investors as an equal partner,” Nigmatulin said. “It wasn’t like that before.”

Kazakhstan, which has 3.3 percent of the world’s proven oil reserves, has threatened to shut Eni’s venture after the start date was pushed back by five years and costs ballooned to $136 billion. It may want KazMunaiGaz to take a larger stake in the Caspian Sea development to help resolve the dispute.

“I understand that is one of their requests, but I don’t believe it’s the only one,” Eni Chief Executive Officer Paolo Scaroni said Sept. 21. “The position has not been articulated yet.”

Scaroni also said there had been no developments in talks with the Kazakh government since his meeting with Masimov on Sept. 11. After that meeting, Eni said “the basis was set” for the group of companies to start negotiations with Kazakhstan.

Eni, Exxon Mobil Corp., Total SA and Shell each hold 18.5 percent of Kashagan, while ConocoPhillips has 9.3 percent. KazMunaiGaz and Japan’s Inpex Corp. each own 8.3 percent.

To contact the reporter on this story: Nariman Gizitdinov in Almaty, through the Moscow newsroom at [email protected]

Last Updated: September 26, 2007 08:45 EDT

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