22nd FIC Plenary Session, December 4, 2009, Astana
22nd Plenary session of the Foreign Investors’ Council chaired by the President
of the Republic of Kazakhstan
December 4, 2009, Astana
Involvement of Foreign Investors in Implementing the Policy of Diversification and Technological Development of Kazakhstan
The 22nd Plenary Session of the Foreign Investors’ Council (FIC) chaired by thePresident of the Republic of Kazakhstan took place on December 4, 2009 in Astana and was devoted to the issues of involvement of foreign investors in implementing the policy of diversification and technological development of Kazakhstan.
Opening the session, the President of the Republic of Kazakhstan Nursultan Nazarbayev noted that the year 2009 was hard but very rewarding for Kazakhstan. At the beginning of 2009 the Anti-Crisis Programme worth US$19 billion or 14% of the country’s GDP was adopted. All year round big efforts were made in order to achieve the respective objectives.
1. In the third quarter relative to the second one the GDP grew 1.5%. Over 10 months the industrial production in Kazakhstan has reached the level of the relative period of a prior year, and this gives us good reason to expect that by the end of this year there will be minimal, but still some economic growth rather than a decline.
2. The Road Map programme was developed and implemented under which about 400,000 jobs were created throughout Kazakhstan. In parallel, infrastructure-related issues were resolved in many communities. Agreements on retaining workers at companies had been signed with big industrial companies, including those whose officials are members of the Foreign Investors Council. The terms and conditions of the agreements were met properly, and the President expressed sincere gratitude for this on behalf of the government. The government rendered unprecedented support to SMEs: financing worth about 340 billion Tenge was provided. As a result, the unemployment did not grow; it declined to about 6% in the 10 months.
3. Kazakhstan maintained and replenished its reserves. As at 30th November 2009, assets of the National Fund and the gold and foreign exchange reserves of the country reached US$52 billion that is more than last December levels. In general, the banking system got stabilised, under very difficult circumstances it remained functional and the retail deposits were safe. We made sure that no bank went bankruptcy.
4. Despite the difficult year, 170 new industrial and infrastructure facilities worth over US$3 billion have been commissioned in Kazakhstan. 9,000 permanent jobs have been created, respectively.
The President has positively noted the commissioning of the following big facilities:
A locomotive factory in Astana in association with General Electric;
Gas plant at Kumkol field; and
Kazakhstan’s first world-class highway Astana-Shchuchinsk.
– These big projects were implemented in association with international financial institutions and our foreign partners. Some of your companies were also involved, – Nursultan Nazarbayev said. He noted that in general, the year 2009 was a real breakthrough in attracting investors and increasing international cooperation.
– Thanks to senior-level contacts with such countries as South Korea, China, Italy, France, Turkey, and Belarus, we reached agreements on joint projects worth over US$ 25 billion,– the President said.
The following industrial projects, the biggest in Kazakhstan, will be implemented under these agreements:
Constructing Balkhash heat and electric power plant;
Laying a pipeline Beineu-Bozoy;
Producing fuels for nuclear power plants by Kazatomprom and the French company Areva;
Upgrading the refinery in Atyrau and constructing a facility to produce aromatic hydrocarbons; and
Constructing a gas plant, a shipyard, and a gas-turbine power plant by Eni, and a facility to produce bitumen in association with the company of China.
The President believes that this is the best evidence of investor confidence in the long-term sustainability and stability of Kazakhstan and its economy.
The President also noted that very recently, on 27th November, agreements aimed at establishing the Customs Union of Kazakhstan, Russia and Belarus were signed in Minsk. As a result of these agreements, business climate in Kazakhstan will significantly improve. Many customs barriers will be broken down, the cost of transit of cargo reduced, and access to infrastructure of 3 countries simplified, Nursultan Nazarbayev noted. A common market with the population of 170 million people will be created, and combined GDP will reach about US$2 trillion. These agreements, if effected, will improve the operating environment for many companies, whose officials are today at the Council meeting, the President noted.
– Dear members of the Council, as you see, we do not stand still. We see that the economic environment is changing rapidly, new world economic and political centres of gravity are being formed, and under these circumstances Kazakhstan is mapping out its strategy for further development, focused on the future,– the Head of State emphasized.
Soon the Kazakhstan Development Strategy to 2020 will be finalised. It will set the strategic development priorities of our country for the next decade. The draft five-year programme to foster the country’s industrial and innovative development is being finalised, and the implementation will commence next year. According to estimates the programme,if effected, will yield over 7 trillion Tenge for 5 years. That is more than half the country's GDP. 83 big projects worth over US$42 billion have been already planned, the President said. A number of projects to be implemented under the programme have been offered by foreign investors present at the plenary session and this is a guarantee that they will be successfully implemented.
Much attention is paid to scientific, technological and innovative development. Very recently significant decisions were made about science in Kazakhstan. Efforts are being made in order to set up a new university in Astana. It must become one of the advanced educational and scientific centres in Eurasia, including the one to train engineering skills.
