Late last month, Parliament passed a bill to present Nazarbayev with the honorific Halyk Kaharmany, Kazakh for “People’s Hero”, when the country marks its 20th independence anniversary on December 16.

Kazakh Prime Minister Karim Masimov proposed the idea.

Speaking to parliament after the legislation’s acceptance on November 29, Masimov said: “I am now signing this document, which is probably the most important document I have ever signed in my life,” local media reported at the time.

But Nazarbayev told journalists Saturday he will not ink the document into law, according to the Kazinform news agency.

The president was speaking at a press conference at the new TV and radio complex, called Kazmediacenter, in the capital city Astana.

Nazarbayev, who has ruled the country since 1990, told the media he did not take exception to another proposal to name December 1 as First President’s Day, Kazinform reported.

He said that many countries recognize such a holiday.

Kazakhstan burst forth onto the global stage in 1991 as the second-largest member of the Commonwealth of Independent States (CIS). Since the start of the millennium, the country has averaged near 10% GDP growth until 2007, and has been the second-largest recipient of FDI throughout the CIS region. Following liquidity injections from the National Oil Fund, established in 2001 to ward off the dangers posed by commodity price swings, the government has successfully defended the real economy throughout the global financial crisis. Via its Business Road Map 2020 program, Kazakhstan is actively looking to create higher levels of value-added from its extensive natural resource base, and improve the spread of economic diversification across the country. The government has also actively sought to improve the business environment for foreign investors, and has seen its ranking in the World Bank’s Doing Business survey surge from 74th in 2010 to 59th in 2011. GDP growth has responded in turn, up by 4% in 2010, while IMF estimates put it at 5.6-6.5% over the 2011-2012 period.

Kazakhstan is also looking to leverage its role as a key land transit state between Europe and China through highway upgrade projects, while seeking to expand its trading relations through the Customs Union it has with Russia and Belarus. The oil and gas sector has been a key mainstay of the economy, generating the wealth needed to provide the economy with new growth opportunities across the board. Additionally, the strengths Kazakhstan holds in the mineral resources and agriculture sectors allow it to punch well above its weight in not only regional but also international trading terms.

The Business Year presents the real opportunities and those creating them—diplomats, business people, civil servants, and key stakeholders—to introduce Kazakhstan and its many unexpected faces in the world of business.

Цель проекта: создание собственного вагоносборочного производства на базе ТОО «Таман» в г. Экибастуз, позволяющего удовлетворить потребности отечественных транспортных предприятий в обновлении парка грузовых вагонов.

Участники проекта:

ТОО «Казахстанская вагоностроительная компания», созданная с участием АО «Қазтеміртранс», ТОО «Камкор Менеджмент», ТОО «Новые технологии в машиностроении и огнеупорах» (аффилированная компания АО «Востокмашзавод»).

Период реализации: 2009-2011 годы.

Месторасположение: г. Экибастуз, Павлодарская область.

Производственная мощность: 2500 единиц в год.

Ожидаемый эффект:

• Развитие транспортного машиностроения;
• диверсификация производства;
• развитие сопутствующих производств;
• Создание новых рабочих мест: 600 в период строительства, 200 – после ввода объекта в эксплуатацию.

Стадия реализации проекта:

В настоящее время по проекту завершены строительно-монтажные работы по 2-му пусковому комплексу, ведется работа по завершению процедур ввода в эксплуатацию и подписанию актов государственной комиссии. Строительно-монтажные работы по 3-му пусковому комплексу ведутся согласно графику, что обеспечит выход предприятия на проектную мощность до 3 000 вагонов в год. Планируемые сроки ввода в эксплуатацию – ноябрь 2011 г.

Проект строительства завода по производству пассажирских вагонов технологии Patentes Talgo SL в г.Астана

Цель проекта: Развитие отечественного транспортного железнодорожного машиностроения, удовлетворение потребности казахстанских транспортных предприятий в обновлении парка пассажирских вагонов.

Участники проекта: В рамках проекта создано совместное предприятие (СП) ТОО «Тулпар Тальго», участниками которого выступают АО «НК «КТЖ» в лице 100% дочернего предприятия АО «Ремлокомотив» и Patentes Talgo SL.

Период реализации: 2010 – 2011 гг

Месторасположение: Специальная экономическая зона «Астана – новый город».
Производственная мощность: 150 вагонов в год

Ожидаемый эффект: Постепенное снижение уровня изношенности пассажирского парка вагонов в Казахстане, серьезное повышение качества вагонов, полностью адаптированных для эксплуатации в Казахстане, создание 342 постоянных рабочих мест с высоким уровнем производительности труда.

Текущее состояние В настоящее время по проекту ведется строительство основного корпуса, закуп основного технологического оборудования. Освоение финансирования по строительно-монтажным рабам составило – 1,97 млрд. тг. С начала июня работы продолжены в трехсменном режиме.

Строительство Мойнакской гидроэлектростанции

Данный проект предполагает строительство гидроэлектростанции на реке Чарын (Алматинская область) установленной мощностью 300 МВт.

Цель проекта:

• создание маневренного источника электроэнергии для организации поставок электрической мощности и энергии в дефицитную энергосистему южных регионов РК;
• покрытие пиковых нагрузок южных регионов (работа в создаваемом балансирующем рынке электроэнергии).

Участники:

• АО «Мойнакская ГЭС» (51% – АО «КазКуат» со 100%-ным участием государства; 49% – частная компания АО «Бирлик»);
• Китайская международная корпорация водного хозяйства и энергетики (China International Water & Electric Corporation) привлечена в качестве подрядчика для проектирования, строительства «под ключ» и ввода в эксплуатацию основных объектов Мойнакской ГЭС.
• В целях организации финансирования проекта привлечены кредиты АО «Банк развития Казахстана», Государственного Банка Развития Казахстана (ГБРК).

Период реализации проекта: 2006-2011 годы.

Месторасположение объектов проекта: Алматинская область, Райымбекский район, Жылысайский сельский округ.

Производственная мощность: 300 МВт

Проект предполагает два этапа реализации:

1. Строительство головного гидроузла Мойнакской ГЭС – Бестюбинского водохранилища, а также инфраструктурных объектов (организация внешнего электроснабжения, строительство временных сооружений и поселка службы эксплуатации, обеспечение внешнего водоснабжения и канализации, реконструкция подъездной дороги к плотине Бестюбинского водохранилища и к уравнительному резервуару).

2. Строительство основных сооружений ГЭС (деривационный туннель протяженностью 9 км, здание ГЭС со станционной площадкой и служебно-бытовым корпусом).

Ожидаемый эффект от реализации проекта:

• Производство около 1 млрд. кВтч. электроэнергии в год;
• Обеспечение надежного электроснабжения южных регионов РК;
• Создание новых рабочих мест: на стадии строительства – 665, в период эксплуатации – 127.

Текущая стадия проработки проекта:

На сегодняшний день по проекту полностью завершен проход деривационной системы общей протяженностью 11,6 км и осуществляется строительство головного гидроузла Бестюбинского водохранилища, поставка и монтаж основного оборудования станции.

Строительство железной дороги Жетыген-Коргос

Цель проекта: Строительство однопутной железной дороги Жетыген – Коргос протяженностью 298,4 км с 4 промежуточными станциями, 10 обходными путями и терминалами перегрузки на станции Коргос.

Инициатор проекта: АО «НК «Қазақстан темiр жолы».

Период реализации: 2009-2012 годы.

Место реализации: Алматинская область.

Параметры проекта: Пропускная способность линии – до 30 миллионов тонн груза ежегодно.

Ожидаемый эффект

• Сокращение на 550 км расстояния от Китая до южных регионов Казахстана и стран Центральной Азии.
• Сокращение расстояния от Актау до Цзинхэ на 700 км.
• Сокращение на 1300 км маршрутов между Персидским заливом и Дальним Востоком, в комплексе с реализованным в Иране проектом строительства новой железнодорожной линии Бафк – Мешхед.
• Создание новых рабочих мест: на стадии строительства – 5500, в период эксплуатации – 2093.

Текущая стадия проработки проекта:

В настоящее время по проекту ведутся работы на строительстве мостов.Устройство опор и монтаж пролетных строений выполнено на 12 мостах, по 3 мостам организовано рабочее движение. Завершена сборка рельсошпальной решетки – 281,7 км, укладка верхнего строения пути – 47,3 км, станционного пути – 31 км.

Строительство железнодорожной линии Узень – госграница с Туркменистаном

Цель проекта: Строительство новой прикаспийской железнодорожной линии Узень – Гызылгая – Берекет – Этрек – Горган с последующим выходом на сеть российских железных дорог.

Инициатор проекта: АО «НК «Қазақстан темiр жолы».

Период реализации: 2009-2011 годы.

Место реализации: Мангистауская область.

Параметры проекта: общая протяженность магистрали – 670 км., эксплуатационная длина на территории Республики Казахстан – 138,5 км, пропускная способность линии – до 13 млн. тонн груза ежегодно.

Эффект от реализации проекта:

• Развитие транспортного потенциала;
• Создание новых рабочих мест: в период строительства – 4 060; на стадии эксплуатации – 812.

Текущая стадия проработки проекта:

По проекту завершены работы по отсыпке земполотна (146 км), устройству искусственных сооружений, продольному и внешнему электроснабжению, подвесу ВОЛС (326 км) и строительству объектов внешнего электроснабжения, уложено 146 км верхнего строения пути. Ведется строительство служебно-технических зданий и жилых домов на разъезде Бастау, ст. Узень и других раздельных пунктах, постов ЭЦ, монтаж оборудования СЦБ и связи.

