EBRD’s renewables drive in Kazakhstan overshadowed by consistent fossil fuels support

At the beginning of this year, doubtless with an eye on its annual meeting in Astana, the EBRD stated that its goal for development in Kazakhstan was to “promote economic diversification and move towards a more sustainable model of financial development.” The EBRD also states that it is committed to providing resources to promote energy efficiency and renewable energy projects throughout the region, including in Kazakhstan. In March 2011, the EBRD duly announced an initiative to support a renewable energy financing facility in the country – the facility would “provide the Bank an instrument to extend financing for renewable energy projects” in the country. The EBRD investment for this new initiative is EUR 50 million.

However, the EBRD’s penchant for funding oil and gas related projects was evident through its investments in Kazakhstan during the past year. Despite claims to be committed to investing in renewable energy projects, in 2010 and 2011, the EBRD continued to provide significant financial support to oil and gas development in Kazakhstan. For instance, the EBRD decided to provide USD 10 million to Zhanros Drilling LLP, an oil services company providing services to oil and gas companies in the Kyzyl Orda region of Kazakhstan. The bank stated that it wanted to invest in the private sector and modernised equipment at the drilling services company.

In the period the institution has provided funding to three new projects in the oil and gas sector, building on its years of financial support to projects related to the enormous offshore Kashagan oil field. The EBRD underscored the importance of supporting private enterprise as a reason for providing loans approaching USD 100 million in the hydrocarbon sector.

Only two of these projects are catalogued in the natural resources portfolio of the bank; one project was catalogued with transportation projects, a strategy the EBRD has used in previous years when it supported other projects that directly benefited the Kashagan field, a massive offshore oil field in the fragile north Caspian Sea, which is fraught with environmental, social, economic and technical problems that have slowed its development.

One of the largest fields in the world, Kashagan is located off the coast of Kazakhstan, in shallow water that is home to endangered sturgeon and the Caspian seal. Although production of the first phase of the project was originally slated to start in 2010, repeated setbacks have slowed down development of the field, which is now set to begin commercial production in 2012. In February 2011, Sauat Mybayev, the Kazakhstani Oil and Gas Minister said that the second phase of the project would be postponed indefinitely, stating in the media: “We are not about to approve a phase that is inefficient from an economic point of view”.

Kashagan also threatens communities in Kazakhstan through associated projects such as pipelines from the offshore site to the Bolashak oil refinery built outside of Atyrau, and the refinery itself. The EBRD has not directly financed the Kashagan Field, but it has repeatedly financed ‘support’ projects to Kashagan, contributing to the overall financial viability of the project, without directly bearing the responsibility for the activity at the field.

Investments to support Kashagan and other oil development in western Kazakhstan

The EBRD has provided USD 8 million in loans to the joint venture RauanNalco, comprised of Kazakhstan’s RauanMunaiKhim and the US Nalco Company, to develop chemicals to aid in the development of the Kashagan field. RauanNalco is based in Atyrau, near the Caspian Sea in western Kazakhstan. The EBRD loan is to be used to support expansion of the company’s facility and to build a new ‘blending’ plant, which will have the capacity to produce 9400 tons of specialty chemicals per year.

According to the EBRD’s press release about the planned investment, as production at the Kashagan and other fields “ramps up”, specific chemicals will be needed in the refining process; approximately 90 chemicals are necessary for the extraction and processing of oil and gas.

In 2010, the EBRD also provided a USD 65 million loan to the company Circle Maritime Invest (CMI) to supply three “shallow draft icebreaking tug boats” to provide off-shore support services to Agip KCO in Kazakhstan’s part of the Caspian Sea. According to the EBRD’s website, the boats will be used in “icebreaking management operations, as well as in towing, transportation, and rescue activities and other support services to the artificial islands (acting as oil platforms) constructed in the surrounding areas of the Kashagan oilfields.”

By categorising projects, like Circle Maritime Invest, as transportation projects rather than as oil and gas projects, the EBRD permits lower levels of categorisation within the bank, meaning that the projects are subject to less stringent environmental and social standards. And, by claiming that such a project falls within the transportation sector, the EBRD does not have to place the project into the energy and natural resources portfolio, lowering the overall investments in that category.

Previous investments related to Kashagan

The EBRD previously financed the Bautino Port, outside of Aktau, Kazakhstan, where ships supporting the development of the Kashagan Field are based. The port development also benefits transportation by tanker of Kazakh oil from Bautino to Baku (Azerbaijan) and other ports on the Caspian, including Makhachkala (Russia) and Neka (Iran). From Baku, oil is then piped west through the Baku-Tbilisi-Ceyhan Pipeline.

The EBRD’s investment in this project – also not included in its energy portfolio, but again in its transportation portfolio – amounts to USD 30 million, which was invested in separate loans. The first investment of EUR 12.9 million was made in 2006, when the EBRD provided a direct investment to the Bautino Atash Marine and Supply Base for construction of a “supply base catering to offshore oil operators”. It was followed by a second investment in 2008 in the amount of EUR 8.5 million, and a third in 2009, which provided an additional USD 18.6 million to “enable the company to complete the construction, equipment and placement into operation of a marine support and supply base in the bay of Bautino”. In addition, the EBRD provided a USD 10 million equity investment to Balykshi, the base operator at Bautino.

The EBRD’s steady financial investments into the support projects around Kashagan provides critical support to an investment that has been plagued with environmental and economic difficulties since the outset. The EBRD’s continued funding of a project that has so many questions attached to it gives pause: is this the best use of public funding?

What if the EBRD, instead of pouring money into projects related to Kashagan, placed that financing into its pool for renewable resources? To many NGO observers this would be a much wiser and financially more responsible investment than continued support for the hydrocarbon sector, particularly into a project as fraught with problems as Kashagan demonstrably is.

The EBRD’s practice of funding transportation projects associated with oil and gas investment in the region appears to be a region-wide approach. In Turkmenistan, where the EBRD is not directly funding projects in the hydrocarbon sector, it provided financing for the Turkmenbashi Port in the 1990s and appears – if its current strategy document for Turkmenistan is anything to go by – to be considering it as a potential project again. Following the EBRD’s review of its Turkmenistan country strategy in April 2010, the World Bank is considering a loan to the Turkmenbashi Port to upgrade its capacity. The World Bank’s documents state that the project aims to diversify the port’s usage, yet according to EU figures the overwhelming volume of product going through the port is oil and gas related. If the EBRD also decides to finance the Turkmenbashi Port, it will clearly be benefitting the oil and gas industry of Turkmenistan and enabling greater volumes of transport to Baku and Neka.

The EBRD, if it is serious about diversifying the economy of Kazakhstan, should, instead of continuing to pour resources into the hydrocarbon sector, put the resources it would invest into that sector into renewable and energy efficiency. From an economic, environmental and human rights perspective, this approach would be far more sound and in keeping with the provisions of the founding documents of the EBRD.

Kate Watters, Crude Accountability

Published in “Bankwatch Mail 48