Kazakhstan2005 INVESTMENT CLIMATE STATEMENT -- KAZAKHSTAN
Openness to Foreign Investment
Kazakhstan has made significant progress toward creating a
market economy since its independence in 1991. The European
Union in 2000 and the U.S. Department of Commerce in March
2002 recognized the success of Kazakhstan's reforms by
granting it market economy status. Kazakhstan also has
attracted significant foreign investment since independence.
By September 2004, foreign investors had invested a gross
amount of about $29.5 billion in Kazakhstan,primarily in the
oil and gas sector, during the country's thirteen years of
independence,. Following independence, the government
created a favorable regime for oil and gas investments at
the same time that it undertook other liberalizing economic
measures and began an ambitious privatization program.
This record of market-oriented reform and successful
attraction of investment has been progressively undermined
over the last four years by a growing tendency on the part
of the government to challenge contractual rights, to
legislate preferences for domestic companies, and to create
mechanisms for government intervention in foreign companies'
operations, particularly procurement decisions. Together
with vague and contradictory legal provisions that are often
arbitrarily and inconsistently enforced, these negative
tendencies feed a growing perception that Kazakhstan is
becoming less open to investment.
Since 1997, there has been a growing trend to favor domestic
investors over foreigners in most state contracts.
Amendments passed in 1999 to the oil and gas law required
mining and oil companies to use local goods and services.
Regulations for the implementation of these legal provisions
were enacted on June 7, 2002 (Decree 612), but so far the
government has not taken action to implement the decree.
The decree creates onerous requirements for government
involvement in and approval at each stage of private
companies' procurement processes. President Nazarbayev has
complained publicly that previous privatizations were
executed too quickly, and did not allow for the involvement
of domestic investors.
In January 2003 President Nazarbayev signed a new law "On
Investments" that superseded and consolidated past
legislation governing foreign investment. The law
establishes a single investment regime for domestic and
foreign investors. It guarantees the stability of existing
contracts, but notes that new ones will be subject to
amendments in domestic legislation, certain provisions of
international treaties, and domestic laws dealing with
"national and ecological security, health and ethics."
The new law provides for dispute settlement through
negotiation, Kazakhstan's judicial system, and international
arbitration, but narrows the definition of investment
disputes, and lacks clear mechanisms for access to
international arbitration. U.S. investors should note that
the U.S.-Kazakhstan Bilateral Investment Treaty, and the New
York Convention provide U.S. investors with clear
protections for access to international arbitration.
Additionally, Kazakhstan's Constitution, as well as the new
law "On Investments," specifies that international
agreements have precedence over domestic law.
The 2003 law contains investment incentives and preferences
based on government-determined priority activity sectors,
and provides for investment tax preferences, customs duties
exemptions, and in-kind grants. Of importance to foreign
investors, the law provides exemptions for customs duties
on imported equipment/components if Kazakhstan-produced
stocks are not available or do not meet international
standards.
Several amendments to the 2003 law were introduced in 2004
and, at the time of this report, are expected to be
finalized soon. The amendments will eliminate five-year
corporate income tax exemptions and replace them with a
modified set of ten-year exemptions. Customs duties
exemptions will be limited to equipment that is destined for
use in production processes only in Kazakhstan.
In 2001, the GOK passed transfer-pricing legislation, which
gave tax and customs officials the authority to monitor
export-import transactions in order to stop the understating
of earnings through manipulation of export prices. Foreign
investors are concerned that the government specifically
rejected the use of OECD standards for determining a proper
market price under the transfer-pricing legislation,
creating instead a methodology that fails to fully account
for all cost and quality differences. The government in
effect holds that transfer-pricing can take place even in
transactions between unrelated parties, because the practice
is defined by transaction prices that differ from market
prices by a certain percentage. Kazakhstan's deviation from
international methodology on this complicates the ability of
firms to obtain relief under treaties on avoidance of double
taxation from their home countries. This remains a
contentious issue with investors.
Four major pieces of existing legislation affect foreign
investment. These are: 1) The law "On Investment, 2003; 2)
The Law on Government Procurement, 1997; 3) The Tax Code of
2001; and 4) the Customs Code, 2003. These four laws
provide for non-expropriation, currency convertibility,
guarantee of stability in the legal regime, transparent
government procurement, and incentives in certain priority
sectors, including electrical infrastructure,
telecommunications, light manufacturing, health and tourism.
However, inconsistent implementation of these laws and
reforms at all levels of government remain the key obstacle
to business in Kazakhstan. A U.S.- Kazakhstan Bilateral
Investment Treaty entered into force in 1994.
Kazakhstani law holds that no sectors of the economy are
fully closed to investors, although there are some sectoral
limitations, such as a 25% cap on the percentage of foreign
capital in the banking system and a 20% ceiling on foreign
ownership of media outlets. A similar restriction exists in
the telecommunications sector (49% foreign ownership),
although plans are in place for liberalization in 2005.
In practice, well-connected local businesses are able to
resort to questionable legal tactics, and use government
powers to protect themselves from foreign competition in
their sectors.
The government plays a large role in overseeing foreign
investment. Government officials, sometimes at the highest
levels, screen major foreign investment proposals. Major
projects, such as the Production Sharing Agreement (PSA) for
Kashagan, the recently-discovered offshore Caspian oil
field, and the Karachaganak (oil and gas field) PSA, bear
the President's personal imprimatur.
In 2004, the government adopted amendments to the law
governing oil and gas exploration assigning to the state a
right of first refusal on the purchase of shares in PSAs in
the extractive industries. The law as written applies to
pre-existing as well as future contracts and thus, in the
government's view, supersedes any pre-emptive rights
consortium partners might have negotiated in the original
contracts.
The "pre-emption law," which has its origins in the
government's attempt to purchase British Gas (BG)'s stake in
the Kashagan oil field, is a disturbing development in the
investment climate. Although the government has not yet
tested the law in practice, its apparent willingness to
dispense with contractual arrangements through fiat is
discouraging.
Tax experts consider Kazakhstan's tax laws to be among the
most comprehensive in the former Soviet Union. The latest
Tax Code, which entered into effect on January 1, 2002,
applies taxes universally and allows only a limited set of
exemptions. The code applies an international model of
taxation, based on the principles of equity, economic
neutrality and simplicity. This code is an improvement over
its predecessor and a step forward in establishing a
transparent and effective tax system. VAT, as of January
2004, is set at 15%. The maximum rate of personal income
tax is 20%. Also in 2004 the government introduced a
regressive scale for social taxes (applied to the income of
foreign citizens seconded to companies in Kazakhstan and to
payments made to individuals under certain legal
arrangements) with rates ranging from 20% to 7%.
In 1996, the Treaty on the Avoidance of Double Taxation
between the United States and Kazakhstan came into force.
Since independence, Kazakhstan ratified treaties on the
avoidance of double taxation with 36 countries.
Foreign firms operating in Kazakhstan frequently report
harassment by the Financial Police via unannounced
inspections and other methods. In 1998, the government
limited the number of visits that can be made by government
bodies in the course of a year to small businesses, but tax
inspections were excluded from this limitation. A
"moratorium" on inspections of Small and Medium firms
decreed in late 2002 was never fully observed, resulting in
only a halving of audits (but, reportedly, no reduction in
overall penalties assessed.) The 2002 Tax Code provides a
basis for improvement because it limits the powers of tax
authorities and defines the rights of taxpayers more
clearly.
It is important to note that in practice the application of
tax laws has been uneven, and in some cases blatantly
unfair. This has particularly true in cases where a company
is involved in another, unrelated dispute with the
authorities.
