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Update No: 301 - (30/01/06)
Chinese Vice President Arrives in town
China is an increasingly important partner for Kazakstan, the largest potential
importer of Kazak oil and other commodities. The Chinese see Kazakstan as a key
enabler of the continuation of its long boom, providing the extra energy and
resources it needs.
As a token of regard Beijing sent Vice President, Zeng Qinghong, to the
inauguration ceremony for President Nursultan Nazarbayev's new term, held on
January 10th. He arrived in the Kazakstan capital, Astana, on January 9th at the
start of an official visit to the Central Asian country. During his visit, the
Vice President met with leaders of the Kazak government and parliament to
exchange views on bilateral cooperation, as well as the regional situation and
major international issues.
It is the first visit of a Chinese leader to Central Asia this year, a token of
esteem and amity and a sign of Chinese priorities in the region.
Re-election of a 'benevolent despot'
In the eighteenth century Europe was renowned for having a whole series of
"enlightened despots" in charge, such as Frederick the Great of
Prussia and Catherine the Great of Russia. It will never be a question of "Nursultan
the Great," but the ruler of Kazakstan is from a different mould to other
Central Asian despots.
President Nursultan Nazarbayev, a former Soviet apparatchik appointed to rule
the country before the break-up of the Soviet Union in 1991, is genuinely
popular, unlike say President Saparmurat Niyazov of Turkmenistan.
But he has one thing in common with Niyazov, a flair for micro-managing the
arts. It might be kinder to compare him to Frederick the Great, a gifted
composer and patron of Voltaire. After 16 years of humming the same tune on
state occasions, Nazarbayev decided to change the music and add some lyrics of
his own ahead of his inauguration for a new term.
Parliament voted to ditch the Central Asian state's old national anthem in
favour of My Kazakhstan, a song written in 1956 and adapted by Nazarbayev
himself. "The text should reflect the heroic centuries-long struggle of our
ancestors for independence," Nazarbayev wrote in a letter to
parliamentarians, explaining his changes.
His lines, roughly translated, include:
"Look at my country - the legend of courage
In hoary antiquity
Our glory was born
My Kazak people is proud and strong."
Until now Kazaks had sung a Soviet-era national anthem, although its words were
changed in 1996.
Nazarbayev, a 65-year-old who started his career as a steelworker, usually
appears stern in public, but reveals a poetic side on his website www.akorda.kz,
penning two other songs, My Country and My Land.
Last month he won a new seven-year term in office with 91 per cent of the vote,
though international election observers said the poll was flawed, citing ballot
box stuffing and the intimidation of opposition campaigners.
'Multi-vector' foreign policy
Nazarbayev's re-election underscored not only Kazakstan's geopolitical
status as a state that grounds its relations with the outside world in its
significance as an energy supplier, but also the likely continuation of
Nazarbayev's policy of using this status as the continuing basis for his
so-called "multi-vector" foreign policy.
Nazarbayev's re-election with over 90 per cent of the vote showcased a political
system that has all the earmarks of post-Soviet "managed democracy,"
as indicated by the OSCE's initial assessment that, "despite some
improvements in the administration of this election in the pre-election period,
the presidential election did not meet a number of OSCE commitments and other
international standards for democratic elections." Nevertheless, official
Western criticism of the election was muted, and with Nazarbayev safely
ensconced for another seven-year term, a number of European political figures
expressed cautious support for Kazakstan's bid to chair the OSCE in 2009.
Kazakstan's multivector foreign policy manifested itself in an ongoing drive to
diversify the country's oil export routes, thus reducing dependence on Russia,
and to accommodate Chinese investment in the country's energy sector. On the eve
of the 25th May opening of the Baku-Tbilisi-Ceyhan (BTC) export pipeline,
Nazarbayev met with Azerbaijani President Ilham Aliyev and affirmed his
commitment not only to export Kazak oil through the BTC pipeline, but also to
build an underwater pipeline linking the Kazak port of Aktau to Baku. On 15th
December, the Atasu-Alashankou pipeline linking Kazakstan and China went into
operation, with the first deliveries of Kazak oil to China planned for mid-2006.
In October, the China National Petroleum Corporation paid US$4.2 billion to buy
PetroKazakstan, a Canadian-registered company that conducts all of its
production operations in Kazakstan.
