Kazakhstan to Proceed with Arbitration in £9.5 Billion Oil Venture Dispute
Posted 24/08/2023 12:54
Kazakhstan's Energy Ministry has affirmed its intention to proceed with arbitration in a £9.5 billion dispute involving the partners of the Kashagan oil venture. This decision comes as a setback to international major companies, including Eni SpA, Shell Plc, Exxon Mobil Corp., and TotalEnergies SE. These companies have collectively invested about £41.5 billion in the Kashagan project. Although there were indications in July that arbitration might be halted, the ministry has now rejected a proposal that Kazakhstan drop its claims in exchange for commitments to invest.
The dispute revolves around allegations of unapproved spending by the oil companies. This situation underscores the challenges of complex energy projects with intricate production-sharing agreements. The joint venture, North Caspian Operating Co., responsible for running the Kashagan project, stated that the partners firmly believe they have adhered to the production-sharing agreement, Kazakhstan's legislation, and applicable standards and best practices. While the door for potential settlement discussions remains open, the ministry's current stance is to pursue arbitration.
In addition to the £9.5 billion dispute, the companies are also facing a separate £3.8 billion fine over alleged violations of environmental regulations. Both cases have led to ongoing discussions between the companies and the government. The companies have denied any wrongdoing and have been seeking avenues for resolving the disputes outside of the legal realm.
Shell's CEO, Wael Sawan, mentioned recently that the company's future investments in Kazakhstan would be influenced by the government's approach to providing an investment-friendly environment. The dispute serves as a reminder of the complexities and challenges associated with developing significant energy projects, particularly when production-sharing agreements and regulatory compliance are involved. The companies had explored the possibility of reaching a settlement by offering to construct a gas-processing plant to cater to Kazakhstan's domestic market, but this proposition was not accepted.