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Politics and Macroeconomics

Oil Firms Complain Of Heightened Tax Burden

Foreign oil firms tapping Kazakhstan's huge hydrocarbon riches or setting eyes on future spoils from the Caspian Sea shelf, voiced concerns on March 17 over high taxes which they say make Iraqi oil more competitive.

Last November Kazakhstan's compliant parliament gave prompt backing to a new tax bill proposed by President Nursultan Nazarbaev which aims to reap more money for state coffers when oil prices are high and develop oil refining.

Alain Langlois, a Total SA representative in Kazakhstan, spoke to a round table of investors and government officials and cited an example of a production sharing agreement (PSAs) to show that such deals tended to favour the state.

"The profitability (of the PSA) calculated by its Kazakhstani partners was 17%. The less optimistic foreign partners arrived at 13% profitability," he said.

"After January 1, 2004, calculations made by the Kazakhstani partners showed 11% profitability, while the foreigners' calculations -- just 7%."

Total, speaking on behalf of Kazakhstan's oil investor community, is part of an ENI-led consortium which struck oil at the offshore Kashagan oilfield, the world's largest oil discovery in the last three decades.

Whereas formerly terms in deals with foreign oil investors were fixed by contract, the new rules force producers either to work under legislation, which could change, or enter PSAs on new, stricter terms, which will also from now on guarantee the state a minimum share.

The new rules for investors to tap Kazakhstani oil riches in the Caspian, where prospects are being tendered over the next few years, also establish a new oil export tax which would rise proportionately to the price of oil.

Western oil firms complain that Kazakhstan's government appears to have gone too far in pursuit for what it calls "a just balance of interests with foreign investors."

"Investors do recognise that sharing the pie is not an easy task, but this must be mutually advantageous," Langlois said.

"It should be recognised that project costs in Kazakhstan are much higher than in the Gulf," he added.

Industry experts say that in the near future emerging large Caspian oil producers Kazakhstan and Azerbaijan will face tough competition from Iraq now quickly restoring its output.

Langlois said Western investors were also concerned by a clause in Kazakhstan's legislation obliging them to purchase a certain share of locally produced goods and services.

The Kazakhstani officials present put on a brave face and tried to play down investor concerns, saying they were ready to discuss "just technicalities."

"There can be no retreat," said Finance Minister Yerbolat Dosayev, asked whether the new tax regime could be eased.

"One should not over dramatise the situation. I would call on all of you to look with optimism at the current events," Energy Minister Vladimir Shkolnik told the disgruntled investors. (Reuters)

President Signs Amendments To Laws On Financial Leasing

Kazakhstani President Nursultan Nazarbaev this week signed a law introducing several amendments and additions to legislation on financial leasing, the president's press service announced. The changes are aimed at making more efficient use of free mechanical resources by drawing more firms to the leasing business.

In addition to strengthening the development of the leasing industry, the new amendments are aimed at bringing Kazakhstani legislation on leasing in compliance with both the nation's Tax Code as well as international standards in the field.

In addition, the new law strengthens the application mechanism for different types of leasing in the republic, specifies the rights and responsibilities of lessors and lessees and determines liability for any legal infractions. (Interfax) 

Budget Revenues In February To Top KZT 5 Billion

Kazakhstan's state budget will receive more than KZT 5 Billion for the month of February, 20% more than February 2003, the state Tax Committee announced this week.

Specialists from the national and regional tax authorities conducted 193 inspections in February that resulted in an additional KZT 40 Million in taxes and other compulsory payments to the budget.

In addition, tax authorities suspended over KZT 515 Million for expense operations from 49 bank accounts. Tax officials also charged 1,715 collection orders to bank accounts of 425 enterprises for a total of over KZT 647 Million for non-fulfilment of tax obligations.

Three enterprises that declared bankruptcy last month were penalized over KZT 6 Million for tax violations, of which KZT 244,000 has been collected. (KazInform)

Former State Secretary To Head Presidential Administration

Former State Secretary Imangali Tasmagambetov, who was removed from that post this week to make former Senate Speaker Oralbay Abdykarimov, has been appointed head of the presidential administration, according to the president's press service.

The revolving door of the Kazakhstani government was set on high speed this week, as former presidential administration head Nurtay Abykaev was named Senate Speaker on Wednesday. Outgoing Senate Speaker Abdykarimov was then named State Secretary, replacing Tasmagambetov, who was shuffled into Abykaev's now vacant slot in the presidential administration.

