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Update No: 306 - (29/06/06)
Re-vamping the polity
The political regime in Kazakstan is very tight. But given the extraordinary
economic dynamism, President Nursultan Nazarbayev is genuinely rather popular
and was re-elected easily (although with numerous reports of cheating) last
year. This has emboldened him to embark on certain reforms of the polity, at
least in Form. Time will tell on Content.
The State Commission on Democratic Reform Programme's Development and
Specification started its work in March in the capital, Astana. The Commission
is proposing to develop a nationwide dialogue on issues concerning the
modernization of the political system and deepening of the country's democratic
Delivering an address at the 1st session its chairman, President Nazarbayev
outlined the strategic priorities for the further development of political
reforms: "We strongly vow to continue the consistent political reformation
and the country's political modernization," Nursultan Nazarbayev noted.
"Our ultimate goal is constant - to strengthen the principles of an open,
democratic and law-governed state with generally recognized democratic objective
laws, such as traditions of the multinational and multi-confessional
Addressing the members of the Commission the Head of the State summoned them for
active and constructive work at the most important issues of the country's
political modernization, highlighting the role of the leadership of political
parties, public alliances and NGOs.
The cynosure of Central Asia
Nazarbayev, President of Kazakstan, is in an enviable position for a
post-Soviet leader. His nation is awash with energy reserves and other mineral
resources, of which it has no less than 60% of the former USSR's total.
The Kazak economy is the fastest growing in the world, GDP rising by 10% per
annum on average since 2000, the year global energy prices took off. Like
Putin's Russia, Kazakstan is reaping vast revenues which can be used to renovate
the decrepit infrastructure and despoiled environment inherited from communist
Both countries are embarking on a massive programme of public works, which opens
up huge opportunities for enterprising private firms abroad.
Investment Gateway to Central Asia
The real point is that Kazakstan, with an average GDP growth over the past
five years of roughly 10%, has always been the most attractive investment
destination in Central Asia.
But when the World Economic Forum, in its annual 2005-2006 ranking of the most
competitive nations in the world included Kazakstan for the first time,
introducing it at 61 amongst the 117 countries covered, Nazarbayev, took
particular notice and made it a benchmark to further accelerate the growth and
global integration of his nation.
In his annual address to the people of Kazakstan in March 2006, Nazarbayev
focused on economic reform He set a vision and detailed strategy to make
Kazakstan one of the 50 Most Competitive Countries of the World within the next
If all goes according to plan, Kazakstan will achieve 350 per cent growth by
2015 over the 2000 GDP level. With abundant mineral, oil and gas resources (the
world's second largest gas field is in Kazakstan) as its basis, and the dramatic
recent reforms including a strong diversification drive and foreign investor
confidence measures, the above economic targets should not be considered
unrealistic, experts say.
Reforms have started to show concrete signs of progress. Last year Kazakmys, a
Kazak company and the world's largest copper producer was listed on the London
Stock Exchange as a sure sign of global market confidence. Its banking system is
already considered the best amongst the whole of the former Soviet Republics.
Star amongst its banking sectors is the privately owned Kazkommertsbank (KKB)
which has recently been recognized as the best Kazakstan bank eight years in a
row by international magazine, Global Finance. It was also rated as the most
reputable company in Kazakstan by E&Y Kazkahstan. The role of this maturing
private sector is another feather in the cap of an open and business friendly
In his address to the nation, Nazarbayev laid out Kazakstan's strategy to
integrate into the world economy by making WTO accession a key driver. As
reported by Interfax, Nazarbayev said WTO accession would open "vast
opportunities for strengthening Kazakstan's competitiveness." Foreign
Minister Kasymzhomart Tokayev stated in mid March that Kazakstan aimed to join
the group in 2007.
Nazarbayev also signalled the belief that fostering strong regional cooperation
is the key to the realization of the country's ambitious goals. While he laid
out specific focus on the relationship with Russia and China amongst other
countries, he also addressed building stronger ties with the Muslim world.
