Republic of Kazakhstan Foreign Investors Council

By Peter J. Robertson, Vice Chairman
ChevronTexaco Corporation

Astana, Kazakhstan, Jun. 05, 2003

President Nazarbayev and fellow members of the Foreign Investment Council, thank you for the opportunity to speak to you today and for everyone's continued support and interest in keeping the economy of Kazakhstan healthy and vibrant. I would also like to thank you, Mr. President, for your active participation in these meetings and for choosing the beautiful setting of Borovoe to hold this session.

The creation of this council clearly demonstrates the Republic of Kazakhstan understands that successful economies actively encourage foreign capital, technology and business acumen as a means of increasing their economic prosperity. It is at forums like these where ideas are shared, challenges are better understood and sometimes even resolved.

As I travel to the many countries where we operate (about 180 countries at last count), forums and discussions such as this one are often lacking. So it's of no real surprise that the Republic of Kazakhstan has a leading and enviable record of economic growth.

For ChevronTexaco, these sessions are very beneficial for the simple reason that we know the Republic of Kazakhstan is listening — and I mean really listening — to the concerns of private companies and investors. And on those occasions when this may not be so clear, we always work out a mutually beneficial solution to our concerns.

This year, ChevronTexaco is celebrating 10 years of partnership and investment in Kazakhstan. In my remarks today, I would like to reflect upon our 10-year journey and some of the lessons we have learned together.

As many of you know, ChevronTexaco became involved in Tengiz a few months after Kazakhstan declared its independence but before it had a flag, a viable judicial system or a clear tax policy. There were no banks or independent currency and no system of regulations to govern a potentially dynamic energy industry. Both ChevronTexaco and the Republic of Kazakhstan kept our long-term view and focused on our vision of success.

We never wavered, not even when oil prices collapsed and the regional economy faced a major crisis in 1998. That was a real test of our resolve.

Today, Tengiz has grown from a daily production rate of 60,000 to 285,000 barrels of oil – together with a remarkable safety and environmental record. And ChevronTexaco remains focused on the future, because we intend to keep growing as evidenced by multibillion dollar expansions at both Tengiz and Karachaganak.

ChevronTexaco has invested just over $4 billion in the Republic of Kazakhstan, with about $3 billion more additional investment presently planned. This alone speaks very positively on the investment climate in Kazakhstan, but this did not happen overnight. It took patience, persistence and understanding from the government and ChevronTexaco to make it work.

That brings me to my first lesson learned: The business environment in the Caspian region must be approached with a long-term view and requires an even-handed approach by government, working with its partners, to encourage investment and promote the national interest.

Recently, this was tested at Tengizchevroil. While we are pleased to say we reached an agreement and are expanding our project, it was a difficult time in our partnership with Kazakhstan. We do not want this situation to occur again, and I'm pleased to say that we are jointly developing a process that will help us avoid this type of impasse in the future.

The second lesson learned is: Keep striving toward the highest international standards of business practices and work hard to develop and encourage economic reforms.

Compared with the early 1990s, both government and foreign companies are much more civil and sophisticated in dealing with each other. Before, more often than not, it was conflict, challenge and confrontation, and progress was slow. The climate today is far more cooperative and compatible. This has come from learning on both sides, from respecting differing ideas, building partnerships, listening and working together on economic reforms.

Standards have improved immensely. In Kazakhstan, economic and governing systems have been put in place so that the country can control its destiny and investors can feel secure.

Transparency in the awarding of contracts and procurement policies to select the best suppliers at the best price are improving, as is the speed of getting permits.

Training and development of local people are yielding excellent results. And companies are being held to a higher standard for protecting the environment, creating jobs and maximizing local content. A good deal of progress has been made, though we still have a way to go.

In some quarters, contract sanctity is an issue. Legal, regulatory and tax frameworks are still in their infancy, and local governments are seeking a greater portion of economic benefits, all of which can erode project economics and ultimately reduce or even scare away investment.

