Invest in Kazakhtsan 2015

AZAKHSTAN 20

15

INVEST IN

ENHANCED RECOVERY Unlocking Kazakhstan’s huge energy wealth

REVIVING THE SILK ROAD Infrastructure plans hold key to intra-regional trade potential

An official publication of the Government of the

Republic of Kazakhstan

SMART ASTANATechnology is helping transform the capital into a ‘smart city’

Working with SWF Samruk-KazynaIn association with Astana Economic Forum

and the Economic Initiatives Fund of Kazakhstan

QUALITY STANDARDS AWARDS

COMBINING INTERNATIONAL EXPERIENCE WITH LOCAL WISDOM

Medical insuranceMedical assistanceEvacuation, repatriationOwn clinics

REPUBLIC OF KAZAKHSTAN, ALMATY, 050059, 269, FURMANOV ST

TEL: +7 7273 200 206 (205) EMAIL: [email protected]

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PB 3INVEST IN KAZAKHSTAN 2015

Forewords and perspectives

11 Erlan IdrissovForeign Minister of the Republic of Kazakhstan

Welcome to Kazakhstan

18 Nurly Zhol: the $9 billion path to the futureKazakhstan’s President Nursultan Nazarbayev has launched a strategy designed to boost the economy through a program of infrastructure investments

21 Oil savings allow plenty of room for maneuverIn the face of declining global oil prices, Kazakhstan has demonstrated its resilience with solid fi nances and counter-cyclical fi scal policies

24 A bridge from East to WestDevelopment of transport networks and new trade agreements are reinforcing Kazakhstan’s efforts to establish new markets and strengthen existing ones

Global standing

30 A global platform for economic dialogueFounded in 2008, the Astana Economic Forum has become an infl uential international arena in which experts and world leaders can discuss the most important contemporary issues, making it an important tool for responding to global events

35 EXPO 2017: showcasing KazakhstanAstana has ambitious plans for Central Asia’s fi rst World’s Fair, which is expected to attract millions of visitors to the capital city. Taking the theme of ‘Future Energy’, the event will leave a lasting legacy

Contents

16 Umirzak ShukeyevChief Executive Offi cer of Samruk-Kazyna

13 Kairat UmarovAmbassador of the Republic of Kazakhstan to the United States

08 Nursultan NazarbayevPresident of the Republic of Kazakhstan

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PB 5

CONTENTS

INVEST IN KAZAKHSTAN 2015

Investment opportunities by sector

72 Kazakhstan’s green energy revolutionAmbitious plans to ramp up renewable output are forecast to attract billions of dollars of investment

76 Opening up the minerals sectorThe government has embarked on a major drive to attract foreign companies into the mining industry

80 Driving growth in manufacturingPriority areas such as automotive are receiving incentives and subsidies from the government

83 Taking up technologyReflecting its history of technological advances, Kazakhstan is opening up a center to study 5G

88 Construction underpins economic growthAs Kazakhstan’s middle class expands, the construction industry will have to grow in order to accommodate its requirements

93 Astana: a smart city template for KazakhstanThe Smart Astana project is underway, and aims to see the capital among the world’s leading smart cities

97 Reviving the Silk RoadImproving rail and road networks will help open up neighboring European and Asian markets

102 Strong potential in logisticsTranscontinental Kazakhstan offers huge potential as a logistics hub for the Central Asian region

Oil and gas

46 Exploring the potential of Kazakhstan’s growing oil and gas industryAn overview of this key sector, ranging from current reserves and output forecasts to major players

53 Oil and gas fields to increase productionCharting developments in exploration against a background of rising energy demand

55 The crossroads of Central AsiaAs a vital transit corridor for the region, Kazakhstan is upgrading and expanding refineries and pipelines

60 Kashagan: pushing the boundaries of possibilityOutput is set to resume next year at Kashagan, one of the world’s largest oil discoveries in recent decades

63 Good relations help maintain a strong oil and gas sectorThe government has made changes designed to support and encourage investment in oil and gas

65 A roadmap to greater recoveryKazakhstan is inviting overseas companies to help tackle the challenges of oil and gas recovery

70 KAZENERGY: Strengthening energy cooperationIndustry association KAZENERGY represents more than 70 major players in the Caspian region

Business drivers

38 Sovereign wealth fund to privatize assets worth $3.8 billion by 2020Samruk-Kazyna plans a new wave of privatization

42 Projects unite business with scienceThe government is bringing innovators and entrepreneurs together through programs such as the Technology Commercialization Project

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CONTENTS


© 2015. The entire contents of this publication are protected by copyright. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means: electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publisher. The views and opinions expressed by independent authors and contributors in this publication are provided in the writers’ personal capacities and are their sole responsibility. Their publication does not imply that they represent the views or opinions of the Government of the Republic of Kazakhstan, Samruk-Kazyna, Astana Economic Forum (AEF), the Economic Initiatives Fund of Kazakhstan (EIFK), or Newsdesk Media and must neither be regarded as constituting advice on any matter whatsoever, nor be interpreted as such. The reproduction of advertisements in this publication does not in any way imply endorsement by the Government of the Republic of Kazakhstan, Samruk-Kazyna, AEF, EIFK, or Newsdesk Media of products or services referred to therein. Currency conversions correct at the time of going to press

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AZAKHSTAN2015

INVEST IN

Support and guidance

136 New incentives seek to attract more foreign investors to KazakhstanThe government is taking decisive action to attract overseas capital, implementing new laws and incentives, such as relaxed visa requirements

138 Index of advertisers

105 Rising demand for heavy-lift logisticsA dynamic heavy industry in Kazakhstan is driving the growth of specialist transportation services

107 Reforming fi nance to increase stabilityAlongside an established fi nancial industry, there is plenty of scope for investment in insurance

112 Kazakhstan: the world’s potential food bowl?The Agribusiness 2020 initiative is helping to modernize Kazakhstan’s agricultural sector. Including a message from Assylzhan Mamytbekov, Minister of Agriculture, and an interview with Dauren Makhazhanov, Vice Chairman of the Board, KazAgro

118 Education for economic competitivenessEfforts to improve education will prove crucial to the country’s development. Including a message from Aslan Sarinzhipov, Minister of Education and Science

124 Continuing Kazakhstan’s healthcare journeyPlans to increase access to clinics and provide specialized services open up avenues for investors

130 Developing a hub for tourism in Central AsiaKazakhstan is looking to grow the contribution of its travel and tourism industry to national output. Including a message from Arystanbek Mukhamediuly, Minister of Culture and Sport

Working with SWF Samruk-Kazyna

An official publication of the Government of the Republic of Kazakhstan

In association with Astana Economic Forum and the Economic Initiatives Fund of Kazakhstan

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INVEST IN KAZAKHSTAN 20158 9

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8 9INVEST IN KAZAKHSTAN 2015

By the 23rd anniversary of its independence, Kazakhstan has become a strong state. Despite the complicated situation in the global market, our gross domestic product increased by 4.3 per cent last year. We have completed the first five-year plan of our industrial innovative program. We… created 75,000 jobs... in Kazakhstan. We expect that, during the second five-year plan, this year

alone 7,500 jobs will be offered in order to implement 75 projects.In 2014, we adopted the ‘Nurly Zhol’ program. Our goal is to restore the transport infrastructure…

This program is an effective tool to tackle the external influences. It will help attract investments, create new products and jobs. 500 billion tenge will be allocated for 2015 and for each other year until 2017.

We also reviewed processing in agriculture, engineering, support for small and medium businesses, infrastructure development, increase of public support for the industries and market protection. We expect the growth of ‘Made in Kazakhstan’-branded products. In this regard, the Government of Kazakhstan will submit recommendations to the Parliament on budget expenditure optimization. The government’s social obligations to the people will not expire...

We believe that development of healthcare and education, investing in human capital for the long term will become a basis for the future economic growth of our country. According to the Nurly Zhol program, the infrastructure development in Kazakhstan will later affect global economic trends...

This year, Kazakhstan’s part of the Western Europe-Western China project construction will be completed. It is a 2,700km-long highway that will decrease time for delivery of goods from China to Europe from 45 to 10 days. Kazakhstan’s railway will become a main part of the land transport on the Eurasian continent. It connects the Caspian Sea to the Pacific Ocean, and China to Central Asian countries and to Western Europe. You have recently witnessed the launch of the large Kazakhstan- Turkmenistan-Iran railway project. All these measures are aimed at transforming Kazakhstan into the transportation, communication and business hub of the region.

This year, a new law has entered into force aimed at helping foreign investors. The industrial and innovative development program Nurly Zhol and EXPO 2017 will create the most effective and favorable conditions for the development of large joint projects with our foreign partners.

Extracts from a speech made by President Nazarbayev on 17 February 2015 at a meeting with the Diplomatic Corps accredited to Kazakhstan.

Nursultan NazarbayevPresident of the Republic of Kazakhstan

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FOREWORD


Friends and partners of Kazakhstan, it is with pleasure that I welcome you to Invest in Kazakhstan 2015.

Since becoming an independent country in 1991, Kazakhstan has enjoyed strong growth, increased investment activity, and political, financial

and economic stability. Recent years have seen international partnerships and agreements expanded and our excellent bilateral relationships with countries around the world leading to increased trade.

We have not achieved so much by being complacent. We are determined to continue improving our global competitiveness and attractiveness to investment. Despite global and regional economic challenges, we remain well equipped to achieve these ambitions.

Last year, President Nursultan Nazarbayev launched Nurly Zhol or ‘Path to the Future’ – an economic program to drive economic growth and promote regional connectivity and trade through improved transport links. Through Nurly Zhol, and the resources allocated to improving infrastructure, we will see continued development, particularly along the New Silk Road and within the Silk Road economic belt, to maximize Kazakhstan’s position as a regional economic hub.

It is not the first time that Kazakhstan has reacted decisively to worsening global conditions. A similar stimulus package was launched successfully to protect growth and prosperity in response to the 2007-09 global economic crisis. It is an intervention, of course, which can trace its history back to Roosevelt’s New Deal although, fortunately, Kazakhstan is facing only the prospect of lower growth, not the deep depression that gripped the United States in the 1930s or threatened the world economy eight years ago.

We also realise, as Kazakhstan continues on our development trajectory, it is important that we do so sustainably. Through the Green Bridge initiative, we are promoting environmentally friendly development, while EXPO 2017, which will be held in Astana, is focused on the theme of ‘Future Energy’. We are looking forward to working closely with the international community to develop innovative and sustainable energy solutions, and are delighted at the opportunity to welcome millions of visitors to our country.

Kazakhstan’s attractiveness as a place to do business has also been enhanced by the launch of the Eurasian Economic Union, which has created a huge common market of over 170 million consumers and opens up enormous possibilities for expanding trade. But we continue to look west as well as east, south as well as north. In late 2014, we concluded talks with the European Union on an enhanced Partnership and Cooperation Agreement, marking a new era in our relationship, and signed documents associated with Kazakhstan’s accession to the World Trade Organization. The EU remains Kazakhstan’s largest trade partner. Trade between Kazakhstan and Europe reached $53 billion, while European companies are the source of half of the $200 billion of foreign direct investment in our country over the past 20 years.

We are also proud to count many other countries as valued economic partners. A world in which nations support each other is a world that will see great achievements. At a time of unease in some areas of the world, it is important to continue to work together.

2015 is an exciting year for Kazakhstan, as we more clearly define and articulate our mission and vision for the future. This has been reaffirmed strongly by the convincing victory of President Nazarbayev in the 26 April election, which gave him a new firm mandate to conduct further large-scale social, economic and political transformations, and continue with the consistent realization of the strategic development programs. I am hopeful that businesses from around the world share our confidence in our future prospects, and I look forward to embracing closer business and trade ties, and witnessing the further emergence of regional and global integration.

Erlan IdrissovForeign Minister of the Republic of Kazakhstan

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PB 13

FOREWORD


Kazakhstan has been transformed into a modern, forward-looking economy

I would like to offer you a warm welcome to the 2015 edition of Invest in Kazakhstan.

When Kazakhstan achieved independence in 1991, it was unclear to many whether our nation would experience the economic

development that we have indeed witnessed. To date, our progress has been driven by far-sighted macroeconomic reforms and the desire of the Kazakh people to see their country become prosperous, and our commitment to putting Kazakhstan on the map has led to a fundamental reform of the centrally planned economy to one that is market-oriented. We have increased gross domestic product (GDP) per capita from $700 in 1993 to $13,000 in 2014, and we have achieved relatively steady annual rates of GDP. Literacy rates across the country are at 100 per cent and we continue to give education the highest priority. Together, these actions have led to Kazakhstan’s ranking as an upper-middle-income country that places among the world’s 50 most competitive states. In all, Kazakhstan has been transformed into a modern, forward-looking economy and a competitive destination for foreign investment where businesses can prosper.

This year, we are looking closely at the role of green industry in our future development – a subject that our annual Astana Economic Forum has touched on in the past. Each year, we look forward to welcoming the international community to the forum, which is a proponent of sustainable development and a valuable platform that highlights topical

issues in today’s environmental, economic and political landscape. Thousands of participants from all over the world attend the forum to discuss, debate and generate ideas.

In recent years, we have seen our partnerships with global bodies blossom. Maintaining relations and driving greater cooperation with our strategic partners is a core facet of development, and will be instrumental in delivering green economies. We enjoy strong relations with our Eurasian

neighbors, and I am confident that economic gains in Kazakhstan will benefit the region in its entirety, particularly given the ongoing development of the Eurasian Economic Union. The European Union is still our largest commercial partner, and the United States has become increasingly important in terms of our economies and bilateral relations.

Forward-looking national policies have played a key role in shaping the Kazakh economy and fostering peace, stability and prosperity, while emphasis on individual innovation and initiative is behind economic diversification. With our 2050 Strategy, we aim to join the ranks of the world’s 30 most developed countries, and we encourage international interest in our thriving sectors. Hospitality is an inherent feature of our nation, and a warm welcome awaits those who wish to partner with us in future prosperity.

Kairat UmarovAmbassador of the Republic of Kazakhstan to the United States

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FOREWORD


Three US dollars of foreign investment are attracted for every dollar invested by the fund and the national budget

Sovereign Wealth Fund “Samruk-Kazyna” owns the largest strategic state assets in different sectors of the economy, from oil and gas, nuclear energy and mining, to transport, communications and post. The total value of these assets

amounts to over 16 trillion tenge or $100 billion. We employ over 350,000 people and the fund carries out about a quarter of all investments in the country. One of our key objectives is to attract investment into Kazakhstan, create conditions for the investment activity of the fund’s subsidiaries, and improve the investment climate in the country.

In 2013, “Samruk-Kazyna” conducted a benchmarking of the fund and its subsidiaries with foreign peers. Having analyzed the data from the study, the fund initiated implementation of the Transformation Program in the same way as it was realized by the sovereign wealth funds in Malaysia – Khazanah Nasional Berhad – and Singapore – Temasek. The initiative was supported by the head of state. In September 2014, the board of directors of “Samruk-Kazyna” JSC approved the program supporting transition of the holding from the current model, as the administrator of the assets transferred by the state, to the role of active investor.

Our Transformation Program is a program of large-scale transformations of the fund’s activities, and the activities of controlled portfolio companies. The program covers three directions: adding value to the portfolio companies, change of the portfolio structure and the approach of the fund to investment activities, and redistribution of authority and responsibility in the management system of the fund

and its portfolio companies. Despite the difficult external economic conditions, the fund will concentrate on the transformation. It will strengthen the immune system of the fund companies to crisis situations. In particular, we have reduced operating costs by 128 billion tenge through the introduction of a single treasury function, e-procurement and the withdrawal of non-core assets. We have developed and

implemented new investment and dividend policies. Detailed transformation roadmaps for the next three years have been approved for all companies. The fund has started work on re-engineering business processes and the transition to a model of an active investor, taking into account international best practices.

In 2015, we will launch operational transformation in 10 companies, analyzing and reviewing over 8,000 processes within them. A new KPI [key performance indicator] system, a graded salary system, and 10 HR [human resources] initiatives will be introduced. There are plans to create

Umirzak ShukeyevChief Executive Officer, “Samruk-Kazyna” JSC

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FOREWORD


Three US dollars of foreign investment are attracted for every dollar invested by the fund and the national budget

Sovereign Wealth Fund “Samruk-Kazyna” owns the largest strategic state assets in different sectors of the economy, from oil and gas, nuclear energy and mining, to transport, communications and post. The total value of these assets

amounts to over 16 trillion tenge or $100 billion. We employ over 350,000 people and the fund carries out about a quarter of all investments in the country. One of our key objectives is to attract investment into Kazakhstan, create conditions for the investment activity of the fund’s subsidiaries, and improve the investment climate in the country.

In 2013, “Samruk-Kazyna” conducted a benchmarking of the fund and its subsidiaries with foreign peers. Having analyzed the data from the study, the fund initiated implementation of the Transformation Program in the same way as it was realized by the sovereign wealth funds in Malaysia – Khazanah Nasional Berhad – and Singapore – Temasek. The initiative was supported by the head of state. In September 2014, the board of directors of “Samruk-Kazyna” JSC approved the program supporting transition of the holding from the current model, as the administrator of the assets transferred by the state, to the role of active investor.

Our Transformation Program is a program of large-scale transformations of the fund’s activities, and the activities of controlled portfolio companies. The program covers three directions: adding value to the portfolio companies, change of the portfolio structure and the approach of the fund to investment activities, and redistribution of authority and responsibility in the management system of the fund

and its portfolio companies. Despite the difficult external economic conditions, the fund will concentrate on the transformation. It will strengthen the immune system of the fund companies to crisis situations. In particular, we have reduced operating costs by 128 billion tenge through the introduction of a single treasury function, e-procurement and the withdrawal of non-core assets. We have developed and

implemented new investment and dividend policies. Detailed transformation roadmaps for the next three years have been approved for all companies. The fund has started work on re-engineering business processes and the transition to a model of an active investor, taking into account international best practices.

In 2015, we will launch operational transformation in 10 companies, analyzing and reviewing over 8,000 processes within them. A new KPI [key performance indicator] system, a graded salary system, and 10 HR [human resources] initiatives will be introduced. There are plans to create

Umirzak ShukeyevChief Executive Officer, “Samruk-Kazyna” JSC


16 17

FOREWORD


The headquarters of “Samruk-Kazyna.” The Kazakh sovereign wealth fund has recently implemented a Transformation Program of its activities

a single IT-services center, which will save almost $70 million. The number of companies will be reduced from 600 to 500.

Currently, the investment portfolio of “Samruk-Kazyna” JSC includes 163 projects worth about $146 billion. The largest part of these projects are implemented with the attraction of foreign partners. Three US dollars of foreign investment are attracted for every dollar invested by the fund and the national budget.

The subsidiaries and affiliated organizations, such as JSC NC “KazMunayGas,” JSC “NC Kazakhstan Temir Zholy,” JSC “Samruk- Energy,” JSC “NAC Kazatomprom,” LLP “United Chemical Company,” and JSC “NC Kazakhstan Engineering,” implement joint investment projects with foreign partners. Among the project investors are companies from Russia, China, France, Germany, Spain, Italy, Turkey, the Netherlands, Japan, South Korea and other countries.

The difficult external economic situation has meant adjustments to our plans. We are reducing costs, but this does not apply to large strategic projects of the state program of forced industrial-innovative development, the “Nurly Zhol” program, the “EXPO-2017” exhibition and others. The fund will continue to focus on creating new value. The main aim is to see positive economic value already added by 2020. This will provide an additional contribution to gross domestic product (GDP) in the amount of two trillion tenge ($11 billion). In this regard, we will review the entire system of key performance indicators, all investments and the operating policies of subsidiaries.

It should be noted that “Samruk-Kazyna” JSC has further strengthened its work in the international sphere. The fund became a member of such authoritative international organizations and forums as Boao Forum for Asia, and the International Forum of Sovereign Wealth Funds (IFSWF). We have established business relations with the World Economic Forum, the British Government and its business community, the Government of Portugal, and Qatar Investment Fund. In addition, the fund supervises the interaction of domestic businessmen with foreign colleagues within the Kazakhstan-China Business Council, the Kazakh-Korean Business Council, the Kazakh-Swiss Business Council, and the Kazakh-Spanish Business Council. We are actively working with leading foreign companies, such as “General Electric,” “Datan,” “CITIC,” “Samsung,” “BG,” “Chevron,” “China National Petroleum Corporation,” “Siemens,” and others.


WELCOME TO KAZAKHSTAN


In a surprise state-of-the-nation address on 11 November 2014, Kazakhstan’s President Nursultan Nazarbayev introduced an economic policy designed to add new momentum to the country’s slowing economic growth,

with regional turbulences and weakening commodity markets taking a toll on the country’s engines of growth, the oil and gas and mining sectors.

Referring to ongoing tensions between Russia and the West over Ukraine, he said: “The geopolitical crisis and the sanctions policy of the leading powers create an additional obstacle for the recovery of the world economy.” Setting out the need to “revise some positions” and “make adjustments to the plans for the forthcoming period,” he explained that Kazakhstan, “as a part of the world economy and a country that is located very close to the epicentre of geopolitical tensions,” was being negatively influenced as a result. “I have made the decision regarding additional [annual] allocation of $3 billion from the National Fund for the period from 2015 to 2017,” he stated.

Launched in 2000 to operate as both a stabilisation and a savings fund with revenues coming from the oil sector, the National Fund of the Republic of Kazakhstan (NFRK) contained $76 billion at the beginning of October 2014, or 36 per cent of gross domestic product (GDP). The fund’s resources regularly contribute to the national budget, but withdrawals tend to grow at times of more pressing need. Although the government had already tapped the fund’s savings to keep the economy afloat during the 2007-09 crisis, when some extra $10 billion were withdrawn to boost growth, the fund is reported not to have diminished in size, but in fact to still be growing. When the economic environment presented new challenges, therefore, President Nazarbayev was able to

turn again to the NFRK in order to maintain the country’s position among the world’s most dynamic economies.

Nurly Zhol, which follows a $5.4 billion 2014-15 spending program that President Nazarbayev announced in February 2014, aims at investing a total of $9 billion over the next three years, mostly in infrastructure development. The plan places particular emphasis on seven major areas (see box story overleaf): development of transport and logistics infrastructure; development of industrial infrastructure; development of energy infrastructure; modernization of public utilities infrastructure, and water and heat supply networks; development of housing infrastructure; development of social infrastructure; support for small and medium-sized

businesses, and business activities. Nurly Zhol (‘the Path to the Future’) complements the Kazakhstan 2050 Strategy, which aims to make the country one of the top 30 most developed countries by 2050, by directly addressing two of its major objectives: infrastructure

development and the broadening of the industrial base. While not originally conceived as part of the 2050 Strategy, Nurly Zhol will help keep Kazakhstan on track to meet its goals.

Five years of industrializationSince the inception of the NFRK in 2000, the government has made efforts to better diversify the economy, focusing on key sectors that have the most potential for development, by incentivizing local and foreign investment in various priority areas. These include primary sectors related to the extraction and processing of natural resources; market-oriented sectors producing goods to meet the demand of the resource sectors; sectors with high potential to export; and innovative sectors. More specifically, for its second five-year period (2015-19),

Nurly Zhol: the $9 billion path to the future

In November 2014, President Nursultan Nazarbayev unveiled a $9 billion spending program with the aim of spurring the country’s development through infrastructure building and business support

Nurly Zhol is designed to add new momentum to

the country’s growth

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Akorda, the residence of the President of Kazakhstan, in the capital, Astana. In November, President Nazarbayev introduced Nurly Zhol, a new economic policy



INVEST IN KAZAKHSTAN 201520 PB

Nurly Zhol: key investment areas

the State Program of Industrial and Innovative Development (SPAIID) will focus on six priority sectors: metallurgy, oil downstream, food processing, chemical industry, manufacturing, and production of construction materials.

While ambitious, the government’s efforts in this regard since the launch of SPAIID in 2010 have not lived up to all expectations. “We have reached positive results, but, despite the positive shifts, the implementation of the programme has not had a substantial enough effect on our economy,” President Nazarbayev said in July 2014. “Growth of the processing industry has decreased. Its share in the GDP has decreased from 11.3 per cent in 2010 to 10.9 per cent in 2013. Experts note a reduction in the share of non-extractive goods in the country’s export from 30 per cent to 20 per cent, while the mining industry has not grown significantly either.”

However, reflecting on the scheme’s first five years in a nationwide teleconference in December 2014, President Nazarbayev listed a number of successes: “The pace of growth in the manufacturing industry is for the first time much higher than in traditional mining industries… During these five years, 770 new enterprises were commissioned and 75,000 new jobs of new level requiring higher qualification and offering decent salaries were created… Major new sectors have been created: engineering, oil processing, electricity and others. The world’s largest industrial giants came to Kazakhstan.”

The government has also fared well in terms of infrastructure development. Kazakhstan is the world’s largest landlocked country and President Nazarbayev has pledged commitment to improve the country’s internal and external connectivity, in order to avoid the ‘transportation trap’

that weighs on most of the world’s landlocked developing countries (LLDCs) – LLDCs as a whole lag behind any individual world region in terms of economic development, according to figures from the United Nations. After gaining independence from the Soviet Union in 1991, the country managed to counter its lack of ocean access through the development of foreign port assets and ports on the Caspian Sea, and a general overhaul of road and railway infrastructure. Nurly Zhol sets ambitious new targets in this direction.

Improving quality of life Investments will go towards a better connection to road corridors going east to China and west all the way to European Union countries. Internal road connections between the country’s major cities and industrial hubs will be improved, too. As on-land transport infrastructure improves, further development of logistics infrastructure, such as dry and marine ports on the Caspian Sea, will follow suit.

The road-construction element of the government’s infrastructure plan is alone expected to create 200,000 new jobs. The overarching goal is to create a road, rail and air transport network “firmly link[ing] all the corners of our country with its centre.” According to President Nazarbayev, this is expected to have a “multiplier effect” on related sectors, leading to improvements in social infrastructure and, ultimately, “the quality of life of each Kazakh.”

The ambition of the scheme is not to be doubted; a broad approach, encompassing fiscal and industrial policy, and investments in human capital, will be required to ensure the success of the country’s industrialization.

Nurly Zhol sees the government put an additional $9 billion into a $32 billion investment portfolio comprising private as well as government investment in infrastructure development. The plan focuses on seven key areas:

1 Development of transport and logistics infrastructure. Main road projects include those linking China to Western Europe, and Astana to Almaty. A logistics hub is being created in the east of the country, while marine infrastructure is being developed in the west.

2 Development of industrial infrastructure, including the completion of infrastructure in existing special economic zones, and the construction of new

industrial zones. The development of tourism infrastructure is expected to create many jobs.

3 Development of energy infrastructure. The focus is on the construction of high-voltage lines spanning Ekibastuz, Semey and Ust-Kamenogorsk, and Semey to Aktogay, Taldykorgan and Almaty, with a view to ensuring a balanced energy supply.

4 Modernization of public utilities infrastructure, and water and heat supply networks. In addition to the funds already budgeted for the modernization of heat and water supply systems, up to $540 million will be dedicated each year to accelerating the upgrades.

5 Strengthening of housing infrastructure. Social housing will be constructed and made available for long-term rent with the right to buy. Low-interest loans and low mortgage interest will help make housing more affordable.

6 Development of social infrastructure. An additional 20 billion tenge is being spent to reduce the deficit of kindergarten places. Ten higher-education institutions will also receive additional funding.

7 Support for small and medium-sized enterprises, and business activities. Loans totaling $837 million will help increase the output of the SME sector to 50 per cent of GDP by 2050.


PB 21



After four straight years of sustained economic growth above five per cent, oil-rich Kazakhstan, the second largest economy among former Soviet Union countries after Russia, is beginning to

feel the pressure from collapsing oil prices, combined with weakening internal and external demand. Growth is now slowing, prompting authorities to tap into the oil savings accumulated over recent years to shore up the economy.

“Kazakhstan’s economy should have slowed down in 2011, when oil prices began to stagnate, but a credit boom helped sustain economic growth, as well as the government’s fiscal stimulus,” says Sabit Khakimzhanov, Head of Research of Halyk Finance, a local investment bank. “Reality finally caught up with Kazakhstan in 2014.”

The country’s annual gross domestic product (GDP) growth slowed down to around four per cent in 2014 from six per cent in 2013, when it represented $231.9 billion, but it is expected to bounce back in 2015 and 2016. Risks remain around the current uncertainties in domestic and international markets.

“Despite the recently announced fiscal stimulus measures, sustained weakness in global outlook, including lower oil prices, as well as production delays in the Kashagan oil field are expected to keep growth at around 4.5 per cent and 5.5 per cent in 2015 and 2016,” the IMF wrote in a statement following a mission to Astana in December 2014. “Risks to the outlook are predominantly on the downside, mostly related to oil prices and regional uncertainty.”

The current slowdown can be largely traced back to stagnant oil production, which directly accounts for 13 per cent of GDP, 50 per cent of fiscal revenue, and 60 per cent of exports. Crude production amounted

to 81.8 million tonnes in 2014, little change from the 81.7 tonnes in 2013. “Oil production is expected to remain relatively flat in the next few years, increasing slightly to 83 million tonnes in 2016… with a further modest boost in 2017 from the expansion of existing fields,” says credit rating agency Standard & Poor’s, which gives Kazakhstan a BBB rating.

The impact of KashaganAuthorities have long pinned hopes on the development of the vast offshore oilfield Kashagan to boost oil output. Considered the largest oil find in decades, with recoverable reserves estimated at 11 billion barrels, Kashagan is being developed by a consortium of major international oil companies. Yet,

a long line of technical troubles have repeatedly delayed production, which is now expected to resume in late 2016 (see page 60). The collapse of the oil price in the international market, with the barrel falling below

$60 at the end of 2014, took an additional toll on the sector as it reduced the value of the crude exported.

Challenging market conditions affected the mining sector too, the second largest contributor to Kazakhstan’s GDP after the oil sector, with major productions such as copper ore and refined copper declining.

However, economic growth was shored up by fixed capital investments, which grew by 5.5 per cent year on year between January and September, and non-tradable sectors such as transport, with freight shipping increasing by 4.1 per cent year on year between January and September. Turnover in retail trade, meanwhile, grew by 12.2 per cent year on year in the first three quarters of 2014, according to figures from the CIS Statistical Committee.

Oil savings allow plenty of room for maneuver

Kazakhstan’s prudent fiscal management and efforts to diversify its economy are helping it to weather regional and global uncertainties as the country adjusts to a changing oil market

Foreign direct investment for 2014 stood at nearly $20 billion at the

end of the third quarter

1.2 Economic indicators KM.indd 21 08/05/2015 12:14



Mining and quarrying

Manufacturing

Wholesale and retail trade; repair of motor vehicles and motorcycles

Construction

Professional, scientifi c and technical activities

Financial and insurance activities

Gross regional product (GRP) by province, fi rst half of 2014

FDI in the top sectors ($ billion) GDP and FDI ($ billion)

Region/city $ billionGrowth (%) from fi rst half 2013

Republic of Kazakhstan 84.9 11.11 North Kazakhstan 1.6 11.92 Zhambyl 2.3 19.23 Akmola (excl. Astana) 2.4 28.44 Kostanay 2.9 1.15 Kyzylorda 3.3 2.26 Almaty (excl. Almaty city) 3.7 19.47 Pavlodar 3.8 13.38 Aktobe 4.2 8.89 West Kazakhstan 4.6 18.710 East Kazakhstan 4.9 4.211 Mangystau 5.2 13.712 South Kazakhstan 5.3 18.313 Karaganda 7.0 9.214 Atyrau 10.9 12.7

10

11

12

1314

1

2

34

5 6

7

8

9

SOURCE: COMMITTEE ON STATISTICS, MINISTRY OF NATIONAL ECONOMY OF KAZAKHSTAN

SOURCE: THE NATIONAL BANK OF KAZAKHSTAN SOURCE: THE WORLD BANK

11

10

9

8

7

6

5

4

3

2

1

0

Total FDI in Kazakhstan

GDP of Kazakhstan

2005 2006 2007 2008 2009 2010 2011 2012 2013

Astana $8.4 billion, 16.3% growth

Almaty $14.5 billion, 3.7% growth

201320122011201020092008200720062005

21.319.412.17.9

21.4

28.9

24.0

26.5

188.0

203.5

231.9

104.881.0

57.1

22.2

148.0115.3

133.4


22 23



A full moon over the main processing hub at Kashagan in the Caspian Sea. Once the vast offshore oilfi eld is fully operational, it is expected to have a signifi cant impact on Kazakhstan’s oil output and, by extension, economy

STR

ING

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On the demand side, domestic consumption was hit by a 19 per cent devaluation of the tenge carried out by the National Bank of Kazakhstan in February 2014, in response to uncertainties in global fi nancial and commodity markets. “As a result of the exchange rate adjustment, the competitive environment for the domestic goods and businesses operating in the export sectors and import substitution industries of the Kazakh economy will improve,” the central bank said in a statement. But, having seen the purchasing power of their salaries fall almost overnight, Kazakhs became cautious in their spending decisions as rumors of a new devaluation spread, although the bank has since denied that any further devaluation will take place. External demand has also been weakened by China’s slowdown and the troubles experienced by sanction-hit Russia.

However, authorities still have plenty of room to maneuver and to support the economy in the current challenging market conditions, as they can tap into the oil savings accumulated in the National Fund of the Republic of Kazakhstan (NFRK). Since the 2008/09 fi nancial crisis, the country has saved on average half of its net annual oil proceeds in the NFRK – enough to create space for generous counter-cyclical fi scal policies, such as Nurly Zhol. “A strong sovereign balance sheet, underpinned by past prudent management of the public fi nances, allows Kazakhstan to absorb the impact of falling oil prices and a slowdown in two of its largest trading partners, Russia and China,” credit rating agency Fitch, which gives Kazakhstan a BBB+ sovereign rating with stable outlook, wrote in a statement in November 2014.

The country’s solid fi nances have not gone unnoticed by the international fi nancial community, and allowed the government to stage a successful comeback in the bond market in October after a 14-year absence. Kazakhstan closed the placement of two dollar-denominated bonds worth a total of $2.5 billion on 6 October, fetching a 4.07 per cent yield on a $1.5 billion, 10-year note and a 5.11 per cent yield on another $1 billion, 30-year note, faring better than other bond issuances carried out by emerging countries with similar risk profi les, such as South Africa, Bahrain and Indonesia.

