KAZAKHSTAN ECONOMIC AND ENERGY UPDATE, October 26 -

UNCLAS SECTION 01 OF 03 ASTANA 002283 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 KTDB KZ SUBJECT: KAZAKHSTAN ECONOMIC AND ENERGY UPDATE, October 26 - November 8, 2008 ASTANA 00002283 001.2 OF 003 ¶1. Summary: This information is drawn primarily from the Kazakhstani local press and has not been verified for accuracy. -- State to Purchase Shares of Top Banks -- ArcelorMittal-Temirtau: Mandatory Leave Rescinded -- Will Democrats Grant Rapid Accession to the WTO? -- New Flight From Almaty to Bishkek -- Kazakhstani Business Association Writes to Michael Jackson -- Economic Statistics -- Energy Ministry Suggests Crude Export Duty Revision -- Tengiz Crude Pumped Through Baku-Tbilisi-Ceyhan -- KazMunayGas Still Interested in Buying Oil Fields in Russia -- China's Interest in MangistauMunayGas -- Kazakhmys Calls On Government To Buy Ekibastuz GRES-1 -- Kazatomprom News -- Gazprom to Open An Office in Kazakhstan -- New President of KEGOC Appointed STATE TO PURCHASE SHARES OF TOP BANKS ¶2. The Government of Kazakhstan has made offers to the four largest Kazakhstani banks - Alliance Bank, Bank Turan Alem (BTA),Halyk Bank, and KazKommertsBank - to inject additional capital into their reserves as a result of the continuing global financial crisis. According to the Prime Minister, the total injection will amount to no more than $5 billion, and following the issuance of additional common and preferred shares, the Kazakhstani Government as represented by the Sovereign Wealth Fund "Samruk-Kazyna" will own 25% of each of these four banks. Masimov emphasized that the government does not plan to be a long-term stockholder and anticipates selling its shares of the banks' capital within the next 3-5 years. ARCELORMITTAL-TEMIRTAU: MANDATORY LEAVE RESCINDED ¶3. ArcelorMittal-Temirtau signed a Memorandum of Mutual Cooperation with the Ministry of Industry and Trade, the Akimat (local government) of the Karaganda region, and the Sovereign Wealth Fund "Samruk-Kazyna" which allows the company to find jobs for the 4200 employees who were sent on mandatory leave in September. According to the memorandum, the entire group will return to work starting November 1, 2008 as part of the new conglomerate's plans to produce 5,500-6,000 tons of iron per day, as well as approximately 900,000 tons of coal monthly. Several additional projects are scheduled to begin immediately, including reconstruction of the gas treatment system for the oxygen-converter plant, as well as reconstruction and modernization of several heating power plants. WILL DEMOCRATS GRANT RAPID ACCESSION TO THE WTO? ¶4. Local Kazakhstani newspaper Liter speculates that Astana is expecting serious changes from the newly-elected Obama administration, especially with regard to Kazakhstan's accession to the World Trade Organization (WTO). According to Liter, the WTO negotiation process will advance beyond the current "dead point," thanks to the new Democratic leadership, which the paper speculates willhave a more flexible approach to negotiations. NEW FLIGHT FROM ALMATY TO BISHKEK ¶5. Air Astana has launched a new flight from Almaty to Bishkek. Roundtrip flights will be flown four times a week (on Mondays, Wednesdays, Thursdays and Sundays) and prices for the 55-minute flight will vary from 14,600 KZT (approximately $121.60) for a one-way ticket to 25,400 KZT (about $211.60) for a roundtrip fare. KAZAKHSTANI BUSINESS ASSOCIATION WRITES TO MICHAEL JACKSON ¶6. President of the Karaganda-based Central Kazakhstan Association of Entrepreneurs Talgat Doskenov wrote a letter to singer Michael Jackson, inquiring about the possible receipt of royalty payments from the Kazakhstani Ministry of Justice (MOJ). According to Doskenov's organization, representatives of the MOJ regularly collect money from local businessmen who publicly play Jackson's ASTANA 00002283 002.2 OF 003 songs in cafes and restaurants in a reported attempt to enforce intellectual property rights. Doskenov believes that neither Jackson, nor his representatives ever receive these royalties from