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Politics and Macroeconomics

Securities Market Improves

Considerable market improvements have occurred due to a number of resolutions approved by the agency on June 12. The resolutions have stepped up requirements for the structure of organizations that are engaged in trading and also establishes new report submission rules for depositors and custodians. The registrations system for security holders has also been enhanced. (Golden Eagle Partners)

President Signs New Law On Electricity

Kazakhstani President Nursultan Nazarbaev signed an electricity law that will address the continual market and institutional changes and the introduction of legal, economic and organizational regulations of the electricity industry.

The new law contains clauses designed to develop a competitive electricity retail market and reorganize the electric companies according to their activities.

Government Discusses Telecom Cost Reduction Project

The government discussed a project that would reduce state telecommunication expenses including long-distance calls, the prime minister’s press service reported.

The project also considers integrating information systems and resources in accordance with the “electronic government” concept that ensures safe data transmission, including the transmission of internal state information, protected access of state bodies to Internet network resources and upgrading of the telecommunications channels. Several proposals to create a shared transport system with the aid of foreign companies specializing in this sphere were discussed. (Interfax-Kazakhstan)

S&P Says Kazakhstani Bank Sector Developing Nicely

While offering an overall positive evaluation of the Kazakhstani bank system development, International Standard & Poor's Rating Services (S&P) observed several problems that are holding back the further development of the industry.

Ekaterina Trofimova, a top S&P bank analyst, noted the considerable progress the banking sector has made in regulation and control, and business and clientele diversification, which improves the gross financial indexes. But Trofimova added that the rating agency has critically evaluated issues confronting the bank sector including bank assets that grow faster than their capital and the decreased profitability of the country’s financial market.

Trofimova cited statistics to demonstrate that the net profit to assets ratio of Kazakhstani banks has dropped to 0.6% in 2003, which she views as very low compared with similar markets in other developing markets, such as Eastern Europe.

According to Trofimova, “one of the most acceptable and realistic options for resolving this issue is attracting outside investors – both foreign and domestic”. (Interfax-Kazakhstan)

Equities

The KASE-Shares index increased by 0.26% to 197.56 by the end of period on July 20 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 July 14 and July 20 2004, the volume of equity trades at the KASE decreased to USD 6,394,378 from USD 6,790,635 in the previous period. The shares traded during the period were common shares of Almaty Kus (ALKS), Bank Caspiyskiy (CSBN), Bank CenterCredit (CCBN), Narodniy Bank (HSBK), Kazakhmys (KZMS), UKTMK (UTMK), ValutTransit Bank (VTBN), ValutTransit Zoloto (VTZL) and Zerde (ZERD) and preferred shares of Almaty Kus (ALKSp), ATF Bank (ATFBp), Bank Caspiyskiy (CSBNp), KazChrome (KZCRp) and ValutTransit Bank (VTBNp). (Irbis)

Company News

Oil & Gas

Kazakhstan is experiencing no problems with its vapor-transport industry and requires no help from Gazprom to upgrade it, the KazTransGas general Director First Deputy Nurali Rakhimov announced on Wednesday at press conference in Atyrau.

According to Rakhimov, Kazakhstan is in the process of upgrading its vapor-transport system to make it capable of meeting the growing gas needs throughout Kazakhstan and that talk of the system’s privatisation is not a consideration.

Gazprom deputy chairman of the board Alexander Ryazanov said earlier that the system’s transport capacities do not fulfil Gazprom's needs.

In the first half of 2004, Gazprom transported through Kazakhstan some 20 billion cubic meters of Turkmen gas and over two billion cbms of Uzbek gas. The state-owned JSC KazTransGas controls the main network of Kazakhstani gas transportation comprised of 10,000 km of gas pipelines with annual carrying capacities of up to 190 billion cubic meters.

Currently, the company implements the investment program that it designed to upgrade the main transport capacities of the Central Asia-Center (CAC) gas pipeline.

The 10-year CAC upgrading program totals nearly USD 1.3 Billion. The company intends to invest over USD 50 Million to improve the main gas pipelines. According to KazTransGas, funds for the improvements would be received from company assets and tariff revenues, and from international financial groups and Kazakhstani banks. (RusEnergy)

***

The Nelson Resources Company announced the successful placement of 112 million new common shares costing 1.40 (USD1.06) per share, higher than the current market quotations (cost 1. 25-USD 1. 30 (USD 0. 90-0.95), but lower CAD 1.50 than expected.

The shares were issued to attract cash assets develop deposits and to raise the shares’ liquidity. The overall amount of the generated assets totalled approximately USD 120 Million, nearly 17% of the available market capital (USD 700 Million). On July 19, the shares will be available on the London Stock Exchange (AIM). Meanwhile the emission volume turned out to be less than the announced USD 150-200 Million. Buyer composition is not yet known.