Further evidence of its economic successes come from the World Economic Forum’s Competitiveness Report 2014-2015. Out of 144 countries, it is ranked ninth for its budget balance, the difference between revenue and expenditure, and 11th for government debt as a percentage of GDP. The same report also points to Kazakhstan’s high score for labor market effi ciency, at 15th. Within this category, it ranks 16th for a strong link between pay and worker productivity.

Foreign direct investments (FDI) are stable, as investors have started to show a degree of caution. Total FDI for 2014 stood at nearly $20 billion at the end of the third quarter. Authorities now hope that a new, friendlier investment law (see page 136), implemented in January, will provide new support for FDI infl ows beyond the sectors that have so far received the most attention, such as oil and gas and mining.




Kazakhstan has just enjoyed a successful year in securing old and new trade partners, both within and outside the Central Asian region. Among the key events that shaped 2014 were

the signing of the Eurasian Economic Union (EEU) treaty in Astana on 29 May and the agreement with the European Union on an enhanced program of Partnership and Cooperation (PCA) in October.

Besides these two landmarks, Kazakhstan increased exchanges with China and laid new bases of partnership with

other Asian and Middle Eastern countries. The centuries-old idea of the Silk Road is being updated for the 21st century and Kazakhstan is attracting more and more countries to participate in trade exchange along the traditional East-West route.

According to offi cial government statistics, in 2014 Kazakhstan’s main export was mineral products, representing 78 per cent of all goods and totaling $60.9 billion. This is followed by metal products at 9.2 per cent and chemicals at 4.2 percent. The country’s main import commodities include machinery, equipment, vehicles and appliances; chemicals

A bridge from East to West As well as establishing stronger ties with its immediate neighbors through the newly established Eurasian Economic Union, Kazakhstan is investing heavily in infrastructure in order to bolster intra-regional trade between European and Asian markets

1.3 Trade.indd 24 08/05/2015 12:21

24 25



XIN

HU

A/A

LAM

Y

A new railway line connecting Lianyungang city in China and Almaty was launched in February, providing a new path for goods from central Asia to be exported

and chemical-related goods; metals; agribusiness; and minerals, which cover 88.3 per cent of the total.

In the last few years, Kazakhstan’s government has worked hard to secure partnerships within the post-Soviet space and beyond, in fulfillment of a multi-vector foreign policy. Times of political and economic crises around the Eurasian continent have put pressure on Kazakhstan. However, due to its strong economic ties with regions as distant and different as Europe and China, Astana has managed to maintain the position

of a bridge between the East and the West, in terms of both international relations and business.

Between 2009-14, Kazakhstan almost doubled its export volumes to nearly $80 billion. Although hydrocarbons and minerals have remained the largest component of its export portfolio, trade routes have diversified. Commerce with Russia and the rest of the Commonwealth of Independent States

1.3 Trade.indd 25 08/05/2015 12:21



ITALY

CHINA

NETHERLANDS

RUSSIA

FRANCE

CHINACHINA

CHINA

GERMANYUKRAINE

RUSSIA

UNITED STATES

FRANCE

UKRAINEITALY

SWITZERLAND

ITALY 15.5%CHINA 13.6%RUSSIA 8.2%FRANCE 7.8%

SWITZERLAND 6.2%

16.05

9.82

8.72

5.18

4.69

13.73

7.37

2.32

1.99

1.21

RUSSIARUSSIA

ITALY 6.69

5.89

3.55

3.38

2.67

8.90

3.57

2.13

2.04

1.92

PARTNER SHAREPARTNER SHARE

PARTNER SHARE

RUSSIA 31.3%CHINA 12.6%

UKRAINE 7.5%GERMANY 7.2%

ITALY 6.7%

PARTNER SHARE

KAZAKHSTAN’S TOP EXPORT AND IMPORT PARTNERS

($ BILLION)

IMPORTS

EXPORTS

SOURCES: WORLD INTEGRATED TRADE SOLUTION, COMMITTEE ON STATISTICS, MINISTRY OF NATIONAL ECONOMY OF KAZAKHSTAN

20142009

ITALY 20.5%CHINA 12.5%NETHERLANDS 11.2%RUSSIA 6.6%FRANCE 6.0%

RUSSIA 33.3%CHINA 17.9%GERMANY 5.6%UNITED STATES 4.8%UKRAINE 2.9%

GERMANY

1.3 Trade.indd 26 08/05/2015 12:21

26 27



(CIS) has been largely surpassed by Europe on the one hand and Asia on the other. Exports to China and Italy have grown by around 170 per cent and 240 per cent respectively over the same period, while the increase for Russia was nearer 150 per cent. Kazakhstan still has a heavy reliance on exporting natural resources, but markets have grown beyond the CIS area.

In terms of imports, the share of goods imported from Europe has been eroded by Asian exporters, which have more than doubled their volumes of export to Kazakhstan. The country remains focused on regional trade, as almost one in every two international purchases comes from the CIS neighborhood. However, more recent trends have shown a diversification of Kazakhstan’s sources of imports, as Russia’s dominant share shrinks. A general slowdown in international economic transactions in 2013 also affected Kazakhstan, which posted sluggish growth in trade turnover, compared with previous years. These temporary difficulties prompted the government to react, seeking to secure the signing of the EEU treaty and to work towards the completion of Kazakhstan’s process of accession to the World Trade Organization (WTO).

Making new partnershipsThe negotiations on Kazakhstan’s accession to the WTO have continued into 2015, and optimistic statements have been made by both the government in Astana and Roberto Azevedo, the Director General of the Geneva-based organization. However, the establishment of the Eurasian Economic Union (EEU) has changed the status quo for Kazakhstan and new rules need to be adopted before Astana can join the club. According to the latest talks, the WTO is poised to accept Kazakhstan among its members by the beginning of 2016. The path trodden by Kazakhstan towards a free market economy has been relatively straightforward since it gained independence in 1991.

Originally proposed by Kazakhstan’s President Nursultan Nazarbayev more than 20 years ago, the EEU, which came into effect at the beginning of 2015, could become a powerful platform to attract trade from Europe. Highly intertwined with the economies of Russia, Belarus, Armenia, Kyrgyzstan and Kazakhstan, European countries will be able to benefit from

unified tariffs and lower barriers to international commerce. In addition to regional integration, one of the benefits could be lower trade obstacles in the common neighborhood between the Eurasian space and the European Union.

The three founding members of the EEU were Russia, Kazakhstan, and Belarus, already tied together by a Customs Union. In the years immediately following the establishment of the Customs Union in 2010, regional trade posted an unprecedented upward trend, nearly doubling the value of business exchanges in just two years. Furthermore, the integration between the Eurasian states has also opened the door for technological swaps and the free movement of labor. Different specialized hubs and markets are in the process of being established in connection to the existing ones. In this respect, the proliferation and consolidation of special economic zones in Kazakhstan represent both a protection for local industries and an invitation for Eurasian and international companies to participate in commercial projects. Thanks to the EEU, these projects can have an immediate market in the Eurasian space.

In late 2014, Armenia and Kyrgyzstan both signed the Eurasian treaty, which will see its membership grow to five by the end of 2015. Armenia proved more ready to join and is already a full member, while Kyrgyzstan is strengthening its position so as to be able to enter in good shape. During a celebratory ceremony in Moscow, the presidents of the Eurasian states praised their economic project, and President Nazarbayev stressed the importance of integration in a time of crisis and instability. His Kyrgyz counterpart, Almazbek Atambayev, spoke of his expectations for the new union.

Meanwhile, it is hoped that trade between Belarus and Kazakhstan will soon surpass the historic figure of $1 billion, providing an additional reason to foster integration in the Eurasian space. While trade turnover with Russia declined in 2014, it remains high, and the EEU seems destined to facilitate a dynamic interchange of skilled labor along the lines that unite trading hubs with research centers. Being the largest economy in Central Asia, Kazakhstan presents itself as the perfect gateway between the Eurasian region and the rest of Asia, a bridge between European and Eurasian partners and the emerging economies of China, India, and South-East Asia.

The European Union and Kazakhstan have reached a new zenith in trade relations. The Partnership and Cooperation Agreement was upgraded to an enhanced form in October 2014 following years of intense negotiations. Before the signing ceremony, Kazakhstan’s President Nursultan Nazarbayev wrote an opinion piece in the Wall Street Journal highlighting the significant trade volume between the EU and Kazakhstan, which reached $53.4 billion

The European Union-Kazakhstan Partnership and Cooperation Agreement

in 2013. This represents more than half of the whole foreign trade turnover for Kazakhstan.

Kazakhstan is the first Central Asian partner to have concluded an Enhanced Partnership and Cooperation Agreement with the EU. The new agreement ensures a better regulatory environment for trade in services, establishment and operation of companies, capital movements, and natural resources, among others. Another 29 key ‘sector

policy areas’ were also addressed, which included enhanced cooperation in energy, climate change, culture, and research.

As testimony to Kazakhstan’s healthy relations with Brussels, Foreign Minister Erlan Idrissov defined his negotiations with his EU counterparts as “focused on an equitable partnership based on common interests and values, mutual respect, understanding and benefit.”

1.3 Trade.indd 27 08/05/2015 12:21

Volvo_ENG_placed.indd 1 20/04/2015 15:15

PB 29



China is a crucial partner for Kazakhstan: the two countries share a border and have boosted trade ties in recent years. The export of oil to China from the oilfields of Kazakhstan is only one side of the coin.

On the other side, China is an important provider of goods and specialized workforce, given that trade turnover between the two countries was about $20 billion in 2013. In 2015, the volume could potentially leap to $30 billion, thanks to a $14 billion agreement signed in December 2014. The renewed cooperation notably includes a $3.8 billion Chinese investment in potash production in the western regions of Kazakhstan. Potash is widely used as a fertilizer, and China’s involvement could boost Kazakhstan’s production.

Kazakhstan’s international trade partners also include the United States. The two countries have an agreement on trade relations covering market access, non-discriminatory treatment and transparancy, among other conditions. Kazakh Census figures show that both exports and imports have seen a major rise in the past decade, with two-way trade reaching $2.4 billion in 2014.

Among the domestic policies aimed at the promotion of regional trade, the most significant has to be Nurly Zhol (see page 18). The new economic policy, unveiled by President Nazarbayev in November 2014, is a quinquennial plan to upgrade and expand major infrastructural assets in the country in line with the framework laid out in the Kazakhstan 2050 Strategy. Encompassing developments from airport terminals to pipelines, and from roads to special economic zones, the program aims to beat the global economic crisis with a counter-cyclical, expansive policy, which, starting from the Almaty ring road, will expand into regional projects.

The construction of a road corridor, the Western Europe- Western China International Transit Corridor, can be considered

a showcase for Kazakhstan’s role as a bridge between Europe and Asia. Over one-third of the road, 2,787km, will run through the territory of Kazakhstan. Shipping time for goods traveling overland from China to Europe could be cut by as much as 50 per cent. Once finalized in the next few years, the World Bank-funded highway has the potential to become the fastest route between the two regions, transforming Kazakhstan into a centerpiece of trade flows. Together with the upgrade of local infrastructures, the ancient Silk Road will provide room for the development of unexplored avenues for inter-regional trade. Another major breakthrough for regional commerce and mobility was the construction in 2014 of a railway between Kazakhstan, Turkmenistan and Iran.

Cross-border tradeKazakhstan has shown interest in building fruitful business relations with neighboring Turkmenistan, especially in the field of energy. Natural gas production has increased by fivefold since independence, and the Ministry of Energy has stated its readiness to help fill gas pipelines from Turkmenistan to China and, eventually, to India.

Another turning point was the decision to expand the Caspian Pipeline Consortium oil pipeline, leading west to the Black Sea, and the oil export pipeline to China. The slow start of production from the giant Kashagan field is not hindering the regional energy plans laid out by the government in Astana. Perhaps, it has even turned into a catalyst for Kazakhstan’s outreach, as new understandings have

been reached by the government with energy-rich countries, such as Mexico and Oman, as well as potential partners, such as Pakistan and Georgia.

In addition to energy, security remains a key element in establishing a trade hub in Central Asia. The precarious situation in Afghanistan is improving slowly, also thanks to the involvement of

Kazakhstan, which has served as a donor country, setting up a scholarship scheme for Afghan students to be educated and trained in Kazakhstan before starting their career as public servants, teachers, or researchers. Moreover, the more immediate neighborhood has also been affected by unresolved rivalries. Border conflicts have put the project of Eurasian integration in jeopardy during recent years. However, patient mediation is proving an effective remedy. Another regional issue is water security, given the uneven distribution of water resources. Issues between upstream and downstream countries are still to be resolved, but establishing the Eurasian Economic Union could represent an incentive to join together.

At a press conference in December 2014, Foreign Minister Erlan Idrissov explained the importance of the union: “The EEU means a common market. It will be a fundamentally new association that works on the principle of equality, mutual benefit and consideration of the interests of all the participants… The economic integration is developing in order to strengthen the national statehood and make it more sustainable through the strengthening of the economy.”

As of 1 January 2015, a single labor market has been operating in Armenia, Belarus, Kazakhstan, and Russia. It ensures that: • Workers from EEU member states will not need permits to work

in other countries within the union. • University degrees will be mutually recognized.• Taxes on individual income will be paid according to domestic

resident rates.• Citizens of member states will no longer have to fill in migration cards

when crossing borders between the EEU countries, unless visiting for more than 30 days.

Eurasian Economic Union: what it means

Between 2009-14, Kazakhstan almost doubled its export volumes to $80 billion

1.3 Trade.indd 29 08/05/2015 12:21

GLOBAL STANDING


Given the current turbulence around the world – not just in financial markets, but also in countries affected by conflict – the Astana Economic Forum presents

a pertinent arena in which policymakers and other interested parties can discuss the issues of the day. Each year, the buzz keeps growing around the forum, which is now the biggest annual event held in the capital of Kazakhstan. In 2014 alone, an estimated 10,000 delegates flew in from more than 150 countries.

Much like its host city, the Astana Economic Forum has risen from an idea, and has since

become a beacon of international cooperation. Symbolizing for many aspiration and confidence in the future, Astana’s towering modern architecture forms a distinctive backdrop for this global event, demonstrating values represented by the Astana Economic Forum. An international influence is much in evidence, with input from some of the world’s top architects, such

as the United Kingdom’s Norman Foster, and an opera house and triumphal arch comparable to their historic counterparts in Europe.

Underscoring all of this is the quality of the delegates. Each year, dozens of current and former world leaders, diplomats and experts bring their insight to the forum. Former UK Prime Minister Tony Blair, former Italian Prime Minister Romano

Prodi, Portuguese Deputy Prime Minister Paulo Portas, Eric Maskin, a Nobel prizewinner in economics, and Mukhisa Kituyi, Secretary-General of the United Nations Conference for Trade and Development (UNCTAD), have all graced the stage.

Dozens of business deals are also signed on the sidelines of the forum. In 2013, for example, it was estimated that 80 agreements and memoranda were concluded at the Astana Economic Forum, with a total value of $2.7 billion.

But it is the ordinary delegates who are the real stars of the forum. These include business owners, tech innovators and academics, who bring with them the enthusiasm and expertise to make a difference, while a huge media presence ensures that their input is heard around the world. It is this combination of world leaders sharing their global insight and delegates sharing their experience from different fields that makes the Astana Economic Forum unique.

An international meeting placeIn 2008, Kazakhstan’s President Nursultan Nazarbayev broke new ground by offering to host an international forum outside the usual confines of the more established conferences. He envisioned an international meeting place in an emerging, secular country committed to a non-partisan approach to the world. When announcing the first Astana Economic Forum, President Nazarbayev summed up its ambition in a simple mission statement: “We possess huge human resources. And, what is most important, we have the brains that can raise our interaction in developing the high technological branches of economy to a new

A global platform for economic dialogue

Since its establishment just a few years ago, the Astana Economic Forum has become a key platform for facilitating dialogue on the world’s most pressing economic issues

Each year, dozens of current and former world leaders, diplomats and experts bring their insight to the Astana Economic Forum

2.1 AEF + G_Global AS.indd 30 08/05/2015 12:22

THEO

DO

RE

KAY

E/A

LAM

Y

Held in Kazakhstan’s capital, the Astana Economic Forum was established in 2008 and has since become one of the most important international conferences

30 31

GLOBAL STANDING



GLOBAL STANDING


level, promising us a breakthrough.” Since then, the Astana Economic Forum has become an important component of the international circuit.

Each conference culminates in a so-called Astana declaration, which, in many cases, has become a touchstone for formulating global policies. In 2013, the Astana declaration was sent to the G20 and G8 summits, helping to mould the declarations and thinking there. Last year, the organizers traveled to Geneva to present the outcome of the Astana Economic Forum and World Anti-Crisis Conference to the United Nations. It was gratefully received, with the UN stating its appreciation for the event.

The forum does not shirk from tackling some of the world’s most pressing problems. In 2014, the program included a World Energy Leaders’ Summit entitled Energy in Transition: Opportunities and Emerging Risks; a panel session named Diversification Policy of the Industrial Complex and Service Sector in the Asian Region in the 21st Century; and a debate on Solving Problems in Adapting Agriculture to Climate Change.

Seeking sustainable solutionsIn 2014, participants at the Astana Economic Forum agreed a World Anti-Crisis Plan (WAP), with the aim of preventing, and mitigating the effects of, any future financial crises.

The plan received special commendation from the European Bank for Reconstruction and Development (EBRD) and the United Nations Industrial Development Organization (UNIDO). EBRD Chief Economist Erik Berglöf said: “Many of the principles of the proposed World Anti-Crisis Plan are directly in line with the key principles of the EBRD operations in CIS and other transition

countries, as well as with the Bank’s Mandate. EBRD welcomes the World Anti-Crisis Plan.”

Taizo Nishikawa, Deputy to the General Director of UNIDO, was equally enthusiastic about the Astana Economic Forum and the WAP. He wrote: “Such forums and conferences provide a global platform for bringing together various stakeholders seeking sustainable solutions to pressing global, regional and national development issues.”

G-Global is another of President Nazarbayev’s initiatives. In this fractious world, communication can lag, which can lead to misunderstanding and even to conflict. As communication systems around the world improve and become faster, the irony is that the opportunity for miscommunication and error intensifies. The G-Global initiative is a way of trying to tackle that issue head-on.

Astana Economic Forum plays host to G-Global, an open dialogue platform for discussion of key issues of the global economy, such as responding to the global financial crisis and seeking anti-crisis solutions. Its mission is to “improve the operating efficiency of the global community” through the involvement of government, the public, information and business structures.Commenting on the project at the Astana Economic Forum 2014, President Nursultan Nazarbayev said: “In the 21st century, all the countries, all the politicians, should learn to live in the G-Global world, on its principles of evolutionary development, trust, openness, tolerance and dialogue. Globalization has certainly made the world much closer, more transparent and more accessible to everyone. But now this world, impacted by the worst global financial and economic crisis, may relapse into recession and downturn. Termination of global dialogue is a dangerous trend.”The objectives of G-Global include:

• creating a fertile environment for open dialogue, public discussions and debates;

• hosting a platform for government representatives, major international organizations, and scientific and business communities to come together and develop the World Anti-Crisis Plan;

• facilitating discussion between different segments of the population;

• producing digital analytics, forecasts and recommendations;

• drawing on expertise from the world’s leading thinkers to enhance and evaluate international monetary and fiscal regulatory measures;

• introducing a transformative supranational payment unit (and then currency);

• engendering a nuclear-free world and promoting global security, starting with the Euro-Atlantic and Eurasian space;

• supporting increased dialogue between different cultures and civilizations; and

• implementing global environmental initiatives, such as Kazakhstan’s Green Bridge program.

G-Global: a fertile environment for open dialogue

The G-Global initiative envisions the introduction of a supranational payment unit, which could later become a secondary currency


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Since its inauguration in January 2012, G-Global has offered a simple platform for experts and members of various communities to debate the issues of the day and disseminate the World Anti-Crisis Plan. It also serves to promote world security, with the ultimate aim of a nuclear-free space in the Euro-Atlantic and Eurasian regions. Kazakhstan’s president is known to feel strongly about this issue. After the break-up of the Soviet Union in 1991, President Nazarbayev handed over the nuclear arsenal left behind in the country.

While primarily a platform for discussion, G-Global also has an activist streak. The initiative aims to promote stability in financial markets through extra regulation, and envisions the

introduction of a supranational payment unit, which could later become a secondary currency through which nation states could trade. With energy prices yo-yoing, and monetary fluctuations dominating the global economy, the idea of a supranational currency has, perhaps, never been more pertinent. The G-Global philosophy is that such a currency is vital in order to avert another financial crisis like that of 2008-09.

Overall, then, the Astana Economic Forum and its associated G-Global initiative have become crucial tools in facilitating the world’s response to any potential emergency thrown up by the current financial system. They are an essential part of our armory for dealing with future crises, without which the world would surely be a poorer place.

Leaders gather on stage on the last day of the Astana Economic Forum 2014. The event covered topics such as energy security and the impact of climate change on agriculture


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For Kazakhstan, 2017 is going to be an important year. It is the year when the world will come to Astana for EXPO 2017. Ever since the fi rst World’s Fair – or

‘universal exposition’ – in 1851, nation states have used the platform to show off their latest technology and developments.

Hosted in central London, the 1851 Great Exhibition showcased a precursor to the fax machine, while the 1893 exhibition in Chicago saw the fi rst demonstration of an escalator.

The technology may be more advanced in Astana, but the philosophy is the same. EXPO 2017 is focusing on providing solutions to some of the great contemporary issues: green energy and sustainable development. Under the slogan ‘Future Energy’, Astana plans to give the world one of the most ambitious expos of recent times, a throwback to the days when international exhibitions were a highlight of the calendar. The concept is simple and is refl ected in the logo, which resembles a wind turbine transformed

EXPO 2017: showcasing Kazakhstan

Astana will provide a platform for demonstrating innovative technology from across the globe during the World’s Fair EXPO 2017. However, it is also an opportunity for Kazakhstan to highlight itself as a leader in forward-thinking design

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Architecture practice Adrian Smith + Gordon Gill designed the park for EXPO 2017. The event’s theme is Future Energy, and fi ve million visits are expected

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into a multi-colored, three-petaled flower – apt for an event that places green energy at its core. EXPO 2017 plans to promote the use of green, sustainable energy. One of its key aims is for everyone across the world to have access to clean and cheap sustainable energy. Another is that consumption is controlled and even reduced. And the emphasis, in achieving these aims, is on innovation and forward thinking.

It is ambitious – doubly so, as this is the first time that a former Soviet state has hosted a World’s Fair. Approximately five million visits from two million attendees are expected to the various pavilions in Astana between June and September 2017. This poses a great challenge for Kazakhstan’s infrastructure, and work to expand its airports in order to cope with this increased passenger flow has already started. The Kazakh Government, in partnership with Zurich Airport International, has earmarked $900 million to upgrade the country’s airports. About a third of this is designated for Astana airport, to refurbish runways and build a new terminal, which will be opened in March 2017 ahead of the EXPO.

Striking, sustainable designThe centerpiece of EXPO 2017 will be the great pavilions that will host the exhibitions themselves. At its core will be the Kazakhstan Pavilion, a giant sphere that will transform the city’s skyline. Astana is already one of the most striking cities in the world, and EXPO 2017 will underline its position as a link between Europe and Asia.

Of course, all of the buildings constructed for EXPO 2017 will be powered by renewable energy and therefore sustainable into the coming years. In the future, perhaps, environmentalists will look back on EXPO 2017 as one of the turning points in the world’s view of sustainability and renewable energy.

President Nursultan Nazarbayev summed up the exhibition’s importance to his country at a ceremony in April 2014 to mark the start of construction. “I congratulate you all on the day we start the work,” he said. “This is exactly the day when we start a grand project to present Kazakhstan and Astana in a new light to the world.”

Much like that most famous of exhibition constructions, the Eiffel Tower, which was built for the 1889 Expo in Paris, the Astana EXPO 2017 buildings will leave a lasting legacy. US firm Adrian Smith + Gordon Gill Architecture has devised a two-stage approach to the exhibition park. The first phase is the design and construction of the exhibition itself, while the second phase will

see the park transition into a sustainable office and research park, with residential areas.

The concept, again, fits the vision of EXPO 2017 and its focus on on sustainable development. It is being developed in line with the pillars of the so-called ‘third industrial revolution’, whereby all the energy used by the buildings is generated by the building itself. “The forms and language of the buildings are designed to reduce their energy needs and operate as power plants that harness energy from the sun and/or wind,” Gordon Gill, one of the firm’s partners, has explained. “The buildings will use this power directly or supply it to the district-wide smart grid for storage or use.”

Impact on the economyAnd, of course, there is an important trickle-down effect on Kazakhstan’s economy generated by EXPO 2017. The event has already started to create thousands of jobs, many initially in the construction sector to build the various projects and exhibition halls, but there will also be many more in the services industries. It is expected that the World’s Fair will create a legacy that will draw in visitors for years. Kazakhstan needs to be able to service the needs of these future visitors as well.

Kazakhstan will also have to maintain the infrastructure and buildings left behind by EXPO 2017, creating more new jobs. Estimates vary on

precisely how much of a boost the Kazakh economy will receive during the event, but, last year, Talgat Yermegiyaev, head of the government-backed company that is developing EXPO 2017, said that he anticipated figures of nearly €300 million. And that was without counting the extra benefits. “The economic impact is expected to exceed $1 billion of investments,” Yermegiyaev said. “We will build unique facilities using new technologies, which can be used after the exhibition.”

Importantly, too, EXPO 2017 will shine a light on Kazakhstan. It will showcase the country and all of its attributes. After the World’s Fair, people who might have viewed Kazakhstan as primarily an energy-producing country will instead see it as an innovator, willing to take risks and project the image of a cleaner and more sustainable shared future onto the popular consciousness.

Work to expand Kazakhstan’s airports in order to cope with the increased passenger flow has already started

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BUSINESS DRIVERS


The Government of Kazakhstan is taking its first steps in an ambitious privatization program that aims to stir the economy and rationalize the portfolio of the

country’s sovereign wealth fund, Samruk-Kazyna. The program, which follows a first privatization wave carried out during Kazakhstan’s transition to a market economy in the 1990s, involves the sale, by 2020, of complete or partial stakes in 106 companies Samruk-Kazyna directly or indirectly controls. The total amounts to almost $4 billion and the bulk of the sales will be carried out by 2016.

“If we take all 106 assets referred to in the second wave of privatization, the total value of their equity is about 700 billion tenge ($3.8 billion),” said Nurlan Rakhmetov, Samruk-Kazyna’s Chief Financial Officer, in a statement published in August 2014, a few weeks after the program details were disclosed. “That is their book value… The real value of the assets can be both above and below as book value and fair market value are two different things.”

The companies involved belong mostly to those sectors that have driven Kazakhstan’s economic growth in recent years, such as oil and gas, railway, uranium and power. Yet, the overall success of this second wave of privatization will ultimately depend on its transparency.

Uncovering revenueSamruk-Kazyna was established in 2008 in order “to enhance competitiveness and sustainability of national economy and prevent any potential negative impact of changes in the world markets on economic growth of the country,” according to the fund’s website. This would be achieved through the management “of national development institutions, national companies, and other legal entities it owns to maximize their long-term value and competitiveness in the world markets.”

The fund was widely praised for its role in keeping the financial sector afloat during the economic crisis, and it bailed out five local banks in 2009. It is also being used to help drive growth and create new jobs. Over the course of 2015-16, the group is planning to implement 40 projects worth a total of $23 billion and is expected to create some 9,500 jobs.

At the end of September 2014, the assets of Samruk-Kazyna reached 16.48 trillion tenge, or 40 per cent of Kazakhstan’s 2013 gross domestic product (GDP), up from 7.67 trillion tenge at the end of 2008, according to the fund’s official

Sovereign wealth fund to privatize assets worth $3.8 billion by 2020

An ambitious privatization program by Kazakhstan’s sovereign wealth fund Samruk-Kazyna could add as much as $11 billion to the country’s gross domestic product over the next five years

A 10 per cent stake in the Kazakhstan Electricity Grid Operating Company was sold on the Kazakhstan Stock Exchange in December

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A train is boarded at the main railway station in Almaty. After 2016, there are plans to privatize eight subsidiaries of the state rail company Kazakhstan Temir Zholy

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figures. President Nursultan Nazarbayev has called for a reform of the fund eventually aimed at unlocking value in the portfolio and, by doing so, adding $11 billion to the country’s GDP by 2020. The plan entails a deep restructuring of the fund’s corporate governance and envisages the disinvestment of non-core assets through the current privatization program. Not only does the move toward privatization fit the announced reform of Samruk-Kazyna’s portfolio, but it also brings to the state coffers fresh resources at a time when authorities have to deal with shrinking revenues from the oil and gas and mining sectors.

The program will unfold through private auctions and public placement on the Kazakhstan Stock Exchange (KASE). A 10 per cent stake in the Kazakhstan Electricity Grid Operating Company (KEGOC) was already sold on the KASE in December, and upcoming initial public offerings (IPOs) or secondary offerings on the stock exchange feature a 24 per cent stake in power distributor the Mangistau Electricity Distribution Company, a 20-25 per cent stake in energy firm Samruk-Energy, a 10 per cent share in national rail company Kazakhstan Temir Zholy (KTZ), and another 10 per cent stake in national nuclear operator Kazatomprom, according to the official roadmap published by Samruk-Kazyna. After 2016, another eight subsidiaries of KTZ will be privatized, alongside four subsidiaries of state oil and gas operator KazMunayGas.

While hailed as the most ambitious privatization program in Kazakhstan since the 1990s, the process has got off to a slow start, with only 12 out

of an intended 64 companies privatized in 2014, according to official figures. And while the KEGOC IPO was oversubscribed, shares went public at the “very conservative” price of 505 tenge ($2.7) – as described by Samruk-Kazyna’s management – and 26.3 per cent of the placement was bought up by the state pension fund, ENPF. It may be that more successful IPOs will follow, as ordinary citizens gain more experience of asset management, and investor concerns decrease.

Emphasis on transparencyAuthorities may have little influence on external factors capable of affecting the privatization program, but they do retain control over its transparency. Much emphasis is being placed on this aspect, and a transparency commission has been set up, comprising members of parliament and the National Chamber of Entrepreneurs. Writing in The Astana Times last year, Nurman Abylkassymov, Head of the Department of State Assets Management at the Ministry of National Economy, promised to “create a transparent and efficient system of state asset management.”

In June 2014, Kazakh Economy and Budget Planning Minister Yerbolat Dosayev said: “In order to ensure transparency of the privatization process, we have reached agreement with our national companies that the [state-owned] assets will be sold through a centralized trading floor that will be organised at the Ministry of Finance.”

As the program unfolds, it is hoped that such measures will dispel any doubts and encourage the participation required to make it a success.

The headquarters of state oil and gas operator KazMunayGas. Four of the group’s subsidiaries are in line for privatization

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Kazakhstan has become well known for technology innovation and cutting-edge developments over the past few years. If innovators and entrepreneurs are

looking to back a project or a particular test bed, Kazakhstan has become one of the countries to turn to. E-government and G4 mobile networks have both been eagerly adopted by Kazakhstan, as have more small-scale projects.

Much of the drive for innovation could be attributed to the nature of Kazakhstan itself. The wide, open steppe, soaring mountains and extreme climate made innovation a necessary and vital part of life in the country. But the government has also actively sought to promote innovation and entrepreneurial thinking. In 2010, in conjunction with the World Bank, it launched the Technology Commercialization Project, which has been at the forefront of innovation in the country ever since, especially in the fields of science and technology.

The project was designed to reinvigorate the link between science and private enterprise, a connection that has been responsible for some of the world’s greatest inventions – from the light bulb to the internet – and also to revamp the way in which science and technology contribute to the economic development of Kazakhstan.

International expertizeAt its inauguration, Kazakhstan’s then Minister of Science and Education, Bakytzhan Zhumagulov, said: “We express our hope that the project will enable Kazakhstan to develop new, competitive science highly rated by international experts, and grow a young generation of talented scientists

who will do their job with love and contribute to the country’s development.”

Underpinning these lofty ambitions are the right mechanisms to ensure that the project works. As its aim is to inspire entrepreneurship and innovation in order to boost the Kazakh economy, it also needs to lead by example. To this end, the Kazakh Government has sought out and brought in international expertise.

Overseeing much of the work of the Technology Commercialization Project are members of the International Science and Commercialization Board, a group of scientists that promotes the relationship between business and science.

Their input is essential; it also underscores Kazakhstan’s commitment to boosting research and development (R&D). The main aim is to give several million-dollar grants to teams who are looking to promote relevant projects that will then propel more scientists into business, generating more technological-oriented business projects and ideas. Key topics that the project will attempt to deal with are: improving public expenditure to supplement private investment; improving Kazakh firms’ R&D capacities; accelerating links with global markets; overcoming technological barriers; and upgrading the legal framework for technological intellectual property.

As the original mission statement said: “Among the expected outcomes of this five- year project is the development of a transparent, competitive, cross-disciplinary, problem-oriented financing model of research which is responsive to the modernization and diversification needs of the Kazakhstani economy.”

Projects unite business with science

Innovation in technology helps to diversify the economy, fueling development and creating jobs. To this end, Kazakhstan is rolling out a number of programs that fund, advise and support start-ups

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In 2013, Kazakhstan’s National Agency for Technological Development awarded grants to 116 start-up companies

Launched in conjunction with the World Bank, Kazakhstan’s Technology Commercialization Project works to invigorate the link between science and private enterprise

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The project is still ongoing, but 2015 should be the year when the hard work and ambition comes to fruition. With the global economy on the brink of tipping back into recession, there has never been a more pressing time for science to step up and make a positive impact in the world of business. This is its opportunity.

Government supportThe National Agency for Technological Development (NATD) is another mechanism that Kazakhstan is using to set itself apart. As successor to the National Innovation Fund, NATD exists to boost public finance for private innovation and entrepreneurship. NATD is a government-funded organization that has several tools at its disposal. These include handing out grants, financing projects, setting up special development hubs where entrepreneurs can discuss ideas and projects with like-minded people, and offering access to professors and experts.

