Regions and Countries

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p. 10 of 20 BACK | NEXT I. Country Performance Assessment II. Country Operational Strategy III. Sector Strategies A. Agriculture B. Infrastructure C. Social Infrastructure and Environment D. Governance Dimensions of ADB Operations E. Gender Dimensions of ADB Operations F. Private Sector Operations IV. Regional Cooperation V. Donor Activities and Aid Coordination VI. Cofinancing and Catalyzing External Resources VII. ADB’s Operational Program VIII. Economic and Sector Work Program IX. Local Cost Financing

Country Assistance Plans - Kazakhstan : III. Sector Strategies

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B. Infrastructure

1. Energy

26. Kazakhstan is well endowed with oil and gas reserves. Since independence, the country has been successful in attracting foreign private investment in the oil and gas subsectors. The Government has also taken steps to privatize energy enterprises. As a result, private sector involvement in the energy sector is active and this is likely to continue in the foreseeable future. However, a number of sector issues need to be addressed. First, the policy environment for private investors needs to be improved, particularly in the areas of registration, licensing, taxation, and land rights. Second, renewable energy needs to be developed for the remote communities that will unlikely get grid connected electricity in the near term. Without power supply, these communities will be unable to obtain proper heating during the harsh winter, with the poor likely to suffer the most. Third, there is a need to promote energy efficiency so as to improve the environment, due to large negative environmental externalities (such as air pollution, poor water quality and ecological damage) associated with the energy sector.

27. The Government’s main objective for the energy sector is to increase energy production, particularly oil and gas, by creating a favorable climate for private sector involvement and privatizing state-owned energy enterprises. Meanwhile, the Government is considering ways to develop renewable energy for reducing poverty in the remote regions and to yield long-term cost savings. In consideration of the environmental effects of the energy sector, the Government’s sector strategy stresses the importance of improving energy efficiency and the environment.

28. Given Kazakhstan's large investment needs, active private sector involvement, and the rapid privatization process in the energy sector, ADB assistance to the sector focuses on creating a viable policy environment to facilitate private sector and market-based activities for energy sector development. This will require developing an appropriate regulatory framework, adjusting tariffs to improve resource mobilization, strengthening revenue collection, enhancing operational efficiency, and encouraging energy conservation. Subject to the energy sector study and the justification of the new CSP, ADB may be involved in (i) promoting renewable energy development to provide electricity and heating, particularly to the poor, in off grid areas; and (ii) improving energy efficiency to reduce sector-associated environmental damage.

2. Transport

29. The major issues in the transport sector are the deteriorating transport infrastructure and inefficient administrative arrangements and regulations. This is because the Government experienced fiscal constraints after independence, and the existing transport infrastructure in the country, inherited from the FSU, was developed as part of a regional network to serve intra-FSU traffic, without paying adequate attention to regional economic cooperation. The transport sector faces the challenge of balancing investments in rehabilitating the deteriorating assets to restore and preserve the integrity of past investments, and those in improving system capacity and efficiency to meet domestic, regional, and global needs.

30. The Government's major objectives for the transport sector are (i) ensuring the provision and maintenance of adequate infrastructure, (ii) promoting competition while addressing safety and environmental concerns, and (iii) increasing cost recovery. These objectives are pursued by (i) providing financial resources for rehabilitation and maintenance of the transport network; (ii) privatizing road transport operations and dismantling licensing controls; (iii) promoting, in collaboration with neighboring countries, the most efficient means of transport for large loads over long distances; (iv) privatizing inland waterway transport; (v) improving the civil aviation infrastructure and supporting services to encourage operations by foreign and local airlines; and (vi) increasing sector revenues through appropriate pricing and taxation. The Government’s sector strategy also includes use of labor-intensive methods of construction and maintenance, where feasible, to generate employment opportunities for poverty reduction.

31. ADB assistance to the transport sector focuses on road and rail transport. The transport sector strategy envisages support for (i) developing an efficient policy and regulatory framework; (ii) restructuring Government organizations to be responsive to market demands; (iii) corporatizing and commercializing enterprises and, where appropriate, privatizing them; (iv) encouraging private sector participation; (v) promoting competition in the provision of services; (vi) increasing funding through enhancing tax and fee collection, improving cost recovery, and removing subsidy-induced distortions in the pricing of services; (vii) rehabilitating infrastructure; (viii) improving maintenance operations and safety standards of infrastructure facilities; and (ix) promoting regional cooperation through network enhancement and cross-border policy. ADB will strengthen sector institutions and develop staff skills in areas such as policy analysis, planning, accounting, project management, and maintenance of infrastructure through TA operations.

3. Industry and Finance

32. The pressing issues in the industry and finance sectors are to restructure SOEs and improve the environment for private sector development. The current policies and regulations need to be improved to attract local and foreign investment. Privatization of large SOEs needs to be accelerated, corporate governance to be strengthened, and SMEs to be promoted to generate income and employment opportunities. The financial sector needs to be developed to meet the needs of an emerging private sector.

33. The Government’s strategic objective for the industry and finance sectors is to develop a legal and regulatory framework conducive to private sector development. In the near term, the Government plans to revise existing laws, or draft new laws, on bankruptcy, real estate, intellectual property, taxation, business licensing and stock exchange development. In the industrial sector, the Government intends to privatize large SOEs in the nonstrategic sectors and improve corporate governance for those enterprises not privatized. In the financial sector, the Government will strengthen the banking system, develop the capital market, and reform the insurance industry.

34. ADB’s industry and financial sector strategy will aim at assisting the Government to foster private sector development. This will be achieved through support for (i) policy and institutional reforms; (ii) strengthening of corporate governance through enterprise restructuring and staff training; (iii) SME development through advisory services and provision of financial resources; and (iv) capital market development to provide investment opportunities for the pension funds, which have grown rapidly as a result of the Government’s Pension Reform.

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