More than a 50% stake in Atyrau Oil Refinery (Atyrau Refinery), owned by the national company KazMunaiGas, may be sold to the petrochemical corporation Sinopec. In June this year, the delegation of the Chinese company visited the plant and familiarized with its condition. At the same time, the Russian oil and gas company Tatneft also wants to buy shares of the enterprise.

So, we learned that on June 12, representatives of Sinopec visited the Atyrau Refinery to get acquainted with its organizational structure and production and financial activities for further decision-making on the acquisition of a stake in this enterprise.

Following the publication of Petrocouncil.kz, KMG’s press service reported that the purpose of the visit of the Chinese delegation was “to exchange experience of key specialists of the Atyrau Refinery with foreign colleagues, as well as technical observation of the current operation of technological units previously modernized with the participation of Sinopec”. The company was responsible for the construction of complexes for production of aromatic hydrocarbons and deep oil refining.

However, according to our sources, the real reason for the visit to Atyrau refinery was the intention of the Chinese petrochemical giant to buy a part of this enterprise. Sinopec may pay up to $800 million for 51% stake in the partnership. The sources also say that earlier Russian Tatneft offered $500 mln for the same share of Atyrau refinery.

What is the problem?

Various reports that Atyrau refinery may be privatized have appeared before. There are good reasons for this. The refinery underwent modernization, after which the capacity and depth of oil refining increased. The enterprise is in the administrative center of Atyrau region, where more than 55% of all annual Kazakhstani oil is produced. So, the refinery has no problems with raw materials. Its refining tariffs are the highest compared to all other major refineries in the country. The demand for fuel in Kazakhstan is high.You can earn – you don’t want to!The enterprise should have become one of the most profitable in Kazakhstan. But everything that has been happening to it in recent years – periodic unscheduled, emergency shutdowns, scandals involving embezzlement of money, public conflicts within the enterprise’s staff – simply screams that the refinery needs a new owner and management must be fundamentally changed.

“In my opinion, KMG has shown its insolvency and that it does not know how to manage these plants. Last year, all four refineries and the oil and gas chemical complex KPI (Kazakhstan Petrochemical Industries, producer of polypropylene – author’s note) were idle at the same time. They were on scheduled and unscheduled repairs. Never in the history of Kazakhstan has such a thing happened. This is a fact that shows clearly what our oil refining has become,” says Olzhas Baidildinov, a member of the Public Council of the Ministry of Energy of the Republic of Kazakhstan.

According to him, unfortunately, there is no public discussion that these plants should be privatized.

“We hold on to this notorious thesis that factories are strategic assets, that they cannot be sold to anyone. But this is a normal practice (when such enterprises are privatized). And if KMG, as an implementer of the state policy in this sphere, cannot manage them effectively, and we constantly hear about corruption, and there are constantly questions about appointments, then it is necessary to sell strategic stakes (more than 50%) in these companies. KMG should simply receive dividends from the refineries without interfering in their operations, and the Agency for Protection and Development of Competition (AZRC) and the Ministry of National Economy (MNE) should simply regulate certain tariffs. In other words, these refineries should be in a competitive environment,” the expert believes.

The Parliament should call the heads of KMG and oil refineries “on the carpet”. Chairman of the Supreme Audit Chamber Alikhan Smailov also spoke about the need to ask the national companies about spending money and implementation of their investment programs during a recent report in the Majilis.

“The total cost of modernization of the same Atyrau refinery is about $4 billion. If we consider the costs of scheduled and unscheduled repairs, we can probably add about $500-600 million more for this period. The country should realize how much it costs us to maintain this plant. I believe that considering the loans received for the reconstruction and technical equipment of the plant, today the enterprise clearly does not reflect the amount of money that has been invested in it,” Baidildinov said.

And this is even though the refinery has more favorable working conditions compared to the same Shymkent refinery (SNPZ), which is half owned by the Chinese CNPC, or the Pavlodar petrochemical plant (PNHZ). For example, last year the tariff for oil refining at Atyrau refinery was almost 54.1 thousand tenge per ton, which is more than 50% more than at PNHZ (35.3 thousand tenge/ton) and 2.3 times more expensive than at SNPZ (23.2 thousand tenge/ton).