These moves took place against a steady drumbeat of high-level declarations that
the maintenance of friendly Kazak-Russian relations is a priority task for
Kazakstan's foreign policy. At the same time, Kazakstan maintained its
symbolically important contingent of roughly 30 mine-clearing experts in Iraq.
Regionally, Kazakstan took a pragmatic approach to cooperation with immediate
neighbours Kyrgyzstan and Uzbekistan. The relative vigour of the Kazak economy
in 2005 continued to draw hundreds of thousands of migrant workers from both
countries, allowing Astana to navigate ties with its neighbours from a position
of strength. Here also, multivector components -- in this case, pushes and pulls
in relations with a single country -- were in evidence. For example, in July
Kazakstan declined to extradite Uzbek rights activist Lutfullo Shamsiddinov, a
witness to violence in Andijon, to Uzbekistan; but in November, Kazak
authorities apparently acquiesced in the abduction of a number of Uzbeks from
southern Kazakstan to Uzbekistan, as Human Rights Watch charged in a 3rd
December press release on the organization's website.
Relations with Kyrgyzstan revealed a similar dynamic of pushes and pulls. Even
as government-controlled Kazak media portrayed Kyrgyzstan's 24th March
revolution as an exercise in chaos and some former members of the Kyrgyz elite
from the era of deposed President Askar Akayev fled to Kazakstan, the Kazak
leadership cultivated cordial ties with its new interlocutors in Bishkek.
Kazakstan pledged to help plug a gap in Kyrgyzstan's natural-gas supplies when
difficulties arose with Uzbekistan in August, and took a nonconfrontational
approach in December to Kyrgyzstan's US$18 million in arrears for gas payments.
Fitch upgrades Kazakstan
Fitch Ratings upgraded the Republic of Kazakstan's Foreign Currency Issuer
Default Rating to BBB from BBB- (BBB minus) and the Local Currency Issuer
Default Rating to BBB+ from BBB, New Europe reported.
At the same time, the agency has affirmed the Sort-term Issuer Default Rating at
F3 while the Country Ceiling has been upgraded to BBB from BBB- (BBB minus). The
rating Outlooks are Stable, the Agency said.
The upgrades are supported by a strong macroeconomic performance, progress with
structural reforms, a good track record in responding to shocks and the ongoing
development of the oil and gas sector. The political scene remains stable, with
December's presidential election passing smoothly and resulting in a further
term for President Nursultan Nazarbayev, and public finances are strong. The
consolidated fiscal position has been in surplus since 2001 and roughly 60 per
cent of the total oil windfall received since that time has been saved in the
national oil fund. Fitch estimates that the fund held US$6.7bn, or 13.3 per cent
of GDP, at end-2005, providing a large buffer against shocks.
Reflecting the combination of rapid GDP growth and a tight fiscal stance, the
general government debt burden is forecast to fall below 10 per cent of GDP this
year, by far the lowest in the BBB peer group. The public finances also compare
very well on the eternal side. The public sector's net external creditor
position remains the strongest in the peer group with a net asset position of 41
per cent of current account receipts or 26 per cent of GDP.
In contrast, the countrywide external balance sheet compares less well with its
BBB- rated peers. However, more than half of the total external debt is
inter-company debt related to the development of the oil and gas sector. This is
common practice in the oil industry as debt investment carries more tax benefits
than equity investment. The servicing schedule of this dent is not clearly
defined but tends to rise and fall with the oil price, and parent companies
typically roll over obligations during difficult times. Excluding this,
Kazakstan's debt ratios would compare well with its peers and its liquidity
ration would rise above 120 per cent.
"Future economic prospects are bright, underpinned by Kazakstan's vast
mineral wealth," said Sharon Raj, director in the Sovereign Group.
"The oil and gas sector is developing rapidly and by 2020 output levels are
expected to be running at 3.5m - 4m barrels per day, placing Kazakstan in the
world's top 10 oil exporters. Against this background, the government's external
position is likely to continue to strengthen."
However, Fitch notes that rising oil income could exert upward pressure on the
exchange rate, which will in turn make diversifying the economy more difficult,
while pressures for higher public spending are likely to mount. While even a
large rise in spending would be possible to finance, it would make progress in
reducing inflation more difficult.
