Hopes of a swift resolution to the dispute between the Kazakhstan government and a consortium of Western oil majors were dashed this weekend, as the Kazakh Prime Minister hinted at new legislation. The consortium, led by ENI of Italy, and also including Shell, Total and Exxon, is trying to develop the giant Kashagan field in the Caspian Sea.

It is the most important oil deposits discovery in the world in three decades, and, if it came fully on stream, would propel Kazakhstan into the big league of oil producers. However, the field is in a difficult offshore position and has suffered from delays, to the irritation of the Kazakh authorities.

The Prime Minister of Kazakhstan, Karim Masimov, said that while he was content that it was a "purely commercial" dispute that could be resolved "peacefully", and that politics were not involved, he did not believe new legislation, which would allow the Kazakh government to cancel existing contracts, should be withdrawn. A renegotiation of the deal would then follow, probably with a bigger stake for the Kazakh state. The so-called "subsoil" legislation has been passed unanimously by the Kazakh parliament and awaits President Nazarbayev's signature to pass it into law.

Mr Masimov maintained that the President's decision was up to him, but that as Prime Minister he was in favour of the new law. All the parties involved have given themselves until 22 October to come to an agreement.

Arecent visit by the Italian Prime Minister, Romano Prodi, had failed to result in an accord. Mr Masimov was unfazed by suggestions that it would make Western companies less likely to do business with him, citing a "big line of potential investors". Speaking in the capital, Astana, during a conference on the country's economy, Mr Masimov announced that it was Kazakhstan's "ambition" to develop a more "aggressive" strategy in using its oil wealth to buy stakes in Western companies, along the lines of the Kuwaiti, Chinese and Singaporean sovereign funds when it gained more expertise in these matters.

"More than two" investment banks in France and theUnited States have been approached to achieve that end. The Kazakh National Oil Fund has funds of $40bn (£20bn) according to Mr Masimov.

(By Sean O'Grady, The Independent, 15/10/2007)