Chinese state oil firm CNPC may face Kazakh government opposition to its planned $4.2 billion takeover of Canada's PetroKazakhstan, possibly over ownership of the Central Asian nation's largest refinery, industry sources said.
The Kazakh government has declined to comment on the sale of PetroKaz, whose operations are based in the Central Asian state, while sources close to the situation said the government had not yet given its blessing to the deal.
PetroKaz has downplayed the need for government approval of the deal, which was announced on Monday, but industry players see this as crucial.
One Kazakh oil industry source said the government's silence could be a sign that it had yet to make a final decision on the sale of PetroKaz, which has not always enjoyed harmonious relations with its hosts.
The government, which has been exerting greater control over Kazakhstan's oil industry in recent years, could seek concessions from CNPC in return for approving the sale, industry sources said.
One sticking point could be PetroKaz's Shymkent refinery, the country's largest.
PetroKaz's ownership of the refinery has been one of the main sources of friction between the Canadian company and its hosts, and the government may seek to resolve the dispute by taking over the refinery.
But CNPC wants to hold on to the facility, sources close to the deal said.
"The refinery is a completely integral part of the company (PetroKaz) and it's one of the things that made it attractive," one source close to the situation said.
Kazakh fuel prices are kept low by price controls and limits on oil exports.
PetroKaz argued it was not subject to fuel price ceilings under the terms of the deal that saw it buy the refinery when it was privatised, and so could sell products at market prices.
But the Kazakh anti-monopoly agency does not agree and has been chasing the Calgary-based firm through the courts, accusing it of price-fixing and monopolistic practices. Some analysts said the logical solution to the dispute would be for the government to have state oil firm KazMunaiGaz buy the facility.
The state could gain CNPC's agreement by threatening to block the deal by claiming pre-emption rights under a subsoil law passed late last year, analysts said.
PetroKaz claimed the law does not apply as the deal involves shares in an overseas-listed company rather than the sale of a Kazakh asset.
Few in the industry believe the state would accept this interpretation of the subsoil law.
"You need to have government approval for this kind of deal ... Those shares are worthless unless you have the ultimate approval of the Kazakh authorities for the underlying assets to change ownership," one analyst said.
Despite the added flexibility the refinery would offer CNPC in terms of exporting refined products as well as crude, if the Kazakhs insist on buying the asset, CNPC is expected to accede rather than risk scuppering the deal, as its main aim is to secure access to PetroKaz's oil fields.
Another threat to the deal may come from India's ONGC, which said it may make a rival offer. On Thursday, PetroKaz's shares traded above CNPC's $55 per share offer price on hopes of a counter offer. However, analysts said they expect CNPC's takeover to be completed.