Similarly it has set out to become a leader amongst the Central Asian states
including making serious efforts in improving Kazakstan-Uzbekistan ties. This
was made evident during President's recent trip to Uzbekistan where tangible
steps were taken to improve trade ties.
Promising Sectors for Investment
Kazakstan's continuous moves to reduce its reliance on the energy sector to
drive growth are opening up tremendous investment opportunities.
Renat Bekbolatov, a Kazakstan native working as an investment banker in the US
and seeking to connect Muslim investors to opportunities in Kazakstan,
identifies many opportunities.
"Depending on the scale of the investment, investors can choose different
areas. For example, if they want to invest big, then energy and mineral sectors
look attractive. For smaller capital, they can enter areas such as: information
technology, medical supplies, retail stores, entertainment, heavy machinery
manufacturing, and for some creative investors willing to invest more than just
cash, areas like tourism and jewellery looks potentially promising. There are
plenty of investment opportunities in Kazakstan, and the growth of business is
set to continue," says Mr. Bekbolatov.
Breakthrough forum planned
A first ever international forum on quality is planned for later this year
in Almaty. The slogan of the event is aptly, "Quality and Perfection
represent successive way into the 50 most competitive countries of world."
Another international conference tied to the presidential vision concluded mid
march in Astana titled "State, business and society of Kazakstan: domain
for innovations" where the Vice Premier Karim Massimov, international
experts, public organizations, heads of national companies, and large business
corporations participated. The conference was aimed at discussing the problems
and prospects for forming efficient system of social partnership in Kazakstan.
In addition, Almaty, the largest city, is already vying to be a major financial
centre in the region and even working for the right to hold Winter Olympic
Games. Director of Municipal Department of Business and Industry Yerbol
Shormanov, stated in an Interfax interview that, "In the current year, 23
innovative projects to the amount of about KZT 42 billion will be implemented in
Almaty. Production will be competitive, with high added value and oriented for
export. It absolutely accords with the President's tasks." One such project
being implemented is the International Centre of Technologies Transfer in the
Almaty Technological Park (Technopark ).
The ECO to the fore
The ECO which is comprised of Pakistan, Iran, Turkey, Afghanistan and the
six Central Asian Republics (Kazakstan, Kyrgyz Republic, Turkmenistan,
Tajikistan, Azerbaijan and Uzbekistan), has so far focused on infrastructure
projects such as railroad, road lines and other infrastructure projects to
facilitate trade investments.
On programs relating to the business to business interaction, an example is
Pakistani investors being wooed to set-up base in Special Economic Zone (SEZ)
" Outustik" which was established in July 2005 as one of the initial
steps towards creation of cotton-textile cluster in the South Kazakstan oblast
(region) (SKO). Gali Shaimakov, commercial counsellor, embassy of Kazakstan in
Pakistan has been meeting with Pakistani textile business associations for that
He said more than 15 spinning, weaving and sewing units are expected to be
set-up in the SEZ. He said the SEZ " Outustik " offers favourable
conditions for potential investors also given that Kazakstan has high demand for
cotton yarn. Textile companies working with the SEZ would be exempted from
corporate income tax, land tax and property tax and partly from value added tax.
He said certain simplification of the customs procedures was also envisaged for
Further engagement with Pakistan was explored on April 6th, when the Kazakstani
Institute of Strategic Studies (KISS) held an international round table on
"Relationship between Kazakstan and Pakistan: current state and
perspectives" in which it was noted that the current annual volume of trade
between the two countries of US$10 million could quickly be raised to US$100
million per annum. In the roundtable Pakistan's geographic affinity was noted by
the fact that Almaty is closer to Islamabad geographically than to the capital,
Turkey as a base
Amongst the OIC member countries, Turkey has always maintained the strongest
relations with the Central Asian Republics, including Kazakstan. Turkish
companies have been investing in CA for years due to strong geographic, cultural
and even language affinities with investments focused on sectors such as food,
beverages, oil industries, banking, retailing and tourism in Kazakstan. This
relationship is one, many others from the Muslim world can look to leverage.
