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Challenges and Opportunities for the Chemical Industry: DBK Attends Chemical Industry Conference

The event was held on the sidelines of the IX Forum of Kazakhstan Machinery Manufacturers as part of the International Specialized Exhibition of Manufacturing Industry in Nur-Sultan “Kazakhstan Machinery Fair”.

The global strengthening of environmental regulations and technological requirements, as well as the increased focus of the government in achieving the goals of sustainable development are now putting significant pressure on the development of the chemical industry in Kazakhstan. The trend to make chemical products more environmentally friendly in compliance with international standards dictates its own rules for business, investors and consumers. As a consequence, production volumes are decreasing, export chains are changing, and prices for basic raw materials are rising.

Such critical issues and challenges, opportunities for their solution, as well as trends in the chemical industry market of Kazakhstan were discussed yesterday at the conference "State and development prospects of the chemical industry in the Republic of Kazakhstan" within the IX Forum of Kazakhstan Machinery Manufacturers. The event was attended by experts of the chemical industry, representatives of industrial enterprises, public organizations, state bodies and development institutions. Representatives of the Development Bank of Kazakhstan (DBK, a subsidiary of the "Baiterek" Holding) - senior bankers of the Customer Service Department Anna Yaroshenko and Serik Akhmetov, presented the tools available to support large businesses in the chemical and petrochemical industries, as well as talked about current projects in DBK’s loan portfolio and promising projects.

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The share of the chemical industry in the total volume of manufacturing industry in Kazakhstan today is only 4%, while this figure is equal to 7% in neighboring Uzbekistan and Russia, and 10% in Belarus. Similarly, the share of the chemical industry in Kazakhstan's GDP is 0.25%, compared with 2% in Russia; 5% in Azerbaijan; 1% in Uzbekistan; and 8% in China.

Therefore, experts note the need to increase this share by launching new production facilities. The chemical industry remains one of the strategically important segments of the economy, and chemical products are used in many industries. According to the official data of the Industrial Development Committee of the MIID RK, last year domestic enterprises were able to show good growth in production. So, according to the results of 2020, the production volume of chemical products amounted to 469 billion tenge, while in 2019 this figure was equal to 466.2 billion tenge. For 7 months of this year, production volume reached 294.2 billion tenge, showing a positive growth of 9.8% compared to the same period of 2020, namely 280.4 billion tenge.

It is reported that petrochemical enterprises operate not only in the domestic market, but also enter export markets. At the end of 2020, the export volume reached 922 million US dollars, and for 6 months of 2021 - 458.2 billion tenge (6 months of 2020 - 443.9 billion tenge). The main volume of chemical products is exported to Russia (18.1%), China (9.9%) and Uzbekistan (6.9%).

In total, there are currently 835 chemical companies operating in the country, 97.5% of which are small enterprises. At the same time, five large enterprises account for 60% of domestic chemical production. According to Anna Yaroshenko, a senior banker of DBK's customer service department, it is these large chemical companies that form the cluster, able to provide raw materials for small and medium businesses in the industry.

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"The success of the domestic chemical industry often depends on large market players, since, despite their small number, according to statistics, they account for most of the production volumes and raw materials for other participants in the market. Our task, as a domestic development institution, is to provide comprehensive support for such enterprises, whether through state programs or at the expense of the Bank's own funds and attracting investors, as well as to stimulate import substitution", said Anna Yaroshenko.

According to the terms of the Bank's financing, the minimum amount of the Bank's participation is 7 billion tenge, while the range of financial instruments is extensive: from direct lending to crediting of export transactions and the provision of bank guarantees.

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The chemical industry represents 3% of the total share in the Bank's loan portfolio structure, yielding to the oil sector, industrial production, energy and information, but these are large giants of this industry, mainly manufacturing products aimed at providing fertilizers to agricultural consumers, as well as products that are used in other industries. For example, the Bank participates in financing the modernization of mineral fertilizers production plant in Mangistau region JSC KazAzot, caustic soda production plant in Pavlodar region, sodium cyanide production plant in Zhambyl region. Another flagship of the chemical industry LLP Kazphosphate receives support from the Bank in terms of export financing.

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DBK's projects portfolio in the petrochemical industry includes such enterprises as LLP Atyrau Refinery, LLP Pavlodar Petrochemical Plant, LLP PetroKazakhstan Oil Products, LLP Shymkent Chemical Company and JSC Condensat.

