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O 300609Z DEC 08
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UNCLAS SECTION 01 OF 03 ASTANA 002561 
 
DEPT FOR SCA/CEN, EEB 
PLEASE PASS TO USTDA DAN STEIN 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PGOV ECON EFIN EIND ENRG EPET KTDB KZ
SUBJECT:  KAZAKHSTAN ECONOMIC AND ENERGY UPDATE, December 7 - 
December 20 
 
ASTANA 00002561  001.2 OF 003 
 
 
¶1.  (U) SUMMARY:  This information is drawn primarily from the 
Kazakhstani local press and has not been verified for accuracy. 
 
-- Kazakhstan Ready to Negotiate Debt Restructuring 
-- Banks to Receive Government Assistance by March 
-- Conservative Scenario for 2009 National Budget 
--   Economic Statistics 
-- National Nuclear Center Plans 
-- Government Proposes Tax Benefits for Oil Companies 
-- News from Ulba Metallurgical Plant 
-- Inter RAO Wants to Buy Kazakh Gas 
-- KazMunayGas Signs Agreements 
-- Energy Statistics 
END SUMMARY. 
 
KAZAKHSTAN READY TO NEGOTIATE DEBT RESTRUCTURING 
 
¶2.  On December 9, Kairat Kelimbetov, former head of the 
Presidential Administration and current Chairman of the National 
Welfare Fund Samruk-Kazyna, said that the state is prepared to 
negotiate with foreign investors on the restructuring of Kazakhstani 
commercial banks' debt.  "If the Government will task us to do so, 
we would begin a negotiation process with foreign investment banks 
and investors to work out a mechanism for restructuring."  According 
to Kelimbetov, the total amount of external borrowing of domestic 
banks exceeds $40 billion, a significant portion of which must be 
repaid within the next two to three years.  Kelimbetov explained 
that the government would like to discuss discounts and possible 
extensions in the repayment schedule with creditors. 
 
¶3.  Commenting on Kelimbetov's statements, the Chairman of the 
National Bank, Anvar Saidenov, emphasized that there is no 
possibility of default.  "We are not talking about someone refusing 
to repay debts.  This is not a constructive position, " he said 
during a December 10 press-conference in Almaty.  In his opinion, 
there will be more opportunities to re-negotiate directly with 
investors, as opposed to working through syndicated loans and 
Eurobonds.  According to Saidenov, of the $40 billion in total 
external debt, about $21 billion is Eurobond debt. 
 
¶4.  According to Oraz Zhandossov, former Minister of Finance, former 
Chairman of the National Bank, and now independent economic analyst, 
recent government statements about the possibility of restructuring 
foreign debt indicate partial acknowledgement of the eventual 
likelihood of default.  He said that restructuring is indeed 
necessary to prevent default, and that it would be in the creditors' 
interests to enter into negotiations. 
 
BANKS TO RECEIVE GOVERNMENT ASSISTANCE BY MARCH 
 
¶5.  According to Samruk-Kazyna Chairman Kelimbetov, the Kazakhstani 
government plans to complete the transfer of funds (as part of 
Kazakhstan's financial crisis program) to Kazakhstan's four primary 
private banks by the middle of March 2009.  He noted that 
KazKommertzBank, BTA bank, Alliance Bank and Khalyk Bank have each 
signed memorandums of understanding that specify the government's 
ownership share to be purchased according to the assistance package. 
 Kelimbetov added that final decisions regarding possible additional 
funding for each bank will be announced following the results of 
independent audits to be completed by KPMG and 
PricewaterhouseCoopers. 
 
CONSERVATIVE SCENARIO FOR 2009 NATIONAL BUDGET 
 
 
 
 
 
¶6.  The Minister of Economy and Budget Planning Bakhyt Sultanov 
announced on December 18 that the Government of Kazakhstan may 
reconsider the national budget for 2009 based on a price of oil of 
$25 per barrel.  Under that scenario, budget revenue would be 
reduced by approximately $1.25 billion and the Prime Minister has 
 
ASTANA 00002561  002.2 OF 003 
 
 
subsequently tasked ministries to identify programs for which 
funding can be postponed for the first half of 2009.  The Prime 
Minister noted that "we should plan our expenditures based on the 
most conservative scenario." 
ECONOMIC STATISTICS 
¶7.  According to the Financial Supervision Agency (FSA), in 
January-November 2008, Kazakhstan's commercial banks earned a net 
profit of 33.8 billion tenge (approximately $280.2 million), or a 
83.7% decrease year-on-year in profit.  At the same time, loans 
since January 2008 have increased by 496.8 billion tenge (about $4.1 
billion) indicating 7.6% growth.  Kazakhstani commercial bank loans 
now total 7,015.8 billion tenge (approximately $58.15 billion).  As 
of December 1, commercial bank loan portfolios include 42.8% 
standard loans (39.7% as of January 1, 2008), 53.3% doubtful loans 
(58.8% as of January 1, 2008) and 3.9% bad loans (up from 1.5% on 
January 1, 2008.) 
 
