“Oil workers have been on strike for four days in the Aktobe region. No compromise has been found on the salary increase.” “The fifth strike since the beginning of 2021 has begun in the west of Kazakhstan – the oil workers of Zhanaozen are on strike.” Media headlines are full of similar news. And this year did not have time to begin.

Protest moods are primarily associated with the unsatisfactory level of wages and working conditions for the workers themselves. The level of wages of workers serving oil fields is in the range of 155-200 thousand tenge, depending on the region, working conditions and other regional factors. Compared to the labor market as a whole, incomes are higher than the national average, and yet they are low.

It is important to understand that the real incomes of workers in the country have changed significantly. This also applies to the extractive industries. Salaries were never indexed after the huge collapse of the national currency in 2015. Let me remind you that in 5 years the exchange rate dropped from 180 to 420, and even if salaries in tenge grew slightly in payrolls, in real terms they more than doubled. After adjusting for inflation and purchasing power, today’s workers’ incomes are down to 2002 levels. And so far there are no prospects for growth.

It is especially important to understand this when summing up the first results of the pandemic. Let’s take a look at the top 10 taxpayers in 2020. The country’s main donor, Tengizchevroil, transferred 999.1 billion tenge to the budget, while a year earlier its tax deductions amounted to 1.9 trillion. The difference is more than twofold. “Karachaganak” has reduced its payments by a third from 617 to 402 billion tenge. Mangistaumunaigas has fallen three times from 366 to 143 billion tenge. “Embamunaigas” more than doubled – 91.8 billion tenge against 194.8, similarly the case for CNPC – Aktobemunaigas – 89 billion tenge against 154.7 billion tenge, Ozenmunaigas – 85.1 billion tenge against 177, 3 and Kazgermunai – 69.8 billion tenge against 124.2 billion tenge.

The profitable component of any oil producing enterprise is the cost of oil on the external and internal markets. Consumable is the wages fund of employees, taxes and duties, capital and current expenses for the maintenance of the equipment in use. After a catastrophic drop in demand for oil and its derivatives, companies are unlikely to be ready to discuss the issue of rising costs for the maintenance and operation of wells and equipment, taxes and duties paid to the country’s budget, unless the state begins to change the rules on the market.

Each subsoil user producing oil in Kazakhstan bears contractual obligations to supply oil to the domestic market of the Republic of Kazakhstan for its further processing in Kazakhstan. The free volume of oil is exported to world markets. The completion of the modernization of the Kazakh oil refining industry has increased the demand for oil on the domestic market in recent years by 1.5-2 million tons, and this is good.

And it turns out that the volume of oil supplies to the domestic market by the overwhelming number of oil producing enterprises today reaches 65-70% of their total production, and the cost of oil in the domestic market is strictly regulated by the state to maintain record low prices for fuel.

And if the cost of exported oil can somehow be explained by the quality of raw materials and current quotations on the world commodity markets, then the cost of oil on the domestic market is difficult to explain. It is formed from the value of a basket of petroleum products obtained after processing.

The fuel market in Kazakhstan is manageable and the price is intentionally kept low. For example, since 2016 it has risen from 130 to 150, despite the fact that there was almost a threefold devaluation, and inflation over the years is more than 200 percent. So the sale of gasoline and diesel today, in fact, is unprofitable, and this is 60% of the product obtained from processed raw materials. And yes, you shouldn’t look at the price of gas station standards, because the lion’s share of it is taxes and excise taxes collected by the state.

According to official data, gasoline prices in Russia increased in 2020, albeit by only 3%, which partially offset inflation. Today the price ranges from 40 to 50 rubles, depending on the region.

At the official rate – from 230 to 280 tenge per liter, but in addition to high taxes in Russia, which help to replenish the budget, there is also an oil and oil products market, which determines the cost of raw materials, including for local oil refiners. Thus, the state, withdrawing a significant share from the market, does not create distortions in the internal turnover. It does not limit the entrepreneur in the amount of his income from the sale of raw materials, everything is decided by the market.

Prekos in Kazakhstan is only growing every year. Oil exports from old fields are declining, and oil supplies to the regulated domestic market are increasing. Simply put, income is declining, while expenses are only increasing. At the same time, gasoline prices cannot be kept at such low values ​​for a long time. It’s about taxes.

The upcoming harmonization within the EAEU will force the authorities to inflate them. So there is a solution to the issue of oil workers, and it is well known – an increase in prices for oil products produced at the RK refineries. This will ultimately ensure an increase in the cost of oil supplied to the domestic market.

It is like “living water”. There is no money for the development of new fields, nor for the reconstruction of old ones. Low incomes not only do not allow raising salaries for their workers, but also make them refuse to help contractors, and this is a huge army of workers who are now hanging around idle, but are used to making good money. The resource holders have only one goal – not to freeze the wells, to survive in the turbulence of low prices and falling demand.

It cannot be said that the state is doing nothing to support the oil and oil products market. The Government of the Republic of Kazakhstan has adopted a number of measures to provide support to Kazakh producers.

True, these measures ended in the current year. This made it possible to survive when the demand for gasoline was tending to zero, because the whole country was locked up, and allowed to create another precedent for price reductions, which ultimately had a positive effect on inflation. Low fuel prices psychologically hold back perceptions of the crisis, as do utility prices, which have also not really been indexed since the big devaluation.

Further subsidizing the domestic market will kill an industry that has provided the country’s growth momentum for 30 years. Oil workers have not been “chic” for a long time. Oil exported from the country cost $ 100-120 / barrel already 10 years ago. The current export price of oil barely covers the current costs of companies without the opportunity to invest in human capital and development, and the price of oil supplied to the country’s domestic market is completely below the cost price.

Yes, ten years ago the oil industry could afford to subsidize the country’s domestic needs. Oil export revenues covered all the expenses of subsoil users, but today oilmen do not have such an opportunity. And, perhaps, they will soon need to be saved.