Kazakhstan is classified as a continuous transcontinental country located in Central Asia. The country recently gained independence from USSR in 1991 and has a population of 17 million; mostly ethnic Kazakhs and Russians. Politically, the country is a unitary republic and the first (and only) President is Nursultan Nazarbaev - who rules the country in a less than democratic fashion. With an area of 1 million square miles, it is 9th largest country in the world, larger than all of Western Europe. It has borders with Russia, China, Kyrgyzstan, Uzbekistan, Turkmenistan, and adjoins a sizeable part of Caspian Sea. The country is naturally rich in minerals and the extractive industry contributes to majority of its exports (approx. 84%), making it the largest economy in Central Asia.
As an oil dependent economy (approx. 59%), the economic situation of the country is greatly influenced by international oil demand and prices. The major trade partners of the country are: China, Russia, France, Germany & Italy; partners that have great interest in the political-economic structure of the country. The foreign policy of the country is mostly influenced by its historical ties, ethnic and trade relations with other countries. Therefore, its political (and geographical) proximity to Russia and China is understandable. However, Nazarbaev has managed to maintain friendly relations with his neighbors and the west; selling cheap oil/gas to some, handing out friendly loans and assisting the United States in the war on terror. As a massive country on the cross roads of a global divide, they have managed to walk the tightrope of diplomacy by maintaining regional alliances (Russia, CIS & China) and keeping international...
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... the state.
5) Increase KMZ stake to 50%: Massive loss for Agip and big gain for the state.
The Kashagan project is important for all the stakeholders involved. The project is at a very crucial stage, the oil has not been extracted but substantial amount of capital has been invested. The potential upside to all the parties is big and nobody wants to jeopardize future revenues. If the Kazakh government overly threatens the consortium, then they risk losing the project as they don’t have the technical skills to develop the projects. The consortium cannot play hard ball because they have a lot of investments on the line. The parties know to play nice in the sandbox until they get to the gold.
Therefore, Agip KCO should sit at the negotiating table with a fair amount of confidence, renegotiate the contract and accept the 15% royalty payment. Everyone wins.
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