KAZAKHSTAN ECONOMIC AND ENERGY UPDATE, JULY 23 -

UNCLAS SECTION 01 OF 02 ALMATY 002887

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E.O. 12958: N/A
TAGS: ECON EIND ENRG EPET EFIN KZ
SUBJECT: KAZAKHSTAN ECONOMIC AND ENERGY UPDATE, JULY 23 -
August 5, 2006

ALMATY 00002887 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.

-- Vneshtorgbank Targets Kazakhstan's Market
-- KazZhelDorTrans Plans IPO in 2007
-- Economic Statistics
-- EITI Reporting Forms to Be Approved in Kazakhstan
-- Pavlodar Refinery to Produce Euro Standards Petroleum
-- KMG to Participate in "Ventspils Nafta" Privatization
-- Mobilex Receives Sixth Oil Tanker

Vneshtorgbank Targets Kazakhstan's Market
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2. President Nazarbayev met on July 25 with Andrei Kostin,
CEO of Vneshtorgbank, a leading Russian bank. According to
the CEO, the company is seeking large investment project in
various fields, including gas processing and oil refining,
telecommunications, real estate, and power engineering.
Vneshtorgbank is also planning to acquire a Kazakhstani bank
by the end of the year as well as to finance the
construction in Astana of a major commercial development.
(Interfax - Kazakhstan, July 26)

KazZhelDorTrans Plans IPO in 2007
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3. KazZhelDorTrans (KZDT),a freight service subsidiary of
Kazakhstan's national railway company, Kazakhstan Temir
Zholy, plans concurrent initial public offerings (IPO) of
its shares on the London Stock Exchange and the Kazakhstani
Stock Exchange. In July 2006, Standard & Poor's assigned
KZDT its "BB+" long-term corporate credit rating with a
stable outlook. (Interfax - Kazakhstan, August 4)

Economic Statistics
--------------


4. The GOK's mid-term fiscal program, spanning 2007-2009,
outlines a gradual reduction of budget spending from 25% of
the GDP in 2007 to 23.2% in 2009. Spending on law
enforcement, the judiciary, and the penitentiary system will
decrease from 2.3% to 1.7% of the GDP by 2009. The GOK's
spending on utilities will nearly halve from 1.4% of the GDP
in 2007 to 0.8% in 2009. However, social expenditures will
be maintained at approximately the same level, according to
the following 2009 targets: education - 4.1% of the GDP,
healthcare - 3%, and social benefits/welfare - 5.1%.
(Interfax - Kazakhstan, August 1)


5. Kazakhstan's commercial banks earned a profit of KZT
66.9 billion ($566.3 million) in the first six months of
2006, a 90.6% year-on-year increase. According to the
Financial Supervision Agency (FSA),as of July 1, aggregate
equity capital of the banking sector was KZT 770 billion
($6.5 billion),a 31.7% increase from January 1. The
banking sector's total amounted to KZT 5,508 billion ($46.6
billion),a 22% increase from January 1. (Interfax -
Kazakhstan, July 24)


6. FSA reported that the capital accumulated in pension
savings funds (PSFs) stood, as of July 1, at KZT 770.8
billion ($6.5 billion),having grown by 18.8% over the first
six months of 2006. The average weighted nominal return for
the funds amounted, over the period of June 2003 to June
2006, to 23.3%, compared with the 25.6% rate of inflation
for the same period. Currently, 14 pension funds operate in
Kazakhstan. (Interfax - Kazakhstan, July 24)


7. According to an FSA press release, Kazakhstani insurance
companies collected KZT 54.8 billion ($464 million) in
premiums in the first half of 2006, a 75.6% increase over
the same period of 2005. Premiums on mandatory insurance

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coverage comprised KZT 5.7 billion ($48.3 million) or 10.4%
of the total premium volume. Claims paid by insurance
companies totaled KZT 5.5 billion ($46.5 million),a 17.2%
year-on-year increase. (Interfax - Kazakhstan, July 25)

EITI Reporting Forms to Be Approved in Kazakhstan
-------------- --------------


8. The National Council for Implementation of the
Extractive Industry Transparency Initiative (EITI) in
Kazakhstan plans to approve the reporting forms for
extractive companies on August 11-12. Initially, the
Council considered adopting forms pioneered in Azerbaijan,
but the NGO coalition "Oil Revenues - Under Public
Oversight!" proposed forms which would require disaggregated
data. "We want companies to account for not only direct
payments to the budget but also for indirect, including
fines and social transfers," NGO coalition representative in
the National Council Isabekov stated. The first report on
EITI implementation was supposed to be presented in October,
but the date will likely be postponed because of
disagreements over report forms. The National Council is
comprised of representatives from the Energy Ministry, the
NGO coalition, private companies, and members of the
Parliament. (Interfax - Kazakhstan, August 4)

Pavlodar Refinery to Produce Euro Standards Petroleum
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9. The Pavlodar oil refinery will produce more
environmentally-friendly fuels, which comply with the EURO-3
and EURO-4 standards. For that purpose a $40-million
hydrogen-producing installation is being constructed and
will be operational by the end of 2007. The new
installation is being constructed by the American company
"Koch-Glitsch". (Oil Review, August 1)

KMG to Participate in "Ventspils Nafta" Privatization
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10. According to press-service of national oil and gas
company KazMunayGas (KMG),KMG is considering the
possibility of participating in a tender for 38.62% of
shares of Latvian "Ventspils Nafta" (VN). On November 11,
2005 the government of Latvia adopted a decision that 38.62%
of VN shares owned by the state would be sold through the
Riga stock exchange. The tender is expected to take place
before the end of summer. (Oil Review, July 26)

Mobilex Receives Sixth Oil Tanker
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11. On August 1, Vyborg Shipyard (Russia) set afloat the
sixth, and last, 12,000-ton deadweight "Makhambet" tanker
tailored for Kazakhstan's Mobilex Energy. As previously
reported, the first vessels in the set, "Astana" and
"Almaty," were delivered to the customer in the first half
of 2005; the second vessels -- "Kazakhstan" and "Abay" - at
the end of 2005. Currently, the shipyard is preparing the
"Aktau" for transfer to the customer. Mobilex Energy,
established in 2002, is engaged in transportation of
hydrocarbons from the Caspian port of Aktau to Makhachkala
and Baku. It transships 1.2 million of tons of oil monthly.
(Interfax - Kazakhstan, August 2)

ORDWAY