The Kazakh government has decided in favour of imposing a customs duty on oil exports worth $109.91 a tonne. The oil export duty was calculated taking into account the average world price of crude oil in the first quarter of 2008 which stood at $714.9 a tonne, and is bound to change with a change in the oil price.

The export duty will be imposed by 8 May 2008. The Kazakh government has been considering the issue of imposing the oil export duty for several months now.

With the help of the duty, it wants to limit oil exports and regulate domestic prices of petroleum products. It also expects to increase budget revenue from the oil sector – in fact; the export duty will make it possible to increase budget revenue by over $1bn. As the Kazakh economy is slowing down and is facing liquidity problems, the country’s authorities are thinking about reaping benefits from Kazakhstan’s most important industry and boosting the National Fund, which has already accumulated $23.122bn.

The oil export duty would not affect companies which have signed production sharing agreements with the Kazakh government (this concerns mainly foreign companies) but will affect KazMunayGaz (KMG) which does not have a stable tax regime specified in its contract. KMG opposed the oil export duty because the move will substantially cut its profits.

The new oil export duty will be applied to all newcomers to the Kazakh oil and gas sector, since Kazakhstan intends to abandon the practice of production sharing agreements. However, the Kazakh government is not worried about possible negative impacts on the country’s investment climate because it cites the example of Russia, where the export duty is $340 a tonne and it is steadily growing because it is pegged to the world oil price.