We Stand for the Accountability of Subsoil Users to the People – the Owner of the Subsoil
Nurlan Zhumagulov, Executive Director of the Public Fund 'Energy Monitor', answers the questions of the Petroleum's publisher Oleg Chervinskiy
– Nurlan, for many years, you have been engaged in developing Kazakhstani content in petroleum projects working in the KazService Association. Recently you left and headed the Public Fund' Energy Monitor'. What caused such changes in your life? What kind of fund is this, and what will it do?
– I am still engaged in the development of Kazakhstani content and will continue to support domestic business because I have been doing this for 13 years. Maybe it sounds corny and infantile, but I believed in 'New Kazakhstan'. Since natural resources belong to the people, there must be accountability to the owners of resources and subsoil.
Many things prescribed in the Code 'On Subsoil and Subsoil Use' are not implemented in practice. The people simply do not understand and do not know what benefits they receive and can receive from the subsoil. Try to request information on oil and gas production with a breakdown into companies, and you will be asked to pay for it, which is unacceptable for the owners of the subsoil!
One of the objectives of our fund is to unite the local community's efforts, intellectual, creative, and business potential to solve socio-economic problems and accelerate reforms that contribute to economic and social progress in the energy sector of the economy of the Republic of Kazakhstan. After all, I am not alone. There are many colleagues and successful businessmen who want changes in the country.
– I liked the word "monitor" in the name of your foundation – monitoring, control. How, in your opinion, can and should public, popular control be exercised over the activities of oil and gas operators, given the traditional and understandable closeness of the industry due to trade secrets, non-disclosure of sensitive information for public companies, etc.?
– The fund is not limited to the oil and gas industry but also covers the mining sector. For example, in the mining sector, a list of priority specialties has not yet been developed, where mining companies are required to send undeveloped funds as part of training obligations. We are talking about tens of billions of tenge annually, and in 11 years, the figure could reach 100 billion tenge!
Every year, hundreds of millions of dollars are sent to local executive bodies for the socio-economic development of the regions. But the local community is not included in the rational spending of these funds in any way, not to mention the reporting – how much and on what projects these funds were spent. We know how much money has been received in each region, but now it's time to reveal for which projects the money was allocated.
We want to work with local public figures and activists on the rational spending of social obligations of subsoil users so that mayors listen to the requests of the local community and not independently decide which monuments to build and change curbs in the regional center. These issues can be raised at the sites of public councils, representing the regions' interests.
– Contracts for the largest fields of Kazakhstan, concluded in the first years of the country's independence, raise questions in our time. We can refer to the fact that Kazakhstan, in the early 1990s, was a young state on the world's political map. Investors considered the country risks, and we, in turn, did not have experience in international negotiations and a sufficient number of professionals for this. But in the next decade, the validity period of most of these contracts is coming to an end, and the question arises of their extension or re-signing on new terms. How should Kazakhstan behave now, how to find a balance between the need to attract foreign investment and protect the interests of the country and the interests of Kazakhstanis?
– Let's start with the fact that many investors express a desire to extend existing contracts for several additional decades. In particular, Buzachi Operating Ltd, CNPC-Aktobemunaigas, and Total Dunga have already extended their contracts. But on what terms? Conditionally, when extending the contract for 20 years, the Ministry of Energy obliges them to implement social projects (for example, to build schools, kindergartens, etc.) and purchase goods from local producers. But these are small things if you put on the scales how much money investors will earn over 20 years.
For the largest field, CNPC-Aktobemunaigas, the contract was extended for only three years to discuss additional obligations further. I know that KazMunayGas claimed a share in this field, but a call from Beijing curbed the enthusiasm of the national company. In my opinion, it is pretty realistic for investors from China to include the current owners of the subsoil – the people – in partners for 25%, who will not interfere in the company's operational activities, but work as a partner investing and receiving dividends. To do this, you need to attract a financial instrument through the mediation of the UAPF.
There are many questions about extending the PSA for 15 years for the Dunga field of Total Dunga, the contract that was supposed to expire in 2024. If we follow the letter of the current legislation, the company has to pay ECD after 2024 and increase the country's share in the oil produced. But, most likely, the PSA was extended on current terms in exchange for the commitment that Total will invest about 70 billion tenge in 2021-2025 for the implementation of the third phase of the development of the Dunga field and increase oil production from the current 680 thousand to 860 thousand tons per year. (Editor's note: When the issue of the journal was being prepared for publication, TotalEnergies announced that on November 28, 2022, it signed an agreement to sell the subsidiary Total E&P Dunga GmbH to the Kazakhstani Oriental Sunrise Corp Ltd for $330 mln. "Total E&P Dunga GmbH owns a 60% stake in the Dunga field in Kazakhstan, which produces about 7.4 thous. barrels of oil per day. The authorities of Kazakhstan approved the deal," the report says).
Ahead of us is the Tengiz project, the contract for which expires in 2033. Has the national company KazMunayGas been able to train personnel capable of managing Tengiz over all these years? If not, we will be forced to extend the contract with Chevron, but it would be appropriate to require it, as stipulated in the model contract for subsoil use, to supply at least 30% of oil for the needs of the domestic market.
– I want to ask you one more question from the sphere, let's call it so, regional justice. As you know, subsoil use contracts provide for regular contributions to the social and infrastructural development of the regions of presence. To what extent, in your opinion, is this fair, given that Kazakhstan is a unitary state? It is good for the Atyrau region – Tengizchevroil works with its social programs. It is good for the administration of the West Kazakhstan region as it has KPO. And what should the Zhetysu and Abai regions do? Wouldn't it be fairer to send all payments from oil companies to the state budget and, from there, transparently distribute them to the needs of the regions?
– There are subsoil users in almost all regions of the country who finance social and infrastructure projects in their regions. Moreover, many regions receive funding from the National Fund because they are subsidized. There is a fair formula – the more you pollute the region where you extract resources/raw materials, the more funds you should invest in improving this community. Take Tengizchevroil, which produces the most oil in the country and has a high net profit. However, in my opinion, the costs for the social development of its region are low. In the 3rd quarter of 2022 alone, Tengizchevroil's net profit amounted to $5.5 bln, and the company's annual social obligations amount to only $27 mln. And KPO, producing almost three times less oil, spends more on social work!