Interviews 2010

If you publish or reference any of the articles below, you are required to hyperlink the document
Minister of Oil and Gas, Republic of Kazakhstan

- Mr Mynbayev, what is the main news from the oil and gas sector, what are the most important events at the moment, and what should happen in Kazakhstan’s fuel and energy industry?

- About the Kazakhstan-China Oil Pipeline
The Kazakhstan-China pipeline construction is being implemented in two phases. Phase 1 was the implementation of the 10 million tons per year Atasu-Alashankou oil pipeline project, which was put into operation in July 2006.

The implementation of the Kenkiyak-Kumkol oil pipeline construction project of a 10 million tons per year throughput capacity was the first stage of Phase 2 of the Kazakhstan-China oil pipeline construction project, and was based on the Agreement for the basic principles of construction of Phase 2 of the Kazakhstan-China oil pipeline made by and between China National Petroleum Corporation (hereinafter, CNPC) and KazMunayGas on 20 December 2006. On 24 October 2009, the State Commission Statement was signed on acceptance into operation of the first start-up complex of the Kenkiyak-Kumkol oil pipeline.

At present, the Chinese side expressed its proposal to discuss the conditions for continuation of construction of Phase 2 of the Kazakhstan-China oil pipeline, for expansion of capacity of the existing Kenkiyak-Atyrau, Kenkiyak-Kumkol, Kumkol-Atasu, and Atasu-Alashankou up to 20 million tons per year at Alashankou point of delivery.

About the Caspian Pipeline Consortium
The CPC pipeline of the total length of 1,510 km connects the Tengiz oil field in Kazakhstan and the oil terminal on the Russia’s Black Sea coast near the sea port of Novorossiysk.

With increasing oil production at the Tengiz and the Karachaganak fields and with the planned commissioning and putting into operation of the Kashagan field, one of the pressing issues of the CPC project is the issue of the pipeline’s increased capacity.

Before 31 October 2010, the CPC shareholders, including the Governments of Russia and Kazakhstan, should appropriately amend the existing CPC agreements.

Pursuant to CTC shareholders’ decision, the TransNeft JSC, KazMunayGas NC JSC, and Chevron will act as management companies, organizing, through their designated affiliates, the implementation of the project in Russia, Kazakhstan, and at the marine terminal, respectively.

The appropriate management contracts were approved by the CTC shareholders at the recent meeting of shareholders of the CPC-K JSC and at the meeting of the CPC-R CJSC Board of Directors held on 11 February 2010.

Information on the Caspian Gas Pipeline Construction
Pursuant to the Joint Declaration by the Presidents of the Republic of Kazakhstan, the Russian Federation, and Turkmenistan dated 12 May 2007, and the Agreement among the Governments of the Republic of Kazakhstan, the Russian Federation and Turkmenistan on Cooperation in Construction of the Caspian Gas Pipeline dated 20 December 2007 (hereinafter, the Intergovernmental Agreement), ratified by the Republic Kazakhstan on 14 May 2009, the construction project is being implemented of the Caspian gas pipeline to transport to external markets up to 20 billion cubic meters of gas annually, including up to 10 bcm of Kazakhstan gas and up to 10 bcm of Turkmen gas.

In connection with the making by the Turkmen side of the proposal to increase the supply of Turkmen gas from 10.0 bcm to 30.0 bcm annually, the draft Government of Kazakhstan decree on the draft Protocol of amending the Intergovernmental Agreement was agreed upon by the RK interested state agencies and was forwarded via RK MFA to RF MFA and Turkmenistan MFA for consideration.

The implementation of the project is carried out in accordance with the Program adopted by the authorized agencies of the Parties.

Currently, preparatory works are underway for diagnosing the gas transport system in the Republic of Kazakhstan and for development of the Feasibility Study.

The optimal parameters for the new gas pipeline (cost of gas pipeline, pressure, and diameter) will be determined following the results of the feasibility study in Kazakhstan, generalizing the feasibility studies by the Parties.

