Kazakhstan Chamber of Commerce in the USA

KazCham



Non-conventional energy gets higher priority 1

Posted on April 13, 2010 by KazCham

KAZAKHSTAN’S TERRAIN AND geography makes  it a highly suitable location for the generation  of many types of non-conventional energy. Its  empty windswept steppes, clear skies and under- exploited reserves of farmland can all be utilised to  generate electricity, thereby reducing the country’s  dependence on fossil fuels.

At present, some 80 per cent of the electricity  consumed in Kazakhstan is from coal-fired  power stations, with the remainder generated by  hydropower. There are not yet any provisions for  other forms of non-conventional energy to connect  to the national grid. The law on support for usage of  renewable energy, currently being considered by the  Kazakh parliament, is set to change that, and open  the way for large scale installations.

Given Kazakhstan’s abundant coal, oil and gas  reserves, the question naturally arises: “why invest in  alternative energy?” However, Kazakhstan’s oil and  gas reserves are its largest source of export revenues,  and – especially when Kashagan starts production –  are expected to continue to bring in money for many  decades to come. If some of the growing domestic  demand for energy can be derived from other  sources, this will conserve reserves of fossil fuels.

Early investment into alternative energy sources  will also protect Kazakhstan against future increases  in oil and gas prices and – in the longer term – the  time when its hydrocarbon reserves are exhausted.  “We all understand that the resources we have  underground will end one day. Oil and coal would  run short,” says Nurlan Djienbayev, director of solar  technology company ND&Co. “In order to have a  softer transition, we need to think about it now.”

In addition, Kazakhstan’s electricity generation  capacity is not evenly distributed across the country.  Power is imported from Russia in the north, and  Kyrgyzstan and Uzbekistan in the south. The main oil and gas reserves are in the west, the coal-fired power  stations in the north, near Karaganda and Ekibastuz,  and most of the hydropower plants along the Irtysh  river in north-east Kazakhstan. “Renewable energy can contribute to Kazakhstan’s  energy independence by being deployed in areas such as -south and north Kazakhstan, where power is currently  imported,” says Gennady Doroshin, head of the UNDP’s  Kazakhstan Wind Power Market Development Initiative.  “It can provide power to remote consumers, and reduce  transmission losses and the need for substantial power  transmission line construction.”

As Kazakhstan’s economy grows, demand for  electricity also increases, making the uninterrupted  supply of power to even the largest urban centres, such  as Almaty, a real challenge. Power cuts are still frequent, h

“Kazakhstan has a vast territory and its population  is scattered. After the break-up of the USSR, a  dismantling of energy networks took place,” says  Djienbayev. In the 1990s, Kazakhstan lost 90 per cent  of its hydropower capacity, when many smaller plants  were shut down.

“In some areas, villages are arranged within a large  distance from main energy networks,” Djienbayev  continues. “Today, there is a lack of electric power in  many regions of Kazakhstan, including Almaty. Solar  atteries could have significantly supplemented main  networks, and helped to solve this problem. But we  cannot do this today, because of the absence of the law.”

Moreover, Kazakhstan is Central Asia’s largest  emitter of greenhouse gases. According to 2004  data from the International Energy Agency (IEA),  emissions amounted to around 6kg of carbon dioxide h for each dollar earned. The coal-dominated energy  sector accounts for around 80 per cent of total  emissions. Poor air quality is an issue in many cities  of Kazakhstan. With the country expected to ratify  the Kyoto Protocol in the near future, renewable  energy will be a way of reducing its emissions.

Although the new law will be needed for non- conventional energy to be adopted on a large scale,  there are already several initiatives across the hydro,  wind, solar and biofuels spectrum.

The UNDP Wind Power Market Development  Initiative is a full-scale project to promote the  development of the wind energy market in  Kazakhstan. The UNDP is helping the Kazakh  government to develop a national programme on  wind energy development. This will have targets of  250-300mw of wind installation by 2015 and about  2,000mwby2030.

The European Bank for Reconstruction and  Development is also able to support non-conventional h energy projects through its $75 million framework  facility to finance investments in sustainable energy

– both in projects to increase energy efficiency in  the industrial sector and in small renewable energy  projects. Doroshin stresses the excellent potential of  Kazakhstan for wind energy generation.

“Kazakhstan is one of the best countries in the  world for large scale wind installations because of the h high wind potential and land availability,” he says.  “Many areas of the country have annual wind speeds  of more than 6m/c.” This potential, however, is little  used. This is evident, for example, at the Jungar Gates  on the Chinese border. On the Chinese side, wind  energy stations have been in place for some time; in  Kazakhstan they are still at the planning stage.

There are already two major solar stations in  Kazakhstan, one in Alakol and another in the  Kuldzhinkii region. Four additional stations are  planned under the UNDP initiative – one in Aksai  Gorge and three in Talgar Gorge. There are also  various private installations in the west Kazakhstan  oblast for the oil industry, and in the Almaty region – the largest being a 70 sq m installation to provide  electricity for the IT Park free economic zone. Some  70 per cent of the technology needed for solar  power generation, including accumulator batteries,  is manufactured in Kazakhstan. However, solar  batteries have to be imported. This situation is on the  verge of change, as there are a number of projects to  produce photovoltaic technologies in the country.  Thyssen Krupp Mannex is supplying equipment to  Silicium, Kazakhstan’s planned silicon metal plant in  Karaganda. Lancaster Industrials and Kun Renewables h are setting up a $390 million polycrystalline silicon  plant in Astana. The Investment Fund of Kazakhstan  and the Development Bank of Kazakhstan have  already agreed to finance the project.

