Kazatomprom: A Decade of Success
Any company experiences both successes and failures in its development. The history of the Kazatomprom national nuclear company began in 1997. In the decade following, the company has not only overcome all difficulties, but has also propelled Kazakhstan to the position of third leading uranium-producing country in the world. It has managed to preserve and create new technological and scientific productions, become financially stable and profitable, and adopt advanced management styles.
With a Method of Breakthrough
The initial years of the company can be briefly described as, above all, the years of struggle for its existence. The Kazakh nuclear sector was in crisis caused by the loss of traditional markets, the fall in output, the absence of orders and falling world uranium prices. After an anti-dumping process, the US banned the sale of Kazakh uranium, whereas Europe adopted a system of quotas. Moreover, Kazatomprom inherited debts on loans, wage arrears, idle production lines and a lack of modern technology.
A talented crisis manager, Mukhtar Dzhakishev, was appointed president of the Kazatomprom national nuclear company in 1998, and he headed the drafting of the company’s anti-crisis programme. Increasing the company’s output to the optimal level was defined as a priority. This was the only way to radically cut costs and save on unchangeable expenses. In addition, the company adopted a system for internal settlements, shift work and a mechanism of tenders for purchases. The pay system was also overhauled.
The company management had done everything possible to prevent its nuclear enterprises from crossing the “point of no return” after which it is impossible to restore anything. During talks with Euroatom, the company proved the need to abolish quotas for Kazakh uranium. Kazakhstan won an anti-dumping case in the US in 1999. Kazatomprom entered the Chinese uranium market for the first time in 2001 and the South Korean market in 2002. The company occupied fifth place in the world in terms of uranium output in 2002 (versus 13th place in 1997).
An important Kazatomprom achievement was to preserve and restore hi-tech productions at the Ulba Metal Plant by concluding a long-term contract with the Russian Federal Atomic Energy Agency on supplying fuel tablets and creating a Ukrainian-Kazakh-Russian joint venture to supply fuel to Ukrainian nuclear reactors. This made it possible to preserve the production of fuel tablets for Russian-made reactors at the Ulba Metal Plant. The company obtained the status of an officially-certified supplier of uranium dioxide to the US company General Electric. As for beryllium production, this was fully converted to produce civilian products. The company’s scientists managed to overcome a 20-year technological lag and launch tantalum and niobium production lines within two years. Kazatomprom became the world’s second largest producer of beryllium products (with its share of 29%) and fourth largest producer of tantalum products in 2003.
Thanks to these breakthroughs – the company has had many of them in its decade-long history, the word “success” has become a byword for Kazatomprom. The holding company now unites over 10 subsidiaries, which are operating in various spheres from producing uranium to training specialists and conducting research and development. The company’s assets doubled to 137.3 billion tenge in 2006 alone. Its consolidated revenue totalled 89.4 billion tenge last year and it paid 12 billion tenge to the budget. With the growing capitalisation, Kazatomprom’s contribution to developing the social sphere is also growing. Since it was set up, the company has spent $106.5m on social projects. Kazatomprom has built schools, nurseries, hospitals and entertainment and sport facilities. The company is also supporting small and medium-sized businesses and creating major infrastructure facilities.
The Right to Be First
A priority of Kazatomprom’s activities is to extract, process and export uranium. This is a logical priority because Kazakhstan occupies second place in the world after Australia in terms of proven uranium reserves (19%). The country’s reserves total 1,690,000 tonnes of uranium, of which about 1.2 million tonnes can be extracted using the method of underground leaching. This is the most favourable method of extracting uranium from the point of the simplicity of technological operations, economic efficiency, safety and environmental protection.
At a conference held by the World Nuclear Fuel Market in Toronto back in 2001, Kazatomprom predicted the forthcoming shortages of uranium. Even though, in the period of low process, this prediction caused nothing but smiles, the company then started to increase its output. Three years later, at a World Nuclear Association symposium in London, Kazatomprom presented its new development strategy entitled “15,000 Tonnes of Uranium by 2010”. The strategy envisages modernising and expanding uranium production, building new mines, developing associated infrastructure and finding funds. The company received a syndicated loan worth $150m from 11 European banks and a loan worth $60m from the Japanese bank Mizuho in 2005. The Fitch Ratings agency assigned Kazatomprom a BB+ long-term foreign currency rating and a B short-term foreign currency rating with a positive outlook for the first time in 2006. Moody’s Investors Service also awarded the company with a Baa3 foreign currency rating with a stable outlook the same year. This provided Kazatomprom with expanded access to international financial markets and low-cost borrowings.
