INFRASTRUCTURE:
MORE IN THE PIPELINE

Having attracted a critical mass of investment in a variety of sectors, Kazakhstan's infrastructure will continue to develop at a rapid pace for the next five or ten years. The construction industry, telecommunications, and the transportation sector will need to grow in order to accommodate the needs of other industries. Growth here is likely to attract further investment in other sectors as these infrastructure changes improve the overall business climate. Although Kazakhstan has a basic transportation network and skilled labor force, much investment will be required in the years ahead. Infrastructural investment requirements through 2030 are expected to total more than US$25 billion - and of this, 40 percent% will be needed for railway transportation, 23 percent% for highways and motor transport, 25 percent% for telecommunications, and 12 percent% for the air and water transport systems. Since Kazakhstan's independence, ABB, Bechtel and Fluor have all contributed mightily to its rehabilitation and the breaking of new ground on its vast territorial expanse.

Construction Sector: Traditionally key to all other sectors of the economy, the Cconstruction and cConstruction Mmaterials sectors in Kazakhstan consists of cement factories, factories producing building materials, and construction companies. Foreign firms have formed With 153 joint ventures with foreign firms and there are 102 enterprises operating in this sector - producing a climate in which opportunities abound with 100 percent foreign capital operating as affiliates, it clearly provides a favorable investment climate for foreign investors. Under the State privatization program, almost all industrial enterprises and organizations in the construction industry have been privatized, and most of the main industrial enterprises in this sector have been transferred into foreign management. While rapid construction in the new capital of Astana has attracted foreign investment has been attracted to construction projects in the new capital of Astana and in some key sectors of industry (such as petrochemicals, metallurgy, and the mining industry), greater foreign investment in the construction materials industry is a government priority.

Telecommunications: Telecommunications is a leading sector and continues to be one of the most promising areas for foreign investment. An upgrade to the Honeycomb communication service (AMPS standard) is under way in 10 regional centers; trunk communications are developed; personal pager services are expanding in 12 cities and towns; and Internet and telefax are available in a limited capacity. In 2001 and 2002, Kazakhstan opened two Internet Data Centers (IDC) in Astana and Pavlodar for 10,000 users each. The IDCs are a cooperative venture between Kazakhtelecom and Lockheed Martin Telecommunications - and the first of their kind in the former Soviet Union. Kazakhstan now has 200,000 internet users, representing an exponential increase in activity in the past five years.

At present, Kazakhtelekom, a National Joint Stock Company, provides local and international telecommunications services. As the national operator and owner of a network of general-use telecommunications facilities, it offers a range of communications and includes all oblast and urban telecommunication enterprises, as well as 12 large enterprises, such as the National Telegraph, Almaty Broadcasting Station, the National Trunk Line, and others. Internationally, Kazakhtelekom serves as the joint partner with foreign investors; Alcatel is its biggest partner.

Through joint ventures with German and Australian companies, Kazakhstan established its first independent international telephone channels to non-Commonwealth of Independent States (CIS) countries from Almaty in 1992 and from Astana in 1994. Rapid development has now resulted in thousands of direct international channels with foreign countries, including Israel, Turkey, France, the U.K, the USA, and indirect channels with still other countries through Australia and Germany. The foundation of a digital long-distance network has been laid with the recent Alekseyevka-Astana-Karaganda fiber-optic line. Recently, Oracle Corporation and Cisco Systems have expressed interest in Kazakhstan and opened new offices.

Transportation: The transportation infrastructure in Kazakhstan consists of an ever-expanding web of pipelines, railways, aerial routes, water transport routes, highways, and mail routes, rapidly crossing Central Asia for the betterment of citizens, business partners, and travelers alike. The dispersion of natural resources and centers of economic activity make the transport sector a most important one for the well being of the national economy, particularly in order to spur investment in Kazakhstan's promising agricultural sector and regional markets.

In an effort to create favorable conditions for foreign and domestic investors, goal-oriented and consistent investment policies are pursued within the transportion sector with strong incentives for the attraction of direct investment in all areas of infrastructureand communication complex. The Government is providing strong incentives for the attraction of direct investment in all areas of infrastructure, as infrastructure has become a top priority. As a catalyst for these needs, the government intends to integrate Kazakhstan into the international transport system through improved fleet structure and better transport infrastructure in its program for 1998-2005. Annual investment in transportation totals $320 million, but more than $2.5 billion is earmarked for planned projects. The program focuses on communications, transport facilities, and the establishment of local automobile manufacturing.

A competitive environment exists todayis being fostered, and with some exceptions, monopolies are restricted in order to encourage an open and efficient transportation and communication services market. Aside from privatizing many of the state-held companies in these sectors, plants that supplement them with equipment supplies and services are also being privatized.

Roads & Rails: In 2000, freight traffic via land and sea constituted approximately 300 million tons. Railroad lines carry the overwhelming bulk of freight traffic, 85 percent% of which is from the mining and metallurgy sector. More than half of the passenger traffic moves by road. Following independence, the government-owned rail system implicitly subsidized the industry by supplying commercial and social services in spite of a dramatic fall in rail traffic and revenues. However, as privatization continues, prices will increasingly reflect existing market conditions, and not market distortions, supported by Kazakhstan's market economy status. New track, removal of bottlenecks in the rail transport system, and effective cost cutting are all underway. Development of highways, alongside with reconstruction and construction of bridgesbridge construction and renovation, and the creation of service centers and rest areas along the highways are attractive investment projects.

Other Transportation: After rails and roads, water transportation is the third most important element in the Kazakhstani transportation complex, with both state and private companies operating in this field. The Irtysh River and the Caspian Sea present excellent opportunities in this area. Kazakhstan boasts over 50 registered airlines, more than two thirds of which are private, and a developed airport network. The majority of cargo flights go to Russia, UAE, Turkey and Germany. Shipping operations in the country are carried out by 626 transport enterprises, of which 68 are state companies and 555 are private.