Conditions for solar power generation are favourable -across southern Kazakhstan. The Almaty region  rarely goes without sun for more than two five-day  periods in a year. However, until the law is adopted,  systems power generation in Kazakhstan will remain  small-scale. “Solar energy usage is very small, the  figures are insignificant. The main reason for the slow  development of alternative energy resources is the  absence of legislation,” says Djienbayev.

It is a similar situation in the biofuels sector.  According to data from the Ministry of Agriculture,  Kazakhstan has the potential to produce 300,000 tonnes of biofuels a year. Production costs are estimated to be  half of those in western Europe and the US.

However, at present Kazakhstan has just one  functioning biofuel production plant, the Biochim  plant in the north-Kazakhstan oblast. A second plant,  in Taraz, is currently out of order, and a third is being  built in the city of Novoishimsk.

“The most difficult thing is production: there is  only one operating plant and it cannot meet all of the  demand,” says Beisen Donenov, director general of the  Kazakhstan Biofuels Association, which was set up  in 2007 to develop the industry. “Besides, due to the  country’s food security interests, there are limitations  on raw materials for biofuels production. And because  there was a smaller grain harvest last year, the biofuel  plant did not operate at full capacity.”

Next-generation biofuels production technologies,  such as those being installed in the Novoishimsk plant,  would use waste products as raw materials. This would  overcome objections related to food security that have  held back popular acceptance of the biofuels industry.

“At the beginning, there was misunderstanding  and aversion towards biofuels production from crops  producers. This is because many people reacted  negatively to the use of grain for biofuels production  rather than for food,” says Donenov. “However,  Kazakhstan has always had vast lands for crops. And  besides, new technologies allow the use of crop waste  and leftovers for biofuels production.”

There is already considerable private sector interest  in biofuels. The North-Kazakhstan Plant belongs to  a consortium of Kazakh companies, and the Taraz  Plant is 30 per cent state-owned, with the remainder  in private hands. There are plans to sell a 50 per cent  stake in the new plant to private investors.

Toyota has signed an agreement with the  Kazakhstan Biofuels Association, and according to  Donenov, is ready to start developing next-generation  biofuels production technologies in Kazakhstan. The  association is also working with several US scientific  institutions on the production of aviation kerosene  and other new generation biofuels.

“According to our calculations, we could build  at least 40-50 biofuels plants in Kazakhstan. The  question is in investments,” says Donenov. “However,  I must admit that the crisis decreased the number  of interested investors. In this regard, the crisis has  negatively affected our industry.”

The two key factors holding back the development  of biofuels and other types of renewable energy are the  lack of investment at present, and the need for a legal  framework. Kazakhstan’s parliament is widely expected to pass the necessary legislation this summer. The  question of investment is more open; those projects  without funding from the Kazakh government or  international development agencies, are likely to be  held back until the global economy recovers.

Invest in Kazakhstan An official publication of the Government of the Republic of Kazakhstan, 2009. Pages: 64-67.

Eni’s investment in Kashagan totals $4.5 billion as of 2009 0

Posted on April 13, 2010 by KazCham

(SRI) – Eni SpA, the Italian oil major, reportedly invested $4.5 billion into the Kashagan oil field as of the end of 2009, according to the company’s annual report.

The total sum consists of $3.4 billion expenditures to develop the oil field and $1.1 billion to acquire interests of partners that had exited the Kashagan consortium. Eni holds a 16.81-percent stake in the project, along with U.K.’s Shell, French Total, U.S.-based ExxonMobil and Kazakhstan’s KazMunaiGas, all of which hold the same stake, and U.S.-based ConocoPhillips and Japanese Inpex which hold 8.4 percent and 7.56 percent, respectively.

Eni expects “further capital expenditure […] to build the infrastructure needed for exporting production to international markets” in addition to costs for developing the field, according to its 2009 annual report.

The first phase of the Kashagan project, before the field start pumping oil, will reportedly cost $32.2 billion.

Eni said it expects daily output of 370,000 barrels in 2014, with production peaking at 1.5 million barrels, making the field one of the world’s biggest.

SOURCE: http://silkroadintelligencer.com/2010/04/13/enis-investment-in-kashagan-totals-45-billion-as-of-2009/

KazMunaiGaz to Borrow $2 Billion, Considers IPO 0

Posted on April 13, 2010 by KazCham

By Nariman Gizitdinov

April 9 (Bloomberg) — KazMunaiGaz National Co., a Kazakh state-owned energy company, is seeking to borrow as much as $2 billion this year and is considering a share sale within three years as it bids to join the world’s leading oil producers.

KazMunaiGaz plans to invest $4.3 billion this year in production, refining and pipelines, and refinance existing debt, Ardak Kassymbek, general manager for corporate strategy and asset management, said today in a phone interview from Astana.

The capital markets offer a “favorable situation” as KazMunaiGaz’s outstanding bonds trade at “very low rates,” Kassymbek said.

KazMunaiGaz, which accounts for about a quarter of Kazakhstan’s oil output, plans to become one of the world’s 30 biggest oil producers by 2015. The company aims to produce 25 million metric tons of oil by that time from 18.7 million tons last year. The central Asian nation holds 3.2 percent of the world’s oil reserves, according to BP Plc.

