According to the initiators from the Finance Ministry, the increase of the export customs duty by twice will provide the government with mechanisms for the maximum exemption of natural resource rent while Kazakhstan will enter the list of countries with a high tax burden for subsoil users. However, the oil companies are not very happy about this innovation; it looks like they will deliver a serious battle against the financiers. The price paid is an increase of tax burden on hydrocarbon exporters by 6.4%.
The tax burden becomes heavier
Bolat Zhamishev, the Finance Minister, believes that an increase of the export customs duty (ECD) for oil in 2011 from $20 to $40 per ton will lead to the increase of the tax burden for subsoil use companies to 68.4%. According to him, under the current ECD at $20 per ton the tax burden for the subsoil users in Kazakhstan reaches 62% while ECD of $40 “ensures a tax burden, close to one in the major countries with a high tax burden for subsoil users". Mr. Zhamishev affirms that the calculations of the Finance Ministry are based on the principle, saying that "we should never undermine the business of the enterprises, but we should make the best efforts to exempt the natural resource rent".
Meanwhile, the KazEnergy Association has its own viewpoint on this issue. Thus, during the XXI Congress of the World energy council in Montreal Zhanbolat Sarsenov, Executive Director of the Association, said: "We already see the negative feedback on the introduction of the export customs duty in general and particularly on its duplication, effective of 2011; we are responsible to deliver our opinion on this to the government". He believes that the investment market is not that big while the competition between the countries is intense there. Therefore, it would be desirable for Kazakhstan to restrain such factors as the export customs duty in order "to maintain the attractiveness of our market for investors".
In his turn, commenting on the ECD introduction, Mark Rollins, Senior Vice President of the British Gas Group (BG Group) for Central Asia, noted that the tax treatment for Karachaganak Petroleum Operating (KPO) Consortium, developing the Karachaganak field in Kazakhstan, must remain unaltered. "The issue of the export customs duty remains on the agenda of discussions we are running with the government. Our partners and we believe that our contracts are stable in relation to any changes that may take place with the export customs duty in the tax legislation", Mr. Rollins noted. "We hope we will be able to set this issue during discussions with the government", he added.
It has to be mentioned that in mid-August, 2010 Kazakhstan introduced ECD for oil and oil products. The government approved the following customs duty rates: the export of crude oil – $20 per ton, light oil products – $99.71 per ton, heavy oil products – $66.47 per ton.
On September 7 Sauat Mynbayev, Kazakhstan’s Oil and Gas Minister, and Yuriy Trutnev, Russia’s Natural Resources and Ecology Minister, signed an intergovernmental agreement on geological survey and exploration of the Imashevskiy gas condensate deposit in the presence of the two presidents, Nursultan Nazarbayev and Dmitry Medvedev. The document was signed in the framework of the plenary session of the Interregional Cooperation between Kazakhstan and Russia Forum that took place in Ust-Kamenogorsk.
According to the agreement, the Imashevskiy deposit (the explored reserves of which reach 128.7 billion cubic meters of gas and 20.7 million tons of gas condensate), located at the junction of Astrakhan and Atyrau Oblasts and that was in fact the only disputable area in border delimitation between the Russian Federation and the Republic of Kazakhstan for a long time, will be the first target of development, located in both countries.
Not later than 100 days after the agreement is put in effect the parties must issue the appropriate licenses to authorized organizations for the field operations. It is worth reminding that Gasprom OJSC and the KazMunayGas NC were defined as such on a parity bases.
Mangistau suffers from the delayed terms on Nort-Caspian project
The delay of the implementation terms of the Kashagan project negatively impacts the Kazakhstani enterprises of the Mangistau Oblast. Such opinion was expressed by the Oblast Akim Krymbek Kusherbayev during a field session of the Committee for Economic and Regional Policy of the Republic of Kazakhstan under the Parliament’s Senate, devoted to implementation of the Road Map and the State Program of Accelerated Industrial and Innovative Development for 2010–2014.
On September 13–14 of 2010, deputies Nurlygaim Zholdasbayev, Talgatbek Abaydildin, Mikhail Bortnik, Kaysar Omarov, Alexandr Savchenko, Nurlan Suleymenov, Zhanseiyt Sarsenkulov visited the oblast. The purpose of their business trip was to learn about the socio-economic development of the region. The senators visited the offshore operations support base of Tenizservice LLP in the Tupkaragan district, where the presentation of the investment project took place. They also observed the implementation progress of the project of construction of the production area and steel fabrication facility of Makdermott LLP as well as the project of construction of a drilling muds preparation plant of M-I Drilling Muds International B.V. The deputies visited the support base of Balykshy LLP and ship maintenance plant. They were informed about the conditions of housing and utilities infrastructure and the operations of RGE Aktau international sea trade port and MAEK-Kazatomprom LLP.
According to Mr. Kusherbayev, "in concern with the delay in the field development second phase implementation of the North-Caspian project from 2011–2015 to 2018–2019 we observe the trend of suspension of orders at Kazakhstani enterprises; as a result, we see the suspension of production and release of personnel". He said that he is counting on the senators’ assistance in resolution of the regional problems.
