Economic Newsletter on |November 2019

CONTENTS MACRO-ECONOMICS & FINANCE ...... 2 ENERGY & NATURAL RESOURCES ...... 5 TRANSPORT & COMMUNICATIONS...... 10 AGRICULTURE ...... 12 EXHIBITIONS IN KAZAKHSTAN (January-March 2020) ...... 16 CONTACTS ...... 17

The Economic Section of the Embassy of the Kingdom of the Netherlands in Kazakhstan intends to distribute this newsletter as widely as possible among Dutch institutions, companies and persons from the Netherlands. The newsletter summarises economic news from various Kazakhstani and foreign publications and aims to provide accurate information. However, the Embassy cannot be held responsible for any mistakes or omissions in the bulletin.

ECONOMIC NEWSLETTER, November 2019 Embassy of the Kingdom of the Netherlands MACRO-ECONOMICS & FINANCE Ministry of National Economy of Kazakhstan expects GDP growth above 4% The Ministry of National Economy of Kazakhstan maintains positive intentions for forecasting GDP growth in 2019. “At the moment, there are prerequisites for higher economic growth by the end of the year, than at the planned level of 3.8%. In January- September, growth reached 4.3%. There was a positive trend in construction, trade, transport sector, communication services and industry,” the Ministry of National Economy said. “We take into account possible global and regional factors that may have a deterrent effect on the country’s economy. Given the current situation, we allow the possibility of growth by over 4% on-year,” the department said. In the forecast of socio-economic development of the country, the economic growth in 2019 is set at 3.8%. The forecast was made taking into account the oil price of $55 per barrel. In 2018, Kazakhstan’s GDP grew by 4.1%, In Business reported.

IMF expects Kazakhstan’s further high economic growth Kazakh Prime Minister met with the experts from the International Monetary Fund (IMF), led by the head of its Kazakhstan’s mission Mark Horton. Following the mission to Kazakhstan in last November, the experts pointed out further high economic growth in Kazakhstan, mainly due to the non-oil sector, and in the first instance, construction and services. PM Mamin said that the Kazakh economy was showing a stable growth trend – in the first 10 months of 2019, GDP increased 4.4% year-on-year. The sides also discussed issues of monetary, exchange rate, fiscal and budgetary policies, the situation in the banking sector, Kazakhstan’s economic structural reforms, as well as the upcoming opening in 2020 in Almaty of the IMF Regional Technical Assistance Centre for the countries in the Caucasus, Central Asia and Mongolia. It was reported earlier that the IMF revised up its forecast for Kazakhstan’s GDP growth from 3.2% to 3.8% for 2019, according to Interfax-Kazakhstan.

Kazakhstan’s current account deficit nears $5 billion Over the first 9 months of 2019, the current account of the balance of payments developed with a deficit of $4.7 billion, Kazpravda.kz cites the press service of the National Bank of Kazakhstan reporting. “According to preliminary estimates, over the 9 months of 2019, the current account of the balance of payments developed with a deficit of $4.7 billion. The main factor was a decrease in the surplus of the trade balance by $ 4 billion (-21.6%) to 14.5 billion. Export of goods decreased slightly by 2.2% to $42.7 billion, which was mainly due to a decrease in crude oil exports by 10.7%, including due to a decrease in the average contract price for oil by 7.9% from $66.9 to $61.7 per barrel. Imports of goods grew by 12.2% to 28.2 billion, which is explained by an increase in the import of investment goods by 31.4%. It is due to the acquisition of imported equipment and materials for continuation of the major raw materials and infrastructure projects, including TCO and Kashagan, pipeline Saryarka, BARR and auto assembly plant,” NBK reported. At the same time, export of services has grown by 4.6% to $5.7 billion, while imports decreased by 8.1% to $8.1 billion, which positively told on the balance of foreign trade in services. Incomes of foreign direct investors in the 9 months of 2019 decreased by 2.5% to $16 billion. More than half of the income of non-residents from direct investments was directed to financing of Kazakhstan enterprises’ subsidiaries. On the financial account (excluding operations with reserve assets of the National Bank), the balance improved by $0.6 billion and a net outflow of $1.2 billion formed. At the same time, on foreign direct investment, the net capital inflow for 9 months of 2019 amounted to $5.1 billion. Net growth was noted of residents’ foreign investments in portfolio investments by $2.6 billion, on other investments - by $3.7 billion.

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Reserve assets (excluding assets of the National Fund of the Republic of Kazakhstan) as of October 1, 2019 were estimated at $28.8 billion, which covers the financing needs of 7.1 months of Kazakhstan’s import of goods and services.

