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Politics and Macroeconomics

Limits On Agriculture Subsidies

President Nursultan Nazarbaev announced at a meeting with farmers from the Kostanai region last Thursday that Kazakhstan would gradually limit its policy for subsidizing agriculture, and lending to the agriculture processing industry would become a priority. This is a response to WTO requirements, which Kazakhstan is striving to join, reminded the President.

During a meeting with the General Director of the WTO, Supachai Panitchpakdi, held on August 26 in Almaty, Nazarbaev said that Kazakhstan should stop artificially supporting agriculture if it wants to enrol in the organization.

“Admittance into the WTO is not an end goal in-and-of itself, no one is urging us to enter. First, it is necessary for us. The growth of the country's economy is 10% annually and it will only increase. Kazakhstan requires commodity export markets, since it has a small population – only 15 million people”, the President pointed out.

“We shall open our borders to export our goods and we will also have to import some goods. We need to avoid overshadowing domestic products by those of foreign origin with a lower cost, better quality, and price. To avoid this, it is necessary to first develop the country's agriculture processing,” Nazarbayev stated.

The annual increase of financing of rural areas in Kazakhstan is KZT 10 Billion (current 136.68/$1). Financial support to rural territories totalled KZT 15 Billion in 2004. (Interfax-Kazakhstan)

Equities

The KASE-Shares index decreased by 0.32% to 188.31 by the end of period on August 31 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 August 25 and August 31 2004, the volume of equity trades at the KASE decreased to USD 9,949,757 from USD 118,552,418 in the previous period. The shares traded during the period were common shares of Almaty Kus (ALKS), Bank TuranAlem (BTAS), Bank CenterCredit (CCBN), Kazakhmys (KZMS), Ordabasy (ORD BILLION), Rakhat (RAHT), Temirbank (TEBN), ValutTransit Bank (VTBN), ValutTransit Zoloto (VTZL) and Zerde (ZERD) and preferred shares of Alyuminiy Kazakhstana (ALKZp), KazChrome (KZCRp), ValutTransit Bank (VTBNp) and ValutTransit Zoloto (VTZLp). (Irbis)

Company News

Oil & Gas

The recoverable reserves at the Korolevskoe oil deposit, developed by the oil production joint venture TengizChevroil (TCO), total from 500 Million to 1 Billion barrels, TCO Director General, Alexander Cornelius said at a news conference at the administrative centre for the Atyrau oblast, during a media tour this week.

As is well known, in addition to Korolevskoe, TCO also develops the Tengiz deposit, which has recoverable reserves of 6-9 Billion barrels (1.125 Billion tonnes). The Geological Prospecting Manager of TCO, Kris Suobrik said at a news conference that there are 6 additional oil structures within the company's licensed territory; Ansagan (east of Tengiz), Prorva Glubokoe and Northern Kultuk (south of Tengiz), Ogay (southeast), Tashigali and Birlistik.

Discussing company plans to develop these structures, Cornelius said that TCO has enough information “to make certain decisions”. He said regretted the limited opportunities possessed by the company right now, however.

“We should consider the development of other deposits in addition to Tengiz and Korolevskoe”, he said.

Mr. Cornelius, when speaking about global oil prices said, “Oil prices will remain high for some time as demand grows quicker than the increase in production".

In 2003, TCO extracted 12.7 tonnes of oil compared to over 13.14 Million tonnes during 2002. TengizChevroil shareholders include ChevronTexaco Overseas (50% shares), ExxonMobil (25%), the government of Kazakhstan (via the National Company KazMunayGas 20%) and the Russian-American LUKArco (5%). (Interfax-Kazakhstan)

***

SG Corporate & Investment Banking (SG CIB) arranged an unsecured 66 month USD 100 Million Committed Loan and Hedging Facility (Committed Facility), in favour of AO PetroKazakhstan Kumkol Resources, the PKKR press service disclosed.

The Committed Facility is being governed through a borrowing base and can be utilized, at the Borrower’s discretion, either to draw short-term revolving cash advances or to enter into term crude oil price hedging transactions, and it is the first facility of this nature granted to a borrower in Kazakhstan. SG CIB acts as the Mandated Lead Arranger, Lender, sole Hedge Provider, and Facility Agent. The syndication was launched in July.

PetroKazakhstan Inc., the parent company of PKKR, is a vertically integrated, international energy company, celebrating its seventh year of operations in the Republic of Kazakhstan.

It is engaged in the acquisition, exploration, development, and production of oil and gas, the refining and the sale of oil and refined products. In addition to PKKR, PetroKazakhstan Inc. owns and operates OAO PetroKazakhstan Oil Products, Kazakhstan’s largest, and most modern refinery located in Shymkent. PetroKazakhstan trades shares in the United States on the New York Stock Exchange, in Canada on the Toronto Stock Exchange, in the United Kingdom on the London Stock Exchange and in Germany on the Frankfurt exchange under the symbol PKZ. (PKKR Press Service)

Banking and Finance

Halyk Bank recently set up a USD correspondent account at the China Construction Bank. The agreement was signed on August 24-25, during a visit by the Deputy President of Halyk Bank, Marat Zairov to the People’s Republic of China.

Under the parameters of the international agreement, Halyk Bank plans to enhance its business in the PRC, specifically in the frontier zone. In addition, in 2005, the bank will negotiate on lending limits for funding trade contracts between China and Kazakhstan. At the present time, Halyk Bank is setting up a correspondent business with NOSTRO accounts at 34 correspondent banks, which includes 23 foreign and 6 from the CIS. There are a total number of 107 correspondent accounts such as LORO.

