Caspian Energy - Kazakhstan could acquire additional market shares in the EU – Traian Hristea
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August 2018
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Monday, 21 May 2018 15:15

Kazakhstan could acquire additional market shares in the EU – Traian Hristea Featured

Caspian Energy (CE): As is known, EU is the largest trade partner and biggest investor in Kazakhstan. Which sectors of economy are the most attractive for investing? What was the volume of the commodity turnover over the past 9 months of 2017? Which measures are taken for its intensification?

Traian HristeaHead of the European Union Delegation to Kazakhstan: Kazakhstan remains an interesting market for EU companies, certainly the most attractive in Central Asia. Apart from the subsoil sector with all its ramifications in terms of machinery and appliances, amongst other most promising sectors I would single out transport and logistics. There is a very promising curve of growth in those sectors in Kazakhstan and much that EU companies can offer there in terms of advanced technology and standards. We are already seeing this for instance in the railways. Given the large and in part still untapped potential, agro-food also remains an attractive sector. The Government plans to develop the green economy dovetail very well with what EU companies offer in terms of sustainable agro-technologies and methods.

Nonetheless to allow sustainable investment especially in the non-oil sector, there is still much that can be done to encourage quality EU investment, especially small and medium-sized enterprises. The business environment, and particularly the practices of the administration (for example, the tax authorities) can and should be further simplified and made more friendly. I am encouraged to read of the Government's plans, notably in the new Tax Code, and I look forward to a consistent implementation of such plans, particularly in the regions.

As for recent evolution of trade turnover we have seen a positive trend this year with almost a third increase of goods exchanges in the first 7 months of 2017 (+31%), with a significant increase of Kazakhstan's exports to the EU (by as much as 44%).

To build on this base, our bilateral agreement, the Enhanced Partnership and Cooperation Agreement needs to be fully implemented and we should work to remove the obstacles that remain. An example is better enforcement of intellectual property rights, without which innovation is discouraged. Another is to remove technical barriers to trade (such as differences in technical regulations, standards, etc.).

 

CE: Did the bilateral relations between EU and Kazakhstan change after signing the agreement about extended partnership and cooperation two years ago, which aimed at substantial deepening of trade and economic relations?

Traian Hristea: Concerning trade and economic relations I do think we have made considerable progress in the past few years, even if the EPCA entered into force right around the fall of oil prices and the related devaluations.

We have seen already this year with Kazakhstan's economy picking up again this year our exchanges immediately went up substantially. All along, the strong presence of the EU as investor has not wavered. Let me remind that in 2016 – far from the easiest year for Kazakhstan in economic terms and the first year of the EPCA entering into provisional application – EU investors have demonstrated  very tangibly their interest in Kazakhstan: Out of the more than 20 USD billion (20,637) of in Foreign Direct Investment flows in Kazakhstan in 2016, the EU with its Member States have accounted for more than  half (53%, or 10,991.9 USD billion). This is three times as much as US FDI in the same year and more than 10 times as much as the Russian Federation. I think this is a good illustration of a continuing – and deepening economic relation, based on long-term relationships.

To further build on this and especially helping diversifying Kazakhstan's economy and opening up to more competition especially for SMEs, there is still work to do. Reducing the weight of State-Owned Enterprises in the economy and bringing in partners with new management practices and technologies will help and so will the consolidation of the banking sector. The EPCA is an opportunity for Kazakhstan and the EU, but we need to make the most of it in the years to come: it is in the interest of Kazakhstan to keep and strengthen the EU and its Member States as key partners: in times when openness is put into question, the EU stands firm in promoting an open yet sustainable trade policy embracing high standards of protection in areas like consumer safety, health, or environmental protection.

We will discuss in depth all issues of interest to our bilateral trade and economic relations at the next EU-Kazakhstan Trade Committee early next year after the first one under the new Agreement took place last march in Astana. I very much look forward to it.