Tasmagambetov served as state Secretary since June 2003. From January 2002 to June 2003 he had been Kazakhstan's prime minister. (Interfax)

Kazakhstan's ForEx/Gold Holdings In First Half Of March

Kazakhstan's ForEx/gold holdings, including the National Fund totalled USD 9. 2345 Billion as of March 16, the National Bank announced. The National Fund has accumulated USD 3.692 Billion.

State currency and gold holding have risen 0.02% in the month of March, the bank said. The bank's net international reserves fell USD 3.4 Million or 0.1% during the first half of the month, but gold assets rose by USD 17.1 Million due to a 2.2% rise in world gold prices.

Kazakhstan's monetary base expanded by 2.2% or KZT 6.7 Billion in the first half of March. (Kazakhstan Today)

Equities

The KASE-Shares index increased by 0.88% to 176.01 by the end of period on March 17 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 11 and March 17 2004, the volume of equity trades at the KASE decreased to USD 4,108,707 from USD 4,746,859 in the previous period. The shares traded during the period were common shares of Almaty Kus (ALKS), Bank CenterCredit (CCBN), Temirbank (TEBN), ValutTransit Bank (VTBN) and ZERDE (ZERD) and preferred shares of Alluminiy Kazakhstana (ALKZp), KazChrome (KZCRp) Kazakhtelecom (KZTKp) and ValutTransit Bank (VTBNp). (Irbis)

Company News

Oil & Gas

Kazakhstan's Parliament this week held hearing on the situation in the oil products market, where prices have risen over recent months .

Management from the state-owned Atyrau Refinery blamed state oil and gas company KazMunayGas, the largest shareholder in the refinery, for taking actions that led to a rise in oil products prices.

Almaz Kuzhagaliev, an Almaty entrepreneur whose company, Almaz International, holds a 2% stake in the Atyrau plant, also blamed KazMunayGas, saying the company hoped to lower the price to make Kazakhstani exports more competitive. Interestingly, earlier this year Kuzhagaliev gained some notoriety by accusing Atyrau Refinery administration of mismanagement and urging KazMunayGas to change the leadership at the plant. In his testimony this week, however, Kuzhagaliev's beef was with KMG, which he said makes millions of tenge by taking advantage of the "shadow economy" that develops in the difference between wholesale and retail oil products prices in the republic.

Majilis Deputy Omirgali Kanzhebek, a member of the Civic Party, angrily declared that "[oil] products from the Atyrau Refinery sell directly for USD 140-180 per ton, but after passing through the various affiliates of KazMunayGas' trading network, the final cost to consumers is USD 340-350 per ton!"       

KazMunayGas Managing Director for Finance Aydan Karibzhanov said that the Atyrau Refinery alone doesn't have much influence on oil prices in Kazakhstan as a whole. Some 97% of the oil processed at the plant belongs to the oil producers that send it there to be processed, and they are allowed to dispose of it as they see fit.

            The Majilis deputies agreed that the issue of fuel was not one to be acted upon hastily. A special parliamentary commission that has been monitoring and analysing oil price changes since last autumn will take the Atyrau issue under advisement. The General Prosecutor's Office is also being asked to get involved. (Khabar & Interfax)

***

Major oil producer and refinery PetroKazakhstan's production expenses for processing oil at its Shymkent refinery fell to USD 0.51 per barrel in 2003, down from USD 0.80 per barrel in 2002, according to the company's press service.

The PetroKazakhstan press service noted that reconstruction of the refinery's vacuum mazut production unit was recently completed and the unit is now being tested. The production of vacuum gasoil will limit output of traditional mazut, a low-priced and underused fuel in the region - and will boost revenues as vacuum gasoil is in high-demand and higher-priced fuel.

In the two-year run-up to the launch of the vacuum mazut unit, the processing of mazut has fallen from 42% to approximately 30%. Depending on market conditions, the vacuum mazut unit will enable the refinery to cut mazut processing to 14%. (Kazakhstan Today)

***

Korea Oil Corp. and state oil company KazMunayGas intend to sign a memorandum of cooperation for the development of oil deposits in Kazakhstan's Caspian Sea sector. The news was announced in Astana on March 12 after a meeting between Kazakhstani President Nursultan Nazarbaev and Korean Minister of Commerce, Industry and Energy Li Hi Bom.

According to Li, "the Korean resource corporation and the Kazakhstani Committee on Geology and Protection of Subsoil Resources will sign a cooperation agreement,"

The agreement is important to Korea because "Korea is totally dependent on imported energy," Li added. Korea imported some USD 58 Billion worth of energy resources last year. Exports of electronic and other consumer goods totalled over USD 200 Billion, he added.

