US embassy cable - 05ALMATY2688

UNCLAS  ALMATY 002688 
 
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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 
June 26 - July 9, 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. 
 
--   Kazakhstan Elected to WCO Political Commission 
--   Parliament Approved 2004 State Budget Execution 
--   Labor Violations by Foreign Employers 
--   GoK to Reduce Administrative Costs 
--   Agreement on Trans-Kazakhstan Railway Signed 
--   Gradual Transfer of Airlines from Almaty to Astana 
--   Kurmangazy PSA Signed 
--   Kazakhstani-Russian Joint Venture for Ekibastuz GRES-2 
--   President Signs PSA Law 
--   Kazakhstan to Join BTC Pipeline Soon 
--   Kazakhstan, Poland Discuss Odessa-Brody-Plozk Pipeline 
--   Kazakhstan May Privatize Polish Oil Refinery 
--   Oil & Gas Statistics 
Kazakhstan Elected to WCO Political Commission 
--------------------------------------------- - 
 
2.  Kazakhstan has been elected a member of the political 
commission of the World Customs Organization (WCO) for the 
first time in history, the press service of Kazakhstani 
Foreign Ministry reported.  Kazakhstan will represent and 
defend the interests of all CIS members and Baltic States at 
the WCO.  (RosBusinessConsulting, June 27) 
 
Parliament Approved 2004 State Budget Execution 
--------------------------------------------- --- 
 
3.  The press service of the Parliament reports that budget 
revenues in 2004 were KZT 978,358.9 million (approximately 
$7,247 million) and exceeded planned volume by 4.7%. 
Meanwhile, state budget expenditures in 2004 were KZT 
995,620.5 million ($7,375 million), which is 96.9% of 
planned spending.  Unutilized state budget funds amounted to 
KZT 31,349.1 million ($232.2 million).  The budget deficit 
totaled KZT 17,261.6 million ($127.9 million).  After two 
weeks of hearings, the deputies approved the reports and did 
not seek the Government's resignation, as some deputies said 
they would.  The Parliament recommended that the Government 
upgrade its monitoring of the administration of the budget. 
(Interfax - Kazakhstan, June 28) 
 
Labor Violations by Foreign Employers 
------------------------------------- 
 
4.  The Supervisor for Legitimacy Control Dulat Kustavletov 
reported the results of inspections conducted by the 
national Procurator General's Office.  According to 
Kustaveletov, fully half of the foreign companies working in 
Kazakhstan are in violation of the country's labor laws. 
The most widespread indicator of discrimination against 
Kazakhstani employees is the difference salaries: local 
staff tends to be paid 4-7 times less than foreign employees 
with same qualifications.  The Procurator's Office appealed 
to the GoK to take steps to eliminate these violations. 
(Interfax-Kazakhstan, June 28). 
 
GoK to Reduce Administrative Costs 
---------------------------------- 
 
5.  According to Prime Minister Akhmetov, administrative 
costs will be reduced by up to 23%.  He said these costs 
should be decreased because Kazakhstan has extremely large 
expenditures for such a small country.  Today, 
administrative costs make up 25.3% of the state budget. 
These expenses have increased by 3% over last three years, 
the Prime Minister added.  The Ministry of Economy was 
assigned the task of finding ways to reduce administration 
costs.  (Golden Eagle Service, June 30) 
 
Agreement on Trans-Kazakhstan Railway Signed 
-------------------------------------------- 
 
6.  Kazakhstan and China are to build the Trans-Kazakhstan 
railway, under an agreement between Chinese President Hu 
Jintao and Kazakhstani President Nazarbayev.  The 
construction project's cost is estimated at $2.5 billion, 
according to the national rail company Kazakhstan Temir 
 
Zholy.  The railway will connect Southeastern Asia with 
Europe via Dostyk, Aktogai, Zhezkazgan, Beineu and Aktau 
port.  The 3,083 km-long rail will stretch through 
Kazakhstan, Turkmenistan, Iran, Turkey and Europe. 
(Novecon, July 5) 
 
Gradual Transfer of Airlines from Almaty to Astana 
--------------------------------------------- ----- 
 
7.  Prime Minister Akhmetov and representatives of the 
Ministry of Transport and Communication considered a step-by- 
step increase of international flights going to Astana.  The 
transfer of international airlines is planned for October 
2005.  In the first stage, one flight from each 
international airline will land in Astana.  The next step is 
to achieve an equal distribution of the flights to Astana 
and Almaty, with a subsequent further increase in flights to 
Astana as demand increases.  (GoK Press-Service, July 4) 
 
