KAZAKHSTAN: ECONOMIC AND ENERGY UPDATE, FEBRUARY 15-28

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SUBJECT: KAZAKHSTAN: ECONOMIC AND ENERGY UPDATE, FEBRUARY 15-28

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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

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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

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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