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Central Asia’s Refineries Under Scrutiny

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Central Asia’s Refineries Under Scrutiny

Kazakhstan’s anti-monopoly agency fines the Atyrau refinery; Uzbekistan’s Fergana refinery becomes loot for investors. 

Central Asia’s Refineries Under Scrutiny
Credit: Pixabay

Oil refineries in Central Asia are key local hubs. Analysts often pay attention to the export-oriented role of these countries, as most of the crude oil they produce is pumped and sold abroad. Yet, a closer look into the barrels of oil processed for domestic use and the elites controlling the refineries can better illustrate how Central Asia’s business and governments interact.

In Kazakhstan, the Atyrau refinery is one of three main hubs for processing oil. Kazmunaigas, the state-owned oil and gas company, controls the plant, built in 1945. The plant and the city are so intertwined that Kairat Urazbayev, the new mayor appointed in January, previously served as general director of the refinery. The refinery has long been linked to worsening environmental conditions, especially air and water pollution. Only in recent months was an air pollution monitoring system put in place. Air quality is now monitored both by the government and by local NGOs.

In August, the Atyrau oil refinery was subjected to an anti-monopoly investigation for assigning a service contract disregarding transparency procedures and causing inflation in the price of petroleum products. It is common knowledge that one of the country’s richest businessmen, Timur Kulibayev, the son-in-law of Kazakhstan’s first president, Nursultan Nazarbayev, unofficially maintains close links with the management of the refinery.

Environmentally, hydrocarbon extraction in the Atyrau region has caused residents to worry several times in the past few months alone: The Atyrau refinery caught fire, while flaring at the Karabatan processing plant, the onshore facility that refines crude oil pumped from the giant offshore field of Kashagan, projected an ominous mushroom cloud that was visible from the city of Atyrau, 60 kilometers to the west.

In Uzbekistan, a deal to sell the Fergana refinery, the country’s largest oil processing plant, raised eyebrows for its opaque web of transactions. In June 2020, Belvor Holding Ltd, a Cyprus-based company, took control of Jizzakh Petroleum, a joint venture previously established by Uzbekistan’s and Russia’s state-owned companies, which operates the Fergana refinery. Belvor, rumored to be controlled by close members of President Shavkat Mirziyoyev’s circle, now owns 68 percent of the refinery, Uzbekneftegaz owns 30 percent, while Gazprom-controlled Gas Project Development Central Asia retained 2 percent after the deal.  

Observers noted that such a move could indicate that Mirziyoyev is shaking up the elites in the Fergana region in an effort to garner control over its assets. In a leaked recording in 2018, Mirziyoyev said he disapproved of the predatory attitude of the Fergana elite, reportedly adding that “it would be more beneficial for us if we throw the whole Fergana refinery plant into scrap metal.” Without explicitly naming the “predators,” Mirziyoyev was clearly referring to Akbarali Abdullaev, the nephew of late President Islam Karimov’s wife, who controlled the plant until 2013.

In 2019, the ownership of the plant was transferred from Uznefteprodukt, the state-owned refining company, to the State Assets Management Agency, the government branch in charge of the post-Karimov privatization drive. While it was originally earmarked for a public sale to Indonesia’s PT Trans Asia Resources – owned by the Aslanov family – the refinery was ultimately transferred into the hands of Jizzakh Petroleum in February 2020. The new ownership sacked the previous management and consolidated its position. Bakhtyor Fazylov, general director of Jizzakh Petroleum, also reportedly owns shares in Eriell, a large service company linked to both Uzbekneftegaz and Russia’s Lukoil.

In June, after months of strained industrial relations, 287 workers at the refinery filed a complaint directly to president Mirziyoyev, arguing that the new management drastically worsened work conditions and seemed to conduct business in violation of contractual obligations. Jizzakh Petroleum, however, remained untainted by the turmoil and signed onto a $300 million project to modernize the plant in July.

Undoubtedly, the quasi-private management of Kazakhstan’s and Uzbekistan’s refineries points the spotlight on poor corporate governance and predatory business behavior that has characterized the history of the petroleum sector in the region. The Atyrau refinery, despite costly modernization projects, continues to pollute the environment and causes price increases through opaque deals. The new owners of the Fergana refinery turned a state asset into a feeder for private interests. Those who expected to breathe new air with the election of Kassym-Jomart Tokayev in Kazakhstan and Mirziyoyev in Uzbekistan continue to stand choked in a permanent cloud of smoke.