Investors should further not assume that agreeing to a
settlement with tax authorities following an investigation
or civil case will prevent the pursuit of charges under
criminal provisions.
Since 1995, the government has wholly privatized many large-
scale companies and sold majority shares in other companies
to foreign investors. Privatization moved ahead quickly in
1996 and into the summer of 1997 in all sectors of the
economy, including oil and gas, power generation, coal, and
telecommunications. In 1998, however, citing low oil
prices, President Nazarbayev announced the government would
suspend future privatizations in the oil and gas sector.
This effectively ended Kazakhstan's large-scale
privatization. A much-discussed program to privatize shares
of the remaining large state enterprises, "Blue Chip
Privatization," has died multiple deaths.
The 2003 Investment Law provides for, inter alia, guarantees
for national treatment and non-discrimination among foreign
investors. Generally, Kazakhstan allows investment in any
sector with some limitations in certain sectors, such as the
1998 National Security Law and the 2001 Media Law, both of
which limit foreign ownership of individual media companies
to 20%. Kazakhstani law does not subject foreign investment
to any prior authorization requirements.
Despite the general guarantee, national treatment is denied
in the petroleum and subsurface utilization (minerals)
sectors. In June 2002, the Prime Minister signed a decree
with regulations to implement domestic content requirements,
which were originally enacted in 1999 through amendments to
the Oil Law and the Subsurface Use Law. The laws require
investors to contract with Kazakhstani service providers,
and to purchase Kazakhstani equipment, goods and raw
materials so long as these meet the requirements for
participating in government tenders. The 2002 decree
required that a designated government body approve all
tender documents, participate in tender committees and
approve the decisions of those tender committees in order to
ensure compliance with these requirements. The requirements
are being challenged in connection with Kazakhstan's
forthcoming WTO accession negotiations since they appear to
breach GATT and GATS rules and the Agreement on Trade
Related Investment Measures. They also appear to contradict
the 1994 U.S.-Kazakhstan Bilateral Investment Treaty, which
states in Article II Paragraph 5, "neither party shall
impose performance requirements...which specify that goods
be purchased locally..."
By law and in practice, foreign investors are allowed to
participate in all privatization projects. There appears to
be no discrimination against foreign investors after an
investment is made. However, many foreign companies cite
the need to protect their investments from a near-constant
barrage of decrees and legislative changes, most of which do
not "grandfather" existing investments. In addition to
arbitrary tax inspections, foreign investors also complain
of problems with closure on contracts, delays and irregular
practices in licensing, land fees, etc. Some foreign firms
have expressed concern that government organizations fail to
live up to their side of the contract, particularly
regarding payment. This often prevents the foreign partner
from moving ahead with its investment program. When this
occurs, the investor is exposed to government charges of non-
performance and the real possibility that the government
will cancel the contract.
U.S. firms can participate in government-financed research
and development projects on a national-treatment basis. In
practice, such projects are virtually non-existent.
Foreign workers are required to have a work permit to work
legally in Kazakhstan. Obtaining these work permits can be
difficult and expensive. The government cites the need to
boost local employment by limiting the issuance of work
permits to foreigners. U.S. companies should consult legal
firms for assistance (see A.5 for details). The work
permits quota system is based on the 1998 Law on Employment
of the Population. Under this system, the government makes
limited the number of work permits available to foreigners
based on the area of specialization and geographic region.
Since 2001, the annual number of work permits is subject to
a government-established quota. In January 2003 the
government issued decree (no. 55) sets forth new procedures
for the annual determination of this quota. Local
authorities submit to the Ministry of Labor and Social
Protection estimates of the required number of foreign work
permits for the upcoming year. The ministry then
establishes the quota and issues permits based on it. Work-
permit availability is primarily based upon a proven lack of
qualified Kazakhstani citizens to fill the positions in
question. In 2003 the government set the work-permit quota
at .14% of the active labor force. The quota has steadily
increased; the 2004 quota was .21%, and the 2005 quota is
.28%. The quota assumes an active labor force of 8 million
people.
Conversion and Transfer Policies
There are minimal restrictions on converting or transferring
funds associated with an investment into a freely usable
currency at a legal market-clearing rate.
In 1996, Kazakhstan adopted Article 8 of the IMF Articles of
Agreement, which stipulates that current account
transactions, such as currency conversions or the
repatriation of investment profits will not be restricted.
In 1999, the government and National Bank of Kazakhstan
announced that the national currency would be allowed to
freely float at market rates, thus abolishing the previous
managed exchange rate system.
There is no distinction made between residents and non-
residents when opening bank accounts. There are no
restrictions whereby different types of bank accounts are
necessary for investment or import/export activities. For
non-residents, money transfers in currency associated with
foreign investments, whether inside or outside of the
country, can take place without restriction. The National
Bank permits non-residents to pay wages in cash in foreign
currency. Foreign investors may convert and repatriate
tenge earnings made inside Kazakhstan.
There are procedures and licensing arrangements set up by
the National Bank to cover bank payments and transfers
relating to capital movements. Inward capital flows are
basically unrestricted. However, a resident company in
which there is foreign investment exceeding $100,000 must
register the transaction for statistical purposes. There
are restrictions on capital movements when a non-resident
sells or disposes of an interest in a resident company to
another resident company. These are dealt with under the
licensing arrangements of the National Bank.
The procedure for licensing foreign currency transactions
related to capital movements is governed by Regulations
Numbers 129 and 130 of the Procedure for Licensing
Activities Related to the Use of Foreign Currency of April
24, 1997.
The following types of transactions are examples of capital
movements from residents to non-residents that are subject
to licensing:
--investments of residents in the business of non-residents
abroad (The professional activity of authorized banks on the
securities market -- e.g., broker and dealer activity with
state securities of non-residents -- is exempted.);
--transfers from residents in favor of non-residents for
property, including real estate, transactions;
--repayments by residents of lending to non-residents for
export-import transactions or any other loan for a period of
more than 180 days. Obtaining the license is sometimes
quite slow.
The Customs Committee and the National Bank require the
"Import [or] export transaction passport," ostensibly for
the purpose of currency control. The document, which re-
states information from other documents, complicates import
and export processing, and there is a real question whether
it is effective for its stated purpose - to ensure that the
proceeds from export sales are returned to Kazakhstan, and
to prevent fraudulent over-invoicing of imports.
The U.S. Embassy is not aware of any concerns with regards
to remittance policies or availability of foreign exchange
for remittance of profits.
Capital inflows and commodity exports have enabled the
National Bank to accumulate foreign exchange reserves, and
at the same time to lower interest rates as inflation is
kept under control. As of January 2005, the net gold and
hard currency reserves of the National Bank stood at $9.22
billion.
The National Bank has developed a set of market-based
instruments with which to implement monetary policy aimed at
development of the financial sector and the exchange rate
stability. The National Bank estimates that households are
hoarding around $1 billion in cash. In 1999, to attract
these funds to the banking system, the National Bank created
a deposit insurance system. In the 2.5 years following the
launch of deposit insurance, private deposits grew four-fold
from less than $300 million in November 1999 to $1.34
billion in June 2002. In 2001, the government announced an
amnesty for all Kazakhstani citizens repatriating cash or
transfer money during a 30-day period. The legalized money
was not taxed and it became available to its owners at the
end of the amnesty period. Kazakhstanis repatriated $480
million, of which almost 90% was brought to banks in the
form of cash.
The main sources of inflows are revenues from exports of
oil, gas and metals as well as foreign direct investment.
Expropriation and Compensation
The New Investment Law of 2003 represents a step back from
the clarity of the 1994 law. The 2003 law allows
nationalization by the state in cases "as provided in
legislative acts of the Republic of Kazakhstan." Unlike the
1994 law, it does not provide clear grounds for
expropriation.
