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O 180636Z MAY 09 ZDK
FM AMEMBASSY ASTANA
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UNCLAS SECTION 01 OF 03 ASTANA 000855 
 
SIPDIS 
 
STATE FOR SCA/CEN, EUR/CARC, EEB/ESC 
STATE PLEASE PASS TO OPIC AND USTDA 
 
E.O. 12958: N/A 
TAGS: PGOV ECON EPET ENRG EINV EFIN EAGR CH KZ
SUBJECT:  KAZAKHSTAN:  ECONOMIC AND ENERGY UPDATE, APRIL 16 - MAY 9 
 
ASTANA 00000855  001.2 OF 003 
 
 
¶1.  SUMMARY:  This information is drawn primarily from the 
Kazakhstani local press and has not been verified for accuracy. 
 
-- New Refinancing Rate 
-- Banking Sector News 
-- Government Procurement Legislation Signed 
-- Presidents Discuss Customs Union 
-- Government to Enhance Control Over Anti-Crisis Money 
-- New Grain Terminal in Caspian Region 
-- Kazatomprom Agreements and Announcements 
-- No Pressure to Meet Local Content Requirements 
-- President Signs Law on Caspian Littoral Gas Pipeline 
-- KazMunaiGas Cash Deficit 
 
NEW REFINANCING RATE 
 
¶2.  In response to the needs of the financial markets and lower 
inflation, the National Bank has announced that the official 
refinancing rate will be reduced from 9.5 to 9 percent effective May 
¶12. 
 
BANKING SECTOR NEWS 
 
¶3.  Alliance Bank announced on May 4 that seven international banks 
representing more than 60 of Alliance's creditors were to form a 
coordinating committee to negotiate a debt restructuring and 
recapitalization plan.  Creditors have said that they believe the 
support of the Samruk-Kazyna National Welfare Fund and the Financial 
Supervision Agency, along with a preserved bank management 
structure, is vital to the success of these negotiations. 
 
¶4.  Kazakhstan's ATF-UniCredit Bank (ATF) must repay external 
creditors over $500 million in May 2009.  According to ATF CEO 
Alexander Picker, a portion of the debt will be refinanced by 
ATF-Unicredit's parent, the UniCredit Group, within the next three 
months.  Additional liabilities, including $200 million bonds, are 
due in the fall of 2009, which ATF expects to repay without external 
assistance. 
 
¶5.  Lariba Bank has successfully completed re-registration under a 
new name, AsiaCredit Bank.  The bank operates in three cities: 
Astana, Almaty and Atyrau.  According to the Interfax Center of 
Economic Analysis, Lariba Bank was ranked 24th among Kazakhstani 
banks in the first half of 2008. 
 
GOVERNMENT PROCUREMENT LEGISLATION SIGNED 
 
¶6.  On May 5, President Nazarbayev signed amendments to the Law on 
Government Procurement which are designed to improve both 
transparency and efficiency in the government procurement process. 
The legislation encourages the development of electronic purchases 
of goods and services, simplifies and shortens procurement 
procedures, and eliminates legal norms seen as potential risks for 
corruption. 
 
PRESIDENTS DISCUSS CUSTOMS UNION 
 
¶7.  During a May 4 telephone conversation, President Nazarbayev and 
Russian President Medvedev discussed the launch of the proposed 
Russia-Belarus-Kazakhstan Customs Union.  According to the 
presidential press service, the two leaders "confirmed their mutual 
aspiration to launch the customs union as soon as possible.  They 
agreed to establish tight control over solving practical issues 
which are aimed at implementing this most important integration 
task."  Nazarbayev and Medvedev also reportedly agreed to further 
coordinate Russia and Kazakhstan's accession to the WTO. 
 
GOVERNMENT TO ENHANCE CONTROL OVER ANTI-CRISIS FUNDS 
 
¶8.  The Accounting Committee and the Financial Supervision Agency 
(FSA) signed a Memorandum of Cooperation to jointly monitor the 
expenditure of funds designated for the government's program to deal 
 
ASTANA 00000855  002.2 OF 003 
 
 
with the economic crisis.  Joint oversight will include close 
monitoring of the financial activities of state-owned corporations, 
commercial banks, and other agencies participating in the program. 
(NOTE:  The Accounting Committee is the lead government agency for 
state fiscal control and reports directly to the President.  END 
NOTE.) 
 
NEW GRAIN TERMINAL IN CASPIAN REGION 
 
¶9.  According to the President of the National Agricultural Credit 
Corporation, Askarbek Karazhigitov, Kazakhstan plans to build a 
Caspian grain terminal next year that will boost grain exports by 
1.5 million tons a year.  The project is a part of Kazakhstan's 
effort to secure a larger share of the global grain market by 
exporting as much as 9 million tons a year.  The new $46 million 
terminal would connect Kazakhstan's Aktau port with southern export 
destinations such as Iran and Afghanistan.  Karazhigitov added that 
there is also a plan to build a new grain terminal in Iran by the 
end of 2009, which is expected to further enhance Kazakhstan's 
export capacities by 700,000 tons. 
 
KAZATOMPROM AGREEMENTS AND ANNOUNCEMENTS 
 
¶10.  On April 29, Kazakhstan's national atomic company Kazatomprom 
(KAP) signed a long-term 2009-2020 agreement with the China 
Guangdong Nuclear Power Company (CGNPC) to supply China with 24,200 
tons of uranium from the Irkol field in Kyzylorda oblast and the 
Semizbai field in Central Kazakhstan, both of which are operated by 
a joint venture of KAP and CGNPC.  KAP and CGNPC also signed a 
memorandum to establish a new joint venture to construct nuclear 
power plants in China. 
 
