Kazakhstan’s Multi-Vector Energy Policy Leaves Much Unresolved

Kazakhstan’s Multi-Vector Energy Policy Leaves Much Unresolved

At the end of October, President Nursultan Nazarbayev of Kazakhstan signed several controversial amendments to the country's Law on Subsoil Use. The new legislation permits the government to unilaterally change contracts for companies involved in extracting the country's mineral resources if Kazakh officials deem such alterations necessary to uphold their nation's economic and security interests.

On Oct. 8, President Nazarbayev had reassured visiting Italian Prime Minister Romano Prodi that his government would honor the original terms of its contract with the ENI SpA-led consortium that was developing Kazakhstan's offshore Kashagan oil field -- providing its members did likewise. On Oct. 22, Kazakh authorities and the consortium agreed to complete negotiations on revising the terms of the Kashagan project by the end of November 2007.

Kazakh officials have complained repeatedly about production delays and rising costs associated with the project, which involves the world's largest oil field outside the Middle East. On several occasions, Kazakh Prime Minister Karim Masimov objected that, by delaying the scheduled start of production from 2005 to 2008 and then to 2010, and by announcing in July an increase in its estimated production costs from $57 billion to $136 billion, the ENI consortium had effectively breached its contract. On Aug. 27, the government suspended ENI's license to develop the Kashagan oil deposit for three months for violating the country's environmental regulations.

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