Silk Road to Moscow?

27 September 2007 By Martin Hutchinson

The cost doubling and two year delay at Kashagan has infuriated Kazakhstan, which bears much of the cost of the slippage. Putin tempts Kazakhstan to follow his tough antiforeigner policies and renew old ties. It will probably succumb to temptation.

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Kazakhstan's parliament passed a law on September 27 allowing the government to break contracts with foreign companies; the law must still be ratified by the President. The government is currently in dispute with a consortium led by Eni and including ExxonMobil and Royal Dutch Shell which is developing the $19bn Kashagan oilfield, with estimated 13bn barrels of oil reserves in the Caspian Sea.

A consortium report in July postponed the field's operation by two years to late 2010 and almost doubled the cost estimate. This hurts Kazakhstan's budget since its 10% royalties commence only after costs have been recovered. Kazakhstan has demanded a 40% royalty and that the state owned KazMunaiGas be appointed cooperator at Kashagan, though it has only an 8.33% stake.

Kazakhstan has a population of 15.2m, growing at 0.4%. Its 2006 GDP at official exchange rates was $53.4bn, growing at 10.6%; with inflation at 8.6%. Per capita GDP was $9400 at purchasing power parity. Its current account surplus is 0.3% of GDP, while oil and oil products represent 58% of exports. 12% of exports and 37% of imports are from/to Russia. Its budget surplus is 0.7% of GDP on public spending of 34% of GDP.

Russian president Vladimir Putin agreed in May to build a new pipeline to carry Kazakhstan and Turkmenistan gas to Russia, connecting with Gazprom's network.

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