KAZAKHSTAN: INVESTMENT CLIMATE STATEMENT 2010

UNCLAS SECTION 01 OF 27 ASTANA 000044



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SUBJECT: KAZAKHSTAN: INVESTMENT CLIMATE STATEMENT 2010



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REFTEL: 09 SECSTATE 124006



1. The following is Post's submission for the 2010 Investment

Climate Statement for Kazakhstan.



A.1. Openness to Foreign Investment



Kazakhstan has made significant progress toward creating a market

economy since gaining independence in 1991. The European Union in

2000 and the U.S. Department of Commerce in March 2002 recognized

the success of Kazakhstan's reforms by granting it market-economy

status. Kazakhstan also has attracted significant foreign

investment since independence. By July 2009, foreign investors had

invested a total of $97.6 billion in Kazakhstan, primarily in the

oil and gas sector. In 2008, during a severe economic crisis,

Kazakhstan still managed to attract $20.1 billion in foreign direct

investment.



Despite continuously increasing investment in Kazakhstan's energy

sector, concerns remain about the government's tendency to challenge

contractual rights, legislate preferences for domestic companies,

and create mechanisms for government intervention in foreign

companies' operations, particularly procurement decisions. Together

with vague and contradictory legal provisions that are often

arbitrarily and inconsistently enforced, these negative tendencies

feed a perception that Kazakhstan is less than fully open to

investment.



Four major acts of legislation affect foreign investment in

Kazakhstan. These are: 1) the 2003 law "On Investment"; 2) the 2003

Customs Code and the Customs Code of the Customs Union, expected to

be approved by July 2010; 3) the 2007 law "On Government

Procurement," with 2008 amendments; and 4) the 2008 Tax Code. These

four laws provide for non-expropriation; currency convertibility;

guarantees of legal stability; transparent government procurement;

and incentives in certain priority sectors. However, inconsistent

implementation of these laws and regulations at all levels of the

government remains a significant obstacle to business in Kazakhstan.





The government's Program on Accelerated Industrial Development,

which is expected to be approved early in 2010, will also play a key

role in determining the country's investment priorities. Beginning

in 2010, Kazakhstan will move to a five-year investment planning

schedule, which will be the country's first long-term economic

development plan.



In public procurement, the government has enacted regulations that

give preference to local suppliers. For example, amendments passed

in 1999 to the Petroleum Law require mining and oil companies to use

local goods and services. According to these "local content"

regulations, subsurface users in Kazakhstan are obligated to

purchase goods and services from Kazakhstan entities -- provided

that the local goods meet minimum project standards -- and to give

preference to the employment of local personnel. Prospective

subsurface users are required to specify in their tenders the

anticipated local content of their work, goods, and services (see

Section A.5. Performance Requirement/Incentives). Current

procurement regulations include three sets of rules -- 2007

Subsurface Procurement, State Procurement, and 2009 Samruk

Procurement -- that presuppose a nominal reduction of bid price by

Kazakhstani producers of 20%, 10%, and 10%, respectively. In

essence, this assumption makes local products more cost competitive.

However, since existing subsurface laws and procurement rules use

different definitions of local producers and local content, the

legal basis for applying the local content criteria, in practice, is

unclear and hence subject to interpretation by state and local

authorities. A draft Subsurface Law, which would replace the 1995

Petroleum Law and the 1996 Subsurface Law, is expected to address

these discrepancies and unify the definitions of local content.



October 2007 amendments to the existing Subsurface Law allow the



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government to impose amendments to existing subsoil contracts of

"strategic significance" or even to terminate contracts deemed to

threaten Kazakhstan's economic security or national interests. An

August 2009 government decree lists more than 100 oil and gas

fields, including Tengiz, Kashagan, and Karachaganak, as subsoil

fields with "strategic significance." The government, therefore,

can initiate changes to existing contracts if it determines that the

actions of a subsoil user could lead to a substantial change in

Kazakhstan's economic interests, or threaten Kazakhstan's national

security.



The draft Subsurface Law has been pending in Parliament since

October 2008. The new law, expected to be adopted early in 2010,

requires separate contracts for exploration and production

operations, puts shorter time limits on exploration contracts,

enhances the government's authority to terminate contracts not in

compliance with the law, and requires tax stability clauses in

individual contracts to be approved by parliament. In addition,

under the terms of the legislation, no future contracts would be

structured as production-sharing agreements (PSAs),companies must

establish equal terms, conditions, and pay for Kazakhstani and

foreign workers, and the government would evaluate subsoil resource

bids based on promised social contributions.



Tax experts consider Kazakhstan's tax laws to be among the most

comprehensive in the former Soviet Union. In January 2009,

Kazakhstan adopted a new Tax Code that lowered corporate-income and

value-added taxes, replaced royalty payments with a

mineral-extraction tax, and introduced excess-profits and rent taxes

on the export of crude oil and natural gas. Subsurface users are

also subject to a signature bonus, commercial-discovery bonus, and

historical cost reimbursement. Business associations and investment

advisors were concerned that the new code would undermine

tax-stability clauses in existing and future contracts. The

government subsequently issued a statement that it would guarantee

tax stability only for existing production-sharing agreements (PSAs)

and for one major hydrocarbon project with a tax and royalty

contract (Tengiz) if parliament legislatively rarifies the

contracts.



The new Tax Code applies taxes universally and allows only a limited

set of exemptions. The code applies an international model of

taxation, based on the principles of equity, economic neutrality,

and simplicity. According to resident experts, this code is an

improvement over its predecessor and a step forward in establishing

a transparent and effective tax system, particularly for the

non-extractive sectors.



On January 1, 2009, the government lowered the corporate income tax

rate from 30% to 20%. In 2010, the rate will remain the same (20%),

although a gradual decrease to 17.5% and 15% in subsequent years is

very possible. The value-added tax (VAT) has been reduced gradually

over the past several years from 16% in 2006 to 12% in 2009, where

it will likely remain in 2010. The social tax imposed on employees'

earnings has a flat rate of 11%. The personal income tax rate for

residents is 10%. Depending on the type of income, non-residents

working in Kazakhstan are responsible for payment of income tax at

rates between 5% and 15%.



In 2008, Kazakhstan introduced, adjusted, and ultimately zeroed out

a customs duty on crude oil and gas condensate exports due to low

world oil prices. Each quarter after the Prime Minister signed the

April 2008 decree, the Ministry of Finance reviewed the customs duty

rate in light of average global Brent crude prices and adjusted the

amount of the tariff according to a published formula. On January

26, 2009, the government introduced a zero rate for the customs

duty. However, should oil prices rise, the government retains the

right to re-introduce the customs duty. Companies paying the rent

tax are exempted from the customs duty.



In addition to concerns about tax stability, contract sanctity, and

tender transparency, companies in the oil and gas industry have



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reported a number of other business difficulties, including delays

in obtaining work permits for expatriate employees, alleged

environmental violations followed by large fines, inconsistent

enforcement of a Kazakh-language law, and unexpected customs delays

and documentation.



In January 2003, President Nazarbayev signed the law "On

Investments" that superseded and consolidated past legislation

governing foreign investment. The law establishes a single

investment regime for domestic and foreign investors and provides,

inter alia, guarantees of national treatment and non-discrimination

for foreign investors. It guarantees the stability of existing

contracts, with the qualification that new contracts will be subject

to amendments in domestic legislation, certain provisions of

international treaties, and domestic laws dealing with "national and

ecological security, health and ethics."



An issue of serious concern for foreign investors is the absence of

an international arbitration provision in the draft Subsurface Law.

The 2003 Investment Law provides for dispute settlement through

negotiation, Kazakhstan's judicial process, and international

arbitration. However, if the new Subsurface Law does not include

such a clause, the state may choose during pre-contract negotiations

not to include the provision in the contract. The Investment Law

narrows the definition of investment disputes and lacks clear

mechanisms for access to international arbitration. U.S. investors

should note that the U.S.-Kazakhstan Bilateral Investment Treaty, as

well as the New York Convention, protects U.S.-investor access to

international arbitration. Additionally, the Kazakhstani

Constitution, as well as the 2003 Investment Law, specifies that

ratified international agreements have precedence over domestic law.

In December 2004, Kazakhstan adopted a law "On International

Commercial Arbitration" (see "Dispute Settlement" for full

discussion).



The 2003 Investment Law currently contains incentives and

preferences based on government-determined sectoral priorities, and

provides for investment tax preferences, customs duties exemptions,

and in-kind grants. According to provisions of the new Tax Code and

2009 amendments to the Investment Law, preferences on corporate

income tax for Kazakhstani residents replace investment tax

preferences, such as 10-year corporate income tax exemptions and

exemptions from land and corporate property taxes. However,

preferences for some priority sectors in the form of custom duties

exemptions and in-kind grants will remain. (Customs duties

exemptions are limited to equipment that is destined for use in

production processes exclusively in Kazakhstan and to imported

equipment/components if Kazakhstani-produced stocks are not

available or do not meet international standards).



In 2001, Kazakhstan adopted transfer-pricing legislation, which

gives tax and customs officials the authority to monitor

export-import transactions in order to prevent the understatement of

earnings through manipulation of export prices. Foreign investors

have expressed concern that the government specifically rejected the

use of OECD standards for determining a proper market price under

its transfer-pricing legislation, creating instead a methodology

that fails to fully account for all cost and quality differences.

The government holds that transfer-pricing can take place even in

transactions between unrelated parties, because the practice, until

recently, was defined by transaction prices that differ from market

prices by as much as 10%. Kazakhstan's deviation from international

methodology on this issue complicates the ability of firms to obtain

relief under double taxation treaties. This remains a contentious

issue with investors. A new law on transfer pricing that came into

force on January 1, 2009, is designed to allow for improved control

of transfer pricing by applying the commonly accepted "arm's length

principle." Foreign investors concede that the new law is more

closely aligned with international standards, but are concerned that

the law will be applied not only to transactions with related

parties, but to all international transactions. The Embassy is not

aware of any cases involving the inappropriate application of



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transfer-pricing legislation in 2009.



