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International Herald Tribune: A new Kazakh law is a threat to contracts with foreign oil companies

ReutersPublished: September 26, 2007

ASTANA, Kazakhstan: Kazakh lawmakers passed a bill Wednesday allowing the government to unilaterally break contracts with foreign companies, potentially threatening an Italian-led consortium developing a giant oil field.

Kazakhstan has already stopped operations at the huge Kashagan oil field, run by the Italian energy firm Eni, in a conflict over mounting costs and project delays, but the legislation raises the stakes still further.

The unanimous vote in the lower house of Parliament gave the state extra leverage over Eni and its main partners, Royal Dutch Shell, Exxon Mobil and ConocoPhillips as talks over Kashagan enter their final stage ahead of an Oct. 22 deadline.

“There’s no way you can describe this legislation as positive from an investment perspective,” said one Western investor closely watching the case who asked not to be named.

“What this means is that people will start thinking of Kazakhstan more like Russia,” he said. “What we don’t want to see is for Kazakhstan to fall into the same category as Russia, because that would be negative.”

The law, approved without any public debate, will come into force once passed by the upper house and signed by President Nursultan Nazarbayev. Both chambers are backed with Nazarbayev loyalists, so the upper house stage is seen as a formality.

Under the law, Kazakhstan could force retroactive changes to contracts with domestic or foreign companies or break their terms altogether, if it saw a threat to national security.

Kazakhstan’s newfound assertiveness in the oil sector echoes Russia’s dispute with Royal Dutch Shell, which ended with the firm losing control of the giant Sakhalin-2 energy project, the world’s largest liquefied natural gas development.

Other major Kazakh projects that could be affected by the new legislation include the Tengiz oil field, developed by the U.S. oil firm Chevron via a joint venture.

http://www.iht.com/articles/2007/09/26/business/contract.php

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