Railway Infrastructure Upside Transit Potential

RESEARCH & KNOWLEDGE MANAGEMENT

SEPTEMBER 2017

Railroad infrastructure One Belt & One Road Table of content Railroad infrastructure Railroad infrastructure Railroad infrastructure CONTENTS 1. Key highlights 1. Key highlights3 Table of content 1. Key highlights 1. Key highlights  Transportation3 sector plays an important role in Kazakhstan’s economy because of its  Transportation sector plays an important role in Kazakhstan’s economy because of its 2. Railway industry overview in Kazakhstan commodity-based 4 orientation and immense territory. Rail transport is the basis of the national commodity-based orientation and immense territory. Rail transport is the basis of the national 2.1. OverviewKey highlights of One Belt & One Road initiative transport 4 3 system, comprising about 46% of country’s overall freight turnover in 2016 (237 bln transport system, comprising about 46% of country’s overall freight turnover in 2016 (237 bln 3. Railroad infrastructure ton -km), 6while automobile transport accounted for 31%, pipeline transport - 22%, air and water ton-km), while automobile transport accounted for 31%, pipeline transport - 22%, air and water 3.2. FinancingRailway industry overview in Kazakhstan transport 8 4 - 1%. transport - 1%. 4. International railway corridors 7 4.3. B&RRailroad initiative infrastructure value proposition and potential benefits Freight106 turnover structure by modes of transportation, bln ton-km (2011-2016) Freight turnover structure by modes of transportation, bln ton-km (2011-2016) 5. Special economic zones 9 600 5.4. ImpactInternational on Kazakhstan railway corridors 147 600 500 6. One Belt & One Road initiative 10 500 6.5. RisksSpecial and economic potential zones challenges 169 400 400 6.1 Program overview 10 300 7.6. ConclusionOne Belt & One Road initiative 1710 300 200 6.2 Potential impact on Kazakhstan 13 200 6.1 Program overview 10 100 100 7. Conclusion 16 0 6.2 Potential impact on Kazakhstan 13 0 2011 2012 2013 2014 2015 2016 2011 2012 2013 2014 2015 2016 7. Conclusion 16 Rail Road Pipelines Inland water and marine Air Rail Road Pipelines Inland water and marine Air

Source: Committee on Statistics of the Republic of Kazakhstan, Samruk-Kazyna Source: Committee on Statistics of the Republic of Kazakhstan, Samruk-Kazyna

 Railway sector’s revenue increased from KZT647bln in 2011 to KZT730bln in 2016,  Railway sector’s revenue increased from KZT647bln in 2011 to KZT730bln in 2016, representing approximately 33% of the overall transportation revenue. Cargo transportation is representing approximately 33% of the overall transportation revenue. Cargo transportation is the dominant source of revenue for the Kazakhstan’s railway industry, with the revenue the dominant source of revenue for the Kazakhstan’s railway industry, with the revenue contribution of over 88%. contribution of over 88%.

 The sector transported more than 22 mln passengers in 2016, compared to 20 mln passengers  The sector transported more than 22 mln passengers in 2016, compared to 20 mln passengers in 2011, while overall passenger turnover reached 17 bln revenue passenger kilometers (rpk), in 2011, while overall passenger turnover reached 17 bln revenue passenger kilometers (rpk), with 5-year CAGR amounting to 1%. Meanwhile, rail freight turnover amounted to 237 bln ton- with 5-year CAGR amounting to 1%. Meanwhile, rail freight turnover amounted to 237 bln ton- km in 2016, compared to 220 bln ton-km in 2011, while the volume of freight transported via km in 2016, compared to 220 bln ton-km in 2011, while the volume of freight transported via railways grew from 277 mln tons in 2011 to 332 mln tons in 2016 with 4% CAGR. railways grew from 277 mln tons in 2011 to 332 mln tons in 2016 with 4% CAGR.

 One Belt & One Road (B&R) initiative comprises two physical routes, with several intermediate  One Belt & One Road (B&R) initiative comprises two physical routes, with several intermediate hubs along the way, connecting China with Europe, Africa and Southeast Asia. The initiative hubs along the way, connecting China with Europe, Africa and Southeast Asia. The initiative will concentrate on the investments in a wide array of assets, including ports, roads, railways, will concentrate on the investments in a wide array of assets, including ports, roads, railways, airports, power plants, oil and gas pipelines and refineries, with total cost of already arranged airports, power plants, oil and gas pipelines and refineries, with total cost of already arranged projects in Asia region amounting to USD250bln. projects in Asia region amounting to USD250bln.

 Kazakhstan’s economy is expected to benefit from B&R program implementation, with Asia-  Kazakhstan’s economy is expected to benefit from B&R program implementation, with Asia- EU-Asia transit volumes transported via Kazakhstan forecasted to increase to 1,700,000 TEU EU-Asia transit volumes transported via Kazakhstan forecasted to increase to 1,700,000 TEU by 2020 from 47,400 TEU in 2015, according to McKinsey estimates. Consequently, B&R is by 2020 from 47,400 TEU in 2015, according to McKinsey estimates. Consequently, B&R is projected to contribute additional 0.7pp-1pp to annual Kazakhstan’s GDP growth by 2021, projected to contribute additional 0.7pp-1pp to annual Kazakhstan’s GDP growth by 2021, creating over 200,000 jobs and driving total investments to more than USD7bln over next five creating over 200,000 jobs and driving total investments to more than USD7bln over next five years. 2 years.

REFER TO DISCLAIMER & DISCLOSURES AT THE END OF THIS PUBLICATION 3 2 3

Railroad infrastructure One Belt & One Road Table of content Railroad infrastructure Railroad infrastructure Railroad infrastructure CONTENTS 1. Key highlights 3 1. Key highlights Table of content 1. Key highlights 1. Key highlights 3  Transportation sector plays an important role in Kazakhstan’s economy because of its  Transportation sector plays an important role in Kazakhstan’s economy because of its 2. Railway industry overview in Kazakhstan 4 commodity-based orientation and immense territory. Rail transport is the basis of the national commodity-based orientation and immense territory. Rail transport is the basis of the national 2.1. OverviewKey highlights of One Belt & One Road initiative 4 3 transport system, comprising about 46% of country’s overall freight turnover in 2016 (237 bln transport system, comprising about 46% of country’s overall freight turnover in 2016 (237 bln 3. Railroad infrastructure 6 ton-km), while automobile transport accounted for 31%, pipeline transport - 22%, air and water ton-km), while automobile transport accounted for 31%, pipeline transport - 22%, air and water 3.2. FinancingRailway industry overview in Kazakhstan 8 4 transport - 1%. transport - 1%. 4. International railway corridors 7 4.3. B&RRailroad initiative infrastructure value proposition and potential benefits 106 Freight turnover structure by modes of transportation, bln ton-km (2011-2016) Freight turnover structure by modes of transportation, bln ton-km (2011-2016) 5. Special economic zones 9 600 5.4. ImpactInternational on Kazakhstan railway corridors 147 600 500 6. One Belt & One Road initiative 10 500 6.5. RisksSpecial and economic potential zones challenges 169 400 400 6.1 Program overview 10 300 7.6. ConclusionOne Belt & One Road initiative 1710 300 200 6.2 Potential impact on Kazakhstan 13 200 6.1 Program overview 10 100 100 7. Conclusion 16 0 6.2 Potential impact on Kazakhstan 13 0 2011 2012 2013 2014 2015 2016 2011 2012 2013 2014 2015 2016 7. Conclusion 16 Rail Road Pipelines Inland water and marine Air Rail Road Pipelines Inland water and marine Air

Source: Committee on Statistics of the Republic of Kazakhstan, Samruk-Kazyna Source: Committee on Statistics of the Republic of Kazakhstan, Samruk-Kazyna

REFER TO DISCLAIMER & DISCLOSURES AT THE END OF THIS PUBLICATION 3 2 3

Railroad infrastructure Railroad infrastructure Railroad infrastructure

1. Key highlights 2. Railroad industry overview in Kazakhstan The sector transported more than 22 mln passengers in 2016, compared to 20 mln passengers in 2011,  Kazakhstan is characterized by significant distances both between population centers and Transportation between sector plays an important rolewhile in overall Kazakhstan passenger’s economy turnover because reached 17of blnits revenue passenger kilometers (rpk) in 2016, with 5- suppliers of raw materials and their intermediate or end customers. Transportation sectorcommodity-based plays an orientation and immense territory.year CAGR Rail transportamounting is tothe 1%. basis of the national transport system, comprising about 46% of country’s overall freight turnover in 2016 (237 bln important role in the country’s economy because of its commodity-based orientation and immense territory. Water transport accounts for only negligible part of the total freight turnover due to tonthe-km), country’ whiles automobile transport accounted for 31%, pipeline Kazakhstan’stransport - 22%, railway air and sector water passenger turnover (2011-2016) transport - 1%. continental location while automobile transport is not favorable for long distances due to high cost. 35,000 Consequently, rail transport is the basis of the national transport system, comprising aboutFreight 46% turnover of structure by modes of transportation, bln ton-30,000km (2011-2016) Kazakhstan’s overall freight turnover in 2016 (237 bln ton-km), while automobile transport accounted 600 25,000 for 31%, pipeline transport - 22%, air and water transport - 1%. However, by the volume of transportation 500 20,000 (tons) automobile transport exceeds rail transport by more than nine times, constituting around 85% of 15,000 400 overall freight volume transported in 2016. This can partially be explained by a relatively short average 10,000 distance of automobile transport, compared to railways. 300 5,000

