http://www.kazakhstaninvestment.com

Politics and Macroeconomics

Government Says There Are 12 National Companies

The government of Kazakhstan this week issued a resolution confirming the 12 "national" companies in the republic. National companies are generally fully or majority state-owned and are involved in industries deemed critical to the development of the republic.

The 12 national companies are as follows: oil and gas company KazMunayGas, power grid operating company KEGOC, postal service KazPochta, grain company GosProdKorporatsiya, atomic and uranium mining company KazAtomProm, railroad company Kazakhstan Temir Zholy, pension fund State Pension Fund, telecommunications company Kazakhtelecom, Astana International Airport and news agency KazInform.

Two newer companies also on the list were a new company called National Information Technology and the innocuously named defence industry consortium Kazakhstan Engineering, which unites some 21 military-industrial enterprises.

Left off the national company roster was state-owned airline Air Kazakhstan, which was the republic's flagship carrier for several years but was recently announced to be near bankruptcy. (Interfax)

Oil Quality Becoming An Issue In Kazakhstan

As its crude oil output steadily rises, Kazakhstan is quickly becoming an important new market for firms offering services in measuring oil and oil product quality, the general director of one such firm stated this week.

According to Abkhan Sagindykov, general director of Kazakhstani-Dutch joint venture Saybolt-Kazakhstan, the rising oil output - the government has predicted a steady but dramatic increase from 51 million tonnes in 2003 to 150 million tonnes in 2015 - is fuelling interest in the services of companies that offer assessments of oil and oil products quality.

Saybolt-Kazakhstan was founded in November 2000 in order to meet the growing demand for oil quality analysis in the republic, Sagindykov said. In 2003 the firm inspected some five million tonnes of oil and oil products. In July 2002 Saybolt-Kazakhstan received ISO 9001:2000 quality management certification from BVQI (Bureau Veritas Quality International).

Other companies in the field, such as Petroleum Services, Protechnics, Pencor and Petrophysics, which are part of the international A Core Laboratories Company, have also recently become active in Kazakhstan, Sagindykov added. (Interfax)

Ministry: Kazakhstan Spent Better In 2003 Than Ever Before

The Kazakhstani government fulfilled a higher percentage of its spending program in 2003 than in any of the previous five years, Minister of Finance Erbolat Dosaev disclosed recently.

According to the Finance Ministry, Kazakhstan executed 97.8% of its planned expenditures in 2003.

"For the first time in the history of Kazakhstan, government expenditures exceeded KZT 1 trillion," Dosaev is quoted as saying.

"This allowed not only for the fulfilment of the budgets of all levels, but also to ensure a 77% growth in the assets of the National Fund," Dosaev added.

As of January 1, the National Fund, which accumulates and re-invests revenues from oil production in Kazakhstan, totalled KZT 529 Billion.

The government also shaved KZT 2 Billion off of the national debt in 2003 thanks to the high revenues, the Ministry noted.

The state budget deficit in 2003 totalled KZT 53.4 Billion, or just 1.2% of gross domestic product, the Ministry added. (Kazakhstan Today)

Government Adopts Measures To Renew Mid-Sized Cities

The Kazakhstani government is committed to "significantly improving regional administration of government policy," Minister of Economy and Budget Planning Kayrat Kelimbetov announced at a meeting in Karaganda oblast on February 20.

Addressing a seminar on the development of small- and mid-sized cities in the republic, the Minister noted that "technological backwardness, limited funds of most enterprises in small cities and a lack of qualified management slows the further development" of these areas.

At the end of 2003, the Kazakhstani government adopted a two-year (2004-06) program of measures to address these problems and other aspects of the renewal of Kazakhstan's mid-sized cities, Kelimbetov explained. Under that program, the government will allocate KZT 2.4 Billion in assistance to smaller cities, including KZT 1.5 Billion to create a new government-owned "Small Entrepreneurship Development Fund" and KZT 900 Million in direct transfers to regional budgets for small cities.

There are some 60 small cities in Kazakhstan, of which ten have "depressed economies", according to government statistics. A small city is defined as one with a population of fewer than 50,000 people.

