Kazakhstan: Investment and Economic Assessment

Aktau Declaration

On Joint Actions

Opportunities

To Oil And Gas

Supply-chain

Companies

The Aktau Declaration on Joint Actions unifies Kazakhstan’s major oil and gas operators. It supports the implementation of joint ventures for the manufacture of goods and services supply chain. The common goal is also to create a simplified working environment.

Please contact

• Matchmaking foreign and local companies info@aktaudeclaration.org

• Meetings with major operators one-to-one www.aktaudeclaration.org

• Priority categories for goods, works and services analysed

• Benefits of local content and localization strategy

• State incentive programmes explained

• Visa and logistical support

Serving

Ëîãîòèïíàñâåòëîìôîíå Ëîãîòèïíàòåìíîìôîíå In cooperation with The Contract Agency

Àëüòåðíàòèâíûéëîãîòèï

Ëîãîòèïûïàðòíåðîâïîêàðà÷àãàíàêñêîìóïðîåêòó

Kashozwcaasekhstan

Contents

Opportunities

To Oil And Gas

Supply-chain

05 Introduction 51 Priority Sectors & State Assistance

Lord Waverley KazNexInvest

Companies 08 56

Kazakhstan’s Energy Industry; The Future Regulatory Environment Minister; Oil & Gas Deloitte

13 61

Industrialisation; Attracting Inward Investment Business Environment Minister; Investments & Development Grata Law

16 Why Kazakhstan? 64 Investment Environment

Ambassador to United Kingdom OECD

20 Industry Who’s Who 67 Tax Environment To Enable Local Content

Aktau Declaration ITIC

24 The Major Operators 70 Case Study

Operators Worley Parsons

33 Unifying Local Content & Localisation Endeavours 73 Case Study

Aktau Declaration on Joint Actions Wood Group

36 Local Content Through Partnership & Monitoring 74 Understanding Consolidated Contractors

Contract Agency CCC Group

39 Technology Challenges & Opportunities 78 Case Study

University of Cambridge Aksai Industrial Park

40 Technical Regulations & Standards 80 Expo 2017

Committee; Technical Regulation & Metrology Expo

43 Kazmunaigas Procurement Procedure S 82 Understanding Kazakhstani Culture

KazMunaiGas Aktau Declaration

For more information on Showcase Kazakhstan and future publications in the Showcase International series including questions and comments please email: info@showcaseinternational.org

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Showcase | Kazakhstan 5

Introduction

Lord Waverley

Kazakhstan, With Its Large Volumes Of Natural Resources, Is A Country Of

Geopolitical Importance And Is On A Fast Track Development Cycle.

Whilst operational challenges are to deliver the three encouraged to embrace these ideals. world-class oil and gas projects of Karachaganak, Kashagan and Tengiz within budget and time in a secure, The technical, commercial, and socio-economic safe environment, a structured approach towards challenges are understood. It is recognised that it industrialisation and creation of a base for professional will take time, investment, focus and commitment to skills is a national priority. develop, however knowing Kazakhstan as I do, I have no doubt that this will be achieved. Kazakhstan is a country that is working overtime to becoming internationally competitive and be viewed This showcase of Kazakhstan attempts to illustrate those as an investment destination of choice, with a wealth opportunities and are explained from the perspective of opportunities available to those who wish to engage of Kazakhstan, not from outside looking in.

For this directly. It should be known that the country is placing reason, I trust that those who are keen to explore these great emphasis on local content and localisation dimensions in a country set on positioning itself as a development, and encouraging a unified approach by global player will find these articles of interest. the oil and gas industry in this regard. Kazakhstan has taken a lead in this global trend.

All stakeholders are jd@showcaseinternational.org

Казахстан, с его богатыми запасами природных ресурсов, является

геополитически важной страной, проходящей виток ускоренного развития.

В то время как насущная задача состоит в осуществлении заинтересованным сторонам рекомендуется принять эти трех нефтегазовых проектов мирового класса - идеалы. Карачаганагa, Кашаганa и Тенгизa, в установленные сроки и в соответствии со сметой, без ущерба для окружающей Понятно, что существуют проблемы - технические, среды, структурированный подход к индустриализации коммерческие, и социально-экономические. Никто не и создание базы профессиональных навыков являются отрицает, что развитие потребует времени, инвестиций, национальными приоритетами. целеустремленности и полной отдачи, однако, как человек, хорошо знающий Казахстан, я не сомневаюсь, Казахстан - это страна, которая прилагает все усилия, что это достижимо. чтобы добиться международной конкурентоспособности и рассматриваться инвесторами в качестве Данная презентация Казахстана является попыткой приоритетного места назначения, предлагающего проиллюстрировать имеющиеся возможности с позиции огромные возможности всем, кто готов к прямому Казахстана, это взгляд изнутри, а не извне. Поэтому взаимодействию. Важно осознавать, что страна уделяет я надеюсь, что эти статьи будут интересны всем тем, большое внимание местному содержанию и развитию кто хочет лучше понять суть происходящего в стране, локализации и поощряет единый подход в этом вопросе которая стремится позиционировать себя в качестве со стороны нефтегазовой промышленности. Казахстан глобального игрока. играет ведущую роль в этой глобальной тенденции. Всем

8 Showcase | Kazakhstan

Kazakhstan’s

Energy Sector;

The Future

U.Karabalin It is important to ensure that both non-renewable and Minister, Oil and Gas renewable energy resources are developed competitively, while ensuring greater efficiency in their use and development. There is scope for cross-fertilization of innovation, knowledge and approaches between the two sectors

Showcase | Kazakhstan 9

At the end of 2012 the President of Kazakhstan oil production will reach to foreign markets. Since Kazakhstan highlighted the successful around 2 million barrels per day in independence we have established implementation of the first long- 2020. Our supergiant fields -Tengiz, a comprehensive system of main term National Strategy which was Karachaganak and Kashagan, each pipelines.

The implementation of adopted in 1997, and which enabled containing over seven billion barrels such large-scale projects as the CPC, Kazakhstan to join the list of the fifty (in the world’s top 60 fields) are our the Kazakhstan-China oil and gas most competitive countries in the principal projects. pipelines, enable us to look forward world. We have now embarked on the with confidence to the future export Three major Kazak oil refineries implementation of the new long-term of hydrocarbons to some of the most in Atyrau, Pavlodar and Shymkent strategy, aimed at taking Kazakhstan promising markets in the world. will be upgraded before 2017. into the top thirty. Investment projects to create world- In addition, we are building a The energy sector is one of class petrochemical plants will be comprehensive infrastructure for the the principal elements in the developed.

Four key locations on utilization of the country’s energy implementation of Kazakhstan’s Kazakhstan’s Caspian coast are being resources; covering exploration and strategic economic objectives. Since developed for the purpose of creating extraction, refining, petro-chemical our independence we have joined the a service infrastructure; the cities of production and service infrastructure. top fifteen countries for proven oil Atyrau and Aktau and the towns of According to the International Energy reserves and the top twenty for gas. Bautino and Kuryk.

They will form part Agency, Kazakhstan remains one of of the integrated service support for Since 1997 Kazak oil production the most promising sources of growth offshore oil and gas operations. has grown more than threefold to in oil production together with Iraq, 1.6 million barrels per day, and gas Sustained growth of production Brazil and Canada. New opportunities production by fivefold to 40 billion entails creating an infrastructure for for the country may be revealed cubic meters annually. We predict that the effective delivery of hydrocarbons in the course of Eurasia project’s s

10 Showcase | Kazakhstan

Kazakhstan Is Seeking To Change

Its Status As A Raw Material

Producer Through An Economic

Policy Aimed At Developing A

Diverse Mixed Economy, Including

Manufacturing.

two sectors. The results of such activities, including joint developments throughout the entire energy sector, and our longer term plans, will be exhibited at Expo 2017 in Kazakhstan’s capital, Astana. implementation, which will provide new data on the The Ministry intends to step up significantly itsnology potential of the Caspian Basin. policies in the sector, in line with the Presidential Address. The global energy future landscape, however, is One of its main tasks is to increase the oil recovery ratio. undergoing significant changes as the era of the easy- Finding solutions to issues such as demand for advanced to-extract oil comes to an end.

While predictions of technical and technological solutions, development of the impending decline in global oil production have been national R&D potential, transfer of global best practices, made over many years, there are certainly signs that can greatly increase the efficiency of development of production and other costs are growing and this could Kazakhstan’s resources and help unleash the country’s lead to falling output in time. innovation potential.

Global agencies confirm a long-term significant increase As the President stressed, a significant breakthrough in in the demand and prices for oil and gas. In assessing the this area can be achieved through promotion of joint future, a balanced assessment of the impact of the shale ventures. Only through direct collaboration with leading revolution is needed.

There is also a need to step up on global companies can Kazakhstan achieve the transfer energy efficiency, as part of global efforts to reduce our of technologies it needs for the sector’s comprehensive impact on the environment. development, and the technical support needed for the professional development of its workforce. Kazakhstan is seeking to change its status as a raw material producer through an economic policy aimed Energy sector operations, including those of the oil and at developing a diverse mixed economy, including gas industry, are global by nature. States, associations, manufacturing.

Kazakhstan is also taking steps to green multinational and national companies, private investors the economy, including improving efficiency of energy and public community organizations and individuals production together with the use and development of all act as stakeholders in these activities. An objective renewable energy sources. analysis of the ongoing processes and global and local trends are therefore an essential prerequisite for decision- It is important to ensure that both non-renewable and making at different levels. renewable energy resources are developed competitively, while ensuring greater efficiency of their use and We look forward to developing further our cooperation development. There is scope for cross-fertilization of with international oil and gas companies.

Kazakhstan bids innovation, knowledge and approaches between the you all a warm welcome. n

Showcase | Kazakhstan 13

Kazakhstan’s Macroeconomic, Social And

Political Stability;

Key Factors In Attracting Inward Investment

Kazakhstan today is a country of new opportunities and enormous potential for both large companies and medium-sized businesses. Trade and economic cooperation initiatives with Russia and Belarus have also expanded Kazakhstan’s sales market to around 172 million people.

Asset Issekeshev Deputy Prime Minister & Minister Industry & Development

Kazakhstan’s international competitiveness is growing impressively. In the World Bank’s International Finance Corporation’s 2014 annual ranking of Doing Business, Kazakhstan was ranked 50 out of the top 148, improving its performance by three points over 2013. This puts Kazakhstan first among the countries of the Customs Union of Kazakhstan, Russia and Belarus, who were ranked 63 and 92 respectively.

According to United Nations Conference Additionally, during this period about Foreign investors in Kazakhstan are on Trade and Develop (UNCTAD) data, 70% of all gross direct investment provided with many benefits and we were ranked second after Russia was in manufacturing sectors ($ 19.6 preferences. These include the granting in the CIS in terms of net FDI inflows. billion). With a continuing improvement of customs duties and tax breaks, and It is noteworthy that more than half in the country’s investment climate the provision of land and premises.

To ($95.7 billion ) of all gross inward direct prospects for increase FDI are good. A qualify for such benefits investment investment in Kazakhstan since 2005 critical part of this inward investment must be in the priority manufacturing was attracted during the years of the is the transfer of new technology, sectors. These are particularly strategic state program of industrial innovative knowledge and new production projects in areas needing economic development. processes. development where foreign investors s

14 Showcase | Kazakhstan

are exempted from land and property

Taxes, And The Government Guarantees A Key Goal Is To Make Kazakhstan The Regional Hub

contracts, orders and subsidies.

For International Investment.

Kazakhstan is interested primarily in innovative investment projects, involving application of new knowledge and technologies. We have the necessary financial and institutional infrastructure to support such

• The right infrastructure (transport, also looking at how to ensure stability investment, and are ready to cooperate logistics, Free Economic and of our investment legislation, as well as an active joint partner. Industrial zones) as the formation of a new package of incentives for large investment projects. The Kazakhstan legal framework is This phase of industrialization will be particularly attractive, especially in crucial in determining and developing Finally, we are looking at how we can comparison with other CIS countries long-term industrial specialization, best improve development of Free (former Soviet Union countries), which is needed to ensure Kazakhstan’s Economic Zones (SEZ).

Attracting because it covers fiscal, non-fiscal and economic competitiveness. This foreign investment has been other legal benefits. is especially important, given the designated a top economic priority increasingly challenging market of economic policy throughout the Foreign companies can participate in conditions in the Customs Union country. Developing successful trade implementation of differing projects. together with Kazakhstan’s ambition to and economic relations internationally They can be suppliers of complex enter the WTO. is a critical part of this policy. high-tech equipment; become partners in a joint co-financing ventures, or be Our President has informed that the A key goal is to make Kazakhstan the main project implementer and National Plan be adjusted further to the regional hub for international obtain all the investment benefits and attract more foreign investment.

To investment. I would hope that foreign privileges. this end, the Government wishes to enterprises already working in improve conditions for the arrival and Kazakhstan will help promote the new At the regional level, local development stay of foreign investors. For example, investment opportunities in the country institutions such as the socio- we are considering the possibility to those foreign companies which entrepreneurial corporation (SEC) can of introducing a visa-free regime for may be actively considering how to actively partner foreign investors.

On OECD countries, and facilitation of enter the Kazakhstan market but lack the basis of existing assets, with the the entry of highly skilled personnel the necessary information and local participation of business structures, in the manufacturing industry. We are knowledge. n joint ventures can be created, focusing on the implementation of relevant, innovative, competitive projects. Special economic zones in Kazakhstan also offer significant opportunities for foreign business.

The first phase of the program of industrial innovative development finishes this year and the launch of the second phase, the next five years of industrialization, has already started (2015-2019). This second phase will concentrate on priority sectors; metallurgical complexes, engineering, oil and gas refining complexes, the chemical industry, production of construction materials and the food industry.

This second phase of industrialization will provide:

• Access to financing for entrepreneurs

• Improvement of industrial policy (including analytical support)

• The required human resources

16 Showcase | Kazakhstan

Why Currently, Kazakhstan Is Experiencing A Period

of important domestic change. In December 2012, President Nazarbayev announced the

Kazakhstan? Strategy “kazakhstan-2050”. The Strategy

outlined new priorities for the development of our country.

This strategy paper set a major task – for HE Kairat Abusseitov Kazakhstan to enter the top 30 most Ambassador to United Kingdom developed countries globally. The goals of the previous Plan- “Strategy 2030” – in particular to enter the top 50 most competitive countries in the world – were almost all achieved ahead

After Independence In 1991, Kazakhstan Of Time.

Was Able Quickly (particularly By Historical In The Past Two Decades, Kazakhstan Made A

giant leap forward in development terms, and

Standards), To Establish A Unique Model Of

the economy is booming. 20 years ago, the

Political Stability And Inter-ethnic Harmony, Economy Was In Ruins. Inflation Was 2,100%.

Today, GDP per capita is US $12,000; 16 times

Underpinned By Dynamic Economic Growth.

more than in 1991.

According to British experts, Kazakhstan was the third-fastest growing country in the first decade of the 21st Century. Only China and Qatar performed better.

Showcase | Kazakhstan 17

We have saved more than US $66.6 government plans to develop business already work for their country in billion in The National Fund – the so- clusters aimed at promoting innovative leading branches of the economy. called “Fund for Future Generations”. development We plan to increase this in the medium The healthcare system has been term to US $93.3 billion. Competent, technically educated radically reformed. Since 1991, the people are the key to moving from financing of the healthcare system has Currently, Kazakhstan is ninth globally an energy resource based to a increased more than 100 times. in terms of proven oil reserves.

The diversified economy. The government country ranks eighth for coal reserves of Kazakhstan is investing heavily At present, we can say with and second for uranium reserves. in staff, in new infrastructure, and in confidence that Kazakhstan’s model Kazakhstan is first in the production of the creation and formation of a well- of development, with an emphasis on aluminium; and among the world’s top educated and remunerated national industrialisation, is bearing fruit. We ten exporters of grain and flour. work force. are one of the 50 most developed countries in the World Economic Kazakhstan is implementing a Kazakhstan was one of the first Forum’s competitiveness ranking, and large-scale project called the “New former Soviet Union states to join the rank amongst the five richest countries Silk Road”, which aims to revive the European Higher Education Area.

In in Asia according to per capita income. country’s historical role as the main 2010, we joined the European Cultural nexus of the continent, and to turn it Convention and the Bologna Process. In the World Bank’s ‘Ease of Doing into the largest regional business and Business’ ranking we share tenth-place transit hub; a bridge between Europe We established a special study abroad for the protection of investors along and Asia. An important step in this programme – the Bolashak programme. with Great Britain and South Africa.

On direction is the creation of an attractive Since 1993, the state has funded more taxation, we are ranked between the UK climate for investors based on sound than 8,000 young Kazakhstanis to study and Switzerland in 17th position in the s policies in the use and distribution in the best universities of the world. world. of natural and other resources. The The majority of Bolashak students

18 Showcase | Kazakhstan

Since independence, Kazakhstan has made an enormous contribution

As A Leader In Central Asia, Kazakhstan Is Making A

to support international peace

And Security. Our Government Has Significant Contribution To Strengthening Regional

introduced many measures to this

End Including: The Renunciation Of Stability.

nuclear weapons, the creation of confidence-building measures in Asia, the strengthening of the integration process in Eurasia, the encouragement of inter-religious dialogue, and active participation in the strengthening of global security including the fight against international terrorism and Kazakhstan initiated the Conference The main element in Kazakhstan extremism. on Interaction and Confidence bilateral relations is trade/investment. Building Measures in Asia, which now After the Netherlands and the US, the Kazakhstan has integrated successfully includes 24 countries with a combined UK is the third largest investor into into international society. We have population of over three billion people.

