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Title: Kazatomprom
Introduction
Kazatomprom is one of the largest producers of Uranium in the world. It is a Kazakhstan company that has a tradition of pursuing low extraction cost as a way of ensuring a high credit quality and a stable flow of income. This is one of the strategies that the company has been employing so as to survive under adverse economic conditions. This company is a quasi-sovereign entity that plays a strategic role in Kazakhstan economy. For this reason, implicit sovereign protection is one of the main forms of support offered by the government. The company has been cooperating with industry technological leaders in efforts to reduce the risk that comes with Uranium extraction.
Kazatomprom’s business growth
The official history of Kazamtomprom dates back to 1997, although Kazakhstan’s history in terms of atomic industry can be traced to the 1940s. In 1997, Kazatomprom came into existence after a presidential decree established it within the auspices of the National Atomic Company. Soon after its establishment, the company’s first subsidiaries were the Ulba Metallurgical Plant and Volkovgeology (Blagov 2006, p. 29). When it was started, its core objectives included alleviation of fixed asset depreciation and putting a stop to the continued outflow of qualified nuclear technology personnel.
With time, the company’s efforts bore fruits, and uranium production in the country started to increase, such that by 2009, Kazakhstan had become the largest producer of Uranium in the world. This success was partly attributed to the pragmatic policy that was embarked on involving the establishment of joint ventures with the leading companies in the industry to improve the level of uranium development in many different mines, to reduce extraction costs, and to leverage on locally available expertise.
Today, Kazatomprom (KAP) operates as an energy holding whose main area of specialty is uranium concentrate, a product that is generates almost three quarters of the company’s revenue. Other products that the company produces include tantalum, power, beryllium, and water for Aktau city. Today, the company is one of the global leaders in uranium production. Currently, efforts are on the diversification of its business into products and services that are of higher added-value, including the design of nuclear reactors, an undertaking that quite withdrawn from the traditional extraction-oriented activities. The company has also been embarking on efforts to diversify and start producing fuel bundles.
As a mining company, reserves constitute one of the key factors for supporting credit profile. In this regard, KAP has been performing well since its establishment. It has a wide resource base, especially considering that the average life of a mine is 40 years, and its exploration in 2009 had reached an impressive 14,201 tons (Walker 2009, p. 72). Most of the exploration activities have been going on in the southern part of Kazakhstan where the company has been embarking on sole or joint ventures, with major players in the industry coming on board.
It is expected that within the next decade, the demand for nuclear power is going to increase at a higher rate than in the past, mainly because of the contribution of environmental factors (Hug 2010, p. 82). It is also expected that by 2030, some 60 reactors will have reached end of life. However, within the next ten years, there is an expectation that some 220 new reactors will have come to life. Already, there are some 50 units that are being constructed. Moreover, planning is being done on 130 more reactors. This is an indication of the expectation by company strategists and government policymakers that there will be more and more reliance on uranium for the country’s future energy needs.
Internal factors
There are numerous internal factors that have influenced the level of success for KAP. One of these factors is an impressive credit profile, which is greatly boosted by the natural endowment with many natural resources in the form of uranium. This profile is also boosted by a strong operating cash flow, a very low leverage, multi-tiered control, and operational transparency. The company has also benefited a lot because of the joint ventures that it has been forming with industry leaders. These ventures have had the effect of reducing the risk that comes with mining activities as well as engagements that touch on reliance on technology.
External factors
With regard to external factors, the main risks are political and regulatory in nature. There is a national oversight body that pays close attention to the way the company carries out its activities. Moreover, there are nuclear powers and international bodies that are always assessing whether the company is operating within the required standards. Additionally, competing companies have an influence on the way KAP operates.
In terms of production, the company faces the risk of disruption of supplies of sulfuric acid. In the past, the disruptions have tended to lead to production halts. The main advantage is that these risks are normally absorbed through government support on the one hand and cooperation with global leaders in the industry on the other. Regarding cooperation with other countries, it is worthwhile to note that the company’s Eurobonds are currently in line with similarly-rated peers in terms of their option-adjusted spreads. Since the placement in the Eurobond was done in May 2011, the subsequent decline has been caused by a reduction in country-specific risks.