In the last 10 years, South Korea has invested over USD 1.6 Billion in Kazakhstan, some 9% of total investment in the republic during that period. There are 280 Kazakhstani-Korean companies working in sectors such as the services industry, mineral extraction, telecommunications, infrastructure and manufacturing. (Kazakhstan Today)

***

A pilot phase of oil production will begin at the Severny Nuraly deposit in central Kazakhstan in the second quarter of 2004.

PetroKazakhstan, the company that owns the rights to develop Severny Nuraly, said the main production period will be put off until a complete development plan for the deposit can be worked out.

PetroKazakhstan drilled two wells more than anticipated in 2003 in order to determine the outline of the Nuraly deposit. Currently a hydraulic reservoir-fracturing test is being designed to help determine the field's production potential.

As it has been reported earlier, the application of hydraulic reservoir fracturing has increased production from 300 to 1,500 barrels of oil per day at the Severny Nuraly-2 well. After obtaining interpretation of seismic data, PetroKazakhstan plans to drill additional appraisal wells and to apply hydraulic reservoir fracturing.

In addition, in 2003 "PetroKazakhstan" drilled an exploration well at the Dongelek prospect area in the Saralyn valley. That exploration has found sand consistent with an oil-containing reservoir, but with some water content as well.

The company plans to drill a deep well at the Aryskum deposit in March. Preliminary data confirms that field has direct contact with the major Kyzylkiya deposit in the south. (Kazakhstan Today)

***

JV Turgay Petroleum plans to ship some 31,000 barrels of oil per day to export markets via the Caspian Pipeline Consortium's Tengiz-Novorossiysk pipeline by the end of March 2004.

JV Turgay Petroleum, which is 50% owned by Canada's PetroKazakhstan, began shipping small volumes of oil through the CPC in October 2003.

PetroKazakhstan representatives note that the company has worked hard to expand its range of export options. By mid-2004, the company will boost its shipments of oil via an Iranian swap deal to 21,200 barrels per day. In addition, the company is expanding the capacity of its Ray rail terminal so that rail exports can be increased. (Kazakhstan Today)

***

Kazakhstan's Parliament will form a working group to look into the role of the state-owned Aytrau Refinery and the oil products distribution arm of its parent company, state oil company KazMunayGas, and the impact this relationship has had on oil products prices in the republic, KazInform reported citing Majilis Deputy Erasyl Abylkasymov.

The parliamentary working group will draw on resources from the National Security Committee (KNB), the Ministry of Internal Affairs, the Anti-Monopoly Agency, the Financial Police, the Ministry of Finance and others, Abylkasymov said. The committee will also meet with representatives from KazMunayGas as well as other, private oil firms, he added.

The working group hopes that its efforts will result in some recommendations to amend legislation to create a more stable domestic oil products market.

Abylkasymov said the current situation, in which the Atyrau Refinery management and KazMunayGas have traded accusations of inflating prices, represents "theft from the people.

Earlier this year, a minority shareholder in the Atyrau Refinery accused KMG Trade House of lowering prices for the refining of oil products to be sold to "its" companies. The wholesale price from the refinery to KMG Trade House allies for gas in the last half of 2003 was USD 180-200 per ton, while the average price in the republic in general was USD 253-357, the shareholder, Almaz Kuzhagaliev, said. This price-fixing scheme results in lower shareholder dividends, lower government revenues and higher than necessary sales prices for oil products, he noted. (Golden Eagle Partners)

***

The Caspian Pipeline Consortium (CPC), which ships oil from Kazakhstan to the Black Sea, on March 17 denied a report the line will start pumping oil from the giant Karachaganak next week, saying the start was weeks away.

On Tuesday, according to the CPC head Ian MacDonald as saying Karachaganak would join CPC next week after a nine-month delay.

"There was probably a misunderstanding. This is a matter of weeks, probably a few months, before Karachaganak joins CPC," CPC's press service quoted MacDonald as saying.

Oil from Karachaganak, led by Britain's BG and Italy's Agip, was set to substantially boost CPC's shipments from mid-2003 but was not let into the CPC system as it had been contaminated with caustic soda.

In July, the Karachaganak group started pumping oil via its 600-km (375-mile) new pipeline toward CPC, which links the giant ChevronTexaco-led Tengiz oilfield in western Kazakhstan with the Black Sea port of Novorossiysk. It later delayed first sales due to quality problems.

The group says caustic soda was added to clean up sulphur compounds, called mercaptans, which had been discovered in the new pipeline running from Karachaganak to the Kazakh oil hub of Atyrau where it joins the CPC.

