Pipeline Regulation in Kazakhstan Homework Help

Discuss about  Pipeline Regulation in Kazakhstan…………..

 

Table of Contents

3 1. Introduction

4 2. Legal Regulation of Pipelines in the Republic of Kazakhstan

5 2.1 The Concept of a Pipeline in the Legislation of the Republic of Kazakhstan

7 2.2 Problems with regulation of Pipelines

103. Foreign Operation Management, Experience Related to Main Pipeline Transport

10 3.1 Pipeline Legislation of the CIS Countries

13 3.2 Pipeline Legislation for two Foreign Countries

16 4. Prospects for the Development of Main Pipelines in the Republic of   Kazakhstan

16  5 Conclusion

 

1. Introduction

The energy policies of Kazakhstan have been influenced by the existence of huge amounts of energy reserves in the country. This has made Kazakhstan have considerable amount of influence in as far as the energy supply of the world is concerned (Yuri, 2006). This should not be construed to imply that Kazakhstan is a superpower in the field of energy production and supply; rather the country is optimistic that it will play a big part in ensuring Asia’s energy security as well as meeting the energy needs of the European continent (Kuanysh, 2011). The demographics of the country have also favored the country as its geographical location is advantageous in its control lf the gas and oil flows to other strategic countries like Russia [which represents the global market] Central and East Asia. Kazakhstan is also a member of EU INOGATE [an energy programme] which is tasked with four main responsibilities:
a). To support development of sustainable energy
b). To attract investment [these investments are those related to enhancing of the energy projects] for the betterment of the regional interest.
c). To make sure that the region has got energy security
d). To converge the energy markets of the member states to incline to the standards set for the internal market of Europe’s energy provision.
Oil being an economy booster for the country, the government has made sure that the country capitalizes on the resource to further the economic needs of the country [most nations are taking a keen interest on the potential of Kazakhstan] (Evan & Mary, 2007). The government of Kazakhstan has involved itself in the development program referred to as CSDP [Caspian Sea Development Programme]. The Kazakhstan government has also passed important legislation in 2005 i.e. the PSA [Production Sharing Assessment], as well as introduction of a new tax structure that was put into force in the beginning of the year 2004. The taxes included progressive tax, which was structured to also appreciate as oil production increased and ‘rent tax’ which has been imposed on the exports from the country.
Clearly, it can be appreciated that the energy situation in Kazakhstan is relatively young; with legislations on oil and gas being affected in the current decade. This paper is going to look into the legal regulation of pipelines in Kazakhstan as well as look into the problems that that are associated with regulation of pipelines in Kazakhstan. In aIDition to this, the paper is also going to look into the foreign operations and the management of pipeline transport in the CIS countries [Russia and Belarus to specific] as well other foreign countries [German and Great Britain]. Before a comprehensive conclusion is reached at, the paper will also look into the prospects for the development of main pipelines in the republic of Kazakhstan.

2. Legal Regulation of Pipelines in the Republic of Kazakhstan

As anticipated, the discovery of abundance of natural resources necessitates the formulation of legislation to ensure maximization and minimize waste of the resource. AIDitionally it is important to legislate in order to increase transparency on utilisation of the natural resource since the government is to be held accountable by the electorate in utilisation of natural resources [which is the key function of any government in any case]. Having this in mind, the Kazakhstan government has set in place legislations to ensure that the energy reserves it contains are utilised in a transparent and effective way. The proper utilisation [enhanced by legislation] can be found in the way Kazakhstan has defined the flow of oil and gases [the by products of the energy resources] in its legislation to ensure transparency.

