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UNCLAS SECTION 01 OF 03 ASTANA 001034 
 
SIPDIS 
 
STATE FOR SCA/CEN, EEB/ESC 
STATE PLEASE PASS TO USTDA 
 
E.O. 12958: N/A 
TAGS: PGOV ECON EPET ENRG EINV EFIN ELAB CH KZ
SUBJECT:  KAZAKHSTAN:  ECONOMIC AND ENERGY UPDATE, MAY 24-JUNE 6 
 
ASTANA 00001034  001.2 OF 003 
 
 
¶1.  SUMMARY:  This information is drawn primarily from the 
Kazakhstani local press and has not been verified for accuracy. 
 
-- Reorganization in Response to Five-Year Plan 
-- Banking Sector News 
-- Samruk-Kazyna Establishes New Direct Investment Fund 
-- May Inflation 
-- Critic Suggests Revising Uranium Production Plans 
-- KazMunaiGas Identifies 2009 Development Priorities 
-- Kazakhstan Development Bank Supports Gas Terminal Project 
-- AES Accused of Not Meeting Investment Obligations 
-- Indian Company Pursues Ekibastuz Management Contract 
-- CNPC AktobeMunaiGas Accused of Violating Kazakhstani Laws 
 
 
REORGANIZATION IN RESPONSE TO FIVE-YEAR PLAN 
 
¶2.  In response to Nazarbaev's five-year plan for accelerated 
economic diversification, which is scheduled to begin January 1, 
2010, newly appointed Minister of Industry and Trade Aset Isekeshev 
proposed to the Cabinet on June 3 an expanded role for his ministry 
in economic development.  Isekeshev's proposal specifically includes 
the transfer of several key development agencies from the 
Samruk-Kazyna National Welfare Fund to the Ministry of Industry and 
Trade.  The agencies include the State Corporation on Export 
Promotion (KazNEX), the National Innovation Fund, the Center of 
Engineering and Transfer of Technologies, and the seven 
social-entrepreneurial corporations (i.e., small regional holding 
companies modeled after the national holding company Samruk-Kazyna). 
 Minister Isekeshev, who also replaced Kayrat Kelimbetov as the 
Chairman of the Development Bank of Kazakhstan on May 21, also 
proposes that the Ministry of Industry and Trade would transfer its 
small business development programs to the Ministry of Economy and 
Budget Planning, and its authority over the promotion and protection 
of entrepreneurship to the Competition Protection Agency.  According 
to Minister Isekeshev, this reorganization will concentrate 
development capacities in one ministry and more efficiently advance 
industrialization and diversification. 
 
BANKING SECTOR NEWS 
 
¶3.  According to a Halyk Bank press release, Samruk-Kazyna has 
completed the final step of a two-stage process to capitalize Halyk 
Bank by purchasing 196,232,499 preferred shares for a total of 33 
billion KZT (approximately $219 million).  Since January 2009, the 
bank's capital has increased by 29 percent.  The press release also 
claimed that Halyk Bank is one of the most highly capitalized banks 
in Kazakhstan, which should reassure the bank's clients and partners 
and enhance the bank's overall position in the local financial 
market. 
 
¶4.  According to the Executive Director of KazKommertsBank (KKB), 
Sergey Mokroussov, KKB's net profits in 2009 will be about the same 
as they were in 2008:  approximately $20.3 billion tenge ($134.8 
million).  Mokroussov also said that KKB is expected to repay $1.5 
billion in external debt in 2009, and $400 million in 2010. 
 
SAMRUK-KAZYNA ESTABLISHES NEW DIRECT INVESTMENTS FUND 
 
¶5.  The Kazyna Capital Management Fund, a subsidiary of 
Samruk-Kazyna, has established jointly with the Chinese CITIC 
Capital Holding Limited the "CITIC-Kazyna Investment Fund" for 
direct investment in Kazakhstan.  Officially signed by Chinese and 
Kazakhstani representatives on May 26 in Beijing, the fund's initial 
capitalization will be $200 million and is intended to finance 
infrastructure development and non-extractive industries in 
Kazakhstan. 
 
INFLATION IN MAY 
 
¶6.  According to the Kazakhstan Statistics Agency, the year-on-year 
inflation rate in May was 8.4 percent.  Prices for services showed 
the biggest increase, rising 10.9 percent year-on-year.  Food prices 
 
ASTANA 00001034  002.2 OF 003 
 
 
grew 7 percent year-on-year, and non-food goods also rose 7 percent 
year-on-year. 
 
