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Politics and Macroeconomics

National Fund To Accumulate Oil Taxes

The government of Kazakhstan believes that all taxes from oil production and export should be deposited in the National Fund to increase its assets.

The council of economic policy, a consulting body under the president of Kazakhstan, considered the draft of the National Fund concept for mid-term development on Thursday.

“It is essential to create a valid mechanism for savings and processes to manage the assets of the fund by introducing the appropriate changes,” said Kazakhstani Premier Daniyal Akhmetov at the council’s meeting.

He also said, “Viewing the advantages of different models to insulate the national budget on market fluctuations, and facilitate an even distribution of income for future generations, to avoid Dutch disease and to stimulate the development of the oil sector, balancing the budget is the most appealing strategy.”

 “Thus, the budget deficit from the economy, excluding oil shall be covered by the fund.” He added that introducing this model would require amendments to a number of laws. (Interfax Kazakhstan)

Tax Laws to Be Adjusted

The Kazakhstani Minister of Foreign Affairs, Kasymzhomart Tokaev believes that further changes in tax legislation would only improve the investment climate in the country.

"Kazakhstan has a favourable investment climate as a whole. At the same time, the country needs more foreign investments. So I believe that it is necessary to thoroughly consider the opinions and proposals of foreign investors in order to prevent worsening conditions affecting their work in this country," Kasymzhomart Tokaev stated on November 27, commenting on his recent statements published in certain media outlets.

The minister believes that the tax burden on enterprises engaging in considerable investment for use of the subsoil should be spread equally over a number of years.

Kasymzhomart Tokaev, who was prime minister for several years, suggests making amendments to the tax code in order to enhance the investment climate.

In 2004, Kazakhstan put into force amendments to legislative acts on subsoil user taxation. The main concept of the amendments is the introduction of a rental tax for exported oil (RTEO) and a number of novelties in the field of oil operations. (Interfax-Kazakhstan)

Less Travel Documents Needed For EurAsEC Citizens

Starting on January 1, 2005, the list of documents needed for non-visa visits of citizens of the EurAsEC member countries will be shortened, a message distributed by the MFA of Kyrgyzstan on December 1 read.

When the Customs Union was created, the participating countries of Belarus, Kazakhstan, Kyrgyzstan, Russia, and Tajikistan spoke out for the creation of favourable conditions for trips by their citizens throughout the entire territory of the union, and signed a mutual agreement on visa free travel on November 2000. Each participating country defined a list of 10 to 13 documents. For example, Kyrgyzstan required a list of 10 different documents for its citizens. This however was found to be in contradiction with international practice, and fostered the growth of illegal migration. On May 26, 2004, experts from EurAsEC countries signed a protocol in Moscow on the reduction of document lists, cutting them to only 5.

A series of terrorist acts caused Moscow to announce that it plans to unilaterally recognize only 5 specific travel documents for all EurAsEC participants, which includes a national, diplomatic, business, and naval passport, and return certificate. The protocol will come into force on January 1, 2005. (Kazakhstan Today)

0.9% Inflation in November

The consumer price index used in Kazakhstan, as an inflation indicator totalled 0.9% in November 2004 versus 1.1% in October 2004, the national statistical agency informed Interfax-Kazakhstan on Wednesday. According to statisticians, food prices went up by 0.1% in November, non-food prices rose 0.9% and fees for paid services increased by 0.8%.

As a result, inflation for the first 11 months of 2004 totalled 5.8%, thus, food prices rose by 6.1%, non-food prices by 5.9% and paid service prices increased by 5.2%. According to the monetary and credit policy of the National Bank that was approved for 2004, the average of real inflation for the year was forecasted to be within 5-7%.

Inflation in Kazakhstan in 2003 was 6.8% compared to 6.6% in 2002. (Interfax-Kazakhstan)

Equities

The KASE-Shares index increased by 1.07% to 207.47 by the end of period on November 30, 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 November 24 and November 30 2004, the volume of equity trades at the KASE increased to USD 17,578,309 from USD 9,022,867 in the previous period. The shares traded during the period were common shares of Almaty Kus (ALKS), Bank CenterCredit (CCBN), Kaztorgtechnika (KTTH), Kazakhmys (KZMS), Neftebank (NFBN), Ordabasy (ORDB), Temirbank (TEBN), UKTMK (UTMK), ValutTransit Bank (VTBN), ValutTransit Zoloto (VTZL) and Zerde (ZERD) and preferred shares of Alyuminiy Kazakhstana (ALKZp), ATF Bank (ATFBp and ATFBp8), Nurbank (NRBNp6) and ValutTransit Bank (VTBNp). (Irbis)