Kazakhstan to tighten hiring practice for foreign workers, counter wage imbalance Kazakhstan will tighten the laws regulating the process of hiring foreign workers, after inspections led by the Ministry of Labour and Social Protection identified labour and migration legislation violations at 63 large enterprises, including disproportionate salaries between the foreign and local workforces, reported tengrinews.kz on November 3. The ministry reported on the legislation violations, enterprise inspection results and possible solutions during a meeting with Deputy Prime Minister and heads of the Aktobe Region’s large enterprises. The session considered compensation, repaying wage liabilities, labour conflicts, businesses’ social responsibility and attracting foreign labour. “We plan to tighten the rules for recruiting foreign labour. We will reduce the quota by no less than two times and tighten the rules for issuing permits for the fourth category (working specialties),” said Minister of Labour and Social Protection Birzhan Nurymbetov. The plan involves introducing the employer’s responsibility and obligation to create equal working and living conditions for employees. The ministry will modify industry inspection criteria, annually checking enterprises that attract more than 30 foreign workers. Nurymbetov noted 21,000 foreign specialists have permission to work at 2,400 Kazakh enterprises. “With the Prosecutor General’s Office, we inspected 63 large enterprises. The inspection revealed 794 facts of labour legislation violations, including 700 facts of wage imbalance at 23 enterprises, meaning the salary of foreign specialists for one position was higher than that of Kazakh employees. With regard to this, we revoked the permissions of 657 foreign workers,” he said. He added the government bodies issued 56 orders regarding violations that revealed and imposed 282 fines totalling 87 million tenge ($224,000). The second inspection stage checked 34 additional enterprises and identified 135 labour violations. Nurymbetov specifically addressed Arabtec Consolidated Contractors Limited Project Manager John Campbell regarding violations at the Abu Dhabi Plaza construction site. “For example, you provide three meals a day for foreigners living in a hostel, the cost of which is up to 3,000 tenge ($8). The local staff, they dine separately, with compensation payments of 800 tenge ($2). In addition, your company attracted foreign workers that do not correspond to the position for which you received permission,” he said. The ministry also plans to return to the compulsory practice of replacing foreign workers with domestic specialists. “You will get permission to attract a foreign specialist for one-three years, but after the term expiration the employee needs to be replaced by a Kazakh specialist. We have been attracting foreign labour for 25 years. I think that time was enough to train our own specialists,” added Nurymbetov. Saparbayev supported the minister’s proposals. “If we invite a foreign worker, then after a certain time we must replace him with a domestic worker. We have enough universities and enterprises. For a quarter of a century we have been attracting foreign workers, but we are not preparing our own. Perhaps next year we will exclude the issuance of permits for the fourth category,” he said, according to The Astana Times.

Number of Chinese companies in Kazakhstan grows by almost 19% The number of operating foreign companies is growing in Kazakhstan. Since the beginning of the year, their number has grown by 10.5%. Most of all in Kazakhstan are foreign

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companies from Russia at 6.9 thousand, Turkey at 1.9 thousand, China, Uzbekistan at 1.1 thousand each, and Kyrgyzstan at 873. The largest increase in the number was recorded by Afghanistan. There are more than 50% more companies with capital from this country since the beginning of the year. The number of Tajik companies also increased by 33.1%, Iranian by 32.1%, Kyrgyz by 21.6%, Chinese by 18.7%, Belarusian by 18.2%. A number of countries, by contrast, have reduced the number of companies in Kazakhstan. There have been 13.3% fewer enterprises from the Virgin Islands since the beginning of the year, 11.4% from Ukraine, 6.1% from the Netherlands, and 2% from the United Kingdom, LS reported.

Revenues to the National Fund of Kazakhstan decrease by 3.5% In January-October 2019, the National Fund received 2.2 trillion tenge. This is 3.5% less than in 10 months of last year at 2.3 trillion tenge. BANKING The largest volume was provided by Atyrau region at 984.9 billion tenge, WKO at 500.5 billion tenge, and Mangystau region at 407.1 billion tenge. Kyzylorda region paid 159.6 billion tenge, Aktobe region accounted for 106.3 billion tenge, Nur-Sultan for 50.2 billion tenge, and Almaty for 9.9 billion tenge. Revenues from Turkestan region amounted to 8.3 billion tenge, from East Kazakhstan region to 3.1 billion tenge, from to 132.6 million tenge, from Zhambyl region to 11.9 million tenge, from to 4 million tenge, and from Akmola region to 2.9 million tenge. In turn, Pavlodar region transferred 1.2 million tenge to the National Fund for nine months, Shymkent - 349 thousand tenge. Income from North Kazakhstan region and Kostanai region was not made for 10 months, LS said.

Loan market of Kazakhstan grows due to retail lending Bank loans to the economy of Kazakhstan grew by 5.7% on-year, and amounted to 13.4 trillion tenge by the end of September. Not all market segments enjoy the same loan support from banks, and the fastest growing ones are related to retail lending. The largest increase in money was observed in the consumer lending sector by 724.8 billion tenge, up to 3.9 trillion tenge. It comprised 29.4% of the total loan portfolio, against 25.7% a year earlier, the highest rate among the credit segments of the market. Mortgage lending is also in the growth zone at plus 429.9 billion tenge, up to 1.7 trillion tenge. The sector of construction and purchase of housing by citizens already occupies 13% of the portfolio, against 10.4% a year earlier. The largest decline in lending activity was noted in the segment of business acquiring working capital by minus 478.6 billion tenge, to 2.8 trillion tenge, as well as in the construction and reconstruction sector by minus 90.4 billion tenge, to 539.6 billion tenge. Loans to businesses for the purchase of fixed assets also decreased by 31.8 billion tenge, to 1.1 trillion tenge. The most clean loan portfolios among large segments are in the field of construction and purchase of housing by citizens as overdue loans here accounted for only 3.7% of the portfolio and in consumer loans at only 5.9%. The best portfolio quality is in the segment of securities acquisition, as overdue loans occupy only 0.01%. However, the segment loan itself makes up only 0.5% of the total loans to the economy. The lowest quality of the loan portfolio is in the segment of the acquisition of fixed assets at 11.9% of the loan portfolio, Ranking Kazakhstan reported.

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ECONOMIC NEWSLETTER, November 2019 Embassy of the Kingdom of the Netherlands ENERGY & NATURAL RESOURCES Ministry of Energy of Kazakhstan expects to break 2018 oil production record According to the Ministry of Energy, in 2019, it is expected that the production of black gold will reach 90.5 million tons. In 2018, this figure was 90.4 million tons. The ministry said that according to the results of 10 months, the volume of oil production in the republic amounted to 74.8 million tons, or 100.3% compared to the same period in 2018. Oil production at three major oil and gas projects in the country amounted to 11.5 million tons at Kashagan, 24.6 million tons at Tengiz, and 9.1 million tons at Karachaganak. “This year, three projects were successfully overhauled with a complete shutdown of the main production. Despite the shutdown of the main production, the expected production volume at the end of the year was increased from 13.5 million tons to 14.5 million tons at Kashagan, from 29 million tons to 29.6 million tons at Tengiz, from 11 million tons to 11.2 million tons at Karachaganak,” the Ministry of Energy said and noted that this caused a change in the forecast, LS reports.

