Kazakhstan
News Bulletin
Released weekly by the Embassy of the Republic of Kazakhstan
www.kazakhembus.com
                                               
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  No 7, September 12, 2007

POLITICS
Kazakhstan is aware of its responsibility for world energy stability
School education in Kazakhstan must be trilingual – President Nazarbayev

ECONOMY
Kazakh economy top performer in Central Asia
Kazakh PM makes a statement on the Kashagan project
Kazakhstan: Premier Warns Eni About Failures At Caspian Oil Field

OTHER NEWS
Kazakhstan changing from Cyrillic to Latin alphabet


POLITICS

Kazakhstan is aware of its responsibility for world energy stability

Kazakhstan is aware of its responsibility for international energy stability, Foreign Minister Marat Tazhin said at the Second Eurasian Energy Forum KazEnergy in Astana on Thursday. His report was entitled “Energy Security as Key Factor of Stable International Relations.”

“Being a dynamically developing exporter of energy resources, whose role will continue to grow, Kazakhstan is fully aware of its responsibility for hydrocarbon deliveries to the world market,” he said.

“Kazakhstan is fully aware of its new role in providing international energy stability and security,” Tazhin said.

“We are pondering large infrastructural projects that will diversify Kazakh deliveries to the world market and ensure stability,” he said.

School education in Kazakhstan must be trilingual – President Nazarbayev

Kazakh President Nursultan Nazarbayev once again emphasized the importance of trilingual education in schools.

“As you know I have already spoken in favour of trilingualism. Any Kazakh student must be able to speak three languages: Kazakh as state language, Russian as language for everyday communication and English. Ability to speak more foreign languages is a plus,” President told school pupils on 3 September during an interactive lesson.

President Nazarbayev cited Switzerland which has four official languages as an example of multilingual culture.

President Nazarbayev promised that particular attention will be paid to the development of the Kazakh language. “All government agencies and offices, the whole educational system of Kazakhstan will be gradually switching to the Kazakh language,” he said. The Kazakh youth “must strive to learn the state language from the kindergarten and school,” President added.

“At the same time we shall not forget the Russian language and try to learn other foreign languages,” Nazarbayev said. “We shall support and preserve all languages”.

ECONOMY

Kazakh economy top performer in Central Asia

Kazinform

The city of Almaty, famous for its fragrant apples, is about to be lost in the shadow of an ever-increasing number of skyscrapers.

The increases in income, attributable to the hike in worldwide oil prices, have provided a significant stimulus to the Kazakh economy. The city now competes with London and New York in terms of inflated real estate prices and escalating living standards. Astana, the new capital, and other cities, too, have also been experiencing this trend.

The number of Kazakh billionaires on Forbes' list has increased to five this year. More and more Kazakh people invest in foreign funds every day. Also, Kazakh investments, particularly in the energy and banking sectors, are said to have hit the $20 billion limit. During the last two years, shares of 18 Kazakh companies have been listed for the first time on the London stock exchange.

The salaries of $30-40, given in the post-Soviet Union dissolution era, have long been history. Per capita income has surged to $5,000.

As new oil pipelines are built and the country exports more and more oil, more income will enter the country. And obviously, Kazakhstan will be in a better position than it is in now. There will more building construction and more luxury cars will populate the streets of Almaty. Per capita income, which has increased by fivefold since 1999, may rise to $25,000-30,000 in the near future if this trend continues, Kazinform cites KADİR DİKBASH, Todays Zaman.

A short history of change

Kazakhstan experienced troubles in the 1990s characterized by the dissolution of the Soviet Union, and its economy showed a significant decline until 1995. With the settlement of the free market economy and the full functionality of the new republic along with all its institutions, a new era began. The economy became more vigorous as development plans were implemented over time. The shrinking of the economy halted and growth began.

As one of five countries with shores on the Caspian Sea, Kazakhstan has rich oil reservoirs both in the sea and on land. In addition to oil and natural gas, the country has rich gold, silver, uranium, barite, iron, coal, chromium, copper, lead, zinc and phosphorous resources along with 1,200 more mineral deposits.

Among the Commonwealth of Independent States (CIS), Kazakhstan has shown the best economic performance and conforms best to the requirements of a liberal economy. Thus, it is known as the most liberal economy in Central Asia. Kazakhstan has secured an average growth of 10.3 percent since 2000. Its economy has made the leap from $18 billion in 2000 to $77.9 billion now, and its current per capita income is $5,083.

The Kazakh economy continues to show impressive performance. Economic growth was 10.6 percent last year. The growth rate is 10.2 percent for the first half of this year.

