Invest in Kazakhstan
INVE ST IN
An ofďŹ cial publication of the government of the Republic of Kazakhstan
There’s more to Kazakhmys than mining. As one of the world’s few fully integrated copper producers, we also smelt, refine and transport the metal – in a single end-to-end process. In our hands, copper ore grows from a raw material into a much more valuable commodity. Not only that, we build, own and run much of the infrastructure that supports our business, including
11406_01_DigitUp_Kazakhstanad_276x420 V3.indd 1
roads, railways and power stations. As well as creating jobs across Kazakhstan, this allows us to extract maximum value from our resources. And that means we can invest more in local communities – building schools, hospitals and housing. Find out more about the company that makes copper grow. Visit www.kazakhmys.com
First we dig it up. Then we grow it.
Turning natural resources into national resources
INVE ST IN
Kazakhstan 201 1
Editors Editor-in-chief Chief sub-editor Sub-editor
Jean-Philippe Stanway, James White Kylie Alder
Sales director Sales manager Sales executives
Production and distribution manager
Invest in Kazakhstan
Art editors Designer
Ben Aris and Nora FitzGerald Colette Doyle Barry Davies Clare Cronin
INVE ST IN
Kazakhstan 201 1
Martin Cousens Laurie Pilate Oku Egho, Tatyana Bondarchuk
Managing director Chief executive Chairman
Andrew Howard Alan Spence Paul Duffen
Pictures: 123rf, Alamy, Corbis, Getty, NASA, Press Association, Photolibrary, Reuters, Thinkstock, UCL Library ISBN: 978-1-906940-43-0
An ofﬁ cial publication of the government of the Republic of Kazakhstan
Printed by Buxton Press Published by Newsdesk Media Inc 700 12th Street, NW, Suite 700, Washington DC 20005, US Tel: +1 (202) 904 2423 Fax: +1 (202) 904 2424 www.newsdeskmedia.com
An official publication of the government of the Republic of Kazakhstan
Newsdesk Media Group publishes a wide range of business and customer publications. For further information please contact Andrew Howard, managing director, or Alan Spence, chief executive.
Embassy of Kazakhstan to the United States of America, 1401 16th Street NW, Washington DC 20036, US Tel: +1 (202) 232 5488 www.kazakhembus.com
© 2011. The entire contents of this publication are protected by copyright. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means: electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publisher. The views and opinions expressed by independent authors and contributors in this publication are provided in the writers’ personal capacities and are their sole responsibility. Their publication does not imply that they represent the views or opinions of the Government of the Republic of Kazakhstan or Newsdesk Media Inc and must neither be regarded as constituting advice on any matter whatsoever, nor be interpreted as such. The reproduction of advertisements in this publication does not in any way imply endorsement by the Government of the Republic of Kazakhstan or Newsdesk Media Inc of products or services referred to therein.
INVEST IN KAZAKHSTAN 2011
Forewords and interview
Minerals tax freeze is welcome news for investors
HE Erlan Idrissov
The government will not raise mineral resource rent taxes, but is considering a distressed asset fund
Ambassador of the Republic of Kazakhstan to the United States
Oil, gas and mining
Kazakhstan’s economic and investment policy
Democracy, politics and society
Future prosperity through diversification
Enhanced links boost trade opportunities
Leadership in conflict resolution
Evolution of role sees fund gearing up for ‘People’s IPO’ Samruk-Kazyna prepares to float some of its assets
Taking the long-term view Kazakhstan tackles the problem of consumption of petrochemicals outstripping production
The country has taken the lead on peace; with a message from Yerzhan Kazykhanov, Foreign Minister
Gas: an increasingly important player in economic growth How the country plans to switch from being an importer to a global exporter of natural gas
Kazakhstan is attracting investment and growth by building stronger relations with other countries
Capitalizing on Caspian conduits Massive investment is boosting Kazakhstan’s export infrastructure as oil and gas output rises rapidly
Encouraging non-resource sector growth; with a message from Asset Issekeshev, Deputy Prime Minister – Minister of Industry and New Technology
Tapping the hidden resources beneath the Caspian Huge hydrocarbon reserves are set to be revealed under the Kazakh section of the Caspian Sea
After securing 20 years of stability, Nursultan Nazarbayev won a landslide victory in April
Standing on a wealth of resources Most of the country’s oil and gas reserves are onshore, allowing cheaper and safer drilling
How the government is deepening ongoing reforms and supporting entrepreneurship and efficiency
Increasing global presence in energy and mineral exports Kazakhstan enters the world stage; with a message from Sauat Mynbaev, Minister of Oil and Gas
Kazakhstan is well on its way to a robust recovery
All for one, one for all Kazakhstan, Belarus and Russia form a customs union to eliminate trade and investment barriers
Transformation into a regional powerhouse The country has been turned around in the past two decades by the energy and industry of its population
Samruk-Kazyna’s positive growth strategy Interview with Timur Kulibayev, head of Kazakhstan’s sovereign wealth fund
President of the Republic of Kazakhstan
ArcelorMittal’s safety investment pays off The multinational sees results from its efforts to tackle methane-associated accidents during mining
Unearthing Kazakhstan’s metallic riches Investment in the country’s mining and metals production sector is back on track Invest in KAZAKHSTAN 2011
Good things come in small packages
Opportunities abound for extracting precious metals – and not just for big companies
Keeping the nuclear faith
Foreign banks poised for the upturn Kazakhstan’s banking sector looks likely to benefit from a flurry of international interest
The country maintains its commitment to nuclear power; with a message from Vladimir Shkolnik, Chairman of the Board of Kazatomprom
Support from the top for Islamic finance The country has embraced Islamic banking practices, aiming to build links with its neighbors
Business centers Energy and infrastructure
Building a grid that’s fit for purpose
Kazakhstan addresses a north-south imbalance
Renewable energy gathers momentum
Rapid growth leaves Almaty short of living space
Industries are being encouraged by both the government and the UN to use ‘greener’ power
Businesses have flocked to relocate to Astana
Stronger demand for construction materials
Real estate rebuilds toward recovery Investors show more caution this time round
Getting there New and enhanced air, road and rail facilities put the country on the international transport map
Rail reforms will support diversification
Breaking the mold Recovery measures could provide a template for other economies; with a message from Grigori Marchenko, Governor of the National Bank of Kazakhstan
From triage to treatment: improving healthcare Kazakh citizens benefit from a focus on health
Mass-market stores and malls gain ground The transition from bazaar to mall has been slow, but more mass-market brands are venturing eastwards
Resurgence of railway set to catalyze future growth
Banking and finance
Fertile ground for ventures to support a growing economy A wealth of opportunities exist for foreign companies in the services sector to make their mark
A new hub for road and rail transportation Kazakhstan courts investment by promoting location
Strong growth despite setbacks Both arable and livestock farming in Kazakhstan are benefiting from measures to boost productivity
As the economy improves, keeping up with the demands of building projects is proving tough
Capital on the steppe
Industry and services Infrastructure – building a new backbone A nationwide framework for transportation and communication links is starting to take shape
Thriving city in need of further housing capacity
The race is on to bring phone services to the masses Kazakhstan’s telecoms sector is pushing to extend its impressive investment track record
Steppe out for world-class adventure The country prepares for a new breed of tourist
Index of advertisers
Invest in KAZAKHSTAN 2011
Quality with responsibility Drilling
Weatherford International Ltd (NYSE/Euronext Paris/ SIX: WFT) is a Swiss-based, multinational oilﬁeld service company. We are one of the largest global providers of innovative mechanical solutions, technology and services for the drilling and production sectors of the oil and gas industry. We operate in over 100 countries and employ over 55,000 people worldwide.
improve our ﬂexibility and agility in response to market demand changes. In so doing, we will not compromise on quality or safety. Weatherford established its presence in Kazakhstan in 1996 with the opening of a base in Aksai to support drilling operations in the nearby Karachaganak ﬁeld. We have been expanding our presence ever since to keep pace with the rapid growth of the country’s oil and gas sector. Our local infrastructure now includes bases in Aktau, Aktobe, Atyrau and Kyzylorda, Aksai,
Our product offerings can be grouped into 10 service lines: • artiﬁcial lift systems
• wireline and evaluation services
and Almaty. Atyrau serves as our country headquarters. Nearly 500 employees, 93 percent of whom are
• drilling services
• re-entry and ﬁshing
Kazakh nationals, support our operations in Kazakhstan. We
• well construction
• stimulation and chemicals
provide our personnel with extensive training, both here and
• drilling tools
• integrated drilling
at Weatherford’s full-service training center, to ensure that
• completion systems
• pipeline and specialty services
they are well prepared to meet client objectives and maintain the highest quality, health, safety, security and environmental
We are committed to balancing good business with sound,
socially responsible engagement. This commitment includes
cycle of a well—drilling, evaluation, completion, production
practicing sustainable development in the communities where
and intervention. More recent additions include, surface
our employees and clients operate and live.
logging and production optimization. In 2008, we expanded our local capacity in another area, wireline logging, through
all of our business processes and partnerships. This includes
the acquisition of GIS, then the country’s largest domestic
complying with all applicable laws and regulations in the areas
where we do business; promoting safe work practices and
We are established a state-of-the art, in-country
minimizing risk to our employees, our communities and the
core-sample analysis laboratory, a joint venture between
environment; and implementing programs, training and
Weatherford Laboratories and Aktau-based Caspian Energy
internal controls necessary to achieve our goals.
Research. And, as our global track record illustrates, we are
Traditionally, we have one of the highest growth rates in
Our local product and service portfolio spans the life
applying efﬁcient resource-management methods and
We also pursue the highest standards of excellence in
standards at our facilities and operations sites.
the industry: over the past six years, we outperformed our peers in percentage growth of revenue and EBITDA. We set ambitious
highly adept at drawing on our range of competencies to deliver total project-management services. With its proliﬁc oil and gas ﬁelds, Kazakhstan is
growth targets, both top line and earnings, to continue on the
destined to remain a major hub of exploration and production
same historical development path, and we prepared for it with
activity for many years to come. We look forward to
supply chain and organizational commitments.
supporting your efforts to capitalize on the tremendous
Beyond operational improvements within our regions and
opportunities that the country holds.
our product lines, we launched three initiatives that are important for our next phase of growth as we mature into a world-class,
Visit us at www.weatherford.com or www.weatherford.ru
multinational organization. These three initiatives included
to learn more about our capabilities and achievements.
enhancing our ethics and compliance program, transforming our global supply chain and manufacturing organization, and
Our dedicated personnel in Kazakhstan are ready to
streamlining our operational support functions.
assist you. Please do not hesitate to contact us:
These changes have included reorganizing our compliance competency, recruiting experienced compliance professionals, and establishing and implementing new policies and procedures that make us better prepared to operate in today’s heavily regulated, diverse global markets. They make good business sense by maximizing compliance efﬁciency and minimizing risk. We strive to increase the geographic diversity of our supply-chain capabilities, lower our overall cost structure, and
forewords and Interview
Nursultan Nazarbayev President of the Republic of Kazakhstan
ow that Kazakhstan’s economy has resumed rapid growth, my task will be to ensure sustainable and balanced development for our country’s third decade of independence. International investment is vital to our government’s efforts to diversify the economy, and to increase productivity and competitiveness. In Kazakhstan’s 20 years of independence, we have built a stable and prosperous economy that is rapidly catching up with the developed world. We have successfully overcome several crises, from the aftermath of the Soviet Union’s collapse when the new country was struggling for survival, to the recent international economic crisis. Thanks to the government’s anti-crisis program and the strategy of sovereign wealth fund Samruk-Kazyna, Kazakhstan managed to avoid recession and was one of the first countries to emerge from the downturn. Today, Kazakhstan is back on a steady growth path. We achieved GDP growth of seven percent in 2010, and plan to maintain this pace of economic expansion. Between 1994 and 2010, Kazakhstan made a massive leap in income per capita from $700 to $10,000. We have set ourselves the target of further raising annual income per capita to $15,000 by 2016, which will put Kazakhstan among the world’s high-income countries.
Invest in KAZAKHSTAN 2011
To achieve this, we need to take the economy to a new level. In 2010, we launched the Country Development Strategy until 2020, setting out our main goals for the post-crisis decade. We are also implementing the State Program of Industrial-Innovative Development to modernize and diversify the economy. Broadening the economic base beyond the extractive industries will protect Kazakhstan from future crises. The policy of maintaining a high level of international reserves also contributes to Kazakhstan’s economic stability. Reserves, including those held in the National Fund, amounted to $73 billion. We must ensure that the benefits of Kazakhstan’s thriving economy are felt throughout the country, and that no one is left behind. We have already seen a drop in unemployment and made significant investments into public services and infrastructure, but we plan to do more. Recent events in North Africa, the Middle East and Central Asia have demonstrated the importance of socio-economic conditions as a contributor to stability. Following the April 2011 presidential elections, the government’s priorities are to develop a coherent social policy and to reduce development gaps within the country. The People’s IPO program is intended to allow more people to share in Kazakhstan’s prosperity, and to benefit from the growth of
forewords and interview
our largest companies. Minority stakes in state-owned companies will be distributed to retail investors via the Kazakhstan stock exchange. This will have the dual benefits of stimulating the local financial market and giving the population a direct stake in the country’s economic performance. The Kazakh government and Samruk-Kazyna are working with international advisers to prepare the program, and the companies to be listed are due to be announced in the autumn. Kazakhstan is already a beacon of stability, with more than 100 ethnic groups and people of numerous religions living harmoniously together. We have also managed to establish good relations with our neighbors Russia, China and the Central Asian republics, as well as nations from Europe, the Americas, East Asia and the Islamic world. Our links within the Eurasian region have intensified recently with the launch of the Customs Union in July 2010. Alongside Russia and Belarus, Kazakhstan was a founding member of the bloc, which will give investors access to a market of more than 160 million people. As a major exporter of both fuel and grain, Kazakhstan has another role to play in regional stability. Our planned increase in oil and gas production, with the launch of the Kashagan oilfield and other new capacity, will contribute to energy security. At the same time, we are investing in energy-
efficient technology and renewable energy to minimize the environmental impact of the economic expansion. Rising global food prices have raised fears of food shortages. Kazakhstan is already an exporter of high-quality grain and has the potential to increase food production, including through our ambitious project to raise our exports of environmentally clean meat. For projects across the natural resources, agriculture, processing and high-tech sectors, Kazakhstan is seeking additional foreign investment. Already the top destination in the CIS in terms of foreign direct investment per capita, Kazakhstan wants to benefit further from additional investment – not just in financial terms, but in the introduction of new technologies and business practices. The Kazakh government’s efforts to encourage investment include the launch of a new Tax Code, creation of special economic zones and industrial parks, and reforms to the judicial system to ensure the rights and property of both individuals and businesses are fully protected. We aim to become one of the top 50 countries in terms of the business environment by 2020, and to become one of the top 10 financial centers in Asia by the same date. As we work towards these goals, and Kazakhstan enters a new phase of post-crisis growth, we want international investors to be with us every step of the way. Invest in KAZAKHSTAN 2011
Philip Morris International:
Holder of the ﬁrst Foreign Investors’ License in Kazakhstan Philip Morris International (PMI), the world’s largest international
Philip Morris International
tobacco company, is represented in Kazakhstan by its affiliate,
has always been committed
Philip Morris Kazakhstan LLP (PMK). PMK operates a state-of-the-art
to building the capacity of
factory in the Almaty region and has six regional branches throughout
its local staff, as well as
the country. These branches are focused on the sales and distribution
creating the best possible
of PMK’s products.
working environment in every
Since 1993, PMI has invested over $320 million in Kazakhstan.
country in which it operates.
The company was one of the first investors in the country and is
Kazakhstan is no exception.
particularly proud of the fact that it holds Foreign Investor License
The company has invested
No 1 from the state. A major portion of PMI’s investment went towards
more than $15 million in
the construction of a greenfield factory in the Almaty region, which
training and professional
began operations in 2000.
development of its
Currently, PMK manufactures a wide range of international brands
employees. Each employee
(including Marlboro, Parliament, Muratti, Chesterfield, L&M, Bond
attends various on-the-
Street, and others) for domestic sale in Kazakhstan and for export to
job and off-the-job training
other central Asian countries.
and educational seminars on an ongoing basis. This has allowed
In addition, six local heritage brands, including Kazakhstanskie, are produced in the country. PMK is the largest taxpayer among companies in the tobacco industry in Kazakhstan. Since the acquisition of Almaty Tobacco
Aibat Akhmetalimov Managing Director, PMK
local talent to replace key positions formerly filled by expatriates. Today there are only three foreign nationals among PMK’s staff of approximately 1,000 employees. At the same time, there are more than 20 Kazakh citizens working
Factory in 1993 through the end of 2010, PMK has paid more than
in managerial and directorship positions at Philip Morris International
$1.1 billion in taxes and duties.
affiliates outside of Kazakhstan. In 2010, PMK’s accomplishments in
Philip Morris Kazakhstan LLP Established:
Philip Morris International
employee professional development were recognized through an award given by the American Chamber of Commerce for “Most Innovative Development Program in Kazakhstan”. PMK is an active participant in charitable activities. Over the past 17 years, the company has contributed more than $6 million to local charitable programs. Philip Morris Kazakhstan is proud of the Honorary Diploma it received in 2000 from the President of the Republic of Kazakhstan for “Charitable Contributions and Sponsorship of Humanitarian and Cultural Activities”. In 2007, the American Chamber of Commerce in Kazakhstan presented PMK with its Community Service award, recognizing PMK’s Corporate Social Responsibility programs as the best in the country. Social contributions in the Almaty Region are governed by the principles of annual Memorandums of Understanding between PMK, regional authorities, and local NGOs. PMI believes that socially responsible business should be based on a true partnership among business, authorities and institutes of civil society. The year 2010 marked the tenth anniversary of the completion of PMK’s greenfield factory. Philip Morris International is confidently opening a new chapter of its history in Kazakhstan, a country with vast economic potential and a bright future!
1 Zhansugurov Street Ily district, Otegen Batyr Village 040700 Kazakhstan, Almaty Oblast, www.pmi.com
114 INVEST IN KAZAKHSTAN 2010
forewords and interview
HE Erlan Idrissov Ambassador of the Republic of Kazakhstan to the United States
am delighted to present to you the sixth edition of the annual “Invest in Kazakhstan” guide. Published by Newsdesk Media Group, this book provides investors with an insight into the exciting opportunities in the Republic of Kazakhstan and up-to-date information on the economy and business climate. Kazakhstan, the largest economy in the Central Asia region, already has a stellar record of attracting international investment, receiving more than $120 million in foreign direct investment (FDI) in the past two decades. Within the CIS region, Kazakhstan is second only to Russia in the total volume of FDI attracted, and is the region’s top country in terms of FDI per capita. This achievement is a product both of Kazakhstan’s rich endowment of hydrocarbons and mineral resources, and of the government’s enduring commitment to supporting economic growth. Kazakhstan’s well-known strength in the natural resources sector is increasingly being matched by the emergence of other promising sectors including communications, agriculture, logistics and finance. Early investors, such as the oil and gas majors Chevron and ExxonMobil, have been joined in Kazakhstan by international companies from a range of sectors, among them GE Transportation, Intel, Microsoft and Baker & McKenzie.
The expansion of the economy beyond its core sectors is being promoted by the Kazakh government. Last year, we launched the State Program for Industrial-Innovative Development. Even as Kazakhstan heads rapidly towards its ‘golden age’ of oil and gas production, with major new capacity – including the offshore Kashagan field – due to become operational soon, the government is taking the long view: We are building a balanced and diversified economy, that will ensure sustainable growth for many decades into the future. The program will boost the creation of new industries and the modernization of existing sectors of the economy. We are well aware of the benefits that cooperation with international investors can bring, in particular in terms of cutting-edge technologies. Kazakhstan is advancing steadily on the World Bank’s Doing Business index, and was one of the top reformers globally in 2010. Kazakhstan’s government continues to explore ways of making the country more investor-friendly. The new Tax Code introduced in 2009 is designed to encourage investment outside the extractive industries, by gradually lowering corporate taxes. Value-added tax has also been cut to 12 percent. Kazakhstan’s entry to the Customs Union as a founder member, alongside Russia and Belarus, means that companies operating in Kazakhstan now have access to a market of more than 160 million people. Invest in KAZAKHSTAN 2011
Building Building relationships. relationships. Creating Creatingvalue. value.
Our Our ambition ambition is to is to bring bring real real value value to to ourour clients. clients. WeWe recognise recognise that that value value will will mean mean different different things things to to different different people. people. That’s That’s why why wewe care care so so much much about about getting getting to to know know ourour clients clients and and understanding understanding what’s what’s important important to to them. them. And And over over 400 400 of of ourour people people have have been been doing doing this this in in Kazakhstan Kazakhstan since since 1993. 1993. WeWe congratulate congratulate Kazakhstan Kazakhstan onon 2020 years years of of independence independence and and wewe look look forward forward to to supporting supporting thethe local local community community and and business business here here forfor many many years years to to come. come. ToTo ﬁnd ﬁnd outout more more about about us us visit visit www.pwc.com/kz www.pwc.com/kz or or getget in in touch touch with with ourour Managing Managing Partner Partner Alper Akdeniz Alper Akdeniz onon +7+7 727 727 298 298 0448 0448 to discuss to discuss how how wewe cancan help help you you achieve achieve your your ambitions. ambitions.
© 2011 © 2011 PwC.PwC. All rights All rights reserved. reserved. Not for Notfurther for further distribution distribution without without the permission the permission of PwC. of PwC. “PwC” “PwC” refersrefers to thetonetwork the network of member of member firmsfiof rms Pricewater of Pricew or any or other any other member member firm. fiPwCIL rm. PwCIL doesdoes not provide not provide any services any services to clients. to clients. PwCIL PwCIL is notisresponsible not responsible or liable or liable for the foracts the acts or omissions or omissions of any of of any itsofmem its
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forewords and interview
Samruk-Kazyna’s positive growth strategy
Timur Kulibayev took over as head of Kazakhstan’s sovereign wealth fund Samruk-Kazyna in April 2011. He outlines the role that the fund will play in growing and diversifying Kazakhstan’s post-crisis economy
Q. What are your aims for Samruk-Kazyna?
Q. What are the priority sectors for investment?
A. Kazakhstan’s emergence from the global
A. All key industrial sectors – including oil
financial crisis was a major achievement for Samruk-Kazyna, which proved itself as a successful crisis manager. We have now switched to a positive growth strategy. President Nursultan Nazarbayev has set the target of least seven percent annual economic growth. Our portfolio companies will be important contributors to this goal, because they are responsible for a significant share of Kazakhstan’s GDP. Samruk-Kazyna companies must become ‘national champions’, powerful and innovative businesses able to compete on a global scale. This is the key to transforming Kazakhstan into one of the world’s most competitive economies. Our priority is to diversify and modernize the economy. We have started a radical modernization of existing industrial assets and infrastructure. Samruk-Kazyna is also working to diversify production and increase added value, and export potential. Thirdly, our companies are building the infrastructure needed to ensure dynamic economic growth. This is a difficult path, and one that other countries have been pursuing for decades. However, in today’s fast-paced world, it is essential not to fall behind. Kazakhstan’s achievements in its first 20 years of independence will determine the pace of future growth.
and gas, mining, electricity, transport and communications, chemicals and pharmaceuticals – are priorities for us. The oil and gas industry has a special position in Kazakhstan’s economy. We want to attract international investment for the construction of new production facilities and modernization of existing assets. Kazakhstan’s three largest oil refineries are being rebuilt and, in future, will produce high-octane fuel compliant with European standards. Kazakhstan’s chemicals industry has considerable potential, due to our abundant raw materials, and rising domestic and international demand for a range of chemical products. Power generation is vital to Kazakhstan’s development. Both consumers and industrial users need reliable electricity supplies, which will require investment into generation and transmission capacity. Due to Kazakhstan’s geo-strategic location, there are many opportunities in the transport and communications sectors. Kazakhstan’s transport infrastructure is expected to receive investments of around $26 billion in the next decade. As Kazakhstan has some of the world’s largest mineral reserves, the development of a mining and smelting industry is a priority. Samruk-Kazyna is creating new mining and
Invest in KAZAKHSTAN 2011
08_kazak_Kelimbetovinterview MD.indd 18
forewords and interview
metallurgical enterprises based on the most advanced technologies. Kazakhstan is an industrial country, whose ‘growth points’ now include the transportation, energy, communications and high-tech innovative industries. These sectors are providing growth based on technology, rather than the production of raw materials. This emerging trend will drive investment demand in Kazakhstan in the long term.
Q. What progress has Samruk-Kazyna made so far in diversifying the economy and creating new industries? A. Samruk-Kazyna is carrying out 20 projects under the State Program of IndustrialInnovative Development 2010-14. With a combined cost of $22 billion, these projects account for 51 percent of the total cost of the program and span nearly all the priority sectors of the economy. Our focus is on the chemicals industry. The Joint Chemical Company, set up in 2009, made a thorough analysis of the chemicals market and identified investment priorities. Kazakhstan’s first integrated gas chemical complex is being built at Atyrau, at a cost of $2 billion. Reconstruction of the Stepnogorsk sulfuric acid plant is another key step in developing Kazakhstan’s chemicals industry, and will ensure that the uranium sector has a stable supply of sulfuric acid. We are also investing into the upgrade of a suspension-flotation phosphate concentrate plant to supply high-quality phosphate fertilizers.
Q. What is the status of the people’s IPO program? A. The program will involve Kazakhstan’s population in the country’s economic development, and give all citizens the
opportunity to become stakeholders in the largest and most promising Kazakh companies. We are preparing the program in cooperation with independent consultants, including investment banks Citi and UBS, big-four financial services company PricewaterhouseCoopers and law firm Cleary Gottlieb Steen & Hamilton. In fall 2011, we will announce the participating companies. At the same time, we will give information on the timing and conditions of the IPOs. Everything will be done to protect the interests of Kazakhstan’s citizens.
Q. Where are the opportunities for foreign companies in Samruk-Kazyna’s investment projects? A. Most of Samruk-Kazyna’s investment projects are being carried out in cooperation with foreign partners. In the past, cooperation between Kazakhstan and international investors has been focused on the hydrocarbons sector, but now new areas are opening up. We have signed agreements with foreign companies, including General Electric, China Datang Overseas Investment Central Asia, CGNPC, Dae Jae, Finmeccanica, Chemieanlagenbau Chemnitz, Eurocopter, Çalık Holding and many others. We work with both international financial institutions and commercial banks. As Kazakhstan leaves the crisis behind, the economy is booming, and we need to stimulate investment. Government support for investment includes the introduction of a new tax code in 2009, giving advantages to enterprises in the manufacturing sector. In the first quarter of 2011, investment grew 7.4 percent, with the private sector responsible for almost the entire volume of direct investments. The share of foreign investments exceeded 30 percent.
In the past, cooperation between Kazakhstan and investors has been focused on the hydrocarbon sector, but now new sectors are opening up Invest in KAZAKHSTAN 2011
08_kazak_Kelimbetovinterview MD.indd 19
Transformation into a regional powerhouse
The energy and industry of Kazakhstanâ€™s population have turned the country around during the past two decades, writes Ben Aris
A Gas and oil have played a key role in allowing the republic to develop
huge country the size of Western Europe, Kazakhstan has vast mineral resources and enormous economic potential. But perhaps its biggest boon has been the energy and industry of its people, who in just two decades have transformed this country from an agricultural backwater in the middle of the Central Asian steppe to a regional powerhouse and a major player on the global energy markets. The varied landscape stretches from the mountainous, heavily populated regions of the east to the sparsely populated, Invest in KAZAKHSTAN 2011
Rapid action by the National Bank of Kazakhstan contained the damage from the global financial crisis of 2008, and by 2010 the sector was already starting to recover In response to the crisis, Kazakhstan’s authorities devalued the currency, the tenge, to stabilize the market, and injected $19 billion in economic stimulus. Rising commodity prices also helped to revive Kazakhstan’s economy, which registered seven percent growth in 2010. Barring a dramatic decline in oil prices, strong growth is expected to continue in 2011. Foreign investors are returning not only to the traditional extractive industries, but also to new areas such as trainbuilding and the service sector, which are helping to diversify the economy. At the same time, the key sectors of energy and mining continue to receive investment to drive them forward. The president’s residence in Kazakhstan, Central Asia’s wealthiest state
energy-rich lowlands in the west; and from the industrialized north, with its Siberian climate and terrain, through the arid, empty steppes of the center, to the fertile south. Mineral wealth provides cash, but money alone is not enough to ensure the prosperity of a country. As the republic enters its third decade of independence, the combination of natural-resource wealth and liberal economic reforms are starting to bear fruit. With an average annual gross domestic product (GDP) growth rate of around 10 percent since 2000, the country is among the fastest-growing economies of the world and outpaces all other Central Asian states by far. By 2010, per capita GDP was estimated to have grown more than tenfold since the difficult transition period in the mid 1990s. In 2002, Kazakhstan became the first country in the former Soviet Union to receive an investment-grade credit rating.
Oil and mineral wealth Kazakhstan is the most prosperous of the Central Asian states, and oil has played a key role in its development. The opening of the Caspian Pipeline Consortium link in October 2001, which connects the oilfields in western Kazakhstan with the Marine Terminal on Russia’s Black Sea coast, marked the start of the republic’s rapid growth. In 2008, Kazakhstan began pumping some oil exports through the Baku-Tbilisi-Ceyhan pipeline as part of a drive to lessen its dependence on Russia as a transit country. A pipeline to China opened in late 2005. But the republic is also home to plentiful supplies of other minerals and metals, such as uranium, copper and zinc. Indeed, in the first years following independence in December 1991 – Kazakhstan was the last of the 15 former Soviet states to declare independence – the republic initially earned most of its export revenues from exporting metals. It remains the world’s largest producer of uranium.
New beginnings Quick rebound As in many other nations, the global economic crisis resulted in a lot of damage, but the backdrop of political stability, heavy investment, lower taxes and a transparent business environment have combined to fuel a quick recovery.
The economy remains geared towards the extractive industries, but the government, realizing that its economy suffers from an over-reliance on these, has been making concerted efforts to diversify and modernize the economy with the development of other sectors.
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Kazakhstan’s main centres Russia
Baikonur Cosmodrome is the launch site for Soyuz and other spacecraft
Baikonur Aqtau Aral Sea
Over the past decade, the republic created arguably the region’s most liberal and sophisticated banking sectors. Its high exposure to the international debt markets meant that it was badly wounded when the credit markets started seizing up, as the mortgage crisis in the United States began unfolding and the global financial crisis struck in the fall of 2008. However, rapid action by the National Bank of Kazakhstan contained the damage, and by 2010 the sector was already starting to recover. Kazakhstan has also embarked on an ambitious diversification program. This is the central goal of the National Strategy until 2030, adopted in 1998, and the State Industrialization and Innovation Program until 2015, which was launched in 2003. In 2006, Kazakhstan
additionally announced a major drive to enter the top 50 most-competitive nations in the world within 10 years. With food prices increasing around the world, Kazakhstan will benefit, thanks to its large agricultural sector. The government has also launched programs that are aimed at developing targeted sectors, such as transport, pharmaceuticals, telecommunications, petrochemicals, and food processing. The future of the Kazakhstan economy will be fueled by further integration into the international economic community. To that end, the republic has been building up relations with its neighbors. In 2010, the Customs Union of Russia, Belarus and Kazakhstan was formally launched – the first stage in creating a regional common economic space. Invest in KAZAKHSTAN 2011
Bouncing back This year sees Kazakhstan well on its way toward a robust recovery. By Ben Aris
azakhstan is rebounding swiftly from the worldwide economic downturn, with the country’s economy looking set to surge due to the advent of fresh oil and gas from the Kashagan offshore field. Kazakhstan went into the 2008 crisis early. The republic’s banks had been enjoying triple-digit growth for several years, largely funded by loans and bonds drawn from the international credit markets. So, as the US subprime mortgage crisis unfolded and the credit markets dried up in 2007-08, the Kazakh banks were among the first to suffer. However, thanks to swift action from the National Bank of Kazakhstan (NBK) and more than $4 billion in liquidity support to the banking sector, Kazakhstan came through the storm. First in, first out. After commodity prices – particularly oil – started to recover in 2010, so too has the economy. But the republic is not out of the woods yet and a lot of clean-up work remains to be done. The banking sector still has a backlog of non-performing loans (NPL), though the strong performance of the country’s energy and mining sectors resulted in stronger-than-expected growth in 2010.
Banking regains buoyancy The situation in the banking sector is gradually returning to normal after agreements on debt restructuring at BTA Bank, Alliance Bank and TemirBank. Having fallen hard during the crisis, Kazakhstan’s banking sector is now poised to outperform most of those in neighboring countries as it bounces back, according to investment banks such as Renaissance Capital. Thanks to a progressive reform program in the previous decade, the structure of the Kazakh financial sector is still one of the best in the former Soviet Union and should return to growth once the issue of debt restructuring is resolved. Analysts estimate it will take around another two years for the problems of NPL to be fully worked out.
In the short term, commodity prices will determine exactly how the rest of 2011 pans out. But the unrest in North Africa in the first quarter of the year has already driven oil prices – the key contributor to Kazakhstan's financial health – higher than most had been forecasting at the start of the year. This boost buys the government more time to drive through its wide-ranging reform program. Kazakhstan’s economy grew by seven percent in 2010 and is forecast to continue its recovery in 2011 in the four to five percent range. The services sector is estimated to account for 51.8 percent of the country’s GDP in 2010, with industry comprising 42.8 percent, and agriculture at 5.4 percent. The oil price is expected to average in the order of $90 for 2011, and this will give a boost to budget revenues. Meanwhile, the government is maintaining its extremely conservative oil-price assumption of $65 in the budget, which will almost certainly give it plenty of room for maneuver. In general, as the economy begins to recover, so too should the public finances. Budget revenues totaled $30 billion in 2010 – up 46.5 percent from 2009, and 6.5 percent above 2010 government projections – and the budget deficit was set at $5.5 billion (4.1 percent of GDP). A robust recovery is expected to lead to an improvement in the government’s fiscal position. The state budget for 2011-13 has been adopted with a much lower deficit of 2.8 percent in 2011, based on additional revenues of $2.8 billion from a doubling of the oil export duty in 2011 to $40 per metric tonne. In the clearest sign yet of a return to economic normality, the NBK ended its control of the exchange rate in February and returned to a managed float system. The Kazakh currency, the tenge, is expected to remain relatively stable against the dollar throughout 2011, although there may be some slight appreciation, say analysts. One of the most difficult economic challenges that the country faces is coping with inflation. Consumer price inflation in Kazakhstan in 2010 was in line with Renaissance Capital’s 7.7 percent forecast and was mostly driven by growing global commodity and food prices. The major driver was food prices,
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The financial sector is one of the best in the former Soviet Union and should return to growth once debt restructuring is resolved Invest in KAZAKHSTAN 2011
which grew 10.1 percent and contributed half of the increase, while services and non-food products grew 6.8 percent and 5.5 percent respectively, with roughly equal contributions. On the back of the brightening economic picture, Fitch Ratings revised its sovereign rating on Kazakhstan to ‘positive’ at the start of 2011, while Standard & Poor’s raised its sovereign rating one notch to ‘BBB’. Kazakhstan is slightly behind countries such as Russia and China – where growth is expected to slow over the medium term – but in terms of development, it should continue to close the gap on its bigger cousins to the north and east. The medium-term prospects for strong growth are very good. “GDP was up more than we expected in 2010, owing to the recovery in prices for commodities including oil, gold, copper and uranium,” says Jean-Christophe Lermisiaux, head of research at Visor Capital. “And there is no reason to see this changing for the foreseeable future.” However, he adds that there are disparities between the natural resources sector and other sectors of the economy – in particular the banking sector, which is “still convalescing”.
Energy potential Oil and gas remain the engine of the economy. Kazakhstan is already among the top 20 oil producers in the world, and production continues to pick up. Close on the horizon is the launch of the first phase of Kashagan Field – the world’s largest offshore oil-and-gas project – which is expected on, or possibly ahead of, schedule in the first half of 2013. The start of production from this field will be a game-changer, as it will massively boost the country’s production and increase its geopolitical standing.
However, the development of the extractive industries is shifting from simply lifting production levels to expanding distribution, increasing efficiency and adding more value. The major event in the oil-and-gas industry in recent years has been the opening of the Central Asia-China gas pipeline and new oil pipelines linking oilfields from western Kazakhstan to China. Arguably, building pipelines to new markets has a bigger impact on the economy than finding new and bigger fields – Kazakhstan’s eastern neighbor remains the primary market for its raw materials. As well as underpinning global demand for commodities, China accounts for 30 to 40 percent of Kazakhstan’s exports. Construction of the Western Europe-Western China highway, and the planned rail link from Zhetigen near Almaty to the Chinese border, will allow Kazakhstan to further increase its exports. The strong performance of the natural resources sector in 2010 has not been matched by an expansion across the board, and the country is unlikely to see the kind of consumer boom that it enjoyed in the run-up to the global economic crisis – especially in the real-estate sector. Banks have remained cautious when making loan decisions, and clearing the backlog of unfinished real-estate projects is only now nearing completion. The collapse of the property market was painful and hit the financial sector hard, as it was heavily exposed to this market. However, helped by government funds allocated through the anti-crisis program, most of the lost ground has been recovered. As the sector slowly returns to health, property developers are likely to start considering the first post-crisis projects in 2011. “2010 was a transition year for Kazakhstan; 2011 will be the year of big decisions,” says Lermisiaux.
