Karachaganak consortium to suspend Kazakhstan legal action

Karachaganak Petroleum Operating (KPO), a joint venture led by British BG Group and Italian Eni, suspended legal proceedings against the Kazakh government to recover more than $1 billion in export duties it had paid to Kazakhstan, Reuters reported.

The KPO consortium, which also includes Chevron and Russian LUKOil, develops the Karachaganak gas condensate deposits in western Kazakhstan. The disputed amount refers to an oil export duty the KPO consortium paid between May 2008 and January 2009.

“We’ve suspended that process while we sit down and have further discussions. We, too, would like to find an amicable solution to these issues,” BG Group CEO Frank Chapman told reporters on a conference call. “I’m optimistic that we will not have to go through a [legal] process.”

Most major foreign companies operating in Kazakhstan under so-called Production Sharing Agreements (PSA) have been exempt from the levy but the government later decided that Karachaganak project was not. KPO was forced to pay the duty despite its objections but reportedly filed a case in the London-based court of Arbitration of the International Chamber of Commerce.

Kazakhstan introduced the duty, originally set at $109.91 per ton, in May 2008, and stood at $203.8 per ton just before it was abolished in January 2009.

By SRI