With the production level being expected to rise, it is expected that fundamental may continue improving even further. An important condition required for this success to be achieved, though, is continued pursuit of joint ventures with industry leaders coupled with planned expansion into enrichment. Another key external factor is availability of secondary uranium sources. In this regard, attention shifts to military stockpiles. Since the current depletion rates are very high, the stockpiles may be depleted as early as 2013.
The ways in which the current management has moved the business forward and rationale for particular direction choices
The two main ways in which the management of KAP has been moving business forward include focus on the extraction process, the pursuit of joint ventures, and the pursuit of a viable, clearly defined financial model. Regarding extraction, before any extraction commences, the company tends to engage its specialized unit, Volkovgeology, in exploration works. The exploration activities are normally aimed at contributing to the goal of boosting the company’s overall production levels. The company manages its mining works through a different subsidiary, called The Mining Company.
Considering that uranium ores, by virtue of being sandwiched between sandstone deposits, tend to be of low grade, KAP mining professionals prefer to use in-situ leaching (ISL), which is very effective for low-cost extraction. This strategy has proven to be more cost-effective compared to open-pit and underground mining. More importantly, it leads to much less exposure to radioactivity by mining personnel. Under traditional mining methods, 100% of the radioactive materials find their way into the surface while under ISL only 5% of these materials reach the earth’s surface (Walker 2009, p. 82). This drastically reduces the need for setting up reactivation ponds whose purpose is to store all radioactive wastes.
However, in spite of all the apparent benefits of ISL, it is impossible to use it to extract all types of ores. It can only be used in situations where the ores exist in permeable sand or sandwiched between layers of sandstone. Even in these contexts, the ores have to be away from layers of water. For this reason, alternative methods have to be resorted to where ISL is not applicable, in which open-pit mining becomes an ideal alternative.
Regarding joint ventures, the aim has been to undertake consolidated production. Indeed, by 2009, consolidated production amounted to at least 50% of the company’s total output. There are many companies with which KAP has formed ventures. One of them is Zarechnoe, which was established in 2001. In this company, 49.67% stake is owned by KAP (Domjan 2010, p. 39). There is also Akbastau, which was established in 2006, which is also partially owned by KAP. These two joint ventures were entered into after a cooperation agreement was forged in 1998 between Kazakhstan and Russia. In this agreement, the output from each of these ventures would be enriched in Russia. These joint ventures have led to a very drastic increase in production volumes.
In 2010, a company known as ARMZ joined hands with KAP to strike a deal with officials from the Kazakhstan government, which entailed increasing the KAP’s stake in Uranium One to 51%, a Toronto-based uranium extraction company. The joint venture was a very strategic one considering that Uranium One’s main assets are based in Kazakhstan. Other joint ventures have thrust KAP into partnerships with firms based in Australia and the US.
In 2004 and 2005, there was more joint ventures took shape, with the main participant this time being Uranium One on the one hand and Betpakdaka, Kyzylkum, and Karatau on the other. In this joint venture, Energy Asia Limited, which is a Japanese-owned company, got a 40% share of Uranium One while at the same time acquiring a 50% stake at Karatau and 30% in both Kyzylkum and Betpakdaka (Sergeyev 2010 p. 28). These joint ventures got licensure for operations of numerous minefields within Kazakhstan, with the oversight company being KAP.
The traditional of joint ventures is intricately intertwined with the company’s history. For instance, at its inception in 1997, the company got into a joint venture with Cameco, a Canadian based company, where KAP acquired a 60% stake (Dahl 2001, p. 439). In this venture, the production output of the Inkay minefield is normally sold by both participants and revenue shared on the basis of their shares. Interestingly, the mining operations in this joint venture have been funded by a loan facility amounting to $370 provide by Cameco.
A recent joint venture, conceived in 2006, involved two Japanese companies: Appak and Baiken-U. In Appak side of the joint venture, 65% is owned by KAP, 20% by Sumitomo Corporation, and 15% Kansai Electric Power Co (Karpishev 2010, p. 39). In the Baiken-U side, 5% is owned by KAP while the rest is owned by Energy Asia Limited (Karpishev 2010, p. 39). Moreover, KAP wholly owns Semizbay-U, a company that was established in 2006. On the overall, at the present moment, there are many major firms that are operational in Kazakhstan’s nuclear industry. However, it is also in recent times that the firm has adopted the strategy of intensifying cooperation with Chinese and Russian companies. Incidentally, the company considers both countries as one of its most strategic markets. Indeed, a part of the company’s production output is directed in these Asian markets. In terms of exports, production output in partially or wholly owned projects is mainly directed to Nukem Inc (US), China Nuclear Energy Industry Corporation, CGNPC (China,), Korea Hydro & Nuclear Power Company, and Itochu Corporation (Japan). On individual basis, these exports account for more than 10% while cumulatively, they account for 86%.
