2022’s energy price convulsions did not start with Ukraine and Western sanctions against Russia. Another Russian neighbor, Kazakhstan, ushered in the year with protests triggered by higher fuel prices. These protests escalated into violence and rioting and sparked a brief Commonwealth Security Treaty Organization intervention, led by Russia.
After the violence was stopped, President Kassym-Zhomart Tokayev initiated government reforms including a new constitution and presidential elections, which took place on November 20. 2023 will usher in elections to the Senate, to be held on January 14, and to Majilis, the lower chamber of the parliament.
A salient trend of 2022, energy insecurity, also arose and was tackled in Kazakhstan. So, how did an important energy-exporting nation that gained independence 30 years ago, located next to a violent and severely sanctioned great power, deal with its energy policy and governance?
Kazakhstan’s answer was to democratize energy policy. In the West, energy policy is often viewed in the context of environmental issues or affordability. Rarely is the structure of an energy economy is intentionally intertwined with elections or constitutional reform. In fact, usually Western political actors strive to treat energy either as an economic input or an environmentally damaging and expensive externality. For Kazakhstan, a country that relies on exporting raw materials and is trying to avoid becoming a rentier state and falling into the middle-income trap, a different set of priorities is in play.
Democratization and changing energy strategy are likely to draw the ire of either neighboring superpower.
The logic: Kazakhstan is geographically isolated and beholden to Russia and or China for most transportation roots and the majority of exports. The solution: tie foreign policy, energy policy, and political reform together in a new constitution and elections so the presidency can avoid foreign pressure while gaining domestic and international legitimacy.
The plan had public backing. A 2019 survey showed that people expected the government to not just fight for economic justice, but implement political and diplomatic reforms. More than 70 percent of respondents noted that such measures taken by the President can help increase the well-being of Kazakhstan’s people.
In June, a constitutional referendum passed prior to the presidential election which reduced executive power. 33 constitutional amendments including the single seven-year term for the presidency and a prohibition for the president’s relatives to occupy high-level offices or state company positions. This includes state-owned energy companies. The measures paved the way for the November presidential elections. In elections the OSCE described as imperfect but fundamentally fair, the incumbent President Kassym-Jomart Tokayev won 81.3% of the vote.
This major step forward in liberalizing the country’s political and economic system has resulted in tangible gains for Kazakhstan and its energy sector. Kazakhstan started the year in an “unprecedented crisis” and ended it, according to the IMF, with a growth rate of 3.1%. But challenges remain. Kazakhstan is finding it difficult to rapidly increase and diversify energy production.
Several big economic wins followed the elections, renewing the confidence of foreign investors and encouraging local participation. The EU signed a “strategic partnership” with Kazakhstan on green hydrogen and raw materials. A contract has already been signed for the production of green hydrogen in Kazakhstan worth $ 50 billion, which will help Europe reduce its dependence on fossil fuels.
In addition, the European Bank for Reconstruction and Development has financed 800 MW of renewable energy sources in Kazakhstan with developers from the UK, France, Germany, and China. Other investment projects are launched in biogas, solar technology, hydroelectric power, and gas pipeline development including the construction of the Kashagan Gas Processing Plant by the Italian giant ENI and QazaqGaz.
Europe is not alone. Several American companies including Boeing and Silverleaf have partnered with the US government to work on expanding Kazakhstan’s export facilities in the Caspian Sea to boost the Middle Corridor via Azerbaijan and Georgia. USAID also announced its own initiative to expand this transit route. Avoiding Russian transit is understandable in view of the Western sanctions.
This growing investor confidence is reflected in the solid outlook for future growth. Participants of the 5th Annual Kazakhstan Investment Forum held last month, organized by the London Stock Exchange were duly impressed as Kazakhstan registered a 41% increase in foreign trade in the first five months of 2022 amounting to $51 billion. In 30 years of independence, it has attracted over $320 billion in investments. Now, Kazakhstan is set to attract $150 billion alone in the next 6 years, an increase of nearly 50%.
Kazakhstan’s election cycle is a signal for investors who see a committed political and economic liberalization project and respond with tangible support. Astana’s ongoing restructuring of the state and economic institutions is aimed at incentivizing foreign investment and increasing its influence in Eurasian geopolitics. While the energy investment climate positively reacted to elections, it is up to the people of Kazakhstan and Western partners to seize this opportunity.