Foreign investors urge Kazakh leader to veto law

By Maria Golovnina

ALMATY, Oct 19 (Reuters) - Foreign investors urged Kazakh President Nursultan Nazarbayev to veto a law allowing 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 a group of Eni-led (ENI.MI) Western oil companies over the huge Kashagan oilfield.

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 on Friday.

"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 Web site.

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 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's CNPC 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 KazMunaiGas [KMG.UL] 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," said one senior source in the Western business community.