Oт имени правительства РК я рад приветствовать вас на этом немаловажном форуме!

Как многие из вас знают, этот год является особенным для нашей страны. В декабре Казахстан будет отмечать 20-летие своей независимости.

В этой связи примечателен тот факт, что в этом году форум “KAZENERGY” сфокусирует внимание на огромном прогрессе, достигнутом нашей энергетической отраслью за последние два десятилетия.

Индустрия всегда играла ключевую роль в стремительном развитии Казахстана. Иностранные энергетические компании были одними из первых инвесторов и остаются крупнейшими инвесторами Казахстана.

Поэтому мы придаем особое значение вкладу наших иностранных партнеров, многие из которых присутствуют сегодня здесь.

Мы гордимся нашими достижениями, но нам предстоит еще много работы. На нашей последней встрече, состоявшейся год назад, я сказал, что неопределенность в энергетическом секторе увеличила расстояние между риском и возможностью. 
Сегодня это расстояние не стало меньше.

В начале года цены на энергоносители значительно выросли в ответ на увеличение спроса, трудности в инфраструктуре и перебои в поставках, связанные с политическими конфликтами в Северной Африке. Позже, рынок энергоносителей был потрясен резким ухудшением глобальной экономической ситуацией.

В последние месяцы, мировая экономика вновь переживает сложный период. Замедление экономического роста, ухудшение финансовой ситуации в США и эскалация долгового кризиса в Европе разрушили доверие и возродили риск рецессии. Страх охватил финансовые рынки, и инвесторы подвергают сомнению способность правительств получить необходимую поддержку решительных политических действий.

Вдобавок, препятствия возникли и на пути развивающихся экономик, которые до настоящего момента способствовали восстановлению мировой экономики. Увеличиваются долговые обязательства, обрушились фондовые рынки, приток капитала замедлился. Проще говоря, путь к устойчивому восстановлению мировой экономики будет длинней и ухабистее, чем ожидалось. В краткосрочной перспективе, эта макроэкономическая неопределенность создаст помехи для снижения цен и увеличения спроса на энергоресурсы.

Конечно, энергетическая промышленность не в первый раз переживает период неопределенности. Но для индустрии, использующей большие инвестиционные капиталы, это особенно болезненно. В этой связи, Правительство Казахстана осознает необходимость проявлять активность в привлечении и удержании инвестиций. Мы нацелены на улучшение бизнес-климата, чтобы помочь энергетической промышленность развиваться и брать на себя риски, а так же создавать общие ценности и добиваться успеха в процессе развития.

Мы инвестируем огромные средства в развитие человеческого капитала, инфраструктуры и технологий. Также мы продолжаем реформировать нашу нормативную базу, чтобы устранить административные барьеры и сократить бюрократические проволочки.

Все эти меры помогут нам достичь наших амбициозных целей посредствам создания среды, где Правительство и промышленность могут уверенно и ответственно строить планы на будущее.

Однако, выходя за рамки текущей экономической неопределенности, становиться ясно, что мировой спрос на энергоресурсы будет расти. Население и экономический рост будут проверять способность энергетической промышленности предоставлять новые и доступные запасы энергии. Это момент когда изменение климата представляет все большую угрозу. Без сомнений, вызовы энергетической безопасности и экологической устойчивости поменяют энергетический ландшафт. Эти вызовы потребуют глобальной сплоченности, чтобы их преодолеть. Казахстан стремится найти общие решения этих проблем. Две недели назад вместе с ООН мы провели 7ю конференцию «Окружающая Среда для Европы» в Астане.

В подтверждение Декларации по зеленому развитию я еще раз подтвердил готовность Казахстана к продвижению экологически устойчивого роста и развития. Сегодня мы продвигаем технологию по улучшению энерго-эффективности нашей экономики и овладению возобновляемыми источниками энергии.

В августе Правительство одобрило Закон «О энергосбережении и энерго-эффективности», который нацелен на уменьшение энергоёмкости промышленности на 10% к 2015 году и на 25% к концу десятилетия.

Мы также инвестируем внедрение передовых технологий и оборудования, для того чтобы модернизировать функционирующие объекты электро-энергетики, которые в настоящее время производят более 70% выбросов парниковых газов.

В этом контексте, мы предпринимаем наши первые шаги в развитии атомной энергии. В июне этого года Правительство РК одобрило программу по развитию атомной энергетики, которая предусматривает строительство первого Казахстанского ядерного предприятия. Трагические события произошедшие на Фукусиме в Японии в этом году послужили для нас хорошим поводом задуматься. Но я уверен, атомная энергетика в Казахстане имеет большое будущее.

Мы должны учиться на примере событий на Фукусиме. Но эти уроки должны внести вклад в более безопасное и зеленое будущее с атомной энергетикой.

Выходя за границы нашей страны, Казахстан осознает увеличивающуюся взаимозависимость между производителями энергоресурсов, поставщиками и потребителями.

Будучи надежным энергетическим партнером соединяющим Восток и Запад, Казахстан играет важную роль в мировой энергетической безопасности. Мы продолжаем способствовать диверсификации маршрутов транспортировки энергоресурсов и конечных рынков.

Началась первая стадия расширения нефтепровода КТК. Она увеличит его пропускную способность на более чем 40 миллионов тонн. Между тем, строительство газопровода Бейнеу-Бозой-Шымкент также было начато. Этот газопровод протяжённостью 1500 км соединит месторождения газа в западном Казахстане с потребителями южных регионов страны. В конечном итоге, он будет соединён с газопроводом Китай-Центральная Азия.

Дамы и Господа,

Казахстан осознает значительную роль энергетического сектора в улучшении уровня жизни и усилении экономического развития. В настоящее время, промышленность столкнулась с беспрецедентными вызовами.Но я уверен, что работая в команде – правительство, бизнес, общество – мы будем способны противостоять энергетическим вызовам 21го века.

Спасибо за внимание.

Uzenmunaigas (UMG) produced 3,789 thousand tonnes (102kbopd), which is 685 thousand tonnes less than in the same period of 2010. Embamunaigas (EMG) produced 2,103 thousand tonnes (57kbopd), which is 21 thousand tonnes more than in the same period of last year. The total volume of the oil produced at the production facilities of UMG and EMG in the first nine months of 2011 is 5,891 thousand tonnes of oil (159kbopd), which is 664 thousand tonnes or 10% less than in the same period of last year. The results of the first nine months were negatively affected by the illegal industrial action at UMG during May-August 2011 and a number of emergency power cuts in the fields during January-April 2011 caused by severe weather conditions.

The Company’s share in the production volumes from KGM, CCEL and PKI for the nine months of 2011 amounted to 3,315 thousand tonnes of crude oil (91kbopd) which is 74 thousand tonnes or 2% less than in the same period last year in accordance with production plans of these companies.

The year-to-date underproduction compared to the consolidated plan exceeds 870 thousand tonnes, which has been caused by the illegal strike at UMG and a number of emergency power cuts in Uzen, Karazhnbasmunai and Kumkol oil fields. This was partly offset by higher than planned production at other Company’s assets. As announced previously, measures taken at UMG resulted in increase of daily production, from mid-August to late September 2011 daily production increased by 34%, from 10.3 to 13.8 thousand tonnes per day. Underproduction compared to the consolidated plan is currently expected to reach 1,150 thousand tonnes for the year, or 8.4% of the consolidated production volume of KMG EP (including the share in production of jointly controlled entities where production is expected to exceed the plan for the year). The Сompany had previously estimated the expected deviation from the plan at 800 thousand tonnes. The revised estimate is based upon the actual duration of the illegal strike, actual production results in September, and an updated production forecast for joint ventures, and also takes account of the implementation of measures to restore the daily production level. This estimate assumes an uninterrupted electricity supply and timely implementation of measures to restore production.

KMG EP is among the top three Kazakh oil and gas producers. The overall production in 2010 was 13.3mt (an average of 270kbopd) of crude oil, including the Company’s share in Kazgermunai, CCEL, PKI and NBK. The total volume of proved and probable reserves, as at the end of 2010 was 232mt (1.7bn bbl), including shares in the associates – about 2.2 bn barrels. The Company’s shares are listed on the Kazakhstan Stock Exchange and the GDRs are listed on The London Stock Exchange. The Company raised over US$2bn in its IPO in September 2006. The International rating agency Standard & Poor’s (S&P) confirmed KMG EP’s “BB+” corporate credit rating in July 2010 and “GAMMA-6” rating in September 2011.

• Net profit amounted to 165bn Tenge (US$1,126m) and earnings per share – 2,280 Tenge (US$2.6 per GDR), an increase of 5% and 6%, respectively, compared to the same period in 2010.
• The main factors that had a negative impact on KMG EP’s results were production and export decline due to the illegal strike that took place in May-August 2011, increased taxes as well as fines and penalties accrued in 2Q11.
• The average price of Brent in the first nine months of 2011 was 46% higher than in the same period last year, up from US$77 per barrel to US$112 per barrel.

Production Highlights
In the first nine months of 2011 KMG EP’s consolidated production was 9,207 thousand tonnes of crude oil (250 kbopd) including the Company’s stakes in LLP Kazgermunai JV (KGM), CCEL (CCEL, Karazhanbasmunai) and PetroKazakhstan Inc. (PKI). This was 739 thousand tonnes or 7% less than during the same period in 2010.

