New markets

Belarus (literally translated as ‘White Rus’) is a landlocked economy in transition, located in Eastern Europe and neighboring Ukraine, the Russian Federation, Latvia, Lithuania and Poland.

The President of Uzbekistan recently signed the “2009 Investment Program”. The overall 2009 CapEx will amount to USD 7.8 bln including USD 1.4 bln FDI. USD 0.9 bln FDI will be invested in the oil & gas sector. Implications of the 2009 investment program include: the building of new roads, bridges, gas and water pipelines; the building of new public health and educational structures and other establishments; the modernization of several industrial enterprises. As a result, we assume that particular companies will be the focus and benefit from the investments in Uzbekistan next year:

The Open Joint Stock Company ‘Kuvasaycement’ is the number three producer of cement in Uzbekistan with a total capacity of 1 mln metric tons of Portland cement per year. The products of Kuvasaycement are exported to Kyrgyzstan and Tajikistan. The company plans to expand its CapEx in order to double its cement capacities by 2009 and fulfill more government orders. Currently, the Government of Uzbekistan is planning to undertake a vast infrastructure development program and requires more construction materials than ever before.

Azerbaijan is a country with unrevealed potential and the highest GDP growth rate in the world; however, the high level of real GDP growth is mainly based on the county’s oil extraction. Meanwhile, Azerbaijan’s GDP per capita level is similar to that of Ukraine. Among the major risks of investing here, we see the state’s authoritarian policy, the country’s reliance on oil export levels, and the Nagorno-Karabakh conflict.

The Uzbek electricity system, which was part of the former USSR electricity network, is somewhat similar to the current Ukrainian and the pre-reformed Russian electricity systems. Although the state is to privatize 15-25% of the stakes in most of the Uzbek electricity generators and distributors, so far all of them are entirely state-owned; that is, all except one. Bukhara Electric Gridlines is the only option available to portfolio investors, as 49% of the company is in private hands. The company provides electricity distribution to users of the Bukhara Region.

The OJSC “Uzbekcoal” has been operating as part of the structure of SJSC “Uzbekenergo” since 2001. Uzbekcoal is a monopolist in the coal mining sector, extracting resources for power stations using the open-pit mining method. The estimated stocks of coal in Uzbekistan is nearly 5.7-7 bln tons, while the country has explored only 1.9 bln of its resource capacities in this area. A state program aimed at modernizing the coal mining industry in Uzbekistan will deliver an increase in coal production that is almost four-fold.

Uzmetcombinat is the only steel production enterprise in Central Asia, whose activity is highly supported by the Government of Uzbekistan. The plant has an approved Modernization Program for 2007-2011 that aims to potentially increase the enterprise’s level of steel production to an estimated figure of 750 thsd metric tons per year from its current level of 650 thsd metric tons per year.

Kizilkumcement has been operating for 30 years and currently holds the position as the biggest cement producer in Uzbekistan, having a capacity of 3.1 mln of dry method cement production annually, which is half of the total cement capacities in Uzbekistan. Nonetheless, with state backing, the enterprise participates in the program of modernization and technical/ technological re-equipment for the period 2007-2011, and is to increase its capacities to 4.8 mln tons by the end of the modernization program. Considering the infrastructure and construction prospects of the central Asian region, Kizilkumcement is among the top assets in which to invest in Uzbekistan.

Yuggazstroy is one of the largest oil and gas construction companies in Uzbekistan. Among the six construction companies within the Uzbekneftegas holding, Yuggazstroy has the largest number of employees, machinery and equipment. We are bullish about the Uzbek oil and gas sector, as well as about Uzbek oil and gas construction enterprises. Given that more projects in Uzbek oil and gas sector will develop, Yuggazstroy will be among those to benefit.

Tashneftegazstroy is one of the largest oil and gas construction companies of the national oil and gas holding Uzbekneftegas, with pipelines construction as its core activity. Most of Tashneftegazstroy’s services are provided for the Uzbek oil and gas sector; however, the company is also involved in residential property construction and provides transportation services. In light of the forthcoming gas pipeline projects, and especially the gas pipeline projects from the Caspian region to China and India, Tashneftegazstroy is considered to be a very promising business.