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Breaking Down Kazakhstan’s Claims Against International Oil Consortiums

The total amount of claims brought against the consortiums, North Caspian Operating Company (NCOC) and Karachaganak Petroleum Operating (KPO) is the largest in the history of Kazakhstan. In March 2023, PSA LLP, the authorized state institution overseeing these projects, brought forward claims in international arbitration in relation to Kashagan and Karachaganak for $13.5 billion and $3.0 billion, respectively. In addition, the Atyrau Region environmental regulator filed a claim for $5.1 billion against the NCOC consortium for storing too much sulfur on site, discharging wastewater without treatment, etc. The claims of PSA LLP cover the period 2010-19 and relate to the oil consortiums’ costs for carrying out large projects, as well as tenders and insufficient work completed. The shareholders of NCOC, which is developing the offshore Kashagan Field, include: KMG Kashagan (16.877% stake), Shell Kazakhstan Development (16.807%), Total EP Kazakhstan (16.807%), Agip Caspian Sea (16.807%), ExxonMobil Kazakhstan (16.807%), CNPC Kazakhstan (8.333%) and INPEX North Caspian Sea (7.563%). Their total investments over the period have not been disclosed, but, according to various estimates, exceed $60 billion – meaning the state is currently calling into question about 23% of all costs. The KPO consortium is Shell (29.25%), Eni (29.25%), Chevron (18.0%), Russia’s Lukoil (13.5%) and Kazakhstan’s state-owned KazMunayGas (10.0%). Investments in this oil and gas condensate field are estimated at $27 billion, hence the filed claim is significantly smaller both in absolute terms and as a percentage of costs, standing at about 11%. A production sharing agreement was signed in 1997 for Karachaganak and in 1998 for Kashagan, with the contracts to be in effect for 40 years. In 2022, the sole participant in PSA LLP became Samruk-Kazyna Trust Corporate Fund, part of the state holding National Welfare Fund Samruk-Kazyna, while Kazakhstan’s Ministry of Energy is currently entrusted to run PSA LLP. NCOC and KPO dominate the industry through control of three fields. Tengiz, Kashagan and Karachaganak are the largest oil and gas fields in Kazakhstan. The country’s oil and gas condensate production in 2023 amounted to 89.9 million tons (about 1.8 million barrels per day), with the share of the “three whales” – as these projects are called – accounting for 67% of oil production: Tengiz with 28.9 million tons, down 1% versus the 2022 level; Kashagan with 18.8 million tons, a 48% increase; Karachaganak with 12.1 million tons, up 7% year-on-year. The stabilization contract for Tengiz was one of the first signed at the dawn of Kazakhstan’s independence in 1993, also for a term of 40 years, meaning it should be the first to expire in 2033. The shareholders of the Tengizchevroil JV are Chevron (50%), ExxonMobil (25%), KazMunayGas (20%) and Lukoil (5%). After completion of its FGP (Future Growth Project), Tengiz should produce about 900,000 barrels per day, a significant figure even by world standards. It is surprising that Kazakhstan has not yet raised or voiced any claims against TCO, even though the FGP budget has swelled from an initial $12 billion to $25 billion – due to the addition...

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Time for the U.S. to Cement a “Nuclear-Weapon-Free” Central Asia