On the political front, President Nazarbayev's dominant role has helped to
deliver social stability and prudent economic policies to date but such a
centralised system means that succession risks are higher than in most of
Kazakstan's rated peers. As the President is relatively young and appears to be
in good health, uncertainty over Kazakstan's future leadership is more of a
long-term issue than a near-term concern. However, rumours of rivalries and
rising tensions within political inner circles suggest that a damaging power
struggle between potential successors at some point cannot be ruled out, the
Kazak company to buy Tbilisi gas distributor
The state-owned Kazak gas distribution company KazTransGas is willing to acquire
full control of Tbilisi's ailing natural gas distributor, Tbilgazi. Recently an
agreement on mutual cooperation on the sale was also signed between the Georgian
Minister of Economic Development, Irakli Chogovadze, and general director of
KazTransGas, Serik Sultangaliev. Officials are waiting on a bankruptcy and
appraisal process to wrap up before naming the final price-tag, New Europe
After the signing ceremony, Prime Minister, Zurab Noghaideli, forecast that the
bankruptcy procedures will last until February 15 and after that the Kazak
company will buy 100 per cent ownership of Tbilgazi from the Tbilisi city
government. Noghaideli stressed that the deal will relieve the government of
pressure from higher gas prices from Gazprom. He predicted that KazTransGas,
which is a subsidiary of the state-owned Kazak gas company KazMunaiGaz, will be
able to resolve the problems affecting Tbilgazi.
Negotiations with KazTransGas have been going on for nearly two-months. The deal
also blocks Russia from accessing a major part of the local distribution
network. Gazprom also offered Georgia lower rates on bulk gas if it were allowed
to own and operate local distribution facilities. The Georgian government has
been courting Kazak investors for the past year and in November made a bid to
purchase Kazak natural gas, though this deal was blocked by Gazprom, whose
pipelines would have been used to ship the gas
India, China to jointly explore hydrocarbons in Kazakstan
China and India are turning to Kazakstan's vast oil fields to fulfil their
increased demand for energy. The interests of Chinese and Indian oil companies
collided in the course of purchasing shares of PetroKazakstan of Canada with
China National Petroleum Corporation (CN PC) emerging as the winner. However,
the interests of two of the world's most quickly developing economies appear to
concur in gas rather than in oil, experts from the New Delhi-based Observer
Research Foundation said recently. Nandan Unikrishnan and Lydia Powell talked to
Kulpash Konyrova, New Europe, in an exclusive interview in Astana during their
visit to consider possibilities of transporting Kazak gas to India under the
order of Ministry of Energy of India.
Why has India pinned interest in Kazakstan hydrocarbons though you've got
positive agreements with Arab countries?
India within the last five-seven years is worried about its energy security. The
country is encountering the problem of searching new energy sources. Even under
the most optimistic scenario the country's own reserves could cover some 20 per
cent of our resource requirements. Imports are vital to us. Though at the moment
India does not encounter gas problems - due to guaranteed shipments basically
from Arab countries, - we should be secured of lack of problems with
hydrocarbons' deliveries in future.
Experts believe that it is the growth of economies in India and China as well as
their demands in hydrocarbons that geared steep oil prices. Factors influencing
the increase in prices are as follows: the situation in Iraq, tense
relationships with Iran and even the Katrina hurricane. Undoubtedly, one of the
reasons is that both China and India take oil in large quantities. To date they
consider each other as competitors but in a year or two the situation will
change for the better and they will be partners in the petroleum business. It
will be mutually beneficial in gas production for all parties involved,
Then why is it gas?
We are interested in oil too. However, gas is cheaper and is environmentally
greener. It could become an energy resource of the future, at least within the
next 200 years. Not only cars will convert to gas. Gas-fired combined heat and
power stations are planned to be constructed. Under our estimates within the
coming 15 years India will annually lack gas of approximately 60 million cubic
metres. Iranian gas covers just 50 per cent of this quantity deficiency. We need
new sources of blue-sky fuel and we are hoping that gas from Central Asia,
Kazakstan, inclusive, will cover 20 per cent of the current deficit.
Kazakstan disposes of sufficient volumes of gas but its delivery to India is
How do you intend to receive Kazak gas?
