JPMorgan - KASE

of state of the members of this economic zone, it was decided to admit Tajikistan to full
membership. In addition, a treaty on the development of security markets was signed by the
member states and the Government and the executive committee of the interstate council of
Kazakhstan, The Kyrgyz Republic and Uzbekistan concluded an agreement to promote and
monitor economic relations among these three countries.
Kazakhstan has maintained significant political and economic relations with Russia since gaining
independence from the Soviet Union. After the dissolution of the Soviet Union, Kazakhstan
concluded a so-called zero option agreement with Russia which provided for Russia’s acceptance
of responsibility for virtually all external debt liabilities contracted on behalf of the former Soviet
Union, in return for Kazakhstan waiving all claims on former Soviet Union assets located outside
the territory of Kazakhstan.
In May 1997, Kazakhstan, Russia and Oman (together with other oil producers) signed the
Caspian Pipeline Consortium (the “CPC” or the “Consortium”) agreement for the construction of
a pipeline linking the Tengiz oil field in the western part of Kazakhstan with the Black Sea port
of Novorossiisk in Russia. Successful completion of the project is expected to increase
substantially Kazakhstan’s ability to take advantage of its oil reserves and to attract foreign
investment. Work on the pipeline began in January 1999. The first phase was completed and it is
believed it will become fully operational by the end of second quarter 2003.
Kazakhstan and Russia have reached agreement regarding the division of mineral rights in the
Kazakhstan-Russian part of the Caspian basin on a sectoral basis. It was also agreed that these
rights in the basin, which is estimated to contain significant liquid hydrocarbon deposits, would
be exploited by Kazakhstan and Russia on a broadly simultaneous basis. In October 2000, the
Presidents of Russia and Kazakhstan signed a declaration of co-operation in this regard. In May
2002, Kazakhstan and Russia agreed on the exact position of a separation line between the two
countries relating to subsurface usage rights and also on the development of three major oil and
gas deposits situated off the Russian and Kazakhstani coasts in the Caspian Basin. The
Government hopes to reach agreement on similar sectoral divisions with the other littoral states
but the absence of such agreements is not anticipated to delay exploitation in the Kazakhstani or
Russian sectors. Test drilling in both sectors started in August 1999. See “ – Natural Resources –
Oil and Gas”. In addition, both countries have reached agreement relating to the long-term use
by Kazakhstan of the Russian oil pipeline network.
Space exploration began in 1957 when the first satellite was launched by the former Soviet Union
from the Baikonur Space Center located in south-western Kazakhstan. In 1994, Kazakhstan
concluded a series of agreements with Russia (the “Baikonur Agreements”) on the future use of
the Baikonur Space Center. Under the Baikonur Agreements, the Government has leased the
facilities to Russia for 20 years (with an option to extend the agreement for an additional 10
years) in return for the payment of annual rent of U.S.$115 million.
Kazakhstan and Russia recognize the necessity of regulating mutual financial obligations in
accordance with bilateral agreements, treaties and protocols. Thus, pursuant to an agreement
made in October 1998 between Kazakhstan and Russia, mutual financial obligations amounting
to almost U.S.$1.7 billion, which included unpaid rent under the Baikonur Agreement, were
cancelled in full.
At the end of 1998, Kazakhstan and Russia agreed to a temporary ban on the export to
Kazakhstan of food items from Russia. The ban came into effect on 11 January 1999 and expired
on 23 June 1999. Currently, there is a temporary ban on the export of zinc-plated sheets to
Russia.
In 2001 Kazakhstan adopted a number of resolutions temporarily prohibiting the export of
specific goods or establishing anti-dumping fees for specific goods imported from neighboring
countries, including Russia.
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