Oil exports rose to 57 million tons

Kazakhstan's discovered oil reserves amount to 32.5 billion barrels while its natural gas reserves are 3 trillion cubic meters. However, the actual reserves of the country are estimated to be well above these figures.

In 2005 and 2006, Kazakhstan was among the oil producers that increased their oil exports the most. In 2006, 64.8 million tons of oil were produced while 57.1 million tons of oil were exported. In 2006, the natural gas production was 27 billion cubic meters while exports amounted to 7.8 billion cubic meters.

Although Kazakhstan has significant natural resources, its lack of access to maritime routes has proven problematic. Also, it is dependent on Russia in terms of energy exports. For this reason, one of the basic targets of Kazakhstan is to free itself from dependence on a single country for energy exports and develop new alternatives. The main pipeline used for oil exports is the Caspian Oil Pipeline, which passes through Russia. In May of last year, Kazakhstan started to use the Chinese pipeline in addition to it. Kazakhstan is also seeking inclusion in the Baku-Tbilisi-Ceyhan (BTC) pipeline project.

Record increase in investments

The high rates of increase in fixed capital investments ensure the sustainability of the country's economic growth. According to data from the Interstate Statistical Committee of the Commonwealth of Independent States (CISSTAT), the annual average growth in investments between 1999 and 2006 hit a record high of 23.5 percent. As one might guess, investments focus on energy and construction sectors. Energy also has the lion's share in the fixed capital investments, which increased by 11.6 percent in the first seven months of this year. According to the latest data from the Kazakh Statistics Agency, 30.1 percent of the investments amounting to 1.4 trillion tenges (about $12 billion) were in the oil and natural gas sectors. Twenty-eight percent was in the construction and real estate sectors, while 11 percent came in the transportation and communication sectors and 10.6 percent was in the manufacturing sector.

Inflation has been under tight control thanks to the successful policies implemented since the mid-1990s. However, the high growth rates and increasing oil prices seen in recent years have fueled price increases in goods and services. The foreign capital inflow, the increased borrowing opportunities and the widespread use of loans have also influenced price increases. The consumer prices based inflation rate was 8.6 percent last years and it decreased to 7.9 percent as of June this year. One US dollar was 138 tenges in December 1999, 156 tenges by the end of 2002, and is now 122 tenges.

Due to the intense inflow of foreign currency, the foreign currency reserves increased from $7.1 billion in 2005 to $19.1 billion in 2006. They are expected to exceed $25 billion by the end of this year. The foreign currency reserves amounting to $16 billion deposited at the National Oil Fund are not included in these figures.

Kazakhstan is one of the countries that has received the highest capital inflow in recent years, not only among the CIS countries, but also in the world. The majority of investments were for energy projects. In 2006, the direct foreign capital investment was $10.4 billion. The aggregate investments made between 1993 and 2006 were $51.2 billion. US companies take the lead in terms of foreign investments with 26.4 percent of direct foreign capital investments. Turkish direct investment accounts for 1.95 percent of the total foreign investments, amounting to $1 billion.

Foreign trade increases by folds

Because of the production structure in Kazakhstan, the country generally exports raw materials and semi-finished goods. Some 73.8 percent of its exports consist of mineral products, particularly oil. Chemicals account for 3.4 percent of its exports while foodstuffs correspond to 2.4 percent of its exports. The primary import item is machinery with 43.3. percent of the total. It is followed by non-iron metals at 14.7 percent, mineral products with 14 percent, chemicals at 11.6 percent and foodstuffs at 7.2 percent. Its most important trade partners are the European Union (particularly Germany, the UK, Italy, and the Netherlands), Russia, Switzerland, China, the US, Turkey, South Korea, Uzbekistan and Ukraine. Russia currently has the biggest share in Kazakh imports. Russia is also an important importing country for Kazakhstan.

The biggest risk for Kazakh foreign trade is its vulnerability to imbalance. Due to the fact that oil, natural gas and metals have an important share in export income, and that fluctuations may be seen in worldwide prices of these materials, Kazakhstan is exposed to both positive and negative effects. For instance, the decrease in world energy and metal prices in the 1998 crisis affected Kazakhstan deeply.

Reviving trade with Turkey

Turkish-Kazakh relations have been developing since 1991 when Kazakhstan gained its independence, but they were seriously undermined in 2001. More recently, however, important developments have made their mark in relations. The volume of trade between two countries which exceeded $1 billion in 2005 is expected to be more than $2 billion this year.