The tradition of joint ventures is so strongly entrenched into KAP’s operations that it is part of the grand strategy in the company’s ongoing as well as prospective refinery operations. In this regards, the companies that contribute to the integral parts of the overall production process are either wholly or partially owned by KAP. For instance, there is UMP, in which KAP as a majority ownership, which supplies the latter with fuel pellets and powder. UMP is also a production center for tantalum and beryllium, although a drop in external demand has led to a fall in demand since 2009. Because of the need to design efficient nuclear reactors as well as to offer a bust to the company’s fuel pellets business, KAP acquired a 10% stake in Westinghouse. This company is reputed with the task of having designed more than 20% of the world’s nuclear reactors. The partnership between Westinghouse and KAP is expected to intensify considering that China is one of KAP’s main target markets.
Regarding profitability, interest coverage and leverage, the company has what appears to be a fairly effective strategy in place (Golovnina 2007, p. 2). The main driver of profitability for the company is uranium concentrate. For this reason, uranium concentrate prices constitute a major factor in the future performance of the business. Other significant sources of revenue include utilities, beryllium, and Tantalum, in that order.
The company’s financial model is largely a derivative of its sales volume, which is easily obtainable upon considering the company’s consolidation share in the production process. It should be borne in mind that this share is normally equal to its shared as stated and declared in joint ventures. Moreover, whenever the majority of these joint ventures start to approach steady levels in terms of production, most of rises in production become owed to these ventures.
The global perspective of business operation and its effect on supply chains, value chains, core competences, strategic directions, competitive advantages and strategic decisions
In terms of global perspective, a key factor for Kazatomprom is industry concentration. The company operations in an industry where there are few competitors. This situation comes with considerable power for the few companies that operate in the industry, such as Kazatomprom. Moreover, there are few mines across the world, and these few ones takes a lot of time to develop. As secondary sources continue to deplete fast, the demand for uranium concentrate goes on increasing. For Kazakhstan, though, there are ample reserves and the extraction cost is low.
Since 2009, Kazakhstan has become the largest producer of uranium in 2009. KAP, which accounts for half of Kazakhstan’s production, has a substantial resource base, and IAEA estimates tank it second globally in terms of reserves base. Moreover, the ISL extraction process that KAP uses is relatively cheap even by global standards, and this is a very big competitive advantage.
The position of Kazatomprom as a global leader in uranium concentrate production has face-lifted Kazakhstan’s international energy image. Thirty three per cent of all the uranium mined in the world comes from this country, and Canada, which follows it in terms of volume, generates only 18%, followed by Australia at an output of 11% (Yazikov 2010, p. 30). With regard to uranium reserves, Kazakhstan is ranked second. According to the State Corporation for Atomic Energy in Kazakhstan, between January and September 2011, some 13,957 tons of uranium was mined from the country (Yazikov 2010, p. 67). This marked an 11% rise compared to the same period in 2010 (Yazikov 2010, p. 38). Even more impressive is the fact that on a year-on-year basis, Kazatomprom’s revenues increased by 72% (Yazikov 2010, p. 82).
Effects of the Fukushima nuclear disaster
One significant event in recent times that relates to the company’s operations on the global stage was the Fukushima nuclear disaster in March 2011. This incident caused many nations in Europe to reassess their ambitions and strategies regarding nuclear power. Of course the influence of the rapid rise of China and India, two of the rising economic powerhouses in Asia, cannot be overlooked. While responding to the Fukushima disaster, Beijing ordered that all the nuclear power plants in the country be subjected to thorough inspections. China intends to have the capacity to generate nuclear power at a threshold of 40 gigawatts within the next ten years (Cohen 2011, p. 72). Currently, the country’s nuclear power generation accounts for a meager 1.4% of the country’s electrical power generation (Cohen 2011, p. 62).
