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Politics and Macroeconomics

Majority Of National Deposits Non –Competitive

The Chairman of the Committee of Geology and Subsoil Protection within the Ministry of Energy and Mineral Resources of Kazakhstan, Bulat Uzhkenov stated at the 3rd Central Asian international conference, Mining World Central Asia 2004, that “currently, the majority” of reserves at mining deposits in the country, are uncompetitive in terms of world standards. This is why “a serious imbalance with raw mineral resources” could occur by 2010-2015.

According to data from the committee of geology, the raw materials base for the ferrous metallurgy industry is the most competitive. The amount of active chrome ores amount to 99%, manganese ores are 91% and iron ores 46%. 39% of gold reserves are competitive and 38% of copper and zinc, 31% of led. During the past years production volumes significantly exceeded new reserves discovered for most minerals. For each of the most important minerals, potential reserves have reduced as a result of a non-recovery rate from 0.5 up to 1.7%, and in developed deposits reserves decreased by 7 to 8%.

Discovered copper reserves are enough for approximately 20 years, led and zinc 20-30 years, bauxites 30-40 years, and gold is sufficient for 20-30 years. (Interfax-Kazakhstan)

Equities

The KASE-Shares index increased by 5.69% to 200.40 by the end of period on September 28 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 September 22 and September  28 2004, the volume of equity trades at the KASE decreased to USD 8,914,813 from USD 90,125,383 in the previous period. The shares traded during the period were common shares of Almaty Kus (ALKS), Bank TuranAlem (BTAS), Kazakhmys (KZMS), Kazakhtelecom (KZTK), KazZinc (KZZN), Neftebank (NFBN), Ordabasy (ORDB), ValutTransit Bank (VTBN), ValutTransit Zoloto (VTZL) and Zerde (ZERD) and preferred shares of KazChrome (KZCRp), Kazakhtelecom (KZTKp), MangystauMunayGas (MMGZp), ValutTransit Bank (VTBNp) and ValutTransit Zoloto (VTZLp). (Irbis)

Company News

Oil & Gas

The Atyrau Pipeline Plant, a subsidiary of ChevronMunayGas Inc., launched its fourth production line. It is designed for manufacturing pipes with diameters of up to 1200 Million. Assembly and equipment costs of the new line are about USD 4 Million .

So far, three production lines for 32 to 630 millimetres diameter pipes are operating at the plant, producing up to 7,000 tonnes of piping. Now, with the opening of the fourth line, it is planned to reach an annual output of 10,000 tonnes, which should meet approximately 3% of demand for polyethylene pipes.

The high quality raw materials, necessary for the production, are currently being purchased in Europe. (KazInform)

***

The 13th and latest well was recently opened at the Amangeldy gas deposit, the Zhambyl Oblast Akim reported. Daily gas production has increased from 500 up to 610 cubic meters per day after the launching of this highly productive well. The well’s daily production has increased from 80,000 to 100,000 cubic meters of gas. 4 additional wells are planned by the end of the current year. The Amangeldy gas deposit will work at full capacity and will produce 960,000 cubic meters of gas per day following the opening of the wells.

Concurrently, the adjustment of the central gas-processing unit (CGPU), performed by US based BSI, continues. While fine-tuning CGPU technological processes, in view of changing gas volumes experts encountered problems with weak penetrability of gas saturated rocks. Therefore, in compliance with a government decision, the annual gas volume has been planned for up to 350 million cubic meters annually. In the meantime, specialists from Amangeldy have said that the subsoil gas and oil reserves in the Zhambyl Oblast are huge. (KazInform)

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The Kazakhstani Economy and Budget Planning Ministry believes that in 2005, BG Group will pay USD 100 Million as compensation for the sale of the company's stake in the Kashagan deposit project.

This sum has been planned for in the receipts of the draft national budget for 2005, the Economy and Budget Planning Vice-Minister, Bakhyt Sultanov said while presenting the draft budget to the Senate.

The BG Company announced its intention to sell its stake in Agip KCO, which is drilling at a number of oil deposits, the largest of which is Kashagan, and its partners within the consortium have announced their plan to buy the 16.67% stake. This year, Kazakhstan also announced that it has the right to purchase the share, valued at USD 1.23 Billion.

The Vice-Minister stated “according to the contracts that have been signed, in case of the assignment of chose in action (of one of the Consortium members – IF-K) it will lead to an obligation to render additional payments to the budget”. Sultanov noted that this compensation would be paid regardless of the buyer of the share.

As was stated earlier, the BG Group could refuse to sell its stake because of the absence of a consensus with the government. According to Bloomberg, growing oil prices could increase the cost of the stake, which could hold back the intention of BG to sell.

Agip KCO includes Eni (operator with 16.67%), TotalFinaElf with 16.67%, and ExxonMobil with 16.67%, and Shell with 16.67%, and Inpex with 8.33%, and Phillips with 8.33%, and BG with 16.67%.

