Caspian Pipeline Consortium

Country

Kazakhstan

Year of entry

2001³¹

Industry/ business area

Oil transportation: pipeline and marine shipping terminal

Entry mode

FDI: The consortium built its own pipeline from Tengiz oil field in Kazakhstan to Novorossiysk, a Black sea port, in order to facilitate export of Kazakh oil to other countries³². The production companies involved in the project financed the construction of the pipeline, which cost them $2.67 billion. The Russian government contributed in non-cash forms, such as usused pipeline assets worth almost $300 million.

Motives

The project and creation of the company was meant to be international from the start, because the aim of this consortium was to open international markets to oil from Kazakhstani, a landlocked country, by giving its oil access to sea and maritime transportation via the Black sea.

Firm specific advantages used on the foreign market

First of all, this firm is a consortium originally created by the governments of Russia, Kazakhstan, Oman, and eight leading international companies from the oil and gas industry³³. The combined expertise of all these countries is definitely an advantage for this project. Direct access to the 6^th largest oilfield in the world is a definite advantage for CPC. The company has few other alternatives when it comes to this oilfield, because Kazakhstan’s remoteness from seas makes it very difficult and cost-prohibitive to ship the oil to international markets via other routes. The pipeline, on the other hand, provides a direct access to international sea transportation routes. High investment requirements for any alternative pipeline projects (such as the proposed, but never realized Trans-Caspian oil through Azerbaijan and Turkey) also create very high entrance barriers.

First mover or follower

When one considers Russia as the location for CPC’s activities, then the company is a follower, since there are already many other pipelines for exporting oil or gas. But with regards to transporting Kazakh oil to international markets, this is the first such project with a very convenient link to sea for easy transportation worldwide.

Type of state involvement in the process of internationalization

Three states were originally involved in the project – Russia, Kazakhstan and Oman. In recent years, however, the Russian government has transferred its stake in the consortium to Transneft, a Russian state-owned oil and gas pipeline operator. In addition, Transneft bought out Oman’s 7% stake in the project at a price of $700 million in 2007. In total, the Russian state owns a 24% share of CPC, while Kazakhstan government owns a total of 20.75%, 1.75% of which through Kazakhstan Pipeline Ventures LLC and 19% through the state-owned KazMunaiGaz company. Since the Caspian Pipeline Consortium’s international activity is only in Kazakhstan, state involvement can be characterized as negotiation of two governments for control of the company as well as prices charged for transportation of Kazakhstani oil. The project revolves around strategically-important oil extraction and transportation activities, so both governments participated a lot in this project.

Evaluation of the success of the internationalization

Because internationalization was such a crucial and integral part of this consortium’s establishment, it is difficult to evaluate the success of internationalization separately from the success of the company.