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Republic of Kazakhstan: Selected Issues and Statistical Appendix

Author(s):
International Monetary Fund
Published Date:
July 2003
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I. The Petroleum Sector—An Overview of Developments, Issues and Prospects1

A. Introduction

1. Kazakhstan’s petroleum sector continues to develop rapidly and highly favorable prospects for the medium-to-long-term are becoming more concrete. Large and rising investment, almost entirely from abroad, continue to flow to the still relatively young sector. In addition to the rapid development of existing onshore petroleum fields, development of potentially much larger reserves in the offshore Caspian region is about to begin. Proven and probable crude oil reserves are now estimated to approach the 30 billion barrel mark. The petroleum sector accounts for almost one quarter of GDP and about one-half of export earnings. Importantly, Kazakhstan secured in 2002 several strategic agreements with Russia—on the delimitation of the Caspian Sea bed and improved access to oil and gas pipelines to western markets—which further significantly secure the medium-term outlook.

2. Over the long term (15–20 years), Kazakhstan can reasonably expect crude production to approximately triple to around 3 million barrels a day (bpd), of which at least one third would come from the Caspian Sea. This would place Kazakhstan in the top ten world crude oil exporters, on a level comparable to the present production levels of Iran, Mexico, Norway, and Venezuela. Fiscal revenues from the sector would rise more than commensurately (to as much as $8 billion per year) but with several years lag (Figure I-1).

Figure I-1.Kazakhstan: Medium-Term Petroleum Outlook 1/

1/ Solid line are based on proven crude oil reserves. Production and revenues are likely to be much higher because of expected additional North caspain fields other than kashagan (broken line).

Production of natural gas, until now largely undeveloped, is beginning to emerge. The authorities have elaborated a development plan, which projects a several-fold output rise in gas over the long term. Given the strategic nature and size of Kazakhstan’s petroleum reserves,2 investment in the sector and production are relatively isolated from short-term price fluctuations. Only in the event of investor perceptions of a significant long-term oil price decline (to well below $15/bbl), or a sharp deterioration in the business climate, would there be cause for serious concern. Nevertheless, issues remain relative to the stability and quality of the investment environment and long-term pipeline access to world markets.

3. The petroleum sector has already produced sizeable tax and royalties flows to the budget (some $2.8 billion since 2000), a significant portion of which (approximately $1 billion), since 2001, has been saved in the National Fund (NFRK). Current fiscal receipts from the sector, excluding one-time payments, have accounted for almost 20 percent of general government revenue since 2000. The authorities have also elected to save the receipt from the sale of 5 percent of the TengizChevroil (TCO) field in 2001 and two oil “bonus” payments in 2001 and early 2003, altogether totaling almost $900 million (Figure I-2). The assets of the off-budget NFRK are managed by professional managers under the supervision of the National Bank of Kazakhstan (NBK) and entirely invested abroad. Initially complex funding and stabilization rules were considerably simplified in late 2002.

Figure I-2.Kazakhstan: Flows to the NFRK

(In millions of U.S. dollars)

4. As discussed in the next chapter, strong petroleum sector growth is also being felt in the non-oil sector through the increasing domestic sourcing of intermediate inputs;3 the income effect on domestic consumption, especially of nontradables; and indirectly through the alleviation of the financing constraint on government, which has resulted in a “crowding-in” of the private sector and spurred financial market development.