China’s ambitious projects of building nuclear power plants is of great relevance to Kazakhstan’s global context of participation in nuclear power generation largely because of the resulting increase in demand for uranium. In this case, if the plans are to be followed through, the country will require some 44 million pounds of uranium every year. By 2020, a materialization of the ambitious projects would lead to the existence of some 77 proposed as well as planned new reactors. In India, the nuclear ambitions resemble those of China in many respects, although in the former country’s case, nuclear power is responsible for the generation of 3% of national electrical output. Moreover, India has 19 planned as well as proposed nuclear reactors.
Following the Fukushima disaster, the spot price for world uranium dropped from $70 per pound to $ 49 pound. However, in November, the prices started shooting up again, reaching $55. Moreover, uranium consumption decreased in Japan. In Germany, the disaster triggered the closure of old nuclear plants. In many countries where nuclear power plants were under construction, the duration of construction was extended to allow time for the revision of safety requirements. In spite of this unfortunate incident, it is expected that in many countries, notably Russia, India, and China, continued growth will be recorded with regard to the construction of new nuclear energy power plants. Some countries, including the UAE, Turkey, and Belarus, confirmed that they were going ahead with their nuclear power plants even after the much publicized Fukushima disaster.
The Fukushima nuclear disaster underscores the risks that come with single unfortunate incidents in nuclear reactors and their influence on international supply chains. However, international response is an indication of the growing demand for nuclear energy. This could be one of the reasons why Kazakhstan has chosen to move beyond uranium mining and to diversify into production of nuclear fuel rods.
A case in point is the decision by the Kazakh government to sign a contract with the French minister or industry and energy allowing the French company Areva to establish a nuclear fuel plant in a joint venture with Kazatomprom. The deal underscored the position of Kazakhstan as a strategic global producer of uranium that is dedicated to both the Asian and European markets. This strategic focus is reinforced by the possibility in 2012 of Kazatomprom buying into Urals Electrochemical Integrated Plant, a Russian company that is renowned for its position as the largest uranium enrichment establishment within Rostam, Russia’s State Nuclear Energy Corporation.
The continued prominence of KAP on the world nuclear energy stage is set to increase in the future of the comments of the International Energy Agency in its ‘World Energy Outlook’ for 2011 is anything to go by. The agency stated that if the world is going to be serious about global warming, it will consider continued shift towards nuclear power as a way of reducing greenhouse gas emissions. Meanwhile, considering that Kazakhstan is also a major oil exporter, with some 1.74 million barrels being exported daily, it may seem that Astana will continue raking in a lot of cash emanating from the energy sector regardless of the policies adopted by the world in terms of short-term considerations.
Kazatomprom’s value chains, core competences, strategic directions, and competitive advantages
Kazatomprom appears to have a strong value chain, that is, a model of how the company acquires raw materials, adds value to them, and the various processes that they are taken through before being sold to consumers as finished products. This is the best way to explain the company’s seemingly unstoppable increase in uranium concentrate production, adoption of cheap uranium ore prospecting, mining, extraction methods, and continued measures of forming joint ventures.
By the end of the 1990s, the methods of uranium extraction had largely been marked by a radical shift from conventional underground operations to the environmentally friendly method of in-situ leaching (ISL). With ISL, there is minimal ground disturbance in the process of uranium removal. This new mining method paired well with Kazakhstan’s move towards expansion of mining production. Improvements in the value chain have also been boosted by
The strategy of selling value-added fuel as opposed to focus on merely the yellow cake. Pursuant to this strategy, the company has embarked on a major plant that specifically makes nuclear fuel pellets. This plant has greatly enhanced the firm’s capacity to increase Kazatomprom’s role in global uranium markets, particularly through joint energy ventures with other countries, principally Japan, China and Russia. On this basis alone, one may say that Kazakhstan is well positioned to play a crucial role in global uranium production industry for many years to come.
The core competency of the company is mining. During the Soviet days, uranium mining and reprocessing was under the control of the Soviet State. Even after the break-away of the Soviet Union in 1991, all activities of production, reprocessing, and marketing were done by the state through KATEP (Kazakhstan State Corporation for Atomic Power and Industry). When the activities of KATEP were transferred to Kazatomprom in 1997, the aim was the commercialization of the uranium. This transfer of management made the core competencies of the company to be even more clearly defined. These core competencies are enhanced by the reliance on subsidiaries to produce and mine uranium concentrate in different mine sites. The strategic goal of pursuing joint ventures with international companies has been driven largely by an in-depth appreciation of the company’s core competencies. Indeed, the joint ventures are a manifestation of the success that Kazatomprom has achieved with regarding to the pursuit of its core competency of uranium mining.
