KAZAKHSTAN: ECONOMIC AND ENERGY UPDATE, APRIL 16 - MAY 9

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SUBJECT: KAZAKHSTAN: ECONOMIC AND ENERGY UPDATE, APRIL 16 - MAY 9

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

-- New Refinancing Rate
-- Banking Sector News
-- Government Procurement Legislation Signed
-- Presidents Discuss Customs Union
-- Government to Enhance Control Over Anti-Crisis Money
-- New Grain Terminal in Caspian Region
-- Kazatomprom Agreements and Announcements
-- No Pressure to Meet Local Content Requirements
-- President Signs Law on Caspian Littoral Gas Pipeline
-- KazMunaiGas Cash Deficit

NEW REFINANCING RATE


2. In response to the needs of the financial markets and lower
inflation, the National Bank has announced that the official
refinancing rate will be reduced from 9.5 to 9 percent effective May

12.

BANKING SECTOR NEWS


3. Alliance Bank announced on May 4 that seven international banks
representing more than 60 of Alliance's creditors were to form a
coordinating committee to negotiate a debt restructuring and
recapitalization plan. Creditors have said that they believe the
support of the Samruk-Kazyna National Welfare Fund and the Financial
Supervision Agency, along with a preserved bank management
structure, is vital to the success of these negotiations.


4. Kazakhstan's ATF-UniCredit Bank (ATF) must repay external
creditors over $500 million in May 2009. According to ATF CEO
Alexander Picker, a portion of the debt will be refinanced by
ATF-Unicredit's parent, the UniCredit Group, within the next three
months. Additional liabilities, including $200 million bonds, are
due in the fall of 2009, which ATF expects to repay without external
assistance.


5. Lariba Bank has successfully completed re-registration under a
new name, AsiaCredit Bank. The bank operates in three cities:
Astana, Almaty and Atyrau. According to the Interfax Center of
Economic Analysis, Lariba Bank was ranked 24th among Kazakhstani
banks in the first half of 2008.

GOVERNMENT PROCUREMENT LEGISLATION SIGNED


6. On May 5, President Nazarbayev signed amendments to the Law on
Government Procurement which are designed to improve both
transparency and efficiency in the government procurement process.
The legislation encourages the development of electronic purchases
of goods and services, simplifies and shortens procurement
procedures, and eliminates legal norms seen as potential risks for
corruption.

PRESIDENTS DISCUSS CUSTOMS UNION


7. During a May 4 telephone conversation, President Nazarbayev and
Russian President Medvedev discussed the launch of the proposed
Russia-Belarus-Kazakhstan Customs Union. According to the
presidential press service, the two leaders "confirmed their mutual
aspiration to launch the customs union as soon as possible. They
agreed to establish tight control over solving practical issues
which are aimed at implementing this most important integration
task." Nazarbayev and Medvedev also reportedly agreed to further
coordinate Russia and Kazakhstan's accession to the WTO.

GOVERNMENT TO ENHANCE CONTROL OVER ANTI-CRISIS FUNDS


8. The Accounting Committee and the Financial Supervision Agency
(FSA) signed a Memorandum of Cooperation to jointly monitor the
expenditure of funds designated for the government's program to deal

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with the economic crisis. Joint oversight will include close
monitoring of the financial activities of state-owned corporations,
commercial banks, and other agencies participating in the program.
(NOTE: The Accounting Committee is the lead government agency for
state fiscal control and reports directly to the President. END
NOTE.)

NEW GRAIN TERMINAL IN CASPIAN REGION


9. According to the President of the National Agricultural Credit
Corporation, Askarbek Karazhigitov, Kazakhstan plans to build a
Caspian grain terminal next year that will boost grain exports by
1.5 million tons a year. The project is a part of Kazakhstan's
effort to secure a larger share of the global grain market by
exporting as much as 9 million tons a year. The new $46 million
terminal would connect Kazakhstan's Aktau port with southern export
destinations such as Iran and Afghanistan. Karazhigitov added that
there is also a plan to build a new grain terminal in Iran by the
end of 2009, which is expected to further enhance Kazakhstan's
export capacities by 700,000 tons.

KAZATOMPROM AGREEMENTS AND ANNOUNCEMENTS


10. On April 29, Kazakhstan's national atomic company Kazatomprom
(KAP) signed a long-term 2009-2020 agreement with the China
Guangdong Nuclear Power Company (CGNPC) to supply China with 24,200
tons of uranium from the Irkol field in Kyzylorda oblast and the
Semizbai field in Central Kazakhstan, both of which are operated by
a joint venture of KAP and CGNPC. KAP and CGNPC also signed a
memorandum to establish a new joint venture to construct nuclear
power plants in China.