Simple actions have generated increasingly positive results. NATD set up a mechanism last year for potential innovation-grants applicants to discuss their various ideas with an agency expert through Skype. In a country the size of Kazakhstan, this type of instant-access service is invaluable.

There are nine types of grants available from the agency to enable innovators to turn their ideas into a reality. These include grants to hire professional

engineers, outsource work to foreign specialists, bring in various technologies, order industrial research, support high-tech start-ups, successfully patent various ideas, and to help promote and sell new products and technology.

In 2013, NATD helped 116 start-up companies with grants worth a total of 975 million tenge ($5.3 million). In total, the agency received 376 applications for grants in 2013, compared with 281 in 2012, from all over Kazakhstan.

Again, this underlines the government’s commitment to pushing the boundaries of science and entrepreneurship – and it is paying dividends. In 2011, then Minister of Industry and New Technologies Asset Issekeshev said that innovative commodities had grown by 65.9 per cent to equal nearly six per cent of Kazakhstan’s total economy. In the same statement, he unveiled an innovation development plan extending to 2020.

Bringing together science, innovation, the government and the private sector, these projects are exactly the sort that the country has striven to develop. Further projects linking technology and science to business are currently in the pipeline.

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ADVERTISEMENT

■ OMV, headquartered in Vienna, is Austria’s largest listed industrial

company. The company was founded in 1956 and is now active in around 30 countries worldwide. This international and integrated oil and gas company employs more than 30,000 people and focuses on growth in exploration, production, refining and marketing, including petrochemicals.

In 2004, Petrom, the main energy supplier in Romania, became part of the OMV Group. Thus Petrom, which had exploration and production operations in Kazakhstan, became known as OMV Petrom.

OMV Petrom in the Republic of KazakhstanIn the Republic of Kazakhstan, OMV Petrom was founded, as Petrom, in 1998. Austria’s and Romania’s biggest investments in Kazakhstan are through OMV Petrom, which to date has invested some $800 million. The company owns two operating entities:

■ Tasbulat Oil Corporation LLP, registered in 1997, holds the licenses for the Tasbulat, Aktas and Turkmenoi fields

■ Kom Munai LLP, registered in 2003, holds the license for the Komsomolskoye field

OMV Petrom also has a branch office in Aktau and a representative office based in Astana.

Our oilfieldsOMV Petrom operates four oilfields in the Mangistau Region, situated in south-west Kazakhstan.

The Tasbulat, Aktas and Turkmenoi fields are in the Mangyshlak Basin and

OMV Groupare situated about 150km south-east of the Caspian Sea port city of Aktau. The total area for these fields is around 50 square kilometres and they were discovered in 1965, 1967 and 1969 respectively. After a brief period of production from Tasbulat in the 1980s, the field was shut in. Tasbulat was brought back on stream by OMV Petrom in 2003, as was Turkmenoi in 2005 and Aktas in 2006. Field redevelopment was undertaken in 2012 and 2013, including the drilling of seven production wells and two injection wells, and OMV Petrom drilled a total of 54 wells.

In all our operations, when it comes to health, safety and environmental performance, our corporate standards go beyond mere legal compliance and we require all our partners, employees and contractors to adhere to these standards. We see this as essential to a profitable, sustainable business.

Our peopleWe employ and have developed more than 400 skilled, specialist staff, most of whom are Kazakh nationals and many of whom are local employees. Every year, we offer training and development opportunities for all our staff, and recruit new graduates fresh from Kazakhstan’s universities and Bolashak Programme Alumni. We supplement our Kazakhstan staff with a small cadre of expatriates, many of whom each have 20-30 years’ oil industry experience. A key role for these expatriates is to supervise, train and develop local staff for future specialist and management positions. We also send some of our Kazakhstan staff overseas into our worldwide organization in order to provide them with international experience and expertise that they can, in turn, deploy when they return to their native country.

Our technologyOne of the driving forces of OMV Group’s growth strategy is our cutting-edge in-house technology, combined with the leading technologies of our many partners, contractors and suppliers. OMV Petrom is able to access the technology of the OMV Group and deploy it into Kazakhstan. Examples include long-reach horizontal drilling, artificial lift, real-time down-hole data monitoring, gas injection, water flooding for reservoir pressure support, advanced water treatment facilities, and a gas-to-power project. In particular, OMV has a wealth of experience in managing relatively mature, complex heterogeneous reservoirs that results in optimal oil recovery. This

Thomas QuigleyManaging DirectorOMV Petrom

OMV Petrom’s aim in Kazakhstan is primarily

to be a good operator and a good neighbour

The fourth field, Komsomolskoye, is in the North Ustyurt Basin and has an area of around 33 square kilometres. Located some 400km north-east of Aktau on the Buzzachi Peninsula, the field came on stream in 2009 in a remote and environmentally sensitive area. In 2012, artificial lift was completed with the installation of 13 electrical submersible pumps, and OMV Petrom drilled a total of 14 wells.

In 2014, OMV Petrom produced around 9,000 barrels of oil equivalent a day, despite the fact that all oilfields have peaked. Export sales of oil are transported by pipeline via Kazakhstan and Russia to the Baltic coast and sold at Ust Luga Port near Saint Petersburg. Domestic sales are transported via a pipeline to Atyrau refinery. Associated gas from Tasbulat Oil Corporation is sold to a gas-processing plant near Aktau for final use in the domestic market, while associated gas from Komsomolskoye is reinjected to aid pressure maintenance.

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Business Center Teniz4 mcrd, Bldg. 18Aktau 130000Kazakhstan BranchOMV Petrom S.A.T: +7 (7292) 200 901 Ext. 03401www.omv.com | www.petrom.com

Our area of operations in Komsomolskoe

experience is particularly important to maximize output in our oilfi elds in the Republic of Kazakhstan.

Importantly, the OMV Group is also able to bring to Kazakhstan the management expertise necessary in today’s world to ensure the continuously improving operational effi ciency necessary and improved profi ts required in any oil-price environment.

Our contractors and suppliersOMV Petrom is critically reliant on our contractors and suppliers, without whom we could not operate. Nearly half of our annual production costs are spent on goods, works and services. Our overall aim is to translate our contractor and supplier relationship into a fi nancially viable business case. Our specialist high-technology needs require us to attract contractors and suppliers from all over the world, but we are particularly focused on local content in Kazakhstan and especially in our local areas of operation, where a market for such technology exists. We also aim to develop local and national supplier capabilities and markets by engaging with suppliers and helping them to develop their businesses and thus meet our needs, to our mutual benefi t.

OMV Petrom seeks open, transparent and fair relationships with its contractors and suppliers and, as such, follows the laws of Kazakhstan’s public procurement system, allowing all interested

companies to bid in our tenders. We are particularly keen to extend our contractor and supplier base, and hence help build up the market for oil industry goods, services and works in Kazakhstan.

Our employees follow a strict code of business ethics and have a zero-tolerance policy towards bribery, fraud, theft and any form of corruption.

Our neighboursIn terms of the relationships we have with external parties, OMV Petrom’s aim in Kazakhstan is primarily to be a good operator and a good neighbour. Thus, in addition to OMV Petrom providing direct employment opportunities for our staff or as contractors and/or suppliers, OMV Petrom also participates in many social projects. Examples include construction of roads needed by local communities, construction of kindergartens and social centers, and provision of sports facilities and support for sports stadia, and student Society of Petroleum Engineers conferences. We have helped with the medical training of rural doctors and made available medical examinations for

chronic patients in local communities. We are particularly proud of our work in helping train teachers in local schools to allow them in turn to provide training for school students who are preparing to transition from schoolroom to workplace.

Our futureThe oil industry in Kazakhstan, like everywhere else, is characterized by large up-front capital investments during the development phase of an oilfi eld, followed by 20-30 years of production revenues that provide a return on these initial investments. As such, this business model only works if we think long term and operate in a sustainable manner in terms of safety and environment, and relationships with our employees, contractors and suppliers, and if we honour our commitments and obligations to the Republic of Kazakhstan. This is our goal here and, as such, we welcome recent government initiatives to improve the business climate in Kazakhstan in order to encourage further investments in this country, where opportunities in the oil and gas business abound.

OMV_ENG_placed.indd 45 20/04/2015 16:24

OIL AND GAS


Kazakhstan’s speedy economic growth over the past decade has been fueled by a strong natural resources sector, and in particular oil and gas. The country has an estimated 35 billion barrels

of proven recoverable oil reserves, and potentially another three times that amount in place. This puts it among the world’s top 15 reserve-holders, with about three per cent of the global total. Although much of the oil and gas is conveniently located in a few giant fi elds, their complex, acidic and high-pressure nature, combined with Kazakhstan’s harsh climate and landlocked location, makes production and export a challenge. Technology is at the heart of the solution to these challenges,

as well as being the key to bringing more of the country’s probable reserves into the proven-recoverable category.

Focused as it is on just a few large projects, investment is unlikely to be threatened much by recent crude price swings. However, delays to production at Kashagan (see page 60) and lower oil prices have meant that the start of 2015 has offered less of a boost to the rest of the economy from the oil sector than had previously been hoped for.

There have been 172 oilfi elds found so far in Kazakhstan, stretching across six of the country’s 14 provinces. But less than half are in operation and most of those operating are mature fi elds, with reserves increasingly diffi cult

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Exploring the potential of Kazakhstan’s growing oil and gas industryAs one of the top 15 reserve-holders in the world, Kazakhstan has long drawn investment from oil and gas majors. Further expansion of the industry promises to continue to boost the country’s economy

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The main processing hub at Kashagan, the largest oilfield in Kazakhstan, which has reported reserves of 4.5 billion tonnes. Hazardous conditions at the offshore field make extraction a complex and highly technical procedure

to recover. More than 90 per cent of oil reserves are concentrated in its 15 largest oilfields, including the three giants: Kashagan, Tengiz and Karachaganak.

Current production is dominated by the Tengiz and Karachaganak fields, accounting for around half of total output. In 2013, output from Tengiz, Kazakhstan’s largest oil-producing field, rose to a record 485,000 barrels a day, up 12 per cent from 433,000b/d in 2012. This helped push

total crude and condensate production up to 1.64 million b/d, a slight increase from 1.61 million b/d in 2012. The delays at Kashagan meant that, instead of the expected growth, 2014 crude output remained largely flat, with production from January to August down slightly to 53.6 million tonnes, compared with 54.0 million for the same period in 2013.

Kazakh production forecasts for 2020 have also fallen over the past couple of years as a result of the delays, from 2.4 million b/d to two million b/d – but this still represents a rise of almost a quarter compared with 2013 figures. Much of this forecast increase is still expected to come from Kashagan, and will be helped by the next phase at Tengiz and possible expansions at Karachaganak.

Overseas investment is dominated by Western majors including Chevron, Exxon, Shell, Total, BG, and Eni, along with Lukoil from Russia and, more recently, China’s CNPC and Sinopec. State-owned KazMunayGas Group (KMG) is the national operator, covering all areas from distribution to exploration. There are plans for privatisation, but lower oil prices are likely to delay any floatation date. In 2013, KMG’s recoverable reserves of liquid hydrocarbons were estimated at 811.6 million tonnes, or around six billion barrels, with a reserve replacement ratio of about 50 per cent.

Joint explorationAmong the Western investors, Eni has been increasing its presence over recent years. It is already co-operator with BG of Karachaganak and holds a 16.81 per cent stake in Kashagan; in 2014, it expanded its presence through a deal with KMG for joint exploration and production activities in Isatay, a highly prospective offshore area located in the north Caspian Sea. The agreement includes the development of a shipyard project in Kuryk, which is located in the Mangystau region on the Caspian coastline. In recent years, Kazakhstan has also signed joint venture exploration deals with Korea National Oil Company (KNOC) and Total, covering blocks in the Caspian Sea.

Following on from CNPC’s acquisition of a stake in Kashagan in 2013, this year Sinopec snapped up Lukoil’s 50 per cent stake in Kazakhstan’s Caspian Investment Resources for around $1.2 billion. The Russian company is not pulling out of Kazakhstan completely, however, stating its intention to reinvest part of the money in the country’s offshore sector. Lukoil will also retain its operations in Kumkol, Karachaganak and Tengiz, while the company is expanding downstream, with plans for development of a lube-production plant near Almaty.

China’s involvement is continuing to expand to include more private investors, backed by official cooperative agreements signed in 2014. Samuel Lussac, an analyst at Wood Mackenzie, said that lower oil prices were likely to stimulate merger and acquisition activity, with the main buyers expected to be Asian, and particularly Chinese, private companies. Targets include private Kazakh firms, as well as the assets of Western-listed companies. Deals


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Crude and condensate production:Kazakhstan has

35 billion barrels of proven recoverable

oil reserves1.61 million

b/d1.64 million

b/dJan-Aug 2013

crude output was 54.0 million tonnes

Crude output in Jan-Aug 2014 was

53.6 million tonnes

Production forecast for 2020:

2012 2013

In August 2014, President Nursultan Nazarbayev announced that the Ministry of Oil and Gas, as well as parts of the ministries of Industry and New Technologies, and Environment and Water Resources would combine to form the Ministry of Energy. Vladimir Shkolnik was appointed as the minister, with a remit encompassing oil and gas, nuclear energy

and renewables. President Nazarbayev commented: “I believe it is time to concentrate the entire energy sector in the hands of one person.”

Since his appointment, Shkolnik has announced a number of positive moves for the sector. In October 2014, the minister announced the expansion of Tengizchevroil, which is expected to generate 20,000 jobs and result in the production of an additional 12.1 million tonnes of oil each year.

In April, Shkolnik spoke about the role of investors in Kazakhstan’s oil and gas sector, and how the industry is developing: “The country’s leadership has tasked the energy industry with transitioning from simple trade, to industrial and scientific-technical cooperation, as well as making the industry more attractive to investors, and encouraging cooperation on innovation and high technology with leading global energy companies.

“A further stage of development in the industry is the creation of conditions suitable for manufacturing industries. In the oil and gas sector, this means the development of deep processing of oil and gas into petrochemical products. This industry is developing in Kazakhstan, with an emphasis on the introduction of modern technologies and solutions. Researchers, including international experts, have given positive reports after assessing the capabilities of its refineries. Currently, the country is implementing an investment project to create key facilities for advanced refining of oil and gas. Measures for the development of the petrochemical industry in Kazakhstan were provided by the provisions of the State Program of Industrial Development for 2015-2019, as well as a comprehensive plan for the development of the oil and gas sector in the years 2014-2018.

“Given that petrochemical production (deep processing to produce products with high added value) required large investments, the realization of such projects is not possible without adequate infrastructure support…

“As the infrastructure is already in place, it allows companies that participate in the special economic zone (SEZ) to save up to 20 per cent of capital and 15 per cent of operating costs. To this end, the country will continue the construction of the infrastructure for SEZ “National Industrial Petrochemical Technology Park”. The amount of attracted investments for basic facilities alone (polypropylene, polyethylene, butadiene) will be about $8 billion. The completion of the construction of infrastructure and industrial facilities, as well as the launch of the major factories in the SEZ will cause a multiplier effect, including the issue of export of products with high added value in the order of $2 billion a year.”

PROFILE

Vladimir ShkolnikMinister of Energy

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Oil and gas in Kazakhstan: key statistics

2 million b/d



OIL AND GAS

Atyrau

Mangystau

West Kazakhstan

Kyzylorda

Kashagan

SOURCE: PETROLEUM REVIEW MAY 2014, ENERGY INSTITUTE

Kazakhstan’s oil and gas reserves

• 25 hydrocarbon fi elds have been identifi ed

• It is home to the Zhanazhol fi elds, with a reported 170 million tonnes of reserves

• The largest oilfi eld in Kazakhstan, and one of the largest projects in oil history

• Estimated to hold around 4.5 billion tonnes of oil

• It has reserves totaling 725 million tonnes

• Four of the largest oilfi elds are located here

• This province is reported to have the fi fth largest accumulation of oil and gas in Kazakhstan, known as the Kumkol group

• Karachaganak, the country’s largest gas condensate fi eld, has around 320 million tonnes of liquid hydrocarbon feedstock and 450 billion cubic meters of natural gas

• The total reserves of oil and gas condensate are estimated at 200 million tonnes

• As of 2012, 75 oilfi elds were identifi ed, almost half of the country’s total, equating to reserves of 930 million tonnes

• Tengiz has the majority share, storing 781 million tonnes

• The two other major fi elds are Korolevskoye with 55 million tonnes and Kenbai with 31 million tonnes

Aktobe

already include SinoHan’s 50 per cent purchase of Tethys Petroleum’s Kazakh assets, and the August 2014 purchase of 95 per cent of Maten Petroleum by Shanghai-listed Geo-Jade Petroleum. The latter is potentially making further moves into the Kazakh market: in January, it was reported that Geo-Jade Petroleum was planning to buy

Kozhan LLP for approximately $400 million. While lower oil prices have subdued investor interest in Western markets, Chinese fi nance is helping to underpin continued exploration. Private Chinese investors are attracted by the ability to transport crude directly by pipeline to China, with further rationalisation of pipeline tariffs likely to make this even


50 51

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SOURCE: KMG EP

Karachaganak

Kenkiyak

AlibekmolaKenbai

Korolevskoye

Caspian Sea

WEST KAZAKHSTAN

MANGYSTAUKYZYLORDA

AKTOBE

Kashagan

Karazhanbas

Zhetybai

North Buzachi

Uzen

Kumkol

Kalamkas

Prorva

Tengiz

ZhanazholATYRAU

KAZAKHSTAN

Major oilfields More than 90% of reserves are in 15 fi elds, and 70% of hydrocarbon reserves are concentrated in western Kazakhstan

easier, according to Lussac. Transportation costs to China have traditionally been higher than those to the West, and combined with lower border prices this had, previously, made it a less profi table export route.

Kazakhstan’s oil and gas industry is well positioned to help the country with plans to stimulate economic development

through growth in its small and medium-sized business sector. Oil projects will be required to raise local content to 85 per cent by 2020 from 50 per cent now, ensuring a ready market for private equipment and service providers, as well as for KMG, which has positioned itself to benefi t by establishing a drilling and services subsidiary company.


The fi rst Kazakhstani private shipping company “Caspian Off shore Construction” LLP was established in 2003. The Company focuses on the development of auxiliary infrastructural marine fl eet involved in the development of oil and gas fi elds in the Caspian Sea. The Company off ers a wide range of services in vessel management, operation and maintenance, as well as supervision of construction of new and modernization of existing vessels.

The Company manages total fl eet of 41 vessels.

Company fl eet is certifi ed in accordance with ISM Code, while Company’s Quality and Environmental Management Systems are approved and certifi ed by Intertek in compliance with ISO 9001:2008 and ISO 14001:2004 standards.

Almaty offi ce: 34/95, Karasai Batyr street, Almaty 050010Republic of KazakhstanTelephone: +7 7272 59 73 33

Aktay offi ce: 39 building, “Zodiak” business-center, 17 mcr., 130000 Aktau, Republic of KazakhstanTelephone: +7 7292 59 73 33

Widening horizons. Establishing traditions.

www.coc.kz

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With most attention focused on Kazakhstan’s giant fields, recent exploration has been relatively subdued, although there has been some success for Max Petroleum and Tethys

Petroleum over the past year. National operator KazMunayGas Group (KMG) has been actively exploring in deep-land sediments and the Caspian shelf in areas such as Zhambyl, and deep-well drilling in Urihktau.

In early 2013, KMG and its partners announced the discovery of recoverable commercial reserves in two offshore fields – 67.6 million tons in the Kalamkas sea reserve and 31 million tons at the Hazar reserve, while, in 2014, KMG EP made a new discovery at the Rozhkovskoye field. Analysts at Wood Mackenzie said that three awards had been made in a licensing round in 2014, and another round was expected to take place in 2015.

Expanding operationsApart from Kashagan, production at Tengiz and Karachaganak is expected to increase, although much of this will only compensate for falls at more mature fields. The Chevron-led operating consortium – which also includes Exxon, Lukoil and KMG – is implementing a $7.4 billion expansion project at Tengiz that is expected to steadily increase production from 485,000 barrels per day (b/d) in 2013 to 854,000b/d by 2021. The field has an estimated 24 billion barrels of light high-quality crude, with six to nine billion barrels (25 to 39 per cent) estimated to be recoverable, and 64 trillion cubic feet (Tcf) of gas thought to be in place.

Chevron, BG, Eni, Lukoil and KMG are in partnership at the Karachaganak field, which has reserves of around nine billion

barrels of condensate and 48Tcf of gas, and is operated under a production sharing agreement (PSA). Production from Karachaganak is expected to increase to 239,000b/d by 2021. The country’s other big producing fields include the KMG-operated and owned 100,000b/d Uzen oilfield, as well as the 121,000b/d KMG/CNPC-operated Mangistau oilfield, which are both located in the south-west of the country.

The quadrupling of gas production over the past decade to more than 40 billion cubic meters (bcm) per year has boosted oil recovery through reinjection and decreased Kazakhstan’s reliance on gas imports. Kazakhstan had 1.5 trillion cubic metres of proven conventional gas reserves at the end of 2013, when it produced 41.9bcm of gas – a four per cent rise from 2012. This amount included 21.3bcm of associated gas, which is an increase of 7.6 per cent on 2012 figures,

although this growth reversed in the first six months of 2014, falling 3.3 per cent to 10.44bcm.

Gas exports are currently under pressure as domestic use increases, helped by an expanding pipeline network. However, if it is successful in its efforts to cut gas reinjection, the country may be capable of exporting 30 to 40bcm a year by 2030. Production increases from

the Kashagan and Imashevskoye fields are expected to add more than 25bcm a year by 2021.

At the International Conference on Energy Charter in November 2014, Kazakhstan’s Prime Minister, Karim Masimov, also announced plans for unconventional exploration for shale gas and oil. The government has indicated that it will need to bring in overseas operators with the relevant experience to exploit these resources, which are located in the eastern regions of the country.

Oil and gas fields to increase production

Exploration in Kazakhstan is yielding positive results, with a licensing round set for this year following discoveries by KazMunayGas, and domestic gas demand also on the rise

With plans announced for shale gas exploration,

the government has indicated a need to bring

in overseas operators

4.2 Exploration AS.indd 53 08/05/2015 12:26

ADVERTISEMENT

■ The act of businesses helping local communities and companies and

sponsoring activities that would benefit them in the long run is quite common. The consortium that is developing the giant Kashagan field is no exception in this regard. It is committed to developing a world-class project in a manner that will bring long-term benefits for residents of Atyrau and Mangistau regions and the Republic of Kazakhstan as a whole.

Since the very start, the consortium under the North Caspian Sea Production Sharing Agreement (NCSPSA) has aspired to be not just a company developing one of the biggest oilfields worldwide, but also the company that is committed to maximising the use of local goods and services, developing the skills of local people and helping to increase the capacity of local companies in a sustainable manner. More than $11 billion paid by the venture for local goods, works and services in 2006-2014 demonstrates our commitment.

In line with the NCSPSA, the venture gives preference to local suppliers provided they meet safety and quality requirements and offer materials and services competitive with those provided by international suppliers. In order to compete successfully with a foreign company, a local company must have a skilled workforce and comply with

A project of ample opportunitiesinternational safety and quality standards for products manufactured and services provided. To help local businesses meet these criteria, the venture developed a long-term programme that sets out specific goals. Between 2006 and 2015, the venture awarded international certificates to 96 local companies, thus enabling them to obtain an edge over their competitors, step up their production capacity and promote their goods and services. Three local companies are under the certification process for ISO standards, and 37 more are currently being trained.

In 2014, the venture conducted eight general awareness seminars (HSE awareness, tender writing, pre-qualification awareness, QA/QC and so on) for 81 local companies. More than 200 employees from 12 local companies have been trained in the most in-demand craft skills such as the safety processes of scaffolding works, gas facilities operation and maintenance engineering, industrial safety, work at heights, electrical safety and others. Although this is a time-consuming effort (training and introduction of standards at a company may sometimes take more than a year), compliance with these standards offers multiple advantages for potential suppliers, enabling them to promote their goods and services

consistent with international practices, both at home and abroad. To date, more than 2,000 Kazakh firms actively involved in performing various kinds of work and services and in supplying goods are currently registered in the venture’s database. One example of successful local-company engagement in the project was the launch of the Akku-1 and Akku-2 vessels in Aktau, or the construction of a large number of onshore facilities, like the first 80,000-cubic-metre crude storage in Kazakhstan.

By virtue of its innovation and technical complexity, the project requires utmost professionalism from its staff, and among its undoubted achievements is the fact that the number of local residents working on the project has been increasing from year to year. As of 4Q14, 82 per cent of staff working for the Kashagan project are Kazakhstani citizens, compared with 77 per cent in 2013; an outstanding level for this type of project.

The consortium also helps local communities via its social infrastructure projects (SIP), and sponsorship and donation (S&D) programmes. Between 1998 and 4Q14, more than 942 social infrastructure projects were completed in Atyrau and Mangistau oblasts, in close collaboration with local authorities. The total spent on the SIP projects in 2014 alone came to $43 million. S&D projects are very specific, and in Mangistau and Atyrau regions more than $1.5 million was spent on nurseries, secondary schools, colleges, libraries, hospitals, social adaptation centres, and disabled and veteran groups.

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Kazakhstan has a crude oil distillation capacity of 345,100 barrels per day (b/d). There are three refineries: Pavlodar, Atyrau and Shymkent, which are all owned and operated by national operator

KazMunayGas Group (KMG). KMG also has a 75 per cent share in Romanian company Rompetrol, which operates in a number of European countries, primarily in refining and trading, providing KMG with an integral overseas well-to-customer cycle, involving the trading and shipping companies of the KMG Group.

Domestic demand in the country has been rising quickly in recent years, spurred by strong economic growth. In December 2014, President Nursultan Nazarbayev reaffirmed the plan to build a fourth refinery. In the meantime, Atyrau, Pavlodar and Shymkent have been expanded and refurbished, and output from the three refineries was up by nearly nine per cent in 2014, with an estimated 17.4 million tonnes of oil refined, compared with 16 million tonnes in 2013.

This is still, however, less than a quarter of Kazakhstan’s crude output, and, while other oil exporters seek to add value to exports through refining, in Kazakhstan refining remains largely limited to domestic demand, owing to protected neighbouring markets and logistical obstacles to exporting, resulting from the country’s huge size and landlocked position.

Until recently, the Shymkent and Pavlodar refineries were supplied with crude from western Siberia, but, in 2014, Kazakhstan replaced five million tonnes of this with its own crude. The delays at Kashagan (see page 60) have resulted in the displacement of crude supply to China, with exports thought to have fallen in 2014, from a record 12 million tonnes in 2013. The 2013 figure was up 14 per cent on that from 2012, reflecting China’s efforts to diversify its crude oil import options, and Kazakhstan’s broadening export base.

Kazakhstan has also increased the transit quota for Russian crude to China to seven million tonnes, and is

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The crossroads of Central Asia

Linking China and Europe with Central Asia, Kazakhstan is an important transit corridor for natural gas and oil. Various projects are now underway to enable it to adapt to changing demand

The Karachaganak-Uralsk gas pipeline was completed in 2011. Domestic demand has risen in recent years, propelling the need for new pipelines and refineries

expected to raise it to 10 million tonnes in 2015. The deal, alongside its transit role in gas sales, illustrates the importance of Kazakhstan as a crossroads in Central Asia. Overall, a total of 67.2 million tonnes of oil were transported through the KazTransOil system in 2013, with 72.1 million tonnes expected to have been carried in 2014. A project to increase the transportation capacity of the 1,400km CNPC/

4.3 Pipelines and Gas AS.indd 55 08/05/2015 12:27

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Engineering Solutions for the Oil Industry

www.pmlucas.com

PM Lucas_placed.indd 44 01/05/2015 10:35

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KMG Atasu-Alashankou pipeline to 20 million tonnes a year from 12.5 million tonnes will help transport more Kazakh and Russian oil to China across Kazakh territory as volumes rise.

The Friendship (Druzhba) Pipeline is now available to take Kazakh supplies west through Russia, although the delays at Kashagan mean that Kazakhstan does not yet have the crude oil to fi ll it. Currently, exports fl ow through Baltic and Black Sea ports, via the Caspian Pipeline Consortium (CPC) and Atyrau-Samara pipeline, as well as the Kazakhstan-China

Focus on gas: strong economy fuels demand

Kazakhstan exports some gas and also acts as a transit country for gas pipeline exports from Uzbekistan and Turkmenistan to Russia and China. There are two main transit lines: the Central Asia-China Pipeline (CACP), which brings gas from Turkmenistan and Uzbekistan via Kazakhstan to China; and the Bukhara-Urals Pipeline, which transports gas from Uzbekistan to Russia. A third, 25-billion-cubic-meter-per-year (bcm/year) CACP pipeline (line C) was completed in 2014 alongside the existing two 1,883km, 30bcm CACP lines (lines A and B), with a fourth project, line D, planned along an alternative route to complete the system.

Lines A and B are supplied with up to 30bcm per year from the Amu Darya fi eld and other projects in Turkmenistan. Kazakhstan will supply fi ve bcm a year to line C, along with another 10bcm each from Turkmenistan and Uzbekistan. Under a 2012 framework agreement, Turkmenistan agreed to supply China with 65bcm a year, with line D likely to eventually transport 25bcm a year from Galkynysh.

A strong economy means that demand has been increasing at home, too, requiring the expansion of Kazakhstan’s domestic pipeline network, including the 10bcm Beineu-Bozoi-Akbulak pipeline, which is due on stream in 2015. This will connect the

separate distribution systems in the west and south, and help supply exports to China. Another proposed pipeline will supply gas from Russia and Karachaganak to northern and central Kazakhstan, and Astana, ensuring that the country’s energy riches are available to more domestic consumers.

As well as transportation improvements and strong demand, stricter regulations are spurring gas processing and utilization. Kazakhstan now has 14 gas processing plants, with a total capacity of 19bcm/year – and another 4.6bcm/year ready or under construction as part of the Kashagan project, as well as plans for a gas-to-liquids plant.

pipeline. Kazakhstan also sends up to 500,000b/d by tanker across the Caspian for onward transportation through the Baku-Tbilisi-Ceyhan (BTC) pipeline. Supply to the BTC pipeline will eventually be boosted by the Kazakhstan Caspian Transportation System (KCTS), which includes a 600,000b/d pipeline from western Kazakhstan to a new 760,000b/d oil terminal on the Caspian. Other proposals include the Trans-Caspian oil pipeline, which would provide another western export route for both Kazakhstan and Turkmenistan.

The Karachaganak-Uralsk gas pipelineis 148km long and connects the Karachaganak gas condensate fi eld with the

country’s pipeline network. It was completed in 2011 and cost about $300 millionSOURCE: HYDROCARBONS TECHNOLOGY

The Caspian Pipeline Consortium (CPC) pipelineextends for 1,500km from the Tengiz fi eld to Novorossiysk, Russia. In 2013, it transported an average of 706,000 barrels of crude oil per day

SOURCE: CHEVRON

Atyrau-Samara oil pipelineis a major export route to markets in North-West, Central and Eastern Europe, as well

as to ports in Primorsk, Ust-Luga and Novorossiysk.In 2013, it transported around 15.4 million tonnes of oil

SOURCE: KAZMUNAYGAS

The Atasu-Alashankou oil pipelineruns for 963km from Kazakhstan to north-east China. First-phase capacity of

10 million tonnes per year will rise to 20 million tonnes per year SOURCE: KAZMUNAYGAS

4.3 Pipelines and Gas AS.indd 57 08/05/2015 12:27

Who we areNostrum Oil & Gas PLC is an independent oil and gas company engaging in the production, development and exploration of oil and gas in the pre-Caspian Basin through our operating subsidiary Zhaikmunai LLP.

We are a simple, sustainable and successful organisation with the vision to become the leading independent oil and gas exploration and production company in the CIS.

A simple investment case• Stable fi nancial platform with strong cash fl ows and fl exibility• Over half a billion of 2P reserves• Steady levels of production • World-class assets• Simple business case, successful model and sustainable strategy• Strong governance and responsibility • Experienced management team

SimpleSustainableSuccessful

Nostrum Oil & Gas PLC www.nostrumoilandgas.com • [email protected]

Uralsk

Darzhinskoye fi eldYuzhno-

Gremyachenskoye fi eld

Rostoshinskoye fi eld

North-western Kazakhstan

Chinarevskoye Field

Russia

BorderGas pipelineNostrum gas pipelineNostrum oil pipelineOil pipeline

KEY

Nostrum Oil loading rail terminal at Rostoshi

Gas Treatment Facility (GTF)/ Oil Treatment Facility (OTF)

Distributionper common unit

US$0.35 0.32 0.34

2012 2013 2014

Production

44,400boepd

7,6712010 2011 2012 2013 2014

13,158

36,940

46,178 44,400

0.35

2P Reserves

571m boe

539

2010 2011 2012 2013 2014

522 506

582 571

1P Reserves

192m boe

192

2010 2011 2012 2013 2014

169

195 199 192

ZM_advertising Spread_2015_Q.indd Alle pagina's 9/03/15 13:31Nostrum Oil&Gas_placed.indd 2 20/03/2015 16:07

Who we areNostrum Oil & Gas PLC is an independent oil and gas company engaging in the production, development and exploration of oil and gas in the pre-Caspian Basin through our operating subsidiary Zhaikmunai LLP.

We are a simple, sustainable and successful organisation with the vision to become the leading independent oil and gas exploration and production company in the CIS.

