KAZAKSTAN

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Area (sq.km) 
2,717,300 

Population
16,763,795

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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Update No: 287 - (29/11/04)

Growing Russian influence in Central Asia
Under President Putin, Russia is aiming to establish a stronger position in the region with emphasis on greater cooperation in the energy and military sectors; this is signified by a series of bilateral and multilateral agreements into which Russia has recently entered. 
Having lost its superpower status, Russia still remains an important player in world politics. Given the changing contours of Moscow's regional dynamics, accentuated by increasing U.S. and Chinese influence and the creeping engagement of the European Union in the Caucasus and Central Asia, it is obvious that Russia cannot afford to be a bystander to the changing military and strategic balance of power in its backyard. 
Following NATO's recent policy announcements of increased engagement in the Caucasus and Central Asia, Moscow leaders such as Konstantin Kosachev, the influential head of the Russian State Duma's Committee for Foreign Affairs, have argued that Russia should use its influence in the region to encourage democracy and show local governments that the Kremlin does not want to re-impose Soviet-style military and economic dominance on the region. Kosachev has stated that Russian clout with the domestic political processes in these countries should be used to promote the development of truly democratic states. 
It is important to highlight that, traditionally, Russia has considered the region as a strategic buffer against outside threats; consequently, many strategic interests compel Russia to retain Central Asia within its sphere of influence. Moscow's major objectives and interests could be ascribed as: 
· Help transform the Central Asian Republics (CAR) into politically and economically viable states with friendly policies towards Russia.
· Strengthen Russia's role in the system of intergovernmental political and economic relations.
· Extend and further institutionalise integration among the member states of the Commonwealth of Independent States (CIS).
· Secure Russian economic interests in the region. 
· Maintain Russian hold over regional energy resources, in addition to Caspian Sea oil transportation routes that will be advantageous to Russia.
· Counter the threat of religious extremism while encouraging the prevention of drug trafficking and arms smuggling.
· Ensure Central Asia's ecological security, especially concerning environmental disasters in the Aral and Caspian Sea.
· Protect the rights of Russians living in the region.
Safeguarding Russian economic interests is one of the most important objectives of Moscow's CAR policy. In order to protect these interests, Russia has kept a tight rein on the states it considers most critical, particularly Kazakhstan. Kazakhstan is the single most important country for Russia, both politically and economically. It is the home of significant ex-Soviet defence/industrial facilities including the Baikonur space launch complex and a nuclear weapons testing facility. 
Kazakstan is the second largest oil producer after Russia in the former Soviet Union. Control over its energy resources and their means of transportation provides Russia tremendous strategic and economic leverage. Similarly, there are large enterprises in Russia that are dependent on cotton imports from Uzbekistan. Overall, there is a great amount of interdependence in the economic sector between Russia and CAR. 
Russia also has vital interests in the oil and gas complexes of Central Asia. The region possesses enormous reserves, making it important for Moscow to pursue economic advantages while simultaneously fulfilling the strategic role of ensuring Russian control in the sphere of oil and gas production and transportation in its near abroad. In addition, Russia seeks to avoid economic isolation by building new pipelines across its territory. The activities of Russian oil and gas companies in Central Asia are growing in Kazakhstan, where the struggle for control of oil exports has already started. This is true to a lesser degree in Turkmenistan and Uzbekistan. 
Russian political analysts tend to look at their country as a status quo power in Central Asia that prefers gradual transformation as a choice between rapid transition to democracy and maintaining stability. They prefer a process of gradual transformation underscored by stability rather than attempts at the imposition of Western-style democratic models alien to these states. 

