* Kazakhstan currently has 16 oil and gas PSAs
* Oil minister says mutual Karachaganak claims suspended
* Government says in talks over terms of several PSAs
LONDON, June 16 (Reuters) - Kazakhstan’s oil production sharing agreements with foreign oil firms are under review as they were initially set “at a loss”, but the Central Asian oil producer has no plans to cancel them, its oil minister said.
Kazakhstan, Central Asia’s largest economy, has long sought a stake in the Karachaganak Petroleum Operating Group (KPO) and has accused Kazakhstan’s biggest gas project of tax evasion. The group says its operations comply with Kazakh law.
“Concerning our plans for the 16 PSAs already on the books, we have questions on several of these, but there is no talk of annulment, least of all unilaterally,” Minister of Oil & Gas Sauat Mynbaev told a business forum in London on Tuesday.
In April Kazakhstan accused the KPO of violating immigration laws, stepping up pressure on the group as the country sought a stake in the field. BG CNA.L and ENI ENI.MI each own 32.5 percent while U.S. oil major Chevron CVX.N has a 20 percent stake. Russia's largest non-state oil firm, LUKOIL LKOH.MM, is also a shareholder.
In March financial police accused the consortium of illegally earning $708 million in 2008 by producing more oil and gas than originally agreed with the state.
The group has denied any wrongdoing, saying its operations complied with Kazakh law, and has launched a legal case to recover more than $1 billion in what it sees as illegally levied customs duties and other payments relating to 2008.
“Kazakhstan’s laws on production sharing agreements for oil production operations are set at a loss,” Mynbaev said at the Adam Smith Foundation’s Kazakhstan Growth Forum.
“However this does not indicate a change for previously agreed PSAs. What it does mean is that Kazakhstan does not intend to conclude production sharing agreements in the future.”
Like other large energy deals, the Karachaganak contract was signed in the 1990s when Kazakhstan was desperate for more foreign investment for its economy to shake off the legacy of 70 years of Soviet rule.
Analysts say the government now considers such contracts as skewed in favour of the foreign investors and wants to rewrite them to bring more cash into the budget.
“The PSA is a kind of contract model that to a certain degree in our view stimulates costs, insofar as in most cases their first order of business is to cover extraction expenditures, along with a percentage for so-called uplift,” Mynbaev said.
“Taken into consideration with the objectively weak organisational and technical project control by the government and executive bodies, the balance of interest easily falls in favour of the contractors.”
This month an ENI executive said in Milan that a solution on Karachaganak project arbitration was close, and on Tuesday Mynbaev confirmed this.
“Last year the consortium filed an arbitration suit against the Republic of Kazakhstan. We filed a claim in response. The claims are now, as they say, suspended,” Mynbaev said.
The Kazakhstan government has said it wants to strip projects such as Karachaganak of immunity to tax changes as it increases tax rates in the energy and mining sectors.
The Karachaganak developments mirror the case of Kashagan, another oilfield developed by foreign energy majors, where the government acquired a stake after accusing the consortium of environmental violations, delays and cost overruns.
Mynbaev on Tuesday said he envisioned likely changes in the current PSA model to include taxes.
“A model that foresees royalty payments from a number of tax payments in accordance with the governing tax legislation in our view provides for a greater degree of steady balance of interests for both parties.”
He said interest in Kazakhstan’s 50 billion tonnes of proven crude reserves and its 2009 annual production of 76.5 million tonnes remained strong.
“A possible alteration to PSAs and a shift to new contracts has not lowered interest from international oil companies in Kazakhstan’s hydrocarbon resources.” (Editing by James Jukwey)
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