Khazar and Kalamkas-Sea projects to be returned to Kazakhstan According to the Khazar and Kalamkas-Sea projects, a decision was made to return the territories to the republic, the press service of the Ministry of Energy of Kazakhstan reported on November 11. “The ministry is developing an appropriate roadmap for the further implementation of projects,” the Ministry said. In October of this year, the shareholders of the international consortium North Caspian operating company and Shell announced their withdrawal from these two projects, citing their low profitability. The Ministry of Energy of Kazakhstan noted that in the exploration sector with the simplification of regulation of the subsoil use sphere and the creation of preferences for exploration at sea, the implementation of offshore projects has been activated. “In the period until 2025, the expected volume of investments in the projects of Isatai, Abay, Zhenis will be about 136 million dollar,” the Ministry of Energy said, In Business reports.

Kazakhstan’s oil production at Kashagan in the third quarter increases to 422,000 barrels per day Kazakhstan’s giant Kashagan field reached record high oil production in early September at 400,000 barrels per day, while oil production, including natural gas liquids, averaged 422,000 barrels per day in the third quarter, Italian Eni said, raising expectations a sharp increase in exports. The representative of the Italian company said that oil production on Kashagan on September 4 reached 400,260 barrels per day. The increase was achieved due to the transfer of an additional well for injection to support production after a serious stop of maintenance at the beginning of the year. According to the representative, in the third quarter the total production at Kashagan, including oil, gas and liquefied natural gas, averaged 503,000 barrels per day of oil equivalent. The pre-loading program suggested that CPC’s oil export from Novorossiysk, mainly consisting of Kazakh oil, should reach a record 1.5 million barrels per day in December after a recent decline as a result of maintenance at various Kazakhstani fields. Kazakhstan is a party to production cuts agreed between OPEC, Russia, and other producers, but its largest fields and CPC mix are not believed to be affected by this obligation, and developed deposits bear the brunt of any cuts. A consortium of seven companies that runs Kashagan has been increasing production since putting the field into operation in 2016 after many delays and technical problems that helped make it one of the most expensive oil projects in the world, worth about $55 billion.

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Recently, growth in production in Kazakhstan has slowed somewhat due to the content of the CPC, Tengiz and Karachaganak, in two other main sources of oil. According to the International Energy Agency, Kazakhstan’s oil production in September amounted to 1.84 million barrels per day. A spokeswoman for Eni said that production at Karachaganak also increased and reached new heights after the cessation of maintenance, which lasted almost a month and was completed on October 11. The exact levels of fluid production at Karachaganak, however, are unclear. According to the state company KazMunayGas, in the first half of the year, about 234,000 barrels of oil were produced at the field per day, which is 5% less than a year earlier. Once touted as the main source of production outside OPEC, and still seen as a growing oil province, Kazakhstan’s oil prospects were overshadowed by significant cost overruns and delays, as well as concerns about corruption risks. Chevron this month announced a 25% increase in the cost of its third-generation expansion project in Tengiz to $46.5 billion, which took investors by surprise. The expansion, which should raise production in Tengiz to 900,000 barrels per day, was also postponed and will be completed only in the middle of 2023. Explaining the cost overrun, Chevron management emphasised more than expected the construction work needed for the project and the difficulties associated with its remote location. A separate consortium in Kashagan last month decided not to continue implementing a potential satellite project in the Caspian Sea, known as Kalamkas. “The decision is driven by the complex economics of the project,” Platts spokeswoman for the North Caspian Operating Company said, adding that this did not affect the Kashagan project itself. With 9–13 billion barrels of recoverable reserves, there are many opportunities to increase production at Kashagan, but the consortium is still focused on gradual steps and resolving problems. Deputy Energy Minister Makhambet Dosmukhambetov said last month, according to state media, he is considering the possibility of building a gas processing plant with a capacity of 1 billion cubic metres per year, which will allow enterprises to process large volumes of gas and, in turn, produce more oil, according to Platon.

Kazakhstan dismisses proposed Karachaganak settlement Kazakhstan rejected a $1.1 billion (857.37 million pounds) offer to settle a dispute with the consortium led by Royal Dutch Shell and Eni over the Karachaganak gas condensate field, deeming it insufficient, a Kazakh energy official said on 26 November. The Central Asian nation had said in October 2018 it was close to settling a profit-sharing dispute with the group developing the field, which includes Chevron, LUKOIL and Kazakh state energy firm KazMunayGas. But the deal has not materialised and the government in Nur-Sultan has remained silent on the reasons for its failure. “We are not satisfied with the sum that was previously agreed,” First Deputy Energy Minister Makhambet Dosmukhambetov told reporters. “New circumstances have been uncovered,” he said, without elaborating or giving a figure that would satisfy the government. Kazakhstan filed a $1.6 billion claim in 2015 against the foreign companies developing Karachaganak, one of the former Soviet republic’s biggest fields, saying it was not receiving its fair share of profit. Energy Minister said in September an arbitration judgment could be delivered next year, although there was still a chance for an out-of-court settlement, Reuters reported.

KazMunayGas reviews cost increase of future expansion project of Tengiz field KazMunayGas analyses the justification for the cost growth of the future expansion project of the Tengiz oil and gas field from $37 billion to $45 billion. “At present, KMG is

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analysing the justification of cost increases. The final decision will be made after the completion of the analysis of the validity of the growth in the cost of the project,” the company said. Commenting on the question of how the project will be financed in case the Tengiz FEP budget increases, KazMunayGas advised to contact Tengizchevroil. Earlier, TCO informed that the joint venture presented its partners an increased Tengiz expansion budget. The budget of the project for the future expansion of the Tengiz oil and gas field may increase from about $37 billion to about $45 billion. This was announced during a conference call of the American company Chevron, where it turned out that in the III quarter the cost and timing of the project was completed, after which the estimate of its costs increased by 25%. The main reasons for the cost overruns are associated with the design and construction of modules at the TCO third generation plant. In 2015, the value of FEP has already increased from $23 billion to $38 billion, Kazakhstani media wrote. FEP development began in 2011 and entered the active phase in the last three years. Its implementation will increase oil production in Tengiz by 12 million tons, up to 38-39 million tons per year. Tengizchevroil was established in 1993 on the basis of an agreement between Kazakhstan and Chevron. Currently, the company’s shareholders are Chevron at 50%, ExxonMobil Kazakhstan Ventures Inc. at 25%, KazMunayGas at 20%, LukArco JV at 5%, In Business reports.