Company News

Oil & Gas

The Kazakhstani oil and gas company KazMunayGas intends to sell its shares in three small oil projects. Firms registered in Canada, Turkey and Kazakhstan offered the highest price, a KazMunayGas news release to Reuters said. According to the source, KazMunayGas is obliged to offer these shares to other shareholders with the right of first refusal, and if they decline the shares, then KazMunayGas may sell them to selected buyers.

Recently, during a competitive bidding process for determining the cost of the shares, Canada’s Nelson Resources, controlled by Kazakhstani investors, offered the highest bid of KZT 1.4 Billion or USD 10.8 Million out of the four bidders, for 50% of the Arman deposit. Kazakhstan’s Almaz International Trading Company offered the highest bid of KZT 2.7 Billion for 69% in KazMunayGasTelf. Turkish International Petroleum offered the highest bid of KZT 4.5 Billion for 40% of Karakuduk Munay.

“The auction was not meant for the sale of the shares, but in order to define the cost of our stake in these three companies,” the source indicated.            Partners in projects that KazMunayGas is selling shares must make a decision within 30 days according to legislation. KMG plans to auction 52.69% of its share in a small extraction company, Embavedoil, on December 2. The starting price is KZT 154.358 Million. According to the source, the national company plans to sell its shares in small projects in order to concentrate on larger ones, in particular at the Caspian shelf.”

The government of Kazakhstan intends to auction new promising oil bearing blocks at the Caspian shelf by the end of 2004. (Panorama)

***

The first working group session for a draft law on product sharing agreements during offshore petroleum operations recently took place in Astana. The government had submitted the draft to the Majilis for consideration.

Kanatbek Safinov, the managing director of KazMunayGas, gave a report on the legislation. Majilis Deputies, Nurpeis Makhashev and Ravil Cherdabayev expressed their opinions on the draft, noting its significance and urgency.

After their opinions were heard, the working group began discussing suggested changes to the draft law, which includes 108 amendments on articles. (KazInform)

***

The Batys Bailanys LLP has purchased 37.2% of KazMunayGas’ stake in the Gyural LLP at an auction, the KazMunayGas press service informed KZ-today. The shares were bought for KZT 123,486,400.

The press service explained that the sale occurred after other Gyural partners declined the purchase.

Gyural is licensed to develop the North Baklaniy deposit, located 80 km outside of Atyrau. The deposit was discovered in 1963, and began operating in 1994. It has 1,429 thousand tonnes of reserves, and 544 thousand tonnes of recoverable reserves. (Kazakhstan Today)

***

The management of the two largest Kazakhstani national companies KazMunayGas and Kazakhstan Temir Zholy has established oppressive terms regarding deadlines for actual payments for supplies expressed Ivan Chirkalin at the plenary session of the Majilis.

The reason for Chirkalin’s query was an appeal made by the management of OJSC National Company Kazakhstan Engineering and JSC Petropavlovsk Plant of Heavy Engineering on the changes in baseline payment conditions and payment conditions under tender documentation on the part of JSC Razvedka Dobycha KazMunayGas, an exploration and production branch of KazMunayGas.

In particular, producers of goods point out that KMG will increase the payment period starting in 2005, up to 180 days for supplied goods from the time the acceptance report is signed, compared to 30 days. A similar payment situation, up to 90 days, remains in the tender documentation of Kazakhstan Temir Zholy. (Kazakhstan Today)

Banking and Finance

The European Bank for Reconstruction and Development (EBRD) and Bank CenterCredit (BCC) have signed an agreement for a 6 year USD 6 Million credit line on Friday, the BCC press service reported.

BCC plans to use the funds for financing of the agricultural sector, in particular, for purchasing/leasing agricultural equipment.

According to the BCC, they and Center Leasing Ltd. financed the agribusiness for up to KZT 9.2 Billion (current exchange rate KZT 130.05 / USD 1) for the first nine months of 2004, which is up by 3.5 times compared to 2003.

According to EBRD representatives, introducing the financing program for purchasing modern agricultural equipment will improve the quality of agricultural products, grain in particular.