Uzenmunaigas (UMG) produced 3,789 thousand tonnes (102 kbopd), which is 685 thousand tonnes less than in the same period of 2010.

Embamunaigas (EMG) produced 2,103 thousand tonnes (57 kbopd), which is 21 thousand tonnes more than in the same period of last year, thereby the total volume of the oil produced at production facilities of UMG and EMG in the first nine months of 2011 is 5,891 thousand tonnes (159 kbopd), which is 664 thousand tonnes, or 10% less than in the same period of last year.  The results of the first nine months were negatively affected by a number of emergency power cuts in the fields, caused by severe weather conditions in March and April 2011, as well as the illegal labour action at UMG.

Impact of the illegal labour action on annual production of the Company will depend on how quickly the Company will restore production at UMG to planned level. The production process has now been normalised and production level has been increasing for the past two months. Assuming no significant disruptions to the production process, the expected underproduction compared to the plan for the full year of 2011 is currently estimated at 1,150 thousand tonnes, or 8.5% of the consolidated volume of KMG EP’s production (including the stakes in the jointly controlled entities where production targets are expected to be exceeded).

The Company’s export sales and domestic sales volumes from the Uzenmunaigas and Embamunaigas production facilities were 4,365 thousand tonnes (118 kbopd) and 1,409 thousand tonnes (38 kbopd), respectively. The loss of production due to illegal labour action has mainly impacted on the Company’s export volumes which declined by 37% in 3Q11 compared to 3Q10.

The Company’s share in the production volumes from KGM, CCEL, PKI and NBK amounted to 3,316 thousand tonnes of crude oil (91 kbopd), which is 75 thousand tonnes or 2% less than in the same period in 2010 in line with production plans of these companies.

The Company’s share in the sales volumes from KGM, CCEL and PKI was 3,718 thousand tonnes of crude oil (102 kbopd), including 3,047 thousand tonnes (84 kbopd) or 82% supplied to export markets. PKI sales volumes include sales of refined products produced from crude oil purchased under swap arrangements with third parties.

Net Profit for the Period
Profit after tax (net income) in the first nine months of 2011 was 165bn Tenge (US$1,126m). This represents a 5% growth compared to the same period of 2010, which is mainly explained by an increase in oil price, partly offset by production decline due to the illegal strike, increase in operating taxes, production costs and selling, general and administrative expenses (fines and penalties).

Crude Oil Sales
The Company’s crude oil sales in the first nine months of 2011 increased by 23% compared to the same period in 2010 and amounted to 536bn Tenge (US$3,669m). This was due to a 38% increase in the average realized price, from 67,170 Tenge per tonne (US$63.05 per barrel) to 92,888 Tenge per tonne (US$87.89 per barrel) partly offset by reduced export volume sales due to decreased production.

Taxes Other than on Income
Taxes, other than on income, in the first nine months of 2011 were 218bn Tenge (US$1,491m), which is 74% higher compared to the same period of 2010. The increase is due to the higher rent and mineral extraction taxes (MET) as a result of the oil price growth, as well as reintroduction of crude oil customs export duty (CED) on 16th August 2010 at US$20 per tone and its subsequent increase to US$40 per tonne from 1st January 2011. In addition, in 2Q11 the Company recognized 15bn Tenge (US$105m) of export customs duty (principal amount not including the fine for late payment in the amount of 2.3bn Tenge recognized in “Fines and penalties”) related to the unfavourable decision of the Supreme Court with respect to KMG EP’s claim that export customs duty should not be levied on oil exports in 2009 on which rent tax had already been paid.

Production Expenses
Production expenses in the first nine months of 2011 were 88bn Tenge (US$601m), which is 9% higher compared to the same period of 2010. A significant part of the production cost increase is due to an increase in payroll, repairs, maintenance and transportation services. Increase in payroll expenses reflects salary increase at the production units from 1st June 2010 and salary indexation from the 1st January 2011. Growth in repairs and maintenance expenses was due to higher repair costs per well partly offset by the decreased number of repaired wells due to the illegal strike. Expenses on materials declined due to lower consumption attributable to decreased number of repaired wells.

Selling, General and Administrative Expenses
Selling, general and administrative expenses in the first nine months of 2011 were 76bn Tenge (US$523m), which is 10% higher compared to the same period of 2010, mainly due to increase in fines and penalties, as well as increase in sponsorship.

The increase in fines and penalties was mainly due to recognition of the penalty as a result of 2004-2005 tax audit dispute, the fine for late payment of export customs duty of 2009 and environmental fine accrual.

In 2009 as a result of the audit of 2004-2005 tax statements, the tax authorities provided a tax assessment to the Company for 32bn Tenge, representing 16bn Tenge of the principal unpaid amount, 8bn Tenge of administration penalties (50% of the principal amount), and a further 8bn Tenge of late payment interest. The Company filed several appeals as a result of which the principal amount and late payment interest were reduced first to 10.7bn Tenge and 3.8bn Tenge and then to 8.6bn Tenge and 2.6bn Tenge, respectively, and fully paid by the Company in 2010 with the use of provisions accrued earlier. However, the Ministry of Finance filed another appeal for restating the principal amount and late payment interest back to 10.7bn Tenge and 3.8bn Tenge, respectively. This appeal was satisfied by the Supreme Court and KMG EP recognized in the second quarter of 2011 the difference of 3.3bn Tenge (US$23m) related to the satisfied appeal, as well as the administrative penalty (US$37m, 50% of the final principal amount of 10.7bn Tenge) of 5.4bn Tenge, which had not been provided for due to the Company’s belief that its appeals would be successful. The Company continues to dispute the above unfavourable decision related to the tax audit of 2004-2005.

The environmental fine of 2.8bn accrued in 1Q11 is related to gas flaring at Prorva group of fields when it was not feasible to obtain the required regulatory permissions in time. The Company intends to appeal the matter with the regional court. The gas flaring permissions for the remainder of 2011 were obtained in March 2011.

Growth in sponsorship was mainly due to construction of social infrastructure and financial aid to Uralsk to recover from the water flood in the region.

Cash Flows
Operating cash flow in the first nine months of 2011 was 110bn Tenge (US$752m) compared to 76bn Tenge (US$518m) in same period of 2010 mainly due to increase in oil price, income tax overpayment in the first half of 2010 not repeated in 2011, and decrease in working capital.

Capex
Purchases of property, plant and equipment and intangible assets (as per Cash Flow Statement) in the first nine months of 2011 were 67bn Tenge (US$462m), of which maintenance capex was 56bn Tenge (US$385m), capex on exploration and supplemental exploration was 11bn Tenge (US$77m).

This represent 30% increase compared to the same period of 2010, in accordance with Capex budget for 2011. The increase in planned capital expenditures is mainly due to an increase in planned production drilling from 213 wells in 2010 to 239 wells in 2011 and an increase in exploration programme.

The purchases of property, plant and equipment and intangible assets do not include additional investment in Ural Group Limited (UGL) in the form of loans amounting 1.2bn Tenge (US$8.3m).

Cash distribution to stockholders
On 5 May, 2011 KMG EP declared 57bn Tenge (US$389m) as dividends for the year 2010, of which 34bn Tenge (US$236m) was offset against an outstanding amount of the debt instrument (“the Bond”, see below in “cash and debt”) issued by National Company “KazMunaiGas” (NC KMG).
In the first nine months of 2011 the Company spent 10.3bn Tenge (US$71m) to buy back 538,925 preferred shares. Since the beginning of the preferred shares buy-back program to September 30, 2011, the Company spent 35bn Tenge (US$235m) to buy 1,885,138 preferred shares (46% of all preferred shares issued).

Cash and Debt
Cash and cash equivalents as at 30 September 2011 amounted to 143bn Tenge (US$965m) compared to 99bn Tenge (US$668m) as at 31 December 2010.

Other financial assets (current and non-current) at 30 September 2011 were 545bn Tenge (US$3.7bn) compared to 600bn Tenge (US$4.1bn) as at 31 December 2010. Other financial assets include the NC KMG bond, deposits, and other financial instruments.

On 16 July 2010, the Company purchased the bond issued by NC KMG in the amount of 221 billion Tenge (US$1.5bn) which carries an annual coupon of 7% and will mature in June 2013. As at 30 September 2011 the outstanding amount of the Bond was 187bn Tenge (US$1,262m). KMG EP recognized 10.8bn Tenge (US$74m) interest income from NC KMG Bond in the first nine months of 2011.

As at 30 September 2011, 82% of cash and financial assets (including the Bond) were denominated in foreign currency and 18% were denominated in Tenge. Interest accrued on deposits in banks in the first nine months of 2011 was 8.1bn Tenge (US$55.6m).

Borrowings were 87bn Tenge (US$586m) as at 30 September 2011 compared to 122bn Tenge (US$831m) as at 31 December 2010. Borrowings include 78.7bn Tenge (US$532m) of non-recourse debt of KMG PKI Finance B.V. related to the acquisition of the 33% interest in PKI. As per the terms of the deal, on 5 July 2011 the Company paid principal and accrued interest of the KMG PKI Finance notes in the amount of 34bn Tenge (US$234m) and 4.7bn Tenge (US$32m) respectively.

