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kazakhstan

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KAZAKSTAN


 

REPUBLICAN REFERENCE

Area (sq.km) 
2,717,300 

Population
16,731,303

Principal 
ethnic groups 
Kazaks 44.3%
Russians 35.8%
Ukrainians 5.1%
Germans 3.6%
and many others

Capital 
Astana
(formerly Akmola)

Currency
Tenge

President 
Nursultan Nazarbayev

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Background:
Native Kazaks, a mix of Turkic and Mongol nomadic tribes who migrated into the region in the 13th century, were rarely united as a single nation. The area was conquered by Russia in the 18th century and Kazakstan became a Soviet Republic in 1936. During the 1950s and 1960s agricultural "Virgin Lands" program, Soviet citizens were encouraged to help cultivate Kazakstan's northern pastures. This influx of immigrants (mostly Russians, but also some other deported nationalities) skewed the ethnic mixture and enabled non-Kazaks to outnumber natives. Independence has caused many of these newcomers to emigrate. Current issues include: developing a cohesive national identity; expanding the development of the country's vast energy resources and exporting them to world markets; and continuing to strengthen relations with neighbouring states and other foreign powers. 

Update No: 265 - (28/01/03)

The foreign investment picture clouds
Kazakstan should be the hottest place for foreign investors in Eurasia, at least for those in the energy and minerals sectors. But somehow this is not the case. There has long been talk of a massive surge of FDI, some even talking of US$100bn within a decade or two. But that is all hype. The real venue for FDI in Eurasia is not Kazakstan, but China, which attracted US$50bn or more in 2002.
The Kazaks have a land of eternal promises, but less performance in commercial results. That is what several multinationals appear to be concluding. In the 1990s companies were lured in on highly advantageous terms. Not so now. The very fact that Kazak energy, especially oil, is seen as so much more valuable in the post 9:11 than hitherto gives the government more in the way of bargaining power. Their terms are now tougher.
It still makes sense for Western companies to consider the republic for FDI. It has a high credit rating, rapid growth with rises in GDP averaging around 10% in the 2000s, and abundant resources. Last year saw confirmation of a huge field, Kashagan, in the Caspian Sea with proven reserves of nine billion barrels, plus possibly much more. This puts it in the league of Prudhoe Bay in Alaska, the world's largest find in the last thirty five years.

The Chevron-Texaco deal sours
The largest field before Kashagan was discovered was Tengiz, which has been developed in partnership with Chevron-Texaco and others. Called TengizChevroil, the consortium includes ExxonMobil, LukArco of Russia and a Kazak concern, Kaz and Munaigaz. Founded in 1993, when it negotiated very favourable terms, in November it suspended a planned expansion of the project in protest at a new accounting method for it, which the government has insisted upon, but was not part of the original contract. It would bring in one billion dollars more in revenue to the public budget, but would deduct a like sum from the consortium's cash flow.
TengizChevroil contributes 15% of the entire Kazak budget already. To raise the figures further is not acceptable to Chevron-Texaco or other members. Capitalists, as well as workers, can go on strike. Those of TengizChevroil are at least engaged in a "go-slow" approach, which is of course designed to secure a change of heart by the government side.
In such matters there is a psychological imperative for both sides to persist in their fixed positions. Other companies have taken note. The honeymoon for Western investment into Kazakstan is over.
The root of the matter lies in a dispute over how the original contracts were set up back in the early 1990s. Kazakstan's post-communist legal system was just being developed; and in its infancy it was possible to bribe officials, and perhaps even the president himself, to secure highly lucrative contracts on favourable terms. Some of the contracts have been the subject of criminal enquiries in the US. The US authorities are looking into allegations that Nazerbayev took large bribes from American companies to award them desirable oil fields and later tried to hinder an enquiry into the payments. Nazerbayev and the firms, which include Mobil, now part of ExxonMobil; Amoco, now part of BP PLC; and Phillips Petroleum, now part of ConocoPhillips, deny any wrongdoing. But then they would. Few elsewhere in the industry doubt that there is some truth somewhere in the allegations. 
The fact is Nazarbayev is a determined dictator, who treats his country like a khan of old, as his personal fiefdom. If US or other foreign companies want to give him earnest of their good will (of course held in trust for the people) that is all to the good for everyone. 
It is indeed a godfather gangster's mentality and morality, prevalent in the FSU Central Asian States. His regime is corrupt from top to bottom. 