Another oil refinery may appear in Kazakhstan In Kyzylorda region, it is planned to build an oil refinery worth 4 billion tenge. According to the regional department of industrial and innovative development, the project is planned to be implemented within three years. The construction of the enterprise is estimated at 4.1 billion tenge. The implementation period is 2019-2021. The project capacity will be 300 thousand tons of crude oil per year. At the moment, the project initiator is considering the issue of obtaining permission for the right to use subsoil. The department added that the plant plans to produce gasoline of AI-92 and 95 grades, diesel and boiler fuel. Finished products will be delivered to the domestic market. The company will employ 50 people. Currently, an oil refinery is being built in Turkestan region. The project cost is estimated at 144 billion tenge, according to LS.

New petrochemical complex in northwest Kazakhstan in progress Construction of the integrated gas chemical combine Kazakhstan Petrochemical Industries will be completed at 53% by the end of 2019 in Atyrau region, the Samruk-Kazyna national fund reports. Chairman of the company Akhmetzhan Yesimov visited the construction site of the complex on the territory of the special economic zone. The project has been handed over to the KazMunayGas by the decision of the Samruk- Kazyna in June 2019. By the end of 2019, half of the project will be implemented. The plant will be launched in 2021. More than 2,000 people will be provided with jobs, AKIpress reported.

Number of renewable energy projects in Kazakhstan on the increase Vice Minister of Energy Makhambet Dosmukhambetov reported about the situation on introduction of renewable energy sources in Kazakhstan. “Since the year’s beginning we have commissioned 14 renewable energy generating projects with the capacity of 402MW. 4 new projects with the capacity of 104.8MW will be implemented by the end of 2019,” said the Minister.

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In his words, in 9 months of 2019, the volume of energy generated by RES was 1.7bn kWh that is 65% more compared to the same period in 2018. “The share of RES in electricity generation is around 2% (2.3% as per 2019 plan),” the speaker noted. “In general, the number of RES projects across the country in 2019 increased by 20: from 67 to 87. Their total capacity increased by 1.9fold: from 537MW in 2018 to 1042MW in 2019,” the Vice Minister added, Kazinform reports.

Kazakhstan to hold first auction for construction of solar power station The Ministry of Energy of Kazakhstan plans to hold the first auction on 27 November for the construction of a solar power plant with a capacity of 50 MW, Kazakhstan’s Energy Minister Kanat Bozumbayev said at a government meeting on 30 October. “The construction site is located in the Turkestan region (south of Kazakhstan), the land area is 100 hectares. International players have shown great interest in this auction already. The Ministry of Energy of Kazakhstan plans to prepare such project auctions for sun and wind in the coming years,” Bozumbayev said. According to him, 87 renewable energy facilities with a total capacity of 1042 MW will operate in Kazakhstan according to the results of 2019. By the end of 2020, 108 renewable energy facilities with a capacity of 1610 MW will operate in Kazakhstan. And by the end of 2024, the total renewable energy capacity will be at least 3,000 MW. “Investors from 10 countries are now working in the green energy sector, as well as large financial organizsations such as the EBRD, Asian Development Bank, and Kazakhstan Development Bank. The Asian Infrastructure Investment Bank as the first investment project in Kazakhstan chose the renewable energy facility – a 100 MW wind park in the Zhambyl region. This deal should be completed before the end of this year,” the energy minister said. Among the investors who came to the green sector are oil companies such as Royal Dutch Shell, Italy’s ENI and France’s Total, which in the competition win the right to implement projects in Kazakhstan. “Kazakhstan has great potential to reduce the cost of green energy. The government will provide financial assistance, and also intends to increase the duration of the contract for the purchase of electricity to 20 or 25 years. International arbitration will be held on neutral territory,” Bozumbayev said. According to the Ministry of Energy, Kazakhstan has set a goal to increase the share of renewable energy in total electricity production to 3% in 2020, to 6% in 2025, by 1030 by 10%, and by 2050 renewable and alternative energy sources should not less than half of total energy consumption, New Europe said.

Vestas develops solution for 48 MW wind park extension in Kazakhstan Vestas has secured a 48 MW order from Kazakh developer TSATEK Green Energy LLP for the second phase of the Astana wind project, expanding the wind park from 52 MW to 100 MW. For this order, Vestas has developed a solution that includes 14 V117-3.45 MW turbines equipped with Vestas Low Temperature Operation. With the cold climate option and the turbine variant’s robust design for tough wind sites, the turbines are well-suited for optimal performance in Western Kazakhstan’s dry continental climate with extremely fluctuating temperatures and high wind conditions. Following the installation and commissioning of the Astana I wind project in 2019, this order marks another important step in further developing the growth of renewable energy production in Kazakhstan. The project is financed by a leasing agreement between the customer and a financial institution. “During the realisation of the first phase of the Astana wind project, TSATEK Green Energy LLP has received valuable support from our trusted partner Vestas, with its extensive experience and highly qualified personnel, that fully meets all requirements for the supply

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and installation of wind turbines in Kazakhstan. The decision to cooperate with Vestas has lived up to our expectations, therefore we have mutually increased the project capacity up to 100 MW. As for us, it is an honor that the world leader in wind, Vestas, contributes not only to our project, but also to our country”, states Yedil Saryyev, Director of TSATEK Green Energy LLP. “This order from TSATEK Green Energy LLP is underlining Vestas’ ability to deliver competitive wind energy solutions also for markets with low temperature climatic conditions. We look forward to maximise the return on investment for our customer by offering a competitive cost of energy and to further develop this promising wind market”, says Nils de Baar, President of Vestas Northern & Central Europe. The contract includes supply, installation and commissioning of the wind turbines, as well as a 10-year Active Output Management (AOM 4000) service agreement. The project will feature a VestasOnline® Business SCADA solution to lower turbine downtime and optimise the energy output. Turbine delivery is scheduled for the second quarter of 2020< according to BOE Report.