The seminar in Karaganda was attended by akims of small cities and representatives of the Asian Development bank and the US-based Urban Institute (which runs a USAID-funded project on urban development). (Golden Eagle Partners)

Government Pushes Ahead With Plan To Create Regional Financial Center In Almaty

First Deputy Prime Minister Grigoriy Marchenko and Almaty Akim Viktor Khrapunov presided over a meeting in Almaty last week over how to make the city the regional financial center of Central Asia

Akim Khrapunov pointed out that 29 of 35 banks in Kazakhstan have head offices in Almaty, while 24 of 32 insurance companies and 12 of 16 pension funds are based in the city. Moreover, some 88% of the investments in the city are funded by private capital, which shows the potential of the city, Khrapunov added.

According to Marchenko, an interdepartmental government working group is already at work on proposals for how to develop Almaty into the regional financial capital. Marchenko said that financial transparency; city infrastructure and boosting of hard currency reserves are necessary prerequisites for any such plans. There are also plans to create a special reduced tax zone in the city, Marchenko added.

As models for Almaty's development, the government has decided to take Dublin (Ireland) and Dubai (United Arab Emirates). Delegations of Almaty entrepreneurs and officials will be dispatched to these cities to study their experiences. (Kazakhstan Today)

Kazakhstan Pares Down Foreign Debt In '03

The Kazakhstani government spent KZT 14.1 Billion to repay and service the republic's foreign debt, the Ministry of Finance announced last week. The money to pay the debt came from the national budget.

The average tenge-dollar exchange rate in 2003 was KZT 149.45/USD 1; the current rate is KZT 138.86/USD 1.

As of February 2003, the Finance Ministry said it had to pay USD 307.9 Million in foreign debt, including USD 140.6 Million in principal debt and USD 167.3 Million in debt servicing.

In 2004 the government has included KZT 94.1 Billion available to repay national debts. (Interfax)

Us Sends USD 92 Million In Aid To Kazakhstan In 2003

Kazakhstan received some USD 92 Million in aid from the United States between October 2002 and October 2003, according to the statement released by the US Embassy in Kazakhstan.

A cursory examination of the figures reveals that the emphasis in American aid is on Kazakhstan as an anti-terrorist and security partner, with USD 49.2 Million in aid for security and law enforcement. Other major US aid expenditures are aimed at promoting economic and social reform (USD 23.4 Million), democracy and civil society (USD 13.9 Million) and industrial cooperation (USD 5 Million).

More than 440 Kazakhstani were sponsored to attend various training programs in the United States last year, bringing the total number of Kazakhstani trained by the US over the past 10 years to over 4,500.

In 2003 the US Trade and Development Agency sponsored a delegation to Kazakhstan to evaluate oil-chemical investment projects. The US supports energy sector programs aimed at improving environmental safety at oil and gas projects. The US Department of Energy has also assisted Kazakhstan in various atomic and nuclear safety projects. (KazInform)

Equities

The KASE-Shares index increased by 8.05% to 82.26 by the end of period on February 25 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 18 2004 and February 26 2004, the volume of equity trades at the KASE decreased to USD 3,017,786 from USD 1,797,358 in the previous period. The shares traded during the period were common shares of Almaty Kus (ALKS), Alyans Bank (HRLT), Bank TuranAlem (BTAS), Bank CenterCredit (CCBN), Dana Bank (DNBN), Kazakhmys (KZMS), Temirbank (TEBN) and ValutTransit Bank (VTBN) and preferred shares of ATF Bank (ATFBp), ValutTransit Bank (VTBNp) and ValutTransit Zoloto (VTZLp). (Irbis)

Company News

Oil & Gas

The Kazakhstani government in late February will conclude its feasibility study of a project to build a gas processing plant near the giant Karachaganak gas condensate field in West Kazakhstan oblast. Kazakhstani Prime Minister Danial Akhmetov on February 19 chaired a government meeting on the progress of the feasibility study.

"The head of government instructed the relevant ministries and national companies to complete the feasibility study for the gas plant project within one week. Then in March 2004 the government will start presenting the project to potential investors," the prime minister's press service disclosed in a statement.

The government has proposed the construction of a gas processing plant and export pipeline near Karachaganak with the capacity to handle 10 billion cubic meters of gas per year. The project would cost about USD 1-1.2 Billion to build, depending on the technology chosen.

