Doing Business In Kazakhstan Today

Originally published in Pipeline & Gas Journal, August 2007.

Kazakhstan has progressed from nomadic, to communistic, to free enterprise in its long and turbulent history. But over the last 10 years, the country has grown up and matured at a staggering rate. It is now poised to take its place among the most prosperous countries of the 21st century.

The key to effectively doing business in Kazakhstan is understanding its cultural, business and legal realities, and using representation positioned to take advantage of the Caspian region's vast potential for growth. Kazakhstan is unique in that it is well-positioned to be a leading powerhouse linking the economies of Asia and Europe.

Essentially Moslem, this large Central Asian country covers more than 1 million square miles, making it the ninth largest country in the world. Additionally, Kazakhstan is extremely rich in oil and natural gas reserves with the potential to triple its oil production rate to more than 3 million barrels of oil per day (bopd) by 2015.

Some in Kazakhstan are dubious, of course. An intensive program of industrial development to exploit these resources during the Soviet era resulted in catastrophic industrial pollution, fallout from nuclear testing and shrinkage of the Aral Sea. However, since its independence in 1991, the Kazakhstan government has encouraged broad foreign investment and liberalized the economy to promote growth.

Strength Through Credit And Stability

Kazakhstan has nurtured stable relations with all of its neighbors and is a member of the Commonwealth of Independent States (CIS), NATO, the UN, Organization for Security and Cooperation in Europe (OSC), the Organization of the Islamic Conference (OIC), the Economic Cooperation Organization (ECO), and the Shanghai Cooperation Organization along with Russia, China, Kyrgyzstan, Tajikistan, and Uzbekistan.

Because of its strong economic performance and financial health, Kazakhstan became the first former Soviet republic to repay all of its debt to the International Monetary Fund (IMF) in 2000- -seven years ahead of schedule. In September 2002, Kazakhstan became the first CIS country to receive an investment-grade credit rating from a major international credit rating agency.

Kazakhstan, Belarus, Kyrgyzstan, and Tajikistan established the Eurasian Economic Community in 2000 to re-energize earlier efforts at harmonizing trade tariffs and the creation of a free trade zone under a customs union.

Energy is Kazakhstan's leading economic sector. In 2003, the country produced 360 million barrels of crude oil and natural gas condensate, of which more than 86% was exported. Natural gas production in 2003 was 490 Bcf. Oil reserves exceed 30 billion barrels and natural gas reserves exceed 70 Tcf. Compared to the U.S., Kazakhstan has 1.5 times as much oil reserves and over three times the natural gas reserves.

The Kashagan Experiment

Much of the more than 30 billion barrels of oil reserves are located in the western portion of the country around the coastline of the Caspian Sea. The world's largest oil discovery in the past decade was made in 2000 in the northern portion of the Caspian Sea, in the shallow-water Kashagan oil field, with original oil-in-place reported to be 38 billion barrels.

Reserves, based on pressure maintenance through gas injection, are estimated to be 13 billion barrels of light crude oil of 42-45 degrees API. The field covers an...