Fuel sales in 2017

Ensure access to affordable, reliable, sustainable and modern energy for all.

Respectfullness

We respect rights and interests of concerned parties, which follow from the legislation, concluded contracts, or indirectly within the framework of business relations.

2017 is key year, because just in this period main works on modernization of the refineries of the KMG Group of companies were completed. Annual scheduled preventive maintenance works were carried out according to the schedule of PMW, established by the Ministry of Energy.

Repair work resulted in low level of fuel supplies in the domestic market, due to which gasoline was sold in limited numbers in autumn 2017, by cards and coupons in some regions of Kazakhstan, namely in South Kazakhstan, East Kazakhstan, Almatinskaya and Kyzylordinskaya oblasts.

Moreover, during repair works a detail was damaged on hydrogen production unit on October 20, at Pavlodar refinery, for which special qualification of the welder, special equipment and preparation before welding were required. Local workers performed welded works with violation of technology. In addition, the responsible officials did not inform about this in due course, and tried to repair it on their own, which further damage the equipment more. This detail is made on a limited number of factories in the world. Foreign experts were invited to conduct a survey, which revealed the inadequacy of the damaged equipment. As a result, a new detail was ordered in the UK, and it took about month for its transportation, installation and commissioning. As a consequence, Chief engineer and Technical Director of Pavlodar Refinery were dismissed; Director General of the plant Shukhrat Dunbai left at his own accord.

During shortage of fuel, other refineries operated in normal mode at full capacity. However, before completion of the modernization of three oil refineries, Kazakhstan was forced to import up to 30 % of gasoline and up to 15 % of diesel fuel from Russia. In order to prevent a shortage of diesel fuel in the country’s regions, import contracts were signed with Russian companies Lukoil, Gazprom, ForteInvest, and Rosneft towards KazMunayGaz Onimderi LLP in the amount of up to 100 thousand ton.

During the reporting period, the price for off-season diesel fuel was no more than 155–160 KZT per liter. Low price for Kazakh gasoline is one of the risks of wholesale export of fuel abroad. Given open borders and a single economic space, the risk of fuel flows will remain in future. The state and market participants face the task on establishment of price parity between the prices of Russian and Kazakhstan retail gasoline, which are also influenced by the price in Uzbekistan.

Kazakhstani retail fuel market is represented by a lot of companies, such as Gazprom Neft, Helios and Sinooil. Share of LLP “KazMunayGas Onimderi” on the market was about 14 % in 2017.

During 2017 there was appreciation for the retail price for fuel, which was stipulated by several factors:

  • growth of wholesale prices for petroleum products in Russia by 7 % – from 517 to 555 dollars per ton;
  • depreciation of KZT against USD by about 9 % (from 312 to 340 KZT for USD1);
  • weakening of demand during repair work at the refinery.

There was some tension among retailers in relation to sanctions of the Kazakhstani Antimonopoly Agency for rising of retail prices to 155–160 KZT per liter AI-92 in 2017, which could be interpreted as price collusion. However, the Ministry of Energy of the Republic of Kazakhstan and the Committee for Regulation of Natural Monopolies, Competition Protection and Consumer Rights of the Republic of Kazakhstan signed a joint protocol on imports from the Russian Federation on October 4. Thus, the increased price for fuel was interpreted as “factor that equally affects all market participants” and was not a price collusion of suppliers.

KMG carried out the necessary work on change and agreement of terms of repair of the refinery, including Pavlodar refinery with the Ministry of Energy of the Republic of Kazakhstan in May 2017. There shall be an early replenishment of stocks by imports from Russia. However, this did not happen sufficiently because of price disbalance with the neighboring country: in view of the high price on fuels and lubricants in Russia, it was not profitable for market participants to buy and to sell at low prices in Kazakhstan, in the result of which there was a significant decrease in inventories. Partly this is due to the fact that Kazakhstan does not have a mechanism for determination of price and establishment of price parity. Thus, the fundamental reason was the absence of state policy on regulation of prices, despite the fact that the price for fuel, like any product, shall be established on a market basis. As of 2017, the retail price for fuels and lubricants in Kazakhstan is significantly lower than in neighboring Russia, Uzbekistan and Kyrgyzstan. Prices for petroleum products in Kazakhstan are among the lowest prices in the world, not only in the CIS countries. Prices on the domestic market also differ depending on regions.

This fact is also reflected in profitability of subsoil users. To ensure the loading of the refinery with raw materials in the long term, it is also necessary that subsoil users can obtain an income, comparable to the revenue, when they send oil for export. The shortage of income by extraction enterprises limits them in expansion of their resource base and increasing exploration costs. If oil is not exported, and directed to domestic processing with reduced profitability, and the product flows into neighbouring countries, this does not benefit either domestic consumers or suppliers. The same factors affect the direction of petrochemicals: in order to invest in the development of petrochemicals and improve refining technologies, investors shall understand pricing and possibility of obtaining a sufficient rate of profitability.