B. Recent Developments and Short-Term Outlook

5. In 2002, crude oil output rose by 20 percent to reach almost 1 million bpd, double the level of 1996. Export volumes rose about 24 percent to around 39.5 million metric tons (MT) and petroleum export earnings reached $5.2 billion.4 Fiscal receipts from the sector declined to T165 billion ($1.1 billion) even though the average price rose somewhat, reflecting the switch to a much faster depreciation schedule by TCO as well as receipt of a large bonus payment in 2001 (Table I-1). Some 14.8 billions of cubic meters (BCM) of natural gas was produced in 2002, net of around 3 BCM reinjected,5 of which a large share is still flared.6

Table I-1.Petroleum Production, Exports, and Fiscal Revenue, 1998–2003(In millions of metric tons, unless otherwise indicated)
199819992000200120022003
EstimatesProjection
Crude oil production25.629.435.439.347.352.8
Domestic consumption5.25.76.07.68.18.5
Exports20.423.729.431.739.544.2
of which: through CPC1.012.520.0
(In millions of dollars)
Exports1,6502,1644,4294,4635,1577,015
Budget revenue from oil1586041,4301,0752,276
NFRK assets------1,2401,9173,330
Natural gas production (BCMs)14.819.2
Memorandum items:
World oil price ($/bbl)13.118.028.224.324.928.0
Oil revenue (in percent of General Government revenue)5.515.325.819.530.2

6. Kazakhstan’s petroleum sector is still young and large investment flows, averaging $3 billion a year, were recorded in 2001–02. Three large projects—Karachaganak, Tengiz, and the new offshore field of Kashagan, which is just beginning development, account for the bulk of investment. Investment has been directed not only at raising output but also at establishing linkages to the Caspian Pipeline Consortium (CPC) pipeline.7 Investment is expected to rise to, and remain at, around $4 billion in 2003 and for most of the decade.

7. The Tengiz field, operated by Chevron, is by far the largest active field in the country and the fifth largest in the world (with recoverable reserves of 6–9 billion barrels). A 3-year investment program totaling S3 billion was recently relaunched,8 which will almost double production to around 22 million MT per year by 2006.

8. The Karachaganak gas and gas condensate field in the northwest of the country is nearing completion of the second phase of its development. Condensate output will more than double (to around 12 million MT) and exports will be reoriented from Orenburg, Russia to reach world markets. A 600 km link up with the CPC is nearing completion. As a result, the sales price for condensate is expected to approximately triple from mid-2003.

9. In early 2003, the international consortium, which is developing the “super-giant” offshore Caspian Sea concession including the Kashagan field,9 submitted a commercial development plan to the government for approval.10 The find is reported to be the fourth largest field in the world and the largest discovery in the past 30 years. The total reservoir is estimated to contain 45 billion barrels (5.8 billion MT), of which 8–13 billion barrels are recoverable with existing technologies. Considerable associated natural gas reserves are also present. Some $25 billion would be invested over 20 years, of which some $2 billion has been spent so far. The first phase of development through 2008 would require around $9 billion in investment and result in production beginning in 2006.

10. The operators of two other major fields have also invested significantly in export transport development. A 450 km, $160 million, pipeline was completed in early 2003 linking the Aktobe oil field in the north (operated by the Chinese National Petroleum Company) to the CPC. Aktobe’s production is expected to rise to 6 million MT by 2005 from around 2.5 million MT in the late 1990s. A small independent Canadian firm,11 developing the Kumkol fields in central Kazakhstan, has arguably the most to gain from export pipeline development. While presently the third largest producer at over 7 million MT per year, its light crude reserves are stranded in the center of the country, east of the Aral Sea, and far from export markets and existing pipeline infrastructure. The firm has reported very high export transport costs of around $12/bbl and its rapid rate of production increase (over 20 percent annually over the past 6 years) is constrained by a lack of export capacity. The firm is investing, in partnership with the crude pipeline subsidiary of the national oil firm, Kazmunaigas, in internal pipeline projects, which will significantly reduce transports costs over the next few years. The firm has been exporting by rail car east to China and west through to the Russian Transneft system. It recently signed a swap arrangement for 1 million MT a year of its crude with Iran. Delivery of Kazakhstani crude would be by rail to the Tehran refinery in exchange for delivery of Iranian light crude on the Persian gulf.