 “The credit line will promote the re-supplying of the agricultural sector with technical equipment and thus increase competitiveness and the possibility to become a full participant in the international agricultural market,” said Vladislav Li, the chairman of the board of trustees for BCC. (Interfax-Kazakhstan)

***

The Subsidiary of the Russian based Alfa-Bank in Kazakhstan has opened a USD 5 Million credit line for one year for BTA Ipoteka, a message from the company read.

In addition, the Financial Supervision Agency (FSA) registered their first issue of mortgage bonds with the government on November 22, 2004 as part of the company’s first bond program registered with FSA on September 30, 2004.

The issued seven-year bonds number 2 billion, with face value of 1 tenge per one security.

According to the press release, the company plans to place KZT 7.5-8 Billion worth of mortgage bonds in 2005, mainly in national pension funds and to raise about USD 50-100 Million on international markets from issuing Eurobonds. (Interfax-Kazakhstan)

***

Erik Sultankulov, the financial director of the Kazakhstani commercial bank, Bank TuranAlem (BTA) has announced the bank’s purchase of 9.99% of shares in Ukrainian Transbank on Tuesday in Kiev.

Transbank's assets have a total value of about USD 50 Million. The message did not disclose the details and terms of the transaction. At the moment, BTA is the leading bank in investments in the CIS to Russia. The bank operates in Russia via the partially owned Slavinvest Bank and Omsk Bank, and in Minsk via Astana Exim Bank. BTA also plans to acquire a number of financial institutions in Russia.

According to its strategy, BTA plans to become one of the largest financial institutions in the CIS before 2010. The bank plans to open representative offices in all countries of the former Soviet Union or establish branches by buying local banks. The bank will invest over USD 100 Million in order to achieve these goals. (Interfax-Kazakhstan)

Metals and Mining

The construction of a second electrical furnace shop has begun at the young Pavlodar metallurgical enterprise, Casting LLP. The director of the company, Anatoliy Abdrakhmanov, reported that the first line of the workshop is scheduled to begin during the second quarter of next year. Two 60-ton electric furnaces are to be installed. Modern equipment, including an argon metal blowing unit, a vacuumator and a steel teeming ladle car will also be installed to manufacture high quality steel. An overhead-leveling crane with a loading capacity of 50 and 100 tonnes has been ordered for the operation.

The production capacity of the new operation is planned for 400,000 tonnes of metal annually. The plant will produce steel billets with a cut of 180x180 Million up to 300x300 Million used in the manufacturing of large diameter pipes for the oil and gas industry. Casting LLP plans to start producing the billets in 2006.

Casting LLP was founded in 2001 in Pavlodar, using idle steel-casting workshops from a tractor plant. The metallurgical operation produces 300,000 tonnes of steel casting annually. Over 9 months this year the plant manufactured products worth KZT 10.9 Billion, which is three times greater during the same period of last year. Casting LLP employs 2,700 workers and engineers. The average salary at the plant is KZT 35,700. (KazInform)

***

The net profit of JSC Ust-Kamenogorsk Titanium Magnesium Plant (UKTMP) located in the East-Kazakhstan Oblast totalled KZT 490,429 Million from January until September of this year (current exchange rate KZT 130.6/USD1) compared to KZT 45,306 Million for the same period during last year. This information was provided by the company’s accounting office and was submitted to the Kazakhstani Stock Exchange (KASE).

UKTMP’s sales totalled KZT 8.758 Billion for the first nine months of the year, compared to KZT 6.728 Billion in the same period last year.

The main activities of the company include the production and sale of non-ferrous metals, high-quality titanium sponges, and commercial magnesium (Interfax-Kazakhstan)

***

Kazakhstani-Dutch gold mining joint venture, Vasilkov will produce 955 kg of cathodic gold in 2004, which is similar to last year’s volume, the Chair of the Company Board, Gani Sagiyev said.

He said that the company will produce identical volumes in 2005 and 2006 until they construct and commission a gold recovery plant with a processing capacity of 4 Million tonnes of ore annually.

After the plant is opened, the company plans to gradually manufacture 8 tonnes of gold p.a. Preliminary construction expenses total USD 150 Million. The company will be able to announce a precise investment figure after the Austria based GRD Minproc completes a feasibility report in January 2005.

Vasilkov Gold JV plans to attract investments for construction next year, in the form of loans from western countries.

According to Mr. Sagiyev, ore recovery in 2004 is expected to total 1,490,000 tonnes compared to 1,509,000 tonnes in 2003.