Similarly, the 1994 law required "prompt, adequate and
effective" compensation at fair market value, with interest.
The New Law differentiates between nationalization and
requisition, providing full indemnification of the investor
in the case of the former, but payment of market value only
in the case of the latter. Bilateral investment treaties
(BITs) between Kazakhstan and other countries, including the
U.S., also refer to compensation in the event of
expropriation.
There has been one case of legal expropriation of a foreign
investor's property for public purpose. The government and
the investor have not come to an agreement for adequate
compensation and the investor has sought recourse to
international arbitration.
Some foreign investors have encountered serious problems
short of expropriation. In one instance, in 1996, three
foreign companies were forced to relocate their offices
under pressure from the government. In 1997, investors,
after reviving an important mine, found they could not
obtain export licenses for their ore, although the right to
export was written into their contract. The same year
another investor alleged forgery and fraud by government
officials, claiming its employees had been physically
threatened in a management dispute at its ferro-alloy
venture in northern Kazakhstan.
The Embassy is aware of one case in 1992 of government
action tantamount to expropriation, when a U.S. company was
deprived of its rights to explore and develop an oil deposit
in Atyrau Oblast. In 1999, the Stockholm Arbitral Court
found that the government's action was tantamount to
expropriation. After the U.S. Embassy raised the case with
the government, it paid in full the amount of compensation
called for in the arbitral award.
Under the Law on Insurance (December 18, 2000), foreign
legal entities, including foreign insurance organizations
and foreign citizens, are permitted to participate in
insurance and re-insurance organizations in Kazakhstan.
However, the total registered charter fund of general
insurance companies with foreign participation may not
exceed 25% of the overall registered charter fund of all
general insurance companies in Kazakhstan. In the life
insurance sub-sector, this limit on foreign participation is
set at 50% of the overall registered charter fund of all
life insurance companies operating in Kazakhstan.
Insurance supervision and licensing powers are exercised by
the National Bank. After enactment of the insurance law,
which granted the National Bank greater powers to supervise
the insurance industry, the number of insurance companies
dropped from 68 in May 2000 to 33 in May 2003. Total
capital of insurance companies is $44.6 million as of the
same date. Restrictions also exist on foreign ownership of
land in Kazakhstan. See below (A.6 "Right to Private
Ownership and Establishment").
Dispute Settlement
There have been a number of investment disputes involving
foreign companies in the past several years. While the
disputes have arisen from unrelated, independent
circumstances, many are linked to alleged breaches of
contract or non-payment on the part of Kazakhstani state
entities. Some disputes relate to differing interpretations
of joint-venture agreement and production sharing agreement
(PSA) contracts; one questions the legality of the
government's use of ex-post facto regulations governing
value added taxes. The disputes involve, in some instances,
hundreds of millions of dollars.
Kazakhstan is still in the process of building the
institutional capabilities of its court system. Until this
is complete, the performance of courts in the country will
be less than optimal. Further problems exist in enforcing
judgments. The Ministry of Justice is only beginning to
establish a judicial executory system. Given this lack of
development, there is ample opportunity for interference in
judicial cases.
General commercial law principles are established in
Kazakhstan's Civil Code.
The January 2003 law "On Investments" defines an investment
dispute as "a dispute ensuing from the contractual
obligations between investors and state bodies in
connections with investment activities of the investor." It
states that such disputes can be settled by negotiation, in
Kazakhstan courts, or through international arbitration.
According to the law, disputes not falling within the above-
noted category "shall be resolved in accordance with the
laws of the Republic of Kazakhstan." While some investors
find this legislation problematic since it does not address
disputes between private entities, others believe that
Kazakhstan's Civil Code and Civil Procedure Code provide
private parties with recourse to foreign and/or third party
courts.
The Committee for Investments of the Ministry of Industry
and Trade should be consulted before entering into any
contracts with government entities, since the agencies
authorized to act on behalf of the government may change.
In order for a dispute to qualify as an investment dispute
and therefore qualify for foreign arbitration, the state
body itself must have been authorized to act or contract.
Any international arbitral award rendered by the
International Center for the Settlement of Investment
Disputes (ICSID), any tribunal applying the United Nations
Commission on International Trade Law Arbitration rules, the
Stockholm Chamber of Commerce, and the Arbitration
Commission at the Kazakhstan Chamber of Commerce and
Industry should, by law, be enforced in Kazakhstan. The
U.S.-Kazakhstan Bilateral Investment Treaty can serve to
buttress the law "On Investment" in this area. Kazakhstan
ratified the New York Convention on the Recognition and
Enforcement of Foreign Arbitral Awards in 1995.
Despite such safeguards, there continue to be great
practical difficulties for foreign investors in enforcing
arbitral awards against government enterprises in
Kazakhstan, particularly given the poor financial health of
many such enterprises. The U.S. Government can support
investors through encouraging the Government of Kazakhstan
to honor arbitral awards.
Creditor rights are set forth clearly under the current law
on bankruptcy. However, the 1997 bankruptcy legislation is
hindered by its complexity and numerous subsequent
amendments, resulting in considerable misapplication in
practice.
Kazakhstan's bankruptcy agency became a self-financed
government-owned enterprise in 1997.
In general, the Government of Kazakhstan has a mixed record
of addressing investment disputes. Foreign investors have
often had to endure protracted negotiations. Most investors
prefer to handle investment disputes privately, rather than
make their cases public. In addition, the law "On
Investments" constricts recourse to international
arbitration and places more reliance on the Kazakhstani
judicial system for dispute resolution. The U.S. Embassy
advocates on behalf of U.S. firms with investment disputes.
Kazakhstan has made progress in developing a proper platform
for a functioning legal system. However, while there are
good laws on the books, effective means for enforcing
property and contractual rights are underdeveloped. For
example, the constitution does not establish a fully
independent judiciary. Judgments by foreign courts or
arbitral forums may not be accepted in Kazakhstani courts,
and enforcement is very difficult.
Performance Requirements/Incentives
Performance requirements, with the exception of domestic
content requirements, are negotiated as part of a contract
between the individual investor and the Committee for
Investments, which is now part of the Ministry of Industry
and Trade. They are the quid pro quo for tax, customs duty,
or other privileges and benefits. Typically, an investor's
obligations might include financial obligations, obligations
to train local specialists, and contributions to social
funds or needs.
Performance requirements, in some cases, are central to
investment or privatization contracts. Companies are
frequently required to pay back wages, rebuild factories and
plants, and meet certain production targets. In several
instances, the government has revoked contracts because
firms did not meet their performance obligations.
The Committee for Investments is responsible for monitoring
the fulfillment of obligations undertaken by investors. If
the committee determines that a company has not complied
with its financial or other contractual obligations, the
government may revoke the operating license of the company.
In order to obtain the benefits and privileges of investing
in Kazakhstan, an investor is typically required to provide
the agency with detailed information on technical and
financial matters of the proposed project, which a company
would consider confidential or proprietary.
With the exception of investments in oil production or
mining, rules on local content and local sources of
financing vary from contract to contract.
With the exception of the banking, media and
telecommunications sectors, there are no legal requirements
that Kazakhstani nationals own shares in foreign
investments. There is no general requirement that the level
of foreign equity be reduced over time. In practice,
however, investors may find that a joint venture with a well-
connected local partner is a prerequisite to navigating the
legal and political complexities of operating in Kazakhstan.
Technology transfers frequently occur and sometimes are
written into contracts, but do not appear to be a necessary
aspect of foreign investment.