The Head of State expressed hope that all the investors present at the session will see new opportunities for themselves in that large-scale programme. Thus, the companies operating in Kazakhstan to extract minerals and making profit, will keep investing in the development of the country.
– You have a unique advantage of operating here long, we are in trustful partner relations and we are going to cooperate with you in the future – this is the most important factor of successful business. I am confident that there are lots of beneficial joint projects ahead, – Nursultan Nazarbayev said.
In the course of the FIC session, the Head of the State, has introduced new members of the Council - Gerald Wane Grandy, President and CEO of Cameco Corporation, Igor Phinogenov, Chairman of the Board, Eurasian Development Bank, Zarir J. Cama, Deputy Chairman, HSBC Bank plc, James Quigley, CEO of Deloitte Touch Tohmatsu. Also the President informed about departure of Access Industries Inc., Koç Holding, BAE Systems from the FIC and thanked former FIC members – Mustafa Koç, Leonard Blavatnik and Sir Richard Evans for a great work performed within the framework of the FICas well as for the contribution to the development of the economy of Kazakhstan. New members of FIC on the Kazakh side included Kanat Saudabayev, Secretary of State of the Republic of Kazakhstan – Minister of Foreign Affairs of the Republic of Kazakhstan, who has replaced Marat Tazhin. There were the following changes on the foreign side members: John Hourican, Chief Executive Officer, GBM, Royal Bank of Scotland has replaced Frank Kuijlaars, Corporate Executive Vice President, The Royal Bank of Scotland Group plc.
Full text of the President’s speech can be downloaded here.
Further, in accordance with the agenda, Asset Issekeshev, Minister of Industry and Trade of the Republic of Kazakhstan, reported on the status of implementation of the Minutes of the 21st FIC Plenary Session.
Thomas Mirow, President, European Bank for Reconstruction and Development, has focused in his speech on the issues of SMEs support in Kazakhstan.
Mr. Mirow noted that EBRD has extended almost 250,000 loans for a total amount of $2.5 billion since 1997 under Small Business Programme.The Government of Kazakhstan has focused on the problems of entrepreneurs. It is an important step as the SME are main engine for diversification and modernization.
A prosperous SME sector is key for a country’s long-term stability. The sector is a major creator of employment, innovation and traditionally more responsive and adaptable than larger entities. This makes the sector a pioneer of diversification and modernisation. Small and medium-sized enterprises form the backbone of all successful Western economies: According to EU figures, in 2007 SMEs contributed 58 per cent of the value of total GDP in the 27 member states of the European Union. In Germany, the share was 53 per cent that year, whereas in Kazakhstan it was considerably lower at 35 per cent, head of EBRD said.
Moreover, the SME sector’s share of Kazakhstan’s GDP is actually falling. It was 40.5 per cent in 2005, declined to 35 per cent in 2007 and fell further to 31.2 per cent last year. One contributor to this widening gap was the financial crisis which has penalised the SME sector harder than larger companies.
The absence of vibrant local medium-sized companies means that Kazakhstan benefits less from large FDI inflows as enterprises that could be engaged as subcontractors and thus create jobs and benefit from know-how transfer do not exist in sufficient numbers, Mr. Mirow said.
Because of Kazakhstan’s relatively small domestic market, head of EBRD has recommended to strengthen the export potential of SMEs by improving the infrastructure, reducing administrative procedures, creating equal treatment for all businesses especially in regards to customs tariffs and streamlining of registering SMEs under one-stop-shop regulations. SME support must be flexible, pragmatic and targeted and must not turn into another layer of bureaucracy, Mr. Mirow says.
In conclusion, Mr. Mirow assured that EBRD remains committed to support the further successful development and diversification of Kazakhstan’s economy.
A speech on the main theme of the session was delivered by Asset Issekeshev, the Minister of Industry and Trade of the Republic of Kazakhstan.
Mr. Issekeshev informed session participants on the Industrialisation Programme which is being developed as part of Kazakhstan Development Strategy to 2020, as assigned by head of state and on the Government activities to identify priority sectors of the economy and profitable directors of the Strategy.
The minister noted that the Programme focused the development of 7 priority sectors: agribusiness, construction, oil refining, metallurgy, chemicals and pharmaceuticals, power and transport and telecommunications.
– Today all the above-mentioned sectors are facing common challenges such as low added value of products, and low labour productivity, resulting in a considerable export of products in the form of minerals, – the minister said.
In order to identify the most profitable sectors, a detailed research of the above sectors was done in association with major international analytical companies such as Nexant, CRU Group, Strategy Partners, and Baumgartner.
As a result of the development of detailed master plans, 46 promising sub-sectors and over 200 end products with high added value have been identified. In fact, these are temporarily unfilled niches, in which there are key prerequisites to investment namely feedstock and markets, the minister said.
In this regards, Mr. Issekeshev noted that the Government’s challenge is to make systemic efforts in order to create an unprecedented favourable environment for having investors in these particular “niche” products and industries. There are more than enough such opportunities in Kazakhstan and interested investors will be provided with full information on each of those, the minister said.
