RusEnergy

19 October 2007 - Upstream OnLine - Foreign investors urged Kazakhstan's President Nursultan Nazarbayev to veto a planned subsoil law which will allow the government to break contracts with foreign companies, saying it would damage the country's business reputation. The debate over the subsoil law has thrown a new spotlight on Kazakhstan's relations with foreign investors at a time when the government is embroiled in a dispute with the Eni-led Agip KCo consortium over the Kashagan development. Kazakhstan's upper house of parliament approved amendments to existing subsoil legislation last month but Nazarbayev has yet to sign them into law. In their joint letter, the American Chamber of Commerce in Kazakhstan, the Kazakhstan Petroleum Association and other investors expressed their deep concern over the legislation. "(There is) a sense that there is absolutely no need for this type of very general legislation," Doris Bradbury, executive director of the American Chamber of Commerce in Kazakhstan, told Reuters. "It's absolutely essential for foreign investment, for any type of investment, that there be absolute certainty about contracts." Under the draft, Kazakhstan can force changes to oil contracts or break the terms of product sharing agreements if it deemed a threat existed to its national security. Signatories refused to disclose the letter due to its confidentiality but confirmed the authenticity of a Russian-language copy of it posted on a Kazakh news website. The letter, addressed to Nazarbayev and other senior officials, said the law "would damage investment climate in Kazakhstan and raise political risks associated with investment". It added: "We respectfully ask you to veto this draft legislation and, taking into account the importance of the matter, we thank you for considering this letter." Insiders in the business community told Reuters they see the subsoil changes as a consequence of the Kashagan dispute. The government has threatened to strip Eni of its leading role at Kashagan and impose billions of dollars of fines for production delays. Kazakhstan has previously used changes to its subsoil legislation to force the hand of investors. During a 2005 row over the purchase by China National Petroleum Corporation of assets in Kazakhstan owned by Canadian PetroKazakhstan, parliament amended the law to give Kazakhstan first right of refusal in such asset sales. As a result, national oil company KazMunaiGaz took a stake in the PetroKazakhstan during the takeover. "The changes in the legislation will ... certainly have a negative impact on the reputation of the Republic and may have a chilling effect on investor interest," one senior source in the Western business community told the news agency.