Changing contours of Russian engagement 
Concerned with the growing American and Chinese influence, and given its strategic interests in the region, Russia has been incrementally enhancing its engagement with the intention of expanding, consolidating and further strengthening its relations with C.A.R. Under President Putin, Russia is aiming to establish a stronger position in the region with emphasis on greater cooperation in the energy and military sectors; this is signified by a series of bilateral and multilateral agreements into which Russia has recently entered. 
Following the US denial of aid to President Islam Karimov of Uzbekistan due to his government's dismal human rights record, Russia seized the opportunity to formalize economic and military agreements with Uzbekistan that are likely to not only enhance its standing with Uzbekistan but in all of Central Asia. Under the terms of the agreement, the two countries are to develop a wide-ranging security system that encompasses ministries of defence, interior, foreign affairs and security councils. Tackling terrorism, weapons of mass destruction, narcotics trade and organized crime are some of the stated objectives of the partnership. 
This has been followed by a breakthrough in relations with Tajikistan. A recent bilateral agreement will create the establishment of a Russian military base, border cooperation wherein Russia will assist Tajikistan in development and performance of its border guard structures, as well as military aid. Furthermore, Russia's Federal Security Service will establish a border operations group to coordinate such partnership and assist Tajikistan in guarding its border. At the signing ceremony in Dushanbe, Putin stressed that a Russian military presence in Tajikistan will guarantee Russian investments and overall stability in the region. 
Another prong of Russia's multi-pronged regional engagement strategy has been its formal joining of the Central Asian Cooperation Organization (CACO) on October 18, 2004. Set up in 1994 as a purely economic organization, CACO is now being transformed into an all-encompassing regional set up with an agenda that includes political, economic and anti-terror issues. This move is increasingly seen as a check of the U.S. and Chinese push into the region. 
Similarly, Russia, as mentioned earlier, has extensive economic and political linkages with Kazakhstan, renewing the lease deal of the Baikonur space centre for the next fifty years. It is also discussing Kazak gas exports to Europe through Gazprom. Russia has also developed significant military and economic ties with Kyrgyzstan by opening a military base near the city of Kant. 
Beyond this economic and military bilateral engagement, Russia is enhancing its hold through the Collective Security Treaty (CST), now transformed into the Collective Security Treaty Organization (CSTO), making Russia a dominant player in this arrangement. Russia is also forging close ties with the Shanghai Cooperation Organization (SCO) to keep Chinese influence in check. As part of the increasing security interaction, Russia has promised to hold large CSTO exercises in Tajikistan during the first half of 2005. 
On the energy front, despite moves made by the US and China to exercise control over energy routes, Russia still has an edge. Most of the existing Central Asian pipelines pass through Russia. At present, Russia contributes nearly 15 per cent of the oil supplied to the US According to Russia's Minister of Economic Development and Trade German Gref, Russia can start to freely compete with the Arab oil-producing countries to supplement the American market. 

Moscow aims for stability 
Russia's approach in enhancing its influence and engagement with CAR is centred around fundamental premises. Attempts at territorial domination of erstwhile CIS states no longer play a significant role in Russian strategy. Moscow's aim appears to be to use the plank of stability as a dominant foreign policy formulation within which Russian national interests are best served by exploitation of economic and military levers of influence. The stability factor is also central in persuading the large, ethnic Russian population to remain in the region rather than to immigrate to the Russian Federation. The ethnic Russian diaspora in Central Asia is looked upon as a key asset in attempts to tie regional economies to Russia's. 
Russia, in spite of relatively good relations with the US, remains circumspect about the long-term consequences of increasing American presence and influence in the region. It would not like to see the region overly aligning with Western interests. Military and economic linkages, including energy, remain significant to Russian national security interests. This is reflected in the statement of Russian Colonel General Valery Manilov, that, "if Washington does move to set up a permanent military base in Uzbekistan or Kyrgyzstan, the new situation will be viewed within the context of an integrated system for formulating the Kremlin's overall political strategy for asserting our national interest." This, however, does not underscore the fact that Russia does not want confrontation with the U.S. It is most likely to work out a mutually acceptable and accommodative agreement. 
Interestingly, Russia has of late hardened its approach towards China. In the October 2004 meeting of the SCO, it vetoed the idea of a free trade area suggested earlier by China, a move that was endorsed by other members of the organization. It appears that Russia is concerned about Beijing's growing economic and military influence, which is likely to subvert its own interests given China's increasing economic clout. 
Kazakstan has its own priorities in respect of China. With a 1700km frontier and 650,000 Kazaks across the border in XinKiang, with China offering massive potential to Kazak oil, the Kazak government, whilst mindful of Moscow will not be dictated to where China is concerned.