Net cash position at 30 September 2011 amounted to 601bn Tenge (US$4.1bn) compared to 576bn Tenge (US$3.9bn) as at 31 December 2010.

Income from Strategic Acquisitions
In the first nine months of 2011 KMG EP’s share of results of associates and joint ventures was 70bn Tenge (US$477m) compared to 46bn Tenge (US$310m) in the same period of 2010. The financial results of associates and joint ventures in the first nine months of 2011 were primarily driven by the higher oil price compared to the same period of 2010.

Kazgermunai
In the first nine months of 2011 KMG EP recognised a 30.1bn Tenge (US$206m) income from its share in KGM. This amount represents 50% of KGM’s net profit of 35.8bn Tenge (US$245m) and a 2.8bn Tenge (US$19m) deferred income tax benefit net of 6.4bn Tenge (US$44m) from the effect of purchase price premium amortization and a 2.0bn Tenge (US$14m) deferred income tax amortisation.

KGM’s net income increased by 34% in the reported period compared to the same period of 2010 due to higher oil price, optimization of the structure of crude oil supplies and purchases for the purposes of meeting domestic supply requirements partly offset by accrual of fines related to customs export duty (CED) on crude oil exported in December 2008 and reintroduction of CED on crude oil on 16th August 2010 and its subsequent increase to US$40 per tonne from 1st January 2011.

During the first nine months ended September 30, 2011 the Company received dividends from KGM in the amount of 36.6bn Tenge (US$250m).

PetroKazakhstan Inc.
In the first nine months of 2011 KMG EP recognised a 39.4bn Tenge (US$270m) income from its share in PKI. This amount represents 33% of PKI’s net profit of 48.0bn Tenge (US$ 329m) net of 8.6bn Tenge (US$59m) from the effect of purchase price premium amortization.

PKI’s net income increased by 76% in the reported period compared to the same period of 2010 mainly due to higher oil price and consolidating of 50% of the results of JSC “Turgai Petroleum” in the reported period (for more details refer to KMG EP’s press-release of 20 August 2010).

During the first nine months ended September 30 2011 the Company received dividends from PKI in the amount of 19.2bn Tenge (US$132m).

CCEL
As of 30 September 2011 the Company has recognised the amount of 22.7bn Tenge (US$153m) as a receivable from CCEL, a jointly controlled entity with CITIC Group. The Company has accrued 2.2bn Tenge (US$15.1m) of interest income for the first nine months of 2011 related to the US$26.87m annual priority return from CCEL.
***

The consolidated financial statements for the first nine months ended 30 September 2011 with Notes are available on the Company’s website (www.kmgep.kz).

It is a reminder that one of the main objectives of the Program of housing construction development for 2011–2014, approved by the Government March 31, 2011, is to create a full-fledged housing market, balanced by both in supply and demand, involvement investments into private sector, as well as promotion of public-private partnership. Special attention in the program is paid to developing of individual housing construction, engineering and communication infrastructure of housing development areas, as well as improving affordability of mortgage and the housing construction savings system for the population.

The program involves three main directions of state support in the construction industry: the use of the system of housing savings for selling the real estate, funding commercial banks to finance the construction, construction of engineering services. In general, from the national budget for these purposes will be allocated over 359 billion tenge ($ 2.46 billion). It is expected that the total volume of housing construction during the years of implementation of the program will be about 24.3 million m2.

Although the program has been started recently, some positive results have been already achieved. This is evidenced by the volume of investments into housing construction, which in January–June amounted 171.4 billion tenge ($ 1.17 billion), an increase over the same period of last year is 24.3%. The share of funds spent in housing construction accounted 9.2 % of the total investment into capital stock.

As the director of the consulting company Qncepto Oleg Alferov says, it is possible that annual investments in the sector for 2013–2014 can return to pre-crisis 490 billion tenge. And in this case, the forecasts of the developer of the program – The Agency of Construction, Housing and Utilities (ACHU) – can even be surpassed. Especially that NWF “Samruk-Kazyna” begins to target funding of banks for development projects. In his view, the plans to create an engineering infrastructure will play an important role and that give impetus to the construction of not only multiflats objects, but also of individual housing construction.

Already built

If we talk about amounts, in accordance with the program there are plans to build 6 million m2 of housing in Kazakhstan this year. According to ACHU information 2.7 million m2 have been put into operation in the first half of 2011, including 1.5 million m2 (or 56.7 % of the total) built at the population’s cost. The percentage of new housing to the annual plan was 44.3 %. It should be noted that in Astana, Almaty, West Kazakhstan, Mangistau, Kostanay and Pavlodar oblasts the volume of housing put into operation in the first half of 2011 did not reach last year’s level. But this figure has increased considerably in the South-Kazakhstan (1.8 times) and East Kazakhstan oblasts (1.6 times).

In total in January–June 2011 construction of 12,089 new buildings was completed, including 10,221 – of housing and 1,868 – of non-housing purposes. The volume of building and construction works (services) amounted to 711.4 billion tenge, or 1.7 % more than last year. During this period state enterprises and organizations put in commission 158.1 thousand m2 of housing, while private developers and the population have built 2.4 million m2. Thus, the share of state sector had only 5.9 % of the total housing construction. 21,228 apartments, including 10,116 individual dwellings, was put into operation totally in the country.

As noted by Mr. Alferov, at the moment the results shown by the industry are 1.2 % below last year’s volumes. However the investments in construction since the beginning of the year have grown, so there is an opportunity to execute the plan from the new state program. The more so it does not put too ambitious targets – the 400,000 m2 less than last year should be put into operation in 2011. In fact, the housing construction program aimed at retention of the pace of housing construction on the 2006 level. At the same time the annual growth target for the next four years is equivalent to only 50 thousand m2, which, experts believe, is a very conservative outlook.

Where will the government support go?

Analyzing the current situation in each of the three main directions of state support, it is worth noting that akimats in all regions of the country have already started the construction of housing through a system of housing savings. The new scheme is as follows. “The Housing Construction Savings Bank of Kazakhstan” creates a pool of its savers who want to buy flat or house at a certain price and comfort class, and city administration allocates land plots with the existing engineering infrastructure. In case of the construction and selling of housing through the local body The Housing Construction Bank send there applications for housing construction. Akimat on account of the loans from the national budget build it. After a house is put into operation an akimat concludes sales and purchase agreement with the depositors of the bank and The Housing Construction Bank transfers money of depositors to an akimat, which is due to repay its loan from the national budget.

In the first half of this year 7.993 billion tenge were directed from the national budget to local executive bodies for construction and housing selling through the system of housing savings, and akimats have already spent 4.968 billion tenge, or 62.2 %. In total in 2011–2013 48.8 billion tenge will be allocated from the budget for these purposes, including 28.8 billion tenge to implement pilot projects in 2011. In 2012 another 32 billion tenge will be allocated for the construction of housing under this scheme, which will provide next year commissioning 300,000 m2 of credit housing.

Involving the housing savings of people in financing the construction is quite understandable. Since the beginning of its work The Housing Construction Bank has already signed contracts with more than 188.3 thousand of its savers with total savings of more than 50.3 billion tenge. The largest share of contracts belongs to Almaty city (14.1 %), Astana (14.5 %), and also Aktobe (8.3 %) and East-Kazakhstan (7.9 %) regions. In January–June 2011 4,042 borrowers get housing, intermediate and advance housing credits of totaling $ 12.355 billion tenge.

The second direction of the program the government intends to fund the commercial banks to finance the construction of housing by private developers. To do this, specific deposits are to be set in banks for the construction period.

Conditions of participation for banks are the following: the funds should be directed for financing the construction of an economy class, with the ultimate selling price of housing, depending on the region and features of the project, should not exceed 170 thousand tenge per square meter, the terms of the loan for real estate developers – not more than five years, and the maximum rate on bank credit rate should be 12 % per annum.

In 2011, for this purpose 57 billion tenge has been already allocated, an additional 13 billion tenge will be allocated in 2012. As a result of this scheme, the government expects to commission 1.7 million m2 of commercial housing. Several second-tier banks – CenterCredit, BTA, Eurasian Bank – have already expressed their willingness to participate in projects and grant loans to developers under the terms of the government.

Stimulation the development of private housing also is not forgotten; especially in the pre-crisis period 58-60 % of the total input of housing was individual housing construction. In this case the government assumes the provision of housing development areas with engineering and communications infrastructure. In 2011 the earmarked transfers of 26.6 billion tenge were allocated from the national budget for these purposes, including 2.6 billion tenge for preliminary work concerning development of Koschi village (as satellite town of Astana) and 4 bn to prepare the infrastructure of four satellite towns of Almaty.

As of July 1, 2011 11.681 billion tenge were transferred from the national budget, 7.981 billion tenge from them or 68.3 % have been already assimilated. In total, during the first six months 185.8 km of utilities were built in Kazakhstan, including 86.5 km of power lines 2.5 km of heat supply, 33.1 km of water supply, sewerage 3.1 km, 50.4 km 10.2 km of gas pipelines and 10.2 km access roads.

Deficits and affordability

Running this new program seems to neutralize last year’s fears of ACHU Chairman Serik Nokin, who supposed this year the volume of housing construction in Kazakhstan can be significantly reduced. He also predicted that in this period real estate prices advance, triggered by an expected deficit of 1.5 million m2, is possible.

However, according to Qncepto company, at the moment there are no signs of deficiency in the housing market. There is every chance to retain the commissioning of housing on the current level, what will allow preventing the shortage of market supply.