In connection with plans to increase output and the need to develop the social sphere at its enterprises, Kazatomprom carried out the first stage of restructuring the company in 2004. All the uranium-extracting functions were transferred to the newly-established Mining Company, whereas social services were transferred to the Kazatomprom-Demeu company. In 2005, the company began to adopt a new system for running mines, which fully automated the entire technological process of extraction. The very same year, the company decided to conduct the second stage of restructuring. Personnel operating auxiliary productions were separated from extracting enterprises and common service centres were set up to provide technical services to the mines. This improved operations and increased productivity by 400%.
These structural and technological innovations enable the company to launch uranium-extracting facilities within a year, whereas other world companies take three to four years to launch a mine to extract uranium using the method of underground leaching. Kazatomprom has become the world’s first company to launch an underground-leaching mine with a capacity of over 1,000 tonnes of uranium a year. It is currently completing the construction of a mine with a capacity of 3,000 tonnes of uranium a year.
Between 2004 and 2006, the Vostochnyy Mynkuduk, Zarechnoye and Yuzhnyy Moinkum mines were put into operation. The Tsentralnyy and Zapadnyy Mynkuduk, Yuzhnyy Inkai, Irkol, Kharasan-1, Tortkuduk and Inkay mines will be commissioned in 2007. The Kaynar, Semizbay, Budenovskoye-1 and Kharasan-2 mines will be commissioned in 2008, Budenovskoye-3 and Budenovskoye-4 in 2009 and Yuzhnoye Zarechnoye in 2010.
Under its intensive uranium development programme, Kazatomprom is actively working to expand existing infrastructure. By 2005, over 300 km of old roads had been reconstructed and over 400 km of new roads had been built. It is now building a 300-metre-long bridge over the Syr Darya river. The construction of new railway lines has been launched. A total of 260 km of new high-voltage power lines have been built to ensure uninterrupted power supplies to new mines. In order to supply reagents, a sulphate plant has resumed operations in the town of Stepnogorsk after a 10-year suspension.
The company is currently fulfilling a programme to increase uranium output, and the company management is confident that Kazatomprom will annually produce over 18,000 tonnes of uranium by 2010 (about 30% of the world output), becoming the world’s largest producer.
New Development Milestones
The national company regards prospects for becoming a leader on the uranium market as an initial stage of building a vertically-integrated holding company to produce full-cycle nuclear fuel. Kazatomprom does not want to limit itself only to the extractive sector; on the contrary, it aims to supply products of higher technological value to the world nuclear market.
By virtue of present circumstances, the Kazakh nuclear industry does not have production lines to convert and enrich uranium. The country has facilities to reconvert and produce fuel tablets, but not fuel assembly. Kazatomprom is trying to both create its own capacities and buy foreign ones to fill in the missing links.
Setting up joint ventures plays a great role in this process. The first joint ventures – Zarechnoye (with Russia), Inkai (with Canada) and Katco (with France) – were set up when the prices of uranium were very low and the company had economic problems, whereas, now, when Kazatomprom has enough of its own money, new joint ventures are being set up on the basis of mutually profitable strategic partnerships. The president of Kazatomprom, Mukhtar Dzhakishev, explained that this principle is based on exchanging shares. For example, if Kazatomprom allows a foreign company to get involved in extracting uranium, the company “has to allow it into a similar business where it represents interest to Kazatomprom, i.e. producing value-added products of the nuclear fuel cycle that do not exist in Kazakhstan”.
It should be noted that this position has already produced initial results. For example, a comprehensive programme for Russian-Kazakh cooperation in the civilian nuclear energy sphere was endorsed in 2006. Under this programme, three joint ventures were set up: Akbastau (uranium production), the Centre for Enriching Uranium (isotope enrichment of uranium in Russia) and Atomnyye Stantsii (developing and promoting small- and medium-capacity reactors of the latest generation).
