KZBlog

In a government meeting this week, Prime Minister Massimov assured the cabinet of ministers that work to renegotiate contracts with foreign investors will continue and that abrogations will be made on new contracts.

…officials announced that they would no longer negotiate production sharing agreements, or PSAs, which tend to be favored by international energy conglomerates because they tend to clearly outline taxation obligations. Prime Minister Karim Masimov said that all existing PSAs between Kazakhstan and foreign entities would be honored. The rule would only apply to new investors, he added.

What is more, oil companies are not to be the only targets of renegotations. Steel giant Arcleor Mittal whose mines have come to public attention for disasters that killed miners late last year and in 2006, is under pressure as well:

“The owner has been warned that if measures are not taken to assure safety the question of revoking rights to subsoil use will be raised,” Emergencies Minister Vladimir Bozhko – who heads a commission investigating a January accident at ArcelorMittal’s Abay mine which killed 30 workers – told the cabinet.

In fact it would appear that high profile companies are not the only victims of the government strategy to regulate foreign investors.

Energy Minister Sauat Mynbayev added to the pressure on investors by stating during the session that Kazakhstan had abrogated nearly 100 contracts in 2007. Government monitoring of 831 firms found that just over half were fully meeting their financial obligations, Mynbayev said, while 97 companies were meeting less than a third of them.

“These 97 contracts have to date been broken off. Notification has been sent to a further 182 [companies] about violations of contractual obligations and licensing conditions,” Mynbayev said. The ministry did not immediately respond to a request for clarification about which companies were implicated, but Kazakhstani analysts suggested most were probably minor subcontractors.

The mass investigation and cancellation of contracts may be aimed at reconciling breaches of contract, safety violations, and unfair terms of contracts made early in Kazakhstan’s independence. However some note cynically that in some cases violations years ago are being cited only today as reasons for canceling contracts. Critics note that likely this means that either monitoring institutions are not doing their job or that earlier informal arrangements were made to ensure that the government overlooked violations.
Others believe that the government is essentially nationalizing its resource industries by canceling contracts that do not give the government enough control or a big enough profit share.