Although Kazakhstani law holds that no sectors of the economy are

fully closed to investors, there are sectoral limitations,

specifically a 20% ceiling on foreign ownership of media outlets and

a 49% restriction on foreign ownership in the telecommunications

sector and in new oil exploration and production projects. However,

a December 2005 law lifted restrictions on the participation of

foreign capital in the banking sector. A ban on foreign bank and

insurance company branches remains in force. February 2006

amendments to the Law on Insurance have eliminated participation

restrictions for foreign legal entities in insurance and

re-insurance organizations in Kazakhstan.



Restrictions also exist on foreign ownership of land in Kazakhstan.

See below (A.6 "Right to Private Ownership and Establishment").



The draft Subsurface Law reiterates the state's right of first

refusal on the purchase of shares in new exploration and production

projects in the extractive industries. In 2005, the government

broadened its claim of priority purchase rights to include shares of

companies that have invested in the oil and gas sector. The same

amendments allow the government to block the sale of oil and gas

assets in the interest of "national security." Additional

amendments to the current Subsurface Law, signed in December 2008,

also assign the government the right to exclude selected companies

from participating in oil and gas investment program tenders in the

interests of "national security." Article 71 of the current

Subsurface Law gives the state the right of first refusal on any

equity transactions involving subsurface user rights for oil and gas

or mining operations. According to the draft Subsurface Law, the

preemptive right now applies to any kind of transaction. The draft

Subsurface Law includes a preemption clause that guarantees the

state the right of first refusal when a party seeks to sell any part

of its stake in a mineral-resource extraction project. The state

claims this preeminent right even in cases where the controlling

agreement assigns preemptive rights elsewhere (e.g., to other

investors in a consortium). However, the draft Subsurface Law

offers more transparent procedures for the state and companies to

exercise subsoil rights and provides a clear definition of cases in

which the state can exercise its priority right. In practice,

investors may find that a joint venture with a well-connected local

partner is advantageous to navigate the legal and political

complexities of operating in Kazakhstan.



Foreign firms operating in Kazakhstan frequently report harassment

by the Financial Police via unannounced audits, inspections, and

other methods. One company reported a request from the Financial

Police for confidential information on employees, with no apparent

connection to an ongoing investigation.



Uneven, and sometimes blatantly unfair, application of tax laws is

particularly egregious when a company is involved in another,

unrelated dispute with authorities. Foreign investors also have

complained about irregular application of other laws and

regulations. In some cases, investors have interpreted regulatory

pressure as an effort to extract bribes. Investors should not

assume that their agreement to a settlement with tax authorities

following an investigation or civil case will prevent the pursuit of

charges under criminal provisions. At times, the authorities have

used criminal charges in civil disputes as a pressure tactic.



By law and in practice, foreign investors can participate in

privatization projects. Following an investment, no discrimination

against foreign investors is apparent. However, many foreign

companies cite the need to protect their investments from a

near-constant barrage of decrees and legislative changes, most of

which do not "grandfather" existing investments. In addition to

arbitrary tax inspections, foreign investors' complaints include

problems with closure of contracts, delays and irregular practices

in licensing, and land fees. Some foreign firms have expressed

concern about the failure of government organizations to fulfill



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their contractual obligations, particularly regarding payment, which

can prevent the foreign partner from advancing its investment

program. The investor then is exposed to government charges of

non-performance and the real possibility that the government will

cancel the contract.



Foreign workers must have a work permit to work legally in

Kazakhstan. Obtaining these work permits can be difficult and

expensive. The government cites the need to boost local employment

by limiting the issuance of work permits to foreigners. U.S.

companies should consult legal firms for assistance (see A.5 for

details) in obtaining work permits. The work-permit quota system is

based on the 1998 Law on Employment of the Population. Under this

system, the government limits the number of work permits available

to foreigners based on the area of specialization and geographic

region.



In December 2007, Kazakhstan adopted new regulations on foreign

labor that the Ministry of Labor and Social Protection claims

simplify the issuance of work permits to foreigners. The Ministry

also, however, placed additional requirements on employers to

support the domestic labor market. According to the new

regulations, permits for foreign labor are issued only in the event

that suitable candidates cannot be found in country, which is

subject to verification and assessment by Kazakhstani labor

authorities. Those foreign employers that do receive permits for

foreign laborers are expected to meet specific terms of agreement

that include training Kazakhstani citizens to eventually fill

positions held by foreigners, the gradual overall replacement of

foreign labor with Kazakhstani citizens, and the creation of new

jobs for domestic workers in the event of an increase in production

volumes. The scale of these individualized terms is directly

proportional to the number of foreign workers hired. Kazakhstani

labor authorities are expected to complete their review of work

permit applications for foreigners within 20 days. If awarded,

employers must provide authorities with documents within 10 days,

guaranteeing the prompt departure of foreigners after the expiration

of their permits. From 2003-2008, the quota steadily increased from

0.14% to 1.6%. However, because of the current economic crisis, the

government reduced by half the quota for foreign labor. The 2009

quota of 0.75% of the active labor force will remain in force for

2010.



Index Ranking Year

Heritage Economic Freedom 60.1/83 2009

World Bank Doing Business

Ease of Doing Business 63 2008-2009



A.2. Conversion and Transfer Policies



In 1996, Kazakhstan adopted Article 8 of the IMF Articles of

Agreement, which stipulates that current account transactions, such

as currency conversions or the repatriation of investment profits,

will not be restricted. In 1999, the government and National Bank of

Kazakhstan announced that the national currency would be allowed to

float freely at market rates, thus abolishing the previous managed

exchange-rate system. After the tenge devaluation on February 4,

2009, the National Bank returned to the managed-float exchange-rate

regime and maintained throughout 2009 the tenge exchange rate in the

corridor 150 tenge/per U.S. dollar plus/minus 3% (please see section

A.9. "Efficient Capital Markets and Portfolio Investments").



No distinction is made between residents and non-residents when

opening bank accounts. There are no restrictions whereby different

types of bank accounts are required for investment or import/export

activities. For non-residents, money transfers in currency

associated with foreign investments, whether inside or outside of

the country, can take place without restriction. The National Bank

permits non-residents to pay wages in foreign currency (the article

16 of the law on Currency Regulation and Currency Control). Foreign

investors may convert and repatriate tenge earnings made inside

Kazakhstan.



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In June 2005, President Nazarbayev signed the Law on Currency

Regulation and Currency Control. This law lifted restrictions on

money transfers, allowing residents and non-residents to take up to

$10,000 in cash out of the country without documentation of the

money's origin. However, the transfer of cash amounts exceeding

$3,000 must be declared, and the transfer of amounts exceeding

$10,000 must be accompanied by National Bank certification.

Beginning January 1, 2007, all licensing requirements and procedures

for foreign-currency operations were eliminated. Since that time,

agencies conducting transactions with foreign currency, including

bank payments and transfers relating to capital movements, must

simply notify or register at the central bank their operations.



The National Bank requires an "Import [or] export transaction

passport," ostensibly for the purpose of currency control. The

document, which re-states information from other documents,

complicates import and export processing. The law's effectiveness

for its stated purpose -- to ensure that the proceeds from export

sales are returned to Kazakhstan and to prevent money laundering and

fraudulent over-invoicing of imports -- is questionable.



The 2005 Law on Currency Regulation and Currency Control was amended

in July 2009. Some amendments further liberalize currency controls.

The ceiling for transactions requiring passports was increased from

$10,000 to $50,000. Residents have a right to calculate the terms

for repatriation of profit (though based on methods and limits set

by the National Bank). Individuals also can open bank accounts in

foreign banks without notifying the National Bank. In addition, the

ceiling for capital movement operations subject to notification or

registration at the National Bank also was raised from $50,000 to

$100,000 for capital outflow; and from $300,000 to $500,000 for

capital inflow. Export-import credits, with the exception of

transactions requiring passports and financial loans with terms

longer than 180 days will remain under the registration regime.

Borrowers or lenders must register credit transactions with the

National Bank before making them.



Meanwhile, amendments enhanced the responsibility for non-payment of

foreign currency on external trade contracts. In particular,

administrative charges will be applied for non-payments exceeding

$50,000, and criminal charges can be initiated for non-payments over

10,000 monthly calculated indexes (e.g., around $95,000 for 2010).



Amendments also specified measures for a "special currency regime,"

which only can be introduced in emergency situations -- when the

country's economy and financial system's stability are in jeopardy.

Measures may include requirements for companies to retain a certain

percentage of their foreign currency profits in the National Bank of

Kazakhstan or other authorized banks, the mandatory sale of foreign

currency earnings, and limits on the use of foreign bank accounts.

Considered an extreme measure, its application in the foreseeable

future appears unlikely.

The National Bank regularly monitors the currency operations of

selected non-residents. This procedure primarily affects the oil

and gas, construction, and mining industries, and companies

providing architectural, engineering and industrial-design services.

According to the National Bank, this monitoring provides better

statistical data on the balance of payments and external debt.



In July 2007, Kazakhstan adopted an amendment to its Customs Code,

requiring submission of export declaration forms of country of

origin to bring goods into Kazakhstan. An unintentional virtual

shutdown for imports from many countries, particularly the United

States, resulted. The July amendment was repealed in November 2007,

ending the problem.



The U.S. Embassy is not aware of any concerns with regard to

remittance policies or availability of foreign exchange for

remittance of profits.



In 2001, the government announced an amnesty for all Kazakhstani



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citizens repatriating cash or transferring money during a 30-day

period. The legalized money was not taxed and became available to

its owners at the end of the amnesty period. Kazakhstanis

repatriated $480 million under this amnesty, of which almost 90% was

brought to banks in the form of cash. Another amnesty, which

concluded on August 1, 2007, resulted in the legalization of nearly

$7 billion in property.



A.3. Expropriation and Compensation



The 2003 Investment Law represents a step back from the clarity of

the 1994 law with regard to expropriation and compensation. The 2003

law allows nationalization by the state in emergency cases "as

provided in legislative acts of the Republic of Kazakhstan." Unlike

the 1994 law, it does not provide clear grounds for expropriation.

Similarly, the 1994 law required "prompt, adequate and effective"

compensation at fair market value, with interest. The 2003 law

differentiates between nationalization and requisition, providing

full indemnification of the investor in the case of the former, but

only payment of market value in the case of the latter. Bilateral

investment treaties (BITs) between Kazakhstan and other countries,

including the United States, also refer to compensation in the event

of expropriation.