Country climbs World Bank’s ‘Doing Business’ rankings The government’s efforts to improve Kazakhstan's rating in the World Bank’s ‘Doing Business’ survey started in 2008 with the establishment of a working group headed by deputy prime minister Erbol Orynbayev, and these were rewarded in the 2011 report. Among the world’s economies, Kazakhstan improved its business conditions the most during the past year, moving up 15 places in the
‘ease of doing business’ rankings to 59th spot among 183 countries, according to Doing Business 2011. The republic improved conditions for starting a business, obtaining construction permits, protecting investors and trading across borders. Reforms have been made easier to implement, thanks to the general rise in prosperity in Kazakhstan. Overall, macroeconomic stability
and high oil prices allowed Kazakhstan to achieve economic growth of around 10 percent annually over the past five years, according to the World Bank's ‘Index of Economic Freedom’. Kazakhstan's ‘ease of doing business’ ranking also improved slightly in the 2010 report, reflecting improvements in three key indicators. The most notable improvement was in the ‘dealing
with construction permits’ indicator, owing to a significant cut in the cost from $1,431 to $119. Kazakhstan cut its corporate tax rate from 30 percent to 20 percent in 2009. The corporate tax rate will be further reduced to 17.5 percent in 2013 and 15 percent in 2014. The country also reduced the rates for labor taxes and mandatory contributions paid by employers, and introduced a new tax code.
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The newly built Esentay complex in Almaty, which includes the highest tower in the city
Kazakhstanâ€™s economic and investment policy The Government of Kazakhstan continues to pursue its economic priorities under its 2030 Strategy and 2020 Strategic Development Plan. The outcome of the presidential elections last April provided a powerful impetus to deepen the ongoing reforms, enhance the Governmentâ€™s institutional support for entrepreneurship and increase its efficiency
n recent years, much has been done to create a favorable business climate in Kazakhstan. Today, the number of active small and medium-sized businesses exceeds 675,000, accounting for one-third of the GDP and providing jobs for more than 25 percent of Kazakh citizens. Even during the time of the worldwide financial crisis, the Government did not ignore domestic entrepreneurs, developing various tools of business stimulus, while the legal framework for business support is being improved all the time. Roadmap 2020, a large-scale initiative to spur entrepreneurship in modern Kazakhstan, has been
implemented since 2010. In 2011, under the program, a credit portfolio of domestic entrepreneurs will to be subsidized to the tune of $2.5 billion. With the operation of the Customs Union, extensive opportunities have opened for entrepreneurship. In 2010, bilateral trade with Russia increased by 27.2 percent, while trade with Belarus rose by 55.8 percent. Further increases are expected once internal borders are eliminated within the Union and progress is made in setting up a Single Economic Space. Kazakhstan aspires to become a trade, logistical and business hub for Central Asia. All these efforts come under one strategic task set forward by the President. His goal: to raise Kazakhstanâ€™s GDP per capita to $15,000 and make it a high-income country. Such a task foresees seven percent economic growth over the mid-term, mostly through processing industries. This means that investments to fixed capital during the next five years will have to rise by at least 50 percent. The Government of Kazakhstan pursues a favorable investment climate, maximum openness and stability. Major joint projects have been launched with leading foreign
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companies, with the level of foreign investment reaching $130 billion since 1993. A large portion of foreign investment, about 33 percent, goes to the mining industry, mainly concerning oil and gas. From 1993 to 2010, inward manufacturing investment amounted to $12.5 billion, or about 10 percent of the total. Kazakhstan has adopted the five-year State Program for Accelerated Industrial-Innovative Development, which is aimed at shifting investors’ focus from extractive industries toward the establishment of export-oriented and high-tech and innovative industries. The program is designed to ensure industrial growth through the implementation of 469 large investment projects and the opening new production facilities. The estimated total of direct expenditure for investment projects under the Industrialization Program is in excess of $40 billion. Of particular importance is the implementation of niche projects for manufacturing products that are not yet produced in Kazakhstan – investors who are interested in these industries and in such projects will be specially supported by the Government of Kazakhstan. The establishment of the Customs Union will create a free and unified goods market of 170 million consumers. Within the Union there are additional opportunities for business, including the reduction of transactional costs and transitory expenses, and the release of substantial working capital, which can be used for developmental purposes. Within the framework of the CES, the free movement of goods, investment capital, services and labor will be ensured. Economic integration will facilitate a coordinated macroeconomic policy to enable competition, while streamlining public procurements as well as government subsidies for industry and agriculture. These reforms are all aimed at creating favorable conditions for domestic exporters to access the transport infrastructure of partner countries, thereby reducing transport costs and improving competitiveness of Kazakh products both inside and beyond CES markets. The Customs Union and CES are designed to establish favorable conditions and encourage the development of new industries. It is designed to expand to include other states in the region and, if conditions warrant, even to establish a monetary union with a common currency.
The Kazakhstan Government pursues a pro-business, yet equitable and predictable, corporate tax policy that allows businesses sufficient income for further growth and development while meeting the needs of our social policy. In light of the current economic situation, further gradual reductions are planned. The Government has also been taking significant steps to combat corruption and form an adequate legislative framework to meet the contemporary demands of free-market entrepreneurship. These reforms have brought about results. According to the World Bank’s Doing Business 2011 report (see page 26), Kazakhstan was listed in the top 10 countries for creating a favorable environment for entrepreneurship. Further reforms and measures aim to improve the business climate in Kazakhstan. The focus will be made on reducing administrative barriers and completing reform of the legal system. Kazakhstan also plans to improve its economic attractiveness by prioritizing much-needed infrastructure
Kazakhstan was listed in the top 10 countries for creating a favorable environment for entrepreneurship investment projects. In the transportation sector, these include: the modernization of airports in Semey and Ust-Kamenogorsk; the construction of modern port facilities in the Shulbinsk gateway; highway reconstruction and expansion; and several major railway projects. Another massive, but necessary, investment is needed in the country’s electrical power grid. Modernization, renovation and construction of new generating capacity will require more than $5 billion by 2014 – more than $1.7 billion of that co-financed from the public budget. The development of ‘green’ energy projects is also of particular interest, with a plan to boost electricity production from renewable resources. In total, more than $7 billion will be invested in the electric power industry in the medium term. These much-needed infrastructure investments will help speed Kazakhstan’s overall development, trade integration and position our nation for further growth in the global economy of the 21st century. Invest in KAZAKHSTAN 2011
Democracy, politics and society
According to the Central Elections Commission, 89.9 percent of the population turned out to vote in Aprilâ€™s election, as observed by many international monitors Invest in KAZAKHSTAN 2011
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At an Astana press conference the day after the elections were held, Tonino Picula, head of the short-term OSCE observer mission to Kazakhstan, told journalists: “Kazakhstan should be praised for its economic growth, but unfortunately this election is a sign that its democratic processes have not grown at the same pace.” In particular, there was rather strong pressure within state institutions, such as universities, hospitals and military establishments, to go out and vote for the incumbent. The Council of Europe Parliamentary Assembly observation mission stated that “PACE has observed elections in Kazakhstan in the past and is pleased to state progress from one election to another in this country. The delegation is united in its view that despite certain imperfections that invariably
ncumbent Nursultan Nazarbayev easily and predictably won the April presidential election, brought forward from 2012. Nazarbayev has been leading Kazakhstan since he deftly managed the country’s declaration of independence from the Soviet Union in December 1991. The latest election raised the president’s share of the vote from an already high 91.2 percent in 2005 to 95.5 percent in 2011. This figure was verified by many observers and human rights NGOs, Presidential inlcluding the International Republican Institute (IRI), which has its head office in Washington DC. In February 2011, the IRI together with the National Endowment for Democracy issued a report, the 2011 Poll Survey of Kazakhstan Public Opinion, which indicated a 90 percent approval rate for the incumbent. The elections paved the way for the government to make changes and continue the pace of reforms. Kazakhstan is experiencing an uptick in its standard of living, continued Nursultan Nazarbayev recovery from the global economic crisis, and relative freedom compared to neighboring states in Central Asia. The official turnout figure of 89.9 percent was also very (7,850,958) high, given the low-key electoral campaign and the lack of any serious challenger to the president. None of his three rivals took more than two percent of the vote. The closest runner-up was Gani Kasymov, with just 1.9 percent. Most of the observers from the inter-governmental organizations, including the Commonwealth of Independent States (CIS), Collective Security Treaty Organization (CSTO) and Organization of Islamic Cooperation (OIC), announced that the elections were free and fair. The Office for Democratic Institutions and Human Rights (ODHIR) observer mission, which usually gives a more cautious assessment of the elections in Zhambyl Akhmetbekov Kazakhstan, acknowledged that “compared to the last presidential election, media provided more equality in (111,924) covering candidates in the news programmes... Election day was calm.” At the same time, the ODIHR made a number of criticisms and suggestions for improvements to the electoral process, and issued a critical report on the elections.
Assembly of People of Kazakhstan, Daily Times
After securing 20 years of economic and political stability for Kazakhstan, Nursultan Nazarbayev won a landslide victory in April. Some have questioned whether the democratic process has truly evolved, but there’s no denying the numbers that have turned out to vote. By Margot Linsky
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Kazakh leader Nursultan Nazarbayev won the country’s recent presidential election with an overwhelming 95 percent of the public vote
mar all elections in any country, the outcome of this vote truly reflects the will of Kazakhstan’s electorate.” Some American experts and observers were less critical of the election, arguing that Nazarbayev truly has the trust of his people. Ariel Cohen, senior research fellow at Heritage Foundation in Washington DC, said after the election: “Nursultan Nazarbayev has a reserve of trust from the population. I, to be honest, am not surprised by such figures. “The people of Kazakhstan look at their neighbors such as Kyrgyzstan and Tajikistan, and they also look at the Middle East. They do not want to undergo any revolutions, they don’t want to have their houses burned or see private property destroyed. On the whole, I believe that President Nazarbayev is well supported.”
Richard Weitz, director of the Center for PoliticalMilitary Analysis and senior fellow at the Hudson Institute in Washington DC, was one of a number of monitors invited to observe the April 3 election. “Like other monitors, I met with the leaders of Kazakhstan’s major political parties, discussed the ballot with officials, visited polling stations, and talked with dozens of voters,” wrote Weitz in The Diplomat newspaper. “I also exchanged views with monitors from the Organization for Security and Cooperation in Europe – which fielded the largest mission – as well as with other observer teams, foreign diplomats, and the media. At the precincts I visited in Almaty, for example, rules regarding the secrecy of the ballot and the exclusion of electioneering or other inappropriate behavior in voting areas were all followed scrupulously.”
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Tassos Sitsas, general manager, Japan Tobacco International (JTI), Central Asia What prospects does Kazakhstan offer investors? Kazakhstan has created a good environment for foreign investment. For most FMCG companies, the Central Asian market is growing because of its demand for high-quality international brands.
For JTI, Kazakhstan is considered an ideal export hub for Central Asia. Its political stability and efficient and predictable tax system underpin investors’ commitment to this country. What investments has JTI made in the country? Since 1993, JTI has invested around $120 million – a significant portion of this in the past three years – to create state-of-the-art manufacturing facilities and to develop our people. Additionally, the company has been one of the
The city of Almaty had lower turnout figures than much of the country. Many people, especially those in their 20s and 30s, said before the poll that they did not plan to vote. But while the Almaty turnout was comparatively low, a respectable 68.5 percent of the electorate is still reported to have voted in the city. Meanwhile, at the town of Akkol in the Akmola region, where the regional turnout was 89.7 percent, a crowd of around 40 residents was gathered outside the polling station at the Palace of Culture as a busload of foreign journalists arrived. “For Nazarbayev!” said one woman, when asked for whom she voted. “Because he is so good for the country. He keeps the peace and our standard of living goes up year by year. We want him to stay the president for another 20 years.” In the Palace of Culture’s lobby, a stand was set up to sell snacks, meat, and dairy products at discounted prices, a fairly common sight at polling stations. In other towns, voters left with small electrical appliances such as kettles and hand blenders. Nazarbayev himself voted early in the day at the National Library polling station on Astana’s left bank. Soon after the early elections were announced, Nazarbayev said that he did not plan to campaign actively, but would stand on his record
most proactive international investors in the broader social sphere. JTI has supported veterans, the disabled, low-income farmers and other vulnerable sectors of society. JTI’s holistic approach to social programs was recognized in prestigious national awards, such as Paryz and Altyn Zhurek. What hopes does JTI have for its investments in Kazakhstan? JTI strives to maintain its status as a credible partner for the government. JTI’s operations are
not only the source of significant investment in the country’s manufacturing and industrialprocessing sector, but also provide significant revenues for the government – to date, totaling more than $400 million in taxes since entering the market. JTI also believes that establishing a sustainable dialogue and consultation mechanism between state authorities and the business community is instrumental in finding solutions to interrelated issues, and contributes to both parties.
over the past 20 years. However, the presidential Nur Otan party mounted an effective campaign on his behalf. At his victory rally in Astana, Nazarbayev seemed untroubled by criticism of the election process as he prepared for his fourth term as president. “More than 90 percent for a candidate. Why, this is a sensation for Western countries,”
Most of the observers from inter-governmental organizations agreed the elections were free & fair he said to supporters, the news agency RIA Novosti reported. “If polls usually divide a nation into various party blocs, we have united. While the word sees bloodshed and ethnic conflict, we – all the ethnic groups and religions of Kazakhstan – are one.” Timothy Ash, head of emerging markets research at Royal Bank of Scotland, writes in a note that Nazarbayev’s re-election, “will help reassure/reaffirm political stability in the country. The longer-term issue, though, remains around the succession to Nazarbayev, given he is currently 70 years of age.” Invest in KAZAKHSTAN 2011
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Future prosperity through diversification
Plans include the development of a domestic pharmaceutical industry
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In pursuit of diversification, the country has instigated initiatives to encourage the growth of non-resource sectors. By Ben Aris
il is essential to the Kazakh economy, but to ensure long-term prosperity, the country must diversify away from raw material extraction. The Kazakh government is well aware of the problem and had already launched an extensive modernization program, even before the 2008 global economic crisis made diversification imperative. President Nursultan Nazarbayev laid out the main goals of Kazakhstan’s modernization program in his 2010 State of the Nation speech. The president said that a large part of the $8-billion-a-year transfers from the National Fund – a reserve fund created from oil revenues to the state – would be directed to industrialization programs. Kazakhstan will invest up to $20 billion in the non-resource sectors of the country over the next five years, but the goal is to use this investment to prepare the ground for bringing in more foreign direct investment, which, it is hoped, will then take the lead in diversifying the republic’s economy.
Projects identified A list of priority projects has been drawn up by the state agency Samruk-Kazyna, which holds much of the state’s assets and has been consulted for much of the industrial reform policy. All in all, the industrialization program will include 162 projects, with a total budget of KZT6.5 trillion ($43 billion), and the state expects that more than 200,000 jobs will be created. Samruk-Kazyna has adopted a two-pronged approach. First, the state agency will help existing companies to increase the value-added component of their production, and so drive the processing and associated
manufacturing industries. The second line of attack is to build the infrastructure to support the creation of new businesses and technologies. For example, among the larger investments are: upgrading all three petrochemical plants in Kazakhstan by 2014; building a new gas-processing plant; finishing the Balkhash, Mainak and Ekibastus GRES-2 power stations; and building a string of locomotive plants that can supply the republic and its neighbors with new trains. To assist with the sector-specific reforms, the president called for the simplification of the bureaucracy that surrounds setting up a business. Among other measures, the president said the costs of starting businesses in Kazakhstan should be cut by 30 percent in 2010, and another 30 percent in 2011. A large part of this goal has already been achieved, and the World Bank says in its Doing Business 2011 report that Kazakhstan has made more progress than any other country in the world. Other initiatives to extend this progress include: accession to the World Trade Organization; ongoing integration with other Commonwealth of Independent States (CIS) countries, in particular via the new Customs Union with Belarus and Russia; developing a law for the country’s Special Economic Zones; and creating a roadmap for entrepreneurship development up to 2020. Michael Weinstein, director of the European Bank for Reconstruction and Development (EBRD) in Kazakhstan, which has joined the diversification effort and committed $1 billion in capital to support the drive, praises the government’s more pragmatic approach to carrying out reforms. “In the past, there have been various diversification programs that for one reason or another did not succeed,” he says. “The new program is more promising. Momentum is building. There is a window of opportunity to diversify – post-crisis, but before oil prices go through the roof again.” Invest in KAZAKHSTAN 2011
“Rather than looking at high-tech, the government is targeting the things that the country needs” Power generation is an important area for investment, such as at the nuclear reactor facility in Kurchatov
Agriculture is one of the key sectors with huge development potential
This is not the state’s first attempt to remake the shape of the economy, but experts believe that the new program is a lot more likely to succeed. “The government has set its sights a bit lower this time – the priority sectors that President Nazarbayev has selected are the right ones,” says Weinstein. “Rather than looking at high-tech, the government is targeting sectors such as pharmaceuticals, chemicals, petrochemicals, metals, construction materials and fertilizers – the things that the country needs.” Key sectors that the government hopes to develop: • Agriculture The territory of Kazakhstan is the size of Western Europe and agriculture has huge potential. The basics are already there, but most of the supporting infrastructure is not. The state plans to increase productivity in agriculture and processing of agricultural products by a factor of two by 2014, through the application of new equipment and new technologies. At the same time, the state would like to increase exports of agricultural products to Russia, Belarus, Central Asia and Middle Eastern countries. “Building the value chain in agriculture is important. The agriculture sector is difficult to invest in, but we hope [the EBRD’s participation with] investment will encourage other companies to become more transparent,” says Weinstein.
• Infrastructure Support for infrastructure of all types is crucial. In the energy sector, the EBRD and other international organizations helped to finance the construction of a new north-south power line to address the imbalance between the ends of the country, while the state is also investing in additional power-generating capacity. • Industry The state will use various means to boost non-oil production and hopes to increase the share of non-oil exports to 45 percent from 27 percent in 2010. Three new locomotive plants are in operation, or close to it, and more engineering projects are in the pipeline. At the same time, the state will encourage investment to decrease energy consumption per GDP unit by 25 percent, while increasing productivity in processing industries by a factor of two. The main focus will be on boosting the share of processing industries in GDP to at least 13 percent – from 11 percent in 2009 – and increasing the share of innovation-driven enterprises to 20 percent from four percent. • Construction materials Construction and real estate were major economic drivers before the crisis, but development still relies heavily on imports. Another plank of the diversification program is to develop the domestic construction materials sector. The president called for raising the share of domestically produced construction materials to 80 percent by 2014.
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The best is yet to come Message from Asset Issekeshev, Deputy Prime Minister – Minister of Industry and New Technology Blessed with bountiful natural resources and situated between several important trade routes, Kazakhstan is on the path to growth and has much to offer potential investors. Kazakhstan saw strong growth across most industrial sectors in 2010. The government plans to build upon this in the future, increasing production, helping new sectors to emerge, and attracting more foreign investment and new technologies. Overall, industrial production grew by 10 percent in 2010, with increases in industries including manufacturing, mining and power generation. Last year was also highly significant in that it saw the launch of the Forced Industrial-Innovative Development Program, a four-year initiative designed to transform Kazakhstan into a modern, post-industrial economy. Another important step was Kazakhstan’s entry to the Customs Union, where it is a founding member alongside Russia and Belarus.
The industrialization program focuses on four priority sectors of the economy: the areas where Kazakhstan has historically been strong – in particular the extractive industries; related areas such as machine building and construction; export-oriented sectors such as agribusiness and light industry; and advanced technologies, including IT, space technologies and nanotechnology. State holding company Samruk-Kazyna is working with strategic investors – both domestic and foreign – on large-scale industrial projects such as the expansion of Kazakhstan’s three refineries. These major projects will have a knock-on effect in providing new opportunities and markets for domestic small and medium-sized enterprises. Foreign investment and technology transfer is important for the success of the industrialization program. The government has made creating new partnerships with foreign companies and attracting foreign investment a priority. One success story so far has been the
• Pharmaceuticals President Nazarbayev is keen to develop a domestic pharmaceutical industry and in early 2009, launched an ambitious program aimed at raising the volume of domestically produced medicines consumed to half of the total by 2014. This means building many new plants in a relatively short time, and the government is actively looking for foreign investment to facilitate the program. The furthest advanced project is that of Chimpharm – by far the biggest domestic player – to build a new tablet factory in Astana. This will be the first
launch of the locomotive assembly plant by GE Transportation and Kazakhstan’s national rail company Kazakhstan Temir Zholy. To further encourage investment, six free economic zones have been launched with generous incentive packages for domestic and foreign investors. Kazakhstan attracted a total of $13.1 billion in foreign direct investment in the first nine months of 2010 – a 1.1 percent increase year on year. Investments outside the natural resources sector were 2.5 times higher than in 2009. The first reason for Kazakhstan’s attractiveness as an investment destination is its endowment of natural resources, including oil, gas, coal, uranium and numerous metals. Overall, the country is sixth in the world in terms of natural resources. While Kazakhstan has a population of just 16 million, the launch of the Customs Union in 2010 gives companies operating in
the country access to a market of more than 170 million people. In addition to its historic closeness to Russia, Kazakhstan is positioned on a geo-strategic axis between Russia, China, Europe, the Middle East and South Asia. The Kazakh government has been working steadily to provide a good investment climate. This was reflected in the World Bank’s Doing Business 2010 ranking, where Kazakhstan was one of the top reformers, leaping 15 places. In 59th place, Kazakhstan is close to its goal of entering the top 50 countries on the index.
plant of any kind to be located in the new capital. The Kazakhstan Development Bank has already provided the funding and is also backing a second project to expand production facilities in Shymkent. Other players – including GlobalPharm, Nobel AFF and Romat – are reportedly planning new lines or new plants. “Industrial development is our chance in the new decade for new opportunities for our country,” said President Nazarbayev, in his State of the Nation speech. Invest in KAZAKHSTAN 2011
Enhanced links boost trade opportunities By building stronger economic relations with other countries, both near and further afield, Kazakhstan is attracting more foreign direct investment and positive growth. By Tim Gosling
efore independence, Kazakhstan’s trade of mainly metals and ores, wheat and a modest quantity of oil was dictated from Moscow, with most roads leading north. The border with China was sealed. Twenty years later, with commodities powering economic growth of eight to nine percent each year, the Kazakh government is working to diversify the economy, and the country now offers a spectrum of opportunities for investment and trade in non-energy sectors.
Trade surplus Apart from a temporary setback in 2009, provoked by the global economic crisis, Kazakhstan has seen its foreign trade expand aggressively every year since 2000, when total exports were just $9.86 billion, according to the United Nations. By 2005, that figure had leapt to $30.5 billion, and then to $60 billion in 2010. That year, Kazakh exports and imports of merchandise totaled $90 billion – illustrating the strong trade surplus that the country enjoys. Due to Kazakhstan’s rapid development of its oil and gas deposits – as well as the infrastructure to export it – energy leads the
country’s trade ties. Oil and oil products accounted for 59 percent of exports in 2009. The country’s traditional role as a supplier of metals and ores remains strong, too, with this sector making up 19 percent of exports. However, the government’s efforts to boost the chemicals industry are paying off, with the sector accounting for five percent of the export market. Foreign sales of machinery are weighing in at three percent, while grain is becoming a staple of foreign trade.
Widening the net Powering this boom in foreign trade is Kazakhstan’s widening economic relations with countries both Asian and European, on top of the strong ties it retains with the other members of the Commonwealth of Independent States (CIS). China is a leading light, and last year for the first time became the number-one export destination for Kazakh goods. Kazakhstan’s eastern neighbor absorbed 17.1 percent of Kazakh exports, as it looked to Astana to help build the Xinjiang region into an industrial hub. The same year, Italy took 16.2 percent of Kazakh exports, with Russia the third biggest importer at 8.1 percent. However, there are many other countries increasing trade with Kazakhstan, as Astana looks to forge stronger commercial ties with Asian powerhouses such as India (0.4 percent of foreign trade in 2009) and South Korea (0.7 percent). Reflecting this strategy, Grigoriy Marchenko, chairman of the National Bank of Kazakhstan (NBK), said in January that the country was close to signing a currency swap
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Tengiz oil and gas refinery plant in western Kazakhstan. Energy leads the countryâ€™s trade ties, but other sectors are expanding
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China becomes Kazakhstan’s leading trading partner With a superpower on its doorstep, Kazakhstan looks set to reap dividends from its partnership with its Eastern neighbor. China’s government has set high targets to develop its western Xinjiang region into an industrial hub, including $100 billion of investment in 23 new infrastructure projects. Kazakhstan will be a key supplier for this huge scheme. The country’s share of foreign trade in the Xinjiang region in 2008 reached 40 percent, giving the Central Asian nation unrivalled exposure to what is expected to be one of China’s fastest-growing regions. Almost all Kazakhstan’s exports to China are raw materials, and China overtook Italy as the country’s leading export partner in 2010, accounting for 17.1 percent of all Kazakh exports. Oil and oil products made up 45 percent of exports in 2009. Mining products – ore, slag and ash – accounted for 16 percent; iron-based metals, 15 percent; copper and brassware, 13 percent; and chemicals, seven percent. Kazakhstan’s share of imports varies from 10 percent to 60 percent of total Chinese imports across different product types. Large-scale investment in Kazakhstan appears to be part of China’s global strategy to secure energy sources for its growing economy. China National Petroleum Corporation (CNPC), the state energy company, is the largest corporate investor in Kazakhstan, with investments amounting to around $7 billion to date. Total Chinese investment
over 1991-2010 reached $13.5 billion, with the majority directed to the energy sector and energy-related services. Part of this funding was provided in the form of loans and credits, giving China access to Kazakhstan’s mineral resource base. Investment from Asia is not restricted to China, however. Japan, India and South Korea are becoming increasingly important partners. The state nuclear holding company, Kazatomprom, teamed up with Toshiba and Sumitomo in 2010 to mine rare earths in ventures worth $300 million, while Japanese companies have been busy looking at Kazakh agribusiness. India has held state-level talks on civil nuclear cooperation, while PNB – which became the first Indian bank to enter the Kazakh market when it bought Dana Bank in December – plans to expand its network, and said in February that: “The close relationship between India and Kazakhstan is one of the factors in our decision to [come to Kazakhstan].” Meanwhile, in April, LG Chem – one of South Korea’s largest chemical manufacturers – announced plans to invest up to $1.3 billion in the second stage of an integrated chemical complex in the Atyrau region of Kazakhstan. When it comes to sectors, investment flows remain dominated by oil and gas projects, which took in close to half of foreign direct investment (FDI) in 2010. Mining took a large chunk out of the total, but manufacturing (including
chemicals), retail and transport and communications infrastructure all attracted healthy volumes, too. This pattern reflects the government’s recognition that it needs to use the opportunity offered by energy-powered growth to diversify the economy. Kazakhstan launched a long-term project for Diversification of Kazakhstan’s Economy in 2004. The European Bank for Reconstruction and Development announced it was willing to invest $1 billion to help the program in 2010. This strategy should open further trade and investment opportunities. As the Organization for Economic Cooperation and Development says: “Kazakhstan has clear competitive advantages in non-energy sectors,” identifying agriculture, chemicals and information technology (IT) as among the most promising. Kazakhstan’s agricultural sector has extensive arable land resources, high regional demand prospects, growing domestic consumption and an absence of distorting government support in most agribusiness sectors. Specifically, the grain, meat and dairy subsectors are where Kazakhstan shows the greatest potential to successfully compete on global markets. The largest of the agrichemicals sectors in terms of volume and market value is the mineral fertilizers sector. Kazakhstan has all the basics in place for developing its fertilizer production: deposits of four billion to 15 billion
tons of phosphate rock, significant reserves of natural gas and sulfur, and low-cost access to ammonia. Moreover, with a low current level of fertilizer use, the country’s large potential domestic market remains untapped. It also has major market opportunities in the growing neighboring economies of Central Asia, China and India. The IT sector in Kazakhstan is nurtured by domestic demand and global requirements, but is still relatively small. The country has strong potential for the provision of IT outsourcing. The government
President Nursultan Nazarbayev with Chinese Premier Wen Jiabao
of Kazakhstan has made a commitment to enhance education, particularly in IT. With the low cost of labor compared with key regional competitors such as Russia and existing skill levels, the IT sector is taking advantage of strong demand for its services from government, local businesses and foreign investors already based in Kazakhstan. A high level of broadband penetration and mobile connection compared with its neighbors also make Kazakhstan a potential platform for IT businesses in Central Asia.
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Foreign direct investment in 2010 – top 12 originating countries ($m)
British Virgin Islands
By far the largest slice of inflows originated in the Netherlands, although a large percentage can be traced to corporates around Europe
Source: National Bank of Kazakhstan
agreement with China to ease financial transactions and trade between the two countries, and a similar deal with South Korea was in the works. At the same time, trade with the developed world is growing. The United States was Kazakhstan’s fifth largest partner in 2009, accounting for three percent of imports and exports, according to the European Commission, while as a bloc, the European Union is by far Kazakhstan’s biggest trade partner, with 32 percent.
Investment shadowing trade Not surprisingly, this boom in trade has sparked a similar dynamic in foreign direct investment (FDI) flows into Kazakhstan over the past decade, as investors have rushed to pump cash into the country’s developing sectors. In 2006, FDI inflows totaled $6.3 billion, according to the UN, but had swollen to $15.8 billion by 2008, with the uplift being particularly driven by oil and gas investments. According to
the NBK, 2010 saw a huge rebound after a disappointing 2009, with FDI of $20 billion. By far the largest slice of those inflows ($8.1 billion) originated in the Netherlands, although a large percentage can be traced to corporates around Europe. Investments officially originating in the Netherlands include those by PricewaterhouseCoopers, AT&T and Unilever. In addition, Royal Dutch Shell has a large investment in the Kashagan oilfield, while Dutch banks such as ABN Amro also made significant commitments. France leads investors from outside the Netherlands – a trend sealed by a meeting in October 2010 when French president Nicolas Sarkozy visited Astana to agree $6 billion in trade and investment deals with Kazakh president Nursultan Nazarbayev. Among the 24 deals announced were contracts with aerospace group EADS, engineering group Alstom and energy firm Areva, which will build a nuclear materials assembly plant in Kazakhstan. INVEST IN KAZAKHSTAN 2011
Leadership in conflict resolution Kazakhstan’s stewardship of the Organization for Security and Cooperation in Europe (OSCE) reinvigorated the search for peaceful solutions to frozen conflicts. The country is continuing its leadership role as chair of the body’s Forum for Security Cooperation, which will carry on its work on conflict resolution – particularly in former Soviet countries. By Nora FitzGerald
azakhstan has seen a banner year in foreign affairs after its successful chairmanship of the Organization for Security and Cooperation in Europe (OSCE), the premier regional security organization on the Eurasian continent. The country was the first post-Soviet republic to chair the 56-nation organization and it went on to host the first OSCE summit in 11 years, which culminated in a two-day meeting held in Astana in December. Kazakhstan, as OSCE chair, also had a major role in alleviating a violent uprising in neighboring Kyrgyzstan, and brought some largely forgotten conflicts in the former Soviet Union back onto the international agenda. “We realize that the way to a true Euro-Atlantic and Eurasian community with united and indivisible security will be long and thorny,” said Kazakhstan president Nursultan Nazarbayev. “We intend to raise the level and quality of security and understanding between our states and peoples.” Kazakhstan’s push for the chairmanship of the OSCE was backed by Germany, Russia and Spain, despite some initial skepticism about the ability of a fledgling democracy of 16 million people in Central Asia to handle the responsibility. By the end of 2010, as Kazakhstan was handing over the chairmanship to Lithuania, there were widespread plaudits for its skillful diplomacy, which came to the fore during the Kyrgyz crisis – a conflict that threatened to descend into civil war. Kazakhstan – working with the US and Russia – was critical to a negotiated settlement between the then-president Kurmanbek Bakiyev and Roza Otunbyeva, who led the revolt against him and subsequently became president. Kazakhstan
also helped to organize the dispatching of a group of unarmed police officers, hailing from across the OSCE, to continue monitoring events on the ground in Kyrgyzstan. Julie Finley, a former US ambassador to the OSCE who initially opposed Kazakhstan’s bid, said she was impressed with the country’s stepping out as a major player in international affairs. “Kazakhstan has knocked my socks off,” she said at a conference at the Center for Security and International Studies in Washington DC. “It has been open and outgoing in its leadership. It has been centered on what has been going on in Kyrgyzstan. It has been solid and professional from the get-go.” Kazakhstan held more than 150 events associated with its chairmanship, and the country’s Foreign Minister and OSCE chairperson-in-office Kanat Saudabayev made more than 40 visits to various countries and regions. The crowning glory of Kazakhstan’s chairmanship was the summit in Astana, the country’s glittering capital. The summit did not reach a final agreement on conflict resolution, an effort that Kazakhstan focused on the so-called frozen conflicts in the former Soviet Union. Before the summit, Chairman Saudabayev had visited the breakaway territories of South Ossetia and Abkhazia in Georgia, as well as the disputed territory of Nagorno-Karabakh between Armenia and Azerbaijan, and the separatist region of Transdniestr in Moldova. Despite Kazakhstan’s best efforts, the positions of some of the other member states were too intractable to allow for a diplomatic breakthrough. There were stand-offs between the US and Russia over Georgia, and between Armenia and Azerbaijan over Nagorno-Karabakh. Nonetheless, Kazakhstan’s efforts gave new life to the search for peaceful solutions to these protracted and debilitating conflicts. This year, Kazakhstan will build on its leadership role within the OSCE as chair of the body’s Forum for Security Cooperation, which will continue the country’s work on conflict resolution, particularly in the former Soviet Union. President Nazarbayev also tabled a series of less contentious proposals, such as creating an ecological forum and a body to help fight transnational crime – items that will form part of the OSCE’s agenda in 2011. Kazakhstan will remain deeply involved in the OSCE’s leadership group as a
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President Nazarbayev welcomes US Secretary of State Hillary Clinton to the OSCE Summit in Astana
â€œKazakhstan has been open and outgoing in its leadership. It has been centered on what has been going on in Kyrgyzstan. It has been solid and professional from the get-go.â€? Julie Finley, former US ambassador to the OSCE Invest in KAZAKHSTAN 2011
Yerzhan Kazykhanov, Foreign Minister of the Republic of Kazakhstan Kazakhstan has maintained excellent relations with its traditional partners, Russia and Central Asian countries, while forging new relationships with countries further afield, particularly in Europe, Asia and America. I am pleased to say that Kazakhstan’s international profile has soared recently, as it held the rotating presidency of the Organization for Security and Cooperation in Europe (OSCE) in 2010, and this year is chair of the Shanghai Cooperation Organisation (SCO) and president of the Organization of Islamic Cooperation (OIC). Our contributions to regional security include the Kazakh government’s assistance to Afghanistan, supplying food and rebuilding infrastructure. We have also agreed to pay $50 million to
fund the education of Afghans in disciplines needed in the country. Kazakhstan’s positive international image has helped us to demonstrate to investors what the country has to offer, both in terms of economic potential and the business climate. Since independence Kazakhstan has been open to foreign investors, and has seen major commitments by companies from the US, Russia, China, France, the United Kingdom and other parts of the world. Thanks to our good relations with our neighbors, we are an important state for transit. We are investing in new road and rail links, with new lines to China, and to Iran via Turkmenistan due to open in 2011. We also serve as a transit state for oil and gas exports from our Central Asian neighbors to Russia and China,
member of the Troika, which also includes the current chair, Lithuania, and the 2012 chair, Ireland. President Nazarbayev says Kazakhstan’s chairmanship of the OSCE was a rich experience, not only for the country’s leaders and diplomats, but also for its people. “The OSCE summit in Astana has positively influenced Kazakhstan. It has united our nation, strengthened belief in our ability to resolve incredibly difficult challenges and achieve our highest goals,” he says. Kazakhstan also focused on security in Afghanistan, and increased its role in assisting the international coalition led by the US. Kazakhstan expanded its post-2001 grant of over-flight rights to include military supplies and personnel, not just non-lethal cargo. And in November, it agreed to send a contingent of troops and instructors to Afghanistan. This year, Kazakhstan is continuing its international leadership role as it assumes the chairmanship of the Ministerial Conference of the 57-member Organization of the Islamic Conference (OIC). This position again places the country in a
as well as exporting our own oil and gas. Our links within the Eurasian region have intensified recently with the launch of the Customs Union in July 2010. Alongside Russia and Belarus, Kazakhstan was a founding member of the union, which will give investors access to a market of over 160 million people. In future, the Customs Union is expected to expand geographically and, at the same time, to evolve into a Eurasian Economic Union. Kazakhstan has also been building links with countries in the Islamic world. The country has adopted the theme ‘Peace, Cooperation and Development’ for its chairmanship of the OIC, to reflect the priority issues of the OIC member states. Within Kazakhstan, legislation on Islamic finance was
adopted in 2009, and Kazakhstan is well on its way to becoming a regional centre for Islamic, as well as traditional, finance. Perhaps most significant is our commitment to tolerance. Kazakhstan’s firm policy is to be open to all religions and ethnic groups, and we have three times hosted the triennial Congress of World and Traditional Religions, to promote peace and understanding among religious faiths.
leadership position to help resolve some of the most contentious international debates in the period after the ‘Arab Spring’. As a largely Muslim nation, Kazakhstan will continue to stress – as it did during its OSCE chairmanship – the need for inter-regional and inter-faith dialogue. Therefore, at the OIC Ministerial meeting on June 28-30, 2011, the Organization changed its name to the Organization of Islamic Cooperation. At the meeting, President Nazarbayev shared his vision for the Islamic countries to stay on the path of peace, modernization, scientific and technological development and education. He said that to ensure long-term peace, the Islamic world should learn to confront religious fundamentalism as a political ideology and establish an open and honest dialogue with the West. Foreign Minister Saudabaev says international cooperation can only succeed through the “constant exchange of ideas” across borders. Indeed, as President Nazarbayev noted at the end of the Astana OSCE summit: “Winston Churchill famously said: ‘To jaw-jaw is always better than to war-war.’”
