BG is truly
a global player, having operations on just
about every continent, which decided to come
to Kazakhstan. With this information in mind
could you give us your assessment of the local
investment environment and how beneficial
do you see it has been developing?
If we start up in broader aspect - transition
within the former Soviet Union from the
command to the market economy, it has turned
out to be a much longer and more complex
transition than individuals and organizations
initially thought. However, if we look at
the progress that Kazakhstan has made compared
with its peers in the development of the
legal and fiscal framework and encouraging
a positive investment environment, Kazakhstan
has recorded clearly outstanding. This is
very noticeably contrasted with many of
the surrounding countries in the Central
Asia, Caucasus, varying.
Is this development also something that
we also see in the oil and gas sector?
In the oil and gas sector we have seen
the significant development of appropriate
legislation and the ability for the country
and the investors to come together and prove
deals which to-date we see as a group track
record that they are working. The investments
are taking place. And according to FDI foreign
direct investments figures for Kazakhstan
particularly for the last few years again
are outstandingly in contrast with the neighbouring
countries and, perhaps, with all of the
countries in the FSU.
One of the very important parts of the
constant development of the country specifically
in the oil and gas sector is also the development
of proper infrastructure. Do you feel that
the infrastructure in Kazakhstan is keeping
up with developments in general in oil and
gas?
If you stand back here one can see a very
significant decline in the condition the
infrastructure in the late eighties during
the latter part of the Soviet era. And to-date,
that older infrastructure has not yet been
replaced, so this is an area which the government
gives a lot of attention to and, of course,
industry and investors are looking at very
closely as well. And that will be one of
the constraints in the speed of industrial
development, particularly in the oil and
gas sector, where we see with the offshore
drilling rigs, the development of the country
will probably take longer than originally
anticipated, as an example.
But you are confident that in the future
also in this part there is a cause for hope.
For example, there are investments coming
in from the Asian Development
Bank for the development of the infrastructure.
Can I conclude that one can be positive
when it comes to the future of also this
part of the development?
As you pointed out many of the international
financial institutions are providing a lot
of encouragement and support to the government
in this infrastructure area. Also as an
example - the pipelines. We have seen the
Caspian Pipeline Consortium taking a number
of years, but finally successfully operating
since last year. So step-by-step the infrastructure
is falling into place, so to speak.
British Gas is very adamant and stressing
that it wants to become an integrated oil
and gas company. What particular role does
Kazakhstan play in this strategy?
With our investments here the balance to-date
is on the gas and gas condensate side of
the petroleum reserves. We are one third
owner of the production sharing agreement
that is the real large Karachaganak gas
condensate and oil field in the North West
of the country, which today, last year and
this year, is probably the largest single
industrial investment in the country. In
those two years about a billion dollars
have been invested each year. This will
enhance the republic's liquids production
by about seven million tons a year, which
is in the order twenty to twenty five percent
of current production. So that will be very
significant, when the additional production
comes on the stream going into CPC in 2003.
As you said the Karachaganak project
has been under development for a number
of years now. You started negotiating in
1992 and the contract was signed in 1997.
Could you tell our readers a bit more about
this history and the problems you encountered?
As you mentioned effectively the negotiations
going through several phases to the final
production sharing agreement, took place between
1992 and 1997. That does seem like a long
time. It was, but with these contracts and
several others, which were being negotiated
over that period, there was limited legislation
existing to create the framework for very
large oil and gas investments. So effectively
the legislation has to be good in place through
the contract or through the government and
parliament as the republic's legislation during
that time to facilitate the contract, being
put together and agreed.
There was for some time during the earliest
stages of the development uncertainty about
the costs of the project would entail. Would
you say that now in 2002 the estimates that
you previously had have come true and did
they prove to be economically viable?
With all major engineering projects in
your early days you have your first estimates,
which are plus or minus the range of figures
and with time they can be estimated more
accurately. A number of factors, such as
the timing of the CPC pipeline, etc. will
all had an impact on the project. But today
we are looking at the phase two - development
of Karachaganak as a major investment in
the order of three and a half billion dollars
over a four-year period.
How do you see this developed in the
future beyond the next five - ten years?
The field will have probably a hundred
year life. We are looking at such a huge
field. After phase two then in cooperation
with the government the next phase of development
will be to increase liquids production and
enhance gas production in field.
Now, there have been roadblocks along
the way of the Karachaganak development
in terms of a value-added tax, or VAT or
a double-tax (Russian and Kazakh), on exports
of gas condensates from the project. How
has this issue been resolved?
Naturally, as a young country develops its
legislative basis and also the commercial
interactions with the surrounding countries
we can see barriers sometimes perhaps developing
like last year between the Russian Federation
and the Republic over double taxation. Governments
work very closely together. And although it
is not totally resolved, the most important
thing - the resolution of production in the
field could start again has taken place. So
we see that is very positive and in the course
of this year finalization of the other legislation,
which will need to be put into place. |
What is estimate
on the investment law?
Well, it is to the double taxation. But
also the Republic continues to enhance fine
tune legislation. And one of the examples
is the investment law. What is remarkable
and very notable about that is that today
there is a very strong dialogue between
the government and the parliament and the
investment community over the development
of the legislation. And I think most investors
see this as a very healthy thing.