There has been one case of legal expropriation of a foreign

investor's property for public purpose. The investor ultimately

submitted the case for international arbitration. In May 2006,

after lengthy delays and negotiations, the government paid the

amount awarded by the arbiter.



A.4. Dispute Settlement



There have been a number of investment disputes involving foreign

companies in the past several years. While the disputes have arisen

from unrelated, independent circumstances, many are linked to

alleged breaches of contract or non-payment on the part of

Kazakhstani state entities. Some disputes relate to differing

interpretations of joint-venture-agreement and

production-sharing-agreement (PSA) contracts. One questions the

legality of the government's use of ex-post facto regulations

governing value added taxes. In some instances, the disputes

involve hundreds of millions of dollars. A recurring theme remains

the unpredictability of actions taken by tax authorities and other

regulatory agencies. Kazakhstan is still building the institutional

capabilities of its court system. Until it completes this process,

the performance of courts in the country will be less than optimal.

Problems also arise in the enforcement of judgments. Given a

relative lack of judicial independence, ample opportunity for

interference in judicial cases exists.



Kazakhstan's Civil Code establishes general commercial law

principles.



The 2003 Investment Law defines an investment dispute as "a dispute

ensuing from the contractual obligations between investors and state

bodies in connection with investment activities of the investor."

It states that such disputes can be settled by negotiation, in

Kazakhstani courts, or through international arbitration. According

to the law, disputes not falling within the above-noted category

"shall be resolved in accordance with the laws of the Republic of

Kazakhstan," thus restricting recourse to international arbitration

in favor of the Kazakhstani judicial system. While some investors

find this legislation problematic since it does not address disputes

between private entities, others believe that Kazakhstan's Civil

Code and Civil Procedure Code provide private parties with recourse

to foreign and/or third party courts.



Additionally, in December 2004, Kazakhstan adopted a law on

international arbitration. The law appears to give broad authority

for judicial review of arbitral awards in Kazakhstan. An early test

case yielded decidedly mixed results. In 2005, a U.S. company

became embroiled in a dispute over payment for the sale of its



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shares in a joint venture to a group of Kazakhstani companies. The

London Court of International Arbitration (LCIA) issued a

preliminary ruling ordering the shares frozen pending its final

decision. The acting Kazakhstani court, however, ignored the LCIA's

ruling and proceeded with its own hearings. The Supreme Court of

Kazakhstan ultimately decided the case in favor of the U.S. company.

In January 2006, however, the Astana City Court relied on an

international convention loophole to decline the LCIA's award of

legal costs to the U.S. firm on the grounds that doing so would be

detrimental to "public order" in Kazakhstan. In May 2006, that

decision was overturned, and the legal costs were awarded.



Kazakhstan has been a member of the International Center for the

Settlement of Investment Disputes (ICSID) since December 2001.



Any international arbitral award rendered by the International

Center for the Settlement of Investment Disputes (ICSID),any

tribunal applying the United Nations Commission on International

Trade Law Arbitration rules, the Stockholm Chamber of Commerce, the

London Court of International Arbitration, or the Arbitration

Commission at the Kazakhstan Chamber of Commerce and Industry

should, by law, be enforced in Kazakhstan



The U.S.-Kazakhstan Bilateral Investment Treaty can serve to

buttress the Investment Law in this area. Kazakhstan ratified the

New York Convention on the Recognition and Enforcement of Foreign

Arbitral Awards in 1995.



Although creditor rights are set forth clearly in the 1997

bankruptcy law, its complexity and numerous subsequent amendments

result in considerable misapplication in practice. The latest

amendments passed in July 2008 and February 2009. The law now

contains a detailed list of creditors' rights and prescribes a

mechanism for their enforcement. The 2008 amendments elaborated a

comprehensive list of the governmental authorities involved in

bankruptcy procedures and expanded the rights of enterprises during

possible rehabilitation procedures. The Committee on Work with

Insolvent Debtors, operating under the umbrella of the Ministry of

Finance, is Kazakhstan's official bankruptcy agency.

Monetary judgments are normally made in domestic currency.



In general, the government of Kazakhstan has a mixed record of

addressing investment disputes. Foreign investors often have

endured protracted negotiations. Most investors prefer to handle

investment disputes privately, rather than make their cases public.

The U.S. Embassy advocates on behalf of U.S. firms with investment

disputes.



Due to BTA and Alliance banks' restructuring negotiations and cases

filed in London by some former stockholders of BTA bank, the

government of Kazakhstan enlarged the competence of the Specialized

Almaty Financial Court. According to amended article 28 of the

Civil Code, civil suits about the restructuring of financial

institutions now fall within the jurisdiction of the Almaty

Financial Court. The new Chapter 34-1 of the Civil Code defines an

order of proceedings of restructuring cases in the courts.

According to this chapter, all court orders, including claims by

creditors, preceding the creation of the Almaty Financial Court on

restructuring should be suspended. Furthermore, the Court must

approve creditor-agreed restructuring plans.



A.5.Performance Requirements and Incentives



The Investment Committee under the Ministry of Industry and Trade

monitors the fulfillment of investor obligations. If the committee

determines that a company has not complied with its financial or

other contractual obligations, the government may revoke the

company's operating license.



The 2003 Investment Law and 2008 Tax Code provide for tax

preferences, customs duties exemptions, and in-kind grants as

incentives for foreign and domestic investment in



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government-determined priority sectors. As of 2009, investors

receive tax preferences automatically after implementation of

projects in non-extractive sectors. The Tax Committee of the

Republic of Kazakhstan and local authorities administer these

preferences. The Investment Committee makes decisions on customs

duties exemptions (with notification to customs authorities) and

in-kind grants on a case-by-case basis. The Ministry of Industry

and Trade reported that it signed 400 contracts with such

preferences for a total of about $7-8 billion over the last ten

years. Approximately a quarter of these investments included

foreign involvement. The law allows the government to rescind such

incentives and collect back payments if an investor fails to fulfill

contractual obligations.



Largely focused on selected priority sectors , the system of

preferences echoes the government's policy of economic

diversification away from the extractive sector. The overall list

contains 245 types of activities grouped into 36 categories. Those

priority sectors include agriculture, construction, metallurgy,

chemistry and pharmaceuticals, oil refining, oil and gas

infrastructure, transport and information communication, power,

machinery, tourism and space activity. The system applies to new

enterprises, as well as to existing enterprises making new

investments. The duration of tax preferences increases with the

size of investment. Although not explicitly required, technology

transfers frequently occur, and sometimes are included in contracts.

Because of the accelerated, post-crisis, industrial-development

program, the government has increased its emphasis on technology

transfers in foreign investor cooperation.



The government of Kazakhstan intensified its promotion of local

content in 2009. On December 30, 2009, President Nazarbayev signed

a decree in support of Kazakhstani producers. This law allows the

imposition of administrative charges for violations of government

procurement rules, specifically local-content requirements.

According to new tender rules, proposals that include significant

proportions of locally-produced goods and services will receive a

discount (i.e., preferential treatment). Tender commissions, as

well as bidders, that do not follow local-content requirements may

face administrative prosecution. This rule applies to government

agencies, state-owned enterprises, national holding companies such

as Samruk-Kazyna, and subsoil users, both domestic and foreign.



In addition, the Kazakhstani government is elaborating its official

concept for the development of Kazakhstani content. A mandate of

substantial increases by 2014 in the local-content share of

Kazakhstani-produced goods (up to 50%) and Kazakhstani-produced

services (up to 90%) is expected.



Typically, an investor's obligations might also include an

obligation to train local specialists and contribute to the social

development of the respective regions.



There are no known cases in which U.S. or other foreign firms have

been denied participation in government-financed or subsidized

research and development programs on a national basis.



The government has liberalized its trade policies and passed

legislation to begin bringing its legal and trade regimes into

conformity with World Trade Organization (WTO) standards.

Kazakhstan submitted its Memorandum on the Foreign Trade Regime

(MFTR) in 1996 and the first round of consultations on WTO accession

took place in 1997. Kazakhstan has made significant progress in

implementing the legal framework necessary for accession and signed

bilateral protocols on market access for goods and services with

several of its major trading partners. As of January 1, 2009,

Kazakhstan had completed bilateral negotiations with 21 of 26

members of the Working Party. However, accelerated creation of the

Customs Union impeded this process. Russia, Belarus, and Kazakhstan

officially signed legal agreements to create the Customs Union on

November 27, 2009 in Minsk. According to the agreements, a common

external trade tariff is enacted January 1, 2010.



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Kazakhstan's entrance into the Customs Union will almost double its

average import tariff. Kazakhstan will retain some flexibility in

applying the common external import tariff regime. For example,

Kazakhstan will have no tariff on over 900 specific commodity items,

including modern aircraft, certain types of engines, and raw

materials needed in the food processing industry, such as tropical

fruits. Over 400 specific commodity items will be subject to a

transitional period varying from one-and-half to five years. These

items include pharmaceuticals, medical equipment, processed aluminum

products, raw materials for the petrochemical industry, paper

products, rail wagons, combines, and tractors. In some specific

cases, Customs Union member states also can apply protective import

tariffs on selected goods without the consent of the other members,

but only for six months per year and for a maximum of five years.

The member states have agreed to grandfather all previously existing

protective and anti-dumping measures at the time of accession into

the Customs Union. The Customs Union implementation timeline

anticipates implementation of the new common Customs Code and

abolishment of the Russian-Belarus customs border on July 1, 2010.

The Kazakhstani-Russian customs border is scheduled for abolishment

on July 1, 2011.



Despite the creation of the Customs Union, Kazakhstan is expected to

continue to offer preferential treatment to investors outside of the

extractive sector in an effort to promote economic diversification.





Kazakhstan is also a member of the Eurasian Economic Community

(EEC),along with Russia, Kyrgyzstan, Belarus, and Tajikistan.

Armenia, Moldova, and Ukraine have observer status. Kazakhstan

permits the importation of goods from EEC partners and certain

developing or less-developed countries duty-free, or at a reduced

rate.



