Baikonur, salt storms and rises in oil prices

Date: Jun 2018

There is incessant talk in Kyrgyzstan that Centerra Gold will be disposing its asset – the Kumtor gold mine. In fact this may not be just talk, as Chaart (a company listed on the Alternative Investment Market of the London Stock Exchange (AIM: CGH)) made an offer to acquire this asset for US$ 800m. If the deal goes through, Chaaret and Kyrgyzaltyn will own Kumtor on a parity basis. In addition, Chaaret intends to increase investments into its existing projects – the Tulkubash and the Kyzyltash mines.

The Kazakhstan national fund Samruk-Kazyna is planning to sell its 100% shares in the largest energy generating company – Samruk-Energy. This company is really big. It produces around 30% electric energy and around 40% of coal in Kazakhstan. The Samruk-Energy structure includes "giants" like the Ust-Kamenogorsk GES (hydroelectric power plant), the Ekibastuz GRES-1 and 2 (regional hydroelectric power plant), the Shardar GES as well as others. At the moment its advisers are working to produce an estimate of the presale value of the enterprise.

Halyk Bank of Kazakhstan is continuing its expansion in the CIS region with a plan to enter the Uzbekistan market. On this basis it is currently preparing the paperwork to apply for the approvals of the National Bank of Kazakhstan and the Central Bank of Uzbekistan. In addition, it is reported that the amalgamation of the structures of Qazkom and Halyk Bank is scheduled for the second half of the year, and will lead to improvements in the services provided. Generally, there is a noticeable improvement in the relationships between the two states. Here is an interesting review.

The World Bank produced its spring report on the economy of Kazakhstan. Taking into account that the anticipated oil price will reach an average of US$65 per barrel in 2018-2020, it will inevitably have a positive overall effect, although it may undermine the feeling of urgency in the transition to a new model of growth of the country. Potential risks factors include the likely weakening of the external environment, worsening problems in the banking sector and deceleration of the pace of structural reforms.

The departure of the USA from the Iran deal may, in addition to provoking a rise in oil prices, also contribute to an arms race in the Middle East, which is much more dangerous. Iran is considering exiting the 1968 Nuclear Non-Proliferation Treaty that will obviously lead to the Saudis doing the same. It is not clear what the Trump administration was expecting when announcing the decision to exit the deal. One thing is clear however – if no constructive measures are taken it may all end quite badly. And if someone were able to figure out how to untie this geo-economic-political Gordian knot, that person would truly deserve the Nobel Peace Prize.

For the first time in history the London Stock Exchange admitted bonds denominated in Uzbek soums. This may be considered as a breakthrough. The total volume of bonds issued amounts to 80 bn soums (US$10 m) with a maturity period of two years and a coupon rate of 9,5% per annum. The IFC regularly practices the issue of bonds in the currency of the country where it has projects under development. The bonds were placed by ING Capital Markets. The funds raised from the bond issue will be used to establish a credit line in sums for SME projects in the country.

There are some sad news. There were salt storms witnessed in the Aral Sea region that went so far down as to reach Ashgabat. You do not need to be an expert to understand that this is all due to the problem of the Aral Sea. Here is some interesting reading on the subject. Our firm also does not wish to stand by idly, and is co-organising the STIHIYA (Russian for the 'Force of Nature') – a festival of electronic music in the ship graveyard. The mission of the festival is to attract attention to the environmental disaster in the Aral Sea region (literally) as loudly as possible.

General Motors will soon exit its Uzbek operations. The remaining 10% in the plant are to be acquired by the Uzbek counterpart according to the agreed timeline, following which the plant will be renamed. It does not mean that the plant will stop producing GM models as the relationship with the American giant will continue on a contractual basis. Additionally the automotive industry is adopting anti-corruption policies and implementing measures in dealerships. In parallel talks are being held with European manufacturers including Volkswagen as well as Chinese and South Korean companies.

The notarial reform is finally underway in Uzbekistan. The President gave instructions to the Justice Ministry to carry out this task by the summer of 2019 and practically to make the state notarial system private, and to increase its effectiveness generally. When this does happen hundreds of thousands of directors, accountants, lawyers, chairmen, deputies, spouses, car owners, realtors, citizens, stateless persons and many others, jaded and exhausted, will finally break free from the piles of useless paperwork and breathe freely.

And finally some great news: the Baikonur Spaceport may become civilian by the end of this year. This way 2018 may close the last page of the military history of Baikonur and begin a new stage of its development. This means that the spaceport may begin attracting open commercial projects, which is quite likely considering the fact that more than one thousand satellites are "waiting" for their turn to launch into space. This also means that the port may become more available to tourists.

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