Kazakhstan has initiated legal proceedings against Western oil companies with contracts signed several decades ago. Although the proceedings in international arbitration are held behind closed doors, leaks indicate that Kazakhstan accuses foreigners of bribing local officials to gain access to oil fields. The agreements between the parties remain opaque, as reported by Azattyq Asia.
At the end of January, Kazakhstan learned of a decision from international arbitration that recognized its position in the dispute over Karachaganak, one of the three largest oil and gas fields in the country alongside Tengiz and Kashagan, which account for two-thirds of Kazakhstan's hydrocarbon production.
Energy Minister Erlan Akkenzhenov reported on the progress of the proceedings, noting that it is taking place in a "strictly confidential mode" without any "collusion"; however, details, including amounts and wording of the decision, are not disclosed.
According to leaks from Bloomberg and Reuters, the arbitration partially satisfied Kazakhstan's claims and opened the way for compensation of up to $4 billion. Kazakhstan presented as evidence materials from a 2017 corruption case in Italy, related to contractors' admissions of bribing Kazakh officials for the Karachaganak and Kashagan projects.
Kazakhstan is also continuing legal proceedings regarding Kashagan, with claims amounting to up to $160 billion, which is nearly half of the country's GDP. The British company Shell has suspended its investments in Kazakh projects, while the Chinese CITIC has entered discussions regarding a gas processing plant at Karachaganak. These events indicate a shift in the terms of oil and gas contracts under the scrutiny of the international community and neighboring countries such as Russia and China.
REASONS FOR KAZAKHSTAN'S ARBITRATION
The Karachaganak field, located in the West Kazakhstan region, is one of the country's most important assets, generating significant revenue for the budget. The field is developed by the Karachaganak Petroleum Operating B.V. consortium, which includes companies such as Shell, Eni, Chevron, Lukoil, and KazMunayGas. The production sharing agreement signed in 1997 is valid until 2037.
According to this agreement, all extracted products belong to Kazakhstan, while investors recover their costs and earn profits through a share in hydrocarbons. However, the terms of the agreement remain closed, despite public demands for transparency.
Disputes over Karachaganak are not new. In the late 2000s, Kazakhstan managed to secure a 10% stake in the project for KazMunayGas, and in 2020, the parties agreed to amend the production sharing formula and paid approximately $1.3 billion to Kazakhstan.
In 2023, Kazakhstan again turned to arbitration when the authorized company PSA, led by the president's nephew Beket Izbastin, filed a lawsuit against KPO shareholders, disputing some expenses that the consortium classified as "reimbursable." These claims involve unapproved overruns and other costs that Kazakhstan believes should not be covered by the budget.
According to Bloomberg, oil companies may be required to pay Kazakhstan up to $4 billion.
Analysts point out that Kazakhstan seeks to revise the existing practice of determining reimbursable expenses, which could change the ratio of state revenues to company profits.
Expert Askar Ismailov highlights several reasons why Kazakhstan initiated the dispute:
One way to increase budget revenues may be to revise reimbursable costs.
— The main reason is the decline in revenues from the oil and gas sector. Investments have decreased, and this is happening against the backdrop of the president's directive to double GDP by 2029. Revising reimbursable costs may be one of the solutions. Even if we do not talk about direct revenues, it is also related to reducing reimbursement costs, which is critical. The arbitration may take time, but it is necessary to work on all fronts. There has long been discussion in industry circles about inflated costs presented to Kazakhstan, and this is not new; it’s just that these issues have not been raised publicly before.
Another important reason for the dispute, as noted by researcher Rasul Kospanov, is the change in leadership in Kazakhstan. The current leadership is not tied to the "oil compromises" of the 1990s, and for them, revising approaches to subsoil use is not only a matter of revenue but also proof of political subjectivity and strengthening economic sovereignty.
RESPONSE OF THE PARTIES TO THE DISPUTE
Kazakh authorities confirm the fact of arbitration but do not disclose its details. Erlan Akkenzhenov noted that the proceedings are taking place in a "strictly confidential mode."
— We have heard that Kazakhstan has been awarded between $2 and $4 billion, and this is encouraging news. We have good chances, — said Akkenzhenov.
Beket Izbastin, head of PSA, also does not comment on disputes with oil companies, emphasizing that the issues accumulated over the years require resolution.
The Italian company Eni refrains from commenting until a final decision is made, as any disseminated data is speculative.
The British Shell announced a suspension of new investments in Kazakhstan until legal risks are clarified. The head of the company, Wael Sawan, noted that this affects the desire to invest in Kazakhstan, although there are many potential opportunities.
Askar Ismailov believes that Shell's statement signals an increased legal risk for Western investors.
— This does not necessarily mean an immediate exit, but it may be an attempt to establish a position and lower expectations for future projects. The company has alternative investment options, and after Shell's statements, the British ambassador visited Kazakhstan. This may indicate that not only new projects were discussed but also arbitration issues, — Ismailov believes.
ALLEGATIONS OF BRIBERY DURING THE PROCESS
According to Bloomberg and Reuters, international arbitration in London confirmed the legitimacy of Kazakhstan's claims: some of the costs claimed for reimbursement by the consortium did not comply with the terms of the agreement and should not be covered by the state. Potential compensation is estimated at $2 to $4 billion, but the final amount has yet to be determined and may be subject to further discussions.
— It should be noted that this "victory" is not an official statement but a leak to the media. Therefore, it is premature to talk about any benefits for Kazakhstan at this time, — emphasizes Ismailov. — If arbitration sided with Kazakhstan, it likely concerns how to account for reimbursable costs. We hope this will allow for the disclosure of all budget items. This will lead to discussions about unreimbursable costs amounting to $2 to $4 billion. However, we do not know what is being discussed in arbitration; for now, it is only fragmented information.