2.1 The Concept of a Pipeline in the Legislation of the Republic of Kazakhstan

The concept of a pipeline has been the subject of legislation in the laws of Kazakhstan. This is in line with the position taken in the paper of Kazakhstan ensuring that they utilise properly the abundance of the energy reserves. The Petroleum industry in Kazakhstan is controlled by a Decree made by the President back in 1995, and is referred to as the “Petroleum Law.” (John et al, 2004). This law has taken into consideration the terms that are considered necessary to depict the petroleum activities that are allowed and those that are regulated by the state of Kazakhstan. In the chosen terms, Construction and Operation of Oil and Gas Pipelines are considered important. This has been illustrated to exemplify as construing any constructions in progress in the development of laying of pipes for gas and oil pipelines whether in the wet areas [construed to mean sea, rivers and other water bodies] as well as in the dry land. The Petroleum law also defines what it refers to as “Offshore Petroleum Operations” which includes the construction, exploration, production as well as operation of gas and oil pipelines in any offshore areas.

Primarily the right to own pipelines has been discussed. However, this right is not out rightly defined in the Oil operations of Kazakhstan [the legislation (Petroleum Law) concerns itself with defining the operation activities as well as construction activities].  Therefore to exemplify this right it becomes imperative to interpret other clauses in order to construe it. If the Petroleum Law [Article 42] is interpreted correctly; it provides that the oil pipelines in Kazakhstan may be privately or state owned. However, the Article requires that the pipeline’s owner to operate them under a contract. The Petroleum Law describes a pipeline to mean an engineering feature which consists of, remote controls, supply lines, ground installation [which is the accompaniment of the primary Linear part of the pipeline] as well as the intended communications that are going to be integral in the transportation of oil from its production site [or the refining site] to its transfer point [which is normally separate] or its processing or use point. The Petroleum Law however should be noted that has not differentiated between offshore and onshore pipelines (Abai & Anthony, 2012).

The Petroleum Act also does provide for the right to construct a pipeline. Article 8-2 of the Petroleum Law allows the users of the subsoil to carry out oil operations that are related to operations and construction of pipelines. However, this construction of pipelines only takes place in circumstances where the relevant agencies of the State have given a go ahead. This however, should be noted applies to construction of offshore pipelines. Consequently it can be construed to mean that the Petroleum law does hinder investors from constructing on shore pipelines. If a person wants to operate an onshore pipeline it means that they have to endure public bureaucracy and follow the procedure set to allow for oil operations. The Ministry of Energy and Mineral Resource has been tasked with the responsibility of offering tenders to competent bodies who wish to use the subsoil for construction of onshore pipelines as well as indulging in pipeline talks on behalf of the government (Ministry of Energy and Mineral Resources, n.d).

The concept of a pipeline in Kazakhstan has also been discussed under the right to operate a pipeline. Kazakhstan legislation on this specific right is very rare. The country does not have specific legislation that can be relied upon by individuals to invoke this right. Article 43 of the Petroleum Law spells out that Safety and Protection of main Pipelines and the Rules of Technical Operations are the ones applicable in regulating the operations of Main Pipelines. These rules are however not approved and therefore a ‘person’ has to adhere to the operation requirements that have spelt out in Kazakhstan laws patchwork and the regulations thereof. This implies that a person who wishes to operate a pipeline has to properly construe the provisions of the patchwork are fully adhered in order for their operations to be considered lawful. Article 43 also provides that the pipeline operators have to put in place plans and procedures to ensure that safety is guaranteed in the pipelines. This is however to be done under the supervision of the appropriate State agencies. This is so given the fact that there are a lot of health concerns as well as safety issues concerned given the dangers of oil spillage as well as flammability of the transported substances.