The borrowing would help cover $1.2 billion of spending planned this year for Kashagan, the country’s biggest oil field, Kassymbek said. Kazakhstan plans to boost oil output to 100 million tons by 2015 after bring the field online. KazMunaiGaz is equal partners in Kashagan with Eni SpA, Exxon Mobil Corp., Royal Dutch Shell Plc and Total SA, each holding 16.8 percent.

In the next five years, KazMunaiGaz plans to invest as much as $4 billion a year, including from $1.5 billion to $2.5 billion a year for the Kashagan development, Kassymbek said.     KazMunaiGaz also plans to invest $300 million at its Atyrau refinery and $200 million to upgrade Rompetrol, Kassymbek said.

Share Sale

Kazakhstan’s National Wellbeing Fund Samruk-Kazyna, which owns KazMunaiGaz for the state, has considered selling shares in the oil producer in the next two or three years, Kassymbek said.

“An IPO would be an optimal solution for the company to raise additional capital,” although requiring significant work, Kassymbek said.

KazMunaiGaz’s debt may increase to $15.2 billion this year from $14.5 billion last year, Kassymbek said. Earnings before interest, taxes, depreciation and amortization is set to advance about 44 percent to $6.2 billion this year, lowering the debt- to-Ebitda ratio to 2.5, he said.     “We plan to stick to a 2.5 ratio in the future,” Kassymbek said.

The yield on KazMunaiGaz’s $1.5 billion bonds due in 2015 rose 1 basis point to 4.855 percent, after having risen 3 basis points earlier in the day. A basis point is 0.01 percentage point.

To contact the reporter on this story: Nariman Gizitdinov in Almaty at ngizitdinov@bloomberg.net

Last Updated: April 9, 2010 11:07 EDT

SOURCE: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aZ3_oHhlOlg8

Alternative energy 0

Posted on April 10, 2010 by KazCham

The sharp slowdown in economic activity, and especially the steep decline in mining and metals processing, has had the completely unintended benefit of banishing earlier fears that years of under­investment had left Kazakhstan dangerously short of electricity.

Over the first two months of 2009, electricity output declined by 9.7 per cent compared to the same period a year earlier, when the economy was still expanding at close to double digits. With output expected to rise only slowly, the economic slowdown provides a welcome respite for the power companies. It gives them breathing space to start building coal-fired power stations, as at Balkhash, or refurbish older Soviet-era power stations at Ekibastuz and elsewhere.

The decrease in demand for energy also provides extra time in which to complete construction of a north-south extension to the national power grid. This is needed to bring reliable power to the more heavily populated south of the country where the two biggest cities, Almaty and Shymkent, are situated and where most people live. The fragility of the supply situation here was underlined in April when much of Almaty was plunged into darkness by a breakdown in hydro-power supplies from Kyrgyzstan, whose Toktogul hydropower reservoir ran out of water before the end of winter.

Such problems should be eliminated once the first stage of the 3,000km gas pipeline, which will carry up to 30 billion cubic metres (bcm) of Turkmen, Uzbek and Kazakh gas east to China, is completed later this year. The new export line will give a steady and secure supply of gas to the whole of southern Kazakhstan, for the first time.

The new export pipeline to China does not run from south to north, as pipelines did in Soviet days to carry Central Asian gas north to Russia, but from west to east, along Kazakhstan’s southern borders with its gas-rich Central Asian neighbours. While the bulk of gas will be exported to China, up to 10bcm annually will be available for consumption in southern Kazakh homes, power stations and factories.

What remains to be seen is whether the combination of tighter credit and reduced fears of power shortages will slow development of alternative energy sources, which were building momentum before the global crisis struck the Kazakh economy, and especially its power-hungry metals, mining and cement sectors.

AFTER A DECADE of heavy investment to develop the  country’s on- and offshore oil and gas fields and coal -mines, President Nazarbayev has given his backing  to greater investment in non-conventional or  alternative sources of power – for which Kazakhstan  has huge potential.

President Nazarbayev’s interest in improving  alternative energy reflects growing awareness that  Kazakhstan is an under-populated country that  covers a huge area, and that there is in fact great  potential for various forms of alternative energy,  including wind power, solar-panel farms and biofuels. Enormous tracts of marginal farming or steppe  land are potentially suitable for biofuels farming.  Situated far from the oceans, much of the country  enjoys plenty of sunshine, especially in the south,  and constant winds blow virtually unhindered across  thousands of kilometres of flat or undulating steppe,  semi-desert and mountains.

At the moment, most of this potential is untapped,  but that should change once the Majliis, or  Parliament, approves legislation designed to promote  alternative energy and its connection to the grid,  where appropriate. The new interest in alternative energy also fits in with the government’s renewed  focus on rural development and plans to encourage  people to stay in villages and small towns. These can  often be better supplied from locally produced energy than a national power grid, which is focused on  supplying the main towns and industries.

At present, around 80 per cent of all energy  consumed is generated in coal-fired power stations,  with additional contributions from hydropower,  mainly from big dams across the Irtyush river, which  flows west and north for thousands of miles from  China through the northern Kazakh mining belt and  right across Siberia to the Arctic ocean. In the 1990s  Kazakhstan lost around 90 per cent of its hydropower  capacity when smaller plants were shut down.

“Renewable energy can contribute to Kazakhstan’s  energy independence in areas such as north  and south Kazakhstan, which currently import  energy,” says Gennadi Doroshin, head of UNDP’s  Kazakhstan Wind Power Market Development  Initiative. It can provide power to remote consumers,  reduce transmission losses and the need for power  transmission lines.” The UNDP is helping the  government with a national wind energy development ^ programme, which targets 250-300mw of wind  installations by 2015 and up to 2,000mw by 2030.

