Kazakhstan at tribunal seeking billions from oil majors cited corrupt officials, sources say

Kazakh officials accepted bribes to approve billions of ‌dollars of costs incurred by top oil companies at one of its giant fields, representatives of the government said in a confidential arbitration case it won in Sweden, two sources familiar with the matter told Reuters. The government is seeking to recover up to $4 billion paid to the ⁠companies mostly under the country's previous president, Nursultan Nazarbayev.

Kazakh officials accepted bribes to approve billions of ‌dollars of costs incurred by top oil companies at one of its giant fields, representatives of the government said in a confidential arbitration case it won in Sweden, two sources familiar with the matter told Reuters.

The government is seeking to recover up to $4 billion paid to the ⁠companies mostly under the country's previous president, Nursultan Nazarbayev. In the international arbitration, Kazakhstan is disputing billions in costs billed between 2010 and 2020 by a consortium involving Shell, Italy's Eni, U.S. major Chevron, Russia's Lukoil and state-owned Kazmunaygas, which jointly developed the Karachaganak gas condensate field.

In a confidential ruling on January 20, the tribunal in Stockholm ruled in Kazakhstan's favour on a host of disputed costs, the ​sources said. A final award, expected later this year, will calculate how much Kazakhstan is owed. A government source said the award was expected to total between $2 billion and $4 billion.

On Wednesday ‍Kazakhstan's energy minister called the legal victory "very good and very encouraging news". A spokesperson for the government did not immediately respond to a request for comment on details of the ruling.

"We are not able to comment on the arbitration until a final decision is made and until such time, any figures circulating are speculative," an Eni spokesperson said. The Karachaganak Petroleum Operating consortium, Chevron, Shell and Kazmunaygas declined to comment. Lukoil did not respond to a request for comment.

'CORRUPTION ⁠AND KLEPTOCRACY' IN ‌NAZARBAYEV ERA The tribunal noted in its written ⁠decision that Kazakhstan admitted it tolerated "corruption and kleptocracy" until 2022. It argued that Kazakh officials were bribed into approving costs on Karachaganak that should not have been subject to government reimbursement, a source familiar with the ruling said.

Former president ‍Nazarbayev ruled until 2019 but retained some posts which he was stripped of in 2022 after hundreds were killed in an outbreak of nationwide unrest. Several of Nazarbayev's relatives were then sacked from prominent positions in government ​and state companies.

Lawyers for Kazakhstan in the ongoing arbitration presented documents obtained from criminal proceedings in Italy, where several Italian contractors pleaded guilty in 2017 to bribing Kazakh officials ⁠to obtain work on Karachaganak and the offshore Kashagan oilfield, the sources said. Those documents laid out a scheme by which subcontractors then paid Kazakh officials to approve inflated costs and in some cases, false billings for fictitious work.

LAWSUITS MULTIPLY ACROSS US, ⁠SWEDEN AND SWITZERLAND Kazakhstan is using the same Italian documents in a separate civil lawsuit in Geneva, where it is seeking to recover what it claims are ill-gotten gains from contractors on Karachaganak and Kashagan kept in Swiss banks, according to legal documents reviewed by Reuters.

Lawyers for the government have also filed cases in the U.S. to obtain evidence from a former executive ⁠at Eni and Kazmunaygas they claim had knowledge of the corrupt schemes to inflate contracts. Kazakhstan has clashed for years with international oil companies over costs, bringing multi-billion-dollar claims against them.

In 2023 it ⁠filed two arbitration cases in Stockholm and Geneva, disputing ‌costs of about $3.5 billion for Karachaganak and more than $13 billion for Kashagan. International oil companies have settled previous disputes with Kazakhstan by allowing the country to take a larger ownership stake in the projects, notably a 10% share in Karachaganak in 2011 and an 8% stake in Kashagan ⁠in 2008.

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