Kazakhstan Hopes to Increase KPO Compensation for Oil Revenues Dispute
The government is discussing with the consortium Karachaganak Petroleum Operating (KPO) an increase in compensation for a dispute over the calculation of oil revenues from the Karachaganak field, said Deputy Energy Minister Murat Zhurebekov.
“We have not yet completed these negotiations. Perhaps there will be a revision of some parameters of this transaction. We want to revise the economic conditions of the transaction in favor of the republic in the direction of increase. Prior to this, as you know, $ 1.1 billion. Today this issue is being discussed, ”Zhurebekov said.
Recall that in 2018 the Ministry of Energy announced the completion of a three-year negotiation process with KPO on a dispute on the calculation of oil revenues. However, as a result of the relevant agreement on the settlement of the dispute between the parties was not signed.
Then the parties signed an agreement on the principles of dispute settlement (SOP). According to the agreements, KPO should pay the republic $ 1.1 billion in compensation for lost profits. Also, changes will be made to the production sharing mechanism at the Karachaganak field, which will provide the republic with additional project income of about $ 415 million by 2037 at an oil price of $ 80 per barrel.
As previously reported, the disagreement concerned the methodology for calculating the shares of the parties in the profitable production division. The Karachaganak dispute was based on the measurement of the “objectivity index”, which, according to the production sharing agreement (PSA) of 1997, determines the amount of profit made by the consortium and the government of Kazakhstan. The index is calculated in such a way as to enable the international oil giants to return their investments before giving the profit to the state.
As it became known in 2019, the republic and the consortium continue negotiations. Kazakhstan also did not withdraw its claim from international arbitration against KPO.
An arbitration award is expected by mid-2020.
According to Zhurebekov, “if the republic loses the arbitration, no sanctions and consequences will be assigned to the republic, because we are the plaintiff.”
