In Kazakhstan, signatures have begun to be collected under a petition demanding that the terms of the contracts for the development of the Tengiz, Kashagan and Karachaganak oil and gas fields be made public. One of the initiators of the petition is Oleg Pak, Chairman of the Board of the Parasat Alliance of Entrepreneurs and Kazkhimprom. We asked him to explain what the authors of the petition want and what the disclosure of contract terms will bring.
– We sent our petition to Kazakhstan’s official online petition site on May 30, and it was under consideration by the portal moderators. On June 25, we were told that according to their rules, the petition must be signed by at least 50 people before it can appear in the public domain. We fulfilled this requirement in a few hours on the same day, and the petition appeared on the site.
In principle, even before the official publication on e-Petition, major national publications have already published information that citizens of Kazakhstan have issued a petition demanding disclosure of production sharing agreements (PSAs) for three major fields – Tengiz, Kashagan and Karachaganak. We hope for support from the Kazakhstani media, opinion leaders and bloggers in publicizing this topic so that all citizens of the country will know about the petition. The main thing is that every citizen of the country knows that there is such a problem and can take part in its solution by signing the petition.
– How did the idea of creating such a petition come about?
– Before the creation of the alliance, I headed the Manufacturing Industry Committee of the Presidium of the National Chamber of Entrepreneurs (NCE) “Atameken”, and before that I worked for more than 10 years in the committee itself, in the structure of the manufacturing industry. After the new team came to the Chamber, there was hope for the transformation of this organization. But I saw that it (the new team) does not aim to change the work of the Chamber, that is, to bring it in line even with the instructions given by the head of state. And the President clearly said that Atameken should reflect the consolidated opinion of business, as well as become an engine of socio-economic reforms. But unfortunately, the national chamber does not do any of this. Accordingly, I voluntarily left the post of Chairman of the Manufacturing Industry Committee, and in August last year, at the request of business, we created the Parasat Alliance of Entrepreneurs. From that moment we started to actively engage in highlighting and solving the main problems that hinder the development of business.
For example, we developed the Concept for the Development of the Electric Power Industry in the Interest of its Consumers, the Concept for the Creation of the Coal Chemical Industry, the Concept for a New Approach to the Interaction between Business and the State, and as part of it we envisioned the transformation of the National Chamber of Entrepreneurs. And one of our big initiatives was to generally revise the terms of production sharing agreements with the “three whales” (Tengizchevroil LLP, North Caspian Operating Company and Karachaganak Petroleum Operating Company). As you know, these three major fields account for about 70% of Kazakhstan’s oil production, while the share of national production in the country is less than 30%. We held a press conference at the initiative of one of the members of the Parasat Alliance Coordination Council and voiced a proposal, as one of the options to improve the terms of the agreements, to buy out the foreign companies’ stake in these three large fields at the expense of the gold and foreign currency reserves (GCR) of the Russian Federation. In the future, we could agree with Russia and sign completely different contracts that would comply with the laws and interests of Kazakhstan (you can read about this initiative in the article “Will Chevron sell its assets in Kazakhstan to Russia”). I would like to emphasize once again that this is only one of the options that could change the terms of the PSA.
After that, we voiced a proposal to conclude additional agreements to the PSA regarding local content development issues. Our experts, who are familiar with this issue, reported on how the Kazakh content could be increased and that this additional agreement does not contradict the PSA itself and can be signed by the parties without violating the terms of the PSA. We sent our proposals to the Ministry of Energy and the Oil and Gas Council under the President. In response, the Ministry said that various forums and events are organized for the development of local content, i.e., practically, they told us that nothing needs to be done, everything is fine as it is. After that, if you remember, TCO signed a 200+ million-dollar supply contract with local companies.
In response to the proposal to buy out foreign companies’ stakes in Three Whales, we received the answer that the authorities are not against the idea, but it is purely a matter of business entities, i.e. the owners of these stakes and the party that is ready to buy them out. Everything depends on who, how and with whom they want to negotiate.