A.6. Right to Private Ownership and Establishment



Foreign and domestic private entities have the right to establish

and own business enterprises and to engage in all forms of

remunerative activity. Private entities can freely buy and sell

interests in business enterprises. However, state-owned enterprises

sometimes enjoy better access to markets, credits, and licenses than

private entities.



Kazakhstan's constitution provides that land and other natural

resources may be owned or leased by Kazakhstani citizens according

to conditions established by law. The 2003 Land Code allows

citizens of Kazakhstan to own agricultural land and urban land with

commercial and non-commercial buildings and complexes, including

dwellings and land used for servicing these buildings. Under the

Land Code, only Kazakhstani citizens (natural and legalized) and

Kazakhstani companies may own land. The Land Law does not allow

private ownership for the following types of land:



- land used for national defense and national security purposes;

- specially-protected natural territories, resorts, recreational

land and territories of a historical and/or cultural significance;

- forests, water reservoirs (lakes, rivers, canals, etc.),glaciers,

swamps, etc.;

- public areas (urban or rural settlements);

- main railways and public roads;



Short-term land leases may last up to five years. The maximum period

for long-term land leases are 49 years. Foreigners may rent

agricultural land for up to 10 years. Foreigners may also own

agricultural land through either a Kazakhstani-registered joint

venture or a full subsidiary.



A.7. Protection of Property Rights



Secured interests in property (fixed and non-fixed) are recognized

under the Civil Code and the 2003 Land Code. Mortgage lending grew



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dramatically in recent years, though decelerated in 2007-2009 due to

the global financial crisis. A credit bureau system is in the very

early stages of development. All property and lease rights for real

estate must be registered with special government-owned Real Estate

Centers, which exist in cities and rural district centers.



In principle, Kazakhstan's Civil Code protects U.S. intellectual

property. In addition, the U.S.-Kazakhstan Trade Agreement, which

came into force in 1993, obliges Kazakhstan to protect intellectual

property rights (IPR). In 2004, Kazakhstan ratified the 1997 World

Intellectual Property Organization (WIPO) Copyright Treaty and the

WIPO Performances and Phonographs Treaty, and amended the Copyright

Law to affirmatively protect pre-existing works and sound

recordings. In 2005, Kazakhstan amended its Criminal and Civil

Codes to make IPR crimes easier to prosecute and to toughen

penalties for violators. The 2005 amendments played a significant

role in USTR's 2006 decision to remove Kazakhstan from the Special

301 Watch list. While Kazakhstan has demonstrated a commitment to

improving its IPR regime, substantial weaknesses, particularly in

the area of civil dispute resolution, remain.



Patent protection is available for inventions, industrial designs,

and prototypes. Patents for inventions are available for novel

processes and products that have industrial applications. The

National Institute of Intellectual Property performs formal

examination of patent applications. Patents for inventions are

granted for 20 years. Patents for utility models are granted for a

five-year period with a possible three-year extension. Prototypes

are granted a 10-year initial period of protection, with the

possibility of an additional five-year extension. Kazakhstani

legislation also permits an "innovation" patent, which is granted

for inventions for an initial three-year period with a possible

extension for two years. Issued after only checking the local

novelty of an invention, an innovation patent is expected to boost

local-business innovation. Unsuccessful applicants can appeal

decisions of the National Institute of Intellectual Property and the

Committee for Intellectual Property Rights. Kazakhstan is a member

of the Moscow-based Eurasian Patent Bureau and the Munich-based

European Patent Bureau.



Trademark violation is a crime. Despite historically-questionable

enforcement, U.S. companies are generally confident that their

trademarks are protected in Kazakhstan. Still, imported counterfeit

goods can commonly be found at local markets. Marked disparities in

fees charged to domestic patent and trademark applicants, as

compared to foreign applicants, exist. Applications for trademark,

service-mark, and appellations-of-origin protection should be filed

with the National Patent Office and approved by the Committee for

Intellectual Property Rights. Trademarks and service marks are

afforded protection for 10 years from the date of filing.

The Law on Copyrights and Related Rights was enacted in 1996. The

law largely conforms with the requirements of the WTO TRIPS

Agreement and the Berne Convention.



Ex officio authority of customs officials to seize counterfeit

products at the border came into force on January 1, 2010.

President Nazarbayev signed the relevant amendments to the Customs

Code in December 2009.



Amendments to the Administrative, Criminal, and Civil Procedural

Codes have been adopted to bolster IPR enforcement capabilities.

IPR enforcement measures, while still somewhat sporadic, are

increasingly robust. Prosecutions, under both the Criminal and

Administrative Codes, have led to a steady legitimization of the

domestic trade in copyrighted material. Progress in IPR protection

through civil courts is less pronounced as the judicial system

develops the expertise necessary to resolve more complex civil

disputes.



Illegal software development and manufacture generally is not

conducted in Kazakhstan. Russia and Ukraine are believed to be the

major sources to the local market.



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Kazakhstan ratified the Berne Convention for the Protection of

Literary and Artistic Works in 1998 and the Geneva Phonograms

Convention in 2000.



A.8. Transparency of Regulatory System



Transparency in the application of laws remains a major problem in

Kazakhstan and an obstacle to expanded trade and investment.

Foreign investors complain of inconsistent standards and corruption.

While foreign participation is generally welcomed, some foreign

investors point out that the government is not always even-handed

and sometimes reneges on its commitments. Although the Investment

Committee of the Ministry of Industry and Trade was established to

facilitate foreign investment, it has had limited success in

addressing the concerns of foreign investors.



Opportunities for public comment on proposed laws and regulations

are sporadic and generally limited. Contradictory norms often

hinder the functioning of the legal system. While Kazakhstan

recently has defined more clearly which laws take precedence in the

event of a contradiction, stability clauses granted investors under

previous versions of the Foreign Investment Law or other legislation

may not necessarily protect investors from changes in the legal and

tax regulatory regime. The 2003 Investment Law holds that contracts

signed subsequent to its enactment may be subject to domestic

legislative amendments and international treaty provisions that

change "the procedure and conditions of the import, manufacture, and

sale of goods subject to excise duties." Regional authorities can

create additional bureaucratic encumbrances, especially in the

licensing and issuance of permits.



Kazakhstan, by law, will provide compensation for violations of

contracts that were properly entered into and guaranteed by the

government. Where the government has merely "approved" or

"confirmed" a foreign contract, Kazakhstan's responsibility is

limited to the performance of administrative acts (i.e., those

"concerning the issuance of a license, granting of a land plot,

mining allotment, etc.") necessary to facilitate the subject

investment activity.



Kazakhstan's institutional governance is weak, further adding to the

problems of transparency in commercial transactions. Senior

government officials have a large say in minor and major

transactions, and decisions are often made behind closed doors. A

2007 Licensing Law established the legal framework for licensing

activities in Kazakhstan. It requires the relevant agency to issue

a license within one month of a company's submission of all required

documents. The 2007 law simplified procedural requirements for

issuing licenses, reduced the number of licensed activities from 426

to 349, and introduced a mechanism to help prevent the extension of

this list by other legal acts. Experts estimate that overall

licensing for the period 2004-2009 was reduced three-fold, and

licensing for agriculture, education, and health care has been

decentralized. However, licensing remains problematic, particularly

for small- and medium-sized enterprises.



A.9. Efficient Capital Markets and Portfolio Investment



Kazakhstan's efforts to create a sound financial system and stable

macroeconomic framework have been notable among former Soviet

republics. Much progress has been made in the creation and

implementation of an adequate legal framework. In comparison with

other parts of the economy, reform of the financial system has been

deeper and more effective. The financial system has started to

mediate financial resource flows and direct them to the most

promising parts of the economy. Official policy clearly supports

credit allocation on market terms and the further development of

legal, regulatory, and accounting systems consistent with

international norms.



Most domestic borrowers receive credit from Kazakhstani banks.



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However, foreign investors find the margins taken by local banks and

the collateral required for credit to be very onerous. It is

usually cheaper and simpler for them to use retained earnings or

borrow from their home country. Because the Kazakhstani Stock

Exchange is struggling to gain momentum, it is not yet a realistic

source of funds (see below). Since 1998, Kazakhstani banks have

placed Eurobonds on international markets and obtained syndicated

loans, the proceeds of which have been used to support domestic

lending. Leading Kazakhstani banks were able to obtain reasonably

good ratings from international credit assessment agencies.

However, the global crisis hit the country's economy, and

drastically changed the attitude of foreign investors to Kazakhstan

and the landscape of banking sector.



The National Bank has demonstrated an ability to maintain a stable

exchange rate and strike a balance between keeping inflation down

and supporting the economy and financial sector. The National Bank

spent approximately $6 billion from its foreign currency reserves

during the last quarter of 2008 and January 2009 to defend the

tenge. On February 4, 2009, the National Bank allowed the tenge to

devalue from a level of 122 tenge. The new target rate of 150 tenge

to the dollar was expected to conserve foreign-exchange reserves and

increase domestic competitiveness. Due to favorable oil and

commodity prices at world markets in 2009, the National Bank

successfully maintained the exchange rate within the promised

corridor of 145-155 tenge to the dollar and replenished its

international reserves. The National Bank's gold and

foreign-currency reserves grew by 16.8 percent from $19.87 billion

on January 1, 2009 to $23.2 billion on January 1, 2010. The

liquidity crunch and efforts to boost the economy forced the

National Bank to adjust its monetary policy. In the course of 2009,

the refinancing rate was reduced consecutively six times from 10% in

January 2009 to 7% in December 2009.



The global liquidity crisis, which hit in late summer 2007,

presented a substantial challenge to the Kazakhstani banking system,

which had come to rely heavily on external borrowing over the

preceding five-year period. Kazakhstani banks had been directing

much of the borrowed funds into the country's construction and

real-estate sectors, particularly in the form of

construction-financing and mortgages for new housing in Astana and

Almaty. The sudden global liquidity dry-up abruptly left some

leading Kazakhstani banks unable to continue their aggressive

external borrowing, forcing them to curtail their domestic-lending

activity. While policymakers widely saw this development as a

healthy correction in view of the preceding liquidity glut, the

National Bank of Kazakhstan and the government introduced measures

in late 2007 to provide liquidity to the banking system and inject

capital in the cooling construction sector. Continued world-wide

financial turmoil, marked by falling commodity prices and increasing

unemployment have exacerbated the situation of Kazakhstan's largest

banks. In October 2008, the Kazakhstani government announced

stabilization plans that included the purchase of 25% ownership

stakes of Kazakhstan's four largest private banks, thereby injecting

an additional $4 billion in to the banking system.