Kazakhstan’s economy, primarily in developed successful partnerships the oil and gas and mining sectors. with our neighbours – Russia, China, I must mention too Kazakhstan’s According to the National Bank of the countries of Central Asia as well excellent performance at the Summer Kazakhstan, the total volume of British as the US and the EU. We are also an Olympic Games in London in 2012, FDI into Kazakhstan from 1993 to 2013 active member of the OSCE. Partly in where we came 12th in the medal table. was over US $12 billion. recognition of our democratic progress, Kazakhstan was appointed chair of the The EXPO 2017 Exhibition will be held The British Prime Minister’s report on OSCE in 2010. in Astana under the tagline of ‘Future UK foreign policy (November 2012) Energy’.

Astana’s candidature to host listed Kazakhstan as one of the United Our chairing of the OIC came at a EXPO-2017 was supported by two Kingdom’s 14 priority countries for difficult time in Islamic world history. thirds of the votes of member states trade and investment. To this end the Under the motto ‘Peace, Cooperation from the International Exhibitions Prime Minister appointed a personal and Development’, Kazakhstan focused Bureau – 104 out of 154 countries. trade envoy for Kazakhstan and in 2013 efforts on overcoming humanitarian the Prime Minister made an historical crises, resolving conflicts, developing Kazakhstan has become a modern, visit during which a joint declaration new cooperation mechanisms, and forward-looking, confident state, as well was signed covering 13 agreements promoting dialogue between the as a responsible international partner. totalling over US $1.2 billion. Islamic world and the West.

We are an attractive and favourable destination for foreign investments. British companies in Kazakhstan Since 2012, a Single Economic Space Big multinationals including Asian operate in the energy, mining, has begun to function between Development Bank, Arcelor Mittal, metallurgy, healthcare, food and Kazakhstan, Russia and Belarus. Our Baker & McKenzie, BG, Cameco, banking sectors and include: BG, Shell, immediate goal is to create a Eurasian Chevron, ConocoPhillips, Deloitte, AMEC, Invensys, BAE Systems, Rio Tinto, Economic Union.

Deutsche Bank, EBRD, ENI, ENRC, Rolls Royce, HSBC, RBS, Ernst & Young, Ernst&Young, Eurasian Development PWC, Deloitte, March Group, KPMG, SNR As a leader in Central Asia, Kazakhstan Bank, ExxonMobil, General Electric, JP Denton, GlaxoSmithKline, Astra-Zeneca, is making a significant contribution to Morgan Chase, Mitsubishi Corporation, Hambledon Mining, Dando Drilling and strengthening regional stability. We PhilipMorris, RBS, Sberbank, Shell, Sun Gold. are the region’s largest aid donor. We TeliaSonera, Total and many more are channel our humanitarian aid both actively engaged in Kazakhstan.

Kazakhstan’s trade and economic bilaterally and through multilateral cooperation is developing fast and as mechanisms. Currently, a national For many of them Kazakhstan is a the economy develops and diversifies, agency for official development market of strategic importance. It may has the potential to expand into new and technical assistance is being not always be an easy market, but it is areas, including agribusiness, green created in Kazakhstan.

A priority is important to be part of it. Kazakhstan, technology, new materials, energy- the implementation of aid projects in as one of the world’s fastest growing efficient construction and specialised Afghanistan, whose development and economies, offers huge possibilities. technical training. n security is critical to the peace and We want investors to be part of our security of the Central Asia. continuing economic success.

20 Showcase | Kazakhstan

Industry

Who’s Who

Ministry Of Oil And Gas Ministry Of Investments &

Www.mgm.gov.kz Development

www.mint.gov.kz

• Coordinating the development and implementation of public policy in the oil

• Coordination of the diversification and & gas and petrochemical industries, acceleration of the industrial, innovative including transportation of hydrocarbons development of the country’s economy

• Ensuring development of fuel and energy

• Creation of conditions for development facilities of the economy through the

• International cooperation of the joint implementation of scientific and development of hydrocarbon resources, technological development, including the including within the Caspian Sea shelf formation of high-tech industries

• Ensuring production of hydrocarbon • Promoting innovation through the creation resources and their reasonable use, of new organizations, including the including associated gas attraction of investments for the

• Providing the competency of the implementation of innovation policy authorized body regarding production • Creation of a favorable investment climate sharing agreements for economic development

• Stimulate investment in new, expanding or refurbishment of existing facilities using modern technology

• Export control

• Measures to ensure implementation and monitoring of investment projects

• Establishment and operation of special economic zones

Showcase | Kazakhstan 21

Comments Or Questions That Arise From Any Aspect Of These

Articles, Please Email To Info@aktaudeclaration.org ’for

Forwarding To Relevant Authority’ For Response.

Kazenergy Association Contract Agency

www.kazenergy.com www.contractagency.kz

• Independent voluntary non-commercial • Ensuring transparency and compliance union of oil and gas and electric power within the procurement process required organizations and companies of Kazakhstan within all Kazakhstan’s oil and gas projects

• Unites more than 70 major national and • Information and marketing support for international energy companies in the domestic producers of goods, works and extracting, processing, transportation services in the oil and gas industry and services sectors, in addition to • Assistance to Kazakhstan enterprises in electricity and nuclear power companies creating new manufacturing facilities with

• Actively involved in the work of the advanced technologies by means of offset inter-ministerial commission and legislative cooperation with foreign companies processes for the development of the oil • Gathering of information and analysis of and gas and energy industries Kazakhstan’s content in procurement by oil

• Ensuring effective cooperation with world and gas companies organizations (The Energy Charter, World • Information and marketing support for Energy Council and the World Petroleum companies within the energy sector, and Council, International Energy Agency) domestic producers of goods, works and

• Securing assistance on legal, economic, services supplying the oil and gas industry organizational and managerial issues • Analysis of trends within the oil and gas through consultation, scientific expertise, industry including the competitiveness analytical and informational support level of domestic goods

• Development of recommendations for improving the competitiveness levels of

• National manufacturers and suppliers of works and services

• Development of methodology documents, regulations and legislation relating to Kazakhstani content

22 Showcase | Kazakhstan

Aktau Declaration on Joint Actions

Aktau Declaration On Joint National Agency On

Actions Development Of Local

Www.aktaudeclaration.org Content (nadloc)

www.nadloc.kz

• Improve coordination and consistency of individual Local Content development

• Information support for domestic producers programmes of operators, investors and of goods, works and services agencies

• Analysis share of local content in

• Identify synergies and advance outcomes procurement of goods, works and services of current local content programmes, and

• Administer the state information register define new tasks to contribute to the of goods, works and the services used for growth of sustainable local supply chain carrying out operations on subsurface use capacity

• Prepare for electronic procurement

• Clarify the constraints of local content development initiatives as a • Analysis of methodology documents and result of Operators working within different standards on issues of local content. contractual frameworks • Ensure the functioning of the internet

• Provide consensus on the extent portal of Kazakhstan content to which harmonization of • Organize conferences, business forums, prequalification and tendering processes trainings, presentations, seminars and can be accommodated exhibitions on local content.

• Review established and emerging local content development programmes to allow synergies and opportunities for cooperation and support

• Strengthening of Kazakhstan’s Professional Skills and Industrial Base

• Further the objective of maximising opportunities as part of a strategy to develop an indigenous capability in the sector

• Assist in creating an appropriate environment and the attracting joint venture agreements, with technology transfer, by companies in the global oil and gas supply-chain

• Inward investment promotion internationally for manufacturing, works and services joint ventures for Kazakhstan’s Oil and Gas & Mining sectors

• Industry matchmaking

• Identify investment funding sources

• Support implementation of investment projects within the oil and gas, petrochemicals and mining industries

• Consider current challenges and forthcoming opportunities for the creation of new jobs

• Support with meeting programmes, visas, logistics, corporate registrations and interpreting/translations

Showcase | Kazakhstan 23

National Chamber Of Kaznexinvest (national

Entrepreneurs Export And Investment

Www.palata.kz Agency)

www.kaznexinvest.kz

• Protection of the rights and the legal interests of national entrepreneurs both

• Assisting to diversify Kazakhstan’s economy locally and internationally by encouraging exports of products from

• Monitoring of the national business activity outside the natural resources sector and business climate by region

• Attract foreign investment to priority

• Providing support for the national sectors of the economy entrepreneurial development with the aid

• Helping investors and exporters to of governmental programs cooperate with public authorities, state-

• Development of national manufacturing owned enterprises and private businesses and production of goods and services

• Export Development

• Increase local content

• Investment image promotion of Kazakhstan

• Development of national human resources by providing education, training, advanced training and personnel certification

• International framework growth for national entrepreneurial activities

• Attraction of foreign investments for diversification

24 Showcase | Kazakhstan

The Major

Oil & Gas

Operators

Showcase | Kazakhstan 25

Karachaganak, KPO has utilised leading production and processing technology to enhance hydrocarbon recovery and harness significant value for the Republic of Kazakhstan.

The Major

KPO remains committed to Republic of Kazakhstan’s sustainable development

Kpo Ëîãîòèïíàñâåòëîìôîíå AËgîãeîònèdïaíà Tòhåìroíîuìgôhî íiånfrastructure

enhancements, exemplary Karachaganak is producing at environmental performance, wide-scale record levels social initiatives and the development of local capacity. KPO is a joint venture between BG Group 29.25%, Eni 29.25%, Chevron We fully support Kazakhstan’s initiative 18%, LUKOIL 13.5% and Ka À z ë M üòå u ð n íà a òè iG âí a û s é ëîãîòèïregarding transition to a green 10%. We oversee the expansion and economy.

In 2013, the gas utilization development of the Karachaganak rate at Karachaganak totaled 99.84%, field – one of the world’s largest oil and which is a world class achievement. gas condensate fields, which is located The volume of flared gas was 0.16% in northwest Kazakhstan covering an of the total volume of gas produced, area of over 280 square kilometers. It or 0.94 tonnes per thousand tonnes of holds estimated hydrocarbons initially extracted raw materials. in place (HIIP) of 9 billion barrels of condensate and 48 trillion cubic A comparison of these figures with feet (tcf) of gas, with estimated gross averages achieved by international reserves of over 2.4 billion barrels of and European oil and gas companies condensate and 16 tcf of gas. demonstrates KPO’s leadership in this area. Overall, since 1998, KPO’s Since the signing of the FPSA, KPO’s investments in environmental activities Partners have invested more than $ have exceeded $275.2 million. 17 billion into developËiînãîgò ètïhûeï àfiðeòílådð,î âïîêàðà÷àãàíàêñêîìóïðîåêòó applying industry leading technology As the largest employer in the region, aimed at maximizing sustainable KPO is fulfilling its obligations for the economic value.

This is being protection of employees’ health and implemented in accordance with the for the creation of long-term jobs with highest safety and environmental highly competitive salaries. KPO is also protection standards. investing heavily in the professional development of local employees. Today, Karachaganak is producing at record levels and is the largest As a result of KPO’s nationalisation gas producing field in Kazakhstan, programme, local employees today accounting for more than 40 per cent fill 100% of the skilled and clerical of the country’s total gas production positions and 94% of professional and and around 13 per cent of total liquids supervisory roles.

At the managerial production. level, 68% of positions are locally filled.

In 2013, KPO produced 136.03 million During 2013, about 4,000 Kazakhstani barrels of oil equivalent of stabilised specialists from KPO were enrolled in and un-stabilised liquid hydrocarbons, industrial safety, technical competence, gas and fuel gas. Above that 8.57 management development programmes billion cubic meters of sour dry gas as well as personal and language skills were re-injected, a volume equivalent training courses. to approximately 49% of the total volume of produced gas. Overall, in recent years KPO has invested more than $178 million Karachaganak not only represents in training and development of vast resources, its development has Kazakhstani professionals; using also brought enormous benefits international and local experience, and to Kazakhstan’s economy and cooperation with well-known RoK and the communities within the West overseas educational institutions.

Kazakhstan Oblast. In developing KPO is one of the first companies in s

26 Showcase | Kazakhstan

Kazakhstan to introduce successfully a local content programme. This has encompassed some 3,000 Kazakhstani companies involved in the development of Karachaganak, which collectively have received orders from KPO of over $4 billion.

In 2013, the local content of KPO contracts for the supply of goods and services reached 50.15% ( $461.1 million by value).

In 2014, KPO and Aksai Industrial Park (AIP) signed a Memorandum of Understanding (MoU) and a Road Map, through the initiative of the national Ministry of Oil and Gas. The documents aim to promote local capacity development, technology transfer and social infrastructure have been the seabed and is under high pressure. industrial growth, through localisation recognized at the national Paryz The crude oil in the collector has a of high tech manufacture in the Corporate Social Responsibility high sour gas content – some 15% Western Kazakhstan region. Competition, where KPO has won hydrogen sulphide, and 4 % carbon several prestigious awards, including dioxide.

Extreme climatic conditions The signing of the MoU with AIP was the 2013 Silver Paryz Award in the Best (temperature range from minus 40 to a new milestone in KPO’s plan to Social Project category. plus 40 c) and other physical challenges maximise the involvement of Kazakh makes Kashagan one of the most companies in the Karachaganak difficult production projects anywhere project. KPO fully supports the national in the world. government’s local content initiative, and is working closely with the national The North Caspian Sea Production Authorities to achieve this goal. Sharing Agreement (NCSPSA) was signed by Kazakhstan and Successful implementation of this an international consortium in initiative will create conditions for the November 1997.

A year later (1998)

Manufacture Of More Complex High-tech Ncoc An International Consortium Operator,

products needed by Kazakhstan’s oil the Offshore Kazakhstan International The Project of Ample and gas industry Operating Company N.V. (OKIOC), Opportunities was formed, to explore and produce In addition, every year KPO implements hydrocarbons within the 5,600 square many large, social infrastructure The Kashagan field, named after kilometer NCSPSA area. Assets within development projects in WKO. The a 19th century Kazakh poet from this area include the giant Kashagan project priorities are determined by the Mangistau, is one of the world’s largest field, 80 km southeast of Atyrau.

West Kazakhstan Oblast administration. oil discoveries of the last forty years. Other assets include the Kalamkas The KPO social development Discovered in 2000 and located in Sea, Kashagan South-West, Aktote and programme focuses on the construction the Kazakh sector of the Caspian Kairan fields. of healthcare, education, culture and Sea, the field extends over an area of sports facilities. Kazakh contractors approximately 75 kilometers by 45 In 2000, the Consortium members only implement all projects.

To date, kilometers. decided to have a single company as KPO has allocated $270.97 million to Operator. In 2001, a subsidiary of Eni, such projects in WKO. Its development, in the harsh offshore Agip Caspian Sea, was designated sole environment of the northern Caspian Operator.

NCOC took over from Agip While delivering its operational Sea, represents a unique combination of KCO as the sole operator under the commitments, KPO, as a responsible technical and supply chain complexity. NCSPSA on 22 January 2009. NCOC corporate business, works to ensure The combined safety, engineering, acts on behalf of seven co-venture that the Karachaganak field generate logistical and environmental consortium partners: Total, KMG, Eni, the maximum socio-economic benefits challenges, make it one of the largest Shell, ExxonMobil, INPEX and the new for local communities and the nation as and most complex industrial projects member CNPC which has taken over a whole. currently being developed anywhere from ConocoPhillips. in the world.

The reservoir lies at a KPO’s efforts to develop the region’s depth of around 4,200 metres below The execution of operations is

Showcase | Kazakhstan 27

delegated by NCOC to four agent opportunity to support Kazakhstan’s will continue for decades, so not only companies: Agip KCO; Shell sustainable economic development. will those currently employed on Development Kashagan (SDK); The Consortium not only favours the project continue to benefit, but ExxonMobil Kazakhstan Inc. and NC the maximum involvement of future generations will too. During the Production Operations Company B.V. Kazakh companies in the project’s project’s life Kazakhstan will receive (a KMG Kashagan and Shell Kazakhstan implementation, but also helps billions of dollars in income.

It will also Development joint venture). NCOC is local companies engaged in the help create a network of suppliers, new also responsible for the Consortium’s project to achieve international oil infrastructure, and several thousand Social and Infrastructure Projects (SIP) certification, including ISO, ASME, API young specialists. The country and its and sponsorship and donation (S&D) etc.

Some 60 local companies have national company KMG will gain huge programmes. Implementation of SIP been certified under international experience in offshore oil extraction, Projects is delegated to NC Production standards ISO 9001, ISO 14001, ISO which will enable them to engage fully Operations Company (NCPOC). 22000 and OHSAS 18001 and four in future projects on the Caspian shelf. Kazakhstan manufacturers have been Increasing local content in oil and certified under the widely recognized gas projects is a key aim, to which the international standards of ASME and Kazakhstan authorities and foreign API. investors have devoted considerable effort and resources in recent years.

Compliance with these standards This makes much sense as the country’s offers many advantages for potential mineral wealth should work for the suppliers, enabling them to promote good of the people of Kazakhstan, their goods and services both in- by providing them with work and country and abroad. This approach education, and by improving the quality provides tangible benefits both for the of their lives in a long-term sustainable local community and for the Venture manner. Notable progress has been itself.