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A gas pipeline near Almaty. The state oil and gas giant is a fund subsidiary
Evolution of role sees fund gearing up for ‘People’s IPO’ The heart of Kazakhstan’s economy, Samruk-Kazyna has, since its inception, played a crucial role in the country’s industry and economy. Now the fund is ready to float some of its assets at discounted prices to retail investors. By Clare Nuttall
azakhstan’s sovereign wealth fund Samruk-Kazyna put to work billions of US dollars to support the economy during the global economic crisis. With Kazakhstan growing strongly, the fund’s role has evolved – it is now responsible for creating new industries and increasing efficiency in the economy’s most important companies. This year will see further dramatic changes, as minority
stakes in some of its largest and most attractive companies are floated on the domestic stock exchange. Samruk-Kazyna was created in the depths of the crisis through the merger of two existing organizations – holding company Samruk and investment company Kazyna – in October 2008, and its importance to the Kazakh economy cannot be overestimated. Its subsidiary companies include the national rail and postal companies, electricity grid operator Kegoc, state oil-and-gas giant National Company KazMunaiGas, nuclear company Kazatomprom, national air carrier Air Astana, and three of the top four banks. It is also the parent of the Damu small enterprise fund, private equity fund of funds Kazyna Capital Management, and other financial organizations. Overall, Samruk-Kazyna manages assets worth in excess of $70 billion, accounting for around 40 percent of the Invest in KAZAKHSTAN 2011
In addition to raising funds for expansion, the ‘People’s IPO’ is also intended to stimulate the domestic capital market economic activity in the country. It has a total of 404 subsidiaries and affiliated companies. As of March 2010, Samruk-Kazyna announced it had invested KZT897 billion ($6.1 billion) from Kazakhstan’s National Fund to support the economy during the crisis. Its largest financial commitment was to the banking sector, where it invested some KZT486 billion. Other anti-crisis measures included supporting the real-estate sector (KZT360 billion), support for small and medium-sized enterprises (KZT120 billion) and implementing industrial and infrastructure projects (KZT121.5 billion). Samruk-Kazyna became the majority shareholder of BTA Bank and Alliance Bank, injecting liquidity when both were on the brink of collapse in February 2009. Today, a debt restructuring for the two banks has been agreed with creditors. At the same time, the fund took minority stakes in Kazakhstan’s other big-four banks, Halyk Bank and Kazkommertsbank. Now that GDP growth in Kazakhstan has returned to pre-crisis levels, Samruk-Kazyna is starting to divest some of the assets it acquired during the crisis. The fund has already exited its investment in Halyk, selling the stake back to the bank and its majority shareholder Almex. Kazkommertsbank could buy back its shareholding in the near future. A sale of BTA to Russia’s Sberbank is still on the cards and Samruk-Kazyna is also looking at potential exit routes for Alliance, but it is adamant that it will sell its shareholdings only if the price is right. Post crisis, Samruk-Kazyna is involved in raising the efficiency of its subsidiaries, and is the main conduit for big foreign investment projects. The emphasis within Kazakhstan has shifted toward production of processed and value-added products, rather than being purely a supplier of raw materials. Several of the priority projects within the 2010-14 Accelerated Industrial and Innovative Development program are aimed at achieving this goal. Samruk-Kazyna is already working to diversify and industrialize Kazakhstan. The ‘breakthrough projects’ under the Samruk-Kazyna umbrella include reconstruction of the Atyrau refinery, modernization of the national electricity grid and construction of several new power stations.
Within Samruk-Kazyna, two holding companies created in late 2008 are responsible for the chemicals and metals sectors, respectively. The United Chemicals Company was set up to develop a national chemicals industry and reduce Kazakhstan’s dependence on imports of products such as fertilizers. Tau Ken Samruk is the holding company for the Kazakh government’s stakes in metals and mining companies. While oil and gas still account for the lion’s share of Kazakhstan’s exports, metals and mining have been growing in importance in recent years. Soaring metals prices, and the steady growth in demand from neighboring China in particular, have provided an impetus for Kazakhstan to increase its output. The government stakes in two major London Stock Exchange-listed mining companies – Eurasian Natural Resources Company (ENRC) and Kazakhmys – are held within Tau Ken Samruk. Both companies have an immense presence in the Kazakhstan mining sector, as well as internationally. Kazakhmys is the largest copper producer in Kazakhstan and one of the top 10 producers worldwide. ENRC – a diversified natural resources group – has a presence in China, Russia, Brazil and Africa, as well as in Kazakhstan. This year has already seen significant changes for Samruk-Kazyna. On April 12, Timur Kulibayev was promoted to chairman as part of the post-elections reshuffle. Kulibayev, the son-in-law of Kazakh president Nursultan Nazarbayev, was previously the company’s deputy chairman. The fund’s main task this year will be to carry out the ‘People’s IPO’ program, under which shares in companies that are wholly or partly owned by Samruk-Kazyna will be offered at a discount to retail investors and pension funds. In addition to raising funds for expansion, the program is also intended to stimulate the domestic capital market. At least some of the IPOs are due to take place by the end of this year. Companies expected to be part of the first wave of IPOs include power-generation company Samruk-Energo, electricity grid operator Kegoc, postal service Kazpost and KazMunaiGas Exploration and Production. In the following two years, IPOs of other companies – including Kazatomprom, National Company KazMunaiGas, and railway operator Kazakhstan Temir Zholy – are planned.
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Minerals tax freeze is welcome news for investors While the Kazakh government seeks an extra $2.9 billion to cover the 2008-09 bank bailouts, it won’t do so by raising mineral resource rent taxes. One ingenious scheme involves the setting up of a Distressed Asset Fund – to purchase bad loans from the banking sector and free up liquidity. By Nicholas Watson
azakhstan has made steady progress in reforming its tax system for companies operating in the country over the past few years. However, the fallout from the global economic crisis has postponed further cuts in tax rates. In November, Finance Minister Bolat Zhamishev said that the government would not, as previously planned, cut the corporate income tax from its current 20 percent, but maintain that rate until 2013, as it needs to boost revenues in order to shore up the budget. In 2009, Kazakhstan slashed corporate tax to 20 percent from 30 percent, and at that time said it planned to lower it further over the next two years. Invest in KAZAKHSTAN 2011
The Distressed Asset Fund would allow use of the free liquidity from commercial banks to buy debt securities “We support continued decrease of the tax burden. But since the crisis, it has become obvious that it is impossible to cut taxes sharply,” Zhamishev told reporters after the legislature voted to approve the government’s tax bill.
Positive response to revised plan As a result of postponing the corporate tax cut, the government has decided to leave mineral resource rent taxes unchanged instead of raising them as planned – news that was greeted warmly by investors and was considered crucially important to investors in oil and gas, as well as mining. “Because corporate income tax is not lowered, the rates of mineral resource rent tax will remain unchanged,” said Zhamishev. The US consultancy IHS Global Insight says the welcome news goes some way to dispelling the idea that the government is slowly increasing its share in companies’ profits, especially on the crucial oil and gas industry, to boost state income. In the summer of 2010, the government said it planned to introduce a further increase in export taxes on crude oil in 2011. Zhamishev said that the new tax would be doubled from the current $20 per ton to $40 per ton, which analysts say would produce an extra $2.9 billion in taxes a year. There is no indication of whether any of the major foreign energy companies operating in the country under Ministers and officials from Kazakhstan and other Central Asian countries attended a 2008 OECD/OSCE conference on competitiveness in the region
production-sharing agreements (PSAs) – such as Chevron or Eni BG Group – will be excluded from the proposed tax increase. They are already attempting to negotiate over payment of the initial 20 percent export tax increase that was introduced in July 2010. However, these big companies’ efforts to invoke the ‘tax stabilization provisions’ of the PSAs signed with the Kazakh government in the 1990s or early 2000s are not likely to be successful, according to analysts. “The government certainly needs an extra $2.9 billion to cover costly bank bailouts during the 2008-09 recession,” says a representative from Global Insight. In the banking sector, the National Bank of the Republic of Kazakhstan (NBRK) stated in April that it is aiming to introduce a mechanism to clean up the balance sheets of Kazakh banks – possibly as soon as July 1. Grigoriy Marchenko, the governor of the NBRK, said the new mechanism, which would clear bad loans from the banks’ balance sheets, is currently in a stage that requires amendments to the Tax Code. Marchenko also added that if, for some reason, the new model failed to start its work in July, then it would be launched in January 2012. The Financial Institutions Association of Kazakhstan, the Ministry of Finance, auditors and commercial banks are currently involved in the project. The NBRK and the Agency of the Republic of Kazakhstan on Regulation and Supervision of Financial Markets and Financial Organizations (AFN) are discussing the possibility of creating a special company, the Distressed Asset Fund. The Fund would buy out bad loans from commercial banks, thereby allowing use of the free liquidity from commercial banks to buy debt securities issued by DAF, while DAF would use the proceeds to buy out bad loans from banks. “We believe that if the mechanism is launched in 2011, it could possibly be a positive milestone for the sector,” says the Kazakh investment bank Visor Capital.
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All for one, one for all The presidents of Kazakhstan, Russia and Belarus attended a customs union summit in Moscow in 2010. From left to right: Nursultan Nazarbayev, Dmitry Medvedev and Alexander Lukashenko
By joining a single, regional market, Kazakhstan, Belarus and Russia aim to eliminate obstacles to trade and investment, and ultimately free up the movement of labor and capital. By Ben Aris
ne of the fastest ways to increase the wealth of a country is to concentrate on your comparative advantage and trade with your neighbors. In this way, a country will put most of its effort into what it is good at. On January 1, 2011, a new customs union between Kazakhstan, Belarus and Russia came into being – part of the grander plan to create a common economic space between the three countries. The customs union creates a single market, that will change the nature of trade in the region and accelerate growth in the member countries.
The agreement is the culmination of almost two decades of work. Celebrated with much fanfare in the Kazakh capital of Astana, the union eliminates obstacles to trade and investment that went up after the collapse of the Soviet Union, as well as reducing the duties and documentation needed to trade between the three countries. Border controls in airports between the members have already been largely removed. However, getting this far has not been easy, and the agreement remains a work in progress. In 1994, the countries of the Commonwealth of Independent States (CIS) decided to create a free trade area, but the agreements were never signed. Still, this discussion did result in the creation of a Eurasian economic community treaty – signed by the presidents of the Republic of Belarus, the Republic of Kazakhstan, the Kyrgyz Republic, the Russian Federation and the Republic of Tajikistan in Astana on October 10, 2000 – which forms the basis of the new trade agreement.
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A second attempt to create a customs union met with more luck. An agreement in principle to create a common economic space was announced after a meeting in the Moscow suburb of Novo-Ogarevo on February 23, 2003. Initially, Ukraine was invited to join, but it pulled out after the Orange Revolution in 2006, leaving the other three countries – Belarus, Russia and Kazakhstan – to go ahead and sign the deal in 2009. The union is now a reality, and the participating states are due to remove the last of their customs borders on July 1, 2011. By January 1, 2012, the integration of the three countries to create a common economic space will be complete. The first step is harmonizing customs rules, and the next will be a discussion on the free movement of labor and capital. At the signing ceremony at the start of this year, Russian president Dmitry Medvedev said that the three countries were committed to fully opening their economies by the beginning of 2012. “A lot of work remains before the formation of a common economic space, but, considering that it is a beneficial and interesting endeavor, I’m sure we can agree on everything.”
Benefits of the union The economies of the three members of the union are very different, which means improving trade ties should deliver big economic benefits to all of them. Kazakhstan sells minerals such as ores, metal products and chemicals to Russia, while importing other minerals, chemicals, metals and machinery. Belarus imports Russian oil, gas and metals and machinery, and sells trucks, car parts, tires, dairy products, poultry, and meat to Russia. Initially Russian farmers could suffer from competition from Belarus, and Russian steel workers could suffer from competition from Kazakhstan. But in the long term, the exposure to competition will help both Kazakhstan and Russia diversify away from
their dependence on natural resources – a goal that both countries have in common – by increasing the importance of value-added production, say experts. All three countries are struggling with issues of modernisation and reform, and the union will increase competition in their markets – the most effective force for pushing through reforms. “The establishment of a Belarusian-Russian-Kazakh customs union will enable the three countries to have GDP growth over 15 percent by 2015,” Kazakh president Nazarbayev has forecast. “There will be higher competition in the markets of all the three countries, which should affect the quality of goods produced,” he said in a speech in 2010. The president also predicts that the single market will prove attractive for investors. It offers a combined population of 170 million, aggregate industrial potential of $600 billion, oil reserves of 90 billion barrels, and agricultural production of $112 billion. The trio’s aggregate GDP makes up $2 trillion, and aggregate trade $900 billion. One of the sectors that will see the most benefit is agriculture, and the president hopes that together the Customs Union countries could become the leader of the global grain market. “Our three countries are responsible for 17 percent of the world’s wheat exports,” he said. With European agriculture largely saturated, the majority of production growth in Eurasia in the medium term will come from this region. “We believe Ukraine, Kazakhstan, Russia, and Belarus have great prospects if they form a customs union,” said Russian deputy prime minister Igor Shuvalov at the end of 2010. “That will make them the main nucleus of food security in the world. Our countries will be a powerful food player.” This impressive potential is attracting new recruits even before the union is fully functional, with the likes of Kyrgyzstan and Tajikistan now lining up to join.
$600 billion Aggregate industrial potential
90 billion barrels Oil reserves
$112 billion Agricultural production
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Increasing global presence in energy and mineral exports
In recent years, Kazakhstan has become the worldâ€™s largest producer of uranium, of which it holds considerable deposits
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Sitting on a wealth of minerals and energy resources, Kazakhstan’s star is ascendant as China’s appetite for oil and related products shows no sign of abating. By Nicholas Watson
orecasts for Kazakhstan’s GDP growth in 2011 are in the four to six percent range and most of this growth, just as in 2010, will come from the two sectors that dominate the Kazakh economy: The oil and gas, and metals and mining sectors. The world’s ninth largest country by territory, Kazakhstan sits on vast deposits of largely untapped energy and mineral resources, providing many investment opportunities. Kazakhstan’s main resource is crude oil, of which it has proven reserves of three percent of the world’s total. Oil accounts for 63 percent of exports and 50 percent of industrial production, and the influence of the oil price on economic performance is strong. The country is expected to increase its role as one of the key non-OPEC oil exporters: its reserves-to-production ratio is second only to Middle Eastern countries. Daily oil production amounted to 1.5 million barrels in 2009, which is more than Qatar or Indonesia, and with the Kashagan oilfield (considered the world’s largest discovery of the past 30 years) due to come on stream in 2013, Kazakhstan is poised to become a top-10 global producer. As well as oil, Kazakhstan also holds 20 percent of the world’s gold, 17 percent of its uranium (Kazakhstan overtook Canada as the world’s largest producer of uranium in 2009), 7.6 percent of zinc and two percent of copper.
Unsurprisingly, resources account for almost 100 percent of export volumes to China. Oil and related products comprised 56 percent of Kazakhstan’s exports to China in the first 10 months of 2010. Mining products – ore, slag and ash – made up 14 percent; copper and brassware for 13.7 percent; chemicals and isotopes for 7.3 percent; iron and steel for 5.8 percent; and zinc and aluminum for 1.5 percent each. The surge in exports to China is due mainly to the opening of the Kazakhstan-China crude-oil pipeline, which in 2010 reached its designed capacity of 10 million tons per year. Its capacity will rise to 20 million tons annually on completion of the second phase of construction in 2013. Construction of the Western Europe-Western China highway and the planned rail link from Zhetigen near Almaty to the Chinese border will allow Kazakhstan to further increase its exports to its neighbor. Most foreign investment in Kazakhstan is being directed towards oil- and gas-related activities, which constituted more
It is Kazakhstan’s role as one of the key suppliers to China that makes it such an interesting investment prospect
Central to global recovery Strategically located between East and West, Kazakhstan is hardwired into the recovery of the global economy. However, it is the country’s role as one of the key suppliers to China, the roaring engine of the global economy, that makes it such an interesting investment prospect. For the first time in the trading history of Kazakhstan and China, the latter has become the number-one export destination for Kazakh goods. China increased its imports from Kazakhstan to more than $9 billion in 2010 from $5.9 billion in 2009, the highest import volume in their trading history. In the first 11 months of 2010, China accounted for 17.6 percent of Kazakh exports, overtaking Italy (16 percent) and Russia (5.9 percent).
than half of total investment inflows in 2009. Foreign investment is expected to grow significantly when production in Kashagan begins. Development of the country’s export capacity and export routes are expected to bring in some $30 billion over the next five to seven years, according to estimates. The sources of foreign direct investment are increasingly diversified, with the main flows coming from Russia, China, the United Kingdom, Canada, South Korea, Poland and Sweden, with Russia and China dominating. A number of companies within the Samruk-Kazyna state holding company are expected to float initial public offerings (IPOs), starting this year – a potential boon for investors. Assets that Samruk-Kazyna has already indicated it may float include National Company KazMunaiGas, rail operator Kazakhstan Temir Zholy and the Development Bank of Kazakhstan. A list of those that will list shares is likely to be released later this year. “The government has a very low level of debt. Investors are looking at quasi-sovereign companies and anything owned by the state, as these look virtually risk-free and are quite Invest in KAZAKHSTAN 2011
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Export volumes to China
1.5% 1.5% Zinc
Iron and steel
Chemicals and isotopes
Oil and oil products
Copper and brassware
Mining products â€“ ore, slag and ash
Kazakhstan-China crude oil pipeline
10 million tons per year in 2010
20 million tons per year by 2013
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Message from Sauat Mynbaev – Minister of Oil and Gas Kazakhstan is one of the countries that have strategic reserves of hydrocarbons and can impact world energy resources. Unrecovered, potential hydrocarbon resources in the Republic reach 17 billion tons. Kazakhstan is among 15 leading countries with proven oil reserves more than five billion tons. Estimated gas reserves are about 3.7 trillion cubic meters, potential resources reach 6-8 trillion cubic meters. Therefore, Kazakhstan has significant reserves of hydrocarbons – 3.3 percent of the world stock. The volume of crude oil production in 2010 is 80 million tons and it is expected to reach 81 million tons in 2011. Kazakhstan is one of few states in which the peak of oil and gas production has yet to come. At present, the North Caspian Project is one of the largest projects developing on the Caspian shelf and worldwide. To run this project, Kazakhstan reached an agreement with ExxonMobil, ConocoPhillips, Total, Shell, Eni, Inpex and KazMunaiGaz to form a new joint operating
company, North Caspian Operating Company BV. Its assets include the giant Kashagan field, one of the largest petroleum developments in the world, which has recoverable oil reserves of 1.5 billion tons, and is expected to produce 1.5 million barrels a day in the future. The plans for the oil and gas industry go far beyond production. Kazakhstan has upgraded and reconstructed three oil refineries in Atyrau, Pavlodar and Shymkent. These would increase production of light oil products, reduce any negative impact on the environment, improve the quality of oil products up to Euro-4 and Euro-5 standards and enable the nation to fully cover the domestic oil-products market through local production. Our country is of great interest to foreign investors. The reasons for this include access to natural resources, the large size of the market, the country’s strategic location and its stable political environment. Soon the country will be among the top 10 exporters of hydrocarbons. The volume of export capacity would
interesting yield wise,” said Milena Ivanova-Venturini, head of research at Central Asia at Renaissance Capital. The main purpose of the IPOs will be to raise money for capital expenditure, and only minority stakes are expected to be offered. Visor Capital estimates that to carry out all its mid-term plans, KMG alone needs to raise around $10 billion. This would cover building refineries, expanding the pipeline network, raising production at existing fields, and possibly buying further stakes in Karachaganak Field and other oil and gas projects.
be increased through the expansion of the Caspian Pipeline Consortium (CPC) oil pipeline network from 28 to 67 million tons of oil a year. The maximum capacity should be reached by 2015. Moreover, we work upon other export routes, including Transcaspian direction. Baku-Tbilisi-Jeyhun pipeline will help bring oil to the Black sea. With Azerbaijan, a joint venture will explore the feasibility of the Trans-Caspian route. The gas industry is an integral part of the fuel and energy complex of Kazakhstan. It includes extraction, processing and transportation of gas. The Kazakhstan-China trunk gas pipeline, which is a component of a Turkmenistan-UzbekistanKazakhstan-China transnational gas pipeline, was put into operation in 2009. The first section of the Kazakhstan-China gas pipeline should reach the capacity of up to 30 billion cubic meters a year by the end of 2012, with subsequent expansion up to 40 billion cubic meters a year. Construction of a linear part of the second section (Beiyneu-Shymkent) will start in
August this year. This gas pipeline would provide energy security and increase reliability of gas supply to southern regions of the Republic through delivering gas from the fields located in western regions. The end of construction of the first stage of section two is planned by the end of 2012. The Government of Kazakhstan is committed to increasing the country’s investment appeal to support development of this sector, welcoming international oil-and-gas companies and, by doing so, expanding the economy. The major international companies that are working together with KMG include Chevron, CNPC, ENI and Shell. The oil and gas industry is the backbone of Kazakhstan’s economy. Revenues from the industry collected in the National Fund allowed the government to mitigate the impact of the recent international economic crisis. Post crisis, the success of this sector is helping related industries to grow and is contributing to sustainable economic growth and rising living standards for the population.
Samruk-Kazyna will be the major source of IPOs going forward, but a handful of independent companies could also decide to list. Potash miner Satimola has said it is considering a $100 million IPO in London during 2011. Several mining companies have also indicated a desire to list in London. Nicholas Watson is an award-winning journalist and published author. He is currently managing editor and co-founder of Almaty-based magazine Business New Europe. Invest in KAZAKHSTAN 2011
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GE Oil & Gas
GE Oil & Gas Working together with Kazakhstan to enhance the nationâ€™s energy infrastructure
GE International Inc. Kazakhstan Branch Astana Tower Business Center 12 m/d Samal Astana 010000 Kazakhstan T: +7 7172 591 407 F: +7 7172 591 413
GE Oil & Gas has been present in Kazakhstan since the 1970s, when the company initially supplied 22 gas compressor units to the Uralsk and Chizha compressor stations which supported the Soyuz gas pipeline. The GE Oil & Gas installed base in Kazakhstan now includes over 50 gas turbines and 50 compressors of various capacities, including unique equipment for sour gas re-injection in the Karachagank, Tengiz and Kashagan gas fields. www.geoilandgas.com
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Standing on a wealth of resources
The majority of Kazakhstan’s oil and gas reserves are onshore – avoiding the additional expense and risks that are associated with offshore drilling. By Nicholas Watson
A The Tenzig oil field in western Kazakhstan is one of the five main oil and gas reserves in the area
lthough the giant Kashagan oilfield in the Caspian Sea attracts most of the attention, more than half of Kazakhstan’s proven reserves of 40 billion barrels of oil and 1.82 trillion cubic meters of mostly associated gas are to be found in onshore locations across Kazakhstan. The eight largest, currently producing oil and gas fields are located onshore, and account for about 80 percent of production. The main oil and gas reserves are in the western Invest in KAZAKHSTAN 2011
GMMOS KAZAKHSTAN LLP
GMMOS Group took the opportunity during the recent economic downturn to fast-track and complete the development of its new fabrication yard, which is situated on a prime location of 50,000 sq m of freehold land in the City-Port of Aktau, Mangistau Oblast. The state-of-the-art yard features a workshop with large doors of 20 meters wide by 10 meters high, which enable its two gantry cranes of 20 tonnes each to travel the full length of the 160 meters of rails. With equipment such as a vertical roll machine (capable of rolling plate up to 150mm thick), a guillotine, a 300-tonne press, a CNC plasma cutting machine, a profile-bending machine (capable of bending IPE 180 and many different shapes of profile), GMMOS Kazakhstan LLP is capable of servicing the oil and gas, water and mining industries of the CIS countries. GMMOS Kazakhstan LLP is a mid-sized company specializing in the custom fabrication of pressure vessels, skid packages, general fabrication and maintenance operations. GMMOS Kazakhstan LLP is ISO 9001-2008 registered and holds the ASME U, U2, S, PP and R stamps for the fabrication and repairs of pressure vessels, pressure piping and steam boilers, and is also GOST approved. Among other contracts, GMMOS Kazakhstan LLP is assembling, in a consortium with SIDEM (part of the Veolia group), two MEP Evaporators of 12,000cm each for MAEK â€“ KazAtomProm. With the support and the help of its mother company and its two yards located in the UAE, employing more than 700 specialists, GMMOS Kazakhstan LLP is able to respond rapidly to the requirements of clients in the Republic of Kazakhstan and neighboring countries.
Aktau, the Industrial zone TRN 430 100 227 008 BIN 040 540 003 623 IIK KZ 379 261 401 130 278 000 BIC KZKOKZKX AB JS Kazkommercbank General Manager Brahim El Ide
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part of the country, where the five largest onshore fields – Tengiz, Karachaganak, Aktobe, Mangistau and Uzen – are located. The North and South Kumkol fields are in the southcentral area, while the Akshabulak field is in the central area. Tengiz is currently Kazakhstan’s largest producing oilfield, with recoverable reserves estimated at between six billion and nine billion barrels, and it is the world’s deepest operating giant field at around 3,657 meters. Tengizchevroil (TCO), the Chevron-led consortium developing the field, said in February that it increased oil output by 15 percent to 25.9 million metric tonnes in 2010. TCO – in which Chevron has a 50 percent stake, Exxon Mobil owns 25 percent, KazMunaiGas (KMG) has 20 percent, and LUKArco owns five percent – provides no estimate for 2011, but is expected to submit an expansion plan for the project soon, according to the Kazakh Minister for Oil and Gas, Sauat
of total gas production of just over 15 billion cubic meters was flared. The consortium re-injects most associated gas into the ground to maintain crude wellhead pressure for liquids extraction, and also uses the extracted gas as a power generator for its facilities at Karachaganak. It also exports a small amount across the border to Russia. The consortium gave no reason for the fall in production, though it has been involved in a dispute with the Kazakh government over the last year concerning tax and environmental claims. In August, both sides confirmed they were also negotiating the sale of a stake in the project to the state-owned KMG (Karachaganak is the only major oil and gas project in Kazakhstan without the participation of KMG). KPO is a joint venture held by Eni and BG Group, both of which hold a 32.5 percent stake; Chevron, owns 20 percent; and Lukoil, has the remaining 15 percent. Most of the other major fields have a distinctly Chinese flavour, reflecting that country’s increasing clout in Kazakhstan. The Mangistau oilfield, which produced 115,000 barrels a day (b/d) in 2009 and has reserves estimated at 500 million barrels, is operated jointly by KMG and China National Petroleum Corporation (CNPC). The Aktobe oilfield, which produced 120,000 b/d in 2009 and holds estimated reserves of more than one billion barrels of oil, is 85 percent owned by CNPC. North and South Kumkol each produced about 65,000 b/d in 2008. The South Kumkol fields are shared by CNPC (66.7 percent) and KMG (33.3 percent). The North Kumkol fields are shared equally by Lukoil and CNPC. Akshabulak and surrounding fields in central Kazakhstan produced 63,000 b/d in 2008 and are operated jointly by KMG and PetroKazakhstan, 67 percent of which is owned by Chinese interests. Clearly, most of the international oil companies are present in Kazakhstan, although investors will find there are a growing number of independent players developing smaller oil and gas fields in the country. In October 2010, the Canadian-listed Tethys Petroleum raised $100m through a share placement, the proceeds of which the company will use for exploration activities in Kazakhstan, Uzbekistan, and Tajikistan. Its main oil and gas assets are in Kazakhstan, in the North Ustyurt Basin to the west of the Aral Sea, and adjacent to the prolific Pre-Caspian basin – home to the giant Tengiz, Kashagan and Karachaganak fields. Then there’s the London Stock
Most of the international oil companies are present in Kazakhstan, although investors will find a growing number of independent players developing smaller oil and gas fields Mynbayev. The new expansion phase – called the Future Growth Project – should increase reserves by approximately 150 million metric tonnes and boost production by 12 million metric tonnes of crude oil a year by 2016. TCO could reportedly invest a total of $15.2 billion in the expansion. The Karachaganak gas condensate field, close to the Russian border, holds reserves of almost nine billion barrels of oil and gas condensate, and 1.2 trillion cubic meters of natural gas, according to the Energy Information Agency (EIA). Karachaganak Petroleum Operating (KPO), the Western-led joint venture developing the field, said in February 2011 that its output fell four percent to 133.7 million barrels of oil equivalent (boe) in 2010, from 139.4 million boe in 2009. KPO said that last year it reached an overall gas utilization rate of 99.87 percent, meaning that 0.13 percent
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Kazakhstan’s oil output could rise from 1.6 million b/d in 2009 to hit a plateau of four million b/d in 2025
Exchange’s AIM-listed Max Petroleum, which acquired the exploration and production rights to the Blocks A&E license area in 2005, including two onshore blocks in the Pre-Caspian Basin. Out of 12,445 sq km, the company has covered 5,000 sq km with three-dimensional seismic surveys. It has built an inventory of 13 shallow prospects, 10 deep prospects and five deep leads, ranging in size from 100 million to 600 million boe of unrisked mean resource potential each, giving total potential in excess of four billion boe. AIM-listed Roxi Petroleum currently has interests in four exploration and production contract areas spread over three petroleum basins: the Pre-Caspian Basin and the Mangyshlak Basin in western Kazakhstan, and the Turgai Basin in central Kazakhstan.
Largely on the back of increased production from the onshore Karachaganak and Tengiz fields, as well as the offshore Kashagan field, Kazakhstan’s output could rise from 1.6 million b/d in 2009 to hit a plateau of four million b/d in 2025. This means that the country will need to expand its export capacity significantly, because existing pipelines currently handle just 1.5 million b/d. The International Energy Agency suggests that a further two million b/d will be needed. In 2010, Kazakhstan had net oil exports of about 1.7 million b/d, with current infrastructure delivering it to world markets by pipelines to the Black Sea via Russia; by barge and pipeline to the Mediterranean via Azerbaijan and Turkey; by barge and rail to Batumi, Georgia on the Black Sea; and by pipeline to China.
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The Kashagan field in the Caspian Sea holds reserves of more than 10 billion barrels
Tapping the hidden resources beneath the Caspian
The Kazakh section of the Caspian Sea is set to reveal the huge reserves hidden beneath its waters. By Nicholas Watson
he Caspian Sea is estimated to be one of the largest oil reserve regions in the world, and Kazakhstan’s section of the Caspian Sea is estimated to hold the largest reserves of any of the littoral states. As such, the International Energy Agency (IEA) expects resources from the Caspian region, including Kazakhstan, to play an increasing role in securing and diversifying Europe’s energy supplies. The biggest field being developed in the Kazakh sector of the Caspian Sea is Kashagan, with approximately 35 billion barrels of oil in place and reserves of over 10 billion barrels, making it the world’s largest discovery of the past 30 years. Invest in KAZAKHSTAN 2011
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However, big does not mean easy – the project is late and overbudget because of the adverse operating environment and other challenges. The field contains a high proportion of natural gas under very high pressure, the oil contains large quantities of sulfur, and the offshore platforms require construction that can withstand the extreme weather fluctuations in the northern Caspian Sea. One advantage, however, is that the field lies in waters only three to five meters deep, and drilling and extraction operations will proceed from artificial islands. The latest estimate for the first production to start flowing from the field has been pushed back eight years from the original schedule to 2013, while costs have soared to $136 billion, from original estimates of $57 billion. This has inevitably strained relations between the international oil companies developing the field and the Kazakh government. The dispute over the delays and cost overruns was resolved in late 2008, however, when the shareholders – Eni, Shell, Total, Exxon Mobil, ConocoPhillips and Inpex – agreed to give up part of their stakes to KazMunaiGas (KMG), which saw the state-owned company’s interest rise from 8.33 percent to 16.81 percent. Furthermore, a new operating company called the North Caspian Operating Company replaced the previous operator, Eni subsidiary Agip KCO. Initial production from phase one of Kashagan is projected at 370,000-450,000 barrels a day (b/d), with peak production of 1.5 million b/d from phase two projected by 2019. However, the Ministry of Oil and Gas rejected the development plan for that second phase, due to the high costs, at the end of March. According to reports, the Shell team planning the offshore facilities of the second phase have slashed $18 billion from the project costs to bringing them to an even $50 billion. However, even with this reduction, it is claimed that the second phase offers no more than a 9.3 percent return on investment, so the government is looking for further cuts.
Kurmangazy the country’s third largest field. That said, the first well – drilled in 2006 by project partners Rosneft and KMG – came up dry. In October 2010, the two sides agreed to extend the exploration contract and news is expected on when the second well will be drilled. Meanwhile, there has been growing excitement this year about the prospects for another potential mega-field: the ‘N’ Block, located 30km south-west of the port of Aktau and being developed by a consortium of KMG (51 percent), ConocoPhillips (24.5 percent) and Mubadala (24.5 percent). In January, KMG announced that the first exploration well detected hydrocarbons at several intervals before it was completed in December. KMG said the field could hold more than 4.6 billion barrels of oil, as much of two billion barrels of which could be recoverable. “This field has the potential to be the biggest discovery worldwide this year, if the pre-drill estimates are proved correct,” believes Dominic Lewenz, director of oil and gas research at the regional investment bank Visor Capital. Sources though, say the consortium cannot yet declare it a formal discovery because the engineers were forced to seal the well before completing a final conclusive test. As such, the consortium has decided to drill a second well in the same location later this year to confirm the result.
The ‘N’ Block could hold more than two billion barrels of recoverable oil
The best of the rest The Kurmangazy field – located in the Caspian Sea on the maritime border between Russia and Kazakhstan – is the least developed of the country’s oilfield projects. Its reserves were initially estimated at between seven billion and 10 billion barrels of crude oil equivalent, which, if proven, would make
Russia’s Lukoil is exploring three offshore fields with KMG – Tyub-Karagan, Atashsky and Khvalynskoye – while Oman Pearls and Shell are partners with KMG in exploring the Zhemchuzhiny field. In 2010, Lukoil started commercial production at the Korchagin field in Russia’s section of the Caspian. It is hoped that the launch of Russia’s first major Caspian offshore project will provide fresh impetus for developing the fields in the Kazakh sector of the sea. In December, Indian oil secretary, Shri Sundareshan, said Kazakhstan planned to transfer a 25 percent stake in the nearby Satpayev Exploration Block to Indian oil firm ONGC, and the agreement for the deal was signed in April 2011. The Satpayev Block, in the Pre-Caspian Basin in Kazakhstan’s section of the Caspian, covers 1,582 sq km, in waters just five to 10 meters deep. The IEA estimates that the block could hold 1.6 billion barrels – equivalent to around four percent of Kazakhstan’s total proven oil reserves in 2009. The field’s proximity to large fields such as Kashagan indicates Satpayev’s significant potential.
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Capitalizing on Caspian conduits With oil and gas output rising rapidly, Kazakhstan is seeing massive investment that will boost its export infrastructure. By Nicholas Watson
ithout access to a seaport, Kazakhstan depends mainly on pipelines to transport its hydrocarbons to world markets. But with oil and gas exports set to rise dramatically as large producing fields come onstream over the next decade, the country will need to invest heavily to expand its export capacity.
Existing pipelines can handle 1.5 million barrels per day (b/d), but the Kazakhstan government hopes to raise oil exports from 1.7 million b/d in 2010 to three million b/d by 2020 – largely on the back of production from the Karachaganak, Tengiz and Kashagan fields. The International Energy Agency (IEA) says that another two million b/d in export capacity will be needed.