A simple investment case• Stable fi nancial platform with strong cash fl ows and fl exibility• Over half a billion of 2P reserves• Steady levels of production • World-class assets• Simple business case, successful model and sustainable strategy• Strong governance and responsibility • Experienced management team

SimpleSustainableSuccessful

Nostrum Oil & Gas PLC www.nostrumoilandgas.com • [email protected]

Uralsk

Darzhinskoye fi eldYuzhno-

Gremyachenskoye fi eld

Rostoshinskoye fi eld

North-western Kazakhstan

Chinarevskoye Field

Russia

BorderGas pipelineNostrum gas pipelineNostrum oil pipelineOil pipeline

KEY

Nostrum Oil loading rail terminal at Rostoshi

Gas Treatment Facility (GTF)/ Oil Treatment Facility (OTF)

Distributionper common unit

US$0.35 0.32 0.34

2012 2013 2014

Production

44,400boepd

7,6712010 2011 2012 2013 2014

13,158

36,940

46,178 44,400

0.35

2P Reserves

571m boe

539

2010 2011 2012 2013 2014

522 506

582 571

1P Reserves

192m boe

192

2010 2011 2012 2013 2014

169

195 199 192

ZM_advertising Spread_2015_Q.indd Alle pagina's 9/03/15 13:31Nostrum Oil&Gas_placed.indd 3 20/03/2015 16:07

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: WSJ

The field is approximately 75km by 45km,

and the main reservoir is 4.2km below the

Caspian Sea

Winter temperatures

can reach-35 degrees

The reserves are high pressure, with 770 bar initial

pressure

There are 310 miles of

pipework and 10 man-made

islands

OIL AND GAS


The largest oilfield discovered in the last 40 years and the largest ever outside the Middle East, Kashagan symbolises Kazakhstan’s enormous potential energy wealth. Kashagan’s recoverable

resources are estimated at 11 billion barrels – however, this is only 15 to 25 per cent of the estimated oil in place, with the recovery factor relatively low because of the field’s complexity and hazardous conditions.

Indeed, the field has turned out to be perhaps the most challenging oil and gas project anywhere in the world. The main reservoir extends a kilometer (km) below its top, which lies 4.2km below the Caspian Sea under very high pressure and temperature, along with 15 per cent corrosive hydrogen sulphide and four per cent carbon dioxide. The reservoir consists of limestone with low porosities and permeability, making it difficult for the oil to flow. And above ground, conventional drilling and production technologies, such as fixed or floating platforms, cannot be used because of thick ice during winter and shallow water levels. Instead, offshore facilities are installed on artificial islands.

Commenced in 2004, Kashagan’s development has required the use of advanced technical solutions on a grand scale, including adaptations to reinject part of the associated gas production to help increase oil recovery while limiting

sulphur production. This is a tried and tested technique, but the sour-gas reinjection pressures used pushed technological boundaries in the industry, requiring the biggest compressors in the world, in terms of both power (35 megawatts) and the pressure they are capable of delivering (910 bars). Phase one of the project calls for 55 per cent of the gas to be reinjected.

From resuming output to future phasesTo reduce the risks of accidental release of the dangerous and corrosive gas, Kashagan incorporates many secure facilities, and is run by highly trained personnel with operating experience. Despite this, when Kashagan did start producing in September 2013 after years of delays, a leak found in the gas pipeline linking the field to the shore meant it had to be temporarily shut in. An investigation revealed the cause to be a form of corrosion caused by hydrogen sulphide. As a result, both the gas pipeline and a parallel line carrying oil to the shore are being fully replaced, and a resumption in production is not now expected until late 2016, with a production rate of around 350,000 barrels per day (b/d). The Bolashak onshore processing facility has also undergone a risk assessment, and a 7km safety zone has been imposed.

As shareholders in the North Caspian Operating Company (NCOC), Exxon, Shell, Eni and Total hold 16.81 per cent

Kashagan: pushing the boundaries of possibility

One of the world’s most complex oilfields, Kashagan offers vast recoverable reserves buried deep under the Caspian Sea. Production, interrupted by delays, is due to resume next year

Kashagan: key figures

4.4 Kashagan AS.indd 60 08/05/2015 12:27

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Average production during

phase one: 300,000 b/d

The oil contains

about 15% hydrogen sulfide

and 4% carbon dioxide

$9 billion of goods, works and

services were purchased locally between 2006-13

Cost of the project:$48 billion

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each in the field, while national operator KazMunayGas (KMG) holds 16.88 per cent; Japan’s Inpex holds 7.56 per cent and China’s CNPC 8.3 per cent. Eni is responsible for phase one of the field’s development, while Shell is responsible for production operations – some operational and project management procedures have been changed following the delays, but all partners acknowledge that issues of this sort can arise when pushing the boundaries of what is possible.

Consequently, in 2014 Kazakhstan signed a deal with the Kashagan partners paving the way for their contracts to be extended beyond 2041, once the consortium sanctions a new phase of the project. Subsequent extensions will take place when each new phase is signed, with no changes in fiscal terms. This should help to provide confidence to the joint venture, stretched as it has been by the technical

challenges and delays. The next new phase, known as CC01, is expected to be sanctioned in 2016, and should take production up to 450,000b/d. It is hoped that the following phase will see production eventually rise to between 900,000b/d and 1.2 million b/d.

Long-term production estimates for the country as a whole have been revised downwards from recent figures that went as high as 3.5 million b/d. Uzakbai Karabalin, the Kazakh Minister of Oil and Gas, told a press conference in mid 2014 that the ministry now expected output of 112 million tonnes (2.2 million b/d) in 2030.

Offshore facilities were installed on artificial islands in Kashagan, as thick ice in winter means that conventional extraction procedures cannot be used. The field contains the world’s largest recoverable oil reserves outside the Middle East

4.4 Kashagan AS.indd 61 08/05/2015 12:27

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The oil sector is the bedrock of the Kazakh economy, and provides the government with much of its tax revenue. To help stabilise the economy in the face of lower oil prices, $9 billion from the National

Fund of the Republic of Kazakhstan (NFRK) – accumulated from oil, gas and metals income in the years since 2000 – will be used to boost domestic investment.

Not much of that is expected to go back directly into the energy sector, although infrastructure improvement, at which much of the money is targeted, could help with access and logistical issues. As well as pushing forward with privatisation plans, in order to reinvigorate the economy Kazakhstan is keen to encourage further overseas involvement, including in the oil and gas sector.

International oil and gas companies are attracted to Kazakhstan because of its macroeconomic, political and social stability, along with its low taxes and ability to maintain good foreign relations across the board. Lower oil prices might hinder some smaller new oil and gas developments, but Chinese investment in particular is likely to remain robust, while Kashagan and other major projects are unlikely to be affected.

Forming stronger relationsWhile it is encouraging private investment from China and the West, including pending membership of the World Trade Organization, Kazakhstan is also fostering closer relations with

its more established partners. In 2014, it signed a treaty with Russia, Belarus, Armenia, and Kyrgyzstan to enhance integration and guarantee the free movement of goods, services, capital and workforce. The Eurasian Economic Union came into effect on 1 January 2015 (see page 24).

In addition, Kazakhstan is pushing forward with ties to Europe, through an enhanced Partnership and Cooperation Agreement signed in October 2014 in Brussels. Once Kashagan production takes off, Kazakhstan could eventually become an important supplier of oil, and possibly gas, to the European Union – although transportation issues remain

to be resolved. However, with Russia steadily raising its crude exports to China through the Kazakh pipeline network, transit dependence is becoming mutual.

While seeking to attract private investment, Kazakhstan has also reorganized its natural

resources and industry ministries over recent years to enable the state to play a more central role in the oil and gas sector. In its latest move, Kazakhstan decided to merge its oil and gas ministry with power, nuclear, industry, environmental and new technology agencies, in order to consolidate state control of the energy sector. The ministry is headed by Vladimir Shkolnik (see page 49), a former energy minister, and its main challenge will be to mitigate the delays at Kashagan by increasing production from other fields, including Tengiz and Karachaganak, as well as insulating the country from economic challenges.

International oil and gas companies are attracted to

Kazakhstan’s political and social stability, as well as its low taxes

Good relations help maintain a strong oil and gas sector

Kazakhstan is taking steps to further strengthen its oil and gas industry, releasing funds, enhancing trade relations with its neighbors, and reorganizing government departments

4.5 New Economic Plans AS.indd 63 08/05/2015 12:28

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Overseas investors in Kazakhstan’s oil and gas sector will encounter an environment presenting some tough extraction challenges requiring the most advanced technology. Roughly 80 per cent of

Kazakhstan’s oil and gas reserves are in sub-salt carbonate, under high temperature and high pressure, with lethal levels of hydrogen sulphide. Kazakhstan also requires innovative solutions to import equipment, for example into the Caspian Sea through the Russian canal system.

The technology developed specifically to tackle these operating challenges is cutting edge, but the scale of Kazakhstan’s fields makes it well worthwhile investing the time, money and effort. Once developed, that technology could also be applied elsewhere, helping access smaller reserves of a similar type. However, as in any area that breaks new ground, there are bound to be setbacks on the way, as has been seen at Kashagan (see page 60).

Kazakhstan not only needs cutting-edge technology to get its vast, acidic, high-pressure reserves out of the ground, it also needs to get more from existing fields in an efficient manner in order to enhance the proportion of oil and gas recovered and maintain production at maturing fields. Today, the global average oil-recovery rate is about 35 per cent (compared with 20 per cent in 1980), while technology is becoming available to help lift that towards 60-70 per cent. Leading investors in Kazakhstan, including Eni, Shell and Chevron, have prioritized such research, and are constantly targeting further increases in recovery rates.

Eni, for example, offers a variety of options to increase recovery rates, including chemical agents, or heating using

electrical or electromagnetic systems, as well as fluid injection, and is increasingly using carbon dioxide rather than associated natural gas. Other major overseas investors, such as Exxon and Chevron, are able to bring in experience from the United States, where the shale oil boom has meant that the extraction of crude from low-permeability rock has had considerable attention over recent years, accelerating the development of chemicals and techniques that are also useful in conventional enhanced recovery or problematic fields.

Reservoir modelling has seen recent improvements in its speed and accuracy, proving particularly useful for the complex, deep reservoirs found in Kazakhstan. This technology should also provide invaluable support for improving recovery

rates, while new exploration and surveying techniques should help with the expansion of exploration to cover wider geological areas.

A collective visionShell, national operator

KazMunayGas (KMG) and the Kazakh Institute of Oil and Gas have together identified 230 possible technology solutions across 15 main areas where challenges have been identified. In order to efficiently pursue and coordinate the development of these solutions, Kazakhstan has set out a roadmap outlining what is needed and when.

The roadmap now involves more than 300 industry representatives from a variety of organizations, all of whom are contributing towards a collective vision of the technological development needed to address the issues faced by Kazakhstan’s upstream oil and gas sector. The total value of successfully tackling all of the 15 challenges within an acceptable timeframe is estimated at tens of billions of dollars. Foreign investors are involved in the direction of the

A roadmap to greater recovery

International investors are joining forces with national operators in taking a proactive approach to tackling the challenges of oil and gas recovery in Kazakhstan through technological development

Foreign investors have been invited to help accelerate the

introduction of new technologies

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■ Scientific and Production Company Munaigas Engineering Ltd is an

independent engineering company that provides a wide range of services for the industrial enterprises of the Republic of Kazakhstan. Since its inception in 1996, when it provided various maintenance services for oil-producing enterprises in the Aktobe region, the company has mastered a wide range of engineering works, such as:

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Moreover, the company favours a flexible approach when making tactical and strategic decisions, acquiring necessary equipment and hiring qualified professionals independently in order to respond to its clients’ requests with precision and accuracy.

It is evident that the existence and development of this independent company is primarily due to its volume of performed works, which has risen thanks to its sound reputation and the quality and efficiency of the services provided. The company simply does not refuse an order nor does it fail to complete one; climatic difficulties and possible organizational issues are never an obstacle to the smooth and efficient delivery of services.

We have most definitely prioritized the quality of services provided: we

have implemented the ISO 9001 and ISO 9014 quality-management systems and have sought the relevant certification made by Lloyd’s Register – a competent international company.

This approach has secured our popularity in today’s market and, currently, the company has a considerable number of clients and business partners. This includes not only oil companies, but also enterprises operating in machine building, power engineering and in the chemical and mining industries.

The company offers several major advantages, including an excellent understanding of local conditions, the ability to work in a variety of climatic conditions and knowledge of transport infrastructure and specific features involved with working with local government authorities. Whereas most previous works took place in Western Kazakhstan, the company now operates across the whole country. Last but not least, our pricing policy is highly customer-oriented; the company’s independence allows it to formulate mutually beneficial solutions and offer more optimal prices.

As a result, since its establishment, the company has concluded 378 service agreements for 117 customers that include both local Kazakh companies and international companies.

SPC Munaigas Engineering Ltd

Republic of Kazakhstan, Aktobe city, Industrial zone, 264Telephone: +7(7132) 773583

E-mail: [email protected]: www.mgeltd.kz

Mr Erslan UtepovFirst Deputy Director General

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OIL AND GAS


identified priority technologies and have been invited to help plan specific steps to ensure an accelerated introduction of new technologies, the forming of scientific cooperation and scientific and production links, and the planning of technical training programs.

This approach is based on that of Norway, with conditions designed to encourage close interaction between national and international oil companies, aimed at building local capabilities and facilitating technology transfer. Shell, for

example, has entered into partnership with KMG, to tackle issues related to reservoir geochemistry. In October 2013, Shell and KMG agreed to establish a centre of excellence in geochemical studies at a laboratory complex in Atyrau, which is designed to provide geochemical services, as well as research for exploration, development and production.

Workers at a Kashagan drill rig in the north Caspian Sea. Innovative solutions are required to import equipment into the sea through the Russian canal system

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Almaty498, Seifullin Ave., 4thfloor, 050012, KazakhstanTel.: +7 (727) 356 10 58Fax: +7 (727) 356 10 [email protected]

Atyrau4A, Dosmukhambetov Srt., 2nd floor, 060007, KazakhstanTel.: +7 (7122) 71 60 03Fax: +7 (7122) 71 60 [email protected]

Astana6, Saryarka Srt., 9hfloor, 010000, KazakhstanTel.: +7 (7172) 47 60 46Fax: +7 (7172) 44 67 [email protected]

Aqtau61, Microdistrict №14, BC «Zvezda Aktau», 130000, KazakhstanTel.: +7 (701) 673 34 00Tel.: + 7 (701) 889 29 [email protected]

Our Contacts in Kazakhstan:

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Bureau Veritas has been registered in Kazakhstan since 2004. Nowadays we have 4 offices – Astana, Almaty, Atyrau and Aqtau – with over 350 highly qualified specialists working in 4 business lines – Industrial, Construction, Certification of Quality Management Systems, Commodities Inspection, Government Services and International Trade

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OIL AND GAS


Other major operators are being encouraged to coordinate activities in the selected technology target areas, following the example of Shell. Kazakhstan sees the creation of successful alliances with industry members as key to developing the full spectrum of technologies that future investors will require in

order to operate effectively in the country. Generally, the roadmap technologies are related to reservoir characterization, field equipment, fluid flow and processing, well and field management, health and safety, and operational issues. The proposed research will address issues such as high water cut, corrosive gases, decreasing production, and relatively low recovery rates.

Realizing future economic potentialThe roadmap also identifies many opportunities that exist for local companies and academic institutions in Kazakhstan, along with a number of areas where skills will need to be developed. In February 2014, KMG announced that it would establish the Drilling and Production Institute, a technological research center designed to monitor geological and geophysical data, and carry out laboratory research in geology, geophysics and production technologies. The work at this institute includes the drilling of an ultra-deep test well by KMG.

As advances along the route of the roadmap are achieved, these should enable operators to enhance recovery, access more difficult reserves, improve field economics, extend field life, and maximize oil production with the lowest number of wells at the minimum cost. It is hoped that the development of new solutions to the challenges of working in Kazakhstan will make the country more attractive to private investors, as well as helping to realize the country’s broader industrial and economic potential.

National industrial petrochemical technology parks

Of the 10 special economic zones in Kazakhstan, three are national industrial petrochemical technology parks, which focus on the creation and development of chemical products, petrochemicals, rubber, plastics, and machinery and equipment for the chemical industry, based on raw materials from the oil and gas sector. They are located in Atyrau oblast in the west, the northern industrial area of Pavlodar city, and Taraz in Zhambyl oblast, with Taraz the last to gain approval, in 2012.

Each park offers major tax breaks, including zero corporate income, land and property taxes, and exemption from value-added tax, alongside other advantages. Those locating in the parks will benefit from the country’s vast natural resource wealth, with projects in the Taraz park, for example, making use of gas from the Tengiz and Kashagan fields as a primary feedstock. The parks have an anticipated lifespan of 25 years, but advantageous site terms may be extended beyond that.

Implemented under the State Program of Industrial and Innovative Development (SPAIID), these petrochemical parks are designed to establish

a suitable environment for the implementation of ‘breakthrough macro-projects’, which would lead to the development of petrochemical business clusters, producing highly skilled, well-paid jobs, and stimulating the development of Kazakhstan’s national economy. The projects are designed to be attractive to private investors and encourage export-oriented production of a wide range of competitive petrochemical products with high added value. They should also help to integrate Kazakhstan’s petrochemical sector into the global system of production and distribution.

Park development is built on a foundation of basic petrochemical products derived from local feedstock, which in turn are used to produce more complex and higher-added-value petrochemicals. The first stage includes a group of major strategic and capital-intensive investment projects to produce basics including ethane, ethylene, polyethylene, propylene and polypropylene. The second phase is typically less capital intensive, involving more small and medium-sized enterprises and projects. From there, development can move on to more innovative

products, such as fibers, resins and new composite materials, along with research facilities.

Currently, three major projects are being implemented: a 500,000 ton/year bitumen facility has started production at the Aktau plastics plant, while, adjacent to the Atyrau oil-processing plant, construction of a complex for the production of aromatic hydrocarbons will produce 133,000 tons of benzene and 496,000 tons of paraxylene per year. The Atyrau park is on several sites and is also home to the integrated gas chemical complex, which will produce 545,000 tons of polypropylene and 880,000 tons of ethylene per year. Commissioning of the first phase of the integrated gas chemical complex was scheduled for completion in 2014, while the second phase is due for 2016.

Overall supervision of the park projects has been contracted to Singapore’s JURONG International Consultancy, which is currently planning, designing and managing the Taraz Chemical Park. Jurong Island in Singapore is a blueprint for many of the world’s successful centrally planned, mixed-state and privately financed petrochemical parks.

‘D Island’ in the Caspian Sea is Kashagan’s main operational hub. Technological advances made here could benefit oil operations elsewhere in Kazakhstan

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OIL AND GAS


The Kazakhstan Association of Oil, Gas and Energy Sector Organizations (KAZENERGY) is an independent, non-commercial union of legal entities whose main aim is to create favorable conditions for

the dynamic and sustainable development of the oil, gas and energy business in Kazakhstan. The association was set up in November 2005 and now represents the interests of more than 80 major players in the Caspian region.

Investment attractivenessThe energy sector is the main source of development for Kazakhstan’s economy and KAZENERGY plays an integral role in creating and supporting a dialogue between its members, the industry and state authorities in order to promote the optimal and sustainable management of energy resources of the country.

“I am convinced that cooperation will always be at a very high level, not only with the Ministry of Energy, but also with the central authorities, government agencies. I want to assure you that KAZENERGY will be very active and effective partner of the Government on all issues facing the industry,” said Timur Kulibayev, Chairman of KAZENERGY.

The association deals with a very broad range of issues. First of all, the association protects the rights and interests of its members in government agencies. In this regard, the association participates in the improvement of legislation, technical regulation and standardization, and creates the conditions to attract scientific personnel and trained staff to the industry. Second, the association promotes economic, social, environmental, scientific and technical activity in Kazakhstan. The association develops and supports

intra-industry cooperation and entrepreneurship projects at local, regional and international levels. KAZENERGY creates a positive image for all its members and for the industry as a whole.

KAZENERGY is actively involved in the improvement of Kazakhstan’s legislation. At the moment, work on the development of the Code on Subsoil and Subsoil Use is ongoing, which is being developed by the Ministry of Investment and Development of the Republic of Kazakhstan on behalf of the head of state.

The code should organize, systematize and improve the existing regulations in the mineral resources sector to create additional incentives for investors and secure their rights and interests. The code’s effectiveness depends on the proper and full regulation of the interests of all stakeholders.

Moreover, the association is working on amendments and additions to the Tax Code of the Republic of Kazakhstan in 2015 to resolve problems relating to taxation. In 2014, KAZENERGY took part in the definition of the Fuel and Energy Complex Development Concept of the Republic of Kazakhstan until 2030, which was approved by the Government of Kazakhstan on 28 June 2014.

EcologyEnvironmental issues are very important to community and directly affect the interests of subsoil users. Among many other projects, in order to develop solutions to these issues, the association works to improve environmental legislation and solves issues related to environmental monitoring and environmental baseline studies when conducting oil operations in Kazakhstan’s Caspian Sea territory.

KAZENERGY: strengthening energy cooperation

Representing more than 70 oil, gas, and energy businesses in the Caspian region, KAZENERGY plays a vital role in encouraging dialogue between industry, government and members of the public through industry forums and other initiatives

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A meeting of KAZENERGY’s Coordinating Council for the Development of Human Capital in December 2014. As a social investment, the Association offers scholarships to promising Kazakh students who wish to work in the energy sector

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The association actively cooperates with international organizations and, where possible, takes part in major events. A landmark event for KAZENERGY was the 21st World Petroleum Congress, which was held with the theme ‘Responsibly Energising a Growing World’ on 15-19 June 2014 in Moscow.

The congress is a key event in the global oil and gas industry, which takes place once every three years in one of the 69 member countries of the World Petroleum Council. More than 5,000 delegates attended this event, including heads of ministries of leading oil and gas producing countries, international oil and energy corporations and international think tanks.

International cooperationIn May 2014, KAZENERGY, with support from Samruk Energy and the World Energy Council (WEC), organized the World Energy Council Leaders’ Summit, which took place during the VII Astana Economic Forum with the theme ‘Energy in Transition: Opportunities and Emerging Risks’. During the summit, several discussions took place on the use of alternative energy sources, the development of nuclear energy, electric energy conversion into gas and risk reduction in the development of energy infrastructure. The World Energy Leaders Summit is a key event for the industry’s international community and this was the first time that the summit took place in the Commonwealth of Independent States. The fact that the capital of Kazakhstan was chosen to host the summit by the largest international non-governmental energy organization is proof of Kazakhstan’s growing recognition and prestige, and a testament to the association’s work.

In 2014, Kazakhstan chaired the Energy Charter, the results of which were rendered during the 25th Session of the Energy Charter Conference, held in late November last year. KAZENERGY was a working body of Kazakhstan’s participation in the Conference. The Astana Declaration of the Energy Charter Process, which identified the charter’s priorities over the next five years, was signed during the

course of the conference. The event was held at a very high level, with many distinguished guests in attendance.

Planning for the futureThe KAZENERGY Youth Committee, which operates under the association, contributes to the comprehensive development of young leaders and their potential. Since 2009, the youth committee has organized an annual International Youth Forum, which runs discussions on various topics, visits to the offices of energy companies, master classes with current leaders in the industry, debates, seminars with trainers, and intellectual exercises.

10th KAZENERGY Eurasian Forum The history of the Association begins with this event. KAZENERGY Eurasian Forum exists to facilitate dialogue between major players in the global energy market and ensure energy security in the region.

In previous years, the forum has hosted discussions on the development of oil and gas, electricity and nuclear power, along with the global challenges it poses and ways to overcome them. The forum has also analyzed the financial crisis, discussed how to develop the industry in its aftermath and dealt with issues relating to strategic alliances, environmental safety and the sustainable development of the energy sector in changing times.

This year, the forum will focus on the current global transformation of the oil, gas and energy market.

Also this year, KAZENERGY celebrates its 10th anniversary. Its main performance indicator is the number of solutions delivered and tasks completed. Its membership and partnerships are increasing every year. A formal event related to the association’s anniversary will take place during the annual KAZENERGY Forum.

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INVESTMENT OPPORTUNITIES: POWER


While rich in coal, oil and minerals, Kazakhstan is now embarking on an ambitious program to transition into a model ‘green’ economy and establish itself as a hub for developing

alternative energy options across Central Asia. Against a background of falling international oil prices

and the countdown towards a fresh United Nations-negotiated agreement to curb global fossil fuel emissions, the country is implementing a policy shift intended to create a new era of economic growth while cutting carbon emissions. The strategy adopted by one of the world’s most energy-intensive countries is intended to achieve a 15 per cent fall in greenhouse emissions from 1990 levels by 2020 and an additional 25 per cent reduction from 1992 levels by 2050. There is, however, a long way to go if Kazakhstan is to meet its targets.

At present, the country derives as much as 80 per cent of the electricity it generates from coal, with most of the balance coming from hydroelectric sources. The objective is to reduce the proportion generated from coal to just under 50 per cent within the next 15 years, but the proportion of green energy currently generated in the country remains minimal, at around 0.5 per cent. According to a new federal plan announced in September 2014, this figure is set to rise to three per cent – just over 3,000 megawatts (MW) – by 2020.

Prioritizing the renewables sectorLonger term, an energy revolution is envisaged by President Nursultan Nazarbayev, who has pledged that Kazakhstan will use renewable energy sources to provide half of all electricity generated within the country by 2050. In order to do this, the government intends to spend one per cent of gross domestic product (GDP) – an estimated $3-4 billion annually – to help reach the target, though it claims that the program could also add three per cent to GDP every year.

As part of the plan to stimulate renewables investment, feed-in tariffs have already been introduced in a legislative package intended to offer state support for expanding the sector. Integration of the renewable energy sector into the country’s power grid is also being prioritized. In a further move to demonstrate its green credentials, the country has become the first Commonwealth of Independent States (CIS) member to establish a national emissions trading scheme (see figure on page 75). With an eye on cooperation beyond its own boundaries, in 2013 Kazakhstan also launched the Green Bridge Partnership to bring together governments, international organisations and private businesses to help encourage the development of low-carbon economies in Europe, Asia and the Pacific.

At home, inward investment will be critical if the country’s conversion to green energy is to succeed, and officials are

Kazakhstan’s green energy revolution

Ambitious plans to transform Kazakhstan into a green economy by boosting renewables output and reintroducing nuclear energy open up a number of avenues for private collaboration

SOURCE: BP STATISTICAL REVIEW OF WORLD ENERGY, 2014

Fuel consumption in Kazakhstan, 2013

Coal 36.1

Oil 13.8

Natural gas 10.3

Hydroelectricty 1.8

Nuclear energy 0.0

Renewables 0.05

(Million tonnes of oil equivalent)

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Wind power is being invested in with the aim of helping Kazakhstan achieve its goal of using renewable sources to generate half of its electricity by 2050

predicting that Kazakhstan’s renewables sector should attract around $2 billion in overseas finance by 2020. With that in mind, the government has been working to improve the general investment climate with, for example, efforts to remove bureaucratic obstacles and to ensure that foreign companies and individuals have the same rights as Kazakh nationals. An investment ombudsman has also been created in order to help overseas investors to address issues and concerns to the appropriate institution.

International financial consultancy KB-Enterprises, which has offices in Astana, North America and Europe, wants to

introduce foreign investors to opportunities in the country’s solar power sector. In an interview with The Astana Times, Managing Director Taylan Karamanli claims that the potential is enormous, but says that the authorities need to clarify a number of “jurisdictional and procedural questions” to further improve the country’s business environment. The key will be sustained political commitment, along with a range of enabling conditions that give investors long-term confidence.

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Though the future pace of development within the renewable energy sector may be uncertain, there are no doubts about Kazakhstan’s potential for slashing its reliance on hydrocarbons. Given its wind, solar and hydropower resources – as well as plans to return to nuclear power generation – some estimates suggest that the country could produce as much as one trillion kilowatt hours (kWh) a year, around 10 times the country’s present energy consumption, from renewables alone.

Rich in natural resourcesThe development of solar power facilities offers one of the greatest opportunities, given that the country enjoys up to 3,000 hours of sunshine annually, enough to generate 2.5 billion kWh a year. So far, however, progress has been limited, with installed photovoltaic capacity currently at insignificant levels. From 2015 onwards, however, the number of solar projects coming online is set to increase, with a pipeline of schemes estimated to represent more than 700MW of power-generating capacity at various stages of development. One milestone was reached at the start of 2014, when European solar power specialists Bisol Group completed the installation of a 2MW solar-power-generating plant in Almaty province and set the benchmark for future projects.

In other international partnerships that indicate the likely format for future, cross-border cooperation, Spanish photovoltaic company Isofoton signed a deal in 2013 with Kazakhstan’s Lancaster Group to develop solar projects, while Astana Solar, a joint venture between a French consortium and the state-run atomic energy company Kazatomprom, became the country’s first manufacturer of solar modules. At the end of 2014, Astana Solar confirmed that Kazakhstan would install 28 solar photovoltaic projects, generating 713.5MW, by 2020. Viacheslav Sovetskij, the company’s director general, said that government measures already taken to encourage renewable energy sources would help attract foreign investors into the market.

The potential for foreign participation is not only confined to solar power. Wind-generated energy could also be an important part of the energy mix, given the country’s geographical location and the prevalence of strong winds in some regions. Around half of the country’s land mass has sufficient average wind speeds capable of generating thousands of megawatts. With a density of wind capacity at around 10MW per square meter, government estimates suggest that wind power could produce as much as 25 times more energy annually than Kazakhstan’s current output from hydrocarbon fuels. Towards the end of 2013, Kazakh power company Samruk-Energy received a $94 million loan from the Eurasian Development Bank to build the country’s largest wind farm, producing 172 million kWh of electricity a year and saving more than 60 million tonnes of coal. The country’s Ministry of Industry and New Technologies has already selected 10 sites for the construction of large wind plants with a combined capacity of around 1,000MW.

Thanks to the mountainous regions of its south and east, Kazakhstan is also rich in hydropower resources, ranking third among CIS nations in terms of potential capacity. Official

Construction of the Intumak Dam in November 2011. Kazakhstan is ranked third among the Commonwealth of Independent States for potential hydropower capacity

With 3,000 hours of sunshine each year, Kazakhstan would potentially be able to generate as much as 2.5 billion kilowatt hours of solar power annually

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estimates put effective capacity at between 7-8 billion kWh and, in order to exploit it, a number of hydropower stations are either under construction or planned. In fact, the country now plans to accelerate its hydropower projects, which are largely comprised of a number of small and medium-sized hydro plants. The largest so far is the 300MW Moinakskaya power station, commissioned in 2012, but there is a chance that this may soon be overtaken by new projects.

A further, significant initiative enabling a branching out from fossil fuels lies in Kazakhstan’s stated intention to revive a nuclear power sector that was shut down in 1999. The country, the world’s leading uranium producer, now wants to restart a nuclear power program and has been considering options that will enable it to meet 4.5 per cent of its energy needs with nuclear power by 2030. In 2014, the Russian state nuclear corporation Rosatom signed a memorandum of understanding with Kazatomprom to construct a nuclear power plant with an installed capacity of somewhere between 300 and 1,200 megawatts electrical (MWe). Full details have yet been officially confirmed, though the north-eastern city of Kurchatov has been named as the site. The decision looks to be followed by further nuclear power projects, in which case there should be opportunities for other overseas nuclear specialists.

An entry point for Central AsiaBut just how easy will it be for overseas investors to get a foothold in an economy with an enviable growth record and one that has been succeeding in making the difficult transition to a market economy? A number of major European companies have expressed interest in developing green energy projects within Kazakhstan, and the government intends to do

what it can to encourage them to participate. But, despite the changes already made to create more favourable conditions for foreign companies and investors, some challenges remain to doing business in Kazakhstan, largely stemming from the legacy of past political, economic and social systems.

Despite any initial risks, however, multinational investors have an opportunity to tap into an economy that is fast turning itself into a regional power and strategic entry point for doing business across Central Asia. The challenge for Kazakhstan is to make this journey as smooth as possible, particularly by encouraging phased entry strategies involving joint ventures with Kazakh-based businesses and the government. In an interview with business new europe (bne), Aurelia Bouchez, Head of the European Union Delegation to Kazakhstan, said that there was now “a golden opportunity” for European firms eager to bring their experience into the country and work with local companies to develop new technologies and innovative approaches tailored to the local market. Bouchez highlighted not only the potential for renewables technology, but also that for implementing energy efficiency programmes.

In two years’ time, the country will take another major step in its efforts to establish itself as a regional and international showcase for the development of renewable energy and environmental protection. EXPO 2017: Future Energy, to be held in Astana, will be the country’s first World’s Fair and is expected to attract two million visitors, with arrivals from 100 countries (see page 35). This year’s topic of green energy will help speed up the sharing of innovative technologies. It will also provide an opportunity for Kazakhstan to show the depth of its commitment to creating a green economy, while setting an example for other regional economies.

Kazakhstan’s emissions trading scheme

Trading scheme timeline

Phase I 2013 Pilot phase – 100% free allocations

Phase II 2014-15Free allocations of 155.3 million carbon allowances for 2014 and 152 million for 2015. These are 0% and 1.5% below 2011 and 2012 levels respectively

Phase III 2016-20 To be confirmed – the number of free permits could be limited

Going over the quota puts a company at

the risk of significant fines – approximately $15 per ton of carbon dioxide – or of losing

its business license

Each company has a quota for carbon emissions. If they need

more, they must buy shares from another company that is using less than

its allowance

The scheme started in 2013

and covers 80% of the country’s greenhouse gas

emissions

SOURCES: EURASIANET.ORG, INTERNATIONAL CARBON ACTION PARTNERSHIP (ICAP)

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INVESTMENT OPPORTUNITIES: MINING AND MINERALS


Kazakhstan is exceptionally well endowed with minerals – but just how well, nobody knows. In recent years, new exploration has not kept up with production, with the vast majority of

extraction-industry investment going into oil. Even the known reserves of many minerals are significantly under-exploited. These are some of the factors behind the government’s major drive to attract foreign companies into the sector. Anxious for new mining exploration to help compensate for falling oil income, and keen for replacement mineral production, the government has taken notice of the issues said by foreign mining companies and investors to be holding back investment. Its drive is being seeded with official investment and encouraged by the slashing of bureaucracy, relaxation of property laws, and simplification of the granting of licenses.

“Kazakhstan anti-corruption radical measures should also be noted,” the Ministry of Development and Investment’s Committee of Geology and Subsoil Use commented in June 2014, adding that the country was now deemed compliant by the Extractive Industries Transparency Initiative (EITI), a global standard to promote openness and the accountable management of natural resources.