11. With the investment in transport links to world markets continuing, the share of exports going to CIS countries is expected to decline further. The role of swaps with Russia and triangulated deals with the Ukraine continue given the significant cost savings such deals produce.12

12. As noted above, Kazakhstan signed several important agreements with Russia in 2002, which together represent a major strategic advance. A bilateral treaty delimiting the Caspian Sea bed between the two states was signed and a joint venture development of a large offshore field on the border was agreed.13 While a multilateral agreement on the Caspian Sea has not yet been agreed between the littoral states, the agreement with Russia removes a potential roadblock to the development of the rich north Caspian area. Agreement with Turkmenistan on the southern border is not as pressing because of the expected absence of significant deposits in the area. Nevertheless, a multilateral agreement on the Caspian would be beneficial, and necessary for any undersea pipeline projects to be undertaken.

13. Agreement was also reached with the Russian authorities on a medium-term framework for enhanced access to the state-owned Transneft pipeline system. It is apparent that the CPC pipeline has improved Kazakhstan’s negotiation position with Transneft. Nevertheless, monopsonistic practices remain, including through Transneft’s refusal to implement a quality bank system.

14. A third major agreement with Russia involves the creation of a joint venture on gas, KAZROSGAZ, with the state monopoly Gazprom. The equal-share joint venture will reportedly enjoy access to Western European gas markets through Gazprom’s pipeline system at Russian domestic tariffs. Gazprom is known to face declining supply of gas from its existing fields and a shortage of financing to develop new fields. On the Kazakhstan side, access to western markets represents a major long-sought-after objective. The initial source of supply will be the stranded gas from the Karachaganak field. The purchase price of gas from Karachaganak is reported to be very attractive at around the $10 per thousand cubic meters. KAZROSGAZ projects sales volume of about 5 BCM by 2004.

15. In late-2002, the authorities made welcome revisions to the revenue stabilization funding rules for the NFRK.14 Until then a matrix of quarterly estimates of tax and royalty obligations by major firms had set out the minimum revenue baseline for the budget. Quarterly overages or shortfalls by company and by tax type triggered flows to or from the NFRK. In a revision to the budget system law (published November 5, 2002)15, these complex targets were replaced with an overall annual revenue target. Further, compensating flows from the NFRK to the budget were made subject to an overall revenue shortfall and limited to a maximum of either the natural resource revenue shortfall or the overall revenue shortfall. Thus, if petroleum and mineral receipts were below target, but overall government revenue was not, no stabilization reflows to the budget from the NFRK would occur. These changes have made the mechanism much more transparent and easier to manage.

C. Issues

Access to world markets—the transit issue

16. Kazakhstan has suffered from is landlocked position and dependence on the dual Russian state-run oil and gas pipeline monopolies (Transneft and Gazprom, respectively). Its main fields are at least 1,500 km from access to world markets through the Black Sea. Until late 2001, Kazakhstan had been virtually entirely dependent on the Russian Transneft pipeline system (from Atyrau, Kazakhstan to Samara, Russia, and onwards) for its primary access to international markets. As previously described,16 the Russian state owned crude oil pipeline monopoly, Transneft, engages in monopsonistic practices, including artificially high assessments of technical losses, arbitrary longer route allocations, and discriminatory pricing for transport services for Kazakh crude oil.17 Transit tariffs for crude from Kazakhstan are typically more than double what is charged to Russian domestic producers (Table I-2). Both Kazakhstan and Russia are signatories of the Energy Charter Treaty, which has strong nondiscrimination and national treatment provisions on energy transit (Box I-1).

Table I-2.Transit Tariffs for Crude Oil through Russia(US dollars per MT; net of VAT)
As of February 2003Russian oilKazakh oil
Samara - Novorossiysk7.1214.81
Samara - Adamova Zastava 1/3.5911.68
Samara - Odessa 1/2.597.96
Source: Kazakhstan Ministry of Energy

Only covers the part of the route which lies in Russia.

Source: Kazakhstan Ministry of Energy

Only covers the part of the route which lies in Russia.

