Mission Is Possible
Since 2010 the state program of accelerated industrial innovative development has become the major document, defining the economic policy of Kazakhstan for the next five years. It aims to neutralize the problems of previous similar initiatives and ensure a systematic base for accelerated modernization and diversification of economy. Let us consider the major results of the first two years of SPAIID and plans of the government on its implementation for 2012.
Based on the reports of the Ministry of Industry and new technologies the implementation of the program, which is in fact a major national economic idea, is going quite successfully. Thus, in 2011 we totally finished the update of the entire legal base of domestic industry’s functioning. Three new laws were adopted: On state support to industrial innovative activities, On Special economic zones and On energy efficiency and energy saving. Amendments into 30 current legislative acts were introduced. Within two years 13 industrial and 9 functional development programs were adopted. The Plan of rational placement of production capacities and Industrialization Map were approved. The government prepared over 100 instruments in support of business that were arranged under such programs as Productivity 2020 and Business Road map 2020 as well as programs, supporting investors, innovators and exporters. Last year just over thousand Kazakhstani enterprises received support from the state.
The certain optimism is produced by economic figures, described as major target indicators for measuring SPAIID effectiveness. Thus, in 2011 the GDP of Kazakhstan grew by 7.5 % and exceeded 27 trillion tenge (according to program goals, the amount of 23 trillion tenge should have been reached by 2015). Last year the industrial sector of the republic produced output in the amount of 15.7 trillion tenge; at the same time, the quantum index reached 103.5 % by 2010.
It has to be mentioned that the growth rates of the processing industry is significantly ahead of the mining sector dynamics – 6.2% versus 1.3 %. Specifically, the production volume in metallurgy reached 1.9 trillion tenge (+6.5 %), machine building – about 500 billion tenge (+16.8 %), chemical industry – 143 billion tenge (+21.5 %). As a result, the share of the processing industry in GDP structure increased from 10.5% in 2009 to 12.8 % in 2011 (the target indicator of the program – 12.5 %). Meanwhile, we observe a certain decrease of figures in the pharmaceutical and light industries.
Speaking of the labor productivity in the processing sector that must grow by 1.5 times by 2015, according to last year results, its growth reached 32 % (at current prices), compared to 2008.
In 2011 the highest figure for processed goods export in the history of independent Kazakhstan was reported – over $22 billion. This is 1.5 times more than in pre-crisis year of 2007.
The key mechanism and, perhaps, major know-how, distinguishing SPAIID from previous programs, is the Industrialization Map of Kazakhstan, showing a list of certain projects, whose implementation is pursued by the state and to which it is ready to provide targeted support. At the moment, the Map includes 609 projects with a total value of 9.6 trillion tenge, the implementation of which will create over 205 thousand jobs during the construction period and 180 thousand during the exploitation period.
Within two years under the Industrialization Map 389 new plants and factories were launched in the republic: 152 in 2010 and 237 in 2011. Overall, 1.8 trillion tenge were invested in their construction and over 90 thousand permanent jobs were created. According to MINT the biggest effect was reached in the mining sector – 36 projects (9 % of total amount) with an investment volume of 369 billion tenge (20 %) and the creation of 22 thousand (24 %) jobs. It is followed by transport infrastructure – 8 projects (2 %), 471 billion tenge (26 %) and 18 thousand people (20 %), as well as energy – 15 (4 %), 173 billion tenge (10 %), 3.5 thousand people (4 %).
According to the Agency for statistics last year only enterprises, started under SPAIID, produced goods and services for over 510.5 billion tenge. Within this period 106 types of products, previously never produced in Kazakhstan, were developed. These are offshore steel structures, turbine overpasses, composite metal-reinforced plastic pipes, energy saving LED lighting, tableted pharmaceuticals, feed-stuff with added minerals and many other.
Hence, the positive effect from SPAIID implementation is evident, as we say it. However, not everything goes as smooth as it looks in the official statistics. On January 27, 2012 during an expanded session, attended by the members of governments, akims, the management of central state agencies, NDP Nur Otan and SWF Samruk-Kazyna, the President of Kazakhstan Nursultan Nazarbayev paid attention to the number of systematic sideways in the process of new industrialization.
