Kazakhstan’s Downstream Shortages Lead to Dismissals

On 10 October, Kazakhstan’s Prime Minister Bakytzhan Sagintayev fired Deputy Minister of Energy Aset Magauov and ordered that Samruk-Kazyna Welfare Fund (SK Fund) Umirzak Shukeyev fire KMG Deputy CEO Daniyar Berlibayev. Magauov and Berlibayev formally oversaw the downstream sector, including the availability of oil products such as gasoline and jet fuel, and were blamed for major supply shortages and price increases since September. Sagintayev also reprimanded Energy Minister Kanat Bozumbayev and KMG CEO Sauat Mynbayev.

The dismissals were the end result of a public confrontation between Sagintayev and Bozumbayev. The latter argued that temporary shortages should not be called deficits.  Furthermore, he blamed them on the price hike in imported Russian oil products (see our 4 OctoberLatest Analysis) and the slow modernization of Kazakhstan’s refineries. Meanwhile, Mynbayev emphasized that KMG is only responsible for 15% of the downstream market and could not cope with shortages.

Mynbayev also blamed the anti-monopoly agency for over-regulating prices. Indeed, the agency prevented all major gasoline retailers from raising prices to reflect more expensive Russian imports. Therefore, many wholesale customers have yet to purchase oil products since August. Meanwhile, demand for gasoline grew more than expected during the summer, and already depleted stocks vanished in many regions last month. However, Sagintayev dismissed these explanations, suggesting that these officials knew that two out of the country’s three main refineries (Pavlodar and Atyrau) had asked for maintenance breaks at the same time in September. He concluded that his subordinates “created a problem that did not have to take place.”

All of these arguments have some merit. Kazakhstan’s government has not adequately addressed its overdependence on Russian imports during times of peak demand. Separately, the anti-monopoly agency regulates prices on an ad hoc basis, thus removing any incentive for gasoline retailers to follow its orders in making timely price adjustments. Additionally, the Pavlodar refinery had a maintenance break scheduled for the spring, but since its subcontractors were late supplying key equipment, a decision was made to postpone both maintenance and modernization to the fall. All of this highlights the lack of coordination between the government and KMG, specifically in their ever-delayed efforts to increase self-reliance and implement competition rules in the downstream market.

The dismissals and reprimands, however, point to a deeper confrontation within the government beyond finding scapegoats for the current shortages. Skilled but relatively powerless technocrats like Magauov and Berlibayev were unable to dismantle the wasteful status quo in the downstream market, which generates profits for those who control price fluctuations and the de facto allocation of oil products. In our view, these vested interests include high-level officials at Russian suppliers Rosneft and Gazprom Neft, as well as figures close to SK Fund head Shukeyev and Rashit Sarsenov, who controls much of the oil trade in the Mangistau and Pavlodar regions. Additionally, Timur Kulibayev and his wife Dinara own companies whose subsidiaries are involved in the opaque downstream market.

Our contacts in Astana are divided on who is behind this attack on Magauov and Mynbayev, Kulibayev’s longtime associates. However, our contacts agree that the dismissals reflect the ongoing fight over downstream revenues and a desire to install loyalists in these two key positions. One government contact is confident that the president’s daughter, Dariga Nazarbayeva, and her family were behind the dismissals, along with the family of her younger sister Aliya’s. The latter’s husband, KazTransOil head Dimash Dossanov, has his own interests in downstream market. Another contact in the SK Fund argues that Shukeyev was behind these changes, with Sagintayev’s support, as the latter is trying to pass the blame for the fuel crisis onto his subordinates. We believe that the underlying reason for the dismissals was an ongoing factional fight in the government above Sagintayev’s rank, and that filling the two positions will be highly contentious.

Several Kazakhstan analysts publicly suggested that these dismissals reflect Sagintayev’s political weakness. His government has not achieved many tangible results under President Nursultan Nazarbayev’s “100 steps” economic reform program, which was announced several years ago. Indeed, Karim Massimov, the current National Security Committee (KNB) head, may be reappointed prime minister to serve a third time. However, there are several ongoing crises that could trigger much larger reshuffles within the government, including in the banking sector. In light of sudden cold temperatures in Astana and the Karaganda region, there is also an emerging coal shortage, which may have political fallout.