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Financial Times: Prodi’s visit eases dispute over Kazakh oilfield delays

By Isabel Gorst in Tbilisi and Guy Dinmore in Rome
Published: October 9 2007 03:00 | Last updated: October 9 2007 03:00

Kazakhstan’s dispute with an Italian-led consortium over delays and cost overruns in developing the Kashagan oilfield can be resolved without rewriting the contract, President Nursultan Nazarbayev told Italy’s visiting prime minister yesterday.

Romano Prodi and Paolo Scaroni, the head of Eni which is 30 per cent owned by the Italian government and is the project operator, both pronounced themselves pleased with the outcome of discussions over the world’s most expensive oil project.

Analysts noted, however, that negotiations still lay ahead and that the consortium could face a large bill from Kazakhstan, possibly in the form of a penalty.

“The attitude of the president is extremely positive and can be instrumental in reaching an accord in the future,” said Mr Prodi at a joint press conference in Astana, the capital, with Mr Nazarbayev.

Mr Prodi’s visit, together with more than 150 Italian business representatives, had been planned before the dispute blew up in August when Kazakhstan threatened to suspend work at the oilfield for environmental reasons.

The Kazakh government also suggested that KazMunaiGas (KMG), the state oil company with an 8.3 per cent stake in the consortium, become co-operator.

Mr Scaroni told the Financial Times from Astana: “As a result of the Prodi visit, everyone is more optimistic about the Kashagan project and about the direction in which Kazakhstan is moving with foreign oil investors.”

The consortium would respond to KMG’s desire to have a “bigger involvement” in the project, said Mr Scaroni. Partners include Royal Dutch Shell, Exxon Mobil Corp, Total, Conoco Phillips and Japan’s Inpex.

In his first public intervention over the dispute, Mr Nazarbayev appeared to want to reassure the Italian side, following tough comments from his ministers.

“We are not talking about revising the contract signed 10 years ago,” he said. But he also noted that delays had cost Kazakhstan a lot of money and that the Kazakh side had the right to act according to the law if contracts were violated. “And I think Eni understands that,” he added.

The president was referring to amendments recently passed by parliament that would allow the state to rewrite or annul contracts concerning natural resources under special circumstances. Mr Prodi’s delegation raised its concerns over the law.

Eni faces an October 22 deadline to settle the dispute amicably. Analysts, however, questioned how the issue would be resolved without a renegotiation of the contract.

Julia Nanay, senior director of PFC Energy consultancy, said: “It would be possible for Kazakhstan to solve the dispute without changing the contract if it were to levy a penalty for delayed production.”

Mr Prodi is to visit the Caspian sea oilfield, which is projected to pump 1.5m barrels a day, today.

World View, Page 20 (ASIA AND US) – European View, Page 18 (EUR) Page 26 (LON)

Copyright The Financial Times Limited 2007

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