Kazakhstan increases uranium mining by 5% The volume of uranium mining in Kazakhstan during ten months of this year increased by 5% and amounted to 18.7 thousand tons, the Energy Ministry said. The uranium MINERAL production in Kazakhstan in January-October 2018 reached 17.8 thousand tons. In 2019 RESOURCES the national company Kazatomprom plans to produce 22.75-22.8 thousand tons of uranium. The production level in proportion to the share of Kazatomprom in other companies in 2019 will be 13-13.5 thousand tons, taking into account the announced plans to reduce production by 20%. Kazatomprom is the national operator of Kazakhstan for the export of uranium and its compounds, rare metals, nuclear fuel for nuclear power plants and special equipment. The Samruk-Kazyna State Fund owns 81.2% of Kazatomprom shares, 18.8% is freely traded on the Astana International Financial Center (AIX) and the London Stock Exchange (LSE), according to inbusiness.kz.

Kazakhstan to reduce coal consumption to 83.1 million tons as of 2040 Coal consumption in Kazakhstan will stagnate and gradually decline in the long run. “It is predicted that the share of coal in Kazakhstan’s primary energy consumption will decrease from 59% in 2018 to 54% in 2030, and then to 47% in 2040. Aggregated distinguishable coal consumption will decrease from 91.2 million tons in 2018 to about 90.8 million tons in 2030 and 83.1 million tons in 2040,” Matthew Seigers, head of energy research for Russia and the Caspian region of IHS Markit, wrote in an email. The Association of Mining and Mining and Metallurgical Enterprises calculated that due to gasification in the centre and north of Kazakhstan, burning of steam coal at power plants will decrease by 3.6 million tons, and domestic coal fuel by 2.9 million tons. But the reduction in consumption of the latter will take place slowly, not at once, as the population will primarily proceed from the cost of gas, the implementation of a gas supply system, and installation of equipment. Due to the high cost of household gasification in 2020-2022, a decrease in the use of household coal will amount to approximately 1.5 million tons, analysts at AGMP predict. The business association states that due to a drop in demand for coal in Europe and toughening environmental requirements in other countries in January-August 2019, the volume of export of Kazakh coal decreased by 1.4% compared to the same period last year, and its annual production decreased by 1.5%, In Business reported.

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ECONOMIC NEWSLETTER, November 2019 Embassy of the Kingdom of the Netherlands TRANSPORT & COMMUNICATIONS TAV Airports Holding ready to purchase Almaty Airport in January 2020 Turkish holding TAV Airports Holding will complete the acquisition of the Almaty International Airport in January 2020, Sani Shaner, co-founder and CEO of TAV Airports Holding said. “The purchase transaction is almost complete. (...) We will complete all documentation processes by January 15, 2020. Until we can announce the amount of the transaction, this will become known in January,” Sani Shaner explained. In addition, TAV Airports Holding is investing $150 million to expand its international terminal at Almaty International Airport. “In Almaty, we will operate an airport and we will invest about $150 million in a new international terminal,” Sani Shaner explained. Earlier it was reported that TAV Airports Holding is negotiating with the shareholders of Almaty Airport on the purchase of an air harbour. According to the forecasts of analysts interviewed by Interfax-Kazakhstan, a Turkish holding can buy Almaty International Airport for $180-210 million. TAV Airports Holding owns the Ataturk airport in Istanbul. The company operates terminals in Latvia, Croatia, Northern Macedonia, Saudi Arabia and Tunisia, and operates in 40 airports in the world together with its French partner ADP. Almaty Airport is the largest in Kazakhstan, built in 1935. The sole shareholder of the company is Venus Airport Investments B.V., registered in Amsterdam. Over 9 months of 2019, the air terminal increased passenger traffic by 8%, servicing 4.78 million passengers, according to Kapital.

Kazakhstan Temir Zholy wants to postpone IPO to 2023 The Ministry of Finance spoke about plans to enter the IPO of Kazakhstan Temir Zholy. “There are problems in KTZ, because now we want to take the initiative to postpone the deadlines a little further, until 2023,” Finance Minister Alikhan Smailov said. As for the Kazakhtelecom, Air Astana and KazMunayGas companies, according to the head of the department, they will enter an IPO in 2020. Later, answering journalists’ questions, the head of the Ministry of Finance spoke in more detail about the problems in KTZ. “We are talking about the debt burden of this company. Work is currently underway to improve the financial condition, namely the restructuring of KTZ’s debts. A special roadmap has been developed, and we are moving forward on this issue. I think that in the next few for years this situation will be completely in the right parameters,” he added. Smailov said that the foreign currency debts that the company had raised in due time will be redeemed and replaced with debts within the country. “That is, they will borrow money domestically in tenge, getting rid of foreign currency debts, which are expensive to maintain due to exchange rate risks,” he said. In addition, Smailov explained why the IPO for other companies will only be in 2020. “Based on what is currently on the market, our international consultants believe that it’s better not to rush into this issue and move it to 2020. They recommend that selling stocks in 2020 is more profitable than this,” the Finance Minister concluded. In December 2018, the head of the National Association of Mining and Mining and Metallurgical Enterprises Nikolay Radostovets asked the government to postpone the withdrawal of Kazakhstan Temir Zholy IPO until 2025. Although the initial placement of KTZ was planned in 2020. Kazakhstan Temir Zholy received a net loss in the first half of 2019 in the amount of almost 2.9 billion tenge against a loss of 5.3 billion tenge in the same period in 2018, LS reported.