In order to prevent banking-sector collapse, state-owned

Samruk-Kazyna National Welfare Fund took over BTA and Alliance

banks, the second and fourth largest Kazakhstani banks, in February

2009. In April 2009, BTA and Alliance banks announced their default

on principal payments. In July 2009, BTA declared a moratorium on

interest payments as well. Both banks are conducting restructuring

negotiations and hope to reach final agreements with creditors early

in 2010. As of April 2009, the total external debt of BTA bank was

valued at $13 billion, with $3 billion due to be repaid in 2009.

Alliance Bank's total debt due after August 2009 eligible for

restructuring was estimated at $4.2 billion.



Kazakhstani authorities took former top managers of BTA and Alliance

Banks to court on corruption charges.



In May 2009, another Kazakhstani financial institution,

"Astana-Finance JSC," announced a default and began restructuring



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talks with creditors. In October 2009, Temir Bank, affiliated with

BTA bank, also announced a default and started negotiations with

National Welfare Fund Samruk-Kazyna on recapitalization.



International donor organizations and local analysts unanimously

agree that the situation in the banking sector deteriorated

significantly in 2009. The slowing economy (according to the

preliminary government assessment, annual GDP growth reached 0.5-1%

in 2009 versus 3% in 2008) and exchange-rate devaluation increased

pressure on the banks. As of December 1, 2009, the share of

non-performing loans (NPLs) reached 31.2% of banks' total loan

portfolio. Although the total external debt of commercial banks

decreased in 2008 -2009, the level remained high ($32.2 billion as

of June 30, 2009). The government, National Bank, and Financial

Supervision Agency (FSA) took a multi-pronged approach to overcome

the banking sector's challenges. In December 2008, the government

increased the maximum limit for deposit insurance seven-fold from

700,000 tenge (just under $6,000) to 5 million tenge (about

$33,000). The total government bail-out package for the banking

sector totaled around $10 billion. In 2010, the FSA and National

Bank are expected to begin implementation of the "Financial Sector

Development in post-crisis period" concept, according to which the

FSA's control and regulatory functions will be significantly

strengthened. (NOTE: The FSA, Kazakhstan's main financial

regulator, has broad authority over the banking and insurance

sectors, as well as the stock market. The FSA is financed from the

National Bank's budget and subordinate to the President of

Kazakhstan. END NOTE.)



Kazakhstani authorities' efforts appear to be boosting confidence in

the banking sector. According to the FSA, private deposits have

rose 23.3% January-November, 2009. As of December 1, 2009, the

total amount of private deposits reached approximately $12.5

billion.



In operation since 1997, the Kazakhstani Stock Exchange (KSE) merged

with the Almaty Regional Financial Center (AFC) in 2008, and new

listing rules were introduced. Inadequate financial records prevent

many companies from being put on the exchange. Moreover, company

managers fear diluting control of their enterprises by selling

shares.



As of October 1, 2009, the total capitalization of the KSE was $65.2

billion, or 56.8% of GDP. Despite a negative trend of declining

value since mid-2007, capitalization of the stock exchange in both

the absolute value of total capitalization and capitalization

relative to GDP slightly increased in 2009.



Due largely to Kazakhstani companies' recalcitrance to dilute

ownership and provide extensive disclosure, the Kazakhstani debt

market is substantially more developed. In October 2009, debt

instruments accounted for 58.72%, stocks were 18.41 %, and

government papers comprised 22.48% of total KSE trade.



Since 1999, several dozen bank and non-bank corporations, large and

small, have issued bills, notes, and bonds with maturities ranging

from three months to seven years. Rates for borrowers have declined

on average from approximately 16% in September 1999 to approximately

9% in 2006. Maturities have increased from one-and-a-half years to

up to 10 years during the same period. Earlier issues were matured

and redeemed. However, defaults began in 2009. As of December 1,

2009, 25 companies defaulted on 43 issues of corporate bonds, a

total nominal value of which equaled 273.98 billion tenge

(approximately $1.85 billion). Nevertheless, in contrast to

stock-market debt instruments, yield rates grew in 2009 from 12.3 %

at the end of 2008 to 15%. In 2009, the volume of trade in

government securities grew by 21% and reached $9.44 billion. As of

December 2009, the effective yield rate on middle-term government

notes (with a three-year maturity) was up to 7.64%. Longer-term

government notes (with maturities up to 10 years) were offered at

6.5%.





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Trading on the KSE is overwhelmingly dominated by block trades,

liquidity is low, and the spreads are extremely wide. In 2006,

several large Kazakhstani companies issued initial public offerings

on the London Stock Exchange (LSE). In compliance with a 2006 law

requiring a domestic issuance to accompany any foreign IPO by a

Kazakhstani company, these companies also offered shares on the KSE.

Despite these offerings and the Kazakhstani pension funds' (see

below) tentative moves to invest in KSE-traded shares, the exchange

remains in a very early stage of development. The crisis years

2008-2009 again proved the KSE's insignificance. Decreased

capitalization and diminished transaction volumes at KSE have not

impacted the overall economic situation and financial markets due to

the stock market's underdevelopment.



The plans for the "Almaty Financial Center" (see below) and upcoming

new concept of Financial Sector Development aim to spearhead the

development of Kazakhstan's securities markets.



In 1998, the government introduced an accumulative pension system

that requires all employed persons to contribute 10% of their salary

to the pension funds. As of November 2008, the 14 funds (13 private

and one state-owned) operating in Kazakhstan held approximately

$11.5 billion in pension savings. Custodian banks hold pension

assets. Asset management companies invest the contributions on

behalf of the pension funds. While the government provides specific

restrictions on pension funds' investments, these restrictions were

relaxed in 2006, allowing some involvement in Kazakhstani equities.

As of 2009, pension assets must still be invested in specific

categories of securities, including corporate and government bonds

and securities issued by foreign governments and foreign corporate

securities. In addition, around 5% of pension funds' assets are

deposited in commercial banks. Pension funds overall did not fare

well in 2008-2009 because of global losses and risky investment

policies. In November 2009, four pension funds had total losses

amounting to $6.6 million. A generally positive dynamic exists.

The total net profit of all pension funds was $138 million in

November 2009. The government planned to sell some shares of state

enterprises on the national stock market, in part to provide a more

profitable, alternative vehicle for the investment of pension fund

assets. Amendments made to pension fund legislation in November

2008 guarantee the preservation of pension savings, and grant

individual investors the right to choose either a conservative,

moderate, or aggressive type of individual investment portfolio.



There appear to be no "cross-shareholding" or "stable shareholder"

arrangements used to restrict foreign investment in private firms

through mergers and acquisitions. Joint-stock companies may not

cross-hold more than 25% of each other's stock unless they have an

exemption codified by law, and may not exercise more than 25% of the

votes in a cross-held joint-stock company. Kazakhstani law

recognizes companies as "related" if one company or legal entity

holds more than 20% of the shares of another. However, the owning

company may not vote more than 25% of the total shares at the

general meeting of shareholders of the related company. The general

meeting must approve various corporate actions, such as mergers and

acquisitions. This rule applies to all persons, domestic or

foreign.



There have been very few hostile takeovers in Kazakhstan, primarily

because there are few publicly-traded firms. Defensive measures are

not targeted toward foreign investors in particular. Current

legislation provides a legal framework for takeovers. The Civil

Code requires a company that has purchased a 20% share in another

company to publish information about the purchase. However,

business realities show that successful local companies may not be

well enough protected from professional hostile takeovers in most

cases.



The 1998 Law on Joint-Stock Companies provides the basis for the

regulation of open and closed-type joint-stock companies. It also

contains clauses to protect investors in often-abused circumstances,

such as:



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- issuance of additional shares;

- maintenance of charter capital and restrictions on payments of -

dividends;

- re-purchase by a company of its own shares;

- debt-to-equity conversions;

- fiduciary duties imposed on company officers;

- proxy votes;

- independent audit; and

- the determination of asset values during the sale of company

property.



The Law on Joint-Stock Companies also regulates tender offers for

stock of open joint-stock companies by requiring the purchaser to

notify the Financial Supervision Agency and target company of its

intention to purchase 30% or more of the target company. After such

purchase, the buyer must offer to all remaining shareholders to

purchase their shares at the average price over the six months prior

to purchase.



No laws or regulations specifically authorize firms to adopt

articles of incorporation or associations, which limit or prohibit

foreign investments. The Law on Joint-Stock Companies, however,

allows charter limits on the number of shares or votes that one

shareholder may have.



In March 2007, the government adopted legislative amendments to

protect minority stockholders' interests. Numerous violations of

their interests and the government's desire to promote the

development of the stock exchange prompted the law's enactment.



Standards, including sanitary and phyto-sanitary standards, are

promulgated solely by the Committee for Technical Regulation and

Metrology (Gosstandard). Technical committees constituted by

Gosstandard, and which may include producers, scientific and

engineering associations, and technical experts, prepare proposals

for the adoption, amendment, or abolishment of state standards.

International multilateral and bilateral agreements regulate foreign

participation in the standardization process.



A.10.Competition from State-Owned Enterprises



Formally, private enterprises can compete with public enterprises

under the same terms and conditions. However, state-owned

enterprises do enjoy better access to markets, credits, and licenses

than private entities (see section A.6. Right to Private Ownership

and Establishment).



The government of Kazakhstan actively consolidated state-owned

enterprises in recent years. As of the end of 2009, the following

state-owned holding companies existed in Kazakhstan:



1. Samruk-Kazyna National Welfare Fund created in October 2008

through a merger of the Samruk State Holding Company and Kazyna

Sustainable Development Fund. Modeled on Singapore's Temasek,

Kazakhstan's largest national holding company manages the state's

assets in oil and gas, energy, transportation, telecommunication,

and financial and innovation sectors. According to some estimates,

Samruk-Kazyna controls around 91% of Kazakhstan's assets in total.