Expanding the Russian route The Caspian Pipeline Consortium (CPC) link – which routes oil 1,410km from the Tengiz oilfield across Russia and to the Black Sea port of Novorossiysk – will account for much of this expanded capacity over the next decade. A signing ceremony in Moscow in December saw CPC – the four largest
A Chinese worker of the Asian Gas Pipeline inspects the Kazakh stretch of the Turkmenistan-China pipeline at Otar gas station, 130km outside Almaty
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shareholders of which are Transneft (24 percent), KazMunaiGas (19 percent), Chevron (15 percent), and LukArco (12.5 percent) – approve a plan to more than double the pipeline’s annual capacity from 28 million tons to 67 million tons by 2014. The cost of the expansion is expected to be around $5.4 billion, CPC said in a statement, and work began in the first semester of 2011. Under the plan, the partners will increase installed capacity to 35 million tons in 2012, 48 million tons in 2013, and then to 67 million tons in 2014. “The expansion will de-bottleneck Kazakhstan’s export facilities and add around 30 million tons in export capacity to Kazakhstan,” said Ian MacDonald, a vice president of Chevron. MacDonald added that internal cash flow would be the primary source of funds, but added that there is the potential to finance a part of construction with loans. The new volumes to fill the expanded pipeline are to come mainly from Tengiz and Karachaganak, as well as new offshore projects in the Caspian Sea such as Russia’s Korchagin field – launched earlier this year – and Kazakhstan’s Kashagan, which is to be commissioned in 2013. Where the extra oil will go once it leaves the CPC link isn’t clear. The CPC expansion has been approved, despite delays to the Burgas-Alexandroupolis pipeline project, which Russia is developing with Bulgaria and Greece to ship oil from Novorossiysk across the Black Sea to Burgas and into a planned 35-million-ton pipeline to Alexandroupolis on the Aegean Sea. At the same time, the Turkish Straits are currently at full capacity, which has limited increases in crude oil deliveries in the Black Sea region. MacDonald said that CPC would not significantly increase traffic in the Turkish Straits, as much of the crude it will transport currently reaches the Black Sea by rail, and also claimed that the pipeline can load larger vessels than other forms of shipment to the Novorossiysk terminal. “When completed, CPC will fill two tankers daily, or about 200,000 tons per day, but since the CPC loads larger tankers [than many Black Sea shipments now], the traffic increase is not materially significant,” he said. Kazakhstan’s other major oil export pipeline, from Atyrau to Samara, is a northbound link to Russia’s Transneft distribution system, which provides Kazakhstan with a connection to world markets via the Black Sea. The line was upgraded in 2009 by the addition of pumping and heating stations, and currently has a capacity of approximately
600,000 b/d. Before the completion of the CPC pipeline, Kazakhstan exported almost all of its oil through this system. Russian infrastructure already handles about 75 percent of Kazakhstan’s exports, and pumping more oil through CPC risks leaves the country overly dependent on a single transit country. Therefore, Kazakhstan is looking to hedge this risk by expanding other routes.
Potential expansion The Kazakhstan Caspian Transportation System (KCTS) moves oil south by pipeline from Atyrau to Kuryk, before barging it across the Caspian Sea to Baku, Azerbaijan. From there it could travel through an expanded Baku-Tbilisi-Ceyhan (BTC) pipeline, which bypasses Russia and the Black Sea on its way to the Turkish Mediterranean. Oil shipments across the Caspian to Baku are to eventually reach 500,000 b/d under the terms of a 2009 agreement between Kazakhstan and Azerbaijan. To facilitate exports of oil from the Kashagan oilfield during the next
The Caspian Pipeline Consortium (CPC) link will account for much of the next decade’s expansion decade, Kazakhstan will develop the KCTS. This includes the construction of a 500,000 b/d onshore pipeline from western Kazakhstan to Kuryk on the Caspian shore, where a new 760,000-b/d oil terminal will be built. The KCTS also includes a maritime link to Baku – with a fleet of new tankers – where crude oil will feed into an expanded BTC pipeline, which currently has a capacity of one million b/d. Under current plans, KazMunaiGas (KMG) will hold 51 percent of the KCTS system, while the international companies developing the Kashagan field will hold the remainder. The maritime link will be held by a joint venture between KMG and Azerbaijan’s state-owned oil firm, Socar. On 25 January, however, KMG head Kairgeldy Kabyldin said the implementation of KCTS will be postponed at least until 2018, as the second phase of the Kashagan oil project has been postponed until 2018-19. “We are planning to build the oil terminal in [the port of Kuryk on the Caspian coast] within the KCTS in 2018-19,” he said. Invest in KAZAKHSTAN 2011
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oil, gas and mining
The Central Asia Gas Pipeline (CAGP) connects to China’s domestic pipeline system
There are also plans to expand the Kazakhstan-China oil pipeline, which runs from the port of Atyrau in north-west Kazakhstan to Alashankou in China’s north-west Xinjiang region. The joint venture between CNPC and KMG currently transports 200,000 b/d of crude oil from the Aktobe and Kumkol fields. In 2009, China reportedly received 61 million b/d through the pipeline, or four percent of its crude imports. In October 2009, CNPC and KMG signed a framework agreement to double capacity to 400,000 b/d by 2013. Upon future expansion, it will also carry oil from the Kashagan field. Kazakhstan became a net gas exporter for the first time in 2009 and, together with its role as a major transit country for gas pipeline exports from Uzbekistan and Turkmenistan to Russia and China, the country needs to invest significantly in its gas transport system.
Major gas pipeline route One of Kazakhstan’s major export routes is the Central Asia Gas Pipeline (CAGP), which pumps gas from Turkmenistan, Kazakhstan and Uzbekistan to Alashankou, China, where it connects to China’s West-East domestic pipeline system. In 2010, the pipeline was pumping at a rate of around 13 billion cubic meters a year – about half of which came from Turkmenistan, with the rest from Kazakhstan and Uzbekistan. The partners in the project – China National Petroleum Corporation, KMG and Uzbekneftegas – are busy bringing the pipeline up to full capacity of 40 billion cubic meters a year by early 2014, when stage two, the Kazakhstan-China gas pipeline, is due to be completed. This second phase
consists of a pipeline running from Beyneu in Kazakhstan’s gas-producing western region to Shymkent in its southern industrial region. This new pipeline will connect to the CAGP near Shymkent, enabling Kazakhstan to export gas from the Aktobe, Tengiz and Karachaganak fields to China, as well as shipping an expected 10 billion cubic meters a year to the Shymkent area for domestic use. There is also an agreement in place between Russia, Kazakhstan and Turkmenistan to renovate and expand the western branch of Kazakhstan’s other major gas export conduit, the Central Asia Center (CAC) pipeline. This is in addition to building a new Caspian gas pipeline paralleling the western branch, with a capacity of 20 billion cubic meters a year. In 2009, this work was put on hold, because Turkmenistan is considering diversifying its gas export options, while Russia is trying to cut its Turkmen gas imports due to lower European demand. The two branches of the CAC, controlled by Gazprom, meet in the south-western Kazakh city of Beyneu before crossing into Russia and feeding into the Russian pipeline system. The eastern branch, which has a capacity 60 billion cubic meters a year, originates in the south-eastern gas fields of Turkmenistan. The western branch originates on the Caspian coast of Turkmenistan. Almost all Turkmen and Uzbek gas is delivered via the eastern branch. Intergas Central Asia, a subsidiary of KMG, is the operator of the Kazakh pipeline sections and has been increasing its annual investment in repairing and modernizing the western branch of the CAC pipeline using internally generated funds. n
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PM Lucas: committed to Kazakhstan’s future PM Lucas is a fully integrated service provider for the oil and gas exploration and production sectors and related industries, and provides complete E&P engineering solutions – from geological and geophysical, reservoir management, production, drilling and well intervention, to process and surface facility engineering. The company’s project experience includes: complete field development; welldrilling and intervention; field production management; facility engineering and construction; full field turnkey development; and complete oilfield management services. It also provides single consultant specialized support to complete turnkey, along with EPC, EPSCM, EPCC and BOOM solutions. As an integrated engineering solutions provider, PM Lucas provides solutions to the industry across the complete cycle, and it does not have any direct competitors. The company’s approach is very similar to Schlumberger’s IPM (Integrated Project Management), combined with Petrofac facility engineering and turnkey EPC solutions. The company combines and integrates all services into a single cycle. PM Lucas targets small and medium-sized projects that are too small for the big players and require integration of all services. PM Lucas has often been described as an oil company with an engineering heart, or an oil company without an oilfield that provides this capability as a service. The company is fully accredited by the TUV NORD CERT GmbH, from Germany with the following systems: • ISO 9001:2008 Management System; • ISO 14001:2008 Environmental Management System; • ISO 18001:2007 Occupational Health and Safety Management System; • ISO/TS 29001:2007 Requirements for Petroleum, Petrochemical and Natural Gas Industries.
About PM Lucas in Kazakhstan
PM Lucas has been operating in Kazakhstan since 1999, as an integrated engineering service provider. During this time it has provided multiple subsurface engineering services such as geological and geophysical assessment, reservoir, production and other petroleum
engineering services. In the sphere of surface engineering, PM Lucas’s services range from conceptual design, basic design, detailed design for oil-handling, gas-handling, and waterhandling systems and oil-receiving systems. PM Lucas has drilled and managed more than 1,200 wells, equivalent to one million meters of drilling, with wells ranging from 500 to 5,000 meters, of which 250 wells or 300,000 meters were performed on a complete turnkey basis. In addition to this, Lucas has managed more than 15,000 well interventions. Furthermore, PM Lucas has engineered, designed or built hundreds of kilometers of roads, flowlines, and pipelines. The company has recently developed a complete oilfield development in Kazakhstan on a turnkey basis as the general contractor. The work started with the FEED (basic design) to complete turnkey EPCC development, operation and maintenance.
PM Lucas believes that Kazakhstan is a much more progressive country right now than any other at a similar phase of development. While PM Lucas has worked in many oilproducing countries – including Algeria, Russia, Azerbaijan, Turkmenistan, and Syria – the working conditions in Kazakhstan are far better. Kazakhstan is very stable politically, and the President and government are doing a great job. Kazakhstan is a democratic country and open to foreign investment. We truly believe that Kazakhstan is years ahead of its neighbors. Working conditions in Kazakhstan are excellent, the industry is just starting to take off, and PM Lucas would recommend anyone to come and invest in this country. In the 11 years since we came to Kazakhstan, the country has grown to become ranked first in the Norway-based “Education for All” development index. The UNDP has also ranked Kazakhstan 15th in the world for literacy. PM Lucas believes that Kazakhstan is an example for many developing countries for having invested in its most valuable resource: the future of its young people. This is a rich and ambitious country, with an ambitious people and strong leaders. The successes in the past 10 years in industry and agriculture, along with
Dr Pavle Matijevic, Chief Executive Officer, PM Lucas, Kazakhstan, with family at AIS international day 2011, Almaty
its vision of increasing the business class, are second to none. We love the country, and as a company are dedicated to its future. On 29 August 1991, one of the first decisions of Nursultan Nazerbayev as the president of an independent Kazakhstan was to issue a decree to close the Semipalatinsk nuclear test site and declare Kazakhstan a nonnuclear country. This commitment to the future not only demonstrated to the international community Kazakhstan’s commitment to a world free of violence and the threat of war, but also set an unprecedented example to all the world’s nuclear powers.
A student of Prof Dr Z Heinemann, Pavle Matijevic had his first contact with the oil industry 34 years ago at the age of 13 when his family moved from Germany to Libya and enrolled him in the American Oil Companies School in Tripoli. He has a degree in Petroleum Engineering and a PhD in Petroleum Reservoir Engineering, from the Montan University Leoben, Austria. He founded RDS Austria, and has held multiple director positions with Rig Design Services, now the Engineering arm of KCA Deutag, before founding PM Lucas.
OIL, GAS AND MINING
Gas production for the Turkmenistan-China pipeline, which runs through Kazakhstan. The sign reads: “Dry and clean natural gas”
Gas: an increasingly important player in economic growth
With the right planning and backing, Kazakhstan can make the switch from an importer of natural gas to a global exporter. By Nicholas Watson
teadily rising natural gas production transformed Kazakhstan from being a net gas importer to a net gas exporter in 2009. According to BP’s Statistical Review of World Energy, production hit 32.2 billion cubic meters the same year, up 8.6 percent from 2008, which translates as 1.1 percent of total
global production. In 2010, Kazakhstan produced 37.4 billion cubic meters of gas. At the end of 2010, the country had three trillion cubic meters of current gas reserves, with almost all of them consisting of associated gas in fields located in the west of the country near the Caspian Sea. The two largest gas-producing fields are also the largest oil-producing fields – Tengiz and Karachaganak – where around 69 percent of gas production in 2009 was reinjected to enhance oil production. About 25 percent of proved gas reserves are located in the Karachaganak oil and gas field, which is being developed by Invest in KAZAKHSTAN 2011
OIL, GAS AND MINING
Gas production and transport Russia Karachaganak oil field Major oilfield that also produces gas
Kazakhstan-China gas pipeline
Will boost industrial area and exports
Tengiz oil field Major oilfield that also produces gas
Turkmenistan-China gas pipeline Most gas used in the south is imported via this route
Turkmenistan Saman Depe
Karachaganak Petroleum Operating – a consortium that is led by Eni and BG Group, with each holding a 32.5 percent stake. Chevron owns 20 percent and Lukoil the remaining 15 percent. Karachaganak is the only major oil and gas project in Kazakhstan that lacks participation from state-owned KazMunaiGas (KMG) – although the government is in talks with the partners about rectifying this, with the transfer of a 10 percent stake under discussion. Karachaganak produced around 139 million barrels of oil equivalent (boe) in 2009 and about 15 billion cubic meters of gas – close to half of Kazakhstan’s total gas production that year. While phases one and two were focused on condensate production, phase three is geared to boost gas output significantly, and KPO expects to produce in excess of 25 billion cubic meters in 2012. The bulk of Karachaganak’s gas output is exported north to Russia’s Orenburg gas-processing plant. An agreement between Gazprom and KMG in 2008 created KazRosGas, a joint venture that will purchase gas and expand the Orenburg plant by 2012. Deliveries of Karachaganak gas to the
Orenburg plant – located 84 miles from the field – were eight billion cubic meters in 2008 and are expected to exceed 17 billion cubic meters by 2012. Kazakh gas production will get a further boost – and the country, which consumed 19.6 billion cubic meters in 2009, will become self-sufficient – with the development of the Amangeldy field. Located in the south of the country, Amangeldy is being developed as a joint venture by KMG and Spain’s Repsol. It was reported to be producing just under one billion cubic meters in 2010 and has an estimated 25 billion cubic meters of recoverable reserves.
Gas pipeline shortage The development of Kazakhstan’s gas resources has lagged behind the oil sector, principally because of the lack of domestic gas pipeline infrastructure linking the fields in the west of the country with the industrial east, as well as insufficiency in export pipelines. The populous south of the country imports much of its gas from Uzbekistan – via the Tashkent-Shymkent-Bishkek-Almaty pipeline – even though
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OIL, GAS AND MINING
“At least three companies are exploring for coal-bed methane in the Karaganda region, using experimental technology from Schlumberger. If they are successful, it would be fantastic for central Kazakhstan” Sauat Mynbayev, Kazakh Oil and Gas Minister
The Astana headquarters of KazMunaiGaz, which is interested in exploring for shale gas
Lakshmi Mittal, chief executive of ArcelorMittal, which is working on a coal-bed methane extraction project in Kazakhstan
gas is exported from Kazakhstan’s own north-western regions. However, the Kazakhstan-China gas pipeline will enable the transport of gas to Kazakhstan’s industrial region, as well as increased gas exports, when it comes online in 2014.
Non-conventional gas reserves Wherever there are hydrocarbons deposits, there is the potential for the discovery of shale gas, so Central Asia and Kazakhstan are expected to also locate and develop deposits of unconventional gas. In October, Kazakh Oil and Gas Minister Sauat Mynbayev said that the country is already searching for unconventional gas deposits – both shale gas and coal-bed methane. “At least three companies are exploring for coal-bed methane in the Karaganda region, using experimental technology from Schlumberger, and we are waiting to see whether they are successful. And if they are successful, it would be fantastic for central Kazakhstan, which is far from the western gas fields. We hope this will develop.”
Mynbayev added that explorations for shale gas deposits in eastern Kazakhstan had begun. “Some companies have started to look there, but these projects are much less developed than coal-bed methane,” he said. KMG has expressed interest in developing this particular field of gas exploration, although it has not yet embarked on any specific projects. “Yes, we consider shale gas as part of our strategic plans for the future, but it’s a matter for the future – we are at the moment not involved in exploring for shale gas,” says Kenzhebek Ibrashev, head of KMG Exploration Production, the listed subsidiary of Kazakhstan’s national oil company. Meanwhile, ArcelorMittal – which owns the Temirtau steel complex around 50km from Kazakhstan’s mining capital Karaganda – is working on a project that is partly funded by the European Bank for Reconstruction and Development to extract the roughly 28 billion cubic meters of coal-bed methane from nearby coalfields.
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Taking the long-term view
The Kazakh government has targeted sectors such as chemicals, petrochemicals and fertilizers as priority areas for development
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oil, gas and mining
By adhering to a 20-year national strategy that focuses on areas of the greatest need, Kazakhstan aims to reverse the age-old problem of consumption outstripping production. By Nicholas Watson
azakhstan is making a big bet on the long-term potential of the downstream part of its energy business, and is making huge investments in the country’s refining and petrochemical industries. This marks it out from its Central Asian neighbors, which are pouring investment into only the most immediately profitable growth areas of energy, mining and raw commodities. This strategy is driven by government forecasts that the greatest profits and most lasting prosperity will come from downstream, as well as from value-added manufacturing, industrial and high-tech processes. As such, sustainable, long-term growth requires significant, continuous investment into highlevel technical workforce training and hightech infrastructure development – both of which are primary goals of Kazakhstan’s 20-year national development strategy to the year 2030.This approach has won praise
from many quarters including the European Bank for Reconstruction and Development. Almost all long-term forecasts show the growth rate for consumption of petrochemical products outstripping production, so it’s no surprise that investors are now paying greater attention to this segment. Industry players expect the growth in global demand for petrochemicals this year to match 2010 levels, which hit around two percent in Europe, three percent in the US, and between four and five percent in the Middle East and other emerging markets. A sign of Kazakhstan’s confidence in the industry was the decision of state-owned oil company KazMunaiGas (KMG) in 2010 to press ahead with an ambitious plan to build a petrochemical complex in the Atyrau region close to the Caspian Sea, where major Kazakh oil reserves are located – including the giant Kashagan oilfield – despite foreign partners pulling out. On February 24, the Development Bank of Kazakhstan signed a $1.38 billion loan agreement with the Export-Import Bank of China to help finance the first phase of construction. According to an Oil and Gas Ministry plan published on March 15, the complex will be able to produce 800,000 metric tonnes of polyethylene and 500,000 metric tonnes of polypropylene a year when it reaches full capacity in 2015. Invest in KAZAKHSTAN 2011
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oil, gas and mining
The Atyrau refinery is one of Kazakhstan’s three major oil refineries, each of which has a capacity of 345,000 barrels per day
Each year, the Tenzig oil refinery pumps billions of dollars into the Kazakh economy
KMG’s Atyrau plant will not only be Kazakhstan’s first integrated gas and chemicals complex, but also the only one of its kind in Central Asia The complex will not only be Kazakhstan’s first integrated gas and chemicals complex, but also the only plant of its kind in Central Asia, giving the Kazakhs an enormous advantage and development lead-time over their neighbors. It will supply both the growing local market and compete on international markets, particularly next-door in China, which has emerged as the world’s biggest petrochemical market. Further progress on the complex was announced on March 25, when Deputy Oil and Gas Minister Aset Magauov said that Kazakhstan plans to choose a partner for the planned $4 billion polyethylene plant, the candidates being South Korea’s LG Chem and Abu Dhabi’s International Petroleum Investment Company. South Korea’s Hanwha Chemical, Japan’s Marubeni and China Petroleum & Chemical Corporation, known as Sinopec, also previously held talks on building the plant, the ministry said.
Kazakhstan has three major oil refineries – Pavlodar, Atyrau and Shymkent – which have a capacity of around 345,000 barrels per day, but which operate below this level due to lack of demand on the local market for their products: fuel oil, diesel fuel, motor gasoline, jet fuel and liquefied gas. To bring them up to international standards and to start exporting their products, all three are set to modernized. The refinery at Pavlodar in northern Kazakhstan is supplied mainly by crude oil produced at Russian oilfields in western Siberia. On February 27, KMG denied reports that it is planning to close Pavlodar after 2014, when duty-free imports from Russia will cease. “KMG has no plans or intentions [to close the refinery],” the company said in a statement. “Moreover, all measures for the further modernisation of the Pavlodar plant are being carried out according to the government order from 2009 to develop refining capacity in Kazakhstan by 2014.” The Atyrau refinery is also being modernized. In October 2009, KMG and Sinopec signed a contract for the construction of a new processing facility, scheduled for completion by 2013. The facility will allow the plant to extract benzene and other chemicals from oil, and improve the quality of gasoline output. The Shymkent refinery is operated by Petrokazakhstan, which is 33 percent owned by KMG and 67 percent owned by the China National Petroleum Corporation. Petrokazakhstan is the second-largest foreign-owned oil producer, and the largest manufacturer and supplier of oil products in the country. It is currently involved in projects aimed at increasing the refining capacity and range of products at Shymkent.
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Condor Petroleum is committed to developing energy resources in a manner that respects the environment and communities surrounding us.
C o n d o r
Condor is actively exploring in Kazakhstanâ€™s Pre-Caspian and Chu-Sarysu Basins.
oil, gas and mining
ArcelorMittal’s safety investment pays off
Following several methane-associated accidents during mining in deep excavations, efforts by ArcelorMittal to tackle this problem have made a significant difference to eliminating accidents and mitigating risks, reports Christopher Pala
teel producer and mining company ArcelorMittal – after investing $342 million, and three years into its multimillion-dollar program in Kazakhstan to cut coal-mining fatalities to zero in five years – is finding that the accidents that had turned it into a magnet for controversy have fallen significantly. “This shows we’re taking the right measures,” says Frank Pannier, CEO of the Kazakhstani unit (Temirtau) of the world’s largest steelmaker. The number of accidents in 2010
About 11,000 of ArcelorMittal’s employees work underground, where coal deposits are now degassed routinely beforehand
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oil, gas and mining
The investment to improve safety at coal mines has been undertaken in addition to a $1 billion program to raise the output of steel from four to six million tons by 2015 Number of accidents
A drop in fatalities
fell to 64, compared with 81 in 2009 and 179 in 2008; fatalities dropped from 42 to seven over the same period. Around 11,000 of the company’s 40,000 employees work underground in mines made dangerous by methane deposits. Pannier says 2,548 people died in accidents, mostly as a result of methane explosions, from the time the complex was built south of Astana in 1945 – an average of 50 per year. But since ArcelorMittal steel bought the complex of eight coal mines and two mills in 1996, a total 217 coal miners have died – an average of 14 a year. Still, when an explosion at the Lenina mine – south-east of the capital, Astana – killed 41 people in September, 2006, the staff went on strike. After another explosion at its Abaiskaya mine killed 30 workers in 2008, Kazakhstan’s government publicly threatened the company with pulling its license to operate if it did not improve safety. At the time, President Nursultan Nazarbayev – who began his career at the age of 20 at the steel plant when
it was inaugurated in 1960 and had worked there for several years – was deeply upset by the events, according to a source who quoted his confidants. The high casualty rate is largely due to the fact that ArcelorMittal’s coal runs mostly at depths between 2,600 feet and 3,200 feet. That is very deep in comparison to other coal mining conditions worldwide. The coal seams are also some of the gassiest in the world, containing pockets of methane under pressure that are difficult to detect, says methane expert Clark Talkington, a senior vice president at Sindicatum Carbon Americas. In contrast, for the rest of Kazakhstan’s coal industry, which provides 80 percent of the country’s energy, open-air strip mining is the norm. In July 2008, the company embarked on a plan to eliminate methane explosions, a program that combined staff training and the importation of state-of-the-art gas detection, ventilation equipment and world-class degassing techniques.
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oil, gas and mining
One source for innovative solutions Since 1882, FLSmidth has been blazing new trails in the cement and minerals industries, helping it become leaner, greener and more profitable. With offices in over 40 countries and more than 11,000 employees, FLSmidth is recognised as a leading supplier of a comprehensive range of equipment, and is available to help with everything from strategic planning to overcoming everyday challenges. Its unmatched combination of proven technology and process know-how has provided innovative solutions for many of the world’s most successful plants – including more than 2,000 cement plants – in
Kazakhstan and around the globe. The Republic of Kazakhstan is rich in natural resources and is one of the world’s most significant suppliers of minerals, oil, gas and other products. FLSmidth is proud that several companies in Kazakhstan – such as Central Asia Cement, Sastobe Cement and Kokshe Cement – have trusted it with equipment orders for production of the high-quality cement essential to the country’s continuing development. It looks forward to cooperating with these and other companies to supply engineering skills and equipment for existing and
The investment to improve safety at coal mines is undertaken in addition to a $1 billion program to raise its output of steel from four to six million tons by 2015. The European Bank for Reconstruction and Development granted a $100 million loan for the safety program. The program for degassing is all about removing as much methane as possible from the mine before production begins, and removing the remainder during the mining process, Arcelor’s Pannier explains. Holes of varying diameters are drilled across the production unit in the coal seam and through the roof of the extracted area to capture the methane, which is brought up by suction pumps on the surface. “What we’re doing is doubling the number of ventilation wells,” says Pannier. “We also are installing more effective ventilation and degassing equipment, and more sophisticated equipment to detect gases.” A native of Dessau in Germany who has worked at various steel and mining companies in Germany, Ukraine and Kazakhstan, Pannier says that eliminating mortality from Temirtau’s eight mines represents “one of the most challenging jobs of my career. Many studies have shown that not all risks can be eliminated, but we can apply practices that mitigate this risk,” he says.
greenfield cement plants, as well as for Kazakhstan’s minerals industry. The company would also like to congratulate the people of
Kazakhstan on this year’s celebration of the 20th anniversary of Kazakhstan’s independence, achieved on December 16, 1991.
Sindicatum’s Talkington agrees that Arcelor’s mines are among the most challenging in the world. “Management is clearly committed to improving safety, and I think they should be able to achieve that by bringing in the latest degassing technology developed in Australia and the US, and adapting it to the local conditions.” Although the worldwide recession has cut into the profits of the world’s largest steelmaker, the Temirtau operation, luckily, “is very cost-effective”, says Pannier. “We’re working at full capacity, we have captive iron, coal and energy, and we even managed to turn a profit in 2009,” he says. This year, steel output will be increased by 17 percent to 3.9 million tons as demand bounces back, he adds. There’s also hope of actually extracting a profit from the methane as well: in two of the mines, it is captured and used for heating, and an experimental two megawatt (MW) power station is being tested. If the technology proves successful, the company could use the methane to power a 50MW plant to replace that amount of power that the company currently purchases from the grid, Pannier says. Christopher Pala, a former Central Asia correspondent for The New York Times, is a freelance journalist based in Washington, DC. Invest in KAZAKHSTAN 2011
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oil, gas and mining
Unearthing Kazakhstanâ€™s metallic riches
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oil, gas and mining
With all the minerals in the periodic table, Kazakh investment in mining and metals production is back on track. By Clare Nuttall
he rally in global commodities prices that started in late 2009 and persisted through last year put Kazakhstan’s mining sector back on track after some severe setbacks during the international economic crisis. Now the sector’s giants – Eurasian Natural Resources Company (ENRC), Kazakhmys and ArcelorMittal Temirtau – are reviving their investment plans, as are the many smaller players in the industry. Kazakhmys is planning to spend $6 billion over the next three to four years to develop new deposits, modernize and expand its existing metals business, and launch new energy projects. ENRC has $7 billion of investment plans, and the country’s largest steel producer, ArcelorMittal Temirtau, is partway through a $1.2 billion program to modernize its plants and improve its safety record. Kazakhstan had already increased production of several of its key commodities since the crisis. According to the State Statistics Agency, in 2010 Kazakhstan produced 323,428 metric tonnes of refined copper in 2010, up 3.4 percent compared to the previous year, and production of ferroalloys was up 18.3 percent to 1.73 million metric tonnes. Kazakhstan also increased output of alumina by 7.6 percent, crude steel by 1.8 percent and refined gold by 29.5 percent during 2010. Meanwhile, production of zinc concentrate and lead concentrate fell by 3.3 percent and 8.4 percent respectively, compared to 2009 levels. China remains the largest consumer of Kazakhstan’s metals and minerals. Oil and oil products accounted for 45 percent of exports in 2009, followed by mining products, which accounted for 16 percent of the total,
iron-based metals (15 percent), copper and brassware (13 percent) and chemicals (seven percent), according to Renaissance Capital. Chinese demand is a driving force for some of the largest investments in the sector. Kazakhmys said on announcing its 2010 results in March 2011 that it expects the current strong demand for copper to continue. The company’s production is expected to remain relatively flat until 2014, when some significant new projects start to come online. Kazakhmys is developing two major copper deposits, Aktogay and Bozshakol, both of which are located in eastern Kazakhstan. In June 2011, the company announced that it had signed a memorandum of understanding with the China Development Bank to secure a $1.5 billion loan facility to develop the Aktogay copper project. Kazakhmys already has a $2.7 billion loan facility from the bank for Bozshakol and several medium-sized projects. “Our two major growth projects, Aktogay and Bozshakol, should produce around 200 kilotons of copper concentrate each year, equivalent to 60 percent of our current production, which is significant for Kazakhmys and for the growth of the metals industry in Kazakhstan,” said Kazakhmys CEO Oleg Novachuk in a statement issued following the latest agreement with the China Development Bank. In February this year, Kazakhstan’s President Nursultan Nazarbayev announced during his visit to Beijing that the China Development Bank also agreed to provide a $2 billion loan to ENRC. Of this total, $1.6 billion is expected to be used by the iron-ore division and $400 million for the ferroalloys division. Like Kazakhmys, ENRC has ambitious expansion plans, and at the beginning of this year the company’s then CEO Felix Vulis announced the company expects to invest up to $7 billion to develop its assets within Kazakhstan. Key projects in ENRC’s home country are the construction of a ferroalloy plant in the Invest in KAZAKHSTAN 2011
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oil, gas and mining
The Zhezkazgan mining and smelting plant, operated by Kazakhmys
Aktobe region and the expansion of the Sokolovsko-Sarbaiskoye Mining Association. ENRC may also invest up to $2 billion in the Zhairem polymetallic project. While firmly rooted in Kazakhstan, ENRC is also expanding overseas. It has made several investments in Africa and South America. Kazakhstan’s largest steel producer, ArcelorMittal Temirtau, announced at the end of 2009 that it was resuming all investment projects in Kazakhstan that had been suspended due to the crisis. The company is spending on new steel production facilities and mines, and on improving safety. Kazakhstan’s steel production was up 4.1 percent year on year in 2010, to 4.3 million tons, according to the World
Steel Association. Consumption within the country was also up to around three million tons, as pipeline and new construction projects – many government funded – pushed up demand. Kazakhstan also exports steel, with its main markets being China, Russia, Iran and the European Union. Both ENRC and Kazakhmys are listed on the London Stock Exchange, and in June 2011 Kazakhmys successfully carried out a secondary listing on the Hong Kong Stock Exchange. There is currently speculation that part of the Kazakhstani government’s stakes in the two companies could be sold off as part of the planned ‘People’s IPO’ programme. However, the list of companies to be included in the programme has yet to be finalized. Meanwhile, commodity trader Glencore, which owns 50.7 percent of Kazzinc, carried out a $11 billion flotation on the London Stock Exchange in May 2011, with a secondary listing in Hong Kong. Glencore plans to use funds from the listing to increase its stake in Kazzinc, which is active in mining zinc and lead, and in metallurgy, as well as to finance capital expenditure and repay its debts. In addition to the giants of the Kazakh mining sector, numerous smaller companies are active in various branches of the mining industry. Kazakhstan prides itself in holding all of the minerals in the periodic table, and investors are looking beyond copper and iron to the lesser known, but valuable metals such as rare earths, which are increasingly in demand since China has reduced exports.
Kazakhstan metal production in 2010
1.8% Crude steel
Zinc concentrate Lead concentrate
3.3% 8.4% Invest in KAZAKHSTAN 2011
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Thatâ€™s why this year we are investing $90 million to improve the safety of our operations in Kazakhstan.
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oil, gas and mining
Good things come in small packages Opportunities for unearthing precious metals abound – and not only for mining behemoths. By Christopher Pala
ost of the minerals in the periodic table are to be found in Kazakhstan, with plenty left in the ground for entrepreneurial smaller mining companies. Higher gold and silver prices benefit both the polymetal miners such as Glencore International and Ivanhoe Mines, and smaller gold players such as AIM-traded Hambledon and Frontier Mining, and phosphates miner Sunkar Resources. President Nursultan Nazarbayev has set a goal of more than tripling gold production to 70 metric tonnes a year by 2015, paving the way for multiple opportunities for investment in the remaining two-thirds of the deposits. There are technical challenges, however. Most of the Kazakhstani gold is in polymetallic ore that requires complex processes, mostly refractory, to isolate.
But there is a tantalizingly abundant supply of gold, which since 2000 has quintupled in price to $1,600 per ounce. The US Geological Survey estimates there are 1,900 tonnes of gold in the country. This makes it the world’s ninth largest country in terms of reserves, yet in terms of production (20 tonnes a year) it ranks twentieth. Of those reserves, about a third is held by two companies. Around 360 tonnes are believed to be in the Vassilkovskoye deposit, located in northern Kazakhstan and owned by Kazzinc in Zyrianovsk, to the east. The former state-owned company – which has sold its controlling 50.7 percent stakes to Switzerland-based Glencore International – is planning on doubling its capacity to 15 tonnes a year. Kazzinc, which owns 100 percent of the Vasilkovskoye gold mine, is in the process of spinning off its gold assets into a separate company. Another 277 tonnes of gold reserves are in the Kyzyl Gold Project’s Bakyrchik mine, located in the industrial center of the country. It is operated by Altynalmas Gold, in which Canada-based Ivanhoe Mines raised its interest from Invest in KAZAKHSTAN 2011
oil, gas and mining
Requests for tenders have been circulated for the fabrication of long-lead items for the Bakyrchik operation
A miner at Bakyrchik, one of the world’s largest gold deposits, located in the industrial center of Kazakhstan
49 percent to 50 percent. Ivanhoe is controlled by billionaire Robert Friedland. The rest of the stake is owned by a group of investors headed by Goga Ashkenazi, the London-based, Kazakh-born socialite and businesswoman. In addition to Bakyrchik, the Kyzyl Gold Project contains the Bolshevik gold deposits and several satellite deposits. After a pre-feasibility study gave the green light, a definitive feasibility study on the Bakyrchik Deposit began in September 2010 and is expected to be complete by this summer. Requests for tenders have been circulated for the fabrication of long-lead items for the mining operation, including an oxygen plant and dry-grinding mill. Altynalmas expects to begin construction of a 1.5-million-tonne per year fluidized-bed roasting plant to process the project’s refractory ores in 2011. Targets are 12.5 tonnes for 2014, the first year of full production, 15 tonnes by 2015 and, after developing a second mining front, 20 tonnes a year. The company is investigating financing options that include an initial public offering, strategic investors, project financing or continued financing from existing shareholders. UK-based Hambledon Mining, the dean of the junior internationals, has been operating in Kazakhstan since 1998.
Its main focus is the Sekisovskoye deposit, an open-pit mine and underground development with a multifunctional processing plant located near Ursk Kamenogorsk in east Kazakhstan. So far it is producing 0.85 tonnes a year, but expects to reach 2.8 tonnes by 2013 when the company plans to process ore from underground, which has a grade that is around three times higher. “We have capacity to process up to one million tonnes a year of ore depending on its hardness,” Hambledon Director Nick Bridgen told the Journal of Engineering and Mining. Since this is more than its mines can produce, Hambledon plans to process other companies’ ore at plants at Sekisovskoye and possibly Ognevka. In addition, Bridgen explained that the company is looking to buy other deposits. In March 2011, the company announced its intention to raise £8.52 million ($13.63 million) net of expenses through the issue of up to 227,329,873 new ordinary shares. London-registered phosphate producer Sunkar, located near Aktobe in Western Kazakhstan, near the Russian border, was born from the takeover of Temir Services in 2006. The 836-square-kilometer Chilisai deposit is one of the largest in the former Soviet Union, with a resource of around 800 million tonnes of ore at 10 percent phosphorus pentoxide. The company extracted one million tonnes last year. It was developed during the Soviet era and it closed for several years when demand for fertilizers collapsed in the early 1990s. In March, Sunkar reached agreement with Gazprom’s Meleuzovskiye Mineralniye Udobreniya to supply 5,000 tonnes of phosphoric concentrate. Frontier Mining, incorporated in the Cayman Islands, mines gold and copper deposits and is expected to produce 3,000 tonnes of LME-grade copper from the Benkala mine by the end of 2011. Frontier owns half of Benkala and is in the process of acquiring the other half from Coville Intercorp, a private Kazakhstani mining group. Frontier also has one producing gold mine, Koskuduk.
