We Are Implementing the Plans and Will Go Forward
Kazakhstan’s First Vice-Minister of Industry and New Technologies, Albert Rau, answers questions from the Kazakhstan magazine.
Mr. Rau, what results did the mining sector gain in 2011? What figures on the AIID program indicators and mining sector development program have been achieved?
The metals & mining industry (MMI) has been and remains a key component of Kazakhstan's economy and among the priorities the Accelerated Industrial and Innovative Development of Kazakhstan focuses on. The output by this industry is more than 7% of GDP and some 17% of total industrial production. The metals & mining industry implies the development of dozens of cities and whole regions; it accounts for more than 200,000 of those employed within the industry.
As you know, the AIID program is the most important economic initiative of our President, and, thus, its implementation will be a major challenge for our government for the next five years. To implement it, a 2010–2014 MMI development program was adopted, specific investment projects were approved, and prospective "niches" for attraction of investment were identified for the industry. With this, gross value added (GVA) and output and exports within the industry were defined as major performance indicators of the MMI program.
As for the last year’s results, compared to January-December 2010, GVA of the metals industry in value terms amounted to 1,300,085 million tenge, or 130.3%. The expectations were that GVA would reach just 841,614 million tenge, or 120%. That over-performance of the annual plan was due to global high demand for ferrous and nonferrous metals, as well as their increased demand in the domestic market. All this positively affected the development of Kazakhstan's metals industry, and in the current year it shows a relatively good pace as well.
According to Kazakhstan’s Agency for Statistics, in 2011 quarry operations and the mining industry output in current day prices amounted to 10,056.2 billion tenge, with a physical index of 101.3%. Mining of metal and iron ores reached 798.2 billion tenge and 336.3 billion tenge, with a physical index of 100.4% and 101.7%, respectively. Metals output was 948.5 billion tenge (106.5%). Of this, the production of ferrous metals amounted to 785.4 billion tenge (105.6%), of basic precious and non-ferrous metals 1,156.0 billion KZT (107.2%), and casting of metals 7.1 billion tenge (101,6%). The output of fabricated metal products, except for machinery and equipment, was 109.8 billion tenge in current day prices, with a physical index of 112.2%.
The increase in output of ferrous products was mostly due to production of conversion pig iron – 3,141.0 thousand tons (108.5%), crude steel – 4,807.7 thousand tons (112%), flat rolled products – 3,092.2 thousand tons (106.6%) and tubes of different diameters – 188.1 thousand tons (118.4%). It should be noted that the domestic demand for ferrous metals was mostly from the domestic machine-building sector; the latter demonstrated a 19.6% growth in 2011.
In non-ferrous metallurgy, an increase in production was achieved owing to production of raw silver – 644.6 tons with a physical index of 116.8%, including 640.6 tons (116.7%) of refined silver. Production of raw gold increased by 6.4 tons to 36.6 tons (121.1%), including 16.6 tons (123.6%) of refined gold. The output rose by 51.4 tons to 1,918.7 thousand tons (102.8%) for raw aluminum, by 78.4 tons to 111.2 tons (107.6%) for raw lead, by 894 tons to 319.7 thousand tons (100.3%) for raw zinc, and by 15.4 tons to 338.3 tons (104.6%) for refined copper.
Which of the mining and metallurgical projects launched to date are most promising from the viewpoint of priorities of the AIID program?
36 new mining companies were set up during the period of 2010–2011 alone under the Industrialization Map program in Kazakhstan, which created 12.6 thousand permanent jobs. This year we are planning to launch 8 more projects, worth of 7.7 billion tenge total, which will create 1.6 thousand more jobs.
We already achieved the first results on the base metals. The annual production of primary aluminum at the Pavlodar-based smelter in Kazakhstan came to 250 thousand tons a year, while the production of titanium ingots and alloys at the Ust-Kamenogorsk Titanium and Magnesium Plant reached 16 thousand tons. Kazzinc launched a New Metallurgy project to produce 70 thousand tons of cathode copper a year, and the Aktobe Copper Company put into operation new facilities, allowing producing 227 thousand tons of copper concentrate a year.
Currently in progress is the work on construction of the Aktogai and Bozshagol ore dressing and processing plants by Kazakhmys corporation with a total production capacity of 25 thousand tons of copper cathode and 750 tons of copper concentrate a year. Also, work is continued to increase steel production at ArсelorMittal Temirtau to 6 million tons, to organize production of metallized product at SSGPO with a capacity of 1.8 million tons, to bring the capacity of TNK Kazchrome in the Aktobe region to 440 tons of high-carbon ferroсhrome.
