KAZAKHSTAN ECONOMIC AND ENERGY UPDATE, JUNE 11 -

UNCLAS SECTION 01 OF 03 ALMATY 002298

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SUBJECT: KAZAKHSTAN ECONOMIC AND ENERGY UPDATE, JUNE 11 -
24, 2006


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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.

-- Amendments to the 2006 Republican Budget
-- Financial Violations of Foreign Companies in Kazakhstan
-- Seimar Investment Group and Alliance Bank
-- Eurasian Development Bank Board Formed
-- China Telecom Opens a Branch in Almaty
-- Kazakhstan Officially Joins BTC
-- Gazprom, Karachaganak Consortium Set up Joint Venture
-- TOKAMAK Nuclear Reactor to Start Operation in 2008
-- Kazakhstan Chooses Sites for Nuclear Plant Construction
-- Oil & Gas Statistics, January-May 2006

Amendments to the 2006 Republican Budget
--------------


2. The Kazakhstani Parliament has approved amendments to
the 2006 Republican Budget. The budget assumes revenues of
KZT 1,533.9 billion (about $13 billion, or 17.6% of
projected GDP for 2006),expenditures of 1,660.1 KZT billion
(about $14 billion, or 19% of GDP) and a deficit of KZT
126.2 billion (about $1 billion, or 1.4% of GDP). Starting
July 1, a new budgetary mechanism will be used: instead of
flowing directly into the budget, all oil revenues will
first be accumulated in the National Fund and then
transferred to the budget in the amount determined by the
Parliament and the Government. (Interfax - Kazakhstan, June
21)

Financial Violations of Foreign Companies in Kazakhstan
-------------- --------------


3. Foreign companies operating in Kazakhstan have, in the
past several years, caused the country damages worth KZT 40
billion (about $339 million),Chief of the Financial Police
Kalmurzayev said at a conference in Almaty. According to
Kalmurzayev, tax evasion by foreign companies alone has
caused damages amounting to KZT 24 billion (approximately
$203.4 million). In addition, he said, foreign companies
have received illegal monopoly revenues reaching KZT 103.8
billion (about $880 million) and failed to fulfill
investment obligations in the amount of nearly KZT 19
billion (about $161 million). (Interfax - Kazakhstan, June
12)

Seimar Investment Group and Alliance Bank
--------------


4. Seimar Investment Group (SIG),a Kazakhstani company,
has increased its holdings in Alliance Bank from 41.08% to
72.8% of voting shares. As the bank's press service
announced, "SIG plans to increase this stake through further
purchases of shares from minority shareholders; now Seimar
I.G. has a controlling interest in Alliance Bank and is its
core owner." SIG is one of the largest investment companies
in Kazakhstan. Alliance Bank is among the five largest
banks, with assets totaling $3.7 billion and equity capital
of $263 million as of May 1. (Interfax - Kazakhstan, June
13)

Eurasian Development Bank Board Formed
--------------


5. The first session of the Russian-Kazakhstani Eurasian
Development Bank (EADB)'s board meeting took place in
Almaty. "On the board, Russia will be represented by
Industry and Energy Minister Viktor Khristenko and Deputy
Finance Minister Sergey Storchak; Industry and Trade
Minister Vladimir Shkolnik and Vice Finance Minister Askar
Yelemesov will represent Kazakhstan," said the bank's June
10 press release. Assistant to the Russian Finance Minister
Igor Finogenov was appointed chairman of the EADB's board,

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while Bulat Zhamishev, Deputy Chairman of the National Bank
of Kazakhstan, became his deputy. (Interfax - Kazakhstan,
June 12)

China Telecom Opens a Branch in Almaty
--------------


6. China Telecom, China's leading communications operator,
has opened an Almaty branch as a step within the framework
of the Shanghai Cooperation Organization's (SCO) plan to
develop the regional communications network, said the
company's press release. In 1998, China Telecom
participated in building the fiber optic Trans Asia Europe
Line to link China to Europe via Central Asian countries.
In addition, Xingjian Telecom, a China Telecom subsidiary,
has launched "a hotline" for service subscribers in China,
Kazakhstan, Tajikistan and Kyrgyzstan. (Interfax - China,
June 12)

Kazakhstan Officially Joins BTC
--------------


7. On June 16 in Almaty, Azerbaijani President Aliyev and
Kazakhstani President Nazarbayev signed a treaty to
facilitate the transportation of petroleum from Kazakhstan
across the Caspian Sea and Azerbaijan to international
markets via the Baku-Tbilisi-Ceyhan system (BTC). The
agreement was signed during President Aliyev's visit to
Almaty to take part in a Conference on Interaction and
Confidence Building Measures in Asia (CICA). President
Nazarbayev has been invited to attend the BTC commissioning
ceremony on July 13 in Ceyhan, Turkish Vice Prime Minister
Abdullah Gul announced during the CIMA summit. (Interfax -
Kazakhstan, June 19)

Gazprom, Karachaganak Consortium Set up Joint Venture
-------------- --------------


8. The preparation of documents for the creation of a
Russian-Kazakhstani joint venture (JV) to expand the
Orenburg gas processing plant is almost accomplished,
Gazprom Board Deputy Chairman Ryazanov announced on June 20
in Moscow. The decision is to be finalized within a week.
The JV is planned to start operation in January 2007. In
May, Presidents Putin and Nazarbayev agreed to begin the
second phase of the construction of the gas refinery in
Orenburg as JV on 50/50 terms. (Interfax - Kazakhstan, June
20)

TOKAMAK Nuclear Reactor to Start Operation in 2008
-------------- --------------


9. The TOKAMAK thermonuclear reactor is to be set up and
launched in 2008, National Nuclear Center Director General
Kadyrzhanov said on June 20. According to Kadyrzhanov,
preparatory work has by and large been completed. TOKAMAK
is being created by a group of Kazakhstani and Russian
scientists under the leadership of the Russian Academy of
Sciences Academician and President of the Kurchatov
Institute Velikhov. TOKAMAK is a part of the international
project for creation of the world's first industrial
thermonuclear reactor. The European Union, India, China,
Russia, the U.S., South Korea and Japan participate in the
project. (Interfax - Kazakhstan, 21)

Kazakhstan to Chooses Site for Nuclear Plant Construction
-------------- --------------


10. Kazakhstani scientists intend to identify a site by
year's end for the construction of possible nuclear power
plant in Kazakhstan, National Nuclear Center Director
General Kadyrzhanov stated in Almaty on June 20. Currently
there is a choice between Aktau (in Kazakhstan's West, BN-
350 nuclear reactor territory),Balkhash (South, the GOK's
initial intention in 1998) and Kuchatov (East, former

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Semipalatinsk nuclear test site). Kadyrzhanov voiced
support for the Kurchatov option, while energy producers
prefer Balkhash. According to preliminary calculations, the
nuclear power plant construction will cost a minimum of $800
million. The GOK will finance 30-40% of the project, with
the rest likely covered by private investors. (Interfax -
Kazakhstan, June 20)

Oil & Gas Statistics, January-May 2006
--------------


11. Kazakhstan produced 23.8 million tons of crude oil from
January-May 2006, 3% higher than the same period in 2005,
according to the National Statistics Agency. During the
same period the country produced 10 million cubic meters of
natural gas, 9.5% less than in January-May, 2005. (Interfax
- Kazakhstan, June 19)

ORDWAY