The EU is also keen to promote regional dialogue and cooperation: during the European Union - Central Asia Foreign Ministers’ Meeting in Samarkand on 10 November 2017 we insisted on building up economic relations between the EU and the Central Asian countries and particular attention will be paid to enhancing Central Asia’s economic, transit and transport potential, which seem to me of particular importance of Kazakhstan.

I expect that much of this, together with improving the investment climate, ensuring sustainable economic growth, developing human capital through education and supporting small- and medium-sized businesses and employment will be reflected in the renewed EU Central Asia Strategy that we expect to adopt next year, confirming our commitment to the region and our close economic relations with Kazakhstan are very much at the center of such commitment.

 

CE: Which new projects will be implemented after EXPO-2017? How would you assess its economic results in terms of expansion of the trade and investment turnover?

Traian Hristea: During the Expo-2017 17 EU countries (Austria, Czech Republic, Finland, France, Greece, Luxembourg, Germany, Hungary, Italy, Latvia, Lithuania, Netherlands, Poland, Romania, Slovakia, Spain and UK) presented their national pavilions and held the National Days in the framework of the exhibition. The ideas and know-how presented unique approaches to sustainable development and daily energy consumption methodology.

Moreover, during EXPO the EU organized the "EU Energy Days" event, which showcased the activities and events that raise awareness of energy efficiency and renewables, with a special focus on sustainable energy and energy efficiency in buildings. Vice President of the European Commission Maros Sefcovic also attended the Ministerial Conference, which opened the Expo-2017.

I think that Expo-2017 results will significantly contribute to the promotion of sustainable energy all over the world, which is indeed a key element of a modern economy in today's and tomorrow's world. The focus on this topic is very timely, since it is referring to the global challenge of identifying the best options to fully meet the increased and complex needs of energy of the present generations, without compromising the ability of the future generations to benefit from the same.

 

CE: Oil production is growing in Kazakhstan. What kind of support is EU ready to lend to diversify export of Kazakhstani energy resources?

Traian Hristea: Major EU-based companies have already invested dozens of billions of euros and they keep investing in Kazakh oil and gas sector. At the same time, EU market is by far the largest absorber of Kazakh oil, with 70% of the total annual exports, corresponding roughly to 6% of the EU total oil imports per year. Kazakhstan is already the third largest non-OPEC supplier for the EU, after Russia and Norway, and ranks just little lower than Saudi Arabia, Libya and Nigeria. Supplying oil to EU market is good business for Kazakhstan, but also for European companies participating in the development of two of Kazakhstan's main oil fields: Karachaganak and Kashagan. In addition to that, Kazakhstan is the single largest raw Uranium supplier to the EU, with 26% of the total imports, or approximately 12% of total exports of Kazakh uranium. Few month ago, an important EU-based energy company already operating in Kazakhstan, has signed a strategic agreement with Kazatomprom, to expand and strengthen their cooperation for the successful implementation of joint projects in the nuclear fuel cycle.  Besides extracting and trading in nuclear materials, Kazakhstan is also engaged in cooperation on projects in the field of controlled nuclear fusion or nuclear safety, either with European energy companies or research institutes or other EU-funded entities, such as ITER. This is how the base is set for the development of scientific and technological capacities necessary to Kazakhstan, in order to realize its enormous potential as provider of energy of the future.

 

CE: Which export routes does EU support?

Traian Hristea: Diversification of energy supply sources and routes is one of the pillars of the EU Energy Security Strategy. Besides strengthening its relationship with existing suppliers, EU aims at opening the way for news sources, including for supplies from the Caspian region and beyond.  Coming back to the Kashagan oilfield, we welcome the successful relaunch of the commercial production, not only because this will provide returns on the important investments made mainly by EU-based companies, but also because production will make available additional significant volumes for export, including to EU market. With more oil ready to be sold on world market, Kazakhstan could very well overcome, in medium and long term, some of the currently better placed, but potentially not so reliable, suppliers to the EU, and acquire additional market shares in the EU, even from the current dominant suppliers. This will ultimately contribute towards EU energy security through source diversification, and will strengthen the position of Kazakhstan as one of the world's major energy supplier. 