Three options are available for us: 1) in tankers from Kazakstan to Iran by sea,
there from as a liquefied gas to be transported to India, 2) from Kazakstan to
Iran there from by gas pipeline via Pakistan, 3) southward through gas pipeline
Kazakstan-Turkmenistan-Afghanistan- Pakistan-India. One more option is
available, via China, which is being thoroughly considered. It is common
knowledge that China has agreed with the Kazak government to construct a gas
pipeline from Kazakstan to China. We could receive gas through China by
extending the gas pipeline. However, actually it's hardly a viable project.
Mountains are on the way from North China to North India. So the issue is to lay
gas pipeline via mountains, which are difficult to cross mostly because of
snows. No technologies of gas injection in highlands are available so far.
Which of three options is the most acceptable and lucrative?
The best option will be the most expensive one. The first route from Kazakstan
to Iran by sea is politically the safest one, but it fails to give much volume.
The Kazakstan-Iran option by sea and from Iran through the pipeline via Pakistan
is the cheapest but politically insecure. The option through the Kazakstan-Turkmenistan-Afghanistan-Pakistan-India
pipeline is the most expensive averaging US$ three billion but it's the most
acceptable. Asian Development Bank has already endorsed this project.
When do you think gas will be transported from Kazakstan to India should the
last option be finally okayed?
Construction of the Kazakstan-Turkmenistan-Afghanistan-Pakistan-India gas
pipeline involves several countries. The process of agreeing and executing
inter-government arrangements could take some three-four years. Construction of
the gas pipeline could take the same timing, i.e., ten years as minimum.
To what extent is India interested in construction of the Kazakstan-China gas
It will be beneficial for China as well because gas for India will increase
volumes of injection and will contribute to decrease of transportation royalty
and the gas cost will be lower for China. We see here the potential for
Turning to the issue of cooperation two petroleum companies of China and India
have been laying claims to PetroKazakstan shares. However, you've given up in
price. China, bidding against you, has won.
Economy-wise, it's not the best time for acquiring the oil company with high oil
prices world-wide. However, when prices drop such companies could not be
available. Yes, India showed interest in buying PetroKazakstan shares and will
appreciate the opportunity to acquire this company at this stage. However, let
us leave the decision with the government of the Republic of Kazakstan and it
would be undiplomatic to comment on the above. India is a large developed
country. So, if it decided to enter any sphere, namely your country's petroleum
sector, then at first instance it must be cost effective with all things
considered. It is not an issue of price. India could have paid this price as
well. The thing is whether it would be profitable in future. If CNPC buys these
shares then they find this purchase as economically advantageous for lots of
reasons. With Atasu-Alashankou oil pipeline commissioned this year they are
finalizing the entire technological chain, from upstream to midstream and
downstream. It is worth paying double. As far as India is concerned, we lack
such secured technology cycle. Even if we could have bought fields and we could
produce oil the issue of oil transportation and sale will come out. Thus,
political issues are vital, but the above is requisite if this project is
Bozumbayev outlines major breakthrough in energy sector
Three new investment projects in the next couple of years are expected to lead
to a major break through in the energy sector of Kazakstan, the president of the
national energy company AO KEGOC said. Two of them will fully release the
republic from electric power imports and the third will significantly enhance
its export capabilities, Kairat Bozumbayev said in an interview in Astana
recently, New Europe reported.
The first project - construction of a new power transmission line "North -
South Kazaktan" is already underway. The project is financed by the
International Bank of Development (US$100 million), the European Bank of
Development (US$147.8 million) and by the Development Bank of Kazakstan (US$74.4
million). Already some US$19.58 million worth of works have been completed.
The new line is expected to become operational in 2008. By implementing this
project the former Soviet republic will "kill two birds with one
stone." Firstly, the energy-rich north of Kazakstan will provide the south
of the country with electric power generated from the cheap Ekibastuz coal. This
way the energy dependence of the south of Kazakstan on Kyrgyzstan will be
eliminated. Secondly, the same line can be used to transit cheap power from the
Kyrgyzstan hydroelectric stations during the flood periods to Russia and partly
to the north of Kazakstan.
The other two projects are still on paper. However, even by very conservative
estimates they promise major advantages and benefits, Bozumbayev said. One of
them should, at last, free Kazakstan from the supplies of power from Russia.
Today the annual import from this neighbour is about 3.6 billion kwh. And it
mainly goes to the Aktobe region. This is the only region that is not covered by
the general power grid of Kazakstan and receives electric power from Russia, and
at its high tariffs at that (2.7 cents per kw, and next year RAO EES intends to
increase them), he added.
