US Firm's Offer Stirs Controversy In C. Asia State

A MASSIVE oil deal between the American company Chevron and the republic of Kazakhstan, the largest such project in the former Soviet Union, is in peril, say senior government officials here.

After three years of negotiations, the deal was to be signed during a visit to the United States in mid-May of Kazakhstan President Nursultan Nazarbayev. Failure to reach agreement now could cast a shadow over the visit at a time when the US looks to Kazakhstan as the key pro-Western government among the newly emergent Muslim states of Soviet Central Asia.

The contract to develop one of the world's largest untouched oil fields is being closely watched as a test case for foreign investment throughout the former Soviet Union. The impetus for the deal with Chevron to develop the Tenghiz oil field came from a meeting between President Bush and Soviet President Mikhail Gorbachev in 1989 and was negotiated by the Soviet oil ministry. But when Kazakhstan declared its independence in 1991, it took over the negotiations as well.

The project, believed to be worth several hundred billion dollars over 10 years, has been the subject of growing controversy, with accusations in the Moscow-based press and among Kazakhs that Chevron's offer amounted to what one newspaper called "the robbery of the century."

On the advice of Western experts, Kazakhstan presented Chevron with a new set of terms on March 3. Vice Premier Kalyk Abdullayev, who heads the government committee overseeing the deal, held a press conference last month to warn that unless the Americans met the committee's terms by the end of March, it would look elsewhere. The deadline passed without comment.

"We want to conclude the contract with Chevron," President Nazarbayev told the Monitor Tuesday, "but we don't want it to be disadvantageous for Kazakhstan."

"The [Western] experts said that Chevron does not have such a deal with any other partner," Nazarbayev said, referring to the company's profit-sharing offer. Still there was a widespread expectation that hard bargaining would produce a result.

"Until yesterday," Vice Premier Abdullayev told the Monitor Wednesday, "we were sure we would be able to complete negotiations before [Nazarbayev] goes to the States.... But the offer I got from Chevron yesterday throws the realization of this project into serious doubt."

While Chevron's new offer contains "some breakthroughs in comparison with their previous position," says Abdullayev. "The counteroffers differ significantly from our terms."

He revealed for the first time confidential details of the issues under dispute, including profit division, royalty payments on each ton of oil, and the amount Chevron will pay for the investments which Kazakhstan claims to have already made in the field.

"We acknowledge that obviously there are problems that have yet to be resolved," comments Chevron spokesman Larry Shushan in a telephone interview from San Francisco. But he declined to talk about specific areas of disagreement.

The Tenghiz field would be Chevron's largest overseas venture and the largest foreign oil venture in the former Soviet Union, says a knowledgeable Western source here. Kazakh oil officials say the field has reserves of 2.2 billion tons of oil and will produce up to 36 million tons a year after development. Total revenue could total $240 billion to $300 billion over the next 10 years, says Korean-American economist Chan Young Bang, an adviser to Nazarbayev.

"Whether the Chevron deal goes through or not will send a very powerful signal to foreign business," a Western diplomat here comments. Other major Western oil firms who are seeking deals here want Chevron to spread the risk, he adds.

"We are aware that if the Tenghiz deal is concluded, it will be a starting point for large-scale foreign investment," responds Abdullayev. But he says a bad deal will set a precedent other foreign firms will try to exploit.

Western sources here suggest that the vice premier, who used to head Kazakhstan's central planning agency, represents the views of core former senior Communist bureaucrats who have opposed the deal from the start.

Kazakh officials indirectly confirm reports of differences between them and Nazarbayev on this issue."If we are still continuing to work with Chevron, it is only because of the policy the president is pursuing," says Abdullayev. "He still believes that there is a realistic basis to conclude this deal with Chevron."

At the time Abdullayev was giving a Western reporter details of Chevron's offer, he curiously admitted that he had not briefed the president on its contents.

Nazarbayev indirectly acknowledges that he is under some nationalist pressures. He accuses former Soviet officials of taking revenge for Kazakhstan's move to take over the Chevron deal by "unleashing a campaign in the press ... saying this is the plunder of Kazakhstan."

Kazakh officials sought the advice of the J. P. Morgan investment bank and the oil ministry of the Sultanate of Oman, as well as a British law firm about the deal. Their conclusion was that the Chevron conditions were significantly different from international standards, says American economic adviser Dr. Bang.

Chevron will get half the production of the Tenghiz deposit, which consists of sought-after low-sulphur oil in a high-pressure field located deep under a salt dome next to the Caspian Sea. Kazakh officials say the field has already been surveyed and the basic infrastructure has been put in place, although they admit they lack the technology to exploit it. "Chevron will start extracting oil the next day after we sign the contract as everything is prepared," argues Nazarbayev.

Abdullayev outlined three key unresolved issues. The first is Chevron's refusal to pay what J. P. Morgan bank and others have assessed as a fair price for half of the investment already made, although he says the new offer is somewhat higher. The second concerns Chevron's proposed royalty payments, which the Kazakh government says is significantly less than international standards. The Kazakh proposal is based on an average of 22 such deals worldwide, he says.

The nub of the problem concerns the division of the net profits, after royalty payments, taxes, investment costs and so on are deducted, between Chevron and the Kazakh partner. Nazarbayev told the Monitor that Chevron had sought a 28 percent guaranteed profit, rising over a two-stage, 45-year period, far higher than world norms, he said. Abdullayev said the new offer did not move much from that earlier stance.

While Chevron officials declined to comment, the knowledgeable Western source who is familiar with their view says Chevron argues that the high risks associated with the project, including the necessity of transporting the oil through Russian pipelines where heavy transport taxes could be imposed, justify a more "flexible" arrangement. And Chevron has already spent tens of millions of dollars since talks began, the source claims.

"Practically all the risks pertaining to the creation of the Tenghiz field have been already taken by us," responds Abdullayev. He claims they have a number of offers from major Western firms "on terms pretty close to those set by us on March 3."

Abdullayev stresses that Kazakhstan will make a last effort "to make serious concessions, but up to a limit.... If this rapprochement does not take place, then on the threshold of Nazarbayev's visit to the US, we will be ready to give him our conclusion that it is pointless to hold further negotiations with Chevron."