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Last Updated: Thursday, 27 September 2007, 09:52 GMT 10:52 UK
Threat to investors in Kazakhstan
By Natalia Antelava
Central Asia correspondent, BBC News

Kashagan oil field (Photo Courtesy of ConocoPhillips)
The Kashagan oilfield is the biggest found for 30 years

Kazakhstan's parliament has passed a law allowing the government to break contracts with foreign companies.

The law still needs to be ratified by the president. But it comes at a time when foreign investors in the oil rich central Asian republic are already feeling uneasy.

There is currently a dispute between the government and a consortium of Western oil companies over the massive Kashagan oilfield.

In an interview with the BBC, the country's prime minister Karim Masimov said that his government will take the consortium to arbitration, if the sides don't find a speedy solution to the dispute.

Kashagan is the biggest oilfield discovered anywhere in the world in the past three decades.

A month ago, the Kazakh government ordered Agip KCO, the Italian operator of the project, to halt work at Kashagan and began renegotiating terms of the contract they signed back in 2001.

Asked why the government was not willing to honour the contract, Mr Masimov said the agreement should have been respected by all sides and that the consortium of companies, led by Italy's Eni, that breached the agreement.

'Plan B'

The prime minister accused the consortium, which includes Exxon Mobil and Royal Dutch Shell, of delaying production and violating a number of environmental and tax regulations.

"We want our national company to be a co-operator on this project and if we don't find an agreement with a potential consortium, we have a plan B," the prime minister warned.

"Everyone involved in the negotiation knows exactly what that plan B is, but its too early for me to announce it," he added.

He said international arbitration was definitely a possibility.

Resource nationalism

In the meantime, the parliament is in the process of adopting a law that would make it easier for the state to terminate or change contracts with foreign investors.

For many, all of this is part of an emerging regional trend towards resource nationalism.

But Mr Masimov dismissed comparisons between Kazakhstan and Russia, where BP recently faced a similar problem.

"Russia is Russia and it's not my story, but I can say for sure that in Kazakhstan the dispute over Kashagan has nothing to do with nationalisation of resources," Mr Masimov said.

He added that it was a one-off case and that investors should not see it as the start of a trend.

"Chevron is working here without any problems," he said.

"I recently met with the president of Chevron and chief executive of British Gas, and we talked and we have no problem with them."

"But I told them, if they don't fulfil what they promised we will have questions for them too."

Many Western businessmen here in Kazakhstan say they have mixed feelings about the dispute over Kashagan and the consequences it will have for the investment climate.

Many of them say that the government has good reasons to question the management of the project and delays in production.

But at the same time, they worry that this oil rich country, which used to be so open to western investment, is becoming more assertive and more difficult to deal with.

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