Publication: Eurasia Daily Monitor Volume: 2 Issue: 165

When the Chinese National Petroleum Corporation (CNPC) agreed to pay $4.18 billion to buy the Canadian-listed PetroKazakhstan oil company, the deal triggered a flood of controversial comments in Kazakhstan. What seemed to be the biggest Chinese takeover deal ever made in Kazakhstan instead left a bitter aftertaste of national humiliation and a new awareness of Kazakhstan’s increasingly fragile position in dealing with its oil-thirsty great neighbor.

The Chinese side did not deem it necessary to consult with the Anti-Monopoly Agency of Kazakhstan, as required by Article 18 of the law on the regulation of competition between Kazakhstan-based companies. Formally, the Anti-Monopoly Agency of Kazakhstan has certain levers it could deploy to reject the Chinese bid to purchase PetroKazakhstan. But to the disappointment of defenders of Kazakh national interests who believe that CNPC’s acquisition of PetroKazakhstan assets violates the 1998 law “On National Security,” the Kazakh government missed its opportunity to influence the deal. Although an anonymous representative of the CNPC reportedly said that the Chinese company had discussed the planned takeover with Astana, such statements disseminated by the Chinese Xinhua news agency ring hollow. In fact, CNPC executives conspicuously ignored Kazakhstan’s government (Novoye pokolenie, September 2).

Paradoxically, government officials in Astana acted deeply ignorant of the Chinese-engineered behind-the-scenes grab for PetroKazakhstan until the very last moment. It was first believed that the Russian Lukoil and the Indian ONGC oil companies had equally solid chances to acquire PetroKazakhstan shares. Even if it did purchase PetroKazakhstan, India would draw scant economic benefits from the deal, as it would have to transit Russian territory for shipments of Kazakh oil. Kazakhstan also loathes the idea of falling into economic dependence on Russia for shipment of its oil.

China has far greater import potential than any other country. According to experts, China’s oil consumption rose by 33% last year, compared to an 11% gain in India. Furthermore, in the highly sensitive realm of energy politics, Astana has to make some political gestures toward its big neighbor, sometimes at the expense of economic considerations (Kursiv, August 21). For that reason, Kazakh officials did not resist the Chinese bid for PetroKazakhstan shares. However, some analysts warn that by giving priority to Russian and Chinese preferences for oil shipment routes, Kazakhstan could make itself vulnerable to economic and political intervention by Beijing and Moscow into Kazakhstan’s internal affairs (Zhas Qazaq, August 5).

All recent developments in the oil sector clearly signal the slow but sure drift toward Chinese economic expansion. In essence, CNPC’s purchase of PetroKazakhstan is part of broader Chinese calculations directed at gathering the oil extracting, processing, and shipment infrastructure of southern Kazakhstan into a single hand. Using the much-publicized Atasu-Alashankou oil pipeline from western Kazakhstan to Xingjian province, China gets a very reliable lever for exerting political pressure on Kazakhstan as the major — and practically the only — buyer of Kazakh oil.

Only a few analysts in Kazakh government circles realize that by signing hasty contracts in the oil sector and by adopting a short-sighted labor migration policy, Astana is paving the way for Chinese dominance in the region. Kazakhstan is opening its doors to Chinese companies at a time when other oil producing countries (including Russia’s Slavneft and the U.S.-based Unocal) have refrained from selling their assets to Chinese (Novoye pokolenie, September 2).

Since 2004 PetroKazakhstan has come under relentless pressure from the government for allegedly monopolizing the fuel oil market and violating the Labor Code of Kazakhstan. The financial police, Anti-monopoly Agency, and environmentalists joined the government’s anti-PetroKazakhstan campaign by staging protest rallies in front of the company’s offices. Some observers suspect that President Nursultan Nazarbayev is behind these overt campaigns. There are reasons to believe that these pressures on PetroKazakhstan were aimed at forcing the company into accepting the deal with the Chinese. Kazakhstan already has committed itself to economic cooperation with China within the Shanghai Cooperation Organization. In any case, the Chinese oil market, with its enormous consumption potential, is much more attractive than the alternative Indian or Russian routes (Panorama, September 2).

Beijing’s policy of economic expansion comes sugar-coated with declared benign intentions of cooperation and good-neighborly relations. But Kazakh officials must be careful not to sacrifice national interests and assets to appease external players.