In line with the NCSPSA, the made in recent years in developing Operator gives preference to local local content in major oil projects. suppliers, provided that they meet

Quality And Safety Standards And Price Tco

The North Caspian project is one of competitiveness. In other words they Biggest Oil Project in Kazakhstan the world’s biggest and most difficult must offer materials and services oil and gas projects. Since the start competitive with those provided by of its operations, it has focused international suppliers.

The Tengiz Oil Field was discovered on developing local content, by in 1979. Recoverable oil reserves at maximizing the use of local goods To help develop local businesses, the Tengiz together with the associated and services, by developing the skills project Venture initiated and financed Korolev fields total between 750 of local staff, and by increasing the training and certification for local million and 1.1 billion tons (6 - 9 billion capacity of local companies to supply companies meeting International barrels). Total proven reserves in the goods and services sustainably in Standard Organization standards, Tengiz reservoir equal around 3 billion compliance with legislation and without including Quality Management, tons (26 billion barrels).

The Korolev prejudice to HSE requirements. Overall Environment Management, field’s reserves equal around 190 the project Venture spent more than US Occupational Health & Safety, Food million tons (1.5 billion barrels). The $10 billion on local goods, works and Safety Management and Energy Tengiz reservoir is 20 km (12 miles) by services between 2006 and mid-2014.

Management. 21 km (13 miles) in area.

We believe in the importance of The project Venture also encourages Embaneft started development of developing local content through the establishment of joint ventures the field. A specially established development of local personnel. We are between international and local Tengizneftegas continued its investing in people, through training companies, by helping to create the development.

On April 6, 1991, the first and individual development. The right conditions for developing their Tengiz oil from well No.8 was delivered Consortium’s total staff in Q3 2013 was engagement in the project. Some to Complex Technological Line (KTL) 13,726.

Over 82% of those employed 70 JVs have been providing works/ No. 1. in Kazakhstan are Kazakhstani – an services for the project Venture. Given outstanding ratio for a project of the Kashagan field’s challenging The Tengiz Complex was built in this magnitude. The project provides specifications and demanding cooperation with foreign companies. multiple opportunities for development technological requirements and Its design involved Russian design and professional growth in its different standards set for provision of services, institutes and companies, and a West areas of operation.

The project Venture the involvement of JVs in the project German company Lurgi. Hungarian has spent over $53 million on training is essential and beneficial for both the company Vegyepszer, field facilities national staff since 2002. project and Kazakhstan. were constructed with participation Our operations offer a significant Development of the Kashagan field of companies Litvin, Lavalin (USA, s

28 Showcase | Kazakhstan

Canada) and others, constructed the plant.

The Republic, Tco And Their Partners, Plan To

In The Period 1991 To 1993, Gross Implement A Multi-billion Future Growth Project

volumes of crude production in Tengiz

Were Under One Million Tons A Year. To Increase Crude Production To 36 Million Tons A

In that period, construction of second

Tranche Of The Plant - Ktl-2 - Continued. Year.

In April 1993, a package of agreements was signed in Almaty, establishing a Kazakhstan-American Joint Venture Tengizchevroil (TCO). Today, TCO and personnel safety. These include a Partners are KazMunaiGas (with 20% In addition to crude, TCO produces behaviour-based program, a complex share), Chevron (50%), ExxonMobil other high-quality products.

All its program for ensuring safety among Kazakhstan Ventures Inc. (25%) and compressed gas output is processed contractors and a program for ensuring LukArco (5%). General Director Tim for production of propane and butane road safety. Miller and Deputy General Director of European quality, which is largely Anuarbek Sabanbayevich Jakiyev head exported.

TCO is increasing granulated One of the critical components of TCO’s TCO. sulphur production in Tengiz, which business philosophy is avoidance of is mostly sold to China, Russia, negative impact on the environment. TCO is now the biggest oil company in Kazakhstan, and Uzbekistan and to Several special programs, which Kazakhstan. Its crude output in 2013 Mediterranean countries.

In 2013, include enhancement of technological from the Tengiz and Korolev fields was sulphur sales were 3.85 million tons. processes, including state-of-the- 27.1 million tones. In comparison with The amount of sulphur stored onsite art approaches to technical water 1993(the start of TCO’s operation) crude at the end of 2013 was 1.15 million treatment and wastes utilization, production volume increased 27 fold. tons (against more than 9 million confirm TCO’s high standard of tons in 2005). TCO’s plans to increase commitment to efficiency and In 2008, Tengizchevroil completed sulphur exports from Tengiz, while environmental standards. implementation of one of the largest applying the strict requirements of technical projects in the company’s safety and environmental protection.

In December 2009, TCO implemented history, the construction of production With continued global sulphur demand a unique Gas Utilization Project which facilities for gas re-injection into oil growth, all stored sulphur will be sold allowed the company, for the first time reservoir and the second-generation within 2 years. in Kazakhstan’s history, to discontinue plant. This project considerably routine gas flaring and to bring the expanded the company’s strategic TCO strives to keep its position among flaring level to an internationally low prospects, and brought TCO’s crude the leading world companies in the level of 0.94 tonnes per 1000 tonnes of annual production to 25 million tons. sphere of safety and environment extracted product. The Republic, TCO and their Partners, protection.

The company has developed plans to implement a multi-billion and successfully implements special Consolidated team working is a key Future Growth Project to increase crude programs of international standards, factor in TCO’s successful performance. production to 36 million tons a year. aimed at increasing labor protection Kazakhstani personnel in TCO now

Showcase | Kazakhstan 29

The long-term strategy provides for support in implementation of capabilities to strategic companies that intend to provide services in the territory of Kazakhstan, in the sphere

Of Regulatory Legislative Environment, Kmg

new technologies transfer, services Representing the National localization, assembly and production of open-end cycle goods. interest

TCO supports national government The National Company “KazMunaiGas” aimed at actively increasing Kazakhstan (KMG) is Kazakhstan’s major prospector, involvement in the oil and gas sector. producer, refiner and transporter of TCO continues to increase the share of hydrocarbons. It is a key promoter of local goods and services, used in the public policy in Kazakhstan’s petroleum company operations. In 2013 TCO spent industry.

The Joint Stock Company 2.3 billion USD on Kazakhstani goods KazMunaiGas was the result of a merger and services. of the National Oil & Gas Company Kazakhoil and the National Company The company’s contribution to Transport of Oil and Gas, following a exceeds 86%, compared with only 50% Kazakhstan’s economy, taking account Presidential Decree on February 20, in 1993, when the joint venture was of salaries to national personnel, 2002. 100% of KMG shares belong to formed. A continuing training and skills- payment to local companies for goods National Wealth Fund Samruk-Kazyna. improvement program enables TCO to and services, tariff payments to the promote national employees to ever- state enterprises, as well as taxes and KazMunaiGas is a vertically integrated higher levels of responsibility. Today, royalties paid to the state budget, oil and gas company, which manages Kazakhstani personnel occupy 76% of is growing annually.

In 2013, TCO’s full production cycle from hydrocarbon managerial, supervisory and specialist contribution to the national economy production, transportation and refining positions. was approximately 15 billion USD. to provision of specialised services. It aims to ensure the maximum profits The joint venture’s activities are not TCO’s regional development for the Republic of Kazakhstan from limited just to production. From the contribution continues to grow.

During development of national petroleum very beginning, development of this the first five years of its operation, the industry. huge oil field has been linked to the company implemented the Bonus Fund region’s development program. During Atyrau social programme. In 1999 this KMG is responsible nationally for: the entire period of its operation, TCO was voluntarily replaced with a new has supported development of the program titled Egilik, or benefit, a good • 27.2% of national oil and gas region through its funding of social and deed program.

This funds new projects condensate production; infrastructure projects. in the fields of education, public healthcare and social infrastructure. • 83.2% of oil pipeline transportation; TCO searches for contractors which have the required technologies and In 2013, 25 million USD was allocated • 95.7% of natural gas pipeline experienced personnel. TCO’s policy is for infrastructure development in transportation; always aimed at achieving maximum Atyrau and Zhylyoi Region. Specific Kazakh content where possible, projects included water treatment The total number of KMG subsidiary provided the companies concerned can and water supply systems upgrade and dependent entities is 222, forty- meet conditions of operational safety in Kulsary – the center of Zhylyoi one of which are direct subsidiary and compete on prices.

That is why Region, where TCO production and dependent entities. The KMG maximum increase of Kazakh content capacities are located. The social group includes companies engaged is being taken into consideration in infrastructure program Egilik is an in hydrocarbon exploration and development of all aspects of the example of effective cooperation production, transportation, refining and company plans.

Special attention in between the Atyrau Oblast authorities marketing as well as service companies. increasing Kazakh content TCO pays and Tengizchevroil. In 2014, the Egilik to purchasing materials and hi-tech program budget will total 25 million The largest companies of KazMunaiGas services; besides this TCO looks for USD. group include: opportunities to establish new joint ventures and consortiums in order Tengizchevroil is proud of its • KazMunaiGas Exploration & to realize potential of the domestic contribution in Oblast development, Production (oil and gas exploration market for goods, works and services and believes that in the near future the and production) that would allow to increase efficiency local population will witness further big • KazTransOil (oil transportation) of Kazakhstani enterprises in the changes in the region’s economic and • KazTransGaz (gas transportation and economy. social development. sales) s

30 Showcase | Kazakhstan

• KazMunayTeniz (offshore oil

Operations) The Kmg Group Includes Companies Engaged

• KazMorTransFlot (national maritime

Shipping / Tanker Transportation) In Hydrocarbon Exploration And Production,

• KazMunaiGas Refining and Marketing

(sale Of Oil And Gas Products In Transportation, Refining And Marketing As Well As

domestic and international markets)

Service Companies.

Sponsorship

KazMunaiGas attaches great importance to social responsibility and is an active supporter of national economic 3) Support of socially important c) Increase of local content in large oil development policy. The company projects: these include the Kazakhstan and gas projects also has an active sponsorship and television project “Intellectual d) Signing more long-term contracts charitable programme. KMG support competitions”, the theatrical award with domestic producers social projects approved by the sole scheme ENLIKGUL, the KAZENERGY e) Implementation of the Aktau shareholder, Samruk-Kazyna. educational projects , support for gifted declaration on joint actions youth (young singer Maria Mudryak, The main sponsorship and charity children’s choreographic ensemble In 2013 KMG’s subsidiary and focuses in 2013-2014 are: Tumar and other projects. dependent entities concluded long- term contracts totaling 384 billion 1) Support for measures promoted 4) Support for implementation of tenge.

To support the domestic oil by the State President: sponsoring organizational and practical events and gas engineering industry, the construction of a spa therapy related to Company activities. To Board KazMunaiGas approved on 1 sanatorium on the shore of Lake promote the company’s and the June, 2012 the Assistance Program of Balkhash, with a capacity of 150 country’s image, KMG sponsored KazMunaiGas group of companies for places for treatment of people with important in-country events, e.g. the development of oil and gas mechanical respiratory, musculoskeletal and urinary Eurasian Media Forum and KAZENERGY engineering and development of disorders. Eurasian Forum. production of new types of the oil and gas equipment in the Republic of 2) Support of individual sports, 5) Support of authorized social Kazakhstan for 2012-2014.

Sixty-nine sport events and development of programmes, including targeted Kazakhstan companies producing goods sports infrastructure: funds are financial support for war and labour for the oil and gas sector are involved in given to the Federations of Boxing, veterans, orphans, disabled people, the Program. Because of this Program, Judo, Weightlifting, Tae kwon do, and also needy veterans of the oil Kazakhstan companies are now starting Greek-Roman, Free-Style and Female and gas industry. Programmes also to produce new types of the oil and Wrestling, Tennis, Modern Pentathlon, include, Marabayev, the International gas equipment, machinery and the and also the Professional Boxing Social Movement of Disabled people materials for the first time.

Club “Astana-Arlans”. Since 2010 the of neighboring countries and the wider project for creation of an AIBA World region. KMG is engaged in the development of Boxing Academy in Almaty, under KMG five new joint ventures with the leading sponsorship, is being implemented.

It Similar sponsorship activity is foreign organisations (production of will develop Kazakh talent, and help conducted also by KMG affiliated pumps, sophisticated pipe connections, promote the nation’s sporting image organizations in the regions. junction and gushing valves, separators, globally. Development of local content and main pipes). Also work with large subsoil users – Tengizchevroil, NCOC KMG also sponsored the transfer Local Content development is a key and Karachaganak Petroleum Operating, of a 95 hectare plot of land in the issue for KMG.

In 2013 procurement, is continuing in the following areas: Talgarsky region of Almaty district, in local content was 66%; 9% more than creation of new local production, the territory of the former collective in 2012. unification of standards and tender farm of Ryskulov, for the development procedures, creation of a uniform of a Combat and Strength Sports The main local content focuses are: database of suppliers, development Confederation, covering specialized of personnel potential, research and sports and a training base for weight- a) Increasing the share of local content development support, and attracting lifters. Additionally under KMG in procurement of goods, works and new investment. sponsorship the Confederation is services constructing sports and recreation b) The promotion/organization of Further work on increasing local content centres in the cities of Turkestan and new productions of goods, works and in the Project is continuing, especially Semei. services in the new extension phase. n

Source: Kazakhstan investment assessment, PDF page 31. Figures and dates are reproduced from the source document.

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Showcase | Kazakhstan 33

Unifying The Local Content

And Localization Endeavours

Of Kazakhstan’s Major Oil And

Gas Operators

Aktau Declaration Measures and mechanisms that increase concrete foreign investment projects in on Joint Actions agreements between those with the services and fabrication of equipment JD Waverley necessary technology from around the and goods, which in turn will address co-ordinator world to partner those in Kazakhstan current challenges and opportunities is seen as a necessity. Additionally, the for the creation of new jobs. This will importance of social and corporate also enable the establishment of a responsibility by investors wishing to vibrant indigenous oil and gas supply- engage in operations and so ensuring chain sector, taking advantage of the that a culture of legacy beyond opportunities of national and regional investment, development and profits is markets. also considered an imperative.

The Aktau Declaration on Joint Actions Employment creates an environment was created to implement practical for stability, which in turn enhances innovative mechanisms to unify the the confidence that protects the very endeavours of the major operators in this investments that are necessary for the regard. Recognising the complex nature of development of assets. The national the delivery of local content strategy that focus is increasingly on creating an requires close cooperation and alignment appropriate environment to attract between all sides of industry; operators, cooperation agreements with technology investors, suppliers, and central and local transfer by companies in the global oil government departments, the initiative and gas supply chain. involves a Task Force whose membership is drawn from operator signatories and This will support the implementation of investor companies. s

34 Showcase | Kazakhstan

The objectives include the

Strengthening Of Kazakhstan’s An In-depth Analysis Has Being Undertaken To

professional skills and industrial base to

Evaluate All Procurement From Operators For

further maximise the opportunities for the companies and citizens to benefit

The Periods 2012/2013, Together With Future

directly from oil and gas projects as part of a strategy to develop an indigenous

Procurement Plans For 2014 And Beyond.

capability in the sector. It is designed to improve coordination and consistency of operator’s local content programmes, based on a shared understanding of the • Inward investment programme; from operators for the periods challenges and vision of a strong and to contribute to the commercial 2012/2013, together with future vibrant future for Kazakhstan’s oil and environment and identify procurement plans for 2014 and gas industry. opportunities to accelerate and beyond. A rolling workshop programme, expand the domicile of inviting vendors by category to The Industry Task Force enables a manufacturing and supply of works consider Kazakhstan as an investment greater sharing of knowledge and and services destination of choice, has been drawn a better coordination of effort, to • Training and skills development; fast up. avoid duplication and accelerate track programmes to address critical outcomes toward a common goal while skill shortages and longer term skills Workshops will be conducted over developing a domestic supply chain. capacity building for the future. three day periods in Atyrau and Astana It is anticipated that this will make a • Single supplier database as a source to meet: 1) Operator’s procurement substantive contribution towards long- of reference to identify current and representatives 2) Central and local term sustainable employment. potential capacity in the oil &gas and government 3) Kazakhstani industry, non-oil & gas sectors. all with a view to joint ventures and The Task Force has agreed a strategy • Harmonisation of standards, technology transfer.

Our goal is, as and the content of a forward specifications and code of practice. much as possible, to de-risk investment engagement plan with all stakeholders • Enterprise development; to stimulate decisions and promote the benefits of concerned with local content the promotion, growth and new such partnerships. Interest to attend development and delivery. It considers development of local companies these workshops can be emailed to: the strategy, content and current including access to management info@aktaudeclation.org. activities of the main contractors, expertise and funding equipment manufacturers, service • Research and development; to Finally, a monitoring process to ensure companies, and of the respective anchor specific technology understanding and compliance of local national trade representative development programmes to content participation is now actively associations and encourages a create new high value business being undertaken by the Contract coordinated approach. opportunities within local and Agency.

The Aktau Declaration on Joint domestic markets Actions assists in this process. n The terms of reference uses the frame work ‘How it is – how it will be’, An in-depth analysis has being containing six key components: undertaken to evaluate all procurement

Www.atyraupipe.kz

Sales@atyraupipe.kz

36 Showcase | Kazakhstan

Local Content

By Partnership

And Monitoring

The Local Content Development

Policy Of The Ministry Of Oil And

Gas (mog) Received New Impetus

After Approval Of The Law ‘on

Subsoil And Subsoil Use’ In 2010.

