Chinese expansion in Kazakhstan's energy field?05 february 2015, 02:53
China has been expanding its outbound investment activity globally. As quoted by Reuters, on January 16, Chinese Vice Minister of Commerce Zhong Shan said: "Based on the current trend, China's outbound investment will keep growing faster than inbound investment, leaving China to soon become a net outbound investment country."
Intensification of Chinese investments in Kazakhstan for the past 16 years has divided the public. Some believe this is a positive development benefiting the Central Asian economy. Others think there is a certain danger in this process.
Chinese investments in Kazakhstan are particularly focused on the natural resources, such as oil and gas. The share of Chinese multinational companies in the energy sector of Kazakhstan has been steadily growing after the signing in 1997 of intergovernmental "Agreement on cooperation in the field of oil and gas" between the Ministry of Energy and Mineral Resources of Kazakhstan and CNPC. The two countries also concluded the General Agreement on the projects of development of fields and construction of pipelines.
At the moment there are about 20 Chinese companies working in Kazakhstan with shares between 50 to 100%, Sayasat writes. The biggest of these are CNPC, SINOPEC and CITIC. All the other companies are either their subsidiaries or not very big. These three companies are responsible for the lion's share of production and transportation of Kazakh oil to China and work primarily in Kyzylorda and Atyrau Oblasts in Kazakhstan oil bearing south and west.
As a supplier of raw materials Kazakhstan is facing a dilemma: expanding its relations with China will increase in its economic turnover but will also decrease its ability to maneuver on the global energy market.
Aivar Baikenov, Director of the Analysis Department at Asyl Invest, pointed out the risk of Kazakhstan becoming a “raw materials appendage” or "resource appendage" to the gargantuan Chinese economy.
“When you are a raw materials country with a very limited amount of high value added goods production, located near the world's second largest economy that may soon become the world's largest economy surpassing the U.S., then the raw materials appendage scenario looks only natural,” he said. But he pointed out that many suppliers of raw materials found it increasingly beneficial to trade with rapidly growing China and other Asian countries rather than with the slow growing West.
However, China likes to dictate prices on its imports, Senior Analyst of Alpari firm Anna Bodrova pointed out. "Since Beijing loves to cut down prices, it is impossible for Kazakhstan to sell hydrocarbons to China at European prices. The price will surely be 3-5 percent lower," she explained.
Wild Bear Capital investment company analyst Victor Neustroev added that trade expansion with China could lead to a decline in competitiveness of Kazakhstan's domestic goods even at the domestic market.
But these analysts have to admit that it is not the time for Kazakhstan to dictate the terms. “I believe that at this stage Kazakhstan will benefit from increasing the shipments of raw materials to China. We first need to make sure that our economy is up and running, and only after that we can afford a luxury of engaging in measures to make it healthier. Population has already faced serious problems as a result of devaluation of the tenge (Kazakhstan's currency), so further contraction of the real GDP will hit the citizens even harder,” Naustoyev maintained.
Back in 2011, chief geologist of KazMunaiGas (KMG), Kazakhstan's national oil and gas company, Kurmangazy Iskaziyev said that paying attention specifically to the ethnicity of investors was “hardly appropriate,” because what mattered were the terms they offered, KMG press service quote him as saying.
“If an investor is offering more favorable conditions than the other, then it is logical that the former one would have better chances of get this project or that. In this case, the origin of the investor, be it China, Russia, USA, etc., is of secondary importance, since in any case, whatever foreign country it represents, the interests of Kazakhstan are protected. There are four levels of protection. The first one is the licensing mechanism for companies to obtain rights to develop the field, the second one is the taxation system, the third one is the system of control by the Ministry of Oil and Gas of Kazakhstan, and the fourth one is the constant monitoring by other relevant state agencies,” Iskaziyev said.
He pointed out that Chinese companies invested in the fields already mature, which meant that the share of these companies in the Kazakh oil and gas sector would inevitably decrease.
Famous sinologist Constantine Syroyezhkin also recommends taking into account the fact that China was working the fields that were past their production peak. The expert said that the share of Chinese companies on the territory of Kazakhstan was 23-24%, which could not be considered overly high. In addition, there was a relatively small labor quota for China in Kazakhstan - five thousand people a year.
The expert added that China's expansion was more pronounced in other countries. For example, Chinese companies had virtually replaced the United States in Africa.
He said that the rumors that China would significantly strengthen its presence in Kazakhstan in the future were due to limited access to the information about the relationship between the two countries. In particular, he tried but could not get much information about agreements in the oil and gas industry. The lack of information generates speculation and myths about Chinese expansion, he said.
But Syroyezhkin did not offer any explanation justifying the need to keep such information away from the public eye. Indeed, why?
By Dinara Urazova