1.1 The history and description of activities of jsc "KazTransGas - Almaty"

The gas industry of Kazakhstan is relatively young, it's development commenced in 70-ies of the last century. Kazakh Soviet Encyclopedia published in 1981 highlights that “the availability of huge commercial reserves of natural gas, high efficiency of their use and relatively low capital intensity factor allow within the short term period to change the structure of the fuel mix in favor of gas. The development potential of the gas industry in Kazakhstan is very big”.

Development in the former USSR of integrated infrastructure resulted in construction of transmission networks on the territory of Kazakhstan including the trunk gas pipelines Bukhara-Ural; Central Asia-Center; and Bukhara-Tashkent-Frunze-Alma-Ata which are still used to supply the blue fuel to customers.

The integrated gas transportation system was centrally administered and in Kazakhstan the operations were mainly managed by Kazglavgaz. Turkmen and Uzbek gas had to be transported northwards through the territory of Kazakhstan . Remarkably, the main pipeline routes were designed and laid through the territory of western Kazakhstan exactly in the areas were the major Kazakhstani hydrocarbon fields are located.

After Kazakhstan gained its independence, the management of the main gas pipelines had been taken by the local state-owned holding, Kazakhgas. Meanwhile the effective business operations required high level of capital investments not only to ensure the sustainable operations and maintenance but for the prospective system development as well. Under then prevailing general economic conditions Kazakhgas could not adequately address these challenges and the government took decision to attract foreign investors. In summer 1997, Belgian Tractebel S.A. and the Republic of Kazakhstan entered into Concession agreement for domestic and international gas transportation systems.

The concession, with the term of 15 years and an option of further prolongation subject to fulfillment of investment commitments, covered the bulk of the system assets including 10 trunk gas pipelines, 21 gas compressor stations equipped with pipe compressor units, and three underground gas storages.

To operate under the Concession, the potential investor established two companies, Intergas Central Asia (gas pipelines operator), and a utility monopoly, Almaty Power Consolidated.

Besides, along with appearance of the concessionaire the gas demand in the country had sharply declined as the investor was dealing solely with the gas transmission and was not involved in gas supplies from its own reserves. For the end users it turned into growth of prices for irregularly supplied gas and power. Used to the social protection consumers probably for the for the first time in their experience had to face disconnections of power and heating provoked by irregular payments of their own salaries and by litigations with the gas suppliers. Three towns in the southern Kazakhstan were seriously suffering from the shortages of gas and heating supplies, and some witnesses say that the freezing population was chopping down parks and gardens. Protects meetings became habitual in Almaty, especially active were pensioners of “Pokoleniye” movement.

Feeling its unstable position Tractebel wasn't prompt to make any investments in the industry and already in 1999 the company's management started to articulate its reservations concerning the reasonability of its presence in Kazakhstan . The problem of the management of the gas transportation system had to be addressed immediately, especially because the Uzbek suppliers were often inclined to raise gas prices.

In February 2000, the national oil transportation company, KazTransOil, established a subsidiary, KazTransGas, which took over 100% stake in Intergas Central Asia. KazTransGas is entrusted to represent the governmental interests both, on the domestic gas market, and internationally. The company manages the business of transportation of natural gas through the main gas pipelines, performs gas trading on domestic and external markets, carries out development, financing, construction and operates gas pipelines and gas storages. Over the three recent years of operations on the domestic gas market the company has achieved more than impressive results.

Development of gas branch – one their main priorities of the Kazakhstan economy and a problem of uninterrupted supply by natural gas of the Kazakhstan consumers is for the Government of the country actual and essential. This important and responsible mission was assumed by JSC Kaztransgaz - one of the largest and most dynamically developing Kazakhstan companies.

KazTransGas was established pursuant to the Resolution of the Government of the Republic of Kazakhstan No. 173 dated 5 February, 2000.

On June 9, 2004, according to the Law of the Republic of Kazakhstan "About joint-stock companies" from May 13, 2003 of the No. 415-II Kaztransgaz Closed joint stock company it is renamed into Kaztransgaz Joint-stock company. The certificate on the state re-registration of the legal entity of No. 13898-1901-AO from June 09, 2004, is issued by justice Department Astana. [5]]

In recent years JSC Kaztransgaz provided to itself qualitatively new favorable conditions for increase in scales of a production activity, filling up the moneybox of assets with new acquisitions of strategic value among which, in May, 2006, there was an Almatygaz holding company. A main objective of purchase of the company, at that time even with dominating participation in it private capital, stabilization of gas supply by natural gas of consumers of the city of Almaty and Almaty area was. Company renaming with JSC Almatygaz on JSC Kaztransgaz-Almaty became logical end of the transaction.

JSC Kaztransgaz-Almaty is the legal entity by the legislation of the Republic of Kazakhstan and carries out the activity according to the Civil Code of RK, the law RK «about joint-stock companies», other legislation of RK and the joint stock company Charter. [6]