Romano Prodi, Italy’s prime minister, is off to Kazakhstan next week, apparently in an attempt to turn on the charm over Kashagan, the massive and deeply troubled oil project, where Eni of Italy is the under-performing operator. He might as well have a go; his sprinkling of diplomatic fairy dust has worked in the past, in Russia, for example. But Nursultan Nazarbayev and his allies are not going to get brought round with a side of prosciutto and a bottle of sambuca.

Mr Prodi’s problem is that the Kazakhs have really solid grounds for their grievances. Kashagan  has been horrendously delayed. First oil was originally due in 2005; now the consortium is aiming for the end of 2010, but some analysts see 2011 or 2012 as more realistic. That plus soaring costs, which the Eni-led group can recover from the oil the project produces, will have put back Kazakhstan’s payoff from this huge resource for the best part of a decade. True, the project faces awesome challenges, including the high levels of sulphur in the ground, but those challenges should have been better understood, and a more realistic development plan agreed between the consortium and the Kazakh government. When expectations are out of line, as they clearly were at Kashagan, resentment builds up and relationships break down.

Kazakhstan this week fined Chevron more than $600m for what seemed minor environmental infractions. While it has sounded rather more conciliatory on Kashagan in the past few days, Kazakhstan wants to show that it must be taken seriously. If Russia can do it, its leaders must think, then so can they.

Eni likes to talk the talk about partnerships and relationships with host countries, but it needs to walk the walk as well. At Kashagan, it failed to do that.

October 5th, 2007 in Central Asia | Permalink