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Sun setting over Gobi Desert. D375A Digger used in the primary crusher open pit.
oil, gas and mining
Keeping the nuclear faith
Uranium pellets cool after being baked at the Ulba Metallurgical Plant in Ust-Kamenogorsk, Kazakhstan
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oil, gas and mining
With vast reserves of uranium, Kazakhstan stays strong on nuclear power. By Christopher Pala
azakhstan – which holds the world’s second largest reserves of uranium after Australia – expects to produce 19,600 tons this year after more than doubling its output in just three years. By increasing both the number of its mines and the capacity of many of them, Kazakhstan became the world’s largest producer in 2009, leaving the other two giants – Canada and Australia – far behind. And that’s not all: production is scheduled to reach 25,000 tons by 2015. But ramping up output to satisfy the demand of a world increasingly turning away from carbon-intensive energy like coal and oil, is only one goal. The other is to harness the know-how of major international players to squeeze ever more value out of every kilo of the metal, by expanding downstream and mastering functions that in the Soviet days were performed in Russia. The ultimate plan is to take the nuclear cycle to its conclusion by building a nuclear power plant by 2020. While the reappraisal of nuclear energy’s safety in the wake of the nightmare at Japan’s coastal plants has cast a pall on uranium’s future, the World Nuclear Association still estimates that there will be at least 589 nuclear plants in the world in 30 years, from 367 today. Still, there’s no question that the catastrophe could have an effect on global demand. “The nuclear renaissance has been called into question,” says John Mothersole, an analyst at IHS Global Insight in Washington, DC. “Now the outlook is anywhere between very good and uncertain.” Kazakhstan’s faith in nuclear energy’s safety was vividly illustrated by the reaction of Duisenbai Turganov, the Deputy Minister of Industry and New Technologies, at a
conference on power engineering that took place after the earthquake raised fresh doubts about nuclear energy’s safety. “We believe that the construction of a nuclear power plant should take place in Kazakhstan because we have all the necessary conditions for this,” he said. “We hold the world’s second largest uranium reserves and we are in front of everyone in terms of production,” he added. ‘Of course, significant attention must be paid to security.” Dominating the uranium field is Kazatomprom, headed by Vladimir Shkolnik, a nuclear engineer and former president of the Academy of Sciences of Kazakhstan who has served as energy minister and trade
Kazakhstan became the world’s largest producer in 2009, leaving Canada and Australia far behind minister. In 2009, Kazakhstan produced 13.5 tons of uranium – almost 28 percent of global production. The following year, production volumes continued to grow and reached 17.8 tons. Expected profits are $366 million and the orders book amounts to $17 billion. In addition to increasing production, Kazatomprom is diversifying its activities across the entire nuclear fuel cycle through a growing number of foreign joint ventures. Shkolnik has stressed that more foreign investors are being sought for these activities. Last year, the company took a series of initiatives in uranium conversion, enrichment and fuel fabrication with international Invest in KAZAKHSTAN 2011
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Vladimir Shkolnik, Chairman of the Board of Kazatomprom Two years ago, Kazakhstan overtook both Australia and Canada to become the world’s largest producer of uranium. Kazakhstan further boosted production to 17,803 tons in 2010, and we are aiming to reach 19,900 tons in 2011. With close to 19 percent of global uranium reserves, Kazakhstan is well positioned to take advantage of the ongoing nuclear renaissance. Governments around the world are increasingly turning their attention back to nuclear energy, due to high oil prices and concerns over future access to fossil fuels. The world was with Japan after the disaster at the country’s Fukushima power plant, which was severely damaged by the tragic earthquake on March 11, 2011. Although some governments are rethinking their plans to build new nuclear capacity, the majority of projects, many of them in Asian
countries, are expected to go ahead. The demand for uranium is still expected to be high. China, Russia and South Korea are all planning to build new power plants, while Kazakhstan is preparing to launch its own nuclear power industry, with the construction of a power plant in the western Mangystau region. Kazatomprom plans to invest 341 billion tenge ($2.3 billion) between 2011 and 2015 on increasing production. But our ambitions are not limited to increasing uranium extraction. For several years, the company has been working to build an international, vertically integrated uranium industry spanning all stages from exploration and production of uranium through to processing. We employ more than 25,000 people across all stages of the uranium product cycle and related activities.
companies like Areva of France, Cameco of Canada, and Toshiba and Sumitomo of Japan. An agreement signed with Areva in October 2010 during an official visit by Kazakh President Nursultan Nazarbayev to France allowed Ulba Metallurgical Plant (UMP) – which is 51 percent owned by Kazatomprom and 49 percent owned by Areva – to build a 400-ton-per-year fuel fabrication line that is due to start operation in 2014. In 2010, UMP completed Areva’s certification process to produce fuel pellets made of uranium dioxide as per Areva’s specifications, used in many countries around the world. In addition, Kazatomprom works with Areva in the Tortkuduk and Southern Mynkuduk mines. In the field of uranium conversion, Kazatomprom signed a memorandum of understanding with Canada’s Cameco, covering the development of a refinery at its
A contract between French nuclear giant Areva and Kazakhstan company Kazatomprom is signed at the Élysée Palace, Paris, in October 2010
Building Kazakhstan’s nuclear industry has been a work of cooperation between Kazatomprom and several strong international partners. Joint ventures with top companies including Areva, Cameco and UraniumOne are enabling Kazatomprom to create a world-class uranium industry. On May 18, 2011, the Kazakh-French joint venture KATCO celebrated the production of its 10,000th ton of
uranium production in south Kazakhstan oblast. Meanwhile, our company is also looking to invest $800 million to develop rare-earth metal mining in Kazakhstan. Finally, we are venturing into green energy. Green energy is clearly becoming a more important part of our future. To that end, we started building a $230 million solar-panel plant in Astana, and are researching other ventures.
Ulba Metallurgical Plant subsidiary and the expansion of the uranium conversion capacity at the Springfields plant in the United Kingdom, where the latter company has a toll-processing agreement. In 2010, UMP successfully completed the certification of production of uranium fuel pellets at China Jianzhong Nuclear Fuel, a unit of the China National Nuclear Company. The uranium pellets will be used in fuel production for the largest nuclear power plant owner in China, the China Guangdong Nuclear Power Corporation. UMP is also working on the construction of a processing plant with Toshiba and an enrichment plant with Rusatom. Meanwhile, Kazatomprom is moving forward with plans to take a stake in the Ural Electrochemical Plant enrichment facility in Russia and expects to complete a deal to acquire shares in the plant during the coming year.
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Эффективные проекты Hambledon Hambledon Mining public limited company (HM plc) – это английская компания, владеющая компаниями ДТОО «Горнорудное Предприятие Секисовское» и ТОО «Алтай Кен-Байыту». Главный исполнительным директором является Тим Даффен. HMpIc - это сравнительно небольшая открытая акционерная компания, чьи акции котируются на фондовой бирже Лондона, тем самым имеет возможность привлечения как корпоративного, так и частного капитала. Местом проведения работ является с. Секисовка в Восточно-Казахстанской области, хотя в планах компании - расшире¬ние деятельности и развитие других проектов на территории Республики. Будучи чисто английской компанией, тактика управления у нас отличается от других иностранных компаний в Казахстане. Наем иностранных специалистов происходит в исключительных случаях, когда необходимы специализированные знания. Имея долгосрочные планы на будущее учас¬тие в экономическом развитии Казахстана, руководство компании обращает пристальное внимание на соблюдение норм и требований экологического законодательства, вносит посильный вклад в развитие социальной инфраструктуры района работ. Особый контроль со стороны предприятий - обеспечение безопасности на производстве. Внедрение новых, основанных на мировом опыте, методов разведки, отработки месторождений, совре¬менных способов извлечения золота - политика компании. Наши предприятия используют передовые методы финансового
учета и управления. Внедрена программа бухгалтерско-финансового учета «Sun system», программа для учета кадров и расчета заработной платы HRB. Рабочий и инженерный персонал прошли обучение у иностранных специалистов и успешно работают на современном оборудовании, таком как буровые станки Roc-L7, Diamec, экскаваторы Hitachi. Инженерные работ¬ники овладели программой Data-mine. Главная задача HMpIc в сфере HR- стратегии, внедряемой на предприятиях компании - помочь каждому сотруднику стать максимально эффективным, расти и развиваться профессионально, воспи¬тать свои кадры, с длительным сроком работы на предприятии, назначение на руководящие позиции своих «доморощенных» специалистов, сокращение текучести кадров, при жесткой дисциплине. ДТОО «ГРП Секисовское» с июня 2007 года приступило к отработке Секисовского месторождения золотосеребряных руд открытым способом. Ведутся подготовитель¬ные работы по доразведке глубоких горизонтов месторождения. Наличие высокопрофессионального инженернотехнического состава и опытных рабочих кадров, на 95% состоящих из жителей ВосточноКазахстанской области, позволяет решать любые задачи по разведке, проектированию, моделированию и отработке месторождений.
Основная деятельность ТОО «Алтай Кен Байыту» - это переработка минерального сырья с получением золотосеребряного сплава «Доре». Технология переработки руд с малым содержанием золота, разработанная специалистами предприятия совместно с австралийскими партнерами, пред¬ставляет интерес для многих месторождений Казахстана. Ежегодно производится обновление Меморандумов о социальной ответственности бизнеса. С учетом уровня заработной платы местных жителей на наших предприятиях, в сельском округе усилилась конкурентность за трудовые ресурсы, что положительно сказывается в целом на жизненном уровне местных жителей. На наших предприятиях работает свыше 500 работников. Мы имеем уже более чем десятилетний опыт работы в Казахстане. На наших глазах идет укрепление и рост экономического потенциала страны, рост политического авторитета Республики на международной арене. Казахстан является одной из наиболее привлекательных на постсоветском пространстве стран для иностранных инвесторов. От имени Учредителей Hambledon Mining PLC, всех наших работников, поздравляем весь казахстанский народ с 20-летием независимости. Желаем счастья и процветания!
Hambledon Mining public limited company (HM plc) a British company, and owner of Sekisovskoye Mining Company SLLP and Altai Ken-Baiytu LLP. Chief Executive Oﬃcer of the company is Tim Daﬀern. HM plc is a relatively small, open joint-stock company, whose shares are quoted on the London Stock Exchange and which is capable of raising both corporate and private funds. The operation site is located in the village of Sekisovka in the Eastern Kazakhstan Region, however the company’s plans envisage expansion of its activity and development of other projects in Kazakhstan. While still a British company, our management approach is diﬀerent from that of the other foreign companies in Kazakhstan. Expatriate experts are hired in exceptional cases when special knowledge is required. In its long-term plan for future participation in the economic development of Kazakhstan, the company management pays close attention to compliance with environmental standards and requirements, and makes a strong contribution to the development of
the social infrastructure in the area of its operations. The company exercises strict control of industrial safety. Our policy of operations includes implementation of methods of exploration and gold recovery, based on international experience. Our companies implement advanced accounting and management methods, such as Sun System and HRB – the human resources and payroll accounting software. Mine operations and engineering personnel have been trained by expatriate experts and are eﬃciently operating modern equipment such as Roc-L7 and Diamec drill rigs, Hitachi excavators etc. Also, mine design personnel have been trained in Datamine. The main objective of the HM plc HR strategy is to assist every employee in achieving maximum selfeﬃciency. In June 2007, Sekisovskoye Mining Company LLP started development of Sekisovskoye gold and silver deposits by open-pit methods. At this stage,
further exploration of deep levels is being carried out. The basic activity of Altai Ken-Baiytu LLP is mineral processing to produce gold-silver Dore alloy. The technology of processing low-grade gold ore, developed by the company specialists together with our Australian and British partners, is attractive for many deposits in Kazakhstan. On behalf of the founders of Hambledon Mining PLC and all our employees, we would like to congratulate all the people of Kazakhstan on the 20th anniversary of the country’s independence and to wish them happiness and prosperity.
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energy and infrastructure
The electricity infrastructure of Kazakhstan has been stretched to capacity over the past eight years
Building a grid that’s fit for purpose
As the southern half of Kazakhstan does not have the infrastructure to receive surplus energy from the north of the country, which has an abundance of amenities, efforts are being made to address this imbalance and make it self-sufficient – with enough electricity spare to sell to its neighbors. By Tim Gosling
ith Kazakhstan’s resumption in economic growth, electricity demand is booming once more across the country, and with the government committed to higher power tariffs, the incentives for investment in both electricity generation and the national grid system have never been greater. Investment in expanded capacity is a matter of urgency in Kazakhstan, as a deficit in the supply of electricity is growing. Power cuts, especially in the south, can be frequent,
with electricity infrastructure stretched to capacity by the increase in industrial production over the last eight years. The situation was somewhat allayed by the financial crisis, but with industrial production expanding once more, the country is again hungry for power. At the same time, Kazakhstan has the opportunity to boost exports to China, Russia and its Central Asian neighbors, some of which offer wholesale prices significantly above Kazakh production costs. Thermal power plants account for 85.5 percent of the country’s generation, with the remainder being produced by hydropower (8.8 percent) and gas turbine stations (5.7 percent). As of 2009, there were 63 electric power plants in Kazakhstan, the major ones controlled by large industrial consumers, which acquired them during the boom years.
Government plan to boost capacity The power industry is seen as a key factor in Kazakhstan's industrial development and economic growth, with generation accounting for around 10 percent of all industrial output. Invest in KAZAKHSTAN 2011
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energy and infrastructure
Percentage of energy production in Kazakhstan
Thermal power plants
Most installed capacity was built before 1990. Until 2006, the sector suffered from underinvestment and as a result, the total operational capacity deteriorated to 14.6 gigawatts (GW), a significant shortfall from installed capacity of 19GW. Overall, the power sector is projected to boost total capacity to around 125 billion kilowatt hours (kWh) by 2015. By comparison, 82.3 billion kWh was produced in 2010, representing a 4.9 percent increase over 2009 levels. However, consumption spiked at 7.4 percent the same year to 83.8 billion kWh, and the market is forecast to grow by up to a third over the next five years. The Plan of Energy Sector Development 2007-15 sets out the government’s targets for the sector: • Reconstruction of existing power plants • To build additional capacity of 2,430-2,550MW • Investment of up to $14.3 billion to 2015 (although industry figures suggest $20 billion plus) Investment is also planned for the transmission grid, which is limiting the transfer of excess power between regions and sees significant power losses during transmission.
Tariffs to attract investment
Gas turbine stations
The leading edge to encourage investment in power generation is a framework to raise tariff ceilings for domestic electricity sales for 2009-15. The ceiling prices are set by the Ministry of Energy on an annual basis, and are subject to generators meeting capital investment commitments. Government forecasts for certain power plants suggest increases of up to 60 percent over last year’s tariffs by 2015. Generally, the price ceilings are set in order that the required capital expenses are recovered within eight to 12 years. The power sector was one of the first to be privatized after Kazakhstan gained its
independence in 1991. Up to 100 percent foreign participation is permitted in developing power projects in Kazakhstan. The Law on Electricity was adopted in July 2004. Another basic act regulating the market is the Law on Natural Monopolies, which was last amended in December 2004. The market regulator is the Agency for Regulation of Natural Monopolies.
The risk to economic development The biggest motivation for the government push to attract investment is that the country’s limited capacity threatens to start restricting its accelerating economic development. Development of nuclear energy, which would make use of Kazakhstan's uranium resources, is one proposal favored by the government. Russia, Japan and China have expressed interest in working with Kazakhstan on a number of projects – including the construction of a nuclear power station. A feasibility study into the project is under way. In the meantime, Kazakhstan is likely to become increasingly reliant on imports of electricity from its neighbors, and the Kyrgyz Republic in particular. Kyrgyzstan, however, is a potentially unreliable source of energy, given persistent political instability and erratic water supplies to its hydropower plants. Businesses in other sectors are aware that electricity supplies risk becoming increasingly erratic, and that they might need to consider investing in their own generating sources, unless development of the power industry is accelerated. In one example, the West Kazakhstan authorities announced in 2009 that construction of a new cement plant in the region had been postponed due to the lack of a reliable electricity supply. Another impetus for development of the sector is regional imbalance. While the north – studded with power plants surrounding its rich coal fields – exports electricity to Russia, a deficit in the south and west makes it necessary to import from southern neighbors Kyrgyzstan and Uzbekistan.
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energy and infrastructure
Strengthening the backbone One of the biggest investment opportunities in the Kazakh power sector is the upgrade and expansion of the national grid. Despite improvements in recent years, there is room for improvement, given that losses during transmission and distribution are estimated at approximately 15 percent. Kazakhstan Electricity Grid Operating Company (KECOG) has
said it plans to invest in expansion through 2025. The company has prioritized transmission lines to Kyrgyzstan, and to connect existing and future hydropower facilities with significant load centers. At the same time, a new power line – funded by the European Bank for Reconstruction and Development (EBRD), Kazakhstan Development Bank and the World Bank – opened in September 2009,
One of the biggest investment opportunities in the country, therefore, is the need to integrate a national transmission grid. The national power grid, largely built before 1990, was not designed to transfer surplus between regions. Development of infrastructure in the west of the country is also geared to the energy-hungry Chinese market, while Russia and other Central Asian states are targets for exports as well. Kazakhstan is considering building a 900km transmission line to export power from Ekibastuz to Urumqi in China, while the Chinese side is reportedly mulling an investment in the construction of a large power station in Ekibastuz. Meanwhile, Kazakhstan’s coal-powered plants in the north export considerable volumes of power to Russia, where prices are expected to continue to rise as the economic recovery continues. Russian bank VEB is financing the construction of a third power plant at Ekibastuz GRES-2 power station to the tune of $800 million.
and goes a long way towards solving regional imbalances by doubling the volume of electricity delivered to central and southern Kazakhstan from the north. Meanwhile, Hyundai Engineering Co. recently won a tender run by KECOG for a $100 million upgrade of substations. The contract is part of an ongoing $400 million modernization project, financed by another EBRD loan.
India’s KEC International said in January that it has signed agreements to rehabilitate 38 substations covering the north-east and the south. KECOG recently announced that the EBRD is considering a further loan of $166 million to finance rehabilitation of the Ossakarovka electricity transmission line, which supplies Astana and the Akmola region.
The Kokaral Dam on Kazakhstan’s Aral Sea
Renewable energy Kazakhstan possesses five operational hydroelectric plants, which provide roughly 12 percent of production – with most facilities sitting on the Irtysh River. Other renewables are largely undeveloped, although Kazakhstan has potential in renewable energy resources, which could be particularly attractive in isolated rural areas. In March 2011, Central Asia Green Power, an Italian/Turkish joint venture, agreed on a $1 billion project to build two wind farms to help alleviate the shortage of power in the south of the country. In 2009, over KZT65 billion ($446 million) was invested in the electricity sector, not including funds
allocated from the central and local budgets. In 2010, investment of more than KZT85 billion was planned, solely in the renovation of power plants. Among the largest investments under way are the Moinak hydro power station (partly financed by the EBRD), the expansion and reconstruction of the Ekibastuz hydropower station-1, the third power unit of the Ekibastuz hydropower station-2 and the Balkhash thermal power plant – in which South Korea has agreed to invest $3.8 billion. Invest in KAZAKHSTAN 2011
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Engineering Solutions for the Oil Industry Engineering Solutions for the Oil Industry
Engineering Solutions for the Oil Industry
PM Lucas has pro Integrated Turnkey Projects Provider of Choice • Subsurface eng PM Lucas is a fully integrated Service Provider for the Oil & Gas exploration and Production Industries and related Industries. Engineering Servi PM Lucas provide complete E&P engineering solutions from Geological & Geophysical, Reservoir Management, Production, Drilling • Surface enginee & Well Intervention to Process and Surface Facility Engineering for the Oil & Gas and related industry. and water handlin PM Lucas project experience includes complete field development; well drilling and intervention; field production management; PM Lu Integrated Turnkey Projects Provider of Choice PM Lucas has dr Facility Engineering and Construction; Full Field Turnkey Development; Complete Oilfield Management Services; Integrated Turnkey Provider of Choice • Subs PM Lucas is a Projects fully integrated Service Provider for the Oil & Gas exploration and Production Industries and related Industries. which 250 wells PM Lucas provides from single consultant specialized support to complete turnkey and EPC, EPSCM, EPCC and BOOM solutions. PM Lucas is a fully integrated Service Provider for the Oil from & Gas exploration and Production Industries and related Industries. Engine PM Lucas provide complete E&P engineering solutions Geological & Geophysical, Reservoir Management, Production, Drilling interventions. PM Lucas is fully accredited by the international body TUV NORD CERT GmbH, from Germany: PM Lucas provide complete E&P engineering solutions from Geological & Geophysical, Reservoir Management, Production, Drilling • Surfa & Well Intervention to Process and Surface Facility Engineering for the Oil & Gas and related industry. The Company has • ISO 9001: 2008 Management System project experience includes field development; andrelated intervention; field production management; PM Lucas and & Well•PM Intervention to Environmental Process and Management Surface complete Facility Engineering for the well Oil &drilling Gas and industry. has wa rec ISOLucas 14001:2008 System Lu Engineering and Construction; Full FieldManagement Turnkey Development; Complete Oilfield PM Lucas experience includes complete field development; drilling and Management intervention;Services; field production management; The work PM started •Facility ISO project 18001:2007 Occupational Health and Safety System well which t Lucas provides from single consultant specialized support to complete turnkey and EPC, EPSCM, EPCC and BOOM solutions. Commissioning) ISO/TS 29001:2007 Requirements for Petroleum, Petrochemical and Natural Gas Industries Facility•PM Engineering and Construction; Full Field Turnkey Development; Complete Oilfield Management Services;
PM provides Lucas is fully accredited by the international body TUV NORD CERT GmbH, fromand Germany: PM Lucas from single consultant specialized support to complete turnkey EPC, EPSCM, EPCC and BOOM solutions. About Company in Kazakhstan: • ISO the 9001: 2008 Management System PM Lucas is fully accredited by the international body TUV NORD CERT GmbH, from Germany: Almaty, PM Lucas has been present in Kazakhstan since 1999 as an integrated engineering service provider. • ISO 14001:2008 Environmental Management System • ISO 9001: 2008 Management System • ISO 18001:2007 Occupational Health and Safety Management System • ISO 14001:2008 Environmental Management SystemPetrochemical and Natural Gas Industries • ISO/TS 29001:2007 Requirements for Petroleum, • ISO 18001:2007 Occupational Health and Safety Management System • ISO/TS 29001:2007 Requirements for Petroleum, Petrochemical and Natural Gas Industries About the Company in Kazakhstan: PM Lucas has been present in Kazakhstan since 1999 as an integrated engineering service provider.
About the Company in Kazakhstan: PM Lucas has been present in Kazakhstan since 1999 as an integrated engineering service provider.
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...turning knowledge into value...
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PM Lucas has provided multiple: • Subsurface engineering services such as Geological and Geophysical assessment, Reservoir, Production and other Petroleum Engineering Services. • Surface engineering the services ranged from Conceptual Design, Basic Design, Detailed Design for the Oil handling, Gas handling and water handling system and Oil Receiving system. has provided multiple: n management; PM Lucas PM Lucas has PMprovided Lucas hasmultiple: drilled or managed overGeological 1200 wellsand or over 1,000,000m of drilling Reservoir, with the wells ranging from 5000m of • Subsurface engineering services such as Geophysical assessment, Production and 500 othertoPetroleum which 250 wells or 300,000m were performed on a complete turnkey basis. In addition to this Lucas managed over 15,000 well OM solutions. • Subsurface engineering services such as Geological and Geophysical assessment, Reservoir, Production and other Petroleum Engineering Services. rilling interventions. Engineering • SurfaceServices. engineering the services ranged from Conceptual Design, Basic Design, Detailed Design for the Oil handling, Gas handling The Company engineered designed or Conceptual built hundredsDesign, of kilometers roads, flowlines andDesign pipelines. and water handling system and Oilranged Receiving system. ment; • Surface engineering thehasservices from BasicofDesign, Detailed for the Oil handling, Gas handling PM Lucas has recently the general Contractor of a complete Turnkey EPCC Oilfield development in Mangistau Lucas has drilled or and managed over 1200system. wells or over 1,000,000m of drilling with the wells ranging fromOblast, 500 toKazakhstan. 5000m of and PM water handling system Oil Receiving The work started with the FEED (Basic Design) to complete turnkey EPCC development (Engineering Procurement Construction which 250 wells or 300,000m were performed on a complete turnkey basis. In addition to this Lucas managed over 15,000 ns. PM Lucas has drilled or managed over wells or over 1,000,000m of drilling with the wells ranging from 500 towell 5000m of Commissioning) to Operations and1200 Maintenance.
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interventions. which 250 wells or 300,000m were performed on a complete turnkey basis. In addition to this Lucas managed over 15,000 well The Company has engineered designed or built hundreds of kilometers of roads, flowlines and pipelines. interventions. PM Lucas has recently the general Contractor a complete Turnkey Oilfield development in Mangistau Kazakhstan. Almaty, Kazakhstan •designed Ivanilov str. built 63/A,of Almaty, 050059 • Tel:EPCC +7of727 3410300 • Fax:+7 3410307 •Oblast, www.pmlucas.com The The Company has engineered hundreds of kilometers roads, flowlines and727 pipelines. work started with the FEED (BasicorDesign) to complete turnkey EPCC development (Engineering Procurement Construction PM Lucas has recently the general of a complete Turnkey EPCC Oilfield development in Mangistau Oblast, Kazakhstan. Commissioning) to Operations andContractor Maintenance. The work started with the FEED (Basic Design) to complete turnkey EPCC development (Engineering Procurement Construction Commissioning) to Operations and Maintenance. Almaty, Kazakhstan • Ivanilov str. 63/A, Almaty, 050059 • Tel: +7 727 3410300 • Fax:+7 727 3410307 • www.pmlucas.com
Almaty, Kazakhstan • Ivanilov str. 63/A, Almaty, 050059 • Tel: +7 727 3410300 • Fax:+7 727 3410307 • www.pmlucas.com
ENERGY and infrastructure
Renewable energy gathers momentum
Invest in KAZAKHSTAN 2011
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energy and infrastructure
As well as producing hydrocarbon fuels, Kazakhstan is equally suited to generating ‘green’ power, whether it is solar, wind or hydroelectric, although there is little uptake of this so far. However, the United Nations Development Program and the government are encouraging industry to pursue alternative energy, the latter via legislation. By Clare Nuttall
he last few months have seen numerous steps towards generation of renewable energy in Kazakhstan. Major new projects in wind and solar power have been launched this year, hydro construction is going strong and a law on biofuels was adopted in late 2010. One billion dollars will be invested into two wind farms in the Zhambyl region of southern Kazakhstan in the next two years. An agreement was signed in March 2011, between the Zhambyl regional authorities, power companies KEGOC and ZhES, and Central Asia Green Power – a joint venture between Visor Group and the Turkish subsidiary of Italy’s Relight Group. The two wind farms will generate a total of 600 megawatts (MW) of electricity, helping to reduce the region’s dependence on power imports from neighboring Uzbekistan, the Zhambyl regional authorities said in a statement. In another stunning development, Kazakhstan’s national nuclear company Kazatomprom has started building a solar panel plant in Astana. Kazatomprom started laying foundations for the plant in March. The plant will cost around $230 million to build, President Vladimir Shkolnik told the Senate Committee on Social and Cultural Development on March 14. It will have an initial capacity of 50MW of solar-cell panels and may be increased to 100MW in the future. Invest in KAZAKHSTAN 2011
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ENERGY and infrastructure
Reducing the use of fossil fuels, especially for the combined heat and power plants used for heating and hot water in many cities, will help to improve air quality in urban areas Kazakhstan is well-endowed with oil, gas and coal. The country also has high potential to reduce its dependence on fossil fuels, by investing in wind, solar and hydro power generation. The country has been generating hydropower since the Soviet times, but solar power, wind energy and biofuels have only recently been added to the energy mix, having previously existed on a very small scale. These days, exciting changes are taking place. The United Nations Development Program (UNDP) has been operating the Wind Power Market Development initiative, a full-scale project to promote the development of the wind energy market in Kazakhstan. The UNDP released results from a survey of wind power potential in Kazakhstan in early 2011. Finnish company VTT presented its report on wind energy development in Kazakhstan, demonstrating the favorable conditions in the country. However, the percentage of electricity to be generated by wind power is still to remain quite low. “The foreseen wind power scenarios would mean about 250MW production in 2015 and about 2,000MW production in 2030. The wind power penetration level is quite moderate: less than one percent of electrical energy in 2015 and about four percent in 2030,” according to a statement from the UNDP. There is also growing Chinese interest in wind-energy projects in Kazakhstan. In December 2009, Kazakhstan and China signed an agreement on cooperation in the renewable energy sector. China Guandong Nuclear Power Co (CGNPC) has agreed on a wind-power cooperation program with state fund Samruk-Kazyna. Kazakhstan’s climate is also highly suitable for solar power, especially in the south. In July 2010, a raft of deals, amounting to more than $2.8 billion, were signed during German Chancellor Angela Merkel’s visit to Kazakhstan. Among these was the announcement that German energy company Roth & Rau is planning to build Kazakhstan’s first solar power plant. Alternative energy received a boost in June 2009 when a law on support for renewable sources of energy was adopted. This will help Kazakhstan to use its abundant oil and gas reserves to generate export revenues, while it uses other forms
of energy for domestic consumption. Reducing the use of fossil fuels, especially for the combined heat and power plants used for heating and hot water in many cities, will help to improve air quality in urban areas. Renewable energy is also a way to ensure that all areas of the country, including remote rural regions, have a reliable power supply. Kazakhstan’s coal mines and many of its power plants are in the north and center of the country, while oil and gas is concentrated in the west. Meanwhile, south Kazakhstan at times relies on exports from neighboring Kyrgyzstan and Uzbekistan to make up the energy deficit. Small-scale wind and solar plants could also be used to power areas of Kazakhstan not connected to the national grid. Of the KZT2.3 trillion ($15.6 billion) the Kazakh government is planning to invest into the power sector by 2015, KZT107 billion has been earmarked for renewable energy projects, Duisenbai Turganov, Deputy Minister of Industry and Trade said in October 2010. New legislation specifically focused on biofuels has also been adopted. The law, which came into being in 2010, is intended to encourage the production of biofuels. It also seeks to balance the need for raw materials for biofuel production with Kazakhstan’s food security. As of 2010, there was only one biofuel plant in Kazakhstan, but the potential size of the market is considered to be large. The Kazakh government announced plans to produce 2.8 billion liters of biofuel this year, to be increased to 3.08 billion liters in 2012 and 3.22 billion liters in 2014. Meanwhile, hydropower continues to be an important component of electricity generation in parts of the country. When the Moynak cascade – being built with Kazakh and Chinese investment in south-east Kazakhstan – is completed, this will ensure a steady electricity supply for Almaty and other parts of south-east Kazakhstan. Other projects are planned. In November 2010, Samruk-Energo – a division of Kazakhstan’s state holding company Samruk-Kazyna – announced plans to seek Chinese investors to complete the expansion of the Shardarinskaya hydropower plant on the Syr Darya River in south Kazakhstan.
Invest in KAZAKHSTAN 2011
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energy and infrastructure
Infrastructure – building a new backbone
One of Kazakhstan’s latest completed projects – the Modern Bridge at Astana
Necessity is the mother of invention, so it is said. Kazakhstan’s need for a nationwide framework for transportation and communication links will beget solutions, one way or another. By Tim Gosling
azakhstan’s rapid economic development is provoking massive infrastructure spending across the sectors, as it races to build the new oil and gas pipelines, electricity generation capacity, and roads and railways needed to both expand and diversify the economy. As there is also keen need to upgrade existing infrastructure – much of which dates from Soviet times – builders and suppliers are at the core of the country’s future development and appeal. As the driving force of the economy, the still-developing oil and gas sectors are driving massive infrastructure investment, particularly for transit to export markets, while new electricity generating and transmission – which is at the core of government strategy to diversify the economy – calls for investment of at least $20 billion by 2015. Elsewhere,
infrastructure investment requirements to 2030 are expected to top $25 billion, with roughly 40 percent going to the railways, 25 percent to telecommunications, 23 percent to roads, and 12 percent to water and air transport. However, alongside the headline projects is the ongoing development of the country at ground level. The deputy mayor of Almaty told a recent conference of city’s need for huge volumes of high-quality construction materials to drive city projects for the construction of over one million square miles of housing a year, as well as nearby hospitals and schools. The first section of the city’s metro system is also nearing completion. According to a report from Business Monitor International, the construction sector is expected to grow 5.5 percent year on year in 2011, to make the market worth $10.6 billion. Growth is then forecast to accelerate to an average rate of 7.1 percent each year to 2015, when the sector could hit $24.4 billion. The construction and materials sector is almost completely privatized, with the government open to 100 percent foreign ownership. Despite existing large investment from international companies, increased foreign investment – in the construction materials industry, in particular – is a government priority. Invest in KAZAKHSTAN 2011
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energy and infrastructure
In 2009, many projects came to a standstill. The following year cement consumption increased 100 percent
Oil and gas Not only does Kazakhstan’s rapid development of its oil and gas fields provide the gross domestic product boost to drive infrastructure investment across the economy, but it is directly responsible for many of the major construction projects. On the one hand is the large-scale expansion of its major oil and gas fields, such as Karachaganak and Tengiz, both of which target close to 100 percent production boost in the next few years. On the other, that output will need new pipelines to carry it to export markets, and new refining capacity to process it for the domestic market. Kazakhstan only started being a net exporter of natural gas in 2009, so development is nascent due to the lack of domestic pipeline infrastructure linking the western producing region with the eastern industrial province. Prime Minister Karim Massimov said in October that the country plans to boost its crude exports by almost 200 percent by 2020. Both of these development targets will require major investment in infrastructure projects such as expansion of the Kazakhstan-China gas pipeline (set for completion by 2014), the $5.4 billion expansion of the Caspian Pipeline Consortium (CPC) oil link to Russia, and development of the Kazakhstan Caspian Transportation System (KCTS), which requires a 500,000-barrels-per-day (b/d) pipeline and 760,000-b/d terminal on the Caspian Sea. Meanwhile, the country still imports oil products due to a lack of refining capacity. However, KazMunaiGas has plans to invest up to $4 billion to modernize the country’s three refineries and boost output to meet domestic demand. At the same time, exports of mining products are also growing – especially to the rapidly developing regions of western China. These bulk products rely overwhelmingly on rail, water transport and roads, giving even more of a boost to investment in transport infrastructure.
Transport With the aim of upgrading both the national transport network and knitting the Kazakh system into international networks
that run from the Pacific coast of China through to Western Europe, the Strategy of Transport Sector Development to 2015 calls for investment of $26 billion, the majority going to upgrade and expand the country’s railways and roads. Major projects include the South-West Roads project – a $7.5 billion scheme to build and upgrade 2,800km of highway to link China (at Khorgos) to Russia (at Zhaisan) as part of an International Transit Corridor running from Western China to Western Europe. Also in 2011, China signed up to construct a 1,000km high-speed rail line. Trains will be built to carry around 5 million passengers per year between Kazakhstan’s two major cities – the capital Astana and economic center Almaty – at speeds of about 350km/h. The project, which China’s vice premier labeled “a new highlight of cooperation” is forecast to be completed by 2015.
Power Investment in expanded generating capacity is a matter of urgency in Kazakhstan, as a deficit in supply is threatening to drag on economic growth. The government’s Plan of Energy Sector Development 2007-2015, calls for investment of at least $14.3 billion to upgrade existing power plants and add up to 2,430-2,550 megawatts of new capacity. At the same time, the country needs to pump huge investment into its transmission grid, to smooth regional imbalances and raise its potential to earn revenue from exports in the future.
Building materials With multibillion-dollar infrastructure projects both funded and in progress, as well as lining up in the pipeline, there is now an emphasis on raising domestic capacity for construction materials from cement to steel and glass. Foreign investment is welcome. Given the huge distances between cities and regions, local companies tend to dominate the national markets – Steppe Cement, for example, is closest to fast-growing Astana and industrial Karaganda, while Italcementi in Shymkent is well placed to supply the new highway to China. According to industry figures, Kazakhstan increased consumption of cement by 100 percent last year compared with 2009, for a total of six million tons. Domestic production, however, struggled to keep up, only managing to boost output from four million tons to 5.3 million tons in the same period. Consumption is expected to remain buoyant, thanks to the huge infrastructure investment drive, with consumption to hit 6.5 million tons by 2013.
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energy and infrastructure
Stronger demand for construction materials Building on the insatiable demand for manufacturing materials, Kazakhstan has a job and a half keeping up with the requirements of various projects as the economy improves. By Clare Nuttall
azakhstan’s cement producers are investing in increased capacity to keep pace with demand, driven by major infrastructure projects. In 2011, the first post-crisis residential developments are also expected to start, further boosting consumption of construction materials. Cement consumption was twice as high in 2010 as in 2009, to a large extent owing to the government’s anti-crisis program. Six million tons of cement were consumed in the country last year, according to industry figures. However, domestic production was unable to keep up, with local producers able to increase their output from four million tons in 2009 to only 5.3 million tons in 2010. Demand is expected to continue rising as Kazakhstan leaves the crisis behind, reaching 6.5 million tons by 2013.