“Kazakhstan is one of the best countries in the  world for large-scale wind installations because of  the high wind potential and land availability. But  the potential is hardly used. On the Chinese side of  the Jungar Gates border crossing, east of Almaty, for -» example, wind energy stations were set up long ago, h but in Kazakhstan they are still only at the planning stage,” he adds.

Nurlan Djienbayev, director of solar energy  company ND&Co, adds: “Many villages are far from  main energy networks and power is short in many  regions, including Almaty. Solar batteries could  have supplemented the main networks, but we  cannot do this yet because of the absence of the  relevant legislation, this is the main reason for slow  development of alternatives.”

Two big solar projects are already in operation – at  Alakol and Kuldzhinkii – and four more are planned  under the UNDP initiative. But there are also smaller  private schemes set up by oil companies in western  Kazakhstan and in the Almaty region, where the  largest helps power the IT Park free economic zone. n addition, there are a number of projects to  produce photovoltaic technologies, with Germany’s  Thyssen Krupp Manex supplying advanced technology to Silicium, Kazakhstan’s planned silicon metal plant  in Karaganda. Kazakhstan’s Lancaster Industrial  and Kun Renewables are setting up a $390 million  polycrystalline silicon plant in Astana, with finance  from the Investment Fund of Kazakhstan and the  Development Bank.

According to the Ministry of Agriculture,  Kazakhstan also has the potential to produce up to  300,000 tonnes of biofuels annually at around half  he cost of production in western Europe or the US.  “Currently only one biofuel plant is operational. This is the Biochim plant in north Kazakhstan and it cannot  meet demand,” says Beisen Donenov, director general  of the Kazakhstan Biofuels Association, set up in 2007  to develop the industry. “The country’s food security  interests impose limitations on raw material for  biofuels production. Because of a smaller grain harvest h last year, the plant did not operate at full capacity.”

A second plant at Taraz was not operational at time of writing and a third is being built at Novoishimsk.  The latter will be the first ‘next generation’ plant  that uses non-food or agricultural waste products  as raw materials. This is only the tip of a potential  iceberg. Toyota has just signed an agreement with  the Biofuels Association to start developing next- generation biofuels technologies and the association  is also working with several US scientific institutes  with the aim of producing aviation kerosene and  other new-generation biofuels.

Invest in Kazakhstan An official publication of the Government of the Republic of Kazakhstan, 2009. Pages: 69-71.

Modernising mines for safe environment and profit 1

Posted on April 06, 2010 by KazCham

STEEL GIANT ARCELOR-MITTAL owns the Temirtau  steel complex, some 50km from Kazakhstan’s  mining capital, Karaganda. The bankrupt plant  was bought in 1995 by Lakshmi Mittal, the Indian  entrepreneur, together with a string of nearby  coal and iron mines. The mines guarantee supply  security at low cost and helped generate large profits at the steel plant.

Once the global steel market started to boom, cash  flow generated by low-cost Temirtau, together with  the valuable experience gained turning round the  Soviet-era giant, generated the confidence to buy a  string of similar plants in Ukraine, Romania, South  Africa and elsewhere. In this way, Mittal’s Kazakh  investment helped the company gain the critical  mass, and the cash, to win control over the Franco- Luxembourg Arcelor steel group three years ago. The  merged Arcelor-Mittal is now the world’s largest steel group, with the Kazakh company contributing about  8 per cent of the total.

However, a series of deadly methane explosions in  some of the company’s eight Kazakh coal mines over the -last three years underlined concerns that the company  had not paid sufficient attention to the poor state of the Soviet-era underground mines that had been starved of  investment for years before the Soviet collapse. Critics  said Mittal knew less about mining than it did about  steel. Certainly, when this correspondent went down  the flagship Lenin mine a few years ago, miners were  wearing little more than rags, the access shafts were  littered with broken-down machines, they were poorly  lit and had little ventilation. Working conditions in the  mine were worse than in similar mines I had visited in  South Africa.

Safety awareness campaigns designed to change  the inherited Soviet-era low priority for safety were  not enough to change the inherent dangers of  deep, sloping mines producing volatile, gaseous  coals. These are great for coking and steel making  but dangerous to mine using the inherited Soviet  technology. Sections of the mine were frequently  being closed to evacuate the methane gas and prevent dangerous accumulations.

Eventually, after a string of serious explosions,  in which 125 miners died over a four-year period,  Arcelor-Mittal turned to two US specialist companies,  EnSafe, a Memphis-based environmental engineering  company, and Dallas-based Petron Resources, to  develop a de-gasification system capable of safely  extracting the estimated one billion cubic feet  of methane estimated to be recoverable from  the coalfield.

Mittal obtained a $100 million loan from the  European Bank for Reconstruction and Development  to help finance the project, which is part of a much  wider, $5 billion scheme to double steel capacity at  Temirtau to around 10 million tonnes over the next  few years. This will also require much more extensive mining of coal, iron and limestone, all of which are  found in the Karaganda basin.

Don Cowan, vice president of international  projects for EnSafe, says: “There are three aspects to  the project – health and safety, mine productivity  and gas production.” Doug White, CEO at Petron  adds: “The first objective is to make the operations  safer, but Mittal also wants to earn greenhouse  emission credits.”

