Italy PM heads to Kazakhstan as oil row simmers

By Francesca Piscioneri

ROME, Oct 5 (Reuters) - Italy's prime minister heads to Kazakhstan on Sunday with oil company Eni's talks with Kazakh authorities over the giant Kashagan field expected to top his agenda.

Premier Romano Prodi will play a neutral role in an Eni-led (ENI.MI) consortium's dispute over Kashagan, the world's biggest oil find in three decades, a government source said. He will head a business delegation on a three-day visit to the Central Asian state.

"This is a question between private parties, there is no political or governmental role. We are observers," the source said.

The centre-left leader also plans to discuss a new law that lets the Kazakh government break or alter contracts with foreign investors, the source said. The law has alarmed foreign companies after the government suspended operations at Kashagan.

Kazakhstan is seeking $10 billion in compensation over delays and rising costs at Kashagan and has threatened to strip Eni of its leading role in the consortium. Talks face an Oct. 22 deadline.

Eni, 30 percent state owned, heads a Kashagan consortium comprising Royal Dutch Shell (RDSa.L), France's Total (TOTF.PA), ConocoPhillips (COP.N), Japan's Inpex Holdings Inc (1605.T) and Kazakh energy company KazMunaiGas [KMG.UL].

An oil analyst said Prodi's visit could speed a Kashagan deal, but put the odds of one being announced during the trip at 50-50.

"That's sort of triangulating feedback from all the partners in the project," the analyst said.

"They were sort of flagging that Oct. 22 deadline to begin with, and now they're talking down expectations. They are giving themselves some slack."

Harsh weather, poisonous hydrogen sulphide gas, the Caspian Sea site and very high pressure have made Kashagan a technical challenge. Solving those problems has contributed to delays.

Prodi's visit comes just days after Kazakhstan fined a Chevron-led (CVX.N) oil venture $608 million for violating environmental laws, alarming investors. Chevron denied wrongdoing on Thursday and vowed to contest the fine.

(Additional reporting by Ian Simpson)