In addition, Mr. Issekeshev informed session participants that for the convenience of investors a Productive Facilities Map will be made under the Programme. It will include the balance of development of workforce, energy (gas or electricity), a description of mineral deposits, plans for area development, and information on existing productive facilities. The minister also spoke about the Industrialisation Map, which is another significant component of the programme. This is the list of priority investment projects providing for such actions as monitoring, management and identification of required particular government support actions.
Certainly, under current circumstances - the global financial crisis - attracting foreign investors will be one of the keys to successful implementation of the programme since apart from financial resources, that entails the transfer of technology, knowledge and management skills.
The minister said that the Government makes every effort that Kazakhstan becomes the most attractive venue in the region for foreign investors. Mr. Issekeshev that in 2009 as a result of visits paid and under agreements signed by the Head of State a big package of agreements worth over US$30 billion was signed with the leading companies of Italy, France, South Korea, China, Emirates and other countries.
Mr. Issekeshev informed session participants on the actions taken by the government in order to implement the Programme.
– We systemized all the actions and tools of resource and financial support, which include co-financing through loans or guarantees, risk sharing through the involvement of national companies in projects, placement of long-term public orders (for instance in pharmaceutical sector), and provision of plots of land in free economic zones, which we intend to seriously improve and many other things. All these actions have been planned in detail in the programme, hence the government created an environment required for the implementation of projects, – the minister of industry and trade said.
In his speech, the minister invited investors to get involved in four key sectors of industrialization:
1) infrastructure development;
2) added value production;
3) development of high and medium-tech industries;
4) technological development focused on satisfying the needs of existing companies to use the most
advanced technologies.
In conclusion, Mr. Issekeshev noted that the above-provided information gives all the investors, including the members of the Council and companies, not yet operating in Kazakhstan, a chance to get involved in the Programme.
– As you can see, the Government has a clear vision and plans for development, specific tools to support projects have been identified and we are ready to work in all the sectors. For fruitful cooperation with investors we intend to put in place a "one-stop" system. There is now an interdepartmental group of the Ministry of Industry, cooperating with foreign investors virtually on a daily basis. We look forward to receiving initiatives and specific suggestions from you. – the minister said.
Full text of Mr. Issekeshev’s speech can be downloaded here.
Foreign members of the Council, who delivered speeches at the session, shared their vision of involvement of foreign investors in implementing the policy of diversification and technological development of Kazakhstan and other issues of investment policy of Kazakhstan. The session was moderated by Zamira Kanapianova, Kazakhstan Country Manager, Chevron Europe, Eurasia and Middle East Exploration and Production, Chairman of the Board, Kazakhstan Foreign Investors’ Council Association. The following members of the Council from the foreign side delivered speeches on the main topic of the session agenda:
Zhao Xiaoyu, Vice President of Asian Development Bank in his speech offered his thoughts from ADB's perspective on ways to further implement Industrialization Programme. In particular, a representative of ADB recommended the Government of Kazakhstan to pay attention to the following:
1. Planning ahead and having a clear road map could enable more holistic and geographically balanced industrial growth. In this transformation process, the government should concentrate on serving as planner and regulator, while the private sector can provide efficient management and infrastructure development.
2. Kazakhstan will face an increasingly competitive environment in which it will be compared with other countries based on availability, reliability and cost of infrastructure services.The recent success of Kazakhstan in attracting U.S. and PRC locomotive manufacturers is an encouraging step on the path to broadening non-extractive industry investment, and we urge you to continue in these efforts.
3. The government ministries and Samruk-Kazyna group companies should be able to tap a special pool of funds quickly to meet the infrastructure needs of prospective large-scale industrial investors. Immediate use of such funds could be justified by a cost-benefit analysis calculating the net present value of future tax and other payments to the government generated by the projects. The government would be seen as a pro-active partner ready to commit infrastructure quickly.
4. Small and medium size investors obviously require different treatment. In their case, designated industrial parks can be established with much smaller supporting infrastructure investments to bring utility connections to the users of these parks. Value is increased if such investments reinforce the reliability of utilities with, for example, back-up generators or additional telephone lines. Such industrial zones may carry out a broad range of functions via free trade zones, special enterprise zones and technoparks. They may be owned by government, private sector or public-private joint ventures.
5. Another advantage could come from amending Kazakhstan's concession law. Allowing oblast governments to contract out the building of infrastructure services using the PPP model and utility services can be quickly and efficiently connected to new industrial users... And the use of long term sales contracts could broaden investor alternatives with schemes to include multiple users on the supply side, the demand side or both.
6. Finally, Kazakhstan's transparent E-Governance policy objectives need to be extended to ensure clear, easy to read A to Z information on its websites for prospective industrial investors. Communicationthoughwebsitesisessentialnowadays.
In conclusion, Mr. Xiaoyu noted that ADB will remain a strong partner to both the public and private sector in infrastructure development.
– We are willing to ramp up our knowledge and financial assistance in order to improve the investment environment in Kazakhstan and support long-term, sustainable economic development, – a representative of ADB said.
