Disclosing the terms of the contracts, under which billions in oil and gas wealth flow out of the country each year, will enable the public to have an informed debate about how the nation’s natural resources are managed.
Kazakhstan holds Central Asia’s largest recoverable crude oil reserves. Its extractive sector – which provides more than a third of the state budget – is crucial for the country’s development and improving the lives of its 18 million people.
Yet since Kazakhstan became the last Soviet Republic to declare independence in 1991, and multinational oil companies moved into the country a few years later, the oil sector has been marred by corruption, often on a grand scale.
The multi-million dollar 'Kazakhgate' scandal, to take the best known example, was the largest-ever foreign corruption investigation in US legal history. It involved a scheme that, according to US prosecutors, defrauded Kazakhstan’s government of the “funds to which it was entitled from oil transactions, and defrauded the people of Kazakhstan of the right to the honest services of their elected and appointed officials”.
Scrutiny
The scandal happened at a time - the 1990s and early 2000s - when oil deals were so shrouded in secrecy that Kazakh government officials were often excluded from the negotiating process. Yet, despite progress since those notorious times, reports of kickbacks, offshore payments, bribery and tax dodging in Kazakhstan’s extractive sector continue to surface.
Disclosing the terms of the contracts, under which billions in oil and gas wealth flow out of the country each year, will enable the public to have an informed debate about how the nation’s natural resources are managed.
All of which reinforces the case for greater accountability and transparency in Kazakhstan’s oil and gas sector, and for giving citizens the chance to scrutinise how revenues from their country’s natural resources are managed.
This is precisely what many Kazakh civil society organisations, including members of Publish What You Pay (PWYP) – the global movement for an open, accountable extractive sector – have been campaigning for since 2004.
Kazakhstan's first steps towards a more accountable extractive industry came in 2005, when it announced its commitment to join the Extractive Industries Transparency Initiative (EITI), and recently its position in the Corruption Perceptions Index (CPI), the mostly widely used indicator of corruption worldwide, has improved.
But just how open and accountable is Kazakhstan's oil and gas sector? And what needs to happen before it can truly shed its reputation as a corruption hotspot?
Answers to this questions can be found in a new in-depth study, carried out over 18 months, into two of Kazakhstan’s largest oil and gas fields, Karachaganak, close to the Russian border, and Kashagan, located offshore in the Northern Caspian Sea.
Transparency
The former is one of the world’s largest gas condensate fields; the latter was described as the largest oil field found in the world in the past 30 years.
Both are joint ventures, in which subsidiaries of Total and Royal Dutch Shell, among other companies, participate. Together, these fields generate billions of US dollars’ worth of oil and gas every year.
How equitably are the benefits from these fields being shared, and at what cost?
The study, which we co-authored, sets out to answer these questions, and to “follow the money” to see where it’s going.
We did this by using the payments that the companies make to governments, which they’re obliged to report under UK and EU/French law, as well as data analysis, our own research, and by engaging with Kazakh government ministers, other officials, companies and civil society, among others.
We discovered a big gap between the information that Kazakhstan’s extractive industry should be disclosing, and what’s publicly available. What’s more, the information which the government and industry do disclose is often difficult to find, incomplete and hard to interpret.
Crucially, we also found that, at best, only marginal economic benefits have flowed to Kazakhstan from the two fields.
The operators and joint venture consortia appear to incur and deduct unusually high costs in calculating profits from which the government obtains receipts. Moreover, the consortia themselves and many of the participating subsidiaries are incorporated in the Netherlands, which hinders access to information and raises concerns about tax avoidance.
Finance
Mirroring the lack of publicly available data about payments from these fields is a lack of transparency and accountability from the companies and the authorities towards Kazakh citizens and civil society.
For example, the partially state-owned North Caspian Operating Company (NCOC), the operator of Kashagan, refuses to report under the EITI process, despite its declared commitment to transparency. And Shell, which is a member of the NCOC joint venture, does not disclose payments made through the consortium.
As another example of the lack of accountability, major construction undertakings in Kazakhstan require environmental impact assessments (EIAs) and approval at public hearings. But civil society is excluded from the hearings, and while these assessments should be published online, some have disappeared, and others are hard to find.
In addition, local social and infrastructure projects, which oil and gas extraction is used to finance, are poorly implemented without much public participation and tainted with corruption.
Impacts
Finally, there’s the impact that these fields have on the communities who live by them. We found that not only do local people see few benefits, but in many instances they lose out because of them: both through a heightened sense that their security is threatened and their civic space limited, as well as from environmental damage and in some cases harm to their health, which are not remedied or compensated.
Many of the local civil society activists we surveyed associate the Karachaganak field with local water pollution and depletion, biodiversity loss, as well as a raft of health impacts: headaches, dizziness and breathing problems caused by hydrogen sulphide emissions.
Following the mass poisoning of local children by toxic emissions in 2014, 464 families from the villages of Berezovka and Bestau were controversially relocated as a result of the local environmental degradation. Yet, by and large, complaints have been met with official indifference, and no compensation for what people have endured.
The way to tackle these issues is to lift the veil on the damagingly opaque way business in Kazakhstan’s extractive sector is conducted.
Disclosing the terms of the contracts, under which billions in oil and gas wealth flow out of the country each year, will enable the public to have an informed debate about how the nation’s natural resources are managed.
Kazakhstanis will then be able to weigh up the real costs and benefits of exploiting these fields, and determine whether the money received from them justifies the harm they cause to the environment and local people.
Such a move will also enable Kazakhstan to take the necessary further steps in the journey it began around 15 years ago, and clean up a sector on which so many lives depend.
These Authors
Mariya Lobacheva is a programme director at Public Association Echo in Kazakhstan, which works to involve citizens in government decision-making. She is also a civil society representative on the Extractive Industries Transparency Initiative (EITI) board.
Danila Bekturganov is president of the Civil Expertise NGO in Kazakhstan. His work focuses on transparency and accountability in the extractive industry.
Transparency, Participation and Accountability in Kazakhstan: An action research case study of the extractive industry, is a collaboration between Echo and Civil Expertise (both Publish What You Pay member organisations in Kazakhstan), Publiez Ce Que Vous Payez (PCQVP) France/Oxfam France and PWYP UK.
