The successful development of mining and metallurgical complex in Kazakhstan requires the implementation of a coordinated action of the government and business. First of all, it concerns spheres such as the modernization of the production and innovation implementation, the improvement of sectoral legislation and a radical restructuring of the approaches to the mineral resource base replenishment. Exactly these questions came into the participants’ focus at the events that took place in mid-June during the Days of MMC of Kazakhstan in Astana.
This year over 1,200 delegates representing 176 companies from more than 20 countries took participation in the main forum of miners and steelworkers. The two-day program of the Days of MMC included a variety of activities, among them were the IV International Mining and Metallurgy Congress “Astana Mining & Metallurgy”, the IV Congressof Workers of Mining and Metallurgical Industry, the I Kazakhstani Conference on Ferrous and Non-ferrous Scrap Metals, a number of specialized round-tables, an industry exhibition, as well as the award ceremony of the IV National Industrial Contest “Golden Hephaestus”.
The initiators of the Days of MMC traditionally were the Ministry of Industry and New Technologies, the Republican Association of Mining and Metallurgical Enterprises (AGMP), Union of Workers of Mining and Metallurgical Industry and Iteca Exhibition Company. The Forum official support was provided by the Akimat of Astana, Sovereign Welfare Fund “Samruk-Kazyna”, Tau-Ken Samruk JSC and the National Center on Complex Processing of Mineral Raw Material (CMRP). Among the sponsors of the AMM-2013 there are such wellknown companies as ENRC, Kazzinc, ArcelorMittal Temirtau, Kazakhmys Corporation, Aktobe Copper Company, Sat & Co., Kazakhaltyn and WorleyParsons Kazakhstan.
So impressive list of organizers and participants, as well as the intensive forum program, once again confirmed that the national mining and metallurgical complex plays a key role in the economy of our country. Today, it accounts for over 9% of GDP, about 18% of total industrial production and almost a quarter of the Kazakhstani exports. The MMC employs more than 300 thousand workers.
This industry is also one of the key components of the State Program of Forced Industrial-Innovative Development. Within the period from 2010 to 2012 there were already launched more than 40 projects amounting to KZT 380 billion, creating more than 12 thousand new jobs in the MMC. These figures were announced in the opening speech of the President of Kazakhstan, Nursultan Nazarbayev, which was read out to the participants of the forum by the Minister of Industry and New Technologies, Asset Issekeshev. At the same time, the Head of State considers that it is not a reason to stop the effort; and to maintain the expansion rate of MMC it is necessary to implement the large-scale modernization of sector. More than 30 new projects are being implemented in this direction even now. In addition, Kazakhstan comes to the new state subsoil use policy, which initially focuses on the exchange of innovative technologies. And, as it was emphasized in the speech, in this issue “we shall develop our cooperation with the foreign partners”.
Why does Kazakhstan change its course exactly now? According to Mr. Issekeshev, the answer for this question is related with the slowdown of world economy, the decline in growth rates of developing countries, the reduction of demand for the MMC products and high volatility of prices, the toughening of environmental regulations, as well as the strained competition for investments. All of these factors form not only the long-term challenges, but also require from the government the urgent and adequate measures.
As early as in 2010 the Ministry of Industry with the support of the international consulting company prepared the MMC Development Master Plan for 2010–2014. And, as Asset Issekeshev stated, most of the objectives set out in the plan have already been implemented today. The production of primary aluminum in Pavlodar was doubled, the production of titanium ingots at Ust-Kamenogorsk Titanium Magnesium Plant (UKTMP) was started, and the production of cathode copper under the Kazzinc New Metallurgy Project, of the gold at Altyntau Kokshetau and of copper concentrate by Aktobe Copper Company was increased.
The volume of domestic processing of aluminum increased to 20 thousand tons and domestic processing of steel – up to 300 thousand tons. The domestic enterprises launched the production of valves and various types of the rollings, pipes, offshore steel structures, cables, radiators, plumbing products and other goods.
