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Politics and Macroeconomics

Premier Says Tax Benefits To Foreign Investors Should Be Extended

Kazakhstani Prime Minister Daniyal Akhmetov last week said that he believes that tax benefits should be extended for foreign investors, particularly those involved in developing Kazakhstan's high-tech industry. Better tax incentives would increase the amount of investment and help create jobs in Kazakhstan, he argued.

"We generally underestimate world practice in the development of high-tech production. All of our tax breaks and preferences, say, on corporate tax, are extended for five years, while oil and gas production, for example, only becomes profitable after on average 15-17 years. And of course, we should grant [preferences or breaks] for whatever period to give investors sufficient motivation to work in Kazakhstan," Akhmetov declared at a meeting of the government on February 5.

Addressing parliamentarians sitting in on the government meeting, Akhmetov said parliament should make the necessary changes to the tax code as soon as possible.

"On average, this norm [tax breaks] should be offered for a minimum of 25 years," he said. (Interfax)

Kazakhstan Plans To Join WTO By 2006

Kazakhstan hopes to accede to the World Trade Organization (WTO) at late 2005 or early 2006, Kazakhstani Prime Minister Daniyal Akhmetov declared last week in Astana.

Kazakhstan will submit its accession documentation to a WTO working group on new members later this year, Akhmetov said. At the same time, Akhmetov acknowledged that Kazakhstan will have problems adhering to some WTO requirements. Notably, Kazakhstan has several laws, such as the laws "On Oil" and "On Subsoil Use" that favour domestic industry in foreign-owned or financed projects.

Kazakhstan also is demanding that its subsidies to agriculture be determined by the years 1994-96, while WTO members such as the United States and Australia are insisting that the subsidies be pegged at their level in 2002-04. In 1994-96, Kazakhstan supplied about USD 864 Million to its farmers annually, while in recent years that figure has been "considerably less", Akhmetov said.

Akhmetov also reiterated a pledge to open up Kazakhstan's telecommunications market to "anyone who wants to work" in this sector.

Akhmetov also said Kazakhstan's plans to create a common economic space (a free trade bloc) with Russia, Belarus and the Ukraine will not hamper the WTO accession schedule. Kazakhstan will simply follow the broad outlines of Russia's tariff policy, the premier explained. (Interfax)

January Inflation Results

Prices for goods produced by Kazakhstani mining enterprises rose 2.7% in January 2004 (as compared with the previous month), while prices for processed goods were up 2.5%, according to the state Statistics Agency. Prices for the production and distribution of electric power, gas and water fell by 0.1% in January.

Prices for metallurgic products increased by 4.8% last month, with ferrous metallurgy output up by 0.5% and non-ferrous metallurgy goods up by 5.8%. The biggest price increases were for raw aluminium (up 11.4%), ferroalloys (+8.5%), copper (+6.9%), lead (+5.2%) and precious metals (+4.5%).

Oil prices were up 2.9% in January, natural gas was up 2%. Oil products prices were up just 0.1% last month while gas condensate actually fell in price by 0.2%. (KazInform)

CICMA Secretariat To Be Created In Almaty

The creation of the secretariat of the Conference on Interaction and Confidence-building Measures in Asia, a regional security organization founded by Kazakhstani President Nursultan Nazarbaev, is basically assured, Kazakhstani First Deputy Minister of Foreign Affairs Kayrat Abuseitov announced on February 11.

Senior officials from CICMA member-states are expected to approve the founding of the secretariat of the organization in Almaty at the group's next meeting.

Abuseitov said that CICMA member-states "have long had an understanding" that the organization should be headquartered in Almaty. Abuseitov said the Kazakhstani government hoped the secretariat should be opened by the second summit of the heads of state of CICMA members, in 2006.

By that date CICMA will also hopefully have adopted procedural and financing rules, Abuseitov said. CICMA members remain divided over how to finance the operations of the secretariat. (Kazakhstan Today)

Prime Minister Urges Economic Diversification

Kazakhstan should divert profits from its oil sector to more quickly diversify the Kazakhstani economy, Kazakhstani Prime Minister Daniyal Akhmetov recently announced at a meeting in the Ministry of Finance.

"In terms of taxation it is obvious that the changes already implemented are quite enough, as the share of the oil sector in the overall tax collection is now 28%. This is undoubtedly a positive trend. However in terms of average world figures, this is not a great picture, since an analysis of oil sector tax revenues around the world says otherwise," Akhmetov said.

