Caspian Energy (CE): Mr. Smailov, Kazakhstan and Azerbaijan are actively cooperating both bilaterally and within international organizations, including in the matters of implementation of large investment and transit projects. Which projects are the most demanded today and will be relevant in the coming years?
Alikhan Smailov, First Deputy Prime Minister, Minister of Finance of the Republic of Kazakhstan: First of all, necessary attention should be focused on the transit potential of the Caspian region. Kazakhstan is a member of the Trans-Caspian International Transport Route (TITR) international association, which brings together and represents today the interests of a number of countries and companies located along the TITR, thereby reviving the route of the historical Great Silk Road. The founders of the Association are: Kazakhstan Temir Zholy JSC NC and Aktau International Sea Trade Port from the side of Kazakhstan, Azerbaijan Railways CJSC, Azerbaijan Caspian Shipping Company and Baku International Sea Port from the side of Azerbaijan, Georgian Railway JSC and Batumi Sea Port from the side of Georgia.
As a result of the coordinated efforts of all TITR members, tariffs were reduced, constant work is currently underway to maintain a competitive level of rates, the transportation process was optimized (work on emerging issues, creating a pool, etc.). Continuous marketing work is underway to attract new goods to TITR, including export from Kazakhstan and import to Kazakhstan. A regular multimodal transport service has been established along the TITR route, and the delivery of goods by road or by sea from China, Kazakhstan and Central Asia to the ports of Batumi, Baku and Poti and then to Turkey is currently in place.
The interest of large transport and logistics companies in this international corridor is increasingly growing. In particular, on June 25, 2019 Astyk-Trans JSC was admitted as an associate member of the TITR Association by decision of the general meeting in the city of Nur-Sultan. Astyk-Trans JSC specializes mainly in operating specialized rolling stock and providing freight forwarding services for grain transportation. In view of the significant growth in demand for integrated services within the framework of this multimodal service, a significant increase is expected in traffic along the TITR routes to Turkey and further to the countries of the Middle East and Southern Europe.
Further speaking of the Caspian region, one should certainly mention the oil and gas industry, namely, it is worth paying attention to the oil and gas chemical industry. The petrochemical industry is one of the most important sectors of the global economy and represents significant potential for the economy of Kazakhstan. $1 invested in the petrochemical industry generates $2.3 for the country’s economy (Eurostat, OECD, World Bank). The main competitive advantage of the Republic of Kazakhstan for the development of the oil-gas chemical industry is affordable hydrocarbon feedstock for production of deep limit products. At present, a draft law has been developed to put in place a mechanism for pricing commercial gas for investment projects in the oil and gas chemical industry. There are also plans to develop strong criteria for selection of investment projects, which require feedstock supply.
Large projects in the petrochemical industry are currently under implementation in the Republic of Kazakhstan. For example, a $2.6 billion polypropylene production complex with the capacity of 500 thousand tons per year is currently under construction in the Atyrau region. The completion date is 2021. The issue of building a $6.5 billion gas chemical complex in Atyrau region is also under consideration now. It is expected to produce 1.25 million tons of polyethylene per year.
CE: How would you evaluate the investment attractiveness of economy? Which sectors are the leading ones?
Alikhan Smailov: Though most of the foreign investment is attracted to the primary sector of Kazakhstan, the share of the manufacturing sector has been growing over the years. Already today we can state the fact that we have reached a new level in the development of attractiveness of the investment climate. We are already competing in the global market for investments in the non-primary sector. Over the years of independence large investors from the Forbes 2000 list have entered the non-oil sector of our country, including ToyotaTsusho, Danone, Vicat, Coca-Cola, Knauf, Total, Posco, Heidelberg, GE, Alstom and many others.
In general, according to the results of the IQ 2019, a number of main sectors attractive to foreign investors keep on leading in terms of the influx of foreign direct investment. They include the mining industry (60.5% or $ 3.6 billion), the manufacturing industry (16.4% or $ 1.0 billion), trade (9.8% or $0.6 billion), transport (5.1% or $0.3 billion), financial and insurance activities (2,4%, or $0.1 billion), etc.
CE: On January 1, 2019, Kazakhstan launched the tax amnesty for small and medium-sized businesses. Could you please tell about its results? How effective is the work done?
Alikhan Smailov: Indeed, the year 2019 in Kazakhstan is featuring the tax amnesty. Since the beginning of the year, an amnesty has been carried out for small and medium-sized businesses. Under the amnesty 40,000 taxpayers have paid off their main tax debts worth in total 7.7 billion tenge, and penalties and fines for a total of 2.4 billion tenge have been written off. It stands to mention that the tax amnesty is still ongoing and will last until the end of 2019. And, undoubtedly, the number of small and medium-sized businesses taking advantage of this opportunity will increase significantly. We believe that the amnesty will have a certain economic effect, the cancellation of accrued penalty feeds will enable entrepreneurs to increase working capital. This, in turn, will foster the business development.