George Kirkland, Executive Vice-President Upstream and Gas, Chevron Corporation in his speech briefly informed session participants about some of the lessons learned and best practices Chevron has gained here in Kazakhstan
The representative of Chevron noted that recent Tengiz expansion is a good example of applying the latest technology in Kazakhstan. Besides boosting production and generating new revenue, taxes and jobs, it also increased demand for Kazakhstani goods and services and provided more training and development. For instance, Mr. Kirkland noted fruitful cooperation with Belkamit, a Kazakh machine-building factory, when TCO engineers helped Belkamit build their equipment and develop their processes to international standards. As a result, not only did Belkamit support Train 5, but also the Second Generation Plant: with pressure vessels and those air coolers. Besides, as TCO works toward the next project to expand Tengiz – the Future Growth Project – the company has leveraged established relationships with Kazakhstani engineering companies, such as CaspyMunaiGas and KazGor, to get them involved early in the design phase.
In addition, Mr. Kirkland noted that a polyethylene pipe plant is another best practice example of applying a new technology to successfully diversify the economy. In the course of the construction of the plant, Chevron initiated and developed more than 20 Kazakh standards of manufacturing and test methods
Currently, the company pursues two more projects that apply new technology and support diversification of Kazakhstan’s economy:
·
Expanding the pipe plant to manufacture metal and plastic composite pipes for hot water supply and heating; and
Building a plant which will manufacture gate valves for municipal water supply and natural gas distribution.
In conclusion, Mr. Kirkland expressed confidence that Kazakhstan is up to every challenge, and Chevron looks forward to even more “cooperative leadership” to create opportunities for the people of Kazakhstan.
Malcolm Brinded, Executive Director, Shell Upstream International & Member of the Shell Board in his speech shared information on Norway’s experience in technological development of oil and gas industry.
– We propose that the government of Kazakhstan considers the Norwegian government approach as it evaluates various approaches to develop Kazakhstan's R&D potential.We believe such an approach can help establish a mechanism to support investment in R&D in the oil & gas industry in Kazakhstan,– Mr. Brinded said.
Mr. Brinded pointed out a number of priority areas, such as sour gas, sulphur utilization, high-pressure reservoir management, and Enhanced Oil Recovery.
– Kazakhstan's aspiration to develop an innovation-led economy is a paramount development objective. Investment in R&D to support oil & gas developments in Kazakhstan can help open up the country’s innovation potential and maximize the value of its energy resources, –Mr. Brinded said.
Also, Mr. Brinded thinks that a defined oil & gas technology strategy that sets clear priority areas for R&D and technology development in the oil & gas sector is needed. The government could establish policy and regulatory frameworks that promote collaboration between oil & gas companies, government agencies, universities and research institutions.
In conclusion, Shell representative proposed that the government of Kazakhstan undertakes a mapping exercise to identify technology development priorities for oil & gas sector.
Frank Chapman, Chief Executive Officer, BG Group noted in his speech that even in conditions when global demand for energy has dropped steeply, resource-rich countries such as Kazakhstan, need to continue to attract investment from a diminishing pool, and to deliver on massive projects already under way. Certainly, the government of Kazakhstan is wise to focus on long term objectives.
The head of BG Group noted that investors need to consider their longer term needs and identify and support development of capacity in their specific industry sector. While the republic can deploy revenues generated by existing industries to build greater economic diversity in a step by step process.
In his speech, Mr. Chapman proposed a number of recommendations to develop local content, namely: to set clear targets to demonstrate that suppliers are successfully progressing towards the goal of international competitiveness, which remains the only true source of sustainability, to plan how and in which sectors the development of local capacity should be prioritized, and how its evolution can be guided to ensure that the goal of international competitiveness can be achieved.
In addition to bringing the skills, finance and technology needed to unlock Kazakhstan’s resources, foreign investors have an important part to play in this process.
– Since our entry into Kazakhstan, we have, with our KPO partners, worked with and helped build the capabilities of more than 2,000 local contractors and trained more than 115,000 employees and graduates. In 2008, we achieved a local content contract value of $537 million – some 56% of total contract value, far exceeding the agreed target of 43%, – Mr. Chapman said.
In conclusion, head of BG Group expressed confidence that that commitment and that partnership can sustain Kazakhstan’s long term ambitions for its people through the current uncertainties.
Alexander Machkevitch, Shareholder, Eurasian Natural Resources Corporation PLC (ENRC)in his speech noted that despite the complicated situation in the global economy,ENRC currently implements a 2-year investment programme worth US$2.4 bln. Consistent work on technical modernization of the key assets, innovative infrastructure foundation and technologies transfer is on its way. Until 2014, the company isntends to launch a number of new operations including high added value production output and integrated processing of metallurgical waste.
Mr. Machkevitch gave a number of examples on how ENRC implements innovation programmes such as construction of the aluminium smelter in Pavlodar region, construction of the anode shop, construction of a new shop at Aktobe Ferroalloys Plant with annual 440 thousand tons capacity and others.
