KAZAKHSTAN ECONOMIC AND ENERGY UPDATE, JULY 9 -

UNCLAS SECTION 01 OF 03 ALMATY 002681 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, JULY 9 - 22, 2006 ALMATY 00002681 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. -- Series of Economic Laws Adopted -- Trade Policy Promotion Center Established -- Kazakhstani Companies and Western Stock Markets -- BTC Pipeline Opened -- Kazakhstan-China Pipeline Commissioned -- KMG Finalizes Purchase of 33% of PetroKazakhstan -- KMG Subsidiary Eyes IPO in Autumn 2006 -- Russia, Kazakhstan Sign Declaration on Karachaganak Gas -- Oil & Gas Statistics, January-June 2006 Series of Economic Laws Adopted -------------- ¶2. President Nazarbayev signed a number of tax cuts into law. VAT will be lowered from the current rate of 15% to 14% in 2007, 13% in 2008 and 12% in 2009. A flat income tax of 10% will apply to all individuals, starting January 1, 2007, replacing the current graduated rate. In an effort to stimulate wage growth, the new legislation also reduces the social tax by 30%, starting January 1, 2008. (Note: The social tax, a progressive tax ranging from 15% to 20%, is paid by employers on employees' wages. End note.) (Interfax - Kazakhstan, July 10) ¶3. President Nazarbayev signed into law mandatory guarantees of deposits at second-tier banks in Kazakhstan. The statute provides for mandatory contribution by banks to a common fund, which will - in the case of bank failure - unconditionally compensate depositors in the amount of up to KZT 700,000 (approx. $5,912). (Interfax - Kazakhstan, July 11) ¶4. The law "On Competition and Restrictions on Monopoly Activity" has been signed by President Nazarbayev. In an effort to foster competition, the law broadens the definition of market dominance and imposes bans on what it defines as monopolistic activity, anti-competitive actions, and abuse of market dominance. Furthermore, the law outlines, for the first time, the powers and ;responsibilities of the Antimonopoly Agency, a government regulator functioning under the umbrella of the Ministry of Industry and Trade. (Interfax - Kazakhstan, July 12) Trade Policy Promotion Center Established -------------- ¶5. The GOK has established the Trade Policy Promotion Center (TPPC) to study the consequences of the country's accession to the WTO. According to a decree signed by the Prime Minister, the TPPC will focus on preparing "recommendations for streamlining national laws, as per provisions of key WTO agreements" and offering consulting services in "the development of the country's positions at international trade talks and settlement of international trade disputes." (Interfax - Kazakhstan, July 11) Kazakhstani Companies and Western Stock Markets -------------- -- ¶6. National Bank Chairman Saidenov does not expect large- scale IPOs by Kazakhstani companies on foreign stock exchanges. In his opinion, "the vogue" among developing countries' enterprises for listing in London "is passing." The reason, he said, is that companies listing in the West are facing daunting disclosure requirements. Saidenov noted, however, that the overall picture may still change if the exploratory subsidiary of KazMunayGaz, the national gas company, follows through on its plans to issue an IPO later this year. In any case, he added, an increasing number of foreign IPOs by Kazakhstani companies will not require an adjustment in the GOK's current monetary policy. ALMATY 00002681 002.2 OF 003 (Interfax - Kazakhstan, July 12) BTC Pipeline Opened -------------- ¶7. On July 13 the opening ceremony of the Baku-Tbilisi- Ceyhan (BTC) pipeline took place in the port of Ceyhan, Turkey. The presidents of Turkey, Georgia and Azerbaijan, as well as other dignitaries, attended the event. Energy Minister Izmukhambetov represented Kazakhstan. According to Kazakhstani Vice-Minister of Energy Akchulakov, first Kazakhstani oil will be exported via the BTC pipeline by the end of 2008. "At the present moment we signed a framework agreement which stipulates transportation of three million tones of oil via the BTC during the first years", Akchulakov said. (Oil Review - Kazakhstan, July 13) Kazakhstan-China Pipeline Commissioned -------------- ¶8. On July 11 the first "commercial" oil transported via the Kazakhstan-China pipeline arrived at the Alashankou reservoir in China, the Chinese newspaper Zhenmin Zhibao reported. (In May, the pipeline was filled with "process" oil, but commercial deliveries were delayed until now due to customs issues.) The Kazakhstani oil will flow another 252 kilometers in China until it reaches its final destination, the Dushanji refinery in Sinkiang Uighur Autonomous Region. China plans to transport 3.5 million tons of oil in 2006 via this pipeline. (Interfax - China, July 13) KMG Finalizes Purchase of 33% of PetroKazakhstan -------------- -------------- ¶9. On July 5, Kazakhstan's national oil and gas company KazMunayGaz (KMG) finalized the purchase from the Chinese National Petroleum Company (CNPC) of 33% of PetroKazakhstan Inc. and 50% of Valsera Holding BV, a parent company of PetroKazakhstan Oil Products (Shymkent refinery). KMG PKI Finance BV will finance the share purchase by issuing $1.372 billion in 10-year bonds with a floating rate, using KMG's 33% stake, along with 80% of the dividends payable by PK, as security. ¶10. On July 18 KazMunayGaz (KMG) finalized the buy-out of 50% of the KazGerMunay joint venture. On July 11 KMG First Vice-President Kulekeyev and representatives of Germany's RWE Dea AG, which has a 25% stake in the joint venture; Erdgas Erdol GmbH (17.5%); and the International Finance Corporation (7.5%) signed an agreement on KMG's purchase of their shares in the joint venture. The other 50% interest in KazGerMunay belongs to PetroKazakhstan. KazGerMunay explores, produces, transports, and sells hydrocarbons produced at the Akshabulak, Nuraly and Aksai fields in the southern part of the Turgai basin in Kyzylorda region. (Interfax - Kazakhstan, July 12) KMG Subsidiary Eyes IPO in Autumn 2006 -------------- ¶11. KazMunayGaz Exploration & Production (KMG E&P) hopes to carry out an IPO in the fall, KMG First Vice-President Kulekeyev told reporters. KMG's board of directors recently decided to float shares in the subsidiary. "As regards the stake, up to 40% could be sold, some of them on Kazakhstan's stock market and some abroad," Mr. Kulekeyev said. According to him, an IPO for 40% of KMG E&P could raise more than $2 billion. (Interfax - Kazakhstan, July 12) Russia, Kazakhstan Sign Declaration on Karachaganak Gas -------------- -------------- ¶12. During the G8 Summit in St. Petersburg, Presidents Putin and Nazarbayev signed a mutual declaration on long- term cooperation in the field of refining and the sale of ALMATY 00002681 003.2 OF 003 Karachaganak gas. Putin and Nazarbayev instructed their governments to sign an intergovernmental agreement in 2006 on the creation of a Russian-Kazakhstan joint venture governing the Orenburg Gas Processing Plant (GPP). In early July the GazProm Board of Directors approved the joint venture between GazProm and KazMunayGaz on a "parity" basis. The contract provides for the supply of about 15 billion cubic meters of Karachaganak gas to the Orenburg plant in each of the next 15 years. (Kazakhstan Today - Kazakhstan, July 17) Oil & Gas Statistics, January-June 2006 -------------- ¶13. According to National Statistics Agency, Kazakhstan produced 28.6 million tons of crude oil in January-June, 13% higher than during the same period of 2005. The Republic also produced 2.7 million tons of gas condensate, down 54% year-on-year. National gas production was 12 million cubic meters, or 8.3% less than in the first half year of 2005. (Interfax - Kazakhstan, July 17) ORDWAY