Box I-1.The Energy Charter Treaty

The Energy Charter Treaty and the Energy Charter Protocol on Energy Efficiency and Related Environmental Aspects were signed in December 1994 and entered into force in April 1998. To date the treaty has been signed or acceded to by 51 states—all of the European and central Asian nations, plus Australia and Japan, although five countries (including Belarus and Russia) have not ratified the treaty.

The treaty was born out of a political initiative in Europe in the early 1990s to overcome the previous economic divisions on the European continent, especially in the energy sector. Russia and many of its neighbors were rich in energy resources but needed major investments to ensure their development, while the states of western Europe had a strategic interest in diversifying their sources of energy supplies. There was a recognized need to ensure a common foundation for developing energy cooperation between the states of the Eurasian continent, based on the principles of open, competitive markets and sustainable development.

The treaty is a legally binding multilateral instrument, the only one of its kind dealing specifically with intergovernmental cooperation in the energy sector. The fundamental aim of the Energy Charter Treaty is to strengthen the rule of law on energy issues, by creating a level playing field of rules to be observed by all participating governments.

The treaty’s provisions focus on five broad areas: (i) the protection and promotion of foreign energy investment, based on the principle of non-discrimination. The signatory state takes on the obligation to extend national treatment, or most-favored nation treatment (whichever is more favorable), to nationals and legal entities of other signatory states who have invested in its energy sector. The treaty thus carries the equivalent legal force of a unified network of bilateral investment protection treaties. The majority of the treaty’s investment-related provisions, are self implementing, although there are regular assessments, through survey activities and peer reviews, of investment practices among its participating states, (ii) free trade in energy materials, products, and equipment, based on WTO rules; (iii) freedom of energy transit through pipelines and grids; (iv) mechanisms for the resolution of state-to-state or investor-to-state disputes; and (v) energy efficiency and related environmental aspects.

The treaty places considerable emphasis on freedom of transit as the key to the development of energy markets in eastern Europe and the Baltic and CIS countries and provides for a dispute settlement mechanism for transit issues. The treaty’s transit provisions oblige its members to facilitate the transit of energy on a non-discriminatory basis consistent with the principle of freedom of transit. However, as evidenced by the still pervasive problems in energy transit, the treaty’s provisions have not been put into place effectively in many CIS countries, notably in Belarus, Russia, and Ukraine, which hold the key to improved efficiency in regional trade.

The transit provisions are being enhanced through the elaboration of a Transit Protocol, on which formal negotiations commenced in early 2000. The aim of the Transit Protocol is to develop a regime of commonly-accepted legal principles covering transit flows of energy resources, both hydrocarbons and electricity, designed to ensure the security and non-interruption of transit. It will help to further consolidate an approach towards energy transit based on fair, transparent and non-discriminatory criteria, and on the primacy of the principle of the “sanctity of contracts”.

Business law commentators on the treaty have noted the multitude of deep-rooted transit disputes and the nonexistence or immature nature of transit law in the region, which the treaty seeks to address. Some commentators have called for a further strengthening of freedom of transit through the creation of an international pipeline organization for the region to manage pipelines, modeled after the European waterways commissions, to break the political and economic logjam that has stifled energy trade in the Baltic and CIS countries.

Sources: The Energy Charter web page; www.encharter.org, and Clark (1998).

17. In 2002, Kazakhstan was able to secure a medium-term agreement with higher volume quotas on transit pipeline access through Russia.18 While the transit volumes have risen in recent years, Transneft has steadfastly resisted the introduction of a quality-bank mechanism and national treatment on tariffs.19 The absence of a quality bank has resulted in significant discounts on better quality Kazakhstan crude.20 There have also been so far unsuccessful attempts to bring the CPC pipeline, which represents an important threat to Transnefts monopoly, under the control of the Russian monopoly regulation agency. However, a recently launched technical study of CPC operations by the Russian Federal Energy Commission may ultimately lead to an undermining of CPC’s commercial independence. Export costs (transportation) are expected to continue to drop in 2003 and over the medium-term as domestic pipelines linkages to the CPC come on stream (Figure I-3).

