Despite increased production, the operators of Tengiz, Kashagan and Karachaganak have reduced payments for environmental emissions. At the same time, they pay thousands of times less for emissions than if they were producing hydrocarbons in other countries. This is because such conditions are enshrined in field development agreements dating back to the 1990s. Therefore, these contracts should be made publicly available and revised, according to the authors of the petition demanding disclosure of the contracts.

“Western regions of Kazakhstan are experiencing serious environmental problems caused by the oil and gas industry. Oil and gas production is accompanied by emissions of harmful substances into the atmosphere, pollution of water bodies and land degradation,” says Azamatkhan Amirtayev, chairman of the Baytaq Green Party, which together with the Parasat Business Alliance launched a petition demanding the disclosure of the terms of the agreements for the development of the Tengiz, Kashagan and Karachaganak oil and gas fields (read also: Why Kazakhstanis demand the disclosure of the terms of the Tengiz, Kashagan and Karachaganak contracts).

According to him, emissions of greenhouse gases, hydrogen sulfide, sulfur dioxide and other harmful substances significantly worsen air quality. Residents of these regions report frequent cases of respiratory diseases and other health problems related to air pollution. And intensive mining operations pollute rivers and groundwater with chemicals and mining waste. This poses a threat not only to human health, but also to ecosystems, depriving them of the ability to support biodiversity.

The high level of environmental pollution leads to a deterioration in the quality of life, outflow of population from these regions, and increased expenditures on health care and social security.

The expert says that they requested information from the Ministry of Finance on the amount of tax payments made by the operators of the three above-mentioned oil and gas fields – Tengizchevroil LLP, North Caspian Operating Company and Karachaganak Petroleum Operating Company – for environmental emissions.

Thus, according to the State Revenue Committee, the operator of Karachaganak paid about KZT1.1 billion to the budget in 2021, KZT1.3 billion in 2022 and KZT 1.5 billion in 2023. The developer of Kashagan paid KZT214 million, KZT212 million and KZT224 million respectively for the same period, while the operator of Tengiz paid KZT17 billion, KZT11 billion and KZT7 billion.

“It turns out that their oil production is growing, but the payments for emissions are decreasing every year?”, Amirtayev wondered.

He notes that the Environmental Code specifies about 20 types of pollutants for which emissions must be taxed. The rate for emitting one ton of methane into the atmosphere is only KZT73. Whereas in the same USA the similar rate reaches $900 per 1 ton (about KZT433 thousand at today’s exchange rate – author’s note). Why is this happening? Having studied the issue, the experts concluded that such payment amounts are fixed in the agreements with the investors of these large deposits.

In 2023, 307 million cubic meters of gas was flared in Kazakhstan, according to the Energy Ministry.

“To improve the situation, it is necessary to revise the terms of contracts with oil and gas companies to include stricter environmental requirements. It is also important to ensure fulfillment of obligations on environmental rehabilitation and social development of the regions where production is carried out,” Azamatkhan Amirtayev said.  

Oil production at Tengiz, Kashagan and Karachaganak, 2020-2023 mln tons

Deep refining

The environmental situation can be improved by changing the revenue structure through deep processing of oil and gas, which will not only increase the added value of the products produced, but also reduce the negative impact on the environment.

“Modern petrochemical plants can be equipped with technologies that minimize emissions of greenhouse gases and other pollutants. The production of high value-added products such as plastics, chemicals and other petrochemicals will allow Kazakhstan to diversify its economy and reduce dependence on raw material exports,” the expert believes.

However, another problem arises here. The fact is that most of the fields operated by the national company KazMunaiGas (through subsidiaries and joint ventures) are at late stages of development, and their production is declining. The main production growth (or stable production) occurs only at Tengiz, Kashagan and Karachaganak, which account for 65-70% of the country’s production. At the same time, all the oil extracted from them is exported.

