Distribution of Powers with Respect to Oil Operations Between State Agencies and KazMunaiGas National Company
Kanatbek Safinov, Managing Director for Legal Support, KazMunaiGas National Company
The National Company KazMunaiGas was founded by the presidential decree On Measures for Further Ensuring StateInterests in the Petroleum Sector of the Country dated 20 February 2002 via the merger of the National Oil and Gas Company KazakhOil and the National Company Transport of Oil and Gas.
KazMunaiGas was allocated the following main functions:
• participating in the implementation of the uniform state policy in the petroleum industry;
• ensuring the effective and rational development of the country’s petroleum resources;
• participating in the development of a strategy for the use, reproduction and further increase of petroleum resources;
• representing, in the procedure established by law, state interests in contracts with contractors conducting petroleum operations through obligatory shares in the contracts;
• participating in organizing tenders for petroleum operations in the territory of Kazakhstan;
• the corporate management and monitoring of the exploration, development, production, processing, sales and transportation of hydrocarbons, and the design, construction and operation of oil and gas pipelines and petroleum infrastructure facilities;
• participating in domestic and foreign oil and gas projects of Kazakhstan in the procedure established by law.
At the same time, KazMunaiGas was named as the body authorized to represent state interests in the North Caspian production sharing agreement and the final production sharing agreement pertaining to the contract area of the Karachaganak Oilfield.
In connection with the above, the Ministry of Energy and Mineral Resources of the Republic of Kazakhstan transferred to KazMunaiGas, as the authorized body, two other PSAs (Dunga and Mertvy Kultuk) for monitoring and performance of the functions of the authorized body.
KazMunaiGas also carries out any operations associated with transferring to the state the portion of the raw materials which is the state’s share under the terms of PSAs including royalties. The company is also responsible for defending state interests in the resolution of disputes arising from contracts, including PSAs.
The Government has also approved Rules on KazMunaiGas’s Representation of State Interests in Contracts with Contractors Conducting Petroleum Operations through Obligatory Shares in the Contracts (Resolution No.708 dated 29 June 2002) and has distributed powers relating to petroleum operations between state agencies and KazMunaiGas (Resolution No.707 dated 29 June 2002).
KazMunaiGas represents the state’s commercial interests in petroleum operations, both offshore and onshore, through its obligatory 50% stakes in contracts and by performing the functions of the authorized body in PSAs. Furthermore, KazMunaiGas monitors and supervises compliance with the terms of petroleum contracts, with the exception of the monitoring and supervisory functions of state agencies.
The political decision to give KazMunaiGas obligatory shares in projects will make it possible for Kazakhstani specialists who wish to work in the exploration and production of hydrocarbons in the Caspian to receive free training in the new technology and management methods which are now being successfully applied by major international companies. This will bring in new orders for various sectors of the economy, create jobs, and generate tax revenues for the state budget.
Governmental resolution No.390 On Matters relating to the Development of the Petroleum Transportation Industry dated 2 April 2002 was adopted for the purposes of protecting the state’s interests, ensuring the economic security of the country, and implementing the uniform policy on the petroleum industry. The Government made the Ministry of Energy and Mineral Resources responsible for regulating, controlling and monitoring construction activity in the course of planning, designing and building petroleum transportation facilities related to transport via main pipelines, further storage and handling of petroleum to other means of transport; and utilizing existing petroleum transportation facilities.
At the same time, KazMunaiGas was also assigned the functions of the working body of the Ministry of Energy with respect to the above matters, except for matters relating to state regulation and monitoring and supervisory functions.
KazMunaiGas carries out the corporate management and monitoring of the exploration, prospecting, production, processing, sales and transportation of hydrocarbons, and the design, construction and maintenance of oil and gas pipelines and petroleum infrastructure facilities.
At present, the Ministry of Energy as the competent agency retains KazMunaiGas as the working body authorized to conduct negotiations on petroleum projects with potential contractors on behalf of the Republic of Kazakhstan.
It is also expected that KazMunaiGas will take part in the work of the investment programme tender commission and the Central Commission for the Exploration of Oil and Gas Deposits and in state expert subsoil examinations as a specially authorized body.
The Ministry of Energy has now worked out the terms of its interaction with KazMunaiGas with regard to petroleum operations, and these terms set out in detail the powers that need to be legally established when contracts are signed.
As the Ministry of Energy’s working body in the sphere of petroleum operations, KazMunaiGas participates in drafting documents for the Ministry’s decisions pertaining to the petroleum industry, in ensuring the effective and rational development of petroleum resources, and in developing ? strategy on the use, reproduction and further increase of petroleum resources.
The authorized agency for subsoil use and the state agencies for subsoil use and protection, environmental protection, industrial safety and so on each perform the functions they have been allocated in the sphere of petroleum operations in accordance with the law and the regulations of the relevant state agency (governmental resolution No.707 On the Distribution of Powers with Respect to Petroleum Operations between State Agencies and the National Company KazMunaiGas dated 29 June 2002).
However, representatives of KazMunaiGas must be present when deposits and individual wells are being suspended in order to ensure the safety of people and the environment, and when the model tax treatment of contracts is being determined and technical choices are being made, including emergencies. The Government has also empowered KazMunaiGas to act in the transfer and acceptance of any assets that are transferable to Kazakhstan from a contractor, either upon the completion of the contract term, or because they are being decommissioned, or on other grounds stipulated by the contract.
According to Lyazzat Kiinov, the President of KazMunaiGas, “Until the merger of KazakhOil and Transport of Oil and Gas, there had never been a company of this calibre in Kazakhstan. In the course of time, KazMunaiGas will become ? major integrated holding company that will be able to coordinate, regulate and determine long-term projects. The company’s powers in the field of petroleum operations will allow us to reach this objective in the very near future. The range of the company’s new powers is broad. It includes annual reporting to the Government of the Republic of Kazakhstan on the performance of petroleum contracts, conducting applied scientific research on the exploration and prospecting of oil and gas deposits and production, working with the competent agency on the list of subsoil sections and blocks to b? put out to investment tender by the Government, including the list of blocks and sections whose development involves obligatory shared participation of the National Company, and formulating the main terms and conditions of investment tenders.”
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