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News Bulletin No 18

Kazakh leader vows reform before taking OSCE chair
OSCE parliamentary assembly begins in Kazakhstan

Kashagan deal good for Western group -- analysts
Kazakhstan Fixes Its Tax Code
The northern Aral Sea returns to life in Kazakhstan
Glimmer of hope for shrinking Aral Sea

Category: General
Posted by: admin

News Bulletin
Released by the Embassy of the Republic of Kazakhstan to the United States of America
1401 16 Street, NW, Washington, DC 20036
Tel.: (202)232-5488 Fax: (202)232-5845

No 18 July 2, 2008
  • Kazakh leader vows reform before taking OSCE chair
  • OSCE parliamentary assembly begins in Kazakhstan
  • Kashagan deal good for Western group -- analysts
  • Kazakhstan Fixes Its Tax Code
  • The northern Aral Sea returns to life in Kazakhstan
  • Glimmer of hope for shrinking Aral Sea
Kazakh leader vows reform before taking OSCE chair
Kazakhstan's president promised the West on Sunday his country would pursue democratic change before its chairmanship of Europe's main human rights watchdog in 2010.
Oil-rich Kazakhstan, key to Europe's efforts to diversify its energy supplies, won approval last year to take over the rotating annual chairmanship of the Organisation for Security and Co-operation in Europe (OSCE).
The ex-Soviet nation's opposition has since criticised Kazakhstan, which has never held an election judged free and fair by OSCE monitors, of backsliding on its democracy pledges.
Addressing the OSCE Parliamentary Assembly in the Caspian state's capital Astana, President Nursultan Nazarbayev reassured the West he was fully committed to democratic change.
"We want to be a modern, democratic and prosperous nation," he told the Assembly, the OSCE's first such meeting in Central Asia. "The potential of Kazakhstan's constitution... allows us to fulfil many very important steps of further democratisation."
Nazarbayev has tolerated little dissent since he came to power in 1989. Last year, the OSCE described a Kazakh parliamentary poll, in which a pro-Nazarbayev party won all seats in the lower house, as being below required standards.
But many in Kazakhstan credit him with bringing stability after years of post-Soviet chaos and using oil revenues to raise living standards.
In his speech, Nazarbayev said a key step would be to create a more democratic parliament with at least two political parties, but gave no hints as to whether he wanted to call a snap parliamentary election to achieve the goal.
He also vowed to allow more media freedom, reform electoral law and make it easier for parties to gain state registration. However, laying out principles of Kazakhstan's future work at the OSCE, he focused more on security than human rights.
Kazakhstan, Central Asia's top oil producer and the world's fifth grain exporter, offers Europe a new source of energy as it seeks to diversify its energy supplies away from Russia.
Its efforts to foster closer ties with Europe have irritated Russia, which sees Kazakhstan -- a thinly populated nation roughly the size of Western Europe itself -- as part of its traditional sphere of interest.
"We would love to move ourselves to Europe altogether but you don't have enough room for us there," Nazarbayev jokingly told the assembly, triggering laughter. He added more seriously: "We have resources. You have the technology and investment. This kind of cooperation will benefit everyone."
OSCE officials made no judgement on Kazakhstan's efforts.
"We are confident that Kazakhstan will continue to work toward meeting the commitments outlined by Kazakhstan ... in good faith and in a transparent and inclusive manner," said Goran Lennmarker, president of the OSCE Parliamentary Assembly.
OSCE parliamentary assembly begins in Kazakhstan
Xinhua, China
The Organization for Security and Cooperation in Europe (OSCE) began its 17th annual parliamentary meeting Sunday in the Kazakh capital Astana, reports reaching here said.
Goran Lennmarker, president of the OSCE Parliamentary Assembly, appealed to host country Kazakhstan to help promote democracy in neighboring Afghanistan.
In his speech, Kazakhstan's President Nursultan Nazarbayev expressed his hope that his country would be able to expand mutually beneficial economic cooperation with the rest of the world.
He said Kazakhstan is rich in energy resources and as the world's leading grain producers. If it had access to large-scale investment and advanced technologies, the country could help bring down the soaring prices of oil and food in the world market.
Kazakhstan joined the OSCE in 1992 and will take over the rotating chairmanship of the group in 2010.
Kashagan deal good for Western group -- analysts
Western companies developing the giant Kashagan oilfield struck a good deal when they signed a memorandum on the project's future with Kazakhstan's government last week, analysts said on Monday.
Last week, Kazakhstan and the Kashagan consortium agreed to put off the start of commercial output at the field until 2013, ending a 10-month stand-off over the $136 billion project.
In return, the consortium agreed to prevent further cost overruns, pay floating royalties linked to the oil price and have the Production Sharing Agreement (PSA) expire in 2041 -- a date linked to the previously expected production start.
"The government could have acted a lot tougher," said Dmitry Alexandrov, an analyst with Russian investment company Financial Bridge. "Just look at Russian or Venezuelan projects."
Alexandrov said he saw the deal as beneficial for both the government and the consortium that unites Eni, Royal Dutch Shell Plc, Exxon Mobil Corp, Total, ConocoPhillips, Kazakh state oil company KazMunaiGas and Japan's Inpex Holdings Inc.
"The investors now have the terms... that are in line with today's reality, not that of the 1990s, when the PSA was signed," Alexandrov said.