The implementation of the Caspian gas pipeline project depends on the Russian and the Turkmen parties’ arrangements for the price of gas.

Information on the Kazakhstan-China Gas Pipeline Construction Project
For the purposes of implementing the Agreement between the Government of the Republic of Kazakhstan and the Government of the People’s Republic of China on Cooperation in Construction and Operation of the Kazakhstan-China gas pipeline dated 18 August 2007 (hereinafter, the IGA), on 8 November 2007 the Agreement between KazMunaiGas NC JSC (KMG) and China National Petroleum Corporation (CNPC) was signed on the basic principles of construction and operation of the Kazakhstan-China gas pipeline.

On 15 February 2008, to implement the financing, design development, construction, and operation of the Kazakhstan-China gas pipeline, based on equal participation, KazTransGas JSC and Trans-Asia Gas Pipeline Company Limited established the joint Kazakhstan-China Asian Gas Pipeline LLP.

For the construction of the pipeline the loan of China Development Bank in the amount of USD 7.5 billion was secured. As a security for repayment of this loan, CNPC provided a corporate guarantee for the construction period, until transport agreements are signed, under the “ship or pay” provision.

On 12 December 2009, the official ceremony was held of putting into operation Line 1 of the first section of the Kazakhstan-China gas pipeline with the participation of Chairman Hu Jintao of the People’s Republic of China and President Nursultan Nazarbayev of Kazakhstan.

At present, construction is complete of Line 2 of the gas pipeline, and activities are ongoing for its acceptance into service.

The upgrade of capacity of the first section of the Kazakhstan-China gas pipeline to 30 bcm per year is planned before the end of 2012, with subsequent expansion up to 40 bcm per year.

Beineu-Shymkent Gas Pipeline
The Beineu-Shymkent gas pipeline project is being implemented in accordance with the Addresses by Head of State N. Nazarbayev to the people of Kazakhstan dated 6 February 2008 and 6 March 2009 to ensure the stable meeting of gas demand in the southern regions of the country, to exempt the dependence on imported gas, and to ensure energy security of the country.

The gas pipeline route: Mangystau, Aktobe, Kyzylorda, and South Kazakhstan Oblasts.
The duration of the project is the period of 2010-2019, including completion of the first start-up complex of the first phase of construction, featuring the capacity of 3.6 bcm per year, is due before January 2012.

According to the approved part of the DED (Project Stage), the cost of the pipeline amounts to KZT 337,853 million.

The issue is resolved of involving foreign investors into the project, and on 14 October 2009 the protocol was signed on amendments and supplements to the Agreement between the Government of the Republic of Kazakhstan and the Government of the People’s Republic of China on cooperation in construction and operation of the Kazakhstan-China gas pipeline dated 18 August 2007 (hereinafter, the Protocol), where the Beineu-Shymkent gas pipeline is considered as the second section of the Kazakhstan-China gas pipeline. According to the Protocol, China National Petroleum Corporation will participate in the project along with KazMunaiGas NC JSC.

For the purposes of implementing the Beineu-Shymkent pipeline project, a joint venture is to be to set up with payment by the Kazakhstan and the Chinese parties of five hundred million US Dollars (USD 500,000,000) as a lump sum contribution to charter capital of the venture under the terms and conditions of the Protocol.

One of the most important areas to ensure economic security and independence of Kazakhstan, as well as for the active growth of the economy with the multiplication effect, is the creation of production facilities for deep processing of hydrocarbon raw materials and for production of high added value petrochemical products, competitive in the international market.

Such development of technologies and production facilities for deep processing will be implemented through the use of the leading licensed high-tech energy-saving technologies of the international market for gas and crude oil processing. Production of petrochemical products is planned both at the newly established petrochemical facilities and at the upgraded and technologically-refurbished refineries.

