[Previous entry: "Quenching Mexico City's thirst"] [Next entry: "India, Iran, Pakistan's talks end with no deal on pipeline"]

03/18/2006:

"China Pays Dearly for Kazakhstan Oil"

ALMATY, Kazakhstan — China, which for more than a century turned its back on Central Asia, has reached out to Kazakhstan, Central Asia's biggest country, for one major reason: oil.

In 2005, the China National Petroleum Corporation bought Petrokazakhstan, a Canadian-run company that was the former Soviet Union's largest independent oil company, for $4.18 billion and spent another $700 million on a pipeline that will take the oil to the Chinese border.

Petrokazakhstan was the largest foreign purchase ever by a Chinese company, in this case a state-owned one. Chinese oil producers were already operating four smaller oil fields in Kazakhstan.

"China is being increasingly dependent on Middle East oil and it wants a supply that would be blockade-proof in case of a conflict over Taiwan," said Thierry Kellner, a specialist in China's relations with Central Asia at the Free University of Brussels.

But the Chinese are paying a high price.

Shortly after the sale, Kazakhstan forced the Chinese company to resell a third of its new acquisition to KazMunaiGaz, the state oil company and industry regulator — and be paid in future revenue. A spokesman for KazMunaiGaz, Mikhail Dorofeyev, has said the deal is expected to be completed by the end of March.

Kazakhstan authorities are also believed to be easing the way for Lukoil of Russia to acquire the other half of Turgai Petroleum, which it now jointly owns with Petrokazakhstan. In addition, a local court recently awarded Lukoil a $200 million judgment against Petrokazakhstan in a dispute over how to share the oil in a common deposit. Both developments are unmistakable signals that Chinese ownership is no guarantee of a smooth ride.
nytimes.com