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ECONOMIC NEWSLETTER, November 2019 Embassy of the Kingdom of the Netherlands

Kazakhstan intends to open traffic on 1,373 km of roads in 2020 As part of the continued implementation of the Nurly Zhol state program from 2020 to 2026, it is planned to cover the reconstruction of 10 thousand kilometres of national roads, 1,373 km of which will open traffic next year. In the Centre - South direction it is planned to open traffic for 311 km, 37 km will be commissioned on the Petropavlovsk-Kurgan highway, 13 km traffic will be launched under the Centre-Vostok project, and 65 km on the Kostanay-Denisovka highway km, and on the highway Aktobe-Kandyagash-Makat at 160 km. Also, next year, it is planned to open 60 km in the direction of Atyrau-Astrakhan, 32 km will be commissioned under the Osinovskiy Pass project, 384 km of traffic will be opened on the Taldykorgan-Ust-Kamenogorsk highway, and 96 km on Uzynagash-Otar. It is planned to commission 60 km of the - highway and 155 km of the Kalbatau- Maykapshagay highway, the press service of the MIID of Kazakhstan reported. In 2020, a fee system will be introduced at 5,917 km. By 2025, the length of toll roads will reach 11.7 thousand km, In Business reported.

Toll roads will add more than $10 million annually to Kazakh budget Toll roads will add more than four billion tenge ($10 million) annually to the Kazakh budget, said Minister of Industry and Infrastructure Development Beibut Atamkulov on October 22. “At the moment, the length of toll roads has been increased to 682 kilometres. Nur-Sultan – Schuchinsk road is 211 kilometres, Nur-Sultan – Temirtau is 134 kilometres, Almaty – Kapshagai is 42 kilometres and Almaty – Khorgos is 295 kilometres. The annual fees make up over four billion tenge, which saves budget funds for the maintenance of these roads,” he added. Work began on the first toll road, Nur-Sultan – Schuchinsk, in 2013. Users pay in excess of one billion tenge ($2.6 million) annually, which covers maintenance costs. “We pay particular attention to the development of the local road network. Over the past five years, the budget allocated 590 billion tenge ($1.5 billion) for the development of roads of regional and district significance. We repaired 15,000 kilometres of roads. It should be mentioned that in accordance with the order of the First President, , funding of local roads has been increased since 2018,” said Atamkulov. Financing this year exceeded 200 billion tenge ($514 million), which funded repair of 4,600 kilometres. The figure is three times higher than 2014, bringing the roads to a good maintenance level. Atamkulov spoke about developing roadside service. To provide drivers and passengers with quality service, approximately 1,000 of 1,822 roadside facilities were repaired in accordance with the national standard. In addition, 73 facilities were built using budget and private capital funds, with work to continue next year. The ministry also adopted a programme to support small and medium-sized businesses, providing entrepreneurs with engineering infrastructure assistance. Private companies will soon begin installing three types of roadside toilets on toll roads. Since gaining its independence in 1991, Kazakhstan has built and reconstructed 12,000 kilometres of roads. In 2018, 1,500 kilometres were repaired and 528 kilometres reconstructed, according to The Astana Times.

EBRD to finance eastern Kazakhstan highway reconstruction The European Bank for Reconstruction and Development (EBRD) and KazAvtoZhol have signed a 34.5 billion tenge ($89 million) loan agreement for the Kurty-Kapshagai road project. The signing ceremony was held at the Ministry of Industry and Infrastructure Development. Authorities plan to use the funds to reconstruct the 67-kilometre (km) section connecting the two settlements. The road is a part of the Centre-South corridor, the major project linking the country’s north and south regions.

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ECONOMIC NEWSLETTER, November 2019 Embassy of the Kingdom of the Netherlands

“The Xinjiang Construction Company will be the project contractor. The contract has already been signed on the results of the tender, so we are ready to proceed with the project,” said KazAvtoZhol Chair Ulan Alipov. EBRD is actively involved in financing Kazakh infrastructure projects. It previously provided $322 million for two road industry projects as part of the Western Europe- Western China International Transit Corridor – the 102-km Aktobe-Martuk and Tashkent- Shymkent highways. KazAvtoZhol has also implemented several projects. The company signed a $196-million loan agreement for the construction and installation work is now underway on a 143-km portion of the Kurty-Burylbaytal highway. The company also inked a 103.7 billion tenge ($268 million) loan agreement this year to renovate a 243-km section of the Atyrau-Astrakhan highway near the Russian border, including the Atyrau northern bypass, The Astana Times reports.

AGRICULTURE Asian Development Bank to allocate $250 million to restore irrigation networks in Kazakhstan Over the next three years 250 billion tenge will be allocated from the budget for water supply to the population, this was announced by Senator Kairat Kozhamzharov during parliamentary hearings on water security. The issue of another $250 million (97 billion tenge) against the guarantee of the Government was approved by the Asian Development Bank. This sum will be allotted for the restoration of irrigation networks in four . The speaker noted that infrastructure work will be aimed at desalination, repair of canals, construction and reconstruction of more than 4 thousand hydraulic structures. In this regard, the Government should tighten control over targeted use of the funds. “According to the conclusion of the Accounts Committee, the depreciation of the main water utilities of the republic is 56%, most of all in Almaty at 67%, Karaganda at 69%, Pavlodar at 61%, Almaty at 60%, and the Zhambyl and East Kazakhstan regions at 55%,” said Kairat Kozhamzharov, Kazinform reported.