200 0 Freight turnover structure by modes of transportation, bln ton-km (2011-2016) 2011 2012 2013 2014 2015 2016 100 600 Passenger turnover, rpk mln Passengers transported, '000 0 500 2011 2012 2013 2014 2015 2016 Source: Committee on Statistics of the Republic of Kazakhstan, Samruk-Kazyna 400 Rail Road Pipelines Inland water and marine Air 300 Rail freight turnover amounted to 237 bln ton-km in 2016, compared to 220 bln ton-km in 2011, while Source: Committee on Statistics of the Republic of Kazakhstan,the volumeSamruk-Kazyna of freight transported via railways grew from 277 mln tons in 2011 to 332 mln tons in 2016 200 with 4% CAGR. 100  Railway sector’s revenue increased from KZT647bln in 2011 to KZT730bln in 2016, representing approximately 33% of the overall transportation revenue. Cargo transportation is 0 Kazakhstan’s railway sector freight turnover (2011-2016) the dominant source of revenue for the Kazakhstan’s railway industry, with the revenue 2011 2012 2013 2014 2015 2016 contribution of over 88%. 350,000 Rail Road Pipelines Inland water and marine Air 300,000  The sector transported more than 22 mln passengers in 2016, compared250,000 to 20 mln passengers Source: Committee on Statistics of the Republic of Kazakhstan, Samruk-Kazyna in 2011, while overall passenger turnover reached 17 bln revenue passenger200,000 kilometers (rpk), with 5-year CAGR amounting to 1%. Meanwhile, rail freight turnover150,000 amounted to 237 bln ton- Railway sector’s revenue increased from KZT647bln in 2011 to KZT730bln in 2016, representing 100,000 km in 2016, compared to 220 bln ton-km in 2011, while the volume of freight transported via approximately 33% of the overall transportation revenue. Cargo transportation is the dominant source 50,000 railways grew from 277 mln tons in 2011 to 332 mln tons in 2016 with 4% CAGR. of revenue for the Kazakhstan’s railway industry, with the revenue contribution of over 88%. 0 2011 2012 2013 2014 2015 2016  Kazakhstan's railway sector revenue, KZT mln (2011-2016) One Belt & One Road (B&R) initiative comprises two physical routes, with several intermediate hubs along the way, connecting China with Europe, Africa and Southeast Asia. TheFreight initiative turnover, mln ton-km will concentrate on the investments in a wide array of assets, including ports, roads,Freight railways, transported, '000 tons 800,000 airports, power plants, oil and gas pipelines and refineries, with total cost of already arranged Source: Committee on Statistics of the Republic of Kazakhstan, Samruk-Kazyna 600,000 projects in Asia region amounting to USD250bln.

400,000 Investments in fixed assets in the transportation sector amounted to KZT555,528mln in 2015, compared  Kazakhstan’s economy is expected to benefit from B&R program implementation, with Asia- to KZT647,794mln in 2014. Investments in pipeline and railroad transport accounted for 89% of the total EU-Asia transit volumes transported via Kazakhstan forecasted to increase to 1,700,000 TEU 200,000 investments in 2015, while railroad infrastructure investments stood at KZT175,049mln, compared to by 2020 from 47,400 TEU in 2015, according to McKinsey estimates. Consequently, B&R is 0 KZT205,799mln year earlier, implying that the transportation sector optimizes its capital expenditures projected to contribute additional 0.7pp-1pp to annual Kazakhstan’s GDP growth by 2021, 2011 2012 2013 2014 2015 2016 in the period of moderate macroeconomic conditions. creating over 200,000 jobs and driving total investments to more than USD7bln over next five Passenger revenue Freight revenue years.

Source: Committee on Statistics of the Republic of Kazakhstan, Samruk-Kazyna 3 4 5

Railroad infrastructure Railroad infrastructure Railroad infrastructure

1. Key highlights 2. Railroad industry overview in Kazakhstan The sector transported more than 22 mln passengers in 2016, compared to 20 mln passengers in 2011,  Kazakhstan is characterized by significant distances both between population centers and between while overall Transportation passenger turnoversector plays reached an 17important bln revenue role passengerin Kazakhstan kilometers’s economy (rpk) inbecause 2016, with of 5-its suppliers of raw materials and their intermediate or end customers. Transportation sector plays an year CAGRcommodity-based amounting to 1 %.orientation and immense territory. Rail transport is the basis of the national transport system, comprising about 46% of country’s overall freight turnover in 2016 (237 bln important role in the country’s economy because of its commodity-based orientation and immense territory. Water transport accounts for only negligible part of the total freight turnover due to the country’s ton-km), whileKazakhstan’s automobile railway transport sector accounted passenger for 31%, turnover pipeline (2011 transport-2016) - 22%, air and water transport - 1%. continental location while automobile transport is not favorable for long distances due to high cost. 35,000 Consequently, rail transport is the basis of the national transport system, comprising about 46% of Freight turnover30,000 structure by modes of transportation, bln ton-km (2011-2016) Kazakhstan’s overall freight turnover in 2016 (237 bln ton-km), while automobile transport accounted 25,000600 for 31%, pipeline transport - 22%, air and water transport - 1%. However, by the volume of transportation 20,000500 (tons) automobile transport exceeds rail transport by more than nine times, constituting around 85% of 15,000 400 overall freight volume transported in 2016. This can partially be explained by a relatively short average 10,000 distance of automobile transport, compared to railways. 5,000300

2000 Freight turnover structure by modes of transportation, bln ton-km (2011-2016) 2011 2012 2013 2014 2015 2016 100 600 Passenger turnover, rpk mln Passengers transported, '000 0 500 2011 2012 2013 2014 2015 2016 Source: Committee on Statistics of the Republic of Kazakhstan, Samruk-Kazyna 400 Rail Road Pipelines Inland water and marine Air 300 Rail freight turnover amounted to 237 bln ton-km in 2016, compared to 220 bln ton-km in 2011, while theSource: volume Committee of freight on transportedStatistics of the via Republic railways of grew Kazakhstan, from 277 Samruk-Kazyna mln tons in 2011 to 332 mln tons in 2016 200 with 4% CAGR. 100  Railway sector’s revenue increased from KZT647bln in 2011 to KZT730bln in 2016, representing approximately 33% of the overall transportation revenue. Cargo transportation is 0 Kazakhstan’s railway sector freight turnover (2011-2016) the dominant source of revenue for the Kazakhstan’s railway industry, with the revenue 2011 2012 2013 2014 2015 2016 contribution of350,000 over 88%. Rail Road Pipelines Inland water and marine Air 300,000  The sector transported250,000 more than 22 mln passengers in 2016, compared to 20 mln passengers Source: Committee on Statistics of the Republic of Kazakhstan, Samruk-Kazyna in 2011, while200,000 overall passenger turnover reached 17 bln revenue passenger kilometers (rpk), with 5-year CAGR150,000 amounting to 1%. Meanwhile, rail freight turnover amounted to 237 bln ton- Railway sector’s revenue increased from KZT647bln in 2011 to KZT730bln in 2016, representing 100,000 km in 2016, compared to 220 bln ton-km in 2011, while the volume of freight transported via approximately 33% of the overall transportation revenue. Cargo transportation is the dominant source 50,000 railways grew from 277 mln tons in 2011 to 332 mln tons in 2016 with 4% CAGR. of revenue for the Kazakhstan’s railway industry, with the revenue contribution of over 88%. 0 2011 2012 2013 2014 2015 2016  Kazakhstan's railway sector revenue, KZT mln (2011-2016) One Belt & One Road (B&R) initiative comprises two physical routes, with several intermediate hubs along the way, connectingFreight China turnover, with Europe, mln ton-km Africa and Southeast Asia. The initiative will concentrate on the investmentsFreight in transported, a wide array '000 of tons assets, including ports, roads, railways, 800,000 airports, power plants, oil and gas pipelines and refineries, with total cost of already arranged Source: Committee on Statistics of the Republic of Kazakhstan, Samruk-Kazyna 600,000 projects in Asia region amounting to USD250bln.

Source: Committee on Statistics of the Republic of Kazakhstan, Samruk-Kazyna 3 4 5

Railroad infrastructure Railroad infrastructure Railroad infrastructure

1. Key highlights Fixed asset investments by mode of transportation, KZT mln (2011-2015) The track network stretches over 15,530 km, of which 4,217 km are electrified, and only 4,900 km is  Transportation sector plays an important role in Kazakhstan’s economy because of its 2011 2012 2013 2014 2015 double - track railway. High share of single-track railway limits the capacity of additional freight turnover commodity-based orientation and immense territory. Rail transport is the basis of the national Railroad 218,654 253,054 243,085 205,799 175,049 and significantly decrease the train speed, especially during high traffic density, with high-speed lines transport system, comprising about 46% of country’s overall freight turnover in 2016 (237 bln Automobile 24,257 27,687 29,875 27,778 46,531 with more than 250 kmh not available yet. ton-km), while automobile transport accounted for 31%, pipeline transport - 22%, air and water Pipeline 148,017 193,177 635,956 385,459 320,491 transport - 1%. Inland water 13 8 1 22 1 Kazakhstan’s railway system consists of nine mainline railway networks and has 16 connection points Sea 20,030 1,409 2,965 4,719 1,482 with rail networks of neighboring countries, of which 11 are connected with Russia’s railway network, Freight turnover structure by modes of transportation, bln ton-km (2011-2016) Air 10,298 19,866 51,938 24,017 11,974 two with China’s and one with Kyrgyzstan, Uzbekistan and Turkmenistan respectively. The majority of Total investments 421,269 495,201 963,820 647,794 555,528 600 transport corridors have a north-south direction because most of railway lines were constructed during the period of Soviet Union, implying interdependence between railway systems of Kazakhstan and Source: Committee on Statistics of the Republic of Kazakhstan, Samruk-Kazyna 500 Russia. 400 Tariffs in the railroad sector rose significantly during 2010-2012 due to intensive investment requirements. Tariffs for accessing mainline railway network (MRN) are set and approved by the Agency 300 Mainline railway networks in Kazakhstan of the Republic of Kazakhstan on regulation of natural monopolies (AREM). The MRN tariff (domestic, Freight turnover, 200 Mainline network Brief Description Length, km import and export) methodology is cost-plus, reimbursing all economically justified expenses arising bln ton-km from the provision of services and corresponding investments. 100 Aktau - Beineu - Makat - Connects Western Kazakhstan to Kandyagash - Arys - the Kazakhstan-China border 0 29.6 4,121 Freight transportation tariff indices (2010-2016) 2011 2012 2013 Lugovaya2014 - Almaty2015 - Aktogay2016 through the southern regions of - Dostyk Kazakhstan 2010 2011 2012 2013 2014 2015 2016 Rail Road Pipelines Inland water and marine Air Connects the Kazakhstan-Russia Railroad 119.1 121.5 114.8 101.7 105.7 120.8 103.9 Presnogorskaya - Kokshetau Source: Committee on Statistics of the Republic of Kazakhstan, Samruk-Kazyna border to the Kazakhstan-China 22.6 2,043 Automobile 102.1 103.4 105.0 101.4 103.2 98.4 101.6 - Astana - Dostyk border Pipeline 100.1 108.8 118.5 103.3 124.2 135.2 105.6  Railway sector’s revenue increased from KZT647blnPetropavlovsk in 2011 - Astana to KZT730bln - Connects in 2016, Northern Kazakhstan to Inland water 164.9 114.7 104.5 100.4 103.1 99.5 100.0 19.9 1,902 representing approximately 33% of the overall transportationDostyk revenue. Cargo transportationthe Kazakhstan is -China border Air 100.0 100.0 104.3 100.0 100.0 100.0 122.3 the dominant source of revenue for the Kazakhstan’s railway industry, withConnects the revenue Northern Kazakhstan to Source: Committee on Statistics of the Republic of Kazakhstan, Samruk-Kazyna Tobol – Astana 14.4 665 contribution of over 88%. Astana Iletsk - Aktobe - Kandyagash Connects Russia to Southern 3. Railroad infrastructure 11.3 1,754  The mainline railway network is Kazakhstan’s strategic asset and is not subject to privatization. The sector KTZ transported more than 22 mln passengers- inArys 2016, - Saryagash compared to 20 mln passengersKazakhstan provides access to the mainline railway network in accordance with tariff set by thein Agency 2011, while for overall passenger turnover reachedOzinki 17 bln- Kandyagash revenue passenger - Arys - kilometersConnects (rpk) Western, Kazakhstan- Regulation of Natural Monopolies (AREM). The company is also responsible for building,with maintaining 5-year CAGR amounting to 1%. Meanwhile,Lugovaya rail freight - Almaty turnover – Aktogayamounted toRussia 237 bln border ton- to the Kazakhstan- 22.9 3,708 and modernizing railway system in Kazakhstan, being the only entity authorized to operatekm and in manage 2016, compared to 220 bln ton-km in 2011, while the- Dostyk volume of freight transportedChina via border railways grew from 277 mln tons in 2011 to 332 mln tons in 2016 with 4% CAGR.Connects Southern Kazakhstan- the domestic railway track. Saryagash - Arys - Lugovaya Russia border to the Kazakhstan- 13.7 1,824 - Aktogay - Dostyk  Kazakhstan's rail network composition (2016) One Belt & One Road (B&R) initiative comprises two physical routes, with several intermediateChina border hubs along the way, connecting China with Europe, Africa and Southeast Asia. ConnectsThe initiative Western Kazakhstan- Aksarayskaya - Makat - will concentrate on the investments in a wide array of assets, including ports, roads,Russia railways, border to the Kazakhstan- 7 826 Beineu - Oasis airports, power plants, oil and gas pipelines and refineries, with total cost of already arrangedUzbekistan border 27% projects in Asia region amounting to USD250bln.Source: KTZ, Samruk-Kazyna