I would like to pay your attention to achievements in modernization and introduction of new productions in the gold mining and processing sector. Among the major projects I would note the construction of the gold recovery plant Altyn Tau with a production capacity of to 15 tons of Dore gold a year and the gold recovery plant Kyzyl Gold, located in the Eastern Kazakhstan region, with an annual output of 11.5 tons, also the increase in the capacity of the Akbakai gold recovery plant in the Zhambyl region owned by JSC AK Altynalmas by 2.8 tons of gold a year, as well as bringing the annual gold production at the ore dressing and processing plant Tort Kudyk in the Pavlodar region to one ton. With the commissioning of new plants into operation by 2014, we will get a real opportunity to produce over 70 tons of gold, and so Kazakhstan will be able to get into the list of top gold producers in the world.
As for modernization of the existing plants and factories, a technical audit of 34 backbone enterprises within the industry for their compliance with up-to-date technological requirements has already been carried out. This allowed starting work on their further development and improvement. In 2010 a working group was created to review a 2010–2015 investment project of ArсelorMittal Temirtau, providing for the increase in steel production to 6 million tons a year. The working group discussed and outlined a specific action program to gain this purpose.
In addition last year our ministry reviewed comprehensive plans of modernization for six more enterprises. These are Aluminium of Kazakhstan, SSGPO, TNK Kazchrome, Kazakhmys Corporation, Sat & Company, and Kazphosphate. Total investment in implementation of these plans throughout the period till 2015 will be 1.72 trillion, or $11.9 billion, and more than three thousand jobs will be created. Due to the output of 20 new items of products with high added value, such as metallized product at SSGPO, refined selenium at Kazakhmys Corporation, and the introduction of innovations at the enterprises of TNK Kazchrome, SSGPO, and Kazphosphate, an increase in industrial output is expected by 423 billion tenge (GVA).
Speaking about specific companies, I would say that as a result of implementation of the modernization plans at Kazakhmys Corporation, the increase in copper cathode production is expected by 50 thousand tons, while productivity is likely to rise by 30.8%, and energy consumption to reduce by 32.2%.
By the year 2015, the output by JSC SSGPO will increase by 4.4 million tons (125.7%) for commodity products, by 5.4 million tons (112.4%) for iron ore, while the number of employees is expected to rise by 3,445 people and labor productivity by 153 thousand tons per person (113.4%). At the same time, in connection with the output of products with higher added value the energy consumption will increase by 23%.
Concerning JSC SAT & Company, today this holding company has assets for production of ferroalloys on the basis of manganese (Taraz Metallurgical Plant, LLP Karuan in Mangistau region, as well as JSC Temirtau Metallurgical Plant, LLP Arman 100, and LLP Saryarka Mining in the Karaganda region) and nickel (LLP Kaznikel in the West Kazakhstan region.) Due to modernization of the enterprises, SAT & Company intends to raise production of ferroalloys to 210 thousand tons that is 17.4 times more compared to 2010. In parallel, a reduction in energy consumption per unit of products produced by 29.7% and the increase in labor efficiency by 143.3 tons per person is expected.
In conclusion, I would like to note that this year we are planning to consider comprehensive plans of modernization for seven more enterprises.
Today, both the state and enterprises of the industry agree that Kazakhstan has to fundamentally change the approach to mineral resources development of the metals & mining sector. What steps have been taken in this direction?
Extraction of mineral resources will remain the lever of the national economy development for many years and, therefore, the strengthening of the mineral resource base of the MMI is a very urgent task. To improve the efficiency of this process, we analyzed the current situation and possible action. As a result, a draft Concept of Geology Development in the Republic of Kazakhstan till 2030 was developed, as well as amendments were made to the MMI program to develop the mineral resources base in Kazakhstan in 2010–2014. Currently, these documents are at the phase of consideration and adoption.
Among the key novelties of the Concept are the taking into consideration of international experience, amendment of the MMI-related laws in the part of declassification of geological information and liberalization in making this information available to potential users, further simplifying the procedure for issuing licenses for mineral extraction, revision of the current classification of reserves and resources, and introduction of high-tech and effective operations in the area of geological exploration etc.