The Akim also paid attention to the fact that irreparable damage is caused to the unique ecological system of the Caspian – the number of rare, protected by the state, marine animals, birds and plants as well as the volume of fish stock is dropping down. "In this matter it is necessary to conduct active investor activities on attraction of big insurance companies for insuring the environmental risks through adding the point on insuring the oil operations into the product sharing agreement", Mr. Kusherbayev emphasized.
In his opinion, the issue of prospective energy supply to the region needs an immediate solution. In order to cover the expected needs the Akim proposed to start the construction of a new power generating plant – combined cycle gas turbine unit with the capacity of 250 megawatt at MAEK-Kazatomprom LLP.
Upon recommendations of the Prosecutor General’s office the Oil and Gas Ministry is working on the rules of the trunk pipelines technical exploitation and their protection with the purpose of enhancing security in the pipeline transport. This was announced on September 2 by Nurdaulet Suyindikov, the official representative of the Prosecutor General.
According to him in the next 6 years technical regulations on exploitation and protection of the pipeline transport will be adopted. The adoption of these documents is reasoned by the necessity to liquidate the current gaps in Kazakhstan legislation and legal base, regulating the process of oil and gas transportation. Due to these gaps in most of the cases the subjects of legal relations (the market participants) are guided by local acts of the economic units while in separate cases they are guided by legal and technical norms of other states.
Mr. Suyindikov informed that the Prosecutor’s inspection in the field of observance of security maintenance at the pipeline transport identified facts of the trunk pipeline exploitation with significant violation of security rules. They became the outcome of "inappropriate regulation and control by the authorized bodies".
The representative of the Prosecutor General’s office gave the example of KazTransOil JSC where with the set 30-year period of beneficial use the separate parts of the Komsomolsk – Makat and NPS-3 – Koschagyl oil pipelines have however been exploited for over 65 years. As a result, even considering the current scheduled maintenance during 2009 there were 5 incidents in these parts. Similar violations, related to the expired depreciation term of the pipeline service by 15–20 years, that were identified at the parts of the following gas pipelines: Bukhara – Ural, Central Asia – Center, Kartaly – Rudnyi – Kostanay and Tashkent – Bishkek – Almaty.
The construction of the export gas pipeline may be delayed
The Oil and Gas Ministry does not exclude that the date of launching the construction of the Beyneu – Bozoy gas pipeline may be shifted due to unresolved issue of resource supply to this project. This was announced on September 13 at the governmental session by Asset Magauov, Vice-Minister of Oil and Gas. He explained that the issue of ensuring the loading of the pipeline with the raw material from the Zhanazhol deposit has not been set yet.
According to Vice-Minister, earlier the Chinese side proposed to ensure the gas supply from the Zhanazhol deposit thanks to exploitation of "gas cap". In its turn, the Ministry directed notification to Chinese partners on necessity to correct the technical projects in order to consider the justification of this proposal by central commission for development. At the same time, Chinese insist on resolution of this issue in the first quarter of 2011.
Besides, Mr. Magaugov noted that "Chinese side unofficially started linking this project with some issues of the first part of Asian gas pipeline; specifically, its expansion and operatorship". The Beyneu – Bozoy gas pipeline was viewed in Beijing as the second part of the Kazakhstan – China gas pipeline. The gas pipeline will cross Mangistau, Aktobe, Kyzylorda and Southern Kazakhstan oblasts. Therefore, in the opinion of Vice-Minister, "we need to look for other resources, attract gas resources from other deposits in Western Kazakhstan".
It is expected that in October of 2010 Eximbank of China will approve the loan for the project of building the petrochemical plant in the Mangistau Oblast. On September 13, during the governmental session Asset Magauov, the Vice-Minister of Oil and Gas, informed that "we signed the events schedule, approved by all parties, application and documents package on loan are in the Eximbank of China. We expected to hear operational approval of loan by the bank on October 4".
According to Mr. Magauov, his ministry is counting to finish all procedural issues on the project in November so that in December "we could have the opportunity to place long term orders for preparation of equipment and start the construction of the plant next year".
It has to be mentioned that the construction project of integrated petrochemical plant in the Atyrau Oblast is implemented by Kazakhstan Petrochemical Industries, whose major shareholder is KazMunayGas Exploration and Production JSC. It is expected that the production capacity of the plant will reach 400 thousand tons of polyethylene of low and high solidness, 400 thousand tons of linear polyethylene of low solidness and 400 thousand tons of polypropylene per year. Today, the cost of the project is estimated at the level of $6.3 billion. Assumingly, $1.260 billion in the total amount will be provided by loan from Eximbank of China, guaranteed by Sipopec Engineering.
In September Pavlodar petrochemical plant JSC launched Kaskad N-methylaniline, the center of octane-increasing additive under pilot development. The total sum of capital investment in the construction of the plant reached about 350 million tenge. The purpose of the project is the increase of production of high-octane automobile benzenes.