 Kazakhstan’s economy is expected to benefit4. from International B&R program railway implementation, corridors with Asia- EU-Asia transit volumes transported via KazakhstanKazakhstan’s forecasted railway to increasenetwork tocontains 1,700,000 a number TEU of international transport routes, formally included in 73% by 2020 from 47,400 TEU in 2015, accordingthe to McKinseysystem of estimates. Euro-Asian Consequently, land corridors. B&R Sino-Kazakh is transport corridor from the sea port of projected to contribute additional 0.7pp-1pp Lianyungangto annual Kazakhstan’s (the eastern GDP coast growth of China) by 2021,through the border crossing Dostyk - Alashankou and the creating over 200,000 jobs and driving total investmentsterritory of Kazakhstan,to more than with USD7bln access over to the next road five network in Russia, takes a special place. Improvement Electrified Non-electrified years. of railway infrastructure in the corridors is a real step in the gradual increase of competitiveness of Kazakhstan's transport system in the Euro-Asian international transport routes. Source: Committee on Statistics of the Republic of Kazakhstan, Samruk-Kazyna 3 6 7

Railroad infrastructure Railroad infrastructure Railroad infrastructure

1. Key highlights Fixed asset investments by mode of transportation, KZT mln (2011-2015) The track network stretches over 15,530 km, of which 4,217 km are electrified, and only 4,900 km is  Transportation sector plays an important role in Kazakhstan’s economy because of its 2011 2012 2013 2014 2015 double - track railway. High share of single-track railway limits the capacity of additional freight turnover commodity-based orientation and immense territory. Rail transport is the basis of the national Railroad 218,654 253,054 243,085 205,799 175,049 and significantly decrease the train speed, especially during high traffic density, with high-speed lines transport system, comprising about 46% of country’s overall freight turnover in 2016 (237 bln Automobile 24,257 27,687 29,875 27,778 46,531 with more than 250 kmh not available yet. ton-km), while automobile transport accounted for 31%, pipeline transport - 22%, air and water Pipeline 148,017 193,177 635,956 385,459 320,491 transport - 1%. Inland water 13 8 1 22 1 Kazakhstan’s railway system consists of nine mainline railway networks and has 16 connection points Sea 20,030 1,409 2,965 4,719 1,482 with rail networks of neighboring countries, of which 11 are connected with Russia’s railway network, Freight turnover structure by modes of transportation, bln ton-km (2011-2016) Air 10,298 19,866 51,938 24,017 11,974 two with China’s and one with Kyrgyzstan, Uzbekistan and Turkmenistan respectively. The majority of Total investments 421,269 495,201 963,820 647,794 555,528 transport corridors have a600 north-south direction because most of railway lines were constructed during the period of Soviet Union, implying interdependence between railway systems of Kazakhstan and Source: Committee on Statistics of the Republic of Kazakhstan, Samruk-Kazyna 500 Russia. 400 Tariffs in the railroad sector rose significantly during 2010-2012 due to intensive investment requirements. Tariffs for accessing mainline railway network (MRN) are set and approved by the Agency 300 Mainline railway networks in Kazakhstan of the Republic of Kazakhstan on regulation of natural monopolies (AREM). The MRN tariff (domestic, Freight turnover, Mainline network 200 Brief Description Length, km import and export) methodology is cost-plus, reimbursing all economically justified expenses arising bln ton-km from the provision of services and corresponding investments. Aktau - Beineu - Makat100 - Connects Western Kazakhstan to Kandyagash - Arys - the Kazakhstan-China border 0 29.6 4,121 Freight transportation tariff indices (2010-2016) Lugovaya - Almaty - Aktogay 2011through2012 the southern2013 regions2014 of 2015 2016 - Dostyk Kazakhstan 2010 2011 2012 2013 2014 2015 2016 Rail Road Pipelines Inland water and marine Air Connects the Kazakhstan-Russia Railroad 119.1 121.5 114.8 101.7 105.7 120.8 103.9 Presnogorskaya - Kokshetau Source: Committee on Statistics of theborder Republic to ofthe Kazakhstan, Kazakhstan Samruk-Kazyna-China 22.6 2,043 Automobile 102.1 103.4 105.0 101.4 103.2 98.4 101.6 - Astana - Dostyk border Pipeline 100.1 108.8 118.5 103.3 124.2 135.2 105.6 Petropavlovsk Railway sector’s- Astana revenue- Connects increased Northern from KazakhstanKZT647bln to in 2011 to KZT730bln in 2016, Inland water 164.9 114.7 104.5 100.4 103.1 99.5 100.0 19.9 1,902 representingDostyk approximatelythe 33% Kazakhstan of the overall-China transportation border revenue. Cargo transportation is Air 100.0 100.0 104.3 100.0 100.0 100.0 122.3 the dominant source of Connectsrevenue Northernfor the Kazakhstan’s Kazakhstan torailway industry, with the revenue Source: Committee on Statistics of the Republic of Kazakhstan, Samruk-Kazyna Tobol – Astana 14.4 665 contribution of over 88%. Astana Iletsk - Aktobe - Kandyagash Connects Russia to Southern 3. Railroad infrastructure 11.3 1,754  The mainline railway network is Kazakhstan’s strategic asset and is not subject to privatization. KTZ - Arys The sector- Saryagash transported more than 22Kazakhstan mln passengers in 2016, compared to 20 mln passengers provides access to the mainline railway network in accordance with tariff set by the Agency for Ozinki -inKandyagash 2011, while -overallArys - passengerConnects turnover Western reached Kazakhstan 17 bln -revenue passenger kilometers (rpk), Regulation of Natural Monopolies (AREM). The company is also responsible for building, maintaining Lugovayawith - Almaty5-year CAGR– Aktogay amounting Russia to 1%.border Meanwhile, to the Kazakhstan rail freight- turnover22.9 amounted to 2373,708 bln ton- and modernizing railway system in Kazakhstan, being the only entity authorized to operate and manage km -inDostyk 2016, compared to 220 bln ton-kmChina borderin 2011, while the volume of freight transported via railways grew from 277 mlnConnects tons in 2011Southern to 332 Kazakhstan mln tons in- 2016 with 4% CAGR. the domestic railway track. Saryagash - Arys - Lugovaya Russia border to the Kazakhstan- 13.7 1,824 - Aktogay - Dostyk  Kazakhstan's rail network composition (2016) One Belt & One Road (B&R) initiativeChina comprises border two physical routes, with several intermediate hubs along the way, connectingConnects China Western with Europe, Kazakhstan Africa- and Southeast Asia. The initiative Aksarayskaya - Makat - will concentrate on the investmentsRussia border in a towide the arrayKazakhstan of assets,- including7 ports, roads, 826railways, Beineu - Oasis airports, power plants, oil and gasUzbekistan pipelines andborder refineries, with total cost of already arranged 27% Source: KTZ,projects Samruk-Kazyna in Asia region amounting to USD250bln.