Not bad proposal, but we shouldn’t forget about the affordability of housing for population, most of people can’t buy a house without mortgage. Thus, in I quarter of this year more than 90 % of transactions with residential real estate were made in cash and 10 % – with the help of credits. From now forth this proportion will vary proportionately to reduction of an interest rate of mortgage. And despite the fact that the population currently prefers to use the accumulated funds for buying property, banks seriously expect to increase their portfolio of mortgage credits by the end of this year, as they have been actively cutting interest rates for this type of lending.

According to Mr. Alferov, the terms of mortgage credits are becoming softer, although slightly. The volume of mortgages issued in the first half of the year exceeding last year’s figures by 65 %. Thus, the credit market for the purchase and housing construction rebounded to the level of early 2008. At this pace banks will be returning to the peak figures of mortgage lending is still very far away.

Plans for construction materials

It is clear that the demand for housing depends primarily on its price, which, in turn, depends on the prime cost of the building. Theoretically, this can be achieved by increasing the use of local materials in construction. For this purpose in September 2010 the government approved The program for the development of the construction industry and building materials in 2010–2014. Aims of the program look quite ambitious. In particular, till 2015 domestic demand should be satisfied by domestic construction materials by 80 %, including cement – 100 %, building ceramics – 88 %, construction fittings – 80 %, glass – 50 %, linoleum – 30 %. In addition, labor productivity in the industry should increase by 40 % and the gross value added – by 76 %.

Now Kazakhstan produces less than half of the materials used in construction. As noted by Oleg Alferov, for some types of building materials domestic producers were putting pressure on import for a long time. For example, he said that “we fix up ourselves with brick for two-thirds, plasterboard – three-quarters, concrete and concrete products – 100 %. On the other hand, more than 70 % of the roof and 90 % of timber are imported.” As a result, the share of domestic production in total volume of construction materials is yet lower than in previous years. And in the first half of 2011 it is 41.8 %.

The head of Qncepto thinks that the situation is difficult to be changed in one or two years. “The re-equipment of existing plants and building new ones are necessary. Dozens of them. Therefore, it is early to demand results from the program. However it is worth saying about forecasts of the industry. Targets for 2010 were overly optimistic. More properly, they were calculated incorrectly. It was assumed, for example, that the Kazakhstani share of construction materials on the market will be 63 %. In fact it is 44 %. Forecasts about the development of productivity to $63 thousand per person look even more doubtful. “In 2010 they had to rise more than twice. It is unclear how this was possible. Infact, growthhasnotexceeded 20 %,” – Mr. Alferov concludes.

Yulia Melnik
KAZAKHSTAN International Business Magazine №4, 2011

Incomes rise

We begin our review traditionally with the activities of all the telecommunication industry.According to the Statistics Agency, in the first half of 2011 the communication enterprises provided services in the amount of 259.63 billion tenge, which in comparable prices by 16.5 % higher than in January–June 2010.Revenues from long-distance telephone services amounted to 22 billion tenge (17.0 %), local telephone services – 19.48 billion tenge (0.8 %), and the Internet – 39.9 billion tenge (61.5 %), cellular – 139.57 bln tenge (13.2 %).

As one can see, revenue from mobile communications (53.9 %) and the Internet (15.3 %) continue to take the largest share in total, followed by long-distance (8.5 %) and local calls (7.5 %).

The fact that the Internet began to play a significant role in the overall structure is not news, as well as the fact that its share steadily increases. But another thing is interesting – the growth rate in the current year has accelerated considerably: in 2009 the Internet sector gained 26.5 %, in 2010 – 28.1 %, and for the first six months of 2011 growth was already 61.5 %.This of course reflected its share, which is also noticeably rose – up to 15.3 %.For comparison, in 2009 9.6% of revenue fell at the Internet, in 2010 – 11.3 %.This shows the potential of the market driver – the Internet shows the highest rates and growing almost four times faster than the entire telecom!

In the structure of the Internet revenues the growth trend remains generally due to providing services to the population and activity in rural areas – here the rate is even higher.For example, if the volume of internet services rendered to population last year rose by 44 %, the first half of 2011 growth was already 96.2 % (compared to the same period of 2010). As for revenues from Internet services rendered in rural areasin January–June, they rose by 58.2 % (as against 74 % in 2010). In this sector, although the pace dropped, it was still very high.As we can see, the Internet is actively going to the grass-work.

At the same time the regions have the greatest potential for growth, as there is a strong imbalance in the structure of income by regions. Moreover, this imbalance is growing.Thus, the lion’s share of all Internet revenues, which is 53.7 %, still falls at Almaty, although at year-end 2010 the share of the southern capital decreased to 45.8 % against 51.6 % in 2009. Then there are Astana (8 %), Karaganda (5.7 %), East-Kazakhstan (3.8 %) and Atyrau (3.7 %) regions.

If we talk about the regional distribution of daily site traffic of Kaznet sites (according to online counter CountZero), Almaty for last six months is about 32 % of all Kazakhstani users as against 48 % a year earlier. Astana has added a little – now it has 8.9 %. Karaganda showed a growth up to 8.3 %. Thus, a clear trend of internetization of regions of Kazakhstan is being traced. But the less obvious fact is that while the bulk of the core audience is in Almaty – they use the Internet more often.

Portrait of Kaznet citizen…

As for the number of Internet users in Kazakhstan, the estimates concerning this figures are traditionally very different, but more often the figure of 5–6 million is sounded. According to the Statistics Agency, there were 1.094 million subscribers of fixed internet in the first half of 2011 in our country(in this case one subscriber means one connection point), and cellular subscribers with access to the internet – 5.7 million The number of fixed telephone lines at the end of June 2011 amounted to 4.1 million.

But in February “Kazakhtelecom”, the main provider of Kazakhstan, informed about the results of 2010, according to the company, the number of users of broadband Internet access (as of January 1, 2011) was 1,756,838 and the number of ports – 765,817.

In turn, according to the annual survey of online audience made by ICT Marketing (specializing in research in the field of telecommunications and IT), at the end of last year, the number of Internet users in Kazakhstan was 4.3 million.To calculate it the ICT Marketing used the data of questionnaire survey of urban and rural population. In general, according to the company, from December 2009 to December 2010 the size of the Internet audience has increased by more than 30 %.Among urban residents aged 16 years and older 41 % use the Internet, and among rural – 19 %.At the same time 94 % of Kazakh users use the Internet several times a month or more. Mostly the Internet is used by young people.

If speaking about the cities of Kazakhstan with a population of 70,000 or more person, the picture is as follows.Among the urbanites aged 16–24 years the share of Internet users was 66 % and aged 25–44 years – 52 %.In the age category from 45 to 54 35 % use the Internet, 55 years and older – only 10 % of the population. Most kazakhstani go on-line from PC or laptop, while the proportion of those who enjoy mobile phone is relatively small. During the survey ICT Marketing found that only 12 % of adults (16 years and older) of the urbanities use the Internet service from a mobile phone with GPRS / WAP.The majority of “mobile Internet users” also use the Internet from a regular computer at home, at work or elsewhere (7 among 10 users).By the way, the Internet is still mainly used at home.If in November 2009 the proportion of home users was 61 % of all adult citizens, at the end of 2010 this figure had already reached 63 %.

The company PROFIT Online also presented its estimation of the number of Internet users.Thus, it suppose that at the end of 2010 there were about 6–6,5 million (monthly audience), and the core of Kazakhstan’s Internet audience (those who go online several times a week) – in 2,5–2,8 million users. PROFIT Online experts note that the nature of further dynamics will change: growth of monthly audience will slow down, but the core – to grow more actively, coming in numbers to the monthly audience.That is a quantum growth of the audience: users will go online more often and spend more time there.

… And his/her preferences

Today, most Kazakhs use the Internet to exchange e-mail, downloading music and video, as well as social networking.A recent survey of Institute of Political Solutions, conducted among residents of 16 cities of Kazakhstan, also confirmed the addiction to social networks.It was found that 64 % of Kazakhstani Internet users “resides” in the social networking sites, of which 62.4 % prefer “My World”, followed by “Odnoklassniki.ru” – 25.9 %, while “VKontakte” is on a the third place – 22.7 %.Rapidly gaining popularity Facebook has 12 % and fourth place.

However, despite the popularity of Russian social networks, the level of Kaznet site traffic is growing steadily too.So, today the number of projects with traffic ranking of more than a thousand people a day is about 160 sites, while in 2008 the quantity of such web-resources were only about fifty. The website traffic of the most popular sites – Kiwi.kz, Kolesa.kz and Nur.kz – is about 130,000 web visitors per day.For example, the Russian Mail.ru is every day used by about 1,3-1,4 million Kazakhstani citizen (for comparison, in December 2009, the average daily audience of Mail.ru from Kazakhstan was equal to 720 thousand people).

Thus, sites of Kaznet have something to strive for and they have great potential for growth. The good fact is that Kaznet not only grows with domains (on July 31, 2011 in the area KZ 60 686 domain names were registered), but also with really existing sites.Thus, in the catalog of CountZero rating there were about 11,5 thousand sites at the end of July 2011, while just in the beginning of the year this figure was only 10 thousand.

