Brussels, 21 January 2008 – A new deal with an Eni-led consortium to develop the super-giant Kashagan oilfield will leave Kazakhstan $5 billion worse off than previously, according to new analysis published today. [1]
The deal, reached on Sunday after more than six months of dispute over the field, slightly improved Kazakhstan’s share of revenues, but at the same time included an announcement of a further delay to startup of production, from 2010 to 2011.
The analysis released today shows that the improved terms – worth around $3.5 billion – is more than offset by the $8.7 billion cost to Kazakhstan of the delay. [2]
Greg Muttitt, an oil analyst at London-based PLATFORM, authored the analysis. He commented: “Oil companies signed a draconian 40-year contract when Kazakhstan was at its weakest in 1997. Now they have the government over a barrel. The contract has a profound impact on the people of Kazakhstan but is shrouded in secrecy. It is vital that Eni and its partners adopt common standards of transparency, and make the contract public.”
PLATFORM was leaked a copy of the contract. But due to the secrecy, other observers have misread the implications of Sunday’s deal, assuming a slight improvement to Kazakhstan’s economic position.
The surprising result stems from the high price of oil and the huge volumes of oil to be extracted from the field, up to 1.5 million barrels a day. Due to these two factors the cost of a delay exceeds any change in economic terms.
Galina Chernova, of Kazakhstani environmental group Center Globus, noted: “After six months of the government pushing for a fair share of the revenues, it is shocking that Kazakhstan actually ends up losing. It seems the oil contract is more powerful than any other instrument in Kazakhstan. So what hope is there for the environment and local people?”
The dispute was originally sparked by an earlier delay, from 2008 to 2010, and major cost increases, both announced last year.
However, there have been rumours over recent months of Eni falling further behind schedule. Greg Muttitt accused Eni of announcing the delay at a time when it would not get noticed: “It’s the oldest trick in public relations to hide bad news in another story. Whilst most reporting has focussed on the change of contract terms, Eni saw a good time to quietly release news of yet another delay – news that neither the people of Kazakhstan nor Eni’s investors would be impressed by.”
Since becoming the single operator of the Kashagan oilfield ENI has also failed to release all information available on the environmental, health and social impacts of its operations while receiving European Commission support in the above negotiations as expressed on several occasions by the EU Energy Commissioner Andris Piebalgs. [3]
Darek Urbaniak, on behalf of Friends of the Earth Europe commented: “The public should be informed about all the effects of this investment, including contamination, spills, dumping, poisonous substances emissions, toxic wastes, It is not acceptable that the European Commission prioritises EU energy security over the people of Caspian region’s right to healthy lives and a safe environment.”
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[1] The analysis is published by a coalition of civil society organisations working on issues of environment and development:PLATFORM (UK): www.carbonweb.org
Center Globus (Kazakhstan)
CEE Bankwatch Network (Central & Eastern Europe): www.bankwatch.org
Campagna per la Riforma della Banca Mondiale (Italy): www.crbm.org
Friends of the Earth Europe: www.foeeurope.org
Crude Accountability (USA): www.crudeaccountability.org
Les Amis de la Terre (France): www.amisdelaterre.org
The economic model was developed for a report entitled Hellfire Economics, released in December 2007. That report is available here: www.carbonweb.org/showitem.asp?article=308&parent=39
[3] The report “Kashagan oil field development” can be found at: www.foeeurope.org/publications/2007/KashaganReport.pdf
