PRESIDENT NAZARBAYEV URGES FOREIGN COMPANIES TO CONTINUE

UNCLAS SECTION 01 OF 02 ASTANA 001089

SIPDIS

STATE FOR SCA/CEN, EEB/ESC

E.O. 12958: N/A
TAGS: PGOV PREL ECON EINV EPET KZ
SUBJECT: PRESIDENT NAZARBAYEV URGES FOREIGN COMPANIES TO CONTINUE
INVESTING IN KAZAKHSTAN


1. SUMMARY: On June 12, in the provincial northern city of
Kostanai, President Nazarbayev convened the 21st plenary session of
Kazakhstan's Foreign Investors' Council (FIC). Nazarbayev
encouraged foreign companies to continue investing in Kazakhstan's
economy and discussed the country's plan for accelerated industrial
development. He assured foreign investors that Kazakhstan would
continue to adhere to the principles of a market economy and protect
private property rights, but also stressed the importance of the use
of local content in investment projects. The next FIC meeting,
scheduled for December 4 in Astana, will address the involvement of
foreign investors in Kazakhstan's plans for economic diversification
and technological development. END SUMMARY.

21ST FIC PLENARY


2. The Foreign Investors' Council (FIC) is an advisory body
established by presidential decree on June 30, 1998 to promote
direct dialogue between the Government of Kazakhstan and foreign
investors. On June 12, President Nazarbayev chaired the 21st
plenary session of the FIC, which was held in Kostanai. This year's
theme was "Alternative Sources of Financing for the Future Economic
Development of Kazakhstan Under Changing Conditions in the World
Financial Market." Over 170 foreign business executives
representing the world's largest transnational companies --
including ExxonMobil, Chevron, ArcelorMittal, LukOil, Mitsubishi,
Total, Philip Morris, and others -- attended the plenary.

KAZAKHSTAN MAKES PLAN FOR NEXT FIVE YEARS


3. At the FIC plenary, Nazarbayev announced that the first signs of
an improving economic environment were already evident in Kazakhstan
thanks to a government bailout package of more than $19 billion
(approximately 14% of Kazakhstan's GDP). Minister of Economy and
Budget Planning Bakhyt Sultanov echoed Nazarbayev, explaining that
"since the beginning of the year, foreign investment has amounted to
44% of total investment in fixed capital, which was almost twice as
much as the reporting period the previous year." Sultanov
maintained this indicates continued investor trust in the
Kazakhstani government.


4. In 2010, Kazakhstan will officially launch a five-year plan for
accelerated industrial innovation and development. According to
Nazarbayev, if the plan is successful, in ten years, Kazakhstan will
generate $50 billion of value-added in manufacturing, which is
almost 50% of the country's present day GDP. Nazarbayev listed
agriculture, construction, oil refining, metallurgy, chemicals,
pharmaceuticals, power generation, and infrastructure as priority
sectors for development over the next five years. Nazarbayev
estimated that Kazakhstan could immediately mobilize as much as 12%
of its current GDP to facilitate the development plan. He also said
that "trading in national quotas for greenhouse gas emissions within
the Kyoto Protocol may become one of the alternative sources of
financing. This may open new up opportunities in energy-saving
technologies that will allow attraction of up to $1 billion in
investments."

CALLS REPEATED FOR INCREASED LOCAL CONTENT


5. Nazarbayev reiterated Kazakhstan's commitment to developing
local content and increasing the percentage of locally produced
goods and services utilized by foreign companies operating in
Kazakhstan. He reminded participants that this issue was discussed
in detail at the December 2008 FIC meeting in Almaty, and noted some
"positive results that have been achieved recently: mineral
resource companies have signed memoranda with Kazakhstani producers
totaling 330 billion tenge ($2.2 billion) and contracts totaling
over 200 billion tenge ($1.33 billion)." Nazarbayev instructed the
government and the Ministry of Industry and Trade to work closely
with foreign investors and Kazakhstani manufacturers to increase the
supply of domestic goods and services.

NEW INVESTMENT PROJECTS


6. Nazarbayev acknowledged that foreign investors will have to play

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a critical role in achieving the ambitious goal of developing $50
billion in value-added manufacturing in the next ten years. He said
that the Customs Union among Russia, Belarus, and Kazakhstan will
create new opportunities for investment in a unified market that has
over 168 million people and a combined GDP of $2 trillion.
Nazarbayev assured foreign investors that Kazakhstan would continue
to adhere to the principles of a market economy, and protect private
property rights, as guaranteed by the Kazakhstani Constitution and
other laws.


7. "A favorable investment climate in our country allowed many
companies to increase their investments. In the last 8 years,
Kazakhstan received $46 billion in investments," Nazarbayev
reported. He referred to a series of meetings held prior to the FIC
with foreign investors who expressed their interest in various
sectors of economy. "We agreed with Chevron CEO David) O'Reilly to
double the capacity of the Atyrau polyethylene pipe plant, and
construct a new valve plant and shipyard on the Caspian Sea. This
is a very good sign," he added. Nazarbayev also hailed
ArcelorMittal for building a pipe production plant in Aktau, and
Saipem for working with a Kazakhstani investor to construct a
fabrication yard. "The Vice President of Eni has pledged to build a
gas processing plant and gas-fired power plant in Kazakhstan," said
Nazarbayev. He also announced that Kazakhstan's ENRC plans to
construct new ferroalloy facilities. "We are very grateful for
those projects," he concluded.

INVESTORS HOPE GOVERNMENT WILL PLAY POSITIVE ROLE


8. Lukoil President Vagit Alekperov explained at the FIC plenary
that his company's willingness to invest is contingent upon the
legal environment. "We need a stable, but at the same time a
flexible tax system, an active role by the state in the conclusion
of development contracts, and the elimination of bureaucratic
obstacles to the acquisition of Kazakhstani assets by foreign
investors." ExxonMobil Senior Vice President Marc Albers had
similar recommendations saying the "the Government of Kazakhstan has
several ways to help investors, including the simplification of
required procedures for foreign companies to enter the domestic
market in Kazakhstan, as well as the improvement of regulations for
the opening of joint ventures."


9. EBRD President Thomas Mirow acknowledged the difficulties in
attracting investment in the current climate. He, did however,
praise Kazakhstan's willingness to modify its approach to meet the
demands of a changing environment. Eni Vice President Umberto
Virgine reconfirmed his company's readiness to support new sectors
of the economy and create new joint ventures. Expressing his hope
that the new development plan would accelerate Kazakhstan's economic
growth, Chevron Vice President George Kirkland said that
Kazakhstan's reaction to the global economic crisis could serve as
an example to the world community.

NEXT FIC PLENARY SCHEDULED FOR DECEMBER


10. The next plenary session of the FIC is scheduled for December 4
in Astana, and will be devoted to the role of foreign investors in
Kazakhstan's plan for economic diversification and technological
development.

FAGIN