The prime minister believes that Kazakhstani investors will get behind the proposed project "because current tax laws provide for significant privileges and preferences to ensure a stable flow of direct investments into the petrochemical industry."

Karachaganak Petroleum Operating, a consortium of international oil and gas companies, develops the Karachaganak oil and gas condensate field. With 1.2 billion tonnes of oil and 1.35 trillion meters of gas, the field is one of the world's largest. KPO partners include co-operators BG Group and Eni SpA, with 32.5% stakes each, as well as ChevronTexaco (20%) and LUKoil (15%).

At present Karachaganak gas is sent to Russia's Orenburg gas refinery for processing. (Interfax)

***

Negotiations between Kazakhstan and Agip KCO, the Eni SpA-led international consortium developing the massive Kashagan offshore field, over the amount of compensation to be paid to the republic due to delays in the start of production at the field should be wrapped up within the next few days, state oil and gas company KazMunayGas President Uzakbay Karabalin told reporters at a press conference in Almaty on Monday.

"We expect that it will be a one-time payment, and a compensatory payment for delays in production," Karabalin explained.

Kazakhstani officials and Agip KCO sources have suggested the compensation payment for the delay from the original start date would be around USD 150 Million. This amount is contingent on Agip KCO getting production started by 2007 (the original production date was 2005). The latest news reports suggest that production may be even further off.

Thierry Demarest, CEO of French consortium member Total SA, told reporters last week that he expected Kashagan to go on-line in April 2008.

An unnamed Kazakhstani government source confirmed this week that "now the talk is mostly about launching output in 2008 or a later date." That same source told the news agency that the longer-than-previously-disclosed delay has meant that the consortium could be expected to pay more compensation. "In principle, the talk [about compensation] is about hundreds of millions of dollars," he said. (Reuters)

***

Kazakhstani state oil and gas company KazMunayGas is planning a major restructuring and is looking at giving up one of its largest investments, the Kherson Refinery in the Ukraine, KMG President Uzakbay Karabalin told a press conference in Almaty on February 23.

"We plan to cut in half the number of our companies, so that the companies that do make up KMG become more effective," Karabalin said.

KMG has many major subsidiaries, such as pipeline operators KazTransOil and gas company KazTransGas, which in turn have many subsidiaries of their own.

Meanwhile, KMG in 1999 - when it was still Kazakhoil - purchased a 60% stake in the Ukraine's Kherson Refinery, the sixth largest enterprise in the Ukraine. When KMG acquired the refinery it owed more than USD 4 Million to creditors, more than 12.5 Million Ukrainian Griven to the state and more than 4 Million Griven to its own workers, Karabalin noted. Kazakhoil ostensibly bought the refinery with the hope that it would give the company better access to the Ukrainian consumer oil products market, which is much larger than Kazakhstan's own. (Golden Eagle Partner)

***

Toronto-listed oil company Nelson Resources has announced that it will drill its first well on the Zhambay offshore oil field in the Caspian Sea in 2005.

According to Nelson Chairman Nick Zana, the first well will be drilled early next year.

State oil and gas company KazMunayGas last fall completed the first round of 2D seismological research on the South Zhambay and South Zaburunye blocks. Working with the results of that study, Nelson will over the course of this year undertake more detailed seismic research, Zana said. For the moment, however, the results of last fall's seismic research has not been interpreted, he added.

Nelson has the right to purchase a 25% interest in the development of South Zhambay and South Zaburunye from KazMunayGas. According to Zana, the purchase of a 25% stake in the project is "just one of several variants".

"The possibility to acquire the 25% stake once KazMunayGas announces a Kazakhstani partner in the project. We hope that will happen soon," Zana said.

Kazakhoil-Aktobe, the joint venture operating the Alibekmola oil field in Aktobe oblast, plans to double crude output in 2004 to one million tonnes of oil, Nelson Resources Chairman Nick Zana stated. Nelson holds a 50% stake in Kazakhoil Aktobe; the other 50% is owned by state oil and gas company KazMunayGas.

Crude output at Alibekmola in 2003 totalled 420,000 tonnes, Zana said. At present daily output at the field has hit 2,400 tonnes.