Fight for the interests

The increase of the Internet audience and site traffic in Kaznet were followed by the growth of budgets allocated by domestic companies for the Internet advertising.The audience of traditional media flows into the network, followed by advertising budgets.According to various estimates, the volume of Internet advertising market in Kazakhstan in 2010 amounted from $5 million to $10 million, however, exact numbers are not even as important, the main thing is a clear growth trend.In the next few years, Internet advertising market will grow by at least 30 % per year.The exact figures will depend on the economic situation: if the economy shows good growth, the doubling of the market is possible.

Against this background, increasing the number of different arguments and discussions around Kaznet becomes quite logic: the amount of money in that share is growing, there is something to fight for.Thus, last year the Internet community was watching the carve-up of online community forum “Tsentr tyazhesti” (”The center of gravity”).This year’s heated debate flared up around the need to protect copyright on the Internet, as this issue directly affects the commercial interests of the tens and even hundreds of sites, whose work is based on the provision of pirated video content.

The impetus for the discussions became a method of “three snaps” (two warnings followed by forced elimination of a piratical resource) – an initiative of the Internet Association of Kazakhstan (IAK) to protect copyright in Kaznet.As was known, the method of “three snaps” was proposed by IAC at the round table held in late April.Its essence was outlined by the association president Shaukat Sabirov: “We need to punish offenders by the “three clicks”: First – the notification to the author of illegal content, the second – a warning, and the third – criminal case. We believe that this is the most appropriate method for our market.”Although this approach does allow sites to feel more secure, it has caused a rapid perturbation of a number of major Kazakh sites, including Namba.kz, Nur.kz and Kiwi.kz.In their view, an active anti-piracy is detrimental for Kaznet.They even wrote an open letter to the Prime Minister of Kazakhstan with a request to enter a two-year moratorium on the fight against piracy.

Interesting, that the initiative of the Association was the only trigger for the widening of the conflict of interest that erupted in early June. Later the opponents of the “three snaps” finally admitted that the problem for them is not in “snap”, but in the fight against pirated content at all. And heir arguments were, at least, surprising: all the traffic and advertising budgets will go in RuNet, and Kaznet, if not die, then fall back to five years ago.However, if one look at things robustly, it is clear that the Internet is used not only to download movies.And if we’re talking about Kaznet and advertising budgets, in our country there are about 150 sites that can be attributed to advertising sites, that is, to sites of interest to advertisers.This means that online advertising in Kazakhstan does not end out of the boundaries of the three portals.

The seriousness of the situation was confirmed by the exit of “Kazakhtelecom” to “pirate” scene. During one of the roundtables Askar Eserkegenov, Chief Commercial Officer of the company, actually spoke in favor of piracy.The arguments he gave the following argument: while banning pirated content when the traffic goes from Kazakhstan (and “swing” will be a Russian site) may occur deterioration in the quality of Internet access and increase of its price.

However, perhaps this discussion is the most eloquent indication that an internet business in Kazakhstan is forming as an independent phenomenon, as well as the fact that internet projects in Kaznet are becoming more interesting for investment.

Alexander Vassilyev

Current trends and analysts’ estimates indicate that over the medium term no decrease of world food prices can be expected.

Thus, a survey conducted by Reuters in February 2011 among the 16 leading Western experts in the field of agribusiness, showed a symptomatic unanimity in forecasts: food prices in 2015 will definitely be higher than the present ones. Moreover Deutsche Bank analysts believe that continuing inflation and rising demand will only push them up.

According to the research of Organization for Economic Co-operation and Development (OECD), in the next 20 years the U.S., Australia and New Zealand will move to the forefront of world exports of agricultural products, surpassing Euro zone countries.The demand for food in mature economies will remain the same, but changes will affect mainly the structure of consumption and food quality. Trade of processed and ready-to-eat foods will grow faster than for non-proccessed goods.On the other hand, as shown by forecasts, developing countries in East Asia and Eastern Europe will become net importers of agricultural products providing new markets to major producing countries. These trends show an expansion of global demand for food as prices increase.

That is why Kazakhstan increasingly expresses its desire to occupy an important position in the world food market.But the unstable situation with food prices in the country requires much more attention of the authorities than future prospects.

Grain as a factor of stability

If we talk about our main export agricultural commodity – grain – at first sight everything here is in perfect order.Thus, in the last agricultural year about 6 million tons of grain were exported from Kazakhstan.As the chairman of JSC “National Holding “KazAgro” Asylzhan Mamytbekov stated that this year there were no reasons to restrict exports.This belief is based on a good harvest forecast in 2011. According to Mr. Seksenbay Kaskyrbaev, General Director of the Barayev Institute of Grain Farming, the current harvest of cereals could reach 16–18 million tons.

The expectations of the President of Kazakhstan Nursultan Nazarbayev are even more optimistic, On August 8 he came up with an estimate of 18–20 million tons for the new harvest. The Ministry of Agriculture also revised its forecast upwards – from the previously estimated 17–17,5 to 18.9 million.

At the same time, according to authorities, the export potential of Kazakhstan in the 2011/12 marketing year could exceed 10 million tons of grain. The existing climatic conditions in combination with other factors give hope that these predictions will come true.

However to do this it is necessary to reduce prices and increase competition in the markets. According to the March report of the International Grains Council (IGC), the current harvest in the whole world is estimated at 1 805 million tons. It is 79 million tons more than in 2010/2011, and even higher than the record 2009/2010, when the world have produced 1 802 million tons of grain. The report notes that the forecast is based on high estimates of grain yield in the U.S., Russia and the EU.A good harvest is also expected in Canada, Kazakhstan and Ukraine.

Against the background of these trends Kazakhstan should be ready to respond quickly to world market conditions to improve the competitive capabilities of domestic exporters. As the experience of last year showed, we are able to be up to those challenges.Then it was done at the expense of export subsidies – for one ton of grain that was sent abroad, the state paid $20.
At the same time we have a lot of internal problems concerning inefficiency of market regulation tools. This very circumstance does not allow Kazakhstan, as an exporter of grain, to feel confident in any circumstances: when there is a lot of grain but that it is rotting because of lack of storage, or when less – export flows are declining sharply.

It is known that the government uses a centralized procurement of grain to prevent price increase on the domestic market.Ideally, this allows sending the required amount of grain to those regions of the country where there is a risk of rising prices. But the system of centralized procurement is highly vulnerable, because grain prices are dictated by the world market, and we have no instruments to influence them. In reaction to global shortage of grain the price increases, and so the government has to purchase it at a higher price.If the government doesn’t have enough money, grain goes abroad, as most exporters are private companies.At the same time when there is a lot of grain, price falls sharply, and the money from its sale to the government does not cover the costs of farmers.

Besides, there is a problem of infrastructure, particularly shortfall for simultaneous storage of grain. According to “KazAgro”, it is of more than 5 million tons. The sad example of 2009 showed that in case of a gross grain harvest of 17 million tons, lack of elevator storage capacity can reach 25 %. According to the chief specialist of the analytical service of JSC “KazAgroMarketing” Asel Yerzhanova, in 2010 we had a lower grain harvest, so that the situation was not so critical. In the current year, this problem is becoming real again. On August 22 at a government meeting the Minister of Agriculture Asylzhan Mamytbekov said that in the main grain regions a lack of storage capacities of up to 1.5–2 million tons is possible, because yield is high this year.”

One can’t say that the government does nothing. In 2011 it sent 9 bln tenge via “KazAgro” to build new silos. The money was allocated for 12 years at 6 % per annum. And as a result of this money this year silos with a total capacity of 500–600 thousand tons are to be built. And 8 modern elevators built with American technology have already been constructed in the country. Nevertheless, even taking into account the imperfection of regulatory tools, grain and its derivatives remain the only product that allows restraining somehow the inflation in the food market. Now the price of grain, flour and bakery products remain stable enough. Without this factor the inflationary wave would be much stronger.

Stabilization tools in their context

As for other types of food, we can’t talk about any price stability in this sphere.In comparison with the similar period of last year, food prices in Kazakhstan in June 2011 increased by 12.6 %.Cereals rose by 2.2 times, oils and fats – by 23.4 %.The cost of sugar has risen by 18.7 %, fruits and vegetables by 15 %, dairy products by 11.2 %. Pasta experienced an increase of 9.8 %, coffee, tea and cocoa of 8.9 %. During this time, prices for meat and meat products showed an increase of 15.2 %, while lamb has risen by 19.5 %, horse meat by 10.8 %, poultry by 10.2 %, sausage products by 9.8 %, pork by 5.2 %.

At the end of May, at a government session Asylzhan Mamytbekov presented a draft set of measures to stabilize prices of basic food commodities.He noted a fundamentally important point: it is about price stability, but not their fixation or freezing.”We cannot and do not have to grapple with rising prices connected with world food market fluctuations, as it undermines the economy of our domestic producers.In the opening of the outer limits all the government’s efforts to reduce the price of products inside the country will lead to the fact that these products move to the border districts of neighboring countries “.

A set of measures developed by the Ministry of Agriculture can be divided into operational and systemic.Operational measures. aimed to the leveling of seasonal fluctuations and the prevention of speculative, unreasonable price increase, include: the formation of stabilization funds of food products in the regions, exemption of VAT for farms which produce fruit and vegetables, payment of pre-emptive allowances to poor families as compensation for raising prices of socially important food products.The minister said that the state budget expenditures on the formation of stabilization funds is estimated to be worth about 17 billion tenge.According to the assumptions of the Ministry of Agriculture, the implementation of operational measures will take effect in the winter 2011–2012.

