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And All of This Is About It...

On the eve of the People’s IPO performance the Government of Kazakhstan assigned KazTransOil with the status of a national operator at the main oil pipelines. Moreover, the government approved new higher tariffs for the oil transportation services. Taking into account the company’s plans to bring the internal tariffs up to the export level it makes the company quite attractive for investors.

On the 3rd November 2012 the resolution of Kazakhstan government came into force with regard to specification of KazTransOil JSC as a national operator of main oil pipelines. In accordance with the document, the company’s activity will be focused on developing of Kazakhstan system of main oil pipelines and ensuring their efficient, reliable and safe operation.

The main targets of the operator include:

To protect interests of Kazakhstan and other participants of the relations while transporting hydrocarbons through main oil pipelines to the domestic and outer market;

·To support innovative development of main oil pipelines system and its integration into the international energy system;

·To take part into development and implementation of state and national programs aimed to elaborate oil and gas sector with regard to the oil transportation through main oil pipelines.

According to the resolution, “the national operator is entitled to perform operating services on the territory of Kazakhstan related to main oil pipelines if fifty and more percentage of voting shares (shares of participation) are directly or indirectly owned by the state, nationally controlled holding or a national company.” In addition, now KazTransOil is entitled to provide services on organization of oil transporting along the pipeline systems of other countries if the oil is supplied from the territory of Kazakhstan through the main oil pipelines which are beneficially or some other legally owned by a national operator (so called “operator’s activity on the unified route”).

As Mr. Kairgeldy Kabyldin, a General Director of KazTransOil JSC, said in his comments to the government’s resolution, he noticed that in accordance with the law on main oil pipelined his company will participate in all major international projects implemented in Kazakhstan or performed with the participation of Kazakhstan on the territory of third countries.

Meantime, on the 31st October the Agency on Regulation of Natural Monopolies approved new tariffs for the oil transportation services with the use of main pipelines and the tariffs became efficient since the 1st December 2012. Thus, a new export tariff for pumping of 1 ton of oil per 1 000 km was approved as KZT 4,732.6 (VAT excluded), and for the domestic market the cost is KZT 1,954.5 (VAT excluded). Previously, the tariffs were KZT 3,331 and 1,303 (VAT excluded) correspondingly.

And more than this, in his speech at the presentation confined to the placement of KazTransOil JSC shares in the program of the People’s IPO, Mr. Kairgeldy Kabyldin said that the company had an intention to raise the internal tariffs for oil transportation up to the level of export tariffs. As he said, such policy would be brought into force also within the frames of joint ventures with participation of KazTransOil JSC – Kazakhstan–Chinese Pipeline LLP and MunaiTas North-West Pipeline Company JSC. At the same time, Mr. Kabyldin did not specify when particularly such an adjustment will be performed.

It should be noted, that the new status and increasing of tariffs will have a positive influence onto the financial position of the company and it will make it more attractive for investors. In particular, by results of 2012 KazTransOil JSC expects about KZT 145 billion as a consolidated profit and in 2013 the expectations on a profitability level of the company are KZT 170 billion.

It should be reminded that KazTransOil JSC is a subsidiary of KazMunayGas NC JSC; also, it is considered to be the biggest oil transporting company in Kazakhstan. With its diversified network of main oil and water pipelines, 8 thousand km long in total, KazTransOil supplies approximately 59% of total oil produced in the country to the domestic and export markets.
ConocoPhillips Leaves Kashagan

On the 26th November, ConocoPhillips, an American company, made an official announcement that they planned to sell their 8.4% share in the North-Caspian Project to ONGC Videsh Limited, a subdivision of the Indian Publicly Traded Oil and Gas Corporation ONGS, which deals with international projects. It is expected that the bargain estimated at $5 billion will be completed within the first six months of 2013.

As Mr. Don Vallet, a Vice President of ConocoPhillips, said “this sake is an important part of our strategic program on disposal of assets. We are happy that ONGC Videsh acknowledges the value of the asset.” As it is marked in ConocoPhillips, the book value of assets owned by the Company with regard to Kashagan was $5.5 billion as of the 30th September 2012. Thus, Conoco is selling its share with a loss at $500 million compared to the book value and admits the asset to be written off after payment of taxes in amount of $400 million in the quarter 4 of 2012.

Speaking of ONGC, for 79% owned by the government of India, it has previously completed negotiations on the purchase of share in Kashagan with other American participant – ExxonMobil, however, the negotiations did not result in agreement. In addition, in April 2012 ONGC signed an agreement with the Government of Kazakhstan on the purchase of 25% share in the Satpayev exploration block at the Caspian Sea.