The Central Asian late-developer
Nevertheless, the Kazak republic is the Central Asian state attracting the most attention in the West right now. Not bordering Afghanistan, it has not in fact been in the front-line against al-Qaeda and the Taleban, nor has it had the Islamic Movement of Uzbekistan (IMU) penetrating its borders in a big way, unlike neighbouring Kyrgyzstan and Uzbekistan and unlike Tajikistan, a front-line state in every sense.
Kazakstan is the great beneficiary of 9:11 in Central Asia. For it has oil in copious quantities and collateral natural gas, a minimum of 15bn barrels of proven oil and of 2 trillion cu. m of natural gas, to cite figures commonly used at the beginning of the decade. But since then it has become clear that there are further huge fields not fully explored in its section of the Caspian Sea. As we have seen, the Kashagan field, the largest recent discovery, has proven reserves of 9bn barrels and likely ones of over 20bn, making it the world's biggest find since Prudhoe Bay in Alaska over thirty years ago.

Opposition took heart prematurely
An oil boom has been under way in Kazakstan for some time. It has coincided with a primary commodities boom, after world demand and prices for metals rose in 2000-01, along with the price of oil. GDP growth in the last three years has been phenomenal, around 10% per annum, for instance 13% in 2002 and 7-9% this year, moreover with inflation declining to 5 to 6% annually.
The favourable times have emboldened opposition forces to demand greater genuine democracy. An earlier opposition movement, they knew, had been dispersed, its leader being forced into exile and denied the chance to stand for the presidency against the incumbent, Nursultan Nazarbayev, three years ago, which guaranteed a walk-over at his re-election. The oppositionists this time round mistakenly thought 
that greater prosperity and contacts with the West would persuade the president to open up the system to enable the younger, better educated technocrats and businessmen to participate more creatively in public life.
They could not have more totally wrong. Nazarbayev's reaction has been still more brutal than three years ago; he now puts his opponents in jail and does not just content himself with their exile.
The main players in the drama are Nazarbayev and his ex-premier and former supporter, Galimzhan Zhakiyanov, who used to be governor of Pavlodar, an industrial province on the border with Russia. A year ago, Zhakiyanov launched a new opposition group called the Democratic Choice of Kazakstan (DCK), with strictly limited aims of reforming, not replacing the regime. The premise, as he now admits in prison, was naïve; he and his co-founder businessman and former energy minister, Mukhtar Ablyazov, were openly denouncing the corruption of the regime and asking it to renovate itself from within.
This over-optimism was doubtless sparked by an unprecedented event. The launch of DCK came just days after Nazarbayev had ousted his son-in-law, Rakhat Aliyev, married to his favourite daughter, Dariga, who runs most of the printed and electronic media. Her husband, for his part, had cornered the lucrative sugar market. His dismissal and arrest seemed to mean that Nazarbayev was serious about combating corruption. It is understandable that the DCK leaders thought that they could become the liberal opposition, as it were, to a liberalising president.
They had totally misread the situation; Nazarbayev obeyed his oldest deepest instincts as a long-time stooge of Soviet power in the region. Any weakness would prove fatal, he must have thought. An ardent supporter of Gorbachev in the old days, when the former First Secretary General was about to make him the Soviet premier in 1991 just before the August coup, he has had ample time to reflect on Gorbachev's mistakes. His central one, he must have long worked out, was to tolerate anyone, like Yeltsin, who was more radical than himself.
In August this year he acted. The DCK top two were arrested, charged and found guilty of treason. Zhakiyanov was sentenced, to seven years, and Ablyazov also, to six years. It was what Gorbachev should have done to Yeltsin in early August 1991, Nazarbayev must have concluded, and, like his Kazak counterpart, he would still be in power. Nazarbayev soon widened his purge, as Stalin would have approved. Within days of the sentences, members of the DCK were sacked and media outlets controlled by Ablyazov were foreclosed. The daughter of an outspoken editor was found dead in a police cell. In November an opposition journalist, Sergei Duvanov, was arrested on the eve of his departure to address US civil rights groups. The regime continues to beat up journalists and denounce the opposition at Soviet-style mass rallies with rent-a-crowd supporters bussed in from the provinces.
Nazarbayev's daughter, meanwhile, and her spouse have been let off lightly. He is now enjoying a gilded exile in Austria, whose capital, Vienna, is rather more agreeable a place than Astana, the new Kazak capital, out in the provincial sticks.
But that would have been a better fate than the one facing Zhakiyanov. He is held in a far northern prison camp, a former part of the gulag, which is hot and mosquito-ridden in summer and subject to howling blizzards in winter. Imprisoned with common criminals, many suffering from TB, HIV and other contagious diseases, the aim appears to be to break his spirit and make him grovel for an apology or to break his body. It remains to be seen if Zhakiyanov has the makings of a Kazak Mandela in him.