According to the Stern Review of the Economics  of Climate Change, methane has a global warming  impact 23 times more damaging than carbon  dioxide. By extracting methane from the mines,  reducing ‘fugitive emissions’ seeping out of the  mines and safely channelling the gas, using  methane mining techniques developed by the oil  and gas industry, the project will save lives, cut  costs – and provide a new fuel source sufficient  to power a 200mw power station. As a result of  Kazakhstan finally ratifying the Kyoto Treaty this  year, the company will probably also qualify for  greenhouse emission credits, which will help pay for the projects

David Vint, a veteran Scottish coal mine engineer,  is running the Karaganda methane project. His goal  is to achieve safer working conditions and make  fullest use of the gas recovered.

Explosions occur, he explains, when the methane  escaping naturally from the coal mixes with oxygen  and is ignited by a spark. Mining the methane  involves driving channels through the coal seams,  using multi-directional drilling methods and  equipment, such as blow out preventers developed  by the oil and gas industry. Channels drilled through h the coal create manageable gaps through which the  methane naturally flows into collector pipes, which  can safely transport it to the surface. “Concentrated  methane in a pipe is safe methane. You can burn  it, in a power station for example, but it lacks the  oxygen to explode,” Vint explains.

Higher productivity from modern mining  machines means that more gas can be liberated from -the cut coal. Doubling capacity of the steel plant  will require more and bigger mines. But if current  trials are successful, making the mines safer will  also deliver greater volumes of useful gas. “If the gas  potential from existing, new and exhausted mines  is added together it could provide enough gas to  generate up to 200mw of power,” Vint says.

That will be relatively clean power – energy which  Mittal will no longer have to buy from the over-loaded national grid, which is produced mainly by polluting h coal-fired power plants. The main question still open  at this stage is whether methane mining techniques,  which have been proven successful in shallower US  and Australian mines, will work, or can be adapted  to work, in Kazakhstan’s relatively deep mines. If the  current trials are successful, not only will mining  become safer, but Kazakhstan, with its vast coal  deposits, will also acquire considerable additional  energy reserves.

Invest in Kazakhstan An official publication of the Government of the Republic of Kazakhstan, 2009. Pages:72-73.

Interview with Grigory Marchenko, the head of the National Bank 0

Posted on April 06, 2010 by KazCham

The crisis came down to nothing or we just got used to live in its terms, taking it as an inescapable reality? The economy is stuck at the notorious bifurcation point and what to expect now: an increase or a new wave of setback? These issues are still hotly debated in society. Discarding the emotions and looking at the situation on the basis of the indicators of bygone years, the head of the National Bank, Grigory Marchenko, offers his view.

– To remind you the key results of the economic growth of Kazakhstan according to official sources in 2009: economic growth was 1,1%, industrial growth – 1,7%. While the predictions at the start of the last year were very pessimistic. Today, experts agree that a positive result was achieved by taking proper anticrisis measures in many ways. The effectiveness of the Government, the National Bank and AFS, summing up the very difficult year, were voiced by the Head of the State in his speech: “The world financial and economic crisis affected the pace of economic growth but did not stop our development. Past economic potential provided us with stability in difficult crisis battles for three years. We have defended the country’s financial system and rescued banks. We were in a “breakout group” of countries with positive growth rates. Gross international reserves and assets of the National Fund already exceeded $ 50 billion and has increased over the past ten years for more than 25 times. It is important to note that we spent part of the funds last year, but yet today the fund is bigger than in December of last year.” Today’s priority is to prepare the economy for the post-crisis development. So, are we done with the page addressed to the crisis and its emotional perception?

– There are lee emotions now and you can safely talk about it, because accusations,  made and not made, in fact, have accumulated a lot, said the head of the National Bank. – The fact that they are mostly emotions, economically unfounded or financially illiterate, is obvious. In particular, the question: why did we have the devaluation? Even today there is still some views that it could not have been done. But this is  misleading.

– Gregoriy Aleksandrovich, to be honest, some measures, particularly February devaluation, seemed very hard, painful, ill-founded a year ago.

– Shall we recall what happened before? Prices for raw materials, which is our main export item and an essential part of the economy, fell two or three times. In autumn 2008 the country’s neighbors  devalued the currency: Russia – 50%, Ukraine – almost 60%. In January 2009, our industrial production fell by 18% in a month. This reduction was for those industries that competed with cheap imports of Russia or Ukrainian (more than two-thirds of them). All that we had already passed in 1998-1999! We also had no internal reasons for the devaluation. But there was a default in Russia. There was an abrupt devaluation, and all of Russian, Ukrainian, Belarusian goods fell sharply in price in dollar terms and poured into our market. They were much cheaper than domestic goods, which costs could not compete with them. As a result, our enterprises had problems: first, they began to go to work in one shift, then began to send people to unpaid leave …
Many financiers saw the devaluation as the only exit in January and February 1999. Although, personally, I was not its advocate. At that time I was a member of the working group, and we were opposing devaluation, believing that we could solve those problems by methods of tax and customs policy of the state. It did not happen. And the National Bank introduced a freely floating exchange rate in April 1999.
In January 2009, there were similar factors and other circumstances. For example, during one month the net purchase of US dollars was amounted to two billion dollars in exchange offices! For our system is an absolute record.
In addition, during the same month the flow of deposits in tenge currency to foreign currency was 3,8 billion dollars. Thus, everybody understood what was happening and began a massive withdrawal into dollars. These factors clearly indicated that the devaluation was absolutely inevitable. The question was only how to do it. But that was what exactly I had to do in a week after taking the office; I did not come up with a scheme. By this decision, I repeat, we summed up the real situation.