2.2 Problems with regulation of Pipelines

It can be appreciated that regulation is necessary for the proper control of pipelines in Kazakhstan. But just like other issues that are government regulated, there arises problems in issues of regulation. The most visible problem in Kazakhstan in regards to this issue is presented in Article 8-2 as presented in the Petroleum Laws. The provisions of the Law allow offshore construction of pipelines [which has to be done in accordance to the regulations set and under supervision of State agencies]. The first state agency a ‘person’ has to by pass is the president of Kazakhstan who has been allowed by the Petroleum law under Article 49 to award permits for oil operations in offshore area, areas considered as ecological disaster zones, water bodies [internal water bodies that is] and areas in Kazakhstan that are considered cultural and natural areas. Before granting such permission however, there has to be a thorough expert opinion by a State appointed environmental expert. This provision in the Petroleum Law construes that the President of Kazakhstan has to be involved every time the State of Kazakhstan offers someone a tender or a permit to lay pipelines for purposes of energy exploration. This without a doubt places huge burden and responsibility on the office of the Kazakhstanian President. AIDitionally, there are no checks spelt out in the Petroleum law to ensure that the Office of the President acts morally and ethically in provision of the permits or tenders. Therefore the process is prone to corruption and furtherance of selfish interest at the expense of national interest.

Another problem that presents itself is the prohibition of onshore pipeline construction for the purposes of energy exploration. The Petroleum law does not provide for this endeavour and this is seen to hinder investment by private investors in favour of State investment. This has been construed to show that the government of Kazakhstan does not intend to aloe the private citizens of the country take part in exploration of the natural resource [which they have a right as citizens of the country]

The regulation of pipelines in Kazakhstan has also been seen to conflict with other laws in the country [specifically the Construction Law which is tasked with the planning of the cities as well as regulating other construction procedures]. Specific attention is focused on Article 19 of the Law which gives power to the government to decide on the construction and planning on appropriate infrastructure that are deemed important to the development of the nation. The main problem presents itself in the definition of such infrastructure because the existing laws have not offered such a definition. Therefore with the pipeline regulations present, it becomes very hard for pipeline investors to construe whether their activities are considered as importance to the national development [that is, it takes time to consider whether government approval is necessary when constructing the pipelines].

AIDitionally, the regulations set by the Construction Law act as a hindrance to the construction of pipelines. The Construction law specifically spells out that foreign participation in construction ventures is only allowed up to 49% of the projects entirety. This has been provided for in Article 65 of the Construction Law. The regulation of pipelines under this law therefore implies that foreign involvement in construction of pipelines is somewhat limited.  It does not help that the Petroleum law allows foreign ‘persons’ to own pipeline in Kazakhstan. This right has been limited by the Construction Law to represent only close to half of the investment of private owned pipelines. Such a prohibition has made private investors in energy pipelines consider their stand in investment on such ventures while the existing investors are overly cautious in the business structures they use in operation of the pipelines they own. In fact this ration works unfairly to private investors as the government has got a larger stake in their businesses and as a result influences a lot of the business decisions in its favour.  This has only served to scare private investors.

 

 

 

3. Foreign Operation Management, Experience Related to Main Pipeline Transport

Other nations [especially the CIS nations] have got their own pipeline regulations too (Aider, 2011). However, in this section as pointed out earlier in the paper is going to concern itself with two CIS countries and specifically, Belarus and Russia have been chosen to offer the comparison in relation to the legislation present in Kazakhstan. Later, however, pipeline regulation by other European countries will also be examined. Specifically Germany and Great Britain have been selected to provide the necessary insight.

3.1 Pipeline Legislation of the CIS Countries

Belarus (See Gas and Oil Production, n.d)

There are various national directives as well as regulations that have been put in place by Belarus to ensure that [for instance] there is safety in onshore and offshore pipelines. This section is going to look into them in brief as a comprehensive analysis would prove too lengthy. The safety of pipelines in Belarus has been ensured in various documents. To begin with, the Decree of the President of Belarus [No. 390] is in place and it a statement about the concept of safety [national safety] that was decreed in 2001. The criterion for pipeline safety has been outlined in the Law of Belarus in Article 16 which specifies that safety has to be ensured in the creation of the main pipelines. Article 17 spells out that there has to assured safety in the operation of the main pipelines. Article 18 provides that safety is a requirement at operation stop, in the liquidation and preservation at the main pipelines. Article 19 provides that industrial monitoring is a prerequisite of safety at the operation, creation, liquidation and preservation at the main pipeline.