The second project, which British Gas
deals with is a very strong one, is a Caspian
see. Now, it's not entirely clear how much
can be expected from the Caspian reserves.
Could you give our readers clarity on this
issue?
In the early days of exploration in an
area or a field it takes a lot of additional
work and drilling to fully define the reserves,
which can be commercially produced in the
field. To-date the Kashagan discovery has
been made, which was the first well in the
offshore Kazakhstan sector of the Caspian.
That well was very successful and additional
three appraisal wells have been drilled,
which all offer encouragement that we do
have very significant oil reserves in the
Kashagan structure. Still to-date that is
not enough; that is insufficient information
to fully confirm reserves for the development
decision. Therefore, appraisal drilling
will continue, but to-date all of the work
gives a reasonable assumption that potential
reserves in that structure will be large,
in fact, very large, possibly larger than
Tengiz and Karachaganak.
You mentioned the CPC group before.
How important does CPC played a role in
your strategy?
First of all, we should recognize that
CPC for Kazakhstan has probably been the
biggest single impact of any investment
in the country - it provides the capacity
for major export to world markets, which
has not been directly available in the past.
So that is major positive progress. In our
own projects the additional production in
Karachaganak will all go into the CPC pipeline.
And, therefore, we have the ability to access
world markets and get impressed value for
the Republic as well as the investor from
the production from the field. So it is
critically important.
However, there are enough other available
options in the pipeline, e.g. through Turkey,
China, Iran, etc. What is British Gas stand
on other ideas of pipelines?
Any investor would like to see additional
pipelines, because that makes commercial
and economic sense to have multiple pipelines.
We do have to remember that it is not necessarily
the governments, who build pipelines, but
it is investors and bankers. The governments
can create the appropriate framework for
the investors to proceed with building pipelines,
but to build pipelines you need to have
sufficient reserves to through put. And
this is a very complex issue. And today
there is probably not an immediate need
for another pipeline, but in the course
of this decade there will be a need to export
increased production over Kazakhstan.
Here in Kazakhstan in the oil and gas
sector we have companies, which are competing
all over the world, on the other hand they
are all working together in consortiums,
like in Kazakhstan. How would you describe
your relations with your competitors in
Kazakhstan?
We can divide the competition and partnering,
perhaps, into two areas. One is that there
is a competition for new opportunities and
signing contracts. But once that competition
is over, then the partnership groups work
closely together. Those who have signed
the contract, they work together, have to
work efficiently and closely together. We
see in Kazakhstan a number of diverse as
far as nationality and also perhaps size
of company. It is amazing to see that all
of these partners bring their own special
skills and experience from around the world
to the table and it make a stronger and
more synergy in the group this way. But
it does take a little time for those partnerships
to consolidate and build their optimum strength.
And you mentioned that of course British
Gas is a company that has a worldwide experience
that can be utilized here. How exactly does
British Gas benefit from this global base
of knowledge here in Kazakhstan?
As you are well aware we look at ourselves
as the integrated gas major and can draw
on expertise within the company throughout
the gas chain. From the up stream exploration
right through to marketing of gas within
communities and for other industrial use,
such as power generation, etc. We can bring
that skill as well if not better than perhaps
most of the companies operating in the country.
When I hear you talk about British Gas
operations here in Kazakhstan, I am also
thinking about the investments you have
planned in Kazakhstan. Is it safe to say
that British Gas is in Kazakhstan for a
long term?
The contracts we signed in 1997 reflect
that they are forty years contracts. So
look at us as a long-term investor in the
country and in many ways I think, our approach
reflects the company, who sees itself not
only as an investor, but part of the community
in the country.
Within British Gas managers go from country
to country. I suppose you also have a rich
international experience. Could you highlight
to our readers a little bit of your professional
background and do you benefit from this
experience here in Kazakhstan?
I guess through an individual's career, which
is probably reflected in the company's approach
as well, is that to be operating in a number
of different environments and working in them
helps you to be effective and manage new challenges
in new countries.
What will you see then as your biggest
challenge in Kazakhstan?
The biggest challenge I think is largely
related to parts of the development of the
transition and building of institutions
and the development of trust between the
Republic, the local communities and the
investor. And this is probably where our
biggest challenge in the long run will be.
British Gas and also you sound very
clear to your course here in Kazakhstan.
And with this in mind would you have a final
message to readers all around the world,
Asia, America and Europe as we indicated,
who are reading about Kazakhstan and may
not know too much about Kazakhstan?
I guess for those people, who are not familiar
with the country, one has to point out the
issue of the size of the country and the range
of physical environments. As an example, from
just below fifteen thousand foot mountains
and the Tyan Shyan one of the worlds' biggest
divides, and then to be able to travel two
and a half thousand kilometres across the
country to be on the shores of the Caspian
Sea, means it is very huge diverse country.
It is very rich in not only petroleum, but
also other minerals and the northern wheat
lands are so impressive, like the mid west
or central and Western Europe's wheat lands
as well. Fanally the impressive resourse and
strength of the people will make its great
return. |
V.I.P. INTERVIEWS 