Kazakhstan farmers to become key players in regional meat exports On 14 November 2019, the World Bank and the Ministry of Agriculture of the Republic of Kazakhstan publicly discussed the details of the proposed Sustainable Livestock Development Project aimed at facilitating the development of an environmentally sustainable, inclusive and competitive livestock sector in Kazakhstan. At the request of the Government of the Republic of Kazakhstan, the World Bank Group, jointly with the Ministry of Agriculture, is preparing the Kazakhstan Sustainable Livestock Development Program for 2020-2024. “An interactive and transparent discussion is very important for the World Bank and the Ministry of Agriculture of Kazakhstan to design a successful and inclusive Program,” says Jean Francois Marteau, World Bank Country Manager for Kazakhstan. “We stand ready to support Kazakhstan in achieving its objectives to become a key regional player in high- value meat export markets, and to support an increase in the number of farmers involved in this business.” The proposed Livestock Development Project aims to contribute to the diversification of Kazakhstan’s exports away from minerals and oil. It also aims to boost private sector growth and support development in rural areas. Finally, it will contribute to increasing agriculture productivity by improving the use of Kazakhstan’s vast pasture and grassland resource potential. “The proposed Program for Livestock Development supports the Government’s State Program for Agro-Industrial Complex Development and the National Program for

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ECONOMIC NEWSLETTER, November 2019 Embassy of the Kingdom of the Netherlands

Livestock Development. The Program would focus on those results and objectives that are fundamental to the livestock sector development with the objective of increasing the competitiveness of the export-oriented meat value chains,” says Gulmira Isayeva, Vice- minister of Agriculture of the Republic of Kazakhstan. The total amount of the loan will be up to $500 million. The World Bank proposes the use of the Program-for-Results tool - a financing instrument that links the disbursement of funds directly to the achievement of specific program results. This tool will also help to support government programs and utilize the World Bank’s expertise. The expected results include improvement of livestock traceability, better farming practices, and sector development that limits carbon emissions. Representatives of the private sector, associations, unions, think tanks, media and civil society took part in the public consultation. The objective of the consultation was to inform stakeholders and allow for an open discussion and exchange of ideas around the implementation of the project, including its environmental and social assessment aspects, according to a press-release published on the website of the World Bank.

Two subsidiaries of KazAgro merge into one The sole shareholder of Agrarian Credit Corporation made a decision on voluntary reorganisation of the company by joining KazAgroProduct. Agrarian credit corporation announced the decision of its sole shareholder dated October 18, 2019 to voluntarily reorganise Agrarian Credit Corporation by merging with it KazAgroProduct. Agrarian credit corporation is a member of the group of companies of the KazAgro National Management Holding. KazAgroProduct is also a subsidiary of KazAgro. The main activity of the company is the organisation of the purchase of livestock products from the agricultural entities of the country and the creation of sustainable production, procurement and processing of livestock products. Parliament Speaker Nurlan Nigmatulin was indignant at the losses of the KazAgro holding. “Here is the problem, loan repayment. Colossal state funds are concentrated in KazAgro. This is the main financial operator. Hundreds of billions were sent to agriculture through this holding. At the end of 2018 alone, the accumulated loss of KazAgro amounted to almost 400 billion tenge. It turns out that the company generates losses instead of revenues.” According to the chairman of the board of KazAgro, Yerbol Karashukeyev, out of 7 subsidiaries of KazAgro, only three will be left by the first quarter of next year. “There will be about a thousand people reduced, administrative expenses are reduced. We completely change the controls of KazAgro. Highly professional foreign experts will be involved in the board of directors as independent directors. By 2020, we plan to bring the holding to a breakeven level. In the next 10-15 years, we want the accumulated loss, which until 2019 was formed, levelled and entered the growth path,” Karashukeyev assured. Nigmatulin said that, in addition to transformation, it is necessary to radically change the system of bringing budget funds to agricultural producers. “Money gets there and disappears to no avail. President Kassym-Zhomart Tokayev spoke about the inept leadership. The agrarians themselves are talking about this. It is necessary to finance state policy in agriculture, but continuous infusion of state funds through inefficient companies should also not be allowed,” the Speaker said, Kazakh Zerno reports.

Kazakhstan, EAEU to tighten control over dairy production in 2020 The Kazakh government will tighten controls over dairy production starting Jan. 1 as part of the new Eurasian Economic Union Technical Regulation on the safety of milk and dairy products.

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ECONOMIC NEWSLETTER, November 2019 Embassy of the Kingdom of the Netherlands

The requirements introduce new maximum quantitative indicators of mesophilic aerobic and facultative anaerobic microorganisms and somatic cells for raw milk, skimmed milk and cream, and will control their purity, acidity, density, bacterial contamination and fat rates. The Eurasian Economic Commission Council adopted the technical regulation in 2013 to improve the safety and quality of milk and dairy products produced for food purposes in the EAEU. To adapt to the upgraded conditions, Kazakh authorities arranged and gradually implemented measures to modernise and reform the local dairy industry. However, Kazakhstan postponed the introduction of new requirements twice. “The delay was caused by objective factors. First is the underdevelopment of the raw material base – more than 70% of milk going to processing is produced at private farms. This milk is often of low quality due to negligence regarding sanitary and veterinary norms such as vaccination, proper balanced feeding, improvement of genetic potential,” the Kazakh Ministry of Agriculture press service said. It was previously reported that approximately 90% of raw milk coming to Kazakh milk plants from farmers did not meet the EAEU technical regulation standards. To address this issue and raise the quality of the industry’s raw materials, Kazakhstan’s Ministry of Agriculture is focusing on increasing the number of organised dairy farms through its farming development programme. To provide the farms with succulent feed, the authorities propose to irrigate 120,000 hectares. In addition, Kazakhstan plans to build 244 family farms and 95 industrial dairy farms within five years. To date, 10 family farms with a total capacity of 989 head of cattle are already in operation in the Akmola, Aktobe, Almaty, Zhambyl, North Kazakhstan and Turkestan regions. Two more industrial farms operate in the Pavlodar and North Kazakhstan regions. Twelve additional milk reception points were created with state support this year. To help farmers adapt, officials are also offering to develop anchor cooperation in the dairy industry sphere and expand state support for the technical equipment and re-equipment of the dairy farms, as well as to create training farms to increase knowledge in the field of dairy goods manufacturing. The country is also continuing with its road map on bringing Kazakhstan’s dairy products into compliance with EAEU safety requirements. The map was initiated by the Dairy Union of Kazakhstan and supported by the United Nations Food and Agriculture Organisation (FAO) and the Eurasian Development Bank. It provides for the improvement of laboratory facilities and quality control of raw materials and the preparation of suppliers for the implementation of EAEU. That process is underway. Kazakhstan’s Ministry of Agriculture has announced that Germany’s Federal Food and Agriculture Ministry will sign a joint statement on the milk project and two joint declarations on the German-Kazakh Agrarian and Political Dialogue Project in December. An important element of this collaboration will be joint work in training staff in dairy cattle breeding. “The ministers will discuss the extension of the transition period up to five years for Kazakhstan,” the Kazakh Ministry of Agriculture said, The Astana Times reported.