Conclusion
In summary, Kazatomprom has evolved a great deal since its takeover of uranium mining, processing, and marketing activities in Kazakhstan. There are many internal and external factors that have shaped this growth. In recent times, a notable external factor is the Fukushima nuclear disaster, which helped enhance the contemporary understanding of the risks, dynamics, and instabilities inherent in nuclear industry, in which KAP operates. The current management of KAP has traditionally pursued the strategy of forming joint ventures and this is the main way in which the company has continued to expand internationally.
References
Blagov, S, 2006, ‘Russia eyes Central Asia uranium deposits’, The Times of Central Asia, No. 23, June 08, 2006.
Cohen, A, 2011, Europe’s Strategic Dependence on Russian Energy, Heritage Publishers, London.
Dahl, C, 2001, ‘Energy and the environment in Kazakhstan’, Energy Policy, Vol. 29, No. 6, pp. 429-440.
Domjan, P, 2010, ‘A Comparative Study of Resource Nationalism in Russia and Kazakhstan 2004–2008’, Europe-Asia Studies, Vol. 62, No. 1, 35-62.
Golovnina, M, 2007, ‘Nuclear renaissance gathers pace in Kazakh steppe’, Itar-Tass Weekly News, Novemer 5, 2007.
Hug, A, 2010, Kazakhstan at a Crossroads: Governance, Corruption & International Investment, Foreign Policy Center, London.
Karpishev, O, 2010, ‘Kazakhstan, Japan seal deal on joint uranium development’, Itar-Tass Weekly News, Novemer 21, 2010.
Sergeyev, M, 2010, ‘Russia losing Kazakh uranium’, Russian Press Digest, August 12, 2010.
Walker, A, 2009, Central Asia: Going Nuclear, EUCAM Commentary No. 10, 15 December 2009.
Yazikov, V, 2010, Experience with restoration of ore-bearing aquifers after in situ leach uranium mining, NAC Kazatomprom, Almaty.
Title: The Economic Environment of Business
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Introduction
The economic environment of Kazatomprom is such one that deserves an in-depth analysis. This is precisely what this paper sets out to do. The paper also explores the ways in which KAP has designed its marketing strategies in both new and existing markets. In this case, a lot of attention has been put on the regulatory procedures that exist in the existing markets. The paper also contains information on directions being taken y KAP in terms of international expansion and capital acquisition. In this analysis, a highlight is made on the problems encountered and how the company adapts to the challenges that come with these expansion efforts.
Structure of the market
The structure of the market for the uranium industry is characterized by few industrial participants. The process of mining uranium across the world is best understood from the perspective of the global nuclear fuel cycle strategy. Currently, the global nuclear power is undergoing a period of specific intensification, whereby demand has increased two-fold. The International Energy Agency has forecasted that over the next 20 years, demand will increase two-fold. By the next 20 years, the world energy demand will no longer be met satisfactorily by coal, oil, and gas. With the threats currently caused by these fossil fuels, the benefits of the nuclear energy continue to become obvious. Moreover, as this demand continues to increase, it is clear that some countries do not have their own fossil fuel reserves, and for them, nuclear energy is the most viable alternative.
For the uranium industry, it is much easier to transport uranium in terms of both portability and costs. When compared to coal and gas, the production cost for uranium is about 5 times lower. In this century, uranium is being seen as a strategic product in the global economy. Today, it accounts for 15% of the total electric energy production on the globe (Absametova 2010, p. 62). On the basis of the information provided by the World Nuclear Association in 2009, some 436 nuclear reactors were reported to exist across the world, 43 reactors were under construction, while 108 were at the design stage.
Today, the market structure is such that there is an energy deficit. In efforts to deal with this deficit, efforts have been made to shift attention towards nuclear power. The main concern has been on the safety of nuclear power plants so as to make them sustainable in terms of supplying power to the targeted areas. There is a problem regarding time-frame, whereby the process of nuclear power development and formation takes time bring about the desired benefits. In this case, there are conscious efforts to ensure that the energy industry is oriented towards nuclear energy generation as a significant effort towards doing away with the current global energy deficit.
