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 KAZAKHSTAN №3, 2015
 Metallurgy as Our Main Priority

Metallurgy as Our Main Priority

Upgrading and growth of added value as the targets of the second five year plan

What are the performance indicators the domestic mining and metallurgy sector completed the first five year plan of the industrialization program with? What are the objectives set before the miners and metallurgists for the next five years, and how will the government support businesses in achieving them? We ask Albert Rau, Vice-Minister for Investment and Development of Kazakhstan, to answer these and other questions.

Albert Pavlovich, 2014 was the last year of the first five-year period within the Accelerated Industrial and Innovative Development (AIIDP) program. What progress the national mining-and-smelting industry managed to achieve within this program implementation framework?

Over the period of the first five-year plan, 60 new production facilities totaling $2.5 billion were put into operation in the industry creating more than 16,000 jobs. Among other things, major projects were implemented such as the second stage of the Kazakhstan Electrolysis Plant with a targeted capacity of up to 250 thousand tons of primary aluminum per year, cathode copper production plant with an annual production capacity of 70 thousand tons at the “Kazzinc” LLP, a new ferroalloy plant with an annual production capacity of up to 440 thousand tons at "Kazchrome" TNC” JSC in Aktobe, and a new refinery "TauKen Altyn" LLP with an annual production capacity of 25 tones of refined gold, and 50 tons of silver in the city of Astana.

Within the framework of the national industrialization roadmap projects, we commenced production of the products that have not been produced in Kazakhstan before, for example: aluminum wire rods that is produced now by “Kazenergokabel” JSC, steel panel-type radiators produced by “Kazterm” LLP, rare earth metals bulk concentrate produced by “SARECO” JV” LLP, titanium ingots and plate slabs manufactured by “Ust-Kamenogorsk Titanium-andMagnesium Plant” JSC, seamless pipes produced by “KSP Steel” LLP.

Implemented projects are indicative of the fact that we accomplished our AIIDSP objectives of ensuring production of the basic metals and the products of more sophisticated production processes.

The figures given below also support the successful accomplishment of the first five-year plan by the mining and metallurgical industry (MMI) of Kazakhstan. Metallurgical industry’s production volume increased by 22% from KZT 1,570 billion in 2010 to KZT 1,915.2 billion in 2014; metalliferous ores production volume increased by 35% — from KZT 651.2 billion to 882.3 billion, while production of finished metal products increased by 57% — from KZT 95.9 billion to KZT 150.2 billion, correspondingly. At that, performance of metallurgic industry employees improved by 59% — from $68.2 thousand to $108.2 thousand per an employee.

What objectives were not accomplished and why?

There are some projects that have been deferred to a later date due to an unfavorable global markets situation, certain financial and technical problems, namely: “ArcelorMittal Temirtau” JSC modernization with the projected annual production capacity up to 6 billion tons of steel.

Development of “Bakyrchik” gold deposit, among others, is delayed due to difficulties with development of processing technology.I would like to outline industry specific problem areas here: funds raising for mineral resources survey, formation of raw materials stock, introduction of advance technologies for integrated processing of mineral raw materials and involvement of man-made mineral formations in processing.

On the whole, I can say that we took into account both positive and negative experience of the state program of an accelerated industrial and innovative development (AIIDSP) in development of a plan for the next five-year period.

What assistance does the government render to mining-and-smelting enterprises of the industry for overcoming a negative effect by unfavorable global situation?

Currently, the government is carrying out monitoring of the industry development at all levels. For the purpose of a prompt response to the problems of the MMI, a Mining and Metallurgic Industry, Geology and Subsurface Resources Management Council was set up under the president of the Republic of Kazakhstan. The government has adopted the MMI enterprises support action plan. In accordance with this plan, the Ministry of Investments and Development thrashes out and renders governmental support to the manufacturers on a going basis in all the issues connected with raw materials supply in sufficient quantity, reduction of rates of transportation by railroad and those of power supply and takes many other measures for the given industry development.

In the course of the first five-year period, we managed to pass a legislative regulation on granting subsurface resources management right as a measure of industrial projects support by government. We work constantly on simplification and improvement of transparency of the state services in the given sphere.

We took a number of measures for regulation of iron-and-steel scrap and wastes. In particular, we imposed a temporary ban on export of such scrap and wastes and also developed and passed a national standard for ferrous and non-ferrous metals scrap brought in line with applicable international standards. Additionally, we imposed a temporary ban on export of gold-bearing raw materials, which made it possible to process it in the country and thus replenish its gold reserves.

I can give you some specific examples of governmental support measures in action. Thus, reduction factors were applied to trunk railway network services for “ArcelorMittal Temirtau” JSC, “Orken” LLP, “Aluminum of Kazakhstan” JSC, “SSGPO” JSC and other enterprises. Mineral extraction tax (MET) rate was reduced for Zhezkazgan deposit of “Kazakhmys” LLP and also for deposits of “Aluminum of Kazakhstan” JSC. We resolved several issues raised by “ArcelorMittal Temirtau” JSC including preservation of 99-year subsurface resources management period and provision of a rolling stock. A zeroimport tax rate was introduced for lead concentrate for “Kazzinc” LLP for 2-year period.

Thus, government renders an all-round support to the mining and metallurgic industry of Kazakhstan, which allows them to overcome unfavorable situation in the global market successfully.