These are just the plans for now, but we believe they can and should be implemented. With the achievement of the set goals, the spheres of responsibility will become clearly outlined: the state will take responsibility for the high-risk stages of operations at the regional level, while the exploration companies will engage in exploration only. However, as noted above, the state will create all possible conditions for the active work of the investors: free provision of information in a convenient format, reduction of secrecy to a minimum, simplification of procedures for issuing licenses for mineral extraction, and so on. We expect to see the fruits of the planned innovations in the coming years.
Speaking about development of the mineral resources base, we should take into account one very important aspect. As you know, dozens of years before, one-factory towns were created in the places of the discovered and explored deposits of ore minerals that are entirely dependent on operation of the mining company. At present, the geological reserves at such deposits are depleting, so the current time dictates to carry out exploratory drilling at deeper horizons in order to maintain the achieved level of output, as well as to carry out geological prospecting in the surrounding area adjacent to the deposits.
Recently, Vice Prime Minister Serik Akhmetov said that the government intends to mitigate administrative barriers in the area of solid minerals extraction. What measures do you think should be the priority?
In my opinion, the primary measures for mitigating administrative barriers in the area of solid minerals extraction are:
Improving the system of issuing relevant licenses and permits. This requires the maximum reduction in the stages for getting a permit, and some stages should be simplified into procedures for getting relevant approvals with making relevant amendments to the mineral laws.
Optimization of inspections of private enterprises. These inspections are carried out as per the schedules approved by the ministry. These schedules are developed for each semester, taking into account risk assessment. Thus, the business entities, referred to the group of high risk, are examined annually, with average risk – once every three years, and with minor risk – every five years. We should continue this work further on.
Improving the mineral production laws. Amendments should made to the laws in the part of simplification of granting rights procedures. In particular, the legislation should provide for the allowable percentage of underperformance or over-performance of the mining plan by 20%–30% by mining companies. This will allow not executing the addendum to the contract every time – the project approval procedure which now takes a very long time. Moreover, it would be right to return to the practice of approving the amendments to the mining plan by the territorial division of the Committee for Geology and Mineral Resources only, and not to make changes to the technical development projects every year, which also pass through the procedure of approval with the concerned government agencies, which also takes time.
In February of this year, as part of the initiative "Mineral Resources in Exchange for Investment", Kazakhstan and Germany signed a partnership agreement in the area of raw materials and technologies. Could you provide the details of this? Is there similar work with other countries?
Indeed, during the visit of President of Kazakhstan to the Federal Republic of Germany, a bilateral intergovernmental agreement on partnership in the raw materials, industrial and technological areas was executed between the two countries. Also, 50 commercial contracts, worth over 3 billion euros, were signed. So, we are coming to a new level of long-term strategic partnership.
Kazakhstan is primarily interested in bringing German technologies to Kazakhstan for processing of crude oil, natural gas, iron ore, nonferrous metal ores and other raw materials, also for the chemical and petrochemical industries, as well as for production of mineral fertilizers. We are also looking forward for implementation in our republic jointly with Germany of infrastructure and social projects.
In their turn, German companies are mostly interested in those our resources, which are not under development yet. These are the so-called rare-earth elements – 17 metals, including scandium and dysprosium used in the manufacture of a wide range of innovative products: from space stations and medical scanners to mobile phones and batteries for electric vehicles. Further on, we have plans to carry out geological exploration, to evaluate reserves, to start drilling, extracting and processing. We also draw attention to the development of secondary resources, as billions of tons of them have piled up by now. These dumps contain a lot of useful components, especially rare metals, which are so needed by high-tech industries in Kazakhstan.
As you know, until now all the searches of access to rare metals and places of their extraction have led to China, because 95% of all the deposits of rare metals under development are located in China (although, China accounts for just one third of the world reserves of these elements). However, today we see a similar interest to our country from major customers, such as Japan, France, USA and others.
Russian experts urged Kazakhstan to join efforts to develop ferroalloy productions and steel industry. What are the prospects of such cooperation in the light of creation of the Single Economic Space?
I want to say that work in this direction is actually in progress. Thus, the Russian Federation’s Ministry of Regional Development reviewed a draft 2012–2017 Action Plan for Implementation of the Inter-Regional and Cross-Border Cooperation Program between Russia and Kazakhstan, proposed by our side. Currently, as part of the action program, we are considering the issue of implementing an investment project for setting up a casting and mechanical production for bulk manufacturing of components for the mechanical engineering industry and for casting of ferrous and nonferrous metals by application of up-to-date technologies.