One of the problems with resource nationalism is that when one government starts breaking contracts and seizing property, many other governments observe this and wonder why they can’t do the same thing too. This contagion trend takes its cues from the innovative expropriations of Russia and Venezuela, then spreads across the respective energy exporting regions, as we have seen in numerous examples. Today we have another.
For Russia, the contagion effect has unfortunately proven to bite them back, even at times making them a rare “victim” of state intervention. We knew that several Central Asian states were beginning to assert a more Russia-like energy policy, and using the regulatory and tax authorities to push for larger shares for the state-controlled energy interests, while demanding a greater share of the end-consumer profits. We saw this trend when Kazakhstan laid the bureaucratic attack upon Eni and Chevron at the Kashagan field, Uzbekistan’s expropriation of Newmont Mining, and the recent surprise mini-cartel of Central Asian gas exporters, which decided that Gazprom should start paying European prices for supply.And today the Kazakhbashi is once again providing Russia with a taste of its own medicine, as the Financial Times reports that a local court has ruled to fine the KPO Group (comprised of Eni, BG, ChevronTexaco, and private Russia firm Lukoil) $15 million for unauthorized gas emissions at the Karachaganak field – a bureaucratic sleight of hand that would make Oleg Mitvol proud. The question is not whether the consortium can correct this environmental violation, but rather how much of a stake they will have to give up to KazMunaigas to make the problem go away. The FT writes “An opportunity for Kaz-Munaigas to negotiate entry to Karachaganak may occur this year when KPO asks the government to sanction an $8bn project to boost production at the field to 380,000 barrels a day, double the current levels.“It won’t be long before these government ambitions begin to clash with one another.