United World Trade Inc. (UWT), Denver, has filed a $26 million breach of contract suit in Denver district court against Kazakhstan's government.
The suit was filed after Kazakhstan's largest oil conglomerate, the Mangyshlakneft Oil Production Association, allegedly broke a long term contract to supply crude oil to UWT's European customer, ERG-ISAB of Italy. UWT signed its original contract in December 1991 with Kazakhstan's first deputy minister of energy, who was then general director of Mangyshlakneft.
UWT's contract apparently was broken last April when a new Mangyshlakneft general director took office. Before that, UWT said, it had been receiving crude oil shipments from the Kazakhs and supplying it to ERG-ISAB on schedule and according to requirements of the contract. UWT said it formerly was the largest western buyer of Kazakh crude.
"Typical of many former Soviet republics, this broken contract is a direct result of the 'big boss syndrome' in which all agreements are subject to reinterpretation whenever a new official comes into power," said UWT Executive Vice Pres. Douglas Adams.
With no international legal mechanisms in place to protect the integrity of such agreements, contracts with former Soviet republics are difficult and often impossible to enforce, he said.
"With resource rich nations like Kazakhstan ignoring the rules of the game while attempting to lure much needed western investors, other American companies will certainly be deterred by such unscrupulous and corrupt business practices," said Adams.
Citing Chevron Corp.'s struggle to nail down a development deal on giant Tengiz field, Adams said, "Unless you have the resources of a Chevron, gambling on the Kazakhs' integrity may not be worth the risk."
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