Call to Refine More Oil at Home

Energy experts say Kazakstan must start refining more of the crude oil it produces if it is to head off price rises at the petrol pumps.



On February 24, the weekly Karavan newspaper reported that the Kazak government has yet to renew an agreement with leading oil producers which have held prices down in recent years. The newspaper warned that this could lead to a major petrol-price crisis this year.



Energy analysts says that although Kazakstan is a major producer of crude oil, petroleum-based fuels and lubricants are costing more and more to produce because the country’s refineries are obsolete and costly to run.



“Many extraction companies find it a lot simpler and more profitable to export their crude and earn foreign currency than to sell it on the domestic market – especially since the refineries haven’t all been modernised to the extent necessary,” explained NBCentralAsia analyst Eduard Poletaev, who believes the most effective way to reduce prices is to export less crude oil to the West and refine more of it in Kazakstan.



Of the 65 million tons of oil recovered in Kazakstan last year, no more than a tenth was sold on the domestic market.



Economist Kanat Berentaev warns that there is a real risk of a major petrol crisis, and says the government must intervene soon to regulate the market failure and prevent prices shooting up.



He prescribes a number of price-control mechanisms such as restoring value-added tax on exported oil and abolishing the same tax for domestically refined oil, and putting a cap of 20 or 25 per cent on profits made by refineries, so that they are unable to earn excessive amounts of money by putting up their prices. Finally, he recommends that petroleum products should be sold on the commodities market to cut out intermediary trading.



(News Briefing Central Asia draws comment and analysis from a broad range of political observers across the region.)