Interview with Nikolay Radostovets

In January, a number of Kazakhstan enterprises received the notice from joint-
stock company "КazTransGas Distribution" that competition protection Committee
of Kazakhstan Ministry of Industry and Trade has the coordination materials
about the increase of gas price. Since February 1, 2006 this price will be
raised.



In particular, the joint stock company "Multinational Corporation “Kazhrom”
has been notified of the increase of the prices for delivered gas by 47,9 % in
comparison with December, 2005. For joint-stock company "SSMCPA" possible
increase of the price should make 40.2%. "КazTransGas Distribution" joint-
stock company has already raised the price for delivered gas since January 1,
2006. In particular, for "SSMCPA" joint-stock company the prices have been
increased by 8%, “Multinational Corporation “Kazhrom” joint-stock company –
Kazakhstan enterprises turned out to be in a complicated situation. The
increase of gas price will inevitably lead to the increase of the production
cost price and, as a consequence, will decrease its competitiveness. During
the interview with Kazakhstan Today correspondent Nikolay Radostovets, the
executive director of Association of Mining and Mountain-Metallurgical
enterprises of Kazakhstan, talked about the reasons, consequences and the ways
to solve this problem.



Kazakhstan Today: Nikolay Vladimirovich, what is your opinion about the
reasons of the sharp increase of oil and gas prices?



N.Radostovets: Our association has the reasons to state that the cases of
incorrect steps, concerning some of the enterprises of Kazakhstan, have
recently become more frequent outcoming from some of Russian state bodies and
large monopolists of our northern neighbor. Lets take the fact that in 2005
Russians accepted unprecedented discounts for transportation of Ukraine
pellets to Magnitogorsk.



It seriously broke the price parity existed between competitive Ukrainian and
Kazakhstan suppliers of pellets to Magnitogorsk. As a result of discounting on
the Russian party for the Ukranian party, sales volumes at Sokolovsko-
Sarbayiskiy mountain-concentrating industrial complex fell by more than 30
percent.



We consider the actions of the Russian party were connected with striving for
weakening of Kazakhstan company on the Russian market.



Coal miners of Kazakhstan have also recently had negative experience in
relations with the regions of Russia, historically importing Ekibastuz coal
for thermal stations. Besides that, Russian coal suppliers have discounts for
transportation of their products on the territory of the Russian Federation,
Kazakhstan coal miners are not only legible for those discounts, but also have
to face various sorts of obstacles.



Kazakhstan Today: Probably, Russians try to protect the domestic commodity
producer this way, not considering the circumstances that those steps
negatively affect the economy of the neighboring state?



N. Radostovets: And this is when we speak about the creation of Uniform
economic space and prepare for the introduction into WTO, we speak about
unification of tariffs?



Let's face the truth: Kazakhstan companies are in rigid competitive struggle
on the Russian market, and the declared principles of creation of equal
conditions, to put it mildly, do not always work. Moreover, large Russian
companies influence decision-making at the highest level in their country. We
have the reasons to believe that final prices offered by "Gazprom" are partly
connected with the problems of our competitors in Russia.



Kazakhstan Today: It is a serious enough charge. Can you prove it?



N.Radostovets: You will be convinced by yourselves, if you look closely at the
arising situation. For joint-stock company " SSMCPA" increase of gas cost by
40 % will lead to the sharp increase of the production cost price – iron-ore
pellets, concentrate and the increase of tariffs for thermal energy on thermal
power station for heat supply of Rudnyi city.



Joint-stock company " SSMCPA " in comparison with iron-ore Russian enterprises
is in adverse conditions. Worsening annually mountain-geological conditions in
open-cast mines, high coefficient of stripping, increase of open-cast mines
depth, increasing volumes of rocky stripping and other factors influence the
cost price of production. the Tariff growth for delivery of natural gas will
inevitably lead to the increase in expenses and decrease in competitiveness of
Kazakhstan iron-ore production.



According to the association, it will be compelled to lower volumes of
realization on the Russian market and to fire about five thousand employees.
Payments in the budget and external budget funds will decrease. The economic
situation in the region will worsen.



Kazakhstan Today: What, in your opinion, is it necessary to make to change or
at least soften the situation?



N. Radostovets: We consider the Russian party purposefully undertakes the
actions restricting competitiveness of the large export enterprises of
Kazakhstan. We also consider that the government of Kazakhstan in this
situation should undertake urgent and, we shall say so, rather concrete steps.



The government should protect the republican enterprises and carry on
negotiations with the government of Russia. Considering, that offered increase
of the gas prices is unprecedented and can have the most negative consequences
for the largest export enterprises of the republic, we offer that competition
protection Committee before making a decision on the coordination of gas
prices delivered by the joint-stock company" KazTransGas Distribution", hold
the meeting with the participation of the representatives of large gas
consumers of the interested ministries and departments.



It is necessary to consider all available variants of the decision of the
specified question, and also develop the uniform negotiation policy with "
Gazprom " when purchasing gas.