LONDON-MOSCOW. March 18. KAZINFORM Fitch Ratings-London/Moscow-17 March 2009: Fitch Ratings says today that the overall tax burden on Kazakh oil and gas companies, levied by a new tax code introduced at the beginning of 2009, is not likely to change significantly given the offsetting nature of other tax initiatives. “Overall, in a low price environment the new tax regime is expected to be less burdensome for the oil and gas industry compared with the older system” said Angelina Valavina, a Director in Fitch’s Energy, Utilities and Regulation team. Furthermore, Fitch believes that it is likely to remain less punitive than sector taxation in Russia and thus should not adversely impact incentives to invest in Kazakhstan’s oil and gas sector. The introduction of a new mineral extraction tax (MET) in replacement of royalties implies a higher tax load for an upstream company, as the MET rates are set in a range of 5-18% for 2009 depending on production volume whereas most royalty rates ranged within 2-8%. Moreover, the introduced rent tax on exports of oil and gas condensate, which will replace the export duty, is imposed on a progressive scale of 0-32% depending on the oil price, but without a marginal approach to calculation. Hence, in a higher oil price environment it may become less favourable when compared to the previous export duty which was calculated based on a more rigid scale initially announced by the Kazakh government. Nevertheless, Fitch notes that a potential increase in an oil and gas company’s tax level caused by the above taxes could be largely offset by other tax initiatives, for example, a gradual reduction of corporate income tax to 20% in 2009 from 30% in 2008 (declining to 17.5% in 2010 and 15% in 2011) and the introduction of a marginal approach to the calculation of excess profit tax as well as an increase in the threshold for this charge. At the same time, the agency believes that the new tax code, when effectively implemented, will establish a clearer framework for taxation of the energy sector, which could lead to greater certainty and transparency in Kazakhstan’s taxation system. A more predictable taxation regime in turn could foster a more stable operating environment, which will be especially important with respect to the challenging conditions facing the oil and gas industry at this point in the market cycle, and may benefit the sector’s investment climate in the long run. All oil and gas companies operating in Kazakhstan, such as state-owned KazMunaiGaz National Company (‘BBB-’(BBB minus)/Rating Watch Negative) and privately owned Tristan Oil Ltd (‘B+’/Rating Watch Negative), are subject to the new tax rules. However, participants in production sharing agreements concluded before 2009, which contain a stability of tax regime clause, such as Tengizchevroil (senior secured rating of ‘BBB-’(BBB minus)) and the consortium developing the Kashagan project, will be exempted from the new regime, the agency's press release reads.