The recent World Economic Forum in Davos, attended by more than 2,500 high-level decision-makers from all over the world, was the place where Kazakhstan’s Prime Minister Karim Massimov promised that his country would double its daily oil output by 2020, thus reaching the level of 3 million barrels per day. A few months earlier, the Kazakh Minister of oil and gas, who had been traditionally invited to deliver a keynote speech at the Kazakhstan International Oil and Gas Exhibition (KIOGE) in Almaty, told the journalists that over 100 million tons of oil would be exported every year in ten years’ time. He also hinted at a possibility that such a trend might be sustained for at least four decades.

While experts may be devoting their free time to guesswork about these optimistic declarations of Kazakh government officials, the country’s short-term strategy is becoming ever clearer. As was recently reported by Kazakhstan’s Customs Committee, Kazakh authorities fined the Karachaganak Petroleum Operating, a major oil producer on the Caspian Sea, almost US$ 143 million after a large-scale auditing campaign that had revealed serious inconsistencies in the company’s financial statements for the last 5 years. The consortium owned by British BG, Italian ENI, U.S Chevron and Russian Lukoil, which is now working at the oil field, is responsible for a half of Kazakhstan’s gas and 18 percent of its oil.

In 2010, the company’s management was indicted with fraud exceeding US$ 1.3 billion. The local prosecution, which had previously claimed that the KPO regularly practiced overproduction in order to obtain immediate gains to the prejudice of Kazakhstan’s national interests, later dropped its accusations without citing any particular reasons. Another incident of the past year was related to a three million dollar fine imposed on three foreign companies, Agip, TengizChevrOil and the same KPO, for breaching national environmental regulations for the oil and gas sector. The most serious charge was put forward against the KPO’s policy of waste utilization which was mainly based on the dumping of environmentally unfriendly substances in the absence of special protection measures.

Despite the seeming legality of such actions, some experts doubt the sincerity of Kazakh officials, as the Kazakh government is believed by many to be aggressively seeking to reassert itself regarding the distribution of oil revenues. Oil and gas minister Sauat Mynbayev eagerly commented on the KPO’s troubles, saying that the company, whose major contract with Kazakhstan is due to expire only in 2037, had not even partly fulfilled its contractual obligations concerning the “local content” clause. This provision means that Kazakh technical specialists should be directly involved in the project so as to be able to manage it after the eventual departure of foreign engineers.

Another legal battle has been gradually unfolding for a number of years around the most ambitious Kashagan project, which was entrusted to an ENI-led consortium. Interestingly, the production sharing agreement was signed back in 1997, when the Kazakh President was visiting Washington, but the idea was subsequently put on the backburner due to a lack of funds and a need for heavy investments. Kazakhstan expected to see the production starting in 2007.

At that time, the first major crisis in Kazakhstan’s relationship with ENI erupted, when the company was unable to stick to its obligations by declaring that the start of drilling operations had to be postponed until 2013 (the initial deadline was due three years earlier). Moreover, the projected cost went up at a surprisingly rapid pace, from US$ 57 billion to US$ 136 billion. The Kazakh Government was even contemplating the possibility of stripping the Agip KCO (a joint venture set up by ENI) of its operator’s status. However, the new production sharing agreement concluded in January 2008 extended the deadline in accordance with the consortium’s wishes, in exchange for an increase in the share of Kazakhstan’s national oil company, KazMunaiGaz. The latter more than doubled its participation in both investment and distribution of profits, bringing it up from 8 percent to 16.81 percent. This bargain was struck behind the back of the Japanese Inpex, which meant a third failure for Japan, after the deals with Russia and Iran, to secure production rights abroad in order to compensate for its energy dependency. A vigorous reaction came from ExxonMobil, but its managers were soon ready to give up any claims.

On January, 31 2010, Minister Mynbayev said that Kazakhstan would be quite reluctant to accept the tentative schedule proposed by the North Caspian Operating Consortium (which replaced the Agip KCO in early 2009) regarding the launch of the Kashagan oilfield’s second phase. This project is intended to increase Kazakhstan’s production capacity by simultaneously linking its major oilfield with the Black Sea pipeline system. The NCOC’s inability to satisfy Kazakhstan’s huge appetite for oil revenues is likely to give rise to another legal battle.