In this market structure, Kazatomprom comes in as an authority in matters of international cooperation with regard to the pursuit of nuclear power development. The main areas of focus in this regard relate to the construction of reliable atomic stations, a problem that cannot be solved by an individual country in isolation. In order to avoid the global energy deficit, emphasis has had to be put on all stages of the nuclear fuel cycle, an undertaking that requires international cooperation.
Clearly, the market structure in the energy sector has been resting on the idea of deficit in the energy supply across the world. Since 2005, Kazatomprom has been in the pursuit of a strategy that builds upon transnational vertical integration, whereby there is participation in all stages of the nuclear energy cycle. The only exception has been the disposal of nuclear fuel and processing of irradiated nuclear waste.
Marketing strategies to gain entry into both new markets
In recent years, Kazatomprom has been embarking on efforts to increase uranium production. Indeed, one of the most important yardsticks of the company’s corporate success has been the volume of uranium produced. In return, the volume produced has been an indicator of the ability to respond to market demand. It is on this basis that the company has been assessing whether there is a need for a new nuclear power plants to be established. The production level has also been an integral component of the company’s outlook in terms of uranium production. For instance, uranium production reached 17,803 tons in 2010 while in 2011 it is projected to reach 19,900 tons (Abiru 2011, p. 59).
It should be borne in mind that being a quasi-sovereign company, KAP normally shapes its marketing strategies around those of Kazakhstan (Peyrouse 2008, p. 173). A case in point is the case where Kazakhstan has had to reduce its rate of uranium production as a way of stabilizing prices. In essence, this has also been the strategy of KAP. KAP adopted this strategy after it more than tripled its uranium production output to become the largest producer in the world. After achieving this feat, Kazakhstan settled for a lower of production, that is, 20,000 metric tons every year as a way of avoiding depressing international prices even further.
Changes in regulatory procedures within existing markets
In Kazakhstan, the state is the main regulatory authority for ownership of mineral resources. This form of regulation has enabled Kazakhstan to retain authority over the country’s mineral resources. It has also been the only way that the uranium producer has managed to secure the right of exploration, development, and production of uranium deposits. In this respect, a significant effort has been on securing the procurement of the use of the country’s subsoil. The issue of contracting this use from the government has also arisen. In this regard, representation from the Ministry of Energy and Mineral Resources (MEMR) has been necessary. MEMR’s function covers the use rights for subsoil. It also covers the work of contracting the use of subsoil, as well as the role of ensuring that industry players comply with the required standards. In this regard, MEMR is seen as undertaking a general supervisory role with regard to the way subsoil use activities are carried out. The jurisdiction of MEMR is wide, such that it covers all areas of sub-soil use, as opposed to the uses that relate to uranium extraction alone.
The pervasive nature in which the Kazakhstan government is in control of all activities has influenced marketing issues across the world. In the first instance, focus was only on Kazatomprom, whereby the company was granted special rights to exploit the country’s sub-soil. The specific deposit upon which permission was granted is uranium.
The commercialization process of 1997 had a lot to do with the regulatory procedures relating to the existing international markets. The implication of this move was that any foreign investor who wished to participate in the country’s uranium sector had to do so by liaising with Kazatomprom. This is the main way through which the Kazakh state has been able to handle the global nature of the nuclear power industry with regard to both the existing markets and the emerging ones. The Kazakh state has been the one dictating the commercial terms of corporate entry. It has also been the one ensuring that the ongoing commercial activities are of benefit to the country’s State Budget.
For Kazatomprom, market regulation with regard to the main markets, namely Russia, China, and Japan has been a tricky affair in the contemporary corporate circumstances. Third parties from all parts of the world have been pursuing joint ventures with the company. This interest has had the potential of influencing the dynamics of new markets and the availability of economic alternatives with regard to the energy security that would ordinarily be met through nuclear energy.
Kazatomprom’s direction: International expansion, capital acquisition, and adaptation to new challenges
The Kazatomprom’s business is no doubt moving towards international expansion. This trend has been in place for more than 50 years. This trend is clearly observable if one considers the company’s statistics, which put Kazakhstan on top of the world in terms of uranium production. In 2011, out of 17 new projects, 5 are owned wholly by KAP whereas 12 take the form of joint ventures with international equity holders. Currently, some of these equity holders are pursuing production under nominal capacity.
