Identifier
Created
Classification
Origin
09ASTANA538
2009-03-26 04:50:00
UNCLASSIFIED
Embassy Astana
Cable title:  

KAZAKHSTAN: ECONOMIC AND ENERGY UPDATE, MARCH 1-14, 2009

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TAGS: PGOV ECON EPET EINV KZ

SUBJECT: KAZAKHSTAN: ECONOMIC AND ENERGY UPDATE, MARCH 1-14, 2009

ASTANA 00000538 001.2 OF 003


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SUBJECT: KAZAKHSTAN: ECONOMIC AND ENERGY UPDATE, MARCH 1-14, 2009

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1. SUMMARY: This information is drawn primarily from the
Kazakhstani local press and has not been verified for accuracy.

-- News from the Banking Sector
-- Samruk-Kazyna Updates
-- Unemployment: a Growing Challenge
-- 2009 Harvest Projection
-- Economic Statistics
-- Kazakhstan Seeks Controlling Stake in Trans-Caspian Project
-- Status of Kazakhstan-China Gas Pipeline Project
-- Kazakhstan Returns to Central Asian Power Grid
-- The Atyrau Petrochemical Plant Project
-- New KazMunaiGas Strategy to Sign Contracts
-- Speculation Continues Around MangistauMunaiGas

END SUMMARY.
NEWS FROM THE BANKING SECTOR


2. According to the Deputy Prosecutor General of Kazakhstan,
Rakhimbek Mamyrbaev, former chairman of BTA Bank Mukhtar Ablyazov
and his deputy Zhaksylyk Zharimbetov have been charged with misuse
of funds and embezzlement. They are accused of orchestrating a
money laundering scheme using fake offshore companies. Kazakhstan's
KazTAG news agency reported that both Ablyazov and Zherimbetov were
put on an international wanted list.


3. On March 2, Margulan Seisembayev, Chairman of the Board of
Alliance Bank, said he expected National Welfare Fund Samruk-Kazyna
to complete its takeover of the bank after Alliance secures waivers
from its creditors. He did not specify the timing of the deal. On
March 12, Kazakhstani Stock Exchange (KASE) suspended trading in the
bank's common shares after they declined by more than 50 percent.


4. Kazkommertsbank must repay approximately $1.3 billion in
external debt in 2009, the bank's press office reported. This
includes $250 million due in June, $500 million due in November, and
$300 to be repaid in December 2009.


5. Nurbank named Marat Zairov, former deputy chairman of Halyk
Bank, its new Chairman of the Management Board. Zairov outlined the
new priorities of the bank, which will include expanding its small
and medium enterprise and retail operations. Nurbank is owned by
the oldest daughter of President Nazarbaev, Dariga Nazarbaeva; her
son, 23-year-old Nurali Aliev, is the Chairman of the Board of

Directors of Nurbank.

SAMRUK-KAZYNA UPDATES


6. Bonds issued by National Welfare Fund Samruk-Kazyna with a total
value of 405 billion tenge (approximately $2.7 billion) were listed
on KASE on March 13. They are the first release of Samruk-Kazyna's
bond issue program, totaling 750 billion tenge (about $5 billion).
Local experts say that pension funds and the National Fund could be
the main buyers of the bonds.


7. Samruk-Kazyna plans to obtain export credit lines from Russia's
VneshEconomBank and China's Export-Import Bank. According to
Samruk-Kazyna's CEO Kayrat Kelimbetov, these funds will be used to
implement investment projects in Kazakhstan, such as the
construction of a bitumen plant, a sodium hydroxide production plant
and a petrochemical complex.

UNEMPLOYMENT: A GROWING CHALLENGE


8. According to Deputy Minister of Labor and Social Protection
Serik Abdenov, about 1,049 jobs will be cut in "the nearest future"
in Kazakhstan. He said that in January 2009 unemployment grew by
0.3 percent, and the total number of jobless people was 580,000.
According to official information provided by the State Statistics
Agency, the unemployment rate was 6.9 percent in January 2009.


ASTANA 00000538 002.2 OF 003



9. In his annual address, President Nazarbayev issued an order to
allocate 8.6 billion tenge (approximately $57 million) from the
state budget to create jobs in social services and support
employment of youth.

2009 HARVEST PROJECTION


10. The Ministry of Agriculture forecasts the 2009 grain harvest to
be at least 10 percent higher than last year. In 2008, Kazakhstan
harvested 17.2 million tons of grain.

ECONOMIC STATISTICS


11. In 2008, JSC Food Corporation reported a net profit of 1,516
million tenge (about $10.1 million),a 150% growth compared to 2007,
when it earned 595 million tenge (approximately $3.96 million) in

2007. Food Corporation is a subsidiary of National Holding Company
"KazAgro" and specializes in grain trading and storage.


12. According to the State Statistics Agency, Kazakhstan's trade
surplus declined 3.6 times over last year, from $2.9 billion in
January 2008 to $0.8 billion in January 2009. Total foreign trade
was $4.4 billion, a decline of 41.6 percent compared to January

2008. Exports fell to $2.6 billion, or 50.5 percent less than in
January 2008; imports decreased 21.4 percent compared to January
2008 to $1.8 billion. In January 2009, the main destinations for
Kazakhstan's exports were Italy, China, Russia; its largest import
partners were Russia, China, and Ukraine.

