KAZAKHSTAN ECONOMIC AND ENERGY UPDATE, JUNE 11 -

UNCLAS SECTION 01 OF 03 ALMATY 002298 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 SIPDIS E.O. 12958: N/A TAGS: ECON EIND ENRG EPET EFIN KZ SUBJECT: KAZAKHSTAN ECONOMIC AND ENERGY UPDATE, JUNE 11 - 24, 2006 ALMATY 00002298 001.2 OF 003 ¶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, ALMATY 00002298 002.2 OF 003 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 ALMATY 00002298 003.2 OF 003 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