The Investment Law of 2003 includes investment incentives
that allow for preferences based on GoK-determined priority
activities and provides for investment tax preferences,
customs duties exemptions, and in-kind grants to legal
entities of the Republic of Kazakhstan only. Under the law,
the government may rescind such incentives, and collect back
payments on duties, etc. including fines, if the investor
fails to fulfill contractual obligations. Because the
application process calls for a business plan and is,
therefore, largely based on forecasting, virtually all
projects could potentially be subject to having their
incentives removed.
The government has liberalized its trade policies and has
passed legislation to begin bringing its legal and trade
regimes into conformity with World Trade Organization (WTO)
standards. Much work remains to be done in this area.
Kazakhstan submitted its Memorandum on the Foreign Trade
Regime (MFTR) in 1996 and the first round of consultations
on WTO accession took place in 1997. In November 2004
Kazakhstan's WTO Accession Working Party met for the seventh
time. Kazakhstan's initial disappointing offers on goods
and services, and more recent slow progress on customs and
taxation issues, have significantly slowed its accession
process. The government has stated that it would like to
coordinate the pace of its WTO accession process with the
members of the Eurasian Economic Community (EAEC) that have
not yet joined the WTO (Russia, Belarus and Tajikistan).
The fifth EAEC member, Kyrgyzstan, joined the WTO in 1999.
The Eurasian Economic Community was established in 2000 as a
successor to the unsuccessful Customs Union between these
five countries, in order to harmonize customs duties and
promote free trade between the partners. The EAEC has made
little progress in creating a free trade zone, as had been
the case with the now defunct Customs Union.
Kazakhstan permits the importation of goods from EAEC free-
trade partners and certain developing or least-developed
countries free of duty or at a reduced rate within the
framework of the Generalized System of Preferences.
There are very few quotas and duties on exports affecting
foreign investors. Among the more important is an agreement
signed with the EU concerning quotas on textiles.
There are no special requirements for engaging in trade-
related activities. In keeping with internationally
accepted practices, registration as an entrepreneur, legal
entity, or branch/representation office is required.
There are no known cases in which U.S. or other foreign
firms have been denied participation in government-financed
or subsidized research and development programs on a
national treatment basis.
Right to Private Ownership and Establishment
Foreign and domestic private entities have the right to
establish and own business enterprises and to engage in all
forms of remunerative activity. Private entities can freely
buy and sell interests in business enterprises. Public
enterprises sometimes enjoy better access to markets,
credits, and licenses than do private entities. However,
this is changing as Kazakhstan has privatized a large part
of its economy.
Kazakhstan's constitution provides that land and other
natural resources may be owned or leased by persons who are
Kazakhstani citizens according to conditions established by
law. The 2003 Land Code allows citizens of Kazakhstan to
own agricultural land and urban land with commercial and non-
commercial buildings and complexes, including dwellings and
land used for servicing these buildings. Under the 2003
Land Code, only Kazakhstani citizens (natural and legalized)
and Kazakhstani companies may own land. The Land Law does
not allow private ownership for the following types of land:
-- land used for national defense purposes;
-- specially protected natural territories, resorts;
recreational land and territories of a historical and/or
cultural significance;
-- forests, water reservoirs (lakes, rivers, canals etc.);
glaciers, swamps, etc.;
-- public areas (urban or rural settlements);
-- lands that belong to the state land reserve.
The law permits only state-owned entities to permanently use
land. Short-term land lease may last for up to five years.
The maximum period for long-term land lease equals 49 years.
Foreigners may rent agricultural land for up to 10 years.
Foreigners may also own agricultural land through a
Kazakhstan-registered joint venture or a full subsidiary.
Protection of Property Rights
Secured interests in property (fixed and non-fixed) are
recognized under the Civil Code and the 2003 Land Code.
Mortgage lending is still in its early stage of development
in Kazakhstan. Almost all mortgages are done in the cities
of Astana and Almaty. The National Bank created a national
mortgage agency, which issues bonds secured by mortgages
purchased from banks. All property and lease rights for
real estate must be registered with special government-owned
Real Estate Centers, which exist in cities and rural
district centers.
In principle, Kazakhstan's Civil Code protects U.S.
intellectual property. In addition, the U.S.-Kazakhstan
Trade Agreement, which came into force in 1993, obliges
Kazakhstan to protect intellectual property. Despite
progress, enforcement of Intellectual Property Right
protections remains a problem area. In 2004, Kazakhstan
fulfilled several of its obligations under the U.S.-
Kazakhstan Trade Agreement to create a proper intellectual
property legal regime. Although the government still has
several steps to take to meet its WTO TRIPS obligations as
part of the WTO accession process, Kazakhstan now provides
protection for pre-existing works and sound recordings. In
2004 Kazakhstan ratified the 1997 World Intellectual
Property Organization (WIPO) Copyright Treaty and the WIPO
Performances and Phonograms Treaty.
Patents and trademarks: Patent protection is available for
inventions, industrial designs and prototypes. Patents for
inventions are available with respect to processes and
products that are novel and have industrial applications.
However, patent protection for certain types of products and
processes -- such as layout designs and plant variety -- is
not yet available. A National Patent Office, established in
1992, performs formal examination of patent applications.
Existing Soviet patents are being converted to Kazakhstani
patents.
Patents for inventions are granted for a period of 20 years;
patents for industrial designs are granted on a preliminary
basis for five years. This period may be extended for an
additional 10 years if the preliminary patent is converted
to a patent. Prototypes are granted a five-year initial
period of protection, with the possibility of an additional
three-year extension. Unsuccessful applicants have the
right to appeal decisions of the National Patent Office.
Trademark violation is a crime, but enforcement is weak.
There are marked disparities in fees charged to domestic
patent and trademark applicants, as compared to foreign
applicants. Applications for trademark, service mark and
appellations of origin protection may also be filed with the
National Patent Office. Trademarks and service marks are
afforded protection for a period of 10 years from the date
of filing. In 2004 the Embassy received anecdotal evidence
from US companies that the situation with respect to
trademarks is improving.
Copyrights: The Law on Copyrights and Related Rights was
enacted in 1996. The law is largely in conformity with the
requirements of the WTO TRIPS Agreement and the Berne
Convention.
In 2000, the government amended the Customs Code to provide
ex-officio authority to Customs Committee officials to seize
contraband at the border, as required by the WTO TRIPS
Agreement. Moreover, amendments to the Administrative,
Criminal and Civil Procedural Codes have been adopted to
bolster enforcement capabilities. Nevertheless, systematic
violations persist and enforcement remains sporadic. There
have been no criminal cases against copyright violators
brought under the amended Criminal Code.
Pirated U.S. and Western movies are apparently not mass-
produced in Kazakhstan. Many bootleg videos and movies are
provided through Russian intermediaries. However, efforts
by the resource-poor Committee for Intellectual Property
Rights of the Ministry of Justice led to a growing
understanding of the IPR concept by both the general public
and local officials. In 2001, the government discovered and
shut down two illegal video studios. Because of the growing
pressure from law enforcement agencies, most large
distributors of pirated products have begun to sell legally
produced copies and to sign contracts with copyright owners
to distribute legal copies. In 2001, there was a
significant increase in the share of legal copies of audio-
visual products. Different experts estimate that from 15%
to 60% of copies sold in Kazakhstan in 2002 were legal, and
more current reports suggest that legal copies have nearly
half the market. While certain measures, such as
restricting the sale of video cassettes and discs in open
bazaars have made a positive difference, the relatively
light penalties in place do not appear to be an effective
deterrent.
Illegal software development and manufacture generally is
not conducted in Kazakhstan; Russia and Ukraine are believed
to be the major sources of bootleg software to the local
market.
Kazakhstan ratified the Berne Convention for the Protection
of Literary and Artistic Works in 1998 and the Geneva
Phonograms Convention in 2000.
