Kazakhstan Pursues $4B Sulfur Fine on Majors

Kazakhstan’s environmental-protection ministry told oil majors operating in the country they have 40 days to pay a multibillion-dollar fine for sulfur pollution, a blow to the producers who claimed victory in the case weeks ago.

At the start of August, NCOC and partners in the Kashagan oil field, the nation’s second-largest, said they won a case in an appeal court in the central Asian country over a fine of 2.356 trillion tenge – $4.4 billion at current exchange rates.  

But on Monday, the nation’s environment agency told the venture partners that the fine stands and that they now have 10 days to appeal against it, according to people with knowledge of the matter. The plan is to appeal but, if they don’t, then payment will be required in 30 days, they said, asking not to be identified discussing specifics of the case.

NCOC said in a statement that it was “deeply troubled” by the decision, taken by the Atyrau Regional Ecological Department, part of the environment-protection ministry, in relation to what the operator called an “unprecedented” fine. 

The decision runs counter to recent court rulings that highlighted serious flaws in the regional ecological authority’s process and also breaches the production sharing agreement with the state, in addition to violating both national and international law, NCOC said.

It’s unclear on what authority the government has now pressed ahead with the fine, but the environment protection ministry said on Aug. 15 that its Atyrau department was addressing “procedural” deficiencies identified previously by the court. 

Two weeks earlier, the Kashagan partners said an appeal court decision in the case, which appeared to overturn the fine, “confirms the correctness of NCOC’s sulfur management operations, which are carried out responsibly and in compliance with the laws of the Republic of Kazakhstan, and in line with applicable standards, and best practices.”

The $55 billion Kashagan development in the Caspian Sea was already dogged by delays and cost overruns during the construction phase. 

Kazakh authorities have being pushing for higher revenue from the nation’s fields and sued the venture partners in international arbitration for more than $160 billion in damages. Most of that reflects lost revenue, but it also includes damages related to alleged environmental violations, and deals that Kazakhstan argued were tainted by corruption.

NCOC is owned by Kazakhstan’s state oil and gas company alongside many of the world’s top oil majors, including Eni SpA, Shell Plc, Exxon Mobil Corp and TotalEnergies SE.

Eni, Shell, Exxon and TotalEnergies refered questions to NCOC.

Last year, venture partners proposed settling the sulfur case by making an additional investment in social projects of $110 million over the next two years, an expense that would be recoverable from Kashagan’s revenue under the production sharing contract. 

The venture also proposed at the time making additional payments related to the supply of liquefied petroleum gas to the government and to create a multimillion dollar social-development fund.

The environment-protection ministry didn’t respond to repeated requests for comment and Kazakhstan’s energy ministry didn’t immediately comment.

Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.