11. On April 26, the Kyzylkum joint venture of KAP (30 percent
ownership stake),Uranium One (30 percent),and a consortium of
Japanese companies led by the Tokyo Electric Power Company (40
percent),opened the Kharasan-1 mine in Kyzylorda oblast. The mine
has an annual design capacity of 3,000 tons of uranium. Beginning
in 2010, Japan will receive 600 tons of uranium a year. Japan will
also import 1,400 tons of uranium from another project, Baiken-U, a
joint venture between KAP, Toshiba, and the Tokyo Electric Power
Company consortium.


12. On April 25, KAP President Mukhat Dzhakishev told reporters
that the company has postponed construction of a sulfuric acid plant
in Kyzylorda oblast. The plant was expected to have a design
capacity of 500,000 tons per year, which would be supplied to the
Kharasan-1 mine. According to Dzhakishev, the economic crisis has
reduced demand for sulfuric acid and created excess supply on the
market. He said that KAP would resume plans to build the sulfuric
acid plant once demand picks up.

NO PRESSURE TO MEET LOCAL CONTENT REQUIREMENTS


13. In a May 8 interview with newspaper "Liter," Deputy Prime
Minister Serik Akhmetov insisted that no administrative pressure
would be exerted on foreign investors to make them increase the
amount of Kazakhstani content in the procurement of goods and
services. According to Akhmetov, 503 of 901 mineral resource
exploration and development contracts do not contain any clauses on
local content. "No contracts will be unilaterally amended to
mandate greater local content," he said. "The mutual decision to
revise some articles in existing contracts to meet local content
requirements should not be taken as a sign of government pressure,"
he explained.

PRESIDENT SIGNS LAW ON CASPIAN LITTORAL GAS PIPELINE


14. On May 14, Kazakhstan's President Nazarbayev signed a law
ratifying the agreement between the governments of Kazakhstan,
Russia and Turkmenistan to construct the Caspian littoral
(Prikaspiskiy) gas pipeline. Russia, Kazakhstan, and Turkmenistan
signed the agreement in December 2007. It specifies liabilities and

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obligations for the construction of the gas pipeline, which will
carry up to 20 billion cubic meters (bcm) of Turkmen and Kazakhstani
gas to the Kazakhstani-Russian border, including up to 10 bcm of
Turkmen gas and up to 10 bcm of Kazakhstani gas. The project is
designed to increase throughput capacity of the Central Asia Center
(CAC)-III gas pipeline running along the eastern coast of the
Caspian Sea by upgrading the existing pipeline system and building a
new pipeline. These gas transportation systems will be hooked up to
CAC-IV at Beineu in Kazakhstan and Alexandrov Gai, a Russian village
near the border. The total length of the pipeline will be 1600 km,
10 km out of which will be built by Russia and the rest by
Kazakhstan and Turkmenistan in equal portions. On April 9, Gazprom
CEO Alexei Miller met in Astana with President Nazarbayev and said
that the throughput capacity of the pipeline might be increased by
20 bcm to a total of 40 bcm. The Caspian littoral pipeline is an
extension and upgrade of the existing CAC pipeline network, which
handles Kazakhstan's annual exports of approximately 8-10 bcm. The
purpose of the pipeline is not to send additional volumes in a new
direction. This "new" pipeline is not much more than an affirmation
of the status quo, i.e., Kazakhstan will continue to export 8-10 bcm
of gas to Russia annually.

KAZMUNAIGAS CASH DEFICIT


15. On May 3, "Atyraunews.com" reported that national oil company
KazMunaiGas (KMG) lacks the $5-7 billion it needs to fund ongoing
projects and acquire new assets. In February 2008, Minister of
Energy and Mineral Resources Sauat Mynbayev asked the government to
provide $3.8 billion for the Beineu-Bozoy-Akbulak gas pipeline
because KMG did not have the ability to finance the project
independently. "KMG is already shaking because of their intensive
acquisitions of various assets," he said. In January, KMG President
Kairgeldy Kabyldin said that Kazakhstan would need to pay 208
billion tenge ($1.39 billion) to meet its 2009 obligations for the
Kashagan project. The Director of KMG's Information Policy
Department, Galym Tumabayev, said then that KMG would answer this
cash call by drawing on its $3 billion Eurobond issue from June

2008. Other large and expensive projects will need funding,
however. For example, the Kazakhstan Caspian Transportation System
project will cost $1.4 billion just for the Yeskene-Kuryk oil
pipeline and the Kuryk terminal.


16. On April 30, KMG acquired British Petroleum's stake in the
joint venture Kazakhstan Pipeline Ventures (KPV),which held a 1.75%
share in the Caspian Pipeline Consortium (CPC). KMG agreed to pay
$250 million over several installments for BP's share in KPV. KPV
holds the right to ship 5 million tons per year of crude through
CPC, an amount which will increase to 10.5 million tons per year
after CPC's expected expansion.

MILAS