Independent oil producers (i.e. subsoil users) and refineries in Kazakhstan are uniting into a new specialized PetroMining Association, which will represent their interests and establish an open dialogue with the Government, as well as promote the realization of economic potential in domestic and international markets.
According to the PetroMining Association, more than 75 private oil-producing companies (OPOs) in Kazakhstan hold about 20% of the country's total oil production and 17% of exports. OPOs not only have to compete with large multinational corporations but also struggle with unbalanced conditions of market regulation by the state.
Given the low price of oil in the domestic market (compared to exports), which should have been compensated by refining and wholesale market sales of oil products, at the moment the state regulation has reduced this opportunity for OPOs to a minimum: NK KazMunaiGas JSC is actually given the priority right to buy back oil and sell fuels and lubricants, and a ban on the export of a number of oil products that are not socially important. These conditions, in turn, eradicate market relations and competition, and reduce the attractiveness for private investment, which in turn leads to a decrease in refining by OPOs and increased dependence on imports (as we are witnessing now), and as a consequence jeopardising the energy security of the country. At the same time, OPOs are equally responsible for socially important tasks, such as providing employment, financing regional development, and subsidising farmers with discounted fuel during sowing and harvesting seasons.
Returning to capped prices, the OPOs' expert group analysis revealed that the April 2023 price increase for diesel fuel and AI-92 benefited the retail market with profitability increasing from 3 to 11%, the wholesale market, in turn, lost profitability, and OPOs did not benefit at all while bearing the biggest risks (geological exploration, production decline, etc.).
Besides, strong monopolzation of the market suppresses healthy competition. As noted in the July report of the Agency for Protection and Development of Competition of the RK (APDC), as a result of changes in legislation, the state presence in the oil refining market has increased, with NK KazMunaiGas JSC and Petrosun LLP taking 80% of the market.
"We often hear that oil production is one of the pillars on which the country's economy rests. But at the same time, private oil-producing and refining companies in Kazakhstan are in a tough position, and it is extremely difficult to defend their interests before the Government. In this regard, in the PetroMining Association, we will together represent, promote, protect and defend the interests of independent subsoil users, primarily OPOs and refiners in the Government. We do not demand protectionism, only transparent, fair, and equal conditions for all market participants to develop and work effectively. One company can be ignored, a whole association cannot," said Sayat Boranbekov, President of the PetroMining Association.
He added that in early August the PetroMining Association plans to hold the first congress of representatives of private oil-producing and refining enterprises of Kazakhstan, after which a case of problematic issues and proposals for the Government from all members of the PetroMining Association will be formed.
All questions should be addressed to the heads of the Association and the organisers of the congress by phone:
+7 702 671 4261 (Sayat Boranbekov)
+7 771 999 5533 (Jaromir Rabai)
a@petromining.kz
+7 702 671 4261 (Sayat Boranbekov)
+7 771 999 5533 (Jaromir Rabai)
a@petromining.kz