Importantly, late last year the government declared that 50-100 new mining licenses would be granted in 2015, and, in December, announced some simplification of taxes and access to geological information. International news agency Bloomberg quoted Erlan Sagadiyev, the Deputy Minister for Investments and Development, as saying during an interview in London in October that 2015 would “probably be the

most active year and we would expect international mining companies coming in and bidding. We are developing new rules that are much easier than they have been.”

The international industry’s bible, the US Geological Survey’s Minerals Yearbook, states that: “Projects involving copper, gold, rare metals, rare-earth metals, and uranium could be of particular interest.”

Developing the industryThe current government program, ‘the Concept of Geological Industry Development in Kazakhstan to 2030,’ was initiated in 2012 and designed to create a new, revitalizing legal and technical base for the industry. Work on the concept continues, with attention also being given to logistics support,

research and training. President Nursultan Nazarbayev has spoken consistently on the need for effective implementation.

All of this has been very welcome to the large number of foreign investors operating in Kazakhstan’s mining industry, hailing

from countries as diverse as Canada, China, Switzerland, France, the United Kingdom, Poland, Japan and Russia. Foreign companies operating in the country include Western metals giants Glencore and Rio Tinto, and uranium majors Cameco and Uranium One. Chinese investors are particularly active; figures from the Ministry of Industry and New Technologies and KAZNEX INVEST’s latest metals publication show that, in 2011, China took 26 per cent of Kazakhstan’s metal and metal product exports, ahead of the European Union and the Commonwealth of Independent States, which took 20 per cent and 21 per cent respectively.

The drive to attract investors is being encouraged by the slashing

of bureaucracy and relaxation of property laws

Opening up the minerals sector

Kazakhstan passed new legislation in 2014 to simplify the process for foreign companies coming into the minerals industry, as part of broader efforts to facilitate investment in the sector

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A workshop at the Zarechnoye joint venture for uranium extraction and enrichment. Kazakhstan is the world’s leading producer of uranium

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Key statistics from Kazakhstan’s minerals industry

SOURCES: US GEOLOGICAL SURVEY, WWW.KAZEMBASSY.ORG.UK

As well as the minerals ranked here in terms of production, Kazakhstan is a signifi cant producer of bauxite, cadmium, copper, silver, gallium, and zinc. It also produces diamonds.

The country has considerable reserves of precious stones, technology metals and rare earths, the group of elements used in high-tech metal-production processes and low-carbon technologies.

57

La89

Ac

68

Er100

Fm

67

Ho99

Es

66

Dy98

Cf

65

Tb97

Bk

64

Gd96

Cm

63

Eu95

Am

62

Sm94

Pu

61

Pm93

Np

59

Pr91

Pa

70

Yb102

No

58

Ce90

Th

69

Tm101

Md

60

Nd71

Lu103

Lr

1

H3

Li11

Na

37

Rb55

Cs87

Fr

39

Y40

Zr72

Hf104

Rf

41

Nb73

Ta105

Db

42

Mo74

W106

Sg

43

Tc

107

Bh

44

Ru76

Os108

Hs

45

Rh77

Ir109

Mt

46

Pd78

Pt110

Ds

47

Ag

111

Rg

48

Cd80

Hg

5

B13

Al

49

In81

Tl

6

C14

Si

50

Sn

7

N15

P

51

Sb83

Bi

9

F17

Cl

53

I85

At

8

O16

S

52

Te84

Po

2

He10

Ne18

Ar

54

Xe86

Rn

19

K

4

Be

38

Sr56

Ba88

Ra

20

Ca21

Sc23

V31

Ga32

Ge33

As35

Br34

Se36

Kr

World production ranking and % of global output World-scale reserves

Iron chromium oxide

FeCr2O4Chromite

Processed titanium

Ti + 2mgCl2Titanium Sponge

Sedimentary rock

CoalCarbon

Aluminium ore

Al(OH)3Bauxite

22

Ti

92

UUranium

75

ReRhenium

12

MgMagnesium

79

AuGold

24

CrChromium

25

MnManganese

26

FeIron

27

CoCobalt

28

NiNickel

29

CuCopper

30

ZnZinc

82

PbLead

Processed titanium

Ti + Titanium Sponge

4th

Be4th

Db106

5th

2nd

8th95

AmPu37%

411%

3%

59

Pr60

NdNd6%

16%

1.5%

7th

Hg Tl7th

12th

Fr

1.5%

10th

Bi Po

6th

Ru

Os

45

Ir

46

Pd78

Pt6th

B

AlAl4th

Si

Ga Ge

Al

Ge6th

4th

Nb

Ta

Mo74

W1st

Sm61

Pm93

Sm1st

The Subsoil Use Law

Kazakhstan has created a “relatively clear and effi cient framework for subsoil use,” according to the American Chamber of Commerce, a major group of foreign businesses in the country. To make it fi t for purpose, which is to encourage foreign investment, the Subsoil Use Law has been subject to a number of amendments.

“The Subsoil Code is now indeed progressive and envisages various provisions for removal of unnecessary bureaucracy and protection of investors’ interests in the area of subsoil use.” So said global law fi rm Dentons in November. The latest amendments, signed by President Nursultan Nazarbayev at the end of 2014, may not, however, be the last, and the position continues to need to be verifi ed.

In any event, White & Case, another major law fi rm operating in Kazakhstan, commented in January: “The relevant secondary legislation has yet to be developed.” So there is likely to be a ‘transition period’ before new laws are applied.

Well qualifi ed to speak on operating in Kazakhstan – with 22 years behind it – is Canada’s uranium miner Cameco, which has invested more than $400 million there, as well as a further $5 million on social responsibility initiatives. Its Inkai mining operation is a joint venture owned 60 per cent by Cameco and 40 per cent by state-owned KazAtomProm.

Individual experiences“Our experience in Kazakhstan has been a very good one,” Ken Seitz, Cameco’s Senior Vice President and Chief Commercial Offi cer, told Canadian newspaper The Globe and Mail. “What we have found is we need to take a very long-term view, establish local partnerships and relationships and obviously conduct ourselves in the way we would in any other part of the world as it relates to corporate social responsibility, health and the environment.”

Rio Tinto established a joint venture two years ago with Kazgeology, the national exploration company, to undertake early-stage copper exploration. Describing working there, the global mining and metals company said: “The operating environment in Kazakhstan remains complex for Western investors with high levels of regulation. Patience and persistence is required, and transparent support of senior government offi cials has been essential to success.”

On new government measures, the fi rm said: “Government has been supportive of Rio Tinto’s partnership approach, within the framework of the existing Mining Code. We do hope for continued amendments to the Code to improve access to historical information, ease access to exploration

licenses, guarantee security of tenure to holders of exploration contracts, and minimize bureaucracy to encourage greater investment in mineral exploration.”

Goldbridges Global Resources found having a majority Kazakh shareholder who is “highly experienced” in the sector an advantage. The gold-mining company and silver producer and explorer plans to open mines and triple output in the next few years: “Devaluations of the tenge have kept the economy

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“developing strong relationship with our partners within Kazakhstan and engaging with local communities to be the most effective model” for operating in the country.

“The key attractions of operating in Kazakhstan are its stable political and social environment, and its coherent taxation regime,” the firm said. “As a copper production company, we benefit from the high standard of education in the country and have access to a skilled workforce.

“Abolishing visa requirements for UK business visitors last year was certainly welcome,” it continued. “With regard to additional actions that would be helpful, in our view these include looking to make further reductions in red tape for mining companies and streamlining the license process. We feel it is also important that the government recognizes and encourages companies that are good ‘corporate citizens.’

“In addition, thanks to the history and size of the natural resources industry in Kazakhstan, the government support and infrastructure available to mining companies, it compares extremely well to other established mining jurisdictions.”

As such, Kazakhstan’s mining sector should continue to attract foreign investment.

in line with other [countries] and have been helpful in lowering our cost base,” it said. Attractions include an “excellent existing road and rail network supported by a national power grid with very cheap electricity tariffs.” Goldbridges is also looking forward to seeing the detail of the new Mining Code.

Copper producer Central Asia Metals is currently expanding production by 50 per cent. Like Cameco, it has found

Goldbridges Global Resources’ Sekisovskoye gold mine in East Kazakhstan has reserves of 2.26 million ounces. The company plans to triple output in the near future

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INVESTMENT OPPORTUNITIES: MANUFACTURING


Investment in manufacturing is booming. According to Kazakhstan’s Ministry of Development and Infrastructure, as of January 2015 there were 553 projects seeking funding in what is a diverse sector covering everything

from automotive manufacture to the construction of wind turbine parts and components for the country’s important oil and gas industry.

Dr Malcolm Parry, Director of Surrey Research Park at the University of Surrey in the United Kingdom, has been involved in a number of international projects benefitting developing countries including Kazakhstan. He says that the Kazakh people “are trying to encourage some form of innovation in the big companies and they are responsive to Western companies.”

Flexitallic, a supplier of products and services to the industry, has benefitted from the considerable investments that the major oil and gas producers have made in the country.

National agency KAZNEX INVEST lists a number of priority areas within the industry, which receive additional incentives and subsidies. These include ferrous and non-ferrous metallurgy; oil refining; petrochemicals; food production; agrochemistry, such as the production of fertilizers and pesticides; agricultural equipment, which includes forestry machinery; electrical equipment, such as heaters and generators; and railway equipment, in particular locomotives,

The automotive sector is renowned for its huge investment in plant, and its willingness to invest in new technologies

rolling stock and diesel engines. Here, the potential of exporting to Eurasian Customs Union and Commonwealth of Independent States (CIS) countries is cited. The list also includes machinery and equipment for the mining and oil and gas industries – two of the largest contributors to Kazakhstan’s gross domestic product (GDP). As a consistently expanding sector, production of construction materials is also listed, encompassing a large number of specialist areas within it.

Expanding automotive productionHowever, without doubt one of the most successful segments of Kazakhstan’s manufacturing industry is another priority area: the automotive sector, which is renowned for its considerable investment in plant, and its willingness to invest in new technologies. These plants attract and rely on numerous suppliers.

Yerzhan Mandiyev, the General Director of leading automotive manufacturer AZIA AVTO Kazakhstan JSC, says: “The formation of the Customs Union of Russia, Kazakhstan and Belarus opened new, significant sources of growth in a sector of the industry of Kazakhstan not connected with the sourc[ing] of raw materials. Nowadays, this branch [of industry], which was non-core for the country during its... development, is one of the leaders, according to growth rates.”

AZIA AVTO started mass production of Lada passenger cars in Ust-Kamenogorsk in 2002. “During the launch of the enterprise, the government of the republic considerably helped its formation,” explains Mandiyev. “The plant was given important tax preferences.”

Kazakhstan’s automotive industry has experienced significant growth, while more expansion is planned for the coming years. According to Kazakh magazine Edge, in 2013 AZIA AVTO produced 26,500 cars, and is aiming to bring this up to 40,000 for Kazakhstan and a further 70,000 for the Russian market by 2020. The group is now

Driving growth in manufacturing

Opportunities in Kazakhstan’s manufacturing sector may be most plentiful in areas such as automotive and oil and gas, but the government is also taking steps to diversify and boost the sector

5.3 Manufacturing AS.indd 80 08/05/2015 12:29

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AZIA AVTO is the dominant car manufacturer in Kazakhstan. The automotive industry has seen significant growth in recent years



INVEST IN KAZAKHSTAN 201582 PB

has recently demonstrated its readiness to attract investment in the automotive industry from the East.

In June 2014, Japanese manufacturer Toyota announced that it was starting complete knock-down (CKD) production of the four-wheel drive model Fortuner SUV at Saryarka AvtoProm’s (SAP) facility in Kostanay – the first site in Central Asia for Toyota vehicles. This move created 100 new jobs and will produce around 3,000 units each year. The CKD production at Kostanay includes welding, painting and assembly processes. Around 20 highly qualified Toyota engineers and production experts were involved in the preparation of the facility, and will provide long-term technical and standards guidance to SAP.

As the Fortuner SUV has a body-on-frame construction method, Toyota states that it is capable of handling a “multitude of challenging driving conditions,” as well as being suited to urban environments. The move into Kazakhstan is part of Toyota’s policy to establish business

Kazakhstan’s move towards electric and hybrid vehicles is part of its preparation to host the world EXPO 2017 in Astana, which has the theme of ‘Future Energy’. Moreover, it corresponds with the Green Economy strategy that aims to introduce a greater share of renewable technology as the country transitions into a developed economy.

Boost from Nurly ZholAnnounced in November 2014, a probable boost to manufacturing as a whole comes in the form of the President’s Nurly Zhol initiative, whose provisions to encourage foreign investment are expected to strengthen the Kazakh economy (see page 18). As well as creating hundreds of thousands of new jobs, the program is likely to have a multiplier effect on the manufacture of cement, metal, machinery, bitumen and equipment, as well as related services. It will be interesting to see what impact this bold initiative will have on foreign investment in the sector.

Investment in Kazakhstan’s manufacturing sector

This represents 70% of all FDI in manufacturing

since 2005

70%

In participation with foreign investors, 59 projects worth $5 billion were

implemented over the five-year period

59 projects

As part of Kazakhstan’s first five-year industrialization plan (2010-14), foreign direct investment (FDI) in the country’s

manufacturing industry reached $14.1 billion

$14.1 billion

the country’s exclusive distributor of Chevrolet, KIA, Lada, and Skoda cars, and also officially represents Renault and UAZ.

On 10 November 2013 in Ust-Kamenogorsk, construction started of a new automotive manufacturing plant, which is expected to create 12,000 jobs in the east of Kazakhstan. As a result of this investment, it is estimated that the country’s GDP will increase by some $980 million.

Looking to the EastHaving been reported to manufacture 87 per cent of all passenger cars produced in Kazakhstan, AZIA AVTO poses strong competition for foreign automotive companies. But support is offered for foreign investors, and Kazakhstan

within emerging markets, which is set out in the company’s 2011 Toyota Global Vision.

In October 2014, Kazakh Prime Minister Karim Massimov announced a proposal to collaborate with Japan to manufacture hybrid and electric vehicles at the fifth meeting of the Kazakh Japanese Intergovernmental Commission on Economic Cooperation. Kazakhstan’s Minister of Industry and Trade, Asset Issekeshev, said that the Kazakh Government viewed Japan as a priority for inbound investment. To help pave the way for such a relationship, Kazakhstan is offering “a visa-free regime for 10 countries including Japan,” said the minister.

“Japan has high-tech; Kazakhstan has the natural resources and hardworking people,” added the Prime Minister.

20142013

20122010 2011


PB 83

INVESTMENT OPPORTUNITIES: ICT


Kazakhstan may now be regarded as a technologically advanced country, but, as every tech company knows, the mindset of a population is all-important if new ideas and trends are going to survive and

prosper in this busy, competitive world. Kazakhs, though, are open to new ideas and concepts, and the technology sector in Kazakhstan has thrived. E-commerce has taken off, people are using plastic cash more and more, and the telecoms side of things has exploded. 5G, a pipe dream for most countries, will soon become a reality for Kazakhstan, with the creation of a new center this year to study its implementation.

Media sources report that over 50 per cent of Kazakhstan’s population now surfs the internet regularly. This represents an enormous leap from 15 years ago, when 0.7 per cent of the population was regularly online. Just as important, there has been a signifi cant uptake in the number of superfast broadband subscriptions, According to the World Economic Forum’s Global Competitiveness Report 2014-2015, there are

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A new communications satellite, KazSat 3, takes off from Baikonur Cosmodrome in Kazakhstan last year. It was designed to boost mobile communications and enhance television broadcasting and internet services across the country

Taking up technologyDevelopments from the opening of a 5G research center to the boom in internet use demonstrate that the population of Kazakhstan is becoming increasingly technologically literate, which will help drive further innovation across the country

5.4 Communications AS.indd 83 08/05/2015 12:29

Wherever you are in the world, contact Arcanum today for bespoke intelligence at [email protected] and visit our website at www.arcanumglobal.com. Our work is underpinned by first class strategic advice provided by our parent company RJI Capital, www.rjicapital.com.

Abu Dhabi | Hong Kong | London | New York | Paris | Tel Aviv | Washington, DC | Zurich

At the highest level of decision-making, trusted counsel and accurate intelligence make the crucial difference between success and failure. Arcanum provides governments and select private companies with the actionable intelligence necessary to devise strategies and long-term capabilities that turn risks into reward.

Our worldwide presence, deep regional expertise and insight have made Arcanum one of the world‘s most trusted partners of government leaders and agencies, as well as top corporations across the globe. With years of experience in Kazakhstan, we know how to leverage our vast network of close relationships on behalf of clients — to deliver and sustain results.

Arcanum_placed.indd 2 24/03/2015 17:08

Wherever you are in the world, contact Arcanum today for bespoke intelligence at [email protected] and visit our website at www.arcanumglobal.com. Our work is underpinned by first class strategic advice provided by our parent company RJI Capital, www.rjicapital.com.

Abu Dhabi | Hong Kong | London | New York | Paris | Tel Aviv | Washington, DC | Zurich

At the highest level of decision-making, trusted counsel and accurate intelligence make the crucial difference between success and failure. Arcanum provides governments and select private companies with the actionable intelligence necessary to devise strategies and long-term capabilities that turn risks into reward.

Our worldwide presence, deep regional expertise and insight have made Arcanum one of the world‘s most trusted partners of government leaders and agencies, as well as top corporations across the globe. With years of experience in Kazakhstan, we know how to leverage our vast network of close relationships on behalf of clients — to deliver and sustain results.

Arcanum_placed.indd 3 24/03/2015 17:08



now 56.6 broadband subscriptions per 100 people, which puts Kazakhstan in 34th position out of the 144 countries ranked.

E-commerce sales in Kazakhstan have increased proportionally, too, with transactions totaling more than $1.5 billion in 2013. Growth has been steady, for obvious reasons: Kazakhstan lends itself to e-commerce, which allows large countries to be connected more efficiently. It has a low population density, meaning that the postal service is a necessary method for delivering goods. As Kazakhs have become increasingly tech savvy, more high-end retailers have moved in and are delivering goods across the country.

Alongside e-commerce, mobile payments have risen substantially. One of the most popular mobile payment sites in Kazakhstan is MyPaykz, which allows users to pay for goods and utilities in real time from their mobile phone or through a website. It was set up in 2011 by Halyk Bank, one of Kazakhstan’s biggest banks, together with e-commerce firm Intervale, and has been rising in popularity ever since. A number of start-ups have been looking to ape MyPaykz’s

service, which underlines the uptake in mobile payments in Kazakhstan – data shows that mobile penetration in the country has now hit 180 per cent. In fact, in terms of mobile phone subscriptions per 100 people, Kazakhstan is ranked fourth globally, according to the Global Competitiveness Report 2014-2015.

In order to boost mobile communications, last year Kazakhstan launched another communications satellite. KazSat 3 is designed to have a 15-year lifespan, and will also enhance satellite television broadcasting and internet services across the country. It is difficult to overstate how important it is for Kazakhstan to be able to send satellites into space.

Having launched KazSat 1 in 2006 to much acclaim, the country has led the way in the region; Azerbaijan, for instance, only recently launched its first communications satellite. There have been setbacks for Kazakhstan, including the loss of KazSat 1 in 2008, but, overall, the program has pushed the country in the right technological direction.

Satellite benefitsThe Eurasian analyst John C K Daly summed up the importance of the program for Kazakhstan and the launch of KazSat 3 in an article last year for Silk Road Reporters.

“The value of such technology is self-evident, as it replaces costly fiber-optic and copper wire network systems,” he wrote. “The benefits of a space capacity extend well beyond the host nations’ borders, and bordering countries should be grateful for the telecommunications opportunities provided by their more affluent and visionary neighbors.” And that is a large part of the story: when Kazakhstan launches a satellite, neighboring countries also stand to gain.

Satellites and space launches are eye-catching, but they are also ingrained in Kazakhstan’s DNA – after all, it hosts the Baikonur launch site, the world’s oldest and largest space launch area still in use, and the busiest in 2014. It is the more granular advances that are, perhaps, more vital, though. One of these areas is in the spread of wireless technology.

Headquartered in Malta, InfiNet Wireless is a global supplier of high-end mobile wireless technology solutions.

Examining the architecture of a mobile telecommunications network at the Huawei campus in Shenzhen, China. Having successfully expanded into Kazakhstan in 2013, the Chinese tech giant is a leading supplier of equipment to mobile carriers

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The company’s sales in Kazakhstan hit a record level in 2014 and it appointed a special representative to the country. Roman Smirnov, InfiNet’s Business Development Director for Russia and the CIS, explains why Kazakhstan is such an interesting market for tech companies: “The market for broadband equipment in Kazakhstan has huge potential,” he says. “With large, vast terrain, long distances between settlements, and the complexity of the ‘last-mile’ deployment, it creates many opportunities for further development of the carrier segment of the wireless broadband equipment market.”

InfiNet’s core products are outdoor wireless receivers and transponders, which, designed to endure challenging environments, are useful across Kazakhstan’s varied and sparsely populated terrain. The technology interconnects, bringing the country closer together and making it easier to navigate. Moreover, with a global outlook and a thirst for technological advancement, InfiNet is just the sort of company that Kazakhstan wants to attract.

“In combination with the dynamic economy and continuous growth of government investments into the telecom infrastructure, new challenging projects have come about from the needs of the public sector and a strong drive to strengthen public safety in the country,” adds Smirnov. “The projects involve creating urban video surveillance systems throughout the country and deploying the communication infrastructure for the united government data centers.”

Most Kazakhs use fiber-optic lines for internet access, but it has its limitations in Kazakhstan.“The geographical features of the region often don’t allow implementing such projects using only wired technology,” Smirnov explains. “By using InfiNet’s reliable equipment, this allows Kazakhstan to build long trunk channels, which provide high-speed data transfer of up to 480Mbps [megabits per second].”

Based in Kazakhstan since 2002, Microsoft has made establishing a partnership with the government a strategic priority, paying particular attention to the education sector. In 2004, the US software developer signed a five-year contract with the Ministry of Education and Science to implement a program that would provide training and access to information

technology for teachers and students. This was renewed in 2009 for a further five years. More recently, the company signed a memorandum of understanding with the Ministry of Transport and Communications to create a mobile government service, as well as e-learning and e-healthcare systems.

Chinese telecommunications giant Huawei is another company that has made inroads into Kazakhstan and is a major supplier of equipment to mobile carriers. After introducing its products to the Kazakh market in 2013, it recorded a turnover in the country of $250 million. The company is reported to be providing technical support and high-speed mobile internet for EXPO 2017.

The next stage for mobile technologyMobile telephony underpins many of these advances, and 4G technology is booming across Kazakhstan, which is already looking ahead to the next generation. At the start of 2015, Kazakhstan took the important step of opening a 5G development center in Nazarbayev University in Astana. This will work with a similar center in China to look at the development of 5G technology, how it can be incorporated and what it means for today’s citizens. The technology is still being developed and it is unclear exactly what it is going to look like or feel like. What is certain, however, is that Kazakhstan is placing itself center stage for the world’s next technological push.

Compared with previous versions, the fifth generation of mobile network will represent a significant leap in its capabilities, with much faster speeds and more reliable connections, potentially resulting in a huge knock-on effect for other technologies. In order to achieve this, the International Telecommunication Union is restructuring the way in which data is transmitted by harmonizing the radio spectrum, which has become disorganized as technology has advanced. When finished, this restructuring will help pave the way for 5G.

With a population that readily takes up technology, Kazakhstan, as a country, is a perfect test bed for new ideas. Moreover, in terms of developing and innovating, it is also at the forefront of the next advance into uncharted territory.

5G capability Price of goods/services purchased online in 2013 in Kazakhstan

SOURCE: COMMITTEE ON STATISTICS, MINISTRY OF NATIONAL ECONOMY OF KAZAKHSTAN SOURCES: OFCOM, HUAWEI, BBC

Up to 2,000 ($11)

2,000-5,000 ($11-27)

5,000-25,000 ($27-135)

Over 25,000 ($135)

0.5%

4.6%

37.5% Tenge

46.1%

• With 5G (fifth-generation) network capability, the delay between action and response (latency) will be less than one millisecond, which is 50 times faster than 4G

• 5G data transfer speeds are predicted to run as high as 50 gigabits per second (Gbps), well in advance of 4G speeds of around 15 megabits per second (Mbps)

• However, researchers at the University of Surrey’s 5G Innovation Centre were reported to have achieved one terabit per second in February 2015


INVESTMENT OPPORTUNITIES: CONSTRUCTION AND REAL ESTATE


Kazakhstan emerged from the collapse of the Soviet Union with a severely dislocated economy, losing the Soviet state clients that made up most of its markets, many of its native Russian managers

and even its currency. Unsurprisingly, gross domestic product (GDP) fell by about a quarter in the 1990s.

The resurgence of the country in the 21st century was the result of its finding new markets in China and Europe, aided by rapidly expanding global demand for the country’s abundant oil and mineral resources, and a degree of political and social stability that was unusual among the Soviet successor states. Its GDP more than doubled between 1995 and 2005, and, in spite of the global 2008 slump, GDP growth averaged eight per cent between 2000 and 2013, reducing the percentage of the population living at the country’s poverty line from 46.7 per cent in 2001 down to 2.9 per cent in 2013, according to World Bank statistics.

The symbolic expression of this turnaround in Kazakhstan’s fortunes took the form of a new capital city, Astana, a self-consciously hyper-modern landscape bristling with architectural icons. As well as creating an aspirational identity for the new nation state, the city was an indication of the role that construction and property were going to play within it: alongside oil, gas and mining, these twin industries were going to be given the job of building the new country.

A highly promising environment for constructionThe Kazakhstan 2050 Strategy, a national development plan, was announced by President Nursultan Nazarbayev in his state-of-the-nation address in December 2012. Its goal is to place Kazakhstan among the world’s 30 most developed countries by 2050, measured by indicators such as GDP per capita. The means for arriving there is to halve the share of exports taken up by oil and gas from 60 per cent to 30 per cent by encouraging private investment and creating public-private

partnerships as suitable vehicles for that investment, and by upgrading the country’s transport and power infrastructure.

The combination of rising standards of living, economic diversification and infrastructure spending amounts to a set of highly promising fundamentals for construction, which will be required to build higher-quality accommodation for the country’s growing middle class, as well as offices, factories, shops, and entertainment facilities for their working hours and their leisure time. According to EY’s 2013 attractiveness survey of Kazakhstan, construction and real estate is one of the five main destinations for foreign direct investment, alongside mining, life sciences, automobiles, and agriculture.

Companies that want to enter the Kazakhstan construction market as clients of their own projects should be aware of the regulatory environment. Most stages of construction are subject to approval, in particular by the Agency for Construction, Housing and Utilities. The World Bank’s Doing Business 2014 report shows that some 29 procedures are involved in obtaining a construction permit, and getting them takes an average of 157 days. In addition, most construction activities are subject to mandatory licensing. Licenses are obtained from the regional authorities, which have a great deal of discretion in applying the regulations.

Nevertheless, Kazakhstan is conscious of the need to woo investors. The EY attractiveness survey quoted Deputy Prime Minister Kairat Kelimbetov as saying: “There are still some challenges in terms of dealing with construction permits and import-export trade requirements, but we are working hard to speed up procedures and streamline documentation so that requirements are brought closer to OECD [Organisation for Economic Co-operation and Development] averages.”

For clients interested in developing projects, the place where the most investment in construction is currently concentrated is Astana: it has modern power and transport infrastructure, and is expanding rapidly. In the past 10

Construction underpins economic growth

Strong growth for the past decade has already had an impact on real estate and construction in Kazakhstan. Hosting EXPO 2017 and working towards the 2050 Strategy goals will fuel further demand

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With a rapidly growing population and expanding economy, Astana offers ample opportunities in construction

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Ammann Kazakhstan LLPKulan Business CenterOffice 603/1, 188 Dostyk AvenueKAZ-050051 Almaty, KazakhstanT: +7 727 2597563F: +7 727 2597564E: [email protected] www.ammann-group.com

■ The Ammann Kazakhstan office opened in 2009 in the heart of

Eurasia, alongside the famous and historic Silk Road. Over the years, the small team here has been able to win customers’ trust as a reliable and conscientious partner in this vast country.

More than five years of hard work in a country that has a road network of over 95,000km has delivered results: we have steadily strengthened our market position and we have continued developing good and friendly working relationships with all our customers and partners. Cutting-edge equipment, highly qualified staff and skillful customer management have made it possible for the Ammann Kazakhstan team to undertake new projects every year. Ammann plants are used for a variety of construction projects in every region of Kazakhstan.

Like true nomads, the Ammann plants move constantly from one location to another across the infinite expanses of the Kazakhstan steppes, wherever projects and road building work take them – and they always deliver reliable service. For example, asphalt from

Ammann Group

Ammann Kazakhstan embodies the Nomadic Spirit

Ammann mixing plants made it possible to complete and commission several sections of the international transit corridor linking Western Europe and Western China.

Success through teamworkOur business partners and authorized dealers, with their vast experience and their excellently coordinated team of specialists, have their own service stations and qualified technical staff trained in the Czech Republic and Switzerland in our company’s training centers.

Since Ammann Group exercised its titles to the German manufacturer of Elba concrete mixing plants, the assortment of services has expanded with a full range, i.e. high-quality concrete mixing plants. High quality – the basis for the success of our products – has meant that we have long since won our customers’ trust. Ammann Kazakhstan Office provides customer support for those who have already been operating concrete mixing plants.

EcoBatch 80, a new high-quality and low-cost model of asphalt mixing plant, will be imported to Kazakhstan in 2015. First, this plant model will be presented at the 2015 CTT exhibition in Moscow. European quality – with all core components manufactured in Switzerland – and the vast experience of our production colleagues in Europe and India have enabled us to design a plant that meets every one of our customers’ requirements.

We are able to create because of our great knowledge and global experience in the production and operation of road building equipment; that is our company’s asset. Ammann Kazakhstan always has a solution to whatever task has been set concerning roads built

of asphalt and concrete, as well as their further maintenance.

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“The nation’s language is like a mirror. It reflects the country’s terrain and history, its customs and traditions, and its character. The Kazakh language expresses the infinite golden steppe, the people’s history – sometimes as calm as a windless night, sometimes as vehement as a whirlwind – the constant wandering across the steppes, and the restless, modest character of the nomad.”

– Magzhan Zhumabayev, Kazakh author and poet

Ammann_Eng_SF_placed.indd 44 08/05/2015 11:57

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92 PBINVEST IN KAZAKHSTAN 2015

Construction investment in Kazakhstan is currently greatest in Astana, and projects worth nearly $1 billion are underway in the city’s special economic zone

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years, the city’s GDP has increased by a factor greater than 50. It is a leader in the production of construction hardware, including ready-to-use concrete and concrete building blocks. To encourage investors, the government has established a special economic zone with reduced taxes, Astana-New City, where projects worth nearly $1 billion are underway.

This growth is certain to be stimulated by Astana’s success in winning the right to host the World’s Fair EXPO 2017 (see page 35). The exhibition complex will cover 240,000 square meters and contain 4,000 apartments, a hotel, a congress hall, and an ‘indoor city’ that stretches for more than 500 meters. There will also be a retail and entertainment complex, themed national pavilions, a school, a hotel, a kindergarten, a meeting hall, and a conference and press center.

For construction companies looking to enter the Kazakh market, the greatest demand is for design services, with architects and consulting engineers particularly sought after. UK architectural practice Foster + Partners was famously recruited for Astana’s showcase buildings, but engineering firms such as Mott MacDonald have also established themselves in the market. Mott MacDonald was appointed as project manager for the Abu Dhabi Plaza in Astana, a $1.2 billion mixed-use commercial scheme with a floor area of 500,000 square meters and five towers, the highest of which will have 75 stories, making it the tallest building in Central Asia.

Real estate: most developed in Central AsiaAlmaty, meanwhile, with a population of 1.5 million – almost twice that of Astana – has the most developed real estate market in Central Asia. While Astana has been Kazakhstan’s capital since 1997, Almaty remains its commercial center.Investors willing to invest in quality real estate are expected to

reap the benefits as Kazakhstan’s economy continues to grow, but the sector is not without its difficulties: in February 2014, a 19 per cent devaluation of the tenge caused problems because acquisitions are typically carried out in US dollars, whereas income is receivable in the tenge.

The latest figures for the housing market show that the volume of transactions is rapidly increasing in urban centers. In January 2015, Astana recorded over 1,000 sales, a rise of 43 per cent on the previous January, according to Ranking.kz. The Jambul region recorded a 21 per cent rise and Almaty 15 per cent. However, the effect of the devaluation is apparent, with the value of transactions in January one per cent lower year on year. The increasing number of transactions suggests that the market is becoming more liquid: in 2014, the volume of mortgage loans increased by 48 billion tenge to 912 billion tenge. Again, the highest annual growth was seen in the capital, with loans up by 22 billion tenge to 175 billion tenge.

Demand is particularly strong for office space in Astana, where the total stock of grade-A and B office space stands at a modest 500,000 square meters. Construction projects are in the pipeline, and the supply of modern premises is expected to grow, in large part due to the construction of Talan Towers, a 120,000-square-meter mixed-used development by Kazakh developer Verny Capital.

In Almaty, the most dynamic segment of the real estate market is retail space. According to commercial property consultant Cushman & Wakefield, the city’s Al-Farabi Avenue is among the 40th most expensive streets in the world, with shopping mall rental yields as high as $140 a square meter.




Construction investment in Kazakhstan is currently greatest in Astana, and projects worth nearly $1 billion are underway in the city’s special economic zone

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years, the city’s GDP has increased by a factor greater than 50. It is a leader in the production of construction hardware, including ready-to-use concrete and concrete building blocks. To encourage investors, the government has established a special economic zone with reduced taxes, Astana-New City, where projects worth nearly $1 billion are underway.

This growth is certain to be stimulated by Astana’s success in winning the right to host the World’s Fair EXPO 2017 (see page 35). The exhibition complex will cover 240,000 square meters and contain 4,000 apartments, a hotel, a congress hall, and an ‘indoor city’ that stretches for more than 500 meters. There will also be a retail and entertainment complex, themed national pavilions, a school, a hotel, a kindergarten, a meeting hall, and a conference and press center.

