KAZAKHSTAN ECONOMIC AND ENERGY UPDATE

UNCLAS ALMATY 004426 SIPDIS DEPT PASS TO EUR/CACEN MUDGE DEPT PASS TO OPIC - BALLINGER DEPT PASS TO TDA FOR STEIN, EXIM FOR GLAZER DEPT PASS TO AID - EE-PHILLIPS/RUSHING TREASURY FOR OASIA/VELTRI USDOC FOR 4231/ITA/MAC/MLONDON, 4201/BISNIS USDOC FOR 6110/ITA/TD/BI/RHALPERN ANKARA FOR CFC E.O. 12958: N/A TAGS: ECON EIND ENRG EPET EFIN KZ ECONOMIC SUBJECT: KAZAKHSTAN ECONOMIC AND ENERGY UPDATE November 27 - December 10, 2005 ¶1. Summary: This information is drawn primarily from the Kazakhstani local press, and has not been checked for accuracy. The opinions and policies expressed in this report are those of the authors, not the U.S. Government. -- Republican Budget for 2006 Signed -- National Fund to be Modified -- Growth of Russian-Kazakhstani Bilateral Trade -- Sberbank to Buy Kazakhstan's Texakabank -- Lukoil Completes Acquisition of Nelson Resources -- Ukrtransnafta, KazMunayGaz Set up Joint-Venture -- Parliamentarians Make Accusations against KazMunayGaz -- Oil & Gas Statistics Republican Budget for 2006 Signed -------------- ¶2. President Nazarbayev signed the law "On the Republican Budget for 2006". The revenue part of the 2006 budget stands at KZT 1,491.8 billion (approximately $11.1 billion); the expenditures at KZT 1,605.6 billion (about $11.97 billion); and the deficit at KZT 113.8 billion (about $850 million),1.4 % of GDP. The GoK called this budget "socially oriented", since social expenditures comprised KZT 611.6 billion (about $4.56 billion),or about 40% of total budget expenditures. (Interfax - Kazakhstan, November 26) National Fund to be Modified -------------- ¶3. The GoK plans to implement a new model for the National Fund in 2006. "In accordance with the President's instruction, the transfer to the new model for the National Fund is planned to occur on July 1, 2006, rather than January 1, 2007. It will require some budgetary changes. Moreover, additional transfers to the budget might be anticipated," the Minister of Economy and Budget Planning Kairat Kelimbetov said in Astana on December 6. (Interfax - Kazakhstan, December 7) Growth of Russian-Kazakhstani Bilateral Trade -------------- ¶4. On November 25, Russian Prime Minister Fradkov announced that 2005 goods turnover between Russia and Kazakhstan will be approximately $10 billion. He emphasized the dynamic development of bilateral trade relations: in 2004 commodity turnover reached $8 billion, up 50% compared to 2003, and $7 billion in September 2005, up 20% compared to the same period 2004. (SKRIN Agency, November 25) Sberbank to Buy Kazakhstan's Texakabank -------------- ¶5. The Financial Supervision Agency permitted Russian Sberbank to purchase 100% of Texakabank. Texakabank is the 15th biggest financial institution in Kazakhstan, with total equity capital of $18 million and $170 million in assets. Two shareholders privately own Texakabank; one of them holds a 90.3% stake. According to Russian financial specialists, Sberbank's intention to enter the Kazakhstani market is not surprising and is explained by its need to service corporate client operations within the CIS. This acquisition will strengthen the position of Sberbank in the domestic Russian market. (RIA Novosty, December 7) Lukoil Completes Acquisition of Nelson Resources -------------- --- ¶6. On December 6 Lukoil Overseas Holding Ltd. (Lukoil) announced that "all the requisite precedent procedures and conditions, including shareholder approval and Kazakhstan governmental approval, have been fulfilled, and the acquisition of Nelson Resources Limited (Nelson) has been completed." Nelson merged with Caspian Investments Resources Ltd., Lukoil subsidiary. Nelson's shareholders received $2.19162 per share. Lukoil has assumed full management control over Nelson's projects: Kazakhoil-Aktobe, North Buzachi, KarakudukMunay, Arman, and options to acquire two exploration blocks in Kazakhstani sector of the Caspian Sea. (Interfax - Kazakhstan, December 8) Ukrtransnafta, KazMunayGaz Set up Joint-Venture -------------- -- ¶7. Ukraine's Antimonopoly Committee allowed Ukrtransnafta (Ukraine) and KMG Trading House, a subsidiary of Kazakhstan's national oil producer KazMunayGaz, to set up a joint venture TransMunay. TransMunay will begin construction of a 52-kilometer pipeline to join the Yuzhny oil terminal in Odessa and the Transdnepr system of oil pipelines in early 2006. The JV was established based on the mutual interest of Ukraine and Kazakhstan to increase oil transportation through the Odessa-Brody pipeline system. (Interfax - Kazakhstan, December 10) Parliamentarians Make Accusations against KazMunayGaz -------------- -------------- ¶8. On December 7 a group of Kazakhstani parliamentarians asked regulatory agencies to audit national oil and gas company KazMunayGaz (KMG). Deputies voiced concerns about KMG's high administrative expenses ($227 million),including $84 million in management fees. Additionally, deputies are surprised by the way KMG disposes of royalties paid by subsoil users in non-cash remuneration. (Interfax - Kazakhstan, December 8) ¶9. In its December 10 response, KMG claimed the deputies used false information. Specifically, $84 million was paid by KMG Exploration and Production, a KMG subsidiary, for management services from KMG. Further, oil delivered by subsurface users as a royalty is managed not by KMG, but by the State. According to KMG, the deputies' request damaged KMG's reputation and the company has a right to take legal action. (Kazakhstan Today, December 10). Oil & Gas Statistics -------------- ¶10. In January-November oil production in Kazakhstan was 46.5 million tons, 0.7% higher compared to the same period in 2004, the National Statistics Agency reported. During the same period, 9.8 million tons of gas condensate were produced, up 25.4% year-on-year. The production of natural gas totaled 13.3 billion cubic meters, a 29% increase. (Interfax - Kazakhstan, December 13) ORDWAY NNNN