We always take the economies of European countries and the USA as an example. So, in these countries there are practically no state-owned oil companies, and consumers do not care from which refinery – state or private – fuel is supplied to filling stations. The main thing is that it is there. Most often, privately owned refineries are better managed than publicly owned ones.

“If a private entrepreneur for some reason allows a month of downtime at his plant, he will simply lose money, and his niche will be occupied by other entrepreneurs. In the case of KMG, no one bears any responsibility for breakdowns and downtime, there have been no serious dismissals from the system. I do not believe that one or two people (who are sometimes fired or transferred to another position) can and do determine the technological state of the plant. It’s a large spectrum of issues, after all. There, at least 10-20 people should be fired after each failure of the refinery, cases should be initiated and how much money was spent on the elimination of such incidents and accidents should be considered in Parliament,” the expert believes.

According to him, the same Shymkent refinery, which is managed by CNPC specialists among others, is less idle during the year than ANPZ and PNHZ, which are fully controlled by KMG.

“KMG needs them because there are interests in budget allocation, processing tariffs, etc…Unfortunately, these plants cannot boast of any high output indicators. Therefore, in my opinion, these plants should be privatized,” says Olzhas Baidildinov.

Who can buy

In the spring of this year, there were publications in the Kazakh media and social networks that the government plans to privatize part of the shares (up to 51%) of the Atyrau and Pavlodar plants by the end of 2025. It was reported that Lukoil allegedly intends to acquire a stake in Atyrau refinery, and Gazpromneft – in PNHZ. KMG hastened to deny the rumor, saying that “the information does not correspond to reality”. 

Energy Minister Almasadam Satkaliyev said at the time that “it is premature to talk about any deals”. According to him, from the point of view of the Ministry of Energy the priority is not so much the form of ownership, but rather the efficiency of management, implementation of investment programs, as well as the stable operation of the enterprise. The Minister called PetroKazakhstan Oil Products LLP (PKOP), which owns the Shymkent refinery, an effectively operating enterprise. The company is jointly controlled by KMG and CNPC, with 49.7% and 50.3% stake, respectively.

Olzhas Baidildinov believes that both Chinese and other companies can buy Atyrau refinery or a stake in it. Everything depends on how the negotiations will go and what price will be offered.

“I think there should be no secrets here on the part of KMG. There should not be any behind-the-scenes decisions. We should just announce to everyone, send a targeted offer to the world’s major petrochemical companies that here is Atyrau refinery, we are selling it, come, check and buy”, – says the expert.

At the same time, according to him, the national company must promise that there will not be any directive instructions from the government on what should be the tariff for processing. That is, the authorities and KMG should not interfere in the activities of the enterprise.

It should be reminded that after the collapse of the USSR the plant was already partially privatized. In 1993, the enterprise became a joint stock company, and 38% of the plant’s shares became the property of the collective. The nineties were the years of general non-payments, broken ties and lack of money, when manufacturing enterprises themselves found ways and means to sell their products. Atyrau refinery was no exception – agricultural enterprises did not pay billions of tenge for fuel, and the plant itself owed the same amount of taxes to the budget. It is not surprising that in such situations there are those who will try to take advantage of the situation. Such a “savior” was the Swiss-registered company Telf AG. It cooperated closely with the plant, first, helping to export its products. In fact, behind the Swiss company were some Kazakhstani and Russian entrepreneurs. With the support of the plant’s administration, they started buying up shares of the enterprise: from its employees, from oil producing companies, which received their share for supplying raw materials. They expected to acquire the state stake of 41%, which they later gave to the national company Kazakhoil. By 1999, when the national company acquired all shares of ANPZ owned by Telf AG, it already had 45% of them. Since then, KMG has been gradually buying up shares of the refinery from private shareholders, bringing their number to the current 99.5%.

In the spring of 1997, the government sold the state-owned stake in ANPZ to an offshore firm in a tender. Later the deal was canceled, and the plant’s shares returned to the state.

Scandals, intrigues, investigations

Construction of the Atyrau Refinery began in 1943. The design and equipment of the refinery were provided by the US as part of the lend-lease provided to the USSR during World War II. The enterprise was put into operation in 1945 and could process up to 800 thousand tons of oil per year. In 1991, the year of Kazakhstan’s independence, the refinery processed about 4.6 million tons of oil.

