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Kazakh Content in the Purchases of the JSC NC "KazMunayGas" Group of Companies Through long-term cooperatio

Kazakh Content in the Purchases of the JSC NC "KazMunayGas" Group of Companies Through long-term cooperation to sustainable development. Development of cooperation with domestic manufacturers:. Visiting meetings in Petropavlovsk, Uralsk, Taraz, Pavlodar, Aktau, Shymkent, Aktobe, Atyrau;

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Kazakh Content in the Purchases of the JSC NC "KazMunayGas" Group of Companies Through long-term cooperatio

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  1. Kazakh Content in the Purchases of the JSC NC "KazMunayGas" Group of Companies Through long-term cooperation to sustainable development

  2. Development of cooperation with domestic manufacturers: Visiting meetings in Petropavlovsk, Uralsk, Taraz, Pavlodar, Aktau, Shymkent, Aktobe, Atyrau; Memoranda made Measures taken to increase the Kazakh content in the purchases of the JSC NC "KazMunayGas" group of companies • Information support to domestic manufacturers: • The catalogue of goods planned to be purchased in 2011-2015 and the list of import goods are placed on the web-site of JSC NC "KazMunayGas (www.kmg.kz); • The Oil and Gas Mechanic Engineering Development Assistance Programme for 2010-2012 adopted; • Technology agreement with JSC "Center for Engineering and Transfer of Technology" on setting-up production of progressive cavity pumps, electric centrifugal pump units and gas-distribution stations • Development of petroleum mechanic engineering in the RoK: 1

  3. Projects for development of services for the petroleum industry Program of Assistance by the JSC NC "KazMunayGas" Group of Companies to Development of Oil & Gas Machinery Engineering in the Republic of Kazakhstan for 2010-2012 Number of equipment items commercial production of which has been set up in Kazakhstan as part of the Program implementation KMG's Partners under the Program: Examples of cooperation with enterprises in Kazakhstan's regions Pavlodar (KSP Steel LLP) East-Kazakhstan ("UKAZ" JSC) West-Kazakhstan ("ZKMK" JSC) X-mas trees and check valves Oilfield tubular goods Oil preheaters, heat exchangers 2

  4. Dynamics of purchases of goods by the KMG group as part of the implementation of the "RoK Oil and Gas Mechanic Engineering Development Assistance Programme" 3

  5. Analysis of the Kazakh content conditions in major oil and gas projects by type of works - construction-and-assembly works and services • Conditions of high Kazakh content: • does not require material investment • Moderate period for setting up commercial production • relatively low complexity of fabrication • stable long-term demand • historically established experience • introduction of international standards (ISO) • renovation of production capacity and technology • establishment of alliances (JVs, consortia etc.) with international partners 5

  6. Analysis of conditions with low Kazakh content - materials and equipment • Causes of low Kazakh content: • requires material investment • long period for setting up commercial production • severe technical requirements and specifications • single-piece or one-time make • absence of historical experience in production of high-technology equipment • stringent requirements of meeting international standards (API, ASME etc.) • absence of innovative technology 7

  7. Outlook of the development of Kazakh content in major oil and gas projects 1. Development of the onshore infrastructure for support of offshore operations • The offshore budget of capital expenditures as part of further development of Kashagan is around 70% of the total capital expenditures (around 5-7 bn US dollars annually), which will require availability of a developed onshore infrastructure (construction ship yards, offshore operations support bases etc.). • 2. Operation and maintenance of deposit production facilities • The operating expenditures budget in the total Investment volume is 35-45% (for example, on Kashagan - around 50 bn US dollars by 2041). It is necessary to adhere to the strategy of phased development of the market in services, repair and supply of spare parts. Establishment of JVs, service bases in maintenance of high-technology equipment. 8

  8. Support to oil and gas mechanic engineering Development of Kazakhstan's service and repair infrastructure • LLP "Service Center "KazTurboRemont" • JSC "Intergas Central Asia" (ICA), a subsidiary of JSC NC "KazMunayGas", acted as Guarantor (for 10 mn US dollars) in arranging a credit facility to KazTurboRemont for construction of the Specialized Service Center. • JSC "West-Kazakhstan Machine-Building Company" (ZKMK) • ICA has acted as Guarantor (for 3 mn US dollars) in arranging a credit facility to ZKMK for creation of a workshop for repair and manufacture of gas-compressor units (GCU). • A Memorandum of Cooperation on development of GCU prototype testing has been made between ICA and ZKMK. • By means of mastering by these enterprises of the GCU overhaul technology - without their transportation beyond Kazakhstan it is planned to: • reduce down time • increase the Kazakh content from 35% to 60% • eliminate dependence on foreign repair enterprises 9