Piracy of all copyrighted products is widespread and there
have been only limited enforcement measures to date.
Although Kazakhstan enacted a number of laws and changed
many policies during the last few years, a number of
additional changes are still required. Bilateral
negotiations must be concluded in order to comply with WTO
standards. Since 2000, USTR's Special 301 review has put
Kazakhstan on the Watch List for intellectual property
rights violations, primarily for the country's lack of
enforcement of copyrights.
Transparency of the Regulatory System
Transparency in the application of laws remains a major
problem in Kazakhstan and an obstacle to expanded trade and
investment. Foreign investors complain of moving goalposts
and corruption. While foreign participation is generally
welcomed, some foreign investors point out that the
government is not always evenhanded and sometimes reneges on
its commitments. Although the State Committee for
Investments was established to facilitate foreign
investment, it has had limited success in addressing the
concerns of foreign investors.
Often, contradictory norms hinder the functioning of the
legal system. While Kazakhstan has recently defined more
clearly which laws take precedence in the event of a
contradiction, it has become clear that stability clauses
granted investors under previous versions of the Foreign
Investment Law or other legislation may not necessarily
protect investors from changes in the legal and tax
regulatory regime. The 2003 law "On Investments" holds that
contracts signed subsequent to its enactment may be subject
to amendments in domestic legislation and international
treaty provisions that change "the procedure and conditions
of the import, manufacture, and sale of goods subject to
excise duties." As an additional complication, oblasts
often take a very liberal view of national laws and policies
(especially licensing and permitting), implementing their
own regulations increasing the instances of conflict with
provisions of the law.
Kazakhstan, by law, will provide compensation for violations
of contracts that were properly entered into and guaranteed
by the government. Where the government has merely
"approved" or "confirmed" a foreign contract, Kazakhstan's
responsibility will be limited to performing administrative
acts necessary to facilitate the subject investment activity
(acts "concerning the issuance of a license, granting of a
land plot, mining allotment, etc.").
Kazakhstan's institutional governance is weak, further
adding to the problems of transparency in commercial
transactions. Senior government officials have a large say
in minor and major transactions, and decisions are often
made behind closed doors.
A 1995 Licensing Law established the legal framework for
licensing activities in Kazakhstan. It requires the
relevant agency to issue a license within one month of a
company's submitting all required documents. Unfortunately,
the implementation of this law has been inadequate. For
example, the government has not yet approved most of the
qualification and procedural requirements for issuing
licenses. This situation has left some businesses
vulnerable to inspection bodies, which have threatened them
with fines and shutdowns for not having licenses that are,
in many instances, impossible to legally obtain. In 1998,
several additional procedural acts were adopted to implement
the requirements of the Licensing Law. However, many areas
still lack implementing legislation. The number of licenses
required for most activities is also an obstacle to
business. Amendments to the Licensing Law are being
considered that would exclude a wide variety of business
activities from licensing requirements.
There are some transparency problems connected with the
customs regime in Kazakhstan. These include the following:
--Granting customs exemptions stipulated in the Law on
Foreign Investment continues to be problematic, because the
Customs Committee has failed to issue any regulations or
instructions for its implementation. Instead, Customs
decides claims in an ad hoc manner, which has resulted in
inconsistent and unclear application of the law.
--Kazakhstan has adopted the international tariff
nomenclature as the basis of its Tariff Schedule and has
prepared a tariff schedule, but it has not been published in
full. As a result customs regional offices continue to use
the old tariff schedules. According to businesses, this
leads to unnecessary delays in processing and increased
costs for importers.
In December 2004 the formerly independent Customs Agency was
subordinated to the Ministry of Finance, where it was re-
established as the Customs Control Committee.
Efficient Capital Markets and Portfolio Investment
Kazakhstan's efforts to create a sound financial system and
a stable macroeconomic framework have been outstanding among
former Soviet republics. Much progress has been made in
creating and implementing an adequate legal framework. By
comparison with other parts of the economy, reform of the
financial system has been deeper and more effective. The
financial system has started to mediate financial resource
flows and direct them to the most promising parts of the
economy. Official policy is clearly supportive of credit
allocation on market terms and the further development of
legal, regulatory and accounting systems that are consistent
with international norms.
Most domestic borrowers receive credit from Kazakhstani
banks. However, foreign investors find the margins taken by
local banks and the security required for credit to be very
onerous. It is usually cheaper and simpler for them to use
retained earnings or borrow from their home country.
Kazakhstan's stock exchange is tiny and, as such, not yet a
realistic source of funds (see below). Kazakhstani banks
have, since 1998, placed Eurobonds on international markets
and obtained syndicated loans, the proceeds of which have
been used to support domestic lending. Leading Kazakhstani
banks have been able to obtain reasonably good ratings from
international credit assessment agencies. All Kazakhstani
banks are to meet Basel I risk-weighted capital standards.
The National Bank supervises the banking system and has
overseen a steady consolidation and strengthening of the
system.
With the implementation of deposit insurance in 1999,
private deposits in the banking system grew from less than
$300 million in November 1999 to $3.11 billion at the end of
2004.
Since 1999, a market for debt securities has been rapidly
developing in Kazakhstan. Several dozen bank and non-bank
corporations - large and small - have issued bills, notes
and bonds with maturities ranging from three months to seven
years. Earlier issues have matured and been redeemed and,
so far, there have been no defaults. Rates for borrowers
have declined on average from approximately 16% in September
1999 to approximately 10% today. Maturities have increased
from 1.5 years to up to 10 years during the same period.
Kazakhstan's pension system reform has boosted the bond
market by creating a pool of capital, now over $3.7 billion,
managed almost entirely by private pension funds. One state
pension fund remains and the government intends to privatize
it as well. The market for fixed-income securities has grown
from $74,000 in September 1999 to over $1.3 billion in June
2003.
In January 2005, the rate on short-term government notes was
2.74%. Longer-term government notes (with maturities up to
10 years) were offered at 5.2%.
In 2000, the GOK placed its fourth Eurobond, a seven-year
$350 million issue. Previous sovereign Eurobonds were
placed in 1996 for $200 million, in 1997 for $350 million
and in 1999 for $200 million. In 1999 and in 2002, the
government paid off the principal on its 1996 and 1997
Eurobond issuances respectively. With strong budget
revenues and good access to domestic borrowers, the
government has not issued Eurobonds since.
The Kazakhstan Stock Exchange (KASE) has been in operation
since 1997. As of January 2005, there were 80 listed
companies with 27 "A-listed stock issues; 27 companies with
22 "B-listed" stock issues; and two non-listed issuers.
There are also 39 "A-listed" and six "B-listed" corporate
bond issues. Inadequate financial records prevent many
other companies from being put on the exchange. Moreover,
company managers fear diluting control of their enterprises
by selling more shares.
Kazakhstan's National Securities Commission has been
operating since 1996 and is consistent with the norms of the
International Organization of Securities Commissioners. In
2001, the Commission was made a department of the National
Bank, and renamed to Securities Market Regulation
Department. The National Securities Commission has been
operating since 1996 in compliance with the norms of the
International Organization of Securities Commissioners. In
2001, the Commission was made a department of the National
Bank, and renamed the "Securities Market Regulation
Department. Resident Kazakhstani companies must compete for
capital with attractive returns available from government
debt (tax deductible), although these interest rates have
been steadily decreasing.