4. International Kazakhstan’s railway economy corridors is expected to benefit from B&R program implementation, with Asia- Kazakhstan’sEU-Asia railway transit network volumes contains transported a number via Kazakhstanof international forecasted transport to routes, increase formally to 1,700,000 included TEU in 73% the systemby 2020of Euro-Asian from 47,400 land TEU corridors. in 2015, accordingSino-Kazakh to McKinseytransport estimates.corridor from Consequently, the sea port B&R of is Lianyungangprojected (the easternto contribute coast additionalof China) through0.7pp-1pp the toborder annual crossing Kazakhstan’s Dostyk GDP- Alashankou growth byand 2021, the territory ofcreating Kazakhstan, over 200,000 with access jobs toand the driving road network total investments in Russia, totakes more a thanspecial USD7bln place. Improvementover next five Electrified Non-electrified of railwayyears. infrastructure in the corridors is a real step in the gradual increase of competitiveness of Kazakhstan's transport system in the Euro-Asian international transport routes. Source: Committee on Statistics of the Republic of Kazakhstan, Samruk-Kazyna 3 6 7

Railroad infrastructure Railroad infrastructure Railroad infrastructure

1. Key highlights Kazakhstan’s railway system forms part of five international transport corridors, which facilitate the The TRACECA corridor, by contrast, has the potential to carry only around 1% of total transport volume,  Transportation sector plays an important role in Kazakhstan’s economy because of its delivery of freight between Asia and Europe. The Trans-Siberian and Trans-Asian railway corridor could owing to the many obstacles along this route. The Trans-Siberian (TSR) and the Trans-Asian railway commodity-based orientation and immense territory. Rail transport is the basis of the national potentially carry around 10% (1,700,000 TEU) of the total EU-Asia transport volume in 2020, provided corridors are the most attractive ones at present, with the Kazakhstan’s corridor being slightly more transport system, comprising about 46% of country’s overall freight turnover in 2016 (237 bln that most physical and institutional barriers are removed and assuming constant trade volumes between attractive than TSR. ton-km), while automobile transport accounted for 31%, pipeline transport - 22%, air and water the EU and China. transport - 1%. By 2020, TSR is forecasted to be most practical for railway transports from Northern Europe, followed International railway corridors by the Trans-Asian Route. This is partly due the fact that the TSR route involves the fewest number of Freight turnover structure by modes of transportation, bln ton-km (2011-2016) International border crossings and transshipments. railway Description Characteristics Comments 600 corridors 500 However, the Trans-Asian Route potentially offers the shortest distance, shortest transit time, and The second most lowest transportation costs for cargo from China’s coastal or inland provinces. If the transshipment at 400 developed corridor and China and Kazakhstan the Dostyk-Alashankou border crossing is improved, the Trans-Asian Route will be the most optimal referred to as the “second The total distance is use different gauges. 300 option for railway transport from Northern Europe to Western China. Northern Eurasian overland bridge”. 11,516 km, 89% of This poses a major 200 Trans-Asian It runs from Lianyungang which is double tracked, problem since Railway corridors going through Kazakhstan railway through Central and 29% - electrified. containerized cargoes 100 Northwest China, have to be reloaded by 0 Kazakhstan and Russia to crane. 2011 2012 2013 2014 2015 2016 Western Europe. Rail Road Pipelines Inland water and marine Air It starts from Lianyungang The different gauges and passes through The total distance is requireSource: transshipment Committee at on Statistics of the Republic of Kazakhstan, Samruk-Kazyna Southern Dostyk, Almaty, Tashkent, 10,989 km, 10% of two points. The Iranian Trans-Asian Iran and Turkey before which is double tracked, part is single trackRailway and sector’s revenue increased from KZT647bln in 2011 to KZT730bln in 2016, railway reaching the 46% - electrified. not electrified. representingIn Turkey, approximately 33% of the overall transportation revenue. Cargo transportation is Mediterranean and Black trains have to crossthe dominant Lake source of revenue for the Kazakhstan’s railway industry, with the revenue Sea ports. Van by ferry. contribution of over 88%. Connects Eastern Europe This project includes Cargoes are shipped with Central Asia via Black Dostyk - Tashkent - mainly from west The to sector east, transported more than 22 mln passengers in 2016, compared to 20 mln passengers Sea, and Caucasus and Ashgabad - with mostly emptyin 2011, while overall passenger turnover reached 17 bln revenue passenger kilometers (rpk), Caspian Sea (Dostyk – Turkmenbashi - Baku - wagons travellingwith in 5-year the CAGR amounting to 1%. Meanwhile, rail freight turnover amounted to 237 bln ton- TRACECA Almaty – Aktau, including Tbilisi - Poti route with opposite direction.km in This 2016, compared to 220 bln ton-km in 2011,Source: while Ministry the forvolume Investments of freight and transportedDevelopment via Zhezkazgan – Beineu, sea ferry connections to has a negativerailways effect on grew from 277 mln tons in 2011 to 332 mln tons in 2016 with 4% CAGR. Akhalkali (Georgia) – Kars Odessa, Varna, the efficiency of Caspian 5. Special economic zones (Turkey)). Constanta and Istanbul. and Black Sea One ferry Belt lines. & One Road (B&R) initiative comprisesTo twobetter physical complement routes, withthe expectedseveral intermediate increase in cargo traffic passing through the new Eurasia land Access of Central Asia and hubs along the way, connecting China with Europe,bridge, Africa10 special and Southeasteconomic zonesAsia. The(SEZs), initiative all with different sectorial focus and priority activities, are Russia to the Middle East will concentrate on the investments in a wide beingarray offounded assets, and including further ports,developed roads, across railways, Kazakhstan, including the USD3.5bln Khorgos-East Gate and South Asia and the airports, power plants, oil and gas pipelines andSEZ refineries, near the with Chinese-Kazakh total cost of already border. arranged SEZs are being established to encourage trade, and offers Indian Ocean. Kazakhstan, The total distance is projects in Asia region amounting to USD250bln.advantageous terms to businesses. North-South Turkmenistan and Iran 6,191 km. corridor made investments to  Kazakhstan’s economy is expected to benefitKhorgos-East from B&R program Gate SEZ, implementation, located on the with border Asia -between China and Kazakhstan, has fast become one develop this route, called EU-Asia transit volumes transported via Kazakhstanof the anchor forecasted projects to increase for transforming to 1,700,000 Kazakhstan TEU into a major commercial and transportation hub of Uzen-Kyzylkaya-Bereket- by 2020 from 47,400 TEU in 2015, accordingthe to EurasianMcKinsey continent. estimates. The Consequently, zone hosts several B&R isfacilities: International Center for Boundary Cooperation Etrel. projected to contribute additional 0.7pp-1pp (ICBC),to annual a dryKazakhstan’s port, logistics GDP and growth industrial by zones,2021, ready connection with the Zhetygen-Khorgos railway Source: EU-Central Asia Monitoring, Samruk-Kazyna creating over 200,000 jobs and driving total investmentsand West Europe-West to more than China USD7bln highway over andnext a five package of attractive fiscal benefits, including exemption years. from import tariffs, land tax, property tax and value-added tax.

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Railroad infrastructure Railroad infrastructure Railroad infrastructure

1. Key highlights Kazakhstan’s railway system forms part of five international transport corridors, which facilitate the The TRACECA corridor, by contrast, has the potential to carry only around 1% of total transport volume,  Transportation sector plays an important role in Kazakhstan’s economy because of its delivery of freight between Asia and Europe. The Trans-Siberian and Trans-Asian railway corridor could owing to the many obstacles along this route. The Trans-Siberian (TSR) and the Trans-Asian railway commodity-based orientation and immense territory. Rail transport is the basis of the national potentially carry around 10% (1,700,000 TEU) of the total EU-Asia transport volume in 2020, provided corridors are the most attractive ones at present, with the Kazakhstan’s corridor being slightly more transport system, comprising about 46% of country’s overall freight turnover in 2016 (237 bln that most physical and institutional barriers are removed and assuming constant trade volumes between attractive than TSR. ton-km), while automobile transport accounted for 31%, pipeline transport - 22%, air and water the EU and China. transport - 1%. By 2020, TSR is forecasted to be most practical for railway transports from Northern Europe, followed International railway corridors by the Trans-Asian Route. This is partly due the fact that the TSR route involves the fewest number of Freight turnover structure by modes of transportation, bln ton-km (2011-2016) International border crossings and transshipments. railway Description Characteristics Comments 600 corridors However, the Trans-Asian500 Route potentially offers the shortest distance, shortest transit time, and The second most lowest transportation costs for cargo from China’s coastal or inland provinces. If the transshipment at 400 developed corridor and China and Kazakhstan the Dostyk-Alashankou border crossing is improved, the Trans-Asian Route will be the most optimal referred to as the “second The total distance is use different gauges. option for railway transport300 from Northern Europe to Western China. Northern Eurasian overland bridge”. 11,516 km, 89% of This poses a major 200 Trans-Asian It runs from Lianyungang which is double tracked, problem since Railway corridors going through Kazakhstan railway through Central and 29% - electrified. containerized cargoes 100 Northwest China, have to be reloaded by 0 Kazakhstan and Russia to crane. 2011 2012 2013 2014 2015 2016 Western Europe. Rail Road Pipelines Inland water and marine Air It starts from Lianyungang The different gauges and passes through The total distance is require transshipment at Source: Committee on Statistics of the Republic of Kazakhstan, Samruk-Kazyna Southern Dostyk, Almaty, Tashkent, 10,989 km, 10% of two points. The Iranian Trans-Asian Iran and Turkey before which is double tracked, part is single track and  Railway sector’s revenue increased from KZT647bln in 2011 to KZT730bln in 2016, railway reaching the 46% - electrified. not electrified. In Turkey, representing approximately 33% of the overall transportation revenue. Cargo transportation is Mediterranean and Black trains have to cross Lake the dominant source of revenue for the Kazakhstan’s railway industry, with the revenue Sea ports. Van by ferry. contribution of over 88%. Connects Eastern Europe This project includes Cargoes are shipped with Central Asia via Black Dostyk - Tashkent - mainly from west to east,  The sector transported more than 22 mln passengers in 2016, compared to 20 mln passengers Sea, and Caucasus and Ashgabad - with mostly empty in 2011, while overall passenger turnover reached 17 bln revenue passenger kilometers (rpk), Caspian Sea (Dostyk – Turkmenbashi - Baku - wagons travelling in the with 5-year CAGR amounting to 1%. Meanwhile, rail freight turnover amounted to 237 bln ton- TRACECA Almaty – Aktau, including Tbilisi - Poti route with opposite direction. This Source: Ministrykm in for2016, Investments compared and to Development 220 bln ton-km in 2011, while the volume of freight transported via Zhezkazgan – Beineu, sea ferry connections to has a negative effect on railways grew from 277 mln tons in 2011 to 332 mln tons in 2016 with 4% CAGR. Akhalkali (Georgia) – Kars Odessa, Varna, the efficiency of Caspian 5. Special economic zones (Turkey)). Constanta and Istanbul. and Black Sea ferry lines. To better One complement Belt & One the Road expected (B&R) increaseinitiative comprisesin cargo traffic two physical passing routes, through with the several new Eurasia intermediate land Access of Central Asia and bridge, 10hubs special along economic the way, zones connecting (SEZs), China all with with different Europe, sectorial Africa and focus Southeast and priority Asia. activities, The initiative are Russia to the Middle East being foundedwill concentrate and further on developed the investments across Kazakhstan,in a wide array including of assets, the includingUSD3.5bln ports, Khorgos-East roads, railways, Gate and South Asia and the SEZ nearairports, the Chinese-Kazakh power plants, oilborder. and gas SEZ pipeliness are being and refineries,established with to encouragetotal cost of trade, already and arranged offers Indian Ocean. Kazakhstan, The total distance is advantageousprojects terms in Asia to businesses. region amounting to USD250bln. North-South Turkmenistan and Iran 6,191 km. corridor made investments to Khorgos-East Kazakhstan’s Gate SEZ, economy located ison expected the border to betweenbenefit from China B&R and program Kazakhstan, implementation, has fast become with Asia one - develop this route, called of the anchorEU-Asia projects transit for volumes transforming transported Kazakhstan via Kazakhstan into a major forecasted commercial to increase and transportation to 1,700,000 hub TEU of Uzen-Kyzylkaya-Bereket- the Eurasianby 2020 continent. from 47,400The zone TEU hosts in 2015,several according facilities: toInternational McKinsey Centerestimates. for Boundary Consequently, Cooperatio B&R nis Etrel. (ICBC), aprojected dry port, logisticsto contribute and industrialadditional zones, 0.7pp-1pp ready toconnection annual K azakhstan’swith the Zhetygen-Khorgos GDP growth by railway 2021, Source: EU-Central Asia Monitoring, Samruk-Kazyna and Westcreating Europe-West over 200,000 China highway jobs and and driving a package total investments of attractive to fiscal more benefits, than USD7bln including over exemption next five from importyears. tariffs, land tax, property tax and value-added tax.