N-methylaniline additive, increasing the octane number, is used for production of the necessary antiknock rating of benzene and correction of octane grade. N-methylaniline introduction center is designed to accept, keep and meter up to 9 thousand tons of octane-increasing additive per year. The carrying capacity of the automobile benzene center is 1 million tons per year.
Besides, PPCP launched its own accumulator of solid wastes with the capacity of 50 thousand tons. If the annual volume of solid wastes does not exceed current indicators (5–6 thousand tons per year) the accumulator reservoir will serve for 7–10 years of operations.
The wastes of the plant consist of so-called "green" (coke nut, building and solid domestic waster) and "succinic" (oily waste) lists. The last one has over 2 thousand tons of waste per year.
Throughout all previous operations of PPCP the solid wastes were transported to the city dump while the oily wastes were delivered to a special polygon. Only last year the plant spent 25 million tenge on these purposes. The cost of construction of its own reservoir reached 83 million tenge. Therefore, the investment will be paid off in 3–4 years.
Zhaikmunay LLP, producing oil in north-western Kazakhstan, published the report, according to which in January–June of 2010 the enterprise gained net profit in the amount of $19.577 million versus the losses of $20.101 million for similar period in 2009. At the same time, the company’s revenues reached $74.654 million which is 67.08% more than in the first half of the last year; EBITDA increased by 33.1% – to $43.353 million.
The report also reflects the growth by 50.8% of the average price of sold oil. The gross income of the company in January-June 2010 reached $53.921 million, ($25.975 million in 2009) while the income before taxes reached $35.820 million (compared with the loss of $22.845 million in similar period of the last year). According to Zhaikmunay LLP data, in the first half of the year it produced 1.314 million barrels of oil versus 1.316 million barrels in January–June of 2009.
The major asset of Zhaikmunay LLP is the Chinarevskoe field (274 square kilometers), located in north-west Kazakhstan, 60 kilometers from Russia. The company’s stocks are listed in the London Stock Exchange. Zhaikmunay is controlled by Frank Monstrey, Chairman of the Board of Directors, who holds a 67% stake in it.
The Organization of Petroleum Exporting Countries (OPEC) reduced the forecasted demand for its oil in 2011 by 100 thousand b/d to 28.8 million b/d in concern with the growth of hydrocarbon raw material supply from countries, not listed in the cartel members. In the opinion of the experts of this organization the supply from the countries, not included in OPEC, will grow by 900 thousand b/d in 2010 in comparison with 2009 (the forecasted growth by 130 thousand b/d) while in 2011 it will increase by 360 thousand b/d to 52.42 million b/d.
At the same time OPEC has not changed the forecast of the world demand for petroleum in 2011 – 86.56 million b/d (up by 1.05 million b/d in comparison with 2010). However, it mentioned that in the second half of 2010 the demand may become weaker due to the impact of the world economic crisis. The cartel members believe that the demand will grow thanks to countries of Asia, Middle East and Latin America.
Meanwhile, the experts of the International Energy Agency (IEA) somewhat increased their expected world demand volume for petroleum in 2010, although not changing the forecast for 2011. Specifically, in the opinion of IEA, the demand in 2011 will reach 87.9 million b/d while in 2010 – 86.6 million b/d (the expected volume grew by 50 thousand b/d). At the same time, the demand for petroleum in OECD countries in 2010 increased by 0.3% to 45.6 million b/d while in 2011 it will decrease by 0.5% to 45.4 million b/d.
IEA expects a growth of demand in the countries, not listed among OECD members, by 3.6% (to 42.5 million b/d) in 2011 and by 4.4% in 2010 (the forecast of the last month – increase by 3.7% and 4.5% respectively). The demand in China, forming one third of global demand, will grow by 4.3% (390 thousand b/d). IEA experts also raised the forecasted demand volume for OPEC oil by 100 thousand b/d – to 29.2 million b/d.
According to the Agency for statistics, in the first 8 months of this year Kazakhstan produced 44.9 million tons of crude oil and 8.12 million tons of gas condensate. This is up 7.3% and down 1.7% respectively compared with the same period in 2009. At the same time, Kazakhstan is going to increase the output of oil and gas condensate to 83 million tons by 2014. Specifically, according to the draft state budget for 2011–2013 the forecasted production of petroleum and gas condensate for 2010 reaches 80 million tons, 2011 – 81 million tons, 2012 and 2013 – 83 million tons each.
Speaking of gas production, in January–August 2010 Kazakhstan produced 24.7 billion cubic meters of natural gas, which is up 5.6% than in the same 8 months of the last year. The output of natural gas in gaseous state reached 12.25 billion cubic meters (-1.4%) while its output – 5.96 billion cubic meters (-3%). At the same time, the output of associated petroleum gas increased by 13.2% to 12.66 billion cubic meters.
The performance of the domestic oil processing industry is characterized by the following indicators. In January–August 2010 the republic produced 216.1 thousand tons of gasoline, including aviation kerosene (+22.4%) and 2,546 thousand tons of residual oil (+24.2%). The kerosene output grew by 62% to 340 thousand tons while the production of gasoil increased by 9.8% to 388.2 thousand tons.