This will allow simultaneously resolving several important objectives:
- to produce in large quantities higher-quality petroleum products;
- to produce basic petrochemical products, which per se are added value products already and in demand on the international market;
- to produce petrochemical raw materials for subsequent conversion and production of the extended range of high added value petrochemical products (construction, lining and packing materials, industrial and domestic goods, etc.);
- to ensure a comprehensive processing of hydrocarbons;
- to reduce the negative impact on the environment; and
- to create conditions for small and medium businesses with regard to production of specific products from petrochemical raw materials.

The investment projects for creation of petrochemical industry facilities and for modernization and technological upgrade of oil refineries are incorporated in the state program for accelerated industrial-innovative development of Kazakhstan for the years 2010-2014 and in The Roadmap for Industrialization of Kazakhstan for the Years 2010-2014. The projects successfully passed all stages of feasibility and design works, the construction of the facilities will begin shortly.

In Atyrau Oblast, an integrated gas and chemical complex will be constructed for production of such basic petrochemical products as ethylene, polyethylene, and polypropylene. The amount of investment into the project is about USD 6.3 billion. To ensure its successful implementation, timely allotment and application of debt and equity funds, the project will be implemented in phases; Phase 1 of the project will ensure the production capacity of 500,000 tons of polypropylene per year, and Phase 2 – of 800,000 tons of polyethylene per year.

The Sinopec Engineering of China was selected on the competitive basis as the General Contractor for implementation of construction works at the first phase. On 19 March 2010, the Contract was signed for construction of Phase 1 of the Project on a turnkey basis. Currently, the development of design estimates is ongoing.

In March 2010, licensing agreements were signed for the technology of propane dehydrogenation and for polypropylene production with the CBI Lummus (USA).

In order to guarantee sales of polypropylene, the company made a contract of guaranteed sales of finished products (off-take agreement) with Sinopec Engineering.

Used in the investment project will be the international market recognized licensing technologies and installations: Gas Processing – ABB/CBI, Linde; steam cracking – Linde, ABB/CBI, TECHNIP, and Stone & Webster; dehydrogenation of propane – UOP, ABB/CBI, and Uhde; dimerization of ethylene – Axens; production of polyethylene and polypropylene in conformity with Basell/Borealis technology, etc.

Plans are in place to place orders in December this year for the main equipment. Construction works will begin in the spring of 2011.

The Atyrau Refinery is the oldest oil refinery in Kazakhstan. The plant, built in 1945, is located in close proximity to West Kazakhstan major oil fields.

At present, the CDU/VDU vacuum block and the delayed coking unit reconstruction is nearing completion.

On the basis of the Atyrau Oil Refinery, the Construction of the Complex for Production of Aromatic Hydrocarbons Project is being implemented, aiming at producing benzene and paraxylene and at improving motor fuels quality to meet Euro 3 standard. Developed and approved by the State Expert Assessment Board were the feasibility studies and PDS projects, which were made on the basis of the licensor Axens (France) technology. Construction sites are ready.

On 30 July 2010, BRC and ANPZ signed a general loan agreement for financing of the project, and on 4 September 2010 the ground breaking ceremony was held.

The completion of the Atyrau Oil Refinery Complex construction is scheduled before the end of 2013, and in 2014 already we will have a flexible technological scheme for production of high-quality petroleum products and aromatic hydrocarbons – of petrochemical products in demand in the international market. The quality of gasoline produced after the commissioning of the complex will meet the requirements of Euro 3 and Euro 4 standards whereas its sulfur contents will be much lower.

The above-mentioned projects to create petrochemical plants will be implemented in Atyrau Oblast.

- KIOGE once again attracted much attention and participation, and it is against the backdrop of the continuing global economy residual post-crisis problems. Can this be considered as a sign of interest of the international business, and of investors in general, towards the economy of Kazakhstan?

- The national interests of Kazakhstan in the international sphere include the whole range of interests of the country, and should strengthen the position of the Republic at the stage of entering the world market, developing equal and mutually beneficial relations with all the countries and integration associations.