– Was there an alternative to implement schemes, for example, the gradual devaluation, as in neighboring Russia?

– The decline in industrial production, the massive buying of dollars and flow of tenge deposits into foreign currency clearly said that the devaluation had to be done before and that we were already late. From the standpoint of economic theory it should have been carried out in October, when commodity prices fell. That happened, for example, in Australia, Canada, Norway. These countries, like Kazakhstan, are commodity exporters. There, the exchange rate in just a few weeks fell to 26% in Australia, at 28% in Canada and 40% in Norway. There was also a second option: to devalue along with Russia in mid-November. Neither the first, nor the second option had been made. Therefore, the only way out was to conduct a one-stage devaluation in February 2009.

– It is believed, that as a result  investors, individuals, who kept their savings in tenge, became the most aggrieved party…

– According to the National Bank, Kazakhstan depositor shifted to the foreign currency deposits 20% savings in four months (November 2008 – February 2009), and in Russia, despite the gradual devaluation – 18%. That is, our people had shifted more money: all who wanted to protect savings which was done before the devaluation. In that case we had no leaks of deposits. And it was in Russia: 300 billion left the banking system, but later returned. I also recall that during the last decade the National Bank has always insisted that you should not keep all your savings in one basket. It is necessary to divide the savings in the proportion of 50 to 50. And then the currency fluctuations between them are not scary. Investors who adhere to this rule were not affected by the devaluation.
If we compare the scheme of the devaluation, let’s judge their performance. In Kazakhstan GDP grew, albeit a little bit; in Russia it fell for 7,9%. Inflation in the neighboring countries was 8,8% in 2009. In Kazakhstan – 6,2%. This one and a half times lower compared to 2008 (9.5%). Although, I remind you that some of the most pessimistic “experts” promised us inflation at 25%. The forecasts of the same “experts” on the second round of devaluation were not justified as well. They frighten people that the dollar would cost 180 tenge. It’s possible even now to hear such predictions, but if the “experts” regularly mistaken before, then why do people believe them now?
I think the important lesson of the last year is that the National Bank, publicly designating its policy, was adhered to it: we did all that we promised. The National Bank marked the corridor, and it passed. And the corridor was even narrower in reality. We promised that there would be more inflation but it did not let that happen. We said that there would be a small growth in GDP, and it was so. However, even more than we planned. We have done everything correctly, and all our predictions were confirmed.
I think the situation with international reserves (gold reserves) of Kazakhstan is fully restored: the total gold and foreign assets (GFA) of the country stand at 52.7 billion dollars now. But it’s more than before the crisis, despite the fact that we spent 10 billion dollars from the national fund for the anti-crisis measures.

– It is common knowledge that you are not a fan of analysts and experts. However, the National Bank uses forecasting and planning. What is, in your opinion, permissible prediction error?

– We have no, unfortunately, serious analysts or an authoritative analytical community. However, many foreign analysts do not differ in their validity and accuracy of forecasts as well. For example, they predicted the deficit of current account balance at minus-six – eight per cent of GDP in 2008 for us, but it was actually plus five percent! Error in 12 billion dollars! However, the same experts come again and give forecasts for Kazakhstan in 2010. But if the experts do not understand the economy, do not understand its significant difference from the economies of Europe or Russia, they should not give forecasts, or give them, but cautiously, with these caveats in mind.
I, personally, and the National Bank, would gladly welcome a serious analytical community, but there are just a few good analysts. I can name one of them – Jonathan Schiffer, the vice president of Moody’s, who is responsible for Kazakhstan since 1996. Before he was a professor at the Columbia University and worked on the Soviet economy. There are just a few people who understand the nature, essence, the origins of the national economy, its specificity and the mentality of the population. Everything matters in the analysis, even, for example, the notion of “sedentary” or “nomads”. And who, for example, knows in Europe what is a nomadic lifestyle and the customs and traditions that it generates?

– For example, the Roma …

– But they do not work as analysts! But if to talk seriously, the National Bank is constantly analyzing the situation and makes predictions. It prepares and not guesses. But even in serious prognosis some errors are allowed. So, we gave the forecast for GDP growth of 0,3%, but it turned out – 1,1%. The volume of GDP at current prices, according to operative data of the Statistics Agency, reached 15.9 trillion in 2009. Let me remind you, some analysts predicted the fall of the main indicators, but in practice it was an increase. That is, first, the trend was identified incorrectly. This is a principle mistake. Secondly, there is an error of calculation – not even for a few percents, but in times. Therefore, the National Bank indicates the corridor in forecasts. And if the process goes in limits of this corridor, the exact approach is correct.

– Grigory Aleksandrovich, I remember well your interviews with our newspaper three-four years ago, when you warned about the mortgage bubble and would predict that it would burst. It happened. Many mortgage based businesses were in a difficult situation. What to do now?

– They are all adults, and if they assume such risks in the market economy, they should be responsible. And I do not see other ways but to negotiate with your bank, explain what the essence of problems is and how the debt can be restructured. There are people who really were in a difficult situation because of the crisis circumstances among the borrowers. But many of them wanted to do business on the growth of prices in the real estate market. That is another story – this is a market risk rather than social risk. In addition, we estimate that one third of borrowers could not service their loans, even if there was no crisis and there would be no devaluation. And there are many lessons to be learned for everybody, because some borrowers used dishonest tricks in efforts to confirm their ability to pay. For example, they provide banks with non-existent income statements.