BG and Agip are the joint operators of Karachaganak, which contains up to nine billion barrels of liquid condensates and 1.35 trillion cubic metres of gas. Other members of Karachaganak are Chevron and Russia's LUKoil.

Chevron-led CPC is the only major private pipeline in the former Soviet Union. It exported 300,000 bpd last year, plans to boost deliveries to 500,000 bpd this year and wants to gradually expand capacity to 1.3 million bpd by the end of this decade due to rising demand from oil firms working in Kazakhstan. (Interfax)

***

Ukrainian Vice Premier Andrey Kluev met with Kazakhstani Prime Minister Daniyal Akhmetov on Tuesday in Astana to confirm Ukrainian interest in loading its Odessa-Brody pipeline with Kazakhstani oil.

According to a Kazakhstani government press release, Kluev said that the Ukraine expects that "within the next year, the Odessa-Brody pipeline will become a direct outlet to Western Europe countries."

The Ukraine has also proposed that Kazakhstan take part in other two projects in the oil and gas sector. The nature of those projects was not disclosed in the government press statement.

Kazakhstan Prime Minister Akhmetov noted during the talks that "Kazakhstan follows a multi-vector policy for the development of oil and gas export routes" and expressed interest in Ukraine's plans regarding Odessa-Brody. (Interfax)

***

Major Kazakhstan-focused oil producer PetroKazakhstan saw its stock fall nearly 5% on March 17 after its biggest shareholder cut its stake in the Canadian firm.

PetroKazakhstan, whose stock hit an all-time high last week, fell CAD 1.93 to CAD 37.50 on the Toronto Stock Exchange, with 6.6 million shares changing hands.

Central Asian Industrial Holdings, an affiliate of Kazkommertsbank, Kazakhstan's largest commercial bank, sold 5 million shares, cutting its interest in the oil company to 12.7%, PetroKazakhstan spokesman Ihor Wasylkiw said. Central Asian last sold stock more than a year ago when it reduced its interest to 19% from 30%.

"That in itself has put a lot of pressure on the stock because these kinds of deals, bought deals ... are normally below market," Wasylkiw said. Two 2.5-million-share blocks traded at CAD 36.60 earlier on Wednesday.

Despite high-profile disputes with Kazakhstan's regulator of monopolies - which has recommended multimillion-dollar fines against the company for alleged price gouging for oil products - its shares have climbed as much as 38% since the end of last year. (Reuters)

Banking and Finance

 Major Kazakhstani commercial bank Halyk Savings will begin conducting transactions in Euros on its Visa cards without conversion, the bank's press service announced this week.

"Halyk Bank successfully attained certification for joint accounting in Euro with Visa International. This certification means that all holders of Euro-denominated Halyk-issued Visa cards can keep money [Euros] on their visa cards for withdrawal or transactions with countries of the European Union," the press service announced.

For the time being Halyk will issue Euro-denominated Visas in "standard" and "elite" formats. Halyk has issued 1.3 million Visa cards, or about 65% of all such payment cards, in Kazakhstan. (Interfax)

***

BNP Paribas Suisse SA and Euromin SA will allocate some USD 300 Million in loans to Kazakhstani state oil and gas company KazMunayGas for pre-export financing.

KazMunayGas, through its subsidiary companies UzenMunayGas and EmbaMunayGas, signed the appropriate agreements with BNP Paribas Suisse and Euromin at a ceremony in Astana on March 10, KMG's communications department announced.

According to KMG, the "structured pre-export financing" carries an interest rate of LIBOR + 1.75%. The deadline for the payback of the loan funds is in 5 years. The loan money will be used to finance KazMunayGas' investment program for 2004-2006, the total preliminary cost of which is USD 1.3 Billion. The funds will be used in part to carry out exploration on the Kazakhstani shelf of the Caspian Sea, and "demonstrate not only high solvency of "KazMunayGas, but also the high credit of international financial institutions to it". (Interfax)

Metals and Mining

Major metals enterprise the Aksu Ferroalloy Plant has launched a new gas cleaning system at workshop #6 at the Pavlodar facility.

The new equipment will reduce harmful emissions into the atmosphere from the plant by 120 tonnes per year. It was installed during the reconstruction of furnaces used to smelt chromium alloys.

The Aksu plant was the first in Kazakhstan to receive an internationally recognized environmental protection certification, but this requires the plant to consistently improve its ecological impact. The plant focuses its environmental protection efforts on cutting down pollution and improving efficiency of waste processing and disposal. Last year the plant spent KZT 664 Million on ecological activities. In 2004 the enterprise plans to spend more than KZT 1.2 Billion on environmental protection.