Today, the issue of energy resources is one of the most important issues in the world. Instability in those countries which have traditionally been the main suppliers of oil and gas, as well as the record-breaking prices for hydrocarbons, has been brought to the forefront by the G 8 leaders. And here Kazakhstan, with its rich natural resources, has been playing an ever increasingly important role. Especially so when you consider the fact that our Republic is a paragon of socio-political stability and of rapid economic growth. The world powers, as never before, are in need of such a reliable energy resources supplier. Kazakhstan, in its turn, is actively developing the supplies of “black gold” onto the world markets, and in all possible directions, too.

The improvement of investment attractiveness is considered by us not only as one of the many activities undertaken and implemented by us, but as one of the most important mechanisms for ensuring the strategic interests of the state, of sustained and sustainable economic development.

That is, I would like to emphasize that Kazakhstan is beginning to more and more integrate into the global economy and this is due to active growth of the fuel and energy complex.

I would like to once again stress the magnitude of our ongoing and planned power projects, the implementation of which will require joint efforts and considerable investment.

And we are always ready for a constructive dialogue for the sake of further, mutually beneficial cooperation.

- The Ministry of Oil and Gas of the Republic of Kazakhstan has traditionally been one of the main KIOGE Conference participants. What can you say about the role of the Exhibition and Conference, summing up this long-term experience?

- The main advantage of this Exhibition primarily lies in mutually beneficial selection of partners, sharing experience, and acquisition of innovative technologies contributing to the growth of business in the oil and gas sector.

The KIOGE Exhibition and Conference plays a very important role in the oil and gas sector of Kazakhstan, and provides for sufficiently effective interaction of Kazakhstan companies with international companies, including those already operating in the country, as well as with representatives of government, financial, and research institutions.

As part of this event, discussions are held of the issues of development and effective operation of the oil and gas complex of the Republic of Kazakhstan.

Such meetings with the participation of competent representatives of national and foreign oil and gas business are one of the most important mechanisms to improve the national energy dialogue and mutual understanding, promote the continued strengthening of mutually acceptable principles of business cooperation and exchange of experience in the energy sector.


Kairgeldy KABYLDIN
Chairman of the Board
KazMunayGas NC JSC

Q: Mr. Kabyldin, traditionally KIOGE Exhibition and Conference provides an international platform on which, among other things, results of the period that has elapsed since the previous event are summarised. This year was a difficult one for the oil and gas industry, but, in general, it has performed well. What is your assessment of the company’s dynamics over this time period?

A: World analysts’ forecasts for the year 2010 were dominated by pessimism. International markets were expecting new shocks of price environment; large companies significantly curtailed their investment policies. In such circumstances, many business entities set up the goal of simply “remaining afloat”. There were similar predictions with regard to KazMunayGas National Company, too. Therefore, for us it was fundamentally important to maintain the positive growth trend of our key performance indicators in the first half of 2010.

Each company has its own “recipe for success” in a crisis situation; some companies optimise general and administrative expenses, others raise efficiency of particular segments, and still others suspend making investments. But in many ways the continued course of action depends upon the results the company has in store when it comes to this point.

In my opinion, the situation, that took shape both in 2009 and in the first half of 2010 in the oil and gas market, has provided an excellent opportunity to check the correctness of the chosen strategy, and the sustainability of the existing business processes.

The current statistics figures for January-June of this year testify to the effectiveness of the set of measures taken.

For the six months of 2010 KMG group of companies produced more than 10.7 million tons of crude oil and gas condensate, which is 18.6 percent higher than the corresponding 2009 level.

Crude refining volumes reached 7.7 million tons, which is 1.5 times higher than the last year’s mark. At the same time, 5.89 million tons were processed by the three Kazakhstan refineries.

Through the pipelines about 32.8 million tons of oil were transported, or with the increase by 8 percent against the level of the last year.

Gas transport volumes reached 52 billion cubic meters, which is 12 percent higher than the corresponding year 2009 mark.

As you will understand, the National Company’s operating results favourably impacted the financial outturns. As compared with the first half of the year 2009, KMG profits increased almost 3 times over.

