The Kazakh side is raising claims against Western oil companies with which contracts were signed several decades ago. The processes in international arbitration are closed to the public; however, leaks of information indicate accusations of bribery of Kazakh officials by foreign companies to gain access to oil fields. The agreements remain opaque, as reported by Azattyq Asia.
At the end of January, it became known that international arbitration ruled in favor of Kazakhstan in the case of Karachaganak—one of the three largest fields that account for a significant portion of hydrocarbon production.
Kazakhstan provides limited information about the proceedings: Energy Minister Erlan Akkenzhanov only confirmed its existence and noted that the process is taking place in a "strictly confidential mode," without disclosing either the amounts or the terms of the decision.
Meanwhile, leaks from Bloomberg and Reuters indicate that the arbitration recognized some of Kazakhstan's claims and opened the possibility of compensation of up to $4 billion. As evidence, Kazakhstan used materials from a 2017 corruption case in Italy, in which contractors admitted to bribing Kazakh officials regarding Karachaganak and Kashagan.
Currently, Kazakhstan continues the proceedings regarding Kashagan, the amount of which reaches $160 billion, corresponding to almost half of the country's GDP. The British company Shell announced a suspension of investments in Kazakh projects, while the Chinese CITIC is discussing participation in a gas processing plant at Karachaganak. These events indicate that Kazakhstan is changing the terms of its oil contracts under the close scrutiny of the West, Moscow, and Beijing.
WHY DID KAZAKHSTAN TURN TO ARBITRATION?
The Karachaganak field in the West Kazakhstan region is a key asset that provides a significant portion of budget revenues. The development is managed by the consortium Karachaganak Petroleum Operating B.V. (KPO), which includes companies such as Shell (UK), Eni (Italy), Chevron (USA), Lukoil (Russia), and KazMunayGas (Kazakhstan). The production sharing agreement signed in 1997 will remain in effect until 2037.
According to the contract, all extracted products legally belong to Kazakhstan, while investors receive profits through their share of oil and gas. However, the agreement remains opaque despite public calls to disclose the terms of oil extraction contracts.
This is not the first conflict surrounding the Karachaganak field. In the late 2000s, Kazakhstan secured a 10% stake in the project for its national company KazMunayGas. In 2020, the parties also agreed on changes to the production sharing formula after Kazakhstan received approximately $1.3 billion.
Kazakhstan filed a new lawsuit in arbitration in 2023. The authorized company PSA, headed by the president's nephew Kassym-Jomart Tokayev, Beket Izbastin, challenged the expenses of the KPO consortium that were classified as "reimbursable." The claims include unverified cost overruns, services, and other expenses that Kazakhstan believes should not be covered by the budget.
According to Bloomberg, oil companies may be required to pay Kazakhstan up to $4 billion.
Experts note that Kazakhstan is attempting to revise established practices for determining reimbursable expenses, which could change the balance between state revenues and company profits.
Askar Ismailov, an oil and gas expert, highlights several reasons for the start of the dispute:
— The main reason is the decline in revenues from the oil and gas sector to the budget. Investments have decreased, and in light of the president's directive to double GDP by 2029, revising reimbursable costs may become one way to increase budget revenues. It is also important to note that inflated costs that are submitted for reimbursement have long been discussed in the industry.
The second important reason, as noted by researcher Rasul Kospanov, is the change in leadership in Kazakhstan. The current authorities are not bound by the compromises of the 1990s when Nursultan Nazarbayev was president. For Tokayev and his circle, revising the approach to subsoil use becomes a matter not only of revenues but also of strengthening the country's economic sovereignty.
HOW DO THE PARTIES VIEW THE DISPUTE?
The Kazakh side confirms the existence of the arbitration but practically does not comment on its content. Erlan Akkenzhanov emphasizes that the proceedings are taking place in a "strictly confidential mode."
— Publications report that Kazakhstan has been awarded between two and four billion dollars. Judging by this data, this is good news, — he noted.
