Kazakhstan seeks to strengthen Ties With EU

    By Paul Hannon
     President Nursultan Nazarbayev is set to this week visit Brussels and Paris, aiming to strengthen economic ties between the resource-rich central Asian nation and the European Union.
    The trip comes as Kazakhstan emerges fr om the slowdown that followed the global financial crisis, which inflicted severe damage on its banking system. The International Monetary Fund expects the economy to grow by 5.4% this year and 5.1% in 2011, having expanded by just 1.2% in 2009.
    Having confronted the immediate challenge of responding to the crisis, the government is now focusing on attracting huge amounts of foreign investment to help it develop its vast natural resources, including the giant Kashagan oil field. It has already signed a number of agreements with China, and its traditional ties with Russia remain strong. Some in Europe fear the bloc's businesses will miss out on a potential bonanza.
    Nursultan Nazarbayev is set to visit Brussels and Paris this week n a bid to draw investment to Kazakhstan.
     "We're in danger of missing a very big opportunity to do a lot of business, to deepen trade and investment links," said Peter Mandelson, a former EU trade commissioner and U.K. business secretary. "It's a resource-rich country with an economic base that's ripe for modernization and diversification. It has a large, well regulated market, and offers political stability and predictability as well as strong economic partners. It's also part of a...growing part of the global economy."
    Lord Mandelson hopes that Mr. Nazarbayev's visit to Brussels will help advance Kazakhstan's prospects of joining the World Trade Organization. Kazakhstan applied to join the trade body in 1996, but progress in reaching an agreement with the U.S. and the EU has been slow.
     However, even without WTO status, European businesses are investing in the country. Much of that investment is being channeled through Samruk-Kazyna, the holding company for the state's interest in 400 companies that between them account for almost half of the economy, and range from banks to oil and gas companies.
    Kairat Kelimbetov, Samruk-Kazyna's chief executive, is accompanying Mr. Nazarbayev on his trip, and has a long to-do list that includes talks with Royal Dutch Shell PLC, Eni SpA, and Total SA on their role in developing the nation's oil and gas reserves. Along with Exxon Mobil Corp., Eni and Total are part of the North Caspian Operating Company consortium that is developing Kashagan, wh ere output is due to start in 2012.
    Kazakhstan is seeking up to $100 billion in investment in its oil and gas exploration and production sector over the next decade, hoping to triple oil production over the next 10 to 15 years to become one of the world's 10 largest oil-producing nations.
    Mr. Kelimbetov also intends to sign an agreement with France's Areva SA to establish a new company that will produce fuels derived from uranium, mainly for export to China, and an agreement with Alstom SA to manufacture railway equipment.
     Indeed, much of Kazakhstan's oil and gas output will go to China.
    "We have become part of the Chinese growth area," Mr. Kelimbetov said.
    Kazakhstan shares a border with China, and the fast-growing Asian economy is a natural destination for its raw material exports. But Lord Mandelson said the EU needs to ensure that it benefits from that dynamic.
     "It's not a question of developing links with China at the expense of others in the international trading system," he said. "But we don't want all of the business opportunities skewed towards China at the EU's expense.
    Mr. Kelimbetov also hopes to attract European investment in the nation's banks. Before the global financial crisis, a number of Kazakh banks borrowed heavily in international debt markets, and ran into trouble when access to that funding source dried up, forcing Samruk-Kazyna to come to their rescue. Samruk-Kazyna now owns majority stakes in Bank Turan Alem, or BTA, and Alliance Bank, among others.
    Unlike many countries in similar positions, Kazakhstan decided to negotiate a reduction in the banks' debts to bondholders. That led to a write-down of between 60% and 70% of those debts. Mr. Kelimbetov insists that strikes the right balance between the interests of investors and the government.
     "Governments shouldn't bail out the losses created by financially incapable behavior," he said. "Investors had to realize there couldn't be a full recovery. And we restored commercial viability by injecting some money."
    The debt-restructuring process was completed in September, and Samruk-Kazyna is now looking to sell its stakes in the banks to foreign institutions.
     Mr. Kelimbetov hopes to talk to BNP Paribas SA and Soci