  9. Cooperation between JSC NC "KazMunayGas" and Eni S.p.A. • In the course of the visit of RoK President N. Nazarbayev to Italy, the Cooperation Agreement in respect of the following projects of petroleum exploration and industrial infrastructure facilities in the RoK was signed between JSC NC "KazMunayGas" and Eni S.p.A.: • Pavlodar Refinery modernization project (2012-2014, estimated cost - 1 bn US dollars) • 2. Construction of a gas-processing plant (2012-2014, the cost will be determined following the results of the FS) • 3. Studies on optimization of gas disposition (2010-2011, cost - 5 mn US dollars) • 4. Gas turbine power plant construction project • (2012-2014, the cost will be determined following the results of the FS) • 5. Shipyard construction project (2012-2014, the cost will be determined following the results of the FS) • 6. Upstream projects (Issatai and Shagala). 1 2 3 4 Current status: Base cases of configuration and location have been defined on all projects. The preliminary composition of the primary equipment and materials determined. Assessment of the estimated cost of the projects for construction of the gas turbine power plant, gas-processing plant and ship-building-and-repairing yard is underway. Currently efforts are made for rapprochement of Eni and KMG in the evaluation of capital expenditures. Adaptation of the Eni/Technomare project documents as per the requirements of the RoK standards is underway. The Italian party is explained the methodology for application of the RoK regulations and rules in the sphere of engineering and construction. 5 6 10

  10. Establishing " National Institute of Welding in Kazakhstan” The proposal for the establishment of the Institute of Welding in Kazakhstan was announced by Yves-Louis Darricarrère, Executive Vice President of Total, at the meeting of the Foreign Investors’ Council under the President of the Republic of Kazakhstan on December 4, 2009. The proposal involves assistance in establishing on the basis of the Welding Institute (Paris, France), central (may be non-profit) technical institution for training and international certification of welding specialists. The Institute will be engaged in certification of educational centers for training of inspectors for welding. Current status: By now, the specialists of Total and the Welding Institute (France) carried out work on studying the situation in Aktau, Atyrau and Karaganda. In the negotiation process on Kazakhstan side there were involved the representatives of the Ministry of Education and Science, the Ministry of Industry and New Technologies, the Ministry of Labor and Social Protection, and the Ministry of Oil and Gas of the Republic of Kazakhstan, as well as the association KAZENERGY and KMG.  In September of this year at the regular meeting in the Ministry of Education and Science (MES) it was decided to set up a working group on the project under the guidance of MES, which supported by the French party (Total and French Welding Institute) until the end of 2010 will develop the concept of establishing the Institute in terms of determining the mission, workload and business plan. Objectives: establishing the “National Institute of Welding in Kazakhstan” (NIWK), which will:1. represent Kazakhstan in the club of the “International Institute of Welding";2. unite all organizations and representatives of the profession and harmonize the training courses, act as a "National Authority";3. issue diplomas and internationally recognized certificates.NIWK will provide services to industry, universities in: 1. approving and monitoring training centers and / or universities that are qualified as a"Authorized Learning Agency"; 2. issuing international certificates;3. verifying and qualifying welders;4. enlisting for membership of representatives of the profession. Establishing "KazakhstanNauticalAcademy” JSC NC “KazMunayGas" togetherwithChevronworkedontheissueofsupportingKazakhstanNauticalAcademyandmaritimetrainingcenterinthecityofAktau. ThePartnershipCouncilof TCO inSeptember, 2010 approvedtheallocationof $ 25 millionforthebusiness-periodbetween 2011 and 2013 fortheestablishmentofKazakhstanNauticalAcademy. 12

  11. Development of the onshore infrastructure The following onshore infrastructure facilities were constructed and commissioned during the 2005-2010 development period 1 7 2 Atyrau (being implemented) NCOSREB 3 4 7 5 6 Bautino (implemented) - Rock loading jetty - Disposal site - Offshore Oil Operations Support Base - Sea Vessels Fuelling Station - Production base of Agip KCO - KazMi drilling muds plant - "Atash" Offshore Oil Operations Support Base 8 6 9 4 5 8 3 Bautino (being implemented) - TenizService production site for a fabrication yard 2 1 6 9 8 Aktau Keppel Kazakhstan Shipyard KCOI Shipyard (being implemented) Kuryk (planned facilities) "Yersai" Shipyard (existing facility) Oil Terminal, Shipyard/Dry Dock Fleet base Offshore Oil Operations Support Base Disposal site Industrial supply base Fabrication yard Concrete weight coating plant 10 11 12 13 14 15 16 17 13

  12. Kazakh content in a "turnkey agreement" – "Aromatics Production Complex in AR" (as at 1 November 2010) Share of the Kazakh content in purchases of goods, works and services 14

  13. Kazakh Content in the Purchases of the JSC NC "KazMunayGas" Group of Companies (as at 1 November 2010) Dynamics of the Kazakh content (KC) share in purchases of the KMG group 79% 75% 52% Reduction in the KC performance in 2010 is connected with the intruction of a new methodology for the KC calculation and a considerable amount of the Russian crude purchases for refinning in the JSC "PPCP" 15

  14. Information on the long-term agreements of the JSC NC "KazMunayGas" group of companies during 2008-2010 (KZT) • Currently, the matters of signing long-term agreement between the following entities are being negotiated: • KazMunaiGas EP JSC and JSC Munaymash for delivery of sucker rod pumps during 2012-2015 for the total amount of not more than 8,000,000,000 KZT. • JSC "Intergas Central Asia" and the KazPetroMash LLP for delivery of ball valves and pipe fittings during 2011-2015 for the total amount of 401,695,452 KZT. 16

  15. Range and volume of the main types of domestic products planned for the purchase in 2011-2015 (thousand tenges) 17

  16. Examples of price development of commodities and materials procured from domestic producers for the period of 2005-2010 (thousand tenges) 14

  17. The list of products imported by KMG group due to the lack of their production in the Republic of Kazakhstan 18

  18. Thank you for your attention!

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