First of all, the head of the state was discontent with the quality of selection of projects, listed in the Industrialization Map. "Of all implemented projects almost 60 % account for agricultural and construction industries. This is the result of "big" reports. Of 31 big projects, which is nearly 90 % of the total volume of investment in the industrialization Map, only 5 projects are linked to manufacturing finished goods. 11 projects assume of the production of downstream operations outputs. Of 220 implemented projects – 80 % of investment is directed to the oil and gas and mining sectors and infrastructure". In this concern, Nursultan Nazarbayev instructed Prime-Minister Karim Massimov, first deputy Prime-Minister Serik Akhmetov as well as the managers of MINT and JSC Samruk-Kazyna to run an analysis and identify how much each of these projects facilitates the diversification of Kazakhstans economy. The research and development of new projects, targeted at high added value outputs, must be continued.
Asset Issekeshev, the Minister of Industry and new technologies, announced the first conclusions in response to President’s critical comments. During the governmental session on February 14 he admitted that the Ministry "unfortunately, has no methodology in statistics by the level of projects quality". In this concern, the Ministry conducted an analysis of Industrialization Map projects by level, so-called conditional technological complexity, including conversion rate, added value, incurred costs, energy ratio, organizational maturity and other parameters. It turned out that of 389 projects, introduced in the first two years of SPAIID, 70 % are classified to 1–3 levels of technological complexity. At the same time, only little over half of the 220 objects, currently being constructed, are classified to 4–5 levels of technological complexity and target manufacturing finished goods. Meanwhile, highly technological projects are mainly initiated by the center while the projects with downstream operations, as a rule, are offered to for implementation by akimats and regional businesses.
The second aspect, raised by the head of the state, having its subordinates on the mat, is insufficient demand for the output of new plants. It has to be mentioned here that out of 389 projects, launched in 2010–2011 only 130 have reached the projected capacity. "I will directly say that positive price structure for our export goods, availability of funds and powerful strengthening of state support to economy significantly undermined the activity of the government and ministries, akimats and national companies at identification of additional sources for growth. It is irresponsible to be satisfied with just the knowledge that another industrial project is finished in the industry and region. Of course the new plant will not develop on its own".
In this sense, the President reminded that according to his instruction ArcelorMittal Company diversified its production, building a rolling plant, while in 2010 it launched a pipe producing plant in the west of Kazakhstan. The President’s following phrase characterizes the current situation with sales of ArceloMittal products: "Its products are highly demanded in the international markets, but not procured by national companies. It produces rolls but our builders do not buy rolls and get them abroad. The railroad plant will be constructed, but KTZ will buy railroad externally not domestically".
Another example is KamAZ-engineering car assembly plant in the Akmola Oblast that, in the opinion of Nursultan Nazarbayev, could increase vehicle production by 3–4 times only thanks to the demand by the state sector and national companies. Continuing the topic of developing the domestic automobile industry he said: "The passenger cars are produced in Eastern Kazakhstan while our officials buy foreign brand vehicles. Why would do they not drive our cars? Why do we develop the industry if we do not use it ourselves".
In the light of the last words the figures, presented in the report of the Agency for statistics and related to SPAIID indicators in the part of Kazakhstan content, look very pointed. Thus, its share on goods, procured by the state institutions, dropped from 51.8 % in 2009 to 42.1 % in 2011. The same indicator of the Samruk-Kazyna group of companies dropped from 63 % to 33.6 %, the backbone enterprises – from 43.2 % to 14.2 %, while the subsoil users – from 10.7 % to 9.7 %.
One more reason of no demand for the output of new enterprises is the formal approach at selection of the projects, not considering the needs of real sector. Back in April of last year vice-president of Kazakhstan’s Chamber of Commerce Bekzat Kaliyev noted that the issue of limited sales markets for the goods of domestic producers is the second important problem for industrialization Map implementation after lack of financing. "There were cases when in one oblast there were several similar enterprises, producing same type of output. In one oblast there could be either three chipping producing plants or three brick producing plants. Why do we need to support similar enterprises in one oblast? Yes, the competition is needed. But you need to consider that in the post-crisis period the construction boom is over. Tomorrow we will go back to these enterprises and face the problem of selling the goods again".
This way or another, the AIID program operators promised to correct all mistakes, articulated by the head of the state. At the same time, the key role in "correction of mistakes" will be played by local authorities. First of all, they must define competitive advantages and priorities of regional development. Secondly, they need to ensure comprehensive connection of local projects with the national socio-economic programs. Thirdly, in cooperation with the government they need to develop measures on strengthening interregional cooperation, both domestically and under SEP.
Therefore, beginning of 2012 the major accent in SPAIID implementation will be addressed in the regions. According to the instruction of Nursultan Nazarbayev from now on the issues of industrialization and investment will be managed by special deputy akims that will be sent by MINT from the pull of the Bolashak program graduates. They will closely cooperate with the ministry and manage the industrialization process development in the fields. We can only hope that such measures will let us overcome the lobbying of projects by local authorities that are not always linked to industrial and territorial priorities.
