The Chinese National Petroleum Corporation (CNPC) triggered off a flood of controversial comments in Kazakhstan as it agreed to pay $4.18 billion to buy the Canadian-listed PeroKazakhstan oil company operating in South Kazakhstan. What seemed to be the biggest takeover deal ever made in Kazakhstan by a Chinese company left an aftertaste of national humiliation and a sensation of fragility of Kazakhstan’s position in dealing with its oil-thirsty great neighbor. To begin with, the Chinese side did not deem it necessary to consult with the Anti-Monopoly Agency of Kazakhstan, as Article 18 of the law on regulation of competition between Kazakhstan-based companies requires. Formally, the Anti-Monopoly Agency of Kazakhstan had certain leverages to reject the Chinese bid to purchase PetroKazakhstan, but to the disappointment of defenders of national interests who found that the acquisition of PetroKazakhstan assets by CNPC violates 1998 law on national security, the Kazakh government missed the opportunity to influence the deal. Although an anonymous representative of CNPC is reported to have said that the Chinese company discussed the planned takeover with the Kazakh government, such statements disseminated by the Chinese Xinhua news agency sound hollow. In fact, the Kazakh government was manifestly ignored by CNPC executives.

Paradoxically, government officials in Astana looked deeply ignorant of the Chinese-engineered behind-the-scenes game around PetroKazakhstan until the last moment. It was first believed that Russia’s Lukoil and India’s ONGC oil companies had equally good chances to acquire PetroKazakhstan shares. Even having purchased PetroKazakhstan, India would hardly draw any considerable economic benefit from the deal, as it would have to use Russian territory for shipment of Kazakh oil. Kazakhstan also loathes the idea of falling into economic dependence on Russia for shipment of its oil. China, a country where according to experts, oil consumption rose by 33% last year (compared to 11% in India), has far greater import potentials than any other country. Apart from that, in the highly politicized energy sector, Kazakhstan has to make some political concessions to its big neighbor, sometimes sacrificing its own economic interests. For that reason, Kazakh officials did not resist the Chinese bid for PetroKazakhstan’s shares. However, some analysts warn that giving priority to Russian and Chinese directions in oil shipment routes, Kazakhstan runs the risk of economic and political intervention of the two great powers into the internal affairs of the country.

All recent developments in the oil sector clearly signal that Beijing is, slowly but firmly, gaining new footholds in Kazakhstan’s oil sector. In essence, the purchase of PetroKazakhstan by CNPC is part of well-planned Chinese calculations directed at amassing the entirety of oil extracting, processing and shipment infrastructure of South Kazakhstan in a single hand. Using the much-publicized Atasu-Alashankou oil pipeline from West Kazakhstan to Xinjiang province, China gets a very reliable tool to exert political pressure on Kazakhstan as the major buyer of Kazakh oil. Only few in the government circles realize that by signing rash contracts in the oil sector and adopting short-sighted labor migration policies, they are paving the way for Chinese dominance in the region. Kazakhstan opens its doors to Chinese companies at a time when other oil producing countries, including the cases of Russia’s Slavneft three years ago and American Unocal recently, refrain from selling their assets to the Chinese. Since 2004, PetroKazakhstan came under relentless pressure from the government for allegedly monopolizing the fuel oil market and violating the Labor Code of Kazakhstan. The synchronized clamorous campaign against PetroKazakhstan was joined by the financial police, the anti-monopoly agency and environmentalists who staged protest rallies in front of the company’s offices. Some observers suspect that president Nursultan Nazarbayev stood behind these campaigns. There are reasons to believe that these pressures on PetroKazakhstan were aimed at forcing the company into acceptance of a deal with the Chinese. Kazakhstan has commitments of economic cooperation with China within the Shangai Cooperation Organization. Besides, the Chinese oil market with its enormous consuming potentials is much more attractive than the Indian or Russian options.

In economic terms, Kazakhstan had nothing to gain from the purchase of PetroKazakhstan by CNPC. One of the likely big losses for the country’s economy was the Shymkent oil refinery in South Kazakhstan, bought by PetroKazakhstan some years ago for merely $60 million. Many observers were impressed by the multiple billions of dollars poured by the Chinese to buy PetroKazakhstan, which accounts for 12% of the country’s oil output. The Chinese declared their readiness to pay $55 in cash for every PetroKazakhstan share. This generosity shows that China stops at nothing in its drive to get access to Kazakhstan’s energy resources. The policy of economic expansion is coated with the need of developing cooperation and good-neighborly relations.

China is also setting its eyes on power-generating facilities in the Pavlodar region of North Kazakhstan. It appears that Kazakh officials yielded to a Chinese offer of building an energy complex in the region to produce and export electricity to China. Chinese companies never tire of declaring their seemingly benign intentions of developing the oil and social infrastructure of Kazakhstan. But Astana is increasingly concerned over the growing migration of Chinese workers into the country, which poses demographic and cultural challenges. An employer at a bookstore in Almaty told this author last week that he sold out all Chinese-language manuals within a few days. But Beijing has more important business in Kazakhstan to attend to than language learning.