Building or construction of pipelines in Belarus is regulated through the Law of Belarus [July, 8^th, 2008 No 367-Z]. AIDitionally, the process of constructing and designing of the main pipelines is regulated by Chapter 5 Article 20-23 which talks about the creation, liquidation, preservation and operation of the main pipelines.

The design and construction of main pipelines in Belarus is monitored by the appropriate government agencies to ensure that the equipments that are used in the construction of the main pipelines together with the outcome of the construction [the main pipeline] is in accordance o the standards that have been set. This is to mean that the construction of the main pipelines in Belarus is obligated to conform to the requirements of the legislations that have been outlined above.
The Ministry of Emergency Measures is tasked with the responsibility of ensuring that the main pipelines are safe for their intended purpose. This it does by ensuring that they employ the services of a state appointed expert to inspect the design of the construction of the main pipeline as well as the liquidation of the same. The government is also concerned with ecological issues as it emphasises on the State industrial control and ecological control as well as controlling the main pipelines fire systems. The ministry of Emergency Measures is the implementing body of the legislative requirements of the main pipelines in Belarus.

Russia
Gazprom is the monopoly in provision of gas energy to Russia and other dependant countries. It is also the main player in as far as pipeline networks are concerned in Russia [it controls 75% of the pipeline networks] (About Gazprom, n.d). Regulation of the energy sector in Russia is facilitated through two legal frameworks.  The first is the PSAs [or Product Sharing Agreements] which was put in place by the Product Sharing Law, while the other regulation is through ‘Tax and Royalty’ or through ‘Licensing System’ as spelt out in the Subsoil Law enacted in 1992 (Production Sharing Agreements. (n.d). The second regulation allows an investor to apply for a license to explore and consequently engage in production of resources found in the subsoil. The first regulation on the other hand regulates through formation of an agreement with the government [investor and State] where the risks and the costs thereof that occasion and accrue respectively are borne by the investor while the profits realized from the sale of the resource shared in two portions. First to cover the expenses suffered by the investor and the secondly divide the profits between the State and the investor.

Compared to Kazakhstan, Russia is more liberal in allowing independent ownership of main pipelines. In fact the country has got over 20% of the main pipelines individually owned. Gazprom has been tasked with providing main pipeline systems to independent investors if they meet certain criterion:

a). The pipeline capacity has got to be available throughout the whole period that the producer is to produce gas

b). The gas has to meet the required standard [quality level] together with the technical specification thereof.

c). The producer has to be capable to supply the produced gas to the UGS as well as to the facilities in the gates so that the product can be delivered to the Consumers by the UGS. The main pipelines have to be fitted with facilities that control flow as well as those that allow gas testing.

NB: Currently Russia and Belarus are settling arguments on oil and perhaps this could affect their pipeline relations in the future (Medvedev Signs Regulation on Duty-Free Oil Supplies to Belarus, 2010).

3.2 Pipeline Legislation for two Foreign Countries

Great Britain

Main pipeline are regulated in Great Britain by The Pipeline Safety Regulations of 1996. Part 1 Section 3(1) of the Act defines a pipeline as a system of pipes which together with other works and apparatus are concerned with the conveyance of any particular fluids (The Pipelines Safety Regulation, n.d). Being a non-petroleum producing state, Great Britain relies on importation of oil through main pipelines. The requirements therefore are a little bit different as those of oil producing countries. The regulation of all types of pipelines in Great Britain is met by the above stated act therefore.

Part II Section 5 of the Act spells out the design of a pipeline and provides that the operator of the pipeline shall be charged with the responsibility of ensuring that fluid has to flow in a pipeline that has been designed specifically for that purpose. However, the pipeline has to ensure that it can be able to withstand the forces that arise as a product of the operations, that the pipeline has to be capable of conveying the fluids that are meant to be conveyed by the pipeline and that the chemical processes and the external forces that are to be subjected to the pipeline can be withstood by the pipeline.