In early March, Dubai Bank inked an agreement with Daruma Corporate Finance of
Turkey to develop and market Shari'ah compliant corporate finance and merchant
banking services which would also be marketed to Turkey's Central Asian
neighbours including Kazakstan. This partnership is reflection of Turkey's
strength as a partner in helping launch many businesses into the Central Asian
In 2000, the trade volume reported between Kazakstan and Turkey was US$465
million which was highest amongst Turkey's trade with the CA countries. Alarko
Holding, a Turkish conglomerate is one of the biggest foreign infrastructure
contractors in Kazakstan Republic. They also Chair the Turkish - Kazak Business
Council run under the auspices of DEIK (Foreign Economic Relations Board) a
non-profit private sector organization. The Council serves to remove trade
bottlenecks amongst the two countries as well as disseminate information on
business opportunities in Kazak market.
Even with such strong relations, the feeling amongst the Turkish business
community seems to be that much more is desired. Yakup Kocaman, a Turkish
business journalist comments that, "Even though the Central Asian countries
have got very good relationship with Turkey, many here say that Turkey has not
realized the full potential of CA Republic opportunities."
Moody's changes outlook on Kazak banks
Following an earlier sovereign rating action that placed Kazakstan's Baa3
foreign currency bond rating on review for possible upgrade while at the same
time changing the outlook on the country's foreign currency bank deposit ceiling
to stable from positive, Moody's has changed to stable from positive the outlook
on the Ba1 long-term foreign currency deposit ratings of Kazkommertsbank, Bank
TuranAlem, Halyk Bank and Bank CenterCredit, the ratings agency said in a press
release, New Europe reported.
The Ba1 senior unsecured debt rating and Ba3 junior subordinated debt rating of
CenterCredit International B.V., a Netherlands-based special-purpose vehicle of
Bank CenterCredit, have also been revised to stable from positive, the release
says. In addition, the Baa3 issuer rating for the Development Bank of Kazakstan
has been placed on review for possible upgrade.
Fitch assigns Temir Zholy bond BB final rating
Fitch Ratings has assigned Kazakstan Temir Zholy Finance B.V's 450 million Euro
and 350 million Euro unsecured bonds issue senior unsecured BBB ratings. The
issuer is indirectly and ultimately owned by JSC Kazakstan Temir Zholy (KTZ),
New Europe reported.
KTZ is also a guarantor of the issuer's bond. KTZ's Issuer Default and foreign
currency senior unsecured debt ratings are BBB. The Outlook on the Issuer
Default rating is Stable, the agency said in a statement. The bond issue will be
used initially to refinance the group's existing short-term debt and provide
cash for future corporate requirements. As the group will have immediate surplus
cash proceeds, KTZ has stated to Fitch that it will deposit this money with two
international banks and certain domestic banks predominantly rated 'BB' and
above, the statement said. The bond document includes a limitation on the change
in business and disposal of assets provisions. The former provision refers to
KTZ and its subsidiaries at a minimum owning and operating Kazakstan's national
railway network and its relevant infrastructure as well as relevant network
services (as defined in the bond documentation). The disposal of assets is
restricted, and the disposal of defined "core assets" of the issuer
and its consolidated guarantors is capped at 15 per cent (since December 31,
2004) of the group's consolidated property, plant and equipment as shown in the
most recent audited balance sheet.
OVL-Mittal sets sight on Kazakstan
Kazakstan has expressed interest to work jointly with India in the energy and
hydrocarbon sector. The governments of both countries are considering
cooperation in these sectors. India's ONGC Videsh and steel baron L N Mittal
plans to tap oil and gas assets in Kazakstan, New Europe reported.