The growth potential for Kazakhstan’s cement market is substantial, Adal Issabekov, CEO of United Cement Group, told the BusinessCem conference in Almaty. Currently cement consumption per capita is just 317 kilograms a year in Kazakhstan, compared with 2,600kg in Saudi Arabia, 453kg in Germany and 3,978kg in the US. Consumption is even lower in the other Central Asian republics, so there is considerable scope for the growth of the regional market. “We reduced production volumes owing to the economic slowdown. However, now we can actively see and feel the economies improving and cement consumption climbing,” said Issabekov. “Due to the relatively low level of consumption, there is a niche for us to be able to increase consumption in the countries where we are present.” An important component of Kazakhstan’s multibilliondollar anti-crisis program, adopted in late 2008, was a commitment to fund major infrastructure projects. These provided employment for tens of thousands of workers, thus keeping unemployment down, as well as the long-term benefits of improving transportation and other infrastructure. One of the largest projects ongoing in Kazakhstan is the Western Europe-Western China international transit
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energy and infrastructure
Annual cement consumption per capita
5,732 lb (2,600kg)
corridor, which runs via Kazakhstan, and has been funded by several international financial organizations. The South-West Roads Project will see the reconstruction of the highway between Aktobe in west Kazakhstan and Shymkent in south Kazakhstan, and is due to be completed in 2013. Kazakhstan’s national rail operator, Kazakhstan Temir Zholy, embarked upon a $36 billion modernization and expansion program in mid 2009. More recently, in February 2011, Kazakhstan and China signed an agreement to cooperate on the construction of a new high-speed rail link between Astana and Almaty. Numerous projects are also under way in the energy sector, including construction of the Moinak hydropower cascade, expansion of the Ekibastuz GRES-2 power plant (with funding from the Eurasian Development Bank and Russia’s Vneshekonombank – VNB), and the building of a new thermal power plant near Lake Balkhash. The construction of affordable housing in major cities is also being supported by the state. In May 2010, the head of the Residential Building Agency, Serik Nokin, announced that state-owned Zhylstroisberbank would finance residential construction projects where apartments would be sold at between $600 and $950 per square meter. The government is providing land and infrastructure for the buildings, while Zhylstroisberbank is drawing up lists of potential buyers. New residential developments have been put on hold for several years, as the government has decided to restrict the issuance of new permits until pre-crisis projects were completed. Real-estate professionals forecasts that 2011 will see the first post-crisis projects being launched. Meanwhile, several new cement plants in Kazakhstan are under construction and others are being expanded. While investment plans were put on hold during the crisis, the
doubling of demand in 2010 compared with the previous year, and the expected increase this year and for the next few years, has encouraged cement producers to revive their plans. Six new cement plants with new capacity amounting to 5.3 million tons are being planned by Germany-based Heidelberg Cement CEE, said the firm’s general manager Roman Kempe, speaking at the BusinessCem conference in Almaty in October 2010. “The question is when they will be launched. The dates are not very realistic, but they will probably start operation in the next three to four years,” he said. The Kazakh government announced plans in 2010 to help develop the industry by supporting the construction of new production facilities. Those already in the works include the Italian Italcementi Group’s September 2010 decision to invest in dry-line clinker production at its Shymkent Cement plant. The new line will replace four existing wet lines, allowing the company to cut energy costs. Shymkent Cement would become the second plant in Kazakhstan to use dry-line production, which is more environmentally friendly than wet-line production. Steppe Cement was the first to introduce the technology, followed by Zhambyl Cement, which started operating its dry-line in December 2010. In May 2010, Moscow-based BaselCement-Pikalevo completed the reconstruction of the third production line at its Sas-Tobe cement plant. Following this $10 million project, BaselCement plans to continue further reconstruction work at the cement plant, the fifth largest in Kazakhstan. SAS-Tobe is expected to increase production by 26 percent to 0.5 million tonnes in 2011. In addition to cement, production of other construction materials – ranging from steel to glass – is also expected to increase in Kazakhstan.
Invest in KAZAKHSTAN 2011
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1,000s of success stories delivered For well over a century, FLSmidth has been blazing new trails for the cement and minerals industries â€“ helping them become leaner, greener and more profitable. Our unmatched combination of proven technology and process know-how has provided innovative solutions for many of the worldâ€™s most successful plants, in Kazakhstan and around the globe. The fact is, no other company in the cement and minerals industries can call upon and co-ordinate such a broad array of engineering resources and commercial experience. From plant design and project management to equipment supply and commissioning, we offer you one source for everything it takes to design, build and operate profitable plants. For more information please visit us at www.flsmidth.com
41850_FLS_Kazakhstan_Ad 210x276 .indd 1
energy and infrastructure
Real estate rebuilds toward recovery
Modern skyscrapers in Astana, Kazakhstan. New projects are expected to commence now that pre-crisis construction has been completed
In the aftermath of the burst property bubble, investors are perusing Kazakh real estate again – though they are more cautious this time and have more realistic expectations. Clare Nuttall reports
azakhstan’s troubled real-estate sector is recovering from the crisis. After an injection of government funds, projects started in the mid 2000s are finally being completed, and those developers that survived the downturn are expected to start the first set of post-crisis projects in 2011. The problems in Kazakhstan’s real estate sector were ultimately due to the country’s underdeveloped financial market. When people became wealthier in the mid 2000s, the question for newly rich Kazakhs was where to invest their money. With the stock market still relatively illiquid, the
obvious answer was property. This created a speculative bubble in the real-estate sector, with prices in Almaty briefly soaring above those in London in early 2007. However, when the sub-prime crisis broke in the United States in mid 2007, Kazakhstan was one of the first countries to follow. The bursting of the real estate bubble had knock-on effects for the banking sector, where a high proportion of collateral was in property that had suddenly collapsed in value. As in many other countries, it has taken more than three years for the banks and property developers to work through these issues. Banks are quietly selling off collateral, as they tackle their portfolios of bad loans. In the real-estate sector, some projects were simply abandoned, leaving empty lots across Almaty. In other cases, future residents had pre-paid for their apartments in projects that were often little more than a hole in the ground when the bubble burst. Alarmed at the protests by angry ‘dolshiki’ (or ‘interest holders’), as they were known, the government was quick to be
Invest in KAZAKHSTAN 2011
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energy and infrastructure
The prospects for the real-estate and construction sectors are good. New investments are urgently needed to house a growing, and increasingly affluent, local population proactive, stepping in with a rescue package for the sector to ensure that projects would be completed. The government also decreed that no new construction licenses would be issued until ongoing projects were completed. Now, as the delayed projects in Almaty – and, to a lesser extent, Astana – near completion, developers are starting to consider their first post-crisis projects. In another sign of the market returning to normal, the number of transactions in the real estate market is increasing. According to Russian investment bank Renaissance Capital, the number of transactions was up 13.4 percent in January 2011, compared to a year before. “The real-estate market is slowly starting to crawl out of the crisis,” says Peter Goranov, senior manager at CBRE Richard Ellis. “The crisis practically killed the mortgage market, but now we see signs it is recovering. People are making their repayments in a disciplined fashion, and some new mortgages are being issued.” Long term, the prospects for the real-estate and construction sectors are good. There is a very obvious need for more housing in Kazakhstan. In Almaty, living space per person is just 16 sq m, compared to 48 sq m in Western Europe. Across the country, much of the housing stock, inherited from the Soviet era, is outdated and in a poor state of repair. New investments are urgently needed to house a growing, and increasingly affluent, population. Part of the problem pre-crisis was that a lot of the projects were simply not realistic. Aimed at the small tranche of high-net-worth individuals, many of those that have been completed are still largely empty. However, there are exceptions, such as the AhselKent development on the outskirts of Almaty, which opened in 2010. At the other end of the spectrum, Capital Partners has continued to push ahead with landmark developments such as the Esentai Park mixed-use project and the infrastructure for the 2011 Asian Winter Games at the Shymbulak and Medeo winter sports resorts. Meanwhile, in the retail sector, Eurasia RED opened A’port, Central Asia’s largest mall, in Almaty in 2009, and is planning a chain of malls across the country.
The 2011 Asian Winter Games in Astana prompted new building investment
There are hopes that post-crisis projects will be tailored to the needs of the population. Today, investors are much more cautious having had their fingers burned by Kazakh real estate once before. “Kazakh banks have been looking to re-enter the real estate sector, but only for intelligent schemes with the right end users,” says James Palmer, partner at global property consultant Veritas Brown Cushman & Wakefield. He forecasts that investment will increase significantly in 2011. Construction work has continued in Kazakhstan’s capital Astana. The most spectacular development in Astana is Khan Shatyr, a temperature-controlled biodome shaped like a massive tent, in which Astana residents can bask in summer temperatures – even when winter temperatures in the city plunge below minus 40°C. More prosaically, Astana has seen large-scale road rehabilitation, house and office building, new hotels and the construction of stadia for the Asian Winter Games. West Kazakhstan is also developing rapidly. The start of the next phase of the Kashagan project will see the influx of numerous workers this year. “We tend to look at west Kazakhstan as having more potential in the immediate future,” says Capital Partners managing director Matthew Bond. “We expect to see a rally in prices soon, especially as there is a shortage of high-quality residential space and class-A office space in both Atyrau and Aktau. The region has been largely immune to the crisis that affected the rest of the country since it is oil-focused.” Invest in KAZAKHSTAN 2011
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G4 City: better urban living to the power of four The Republic of Kazakhstan is a democratic, secular, rule-of-law and social state. According to the Constitution of the Republic of Kazakhstan, the fundamental principles governing the Republicâ€™s activities are social accord, political stability, and economic development for the benefit of all. After 20 years of political independence, Kazakhstan has become a real independent state with a developed economy. Along with the social and economic achievements of the Republic of Kazakhstan over the last decade, thanks to the President of Kazakhstan, Nazarbayev N.A., the population group with income lower than the minimum cost of living has decreased by four times, while the average pension has increased by six times. Moreover, over this period, the volume of attracted foreign investments amounted to $122 billion, and one could observe a steady year-on-year economic growth at seven to eight percent on average, while the GDP has reached
$9 per capita, with small and medium businesses accounting for at least 30 percent of this figure.
Economic stability In 2009, in spite of the world financial and economic crisis, upward economic trends continued to be observed in Kazakhstan. From the very beginning, adequate measures were taken to stabilize the situation in different sectors of the economy. The year 2010 became a significant one for the Republic of Kazakhstan, as it became the first country from among the CIS countries to assume the duties of the Chairman of the Organization for Security and Cooperation in Europe, and the Customs Union between Russia, Kazakhstan and the Republic of Belarus was established. Also, importantly for the country, the State Program of the forced Industrial-Innovation Development was launched and, the following year, the 2011 Asian Winter Games, Aziada, were held.
Alongside improvement in the quality of life in Kazakhstan, one can observe a population upsurge, mainly in Almaty, the south capital of Kazakhstan. Almost every fifth resident of the Republic lives in the Almaty Region and the annual population growth rate in Almaty is 2.2 percent, compared with a national average of 0.8 percent. In Almaty, the problem of housing needs is especially acute, as the population is provided with housing at the level of 19.3 sq m per person. Overcrowded roads and a poor environment are also pressing problems.
Modern cities for a growing population To tackle such problems, President Nazarbayev N.A. suggested to develop the satellite cities outside Almaty. On the basis of the Presidentâ€™s suggestion, it was decided to begin construction of the satellite cities of Almaty with the purpose of creating favorable living conditions for the population.
In recent years, the Akimat of the Almaty region, jointly and in cooperation with G4 City LLP, has been implementing the project of construction of four satellite-cities of Almaty in the Almaty region. For realization of the project, over the previous period $46 million was allocated from the State Budget, with an expected additional allocation of over $339 million.
Integrated urban satellites Project G4 City is a development of four modern satellite cities, integrated into a single structure and satisfying all the requirements of a modern megalopolis, which will ensure steady growth for the next 40 years. At the start of 2008, for the purpose of project implementation, general plans of the cities were developed and approved by the Government of the Republic of Kazakhstan. The future satellite cities will make it possible to reach high living and well-being standards within a single urban infrastructure, facilitating social and economic development. The G4 City concept provides for steady development by keeping a balance between the economic, social, environmental and dimensional spaces of the town’s growth. The satellite cities are unique due to the urban structure approach that is new to Kazakhstan – each of them has its own concept: The first town, Gate City, is to be located the shortest distance from Almaty, and will include residential quarters and the business center at national and regional levels. In Gate City, more than 3.6 million sq m of comfortable residential premises will be constructed within a territory of 2,074.8 ha, and the population size will be about 130,000 people. The second town, Golden City, will be designed as a cultural, entertainment and education center of the Almaty region, located on territory of 1,869 ha. New entertainment services and its proximity to Gate City and Almaty, as well as its location along the highway of Almaty-Kapshagai, will enable Golden City to attract visitors and guests and to become an entertainment center for the Almaty region. The third town, Growing City, will be a powerful and efficient scientific, production and logistics center, covering a territory of 2,419.9 ha. Kazakhstan plans to further increase its transit potential because the Almaty Region is located on the trade artery between China and Russia, and Growing City will be positioned as an industrial and logistics center. To facilitate the logistics and trade operations in the future town, all its land will be allotted for a Free Economic Zone (FEZ).
The fourth town, Green City, will be considered as a sport and recreation center, covering an area of 1,144 ha, to be developed with due consideration for specific advantages of the beautiful shore of the Kapshagai water basin, which is a popular resort for people of Almaty and the whole region. Within the framework of the above plans, the General Project Designer, G4 City LLP, with the support of the Government of the Republic of Kazakhstan has recently completed a lot of work, such as topographic and geological engineering surveys, preparation of detailed and general plans of development for the four satellite towns, and approval of the Utility Networks Feasibility Study. Currently, within the framework of implementation of the project’s first stage, the construction of approach roads and engineering infrastructure has started at the expense of the funds allocated from the state budget. Now the project’s first stage – the “Koyankus” residential area, to be located in Gate City, which will lie 1.5km to the north of the Almaty border – is ready for development. On a plot measuring 168.7 ha, a residential estate for 8,600 families will be constructed. Within five years, it is planned to construct more than 605,000 sq m of residential real estate at the same site.
Over a period of three years, the G4 City project has progressed from the creation of the concept of satellite towns to the commencement of construction of the engineering infrastructure
New investment for further development Over three years, the G4 City Project has progressed from the creation of the concept of satellite towns to the commencement of construction of the engineering infrastructure. Today, G4 City LLP is holding negotiations with Kazakh and foreign investors concerning further development of the project. The total area of the four satellite cities will be 8,007 ha, where approximately 13.4 million sq m of residential premises of different classes and categories and 5.1 million sq m of business premises will be constructed. The total amount of investment required for the project implementation will to $24 billion. The investments will include the resources allocated from the state budget, comprising 26 percent of the expected total amount of investments, and private investments making up 74 percent of the above total amount. IRR on the project will make up 11 percent, including all the social facilities and utility networks. The project of construction of four satellite cities of Almaty is a unique idea that does not have any comparison either in Kazakhstan and central Asia. This project will play an important role in the development not only of the region, but also of the country as a whole. We are looking forward to partnership and cooperation with those who are as confident of future success as we are.
The ﬁrst stage of the project includes construction of the gas supply networks and access roads
050002, Republic of Kazakhstan, Almaty, 50, Zhibek Zholy Str. Telephone: +7 727 273 85 11 Fax: +7 727 273 16 73 E-mail: firstname.lastname@example.org Website: www.g4city.kz
energy and infrastructure
A new hub for road and rail transportation Kazakhstan stands at the crossroads of the Eurasian land mass, and is now promoting investment in its roads and rail to take advantage of its location. By Tim Gosling
tanding at the crossroads of Asia, Russia, Europe and the Middle East, a revolution is under way in road and rail construction across the vastness of Kazakhstan. A modern highway linking China to Russia along the Caspian Sea and through to Europe mimics the energy infrastructure that is turning Kazakhstan into a linchpin of the region. New rail links to China and south through Turkmenistan to Iran connect with the Soviet-era north-south lines from central Asia to Moscow. All this pitches Kazakhstan at the center of trade ‘ley lines’ that stretch across the Eurasian land mass north to south and east to west. Essentially, there is no alternative for rapidly growing Asian exporters, such as China, to link to Russia and Europe across land, other than to pass through Kazakhstan. Starting in January 2013, Kazakh companies will be granted non-discriminatory access to rail routes in Russia and Belarus under the auspices of the Common Economic Space between the three. The country’s new and upgraded road and rail links will not only raise income from international transit traffic, but will also
improve Kazakhstan’s internal links, which are needed to tie its rapidly developing economy together. The sheer size of this landlocked country – studded as it is with an uneven distribution of population clusters and natural resources – makes the transport sector a vital cog in the national economy. However, the country’s transport infrastructure – the majority inherited from the Soviet era – is in need of further investment to improve efficiency and reduce the burden of transportation costs on the economy, which at between eight and 11 percent of the final cost of goods is around double the European Union (EU) average. Alongside other CIS countries, Kazakhstan hopes to attract a significant slice of cargo transit between the EU and Asia, a market worth in excess of $600 billion per year, according to the International Monetary Fund.
A decade of transport investment The strategy for development of Kazakhstan’s transport infrastructure is set out by a government program approved in 2006: the Strategy of Transport Sector Development to 2015. The program calls for investment of $26 billion across its 10-year span. Implementation of the program is expected to upgrade the regional networks, bringing Kazakhstan’s national transport system in compliance with worldwide standards. The plan is to boost the level of transit traffic across the country and, thereby, increase both the central government budget and transport company revenues.
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Essentially, there is no alternative for rapidly growing Asian exporters to link to Russia and Europe across land, other than to pass through Kazakhstan
Kazakhstanâ€™s upgraded road and rail links will not only raise income from international transit traffic, but will also improve Kazakhstanâ€™s internal links
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• In October 2010, a joint venture between France’s Alstrom and Russia’s Transmasholding won an order worth $1.3 billion from national rail company Kazakhstan Temir Zholy to supply 295 new locomotives.
The strategy covers road, rail, air and water carriage, as well as urban passenger transport, and provides for upgrades and new projects, as well as the renewal of all transport fleets.
Investment The transportation and telecommunications sectors will need to grow in order to accommodate the needs of other industries. Growth here is likely to attract further investment in other sectors as these infrastructure changes improve the overall business climate. Although Kazakhstan has a basic transportation network and skilled labor force, investment will be required in the years ahead. Requirements for infrastructural investment through 2030 are expected to total more than $25 billion – and, of this, 40 percent will be needed for railway transportation, 23 percent for highways and motor transport, and 12 percent for air and water transport systems.
Driving transport infrastructure investment With the transport sector a top priority, the government has been working on legislation, conditions and institutions to provide incentives for long-term investment. The concessions system in Kazakhstan has gradually been developed since the fundamental legislation was adopted in 2006, the first project being the Shar-Oskemen line that opened in December 2008. The government has learned lessons from an attempt to launch public-private partnership projects on four new roads in 2009 – which fell through due to the financial crisis – and has been working for several years to get the legal framework right. It has set up the Kazakhstan Public-Private Partnership Center and developed a concept through to 2020, which will include a list of all projects to be put out to tender. Legislation now allows the government to offer guarantees, not only for infrastructure bonds and loans, but also on consumption of a percentage of the service provided by concessionaires. Major investment projects under way include: • The World Bank has committed $2.1 billion to building the 1,062km Kazakh stretch of an International Transit Corridor linking Western Europe to China. • In February, China signed up to construct a 1,000km high-speed rail line which will see trains carry around five million passengers per year between the capital Astana and economic center Almaty at speeds of up to 350km/h. The project, which China’s vice premier labeled “a new highlight of cooperation” is forecast to be completed by 2015.
Rail Railway services provide up to 70 percent of cargo and 50 percent of passenger turnover in Kazakhstan. The total length of railway track in the country exceeds 14,000km and connects all regions, as well as providing a backbone for international transportation services via three main routes: • The 1,507km Trans-Kazakhstan Railway runs from Petropavlovsk on the Trans-Siberian Railway through Kokchetav, Astana and Solonichki to the Karaganda coalfield. This was later extended to Chu, on the Turkestan-Siberian route, and Lugovoy where it connects with lines into Kyrgyzia and Uzbekistan. • The Turkestan-Siberian route runs 1,445km and forms part of a route from Beijing to Russia. This, the Trans-Asian route, provides a Japan-Western Europe link that is claimed to be 2,500km shorter than the Trans-Siberian route. • A third main line links Tashkent in Uzbekistan, with Orenburg in Russia, via Aralsk, Kandagach and Aktyubinsk, a distance of 1,854km.
Roads Much of the road network in Kazakhstan was constructed during the Soviet era and has deteriorated since then, due to lack of adequate maintenance. Half of the roads in the country’s network need major maintenance or full rehabilitation. There are close to 89,000km of road in Kazakhstan, 13,000km of which link to international routes in Asia and Europe. In terms of highway construction, it is these international connections that are the major focus, as the country looks to increase its role in transit between China, Russia and Western Europe. Under the South-West Roads Project, a $2.1 billion World Bank loan will go towards building and upgrading 2,800km of Kazakh roads linking China (at Khorgos) to Russia (at Zhaisan). The government plans to spend a total of $7.5 billion to tie Kazakh routes into the International Transit Corridor linking China to Russia and on to Western Europe. The World Bank predicts that the project will “give a major stimulus to the Kazakh economy.”
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The capital, Astana, is home to one of Kazakhstanâ€™s two modern international airports. The country has seen a steady rise in international airlines serving the country, while the national carrier, Air Astana, has expanded rapidly
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New and enhanced air, road and rail facilities are helping to put Kazakhstan on the map in terms of international transport. By Clare Nuttall
azakhstan’s geographical location at the heart of the Eurasian land mass not only puts it in prime position to serve as a road and rail hub – it also makes it a perfect gateway for air travel, and investment in airports and associated infrastructure is starting to make this a reality. Kazakhstan has witnessed a steady increase in international airlines serving the country, while national carrier Air Astana has rapidly expanded since its launch in 2002. A joint venture between Kazakhstan’s national welfare fund Samruk-Kazyna and BAE, Air Astana announced in November 2010 that it would spend $500 million on expansion of its fleet of aircraft by 2015. In April 2011, the airline took delivery of its first Embraer 190. There are also plans to purchase six Airbus A320 aircraft at a total cost of $250 million, Air Astana president Peter Foster announced. Between November 2010 and June 2011, Air Astana added seven new international routes to its network. The airline now operates flights from Almaty to new destinations including Dushanbe and Tashkent in Central Asia, the Georgian capital Tbilisi, and Samara in southern Russia. Launching the services is part of Air Astana’s strategic plan to significantly expand its Central Asia network, the airline said in a statement. It already serves Bishkek, Urumchi in western China, several Russian cities, and destinations in Europe and the Far East. Air Astana is the only Kazakhstan-registered airline authorised to fly to the European Union, as all other Kazakhstan-registered airlines are on the EU’s air safety blacklist. However, Kazakh authorities are currently in negotiations with the European Commission over this matter. International airlines such as KLM, Lufthansa and Turkish Airlines have long been present in the Kazakh market. But there have been more recent arrivals, including UAE-based Etihad Airways, which launched its first flight from Abu Dhabi to Almaty in December 2008, and others are expected to follow. On a visit to Astana in June 2011, Malaysia’s foreign minister Datuk Seri Anifah Aman indicated that a Malaysian airline – possibly Malaysia Airlines or AirAsia – might start operating flights between the two countries. The Almaty-Kuala Lumpur route is currently served by Air Astana.
There are also high hopes in Astana that Kazakhstan could become an air freight logistics hub. Fedex and other freight companies increasingly use Kazakh airports for refueling and distribution within the region. However, Kazakhstan faces competition, as both Russia and Uzbekistan also want to establish their own Eurasian logistics hubs, based around the airports of Krasnodor and Navoi respectively. Kazakhstan already has modern international airports at its capital Astana and at Almaty, the country’s largest city and commercial centre. Air infrastructure is also being upgraded – air navigation service provider Kazaeronavigatsia is investing in new technology. The agency has signed a series of contracts with Lockheed Martin for air traffic control equipment and services. Most recently, in October 2010, Kazaeronavigatsia signed a $49.9 million deal with the US-based security firm to create Kazakhstan’s first national air traffic management system. For international business travelers, entry to Kazakhstan is usually by air. However, great efforts are being made to upgrade international road and rail links for freight transport, with the rebuilding of a modern version of the ancient Silk Road between Asia and Europe. The Kazakhstan section of the Western Europe-Western China international transit corridor is 2,715km long, and runs from the Russian border in the north west to the Chinese border in the southeast. Funds for the project are being provided by international financial organizations, including the Asian Development Bank and the World Bank. Meanwhile, Kazakhstan’s national rail company, Kazakhstan Temir Zholy, has launched an overhaul of the country’s railway network and rolling stock, intended to speed up transport within the country and facilitate international transit. The current most important international project is the construction of the Kazakhstan-Turkmenistan-Iran railway. The Kazakhstani section of the line will run from the oil town of Uzen in the western Mangystau region to the Turkmen border. Opening the line will cut the travel distance between Central Asia and the Persian Gulf by more than 360 miles, creating huge opportunities for the three countries and others in the region, Kazakhstan’s ambassador to Iran, Bagdat Amreev, told the Kazakhstan Islamic Finance 2011 conference. The line “will significantly change the situation for trade and economic cooperation in the region”, said Amreev. Not only is new infrastructure being built, but there are also investments in locomotive and rolling-stock production, and in new vehicle-manufacturing capacity. In Astana, a cluster Invest in KAZAKHSTAN 2011
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Kazakhstan develops into China-to-Europe transit hub
Airports: (2010) Country comparison with the rest of the world: 62nd
3 Airports – with paved runways: 65 Heliports:
More than 3,047m
Airports – with unpaved runways:
2,438 to 3,047m
1,524 to 2,437m
914 to 1,523m
Less than 914m
More than 3,047m
2,438 to 1,524 to 914 to 3,047m 2,437m 1,523m
32 Less than 914m
Ports and terminals:
Country comparison with the rest of the world: 19th
Aqtau, Atyrau, Oskemen, Pavlodar, Semey
Broad-gauge: 15,082km, 1,520mm gauge (3,700km electrified) (2008)
Country comparison with the rest of the world: 50th
4,000km; on the Ertis River (80 percent) and Syr Darya River (2010). Country comparison with the rest of the world: 26th
Merchant marine ships: Country comparison with the rest of the world: 123rd
of rail-related factories has grown up, with investments from international manufacturing companies Alstom, GE Transportation and Talgo. Demand for cars is also growing, following Kazakhstan’s emergence from the global economic crisis. In the car market, Asia Avto, operator of Kazakhstan’s largest car assembly plant,
By type: petroleum tanker: 6 refrigerated cargo: 1 specialized tanker: 1 Foreign-owned: 1 (Ireland) (2010)
announced in April 2011 that it had achieved an increase of more than sixfold in production during the first quarter of 2011, compared with the same period in 2010. Russia’s Sollers signed an agreement to set up an assembly plant in Karaganda in 2010, and plans to start producing SUVs (sport utility vehicles) in the second half of this year.
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Almaty station. High-speed Alstom trains will reduce journey times to Astana by three hours
Rail reforms will support diversification In an echo of the Industrial Revolution in western Europe, the resurgence of Kazakhastan’s railway system promises to be a catalyst for future growth.
n June 5, 2010, the mayor of Kokshetau proudly cut the ribbon on a new high-speed rail connection linking his town with the capital Astana. The new link is the third high-speed rail service running the Spanish-made Talgo trains that cut the journey time in half and effectively shrink the country for much of the population. Of all the efforts to diversify the economy, modernizing the rail system is arguably the most advanced. Talgo Passenger trains already link Astana to Almaty and Shymkent as part of the state’s program to build a high-speed rail network that will eventually link up with destinations in surrounding countries.
The high-speed rail links are only the tip of the iceberg of a reform program that will transform Kazakhstan’s rail infrastructure. The Kazakh government is promoting the development of a domestic railway supply industry, and the national rail company Kazakhstan Temir Zholy (KTZ) has signed agreements with major foreign suppliers, including Alstom, Finmeccanica, Transmash and GE Transportation. Kazakhstan is the size of Western Europe and its rail network is the lifeblood of the country. With more than 15,000kms of track, Kazakhstan has the 19th largest rail system in the world. But thousands of kilometers of new rail lines are needed, and obsolete Soviet-era locomotives and wagons are in need of replacement. In the days of the Soviet Union, Kazakhstan imported its rail network equipment from Russia. Now it will build its own, in a prime example of diversification. A string of deals has already been put in place, to add to the country's heavy-engineering sector. Invest in KAZAKHSTAN 2011
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The first new plant to assemble powerful General Electric (GE) designed American diesel-electric locomotives and shunting engines has already opened in Astana. During French president Nicholas Sarkozy’s official visit in 2010, the French high-speed rail specialist Alstom signed off on a $1.8 billion deal to build 300 electric freight locomotives in cooperation with Russia’s Transmashholding. Talgo says that the KTZ contract is part of an export strategy focused on tapping demand for “high-speed and high-performance” trains in Central Asia, India, China, the Middle East and US.
GE’s close relationship with Kazakhstan GE Transportation has been working with the Kazakh government for more than 15 years. The US company started its operations in 2009 with a deal to supply more than 400 locomotive kits to extend the working life of Kazakh rolling stock. Over the years, the relationship between the company and the government has grown ever closer and culminated in April 2010, when GE signed a memorandum of understanding (MoU) with the Kazakh state-owned JSC Locomotiv and Kurastyru Zaut to develop 1,520mm-gauge diesel-electric shunting locomotives for use in Kazakhstan. The MoU was a major deal that will create the basis to modernize the entire sector. Under the agreement, the joint venture will initially build 150 locomotives, of which the first five are to be manufactured at GE’s Erie plant in the US and will be ready for delivery in 2012. Then, after a period of testing, the remainder will be assembled from US-supplied kits at the Astana locomotive plant, which was opened by Kazakh president Nursultan Nazarbayev in July 2010 and rolled out its first locally built Evolution Series locomotive in December of the same year. “I am extremely pleased to mark another milestone in GE’s and Kazakhstan’s long and fruitful history of working together,” said Lorenzo Simonelli, president and CEO of GE Transportation, following the signing of the MoU. “The current collaboration to design and deliver shunter locomotives specifically designed for the Republic of Kazakhstan and the 1,520mm region is a great example of how globalization has opened up growth opportunities for GE.” The deal with the Americans was quickly followed by another agreement with French high-speed-train manufacturer Alstom. In October 2010, KTZ, Alstom and Russian engineering firm Transmashholding (TMH) set up a joint venture for the supply of295 electric locomotives to the Kazakh railway company.
Kazakhstan’s relations with France have been improving steadily, and the $1.8 billion deal followed President Sarkozy's visit to Astana in 2010. The agreement was signed in Paris in the presence of the French president and his Kazakh counterpart, President Nazarbayev. The contract took effect in March 2011, and is the first to be won outside Russia by Alstom and Transmashholding as part of the strategic partnership initiated by the two companies in 2009. In all, a total of 200 double freight and 95 passenger locomotives have been ordered, both of which will incorporate Alstom’s modern technology. The double freight locomotives are among the most powerful in the world, with the ability to tow up to 9,000 tonnes, and to run at speeds of up to 120km/h. The passenger locomotives are capable of running at speeds of 200km/hour, which will reduce the journey time between Almaty and Astana by three hours. Alstom’s Belfort plant will deliver the first freight locomotives in 2012, and the first passenger locomotives are slated for delivery in 2014. The remainder will then be built in Astana at a factory that is currently under construction and due to be completed in 2012, before reaching its annual production capacity of 50 double sections in 2016.
Talgo production and export As well as conventional locomotives, Kazakhstan has also started producing the Spanish Talgo high-speed trains, both for use on its own network and for export across the rest of the region. The first Talgo train assembled at the Astana plant will roll out of the shed this year, after an MoU was signed in June 2010 to form a joint venture between KTZ and Talgo. Talgo announced an order to supply KTZ with 420 coaches on November 11, 2010 as part of the agreement, that could see the national railway’s fleet of 3,000 inter-city vehicles replaced. The initial contract is worth more than $430 million for the Spanish firm, with further revenue expected from maintenance services and subsequent orders. The first coaches will be built in Spain until production moves to a factory in Astana, which is due to be completed in 2011 by the Tulpar Talgo joint venture between Talgo and KTZ. Askar Mamin, director of KTZ, said at the signing ceremony: “We have started to build an assembly plant with the Spanish company Talgo, which will produce 150 coaches per year. The total length of the high-speed rail network will grow from the current 1,300km to 2,700km in 2015.”
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Kazakhstan GE RAIL V2 JP
Bright future, growing partnership As Kazakhstan celebrates the 20th anniversary of its independence there are many reasons for optimism. Not only does the Republic have vast natural resources, it has also been able to manage these intelligently, successfully attracting foreign investment without sacrificing ownership of key assets, and achieving sound economic management. The new Almaty Regional Financial Center provides a firm foundation for the future. The bright outlook is supported by Kazakhstan’s resilience during the recent global financial crisis. Unlike many economies, Kazakhstan’s GDP grew during 2008, 2009 and 2010. We forecast strong, sustainable growth of 6-7% for 2011 and 2012, supported by robust exports and investments in infrastructure from abroad.
of major cooperation projects, including the China-Kazakhstan gas and oil pipelines. But while China takes the majority of Kazakh oil exports by final destination, the sector’s capacity is well distributed: around 32.3% are local companies, 29.4% American, 8.52% European, 8.52% Russian, and 20.7% Chinese. Kazakhstan’s gas sector also attracts investment. The Republic has proven reserves of 1% of the world’s natural gas, and is ideally situated to transport gas from producers in Central Asia to Europe. With global demand for gas rising, the sector will continue to expand. Annual natural gas production in Kazakhstan 40 35 30 25 20
Annual GDP growth in Kazakhstan
16 14 12
* latest government estimate
Gas production, bn cbm
10 8 6 4 2 0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010* 2011* 2012*
Real GDP growth (%)
Increasingly attractive to foreign investors Such investment is possible thanks to Kazakhstan’s outward-looking attitude, clearly shown by the Republic’s warm relationship with China, which has loaned it over USD 14.5 billion for infrastructure projects in natural resources industries. That these loans have very low interest rates, with no ownership stakes in assets, is a great achievement. During President Nursultan Nazarbayev’s meeting with Chinese President Hu Jintao in June 2010, the two sides reaffirmed their 2007 agreement to promote cooperation in non-resource sectors as well, and agreed to enhance bilateral cooperation in machinery manufacturing, transport infrastructure, power plant construction, pharmaceutical industries and other fields. They also agreed on the construction and long-term, stable operation
Gas consumption, bn cbm
Uranium is also important. Kazakhstan’s reserves are around 15% of the global total; it is the world’s largest uranium producer. There are 21 uranium fields in development, and with projections of a 30% increase in global demand for nuclear fuel by 2020, Kazakhstan’s uranium industry should continue to grow. As with gas and oil, the industry’s ability to attract international investment makes it a major contributor to the nation’s economy. Kazakhstan’s economic growth will clearly be powered by its relationships around the world. This is exactly where UBS, which combines global reach with profound knowledge, can help. In recent years, we have guided many Kazakh companies in the global capital markets, raising billions in both equity and debt.
UBS is a trusted partner in the international capital markets One example is our advisory role in the landmark USD 16.7 billion debt restructuring for BTA Bank. Our strength in the debt capital markets is demonstrated by our trading of almost USD 5.5 billion in Kazakh Eurobonds in the twelve months to August 2010. And our
ability to help Kazakh companies reach global equity investors is illustrated by the London IPOs of Alliance Bank (in 2007, worth USD 704 million) and Kazkommertsbank (in 2006, worth USD 846 million). Our combination of local market expertise and a global outlook also helps Kazakh companies seeking merger and acquisition advice. For example, we were the sole financial advisor to the shareholder of petrochemicals distributor JSC Sumbe on its 2009 USD 335 million acquisition by the Korea National Oil Company. Deep knowledge of investment markets has also been a pre-requisite for asset management services provided to the benefit of institutional investors, directly or through banks and pension fund companies, via segregated mandates or mutual fund distribution. UBS has strong historical relations with all leading Kazakh banks under its Bank for Banks global initiative. We remain committed to the local banking sector and expect to strengthen our positions not only across investment banking and capital raising advisory engagements, but also through our institutional commitment to the country’s banks in basic, but nonetheless vital, banking products such as trade and export finance, as well as treasury products. This positive experience in investment banking and asset management, combined with confidence in and commitment to Kazakhstan’s future, has encouraged UBS to enhance relationships also in terms of wealth management. As practical sponsors of the RFCA Academy, opened in 2008, we help train the skilled professionals needed for the new Almaty Regional Financial Center. Top speakers from UBS visit Kazakhstan on a regular basis for Global Outlook events jointly hosted with the RFCA Academy, while UBS hosts Kazakh students in Switzerland for annual seminars. UBS congratulates Kazakhstan on its transformation to a thriving market economy in the 20 years since independence, and looks forward to helping it realize even greater potential in the next 20 years and beyond.
