The issue of selling the Atyrau and Pavlodar oil refineries to private owners seems to have been finally resolved. The enterprises are to be privatized in 2028, according to the list approved by the government.
The National Privatization Office, part of the Agency for the Protection and Development of Competition (APDC), has compiled a list of 473 state-owned enterprises that are planned to be transferred to private ownership. According to this document, 100% or controlling stakes in the Atyrau Oil Refinery (AOR) and Pavlodar Petrochemical Plant (PPP) are planned to be privatized in 2028.
The companies want to sell to attract investment to modernize their production, increase efficiency, and develop additional markets. The buyer is also required to conduct a comprehensive financial, legal, and environmental audit of the companies, prepare an updated business plan with capital expenditures and profitability analysis, and assess the assets and liabilities of the plants. They plan to sell them through an open two-stage competition, electronic bidding, or direct sale.
The sale of two refineries at once, which account for 60% of all processing, may cause concern or caution among some members of the public—how will this affect the fuel market, will fuel prices rise, etc.?
Why the refineries should be sold and what condition they are in
Currently, the Pervomaisky Refinery is 100% controlled by the national company KazMunayGas (KMG), while the Aktobe Refinery is 99.53% controlled by KMG, with the remaining stake in the enterprise belonging to a few private companies and individuals.
Both enterprises are profitable, although they sometimes incur losses. According to the financial report, AOR's total revenue for the past year exceeded 308.6 billion tenge, which is 2% more than a year earlier (301.5 billion tenge). However, the company's net profit for the same period fell almost threefold, from 92 billion tenge to 32 billion tenge. At the same time, in 2022, the plant suffered a loss of almost 50.4 billion tenge. The company attributed its loss to the rise in the Russian ruble and US dollar exchange rates, the recognition of exchange rate differences on existing loans and contracts with suppliers, and additional expenses incurred in connection with the early repayment of a loan from the China Export-Import Bank. The plant took out a loan in rubles from Russia's VTB Bank to repay the Chinese loan in dollars in full. But in 2022, the value of the Russian currency also jumped, which led to the difference.
Meanwhile, the company's debts to creditors remain high and currently exceed 1.2 trillion tenge.
PPP's total revenue for last year reached almost 156 billion tenge, 14% more than the previous year (136.8 billion), and its net profit was 20 billion tenge, a 60% decrease over the year (49.7 billion tenge in 2023). At the same time, the company's debts at the beginning of this year amounted to almost 80.3 billion tenge.
For both enterprises, the need to restructure debt obligations and develop optimization programs is indicated as an additional condition for privatization.
The Atyrau Oil Refinery was commissioned in 1945. The advantage of the Atyrau Oil Refinery is that it is in a region that accounts for 62% of the oil produced in the country. This means that the enterprise has no problems with raw material shortages.
From 2003 to 2018, the plant underwent three stages of modernization, which cost a total of $3.6 billion. After that, its capacity increased from 4.7 to 5.5 million tons per year, and the depth of processing increased from 70% to 86%. The enterprise began to produce benzene and paraxylene.
However, with the increase in productivity, the volume of harmful emissions into the atmosphere doubled. Residents of Atyrau periodically complain about a specific smell coming from the plant. But they cannot prove that it is the plant that is polluting the air.
From time to time, conflicts arise at the plant between employees and management. The most recent such incident occurred in 2024, when plant workers signed a petition demanding the dismissal of Galymzhan Zhusambayev, CEO of ANPZ LLP, whom they accused of stealing metal, siphoning off petroleum products, etc. In response, the CEO stated that, on the contrary, he had stopped the theft at the enterprise, which was the reason for such an attitude towards him.
In addition, accidents and production stoppages often occur at the plant, which reduces the production of fuel and lubricants in the country and forces them to be imported.
Compared to the Atyrau plant, the PPP is a more modern enterprise, commissioned in 1978. Its main problem is its dependence on imported raw materials. It was built during the Soviet era to process oil from Russian fields. The plant's design capacity is 6 million tons per year. However, it usually processes about 5.5 million tons of oil per year, more than 80% of which is supplied from Russia.
In 2024, APDC analyzed competition in the oil refining market. Based on the results of the study, the agency noted the “low quality of state management” of two plants. At the same time, 1.9 trillion tenge was invested in their modernization over five years. According to the agency, between 2021 and 2023, there were 106 unscheduled shutdowns at the AOR and PPP refineries, while there were 21 shutdowns at the Shymkent refinery, which is more than half owned by China's CNPC.
The agency believes that the Shymkent plant is managed more efficiently. Therefore, it is also recommended to privatize the Atyrau and Pavlodar plants, while retaining state control over the enterprises.