It also remains unknown whether the company’s primary stockholders took part in this issuance. Prior to the issuance, CAIH, Nelson President Baltabek Kuandykov and another offshore structure representing interests of the large Kazakhstani investor held nearly 25% of shares. If those stockholders participated in the emission, the rise in the shares’ liquidity will not be as significant as expected. The company reported that they welcomed the new assets because they would replenish the capital and help them achieve corporate goals. However, analysts suppose that the assets, at least partially, would be spent developing existing deposits and correct capital structure.

Experts consider the news positive and recommend purchasing Nelson Company shares. The anticipated price at year’s end is USD 2.1. Analysts plan to update Nelson’s financial model by considering the performed emission, the debt reduction, increase in shares, and their possible increased liquidity.

The Nelson Resources Company, which is controlled by “Kazakh capitalists,” is interested in four onshore oil fields in Kazakhstan and holds an option to participate in two offshore blocks in the Caspian Sea. (RusEnergy)

***

Representatives from the national oil companies of Kazakhstan and Libya have discussed ways to further their cooperation, KazMunayGas’s press service reported after its representatives visited Libya.

“The overall objective of the trip was to establish business contacts with the National Oil Corporation of Libya,” KazMunayGas executive director Malik Musagaliev said.

Libya expressed a desire to include Libyan NOC representatives in the intergovernmental Kazakhstani-Libyan commission. That commission’s second session is planned to take place in Astana by the end of this year. The release also said that that the parties discussed the oil and gas sector development of the countries.

NOC of Libya was founded in 1970. It directs the country’s strategic policy in regard to the investigation, extraction, processing, marketing and selling of hydrocarbons. NOC partners include Total, PetroCanadian, Repsol, and Agip among others. (Interfax-Kazakhstan)

***

In a press release disseminated Monday, Kazakhstan’s national oil and gas company KazMunayGas discussed ways to increase Kazakhstan’s share in three large oil and gas projects currently conducted in Kazakhstan. The international consortium Karachaganak Petroleum Operating (KPO) and KazMunayGas have also approved a program to develop Kazakhstan’s share in the Karachaganak project.

According to KazMunayGas’ imports’ replacement department, Kazakhstan’s share in the project within the next two years will reach at least 40%and in the future will increase to 47.5%. In 1998 the figure was just 20%, the release said.

By late 2004, there are plans to develop similar programs for the Tengiz and North Caspian oil and gas projects. But the press release said that Kazakhstan’s share is relatively low because the average Kazakhstani share in the project between 1998-2004 comprised 23.5%.

The press release added that the Tengiz project offers great opportunities, including two SGI/SGP projects that can attract Kazakhstani manufacturers. Last year the TengizChevroil joint venture (TCO), which developed the Tengiz deposit in Western Kazakhstan, invested USD 1,333 Million in its projects. Of this amount, the company invested USD 563 Million or 42.2%, in the projects executed by the Kazakhstani companies. But just 2% of the money was used to purchase materials from Kazakhstani producers, according to KazMunayGas. The other 98% was used to purchase local services.

According to data cited in the press release, “2004 will be a peak year for TCO in terms of investments, which will reach about USD 1.538 Billion, whereas Kazakhstani share will total about USD 500 Million annually”. (Interfax-Kazakhstan)

***

The end of 2005, the project department reported, is the expected completion date for the renovation of block 3 at the Uzen deposit.

According to the department, four of the five main project components including geology, well repair, environmental protection and education are already implemented.

The department also plans to install a seawater treatment plant (SWTP) at the 3rd Block. The project will cost USD 29 Million in loans borrowed from the World Bank to complete the surface-structures reconstruction project. Currently, JSC Exploration Production KazMunayGas is in charge of disbursing the loan. June 30, 2005 is the official date for KazMunayGas to receive the last loans. Liability payments to the World Bank, such as repayment of the main debts and interest are scheduled until 2013.

The cost of the Uzen deposit 3? Block renovation totals USD 136 Million, including the World Bank loan, USD 109 Million, and co-financing by OJSC Ozenmunaygas of USD 27 Million. Some USD 75.7 Million of the USD 109 Million has been spent as of June 1, 2004. For 2004-2005, the department plans to spend USD 33.3 Million. (Kazakhstan Today)

Banking and Finance

ATF Bank plans to purchase a controlling share in the Kyrgyz Energobank in the second half of 2004, the OJSC ATF Bank chairman of the board Timur Isataev said at a July 14th press conference in Almaty. According to Isataev, the first stage that focused on the purchase of a controlling interest has already finished. OJSC ATF Bank paid 34.4% of the overall volume of OJSC Energobank’s issued voting shares totalling USD 1 Million.