Agip KCO was formed after signing a 40-year PSA in 1997. It will begin commercial production in 2007 - 2008.

Agip KCO said that Kashagan holds an estimated 7 billion - 9 billion barrels of recoverable oil and total geological reserves of 38 billion barrels. (Interfax-Kazakhstan)

***

Vladimir Shkolnik, the Minister of Energy and Mineral Resources, has refuted information that the BG Group Plc, a partner in the international consortium responsible for developing the Kashagan deposit, could refuse to sell its stake in the project.

“I am able to refute this information, since we are officially engaging in talks with the company. They do intend to sell their share”, Shkolnik told journalists in Atasu, Karaganda Oblast during a ceremony dedicated to the launching of construction of the oil pipeline from Kazakhstan to China, the Atasu-Alashanke.

“We are negotiating now, and a schedule has been made. We shall meet again in October”, the minister said.

Asked whether the talks will be completed by the end of the year, Shkolnik said, “We would like to get it done”.

According to a Kazakhstani lawyer close to the BG Group, that this company could refuse to sell its stake in the North-Caspian project because of an absence of consensus with the Kazakhstani government.

BG intends to sell its stake in Agip KCO, who is drilling at a number of oil deposits in the Kazakhstani sector of the Caspian Sea, the largest being Kashagan. The members of the consortium intend to buy the 16.67% share. The government of Kazakhstan also announced its intention to buy the stake in June. The stake has been valued at USD 1.23 Billion. (Bloomberg & Interfax-Kazakhstan)

Banking and Finance

As of the end of August 2004, the volume of net aggregate funds allocated by the EBRD to Kazakhstan have exceeded 1 Billion EURO, the Director of the EBRD Business Group in Russia and Central Asia, Hubert Pandza reported at a press conference in Almaty.

“In addition to the fact that Kazakhstan is the largest country on its way toward expansion to the East, the country has created a favourable investment climate. The high pace of economic growth, and the political stability and reforms have provided assurances that EBRD investment in Kazakhstan will grow”, he said.

In 2003, the EBRD invested EURO 260 Million into Kazakhstan. “By the end of 2004, the amount of invested funds will reach the same levels or even larger”, the business group director stressed. Mr. Pandza also introduced a new EBRD Director of Kazakhstan – Andre Kuusvek. (Kazakhstan Today)

***

The Kazakhstani commercial bank, Kazkommertsbank (KKB) has attracted a loan for USD 30 Million from Citigroup, guaranteed by the Overseas Private Investments Corporation (OPIC) operating under the US government.

“This 4-year loan, provided with a rate of six-month LIBOR +1.7% per year has been provided by Citigroup within a program signed between Citigroup and OPIC with a goal of increasing funding for small and medium business enterprises in Kazakhstan, Russia and Kyrgyzstan”.

 “The terms of credit are very profitable for KKB concerning the time-frame and financing goals. OPIC's guarantee totalled 75% of the sum. The bank provided a 18-month grace period on the principal debt”, the message stated.

The document says that KKB is the first commercial private bank in Central Asia that has received a loan under guarantee of this Corporation.

According to the press release, KKB would be able to fund small and medium enterprises (SME) investment and infrastructure projects “not necessarily connected with export of goods and services from the US”, for up to 4 years.

As stated in the press release, KKB has been cooperating successfully for several years with various international development institutions on SME crediting in Kazakhstan. Among the partners is the European Bank for Reconstruction and Development, German Development Bank, German Investments Company, Dutch Development Bank and others. The volume of credit from the KKB to SMEs, as stated on the international financial report, has increased to KZT 33.5 Billion as of July 1, 2004 as compared to KZT 24.5 Billion one year before.

OPIC, founded in 1971 by US governmental agency has been called to assist US foreign investments in direct financing and by granting guarantees.

Kazkommertsbank, established in 1990, is the largest bank in Kazakhstan.

The bank’s total assets total approximately USD 4 Billion, and its loan portfolio is USD 3 Billion. One of KKB's shareholders is EBRD. (Interfax-Kazakhstan)

Metals and Mining

The reconstruction of electrical furnace No. 22, with an annual capacity of 23,000 tonnes of ferrochrome, has been completed at the Aksu Ferroalloy Plant (AFP).

The electric smelting furnace, the last overhaul of which was conducted 14 years ago, was reconstructed in consideration of the latest achievements in global non-ferrous metallurgy as well as ecological services. The technological tank is lined with magnesite brick, which allows for an increase in service and the smelting of ferrochrome containing lower amounts of carbon and harmful admixtures. The treatment filters that are installed on the furnace (wet gas treatment) reduce hazardous discharges into the atmosphere by 99.7 %. (KazInform)

***

KazZinc JSC production figures for 2004 forecasts the same amount of zinc as produced last year, or no less than 277,000 tonnes. Member of KazZinc’s Board of Directors, Harry Shtoik recently announced in Almaty.

