Accent of Issue
Infrastructure Beacon
In 2015, Kazakhstan started to implement a five-year Nurly Zhol program.
Adopted at a time of global economic decline, the program focuses on two main areas: infrastructure development and new anti-crisis measures providing support to particular sectors of the economy. Because this issue of our magazine is somewhat special, we have decided to provide an overview of the key sections of this fundamental document, with special attention paid to infrastructure projects.
Hub and spokes
Nurly Zhol, the government’s 2015–2019 infrastructure development programme, was developed in accordance with paragraph 4 of the national plan for the implementation of Nurly Zhol – A Way to the Future, the President’s address to the nation of November 11, 2014.
The primary goal of the Programme is to turn Kazakhstan into a uniform economic market by creating four macroregions. City hubs of national and international significance should become the economic centres of these macroregions, concentrating capital, resources, advanced technologies and services.
Specifically, Astana will become the main hub in the Northern macroregion, while Ust-Kamenogorsk, Aktobe and Almaty will become the centres of Central-Eastern, Western and Southern macroregions respectively. It is expected that these cities will be the main drivers of economic growth, ensuring development and efficient use of human resources through the provision of high quality education, information and transport services, as well as increasing competition and creating foreign investment friendly environment.
These national hubs should become the migration clusters and will promote natural urbanization. Other major cities in each of the macroregions, or so-called second-tier cities, will be connected with their hub city in the form of a hub-and-spoke network.
The creators of the program expect that the macroregion integration will occur thanks to the effective development of transport, industrial, housing, social and energy infrastructure. Implementation of large-scale projects in this area should create considerable demand for construction materials, industrial products and equipment, as well as promote long-term growth in value-added industries.
Furthermore, to achieve synergy, Nurly Zhol will be closely linked to the government’s 2020 Transport Infrastructure Development and Integration Programme, 2015–2019 Industrial Innovation Development Programme, 2020 Regional Development Programme, Business Road Map 2020 and Road Map 2020, as well as the Fuel and Energy Sector Concept and 2011–2020 Education Development Programme.
The achievements of Nurly Zhol will be measured by the following indicators:
1) By 2019, Kazakhstan’s GDP should increase by 15.7% compared with 2014;
2) In five years, 308,600 temporary and 86,900 permanent jobs should be created;
3) By 2020, Kazakhstan should by ranked 55th in the world for the quality of basic infrastructure by the WEF,
5 points higher than today.
More detailed target indicators of the program are presented in table 1.
The following issues will have to be addressed to achieve these targets:
1) Establishing an effective transport and logistics infrastructure within the hub-and-spokes network;
2) Developing industrial and tourism infrastructure;
3) Improving energy infrastructure as part of the National Electrical Grid;
4) Modernization (reconstruction and construction) of the housing and utility infrastructure, heating and water supply,
and sanitation systems;
5) Making housing more affordable for the public;
6) Developing education infrastructure;
7) Making private businesses more competitive.
In addition, the following new anti-crisis targets have been included in the programme:
8) Support of the domestic mechanical engineering;
9) Export support;
10) Making agricultural businesses more competitive;
11) Creating infrastructure for the Business Road Map 2020 projects;
12) Ensuring product quality through the development of laboratory infrastructure;
13) Ensuring Kazakhstan’s geological awareness and evaluation of natural resources.
The achievement of each of the above-mentioned goals will be measured annually based on the so-called direct performance (table 2).
Infrastructure Mosaic
If you look at the programme at the level of particular focus areas and projects, then the most important challenge facing the transport and logistics infrastructure will be to reduce physical and economic distances between the regions.
In particular, more than 6,700 km of1st and 2nd category highways will be built or reconstructed during 2015–2020 to create an effective interregional highway network connecting Astana with the regions based on the hub-and-spokes principle.
The Centre – South project on the Astana – Karaganda – Balkhash – Almaty route will connect two major hubs, Astana and Almaty, i.e. Central-Eastern and Southern regions, through Balkhash and Karaganda. The highway will be upgraded to the 1st technical category with cement and asphalt-concrete surface, with the average traffic increasing from 10,000 up to 15,000 vehicles per day in 2019.
The Centre – East project on the Astana – Pavlodar – Kalbatau – Ust-Kamenogorsk route should create a quality transport connection between the cities of Astana and Ust-Kamenogorsk through Pavlodar and Kalbatau, which will attract transit cargoes, stimulate exports and promote tourism.
The Centre – West project will connect Astana with Western regions, creating conditions for increased cargo turnover and cooperation between the Central and Western regions, integrating road, sea and rail transport. Certain sections of the highway will be upgraded to the 1st technical category with cement and asphalt-concrete surface, with the expected average traffic growing to up to 9,000 vehicles. The project will be completed in 2020.
However, along with the construction of the international transport corridor connecting Western Europe and Western China, the following highways shall be either built or reconstructed during the next three years: Kapchagai – Kalbatau, Astana – Petropavlovsk – Russian border, Kyzylorda – Zhezkazgan – Karaganda, Usharal – Dostyk, Uralsk – Kamenka, Aktobe – Atyrau – Astrakhan, Astana’s South-Western bypass.
