KAZAKHSTAN: ECONOMIC AND ENERGY UPDATE, FEBRUARY 15-28

UNCLAS SECTION 01 OF 03 ASTANA 000416 SIPDIS DEPT FOR SCA/CEN, EEB/ESC PLEASE PASS TO USTDA DAN STEIN E.O. 12958: N/A TAGS: PGOV ECON EFIN EIND ENRG EPET KTDB KZ SUBJECT: KAZAKHSTAN: ECONOMIC AND ENERGY UPDATE, FEBRUARY 15-28 ASTANA 00000416 001.3 OF 003 ¶1. SUMMARY: This information is drawn primarily from the Kazakhstani local press and has not been verified for accuracy. -- Minister Concerned About Manufacturing and Mining -- Inspection Moratorium for Small- and Medium-Sized Enterprises -- Population Census -- Economic Statistics -- Kazakhstan Postpones Energy Projects -- TengizChevrOil Requested to Reduce Sulfur Storage -- Kazakhstan to Build Additional Pipeline Section? -- Energy Ministry Presents Renewable Energy Law END SUMMARY. MINISTER CONCERNED ABOUT MANUFACTURING AND MINING ¶2. Speaking at a Cabinet meeting, Minister of Industry and Trade Vladimir Shkolnik expressed concern that manufacturing and mining have been hit especially hard by the economic crisis. In January 2009, production declined by 12.4 percent. Iron ore extraction fell by almost half, while production of ferrous metals declined by 31.5 percent. As of February 14, 283 enterprises with 141,148 employees had stopped and cut back operations in 2009. ¶3. Shkolnik said Kazakhstan has cancelled export duties on raw aluminum. Kazakhstan exports aluminum to Russia, China and the European Union. The country's sole producer of aluminum is Aluminum of Kazakhstan, a subsidiary of Eurasian Natural Resource Corporation (ENRC). In addition, the government decided to reclassify iron-ore pellets as secondary aluminum products. According to Shkolnik, this change will allow enterprises in that industry to use investment preferences and reduce their tax burden. INSPECTION MORATORIUM FOR SMALL- AND MEDIUM-SIZED ENTERPRISES ¶4. Taking a cue from last year, on February 17, Kazakhstan reintroduced a moratorium on inspections of small and medium enterprises. The moratorium will be effective until July 1. There are a number of exceptions, however. For example, the moratorium will not cover third-party audits and inspections targetting criminal activity, violations of sanitary norms, or subsoil use. POPULATION CENSUS ¶5. Kazakhstan started a population census on February 25. Every citizen participating in the census will be asked to answer more than 40 questions, including those on ethnic identity, religion, income, knowledge of foreign languages, and computer skills. The ;last census was conducted in 1999. ECONOMIC STATISTICS ¶6. In 2008, Kazakhstan's GDP was 15.91 trillion tenge (approximately $106.8 billion at current exchange rates). Real GDP growth was 3.2 percent for the year ¶7. According to the National Statistics Agency, monthly inflation in February was 0.8 percent, while year-on-year inflation was 8.7 percent. In contrast to previous months, prices for non-food products contributed most to inflation with a 1.8 percent increase compared to January 2009. Prices for food products and for services increased by 0.6 percent and by 0.2 percent, respectively. ¶8. According to the National Statistics Agency, the export of ferroalloys fell to 1.447 million tons in 2008, a decline of 4.5 percent compared to the previous year. However, because of price increases, the value of ferroalloy exports reached $2.96 billion in 2008, double the 2007 figure. Exports of flat steel products decreased by 17.7 percent to 2.48 million tons. The value of flat steel exports was $2.07 billion --- 25.8 percent greater than in ¶2007. Aluminum exports grew 360 percent over 2007 to 108,400 tons, reaching $286.7 million in value. Exports of lead decreased 16.4 percent to 90,200 tons. The value of lead exports was $202.9 million -- a 17 percent decrease from 2007. Exports of refined ASTANA 00000416 002.3 OF 003 copper and copper alloys dropped to 355,100 tons, a 2.3 percent decrease, and