Publication: Eurasia Daily Monitor Volume: 4 Issue: 193

On October 8 Italian Prime Minister Romano Prodi arrived in Astana, Kazakhstan, to consult with Kazakh President Nursultan Nazarbayev and Prime Minister Karim Masimov in a bid to ease tensions around the Kashagan oilfield. Work at Kashagan was halted over the summer, due to accusations of environmental damage and possible fines.

Prodi looked optimistic as he emerged from the talks for a press conference. He told journalists that Kazakh officials had assured him that they have no plans to revise the contract concluded with the Italian oil company ENI ten years ago. Under the 1997 deal, ENI is the leader of a coalition of Western and Kazakh firms, ENI-Agip, working to develop the Kashagan oil field (see EDM, October 15).

Later, addressing a Kazakh-Italian joint economic forum, Prodi announced that ENI was willing to accept any conditions set by the Kazakh side at the ongoing talks. In the same breath, he expressed serious concerns over recent changes in the Kazakh law on mineral resources. The revisions are likely to impose considerable restrictions on the activities of foreign companies.

At this point Nazarbayev reaffirmed that his government would not change the operator at Kashagan if the ENI-Agip oil consortium meets its investment commitments. He pointed out that, since the signing of the product-sharing agreement with the oil consortium in 1997, no problems had arisen in relations with the Italian companies, but ENI’s recent decision to postpone the oil extraction until 2010 and the plan to increase production costs up to $100 billion would be a heavy burden on Kazakhstan’s national budget and undermine key social programs. Therefore, ENI’s proposals are unacceptable. Referring to the ongoing talks between the Kazakh government and the Italian oil company, Nazarbayev said they were of a purely “commercial nature” and could be influenced neither by the Kazakh president nor by the Italian prime minister (Panorama, October 12).

The unexpected U-turn in the Kazakh government’s attitude toward the embattled ENI baffled even experts all too familiar with Nazarbayev’s unpredictable behavior. Over the last two months ENI-Agip was caught in the crossfire coming from the Ministry of Energy and Mineral Resources, the Environmental Protection Ministry, and a host of other government agencies. Minister of Energy and Mineral Resources Sauat Mynbayev, speaking at the recent Kazakhstan International Oil and Gas Exhibition and Conference (KIOGE), signaled that the government would not change its tough position on Kashagan. At the same time, he stated that the changes introduced into the law on mineral resources do not amount to pressure on foreign oil companies and contracts signed in the mid-1990s remain intact. But Nazarbayev was more explicit on this point and announced that Kazakhstan reserves the right to declare a contract invalid if a foreign company breaches Kazakh law (Kazakhstanskaya pravda, October 9).

In the heat of the unprecedented campaign targeting foreign investors, Gani Kasymov, a member of parliament, went as far as to demand that Prime Minister Masimov suspend Chevron’s activities at the Tengiz oilfield for alleged environmental damages. Experts estimate that more than 9 million cubic meters of waste sulfur have accumulated at Tengiz. However, waste disposal was not taken into consideration when Kazakhstan concluded contracts with Chevron and other oil companies. In fact, many of the environmental troubles at Kazakh oilfields were generated by legal loopholes and past mistakes. Moreover, any harsh measures directed at foreign oil companies are likely to boomerang on Kazakhstan’s oil-based economy. This sense of uncertainty partly explains Astana’s softened attitude toward ENI-Agip. Italian firms have invested some $1 billion into the Kazakh economy. In the first nine months of 2007 Kazakhstan’s trade volume with Italy, the second-largest trading partner after Russia, grew by 20% over last year’s $8.5 billion (Panorama, October 12).

Another explanation for the red-carpet treatment that Prodi received in Astana is that the Italian prime minister was largely regarded as a representative of the European Union, bringing immense economic and political clout for Kazakhstan. The Italian prime minister soothed the concerned Kazakh leadership, expressing support for Kazakhstan in its relentless bid to chair the Organization for Security and Cooperation in Europe in 2009. Prodi also pledged Italian support for Kazakhstan’s entry into the World Trade Organization. Astana, in turn, welcomes the Italian-led global campaign against capital punishment.

Prodi’s successful visit to Astana indicates that Kazakhstan seeks to mend fences with the European Union using Italy as a mediator. At the meeting of the Kazakh-Romanian intergovernmental commission held in Astana on October 11, the Kazakh side showed interest in the EU-sponsored Constanta–Trieste pipeline project. However, Europe will not be easily persuaded by friendly gestures from Astana.

Kazakhstan needs European markets just as much as it needs the Italian presence at Kashagan, despite all collisions and controversies. Lyazzat Kyinov, deputy minister of energy and mineral resources, announced the forecasted oil output of up to 80 million tons by the year 2010. But without the development of the Kashagan project, that ambitious plan may be reduced to a pipe dream. Therefore, Kazakhstan has no other option than to complete the Kashagan project — with or without ENI-Agip.