Part II Section 6 provides for the safety systems of the pipeline. The act stipulates under this section of the Act that the purported operator of the pipeline has to ensure that the pipeline does convey the specific fluid intended for the pipeline and that the same operator has to ensure that the required safety measures are present for the main pipeline. The specific requirements are not prescribed. However, the section leaves this to the discretion of the operator but places the judgment on the operator to decide which safety measures to include. This has been construed so because the section states partly that “…so far as is reasonably practicable, persons are protected from risk to their health or safety…” (The Pipelines Safety Regulation, n.d)

The regulation of pipelines in Great Britain is more liberal as compared to the other states. The interpretation of the statues imply that anyone is allowed to run a pipeline provided they can be able to ensure they adhere to the requirements set out in the Act.

Germany

Pipelines in German have been covered by rules and regulations since early 1920 (Christian, 2012). In 2002, the country overhauled its pipeline legislations. The UVPG [the law on environmental impact assessment] together with RohrFLtgV [the Federal Pipeline Ordinance] have been identified as the main legislations governing main pipelines in Germany (Regualtion of Pipeline Systems, n.d). However, these legislations do not cover all pipelines. The UVPG has specifically mentioned in Annex 1 the pipeline it covers. Therefore in approving pipelines in Germany different procedures of approval are considered. The differentiation normally depends on the pipeline’s diameter, the length of the pipeline as well as the substance that is to be transported in the pipeline. The UVPG has been categorical in its description. It has been able to realise large projects from small projects. The small projects require that the investor carry out less complicated procedures in planning as well as the normal procedure[Planfeststellungsverfahren-PFV].
In bigger projects, the same [Planfeststellungsverfahren-PFV] is the normal procedure. In this projects too [bigger projects] public consultations is normally mandatory/obligatory. This is however not required in the small projects. In aIDition if the pipeline in question has a diameter less that DN 300/12” [this is in respect to substances that are gaseous in nature and have also been categorized to be harmless to water] or DN 150/6” [in respect to substances in liquefied forms, then the earlier regulations on pipelines is enforced while the current legislation [i.e. Environmental Impact Assessment Law] are overlooked (Law on Environmental Impact Assessment, n.d).

Germany also introduced in 2003 the TRFL [Technical Rules for Pipeline Installations] which have been tasked with the responsibilities of regulating the construction, operation, planning and the testing of pipelines. The rules introduced were founded on the TRbf [Technical rules for Flammable Liquids] which were already in existence. TRFL have been used to mirror the present technological conditions with respect to pipelines and their transportation of substances that are considered hazardous. However, natural gas is exempted form this category [hazardous category]; instead it is regulated by the DVGW, and the German Scientific and Technical Association for Gas and Water (DVGW, n.d).

4. Prospects for the Development of Main Pipelines in the Republic of Kazakhstan

With the current ‘infancy’ of pipeline construction in Kazakhstan, it is open to construe that there is potential in the future development of main pipeline in Kazakhstan (Lenczowski, 1995). This position has further been strengthened with the occurrence of the “Problems and Prospects of Development of Pipeline Transportation in the Republic of Kazakhstan” that took place in Almaty in 2004. This conference was organized by the “Kazgiproneftetrans” in conjunction with “KazTransOil.” The conference was attended by oil transportation specialists, State authorities, consulting and construction companies from Ukraine, Russia, Kazakhstan, USA, UK, Canada, Israel, and Netherlands amongst other states (Problems and prospects of Development of Pipeline Transportation in the Republic of Kazakhstan, n.d).

This expression of interest basically proves that the future of pipeline construction in Kazakhstan is bright (Robert, 2004).

5 Conclusion

The construction of pipelines in other states discussed can be observed to be more advanced that than experienced in Kazakhstan. This can be attributed to their superior legislations which have ensured that the development of the pipelines is both democratic and well regulated. Kazakhstan should borrow a leaf from these countries especially Germany and Great Britain in allocation of responsibilities of regulation of constructions of main pipelines within Kazakhstan.