Akhmetov pointed to the United States, Norway, and the United Arab Emirates as examples of well diversified economies, where tax revenues from the oil sector total 8%, 8.6% and 18.2% of total revenues, respectively.

Kazakhstan's own reliance on the oil sector for 28% of tax revenues "reflects the level of development in our country and the necessity to speed up economic diversification from raw materials to processing industries," Akhmetov said. (Kazakhstan Today)

Equities

The KASE-Shares index increased by 3.99% to 163.74 by the end of period on February 11 2004.       

KASE-Shares index and weekly volume of trades.

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

In the period between February 5 2003 and February 11 2004, the volume of equity trades at the KASE decreased to USD 5,612,236 from USD 5,296,265 in the previous period. The shares traded during the period were common shares of Almaty Kus (ALKS), Bank CenterCredit (CCBN), CharAltyn (HRLT), Kazkommertsbank (KKGB), Kazakhmys (KZMS), Kazakhtelecom (KZTK), Temirbank (TEBN), UKTMK (UTMK) and ValutTransit Bank (VTBN) and preferred shares of ValutTransit Bank (VTBNp). (Irbis)

Company News

Oil & Gas

Kazakhstani Prime Minister Daniyal Akhmetov last week said that he expected talks with international oil consortium Agip KCO, the group developing the massive Kashagan offshore field in the Caspian Sea, would be over by early March 2004.

Kazakhstan and Agip KCO have been in talks for many months as they try to work out a compensation package after Agip KCO announced an 18-month delay in the Kashagan development. According to the original Production Sharing Agreement, Agip KCO should produce the "first oil" at the field by 2005, but the company now says that is more likely in late 2006 or 2007.

Akhmetov said he was "rather optimistic" about the state of negotiations at present. Kazakhstani government officials have since November periodically announced the imminent end of talks, possibly to minimize perceptions that they have gotten bogged down.

Akhmetov said that Kazakhstan "will get a certain amount in compensation, but that amount can not now be made public." The consortium management "is aware of the fact that such compensation is necessary," Akhmetov added.

The operator of Agip KCO is Italy's Eni SpA, which also holds a 16.67% stake in the organization. Total SA (16.67%) ExxonMobil (16.67%), Royal Dutch/Shell (16.67%), Inpex (8.33%), Phillips (8.33%) are also members of the consortium. BG has announced that it will sell its 16.67% stake, which will be divided up among the other remaining consortium members.

Kashagan is considered the biggest oil find since Alaska's Prudhoe Bay over thirty years ago. At the initial stage of development it will produce 22 million tonnes of oil per year, and by the third stage it will turn out some 60 million tonnes annually. (Interfax)

***

Kazakhstan will sell between a 25% and 50% stake in the Kurmangazy offshore oil field development project to French oil giant Total SA, Kazakhstani Prime Minister Daniyal Akhmetov acknowledged at a briefing in Astana last week.

"Yes, we want Kazakhstan's strategic partner in the Kurmangazy project to be world famous French company Total. We expect that Total's share will be 25% of the total project," Akhmetov said in response to a reporter's question.

The prime minister noted that "requirements regarding Kazakhstani content and the investment package have been considerably strengthened" as compared to earlier projects.

Russia and Kazakhstan in spring 2002 agreed to develop Kurmangazy on a parity basis. State oil company KazMunayGas later announced its intention to sell half of its 50% stake in the project, or a 25% stake in the project as a whole, to Total SA.

Kazakhstan estimates that Kurmangazy holds nearly 1 billion tonnes of recoverable oil reserves. The field is expected to cost about USD 10 Billion to develop. (Interfax)

***

Kazakhstan and Russian state oil company Rosneft will resume negotiations on their joint development of the Kurmangazy offshore oil field in March 2004, Kazakhstani Prime Minister Daniyal Akhmetov's press service stated last week.

In the talks, Kazakhstan hopes to wrap up negotiations on the creation of a joint venture Rosneft to carry out the USD 10 Billion development project in time to get to work by the time the ice melts on the Caspian in May 2004.

Kazakhstan estimates Kurmangazy holds 1 billion tonnes of recoverable oil reserves, while Rosneft analysts peg that figure at 700 million tonnes.

Kazakhstani Prime Minister Daniyal Akhmetov met on February 4 with Rosneft President Sergei Bogdanchikov to discuss the creation of the JV as well as Kazakhstan's plan to sell a 25% interest in the project to France's Total SA.