According to Reuters, arbitration confirmed that Kazakhstan acknowledges that in the past the country "suffered from corruption and kleptocracy." It is also mentioned that Kazakh officials were bribed to approve expenses that were not subject to reimbursement.
Kazakhstan referred to materials from Italian criminal cases in 2017, when contractors admitted to bribing Kazakh officials to obtain contracts and approve inflated costs for the Karachaganak and Kashagan projects.
— These documents present a scheme whereby subcontractors paid Kazakh officials for approving inflated costs and some false invoices for fictitious work, — reports Reuters.
Although details of the Italian case are not available, the consortium of investigative journalists ICIJ mentioned businessman Agostino Bianchi in its series "Caspian Conspiracies," who in 2017 pleaded guilty to bribing three Kazakh officials. Among them was the son-in-law of former president Timur Kulibayev, who reportedly used the funds to purchase expensive real estate in the UK. Kulibayev's lawyers claimed that their client "never engaged in bribery."
According to ICIJ materials, Bianchi bribed officials to obtain contracts that brought him a profit of $7 million. He had illegal funds confiscated and received a 16-month sentence with a deferred execution. Kulibayev has not been charged, and his lawyers claimed that he was unaware of the dealings and denied receiving bribes.
Askar Ismailov emphasizes that for arbitration, this is a special type of evidence:
— This is a rare case where courts take such evidence seriously. Contractors' admissions of bribing Kazakh officials are used to confirm that some decisions on contracts and costs were made in a corrupt environment. If costs were "approved" through bribery, Kazakhstan has an argument that these amounts should not be covered by the state. It is important for Kazakhstan to present evidence with names and surnames; otherwise, arbitration may perceive it as manipulation, which could lead to negative consequences, — says the expert.
Nevertheless, Ismailov notes that allegations of past corruption do not imply a decrease in its level at present.
— Systemic changes are not yet observed. The judicial system operates under "old" rules, and reforms have not been conducted. It is too early to expect a decrease in corruption. Kazakhstan has not only failed to improve its position in corruption rankings but also ranked 96th out of 182 countries in the 2025 Corruption Perceptions Index from Transparency International, — emphasized the expert. — Since projects operate under production sharing agreements, a reduction in corruption is only possible with continued work within the country. This includes strict procurement rules, transparent technical audits, accountability for cost approvals, and independent oversight.
CLAIMS REGARDING KASHAGAN AND SEARCHING FOR NEW PATHS
During cooperation, Kazakhstan also had claims against the consortium developing the Kashagan field.
According to Bloomberg, Kazakhstan's lawsuit against the Kashagan operator North Caspian Operating Company (NCOC) amounts to $160 billion — this is four and a half times the country's annual budget. These claims make this dispute one of the largest in the history of international arbitration in the energy sector.
Kazakhstan disputes both the structure of expenses claimed for reimbursement and the economics of the agreement, according to which a significant portion of revenues went to compensate investor costs, as well as discussing delays in startup and mechanisms for calculating shares.
The process regarding Kashagan continues separately, and the timeline for its completion remains uncertain, with the possibility of dragging on until 2028.
Kazakhstan is also engaged in legal proceedings with NCOC domestically. The company was previously fined 2.3 trillion tenge ($4.6 billion) for exceeding sulfur disposal norms, a byproduct of production.
A year ago, the operator of Karachaganak was also fined 739 million tenge for environmental pollution.
Kazakhstan was unable to reach an agreement with Eni and Shell regarding the construction of a gas processing plant at Karachaganak, as investors requested an increase in project costs from $3.5 billion to $6 billion and coverage of additional expenses of about $1 billion. The Ministry of Energy of Kazakhstan rejected these demands, and the new proposed partner for the project became the Chinese CITIC. This decision may be reconsidered.
— Kazakhstan is seeking its own development path, which depends on many factors, including the geopolitical situation. For example, Chevron is also involved in the Karachaganak project. Would Kazakhstan want to spoil relations with the US? Unlikely. The question of how ready Kazakhstan is to worsen relations with the EU is also of interest, — says Ismailov. — We observe how Western players are leaving oil and gas projects, as happened in neighboring Azerbaijan, where companies Total, Equinor, and Engie were replaced by TPAO and Petronas. Chinese investors have also significantly intensified their activities in Kazakhstan, which raises concerns for the Trump administration.
Currently, there is no information about new claims from Kazakhstan regarding agreements on Tengiz, another significant oil and gas field. Previously, a scandal erupted in the US related to bribing high-ranking Kazakh officials for access to Tengiz, when Nazarbayev's advisor James Giffen acted as an intermediary in the bribery. Giffen pleaded guilty to a minor tax violation and was fined $25, while Nazarbayev was not held accountable.
More than 15 years have passed since then, and Kazakhstan openly states its intentions to revise contracts signed in the early years of independence. At a government meeting in 2025, Tokayev noted that the production sharing agreements signed under his predecessor made Kazakhstan a reliable supplier of hydrocarbons, but now the government must "activate negotiations to extend the PSA contracts on more favorable terms."
According to expert Askar Ismailov, the next 2–3 years will show in which direction Kazakhstan is moving, and the results of arbitrations regarding Karachaganak and Kashagan will significantly influence this process.
The post "The country 'suffered from corruption and kleptocracy.' Why Kazakhstan seeks to revise contracts from the Nazarbayev era" first appeared on K-News.
