Kazakhstan Faces Oil Dilemma

Kazakhstan Faces Oil DilemmaKazakhstan Faces Oil Dilemma

Kazakhstan was a poster child of the past decade’s oil boom, building a futuristic capital on the steppe with its hydrocarbon riches, but this year’s tumble in prices has pushed many of Kazakhstan’s Soviet-era oilfields into the red.

That poses a dilemma for the increasingly cash-strapped government of Kazakhstan’s President Nursultan Nazarbayev: Subsidize inefficient producers to save jobs or reform the industry, risking the ire of workers who rely on the government to protect their livelihoods and of powerful businesspeople who got rich from the oil boom, Financial Times reported.

It is a dilemma that Timur Kulibayev is acutely aware of. The 49-year-old son-in-law of Nazarbayev is one of the country’s most influential businesspeople. He leads Kazenergy, the oil industry association, and his business empire, estimated at $2.1 billion by Forbes, touches almost every area of the oil sector.

In an interview at his office at the Astana headquarters of Kazmunaigaz, the state oil company he used to run, Kulibayev said the government must cut taxes on the oil industry to avoid large job cuts.

“It is essential that the government take steps to reduce the tax burden,” he said. “We hope in this way to help companies that find themselves in a tough situation. Our main task is not to reduce staff, because the social aspect is very important for us.”

But cutting taxes would further strain Kazakhstan’s finances. Nazarbayev said recently that the fall in commodity prices had cut the country’s budget revenues by 40%, declaring that Kazakhstan faced a “real crisis” worse than 2007-09.

“Companies should not expect that the state will provide them with funding,” he said.

Oil output in Kazakhstan, the world’s 18th-largest producer, is expected to fall by 1.6% this year and may fall 10% next year in a low-price scenario, government officials have warned.

Last year, non-OPEC Kazakhstan produced about 1.6 million barrels a day, almost on a par with Angola, OPEC's eight biggest producer.

Kazakh Deputy Energy Minister Uzakbai Karabalin said in September that if oil prices next year stand around $50 per barrel, Kazakhstan would produce 79 to 80 million tons, little changed from this year's forecast of 80.5 million tons.

However, the country's energy officials say Kazakhstan could cut oil output by a tenth next year, if prices drop to $30 per barrel.