"Akhmetov instructed Ministry of Finance and Ministry of Economy and Budget Planning to conduct a full economic study of the JV documents so that the parties can return to the bargaining table in March," the PM's press service announced. (RusEnergy)

***

The China National Petroleum Company-run CNPC-AktobeMunayGas venture in Aktobe oblast produced 4.65 million tonnes of oil in 2003, 6% more than during the previous year, the Chinese Embassy in Kazakhstan told.

CNPC-AktobeMunayGas develops the Zhanazhol and Kenkiyak deposits.

In 2004 the enterprise plans to commission several new well in order to further increase production to 5.3 million tonnes.

China and CNPC are actively involved in the Kazakhstani oil sector, and in particular in the possible construction of a new pipeline to China, the Embassy said in a statement. In June 2003 the governments of the two countries signed an agreement to expand CNPC activities in Kazakhstan, and in August CNPC and Kazakhstani state oil company KazMunayGas signed a memorandum to speed up construction of a planned pipeline to China. In 2002, CNPC launched the Kenkiyak-Atyrau pipeline, which the company now says will serve as the first leg of a Kazakhstan-China pipeline. (Interfax)

***

Kazakhstan's Oil Operations Safety Inspectorate has begun negotiations with Russia's Astrakhan Port for the use of an oil spill clean-up barge, Oil Operations Safety Inspectorate head Radius Latfulin told.

The barge will be used to liquidate an oil spill emanating from the Pribrezhnoye block in the Kazakhstani sector of the Caspian Sea.

According to Latfulin, Kazakhstan does not yet have the facilities to pump oil out of the sea or to localize a spill. Thus, "the only way out is to ask neighbouring states," he said.

Latfulin said negotiations were pressing as the OOSI hopes to begin cleaning up the spill at Pribrezhnoye at the end of February when the winter ice begins melting. Oil has been leaking from poorly capped wells at the deposit all winter, he added.

"At that time [the end of February], we also plan to resolve the issue of financing the mentioned operation. That issue is now being considered by the Kazakhstani Ministry of Mineral Resources," Latfulin said.

The clean-up effort will require an estimated KZT 5 Million, he noted. (Kazakhstan Today)

***

International rating agency Moody's Investors Service has published a credit report on Kazakhstani state oil transport company KazTransOil, a unit of state oil company KazMunayGas. KTO bonds are traded on KASE.

Moody's cites KazTransOil's strengths as the strategic importance of oil production to Kazakhstan and the state's limited oil transport capacities, which means the company will receive strong state support in its efforts to improve the oil pipeline system. The company also benefits from its status as a near monopoly in oil transport, which ensures steady profitability in the near term as well as its state ownership, which also engenders strong state support.

The company's weaknesses include a lack of competition from alternative transport suppliers as well as political risks and over dependency on Russia and its pipeline monopoly Transneft, through which KTO must export its oil. In addition, the company faces growing capital expenses in the medium-term, as it must expand the republic's oil transport system to accommodate growing production. (KASE)

***

National oil and gas company KazMunayGas has the authority to represent the government's interest in oil and gas projects in accordance with new Kazakhstani legislation mandating mandatory state participation in subsoil projects.

The Majilis Committee on Ecology and Subsoil Use this week approved a draft law, On Changes and Amendments to Kazakhstani Laws on Subsoil Use", containing new regulations on state participation in oil and gas projects. The draft law will soon be debated by the full Majilis, the lower house of Parliament.

Other changes in the law are norms concerning the percentage of Kazakhstani staff employed in a project as well as the purchase of Kazakhstani goods and services.

While drafting the proposed law, the Committee drew on comments from other Majilis committees and deputies, oil industry associations, scientists and others. (Kazakhstanskaya Pravda)

***

Crude oil companies that supply raw materials to the Atyrau Refinery, one of Kazakhstan's three major oil processing plants, have asked the majority shareholder in the plant, state oil and gas company KazMunayGas, to intervene against a minority shareholder in the plant that has complained the plant is being mismanaged.

Almaz International Trading Corp., which holds a 1.8% stake in the Refinery, in late January sent a letter to KazMunayGas complaining that the management of the oil processing plant had "illegally shipped oil products" and "misled shareholders regarding the plant's revenues from the sale of oil products." Almaz Chairman A. Kuzhagaliev demanded that KazMunayGas replace the management of the Refinery.

In the most recent chapter of the dispute, companies that supply crude to the Atyrau plant said that the allegations made by Almaz were false and that the Refinery was well managed.

