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Financial Times: Kazakh legislators push new oilfield contract

By Isabel Gorst and Ed Crooks in London
Published: September 27 2007 03:00 | Last updated: September 27 2007 03:00

Lawmakers in Kazakhstan have approved a bill to empower the state to annul natural resource contracts, strengthening the oil-rich Central Asian republic’s hand in its dispute with foreign oil groups led by Eni of Italy at the Kashagan field in the Caspian Sea.

The Majilis, Kazakhstan’s parliament, yesterday voted unanimously for an amendment to the natural resource law to allow the government to cancel or introduce retrospective changes to contracts perceived to harm the national economic interest.

Yerlan Nigmatulin, a Kazakh MP who proposed the bill, said: “The draft law aims to enhance our country’s national interest over natural resources.”

The bill requires approval by the senate, parliament’s upper chamber, and by Nursultan Nazar-bay-ev, president, before becoming law – but its passage is thought very likely. All parliamentarians belong to Nur Otan, the president’s party.

Kazakhstan has set an October 22 deadline for settlement of the row. The government has de-manded compensation for delays to production and cost overruns at the field, the core development in the republic’s plan to triple oil output within a decade.

Eni says the dispute is commercial in nature and that the contract can be renegotiated by all consortium members together with Kaz-Munai-Gas, the state oil company. Western partners do not see the government jeopardising Kashagan’s future by seriously damaging investor confidence.

Other members of the Kashagan consortium include ExxonMobil, ConocoPhillips, Royal Dutch Shell, Total and Inpex of Japan. This summerit postponed the start of production until late 2009. The bill for the 40-year scheme has surged to $136bn from $47bn.

The present contract allows Eni and partners to delay royalties payments to the government until after cost recovery.

Additional reporting by Guy Dinmore in Rome

Copyright The Financial Times Limited 2007

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