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 KAZAKHSTAN International Business Magazine №1, 2003
 The Use of Subsoil Resources in Kazakhstan. Results for the Year 2002
The Use of Subsoil Resources in Kazakhstan. Results for the Year 2002
Elvira Dzhantureyeva, Ph.D. of Technical Sciences and Head of the Subsoil Use Analysis Department, Kazgeoinform
Dmitry Sidorenko, the Subsoil Use Analysis Department, Kazgeoinform
National Centre for Geological Information Kazgeoinform under the Committee for Geology and Subsoil Protection under the Ministry of Energy and Mineral Resources of the Republic of Kazakhstan
The results of monitoring carried out as of 1st January 2003 show that subsoil resources of Kazakhstan are being used at 1420 facilities. 872 (61%) of these are carrying out resource production, 398 (28%) are engaged in geological surveying (GS) combined with resource production and 150 (11%) perform only geological surveying.
The year 2002 saw an increase of 3.5 times in subsoil use investment (in solid assets, compared to 1996), or $6,093m, and an increase of more than 10 times in foreign investment, reaching $5,207.9m (chart).
The greater part of investment was directed into mineral production (86% of the total amount). Large companies produced 93%, including an 85% share from foreign subsoil users.
79% was invested in developing hydrocarbon fields. Another priority is to develop the main types of solid minerals, including coal (5%), complex ores (5%), copper (3%), iron and manganese (3%), gold (1%), uranium (1%), chromites (1%), bauxites (1%), etc. Geological survey investment tripled in 2002: in 1996 investment in geological surveying of hydrocarbon fields stood at 78% of the total sum, but in 2002 this figure had reached 98% (table 1).
The Fuel and Energy Complex
Kazakhstan possesses unique hydrocarbon resources, which amount to 3.2% of the world’s oil and 1.5% of its gas deposits. OKIOC investment consorium has created a firm basis for the development of the Caspian oil resources at the newly discovered Kashagan oil and gas field. Today companies such as OKIOC (36%), Tengizchevroil (31%), Uzenmunaigas (4%), ?IO (co-operators, 4%), Mangistaumunaigas (4%), Aktobemunaigas (3%), Hurricane Kumkol (2%), Kazakhoil-Emba (2%), and KarazhanbasMunai (2%) possess about 90% of the recoverable hydrocarbon resources.
Currently these companies produce 91% of the hydrocarbons, exporting the greater part of their products. In general, the oil production has doubled in 2002 compared to 1996, and makes up more than 40m tonnes. Oil production is expected to reach 55m tonnes in 2005, 100m tonnes in 2010, and 120m tonnes in 2015. Exports are expected to amount to 85% of the oil produced. Today investment aimed at subsoil use of hydrocarbon fields makes up about 80% of the total volume of investment in the mineral and raw materials sector. The last 6 years have seen an increase in investment of almost 5 times, to reach $4.8bn in 2002. The proportion of large foreign companies and their investment is higher than 90%, with 83% targeted at production. A total of $17.9bn was invested in the industry in 1996-2002.
Kazakhstan’s minerals and raw materials base includes 4% of the world’s coal deposits. Annual coal production in Kazakhstan totals up to 55-60m tonnes. The country’s largest producers are plants in the Pavlodar (Bogatyr’ Access Komir, Severnyi Open-Cast Mine and Maikuben-West Joint Venture) and Karaganda regions (Ispat-Karmet and Borly). These companies produce 77% of the coal in the country. According to forecasts, the production is expected to rise to 70m tonnes by 2005, 80-85m tonnes by 2010, and 95m tonnes by 2015, with exports making up one third of production. Investment in coalfield development currently stands at $275.4 million (5% of the total volume of Kazakhstani mineral and raw material sector investment), which exceeds the 1996 figures by more than 7.5 times. Foreign investment and large companies represent 97% and 98% of this respectively, with 99% of investment directed at production. In 1996-2002 the industry received a total of $1.9bn.
Kazakhstan is the second largest country in the world uranium league, after Australia. According to different viewpoints, the country may possess from 25% to 37% of the world’s uranium deposits. Production of natural uranium is carried out by three mining groups and three joint ventures. It should be noted that Kazatoprom is already among the ten largest uranium producers and may become the fifth largest uranium supplying company. The Kazakhstani uranium production increased by 2.5 times compared to 1996, to reach over 2,000 tonnes in 2002. Investment came to $46m, which is twice as much as in 1996. 93% of this investment was assigned to production operations. In general, $212m was invested in this industry during 1996-2002.
Ferrous Metallurgy
The proven resources of iron, manganese and chromites meet all requirements for the existing and potential needs of Kazakhstani ferrous metallurgy plants, and also provide useful exports. Kazakhstan has 25% of the world’s manganese and 6% of the world’s iron deposits. Production of iron and manganese ore has increased by 1.5 times compared to 1996, reaching 36.5m tonnes. Chromites production has quadrupled to reach 5.5m tonnes during the same period. Recent years have seen an increase in the production of manganese ore. Open-cut fields and high-rank oxidized ore deposits are developing rapidly. These operations are carried out at SSGPO, Orken, Atasuruda, Zhairemsky GOK, Kazchrome and Concern Yerlovo plants. The Donskoi GOK combine also produces chromites. Investment in the development of iron and manganese fields has not increased significantly compared to 1996, reaching only $189.7m in 2002. However, investment in chromites production has increased by almost 3 times, and makes up $6.9m. In total, about $1.5bn has been invested in the production of iron and manganese during 1996-2002, and about $294m in the production of chromites.