Thanks to the support of the Development Bank, all large oil refineries in the republic have been modernized, which in turn has made it possible to increase the capacity and depth of oil refining, as well as to produce a completely new line of oil products that meet the quality requirements of the world market. As a result, the demand of Kazakhstan domestic fuel market has been completely covered, and high ecological standards of gasoline quality have been achieved. Moreover, a number of associated petrochemical production projects, which previously did not exist in Kazakhstan or were considered to be insignificant, are being implemented on the basis of the upgraded refineries. For example, a new plant for production of methyl tert-butyl ether has been commissioned in Shymkent this year.

A unique additive such as methyl tret-butyl ether increases the octane number of gasoline and contributes to a more complete combustion of fuel. Current environmental and performance requirements for automotive gasoline determine the high quality standards of the refinery products.

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"Now the investments direction of the Development Bank is petrochemical projects aimed at further processing of petrochemical products, i.e. projects for construction of gas processing and gas separation plants, production of polyethylene telephthalate, polyethylene, polypropylene, alkylate, methanol and other high value added products. Such large-scale projects are planned to be implemented through syndicated project financing instruments", said Serik Akhmetov, Senior Banker for work with clients in the field of petrochemicals.

By the way, last year the Development Bank of Kazakhstan developed and proposed an initiative on the legislative consolidation of syndicated financing. This initiative was subsequently supplemented and supported by the regulator and other market participants, namely the Agency of the Republic of Kazakhstan for the Regulation and Development of the Financial Market, industry government agencies, the Association of Financiers of Kazakhstan and second-tier banks (for more details, see the link https://www.kdb.kz/pc/news/news/8674/).

Since the chemical industry integrates and interacts closely with individual sub-industries, such as petro chemistry, agro chemistry, and coal chemistry, the conference program covered them as well. The participants also discussed opportunities for introducing modern technologies and improving energy efficiency of the industry facilities. Thus, according to the representatives of the ALE "Kazakhstan Union of Chemical Industry KAZHIMPROM", the use of coal liquefaction technology allows to produce a wide range of products varying from gas for power generation and liquid fuels to basic monomers for further use at chemical plants.

The tightening of environmental standards in Kazakhstan and consumer countries, as well as the prospects for the development of green chemistry became a separate topic of discussion during the conference. According to experts from the ALE "Association of Chemical Industry KAZKHIMIYA", now it is necessary to stimulate the transition of chemical companies to more environmentally friendly production processes, for example, to apply incentive financial instruments and taxation. In this regard, representatives of ALE "Kazhimprom" presented promising directions for the development of the chemical industry in terms of environmental friendliness: green chemistry on the basis of existing free economic zones, as well as the system of "Digital Twin", which allows innovative control of the technical and environmental state of production. According to them, this system additionally makes it possible to predict the situation of development of highly hazardous industries and to conduct online management control in the system, reaching the maximum level of safety and zero emission of harmful substances.

According to representatives of DBK, the Development Bank of Kazakhstan is also interested in transforming the country's chemical industry, its development in accordance with modern digitalization opportunities and the introduction of ESG standards.

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"We actively support our partners in striving to meet the goals of sustainable development. DBK is ready to develop together with the business new advanced manufacturing industries, offering the best financing conditions at a low interest rate, in the format of public-private partnerships, project financing, together with financial institutions in terms of syndicated financing, as well as to provide guarantees,”Anna Yaroshenko shared in her speech.

The focus-groups for DBK are chemical and petrochemical projects aimed at import substitution (petrochemical products, potash fertilizers, carbamide, caustic soda and soda ash, ammonium sulfate, etc.).

We should note that you can find more detailed information about the services provided by the Development Bank of Kazakhstan on the website https://www.kdb.kz/

Contacts:
Yaroshenko Anna- Senior banker (chemistry) +7 (7172) 79 26 31, 8 777 770 00 07, AnnaT@kdb.kz
Akhmetov Serik- Senior banker (refining and petrochemicals) +7 (7172) 79 26 18, 8 702 333 71 99, SerikA@kdb.kz
For more information on the development of syndicated project financing in Kazakhstan with second-tier banks, see the link https://www.kdb.kz/pc/news/news/8636/

АО «Банк Развития Казахстана»
проспект Мәңгілік Ел, здание 55 А, н.п. 15 Z05T3E2 Астана
+7 (7172) 79 26 79