Kazakhstan, the largest of the former Soviet republics in territory, excluding Russia, possesses enormous fossil fuel reserves and plentiful supplies of other minerals and metals. It also has a large agricultural sector featuring livestock and grain production. Kazakhstan's industrial sector rests on the extraction and processing of these natural resources and also on a growing machine-building sector specializing in construction equipment, tractors, agricultural machinery, and some defence items. The break up of the FSU in December 1991 and the collapse in demand for Kazakhstan's traditional heavy industry products resulted in a short-term contraction of the economy, with the steepest annual decline occurring in 1994. In 1995-97, the pace of the government programme of economic reform and privatization quickened, resulting in a substantial shifting of assets into the private sector. Kazakhstan enjoyed double-digit growth in 2000-01 - 8% or more per year in 2002-06 - largely due to its booming energy sector, but also due to economic reform, good harvests, and foreign investment. Real GDP in Kazakhstan grew by 13.5% in 2001, by 9.8% in 2002, by 9.3% in 2003, by 9.6% in 2004, by 9.7% in 2005, by 10.7% in 2006, and by 8.5% in 2007. Furthermore, the period year-on-year consumer price inflation in Kazakhstan decreased from 1,258% in 1994 to 8.4% in 2006.

1.1 Geography and population

Kazakhstan is the ninth largest country by land area in the world. It is located in Central Asia and is bordered by Russia to the north and west, China's Xinjiang-Uigur Autonomous Region to the east, Kyrgyzstan, Uzbekistan and Turkmenistan to the south and the Caspian Sea to the west. The country covers an area of approximately 2.7 million square kilometres (approximately the same size as western Europe) and spans two time zones from the Caspian Sea in the west to the Altai Mountains in the east. In December 1997, the capital moved from Almaty to Astana, which is located in central Kazakhstan, and most of the State bodies have relocated to Astana. However Almaty remains the financial capital of the country and is by far the largest city. As of 1 January 2008, the population of Kazakhstan is approximately 15.34 million people, which makes Kazakhstan a relatively sparsely populated country with an average population density of 5.7 people per square kilometre.

1.2 Government

Kazakhstan is a constitutional republic with a presidential form of governance. The president is both the head of state and commander-in-chief of the armed forces. President Nursultan Nazarbayev, who has been in office since Kazakhstan became independent in December 1991, won a new seven-year term in the 200 5election, gaining 91.1% of votes cast. The Kazakhstan constitution provides for separation of powers, but the president wields considerable control over all three branches of government and determines national policy priorities. He may also veto legislation that has been passed by the Parliament. The Prime Minister, Karim Masimov, since 10 January 2007, is appointed by the President and approved by the Parliament of the republic and is Kazakhstan's head of government. The current structure has a bicameral Parliament, with the Mazhilis (the lower house)  comprised of 107 members elected on a regional constituency basis and the Senate comprised of 47 members, 40 of whom are elected for six-year terms in double-seat constituencies by the local assemblies.

Reforms aimed at moving Kazakhstan further toward a full market economy continues. Kazakhstan has undertaken one of the more successful pension reform programmes amongst its peer ‘‘transition economies''. The Agency for Regulation and Supervision of Financial Markets and Financial Organisations of Kazakhstan, which regulates the Kazakhstan financial markets, is implementing EU-harmonised banking regulations (for example Basel-2). Privatisation, liberalisation of capital controls and tax reforms have also made headway. The government is also moving ahead with the introduction of ‘‘e-government'' (initially in the customs service), which is aimed at stimulating greater public sector transparency.