The Central Asian Nuclear-Weapon-Free Zone (CANWFZ) Treaty, which came into force in 2009, represented a significant advance in international efforts to limit nuclear proliferation. Initiated by the five Central Asian countries—Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan—it aims to enhance regional and global security by guaranteeing that the region remains free of nuclear weapons. In May 2014, all five Permanent Members of the UN Security Council signed a Protocol to the CANWFZ Treaty (the permanent five include China, France, Russia, the United Kingdom and the United States, who also happen to be five signatories of the 1968 Non-Proliferation Treaty, or NPT, that have nuclear weapons). This Protocol legally binds them not to use or to threaten to use nuclear weapons against any of the CANWFZ signatories – i.e., the above-listed five Central Asian countries. As the 10th anniversary of the signing of the 2104 Protocol approaches, it is unfortunate that the United States is the only signatory that has not yet ratified it. The CANWFZ Treaty continues to enhance regional security in Central Asia amidst current international tensions and remains a pillar of regional security that deters threats and strengthens global norms. As a gesture of support for the region's nuclear-weapon-free status, U.S. Senate’s ratification of the Protocol would ultimately enhance U.S.’ credibility on the international stage, solidify its strategic commitment to Central Asia at a critical time, and demonstrate that it will continue to pursue a more secure and stable world. It would also be a significant nod towards Kazakhstan's leadership in nuclear disarmament and the country's pro-active stance against nuclear proliferation. The significance of Kazakhstan’s enhanced role Although it took three more years to enter into force, the CANWFZ Treaty was signed in 2006 in the Kazakhstani city of Semei (formerly Semipalatinsk), which used to host Soviet nuclear tests and is located less than 1,400 kilometres away from the Chinese test site at Lop Nor. The USSR conducted over 450 nuclear tests, both underground and atmospheric, at Semipalatinsk between 1949 and 1989. These tests were carried out with scant regard for the health and safety of the local population or the environmental ramifications. The area continues to bear the scars of this era, with elevated levels of cancer, birth defects and other radiation-induced illnesses persisting amongst the population. In response to the devastating impact of nuclear testing, a profound anti-nuclear sentiment took root in Kazakhstan. This culminated in the formation of the civil-society 'Nevada–Semipalatinsk' movement, inspired by similar groups seeking to close U.S. nuclear sites in the state of Nevada. This movement was a pioneering effort in the late 1980s that united Kazakhstan's citizens in opposition to nuclear tests. The Nevada–Semipalatinsk movement was amongst the first (if not the very first) major anti-nuclear movements in the USSR, and its momentum helped drive Kazakhstan towards independence. After its independence in 1991, Kazakhstan inherited the world's fourth largest nuclear arsenal and has cooperated with the West to dismantle it while also preventing the Soviet era nuclear material left on its soil...

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Bridging East and West: Kazakhstan’s Changing Foreign Policy in the 2020s

In the wake of significant geopolitical and social change, Kazakhstan has been noticeably reassessing its official and economic relations with foreign powers. Formerly a part of the USSR, Kazakhstan has positioned itself since the collapse of the bloc in 1991 as a country with a triangulated approach to foreign relations. This means that it attempts to maintain cordial relationships with both of its powerful neighbors, Russia and China, whilst also improving relations with countries in the West. Now, this multi-vector foreign policy appears to be shifting as Kazakhstan re-evaluates its priorities in a world that has seen both a global pandemic and Russia’s invasion of Ukraine. Russia Kazakhstan is allied with Russia in the Collective Security Treaty Organisation (CSTO), but this relationship was put under strain even prior to Russia’s war in Ukraine. In a memorable speech from September 2014, Russian President Vladimir Putin expressed his view that “Kazakhs never had any statehood,” and that their desire to align themselves more closely with Russia was “profound.” These statements caused Nursultan Nazarbayev, then President of Kazakhstan, to threaten to remove his country from the Eurasian Economic Union (EAEU), a bloc largely dominated by Russia. This threat was not acted upon, however, and Kazakhstan remains a member to this day. Nonetheless, it was an indication of cooling relations long before the current global state of affairs, and a precursor to a shift in how Astana sees Kazakhstan being positioned on the world stage in future. Since Russia launched its full-scale invasion of Ukraine on 24th February 2022, Kazakhstan’s foreign relations have taken an ever more decisive turn. While Astana does not officially support international sanctions against Russia, citing the knock-on effects these sanctions create for Kazakhstani businesses - Russia remains a strong trade partner and a key part of Kazakhstan’s supply chain for land-based trade due to their long, shared border - it has nevertheless complied with them. This purely economic reasoning for not officially supporting international sanctions places Kazakhstan at odds with Belarus, which is an example of a former Soviet state that remains allied to Russia and whose leader, Aleksandr Lukashenko, derided by many as a dictator, has been vocal in his support of Russia’s political actions, allowing Belarusian territory to be used to further Russia’s strategic goals in the war against Ukraine. In sharp contrast, Astana has made it clear that it will not allow Russia to use Kazakh territory in an attempt to circumvent international sanctions. In an effort to avoid incurring secondary international sanctions due to its ties with Russia, Kazakhstan has invested in an electronic monitoring system, launched in spring 2023, for goods purchased from Western countries passing through its territory for re-export to the EAEU. This system tracks goods until they reach their final destination, thus aiming to prevent foreign players who wish to help Russia evade international sanctions through this method, known as “parallel imports”. In October 2023, Kazakhstan also halted the export of over 100 products to Russia (including drones, military equipment,...