The development in the first half of 2007 is striking; Turkey's exports to Kazakhstan rose $500 million in a 68.2 percent increase while its imports from this country increased to $564 million in a 62.1 percent increase.

The products Turkey sells to Kazakhstan include, in order of quantity -- machinery, plastics, electrical equipment, steel merchandise and furniture -- while Turkey imports copper and copper products, mineral fuels, iron and steel, zinc and zinc products from Kazakhstan.

Under the customs union agreement among the CIS countries, Kazakhstan does not impose a customs tax on products from the Russian Federation, Kyrgyzstan, and Tajikistan. Kazakhstan also has preferential trade agreements with Ukraine, Moldova, Uzbekistan and Turkmenistan. Turkish goods are generally perceived as quality goods. The greatest obstacle before the development of bilateral trade relations was geographical distance and transportation problems.

Turkish investors' presence in non-oil sectors

Kazakhstan is one of the Central Asian countries that Turkey invests in heavily. According to official Kazakh figures, the direct investment from Turkey in Kazakhstan amounts to $1 billion. The biggest Turkish investment is the Kazakturkmunay (KTM) oil exploration and drilling company, which is a partnership between the Turkish Petroleum Corporation (TPAO) and Kazakoil. Turkey invested $273 million in the project between 1994 and 1999.

Large projects have been taken on by Turkish contractors; they have constructed public buildings, energy facilities, pipelines, shopping centers, highways and plants. In particular, about 70 percent of Astana has been built by Turkish contractors. The aggregate projects undertaken by Turkish companies were about $2.6 billion in 2005. With an increase of about 1.2 billion last year, they rose to $3.9 billion; they are expected to exceed $5 billion by the end of this year.

While the Turkish investments in Kazakhstan continue, there has also been increasing Kazakh capital inflow to Turkey in recent years. Kazakhstan informed Turkish authorities of its intention to establish an oil refinery in Ceyhan. Meanwhile, the joint venture that was awarded the privatization tender of Petkim, the single petrochemicals company of Turkey, includes Kazakh companies. If the awarding of Petkim's privatization tender to the joint venture group, the composition of which has been heatedly discussed in Turkey, is approved, and the Kazakh plan to establish an oil refinery in Ceyhan is implemented, the Kazakh capital inflow to Turkey will immediately reach several billion dollars.

Risks and doubts

Despite the Kazakh economy's continuing high performance, it has several weaknesses, particularly characterized by the relatively high inflation rates. While the foreign trade surplus is high, the current accounts deficit is increasing, though at moderate rates. Interestingly, although it increases its energy production and makes increased exports, Kazakhstan, unlike other energy exporting countries, continues to have deficits in its current accounts. While as the net energy exporters within the CIS, Russia, Azerbaijan, Turkmenistan and Uzbekistan have current account surpluses, Kazakhstan has current account deficits, though at a level that constitutes only 1.4 percent of its GNP. Meanwhile, the rate of increase in imports has exceeded the exports considerably in 2007. Rapidly rising oil prices imply that Kazakhstan can easily maintain its surplus position.

High levels of foreign currency inflow to the country create problems in monetary policy implementation. Although official foreign currency reserves are increasing, the foreign liabilities of banks have multiplied by two-fold. Banks tend to obtain foreign loan facilities with lower interest rates so they can market them with high interest rates. There are also false increases in real estate prices.

Although this situation is similar to the one experienced in Turkey, the Kazakh case is more salient. While the inflation rate is about 8 percent, the value of the tenge against the US dollar continues to increase.

With intense inflow of foreign currency, the foreign currency reserves increased from $7.1 billion in 2005 to $19.1 billion in 2006. They are expected to exceed $25 billion by the end of this year. The foreign currency reserves amounting to $16 billion deposited at the National Oil Fund are not included in these figures.

Actually, the risks in the face of the country's economic performance are not too different from what many other economies have experienced. The recent performance of the country, the determination to maintain free market conditions and the coherent policies being pursued signify that the country may not have great losses even if world energy prices decrease.

Having increased its economic welfare at the highest rate among former Soviet republics, thanks to increasing energy prices, Kazakhstan's next target is to be among the 50 biggest economies of the world. This target seems within reach, considering this young and dynamic economy of the Central Asian steppes.


Kazakh PM makes a statement on the Kashagan project

“We have revealed certain problems in the development of national energy sector. In particular, they have to do with some foreign investors who have failed to meet their earlier obligations; as a result, the national interests of Kazakhstan suffer substantial damage”, Prime-Minister Karim Massimov said at the Eurasian Energy Forum in Astana.

