Kazakhstan Oilfield Back In Business But Tax Dispute Rages On

by Tatiana Smolensky, Tax-News.com, Russia

07 November 2001

Reuters news agency has reported that the Kazakhstan oilfield of Karachaganak is up and running again despite the fact that the arguments over taxes, which led to the closing of the oilfield in the first place, are still raging. In a statement the Karachaganak Integrated Organisation (KIO) said that the Kazakhstan and Russian governments had signed a 'memorandum of understanding' aimed at resolving the issue.

As a result, commented the organisation, the KIO is pleased to announce that it has renegotiated contracts with its cross border customers (Russian refineries) and supply recommenced on Saturday morning.

The dispute is centred around the charging of VAT twice and the two governments of Kazakhstan and Russia - which imports 20 per cent of output - still have to reach an agreement over double taxation. Karachaganak is a vital money spinner for BG: in 2000 it produced 18 million barrels of oil equivalent of crude oil and gas for BG and its three partners: ENI (Italy), Texaco (US), and Lukoil (Russia).

Analysts anticipate that the companies may lower their prices in order to reduce the burden of the tax passed on to customers. 'It looks as though the producers have had to give away some of their margin to get this back on stream,' said Steve Turner at Commerzbank. 'The worry is that the incentive for the two governments to get this resolved quickly is diminished.'

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