Company investments into production will total USD 70 Million, and will originate both the firm’s own capital as well borrowed funds, H. Shtoik said. Currently, the “investment plan for 2005 and the next three years” is being designed.

In the meantime, Stoik noted that KazZinc’s investment program specifies the development of a number of areas, including a further increase in geological exploration and the processing of earlier accumulated waste. “We are doing a great deal of work on the Ridder-Sokolnyi deposit toward increasing reserves of gold”, he said. Recently, additional reserves have been discovered.

According to an excerpt from the KazZinc securities holder registry, as of December 2003 the total number of company shareholders totalled 107. The holders of 5 percent and over of the total number of shares are: the State Property and Privatisation Committee– 27.65%, Kazastur Zink AG (Switzerland) – 62.97% and Karison AG (Switzerland) – 7.55%. (Interfax-Kazakhstan)

***

New railway scales, which will allow for the weighing of full fuel transport train-cars more accurately, were assembled at Vostochnyi, a coal strip mine in Ekibastuz.

“The reconstruction of the strip mine continues. By 2006, we plan to produce up to 20 million tonnes of coal annually”, Vladimir Zayts, chief engineer of Vostochniy said. “The planned production capacity of the stripping facility will increase up to 24 million cubic meters annually, which is why the mine is expanding their equipment. A new excavator, EKG-8I, has been put into operation, and the assembly of a gigantic 15 cubic meter EKG-15 is almost complete. We will also purchase two more EKG-10 and ESh-13/50’s walking excavators”.

The electrification of railway stations Komsomolskaya, Zhiger and Jubileynaya also continues. In total, KZT 3.2 Billion is to be invested in the development of the strip mine in 2004. (KazInform)

Energy and Power

The United States Agency for International Development (USAID) and Kazkommertsbank, JSC (KKB) have signed a guarantee agreement to support lending to energy efficiency projects in Kazakhstan. Under the terms of the agreement with Kazkommertsbank, USAID will provide a 50% guarantee to a loan portfolio totalling USD 15 Million over a seven-year period to reduce the risk to KKB, in order to promote energy efficiency projects.

George Deikun, Mission Director of USAID Central Asia, and Magzhan Auezov, Managing Director of KKB, signed the guarantee agreement.

 “KKB intends to begin lending to projects aimed at both the promotion of efficient operations on the part of the energy sector itself as well as energy efficiency at other enterprises,” Auezov said after the signing ceremony.

Deikun, explaining USAID’s decision to choose KKB, said that the bank met “many criteria of the program.” He specified that these criteria concerned the “level of financial stability at KKB reducing risk during lending, as well as the bank’s ability to efficiently implement the program.”

The maximum amount of credit for one project is USD 3 Million. (Interfax-Kazakhstan)

Transport and Telecommunications

The European Bank for the Reconstruction and Development plans to sign an agreement with the national sea navigation company, KazMorTransFlot by the end of the current year on the funding of construction of three oil tankers.

“Currently the concerned parties are finishing the details of the transaction. We hope we’ll be able to sign an agreement by the end of the current year”, Michael Davy of the EBRD representative office in Kazakhstan, said at a Wednesday press conference in Almaty.

Earlier KazMorTransFlot said, with the total cost of the project being USD 42 Million, the company plans to attract financing from the EBRD for 70-85% of the total cost, and the remaining amount shall be provided from various sources, including their own as well as borrowed funds. An order for the construction of the three tankers with deadweights of 12,000 tonnes to be used on the Caspian Sea has been placed at the Vyborg ship building plant in Leningrad Oblast. The first of these tankers will be built in October of 2004. It is planned that it will work on the Aktau – Baku and Aktau – Makhachkala routes. KazMorTransFlot was created in 1998 through a decision on the part of the Kazakhstani government for the development of sea transport. The company has been operating since November 2001. The shareholders are the Ministry of Transport and Communications and national Oil and gas Company, KazMunayGas. (Interfax-Kazakhstan)

***

The next auction for the sale of the state share in the Atyrau Aue Zholy airline is scheduled for October 27, 2004. The state shareholding (SSH) is planned for sale as a single lot based on the Dutch price reduction method. Foreign legal entities are permitted to participate in the tender, which will be organized in the form of an auction.

The amount for the entire SSH totals 29.7% of charter capital, and the quantity of shares is 84,514. The starting price is KZT 1.52 Billion (current rate KZT 135/USD 1). The minimal price that the state shares can be sold for is KZT 20 Million, and the guarantee deposit for participation is KZT 7.6 Million.

The State Property Committee has attempted to sell the state share in the airline more than once, but the auction was declared void due to a lack of applications. On each occasion, the committee has reduced the minimal asking price and the guarantee fee.

The last auction took place on September 17 of the current year, and the starting price was KZT 1.52 Billion, the minimal asking price was KZT 40 Million, the guarantee fee was KZT 22.8 Million. (Interfax-Kazakhstan)

Money Markets

KZT/USD market rate dynamics during the week

Currency Rates as of 5 October 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