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Politics and Macroeconomics

Shadow Economy Could Be Up To 30% Of Activity, Government Says

Up to 30% of the Kazakhstani economy could be characterized as the "shadow economy", a gray market largely beyond government control and measurement, Kazakhstani Prime Minister Daniyal Akhmetov announced at the first meeting of a new working group aimed at assessing the size of the shadow economy and developing measures to reduce it.

Government officials say that agriculture, commerce, education, construction and the hotel and catering industries are those most dominated by off-the-books or unreported transactions.

According to Akhmetov, the gray market develops because of Kazakhstan' s onerous tax burden and sometimes protracted bureaucratic processes.  This encourages businesses to take transactions off the books, which makes it impossible for Kazakhstani statistical bodies to account for the money or to collect taxes effectively.

The working group has been dispatched to report back to the prime minister in a few months in order to present specific proposals on how to reduce off-the-books economic activity in Kazakhstani businesses. (Khabar)

Kazakhstani Government Bonds Stay Stable

Prices for Kazakhstani government bonds were unchanged last week despite a short-term deficit due tax payments, Kazakhstani traders told. Traders forecast stability in the price of government bonds over the next several months.

The Kazakhstani Finance Ministry sold KZT 2.9 B worth of government bonds with a 6.1% annual interest rate in December 2003.  No change in the price of the bonds occurred in the month since the initial auction.

"The market is graveyard and it seems that in near time a little will change," an ATF Bank trader said.

"I suppose the earning power ration (Ministry of Finance bonds) will be at the same level, but borrowing terms would increase if this were paper with a 10-15 years term" a Kazkommertsbank trader agreed. (TuranAlem)

Gold And ForEx Reserves Up 3.2% In Early January

Kazakhstan's net gold and foreign exchange reserves rose by 3.2% in the first half of January 2004 to total USD 8.836 B, the National Bank announced this week.  Of the total reserves, USD 3.613 B was in Kazakhstan's so-called National Fund, which collects and re-invests revenues from oil and gas projects.

Kazakhstan's net international reserves soared by 5.2% in the first half of the month, or USD 260.2 MM, to total USD 5.219 B.  Of that total, foreign currency holdings were USD 4.485 B while state gold assets were worth USD 733.9 MM.  The bank's own currency reserves totalled USD 252.3 MM.

Gold assets were up slightly, USD 7 MM, on the strength of a 0.9% rise in the world gold price.  (Golden Eagles Partners)

The State Will Establish Orders On The Precious Metals' Market

The government had a round table meeting devoted to cleaning up the smuggling of precious metals, where officials noted the absence of a law for exchanging and trading precious metals.

The value of the precious metals' market in Kazakhstan is evaluated at tens of millions of Tenge and the majority of precious metals are imported to Kazakhstan through smuggling operations. Last year, officials intercepted some 10 kg of jewellery in the Almaty airport.

Now, the government plans to control the market for jewellery and simultaneously gain an opportunity to levy additional taxes. Legal producers and importers of precious metals, who suffer from illegal traders, support this opinion. Meanwhile, the legal operators consider certification a useless policy that entails delays at custom's offices and likewise results in a higher price for consumers.

According to Abelgazi Kusainov, Chairman of the Kazakhstani Standardization, Metrology and Certification Committee, this new RK law stipulates a switch to an international model for regulation of precious metals. If the law is accepted, there will be a need to develop standards for jewellery assessment, and this year KZT 120 MM was allocated for these purposes. (Khabar)

Equities

Note: KASE-Shares index is based on ask prices for equities in A Listing

In the period between January 15 2003 and January 21 2004, the volume of equity trades at the KASE decreased to USD 3,535,674 from USD 5,999,817 in the previous period. The shares traded during the period were common shares of Almaty Kus (ALKS), Bank TuranAlem (BTAS), Bank CenterCredit (CCBN), Kaztorgtechnika (KTTH), KazChrome (KZCR), Kazakhmys (KZMS), Temirbank (TEBN), ValutTransit Bank (VTBN) and Zerde (ZERD) and preferred shares of Kazakhtelecom (KZTKp) and ValutTransit Bank (VTBNp). (Irbis)

