Halyk Finance rebukes Kazakhstan’s plan to boost its oil exports to 10% by 2050
Halyk Finance has reviewed the new refinery industry concept for oil prepared by the Ministry of Energy and has become very skeptical about the agency’s plan to produce enough oil products for the domestic market by 2050. The company’s analysts also doubt that the ministry would be able to boost petroleum product exports to 10% by 2050.
According to Murat Temirkhanov, advisor to the CEO of Halyk Finance, the draft concept of the refinery industry development until 2050 doesn’t address key problems of the industry and directly contradicts the president’s edict on economic liberalization.
«The government has been talking about the necessity of exporting processed goods, not raw materials all the time. Nevertheless, its plan for the export of refinery products doesn’t look like a solid solution. Moreover, I don’t think we are going to see a big surplus in oil products on the domestic market because against the backdrop of low costs of oil products and low profitability of refining the government will struggle to find money to invest in upgrading of the oil refinery,» the expert said.
What is necessary to boost the development of refiner product export
The expert doubts that the government will find funds for the refinery industry due to factors such as the government’s large role in the industry, problems with the state budget and lack of room in regulating oil prices. Another important factor is the disparity in the oil product market with Russia, Uzbekistan, Armenia and Kyrgyzstan, which leads to the illegal outflow of oil products into these countries and exacerbates the deficit of oil products in Kazakhstan proper, Temirkhanov says.
In order to increase exports of oil products, Kazakhstan needs to get rid of the price disparity between external and internal markets. Once this problem is solved, it will immediately make oil refineries more profitable and attractive for private investments, Temirkhanov said. He is also convinced that the industry needs large-scale privatization. In this case, the refinery is going to be a highly profitable business and retail investors will run through brick walls to find the necessary funds to boost the volume and quality of oil processing, Temirkhanov highlighted.
Member states of the Eurasian Economic Union have been trying to organize a single market for oil products to eliminate the price disparity since 2014. The market was supposed to start operating in 2025; however, its start was postponed to 2027 this spring due to «insufficient preparedness level of regulatory base.»
High role of the government in the refinery industry
Temirkhanov also pointed out that the concept contradicts the recent edict by President Kassym-Jomart Tokayev aimed at liberalizing the country’s economy. The document signed by the president requires the cabinet to support competition and diminish the state’s role in the economy.
«Under the concept, the domestic market must be provided with key types of oil products at the expense of an increase in refinery by at least 21 million tons per year. Even though there is nothing wrong with this goal, approaches to its implementation contradict the president’s recent edict on economic liberalization. I mean, the concept designed to facilitate the development of the refinery industry is going to go in the opposite direction, increasing the state’s already-too-big role in the market. Of course, this doesn’t help competition, increase oil product exports or attract private investments,» the Halyk Finance advisor said.
The government controls all key refineries in Kazakhstan through KazMunayGas (KMG) where the state-owned holding of Samruk Kazyna, the National Bank and the Ministry of Finance have a 97% stake. Currently, KMG controls 100% in the Atyrau and Pavlodar refineries, 50% in the Shymkent refinery and 50% in the Caspi Bitum refinery. As Halyk Finance pointed out, the concept doesn’t call for decreasing the state’s role through privatization or attracting private investments into the industry.
Temirkhanov describes the role of the government in the oil industry as tremendous, pointing out that the state shouldn’t run any property in a healthy market economy. The expert believes that the only task of the government is to ensure free competition, preventing monopolization of the market.
Regulating oil prices in the domestic market
In 2023, Samruk Kazyna injected about $2.6 billion into the country’s economy in the form of public subsidies. Subsidizing internal oil and oil product prices accounted for $1.1 billion out of this sum. Interestingly enough, when Samruk Kazyna talks about subsidies to the economy of Kazakhstan, it also means its foregone earnings. For instance, in 2023, KMG probably lost around $1 billion due to internal prices falling short of export prices.
«In fact, the entire state refinery industry is bearing this huge burden in the form of subsidies for oil product prices, although they are far below the market. This sort of price regulation affects profitability and competition, and doesn’t attract private investments into the industry,” the expert said.
The concept’s authors acknowledge that the economic value of any future project in the refinery industry would be directly dependent on pricing for oil products. They also acknowledge the problem of low oil product prices on the domestic market but offer no solution. The document doesn’t say anything about regulated prices affecting the profitability of the refinery industry and provides no explanation for what must be done to attract private investments, not public funds or loans, Temirkhanov underlined.
What the government considers as the source of funding for the refinery industry
Halyk Finance also noticed that the document is kind of weak in terms of analysis of demand for oil products on the domestic market and foreign export markets. It didn’t stop its authors from offering a plan to boost the state refinery, the company said. Moreover, the concept never mentioned how much money would be needed to boost oil processing and where this funding would come from. Experts believe this task may require tens of billions of dollars.
“Without understanding how much this task would cost and where investmetns into state refineries would come from, the entire concept doesn’t make any sense from an economic point of view. At the same time, the government plans to provide farmers with subsidized fuel, boost state reserves of oil products and so on, although this would decrease the profitability of the state refineries even further. In addition, the plan envisages expanding unflexible administrative regulation within the industry,» Temirkhanov said.
According to the concept, the industry’s capacity must be expanded from 17 million tons per year to 27 million tons, which is going to be enough to meet the internal demand for fuel until 2050. The document also suggests that Kazakhstan would export about 2.7 million tons of oil product it produces per year (10%).
The Ministry of Energy expects that the country will create strategic reserves of gasoline (150,000 tons of AI 92 and 50,000 tons of AI 95) and diesel fuel (240,000), and expand its oil product exports to Central Asia and Europe. According to Energy Minister Almasadam Satkaliyev, Kazakhstan is going to start exporting its oil products after 2030, when big refineries complete their production expansion.
