GOVERNMENT OF
REPUBLIC OF KAZAKSTAN

The oil and gas industry and the energy sector are an essential element of the national economy and the pillar for further economy diversification. This being said, Kazakhstan ensures stability, predictability, and long-term nature of interests of our neighbors and international partners we have been supplying with energy resources.

Being a full-fledged player in the global economy, Kazakhstan is a center of sustainable and steady development, including in the energy realm.

Kazakhstan has been a reliable and responsible contributor to the global energy security provision efforts; the nation’s role in the global oil and gas industry has been steadily expanding.

For the recent 15 years the overall oil production output worldwide has grown by 1/3, while that in Kazakhstan has mounted almost 2.5 times. At the dawn of its independence Kazakhstan produced over 26 million tons of oil annually. This year the oil production output is to reach 67 million tons; and with Caspian oil fields coming on stream, we could produce as much as 140 million tons annually by 2015.

Attraction of the oil and gas and electric power industries of Kazakhstan for investors has been growing stronger in line with the production output growth: gross inflow of direct foreign investments into the national economy from 1993 to date has made up USD 50 billion, with almost half of the amount being accommodated by the oil and gas and electric power sectors. This being said, the largest investors into the Kazakhstan economy – the USA, Russia, China, Great Britain, the Netherlands, France, Italy, and Japan – account for almost ¾ of the overall investments.

As before, the Government of Kazakhstan intends to maintain relations with foreign investors in line with the earlier set effective and plain formula of mutually beneficial cooperation.

The underlying element of this formula is to provide an opportunity to unrestrictedly - and at a profit - participate in development of promising natural deposits, notably oil and gas fields, in return for investments, advanced technology, best practices and access to global markets.

At the same time, as Kazakhstan President has emphasized, we regard it important to adhere to a transparent energy policy; therefore we have joined the Extractive Industries Transparency Initiative (EITI) proposed by the British Government.

To ensure stable supplies of hydrocarbons to international markets is a major priority in the energy policy of our nation. The current transit potential is exploited with due consideration of the multi-vector approach and with a view to maintaining the balance of interests of the major consumers of energy resources.

Apart from the already existing export routes such as Atyrau – Samara and the CPC, there are new routes that are being shaped now. Plans are afoot to join the Baku – Tbilisi – Ceyhan pipe; special importance is being attached to the Kazakhstan – China route; we are not losing sight of possible transportation of energy resources to the South of Asia.

Growing presence of the national oil and gas company in Europe is another sign of Kazakhstan’s willingness to contribute to energy supplies stability across the entire Eurasian space (Here, I am referring to acquisition of a stake in Rompetrol by KazMunaiGaz).

We have built an open democracy which has been functioning strictly within the legal framework based on generally accepted international practices.

The path once chosen by us remains unchanged: we have been working relying on the existing contracts - notwithstanding the fluctuations of price for oil, political trends, or globally accumulated experience of using an “energy bludgeon”. We have immunity against resource nationalism.

At the same time, there have been certain problems revealed in development of the national energy sector. In particular, they relate to some isolated foreign investors that have failed to meet the earlier undertaken obligations; as a result [of such failures] substantial damage is being inflicted on the national interests of Kazakhstan.

As you understand, I am referring to the situation revolving around the Kashagan project. Incomprehensible for us, the actions taken by the members of the consortium in charge of developing the oilfield have become regular in recent years and urge the Kazakhstan Government to call in question their [consortium members’] commitment to the Contract terms.

The delayed start of the commercial production at Kashagan as well as the more-than-twofold increase in the project costs are menacing Kazakhstan with serious social-economic repercussions; they may also tarnish the reputation of Kazakhstan as a promising, reliable international partner which contributes to the global energy security. Thus, actions of the consortium members have resulted in protraction of the payback period and substantial reduction of Kazakhstan’s share in production sharing. This translates in failures to build the [anticipated] schools, hospitals and roads, and large-scaled economic and infrastructure projects will be implemented with delays.

Thus, the Government will have difficulty meeting its obligations undertaken before the voters.

Kazakhstan does not agree to that and won’t be carrying the economic burden caused by huge costs overruns brought about by inadequate management on the part of the contractors.

The Government of Kazakhstan is ready to dialogue openly so that to settle the project-related issues within a reasonably shortest time; this being said, I want to openly state that those trying to breach the Kazakhstan legislation and neglect the national interests of Kazakhstan will be held fully liable in accordance with the applicable legislation and international standards for their actions.

We regard the Kashagan dispute as a single/isolated case. Irregardless of how it will be resolved, lawful interests of potential and existing investors in Kazakhstan won’t come to harm. Starting from the day of declaring its independence, Kazakhstan has been offering the best possible terms for investors; and we will be further on ensuring stability, predictability and long-term nature of interests of our international partners.

Thus, Kazakhstan remains a reliable and stable partner which respects its contractual obligations and advocates contract stability.

The Kazakhstan Government will only adjust its stance towards those that have failed to meet their obligations.

I want to bring back the five points emphasized by Kazakhstan President before the consortium members back in 2001.

First. To produce first oil in 2005.

Second. To ensure environment safety of the project.

Third. To secure a method of putting the gas to use.

Fourth. To purchase Kazakhstan-produced equipment and services.

And the fifth. To make the national oil company a co-operator.

Besides, taking the advantage of media representatives being here today, I am inviting Mr. Paolo Scaroni to come to Kazakhstan to discuss the issues related to Kashagan.

Furthermore, I learned from the media that Energy Commissioner Andris Piebalgs had voiced a certain stance over the Kashagan issue. Therefore, I am kindly inviting him to come to Kazakhstan on an official visit.

I hope the forum will be a platform for successful and fruitful work and that the follow-up recommendations will be discussed both by the Government and the private sector, including by the Interagency Committee established under the Kazakhstan Government following the 1^st Eurasian Energy Forum.

I wish all of you fruitful work to the benefit of development and prosperity of all the sides.

Thank you for your attention!