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Financial Times: Kazakhstan oil tax crackdown

By Isabel Gorst in Moscow
Published: December 3 2007 02:00 | Last updated: December 3 2007 02:00

Kazakhstan warned international oil companies at the weekend to stop living “in ancient times” as it prepared to tighten the fiscal regime at oilfields and increase state ownership of its flagship Caspian Sea development.

Daulet Yergozhin, Kazakhstan’s deputy finance minister, said, draft revisions to the tax code, to be debated in parliament early next year, would increase budget revenues, be “simple to administer and collect and very understandable for oil and mineral producers”.

There are plans to introduce a new blanket tax covering all oil production to replace existing royalties and rents charged only on oil exports.

Analysts said the tough tax proposals reflected widespread frustration in Kazakhstan, led by President Nursultan Nazarbayev, about the advantageous contracts secured by foreign oil companies in the 1990s when oil prices were low and the republic was sunk in an economic recession that followed the collapse of the Soviet Union.

“We are trying to catch up with the times. If investors want to live in ancient times it may suit them, but it does not suit us,” Mr Yergozhin told the Financial Times.

Foreign investors would be consulted about the tax amendments, he said. His comments came as Kazakhstan appeared close to asserting greater control over the giant Kashagan field as part of a settlement of a dispute with an oil consortium led by Eni of Italy about surging costs and production delays at the giant Caspian Sea project.

KazMunaiGas, Kazakhstan’s state oil company, said in a statement that four out of five members of the Eni group, which includes ExxonMobil, Shell, Total, ConocoPhillips and Inpex of Japan, had agreed in principle to dilute their shares in Kashagan to allow it raise its interest to match that of a “large participant”.

Industry insiders said KazMunaiGas was negotiating to raise to 30 per cent its

8.33 per cent interest in Kashagan, one of the world’s biggest untapped oilfields.

Exxon is understood to have demanded an extension of the Kashagan contract beyond 2041 in exchange for handing shares to KazMunaiGas. Exxon could not be reached for comment.

A deadline of December 20 was set for the finalisation of a settlement at Kashagan during talks last week, the Eni group said in a statement at the weekend.

Copyright The Financial Times Limited 2007

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