The rise in output in 2004 is part of a larger planned production increase that will have the field producing around 3 million tonnes per year by 2007 or 2008.

In addition to Alibekmola, Kazakhoil-Aktobe began production at the Kozhasay field in December 2003, Zana pointed out. That entailed the re-launch of several old wells at Kozhasay. (Kazakhstan Today)

***

Kazakhstan's state oil and gas company KazMunayGas "would not rule out the possibility" that a gas and petrochemical processing plant would be built in the framework of the Karachaganak gas condensate field project, KazMunayGas President Uzakbay Karabalin stated at a press conference in Astana on February 23.

The plant would process oil and gas from the Karachaganak field into other petrochemical products, he added.

"This is economically profitable and promising, and in this connection the Kazakhstani side plans to attract an interested investor to the project," Karabalin noted. He noted that recent changes in the Kazakhstani legislation grants tax benefits and preferences "to investors who intend to develop petrochemical industry in our country".

The Kazakhstani government has been seen as pushing hard for the gas processing project at Karachaganak, but the position of KMG has been less clear.

The Karachaganak deposit holds more than 1.2 billion tonnes of oil and condensate and 1.35 trillion cubic meters of natural gas.

Currently the Karachaganak Petroleum Operating consortium operates the Karachaganak deposit; KPO shareholders are BG Group and ENI (holding 32.5% each), ChevronTexaco (20%) and LUKOIL (15%). (Interfax)

***

National oil company KazMunayGas has presented the final version of its technical and financial feasibility study for the Atasu-Alashankou oil pipeline, the second phase of a planned Kazakhstan-China pipeline, to the Kazakhstani government, KMG President Uzakbay Karabalin told reporters in Astana this week.

"Once this [feasibility study] is approved, we will prepare to begin construction of this oil pipeline in July or August of this year," Karabalin said.

"In this way, we will build step-by-step the bridge 'western Kazakhstan-western China,'" he noted.

According to the plans developed, the Atasu-Alashankou line would have an initial throughput capacity of 10 million tonnes per year, to be increased eventually to 20 million tonnes per year.

The 1,300-kilometer Atasu-Alanshankou segment, running from Karaganda oblast through southern Kazakhstan to the Chinese border, will at some later date be linked to the Atyrau-Kenkiyak pipeline in western Kazakhstan, which China's CNPC launched last year. The 449-kilomenter Atyrau-Kenkiyak pipeline has a through-put capacity of 12 million tonnes per year. Experts say that the cost of building the three phases of the 3,000-kilometer western Kazakhstan-western China line could cost over USD 3 Billion. (Interfax)

***

Canadian-based (but Kazakhstani-owned) oil company Nelson Resources and the China National Petroleum Corporation (CNPC) plan to boost oil production at their North Buzachi field in Mangystau oblast by 25% in 2004, CNPC General Director Deng Minmin announced at a press conference in Aktau this week.

Oil production at North Buzachi, in which the two companies acquired equal stakes last year, stood at about 400,000 tonnes in 2003. In 2004 production at the field is expected to hit 500,000 tonnes, Deng said. Average daily production at North Buzachi currently stands at 7,500 barrels, he added.

To realize their long-term production targets, the co-operators plan to drill 15 new wells at the field, Deng said. Work on the new wells will begin once the field development plan is affirmed by the Kazakhstan Central Commission for the Development of Oil Deposits (a division of the Minister of Energy and Mineral Resources). If the new wells are drilled, the number of wells at the field will reach 60 by the end of this year, which will enable the operators to boost annual production to 600,000 tonnes per year by 2005.

In 2004 Nelson and CNPC plan to invest USD 82 Million into the field. The two companies plan to reach maximum output capacity of 40,000 barrels per day by 2017. According to Nelson Resources President Baltabek Kuandykov, CNPC, however, is looking at options to boost oil production at the field faster. CNPC General Director Deng confirmed that the Chinese company hopes to hit maximum output by 2011.

CNPC acquired 100% of the rights to the development of the North Buzachi field from US-based ChevronTexaco and Saudi Arabia's Nimir Petroleum last summer. The Chinese company subsequently sold a 50% stake to Nelson Resources. (Kazakhstan Today)

Banking and Finance

Kazakhstan's CenterCredit Bank in 2004 intends to boost its money transfers through the US-based Western Union wire service to USD 73 Million, according to the bank officials.