– To sum up: how does the National Bank evaluate the outcome of the devaluation, does it achieve its goals?

– The results clearly show that our decision was necessary and correct. One-stage devaluation immediately reduced the pressure on the national currency and devaluation expectations, increased the competitiveness of Kazakhstani goods by reducing their costs, improved the balance of payments, and maintained gold reserves of the National Bank and the country. In addition, despite the devaluation, the total amount of residents’ deposits in the banking system for the year increased by 19.7% to $ 6,473 billion tenge. Moreover, individual deposits grew by 28.5%, exceeding 1.8 trillion tenge.

– Your term “asymmetric apron” gave an incentive for new forecasts. In particular, it was about a more pronounced correlation of tenge exchange rate with the rate of the ruble, which includes the establishment of the Customs Union. Are these assumptions reasonable?

– In principle, the establishment of the Customs Union should not have any pressure on tenge exchange rate in relation to Russia’s ruble as well as it does not require an adjustment in the monetary policy of the National Bank. However, one of the potential risks involved with the creation of the Customs Union is a risk of rising inflation. However, if implemented, the National Bank has the necessary tools to minimize it.

– The head of the state demanded banks to cut off from overtly or covertly affiliated entities,  to ensure that they are engaged exclusively in banking activities and that their activity should be very transparent. What measures are supposed to take?

– First, it is necessary to tighten control over the ongoing intra-group transactions and prudential supervision of banking conglomerates. Secondly, it’s necessary to improve measures on transparency of the ownership structure of financial institutions and affiliated organizations. Today, there is a working group, based on the AFS, is being established to develop a bill which will ensure the transparency of banks and their exclusive affiliation with other entities. It will also include representatives of the National Bank of Kazakhstan.

– Evaluating the outcomes of anti-crisis program in 2009, do you consider it necessary to continue the state support for the banking sector?

– The main achievement of bygone years that the banking system of Kazakhstan is relatively successfully coped with the negative impact of the second wave of the crisis. Problems of individual large banks do not have the problems of the whole system, and they successfully complete the restructuring process. In general, a package of anti-crisis measures helped to overcome some of the most dangerous consequences of the crisis. In particular, to overcome the shortage of credit on the most important sectors of the economy and avoid a collapse as a result of underfunding.
If we talk about stabilizing activities in the current year, I think, success will depend on the concerted action of the Government, AFS and the National   Bank. We have already identified the main directions of work. First, to support exchange rate stability of tenge and the level of liquidity of the money market.
This is the main task of the National Bank. Secondly, it is necessary to accelerate the healing process of bank balances and to clean their low-quality assets.
Thirdly, there is a need to develop a set of measures that will stimulate the credit activity of banks in the post-crisis phase. Fourthly, it is necessary to make the transition to a countercyclical management and improved risk management systems in financial institutions. Finally, fifthly, there is a need to develop a set of measures to reduce the level of economic imbalances and systemic risks.
I think that, it is not worth to cease the direct support of the banking sector completely in 2010 because the current state of the banking sector is largely dependent on state support, which allows overcoming the shortage of funding banks. However, there should be a gradual reduction in state aid and stimulus to the process of finding new sources of funding.

The interview is taken by Alevtina DON

SOURCE: http://www.zakon.kz/165594-grigorijj-marchenko-my-sdelali-vse.html

New uses for sulphur solve ecological problems 1

Posted on April 02, 2010 by KazCham

OVER RECENT YEARS, more than eight million tonnes of yellow sulphur has stacked up around Tengiz and  other North Caspian oil and gas sites. However, with  new technologies being developed and implemented, sulphur is in demand and the stacks are shrinking.

Rising high above the flat steppe, the ‘sulphur  mountains’ are the inevitable by-product of  processing plants that strip sulphur and other impurities from the corrosive, high-pressure oil  brought to the surface from 5km below the surfaces.

At Balkhash, on the shores of the eponymous crescent-shaped lake, nearly 2,000km east, clouds of  poisonous sulphur dioxide and other gases used to be released into the atmosphere from copper smelting  operations at the country’s biggest non-ferrous  mining complex. But yesterday’s ecological embarrassments, which  cost oil companies such as Chevron and Exxon and  copper miner Kazakhmys tens of millions of dollars a  year in fines from environmental protection agencies  and local authorities, have been turned into money- spinning sidelines. New technologies are in place that are processing sulphur and finding new uses for the inert, and once virtually worthless, yellow powder.

New uses include adding sulphur to bitumen and  other road-making materials to improve the climate  resistance of road surfaces. Pioneered by Shell in  Canada, which has a similar climate, the sulphur- based additives offer a promising new market close to  home as Kazakhstan prepares to invest heavily in new  highways, including a motorway from China to Europe.

But the really important new market to emerge is  the uranium mining industry, which increasingly uses  sulphuric acid as a solvent in the in situ leach mining  technology pioneered by Kazatomprom, soon to  become the world’s largest producer of the radioactive  mineral that powers nuclear power stations.

Sulphur prices have risen sharply as a result of  these new markets and growing demand from  traditional users of sulphur as a raw material  for agricultural fertilisers. The storage and  transportability of sulphur has also been improved by pelletising the compacted powder in ways that make  it much easier to handle.