Figure I-3.Kazakhstan: Export (Transportation) Costs per bbl, 1998–2010

18. The construction of domestic lines to link up the major fields to the CPC will lead to major economic gains. By mid 2003, the link-up of two large fields, noted in paragraph 10, above, will be complete. In particular, the giant Karachaganak gas and gas condensate field stands to benefit substantially. Enclaved in northwestern Kazakhstan, its highly valuable condensate output was only saleable to the neighboring gas treatment and refining facility in Orenburg, Russia, owned by Gazprom. The sales price for the condensate has remained at about 30 percent of world market levels, while gas sales have seen even higher discounts of around 90 percent of levels prevailing in western Europe. On this basis, the average differential between prevailing world market prices and average export (border price) prices for Kazakhstani crude will continue to decline from over $8/bbl in 2000 to around $5/bbl or less over the medium term.

19. Several recent developments have raised the prospects of a long-talked-about crude oil pipeline to China. The recent construction of an internal line in China linking the west to the south of the country has improved the economics of a pipeline to the Chinese border. Also, Chinese national firms have shown increasing interest in acquiring shares in Kazakh oil fields. In early 2003, two Chinese state firms together purchased the 16.7 percent share of the Kashagan venture of British Gas for $1.23 billion.21 In mid-April, the oil transport subsidiary of Kazmunaigas announced that an engineering study of the feasibility of a 1000 km line from central Kazakhstan to the Chinese border would be undertaken in 2003. While capital costs would be quite high (around $1.5–2 billion for a 20 million MT/year line), as would the minimum through-put, the line would further diversify transit opportunities.

Investor relations

20. Investor relations have been uneasy since 2002. Foreign investors voiced concern about high profile public calls by senior government officials for a “rebalancing of oil contracts”. The authorities believe that they have made significant strides in macroeconomic stabilization, structural reforms, and in establishing a sound legal basis for investment, all of which, coupled with tax rate reductions, have significantly benefited existing investors. The reduction in the country’s investment risk is reflected in the significant upgrading of Kazakhstan’s credit rating by international agencies. There is also the perception that the revenue for the state from the world class fields have been quite low. TCO’s decision in early 2002 to switch the depreciation schedule to the new Kazakh tax code standard of 5 years provoked a major dispute. More fundamentally, although the TCO dispute apparently has been satisfactorily resolved, differences in perceptions of fairness, risk, and the relative attractiveness of Kazakhstan’s assets may prove to be the source of continuing friction.

21. The role of the national oil and gas company, Kazmunaigas, is also a source of uncertainty. The state firm is both an investor and partner in several ventures in the sector as well as the monopoly operator of both the gas and crude oil pipeline systems. The firm appears to continue to exercise a regulatory and supervisory role over the sector. The regulatory and management tasks have changed on several occasions in recent years between the Ministry of Energy and Kazmunaigas. In 2001, the World Bank recommended that an independent oil and gas regulatory agency be created to oversee the sector and ensure an even playing field for pipeline access. This would address the potential for conflicts between the commercial and regulatory roles.

Revenue management

22. The efficient management of potentially very large revenues from petroleum will pose a major challenge over the medium-term. There are three principal components of this challenge: the need to avoid macro imbalances; the efficient use of the resources; and sharing prosperity across segments of society and between current and future generations. The creation of the NFRK and initial actions to save a significant portion of the new financial wealth is encouraging. Staff estimates of future fiscal inflows from the petroleum sector, on the basis of existing reserves, but excluding privatization earnings, bonuses, and exploration license fees, suggest an undiscounted total of some $165 billion over the next 45 years; or $11,000 per capita, based on present population estimates. Government outlays will need to rise significantly over the medium-term to address the very significant social and infrastructure needs of Kazakhstan. While part of this windfall would be spent on social and infrastructure needs (increasing the non-oil budget deficit from current low levels), a significant part of the oil wealth is likely to be accumulated in the form of financial assets, which will require continued careful management.