In the frame of the systemic measures the Ministry calculated the balance of production and consumption for each region of the country.The resulting deficit for each product will be compensated by imports.”The Ministry of Agriculture made for each region specialization maps, which show where the production of each product is economically and technologically sound. The total demand for every kind of product in the country is distributed among several areas so that they supplied the whole country with it,” – Mr. Mamytbekov said.In addition, he considers it is necessary to make a breakthrough in the construction of vegetable storages because an important issue is the preservation of fruits and vegetables during winter.

However, the main emphasis will be placed on the development of competitive environment in the trade sphere, because, in the minister’s opinion, it may lead to reduce retail margins and the cost of food.This can be achieved by the construction of new markets.”There are accepted standards for the optimal amount of retail space per capita. Akimats should give themselves as a goal to increase the number of markets to that level”.

It should be noted that the new plan is radically different from the programs to stabilize the food market that were previously initiated and implemented with varying degrees of success.Prior to this, the government was focusing on a limited range of foods, prices for which were to be stabilized. For example, they took grain, seed fat and sugar, considering them as multipliers of inflation.But the main difference is that the government arbitrarily was making centralized purchases, import liberalization and exemption of duties on food imported from abroad.

The proposed program appears to take into account previously made mistakes.Monitoring of local market conditions will allow to estimate the real needs of regions and to make policy of import liberalization more balanced. As a rule, the absence of continuous monitoring of duties abrogation used to lead to overstocking of some products and shortages of others.In addition, a clear knowledge of regions needs will allow the government to carry out food intervention adequately.But that is of course just an ideal scheme.

How to assess markets prices

In general, when we talk about the stabilization of any market, the question about the price of such stabilization always arises.Three years ago, when the economic crisis was just entering its peak phase, Kazakhstani government has made efforts to curb the prices in the food market.We have already mentioned above about the differences between past and current programs.Now let’s focus on fundamental aspects.In particular on the question: who should pay for cheap import?As a rule, the governments focused on import subsidization and thereby shift the burden on national budgets and this failed.A striking example of such an apparently social approach is Belarus. An overload of the budget by subsidies cannot work for the banal reason of taxes arrears.And in the economy a big amount of paper money, not supported by goods and services, spur the inflation. During a certain period it is possible to control this process, but in the end the crisis, as the experience of Belarus showed, is inevitable.

As for Kazakhstan reality, the Ministry of Agriculture seems to have listened to what was advised by foreign experts.For example, a senior economist of USAID in Kazakhstan Michael Boyd in 2008 warned about the weaknesses of direct subsidies to imports from the state budget. The subsidization policy, he thinks, should correspond to the interests not only of the population, which, of course, need food at affordable prices, but also of producers, who in case of low prices simply go bankrupt.

Therefore, the Ministry of Agriculture suggested concentrating on two things: completely abandon the containment of price changes, dictated by the situation on world markets, and promote competition.However, in order to clearly distinguish global trends and trends caused by the desire of wholesalers to get more money, we need a strong and, most importantly, professional anti-monopoly authority.

To ensure food security, and along with it to stabilize the food market, we need a powerful domestic agro-industrial complex of this same level of security.

According to the World Food Organization, to do this the share of food imports should not exceed 15 %. Unfortunately, Kazakhstan is far from the status of a country not depending on imports of food products, except for grain.Thus, according to Rabiga Tokseitova, Director of the Livestock Department of Ministry of Agriculture, 56 % of the consumed here poultry meat are imported from abroad. By comparison in 2000 this figure was at 37.4 %.Analysts tend to believe this trend derives from the increased consumption of poultry meat in Kazakhstan.

Thus, according to the Statistics Agency, only during the period from 2000 to 2010, annual consumption of poultry meat has increased from 53.2 thousand to 224 thousand tons, that is 4.2 times.But even this does not justify the growth dynamics of the country’s dependence on imported poultry.As for other types of products, Kazakhstan imports from abroad from 32 % to 60 % of its total consumption.And this ratio goes on deteriorating. According to the Statistics Agency, only in January–February 2011 imports of meat increased by 2.1 times, sugar by 13 times.

It is clear that a high proportion of import is a serious disincentive factor for domestic producers.Therefore, if the government is really interested in a competitive agricultural sector, it has to actively use restrictive or prohibitive measures concerning food import.

But now Kazakhstan has to do it with an eye on our partners in the Customs Union.As the Minister for Economic Integration Zhanar Aitzhanova mentioned, all products which were subject to non-tariff regulatory measures should be included in a single list of goods which are subject to bans or restrictions on import or export of CU countries in trade with third countries. And in unilateral manner Kazakhstan, like Russia and Belarus, has the right to establish the non-tariff measures in relation to third countries only for period not exceeding six months.

In order to enhance the competitiveness of its farmers, Kazakhstan could also rely on the protective, antidumping and countervailing measures in relation to third countries, which are regulated by special agreement, signed January 25, 2008 and came into force on 1 July 2010.

But to use them, producers must apply to the Commission of CU.The share of production of the applicants must be at least 25 % of the total production of the Customs Union.

Talking about how Kazakhstan’s accession to the CU influenced food prices, businessmen and state representatives quite seriously diverge in their assessments.In particular, according to vice-president of the Independent Business Association Timur Nazhanov, due to the high level of reliance on imports, primarily from Russia, food prices in Kazakhstan will continue to grow. The global experience shows that in terms of integration large markets dominate over small ones. It means that higher prices for Russian food will be “imported” to Kazakhstan.Increase in customs duties in relation to third countries also plays a role here.”We’re seeing prices rose. Because we imported 80 % from other countries: China, Turkey and Europe. Duties for their products came to reach 20 %.” Thus, according to Mr. Nazhanov, potatoes, onion and apples Kazakhstan mainly buys from China and Kyrgyzstan. 60 % of butter come from Russia or Ukraine and some from the European Union.

Zhanar Aitzhanova, in turn, believes that a change in customs duties on basic food groups is not reflected in their prices because they are imported mostly from CIS countries, with which trade is carried out duty-free. According to her, tea is on the first place among imported products (87 %), poultry – 84.4 %, and rice – 29.1 %. For other types of food our market depends on imports from third countries for not more than 20 %.

But the main factor affecting domestic prices, according to officials, was the opening of borders between the countries of Customs Union, as well as higher prices in Russian regions at the border with Kazakhstan, what made it attractive to export food to the border regions. The government is confident that this factor, despite the increase in prices in the short term, is positive in the long-term, giving kazakhstani producers the access to the large market of CU.

Of course, it is necessary to improve the efficiency of our agricultural industry. In the early 1990s, Kazakhstan has embarked on the development of farms, and most of large enterprises closed. Experts think, that the years of independence have shown, that in our conditions a farm cannot provide high efficiency because of lack of resources, mechanics, investment and so on. As a result, if during the Soviet period almost 40 million hectares of farmland were cultivated, now only about 21 million.

That’s why our government continues to increase funding of the domestic agricultural industry. For example, 47.9 billion tenge were directed to the industry in 2005, 47.1 billion in 2006, 55.9 billion in 2007, 77.8 billion in 2008, and 77.5 billion 2008. More than 989 billion tenge will be allocated under the Program for the development of the agro-industrial complex for 2010–2014. The main goal is to reach an effective diversification with the help of this money and to guarantee that the money will be received by the addressees, avoiding notorious corruption. Maybe in this case our ability will coincide with our wishes.

Editorial

KAZAKHSTAN International Business Magazine №4, 2011

The short-term economic indicator, characterizing the dynamics in the six major sectors of the economy (agriculture, industry, construction, trade, transport and communication), recorded a 6.8 % growth in production volumes, compared with the same period of last year1.

1. See the website of the Republic of Kazakhstan Agency for Statistics http://www.stat.kz/publishing/ /2011/июнь/Статистика июнь_интерактив.pdf, Pages 70–72.

According to the Customs Control Committee under the Finance Ministry, the foreign trade turnover in January–May was 40 % higher than in the same period of last year. Budget revenues as of June 1 increased by 20.4 %, while expenditures by 15.3 %.

Inflation was at a level somewhat higher than projected – 8.4 % in the first half of 2010. At the same time real wages and real income of the population increased by 6.6 % and 6.1 %, respectively (compared to May of last year).

Overall socio-economic situation in the CIS

According to the CIS Interstate Statistical Committee (Table 1), a 4.6 % economic growth was recorded in the Commonwealth states in the first quarter 2011, including the Customs Union countries: a 4.1 % growth in Russia, 11 % (January–May) in Belarus, and 6.8 % inKazakhstan.

In the first half of 2011, industrial output in the CIS grew by 6 % (by 5.3 % in Russia, by 11.5 % in Belarus, and by 5.8 % in Kazakhstan), the freight turnover by transport enterprises, excluding transportation by pipelines increased by 11.5 % (by 5.9 % in Russia, by 12.7 % in Belarus, and by 19.9 % in Kazakhstan), while retail trade grew by 6.9 % (by 5,3 % in Russia, by 18.4 % in Belarus, and by 12 % in Kazakhstan). Investment in fixed assets within the CIS countries increased by 4.9 % in general, (by 2.7 % in Russia, by 27.6 % in Belarus, and by 0.1 % in Kazakhstan).

Exports of goods within the CIS in the first five months increased by 33 %, compared to the same period of 2010 (by 28.5 % in Russia, by 61.2 % in Belarus, and by 44.3 % in Kazakhstan) and imports by 47,7 % (by 48.6 % in Russia, by 56.7 % in Belarus, and by 30 % in Kazakhstan).

