Kazakhstan
- introduction
Local content is becoming an increasingly important issue in Kazakhstan as the
country's oil production soars and foreign countries line up to invest.
Astana's
local content requirements are becoming stricter and stricter – the
introduction
of advanced technology, as well as the use of local goods and services, is a
common feature of oil contracts in the country. And unlike some states, which
pay
lip service to local content to satisfy observers, the Kazakh government takes
the issue very seriously.
Although the exactitude of the requirements would appear to discourage foreign
investors, Astana is confident that it can attract the attention of many
suitors.
China, in particular, is an increasingly visible presence in the country's
energy sector, and to avoid losing out Western IOCs will have to accept the
government's local content regime.
In late 2007 President Nazarbayev signed off on the amended Subsoil Law, a piece
of legislation which had caused consternation amongst IOCs for its strict
requirements. Some IOCs even sent a letter to the President, asking him to
reject the
bill as contrary to the Kazakh constitution. The reason for such anxiety is
that
the new law allows the Kazakh state to impose amendments retroactively, on
contracts that have been signed months or years before. The revised law also
provides
for the state-controlled KazMunaiGas (KMG) to hold 51% of all new exploration
and production contracts, and allows it to obtain field rights without an open
tender. The clause which has attracted the most attention is that which grants
the
government pre-emptive rights to buy strategic assets based in Kazakhstan or
even abroad (although the legal complications of doing so appear to rule that
possibility out for now).
The new legislation is the centrepiece of Astana's aggressive and unilateral new
approach to its oil. In 2008 100 out of 900 subsoil contracts were withdrawn by
the Ministry for Energy, mostly for failing in contractual obligations such as
capital investment. These developments have created a feeling of unease amongst
investors, who fear that the government may suddenly decide to revise or
rescind
their contracts.
Nonetheless 'resource nationalism' in Kazakhstan is not a severe threat, and is
unlikely to reach the level of Russia, for three reasons. Firstly, Kazakhstan's
local capacity remains low. It needs the technical expertise of foreign
investors. Secondly, along the same lines, Kazakhstan also needs foreign
capital. Its
banking sector has been crippled by the global downturn and outside investors
are
more vital than ever to keep developments on track. Anything which can bring in
investment or credit, such as an April 2009 deal with China's CNPC which will
grant Astana $10 billion in loans, is to be welcomed. Thirdly, Kazakhstan is
much
less politically confrontational towards the West than Russia. President
Nazarbayev has cultivated strong ties with America and is increasingly looking
towards
the EU as a business and political partner. The country will need Western
backing for a planned pipeline across the bed of the Caspian to Azerbaijan and
thence
to Europe, a project which Russia staunchly opposes.
However, Astana will continue to pressure IOCs in the country, particularly
those such as Chevron which are accused of striking an unfair deal in the heady
post-independence days of the early 1990s. As the government becomes more
assertive
on the world stage, its desire to turn back the clock on unfavourable contracts
will only increase.
Useful Links
Kazakhstan Companies Directory
Implications of WTO Accession for Local Content provisions
Law on Foreign Investments
American Chamber of Commerce - Kazakhstan