Thus, despite a whole series of adverse factors, KazMunayGas has maintained the long-term positive development dynamics.

According to the Petroleum Intelligence Weekly international publication’s reputable assessment, we rank among the 50 leading oil and gas companies of the world. More than 130 companies were evaluated by such indicators such as stocks, production, oil and gas turnover, processing volumes, etc. In my opinion, this is a high valuation of the National Company’s activity.

In addition, one must not forget that KazMunayGas is a national company. Our success is a contribution into the national economy; it is the accomplishment of the tasks set by the President of our country.

For many years, KazMunayGas has been providing a significant portion of the gross domestic product of the country.

KazMunayGas has been performing functions of particular significance in the budgeting in Kazakhstan.

According to operational data, in the revenue of the budget of Kazakhstan in the first half of 2010, data the share of tax revenues for all the companies where KazMunayGas has direct and indirect participation, amounts to 22.2 per cent, whereas KazMunayGas proportionate share in these companies is 10.5 percent.

In the total tax revenues into the budget of the Republic of Kazakhstan, the proportion of all the companies with KazMunayGas participation amounted to 29.5 percent or KZT 695.3 billion, in proportion to KazMunayGas share in such companies of 14 percent or KZT 329 billion.

None the less important role is KazMunayGas role in other macroeconomic indicators in Kazakhstan, too.

The growth of inflation index in Kazakhstan in January-June this year amounted to 4.4 percent whereas for gasoline and diesel fuel, in which pricings KazMunayGas is involved, it was only about 2 percent.

It can also be noted that KazMunayGas pays special attention to local Kazakhstan content development. For the 6 months of this year, a group of companies KMG implemented purchase of goods, works, and services from Kazakhstani suppliers for the amount of KZT 456.5 billion, or 65 per cent of total procurement.

In addition, KazMunayGas provides certain subsidising of the country’s economy in the matters of supply at low rates of potable water and gas for the general public, and of oil and petroleum products – to the domestic market. In 2009, the total amount of funds allocated by KMG for such purposes amounted to over KZT 36 billion.

Given these and other examples, it can be seen that we realise our high responsibility before the State; our achievements we identify with the priorities of socioeconomic development of the country.

Q: Kazakhstan’s oil and gas sector has been attracting an ever growing attention in the East, as can be seen, and in particular, by the active participation in KIOGE. How does your company see the prospects for “the Eastward vector” in the field of transportation of hydrocarbons?

A: Kazakhstan belongs to the number of nations in possession of strategic reserves of hydrocarbons, which render some influence on shaping the world energy market. Kazakhstan is among the twenty largest oil-producing countries.

With regard to exports, in the long run, our country is planning to enter the top ten largest exporters of hydrocarbons on the planet in terms of oil production indicators of more than 140 million tons by 2020.

With due account of the forecasts of production growth of Kazakhstan oil, and of the plans for development of the Caspian shelf, increasingly important for Kazakhstan are the issues of implementing the projects of transporting oil to the world markets, which should provide for timely, reliable, stable, and diversified system of export transportation routes.

Currently, the main existing export routes of Kazakhstan oil are the Atyrau – Samara pipeline, the CPC pipeline, the Atasu-Alashankou pipeline, the port of Aktau, and the rail transportation. Following 2009, in Kazakhstan 76.5 million tons of oil and condensate were produced, of which amount about 70 million tons were exported.

The largest volume of Kazakhstan oil in 2009 was exported by the CPC pipeline – 28 million tons, and by the Atyrau-Samara pipeline – 17.5 million tons. Transported towards China were 7.7 million tons, of which 6.2 million tons of Kazakhstan oil. Marine exports amounted to 11.1 million tons, and 4 million tons were shipped by rail.

To date, the demand for oil pipelines has been almost completely satisfied, but as the volume of production in the future will continue to grow, so will the need for new pipelines, too.