UBS is a premier global financial firm offering wealth management, asset management and investment banking services from its headquarters in Switzerland and its authorised operations in over 50 countries worldwide to individual, corporate and institutional investors. UBS is not authorised to offer wealth management, asset management and investment banking services in Kazakhstan. UBS services are governed by non-Kazakhan law. © UBS 2011. All rights reserved.
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Banking and finance
Breaking the mold Kazakhstan’s stance following the global economic downturn not only kept it in good stead in the long term, it could provide a template for other economies. By Marcia Favale-Tarter
he 2007 financial crisis was a challenge for Kazakhstan. The easy money conditions of the past evaporated, as the global credit crunch that followed the Lehman Brothers collapse caused liquidity shortages that – combined with deteriorating banking-sector asset quality – caused balancesheet pressures and reduced credit-intermediation activities. Kazakhstan was also dealing with pressure on its international reserves, given the neighboring currency devaluations. The needed devaluation of the tenge currency further pressured the balance sheets of the banking sector that relied on international capital markets for a substantial part of its funding. Kazakhstan was proactive in response to the financial crisis. On October 23, 2008, the government passed the Financial Stabilization Law to support the stability and resilience of the financial system, and strengthened the powers of the financial authority. In addition, an Anti-Crisis Plan ($10 billion) was devised and adopted to support the financial sector, SME, real-estate market, agriculture and industrial-infrastructure sector. In February 2009, it was clear that Alliance Bank and BTA Bank would be unable to meet regulatory requirements. At that point, Samruk-Kazyna – acting according to the new law – took over control of these two entities to prevent a disorderly collapse of these banks. Samruk-Kazyna also acted to support KKB Bank and Halyk Bank. Liquidity – through a mixture of capital injections, debt, and the channeling of state-owned enterprise deposits – was directed into the operations of these banks, allowing them to continue to perform routine liquidity transactions. The restructuring of the Kazakh bank had four pillars: liquidity support, preservation of the sovereign’s fiscal profile, Invest in KAZAKHSTAN 2011
curtailment of moral hazard, and improvements in corporate governance. In addition – and a driver of value given the alleged fraud – asset recovery was enveloped into the restructuring strategies of Alliance and BTA Bank. As a result, asset-recovery notes were issued that allow, among other things, for the banks and creditors to benefit from a successful asset-recovery process. Kazakhstan did not set out to create a global benchmark when it undertook its bank restructuring. However, its success is being analyzed as a possible framework for other restructuring cases, which raises the question of transferability of the Kazakhstan model. What makes the Kazakh bank restructurings of note is that most European banks that have restructured favored a sovereign bailout. As a consequence, sovereigns have been laden with debt, and have had to implement unpopular austerity programs. Instead of following this model, in February 2009 the Kazakh government took a decisive step in restructuring its banks. Kazakhstan rejected the bailout strategy, and also rejected a ‘bad bank-good bank’ framework. Instead, it imposed a burden-sharing and a ‘true trade finance’ approach. Of the $15.74 billion in recapitalization needs, $10.22 billion was the total creditor support exacted through debt reduction (also known as ‘haircuts’). As part of the restructuring package, creditors were offered, according to their asset class, a mixture of cash, debt, equity and asset-recovery notes – and Samruk-Kazyna maintained majority ownership of each bank. What remains to close the restructuring chapter is for the three banks to be sold either through a strategic sale or through a capital market transaction, or a combination of both. As a result of the successful implementation of the burden-sharing restructuring strategy, Kazakhstan avoided the ‘beggar-thy-neighbor’ situation that often favors creditors to the detriment of expansionary fiscal policies. Given the burden-sharing approach, debt holders became partners in the process of recapitalizing the banks. This allowed funds to be channeled to the more productive activity of providing
Banking and finance
Grigori Marchenko, Governor of the National Bank of Kazakhstan In 2010, the economy of the Republic of Kazakhstan demonstrated quite high development rates. According to estimates, the real GDP growth in 2010 was seven percent. Industry grew by 10 percent, transport by 13.1 percent, domestic trade by 12.3 percent, communications by 5percent, foreign trade by 24.3percent and construction by one percent. The unemployment rate fell from 6.3 percent in January 2010 to 5.5 percent in December 2010. The main objective of the National Bank of Kazakhstan in 2011 is price stability in the country. It is determined to ensure this, aiming to keep inflation within the range of six to eight percent by the end of the year. The fundamental factor underlying inflation in 2011 is an imbalance of supply and demand in the economy. The influence of monetary factors is minimal. From February 28, 2011 the National Bank moved to the managed floating exchange rate regime. This is stipulated by domestic currency stability, promoted by a favorable pricing environment for major items of
Kazakhstan’s exports in the global markets and the balance of payments position. However, the transition to the managed floating exchange rate regime doesn’t release the National Bank from its responsibility to maintain domestic currency stability. Measures by the National Bank will focus on preventing significant fluctuations in the real exchange rate of the domestic currency, that might have a negative impact on the competitiveness of domestic production in an ever-changing global environment. The National Bank will look to further reduce its involvement in the foreign exchange market, in order to increase the flexibility of the tenge exchange rate. Despite the minimum effect of monetary factors on inflation, the National Bank pays special attention to an anti-inflationary policy, implemented jointly with the Government and local executive bodies. The National Bank regularly monitors and analyzes the dynamics of change in money supply in the economy. With the help of its instruments and
liquidity to the banks, allowing for operations to be maintained without impairing the sovereign. The strategy is deemed successful, not only for alleviating sovereign fiscal pressures and hard-currency external liabilities in the system, but because it also addressed balance-sheet weakness. Furthermore, moral hazard was mitigated and corporate governance improved, as charters were modified and board membership granted, and supervisory committees
operations, the National Bank can quite rapidly influence the situation in the money market and, in the case of necessity, increase its operations to absorb excess liquidity from the economy. Against the background of strengthening inflationary pressures in 2011, the National Bank began to take measures to tighten monetary policy. In March 2011, the official refinancing rate of the bank was increased to 7.5%. In May, the National Bank increased the reserve requirements on both local and other liabilities, to 2.5 percent and 4.5 percent, respectively. Fulfilling the function of ensuring financial stability, the National Bank in 2010 developed the concept of financial sector development in the post-crisis period. Thereafter, the role of the National Bank in providing the financial stability will rise. The main purposes of financial sector development in the post-crisis period are: • providing stability for the financial sector; • creating the conditions to prevent the effects of the instability factors and
negative events that were detected during the current financial crisis; • stimulation of investment activity in the post-crisis period; and • restoration of trust and confidence in the financial sector in both investors and consumers of financial services. Work will continue on developing a modern, stable and competitive financial system for sovereign Kazakhstan. The realization of planned measures will attract financial resources for further economic development of the country, establish conditions for stable development of the financial sector, and restore confidence.
strengthened. Although investors initially threatened Kazakhstan with closed international capital markets and a ‘pariah-state’ status, the restructuring strategy received more than 90 percent creditor approval for each of the three banks, and Kazakh issuers such as Halyk Bank, Kazatomprom and KMG have received a warm welcome from international investors. The restructuring success is attributed to a series of decisive steps taken by the government. While devising its Invest in KAZAKHSTAN 2011
Banking and finance
own restructuring strategy, the government was committed to a fair and transparent restructuring process. Early on, independent advisors were hired to provide unbiased restructuring and asset-recovery advice that served to form the restructuring strategy and framework, which was a burden-sharing approach that rejected guarantees or bailouts. To ensure that the execution process adhered to market best practice, teams of financial and legal advisors were assembled. For process transparency, a ‘cram-down’ law was passed that adhered to the United Nations Commission of International Trade Law framework and has been subsequently recognized, on a case-by-case basis, in the United States and United Kingdom. As part of the process, no bilateral agreements were entered, and all creditors were treated equitably and fairly within their asset classes. Essential to the process, and an
transactions had to be proven in order to qualify as trade finance debt. Where there were no specific underlying import or export trade transactions, these were excluded from the trade finance debt portfolio. To ensure a transparent process, Alliance Bank and BTA Bank appointed an Independent Adjudicator to adjudicate trade finance claims. The result was that Alliance Bank, which had an initial $293 million of claims, after the adjudication process saw its trade claims confirmed at $97 million to be repaid over a 12-month period. In BTA Bank’s case, of the nearly $3 billion of trade finance claims, $1.1 billion private-sector trade claims were confirmed. Of the adjudicated amount, $700 million is to be repaid over a 36-month period, without a haircut, and $400 million in private-sector trade claims is restructured pari passu with other senior claims. As mentioned earlier, Kazakhstan’s successful restructuring is being analyzed as a possible framework for other restructuring cases, which raises the question of transferability of this restructuring model. To address this question, one must consider the peculiarities of each country, such as the size of the banking sector, contagion risks and even the political construct. The latter was one of the main strengths benefiting the process. A key to the Kazakh restructuring success was its unwavering commitment to a sensible restructuring strategy and the commitment to a transparent restructuring process that adhered to best market practices. The restructuring strategy was a domestic-led effort, rather than an international imposition, that relied on the strength and vision of Prime Minister Karim Massimov, the support from Samruk-Kazyna and the Financial Supervising Agency, and the expertise and reputation of the National Bank Governor Grigori Marchenko.
Kazakhstan did not set out to create a global benchmark with its bank restructuring. However, its success is being analyzed as a possible framework for other cases imposition from Kazakhstan, was the active participation of the debt-holders through a steering committee process representing all categories of creditors. Engaging creditors as partners was an essential and fundamental part of the successful restructuring process. Not only did the steering committee process arrive at a consensual agreement, but also it maintained the creditors as partners in the banks’ futures through their exposure to debt and equity, and board-member representation. By actively encouraging investors to remain invested in the banks, corporate governance improved through charter enhancements, board representation and committee supervision. During the Kazakh restructuring, Alliance Bank and BTA Bank working with the relevant members of the Steering Committee of Creditors, created specific eligibility criteria for the election of ‘true trade finance’ debt from the total trade finance stock. Documentation underlying trade-related Invest in KAZAKHSTAN 2011
Marcia Favale-Tarter has nearly two decades of emerging market finance experience. Through her company, M Favale-Tarter LLC, she was an independent advisor to BTA Bank and Alliance Bank, and currently advises Astana Finance, a subsidiary of Samruk-Kazyna. Ms Favale-Tarter is a senior advisor to the Prime Minister of Kazakhstan, responsible for matters relating to the financial sector and debt restructuring.
banking and finance
Foreign banks poised for the upturn Not restricted by national protectionism, Kazakhstan’s banking sector looks to benefit from the flurry of interest from the international community. By Clare Nuttall
In the Central and East European banking market, foreign ownership is as high as 90 percent in some cases
azakhstan’s banking sector is still mainly under domestic ownership, but foreign investment in the sector has been creeping slowly upwards year by year. International players including HSBC, Citibank and Russia’s Alfa Bank have had a presence in Kazakhstan for a decade. In recent years, banks from a growing range of locations including Russia, China, Western Europe, the Middle East and East Asia have entered the market. Newcomers to the market include Russia’s VTB, Sberbank and United Arab Emirates (UAE)-based Al Hilal. Kazakhstan’s expanding trade and investment network is also attracting investment banks from London, New York and the European Union. However, until recently, the market share of foreign banks has remained relatively small, unlike in the Central and East European banking market where foreign ownership is as high as 90 percent in some cases. Foreign ownership in the Kazakh banking sector took a leap forward in June 2007, when Italy’s Unicredit Bank agreed to buy a majority stake in Kazakhstan’s fifth largest bank, ATF Bank. The deal valued the bank at $2.18 billion. A few months after the Unicredit deal, South Korea’s Kookmin Bank acquired a 30 percent stake in BankCenterCredit in a $623 million deal agreed in March 2008. Kookmin, which said it had made the investment to get a foothold in the CIS market, later increased its stake to 42 percent in early 2010. The International Finance Corporation, part of the World Bank Group, took a 10 percent stake in the bank at the same time. Invest in KAZAKHSTAN 2011
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banking and finance
New entrants are coming from different parts of the globe. India’s Punjab National Bank plans to expand its operations Both Unicredit and Kookmin have endured a rocky ride in the Kazakh market, since they bought in immediately before the crisis. The deal was a less-than-brilliant one for Unicredit. Three years after making the investment into ATF, Unicredit announced in August 2010 that it had written down the value of ATF Bank by €162 million. This followed a write-down of €417 million in the third quarter of 2009. Unicredit also reported an unexpected 70 percent drop in net profits in the second quarter of 2010, partly due to the write-down. However, both banks have steered their Kazakh acquisitions through a difficult three years, and are now hoping to benefit from their presence in one of the CIS’s largest and fastest-growing economies. Meanwhile, HSBC has been ramping up its presence in Kazakhstan. HSBC Bank Kazakhstan agreed to buy Royal Bank of Scotland’s retail business in the country. The British bank, which was nationalized during the crisis, had been seeking to divest assets in countries – including Kazakhstan, Russia and Romania – to focus on its core business. The $52 million deal delivered RBS Kazakhstan’s personal customer loan and credit card portfolios, four branches and 80 automated teller machines to HSBC. “This acquisition reflects HSBC’s positive view of Kazakhstan’s long-term prospects, not least because of its trade flows with China,” Simen Munter, HSBC’s CEO in Kazakhstan said at the time of the acquisition. “We have been in Kazakhstan for 12 years and today’s deal significantly increases our platform for growth by doubling our network and growing our customer base fivefold.” State Secretary Kanat Saudabayev and EIB President Philippe Maystadt sign a framework agreement in Brussels
New entrants are also coming from different parts of the globe. The adoption of legislation on Islamic banking and finance in early 2009 opened the way for the UAE’s Al Hilal Bank to enter the market. The bank obtained its license in March 2010 and, depending on how successful it is, may be followed by other banks from the Islamic world. India’s largest state-owned bank, Punjab National Bank (PNB) – which has had a representative office in Kazakhstan for over a decade – took over Dana Bank in December 2010 and now plans to expand its operations in the Kazakh market. PNB paid around $23.7 million for the 63.64 percent holding in Dana in December 2010. Dana is one of Kazakhstan’s smaller banks, with a business worth around $60 million. It currently has five branches. “In our view, the Kazakhstan economy is growing and improving day by day. The banking sector is out of the crisis and is now more stable than previously,” says Bhushan Bhatia, chief representative of PNB in Kazakhstan. “I believe there is a great future for trade between India and Kazakhstan. Indian businesses are very much interested in Central Asia, especially Kazakhstan. Investors have found Kazakhstan to be stable, growing and hospitable. Indian companies are ready to look at all sectors – not just oil and gas, but also sectors including agriculture and pharmaceuticals.” The biggest question today is whether BTA Bank – Kazakhstan’s largest bank by assets until its near collapse and nationalization in 2009 – will be sold to a foreign investor. A potential sale to Russia’s largest bank, Sberbank, has been under discussion since February 2009, although even with the restructuring of BTA’s debt completed, no deal has yet been announced. It is understood that the Kazakh government’s need to be seen to recoup the $6 billion it ploughed into BTA to shore it up in the crisis may mean the price tag for the bank is too high for Sberbank. If the deal does go ahead, it will signal a significant change in a market where Western banks have, until recently, been more warmly welcomed than Russian banks. Alfa and Sberbank are both long-established in Kazakhstan, but on a relatively small scale, even after Sberbank’s acquisition of Texaka Bank in 2006. VTB, Russia’s second largest bank, entered the market after finally receiving its license in May 2009.
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BANKING and finance
Support from the top for Islamic finance market In its quest to diversify, Kazakhstan has embraced Islamic banking practices, with the goals of establishing economic stability and building links with neighbors. By Clare Nuttall
ver the past two years, Kazakhstan has rapidly established itself at the vanguard of Islamic finance in the Commonwealth of Independent States (CIS) region. Since the adoption of new legislation on Islamic banking and finance in early 2009, one Islamic bank – Al Hilal Bank – has already set up operations in Kazakhstan and two others are planned. Several specialist investment houses and consultancies have also been established. A roadmap for the development of Islamic finance in Kazakhstan was drawn up in cooperation with the Islamic Development Bank and approved in 2010. The rapid rise of Islamic finance has occurred thanks to pressure from the top. Kazakhstan’s President Nursultan Nazarbayev is firmly behind the idea. Not only did President Nazarbayev encourage the speedy adoption of legislation and issuing of a license for Al Hilal, but the links he has forged with leaders in the Islamic world have also persuaded firms such as Al Hilal to enter the nascent Kazakh market. Overall, the aim is to turn Kazakhstan into a regional hub linking Central Asia and the CIS to the Islamic world.
A receptionist at Al Hilal in Almaty. The bank also has an Astana office
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BANKING and finance
Amendments to Kazakhstan’s legislation affecting the Islamic banking finance sector will enable the Kazakh government to issue its debut sukuk, or Islamic bond Kazakhstan’s population has a Muslim majority, but the country is largely secular, in part owing to its Soviet heritage. However, Astana was encouraged by the success of London as an Islamic finance center. The incentive to look at alternatives to the Western financial model also became stronger with the onset of the international financial crisis. “The tone from the top is clear: Islamic finance should be encouraged to grow and blossom. The president and the Kazakh government are keen to establish Islamic finance in this country,” says Prasad Abraham, the CEO of Al Hilal Kazakhstan, which obtained its license in March 2010. “There is a strong desire that Kazakhstan should become the regional Islamic finance center by 2020.” In early 2011, Al Hilal had extended facilities amounting to $25 million in total, with 42 employees in its Almaty and Astana offices. There are plans to open a third office in the populous south Kazakhstan region.
Bridge with UAE investors The bank’s main focus is on large-scale, government-related projects, says Abraham. “Several projects are under discussion,” he says. “Separately, we have a mission to identify opportunities for UAE investors in Kazakhstan. We will act as a bridge to bring Kazakh projects to the attention of UAE investors.” An agreement on the creation of a second Islamic bank was signed in July 2010 by Almaty-based investment house Fattah Finance, the Development Bank of Kazakhstan and Malaysia’s AmanahRaya Financial Group. Fattah is working on a feasibility study for the bank. At the same time, Fattah signed an agreement to set up the first hajj fund in Kazakhstan, and a memorandum of understanding on the creation of a halal hub in Kazakhstan, with AmanahRaya and KazNex Invest. Fattah’s chairman, Zaratkazy Nurpiissov, agrees that the government has supported the creation of the market. “Government support is available – it’s more than enough,” he says. “After the international economic crisis, Kazakhstan, like many other countries, started to search for alternative ways to invest, to diversify, to develop the economy. We are
an Asian country, so we turned to Asia and to Islamic finance. Once we were part of the Silk Road, and now a modern Silk Road is being built. Also, it’s important to note that no Islamic bank has ever gone bankrupt.” While progress has been rapid, there are still important steps that need to be taken. First, the legislative base needs to be improved. Some amendments to Kazakhstan’s legislation affecting the Islamic banking finance sector are expected to be finalized in 2011. These measures will not only pave the way for a wider range of Islamic financial services to be offered in the country, but will also enable the Kazakh government to issue its debut sukuk, or Islamic bond. The issuing of the bond will be highly important for Kazakhstan to achieve its main goal in creating Islamic finance – to attract finance from the Islamic world for the country’s ambitious industrialization program and for the diversification of the economy. “Within the next five to 10 years, we hope to attract up to $10 billion – equivalent to 10 percent of all banking assets in Kazakhstan,” Arken Arystanov, chairman of the Regional Financial Centre of Almaty (now part of the National Bank of the Republic of Kazakhstan) and one of the key proponents of Kazakhstan’s Islamic finance market, told a conference in March. “We have high hopes that the government will issue a sovereign sukuk soon. This will be a benchmark for corporate issues and will demonstrate Kazakhstan’s long-term commitment to developing Islamic finance instruments.” “We hope a sovereign sukuk will be issued in the near future, because it is important as a benchmark and will create liquidity for the market,” agrees Fattah’s Nurpiissov. In the future, a wider range of Islamic financial services is also likely. A third Islamic bank could be set up in 2011. The government and financial regulators are looking in particular at takaful – Islamic insurance – which would be an interesting prospect in a market where insurance is currently underdeveloped. Kazakhstan will also have the chance to grow the market this year, as it takes over the rotating presidency of the Organisation of Islamic Cooperation in 2011.
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Thriving city in need of further housing capacity
Almaty is the most Westernized of Kazakhstanâ€™s cities. As its reputation as a cultural and financial hub grows, its popularity goes from strength to strength. But to accommodate the influx of inhabitants, it requires more living space. By Clare Nuttall
Almaty is the business and financial capital of Kazakhstan. Almost all major companies outside the oil and gas sector are based in the city, as are the Central Bank and the Kazakhstan Stock Exchange
azakhstanâ€™s largest city and business center, Almaty, is renewing its bid to become a regional financial center as neighboring economies recover. The preferred location for banks and financial institutions, the city still faces challenges in terms of accommodation and environment. With a population of around two million, Almaty is the most populous city in Kazakhstan. Despite the removal of government offices after the capital was moved to Astana Invest in KAZAKHSTAN 2011
Independence Square. The city was built on a nomadic settlement site
a decade ago, Almaty remains the undoubted business and financial center of the country. It accounts for one-fifth of Kazakhstan’s total GDP and around 40 percent of budget contributions. Almost all major companies outside the oil and gas sector are based in Almaty, as are the Central Bank and the Kazakhstan Stock Exchange (KASE). In 2006, the Kazakh government set up the Regional Financial Centre of Almaty City (RFCA), an organization tasked with turning Almaty into a financial hub, not just for Kazakhstan, but for the entire Central Asian region. In April 2011, the RFCA was taken over by Kazakhstan’s Central Bank. The KASE is expected to get an additional boost when the government’s program of “People’s IPOs” – domestic listings of minority shares in large state-owned companies – starts later this year. Kazakhstan was one of the first countries worldwide to feel the impact of the international economic crisis, and forecasts of the country being “first in, first out” have proved largely correct. With oil prices back to healthy levels, Kazakhstan’s attractiveness as an investment destination has been restored. Now new
companies and financial houses are looking to establish themselves in Almaty. The international banks that have remained in the country during the crisis, among them HSBC and Russia’s Sberbank, are stepping up their activities. They have been joined in Almaty by several newcomers. Russia’s VTB obtained its license in mid 2009; Punjab National Bank has had a representative office in Almaty for 10 years, but in December 2010 took over the local Dana Bank and plans to expand; and Kazakhstan’s first Islamic bank, Al Hilal, has its main office in Almaty. In addition to local investment bank Visor Capital, Russia’s Renaissance Capital and Troika Dialog are also based in Almaty, and international investment banks such as Credit Suisse and Citibank have offices in the city. These businesses, and many of the larger local banks, are concentrated in what has become the new business district in the south of the city. The two key developments are the Esentai Tower and Almaty Financial District, both constructed by Capital Partners, and providing the first true ‘Class A’ office space in the city. The city authorities are also working to attract new manufacturing companies to Almaty, with the launch of new industrial zones outside the city limits to minimize
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Thanks to a large extension to an influx of government funding, most of the buildings started before the global economic crisis are now finished or close to completion pollution. The Alatau district now hosts a 340-hectare industrial zone, with manufacturing, food processing and pharmaceuticals plants. Almaty’s residential property boom came to an abrupt halt with the onset of the economic crisis in mid 2007. Many buildings were abandoned, leaving a city skyline punctuated with half-finished tower blocks and stationary cranes. Other lots were simply boarded up and abandoned, eventually becoming parks or parking lots. This situation has changed, thanks to a large extension to an influx of government funding. Most of the buildings started before the crisis are now finished or close to completion, and developers are starting to think about the next generation of projects. Despite the large number of high-end residential buildings that mushroomed before the crisis, there is still a pressing need for more living space in Almaty. Originally founded as an outpost for the Russian empire, Almaty was built on the site of a nomadic settlement. Now that it is home to around two million people, the city’s room for expansion is limited. It is hemmed in to the south and east by the Tian-Shan mountains, which curb the potential for construction near the city’s historic center. To the north and west, new residential developments are spreading out onto the steppe. Back in 2008, ambitious plans were devised to build four satellite cities to the north, between Almaty and Lake Kapchagai, around 100 kilometers away. The plans were put on hold during the economic crisis, but the G4 City project may now be revived. Meanwhile, within the city, quality of life continues to improve. Almaty’s temperate climate, proximity to ski resorts and cosmopolitan downtown area with a growing number of international retailers, coffee shops and restaurants has made it the preferred location for expats in Kazakhstan. After a gloomy start to 2009, the past 18 months have seen the opening of numerous shopping malls, supermarkets, cafes and bars. In addition to the long-established Hyatt and Intercontinental Hotels, three other big brands – Holiday Inn, Rixos and Royal Tulip – launched in the past two years, as
The Tian-Shan mountains curb development to the south and east
Almaty prepared for an influx of visitors attending the Asian Winter Games in February 2011. An increasing number of airlines serve Almaty, and local carrier Air Astana has been expanding its routes to provide direct flights to Europe, the Middle East and Asia. Almaty co-hosted the Asian Winter Games in February 2011 along with Astana. The games were a triumph for Kazakhstan, which took the lion’s share of the medals. They were also the driving force behind the construction and renovation of numerous stadia, and of other facilities in both cities. The improvements included the renovation of the Medeo skating rink and Shymbulak ski resort, which will have long-term benefits for the population of Almaty, especially as the construction of a cable car means that Shymbulak is now accessible by public transport for the first time. Within Almaty, the city authorities are focusing on improving public transport services. There are more than 150,000 private cars in the city, leading to severe rush-hour traffic jams and adding to the smog that is a growing problem. In an attempt to reduce the number of cars on the roads, further bus and trolleybus routes are being launched, while the long-awaited Almaty metro train service is scheduled to open in December 2011. Invest in KAZAKHSTAN 2011
Mabetex Group in Global Construction and Engineering Company
Ak Orda, Kazakhstan’s Presidential Palace, 2002
3,500-seat Theater and Concert Hall, 2009
Velodrome seating 10,000 spectators, 2010
Radisson hotel and shopping center, Arman, 2004
eadquarted in the city of Lugano, Switzerland, the Mabetex Group is among the world‘s leading design, management and construction companies, located in over 22 countries. The recognized Mabetex masterpieces are the Presidential Palace, the Olympic Ski Jumping Center and the magniﬁcent TheatreAuditorium, all located in Astana. Mr. Behgjet Pacolli, Thanks to efﬁcient organizational founder of methods, its professional manageMabetex Group ment, its design and production facilities and the great dedication towards each project, Mabetex expanded from a construction company to a group including hotels, travel agencies, mass-media ventures, insurance, banks, etc. The Mabetex Group has a unique ability to deliver projects in rapid, record time with assurances of the highest quality. The Mabetex Group focuses on projects which are prestigious and presidential, concentrating on the speciﬁcations, size and scope of work, all the while respecting and incorporating the country’s identity in each of the projects. At Mabetex, we believe that by managing the knowledge and intellectual capital of our expertise, innovation is the main success factor of our organization. The Mabetex vision for our customers, people, communities and citizens is based on our values to help build a better world through ethical practices, excellence in our standards, fair return, mutual respect, sustainability and safety. At Mabetex, there are more than 2,000 workers who are working as subcontractors and 5,000 seasonal construction workers for the group. Our strategy is always to engage the same subcontractors to guarantee the quality and continuity of work. Mabetex specializes in working on projects from conception to completion, mostly on a turnkey basis. Our overall planning, coordination and control of a project from conception to completion is aimed at meeting a clients requirements in order to produce functionality with innovation, all the time ensuring the project is ﬁnancially viable for all parties and completed ahead of schedule. Mabetex ensures through its vast network of management professionals that projects are completed on time, within the authorized budget and
Astana since 1996 speciﬁed to the required quality standards. Major construction projects are a complex undertaking, often involving dozens of subcontractors and suppliers, thousands of workers, millions of dollars in material, equipment, and services. Orchestrating such an operation demands a ﬁrst-rate construction projectmanagement system, which Mabetex has provided for many years on projects large and small around the globe. Mabetex also assures oversight of materials management, including ﬁeld procurement, receipt of materials, inspection, warehousing and issuing materials to contractors. The Mabetex standard is apparent in its vast array of projects, however oversight must always be maintained in the construction, ﬁeld administration, commissioning and maintenance of operations to ensure continued success. Each project shall follow strictly the formulation of concept design and scope of work to the standards in force in the nation where it has been commissioned. The Mabetex Group also prepares, monitors and organizes the labor force for construction work, which is handled directly on the site by group personnel. Mabetex frequently entrusts the practical execution of the works to the most-skilled labor work force available on site. The advantages offered by the Mabetex Group are obvious, and are expressed in the close observance of the construction speciﬁcations, while health, safety and the environment are always a main concern and focus. Mabetex, no matter the project, shall always ensure usage of the best materials available and skilled craftsmanship.
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Ministry of Sport and Tourism building, 1996 Shopping Center “Sine Tempore” ZUM, 2004
The 1,250-seat Classic Theater, to be inaugurated in 2012
Mother & Child Hospital and Diagnostic Medical Center, 2006
Olympic Ski Center (under construction)
Capital on the steppe Astana’s status as Kazakhstan’s capital is assured, with the city experiencing 50-fold GDP growth in the past 10 years. A steady flow of businesses has relocated there, reflecting confidence in the local economy. By Clare Nuttall
stana, which has been Kazakhstan’s capital for the past 13 years, is sometimes dubbed ‘Dubai on the steppe’. The city’s importance is growing as more businesses relocate there to be closer to the government. Astana’s growth also reflects Kazakhstan’s rising international status. In February 2011, it co-hosted the Asian Winter Games, which required the construction of new stadia and other facilities. Construction of new government offices, and of the infrastructure needed to sustain a growing city of around 700,000 people, is ongoing. Kazakhstan’s good international relations, and the government’s aspiration to play a greater role on the world stage, have seen the country take the presidency of a number of international organizations recently. In 2010, the country held the rotating presidency of the Organization for Security and Cooperation in Europe, which culminated in a summit meeting in Astana in December. In 2011, Kazakhstan is chairing both the Organisation for Islamic Cooperation and the Shanghai Cooperation Organization. The Shanghai Cooperation Organisation summit, the European Bank for Reconstruction and Development annual meeting and the World International Economic Forum all took place in Astana this year. Astana’s appearance has changed dramatically in the past decade – more so than that of any other city in Kazakhstan. When the decision was made to relocate the capital from Almaty, ostensibly because of the former capital’s location in an earthquake zone, Astana (then named Akmola), was a minor city in the northern steppe. The Soviet town of Tselinograd – the center of Nikita Khrushchev's ill-fated ‘Virgin Lands’ campaign in 1953 – was renamed Akmola after independence.
But because of the name’s alternate meaning of ‘white tomb’, the city was understandably renamed again when it was made the capital. ‘Astana’ simply means ‘capital’ in Kazakh. Government offices have been gradually relocated to Astana over the years, and have been followed by an increasing number of domestic and international companies that appreciate being close to the seat of power. Ambitious young Kazakhs are also being drawn to the city in greater numbers. The growing population, and the influx of businesses and government offices, has caused a spectacular building boom in Astana. Around 40 percent of all construction work in Kazakhstan is taking place in Astana. While some new constructions have grown up on the city’s historic right bank, which is composed mainly of Imperial Russian and Soviet housing, the left bank, which has largely been built from scratch and is the location of most government offices, has seen the construction of numerous wildly exotic buildings. In 2010, on the city’s 12th anniversary as capital, the Khan Shatyr pleasure dome opened. This giant, tent-like structure, designed by Sir Norman Foster, houses shopping and entertainment centers. There is also an indoor lake where Astana residents can bask in winter when temperatures drop below minus 40ºC outside; Astana competes with Toronto and Ulan Bataar for the title of the world’s coldest capital. “In Astana, it’s too cold to walk outside. Now, when it’s minus 40ºC, people can swim in indoor pools, enjoy the aquapark and stroll among trees and plants,” says Cholponbek Akdekov, an Astana-based representative of Turkish construction company Sembol, which built the Khan Shatyr. “Owing to the high winds, we had to change the design to make it more aerodynamic. Now we plan to build eight towers full of serviced apartments, linked to the Khan Shatyr by indoor tunnels.” Other new structures include the triangular Palace of Peace, buildings dubbed ‘the lighter’ and ‘the wedding cake’, and the Baiterek Tower – a tall, white structure, cradling a golden egg, that has become the symbol of the city. The city’s status has also been enhanced with the opening of Nazarbayev University in summer 2010. The aim is to attract talented academics to create a world-class university in the capital.
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A new skyscraper on the left bank, where most government offices are based
The growing population, and the influx of businesses and government offices, has caused a building boom, with the construction of numerous wildly exotic buildings Invest in KAZAKHSTAN 2011
New housing in Astana, where young people are flocking to work
The city’s exotic structures include the triangular Palace of Peace and the Baiterek Tower, cradling its golden egg
Co-hosting the Asian Winter Games this year meant building new stadia
The government and city authorities are also working to turn Astana into an industrial hub, as well as an administrative city. Astana’s importance in the Kazakh economy has grown significantly in the last decade. The city’s GDP increased more than 50-fold in 10 years – fast even by Kazakh standards. As of 2010, Astana accounted for 10 percent of Kazakhstan's total GDP, compared with just 1.5 percent in 2000. Industrial output is up sevenfold since 2000 and investment is 22 times greater. To attract new businesses to Astana, the city authorities have launched a 6,000-hectare special economic zone – Astana New City. Incentives have been successfully offered to manufacturing and service companies to set up in the zone, with the result that an extension is now planned to keep pace with demand. In addition to domestic companies, the zone has attracted investors from China, Korea, Turkey and the US. “Astana New City is composed of two zones – a construction zone, and an industrial and high-tech zone,” says Meder Masselov, managing director of the department for the administration of Astana New City within the Astana city
akimat (city hall). “We have a wide range of incentives, including exemption from customs duties, VAT, land tax and several other taxes. The project has proved so popular that we now need to build a second industrial park because the first one is full.” One company to set up in Astana was General Electric (GE) Transportation, which has built a locomotive assembly plant in cooperation with Kazakhstan's national rail company, Kazakhstan Temir Zholy (KTZ). The plant opened in July 2009 and will produce up to 100 locomotives a year to supply KTZ, and serve other CIS railway operators. As KTZ’s expansion plans gather momentum, a second plant – this time in cooperation with France’s Alstom – is due to be set up in Astana. Meanwhile, a national space center is being built in Astana by Kazakhstan Gharysh Sapary, part of Kazakhstan’s space agency. Construction of the center, which will focus on an assembly, integration and testing complex, started in July 2010. It will cost around $185 million to construct, and will allow Kazakhstan to build up its domestic space industry while the Baiterek Cosmodrome remains under lease to Russia.
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SCHALLER LEBENSMITTELTECHNIK® is privileged to congratulate the Republic of Kazakhstan on the 20th anniversary of its independence
SCHALLER LEBENSMITTELTECHNIK® is a leading European provider of spices, ingredients, equipment and supplies for the meat, poultry and ﬁsh processing industries, as well as a supplier of equipment for slicing, packing, weighing and labeling for many other industries. The company’s head ofﬁce is located in Vienna. During 20 years of company activity, we have successfully fulﬁlled many projects for the delivery of standalone machines, processing lines and turnkey projects at meat processing plants. According to 2010 results, Kazakhstan took ﬁrst place among CIS countries in its reforms for business simpliﬁcation for enterprisers. This resulted from the stable political situation, the introduction of laws directed at developing an attractive investment climate in Kazakhstan, and also from a big market potential. We have witnessed this in practice since SCHALLER LEBENSMITTELTECHNIK® founded its ofﬁce in Kazakhstan in 2003. Elena Parlayan, General Director of TOO “SCHALLER-KAZAKHSTAN”
INTRODUCING INNOVATIONS We are pleased that the meat processing market in Kazakhstan has appreciated our innovative technologies, equipment, knowledge and many years of experience. As well as selling and delivering single machines or complex solutions, we also educate the client’s personnel on how to work with the equipment – both from a technical and technological aspect. We have the latest developments in meat processing equipment, and their operation therefore requires highly skilled professionals who are able to utilize the equipment’s full range of services. With this, our customers can produce a high-quality product in an attractive package for a good price. OUR PLANS FOR BUSINESS DEVELOPMENT IN KAZAKHSTAN Focusing on our high competence, wide knowledge base and experience in meat processing, we will continue to increase the efﬁciency and proﬁts of our clients with our innovative instruments and technologies. This has been our goal since we founded our company, and we will continue to do this in the future. As a market leader, we offer the most attractive price-capacity ratio to our customers. Finally, I would like to express my gratitude to everybody we have been fruitfully cooperating with in Kazakhstan; our clients and partners, and also to the Kazakhstan government for creating favorable conditions for business. We hope to continue this cooperation between all market participants.