totaled $2.5 billion. KAZAKHSTAN POSTPONES ENERGY PROJECTS ¶9. Galym Tumabayev, Director of the Information Policy Department at KazMunayGas (KMG) Trading House, said the Atyrau Petrochemical Plant will be launched in 2013, not 2011, as the company had announced last year. Project operator Kazakhstan Petrochemical Industries is 51 percent owned by KMG Exploration and Production, 24.5 percent owned by Kazakhstan's Sat&Co, and 24.5 percent owned by Lyondell Basell Industries. ¶10. At a February 23 Cabinet meeting, Minister of Energy and Mineral Resources Sauat Mynbayev said British Gas Group and Eni asked to postpone the third stage of development of the Karachaganak oil and gas field. This stage was directly tied to the establishment of a new joint venture at Russia's Orenburg Gas Processing Plant and a 15-year contract to purchase Karachaganak gas. ¶11. Mynbayev confirmed that funds allocated for the construction of the Aktau nuclear power plant have been returned to the budget, since legal documents on the transfer of intellectual property from Russia to Kazakhstan have not yet been signed. According to initial plans, the nuclear plant was to be equiped with VBER-300 reactors designed by the Afrikantov Experimental Bureau. On February 26, Igor Shmelyev, Director of the Information Department at the Afrikantov Bureau, told reporters that the Bureau would complete work on VBER-300 regardless of Kazakhstan's participation in the project. TENGIZCHEVROIL REQUESTED TO REDUCE SULFUR STORAGE ¶12. Chevron and TengizChevrOil (TCO) funded a week-long trip to the United States and Canada for leading Kazakhstani reporters to learn about sulfur storage operations. The reporters toured the Keyera gas generation plant in Alberta, which uses sulfur separation technology similar to that implemented by TCO. The Keyera facility has never been fined for open sulfur storage since it began operations in 1971. Representatives of Calgary's Energy Resources Conservation Board and Alberta Sulfur Research Ltd. assured the Kazakhstani reporters that sulfur poses no risk to health, and open storage of sulfur is the most expedient practice regardless of climate. ¶13. On February 26, Nurlan Iskakov, then-Minister of Environmental Protection, told the Senate that TCO should reduce the amount of sulfur stored from the current amount of 8.9 million tons to 1.2 million tons by 2012. On February 23, Energy Minister Mynbayev told the Mazhilis (the lower house of parliament) that the Ministry of Energy and Mineral Resources was negotiating with TCO to remove all sulfur by 2014. The company has pushed for a deadline of 2017. KAZAKHSTAN TO BUILD ADDITIONAL PIPELINE SECTION? ¶14. At a Cabinet meeting on February 26, Mynbayev expressed concern that at some point Russia might decide to levy an export duty on Russian crude oil shipped to the Pavlodar Oil Refinery, which would make its petroleum products more expensive for domestic consumers. He proposed to assess the cost of constructing an additional section of the Kazakhstan-China oil pipeline from Atasu to Pavlodar, in order to bring Kazakhstani oil to Pavlodar. Since the refinery is designed to process Russian crude, it would need to undergo major renovations to refine Kazakhstani crude. ENERGY MINISTRY PRESENTS RENEWABLE ENERGY LAW ¶15. On February 26, Energy Minister Mynbayev presented a draft law on renewable energy to the Committee on Environment and Nature of the Majilis (the lower house of parliament). The Ministry's draft law was criticized for its lack of financial support by the state. Mynbayev argued that power distribution companies should be obliged ASTANA 00000416 003.3 OF 003 by law to buy renewable energy; hence, there is no need for government financial aid. Majilis Deputy Murat Abenov called the draft law "narrowly focused," supporting large power suppliers, but providing no benefits to small businesses that could use renewable energy. HOAGLAND