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Railroad infrastructure Railroad infrastructure Railroad infrastructure

1. Key highlights Khorgos’s capacity currently is 200,000 containers per year and is expected to reach 500,000 by 2020. B&R initiative coverage map  China was a major supplier of funds, whereby China’s Jiangsu province recently promised Transportation to invest sector plays an important role in Kazakhstan’s economy because of its more than USD600mln for developing the surrounding infrastructure in Kazakhstan. commodity-based orientation and immense territory. Rail transport is the basis of the national transport system, comprising about 46% of country’s overall freight turnover in 2016 (237 bln

KTZ Express, a subsidiary of Kazakhstan Railways, opened an international development officeton-km), in Hong while automobile transport accounted for 31%, pipeline transport - 22%, air and water transport - 1%. Kong. It plans to build a platform to promote multimodal freight logistics between Europe and China via Kazakhstan. The company has also invested in a 21-hectare intermodal freight and logistics center at the port of Lianyungang in China, aiming to provide direct access to Central Asia for cargo comingFreight from turnover structure by modes of transportation, bln ton-km (2011-2016) Japan, Korea and Southeast Asia. 600

500 Special Economic Zones Year of 400 Special Economic Zone Sectorial focus foundation 300 Mixed (aviation, chemical, 200 Astana New City 2001 light industry, automobile manufacturing) 100 Source: PWC Mixed (chemical, light 0 Sea port Aktau 2002 industry, metallurgy industry) 2011 2012 2013B&R2014 initiative2015 will have2016 a broad geographical coverage, involving more than 65 countries with Innovation and approximately 4.4 bln population. The program will facilitate trade flow within the connected regions, Innovation Technology Park 2003 Rail Road Pipelines Inland water and marine Air instrumentation with constructed infrastructure leading to shorter transit time and lower transportation costs. Ontustik 2005 Light and textile industriesSource: Committee on Statistics of the Republic of Kazakhstan, Samruk-Kazyna National Industrial The program will provide a connection between Asia, Europe and Africa via five routes, representing a 2007 Petrochemical industry Petrochemical Park  Railway sector’s revenue increased from KZT647blnsynergy of thein 2011Silk Road to KZT730blnEconomic Beltin and2016, the 21st Century Maritime Silk Road programs. The Silk Burabay 2008 Tourism representing approximately 33% of the overall transportationRoad Economic revenue. Belt is expectedCargo transportation to connect China is to Europe and the Middle East through Central Asia Khorgos-East Gate 2011 Logistics the dominant source of revenue for the Kazakhstan’sand Russia, railway reinforcing industry, China’s with integration the revenue with Southeast Asia and South Asia regions. Meanwhile, Metallurgy and metal contribution of over 88%. the 21st Century Maritime Silk Road is aimed to improve marine infrastructure of China’s coastal ports, Saryarka 2011 processing linking the country with Europe through the South China Sea and Indian Ocean and connecting China Chemical and petrochemical The sector transported more than 22 mln passengerswith the in South2016, comparedPacific Ocean. to 20 mln passengers Pavlodar 2011 industries in 2011, while overall passenger turnover reached 17 bln revenue passenger kilometers (rpk), Chemical Park Taraz 2012 Chemical industry with 5-year CAGR amounting to 1%. Meanwhile,Concentrating rail freight turnover on the aboveamounted five roadsto 237, B&Rbln ton- will utilize global logistic corridors, core cities and key ports Source: Kaznex Invest, Ministry of Industry and New Technologies, Samruk-Kazyna km in 2016, compared to 220 bln ton-km in 2011,in order while tothe increase volume ofthe freight degree transported of cooperation via across the participating countries, creating six railways grew from 277 mln tons in 2011 to 332international mln tons in 2016economic with 4%routes, CAGR. including the New Eurasia Land Bridge, China-Mongolia-Russia, China- Central Asia-West Asia, China-Indochina Peninsula, China-Pakistan, and Bangladesh-China-India- 6. One Belt & One Road initiative 6.1 Program overview  One Belt & One Road (B&R) initiative comprisesMyanmar. two physical routes, with several intermediate The One Belt & One Road (B&R) program introduced by China’s government to improvehubs connectivity along the way, connecting China with Europe, Africa and Southeast Asia. The initiative between the Asian, European and African continents, is anticipated to enhance trade flowswill andconcentrate drive on the investments in a wide arrayThe ofcountries assets, includingcovered byports, B&R roads, initiative railways, are expected to unlock substantial value potential, with long-term regional economic growth. The initiative comprises two physical routes, airports,with several power plants, oil and gas pipelines andPakistan, refineries, Laos, with Russia total cost and ofKazakhstan already arranged benefiting from considerable amount of infrastructure spending intermediate hubs along the way, connecting China with Europe, Africa and Southeastprojects Asia. in AsiaIt region amounting to USD250bln.and subsequent efficiency gains. However, countries that are not directly participating in B&R program represents a collection of all current, planned and future infrastructure projects, accompanied by a will still profit from China’s rising fixed asset investments. variety of bilateral and regional trade agreements.  Kazakhstan’s economy is expected to benefit from B&R program implementation, with Asia- EU-Asia transit volumes transported via KazakhstanPakistan forecasted has been to among increase the to main 1,700,000 recipient TEUs of China’s investments, with the country involved in over B&R will concentrate on the investments in a wide array of assets, including ports, roads,by 2020 railways, from 47,400 TEU in 2015, according 50to McKinseyprojects in estimates.Pakistan with Consequently, the value of overB&R USD73bln, is accounting for 28% of Pakistan's GDP in 2016. airports, power plants, oil and gas pipelines and refineries, with total cost of already arrangedprojected projects to contribute additional 0.7pp-1pp toRussia annual will K azakhstan’salso receive GDPsubstantial growth infrastructure by 2021, financing, with the primary focus on transport and in Asia region amounting to USD250bln. In addition, China’s government is expectedcreating to mobilize over 200,000 jobs and driving total investmentspipelines, towhile more Bangladesh than USD7bln and overIndonesia next five will be the primary beneficiaries of investments in Asia, approximately USD1tln of state financing over the next 10 years to fund infrastructure spendingyears. in the improving the infrastructure value chain and facilitating their transformation into regional manufacturing countries along the B&R road. hubs.

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Railroad infrastructure Railroad infrastructure Railroad infrastructure

1. Key highlights Khorgos’s capacity currently is 200,000 containers per year and is expected to reach 500,000 by 2020. B&R initiative coverage map  China was a major supplier of funds, whereby China’s Jiangsu province recently promised to invest Transportation sector plays an important role in Kazakhstan’s economy because of its more than USD600mln for developing the surrounding infrastructure in Kazakhstan. commodity-based orientation and immense territory. Rail transport is the basis of the national transport system, comprising about 46% of country’s overall freight turnover in 2016 (237 bln

KTZ Express, a subsidiary of Kazakhstan Railways, opened an international development office in Hong ton-km), while automobile transport accounted for 31%, pipeline transport - 22%, air and water transport - 1%. Kong. It plans to build a platform to promote multimodal freight logistics between Europe and China via Kazakhstan. The company has also invested in a 21-hectare intermodal freight and logistics center at the port of Lianyungang in China, aiming to provide direct access to Central Asia for cargo coming from Freight turnover structure by modes of transportation, bln ton-km (2011-2016) Japan, Korea and Southeast Asia. 600