23. The authorities are already beginning to consider how their investment of the oil funds might change over the medium-term. Some thought is being given to a policy of channeling part of the oil flows into investments in neighboring countries, in sectors such as transportation, infrastructure, and utilities. Investments would be targeted to support the development of the Kazakhstani non-oil sector. Such a policy could also play a positive role in regional development.

D. Long-Term Outlook

24. As noted above, Kazakhstan is endowed with very substantial oil and gas reserves which can be expected to lead to further major output increases. Industry and official agency analyses of Kazakhstan’s hydrocarbon potential vary considerably, although there appears to be a broad consensus around some 30 billion barrels of proven and probable reserves (Table I-3). While there are major output increases still to come from the existing onshore fields, especially from Tengiz and Karachaganak, the most promising area is the offshore North Caspian region, including, but not limited to, the Kashagan field. Kazakhstan could see output levels reach 2.5–3.0 million barrels per day and 40–60 BCM per year for an extended period of time (20–30 years) from about 2015–20 (Table I-4).

Table I-3.Proven and Potential Reserves of Oil and Gas(Oil in billions of barrels; gas in trillions of cubic meters)
OilGas
Proven reserves303
Undiscovered2210–152–3
Enhanced recovery10–15
Total50–605–6
Sources: Kazakh and industry sources and staff estimates.
Sources: Kazakh and industry sources and staff estimates.
Table I-4.Petroleum Production, Exports, and Fiscal Revenue, 2004–40(In millions of metric tons, unless otherwise indicated)
200420052006200720102015202020302040
Projections
Crude oil production59.164.173.982.096.7127.6139.4135.780.0
Exports50.154.663.871.383.8110.9118.1101.022.0
Of which: through CPC28.028.036.048.067.067.067.067.0
(In millions of dollars)
Exports6,9497,0457,8318,80110,32215,08117,78019,0505,060
Budget revenue from oil & gas1,9521,8491,9711,9852,1502,8304,6007,7502,400
Natural gas production24.026.330.334.439.340.645.050.050.0
(BCMs)
Memorandum items:
World oil price ($/bbl) 1/23.522.021.021.020.823.025.430.037.7
Oil revenue (in percent of General Government revenue)25.422.421.319.0
Sources: Kazakhstani authorities and staff estimates and projections.

On the basis of reserves from existing fields. WEO price projections (March 2003 vintage) through 2008; thereafter a 2 percent annual nominal increase is assumed.

Sources: Kazakhstani authorities and staff estimates and projections.

On the basis of reserves from existing fields. WEO price projections (March 2003 vintage) through 2008; thereafter a 2 percent annual nominal increase is assumed.

25. Production from the offshore Caspian field of Kashagan is expected rise sharply from 2006 through about 2015 and can be expected to plateau at around 55 million MT through 2030. Financial flows to the state, as is typical with PSAs, are strongly backloaded, given the enormous investment involved in developing the field, but would rise strongly from around 2020. The field could be exploitable for 70–80 years. Initially output from the field is expected to use the CPC pipeline. By the early 2010s, as production expands, alternative export capacity would be needed. The BTC pipeline, from Baku, Azerbaijan, to the Turkish Mediterranean port of Ceyhan could be a good fit in this regard as output from the Azeri AOIC field is projected to begin declining by around 2012. The BTC is presently under construction and will have a capacity of 50 million MT per annum (1 million barrels a day).

26. It is widely expected that the north Caspian region holds significant new reserves on top of those already discovered in the Kashagan field. It is thought that the as yet unexplored regions of the north Caspian could be broadly equivalent in size to Kashagan. An announcement of the government’s intensions for exploration and development of the north Caspian region is under final consideration and is expected to be announced shortly. A tender for exploration licenses of 70–150 offshore exploration blocks is expected to take place in 2003.

References

Prepared by Paul Mathieu.