Company News

Oil & Gas

The construction of a gas refinery near the massive Karachaganak deposit, currently under development by a BG Group- and Eni-led consortium of international oil companies, "is of great interest to Kazakhstan and we are determined to continue to push for it," Kazakhstani Prime Minister Daniyal Akhmetov announced at a government meeting on January 13.

"I am convinced that the project could be successfully implemented," Akhmetov remarked.

According to the prime minister's press service, participants at the government meeting presented a number of general parameters for the proposed plant, namely its raw materials supply (the nearby Karachaganak field), its technical level (it should comply with world standards), the return on the investment (within six years of construction) and transportation issues. Government environmental authorities also weighed in with a positive evaluation of the plan.

The prime minister instructed meeting participants to reflect on issues raised at the gathering, continue their research and report back in a month. (Kazakhstan Today)

***

Major Atyrau-based oil joint venture TengizChevroil this week announced the start of work on the construction of a new gas refinery plant at the deposit as well as a related gas injection project.

The second generation facilities would eventually enable TCO to ramp up oil output at the field to 22-25 million tons per year (from about 13 million tons last year), but would also ease local environmental woes and resolve a long-standing sulphur utilization problem at the field that last year cost project operator ChevronTexaco millions of dollars in fines.

The overall cost of the second-generation facilities is estimated at UDS 4 B.  Construction of the facilities is expected to take three years.

According to TCO General Director Alexander Cornelius, "after implementation of the new projects, oil production would be increased by over 11 million tons annually and allocations to state budget would be doubled. Around 2,500 Kazakhstani workers and employees would be involved in the construction of second generation facilities at Tengiz, and over one hundred domestic plants have already started to supply products to TCO, among these being reinforced steel and steel frames, transformers and other things." (Khabar)

***

Russian oil giant LUKoil Overseas Holding President Andrey Kuzyaev and Kazakhstani state offshore oil operator KazMunayTeniz (a unit of state oil and gas company KazMunayGas) President Bakhytzhan Khasanov last week signed an Joint Activity Agreement (JAA) for the Tub-Karagan field in the Kazakhstani sector of the Caspian Sea.  The signing ceremony was held in Astana on January 15.

The agreement signed Thursday was a follow-up to agreements signed the previous week by LUKoil and KMG within the framework of Russian President Vladimir Putin's visit to Kazakhstan.  The two companies have agreed to found an operating company in western Kazakhstan to carry out the implementation of the Tub-Karagan project.

According to the JAA, KazMunayTeniz would manage the operating company through the exploration period.  If a commercial discovery is made, the two sides would rotate management of the project on a two-year basis.

The Tub-Karagan deposit is located about 40 kilometers west of the Tub-Karagan peninsula.  The field is estimated to hold some 388 million tons of liquid hydrocarbons. (Kazakhstan Today)

***

Major Atyrau-based oil production joint venture TengizChevroil LLP plans to increase the percentage of Kazakhstani employees working at the field to 95% as it undertakes two major new construction efforts, the Gas Injection Project (GIP) and Second Generation Project (SGP), the TCO press service reported.

Currently some 2,300 Kazakhstani employees are involved in the two new projects, which involve 85% of the total number of TCO workers. Overall, Kazakhstani workers constitute 75% of the TCO labour force.

According to its contract with the venture, US-based Parsons Fluor Daniel, the general subcontractor in the GIP and SGP projects, must maintain an 80% Kazakhstani workforce in those projects.

The GIP facilities are expected to be finished by the second quarter of 2005, while the GIP and SGP facilities together are expected to go on-line in the third quarter of 2006.  After those projects are completed the total number of workers at the field would likely decline precipitously.

