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Kazakhstan eager to win back energy assets

By STEFAN NICOLA, UPI Europe Correspondent

BERLIN, Jan. 29 (UPI) -- Kazakhstan is trying to extract more cash from domestic oil and gas fields developed by Western companies in a move some observers fear is part of a greater strategy to win back influence over key industries.

The Central Asian energy powerhouse announced that it might raise additional budget revenues by levying taxes and export duties on Western multinationals running several oil and gas fields in the country.

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Kazakh Energy Minister Sauat Mynbayev warned this week that foreign companies should prepare to no longer remain exempt from domestic taxation.

Companies that could be affected include Chevron, involved in the Karachaganak gas project, and Exxon Mobil, part of a consortium developing Kashagan, the biggest oil find in 40 years.

Mynbayev threatened a rewriting of their contracts, most of them drafted in the late 1990s, when Kazakhstan's economy was in shambles. At the time, Western multinationals moved in and invested billions of dollars into the Kazakh energy sector in exchange for very favorable business conditions.

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Kazakhstan profited, too: The country's national energy fund, which accumulates the revenues from the oil and gas sector, currently holds nearly $25 billion. A landlocked country larger than Western Europe, Kazakhstan, once populated by Nomadic tribes, over the past few years averaged double-digit yearly economic growth.

Yet the country, which just assumed the chair of the Organization for Security and Cooperation in Europe, has been hit hard by the financial crisis. Wages have been falling and the economy came to a grinding halt. The frustrated public confronted the country's autocratic leader, President Nursultan Nazarbayev, who was criticized for selling out natural resources to Western multinationals.

Nazarbayev last year announced that he would get back some of those resources -- and his energy minister followed up on that earlier this week.

Companies have refused to comment on the tax plans -- a sign that they are indeed worried.

Adam Hug, of the London-based Foreign Policy Center, said both sides have a point.

"The deals were made when Kazakhstan was in a much weaker bargaining position … and there is a sense among the Kazakh population that those deals didn't adequately value the resources Kazakhstan has," Hug told UPI in a telephone interview Friday. "At the same time, Western multinationals were taking a big risk by investing in a country with no guarantee for political stability."

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There was speculation that Astana would buy into Karachaganak, run by a consortium that includes Chevron, Britain's BG, Italian firm Eni and Russian company Lukoil. Karachaganak is Kazakhstan's biggest gas field, holding some 1.35 trillion cubic meters.

While the energy minister denied this, experts said such a move makes sense.

"It would not shock me if one of the government's goals was to get an equity stake in this project," Edward Chow, an energy expert with the Center for Strategic and International Studies, a Washington think tank, told UPI in a telephone interview.

Not least because the rumors are reminiscent of what happened with Kashagan.

Astana in 1998 sold its stake in the oil field to foreign firms for $500 million. It re-entered the project in 2004 and doubled its stake four years later after a lengthy row with Western companies over time frame and costs. Kashagan is now run by Kazakh state firm KazMunaiGas, Exxon Mobil, ConocoPhillips, Royal Dutch Shell, Eni, Total and Inpex Holdings of Japan. Observers say the move was part of a greater strategy to win back control over key domestic industries.

Yet Chow, a senior expert on the region, said Kazakhstan is not interested in throwing out Western multinationals.

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"Kazakhstan is different from Russia or Venezuela," Chow told UPI. "Forcing completely new terms would spoil the investment climate and Astana knows that."

"Some of these projects are terribly complex, and that's why you need companies like Exxon Mobil," he added. "The Kazakhs don't want control, just a better economic deal."

Nazarbayev's government has in the past years managed to balance cooperation with its powerful neighbors, including China and Russia, and with the West. Kazakhstan, for example, is one of the main suppliers of a key pipeline to Europe bypassing Russia, the Baku-Tbilisi-Ceyhan pipeline, but it nevertheless managed to keep relations with Moscow strong. It has been courted many times by the West and the East but has always resisted swinging one way or the other.

It now seems like Kazakhstan is emancipating itself, both from the Western multinationals and powerful former protector Russia.

When neighboring Belarus was entangled in a dispute with Russia over oil prices, Kazakhstan stepped in and offered its own oil to Belarus. Astana even said it was ready to purchase a stake in a key Belarusian refinery, which Russia's largest oil companies have coveted. Such a direct undermining of Russian muscle-flexing was unprecedented.

Yet to remain powerful down the road, Nazarbayev needs to raise more money for his key plan -- modernizing and diversifying the Kazakh economy.

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The president Friday unveiled plans to spend some $8 billion per year on industrial development starting this year. The money will be drawn from the country's national energy fund, which is due to grow to $90 billion by 2020, Nazarbayev said. More cash from the Western multinationals would further that plan.

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