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UNCLAS SECTION 01 OF 02 ASTANA 000154 
 
SENSITIVE 
SIPDIS 
 
STATE FOR SCA/CEN, EEB/ESC, S/EEE, S/CIEA 
STATE PLEASE PASS TO USTDA 
 
E.O. 12958: N/A 
TAGS: PGOV PREL ECON EINV EPET SOCI KZ
SUBJECT:  KAZAKHSTAN:  STATE TO REGULATE FUEL PRICES 
 
ASTANA 00000154  001.3 OF 002 
 
 
¶1.  (U) Sensitive but unclassified.  Not for public Internet. 
 
¶2.  (SBU) SUMMARY:  Since independence, the government has attempted 
to manage gasoline prices through various means, including direct 
ownership of Kazakhstan's three refineries, crude export duties, 
bulk procurement, and state contracts that guarantee crude supplies 
to refineries.  The Ministry of Energy is preparing legislation on 
the regulation of fuel prices that will toughen rules for 
wholesalers.  Kazakhstan's decision to enter into a Customs Union 
with Russia and Belarus will likely bring gasoline prices in 
Kazakhstan closer to those in Russia.  END SUMMARY. 
 
COMPETITION PROTECTION AGENCY INVESTIGATES RETAILERS 
 
¶3.  (SBU) In November 2009, Kazakhstan experienced a shortage of 
gasoline and other fuels, followed by an abrupt rise in prices.  The 
Competition Protection Agency (CPA) accused distributors of fuels 
and lubricants affiliated with KazMunaiGas (KMG), PetroKazakhstan, 
and PetroKazakhstan Petroleum Resources of engaging in illegal trade 
practices.  The CPA also charged a number of companies with 
administrative violations, including KMG subsidiary KMG Onimderi, 
which allegedly sold fuel at retail prices under an unsanctioned 
coupon program. 
 
KAZAKHSTAN DEPENDENT ON RUSSIAN FUEL IMPORTS 
 
¶4.  (SBU) On October 8, 2009, Minister of Energy and Mineral 
Resources (MEMR) Sauat Mynbayev announced that "40% of the jet fuel 
and 30% of the high-octane gasoline on the domestic market are 
imported from Russia."  He said the government has two goals:  to 
keep gas prices steady and to satisfy market demand for gasoline, 
jet fuel and other petroleum products.  Mynbayev admitted that these 
goals can sometimes be at odds, since the price of fuel in Russia is 
as much as 40% higher than in Kazakhstan, and Kazakhstani suppliers 
naturally prefer to export petroleum products to Russia.  Mynbayev 
therefore proposed protecting the domestic market by restricting the 
price differential to less than 30%.  On November 16, 2009, he 
suggested adjusting the ratio of high-octane gasoline imports, and 
reducing imports of fuel oil and low-octane gasoline.  In order to 
increase administrative control over domestically-produced gasoline, 
MEMR now approves gasoline supply schedules in the regions, using an 
on-line database to monitor shipments. 
 
STATE TO ADOPT FUEL PRICE REGULATION LAW 
 
¶5.  (SBU) On January 21, CPA Deputy Chairman Boris Parsegov 
announced that MEMR is drafting a law on the regulation of fuel 
prices that is expected to be submitted to parliament in March. 
"The rules for wholesalers will be toughened," said Parsegov.  "That 
means that no organization can act as a wholesaler if it does not 
have the necessary infrastructure, such as oil storage facilities 
and access roads," Parsegov explained. 
 
INFLUENCE OF THE CUSTOMS UNION ON FUEL PRICES 
¶6.  (SBU) On November 17, 2009, Mynbayev said Kazakhstan must 
coordinate its fuel and lubricants prices with Russia once the 
Customs Union goes into effect.  "Since the borders will be open, 
the transportation of goods will be greatly simplified.  We will 
inevitably have correlated prices for oil products, whether we like 
it or not," he said.  "Even if the prices will not be exactly the 
same, they will still fluctuate within a certain range and influence 
each other.  This is an unavoidable result of establishing the 
Customs Union," he concluded. 
¶7.  (SBU) COMMENT:  The government is always under pressure to 
manage domestic fuel prices, particularly during harvest season.  On 
February 3, for example, Minister of Agriculture Akylbek Kurishbayev 
told the Senate that the state would purchase 336,000 tons of fuel 
at a fixed price for spring sowing and harvesting.  A new law to 
regulate fuel prices is therefore not unexpected.  It would have to 
take into account the new Customs Code that goes into effect on July 
1, and could lead to closer alignment of fuel prices in Kazakhstan, 
Russia and Belarus.  However, unless Kazakhstan modernizes its three 
 
ASTANA 00000154  002.3 OF 002 
 
 
refineries so that they can produce high-octane petroleum products 
to meet domestic demand, Kazakhstan will not be able to break its 
dependence on high-octane fuel products from Russia.  END COMMENT. 
 
SPRATLEN