CenterCredit Bank is one of Kazakhstan's five largest banks, having 19 branches and 73 cash-desk departments in 30 cities and 100 towns in Kazakhstan.

In 2003 the bank effected USD 64.1 M in Western Union wire transfers, serving 110,000 customers and earning the bank more than USD 1.2 Million in revenues. The bank performed 55.7% of all Western Union transfers in Kazakhstan.

CenterCredit Bank's Taraz Branch was recognized by Western Union as one of the top ten Western Union sellers in the world in May-December 2003, taking 5th place.

Other banks offering Western Union services in Kazakhstan are Lariba Bank, KazPochta, TuranAlem Bank, and Kazkommertsbank.

CenterCredit Bank has long-term foreign currency deposit ratings of Ba2 from Moody's Investors Service and "B+" from Fitch Ratings. (Interfax)

Power

Kazakhstan's Eurasian Energy Corp. plans to increase coal output at its Vostochniy mine to its projected maximum capacity - 20 million tonnes per year - by 2006, Vostochniy mine Director Nurlan Nursultanov stated this week.

In 2004, the Vostochniy mine will produce the same volume of coal as it did in 2003 - 17.5 million tonnes, while in 2005 that figure will rise to 18 million tonnes, Nursultanov said.

"It's true that to reach projected capacity, we need to do a tremendous amount of work at the mine, which will be impossible without more investment," he added.

According to Nursultanov, in 2004 the Eurasian Energy Corp. will invest KZT 3.2 Billion to improve production processes at the field, up from just KZT 1.1 Billion in 2003. The mine plans to acquire five excavators, 2 locomotives, bulldozers and other equipment this year, Nursultanov said.

The mine is currently switching from a diesel rail transport system to an electric unit. This will make the mine ecologically cleaner by reducing emissions, and will also save money on fuel, the mine director noted.

Coal from the Vostochniy mine is primarily shipped to the EEC's Aksu power plant. The mine also has signed an agreement to ship up to 6 million tonnes of coal to Russia's Omskenergo this year. The Kazakhstani government holds a 25.19% stake in the EEC, while the bulk of the company is reportedly controlled by the Eurasian Bank financial-industries group, which also owns the Sokolov-Sarbay Mining-Enrichment Plant, Aluminum of Kazakhstan, and KazChrome. (Interfax)

Metals and Mining

A project to explore and extract methane from coal deposits in Karaganda oblast could be profitable by 2010 to 2015, the Kazakhstani government declared at a meeting on February 19. The state-backed Kazakhstan Innovation Fund is ready to finance the exploratory phase of the project, the government added.

The Innovation Fund sees the extraction of methane as a source for cheaper fuel resources. In addition, the methane project would reduce air pollution from coal mining and contribute "millions of dollars to the Kazakhstani budget each year", the government said in a press release.

Karaganda oblast coal deposits are estimated to contain 500 billion to 1 trillion cubic meters of methane gas.

The main potential consumers of the methane produced would be the Karaganda metallurgy giant Ispat-Karmet (which is expected to use some 550 million cubic meters of methane in 2006) and other Karaganda-based industrial facilities. (Golden Eagle Partners)

***

Pavlodar steel plant Casting LLP in 2003 produced 112,000 tonnes of steel products, more than six times the amount produced in 2002, Pavlodar oblast Deputy Akim Alexander Verbnyak announced during a meeting with heads of industrial enterprises in the region last week.

Casting LLP's Pavlodar branch invested KZT 8.2 Billion into its production capacities in 2003, including launching its second 25-ton smelting furnace and rebuilding its steel pouring machine. The enterprise also expanded its product line to include grinding balls and rods for the mining industry.

In the future, Casting hopes to boost output to 700,000 tonnes of cast steel products.

Casting was created on the basis of steel and cast iron units and the forge of KazakhstanTractor, which the company purchased in September 2002. The enterprise employs about 1,000 people. (Kazakhstan Today)

Money Markets

KZT/USD market rate dynamics during the week