BusinessNewEurope - Development bank helps power Kazakhstan for future

Ben Aris in Moscow

At the start of December a distinguished crowd gathered on the edges of the Kazakh capital Astana to watch President Nursultan Nazarbayev cut the ribbon on a new electromotive plant that the central Asian republic hopes will make it a key player in the fast growing transport sector.

Rail has always been the lifeblood of the former Soviet Union as the most efficient way for people and good to traverse the enormous distances of the region. And heavy industry is also emblematic of the hard times all of the newly minted Republics as most of Soviet heavy industry collapsed after the fall of the USSR in 1991. So a return to heavy engineering is an important milestone on the road to recovery and possible because of the growing inter-regional and international trade volumes.

The deal is also important as the financing is coming from the players themselves. The Eurasian Development Bank, the CIS’ answer to the EBRD, has provided a ten-year loan facility of 10bn tenge (more than $66m) to project operator Elektrovoz Kurastyru Zauyty (EKZ) LLP, with a total cost of the project estimated to be more than 18bn tenge.

The plant is a three-way joint venture between Remlokomotiv, a subsidiary of the Kazakh national rail company Kazakstan Temir Zholy (KTZ), Transmashholding, which is Russia’s largest transport engineering company, and leading French engineering firm Alstom Holdings that specialises in railroad machinery and equipment, and will provide the technology.

Together the partners plan to make up to a 100 locomotive sections per year which will initially go to meet the growing domestic demand for new trains in Kazakhstan, but later will be exported to all the countries of the Commonwealth of Independent States (CIS).

The deal is only the latest in Kazakhstan’s efforts to become a transport hub and a centre for the production of trains and freight. Currently transport costs in Kazakhstan are running 8%-11% above European levels, a heavy burden on business that the government hopes to reduce through heavy investment into the sector. And these costs are important for a country that relies heavily on the raw materials sector — minerals and mining is as important as the oil and gas sector to the local economy. The state strategy for development was set in 2006 through to 2015 and calls for a total investment of some $26bn.

In many ways the deal highlights the development of the region. Still showing strong economic growth, despite the after affects of the 2008 crisis, infrastructure is becoming a key focus for all the members of the CIS. Moreover, transport is also gaining in importance as inter-regional trade grows, especially between the members of the Customs Union that went into operation at the start fo 2010. And finally Kazakhstan was not only keen to bring in western expertise, but also its Russian partners to a project that will promote cross-border trade as well source components that are made in Russia.

«All projects in the member states of our Bank in the area of railroad engineering have a significant integration component. They foster the development of mutual trade and strengthen the single transport space of the CIS countries because the CIS railroads have a common standard gauge and this determines the technical parameters of the rolling stock purchased in the region,» says Igor Finogenov, Chairman of the EDB, which has already invested over $500m in the rail sector. «These projects also have a strong sustainable development effect since they are aimed at developing transport infrastructure and industrial exports.»

In addition to the EKZ project the bank has invested $330m into the Tikhvin Freight Car Building Plant in Russia, $63m for the Osipovichi Railcar Building Plant in Belarus, and $56m for the Yeskene Railcar Service Centre in Kazakhstan.