Wednesday, November 24, 2010

Kazakhstan: International Leaders Urged to Address Kazakhstan's 'Resource Nationalism'

CHISINAU, Republic of Moldova, November 23, 2010 /PRNewswire/ --

- Illegal Expropriation of Energy Assets is a Red Flag for the International Community's Dealings With Kazakh Government

Ascom S.A. ('Ascom'), the international oil and gas exploration group, today called on international leaders attending the Organization of Security and Cooperation in Europe Summit on the 1 -2 December in Astana, Kazakhstan, to raise concerns about Kazakhstan's ongoing 'resource nationalism'.

40 Heads of State will be attending the summit, including Russian President Dmitri Medvedev, German Chancellor Angela Merkel and French President Nicolas Sarkozy. Also in attendance will be the UN Secretary General Bank Ki-Moon, the Chairman of the European Union Jose Manuel Barroso and the US Secretary of State Hillary Clinton.

In September 2010, Ascom announced it had taken the Government of Kazakhstan to court in Stockholm following the illegal expropriation of its investments in Kazakhstan, in direct contravention of the international Energy Charter Treaty.

Ascom's subsidiary, Tristan Oil, invested over $1billion over a ten year period in Kazakhstan, but was subjected to a systematic campaign of harassment by the Kazakh State from 2008. This culminated with the abrupt cancellation of the Subsoil Use Contracts held by Ascom's local operating companies and the illegal seizure of its Kazakh assets in July 2010. These assets are now being operated by state-owned KazMunaiGas.

Ascom believes that this trend should be of concern to other investors, international businesses and oil companies, such as ExxonMobil, Royal Dutch Shell, BP, Chevron Corporation, ConocoPhillips and Total S.A., operating in Kazakhstan.


Artur Lungu, Chief Financial Officer of Tristan Oil and Commercial Vice President of Ascom, said

"The Kazakh Government's authority and legitimacy to participate in international affairs continues to be severely undermined by its ongoing illegal expropriation of energy assets and flouting of its own laws, such as we have experienced. This is to the long-term detriment of its reputation with international investors, business and governments, the international rule of law and its economic development.

"For the Heads of State from over 40 countries to attend this summit and not discuss the very real concerns about the direction of the country, would be an opportunity missed. If Kazakhstan wants to be seen as a key participant in international affairs and attract foreign investment, then it must provide assurances to the international community that it will abide by the rule of law.

"We would urge any businesses thinking of operating in Kazakhstan to consider carefully the illegal expropriation of our investment of over $1bn over ten years."

Ascom has been operating in Kazakhstan since 1999, when it acquired its interests in the Borankol field and Tolkyn field from private Kazakh companies. Over the past ten years, it has invested approximately US$990 million (as of 31 March 2010) in exploration and development. These investments were partly funded through international bond offerings in 2006, 2007 and 2009, when Ascom's subsidiary Tristan Oil Ltd. ("Tristan Oil") sold US$531million of bonds to international institutional investors. These bonds, which are held by many blue-chip international investors, were due to mature in 2012 and are secured against the oil fields that have now been expropriated.

Prior to Ascom's programme of exploration and investment, the Borankol and Tolkyn fields were considered by many to be unprospective. Following its programme of investment, by 2008 Ascom had approximately 100 operational wells in the two fields, with approximately 80 of those producing 56,000 boed per day on average. To support these operations, Ascom had also constructed significant oil field infrastructure - including investing US$245 million in a Liquid Petroleum Gas plant that when completed would have had a processing capacity of 7 million cubic metres of gas per day.

In addition to steadily increasing production at those fields, Ascom made a significant find in its Tabyl Block in July 2008 and declared the geological discovery of oil and gas fields on the Munaibay and Bahyt structures of the Tabyl Block in March 2009. In September 2008, Ascom received seven non-binding offers to purchase its fields, including one from KazMunaiGas, in the first phase of a formally conducted trade sale process. After reviewing the preliminary non-binding offers, Ascom decided to further engage in negotiations with the most competitive bidders in an effort to acquire binding offers and complete the trade sale process.

Subsequently, a systematic campaign of harassment and illegal treatment of Ascom arose - believed to have been triggered in part by a letter from Vladimir Voronin, former communist President of Moldova, to President Nursultan Nazarbayev of Kazakhstan on the 6 October 2008. The letter, widely reported by the international media, made a number of false and defamatory accusations against Anatol Stati, founder and owner of Ascom.

The Kazakh Government's campaign of harassment against, and illegal treatment of, Ascom's Kazakh investments, has included:

    - Imposition of unfounded criminal fines and tax assessments
of more than USD 220 million

- Conviction and jailing of Mr Cornegruta, the General Manager
of KPM, on trumped up criminal charges

- Arresting of physical assets, bank accounts and equity
interests of the company

- Blocking further exploration and development, and preventing
daily operations

- Stalling completion of the LPG plant

- Interfering with Ascom's attempts to sell its investments
and ultimately blocking a negotiated sale

- Asserting spurious violations of the Subsoil Use Contracts
and subsequently wrongfully revoking these Contracts

- Seizing operational control of Ascom's investments and
turning these over to Kazakhstan's State-owned KazMunaiGas

An example of the unfounded nature of the allegations brought against Ascom and its subsidiaries can be seen in the prosecution of KPM's General Manager, Mr Cornegruta, who was arrested in April 2009 on false charges of being an 'entrepreneur' and operating a 'main' or 'trunk' pipeline without a license.

The alleged main pipeline in the case is part of Ascom's gathering system, and transports oil to the Uzen-Atyrau-Samara main oil pipeline. Ascom secured seven independent expert witnesses to attest that this was not a main pipeline - these were ignored by the Court in favour of a single expert opinion generated by an employee of the Ministry of Justice with no oil and gas experience.

In addition to there being no main pipeline, under Kazakh law Mr Cornegruta cannot be considered an entrepreneur (a specific legal classification) as he was neither registered as an entrepreneur or the owner of the company, and is a salaried employee. These facts were disregarded by the Kazakh Court and he was sentenced to a four year jail term, while KPM was ordered to pay to the Republic of Kazakhstan approximately US$145 million in fines. Mr Cornegruta served 18 months of a four year sentence.

Ascom believes the Kazakh government's actions are in clear and direct violation of the Energy Charter Treaty and has submitted a claim under the Treaty to the Arbitration Institute of the Stockholm Chamber of Commerce.

Additional information can be found at

This press release is for informational purposes only. It does not constitute a solicitation of consents.

Certain statements in this press release constitute forward-looking statements or statements which may be deemed or construed to be forward-looking statements, including without limitations, statements about the anticipated completion of the transactions contemplated herein or the timing thereof. These forward-looking statements involve and are subject to known and unknown risks, uncertainties and other factors which could cause actual results, timing, performance, or achievements to materially differ from the future results, timing, performance, or achievements expressed or implied by forward-looking statements. Although the Company believes the expectations reflected in its forward-looking statements are reasonable and are based on reasonable assumptions, no assurance can be given that these assumptions are accurate or that these expectations will be achieved or will prove to have been correct. Moreover, the Company's forward-looking statements may be affected by known and unknown risks, events or circumstances that may be outside the Company's control.