KAZAKHSTAN ECONOMIC AND ENERGY UPDATE, APRIL 29 - MAY 12,

UNCLAS SECTION 01 OF 02 ASTANA 001430 SIPDIS DEPT FOR SCA/CEN (O'MARA) 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, APRIL 29 - MAY 12, 2007 ASTANA 00001430 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. -- "Kazakhgate" Funds to Go to Charity -- Kazakhstan's External Debt on the Rise -- EBRD to Increase Exposure to Kazakhstan -- Labor Minister Comments on Unemployment -- Kazakhstan Considering Trans-Caspian LNG Shipments -- Kazakhstan Views Russia as Main Oil Transit Route -- GazProm CEO Announces Progress in Orenburg Negotiations -- Nazarbayev Links CPC Expansion to Bosporus Bypass "Kazakhgate" Funds to Go to Charity -------------- ¶2. On May 4, a trilateral agreement was reported between the governments of the U.S., Kazakhstan, and Switzerland on $84 million frozen in Swiss bank accounts. The Swiss Foreign Ministry said the cash had been frozen in Switzerland as the result of a corruption case involving an (unspecified) American businessman (widely assumed to be James Giffen) and oil concessions in Kazakhstan. The money will be used to establish a children's foundation named "Bota" (young camel) to provide support to children from low-income families. The World Bank will develop the concept of the foundation with management transparency and efficiency in mind. The Panorama newspaper commented, "most likely the Kazakhstani Government decided to accept this arrangement because a return of this money back to the national budget appeared unfeasible." Television Channel 31 cited the reaction of Ak Zhol's Oraz Zhandosov: "Frankly, I do not like the idea of a non-governmental foundation that will spend the government's money in Kazakhstan. It resembles practices used in the early and mid-1990's, which we stopped in 1998." ("Panorama" newspaper; Television Channel 31, May 11) Kazakhstan's External Debt on the Rise -------------- ¶3. According to Deputy Chairman of the National Bank, Gulbanu Aimanbetova, as of the end of 2006, Kazakhstan's total external debt reached $73.8 billion or 95.6% of GDP, compared to $42.6 billion a year earlier. The increase was mostly due to banking sector borrowing, which grew by $18 billion to reach $33.3 billion by the end of the year. As a result, the banking sector's share of Kazakhstan's external debt rose in 2006 from 35% to 45%, while the share of intracorporate debt fell from 44% to 34%. At the end of the year, the non-financial sector's (intercorporate) debt stood at 16% of the total, and the government's at 4%. (Interfax-Kazakhstan, May 8) EBRD to Increase Exposure to Kazakhstan -------------- ¶4. The European Bank for Reconstruction and Development (EBRD) released information on its planned deals with two Kazakhstani banks. EBRD will arrange a syndicated loan for Kazkommertsbank (KKB) worth $300 million. The loan will consist of two parts, with five- and seven-year terms of maturity. KKB plans to use the raised funds for mortgage lending, as well as diversification of its holdings away from real estate and the energy sector. EBRD also plans to purchase 20% of common shares of KazInvestbank. (Note: KazInvestbank is a commercial bank with a reported capital of $199 million. End note.) This investment aims to facilitate KazInvestbank's expansion in the Central Asian region, development of retail crediting, and financing of small- and medium-sized enterprises. (Interfax-Kazakhstan, May 8) Labor Minister Comments on Unemployment -------------- ¶5. Speaking to the Kazakhstani Parliament on May 7, Labor Minister Gulzhana Karagusova noted the emergence of "chronic" unemployment. She stated that 118,000 unemployed Kazakhstanis have not worked for a decade, 15.9% of the unemployed have not worked for at least three years, and 27% have no skills. She also expressed concern over ASTANA 00001430 002.2 OF 002 "so-called self-employed" people who teeter on the brink of poverty. Last year, the Minister noted, the unemployment rate stood at 7.8%. She added that the government intends to fine-tune its approaches to social protection. (BBC Monitoring Central Asia, May 7) Kazakhstan Considering Trans-Caspian LNG Shipments -------------- -------------- ¶6. On March 4, Deputy Energy Minister Bolat Akchulakov told a visiting European Parliament delegation that Kazakhstan was "very seriously considering gas (LNG) deliveries across the Caspian Sea...rather than building an undersea gas pipeline, as this is the safest means of gas transportation." Akchulakov also noted that the construction of a Trans-Caspian gas pipeline was a "very difficult proposition," given the varying interests of the five littoral states. (Interfax - Kazakhstan, May 7) Kazakhstan Views Russia as Main Oil Transit Route -------------- -------------- ¶7. "Kazakhstan is absolutely committed to shipping most of its oil, if not all of it, through Russian territory," President Nazarbayev announced during a May 10 press conference following a meeting with Russian President Putin. Nazarbayev pointed out of 52.3 million tons of oil Kazakhstan exported "this year," 42 million transited Russia. Nazarbayev suggested that there were clear advantages to transporting Kazakhstani oil and gas through Russia. "The issue," he concluded, is that there be fair and mutually beneficial access." (Kazakhstan - Interfax, May 10) GazProm CEO Announces Progress in Orenburg Negotiations -------------- -------------- ¶8. GazProm CEO Alexei Miller announced on May 10 that GazProm had reached "a very important agreement on the terms of buying Kazakhstan's gas from the Karachaganak field. This is vital for setting up a joint venture on the basis of the Orenburg gas processing plant." Kazakhstan's Energy Minister Izmukhambetov revealed the same day that the agreed price "is higher than 145 dollars per thousand cubic meters." (Interfax - Kazakhstan, May 10) Nazarbayev Links CPC Expansion to Bosporus Bypass -------------- -------------- ¶9. On May 10, following meetings with Russian President Putin, President Nazarbayev announced that the expansion of the Caspian Pipeline Consortium (CPC) pipeline, from 23 to 40 million tons, would be linked with the planned Burgas-Alexandroupolis Bosporus bypass pipeline. "We have agreed to a joint action plan whereby the construction of Burgas-Alexandroupolis and CPC expansion will be concurrent," Nazarbayev said. Putin noted that Kazakhstani oil could comprise "a significant part" of the oil shipped through the Burgas-Alexandroupolis bypass. ORDWAY