OJSC Energobank is headquartered in Bishkek and has six branches throughout Kyrgyzstan. The main stockholders of Energobank are Kyrgyz energy and gold industry plants.

OJSC Energobank ended 2003 with net profits in the amount of USD 400,000 and is among the top five leading Kyrgyz Banks. (Kazakhstan Today)

***

ATF Bank plans to negotiate the purchase of controlling shares of an unnamed Russian bank located in Siberia, the ATF Bank board chairman Timur Isataev said at press conference on Wednesday in Almaty. According to Isataev, the ATF Bank will first attempt to purchase banks at and around Kazakhstani borders before moving to the financial centre. In the first quarter 2004, ATF Bank opened a branch office in Moscow in order to thoroughly evaluate the Russian financial sector and purchase shares of one of the Russian commercial banks. 

ATF Bank is fourth among Kazakhstani banks in terms of assets. (Interfax-Kazakhstan)

***

The Kazakhstani-based commercial bank ATF Bank signed a syndicated loan agreement in the amount of USD 50 Million, the bank’s press service disclosed. The Standard Bank London organized the loan issuance. It is the first long-term loan drawn by Kazakhstani banks for an 18-month period.

>According to the press service, some 20 banks from various countries will collectively issue this loan.

The total amount of the actual funds exceeds by 67% the syndicated loan amount originally announced by the bank. (Kazakhstan Today )

***

As of July 1, 2004, JSC Alliance Bank assets totalled KZT 64.5 Billion an increase of KZT 14 BILLION, since the start of 2004, the bank’s press service announced.

The increase came as a result of loan portfolio increases of up to KZT 41 Billion. Credit shares granted to individuals increased from 10.2 to 13.1%. Individuals’ deposits also rose to KZT 3.5 Billion compared to KZT 3 Billion in H1 2003. In total, portfolio advances increased KZT 4 Billion and totalled KZT 40 Billion.

The bank’s net profits for the H1 2004 totalled KZT 383 Million as compared to KZT 163 Million in H1 2003. Bank specialists said that on the whole, net profit growth rates exceed aggregate net profit growth rates of the Kazakhstani banking system. Alliance Bank’s net profits amounted to 235.7% whereas Kazakhstani banking system’s profits accounted for 151.2%. (Kazakhstan Today)

Metals and Mining

KazChrome transnational corporation (TNC) manufactured 534,200 tonnes ferroalloys in H1 2004 compared with the 532,700 tonnes during the same period in 2003, a press release distributed by the Eurasian Industrial Association (EIA) on Friday said. The release also notes that KazChrome produced 1,586,700 tonnes of chrome ore during the first six months 2004, versus 1,283,100 in H1 2003, an increase of about 24%.

KazChrome TNC consists of the Aktobe and Aksu ferroalloy plants and the Don ore mining and processing enterprise. According to the shareholders’ list, as of the start of 2004, the government holds 31.37% and Central Asian Trust Company owns 66.83% of KazChrome’s shares. EIA members also include Aluminium Kazakhstan, Sokolovsk-Sarbaisk ore mining and processing enterprise, Eurasian Power Corporation and the Shubarkol Komir coal mine. (Interfax-Kazakhstan)

***

A liquid sodium-processing plant fused to a sodium heat carrier of a BH-350 nuclear reactor is expected to be built and completed by January 1, 2005 in accordance with the LLP MAEK-KazAtomProm strategic plan. According to LLP MAEK KazAtomProm general director Baurzhan Ibraev, analysis for the project has been completed. In 2005, Ibraev expects that the equipment will be assembled. The plant will be commissioned in 2006.

US specialists would accept the delivery of the plant body since the US State Department provided the funds for the construction. The plant will process liquid sodium and convert it to caustic soda to be stored in barrels on the MAEK base. Approximately 5,000 cubic meters of liquid radioactive waste and 6,000 tonnes of solid radioactive wastes are stored at the BN –350. (Kazakhstan Today)

***

In January – June 2004 Kazakhstani-Dutch gold mining Vasilkovskoye zoloto (Vasilkovskoye Gold) joint venture increased the manufacture of cathode gold by 8.1% and cathode silver by 32.6% compared to the same period last year.

The company’s press release indicates that the manufacture of cathode gold for the H1 2004 comprised 465.468 kg compared to about 430.444 kg in H1 2003, cathode silver – 30.070 in H1 2004 kg compared to about 22.683 kg in H1 2003.