Kazakhstan has signed a protocol of intent with the Canadian Cameco company on setting up a conversion enterprise at the Ulba Metal Plant, 51% of which will be owned by Kazatomprom and 49% by Cameco.
The Kazakh-Japanese APPAK joint venture was set up in 2006, and the first supplies of Kazakh uranium have already been shipped to Japan. Talks were held and 24 agreements were signed on cooperation in the nuclear energy sphere with a number of leading Japanese companies in 2007. The share of Kazakh uranium in Japanese imports does not exceed 1% at the moment, but both sides have expressed confidence that it could be increased to 30-40%. Moreover, agreements concluded will enable Kazakhstan to enter the Japanese market with hi-tech uranium products in the near future.
The Chinese market also opens up great prospects for Kazatomprom. In particular, the China Guangdong Nuclear Power Corporation (CGNPC) and Kazatomprom have signed an agreement on expanding strategic cooperation in producing nuclear fuel for Chinese nuclear power plants. This agreement means that Kazatomprom will be the main supplier of the CGNPC, which will build 50% of the future reactors in China.
Kazatomprom is holding similar talks with major producers from the US, Canada, France and other countries on supplying and jointly producing value-added nuclear products, extending to nuclear fuel for nuclear power plants. The company is currently certifying its nuclear fuel and fuel tablets for all types of reactors. A key project for Kazatomprom is to set up a workshop to produce fuel assembly for western-designed reactors at the Ulba Metal Plant. All these measures will minimise the sale of uranium and increase the sale of final fuel.
Under the national programme to create 30 corporate leaders, Kazatomprom has presented approximately 30 breakthrough projects of world significance that will be fulfilled in the near future.
Globalisation demands that the nuclear sector play a key role in meeting the energy demands of the world economy. After 20 years of stagnation, the civilian nuclear industry is experiencing a renaissance. Dozens of countries have announced programmes to build nuclear power plants. However, the number of players on the world market capable of making the products of the nuclear fuel cycle is small. That is why Kazakhstan can now say with pride that the country is a fully-fledged member of an elite club of countries that have advanced nuclear industries.
The Kazatomprom national nuclear company is Kazakhstan’s national operator to export uranium and nuclear fuel for nuclear power plants, special equipment and technology, as well as dual-purpose materials. This 100% state-owned company is a vertically-integrated holding company, which has six main spheres of activity: geological prospecting, extracting uranium and producing nuclear fuel for nuclear power plants, metallurgy, power-engineering, scientific research and training specialists, as well as social protection. The company now employs 23,000. Kazatomprom has the following subsidiaries: Volkovgeologiya, the Mining Company, the Ulba Metal Plant, MAEK-Kazatomprom, Kazatomprom-Demeu, the Institute of High Technology, the Kazakh Nuclear University, the Geotekhnologiya Training and Methodological Centre (Kyrgyzstan) and the Stepnogorsk Mining and Chemical Combine (operated under management agreement), as well as the Ulba China Company Ltd. Representative Office of Beryllium Production in China. The company has uranium-producing joint ventures with Cameco (Canada), Areva (France), Sumitomo Corporation and the Kansai Electric Power Co, Inc. (Japan) and Tekhsnabeksport (Russia).
Table of contents
The Brand of Kazakhstan is Being Created Today Birzhan Kaneshev
Where Does the Brand Start? Yevgeniy Zharkin
The Tree of Diversification: Prescriptions for Growth Sergey Gakhov
Our Telecoms Charge Ahead; Kaznet Grinds to a Halt! Alexander Vassilyev
Civil Aviation: Takeoff or Letdown? Sergey Smirnov
Railways. The Quadrature of a Wheel Pair Sergey Smirnov
Atlas Copco. Growth Strategy Hans Hedensjö
Pension Funds. Re-assessing Values Editorial
Securities Market: Six Months’ Figures Tatyana Kudryavtseva
Second Advent. Scheme for Placing SPO Yuliya Feller
