ASTANA—A high level of market concentration remains in Kazakhstan, and the substantial role of the state in the economy is a key barrier to the development of competition, according to the findings of the annual report from the Agency for the Protection and Development of Competition.
Agency for the Protection and Development of Competition was established in 2020. Photo credit: the agency’s official website
Private business development as a key driver of growth
The development of private business is seen as a key driver of growth, but an unfavorable competitive environment remains a significant hurdle.
“The environment in which many companies operate is characterized by long-standing structural problems associated with the legacy of an incomplete transition to a market economy,” reads the agency’s report.
Limited competition in product markets, exacerbated by the extensive presence of state-owned enterprises, distorts business conditions and creates unequal opportunities for private companies. This lack of competition prevents resources from being allocated to the most productive and growth-oriented firms.
The report indicates the state is present in at least 20 out of 30 sectors of the economy. Meanwhile, the average indicator among the OECD countries, to which Kazakhstan aspires, stands at 13.
Quasi-state sector entities operate in sectors where it is necessary to develop private competition, such as manufacturing, transportation, and certain types of subsoil use. The efficiency of quasi-state sector entities is also questioned. In 2020, their debt obligations reached 17.2 trillion tenge (US$36.2 billion), with significant losses reported.
The report indicates that state-owned companies tend to be larger and more capital-intensive but less productive than private companies.
The new law
While some of the findings indicate a worrying picture, the new law signed in May gives hope for addressing regulatory barriers. The law entails measures that, among other goals, aim to reduce the state’s participation in the economy, ensure entrepreneurial freedom by developing competition, and lower business costs.
The law establishes a National Office for Privatization, which will develop criteria for privatizing state assets, analyze quasi-state entities for non-core asset transfers to private hands, and form a list of state assets to be privatized.
The approval and adjustment of this list will now require the decision of the Supreme Council for Reforms under the President of Kazakhstan, preventing arbitrary exclusions from the privatization plan. Previously, the list was considered by the State Commission on Economic Modernization, chaired by the Prime Minister.
Under the new law, a new format for the list of allowed activities for quasi-state sector entities will also be introduced. This format will specify geographic boundaries, entity names, activity types, and duration of market presence.
A moratorium on creating new quasi-state sector entities will be reinstated until the end of 2026, with specific exceptions outlined in the decree.
The new law also envisions gradual price deregulation. Over the past few years, direct and indirect price regulation has expanded, impacting services provided by retail petroleum product suppliers, liquefied petroleum gas suppliers, pharmacies, and retail chains for socially significant food products.
“On the example of the markets of oil products and liquefied gas, this was a direct cause of the reduction of investments in the exploration and extraction of energy resources, their production and processing volumes, and on the gas market to a sharp increase in consumption,” reads the report.
The law also outlines a phased approach to abolishing the maximum number of national legislative norms that directly or indirectly restrict price and tariff freedom, except in monopolistic markets. This process is set to be completed by Dec. 31, 2027.
Measures are already being implemented to gradually deregulate prices for certain medicines, petroleum products, and socially important food products.
Privatization
Kazakhstan’s President Kassym-Jomart Tokayev repeatedly emphasized the need for systemic measures to liberalize the economy, with effective privatization as a key direction. However, the privatization process faces challenges, including the need for market analysis, disinterest from central and local authorities, and high demands on investors.
The agency submits recommendations to the government each year for transferring state-owned enterprises to a competitive environment. In 2022, the sectoral analysis identified 105 quasi-state sector entities for privatization, but only ten entities were approved.
“This situation results from initiatives by local and central government bodies to exclude enterprises from the privatization plan for various reasons and reluctance to include new ones,” reads the report, adding that decisions on whether to include or exclude companies from the plan are frequently made without thorough analytical assessments or consideration of market structures.
The agency formed the list in 2023 with proposals to transfer 43 enterprises to the competitive environment, mainly in such spheres as education, municipal solid waste, and mass media.
High-concentration industries
In 2023, the agency analyzed 40 commodity markets; in most cases, these were unscheduled analyses of commodity markets.
One industry with high market concentration is the oil and gas sales market. According to the country’s law, the main buyers of oil are suppliers who purchase oil for subsequent delivery to refineries to obtain petroleum products. In 2023, amendments were made to this law, allowing subsoil users to process oil at refineries independently.
Subsoil users set oil prices by considering price offers from buyers for domestic market deliveries, while export prices depend on global oil prices.
In 2023, oil and gas condensate production reached 89.9 million tons, export volume reached 70.5 million, and 16.6 million tons of oil were directed to refineries.
The oil market in Kazakhstan remains highly concentrated, with China National Petroleum Corporation and KazMunayGas (KMG) being the primary players.
In 2022, CNPC held 35.6% of the market share, while KMG accounted for 24.5%. The remaining 39.9% was distributed among other market participants. In 2023, CNPC’s market share slightly decreased to 39.3%, while KMG’s share rose to 28.2%, leaving 32.5% for other participants.
The market includes 105 subsoil users, with CNPC and KMG being the major players, maintaining a combined market share of over 60%. The Tengiz, Kashagan, and Karachaganak fields, which do not supply oil to the domestic market, account for 67% of total production.
To boost competition in the market, the agency suggests revising rules for setting price caps on petroleum products, developing transparent mechanisms and rules for equal access to oil transportation and processing at refineries, abolishing or limiting the preferential rights of national companies for exploration and production through direct negotiations at oil fields and developing a tax model that provides preferences in the presence of vertically integrated oil companies and investments in exploration.
It also calls for the Ministry of Energy to initiate regulatory amendments to manage oil supply quotas.