Nazarbayev looks to vindication by posterity
The Kazak president thinks that he, rather than Zhakiyanov, is going to be vindicated by future generations. He is the ablest of the Central Asian despots with the possible exception of Askar Akayev, president of Kyrgyzstan, whose elder son is another of his sons-in-law, a result of a dynastic marriage, as in the Khanates of the past.
Nazarbayev justifies running a tight ship by the threat, real to many, of the Russian population, who predominate in the northern provinces, opting for union with Russia and taking the oil and the fertile land with them. This, if it transpired, could lead China, Uzbekistan and Iran to claim border areas and leave the Kazaks with the dreary, radioactive steppes.
He has moved the capital from Almaty-Ata in the far south to Astana in the heart of the country to forestall the threat of Russian secessionism. He certainly leads a strong functioning state with clearly defined borders and the most vibrant economy of the region. But success in holding it together is being bought at the expense of developing democracy. Perhaps only after decades of prosperity will democracy become a realistic possibility, but it is a classic example of the relevancy of the injunction: "don't hold your breath."

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CREDIT RATINGS

Fitch upgrades Kazaktelecom ratings, outlook stable

Fitch Ratings has upgraded its ratings for OJSC Kazaktelecom (KazTel) as follows: senior unsecured foreign currency to BB from BB-, senior secured local currency to BB+ from BB and senior unsecured local currency to BB from BB-. The outlook is stable, reports Interfax News Agency.
The ratings' upgrade reflects the improved economic environment in which the company operates. It also takes into account KazTel's position as the Republic of Kazakstan's natural monopoly and incumbent provider of fixed-line telecommunications services. The company is also one of the major shareholders in three leading telecommunication companies in Kazakstan. It holds 49% in the largest GSM operator in Kazakstan, 50% in the largest AMPS cellular operator and 41.25% in Nursat Telecommunications Company.
Since July 2002 Kazakstan had a fixed-line penetration rate of 14% and the KazTel network had an installed capacity of 2.41 million lines, of which 1.95 million were being used. While the company's strategy is currently focused on the "National Information Superhighway" network development and expansion of its mobile businesses, Fitch Ratings are based on the fixed line business only as it does not expect the looked-for cellular expansion to materialise in the near future.
KazTel is 50% state owned, with an affiliate of Kazommertsbank, as the second largest shareholder. The company is listed on the Kazakstan and Frankfurt Stock Exchanges and its ADRs are traded on an over-the-counter basis in the US.
The traditional fixed-line services contributed almost 90% of the company's 45.7bn tenges revenues during 2001, with the EBITDA amounting to 17.7bn tenges.
Both revenue and EBITDA have positive trends in growth since 1998 and positive cash flow levels in 2000 and 2001. The company publishes audited financial statements prepared in accordance with international accounting standards

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ENERGY

Agip KCO to produce 22m tonne during phase 1 of Kashagan

The consortium Kazakstan North Caspian Operation Company (Agip KCO) plans to produce 22m tonnes of oil per year during the first stage of development of the Kashagan structure, Director General for Business Development, Zhaksen Cherdabayev, told Kazak President, Nursultan Nazarbayev, at a meeting in Atyrau.
Interfax News Agency quoted Cherdabayev as saying that at the second stage of development oil production would increase to 45m tonnes per year, and at the third stage - to 60m tonnes. Commenting on the possibility of exporting Kashagan oil to the world market, he said that it is necessary to build a new pipeline, similar to the Caspian Pipeline Consortium system. Nazarbayev agreed that the possibilities of the CPC system are insufficient to transport this volume of oil and alternative transport options are needed. However, he considers that for this it is possible to wait until oil production in the Caspian reaches a peak, which should happen around 2014.
At the first stage the CPC system will be able to handle the volume of oil, the president said. He said that it is also necessary to use the Caspian port of Aktau as much as possible, therefore it should be modernised by increasing the terminal and the tanker fleet. Moreover, Nazarbayev stressed that it is necessary to use the southern route as much as possible and also to consider a transport route through the Baltic Sea. Meanwhile, a source in Agip KCO said that under a programme for the trial industrial development of Kashagan, during the first stage (to last four years) it is planned to produce 450,000 barrels per day at the field. During the second stage of development (the following three years) it is planned to produce 900,000 barrels per day, and during the third stage (over five years) - 1.2m barrels per day. The consortium's press service stressed that this level of production is planned "under the optimum scheme for the development of Kashagan, with gas being pumped back into the bed. In this case, recoverable reserves at the field are estimated at from 9bn to 13bn barrels of oil.

