US embassy cable - 05ALMATY3172

UNCLAS  ALMATY 003172 
 
SIPDIS 
 
 
DEPT PASS TO EUR/CACEN MUDGE 
DEPT PASS TO OPIC - BALLINGER 
DEPT PASS TO TDA FOR STEIN, EXIM FOR GLAZER 
DEPT PASS TO AID - EE-PHILLIPS/RUSHING 
TREASURY FOR OASIA/VELTRI 
USDOC FOR 4231/ITA/MAC/MLONDON, 4201/BISNIS 
USDOC FOR 6110/ITA/TD/BI/RHALPERN 
ANKARA FOR CFC 
 
E.O. 12958: N/A 
TAGS: ECON, EIND, ENRG, EPET, EFIN, KZ, ECONOMIC, Energy 
SUBJECT:  KAZAKHSTAN ECONOMIC AND ENERGY UPDATE 
August 7 - August 20, 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. 
 
--   Changes in the Cabinet 
--   WTO Protocol with Turkey Signed 
--   China Bank of Kazakhstan Lost License 
--   Economic Statistics 
--   CNPC International to Buy PetroKazakhstan 
--   TCO Executives Sued for Environmental Damage 
--   GoK to Review North Caspian PSA 
--   Kazakhstan Bans Aviation Fuel Export Through 2005 
--   Oil & Gas Statistics 
 
 
Changes in the Cabinet 
---------------------- 
 
2.  Serik Umbetov was discharged from his position of 
Minister of Agriculture and appointed as Akim of Almaty 
Oblast (not Almaty city) by a presidential decree.  Shalbay 
Kulmakhanov, who had held the position of Akim of Almaty 
Oblast, was appointed as Minister for Emergency Situations. 
Mukhambet Kopey was dismissed from the position of Minister 
for Emergency Situations by the President's decree in 
connection with a new, as yet unspecified, appointment. 
(Panorama, August 12) 
 
WTO Protocol with Turkey Signed 
------------------------------- 
 
3.  Kazakhstan and Turkey signed a protocol on completion 
of the bilateral negotiations for access to Kazakhstan 
market on mutually acceptable terms.  According to the 
press service of the GOK, "the parties negotiated the 
levels of Kazakhstan's import customs duties for Turkish 
commodities and obligations regarding Turkey's access to 
the Kazakh services market, in line with the WTO 
agreements."  Completion of the negotiations will promote 
Kazakhstan's early admission to the WTO.  (Interfax - 
Kazakhstan, August 15) 
 
China Bank of Kazakhstan Lost License 
------------------------------------- 
 
4.  According to Yelena Bakhmutova, Deputy Chairman of the 
Financial Supervision Agency (FSA), the license for transfer 
operations will be withdrawn from China Bank of Kazakhstan 
JSC (a subsidiary of the Bank of China) for six months.  As 
Bakhmutova explained, the FSA uncovered violations connected 
with money transfers: individuals sent money to China from 
accounts not belonging to them.  "After investigation of the 
incident the bank is going to take steps to prevent such 
situations in the future," she added.  (Interfax - 
Kazakhstan, August 16) 
 
Economic Statistics 
------------------- 
 
5.  The net profit of the Aktau International Seaport was 
KZT 677,475,000 (approximately $5 million) for the first 
half of 2005, versus KZT 985,080,000 (about $7.2 million) 
for H1 2004.  Revenues from sales of goods, works, and 
services totaled KZT 2,158 million in January-June 2005 
(approximately $16 million) versus KZT 2,028 million (about 
$15 million) in H1 2004.  As reported, Aktau Seaport 
transshipped a total of 5,294,031 tons of freight in January- 
June 2005, including by ferries, compared to 4,959,329 tons 
during H1 2004.  (Interfax - Kazakhstan, August 8) 
 
6.  In July 2005, the volume of foreign currency traded by 
the population via exchange points in Kazakhstan was KZT 115 
billion (approximately $848 million), according to the press 
service of the National Bank of Kazakhstan.  The most 
significant trade was in U.S. dollars: $730 million; about 
half of this amount ($384 million) was bought at exchange 
points in Almaty.  The Euro volume traded in July was Euro 
65 million.  Almaty residents bought Euro 44 million or 67% 
of the total amount.  (Kazakhstan Today, August 17). 
 