Another major problem is the issue of oil supplies to the domestic market and oil export quotas. As it turned out, we regulate issues related to oil exports and its distribution to the domestic market manually, without any transparency. At the same time, the price of oil for export is three times more expensive than the domestic one. And there are companies that load 80% of their oil to the domestic market and 20% to export. And there are companies that load 80% of their oil for export and 20% for the domestic market. And this process is not regulated by anything. In other words, by infringing on the interests of one side, the other side is given an opportunity. We had a large correspondence with the Ministry of Energy, in which we practically received confirmation of our words. Then we held a large meeting with the participation of representatives of 30 oil producing companies. And one of the proposals voiced at this meeting was to oblige the Three Whales to supply oil to the domestic market and to make the maximum threshold for oil producing organizations (OOO) on shipments to refineries, as well as there is nothing regulated supply to mini refineries, they are forced to solve this issue themselves at a price above the market. Now, it turns out that the one who extracts the most is not burdened with anything. And those who produce less, which are mainly our local Kazakh companies, are loaded at a price three times cheaper. The companies also proposed to set the threshold of oil volume, which is loaded to the domestic market, in the range of 30-40%. We have raised all these issues and even negotiated with the Agency for Protection and Development of Competition. And today we are already preparing amendments to the Code “On Subsoil and Subsoil Use” to regulate these things and make them transparent.
And, accordingly, the culmination of all these works was the filing of a petition. We see that there is a problem that our state bodies, such as the Ministry of Energy, which should be responsible for the development of the industry, do not show proper initiative to address these issues. Therefore, we, as the Parasat Alliance of Entrepreneurs, together with the Baitak Green Party, have prepared this petition.
The President has set quite ambitious goals – to create a powerful industrial framework, to double the economy by 2029. We realize that it is impossible to achieve these goals without resolving issues related to our subsoil resources. Today, according to various expert estimates, Kazakhstan receives about 10% of all revenues that the shareholders of Tengiz, Kashagan and Karachaganak receive. And this is because the development of these three fields is carried out under PSA and stabilized contract.
We also know that today we lose up to $500 million monthly on export duty alone, which these “three whales” do not pay. If all these terms of agreements are properly reviewed and brought in line with the Constitution, everything can fall into place. This could be the impetus for our movement towards a just Kazakhstan.
– Who do the authors of the petition mean when they write “the presence of sabotaging forces in the government”?
– These are all those people – officials, deputies, public figures and bloggers – who lobby the interests of foreign companies to the detriment of the interests of the republic. Yesterday, we have not yet had time to publish the petition, and already there were articles and publications in publications and social networks with arguments and questions such as: “What will this disclosure of PSA information give you?”, that “these oil companies are already overpaying a lot”, and so on.
These Western companies have a huge number of lobbyists. They are all citizens of Kazakhstan, who consider themselves patriots and declare it, but at the same time, as they say, who pays the piper orders the music. That is, they are paid by oil companies, and they protect their interests. And it is not only bloggers and experts. There are such sabotaging forces in the government and Majilis. Today there is a huge lobbying machine, which does not make it possible to make the distribution of our subsoil fair. There are established processes and owners who want everything to remain as it is. Because in fact, around these “three whales” a certain number of people and businesses feed, which are given the opportunity to earn in exchange for loyalty in solving issues. That is, they protect the interests of these Western companies, and, unfortunately, to the detriment of the interests of our country.
– What changes do you propose to make to the Law “On Property” and the Code “On Subsoil and Subsoil Use”?
– First, we propose to amend the Code “On Subsoil and Subsoil Use” and make the process of distribution of quotas for oil supplies to domestic and foreign markets fair and transparent. The law should clearly specify who and how much crude should be supplied to domestic refineries and how much should be sold for export.
If we talk in general about our global initiative, where we say that land and subsoil belong to the people, which means that we need to revise the terms of PSAs and bring them in line with our constitution, we initially believe that the first step should be to disclose the terms of these agreements. Once we know the terms of these PSAs, the rest of the processes will be irreversible in moving towards a just Kazakhstan. – So, based on the information you have received, you plan to voice your proposals to change the legislation?
– Yes, that’s right. Because there are many things in these PSAs that foreign companies and those who help them do not want the public to know. Disclosure of this information will help trigger further changes.
– You write: “…As soon as the state becomes a party to PSAs and contracts not directly, but on behalf of the people – the owner, the interests of the people, starting with the disclosure of information about the content of the agreements, and getting their fair share, should be taken into account”. Do you think that every Kazakhstani should receive a certain share of revenues from oil sales, as for example under the program “National Fund for Children”?
