Kazakhstan to force foreign oil firms to pay more tax

Kazakhstan will tear up contracts signed by Shell, BG and other foreign energy companies to invest more than $150bn (£90bn)to exploit giant new oil fields in the country, forcing them to pay more tax. Shell has a 16.8% stake in the consortium developing the Kashagan field at an estimated total cost of $136bn. The country's energy minister warned today that the companies would no longer be exempt from domestic taxation as agreed and would have to redraft their contracts. President Nursultan Nazarbayev recently said that foreign companies would have to pay domestic taxes. TodaySauat Mynbayev, energy minister, confirmed that this would apply to the developers of the Kashagan field, as well as companies including Chevron, which is leading the consortium on the Tengiz field, and BG, which has a stake in the Karachaganak project. The Kashagan field, with estimated recoverable oil reserves of at least 9bn barrels, was discovered in 2000 and is the largest find since the 1960s. It had been planned to come into production in 2004, eventually producing over 1.2 million barrels a day, but production is now scheduled to start in 2012. It is hugely over budget, Shell having originally forecast that it would cost only $29bn to develop. Shell and other foreign energy companies in Kazakhstan had signed production sharing agreements supposedly fixing the tax they pay and profit share they are allowed to take for the lifetime of the project. Analysts said that the companies now faced a "significant" rise in taxes, and would for example be liable for the export duty which two years ago was set at $100 a barrel. Anna Walker,senior analyst for central Asia and South Caucasus at consultancy Control Risks, said the government had increasingly been ratcheting up the pressure on companies in an effort to raise revenues following the economic downturn. "The wider implication is also that the government could change the terms of the contract in the future whenever it wants." The companies and government would have to find a compromise as both sides needed the projects to go ahead. "Generally, the government in Kazakhstan is being more assertive. Companies don't want to miss out on the opportunity. But because the technical challenges are huge, it still needs foreign operators to develop the fields." Shell declined to comment.