Artyom Konchin, an analyst with Russian brokerage UniCredit Aton, saw the deal as favourable for Western companies.
"They have got the carrot and they might avoid the stick," Konchin said. "This was the last delay the Kazakh authorities could tolerate without imposing sanctions, which is good for investors."
Kashagan is key to Kazakhstan's plans of boosting oil output to 150 million tonnes from the current 68 million tonnes within the next 10 years and joining the ranks of the world's top 10 oil producers.
Kazakhstan Fixes Its Tax Code
Kommersant, Russia
The government of Kazakhstan has presented a concept for a new tax code. The country’s parliament may consider it in September. The country plans to ease the tax burden on business, compensating for it by sharply increasing taxes on mineral users, except for the two dozen largest of them, mainly those at the Tengiz, Kashagan and Karachanak fields. The concept was prepared by a working group headed by Deputy Prime Minister Erbol Orynbaev. Prime Minister Karim Masimocv explained that the concept contains only the “main directions” of the reform and no numbers will be discussed until next month. The general outlines are already clear, however. Another innovation in the concept is the introduction of international accounting in tax calculations in Kazakhstan.
The main change suggested in the concept is the lowering of the corporate income tax, which is now 30 percent. The Kazakh Finance Ministry wanted the tax lowered to 10 percent, while the Ministry of the Economy and Budget Planning favored a more conservative 20-percent rate, as the proposed 10-percent rate would mean a loss of 800-900 billion tenge ($7-8 billion). The working group chose a 15-percent tax rate. The group proposes to eliminate advance tax payments for small and medium-size businesses, while preserving them for the 300 largest businesses and for mineral users. That would maintain 70 percent of advance payments. The group also suggests lowering VAT from 13 to 12 percent. Furthermore, the concept would replace the gradated social tax (5-13 percent) with a 10-percent flat tax. The personal property tax would be transformed into a real estate tax and the tax on personal real estate worth over 30 million tenge ($250,000) would be raised from 0.05-0.5 percent to 1-2 percent.
Minerals users will make up for the falling budget income. They now pay a royalty, a tax on unearned income on exported oil, a surplus profits tax, and a so-called subscription bonus. The current tax code also allows for product-sharing agreements and a “stable” tax regime for mineral users that signed contracts before 2004. The working group suggests changing the entire system of taxation for the oil sector, preserving the bonus to the budget, but replacing the royalty tax with a mineral-use tax and replacing the unearned income on export oil and natural gas condensate with export duties. Product sharing and the stability regime would be eliminated for all except, the key contract with Tengizchevronoil and the 15 existing product sharing agreement. There are now over 600 mineral use contracts in force in Kazakhstan now, and about 80 percent of them are “stabilized.”
The northern Aral Sea returns to life in Kazakhstan
THE KOKARAL DAM, Kazakhstan (AFP) — Fisherman Khaldan Kolzhanov's eyes fill with emotion at the sound of the seagulls and the sight of the small waves lapping at the beach.
Here in this corner of southwest Kazakhstan, thanks to the Kokaral dam, vast expanses of sand and salt have finally disappeared.
"Seventeen of the 30 types of Aral Sea fish live there again. My 25-year-old son is learning my trade now," says Kolzhanov, 54, who has struggled to earn a living for more than three decades.
At the start of the 1960s, the Soviet authorities condemned the sea, the size of the republic of Ireland, by diverting water from the Amu Darya river in Uzbekistan and the Syr Darya river in Kazakhstan for irrigation for cotton farming.
The fishing industry was ruined and one after another the different species of native fish disappeared.
The retreat of the water left in its place a desert of salt and chemical fertiliser, a mixture blamed for an explosion in respiratory illnesses and a rise in cancer cases.
Since 2005, however, when the dam, constructed by the World Bank and the Kazakhstan government was completed at a cost of 86 million dollars, the smaller northern part of the Aral has increased in size by 50 percent and seen the return of some of its ecosystem.
At Aralsk, a port which three years ago was 100 kilometres (60 miles) from the water, the edge of the Aral is now visible on the horizon.
At the entrance to the town a sign proclaims proudly: "Good news, the sea is coming back!"
That day will not finally come until another dam is built in a second phase of the World Bank programme. The 300 million dollar project is due to begin in 2009.
But the port, which has endured years of hardship caused by the retreat of the sea, has already seen its fishing industry partly revived.
With some 2,000 tonnes of fish caught last year, catches have risen by 40 percent in three years.
And with the the growth due to continue, business for fish exporters is looking up.
"Our factory is of European standards. We will export to Europe, in particular pike-perch fillets," said Adylbek Aimbetov, co-owner of one factory.
Already, he says, his business is introducing 15 million fish a year to the lakes around the Aral, a figure that he hopes will triple as the sea gradually returns.
For many years only sole survived in the sea after it was introduced in desperation to give the fishermen some source of income.
Now, with salinity in the sea dropping as the waters rise, native species of fish that had disappeared are returning.