“First of all I am referring to the situation around the Kashagan project. We are concerned about the actions of the members of the consortium in charge of developing the oilfield which have become regular in recent years. Hence, the Kazakhstan Government has to call in question their commitment to the contract terms”, Prime-Minister said.

According to him, the delayed start of the commercial production at Kashagan as well as more-than-twofold increase in the project costs are menacing Kazakhstan with serious social-economic repercussions; they may also tarnish the reputation of Kazakhstan as promising and reliable international partner which contributes to the global energy security. Thus, actions of the consortium members have resulted in protraction of the payback period and substantial reduction of Kazakhstan’s share in production sharing. This leads to failures in the planned construction of schools, hospitals and roads, as well as large-scale economic and infrastructure projects. “Kazakhstan does not agree with such a situation and won’t carry the economic burden caused by huge cost overruns brought about by inadequate management on behalf of the contractors. The Government of Kazakhstan is ready for open dialogue in order to resolve these issues within a reasonably short period of time”, Karim Massimov said.

Kazakh premier invited Eni’s head Mr. Scaroni to visit Kazakhstan to discuss the Kashagan project. “Furthermore, I have learned from the media sources that the EC Energy Commissioner Andris Piebalgs has voiced a certain stance with regard to the Kashagan issue. Therefore, I would like to invite the Commissioner to come to Kazakhstan if he has any questions and wishes to discuss the Kashagan issue”, Karim Massimov said.

He warned that “those who try to violate the Kazakhstan legislation and neglect national interests of Kazakhstan will be held responsible in accordance with the applicable legislation and international standards”.

“We regard the Kashagan dispute as an isolated case. Regardless of how it is resolved, legal interests of potential and acting investors in Kazakhstan won’t be affected. This is an official statement”, Karim Massimov said. He reminded that from the very day of its independence Kazakhstan has been offering the best possible terms for investors; and we will keep on ensuring stability, predictability and long-term nature of interests for our international partners. “Thus, Kazakhstan remains reliable and stable partner who respects its contractual obligations and protects contract stability. The Kazakhstan Government will change its attitude only towards those who fail to meet their obligations”, Prime-Minister emphasized.

“I want to remind you of the five points emphasized by the President of Kazakhstan for the consortium members back in 2001. Firstly, start production in 2005. Secondly, ensure environmental safety of the project. Thirdly, find a solution for the casing-head gas problem. Fourthly, purchase Kazakh equipment and services. And finally, grant a joint operator status to the national oil company. Take a look at these five points and compare them to what is happening now”, Prime Minister said.


Kazakhstan: Premier Warns Eni About Failures At Caspian Oil Field

By Bruce Pannier, Radio Free Europe / Radio Liberty, 6 September, 2007

Kazakh Prime Minister Karim Masimov today warned the Eni-led consortium operating the Kashagan oil project that delays and cost overruns are taking on a "systematic character" and that the government is having doubts about the ability of the consortium to complete the project.

Located in Kazakhstan's sector of the Caspian Sea, the Kashagan field is believed to be the largest oil field discovered in the world since the 1960s.

Eni is a subsidiary of Italy's Agip oil company. The consortium Eni leads originally promised to start production at Kashagan in 2005, but has revised that date several times.

The latest revision came in early August when the consortium announced it would not be able to meet a 2008 date for production and would instead start in the second half of 2010. Eni also announced that the cost of the project would be $136 billion instead of the original $57 billion.

Government Moves In

The Kazakh government late last month ordered activity at the field suspended for three months, citing environmental concerns, as well as repeating its dissatisfaction with delays and increasingly higher costs for production.

While mentioning the Kazakh government's doubts about Eni's ability to meet deadlines and keep within budget, Prime Minister Masimov also said the government is considering revising the deal with Eni to give the state oil company, KazMunaiGaz, a larger share in the Kashagan project.

"We think the economic balance has been broken to the disadvantage of the Kazakh government," Masimov said. "Relevant demands have been made and friendly talks are now under way to resolve the situation."

KazMunaiGaz currently has only an 8.3 percent share in Kashagan, one of the smallest shares among the partners in the project. Masimov said KazMunaiGaz should be a "joint operator" on the Kashagan oil field, though he wouldn't say what kind of stake KazMunaiGaz should have.

Masimov also said the Kazakh government has a "plan B" in case a deal cannot be reached with Eni, but that he is not prepared to talk about that just yet.

Recouping The Costs

The Kazakh government intends on September 7 to present Eni with a bill for production delays and cost overruns that reportedly will total some $10 billion.

