US embassy cable - 05ALMATY2308

UNCLAS  ALMATY 002308 
 
SIPDIS 
 
 
DEPT PASS TO EUR/CACEN MUDGE 
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ANKARA FOR CFC 
 
E.O. 12958: N/A 
TAGS: ECON, EIND, ENRG, EPET, EFIN, KZ, ECONOMIC, Energy 
SUBJECT:  KAZAKHSTAN ECONOMIC AND ENERGY UPDATE 
May 29 - June 11, 2005 
 
 
1.  Summary: This information is drawn primarily from the 
Kazakhstani local press, and has not been checked for 
accuracy.  The opinions and policies expressed in this 
report are those of the authors, not the U.S. Government. 
 
--   New Joint Russian- Kazakh Space Venture 
--   Senate Approves Law on Domestic Market Protection, 
Customs Code 
--   Special Board for Disputes with Foreign Investors 
--   National Bank to Change Minimum Reserve Requirements 
--   Economic Statistics 
--   CPC Shareholders Raise Oil-Pumping Tariff 
--   Ukraine and Kazakhstan Discuss Oil Cooperation 
--   BG Karachaganak and Orensal Investigation Continues 
--   Ban on Gas Flaring not to Influence Oil Volumes 
--   President Signs Amendments to Commercial Navigation Law 
--   Oil & Gas Statistics 
 
New Joint Russian- Kazakh Space Venture 
--------------------------------------- 
 
2.  Air Force Major - General and Pilot - Cosmonaut, Talgat 
Musabaev was appointed as a General Director of Russian- 
Kazakh Space Joint-Venture "Baiterek".  The Russian 
participant in the venture is the Krunichev Research and 
Production Center, the Kazakhstani participant is the 
Committee of State Property and Privatization under the 
Ministry of Finance.  The enterprise was created for the 
construction of the new space rocket complex "Baiterek" in 
Baikonur.  (Interfax-Kazakhstan, May 30) 
 
Senate Approves Law on Domestic Market Protection, Customs 
Code 
--------------------------------------------- ------------- 
 
3.  The Senate approved amendments to the Law on Domestic 
Market Protection Measures.  According to the GoK's 
explanatory note, the main goal of this draft is to adjust 
the existing law of January 28, 1998 to conform to World 
Trade Organization standards on protective measures. 
Amendments include additional steps that must be taken 
before introducing protective measures and specification of 
the financial operations necessary during the term of 
temporary protective measures.  (Interfax-Kazakhstan, June 
2) 
 
4.  The Senate approved amendments to the Customs Code.  The 
bill was drafted for the purpose of bringing the norms of 
the Customs Code into compliance with the basic provisions 
of Kyoto Convention on harmonization and simplification of 
customs procedures, World Customs Organization agreements, 
and the Tax Code of Kazakhstan.  (Interfax-Kazakhstan, June 
2) 
 
Special Board for Disputes with Foreign Investors 
--------------------------------------------- ---- 
 
5.  "Taking into account that Almaty is developing as the 
financial center of the Central Asian region, we should 
consider the creation of a special board to solve investment 
disputes with foreign companies, within the structure of 
Almaty city's court," the President Nazarbayev stated at the 
4th congress of Kazakhstani judges in Astana on June 3.  He 
noted that the offices of well known financial institutions 
in Kazakhstan should work under the conditions prevailing in 
the rest of the world.  (Interfax-Kazakhstan, June 3) 
 
National Bank to Change Minimum Reserve Requirements 
--------------------------------------------- ------- 
 
6.  Banks in Kazakhstan are bound to maintain their reserves 
at six percent of their current liabilities in cash or in 
money on correspondent accounts and deposits in National 
Bank (NB).  "The idea that the NB is considering now is to 
include foreign liabilities of banks into the calculation of 
minimum reserve requirements, thus tightening demands to 
this standard," the NB Chairman Anvar Saidenov said at a 
press conference on June 8 in Almaty.  He thinks that this 
measure will influence the liquidity position of the banking 
system and the volumes of reserves borrowed from foreign 
sources.  (Interfax-Kazakhstan, June 9) 
 