CRITIC SUGGESTS REVISING URANIUM PRODUCTION PLANS 
 
¶7.  In a June 3 interview with the Interfax news agency, the 
Director General of the National Nuclear Center, Kairat Kadyrzhanov, 
attempted to allay concerns about the future of Kazakhstan's 
national atomic company Kazatomprom (KAP) after the arrest of former 
KAP Chairman Mukhtar Dzhakishev.  Kadyrzhanov said that new KAP 
Chairman Vladimir Shkolnik has been a leading figure in the 
development of Kazakhstan's nuclear industry for the past 17 years, 
and "will rise to the challenge and breathe new life into 
Kazatomprom."  Kadryzhanov questioned Dzhakishev's oft-stated 
strategic goal for Kazakhstan to become the world's top uranium 
producer, saying, "It does not make sense to export raw material -- 
yellow cake -- at a low price, when it is possible to sell it as a 
value-added product."  Kadyrzhanov also criticized KAP's plans to 
build a nuclear power plant in Aktau as inexpedient, noting that 
Aktau is not connected to Kazakhstan's national power grid.  He 
instead advocated construction of a nuclear power plant near Lake 
Balkhash.  Kadyrzhanov also stated his opposition to KAP's 
participation in the International Uranium Enrichment Center in 
Angarsk, Russia, saying, "This would make us heavily dependent on 
Russia." 
 
KAZMUNAIGAS IDENTIFIES 2009 DEVELOPMENT PRIORITIES 
 
¶8.  On June 1, the president of national oil and gas company 
KazMunaiGas (KMG), Kairgeldy Kabyldin, shared his vision for KMG's 
future development with Kazakhstan's "Expert" magazine.  Kabyldin 
said that in response to the ongoing financial crisis, KMG revised 
its 2009 investment plans, but he emphasized that KMG will continue 
to honor commitments to priority projects such as Kashagan, the 
modernization of oil refineries, the development of the 
petrochemical industry, and the construction of the Beineu-Bozoy 
Akbulak and Kazakhstan-China gas pipelines.  According to Kabyldin, 
Kazakhstan transits more gas than it consumes.  In 2008, he said, 
Kazakhstan transited 98 billion cubic meters (bcm) of gas, exported 
10 bcm, and consumed 9 bcm. 
 
¶9.  On May 29, Kenzhebek Ibrashev replaced Askar Balzhanov as 
Director General of KMG production subsidiary KazMunaiGas 
Exploration and Production.  Prior to the appointment, Ibrashev 
served as KMG Vice President for Exploration and Production. 
 
KAZAKHSTAN DEVELOPMENT BANK SUPPORTS GAS TERMINAL PROJECT 
 
¶10.  On May 25, Portnews.ru reported that the Kazakhstan Development 
Bank will loan $9.2 million to the Asian-European Gas Terminal 
Company (AEGas-Terminal) to build a gas condensate terminal at the 
port of Kerch, Ukraine.  In May 2008, AEGas-Terminal received a 
first payment of $2.15 million.  The annual designed capacity of the 
terminal is 1 million tons, most of which will be Kazakhstani gas 
condensate.  AEGas-Terminal plans to cooperate with Tengizchevroil 
and suppliers from Russia and Turkmenistan. 
 
AES ACCUSED OF NOT MEETING INVESTMENT OBLIGATIONS 
 
¶11.  On May 27, the Governor of East Kazakhstan oblast, Berdybek 
Saparbayev, accused AES Corporation of meeting only 10 percent of 
its $600 million investment obligations.  "We want to work with this 
company, but so far it has shown no understanding or desire to 
improve performance," he complained.  Saparbayev made his statement 
during a visit to East Kazakhstan by Minister of Energy and Mineral 
Resources Sauat Mynbayev. 
 
INDIAN COMPANY SEEKS EKIBASTUZ MANAGEMENT CONTRACT 
 
¶12.  On May 25, K2Kapital reported that India's state-owned NTPC 
Limited is pursuing a management contract for the 4,000-megawatt 
Ekibastuz-1 Combined Heat and Power Plant (CHP), currently operated 
by Kazakhmys, and until March 20 managed by AES Corporation. 
 
ASTANA 00001034  003.2 OF 003 
 
 
According to the report, NTPC wants to enter Kazakhstan's power 
market, expand coal shipments to Kazakhstan, and participate in 
future tenders to operate coal mines and gas fields in Kazakhstan. 
 
CNPC AKTOBEMUNAIGAS ACCUSED OF VIOLATING KAZAKHSTANI LAWS 
 
¶13.  On May 26, 1,000 current and former employees of CNPC 
AktobeMunaiGas signed a letter to Prime Minister Karim Masimov, the 
Parliament, the Supreme Court, the Prosecutor General's Office, the 
Financial Police, People's Republic of China President Hu Jintao, 
and the China National Petroleum Corporation (CNPC) President Wang 
Yan Li.  The authors of the letter accused managers of CNPC 
AktobeMunaiGas of violating the Constitution and other laws of 
Kazakhstan.  In particular, the employees said CNPC violates 
environmental laws and flares associated gas beyond legal limits. 
The employees also charged the company is violating Kazakhstan's 
labor law, alleging that CNPC pays expatriate employees more than 
local staff with the same training and skills.  CNPC AktobeMunaiGas, 
which is 100 percent owned by CNPC, is the largest oil company in 
Aktobe oblast, and is developing the Zhanazhol and Keniyak oil and 
gas fields. 
 
HOAGLAND