WASTES OF RAW MATERIAL DIRECTION IS THE STRATEGY OF INDUSTRIAL INNOVATION DEVELOPMENT OF KAZAKHSTAN

VICE MINISTER OF ENERGY AND MINERAL RESOURCES OF KAZAKHSTAN REPUBLIC LAZZAT KIINOV

Kazakhstan reached of great successes in the development of oil and gas field, and it is very important to us the international experience but Kazakhstan Economy have its own specific of development and we try to reach the effective control of oil industry, of course by using of our methods and advantages.

Approximately ten years ago Kazakhstan Republic was new, unknown country for the world oil crime member. Today Kazakhstan and namely its western regions are paid attention of many leading countries of the world.

In the Republic was provided by macro economic and political stability. Kazakhstan refers to the number of countries in which the reforms fulfills more effectively and successfully. Today Kazakhstan is a country, which reached of the biggest progress in the area of restructurization of energy sector and in the creation of liberal competitive market.

Reference: the increasing of Electronic Field Production (EFP) with the comparison of last year is 9,2%, the value of industrial production is 8,8% more than it was in 2002. In Mineral Resource Industry the value of production with the comparison of last year increased to 8.8%, in manufacturing to 8,9%, in production and distribution of Electro Energy, gas and water to 7,1%. The increasing of production value in 2003 observed in all regions of the Republic. The increasing of foreign investments in 2003 was - 4 595,7 mln. US dollars that more for 11% than in 2002 when this item was - 4 073,5 mln. US dollars. By condition on July 2004 the assets of National Fund of Kazakhstan Republic makes more than 3 686 bln. US dollars.

Energy resources are important question of internal and external policy. The strategy matter consists from their effectively use by the method of fast enlarging of oil and gas production with the aim of incomes receiving which will be promoted of strength economic increasing and improvement of public life.

Reference point of Kazakhstan economic policy is the energy safety, energy effectiveness and ecology safety of energy. Because the organizing of long term state energy policy based: on clear and consistent activities of Kazakhstan Republic Government by realization of energy policy, interesting in the creation of power and stable development, ready to constructive dialogue of companies; also organization of investment policy.

The major in cooperation between the government and private companies is mutual development of infrastructure and export.

Oil and gas sector became one from fast upcoming sectors of Kazakhstan economy and has the strategy sense. Oil production is one of the major dynamic upcoming field of Kazakhstan economy. Taxes incomes from the oil and gas sector provides the third part from the incoming to the budget.

Hydrocarbon potential of Kazakhstan Republic is significant in total value of world reserves. by the confirmed reserves of Kazakhstan oil joins to a number of the leading countries of world. Kazakhstan located at the second place after Russian Federation among all CIS countries by hydrocarbon raw material reserves.

Reserves of hydrocarbon raw material

Confirmed the derivable reserves of hydrocarbon raw material on Kazakhstan Republic includes land:

Oil - 30 bln. bbl. (4,0 bln. tons)

Gas - 3,0 trillion of cub. m

Probable reserves of KSCS - more than 124,3 bln. bbl. (17 bln. tons) of equivalent fuel.

Probable reserves of the natural gas by Kashagan field

Geological - approx. 3 trillion of cub. m

Extracted - more than 1 trillion. cub. m

Within last 2 years was declared about the opening of new large commercial oil reserves. First of all this field is Kashagan with extraction of reserves more than 1,6 bln. tons.

Then followed new commercial disclosures with less value. This is Kalamkas Sea of 100 mln. tons of reserves production, the South - Western Kashagan is 20 mln. tons, Aktoti is 210 mln. tons, Kairan is 150 mln. tons.

In result, for the shortest period the oil production of Kazakhstan Republic increased almost for twice. Kashagan field on the North of Caspian Sea takes out of Kazakhstan to a number of leading countries of this world, having the hydrocarbon resources.

By advance the value of reserves production of Kazakhstan sector in the Caspian Sea makes up more for 60,0 bln. bbl. (8,0 bln. tons). For the period since 2000 till 2003 the oil and condencate production increased more than to 50 %. In 2003 in Kazakhstan the oil production makes more for 1 mln. bpd. (51,3 mln. tons of oil condensate) and natural gas is 17 bln. cub. meter. In 2004 expecting production will be more for 1,2 mln. bpd (56 mln. tons).

Probable production

- in 2005 -oil- 1,3 mln. bpd (60-61 mln. ton) -gas - 20,5 bln. cub.m.

- in 2010 -oil - 2 ,4 mln. bpd (around 118 mln. ton) -gas -35 bln. cub. m.