Its Implementation Encompassed

Several Regulatory Acts, Covering

Automated, Real-time Monitoring

And Analysis Of Local Content Data,

And Plans For Procurement Of

Subsoil Users.

Contract Agency The monitoring function and the development of Zhan Nurbekov local content in the procurement by subsoil users of Director hydrocarbons was assigned to the Contract Agency. For four years, there has been a steady trend towards increasing local content in monetary terms. Total procurement of goods, works and services (GWS) in the oil and gas industry between 2010 and 2013 increased by 80% (from $ 1.5 trillion tenge to 2.7 trillion tenge) and local content by 135% (from 0.68 trillion tenge to 1.6 trillion tenge).

The local content of purchases increased from 45.2 % in 2010 to 57.3 % in 2013.

Local personnel content has also increased dramatically, with Kazakh specialists in 2013 making up 97.13 % of the total. At the same time, programmes have been introduced to train and retrain Kazakhstan people in oil and gas industry technical subjects in order to increase their participation in the development of the country’s new oil fields. A key element in this programme was an agreement signed in 2010 between the operators and MOG, assigning some $4.96 billion tenge for training of 6,000 Kazakhstan citizens.

Showcase | Kazakhstan 37

Local content development is moving in foreign contractors. This is essential be encouraged through long term two directions. Firstly, there is growing to the Government’s plans for future procurement contracts, to buy goods interaction with the operators TCO, expansion of local production and the and services where possible from local KPO, NCOC; a trend which is particularly creation of joint ventures with Kazakh businesses.

This ‘partnership’ approach attractive for foreign technology partners. That in turn provides a unique will allow: leaders interested in entering the opportunity for foreign companies to

• establishment of offset cooperation Kazakhstan oil and gas market. enter into joint ventures with local on localization of high-tech Secondly, implementation of capital businesses on large projects. production in Kazakhstan projects in the country’s major fields is beginning with several key business The next major project open to • the transfer and development of opportunities. For example, those international business is the advanced knowledge and technology associated with TCO’s future expansion development at the Karachaganak in the country total an estimated US$24 billion. field, worth an estimated 15-20 billion • the creation of a competitive dollars. Another major project, open advantage for foreign producers A Memorandum of Understanding to international companies is the working with joint venture partners, was signed recently between the development of Kalamkas-sea oil field when tendering for contracts Government and Tengizchevroil, and island CC01 NCOC, requiring an associated with the largest local which committed the operator to a estimated investment of US$13 billion. companies fixed local content.

A key element • support for domestic enterprises in these agreements with TCO is International companies involved (20% of the notional discount the local content requirement for in joint venture partnerships will program of state) n

• • •

• •

• • •

• •

• •

•

•

•

•

•

Showcase | Kazakhstan 39

University of Cambridge Serik Orazgaliev and Siddharth S Saxena Central Asia Forum

Technology Challenges

And Opportunities

Kazakhstan’s sub-soil wealth presents requires specialist personnel. The potential for major new oil and a unique blend of challenges and Development of skilled personnel gas discoveries in Kazakhstan is opportunities, as part of the country’s in the hydrocarbon industry is a top considerable. To help realize this technological and wider economic priority in Kazakhstan, and is part of potential several large scale exploration development.

But the huge business the Government’s national priority to projects have been launched recently opportunities in Kazakhstan’s energy develop a wider skilled work force. in the Caspian basin. For example, in sector, has the potential to turn each A current focus is the development 2013, a Memorandum of Understanding challenge into a golden opportunity of oil and gas sector upstream local was signed between the government of for international partners and service capacity. New partnerships with Kazakhstan and Tengizchevroil, defining providers. international operators will be needed their joint commitment to expand here.

The Ministry of Oil and Gas and production in the field. The Future Development of certain oil fields KazMunaiGas, as well as its subsidiaries, Growth Project will enable the Tengiz in Kazakhstan involves a unique have developed an expertise in the field to increase production at from 26 combination of technical and supply creation of consortia between local million to 38 million tons of oil per year. chain complexity. For example, experts and international expertise.

Additionally, the Kazakh government development of the Kashagan field This will ensure that the new phase is planning to enhance the national involves engineering, logistical and in the development of Kazakhstan’s gas industry through an expansion of environmental challenges that make it oil and gas sectors, is developed current gas pipeline capacity, including one of the most complex and expensive with the right technology , will be construction of new pipelines and industrial projects currently being sustainable and will meet international gas processing facilities, and the developed in the world. In addition, environmental standards. development of a gas-based power international companies must develop generation industry. oil and gas production in a safe and Kazakhstan’s energy sector offers big efficient manner to meet stringent and profitable opportunities for foreign Kazakhstan’s long-term energy sector environmental standards. There is operators.

The petroleum sector is objectives will only be achieved with scope here for working with local the most rapidly developing sector in the support of foreign investors, experts, for training of local personnel Kazakhstan and the primary contributor who can offer the right technology and for technology transfer. to the country’s fast economic growth. and training. Kazakhstan thus For this reason, new investment presents unparalleled opportunities Of course experienced and skilled initiatives in the sector receive strong to international energy partners, professionals are needed to Government and Government agency, whether in resource exploitation, oil operate new equipment. Similarly including through legislation and co- transportation, technology provision or application of new technologies investment. specialist servicing. n

40 Showcase | Kazakhstan

Technical Regulation Is Now An Important Component Of Kazakhstan’s

Overall Economic System, And Forms Part Of The Government’s

National Strategy For Improving The Country’s Domestic Prosperity And

International Competitiveness.

Source: Kazakhstan investment assessment, PDF page 40. Figures and dates are reproduced from the source document.

Committee of Kazakhstan’s pre-2005 technical To rectify this unsatisfactory situation Technical Regulation regulation system lacked the coherence the Government promulgated a new law and Metrology and transparency required to meet on technical regulation - Republic of international standards. There were Kazakhstan Law No. 603-II. This provides Birzhan Kaneshev Director numerous documents defining for a progressive transformation of the regulations and standards across a state technical regulation system to huge range of sectors, from veterinary harmonise it with international practice. science to construction, and from Ultimately this will simplify procedures energy to conservation.

But there were for local businesses, clarify what is legally inconsistencies between documents, some binding, improve product quality and were legally binding, others were not. competitiveness, and help improve safety This created difficulties for Kazakhstan standards. It will also integrate with the businesses, unnecessary confusion for country’s national industrial and research international trade/business partners, and innovation strategy. All this will in turn and distrust of the quality of local goods help Kazakhstan prepare for its accession on the international market.

Kazakhstan to the World Trade Organisation (WTO). manufactured goods simply could not compete internationally. Kazakhstan businesses are already

Showcase | Kazakhstan 41

embracing this change and are making have participated in numerous training norms. So far 3,787 (72.5%) of the significant progress on improving both workshops, covering especially relevant country’s 5,223 national standards have the quality and competitiveness of their European Union Directives, and been harmonized with international goods and services both domestically harmonisation of technical regulations requirements. and internationally. and standards with international norms in preparation for accession to the WTO. On 1 January, 2014 the Unified Guidelines for technical regulation National Fund of Normative and cover in particular: Kazakhstan’s Head of State, President Technical Documentation (EGFNTD)

• the criteria for meeting the technical Nazarbayev, has stressed that contained 67037 normative and regulations and assessment of harmonization of technical regulation technical documents. (5223 national progress in this regard legislation is a key part of the country’s standards; 19,966 interstate standards;

• elimination of technical barriers to strategic socio-economic plan. Much 11,556 standards of the Russian trade through harmonization of progress has been made. Old laws have Federation and CIS countries; 622 national standards with international been revised and amended, and a new European standards and directives; standards regulatory framework on quality control 2650 American standards; 6302

• Increasing product competitiveness and safety has been created. Priorities British standards, standardization rules and manufacturing safety, through have been defined. These include: and recommendations, directories, the introduction of advanced quality catalogues and other normative and environment management • promoting inward foreign investment; documents. systems. • rationalizing the banking system

• The legal basis of the national • accelerating Kazakhstan’s integration The Republic of Kazakhstan is a technical regulation system. into the global economy member of various international

• improving the quality and supply and regional standardization As part of the longer-term development of consumer goods ( especially food organizations, such as the International and implementation of this new products) in the Kazakhstan domestic Organization for Standardization (ISO), system, the Kazakhstan Government market the International Electro technical has familiarized itself with how • Encouraging local manufactures Commission (IEC), Interstate Council the European Union has sought to to improve product quality for Standardization, Metrology and harmonize its system with international and competitiveness and to increase Certification (MGS), Interregional competitive norms. Kazakhstan exports. Standardization Organization (MAS), specialists have also visited East Central Asian Association for Metrology, European countries, to study how Ultimately the Kazakhstan Accreditation, Standardization and they are harmonising their practices Government’s key aim is to ensure Quality (TsAS MAS-K).

Membership in and systems with the requirements complete harmonization and these organizations allows Kazakhstan of the European Union’s New and standardization of its technical to participate in the development of Global Approach. These specialists regulatory system with international international and regional standards. n

Production Capabilities Of Sgt Group:

• Complex processing equipment: columns, reactors, oil and gas separators, filters;

• Storage equipment: high pressure vessels, storage tanks with floating or fixed roof, cryogenic vessels;

• Heat exchanging equipment: heavy tube and shell heat exchangers; air cooled heat exchangers; steam condensers;

• Supporting equipment: oil heaters, flare devices, tubular heaters, pig receiver – launcher and other non-standard complex equipment.

Growth And Development

Projects Of Sgt Group:

• Construction of large scale and heavy equipment production facility in AtyrauNefteMash plant;

• Construction of Modular Housing plant;

• Construction of steel structures plant;

• Development of flanges and fittings production.

Sgt Group Companies Are Certified

According To Asme Standards In Design,

Manufacturing And Reparation Of Vessels

With Pressure (“u”, “u2”, And “r”).

“AtyrauNefteMash” LLP “Byelkamit” LLP Address: 21 Elevatornaya street, Address: 348 Raimbek avenue, 060004, Atyrau, Kazakhstan 050061, Almaty, Kazakhstan Phone: +7 (7122) 76 27 01 Phone: +7 (727) 250 33 56 Fax: +7 (7122) 76 27 02 Fax: +7 (727) 250 33 58 www.anm.kz www.byelkamit.kz

Production Capabilities Of Sgt Group: Showcase | Kazakhstan 43

• Complex processing equipment: columns, reactors, oil and gas separators, filters;

Kazmunaigas (kmg)

• Storage equipment: high pressure vessels, storage tanks with floating or fixed roof, cryogenic vessels;

Procurement Procedures

• Heat exchanging equipment: heavy tube and shell heat exchangers; air cooled heat exchangers; steam condensers; KazMunaiGas

• Supporting equipment: oil heaters, flare devices, tubular heaters, pig receiver – launcher and other non-standard complex equipment.

There are three procurement systems. Firstly, Samruk- which apply to private oil and gas companies, as well as the Kazyna Rules for the procurement of goods, works organizations where the State’s equities are less than 50%. and services. These Rules regulate procurement in the For example CNPC-Aktobemunaygas, Buzachi Operating, companies where Samruk-Kazyna owns at least 50% of PetroKazakhstan.

Thirdly, the procurement system of oil equities. KMG is a subsidiary organization of Samruk-Kazyna and operators in the framework of the Production Sharing and so these rules therefore apply to KMG and its subsidiary Agreements on Karachaganak and Kashagan oil fields and companies, such as KMG EP, KMG refineries, Kaztransoil and Tengiz project. Kaztransgas.

The difference between these three systems can be Secondly, the Procurement Rules for subsoil operations explained as follows:

Source: Kazakhstan investment assessment, PDF page 43. Figures and dates are reproduced from the source document.

Growth And Development

Projects Of Sgt Group:

• Construction of large scale and heavy equipment production facility in AtyrauNefteMash plant;

• Construction of Modular Housing plant;

• Construction of steel structures plant;

• Development of flanges and fittings production.

Sgt Group Companies Are Certified

According To Asme Standards In Design,

Manufacturing And Reparation Of Vessels

With Pressure (“u”, “u2”, And “r”).

“AtyrauNefteMash” LLP “Byelkamit” LLP Address: 21 Elevatornaya street, Address: 348 Raimbek avenue, 060004, Atyrau, Kazakhstan 050061, Almaty, Kazakhstan Phone: +7 (7122) 76 27 01 Phone: +7 (727) 250 33 56 Fax: +7 (7122) 76 27 02 Fax: +7 (727) 250 33 58 www.anm.kz www.byelkamit.kz

44 Showcase | Kazakhstan

The procurement process is closed for the Tengiz, advantages to local producers if the price and quality of their Karachaganak and Kashagan projects. In order to supply for product are not worse than that of international ones. The these projects suppliers and service companies must first procurement Rules of the operators of these large oil and complete the registration in Vendors databases of these oil gas projects are confidential while the Procurement Rules of operators (TCO, KPO and NCOC).

Each operator currently has other oil companies, including KMG, can be found online. its own system of registration and Vendors database. Only those companies that are registered in these databases may Samruk-Kazyna Procurement Rules and the Procurement be invited to participate in the tenders. Rules for subsoil operations are comparatively similar.

The oil companies under these rules do not have vendor databases. Each operator has its own tendering procedures with Any company both local and foreign can directly participate potential suppliers not knowing how they are assessed in tenders. These Rules do provide however some advantages and why they lost.

The procurement rules may provide for local companies.

Difference in Procurement Procedures 3

Procurement in KMG (under S-K Rules) and Procurement in PSA projects and Tengiz other O&G companies (under Rules 133)

Suppliers and Vendors Suppliers and Vendors

No Vendors Database assessment assessment assessment

O&G companies, (incl. KMG) Vendors Vendors Vendors Database Database Database

Tendering Tendering Tendering Tendering procedures procedures procedures procedures

Transparent, but risky to get low-quality Lack of transparency services and goods

KMG procurement procedures are based on the principles of There are mainly three methods of procurement goods publicity and transparency, allowing all potential suppliers and services: open tender, price proposals request and equal opportunities to participate in the procurement from single source or direct contract. The choice of the process and fair competition among suppliers. procurement method depends on the budget, frequency of the purchase of goods and services, and who provides them. Within 20 days after the approval of the company’s business plan we have to form and approve the Procurement plan.

In case of open tender procedure the advertisement on a This plan must be placed in the company’s website within tender must be placed both in the company’s website and 5 days. The procurement plan includes not only the media not less than 15 days prior to the day of the tender. description of goods and services but also quantity, budget, Having received bids on the day of the tender we are terms of procurement and delivery. obliged to draw up a protocol for opening tenders that must

Showcase | Kazakhstan 45

be placed in the website within 3 days. After that within 10 held again. days we have to assess the bids and draw up a protocol with the result and announcement of the winner. This protocol Procurement of goods and services from single source must be placed in the website within 3 days.

The contract (without holding open tenders and price proposals request) must be signed within 20 days after the protocol. is based on the decision of the Board or order of the Board’s Chairman. Single source method is used if the open tender Another procurement assessment of price proposals request or price proposals request is not held; if for example there is is similar to open tenders. This mainly differs in terms of only one service provider or producer of the equipment that time, being shorter.

All participants of open tenders and KMG and is already in use. The results of such procurement price proposals have access to the bids and proposals, must be also published on the website within 7 days after and tender documentation of each other before and after signing the contract. As can be seen, KMG’s procurement tenders.

There is the opportunity to challenge the results procedure is quite transparent. by appealing to the Buyer and the supervisory authorities if there is disagreement with the results of the tenders. In It is important to understand local content development case of violation, the results are cancelled and the tender is support.

Procurement Procedure in KMG 4

Within 20 days after the Formation and approval of the approval of the business plan Procurement Plan

Within 5 days after approval Placing approved Procurement Plan on KMG of the procurement plan website

Open tender Procurement method From single source

Price proposals request

<4000 monthly index Price proposals request Preparing the necessary documents (contract draft , technical specifications, tender documents) Not less than 15 days prior to suppliers submission Placing ads on the tender in Placing ads about Signing an order or a decision www.zakup.kmg.kz & Not less than 5 days purchasing by price of the Board on the purchase www.tender.sk.kz prior to suppliers proposals request on from a single source submission www.tender.sk.kz

Submission of applications for Placing in website participation in the tender by Submission of price potential suppliers proposals by potential no later than 3 days suppliers after opening Results published on the Minutes of opening the bid No later than 2 days websites no later than 7 envelopes after opening days from the signing of Not more than 10 Protocol on the outcome of the contract days after bid the procurement price Not later than 1 day after proposals request opening (20 days for Protocol on the results of the the approval available complex), placing in tender on websites website not later Signing the contract for the Protocol on the results than 3 days purchase of services / not later than 20 days from the signing of the protocol on products the results, in case of non-residents - 10 days longer

According to our rules a tender must be held only among Firstly, if a supplier is a domestic producer and included local manufacturers if there are at least 2 producers in in Samruk-Kazyna Register of domestic producers, it gains Kazakhstan. Those potential suppliers can additionally receive 5% of conditional price reduction. Secondly, if a product a conditional price reduction.

