Kazakhstan Chamber of Commerce in the USA

KazCham



Minerals tax freeze is welcome news for investors 0

Posted on December 26, 2011 by Alex

While the Kazakh government seeks an extra $2.9 billion to cover the 2008-09 bank bailouts, it won’t do so by raising mineral resource rent taxes. One ingenious scheme involves the setting up of a Distressed Asset Fund – to purchase bad loans from the banking sector and free up liquidity. By Nicholas Watson

Kazakhstan has made steady progress in reforming its tax system for companies operating in the country over the past few years. However, the fallout from the global economic crisis has postponed further cuts in tax rates.

In November, Finance Minister Bolat Zhamishev said that the government would not, as previously planned, cut the corporate income tax from its current 20 percent, but maintain that rate until 2013, as it needs to boost revenues in order to shore up the budget. In 2009, Kazakhstan slashed corporate tax to 20 percent from 30 percent, and at that time said it planned to lower it further over the next two years.

“We support continued decrease of the tax burden. But since the crisis, it has become obvious that it is impossible to cut taxes sharply,” Zhamishev told reporters after the legislature voted to approve the government’s tax bill.

Positive response to revised plan

As a result of postponing the corporate tax cut, the government has decided to leave mineral resource rent taxes unchanged instead of raising them as planned – news that was greeted warmly by investors and was considered crucially important to investors in oil and gas, as well as mining. “Because corporate income tax is not lowered, the rates of mineral resource rent tax will remain unchanged,” said Zhamishev.

The US consultancy IHS Global Insight says the welcome news goes some way to dispelling the idea that the government is slowly increasing its share in companies’ profits, especially on the crucial oil and gas industry, to boost state income.

In the summer of 2010, the government said it planned to introduce a further increase in export taxes on crude oil in 2011. Zhamishev said that the new tax would be doubled from the current $20 per ton to $40 per ton, which analysts say would produce an extra $2.9 billion in taxes a year.

There is no indication of whether any of the major foreign energy companies operating in the country under production-sharing agreements (PSAs) – such as Chevron or Eni BG Group – will be excluded from the proposed tax increase. They are already attempting to negotiate over payment of the initial 20 percent export tax increase that was introduced in July 2010.

However, these big companies’ efforts to invoke the ‘tax stabilization provisions’ of the PSAs signed with the Kazakh government in the 1990s or early 2000s are not likely to be successful, according to analysts.

“The government certainly needs an extra $2.9 billion to cover costly bank bailouts during the 2008-09 recession,” says a representative from Global Insight. In the banking sector, the National Bank of the Republic of Kazakhstan (NBRK) stated in April that it is aiming to introduce a mechanism to clean up the balance sheets of Kazakh banks – possibly as soon as July 1. Grigoriy Marchenko, the governor of the NBRK, said the new mechanism, which would clear bad loans from the banks’ balance sheets, is currently in a stage that requires amendments to the Tax Code.

Marchenko also added that if, for some reason, the new model failed to start its work in July, then it would be launched in January 2012. The Financial Institutions Association of Kazakhstan, the Ministry of Finance, auditors and commercial banks are currently involved in the project.

The NBRK and the Agency of the Republic of Kazakhstan on Regulation and Supervision of Financial Markets and Financial Organizations (AFN) are discussing the possibility of creating a special company, the Distressed Asset Fund. The Fund would buy out bad loans from commercial banks, thereby allowing use of the free liquidity from commercial banks to buy debt securities issued by DAF, while DAF would use the proceeds to buy out bad loans from banks.

“We believe that if the mechanism is launched in 2011, it could possibly be a positive milestone for the sector,” says the Kazakh investment bank Visor Capital.

SOURCE: Invest in Kazakhstan, 2011, p. 47-48

Kazakhstan Daily News Roundup – February 7, 2011 0

Posted on February 07, 2011 by KazCham

ENERGY:

Chevron’s Kazakh venture triples crude extraction tax payments
(Bloomberg) – Chevron’s Kazakh oil venture more than tripled crude extraction tax payments as the government seeks a larger share of resource revenue.

EBRD considering restructuring loan for KEGOC (SRI)

BUSINESS AND ECONOMY:

Kazakhstan could join WTO in 2012 – Minister
(SRI) – Kazakhstan may join the World Trade Organization (WTO) in the first half of 2012, Economy Minister and the country’s lead WTO negotiator Zhanar Aitzhanova said on Friday.