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Strong growth despite setbacks
Loading up with wheat grain near Birlik village. The country produces high-quality durum wheat
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Prone to some of the most extreme temperatures and weather, Kazakhstan has taken measures to boost its productivity in arable farming and livestock. By Clare Nuttall and Nora FitzGerald
t is not uncommon these days for 200 or so of North Dakota’s best breeding cattle to be loaded on a Boeing 747 aircraft bound for Kazakhstan. More than 2,000 cattle have been airlifted so far from Fargo to Astana. Several thousand more cattle, the finest of breeders, are also expected to make the trip. The North Dakota Trade Office (NDTO) now has a satellite office in Astana. According to NDTO executive director Dean Gorder, the office is acting as a kind of matchmaker between American companies in North Dakota and Kazakh agricultural officials eager to quicken the pace of modernization for farming, food processing and, ultimately, food export. American companies are offering new cattle, equipment and expertise. “Kazakhstan needs to rebuild its herd,” Gorder said. “It tried to buy cattle from Australia and Texas, but they didn’t thrive. In the state of North Dakota, at any given time, we have a million breeding cattle. They live outdoors during long cold winters and hot summers.” Bismarck, North Dakota-based Global Beef Consultants, through its joint venture partnership with the government of Kazakhstan, is supplying Kazakhstan with Angus and Hereford cattle. KazBeef Ltd, the joint venture corporation, involves a $50 million project to develop two 2,500-head cow-calf operations and a 5,000-head feedlot near Akmola Oblast, Kazakhstan, says Bill Price, president of Global Beef Consultants. The project marks the most ambitious and largest scale upgrade of Kazakhstan’s cattle herds – depleted in the years after the collapse of the Soviet Union – to date.
Kazakhstan has seen strong growth in agricultural production, as modern farming methods have been introduced in the last decade. Even after last year’s drought, which was a setback for grain production, Kazakhstan is well-positioned to take advantage of rising global food prices. The drought that devastated Russian farms in 2010 also had an impact on the grain-producing regions of north and west Kazakhstan. In parts of the country, up to 70 percent of the crop was destroyed, as temperatures soared above 50ºC for several weeks. According to the national statistics agency, Kazakhstan harvested just 13.4 million tons of grain in 2010 – considerably below the record 20.8 million tons of grain harvested in 2009, which had beaten the previous record of 20.1 million tons in 2007. Detrimental weather conditions have affected crops not only in Russia and Kazakhstan, but also in other world regions, helping to drive a hike in food prices. Globally, “in 2010-11 we are seeing a return of the punishingly high food prices seen in 2008”, says a report from IHS Global Insight’s Agricultural Service. However, this upward pressure on prices is not expected to continue through the year. “Easing production and supply constraints should see most key prices moderate in 2011, but there are many unpredictable factors such as extreme weather that may intervene,” says the report.
Agricultural fairs In Kazakhstan, measures are being taken to ensure that food prices remain at reasonable levels. The Almaty city authorities, for example, have organized regular agricultural fairs in the city, where farmers from south Kazakhstan sell their fruit, vegetables and meat directly to consumers. Subsidies for these products bring prices down by between 20 and 30 percent.
Kazakhstan harvest (in tons of grain)
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A shepherd near Ashibulak village. Rural development is a priority
With Russian grain exports embargoed until September 2011 at the earliest, Kazakhstan is also facing increasing international demand, especially for grain. The main markets for Kazakh grain are the Central Asian republics: Kyrgyzstan, Tajikistan and Uzbekistan. In the aftermath of Kyrgyzstan’s April 2010 revolution, which disrupted last year’s sowing season, Kazakhstan has pledged to keep supplying its neighbor.
Eyeing new markets However, Kazakhstan is also looking at a wider range of markets for its grain exports. In recent years, the share of exports to the Commonwealth of Independent States (CIS) has fallen, and sales to Middle East and South and East Asia have increased. The highest leap in demand has been from Afghanistan, Iran and Turkey. This year’s harvest is expected to be higher than that of 2010. A total of 21.3 million hectares (ha) has been sown this year, agriculture minister Akhylbek Kurishbaev told a government session on March 11. This total includes 16.5 million ha of grain and legumes, 1.7 million ha of oilseeds, 2,500ha of fruit and vegetables and 1,700ha of sugar beet. Kazakhstan’s agricultural sector has developed strongly in the past decade. Even the poor harvest of 2010 was considerably higher than in the late 1990s, when yields plummeted owing to the collapse of the Soviet-era kolkhoz system and a lack of investment. With the exception of cultivated areas in the south, the country’s rural population was largely nomadic until the Soviet collectivization drive in the 1920s and 1930s when the rural population was forcibly settled into collective farms. Two
decades later, Nikita Krushchev’s ‘Virgin Lands’ campaign in north Kazakhstan failed miserably in 1953 when the soil’s fertility was quickly exhausted. However, with modern farming technologies, the government is keen to put some of the country’s unused lands to use. An additional two million ha of land were put into use for grain cultivation between 2006 and 2008. President Nursultan Nazarbayev has instructed the Ministry of Agriculture and the Agency for Land Management to draw up plans for putting more of the 24 million ha of arable land in the country into circulation. Kazakhstan is already the third largest producer of grain in the CIS after Russia and Ukraine, and has specialized in producing wheat, which accounts for around 82 percent of total grain cultivation. The country produces high-quality durum wheat suitable for products such as pasta. However, much of Kazakhstan, including the mountains, deserts and semi-desert areas, are unsuitable for farming. Unpredictable weather is also a problem, with droughts striking two years out of five. The Siberian climate in the north means winters are harsh and the growing season short. The international economic crisis also took a toll on agriculture. But, as part of the anti-crisis program in late 2008, the government announced a $1 billion allocation for state agricultural holding company KazAgroHolding. This money was directed into new projects including construction of greenhouses and poultry farms, feedlots, meat-packing factories, milk farms and infrastructure for grain exports. Rural development is a priority for the government, which has allocated KZT670 billion ($4.6 billion) to rural programs over the past five years.
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A worker at the Temirtau steel plant. Industrial safety standards are being upgraded, but there are still plenty of opportunities for health-and-safety service providers
Fertile ground for ventures to support a growing economy While some of Kazakhstanâ€™s sectors are still striving to meet international standards, there are plenty of opportunities for savvy non-domestic companies to take the initiative and make their mark in this nascent economic landscape. By Tim Gosling
he rapid pace with which Kazakhstanâ€™s economy has been growing over the past decade has left the services sector somewhat underdeveloped in comparison with demand. While international accounting and legal companies arrived some time ago to serve the countryâ€™s huge energy and mining operations, foreign banks have been slower to provide a
full complement to the local financial institutions that dominate the sector. Although great strides have been made since independence to build institutions, a legal framework for starting and running businesses, and the infrastructure needed to support them, Kazakhstan is continuing to develop systems of business law, taxation, banking and external links to the international business community. This means that professional service providers in these areas are even more in demand for companies operating in Kazakhstan. Meanwhile, information technology (IT), consultancy and human resources (HR) services offer significant opportunities to investors, with both the Kazakh authorities and companies on the ground looking for foreign proposals and partnerships that can improve these segments. Invest in KAZAKHSTAN 2011
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The IT sector is taking advantage of strong demand for its services from government, businesses and foreign investors Accounting All the ‘Big Four’ accounting companies (Deloitte, PricewaterhouseCoopers, Ernst & Young and KPMG) are present in the Kazakh market. Kazakhstan was among the first of the countries in the Commonwealth of Independent States (CIS) to promulgate accounting and auditing standards. As a result, services are more advanced than in most other CIS countries. But much remains to be done if Kazakhstan wishes to raise the quality of accounting and auditing practices to a level that is in line with more developed economies. According to the World Bank, HR and training remain one of the big issues in accounting in Kazakhstan. The institution says that the business community is reporting difficulties in recruiting accounting and finance graduates of suitable quality, and that there remains a chronic shortage of qualified instructors. However, given the transition toward international standards required by international financing, the opportunities for established and recognized services providers are enormous.
Banking Kazakhstan’s banking sector is still mainly under domestic ownership, but foreign investment in the sector is creeping slowly upwards. International players such as HSBC and Citibank have been in Kazakhstan for a decade. In recent years, peers from fellow emerging markets have entered, including those from Russia, China, the Middle East and East Asia. Kazakhstan’s expanding trade and investment network is also attracting banks from London, New York and the European Union. Entries into the sector during the last five years include Italy’s UniCredit Group, United Arab Emiratesbased Al Hilal and South Korea’s Kookmin Bank – all illustrations that investors from both east and west are seeking to take advantage of the potential in the market. The latest to take the plunge is Punjab National Bank. India’s largest state-owned bank was bought by Dana Bank in December, and has announced plans to grow its operations in the Kazakh market.
Not surprisingly, Russia’s financial giants are also active on the market, with Sberbank, VTB Group and Alfa Bank all present. Perhaps the biggest question today is whether BTA Bank – Kazakhstan’s largest bank by assets – will be sold to a foreign investor. A potential sale to Sberbank has been under discussion since February 2009.
IT and business services Kazakhstan has strong potential for provision of IT outsourcing, with reports saying that the government has made a commitment to enhance this area. With the low cost of labor, in comparison with key regional competitors such as Russia, and existing high skill levels, the IT sector is taking advantage of strong demand for its services from government, local businesses and foreign investors already based in Kazakhstan. High levels of broadband penetration and mobile phone connection compared with its neighbors also make Kazakhstan a potential platform for IT businesses in Central Asia.
Legal and tax services Kazakhstan’s dynamic development means that the country still experiences regular changes in legislation and tax regulation. The market for legal and tax services is competitive in Kazakhstan, with companies such as Chadbourne & Parke, Grata, Salans, and White & Case all present, having arrived to focus on the Kazakh legal framework for mining. However, the rapid expansion and diversification of the economy is seeing overall demand for services rise accordingly, while the range of expertise needed is also growing.
Health and safety As international financing requirements increasingly influence Kazakhstan’s companies, opportunities abound for service providers in markets such as health and safety. Current safety standards fall short on certain levels compared with recognized international standards, most notably in the coal-mining sector. However, that is changing, with Kazakhstan’s safety standards increasingly being addressed by services and consultancy companies, often via cooperation agreements between international and local partners.
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From triage to treatment: improving healthcare
Kazakhstanâ€™s focus on healthcare is already having an impact on its citizens for the better, from lessening the ravages of disease to improving the atmosphere for birthing mothers. By Nora FitzGerald
A Maternity ward in Aktauâ€™s main hospital. Improving maternity services is a priority for the country
dil, an adorable toddler, was less than a year old when he was diagnosed with tuberculosis (TB). When he was brought to an Almaty clinic in 2005, he weighed less than 6kg, and his parents feared the worst. However, an effective treatment strategy and high-quality services helped him recover. More than 18,000 Kazakhs such as Adil have recovered from TB. The Kazakh government has been fighting the resurgence of this intractable disease with directly observed, short-course treatments. The government has also committed to providing free medication, and has been Invest in KAZAKHSTAN 2011
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Doctors test an astronaut before a space mission from Baikonur
A specialist in Almaty examines a medical test sample
working with non-governmental organizations and Western governments to train Kazakh doctors and specialists in the area of infectious diseases. But according to President Nursultan Nazarbayev, “Our system of medical education has many problems. It must be reformed.” The first years of independence were a time when the Kazakh health system and its infrastructure fell apart, but in recent years the government has been rebuilding a healthcare system to help its people thrive. As part of that effort, the government wants to make the capital, Astana, a center of medical training and research. Government officials have said the development of technical and management expertise is as important to the improvement of health outcomes as investments in infrastructure. Astana Medical University – which is at the forefront of that effort – has formed academic partnerships in public health and clinical medicine with Columbia University in New York, Hiroshima and Nagoya Universities in Japan, and the Vienna Medical University in Austria. The recently opened Nazarbayev University in Astana, which was formed on the initiative of President Nazarbayev, has formed an alliance with Partners Harvard Medical International to build a medical school. In conjunction with the World Bank, the government is building an independent accreditation system with formal standards, trained staff and trained assessors, and
evidence-based clinical practice guidelines. It is also introducing and promoting a system of voluntary blood donorship, and supporting the introduction of international standards for laboratory and blood transfusion systems.
Mothers and children first Kazakhstan has embarked on the creation of a single healthcare system that will see major investment by the government in new hospitals and clinics, and the promotion of better healthcare for women and children in particular. “I always dreamed of giving birth with my husband present, and here I was allowed to,” said Olessya Mikhereva, who recently gave birth at the Astana City Maternity Hospital Number One in Kazakhstan’s capital city. “The medical personnel helped us through it all.” Many Kazakh mothers now have the support of family members in the delivery room – up to 20 percent in Astana. Improved health and family support for mothers and infants is a priority for Kazakhstan.
Bolstering medical research To achieve its goals, the government has committed to spend at least four percent of GDP on public health expenditure and will spend more than $3 billion on improvements to the system by 2015. Major outlays will include the creation of a unified
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WÖRWAG Pharma Success through specializing in variety, high quality and investment in further growth The history of WÖRWAG Pharma dates back to 1965, when Doctor Fritz Wörwag founded a small pharmacy in Zuffenhausen, an urban district of Stuttgart. In just six years, he expanded the business and founded WÖRWAG Pharma, where he started selling his own pharmaceutical products. Since then, the company has been focused solely on the prevention and treatment of diabetes and its associated disorders – one of the most sought-after fields in medicine. Like any pharmaceutical producer, WÖRWAG Pharma is engaged in the research and development of new products. By actively investing in research activities, the company has made a considerable contribution in the successful treatment of complications from diabetes, such as polyneuropathy. This was possible due to a substance called Benfotiamine, which was originally discovered 60 years ago by Japanese scientists. It was not until Dr Wörwag utilized the substance that Benfotiamine became known as a turning point in the treatment of diabetes. Today, Benfotiamine is in high demand and is being used in the form of Milgamma tablets. WÖRWAG Pharma began its international expansion in 1993 when its first office opened in Hungary. Within the next 10 years, 12 new locations were established in Russia,Romania, Bulgaria and many other Eastern European countries. Today, WÖRWAG Pharma is growing its presence in Asia and Latin America with great success. To date, more than 700 employees work in 30 countries across the world. In September 2005, WÖRWAG Pharma opened its first representative
office in Kazakhstan – a country with political stability and ongoing economic growth. Due to numerous social and economic reforms, Kazakhstan has skillfully transformed itself into a market economy with constantly improving conditions for foreign investors. The representative office in Kazakhstan serves as a regional business centre for other countries in central Asia, such as Kyrgyzstan, Uzbekistan, Tajikistan and Turkmenistan. Produced in Germany and meeting the requirements of the GMP standard of the European Union, all WÖRWAG Pharma’s products are well known among pharmacists and medical staff in Kazakhstan. The product span includes Thiogamma, Milgamma, Gabagamma, Magnerot Ferro-Folgamma, Metfogamma, Bisogamma and Zinkit. The company is constantly engaged in informing patients about the development and main ways of preventing diabetes-associated disorders and, specifically, diabetic neuropathy. The company also supports the diabetic schools program and has opened the country’s first neuropathy diagnostics centre. Successful cooperation with the Diabetic Association of the Republic of Kazakhstan, and the Association of Endocrinologists, the Republic’s leading medical centers in progressive therapeutic programs in diabetology, cardiology and neurology, proves that WÖRWAG Pharma is a competent partner both in scientific research and practice. A family-run company, WÖRWAG Pharma is aimed at further developing its business on a global scale. A continuously growing business enables the company to look into the future with optimism.
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An integrated health information system is being implemented and tested in a few regions and cities before being expanded across the country healthcare information system, the construction of new medical facilities across the country, the fostering of a domestic pharmaceutical industry, and the bolstering of medical education and research. The effort to create an effective single healthcare system stems from the desire to reverse the decentralization and fall in standards over the last two decades. After the collapse of the Soviet Union, the existing infrastructure fell apart and was accompanied by a rise in corruption. The government’s ultimate goal is to dramatically lower high rates of TB, cancer and other diseases, many of which are associated with poverty and lifestyle choices, including alcohol consumption and smoking. There are more than 1,000 full-service hospitals in Kazakhstan and almost 4,000 short-stay clinics, most of them state-owned. The government is intent on increasing both the quality and quantity of the network. A key element is the introduction of a health information system that will improve the quality and efficiency of the health sector and of healthcare facility management. The integrated system is being introduced gradually – implemented and tested in a few regions and cities before being expanded across the country.
Up to 12 percent of drugs used in Kazakhstan are produced locally
A domestic pharmaceutical industry Foreign producers continue to dominate in both pharmaceutical and medical products, with representatives from dozens of countries working in Kazakhstan. The pharmaceutical market, which was valued at $1 billion in 2009, continues to grow at rates of 15 to 20 percent annually. Local pharmaceutical production now accounts for 12 percent of all drugs. Last year, the government adopted its Pharmaceutical Industrial Development Program for 2010-14, which provides incentives – including loans – for local producers to increase production, and to attract foreign investment into the sector. The government is also seeking to bring its pharmaceutical regulations into line with Russia and Belarus as part of the Customs Union created by the three countries last year. The medical equipment market is also dominated by foreign producers, and is growing rapidly as government investment creates demand for diagnostic equipment, medical lasers and dental equipment, in particular. There are almost 60,000 doctors and more than 125,000 other medical personnel in Kazakhstan, and the government wants to foster continuing education. Through exchanges and cooperation with medical colleges in other countries, the government will promote the adoption of internationally recognized standards and practices across Kazakhstan. The government’s endeavors into health infrastructure have achieved some early successes, such as the creation of a large medical complex with several centers in Astana. More than 500 Kazakh personnel, including specialists, have already been trained in Astana. President Nazarbayev’s administration is also focusing its concern on the state of neurology, and more specifically, the treatment of epilepsy in Kazakhstan. The country lacks specialized neurologists in this area. Until the recent opening of the faculty of post-graduate education, the country’s doctors had no access to modern approaches or international associations. The country hopes to train more doctors to be able to treat epilepsy and related neurological diseases.
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Mass-market stores and malls gain ground
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The transition from bazaar to shopping malls in Kazakhstan has been slow to begin with, but younger shoppers are likely to embrace Western-style retail as more mass-market brands venture eastwards. By Clare Nuttall
nternational retail chains have been slow to enter Kazakhstan, but 2010 saw a large influx of new brands to the market. And as consumer confidence returns and disposable incomes resume their upward trend, more companies are expected to enter the rapidly growing retail sector. In recent years, stores and shopping malls targeting Kazakhstan’s growing middle class have mushroomed. Despite the crisis, mass-market retail has finally started to take off, filling the yawning gap between traditional open-air bazaars and top-end designer boutiques. As Kazakhstan emerges from the crisis, the past two years have seen the opening of the country’s first hypermarket – Ramstore’s flagship store at the A’port mall in Almaty – as well as the entry of high street brands such as Zara and Monsoon to the Kazakh market. Average salaries in Almaty are now around $800 a month. But despite almost a decade of growing purchasing power, the international mass-market brands have been reluctant to come to Kazakhstan, with a handful of exceptions. During the boom years of the mid 2000s, the moneyed elite would fly to London or Dubai on shopping sprees, while the rest of the population had little choice but to continue shopping at the bazaars. Logistics were one deterrent; Kazakhstan has a population of just 16 million spread over an area the size of Western Europe. Initiatives such as the Western Europe-Western China highway and the planned modernization of Kazakhstan’s
railway network will make things easier, but this will take time. The lack of suitable retail space has also held back the sector, but this too is changing. The new wave of brands have partly been lured to Kazakhstan by the opening of modern malls. A’port, which opened in September 2009, is already the largest mall in Central Asia. An extension, due to open in autumn 2011, will increase its size to 80,000 square meters. Eurasia Red, which developed the mall, is planning to open another mall in Almaty and one in Astana within the next five years. Another property developer, Mega, has malls in the country’s largest cities including Almaty, Astana, Shymkent and Aktobe. Meanwhile, at the upper end of the market, the Esentai Park mall, part of a mixed-use development in Almaty’s financial district, is due to open later this year. Matthew Bond, managing director at Esentai’s developer Capital Partners, says the floor plan has been amended in response to demand, to allow more room for retailers, including mass-market brands. Almaty remains the retail hub of Kazakhstan, accounting for around 60 percent of total turnover, but numerous malls have also opened in Astana. Among them is a mall housed in the Khan Shatyr – a giant, temperature-controlled tent containing shops, restaurants and other leisure facilities. “Kazakhstan is an undiscovered, yet very lucrative, market for international retailers,” says Dmitry Revin, Eurasia Red’s director for finance and business development. “Kazakhstan’s entry into the customs union alongside Russia and Belarus has caused a number of retailers – both Russian companies and international companies present in Russia – to look again at Kazakhstan.” But retailers are also entering Kazakhstan from another direction. “Franchises of international brands that are active in the GCC [Gulf Cooperation Council] find these markets are now mature and Invest in KAZAKHSTAN 2011
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The Promenade mall in Almaty
Leisure activities at Astana’s Khan Shatyr complex, which also contains shops and restaurants
People have gone from shopping in kiosks in the late 1990s to shopping at hypermarkets today. While some of the older generation still prefer to shop at bazaars, the younger generation has embraced modern retail oversaturated. They are looking to Kazakhstan and Azerbaijan to get a foothold in the CIS (Commonwealth of Independent States) and capitalize on market expansion.” Among the food retailers in Kazakhstan, Ramstore – which is owned by Turkey’s Migros Group – has established itself in the number-one position, despite competition from local retailers such as SM Market and Green, and Russia’s Vester. As with fashion retail, the food market is also modernizing rapidly. Germany’s Metro Group set up its first cash-and-carry outlet in Astana in late 2009, and opened four more stores in just 16 months. “Kazakhstan looks good to us. It’s premature to be ecstatic, but the macro indicators are positive,” says Stephen Kreeger, managing director of Metro Kazakhstan. Metro plans to open three new stores in northern Kazakhstan this year. The entry of wholesalers such as Metro to the Kazakh market are hastening the transition from the bazaar system
– which blossomed after the breakup of the Soviet Union – to a modern retail sector. Revin estimates that around 55 percent of retail turnover now goes through formal channels – though it is difficult to estimate since much of the bazaar trade is cash in hand – and he expects the transition to be fairly quick. “The move from bazaars to formal retail is not a slow process,” he says. “People have gone from shopping in kiosks in the late 1990s to shopping at hypermarkets today. While some of the older generation still prefer to shop at bazaars, the younger generation has embraced modern retail. The proportion of goods sold through the bazaars is falling. I think the shift will be completed in the next eight to 10 years.” “I think in future there will be a move away from markets,” agrees Kreeger. “The elimination or reduction in markets could come about simply owing to market forces or from an effort to upgrade sanitary and hygiene standards.”
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The race is on to bring phone services to the masses
Kazakhstanâ€™s telecoms sector is pushing to extend its impressive investment track record. By Tim Gosling
azakhstan has a booming telecommunications market, on the back of a growing economy and a program of positive regulatory reform in the telecommunications sector. Legislation adopted in 2004 laid the foundation for the liberalization and development of the
telecoms sector, and put an end to the monopoly enjoyed by Kazakhtelecom, the state-controlled telecoms operator. However, relatively limited competition in the fixed-line segment has seen development lag somewhat, whereas the early opening of the mobile (cellphone) and broadband segments to private investors had, by contrast, provoked rapid infrastructure development. Overall, international operators and manufacturers are well represented in provision of services and installation of state-of-the-art equipment. Companies such Invest in KAZAKHSTAN 2011
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Baikonur Space Center – the world’s telecommunications launch pad Located in central Kazakhstan, Baikonur is the largest operational space launch facility in the world. Leased to Russia until 2050, it is managed jointly by the Russian Federal Space Agency and the Russian Space Forces. Under the current Russian space program, Baikonur remains a busy space port, with numerous commercial, military and scientific missions being launched annually.
Baikonur launched several foreign-owned satellites in 2010, including the Ka-Sat – a new-generation satellite built by EADS Astrium. The first of its kind, Ka-Sat can transfer up to 70 gigabytes of data per second, and will provide wireless broadband internet coverage across Europe. As for Kazakhstan itself, the country is set to launch its second telecommunications satellite - KazSat-2 – from Baikonur in summer 2011. It will replace KazSat-1, which was lost owing to technical failure. KazSat-2 will be a serious upgrade from its predecessor, and feature the latest technology from Western Europe in place of
as Motorola, Lucent, Siemens, Alcatel, Nokia, Daewoo and Nortel Networks have all been active in the market. By 2005, four private operators had been licensed to provide international and long-distance services in competition with the incumbent, Kazakhtelecom. They were state-railway subsidiary TransTelecom, KazTransCom (a subsidiary of the national oil company), Ducat and Astel. Up to 1,500 new telecoms service providers of various kinds had been licensed by the end of 2005. The key drivers in the fixed-line and internet sectors include the deployment of Kazakhtelecom’s fully digital national telecom network, based on local and long-distance switches, and the presence of fiber-optic lines linking all major cities in the country. Kazakhstan has relatively strong fixed-line penetration – 24 telephone lines per 100 inhabitants by the end of 2009 – with six operators providing fixed-line telephone services to about 3.8 million subscribers. Analysts expect
Baikonur is used for commercial, military and scientific space missions
the Russian equipment used previously. The new satellite features 12 Ku-band transponders for fixed communications and four Ku-band transponders for TV transmissions, and is intended for telecast, fixed satellite communication and data
transmission for Kazakhstan and Central Asia. Meanwhile, KazCosmos is already working on putting a third-generation telecoms satellite into orbit, with a tender under way to choose a company to build and launch KazSat-3.
sustainable, above-inflation growth in local voice tariffs over the next few years. However, as in many post-Soviet states, the country has had a history of long waiting lists for fixed-line telephone services over the years, and this has helped to boost rapid development of the cell-phone market. Meanwhile, market players are now also accelerating development of broadband. The early opening of the telecoms sector, and especially the healthy competition in the mobile segment, has made it the biggest draw for foreign investment. The sector saw by far the largest total private investment of any infrastructure sector between 1990 and 2009, according to the World Bank. Of a total $8.35 billion that private investors put into Kazakh infrastructure, $5.98 billion went into the telecoms sector.
Operators invest as competition rises Legislation in 2004 opened the way for liberalization of the sector and ended Kazakhtelecom’s monopoly. It was followed by
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Following liberalization in 2004, the ownership of major operators by foreign investors helped to boost subscriber growth as operators expanded their networks and offered competitively priced tariffs rapid growth in telecoms and internet services. Cellphone subscribers soared from just 260,000 in 2000 to 14.9 million in 2009 – equivalent to mobile penetration of 95.5 percent. The ownership of major operators by foreign investors helped to boost subscriber growth as operators expanded their networks and offered competitively priced tariffs. Now, the race is on to cover as much of the country as intensively as possible. GSM Kazakhstan (trading under the KCell brand), with a market share of just under 50 percent, invested $250 million in expanding its infrastructure in 2008. KCell’s main competitor is KaR-TeL, which operates under the Beeline and K-mobile brand names. And a competitive tender process in 2007 saw Mobile Telecom-Service launch the country’s third mobile service.
Saturation driving innovation With the market close to 100 percent saturation, mobile operators are moving to upgrade existing services and introduce new ones. A focus for companies to base their investments on has been provided by international events in Kazakhstan last year and this year – the 2010 Organization for Security and Cooperation in Europe (OSCE) conference, and the Seventh Asian Winter Games which took place in February this year. KaR-TeL announced on December 1, 2010 that it had launched a pilot 4G network in Astana to serve the OSCE meeting while GSM Kazakhstan launched 3G networks in Astana and Almaty on the same day, to allow delegates to the conference to take advantage of the improved quality and speed of data transfer services. These launches have kicked off rapid development. In February, the Kazakh Ministry of Communication and Information announced that GSM Kazakhstan had rolled out 3G in 27 cities, with another four planned by the end of the first quarter of 2011. Meanwhile, KaR-Tel had launched 3G in 39 cities, as well as in several rural areas.
Down in the ground Not everything is up in the air in Kazakhstan. The country’s national telecoms operator is also rolling out hardwired communications networks, to support the country’s economic development and satisfy the growing demand for high-speed, high-capacity information channels. In January, Kazakhtelecom announced that it had completed the deployment of the new-generation, high-speed, fiber-optic gigabit passive optical network (GPON) network in Astana. Kazakhtelecom will use the new network to deliver – to individual subscribers and corporate clients – modern broadband services, such as internet protocol television (IPTV), video on demand and high-speed internet. This network rollout is the first step in Kazakhtelecom’s strategic plan to replace the country’s existing xDSL infrastructure with fiber-optic technology. GPON technology will allow Kazakhtelecom to expand its capacity in providing broadband internet services in Kazakhstan, while implementing a wide range of new high-quality, triple-play services.
Booming broadband As the move to broadband accelerates, the broadband segment will be the major growth driver for Kazakhtelecom, given its relatively low penetration (17 percent). Broadband subscribers as a proportion of the population had reached 10 percent by early 2010, with the market likely to continue its expansion by 100 percent annually. Despite the considerable presence of the incumbent, Kazakhtelecom across the market, Kazakh internet surfers are benefiting from a diversified market, which offers an energetic and competitive environment. That competition is also pushing rapid development. In February 2011, the Minister of Communications and Information announced that Kazakhtelecom would boost the average broadband speed rate in the country by 100 percent this year, while subscription fees would remain fixed. Invest in KAZAKHSTAN 2011
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Take the scenic route for world-class adventure
From sports stadiums to steppe packages, Kazakhstan is training hospitality workers, building infrastructure and renovating hotels for a new breed of tourist. It also has its eyes on an Olympic bid. By Nora FitzGerald
azakhstan showed itself to be a world-class venue for sports competitions with its successful showcase of the Seventh Asian Winter Games in 2011. Kazakhstan seemed to dominate in every way possible, earning 70 medals: 32 gold, 21 silver and 17 bronze, well ahead of its closest rivals. It was the first event of this size hosted by Kazakhstan, and its success plays a key role in raising confidence for an Olympic bid. Kazakhstan already has high hopes of hosting the Winter Olympics in 2022. The Asian Games were held in Astana and Almaty, and in preparation for
its role as host, Kazakhstan invested $1.5 billion in tourist infrastructure, from upgrading ski facilities to renovating hotels and other accommodation. “We have learned to understand each other better. I believe this is the main achievement of these games,” said President Nursultan Nazarbayev at the closing ceremony in Almaty. He added that the sporting event also offered an opportunity to unveil the country’s improved infrastructure and facilities. Business travel has been the dominant feature of Kazakh tourism over the past 20 years, accounting for 80 percent of the 4.5 million annual visitors to the country. But now Kazakhstan is targeting a new breed of tourist, beyond the business executive. The country is beginning to develop a broader tourism industry, as the government and local entrepreneurs showcase the country’s diverse attractions in sports, culture and ecotourism.
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Big Almaty Lake. A growing number of tour operators offer trekking vacations in the Kazakh wilderness
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Sports facilities such as golf courses are being promoted by the government
Space tourism ranges from real space trips to tours of Baikonur’s launch pad
Space tourism for everyman Fifty years ago, Russian cosmonaut Yuri Gagarin changed the world with the first manned space flight – from Kazakhstan. Many Western tourists still don’t realize that the core space port for the Soviet and Russian space program is in Baikonur, Kazakhstan. Websites already offer tours of Baikonur’s facilities. And while most tourists cannot afford the price of becoming a bona fide space tourist, intrepid travelers from abroad can soak up the Sputnik atmosphere. There is a proposal to create more modern facilities – similar to those at the US’s Cape Canaveral – at the launch pad of Sputnik, Luna I and Yuri Gagarin. The new facilities are slated to include a mini-mission control center simulating space flight, a planetarium and a cosmic café. As Gagarin said when he took off, “Poekhali!” (Let’s go!).
Intimate venues: ecotourism and indigenous culture Across the country, there is an increasing amount of farmhouse accommodation and bed and breakfasts. The government has offered training for village families on how to get into the business and offer hospitality services, and recent investments in community and rural tourism are beginning to pay off with
increasing numbers of visitors. More tourists are also coming to experience Kazakhstan’s indigenous culture, such as the mysterious underground mosques near the Caspian Sea. In the 20 years of its independence, Kazakhstan has been a popular choice for Russian, Chinese and other Central Asian visitors, and the country’s tourism authorities are now focusing on attracting more Western vacationers. There is every reason to believe that Western tourists will find the country an exotic and tempting destination. A growing number of tour operators in Kazakhstan offer a range of trekking vacations in the Kazakh wilderness, where the traveler can experience the country’s beautiful lakes, gorges and glaciers in a true wilderness. For the more adventurous, these packages can include horseback riding, whitewater rafting and mountain climbing. As well as ecotourism, the country has long had a singular reputation among hunters for the diversity of its wildlife. Foreign hunters come in search of rare antlers from the giant deer inhabiting the Jungar Alatau at the foot of the Dzhongar Alatau mountain range, which borders China. The area is alive with bear, wolf, snow leopard, eagles and hawks, and is also an increasingly popular destination for hiking and horseback holidays.
Tour operators in Kazakhstan offer a range of trekking vacations, where the traveler can experience the country’s beautiful lakes, gorges and glaciers in a true wilderness Invest in KAZAKHSTAN 2011
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Transport in the Tian Shan mountains, where hunters seek out the maral deer
Hunters also come to Kazakhstan for the Tian Shan maral deer, whose giant antlers are similar to those of the North American wapitis. The Tian Shan – literally ‘celestial mountains’, stretch across Central Asia. Most visitors travel to the commercial capital Almaty, taking in its bustling charm and chic cafés, or to the political capital Astana, a largely new city of arresting architecture that has arisen out of the steppe since President Nazerbayev designated it as the capital in 1997. Both cities are infused with the country’s new wealth, and are dotted with hip nightclubs, fine restaurants and first-rate shopping. Yet niche tourism for the adventurous traveler looking for something a little different has begun to see significant growth as Kazakhstan – the ninth-largest country in the landmass – capitalizes on its cultural heritage and geographic wealth. Destinations for niche tourism include the Singing Dunes, where the shifting sands create a resonant, organ-like sound, and the Charyn Canyon on the Charyn River, with its startling lunaresque landscape that can justifiably be compared to the Grand Canyon in the US. The government has begun to aggressively promote tourism in Kazakhstan, with exhibitions or presentations in New York, London, Beijing, Berlin, Madrid, Moscow, Paris,
Seoul, and Tokyo in recent years. “Right now, our number one priority is to transform the reputation of Kazakhstan into the tourism hub of the Central Asian region in 2011,” said Raushan Yesbulatova, the Consul General of the Republic of Kazakhstan in New York, speaking at a tourism fair in Manhattan. In 2010, the Ministry of Tourism and Sports unveiled Kazakhstan’s first official website to promote the country as a tourist destination (www.visitkazakhstan.kz). “Our site meets all international standards,” says Karlygash Kaken, the chairman of the Tourism Industry Committee of the Ministry of Tourism and Sports. “Firstly, it is in three languages – Kazakh, Russian, English. Secondly, there is now an opportunity, having opened the Kazakhstan tourist site, for tourists on any continent of the world to book a hotel, to visit tourist attractions and virtually travel to our country.” And revenue from tourism is experiencing robust levels of growth, seeing increases of almost 20 percent year-over-year. Tourism has been designated a priority sector in the government’s economic development plan, and the government has created tax incentives to encourage investment in tourist infrastructure. Kazakhstan expects tourism revenue to reach KZT66.6 billion ($460 million) by 2015. Invest in KAZAKHSTAN 2011
Index of advertisers ArcelorMittal....................................................................88 Atlas Copco......................................................................80 CB&I...............................................................................69 Chagala.............................................................................4 Condor Petroleum Inc.......................................................79 Cross Caspian...................................................................61 Deloitte...........................................................................49 FLSmidth......................................................................109 G4 City..........................................................................112 GE Oil & Gas....................................................................56 GE Transportation...........................................................123 Gmmos Kazakhstan LLP....................................................58 Grundfos..........................................................................96 Hambledon Mining plc......................................................95 InterContinental Hotels & Resorts.......................................20 Japan Tobacco International (JTI).......................................27 Kazakhmys........................................................................2 Kimberly-Clark...................................................................6 Mabetex Group...............................................................136 Minova............................................................................87 MRC Transmark Kazakhstan LLP......................................163 Nokia............................................................................164 Olympex Advisers.............................................................62 Partex Oil and Gas............................................................65 Petrolinvest......................................................................73 Pfizer............................................................................151 Philip Morris International.................................................12 PM Lucas Enterprises Ltd................................................100 Pricewaterhouse Coopers (PwC)..........................................16 Rio Tinto..........................................................................91 Schaller Lebensmitteltechnik...........................................141 Scot Holland – CBRE........................................................14 Spiecapag........................................................................75 Turkish Airlines..............................................................117 UBS..............................................................................124 Weatherford.......................................................................9 Wörwag Pharma..............................................................149
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