Analysis of wholesale and retail market of petroleum products in Kazakhstan

The Covid-19 pandemic had an impact on Kazakhstan's domestic fuel market

In 2018-2019, the output of petroleum products increased after the modernization of the three major refineries. In 2020, however, total refining volume decreased by 7.2% to 15.8 million tons. Gasoline production showed relative stability: 4.5 million tons were produced in 2020, the same as in 2019, but diesel production decreased by 7% from 5 to 4.7 million tons.

Main trends in the market of storage and transportation of fuels and lubricants

Based on Baker Tilly's analysis, it was found that oil products produced at Kazakhstani refineries are mainly delivered to oil depots by rail (primary delivery). Transshipment of petroleum products from oil depots to gas stations, as a rule, is carried out with the help of a fleet of tank trucks (secondary delivery).

Petrol and diesel are transported from oil depots to petrol stations or to end consumers by gasoline tankers. According to Baker Tilly's analysis, more than 27,000 petrol trucks are registered in Kazakhstan, of which about 60% belong to legal entities and about 40% to individuals.

One of the industry's problems is the high depreciation of the petrol tanker fleet in Kazakhstan. In the regions, the fleet of petrol trucks older than 20 years, as a rule, accounts for 70% or more of the total fleet of petrol trucks.

The final point of transportation by petrol trucks is a gas station. At the end of 2020, the number of petrol stations in Kazakhstan amounted to 3,913 units, a decrease of 1.1% compared to 2019. Among the largest retail sellers of petroleum products is Qazaq Oil filling station, the current market share of which is about 22%. According to the Ministry of Energy of Kazakhstan, the main factors in the pricing of the retail market of petroleum products are the cost of oil (domestic prices), oil refining service, taxes and excise taxes, laboratory costs, loan service, supply and removal of tanks, transportation and related costs.

EAEC member states set a task to create a single oil and petroleum products market by 2025. Within the framework of development of a centralized trading infrastructure and the transition of the fuel and energy sector to market principles of pricing, trading in gasoline on the ETS began this year. It is planned to start exchange trading of diesel fuel and jet fuel by the end of 2021.

Kazakhstan petroleum products in the coming years will increase in price and strive to reach the level of Russian prices. The current difference with Russia for Kazakhstan threatens fuel overflow and shortage, despite the current bans. According to the government plans, increase of retail price of fuel and lubricants will be due to growth of taxation, without increase of margin for subjects of oil products market, traders and filling stations. For this purpose, it is planned to increase excise tax rate step by step.

According to the Ministry of Energy of Kazakhstan, main factors in price formation on retail market of POL now are cost of oil in the republic (internal prices), processing (oil processing service), taxes and excises, expenses on laboratory tests and additives, bank loan servicing, tanker supply-discharge, goods transportation, and other accompanying expenses. Thus, the final price for consumers is formed based on the wholesale cost of petroleum products, all transportation costs to gas stations, storage at oil depots, expenses of the retailer, as well as excise taxes and taxes.

According to the Bureau of National Statistics of the Agency for Strategic Planning and Reforms of Kazakhstan, at the end of October 2021 the average retail price of diesel fuel (in the calculations specified summer fuel, because winter fuel is traded in the northern regions since November) was 240.85 tenge per liter, having increased for the month by 17%.

According to the national operator in the market of petroleum products JSC KazMunayGaz, recently observed increase in prices for diesel fuel was a consequence of several factors simultaneously. One of the reasons was abnormally high consumption in some regions of the country and overflows due to the disparity of retail prices between Kazakhstan and neighboring countries. One of the key reasons was also the closure of Pavlodar refinery on October 1 for scheduled maintenance, accordingly, production of diesel fuel decreased sharply.

To solve the problem of diesel shortages in the domestic market imported about 150 thousand tons of diesel fuel from Russia. October 28 KazMunayGas JSC announced the early completion of repairs at the Pavlodar refinery. In addition, was postponed until 2022 repair at Atyrau refinery. The ban on export of gasoline and diesel fuel by motor vehicles from Kazakhstan was also extended. In addition, according to JSC KazMunayGas, often unscrupulous tank farms provide incorrect data on the balances, carry out gray export of petroleum products and mix petroleum products with other products.

Kazakhstan's fuel market will continue to be influenced by global trends. Research by IHS Markit indicates that the transport sector will remain a major consumer of petroleum products in the long term. IHS Markit concluded that no significant increase in the share of electric cars is forecast; cars with internal combustion engines and LPG will continue to dominate the vehicle fleet. According to the Bureau of National Statistics, at the beginning of 2021, Kazakhstan's electric car fleet numbered about 550 units (0.014% of the total passenger car fleet).

One of the modern trends is the new format of filling station organization. The non-fuel area is a generator of substantial profits and the most important marketing option that has a positive effect on the sale of the main product. By turning the petrol station into a center for various services, it is possible to focus on the needs of customers rather than on the needs of their vehicles.

In Kazakhstan, revenues from the sale of goods in stores at petrol stations bring about 10-15% of income. However, the non-fuel business of the petrol station network, if properly implemented, can bring the same profit as the sale of fuels and lubricants, and even exceed it. By comparison, a similar approach allows European petrol stations not to increase the margin of petroleum products and to restrain the growth of prices for them.

Baker Tilly is one of the world's top 10 consulting companies, we carry out valuation and develop Business Plans for the purposes of attracting funding from major financial institutions, we write feasibility studies, do project marketing and strategic management consulting, perform tax reviews and due diligence (financial, tax, commercial, etc.), as well as provide services in the field of accounting outsourcing.

Baker Tilly Qazaqstan Advisory is an official provider of valuation services to KazMunayGas and other private, state/quasi-state companies of Kazakhstan. Our clients are representatives of oil and gas and mining industries, heavy industry and consumer goods manufacturing, logistics, agrarian sector and representatives of the natural monopoly sector.

Ramina Nazyrova, General Director of Baker Tilly Qazaqstan Advisory

Olga Gusseva, financial analyst at Baker Tilly Qazaqstan Advisory

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