1.3 Economic Overview

For each of the past five years, GDP growth in Kazakhstan has been over 8%, fuelled by increased world demand for oil and high oil prices. Over this period, the general economic situation in Kazakhstan has improved, leading to a strong growth in imports into Kazakhstan. High oil prices have boosted the current account and balance of payments which moved into surplus and increased foreign exchange reserves. Between 1992 and 2007, Kazakhstan has attracted more than $39 billion in foreign direct investment (excluding investment in shares) and in 2007, its GDP was $102 billion. Inflation, which had picked up to 10.8% in 2007, persists at a relatively high level and may rise again in response to the 25% wage increase awarded to public sector employees in 2009.Rapid economic growth has helped stimulate employment and raise living standards. Unemployment fell from 13.5% in 1999 to 7.8% in 2006.

The Kazakh economy also benefits from a significant cushion, the National Fund for the Republic of Kazakhstan (the ‘‘NFRK''), a professionally-managed fund that aggregates above-target tax receipts and a share of revenues from the energy sector with an eye to a time when oil revenue slows or stops.

Established in 2000, the NFRK is intended to support future state budgets. As at the end of 2007, the NFRK's funds constituted KZT 2,735,815 billion(approximately US$22,703,858 million). These funds are intended to be available in the future, should they be needed, to meet budgetary operational expenditures, including debt servicing.

In September 2002, Kazakhstan became one of the first countries in the former Soviet Union to receive an investment-grade credit rating from a major international credit rating agency, when Moody's rated Kazakhstan's foreign currency bonds and notes at Baa3. In 2007, Fitch rated Kazakhstan's sovereign rating as BBB+ and Standard & Poor's BBB-. As at the end of 2007, Kazakhstan's gross foreign debt was approximately $93.9 billion.

Mining regulatory regime in Kazakhstan

In Kazakhstan, all subsoil reserves belong to the state. The Competent Body (currently the Ministry of Energy and Mineral Resources or MEMR) grants exploration and production rights by means of conclusion of subsoil use contracts. Subsoil use rights are granted for a specified period, but they may

be extended before the expiration of the contract and license (if applicable). Subsoil use contracts may be terminated by the Competent Body if the subsoil user does not satisfy its contractual obligations, including, but not limited to, periodic payment of royalties and taxes to the government and the satisfaction of mining, environmental, safety and health requirements.

Under the current contractual regime, subsoil use contract terms are agreed by the parties during a negotiation process. The government of Kazakhstan has developed a contract for use as a sample for subsoil use contracts. The terms and conditions of a model contract not already regulated by legislation may be amended by agreement of the parties.

In general, Kazakhstan law generally recognises the concept of stabilisation and guarantees stability of the terms and conditions of subsoil use rights, even if subsequent legislation provides for less favourable terms and conditions. Likewise, if a contract contains provisions establishing that the contract's terms and conditions cannot be changed without the parties' consent, any changes introduced by subsequent legislation are not automatically applicable unless the parties expressly agree. However, in certain circumstances, the parties to a subsoil use contract have to amend the subsoil use contract to comply with effective laws. The application of stabilisation provisions is usually stipulated in the subsoil use contract. Stabilisation protection is not available for certain matters, including environmental protection, healthcare, defence and national security. Pursuant to recent legislative amendments, deposits that are included on a list of ‘‘strategic resources'' are subject to special treatment. In particular, the Competent Body has the following new rights with respect to such ‘‘strategic resources'':

*the right to demand amendments and (or) additions to the applicable subsoil use contract if the actions of the subsoil user has caused significant change in the economic interests of the Republic of Kazakhstan creating a threat to its national security;

*the right to terminate the applicable subsoil use contract unilaterally, if within a certain period of time (in total not more than 12 months) the subsoil user does not agree to amend the contract if requested by the Competent Body;

*the right to repudiate the applicable subsoil use contract unilaterally with two months' notice. This right is in addition to the right to demand amendments and terminate as set forth above. The recent legislative amendments purport to extend their force to previously executed subsoil use contracts. The list of deposits of strategic resources has not yet been approved by the Government of the Republic of Kazakhstan. Until such list is approved the Competent Body will not be able to exercise any of its new rights. It is currently unclear which deposits would fall within the scope of the recent amendments.

To find out more about Kazakhstan please visit:

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