- by 2015 the level of oil production on the sea can reach of 3,0 mln. bpd (more for 150 mln. tons), and in whole on Kazakhstan - up to 3,6 mln. bpd (180 mln. tons), the total gas production and extraction will make of 40 - 45 bln. cub. m.

A probable reserve of hydrocarbon raw material only on the areas and structures make more for 2 bln. tons of oil equivalent.

Of course the perspective of value increasing of hydrocarbon production in Kazakhstan connected with the realization of State assimilation program of Kazakhstan sector in Caspian Sea.

At the beginning of current year was confirmed the plan of assimilation of Kashagan field considered the stage by stage assimilation of field.

The beginner stage considers the assimilation of the North - Eastern part of Kashagan field and the achievement of oil production level to 450 mbpd (21 mln. t /year).

The further stages connected with enlargement of Eastern and Western areas of Kashagan field's assimilation.

By 2013 the oil production on Kashagan will be brought to 900 mbpd (42 mln. t./year), and after in 2014 will be provided the achievement of oil production's stable level to 1200 mbpd (56 mln. t. /year).

Home consumption

It is necessary to note that in spite of the fact that the domestic consumption of Kazakhstan increase but this process not so fast. Now, in Kazakhstan the oil consumption makes around 9 mln. tons, by 2015 the value of internal request will increase to 18 mln. tons per year.

Export resources of Kazakhstan can make: 118 mln. tons - in 2010 and more for 160 mln. tons - in 2015.

The value increasing of unstripped gas production to the period to 2015 basically will reach due to Karachaganag and Tengiz fields.

In 2015 on Karachaganag field the gross output of gas will compose around 15-16 bln. cub. meter, on Tengiz approximately 15-16 bln. cub. meter, also due to assimilation of Kashagan field will be 20 bln. cub. meter. No more portions will come to other fields.

Total gas production and extraction in the republic by 2015 will compose 40-45 bln. cub. meter per year.

In the nearest future we expect the further increasing of extracted reserves of hydrocarbon raw material in Kazakhstan.

Probable value of oil production with gas condensate by 2005 appraises to 60-61 mln. tons, by 2010 approx. 90 mln. tons, and by 2015 taking into consideration the possibility of Caspian shelf more for 150 mln. tons.

Program of Caspian assimilation

On May 16, 2003 No. 1095 according to decree of the president of Kazakhstan Republic confirmed the State Program of Kazakhstan sector's assimilation in Caspian Sea.

This program based on the principals of international mutual acceptable cooperation and observance of the interests of Kazakhstan Republic, reducing of risks under the concluding of contracts to utilization of bosom and multiple use of natural resources; observance of international standards and providing of ecological safety of Caspian region.

The main objects of the Program are:

- conclusion of extraction level to the stable high level and development of attendant infrastructure;

- creation of production and formulated of private scientific-technology base;

- preparation of high qualified Kazakhstan specialists and complex resources utilization of Caspian and other fields assimilation of country economy.

Period of assimilation divided to three stages, which works' contents are differ:

- the 1st stage (2003-2005) - creation of the terms of integrated development;

- the 2nd stage (2006-2010) - acceleration of assimilation;

- the 3rd stage (2011-2015) - stabilization of extraction

Today we proceeded for program realization and we could say about of some results.

According to new projects of geological survey the works continues very sucessfully. National Company "KazMunayGas" began the field works according to previous signed contract on the areas of "Jambay Southern-Zaburunye the south".

There were signed the agreement by new dimensioned project: Agreement about the product division by Tub-Karagan area and Contract for prospecting of Atash area.

These projects will be realized by "KazMunayGas" jointly with LUKOIL company.

Preparation of work concerning compiling of the contract of "Kurmangazi" product structure division is continued.

Also is getting continue the preparation of the contracts regarding the prospecting and hydrocarbon production onto the Jemchuzhina, Darkhan, Kazakhstan, Abay, Isatay, Jenis and others.

On Kazakhstan sector of Caspian shelf picked out more for 200 blocks, it has already been signed an agreement by 36,5 blocks.

Ecological aspects.

Caspian Sea is one of the productive in fish industry, in which the concentration of sturgeon in the world gene pool defining high.

Shallow shelf zone of the North and North-Eastern of Caspian representing by the natural reproduction of fish. Therefore almost of all types of the fishes and the majority quantity of sturgeon inhabits in Kazakhstan part of Caspian and in delta of Volga and Ural rivers.

But at the present time the region has some problems that occurred due to negative effect of ecological problems, including the increasing of water level, the matters of pollution that is continuing fast far.

