Eric Watkins
Oil Diplomacy Editor
Relations between the government of Kazakhstan and Italy's Eni SPA hit a new low last week after the firm's subsidiary, Agip KCO, was accused of fraud while serving as operator of the Kashagan oil field project.
"A criminal investigation on fraud allegations is now being conducted," said Adil Abylkasymov, a department chief at Kazakhstan's financial police, referring to $110 million in alleged overcharges by Agip.
Agip was initially sole operator of the Kashagan development, but was forced by Kazakh officials to surrender that role due to alleged cost over-runs.
North Caspian Operating Co. became the operator of Kashagan in 2009 on behalf of the Kashagan consortium comprised of KazMunaiGas, Total SA, ExxonMobil Corp., ConocoPhillips, Royal Dutch Shell PLC, Eni, and Inpex.
Alleged false claim
Now, Kazakh financial police say Agip calculated expenses related to the construction of a plant twice. They say that the claim would have entitled Agip to compensation for the costs from future oil production.
NCOC expressed awareness of "the media reports" regarding the alleged fraud by Agip, saying the charges were from a period "prior to NCOC's appointment as operator under the North Caspian Sea PSA."
PSA? Hardly had that word been uttered than Astana reiterated its plans to revise production-sharing agreements with foreign energy majors.
The government is being urged on by officials who say agreements with foreigners were signed in the 1990s—chaotic post-Soviet years when cash-strapped Kazakhstan was inclined to make concessions to lure foreign investors.
"We should work out a mechanism…of reviewing [PSAs] for their possible change, taking into account the balance of interests of all parties," said Altai Zeinelgabdin, a member of Kazakhstan's Accounts Committee, the country's top financial watchdog.
'Present-day realities'
"The economy is not standing still, the conditions of its development are changing, and this often demands the revision of PSAs, especially when state interests are violated," Zeinelgabdin said. "We must state that many clauses of the PSAs in force do not correspond to present-day realities."
As if any clarification were needed, Daulet Yergozhin, tax committee head, told reporters: "We are saying that the PSAs signed in the 1990s need certain clarifications and revisions."
Somewhere in their notes, Yergozhin, Zeinelgabdin, and other Kazakh officials were doubtlessly told to refrain from acknowledging any references to the changing constitution that is mentioned so often in George Orwell's Animal Farm.
Still, the charges against Agip sound like something out of the old Soviet days—especially designed to render an otherwise odious outcome smelling like a rose. In this case, a smell remains—but not of roses.
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