Privatization in the Republic of Kazakhstan

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Privatization in the Republic of Kazakhstan
October 4th, 2002
Stavanger, Norway
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Introduction

• Kazakhstan is trying to transition toward a free
  market in energy and encourage foreign investment
  to exploit its oil and gas resources.
• The Ministry of Energy and Mineral Resources is
  the main government entity responsible for
  implementing this policy.

__________________________________________National
OilGas Company KazMunayGas
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Importance of privatization

• The Privatization Program was launched in 1991,
  alongside with economic, legislative and
  institutional reforms.
• 2 main laws "On State Property" and Presidential
  Decree "On Privatization constitute legal basis
  for privatization in the country.
• In 1991-1995, two programs of denationalization
  and privatization were implemented in Kazakhstan.
  
• The Program of Denationalization and
  Privatization covered 1991-1992 and its main
  focus was on sale of retail trade and service
  facilities, and transfer of state property to
  employees.
• The National Program of Denationalization and
  Privatization for 1993-1995 covered, apart from
  the small-scale mass privatization,
  case-by-case privatization and privatization of
  agricultural enterprises.
• According to Program of Privatization and State
  Property Management for 1999 - 2001 the State
  intends to preserve its ownership in strategic
  spheres of economy, including extraction,
  transportation and processing of oil.

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History of petroleum privatization

• In 1993, Ministry of Oil Gas was established to
  carry out national petroleum policy and defend
  state interests in oil and gas business.
• In 1997, the Government of Kazakhstan issued a
  decree on privatization and restructuring in the
  energy sector. National OilGas Company
  KazakhOil was set up in place of Ministry of
  OilGas. In 1999, National OilGas Transportation
  company KazTransOil established.
• Through this decree, all companies in the energy
  sector have gone through an incorporation process
  and are legally prepared for future privatization
  and restructuring.
• February 20th, 2002 - National OilGas Company
  KazMunayGas was set up.
• This year possibility creation of new Ministry
  of Oil Gas.

__________________________________________National
OilGas Company KazMunayGas
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National Company KazMunayGas
Establishment Pursuant to the President's Decree
dated February 20, 2002, CJSC "National Company
"KazMunayGas" was established by merging "NOC
"Kazakhoil" NC "Transport Nefti i Gaza". Main
purpose To ensure a comprehensive development of
petroleum industry for efficient use of energy
resources to support Kazakhstan economy and its
successful integration into the world market.

• Company
• Participates in development and implementation of
  the state's policy in oil industry targeted to
  the efficient use of oil and gas resources and
  appropriate infrastructure's development.
• Supports the state's interests in petroleum
  contracts and involved in arrangement of contests
  for petroleum operations in the country.
• Carries out full range of works and services on
  exploration, development, production, refining,
  transportation and selling hydrocarbons and its
  refinery products and designing, construction and
  exploitation of oil and gas pipelines and
  production infrastructure in Kazakhstan and
  abroad.

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National Company KazMunayGas

• Government designated the Company as an authority
  body to represent the state's commercial
  interests in many international and internal oil
  and gas projects.

• Company is vested with some working body's
  functions for the Ministry of Energy and Mineral
  Resources of the Republic of Kazakhstan relating
  to the issues of planning, designing,
  construction of oil and gas transportation
  facility objects for oil pipelines, further
  storage and oil gas transshipment to other
  transports.

• Company entirely administers the block of states
  shares in the Republic of Kazakhstan oil gas
  enterprises and it manages their production,
  commercial, financial and investment operations.

__________________________________________National
OilGas Company KazMunayGas
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National Company KazMunayGas
__________________________________________National
OilGas Company KazMunayGas
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The National Petroleum Fund

• Purpose
• In January 2001, the President of Kazakhstan set
  up a National Fund to try to level off the effect
  of fluctuations of oil revenue on the economy.
• First contribution
• Chevron-Texaco paid USD 660 mln for a 5 stake in
  a JV in Tengiz oilfield, and that money was
  designated to go into the National Fund.
• Other revenues such as taxes from oil companies,
  royalty payments by joint venture partners, and
  signing bonuses will also be designated for the
  National Fund.
• Accumulations
• As of the end of 2001, National Petroleum Fund
  accumulated USD 1.6 bn.

__________________________________________National
OilGas Company KazMunayGas
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Major petroleum projects
__________________________________________National
OilGas Company KazMunayGas
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Major petroleum projects
There are FOUR main oilfields in Kazakhstan -
Tengiz, Uzen, Karachaganak, and Kashagan.

• Kashagan field has received much recent attention
  after preliminary drilling and exploration, with
  analysts calling it the largest oil discovery of
  the past 30 years.
• The offshore Kashagan field is being explored by
  Agip, a subsidiary of Italy's ENI. In February
  2001, ENI won out among the partners of the
  Offshore Kazakhstan International Operating
  Company (OKIOC) and became the operator of the
  Kashagan field.
• In March 2001, Agip KCO drilled for oil in
  Kashagan West 1 and found a large deposit. In
  June 2002, Agip KCO released estimates that
  Kashagan's proven reserves were 16 to 19 billion
  barrels of oil.
• Before this announcement, estimates of
  Kazakhstan's proven reserves had been 15.4
  billion barrels of oil for the entire country.
  Kazakh officials said that Kashagan field may
  contain 50 bln barrels of oil.

__________________________________________National
OilGas Company KazMunayGas
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Major petroleum projects
Tengiz has 10-18 bln barrels of estimated
reserves. This field is being developed by
Tengizchevroil JV, run by ChevronTexaco.
Production at Tengiz increased from 25,000 b/d in
1993 to 250,000 b/d in 2002. It is expected for
production to expand, with ChevronTexaco
investing USD 3 bln over the next 3 years. Uzen
oil and gas field is an older field and is
operated by Uzenmunaigaz, a subsidiary of
KazMunayGas. It is 100 state-owned. Uzen is
estimated to contain 1.5 bln barrels of oil. In
mid-2002, its production rate was 94,467 b/d. For
the first 5 months of 2002, Uzen also produced
17.8 bcf of natural gas. Karachaganak field has
2.3 bln barrels of estimated reserves of oil and
gas condensate. It is also estimated that field
contains 16 Tcf of natural gas. This field is
developed by Karachaganak Integrated
Organization, a consortium led by BG and Agip.
The consortium plans to invest USD 4 bln by 2006.
The first production of the field has been gas
condensate. It is expected that, in two years,
field produces 180,000 b/d of crude and 240,000
of condensate.
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Petroleum industry

• Since1993 through to 2001 gross amount of Foreign
  Direct Investments in the sector was USD 10.7 bn
  (70 of total)

__________________________________________National
OilGas Company KazMunayGas
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Thank you for your attention!
__________________________________________National
OilGas Company KazMunayGas