KZ-today's Exclusive interview with General Director of Turgai Petroleum

The Kyzylorda special interregional economic court has made a decision to exact payment from PetroKazakhstan Kumkol Resources JSC (PKKR) totaling 1.7 billion tenge (about $13.1 million) in favour of Turgai Petroleum CJSC. The proceedings between the companies developing the Kumkol field do not seem to be over yet.

The general director of Turgai Petroleum CJSC Alik Aidarbayev speaks about the reasons, nature and consequences of the conflict in an interview to KZ-today correspondent.

KZ-today: Lately, the conflict between Turgai Petroleum CJSC and its shareholder, the Canadian company PetroKazakhstan has become widely known. Could you please comment this situation?

A. Aidarbayev: Continuously for the past few months, Turgai Petroleum has been under relentless pressure from the side of PetroKazakhstan.

Turgai Petroleum a fifty-fifty joint venture between Russian LUKOIL and Canadian HURRICANE (PetroKazakhstan) has been developing the Kumkol North field since 1995. PKKR has been operating in the Kumkol South field (southwest of the Republic) since 1996. PKKR joined the Kazakhstani market in November 1996 by purchasing the extractive production enterprise Uzhneftegaz.

It seems that the companies are working together closely, respecting the mutual interests and the national legislation concerning the subsoil use. But in practice it is far from the reality, and not our fault. We have been suffering huge losses and consequential damages within the last several months because of the activities of PetroKazakhstan. In turn they systematically do not execute court decisions and are in constant conflict with the state government, regional authorities of the Kyzylorda and South-Kazakhstan regions.

KZ-today: As we know, the companies have strong disputes over the operation of boundary wells. What are the reasons of the conflict between Turgai Petroleum and PetroKazakhstan?

A. Aidarbayev: Geologically, Kumkol field has been divided into two license areas. The central part is the most productive part of the field. And that is why common field development plan was designed allowing equal distribution of the reserves for the both companies. However, PetroKazakhstan did not follow this plan. As a result of non-compliance with the document, PetroKazakhstan has been extracting the oil belonging to Turgai Petroleum.

LUKOIL, as a shareholder of Turgai Petroleum addressed to the Ministry of Energy and Mineral Resources of Kazakhstan to send the commission to PetroKazakhstan for audit. The inspection proved that the company has been producing the oil at the territory of Turgai Petroleum and the "wells-trespassers" were closed.

According to the report obtained from independent and Turgai Petroleum specialists, the oil cross-flow from Turgai Petroleum stock reaches hundred thousand tons causing huge losses to the company. And naturally we have raised our claims before PetroKazakhstan. In that way we were involved in the conflict.

KZ-today: The attempt of PetroKazakhstan to cut off Turgai Petroleum from export pipeline became widely known to the public. What did actually happen? How did you settle the dispute?

A. Aidarbayev: According to the Kumkol field development plan, PetroKazakhstan was responsible for refining and transportation of oil via KazTransOil pipeline system. Using these means, PetroKazakhstan simply closed the pipeline valve. Actually, it is similar to the phenomenon of blocking ones carotid artery and the person dies in few seconds. Turgai Petroleum was also on the verge of technogenic catastrophe. And only because of the mastery of our specialists we were able to avoid large-scale accident but couldn't avoid local breakdown. The court sustained Turgai Petroleum's claim to resume oil transportation and made a decision to exact 13.1 million $ from PKKR for the action.

KZ-today: As we know one of the disputed points between Turgai Petroleum and PKKR is the sale of oil, produced by your company. How are the companies currently selling oil and petroleum products?

A. Aidarbayev: The sale of oil, produced by Turgai Petroleum at Kumkol field, is carried out through Shymkent refinery. Under the agreement, PetroKazakhstan have to pay for the shipped oil at the common rate. However, the shipments have been paid at lower rate or have not been paid at all.

Especially for this reason Turgai Petroleum turned to PetroKazakhstan with an offer to sign an oil-processing contract, which was turned down with no good reason. It is obvious that PetroKazakhstan would like to hold a dominant position in the crude oil processing market. This constitutes violation of the current antimonopoly law and decisions of the courts of Kazakhstan, ordering PKKR to sign the crude oil processing contract with Turgai Petroleum. The violation of the court decisions lead to investigations launched by law enforcement authorities of Kazakhstan.

KZ-today: You informed us about the processes you won. Could you please go into details about that?

A. Aidarbayev: Turgai Petroleum filed a lawsuit against PetroKazakhstan in the Kyzylorda court on 27 December, 2004. In this lawsuit, we requested the Court to order PetroKazakhstan to resume oil transportation into KazTransoil pipeline system, produced by Turgai Petroleum. We estimate daily losses of 10,000 tons of oil. Moreover, our export obligations were under the threat of violation. On 29 December, the Kyzylorda court sustained the Turgai Petroleum claim to PetroKazakhstan and ordered to continue oil transportation.