Many observers have put the Caspian basin reserves (including those which would belong to Azerbaijan, Iran, Russia, and Turkmenistan) on a par with those of the North Sea.

The authorities estimate that around 10 percent of investment is currently domestically sourced, although this varies widely by field. The government’s objective is to raise the average domestic sourcing to 20 percent in the medium-term.

A metric ton of crude oil is equivalent to around 7.5 barrels in volume terms depending on the specific gravity of the individual crude, which varies considerably. The crude from the older Kazakhstani fields is close to the heavy Russian Urals blend (7.3 bbls/MT). Newer fields have been much lighter crude—Tengiz (7.9 bbls/MT); Karachanak condensate (8.1 bbls/MT); Kashagan (about 7.8 bbls/MT).

Natural gas in Kazakhstan is almost entirely associated gas (a by-product of oil extraction) and several fields are, or will be, reinjecting significant quantities of gas back into the ground to maintain crude wellhead pressure.

While flaring is declining, it remains significant owing to stranding of gas, often a nonmarketable by-product of crude production. In addition to efforts to build pipeline links to the existing system, gas is being used for well reinjection; small-scale electricity generation; and some domestic sales.

The $2.6 billion, 1,500 km pipeline from the Tengiz field area through to the Russian Black Sea port of Novorossiysk has an initial capacity of 28 million MT per year. The CPC is the first independent, privately owned and commercially operated line in Kazakhstan and Russia. It opened in autumn 2001. It includes a quality bank mechanism, which became operational in mid-2002 with the shipment of the first batch on non-Tengiz crude. (A quality bank is an equalization scheme to compensate shippers of different quality crude oils being mixed in a pipeline.) The CPC has cut export costs from the Tengiz area about in half.

The investment program was put on hold for several months in late-2002 and early-2003 because of a dispute over a switch to an accelerated depreciation schedule and the financing of the investment program.

Formerly known as OKIOC, in 2002 AGIP petroleum became lead manager and the name was changed to AGIP KCO.

A commercial discovery bonus is due upon approval of the plan.

Hurricane Hydrocarbons has recently changed its name to PetroKazakhstan in recognition of the fact that its assets are predominantly in Kazakhstan.

See Section I of the previous Selected Issues Paper for Kazakhstan (SM/02/11; 1/8/02)

Lukoil and Kazmunaigas subsequently signed an equal-share joint venture agreement to develop the Khvalynskoye field in April 2003. Recoverable reserves of 100 million MT (about 750 million barrels) and an exploration program totaling $150–170 million were announced.

The saving rule of 10 percent of baseline revenue remains unchanged.

See the 2002 Article IV staff report (SM/02/5;4/l/02), Appendix VII for a fuller description of the NFRK.

See the 2002 report for a fuller discussion.

See “Cross-Border Issues in Energy Trade in the CIS Countries” IMF Policy Discussion Paper (PDP/02/13), December 2002, and “The Commonwealth of Independent States’ Troubled Energy Sectors” in Finance and Development, September 2002, pp 34–38, for a fuller discussion of the trade distorting effects of the state-owned energy monopolies in oil and gas in the CIS.

Essentially the full capacity of the Atyrau-Samara pipeline (15–16 million MT) has been allocated to Kazakhstan (up from 10 million MT in 2001). Also a quota of 2.5 million MT was agreed for shipments through the pipeline from the Russian Caspian port of Makhachkala to Novorossiysk. The crude oil reaches Makhachkala by ship across the Caspian from the Kazakh port of Aktau.

National treatment for transportation services for oil and gas as well as rail and other infrastructure is one of the objectives driving the economic integration initiatives of Kazakhstan with Russia and other CIS major countries.

Oil from the Karachaganak and Tengiz fields is much lighter and sweeter than the typical Urals blend of older Russia fields. The discount for Tengiz crude in the absence of a quality bank is estimated at about 10 percent.

However, existing shareholders have a right to pre-empt the sale and purchase the stakes themselves.

Essentially the offshore Caspian shelf.

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