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Fresh delay to Kashagan oilfield plan sparks anger

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Fresh delay to Kashagan oilfield plan sparks anger

By Isabel Gorst in Astana

Published: June 30 2008 03:00 | Last updated: June 30 2008 03:00

Production at Kashagan, one of the world’s biggest oilfields, has been postponed by two years to 2013, Kazakhstan said at the weekend.

It warned that new setbacks, blamed on rising costs, would lead to severe penalties for the western consortium developing the Caspian Sea project.

A memorandum of understanding signed by the government and the Eni-led consortium builds on a framework agreement from January, when investors pledged to compensate Kazakh-stan for late production and ballooning costs at Kashagan and committed to start production by late 2010 The consortium includes Shell, Exxon Mobil, Total, ConocoPhillips, KazMunaiGas and Japan’s Inpex Holdings.

“In addition to important adjustments to economic terms, the new agreement also provides the republic of Kazakhstan with substantial assurances that the project will be implemented in accordance with the ap-proved schedule,” KazMunai-Gas, Kazakhstan’s state oil company, said.

Sauat Mynbaev, energy minister, said if production was delayed beyond 2013, the Eni group would lose the right to defer royalties payments until after the recovery of development costs.

“They have already invested $17bn [€11bn, £9bn] and this money will be refunded in [future] oil production. But if they continue to spend money beyond October 1 2013, the sum will not be refunded in oil. It will be purely their loss,” Mr Mynbaev said. “We think this is the last time there will be a delay.”

Julia Nanay, a senior director at PFC Energy, said: “This is a memo of understanding, not a watertight agreement. There are likely to be more, complex negotiations before the Kashagan terms are laid in stone.”

When Eni signed the Kashagan contract in 2000 it said production would begin in 2005 and build to 1.5m barrels a day. The field lies at the core of Kazakhstan’s plan to double oil production and enter the ranks of the world’s top oil exporters.

The government is becoming more demanding of foreign investors in the country’s resources. Tough terms for oil and mining contracts will oblige them to support downstream projects to help the country diversify its economy, a senior official said.

“If you would like to invest in Kazakhstan, you must first pay tax, second, follow the environmental ag-enda and third, bring something value-added,” Kairat Kelimbetov, presidential administration head, told the Financial Times.

Key figures

*1.45m barrels of oil a day produced in 2007

*Average 9 per cent GDP growth over past six years

*Petroleum industry accounts for roughly 30 per cent of the country’s GDP and more than half of its export revenues

*There was $20bn in the National Oil Fund of Kazakhstan in October 2007

*Population of Kazakhstan: 15.4m. Population of Almaty, the former capital: 1.13m

*Unemployment rate: 7.3 per cent

*22 months from conception to construction: the time it took to build Norman Foster’s pyramid, the Palace of Peace and Reconciliation

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