Kazakhstan’s Ministry of Energy has told partners of the giant oil company Kashagan that it will go ahead with arbitration in a $13 billion dispute (more than 12.9 billion euros in exchange), a blow to big international companies that had expected . an agreement, according to the Bloomberg agency.
The government has backed down from signals in July that it might suspend the arbitration, according to people familiar with the matter, who asked not to be identified because the information is private. While the door for talks remains open, the ministry has rejected a proposal that Kazakhstan give up its claims in exchange for investment promises.
Companies including Eni SpA, Shell Plc, Exxon Mobil Corp. and TotalEnergies SE, which have invested around $55 billion in Kashagan, are being sued by the government over charges of unapproved spending.
The dispute in Central Asia’s largest oil-producing nation underscores the difficulty of developing large energy projects with complex production-sharing agreements. Shell Chief Executive Wael Sawan said last month that the company’s future spending in Kazakhstan would depend on whether the government provides the right investment climate.
Kazakhstan claims that Kashagan’s partners should not deduct the costs amounting to $13 billion. If the state is successful, it could receive a larger share of the income from the field.
North Caspian Operating Co., the joint venture running the project, said the partners “believe they have acted in accordance with the production sharing agreement, Kazakh law and applicable standards and best practices.” The NCOC cited “a number of contentious issues” but declined to elaborate given the “confidential nature of the proceedings.”
The companies also face a $5.1 billion fine for allegedly breaking environmental regulations. While they have denied fault in both cases, they have been looking for a way to resolve disputes with the government, Bloomberg reported in May.
Kazakhstan’s energy ministry declined to comment, as did Total and Shell. Exxon and Eni did not respond to an email seeking comment. One possible deal that had been under discussion would have involved the construction of a gas processing plant to serve Kazakhstan’s domestic market. That suggestion was not accepted, the people said.