In this regard, KazMunayGas National Company has been actively pursuing work on implementing the projects as follows: the phased expansion of the Caspian Pipeline Consortium pipeline, and the increase in the throughput capacity of the Kazakhstan – China pipeline. In addition, in the stage of development are the projects for new facilities creation. The main and the most relevant project today is the project of the Kazakhstan Caspian Transport System (KCTS) creation.

A special role in the light of the increased production volumes is played by the CTC expansion project, providing for the more than twofold increase of throughput capacity of up to 67 million tons by the year 2015, including that 52.5 million tons per year of Kazakhstan oil. On 16 December 2009, it was unanimously decided that the CTC capacity should be further extended.

In pursuance of the CPC shareholders’ decision, TransNeft, KazMunayGas and Chevron will act as management companies, organising through their designated affiliates the implementation of the project on the territories of Russia, Kazakhstan, and the marine terminal, respectively.

Before the end of this October, the CPC shareholders, including the Governments of Kazakhstan and Russia, should appropriately amend the existing agreements (the CPC shareholders agreement, the loan agreement, and the inter-creditor agreement).

In general, before the end of 2010, plans are in place for the shareholders to pass the final investment decision with the view to start the construction operations in early 2011.

An important milestone in the development of the new markets for Kazakhstan was the implementation of the Kazakhstan-China oil pipeline construction project, which opens up the access to this country’s promising market.

As you know, China is a huge importer of oil. Currently, the import of China is 250 million tons of oil annually. We are talking only about a tenth part of it, which only cover the western China needs.

The total length of the pipeline is more than two and a half thousands kilometres and by the virtue of its scale the project was divided into two phases.

The result of the first phase was the successful launching into operation the Atasu-Alashankou oil pipeline in 2006.

In October 2009, the first stage was completed of Phase 2 of the Kazakhstan-China oil pipeline: built and put into operation was the Kenkiyak-Kumkol oil pipeline section of the length of 792 km and the throughput capacity of 10 million tons per year.

In October last year it was agreed between the Government of the Republic of Kazakhstan and the Government of China that by the year 2013 China would ensure in Alashankou the technical possibility of custody of Kazakhstan and (or) other transit oil transported via the Atasu-Alashankou in the amount of 20 million tons per year.

With regard to alternative destinations, KazMunayGas has been displaying some interest in the projects aimed at bypassing the Bosporus and the Dardanelles, and does not preclude their participation or employment as an option for hydrocarbon supplies to European markets. The final decision on the practicability of using export routes will depend on the economics of oil supply via the above routes, the tariff for pipeline transportation, as well as on the opportunity to preserve the qualities of the light Caspian crude while delivery to the consumers.

Q: KazMunayGas National Company and the KIOGE – how would you access the experience of their interaction? Can we say that for your company the Exhibition and Conference is not just the place for “an effective demonstration” of the flag, but also a way of establishing really useful business contacts?

A: As you know, the KIOGE Exhibition and Conference is held with the annual KazMunayGas National Company participation and official support.

In my view, over the years of its existence, the KIOGE Conference has become an important centre for exchange of information, experience, and achievements in the oil-and-gas industry, and for strengthening business contacts and cooperation, which positively effects on improving the investment climate in Kazakhstan.

The mission of KazMunayGas National Company is to ensure maximum benefits for the Republic of Kazakhstan from participation in the development of national oil-and-gas industry, support local producers and suppliers of goods and services, and Kazakhstan content development. And I would like to note that KIOGE has become one of the largest industry events to discuss topical problems of oil-and-gas business, and to develop effective solutions to achieve the targeted goals.

I hope that this year, in the framework of the Exhibition and Conference, business ties will be established and mutually beneficial agreements will be reached, which will initiate creation and implementation in Kazakhstan of new successful projects and joint ventures.

At each event, there are plenary sessions, sections and round tables, within the scopes of which there are representatives of legislative and executive authorities, of businesses, and of public organisations, leading scholars, analysts, managers of major international oil companies. The most pressing issues are discussed – from modern technologies introduction and Kazakhstan content development to the issues of ensuring transparency of the industry-wise activities and of the economic recovery and upturn of the country as a whole.

