"Bought like Indians for beads": do Western oil giants pay enough to Kazakhstan

There are still passions in Kazakhstan about whether Western oil giants share enough with the state for producing most of the oil in the country. They own the lion's share of production at all three megaprojects. It is almost impossible to change the agreements signed in the early 90s. But, as experts note, because of the energy transition, the Kazakh authorities will try to do this as quickly as possible and adopt the Russian experience.

Western oil and gas giants are expanding their projects in the country. The operator Tengizchevroil commissioned a third—generation plant in January and plans to increase total production at the Tengiz field by a quarter this year to 1 million barrels per day. Such an increase in production raises questions not only from OPEC+ on compliance with production quotas by Kazakhstan, which regularly violates them. But also in the country itself — whether Western companies pay enough to the country's budget. These disputes have been going on for decades.

"In those years (90s) I worked in the Department of external relations. I know the people who signed these contracts, who were returning from the USA, where they were invited by the same Chevron and other companies. It was just absurd: the person who discussed the signing of these contracts told that he was given a tape recorder," said Akmaral Batalova, a journalist and presenter of the Yurt Dome channel, during an interview with Olzhas Baydildinov, ex—adviser to the Minister of Energy of Kazakhstan and a member of the Expert Club at the Senate of the country's parliament.

"They took him all over America and paid him all his expenses: what he wanted to buy his family — any gifts, and the fact that he lived in a five-star hotel, went to fancy restaurants. We were really bought like Indians for beads then!", the journalist continued. The people who decided the fate of the country for many, many years to come did not even understand the price of this oil or the consequences of their actions, they were just like children, Akmaral Batalova said, adding that lawyers worked from the American side at the same time: "A whole landing party came."

The agreements were signed in the early 90s and then, for example, there was no export duty that could bring in $ 500 million a year, expert Olzhas Baydildinov gave an example. He noted that under the terms of the contract, its conditions could not worsen for investors and because of this, the country's authorities were at a crossroads.

Tengizchevroil is one of the three megaprojects of Kazakhstan. 75% of it belongs to American Chevron and ExxonMobil. Another 20% belongs to the Kazakh state-owned company KazMunayGas. And 5% to the Russian Lukoil. According to the financial statements, in 2023 the total revenue of the project amounted to $ 19.45 billion. Of these, Kazakhstan got 41.6% ($ 8.09 billion): $6.99 billion went to the state in the form of a 30 percent income tax and royalties, $1.1 billion was the share of KazMunayGas.

If we compare the net profit, the project participants, including the Kazakh state-owned company, received $ 5.3 billion in 2023, which is slightly less than the revenues to the budget of Kazakhstan.

It is obvious that the country's share in the megaproject is lower than the global average. For example, in Norway, the state share in projects through taxes and direct participation reaches 78%, in the UAE — 55-88%, in Malaysia — 65%, in Nigeria — 60-70%, and in Qatar exceeds 60%. Kazakhstan is inferior and Russia and Azerbaijan. Before SMO, the Sakhalin— 1 and Sakhalin—2 projects, according to open sources, brought 50-70% to the Russian budget, in other projects — 60-80%. At the same time, the Azeri-Chirag-Guneshli project brings 50-55% to the Azerbaijani budget.

In fairness, it should be noted that Kazakhstan was the first country in the post-Soviet space to conclude production sharing agreements, and the Tengiz field turned out to be not the simplest in terms of technical and geological parameters. Tengizchevroil reported that they had invested more than $ 48 billion in the latest expansion, which will bring 260 thousand barrels per day. Capital expenditures are traditionally reimbursed to investors.

As he writes on Facebook* Olzhas Baidildinov, in January, the country's parliament called for increasing Kazakhstan's share in megaprojects to 51%.

Earlier, Kazakhstan filed a lawsuit for $ 15 billion, which, according to the government, companies unfairly deducted from revenues. And then, Bloomberg reported, Astana demanded $ 138 billion in lost profits. We are talking about the cost of oil, which was promised to the government, but not provided by the developers of the field.

"This scandal highlights the complexity of working in the largest oil—producing country in Central Asia, where large international companies face difficult environmental and geological conditions, as well as with a government that adheres to maximizing the benefits of signed production sharing agreements," Bloomberg wrote.

Igor Yushkov, a leading analyst at the FNEB and an expert at the Financial University under the Government of Russia, notes that Kazakhstan cannot unilaterally rewrite the terms of PSA agreements.

"When Kazakhstan signed the PSA, it was in a very weak position: there was no money and technology. And, in fact, there were no other applicants besides Western companies. Therefore, they dictated their terms to Kazakhstan. Now the country wants to change the conditions of unfair distribution and, in order to get as much as possible, it is in a hurry to do so — especially taking into account the global energy transition (gradual abandonment of oil)," the expert says.

Now Kazakhstan has money that it could invest in projects, there are some technologies and, most importantly, there is investor competition, Igor Yushkov notes.

"And if Kazakhstan achieves the withdrawal of Western companies, then Chinese or Middle Eastern companies will come. There is a choice now. Therefore, the country's negotiating position is already stronger," says a leading FNEB analyst.

He notes that the country's authorities use fines on environmental grounds and impose additional taxes to pressure: "In fact, Western companies are faced with a choice — either pay fines or change the terms of the PSA. This is a classic scheme that has been used in Russia, when we changed the terms of the PSA and made sure that Sakhalin-1 and "Sakhalin-2" Russian companies have entered."

*Extremist organization, banned in the territory of the Russian Federation