In the course of his speech, ENRC shareholder also spoke about innovations in such sectors as management, environment, health and safety. In particular, Mr. Machkevitch informed session participants that ENRC sponsors a national contest between the country’s vocational institutions, works with leading international experts on health and safety and introduces modern management systems in these areas, which are vital for industrial entities and started full-scale implementation of ERP project that is the most advanced system for enterprise resource planning.
In conclusion, Mr. Machkevitch expressed confidence that with implementation of innovation projects of ENRC, a multilevel multiplier effect will take place because highly technological production will discover potential for foundation of new high added value entities in medium and small business.
Lakshmi Mittal, Chairman of the Board of Directors and CEO, ArcelorMittal in his sppech noted that the diversification and technological development of the economy will be a key to the success of Kazakhstan in coming years.
Mr. Mittal noted that it is remarkable that Kazakhstan, as compared to other countries, is still seeing growth in its economy, even this year. Inflation and currency are under control, and governmental financial reserves are strong.
— Your Government is committed to building a solid economic platform, an open and prosperous society and a fully functional market economy. This will go a long way towards making Kazakhstan even more competitive,— Mr. Mittal said.
In conclusion, Mr. Mittal expressed confidence that Kazakhstan will emerge from this crisis even stronger than before and remain the most competitive economy in the region.
Vagit Alekperov, President, LUKOIL OJSC, in the beginning of his speech told thatKazakhstan used to be, and remains at present, one of the top priority regions of the Company’s presence for Lukoil. Kazakhstan’s share in the Company’s overseas proven reserves comes to about 40%, while over half of our investment into foreign projects have been allocated to Kazakhstan.
Head of LUKOIL spoke about the company’s great experience in applying hydrocarbon production boost technology. Thanks to application of cutting-edge technologies, LUKOIL ensures practically the complete utilization of the available well count.
In addition, Mr. Alekperov mentioned large-scale activities aimed at enhancing the efficiency ofassociated petroleum gas recovery in accordance with the requirements of Kazakh law “On Oil” and the provisions of the State associated gas recovery program. This task has been successfully solved at most of company’s facilities located in Kazakhstan, head of LUKOIL noted.
Speaking about local content, Mr. Alekperov noted that the company enhances the Kazakh share in all our assets located in the Republic on a regular basis. LUKOIL is implementing a special program envisaging the establishment of new Kazakh enterprises manufacturing goods and rendering services to the oil and gas industry in the sphere of drilling, well overhaul, geological prospecting, and particularly, in geophysical works.
Mr. Alekperov noted that LUKOIL joint project “Tyub-Karagan” became the first offshore project in the history of the National company “KazMunaiGaz”.
— I am convinced that the vast experience accumulated by LUKOIL in the sphere of field exploration and development in the Russian sector of the Caspian Sea can be efficiently used for our joint offshore projects with Kazakhstan,— head of LUKOIL said.
In conclusion, Mr. Alekperov assured that LUKOIL shall go on making a considerable contribution into enhancing the technological competitiveness of Kazakhstan and fulfill all its assumed obligations thus creating conditions for economic growth and ensuring the welfare of the Kazakh people.
Yves-Louis Darricarrere, Executive Vice-President, Member of the Executive Committee, President Exploration and Production, Total promotedtheidea to create the Kazakh National Institute of Welding similar to the French “Institut de Soudure” inhis speech. Such idea was proposed due to the shortage of local highly qualified welders, which are a critical workforce in the so called ‘hook up’ activities where millions of zero default welds have to be achieved in limited time.
The aim of this project which is in the early stages is to provide Kazakhstan with an Industrial Technical Centre of international reputation, capable of responding to the needs of a wide range of industries: Oil & Gas, chemical, steel, shipbuilding, railway, construction and power supply.This centre would develop its own research and development activity in state-of-the-art welding technologies and ultimately provide integrated services such as welding inspection, testing for material conformity, education and training.
This project will enable Kazakhstan to enter into the “Club” of the International Institute of Welding (IIW) which, through its 53 members including Russia and Ukraine, develop international rules to facilitate exchanges for the quality and the safety of all welded constructions.The Club aims to provide its expertise in a sustainable manner while preserving the environment.
This project would entail the development of local content and technology transfer in the Kazakhstan industrial sector through:
Development of Kazakhstani competencies and knowledge with international requirements and qualifications among local companies,
The existence of an internationally recognized Kazakh Institute overseeing a certification system allowing Kazakhstani products to be accepted worldwide and Kazakhstani staff to work internationally
Development of Kazakh product competitiveness through research and development of new technologies.
— I am convinced that together we should be able to put together a comprehensive strategy for skills acquisition and, a sustainable long term human resource for oil and gas industry and for Kazakhstan in general, — Mr. Darricarrere said.
Claudio Descalzi, Chief Operating Officer, General Director of Exploration and Production Division, Eni S.p.A.spoke about technology transfer and human resource developmentwith an emphasis on ENI experience in Kazakhstan.
