Not $35 billion: How much do major oil and gas projects cost in reality?

Joint-stock company Uzbekneftegaz commented on the major orders in the oil and gas sector given to ERIELL and Enter Engineering companies.

In the inquiry published by “Ozodlik” radio, it was noted that 35 billion soums were “gifted” to these two companies in 5 years. According to officials, “half of this amount is in the air, funds without a foundation”.

It was also reported that “not a single dollar has been spent from the budget” for these projects.

The statement of Uzbekneftegaz provides the following information about the 9 projects in which ERIELL and Enter Engineering were selected as the main contractor:

1. “Mustaqillikning 25 yilligi” field

The mine development project envisages the completion of works worth $2.9 billion, and the value of the contracts concluded so far is $1.73 billion. Contracts have not yet been signed for the rest of the works.

The source of financing is the investor’s own funds and direct loans. There is no state guarantee.

A 50/50 Product Distribution Agreement was signed with investors.

2. Establishment of Karakul free economic zone and gas-chemical cluster

The contract value of the project is $3 billion. The source of financing is the investor’s own funds and direct loans, no state guarantee is provided.

3. The program to increase the production of hydrocarbon raw materials in 2017-2021

$2.3 billion were financed within the framework of the signed contract:

• $805 million – own funds of Uzbekneftegaz JSC;

• $710 million – loan from Gazprombank without state guarantee;

• $585 million – Silk Road Fund (China) loan under state guarantee;

• $200 million – interest-bearing debt funds of the Ministry of Finance.

Contractors are attracted on the basis of a tender.

4. Production of synthetic liquid fuel based on purified methane of the Shurtan gas chemical complex (GTL plant)

The total cost of the project is $3.4 billion. Funding sources:

• $1.1 billion – own funds of Uzbekneftegaz JSC;

• $2.3 billion – foreign loans.

Based on the tender, the consortium Hyundai Engineering & Construction Co Ltd, Hyundai Engineering Co Ltd (South Korea) and Enter Engineering Pte Ltd (Singapore) was chosen as the contractor.

The volume of work performed by them on the basis of the contract was $2.6 billion. The remaining $800 million were spent by Uzbekneftegaz JSC for license and construction costs of external infrastructure facilities.

5. Program to increase oil production volumes in 2020-2030

The value of the contract is $2.68 billion. The source of financing is the investor’s own funds and direct loans. There is no state guarantee.

6. Expanding production capacity of Shurtan gas chemical complex

The total cost of the project is $1.8 billion. Funding sources:

• $632 million – own funds of Uzbekneftegaz JSC;

• $1.2 billion – foreign loans without state guarantees.

Out of this, the volume of work performed under the contract is $1.3 billion, while the costs of license and construction of external infrastructure facilities of Uzbekneftgaz JSC are $500 million.

Contractors are selected directly.

7. To increase the size of the “Gazli” underground gas storage facility and perform additional geological works

The contract value of the project is $463 million. The source of financing is the investor’s own funds and direct loans. There is no state guarantee.

8. Carrying out geological prospecting works in Sechankul, Okjar and Chimboy investment blocks and excavation works in Urga, Okchalok and Chandir group mines.

The contract value of the project is $701 million. The source of financing is the investor’s own funds and direct loans. There is no state guarantee.

9. Modernization of Fergana Oil Refinery

The contract value of the project is $399 million. The source of financing is the investor’s own funds and direct loans. There is no state guarantee.

Of the $35 billion that was said to have been “gifted” to ERIELL and Enter Engineering in the inquiry, $23.4 billion was considered the total cost of the above 9 projects.

Uzbekneftegaz explains that the project cost does not necessarily mean that this project will be spent on this project. Often, the project cost is determined, optimized before the contract is signed with the contractors, and the actual contract cost is much lower than the project cost.

“Thus, the total value of the above 9 projects is actually $17.6 billion, of which the value of the contracts signed so far is $14.9 billion,” the official information reads.

6 out of 9 projects worth $17.6 billion will be implemented at the expense of $10.1 billion from investors.

10. Nuclear power plant

In the investigation, it was said that the construction project of the nuclear power plant with the initial estimated cost of $11 billion was also granted to ERIELL and Enter Engineering. According to Uzbekneftegaz, this is a lie.

“No final decision on the construction of the NPP has been made yet,” the official statement reads.

“Constant investment is indispensable”

According to Uzbekneftegaz, if there is no continuous investment in an oil or gas field, the volume of production will decrease every year.

“Therefore, if a project is carried out and a foreign or local company is involved in it, it should not be misunderstood that the budget money has been embezzled, the statement of the authorized state company in the oil and gas sector said in its statement.

Mekhriddin Abdullayev, chairman of Uzbekneftgaz, and Jurabek Mirzamakhmudov, Minister of Energy, made these comments at a meeting with journalists and public representatives on February 12. Khushnudbek Khudoyberdiyev, a lawyer and blogger who participated in the meeting, published a video on his channel explaining the information provided by the authorities in a simpler way.