PLANS OF NATIONAL NUCLEAR CENTER 
 
¶8.  During a December 12 press conference, Kairat Kadyrzhanov, 
Director General of the National Nuclear Center (NCC), announced 
plans to conduct a feasibility study together with Japanese 
scientists to build a fourth-generation, 50-megawatt, experimental 
nuclear reactor in Kurchatov (eastern Kazakhstan), and open a Center 
for Nuclear Medicine and Biophysics in 2011, which will be equipped 
to diagnose and treat cardiovascular and oncological diseases. 
Kadyrzhanov also proposed creating a national atomic energy company, 
which would build and operate nuclear power plants, and a National 
Agency for Atomic Energy, which would supervise the Committee for 
Atomic Energy (now under the Ministry of Energy and Mineral 
Resources), the national atomic company Kazatomprom, and the NCC. 
 
GOVERNMENT PROPOSES TAX BENEFITS FOR OIL COMPANIES 
 
¶9.  On December 12, Finance Minister Bolat Zhamishev told reporters 
that according to the new tax code effective January 1, 2009, 
companies paying the rent tax and mineral extraction tax will cease 
paying the crude export duty.  At a December 18 meeting of 
parliament, Zhamishev said that in January 2009, the Government of 
Kazakhstan plans to revise mineral extraction tax rates for 
low-profit oil fields on a case-by-case basis. 
 
NEWS FROM ULBA METALLURGICAL PLANT 
 
¶10.  On December 12, Kazatomprom president Mukhtar Dzhakishev told 
reporters that Russia declined to place an order for fuel pellets 
from Kazatomprom subsidiary, Ulba Metallurgical Plant, as expected. 
"If we lose the Russian market, Ulba will obtain more orders from 
China and Japan," he commented. 
 
¶11.  On December 11, "Khabar" television reported that the Ulba 
Metallurgical Plant launched a new facility to produce 72.9 tons of 
tantalum powder a year.  This breakthrough project is a part of the 
state's "30 Corporate Leaders" economic development program. 
 
INTER RAO WANTS TO BUY KAZAKH GAS 
 
¶12.  The December 11 "Kursiv" newspaper reported that Inter RAO EES, 
a subsidiary of Russia's power generating company, signed a one-year 
memorandum of understanding with Canada's Tethys Petroleum Limited. 
According to the memorandum, Tethys will sell gas produced by its 
Kazakhstani subsidiaries to Inter RAO EES and consider other joint 
projects for the acquisition, exploration, and development of oil 
and gas fields in Kazakhstan.  Inter RAO EES needs gas to supply its 
gas-fired power plants. 
 
KAZMUNAYGAS SIGNS AGREEMENTS 
 
¶13.  On December 5, the national oil and gas company KazMunayGas 
(KMG) signed an Agreement on Principles with ConocoPhillips and 
Mubadala Development Company from UAE to develop the Caspian 
offshore "N block," which contains 1.97 billion barrels of oil in 
recoverable reserves.  KMG also signed an agreement with the 
 
ASTANA 00002561  003.2 OF 003 
 
 
Kazakhstani investor group "Caspian Tristar" to develop the Caspian 
offshore field "Myortviy Kultuk," which has 1.2 billion barrels of 
oil in recoverable reserves, a Cooperation Agreement with BG Group 
to explore hydrocarbons, and a 30-year contract with the Ministry of 
Energy and Mineral Resources to explore and develop Urikhtau gas 
field in Aktobe oblast, with anticipated annual production of 1.5-2 
billion cubic meters of gas. 
 
ENERGY STATISTICS 
 
¶14.  According to the National Statistics Agency, from January to 
November, Kazakhstan produced 54.4 million tons of crude oil and 
30.24 billion cubic meters of natural gas, an increase of 5.9% and 
11.6%, respectively, over the same period in 2007.  From January to 
October, Kazakhstan exported 50.51 million tons of crude oil and gas 
condensate, valued at $38.32 billion, which represented a 0.5% 
decrease in export volume, but (because of higher prices) a 71.7% 
increase in export value over the same period in 2007.  From January 
to November, Kazakhstan produced 101.14 million metric tons of coal, 
a 15% increase year-on-year, and generated 72.60 billion 
kilowatt-hours, an increase of 5.7%. 
 
HOAGLAND