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Politics and Macroeconomics

Government's 2004-2010 Gas Sector Development Plan Aims To Make Kz One Of CIS' Biggest Gas Exporters

Kazakhstani Prime Minister Daniyal Akhmetov on March 3 chaired a government meeting to review the state gas sector development program, the Ministry of Energy and Mineral Resources stated. According to government estimates, Kazakhstan has proven reserves of over 3 trillion cubic meters of gas at 94 deposits across the nation.

According to the gas sector development program, by 2010 Kazakhstan will have quintupled its current output of gas in order to turn out some 60 billion cubic meters per year. As a result of the program, the government notes, Kazakhstan would become a world-leader in terms of gas reserves and one of the three larges gas exporters in the former Soviet Union (along with Turkmenistan and Russia).

The government believes that the rise in gas production, coupled with an expected rise in transit volumes of gas from other exporting nations, will help speed up funding to modernize the gas transport system and increase capacity on this system. This in turn will help the government address the "main issue" of the gas development sector: ensuring a stable supply of gas to all regions of Kazakhstan.

The Prime Minister noted that care should be taken to improve environmental protection in the gas industry, but on the whole he approved of the Ministry's program. He gave the Ministry two weeks to make any changes to the document before it will be addressed in the next government meeting on the topic. (Kazakhstan Today)

Investment Agency Touts Oil And Gas Services Enterprises

"Currently more than 600 enterprises in the manufacturing sector possess industrial and personnel potential to fulfil orders for oil and gas production," state investment agency KazInvest Vice President Igor Grigoruk announced at a meeting entitled "Industrial-Innovation In Mangystau Oblast" held in Aktau this week.

Some 50 of these enterprises are major machine-building enterprises that already produce goods for the oil sector, including 29 which are capable of increasing their export potential.

Grigoruk noted that Kazakhstan expects to receive USD 80 Billion in investment in its oil and gas sector alone by 2015. These funds will be used to create infrastructure, buy equipment and build facilities in all aspects of oil and gas production, including orders from industrial and manufacturing plants.

"Domestic enterprises could begin producing items to be used in the development of the Kurmangazy project, a deposit on the Caspian shelf, in order to gauge their level of preparedness," Grigoruk suggested. (Interfax)

IMF, World Bank Note Kazakhstan's Financial Sector Success

A joint mission of the International Monetary Fund (IMF) and the World Bank (WB) that visited Kazakhstan last month lauded the progress the republic has made in the area of regulation of financial markets and banks, State Agency for the Regulation and Control of Financial Markets Chairman Bolat Zhamishev stated at a briefing on March 10 in Almaty.

The joint IMF-WB mission visited Kazakhstan in February, the first such visit since 2000. The IMF-WB delegation was sent to observe how well Kazakhstani authorities were regulating and managing the financial sector.

The delegation pointed out some areas that are in need of improvement, notably consolidated control and risk management, Zhamishev noted. The latter issue needs to be "seriously" addressed by banks and the government, the chairman admitted. (Interfax)

Equities

The KASE-Shares index increased by 4.99% to 174.48 by the end of period on March 10 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 March 4 and March 10 2004, the volume of equity trades at the KASE increased to USD 4,746,859 from USD 2,025,604 in the previous period. The shares traded during the period were common shares of Bank CenterCredit (CCBN), Kazakhmys (KZMS), Rahat (RAHT), Temirbank (TEBN), ValutTransit Bank (VTBN) and ZERDE (ZERD), and preferred shares of Alluminiy Kazakhstana (ALKZp), KazChrome (KZCRp) and ValutTransit Bank (VTBNp). (Irbis)

Company News

Oil & Gas

Major Kazakhstani oil and gas producer MangystauMunayGas produced an average of 13,758 tonnes per day of crude in February 2004, some 150 tonnes more per day than the previous month, company officials stated this week.

In 2003 MangystauMunayGas produced an average of 12,800 tonnes per day. Company officials credited more efficient work on its wells for the rise in production.