– I am not in favor of such direct distribution of funds to each person. Because it can give only some short-term effect. But I believe that benefits should be distributed with the participation of the people, and they should be the ultimate beneficiaries. Today we see that 162 people own half of the country’s economy (This, referring to the data of the audit and consulting company KPMG, said President Kasym-Jomart Tokayev during a meeting with representatives of large domestic business in January 2022).
In my opinion, we should have more long-term goals. Our main task is to improve the welfare of the people, to get away from this “poverty trap” that the head of state spoke about. It is not enough to give away $100 a month or a year. We need to build a processing industry, to create additional processing, not to sell raw materials.
We need to develop the same coal chemistry that I mentioned earlier. For example, China processed 220 million tons of coal in 2021, and the volume of the coal chemistry market in that country was estimated at $630 billion. We mined 110 million tons of coal during that time and received only about $5 billion. I am saying that we should plan for the long term and receive dividends from investments in our own production.
– You say that it is necessary to bring the PSA “in accordance with the provisions of the Constitution of the Republic of Kazakhstan”, “to offer foreign extractive companies to withdraw from – under the conditions of confidentiality, agreements and contracts signed by the leadership of the old Kazakhstan. And in case of refusal, the head of state has the right to do it unilaterally”. Don’t you think that if you do it unilaterally, the government will be sued in international arbitration, there will be an outflow of investors, and “Hello? Venezuela”?
– I mean, it’s a negotiation process. There are positive and negative examples in this regard. For example, Kyrgyzstan nationalized the Kumtor gold mine, which was being developed by a Canadian company. As a result of the proceedings, the investor signed an amicable agreement.
Besides, we generally say that the Constitution is the main law of our state. If it is changed, then all other legislative acts must be brought in line with it.
I am sure we can agree with the “three whales” on a substantial revision of the PSA.
– So all these shares of foreign companies should be transferred to the national company KazMunaiGas?
– No, we do not think so. The fact is that today these “three whales”, due to the fact that they operate under PSA and stabilized contract, are practically not regulated by our legislation. Whereas we have dozens of other extractive companies, Chinese, Russian, European, which operate within the framework of our domestic legislation. We say that they – TCO, NCOC and KPO – should be subject to Kazakhstani laws. We must move away from such a barbaric form of cooperation as PSA. That is, we propose to switch to cooperation within the framework of our current legislation, when they will have obligations on local maintenance, on attracting personnel, on supplying oil to the domestic market, etc. Let us create the same conditions for everyone. Why do we create favorable conditions for these companies, while we cannot develop our domestic oil production?
I am not saying that we should take away and nationalize. Although there have been such methods in history, both positive and negative. I am saying that we need to negotiate, considering this new constitutional norm. If our partners represented by these Western companies, if they understand our situation, if they want to enter at least a little bit into our situation and help us, I think they can afford to revise these conditions. And remain owners as well, but on mutually beneficial, rather than bonded terms for us.
– What reaction to the petition and what results do you expect from it?
– Within six months, we need to collect 50,000 signatures. And then, based on the rules on petitions that we have, it should be considered. Yes, we see from the example of the same Utilbsor, the petition for the abolition of which gained the required number of signatures, that not everything is so simple. But we hope that on such a significant issue as the disclosure of PSA terms, which will affect the further development of the domestic oil and gas industry, there will be a completely different reaction from the government and the people.
If there are polarized opinions on the recycling fee, we expect almost 100% support on the issue of disclosure of PSA terms. I have already sent a petition to some officials in the government and presidential administration, members of parliament, as well as businessmen, and everywhere I received support. That is, this idea is very strongly supported by the people of Kazakhstan. We hope that within a few months the required number of signatures will be collected, and we will start a dialog with the government to solve this issue.
We are not trying to replace the government. We believe that given the bureaucratic machine, as well as sabotaging forces within the government and Majilis, it is difficult to initiate such things. We act here, rather, as assistants in solving such a complex issue.
We ask the citizens of Kazakhstan to sign the petition. Our future and the future of our children will depend on what decision you make today.
– Thank you for interview!