Beket Izbastin, head of PSA, also does not comment on disputes with oil companies, emphasizing that "resolving issues takes time."
The Italian company Eni, part of the consortium, refrains from commenting until a final decision is made. At the same time, British Shell announced a suspension of new investments in Kazakhstan until legal risks are clarified.
Askar Ismailov emphasizes that Shell's statement signals an increase in legal risk for Western investors.
— This does not necessarily mean an exit, but it is an attempt to solidify the position and lower expectations for future projects, — he noted.
ALLEGATIONS OF BRIBERY DURING THE PROCESS
According to Bloomberg and Reuters, the arbitration in London recognized the legitimacy of Kazakhstan's claims, indicating that part of the expenses claimed by the consortium should not be covered by the budget. The potential compensation is estimated to be in the range of $2 to $4 billion, although the final amount will be determined later.
— This "victory" is not an official statement but a leak of information. Therefore, it is premature to talk about specific benefits for Kazakhstan, — Ismailov noted.
According to Reuters, Kazakhstan acknowledges that under previous leadership, the country "suffered from corruption and kleptocracy." The arbitration also took into account that Kazakh officials were bribed to approve expenses that should not have been covered by the state.
Kazakhstan referred to documents from Italian criminal cases in 2017, which evidenced bribery of Kazakh officials to obtain contracts and approve inflated costs.
Askar Ismailov emphasizes that such evidence carries weight for arbitration:
— This is a rare type of argumentation that courts take seriously. Kazakhstan uses this as confirmation of the corrupt environment in which decisions on contracts were made. It is important for Kazakhstan to present names and facts to avoid accusations of manipulation.
Nevertheless, Ismailov notes that allegations of past corruption do not mean that the current situation has improved.
— Systemic changes are not observed. The judicial system continues to operate under old rules, and a reduction in corruption is likely to occur only with the presence of transparent mechanisms, — he believes.
CLAIMS REGARDING KASHAGAN AND SEARCHING FOR NEW PATHS
Kazakhstan has also accumulated claims against the consortium developing the Kashagan field. Kazakhstan's lawsuit against the operator North Caspian Operating Company (NCOC) is estimated at $160 billion—more than four times the country's annual budget. This dispute has become one of the largest in the history of international arbitration in energy.
Kazakhstan is challenging the structure of reimbursable expenses and discussing delays in launches and mechanisms for calculating shares. The arbitration regarding Kashagan is proceeding separately, and the timeline for its resolution is unclear: the process may extend until 2028.
Kazakhstan is also suing NCOC domestically; the company was previously fined 2.3 trillion tenge ($4.6 billion) for exceeding sulfur placement norms. Last year, the operator of Karachaganak was fined 739 million tenge for environmental pollution.
Kazakhstan was unable to reach an agreement with Eni and Shell on the construction of a gas processing plant at Karachaganak, after which the Chinese CITIC appeared in public statements. This decision is not final.
— Kazakhstan is seeking its path of development. Who it will work with depends on many factors, including geopolitics. For example, the U.S. is not interested in worsening relations with Kazakhstan, which also matters for future projects, — Ismailov believes.
No information is yet available regarding new claims from Kazakhstan concerning Tengiz, another major field. Earlier, a scandal erupted in the U.S. regarding bribery of high-ranking officials for access to Tengiz; however, Nazarbayev did not face accountability, and his entourage denied receiving bribes.
Many years have passed since then, and now Kazakhstan openly speaks of its intention to revise contracts signed in the early years of independence. At a government meeting in 2025, Tokayev noted that it is necessary to intensify negotiations on the terms of production sharing contracts to make them more beneficial for Kazakhstan.
Askar Ismailov emphasizes that the next 2-3 years will show the direction of Kazakhstan's movement, especially considering the outcomes of arbitration regarding Karachaganak and Kashagan.
The record of Kazakhstan on the path to revising contracts from the Nazarbayev era, affected by corruption and kleptocracy, first appeared on K-News.
