Authorities in Kazakhstan are preparing to resume efforts to impose a multibillion-dollar fine on the Eni and Shell-led operator of the country’s second-largest oilfield, Kashagan, after a local court annulled the original decision to penalize the company.
Kazakhstan fined the North Caspian Operating Company (NCOC) 2.3 trillion tenge in 2023, equivalent to about $5.4 billion at the time, for alleged environmental violations. The fine, which is now equivalent to about $4.4 billion following the devaluation of Kazakh tenge, has been contested during several rounds of legal battles over the last two years, The Caspian Post reports citing foreign media.
A ruling from Kazakhstan's Supreme Court in July this year ordered a new hearing after considering NCOC's latest appeal against the fine. That hearing, which took place earlier in August in an administrative court in Astana, annulled the original decision by Kazakhstan's environment and natural resources ministry to impose the penalty on NCOC.
However, the ministry said in a statement on Friday last week that the latest ruling does not “relieve NCOC from their liability for environmental violations”.
It argued that the court in Astana had identified unspecified “procedural shortcomings” in earlier rulings in the case rather than given its opinion on the fairness of the application of the environmental fine.
It added that the ministry is “currently working on eradicating these shortcomings” and, according to Kazakh law, it retains the “right to appeal” to have the fine reinstated via the Kazakh courts.
The fine centres around alleged violations discovered during an inspection of Kashagan's onshore oil and associated sour gas processing facilities near the town of Bolashak in 2022, when, according to the ministry, inspectors from its Atyrau regional department discovered an excess volume of elementary sulphur.
Poisonous nitrogen sulphide is removed from the stream of hydrocarbons pumped from Kashagan's offshore islands in the Caspian Sea at the Bolashak onshore processing facilities. During that process, which brings Kashagan oil to market specifications, elementary sulphur is produced.
One of the total of 10 alleged violations concerned excessive volumes of sulphur stockpiled in the open air near the Bolashak facilities, while another concerned NCOC’s alleged failure to cover the sulphur stockpiles to keep them secure and prevent sulphur from being dispersed by the wind.
According to court documents, NCOC was only given permission to stock 730,000 tonnes of sulphur, whereas the inspectors found more than 1.7 million tonnes in storage, according to Astana-based news outlet Kursiv.
A government official told Upstream that the 2023 decision by NCOC and its western shareholders to appeal the environmental fine in Kazakh courts, rather than work with environmental authorities, came as a surprise to authorities in Astana.
According to the official, authorities had no immediate plans to enforce payment of the fine on the field’s operator after it had been presented to NCOC, given the potential interruptions it would cause both the operator and the project - which is highly important to the country - as a result.
Instead, they expected NCOC to engage in talks with the environment and natural resources ministry and agree a mutually acceptable plan to reduce the volume of sulphur in storage, the official said.
The spokesperson for the environment and natural resources ministry told Upstream that the ministry had no further comment on the case.
Upstream has approached NCOC and Shell for comment. Eni told Upstream that the company does not comment on statements made by authorities.
Eni and Shell - along with TotalEnergies and ExxonMobil - each have a 16.8% stake in the Kashagan consortium, followed by China National Petroleum Corporation with an 8.4% shareholding and Japan's Inpex with 7.6%.
Kazakhstan state run oil and gas holding KazMunayGaz holds the remaining shares in the project.
