KAZAKHSTAN: ECONOMIC AND ENERGY UPDATE, JUNE 21-JULY 4

UNCLAS SECTION 01 OF 02 ASTANA 001170 SIPDIS STATE FOR SCA/CEN, EEB/ESC STATE PASS TO USTDA E.O. 12958: N/A TAGS: PGOV ECON EPET EINV EFIN KZ SUBJECT: KAZAKHSTAN: ECONOMIC AND ENERGY UPDATE, JUNE 21-JULY 4 ¶1. SUMMARY: This information is drawn primarily from the Kazakhstani local press and has not been verified for accuracy. -- Banking Sector News -- GE Locomotive Assembly Plant Opened in Astana -- KazMunaiGas Acquires Rompetrol Group -- Kazatomprom Launches Semizbay Mining Project -- KMG E&P Bids on Iraq Oil and Gas Fields -- Kenkiyak-Kumkol Pipeline Completed Ahead Of Schedule BANKING SECTOR NEWS ¶2. According to a June 26 BTA Bank press release, BTA's losses confirmed by the international audit company Ernst and Young for the first five months of 2009 totaled 1.413 trillion tenge ($9.39 billion). (NOTE: The audit incorporated findings from 2008 bank activity which had not been fully accounted for to date. END NOTE.) BTA claims these losses were the result of bad loans made by former management and that despite the losses, the bank has sufficient liquidity to continue normal operations. ¶3. Russian Central Bank Governor Sergey Ignatyev would not specifically comment on the possible purchase of BTA by Russia's Sberbank during a June 26 statement in Moscow. According to Ignatyev, who also chairs the Sberbank Supervisory Board, due diligence on BTA has not yet been completed, but it appears that the big bank still has big problems. ¶4. Kazakhstani press reports that as of June 26, the Chairman of the Managing Board of Samruk-Kazyna National Welfare Fund, Kairat Kelimbetov, has been elected one of four independent directors on the Supervisory Board of Sberbank. Kelimbetov will be responsible for oversight of the bank's reporting procedures and the protection of minor stockholder interests. According to the press, Kelimbetov is the first Kazakhstani citizen elected to serve on Sberbank's Supervisory Board. ¶5. Russian retail bank VTB24 and related investment bank VTB-Capital will be represented in Kazakhstan by its subsidiary JSC VTB-Kazakhstan, serving clients in Almaty as of July 1, 2009. According to a VTB-Kazakhstan press-release, the bank will focus on corporate clients and small and medium enterprises, and hopes to eventually expand operations into other Central Asian countries. ¶6. The Financial Supervision Agency has announced that previous plans to increase minimal capital requirements for commercial banks as of July 1 have been postponed until October 1. According to the new requirements, the minimum capital requirements will be 5 billion tenge (approximately $33.2 million) for Almaty and Astana-based banks, 3 billion tenge (about $19.9 million) for housing and construction savings banks, and 2 billion tenge (about $13.3 million) for regional banks. The FSA says it is also considering establishing additional requirements to encourage the regional expansion of larger banks outside the two largest metropolitan areas. GE LOCOMOTIVE ASSEMBLY PLANT OPENED IN ASTANA ¶7. President Nursultan Nazarbayev hosted the grand opening of the new General Electric locomotive assembly plant located on the outskirts of Astana on July 3. Designed to assemble GE Evolution Series locomotives for Kazakhstan and the surrounding region, the 43,000 square meter plant is scheduled to begin production by the end of 2009. At full capacity, the facility is expected to employ 600 and be capable of assembling 100 locomotives per year. (NOTE: Components for the locomotives will be manufactured in Grove City and Erie, Pennsylvania. END NOTE.) The assembly plant's grand opening immediately follows the May announcement by GE Transportation of a 15-year, $500 million service contract to maintain and enhance the performance of Kazakhstan's current fleet of TE10 locomotives. KAZMUNAIGAS ACQUIRES ROMPETROL GROUP ASTANA 00001170 002 OF 002 ¶8. On June 26, Kazakhstan's national oil and gas company KazMunaiGas (KMG) became the sole owner of Romania's Rompetrol Group NV (TRG) after it completed the acquisition of a 25 percent stake in TRG from Rompetrol Holding SA. "As the largest foreign investor in Romania, KazMunaiGas will continue implementing investment projects related to the Petromidia Refinery Reconstruction Program, operating the Midia marine terminal, and expanding TRG's retail network both in Romania and abroad," said KMG President Kairgeldy Kabyldin. KAZATOMPROM LAUNCHES SEMIZBAY MINING PROJECT ¶9. On July 3, Semizbai-U LLP, a joint venture of Kazakhstan's national nuclear company Kazatomprom and China's Guangdong Nuclear Power Corporation, plans to conduct startup-setup operations at a new mine at the Semizbai uranium field in Akmola oblast. The mine, with a 500-ton annual production capacity, will begin operations by the end of 2009, and reach full capacity by 2012. KMG E&P BIDS ON IRAQ OIL AND GAS FIELDS ¶10. On July 1, KMG subsidiary KMG Exploration and Production (E and P) announced that in the third quarter it would receive geological information about oil and gas fields in Iraq which were put out to tender, analyze opportunities and risks, and decide whether to participate in the bidding process. KMG E and P, along with eight other oil and gas companies, was successfully pre-qualified during the second licensing tender. KENKIYAK-KUMKOL PIPELINE COMPLETED AHEAD OF SCHEDULE ¶11. On July 1, KazStroiService reported the completion of the Kenkiyak-Kumkol oil pipeline ahead of schedule. Test oil was pumped through the line by the Kazakhstan-China Pipeline joint venture of KazTransOil and China National Oil and Gas Exploration and Development Corporation. KazStroiService is the main contractor, and KazTransOil is the pumping operator. HOAGLAND