Accession to the World Trade Organization (WTO) will help improve investor confidence in Kazakhstan. WTO agreements include country commitments to lower and eliminate trade barriers, to open markets and to make trade policies transparent where all members accept rules of the GATT and WTO as binding international law.

Kazakhstan's entry into the WTO will give a big boost to commercial activities and make foreign investment more appealing. It will also underline Kazakhstan's full-fledged membership in international trading and economic institutions.

Those realities lead to my third lesson learned, one that is critical to our ability to continue working in Kazakhstan and all Commonwealth of Independent States (CIS) countries: Local people need to participate in project benefits and see real progress from our activities.

When we first visited after the Soviet Union collapsed, Kazakhstan and the other states were materially depleted. There were empty stores and low spirits as new governments were formed. Today, lives are better, and the future holds promise.

People have seen for themselves the great gains that investment and partnership with world-class companies can bring:

  • Creation of jobs and economic impact: Our Tengiz and Karachaganak projects together with their contractors have supported more than 25,000 jobs, of which 80 percent are Kazakh. That's not only steady work for local people, but hope for the many young people currently in universities and institutes who want to stay in Kazakhstan and help build the country.
  • Financial payments to Kazakhstan through our projects: Those payments have totaled more than $3 billion since 1997. ChevronTexaco's projects contribute significantly to government revenues. Well into the future, much more revenue will flow to the Republic of Kazakhstan with our expansion.
  • Creation of a thriving local business sector: Since 1993, ChevronTexaco has spent over $2 billion on purchasing local goods and developing local service-providers who are now confident to bid on other energy projects. By actively working with local companies and supporting local people through training, development and community support, we are laying the foundation for the prosperity of future generations.

The government of Kazakhstan actively encourages our industry to place a high priority on the creation of local benefits. We believe ChevronTexaco and our partners have a good track record and have demonstrated a strong commitment to this goal. Indeed, in our own ways, we each have a shared responsibility to ensure the benefits created help support the overall growth and development of the country and its people.

Successes like these help keep projects like TCO, the Caspian Pipeline Consortium and Karachaganak going. Successes like these help keep government revenues flowing, employment high and people optimistic about the future. These projects are tangible proof that Kazakhstan is a good and secure place to make investments, and these projects are powerful signals to the marketplace that investments in other projects like Kashagan and offshore Caspian can be developed to their full potential.

My final lesson learned is the need for both government and industry to communicate success.

By each side telling our story as often as possible — even as we face problems together — we ensure that everyone knows both the challenges and opportunities in Kazakhstan. And communicating success is especially important for investors, who, while positive about the overall future of the country, are also anxious. Demonstrating our achievements can help allay these fears and pave the way for additional investment.

Looking back over the last 10 years, ChevronTexaco's experience in Kazakhstan has been positive. Kazakhstan is blessed with an abundance of natural and human resources, and the government has made progress in creating a positive investment climate.

Mr. President, first you demonstrated real commitment to change. This was followed by tangible reforms to government policies, laws and everyday practices that attracted significant capital and technology. This helped develop new jobs and additional revenue and created positive economic change in various regions of the country and a momentum that was encouraged by further reforms and progress. And that pace for positive change and real economic growth continues despite the occasional temptation to push too far and too fast.

Today, more than ever, successful projects are built upon a foundation of mutual trust, understanding and partnership — where people work together focused on common goals to create value.

Nowhere is this more apparent than in the energy business, where there are high risks and long lead times and where financial capital, technology, human resources and business acumen are necessary prerequisites.

Nowadays, no one company or government can go it alone. We need each other as partners, building on our collective resources, knowledge and experience to achieve success. I am excited about the potential of our continued partnership in Kazakhstan.

If this sounds a little too optimistic, I make no apology. I truly believe that, with a strong commitment to cooperation and understanding, economic prosperity will follow. I also believe that together we can surpass the success of the last 10 years and help build an even more prosperous future together.

Mr. President, let me thank you again for your personal interest in the matters of this council. I offer my sincere appreciation and support for the leadership you bring to this council and to your country.

I wish you and all the people of Kazakhstan continued growth and prosperity. Thank you.

Updated: June 2003