500 Special Economic Zones Year of 400 Special Economic Zone Sectorial focus foundation 300 Mixed (aviation, chemical, 200 Astana New City 2001 light industry, automobile manufacturing) Source: PWC 100 Mixed (chemical, light 0 Sea port Aktau 2002 industry, metallurgy industry) B&R initiative will have a broad2011 geographical2012 2013coverage,2014 involving2015 more 2016than 65 countries with Innovation and approximately 4.4 bln population. The program will facilitate trade flow within the connected regions, Innovation Technology Park 2003 Rail Road Pipelines Inland water and marine Air instrumentation with constructed infrastructure leading to shorter transit time and lower transportation costs. Ontustik 2005 Light and textile industries Source: Committee on Statistics of the Republic of Kazakhstan, Samruk-Kazyna National Industrial The program will provide a connection between Asia, Europe and Africa via five routes, representing a 2007 Petrochemical industry Petrochemical Park synergy Railway of the Silk sector’s Road Economicrevenue increasedBelt and the from 21st KZT647blnCentury Maritime in 2011 Silk toRoad KZT730bln programs. in The 2016, Silk Burabay 2008 Tourism Road Economicrepresenting Belt approximatelyis expected to connect33% of the China overall to Europe transportation and the revenue.Middle East Cargo through transportation Central Asia is Khorgos-East Gate 2011 Logistics and Russia,the dominant reinforcing source China’s of integrationrevenue for with the Southeast Kazakhstan’s Asia andrailway South industry, Asia regions with the. Meanwhile, revenue Metallurgy and metal the 21stcontribution Century Maritime of over Silk 88%. Road is aimed to improve marine infrastructure of China’s coastal ports, Saryarka 2011 processing linking the country with Europe through the South China Sea and Indian Ocean and connecting China Chemical and petrochemical with the TheSouth sector Pacific transported Ocean. more than 22 mln passengers in 2016, compared to 20 mln passengers Pavlodar 2011 industries in 2011, while overall passenger turnover reached 17 bln revenue passenger kilometers (rpk), Chemical Park Taraz 2012 Chemical industry Concentratingwith 5-year on the CAGR above amounting five roads to, B&R 1%. will Meanwhile, utilize global rail freightlogistic turnover corridors, amounted core cities to and 237 key bln portston- Source: Kaznex Invest, Ministry of Industry and New Technologies, Samruk-Kazyna in orderkm to in increase 2016, compared the degree to 220 of blncooperation ton-km in 2011,across while the theparticipating volume of countries, freight transported creating viasix internationalrailways economic grew from routes, 277 including mln tons thein 2011 New toEurasia 332 mln Land tons Bridge, in 2016 China-Mongolia-Russia, with 4% CAGR. China- Central Asia-West Asia, China-Indochina Peninsula, China-Pakistan, and Bangladesh-China-India- 6. One Belt & One Road initiative 6.1 Program overview Myanmar. One Belt & One Road (B&R) initiative comprises two physical routes, with several intermediate The One Belt & One Road (B&R) program introduced by China’s government to improve connectivity hubs along the way, connecting China with Europe, Africa and Southeast Asia. The initiative between the Asian, European and African continents, is anticipated to enhance trade flows and drive The countrieswill concentrate covered onby theB&R investments initiative arein a expectedwide array to of unlockassets, substantial including ports, value roads, potential, railways, with long-term regional economic growth. The initiative comprises two physical routes, with several Pakistan,airports, Laos, Russiapower andplants, Kazakhstan oil and gas benefiting pipelines from and considerable refineries, with amount total ofcost infrastructure of already arrangedspending intermediate hubs along the way, connecting China with Europe, Africa and Southeast Asia. It and subsequentprojects inefficiency Asia region gains. amounting However, to countriesUSD250bln. that are not directly participating in B&R program represents a collection of all current, planned and future infrastructure projects, accompanied by a will still profit from China’s rising fixed asset investments. variety of bilateral and regional trade agreements.  Kazakhstan’s economy is expected to benefit from B&R program implementation, with Asia- PakistanEU has-Asia been transit among volumes the main transported recipient svia of KazakhstanChina’s investments, forecasted with to increasethe country to 1,700,000involved in TEU over B&R will concentrate on the investments in a wide array of assets, including ports, roads, railways, 50 projectsby 2020 in Pakistan from 47,400 with the TEU value in of2015, over accordingUSD73bln, to accounting McKinsey for estimates. 28% of Pakistan's Consequently, GDP inB&R 2016. is airports, power plants, oil and gas pipelines and refineries, with total cost of already arranged projects Russia projectedwill also receive to contribute substantial additional infrastructure 0.7pp-1pp financing, to annual with K azakhstan’sthe primary focusGDP growthon transport by 2021, and in Asia region amounting to USD250bln. In addition, China’s government is expected to mobilize pipelines,creating while overBangladesh 200,000 and jobs Indonesia and driving will total be investmentsthe primary tobeneficiaries more than USD7blnof investments over next in Asia, five approximately USD1tln of state financing over the next 10 years to fund infrastructure spending in the improvingyears. the infrastructure value chain and facilitating their transformation into regional manufacturing countries along the B&R road. hubs.

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Railroad infrastructure Railroad infrastructure Railroad infrastructure

1. Key highlights Total value of B&R projects and deals, USD bln (2011-2016) Consequently, the time factor is a valuable competitive advantage that overland routes can offer for  Transportation sector plays an important role in Kazakhstan’s economy because of its 500 certain commodities, customers and for land-locked regions such as Xinjiang Uigur Autonomous commodity-based orientation and immense territory. Rail transport is the basis of the national Region, which has no viable alternative to rail and road transit. For example, the large China’s port of 400 transport system, comprising about 46% of country’s overall freight turnover in 2016 (237 bln Lianyungang has a direct railroad link to the Dutch port of Rotterdam. It currently takes 14 days to carry ton-km), while automobile transport accounted for 31%, pipeline transport - 22%, air and water 300 cargo by railroad from Lianyungang to Berlin (11,000 km) while sea carriage requires 30-35 days. transport - 1%. 200 6.2 Potential impact on Kazakhstan Freight turnover structure by modes of transportation, bln ton-km (2011-2016) 100 Kazakhstan has been one of the biggest recipient of Chinese FDI in Central Asia, with the total FDI 600 stock amounting to USD15.2bln at the end of 2016. Transportation, finance, mining and manufacturing 0 were the main beneficiaries of China’s investments. 2011 2012 2013 2014 2015 2016e 500 400 Total projects value Total deals value China’s FDI stock distribution (2016) 300 Source: PWC, Samruk-Kazyna 200 11% Being one of six corridors forming B&R initiative, Southeast Asia's economies are favorably positioned 100 to gain from the associated boost in infrastructure. However, the activity in the opening years suggests 9% 38% that ASEAN region is a lower priority. The first investments by the Silk Road Fund were projects in the 0 2011 2012 2013 2014 2015 2016 8% Pakistan corridor and in the Middle East, with other funding have been oriented westward. Meanwhile, China's Asian Infrastructure Investment Bank (AIIB) is currently supporting efficiency upgrades in Rail Road Pipelines Inland water and marine Air Indonesia and a power plant in Myanmar, with only one proposal out of 11 preliminary projects 16% Source: Committee on Statistics of the Republic of Kazakhstan, Samruk-Kazyna originated in ASEAN region. 18%  Railway sector’s revenue increased from KZT647bln in 2011 to KZT730bln in 2016, One container shipping cost and time from Breakdown of EU-China Trade representing approximately 33% of the overall transportation revenue. Cargo transportation is Chongqing to W. Europe Transportation Finance Mining the dominant source of revenue for the Kazakhstan’s railway industry, with the revenue Price Time Manufacturing Construction Other Rail and others 8% contribution of over 88%. Sea USD1,500-3000 38-45 days Road 7% Train USD3,500-5,500 16-20 days Source: Committee on Statistics of the Republic of Kazakhstan, Samruk-Kazyna  The sector transported more than 22 mln passengers in 2016, compared to 20 mln passengers Air USD20,000-25,000 1-2 days in 2011, while overall passenger turnover reached 17 bln revenue passenger kilometers (rpk), One Belt & One Road program implementation in Kazakhstan is expected to be faster than in other with 5-year CAGR amounting to 1%. Meanwhile, rail freight turnover amounted to 237 bln ton- participating countries due to substantial synergies with Nurly Zhol program and optimized legal and Air 23% km in 2016, compared to 220 bln ton-km in 2011, while the volume of freight transported via regulatory framework. The majority of Nurly Zhol projects may be considered as a part of a broader railwaysSea 62% grew from 277 mln tons in 2011 to 332 mln tons in 2016 with 4% CAGR. B&R framework, as they directly contribute to the improvement of Kazakhstan’s infrastructure and EU- Asia transit potential.  One Belt & One Road (B&R) initiative comprises two physical routes, with several intermediate hubs along the way, connecting China with Europe, Africa and Southeast Asia. The initiative In particular, Khorgos Gateway, a dry port on the China-Kazakhstan border, currently represents a key will concentrate on the investments in a wide array of assets, including ports, roads, railways, Source: UNECE, Samruk-Kazyna logistics hub on the New Silk Rod. The facility, which was specifically designed to process containerized airports, power plants, oil and gas pipelines and refineries, with total cost of already arranged cargo, is expected to considerably increase Kazakhstan’s transit capacity, with the total project cost to projects in Asia region amounting to USD250bln. The main advantage of land transport corridors is their shorter cargo delivery deadlines. Railroad route date amounting to over USD230mln. Khorgos may process more than 16,000 containers daily, offering travel from Asia to Europe is at least two times shorter than marine route travel time. The shortest cargo a range of logistics solutions, including freight reloading, formation of container trains and documentary  delivery time from Eastern China and other Southeast Asian countries to Western Europe byKazakhstan’s rail or road economy is expected to benefitsupport. from B&R In Mayprogram 2017, implementation, as a part of B&R with program Asia- implementation, China’s investors, COSCO Shipping is 2-2.5 times shorter than sea shipment via the Suez Canal, with shorter delivery time beingEU-Asia a critical transit volumes transported via Kazakhstanand Lianyungang forecasted port, to increase agreed toto 1,700,000further develop TEU Khorgos’s infrastructure base, acquiring 49% stake in factor for certain cargoes (perishable goods or urgent door-to-door shipments). In addition,by 2020 faster from 47,400 TEU in 2015, accordingthe to terminal.McKinsey estimates. Consequently, B&R is delivery means quicker receipt of cash from the bank and shorter transaction times. projected to contribute additional 0.7pp-1pp to annual Kazakhstan’s GDP growth by 2021, creating over 200,000 jobs and driving total investmentsAnother key to logisticsmore than project, USD7bln Kuryk over seaport, next five which is located in Mangistau region, will significantly years. increase Kazakhstan’s marine transit capacity. Enabling direct reloading from trains and trucks to ferries, the port is expected to stimulate freight shipments to Europe and Middle East via Azerbaijan and Iran. Construction of the first project’s phase was completed in December 2016, with the total of 44 3 12 13 12