Kazakhstani officials. He concludes in his letter that the official protection of intellectual is a good thing, but that in this case, it has became "absurd". ECONOMIC STATISTICS ¶7. According to the Kazakhstan Statistic Agency, the inflation rate was 13.9% year-on-year in October. Food prices contributed the most to this growth, with a 16.9% year-on-year rate. Service prices grew 13.5%, and non-food goods increased by 9.7% year-on-year only. The inflation rate for the period from December 2007 to October 2008 was 8.8%. According to experts at the Statistics Agency, inflation rates may be between 11% and 12% by the end of this year. ¶8. As of October 31, the total international reserves of the country (in current prices),including the $26.3 billion National Fund, was $47.35 billion, marking a 4.4% decrease over the previous month. KAZMUNAYGAS STILL INTERESTED IN BUYING OIL FIELDS IN RUSSIA ¶9. According to Dastan Abdulgafarov, business development manager of KazMunayGas Exploration and Production, the company plans to resume negotiations with TNK-BP to buy oil fields in Orenburg, Nizhnevartovsk, and Uvatsk regions of Russia. (NOTE: KazMunayGas owns 42% of the Pavlodar Petrochemical Plant, but seeks to buy the remaining 58%. The plant is specifically designed to process crude from Russia. END NOTE.) CHINA'S INTEREST IN MANGISTAYMUNAYGAS ¶10. On November 3, Megapolis published an interview with Mukhtar Umbetov, a leader of the "Aktau" trade union in Mangistau oblast, about the acquisition of MangistauMunayGaz (MMG) by national oil and gas company KazMunayGaz (KMG). Umbetov believes that the transaction has been delayed in order to increase the price for a 51% stake in MMG from $2.0-2.5 billion to $4.5-5.0 billion, so that the "latent" owners of MMG (allegedly, high-placed Kazakhstani officials) would get more money from the sale. He also alleged that the funds for the purchase would come from a $5 billion transfer from the National Fund as a part of a $15-billion bailout plan of the Kazakhstani President. Umbetov speculated that the remaining 49% would be sold to a Chinese company. KAZAKHMYS CALLS ON GOVERNMENT TO BUY EKIBASTUZ GRES-1 ¶11. According to the November 6 issue of "Capital" business weekly, Kazakhstan's biggest copper producer Kazakhmys called on the national power company Samruk-Energo to expedite the acquisition of its hydropower distributing plant Ekibastuz GRES-1 and the Maikuben West open coal mine. Kazakhmys claims it has no funds to repay a loan to finance a $1.5-billion purchase of these assets from AES Corporation in March. In October, Samruk-Energo and Kazakhmys signed a memorandum for conducting an audit of these assets within six months in order to complete the acquisition within one year. KAZATOMPROM NEWS ¶12. At a November 6 press conference, the president of Kazakhstan's national nuclear company Kazatomprom (KAP) Mukhtar Dzhakishev announced plans to help China's Guandong Nuclear Power Group and China's National Nuclear Corporation to build nuclear power plants in China. He also noted that KAP might borrow up to $1.5 billion for these projects from its parent company, the Samruk-Kazyna National Welfare Fund. According to Dzhakishev, KAP has lowered its projected output for uranium production from 9,000 to 8,700 tons in 2008 and from 12,000 tons to 11,000 tons in 2009. GAZPROM TO OPEN AN OFFICE IN KAZAKHSTAN ¶13. The Board of Directors of Russia's Gazprom voted to open a representative office in Kazakhstan. (NOTE: In August, Gazprom announced plans to purchase gas stations in Kazakhstan to supply its ASTANA 00002283 003.2 OF 003 petroleum products. Gazprom also expressed interest in buying a 49% stake in MangistauMunayGaz, but was turned down by KazMunayGas. END NOTE.) NEW PRESIDENT OF KEGOC APPOINTED ¶14. The "Interfax" wire service reported on October 28 that the ex-chair of the managing board of State Asset Holding Company "Samruk" Kanat Bozumbayev was named president of the Kazakhstan Electricity Grid Operating Company (KEGOC). (NOTE: Bozumbayev was previously president of KEGOC from May 2001 to August 2007. END NOTE). 1