As a result, in 1H 2004, the company’s commodity outputs totalled KZT 781.825 Million (current rate 135.38 / USD 1) in comparison with about KZT 733.764 Million in January - June 2003 (up 6.5%), the release said.

The press release also noted that the average cost of 1 gram of Vasilkovsky gold dropped 2.2% from KZT 1,711.26 in 1H 2003 to KZT 1,673.25 in 1H 2004.

According to the company, ore extraction in 1H 2004 rose 18.2% to 742,394 tonnes from 628,101 tonnes in H1 2003.

The Vasilkovsky gold deposit, located in the Akmola oblast and developed by Vasilkovskoye zoloto JV possesses total gold reserves of about 360 tonnes. (Interfax-Kazakhstan)

***

Shalkiya, the non-ferrous metals production mine in the Karatau foothills of the Kyzylorda oblast, has been renovated.

The Shalkiya– Zinc Company, completed underground drift operations and mining face restoration. According to the akimat’s industry department, over the next 4-5 years, the company plans to attract USD 45 Million in overall investments for the deposit. At present, some USD 20 million of the mentioned sum has been spent.

Some 400 persons, mainly from the local population, work at the mine. In the next two years, that number will increase to 700, and productivity will reach 1, 200,000 tonnes of ore per year. (KazInform)

***

JSC TNC KazChrome plant production figures increased significantly in all categories in the first half of 2004, the company’s press secretary Inessa Pankeeva said.

The Aktobe Ferro-Alloy plant produced 158,400 tonnes of ferroalloys, of which 140.600 tonnes were shipped, and the Donskoi Mining and Enrichment Industrial Complex exceeded production forecasts by producing 1, 627,000 tonnes of chromium ore as opposed to the projected 1, 573,000 tonnes.

In accordance with investment programs for H1 2004, JSC TNC KazChrome spent a total of USD 27, 845,000. USD 10, 948,000 was allocated for the development of the new sections of the plant, USD 12,543,000 was spent on production development, USD 2 Million was spent on new equipment purchasing, and USD 1,613,000 for renovations.

Enhancement of the social sphere connected to the company was also undertaken. The construction of 56 flats for Donskoy mining employees has begun. The Joint Stock Company has also financed the construction of a mosque and a church. The renovation of a “Sport” hotel, also financed by KazChrome is also nearly completed. (KazInform)

Energy and Power

In 2004 JSC NAC-KazAtomProm has allocated some KZT 450 Million to its affiliate LLP MAEK-KazAtomProm to upgrade and restore the equipment at the enterprise general director Baurzhan Ibraev said. According to Ibraev, MAEK received KZT 200 Million and expects to obtain the rest by the end of the summer.

So far, funds have been used to upgrade the complex’s oldest TETS-1 station, which was launched in 1962. Ibraev also expects that the TETS-1 boiler units will be renovated along with old pumping and heat-exchange equipment, steam lines and feed pipelines. Ibraev said that the percentage of equipment in need of renovation totals 80%.

The enterprise plans to upgrade the TETS –2 station equipment as well at a cost of KZT 417 Million. TETS -3 station operations will require investments totalling KZT 480.9 Million. In addition, the distillate production plant will need to replace the heating chambers at 5 distillation water-desalinating plants and seawater heat exchanges, and modernize the automated engineering management system. Nearly KZT 876.1 Million will be needed for these renovations and close to KZT 1116.7 Million in financial investments are required to renovate the network and substation workshops. (Kazakhstan Today)

Transport and Telecommunications

Moody's Investors Service increased the long-term rating of Kazakhstani National Railway Company JSC Kazakhstan Temir Zholy (KTZH) from "BA1" to "BAA3.”          

According to the KTZH press release, the review of rating resulted in the detailed analysis of production and financial activity carried out by the company after the increase of Kazakhstan’s sovereign rating.

According to Moody’s, "the rating increase reflects Moody's reappraisal of the relations between KTZH and Kazakhstan. It also reflects the possibility of structural changes that could entail change its relations with the government "

The press release also said that Moody's observed continual improvement of the KTZH commercial parameters. In 2003, the company’s profits totaled USD 1.5 Billion.

Moody's analysts said that the KTZH’s relationship with the government might change in the future as a result of organizational changes within the company.

According to Moody's scale, a “BAA3" rating reflects a medium level of credit risk on long-term liability.

Kazakhstan has become the first country among former USSR countries to gain investment level ratings. These ratings were assigned in September 2002. (Interfax-Kazakhstan)

Money Markets

KZT/USD market rate dynamics during the week

Currency Rates as of 27 July 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: zhanar@maverick.kz

For more information and other publications please contact Yelena Kovalenko at +7 (3272) 596 708

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