Railroad infrastructure Railroad infrastructure Railroad infrastructure

1. Key highlights Total value of B&R projects and deals, USD bln (2011-2016) Consequently, the time factor is a valuable competitive advantage that overland routes can offer for  Transportation sector plays an important role in Kazakhstan’s economy because of its 500 certain commodities, customers and for land-locked regions such as Xinjiang Uigur Autonomous commodity-based orientation and immense territory. Rail transport is the basis of the national Region, which has no viable alternative to rail and road transit. For example, the large China’s port of 400 transport system, comprising about 46% of country’s overall freight turnover in 2016 (237 bln Lianyungang has a direct railroad link to the Dutch port of Rotterdam. It currently takes 14 days to carry ton-km), while automobile transport accounted for 31%, pipeline transport - 22%, air and water 300 cargo by railroad from Lianyungang to Berlin (11,000 km) while sea carriage requires 30-35 days. transport - 1%. 200 6.2 Potential impact on Kazakhstan Freight turnover structure by modes of transportation, bln ton-km (2011-2016) 100 Kazakhstan has been one of the biggest recipient of Chinese FDI in Central Asia, with the total FDI stock amounting to USD15.2bln600 at the end of 2016. Transportation, finance, mining and manufacturing 0 were the main beneficiaries of China’s investments. 2011 2012 2013 2014 2015 2016e 500 400 Total projects value Total deals value China’s FDI stock distribution (2016) 300 Source: PWC, Samruk-Kazyna 200 11% Being one of six corridors forming B&R initiative, Southeast Asia's economies are favorably positioned 100 to gain from the associated boost in infrastructure. However, the activity in the opening years suggests 9% 38% that ASEAN region is a lower priority. The first investments by the Silk Road Fund were projects in the 0 8%2011 2012 2013 2014 2015 2016 Pakistan corridor and in the Middle East, with other funding have been oriented westward. Meanwhile, China's Asian Infrastructure Investment Bank (AIIB) is currently supporting efficiency upgrades in Rail Road Pipelines Inland water and marine Air Indonesia and a power plant in Myanmar, with only one proposal out of 11 preliminary projects 16% Source: Committee on Statistics of the Republic of Kazakhstan, Samruk-Kazyna originated in ASEAN region. 18%  Railway sector’s revenue increased from KZT647bln in 2011 to KZT730bln in 2016, One container shipping cost and time from Breakdown of EU-China Trade representing approximately 33% of the overall transportation revenue. Cargo transportation is Chongqing to W. Europe Transportation Finance Mining the dominant source of revenue for the Kazakhstan’s railway industry, with the revenue Price Time Manufacturing Construction Other Rail and others 8% contribution of over 88%. Sea USD1,500-3000 38-45 days Road 7% Train USD3,500-5,500 16-20 days Source: Committee on Statistics of the Republic of Kazakhstan, Samruk-Kazyna  The sector transported more than 22 mln passengers in 2016, compared to 20 mln passengers Air USD20,000-25,000 1-2 days in 2011, while overall passenger turnover reached 17 bln revenue passenger kilometers (rpk), One Belt & One Road program implementation in Kazakhstan is expected to be faster than in other with 5-year CAGR amounting to 1%. Meanwhile, rail freight turnover amounted to 237 bln ton- participating countries due to substantial synergies with Nurly Zhol program and optimized legal and Air 23% km in 2016, compared to 220 bln ton-km in 2011, while the volume of freight transported via regulatory framework. The majority of Nurly Zhol projects may be considered as a part of a broader Sea 62% railways grew from 277 mln tons in 2011 to 332 mln tons in 2016 with 4% CAGR. B&R framework, as they directly contribute to the improvement of Kazakhstan’s infrastructure and EU- Asia transit potential.  One Belt & One Road (B&R) initiative comprises two physical routes, with several intermediate hubs along the way, connecting China with Europe, Africa and Southeast Asia. The initiative In particular, Khorgos Gateway, a dry port on the China-Kazakhstan border, currently represents a key will concentrate on the investments in a wide array of assets, including ports, roads, railways, Source: UNECE, Samruk-Kazyna logistics hub on the New Silk Rod. The facility, which was specifically designed to process containerized airports, power plants, oil and gas pipelines and refineries, with total cost of already arranged cargo, is expected to considerably increase Kazakhstan’s transit capacity, with the total project cost to projects in Asia region amounting to USD250bln. The main advantage of land transport corridors is their shorter cargo delivery deadlines. Railroad route date amounting to over USD230mln. Khorgos may process more than 16,000 containers daily, offering travel from Asia to Europe is at least two times shorter than marine route travel time. The shortest cargo a range of logistics solutions, including freight reloading, formation of container trains and documentary  delivery time from Eastern China and other Southeast Asian countries to Western Europe by rail or road support. InKazakhstan’s May 2017, aseconomy a part of is B&R expected program to benefit implementation, from B&R China’s program investors, implementation, COSCO withShipping Asia - is 2-2.5 times shorter than sea shipment via the Suez Canal, with shorter delivery time being a critical and LianyungangEU-Asia transitport, agreed volumes to further transported develop via Khorgos’s Kazakhstan infrastructure forecasted base,to increase acquiring to 1,700,000 49% stake TEU in factor for certain cargoes (perishable goods or urgent door-to-door shipments). In addition, faster the terminal.by 2020 from 47,400 TEU in 2015, according to McKinsey estimates. Consequently, B&R is delivery means quicker receipt of cash from the bank and shorter transaction times. projected to contribute additional 0.7pp-1pp to annual Kazakhstan’s GDP growth by 2021, Another keycreating logistics over project,200,000 Kuryk jobs and seaport, driving which total investmentsis located in toMangistau more than region, USD7bln will over significantly next five increase years.Kazakhstan’s marine transit capacity. Enabling direct reloading from trains and trucks to ferries, the port is expected to stimulate freight shipments to Europe and Middle East via Azerbaijan and Iran. Construction of the first project’s phase was completed in December 2016, with the total of 44 3 12 13 13

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1. Key highlights logistics facilities commencing their operations. To date, Kuryk has processed more than 400,000 tons In January 2017, the first container train from China arrived to London, covering a distance of 7,500  Transportation sector plays an important role in Kazakhstan’s economy because of its of cargo, with 1 mln tons estimated to be processed in 2017. Other main infrastructure projects in miles. It had passed through Kazakhstan, Russia, Belarus, Poland, Germany, Belgium and France, commodity-based orientation and immense territory. Rail transport is the basis of the national Kazakhstan, which could be attributable to B&R, include several railways (Zhezkazgan – Beineu, finally crossing under the English Channel into Britain. The total duration of the trip amounted to 18 transport system, comprising about 46% of country’s overall freight turnover in 2016 (237 bln Arkalyk – Shubarkol, Almaty – Shu) and logistics hubs in Astana and Shymkent. days, implying almost two times faster cargo delivery time, compared to the marine transportation. ton-km), while automobile transport accounted for 31%, pipeline transport - 22%, air and water transport - 1%. Main projects, considered as a part of B&R initiative in Kazakhstan Estimated cargo delivery time from Yiwu (China) to London № Project Cost, USD mln Development period Freight turnover structure by modes of transportation, bln ton-km (2011-2016) 1 Khorgos terminal 239 2014-2020 600 18 Land route via Kazakhstan 2 Kuryk port in Mangistau region 280 2015-2018 500 days

3 Zhezkazgan-Beineu railway 1,203 2012-2017 400 300 4 Arkalyk-Shubarkol railway 261 2012-2017 200 5 Almaty1-Shu railway 110 2015-2017 100 36 New railway hub in Astana, including Sea route 6 603 2013-2017 days train station 0 2011 2012 2013 2014 2015 2016 Logistic terminal in Shymkent (Southern 7 46 2014-2017 Kazakhstan region) Rail Road Pipelines Source:Inland waterKTZ, Samruk-Kazyna and marine Air

8 Logistic terminal in Astana 88 Source:2014 Committee-2016 on Statistics of the Republic of Kazakhstan,Consequently, Samruk-Kazyna industries, which are primarily engaged into transportation or processing of containerized cargo, are expected to outperform the overall Kazakhstan’s economy over the medium 9 Modernization of Aktau port 121 2014-2017  Railway sector’s revenue increased from term,KZT647bln with the in growth 2011 exceedingto KZT730bln GDP growth.in 2016, These industries comprise rail and road transportation, Source: KTZ, Samruk-Kazyna representing approximately 33% of the overalllogistics transportation and marine, revenue. rail andCargo road transportation infrastructure. is the dominant source of revenue for the Kazakhstan’s railway industry, with the revenue Kazakhstan’s economy is expected to benefit from B&R program implementation, with Asia-EU-Asia contribution of over 88%. transit volumes transported via Kazakhstan forecasted to increase to 1,700,000 TEU by 2020 from Potential B&R spillover effects on Kazakhstan 47,400 TEU in 2015, according to McKinsey estimates.  The sector transported more than 22 mln passengers in 2016, compared to 20 mln passengers in 2011, while overall passenger turnover reached 17 bln revenue passenger kilometers (rpk), B&R initiative synergy with Nurly Zhol program with 5-year CAGR amounting to 1%. Meanwhile, rail freight turnover amounted to 237 bln ton- Exponential growth in transit volumes transported via km in 2016, compared to 220 bln ton-km in 2011, while the volume of freight transported via Kazakhstan by 2020 More than USD9bln of infrastructure 1 railways grew from 277 mln tons in 2011 to 332 mln tons in 2016 with 4% CAGR. spending in addition to B&R financing USD7bln of estimated 0.7pp-1pp contribution to Over 200,000 jobs created infrastructure investments annual domestic GDP  One Belt & One Road (B&R) initiative comprises two physical routes, with several intermediate by 2021 over the next 5 years growth by 2021 hubs along the way, connecting China with Europe, Africa and Southeast Asia. The initiative Already substantially modernized rail 2 will concentrate on the investments in a wide array of assets, including ports, roads, railways, and road infrastructure 47,000 1,700,000 airports, power plants, oil and gas pipelines and refineries, with total cost of already arranged TEU TEU projects in Asia region amounting to USD250bln. in 2015 by 2020 Source: SCMP, Samruk-Kazyna Optimized legal and regulatoryKazakhstan’s economy is expected to benefit from B&R program implementation, with Asia- 3 infrastructure frameworkEU-Asia transit volumes transported via KazakhstanB&R is forecastedforecasted toto increase contribute to 1,700,000additional 0.TEU7pp -1pp to annual Kazakhstan’s GDP growth by 2021, by 2020 from 47,400 TEU in 2015, accordingcreating to McKinsey over 200,000 estimates. jobs. Consequently, In addition, the B&R country’s is economy will considerably benefit from ongoing projected to contribute additional 0.7pp-1pp infrastructureto annual Kazakhstan’s improvements, GDP with growth total byinvestments 2021, size reaching more than USD7bln over next five Source: KTZ, Mckinsey & Company, Samruk-Kazyna creating over 200,000 jobs and driving total investmentsyears. to more than USD7bln over next five years.