2. KazAgro manages the state's agricultural holdings, including the

National Food Contract Corporation (wheat trade),KazAgroFinance

(leasing to farmers),Agrarian Credit Corporation, Corporation on

Livestock Development, and Fund of Financial Assistance to

Agriculture. Chaired by the Deputy Prime-Minister, the Board of

Directors includes the Ministers of Finance, Agriculture, and

Economy and Budget Planning and three independent directors.

KazAgro closely interacts with the Ministry of Agriculture.



3. National Holding Parasat is charged with stimulating the

development of scientific research and domestic know-how in the

high-tech sector. The holding company manages several scientific



ASTANA 00000044 017.3 OF 027





institutions and funds. Chaired by the Minister of Education of

Science, the Board includes the Chairmen of the Informatization and

Telecommunication Committee and Science Committee and President of

the National Telecommunication Company.



4. Created in May 2008, National Medical Holding company seeks to

implement business-oriented innovative corporate management in the

newly built hospitals of Astana city. Prime-Ministerial Decree

appoints the Managing Board's Chairman who is subordinate to the

Ministry of Health and Prime Minister's office;

Created for the efficient management of state-owned media resources,

National Holding company Arna-Media controls the activity of, among

others, Khabar Agency (Khabar TV channel),KazTeleRadio, newspapers

"Kazakhstanskaya Pravda" and "Yegen Kazakhstan" (official government

press),and broadcast company "Katelko." Arna-Media reports to the

government of Kazakhstan.



In addition, seven regional Social Entrepreneurial Corporations

(SECs) consolidate all governmental assets in the regions. SECs are

expected to serve as a link between business and regional

governments. In 2009, the Ministry of Industry and Trade received

control over all SECs' stocks.



National Welfare Fund "Samruk-Kazyna" unifies all key national

companies of the Kazakhstani economy. As of the end of 2009,

Samruk-Kazyna had 36 subsidiaries and affiliated companies,

including "KazMunaiGas" (oil and gas),"Kazakhstan Temir Zholy"

(rail way company),"KazakhTeleCom," "KazPost," Air Astana, KEGOC

(electricity grid operating company),and a number of development

institutions, such as the Development Bank of Kazakhstan, Investment

Fund, Innovation Fund, and Kazakhstani Export Promotion Center.

Development institutions aim to stimulate the country's

non-extractive sector and diversify the economy. In addition,

Samruk-Kazyna continues to establish new companies, such as the

United Chemical Company and Mining Company "Tau Ken-Samruk."



The Prime Minister chairs the Board of Directors of Samruk-Kazyna,

on which the Ministers of Finance, Industry and Trade, Economy and

Budget Planning, and Energy and Mineral Resources, the assistant to

the President of Kazakhstan, and two foreign independent directors

serve. In February 2009, President Nazarbayev signed a separate law

on the National Welfare Fund "Samruk-Kazyna". According to this

law, Samruk-Kazyna acquired a special status and rights.

Samruk-Kazyna thus can conclude large transactions between members

of the Samruk-Kazyna group without public notification. (NOTE:

According to Kazakhstani law, all joint-stock companies must notify

the public of large transactions. END NOTE.) Samruk-Kazyna also

has a pre-emptive right to buy strategic facilities and bankrupt

assets. Samruk-Kazyna is exempted from government procurement

procedures and has the right to establish its own procurement rules.

Moreover, the government can transfer to Samruk-Kazyna state-owned

property. Experts believe this provision allows a simplified

process to transfer state property to private owners (i.e., state

property can be easily privatized without any tender process or

observation of privatization legislation).



The law requires National Holding Companies to publish annual

reports and submit their books to independent audit. In 2009,

Standard&Poors assessed Samruk-Kazyna's transparency at 24 out of a

possible score of 100.



National Oil Fund:



Being an oil-rich country, Kazakhstan has a sovereign wealth fund,

which is called the National Oil Fund of the Republic of Kazakhstan.

Established by Presidential decree in 2000, the fund aims to

diminish the country's budgetary dependence on fluctuations of world

oil prices and to accumulate savings for the benefit of future

generations. The Fund accumulates all direct taxes from the oil

sector, revenues from the privatization of state property in mining

and manufacturing industries, and revenues from sales of farmlands.

As the government's agent, the Ministry of Finance owns the National



ASTANA 00000044 018.3 OF 027





Fund, and the National Bank is a trustee of the Fund. The National

Bank also selects and hires external administrators from

internationally-recognized investment companies or banks.

Information on external administrators and the assets they manage is

confidential.



Two portfolios -- stabilization and saving -- compose the National

Fund. Not fixed, distribution of assets between these two

portfolios depend on the economic situation. The National Fund

invests in the domestic economy through "official transfers." The

budget law approves the annual size of official transfers from the

National Fund to the national budget. These official transfers

cannot exceed one third of the National Fund's assets, and in

principle, only should finance development projects. In 2008- 2009,

the government and National Bank had to increase National Fund

spending for their bail-out package. As a result, the stabilization

portfolio increased in comparison to the saving portfolio.

According to the government's Anti-Crisis program approved in 2008,

around $10 billion of the National Fund was directed for

stabilization purposes. Samruk-Kazyna was assigned as the operator

of these funds.



The Ministry of Finance and National Bank prepare the National

Fund's annual report, which the President approves. In addition,

the Ministry of Finance and National Bank publish on their websites

(www.minfin.kz, www.nationalbank.kz) monthly and annual reports on

revenues and use of the National Fund money. Although these reports

provide information on the Fund's general financial situation, they

do not provide details. As of January 1, 2010, the National Fund's

assets totaled $24.37 billion. Total international reserves of the

country, including the National Bank's foreign currency reserves,

equaled $47.6 billion (in current prices).



A.11. Corporate Social Responsibility



Even though Kazakhstan has not adhered to the OECD Guidelines for

Multinational Enterprises, the idea of corporate social

responsibility is well known in Kazakhstan due to the government's

promotion of it. In his addresses to foreign investors and local

businesses, President Nazarbayev has asked them to proactively

implement principles of social responsibility, including by

supplying quality goods and services to customers, providing

occupational safety, legally paying workers, and investing in human

growth potential. The President annually awards "Paryz" ("Honors"

in the Kazakh language) for achievements in the area of corporate

social responsibility. In 2009, a U.S. company was awarded the

Golden Paryz for the best collective agreement. Companies who

employ corporate social responsibility approaches are viewed

favorably, especially in the regions.



A.12.Political Violence



There have been no incidents of politically-motivated violence

against foreign investment projects, and politically-motivated civil

disturbances remain exceptionally rare. Stable since independence,

Kazakhstan has good relations with its neighbors. The government

continues to express concern over the security of its borders with

Kyrgyzstan and Uzbekistan, which it views as vulnerable to

penetration by extremist groups.



Kazakhstan's 2007 parliamentary elections took place without

violence or unrest. President Nazarbayev's Nur Otan party won every

seat in the lower house of parliament, with an overwhelming majority

of the votes. In its assessment, the Organization for Security and

Cooperation in Europe (OSCE) noted that the election did not meet a

number of OSCE commitments and international standards for

democratic elections. Although opposition groups denounced the

election as fraudulent, no significant demonstrations against the

announced results occurred. The next parliamentary elections are

scheduled for 2012.



Opposition parties perceive the February 2006 murders of a prominent



ASTANA 00000044 019.3 OF 027





opposition politician and his two associates as politically

motivated. The former chief of staff of the Senate was convicted in

August 2006 of having ordered the murders. Prosecutors charged that

personal animosity motivated him.



A.13. Corruption



Although the Kazakhstani Criminal Code contains special penalties

for accepting and giving bribes, corruption is prevalent throughout

Kazakhstan. The President issued an anti-corruption decree in April

2009, which foresees whistle-blower protection, punishment for state

officials that fail to report corruption cases, and measures to

prevent conflict of interests. Amendments to the anti-corruption

law were signed on December 7, 2009. These amendments increase

punishments for corruption crimes, institute mandatory asset

forfeitures, broadens the definition of corruption crimes to include

fraud committed by government officials, and criminalized the

acceptance of a bribe on behalf of a third party and acceptance of

intangible assets. The law also extended the definition of

government official to managers of companies in which the government

holds more than a 35% stake.



The Ministry of Interior, Financial Police, Disciplinary State

Service Commission, and Committee for National Security (KNB) are

responsible for combating corruption. However, some problems with

jurisdiction and competition between the Financial Police and KNB

have occurred over the past year.



Transparency International (TI) has a national chapter in

Kazakhstan. The government has signed on to the Extractive

Industries Transparency Initiative (EITI),and is expected to

complete the validation process by the deadline of March 2010.

Kazakhstan's rating rose from 2.2 in 2008 to 2.7 this year in TI's

Corruption Perceptions Index for 2009. TI experts believe the

improvement resulted from the government's desire to improve

conditions for foreign direct investment and its 2010 chairmanship

of the Organization for Security and Cooperation in Europe (OSCE).

However, they also point out that corruption remains systemic, with

the most problematic areas being the judiciary, police, customs,

property rights, land registration, and construction projects.



U.S. firms have cited corruption as a significant obstacle to

investment. Law-enforcement agencies occasionally have pressured

foreign investors who are perceived to be uncooperative with the

government. The government and local-business entities are widely

aware of the legal restrictions placed on U.S. business abroad

(i.e., the Foreign Corrupt Practices Act).



In 2003, two U.S. citizens were charged in the United States with

violating the Foreign Corrupt Practices Act in a case that received

significant international media attention. The two persons

allegedly channeled tens of millions of dollars in bribes to two

senior Kazakhstani officials during the 1990's in order to

facilitate oil deals for American companies. One currently is

serving a jail term. The criminal case against the second defendant

is ongoing.



A.14. Bilateral Investment Agreements



The United States-Kazakhstan Bilateral Investment Treaty came into

force in 1994. In 1992, the United States and Kazakhstan signed an

Investment Incentive Agreement.



