Kazakhstan: Energy Market Privatization
Oil Sector Privatization
Kazakhstan has undertaken a number of reforms in order to develop its
oil potential, including privatizing a number of existing energy concerns.
In November 2000, Kazakhstan announced it was considering selling shares
in two oil companies: a 30% holding in oil Mangistaumunaigaz and a 25.12%
holding in Aktyubinskmunaigaz. Mangistaumunaigaz, in western Kazakhstan,
produced 85,000 bbl/d in 2000, up from 60,000 bbl/d in 1999. Indonesia's
Central
Asia Petroleum owns 60% of the company. Aktyubinskmunaigaz, also in the
west of the country where most of Kazakhstan's oil is located, is controlled
by the China
National Petroleum Company (CNPC), which bought 60.3% of the company in
June 1997. Aktyubinskmunaigaz produced 50,000 bbl/d in 2000, up from 45,000
bbl/d in 1999.
In mid-1998, Kazakhstan transferred public stakes in its remaining production and refining companies to state oil and natural gas company Kazakhoil in preparation for a possible privatization. However, Kazakh President Nursultan Nazarbayev signed a law mandating that Kazakhoil would be a closed, joint-stock company, with 100% of its shares under government control. The law also made Kazakhoil responsible for monitoring foreign oil company activities in Kazakhstan, as well as mandating that Kazakh companies buy Kazakh equipment and services whenever possible. In addition, Kazakhstan's Prime Minister Kasymzhomart Tokayev told Parliament that Kazakhstan would strengthen state control over the fuel and energy sector, including the production and sale of oil products.
As part of its purchase of Aktyubinskmunaigaz, CNPC is expected to invest $4.1 billion over the next 20 years to develop three fields. In addition, CNPC proposed building an oil pipeline to China. However, work on the feasibility study on the pipeline was halted because Kazakhstan was not able to commit the minimum flows needed to make the pipeline viable for at least 10 years. CNPC also won a tender in 1997 to develop jointly the Uzen field, but CNPC has since pulled out of the project, leaving development of the Uzen field to Uzenmunaigaz. CNPC's other involvement in Kazakhstan is a proposed project to build an oil pipeline from Kazakhstan to Iran.
In March 1997, Triton-Vuko Energy Group won a 94.5% stake in Karazhanbasmunai for $90 million. In addition, Hurricane Hydrocarbons (Canada) bought 89.5% of Yuzneftegaz in November 1996, and took over operation of the Kumkol oilfield. Since the takeover, Hurricane has been engaged in a well publicized dispute over pricing with the Shymkent Refinery, which is the only outlet for this oil. Hurricane plans to invest $280 million over the next six years in this project.
Downstream/Refining
The Atyrau refinery became 29.5% owned by Fixoil as Switzerland's Telf
AG reduced its holdings in the refinery. The Atyrau refinery will undergo
an upgrade by Japanese
firms led by Marubeni. Marubeni plans to invest $400 million for what Kazakh
officials termed a 80% rebuilding to begin in 2003.
The Shymkent refinery (now Shymkentnefteorgsintez, or Shnos) was purchased by Vitol (Switzerland) in August 1996, but was sold to Kazakommertsbank in July 1998. The refinery plans to invest $150 million for modernization over the next five years, including a new catalytic cracking unit. Shnos signed a protocol in April 1999 for a merger with Hurricane Kumkol Munai (HKM), a subsidiary of Hurricane Hydrocarbons Limited, that would give Shnos guaranteed supplies from HKM's Kumkol field, and give HKM a guaranteed customer. However, HKM has had disputes with the refinery, and stopped shipping oil to the refinery in September 1999 before resuming shipments later in the fall.
The American company CCL has managed the Pavlodar refinery since 1997. An interdepartmental commission recommended that legal action be taken to terminate the contract and transfer it to Kazakhoil because of allegations that the contract was illegally awarded, and that CCL did not comply with contractual provisions. On May 27, 1999, the Supreme Court of Kazakhstan ruled that the property should be transferred, and the rest of the property should go to other companies. Mangistaumunaigaz, which is 60% owned by Indonesia's Central Asian Petroleum, acquired part of the refinery's assets from CCL. However, CCL is appealing the decision because of the contract that Mangistaumunaigaz signed with the refinery, and the government will make a final decision on the transfer of the refinery.
Natural Gas Sector Privatization
Kazakhstan's privatization of its natural gas market has stalled
after moving forward rapidly in the years after independence. Kazakhstan originally
granted Tractebel (Belgium) a concession to the natural gas distribution
system in Almaty in 1996. In July 1997, Kazakhstan awarded Tractebel a
15-year contract to manage the western Kazakhgaz and southern Alaugaz distribution
systems, with Tractebel pledging to invest up to $1.5 billion in Kazakhstan
on repair, construction, and planning costs, including a $150 million gas
line in southern Kazakhstan to bypass Kyrgyzstan.