For construction companies looking to enter the Kazakh market, the greatest demand is for design services, with architects and consulting engineers particularly sought after. UK architectural practice Foster + Partners was famously recruited for Astana’s showcase buildings, but engineering firms such as Mott MacDonald have also established themselves in the market. Mott MacDonald was appointed as project manager for the Abu Dhabi Plaza in Astana, a $1.2 billion mixed-use commercial scheme with a floor area of 500,000 square meters and five towers, the highest of which will have 75 stories, making it the tallest building in Central Asia.

Real estate: most developed in Central AsiaAlmaty, meanwhile, with a population of 1.5 million – almost twice that of Astana – has the most developed real estate market in Central Asia. While Astana has been Kazakhstan’s capital since 1997, Almaty remains its commercial center.Investors willing to invest in quality real estate are expected to

reap the benefits as Kazakhstan’s economy continues to grow, but the sector is not without its difficulties: in February 2014, a 19 per cent devaluation of the tenge caused problems because acquisitions are typically carried out in US dollars, whereas income is receivable in the tenge.

The latest figures for the housing market show that the volume of transactions is rapidly increasing in urban centers. In January 2015, Astana recorded over 1,000 sales, a rise of 43 per cent on the previous January, according to Ranking.kz. The Jambul region recorded a 21 per cent rise and Almaty 15 per cent. However, the effect of the devaluation is apparent, with the value of transactions in January one per cent lower year on year. The increasing number of transactions suggests that the market is becoming more liquid: in 2014, the volume of mortgage loans increased by 48 billion tenge to 912 billion tenge. Again, the highest annual growth was seen in the capital, with loans up by 22 billion tenge to 175 billion tenge.

Demand is particularly strong for office space in Astana, where the total stock of grade-A and B office space stands at a modest 500,000 square meters. Construction projects are in the pipeline, and the supply of modern premises is expected to grow, in large part due to the construction of Talan Towers, a 120,000-square-meter mixed-used development by Kazakh developer Verny Capital.

In Almaty, the most dynamic segment of the real estate market is retail space. According to commercial property consultant Cushman & Wakefield, the city’s Al-Farabi Avenue is among the 40th most expensive streets in the world, with shopping mall rental yields as high as $140 a square meter.


PB 93

INVESTMENT OPPORTUNITIES: SMART ASTANA


course in transformation, and the population has ballooned from around 280,000 in 1999 to more than 800,000 by mid 2014. This expansion and the concurrent architectural development has been rapid but in no way haphazard; rather, it has all been part of a carefully choreographed plan.

The President of Kazakhstan, Nursultan Nazarbayev, has a vision for the country and Astana in particular. He is investing huge amounts of the country’s vast mineral wealth

A view of Bayterek tower and fountains in Astana by night. Since becoming the capital in 1997, the city has undergone a huge transformationN

ow known as Astana, having previously been called Akmola and Tselinograd, this former backwater replaced Almaty as the nation’s capital in 1997. Since then, it has rapidly

progressed towards becoming the commercial and cultural hub of the new republic, as well as one of the most infl uential cities in central Asia.

Located within the Eurasian Steppe, the city is connected to the rest of Kazakhstan via the M-36 and A343 highways, and with the rest of the world via its international airport. Being designated the country’s capital set the city on a crash

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Astana: a smart city template for Kazakhstan

By 2017, the capital of Kazakhstan, Astana, will have been transformed into a thriving ‘smart city’, which will act as the model for a rollout of similar developments across the country

FOCUS TOPIC

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FOCUS TOPIC

– from oil, gold, silver, iron, copper and zinc – to transform the city into one of the world’s most modern metropolises with a futuristic skyline and state-of-the-art infrastructure. A central plank of his strategy is turning Astana into a leading ‘smart city’. Consequently, the ambitious Smart Astana project was launched in 2013, under the stewardship of JSC Astana Innovations. Expectations are high, especially those of President Nazarbayev, who has tasked Astana Innovations with getting the capital onto the list of the top 50 smart cities by 2017, in time for its hosting of the World’s Fair EXPO.

Fortunately, the Kazakhstan Government has a pedigree to fall back on as far as the Smart Astana project is concerned, as it has already won awards from the United Nations for its success in implementing an e-government portal enabling citizens to communicate with the authorities and carry out tasks such as applying for driving licences and passports, as well as paying taxes, utility bills and fines. In a relatively

short time, the portal has progressed from being a somewhat simplistic information resource to becoming a highly sophisticated electronic transactional platform on which over 500 services are offered.

The process of turning a city smart, however, is a larger, more complex aspiration. For that reason, the President has called on outside help, co-opting two global consultancy giants to assist with scoping the ‘art of the possible’ and drafting a roadmap – EY for the former phase, and PwC for the latter. Bill Hutchison, the Executive Director of EY’s Center for Smart City Innovation, is optimistic about the project, predicting that President Nazarbayev’s ambitions are easily attainable and that, given the right strategic approach, Astana could even exceed his aspirations by a long margin.

During a visit to Astana in August 2014, Hutchison went on record as saying: “Last year, the President set a task for Astana city to enter the list of the 50 smartest cities of the world before 2017, but I think that Astana is capable of achieving an even better rating.” If the city goes for a Smart City 2.0 version – also referred to as an ‘intelligent community’ – Hutchison believes that Astana could break into the top 20 or even top 10 smart cities. A critical proviso to achieving this is that the roadmap would have to go beyond a baseline of safety/security and transportation into the wider fields of education, energy, governance and water – in other words, the whole spectrum of elements that make a city more ‘liveable’ and efficient to run. Essentially, Hutchison’s

predictions have come true. On 22 October 2014, the President informed a meeting of city representatives that Astana had been included on the Intelligent Community Forum’s Smart21 Communities of 2015 list.

Putting the plan into actionA number of sub-projects have already been launched by the previous mayor, Imangali Tasmagambetov, who announced the Smart Land and Smart Water schemes back in September 2013 at the third annual Smart Astana Conference. If all goes well, these will set in place the fundamentals for a smart grid that is capable of realizing a 20 per cent reduction in energy consumption, and an enhanced water infrastructure that will see the percentage of wastage (leaks) in the system reduced from 21 to eight per cent.

Two more key pilot projects, SafeCity and Intelligent Transportation System (ITS), have also been given the green light as they are critical for ensuring that the city is a safe

Astana has been included on the Intelligent Community Forum’s Smart21 Communities of 2015 list


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The Smart Astana project will enhance a range of aspects of life in the city, including energy efficiency, water conservation, the transport network, and security

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place for EXPO 2017, and that the transport system is capable of handling the increase in traffic that the World’s Fair is expected to attract.

In view of the importance of the widespread availability of broadband and Wi-Fi, Astana Innovations has brought in Kazakhtelecom as a technology implementer. Together, they will oversee the installation and integration of some 30,000 intelligent closed-circuit television (CCTV) cameras, which will be strategically placed to monitor the city in general, and the transport network in particular. The data and imagery gathered by this web of sensors will not only help law enforcers maintain safety and security on the streets, it will also be aggregated in a central command center to be processed and analysed in order to help decision-makers control numerous other aspects of the city infrastructure – energy, heating, road and rail services, for example.

The ITS contract has been awarded to Spain’s TYPSA – a group of independent engineering and building technology

companies – as part of a larger, more comprehensive transport development program designed to deal with the congestion brought about by the city’s expanding car ownership and commercial traffic. It will include links from the airport to the new railway station, as well as a logistics center and other infrastructure. The initial element of this project – a $549 million bus rapid transport system – is already underway, while a light rapid transport has undergone a due diligence process by the Mott MacDonald construction firm.

The investment potential in Kazakhstan’s smart city journey is enormous as Astana, which in itself represents a considerable investment opportunity, is just the first of many cities that will become smart. In November 2013, President Nazarbayev said that more cities like Astana were required. This is just the beginning.


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PB 97

INVESTMENT OPPORTUNITIES: TRANSPORT AND INFRASTRUCTURE


Oil tanks in the steppe. Kazakhstan’s transport development strategy to 2015 included plans to lay 1,600km of railway track and electrify 2,700km of existing line

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The Government of Kazakhstan argues that one of the main reasons for investing in the country is its position in the heart of Eurasia. What this means in practice is that it is about halfway along the modern

reconstruction of the ancient Silk Road and its associated economic ‘belt’, which is envisaged as an immense development corridor stretching from China to Europe.

Much of Kazakhstan’s economic future is tied to the success of this belt, and much of the success of the belt is tied to transport infrastructure. Commenting on a proposed high-speed rail line from Moscow to Beijing via Kazakhstan,

Chen Fengying, the Director of the World Economy Institute at the China Institute of Contemporary International Relations, stated: “The belt… will start with connectivity. Connection is a prerequisite. Only when infrastructure bottlenecks are eliminated can the plan become really effective.”

This, in turn, means that large investments will have to be made in the country’s road and rail systems, and these will have to be complemented by the upgrading of its two

Reviving the Silk Road

Infrastructure will prove crucial to Kazakhstan’s continued growth. With this in mind, the 2020 infrastructure development plan sets out ambitious targets for major upgrades and expansion

5.5 Transport and infrastructure AS.indd 97 08/05/2015 12:29

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PB 99



major airports – these investments are necessary because Kazakhstan’s transportation network is in urgent need of further development. In surveys of international business opinion, lack of modern infrastructure is generally one of the first complaints made. The Global Competitiveness Report 2014-2015 from the World Economic Forum found that, although its rail network came a respectable 28th out of 144 countries, its electrical grid came 78th, its air transport infrastructure was 85th, and its roads were 113th (see figure above).

The framework for improvements to transport is provided by the 2020 infrastructure development plan. While presenting the plan, Askar Zhumagaliyev, then Minister of Transport and Communications, said that it was intended to halve transit times, integrate Kazakhstan into the international transport system, and develop local infrastructure outside urban areas.

Historically, the development of rail has been hindered by Kazakhstan’s extremely low population density – 6.13 people per square kilometre. It has also been hindered by the fact that the rail system was built in Soviet times, and has become less congruent with the modern country’s trade patterns. For example, the main market for Kazakhstan’s exports is now China, but there is a break of gauge at the border at Druzhba, as China, like Europe, uses standard gauge. Kazakhstan is a landlocked country, and more than two-thirds of its freight and passenger traffic moves on its 15,000km of rail, so its importance to internal movement is clear enough. The transport development strategy to 2015 envisaged the laying of 1,600km of track and the electrification of 2,700km of existing line. However, even more ambitious schemes are in the offing as part of the development strategy.

A notable scheme in recent years was the construction of a railway across the country that is the same gauge as that

of China and Europe. Launched in 2013, it is part of the 10,800km standard-gauge Silk Road – or, less romantically, New Eurasian Land Bridge – between China and Europe. It has shortened the time for a train to travel from China to Germany to 15 days.

A key project was launched last year, with the construction of a ‘dry port’ at Khorgos, a town on the border of China, in the Eastern Gate special economic zone. It will be a vital piece of auxiliary infrastructure for a standard-gauge railway linking China to the Caspian Sea. Announcing the scheme, President Nursultan Nazarbayev said: “It is a long-awaited huge project implemented jointly with China by agreement between the heads of our two states. We pin big hopes on this port for increasing the trade turnover between our countries and connecting China to the Caspian Sea. I think a large Kazakh city will appear there in the near future.”

Making Kazakhstan an aviation hubAccording to the 2020 development plan, 11 airports will be reconstructed, with repairs focused on the runways and terminals. And, by 2020, 75 new international air routes will be operational. These are intended to make Kazakhstan a hub for travelers who cannot fly directly to their destination.

The country’s largest international airport is outside Almaty, Kazakhstan’s most populated city. It accounts for half of all passenger traffic in the country, and in 2012 it handled four million passengers. The government has selected ADPI, the design subsidiary of Aéroports de Paris Group, to draw up a plan for the expanded airport. The scheme created by ADPI calls for the development of a 250-hectare area to the south of the airport’s single runway. This will include a new passenger terminal that will handle all international

Kazakhstan’s competitiveness ranking in terms of infrastructure*

SOURCE: THE GLOBAL COMPETITIVENESS REPORT 2014-2015, WORLD ECONOMIC FORUM, SWITZERLAND, 2014

Ranking (out of 144 countries)

Score (1-7)

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Transport infrastructure 84 3.3

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* The World Economic Forum’s Global Competitiveness Report ranks 144 countries in order of competitiveness, giving each a score out of seven for a range of indicators




Transport in numbers

traffi c, as well as a commercial activities zone including hotels and a business and leisure center.

The growth of air travel in Kazakhstan’s airports has already placed an increased amount of pressure on the country’s air infrastructure. The number of passengers using national carrier Air Astana – which handles half of all air travel in the country – grew by 14 per cent in 2012 and 13.5 per cent in 2013. However, as reported by Forbes in July 2014, only 10 out of 25 airports are currently compliant with International Civil Aviation Organization (ICAO) standards – although the government is planning to increase this to 15 by 2020.

Accordingly, the Kazakh Government has said that works on Almaty’s and Astana’s passenger terminals will almost double capacity. The near deadline for this capacity increase is 2017, when Kazakhstan will have to handle the infl ux of visitors to EXPO 2017 in Astana. A more distant deadline may arise if the country is successful in its bid for the 2022 Winter Olympics, the results of which will be revealed later in 2015.

Upgrading roads and highwaysThe road sector has become one of the most interesting areas for foreign investors. Among the reasons is, fi rst, that the 97,418km network is in great need of extension and upgrading. For example, the M32 Aral highway – which crosses the country from Russia in the north-west to Kyrgyzstan in the south-east – requires a four-wheel-drive vehicle in order to be negotiated, and much of it is unpaved and impassable after heavy rainfall. The second reason is that car ownership is growing, and so is demand to get around the country. Third, as noted, the economic development that is associated with the New Silk Road will only be possible with improved transport links.

One project that has caught international attention is a $680 million public–private partnership (PPP) to build the Bakad ring road around Almaty. This scheme was made possible by a new regulatory framework that was enacted in June last year, together with new laws protecting the interests of concession holders and investors. If it is successful, it will be the fi rst such internationally tendered PPP in Kazakhstan, and also the fi rst for Central Asia.

So far, the omens are good. The European Bank of Reconstruction and Development (EBRD), which plans to become an investor itself, hosted the fi rst public presentation to interested companies in London in December 2014, and more than 100 representatives showed up. Janet Heckman, the EBRD’s Director for Kazakhstan, said: “The EBRD is on track to invest a record $750 million this year in Kazakhstan. But we offer more than fi nancing. Innovative structures and projects such as Bakad can really open up the industry to foreign investors.”

As an additional inducement to investors, the Kazakh Government has promised to protect them from falls in the value of the tenge, following the 19 per cent devaluation in February last year. The contract is based on an ‘availability payment scheme,’ meaning that it depends on the number of lanes opened rather than toll income, which is less predictable.

If successful, however, it could be the harbinger of a wave of PPPs, from light rail in Almaty to the paving of the M32 highway. According to the infrastructure development plan, 30,000km of road are to be renovated before 2020, so there will be no shortage of work.

Final bids for Bakad are due in the second half of 2015, with the tender actually closing about a year later.

SOURCE: THE WORLD BANK

There were 215 passenger cars per 1,000 people in 2011, up from 189 in 2010

The total registered take-offs of Kazakh air carriers, whether abroad or domestic, was 55,053 in 2013. This is up on 2010 by 64.4%, when there were 33,483 take-offs

In 2014, there were about 15,000km of railroads in Kazakhstan and, in 2013, 88.7% of roads were paved

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64.4%


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Globalink_ENG_placed.indd 1 20/04/2015 15:24

INVESTMENT OPPORTUNITIES: LOGISTICS


A sk transport and logistics professionals for their thoughts on Kazakhstan and they come back with two key words: ‘potential’ and ‘opportunity’. The strategic position of Kazakhstan on the map is not

lost on the sector’s professionals, and the past two decades have seen significant activity and expansion by foreign logistics companies looking to build a presence in the country and make the most of the opportunities both short and long term.

“As an adjoining transcontinental country in Central Asia, Kazakhstan has all the requirements to become the main logistic link connecting Europe and Asia,” says Jan Jiyenkulov, General Director of GAC Kazakhstan. “Aktau seaport, the SEZ [special economic zone] Khorgos-East Gate, and the country’s international airports and terminals form a transport infrastructure network to meet the needs of the nation’s import and export trade.”

Customs Union encouraging tradeThe GAC Group established a company in Kazakhstan in 2008 to meet the demand in the country for logistics and marine services to support the Central Asian oil and gas industry, and has offices in Almaty, Kyzlorda and Aktau. “Despite its size, Kazakhstan is sparsely populated, which can make logistics operations time-consuming and expensive,” says Jiyenkulov. “We tackle that issue by applying the highest standards to everything we do, and establishing a reputation as a company that professionals want to work for.”

Siddique Khan, President and Chief Executive Officer of Globalink Logistics Group, says Kazakhstan’s strategic location between Europe and Asia, on one of the oldest trade routes in the world, along with its immense natural resources, gives the country a key advantage in terms of its transit potential.

“With the development of a single Customs Union in the region leading to the removal of trade barriers, the import/export process has a simplified documentation process,”

he says. “This, in turn, has encouraged the development of national business and improved the investment climate, thereby making Kazakhstan more attractive and cost-effective for both national and foreign investors. Consequently, trade and commerce is set to grow in leaps and bounds. With 150 million consumers throughout the region, Kazakhstan’s transport and logistics sector has great potential.”

Currently, less than one per cent of transit cargo between China and Europe is moving through Kazakhstan, says Khan. “This means there is a huge potential, which can be realized through well-planned investments in infrastructure development and timely implementation of business-friendly legislation. Transit volume through Kazakhstan could easily grow multiple-folds. Strategic infrastructure coupled with industrial and service-sector developments will be highly beneficial for Kazakhstan cross-border regional trade and transit potential.”

Globalink’s offices provide a range of logistics services, including air and sea freight, road/rail transport, project management, distribution, removals and relocation, and customs management. The company is engaged in a number of activities focused on the development of the ‘New Silk Road,’ including working on the logistics centre at Khorgos and the container terminal at Dostyk, both of which are on the China-Kazakh border. “We are already running a business between the Central Asian region and China, and China to Europe via Kazakhstan, with increasing volumes,” says Khan. “Once the infrastructure and legislation are improved further, so will transit turnover.”

Germany’s logistics giant DHL has been operating to and from Kazakhstan for more than 23 years – both its DHL Express and DHL Global Forwarding divisions have extensive operations in the country, offering international express, air freight, rail freight, trucking, customs clearance and other logistics services. Scott Massie, DHL Global Forwarding’s

Strong potential in logistics

Kazakhstan’s logistics sector is expanding rapidly. With the removal of trade barriers and development of the New Silk Road, the country has the potential to become the largest logistics hub in the region

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Aktau seaport is an important logistics hub on the Caspian Sea. Kazakhstan’s location between Europe and Asia means it could provide a vital transit route, but it currently only accounts for one per cent of cargo between these regions

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Industrial Projects Regional Director for Central and Eastern Europe, says: “Kazakhstan has offered strong growth in recent years, as the country has modernised, attracted foreign investment and further developed its oil and gas projects. We have seen a large number of our multinational customers expanding to the market, as well as Kazakh businesses who are trading more actively with overseas partners.

“Kazakhstan’s efforts to attract foreign investment have had a positive impact in attracting overseas companies to do business there. The Customs Union with Russia and Belarus has made trade flows between these countries easier, which has offered good potential for logistics companies connecting the markets.”

There are considerable trade opportunities for the country, Massie continues. “Many would cite Kazakhstan’s vast geography, challenging weather conditions and infrastructure as challenges to operating logistics services to/from the country. For DHL, these factors all offer opportunities.” He explains that having a network of offices developed over a considerable period of time enables DHL to help companies exporting to Kazakhstan or setting up operations there to navigate the market more easily.

New Silk Road boosts transit potentialIn time, Kazakhstan has the potential to become “the largest logistics and transport hub in the region,” comments Khan of Globalink Logistics Group, which operates throughout Central Asia and the Middle East. He likens the development of

the ‘New Silk Road’ to a ‘rediscovered corridor’ and says that it is an important step towards the development of the region’s transit transport potential.

“The trans-Kazakhstan route is faster and a logical choice in terms of transit-delivery time,” he says. “Additionally, it’s far more economical to ship Chinese exports overland into Central Asia and on to Europe, rather than to transport these goods to eastern Chinese ports for the long ocean voyage.”

In fact, he points out, the growing importance of this route has led to many changes within China, such as the relocation of factories and production facilities from east to west, and the subsequent population migration westwards: “All this is to benefit from the ‘shortcut’ to Europe.

“Proposed projects, such as the rail link to the Caspian Sea port of Aktau, the development of the logistics centre in Aktobe, which will serve as the western gateway into the country, the development of trucking and railway terminals at the China-Kazakh border, and the Western Europe-Western China railway connection, are all being undertaken to develop this ‘New Silk Road’. Kazakhstan connects the major markets of China, Europe, Russia and other CIS and Central Asian countries in a way that few other countries can. This is evident not only from the increased trade volume between China and Europe via Kazakhstan, but also from the sharp




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The Silk Road through Kazakhstan

rise in transit traffi c originating from neighbouring countries, as well as those from Far East Asia.”

Jiyenkulov of GAC welcomes Kazakhstan’s transportation infrastructure development plan; drafted by the government in collaboration with the World Bank and adopted in November 2013, the plan, which extends to 2020, aims to realize Kazakhstan’s ambitions to become a key transit hub for Eurasia and beyond.

“Kazakhstan’s plan aims to improve the country’s ranking in the World Bank’s Logistics Performance Index from 86th (in late 2012) to 40th place, by doubling transit cargo through Kazakhstan by 2020,” says Jiyenkulov. “The plan also foresees improvements in the country’s road, rail, maritime, and aviation sectors, both within Kazakhstan and in surrounding territories, to ensure the country’s integration into strategic international transport corridors. By the end of 2020, the volume of transit cargo traffi c is expected to multiply 1,000 per cent, to 170 million tons.”

Growing consumer demand UK-based Allseas Global Logistics recently announced the launch of a large network of offi ces and door-to-door services for key markets in Central Asia. Kazakhstan is a key target and developing the New Silk Road is an important driver, says Des Nott, Allseas’ Group Project Manager. “We are positioning ourselves to facilitate the movement of cargoes through and

into these regions, with a network that includes offi ces in Georgia, Azerbaijan, and Turkey,” he says. “With investment in Kazakhstan will come growth and an increase in demand for consumer goods. Already, we are aware of big distribution centers being built.”

Allseas Director Selim Nurlu says: “Kazakhstan has a big potential, especially with its resources – oil, gas, wheat, fl our, and many other agricultural products. Its Caspian Sea coastline and Aktau port also offer the advantage of reaching many other countries: by sea transport through the Volga-Don [canal], especially in the spring and summer season, with nearly eight months a year of easy/cheap transport by river; and via the ferry connections between Aktau and Baku and Iranian ports in the Caspian, which enable the transport of goods to the US, Africa, Western Europe, the Middle East, et cetera.”

Many foreign investors have formed new partnerships in Astana, and investment continues throughout the country, says Nurlu. He cites investment in new roads, and new border crossing points as key improvements for effi cient logistics.

As the economy of Kazakhstan has grown, the consumer retail, electronics and healthcare sectors have helped to drive demand for international logistics services, says DHL’s Massie. “These companies are also driving demand for more sophisticated solutions, such as return logistics, lean inventory and just-in-time logistics,” he says.

Caspian Sea

Aral Sea


FOCUS TOPIC

PB 105

INVESTMENT OPPORTUNITIES: HEAVY LIFT


DHL Global Forwarding’s Industrial Projects team has worked in Kazakhstan since 2004, delivering heavyweight industrial items such as rigs and pressure vesselsT

he heavy-lift transport sector is not for the faint-hearted – nor is it for those without the right experience. Involving the transportation of enormous pieces of oil and gas equipment and

huge generators, as well as equipment and materials for road and rail projects, it demands very specialist knowledge and expertise, matched by the right equipment in the right place.

Many of the world’s top names in heavy-lift transport are established, expanding and investing in their Kazakhstan operations, and with good reason.

“There are a number of incredibly large projects underway in Kazakhstan – particularly the road projects linking China with the West, which require all sorts of support, including setting up camps for the workers in the middle of nowhere,

and ensuring a reliable delivery of food, supplies and equipment,” says Des Nott, Allseas Global Logistics’ Group Project Manager. “And that’s before we talk about the growth in the oil and gas industry, where the international oil majors have invested billions of dollars in the past 10 years. Kazakhstan’s oil and gas industry is ready to take off – and the country has the potential to become the biggest oil and gas production area in the world.”

Allseas has already delivered signifi cant volumes of giant pipes and other kit from European Union countries into Kazakhstan, and also has its eye on the needs of the oil

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Rising demand for heavy-lift logistics

Oil and gas, renewable energy, mining and major infrastructure works are driving the need for specialist heavy-lift and project-cargo transport services to, from and within Kazakhstan

Oil and gas, renewable energy, mining and major infrastructure works are driving the need for specialist heavy-lift and project-

5.9 Heavy Lift AS.indd 105 08/05/2015 12:34

FOCUS TOPIC

INVESTMENT OPPORTUNITIES: HEAVY LIFT


and gas workers. “We are positioning ourselves to provide assistance for remote crew – setting up mini-villages of container accommodation with full security, fuel deliveries and everything they need,” explains Nott.

Kazakhstan, he says, will be rewarding in the medium term for heavy-lift specialists. “Perhaps you will be lucky in the short term, but don’t expect immediate rewards. However, we would certainly be looking for results within 12 months, confirming that we made a good move.”

Allseas Director Selim Nurlu says that rail transport is used heavily for moving many oversized or overweight products in Kazakhstan, but the ongoing energy/power stations and oil and gas field investments are leading to more and more heavy-lift and out-of-gauge equipment movements, which can only go by road. Hence, he welcomes the government’s investment in new roads and border-crossing points.

Saima Caspian, which became a subsidiary of Denmark’s DSV seven years ago, has focused on project logistics since it was set up in 2003. “The utmost attention and commitment has been devoted to strategic projects, mainly in oil and gas, road-building and civil engineering works,” says Director Masood Mir. Among ongoing projects, Saima Caspian is providing heavy-lift transport for the Kuryk shipyard construction, including modular buildings for a site camp. It is also moving heavy items to the Kashagan oilfield, the Pavlodar electro-chlorination plant, the Western Europe-Western China International Transit Corridor development, and the Kazatoprom sulphur-burning plant at Stepnogorsk, with many consignments coming from Italy.

Supporting the mining sectorDHL Global Forwarding’s Industrial Projects team has been active in Kazakhstan since 2004. The team specializes in project-forwarding and the movement of outsize or particularly complex cargo, as well as major projects in remote locations – “a good fit for the oil and gas and mining sectors in countries such as Kazakhstan,” says Scott Massie, Industrial Projects Regional Director for Central and Eastern Europe.

“The oil and gas sector obviously plays an important role in Kazakhstan’s flows, but we also see the mining sector as a significantly increasing one,” he says. DHL has “been involved in transporting the full range of products in both these sectors, from drill bits, spare parts and valves through to rigs, mining equipment and pressure vessels, amongst others.

“We have been supporting major projects in the Caspian Sea area, which have involved the transportation of extremely large, heavy and out-of-gauge items such as generators,

turbines and processing equipment by all possible modes of transport. That can be abnormal out-of-gauge rail transports, the chartering of Antonov-124 aircraft, out-of-gauge road- transport moves, or the chartering of river ships to deliver cargoes to the nearest Kazakh port for on-carriage – or a combination of the above, to safely deliver the cargo to the required job site. In addition to the abnormal transports, these projects also involve thousands of standard containers and trailer moves, as well as standard airfreight.”

Renewable energy has been slow to develop in Kazakhstan in comparison with Western Europe, says Massie, but DHL Industrial Projects is now looking at this market as it starts to move forward – with the first wind farms due to come online in late 2015 to early 2016. “We see this as a growing potential sector within the Kazakhstan projects market,” says Massie.

Energy industry opportunitiesGlobalink Logistics Group is also looking at opportunities in alternative energy. Its Projects Division already provides services for a range of industries, including mining, aviation, agriculture, engineering, oil and gas, and construction.

Recently, the team handled the transport of two transformers from Hefei, China, to Atyrau. Its China office supervised the loading and lashing at origin; on Kazakhstan’s border, the company’s Dostyk offices controlled the offloading and subsequent reloading onto rail wagons for the final

leg of the journey. In another massive shipment, Globalink handled the transport of crushers from Spain to Kazakhstan for the mining industry. These were shipped from Bilbao to St Petersburg, reloaded onto sea-river barges for the journey down the Volga-Don canal to the Caspian Sea port of Astrakhan, and then delivered to the final site by road, using low-bed trailers.

GAC Kazakhstan has worked on a number of oil and gas projects in recent years, moving rigs, handling multimodal transportation and organising air and sea chartering. According to General Director Jan Jiyenkulov, this has included “providing general freight-forwarding services for rig relocations for an oil and gas giant in the Kyzylorda region; serving as freight forwarder and rail tariff provider for oil and gas companies in western Kazakhstan; handling multimodal projects through Turkmenistan to Uzbekistan; handling a concrete pipe project to Turkmenistan; and implementing a number of offshore projects in the Caspian.

“As a key location in the regional energy industry, Kazakhstan often sees the movement of challenging heavy-lift and project-cargo loads,” says Jiyenkulov.

Many of the world’s top names in heavy-lift transport are

established, expanding and investing in their Kazakhstan

operations, and with good reason

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PB 107

INVESTMENT OPPORTUNITIES: FINANCE AND INSURANCE


Kazakhstan has been welcomed back to international fi nancial markets with investors oversubscribing to its fi rst sovereign Eurobond issue since 2000. This happened last October, when it raised $2.5 billion

at relatively low yields, despite falling oil prices and concerns about Kashagan oilfi eld delays, tenge devaluations, weaker economic growth, and the Russian recession.

This success, a refl ection on the country’s vast resources and its economic management, should, it is hoped, set a benchmark. By attracting foreign capital, funds not available

at home would become accessible to Kazakhstan’s fi nancial and corporate sectors, and institutions. Rating agency Fitch said at the end of last year: “Economic growth should remain solid in Kazakhstan in 2015, supporting the stable outlook on the banking sector.”

Banks dominate Kazakhstan’s fi nancial system – according to the IMF last August, the nearly 40 foreign and domestic

Reforming finance to increase stability

Kazakhstan is working with the European Bank for Reconstruction and Development and the International Monetary Fund in the creation of strategies to minimize risk and maximize growth

Traders at the Green Bazaar, Almaty. Kazakhstan is working to cut non-performing loans and improve access to lending for small and medium-sized enterprises

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Kazakhstan is seeing growth in the Islamic finance sector. In October 2014, President Nursultan Nazarbayev received the Global Islamic Finance Award at the World Islamic Economic Forum in Dubai. It was in recognition of Nazarbayev’s efforts to develop and promote Islamic finance both regionally and internationally.

Moreover, the country is “fine-tuning” legislation for Sharia-compliant banking, with some lenders looking at converting into Islamic lenders, the central bank Chairman Kairat Kelimbetov said at a conference in September 2014. The legislation is to be presented to the government mid 2015.

This news comes on the back of other developments in this area. With a majority Muslim population, Kazakhstan was the first former Soviet state to introduce Islamic finance rules, with the first solely Islamic bank, Al Hilal Bank, opening in 2010. In 2013, the Islamic Corporation for the Development of the Private Sector partnered up with Zaman Bank to establish the first Islamic leasing company, with $36 million of authorized capital.

On a global scale, the Islamic banking industry is expanding rapidly, with assets potentially exceeding $3.4 trillion by 2018.

banks in the country accounted for 77 per cent of financial- sector assets and 44.9 per cent of gross domestic product (GDP). A further 19 per cent tenge devaluation in February 2014, as Russia, Kazakhstan’s major trading partner, floated its ruble, took the wind out of the sails of speculators, but also brought more pressure on the banks.

Focused as it is on growth, maximizing benefits from World Trade Organization and Eurasian Customs Union members, the government continues to work hard at creating the necessary robust banking system and improving accessibility to credit. The Banker magazine, in its January report on Kazakhstan, said: “Consolidation is also under way and is likely to increase in pace as banks adhere to new requirements to hold minimum capital reserves of 100 billion tenge ($550 million) by 2019. This is 10 times existing levels and only five out of 38 banks in the country currently have capital levels of this order – Kazkommertsbank (KKB), Halyk Bank, Bank CenterCredit, Sberbank Kazakhstan and ATF Bank.”

State support for the finance sectorThe authorities are pursuing other strategies that aim to stop speculation and minimize currency risk by de-dollarizing the economy. In order to cut the power of the omnipresent commercial currency exchanges – sources of rumor and expensive speculation – the authorities are proposing round-the-clock bank exchanges.

The government and the central bank announced jointly in December 2014 that no further devaluation was planned,

sharp currency fluctuations would not be allowed, and use of the tenge would be stimulated. The resulting wide difference between dollar (two per cent) and tenge (12 per cent) deposit rates should push tenge use.

Kazakhstan was justified in setting up an ‘oil fund’ – its multibillion-dollar sovereign oil-income-based wealth fund – as it faces banking challenges. While the government has put in place measures needed for reform, the fund is enabling it

The Government of Kazakhstan and the central bank recently announced measures designed to stimulate the use of the tenge among Kazakhs Growth of Islamic finance

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INTERVIEW

■ Last year’s establishment of the Eurasian Economic Union (EEU) created an important new trading bloc for companies

in Kazakhstan. It includes historic trading partners, has its own export and import rules and trading incentives, and will allow for easier flows of skilled labor. Anthony N Mahon, Partner at Deloitte Kazakhstan Cross-Border Tax, explains some of the implications.

What is the Eurasian Economic Union? The EEU is an international organization for regional economic integration. The EEU’s force in law was established by the Treaty on the EEU, which provides for free movement of goods, services, capital and labor force, and the realization of a coordinated, integrated and unified policy in the economic sector identified by the Treaty and international agreements within the EEU. The EEU Treaty entered into force on 1 January 2015.

