Transport and Communications of Kazakhstan: Investment Opportunities and Outlook
Karim Masimov, Deputy Prime Minister of the Republic of Kazakhstan, answers questions put by our magazine
Could you elaborate on the Government’s priorities in its investment policy in the transport and communications sectors?
The Government’s priorities in attracting investment into transport and communications (T&C) reflect the main growth trends in these sectors. The Concept of State Transport Policy that was adopted last year outlines the primary tasks in T&C development up to 2008. The most urgent of these are (1) to shape and develop a modern national transport infrastructure, (2) to speed up integration of the Kazakh transport system and unfold the country’s potential as a transit area, and (3) to improve government regulation and maintain a competitive environment.
In order to address these tasks, special programmes have been designed for these sectors including particular investment opportunities. For example, the foci for the telecommunications sector are on maximising the use of Kazakhstan’s transit potential, providing the population with wide access to modern information and telecommunications services, and satisfying the growing demand for communications services from both the private and government sectors.
With this in mind, Government policy is aimed at advance enhancement of telecommunications, improving the sector’s investment image (primarily that of local telecommunications networks), and supporting domestic equipment manufacture, software and modern services.
There are a number of backbone projects designed for the sector.
By 2005, a National Information Super-Highway (NISH) will be built, which is intended to link all industrial and cultural centres of the country into a common information space, and to assist in making use of Kazakhstan’s transit potential. The total cost of NISH will be US$110 million, and its length 10,000 kilometres. So far, the southern and western sections of NISH have been completed. The launching of NISH in 2005 will provide 80% coverage of the country with digital long-distance communications. In parallel, negotiations are under way over reducing transit rates for the Transasian-European Fibre-Optic Line (TAE). If the reduction is approved by all the member countries, the workload of TAE will be doubled.
Another forthcoming project is to build a NISH-based National Data Transmission Network, which will offer individuals and industry a wide range of services to the latest international standards.
Local telephone communications will be expanded, including increasing the number of subscribers to 2 million and the proportion of digital technology to 50-60%. A modernisation project for the Almaty region network is under way, using a loan from the Korean facility EDCF.
The development of the telecommunications network and services in Astana is also in full swing. A network is being formed for the capital city using the latest principles of telecommunications infrastructure development. It will be complemented with new fibre-optic rings and modern digital commutation systems, which will enhance the flexibility of routing and reliability and the quality of connections. The Astana city network was one of the first networks to feature the OKS #7 signalling system, and is advancing to a leading position in both Kazakhstan and the CIS in terms of technology.
It is expected that in 2005 all exchanges in Astana will be digital and there will be 25 phone numbers per 100 people.
The development of DAMA satellite communications will continue, with the goal of extending the service to remote and underpopulated areas. Currently there are 229 satellite stations in Kazakhstan, including 194 stations servicing the rural population.
Investments by all players in the telecommunications market in 2002-2005 will exceed $600 million.
Due to Kazakhstan’s favourable geographical position, its telecommunications network is attractive as a transit base to link information flows from the West and the Orient.
As for further development of transit/transport corridors, investment policy is mainly focussed on government loans and government-guaranteed loans from recognised financial organisations. This approach has proved to be sound in practice. An illustrative example is the reconstruction of the Aktau seaport which was completed using a EBRD loan and resulted in boosting the port’s handling capacity to 10 million tonnes of cargo per year. Further, funds granted by TACIS were used to restore a train ferry facility in the port, which is now linking Aktau to ports in Azerbaijan and Iran.
Now that Aktau has emerged as a centre where sea, rail and road transport routes come together, the situation is extremely favourable for the development of multi-transport forwarding using containers or other means (including railway wagons and train ferries).
In order to facilitate international shipments of domestic cargoes by sea, the NMSK Kazmortransflot joint stock company was founded based in the Aktau port. In turn, Kazmortransflot co-founded Oilstream Shipping Limited in autumn 2001, a joint venture with Novoship UK Ltd, which handles the transportation of Kazakh hydrocarbons.
Further development of Kazmortransflot requires investment in tanker building, purchasing dry-cargo ships, building a dockyard in Tyub-Karagansky Gulf and export terminals in Kuryk (Yeraliyevo), reconstruction and modernisation of 4 or 5 oil-loading terminals, building a breakwater and dredging in Aktau port, and purchasing support vessels. It is clear to see that there are many opportunities for investors.
The leading role in Kazakhstan’s international shipments and transit belongs to railways, which account for 70% of cargo forwarding and 60% of passenger traffic. Currently a great deal of effort is being devoted to phased development of the national network to provide optimal links between the country’s regions without using the railways of neighbouring countries.
The main investment priorities in this connection are renewal of the rolling-stock and containers, and building domestic factory repair facilities and a wagon-building industry.
The policy of modernisation of fixed assets in the sector includes a number of projects which are financed by external sources (government-guaranteed loans) and investment by the companies themselves.
During this year, a capacity-enhancement project for the railways (Druzhba station, Phase 1) was implemented using a JBIC loan. This project brought about an increase in the station’s annual throughput capacity to 10 million tonnes of cargo. In addition, investment is required for rehabilitation of selected railway lines, creation of a domestic factory repair base, and renewal of rolling-stock and containers. It is expected that in 2002-2014 investment for these purposes will total $199 million, including $106 million for thorough repair of 708 passenger vehicles and $93 million for purchasing 244 new coaches. Kazakhstan Temir Zholy’s project for locomotive renewal will cost $1,031.4 million up to 2014 alone.