MMG undertook capital repairs on 47 wells in February 14 of which were totally overhauled. Another 390 wells underwent subsurface repairs, one third of these were operated using hydraulic blasting of layers. This method was developed by the Moscow (Russia)-based Special Machine-Making and Hydrology.

At present two hydraulic blasting units are in use at the Zhetibay and Kalamkas deposits, one of which belongs to the Russian company, the other belonging to MMG. Over four years, the hydraulic blasting method has been applied to 252 wells. As a result 900,000 additional tonnes of oil was extracted.

In March 2004 the company plans to produce a total of 430,000 tonnes of crude. (Kazakhstan Today)

***

Kazakhstani Minister of Energy and Mineral Resources Vladimir Shkolnik on March 4 met with Alexey Miller, chairman of Russian gas giant Gazprom, at the Gazprom offices in Moscow.

Shkolnik and Miller discussed the prospects for a long-deal by which Gazprom would buy gas from Kazakhstan's Karachaganak gas condensate deposit to be processed at Russia's Orenburg Refinery. Gazprom would like to buy 15 billion cubic meters of gas and 6 million tonnes of condensate annually.

In addition, Shkolnik noted that Kazakhstan plans to ramp up gas output over the next six years, and Russia has announced intentions to boost gas purchases from Uzbekistan and Turkmenistan. These two developments meant that Kazakhstan and Russia should work together to boost the capacity of the only existing gas export pipeline from Central Asia (Central Asia-Center).

Gazprom's Miller also asked about possible Gazprom participation in other major oil and gas development projects in Kazakhstan, namely the Kashagan, Karachaganak and Tengiz deposits.

Kazakhstan is estimated to have some 2 trillion cubic meters of proven natural gas reserves. Another 8.3 trillion cubic meters are predicted to lie underneath the republic's Caspian Sea sector. (Kazakhstan Today)

***

Russian oil major LUKoil will begin exploration drilling at the Tub-Karagan field in the Kazakhstani sector of the Caspian Sea in 2005, LUKo il's Kazakhstan Director Boris Zilbermintz announced this week.

"2D seismic are planned this year for Tub-Karagan, as well as appraisal and preparations for the drilling of one exploratory well. We plan to drill the well in 2005. Then we'll be able to determine the estimated reserves" at the field, Zilbermintz said.

KazMunayGas offshore drilling affiliate KazMunayTeniz and LUKoil are organizing the development of the Tub-Karagan and neighbouring Atash fields in the Kazakhstani sector of the Caspian. The parties created two joint operating companies on a parity basis for the development of these structures.

Zilbermintz noted that according to preliminary results of exploratory work at Tub-Karagan, the probable reserves of the field are estimated at more than 300 million tonnes of oil.

LUKoil and KMG believe that Tub-Karagan contains some 150 million tonnes of recoverable oil equivalent, while the Atash deposit holds more than 130 million tonnes of oil equivalent. (Interfax)

***

Canada-based oil and gas company PetroKazakhstan, which develops the Kumkol oil fields and runs a refinery in southern Kazakhstan, will pay its quarterly dividends to shareholders in May.

PetroKazakhstan reported net profit for the fourth quarter of 2003 more than doubled over the previous period due to rises in production and world oil prices. As a result, the company will pay out a dividend of 15 Canadian cents (11 US cents) per share to stockholders on May 3.

PetroKazakhstan's pile of extra cash had fuelled speculation the company was preparing to make a major acquisition, but according to William Wells, executive director of Pope Asset Management William Wells, the dividend payment makes it unlikely the company will pursue any acquisitions in the near future.

PetroKazakhstan reported 4th quarter 2003 net profits of USD 90.3 Million, or USD 11.1 per share, up from USD 45.1 Million in Q4 2002. Fourth quarter revenues increased by 21% up to USD 310.6 Million, compared with USD 256.7 Million the previous year.

"By all standards, our work in the 4th quarter and in 2003 as a whole was wonderful," PetroKazakhstan Chairman and Executive Director Bernard Isautier stated during an Internet teleconference last week.