Producer price indices of industrial production in the first half of 2011 were on average 11.6 % higher than in January–June last year. Along with that, for certain countries of the CIS, their dynamics still differ greatly, in particular, in Russia, where they grew by just 7.9 %, while in Belarus by 48.4 %, and in Kazakhstan by 20.7 %.

Consumer prices increased by 6.4 % compared to December 2010, including in Russia by 5 %, in Belarus by 36.2 %, and in Kazakhstan by 5.1 %.

Economic growth
According to current data, Kazakhstan’s GDP in the first half of 2011 increased by 7.1 % compared to the same period of the previous year (Table 2). In agriculture, industry, construction, trade, transport and communications, which account for two thirds of GDP, the growth in real terms was 6.8 %.

In the industry, which constitutes one third of GDP, production volumes rose by 5.8 %, including in the mining industry by 4.1 % and in the process industry by 8.7 %. Slight growth was observed in the construction sector and agriculture by 1.7 % and 1.5 %, respectively. The trade performance indicators increased by 14.3 %, including a 12 % growth in retail sector. Work volumes in the transport and warehousing sectors increased by 6.5 %, while in the information and communication sectors increased by 16.5 %.

In July 2011 the Agency for Statistics published express information on the composite leading indicator of the industry (CLII), allowing foreseeing early signals of turning points in the cycles of the physical volume index (PVI) of the industry (Figure 1). The CLII’s structure comprises the market survey questionnaire indexes (the balance of estimates of the industrial enterprises indicators, involving the expected output, demand and number of employed in industrial enterprises in the next 2–3 months), and the monetary aggregate M1.

Based on the results of the estimate made, it is predicted that due to the increase in CLII during the period from September 2010 to June 2011, the PVI will start rising with a long-term trend in the next 1–2 months.

Industry
The industrial production growth rate in the first half of 2011 was comparatively lower (105.8 %) than in 2010, which is associated with the relatively high base of last year (109.6 %). As Table 3 shows, there is an unstable dynamics of the physical volume indices by separate months; however, taking into consideration the results on SLII, one should expect an increase in this indicator.

Mining and quarrying in the first half showed an increase in production volumes by 4.1 %, including an increase of 7.6 % in output of coal and lignite, 6.9 % of natural gas, 3.5 % of crude oil, 1.6 % of iron ore, and 1.4 % of non-ferrous metals.

Processing industryshowed a 8.7 % rise. Production of food and beverages, non-metallic mineral products, and products of ferrous and nonferrous metallurgy increased. A rise in production in mechanical engineering (26.4 %) and chemicals production (17.5 %) was the most considerable.

Volumes of electric power generation and distribution of gas, steam and air conditioning rose by 6.8 %. This was due to the increase in production and distribution of gaseous fuels (20.2 %), steam and air conditioning (+9.3 %), as well as generation, transmission and distribution of electric power (+5.5 %).

In water supply, sewerage systems, and controlof waste collection and disposal the physical volume index was 97.6 %in January–June 2011.

Agriculture
Agricultural output in the first half of 2011 rose by 1.5 %, while crop production volumes remained at the same level as in the previous year, and livestock farming demonstrated a 1.5 % increase. In particular, the number of sheep increased by 4.4 %, while horses by 6.5 %. At the same time, cattle reduced by 3.8 %, goats by 2 %, pigs by 4.1 %, and fowls by 2.4 %.

Construction
Construction in the first half of the year was at a level higher than the previous year’s level by 1.7 %. The highest growth rates (compared to the same month of the previous year) were recorded in February, June and January – 105.3 %, 102.9 %, and 102.2 %, respectively. In the other months they were below 100 %.

In the first half of the year 2,658 thousand m2 of residential buildings were commissioned into operation, which is by 1.2 % less than in 2010. Along with that, we have to note a significant increase in investment in residential construction by 24.1 %, which in prospect is seen to add to the increased rate of commissioning of housing into operation.

Retail turnover
In the first half of the year retail turnover increased by 12 %. At the same time, retail turnover of trading companies (the share of which in the total retail trade is 53.4 %) rose by 7.1 % and that of sole entrepreneurs and retail turnover in the markets rose by 18.3 %. Inventories as of July 1st were sufficient to trade them during 43 days.

Foreign trade turnover
In January–May 2011 the foreign trade volume reached $48.3 billion, a 40 % increase, compared to the same period of last year. The exports were $34.9 billion (+44.3 %) and imports $13.4 billion (+30 %).

Exports to the Customs Union countries reached $3,551.7 million, which is a 60.4 % increase, compared to January–June 2010. At the same time, imports from the Customs Union rose by 40.3 % to $891.5 million.

The major partner countries of Kazakhstan in exports are China (15.8 % of total exports), Italy (14.3 %), Russia (10 %), Netherlands (8.7 %), and Switzerland (6.4 %). In imports the leaders are Russia (42.7 %), China (12 %), Ukraine (5.2 %), Germany (4.9 %), and USA (4 %).

Balance of payments
The current account surplus in the balance of payments for the first quarter of 2011 was positive – +$4,388.3 million (for comparison, in the first quarter of 2010 it was +$2,776.6 million).

Surplus on transactions with direct investments was +$2,770 million (in January–March 2010 it was +$3,390.6 million), including direct investments overseas -$1,443.2 million, and in Kazakhstan +$4,213.2 million.

Surplus on transactions with portfolio investments declined to +$308 million (in the first quarter 2010 it was +$ 3,914.6 million).

Investment in fixed assets
In the first half of the year investments in fixed assets were approximately the same level of the previous year (a 0.1 % increase), amounting to 1,869.5 billion tenge. The investment structure by sources of financing did not change greatly: the own funds share is 46.4 % (45.9 %in 2011), of foreign investments 26.2 % (27.6 %), of state budget funds 17.6 % (19.1 %), and of borrowing funds 9.8 % (7.4 %).

Mining and quarrying remained the most attractive industries for investments, as before, whose share in total volume is 38.5 %. Then it follows transportation and warehousing – 14.2 %, also transactions with real estate – 11.3 %.

Inflation, real income and wages
The consumer price index, compared to the first half of 2010, was 8.4 %. Along with that, real income and wages grew by 6.1 % and 6.6 %, respectively, compared to the same period of last year.

In the first quarter of 2011 the average pension grew by 24.5 % to 26,580 tenge.

Per capita nominal income of the population in May 2011 was 43,316 tenge, growing by 11.4 %, compared to May of last year, and by 2.9 % in real terms.

The average monthly nominal wage per employee in May 2011 reached 84,116 tenge (12.5 %), a 3.8 % increase in real terms.

Labor market
According to preliminary data, the number of the economically active population in the second quarter of 2011 amounted to 8,671.4 thousand, a 0.6 % increase, compared to the same period of last year.

The number of employed reached 8,204.4 thousand (+1.1 %). At the same time, there was an increase in the number of employees by 2.1 % (5,496.7 thousand people) and a decrease in the number of self-employed by 0.9 % (2,707.7 thousand).

The number of unemployed, on the contrary, declined by 7.3 % to 467 thousand people. It is worth noting a relatively marked decline in the unemployment rate up to 5.3 % in June this year, against 5.7 % in June 2010. The level of latent unemployment, according to the Agency for Statistics, was 0.4 %.

According to the Ministry of Labour and Social Welfare, the number of people registered as unemployed in June 2011 amounted to 57.4 thousand, or 0.7 % of the total economically active population.

Population
As of July 1st, the population of Kazakhstan has grown by 0.6 % to 16.5 million people in comparison with the beginning of the year. In the first five months of 2011, 152.7 thousand people were born in the country (150.3 thousand in January–May last year), and 63.5 thousand died (against 61.3 thousand in the same period last year). During the said period 14.7 thousand people (against 14.4 thousand in last year) came to Kazakhstan for permanent residence, while those who moved to other countries from Kazakhstan numbered 9.5 thousand people (against 8.3 thousand in 2010). The main migration exchange occurs within the CIS countries, accounting for 93.5 % of emigrants and 76.9 % of immigrants.

The mortality rate from circulatory diseases, which is the main cause of death in our country, as in the previous years, continued to decline, reaching 43 % (against 46.1 % in the same period of 2010). In addition, the specific weight of the deceased because of tumors reduced to 11.5 % (against 12.2 % in last year), as well as because of accidents, poisonings and injuries to 11 % (against 11.6 % in last year).

Public finances
State budget revenue as of June 1, 2011 reached 2,066.5 billion tenge, a 20.4 % increase against the same period last year. At the same time, tax revenues, whose share in total public revenues is 79 %, increased by 46 %.

In particular, budget revenues from taxes on foreign trade and external transactions, whose share in overall tax revenues is 21 %, rose by 4.2 times. Besides, revenues from corporate income tax increased by 25.2 % (its share in the structure is 26.1 %) and from value added tax and individual income tax by 24 % and 19.1 %, respectively (with shares equal to 21.5 % and 8.9 %, respectively).

As for the expenditure in the state budget in January–May 2011, it rose by 15.3 % to 1 875.1 billion tenge. The budget deficit was at the level of 71.8 billion tenge.

Yuri Shokamanov, PhD in economics, Professor, National Accounts Department Director at the Agency of the Republic of Kazakhstan for Statistics KAZAKHSTAN International Business Magazine №4, 2011