According to Asset Issekeshev, the government level work under the framework of SPAIID will be continued mainly in two directions.
First of all, the further formation and implementation of the systematic industrial policy considering establishment of SEP, entrance of Kazakhstan into WTO and the risk of facing a financial crisis. The major goal of this policy remains strengthening the competitiveness of national business, modernization and reconstruction of current industrial base, activation of processes, targeted at raising the labor productivity, energy efficiency and, in general, sustainable economic development.
Secondly, general coordination of investment projects implementation under the Industrialization Map. The government promises to strengthen work on 220 currently constructed projects, for each of which there will be a personal responsibility of the first manager of the agency or national company. As a result, until the end of 2012 MINT is planning to ensure the launch of 130 new enterprises. The program operators have started an update of the industrialization Map. At the same time, the project selection will be tightened, while the initiating private companies are expected to have appropriate competence, understandable business strategy as well as sustainable and competitive business models.
A special control is put over implementation of 11 industrial and infrastructure megaprojects, whose launch was assigned by the head of the state in his message to the people of Kazakhstan in January of 2012. Overall, it is expected to invest over 4.5 billion tenge and create over 150 thousand jobs there.
The first project is the construction of a chemical plant, producing compound fertilizers in the Zhambyl oblast, whose investor is OJSC MHK Eurochim – the biggest Russian producer of mineral fertilizers. The facilities of JSC Sary-Tas phosphoric pellet producing plant that was stagnant for over 15 years were sleeted for project implementation. This will allow to establish the production of enrichment of phosphates from the Karatau basin field and start the production of phosphoric, complex and azotic mineral fertilizers with the volume of over 1.4 million tons per year. This will let not only cover the needs of domestic agricultural producers, but also supply finished goods to neighboring countries and beyond. Overall, Eurochim will invest $2.4 billion in the project; at the same time, during the active construction phase up to 4 thousand experts for building and assembly will be attracted. The launch of the enterprise is scheduled to 2017. Asset Issekeshev notes that today they resolved the issue of supplying the production capacities with natural gas, signed the contract with French TECHNIP MINES Company for development of best schemes for ore pretreatment, concentrating and processing of mined ore, have started preliminary work on preparation of a detailed feasibility study of the project. This year it is necessary to prepare the fields to stripping works, rebuild the infrastructure, including automobile and rail ways, build 11 kilometers of power transmission lines, run technical observation of buildings and facilities of the plant as well as to get the terms of references for design.
The second "old new" megaproject is the construction of the Atyrau integrated gas chemical plant with the cost of $6.3 billion that was announced in 2005 and moved to SPAIID from previous program documents. The plant will produce 500 thousand tons of propylene and 800 thousand tons of polyethylene – an output that has never previously been produced in our republic. According to Dauren Erdebay, the CEO of United Chemical company LLC, the project is split into two phases: 2010–2014 and 2011–2016. The contract for the first phase is the turnkey construction project and it was signed with Chinese Sinopec Engineering Company. Korean LG Chemicals experts will be attracted to the implementation of the second phase. A Gas chemical plant is the core project of the Atyrau Oblast FEZ that creates the foundation for other projects implementation: construction of an ammonium-carbamide plant as well as cyclohexane and polyutherane production.
National Company KazMunayGas is involved in implementation of three megaprojects, specified by the President. First is the construction of a deep oil conversion plant at the Atyrau OPP that will allow expanding the balanced capacity of the crude oil processing plant to 5.5 million tons per year by 2016, increase the output of light oil products to 77 % and improve the quality of fuel to the level of Euro-4 and Euro-5 standards. The cost of construction is estimated at $1.68 billion. According to NC KMG head Lyazzat Kiinov all the issues of attracting debt financing will be resolved by the company in May of this year. As the state support measures KMG counts on inclusion of expenses on resettling the residents in sanitary protection territory zone of the Atyrau oil refinery, expanded under this project implementation, in the budget of the Atyrau oblast for 2012–2014.
Other two projects of KMG are closely linked with each other and cover the gasification of Astana and central regions of Kazakhstan. In 2012 it is planned to resolve the financing issues and start the construction of the Kartaly – Tobol Kokshetau – Astana gas pipeline (with outlets to the cities of Karaganda and Petropavlovsk) with a capacity to 6 billion cubic meters per year. The total cost of the first line gasification project will reach 328.7 billion tenge. Mr. Kiinov said that the gasification of the northern regions makes sense only in the case of financing from state budget since the project implementation, based exclusively on market mechanisms, will not allow to ensure acceptable gas price level for final customers.