Kazakhstan plans to develop its brand in global meat market Kazakh entrepreneurs plan to promote their own breed of cattle starting next year through the Kazakh Whiteheaded Breed International Council. Plans to create the council began after a memorandum was signed involving five-seven states, said Kazakh Whiteheaded Breed National Chamber Executive Director Dauren Matakbayev at the KazAgro/KazFarm 2019 international exhibition.

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ECONOMIC NEWSLETTER, November 2019 Embassy of the Kingdom of the Netherlands

“Today the Kazakh Whiteheaded breed is the largest one in the country, both among pedigree breeds and commercial cattle. Approximately 230,000 heads are registered through the chamber, being bred officially by more than 300 farmers across the country. This is the most common breed,” he said. The breed was produced by Soviet scientists in the mid-20th century based on aboriginal cattle and by implementing the Hereford breed gene pool, noted Matakbayev. Thus, the cattle have inherited the best features of both varieties. “Farmers love this cattle species for its reliability – the cows stand our climate peculiarities very well. Also, they adapt easily and show strong reproductive capacities,” he said. The name was not given randomly, said Matakbayev, as breeders want to increase international recognition of the Kazakh meat brand. He noted the council project will advance the cows’ genetics on the world stage, adding Argentina, Azerbaijan, Kyrgyzstan, Mongolia and Russia are interested in the breed. “[When] ordering steaks or other meat dishes in restaurants, in 80% of cases we get the meat of Kazakh Whiteheaded, but just a few of us know about this. That’s why we want to popularise the brand. Kazakh citizens should know that they can buy marbled meat at an affordable price,” he added. Last year Kazakhstan exported nearly 33,000 tons of meat to 11 countries, including approximately 20,000 tons of beef. The Ministry of Agriculture intends to increase the production of marbled meat, said Vice Minister Gulmira Issayeva in April, according to The Astana Times.

Kazakhstan increases export of agricultural products by 9% Over 8 months of this year, Kazakhstan exported 7.7 million tons of agricultural products totaling $2,040.6 million, which is 9% more compared to the same period in 2018. 1.8 million tons of processed agricultural products were exported, occupying 23.2% in physical weight of the total agricultural exports, in the amount of $679.7 million, occupying 33.3% in monetary terms of the total agricultural exports. To date, 19 types of agricultural products have gained access to the Chinese market. Kazakhstan supplies the beef, lamb, live horses, fish, honey, wheat, wheat bran, soybeans, alfalfa, rapeseed meal, barley, corn, wheat flour, dairy products, woolen raw materials, flaxseeds, pork, wheat feed flour to the Chinese market. The markets of Iran and the United Arab Emirates are also open for Kazakh mutton, beef, live cattle and small cattle for slaughter, food eggs. Kazakhstan supplies fish, oilseeds and feed to the European Union, live cattle and small cattle for slaughter to Saudi Arabia, beef and lamb to Bahrain, Kazakh Zerno reports.

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ECONOMIC NEWSLETTER, November 2019 Embassy of the Kingdom of the Netherlands EXHIBITIONS IN KAZAKHSTAN (January-March 2020)

Central Asia Houseware International Houseware Exhibition 29 February – 03 March 2020, Almaty Organizer: Central Asia Trade Exhibitions www.houseware.kz

Central Asia Home Textile Central Asia Home Textile Exhibition 29 February – 03 March 2020, Almaty Organizer: Central Asia Trade Exhibitions www.hometextilexpo.kz

ShymkentBuild South Kazakhstan International Exhibition on Construction and Interiors, Ceramics and Stone, Fenestration, Heating and Ventilation, Road Construction 11 – 13 March 2020, Shymkent Organizer: Iteca www.shymkentbuild.kz

AgriTek Astana Kazakhstan International Exhibition for Agriculture 11 – 13 March 2020, Nur-Sultan Organizer: TNT Productions www.tntexpo.kz

FarmTek Astana Kazakhstan International Exhibition for Animal Husbandry and Livestock Breeding 11 – 13 March 2020, Nur-Sultan Organizer: TNT Productions www.tntexpo.kz

HomeDeco Kazakhstan International Exhibition for Home Textile and Interior Design 16 – 18 March 2020, Almaty Organizer: Turkel Fair Organization www.homedecofair.com

Securex Kazakhstan Kazakhstan International Security Exhibition 17 – 19 March 2020, Almaty Organizer: Iteca

www.securex.kz

Exhibitions dates are subject to change. For a complete overview and more information on exhibitions in Kazakhstan, please visit: www.iteca.kz www.centralasiaexpo.kz http://10times.com/ www.tntexpo.kz www.atakentexpo.kz

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ECONOMIC NEWSLETTER, November 2019 Embassy of the Kingdom of the Netherlands

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