TCO is led by US-based ChevronTexaco, which holds a 50% stake in the venture.  State-owned oil company KazMunayGas owns a 20% stake while US-based ExxonMobil holds a 25% interest.  Russia's LUKArco JV, a subsidiary of LUKoil, holds the remaining 5%. (Kazakhstan Today)

***

Kazakhstani Prime Minister Daniyal Akhmetov met with top officials from the Agip KCO international oil consortium in Astana on January 15.  Akhmetov urged Agip KCO, which operates the massive and massively complicated - Kashagan field in the Caspian Sea, to "get to the production phase of the project as soon as possible."

Agip KCO in 2003 reportedly reached an agreement to delay production at Kashagan from 2005 to early 2007.  It is believed the consortium had to recompense the government for lost revenues from the delay, though details have not been made public.

The Kazakhstani government has long insisted the Agip KCO should abide by the original contract, signed in 1997 and subject to persistent delays, and again last week the Prime Minister's press service reiterated that the government believes the foreign investors should strictly adhere to contractual obligations.

Agip KCO officials declared that the "consortium is strongly motivated to implement the project" and said that exploration and assessment drilling is proceeding "gradually."

Agip KCO is led by operator Eni SpA of Italy, which holds a 16.67% interest in the project. France's TotalFinaElf, US-based  ExxonMobil and Royal Dutch/Shell each also hold 16.67% stakes in the project (16,67%), while Japan's Inpex (8,33%) and US-based ConocoPhillips each hold 8.33%. Britain's BG Group Plc recently announced its plans to sell its 16.67% stake, which will likely be divided up by current consortium members.

In the first phase of its commercial development - after 2007 - Kashagan could produce up to 22 million tons per year, while in the third phase - after 2015 or 2020 - the field could produce up to 60 million tons per year. (Interfax)

***

Implementation of the upcoming second generation gas plant and gas injection project at oil producer TengizChevroil will enable the company to double annual output to 25 million tons, TCO project and development department head Barrett Gail announced.

TCO produced some 12.75 million tons of oil at the Tengiz field in 2003, Gail said, but after the USD 4 B second generation plant goes on line and the gas injection scheme is worked out, output should eventually climb to 25 million tons.

TCO signed an agreement with the Kazakhstani government on the second-generation project in September 2003.  The new facilities are anticipated to go on line in 2006.

The Tengiz and Korolevskoye deposits that are being developed by TengizChevroil hold between 750 million and 1.125 billion tons of recoverable reserves. (RusEnergy)

***

In 1st quarter of 2004 it is planned to transport 8, 878, 000 tons of oil via the KazTransOil CJSC system, the NC KazMunayGas press service revealed.

The volume of oil transported via the KazTransOil system in 2003 comprised 34,192,000 tons, which is 3, 875,000 tons more than in 2002.

Moreover, in the 1st quarter of 2004, the volume of gas transportation via the main gas pipelines owned by Intergas Central Asia is expected to be almost 30.1 billion cubic meters. In 2003, the volume of gas transportation via the Intergas Central Asia system totalled 118.2 billion cubic meters, which is 7.6 billion cubic meters more compared to 2002. (Kazakhstan Today)

***

Kazakhstan's state-owned oil and Gas Company KazMunayGas plans to merge two of its largest production subsidiaries, EmbaMunayGas and UzenMunayGas, according to the KMG press service.

The merged EmbaMunayGas and UzenMunayGas "could present serious competition for large foreign companies," KMG President Uzakbay Karabalin stated at a meeting with EmbaMunayGas employees in Atyrau this week.

According to Karabalin, the merged company would have Kazakhstan's second-largest base of recoverable oil reserves at 275 million tons.  The company's capitalization would also be 3 times that of EmbaMunayGas alone. Thus the new company could take on more capital-intensive investment projects than the companies could have separately.