Russia, Kazakstan sign protocol on development of fusion reactor

Russia and Kazakstan will develop and put a Tokamak experimental thermonuclear complex in operation before 2007, under a protocol signed on 17th January, Interfax News Agency has reported.
Tokamaks are fusion reactors, distinct from ordinary fission reactors. The Russian-Kazak version costs US$15.2m and the reactor unit is valued at US$5.5m. A Kazak-Russian working group signed the protocol in Moscow.
Among other things, the two countries "recorded a work schedule for 2003 in the protocol, which involves drafting work documents and modelling individual units for the complex," Englen Azizov, the director of the Russian part of the project, told Interfax.
He said seven or eight Russian enterprises will take part in making units for the Tokamak. "In late January, the deadlines for manufacturing parts for the complex will be finally agreed upon," he said.
The Tokamak will be located on the territory of the former Semipalatinsk nuclear testing ground.
It will be used for research, the results of which will be used in the international ITER [international thermonuclear experimental reactor] project, which includes Canada, Japan, Kazakstan and EU countries. The official customer for the Tokamak is the Kazak National Nuclear Centre.
"Russia benefits from this project because it receives contracts for high technology, which provides support for the Russian nuclear industry; plus, new materials and technologies are being used," Azizov said.
He said the working group would hold its next meeting in Almaty, Kazakstan, late in March or early in April.

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FINANCIAL NEWS

Marchenko says KNB tames annual inflation rate

Kazakstan's National Bank is determined to keep the average annual inflation rate within four to six per cent for the current year, central bank chief, Grigory Marchenko, was quoted as saying, Interfax News Agency reported. 
Marchenko stated that such a target was documented in the National Bank's joint statement with the government. The central bank's gold and currency reserves will be maintained at a level sufficient to cover imports of goods and services within at least three months. "The bank's priority task is to come even closer to the international standards of monetary and credit policy," Marchenko stressed. Meanwhile, the National Statistics Agency recorded last year's inflation rate at 6.6%. Prices for foodstuffs increased 7.1% in 2002, while non-foodstuffs gained 6.3% in price and paid services -5.8%. 

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FOREIGN ECONOMIC RELATIONS

Tashkent, Astana talk on opening border

Kazakstan launched talks with Uzbekistan recently on the opening of the border between the neighbouring countries for a free movement of commodities and people, New Europe reported. The reason for these negotiations is the decision of the government of Uzbekistan on a closure of its border with Kazakstan for an indefinite period. According to the information of Frontier Services of KNB of RoK, the closure took place just at the end of last year. Local media said this decision was reportedly taken in an attempt to stop the outflow of cash to Kazakstan and to support the national producer. 
With the former enactment "On regulating the import of commodities by physical persons to the territory of the Republic of Uzbekistan" passed by the government, as of June 1, 2002 the amount of the unitary customs payment for the import of foods by individual businessmen makes 50% from the cost of the imported foods and costs, related with their delivery, for the import of industrial commodities - 90%. As a result of his decision, the majority of residents of Tashkent and nearby regions of the country was regularly making shopping visits to South Kazakstan Oblast with the purpose of purchasing necessary commodities and foods there.

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MINERALS & METALS

Kazakstan gives up 20% control of Kazakmys

The Kazak government has finally sold a 20% share package in Kazakmys Corp, one of the world's biggest copper producers, for US$184m on the Kazakstan stock exchange (KASE). The name of the buyer has not yet been revealed, reports Interfax News Agency. 
The seller, the finance ministry's State Property Committee, set a starting price of 20,000 tenges per share. The government has put another 228,577 shares or 4.65% of Kazakmys up for sale on the KASE, but in single lots of one share each. 

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