He also said that from January to October 2004, the company produced 797,712 kg of cathodic gold and 49,863 kg of cathodic silver compared to 789,665 kg and 39,587 kg respectively for the same period last year.

Vasilkov Gold JV is developing the Vasilkov gold deposit in Akmola Oblast, located in northern Kazakhstan with total gold reserves of about 360 tonnes.

Vasilkov Gold JV was created in August 2000 with 60% of the stock belonging to the Dutch company Floodgate Holding B.V. and 40% owned by the committee of state property and privatisation in the ministry of finance of Kazakhstan. The enterprise’s authorized capital exceeds KZT 2 Billion.

The initial enterprise of Vasilkov Gold JV is Vasilkov GOK, which has been operating since 1991. Currently, gold produced by Vasilkov Gold JV is being refined at Italian factories and the company sells it to the National Bank of Kazakhstan. (Interfax-Kazakhstan)

***

BaritOilKentau LLP, a mining enterprise in Kentau, Southern Kazakhstan Oblast (SKO), has extracted 98,500 tonnes of barite ore from January to October this year, versus 46,700 tonnes for the first ten months of last year, the Kentau Akim Alisher Pirmetov stated.

Four years ago, Temir-Munay Invest JSC and Yuzhpolimetal Industrial Corporation JSC established BaritOilKentau LLP developing Ansay, a large field containing barite ore located 3 km to the northwest of Kentau.

Barite is recovered using open-cut mining from the Ansay field. Reserves are estimated at 74.2 Million tonnes, including 16.8 Million tonnes obtainable using open-cut mining and 3.7 Million tonnes through underground mining. The mined ore contains 48% barite.

The Ansay field, containing mono-barite ores is a continuation of the Mirgalimsay field in the west, where it becomes the Mirgalimsay-Ansay ore field.

Barite is used in drilling operations as well as rubber, paper, glass, ceramics and cement industries.

Kazakhstani oil companies are the major purchasers of BaritOilKentau LLP products. The company also exports its goods to the CIS and China. (Interfax-Kazakhstan)

Energy and Power

The management of the national atomic company, KazAtomProm has rejected the development strategy proposed by MAEK-KazAtomProm, a power plant in Aktau in the Mangystau region of western Kazakhstan, designed for 2015.

“The submitted development strategy reflects old approaches. It is not a strategy, it is a technical inventory of what exists,” said Mukhtar Dzhakishev, the president of KazAtomProm, on Tuesday in Aktau during a business trip to the power plant which is a part of the structure of the national company.

“The strategy must explain how MAEK would operate up to 2015 to minimize costs and reduce tariffs,” he emphasized.

 “It is necessary to elaborate a strategy that analyses the current condition of MAEK. The strategy would specify revenues and expenditures, demonstrate understanding of how to increase revenues, as well as elaborate the reasons for losses and define steps to minimize these,” Mr. Dzhakishev pointed out.

KazAtomProm’s chief instructed the management of the power plant to review the submitted draft of the project within one month.

 “We need to choose an optimum technological process from the viewpoint of costs. All of our investments must pay off.”

KazAtomProm has owned Mangyshlak Atomic Power Plant (MAEK) since January 2003. The fast neutron atomic reactor, which had been used in since 2000 at MAEK has been dismantled. (Interfax-Kazakhstan)

Transport and Telecommunications

New postal zip codes in Kazakhstan have been introduced on December 1. “The zip-codes needed to be changed since old Soviet zip-codes that were created in 1971 do not meet requirements of our time,” Kazpochta explained.

Introducing new zip codes will reduce the time it takes to process postal mail and the labour expenses for sorting. Computers will do the mail registration from now on. The new 6-digit Kazakhstani index was made with the postal department regions and settlements in mind. The first and the second digits designate the oblast code, the third and the fourth the regional code, and the fifth and the sixth are the settlement code. For example, the Astana zip code will be 010000, Almaty - 050000, Taraz – 080000, Karaganda – 100000, and the zip code for Petropavlovsk will become 150000.

“All expenses associated with the introduction of the new zip codes are to be taken out of Kazpochta funds,” according to the Kazpochta press service. (Kazakhstan Today)

Money Markets

KZT/USD market rate dynamics during the week

Currency Rates as of 7 December 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: zhonar@maverick.kz or newswire@ges.kz

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