What are the industry’s objectives within the framework of the second five-year plan of industrialization?

The State Program of an Accelerated Industrial and Innovative Development for 2015–2019 is focused on diversification and competitive recovery of the processing industry. At that, metallurgy is considered to be one of the top priority industries. The program focuses metal makers on achieving the following objectives by 2019: increase of the gross added value by 30% in real terms (as compared to 2012 level), improvement of labour efficiency by 18% in ferrous and by 40% in non-ferrous metallurgy and increase in export no less than by 4% and 10% correspondingly. While during the first five-year period the focus was on production of the base metals, now the main task of the ferrous metallurgy consists in modernization of existing and creation of new competitive industries producing goods with high added value. As for the non-ferrous metallurgy, it is necessary to ensure expansion and modernization of the currently existing production facilities, improvement of resource efficiency, introduction of integrated ore processing technology.

Within the framework of the second fiveyear period, it is planned to implement the following projects in the MMI: steel production volume increase up to 6 million tons in Karaganda area, construction of rail and structural steel mill in Aktobe with production capacity of 200 thousand tons of rail tracks with the length of 120 meters, arranging of HBI production with a capacity of 1.8 million tons in Kostanai region, development of pipes and tubes production in Pavlodar region with increase of production capacity up to 270 thousand tons of pipes per a year, brining the rare earth metals production in Akmola region to the level of up to 3,000 tons, introduction of new beneficiation facilities of the total production capacity of 85 thousand tons of copper concentrate and 25 thousand tons of cathode copper for development of Aktogai field, setting-up production facilities for production of 6 thousand tons of titanium slabs and 15 thousand tons of ferrous titanate concentrate in the East Kazakhstan region. Additionally, the issue of construction of a metallurgic complex at “Gornostayevskoye” deposit of cobalt and nickel ores with the production capacity of 40 thousand tons of commercial ferronickel, which has not been produced in Kazakhstan before, is being considered now.

What measures are taken for building scientific, innovative and workforce capacity of the industry?

Government and business realize that an innovative and workforce capacity represent the key factors of the industry’s enterprises competitive growth. This is supported by the fact that resulting from reforms being implemented since the moment of AIIDSP launching a share of actively innovative enterprises increased from 4% to 7.6% and the enterprises’ expenses on technological innovations tripled (from KZT 113.5 billion to 326 billion). Innovative products production output also tripled — from KZT 111.5 billion to 379 billion. Additionally, as regards the factor of "Innovation" of Global Competitiveness Index of the World Economic Forum, Kazakhstan improved its rating by 18 positions and took the 84th place, and by the factor of "Technological readiness" our country reached the 57th place (+25).

Of course, we do not rest on our oars. At the present time we are working out the measures aimed both on transfer of relevant technologies (including those used in MMI) and on development of our own innovative system. Currently, a system is being formed for innovative grants for purchase of foreign technologies for strategic projects, for competitive bidding of developers for solution of technological tasks in priority sectors of industry (including metallurgy), for implementation of targeted technological programs, scientific research activity, support of venture funds and establishment of industrial centers of competence in regions.

This system in conjunction with the other measures of control and stimulation on the part of the government and also responsible attitude of business to this issue makes it possible to continue building an innovative potential of the industry.

As regards strengthening the workforce capacity, we continue to work on reformation of manpower training system. Modern production needs highly qualified specialists and this is understood both by the government and business. New training programs are being developed and core educational institutions are being upgraded in accordance with new operational procedures. Many professionals of the national MII improve their professional skills in the leading educational institutions and production companies within the framework of governmental and corporate educational programs.

What are the challenges and possibilities that Eurasian Economic Union (EEU) launching implies for the national MMI? What will be an effect on interaction between Russian and Kazakhstani miners and metallurgists?

Four types of freedom of movement in the EEU, namely: movement of capital, human resources, goods and services, imply both additional possibilities and challenges for the national MMI. For example, equal access to transportation system of Russia resulted in substantial savings for the national companies. On the one hand, market expanded for the national manufacturers, on the other hand, competition increased.

Additional challenges that the national industry faces result from sharp devaluation of Russian rouble. Government, for its part, monitors the situation on a going basis.

Plan of actions for support of industrial enterprises has been developed well in advance. I gave you specific examples of taken measures.

As regards interaction, existing cooperation ties between the national mining and Russian metallurgic enterprises became even stronger. At the same time, national manufacturers of metal products found themselves in disadvantageous position comparing to their Russian competitors. Government of Kazakhstan applies the whole set of applicable support measures in order to support national manufacturers.

China has become an increasingly important player among foreign investors in our economy lately. How would you assess the prospects for our cooperation in the sphere of MMI?

We are open for cooperation with all countries in line with multi-vector nature of foreign policy of Kazakhstan. People’s Republic of China is our strategic partner. Prospects of our cooperation in

MMI are quite extensive ranging from development of deposits to production of high-technology products. Currently, approximately 40 joint projects are being considered and more than a half of them pertain to mining and metallurgic industry.I can mention commercial development of Shalkiya complex ores followed by settingup metallurgic complex, development of Massal deposit and construction of new electrolysis plant and large diameter steel pipes manufacturing plant as the specific instance.

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