Every year within the framework of the KIOGE Conference meaningful documents are taken, formulated in which are the trends and challenges in the oil-and-gas industry, concrete measures are proposed, and draft laws and other legislative acts are discussed. This year especially we would like to note the relevance of holding the meeting devoted to the analysis of current tax and regulatory environment in Kazakhstan. In my opinion, the questions relating to taxation regime in the oil-and-gas industry, settlement of tax and customs disputes, payment of oil taxes, etc., are of especial relevance today.

KIOGE conference should be viewed as an important forum for professional communication and for facilitation in the implementation of the Head of the State’s course toward creating the innovative economy and ensuring the energy security.

For example, within this year’s conference framework, a great emphasis is put on the innovative approaches to oil and gas field development. Such issues will be discuss, for example, as planning and performance of geological-and-technical operations at later stages of oil field development, and the trends for development of enhanced oil recovery methods.

The subsurface is public property and it shall be used efficiently and with maximum effectiveness.

With due account of the fact that a significant amount of the remaining oil in place are concentrated in mature fields, KazMunayGas pays great attention to introduction of new technologies in terms of exploration, enhanced oil recovery, introduction of new oil production technologies, and reservoir management.

Thus, the application of technologies to improve oil recovery provides for production in 2009-2010 of additional one million tons of oil.

In connection with the accident on the oil platform in the Gulf of Mexico, particular importance is now attributed to prevention of oil spills at sea, and to mitigation of their consequences. I am glad that this topic within KIOGE 2010 is given much attention to.

KazMunayGas within the framework of implementing the 2006-2015 Integrated Ecological Programme, and with due account of ecological and social aspects of the problem, the formation of the corporate system of industrial ecological monitoring is continuing. Currently, its first phase was implemented – based on geoinformational technologies the system of aerospace ecological monitoring of the environment was introduced and successfully operates, and the continuously updated electronic ecological map was created.

This space environmental monitoring system continuously monitors the all areas and sites of the company’s responsibility, including the detection and real-time monitoring of oil slicks in the Kazakhstan sector of the Caspian Sea, and their registration, using the technology of radar sensing and oil spill detection by means of the identification algorithm, identification of the precise coordinates and the areas of such spills, and modelling of propagation of oil spills at sea.

Among other important topics for discussion are health, safety, and corporate social responsibility. Suffice to say, that in 2010 KazMunayGas plans to allot for implementation of various social programs more than 130 million US dollars. This is a significant sum, and today KazMunayGas is by right the leader in terms of social investment amounts. You can read the KIOGE catalogue for more information about our social projects.

In general, I should note the undoubted relevance and importance of the KIOGE oil-and-gas exhibition and conference in addressing and promoting issues of innovation, in discussion of the latest solutions, and in exchange of practical experience of improving oil production and oil and gas treatment efficiency.

Q: In Kazakhstan, this year saw the adoption of the National Programme for Accelerated Industrial and Innovative Development of Kazakhstan. How is KazMunayGas going to participate in it?

A: Indeed, one of the hottest topics of the KIOGE conference is the problems of providing energy security and energy efficiency in the environment of the country’s transition from the export-and-raw material resource to the resource-and-innovative development along with quality upgrade of the energy branch and of the related industries. Within the framework of the Conference, we are going not just talk about our projects in the field of industrialisation, but to discuss with our partners the ways to improve energy efficiency through innovation and investment processes in the industry-wise, the role of engineering companies in the innovation process, and other issues

In my opinion, the adopted National Programme for Accelerated Industrial and Innovative Development for 2010-2014 opens a new epoch in the national economy.

First of all, the industrialisation of the real sector of the economy is precisely interrelated with the development of the resource-and-raw materials base. Every new industrial facility is provided with fuel and energy resources.

