KAZAKHSTAN ECONOMIC AND ENERGY UPDATE, APRIL 30 -

UNCLAS SECTION 01 OF 02 ALMATY 001810

SIPDIS

DEPT FOR SCA/CEN 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

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E.O. 12958: N/A
TAGS: ECON EIND ENRG EPET EFIN KZ
SUBJECT: KAZAKHSTAN ECONOMIC AND ENERGY UPDATE, APRIL 30 -
MAY 13, 2006


ALMATY 00001810 001.2 OF 002



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.

-- GOK to Cut Budget Spending
-- Possible Imbalance in the Labor Market
-- KazMunayGaz Board of Directors Reshuffle
-- Kazakhstan to Join Baku-Tbilisi-Ceyhan Soon
-- Kazakhstan Plans to Export Gas to Europe
-- Khvalynskoye, Tsentralnoe PSAs Scheduled for end 2006
-- KazMunayGaz to Buy 50% of Orenburg Plant from Gazprom

GOK to Cut Budget Spending
--------------


2. The GOK proposed to amend the 2006 state budget by
reducing planned expenditures from KZT 97 billion
(approximately $780 million) to KZT 49 billion
(approximately $394 million). In the words of Deputy Prime
Minister Masimov, "this adjustment would not affect social
development programs, and the budget deficit will remain at
1.4% of the GDP". This decision is part of the inflation-
targeting policy announced recently by the GOK. In the
future, the GOK plans to correlate its spending to GDP
growth. (Interfax - Kazakhstan, May 4)

Possible Imbalance in the Labor Market
--------------


3. "One of the labor market's problems is an imbalance of
demand and supply. The forecast for 2010 shows that by that
time, Kazakhstan will undergo structural changes in the
economy and the labor market. Recent developments in Europe
showed that failure to respond in a timely manner to
challenges in labor relations may lead to social
destabilization," Kazakhstan's Labor and Social Protection
Minister Karagusova stated in Almaty on April 28. "This
high priory issue has to be handled accordingly. We have to
train specialists to push forward the programs for
development of the Caspian shelf, industrial-innovation and
transportation development," Karagusova concluded.
(Interfax - Kazakhstan, May 2)

KazMunayGaz Board of Directors Reshuffle
--------------


4. On April 21, Prime-Minister Akhmetov signed a decree
reshuffling the Board of Directors of the national oil and
gas company KazMunayGaz. The new Board includes: Vice-
Minister of Energy Bolat Akchulakov, Vice-Minister of
Finance Askar Yelemessov, Vice-Minister of Transport Zhenis
Kasymbek, Vice-Minister of Economy Marat Kusainov, and
Presidential Administration Head Adilbek Dzhaksybekov, who
will head the Board of Directors. Dzhaksybekov replaced
Energy Vice-Minister Lyazzat Kyinov in this position. (Oil
Review - Kazakhstan, April 28)

Kazakhstan to Join Baku-Tbilisi-Ceyhan Soon
--------------


5. "The agreement between Azerbaijan and Kazakhstan on Baku-
Tbilisi-Ceyhan (BTC) will be completed in May. We will do
everything possible so that our president can sign the
agreement in June," Kazakhstan's Prime Minister Akhmetov
said on May 6 during economic forum in Baku. According to
KazMunayGaz Managing Director Kabyldin, "mainly Kashagan oil
will be transported in Baku direction. The timeframe is
around late 2008 - early 2009." Azerbaijani oil running via
the BTC pipeline will reach a terminal in the Ceyhan port on
May 27, Project Director of the Turkish section of the BTC
Geksel said. A ceremony commemorating this event is
scheduled for July 13. (Interfax - Kazakhstan, May 8)

Kazakhstan Intends to Export Gas to Europe

ALMATY 00001810 002.2 OF 002


--------------


6. Kazakhstan is considering supplying gas to the Baku-
Erzurum gas pipeline, Prime Minister Akhmetov stated in
Baku. In this regard, the GOK is looking at the possibility
of constructing an Aktau-Baku gas pipeline under the Caspian
Sea. "This means that Kazakhstan has an opportunity to
reach European markets", the Prime Minister said. The, Baku-
Erzurum gas pipeline, with a capacity of 30 billion cubic
meters, will be completed in September. (Interfax -
Kazakhstan, May 6)

Khvalynskoye, Tsentralnyoe PSAs Scheduled for end 2006
-------------- --------------


7. Production Sharing Agreements (PSAs) on Khvalynskoye and
Tsentralnoye oilfields (Russian sector of North Caspian

SIPDIS
shelf) are to be signed in fall 2006, as reported by Lukoil
Head Alekperov. Engineering work is currently being
undertaken jointly with Gazprom at the Tsentralnoye oilfield
for the future exploration wells. Well drilling is planned
in 2007-2008. The work on PSAs is performed by Lukoil and
KazMunayGaz. (Oil Review - Kazakhstan, May 3)

KazMunayGaz to Buy 50% of Orenburg Plant from Gazprom
-------------- --------------


8. In 2006, KazMunayGaz and Gazprom will operate the
Orenburg gas processing plant (GPP) on a joint-venture
basis, KMG Managing Director Meraliyev recently announced.
The GPP's assets are estimated by Deloitte & Touche at $700
million. The plant may eventually process 28 billion cubic
meters of gas and 5 million tons of condensate.
Karachaganak oilfield supplies 7 billion cubic meters of gas
and 3.5 - 4 tons of condensate. There is also an
alternative project. Kazakhstani President Nazarbayev
recently asked Lukoil, one of Karachaganak's shareholders,
to consider constructing a gas processing plant at the
Karachaganak field. (Oil Review - Kazakhstan, May 3)

ORDWAY