Masimov said today that the Kashagan production delays and cost overruns "threaten Kazakhstan with serious socioeconomic consequences," such as the inability of the government to build new schools, hospitals, roads, and implement other large-scale economic projects.

Masimov said a candid negotiation process is under way with Eni representatives and there is still hope for a quick solution to the problems.

But he warned today that anyone who violates Kazakhstan's laws will "bear full responsibility in accordance with the law and with international standards."

Estimates are that Kashagan has a minimum of 7 billion barrels of recoverable oil.


OTHER NEWS

Kazakhstan changing from Cyrillic to Latin alphabet

By Paul Bartlett, EurasiaNet, 5 September, 2007

President Nursultan Nazarbayev revived the possibility of an alphabet switch last fall, requesting that the Ministry of Education and Science examine the experiences of Turkey, Azerbaijan, Turkmenistan and Uzbekistan, which have all changed to Latin letters. The ministry's proposed action plan is based primarily on the model used in Uzbekistan. It calls for a six-step program, outlining cost estimates for retraining the country's workforce to read Latin script, and changing signs on streets and public buildings. The overall cost of switching is estimated at US$300 million.

Some experts believe the final cost could be much higher. The ministry report, for example, provided no estimate for the cost of changing official documents and re-printing official forms and materials. The publishing sector could also assume substantial costs connected with changing equipment.

Along with the usual arguments for alphabet change, in particular promoting the country's integration into the global economy, officials have argued that a Latin alphabet could help Kazakhstan forge a more cohesive national identity, moving it out from under Russia's shadow.

"Switching the Kazakh alphabet to Latin means for Kazakhs changing the Soviet (colonial) identity, which still largely dominates the national consciousness, to a sovereign (Kazakh) identity," the report stated. "Among the many arguments in favor of switching the Kazakh alphabet to Latin, boosting the national identity of the Kazakh people is the main and decisive one."

This explicit statement marks a break with Kazakhstan's earlier, low-key approach to discussing the switch to Latin. While Azerbaijan, Turkmenistan and Uzbekistan acted quickly after the 1991 Soviet collapse to embrace Latin script, Kazakhstan took a more cautious route: it did not want to alienate its large Russian-speaking population. In addition, officials felt that with the country in the grip of economic crisis in the early 1990s, changing the alphabet at that time was not a fiscally justifiable move.

The report pulls no punches in identifying the Cyrillic alphabet as being a major barrier to developing a Kazakh national identity: "It [Cyrillic] facilitated and facilitates the orientation of the Kazakh national consciousness towards the Russian language and Russian culture. As a result, Kazakh identity as such remains largely undefined. On this level, moving to Latin will make it possible to form a clearer national identity for Kazakhs."

Another reason for the switch is linked to the representation of the sounds of the Kazakh language. "In many cases the phonetic nature of Kazakh is not shown according to Cyrillic script," Professor Kobey Khusayn, director of the Academy of Sciences' Institute of Linguistics, told EurasiaNet in an interview. As a result, he said, certain Kazakh sounds are not properly represented and this leads to difficulties with correct pronunciation. The introduction of Cyrillic in 1940 was "imposed from above" for ideological reasons, he added, with no consideration of how this alphabet suited the Kazakh language.

The plan for switching to Latin will have a five-year preparatory stage, during which the practicalities will be worked out. The next step will see publications being printed using the new alphabet, alongside the existing one for the initial changeover period, and the working-age population will be trained in using the new script. Teaching materials using Latin will be introduced into the country's school system. The final phase will be the consolidation of Latin as the Kazakh language in Cyrillic fades from public use.

Kazinform, the state news agency, has already set a precedent for the use of Latin for Kazakh: it offers a newswire using both the Latin and Cyrillic alphabets for the Kazakh language, with the Latin version aimed at non-Russian-speaking ethnic Kazakhs in countries such as China, Mongolia and Iran.

The switch to Latin is unlikely to be a problem for the younger generation in Kazakhstan. Many school children already study foreign languages, such as English and German, and are thus familiar with Latin letters. However, older members of society may need to be targeted in order to ensure that they do not get left behind in the changeover.

With the country awash with petrodollars from its booming energy sector, financing the switch should not be a problem. It remains to be seen, however, whether officials will retain the political will to press ahead, given that the measure could cause disruption at home, and seems likely to vex one of Kazakhstan's key allies, Russia.





News Bulletin of the Embassy of the Republic of Kazakhstan
Contact person: Askar Tazhiev
Tel.: 202-232-5488 ext 106; Fax: 202-232-5845
E-mail: info@kazakhembus.com
Web-site: www.kazakhembus.com  


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