On 27 April, 2021, the Ministry of Energy of the Republic of Kazakhstan informed the local consumer that the wholesale price limits for commercial gas are soon to be raised.

Let us praise the literary talents of the officials who, in a short press-release, have managed to explain, intelligibly and convincingly, why this needs to be done. On the other hand, they have inadvertently pulled the rug from under not only the government but Akorda and the Library as well. To prove this, let us quote the entire press-release highlighting the parts that deserves our attention.

«On 1 January, 2019, the wholesale prices for commercial gas were reduced from 3.8 to 17,5% depending on the region and have not been raised until today, informs the Ministry of Energy’s press-service. 

The wholesale price limit for commercial gas consists of the purchasing price for gas from subsoil users, the transportation and underground storage expenses as well as the profitability rates.

The wholesale price limit for commercial gas for industrial consumers and investors who purchase commercial gas to produce compressed and (or) liquified gas consists of the prime cost of gas.

It should be noted that, currently, the established local market wholesale price limits for commercial gas are lower that the prime cost of the gas supplied. Starting from 1 January, 2019, the Ministry has reduced the wholesale price limits for commercial gas from 3.8 to 17,5% depending on the region and the prices have not been raised until today.

The current wholesale prices are unprofitable for the national gas supply operator, KazTransGas JSC. From 2015 to 2020, the sum of the operator’s losses constituted about 425 bln tenge which includes 225.6 bln tenge lost in the course of the past two years alone (2019 — 2020). This means that the current prices for commercial gas are being subsidised by the national operator.

This unavoidable measure of support serves as a deterrent for the sector’s sustainable development.

It is also should be noted that the main gas pipelines in the country were built in the Soviet times, have exhausted their capacities and are worn out to a great degree.

According to the national operator, for the past five years alone, about 67 thousand defects of Kazakhatan’s gas transportation system have been registered. Currently, only 9 thousand of them have been eliminated.

This situation results from suppressing the growth of the tariffs needed to restore and develop the country’s gas transportation system. Consequently, it will lead to the growing of the critical defects and retaining high accident risks when it comes to the gas transportation infrastructure. Therefore, suppressing or reducing the  tariffs may result in irreparable damage in the future.

For the period of 1 July, 2021 — 30 June, 2022, the Ministry of Energy intends to establish the wholesale price limits for commercial gas on Kazakhstan’s local market which includes industrial consumers-investors who purchase commercial gas to produce compressed and (or) liquified natural gas. Based on the foregoing, a decree stipulating the increase of the wholesale price limit for commercial gas up to 15% has been drafted. The draft decree is now on the tapis at the Atameken National Entrepreneurs Chamber and governmental agencies».

Now, let us try and substitute «commercial gas» for any other product or service the wholesale or retail prices for which are, one way or another, established (controlled) by the state. And you would be surprised to what extent is the aforementioned logic is also applicable to them.

With that, it is of no matter whether we are talking about electricity, heat supply, pharmaceuticals, public transportation fares e.t.c.

The reasons why the sovereign and independent Republic of Kazakhstan has to retain the policy of suppressing the growth of wholesale and retail prices (the policy that has been, de-facto, borrowed from the Soviet times) are clear. The main one lies in the fact that the level of personal income of most Kazakh citizens remains low, therefore, they cannot afford to pay the actual market prices. 

Hence, to preserve the infamous internal political «stability», Akorda finds it easier to exert pressure on quasi-governmental and private business as well as to spend money on state subsidies instead of allowing the market to establish its own prices and tariffs.

Such tactics, however, is dangerous not only because it seriously distorts the market relations but has a tendency to spread further.

As a result, Kazakhstan is undergoing an unofficial nationalisation of not only prices and pricing policies in individual sectors of the economy but of this sectors as well. Sometimes, the unofficial nationalisation is converted into the official one; a phenomenon that we have been observing recently.

When the level and stability of prices and tariffs is derived not only from the market factors but from the subjective decisions of Akorda, the government, individual ministries and akimats, chances to make a critical mistake skyrocket.

It is a blessing that Kazakhstan has never managed to built a nuclear power plant and, therefore, does not bear a risk of becoming another Chernobyl. Nonetheless, the damage that can be done to individual sectors of the economy may be quite comparable to that tragedy.

Unfortunately, an authoritarian political system has no remedies for this kind of problems. The governance of the country, of its economic and social development is conducted in manual mode. For this reason, decisions on raising prices for commercial gas, electricity, heat, pharmaceuticals, public transportation services and so on are made by individual officials who, de-facto, bear neither personal not political responsibility for the consequences.

As a result, the biggest advantage in this price «confrontation» with the state will be gained by the sectors and industries managed by the private or quasi-governmental structures governed by Akorda and the Library’s influential figures (just the way it is being done at KazTransGas JSC).

It is also going to be advantageous to those who have learned to employ the «best practice» of the Gosplan times — «to ask for two hundred four-humped camels in order to receive a hundred two-humped ones».

The rest will have to muddle along until the losses become so huge that the government is forced to loosen the node on the business’ neck for a bit.