The planned dividend payment "will still leave us enough cash funds" to invest in the further development of the company, Isautier pledged. PetroKazakhstan's net profit for 2003 as a whole nearly doubled 2002 results, checking in at USD 317.5 Million against USD 162.6 Million the previous year. Total revenues for the company in 2003 stood at USD 1.12 Billion, up from USD 825 Million in 2002. (Interfax & Bloomberg)

***

Work on the construction of an oil pipeline from western Kazakhstan to western China will begin in July 2004, according to the official from the Xinjiang-Uighur Autonomous Province.

The two countries will first start to build a 1,200 kilometre section from Atasu in Kazakhstan, via the border town of Alashankou, to Dashanzi in China's Xinjiang-Uighur Autonomous Region, according to Wang Yongming, director of the Xinjiang economic and trade commission.

The USD 3 Billion pipeline will reach westwards joining the existing 450-kilometer Atyrau-Kenkiyak pipeline in the Central Asian republic, once it is completed in two year's time.

The three-section trunkline, with a total length of over 3,000 kilometres, would be able to deliver up to 20 million tonnes of Caspian Sea crude annually to western China.

Wang was quoted as saying that the China National Petroleum Corp - the company representing the Chinese government to build the pipeline - "will start to build Alashankou-Dashanzi section in July."

"It is the major breakthrough for the construction of this important project," said Wang.

The Sino-Kazakhstan pipeline was first proposed in 1997. But negotiations were then suspended for six years.

Kazakhstan, which now exports 70% of its oil via Russia, wants to find more export markets. China, on the other hand, needs more oil to fuel its soaring economic growth and also diversify its oil imports.

At present, more than 60% of China's imports come from the Middle East via the unsettled Malacca Strait. China is also competing with Japan to persuade Russia to build a similar crude oil pipeline from East Siberia to Northeast China.

"It is very important for China to establish an onshore oil import channel," said Hu Jie, an engineer with an oil and gas exploration research institution under the CNPC. "It is just too dangerous to rely on all of our imports coming on sea routes."

The pipeline would also help link up the oilfields CNPC invests in - in Aktobe and Mangystau oblast - giving China better access to Kazakhstani oil.         CNPC has so far invested almost USD 700 Million in Kazakhstan.

Experts continue to express concern over the economic competitiveness of Kazakhstani oil, because most of China's oil is consumed in the east of the country. Transporting Kazakhstani oil either by rail or by building a new pipeline would be too expensive compared with oil imports from elsewhere.

CNPC officials indicated that part of the oil would be processed at local refineries in Xinjiang. The oil products will then be transported to Lanzhou in neighbouring Gansu Province where they will be delivered via an existing oil products pipeline to markets in Central China. The remaining crude oil would be transported to refineries in Lanzhou. (China News Agency)

***

Kazakhstan and Azerbaijan will sign an intergovernmental agreement on the transport of Kazakhstani oil via the planned Baku-Tbilisi-Ceyhan export pipeline in 2004, Azeri state oil company SOCAR President Natik Aliev told journalists this week.

 "Talks on this issue, begun two years ago, are nearly complete, and we will sign an agreement." Kazakhstan does not yet have the volumes to participate in transportation via BTC. But we are preparing the necessary legal base for all oil suppliers and investors. We are trying to resolve an issue that could arise in the future," Aliev said.

There remain some disputed issues, Aliev admitted. "Kazakhstan doesn't want to ratify any agreement in its Parliament. Our investors demand parliamentary ratification, so that the law isn't changed in the future, even if there is a change in other legislation, and so that new legislation on customs and tax are guaranteed," he said.

"I think this issue can be solved. The investors can agree on some additional document, if the inter-governmental agreement is not ratified," Aliev said.

The working group on the agreement will next meet in April.

