Kazakhstan’s decision to hike utility prices amid already rising inflation will “inevitably” cause living standards to plummet and could lead to a repeat of the January 2022 anti-government protests, experts have warned.

Utility prices in Kazakhstan will increase by 10-30% from 1 July, a move that the government justifies with the need to raise money for investment in infrastructure. Announcing the rises in April, President Kassym-Jomart Tokayev said: “Unless we gradually raise tariffs and bring them closer to the market, we will be left without infrastructure in all cities and villages.”

But experts have told openDemocracy they see the move as an inconsequential policy that will hit household incomes without sufficiently improving infrastructure. Economist Kuat Akizhanov warned that the increases will also exacerbate social tensions because people will be both unable and unwilling to pay.

“The formal trigger of the January 2022 protests was the increase in prices for liquefied gas,” said Akizhanov. “And even if the disorders were ultimately orchestrated by the elite, the significance of this factor should not be underestimated.”

The sudden rise in liquefied natural gas prices in Kazakhstan early last year sparked a series of rampant protests, looting and police violence that came to be known as Qandy Qantar, or ‘Bloody January’. Some 227 people died in the unrest, according to Kazakh officials.

Inflation in the country has been high since last year, when it reached a peak of more than 20%, according to official data, which often underestimates the real picture. Economist Kasymkhan Kapparov says that for many Kazakhstanis, this offset last year any small income growth (wages rose by 2.8% on average, according to the Center for Applied Economics Research).

“An increase in prices for utilities will lead to a reduction in the real income of households, especially among citizens with low incomes,” Kapparov argued. “This is because utility expenses are prioritised in their expenditure, and these cannot be postponed or left unpaid.”

Kazakhstan’s Ministry of National Economy explained that utility tariffs will be raised according to the socio-economic situation of each region. The government’s aim is to allow for a progressive increase, with both ministers and private utility operators insisting that users currently enjoy low tariffs. They say the burden of financing modernisation falls onto their shoulders and causes infrastructural decay.

A lack of transparency

For President Tokayev, people should contribute to private investment in infrastructure, while the government supports the plant’s owners through national funding initiatives. He has made clear that he sees no alternative. But economists have questioned whether all the money being paid out by the government is going towards improving infrastructure.

According to Kazakhstan’s Ministry of Industry and Development, regional governments assisted 174,000 people with paying their utility bills last year, paying out a total of five billion tenge (£8.7m).

Every year, the state budget earmarks a specific amount – billions of dollars – for the maintenance of housing and public services in Kazakhstan. Energy and services companies receive credits under this programme for infrastructure maintenance and energy subsidies for citizens in need.

The budget, however, is not itemised and the amount each company receives is not known. The Ministry of Industry and Development, regional governments and the ministries of energy and national economy did not respond to openDemocracy’s request for comment.

In April, Tokayev said that, in 2022, the National Welfare Fund Samruk-Kazyna alone spent one trillion tenge ($2.1bn) on subsidising energy prices. The fund is a state holding that manages all nationalised enterprises, including energy firms.

Utility companies also receive targeted transfers from Kazakhstan’s National Oil Fund, through which state infrastructure programs are funded. A domestic economic stimulus programme, Nurly Zhol, allocated no less than 200 billion tenge ($1.1bn dollars) to public utility infrastructure between 2015-2019.

Economist Sholpan Aitenova, the CEO of Zertteu Research, which analyses the government’s social policies, does not believe that all this money went directly towards improving infrastructure. And if it did, the scale of the renovation had to be extremely small.

“Once again, we encounter issues surrounding the quality of governance, corruption, transparency, and lack of public monitoring,” Aitenova told openDemocracy.

Aitenova’s frustration was shared by Akizhanov, who said: “Neither the government nor the private sector can provide 100% transparent information about how and where budget and off-budget investments for modernisation are directed.

“While they can certainly show on paper the dire state of the infrastructure, their operations are driven by the need to attract increasing rents,” Akizhanov added. “Consequently, they are not inclined to reveal the plants’ real condition and the sums they receive from the government.”

Infrastructure decays, missing investments

In November, the breakdown of a thermal and power plant in Ekibastuz, a mining town near Astana, Kazakhstan’s capital, left households without heating for days. Amid a freezing winter, with temperatures nearing -30℃, the town was turned into the scene of a humanitarian crisis.

By the time the power plant was fixed, thick crusts of ice covered housing complexes, while pipes and radiators had been damaged beyond repair. People’s lives were upended for more than a month. In the absence of warm spaces for eating or sleeping, people stepped in to help emergency workers to make flats and apartment buildings liveable again in an effort to speed up a return to normalcy.

An official inspection weeks later revealed that the deterioration of public utilities infrastructure had caused the failure at the power plant. Local prosecutors have since launched an investigation into the breakdown.

Since the fall of the Soviet Union, cities have struggled to find resources to modernise their utility networks. Every year, almost every city across Kazakhstan experiences a ‘small Ekibastuz’. This past winter, power plants and networks broke down in mining towns such as Ridder, Shakhtinsk and Stepnogorsk.

A previous 2018 audit by Kazakhstan’s General Prosecutor's Office revealed substantial wear and tear at key power plants and networks. “Instead of upgrading generation capacity, energy giants used this money to illegally enrich themselves at the expense of consumers: They paid premiums and bonuses to their managers, and unreasonably overestimated production and service costs,” then-president Nursultan Nazarbayev said.

Around 85% of Kazakhstan’s energy facilities were privatised in the late 1990s, and it has since become clear that the private sector is unable to ensure the market viability of utility networks. According to Kazakhstan’s Ministry of Energy, ageing power plants have lost around 58% of their value, and thermal power plants 66%.

Fuel price increases

Kazakhstan’s fuel industry is in a similar state to its utilities sector. For years, oil companies have complained that the government forced them to sell petrol to locals at subsidised prices.

The fuel industry and the government claim that Russians cross the border to take advantage of Kazakhstan’s cheaper oil prices – leading to a shortage in local supplies. They say raising the prices will bolster the sector and protect it from Russian citizens cashing in on Kazakhstan’s subsidies.

“If the price differential is not reduced now, in the near future we will face a fuel shortage. This will also halt further industrial development and threaten the energy security of the country,” then-minister of energy Bolat Akchulakov claimed on 3 April, days before being sacked, in part due to the infrastructure failure over the winter.

As to how the population will handle higher consumer prices, it remains unclear. Aitenova sees the potential for income growth only in the shadow economy.

“Yet, even shadow incomes are now declining. The standard of living of the population will inevitably fall,” she said.