KAZAKHSTAN - The Gas Sector.

Although a part of the Kazakh natural gas is consumed locally, the existing pipeline infrastructure built by the Soviets is insufficient to deliver gas to the southern parts of the country. Most of the domestic gas requirements are supplied from Uzbekistan and Turkmenistan.

In March 2000, the US Trade and Development Agency (TDA) and the Kazakh Ministry of Energy, Industry and Trade signed an agreement under which TDA gave the latter a $600,000 grant to fund a strategic gas utilisation study which will examine various options. The study, to involve the state-owned Kazakh gas utility and pipeline concern KazTransGas, will focus on the country's gas reserves, potential domestic uses of this fuel and the national gas pipeline grid. Emphasis will be placed on the best ways to connect the main gas producing regions of the west with Kazakhstan's major population centres as well as the remote regions of the east and south.

Kazakhstan is linked by pipeline to the gas fields of Turkmenistan and Uzbekistan as well as to the Russian transport system. In early 2000, gas from Turkmenistan began to pass through Kazakhstan to the Russian system under a deal involving Itera, a Russian independent gas marketer registered in Florida and informally linked to the giant Russian gas company Gazprom. Gazprom and Itera are taking 20 BCM of the Turkmen gas this year and the volume could rise to as much as 52 BCM in 2001. The transit fees which Astana is charging for this gas is considerable. Under a May 2000 deal with KazTransGas, yet to be finalised, Itera will supply the Kazakh market with some of the gas which the Russian company takes from Turkmenistan.

British Gas International (BGI), a main partner in the gas/condensate-rich Karachaganak field, is now working on development of the Kazakh gas market. In the autumn of 1999 BGI and KazTransGas established a joint task force for this in Astana. BGI executive David Varney was quoted in October 1999 as saying the group was working out ways of using Karachaganak gas "locally for power generation, domestic heating and other uses". The other partners in the Karachaganak venture are Agip, Texaco and LUKoil.

In February 2000, then Russian energy minister Viktor Kalyuzhny met with President Nazarbayev in Astana and their talks centred on "energy union" between Kazakhstan and each of Russia, Belarus and Ukraine. He said among aspects involved in this are gas swaps between Kazakhstan and Russia and plans to increase the capacity of the Atyrau-Samara pipeline.

During a visit to Astana on May 18, 2000, Gazprom CEO Rem Vyakhirev said his firm and KazTransGas agreed to form a joint venture to produce and market gas throughout Kazakhstan. He said the venture would also export Kazakh gas to Europe and possibly China. He added that Gazprom would supply Russian gas to northern Kazakhstan. The advent of Gazprom followed the deal between KazTransGas and Itera, which has a direct link to Vyakhirev, on developing the Kazakh gas market.

This also followed the departure from Kazakhstan of Tractebel, the Belgian utility now fully owned by France's Suez Lyonnaise des Eaux, which used to operate Kazakhstan's gas distribution grid. Tractebel had signed a contract in 1996 to spend $1 bn through local affiliates: Almaty Power Consolidated (APC), supplying power to Almaty, in which Tractebel held 60%; Intergas Central Asia, managing the national grid of gas pipelines, in which the Belgian utility held 55%; Tractebel CIS; and AlmatyGreenhouse.

Tractebel, having invested about $200m, in late April sold all its Kazakh assets to KazTransGas for $100m. Tractebel's former partner in these operations, the Calverton Group (investment arm of the local Chodiev group involving three Kazakh businessmen), transferred its 45% holding in Intergas to KazTransGas. Tractebel and Calverton terminated all ties between them after the latter transferred to the Belgian utility its shares in the Swiss-based Global Gas Group. Tractebel and Astana dropped all claims and arbitration writs. Tractebel said it had repaid APC loans to commercial banks.

In June it was reported that KazTransGas would sell these assets to Gazprom, which would thus replace Tractebel as a main gas and power marketer in this country.

Tractebel's exit ended three years of troubled relations between Astana and the Belgian utility. In May 1998 Tractebel stopped transporting Turkmen gas through the Intergas network because of non-payment of transit fees, said to be US$13.5 per 1,000 cubic metres. This angered Astana, amid accusations that the Belgian utility had secured the network operatorship through bribery. In another move angering Astana, Tractebel stopped supplying influential customers with power because of non-payment of bills. When KazTransGas tried to take over its assets, Tractebel resorted to the international arbitration court in Stockholm in early 2000. At the end of March 2000, a vocal dispute with Astana over alleged non-payment of tax by Tractebel escalated into the threatened seizure of Intergas by the authorities.

The Intergas network comprises about 9,000 km of pipelines of 530-1,420mm, 29 compressor stations and a total of 4 BCM of underground storage capacity. The network has the capacity to carry 65 BCM/year of gas. Tractebel's June 1997 contract on this stipulated that it must manage the network for a period of 15 years, with the possibility of a further five-year extension. The company paid the government a bonus of $30m, as well as a 2% royalty on gas volume and a 40% share of net profits. Astana's share of net profits was to be subject to review every five years. Tractebel was to invest $600m on planning, repairs, and new facilities.