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Endangered Fish Species in the Amu Darya Basin May Disappear Due to Hydropower Plants

The 14th Conference of the Parties to the Convention on the Conservation of Migratory Species of Wild Animals is being held this week in Samarkand, Uzbekistan. The international environmental coalition Rivers Without Boundaries is calling on conference participants to pay serious attention to how the rampant construction of dams and reservoirs across Central Asia is leading to population declines and the complete extinction of endangered (red-listed) species. Rivers Without Boundaries experts point to the long-suffering Amu Darya river basin as an example: the alteration of its flow as a result of reservoirs and dams that change the hydrological regime and block fish migration routes was the most important reason for the Convention on Migratory Species to take under its protection the large Amu Darya sturgeon, a unique sturgeon adapted to live in the fast and turbid waters of the Vakhsh, Pyandj and Amu Darya. Its close relative, the Syr Darya sturgeon, is already considered extinct by most experts, due to the creation of numerous dams and reservoirs on the Syr Darya and its tributaries. Nevertheless, as experts from the Rivers Without Boundaries coalition emphasize, the recent World Bank assessment of the environmental impact of the construction of the Rogun hydropower plant in the Amu Darya basin does not consider the state of populations and the possible impact of changes in river flow on rare species of fish in the lower Vakhsh and the Amu Darya itself. Another example cited by ecologists is the Aral salmon (listed in the Red Book of Tajikistan), which once migrated along the Amu Darya and the Vakhsh, but since the creation of the Tuyamuyun hydro system and the Vakhsh group of hydropower plants has now completely disappeared from the area. Scientists found a last grouping of Aral salmon in the Nurek reservoir, but this too is likely to disappear as a result of the construction of the Rogun hydropower station upstream, as this will simply leave the salmon with no rivers in which to spawn. "Despite the requirements of national legislation regarding environmental impact assessment and protection of rare species, in all Central Asian countries, rivers - as well as their valleys, and the fauna and flora that depend on their ecological health - are massively sacrificed to the implementation of poorly justified hydraulic engineering projects," points out Evgeny Simonov, the international coordinator for Rivers Without Boundaries. "To date, when designing and building most dams throughout the region, no one is seriously trying to prevent damage to populations of rare migratory species." "Refusal to consider the potential impacts of hydropower plants on rare migratory species and natural ecosystems is not only a gross violation of international environmental conventions, but also often contradicts the environmental policy of those development banks that are going to lend money to build reservoirs," emphasizes Alexander Kolotov, Central Asia coordinator of the Rivers Without Boundaries environmental coalition. “We hope that the discussions during the conference in Samarkand will lead to the introduction of more responsible approaches to the selection of sites...

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Kazakhstan Shapes an Ambitious Future