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3 Zhezkazgan-Beineu railway 1,203 2012-2017 400 300 4 Arkalyk-Shubarkol railway 261 2012-2017 200 5 Almaty1-Shu railway 110 2015-2017 100 36 New railway hub in Astana, including Sea route 6 603 2013-2017 days train station 0 2011 2012 2013 2014 2015 2016 Logistic terminal in Shymkent (Southern 7 46 2014-2017 Kazakhstan region) Source: KTZ, Samruk-Kazyna Rail Road Pipelines Inland water and marine Air

8 Logistic terminal in Astana 88 2014-2016 Consequently,Source: Committee industries, on Statistics which of the Republicare primarily of Kazakhstan, engaged Samruk-Kazyna into transportation or processing of containerized cargo, are expected to outperform the overall Kazakhstan’s economy over the medium 9 Modernization of Aktau port 121 2014-2017 term, withRailway the growth sector’s exceeding revenue GDP increased growth. These from industriesKZT647bln comprise in 2011 rail toand KZT730bln road transportation, in 2016, Source: KTZ, Samruk-Kazyna logistics andrepresenting marine, rail approximately and road infrastructure. 33% of the overall transportation revenue. Cargo transportation is the dominant source of revenue for the Kazakhstan’s railway industry, with the revenue Kazakhstan’s economy is expected to benefit from B&R program implementation, with Asia-EU-Asia contribution of over 88%. transit volumes transported via Kazakhstan forecasted to increase to 1,700,000 TEU by 2020 from Potential B&R spillover effects on Kazakhstan 47,400 TEU in 2015, according to McKinsey estimates.  The sector transported more than 22 mln passengers in 2016, compared to 20 mln passengers in 2011, while overall passenger turnover reached 17 bln revenue passenger kilometers (rpk), B&R initiative synergy with Nurly Zhol program with 5-year CAGR amounting to 1%. Meanwhile, rail freight turnover amounted to 237 bln ton- Exponential growth in transit volumes transported via km in 2016, compared to 220 bln ton-km in 2011, while the volume of freight transported via Kazakhstan by 2020 More than USD9bln of infrastructure 1 railways grew from 277 mln tons in 2011 to 332 mln tons in 2016 with 4% CAGR. spending in addition to B&R financing USD7bln of estimated 0.7pp-1pp contribution to Over 200,000 jobs created infrastructure investments annual domestic GDP  One Belt & One Road (B&R) initiative comprises two physical routes, with severalby 2021 intermediate over the next 5 years growth by 2021 hubs along the way, connecting China with Europe, Africa and Southeast Asia. The initiative Already substantially modernized rail 2 will concentrate on the investments in a wide array of assets, including ports, roads, railways, and road infrastructure 47,000 1,700,000 airports, power plants, oil and gas pipelines and refineries, with total cost of already arranged TEU TEU projects in Asia region amounting to USD250bln. in 2015 by 2020 Source: SCMP, Samruk-Kazyna Optimized legal and regulatory  Kazakhstan’s economy is expected to benefit from B&R program implementation, with Asia- 3 infrastructure framework B&R is forecastedEU-Asia transit to contribute volumes additional transported 0. 7ppvia -1ppKazakhstan to annual forecasted Kazakhstan’s to increase GDP togrowth 1,700,000 by 2021, TEU creating overby 2020 200,000 from jobs.47,400 In addition,TEU in 2015, the country’s according economy to McKinsey will considerably estimates. Consequently,benefit from ongoing B&R is infrastructureprojected improvements, to contribute with additional total investments 0.7pp-1pp size to reachingannual K moreazakhstan’s than USD7bln GDP growth over nextby 2021, five Source: KTZ, Mckinsey & Company, Samruk-Kazyna years. creating over 200,000 jobs and driving total investments to more than USD7bln over next five years.

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1. Key highlights 7. Conclusion  Transportation sector plays an important role in Kazakhstan’s economy because of its Rail transport is the basis of the national transport system, comprising about 46% of country’s overall commodity-based orientation and immense territory. Rail transport is the basis of the national freight turnover in 2016 (237 bln ton-km), while automobile transport accounted for 31%, pipeline transport system, comprising about 46% of country’s overall freight turnover in 2016 (237 bln transport - 22%, air and water transport - 1%. However, by the volume of transportation (tons) ton-km), while automobile transport accounted for 31%, pipeline transport - 22%, air and water automobile transport exceeds rail transport by more than nine times, constituting around 85% of overall transport - 1%. freight volume transported in 2016. This can partially be explained by a relatively short average distance of automobile transport, compared to railways. Freight turnover structure by modes of transportation, bln ton-km (2011-2016)

B&R infrastructure investments are expected to have a positive impact on the regional trade, reducing 600 logistics costs, driving new trade deals and facilitating the development of new manufacturing export 500 hubs outside of China. In particular, the strongest momentum in external trade gains will be observable 400 in emerging markets with below-average development, including Bangladesh, Cambodia, Laos, Pakistan, Myanmar. This is partially attributable to low-base effect and favorable positioning across 300 coverage routes. 200

On sectorial front, considerable infrastructure investments under B&R initiative will result in spillover 100 effects in a form of additional demand for construction materials and services. In particular, developing 0 nations in Asia are expected to spend USD776bln annually to fund infrastructure projects by 2020, 2011 2012 2013 2014 2015 2016 creating over 580 mln tons of annual cement demand, based on historical correlations with fixed-asset Rail Road Pipelines Inland water and marine Air investment in the region and accounting for more than 25% of China’s cement production. Average per- capita cement output stood at 380 kg in Southeast Asia and 300 kg in Central Asia,Source: being Committee less than onthe Statistics of the Republic of Kazakhstan, Samruk-Kazyna global average of 600 kg and China's 1,800 kg and implying significant potential demand.  Railway sector’s revenue increased from KZT647bln in 2011 to KZT730bln in 2016, Kazakhstan’s economy is expected to benefit from B&R program implementation, with Asiarepresenting-EU-Asia approximately 33% of the overall transportation revenue. Cargo transportation is transit volumes transported via Kazakhstan forecasted to increase to 1,700,000 TEU bythe 2020 dominant from source of revenue for the Kazakhstan’s railway industry, with the revenue 47,400 TEU in 2015. In January 2017, the first container train from China arrived to London,contribution covering of over 88%. a distance of 7,500 miles. It had passed through Kazakhstan, Russia, Belarus, Poland, Germany, Belgium and France, finally crossing under the English Channel into Britain. The total duration The sector of the transported more than 22 mln passengers in 2016, compared to 20 mln passengers trip amounted to 18 days, implying almost two times faster cargo delivery time, compared into 2011,the marine while overall passenger turnover reached 17 bln revenue passenger kilometers (rpk), transportation. with 5-year CAGR amounting to 1%. Meanwhile, rail freight turnover amounted to 237 bln ton- km in 2016, compared to 220 bln ton-km in 2011, while the volume of freight transported via railways grew from 277 mln tons in 2011 to 332 mln tons in 2016 with 4% CAGR. Potential B&R spillover effects on Kazakhstan  One Belt & One Road (B&R) initiative comprises two physical routes, with several intermediate hubs along the way, connecting China with Europe, Africa and Southeast Asia. The initiative will concentrate on the investments in a wide array of assets, including ports, roads, railways, airports, power plants, oil and gas pipelines and refineries, with total cost of already arranged projects in Asia region amounting to USD250bln. USD7bln of estimated 0.7pp-1pp contribution to Over 200,000 jobs created infrastructure investments annual domestic GDP by 2021 over the next 5 years growth by 2021  Kazakhstan’s economy is expected to benefit from B&R program implementation, with Asia- EU-Asia transit volumes transported via Kazakhstan forecasted to increase to 1,700,000 TEU by 2020 from 47,400 TEU in 2015, according to McKinsey estimates. Consequently, B&R is projected to contribute additional 0.7pp-1pp to annual Kazakhstan’s GDP growth by 2021, creating over 200,000 jobs and driving total investments to more than USD7bln over next five Source: SCMP, Samruk-Kazyna years. This page is intentionally left blank

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7. Conclusion Rail transport is the basis of the national transport system, comprising about 46% of country’s overall freight turnover in 2016 (237 bln ton-km), while automobile transport accounted for 31%, pipeline transport - 22%, air and water transport - 1%. However, by the volume of transportation (tons) automobile transport exceeds rail transport by more than nine times, constituting around 85% of overall freight volume transported in 2016. This can partially be explained by a relatively short average distance of automobile transport, compared to railways.

B&R infrastructure investments are expected to have a positive impact on the regional trade, reducing logistics costs, driving new trade deals and facilitating the development of new manufacturing export hubs outside of China. In particular, the strongest momentum in external trade gains will be observable in emerging markets with below-average development, including Bangladesh, Cambodia, Laos, Pakistan, Myanmar. This is partially attributable to low-base effect and favorable positioning across coverage routes.

On sectorial front, considerable infrastructure investments under B&R initiative will result in spillover effects in a form of additional demand for construction materials and services. In particular, developing nations in Asia are expected to spend USD776bln annually to fund infrastructure projects by 2020, creating over 580 mln tons of annual cement demand, based on historical correlations with fixed-asset investment in the region and accounting for more than 25% of China’s cement production. Average per- capita cement output stood at 380 kg in Southeast Asia and 300 kg in Central Asia, being less than the global average of 600 kg and China's 1,800 kg and implying significant potential demand.

Kazakhstan’s economy is expected to benefit from B&R program implementation, with Asia-EU-Asia transit volumes transported via Kazakhstan forecasted to increase to 1,700,000 TEU by 2020 from 47,400 TEU in 2015. In January 2017, the first container train from China arrived to London, covering a distance of 7,500 miles. It had passed through Kazakhstan, Russia, Belarus, Poland, Germany, Belgium and France, finally crossing under the English Channel into Britain. The total duration of the trip amounted to 18 days, implying almost two times faster cargo delivery time, compared to the marine transportation.

Potential B&R spillover effects on Kazakhstan

USD7bln of estimated 0.7pp-1pp contribution to Over 200,000 jobs created infrastructure investments annual domestic GDP by 2021 over the next 5 years growth by 2021

Source: SCMP, Samruk-Kazyna This page is intentionally left blank

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