Newsroom: Article

Emerging Market De(bt)velopments

As of its independency, Kazakhstan has developed into the most important country in Central Asia since a major portion of the world’s untapped sources of oil and gas are located at the western region of the Republic. The country’s oil and gas revenues have led to a flourishing economy with a real GDP growth of over 10 per cent each year for the past decade. The economic outlook for Kazakhstan remains strong with an estimated real gross domestic product (GDP) growth for 2007 again approaching 10 per cent.
Current risks for Kazakhstan, as described in the IMF report of July 2007, are the expected inflation and the increasing exposure of its banking sector to foreign-exchange risk due to external borrowing. The regulators of Kazakhstan have already limited the short-term external borrowing and have tightened the regulations on the foreign currency exposures of the banks. While world energy prices are expected to remain at high levels, foreign investors in the energy sector suffer a risk of a different nature. Following Russia’s example, the Kazakh authorities are increasingly drafting legislation in the oil sector that is more onerous, implying a continuation of the trend towards greater state control over energy resources. Measures may include stricter environmental or employment requirements and higher investments requirements in the downstream side of the energy sector. Another issue of concern for Kazakhstan is its relationship with Russia, which is anxious to keep Kazakhstan from becoming too western oriented. Kazakhstan not only borders Russia but is also one of Russia’s major sources of oil and gas. The biggest sources for foreign direct investment in Kazakhstan currently originate from the US, the UK and Japan. One of Russia’s ways of keeping Kazakhstan’s undivided attention is through the Caspian Pipeline Consortium, of which Russia holds 24 per cent of the shares. Kazakhstan is facing new tax charges from the Russian Tax Authorities for a back-tax claim for 2004-2005 of $290m. It already received a back-tax claim for 2003-2004 for an amount of $180m and is awaiting another claim for 2005-2006. Russia is also holding back on the expansion of the Caspian Pipeline Consortium until the Consortium has paid off its debt. Kazakhstan, on the other hand, is looking at other solutions for the movement of its crude oil, such as the Baku-Tbilisi-Ceyhan pipeline (Azerbaijan).
Although less omnipresent as in neighboring countries, corruption and the lack of an independent judiciary is also still a matter of concern in Kazakhstan for foreign investors. Since 2005, a number of foreign companies have reported unlawfully losing highvalue licenses in the energy or mining sector, whereby in some cases the (local) judiciary was involved.

For Kazakhstan debt solutions, brokerage requests or more information on specific debts, debt conversions and restructurings, please contact:
Omni Bridgeway Emerging Markets BV
Tobias Asserlaan 5, 2517 KC
The Hague, The Netherlands.
Tel: (+31) 70 3384343, Fax: (+31) 70 3523469

Raymond van Hulst on vanhulst@omnibridgeway.com
Heleen Rijkens on rijkens@omnibridgeway.com

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