The merger will also reduce operating and management costs at the two companies and thus boost the parent company's net profit. (Interfax)

***

The Kazakhstani government this week held a government to review plans to utilize associated gas from the Akshabulak deposit.

According to specialists, the reserves of this deposit could meet the entire gas needs of Kyzylorda oblast, but currently some 80% of associated gas from the field is flared.  At the meeting, Kazakhstani Prime Minister Daniyal Akhmetov urged local authorities to take better advantage of their local resources.

"The government has its eye on this problem.  In 2003 we allocated over KZT 100 MM. We envision that in 2004 we will able to ensure over KZT 2 B in financing - more than USD 14 MM - to provide better gas service to Kyzylorda," Akhmetov declared. (Khabar) 

Banking and Finance

Asiya Syrgabekova on January 14 was named the new Chairman of the board of director of major Kazakhstani commercial bank Halyk Savings Bank, according to the letter from Halyk to the Kazakhstan Stock Exchange (KASE).

Prior to this latest appointment, Syrgabekova had since October 2003 served as first deputy chairman of Halyk.

Outgoing Halyk Bank chairman Kayrat Satylganov will stay on with the bank as a member of the board of directors.  He had been chairman since early 2002. Halyk Savings Bank, the former state-owned savings bank, is one of Kazakhstan's two largest banks.  It has over 500 branch offices in all regions of the republic.  As of October 1, 2003 Halyk had over KZT 252.8 B in assets and an authorized capital of KZT 12.7 B. (Interfax)

Manufacturing

Kazakhstan-based Pharm Industry Corporation is planning to build a USD 45 MM pharmaceuticals plant in Karasay district in Almaty oblast, company representatives stated.

The pharmaceuticals plant is the brainchild of well-known and politically connected Kazakhstani surgeon (head of the Syzganov Surgery Center) Mukhtar Aliev.  Financial backing for the new plant will come from Britain's Pharm Industry Europe as well as a group of Kazakhstani investors.

Aliev said the rationale for the project was obvious: only about 15% of drugs sold in Kazakhstan are produced in the republic.  Imported drugs cost consumers over USD 300 MM per year.

Construction on the new plant will begin in April or May 2004 and will take about 18 months.  Even at the outset of production the plant will produce some 350 types of drugs. (Khabar)

Power

Pavlodar-based Eurasian Energy Corporation (EEC) produced some 9.35 billion kW/h of electric power at its Aksu TETS plant in 2003, 21.7% more than in 2002, according to the EEC press release.

The EEC also produced 11 million tons of coal at the Vostochnyi mine in 2003, 5.9% more than the previous year, the company said.

The EEC incorporates the Aksu TETS, the Vostochnyi mine and an industrial repair plant.  The company is 25.19% state-owned, but it is believed to be controlled by the influential Eurasian Bank financial-industrial group.

The EEC is part of the Eurasian Bank-controlled Eurasian Industrial Association, which unites the Sokolov-Sarbay Mining-Enrichment Plant in Kostanay, Aluminium of Kazakhstan in Pavlodar and KazChrome. (Interfax)

Transport and Telecommunications

The Republican budget allocated over KZT 4 B for reconstruction of the Aktobe international airport, airport authorities reported. Notably, it is planned to extend the airstrip up to 3200 meters. These remedial works will affect the airport building itself and they should begin as early as the first part of 2004.

Presently, the Ministry of Transport and Communications is developing conditions that will create competition among prospective contractors to participate in the 2-year project to reconstruct the Airstrip. The Aktobe airport was commissioned in 1966 and has never been reconstructed since this period.

The upgraded airport will welcome its first passengers in late 2005. (Kazakhstan Today)

Money Markets

KZT/USD market rate dynamics during the week

Currency Rates as of 19 January 2004

Note: Some of the information quoted in this issue has been provided for us by Golden Eagle Partners. For more information on those articles, please contact: jmann1@AOL.com or newswire@ges.kz

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