KAZAKHSTAN - OIL EXPORT DUTY GOES INTO EFFECT, BUT

UNCLAS ASTANA 000962 SENSITIVE SIPDIS E.O. 12958: N/A TAGS: EPET ECON ETRD PGOV KZ SUBJECT: KAZAKHSTAN - OIL EXPORT DUTY GOES INTO EFFECT, BUT DOES NOT APPLY TO MAJOR PROJECTS ¶1. (U) Kazakhstan's recently announced duty on the export of crude oil and oil products went into effect on May 17. The duty does not apply to companies whose contracts set fixed tax regimes, which means that Kazakhstan's three principal oil and gas projects -- Tengiz, Karachaganak, and Kashagan -- are exempted. (Note: Kashagan, of course, is still in the pre-production phase. End Note.) Energy Minister Mynbayev has previously explained that approximately 40 percent of Kazakhstan's current crude exports will be subject to the duty. ¶2. (U) The crude oil duty is to be calculated on the basis of a sliding scale formula, taking into account the average market price for crude. The initial duty will be $109.91 per ton, with a lower $27.43 rate applicable to those companies which already pay rent tax on crude exports. ¶3. (SBU) The Ministry of Finance published on May 16 a preliminary list of 38 companies to which the crude oil duty will apply. Most are Kazakhstani, including KazMunaiGas Exploration and Production, a subsidiary of Kazakhstan's state oil and gas company, KazMunaiGas (KMG). The list includes at least one U.S.-owned company, Caspi Neft TME, a subsidiary of Transmeridian Exploration Inc. Caspi Neft TME is involved in developing the South Alibek oil field in Aktobe oblast. (Note: Caspi Neft TME told the Ambassador in a recent meeting that they do not have a tax stabilization clause in their contract and thus did not expect to be exempt from the export duty. End Note.) ¶4. (SBU) Comment: In introducing export duties on crude oil and oil products, the Kazakhstani government appears to have principally been motivated by a need to increase budget revenues. Tax revenues from the non-extractive sector are lower than originally planned, and expenses are higher, both as a result of the domestic impact of the global financial crisis -- which has led to lower economic growth, a sharp contraction in the construction and real estate sectors, and a government program to prop up those two sectors. The government is also considering introducing an export duty on metals. We had previously been informed of plans for an export duty on wheat; however, that appears to have fallen by the wayside for now, with the government instead imposing a temporary export ban on wheat to ensure adequate domestic supply and to keep domestic prices down on wheat and bread. End Comment. ORDWAY