BG and Kazakhstan: Bilateral Responsibility on the Way to Prosperity
Kazakhstan has made great progress in the transition from the command economy of the Soviet period toward a market economy within which investors, both local and international, are working. The leadership and the Government have made significant effort to create a robust legal and fiscal framework, which allows for business to operate in a reasonable way. The process of transition continues to take a great deal of effort, but assuming continued positive structural reform and institution building does take place together with stability, in the contractual framework, then Kazakhstan will continue to stay attractive for foreign investors.
BG has three major investments in Kazakhstan. BG holds 32.5 per cent interest in the huge Karachaganak gas condensate and oil field situated in West Kazakhstan Oblast near Uralsk. Directly related to the Karachaganak Field, BG holds a small but important interest in the Caspian Pipeline Consortium (CPC). The third interest, as one of seven shareholders, is in the North Caspian Consortium operated by Offshore Kazakhstan International Operating Company (OKIOC).
Karachaganak
The Karachaganak field, a giant gas condensate and oil field in Western Kazakhstan, was discovered in 1979. It was developed and operated by the Soviets until the break up of the Soviet Union in early 1990s. To stimulate further field development activities, the Kazakh authorities entered into an agreement in 1992 giving BG and Agip exclusive rights to negotiate a Production Sharing Agreement (PSA).
In 1995, a Production Sharing Principles Agreement (PSPA) was signed. This allowed BG Group and Agip to halt rapid decline of production and improve the safety and environmental performance of the facilities.
In August 1997, Texaco acquired a 20 per cent share of Karachaganak from BG Group and Agip. In November 1997, LUKoil took over the 15 per cent of the project formerly held by Gasprom.
In November 1997, a Final PSA (FPSA) was signed, superseding the PSPA, providing for the full development of the field. The FPSA became effective on January 27, 1998. Current production is approximately 4 MTPY (million tons per year) of liquids.
Phase II of the Karachaganak development to construct new processing facilities and a connecting pipeline to the Caspian Pipeline is well underway. On completion of phase II in 2003, planned production will reach approximately 9 MTPY
Caspian Pipeline Consortium (CPC)
The CPC was formed to build a pipeline system to transport oil from western Kazakhstan to the Black Sea at Novorossiysk. The first part of the system, known as the Initial Construction Project, will have a capacity of 28 MTPY all of which has been allocated to CPC shareholders.
BG will be entitled to 2.75 MTPY capacity which will be used to transport liquids from the Karachaganak field. BG together with its partners in Karachaganak will have a total capacity of 7 MTPY to export Karachaganak liquids. Expansion could increase the total capacity of the pipeline to 67 MTPY.
Considerable progress has been made on the construction of the marine terminal and pipeline. The pipeline, which will become the main export route for Kazakhstan’s oil, is due to commence operations in late 2001.
North Caspian Project
BG is one of nine shareholders with 14.29 per cent interest in the North Caspian Sea PSA, which covers 5600 square kilometers of the Kazakh sector of the Caspian Sea. The PSA was signed in 1997, becoming effective in April 1998.
The operator of the venture is OKIOC a joint operating company owned by the partners.
The first well Kashagan East-1 has recently been announced as a discovery. OKIOC is proceeding with an aggressive appraisal program to further evaluate the significance of the East Kashagan 1 well.
Social Commitments to Kazakhstan
In countries in which BG operates, commitment to people and the environment is inseparable from the company’s business performance.
In Kazakhstan BG is involved in major social programs through its interest in the Karachaganak Project in West Kazakhstan and the North Caspian Project (OKIOC) in Atyrau and Mangistau Oblasts.
Also as an example BG has developed relationships with School #2 for disabled children in Almaty and is the key sponsor of the Chair of Environmental Technology at the Almaty Institute Of Power Generation and Telecommunications. The BG Wildlife Exhibition recently toured Almaty, Astana, Uralsk, Atyrau and Aktau.
Table of contents
The Foreign Investors Council is a model of co-operation between young democracy and transnational companies Askar Yelemessov
Kazakhstan Investment Policy: Time to Change Priorities Dulat Kuanyshev
The Association of Investors of Kazakhstan: Our might is in unity, and the path to success lies in our solidarity! Serik Tulbasov
Fundamentals of the Legal Regulation of Production Sharing Agreements in the Russian Federation Sergei Gudkov
Production Sharing Agreements: The Legal Aspects Aigoul Kenjebayeva
