VZCZCXRO7531
RR RUEHLN RUEHVK RUEHYG
DE RUEHTA #1361/01 2100958
ZNR UUUUU ZZH
R 280958Z JUL 08
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC 2852
INFO RUCPCIM/CIMS NTDB WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUCNCIS/CIS COLLECTIVE 0584
RUEHAK/AMEMBASSY ANKARA 2173
RUEHBUL/AMEMBASSY KABUL 0406
RUEHNE/AMEMBASSY NEW DELHI 0509
RUEHAST/USOFFICE ALMATY 0617

UNCLAS SECTION 01 OF 02 ASTANA 001361 
 
DEPT FOR SCA/CEN (O'MARA) 
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 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EIND ENRG EPET EFIN KTDB KZ
SUBJECT:  KAZAKHSTAN ECONOMIC AND ENERGY UPDATE, JULY 6 - JULY 19, 
2008 
 
ASTANA 00001361  001.2 OF 002 
 
 
¶1.  Summary:  This information is drawn primarily from the 
Kazakhstani local press, and has not been verified for accuracy. 
 
- New Transfer Pricing Law Signed 
- Kazakhstan-Russia Cooperation on Financial Supervision 
- Kyrgyzstan to Receive Kazakhstani Wheat 
- New Head of ABN AMRO Bank Kazakhstan 
- Economic Statistics 
- KazMunayGas Buys 51% of MangistauMunayGas 
- KMG to Explore Myortviy Kultuk 
- Karachaganak Consortium Paying Crude Export Duty 
- Kazakhmys in Merger Talks with Metalloinvest 
- New President of British Gas Kazakhstan 
- Energy Statistics for January-June 2008 
 
New Transfer Pricing Law Signed 
------------------------------- 
 
¶2.  President Nazarbaev signed a new transfer pricing law on July 5, 
which, in the words of Finance Minister Zhamishev, is not designed 
to collect as much tax as possible, but rather to ensure that taxes 
are paid in the country where income is generated.  The new law 
specifies an "arm's length principle" and provides for preliminary 
approval of transaction prices.  Zhamishev believes the law will 
allow fiscal authorities to more easily identify companies that 
avoid paying taxes via offshore transactions. 
 
Kazakhstan-Russia Cooperation on Financial Supervision 
--------------------------------------------- --------- 
 
¶3.  Kazakhstan's Financial Supervision Agency (FSA) and the Central 
Bank of Russia signed a memorandum on matters of bank supervision 
which promises an increased exchange of information between monetary 
officials regarding banks and their subsidiaries operating in the 
two countries.  Specifically, details of banks' shareholders, 
management structure, affiliates, activities, and financial status 
are to be shared in an effort to assist monetary officials in taking 
decisions on bank permits and licenses.  The memorandum also 
specifies cooperation on bank inspections and outlines plans to set 
conditions for data protection in Kazakhstan and Russia. 
 
Kyrgyzstan to Receive Kazakhstani Wheat 
--------------------------------------- 
 
¶4.  Despite a standing ban on wheat exports, Kazakhstan will fulfill 
its pledged shipments of wheat to Kyrgyzstan.  According to the 
Kazakhstan Embassy in Bishkek, immediately following Kyrgyz 
President Kurmanbek Bakiyev's recent visit to Kazakhstan, the two 
countries reached an agreement on Kazakhstan's supplying 50,000 tons 
of grain to Kyrgyzstan.  Kyrgyzstan has already received 10,000 tons 
of grain, and the remaining 40,000 tons will be shipped in the near 
future. 
 
New Head of ABN AMRO Bank Kazakhstan 
------------------------------------ 
 
¶5.  Rudi Geerdink will replace Jurgen Rigterink as Chairman of the 
Managing Board and Country Head of ABN AMRO Bank Kazakhstan, 
according to a bank press release from July 16.  Geerdink joined ABN 
AMRO in 2000 after working on risk management at PriceWaterhouse. 
 