KAZAKHSTAN SEEKS CONTROLING STAKE IN TRANS-CASPIAN PROJECT


13. Commenting on the Kazakhstan Caspian Transportation System
(KCTS) on March 10, Minister of Energy and Mineral Resources Sauat
Mynbayev said that Kazakhstan "will not approach this pipeline,
formally or informally, unless we own at least 51 percent." He
added that the Kashagan consortium and Chevron, representing
Tengizchevroil, "put up a united front," but "we will not give up a
controlling stake." In an interview with Russian Nezavisimaya
Gazeta on March 11, Alexander Shtock, Director of Due Diligence for
the business consulting firm 2K Audit, speculated that "as long as
Kazakhstan has other transportation options, Astana can impose tough
requirements on its KCTS partners. If Chevron does not compromise,
then the Trans-Caspian project might be put on hold. Russia, on the
other hand, would also have to hurry up, as the Trans-Caspian
project might slow down the expansion of the Caspian Pipeline
Consortium (CPC) pipeline."


14. On March 5, Russian media reported that Kazakhstan's national
oil and gas company KazMunayGas (KMG) established a subsidiary
called KMG-TransCaspiy, which will manage the KCTS project. Mukhit
Mazhenov, former Deputy General Director of KazTransOil, KMG's oil
transportation subsidiary, was appointed General Director of
KMG-TransCaspiy. Another former Deputy, Bulat Zakirov, was named
Deputy General Director of the new company.

STATUS OF KAZAKHSTAN-CHINA GAS PIPELINE PROJECT


15. On March 5, Beimbet Shayakhmetov, General Director of the Asian
Gas Pipeline Company (which is owned by KMG's gas transportation
subsidiary KazTransGas and Trans-Asia Gas Pipeline Ltd, an affiliate
of the China National Petroleum Corporation),said that $2.5 billion
of a projected total of $7.5 billion has already been invested in
the construction of the 1,300-km Kazakhstan-China gas pipeline. The
gas pipeline is part of the Turkmenistan-Uzbekistan-Kazakhstan-China
pipeline project. The first segment of the pipeline, which will
begin at Turkmenistan's gas deposits developed by CNPC, is expected
to be built by 2010 and will carry 3.5 billion cubic meters (bcm) of
Turkmen gas. After the Chinese contractor builds the first of five
gas compressors in the Kulan village of the Zhambyl oblast, the
throughput capacity of the gas pipeline will reach 7.5 bcm a year.
The construction of four additional gas compressors by 2012 will

ASTANA 00000538 003.2 OF 003


bring total annual capacity to 30 bcm.

KAZAKHSTAN RETURNS TO CENTRAL ASIAN POWER GRID


16. The Kazakhstan Electric Grid Operating Company (KEGOC) resumed
its operations in parallel with the United Power System of Central
Asia (UPS) on March 13. The power company withdrew from the grid on
February 26 due to an imbalance between electricity generation and
consumption among participating Central Asian countries.

THE ATYRAU PETROCHEMICAL PLANT PROJECT


17. On February 27, Visor Capital, a local investment company,
announced that it had acted as a broker on behalf of an unnamed
third party to acquire a 50 percent stake in Kazakhstan
Petrochemical Industries (KPI),the project operator of the planned
Atyrau Petrochemical Plant. Visor Capital and KMG Exploration
Production, a KMG subsidiary which owns 51 percent of KPI, declined
comment on the change in KPI's ownership structure. (NOTE: Prior
to the transaction, the remaining 49 percent was owned by Sat&Co and
Lyondell Basell Industries. END NOTE.) At a March 3 Cabinet
meeting, Minister of Energy and Mineral Resources Sauat Mynbayev
said Indian or other investors would participate in the project
instead of Lyondell, which allegedly withdrew from the project.
However, in a March 10 press release, Lyondell's president Just
Jansz confirmed the company's "continued commitment and ongoing
support to the KPI project." (NOTE: On March 20, Managing Director
for Oil and Gas at Samruk-Kazyna Bolat Akchulakov confirmed that
Lyondell will participate in the Atyrau Petrochemical Plant project,
which is to be funded with equity (40 percent),and a syndicated
loan (60 percent). END NOTE.)

NEW KAZMUNAYGAS STRATEGY FOR OFFSHORE CONTRACTS


18. Sunkar newspaper speculated on the new strategy of "official
Astana" and KMG when choosing foreign partners. According to the
newspaper, the new strategy will limit the number of offshore blocks
offered to foreign partners to only one (blocks would no longer be
combined under one exploration license). The government will sign
contracts for the exploration of blocks located near the Kalamkas
Sea oil deposit (e.g. Abay and Satpayev blocks). Moreover, the
newspaper claimed that under the new strategy, Kazakhstan sought
Central and Eastern European assets from StatoilHydro in exchange
for the Abai offshore block. Kazakhstan also reportedly stipulated
in new contracts with ConocoPhillips (N Block),the Korean National
Oil Corporation (Zhambyl block),and India's Oil and Natural Gas
Corporation (Satpayev block) that these companies must participate
in Kazakhstan's petrochemical projects.

SPECULATION CONTINUES AROUND MANGISTAUMUNAYGAS


19. A RusEnergy article predicted that by the end of March, India's
Oil and Natural Gas Corporation (ONGC) would acquire the remaining
stake in MangistauMunayGas (MMG). The article claimed that Indian
participation "would secure a balance within Kazakhstan's oil
sector, currently dominated by U.S. and Chinese companies."
Referring to an unknown source, RusEnergy suggests that MMG would be
bought under a payment scheme similar to that used by CNPC to
acquire the Shymkent oil refinery. The author speculated that ONGC
would buy 100 percent of MMG and transfer a controlling stake back
to KMG, which, in turn, would reimburse ONGC out of future revenues.
ONGC reportedly agreed, provided it gets a stake in the Satpayev
block. (NOTE: During the January 23-26 visit of President
Nursultan Nazarbayev to India, KMG and ONGC signed an agreement to
explore the Satpayev block. END NOTE.)

MILAS