Kazakh-Russian trade turnover grows by about 40% (Itar-Tass)

National Bank of Kazakhstan: Exchange rates February 5-7, 2011 (Kazinform)

Indicators – February 4, 2011 (Reuters)

METALS AND MINING:

Kazakh miner ENRC CEO Felix Vulis to resign
(Reuters) – Kazakh mining group ENRC said chief executive Felix Vulis had decided to step down for personal reasons but would stay with the company until a successor was appointed.

Kazakhmys appoints new COO (SRI)

Sunkar Resources’ Chilisai prosphate project revenues to reach $8.4 billion over 20 years (Proactive Investors)

POLITICS:

Nomination of presidential candidates kicks off in Kazakhstan (RIA Novosti)

SOCIETY:

Winter Asian Games close with hosts dominant (AFP)

SOURCE: http://silkroadintelligencer.com/2011/02/07/kazakhstan-daily-news-roundup-february-7-2011/

U.S. Companies Look for the Next Big Thing 0

Posted on January 13, 2011 by KazCham

U.S. companies have stood by Kazakhstan through times and bad. Peter Galuszka looks at the countries’ economic partnership and the role of U.S. investment

WHEN THE SOVIET Union fell apart in 1991, U.S. companies led the way in investing in newly independent Kazakhstan. The pioneer was Chevron, which began developing the Tengiz oil field in 1993. Since then, a host of other U.S. companies, ranging from energy and transportation to banking and legal services have flocked to Almaty, Astana, and Atyrau, among other places.

So far, U.S. investment totals about $23 billion, or nearly one-fifth of the $100 billion that foreign firms have invested in the country. The next largest group come from the European Union – the Netherlands, Britain, France, Germany and Italy – as well as from South Korea, with China coming on strong of late.

American corporations have stuck with Kazakhstan through good and bad. They have ridden out the regional controversies regarding placing oil pipelines, have rolled with the country’s double-digit inflation in its early years, and have helped with the formerly Communist government’s learning curve in developing laws and tax policies. Most recently, they have hung on as Kazakhstan considers changes in decades-old production-sharing agreements for petroleum and works its way out of recession.

At the nuclear summit meeting in Washington, D.C. in April, President Barack Obama and President Nursultan Nazarbayev “reconfirmed the importance of the long-term energy partnership between the two countries,” according to a joint statement, and pledged bilateral commercial cooperation in alternative energy and agriculture. Obama lauded Kazakhstan’s cooperation on nuclear non-proliferation, energy development, and allowing U.S. military flights over its territory to resupply troops in Afghanistan.

Kazakhstan has mitigated economic damage from the dip in world oil prices and positioned itself for more diverse and sustainable growth. Projections for 2010 show slow-but-steady improvement as foreign money flows into the country faster and key projects gather steam. Several major U.S. manufacturers and tech companies have been “taking this slow period to do due diligence,” says Richard E. Hoagland, the U.S. ambassador to Astana. “They’ve targeted Kazakhstan as a key strategic investment for the future.”

Doris Bradbury, executive director of the American Chamber of Commerce in Almaty, says membership applications were up 30 percent in the first few months of 2010, after falling during the recession. “They’re looking for the next big thing, and the next big thing is Kazakhstan,” she says.

The crown jewel of U.S. investment is the Tengiz oil field, the world’s sixth-largest with estimated capacity of 26 billion barrels. Development began in 1993 and has been led by Chevron (50 percent); ExxonMobil (25 percent); KazMunaiGas (20 percent); and LukArco (5 percent).

Chevron’s Tengizchevroil venture has so far put $36 billion – including wages, taxes, local sourcing, and other costs – into the country and has just completed a $7 billion upgrade to further eliminate sour gas common in Tengiz crude. Chevron and its partners are now contemplating billions more in investments that would take Tengiz output from 540,000 barrels a day today to about 900,000 within a few years. “The investment climate has been successful for long-term projects,” says Kurt Glaubitz, a Chevron representative. In 2009, Tengizchevroil reported income of about $4 billion before taxes or other expenses, Glaubitz notes.

Chevron is also a major investor in the Karchaganak field, one of the world’s largest deposits of gas condensate with reserves estimated to be 42.4 trillion cubic feet. The California-based company is the largest private shareholder in the $2.7 billion Caspian Pipeline Consortium (CPC), which takes petroleum from the Korolev and Tengiz fields to the Russian port of Novorossisk on the Black Sea, where it is transferred to oil tankers. CPC plans to double its current daily capacity from 700,000 million barrels a day to 1.4 billion within a year.

