News Bulletin
Released weekly by the Embassy of the Republic of Kazakhstan


No 2 January 23, 2008


President launches “Ten Smashing Blows Against Corruption”
Kazakhstan to chair OSCE Economic and Environmental Committee
Kazakhstan’s Defense Ministry hails military cooperation with the United States


Kazakhstan ranks high in the Index of Economic Freedom
Kashagan agreement reduces project's political risks – Fitch
EU Energy Commissioner hails resolution of Kashagan dispute
Kazakhstan to spend $2.5 bl on tourism infrastructure projects


Ambassador of Kazakhstan visits California


President launches “Ten Smashing Blows Against Corruption”

Kazakh President Nursultan Nazarbayev called on Nur Otan Party members to fight corruption more vigorously, the Embassy of Kazakhstan reports with reference to the Interfax-Kazakhstan news agency.

“The party’s regional branches should initiate specific anticorruption programs. Ad hoc committees established by regional and city branches should include well known public figures and consider complaints about bribery and embezzlement of state property,” the President told a meeting of the party’s political council in Astana.

“The party should make demands to dismiss dishonest officials from office and punish them” he added.

According to President Nazarbayev, some officials are doing very well by combining official duties and their own business.

The party will develop a program called “Ten Smashing Blows Against Corruption,” the President said.

Nur Otan led by President Nazarbayev is the largest political party in Kazakhstan.

There are ten political parties in Kazakhstan.

Kazakhstan to chair OSCE Economic and Environmental Committee

Kazakhstan will chair the OSCE Economic and Environmental Committee, Foreign Ministry spokesman, Mr. Yerzhan Ashikbaev announced.

“At the initiative of the Finish chairmanship, Kazakhstan was offered the opportunity to lead one of the key departments in the Organization, the Economic and Environmental Committee", Ashikbaev said at a press briefing in Astana.

Committee’s first session this year was held on January 15 in Vienna under the chairmanship of Kazakhstan’s OSCE envoy, Mr. Kairat Abdrakhmanov.

The spokesman said that the offer “reflects the recognition of our republic’s economic achievements”. “In light of Kazakhstan’s upcoming OSCE chairmanship, much attention is drawn to Kazakhstan’s obtaining sufficient experience and further strengthening of our international image,” Ashikbaev said.

Kazakhstan’s Defense Ministry hails military cooperation with the United States

A press release issued by the Kazakh Defense Ministry says that the bilateral Five Year Partnership Plan constitutes a sound basis for the development of military-to-military cooperation.

In full accordance with the Plan, the United States continues to supply Kazakhstan’s Armed Forces with military transport and equipment, namely Hummer vehicles, communication and engineering equipment etc.

Recently, another important step has been made in accelerating the military partnership as the US handed over to Kazakhstan two “Huey” helicopters. “Huey” is considered to be the most widely used helicopter in the world, with more than 9,000 produced from the 1950s to the present, the Huey is flown today by about 40 countries.

Kazakhstan’s Deputy Defense Minister, Mr. Bolat Sembinov, and US Ambassador, Mr. John Ordway attended the event.


Kazakhstan ranks high in the Index of Economic Freedom

In last week’s joint publication of the Heritage Foundation and the Wall Street Journal, the Index of Economic Freedom 2008, Kazakhstan was ranked 76th among world’s 157 economies. Authors’ positive assessment of Kazakhstan took the country into the “moderately free” category together with Spain, France, Czech Republic, Israel, Italy, Portugal and Turkey.

“Kazakhstan's economy is 60.5 percent free, according to our 2008 assessment, which makes it the world's 76th freest economy. Its overall score is 1.4 percentage points higher than last year, mainly reflecting a significant improvement in trade freedom. Kazakhstan is ranked 13th out of 30 countries in the Asia–Pacific region, and its overall score is above the regional average” – the report reads. 

“Kazakhstan scores highly in trade freedom, government size, and labor freedom. Government expenditure is somewhat high, although the government has gradually been privatizing businesses. Kazakhstan has a highly flexible labor system”, says the report.

Kashagan agreement reduces project's political risks – Fitch

The agreement between the Kazakh government and the Kashagan-consortium led by Eni Spa (AA- (AA minus)/Stable) should help to reduce political risks surrounding the Kashagan oil field development project, Fitch ratings said in a comment.

"Contrary to the usual negative perception of state intervention, we believe that restoring a stable environment to a project of this scale and importance, as well as adopting a greater sharing of responsibility between all parties involved, is a better outcome than most were forecasting. This is particularly true in the light of other state-motivated actions taken in the international oil and gas market" said Francesca Fraulo, in Fitch's Energy team.

Fitch notes that the project is likely to benefit from a strengthening of relationships and the sharing of greater responsibilities with its host country. State intervention in the oil and gas sector has become more frequent in the current high oil price environment, especially in countries where economies rely heavily on royalties and /or taxes and dividends from oil and gas companies.

Although the agreement may have a financial impact on the Kashagan project economics, it is difficult to assess the magnitude of it at this stage as the compensation payment structure is linked to oil prices at the start of commercial operations. Additionally, the project was originally conceived in a much lower oil price environment, so any adjustments to the project economics may well be compensated for by a higher price environment.