— In particular, ENI is primarily focused on Enhanced Oil Recovery technologies, which allow maximum resources exploitation. We have also aggressively invested in deepwater geophysics, seismic imaging, proprietary drilling technologies and fluid-dynamics.As a whole, we currently have more than 80 technology transfer projects in place worldwide, some of which are carried out right here in Kazakhstan, in the Kashagan and Karachaganak fields, — Mr. Descalzi said.
ENI representative also noted that the company has trained more than 200 delegates from the Ministry of Energy, KMG and affiliated companies under Master of Petroleum Business program in the Petroleum Industry Training Centre in Almaty. Besides, several students from Kazakhstanhave attended Scuola Mattei’s MEDEA - Master in Management and Economics of Energy and the Environment.
Mr. Descalzi noted the Cooperation Agreement recently entered into between ENI and OJSC NC KazMunaiGas, in addition to projects related to the upstream activities also entails the study of initiatives aimed at optimizing Kazakhstan’s domestic resources and providing industrial diversification from the extractive business
— In particular, ENI and KMG have agreed to jointly evaluate significant midstream and downstream infrastructure projects, including a Gas Sweetening Plant, a Gas Turbine Power Plant, a Refinery Upgrade and a Shipyard with a drydock capable of building 60,000 Dead Weight Tons oil tankers. The agreement also includes an optimization study of the usage of the gas resources of Kazakhstan and the exploration studies of the Shagala and Isatay areas in the northern Caspian Sea. … We are confident that these projects will play an important role in the future industrial and infrastructural development of the country,— ENI representative said.
James Mulva, Chairman and CEO, ConocoPhillips,in his speech, spoke about the role of natural gas in diversification of the economy of Kazakhstan.
Achieving economic diversification of Kazakhstan will require industrialization in other sectors as natural gas, refined products, power generation, and chemicals and plastics production, head of ConocoPhillips thinks.
Mr. Mulva has suggested the following opportunities to use natural gas in Kazakhstan: becoming a regional supply hub, building an export pipeline to Europe, production of petrochemicals and liquid fuels, use in electric power and steam generation, and use of liquefied petroleum gas in remote areas.
— However, for strategic considerations, as well as economic diversification, Kazakhstan may wish to encourage them. … To implement this plan, the government could provide incentives and other enhancements to attract investment. Foreign investors need solid economic returns – and a stable tax and legal environment – in order to make long-term financial commitments,— Mr. Mulva said.
— By accelerating the implementation of these measures … we believe that Kazakhstan could achieve greater vertical integration in the petroleum sector, capture more of the energy value chain, expand its industrial base, and drive further economic growth,— head of ConocoPhillips said.
Peter Tils, Managing Director, CEO Central and Eastern Europe, Deutsche Bank Frankfurt focused on successful innovation stimulation by the German government in his speech. Mr. Tils said that there were two key successfulfactorsofinnovationstimulationinGermany: customization and support across the innovation process and accessibility and transparency.
The process of innovation must be understood as series of inter-dependent processes along the value chain beginning with the innovative idea to the marketing of a competitive product. The stimulation of technological innovation via dedicated state funds should not be limited too strictly to certain technologies, products or phases of the innovation process but should be made available for a reasonable range of technologies, different phases of the innovation process, and for product, service, process and business model innovations.
A focusonfinancialsupportonaprojectbyprojectbasewillbeinsufficientduring the research and development phase of the innovation process but also it is necessary to provide support to build up the necessary company structures, to improve their risk profile and to successfully introduce innovations on the market.
Mr. Tils illustrated this with some examples from the German state and private innovation support programmes. For instance, The Central Innovation Program for SMEs of the German Ministry of Economics and Technology, The ERP Innovation Program, The KfW Banking Group Start-Up Fund, The EXIST Support Program and the High-Tech Founder Fund of the German Ministry of Economics and Technology, The SIGNO Program.
-Also, Mr. Tils noted a number of innovation support programmes in high-priority technology sectors including medical engineering, aviation, environment and energy as well as other key technologies: SME-Innovative by the Ministry of Education and Research, Research and Development for renewable energies supported by the Ministry for the Environment, Nature Conservation and Nuclear Safety, Financial support for research in the area of sustainability provided by the Ministry of Education and Research.
It is essential to establish efficient processes to grant access to the available funds, Mr. Tils noted.
Robin Renwick, Vice-Chairman, Investment Banking, JP Morgan has informed session participants about his company’s participation in a highly successful $500mm Eurobond issue from the Eurasian Development Bank.
Mr. Renwick noted that the state can and should act as a risk transfer and facilitating mechanism between private sector investment and development projects and urged Kazakhstan Government authorities to continue encouraging various development and investment institutions to devise their own financial strategies, rather than relying entirely on centralized budgetary support.
In conclusion, JP Morgan representative noted that further development of the Kazakhstan stock exchange, particularly in terms of the degree of liquidity of the stocks listed there, should encourage the pension funds and other savings institutions to invest more directly in entrepreneurial development.
Karl Johansson, Managing Partner, CIS, Ernst & Young commented on the development of e-Government Programme in Kazakhstan.
The head of Ernst & Young CIS noted that current E-government project and the related 2008-2010 state program are detailed. However, they were prepared in 2007 – before the global recession. During the current global economic crisis E-government implementation programs in a number of other countries have been subject to a significant review process due to changed priorities and financial constraints.
