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O 281037Z MAY 09
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UNCLAS SECTION 01 OF 03 ASTANA 000909 
 
SIPDIS 
 
STATE FOR SCA/CEN, EUR/CARC, EEB/ESC 
PLEASE PASS TO USTDA DAN STEIN 
 
E.O. 12958: N/A 
TAGS: PGOV ECON EPET EINV EFIN KZ
SUBJECT:  KAZAKHSTAN:  ECONOMIC AND ENERGY UPDATE, MAY 10 - MAY 23 
 
ASTANA 00000909  001.2 OF 003 
 
¶1.  SUMMARY:  This information is drawn primarily from the 
Kazakhstani local press and has not been verified for accuracy. 
-- Banking Sector News 
-- Current Account Statistics 
-- New Currency Preference? 
-- Calls for a New Financial System 
-- Minister of Industry and Trade Replaced 
-- Kazakhstan May Impose Protectionist Measures 
-- Bota Foundation Starts Work 
-- Energy Ministry Announces Power and Gas Tariff Increase 
-- Kazakhmys to Participate in Balkhash Plant Construction 
-- New Appointments 
-- Energy Statistics 
 
BANKING SECTOR NEWS 
 
¶2.  According to a May 15 Kazkommertsbank press release, the bank 
sold 204,228,177 new common shares, thereby increasing the bank's 
capital by $296 million and establishing a new shareholding 
structure.  According to the new structure, the government of 
Kazakhstan via National Welfare Fund "Samruk-Kazyna" owns 21.2 
percent of common shares, the European Bank for Reconstruction and 
Development increased its share to 9.8 percent, while the Central 
Asian Investment Company reduced its holding from 32.1 to 23.7 
percent, and shares of Alnair Holding and Nurzhan Subkhanberdin also 
decreased from 25.1 to 18.6 percent and from 12.6 to 9.2 percent, 
respectively. 
 
¶3.  JSC Astana Finance announced on May 19 that it had suspended 
interest and principal payments on their international obligations. 
According to an Astana Finance press release, the company's 
financial condition has deteriorated as a result of the global 
financial crisis' impact on the Kazakhstani economy.  More 
specifically, the company cites the devaluation of the Tenge, a fall 
in real estate prices, and a severe lack of liquidity as having 
impaired the company's credit portfolio, resulting in foreign 
exchange and derivative transaction losses.  Astana Finance said it 
will submit the results of its own due diligence process to the 
Financial Supervision Agency, creditors, and investors within twelve 
weeks of the announcement.   The company has secured J.P. Morgan 
Securities as a restructuring adviser, Clifford Chance LLP as 
international legal counsel, and First Legal as Kazakhstani legal 
counsel. 
 
CURRENT ACCOUNT STATISTICS 
 
¶4.  The National Bank of Kazakhstan (NBK) reported a current account 
balance of payments deficit of $1.08 billion for the first quarter 
of 2009.  The trade balance was just over $2 billion, marking a 77 
percent decrease, year-on-year.  The export of goods reduced by 
half, to $8.2 billion, compared to the first quarter of 2008. 
Specifically, exports of oil and gas condensate were down $5 billion 
year-on-year to $4.6 billion in the first quarter of 2009.  Imports 
totaled $6.1 billion, marking a 15.6 percent decrease from the 
previous year.  The current account deficit is overall the result of 
negative service, income and current transfer balances. 
 
NEW CURRENCY PREFERENCE? 
 
¶5.  On May 20, President Nazarbayev said on Khabar TV that the 
American dollar is no longer secure, and welcomed news that the U.S. 
Congress finally created a commission to analyze the causes of the 
global economic crisis.  According to Nazarbayev, it is obvious that 
the crisis is a result of financial bubbles created by an 
uncontrolled currency.  "The dollar is the world currency today, but 
we do not know how many bills the U.S. reserve will print," he 
said. 
 
¶6.  Finance Minister Bolat Zhamishev said that Kazakhstan will not 
borrow heavily from foreign sources in 2009.  Although some markets 
for developing countries are reopening, borrowing in dollars remains 
very expensive for Kazakhstan.  Despite a growing budget deficit, 
Zhamishev said that external borrowing is not imperative for 
Kazakhstan, but he does not rule out the possibility of small 
 
ASTANA 00000909  002.2 OF 003 
 
¶1.  SUMMARY:  This information is drawn primarily from the 
Kazakhstani local press and has not been verified for accuracy. 
-- Banking Sector News 
-- Current Account Statistics 
-- New Currency Preference? 
-- Calls for a New Financial System 
-- Minister of Industry and Trade Replaced 
-- Kazakhstan May Impose Protectionist Measures 
-- Bota Foundation Starts Work 
-- Energy Ministry Announces Power and Gas Tariff Increase 
-- Kazakhmys to Participate in Balkhash Plant Construction 
-- New Appointments 
-- Energy Statistics 
 
borrowings in either Japanese yen or Swiss francs. 
 
CALLS FOR A NEW FINANCIAL SYSTEM 
 
¶7.  Speaking at the 12th annual convention of the pro-presidential 
NurOtan party, President Nazarbayev admitted that the Kazakhstani 
banking sector has failed to adequately respond to the global 
financial crisis.  In his opinion, the banking sector became a 
conductor of global external shocks to the domestic economy.  As a 
result, the President has tasked the National Bank and the Financial 
Supervision Agency to develop a "new financial system." 
 
