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State Ownership and Nationalization in Energy Sector: The Case of Kazakhstan's Oil Industry

Publication | November 2019
State Ownership and Nationalization in Energy Sector: The Case of Kazakhstan's Oil Industry

The oil industry is the most rapidly developing sector in Kazakhstan and the primary contributor to the country’s economic growth.

State-owned enterprises (SOEs) have been declining in numbers in most industries. However, in the oil and gas industry, state-owned national oil companies (NOCs) continue to secure dominant positions in most of the oil-producing countries. In some instances, energy-exporting countries conducted nationalization of their resources, while in other cases they tightened control over the privately owned firms. We ask broader questions of why countries choose to have state-owned enterprises and why energy-rich states prefer to nationalize their oil and gas industries. Next, we explore a case of nationalization policies in Kazakhstan’s oil and gas industry in the post-Soviet period. Although the full nationalization of the energy sector has not happened, the government’s intervention in the industry had become more pervasive. As a result, multinationals were forced to form partnerships with the domestic NOC, KazMunaiGas, in major oil and gas projects. We further explore the role of KazMunaiGas NOC in Kazakhstan’s hydrocarbon sector. At the beginning of the 2000s, Kazakhstan consolidated its dispersed state-owned enterprises in the energy sector to create KazMunaiGas. Since then, Kazakhstan has set an objective to ensure more active participation of the domestic NOC in big-scale energy projects. Although KazMunaiGas was shaped as a fully integrated NOC with an increasingly visible role in the industry, it has to deal with challenges that many NOCs face globally. These challenges include improving technological capabilities, access to capital and financial independence, as well as strategic human resource management.

WORKING PAPER NO: 1042