Moreover, on February 2, 2005, the appeals instance of the court dismissed an appeal from PetroKazakhstan Oil Products (PKOP). But PetroKazakhstan still refused to implement the order and Turgai Petroleum could not follow its obligations and did not deliver export oil in December, 2004 and in January-February 2005.

On March 14, 2005 the Kyzylorda special interregional economic court announced the judgment to exact 1.7 billion tenge (about $13.1 million) from PetroKazakhstan Kumkol Resources JSC (PККR) in favour of Turgai Petroleum CJSC. This amount will cover our losses caused by fail of export deliveries in December 2004.

I would like to underline, that the amount applying to our loses only, caused by fail of export deliveries in December 2004. The issue regarding recovering our losses caused by cessation of oil extraction in January-February, 2005 will be considered in the nearest time.

The outcome of numerous suits proves that we are right. We are working confident and efficient. Turgai Petroleum, is a Kazakhstani company and seeking compliance with the legislation of the Republic of Kazakhstan. We are assured that the state and community will support us.

KZ-today: How is PetroKazakhstan implementing the decisions of the court of Kazakhstan? What actions have been taken by the state law enforcement authorities?

A. Aidarbayev: The legislation of the Republic of Kazakhstan stipulates criminal penalty for violation of the court decisions. And that is why the legal proceedings against the director of PetroKazakhstan Oil Products and PetroKazakhstan Kumkol Resources Tomas Paul Dworzak are being initiated. Upon the court order the vice President of the company, who is currently in hiding, has to be arrested.

KZ-today: You are member of Asar party, which is the opponent of PetroKazakhstan. Can you comment this position of the party regarding this situation?

A. Aidarbayev: I am citizen of the Republic of Kazakhstan and the interests of my country are not just an empty phrase for me. Asar party speaks in defence of civilized and responsible business. And the public actions of the party against PetroKazakhstan, I consider as an effective struggle against irresponsible investor, who is not obeying the legislation of Kazakhstan. The management of the party makes decisions about the expediency of any actions. Being a general director of Turgai Petroleum I have to protect company's interests even in the court and at the rally as well.

KZ-today: Mr. Aidarbayev, as you know, PetroKazakhstan refused to deliver diesel at a lower rate on the threshold of sowing campaign. What is the position of Turgai Petroleum in providing diesel for farmers? What actions can your company undertake to provide rural areas with diesel?

A. Aidarbayev: As you know, at the height of the sowing campaign the farmers need diesel at lower rates. It is a state business as grain is our bread. The price for grain will have effect on the well-being of the citizens. The majority of the oil companies operating in Kazakhstan support the request of the state, but not PetroKazakhstan.

In its turn, Turgai Petroleum is ready to divide the deliveries of diesel with other participants of the market. We plan to deliver 60,000 tons of diesel to farmers. In case if PetroKazakhstan signs the oil-processing contract and performs duly fulfillment of the document we will be able to deliver the forecasted volume of diesel at a reduced price.

Today, when the oil prices all over the world are close to their historical maximum, the oil companies have an opportunity to participate in the state social programs.

A. Aidarbayev: I am not informed about the conflict between the Ministry of Energy and Mineral Resources (MEMR) of Kazakhstan and PKKR. However I would like to underline that the MEMR of RK is the competent authority in the Republic. And I am positive if the Ministry makes such claims it has solid grounds for that. If subsoil user ignores the lawful demands of the competent authority, the latter has the right to undertake appropriate measures.

KZ-today: What is the position of LUKOIL, the shareholder of Turgai Petroleum regarding this conflict?

A. Aidarbayev: LUKOIL supports the position of Turgai Petroleum. We don't lay any claims to our shareholder. Moreover, LUKOIL helped our company to resume the transportation via CPC pipeline system, using its right as CPC's stockholder.

I think that Russian company operating in Kazakhstan owing to its similar mentality can easier find common language with Kazakhstani partners.

KZ-today: The Russian mass media published the information about PKKR's intention to purchase the LUKOIL participatory interest in the Kumkol field. Can you comment this statement?

A. Aidarbayev: I did not hear this information, but if it is true it explains a lot. The Canadian side probably wants to weaken the position of Turgai Petroleum, essentially reducing the cost of its assets and LUKOIL will be forced to sell its stake for nothing. After that the Kazakhstani management will be discharged and the Canadian side will be operating in the Kumkol field as they want.

Translated by Nataliya Shirinskikh