Kazakhstan is striving to expand air transit across its territory, and therefore modernisation of the air-navigation equipment at Kazaeronavigatsiya is under way, assisted by leading international carriers. The international airport in Astana is undergoing reconstruction using a JBIC loan. In total, reconstruction of the hub airports in Astana and Almaty requires over $200 million. In the near future, reconstruction of important airports such as Atyrau and Aktau will start. The expected outcome is a network of airports capable of serving various aircraft types to ICAO standards.
Due to investments from international financial organisations totalling $450 million, reconstruction of roads giving access to international transport corridors is in full swing. These roads include Almaty-Astana, Almaty-Bishkek and the road network of West Kazakhstan. The annual demand for investment in this sector is over 60 billion tenge, or $390 million.
In 2003 a modernisation project will begin in Kazakhstan’s mail sector, including the formation of a postal savings system. This project will be funded by the Islamic Development Bank.
What role is assigned to foreign companies in the development of Kazakhstan’s T&C?
The national T&C is open to foreign investment. Above all, I view foreign partners as a primary source of expertise and technology. In practical terms, the most suitable partnership schemes for us are BOT (build, operate, transfer) and joint ventures.
We have made an overview of the five-year investment programmes of national companies and the road sector with a view to forecasting investment flows.
As a minimum, the aggregate demand for investment to 2005 is about $3.5 billion. The breakdown of the need for investment in T&? and the national companies is as follows: foreign loans (for the road sector and civil aviation) with a peak in 2002 and 2003; the sector’s own funds and attracted loans (about $200 million), investments are evenly distributed over time and tend to grow towards 2005, reflecting the forecast improvement in the companies’ performance.
An analysis of investment plans by companies shows that their main sources of funding are their own capital (depreciation charges and profit) and external credit. At the same time, alternative forms of investment are being treated with a degree of caution. There is a need to develop such alternatives, i.e. forms other than government loans and budgetary allocations.
International experience, especially that of Central and Eastern Europe, suggests that the involvement of a foreign investor in the telecommunications sector brings maximum benefit when the investor acts as a strategic partner.
The only example of direct strategic investment is ??? Systems co-founding Air Astana, the Government being another fifty-percent stakeholder. In May, this year, this joint venture launched commercial flights.
Aircraft leasing is a way for airlines to reduce spending considerably on maintenance and purchase of aircraft. Introduction of leasing practices into the railway sector is also likely to be beneficial.
During recent years Kazakhstan Temir Zholy has received several big loans, for example, from the Japanese governmental OECF (7.2 billion yen). An agreement was reached for $65 million to be provided by the European Bank of Reconstruction and Development for purchase of rolling-stock.
In April 2001 a loan agreement was signed with the Official Credit Institute of Spain (I??), which will provide a soft credit for Kazakhstan Temir Zholy for purchasing specialised wagons from TALGO for a total of $27.4 million.
An important source of investment is the issue of securities and their placement in domestic and foreign markets. A flow of portfolio investments is also necessary, as this improves the liquidity of assets and, along with sound management, works to increase the value of the company.
Thus, the investment policy for T&C is multi-faceted and represents a wide field of activity for national companies and investors.
What is your assessment of the pace of privatisation in T&C? Are there any new trends?
The conceptual approaches to privatisation in T&C have been articulated and are being applied systematically. This is clear to see in the road transport sector, which is now 90% privatised. In addition, 13 railway companies have been privatised so far.
As for the telecommunications sector, the Government is taking a cautious position in respect of privatising Kazakhtelecom. We are studying the experience of Western and Eastern Europe and trying to avoid their mistakes; it is well known that privatisation in some of these countries brought about somewhat unexpected results. In this area, the need to prevent the rise of giant cartels and preserve a competitive environment sometimes calls for very strict measures.
At present, the Government is making efforts to set up a transparent and efficient regulatory system in order to prepare the telecommunications market for the privatisation of Kazakhtelecom. We have engaged prominent international consulting companies and financial institutes to draft laws and prepare action plans. Meanwhile Kazakhtelecom is undergoing a full-scale modernisation programme in line with the approved investment plan.
The goal of our co-operation with Kazakhtelecom is to strengthen the company’s competitive position in the domestic and international markets.
In other words, things are going according to plan, and there have been no unforseen occurrences.
Is the Government planning to implement any structural reforms in T&C in the near future?
The conceptual approaches towards reform in the sector at the micro-level have already been outlined. The top priority at present is the modernisation of T&C infrastructure.
Kazakhstan has already started structural reforms in the telecommunications sector, aimed at forming an open, competitive market, assisting technological development, and diversifying services and making them affordable to the population and to businesses. In December last year, the Government approved the Five-Year Concept of Telecommunications Development which outlines the philosophy of the structural reforms. The strategic targets set include the provision of universal access to telecommunications for the population, liberalisation of charges, and setting up an efficient state control system. We regard careful planning and consistency as critical elements for progress. The next phase of reform cannot be started until the previous phase has been implemented in full. This is the only way to ensure that the sector will not be subjected to any undesirable changes which might adversely affect the provision of services to the population, or the competitiveness and security of national telecommunications.
Table of contents
A few aspects of Russia’s policy in the Caspian region * Viktor Kalyuzhny
The Second International Oil and Gas Summit-The Caspian in the 21st Century: from Politics to Business. Results and Recommendations
Kazakhstan’s Position Regarding the Legal Status of the Caspian and Outlook for Economic Development of the Region Bulat Sarsenbayev
Legal Framework Of Kazakhstan’s Telecommunications Sector Thomas C. O’Brien, Victoria P. Simonova
Alternatives in international dispute resolution* Sigvard Jarvin