Who are the members of the EEU?The EEU member states are Armenia, Belarus, Kazakhstan and Russia.

What is the purpose of the EEU?The EEU aims to establish conditions for the stable economic development of member states in order to improve the living conditions of each member country and for comprehensive modernization, cooperation and an increase of competitiveness of the national economies within the global economy.

What are the tax implications?One of the principal features of the EEU is the removal of the requirement for customs declarations of goods, and the absence of payments of customs duties on imports and exports within EEU member states. Further, in relation to tax implications in line with the terms of the EEU, VAT and excise duties on imported goods are levied by the country of destination of exported goods. Such import VAT must be paid no later than the 20th day of the month following the reporting tax period.

Citizens of EEU member states will have the following benefits: ■ absence of customs declaration; ■ absence of the necessity to pay customs duties; ■ reduction of the expenses for storage of goods in

temporary warehouses;

Understanding the Eurasian Economic Union

Almaty Financial DistrictBuilding B36, Al Farabi Almaty 050000Republic of KazakhstanT: +7 (727) 258 13 40F: +7 (727) 258 13 41www.deloitte.kz

■ tax basis for VAT calculated on the basis of the cost of the purchased goods; and

■ opportunity to pay VAT after the actual import of goods.

What are the customs implications? International trade with non-EEU member countries is accompanied by the declaration of goods and is regulated by the EEU Treaty, the Customs Code of Customs Union (during the transitional period), the Customs Code of Kazakhstan, international agreements and a number of national legal acts. The benefits:

■ unified nomenclature of goods and rates of customs duties; ■ unified principles of non-tariff regulation; ■ unified principles of technical regulations; and ■ reduction in administrative barriers during the customs

declaration of goods.

How will the establishment of the EEU affect labor?Starting from 1 January 2015, the citizens of EEU member states have an opportunity to work on the territory of member states without restrictions for the protection of the national labor market and without work permits from the local authorities. Citizens of EEU member states will have the following benefits:

■ an opportunity to work not only for Kazakh employers under an employment contract, but also to independently carry out work and provide services on the basis of a civil contract (Service Agreement);

■ mutual recognition of diplomas from 1 January 2015 will be mandatory between member states;

■ personal income tax for the citizens of EEU member states will be paid by an internal resident rate, starting from the first day of employment;

■ the citizens of the EEU member states are not required to submit migration cards when crossing internal borders of EEU countries (insofar as the duration of the stay does not exceed 30 days from the date of entry); and

■ working people and their family members are exempt from the obligation of registration at the department of internal affairs for a period of up to 30 days.

Anthony N MahonTax Partner, Caspian Region

Deloitte interview_ENG_placed.indd 109 07/05/2015 11:36



Property – 21%

Car – 9%

Against financial losses – 8%

Accident coverage – 4%

Other – 9%

Civil liability of vehicle owners, compulsory – 18%

Health – 11%

Accident coverage for employees, compulsory – 11%

Civil responsibility – 9%

SOURCE: NATIONAL BANK OF KAZAKHSTAN

September 2014 State of the banking sector State of the insurance sector

December 2014

Insurance premium mix

18% 11% 11% 9% 21% 9%4%8%9%

The assets of Kazakh insurance and reinsurance organizations totaled 592 billion tenge, up 13.1%

on January 2014 and 13.7% on December 2013

The five largest insurance companies accounted for 37.7% of premiums, 32.2% of indemnities and 49% of assets

37.7% 32.2% 49%

The total assets of Kazakh banks grew from 15.46 trillion tenge at the beginning of 2014 to 17.31 trillion tenge, an increase of 12%

The five largest banks accounted for 54% of assets, 60.8% of the loan portfolio, and 52.8% of customer deposits

Assets Loan portfolio Customer deposits

54% 60.8 52.8

IndemnitiesPremiums Assets

The next major hurdle for the banking system is the global introduction of the tough Basel III capital adequacy standards, but it is agreed that this will be effected gradually.

Kazakhstan’s banking system is maturing and adding products and services. While it recovers, government fiscal and development programs will keep growth moving forward – although cautiously.

Major companies can seek money in international capital markets; the micro, small and medium-sized ones – recognised as being a main driver of growth – cannot. So, in order to improve access to funds, the government has

to buy out the bad loans that are hobbling bank lending. Envisaged for situations such as the current one – with 2015’s GDP growth forecast having been cut to 4.7 per cent as a result of plummeting oil prices, looming recession in Russia, and regional uncertainties – the fund will be used to stabilize banks and boost the economy. In December, the government announced that 500 billion tenge ($2.75 billion) would be used in 2015 for additional concessional lending to businesses and the recovery of the banking sector. Construction of infrastructure in free economic zones and for EXPO 2017 would also be financed, according to Kazakhstanskaya Pravda.




Property – 21%

Car – 9%

Against financial losses – 8%

Accident coverage – 4%

Other – 9%

Civil liability of vehicle owners, compulsory – 18%

Health – 11%

Accident coverage for employees, compulsory – 11%

Civil responsibility – 9%

SOURCE: NATIONAL BANK OF KAZAKHSTAN

September 2014 State of the banking sector State of the insurance sector

December 2014

Insurance premium mix

18% 11% 11% 9% 21% 9%4%8%9%

The assets of Kazakh insurance and reinsurance organizations totaled 592 billion tenge, up 13.1%

on January 2014 and 13.7% on December 2013

The five largest insurance companies accounted for 37.7% of premiums, 32.2% of indemnities and 49% of assets

37.7% 32.2% 49%

The total assets of Kazakh banks grew from 15.46 trillion tenge at the beginning of 2014 to 17.31 trillion tenge, an increase of 12%

The five largest banks accounted for 54% of assets, 60.8% of the loan portfolio, and 52.8% of customer deposits

Assets Loan portfolio Customer deposits

54% 60.8 52.8

IndemnitiesPremiums Assets

The next major hurdle for the banking system is the global introduction of the tough Basel III capital adequacy standards, but it is agreed that this will be effected gradually.

Kazakhstan’s banking system is maturing and adding products and services. While it recovers, government fiscal and development programs will keep growth moving forward – although cautiously.

Major companies can seek money in international capital markets; the micro, small and medium-sized ones – recognised as being a main driver of growth – cannot. So, in order to improve access to funds, the government has

to buy out the bad loans that are hobbling bank lending. Envisaged for situations such as the current one – with 2015’s GDP growth forecast having been cut to 4.7 per cent as a result of plummeting oil prices, looming recession in Russia, and regional uncertainties – the fund will be used to stabilize banks and boost the economy. In December, the government announced that 500 billion tenge ($2.75 billion) would be used in 2015 for additional concessional lending to businesses and the recovery of the banking sector. Construction of infrastructure in free economic zones and for EXPO 2017 would also be financed, according to Kazakhstanskaya Pravda.


110 111



brought in the highly experienced European Bank for Reconstruction and Development, which is expanding a programme of small and medium-sized enterprise (SME) financing through local partner banks.

Favorable conditions for insuranceInsurance seems to offer plenty of scope for foreign investment. According to a report by the global insurance credit rating agency AM Best, the country has relatively low insurance penetration with premiums in 2013 of just 0.75 per cent of GDP. Yet the demographics are favorable, with higher life expectancy (up from 67 to 69.9 years between 2009 and 2013) and increasing wealth. Industrial development is also auspicious: Kazakhstan’s production is expanding, and the country is set to become a major transport hub with the construction of the Western Europe-Western China transportation corridor and a number of large-capacity railway lines underway.

Global rating agency Standard & Poor’s took a look at Kazakhstan’s property and casualty sectors (P/C) last year and gave it a “moderate” industry and country risk rating. It saw positive prospects for P/C insurers, with the potential for “substantial growth over the longer term.”

The government is tackling the financial risks noted by the IMF and has been introducing reforms, bringing supervision across both insurance and reinsurance closer to international best practice.

After an excellent 2013, with insurance premiums rising by 20 per cent to reach 253 billion tenge, 2014 saw a fall in the market, the first nine months being down by 6.4 per cent to 206.4 billion tenge. The National Bank of Kazakhstan attributed this to negative rates reported by life, accidents, cargo, and financial losses. The year as a whole will deliver premiums of around 279.2 billion tenge, according to insurance news agency Media XPRIMM.

Recovery is expected with a pick-up in the region’s major economies – such as China – subsequently improving local business confidence. Key premium sectors, according to the central bank (see box, opposite), were property, health, compulsory civil liability of vehicle owners, and policies covering employees’ accidents, which is also compulsory. Insurance payments reached 61.5 billion tenge in 2013, but are expected to have been much higher last year.

A major positive for Kazakhstan has been membership of the Eurasian Customs Union and, more recently, the Eurasian Economic Union. As Nazim Tulchinsky, Deputy Chairman of Eurasia Insurance Company, writes on the firm’s website: “Great opportunities for the insurance market development are opened for increasing interaction with the insurance markets of the Customs Union, the European Union and Asia.”

For vehicle owners, civil liability insurance is compulsory, and is a key premium sector along with property, health, and policies covering employees’ accidents

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INVESTMENT OPPORTUNITIES: AGRICULTURE


A sheep and goat enclosure on the mountainous Assy plateau. Having supplied food for much of the Soviet Union during the Soviet era, Kazakhstan is now embarking on a marketing program to highlight its potential around the world“B

uy land – they’re not making it any more.” As their investments in the vast plains of neighboring Kazakhstan show, China and the Middle East, hungry for agricultural land, have

been among the fi rst to recognize the truth of Mark Twain’s maxim. For much of the rest of the world, Kazakhstan’s potential as a global ‘food bowl’ is as yet, little known, but that is likely to change this year as the country rolls out a marketing program across international conferences and fairs.

Of course, it is not just Kazakhstan’s huge territory and low-cost land lease that appeal to investors. Geography has given it fertile soil and proximity to some of the world’s largest food importers, such as its Eurasian Customs Union partner Russia, and China. Logistics – and particularly the road and

Kazakhstan: the world’s potential food bowl?

Agribusiness 2020 is among the Kazakh Government’s initiatives designed to encourage investment in the country’s agricultural sector, helping it to fulfi ll its vast potential for food production

5.11 Agriculture AS.indd 112 08/05/2015 12:34

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train networks connecting Kazakhstan to Asia, Europe and the Middle East – are improving, while membership of the World Trade Organization is pending. Last, the government has introduced a raft of investor-friendly ownership, subsidy and tax measures to encourage development of the farming and food-production and processing industries.

Agribusiness is not just big business; it is mega business. What Kazakhstan is rebuilding and adapting for the 21st century was once – well within the memory of President

Nursultan Nazarbayev, who has made agricultural revival a priority – a major food source for much of Soviet Eurasia. It has the capacity to generate production, processing, machinery, and servicing industries on a global scale. Certainly, the government and the country’s backers see Kazakhstan’s potential as offering more than just a solution to fears about the food security of their own growing populations.

Agriculture makes up 28 per cent of world commodity trade, according to the United Nations Conference on Trade


Innovations for a better world.

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Its global service organization

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PB 115



Assylzhan Mamytbekov Minister of Agriculture

Over the coming decade, the Ministry of Agriculture has three chief objectives: to improve productivity, ensure food security, and increase the export potential of our agriculture sector. To achieve these goals, we are focused on fostering agro-industrial diversification, boosting modernization and formulating new approaches to providing the sector with state support. We have designed programs to fulfill our objectives, which will encompass increased crop production, the use of modern manufacturing technology, and the development of new and unused irrigated land.

To enhance the attractiveness of the sector and stimulate its economic development, we will continue to provide agricultural subsidies. The sector is a steadily growing element of Kazakhstan’s economy that offers increasing export potential. Expanding our markets will see production scaled up, and the use of high technology will ensure that we remain competitive.

Our agricultural program of development Agribusiness 2020 included state support directed at small, medium and large farms to improve their effectiveness and develop the sector at a broad level. Concessional lending by the Ministry of Agriculture is enabling the purchase of equipment and livestock, and I am confident that the quality of state support will continue to rise as we move beyond this program and into the next phase of agricultural development.

Our food and processing industry remains one of our important strategic tools in ensuring food security. Past years have seen the annual spring sowing campaign involve a greater diversification of crops and we have boosted loans to farmers in order to ensure the quality of produce. We have also issued budget loans, which enable farmers with no collateral to carry out spring sowing to a high standard.

We are committed to enhancing the investment climate in the agriculture sector, with KazAgro National Management Holding JSC acting to stimulate agro-industrial development. In recent years, the subsidiary organization of KazAgro KazAgroFinance JSC has approved a number of investment projects that are now coming to life, and there is great potential for the sector to grow with the support of government policies and programs, and broader investment across the range of prospects.

and Development (UNCTAD), with Eastern Asia’s and Western Asia’s net food import bills increasing by six and 3.2 times respectively between 1999 and 2011. Looking ahead, the UN Food and Agriculture Organization (FAO) puts world population numbers for 2050 at over nine billion (up by around a third on today). In order to cope with that, along with rising incomes and issues such as climate change, food production will have to surge by as much as 70 per cent.

China dominates scenarios with its one-fifth of the world’s population, high income growth, and a rapidly expanding agri-food sector, but comparatively few water resources, while the Agricultural Outlook 2013-2022 from the FAO and the Organisation for Economic Co-operation and Development (OECD) puts China’s net trade deficit in agriculture and food at $31 billion. Elsewhere, the Economist Intelligence Unit

MINISTER’S MESSAGE

says that the Gulf Co-operation Council states, with their limited water, land and agricultural experience, already rely on imports for around 90 per cent of their food.

This is multi-trillion-dollar stuff. The global food market was estimated to have reached $4.2 trillion in 2012, over half of that being fresh food and agriculture produce. The United Kingdom’s Institute of Grocery Distribution has said that, by 2016, China’s grocery market alone will be worth $1.6 trillion, the world’s top 15 markets will be buying $6.5 trillion worth of groceries annually, and growth in the global market is expected to be over six per cent each year up to 2020.

Enter Kazakhstan. While its presence in world agriculture is already large and growing fast, it is realizing just a small percentage of its potential, and offers huge scope. For decades, it has been one of the world’s top grain exporters, selling to over 70 countries including those in Europe, and these crops still occupy 75 per cent of agricultural land.

In what is the world’s ninth largest country, the World Bank calculates that around 77 per cent of the land is agricultural – with about 25 million hectares arable, 186 million pasture and five million hayfields. The climate is continental, with temperature averages ranging from 26°C in summer to -22°C in winter, and is able to support the growth of everything from

The government has spent billions on modernizing production, education, and agrarian sciences




As a Vice Chairman of the Board of KazAgro, Dauren Makhazhanov is responsible for finance, treasury operations, accounting and reporting, corporate development, strategy and analysis. He has held this position since October 2012, and is also Chairman of the Board of Directors of JSC Kazagromarketing, and the JSC Fund of Financial Support for Agriculture.

KazAgro: creating opportunities in agribusinessOccupying a key role in Kazakhstan’s agricultural strategy, KazAgro National Management Holding JSC is responsible for boosting the country’s huge export capacity. It plays a crucial part in attracting and deploying foreign capital, expertize and technology, as Vice Chairman of the Board Dauren Makhazhanov explains

grains and oil seeds to fruit and vegetables and the year-round rearing of livestock. Yet, today, agriculture contributes only five per cent of gross domestic product (GDP), compared with 13 per cent in 1996 – although this number also reflects the size of the oil, gas and mining industries.

Kazakhstan has identified and is tackling the problems that have held it back, as the website of the Prime Minister, Karim Massimov – recently reinstated to speed up the pace of reform and investment – explains: “In spite of strong inputs of state to the development of domestic agriculture sector, it has problems related to old technologies, low harvest, absence of scientific approaches and management of business processes... The tasks of Kazakhstan’s plant cultivation includes the diversification of seeding, reducing low profit cultures and introducing innovative technologies.”

The Agribusiness 2020 programIn 2013, Kazakhstan formulated Agribusiness 2020 as its vision to modernize the agricultural industry, backing it up with a program of investment, incentives and subsidies for domestic and foreign investors, and by its sovereign wealth

fund. Building on this strategy, the President announced in his December 2014 state-of-the-nation speech the government’s intentions to increase the size of the value-adding processing industries, introducing genetically modified (GM) crops, new technologies and an effective land market system.

A previous barrier to advancement of the sector has been the dominance of smallholdings and households in agricultural output – 56 per cent compared with 20 per cent from large enterprises and 24 per cent from cooperatives, reducing productivity and investment in modern systems, new plant, technology, and logistics. The fact that Kazakhstan is landlocked has not helped, alongside the underdevelopment of infrastructure. Lack of scale has also inhibited exports and resulted in import dependency. Food imports in 2011 reached

INTERVIEW

Government programs to support agriculture

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Investor 2020 Investors will qualify for the following state support measures:

• Up to 70 per cent reduction on corporate income tax, social security tax, land tax, fees for land use, property tax, vehicle tax

• Exemption from customs duties shall be provided for import of equipment and spare parts needed for implementation of the investment project

For priority investment projects Investments more than $20 million

• Corporate income tax: 0% for 10 years• Land tax: 0% for 10 years • Property tax: 0% for 8 years

Agribusiness 2020• Investment subsidies: from 20 per cent to 50 per cent payback

of the capital invested• Compensation of interest rates on loans and leases granted• Reimbursement of 50 per cent of the cost of feed, veterinary

preparations, fuel and lubricants; production subsidies for crop and animal production; subsidies on breeding livestock production to decrease the cost of production


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How does KazAgro assist foreign investors into the agriculture sector?The task of attracting foreign investments into the agro-industrial complex of Kazakhstan was set by the President of Kazakhstan through his [2014] Address to the Nation.

KazAgro has wide experience of creating joint ventures (JVs) and financing projects with the participation of foreign companies. The current legal framework of the agricultural sector of the Republic of Kazakhstan is consistent with the requirements of the market economy and international practice, and is aimed primarily at the protection and support of entrepreneurship initiatives of agribusiness.

So, with its support, three major projects have been realized with a value of $49.7 million, and $13.5 million of foreign direct investment has been attracted. These are two farms for 2,000 head of cattle in the Aqmola region, a 3,000-head farm JV with Global Beef of the US in Kistabau, and a feed-mill JV with a capacity for 36,800 tons of feed with Agravis of Germany.

Over the past two years, Kazakhstan has adopted many government support measures for foreign investors. Under the state program Agribusiness 2020, investors will benefit from support in the form of subsidies on investment, loans, leases and production costs.

Also, its tax levels are already among the lowest of the Customs Union countries [Kazakhstan, Belarus, and Russia], and Kazakhstan has an additional 70 per cent rebate on taxes for the agricultural sector.

KazAgro works hard to get the message over to potential investors of the amount of help available.

We work individually with each priority investor to explain the procedures of obtaining government support measures and on doing business here.

We understand that, for foreign investors, it is very important to provide ‘one-stop shop’ services. The main tasks of the Direct Investments Department at KazAgro are searching and liaising with potential investors, project-leading, help in finding a local partner, provision of sector analysis and investment projects, advising foreign investors on the acquisition of state support, as well as assistance in obtaining land and organization of meetings with key decision-makers.

Who is and who should be investing? Currently, there are investors from France, Germany, USA, Canada, Japan, China, Ukraine, and Russia successfully working in Kazakhstan. The private equity fund sector is developing for agriculture, and there are several [funds] interested in agriculture. Also, KazAgro is establishing the first agro-fund in Kazakhstan together with the Eximbank Hungary. So there are many new opportunities for financial institutions and investment banks in Kazakhstan.

It is very important for Kazakhstan to attract large agro-concerns with advanced technology, adjusted export channels, and progressive management.

Which projects are currently attractive? The government has identified the following wide range of sectors: the development of fodder production, establishment of dairy farms, creation of poultry farms and of greenhouses, agriculture machinery assembly, feedlots for cattle and cattle-rearing, slaughterhouses, meat-processing facilities, pedigree farms, grain storage, deep-processing and export infrastructure, fine-wool production and processing, vegetable store-housing, fruit production, irrigated vegetable and crop systems, and agricultural product processing.

In these sectors, Kazakhstan has huge potential, and the government provides full support for private investors in priority sectors.

Are all the main investment methods available – foreign direct investment, joint ventures and other international investment structures? Kazakhstan has well-developed financial markets and such investments methods as:

• DFI (direct financial investment into an existing company);

• DSA (direct strategic acquisition of an existing private company);

• SLA (strategic land acquisition and start-up projects);

• joint partnership (investment through a joint partnership with local government and private investors); and

• other methods are available for foreign investors.

$1 billion, most of which was sugar and other items that could be supplied domestically – vegetable oil, fish and fruit, and even meat and dairy products.

However, the government has spent billions of dollars on modernizing domestic production, education, and the agrarian sciences, and this has already been paying off. Kazakhstan can now be self-sufficient in oil seeds, potatoes and vegetables. From 2007-11, the average annual growth rate of agricultural products was 20 per cent, and of food production 12.2 per cent. In 2013 meat production, a government priority, rose three per cent to 871,000 tonnes and imports fell by 12 per cent.

Major opportunities for investors and Western companies exist in all agricultural industry sectors, but payoff in livestock

– and, in particular, beef production – could be especially rapid since neighbouring China’s appetite for meat is soaring in line with its economic growth. So, the list of opportunities includes the supply and rearing of, and genetic materials for, pedigree animals and meat-processing.

While corporate investment in the sector is only just beginning – Japanese trading house Toshiba, multinational commodity giant Glencore and US agriculture machinery major John Deere are among the growing band to have invested – a number of sovereign wealth funds (notably China’s), Islamic funds, private equity and hedge funds are established investors. Financial-sector investors also include Russia’s VTB and the European Bank for Reconstruction and Development.


INVESTMENT OPPORTUNITIES: EDUCATION


Expanding Kazakhstan’s human capital will be key to achieving the government’s goal of joining the top 30 most developed economies in the world by 2050. Conceiving and realizing educational reform in order

to meet international best practices is a serious undertaking, especially for a country as young as Kazakhstan, which only began to transition into a market-oriented economy in 1991 when it gained independence from the Soviet Union.

Recent achievementsNevertheless, Kazakhstan has made remarkable progress over the past two decades. Among several achievements, Kazakhstan now tops international league tables for primary education participation, and adult and youth literacy rates stand at 99.7 per cent and 98.8 per cent respectively.

As is universally acknowledged, the informatization of education can help extend affordable, quality education to remote locations, which is why the Kazakh Government is working to increase the share of secondary education institutions using e-learning systems to 90 per cent by 2020. It is also envisaging the establishment of resource centers to provide additional support and training for teachers and students of underdeveloped schools. Opportunities, therefore, could exist for foreign educational software developers to deliver digital education resources and broadband internet to schools. Equally, teachers and administrators will need training in order to use e-learning systems, while existing material will need to be translated into electronic format.

One company that has already taken advantage of Kazakhstan’s commitment to developing the national

Education for economic competitiveness

Since independence, access to education in Kazakhstan has improved dramatically. Reforms continue, with the aim of meeting international standards and preparing students for the labor market

5.12 Education AS.indd 118 08/05/2015 12:33

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information technology space is SIVECO Romania, leader of the Romanian IT market. In partnership with the National Center of Informatization – an organization set up by the Ministry of Education and Science to increase the use of IT in education – SIVECO has developed electronic educational content for a range of subjects. Its e-learning systems have now reached almost 600 schools in Kazakhstan.

Educating the future intellectual eliteEfforts are also being made to improve the quality of teaching for the country’s most gifted students. Nazarbayev Intellectual Schools (NIS), which have been set up across the country with the aim of educating its future intellectual leaders, are strictly selective and fitted with state-of-the-art scientific laboratory equipment and multimedia resources. NIS students are taught

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by highly qualified instructors in a trilingual environment of Kazakh, Russian and English, and are trained to become independent and culturally aware thinkers.

In 2012, NIS contracted Cambridge International Examinations, the international arm of the United Kingdom- based examination board OCR, to help develop the curricula. The organization has also cooperated extensively with the UK’s Cambridge University and the United States-based John Hopkins University and University of Pennsylvania for other projects. It is hoped that the educational model used in NIS will be extended to the rest of Kazakhstan’s

A teacher leads a class in Haileybury Almaty, a selective school opened in association with the United Kingdom’s Haileybury College. Kazakhstan has been partnering with foreign organizations to help improve the education sector




Raising the employability of young Kazakhs who do not tread the academic path is equally high on the reform agenda, which is why the government has set a goal of increasing the percentage of students aged 14-24 enrolled in vocational education and training (VET) organizations from 18 per cent in 2011 to 23 per cent by 2020.

Developing a multi-skilled domestic labor marketIn order to make vocational graduates more competitive in the global market, in 2011 the government created Kasipkor Holding to set up and manage world-class vocational colleges. Two such colleges are now being built in Almaty and Astana, while a regional center in Atyrau has already opened its doors, offering training and retraining to oil and gas personnel. A further three regional centers are currently under construction at sites in Ust-Kamenogorsk, Ekibastuz and Shymkent.

Each college is to be established in coordination with employment partners, as well as with foreign educational institutions. For example, TVET UK and Ravensbourne College

Government education targets

Indicator 2015 2020

Heads of educational institutions who passed qualifi cation upgrading and refresher courses in management

50% 100%

E-learning system used in educational institutions 50% 90%

Proportion of children aged three to six with pre-school education

73.5% 100%

Share of students who have successfully completed educational programs in science and mathematics

60% 70%

Kazakh universities rated among the world’s best 1 2

Share of universities that have passed independent national institutional accreditation according to international standards

50% 65%

Share of universities that have passed independent national specialized accreditation according to international standards

20% 30%

Universities carrying out innovative activity through the integration of science education and domestic research with the manufacturing sector

2% 5%

SOURCE: STATE PROGRAM OF EDUCATION DEVELOPMENT IN THE REPUBLIC OF KAZAKHSTAN FOR 2011-2020

schools, at which point the government may require advice and assistance from third-party education providers.

Taking center stage in the government’s education agenda, however, is higher education. Kazakhstan understands that, in order to join the most developed nations in the world, it needs skilled and intellectually advanced young professionals.

In 1993, President Nursultan Nazarbayev launched the Bolashak International Scholarship, an initiative that selects the brightest students and sends them abroad to acquire knowledge and training from the world’s top universities, such as the Sorbonne, Harvard, Cambridge, and Columbia. A list of priority majors is made annually according to market demand, and those benefi tting from the scholarship are asked to return home for at least fi ve years to contribute to the development of the country. Thousands of professionals have been trained this way and many now work in engineering, energy, medicine, telecommunications, and the public sector.

Kazakhstan has also developed its own institutional capacity, now boasting four international-standard universities: Nazarbayev University, KIMEP, Kazakh-British Technical University, and the University of Central Asia. Furthermore, as of December 2014, the Sorbonne has opened a branch in Almaty where students can follow a double-degree master’s program in international relations or management. In the future, the Sorbonne-Kazakhstan Institute will also offer medicine, marketing, and agriculture. The Sorbonne’s decision to invest in Almaty is testament to the progress Kazakhstan has made in establishing itself as a regional hub for education.


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in London have recently been selected to set up world-class colleges in Almaty and Astana. TVET UK has been active in Kazakhstan since 2007 and has facilitated numerous partnerships that have secured £25 million ($38 million) worth of contracts. TVET UK is using its knowledge of the Kazakh market to assist Ravensbourne College in delivering the set-up phase of the colleges, which includes the development of curricula, designing teacher-training programs, and creating teaching material.

“It’s true to say that, after the collapse of the Soviet Union, the vocational system in most newly independent states suffered from a lack of investment,” explains Matthew Anderson, Executive Director of TVET UK. “This was true in Kazakhstan. However, in the eight years we have been working there, we have seen several initiatives implemented to raise standards and the President himself has taken an interest in this. The current Minister of Education and Science and his team are proactive and are making progress, but of course Rome wasn’t built in a day and it will take several years to assimilate all the international best practice and spread it out

across the more than 800 institutions spread across a nation the size of Western Europe,” says Anderson.

The entire world-class college network is expected to reach completion by 2020, by which time the government hopes that Kazkhstan’s vocational education system will match those of the most developed countries in the world, in terms of structure, content, management, financing mechanisms, and capacity for innovation. However, external aid from companies such as TVET UK and Ravensbourne will be needed to help those VET colleges not covered by government initiatives.

As Kazakhstan continues to improve the quality of its education across all levels, more opportunities for collaboration will present themselves. Judging from the many partnerships that have been built over the past few years – of which only a handful are mentioned in this article – it is safe to assume that Kazakhstan will continue to seek coordination with multiple foreign stakeholders of varied profiles.

Nazarbayev University in Astana. Kazakhstan has four international-standard universities, and is aiming to have two counted among the world’s best by 2020

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Education in Kazakhstan: Achieving the goals of a knowledge society

Inevitable globalization and the healthy ambitions of the young and independent state make education a top priority and a key factor in the development of the Republic of Kazakhstan. Every citizen should become competitive not only at the country level, but also at the global one, creating a healthy spirit of competition. Education is essential for one’s competitiveness. The task of government is to prepare all conditions to ensure access to knowledge.

After becoming independent, our country had all the necessary conditions to create a successful educational cluster: experience of the Soviet system, and an innate interest in knowledge, typical of the Kazakh people. Almost every settlement had a school. The literacy rate among young people and adults was almost 100 per cent. The regional centers had higher-education institutions with humanitarian and technical specialties. The fall of the iron curtain in the early 1990s gave the Kazakh people access to global educational content.

Over the past decade, many things have improved. Education funding has increased dozens of times: hundreds of new schools have been built; thousands of pre-school education establishments have been opened. Special attention is focused on students’ access to online products via the internet. Schools are well equipped with topical rooms and modern facilities.

The State Education Development Program for 2011-2020 is implemented systematically in Kazakhstan. The purpose of education is to form an intellectual, physically and spiritually developed citizen, to satisfy their educational needs, ensuring their success in this rapidly changing world. The program provides support and continuity in the process of education- system modernization throughout the country and transformation of our institutions into competitive global centers.

Let us focus on higher education and science: 127 higher-education institutions are involved in developing professional specialists and highly qualified scientists. Nazarbayev University was established on the initiative of the President of Kazakhstan. It is a special type of university and serves as a benchmark for the future development of higher education in our country. An important task of Nazarbayev University is integrating education, science and innovation, accumulating the experience of the world’s best universities and the latest developments. Today, 144 research projects are being implemented at 45 modern laboratories of the university. Its experience is shared with other universities throughout the country.

The Bologna processKazakhstan actively implements the basic principles of the Bologna process. We joined the Bologna Declaration in March 2010 to ensure the integration of Kazakhstan’s higher education in the European region. Therefore, there was a transition to a three-level educational model: Bachelor, Master’s, PhD. The content and structure of Kazakhstan’s higher-education system was brought into conformity with generally accepted European standards. Kazakhstan’s model of credit transfer was developed on the ECTS [European Credit Transfer and Accumulation System] basis; academic mobility of students and teachers was implemented; more than 2,000 students have gone to foreign universities in the last three years. Kazakhstan’s higher-education institutions have a right to determine the content of their educational programs, considering the needs of the labor market.

An independent higher-education quality-control system has been formed. An independent assessment of education quality through the accreditation of universities and their educational programs is being developed with state control. This procedure is carried out by both Kazakh and foreign agencies. It will allow acknowledgement of our graduates’ diplomas.

The development of Kazakhstan requires modern knowledge, giving the opportunity to make important decisions and competency by participating in the country’s management and international projects. The Bolashak scholarship program is an example of Kazakhstan’s integration into the global educational space. It has allowed thousands of the most talented


Aslan SarinzhipovMinister of Education and Science


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young Kazakhs to study in the best universities of the world. Bolashak scholarship has become a guarantee of a successful career and self-realization for alumni. Over the years, we have gained more than 10,000 young Kazakhs who have received a foreign higher education at 200 of the world’s best universities. Today, they are all employed and work in various fields.

One of the indicators for the competitiveness of Kazakh universities is their positioning in global rankings. Nowadays, our universities are involved in such rankings and they build their strategies with the aim of achieving higher performance. For this purpose, we have defined the primary higher-education institutions in accordance with the priorities of industrial and regional needs. Funds are provided for the development of innovative educational programs with the participation of foreign partners, strengthening the facilities of universities and faculty staff training.

Scientific successRecent years became a turning point in the development of science in the republic. In accordance with the Law of the Republic of Kazakhstan ‘On Science’, the new mechanisms for managing science and its financing were introduced on the basis of international best practices, creating favorable conditions for science development. They stimulated scientific initiatives, and expanded their potential to implement scientific ideas. Priority is given to the development of local high-tech industry and new information technologies, to make competitive products.

Information and theoretical knowledge are the strategic resources of the country that largely determine its sovereignty and national security, in addition to educational development level. We are proactive in developing an important area of science: integration of Kazakhstan’s science into the global space. Joint research works and participation in international research projects and programs are considered important tools in such integration. Now, more than 30 intergovernmental agreements in the area of science and technology are signed with the United States, the United Kingdom, Russia, China, Korea, Japan, Germany, France, Poland, Ukraine and other countries. We wish to ensure the national and economic security to participate in the development of the scientific, technological and industrial potential of the republic.

Research of a relatively wide range of science and technology areas is guaranteed in Kazakhstan. This is evidenced by the number of publications by national scientists and specialists in leading international scientific journals in various fields. The number of articles written by the Kazakh authors exceeds the world’s average in certain areas of research, showing Kazakhstan’s specialization in these areas. At present, the most prominent and stable areas of specialization are mining and mineral processing, mineralogy, nuclear physics and technology, allergies, palaeontology, and astronomy and astrophysics, where the specialization index is higher than three.

The proportion of publications written on the basis of international collaboration is a measure of the researchers’ integration into the global scientific community. In 2009-13, this proportion was about 46 per cent of the overall volume of publications by Kazakh authors. In absolute terms, 1,163 publications were created with the participation of counterparts from 98 countries.