The projects will be implemented in partnership with international financial institutions (IFIs), which will help the country to learn the world’s best practices, improve services and bring modern technology to the road construction sector. Approximately 200,000 jobs will be created during the investment stage of the projects.
As for the rail and logistics sector, Zhezkazgan – Beyneu railway line is scheduled for commissioning in 2016 and will connect the country’s Centre and West. This will create the shortest rail route from Central Kazakhstan to Aktau seaport, to the border with Turkmenistan and to the Gulf states. Thus, Kazakhstan’s main railway framework will be created.
In addition, the programme will also focus on eliminating bottlenecks in rail services in the South and connecting transit hubs in the West. This will include the Borzhakty – Ersai railway line between Kuryk seaport and the railway network that should be completed in 2015, as well as a multifunctional ferry service to be launched in 2016. As a result, Kazakhstan will have two full-fledged seaports. The overall transhipment volume via the Caspian Sea will grow to about 25 million tons by 2020, with Kuryk seaport accounting for 4 million tons.
To improve transport efficiency in the Southern macroregion, a second electrified track will be added to the Almaty-1 – Shu rail route. Scheduled for completion in 2016, it will improve the cargo transport capacity from 25 million to 80 million tons, reducing transit time by almost 1.5 times.
About 2,000 jobs will be created during the construction stage of the railway and logistics projects, with 500 jobs created for the operation stage.
As for air operations, expansion of the Astana airport terminal and runway reconstruction are currently under way with completion scheduled for March 2017. This will double the airport’s capacity and remove operating limitations for airlines.
It is impossible to create a uniform internal market without a developed manufacturing sector in both macroregions and hub cities. Here, the key elements providing infrastructure support to the industrialization process will be special economic and industrial zones. In this field, the major goal of Nurly Zhol will be to complete the construction of the National Industrial Petrochemical Technopark (NIPT) and Khorgas – Eastern Gate free economic zones with funding provided by the government.
So far, NIPT’s infrastructure is 6% ready. The construction of the inside and outside manufacturing infrastructure is expected to be completed by 2018, including the elements of the industrial infrastructure, such as a single gas turbine power plant, water purification and waste water treatment facilities, as well as a single facility for producing technical gases. Should the NIPT’s infrastructure be completed on time, the oil and gas chemicals sector will receive about 1.8 trillion tenge of investments with 1,500 permanent jobs created during the operation stage.
The construction of the Khorgas – Eastern Gate infrastructure will be completed in 2015, including railway cargo handling terminals and the infrastructure of logistical and industrial zones. This will allow to increase cargo transportation to 4 million tons per year, attract private investment worth 37 billion tenge and increase the number of permanent jobs to 6,000.
In addition, completion of the infrastructure of Pavlodar, thoroughly Seaport, Innovative Technology Park and Astana–New City free economic zones will be thoroughly discussed during 2015–2018.
As for development of industrial zones, the focus will be on regional specialization, the principle of cluster development and opportunities for local businesses. Local executive bodies will provide funding to create their infrastructure, while certain projects may be co-financed by the federal government on a tendering basis.
To develop the infrastructure of tourism clusters in the priority resort areas around Alakol, Kenderly and Balkhash, as well as Karkaraly, Bayanauyl and other recreational areas, the issue of repairing and reconstructing the highways leading to natural attractions and sites of historical and cultural heritage will be thoroughly examined, just as the projects of upgrading the existing rail and aviation infrastructure.
In the energy sector, the programme’s major focus will be on the North–East–South 500 kV Transit Line Construction project implemented by KEGOC. This will link the power supply of the nation’s Northern, Eastern and Southern regions, reduce dependence on external suppliers and efficiently redistribute energy in case of deficit. This project will be implemented in two phases: 1) Construction of the 500 kV power line to East-Kazakhstan Region from the Ekibastuz Substation through Semey Substation to Ust-Kamenogorsk Substation; 2) Construction of Semey – Aktogai – Taldykorgan – Alma 500 kV power line.
Scheduled for completion in 2018, the project will increase the National Grid’s transit capacity on the North–South route from 1,350 MW to 2,100 MW, provide a closer connection of Kazakhstan’s East with the National Grid and create conditions for the electrification of railway sections Aktogai – Moyinty, Aktogai – Almaty and Aktogai – Dostyk.
In the housing and utilities sectors, theprogram includes modernization of approximately 1,000 kilometres of heating pipelines and about 6,000 kilometres of water supply and sewerage pipelines with the highest losses and failure rates. The reconstruction and construction of the systems will be accompanied by institutional development of the sector, creating a blanket technical policy, including for materials, equipment and technologies used. Moreover, there are plans to introduce key indicators to evaluate performance of enterprises and harmonize the consumption rates. The projects will be financed by purpose-specific transfers from the National Fund, distributed through budgetary loans and subsidies, as well as loans provided by IFIs and other sources. The local governor’s offices will be borrowers, while public utilities will become end borrowers/implementers of the projects with KazCentre Utilities JSC acting as a proxy. Natural monopolies will have the priority right to receive infrastructure grants (subsidies), as they will implement projects using funding provided by the IFIs and KazCentre Utilities JSC acting as a proxy responsible for distribution. Furthermore, subsidized rates for heating, water supply and sanitation is one of the issues to be discussed. The key deliverables of the Programme in the utilities sector should include: reduce wear and tear rate of heating, water supply and sewerage pipelines from 67% to 53% by 2020 and improve the quality of services provided to customers; launch commercialization processes in the sector by applying the principle of maximum tariffs replacing purpose-specific investment transfers with government loans and private capital; the sector’s transition to blanket technical standards.