The internalized nature of the country’s energy is clearly discernible, considering that the country is without a national grid, yet there is a network that links the country to Russia, Kyrgyzstan, and Uzbekistan. In this context, it is important to note that in 2008, the company announced that it is aim is to supply 30% of the world’s uranium needs by 2015. A significant portion of this goal is intended to be achieved through joint ventures, uranium conversion market, enrichment, and fuel fabrication market.
There is ample evidence that the increased activity at Kazatomprom points to internalization of collaboration efforts and capital acquisition. Most significantly, Kazatomprom has formed very important strategic links with Japan, China, and Russia. It has also expressed interest in many Canadian and French companies which are involved in the uranium industry. In July 2006, for instance, Kazakhstan’s Kazatomprom formed a joint venture worth US$ 10 million with Russia whereby new nuclear reactors would be built and revenues shares on a 50:50 basis (Richardson 2006, p. 83). The reactors would be used for producing and enriching uranium.
A second joint venture was confirmed in 2008, and in this case, Tenex joined hands with KAP. In this agreement, a small site for enriching uranium was established in southern Siberia. This was also the site where the very first international enrichment center was established. In this center, Kazatomprom holds a 10% interest (Peyrouse 2008, p. 88). The eventual capacity is projected to involve 6000 tons of uranium (Peyrouse 2008, p. 91).
There are many other numerous joint ventures, which are targeted at different parts of Kazakhstan. The year 2008 was particularly a significant time for Kazakhstan’s pursuit of joint ventures. In 2009, the significant international joint venture efforts led to the incorporation of companies that are renowned in the world, for example ARMZ and Uranium One.
The year 2011 was also a significant one with regard to international expansion and capital acquisition. In March 2011, for instance, KAP (Kazakhstan) and Russia, signed the second phase of the integrated cooperation program of 2006. In this phase of the cooperation undertaking, focus was on uranium exploration and the undertaking of feasibility study for Kazakh nuclear power plants.
Japan has also been a participant in the international expansion efforts of KAP. In 2007, KAP engaged in high-level agreements with Japan on energy cooperation. In this agreement, focus was on the supply of uranium to Japan. In return, Japan undertook to offer technical assistance to Kazakhstan. The main area of focus in this case was fuel-cycle development as well as construction of nuclear reactors. A further agreement was signed that entailed the supply of uranium as well as the upgrading of Ulba fuel plant in May 2008.
Currently, there are ongoing efforts to shift from the supply of raw materials to sale of uranium in the form of fabricated fuel assemblies as a way of adapting to new challenges. In the case of the Japanese market, for instance, the aim has been to supply both fabricated fuel and natural uranium beginning 2011. This is an excellent indication that activities are not only being internalized but also diversified as well. In the case of Japan, interest is mainly on bilateral nuclear cooperation as opposed to multilateral cooperation.
The importance of Japan for KAP’s operations had been established as early as 2006 (Laumulina 2009, p. 85). In this year, the main participant was the Japan Bank for International Cooperation. In this agreement, Japanese firms would be supported through finance to enable them undertake activities of uranium resource utilization in Kazakhstan. Three years later, three Japanese companies: Sumitomo, Kansai, and Nuclear Fuel Industries signed a joint venture with Kazatomprom on processing of uranium for Kansai plants. A year later – in 2010 – a joint venture was entered into where Sumitomo was joined by Summit Atom Rare Earth Company. By June the same year, Kazatomprom and Toshiba had come together to partake the exploitation of rare earth metals in a new joint venture. This agreement was followed by a technical cooperation agreement between Toshiba, Japco, and Marubini on the one hand and the National Nuclar Center on the other. The objective was the undertaking of a feasibility study on the construction of a new nuclear power plant in Kazakhstan.
In China, the international orientation of KAP’s efforts has been taking many forms in recent times. The joint ventures with Chinese nuclear companies as well as renewed interest in Chinese sales constitute a major area of focus for KAP. In December 2006, for instance, CGNPC, a Chinese nuclear company, entered into an agreement with Kazatomprom (Antonov 2006, p. 21). In this agreement, KAP would handle activities of fuel fabrication and uranium supply. This agreement, which went through in September 2007, China would participate in joint uranium mining ventures with KAP, targeting the Chinese nuclear power industry. For both countries, the partnership was a significant milestone. This is because KAP would be the one supplying nuclear fuel and uranium to the CGNPC. This accounted for a large number of reactors that are still under construction in China.
