All conditions created for increasing oil and gas extraction in Kazakhstan, says industry official

ASTANA – As the Kazakh capital is preparing to host the World Petroleum Council Oct. 1-3, The Astana Times talked to Asset Magauov, Director General of KAZENERGY, the Association of Oil and Gas and Energy Sector Organisations of Kazakhstan, about the event as well as the trends in the industry, the association’s work to create a better legislative framework and the longer term outlook for oil and gas production in the country.

Asset Magauov

What are the goals, objectives and expected outcome of the upcoming World Petroleum Council Meeting in Astana?

Kazakhstan joined the World Petroleum Council (WPC) in 1997. Then we established the Kazakhstan National Committee (KNC) – represented by the KAZENERGY Association, which over the years has implemented several projects to strengthen ties between the organisation members.

The KNC has initiated a cycle of expert seminars of the World Petroleum Council aimed at studying advanced expertise and international practices of developing local content. We received strong support among the members of the organisation and presented our results at the special sections of the World Petroleum Congresses in Moscow and Istanbul.

The upcoming meeting in Kazakhstan on Oct. 1-3 is not the first of its kind. In 2012, we already hosted a WPC meeting in Astana, where more than 50 national committees’ representatives took part. But for us, it is an honour to bring back the WPC to the capital of Kazakhstan after six years.

At WPC in Astana, we are planning to have meetings of the Executive and Programme Committees of the council, the session of young professionals of the WPC Committee, as well as the meeting of the council itself.

In Astana, we are going to also have the preparatory works for the upcoming 23rd World Petroleum Congress scheduled for 2020 in Houston, United States . The congress’s agenda will focus on “Innovative Energy Solutions.”

The WPC Youth Committee is also planning to discuss the sixth Youth Forum in St. Petersburg in June 2019.

I would like to underline that the Kazakhstan National Committee perceives with great interest these events and is considering the possibility of delegating its representatives for the discussion of issues of the energy sector.

As for the key topics of the Astana meeting, the problems of effective investment development are on the agenda. In recent years, we have been able to significantly increase the hydrocarbon potential of our country, attract significant investments in the oil and gas industry and we continue working on the creation of favourable conditions for attracting investments to Kazakhstan. In my view, however, the most significant event of the WPC in Astana would be the conference on “Investment Opportunities: New Solutions for Sustainable Growth.” The conference will allow us to introduce the WPC member states and their national committees to the latest trends in the development of the oil and gas and energy industries of Kazakhstan.

Its agenda will cover issues such as the expansion of investment instruments, effective protection of investors’ rights and interests, industry legal regulation, green investments, among others. Participants will hear about success cases of companies working in the industry.

I am confident that these events will enhance the exchange of experience and best practices, as well as the expansion of cooperation among all the member countries of the council.

What would you say about recent initiatives and incentives in the energy sector of Kazakhstan aimed at boosting economic growth and competitiveness?

In order to create more favourable conditions for investment, the government, the public institutions and other stakeholders have done a great deal of work reforming the legislation in the sphere of subsoil use, taxation, environment, etc.

These initiatives primarily aim at the exploration and replenishment of the resource base of minerals, the introduction of international standards for inventory accounting, the reduction of administrative barriers, the rational use of mineral resources and provision of state support through establishing a balanced tax burden that would stimulate the development of all branches of the fuel and energy sector of Kazakhstan.

In your opinion, what is the importance and value of the recent initiatives of KAZENERGY, whether it is the environmental code, the new tax code or the new code on subsoil and subsoil use?

The most important task of KAZENERGY is industry protection and representation in the legislative processes, the identification of systemic problems of enterprises and sustaining constructive discussion about these issues both within the association and with relevant government authorities.

In 2017, Kazakhstan adopted a new code on subsoil and subsoil use and the tax code. This year, we began drafting the new environmental code. Together, these three documents – without exaggeration – are the most crucial legislative pieces for oil and gas companies.

The common goal of the new codes is to increase the investment attractiveness of Kazakhstan’s oil and gas sectors, and our initiatives in this regard are reflected in the editions of two new codes adopted by the Parliament.

For instance, starting from 2019, the new tax legislation provides for the exclusion of bonuses of commercial detection, introduces new conditions for income taxation (it introduces a so-called alternative subsoil use tax for offshore and super-deep deposits), puts in place a good mechanism to allow for taxation not only for successful, but also on unsuccessful exploration activities, etc.

The new subsoil code significantly simplifies access to subsoil use contracts, offers special tools that stimulate investment in geological exploration (combined contracts, the abolition of all non-productive deductions, etc.), provides, starting from 2024, for the transition to international standards for calculating recoverable reserves, eliminates as much as possible all administrative barriers (excessive reconciliations, lengthy decision-making), etc.

Overall, investors welcomed these changes. Already now, several major international companies are openly negotiating new exploration projects in Kazakhstan.

Regarding the new environmental code, we have tabled a large amount of legislative proposals to the ministry of energy, essentially addressing the imperfections of current environmental legislation, which, in our opinion, in some cases contains discriminatory approaches to the oil and gas sectors. We are determined to thoroughly work on the environmental code, and currently are in process of an in-depth review of the best practices of Organisation for Economic Cooperation and Development (OECD) member states on regulation of certain issues on environmental responsibility, emission standards, monitoring, licensing system, etc.

Our proposals are reflected in the latest version of the concept of the new environmental code, which, we believe, is balanced from the point of view of protecting the environment, as well as industry interests on developing production activities, and this fact makes us look forward with optimism on updating the national environmental legislation.

What challenges and opportunities in its development does Kazakhstan’s energy sector face today?

In the sphere of oil and gas production, the most urgent are the issues of replenishment of hydrocarbon resources, as well as the introduction of more efficient technologies for increasing the level of extraction of minerals.

The developing of the industry assumes a wider use of gas as the cleanest type of fuel, as well as the raw material for industry, which requires additional investments from the oil and gas industry into the exploration, production and processing of hydrocarbons, the introduction of technologies aimed at reducing greenhouse gas emissions.

Soon, Kazakhstan will have a huge demand for hydrocarbon raw materials to provide all types of petroleum products for the development of the petrochemical industry. This depends directly on the actions of the state on the introduction of incentives for attracting investments in such a promising and resource-intensive industry.

Considering the existing initiatives, I could state that we have created quite favourable incentives, including economic ones, for companies and investors to overcome these challenges.

Overall, what is your assessment of the long-term development of Kazakhstan’s energy sector?

Considering globally increasing energy consumption, including resources such as natural gas and oil, and price stabilisation (without excluding further rise), we have created sufficient prerequisites for increasing the extraction of hydrocarbon raw materials in Kazakhstan.

Surely, we also take into account the fact that in the future hydrocarbons will stop playing a leading role of the main fuel. Nonetheless, they will remain important for many other industries.

Today, the oil and gas industry faces several priority tasks, namely, replenishing the resource base, introducing more efficient technologies, and ensuring the stability of legislation in the long run.

It is also important to diversify the economy of Kazakhstan towards processing primary raw materials to receive goods and products with higher added value through using petrochemicals, gas chemistry and the development of the accompanying sectors of the economy.

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