The China Construction Bank is a state-owned commercial bank. It is included in the top three biggest banks in China. Its system of affiliates is one of the largest in the PRC, and its branches operate all over the country. In July 2001, the China Construction Bank was 29th in the list of the most influential global banking institutions, according to a poll conducted by a popular banking magazine, “The banker”. (KazInform)

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The Independent Association of Entrepreneurs (IAE) and TuranAlem Bank established a special economic zone (SEZ) program to support development of small and medium-size businesses in Almaty and to reduce the burden of costs carried by entrepreneurs in such business.

TuranAlem Bank will undertake totally the financial and consulting support of enterprises operating in the SEZ. Currently, around 100 entrepreneurs have joined the special economic zone program. Around 200 additional entrepreneurs are expected to join within one year. There will be 150 experimental zones in Almaty in the future. SEZ activity will enable Almaty entrepreneurs to save up to USD 100 Million on maintaining the staff of accountants and lawyers. (Kazakhstan Today)

Metals and Mining

In September, JSC KazZinc plans to start constructing a site to process sludge from the Ridder (EKO) Mining and Enrichment Complex (RMEC) located at the Tishinskiy deposit.

The new site will process sludge that has been accumulating for several decades near the Tishinskiy mine. It will also enable KazZinc to produce 4,000 tonnes of zinc, 400 tonnes of led and 400 tonnes of copper annually.

The tailings from the new unit will serve as raw materials for filling in the empty spaces in the Tishinskiy mine. (Kazakhstan Today)

Energy and Power

The State Power Grid Company KEGOC utilized KZT 1.4 Billion from the total volume of capital investments in the first half of the year on a modernization project. In total, USD 92.4 Million of borrowed assets was spent since the implementation of the project in1999. Around USD 64.3 Million of this total was spent on a co-financing line from company funds.

Power transmission via KEGOC grids totalled 16.5 billion kW/h from January - June 2004, which is 1.3 times more compared to the same period in 2003 and 4% more than planned. The company’s press release indicated that the increase in the volume of transmission is mainly linked with export supplies of electrical power to Russia and with electrical power transit to neighbouring states. Moreover, according to the press release, the scope of services for a number of Kazakhstani industrial consumers increased during the reporting period.

The total length of electric mains for general use in Kazakhstan is: 1,400 km with 1,150 kW voltage capacity, over 5,500 km with 500 kW, over 20,200 km with 220 kW, about 44,500 km with 110 kW, over 62,000 km with 35 kW, about 204,000 km with 6-10 kW. (Interfax-Kazakhstan)

Transport and Telecommunications

On August 26, the Russia-based Open Joint Stock Company, VympelCom announced it has won a tender in competition with international bidders and has signed an agreement to purchase KaR-Tel, the second largest cellular phone operator in Kazakhstan (K-Mobile), for a purchase price of USD 350 Million. This information was posted on the official web-site of VympelCom.

The company assumes approximately USD 75 Million in debt, the web-site indicated.

"We are very pleased to announce this acquisition in Kazakhstan as VympelCom's first move for expansion outside of Russia. This step has opened a new chapter in our development, reflecting our vision of VympelCom as an international company with a strong presence in developing markets, particularly in the CIS," Alexander Izosimov, the chief executive officer at VympelCom said, as cited in the message.

According to Mr. Izosimov, “The company intends to expand decisively into Kazakhstan with the introduction of our Bee Line brand and the implementation of our unified business solutions in IT, marketing, distribution, customer service, billing and network operations."

KaR-Tel holds a national GSM-900 license and currently serves approximately 600,000 subscribers. According to estimates, this represents a 31% market share in Kazakhstan.

Another cellular operator, operating on the GSM standard in Kazakhstan is the Kazakhstani-Turkish K’Cell. (Interfax-Kazakhstan)

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In the near future, the British-based, BAE Systems Ltd. plans to put company-owned shares in Air Astana CJSC up for sale, according to reliable sources at BAE Systems Ltd.

As was reported earlier, a memorandum of understanding between Great Britain and Kazakhstan was signed in 2000. It stipulated that BAE Systems Ltd. should invest funds into the development of air transportation infrastructure in Kazakhstan. In September of 2001, BAE Systems Ltd. and the Kazakhstani government signed documents for the creation of the Air Astana CJSC JV. 51% of the shares are owned by the Kazakhstani government, and 49% by the BAE Systems Ltd.

Air Astana CJSC was requested to provide a service meeting western standards in civil aviation and to replace air-carriers inherited by Kazakhstan after the disintegration of the Aeroflot system.

Currently, Air Astana CJSC carries out regular flights on international and domestic routes according to global standards. (Kazakhstan Today)

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National Kazakhstani telecom operator Kazakhtelecom JSC increased its outgoing international and local long-distance traffic by 20.5% in the first six months of 2004 compared with the same period last year. The traffic volume for the accounting period totalled 872.3 million minutes.

The company’s press release states that the traffic within the republic is greater than international traffic, or 74.1 % of the total volume. International traffic totals 25.9%. Traffic inside the republic increased by 19.6% and international traffic increased by 23.2 %.

During the first six months of the year, the national operator made 81,248 additional digital phone numbers available, including 58,276 numbers in the urban network and 22,972 in the rural network. As a result, the level of digitisation of the local network has increased from 53% up to 54.1% for the period analysed. Kazakhtelecom provides communication services to more than 230 countries. (Interfax-Kazakhstan)

Money Markets

KZT/USD market rate dynamics during the week

Currency Rates as of 7 September 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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