Conditional price reduction is a is manufactured locally and has a relevant certificate, or a price advantage when suppliers bids are compared at tenders. supplier has declared an obligation to manufacture a good There are a number of criteria that are allowed to gain in Kazakhstan, such suppliers gain 0.15% of conditional conditional price reduction. price reduction for each 1% of localization. For example,

46 Showcase | Kazakhstan

if a good is manufactured entirely in Kazakhstan and its suppliers gain up to 2.5% of conditional price reduction. It localization is 100%, the supplier gains 15% of conditional is important to understand that these criteria of conditional price reduction. If localization is 50%, the conditional price reduction, excluding the first two, apply to foreign price reduction is 7.5%.

Thirdly, if a service company takes companies as well. an obligation to use local goods and human resources indicating local content percentage, it gains 0.1% of To summarize, in a potential scenario a supplier can receive conditional price reduction for each 1% of local content. up to 25% of conditional price reduction, which significantly increases its competitiveness. Organizations of disabled Potential suppliers can also gain 1% of conditional price people also, however, have price advantages if they are reduction if they have the certified system of management registered in the relevant Database of Samruk-Kazyna. according to the State standards. In addition, if a potential supplier is a bona fide supplier in accordance with the The system of calculating local content in goods is list of bona fide suppliers of Samruk-Kazyna, potential straightforward.

Local Producers Support in KMG Tendering Procedure 5

• Tender is hold only among local manufacturers if their number in Kazakh market is 2 and more;

• Conditional price reduction

Criteria that influence on conditional price reduction of applications for participation in tender:

Source: Kazakhstan investment assessment, PDF page 46. Figures and dates are reproduced from the source document.

⃰ In case of satisfaction to the given requirements it is possible to gain up to 25 % of the conditional price reduction

The mechanism of local content calculation is approved by appear complex, in reality it is easy to determine the local Decree of Kazakhstan Government, № 463, which can be content. There is a simple example. If a pen is assembled in found online.

Localization percentage is calculated by the Kazakhstan and a cap is manufactured locally and costs $1 Chamber of Commerce, which issue a certificate for the good while the rest part is imported and costs $3, local content in concerned and where the share of local content is indicated. producing this pen is 25%.

The formula is shown in the slide below. Whilst this might

Showcase | Kazakhstan 47

LC Calculation Mechanism 6

Source: Kazakhstan investment assessment, PDF page 47. Figures and dates are reproduced from the source document.

Locally, 1 $ Local Content targets in procurement of goods and services accelerated industrial and innovative development (2010- Part imported, 3 $ for 2014 for KMG are 49% for goods and 78% for services, 2014). Local Content in procurement of goods and services while for other oil and gas companies they are 16% and of oil and gas companies must comply with these targets 72,5% respectively. this year.

These figures are approved by the State Program on Actual figures in 2013 are shown in the table below:

Source: Kazakhstan investment assessment, PDF page 47. Figures and dates are reproduced from the source document.

Local Content Import & goods without certificate СТ-KZ

48 Showcase | Kazakhstan

In 2013 KMG’s procurement of goods and services was their requirements and international standards. in excess of 8 billion dollars and overall local content was 66%, including 66% in services and 67% in goods. Therefore, developing local content by attracting investment The total procurement of goods and services in Tengiz, and technologies, as well as localization of new goods, is Karachaganak and Kashagan, is 8,3 billion dollars. However, highly important both for oil companies and the country. the local content in goods was insignificant in comparison This is why we agreed with our partners TCO, KPO and NCOC – just 7%.

This might be explained not just by transparency to develop a mechanism to improve the coordination and issues of tendering procedures, but also a lack of local consistency of individual local content programmes and manufacturers and service companies that fully comply with investors in the Aktau Declaration on Joint Actions.

Local Content in Major Oil & Gas Companies, 2013 (in million USD) 8

Local Content Import & goods without certificate СТ-KZ

8 329

8 123

2 749 4 432

3 187 Works &

66% Services

5 374 3 800 Works &

66% 3 897

54% Services

47%

2 187 Goods

67%

97 7% Goods

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Special

Economic Zone

Seaport Aktau

Management Company <<sez <<seaport Aktau>> Jsc

Area Of Your Success

The special status of SEZ “Seaport Aktau” is granted from 2003 for a period up to 2028. Location: The Republic of Kazakhstan, Mangystau region, Aktau city, the territory of commercial seaport and industrial zone. Total area: 2000 ha, consists of 6 subzone and the coastal zone.

Corporate income tax

Tax Incentives

Property Tax %

AND CUSTOMS VAT on imported goods PREFERENCES Customs duties Land tax Land rent

Our Competitive Advantage:

• Exemption from taxes and customs duties

• Infrastructure construction at the expense of state funds

• Common customs space with Russia and the Republic of Belarus

• Favorable geographic position, located at the intersection of the transport corridors TRACECA, the North-South, access to the Caspian Sea

• Favorable business climate, with investors’ rights secured

• Assurance with office and production premises

• Complete project support from beginning till manufacture

Priority Activities Within Sez <<seaport Aktau>>: Contacts:

• Iron and steel industry Republic of Kazakhstan

• Manufacture of chemicals and chemical products Mangystau Region

• Manufacture of rubber and plastic products Aktau City

• Manufacture of other non-metallic mineral products www.sez.kz

• Manufacture of fabricated metal products e-mail: info@sez.kz

• Manufacture of machinery and equipment

• Manufacture of household electrical appliances

• Manufacture of leather

• Production of petrochemical products, as well as related products, related industries and technologies

• Warehousing and support activities for transportation

• Manufacture of basic pharmaceutical products and pharmaceutical preparations

Showcase | Kazakhstan 51

Priority Sectors And State

Assistance Programmes

KexNexInvest Kazakhstan’s priority sectors are: Kairat Karmanov Deputy Chairman 1) Oil and Gas sector

Kazakhstan was ranked 11th in terms of oil reserves and 17th in terms of natural gas reserves in the world. The republic extracted 80 million tons of oil and natural gas liquids in 2012, and more than 40 billion cubic meters of natural gas.

Source: Kazakhstan investment assessment, PDF page 51. Figures and dates are reproduced from the source document.

Source: Agency of statistics of the Republic of Kazakhstan

Sector infrastructure: Currently, three oil refinery plants operate in Kazakhstan (Atyrau, Pavlodar and Shymkent). However, there is a need of a full production cycle of raw hydrocarbons in Kazakhstan.

79% of oil and liquefied natural gas is exported via oil pipelines, eight per cent by train, and 13 % by sea.

Competitive cluster: The principal oil and gas enterprises are situated in the western regions of Kazakhstan and in the Kyzylorda region. These are the main areas of mineral, oil and gas extraction. New production will be associated with the development of fields in Kazakh sector of the Caspian Sea. s

52 Showcase | Kazakhstan

2) Mining and Metals sector Karagandy, East Kazakhstan regions The National atomic company and Almaty. Caustic soda is produced Kazatoprom is the national operator Kazakhstan’s mining and metals sector in Pavlodar, sulfuric acid in the Akmola, of Kazakhstan for import and export of has a rich and diverse mineral base. Kyzylorda and Zhambyl regions, and uranium, rare metals, and nuclear fuel Kazakhstan has around 30 % of rubber technical goods production in for power plants, special equipment, global reserves of chrome ore, 25% the Karagandy region. dual-purpose technologies and of manganese ore, and 10% of iron materials. ore.

Copper, lead and zinc reserves are between 10 and 13 % of global 4) Nuclear Industry sector The development of the nuclear reserves. Kazakhstan has around 90% industry is focused in the regions of CIS country chrome reserves, 60% Kazakhstan has the key requisites for of uranium ore extraction, at the of its tungsten, 50% of its lead and development of a nuclear industry. Stepnogorsk Mining and Chemical Plant copper, 30% of its bauxite, 25% of These include: and Ulba Metallurgical Plant. its phosphate and 15% of its iron ore • substantial proven uranium reserves reserves.

Kazakhstan is the world’s • developed uranium mining and Kazakhstan is recognized as a country third ranked titanium producer, seventh uranium processing industries, and with great experience in the field ranked zinc producer, eighth ranked plants producing fuel and of fundamental nuclear physics and lead producer, thirteenth ranked iron construction materials radiation material science. ore producer, fifteenth ranked copper • nuclear scientific capacity, producer and thirty-fifth ranked steel concentrated in particular in state producer. enterprises, such as the National 5) Engineering Industry Nuclear Center of the Republic of Kazakhstan, the Institute of Nuclear The machine tool sector includes 3) Chemical industry sector Physics and the Institute of several priority industries: Geophysical Research This is a priority sector, because it • technically skilled human resources Engineering for oil and gas industry has to supply raw, intermediate and • legislative and regulatory framework The size and importance of this sector finished products to Kazakhstan’s governing nuclear energy production generates a large and continuing fast developing industrial sector. The and use which complies with IAEA demand for engineered products. sector is based mainly on the country’s requirements Kazakhstan companies now produce rich phosphate reserves, oil and gas • nuclear waste disposal and sophisticated drilling, production and production, sulphur dioxide gas from processing/re-processing experience transport equipment for the oil and the metal industries, and the diverse • comprehensive national seismic gas sector. Well servicing and other national mineral reserves. activity monitoring system companies are growing fast.

Chemical production is located widely According to the IAEA, Kazakhstan has Engineering for mining industry around the country. Raw material about 19% of proven world uranium The rapid development of mining is processing, especially of phosphates reserves. The country was ranked first generating a growing and ever more and nitrates is found in the Zhambyl, in terms of uranium extraction in the diverse demand for load-haul-dump Aktobe, Atyrau and South Kazakhstan world in 2009.

Extraction of natural transport, hydro-perforators and regions. More specialised chemical uranium was 21240 tons in 2012. pneumatic drills, pressure reduction production is located in Pavlodar, valves, belt conveyers, steel-making

Showcase | Kazakhstan 53

equipment, a wide assortment of continuing need to import specialized of cattle farming. On 1 January, 2013, rolling-mill equipment, spare parts drugs, including antibiotics. there were some 581 pedigree livestock production and so on. business entities. These included around 42 stud farms and 515 livestock Engineering for Railways 7) Consumer Goods Industry breeding farms.

In January 2013, the Domestic demand for railway ratio of stud cattle in the country engineering products is growing fast. Cotton processing using local raw amounted to 8.2%of the total herd: These include especially freight wagons cotton is the main industry here. Raw sheep 13.8%, horses 7.0%, camels and locomotives, which are required by cotton output (mainly upland cotton) in 10.0% and poultry 11.7%. the Kazakhstan Temir Zholy company. 2012 was 380 thousand tons.

The company is in the process of buying In 2012, meat production was 934 some 1,400 to 5,200 wagons and 100 thousand tons, milk was 4 852 thousand locomotives annually. It is rebuilding 8) Agricultural Industry tons, eggs -3,673.4 million and wool the existing wagons and locomotive 38.4 thousand tons. yards Kazakhstan’s main agricultural exports include wheat, rice, meat, oils and fats. Food and processing industry Engineering for Agriculture The food processing industry includes This sector’s key equipment needs Crop farming meat, dairy, fish, flour and cereal, and include combine harvesters (three Kazakhstan is among the world’s top compound feed, sugar and fat and or four types), tractors, attachable ten wheat exporters.

Flour is also an oil. Total output was US$5.6 billion in implements and crops and feed important export. 2012. Output of beverages amounted crops converters.

Kazakhstan has the to US$1.2 billion. The most rapidly potential to produce such equipment, More than 70 countries import Kazakh developing industries are meat, oil, fat, some of which will need to be wheat. Traditional importers are the and flour, which are being modernised adapted for local climatic conditions. countries of Central Asia (Uzbekistan, through inward investment.

Some Future demand will grow fast as the Tajikistan, Kyrgyzstan, Turkmenistan, 80% of food production is consumed agricultural area is expanded and old Azerbaijan, Afghanistan and Iran) domestically. Food imports include equipment is scrapped as part of the which import around five million tons canned fruits and vegetables (less than sectors efficiency drive. annually (about 60% of Kazakhstan’s 10%), sugar (39%), cheeses and curd export total). Kazakhstani grain is also (46%), sausage products (57%), butter exported to North Africa, the Middle (64%) and canned soya burger (68%). 6) Pharmaceutical Industry East and the European Union.

Kazakhstan produces a variety of This sector aims to develop local vegetable oils, fruit and berry crops, 9) Construction Industry production capacity as part of a grape, sugar beet, potatoes and other and Construction Materials wider strategy to reduce imports. vegetables. Production of medicines. To meet international Good Manufacturing Practice the Cattle farming This sector focusses on basic country will need to attract the right Cattle farming is a major component of construction material.

Much of the inward investment, including modern the country’s agricultural sector. Rich country’s more advanced construction pharmaceutical manufacturing pastureland and favorable climatic material needs are imported. That said technology.

But there will be a conditions support the development there is a growing production of many s

54 Showcase | Kazakhstan

types of construction materials, goods • The creation of mechanical, electrical 3) Tax benefits for the period of up and semi-finished products. But window and plumbing infrastructure of the to 7 years for investment strategic glass, and most sanitary ware has to be newly created tourism industry projects (0% land tax and 0% property imported. objects tax). An investment strategic project

• Subsidizing of interest rates on should be targeted at the production of Cement production is established lending investment projects high value-added products (products countrywide. Gravel, stone and sand of national tourist clusters along the of a higher value-added level and supplies are plentiful. transport corridor Western Europe - processing in the value chain); it should Western China. comply with the priority activities, and meet one of the following criteria: 10) Tourism Industry Investment preferences • Manufacture of products included in the list of activities for the Plans for infrastructure development, Under Law of the Republic of production of high-tech products according to the Development program Kazakhstan No. 373 -II dated January • The volume of investments for prospective sectors of the tourism 8, 2003 «On investments», RK entities should be at least five million industry of the Republic of Kazakhstan implementing investment projects or fold monthly calculation index for 2010-2014, a number of projects strategic investment projects in priority established for the relevant will be implemented in tourism industry sectors are provided with investment financial year by the law on the of Kazakhstan. These include the preferences by concluding investment national budget (more than 57 construction of a tourist entertainment contracts. million U.S. dollars). complex in the SEZ Burabai in Akmola region, an international tourist center Types of Investment Preferences: 4) Industrial benefits for investment Zhana-Ile on the coast of Kapchagay strategic projects in communities with Reservoir in Almaty region, Kenderly 1) Exemption from customs duties: the low socio-economic development international resort in Mangistau region • when importing technological level.

Providing industrial benefits is to and the Kokzhaylau ski resort in Almaty equipment and component parts reimburse or pay part of the costs for region. • when importing spare parts the following: for production equipment, raw • gas Additionally, it is planned to establish materials and (or) materials • electricity tourist clusters along the international • purchase of land transport corridor Western Europe 2) Government in-kind grants mean • acquisition (construction) of - Western China, passing through the property owned by the Republic buildings andstructures five regions of Kazakhstan (Almaty, of Kazakhstan, including land, Zhambyl, South Kazakhstan, Kyzylorda buildings and structures, machinery Special Economic Zones and Aktobe regions). and equipment, computer equipment, measuring and control devices and Special Economic Zone (SEZ) is a part As part of a competitive tourism equipment, vehicles (excluding cars), of the territory of the Republic of industry infrastructure creation it is production and household equipment Kazakhstan with precisely defined planned: provided for temporary free use or boundaries, where a specific legal

• The allocation of land by local on the right of temporary land use regime of a special economic zone executive bodies for the construction followed by the gratuitous transfer of applies to the implementation of of road infrastructure along the the ownership or use of land. priority activities. transport corridor

Showcase | Kazakhstan 55

• Exemption from customs duties

Goods EXPORTED from SEZ territory

• CU commodities exported from the SEZ to the rest territory of the Customs Union are not subject to customs duties

• CU commodities exported from the SEZ territory to outside the Customs Union are subject to the payment of export customs duties

• Foreign commodities with no status as CU goods (simple Ten special economic zones have been (VAT) on all implementation activity assembly) exported from the established throughout the country within the territory of SEZ, on all SEZ to the rest territory of Customs for the purposes of stimulating foreign goods completely consumed in the Union are subject to the payment of economic and regionally accelerated production process customs duties development, industries’ support and solutions to social problems, Conditions for tax benefits: Other privileges: investment, technology and modern • Registration as a taxpayer within management, highly efficient and SEZ territory • Simplified procedure for recruiting competitive industries creation • Registration as a SEZ participant foreign workers Kazakhstan. • Absence of structural subdivisions • Issuance of permits for foreign outside the SEZ workers by local executive bodies Privileges in SEZ: • Income from the sale of are executed in accordance with the own-produced goods by the priority laws of the Republic of Kazakhstan, Tax benefits. The following privileges activities of SEZ shall be at least 90 but using a simplified manner are provided to all SEZ participants: percent of the total annual income without opening the positions to

• Exemption from corporate income (for SEZ “ITP” - 70%) the domestic labor market tax (CIT) • Free land plot for up to 10 years

• Exemption from land tax Customs privileges: • Free land plot for project

• Exemption from property tax implementation is provided for

• Exemption from value added tax Goods IMPORTED into SEZ territory SEZ participants for up to 10 years n

56 Showcase | Kazakhstan

Regulatory

Environment

Deloitte The government has openly expressed its desire to Mark Smith improve the investment climate in Kazakhstan, which is Central Asia Managing Partner why considerable efforts have been made to removing bureaucratic obstacles to investing in and operating a business in Kazakhstan.