On the base of foreign and national specialists taking into consideration the parameters defining by the bioproductivity, at the present time Caspian Sea is in the critic condition.

In results of the requirement violation of natural conservancy legislation the utilization of old technology in production and in result of some problems in industry the total area covered by mazut of Western Kazakhstan is around 194 thousand-hectare, the value of sprilled oil is approx. 5 mln. tons the majority of which is on the Caspian regions.

For all times of enterprise activity in oil and gas complex in jet was burned the one hundred and bln. of cub. meter of gas. Appearing in result the carcinogen hydrocarbon and others dangerous products of accompanying gas, pollution of atmosphere air, spreading to large distance laying on the water and shows the negative influence to soil, to flora and animal, and also to the health of population.

Kazakhstan Republic's government will set the most rigid requirements concerning the ecological safety and minimal influences to environment.

Transportation

In result of undertakes efforts of the Republic of Kazakhstan's government mutually with oil production companies the situation stabilized.

In 1993 there began to work the first biggest enterprise with foreign participation of "Tengizshevroil". Kazakhstan had only one variant of oil transportation that was Atirau-Samara oil pipeline.

Since that time the situation changed:

- It was signed the long term agreement between Russia about the transit of Kazakhstan oil to export, offers the increasing the value of transit and mutually utilization of export system.

- The carrying capacity of "Atirau-Samara" oil increased for 50%;

- CPC oil pipeline was used with the carrying capacity for 28 mln. tons per year. It also planning the enlarging of oil pipeline to 67 mln. tons/year.

During the visit to Chinese People's Republic of the president of Kazakhstan Republic Nursultan Nazarbayev on May 16-18 of current year it was signed the framework agreement between the governments of Kazakhstan Republic and Chinese People's Republic regarding the development of cooperation in the region of oil and gas. And on the base of it was signed the agreement between the "KazMunayGaz" and "KNNR" regarding the construction of "Atasu-Alashankou" oil pipeline.

On September 27 was held the ceremony dedicated to the beginning of "Atasu-Alashankou" oil pipeline construction.

The construction of "Atasu-Alashankou" oil pipeline will bring to Kazakhstan so as strategy as a tactic advantages. Realization of current project has the economical interests, investments in the Republic economy will make 700 mln. US dollars. In the construction will take part more for 4500 persons, only the pipeline will provide by work approx. of 500 persons.

Reference: the carrying capacity of the 1st stage (2004-2006) is 10 mln. tons of oil per year and further will be 20 mln. tons of oil per year. The length of oil pipeline is 1007,0 km.

At the present time are carried of works by construction of system through which will be realized the transportation of Kazakhstan oil by route Aktau-Baku-Tbilisi-Ceyhan.

Both parties coordinate the project of Intergovernmental Agreement between the Republic of Kazakhstan and the Republic of Azerbaijan regarding the joint to the BTC system.

For providing of oil transportation from Aktau port and also for the further transportation through the BTC is fulfilled the construction of tankers.

The 1st of this tanker has already been built on October of current year. In 2006 will be built 6 tankers that will be able to fulfill the transportation approx. of 5,5 mln. tons of oil per year.

So, in the Republic of Kazakhstan appearing the great situation when in result of the state machinery of government and private investors works was provided the increasing of hydrocarbon reserves and creates the conditions for the transportation of oil to export. But the successfully fulfillment of plans in oil production is impossible without the creation of infrastructure in oil operations.

General plan of infrastructure development of the marine oil production

Effectively fulfillment of large oil and gas operations in Kazakhstan sector of the Caspian Sea should be provided by the development of modern manufacturing and social infrastructure.

General plan of infrastructure development of the marine oil production was confirmed by the order of the Ministry of Energy and Mineral Resources of Kazakhstan Republic dated September 14, of current year with No. 218.

The aim of general plan of infrastructure development of the marine oil production is elaboration of package directed to the development of infrastructure encouragement of oil operations onto the shelf of Caspian Sea. It covers 2003-2005 at the same time to prognosis the development to 2015 and further to 2040.

We think that accepting of General plan will cerate the conditions for participation in the projects not only of the world companies but also of the middle and not big companies.

The needs in the infrastructure objects determining with the increasing of marine oil operations that could be divided for two categories: the straight infrastructure, which represents by the units and the services that uses by oil companies for supporting of their operations (the marine base of support, industry base of supply, marine tanker terminal, export pipeline and others); accompanied infrastructure that not only to provide by the activity of oil and gas units but also for utilization of activity of industry fields and public.

