The completion of the second phase of the oil complex construction in Karachaganak fields significantly increases the oil export capacity of the country, putting the annual production of hydrocarbons at 8 million tons. Karachaganak is just one of the more than two hundred oil and gas deposits discovered in Kazakhstan. The final agreement to develop Karachaganak on product-sharing basis was reached between BG-Group, Italian ENI, Chevron-Texaco, Russian Lukoil consortium and Kazakh government in 1997. More than 500 Kazakh companies were involved in this project. Foreign companies hired thousands of local workers in Western Kazakhstan, thus alleviating, even if only for a limited period, the acute unemployment problem of the region.

Despite some sense of uncertainty among oil officials alarmed at continuing American presence in the oil-rich Middle East, analysts from leading government papers predict a bonanza age for Kazakhstan. Proven reserves on land are estimated to make up 2,9 billion tons of oil and condensate, and 1,8 trillion cubic meters of gas.

There is a good ground for optimism. Over the past ten years, foreign investment in Kazakhstan’s economy amounted to $20 billion. Notably, 85% of the investment money was funneled to oil and gas industry. Since the beginning of 2002 the oil production in Kazakhstan has increased by 50%. According to government sources this year the oil output will reach 52 million tons. If that pace of production is to be sustained, the country’s ambitious aim to increase the annual output to minimum 150 million tons by the year 2015 appears to be easily achievable.

Optimists are apt to call Kazakhstan a second Kuwait. But it would be more appropriate to liken Kazakhstan to a battlefield for oil giants of the world, rather than a Kuwait. It is getting increasingly difficult for the government to reconcile insatiable foreign companies with needs of domestic economy.

Early in June Chinese leader Hu Jintao used his first visit to Kazakhstan to conclude two major agreements aimed at expanding Chinese investment in Kazakhstan and boosting the construction of a pipeline from Kazakhstan to China. Just a week before that, the Chinese National Petroleum Company, which had owned 75% shares in Aktobemunaygaz, acquired an additional package of shares of that company. Western companies reacted jealously to the move. The British company BG Kazakhstan was quick to announce its projected sale of 16,67% shares in the North Caspian project to ENI, Royal Dutch/Shell, TotalFina Elf, ExxonMobil, ConocoPhillips and Inpex. The move thwarts the hopes of two Chinese companies – CNOOC North Caspian Sea Ltd., and Cinopec International Petroleum Exploration – to take part in the development of Kashagan oil field, which is estimated to hold 1,7 billion tons of hydrocarbons.

While rivals were crossing swords over Kashagan, Ukrainian Minister of Energy held encouraging talks with the general director of “Kaztransportgaz” pressing on the Kazakh side the Odessa – Brody route for shipment of Kazakh oil. Ukraine also hopes to purchase 1.5 billion cubic meters of Kazakh gas annually. Possibly, Kazakhstan will eventually join the Russian-Ukrainian “gas alliance”.

What is increasingly irritating the Kazakh public, however, is that nobody in the government bothers to explain how the huge proceeds from the sale of oil are being used. Not long ago, Almaty NGOs held round-table discussions on the management of revenues from oil export. Only one out of 19 invited national and foreign companies took part in the discussion.

“It is not surprising that oil companies, operating in our country, openly shun public discussions. They have much to hide”, says Meruert Makhmutova, director of the Public Problems Research Center. Among the honorable guests of the discussion was the manager of the Caspian Revenue Watch project George Soros, the tireless supporter of NGOs. He said that oil extracting companies must publicly account for their revenues and expenses, since huge sums are being spent irrationally. According to him, mass media has a greater role to play in restoring confidence between government and wide public by providing accurate and unbiased information on revenues.

“What we need most at the moment is the absolute transparency of oil contracts and availability of information on oil companies and their owners. That should be the starting point in monitoring the revenue flow. We are going to submit to parliament a draft law, which will enable to use effectively this instrument of transparency”, says the chairman of “Ak zhol” party Alikhan Baymenov.

Government officials often come under fire from opposition leaders for mismanagement of the National Fund, where already about $2 billion have been accumulated. Parliament members have repeatedly inquired ministers about revenues of oil producers and tax-dodging companies, but no one can explicitly account for the use of oil money. Experts estimate that 80% of oil deals are carried out in offshore zones. That leaves much room for dishonest practices and tax-evasion. The major battle for transparency is looming ahead.