For instance, legislation governing the incorporation of businesses in Kazakhstan has been significantly Doing business in Kazakhstan simplified in recent years, so that companies can now be registered either according to the “one-stop-shop” Since independence, Kazakhstan has achieved principle, i.e. all registration documents are filed at a significant results in attracting foreign investment. The single location - Public Service Centre - or through an Kazakhstan Constitution affords foreign companies on-line application process2. Officially3, the procedure and individuals the same rights and obligations as takes from 1 to 14 business days, depending on the Kazakhstan nationals1.

As a result, foreign entities type of entity being registered, but more often than may invest in almost all sectors of the economy, with not, due to its still somewhat bureaucratic nature, the restrictions for specific industries such as oil and process can take up to 3 weeks. gas and telecommunications among others. Foreign investors may also face a number of operational As an additional incentive to investment, Kazakhstan restrictions, although not explicitly discriminatory, that has set up several special economic zones with the aim local firms are not subject to, e.g. local content and of creating efficient export-oriented manufacturing, obligations covering labour, goods and services. implementing new technology and introducing modern

Showcase | Kazakhstan 57

management techniques. At the same All registered companies should comply distinct sections: time, by investing in these zones, with tax regulations, which require the a) Upstream: exploration and foreign investors can enjoy certain tax regular submission of returns. Failure production of crude oil and gas preferences and customs exemptions4. to comply can lead to severe fines (hydrocarbons) and penalties.

Hiring staff results in b) Midstream: processing and Foreign and local investors may operate standard HR and payroll related issues. transportation in Kazakhstan through a structural Generally speaking, foreign nationals c) Downstream: hydrocarbon refining subdivision (branch/representative can only be employed in Kazakhstan and distribution office), or a subsidiary (limited liability if local immigration regulations have partnership (“LLP”) or joint stock been met and a work permit received in The integrated Kazakhstan legislative company (“JSC”)). The choice of vehicle advance9. base regulates all aspects of the oil determines financial, tax and legal and gas supply chain, starting from the implications. As a way of supporting and increasing identification of subsoil areas through business activity, the government to the delivery of oil products to Generally speaking, from a tax has adopted a policy of easing the customers.

While Kazakhstan reserves perspective, no principal differences administrative burden involved priority oil and gas industry rights12, exist in the tax treatment of local legal in obtaining licenses/permits (by foreign investors, who are afforded the entities, LLPs/JSCs or the branches/ reducing the processing period and same subsoil use rights as domestic representative offices of foreign list of documents to be filed with the investors13, still manage the bulk of companies in Kazakhstan. However, authorities10). exploration and production sectors. consideration should be given to branch profits tax, the distribution of dividends As another positive step towards Nevertheless, Kazakhstan still places by LLPs and JSCs, the allocation of further improving and supporting great emphasis on local content general and administrative expenses entrepreneurial activities in Kazakhstan, development and encourages a unified by a branch/representative office’s the President recently suspended approach to the oil and gas industry founding entity for corporate income inspections of small and medium to ensure and increase the use of tax purposes, as well as withholding tax, businesses until 1 January 2015 local goods, services and labour in value added tax, payroll related taxes and even cancelled all scheduled the activities of foreign investors in and others5. inspections of all businesses from 1 Kazakhstan14. In 2010, the government January 201511. approved a uniform methodology for all It is worth mentioning that monopolistic subsoil user contractors/subcontractors activity and unfair competition are to calculate local content for goods, restricted or recognised as invalid under Regulations in the Kazakhstan work and services15.

Failure to comply the law6. The antimonopoly authorities Oil and Gas Supply Chain with local content requirements triggers monitor economic concentration7 administrative sanctions16 and even the (which includes, among others, the Kazakhstan’s rich oil and gas reserves termination of subsoil use contracts reorganisation of entities by way of continue to provide the country with an where applicable. mergers or takeovers; the acquisition of important source of revenue, ensuring more than 25% of shares in a market stable economic growth and improving As part of its plans to protect the entity) and permission should be living standards. domestic market, the government is obtained prior to a transaction leading currently looking to increase local to an economic concentration situation As in many countries, the Kazakhstan oil content ratios. For instance, local as defined under the law8. and gas industry is divided into three content in the oil and gas sector s

58 Showcase | Kazakhstan

(except for the three large fields -

Ncoc, Kpo And Tco) Is Due To Be Legislation Governing The Incorporation Of

increased in 201417 to 16% for goods,

And 72.5% For Work And Services. Businesses In Kazakhstan Has Been Significantly

However, while local companies have a

Simplified In Recent Years

significant presence in the production and downstream segments, foreign companies still control the more high- tech areas of the oil and gas supply chain. The same trend is somewhat repeated in the midstream segment. For example, KazTransOil (the national oil pipeline operator18) and KazTransGaz (the national gas supply operator19) cover the pipeline sector, while foreign investors and companies almost exclusively operate the tanker and oilfield services sectors.

Generally speaking, the midstream and downstream sectors are not treated as a subsoil use operations and as such no local content requirements apply. With only three major, but technologically limited oil refineries currently in operation (Atyrau, Shymkent and Pavlodar), Kazakhstan tends to export crude oil abroad. However, due to The Kazakhstan Government recognises the recent export ban on lightweight that the oil and gas industry, by its very products and distillates, kerosene, nature, is a very complex and capital– solar oil and other petroleum products intensive investment, and for that until 1 June 201420, vacuum solar oil reason is working hard to ensure that and fuel oil make up the majority of the legislative base governing it reflects exports.

Another three gas refining that. However, to ensure long-term plants (Kazakh, Tengiz and Zhanazhol), Currently, crude oil export duties are growth, as a developing country relying which are all located in the west of charged at US$ 80 per tonne22 and significantly on its inherited wealth, Kazakhstan, produce tank gas from KazTransOil pipeline export tariffs - Kazakhstan still has much work to do associated gas, and then export KZT 5,817.20 (approximately US$ 32) to diversify its economy and reduce it to neighbouring countries such per 1,000 tonne/km, exclusive of VAT, its dependence on natural resources, as Russia within the framework of making a significant contribution to which are vulnerable to volatility and intergovernmental treaties21. budget revenue. changes in global commodity prices. n

1. Constitution of the Republic of Kazakhstan dated 30 August Rules and Conditions for issuing Work Permits for Self-Employed 155-II dated 30 January 2001 1995 Foreign Nationals and to Employers to hire Foreign Nationals in 17. Kazakhstan Local Content Development Programme for 2.

According to Law # 60-V dated 24 December 2012 On Kazakhstan, approved by Government Resolution # 45 dated 13 2010-2014, approved by Government Resolution # 1135 dated the Introduction of Amendments and Additions to Certain January 2012 29 October 2010 Legislative Acts of the Republic of Kazakhstan “On the State 10. According to Law # 461-IV dated 15 July 2011 On the Registration of Legal Entities and the Registration of Branches Introduction of Amendments and Additions to Certain Legislative 18. According to Government Resolution # 1273 dated 8 October and Representative Offices” Acts of the Republic of Kazakhstan regarding Improvements to 2012 3.

Law # 2198 dated 17 April 1995 On the State Registration the Permit System 19. According to Government Resolution # 914 dated 5 July 2012 of Legal Entities and the Registration of Branches and 11. Presidential Decree # 757 dated 27 February 2014 On Critical 20.

According to Government Resolution # 1402 dated 26 Representative Offices Measures to improve Business Conditions in Kazakhstan December 2013 On the Introduction of a Temporary Ban on the 4. Law # 469-IV dated 21 July 2011 On Special Economic Zones 12. Article 12 of Law # 291-IV dated 24 June 2010 On the Subsoil Export of Lightweight Products and Distillates, Kerosene, Solar Oil in the Republic of Kazakhstan and Subsoil Use ( “Subsoil Use Law”) and Other Petroleum Products 5.

Tax Code # 99-IV dated 10 December 2008 13. Articles 29.1 and 3.3.of the Subsoil Use Law 21. Government Treaty between the Republic of Kazakhstan and 6 C . o A m r p ti e c t le it i 3 o 3 n o (“ f C L o a m w p # e t 1 it 1 i 2 on -I V L a d w a ” te ) d 25 December 2008 On 14.

Article 61.2 of the Subsoil Use Law R th u e s s G ia a n s I F n e d d u e s r t a r t y ion dated 28 November 2001 On Cooperation in 7. Article 50 of the Competition Law 1 W 5 o . r U k n a i n fo d r S m e M rv e ic t e h s o , d a o p l p o r g o y v f e o d r b c y a l G cu o l v a e t r in n g m L e o n c t a R l e C s o o n lu te ti n o t n f o # r 9 G 6 o 4 o ds, 2 In 2 t . r o G d o u v c e t r i n o m n e o n f t A R m e e s n o d lu m ti e o n n t s # t 2 o 1 R 1 e s d o a l t u e t d io 1 n 1 o M f t a h rc e h G 2 o 0 v 1 e 4 rn O m n e t n h t e o f 8. Article 50.7 of the Competition Law dated 20 September 2010 the Republic of Kazakhstan # 520 dated 7 June 2010 “On Export 9.

Article 26.4 of the Labour Code # 251-III dated 15 May 2007, 16. Article 275 of the Kazakhstan Administrative Offences Code # Customs Duty Rates”

Www.iticnet.org

The International Tax and Investment Center (ITIC), a nonprofit research and education foundation, has been working with the Republic of Kazakhstan on tax and economic reform since 1993.

• Encouraging sound tax and investment policies to promote national prosperity.

• Facilitating neutral understanding and trust between business and government on taxation.

ITIC is a respected, trusted independent resource on oil and gas taxation; indirect taxation (VAT and excises); environmental taxes and levies; and international taxation, including the application of double tax treaties and transfer pricing to oil and gas operations.

For more information on ITIC, please visit our website (www.ITICnet.org) or email:

Daniel Witt, President, ITIC at washington@iticnet.org

Mukhit Akhanov, President, ITIC Kazakhstan at almaty@iticnet.org

Promoting Tax And Investment Reforms

Source: Kazakhstan investment assessment, PDF page 59. Figures and dates are reproduced from the source document.

For more information on ITIC, please visit our website www.ITICnet.org

or email: Daniel Witt, President, ITIC at washington@iticnet.org Mukhit Akhanov, President, ITIC Kazakhstan at almaty@iticnet.org

Schlumberger Officially Opened Its New Integrated

Operations Facility In Aktau, Mangystau.

The Aktau Integrated Operations Facility is a major infrastructure project for Schlumberger in the Caspian region, and the third biggest Schlumberger facility

About Schlumberger

in the world. This facility located just outside Aktau City will service operations both onshore and offshore in western Kazakhstan and be a major support hub for Schlumberger is the world’s the entire Caspian region. leading supplier of technology, integrated project management The new facility integrates services across multiple service lines; these include and information solutions to Drilling & Measurements, Cementing, Fracturing, Wireline and Testing Services. customers working in the oil It will also support Artificial Lift, Completion Services and Mud Logging services. and gas industry worldwide. The facility features key operational support functions such as dedicated Employing approximately equipment maintenance for tools, equipment and vehicles, fully fitted pressure 115,000 people representing testing bays and support for real-time monitoring operations. over 140 nationalities and working in approximately The Aktau Integrated Operations Facility employs close to 400 people of which 85 countries, Schlumberger most come from Aktau and the surrounding area.

The base covers an area of provides the industry’s widest 60,000 square meters, with room to expand another 76,000 square meters. It range of products and services holds over 10 major dedicated buildings with a workshop and office areas of from exploration through to approximately 14,000 square meters, all of which are connected to a global state production. of art data network.

Schlumberger is a major technology provider for oil and gas field exploration and development projects in Caspian region. To date, the company has participated in the construction of several hundred wells both onshore and offshore, and has been at the forefront of major oil & gas milestones in Kazakhstan.

Showcase | Kazakhstan 61

Business

Environment

Rashid Gaissin Managing Partner GRATA Law Firm

Nearly 30 years ago, an enormous explosion caused a 200-metre column of fire, which took over 1 year to extinguish. The site where this took place was none other than the Tengiz oil field on the lowlands of the Kazakh coast of the Caspian Sea. The extraordinarily high pressure and temperature of the oil makes its extraction a challenging prospect even today.

At the time, what was then the Soviet Union had to enlist the help of foreign specialists to cap the well and extinguish the fire. Whilst Kazakhstan has come a long way since this event, foreign resources and expertise still play a crucial role in its extractive industries.

At the heart of President Nazarbayev’s recent address to the nation “Strategy 2050”, is a commitment to diversify Kazakhstan’s economy. Yet, the oil and gas sector is set to remain the primary source of national wealth and still attracts the most foreign direct investment in the Kazakh economy. In 2013, for example $18, 1 billion worth of oil and gas procurement occurred in Kazakhstan and when production eventually recommences in Kashagan, this total will again increase exponentially.

Despite its being such a mainstream economic sector, investors have an uncertain knowledge of the regulation in the oil and gas sphere, since the rules are both quite complicated and evolving gradually as part of an on-going effort by the government to simplify this area of law.

In this article we seek to clarify some of the questions most frequently asked by investors. In our experience companies are most interested in shedding light on the general topics of procurement rules and local content. In particular, what are the relevant rules for each procurement, in what format are procurements conducted and what are the implications of violating the rules?

And as for local content, how is this measured and whether there are fixed percentages which apply across the board. s

62 Showcase | Kazakhstan

First, let us begin with how to determine and services that can be provided by for local content, in terms of goods which set of rules apply [11] to a means of single source procurement, and ‘works and services’. Whilst there given procurement. Broadly speaking as contained in the Samruk Rules or are no predictable fixed totals, some there are 3 different sets of rules that Rules 133.

If this is not the case and average figures for this could be 30% could apply, depending on which such goods, works and services cannot in terms of goods and 80% for both organization is hosting the procurement. be obtained from a commodity market works and services. Failure to adhere Tengizchevroil, Karachaganak Petroleum and cost approximately 140,000 USD to the percentages established in the Operating and North Caspian Operating or more a year, then the procurement subsoil contract can lead to substantial Consortium (which are the largest process is conducted by tender or fines, potentially to the tune of 30% of subsoil users unofficially called auction. However, if a tender or auction the unachieved volume of local content “Three Wales”) each have their own fails, then the process can be conducted in goods, works and services (the exact internal rules, which it is not possible by single source procurement. percentage of penalty is set out in each to elaborate in detail here as they are respective contract). internal rules and thus not accessible.

So what is the difference between these various similar sounding processes? Of course, local content is measured Some subsoil users forming part of the During a tender, potential contractors differently according to what commodity Samruk group of companies (that is to that have passed the pre-qualification is being procured. In the case of say companies which are 50% or more stage submit their price quotes, which goods, local content is demonstrated directly or indirectly owned by Samruk are announced openly at a certain simply by the certificate, which Kazyna) use the Samruk Procurement time.

The contractor who has proposed signifies the good has been produced Rules No. 80 dated 26 May 2012 the lowest quote (taking into account in Kazakhstan, the so-called ‘CT-KZ’ (Samruk Rules). All other subsoil users conditional discounts, if applicable, as certificate. Local content in services is use the Procurement Rules No. 133 defined below) wins. equal to percentage share of payroll of dated 14 February 2013 (Rules 133).

Kazakhstan citizens in the company’s These latter two sets of rules are broadly An auction is held through an electronic general payroll fund. Local content is similar in terms of structure and content, procurement system, where all potential works is calculated taking into account differing only in certain details. contractors who have passed the pre- above calculation methods for goods qualification stage, can see the price (if goods are supplied within a works In the case of Rules 133, the proposals of other potential contractors contract) and for services. implications for subsoil-users who do and are entitled to submit an unlimited not correctly adhere to the rules are not number of price quotes. The contractor As for tenders for goods, those just financial but may even threaten who proposes the lowest quote wins. companies that procure goods with the security of the project itself.

That CT-KZ assigned specifically to them, can is to say, that if a certain volume of Another crucial question for foreign gain a 20% conditional discount at a goods, works and services are procured investors, but once again surrounding tender. Those companies that participate in violation of the rules, then costs which is a great deal of uncertainty, in tenders for works and services, are related to such procurements will not is the necessary proportions of local entitled to a 20% discount if they are be accounted by authorities as the content. The important thing to Kazakh entities and have 95 or more execution of a subsoil user’s annual emphasize here is there is no statutory percent of Kazakhstan citizens in the financial obligations.

Consequently, minimum limit, which applies across staff. n underperformance may result in a the board. Each subsoil use contract subsoil user receiving notice from the will stipulate its own minimum limit authorities regarding the necessity to fix the violation of contractual obligations. Any failure to address the breach could result in the unilateral termination of the

In 2013, For Example $18, 1 Billion Worth Of Oil

contract by the authorities.

And Gas Procurement Occurred In Kazakhstan

Next, the question arises as to what

The Relevant Method Of Procurement And When Production Eventually Recommences

will be, in particular, the possibility of

Single Source Procurement (at A Subsoil In Kashagan, This Total Will Again Increase

user’s discretion). In order for this to

Be Possible, The Goods Must Feature Exponentially.

in the approved list of goods, works

Pipe Plant

Arcelormittal Tubular Products Aktau

ArcelorMittal is the world's largest steel company with 245,000 Temirtau which operates the integrated steel plant, coal mines and employees working in more than 60 countries. Tubular Products iron ore mines, and by ArcelorMittal Tubular Products Aktau which Division of ArcelorMittal consists of 24 pipemills located in 12 operates the pipeplant, protective coating line, laboratory and countries and combined employees count of more than 9,000. testing complex and pipeyard. ArcelorMittal Tubular Products Aktau is part of Tubular Division of ArcelorMittal and is the only producer of welded steel linepipe of ArcelorMittal Temirtau is the largest producer in Kazakhstan’s steel large diameter and provider of anti-corrosive coatings in and mining sector.