¶11.  On April 26, the Kyzylkum joint venture of KAP (30 percent 
ownership stake), Uranium One (30 percent), and a consortium of 
Japanese companies led by the Tokyo Electric Power Company (40 
percent), opened the Kharasan-1 mine in Kyzylorda oblast.  The mine 
has an annual design capacity of 3,000 tons of uranium.  Beginning 
in 2010, Japan will receive 600 tons of uranium a year.  Japan will 
also import 1,400 tons of uranium from another project, Baiken-U, a 
joint venture between KAP, Toshiba, and the Tokyo Electric Power 
Company consortium. 
 
¶12.  On April 25, KAP President Mukhat Dzhakishev told reporters 
that the company has postponed construction of a sulfuric acid plant 
in Kyzylorda oblast.  The plant was expected to have a design 
capacity of 500,000 tons per year, which would be supplied to the 
Kharasan-1 mine.  According to Dzhakishev, the economic crisis has 
reduced demand for sulfuric acid and created excess supply on the 
market.  He said that KAP would resume plans to build the sulfuric 
acid plant once demand picks up. 
 
NO PRESSURE TO MEET LOCAL CONTENT REQUIREMENTS 
 
¶13.  In a May 8 interview with newspaper "Liter," Deputy Prime 
Minister Serik Akhmetov insisted that no administrative pressure 
would be exerted on foreign investors to make them increase the 
amount of Kazakhstani content in the procurement of goods and 
services.  According to Akhmetov, 503 of 901 mineral resource 
exploration and development contracts do not contain any clauses on 
local content.  "No contracts will be unilaterally amended to 
mandate greater local content," he said.  "The mutual decision to 
revise some articles in existing contracts to meet local content 
requirements should not be taken as a sign of government pressure," 
he explained. 
 
PRESIDENT SIGNS LAW ON CASPIAN LITTORAL GAS PIPELINE 
 
¶14.  On May 14, Kazakhstan's President Nazarbayev signed a law 
ratifying the agreement between the governments of Kazakhstan, 
Russia and Turkmenistan to construct the Caspian littoral 
(Prikaspiskiy) gas pipeline.  Russia, Kazakhstan, and Turkmenistan 
signed the agreement in December 2007.  It specifies liabilities and 
 
ASTANA 00000855  003.2 OF 003 
 
 
obligations for the construction of the gas pipeline, which will 
carry up to 20 billion cubic meters (bcm) of Turkmen and Kazakhstani 
gas to the Kazakhstani-Russian border, including up to 10 bcm of 
Turkmen gas and up to 10 bcm of Kazakhstani gas.  The project is 
designed to increase throughput capacity of the Central Asia Center 
(CAC)-III gas pipeline running along the eastern coast of the 
Caspian Sea by upgrading the existing pipeline system and building a 
new pipeline.  These gas transportation systems will be hooked up to 
CAC-IV at Beineu in Kazakhstan and Alexandrov Gai, a Russian village 
near the border.  The total length of the pipeline will be 1600 km, 
10 km out of which will be built by Russia and the rest by 
Kazakhstan and Turkmenistan in equal portions.  On April 9, Gazprom 
CEO Alexei Miller met in Astana with President Nazarbayev and said 
that the throughput capacity of the pipeline might be increased by 
20 bcm to a total of 40 bcm.  The Caspian littoral pipeline is an 
extension and upgrade of the existing CAC pipeline network, which 
handles Kazakhstan's annual exports of approximately 8-10 bcm.  The 
purpose of the pipeline is not to send additional volumes in a new 
direction.  This "new" pipeline is not much more than an affirmation 
of the status quo, i.e., Kazakhstan will continue to export 8-10 bcm 
of gas to Russia annually. 
 
KAZMUNAIGAS CASH DEFICIT 
 
¶15.  On May 3, "Atyraunews.com" reported that national oil company 
KazMunaiGas (KMG) lacks the $5-7 billion it needs to fund ongoing 
projects and acquire new assets.  In February 2008, Minister of 
Energy and Mineral Resources Sauat Mynbayev asked the government to 
provide $3.8 billion for the Beineu-Bozoy-Akbulak gas pipeline 
because KMG did not have the ability to finance the project 
independently.  "KMG is already shaking because of their intensive 
acquisitions of various assets," he said.  In January, KMG President 
Kairgeldy Kabyldin said that Kazakhstan would need to pay 208 
billion tenge ($1.39 billion) to meet its 2009 obligations for the 
Kashagan project.  The Director of KMG's Information Policy 
Department, Galym Tumabayev, said then that KMG would answer this 
cash call by drawing on its $3 billion Eurobond issue from June 
¶2008.  Other large and expensive projects will need funding, 
however.  For example, the Kazakhstan Caspian Transportation System 
project will cost $1.4 billion just for the Yeskene-Kuryk oil 
pipeline and the Kuryk terminal. 
 
¶16.  On April 30, KMG acquired British Petroleum's stake in the 
joint venture Kazakhstan Pipeline Ventures (KPV), which held a 1.75% 
share in the Caspian Pipeline Consortium (CPC).  KMG agreed to pay 
$250 million over several installments for BP's share in KPV.  KPV 
holds the right to ship 5 million tons per year of crude through 
CPC, an amount which will increase to 10.5 million tons per year 
after CPC's expected expansion. 
 
MILAS