Kurmangazy PSA Signed 
--------------------- 
 
8.  On July 6, Production Sharing Agreement (PSA) for 
Kurmangazy field (Kazakhstan's sector of the Caspian Sea) 
was signed by the Kazakhstani Energy Ministry, KazMunayTeniz 
(offshore subsidiary of national oil producer KazMunayGaz) 
and RN-Kazakhstan (a Russian Rosneft subsidiary).  The PSA 
is signed for 55 years, including 2 years of exploration, 3 
years of assessment and 4-5 years of field facilities 
construction and production initiation.  Joint investments 
are expected to be $23 billion and profits should total $50 
billion, of which Kazakhstan's share is about 77%. 
Kurmangazy recoverable reserves are estimated at around 7.7 
billion barrels of oil.  The shareholders in the project are 
KazMunayGaz (50%) and Rosneft (25%).  Russian Zarubezhneft 
has an option for 25%.  (Interfax - Kazakhstan, July 6) 
 
Kazakhstani-Russian Joint Venture for Ekibastuz GRES-2 
--------------------------------------------- --------- 
 
9.  On July 6, the Kazakhstani Energy Ministry and Russian 
Unified Energy System (RAO UES) signed a protocol on 
creation of a joint venture at the hydroelectric power 
station Ekibastuz GRES-2 (Eastern Kazakhstan).  Russia 
received 50% of GRES-2 as payment for a $239 million debt, 
which the Kazakhstani state company Kazakhstanenergo 
accumulated in 1993-96 for energy supplies from RAO UES. 
Russia also gains control of the North cargo-transportation 
department and the railway stations "Trudovaya" and 
"Udarnaya".  (RAO UES Press Release - July 6). 
 
President Signs PSA Law 
----------------------- 
 
10.  On July 9, President Nazarbayev signed the law on 
Production Sharing Agreements (PSAs) for offshore oil 
operations.  The law spells out PSA parties' rights and 
responsibilities in the Kazakhstani sector of the Caspian 
Sea (KSCS) and Aral Seas.  The state oil and gas company 
KazMunayGaz will have at least 50% in KSCS projects.  The 
KSCS's recoverable reserves are estimated to be about 60 
billion barrels of oil.  (Interfax - Kazakhstan, July 11) 
 
Kazakhstan to Join BTC Pipeline Soon 
------------------------------------ 
 
11.  According to Prime-Minister Akhmetov, intergovernmental 
procedures for the preparation of an agreement on 
Kazakhstan's joining the Baku-Tbilisi-Ceyhan (BTC) pipeline 
are almost completed.  "In the nearest future the agreement 
will be signed," the Prime-Minister stated on July 8.  It is 
planned that Kuryk, a new port south of Aktau, will be a 
part of the project.  (Interfax - Kazakhstan, July 11) 
 
Kazakhstan, Poland Discuss Odessa-Brody-Plozk Pipeline 
--------------------------------------------- --------- 
 
12.  On July 7, during Polish Economy Minister Piechota's 
visit to Kazakhstan, KazMunayGaz and the Polish company PERN 
signed a memorandum on cooperation that addressed the 
expansion of the Odessa-Brody pipeline to the Polish town of 
 
Plozk.  Kazakhstan's participation in the project will 
consist of either oil supplies to the future pipeline or 
capital investments into its construction.  (Interfax - 
Kazakhstan, July 11) 
 
Kazakhstan May Privatize Polish Oil Refinery 
-------------------------------------------- 
 
13.  According to Polish Economy Minister Piechota, 
Kazakhstan confirmed its interest in participating in the 
privatization of the Polish company LOTOS.  The company's 
main asset is the oil refinery in Gdansk.  Currently the 
company is undergoing is the first stage of its 
privatization; during the second stage, Poland will look for 
an investor.  "Kazakhstan might be a good investor," 
Minister Piechota stated.  (Interfax - Kazakhstan, July 11) 
 
Oil & Gas Statistics 
-------------------- 
 
14.  In H1 2005 oil production in Kazakhstan was 25.2 
million tons, 3.9% higher compared to the same period in 
2004, the National Statistics Agency reported.  During the 
same period, 5.9 million tons of gas condensate, up 57.5% 
year-on-year, was produced.  (Interfax - Kazakhstan, July 
11) 
 
15.  From January-May, Kazakhstan exported 24.1 million tons 
of oil and gas condensate, 12% higher compared to the same 
period in 2004.  In dollar terms, it totaled $6.8 billion, a 
79% increase.  (Interfax - Kazakhstan, July 11) 
 
16.  In H1 2005 Kazakhstan refined 5.3 million tons of oil, 
a 15.5% increase year-on-year, the GoK reported.  (Interfax 
- Kazakhstan, July 12) 
 
ORDWAY 
 
 
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