A further pursuit of the CGNPC agreement was undertaken in October 2008, whereby focus spread to uranium mining, fabricators of nuclear fuel for use in power reactors, and trade in natural uranium. Other activities included in the agreement relate to the construction of new nuclear power sites and generation of nuclear electricity. The agreement also led to the setting up of Sino-Kazakhstan Uranium Resources Investment Company, a CGNPC subsidiary.
In India, KAP has pursued expansionist strategies by signing various agreements with the country’s players in the nuclear power industry (Ospanova 2008, p. 61). One of these players is the Nuclear Power Corporation (NPCIL). For NPCIL, the agreement was to secure the supply of some 2100 tons of uranium to India as well as complete a feasibility study on the construction of Indian nuclear reactors in Kazakhstan. For Kazakhstan, the main problem was on how to come up with a mutual commitment that would take the form of a long-term strategic partnership. For this partnership to be conceived, both countries had to contend with issues of trust.
South Korea is also becoming a significant target for KAP’s market expansion. In 2010, Kazakhstan entered into a nuclear cooperation agreement with South Korea. This agreement paved way for the establishment of Korea’s major nuclear reactors. It also led to the start of operations aimed at mining Kazakh uranium. Additionally, KAP has held talks with the Korea Electric Power Corporation on mining activities as well as the construction of nuclear power plants in Kazakhstan on the initiative of KEPCO. Related efforts have also been undertaken in USA, in which case the cooperation has taken an intergovernmental shape.
However, the problems that KAP has encountered while pursuing international expansion at the country level are slightly different from those encountered at the corporate level. A case in point is the corporate agreement between KAP and Toshiba. In this corporate agreement, KAP purchased 10% of the share of Westinghouse. Earlier on, Toshiba had bought this company for $5.4 billion from BNFL in 2006. Later on, the Shaw Group undertook to purchase a 20% stake from the company while IHI Corp bought 3% of the company. Such a long chain of ownership transfers have been problematic for KAP because of the arising legal intricacies. Initially, Toshiba had intended to hold only 51% although the holding deal ended up being 67% (Sarsenova 2008, p. 63). Although KAP’s link brought about more strength to the company’s link with regard to fuel supplies, this did not bring about as impressive a financial performance as had been envisaged at the beginning. Specifically, the goal of enhancing the marketing of nuclear reactors was not achieved in the best possible way.
Moreover, the joint venture with Toshiba appeared to be potentially beneficial to KAP but it ended up benefiting Toshiba more. One of the main benefits to Toshiba was the establishment of the nuclear energy institute in the town f Kurchatov. Today, this institute has become a center of research and development for Toshiba. The center focuses on issues of reactor technology and nuclear fuel cycle.
Other significant corporate agreements brought on board Cameco and Areva. For Cameco, the 2007 agreement was aimed at investigating a plant for the conversion of uranium. Cameco and KAP announced in 2008 that they had formed a new company known as Ulba Conversion LLP. In this new company it is expected that Cameco will continue providing technology so as to hold 49% of the joint project. The main problem with this joint venture is that although the feasibility was completed in 2009, some technical issues arose, and as a result, the whole project had to be put on an indefinite hold. For Areva, the 2008 agreement with Kazatomprom was strategic in the sense that the aim was to expand the existing Katco joint venture while at the same time attempting to capitalize on the engineering expertise possessed by Areva.
Conclusion
In summary, the economic environment in which Kazatomprom operates is full of opportunities and challenges in equal measure. The strategy of forming joint partnerships appears to be an effective one owing to the nature of the nuclear industry. The structure of the market is also easy for one to analyze, with the main target markets being easy to identify. There is need for Kazatomprom to keep adapting to new challenges in order to be able to succeed in its goal of international expansion. Specific attention should be on the problems that are created by expansion efforts as well as efforts to acquire capital and technological expertise, particularly through joint ventures.
References
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Kassenova, T, 2009, ‘Kazakhstan’s ‘Nuclear Renaissance’, St Antony’s International Review, Vol. 4, No. 2, pp. 51-74.
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Sarsenova, D, 2008, Kazakhstan to triple uranium production by 2010, Penguin Books, New York.
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