The integrated steel plant located in Temirtau Kazakhstan. hasan annual capacity of 4 million tons of crude steel and produces hot and cold rolled steel, tin plates, galvanized steel and Production facility consists of: polymer-coated coils, welded pipes, coke, and chemical

• Pipe-making shop by-products. The company also operates 8 coal mines across

• Coating shop Karaganda region and 4 iron ore mines in Central and Northern

• Laboratory and Testing House Kazakhstan. The steel plant commissioned in 1960 became part of

• Pipeyard ArcelorMittal in 1995. Having over come considerable difficulties after the acquisition, the company stabilized steel and mining Product range includes welded steel pipes of large diameter with operations and implemented a series of strategic initiatives to anti-corrosive coatings from 500mm up to 1420mm for oil & gas upgrade technology, improve health and safety and environmental pipelines, watermains, district heatinglines as well as slurry performance, and ensure long-term competitiveness in the market. pipelines used in mining industry. This turnaround revived the communities across the region and ArcelorMittal has become a magnet for the development of local Pipes are manufactured in compliance with GOST, ISO, DIN, API small and medium businesses. and other technical specifications.

Management system of the Company is certified as per QMS requirements of ISO9001, aktau.arcelormittal.com environment management ISO 140001 and health and safety +7 (7292) 541108 (301/302/303/304)

Ohsas 18001.

The mill is located in Free Economic Zone “Sea Port Aktau” and has capability to ship products by sea, rail and by trucks.

In Kazakhstan, ArcelorMittal transforms locally mined iron ore and coal in to high-value flat and long steel products, as well as large diameter pipes. ArcelorMittal Group is represented by ArcelorMittal

64 Showcase | Kazakhstan

Investment

Environment:

A Reform Agenda To Become Closer

To Oecd Standards

Oecd

Jean-Francois Lengelle Eurasia Competitiveness Programme

Kazakhstan has significant trade relationships with OECD economies, OECD key partners and its neighbouring economies

Kazakhstan has recorded trade with the OECD in 2000. In the and International Competitiveness. surpluses since 1998, mainly thanks to last few years, Kazakhstan has a increases in shipments of oil and other fruitful engagement with the OECD, Other forms of co-operation entail commodities. China and Russia are including in areas such as Investment, the participation in the OECD Anti- the main trading partners, accounting Good Governance, Education, Corruption Network for Eastern respectively for 21% of total exports and Environment.

Kazakhstan has Europe and Central Asia, which was and 26% of imports (China), and 10% recently become a participant in the established in 1998 as a regional of exports and 31% of imports (Russia). Committee of Industry, Innovation forum for the promotion of anti- OECD member countries ranked among and Entrepreneurship and the Global corruption reforms, exchange of the top trading partners are France Forum on Transparency and Exchange information, elaboration of best (9.3% of exports in 2012), Germany of Information for Tax Purposes. practices and donor coordination. (6.9% of exports and 6% of imports in Kazakhstan is a participant to PISA 2012), Italy (5% of exports in 2012) and Kazakhstan has now a multi-level (since 20099) and is a member of the Canada (4.8% of exports in 2012). relationship with the OECD. Besides Environmental Action Programme the participation in the activities Task Force for Eastern Europe, the Kazakhstan has made a number of of several OECD Committees, Caucasus and Central Asia, which efforts to strengthen its relationship Kazakhstan has already adhered to aims at addressing the significant with the OECD some OECD legal instruments such as environmental legacy of the Soviet the Istanbul Ministerial Declaration development model.

Kazakhstan started its cooperation on Fostering the Growth of Innovative

Showcase | Kazakhstan 65

Kazakhstan plays a leading role in by focusing on the FDI potential at and is providing with a platform for the OECD Eurasia Competitiveness the sub-national level. policy dialogue, including with other Programme. Through policy reviews, • The “Regulations for Competitiveness countries from the Eurasia region. dialogue, exchange of good practices, Project for Kazakhstan” aims Kazakhstan has strived to reciprocate and support to reform implementation, to enhance service delivery by bringing its policy perspectives and the programme aims to bring Eurasia from the government to the experiences to this dialogue, with the economies closer to OECD practices private sector, to promote long-term spirit of promoting peer learning. and standards. Kazakhstan is actively development and competitiveness. contributing to the programme, Building on this relationship, including being a leading donor and co- Both projects are co-financed by the EU Kazakhstan has expressed interest chairing - with the European Union - the and the government of the Republic of in scaling up its relations with the OECD Central Asia Initiative.

Kazakhstan. They are inspiring other OECD from a whole-of-government such projects in the Eurasia region. perspective, mainly in the policy areas Country-specific projects of the OECD which are today listed as top priorities Eurasia Competitiveness Programme in The way forward: scaling up relations in the country’s reform agenda of Kazakhstan include: from a whole-of-government the National Development Strategy

• The “Regional Competitiveness perspective adopted in 2013: good governance, Project for Kazakhstan” aims to fiscal affairs, environment and private promote regional development, OECD standards and its evidence-based sector diversification. n diversify the economy, and policy recommendations are supporting strengthen SME regional capabilities Kazakhstan domestic reform agenda

Showcase | Kazakhstan 67

Tax Environment

To Enable Local

Content

International Tax and Investment Centre (ITIC) Douglas Townsend and Daniel Witt

Tax Policy, Law, And Administration Play A Critical Role In Business

Formation And Investment Attraction And Retention – Factors Which

Are Vital For Producing The Sustainable And Equitable Economic

Development Called For By Strategy-2050.

Addressing these key fiscal parameters continued fiscal stimulus including action to intensify arrangements for of the investment climate has investment ahead of Expo 2017. tax information exchange and mutual continuously guided the programs of assistance in tax matters. the International Tax and Investment Current events in the Middle East may Center (ITIC) since its founding with have many unforeseen consequences, In these and other areas, ITIC has played the Ministry of Finance in Kazakhstan but they certainly would not diminish its part in assisting the Kazakhstani in 1993. One public manifestation of the importance of the Kazakhstan oil regulators to accommodate the this sustained interest is ITIC’s annual and gas sector to the country itself and changing realities of international Special Report on Eurasia Countries’ Tax to the wider world. tax, with sustained programs of Systems, now in its 19th year. The 2014 research and briefings along with edition includes a number of specialist Kazakhstan is an essential part of expert workshops on such key issues articles on Kazakhstan tax issues. the Eurasia Region economy and an as tax treaties and transfer pricing. important part of the global economy.

An example is the 2013 ITIC/Vienna Growth in Kazakhstan could slow to 5% Thus, it has a keen interest in the University of Economics and Business this year (with the economy affected by international tax system –an integral (WU) paper, titled, The Role of Tax uncertainty over the Ukrainian crisis), element of the globalised economy and Treaties in Facilitating Development but then accelerate to 6.5% in 2015 impacts upon Kazakhstan’s national and Protecting the Tax Base. on the back of a strengthening global (and now Eurasia Regional) tax systems. economy (including the EU and Russia), The continuing reorganisation of the Kazakhstan faces serious fiscal some pick-up in oil production and international tax system has seen challenges as it seeks to balance the s

68 Showcase | Kazakhstan

need for increasing revenues while enforcement, and measures which

Stimulating Growth And Enhancing Achieving Good Tax Positively Influence The Attitude Of

competitiveness; to address the growing taxpayers to paying tax. The annual

Pressure For Greater Transparency And Compliance Requires (since 2000) Itic Program Of Expert

less onerous compliance; and to make workshops for front-line Tax Committee

Sense Of Calls For Onerous Taxes In A Balance Between Staff, Conducted Variously In Astana And

support of non-revenue but investment- the western regions, has contributed in

Deterring Objectives. The Concern Of Service, Enforcement, This Regard.

investors-in-place lies with tax system

And Measures Which

complexity, with interpretation of law In the context of Kazakhstan’s and obscurity of administration (hence economic development requirements,

Positively Influence The

with impact on management time and as well as its regionally and globally operational efficiency), as well as with diversifying and dynamic trade

Attitude Of Taxpayers To

formal tax rates. and investment relations, issues of investment attraction and retention,

Paying Tax.

For potential investors, tax competition revenue collection and compliance are over rates can be an incentive. In this necessarily commanding the priority regard, comparative international administration. False entrepreneurship attention of the political leadership and studies show over the last decade and bankruptcy, along with (carousel) are the subject of continuous dialogue continued reform in respect of tax rates fraud and the shadow economy, are between taxpayers and tax collectors. and business compliance requirements, principal sources of the tax “gap.” Regulatory activity remains intense with rates overall slightly below Successfully encouraging voluntary and can sometimes be idiosyncratic the global average and compliance compliance could ensure that tax compared with familiar international effort reduced.

Kazakhstan should collection levels can be sustained, while norms. also consider overly burdensome the tax administration’s costs could be regulations that pose de-facto taxes reduced. Understanding and influencing Possibly, however, a trend could be on investors such as environmental the behaviour of taxpayers (e.g. making discernible towards a greater stability fines and levies. Here, Kazakhstan can it easy to comply and difficult not to) is in tax policy and law, as the authorities take steps to improve its investment a critical objective. recognise the significance of that climate while continuing to protect the element for encouraging (re)investment environment.

While there is still some way to go, the and for facilitating compliance. ITIC Tax Committee increasingly recognises would welcome affirmation of such a As everywhere, (non) compliance that achieving good tax compliance trend and stands ready to continue the is a major challenge to the tax requires a balance between service, cooperation that would further it. n

Introduction

Lord Waverley

Kazakhstan, With Its Large Volumes Of Natural Resources, Is A Country Of

Geopolitical Importance And On A Fast Track Development Cycle.

Whilst operational challenges are to deliver The technical, commercial, and socio-economic the three world-class oil and gas projects challenges are understood. It is recognised of Karachaganak, Kashagan and Tengiz that it will take time, investment, focus and Priority Sectors & State Assistance within budget and timing in a secure, safe commitment to develop, however knowing KazNexInvest environment, a structured approach towards Kazakhstan as I do, I have no doubt that this industrialisation and creation of a base for will be achieved. Regulatory Environment professional skills is a national priority.

Deloitte This showcase of Kazakhstan attempts Kazakhstan is a country that is working to illustrate those opportunities and are Business Environment overtime to becoming internationally explained from the perspective of Kazakhstan, Grata Law competitive and be viewed as an investment not from outside looking in. For this reason, I Investment Environment destination of choice, with wealth of trust that those who are keen to explore these OECD opportunities available to those who wish to dimensions in a country set on positioning engage directly. The country is placing great itself as a global player will find these articles Tax Environment to Enable Local Content emphasise on local content development of interest.

Itic

and localisation, and encouraging a unified approach by the oil and gas industry in this Case Study regard. All stakeholders are encouraged to Wood Group embrace these ideals. jd@aktaudeclaration.org Case Study Worley Parsons

Case Study

Aksai Industrial Park Our Team

Expo 2017 Expo il iduciis audios volupta spelita que pe dicitatem quist autet doluptat ut molor rat pel esti omni aut ipsam, ommodig eniminimi, tes dolut volliqu asimoluptate nimolesequi nat mi, sunt, et ipit quo dit aute ideriore nosam videne eatur, Understanding Kazakhstani Culture imagnihillam qui di occus, ut explis et apernatis as ad et facid experia dolupta quidebit volorep erorem sincte cusa Aktau Declaration volendelita voloreptiis a in prae

ADDRESS: dicitatem quist autet doluptat ut molor rat pel e TEL: 0800 000 123 456 EMAIL: advertise@publishing.com WEBSITE: www.website.com

70 Showcase | Kazakhstan

Supporting

Local Content

WorleyParsons Kazakhstan Peter Orrell General Director

WorleyParsons opened its first office in Kazakhstan in 1998 in Atyrau, predominantly to support the oil and gas industry. From the start, we have focused on developing a skilled Kazakhstani team to guide and help customers in the long-term across a wide range of project types and engineering disciplines.

Today, our operations in Atyrau, Tengiz, Almaty, Aksai and Astana support customers in the hydrocarbons, infrastructure and minerals, metals & chemicals sectors. Our focus remains on building a highly skilled national resource base to deliver what we promise to our customers with resulting benefits to the local communities in which we operate, our staff and our shareholders. of this partnership is to provide our has also resulted in WorleyParsons procurement and supply specialists Kazakhstan opening a state of the art, As a direct result of our continued with globally recognized qualifications fully operational Lloyds register ISO commitment to the development of our to improve their personal performance 9001 accredited facility which enables future leaders through comprehensive in procurement and supply along with us to provide the full range of project and ongoing learning and development, enabling our specialists to be recognized execution services to customer’s in- WorleyParsons Kazakhstan currently as industry professionals. By offering country. employs more than 700 personnel, 80% the opportunity for our personnel to of whom are Kazakhstani nationals.

Our attain globally recognized qualifications, WorleyParsons Kazakhstan also supports sophisticated localization programs WorleyParsons Kazakhstan hopes to set the local community by assisting are supported by training, technology, a benchmark for the improvement in non-profit organizations such as the systems, controls, mentoring and expertise and knowledge in Kazakhstan. Miloserdie Fund for Disabled Children leadership that ensure global standards who care for children diagnosed with are met. Through one of our major joint cerebral palsy.

We have proudly venture projects, we have supported supported Miloserdie Fund since 2003. Training programs are delivered a co-operative alliance between the “We are proud of our development through a combination of on-the-job, SGT Group of Kazakhstan and UK track record throughout Kazakhstan in in-house and external training courses. based William Hare Group. The Hare all areas of project execution and the Workshops, round table discussions, Group is a leading global provider of broader community and will continue seminars and master classes also fabricated structural steelwork.

The to work closely with our customers to play a key role in the development alliance between Hare and SGT will achieve superior national content and of our employees. WorleyParsons significantly increase local content development outcomes to the greatest Kazakhstan has recently signed a to support continued growth in the extent practicable,” commented Peter contract with CIPS; Chartered Institute of Kazakhstan energy and infrastructure Orrell, General Director, WorleyParsons Procurement and Supply. The objective sectors.

Considerable local investment Kazakhstan. n

Source: Kazakhstan investment assessment, PDF page 71. Figures and dates are reproduced from the source document.

Abacus Emerging Markets является независимой фирмой англо-австралийских специалистов в инвестиционно-банковской сфере, открывающая глобальным инвесторам доступ к динамическим инвестиционным возможностям, доступных в Казахстане и во всей Центральной Азии.

Мы сосредоточены на следующих ключевых секторах , как области представляющие самые интересные бизнес-возможности для умных инвесторов:

• Нефть и газ (upstream/downstream)

• Горнорудная промышленность и природные ресурсы

• Строительство и инфраструктура

• Недвижимость

• Агробизнес

С уникальным сочетанием экспертов в финансовых услугах и структурированного ноу-хау, наши клиенты получают уникальную корпоративную консультативную помощь, основанную на углубленном понимании промышленности и национальных приоритетов в Центральной Азии.

Обширный опыт консультирования по этическим и исламским банковским инвестициям.

Дополнительные сведения об Abacus Emerging Markets:

Телефон: +44 (0)20 7769 6784

Email: Contact@abacusem.com

Сайт: Www.abacusem.com

Abacus Emerging Markets Limited уполномочено и регулируется Управлением по регулированию деятельности финансовых компаний Великобритании (FCA).

Showcase | Kazakhstan 73

Development Of Kazakhstani

Goods And Services;

Importance Of Collaboration

And Sustainability

Wood Group PSN Marcus Hartland-Mahon Regional Sales Director

Wood Group, a UK oil and gas service company, has been operating in Kazakhstan for over 10 years and today operates through 3 joint ventures and one consortium. In the early days, it was thought that we could succeed on our own and subcontract Kazakh companies as and when needed. There was no real thought about building up a legacy as business was conducted on a project-by-project basis.

It became very apparent however that the Kazakh Government was serious about the development of local content and meant to succeed. There are far too many cases around the world where countries, with oil and gas reserves, fail to start the “local content” drive early enough. Each development cycle takes a minimum of 5-7 years and, by “missing the boat”, the local industries have to wait for several years before the next wave of significant or strategic opportunities come up for tender.

Very often, the same thing happens again!

Therefore, realising the importance of local content development, we formed our first 50/50 joint stock company in 2006, followed later by another 2 joint ventures and a consortium. We can quite safely say that by taking such steps, we have dramatically increased the size of our footprint in Kazakhstan with long term contracts providing the stability required to develop sustainable local content.

The question now is how can the industry improve the Kazakh manufacturing sector? The value of contracts for goods and given a very significant boost and there should be no reason to products manufactured in Kazakhstan over the past 10 years fail. It is high risk to invest on a speculative basis and so it will is considered disappointing by the Kazakh Government.