MINISTER OF INDUSTRY AND TRADE REPLACED 
 
¶8.  Aset Isekeshev has been appointed Minister of Industry and 
Trade, replacing Vladimir Shkolnik.  The 37-year-old Isekeshev had 
served as an advisor to President Nazarbayev since February 2008. 
He was previously deputy head of the Kazyna Sustainable Development 
Fund (2006-07) and Vice Minister of Industry and Trade (2003-06). 
Shkolnik, who is a nuclear physicist, will take the helm at state 
nuclear energy company KazAtomProm. 
 
KAZAKHSTAN MAY IMPOSE PROTECTIONIST MEASURES 
 
¶9.  According to Minister of Agriculture Akylbek Kurishpaev, 
Kazakhstan may increase import tariffs on food products produced in 
Kazakhstan.  The products include bread-making wheat, rice, melons 
and gourds, potatoes, meat, eggs, and dairy products.  Local experts 
have noted that increased tariffs might lead to increased domestic 
prices, and therefore, higher inflation. 
 
BOTA FOUNDATION STARTS WORK 
 
¶10.  According to Christopher Cavanaugh, Executive Director of the 
Public Foundation "Bota", the fund will finance social projects in 
Kazakhstan through ATF-UniCredit Bank.  Cavanaugh also reported that 
the first $4 million tranche is expected to be received in 
Kazakhstan in 2009. 
 
ENERGY MINISTRY ANNOUNCED POWER AND GAS TARIFF INCREASE 
 
¶11.  Reporting at a May 12 Cabinet's meeting, Minister of Energy and 
Mineral Resources Sauat Mynbayev announced the upcoming gradual 
increase of electricity and gas prices due to future power and gas 
shortage in the domestic market.  By 2015, the power generation 
tariff is expected to grow to 8.8 tenge (5.8 cents) per 1 kilowatt 
hour from a current rate of 3.3 tenge (2.2 cents), and natural gas 
would be sold within the country at a formula based on the European 
price, minus transportation expenses, minus 25 percent.  To meet 
local gas demand, from 2015, gas producing companies would be 
obliged to sell gas to domestic customers, and only after domestic 
demand is met would they be permitted to export remaining volumes. 
(COMMENT:  Kazakhstan's domestic gas market is constrained by the 
limited capacity and reach of its pipeline infrastructure, so there 
is some question as to whether and how production companies will be 
able to fully satisfy domestic demand.  END COMMENT).  According to 
Mynbayev, starting in 2020, the domestic gas price will not be 
discounted by 25 percent. 
 
KAZAKHMYS TO PARTICIPATE IN CONSTRUCTION OF BALKHASH POWER PLANT 
 
ASTANA 00000909  003.2 OF 003 
 
¶1.  SUMMARY:  This information is drawn primarily from the 
Kazakhstani local press and has not been verified for accuracy. 
-- Banking Sector News 
-- Current Account Statistics 
-- New Currency Preference? 
-- Calls for a New Financial System 
-- Minister of Industry and Trade Replaced 
-- Kazakhstan May Impose Protectionist Measures 
-- Bota Foundation Starts Work 
-- Energy Ministry Announces Power and Gas Tariff Increase 
-- Kazakhmys to Participate in Balkhash Plant Construction 
-- New Appointments 
-- Energy Statistics 
 
 
¶12.  On May 13, Samruk-Energo (25 percent ownership stake), 
Kazakhmys (10 percent), and South Korea's KEPCO Samsung (25 percent) 
signed an agreement to build a $4.5-billion Balkhash coal-fired 
power plant with a designed capacity of 3,000 megawatt (MW).  The 
first two 660-MW blocks are planned to be completed in 2014, and the 
other two in 2016-2017. 
 
NEW APPOINTMENTS 
 
¶13.  President Nazarbayev's son-in-law Timur Kulibayev, who is 
deputy CEO of the Samruk-Kazyna National Welfare Fund, was named 
chairman of the board of several companies owned by Samruk-Kazyna, 
including national oil and gas company KazMunaiGas, national railway 
company Kazakhstan Temir Zholy, and the Samruk-Energo national 
company, which owns electric power assets. 
 
ENERGY STATISTICS 
 
¶14.  According to the National Statistics Agency, from January to 
April, Kazakhstan produced 20.29 million tons of crude oil and 11.66 
billion cubic meters (bcm) of natural gas, an increase of 4.4 
percent and 4.2 percent, respectively, over the same period in 2008. 
 From January to March, Kazakhstan exported 16.18 million tons of 
crude oil and gas condensate, valued at $4.58 billion, which 
represented a 63.3 percent increase in export volume, but (because 
of lower prices) a 27.4 percent decrease in export value over the 
same period in 2008.  From January to March, Kazakhstan exported 
4.41 bcm of natural gas, valued at $308.2 million -- an 8.1 percent 
increase in volume and a 28.2 percent increase in value over the 
period from January to March 2008. 
 
¶15.  From January to March, Kazakhstan exported 7.38 million metric 
tons of coal, valued at $164.3 million, which represented a 39.7 
percent increase in export volume and a 52.8 percent increase in 
export value over the same period in 2008.  From January to April, 
Kazakhstan generated 27.23 billion kilowatt-hours, a decrease of 8 
percent, year-on-year. 
 
MILAS