The Karachaganak gas processing plant, whose capacity will reach 5 billion cubic meters, will be the source of natural gas for the future gas pipeline. The construction of this plant is estimated by KMG at $3.736 billion. This year the company is planning to get feedback on the feasibility study from state agencies, define the project documentation with the developer as well as finish the design. As Mr. Kiinov specified there are two options for implementation of the first line of the project that were proposed by ENI and Petrofac companies. "According to ENI, the implementation term and cost – 2015–2019 and $4.9 billion; according to Petrofac – 2013–2016 and $2.5 billion". It is necessary to start negotiations on ensuring the raw material supply for the gas processing plant from the Karachaganak field that, in the opinion of KMG head, is "one of key issues".
The infrastructure block of the projects, mentioned by the head of the state in his message, includes the construction of two new railway spurs and the Kazakhstani part of the Western Europe – Western China automobile corridor. The implementation of the last one started three years ago. Nursultan Nazarbayev informed that works on construction of the automobile highway with the cost of 875 billion tenge need to be accomplished next year. However, later on the Minister of transport and communications Askar Zhumagaliyev said that the last 465 kilometers of the road will be finished only in 2015.
The construction of the Zhezkazgan – Beyneu and the Arkalyk – Shubarkol railways is managed by JSC NC Kazakhstan Temir Zholy. According to the company President Askar Mamin, these projects have strategic importance and will significantly raise the export and transit potential of Kazakhstan. The total length of the Zhezkazgan – Beyneu line will reach 988 kilometers. The standard duration of the construction is 45 months at a cost of 591 billion tenge. The project implementation will involve over 10 thousand people while the operational staff will reach about 3 thousand employees. The length of the Arkalyk – Shubarkol line is 214 kilometers while its cost is 135 billion tenge. The construction will involve over 2 thousand people while the exploitation period will need 600 people. The start of both projects is scheduled for the fourth quarter of 2012. Mr. Mamin emphasized that, considering total absence of the infrastructure, significant farness and underdeveloped state of the regions, first of all, it is necessary to build the facilities of external power supply, run the mobilization of equipment, organize rotation camps and prepare the territory. Both projects must be completed in 2016.
JSC Samruk-Energo is responsible for the construction of the Balkhash steam power plant with a capacity of 1320 megawatt and cost of $2.3 billion. According to Almasadam Satkaliyev, the Chairman of its board of directors, the negotiations with the consortium of KEPCO and Samsung companies are already completed on major project agreements. At the moment, the construction and assembly operations on the preparatory phase facilities are in progress: the expansion of the Karaotkol railway station, modernization of the road approach and construction of the technical water conduit. Meanwhile, the President of Kazakhstan assigned to start the construction of the first module of the Balkhash steam power plant this year that will ensure additional production of over 9 billion kWh of electricity and resolve the problem of an energy deficit in the southern regions of the republic.
Two projects, directly supervised by the Ministry of industry and new technologies, target at the development of world class ski resorts. The first one – near Almaty, another one – in the Burabay recreational area.
Asset Issekeshev informed that the Burabay project targets at 12 years and 7 consecutive phases. At the moment, the first of the phases is being implemented – Burabay Lakes Resort Hotel that assumes the construction of the hotel with 402 rooms, SPA and healthcare center. These facilities will be launched in the fall of this year. The preliminary cost of this phase is about $90 million.
The Kok Zhaylau project plans the construction of a ski resort in the Zaili Alatau with the length of the ski slopes to 500 kilometers as well as building the utility systems in the major facilities of the resort. The cost of building the infrastructure will reach about 112 billion tenge. Another over $2 billion will be attracted as commercial investment in the construction of the hotels. The ministry is planning to complete the feasibility study and systematic development plan in the fourth quarter of this year while next year the works on design and construction of the external networks will be initiated.
Concluding, it would be useful to emphasize that the fact of including the above-mentioned megaprojects in the message of the President shows that despite the number of current problems this year all of them, this way or another, will enter their active phase. Moreover, the President already insisted on revising the state budget and allocation of additional money from the National Fund for their implementation. Considering the scale and capital intensity of these constructions as well as the needs in goods, works and service for their implementation, one can confidently say that AIID program in fact received new powerful growth points that, in their turn, will launch other (although not such big) projects of new industrialization.