As Kazakhstan continues on its path towards economic expansion and modernization, it has set forth a revitalization and growth vision for 2024 and beyond, underpinned by a series of ambitious reforms and strategic investments. A central part to President Kassym-Jomart Tokayev’s vision, which he also detailed in a government meeting on February 7th, is the development of a sustainable and inclusive economy driven by innovation, strategic foreign investment and proactive engagement with the global community. Building on the 2023 growth momentum There are positive indications that Kazakhstan is on the right track, despite challenges posed by ongoing global geopolitical risks and uncertainties. Its strong economic expansion continued in 2023, as gross domestic product (GDP) increased by nearly 5% as of the third quarter. The government is aiming to accelerate the pace of growth further throughout the remainder of the decade. Tokayev said in his February 7th speech that the target was to increase economic output to $450 billion by 2029, stressing that to do this, the country will need 6% annual GDP growth. Attracting investment To achieve this ambitious goal, the country’s leadership is currently implementing a series of reforms, which are designed to attract a substantial influx of foreign investment (of at least $150 billion in total) by adopting environmental, social and governance (ESG) principles, as well as by enhancing the country’s overall investment climate. Examples of these initiatives include “green bonds” introduced in 2017; the sustainable finance initiatives presented since 2021 via the Astana International Financial Center, and the mandatory ESG reporting framework for companies listed on the Astana International Exchange. A pivotal element in Kazakhstan’s comprehensive series of economic reforms and investment strategies is the establishment of the Investment Headquarters, which is charged with the critical mission of enhancing the investment climate within Kazakhstan while ensuring qualitatively the proper execution of investment projects. At the same time, the government is working on a new Tax Code that should comprehensively reset the dynamics between the state and the private sector. The development of this code is guided by the need for a delicate balance between creating an environment conducive to investment, and securing the necessary revenues for the national budget. Local capacity building The strategic plan behind the reforms foresees the introduction and transfer of cutting-edge technologies, the localization of production processes, and the establishment of high value-added clusters. These clusters would be strategically focused on driving the acceleration of the manufacturing sector. Potential sectors to benefit from these clusters include green technology, finance, and agriculture. Furthermore, the legislative and institutional framework will be implemented through the enactment of a fresh law on industrial policy and the establishment of a new Ministry of Industry and Construction. A focus on standards of living These steps represent a commitment to improving the overall well-being of the population in tandem with ensuring economic growth. Tokayev has underscored that the focus of these efforts extends beyond merely achieving macroeconomic expansion and emphasized that economic developments must have a...

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Central Asia’s Mineral Wealth Can Help the West Unlock a Greener Future

Critical minerals are essential components in many of today’s rapidly growing energy technologies. From lithium in electric vehicle batteries, to copper used in wind turbines and electricity networks, these minerals are at the heart of the green transition. The demand for these minerals will increase as clean-energy technologies continue to develop and become even more widely adopted. The International Energy Agency (IEA) forecasts a significant uptick in mineral requirements for clean energy technologies. According to its Sustainable Development Scenario (SDS), the world’s total mineral demand could quadruple by 2040. Electric vehicles and battery storage are expected to account for about half of this growth over the next two decades. A few major producers dominate the global market Problematically, the global market for critical minerals is dominated by just a few key players. China controls a significant portion of overall worldwide production, not to mention 85% of the processing capacity needed to refine these minerals for manufacturing purposes. China’s dominance extends to lithium, graphite, rare earth elements and cobalt, which are all essential for clean energy technologies. Russia also holds considerable weight in the resource-extraction sector. For example, it controls 43% of the palladium market and a quarter of vanadium production. These minerals have wide-ranging applications, with palladium used in catalytic converters and vanadium in batteries. The United States is heavily reliant on mineral imports from China. This dependence poses significant economic and security risks as any supply-chain disruption could have far-reaching impacts. As a result, the U.S. has initiated the Partnership for Global Infrastructure and Investment (PGII) and the Minerals Security Partnership (MSP). The PGII is a shared G7 commitment, while the MSP drives co-operation of 13 countries and the European Union (EU). They both aim to catalyse public and private investment in responsible global supply chains of critical minerals. Fortunately, Central Asia is emerging as a key player in the global critical minerals landscape. The region is perhaps best noted for its substantial reserves of uranium, of which it is the world’s largest supplier. Less known is the fact that the region also holds 38.6% of global manganese ore reserves, 30.07% of chromium, 20% of lead, 12.6% of zinc and 8.7% of titanium, as well as significant reserves of other critical materials. Eyes turn to Kazakhstan’s special contribution While all of Central Asia is rich in these minerals, Kazakhstan is increasingly noticed as the stand-out performer. Kazakhstan is perhaps best known as the global leader in uranium production. It has the world’s largest reserves of this metal, and has been the world’s top producer for several years. Uranium is necessary for the global nuclear energy supply chain, and Kazakhstan has implemented advanced recovery techniques, making the extraction process both efficient and environmentally friendly. Kazakhstan also has significant potential in rare earth elements, and is one of the world's largest producers of chromium (used primarily in producing stainless steel and other alloys) with one of the world's largest deposits and significant mining operations in the northwest regions. The country is...