Global educational trends have turned knowledge into the main source of added value in the global information society. Knowledge has become the revenue-making tool, actively involved in improving the country’s economic performance; it becomes a significant profit-generating source in the modern Kazakhstan. Its future and geopolitical status depend on the knowledge level, its quality and practical use. Being aware of this special role and responsibility for the future, we work hard to achieve our main goal: overcoming the social and economic underdevelopment of the country. Our goal is to help our country and people to become leaders in the global information society. We progress by increasing the quality of human and intellectual potential, and, therefore, putting forward education to the forefront of social development.

We are confident in our future.


INVESTMENT OPPORTUNITIES: HEALTHCARE


Strong, broad economic development cannot be achieved without a healthy nation, and as Kazakhstan moves closer towards its goal of becoming one of the world’s top 30 most

developed countries by 2050, a brighter spotlight is being trained on the health of the population.

Since the country gained independence, a number of projects have been behind comprehensive reforms in the healthcare sector. The long-term aim has been to strengthen financing, management and accessibility by enhancing the provision of services. One such project is the State Health Care Development Program 2011-15 – ‘Salamatty Kazakhstan’ – which aims to improve and protect the health of the population, in order to ensure the broad and stable development of the country. In November 2014, the government reported that the target indicators of the program had been achieved, and that dialogue was under way on recommendations for the next national healthcare development program over the period 2016-20.

Three years ago, Kazakhstan was named by the United Nations Development Group as one of 50 countries to undertake national consultations on the post-2015 global development agenda. Throughout 2012 and into 2013, major talks were held in the country with the aim of stimulating inclusive debate on development challenges and the post-2015 agenda. Consultative events were held in Kazakhstan’s major cities, and emphasis was placed on achieving the unmet Millennium Development Goals (MDGs), which included targets on reducing child mortality and improving maternal health. Kazakhstan’s MDG progress

remained strong, and, in spring 2014, the UN said that the country had a good chance of achieving seven of the eight goals. Recommendations to evolve from the discussions included ensuring better education on the benefits of leading a healthy lifestyle by using tools such as awareness campaigns and media channels, and further talks were held on whether to introduce the topic of healthy lifestyles into the national curriculum.

Kazakhstan’s prioritization of healthcare and allocation of significant capital to the sector has led to notable reductions in infant and child mortality, and in tuberculosis morbidity.

Improving lives through better healthcareInvestment is needed in order to provide services where they are lacking, as well as to strengthen current health services. In terms of government commitment, more funds are being allocated to the construction of health clinics, while the state is recommending investment into specialized services. It is

also recommending greater focus on the development of primary care and education in disease prevention, which could reduce the incidence of diseases by tackling them in the early stages. The expected results from investment in these areas

include greater numbers of people receiving vaccinations, better outcomes in terms of family planning, and people making better-informed decisions in terms of diet, exercise and lifestyle choices.

Improving care and communication among health professionals and centers at the primary level will ensure that resources are used more effectively during secondary care. This should help matters by reducing the likelihood of

Continuing Kazakhstan’s healthcare journey

Despite making strong progress on the Millennium Development Goals, Kazakhstan’s healthcare industry still faces problems. But there is huge potential for growth, not least in the pharmaceutical sector

For foreign healthcare investors, it is welcome news that

Kazakhstan is exploring new financing options for the sector

5.13 Healthcare AS.indd 124 08/05/2015 12:33

A health worker collects blood samples. Extra funds are being allocated to build more health clinics, with a view to improving healthcare access across the country

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■ In order to ensure that a system of modern healthcare is given room to

develop in Kazakhstan, we first must fix pervasive issues and find solutions to the fundamental challenges present. To this end, Kazakhstan is showing steadfast commitment – commitment to improving the nation’s health and ensuring more equitable distribution of services with world-class medical care available across the country. Accessible and professional care are key characteristics of modern healthcare and medical services, yet the global economic crisis has set challenges for developed countries in particular who are charged with maintaining the standards of care that people have enjoyed. Increasing the amount of investments to the sector and implementing effective management systems will surely improve services within primary and secondary care.

In recent years, the improvement of health systems in developed countries around the world has been accompanied by a continuous reduction of share in public healthcare expenditure in state budgets, which is due to a redirection of resources to increase the effectiveness of management systems.

In the world’s most developed countries, healthcare reforms are carried out through the implementation of public-private partnership (PPP) programs, which serve to foster the development of services and ensure that medical institutions have access to the latest technology. According to the World

A public-private partnership operating in the Republic of Kazakhstan’s healthcare sector

Saule Jundubayeva General DirectorInterteach

Health Organization (WHO), every year around $3,600 billion is spent worldwide on these pursuits. The recent growth of investments in the field of medicine is also apparent in Kazakhstan.

Increases in expenditure for the medical sector originating from the public budget must be efficient if they are to improve the competitiveness of the domestic healthcare sector and converge the standards in both public and private enterprises. The state and private businesses can work together in healthcare to find solutions to the challenges that remain.

Yet modern-day problems associated with domestic healthcare development cannot be solved solely by investments in the sector. To overcome the challenges and improve national health, we must enhance the economic efficiency of the

sector by introducing new forms of PPPs in healthcare management.

In the context of global challenges, this task is especially urgent. In his message to the people of Kazakhstan in January 2014, President Nursultan Nazarbayev said: “One of the public policy directions at the new stage of our country development should be improvement in medical service quality and development of high-tech healthcare system.”

The task of developing modern medicine must involve technological elements, which are crucial in providing treatment and rehabilitation options.

It is clear that the qualitative growth of healthcare services should be implemented in Kazakhstan alongside ensuring our attractiveness to investors who have valuable experience in managing private medical enterprises and who can apply their knowledge to the public sector.

The success of such cooperation will be beneficial to all parties. Globally, developed countries follow this model. PPP in medicine is a relatively new form of sector organization that has proven itself to be successful in numerous countries around the world.

Demand for enhanced services and more efficient management is on the rise, and it is crucial for governments and healthcare providers to deliver on demands in a cost-effective way.

In all developed countries (and Kazakhstan aims to be soon rated among them), long-term partnerships between private business and the government have been implemented for many years, with a view to improving healthcare.

In 1992, the United Kingdom – a leader in terms of healthcare systems – implemented the Private Finance Initiative to improve the efficiency of services. According to the UK Government, the establishment and subsequent successful operation of this PPP medical system led to substantial savings.

Other European countries have also successfully trialled and applied various forms of PPPs. These include the mixed economy communities and the granting of concessions to private partners managing public healthcare institutions in Germany, France, Sweden and Norway. Other European countries and the United States also use various forms of PPPs in medicine management in order to improve the efficiency of investments.

We must enhance the economic efficiency of the healthcare sector

Interteach_ENG_DPS SF.indd 44 20/04/2015 16:26

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Head officeRepublic of KazakhstanAlmaty, 050059, 269, Furmanov StT: +7 7273 200 206 (205)E: [email protected]

Therefore, in many countries PPPs are in use in various sectors of the economy, such as infrastructure, transportation, and medicine and healthcare. In developed countries today, governments provide budget funds, tax breaks and subsidies to attract private capital to important social projects.

New forms of PPPs in the medical sector will help to ensure that socially significant projects are implemented in a smaller time frame, which will in turn deliver a reduction in the amount of public expenditure owing to private involvement. Private investment will bring with it talented senior executives, better equipment and modern technology.

Ultimately, the presence of modern PPPs in medicine will greatly increase the quality of domestic healthcare services.

One of the effects of PPP development in medicine will be that government bodies are given the opportunity to focus on the functions in which they have the most to give. This would relieve the healthcare sector from bureaucracy and reduce the amount of public funds allocated to healthcare. Every Kazakh citizen will benefit directly from the improvement in quality and the increase in accessibility.

Kazakhstan’s medical services have huge potential for development as a result of the steadily growing share of state budget allocated to healthcare. There are also favourable conditions

for the successful development of PPPs due to the rise of private medicine in recent years.

Public-private collaboration in public health will enable us to solve challenges in Kazakhstan’s healthcare sector in the following ways:

■ Creating unified infrastructural and technological standards of extramural outpatient care for health organizations providing primary medical care.

■ Enhancing the efficiency of public resources.

■ Reducing burden on the state budget. ■ Improving competitiveness among

public medical institutions. ■ Increasing public confidence in the

public healthcare system. ■ Ensuring the accessibility, quality and

efficiency of medical services.

PPP as one of the new forms of healthcare organization is a modern approach to solving many of the challenges facing medicine in Kazakhstan. When solving the most urgent problems of social development, the state should rely on the well-established private healthcare structures, just as this way has been used for a long time in developed countries worldwide.

According to the majority of analysts, investments in healthcare services in Kazakhstan can follow the healthcare development methods of the United

States. In the US, PPP is developing with the creation of vertically integrated corporations that are engaged in medical and social insurance, and the provision of healthcare services. The prototype of this form of healthcare organization is embodied in the Interteach Health and Medical Insurance Corporation.

Interteach Corporation was established in 1989 with the support of the World Health Organization as an International School of Public Health. In the years since its establishment, the Interteach Corporation has become the market-leading provider of health insurance and services in Kazakhstan, and a major provider of medical services to the financial, oil and gas, construction and tobacco industries. Interteach’s activity is characterized by trust, respect and support from both the medical community and clients, and the company implements major projects in the field of healthcare and health insurance.

Interteach_ENG_DPS SF.indd 45 20/04/2015 16:26



duplication and inefficiencies, as well as providing continuity of care for those who need longer-term treatment.

The latter is particularly important given the prevalence of non-communicable diseases in Kazakhstan. Cardiovascular diseases remain a leading cause of mortality, and there has been a measurable increase in the rate of oncological disease and diabetes. Health issues such as these require ongoing treatment that can be costly.

Making healthy investmentsBy 2017, Kazakhstan aims to reach the 50th position in the World Bank’s Doing Business rankings, from number 77 in 2015. This, combined with a climb in the World Economic Forum’s Global Competitiveness Index and more transparency in government policymaking, is set to improve the climate for investment, spelling good news for foreign enterprises looking for opportunities in Kazakhstan’s health sector. Investment support and protection is also set to improve under plans to attract more foreign capital to the country. In May 2014, the government announced that it had designed a road map of measures aimed at incentivizing foreign direct investment and privatizing some of the country’s key economic areas.

For foreign healthcare investors, welcome news comes in the fact that Kazakhstan is exploring new financing options for the health sector. At around four per cent of gross domestic product (GDP), healthcare spending is significantly lower than the Organisation for Economic Co-operation and Development (OECD) average of 9.3 per cent; in order to encourage development in the sector, the government has introduced

Pediatric heart surgery in process. Kazakhstan has achieved notable reductions in child mortality, thanks to significant investment in the healthcare sector

A healthcare professional takes a patient’s blood sugar reading. Diabetes and other non-communicable diseases require long-term treatment, which can be costly

a public-private partnership (PPP) initiative that complements increased funding from the national budget and a medical insurance fund scheme, due to come into effect in 2017.

It is hoped that these measures will alleviate the financial pressure on the sector and the public, and improve the services available. A number of GP practices, health clinics and hospitals are already planned for construction under PPP schemes, while university hospitals in the Almaty and Karaganda regions are currently undergoing feasibility studies.

As the sector transitions to encompass services that better serve the population, it is crucial that healthcare workers are kept informed of developments and feel involved in any planned reforms.

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One key area pinpointed for investment is pharmaceuticals. The sector has felt the benefi ts of government efforts to widen healthcare coverage and increase expenditure in pharmaceuticals, leading to fast expansion that is attracting the attention of the global investment community.

In 2013, it was reported that the number of multinational companies entering Kazakhstan’s pharmaceuticals sector was on the rise. This news followed the signing of several new pharmaceutical deals with international companies at the end of 2012, including Czech company Favea Europe’s deal with Kazakhstan’s Romat.

In response, and to make the most of the strong investment climate, Kazakh offi cials consulted with foreign fi rms to encourage more long-term investments. Today, Kazakhstan is home to one of the most attractive

Life expectancy at birth, total (years)

SOURCE: THE WORLD BANK

SOURCE: WHO: GLOBAL HEALTH OBSERVATORY DATA REPOSITORY, KAZAKHSTAN STATISTICS SUMMARY (2002-PRESENT), THE AS % OF GDP, PER CAPITA GOVERNMENT EXPENDITURE ON HEALTH (PPP INT. $), HTTP://APPS.WHO.INT/GHO/DATA/NODE.COUNTRY.COUNTRY-KAZ, 6 FEBRUARY 2015

2008 2009 2010 2011 2012

Per capita, (PPP $)

% as a share of GDP

3.9 4.5 4.3 3.9 4.2

442.8 517.2 531.5 533.6 607.6

pharmaceuticals markets in Central Asia for multinational drug manufacturers. This attractiveness can be partly ascribed to Kazakhstan’s advantage in terms of pharmaceutical supply channels: it boasts a favourable business environment, close regional ties and numerous trade channels.

With sector expansion and greater involvement from foreign investors and multinationals, the coming years could see Kazakhstan’s pharmaceuticals sector extend to supply neighboring countries such as Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan, which have in common growing populations and a lack of domestic production capacity.

There is signifi cant potential for growth in Kazakhstan’s health sector, and, as healthcare services and coverage expand, foreign investors have a key role to play in the future of healthcare and pharmaceuticals in the country.

Government spending on health

2010

75

70

65

602011 2012 2013

68.3 69.0 69.6 70.5


INVESTMENT OPPORTUNITIES: TOURISM


Kazakhstan’s tourism industry has come a long way in recent years. The country has something to offer every traveler, whether business or leisure, ranging from fi ve-star hotels to homestays in a yurt, and

from hikes in the countryside to the historic Silk Road. Access to this beautiful and vast country, the ninth largest in the world, is relatively easy, with its 25 airports, 15 of which are international. However, the industry is nowhere near its potential. Tourism and travel directly contribute 2.9 per cent to global gross domestic product (GDP); in Kazakhstan, it generates 1.6 per cent of GDP. But the country’s share of tourism is growing each year.

The Government of Kazakhstan realizes the country’s potential to become the hub of Central Asia’s tourism industry, and wants tourism to account for a higher percentage of GDP. In order to achieve this, however, huge strides will need to be made to further develop tourist product offerings and market the country’s assets in a sustainable way.

Growth in tourism is forecast to rise steadily, as Kazakhstan has the most developed tourism products in the region. In 2013, the number of tourist arrivals increased by 11 per cent to reach 4.9 million trips, according to the United Nations World Tourism Organization (UNWTO). A growing number of international events, such as EXPO 2017, will improve the

Developing a hub for tourism in Central Asia

Tourism is a priority area for development in Kazakhstan, with plans to double visitor numbers by 2020. The country’s diverse offerings ensure that there is signifi cant potential for growth

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awareness of Kazakhstan as a destination among international travelers, thereby increasing demand for travel services. The EXPO is expected to attract around two million visitors, each of whom is expected to visit the exhibition at least twice, resulting in five million visits (see page 35). Many of these will come from abroad, adding a further boost to tourist arrivals.

The government is showing its support for tourism, and development of the sector has become a national priority as a means of diversifying the economy. As part of the government reorganization undertaken in August 2014, the Tourism Industry Committee was replaced by the Department of Tourism, which has been charged with tapping the potential

of this underdeveloped sector by widening the industry’s reach, promoting Kazakhstan’s image to source markets, and improving essential infrastructure. Furthermore, the new visa-free system for 10 key markets reflects the government’s dedication to welcoming more visitors (see page 136).

The government has also established special economic zones (SEZs), which offer businesses a number of economic incentives, allowing exemptions from corporate tax, land tax, property tax and value-added tax (VAT). They also offer

Cable cars connect Chimbulak ski resort with the Medeo speed-skating rink in Almaty. Kazakhstan has a varied terrain that ranges from mountains to deserts

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SOURCE: MINISTRY OF TOURISM AND SPORT OF THE REPUBLIC OF KAZAKHSTAN

HOTEL

PB 133



institutional support, while KAZNEX Invest, the national export and investment agency, was developed to become a one-stop shop for international investors. Part of the Ministry of Investment and Development, the agency offers consulting services, assists with bureaucratic procedures, and supports the promotion of products to foreign markets. These agencies are working together to shape the country into an attractive destination.

The main inbound markets are Uzbekistan, Kyrgyzstan and Russia (accounting for 85 per cent of arrivals), with the primary purpose for travel being to visit friends and relatives in the country. Strong potential markets are city dwellers in Turkey, Russia, China, India and the Middle East, and, through the creation of tourist attractions and

improvements to infrastructure, developing these markets could have a wider positive effect on the country’s economy.

In 2012, leisure tourists accounted for 82 per cent of all arrivals, while business arrivals composed the remaining 18 per cent, with an increase in arrivals of business tourists from China due to the demand for oil and gas.

Opportunities for improvementWhile challenges remain to attracting additional tourists, the government is taking steps towards addressing these, improving transport infrastructure and customer service; working to bring prices down and make accommodation more affordable; and promoting the country more effectively as a travel destination. For example, the government is

Tourism cluster Tourism areas Investment projects1) North KazakhstanAstana

The capital, Astana, and surrounding natural areas including UNESCO’s Saryarka natural heritage site. Prime target area for business travelers and developed to handle MICE (meetings, incentives, conventions, and exhibitions) tourism

Burabai international tourist center

2) South-east KazakhstanAlmaty

From ski resorts to the historical former capital city of Almaty, the landscape varies from moutainous to urban. Highlights include Kapshagay Reservoir, Charyn Canyon, and the UNESCO-listed Tamgaly Petroglyphs

Gaming and hotel industry in the Kapshagay Reservoir region, including a sports and entertainment center, targeting domestic and international business travelers

Talhiz mountain panorama resort in the Almaty region

3) East Kazakhstan Ust Kamenogorsk

Branded as the world of natural wonders and ecotourism, targeting domestic and regional tourists

Katon Karagai, specializing in international health tourism

4) South KazakhstanShymkent, Kyzylorda and Zhambyl regions

Promoted as the center of the Silk Road. Major tourist destinations will include the UNESCO-listed Mausoleum of Khoja Ahmed Yasawi in Turkestan; the archaeological sites of Otrar and Sauran; national parks; and the historic town of Taraz. It will also include the Baikonur Cosmodrome

The ‘Ancient Turkestan’ and ‘Ancient Otrar’ projects aim to turn Kazakhstan’s portion of the Silk Road into a popular tourist centre demonstrating the country’s rich history and culture, and generating a revival of ancient crafts and trades

Koksai and Kaskasu ski resorts

Kambash beach resorts, including ecotourism in Kyzylorda region

Korkyt Ata ethno-geographical complex – education and training facilities for the study of Kazakh culture and music

Yurt hotel in Kyzylorda

Baikonur – development of the world’s fi rst spaceport, offering scientifi c potential and a place for new discoveries

5) West KazakhstanAktau and Atyrau

Beach tourism in Aktau; in Atyrau and the surrounding areas, the focus will be on religious tourism, for example to ancient mosques, mausoleums and other historical monuments

International health resort

Kenderli Resort on the Caspian coast

Greenland recreation center in Aktobe

Caravanserai Irgyz ethno-village in Aktobe

Potential areas for investment in Kazakhstan’s tourism industry

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investing five trillion tenge ($32.4 billion) as part of a new Railway Development Program.

As a leisure tourism destination, Kazakhstan mostly competes with other Central Asian countries, including Kyrgyzstan, Uzbekistan, and Tajikistan. Though tourism in Kazakhstan is more expensive compared with that in neighboring countries, the products and services it offers are high quality. Globally, Kazakhstan is a new destination to be discovered for many tourists, which provides opportunities for promotion, and the government is putting forth great efforts to boost Kazakhstan’s attractiveness in this respect. The official tourism website, www.visitkazakhstan.kz, offers information for travelers and a booking facility, while social media and online services such as TripAdvisor and Expedia could also be exploited to raise the country’s profile further.

In terms of accommodation, there is a shortage of three- star hotels, which are necessary to attract greater numbers of both domestic and international travelers. Conversely, there is a surplus of expensive, five-star hotels, filled mostly with business travelers. As a result, domestic tourists generally prefer to travel abroad. It is hoped that, with the development of inbound tourism and sufficient foreign investment in the mid-range hotel market, this situation could be reversed as hotels take the opportunity to improve their performance.

Tourism cluster areas Developed by the Ministry of Tourism and Sport, the ‘Concept of Tourism Industry Development in Kazakhstan to 2020’ aims to establish Kazakhstan as an internationally recognized tourism destination. This ambitious plan, designed to more than double the number of visitors to eight million, will require around $10 billion in private investments, and government and borrowed funds. It divides tourism development into five cluster areas, which align closely with the SEZs, and offer special incentives to international investors. The goal is to boost domestic and inbound tourism in the areas of nature-based tourism; cultural and historical Silk Road tourism; skiing and adventure tourism; beach resort tourism; and MICE (meetings, incentives, conventions, and exhibitions) tourism for business travelers.

In terms of nature-based tourism, it will be important for developments to take environmental factors into consideration and minimize any negative impacts – essential principles in any ecotourism development project. Kazakhstan has the

Tourism indicators for Kazakhstan (2013)

International arrivals

4.9 millionTourism receipts

$1.5 billion

Part of the Khan Shatyr Entertainment Center in Astana, Suntana Aquapark is one of the city’s major attractions, with an indoor beach and artificial tropical climate

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opportunity to set a high standard in terms of sustainable tourism development, which in turn will create a favorable image on the global stage.

Cultural and historical tourism has also been highlighted as an area of significant growth potential for Kazakhstan. In 2014, UNESCO (the United Nations Educational, Scientific and Cultural Organization) accepted the nomination for a 5,000km section of the Silk Roads network, the Chang’an- Tianshan Corridor, to be added to the World Heritage List. This is evidence of Kazakhstan’s commitment to promoting

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The tourism market is fiercely competitive, demanding enterprise and skills in order to generate employment and drive economic growth. Inbound tourism to Kazakhstan is on the rise, and our promotion of homestay tourism – where tourists are given the opportunity to participate in Kazakh village life – has been successful.

We have outlined strategic plans for the coming years that will transform our tourism industry, making Kazakhstan a globally competitive destination. We have much to offer prospective visitors, and in the long term we want Kazakhstan to become the ‘Land of Tourism Resorts’. Identifying regional strengths is key to the success of these strategies.

Some areas are famed for their ski resorts, others for their history and culture, and some for their beaches and adventure activities. We have approved plans for the creation of an international ski resort, and demand for nature tourism remains strong. The increasing number of international flights from the airports in Astana and Almaty in particular are helping with visitor volumes.

The Tourism Development Plan, which will be in place until 2020, will shape developments in the sector around the needs and demands of prospective visitors and the domestic industry. It will identify key tourism projects, create a national brand and implement necessary infrastructure. All of this will give new momentum to this promising area of our economy.

Our hosting of tourism-related events is drawing global attention, and numbers of visitors to our cities are rising. As we approach our hosting of EXPO 2017, Astana is preparing to welcome a forecast five million visitors. New hotels and resorts will accommodate event attendees and we are making improvements to all tourist transport routes. Having highlighted what Kazakhstan has to offer, it is hoped that our hosting of international events will leave a legacy of growth to our tourism industry.

In sport, we have directed numerous resources towards our bid to host the 2022 Winter Olympics in Almaty, and we have been delighted to see Kazakh nationals succeed in sports internationally. In 2017, Almaty will welcome competitors and spectators to the 28th Winter Universiade, and I am confident that these events will enthuse and inspire our next generation of athletes.

Kazakhstan has great potential to showcase its wealth of culture, tourism offerings and sporting prowess, and our doors are open to global investors in these areas. As we work towards becoming Central Asia’s tourism hub, I look forward to the numerous exciting developments due in the coming years.

Arystanbek MukhamediulyMinister of Culture and Sport

and protecting its heritage, while the close cooperation with Kyrgyzstan and China required to make this a nomination a success is testament to the country’s resolve in collaborating with its neighbors. This new inscription to UNESCO’s list has paved the way for other Silk Road corridor multi-country nominations, which will strengthen the brand and solidify Kazakhstan’s position as a leader.

The UNWTO and UNESCO are partnering up to develop a sustainable strategy for the Silk Roads. In 2013, Kazakhstan hosted a workshop for the Silk Roads Heritage Corridors Tourism Strategy Project, with support from the then Ministry

of Industry and New Technologies, and the UNESCO/Netherlands Funds-in-Trust. Bringing together heritage and tourism experts, the project aims to develop a comprehensive and sustainable strategy for the management and conservation of this historical area. As the website for the project states, “the Silk Road’s exceptional cultural and living heritage creates incredible opportunities for tourism.”

With such plans in place for the sustainable development of its tourism industry, Kazakhstan is set to become the leader of sustainable tourism in Central Asia, which would be something especially worthy of promotion.

SOURCES: UNWTO TOURISM HIGHLIGHTS 2014; WORLD TRAVEL & TOURISM COUNCIL, TRAVEL & TOURISM ECONOMIC IMPACT 2014; WORLD ECONOMIC FORUM, THE TRAVEL & TOURISM COMPETITIVENESS REPORT 2013

Direct GDP contribution

1.6%Tourism competitiveness ranked

88/140 countries

88140


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SUPPORT AND GUIDANCE


Recent years have seen the amount of foreign direct investment (FDI) heading into Kazakhstan ebb and fl ow,

running parallel with developments in the global environment. Yet this past year has seen the government take decisive action to secure a more prominent position in the competitive global investment arena. By implementing fresh incentives and enacting new laws designed to attract foreign capital, Kazakhstan could soon be welcoming large volumes of investment to all corners of its expanding market economy.

Visa exemptionOn 12 June 2014, the 27th plenary session of the Foreign Investors’ Council took place in the picturesque lakeside setting of Kazakhstan’s Burabai resort. Chairing the meeting, President Nursultan Nazarbayev announced that a visa-free regime would be in force between 15 July 2014 and 15 July 2015. The scheme applies to citizens of the 10 countries that most actively invest in Kazakhstan or that have the most investment potential – namely France, Germany, Italy, Japan, Korea, Malaysia, the Netherlands, the

United Arab Emirates, the United Kingdom and the United States.

Throughout the period specifi ed, visitors from these countries are exempt from visa requirements for stays of up to 15 days. For tourists, the visa exemption means easier accessibility to the country’s resorts, which are enjoying increasing popularity among international holidaymakers lured by the

scenic landscape and snow-drenched ski resorts. Kazakhstan’s First Deputy Minister of Foreign Affairs, Rapil Zhoshybayev, remarked that the temporary visa system was “a special step by our country that aims to facilitate cooperation with other countries, attract investment and create favorable conditions for

international travel on the eve of the international specialized exhibition EXPO 2017 in Astana.”

The main thrust behind the visa-process revision is Kazakhstan’s desire to maintain its competitive edge in a globalizing world. There is some speculation that the one-year timeframe is a trial period, and that if the scheme is deemed to be successful, then it could be extended and expanded to cover other countries.

Kazakhstan looks set to reap the rewards of greater foreign participation in its markets, while, for investors, the move grants an opportunity to access lucrative opportunities in the Central Asian country. It also marks another step forward in Kazakhstan’s path to broader economic openness, which is part of President Nazarbayev’s long-term plan for the country to join the ranks of the world’s top 30 global economies by 2050.

New legislationOn the same day as the visa-free process was announced, President Nazarbayev also signed into law legislation to improve Kazakhstan’s investment climate. The ‘Law for Introducing Amendments to Various

This past year has seen the government take decisive action to secure a prominent position in the global investment arena

New incentives seek to attract more foreign investors to Kazakhstan

In line with the 2050 Strategy, Kazakhstan is working to elevate its status as a center for regional and global investment with the introduction of new legislation and incentives

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Recent years have seen the amount of foreign direct investment (FDI) heading into Kazakhstan ebb and fl ow,

running parallel with developments in the global environment. Yet this past year has seen the government take decisive action to secure a more prominent position in the competitive global investment arena. By implementing fresh incentives and enacting new laws designed to attract foreign capital, Kazakhstan could soon be welcoming large volumes of investment to all corners of its expanding market economy.

Visa exemptionOn 12 June 2014, the 27th plenary session of the Foreign Investors’ Council took place in the picturesque lakeside setting of Kazakhstan’s Burabai resort. Chairing the meeting, President Nursultan Nazarbayev announced that a visa-free regime would be in force between 15 July 2014 and 15 July 2015. The scheme applies to citizens of the 10 countries that most actively invest in Kazakhstan or that have the most investment potential – namely France, Germany, Italy, Japan, Korea, Malaysia, the Netherlands, the

United Arab Emirates, the United Kingdom and the United States.

Throughout the period specifi ed, visitors from these countries are exempt from visa requirements for stays of up to 15 days. For tourists, the visa exemption means easier accessibility to the country’s resorts, which are enjoying increasing popularity among international holidaymakers lured by the

scenic landscape and snow-drenched ski resorts. Kazakhstan’s First Deputy Minister of Foreign Affairs, Rapil Zhoshybayev, remarked that the temporary visa system was “a special step by our country that aims to facilitate cooperation with other countries, attract investment and create favorable conditions for

international travel on the eve of the international specialized exhibition EXPO 2017 in Astana.”

The main thrust behind the visa-process revision is Kazakhstan’s desire to maintain its competitive edge in a globalizing world. There is some speculation that the one-year timeframe is a trial period, and that if the scheme is deemed to be successful, then it could be extended and expanded to cover other countries.

Kazakhstan looks set to reap the rewards of greater foreign participation in its markets, while, for investors, the move grants an opportunity to access lucrative opportunities in the Central Asian country. It also marks another step forward in Kazakhstan’s path to broader economic openness, which is part of President Nazarbayev’s long-term plan for the country to join the ranks of the world’s top 30 global economies by 2050.

New legislationOn the same day as the visa-free process was announced, President Nazarbayev also signed into law legislation to improve Kazakhstan’s investment climate. The ‘Law for Introducing Amendments to Various

This past year has seen the government take decisive action to secure a prominent position in the global investment arena

New incentives seek to attract more foreign investors to Kazakhstan

In line with the 2050 Strategy, Kazakhstan is working to elevate its status as a center for regional and global investment with the introduction of new legislation and incentives


136 137



In June last year, the 27th plenary session of Kazakhstan’s Foreign Investors’ Council saw the announcement of a visa-free scheme for 10 countries

but the prevailing message is that Kazakhstan is open for business, and has a raft of benefits on offer for foreign partners. “The law is specifically aimed at attracting foreign investment,” says Nerush.

Publicity campaignTowards the end of 2014, Kazakhstan unveiled a publicity campaign aimed at drawing greater levels of FDI to its growing economy. The campaign marks a new phase in the nation’s strategy to attract foreign business, and serves to highlight the legislative changes that will affect investors. A commercial released as part of the campaign proclaims that “prosperity starts here” and succinctly broadcasts the benefits that interested parties can expect, including:

• exemption from certain taxes and customs duties for up to 10 years;

• state in-kind grants;• stability of investment legislation;• protection of investors’ rights;• no work permits for foreign

labor; and• 30 per cent cashback

on investments.

Commenting on the range of incentives, Nerush says that an increase in foreign investment can be expected across a number of sectors. Intended for a global audience, the commercial has already featured on US television, notably during Cable News Network’s

Legislative Acts on Issues Relating to the Improvement of the Investment Climate entered into force on 24 June 2014, introducing changes to certain legislative acts such as the Tax Code, the Law on Investments, and the Law on Employment of Population.

Key elements of the law include the introduction of a special tax regime for entities implementing priority investment projects. It is also intended to provide stability for investment contracts and act as a shield against possible future increases in rates of charges, duties or taxes. In addition, the law stipulates that corporate income tax from income relating to the implementation of priority investment projects will be reduced by 100 per cent for a maximum of 10 years from the signing of the investment contract.

Anna Nerush, Associate in the Business and Finance Practice of global law firm Morgan Lewis, says: “Several projects are taking advantage of the preferences, mostly in the infrastructure sector and mostly with the involvement of state companies – for example, reconstruction and modernization of refineries, construction of new petrochemical facilities, and expansion of Aktau sea port.” Nerush notes that an increase in private projects in ‘priority business activities,’ which covers most areas except for gambling, subsoil and the production of certain excise goods, is anticipated. Caveats apply to individual clauses,

(CNN) election coverage in early November 2014.

The incentives on offer are impressive, yet they have also encouraged discussion on just how stable Kazakhstan’s investment climate is. Amid fluctuating gross domestic product (GDP) growth rates over the past decade, and with the country feeling the effects of the global financial crisis, Kazakhstan has sought to stabilise growth and protect its economy through a series of policies and programs, and its drive to attract foreign investment is targeted at stimulating the economy and widening its global reach by forming new international partnerships. According to the World Bank’s Doing Business report, Kazakhstan’s business environment is improving, and most indicators are pointing towards more transparency and an improved climate for foreign investment.

Having welcomed large multinationals to the country for the past two decades, particularly within the oil and gas sector, Kazakhstan is working hard in order to accommodate smaller foreign enterprises as well, and the incentives and potential for business growth and development could prove tempting for those seeking opportunities in the region.



Index of advertisers

Ammann Kazakhstan LLP .................................................................................90Arcanum .........................................................................................................84Baker & McKenzie .............................................................................................2Bühler AG .....................................................................................................114Bureau Veritas .................................................................................................68Caspian Offshore Construction ..........................................................................52Deloitte ..................................................................................................6 & 109G4S Kazakhstan ................................................................................................4GE Transportation ............................................................................................96Globalink ......................................................................................................101Global Oil&Gas Atyrau – The ITE Group ...........................................................139Interteach ...........................................................................................126 & 140Kaz Air Jet JSC ................................................................................................12KAZENERGY Eurasian Forum 2015 ..................................................................62KIOGE Oil & Gas – The ITE Group .....................................................................10M&M – Militzer & Munch .................................................................................98Mangystau Oil & Gas – The ITE Group ...............................................................40NCOC – North Caspian Operating Company ........................................................54Nostrum Oil & Gas ...........................................................................................58OMV Petrom ....................................................................................................44Partex Oil and Gas ...........................................................................................48PM Lucas .......................................................................................................56RigNet ............................................................................................................64RJI Capital ......................................................................................................14Sarens Group ..................................................................................................34SPC Munaigas Engineering Ltd .........................................................................66Translators Group LLP ......................................................................................36UIA – Ukraine International Airlines ................................................................132Volvo Group Kazakhstan ...................................................................................28

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Invest in Kazakhtsan 2015

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