In 1998, the government introduced an accumulation pension
system that requires all employed persons to contribute 10%
of their salary to accumulation pension funds. At the end
of 2004, the 15 private (and one state) accumulation funds
operating in Kazakhstan had approximately $3.6 billion in
assets. Asset management companies invest the contributions
on behalf of the pension funds. The pension assets must be
invested only in specific categories of instruments such as
government bonds and A-listed securities. The largest
concentration of investments was in dollar-denominated
Kazakhstani Eurobonds. Custodian banks hold pension assets.
The government plans to sell some shares of state
enterprises on the national stock market, partly to provide
a more profitable alternative vehicle for the investment of
pension fund assets.
There appear to be no "cross-shareholding" and "stable
shareholder" arrangements used by private firms to restrict
foreign investment through mergers and acquisitions. Joint
stock companies may not cross hold more than 25% of each
other's stock unless they have an exemption codified by law
and may not exercise more than 25% of the votes in a cross-
held joint stock company. Kazakhstani law recognizes
companies as "related" if one company or legal entity holds
more than 20% of the shares of another. However, the owning
company may not vote more than 25% of the total shares at
the general meeting of shareholders of the related company.
The general meeting must approve various corporate actions,
such as mergers and acquisitions. This rule applies to all
persons, domestic or foreign.
There have been very few hostile takeovers in Kazakhstan,
primarily because there are few publicly traded firms.
Defensive measures are not targeted toward foreign investors
in particular. Current legislation provides a legal
framework for takeovers. The Civil Code requires a company
that has purchased a 20% share in another company to publish
information about the purchase.
Kazakhstan has a well-developed infrastructure for equity
and debt trading with a network of brokerage firms. This is
a resource for future corporate finance. However, at
present, the dearth of attractive stocks for trading is a
significant obstacle to the further development of the
securities market. This is another weakness that the
government's plan for offering shares in state enterprises
is meant to address.
The 1998 Law on Joint Stock Companies provides the basis for
regulation of open and closed-type joint stock companies.
It also contains clauses to protect investors in often-
abused circumstances, such as:
-- issuance of additional shares
-- maintenance of charter capital and restrictions on
payments of dividends
-- re-purchase by a company of its own shares
-- debt-to-equity conversions
-- fiduciary duties imposed on company officers
-- proxy votes
-- independent audit
-- determination of asset values during the sale of company
property.
The Law on Joint Stock Companies also regulates tender
offers for stock of open joint stock companies by requiring
the purchaser to notify the Securities Market Regulation
Department and the target company of their intention to
purchase 30% or more of the target company and, after such
purchase, to make an offer to all remaining shareholders to
purchase their shares at the average price during the last
six months before the purchase.
There are no laws or regulations specifically authorizing
firms to adopt articles of incorporation or association that
limit or prohibit foreign investments. The Law on Joint
Stock Companies, however, allows charter limits on the
number of shares or votes that one shareholder may have.
Standards, including sanitary and phyto-sanitary standards,
are promulgated solely by the State Body on Standardization,
Metrology, and Certification (Gosstandard). Proposals for
adoption, amendment, or abolishment of state standards are
normally prepared by technical committees constituted by
Gosstandard and may include producers, scientific and
engineering associations, and technical experts. There are
no restrictions on foreign participation in the development
of standards, including participation in meetings of
technical committees.
Political Violence
There have been no incidents of politically- motivated
violence against foreign investment projects. The political
environment, while stable, was marred in 2002 by a series of
violent incidents targeting independent media facilities and
journalists. Arrests were made in several of the cases,
though many observers were not satisfied with the
government's conclusion that the cases amounted to a series
of isolated incidents. There are no nascent insurrections
in the country and politically- motivated civil disturbances
remain rare. Kazakhstan has good relations with its
neighbors. The government continues to express concern over
the security of its borders with Kyrgyzstan and Uzbekistan,
which it views as vulnerable to penetration by extremist
groups.
Kazakhstan's economy has grown steadily in the last four
years. 2004 GDP growth is estimated at 9.4%, and the
highest year-on-year rate was 13.5% in 2001. Although
incomes and consumer spending have risen across the board,
the minimum subsistence wage is still only $54.87 per month,
and 15.6% of the population receives income below that line.
4.6% of Kazakhstani citizens earn less than 40% of the
subsistence wage. The minimum pension payment is $47.69 per
month. By government estimates, in 2002 the unemployment
rate decreased to 8.3% from 10.4% in 2001. Unemployment has
remained at about 8% since.
Kazakhstan's most recent presidential election was conducted
in 1999. The next election is scheduled to take place in
2006. Parliamentary elections were held for the lower house
in September 2004. Although the OSCE noted certain
improvements in 2004 over the 1999 election (which was also
a parliamentary ballot), it nonetheless concluded that the
2004 vote did not meet international standards and
Kazakhstan's OSCE commitments.
Corruption
Although the Kazakhstani Criminal Code contains special
articles on penalties for accepting and giving bribes,
corruption is widely perceived to be prevalent throughout
Kazakhstan. The Ministry of Interior, the Financial Police
and the Committee for National Security (KNB) are
responsible for combating corruption. The latest national
commission to fight government corruption - the Disciplinary
State Service Commission - was established in June 2003.
U.S. firms have cited corruption as a significant obstacle
to investment. Law enforcement agencies have on occasion
brought pressure on foreign investors perceived to be
uncooperative with the government. The government and local
business entities are widely aware of the legal restrictions
placed on U.S. business abroad (i.e., the Foreign Corrupt
Practices Act).
In 2002, a former Minister, a Minister, and a former Oblast
Akim were separately indicted on corruption charges. The
timing of two of these cases appears to have been
politically-motivated, as they were co-leaders of a major,
new political movement started only months before. Both
were convicted and sentenced to lengthy jail terms, though
one was pardoned and released in May 2003. The third case
also resulted in a conviction, though the by-then former
minister was given a suspended sentence.
In 2003 the United States arrested two U.S. citizens on
alleged violation of the Foreign Corrupt Practices Act. The
two allegedly channeled tens of millions of dollars in
bribes to two senior Kazakhstani officials during the
1990's. Proceedings against one individual are underway in
the Federal District Court for the Southern District of New
York.
Bilateral Investment Agreements and Double Tax Treaties
The United States-Kazakhstan Bilateral Investment Treaty
came into force in 1994. In 1992, the United States and
Kazakhstan signed an Investment Incentive Agreement, which
became effective from the date of signing. In 1996, the
United States and Kazakhstan ratified the Treaty on
Avoidance of Dual Taxation.
Kazakhstan has bilateral investment agreements in force with
over three dozen countries, including the United States,
Great Britain, Germany, France, Russia, Korea, Iran, China,
and Turkey. Kazakhstan also has ratified 36 treaties on
avoidance of double taxation.
OPIC and Other Investment Insurance Programs
The Overseas Private Investment Corporation (OPIC), an
independent U.S. Government agency that provides project
financing, political risk insurance, and a variety of
investor services, has been active in Kazakhstan since 1994.
OPIC is seeking commercially viable projects in the
Kazakhstani private sector. OPIC offers a full range of
investment insurance and debt/equity stakes.
Kazakhstan is a member of the Multilateral Investment
Guarantee Agency (MIGA).
Labor
Kazakhstan has an educated and technically competent
workforce. The demand for specialized skilled labor created
by the simultaneous development of several major oil fields
in western Kazakhstan has exceeded locally available supply.
Management expertise and marketing skills are also in short
supply. U.S. firms employ Kazakhstani specialists across a
broad spectrum of industries, although additional training
to qualify specialists is often necessary.
The 1999 Labor Law and the Constitution guarantee basic
workers' rights, including the right to organize and the
right to strike. Teachers, miners and workers at a variety
of enterprises have conducted occasional strikes for
generally short periods during the past several years. The
1993 Law on Professional Labor Unions provides a legal
guarantee against limitations of labor. It also grants
social-economic, political and personal rights and freedoms
as a result of membership in a union and prohibits the
denial of employment, the denial of promotion or the release
from employment on the basis of such membership. Kazakhstan
joined the International Labor Organization (ILO) in 1993.