Mr. Johansson proposed the following recommendations:
·Re-assess E-government priorities - we suggest to re-perform a detailed analysis of existing cross-agency projects and assess the progress of their implementation.
·Focus first on value from reducing red-tape for businesses. Current approach for the existing program is to initiate many E-government transaction services for corporate clients and individuals at the same time. However re-allocation of efforts to projects aimed at business may add more value sooner. Focusing on corporate clients will have a higher impact because only 1.2 million Kazakhstan citizens have permanent access to Internet
·We recommend to start dialogue with corporate business to be impacted by E-government as to what they expect and wish to obtain from this program – in terms of services provided, volume of required paperwork,particular modules to be implemented first, how they should be customized to different industries (extractive, trade, engineering, etc.).
—We also believe that the effective re-assessment of existing E-government projects with the focus on timely high value added projects supported by sufficient resources will result in a clear and tangible progress in the mid-term perspective,— Mr. Johanssonsaid.
John Conroy, Chairman of Baker & McKenzie International, in his comments spoke about the necessity to establish an effective structure for providing services to small and medium size investors, the so-called “one-stop-shops”.
— One popular method of attracting new foreign SMEs is for governments to establish so-called “one-stop-shops” for investors.These one-stop-shops assist potential investors with nearly all of their needs in making an investment decision and, once made, in implementing their investment, — head of Baker & McKenzie said
Mr. Conroy noted that Kazakhstan has 3 bodies that provide services to investors:Kaznex, Kazinvest and the State Committee for Investments.Unfortunately, the services they provide are overlapping and are very limited.None of these bodies serves as a true one-stop-shop, Mr. Conroy said.
Based on the above said, head of Baker & McKenzie recommended setting up a new body to serve as Kazakhstan’s one-stop-shop for foreign investors. Besides, Mr. Conroy set out principal elements and functions of such new structure.
Taichi Ito, Chief Executive for Central Asia & Caucasus, General Director of Istanbul Main Branch, Mitsubishi Corporation commented on SME development in Kazakhstan.
Mr. Ito informed that during Japan-Kazakhstan Joint Conference for Economic Cooperation by the governments and the private sectors held on October 22, 2009 in Astana, Mitsubishi as a chairman of Japan-Kazakhstan Economic proposed to establish “Network for the improvement of Investment Climateby which ministries, banks, companies from both countries can be on the one table to support on providing “Information”, arranging “Business Forum”, “Business Matching” and so on.
— We are glad if this issue would be discussed in more details further at the working level,— Mr. Ito said.
Lars Nyberg, President and CEO, TeliaSonera commented on the development of telecommunications and IT infrastructure and respective services in Kazakhstan.
Head of TeliaSonera said that the The popularity of mobile voice and data services has grown dramatically due to larger network coverage, more developed international roaming and value added services along with attractive pricing and access to the internet may provide an even bigger boost to economic growth than the access to mobile telephony.
— The expansion of mobile network coverage and the introduction of new technologies - especially 3G and beyond is of utmost importance for the future development of IT in Kazakhstan - as it will connect all business and citizens to the information highway,— Mr. Nyberg said.
Head of TeliaSonera urged the Government of Kazakhstan to issue 3G frequencies to secure the next step in the future evolution of IT services to the benefit of Kazakhstan and to guarantee equal and open treatment of all operators.
— Investment focus should continue to be on coverage, capacity, technology evolution - 3G and beyond - as well as on developing fiber access, transmission and transport networks, especially in Astana and Almaty as well as other major cities, to cater for a growing demand for mobile data and Internet,— Mr. Nyberg said.
Summarizing the session, President Nursultan Nazarbayev has expressed gratitude for the ideas and initiatives that were shared by foreign investors during the course of the session.
In his closing speech, Nursultan Nazarbayev emphasized that diversification and technological development in Kazakhstan are major goals set in country’s development strategy. The lack of common system for coordination of academia, governmental agencies and private companies and the system for technological planning, which sets specific objectives for academia and makes sure they are accomplished, in Kazakhstan is the biggest barrier to diversification and technological development, the President noted.
— All that does not allow the government to pursue its national technology policy through coordination of stakeholders and does not allow to set specific objectives in priority sectors. The government, trying to ensure the innovative industrialisation of the country, cannot be happy with such state of affairs, — the Head of State said.
President Nursultan Nazarbayev noted a number of problems related to intercommunication between academia and industries.
First. The country has not yet set specific objectives for academia and businesses, which would ensure its technological development.
Second. There is no a coordination between the Kazakh academia, government and private companies to be undertaken to achieve priority technological development objectives.
Third. Concerned governmental authorities, national companies and research organisations lack competence required to successfully take on technological challenges aimed at industrial and innovative development of the country.
Fourth. There is no effective mechanism for practical implementation of scientific development.
Fifth. Foreign investors are not making sufficient efforts to build technological capacity of Kazakhstan, either.
