by Nick Coleman

08-11-04

Picnicking with his family on a waste-strewn beach, Zhenya says the burgeoning oil industry on Kazakhstan's Caspian coast is making life harder for locals.
"You used to be able to catch herring from this beach, but not now," said Zhenya, 26, resident of a seashore village that has almost been swallowed by Kazakhstan's main oil port, Aktau. "Just a couple of months ago the beach was covered in oil - we've been told not to come here any more."

Periodic minor oil spills and the mysterious appearance of dead seals and swans along the coast have come to symbolize tensions around Kazakhstan's effort to become a top oil producer -- an effort in which Western firms are key. Beyond a largely inconclusive debate on the causes of recent ecological damage lie other concerns that oil may harm the economy of this vast former Soviet republic of 15 mm people.
For firms such as ChevronTexaco, ExxonMobil, Shell and Total, Kazakhstan is an answer to growing demand and to uncertainties about traditional oil-producing nations. Despite Kazakhstan's distance from world markets, they are attracted by possible export routes such as the Baku-Tbilisi-Ceyhan pipeline that is being built across the Caucasus and another being built from Kazakhstan to China.

New technology has helped cope with the high sulphur content of Kazakh oil and a consortium led by Italy's ENI has started building dozens of artificial islands to allow extraction from the mammoth Kashagan field, deep under the often icy Caspian. Observers predict that Kazakhstan will produce at least 3 mm bpd in around a decade.
Privately, Western firms blame recent environmental damage on mismanagement by smaller, locally run firms and on problems with leaky Soviet-era wells.
Vittorio Mincato, ENI’s CEO, has promised "the best skills and the most advanced (technology)... guaranteeing the utmost protection of the delicate ecosystem of the Caspian."

But such vows have not allayed public fears in Kazakhstan, which under authoritarianPresident Nursultan Nazarbayev lacks the checks and balances found in more democratic countries. Makhambet Khakimov, chairman of the Caspian Nature pressure group, says that oil drilling could set off both earthquakes and releases of deadly hydrogen sulphide gas.
"As a nationality we're being degraded -- we won't be able to have children," he said.
The US environment department, if more measured, is also down-beat. "Oil and gas production... will result in the construction of pipelines and infrastructure raising the possibility of loss of habitats for marine life as well as the spectre of accidental spills," it said recently.

Economists focus on the destabilizing effects of oil wealth, a problem sometimes known as "Dutch disease" or the "resource curse." Research suggests that oil money is inflating the value of the local currency -- hitting other sectors -- and is sucking talented people from other possible growth areas such as cattle farming.
Critics also question requirements that foreign oil firms use Kazakh sub-contractors and suppliers regardless of a shortfall of Kazakh expertise. Such rules stifle competition and may create companies that exist in name only, heightening corruption, they say.
Kazakhstan "can't productively absorb the money it's getting," an economist with a major international development institution said. "(Kazakhstan) is beginning to show signs of Dutch disease -- what you want is a system of governance and accountability that forces the system to correct any mistakes," he said.

Despite efforts by the Western firms to invest in local contractors and to restore local infrastructure and facilities, the public, much of it weighed down by poverty, seems sceptical.
"I've not heard of the oil companies helping us," said Zhenya, discarding his rubbish on the beach as he leads his wife and children home. "They make more mess than we do."

Source: Agence France-Presse