Mittal Steel is planning to source natural gas from the country for its own 5.5
million tonne per annum steel plant at Temirtau as feedstock. It is one of the
largest single-site integrated steel plants in the world, it covers about 5,000
hectares. The OVL-Mittal is looking for 40-60 per cent share in the unexplored
asset of Caspian offshore controlled by Kazakstan. "Even though talks are
at the primary stage, both the governments are hopeful for a joint
venture," sources close to the development said. OVL is lining up a
billion-dollar infrastructure development projects for Kazakstan to secure
Kazakstan opens oil pipeline to China
Crude oil began flowing into China from Kazakstan recently, as the two nations
opened a pipeline that is designed eventually to carry 20 million tonnes of oil
per year, or 15 per cent of China's 2005 crude oil imports, Xinhua News Agency
The 960-kilometre pipeline is the first to bring imported oil directly into
China, from the far-western border region of Xinjiang.
The first phase of the pipeline will transmit 10 million tonnes of oil per year,
with a planned doubling of capacity by 2011 once the pipeline has been extended
to about 3,000 kilometres, the agency said.
"It has provided a direct link between Kazakstan's rich oil resources and
China's robust oil consumer market," it quoted Yin Juntai of the China
Petroleum Exploration and Development Company as saying. The pipeline was
jointly developed by the China National Petroleum Corporation (CNPC) and the
Kazak state energy company, Kazmunaigaz.
China's crude oil imports reached 127 million tonnes, about 40 per cent of its
total consumption, last year. About a half of the oil imports came from the
Middle East, with and only 1.3 million tons from Kazakstan. The first phase of
the pipeline was completed in November 2005 at a cost of US$700 million. CNPC
last year completed the takeover of Canadian-registered PetroKazakstan in a deal
reportedly worth about US$4.2 billion. CNPC, China's largest oil producer,
reportedly secured the endorsement of Kazakstan's government by agreeing to sell
one-third of PetroKazakstan to state-owned Kazmunaigaz.
Kazakstan to build refinery in Turkey
Kazak President Nursultan Nazarbayev and Turkish Prime Minister, Recep Tayyip
Erdogan, at talks agreed that Kazakstan would build an oil refinery on Turkey's
Black Sea coast, reported Interfax News Agnecy.
"The agreement reached for Kazak investors to build an oil refinery on the
Black Sea coast of Turkey is very important. We will be able to transport oil
from Novorossiisk to Turkey and there sell a refined product," Nazarbayev
said in an interview with the Kazak media, published on the president's official
website on May 22nd. He said that the project is connected with plans to expand
the Caspian Pipeline Consortium pipeline. Nazarbayev said that the issue of
expanding the CPC was also discussed during his talks with Russian president
Vladimir Putin last weekend in Sochi.
Kazakstan mulls Baku-Erzurum gas pipeline link
Kazakstan is thinking about linking up with the Baku-Erzurum gas pipeline,
Danial Akhmetov, Kazakstan's prime minister, said at a briefing in Baku, New
"Kazakstan is thinking of linking up to this new gas pipeline, which will
create not only new alternatives for our country but new and I'd say more
interesting economic opportunities, because Greece lies directly beyond Erzurum,
and then Italy. This would give Kazakstan access to the European markets,"
The Baku-Erzurum pipeline, capacity 30bn cubic metres of gas annually, will be
built in September this year, Akhmetov said. The pipeline will carry gas
produced at Azerbaijan's Shah Deniz field to market.
Akhmetov also said that he discussed Kazakstan's participation in the
Trans-Caspian Gas Pipeline construction with Iranian President, Mahmoud
Ahmadinejad, in Baku recently.
"The meeting with Ahmadinejad was devoted primarily to the issue that the
Kazak President (Nursultan Nazarbayev) asked me to discuss, namely integration
in the sphere of energy resources, new opportunities and Iran's attitude to
Kazakstan's participation in, say, the construction of the Trans-Caspian Gas
Pipeline," Akhmetov said.