Within the passage from the one stage to the other will be appeared the necessary in additional services and infrastructure units that could offer larger value of services.

Kazakhstan sector shelf on the Caspian Sea conditionally was divided for three zones: to Northern, Central and Southern.

In the Central and Southern zones for the implementation of drilling and extraction will be used the artificial island except for structure of Abay, Kurmangazi and others where will be used the skeleton platforms.

The technology of the artificial island construction successfully assimilated under the realization of the North Caspian project.

To the period of 2040 is planned the realization of the construction of large quantity of artificial islands: in Northern zone will be constructed of 52 islands from which will be drilled of 1132 wells of differ types, in the Central zone will be 70 islands from which will be drilled 3222 wells.

The major conception of structure of under water construction for shallow areas of the North and the Central zones will be the construction of barge.

In the aim of safety providing of overseas works are expects the creation of the units of the general utilization.

First of all this is the system of vessels control which will provide the safety of the vessels in Tupkaragan Gulf in accordance with the requirements of international convention.

This system will include the coast radar guidance system and other technical equipment.

Necessity in overseas vessels

Kazakhstan is intercontinental state. Except of some fishing vessels Kazakhstan had no its fleet fast far. Of course now we have a problem with the absence of shipping transport specialists.

In accordance with the plan of realization of State program by assimilation of Kazakhstan sector of the Caspian Sea the needs in marine vessels classified according to the fleet type: marine commercial, Aktau, Bautino, Kurik dock fleets.

Overseas commercial fleet by 2015 will have no less than 41 vessels, including the oil tankers, dry cargo vessel, oil barge with the big tonnage, tows.

Aktau, Bautino, Kurik dock fleets will enlarge, and the quantity of vessels will be reached to 22 pcs.

We are planning to establish the Overseas Trainer Center in Aktau City which will be preparing of specialists.

I think that in the sphere of specialists training (of navigator, ship mechanic, dock mechanization, specialists in technical services and repair of vessels and dock equipment, etc.) could be happen the effectively interactive.

Perspectives of oil and gas refinery

Probable increasing of oil and gas production value so as on the elaborating fields as by the perspective projects onto the Caspian shelf is demanded of some problems solving in utilization of products.

The most important direction on investment policy of Kazakhstan defined the development of oil production power and petrochemical production.

At the present time to the number of projects are included:

- the construction of Karachagan gas-transferring complex named as "Gas project".

Reference: Planning production power: the 1st stage (in 2007) - 4,3 bln. cub. meter per year; the 2nd stage (in 2010) - 8,6 bln. cub. meter per year. TES project elaborated by the company Кеllоg Brown & Root.

- the construction in industrial zone of Kashagan field of petrochemical complex. Project is on the stage of analyze and defining the potential investors and partners.

- Besides the biggest investment projects is planned the realization of some investments projects providing the creation of new production and equipment by processing of hydrocarbon raw material, also the realization of modernization and technology reequipment of petrochemical enterprises, namely:

- The construction of petrochemical enterprise in accordance to "Kazakhstan-Russia investments project" about the deliveries of gas from the projects "KazMunayGas".

- The construction of petrochemical complex in Jem City of Aktubin district for gas production in Janajol and Kenkiyak fields with the manufacturing of petrochemical production: ethylene, fuel gas, benzole, polyethylene, polypropylene and others thermoplastics.

- The creation of technological complex by production of methanol by the method of natural or accompanying gas processing, selected of hydrocarbon field.

With the purpose of development not of raw sector and attraction of the investments in development of petrochemical manufactures the Tax Code of the Republic of Kazakhstan is complemented by clause 119-1 " the Taxation of separate organizations which are carrying out activity in a petrochemical industry ". According to it the preferential mode of taxation by corporate surtax of the investment projects of creation of petrochemical manufactures for all period of realization and within five years is entered from the date of units delivery to exploitation.

So, under the realization of the above mentioned investment projects and on the basis of entered tax preferences in Kazakhstan by 2008 will be created the real sources of raw resources for creation of new and development of the capacities of working petrochemical manufactures, and release of wide scale of petrochemical production.

About the strategy of industrial - innovation development of the Republic of Kazakhstan to 2003-2015.

At the present time is developed the plan by the government of KR regarding the realization of strategy industrial-innovation development to 2003-2015.

With the aims of long-term strategic tasks decision the special attention Kazakhstan is going to give to creation of conditions for development of science-intensive and high tech manufactures.

Overall objective of Strategy is the achievement of steady development of the country by diversification of economy branches that promoting a waste from the raw direction, preparation of conditions for transition in the long-term plan to service-technological economy.