At the same time, the agency proposed that the state buy shares in large fields such as Tengiz, Kashagan, and Karachaganak from foreign investors, giving them shares in refineries in return, which should increase oil processing volumes and improve production technology. It is not yet known whether Chevron, ExxonMobil, and other majors are ready to invest in oil refining in Kazakhstan. However, there have been reports in the press, citing anonymous sources, that Russian companies Lukoil, Tatneft, and Gazpromneft have expressed interest in the plants at various times. However, no actual deals have been concluded.
Their tariffs are no lower than European ones, according to experts.
Meanwhile, several independent experts also believe that AOR and PPP need to be privatized.
"These plants should have been privatized long ago. I do not see anything strategic about oil refineries. We have some kind of military perception from the time of the Great Patriotic War, when the AOR was built, that it is some kind of strategic facility, etc. There is nothing strategic about it. I do not know of any state-owned oil refineries in America or Europe. They are all privately owned, and in general, there are no state-owned companies. And private owners manage all this calmly," says Olzhas Baidildinov, an expert in the oil and gas industry.
According to him, today all repairs and other maintenance costs for these plants are borne by the KMG budget and, accordingly, by the company's shareholders, society, and the country. If they were privatized, these costs would be borne by the private owner.
"It is obvious that KMG has lost its competence in managing the plants in recent years. If you read the official reports, you will see that the number of planned and unplanned shutdowns is also quite high. At the same time, there is no transparency in how much money is spent on repairing these accidents. Ideally, KMG should disclose in its annual report how much it costs to maintain these plants. For example, I compare the AOR to a 1990 BMW—it does not really run, and you must constantly pour money into it. Does the state need such an enterprise? Especially given that the plants need to be modernized and upgraded, which requires additional investment," the expert notes.
He believes that private owners will manage the plants more efficiently and correctly, without any violations. At the same time, as the expert notes, the former managers of AOR and PPP were accused of corruption.
The expert estimates the value of the plants at approximately $300-400 million each. At the same time, he believes that based on the profitability of the enterprises, investors can recoup the money invested in the purchase of the plants within five years.
"It is clear that in a different environment, these assets would be more attractive and more profitable. However, we now have a situation where the market is overregulated. The state sets tariffs for processing. Refineries can purchase oil directly for processing and further sale as petroleum products, but they are not currently doing so. This is probably because the prices of petroleum products are low in our country, and you cannot export them," Baidildinov argues.
He says that, according to unofficial information, Tatneft was considering the possibility of purchasing AOR, which has particularly high debt. The fact that tariffs are set in tenge, which is subject to devaluation, may complicate the return on investment. And any potential buyer will, in any case, be guided by the dollar value of the asset.
At the same time, the expert believes that for KMG, the privatization of AOR and PPP will probably be a kind of political move that acknowledges that the national company has invested heavily in these enterprises but is selling them cheaply. But it is better to record this loss and release it to the market.
"Go up to any car owner in the US or Europe and ask them which factory supplies the fuel you use to fill up your car. I think they don't know and aren't even interested in knowing. And we sit and pray every time that some plant doesn't break down, that it comes out of repairs on schedule. Why is all this necessary? I don't really understand it. It should all be in the private sector. Let these plants compete with other refineries in our region. Let them operate freely in the market. They buy oil and sell petroleum products. Let it be a free market with open pricing. Then everything will live and work as it should," believes Olzhas Baidildinov.
According to him, there is currently an option being considered to transfer the refineries to trust management for five years with a subsequent buyout.
“Perhaps this scheme is more optimal for KMG. Because in this case, it will not be necessary to recognize losses on these plants. And this (recognition of losses) is probably also quite problematic,” the expert believes.
But questions remain. For example, what will happen after the plants are sold? How much will the country's petroleum products market change? Will privatization affect the cost of fuel on the domestic market?
"Our oil refining tariffs today are approximately $70-100 excluding VAT, which is the same level as in Europe. Our refineries generally do not incur losses from processing. In fact, AOR and PPP are modern plants that produce high-quality fuel. Due to low domestic prices for petroleum products, it is the subsoil users who supply oil to domestic refineries at below-market prices who are more likely to suffer. And I do not think privatization will have a big impact on fuel prices. At the same time, I believe that these plants should compete with other similar enterprises in the region, such as Russian or Chinese ones, which have roughly the same processing prices. The plants should be in the market, and their tariffs are already market-based," says the expert.
For its part, the Kazakhstan Fuel Association supports the privatization of the Atyrau and Pavlodar oil refineries, considering it an important step to attract investment in modernization and expansion of production.
"Practice shows the effectiveness of such decisions: at the PetroKazakhstan Oil Products LLP refinery (Shymkent Refinery), where the state and CNPC have equal shares, investors are already financing a large-scale expansion of capacity. By 2030, the company plans to double its production of petroleum products, including liquefied gas, AI-92/95 gasoline, and diesel fuel.
Based on this experience, the association considers the privatization of oil refineries to be a timely measure that will saturate the domestic market and increase exports of refined products rather than crude oil. At the same time, it is important that the process be conducted openly and in accordance with national interests," the organization notes.