The Shah Deniz project participants are BP- 25.5 per cent (technical operator),
Statoil - 25.5 per cent (commercial operator), Azeri state oil company, SOCAR, -
10 per cent, Luk-Agip - 10 per cent, Total - 10 per cent, National Iranian Oil
Company (NIOC) - 10 per cent and TPAO - 9 per cent. The Trans-Caspian pipeline
would be built along the Tengiz (Kazakstan) - Turmenbashi (Turkmenistan) - Baku
(Azerbaijan) - Tbilisi (Georgia) - Erzurum (Turkey) route.
Kazakstan also expects to sign an agreement to use the Baku-Tbilisi-Ceyhan (BTC)
pipeline to transport its own oil in the second half of June, Akhmetov said.
"The agreement between Azerbaijan and Kazakstan on the BTC pipeline was
closed in May. I think that in the second half of June we will do everything
possible for the heads of state to sign it," Akhmetov said.
Azeri state oil company SOCAR and Kazakstan's national oil and gas company,
KazMunaiGAz, began talks on Kazakstan using the BTC pipeline in November 2002.
Tankers will ship the Kazak oil from Aktau to Baku. Initially the BTC will carry
7.5m tonnes of Kazak oil per year, rising to 20m tonnes per year in time. The
1,767-kilometre BTC pipeline is capable of carrying 50m tonnes of oil per year.
The BTC project participants are BP (30.1 Per cent), SOCAR (25 per cent), Unocal
(8.9 per cent), Statoil (8.71 per cent), TPAO (6.53 per cent), ENI (5 per cent),
Itochu (3.4 per cent), ConocoPhillips (2.5 per cent), Total (5 per cent) and
Amerada Hess (2.36 per cent).
KazMunaiGaz spends USD 600m on Caspian project
KazMunaiGaz spent more than US$600 million financing its share of the North
Caspian project in 2005, Zhaksybek Kulekeyev, the national oil and gas company's
senior vice president, said at the Eurasian development forum in Astana.
"The acquisition of our 8.33 per cent stake imposes certain commitments on
us to finance our share of the overall costs. We spent more than US$600 million
on this last year," Kulekeyev said, Interfax News Agency reported.
"We have spent more than US$2.8 billion on major investment projects in
recent years," he said. KazMunaiGaz plans to implement projects costing
around US$ four billion in 2006, he said. "If we are able to carry out all
our plans this year we might be implementing projects costing approximately US$
four billion. In other words our company is increasing its investment portfolio
by US$1.0-1.5 billion every year," he said. This year, KazMunaiGaz plans to
invest more than US$85 million in infrastructure to support its Caspian oil
projects, as well as US$61 million in the construction of a passenger and cargo
terminal at the Atyrau airport, US$5.2 million in reservoirs at the Atyrau oil
refinery and two projects costing US$8.3 million and US$1.9 million to buy
railway tanker cars. The OKIOC consortium is delivering the North Caspian
project, which includes the big Kashagan field that holds at least seven-nine
billion barrels of recoverable oil and geological reserves of 38 billion
barrels. Kashagan is due to go commercially on stream early in 2008. KazMunaiGaz
bought 8.33 per cent of the project for US$900 million in 2003 from BG, which
sold its 16.67 per cent in the Agip KCO consortium, as OKIOC used to be known.
Consortium members Eni (project operator), Total, ExxonMobil and Royal
Dutch/Shell each own 18.52 per cent, ConocoPhillips 9.26 per cent and
KazMunaiGaz and Inpex 8.33 per cent each. Meanwhile, KazMunaiGaz expects the
Caspian Pipeline Consortium (CPC) pipeline to achieve full capacity for 67
million tonnes of oil per year by 2009. "We'd like to see the pipeline
achieve capacity of 67 million tpy by 2009," Kulekeyev said.
"Agreement on this has been reached with the investors and the necessary
work is being carried out," Kulekeyev said. Kulekeyev said efforts were
under way to augment the Atyrau-Samara pipeline's capacity to 20-25 million tpy.