The Aksu Ferroalloy Plant first opened in 1968. Currently the plant has 26 electric furnaces with capacity from 21 to 63 MW, producing more than one million tonnes of ferroalloys annually. The production from the Kazakhstani plant is purchased by metallurgy enterprises in Japan, the USA, Europe and Russia for manufacturing alloyed steel. (KazInform)

***

OJSC Vertex, a unit of leading Kazakhstani oil services group Alver holding, will begin developing the Astrakhanskiy Quarry lime deposit in Mangystau oblast in the near future, according Alver Holding Director Zhomart Mominbaev.

According to Mominbaev, the Astrakhanskiy Quarry deposit was discovered in 1980. It is hoped the deposit would help create a raw materials base for buildings blocks and face-stone needed in industrial and civil construction in Mangystau oblast.

He noted that in accordance with the issued reference document from the Mangystau oblast Inspectorate for the Protection and Use of Subsoil, the deposit contains 7 million cubic meters of category Billion + C1 lime. (Interfax)

***

The Maykuben West mine in Pavlodar oblast will boost lignite output to 4.75 million tonnes in 2004, from 3.7 million tonnes in 2004.

Overall, Maykuben West hopes to boost coal output from 4 million tonnes annually to 6 million tonnes, a goal the company has been working towards since 2002, when US-backed AES Ekibastuz bought a stake in the mine.

In the future Maykuben West hopes to boost coal output to 8 million tonnes annually. The company will expand its export range to supply coal briquettes to places such as Romania and Poland. The company has been making coal briquette since the end of 2003, when a screening and crushing unit was launched at the mine.

It would not be the first time Maykuben West has exported its coal - 10 years ago the mine was shipping its fuel as far abroad as Hungary. The enterprise is currently preparing documents to obtain an ISO international quality management certificate.

The Maykuben lignite deposit was discovered in 1825. Currently Maykuben West employs 800 people. (Kazakhstan Today)

Power

Major power plant AES-Ekibastuz has re-launched its power block #5 after nearly 7 years of inactivity. Navid Ismail, the head of US-based AES Corp. in Pavlodar oblast, announced the re-launch of the facility at a press conference on March 10 in Pavlodar.

According to Ismail, the decision to rebuild power generation unit #5 was made after an accident at unit #3, in November 2003 due to an equipment malfunction.

"Now block #5 is working, carrying a load of 188 MW. Several hours after the launch, the load will be increased to 300 MW. After 48 hours of power generation, the unit will be stopped and put into standby mode till it is needed," Ismail added.

At present some 4 unit at the Ekibastuz plant are continuously operating, generating some 1,035 MW of electricity.

By the end of 2003, AES-Ekibastuz will complete an overhaul of power unit #3, which will mean that 5 of the plant's 8 power generation blocks will be fully functional, Ismail noted.

In 2004, AES-Ekibastuz plans to boost total power output to 7 billion kW/h. In 2003 the plant produced 6.4 billion kW/h. Some 20% of the energy produced at the plant is exported to Russia. (Interfax)

***

The European Bank for Reconstruction and Development (EBRD), a syndicate of foreign banks and the state-owned Kazakhstan Development Bank (KDB) will allocate USD 81.2 Billion to state power distribution company KEGOC for the construction of a second 500 kW North-South power line.

The credit agreements were signed on Tuesday in Astana by EBRD Energy Department Director Anthony Marsh, Kazakhstan Development Bank President Kambar Shalgimbaev and KEGOC President Kanat Bozumbaev. Of the mentioned sum, the EBRD has arranged a syndicated loan of USD 60 Million, some USD 35 Million of which will be allocated from EBRD funds.

In addition, a syndicated loan some USD 25 Million would be allocated by Raiffeisen Zentralbank Oestereich (USD 20 Million) and Bayerische Landesbank (USD 5 Million). The KDB will allocate some USD 21.2 Million.

"Implementation of the mentioned project will ensure reliable energy supply to Kazakhstani southern oblasts that currently experience shortages of electricity, considerably increase the transit potential of the national electric grid with interstate deliveries of electric power from adjacent states, KEGOC head Bozumbaev said. The new line will transport some 3.5-4 billion kW/h of energy annually. The line will be built over the course of three years, but the project could take 3-4 years longer since no such large power sector construction has been carried out in Kazakhstan in 20 years, KEGOC officials said. The overall cost of construction is expected to total USD 280 Million, of which USD 90 Million will be spent during the first stage. (Interfax)

Money Markets

KZT/USD market rate dynamics during the week