World Bank President Robert Zoellick, on a recent visit to Kokaral, said construction of the dam proves "manmade disasters... can be at least partly reversed".
But the success of the dam can never compensate for the enormity of the tragedy inflicted on the Aral which was once the world's fourth largest inland sea.
Sadly, the waters of the larger, southern part of the sea, separated from the northern part for many years, continue to retreat.
"We are doing what is possible for the small sea (in the north). But the southern Aral is beyond saving," says Joop Stoutjesdik, the World Bank's head of irrigation programmes.
"Even if agriculture and irrigation stopped, and you can imagine the social and economic disaster, it would probably take 50 years for the sea to come back," he adds.
Glimmer of hope for shrinking Aral Sea
Wind lashes against four rusty Soviet ships moored where the Aral Sea once lapped at the shores of a vibrant fishing town.
There is not a drop of water to be seen around the port of Aralsk -- a silent testament to decades of Soviet experiments with nature that have turned the Aral Sea, once the world's fourth largest lake, into a salt-encrusted desert.
"Apocalypse" reads graffiti scribbled on one lonely hulk. Cows forage for scraps of dry grass on the exposed seabed where ships once landed passengers and goods.
"All of that was water," said Amanzhol Zholmaganbet, a local resident in his 70s, pointing at Aralsk's dilapidated wharves and the idle cranes that tower over the port. "We wept when the sea disappeared. I cried because I grew up here."
The Aral Sea has shrunk by 70 percent since 1960 when Soviet planners started siphoning off water from its feeder rivers to faraway farming projects, bringing starvation and misery to traditional fishing communities.
Its sea level has dropped by 16 metres, and storms carry salt and dust from its new deserts as far away as the Himalayas.
The sea finally split into two bodies of water in 1990: a big southern part in Uzbekistan and a smaller Kazakh pocket.
"I first noticed the sea started disappearing in 1967," recalled Zholmaganbet. "And then one day water left the port. ... Our sons do not believe there was once water here."
Yet there is a glimmer of hope.
A seven-year project led by the World Bank has helped replenish the smaller northern part of the Aral Sea by trapping water behind a dike -- filling local people with a new sense of optimism and purpose.
"Good news -- the sea is coming back," says a poster in the centre of Aralsk, its muddy streets sparkling with crystals of salt. Flocks of seagulls squawk as they glide above houses, and a faint hint of the sea is in the air.
The 13 km (8 mile) Kok-Aral dike is part of a wider, $86 million project due to be finished this year. Since it was built in 2005, the sea's turquoise waters have crept as close as 25 km to Aralsk port, from a previous distance of 100 km.
"After the small sea started filling up, we started hoping again," said Akshabat Batimova, who is helping start up a new fish-processing plant. "If there is sea, there will be life."
The World Bank is considering a follow-up project with the Kazakh government, at an estimated cost of $300 million, to improve water efficiency and restore Aralsk's waterfront.
Two fish-processing plants will open in Aralsk this year, and the fishing fleet, which vanished in the 1990s, now employs 600 people. Although the local catch remains a fraction of that seen in Soviet times, 16 types of fish, including new species such as the salt-resistant flounder, are netted regularly.
"When I look back today there is only one word that really describes all the changes in this region. It's a miracle," said Kurt Christensen, a Danish environmentalist who has helped restore local fisheries since the early 1990s.
But restoring the whole Aral Sea would require much more.
The larger, Uzbek part is still dying. Uzbekistan -- Central Asia's most populous nation which relies on cotton exports -- would have to shut down its entire water-thirsty textile industry to allow the Amu Darya river to flow back into the sea.
"I am afraid much of it may be lost," World Bank head Robert Zoellick told Reuters during a visit to Kok-Aral on June 19 to oversee the first phase of the project on the Kazakh side.
For Kazakh leader Nursultan Nazarbayev, in power since 1989, restoring livelihoods means ensuring stability in the Kazakh region, whose people have long resented more prosperous compatriots in Central Asia's biggest oil producer.
The Aral Sea area's water-starved villages and salty deserts contrast sharply with other parts of the country, including the capital Astana's skyscrapers, shopping malls and cafes.
"President Nazarbayev had the vision to realise that this was not only an environmental disaster but it was a destructive aspect for this whole region of Kazakhstan," said Zoellick.
But some residents complain the government is not paying enough attention to wider, social problems in the region, where at least a quarter of the population lives in poverty and life expectancy falls short of that for richer Kazakhs.
Others joke with a tinge of sadness that more water is used during international Aral Sea conferences than the amount needed to restore the sea, which remains a big part of people's lives.
Legends are still passed on from generation to generation -- including one about a lost civilisation that once existed on the the rugged seabed.
"In ancient times people grew wine and walnuts here. There was a civilisation long before we Kazakhs came here," said Nurzhamal Muzamuratova, a museum worker. "The sea comes and goes over history. One day it will be back. We hope it will be back."


News Bulletin of the Embassy of the Republic of Kazakhstan
Contact person: Zhanbolat Ussenov
Tel.: 202-232-5488 ext 104; Fax: 202-232-5845
E-mail: zhan@kazakhembus.com