"We are working intensively with the Russians here," he said.
Nazarbayev-Putin talks yield key energy and tariff deals
The Presidents of Kazakstan and Russia, Nursultan Nazarbayev and Vladimir Putin,
held wide ranging talks at the Russian President's retreat in Sochi on the Black
Sea on May 20th, yielding numerous agreements mostly in the energy sector and on
transport tariffs for Kazak goods transiting Russia, New Europe reported.
Nazarbayev said the two leaders had agreed to slash transport tariffs for Kazak
cargo such as coal, grain, ores and metals. The new tariffs in Russia will be at
current levels to Kazakstan, often resulting in a two thirds reduction.
"This is great news for our companies: new tariffs will increase their
competitiveness and profits," Kazak media sources quoted him as saying.
He also announced Kazakstan and Russia had agreed on container transportation
from China via Kazakstan and Russia and on to Europe. "Container
transportation of cargo will be assured from the Pacific to Europe via Kazakstan
which is of enormous significance for us as a transit country," Nazarbayev
The two presidents also agreed to jointly build a second processing line at the
Orenburg gas processing plant based on an equal sharing of equity, which will
assure sufficient processing capacity for the Kazak natural gas produced at the
huge Karachaganak gas field just across the border from Russia.
Nazarbayev concluded by announcing Russia had agreed to pay market price for
Kazak gas it buys. "Most importantly, we agreed on a fair price for the gas
we will sell from this field. It is very important news both for Kazakstan and
our investors. As a result, our country will be receiving several additional
hundreds of millions of dollars which it wasn't getting before."
Other news sources reported the two leaders had also agreed to jointly develop
three oil fields on the Caspian shelf located in the border area of the two
Putin has said certain events that have passed since his last meeting with
Nazarbayev have made cooperation between the two countries even closer.
"I am talking about cooperation in the transportation, energy and other
areas, including those affecting national security," Putin said before his
meeting with Nazarbayev.
Nazarbayev said in response that he thoroughly analysed Putin's address to the
Federal Assembly and confirmed that cooperation between Russia and Kazakstan had
"We followed your address to the parliament very carefully in Kazakstan.
You raised very pressing problems concerning security and also your internal
problems, like demography. Over the past years, you have accumulated certain
resources, and the resolution of those problems is possible. Russia, which
positions itself as a strong world power, is very important to us and our
strategic partners from all viewpoints," Nazarbayev said. He thanked Putin
for inviting him to Sochi, a resort that "used to be a favourite place for
the people in the former USSR." Addressing Putin, Nazarbayev said, "I
thought you were vacationing here, but you are in fact working more than in the
Kremlin and keeping journalists busy." The Kazak leader also thanked Putin
for his consent to take part in a conference on interaction and
confidence-building measures in Asia to take place in Almaty. The meeting
between Putin and Nazarbayev was attended by Russian First Deputy Prime
Minister, Dmitry Medvedev, and Deputy Prime Minister and Defence Minister,
Nazarbayev praised the Commonwealth of Independent States, which was set up in
Almaty, Kazakstan, nearly 15 years ago. Nazarbayev and Putin had also discussed
at their talks cooperation within the Shanghai Cooperation Organisation.
"There is a desire on the part of some large states to become members of
the SCO and serious documents will be adopted at the SCO session in Shanghai on
June 14-15," Nazarbayev said. He said that after the Almaty summit, he and
Putin were expected to go to the Baikonur cosmodrome in Kazakstan, from where a
Russian rocket was to carry the first Kazak satellite into space. Kazakstan is
creating a second satellite as well. "In addition, Kazakstan is building a
new launch pad for a new, more environmentally friendly rocket that is being
developed in Russia," Nazarbayev said.
Meanwhile, the State Duma has ratified an agreement to establish a Russian-Kazak
Eurasian Development Bank. The bank is widely expected to help bolster the
economies of its member-states, sustain their rapid pace of economic growth,
expand trade and other business ties, and encourage direct investment.