Chinese Acquire Oilfield Rights, With Strings Attached

A major Chinese oil firm has been granted rights to develop the Karajanbass field in western Kazakstan – but only after it agreed to Kazak government participation in the project. NBCentralAsia experts say the deal is a landmark because it shows the Kazak government is asserting its right to be involved in foreign-led resource development.



An agreement signed on December 31 gives the China International Trust and Investment Corporation, CITIC, the right to open up the Karajanbass oil and gas deposit, which has proven oil reserves estimated at around 40 million tons.



The deal became possible only after the Chinese consented to give the state-owned Kazak oil and gas company KazMunaiGaz an option to purchase a 50 per cent stake in KarajanbassMunai, the operating company.



CITIC’s plan to purchase a controlling share in the oilfield was first announced in October, but it could not happen until the Kazak government gave its assent.



In November, members of Kazakstan’s parliament expressed concern at the growing presence of Chinese investors in the lucrative oil sector, and said CITIC must not be allowed to acquire total control of Karajanbass.



NBCentralAsia analyst Eduard Poletaev says concerns about national security are felt at the highest level in Kazakstan, and this has resulted in the present tougher stance on investment projects involving foreign capital.



“In a deal hammered out at high level, Kazakstan won a share package for KazMunaiGaz,” said Poletaev. “This shows the Kazak authorities are beginning to negotiate quite hard with investors interested in buying into [oil and gas] fields. I think the authorities are concerned that Chinese giants like CITIC could have a lot of influence on national security.”



The government acquired prior rights to take part in such energy projects, with KazMunaiGaz assigned the role of pursuing the state’s interests, back in 2004 when the legislation on mineral resources and oil production was amended. But this happened at a time when there was already an imbalance in oil and gas sector investments.



According to Poletaev, when capital inflows stem largely from one particular country, it will almost always impact on state policy. For example, he said, “Our authorities cannot stand up to pressure from the United States, since Kazakstan is the largest recipient of American investment in Central Asia.”



NBCentralAsia political commentator Daur Dosybiev similarly believes that the government is now working on the assumption that excessive foreign investment may be a danger, in that the countries making the investment could start dictating terms to recipient states.



But although KazMunaiGaz’s role in the CITIC deal does indicate that the authorities want more control over the oil industry, Dosybiev argues that it is impossible to guarantee that the state will remain on top of its own energy security.



“If we recall [past deals] with American and other companies, a significant share of production was also allocated to the Kazak state in the initial phases,” he said. “But the Kazak government subsequently began selling off shares to those same investors. It all happened behind closed doors, with no transparency.”



(News Briefing Central Asia draws comment and analysis from a broad range of political observers across the region.)