Asked to comment, Kuzhagaliev suggested that in private conversations, some of the signatories of the letter from suppliers "put their signatures and seals on the document because of fears that their refusal would result in problems dealing with plant management in the future," that is to say, Kuzhagaliev intimated that the suppliers had been pressured into signing the letter of support.

There are currently 19 shareholders in the Atyrau Oil Refinery. By far the largest is KazMunayGas, which holds and 86.7% interest in the plant. (Kazakhstan Today)

Banking and Finance

Kazakhstan's National Bank in January bought USD 436 Million worth of foreign currency, National Bank Chairman Anvar Saydenov told a government meeting in Astana on February 5.

"In order to support the real tenge exchange rate, we must act to strengthen the national currency within certain limits," Saydenov explained.

At the same time, "in order to fend off too much strengthening in the tenge, and consequently a weakening of our competitiveness," the National Bank must buy foreign currency," he said

"The printing of a large amount of tenge would lead to inflationary pressures," he explained. (Golden Eagle Partners)

***

Kazakhstani President Nursultan Nazarbaev last week signed an order appointing Askar Elemesov as the new deputy chairman of Kazakhstan' National Bank, according to the statement released by the president's press service.

Elemesov previously headed DN Securities Kazakhstan, a subsidiary of Deutsche Bank. An interesting footnote to the appointment is that another former DB Securities heads was Grigoriy Marchenko, who in January left his post as chairman of the National Bank to become first deputy prime minister. (Interfax)

Metals and Mining

Kostanay-based mining company Orken is preparing to introduce a new technology to improve its mineral enrichment processes. The new project will cost KZT 1.8 Billion, Kostanay oblast industry, energy and construction department head Sergey Karlyuk told.

Karlyuk noted that the aim of the project is to improve dephosphorization of minerals. The project, which is to be completed by 2005, will ensure the concentration of minerals in mined output will increase from 49% to 60%, while the level of phosphorus in output will fall from 0.7% to 0.2%, he added.

Financing for the project will be provided by major steel producer Ispat-Karmet, Karlyuk revealed. (Interfax)

Transport and Telecommunications

State-owned airline Air Astana, a 50-50 joint venture between the Ministry of Transport and Britain's BAE Systems, will invest USD 6 Million to improve its services in 2004, Air Astana President Lloyd Paxton told last week.

According to Paxton, Air Astana plans to buy a new Boeing 757-200 plane as well as five smaller turboprop aircraft. In the near term the company will open a USD 3 Million credit line to help purchase the new planes.

The Boeing 757-200 and the five planes will go into service in April 2004. The five turboprop planes will cover 23 domestic routes in Kazakhstan, while the Boeing will service international routes. (Kazakhstan Today)

***

The Kazakhstani government will hold a tender for the right to use the GSM-1800 frequency mobile telecommunications standard in Kazakhstan on March 10.

"The Kazakhstani Agency on Informatization and Communication announced competition for the use of frequency bands for the provision of mobile communication services on the DCS-1800 (GSM-1800) standard in the republic. The date of the competition is scheduled for March 10 of the current year," a press release from the agency announces.

Any legal entity or individual that meet the requirements outlined in Kazakhstani legislation are eligible to participate in the competition. The highest bid will be selected as the winner.

"The introduction of this standard on the territory of Kazakhstan is one factors that will enable our country to be fully integrated into the world information-telecommunication community," the agency concluded. (Kazakhstan Today)

***

State-owned airline Air Kazakhstan recently informed the Kazakhstani Ministry of Transport and Communication that it would be cancelling regular flights on a number of routes starting this month in order to cut costs at the struggling carrier, the Ministry of Transport and Communication press service stated.

According to Majilis Deputy Sergey Diyachenko, the bankruptcy of Air Kazakhstan could lead to lay-offs of more than 2,000 of the company's employees. Many specialists have already been laid off by the airline, Diyachenko added.

Diyachenko said he is concerned that Kazakhstan will have a state airline that will dominate civil aviation, to the detriment of consumers. He has urged the government to take measures to save Air Kazakhstan or otherwise ensure competition in the civil aviation market.

Another state-owned airline, Air Astana (a 50-50 joint venture with Britain's BAE Systems) has been thriving, recently announcing the acquisition of new aircraft and new regular routes. Some former Air Kazakhstan employees could find employment at Air Astana and other airlines, Diyachenko suggested. (Kazakhstan Today)

Money Markets

KZT/USD market rate dynamics during the week

Currency Rates as of 2 February 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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