As of January 2005, Kazakhstan has ratified 16 ILO
conventions, including those pertaining to minimum
employment age, forced labor, discrimination in employment,
equal remuneration, and collective bargaining.
The 1996 Law on Labor Disputes and Strikes lays out the
procedure for resolving disputes. However, the law also
restricts strikes by requiring that a peaceful attempt at a
solution first be made, that two-thirds of the labor
collective must approve the strike, and that the employer
must be warned 15 days in advance in writing, among other
restrictions. In addition, strikes for political purposes
are forbidden.
A separate 1992 Law on Collective Bargaining Agreements sets
out the basic framework for concluding such agreements.
There are instances of unions successfully negotiating
collective bargaining agreements with management.
Since 1997, the government has been putting greater emphasis
on foreign firms to hire Kazakhstani nationals -- a de facto
performance requirement. All U.S. companies are strongly
advised to contact locally-based law and accounting firms,
as well as the U.S. Commercial Service in Almaty, for the
latest information on work permits. Changes in 2001 to the
quota system for foreign labor work permits has increased
pressure on employers to hire local labor through the
introduction of requirements to search for local workers
prior to the issuance of work permits for foreign labor (see
section A.1.).
Foreign Trade Zones/Free Ports
The government established special economic zones in the
capital city of Astana (as of July 2001) and on the
territory of the seaport of Aktau (as of April 2002). Under
the law, the Astana Special Economic Zone must be abolished
no later than five years after its foundation, while the
Aktau Special Economic Zone must be closed by January 2007.
In the special economic zones, foreign companies have same
opportunities as Kazakhstani entities.
As a part of Kazakhstan's national strategy to promote
diversification of the economy, the government has also
begun to establish "technoparks" where investors, including
foreigners, can take advantage of incentives to develop
trade-intensive high-tech industries. Technoparks dedicated
to information technology (near Almaty) and biotechnology
(in Stepnogorsk) are already in operation.
Foreign Direct Investment (FDI) Statistics
Annual Gross Foreign Direct Investment Flows
by Country of Origin
(Millions of Dollars; nominal)
1993-2002 2003 2004 (Jan- Total
Sep)
USA 1,088.0
6,628.7 1,174.3 8,891.0
UK
2,924.6 592.6 528.5 4,045.7
South Korea
1,551.0 86.3 52.7 1,690.0
Italy
1,472.9 375.7 228.2 2076.8
Canada
1,056.9 8.3 23.3 1,088.5
Switzerland
1,052.4 630.5 179.8 1862.70
Netherlands
1,010.8 612.2 570.9 2193.90
China
828.1 248.6 159.0 1235.7
Turkey
627.3 110.1 60.5 797.9
Russia
589.2 197.6 143.7 930.5
Others
3,325.8 657.7 796.40 4779.9
Total
21,067.7 4,607.6 3,917.3 29,592.6
Source: National Bank of Kazakhstan.
Annual Gross Foreign Direct Investment Flows by Sector
(Millions of dollars; nominal)
Gross direct investment from abroad: inflows by economic
activities (million USD)
Activity 1993 - 2003 2004 (Jan- Total
2002 Sept)
1.6 -0.5 15.6
AGRICULTURE, HUNTING
AND FORESTRY 14.5
MINING AND QUARRYING 13 2,188.5 1,902.1 17,144.1
053.5
mining of coal and 4.9 7.5 41.1
lignite, extraction
of peat 28.7
extraction of crude 11433.2 2113.6 1840.2 15,387
petroleum and natural
gas
mining of uranium and 34.6 8.7 15.9 59.2
thorium ores
mining of metal ores 1533.2 38.1 28.6 1599.9
other mining and 23.8 23.2 9.9 56.9
quarrying
MANUFACTURING 3241.5 1,000.0 319.9 4561.4
(including but not
limited)
manufacture of food 563.8 43.4 27.7 634.9
products, beverage
and tobacco products
manufacture of coke, 242 196.9 29.5 468.4
refined petroleum
products and nuclear
fuel
manufacture of 108.8 6 7.3 122.1
chemicals and
chemical products
manufacture of rubber 7.8 6.4 7.7 21.9
and plastics products
manufacture of other 28.6 35.2 9.5 73.3
non-metallic mineral
products
manufacture of basic 1998.2 624.1 168.4 2790.7
metals:
manufactures of 401.5 0 0.4
ferrous metals
manufacture of 1593.2 619.7 166.4 2379.3
basic precious and
non-ferrous metals
manufacture of 3.5 4.4 1.7 9.6
fabricated metal
products except
machinery and
equipment
manufacture of 12.4 3.3 6.1 21.8
machinery and
equipment
manufacture of 246.5 69.5 53.3 369.3
electric and
computing machinery
manufacture of 2.2 2.2 0 4.4
transport equipment
manufacture, n.e.c. 3.3 0.8 1.4 5.5
ELECTRICITY, GAS AND 485.9 67.7 10.2 563.8
WATER SUPPLY
CONSTRUCTION 111.2 50.6 74.3 236.1
WHOLESALE AND RETAIL 319.1 164.1 164.4 647.6
TRADE, REPAIR OF
MOTOR VEHICLES,
MOTORCYCLES AND
PERSONAL AND
HOUSEHOLD GOODS
HOTELS AND 88.6 7.4 11.8 107.8
RESTAURANTS
TRANSPORT, STORAGE 416.2 75.7 65.9 557.8
AND COMMUNICATION
land transport: 276.8 47.4 26.8 351
272.6 47.2 26.4 346.2
transport via
pipelines
water transport 0 14.2 -26.5 -12.3
air transport 18.6 2.9 0.2 21.7
supporting transport 56.7 8.4 12.2 77.3
activities
post and 64.1 2.9 53.1 120.1
telecommunication:
63.6 2.4 52.9 118.9
telecommunication
FINANCIAL ACTIVITY 263 52.7 63.6 379.3
REAL ESTATE, RENTING 2733.3 995.1 1242.8 4971.2
AND BUSINESS
ACTIVITIES (including
but not limited)
real estate 70.4 10.1 4.5 85
activities
other business 2657.9 983.8 1234.9 4876.6
activities:
legal, 164.4 14 33.5 211.9
accounting, book-
keeping and
auditing activities,
tax consultancy,
market research,
business and
management
consultancy
geological 2493.5 963.9 1197.2 4654.6
exploration and
prospecting
activities
EDUCATION, HEALTH AND 137.5 4.2 62.8 204.5
SOCIAL WORK
ACTIVITIES, N.E.C. 360.8 0 0 360.8
TOTAL 21225.1 4607.6 3917.3 29,750.0
Source: National Bank of Kazakhstan
Note: The charts presenting FDI amounts by country and
sector above differ in their calculation of the total
investment for 1993-2002, with the sectoral chart reflecting
a figure that is $157.7 million higher. It is not clear
what methodological difference accounts for this.
FDI as a Percentage of GDP:
2002 2003 2004 (Jan-
Sep)
16.8% 15.2% 13.0%
Largest Investments as of 2004:
1. TengizChevrOil (TCO). TCO, a joint venture (50% owned
by Chevron Texaco, 25% by Exxon Mobil, 20% by the Government
of Kazakhstan, and 5% by LucArco) was formed as part of a 40-
year, $20 billion agreement signed in 1993. By 2001, the
joint venture partners had invested more than $2.1 billion
in TCO. In 2002 TCO produced nearly 300,000 bpd. As of
June 2003, TCO was implementing a $3.5-4 billion, three-year
expansion project to increase production to 570,000 bpd.
