Kazakhstan's oil industry seeks help

by Kulpash Konyrova

Kazakhstan's major industry and the main contributor to the state budget -- the oil industry -- is asking for help. The reasons for that are the plummeting prices for oil and the financial crisis.
Such was the tone of the meeting at the Kazakhstan Ministry of Energy and Mineral Resources on the results of the last year with the participation of Prime Minister Karim Masimov.

Along with the disheartening reports on the production volumes of oil, gas, and coal, the Minister of Energy Sauat Mynbaev spoke about the problems that needed the premier's intervention.
"The oil industry had helped, when it could, but now it is time to support it," the minister said setting the stage for his first request, to lower the Mineral Extraction Tax (MET) rates. MET came into effect as of the start of this year, and it is tied to the world prices for oil. "When developing the new Tax Code, the tax authorities used 60 dollars per barrel and higher as the reference prices to determine MET rates based on the annual production volumes. Now, with the oil prices below $ 40, it has become evident that the MET rates should be reduced," Mynbaev said.

The Kazakh Energy Minister's second request concerned certain relaxations for the oil companies with regard to the fulfilment of their investment obligations.
"We propose not to terminate the mineral contracts where the level of fulfilment of financial obligations is 50 to 60 % and higher. In the current situation, when it is difficult to finance the projects, it would be inappropriate, in our view, to act rash," he said.

Supporting the minister' words, KazMunaiGaz (KMG) President Kairgeldy Kabyldin reported that the current transfer pricing requirements may cost the national company $ 100 mm in export losses.
"So, in the conditions of the financial crisis, we also ask to reduce the export custom duty," the KMG president said.

According to him, in neighbouring Russia, the authorities have already accommodated the oilmen by reducing the export custom duty from $ 500 to $ 80 per ton.
Having heard all these requests, the head of the government, Masimov, responded promisingly: "I think we will find a balance to give some respite to the oil companies during this period so that they could move forward."