Targeting of International Oil and Gas Company Raises Concern Over Kazakh Investment Climate

By The Stans Watch, PRNE
Monday, March 28, 2011

ALMATY, Kazakhstan, March 29, 2011 - Concern is brewing amongst the international business community in
Kazakhstan around the treatment of Tristan Oil, an oil and gas business.

In an unprecedented move, the Prime Minister, together with the Minister
of Energy, went to the headquarters of this privately owned business and told
the staff they would be nationalizing the company.

The Ministry submitted formal notifications to Tristan Oil's two
operating companies, Kazpolmunay (KPM) and Tolkynneftegaz (TNG), stating that
it had cancelled their subsoil use contracts with respect to certain Kazakh
oil fields.

These assets have now been expropriated with no proper legal foundation
and the assets are now in the temporary custody of KazMunaiGaz, the
state-owned oil and gas company.

Local business sources believe that the cancellation of these contracts
is the final step in a systematic campaign waged by the Kazakh authorities in
2008 to illegally expropriate KPM and TNG's assets and the investments made
by their stakeholders in Kazakhstan.

The Kazakhstan Government has now alienated the international bond
holders by choosing not to pay interest on the Company's $420 million
Eurobonds. When the company was privately owned the company made all payments
on their Eurobonds and never defaulted. Legally it would appear the onus is
now on the Kazakh Government to honour the coupon to the bond holders.

The memorandum for the Tristan bonds specifically states that the change
of control of these oil fields constitutes a change of control for the
company, at which point a put option is triggered.

Restructuring an oil and gas business is not comparable with
restructuring a financial institution; there are tangible assets with revenue
streams in place with the capacity to honour all financial commitments.

This move from the Kazakhstan Government at odds with the country's
ambition to return to the international debt markets, at time when they need
to demonstrate they are running a clean and stable ship.

The potential default on these bonds will hit the willingness of
investors to lend to any non state owned company in Kazakhstan, a number of
whom are listed in London.

Kazakhstan's Government has invested significant time over the last four
years in trying to regain the trust of foreign investors. The country's
financial institutions are expected back in the international debt capital
markets over the next six months to a year.

Although emerging market investors were burnt by Kazakhstan bank bonds,
towards the end of the restructuring process bondholders were considered to
have been treated fairly through great efforts on the part of the Kazakhstan
government. This new move will be an important consideration in the future
evaluation of corporate risk in the country.

Taking into account concerns about the current political situation, with
early re-elections and a cancelled referendum, all efforts should be made to
allay international perceptions that this is an increasingly authoritarian
regime and a less than favourable destination for international investment.

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