ExxonMobil has a 16.8 percent share in the offshore Kashagan oil field with estimated reserves of up to 16 billion barrels, scheduled to begin production in 2012.

Kazakhstan wants to exploit another natural advantage – uranium. Government nuclear agency Kazatomprom owns 10 percent of Westinghouse, the now Japanese-owned but still Pennsylvania-headquartered builder of commercial nuclear reactors. NUKEM Inc., a Danbury, Connecticut-based subsidiary of Germany’s NUKEM GmbH, which has been active in the country since 1992, has ten contracts with Kazakh concerns to market uranium. “We’ve had a very positive experience there,” says Tim McGraw, executive vice president.

Transportation is another key part of Kazakhstan’s economic diversification. In July 2009, a new assembly plant for the 310 Evolution Series energy-efficient locomotive made by General Electric opened near Astana, with capacity for 100 locomotives a year for local and export markets. “Kazakhstan is an incredibly dynamic economy,” says GE spokesman Stephan Roller, “and that’s why we want to be there.”

American companies are also involved in Kazakh agriculture. North Dakota’s farm equipment manufacturers exported more than $40 million in machinery to Kazakhstan in 2009, making it the state’s fourth-largest trading partner – though that’s just one-quarter of the amount tallied by the largest exporting state, Texas, with $160 million out of $599 million total for all U.S. states. The North Dakota Trade Office has a representative in Astana working on equipment and livestock deals, and plans to announce a major investment this year. “North Dakota has a similar soil, climate and crops,” says spokesman Jeff Zent in Fargo.

There are problems, to be sure. BTA Bank, Kazakhstan’s second-largest, filed for bankruptcy protection from U.S. creditors in March while restructuring $11.6 billion in debt. Foreign

energy firms are reeling over plans by the Kazakh government to alter oil and gas production-sharing agreements.

But relatively speaking, Kazakhstan remains a good place for investment, having climbed the ranks of the World Bank’s ease-of-doing-business index last year. “It’s not just that [Kazakhstan] wants new investment, but it is creating conditions for it,” says Ambassador Hoagland.

Investors can find a country with a “modern outlook and youthful, broad-minded officials,” says Erlan A. Idrissov, the Kazakh ambassador in Washington. “The average age is 35.” ?

Peter Galuszka is formerly a Moscow-based correspondent for BusinessWeek, and is now based in Virginia.

SOURCE: Invest in Kazakhstan 2010

Kazakhstan Daily News Roundup – August 17, 2010 0

Posted on August 17, 2010 by KazCham

HEADLINES:

Cost control key to Kashagan second phase – Mynbayev
(SRI) – Cost control will be key during the second phase of development of the Kashagan oil field, local news agencies quoted Oil and Gas Minister Sauat Mynbayev as saying.

No provision for maximum depth in Tengzichevroil contract – Mynbayev
(SRI) – The contract under which a Chevron-led consortium is developing the Tengiz oil field does not restrict the depth of its drilling activities, Kazakh Minister of Oil and Gas of Kazakhstan Sauat Mynbayev said on Monday.

Trade surplus up threefold in H1 2010
(SRI) – Kazakhstan’s foreign trade surplus reached $16.7 billion in the first half of 2010, up more than threefold from $4 billion dollars in the first half of 2009 , the State Statistics Bureau said Friday.

ENERGY:

Kazakhstan’s oil export duty in force (SRI)

Tethys Petroleum announces updates on operations in Central Asia (Proactive Investors)

BUSINESS AND ECONOMY:

Eurocopter ready to set up helicopter production JV in Kazakhstan (Interfax)

Hryvnia, tenge may gain 6% as food prices fuel inflation – UniCredit (Bloomberg)

METALS AND MINING:

Kazakhgold’s subsidiary loses appeal to unfreeze bank accounts (SRI)

POLITICS:

President Nazarbayev holds a meeting to get ready for OSCE summit in Astana (Interfax)

REGIONAL:

Kyrgyz army involved in mob violence – right group (AP)

Chevron, Conoco, Bush brother’s company may get Caspian exploration rights (Bloomberg)

SOURCE: http://silkroadintelligencer.com/2010/08/17/kazakhstan-daily-news-roundup-august-17-2010/



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