For 79 years the refinery has undergone many reconstructions and modernizations, which allowed it to increase the refining capacity to 5.5 million tons and the depth to 84%. But the most memorable have been the last three phases of upgrades from 2003 – 2018.

As part of the first stage, during 2003 – 2006, Japan’s Marubeni and JGC Corporation built new gasoline and diesel hydrotreating, sulfur production, hydrogen purification and production units, as well as modernized ELOU-AT2, reforming and delayed coking, biological wastewater treatment, etc. units. The refinery was able to increase the depth of oil refining, expand the range of refined oil and products to master the production of winter diesel fuel and AI-95 gasoline. All this cost only $225.7 mln, credit money provided by the Japan Bank for International Cooperation, Marubeni Europe Plc, BNP Paribas, HSBC Bank Kazakhstan.  

As part of the second phase, the Aromatic Hydrocarbons Production Complex (AHPC) was built at the refinery between 2009 and 2015 at a cost of $1 bln 40 mln. The 13-year loan to Atyrau refinery was provided by the Development Bank of Kazakhstan (DBK), which in turn took the money from the Export-Import Bank of China (85%) and the National Fund of the Republic of Kazakhstan (15%). Sinopec Engineering became the general contractor. Thanks to the project implementation, the quality of fuel produced at Atyrau refinery improved, as the content of benzene and aromatic hydrocarbons, which became a separate product, decreased.

The third stage of modernization – construction of the deep oil refining complex (DORC) – was carried out in 2012 – 2018. The project was implemented by a consortium of contractors consisting of China’s Sinopec, Japan’s Marubeni and Kazakhstan’s KazStroyService. The cost of the project was initially estimated at $1.7 billion, but later the total cost rose to $2.9 billion. As a result of the project, the depth of oil refining and the yield of light oil products were increased, while the production of fuel oil and low-grade gasoline was eliminated.

These three stages characterize the current technological state of the plant. At the same time, according to experts, the first “Japanese” stage of the reconstruction was very successful. The contractor performed all works in accordance with the approved project, on time and within budget. However, the construction of KPAU and KGPN was difficult, the terms of project realization were prolonged, and the cost was increased. Most importantly, the design of these two complexes did not consider their environmental impact. As a result of commissioning of the new units, the emissions of harmful substances from the plant into the environment doubled. And now it is planned to realize (with the participation of Japanese companies) another project at the plant, now to reduce the ecological impact of the enterprise. 

The company is still paying debts on loans. According to the financial report, at the beginning of 2024, the plant’s short-term and long-term liabilities amounted to 512 billion tenge or over $1.1 billion, including over 414 billion tenge in loans and bonds. The main creditors: KMG – 191 bln KZT, Halyk Bank of Kazakhstan – 125 bln, DBK – 64 bln, European Bank for Reconstruction and Development – 12 bln. At the same time, the total revenue of the company for the year amounted to 301.5 bln KZT, and net profit – 91.7 bln.

Why Sinopec?

The probability of China Petroleum & Chemical Corporation, aka Sinopec, coming to Atyrau refinery is supported by the fact that last fall KMG signed an agreement with it to jointly develop a pre-feasibility study for the construction of a plant to produce terephthalic acid and polyethylene terephthalate. KMG PetroChem, a subsidiary of KMG, is the operator of the $1.5 billion project with a planned implementation period through 2029. The feedstock (paraxylene) for the new enterprise is planned to be supplied from the Atyrau refinery.

In 2023, Sinopec entered the project to build a polyethylene plant, buying a 40% stake in the enterprise. The $7.7 bln project seems to be implemented by the Chinese company as well.

Last year, Sinopec set up a new company to invest in refining and petrochemical assets overseas. At the same time, it will both buy ready-made enterprises and invest in the construction of new refineries. The company came up with this plan since the Chinese authorities restricted the construction of new refineries inside the country amid slowing demand growth and overcapacity. Sinopec has decided to take advantage of all its opportunities to expand its overseas refining and chemicals business. In doing so, it will prioritize regions where demand for products is growing and where there are no problems with the extraction and delivery of raw materials. In this regard, Kazakhstan, and specifically the Atyrau region, fits all parameters.