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AVIATION & SPACE

Progress spacecraft to take off for ISS in December

Another launch of the Progress-M cargo spacecraft to the International Space Station (ISS) is lined up for late December this year, a Baikonur Space Centre official said recently, Interfax News Agency reported.
The Soyuz-TMA-5 spacecraft, carrying the 10th expedition crew, took off for the ISS from Baikonur on October 14th. Commenting on the launch, Energia Space Co president Yury Semyonov, said that space industry crews, which had participated in preparing the launch, had demonstrated high skills and the capability of working under stress.
"At the moment the fate of the ISS depends on the operation of the Gagarin Launch (the launch pad at Baikonur from which Russia's first cosmonaut, Yury Gagarin, lifted off), and I can rely on professional skills of space centre crews," he noted.
Semyonov stressed that the deadline for resuming shuttle launches to ISS had once again been shifted, so ISS could only be supplied by Soyuz and Progress carrier rockets. In the meantime, in addition to the Progress launch, the Baikonur Space Centre decided to conduct another four launches by the turn of the year.
The Proton-M carrier rocket, equipped with the Briz-M booster and carrying the US AMC-15 telecommunications satellite, was launched from Baikonur recently. The Russian Express AM-1 telecommunications satellite launched on October 30th.

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CREDIT RATINGS

Moody's rates Kazkommerttsbank

Moody's Investors Service assigned a rating of Baa2 stable (outlook) to the upcoming issue of senior unsecured notes by Kazkommerts International BV, unconditionally and irrevocably guaranteed by Kazkommertsbank of Kazakstan, the rating agency said in a statement on October 14th, Interfax News Agency reported.
The amount of the placement is expected to be 300 million Euro, while the maturity of bonds issues was expected to be five years. The ratings of the senior unsecured bond issues have pierced Kakakstan's sovereign ceiling for bonds of Baa3. The level of the rating reflects the important role the bank plays in the country's economy. Moody's said the likelihood of Kazkommertsbank receiving support from the government in case of distress is very high and is the primary driver of the ratings. The ratings also take into account the fact that Kazkommertsbank is the largest bank in Kazakstan, and over a relatively short period have been able to develop an important franchise in the domestic corporate market.

S&P gives Kazak bank BTA Ipoteka B+ rating

Standard & Poor's Ratings Services assigned a B+/B long- and short-term counterparty credit and certificate of deposit ratings to the Kazakstan-based BTA Ipoteka (BTAI) and gave a stable outlook, S&P said recently, New Europe reported.
"The ratings on BTAI are based on its concentrated and wholesale funding, untested performance, fast growth and start-up nature, and the generally risky economic environment in Kazakstan," the Standard & Poor's credit analyst, Magar Kouyoumdjian, said.
"The ratings benefit from BTAI's strong position in a lucrative niche sector, fairly good financial position given its start-up nature, and its supportive shareholder," the report read. Other key factors with a positive impact on the company's rating are BTAI's strategic dependence on parent company TuranAlem Bank and a regulatory and business environment favourable to mortgage lending.
TuranAlem posted a 68.8 per cent year-on-year surge in net profit to over 6.2 billion tenges in January-September, the bank said. Bank assets stood at 464.7 billion tenges on October 1st, a 34 per cent increase from the same date in 2003. Equity was 41.5 billion tenges (up 58.6 per cent) and charter capital more than 24.5 billion tenges (up 31.7 per cent).
TuranAlem management and staff own 21 per cent of the stock and Kazak investors 16 per cent. TuranAlem has 24 branches and 211 cash exchange offices. Its shareholders are European Bank for Reconstruction and Development (EBRD), Austria's Raiffeisen Bank, IFC, DEG and FMO, which own 22 per cent of the bank's stock in aggregate.

Fitch assigns expected B+ to ATF Bank's Eurobond

International Rating Agency Fitch Ratings on October 22nd assigned Kazakstan-based ATF Bank's (ATF) upcoming Eurobond an expected long-term B+ rating. ATF is rated long-term B+ with a stable outlook, short-term B, individual D, and support 4, New Europe reported. 
The rating is dependent upon receipt of final documentation conforming materially to information already received. The notes are to rank at least pari passu with the claims of other unsecured creditors of ATF, save those preferred by relevant legislation. Covenants prevent ATF entering into transactions of US$3 million or more on other than market terms, and restrict dividend payments to 50% of net income.