Tengiz, in which Chevron is the major shareholder  and operator, is currently selling more sulphur than it  is producing, despite a sharp rise in output from a $5  billion investment, which has doubled oil production  to 25 million tonnes a year from the giant onshore  field. Rising demand for the yellow stuff is steadily  slicing away the sulphur mountains, whose constant  growth was a major headache a few years ago.

In the meantime, a $130 million investment  in a new sulphuric acid plant at the giant Kazakhmys copper smelter, beside Lake Balkhash,  has transformed toxic fumes from smelting into  1.2 million tonnes of marketable sulphuric acid a  year, using technology designed by the Chemetics  subsidiary of Canada’s Aker Kvaerner.

Kazakhmys, quoted on the London Stock Exchange  since 2005, was hard hit by the sharp fall in global  copper and other metal prices last year, before  recovering on Chinese buying. But it has been partially  able to offset the decline in copper and zinc revenues  thanks to higher global prices for the gold refined as a  by-product of smelting polymetallic copper ores – and  a modest new source of income from sulphuric acid.

While the sulphur price in some markets has risen ten-fold, around $500 per tonne in recent years, the  local price is barely a tenth of that, reflecting the  isolation of most uranium and other mines and the  prohibitive costs of transporting competing product  from other suppliers. Kazakhmys sells 99 per cent  of its sulphur output to third parties, most of it to  Kazatomprom, which has several uranium mines in  the Balkhash area using the in situ leaching method.

The ecological benefits, however, are massive. As recently as 2006, Kazakhmys, which is committed to  achieving international safety and environmental  standards, struggled to cut its emissions through  conventional abatement technology. This helped cut emissions by 9 per cent in 2007, but it still emitted a  massive 706,000 tonnes into the atmosphere before  the new plant permitted a six-fold reduction in  noxious discharges.

Kazatomprom, meanwhile, mixes the sulphuric  acid with hydrogen peroxide to produce a powerful  solvent, which it injects into uranium bearing  deposits deep underground. The new technology,  developed in-house, cuts out the need for traditional  surface or deep mines – both of which have a much  heavier environmental impact than leaching. Taken together, the big reduction in toxic gas emissions  by Kazakhmys and more environmentally friendly  uranium mining from Kazatomprom represent two  big advances in tackling Kazakhstan’s Soviet legacy of environmental neglect.

Invest in Kazakhstan An official publication of the Government of the Republic of Kazakhstan, 2009. Pages:74-75.

Gazprom, KazMunayGas to explore Imashevskoye condensate field – draft agreement 0

Posted on March 31, 2010 by KazCham

Moscow. March 30. Interfax – Russia and Kazakhstan have drafted an intergovernmental agreement covering joint geological study and exploration of the Imashevskoye gas condensate field, which straddles the two countries’ border.

Prime Minister Vladimir Putin signed the instruction approving the draft agreement on March 25.

Once the reserves have been calculated and registered, and the decision to proceed with development has been made, a new agreement will be drafted covering the terms for developing the field.

The document designates Gazprom and Kazakh national oil and gas company KazMunayGas (KMG) as the authorized organizations for work at the field. They will share the revenue from joint operations 50-50. The authorized organizations will jointly appoint the operator.

The authorized bodies are the Natural Resources and Ecology Ministry, Rosnedra, Rosprirodnadzor and Rostekhnadzor on the Russian side and the Energy Ministry on the Kazakh side. They will form a joint coordinating committee with three representatives from each country. The Russian delegation to the committee will be headed by the Natural Resources and Ecology Ministry. The committee will meet at least once a year.

The sides should issue the relevant license to the authorized license holder no more than 100 days from the moment the agreement enters force.

Gazprom and KMG will prepare the program for geological study of the field. Geological information on the field will be presented to the national geological information agencies on confidential terms.

The Imashevskoye field is located east northeast of Astrakhan in Russia and southwest of Atyrau in Kazakhstan. Explored gas reserves exceed 100 billion cubic meters with a sulfur content of 15%-17%.

The Natural Resources and Ecology Ministry will sign the agreement for Russia.

SOURCE: http://www.interfax.kz/?lang=eng&int_id=10&news_id=3376

EBRD to lend $50 million to Kazakh railways operator 0

Posted on March 31, 2010 by KazCham

“The EBRD loan will support Kaztemirtrans’ investment program and will finance the acquisition of 1,000 new freight wagons, helping the company to improve its efficiency and reduce maintenance costs. The project is supported by grant financing from the Bank’s Shareholder Fund to help KTZ strengthen its corporate governance,” EBRD said in a statement.

SOURCE: http://silkroadintelligencer.com/2010/03/31/ebrd-to-lend-50-million-to-kazakh-railways-operator/

Slovakia invests $ 30 million in the production of diesel rail trains in Kazakhstan 0

Posted on March 30, 2010 by KazCham

BEIJING, March 30 – IA News-Kazakhstan. Slovakia is to invest $ 30 million in a joint Kazakh-Slovak producer of diesel rail trains declared the press service of the “Kazakhstan Temir Joly” (KTZ).

KTZ President Askar Mamin and chairman of the Slovak company “Jos Vr?tky” Vityazoslav Moritz signed an agreement on a joint venture to produce diesel rail trains on Tuesday in Astana.

The company Jos Vr?tky expressed its willingness to invest in the joint production of 30 million dollars and provide advanced technology to produce diesel rail trains stated the press release of KTZ  on Tuesday at a signing ceremony.

Diesel rail vehicles designed to transport passengers in suburban, as well as railway workers to the place of track work. The planned productivity of the enterprise – 10 diesel rail trains in the year.



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