The be difficult to happen, with the result that local manufacturing engineering and construction sector is now stabilised with will not get on its feet. several international contractors having formed partnerships with local entities and are successfully operating. Another key action is for the Kazakh Government to do away with the importation taxes for certain materials. Currently One of the challenges now for the Kazakh manufacturing local manufacturing is disadvantaged by such tax, to the industry is that opportunities are not clear and there is extent that international manufacturers find it pointless to insufficient notice of such opportunities being given in order set up in Kazakhstan because they can sell their products to prepare in advance.

Set up and start up time far exceeds the more competitively into Kazakhstan from their plants outside time required by the client for delivery. Kazakhstan. This issue has been around for many years and should be addressed.

Notwithstanding this, the benefits of One solution for the operators and EPC contractors, but mainly joint ventures outweigh such difficulties. operators, as they have the most advance notice during conceptual and FEED stages, is to identify, tender and award To conclude, our message is that it is possible to develop a well in advance of actual need. International manufacturing sound, long-term business in Kazakhstan through collaboration companies will have the time to establish joint ventures with with Kazakh companies. There are huge opportunities in the the security of having a contract in hand, with prepayment country, and with the customs treaty between Russia, Belarus if necessary.

In this way, the manufacturing industry will be and Kazakhstan, the opportunities are even greater. n

74 Showcase | Kazakhstan

Understanding

Consolidated

Contractors

Karachaganak, West Kazakhstan: A world class energy facility

CCC Group Hani Akkawi Managing Director

Platinum Sponsor

Ccc, A Construction Our Journey With Kazakhstan Began In

Consolidated Contractors Company (CCC Group) 1999 after recognizing the strategic

And Engineering Importance Of The Central Asia And

South Caucasus region, both in terms

Conglomerate, Has Of Geo-political And Socio-economics,

in addition to the commercial

Grown Over 60 Years

opportunities. Kazakhstan forms the most important element of these

Into A Major Group,

regional activities.

Being Consistently Our Formula Remains Unchanged;

first and foremost, delivery with

Placed Within The Top Local Partnership And Participation,

building on world-wide excellence,

20 Globally. Commitment To Local Content And

partnership/localization agendas,

Showcase | Kazakhstan 75

Galkynysh Gas Field Development, Turkmenistan

technology transfer, health and safety, mining, energy and power projects, Turkmenistan and Azerbaijan. and the training of both tomorrow’s executed in some of the most Examples in Kazakhstan are: construction leaders on one hand, and challenging projects in the remotest the necessary skills on the other. parts of the world, is facilitated by Karachaganak Processing Complex our expertise, experienced workforce, in Aksai, West Kazakhstan. We have delivered a record of ample resources and the highest Construction and commissioning of the accomplishment from which to dedication. We pride ourselves with the main process facilities , injection unit , build a permanent presence in highest commitment to HSE, Quality infield and cross country pipelines.

Kazakhstan. Hani Akkawi, Managing and Social responsibility with firm and Director, is adamant, “We recognize Kashagan experimental Program. proven local content on all our projects that Kazakhstan is centre stage and Construction and Pre-commissioning of worldwide, and it is that commitment looks for dynamic partners who offer the Sulphur, Slug Catcher and Flare units. we bring to Kazakhstan”. solutions through multiple industries Kashagan Experimental Program. and market segments. CCC’s diverse Numerous projects have been Hook-ups and commissioning of the portfolio encompassing oil and gas, successfully or are in the process processing facilities at A and D artificial heavy civil, buildings, infrastructure, of being completed in Kazakhstan, islands. s

76 Showcase | Kazakhstan

Abu Dhabi Plaza, Astana: 75 storey tower

Showcase | Kazakhstan 77

BTC pipeline, Azerbaijan: Connecting the world

Abu Dhabi Plaza. A multi-functional

Complex Of 5 Buildings, Comprising A We Recognize That Kazakhstan Is Centre Stage And

75-storey tower.

Looks For Dynamic Partners Who Offer Solutions

Tengizchevroil’s Future Growth Project

Through Multiple Industries And Market Segments.

– Site preparation and civil works.

Examples further afield:

Turkmenistan: Full scope of works at national priority agenda of Kazakhstan, the Galkynysh Project in Turkmenistan. in multiple ways; hospitals, water and one with which we would be proud facilities, schooling together with Azerbaijan: Baku-Tbilisi-Ceyhan to be associated. contributing to life’s essentials, pipelines, Azerbaijan portion, particularly to those in need. In Samer Khoury, CCC President, construction, testing and commissioning addition, we bring opportunity Engineering and Construction, was of 450 km, 42” Crude and Gas pipelines, to co-invest in infrastructure, the recently asked in what direction he associated valve stations and fibre optic development of a CCC Centre of would wish to include in a long term cable. Excellence for Innovation and relationship with Kazakhstan, and had These construction capabilities, whilst Technology, in collaboration with this to say: “CCC Group’s future, beyond core, could not be achieved without the Ministry of Investments and our core business of construction and commitment to the regions in which we Development and Samruk Kazyna; and engineering, lies in the renewable operate.

At CCC, we believe that being a a project with which we are particularly energy of wind, solar and carbon leader goes beyond offering innovative proud, a co-operation with Nazarbayev capture. We are committed and actively and quality excellence; it is what is University to prepare graduates for participate in this global drive, and I invested back into the community that employment through a programme hope that our long-term relationship is fundamental to our principles. We, of active internship, both within with Kazakhstan would include future as responsible human beings, have a Kazakhstan and internationally. joint endeavours dedicated to the duty to give back to society, preserve environment, offering viable and Finally, CCC has embarked on a nature, protect Kazakhstan and fulfil an sustainable environmental solutions.” campaign to become involved in the obligation to Kazakhstani’s to leave an renewable energy field, recognizing CCC Group looks to Kazakhstan as unpolluted earth. renewable energy as the future and a an address for our future.

We are We demonstrate our commitment key growth sector. This is high on the committed. n

78 Showcase | Kazakhstan

Introduction Of

Industrial Clusters

Aksai Industrial Park Marco Castagnini General Director

The Aksai Industrial Park (AIP) was administration, legal to quality control These pointers identifies the major established in 2011 in the western city and HSE. Thirdly, in order to react to the challenges for investors to Kazakhstan. of Aksai, West Kazakhstan Oblast. Our business environment of Kazakhstani The country is a remote location with mission is to enhance and foster the market, AIP is a “pool workers” supplier, all the consequence of high logistic development of an industrial center achieving two main targets; the supply impact on the final value of the goods around the giant condensate field of of highly skilled staff and manpower produced.

We would like in the future Karachaganak. In 2011 when AIP was on one hand, and the relieving of the to spend more time on the provision of established the concept was innovative burden of low workload phases on Human Resources for the development and attracted the attention of KPO, the the other. Today AIP has 11 partners, of industrial manufacturing.

Many Operator of the Karachaganak field, and each constituted as 100% Kazakhstani training and human resources PSA, the National agency of the Ministry Company. organizations are present in Kazakhstan of Oil that supervises the Kazakhstan today but the Training programs tend participation in the Oil and gas industry The initial study of CASTLE was to address development of oil and gas in Kazakhstan. considering the business model of workers with a discipline for service working with 4 independent partners. provision. CASTLE, the UAE based Company that AIP partners started production in the initiated the AIP concept, signed a newly constructed facility in 2012, It is not a surprise therefore that while cooperation agreement with the former mainly in high technological engineered local content for services in all major National Agency of Technological goods. In our view this is the result oil and gas ventures is satisfactory, Development to coordinate the of the great leverage investors in being well above 60% on average, entering of international investors Kazakhstan can obtain from logistic procurement by the foreign operators willing to grow their businesses in optimization for the introduction of for manufactured goods only achieve Kazakhstan.

Today the concept of AIP their products in Kazakhstan. single digits. The main challenge for AIP has been expanded into a strategic therefore is the development of human development plan of the Kazakhstan All main ingredients for an industrial resources orientated to manufacturing Government to develop “clusters” in development are already present in processes. It is even more challenging the principle industrial areas of the Kazakhstan or can be ready in a short because in manufacturing no client country. time: questions the ability of the workers

• Production facilities provided by AIP that assemble a car or a steel valve. The AIP concept is simple and based on • Government support with an client just wants to receive the final the merging of some of the most attentive policy to develop all product with quality and competitive. successful business concepts of the initiatives that have real Technology Many training organizations are actually past 15 years, with a blending for the Transfer into the Kazakhstan financed through direct contracts Kazakhstan market. Firstly is the free industrial net from oil and gas operators, or from zone or trading area concept, with a • Major clients being sensitive to the Government educational programs. developer that install the necessary Local Content of the products they AIP has created a full range of training facilities and utilities for manufacturers purchase programs that are definitely closer to to start production.

Secondly, AIP • AIP supplying a dedicated Training an educational plan than a simple work supports the overheads of the investors, program for the necessary engineers instruction. ranging from human resources to for different business opportunities The future success of the oil cluster concept depends on being able to achieve enough supply of human

Aip Concept Is Simple And Based On The Merging

resource capable to compete with European or Far East educational models.

Of Some Of The Most Successful Business

Initial results are encouraging but this

Concepts Of The Past 15 Years. Will Be A Medium Term Process. N

Cameron International:

Supporting Local Content Development

There Are Significant Business Opportunities Within Kazakhstan’s Manufacturing

Sector, But Any Company Wishing To Maintain Relevance In This Market Must Have

A Clear Business Plan And A Solid Foundation On Which To Work.

Cameron has been supplying equipment to The support that we at Cameron provide to our Kazakhstan for 30 years and has maintained a customers and partners in Kazakhstan currently presence locally for more than 15 years. Therefore, comes in the form of local administrative and sales we understand well the changing dynamics of the offices as well as field located technicians. oil and gas industry with regard to local content. Any local partnership should be based on a phased During our time in Kazakhstan, we have fully implementation dependent on the complexity of supported the local labour market and now employ the business.

It should provide extensive ongoing more than 50 people in the country. training and a well-defined development path for locally recruited staff. To support the development, We have long recognized that a local presence is all phases need to be properly monitored by the essential, but in the past 2 years we have observed relevant parties, i.e. government bodies, end user/ a concerted push on the part of the government to customers and western partners. expand local content. Cameron has embraced these demands and the ongoing benefits they provide.

The Cameron 3-phase implementation plan for the next 2-3 years is now established. This will create As a manufacturer, Cameron has supported these an organization that will not only support the local initiatives by both utilizing direct employees and market by manufacture of components but utilize initiating the development of local partners. and train the local workforce in Kazakhstan.

This may be one partner or, in some cases, more. Cameron has tailored a training scheme for valve The vast size and the geography of Kazakhstan technicians that is used throughout the international mean that we must consider the location of major market place and now, with the help of our local customers when looking at where to position partner, will be implemented in Kazakhstan. This will ourselves. allow us to create a fully operational base in Atyrau with a large team of qualified local technicians.

A number of local manufacturing companies have good facilities, but can benefit from the support a A partnership arrangement benefits both parties. Western partner can provide - not only remotely As a manufacturer, it allows us to accelerate the from its home base, but also locally. development of relationships within the customer base. From the perspective of our partner, they This local support is vital in providing a seamless benefit from involvement in the manufacture of structure made up of the resources of the Western industry leading products, technology and advanced company and the local manufacturing partner. personnel training.

Cameron Petroleum Equipment Group, Inc. Aiteke Bi street 43 A, 4th Floor, KAZNIGIRI building, 060011, Atyrau city, Kazakhstan Telephone: +7 7122 762 311 Website: www.c-a-m.com

80 Showcase | Kazakhstan

EXPO 2017 will be held from June

Expo

Sicon Oil & Gas

to September 2017 in Astana, capital of Kazakhstan, and include representatives from approximately 100 countries.

It Is Expected To Draw Five Million Visitors, Which What We Offer

2017 Would Make It The Largest International Gathering

of its kind in Central Asia. The event will provide Kazakhstan a unique opportunity to highlight the achievements it has made and the culture it has developed since gaining independence from the Soviet Union.

Kazakhstan has chosen the theme “Future Energy” to promote and discover sustainable, global energy solutions. Being a country that owns a rich reserve of oil, gas and uranium, Kazakhstan will seize its responsibility in preserving traditional energies and promoting alternative energies such as solar, wind, marine resources, ocean and

Geothermal Waters To Resolve The Problems Of Where We Serve

energy shortage in the world.

The theme will also promote efforts to find sustainable energy solutions to meet growing global demand. Kazakhstan’s choice of the topic reflects the recognition by the country’s leaders and policymakers that even its vast reserves of natural energy resources are ultimately finite and that eventually the country, and the rest of the world, will have to make the transition to alternative energy sources and greener economies.

Kazakhstan intends to make its own contribution to the innovative development of world energy and to gather in Astana best minds and projects in the field of alternative energy. The given theme will allow presenting best power saving technologies, new elaborations and technologies of using of existing alternative power sources,

Such As Energy Of The Sun, Wind, Sea, Oceanic And Our Resources

thermal waters. Astana could serve as a platform to demonstrate the world’s best achievements and trends in this. The exhibition will also provide a powerful momentum for a systemic diversification of its economy and technological modernization of the country’s industrial and scientific base.

Part of the exhibition facilities and platforms will be used as laboratories, scientific centres and research institutes following the exhibition. EXPO will turn Astana into a showcase for the latest global developments in the energy sector and will transform it into a hub for developing alternative

Sicon Oil & Gas S.p.a. - International Contracting Company For Oil & Gas

energy solutions across Central Asia. This will give a powerful impetus to the innovative development of Kazakhstan. n

Www.expo2017astana.com

Sicon Oil & Gas

What We Offer

Where We Serve

Source: Kazakhstan investment assessment, PDF page 81. Figures and dates are reproduced from the source document.

82 Showcase | Kazakhstan

Understanding

Kazakhstani

Culture

Kazakhstan Is A Unique Of Both Continents. A Complicated 100 Ethnic Groups - According To Some

history of Kazakh people and constant sources, the number is 126. In order

Region In The World, Interaction Of A Nomadic Lifestyle With To Understand The Causes Of Such

settled people in South Kazakhstani national diversity, we need to look

Because Of Its History, Ancient Cities, Have Led To A Unique And At The History Of The Movement Of

authentic culture of Kazakhstan. peoples and military conquest, which

Geographical Position

These peculiarities have created an is so rich in history of Central Asia. In opportunity to develop various and addition, before the territory of modern

And Size.

diverse offers in Kazakhstan travel Kazakhstan was at the Great Silk Road. and tourism industry, which include In the past, Taraz was one of the key authentic cultural tourism, nature- towns on this route. With the help of based activities, including ecotourism, nomads contributed to world culture. Being the world’s 9th largest country bird watching, etc. in national parks and located in the centre of Eurasia, it and protected areas, skiing or trekking The total population of Kazakhstan is is also the largest landlocked country in in mountains, water sports, sunbathing slightly over seventeen million people. the world.

These resulted in a specific and swimming in lakes and rivers of Various periods in the country’s history climate and a peculiar natural system Kazakhstan, and many others. have affected the existing demographic of the country, which seems to absorb situation: the ethnic composition the brightest examples of landscape Today, Kazakhstan is home to over consists of Kazakhs, Russians,

Showcase | Kazakhstan 83

Ukrainians, Germans, Koreans, Poles, cultural centers. Traditionally, a child from early Greeks, Tatars, Turks and many other childhood is taught to be moderate and nationalities. Kazakhs have always revered and honest when dealing with older, wiser highly valued their national customs and life experienced people.

It should be noted that these hospitable and traditions. The main tradition of lands became a secure place for Kazakhs, which eventually transformed Customs and traditions are an important hundreds of thousands of individuals into a feature of national character, part of the culture of any nation. In a of various nationalities and religions. is hospitality.

In the Kazakh society, sense, they are the basis of the unity Today, many of them recall with there is an unofficial law voiced in of the nation and passed down from gratitude the warmth and comfort ancient times, which says “Meet a generation to generation. Customs offered to them by the natives who guest as God’s messenger”. Hospitality and traditions of the Kazakh people shared their last piece of bread in the is considered a sacred duty in the evolved over many centuries under harsh years of the repressions.

Kazakh society. At all times, the steppe the influence of the nomadic lifestyle. The government ensures equality and inhabitants did their best to please Today the youth is growing interest development of the various national their guest.

Therefore, each traveler in its past, and is a natural process: cultures. The Peoples’ Assembly of knew that he or she would be welcomed people should know the history of their Kazakhstan was established in order to anywhere in the Kazakh land. ancestors and the place where they live, coordinate the work carried out by the Respect for the elderly is another and transmit descendants remember republic-wide, regional, national and positive feature of Kazakhs. their traditions. n

Aktau Declaration

On Joint Actions

Возможности для

компаний в области

системы снабжения для

нефтегазового сектора

Актаусская декларация о совместных действиях объединяет крупных нефтегазовых операторов Казахстана. Она поддерживает создание совместных предприятий для организации системы снабжения товарами и услугами. Она также преследует общую цель - сделать простыми и понятными условия работы. Контактные номера телефонов:

• Установление контактов между иностранными и местными компаниями info@aktaudeclaration.org

• Встречи один на один с крупными операторами www.aktaudeclaration.org

• Анализ приоритетных категорий товаров, работ и услуг в сотрудничестве с договорным агентством

• Преимущества местного содержания и стратегии локализации

• Объяснение программы государственных стимулов

• Визовая и логистическая поддержка

Обслуживание

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