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ENERGY

Kazakstan, Halliburton to set up oil data bank

The Kazak Oil and Gas Institute and the US company, Halliburton, signed an agreement in Astana recently to set up an equal joint company, Petrodata Kazakstan, to act as the technical operator for a data bank set up on oil and gas projects, Interfax News Agency reported.
The Kazak Oil and Gas Institute said that the data bank was being set up using PetroBank technology, developed by Halliburton.
"The main task of the national data bank will be to manage data on oil and gas projects being implemented in Kazakstan," Bolat Uzhkenov, chairman of the Kazak geology and natural resource protection committee at the Kazak Energy Ministry, said at a press conference.
He said that last year in October the committee and a number of oil companies working in Kazakstan signed an agreement to set up a national data bank. These include Petrom, YUKOS, Kazger Munai, KPO BV, Agip KCO, CNPC-Aktobemunaigaz, PetroKazakstan, FIOC, ChevronTexaco, Turgai Petroleum and KazMunaiGaz. Uzhkenov said that the participating oil companies would finance the national data bank.
In turn, the Kazak government would provide "historical information, stored in the funds and archives of the geology committee." It is also planned to integrate the data bank with the KazMunaiGaz corporate database.
Uzhkenov said that all the information accumulated in the national data bank would be provided to participating oil companies on a commercial basis. The central server for the databank would be located in Astana, and regional servers would be in the southern and western regions.

Kazakstan to buy part of BG stake in Kashagan

Kazakstan might agree to purchase part of BG's 16.67 per cent stake in the Agip KCO consortium, developer of the Kashagan deposit and some other deposits in the Kazak sector of the Caspian Sea, Kazak Energy Minister, Vladimir Shkolnik, said, Interfax News Agency reported.
"Maybe it will not be the entire stake, but we are hoping to buy the BG stake in the project," Shkolnik said. Kazakstan is currently considering various way of financing the possible purchase from BG.
"The question is how to buy. There are different financial mechanisms, there are many of them. And we are considering the entire range of options and I think we will choose the optimal one," Shkolnik said, adding that the money for the deal would likely come from loan funds. It will depend "on the stake we will be buying," he said.

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FOREIGN COOPERATION

Delhi and Astana explore cooperation possibilities

India and Kazakstan decided to expand cooperation in a host of fields, including energy, during talks between Indian External Affairs Minister, K Natwar Singh, and Kazak President, Nursultan Nazarbayev, in Almaty recently, New Europe reported.
Singh also discussed various regional and international issues bedsides the ways in which the two countries can strengthen their relationship.
Forging cooperation in the energy sector with Kazakstan, which is rich in petrochemical products, was on of the major issues discussed during the meeting, official sources said.
India realises the tremendous potential for cooperation in oil and natural gas sector considering the immense quantity of reserves existing in this Central Asian country for which Indian companies can conduct exploration. Other areas that figured in the talks included trade in pharmaceuticals and tourism, the sectors where India finds a considerable scope for cooperation.

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INFORMATION TECHNOLOGY

Kazak IT association inks partnership deal with Microsoft

Kazakstan's association of IT companies and Microsoft's in-country representatives signed a memorandum of partnership on October 12th with the main goal of working together in developing Kazak industry and the country's information technology market, Interfax News Agency reported. 
"Signing a memorandum of partnership between the association and the leading international software corporation is especially urgent in the run-up to Kazakstan's joining the World Trade Organisation. We think we have to be together in order to make the Kazak market civilised and progressive for the IT industry," the IT company association's Executive Director, Amiret Konysbayev, said during the signing ceremony. Konysbayev and the Director General of Microsoft's offices in Kazakstan, Aidar Dauletov, signed the document. Dauletov said that besides mutual expert and consultative assistance, the parties are looking to do projects together aimed at creating information technologies in Kazakstan and implementing an "Electronic Government" project.

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MINERAL & METALS

Kazak gold and forex reserves to rise 11-12% in 2005

National Bank of Kazakstan estimates that its net gold and foreign currency reserves will grow between 11% and 12% in 2005, New Europe reported.
"We need reserves sufficient for three-month imports, and 6.7bn Euro (current net gold and foreign currency reserves of the National Bank) already support 4-6 months' imports. Thus, we aim at a minor increase of gold and foreign currency reserves next year, 11-12%," National Bank Deputy Governor, Gulbanu Aimanbetova, said at a plenary meeting of the senate on October 21st.

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