New volumes from Kashagan are likely to be processed in the KMG International - owned refineries and distributed through Rompetrol's relatively well developed gas station network in the region, located in EU Member States, but also in neighbouring countries such as Republic of Moldova and Ukraine.  Significant investment have been made in these assets for oil refining, trading and retail, in which KMG International possesses and will continue to possess a significant share, even after the establishment of the partnership with the CEFC China Energy Company Limited. Let me remind you that, a couple of month ago, all necessary approvals have been received from the EU authorities, and the formal closure of the deal between KMG and the Chinese company is expected soon.

We are now looking forward to the implementation of the significant investment plan announced by the new partner, based on increased supply of Kazakh oil to one of the biggest and most technologically advanced refineries in the Black Sea region – Petromidia Navodari – with a refining capacity of 5 million tons of raw material / year. It is well known that this refinery is strategically positioned near Constanta, the biggest port to the Black Sea, which normally allows fast shipping of crude and refined oil products from and to suppliers and, respectively, potential buyers. The continuous involvement of the Kazakh national company effectively will create the necessary conditions for the emergence of an energy bridge, practically across two seas, between valuable hydrocarbons resources of Central Asia and related markets in Europe. This represents undoubtedly a strategic interest shared by the European Union and Kazakhstan.

 

CE: Kazakhstan continues developing use of alternative sources of energy. Which prospects of cooperation open in this area?

Traian Hristea: I would like to recall that the European Union has already deployed a special instrument for regional energy cooperation with its partner countries in the region - Central Asia Sustainable Energy Programme. With a budget 4 million Euros, the programme's objective was to assist the 5 Central Asian partner countries in the set-up of the necessary policy, regulatory and institutional environment to promote precisely renewable energy sources and increased energy efficiency.  The overall aim of the programme was to contribute towards increased security, reliability and efficiency of energy supplies in the Central Asian countries. The programme was 36 month long and ended last year. The emphasis was on introducing sustainability criteria in policy planning and implementation, with respect to renewables resources. It is worth mentioning also that European Union supports the initiative known as the Covenant of Mayors, whose objective is to encouraging local authorities and their citizens to take a voluntary approach in mitigating the effects of climate change, including through increased use of renewable energy sources. 

With financial support from the EU, a branch covering post-Soviet countries – including Central Asia – was established in 2011: the Covenant of Mayors – East. Local authorities in the beneficiary countries received technical support and could respond to calls for proposals aimed at energy efficiency/renewable energy sources funded by the European Commission's development budget (also in the rank of millions of euro). Twelve local authorities in Central Asia have signed the initiative (i.e. committed to the EU 20% CO2 emissions reduction target), out of which nine were from Kazakhstan, and four sustainable energy action plans (SEAPs) have been developed by signatories, including three in Kazakhstan. In addition to that, a technical assistance project has been set-up in Kazakhstan with the mandate to provide support to signatories in all five Central Asian countries.

Complementary to these specific programs, over the past years we have maintained a constant dialogue with Kazakh authorities on various topics related to development of renewables, including legislation, investment climate and technical challenges. In 2016, the Delegation of the European Union to Kazakhstan organized in cooperation with Association of Renewables in Kazakhstan a major event dedicated to development of renewable energy sources in Kazakhstan, with participation of governmental authorities and representatives of business community. This year, on the margin of EXPO 2017, the European Union sponsored a conference in the framework of "Future Energy Forum", highlighting the potential of renewables as clean energy solutions for buildings of the future, a subject of extreme relevance in the context of Kazakhstan's drive to diversify and "green" its economy.

 

Thank you for the interview

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