CE: Could you please tell about the results of the new ASTANA-1 information system introduced by the Ministry of Finance in 2018, as well as about the Electronic Invoices System? Have the set objectives been achieved?
Alikhan Smailov: When using the previous information systems to process customs declarations, an inspector spent from 2 or more hours of working time. Now, when the online customs filing system is in place, the functionality of the listed information systems is implemented within the single ASTANA-1 system and all operations are carried out automatically by the system in less than one minute.
To date, more than 24,000 participants of foreign economic activity (ATEA) have passed registration in the Astana-1 IS, while more than 3,000 are the direct users of the system. Since the introduction of Astana-1 IS more than 1 million 471 thousand declarations have been processed in the system, of which 653,000 declarations are for import and export operations, 818,000 are declarations for the transit procedure, the share of auto production for all procedures (import, export, transit, other) is 83%.
At the same time, 491,000 declarations on import and export operations were processed automatically in less than 1 minute, the share of auto products is 75%. From January 1, 2019 to August 22, 2019, the share of auto production was 78%. According to the customs transit procedure, 724 thousand transit declarations were processed automatically in less than 1 minute, the share of auto products is 88%.
Thus, automation of the customs declaring procedure process enabled the Department of Foreign Economic Affairs to save money on temporary storage facilities, brokers, consultants, and also excluded other administrative resources that required significant expenses for paper declaration, such as printing a declaration with all previous documents, travel expenses, and physical waiting for a queue, filing, issuing a declaration, providing copies of a declaration to the owners of temporary storage facilities for a release of goods from temporary storage facilities, etc. In general, due to the introduction of ASTANA-1 IS in 2018, businesses saved 77.7 billion tenge, which is a positive effect from the introduction of the online customs filing system. At the same time, due to the simplification of the customs filing procedure and saving of businesses the budget additionally received 13.5 billion tenge. The import of goods also increased (excluding imports, for which privileges for the payment of customs duties and taxes are in place) to 327 380 million tenge.
Our next objective is to create a separate “Export Control” module for goods imported from the EAEU countries to track imports and transit. Further simplification of customs procedures for participants of the foreign economic activity is planned to be achieved through the introduction of a Single Window information system for export-import operations. Uniting more than 13 information resources, including the ASTANA-1 IS, the E-Licensing Security Database, various registries and other systems, which information is necessary for customs operations, a Single Window portal creates conditions when participants of the foreign economic activity should not apply to different instances to collect certain documents and permits. The future plans envisage integration with 11 more information systems of state agencies.
Through the Single Window portal foreign trade operators can receive services from more than 10 government agencies. Documents are issued by both government institutions and accredited organizations. For example, certificates of conformity will be issued by more than 90 companies that are going now to operate within a Single Window. A total of 56 documents. Most importantly, corruption will be minimized due to exclusion of the human factor in decision-making, and the transparency of customs agencies and other government institutions will increase. All this, in turn, will have a beneficial effect on a growth of economic indicators and boost an increase in competitiveness of our country on a global and regional scale.
The E-Invoicing Information System (IS ESF) was introduced in stages, as a result of which since the beginning of this year all VAT payers and taxpayers selling imported goods have become participants of the system.
The legal requirement for issuing e-VAT invoices within the IS ESF introduced in January 1, 2019 for all value added tax payers has led to an increase in the value added tax revenues. To date, about 400,000 users are registered in the E-Invoicing Information System, who issued about 280 million electronic invoices. In general, for the first half of 2019, VAT amounted to 761.9 billion tenge, including 162.5 billion tenge gained through the large-scale introduction of e-invoices.
In addition, from April 1, 2018, the Virtual Warehouse module was put in place to ensure end-to-end traceability of the movement of goods on the basis of the E-Invoicing Information System. Now the project extends to motor vehicles, household appliances and raw sugar; and the list of goods is to be expanded. The development of e-document management in the E-Invoicing Information System is ongoing, and the opportunity has already been created to issue electronic acts of performed work and electronic contracts. Integrations under public procurement contracts are also already in place to fully switch to e-document management.
CE: How is the implementation of the Comprehensive Privatization Plan for 2016-2020 ongoing? To what extent are entrepreneurs and foreign investors interested in this process?
Alikhan Smailov: For the moment 501 objects worth 497 billion tenge in various fields of activity have been implemented and handed over to the competitive environment within the framework of the Comprehensive Privatization Plan for 2016-2020. The owners of these objects were 266 legal entities and 235 individuals (individual entrepreneurs), of which 27 were foreign individuals.
At the same time, the process of selling the largest assets of the oil and gas, energy and transport sectors and national companies themselves, which are of the greatest interest to business and investors, including foreign ones, is just beginning and will continue in 2020. Their transfer to a competitive environment will be implemented through IPO. These are such companies as Air Astana JSC, Kazakhtelecom JSC, KazMunayGas NC JSC, Kazpost JSC, Samruk-Energy JSC, and Kazakhstan Temir Zholy NC JSC. The placement of shares of these companies will be carried out by simultaneous listing on the site of the Astana International Financial Center and the London Stock Exchange (LSE).