An important step was the modernization beginning of such strategic enterprises as ArcelorMittal Temirtau, Kazakhstan Aluminium, SSGPO, TNC Kazchrom JSC, Kazakhmys Corporation, Sat & Company and Aksu Ferroalloys Plant. The main objective is reaching of a new level of labor productivity and energy efficiency. The Head of the MINT emphasized that without modernization these companies would not survive and complained that so far not all of them are fully involved in this process. Although the Ministry itself, according to Mr. Issekeshev, now works with the maximum efficiency. As the example, he cited the overall production of steel goods in 2012, which at the current prices amounted to nearly $13 billion, including the ferrous industry – $4.7 billion and non-ferrous industry – $8.2 billion, at the same time the production of fabricated metal goods amounted to $850 mln. “As you may see, the Government consistently executes its plans and obligations”, – said Mr. Issekeshev.
As for the situation in the Kazakhstani geology, the Minister assures that in the last two years the Government has placed the particular emphasis on its development. For this purpose the concept has been adopted, which implementation shall bring key changes to the industry. The Minister outlined as the practical measures the planned opening of the Center of Geological Survey and Center of Earth Sciences on the basis of Nazarbayev University. The case of National Geological Exploration Company Kazgeologiya has got off the ground. The Company agreed with Rio Tinto on the common prospecting for world-class porphyry copper deposits with the use technologies and techniques of this mining giant. As for the prospecting of polymetals Kazgeologiya actively cooperates with the world leader in the production of zirconium and second largest producer of titanium dioxide, the Australian Company Iluka Resources, as well as with the Korean Company KORES. The preliminary sites for the appropriate geological prospecting carrying out are already defined.
Asset Issekeshev stated that the MINT is now developing the mining industry development concept for 2030, which “shall consider the answers for all challenges”, for the formation of a clear strategic vision. The concept shall be formed on the basis of a new master plan prepared by the Consortium consisting of the Kazakhstan Industry Development Institute, NC CPMRM, AGMP and Chris Morgan Associates Ltd.
Under the proposed strategy the work on improvement of the legal and regulatory base and development of the industry state regulation shall be completed primarily. “We move to the international standards, now we study the experience of foreign countries. It is planned to amend the law on the subsoil use in terms of simplifying the procedures and enhancing of the investment attractiveness of the MMC.”
The second direction is the expansion and renewal of the mineral resource base. The Government has pledged to create a modern system of mineral resources management, to involve the best technology for exploration, depth increasing, complexity and rational processing of mineral raw materials. The grounds for developing our own technologies and appropriate research and innovation base shall be set as well. The target technology program on 13 critical MMC technologies is implemented for this purpose. These critical technologies shall be developed by the Kazakhstani scientists in collaboration with foreign partners.
Finally, the third direction is the competitiveness increase by means of industry diversification. Under this direction the modernization of existing enterprises should be completed and new producing operations should be put into service. These measures shall be carried out with the formation of clusters, consisting of small and medium-sized enterprises, around the large enterprises. The latest will be focus on the processing of MMC products to meet the needs of related industries, such as mechanical engineering, oil and gas industry, construction and production of construction materials.
While the fact that the scope of strategic objectives defined by the Head of MINT, appeared to be more than extensive, it should be noted that the main problem to be solved by our MMC is the renewal of raw materials of solid mineral deposits (SMD). As exactly this issue was paid the least attention in Kazakhstan for many years. Although, it should be noted that this problem is typical of the global economy.
Thus, according to the Vice President of RosGeo, Levon Oganesyan, over the past 15–20 years, the worldwide paradigm of advanced reproduction of MRB was reversed to the opposite one with the uncompensated consumption of resources. Besides, over the past half century mankind has used more than 85% of oil, half the volume of coal and iron ore, mined throughout the documented history. Moreover, during this period the consumption of many minerals increased by 3–5 times, compared to the previous 50-years period. And this trend with due regard to the growing population of the developing countries of Asia and Africa in the coming decades will continue to be ascending.
Meanwhile, in all major types of mineral resources the reserves ratio to the amount of annual production significantly, and in some cases dramatically (coal, iron, aluminum, cobalt, color and alloying metals) decreased even today. All of this on a global basis may lead to the deadlock situation in mineral resource supply. According to the expert’s opinion, such a trendy at the moment term “resource-based economy” (with a negative sign!) is just a poor judgment. Mineral resources outline is the economic pyramid basis, and, therefore, the increase of geopolitical position of resource-based states is dictated by the fundamental factors and inevitable.