To improve the housing infrastructure, Nurly Zhol focuses on building more rental housing as the most promising and accessible solution to the shortage of affordable real estate. For example, 1.4 million sq. m of rental property is to be commissioned by 2019 thanks to funding provided by the National Fund through the Kazakh Mortgage Company.
Availability of quality educational services will be achieved through the modernization of the universities’ research infrastructure, as well as expansion of school and preschool education facilities using funds from the National Fund, as well as federal and regional budgets.
Specifically, the construction of new schools will allow to decommission the facilities in disrepair and eliminate the three-shifts-per-day schedule; building standardized kindergartens will allow to make preschool education available for 85% of the total number of children aged three to six year old. As for higher education, 24 new laboratories focusing on a number of areas will be created around 10 universities forming the foundation of the industrial innovation development. These areas include production of construction materials, food processing, metallurgy, mechanical engineering, technological machinery, energy, petrochemistry, chemicals. In the next 5 years, these laboratories will help to train more than 7,500 students studying to obtain a Master’s degree in one of the majors prioritized by the Government’s Industrial and Innovation Development Programme. A research park Astana Business Campus will be established to become a hub for major Kazakhstani and international companies, high-tech small and medium-sized enterprises, start-ups, academics, inventors and financiers, where new innovative technologies will be developed to make local businesses more competitive.
A geological cluster will be come the first “anchor” project in Astana Business Campus, followed by info-communication and engineering clusters. The construction of the research park will be financed from the federal budget, as well as investments of large domestic and foreign partner companies.
In order to promote entrepreneurship, in 2015 the National Fund will provide subsidized loan facilities for SMEs and large businesses in value-added industries. In addition, IFIs are expected to provide credit lines for a total of 155 billion tenge before 2017. These resources will be used to fund the investment projects, replenish working capital and refinance existing loans. Interest rates for end borrowers will not exceed 6% per annum with a loan period of up to 10 years.
DAMU Entrepreneurship Development Fund and Development Bank of Kazakhstan will be responsible for funding distribution, while actual loans to businesses will be issued by second-tier banks.
This will help to create 4,000 new jobs and increase output by 150 billion tenge.
Anti-Crisis Stimuli
The remaining six goals were included in the Nurly Zhol programme during its contextualization as a rapid response to a deteriorating global economic environment and the nation’s steeper economic decline. Developed specially for the current year, some of them have little to do with infrastructure development as such. For this reason, just a brief overview will suffice.
The first goal focuses on providing support to domestic manufacturers of cars, helicopters and passenger train cars by stimulating domestic consumer demand for their products. We are talking about long-term loans and leasing financing for individuals and legal entities, as well as sole proprietors, who purchase vehicles. Development Bank of Kazakhstan and its affiliate BRK-Leasing are the programme’s operators.
The second goal is to create the infrastructure for Business Road Map 2020 projects aimed at establishing new manufacturing businesses, as well as modernization and expansion of existing ones. Specifically, the programme includes creating the infrastructure of industrial zones in Aktobe, Kyzylorda and South-Kazakhstan Regions. The funding will be provided by the National Fund with mandatory co-financing from local budgets. It is expected that these measures will help to launch more than 40 facilities in a number of business sectors.
The last but not least is improving the quality assurance infrastructure. To achieve this goal, testing laboratories will be expanded and upgraded in such sectors as consumer goods manufacturing and chemicals, metallurgy, fire safety and civil defence, as well as veterinary medicine. The use of public funding will allow to ensure compliance with the new technical regulations of the Customs Union, produce competitive and high quality products, make certification procedures accurate, credible and more affordable, as well as make Kazakhstan self-sufficient in terms of testing facilities.
Putting Funds to Use
Considering the specific nature of major infrastructure projects, most of the funding for Nurly Zhol projects will have to come from the National Fund. For the period between 2015 and 2017 alone, the Fund will provide a total of $9 billion. The money will be allocated in the form of purpose-specific transfers to the federal budget, as well as in the form of bond lending to quasi-public corporations. Besides that, there are plans to attract funds from the federal and local budgets, including budgetary loans, loans provided by IFIs to the government, non-government and government-guaranteed loans from IFIs, the budgets of national companies and development institutions, as well as other facilities offered by capital markets. The co-financing to be provided by international financial institutions is estimated at $8.97 billion, which is similar to the amount provided by the National Fund.
The decision to use savings from selling natural resources to improve Kazakhstan’s infrastructure seems quite logical, at least in today’s environment. The investment parity with IFIs is a good news as it creates better chances for the money to be used for intended purposes and not be stolen.
Editorial