However, after Tractebel was investigated for a payment of 50 million euros ($54 million) to three Kazakh businessmen, the Kazakh government announced plans to review the terms of the company's concessions for the natural gas distribution networks. In the spring of 2000, Tractebel decided to leave the Kazakh market, selling its assets to KazTransGaz, which was set up by resolution of the Kazakh government in February 2000, for $100 million.
KazTransGaz, which is wholly-owned by the state, owns over 5,400 miles of main pipelines and 26 compressor stations with 308 gas transportation units. In April 2001, KazTransGaz was given the task of starting a project to manage Kazakhstan's regional natural gas networks and to implement the programs on modernizing natural gas pipelines. First Deputy Prime Minister Daniyal Akhmetov has proposed that the government set up an inter-departmental commission to study the ownership of the natural gas infrastructure in Almaty, as well as in the Zhambyl, west Kazakhstan, and Aktyubinsk regions, each of which has been privatized partially but none of which is exhibiting strong financial health.
Akhmetov has said that the regional natural gas distribution networks in the above regions should be transferred to KazTransGaz. After the regional networks become suitable for sale and attractive for potential buyers, Akhmetov said, then the Kazakh government should make a decision on their further ownership.
Coal Sector Privatization
Kazakhstan has privatized several strip mines in the Pavlodar region.
The Eurasian Energy Corporation controls the Vostochny strip mine, the
coal-fired Aksu power station, and the repair and maintenance division.
The state owns 25.19% of the shares in the company, legal entities own
68%, and private individuals and other legal entities 6.81% of the shares.
Russia's Sverdlovskenergo acquired two mines (Severny and Bogatyr No. 9) in 1996 as payment for unpaid debts for power supplied to Kazakhstan. Bogatyr Access Komir (BAK), a daughter firm of America's Access Industries Inc., controls the two mines, which currently export up to 60% of the coal they produce to Russia.
Electricity Sector Privatization
Kazakhstan was one of the first Caspian states to open its domestic
electricity market to foreign investors. After Kazakhstanenergo was divested
of its power generation facilities in 1997, Kazakhstan privatized most
of its major generating stations, and virtually all of its generating capacity
now is privately owned. In October 2000, Kazakhstan and Russia announced
that they had reached an agreement whereby Russia's UES would receive a
50% in the Ekibastuz State Regional Power Station 2 in Pavlodar--the last
power station not to be privatized--to cancel out Kazakhstan's $300 million
debt to UES for electricity supplies. Russia and Kazakhstan plan to eventually
create a vertically integrated company called the Ural Heating and Energy
Complex, which will unite several Russian power stations with Ekibastuz
and two coal mines in north Kazakhstan.
Kazakhstan also has plans to privatize the electricity distribution system, but the process has moved slowly, and only a few networks are under private management. KEGOC has the responsibility to manage the overall grid network, with the East Kazakhstan Region Electric Company, a division of AES (U.S.), managing the power grid in eastern Kazakhstan under a 15-year agreement with the Kazakh government signed in November 2000. The first two electricity distribution networks to be run privately were Almatyenergo (by Almaty Power Consolidated, a Belgian company, since sold back to the Kazakh government), and Karagandaenergo (by National Power of the U.K., and Ormand). In July 1999, AES was awarded management rights for the Ust-Kamenogorsk and Semipalatinsk distribution companies that are close to three power plants that AES operates.
In March 2001, the European Bank for Reconstruction and Developments (EBRD) announced its intention to give 761,000 euros ($815,000) to Kazakhstan for the implementation of a program to privatize the remaining regional power distributing companies. In line with the plan, the privatization process started in February 2001 and is expected to finish in early 2002.
AES Corporation is the largest foreign investor in Kazakhstan's power generation sector. AES has invested more than $60 million in Kazakhstan since 1998. In August 1996, the company purchased the former Ekibastuz GRES-1 coal-fired power plant in northern Kazakhstan. The plant, now called AES Ekibastuz, is the largest power plant in Kazakhstan, with a total production capacity of 4,000 megawatts (equivalent to over 20% of the country's power generating capacity). AES also holds a 20-year concession on two hydroelectric stations (AES Ust-Kamenogorsk and AES Shulbinsk) and four combined heating and power stations (Sogrinsk, Leninogorsk, Ust-Kamenogorsk, and Semipalatinsk) in eastern Kazakhstan.