In order to consolidate its position in this sphere, Kazakhstan needs to ensure a more attractive investment climate in the subsoil use sector and, particularly, in the field of geological exploration. In the meantime, according to the international experts, our country is obviously losing in this race.
The Director of Rio Tinto for the Central Asian region, Chris Welton, gave the following statistics: at the end of last year among 2655 companies that invested about $20 billion in the geological exploration of non-ferrous metals throughout the world, only 26 companies invested their capital in our country. At the same time they have spent only $217.1 million in Kazakhstan that is 1.1% of the global volume of investments, particularly, $34.2 million were spent for the primary geological exploration.
One of the main reasons is the imperfection of the Kazakhstani legislation, which sometimes just deters investors. The Deputy Director of the Department of subsoil use of the MINT, Timur Toktabaev, told about the measures taken to remedy the situation during the round table round table discussion on “Issues of improvement of legislation on subsoil and improve the investment climate”. Thus, he said that there is a special working group of deputies of the Majilis, AGMP members, representatives of the major subsoil users and consulting companies, which formed a package of more than 170 legislative amendments designed to simplify procedures in the sphere of subsoil use, working during year and a half in Kazakhstan. At the moment, these amendments “are processed” at the Governmental level and shall be introduced to the Parliament in current autumn.
Conventionally, they can be divided into three large groups. The first group is the methods extension for the subsoil use right granting. At the moment, it can be obtained by means of the open competitive tender by direct negotiations with the national company or as the state support measure for industrial innovation project. The latest is available for the large subsoil users, which are planning to establish refining capacities in Kazakhstan. The amendments initiators suggest supplementing this list with two new types of the subsoil use right granting, which are auction and the way “first come – receive first”.
The second group of amendments relates to the simplifying of contracting procedures. In particular, the processing terms, the number of required documents and certain expert reviews shall be reduced by 60%.
The third group provides new opportunities for those contracts that include several deposits. “In my opinion it is very important for those who are faced with this daily, and provides the possibility to attract additional investments. For example, the subsoil user has discovered a large one and small deposits under the contract. He will be able to share small deposits and, conditionally speaking, even to dispose them in favor of the third parties. Other option is to create a separate program for them, which will be completely different from the main one, designed for the large deposit”, – explained Mr. Toktabaev.
In his turn, the Chairman of the Committee of Geology and Subsoil Use of the Ministry of Industry and New Technology, Bazarbai Nurabaev, said that in order to increase the investment attractiveness of the industry it is planned to invalidate VAT for the geological exploration, cancel the interest payment, disclose the geological information, provide the priority right on subsoil use in case of the deposit discovery, introduce the appraising system for the historical reserves calculating, and transfer to the world standards of reporting and classification.
The thing is how quickly the state will be able to implement these promises. We can say that this process would not be fast even according to calculations made by Anuar Buranbaev, Head of Kazakhstan Industry Development Institute JSC, a structure that is one of the developers of new master plan for the MMC development. Thus, at the first stage (by 2015) it is necessary to simplify the procedure for the geological information obtained and to reduce the terms of the project documentation approval. At the second stage (up to 2020) it is necessary to prepare a publicly available electronic database of the geological information and to switch to the granting of right for the geological exploration based on the direct negotiations with the reduction of terms of the applications consideration up to 6 months. And only at the third stage (by 2030) it is necessary to create an interactive on-line information display system with the subsoil sites and their geological and geophysical data, as well as with the possibility of application filing via the Internet and bringing the term of the application consideration up to 3 months.
Meanwhile, the main representative of companies-subsoil users, the Executive Director of AGMP Nikolay Radostovets, offered not to place on a shelf, but to use “one window” principle for the procedures of the subsoil use rights granting: “Why should we obligatory pass through 12 government agencies to obtain the subsoil use rights? In our country the people are already used to the Public Service Centers: we submit documents to one window and receive lots of approvals and resolutions. Why do not we raise the question of “one window” system creation in the subsoil use sector?” The fact that today there is a need to agree the same provisions with several government agencies makes these procedures last up 2 years.