Non-Ferrous Metallurgy
Non-ferrous metallurgy represents 15% of Kazakhstani industrial production. Kazakhstani sources of minerals and raw materials (19% of the world’s deposits) are rich in zinc, bismuth (the largest deposits in CIS), copper, molybdenum, bauxites, cadmium (the second largest deposits in CIS) and other minerals. Kazakhstan is one of the world’s largest refined copper producing and exporting countries. Zhezkazgan copper field is a major raw materials base for the domestic copper industry, with annual production of more than 50% of the country’s total production. Development of the copper fields is being carried out by Kazakhmys Corporation. Despite the fact that the annual production has grown, exceeding the design capacity, investment in this industry has reduced by almost 1.5 times ($176.7m). Geological surveying also lacks investment. In 1996-2002 investment in the industry reached a total of $1.6bn.
Kazzinc is the leader in the production and processing of complex ores, with the share of 70% in the industry’s production. Besides, there are also other producers like Kazakhmys Corporation, N?v?-Zinc, and Shaimerden. Ore production volumes are increasing annually in proportion to the increase in investment. In 2002 investment reached $306.9m, which is thrice as much as 6 years ago. In general, about $1.7bn was invested in the industry in 1996-2002, with only 1% of this invested in geological surveying. This may lead to resource base recovery becoming impossible, because the supply of copper, lead and zinc ores will only last for 20-25 years.
Aluminium of Kazakhstan joint venture produces bauxites. The mineral and raw materials base comprises deposits which are on the balance of Krasnooktyabrsky and Torgai bauxite mining groups. Pavlodar aluminium plant has worked out a new process flow scheme for producing alumina, which allows the mineral to be extracted from low-rank bauxites. As a result, newly explored fields have made it possible to enlarge the raw materials base of the aluminium industry. A new scheme for producing of gallium, aluminium sulfate and sodium-sulfate mixture has been created in order to enhance usefulness of the developed fields. The total sum invested in 1996-2002 makes up $227.9m, including $32.5m placed in 2002.
Gold-Mining Industry
Most of the gold fields are concentrated in Eastern Kazakhstan. Development is mostly taking place at the gold fields containing oxidized ores, which are suitable for heap leaching gold extraction. The largest enterprises in this industry are Altynalmas, Vassylkovskoye Zoloto, Altyn Tobe, Alel, Bakyrchik GDP, Andas-Altyn, Kazakhaltyn, Kazzinc, Yubileinoye, Maikayinzoloto, among others. There is a strong growth trend in Kazakhstan’s gold production, which has seen it almost double since 1998. The production is being increased, even exceeding design facilities. In 1996-2002 investment in the gold industry reached $524.9m, including $78.8m in 2002. However, investment in geological surveying reduced by more than 8 times, compared to 1996. The average deposit supply index is 20-30 years. The major task of the gold-mining industry is to apply new technologies for processing hard-to-extract ores and exploring fields containing high-grade, easily concentrated ores.
Many other solid and widely spread minerals, subsurface water and therapeutic muds are also being developed in Kazakhstan.
Social and Economic Indices
During 1996-2002 the number of workers at contract subsoil use facilities increased from 141,000 to 207,000. The cost of training the Kazakhstani workforce has increased by 4 times and makes up $23.2m. At the same time, community and local infrastructure development costs have reduced from $91.6m to $62.5m, compared to 2001 (table 2).
It should be noted that the specific costs for social sphere and local infrastructure have reduced by 1.6 times, despite the number of workers having increased. Whereas in 1996 allowances per worker made up $485 a year, today the sum is only $302 a year. $4,043.1m was spent on subcontracted work in 2002, which is 15 times more than in 1997. The distribution of subcontracted work by priority is as follows: services amount to $1,762.5m (43%), buying goods $605.8m (15%), construction of facilities $307m (8%), purchasing of equipment $205.5m (5%) and other kinds of work $1,162.3m (19%).
According to the 2002 results, the total taxes and payments by subsoil users to the state budget increased by 10 times (compared to 1996), making up 200,777m tenge, including an increase of 15 times in royalties (production tax) (i.e., royalties increased to 44,518.3m tenge, 22% of the total amount of taxes and payments by subsoil users). Most of the royalties were paid by foreign subsoil users (table 3).
1,789m tenge (40% of all royalties) was assigned to geological survey operations from the state budget in 1996, but only 1,978m tenge (4%) in 2002. The oil industry makes up more than 70% of the country’s total budget revenue.
Monitoring of license/contractual obligations fulfillment by subsoil users is performed automatically, based on state statistical accountability using forms Nos. 1-4 LKU, Summary of the Observance of License/Contractual Terms by Subsoil Users. This software allows officers to collect information in an efficient way and receive any reports from the source. A quarterly analysis of the results of subsoil users’ investment operations is made on the basis of this database in order to find out whether there are any problems, and make appropriate decisions.

Table of contents
A Summary Review of the Kazakhstan Law On Investments  Andrew Griffin, Karen Ostrander-Krug 
Tax burden in Kazakhstan  Janat Berdalina, Aigul Mustapaeva 
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