 
Economic Statistics 
------------------- 
 
7.  The volume of the money supply in Kazakhstan declined by 
3.1% in April 2005, to reach KZT 1,671.8 billion 
(approximately $12.6 billion).  Cash in circulation rose by 
4.1% during the reported period to KZT 379.9 billion (about 
$2.9 billion); whereas deposits made with banks and credit 
cooperatives fell by 5.1% to KZT 292 billion (about $9.7 
billion).  (Interfax-Kazakhstan, June 9) 
 
8.  Japan invested about $670 million in Kazakhstan's 
economy from 1992-2004.  According to the Ambassador of 
Japan to Kazakhstan Toshio Tsunodzaki, Japanese investments 
totaled $491 million from 1992 till 2003.  In 2004, Japanese 
investments totaled $179 million or 36% of investments made 
during the previous years.  The diplomat referred to 
positive dynamics in trade and economic relations between 
the two countries.  (Interfax-Kazakhstan, June 9) 
 
CPC Shareholders Raise Oil-Pumping Tariff 
----------------------------------------- 
 
9.  Caspian Pipeline Consortium (CPC) shareholders have 
agreed on six of seven demands made by Russia, CPC director 
General MacDonald stated on June 2 at CIS oil and gas summit 
in Paris.  Construction loans will be refinanced and tariffs 
will be increased by $2.50 to $30.83 per ton.  Management 
secondees will be in proportion to equity holdings.  The 
shareholders also agreed that expansion volumes will be 
subject to `pump or pay' principle; CPC will cancel its 
claim on compensation of expenditures incurred as a result 
of commissioning of assets transferred to CPC from the 
state; all existing debt will be repaid on an equal basis; 
finally and expansion project will be externally financed 
[the project will cost around the.5 billion].  The sides have 
not agreed on variable tariff for operating expenses. 
(Interfax - Kazakhstan, June 6) 
 
Ukraine and Kazakhstan Discuss Oil Cooperation 
--------------------------------------------- - 
 
10.  During President Yushenko's May visit, the GoK and 
Ukraine agreed to establish a joint venture between 
Ukrainian Neftegaz and Kazakhstani state producer 
KazMunayGaz for construction of a 52-kilometer oil pipeline 
from Odessa to Uzhni port (north-east from Odessa) and 
terminal.  President Nazarbayev stated interest in Odessa- 
Brody pipeline expansion and its readiness to become 
shareholder.  Ukraine also agreed to purchase 2-4 million 
tons of Caspian oil annually as a cheaper alternative to 
Russian.  (Interfax - Kazakhstan, June 6) 
 
BG Karachaganak and Orensal Investigation Continues 
--------------------------------------------- ------ 
 
11.  Kazakhstan's Financial Police is continuing a criminal 
investigation of BG Karachaganak (British Gas subsidiary) 
and Orensal (BG Karachaganak subcontractor, Russia).  In 
July 2004, the two companies were accused of illegal 
supplying of unstable gas condensate during 2001-2003 to 
Russia.  Initial claims were KZT 1.2 billion (approximately 
$9 million).  "These amounts are now increasing each day. . 
If they admit their guilt and pay the penalty, a court case 
is not necessary," Financial Police Head Kalmurzayev said. 
(Kazakhstan Newswire, June 3) 
 
Ban on Gas Flaring not to Influence Oil Volumes 
--------------------------------------------- -- 
 
12.  A January 1, 2005 ban on flaring gas will not affect 
oil and gas development, according to Energy Vice-Minister 
Kiinov.  Oil production decline might hit 1.5 million tons 
per year.  Production increase of 2-2.5 million tons a year 
should easily make up the shortfall.  (Interfax - 
Kazakhstan, June 3) 
President Signs Amendments to Commercial Navigation Law 
--------------------------------------------- ---------- 
 
13.  The new law on Commercial Navigation brings the current 
navigation legislation in compliance with international 
standards.  Most importantly, it also permits foreign 
citizens to occupy officer positions in the crew under 
Kazakhstan's state flag till 2010.  (Interfax - Kazakhstan, 
June 6) 
 
Oil & Gas Statistics 
-------------------- 
 
14.  In January-May oil and gas condensate production in 
Kazakhstan was 26.1 million tons, 12.3% higher compared to 
the same period in 2004, the GoK reported.  It includes 2.9 
million tons of gas condensate, 31% year-on-year.  (Interfax 
- Kazakhstan, June 7) 
 
ORDWAY 
 
 
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