In his speech at the plenary session of IV Congress of Workers of Mining and Metallurgical Industry he raised again the question of the adoption of the Natural Resources Code as the key condition to maintain the dynamic development of MMC in the deteriorating global environment: “A great appeal to the Ministry of Industry and New Technologies and Ministry of Oil and Gas is to agree between themselves, to concentrate all scientific and creative forces and engage international experts. We will work actively in order to have this document in 2014 at the initial stage of the second five-year period of the State Program of Forced Industrial-Innovative Development, despite the fact that this document is not even basically designed.”
It is noteworthy that the MINT supports this initiative. As Asset Issekeshev stated, taking into account the number of designed amendments in the subsoil use sector, their adoption in the form of a Code would be “a good solution for the issue”. As it turned out, the process is blockaded by the Ministry of Justice. The reason is that the lawyers, unlike the miners and metallurgists, consider that there are enough codes already accepted in Kazakhstan.
In order to somehow soften the disappointment of subsoil users, the Head of the MINT stressed that the main issue is not the document status, but the rules that are established by it. In addition, he promised to return to this issue in autumn, when the Government shall fully complete the bill.
It seems that the subsoil users consider AGMP Congress more suitable platform for conversations on sore subjects than AMM Congress, which was attended by many foreign visitors. After they patiently listened to the officials’ speeches about the plans for attracting investors in the first day, they literally assailed them with the suggestions and requests in the second day. Thus, they raised the question that the Tax Code should be added with the section “Taxation of socially significant marginally profitable projects”, with the specified status of such project, taxes, including MET, historical costs and commercial discovery bonus at a zero rate: “We would very much ask the officials to begin with the practice of concluding agreements with major investors, as it is established by the Decree of the President of the Republic of Kazakhstan. During the last three years we have not seen any agreement yet, while we were looking for it. As the investor reckons on guarantees, he invests funds. And therefore perhaps many a man would have started to cooperate more actively in the construction of new facilities, having such contracts”.
Later, Mr. Radostovets raised the issue of the raw materials supply to the new refinery plant in Astana. In his opinion, to supply the full scope of raw materials compulsorily may be rather problematic: “We would like to propose to establish a consortium, consisting the gold mining companies, and to manage this production in the partnership with Tau-Ken Samruk”.
“The miners and metallurgists are also interested in the accelerated entry of Kazakhstan to the WTO, as under the anti-dumping investigations and closure of a number of markets in Europe and America, it is a vital necessity” – said the Head of AGMP.
The Vice-President of Shubarkol Komir JSC, Sergey Kim, having told about the success of his enterprise in coal deep processing, proposed an amendment would provide the possibility to account the money spent by the subsoil users for the attraction of the foreign scientific research centers, as the obligatory contributions of 1% for the research and development work. Of course, if there are no appropriate local developers. Exactly this situation took place in Shubarkol Komir, when introducing technologies of coal tar use for the manufacturing of environmentally-friendly fuel. He also complained that, as a subsoil user, his company can not use preferences under the “Business Road Map 2020” even in the implementation of deep processing projects.
The Chief Executive Officer of ENRC Plc, Mr. Felix Vulis, drawn the attention to the fact that there is a risk of non-recognition of contractual obligations for the costs of social services, performed under the memorandum. The matter is that some funds go directly to the beneficiaries – orphanages, schools and hospitals. Another bottleneck are the controversial issues in the local content, which the companies are faced with during the implementation of major investment projects requiring to purchase of complex technological equipment that is not produced in Kazakhstan nowadays.
Apparently, understanding the value of the “political correctness”, shown by the miners and metallurgists during the first day, the Head of the MINT, in his turn, promised them that the Ministry would try to correct all indicated shortcomings quickly and efficiently. However, the Ministry would work based on the reasonable compromises, that means maintaining a balance between the economic interests of the participants, the principles of social responsibility, the competitiveness and the environmental requirements.