“As the head of the Kazakhstan Union of Chemical Industry (Kazkhimprom), I know firsthand that the main problem of processing development is the lack of basic raw materials. Everything we produce is made from imported raw materials – as a result, it prevents our goods from being competitive in both domestic and foreign markets,” said Oleg Pak, head of the Parasat alliance of entrepreneurs.

According to him, we need oil and gas to start producing these basic products. But where can we get them if all the oil from large fields is exported under production sharing agreements (PSAs) and stabilized contracts with investors?

“Today, the associated gas we get from oil production is not used rationally by these companies. We did not get the effect we expected from gas re-injection through Tengiz, while incurring costs in the form of huge investments for the project,” Oleg Pak believes.

He notes that at first the number of investments in the project of expansion of production at Tengiz was $12 billion. Then the budget increased to $25billion, then to $37 billion. Last fall this figure was raised to $45 billion. Now the budget of the project has already reached $48 billion. According to experts, by 2025 this amount will exceed $50 billion.

“As a result, the project was seriously delayed, and its cost has increased many times, which is not invested in the original plan that Kazakhstan approved,” the expert says.

In his opinion, to compensate for the losses that have arisen because of increased costs of the expansion project and the disruption of its implementation, can be through royalties per ton of oil produced and changes in the structure of its sales. These revenues will be very useful to our country, which is experiencing a shortage of budgetary funds.  

Revenues declined

A statement by the Coordinating Council of the Parasat Alliance of Entrepreneurs said that the state budget was executed by 46.3% in terms of revenues and 43.2% in terms of expenditures in the first half of the year, while tax revenues amounted to only 39.9% of the annual volume.

Some advancement occurred only in individual income and social taxes, calculated from the wage fund – 57.9% and 53.1%, which was caused by an attempt to keep up with the rise in prices, the index of which for six months amounted to 108.3%.

All taxes that show the state of economic activity are sharply under collected. Corporate income tax collections from companies are 38.9% complete, VAT on domestic production and trade turnover is only 30.4% complete, international trade 39.8% complete, and excise taxes 40% complete. The tax gap must be closed by accelerated transfers from the National Fund.

According to the report of the Ministry of Finance, as of July 1 this year, the receipts to the National Fund amounted to more than KZT2 trillion 781 billion, and withdrawals from it exceeded KZT2 trillion 755 billion. That is, in the first half of the year, almost all allocations to the fund went in the form of targeted and guaranteed transfers for budget execution. Recently, at a government meeting, Chairman of the National Bank Timur Suleimenov said that high volumes of withdrawals are also planned for 2025 – KZT5.4 trillion.

At the same time, the government must cover the revenue deficit with new borrowings. However, the already accumulated debt is also dragging down – servicing costs amounted to 131.2% compared to last year.

“Attempts to collect an additional fiscal harvest from the already mowed field of the domestic economy through the new Tax Code will give not replenishment of the budget, but additional oppression of small and medium-sized businesses and economic activity in the country”, – said in ‘Parasat’.

Meanwhile, the “export” sector of Kazakhstan’s economy is practically untouched, covered by the secrecy of production sharing agreements. The way out of the systemic crisis lies in the realization of the constitutional norm that the land and its subsoil belong to the people, which is what the petition to make oil contracts public is aimed at. According to various estimates, we do not receive about $20 billion annually only from the oil and gas sector of Kazakhstan, the members of the alliance note.

At the same time, they believe that it is necessary to increase the transparency and efficiency of consideration of petitions. Signing petitions should be simplified, tied to SMS-messages, or give the opportunity to sign through eGov (e-government site). The petition process should be clearly regulated, any petition that gets the required number of votes should be considered by the parliament and brought to the attention of the head of state.

Azamatkhan Amirtaev noted that signing a petition causes difficulties for some people who, for example, do not have a computer. There are also citizens who do not know how to use their electronic digital signature (EDS). Therefore, a whole team of his associates has left for the western regions to collect signatures for the petition.