The investors in the BTC pipeline currently include BP (30.1% stake), SOCAR (25%), Unocal (8.9%), Statoil (8.71%), TPAO (6.53%), Eni (5%), Itochu (3.4%), ConocoPhilliðs (2.5%), Inðex (2.5%), TotalFinaElf (5%) and Amerada Hess (2.36%). (Interfax)

Banking and Finance

Kazkommertsbank, Kazakhstan's largest bank, on March 2 announced that it plans to borrow up to USD 1 Billion through bond issues in 2004-05, as well as loans and deposits.

"The bank plans to attract financing through Eurobonds and subordinated bonds to be placed on international capital markets, to cooperate with international (financial) institutions and export agencies, and to boost its share on the market of corporate and private deposits," the bank said.

The statement said the plan had been approved by a meeting of Kazkommertsbank shareholders on February 26.

In April 2003, KKB launched a 10-year Eurobond worth USD 500 Million.

At the start of this year KKB held assets worth USD 3.05 Billion and its own capital amounted to USD 238 Million.

A controlling stake in Kazkommertsbank is held by its top managers. The European Bank for Reconstruction and Development (EBRD) has a 15% stake of voting shares in the bank. (Reuters)

***

Kazakhstan will privatise its biggest pension fund by the end of the year and hopes to attract interest from foreign financial players, the government announced on March 9.

The oil-rich country's central bank chief had said in January that he expected the fund, GNPF, to be privatised soon. It controls about a quarter of the country's 360 billion tenge ($2.6 billion) in pension fund assets.

GNPF, the only state-run fund, has held a dominant position since the Central Asian state scrapped its Soviet-era system of pension payments in 1998 and allowed citizens to accumulate pensions in funds of their choice.

"The decision has been taken to privatise GNPF in 2004 by attracting strategic investors and international financial institutions," the government said in a statement. It gave no further details.

Foreign banks already present in Kazakhstan, which include ABN AMRO Holding NV, HSBC Holdings Plc and Citigroup Inc, say that although the banking sector is probably mature enough to avoid a large influx of foreign players, the pension fund market could attract new players.

Aside from GNPF, most of the rest of the country's pension fund assets are currently managed by asset management arms belonging to local commercial banks. (Reuters)

***

Major Kazakhstani commercial bank Nurbank has received permission from Russia's Central Bank to open a representative office in Moscow.

Nurbank said the decision to open a Moscow office was part of its long-term strategy to improve cooperation with Russian banks and thereby spur bilateral trade and economic relations.

Nurbank clients are deepening their ties with Russian companies, necessitating the bank to act to meet their clients needs, the bank said in a press release. The bank is involved in financing trade operations and other aspects of economic cooperation.

Nurbank noted that in 2003 it was honoured by Euromoney magazine as the "best partner bank" in Kazakhstan. (Kazakhstan Today)

Metals and Mining

JSC Polymetal and Ekaterinburg-based Copper Technology have signed an agreement to jointly develop the copper pyrite deposit "50th anniversary of October [revolution]" in Kazakhstan, the Polymetal foreign affairs department stated.

The agreement is Polymetal's first such cooperation pact with an outside organization. Among other things, the deal establishes an engineering center to implement turnkey development of deposits.

Polymetal will work on preparations for the Kazakhstani project through the end of the first quarter of 2004. The USD 150 Million mining facility at the site will be commissioned by the end of 2005.

Polymetal was established in 1998. Currently the holding includes 5 mining and 6 auxiliary companies in Buryatiya, Khabarovsk, Sverdlovsk, Chita and Magadan oblasts as well as a scientific-research and design institute in St. Petersburg (all in Russia). The holding, which holds 17 licenses for precious metals deposits and exploration areas, is one of Russia's top ten gold producers.

Copper Technology LLP, meanwhile, actually holds the development license for the copper pyrite deposit "50th anniversary of October [revolution]" (Khromtau district, Aktobe oblast). The deposit is estimated to hold some 45,120 tonnes of copper reserves. (RosBalt)

***

Pavlodar-based steel producer Casting LLP will invest USD 25 Million to improve steel output at its plant, Casting Director Anatoliy Abdrakhmanov stated.