As one of the largest oil fields in the world, the project was never perceived as likely to be straightforward to execute. Most recently, the Kazakh authorities threatened to oppose/terminate the oil field development, after a revised plan showed further potential delays and a significant increase in development costs. Negotiations between the parties have taken more than six months to complete due to complex issues surrounding compensation for delays and cost overruns, and the willingness of the Kazakh government to play a more active role in the project via state-owned company, National Company KazMunayGas (NC KMG, 'BBB'/Negative).

Under the agreement, NC KMG's stake in the Kashagan consortium has been increased to 16.81% from 8.33% for a consideration of USD1.78bn. The consortium has agreed to pay compensation (expected to average USD3.5bn, depending on the oil price at the start of commercial operations) to the Kazakh government for any cost overruns and delays. Eni will retain sole responsibility for the operation of the field until the exploration phase concludes, expected at end-2011. The field will then be jointly operated by the four major international partners, ExxonMobil Corporation ('AAA'/Stable), Royal Dutch Shell plc ('AA+'/Stable) and Total SA ('AA'/Positive).

Based in north Caspian Sea, the Kashagan oil field is the fifth-largest in the world with reserves of about 7 billion-9 billion barrels of oil equivalent and production estimated in 1.5 million barrel/day.

EU Energy Commissioner hails resolution of Kashagan dispute

Energy Commissioner of European Commission Andris Piebalgs welcomes the resolution of the Kashagan oil field dispute, the Embassy of Kazakhstan reports with reference to the Interfax-Kazakhstan news agency.

“Energy Commissioner, Andris Piebalgs, today welcomed the fact that an agreement has been reached between the members of the Kashagan consortium and the authorities of Kazakhstan. The resolution of this dispute will allow the development of the Kashagan oil field, the largest oil discovery in more than 30 years, to proceed at the quickest pace possible,” he was quoted as saying.

“Such progress should also help to ease world energy markets at a time of sharply increasing energy demand”.

The members of Agip KCO consortium on January 14 signed a new memorandum of understanding with the Kazakhstan’s government. The long term negotiations with consortium members resulted in amendments made to the PSA on the North-Caspian Project. Under the newly amended PSA, KazMunaiGas obtained the status of the major shareholder with 16.81% share along with Eni, Total, ExxonMobil, Shell. The operator of the project will be a new company that will be created by all consortium members, taking into account the bigger role of KazMunayGas. Commercial production at Kashagan is scheduled to start in 2011.

AGIP KCO was created to implement the North-Caspian project after a respective production sharing agreement (PSA) for the period of 40 years was signed in 1997. Under PSA the licensed area will also include the three oil-bearing structures Kalamkas, Aktoty, Kairan in addition to Kashagan. These 4 structures consist of 11 marine blocks, which occupy an area of about 5,600 square kilometers.

The recoverable oil reserves at Kashagan are estimated at a minimum of 7-9 billion barrels and the total oil in-place - at 38 billion barrels.

Agip KCO is owned by Eni (the single operator of the North-Caspian Project), Total, ExxonMobil, Royal Dutch/Shell which have 18.52% each, ConocoPhillips - 9.26%, Inpex and KazMunayGas - 8.33% each.

Kazakhstan to spend $2.5 bl on tourism infrastructure projects

Kazakh Ministry of Tourism and Sports selected 24 investment projects aimed at the development of tourism infrastructure with total cost of $2.5 bl, head of the Ministry’s industry department, Mr. Yugeniy Nikitinskiy, said.

"In total we have 99 investment projects for tourism infrastructure development in our database. Only 24 of them were given a priority status and submitted to Kazyna Sustainable Development Fund as eligible for state funding. They are estimated at $2.5 bl," he said at the Ministry late last week in Astana.

Nikitinskiy also updated the Ministry on priority tourism developments. He said that the auction for designing the Zhan Ile international tourist center on the Kapshagai shore had been announced and the talks are underway with investors from China, Hong Kong and South Korea.

He also touched upon the progress in legislative work and design documentation for Burabai zone in the Borovoye resort and the Kenderli resort on the Caspian Sea. According to Nikitinskiy, over 100 potential investors from Asia and Europe and Middle East would be invited to participate in the latter project.


Ambassador of Kazakhstan visits California

On January 15-19 Kazakhstan’s Ambassador to the United States, HE Erlan Idrissov, visited the state of California to deliver talks at the World Affairs Councils of San Diego and Northern California as well as to hold a number of meetings with local dignitaries, including Lieutenant Governor John Garamendi, the board of Chevron oil company and San Francisco Global Trade Council.

As a part of his quest to promote cooperation with Kazakhstan in California Ambassador Idrissov gave talks at the University of San Diego and the University of Berkley. “Kazakhstan is a young dynamic country which made its choice in favor of liberal economy, democracy and stability”, Ambassador Idrissov explained at a meeting with students.

Besides, the envoy met with representatives of a vibrant Kazakh community living in California and visited “The Silk Road House” cultural center at Berkley recently established by a professor of the Stanford University, Ms Alma Kunanbayeva.

News Bulletin of the Embassy of the Republic of Kazakhstan
Contact person: Zhanbolat Ussenov
Tel.: 202-232-5488 ext 104; Fax: 202-232-5845
E-mail: zhan@kazakhembus.com
Web-site: www.kazakhembus.com  

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