It should be mentioned, that the desirable share in the North-Caspian Project the Indian company will get if only Kazakhstan government and other partners of the consortium will not exercise their pre-emptive right.

Meanwhile, Mr. Sauat Mynbayev, Minister of Oil and Gas of Kazakhstan, said that ConocoPhillips never submitted an official notice to the authorities of Kazakhstan on their intention to sell the share at Kashagan. “No official proposal was made to the Interdepartmental Committee which considers this issue. Once the proposal is submitted the Committee will review it. Inoficially we know that: ConocoPhillips declared that they had been in negotiation with ONGC. But we do not know for sure if they come to final conclusion or not.”

The Minister of Oil and Gas also confirmed that Kazakhstan has a pre-emptive right for the share but the decision is still responsibility of the Committee which solely can consider the issue for two months since the relevant application is submitted. Besides, the bargain shall be checked against “the economic security or observation of national interests”. At the same time, Mr. Mynbayev emphasized that of ConocoPhillips sells their share the conditions specified in agreement on development of Kashagan field will not be revised.
Total’s New Asset

Total, a French oil and gas company, acquired 75% share in two concessions on development of the North and South blocks in the South-Western part of Kazakhstan where the previous operator was Nurmunai Petrogas. The total area of the two blocks is about 14.5 thousand km2.

As it was noticed by Mr. Yves-Louis Darricarrere, a Vice-President of Total on Exploration and Production, “the purchase of shares in two concessions previously owned by Nurmunai Petrogas complies with our strategy in the sector of exploration operations and this strengthens our presence in Kazakhstan.”

As a new operator of licenses Total wants to drill the first well in 2013.
Rating of KazMunayGas Raised

On the 21st November, Fitch Ratings raised the long term rating of emitter’s default for KazMunayGas National Company up to BBB level in foreign currency with a “steady” forecast. Simultaneously, the agency raised the priority non-secured rating of KazMunayGas Finance Sub. B.V. up to BBB level in foreign currency.

It happened the next day after Fitch increased the long-term rating of emitter’s default of Kazakhstan up to BBB+ for foreign currency from previous BBB, and up to A- for a national currency from previous BBB+ correspondingly. The forecast for long-term rating of emitter’s default of Kazakhstan is steady for the foreign and national currency.

In their explanations, the agency’s experts mentioned that KazMunayGas still get advantages due to strong relations with the government. But timely and full government support which would help to get totally equal ratings is not dominant as the considerable part of the company’s debt has no direct state guarantees. As a result, the rating of KMG is a level behind than the rating of the country.

Government Delays Penalties for Emissions

Imposing of penalties for emissions of greenhouse gases will be delayed in Kazakhstan. This was declared in the speech of Nurlan Kapparov, a Minister of Environment at the conference “On Implementation of Kyoto Protocol’s Actions in Kazakhstan” held on the 2nd November.

“2013 is the first year when the quota and trading system is implemented and we assert it as a pilot year”. This was reflected in a possible one-year delay of penalties to be imposed onto subsoil users and also in a simplified procedure developed for obtaining of quotas (no verification for reports of companies).”

Also, as the Minister said, during the pilot year, associations will participate in generation of changes and alternations to the regulatory framework accepted: “In the nearest time we’ll initiate the review of some regulations, for instance, such as regulations for distribution and issuing of quotas. Also, it is planned to change the Ecological Code”.

Mr. Nurlan Kapparov reminded that the National Quotas Distribution Plan was based on the free provision of quotas to companies on the level of 100% of 2010 emissions. “If a subsoil user has a deficit it can be covered by purchase of quotas from other players at the market. Provisions were made to supply no-cost quotas from the state’s reserve in case of output expansion and start-up of new units”.

According to the head of ecological department, at the moment the National Plan covers 178 companies of industry, power engineering, coal mining, as well as oil and gas mining with the total emission volume in amount of 147.2 million tons of CO2–equivalent.

“The National Plan restricts the companies’ emissions and oblige them to follow the programs on reduction of emissions. On default of obligations the companies shall pay a penalty in amount of 10 monthly calculation indices for each ton emitted above the allowable volume. This is a quite powerful drive to develop trading as the amount of penalty is much higher than the cost of quota.” According to Mr. Kapparov, today it is difficult to forecast the price for ton of COСО2– equivalent, “but certainly, the price