The years of negotiations with Russia about the transmission to the Aktobe
region of cheap power from the Ekibastuz power stations (two stations -
Ekibastuz GRES- 1 and GRES -2 are situated at the north of Kazakstan and they
work on the coal from the Ekibastuz open-pit mines) by RAO EES lines have
yielded no results. So the Kazak government has decided to build a new HVL
"Northern Kazakstan - Aktobe Region." Initially, it will be a
250-megawatt line. By 2010, though, its capacity should grow to 400 megawatt.
And thus the new line will cover over and above the growing requirements of the
Aktobe region, Bozumbayev said. Also, the Ekibastuz power, including the
transport costs, will be 20 per cent cheaper than Russian. "I cannot really
describe this project as integrative with the energy system of the Russian
Federation. However, our country should enjoy some energy independence,"
the KEGOC president noted. The cost of the project is US$116 million. And the
intent is to use the pension funds to finance this project through an issue of
special bonds. Also, private Kazak companies will invest in this project. Once
HVL repays the investment, it will be nationalised.
While the two above-mentioned projects have the purpose to secure energy
independence of Kazakstan, the third one is designed to enhance its export
opportunities. The project is question is the "Power Bridge Kazakstan-China."
The project will consist of two parts. It's the construction of a new 7,200
megawatt power station in the Ekibastuz region near the coal mines in the north
of the republic with its existing Ekibastuz GRES- 1 and GRES -2. The new station
will be built on a separate, independent site. From it, a new power transmission
line will go to the Chinese town of Xian (3,800 km) or to Wuhan (4,200 km). In
brief, it is going to be one of the highest-capacity heat power plants in the
world and a longest HVL.
According to Bozumbayev, it is expected that upon completion of the project the
China exports will be over six thousand megawatt, and at the tariffs prevailing
in the Chinese markets. The remaining thousand will be distributed to the
domestic market at our tariffs.
The cost of this project (both the station and the HVL) will be US$9.5 billion.
In spite of such a high price, it is a very promising project that will pay in
ten years. First, China is a stable and "energy greedy" market. Today
the power demand in the Celestial grows at the rate of 30 per cent. For
comparison, this rate in Kazakstan was only slightly over five per cent for the
last two years. Second, the advantage of this project is that it will have no
problems with fuel supplies. The Ekibastuz coal reserves will be enough for some
"Already three major banks have expressed their desire to invest in the
project: two foreign and one Kazakstan banks, on the condition that Beijing
provides its guarantees. However, the participation of banks will be subject to
a tender," Bozumbayev said.
He also noted that with all the benefits that the project is promising,
Kazakstan has made one considerable condition to China: The ecological standards
should be of the EC level. Of course, the construction of such a powerful
thermal station that will burn a lot of coal will undoubtedly affect the
environment of the Ekibastuz region. So such approach is fully justified and
A working group composed of representatives of the Chinese state power grid
company are now examining this condition of Kazakstan. And it looks like they
have no intention to give up, as they have promised to submit a feasibility
study for the future station as early as next year.
MINERALS & METALS
Kazzinc launches anode rolling line
Kazzinc, a major zinc producer in Kazakstan, has launched a cold-rolling line
for anodes at its Ust-Kamenogorsk Metallurgical Works. The new line will improve
the quality of cathode zinc by reducing lead content to 0.0035-0.005 per cent,
and increase the service, increase the service life of anodes by 50 per cent,
and reduce the amount of lead and silver used to make anodes, the company said.
Kazzinc is a major integrated producer of zinc and associated copper, precious
metals and lead. Switzerland's Glencore International AG controls 99 per cent of
Kazzinc stock through subsidiaries, New Europe reported.
Kazakstan boosts alumina output 2.3%
Aluminum of Kazakstan, which controls Kazakstan's alumina and bauxite industry,
raised alumina output 2.3 per cent in 2005. The company said that it produced
1.5 million tonnes of alumina in 2005, Interfax News Agency reported.
It produced 1.465 million tonnes in 2004. The company said it invested around
eight billion tenges in development in 2005. Aluminum of Kazakstan, one of the
world's nine biggest alumina producers, incorporates the Pavlodar alumina
refinery, Turgai and Krasny Oktyabr (Red October) bauxite mines, Keregetas
limestone quarry and a heat and power plant.