In 1996, the Treaty on the Avoidance of Double Taxation between the

United States and Kazakhstan came into force. However, an ongoing

dispute with a U.S. investor raises concerns with the government's

tax treaty compliance. Since independence, Kazakhstan has ratified

treaties on the avoidance of double taxation with 39 countries. In

2008-2009, Kazakhstan ratified treaties with Malaysia and Japan, and

signed, but has not yet ratified, ones with Armenia, Luxembourg, and

the Arab Emirates. Kazakhstan has bilateral investment agreements

in force with 42 countries, including the United States, Great



ASTANA 00000044 020.3 OF 027





Britain, Germany, France, Austria, Russia, Korea, Iran, China,

Turkey, and Vietnam. In 2009, Kazakhstan signed a multilateral

investment agreement with the Eurasian Economic Community.



A.15. OPIC and Other Investment Insurance Programs



The Overseas Private Investment Corporation (OPIC),an independent

U.S. government agency that provides project financing, political

risk insurance, and a variety of investor services, has been active

in Kazakhstan since 1994. OPIC is seeking commercially-viable

projects in the Kazakhstani private sector. OPIC offers a full

range of investment insurance and debt/equity stakes.



Kazakhstan is a member of the Multilateral Investment Guarantee

Agency (MIGA),which is part of the World Bank Group and provides

political-risk insurance for foreign investments in developing

countries.



Kazakhstan's national currency, the tenge, experienced a 20%

devaluation in February 2009 primarily due to the global economic

recession and depressed oil prices. The National Bank of Kazakhstan

manages the tenge's exchange rate relative to other global

currencies within a tight trading band, and they plan to broaden the

tenge's trading band in 2010. No devaluations are expected in 2010.

As economic conditions improve over the year, the tenge is

projected to appreciate marginally against the dollar.



A.16. Labor



The 1999 Labor Law and the Constitution guarantee basic workers'

rights, including the right to organize and right to strike. In

April 2009, 70 workers at UzenMunayGaz (Uzen Oil and Gas) went on

strike for 10 days during a confrontation with management over

failure to pay outstanding wages. The strikers succeeded in their

demands.



The 1996 Law on Labor Disputes and Strikes lays out the procedure to

resolve disputes. However, the law also restricts strikes by

requiring, inter alia, that a peaceful attempt at a solution first

be made, that two-thirds of the labor collective must approve the

strike, and that the employer must be warned 15 days in advance in

writing. In addition, strikes for political purposes are forbidden.





A separate 1992 Law on Collective Bargaining Agreements sets out the

basic framework for concluding such agreements. There are a growing

number of instances in which unions have successfully negotiated

collective bargaining agreements with management. Following a

widely-publicized mining tragedy and subsequent strike in January

2008, the government launched a pro-union campaign called "Sign a

Collective Bargain" intended to empower workers to more effectively

protect their rights as members of the workforce. This action

marked a significant change in policy in which independent unions

and collective bargaining groups are "no longer seen as the enemy"

according to a prominent independent labor union organizer.



In May 2007, Kazakhstan passed a new Labor Code, encompassing all

the preceding legislation under a single umbrella and retaining key

provisions of all the previous labor laws. The Labor Code extended

minimum mandatory vacation time from 18 to 24 days, provided an

outline of labor unions' and labor representatives' rights, and

toughened rules governing the dissolution of labor contracts.



The 1993 Law on Professional Labor Unions legally guarantees against

limitations of labor. It also grants socio-economic, political, and

personal rights and freedoms as a result of union membership and

prohibits the denial of employment, the denial of promotion, or

termination of employment on the basis of such membership.

Kazakhstan also joined the International Labor Organization (ILO) in

1993. As of December 2009, Kazakhstan has ratified 17 ILO

conventions, including those pertaining to minimum-employment age,

forced labor, discrimination in employment, equal remuneration,



ASTANA 00000044 021.3 OF 027





collective bargaining, and the worst forms of child labor.

Currently, the Labor Ministry is preparing the basis for

ratification of ILO Convention 156 on Equal Opportunities and Equal

Treatment for Men and Women Workers: workers with Family

Responsibilities.



In 2009, the minimum wage was $92.56 per month, with approximately

10.5% of the population receiving income below that level as of the

3rd quarter 2009. In real terms, the minimum subsistence level has

declined year-on-year due to the tenge's devaluation. The minimum

pension in 2009 was $102.98. By government estimates, 2009

unemployment was 6.3%-6.5%.



Kazakhstan has an educated and technically-competent workforce.

However, the demand for specialized skilled labor created by the

simultaneous development of several major oil fields in western

Kazakhstan has exceeded locally-available supply. Foreign investors

increasingly cite a lack of skilled workers and technical

professionals. Management expertise and marketing skills are also

in short supply. Many large investors rely on foreign workers,

particularly from Turkey, to fill the vacuum. In turn, the

Kazakhstani government has made it a priority to ensure that

Kazakhstani citizens are well-represented on foreign-enterprise

workforces, and is particularly keen to see Kazakhstanis hired into

the managerial and executive ranks of those enterprises. In late

2006, the government discussed measures to limit the inflow of

foreign workers, particularly unskilled, and pressure large foreign

investors to hire and train Kazakhstanis. Since 2001, the quota

system has required employers to search for local workers prior to

the issuance of work permits for foreigners (see section A.1.). On

December 30, 2009, President Nazarbayev signed a decree which

increases local-content requirements, particularly for companies

involved in extractive activities. Specifically, petroleum and

mining companies now will be obliged to fulfill the requirements of

the Kazakhstani content decree. Several U.S. employees of companies

doing business in Kazakhstan informed the U.S. Embassy in 2009 that

their work permits have come under increased scrutiny by immigration

authorities. U.S. companies are strongly advised to contact

locally-based law and accounting firms, as well as the U.S.

Commercial Service in Almaty, for the latest information on work

permits.



Employers' reliance on foreign labor in the face of persistent

poverty in rural Kazakhstan became a political issue in recent

years. The debate has revolved around the underlying causes of some

violent incidents between Kazakhstani and foreign workers. A major

October 2006 brawl that involved over 400 workers epitomized the

tension. Policymakers often point to disparities in wages and

working conditions between Kazakhstani and foreign workers.

Employers retort that the lack of domestic skilled labor frequently

necessitates management of Kazakhstani laborers by foreigners. In

2009, authorities in Atyrau oblast continue to pursue a case against

Agip KCO contracting companies, alleging that these companies

violate Kazakhstani labor law because their Kazakhstani workers work

60 hours a week instead of the 40 hours required by the labor law.





A.17. Foreign-Trade Zones/Free Ports



A system of tax preferences exists for enterprises engaging in

prescribed economic activities in the "special economic zones." As

of December 2009, the six such established zones were the "New

Administrative Center" in Astana, the Seaport of Aktau, the Alatau

Information Technology Park (near Almaty),the Ontustik Cotton

Center in south Kazakhstan, the international tourism zone "Borabay"

(resort area in 300 km from Astana),and Atyrau Petrochemical

Cluster. In the second half of 2006, the government took steps

toward establishing the Almaty Financial Center, a legal and

institutional framework aimed at making Almaty the financial capital

of Central Asia. The plans, which remain in very early stages of

implementation, include tax privileges for major participants in the

financial marketplace, such as investors, broker-dealers, and



ASTANA 00000044 022.3 OF 027





issuing corporations. The legal framework for the Almaty Financial

Center includes a specialized court with jurisdiction over civil

disputes between the Financial Center's participants (including

cases on restructuring of financial institutions).



A.18. Foreign Direct Investment Statistics



ANNUAL GROSS FOREIGN DIRECT INVESTMENT FLOWS BY COUNTRY OF ORIGIN

(Millions of Dollars; nominal)

1993-2007 2008 2009 (9 months) Total



USA 25,401.0 2,068.5 1,549.6 29,019.1

Netherlands 18,401.8 4,339.6 4,185.6 26,927.0

UK 9,688.5 1,929.8 693.4 12,311.7

Italy 5,690.1 693.1 473.4 6,856.6

France 5,577.1 1,203.8 858.7 7,639.6

Switzerland 4,974.2 182.9 321.8 5,478.9

South Korea 2,940.9 891.1 102.5 3,934.5

China 3,893.8 692.5 550.6 5,137.0

Canada 3,750.8 956.2 439.89 5,146.7

Russia 4,050.3 891.2 418.8 5,360.3

Japan 2,796.9 456.6 372.3 3,625.7

Turkey 1,844.3 170.9 98.9 2,114.0

Others 19,699.9 5,601.5 2,890.6 28,192.1



TOTAL 108,709.5 20,078.0 12,956.0 141,743.2





ANNUAL GROSS FOREIGN DIRECT INVESTMENT FLOWS BY INDUSTRIES

(Millions of U.S. Dollars; nominal)

1993-2007 2008 2009 (9 months) Total



AGRICULTURE, 73.5 38.5 56.3 168.3

HUNTING AND

FORESTRY



MINING AND 46, 913.9 3,107.1 3,082.8 53,103.8

QUARRYING



mining of coal 56.1 29.5 -26.9 58.7

and lignite,

extraction

of peat



extraction of 43,566.6 2,625.5 2,794.8 48, 986.9

crude

petroleum

and natural

gas



mining of 760.9 198.4 149.2 1,108.5

uranium and

thorium ores



mining of 2,416.8 148.7 163.9 2,729.5

metal ores



other mining 113.4 105.1 1.8 220.3

and quarrying



MANUFACTURING 10, 712.3 1,906.6 866.6 13,485.5



ELECTRICITY 1,055.1 134.5 173.8 1,363.4

GAS AND WATER

SUPPLY



CONSTRUCTION 2,013.4 449.5 338.6 2,801.5



WHOLESALE AND 4,810.9 1,201.1 573.2 6,585.1

RETAIL TRADE,

REPAIR OF

MOTOR VEHICLES,



ASTANA 00000044 023.3 OF 027





MOTORCYCLES

AND PERSONAL AND

HOUSEHOLD GOODS



HOTELS AND 247.8 37.1 18.3 303.1

RESTAURANTS



TRANSPORT 2,004.2 270.3 143.9 2,418.4

AND

COMMUNICATION



land transport 751.3 49.4 14.9 815.6



including

transport

via pipelines 703.2 35.3 8.0 746.5



water -15.2 2.2 1.9 -11.1

transport



air transport 54.2 1.9 0.8 56.8



supporting 812.7 77.0 34.0 923.7

transport

activities



post and 401.2 139.8 92.4 633.4

telecommunication



including 390.9 138.9 91.8 621.6

telecommunication



FINANCIAL 4652.0 1,933.6 406.0 6,991.6

ACTIVITY



REAL ESTATE, 35,096.1 7,973.0 7,279.3 50,348.4

RENTING

AND BUSINESS

ACTIVITIES



Including

but not limited to



legal, accounting,

book-keeping and

auditing 368.5 149.4 73.8 591.8

activities,

tax consultancy,

market research,

business and

management

consultancy



geological 33,679.1 7,593.1 5,860.8 47,133.0

exploration and

prospecting

activities



EDUCATION, 230.7 65.6 3.2 299.5

HEALTH AND

SOCIAL WORK



ACTIVITY OF 538.8 2,960.8 14.0 3,513.6

PROFESSIONAL

ORGANIZATIONS,

ASSOCIATIONS AND

UNIONS



ACTIVITIES, 360.8 0.0 0.0 360.8

N.E.C.



