Press release of the Ministry of Energy of the Republic of Kazakhstan on principal agreements on the dispute with the Karachaganak Consortium on the Objectivity Index

Today, the Government of the Republic of Kazakhstan represented by the Ministry of Energy of the Republic of Kazakhstan, the Ministry of Finance of the Republic of Kazakhstan and the Plenipotentiary Body - PSA LLP, as well as the shareholders of the Karachaganak project represented by the companies "Eni", "Shell", "Chevron", "Lukoil" and "KazMunaiGaz" (the Consortium) have reached agreement in principle on friendly settlement dispute over the Objectivity Index. The parties signed the Agreement on Principles, which establishes the basic terms of the settlement.

Between the Republic and the Consortium there were disagreements on the methodology for calculating the parties’ shares in the section of profitable output. In this regard, in accordance with the terms of the Final Production Sharing Agreement (hereinafter - FPSA) of the Karachaganak project, the Republic filed a suit in international arbitration to protect its rights. However, given the long-term experience of cooperation, the parties in the negotiation process found a mutually beneficial way of amicable settlement of the dispute.

Thus, to consolidate the agreements, the Parties signed the Agreement on Principles, which establishes the basic conditions for the settlement:

1. The Consortium will pay the Republic a monetary compensation in the amount of $ 1,111 billion;
2.  Changes will be made to the mechanism for the division of the FISP products, which will provide the Republic with additional revenues from the project of about $ 415 million until 2037 at a price of $ 80 per barrel;
3. The consortium will provide the Republic with a long-term loan for a period of 10 years for the construction of an infrastructure project in the amount of $ 1 billion, or will pay the equivalent value of the loan (in case the Republic refuses the loan) in the amount of about $ 200 million.

Thus, the aggregate monetary value of this settlement is more than $ 1.7 billion for the Republic, of which the state will receive about $ 1.3 billion in the coming years.

•  In addition to this proposal, the Government agreed on the acceptance of the obligations by Consortium to timely implement investment projects, important for the future development of Karachaganak. Previously, the volume of investments is estimated at up to $ 5 billion with a possible additional increase in revenues for the Republic until 2037 about $ 23.5 billion (or about $ 6.4 billion in NPV10) at $ 80 / bbl.
• Also, the parties agreed on possible supplies of hydrocarbon raw materials (oil and gas) on commercial terms for local refineries and for the development of a gas chemical complex in the West Kazakhstan region.

According to the Minister of Energy of the Republic of Kazakhstan, K.A. Bozumbaev: "These were very difficult negotiations with the Consortium, which lasted about three years. Such a long term is indicative not only of their complex content and nature, but also of the fact that we placed the emphasis on economic interests of the state first and, accordingly, insisted on maximizing the benefits for the Republic in the framework of negotiations.

 The peaceful settlement of the dispute reflects the commitment of the Republic to the friendly settlement of disputes with strategic partners in accordance with the provisions provided for in the contract. To date, we have agreed the basic principles of the settlement and by the end of this year we plan to complete the deal by signing the final Agreement on the settlement of the dispute.

 In addition, I want to emphasize that it was important for us to settle this dispute, as it introduced uncertainty into the further development of the Karachaganak project. In this regard, one of the principal elements of these agreements is the commitment by the Consortium to timely implement important investment projects for the future development of Karachaganak.

Press service of The Ministry of Energy of the RoK