TCO member companies are also major shareholders in the
Caspian Pipeline Consortium (CPC) pipeline from the Caspian
across southern Russia to the Black Sea. The $2.5 billion
pipeline began transporting Tengiz crude to world markets in
2001. CPC shareholders hope to more than double pipeline
capacity to transport increased TCO volumes.
2. Philip Morris-Kazakhstan. Philip Morris signed an
agreement with the Almaty Tobacco Company in 1993, under
which Philip Morris pledged to invest $350 million through
1998. Philip Morris has been producing cigarettes in
Kazakhstan for domestic consumption since 1994. In spring
2000, Philip Morris completed its $200 million Greenfield
cigarette manufacturing plant in Almaty Oblast. The plant
is slated to produce over 25 billion cigarettes annually.
3. AGIP Kazakhstan North Caspian Operating Company. In
1993, the Offshore Kazakhstan International Operating
Company (OKIOC), consisting of nine international petroleum
companies (BP-Amoco, Statoil, ENI, British Gas, Mobil, Royal
Dutch Shell, Inpex, Philips and Total), began seismic work
to explore oil and gas reserves in the northern section of
the Caspian Sea. A production sharing agreement (PSA) was
signed in 1997 for the offshore Kashagan structure. In
2001, following Agip's selection as the consortium's
operator, OKIOC was renamed to Agip Kazakhstan North Caspian
Operating Company (Agip KCO). In 1998, the GOK sold its
16.67% share to ConocoPhillips and to Inpex. Later, in 2001,
BP-Amoco and Statoil sold their shares in the consortium to
TotalFinaElf. In June 2002, Agip KCO formally announced
that it estimated the volume of extractable oil reserves at
7-9 billion barrels. In 2003, British Gas (BG) announced
its intention to sell its stake to Sinopec and the Chinese
National Petroleum Company (CNPC) for 1.23 billion. Five of
BG's six consortium partners exercised pre-emptive rights
over the sale, and during the subsequent negotiations the
Kazakhstani Government announced that not only did it want
to purchase the stake, but it also had a preeminent right to
do so. The government later introduced a law establishing
the preeminent right and applying it retroactively. The
government and the consortium partners are still negotiating
at the time of this report.(Update) Under the PSA, Agip KCO
was to start commercial production in 2005, but that date
has been moved back to 2007-8.
4. Karachaganak Consortium. Two international petroleum
companies, Agip and British Gas, together with the Russian
company Gazprom, signed an agreement in 1992 with the GOK
for the development of the Karachaganak gas field in Western
Kazakhstan Oblast. Texaco acquired a 20% interest in
Karachaganak in the fall of 1997 (Agip and British Gas have
a 32.5% interest, and Russia's LUKoil has 15% in the field).
A PSA was signed for Karachaganak in 1997. In 2003 western
partners completed pipeline to Atyrau to join into the
Caspian Pipeline Consortium pipeline to Novorossiysk, Russia
on the Black Sea, and the first oil from the field reached
Novorossiysk in July 2004.
5. AES Kazakhstan and AES Ekibastuz. In 1996, the American
energy company AES bought the Ekibastuz-1 power plant. In
the fall of 1997, AES purchased two hydroelectric power
generation plants and several other coal-fired power/heating
plants in and around Ust-Kamenogorsk, in eastern Kazakhstan.
In 1999, AES gained management control of two regional
electric distribution companies (REC) in Kazakhstan for 15
years. Under the agreement, AES acquired East Kazakhstan
and Pavlodar RECs and long-term transmission access to
Russia at a discounted tariff for the output of the
Ekibastuz generating plant.
6. Bogatyr Access Komir. In 1996, the American firm Access
Industries bought the Bogatyr coal mine and 66% of the
neighboring Stepnoy coal mine (both part of the giant
Ekibastuz mining complex) for more than $40 million. Access
pledged to invest $550 million toward upgrading the
coalmines over the next five years. Access Industries
continues its investment program at the Ekibastuz mining
complex. Nearly 36 million tons of coal were delivered from
the Bogatyr mine in 2004.
7. Texaco-North Buzachi. In September 1998, Texaco bought
65% of the North Buzachi project; it later sold its share in
the project in September 2003 to the Chinese state oil
company CNPC. It, in turn, sold 50% in two stages to Nelson
Resources, a Canadian registered company. North Buzachi, as
of June 2003, produces approximately 8200 barrels per day.
Other major investments in the past several years have
included:
Trans World Metals (a UK-registered company) in 1995
purchased Kazakhstan's chromium plant and associated mine.
Trans World paid $65 million for the facilities and pledged
to invest a further $400 million. In 2000, after two years
of legal battle in Kazakhstani and foreign courts with local
company Kazakhstan Mineral Resources Corp (KMRC) over rights
to its chromium operation and rights to other properties in
Kazakhstan, Trans World Metals left the country and dropped
its court cases against the KMRC for a reported $200-$250
million settlement.
The LNM Group (UK), in 1995, purchased the Karaganda
metallurgical plant (KARMET), which was subsequently renamed
to Ispat-Karmet. The LNM Group paid $225 million and
invested a further $450 million by 2000. The new owner
significantly improved the plant's product quality and
packaging and now exports 95% of Ispat-Karmet's output to
over 60 countries. In late 2004 LNM's Kazakhstani steel
operation was renamed "Mittal Steel Temirtau."
Samsung (South Korea) bought the Zhezkazgan Copper Plant in
May 1996, for which it paid $49 million and pledged to
invest a further $300 million.
Tractebel (Belgium), in 1996, bought the city of Almaty's
electricity and heating facilities. In 1997, Tractebel also
purchased rights to operate the gas pipeline network in
southern Kazakhstan and pledged to spend $150 million on the
construction of a gas pipeline by-pass around the section of
pipe currently transiting the Kyrgyz Republic. Tractebel,
which threatened to seek international arbitration,
negotiated a buy-out with the government. Tractebel left
Kazakhstan, returned all assets to the government and
dropped the arbitration case for a reported $100 million
settlement.
Hurricane Hydrocarbons (Canada, incorporated as
PetroKazakhstan in 2003, bought the state oil company
Yuzhneftegas in 1996. Hurricane paid $120 million for the
property and pledged to invest $280 million. Since then
Hurricane has greatly boosted production, selling most of it
to the local market in southern Kazakhstan. It owns a
majority interest in the Shymkent refinery, which has a 6.6
million ton annual oil processing capacity, and produces
gasoline, diesel, boiler fuel, fuel oil, kerosene, jet fuel,
and liquefied gas. The refinery provides for about 50% of
the domestic petrochemical market.
Nations Energy (Canada) bought a 94.64% stake in the
Karazhanbasmunay state oil company 1997 for $45 million.
The company also spent $125 million on refurbishing more
than 350 old wells and on implementation of its new drilling
program.
Central Asian Petroleum (Indonesia), in 1997, bought a
controlling share of MangistauMunayGas, a partially state-
owned oil company.
Chinese National Petroleum Company (CNPC)(PRC) purchased a
60.2% of the Aktyubinsk state oil company in 1997, renaming
it CNPC-Aktobemunaygaz. CNPC paid $325 million, while
pledging to invest a further $4 billion in the field and in
an associated oil pipeline to western China. In May 2003
CNPC purchased remaining public 25.12% share in
Aktobemunaygaz for $150 million. The pipeline project is
underway and will, when completed, ferry oil in two stages
from the Aktyubinsk field to central Kazakhstan, and then to
the western Chinese railhead at Alashankou.
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