The CCST (Kazakhstan-Caspian Transport System) project is being implemented, CPC oil pipeline throughput capacity will be expanded to 67 million tons a year, and that of Kazakhstan-China oil pipeline will be expanded up to 20 million tons of oil per year. Beyneu-Bozoy-Akbulak and Karachaganak-Uralsk pipelines will be built, and so the extremely important for the southern regions of the country gas Beineu - Chimkent pipeline will be. Cheap gas will be available to 2 million Kazakhstan citizens, and thus the energy security for the whole of the south of the country will be ensured.

Today, with the KazMunayGas participation strategic investment projects in oil refining and petrochemicals, hydrocarbon transportation and service infrastructure are implemented.

Among these are the ship repair yard in Mangystau Oblast, the second phase of the complex gas utilisation facility at the Akshybulak Field in Kyzylorda Oblast, and the projects for reconstruction and modernisation of the Atyrau Oil Refinery.

Under the state program for development of the Kazakhstan sector of the Caspian Sea and the program for coastal infrastructure development in Tupkaragan Region (Mangystau Oblast – Editor’s comment) implemented today is a number of important for the Caspian Sea region facilities.

As I noted above, this is the first ship repair yard. Also built here is the Atash offshore oil operations support base. Near completion are the works for construction of the site for subsequent construction of the metal structures plant, and the construction operations are ongoing for the drilling fluids plant construction. In pursuance of the latest official commissions of the Government of the Republic of Kazakhstan for inclusion of the on-shore infrastructure facilities into the Industrialisation Card, KazMunayGas National Company is implementing ten infrastructure projects in Mangystau Oblast.

To date, the works are practically completed for site preparation for the metal structures plant construction. Presumably, in the first quarter of 2011, McDermott Caspian Contractors, Inc. jointly with our TenizService affiliated company will break ground for construction of the metal structures plant. The commissioning of this facility will create about 3,000 jobs in the region. Also, this project will provide for increased participation of Kazakhstan companies in the oil-and-gas projects. This makes a significant contribution into the development of offshore oil-and-gas industry in Kazakhstan. The plant is to produce up to 12,000 tons of steel structures per year.

Also, in Mangystau Oblast construction of drilling mud plant is ongoing. The plant will manufacture high-tech drilling muds, both water- and oil-based ones. With the commissioning of this facility, oil well drilling times will be significantly reduced, as it will not be required to mix mud on rig-site, muds will be delivered on-site ready-made. The first phase of construction project is scheduled for the first quarter 2011, whereas by the end of 2011, taken the necessary field requirements, full capacity, i.e. up to 84,000 tons of drilling mud per year is to be reached.

Among the most important problems to be discussed at the Conference are the problems of oil refining industry status, of its continued development, and of the investment into new facilities for oil treatment and refining. As you know, currently the large-scale reconstruction of Atyrau Refinery was launched, and Pavlodar Petrochemical Plant and SHNOS are on the waiting list.

The implementation of the integrated plan of development of oil refineries should radically change the situation in the oil refining industry of Kazakhstan. In 2015, the domestic refineries will attain the total capacity of 17 million tons, and will fully cover the domestic demand for high quality petroleum products.

At the same time, upgrading the refineries, we have embarked on the petrochemical sector development. For instance, at Atyrau Refinery the project is being implemented for construction of a 1.1 billion US dollars complex facility for aromatic hydrocarbons production. The main objective of the project is to create the petrochemical industry for deep processing of hydrocarbon raw materials, to increase the range by producing high added value basic petrochemical products.

The production flow chart is very flexible and will provide for production of either maximum high-octane gasoline (conformant to Euro-3 and Euro-4 standards), or additional benzene and paraxylene.

The project was designed based on the technology of Axens of France; the core equipment is to be European-made. The commissioning is scheduled for 2013.

In a nut shell, we will have what to tell the participants in the event. KIOGE Exhibition and Conference is a large-scale project aiming at promoting the strengthening and development of Kazakhstan’s economy and economic growth, and at improving the quality of life.

Thank you for the interview!