7.  The average cost per square meter of housing in 
Almaty for the month of July is $1,178.30, according to real 
estate experts.  They evaluate the housing market for July 
as stable in general, despite "the significant shifts in 
housing prices for expensive apartments."  Prices for elite 
apartments in newly constructed buildings increased in July 
by 12-18%.  (Golden Eagle Service, August 18) 
 
CNPC International to Buy PetroKazakhstan 
----------------------------------------- 
 
8.  On August 22, CNPC International, a subsidiary of China 
National Petroleum Corporation (CNPC), agreed to pay $4.18 
billion, or $55 per share, for Canadian firm PetroKazakhstan 
(PK).  PK's Board of Directors has recommended that its 
shareholders accept CNPCI's offer, which is subject to the 
approval by 66.6% of them at an October meeting.  Goldman 
Sachs International is acting as financial advisor to PK. 
The agreement contains customary provisions prohibiting PK 
from soliciting any other acquisition proposal, but allows 
the PK Board of Directors to accept and recommend a superior 
proposal if it is required to do so to avoid breaching its 
fiduciary duties and upon payment of a termination fee of 
$125 million.  Under the Agreement, CNPCI has the right to 
match any such superior proposal.  Indian Oil & Natural Gas 
Corp. is reportedly now evaluating the possibility of 
submitting a counter offer.  (Reuters, August 23) 
 
TCO Executives Sued for Environmental Damage 
-------------------------------------------- 
 
9.  Atyrau's Environmental Protection Procuracy has 
initiated criminal proceedings against TengizChevrOil (TCO) 
executives for "violation of environmental standards in 
economic and other activities" and "for air pollution 
damaging human health," a representative of the Procuracy 
announced on August 8.  The criminal case is related to 
failure of Tengiz gas-processing plant on July 2, which 
caused acid and crude gas leak in the amount of 49,910 tons. 
The damage is assessed at KZT 199.7 million ($1.5 million). 
Documents have been submitted to Atyrau Oblast Prosecutor's 
Office to verify the appropriateness of criminal charges. 
(Kazakhstan today, August 11) 
 
GoK to Review North Caspian PSA 
------------------------------- 
 
10.  According to an August 13 Decree by the Prime Minister, 
the GoK has established a working group under Vice-Minister 
of Finance Uzbekov to review provisions of the Production 
Sharing Agreement (PSA) for the North Caspian Sea (Kashagan) 
signed on November 18, 1997 with OKIOC (currently - Agip 
KCO).  The working group will review the application of 
separate issues of Kazakhstani tax and customs legislation 
to the Kashagan PSA.  (Prime-Minister Decree #222-p, August 
18) 
 
Kazakhstan Bans Aviation Fuel Export Through 2005 
--------------------------------------------- ---- 
 
11.  Kazakhstan imposed a temporary ban on aviation fuel 
export from August 20 through December 31, 2005, according 
to an August 19 decree by the Prime Minister.  The ban is 
imposed "for the purpose of saving the required aviation 
fuel for economic needs of the Republic."  The ban does not 
apply to aviation fuel registered earlier in accordance with 
regular declaration before enactment of the decree, and also 
placed under special customs regime.  (Interfax - 
Kazakhstan, August 22) 
 
Oil & Gas Statistics 
-------------------- 
 
12.  In January-July oil production in Kazakhstan was 28.9 
million tons, 1% higher compared to the same period in 2004, 
the National Statistics Agency reported.  During the same 
period, 6.8 million tons of gas condensate, up 44% year-on- 
year, were produced.  (Interfax - Kazakhstan, August 15) 
 
13.  In H1 2005 Kazakhstan exported 28.1 million tons of oil 
and gas condensate, 12.1% higher compared to the same period 
in 2004.  In dollar terms, the exports totaled $8.1 billion, 
a 78% increase.  (Interfax - Kazakhstan, August 15) 
 
ASQUINO 
 
 
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