Kazakhstan threatened on Tuesday to revoke an Eni-led consortium's permit to exploit the giant offshore Kashagan oilfield due to environmental law violations.
The threat came a day after Italy's Eni and the government started negotiations over the future of the project. The Caspian Sea site is one of the biggest oil finds in decades but has been beset by delays that have angered the government.
Ecology Minister Nurlan Iskakov told a government meeting his ministry had evidence that the AgipKCO consortium, which also includes Shell, Exxon Mobil and ConocoPhillips, was in breach of environmental laws.
"Work at Kashagan may be stopped altogether," Iskakov said. "If the obligations Agip has taken upon themselves are not complied with, we are by law obliged to recall their permit because further operations will cause more ecological damage."
The statement was reminiscent of Russian accusations against the Royal Dutch Shell-led consortium that was in charge of the giant Sakhalin-2 oil and gas project. Shell agreed to cede control to Russian state gas firm Gazprom late last year.
Iskakov did not specify the nature of the previously unreported environmental damage or what measures AgipKCO should take.
Industry sources say some in the Kazakh government are unhappy with what are now seen as overly generous terms signed with foreign companies in the 1990s when Kazakhstan needed foreign investment to overcome a post-Soviet slump.
Eni officials and other consortium participants were not available for comment.
Addressing reporters later, an ecology ministry official said the ministry was also investigating a possible link between Kashagan operations and the deaths of hundreds of baby seals earlier this year on the Caspian coast.
"At the moment we are not excluding a link between AgipKCO's activities on contract territory and a sharp decline in sturgeon population, mass deaths of Caspian seals and rare types of fish," said Adletbek Bekeyev, a mid-ranking ministry official.
AgipKCO has previously pointed towards a statement by Ecology Minister Iskakov in June when he said the deaths were caused by distemper and not oil company operations.
France's Total, Japan's Inpex and Kazakh state oil company KazMunaiGas are also members of the Kashagan consortium.