The President noted that in order to resolve the issue of intercommunication between academia and industries, one needs to put in place in the country a system to manage the technological development based on the following elements:
1)planning and setting specific technological objectives based on actual economic needs;
2)mobilising material and human resources to take on technological challenges: the establishment of the respective research centres and organisations, concentration of resources etc.;
3)coordinating all parties involved in implementation: scientific organisations, industrial companies, governmental agencies;
4)continuous evaluation and monitoring of progress in developing technologies and their actual use by industries.
An environment enabling technological breakthrough in certain sectors must be the main purpose of the system. As part of the system, a clear scheme of communication with foreign investors needs to be designed.As to technological cooperation, the role of investors must mean specific actions aimed at taking the technological development in Kazakhstan to a higher level, Nursultan Nazarbayev said.
Promising technological partnerships might include the development of the respective infrastructure such as research, technological, and educational centres and pilot productive facilities and laboratories, joint research, transfer of technology and implementation of local development, and involvement of local companies in taking on technological challenges, noted Nursultan Nazarbayev.
Summarizing the foregoing, the Head of State drew the attention of the members of the Council to the following fundamental elements in further cooperation, set respective tasks and gave assignments to the Government:
First. Starting 2010 Kazakhstan will launch a programme on accelerated industrial and innovative development, which primarily aims at achieving the objective of diversifying Kazakhstani economy. Today, portfolio of over 220 industrial projects worth about US$80 billion was formed. Active involvement of foreign investors in the implementation of our programme is one of the keys to the success of the programme. It is very important to have investors participate in new higher added value production in Kazakhstan.
Assignment: The Ministry of Industry and Trade should carefully explore and discuss with foreign investors ways of cooperation under the programme to accelerate industrial and innovative development, determine specific projects and set specific terms for cooperation in implementing such projects.
Second. It is necessary to draft technology agreements, which must oblige foreign investors to implement projects for technology development, including the establishment of joint laboratories, transfer of knowledge and technology, financing of joint research, engineering skills training and refresher training etc.
Assignment: Government should within three months to negotiate and sign technology agreements with foreign investors on technological development, where it is necessary to set specific terms for their operations in Kazakhstan.
Third. Currently, a new international university that will combine educational, research and engineering institutions in such sectors as natural sciences, engineering, power and medicine is being established in Astana. The university will have an Industrial Council, which will specifically communicate with industries. It is necessary to have officials of investing companies present here today become members of the council. They would determine how many engineers need to be trained, they would take part in joint research and pilot tests at their productive facilities, Nursultan Nazarbayev said.
Assignment: The Government to negotiate and set specific terms for cooperation between foreign investors and the new international university in Astana.
Fourth. Also efforts are made to develop the Caspian energy hub, which will be located near major oil and gas fields in Kazakhstan. It will become the centre for Kazakhstan oil and gas industry’s technological capacity and will combine industrial, educational, and research institutions to do applied energy-related research. It is necessary for the Caspian energy hub to become the main venue for cooperation with foreign extractive companies, operating and investing in Kazakhstan.
Fifth. It is necessary to cooperate with foreign investors in technology development on a systemic basis.
Assignment: The Government to set clear technology-related objectives in Kazakhstan’s priority sectors for 5 years and 10 years. These objectives should be combined into the country’s common inter-sector technological plan clearly phased and resourced (institutions, human resources, investment). Such a plan should be an integral part of Kazakhstan Social and Economic Development Strategy to 2020 broken down into 2 periods of 5 years each. Inter-sector technology plan should be linked to the activities of national companies and enforcement of technology agreements by foreign investors.
Sixth. Technological development of priority sectors must be critical in industrialisation efforts. To do so, inter-sector coordination of initiatives, projects, development institutions, foreign investors and governmental authorities must be undertaken.
Assignment: Yerbol Orynbayev, the Vice Prime Minister, to personally supervise the Government in its respective efforts. There must be formed a senior-level working group comprising concerned ministers, and senior managers of holding company Samrouk-Kazyna, and each foreign investor must be dealt specifically in the technology development policy of Kazakhstan.
In conclusion, President Nursultan Nazarbayev expressed confidence that as a result of joint work with investors, another contribution to enhancing the well-being of the Kazakh nationals, and the well-being of the country can be made.
Full text of the President Nursultan Nazarbayev’s speech can be downloaded here.
Within the framework of the 22st Plenary Session the Head of State, Nursultan Nazarbayev, had a number of bilateral meetings with the session participants: Thomas Mirow, the President of the European Bank for Reconstruction and Development, Yves-Louis Darricarrere, Executive Vice-President, Member of the Executive Committee, President Exploration and Production, Total, Vagit Alekperov, President, LUKOIL OJSC and Frank Chapman, Chief Executive Officer, BG Group.
The next FIC plenary session will take place in Almaty on June 8, 2010. Its topic will be Effective supply of the economy of Kazakhstan by the qualified labour resources.
(Based on the materials of the Kazakhstanskaya Pravda newspaper, an official website of the President of Kazakhstan and speeches of the session participants Photos by Sergey Bondarenko)