Economic Statistics 
------------------- 
 
¶6.  According to the Ministry of Economy and Budget Planning, GDP 
growth for the first six months of 2008 was 5.1% on an annualized 
basis.  Inflation for the month of June was 1.2%.  On an annualized 
basis, prices for food products grew by 29.3%, for paid services by 
15%, and for non-food products by 11.6%.  June-on-June inflation was 
20%. 
 
¶7.  For the first five months of 2008, Kazakhstan's external trade 
was $41.596 billion, an increase of 41.8% over the same period the 
previous year.  Exports grew by 60% to $28.012 billion and imports 
increased 14.8% to $13.584 billion.  The main destination countries 
 
ASTANA 00001361  002.2 OF 002 
 
 
for Kazakhstani exports were Italy (17.4% of total exports), 
Switzerland (15.2%), China (9.2%), Russia (8.6%), France (8.2%), the 
Netherlands (5.3%), Iran (3.4%), Israel (3.3%), Ukraine (3.3%) and 
Turkey (2.6%).  The list of the largest exporters to Kazakhstan 
included Russia (39.1% of total imports), China (9.9%), Germany 
(7%), the U.S. (5.3%), Ukraine (5.2%), Japan (3.2%), Italy (2.8%), 
Turkey (2.6%), France (2.3%), and the UK (1.7%). 
 
KazMunayGas Buys 51% of MangistauMunayGas 
----------------------------------------- 
 
¶8.  Kazakhstan's national oil and gas company, KazMunayGas (KMG), 
signed an agreement to purchase a 51% stake in MangistauMunayGas 
company (MMG), which had been majority owned by Indonesia's Central 
Asia Petroleum Corp.  Former KMG president Uzakbay Karabalin has 
been appointed MMG director general.  MMG owns 36 oil and gas fields 
and a 58% stake in the Pavlodar Petrochemical Plant. 
 
KMG to Explore Mertviy Kultuk 
------------------------------ 
 
¶9.  Kazakhstan's Ministry of Energy and Mineral Resources and KMG 
signed a contract for the exploration and production of hydrocarbons 
in the Mertviy Kultuk offshore section of the Caspian Sea.  The 
recoverable oil resources are estimated at 164 million tons.  A 50% 
stake in this project will be given to a legal entity which will be 
established by a group of Kazakhstani investors. 
 
Karachaganak Consortium Paying Crude Export Duty 
--------------------------------------------- --- 
 
¶10.  Karachaganak Petroleum Operating B.V. (KPO) paid $82.5 million 
in crude export duties in June.  On July 17, the Finance Ministry 
published on its website an updated list of companies subject to 
Kazakhstan's new crude export duty, with KPO the sole addition to 
this latest version of the list. 
 
Kazakhmys in Merger Talks with Metalloinvest 
-------------------------------------------- 
 
¶11.  The largest copper producing company in Kazakhstan, Kazakhmys, 
is holding preliminary negotiations with Russia's Metalloinvest 
holding company regarding a potential merger.  Metallinvest annually 
produces 6 million tons of steel and 40 million tons of ore. 
 
New President of British Gas Kazakhstan 
--------------------------------------- 
 
¶12. Peter Dranfield replaced Lewis Affleck as president of British 
Gas Kazakhstan.  Dranfield has been in charge of BG operations in 
Egypt, Trinidad and Tobago, and most recently Oman.  He previously 
worked in Kazakhstan during the 1990s. 
 
Energy Statistics for January-June 2008 
--------------------------------------- 
 
¶13.  According to the National Statistics Agency, Kazakhstan's crude 
production was 29.19 million tons during January-June 2008, a 7.8% 
increase over the same period in 2007.  Gas condensate production 
rose 4% to 6.44 million tons.  Kazakhstan extracted 53.95 million 
tons of coal during January-June, a 19.8% increase. 
 
ORDWAY 
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