In the second quarter Casting LLP will launch a rolling mill for the production of steel beams. Future plans include units to manufacture large-diameter pipes for the oil and gas industry as well as cable production. The plant is installing 26 six overhead cranes with lifting capacities from 5 to 20 tonnes.

Casting was created on the basis of steel and cast iron units and the forge of KazakhstanTractor, which the company purchased in September 2002.

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.

Casting currently turns out about 300,000 tonnes of steel goods per year, though the plant plans to ramp up output to one million tonnes annually. The plant draws its funding from domestic investors, Abdrakhmanov said. (KazInform)

***

Major Kazakhstani metal company Aluminum of Kazakhstan has shut down its gallium production unit - the second largest producer of the metal in the world - due to poor conditions on the world market.

"The cause of the shutdown of the operation was the unfavourable situation on the world market," the Eurasian Industrial Association, which owns Aluminum of Kazakhstan, announced in a press release on March 5.

The Pavlodar-based gallium unit produces 6N-type gallium, a highly pure form of the metal considered on par with or superior to similar products made in France, Japan and Germany, the EIA said.

Aluminum of Kazakhstan typically produces about 25,000 kilograms of gallium per year. Gallium is used to produce military and space equipment, as well as computer equipment, cellular phones, and light emitting diodes, the press release said.

Aluminum of Kazakhstan, one of the top ten producers of alumina (the main component of aluminum) in the world, unites the Pavlodar Aluminum Plant, (the head enterprise), the Torgay and Krasnooktyabr bauxite ore mines, and the Keregetas lime mine and TETS-1 power plant. The company is controlled by the Eurasian Bank financial-industrial group. Since April 2003, a 31.76% stake in Aluminum of Kazakhstan has been owned by Switzerland-based Corica AG. (Interfax)

Transport and Telecommunications

A tender for a third GSM mobile phone license in Kazakhstan will be postponed until June 1 from March 10, government officials said on Thursday. However the controversial conditions of that contest will remain mostly in place. No bids had been received as of Friday and the move comes shortly after Kazakh officials said they would soften draconian proposals to limit foreign ownership of telecoms firms - moves widely seen as a deterrent to foreign investors.

In announcing the tender date change, Kazakhstan Agency for Informatization and Communication Chairman Baurzhan Kaneshev said that "The conditions of the competition have not been changed; the issue is only the prolongation of the time-period of the competition. Bids will be accepted until May 20."

However, the agency subsequently announced revised plans to limit foreign ownership of telecoms firms -- made public on March 5 after a lack of bids for the mobile tender -- Kazakhstan will now only seek to prevent foreign firms holding more than 49 percent of fixed-line operators, rather than in any telecoms company.

The delay would allow officials to better prepare for the tender and attract a large number of participants, the State Agency for Information and Communications said in a statement.

The deal is expected to attract interest from Russian mobile telephone firms and generate around USD 50 Million.

Kazakhstan's largest mobile operator is GSM Kazakhstan, controlled by Sweden's TeliaSonera in a joint venture with Turkey's Turkcell. (Reuters)

***

British-Kazakhstani airline Air Astana has leased another Boeing 757-200 aircraft, Air Astana President Lloyd Paxton announced at a ceremony unveiling the new plane at Astana International Airport last week. The seven year-old plane, which is designed to carry 210 passengers, is equipped with all the latest aviation technology, including Rolls Royce-built engines, Paxton said.

The Air Astana fleet now consists of three Boeing 737-700/800s and three Boeing 757-200s. In May the airline will add five ATR-42-500 turbo-prop planes to its inventory. The latter French-Italian produced planes will fly mainly domestic routes.

Air Astana will spend some USD 6 Million this year to expand its fleet. The company will take out a USD 3 Million loan for this purpose. The extra planes and extra spending will enable the airline to open 11 new international and 23 new domestic routes.

The Kazakhstani government holds a 51% stake in Air Astana, while the remaining 49% is owned by Britain's BAE Systems. (Interfax)

Money Markets

KZT/USD market rate dynamics during the week