The strategy is directed on escalating of scientific and technical, innovation and industrial potential in perspective directions of development, that should promote the reception in the future of basic competitive advantages.

The basic directions of development should become:

1. Assistance in formation high tech manufactures

2. Creation and support of activity of the modern elements scientific and innovation of infrastructure (tech

parks, national centres of science, scientific - technological zones, etc.)

3. Use of existing scientific and technical potential in the development of advanced from the point of view of the postindustrial economy branches.

At the present time actual strategic tasks of economy of Kazakhstan are development of native science intensive manufacture, the development and elaboration of new information technologies focused on reception of the competitive production and maintenance of the interests of national economic safety due to the expense of preservation and development of industrial and scientific and technical potential of the republic.

The scientific - technological policy of Kazakhstan should be directed on activation of innovation's processes, introduction of new technological ways, development of new revisions in the manufacturing industry, also the development of national scientific and technical potential, overcoming of break between a science and manufacture, stimulation of the innovation of activity, maintenance of the real transfers of foreign advanced technology and introduction of the international standards.

Almost all of the oil exporters countries are anxious with a problem of the diversification of its own economy.

With the purposes of a mitigation influence of the change to a conjuncture on oil and oil products of the country is the largest exporters of oil on last decades realizes the measures on perfection of industrial structure of economy at the expense of redistribution of the incomes received from the export of oil.

For maintenance of the balanced development of a national economy due to the growth volumes of the native and foreign investments in priority kinds of activity the program of attraction of the direct investments in the Republic of Kazakhstan for the period of 2003-2005 will be developed.

Investment climate, dynamic of investments' growth

The significant portion in the private investments is borrowed the investments in bosom utilization, which could be render multiplicity effect on development of other branches of economy. With the goals of reception of such effect is necessary within the concluding of contracts with bosom users to stipulate the obligations of the investors by investment part of the incomes in creation and development of accompanying processing manufactures, by accommodation of the orders to equipment delivery and spare parts in the native manufacturers.

However the branches of a manufacturing industry, and innovation sector remains unattractive for the private investor. Taking it into account the task of the state is the creation of a favorable investment climate for the attraction of the private investments in a manufacturing industry.

As economic levers of stimulation for process of attraction of the private investments will be used the investment tax preferences, state location grants and some of guarantees given in accordance to the Law of the Republic of Kazakhstan "About the investments" to the investors, carrying out investments in the fixed actives of the enterprises in priority kinds of activity.

However provided by the Law the preferences are not able to render due effect on development of industrial-innovation sector branches in the incomparability of a given privileges with the comparison of commercial unattractiveness of the given branches.

During existence of the independent state the Republic of Kazakhstan - the purposeful policy on improvement of an investment climate will be carried out. The recognition of global community was expressed in increasing of a credit rating of the Republic of Kazakhstan.

For last 11 years since time of signing of the first large investment contracts, the Republic of Kazakhstan has proved the adherence of stability of the contracts and strict observance of conditions of the signed agreements. It is connected with the necessity of preservation of an attractive investment climate, as it is vitally necessary for fast development of a national economy in general, and in particular of oil and gas sector.

Among the countries - states of CIS of Kazakhstan borrows the second place after Russia by attraction of the direct foreign investments. For the period of 1993-2003 in the economy of Kazakhstan were involved 25,8 bln. US dollars.

Most attractive for an investment of the investments, still have mining sector (bosom utilization), including: of oil and gas sector of the Republic of Kazakhstan since 1998 up to 2003 the volume of the Straight Foreign Investments (SII) has increased more than to 4 times.

The investment opportunities of power sector of the Republic of Kazakhstan are defined by the prospects of the development of a given sector, which will permit to reach the impressive results by 2015.

The analysis of attraction tendency of the investments in economy of the republic testifies that in the forthcoming fifth anniversary in branch structure of the investments the priorities will be kept for oil and gas field. Today the real prospects of oil and gad production development of Kazakhstan field is connected with the Caspian shelf.

At the present time in the republic holds the politics by attraction of foreign investments.

For this purpose is developed and accepted the appropriate legislative base providing a number of privileges to the large investors (decreasing of the income tax, clearing of the ground tax, customs privileges, representation of the location grants).

Significant hydrocarbon resources of the Republic of Kazakhstan create the base for the investments in oil mechanical engineering, development of the service companies, industrial and social infrastructure, oil processing and petrochemistry.

Improvement of investment appeal we consider not only as one of set of measures carried out by us, but also as one of major mechanisms of maintenance of strategic interests of the state forward and steady development of the economy.