OIL REFINERY PROBLEMS INCREASE.

Although Kazakhstan’s 1997 oil extraction exceeded its 1996 level, production volumes in the refinery sector fell last year to around 83 percent of their 1996 levels. The contraction in oil refining exacerbates losses incurred by falling world oil prices. (Russian agencies, July 22 and 27)

Kazakhstan has three refineries: Atyrau in the west, Pavlodar in the northeast and Shymkent in the southeast. All three are working at less than 50 percent capacity. Several factors account for this decline. Customers are often unable or unwilling to pay for supplies received. Pavlodar and Shymkent have been involved in ownership disputes. (See the Monitor, July 29) Reduced local demand for oil products, resulting from the world and Russian financial crises, combined with cheaper prices for Russian imports, curb demand for locally refined oil. In 1997, too, the government also instructed refineries to supply fuel to agricultural enterprises, which often paid for fuel with grain. Ultimately, both Pavlodar and Shymkent rely on unreliable Russian crude supplies; only Atyrau is linked to, and refines, locally produced oil. Pavlodar and Shymkent are therefore forced to pay both Russian and Kazakhstani VAT on the oil they refine.

Refinery output is likely to recover somewhat this year, as all three refineries are being modernized. Kazakhstan’s Shymkent oil refinery recently announced plans to invest some US$150 million over the next five years to upgrade a catalytic cracking unit.(Reuter, July 14) Moreover, pressure should be eased with this week’s reform of Kazakhstan’s road tax legislation, which shifts the burden of payment from the producer to the consumer of oil. (Reuter and Russian agencies, July 27)

The refineries’ production problems are symptomatic of general bottlenecks in Kazakhstan’s oil and gas sector. Mangistau oil field, which produces most of Kazakhstan’s oil, is no exception. A letter by Kazakhstan’s Union of Oil and Gas Workers published on July 27 urged President Nursultan Nazarbaev to stabilize the Mangistau region. The letter claimed that this is the third consecutive year of delays in wage payments, and that numerous foreign companies have not honored their contractual obligations. Only a few days earlier, on July 22, Prime Minister Nurlan Balgimbaev said that falling world oil prices had already pushed Kazakhstan into a “pre-crisis” situation. (Russian agencies, July 22)–SC

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