TOTAL 108,709.5 20,077.8 12,955.9 141,743.2



ASTANA 00000044 024.3 OF 027





Source: National Bank of Kazakhstan



FDI AS PERCENTAGE OF GDP (FLOW)

2007 2008 2009 (9 months)

17.6% 15.2% 17%

Source: National Bank of Kazakhstan



FOREIGN DIRECT INVESTMENT (stock) IN KAZAKHSTAN BY MAJOR INVESTORS

AND INDUSTRIES AS OF SEPTEMBER 30, 2009 (Millions of U.S. dollars)

Direct Investment

TOTAL 64, 929.0

AGRICULTURE,

HUNTING AND FORESTRY 84.7

including

International Organizations 33.6

Virgin Islands (British) 31.0

Latvia 8.5

Germany 0.2

USA 0.0

Other 11.4



MINING AND QUARRYING 14,525.0

including

USA 6,854.3

Netherlands 2,089.6

China 1,314.4

Canada 1,283.1

Virgin Islands (British) 1,077.8

Great Britain 450.3

Switzerland 12.6

Russia 125.2

Other 1,317.6



MANUFACTURING 3,166.8

including

Netherlands 1,966.6

Switzerland 1,100.9

Russia 71.6

Luxemburg 2.7

Other 25.0



ELECTRICITY, GAS

AND WATER SUPPLY 512.5

including

Netherlands 233,5

Virgin Islands (British) 214.8

Russia 48.6

Other 15.5



CONSTRUCTION 729.7

including

China 220.5

Netherlands 103.2

Russia 75.3

South Korea 52.0

Great Britain -33.2

Virgin Islands (British) 26.9

Turkey 48.8

Belgium 24.8

Panama 1.7

Other 209.6



WHOLESALE AND

RETAIL TRADE, REPAIR OF

MOTOR VEHICLES, AND PERSONAL

AND HOUSEHOLD GOODS 2,321.9

including

Arab Emirates 992.2

Russia 108.7

Netherlands 226.3

Virgin Islands (British) 99.0

Switzerland 13.5



ASTANA 00000044 025.3 OF 027





USA 31.5

China 161.9

Great Britain 42.3

Germany 81.6

Cyprus 59.3

South Korea 50.9

Turkey 83.3

Other 371.4



HOTELS AND RESTAURANTS 133.8

including

Virgin Islands (British) 59.0

Turkey 31.7

Netherlands 41.6

Other 1.5



TRANSPORT AND COMMUNICATION 742.0

including

Netherlands 443.5

Great Britain 7.1

International Organizations 1.0

USA 53.4

Virgin Islands (British) 70.3

Other 166.8



FINANCIAL ACTIVITY 4,544.9

including

Netherlands 876.0

Austria 1,866.4

Great Britain 175.0

USA 142.2

Germany 2.6

International Organizations 289.7

Russia 392.6

China 102.7

Virgin Islands (British) 151.7

South Korea 267.4

Other 278.6



REAL ESTATE, RENTING

AND SERVICES TO ENTERPRISES 35,117.9

including

Netherlands 13,509.4

USA 4,990.8

France 4,576.7

Japan 2,271.8

Liberia 2,286.4

Virgin Islands (British) 1070.8

Great Britain 454.9

Other 5,957.1



EDUCATION, HEALTH AND

SOCIAL WORK 47.7

including

Netherlands 28,8

Italy 7.0

Cyprus 5.6

Great Britain 2.4

Virgin Islands (British) 1.5

USA 0.8

Russia 0.8

Panama 0.7

Other 0.9



ACTIVITY OF PROFESSIONAL

ORGANIZATIONS,

ASSOCIATIONS AND

UNIONS 3,002.3

including

Virgin Islands (British) 2,962.6

Netherlands 36.0

USA 1.8



ASTANA 00000044 026.3 OF 027





Spain 1.6

Other 0.4

Source: National Bank of Kazakhstan (the stock data is valued at

market cost)



FDI (stock) AS PERCENTAGE OF GDP

as of September 30, 2009 85.04%



KAZAKHSTANI DIRECT INVESTMENT OUTFLOWS (Millions of U.S. dollars,

nominal)

Country of

Destination 2004-2007 2008 2009 (9 months) Total



Austria 9.6 0.2 0.2 10.0

Azerbaijan 6.7 0.1 0.4 7.2

Armenia 7.6 2.1 0.1 9.7

Afghanistan 0.0 0.0 0.0 0.0

Byelorussia 4.6 30.6 0.0 35.2

Bulgaria 1.5 1.3 0.3 3.0

Belgium 0.1 0.0 0.0 0.1

Great Britain 174.0 28.6 4.6 207.1

Hungary 0.1 0.0 0.0 0.1

Virgin Islands 448.4 257.7 -44.7 661.4

Germany 231.5 5.9 1.1 238.5

Guernsey 0.0 0.0 0.0 0.0

Hong Kong 60.0 0.0 0.0 60.0

Greece 0.1 0.0 0.0 0.1

Georgia 116.9 11.7 3.0 131.5

Dominican

Republic 0.2 0.0 0.0 0.2

Egypt 0.0 0.0 0.0 0.0

Israel 10.6 0.4 0.0 11.0

India 7.3 0.0 10.8 18.1

Iran 1.6 8.8 0.0 10.4

Ireland 0.1 0.0 0.0 0.1

Spain 1.8 4.0 0.4 6.2

Italy 0.1 0.0 0.0 0.1

Canada 47.0 0.1 1.1 48.2

Cayman Islands 1.0 0.0 1.7 2.7

Qatar 0.0 0.0 0.1 0.1

Cyprus 91.5 326.9 1.3 419.6

China 63.9 34.7 4.4 103.0

Kyrgyzstan 304.4 10.9 -34.6 349.9

Latvia 2.2 0.0 0.1 2.3

Libya 0.0 0.1 0.0 0.1

Lithuania 1.1 0.0 0.1 1.2

Liechtenstein 0.1 0.0 0.0 0.1

Luxemburg 7.8 0.0 0.0 7.8

Mauritius 0.1 2.8 -0.3 2.7

Malaysia 2.2 0.7 0.0 2.9

Marshall

Islands 96.0 0.0 0.0 96.0

Isle of Man 6.6 0.0 0.0 6.6

Mongolia 0.2 3.6 0.0 3.8

Montenegro 0.0 0.0 0.3 0.3

Netherlands 385.5 2,347.4 3,760.8 6,493.7

Nigeria 0.2 0.0 0.0 0.2

Arab Emirates 52.3 28.5 8.8 89.5

Poland 0.0 24.9 0.0 24.9

Russian

Federation 832.9 543.9 42.0 1,418.8.

Seychelles 28.3 0.0 0.0 28.3

Serbia 0.0 0.1 0.0 0.1

Singapore 67.9 0.0 0.0 67.9

South Korea 1.4 0.0 0.0 1.4

USA 434.5 17.8 162.1 614.5

Tajikistan 33.3 8.8 2.3 44.4

Thailand 49.2 0.1 0.1 49.4

Turkmenistan 0.0 0.1 2.0 2.1

Turkey 378 85.8 39.9 503.7

Uganda 0.0 0.0 0.0 0.0

Uzbekistan 128.9 3.4 2.1 134.4



ASTANA 00000044 027.3 OF 027





Ukraine 125.5 196.4 -1.0 320.9

France 8.3 4.4 1.9 14.6

Check Republic 4.4 -1.6 0.1 3.0

Switzerland 406.3 242.6 0.9 649.7

Estonia 0.0 0.0 0.0 0.0

Republic of

South Africa 0.1 0.0 0.1 0.2

Other

Countries 15.6 9.8 11.6 36.9



TOTAL 4659.4 4,244.0 4,053.0 12,956.8

Source: National Bank of Kazakhstan



SUMMARY OF INVESTMENTS AS OF 2009: As of September 30, 2009, the

extractive sector accounted for over 15% of the $137 billion

invested in Kazakhstan, with U.S. firms consistently ranking as the

largest foreign investors. U.S. companies have invested $9.34

billion in the extractive sector, including billion-dollar

investments in Kazakhstan's petroleum sector by Chevron, ExxonMobil,

and ConocoPhillips. From 1993 to 2008, Tengizchevroil, in which

Chevron holds a 50% stake, and ExxonMobil, which owns 25%,

contributed approximately $30.4 billion to Kazakhstani entities,

including purchases of Kazakhstani goods and services, tariffs and

fees paid to the state-owned companies, profit distributions to

Kazakhstani shareholder, taxes and royalties paid to the government

and Kazakhstani employee's salaries. Other major foreign investors

in this sector include the Chinese National Petroleum Corporation

(CNPC),Shell, British Gas, Total, Agip, Lukoil, Eni, and Inpex.

Other major U.S. investors include Philip Morris (over $320 million

in tobacco processing) and General Electric Transportation (a

locomotive facility). Other major non-U.S. foreign investors

include Arcelor Mittal and BAE Systems.



HOAGLAND