There is already the experience of issuing shares through IPO. So, on November 14, 2018, a 15% stake in Kazatomprom NAC JSC was successfully placed (13% on the London Stock Exchange and 2% on the AIFC for the first time). The shares were acquired by 49 foreign and 16 Kazakhstan legal entities, as well as about by 2,700 citizens of the country. The total share of Kazakhstani investors amounted to 47.5% of the proposed volume of shares of Kazatomprom NAC JSC. The total revenue of the raised funds amounted to 168 billion tenge, or $451 million.
There are plans to sell 2 more largest companies in the mining industry and aviation to a strategic investor (Tau-Кen Samruk National Mining Company JSC, QAZAQ AIR JSC). Along with this, I would like to note that one of the basic principles of privatization in Kazakhstan fixed at the legislative level is publicity, competition, and legal succession. For this purpose, a unified electronic trading platform is working according to the “one window” principle for sellers and buyers to implement tenders on the web portal of the State Property Register (www.gosreestr.kz). In 2015, our trading platform was recognized as the best in the world in its category at the annual competition held by the International Telecommunication Union with the support of UNCTAD, UNESCO and UNDP.
What is being sold, at what price, when and how, bidding results, as well as full information about the objects of sale can be viewed on this web portal in the Kazakh, Russian and English languages. Information on the web portal is publicly available and updated daily. There are available mobile applications on Android and IOS, as well as the operating call center. We are open to cooperation and invite entrepreneurs, investors and foreign partners to join the privatization process in Kazakhstan.
CE: You recently said that by 2025 common markets for gas, oil and oil products will be formed within the EAEU, as well as equal access to gas, oil and oil products transportation systems of the EAEU member states. How can these plans affect Kazakhstan’s cooperation with the non-EAEU countries?
Alikhan Smailov: The Program of forming the EAEU common markets of oil and of petroleum products adopted by the Decisions of the Supreme Eurasian Economic Council #23 dated December 6, 2018, and the Action Plan envisage development and adoption of a number of documents, including development of Unified Rules for Access to oil and oil products transportation systems. The Rules will be developed by the Eurasian Commission, and according to the plan, the implementation period of the Rules is 2021. According to the Program, access to oil and oil products transportation systems is the provision of the right to use oil and oil products transportation systems operated by oil and oil products transportation systems operators to transport oil and oil products within the framework of the common oil and oil products markets of the Eurasian Economic Union.
The development of the Rules will be carried out in accordance with the principles specified in Article 84 of the Treaty and Sections III and IV of the Concept. The rules will regulate transportation of oil and oil products through oil and oil products transportation systems, including relations between operators of oil and oil products transportation systems of the Member States and participants of the common oil and oil products markets of the Union, determine principles and conditions for access to services in the field of oil and oil products transportation within the framework of the Union’s common oil and oil products markets, taking into account the principle of prioritized ensuring the needs of the Member States in oil and oil products. In accordance with the Appendix #22 of the Treaty on the EAEU, the Member States are gradually forming the common gas market of the Union, as well as providing access to the services of natural monopolies in the field of gas transportation through the gas transmission systems of the Member States.
According to the provisions of the Appendix #22 of the Treaty on the EAEU, as soon as all Member States take a set of measures and sign a corresponding Protocol, the Member States shall provide access for business entities of other Member States to gas transmission systems located in the territories of the Member States by means of using their existing technical capabilities, free capacities of gas transmission systems, and taking into account the agreed indicative (forecast) balance of gas of the Union and on the basis of civil contracts of business entities. Moreover, according to Paragraph 4 of the Appendix #22 of the Treaty on the EAEU, access to the services of entities of natural monopolies in the field of gas transportation is provided only for gas originating from the territory of the Member States.
The provisions of this Protocol do not apply to relations of access to the services of entities of natural monopolies in the field of gas transportation in relation to gas originating from the territories of the third states, and to relations in the field of gas transportation from and to the Union.
CE: Could you please tell about the impact of Kazakhstan’s participation in the OPEC cutback deal on the country’s budget revenues and the implementation of social projects? How effective is cooperation within OPEC +?
Alikhan Smailov: The OPEC cutback deal was signed on December 10, 2016 and was extended 4 times. The last extension for 9 months was accepted on July 1, 2019. Under the latest extension the average daily oil production shall be cut by the deal parities by ~ 1.2 million barrels per day compared o the level of October 2018. The commitment of the Republic of Kazakhstan is to maintain oil production at 1.86 million barrels per day. The deal has positively affected the stabilization of the global oil market. Oil prices stabilized at about $60 per barrel.
Thank you for the interview