 

Reference

 

Aider, K. (2011). Belarus, Russia and Kazakhstan Move to Streamline Standards. [Online] http://www.oilandgaseurasia.com/articles/p/134/article/1431/ Accessed 9^th may 2012

 

 

About Gazprom (n.d) [online] http://www.gazprom.com/about/ Accessed 9^th May 2012

 

Abai, S., & Anthony, C. (2012). Pipelines in Kazakhstan: The Legal Issues. [Online] http://www.investkz.com/en/journals/39/151.html Accessed 9th May 2012

 

Christian, E. (2012). Approval Procedures and technical Rules for Pipelines in German. 7^th Pipeline Technology Conference. [Online] http://www.pipeline-conference.com/abstracts/approval-procedures-and-technical-rules-pipelines-germany Accessed 9th May, 2012.

 

DVGW. (n.d). We are setting the signals-in Germany and in Europe. (online) http://www.dvgw.de/english-pages/ Accessed 9^th May 9, 2012

 

Evan, A.F., & Mary, B. (2007). The Pursuit of Black Gold: Pipeline Politics on the Caspian Sea [Rush Transcript; Federal Services. [online] http://www.cfr.org/energy/pursuit-black-gold-pipeline-politics-caspian-sea-rush-transcript-federal-news-service/p14861 Accessed 9th May 9, 2012

 

Gas and Oil Production. (n.d). [online] http://www.beloil.by/en/belarus/field-development/ Accessed 9^th May 9, 2012

 

John, P., et al. (2004). Oil and Gas Law in Kazakhstan. (1^st Ed) Kluwer Law International

 

Kuanysh, S. (2011). Kazakhstan Petroleum Industry 2008-2010: Trends of Resource Nationalism Policy. [online]. Vol.4, iss 4, Pp369-379 Available from http://jwelb.oxfordjournals.org/content/4/4/369.short?rss=1

 

Kazakhstan oil Industry Facts and Features. (n.d) [online] http://aboutkazakhstan.com/about-kazakhstan-economy/oil Accessed 9th May 2012

 

Kazakhstan. [online] http://www.gratanet.com/en/uk/news/2004/October/191 Accessed  9^th May 9, 2012

 

Law on Environmental Impact Assessment. (n.d). [Online] http://www.gesetze-im-internet.de/uvpg/ Accessed 9^th May 2012

 

Lenczowski, G. (1995) “Major pipelines in the MiIDle East: Problems and Prospects.” MiIDle East Policy, vol. 3, no. 4

 

Ministry of Energy and Mineral Resources. (n.d). Kazakh Minister of Energy and Mineral Resources Expresses Concern over Northern- Caspian Project and Negotiations Currently Underway. [online]
http://en.government.kz/site/news/main/092007/09 Accessed 9th May 9, 20

Medvedev Signs Regulation on Duty-Free Oil Supplies to Belarus. (2010) [Online] http://en.rian.ru/russia/20100215/157887284.html Accessed 9th May 2012

 

Problems and prospects of Development of Pipeline Transportation in the Republic of Regualtion of Pipeline Systems. (n.d). [online] http://www.gesetze-im-internet.de/rohrfltgv/index.html Accessed 9th May 9, 2012 [RohrFLtgV]

 

Production Sharing Agreements. (n.d) [online] http://www.investkz.com/en/journals/50/338.html Accessed 9th May 2012

 

Robert, M.C., (2004). Karachaganak Gas and the Future of Kazakhstan’s Pipeline System. [online] http://www.cacianalyst.org/newsite/?q=node/2399 Accessed 9th May 2012

 

The Pipelines Safety Regulation 1996.  (n.d) [online] http://www.legislation.gov.uk/uksi/1996/825/contents/made Accessed 9th May 2012

 

Yuri, Z. (2006). Kazakhstan Comes Strong. [online] http://www.time.com/time/world/article/0,8599,1539999,00.html Accessed 9^th May 2012

 

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