While a central tenet of the tussle over Caspian oil and natural gas has been the struggle between Russia and Western nations and multinationals, led by the United States, in developing its uranium assets, Astana is partnering with a relative newcomer on the scene -- China.

Looking well beyond its petroleum industry, Kazakhstan has made a major effort to develop its uranium industry; so far this year uranium exports have grown by 42 percent to 9,400 tons from last year's exports of 6,600 tons. While Western economists have focused on the spectacular growth of Kazakhstan's oil and natural gas industries, in fact its uranium exports have outpaced the country's hydrocarbon industry; in 1997 Kazakhstan exported 795 tons of uranium, but a decade later uranium exports had risen by an impressive 830 percent.

According to Kazakhstan's state uranium company, Kazatomprom, Kazakhstan and China have agreed jointly to mine uranium and process it into nuclear fuel in the Central Asian country. The agreement fits in neatly with Astana's plans to surpass Australia and Canada to become the world's top producer by 2010. According to Kazatomprom head Mukhtar Dzhakishev, under the agreement Kazatomprom, in conjunction with China Guandong Nuclear Power Co. and China National Nuclear Corp., will involve the Kazakh Irkol, Semizbai and Zhalpak mines in Kazakhstan as part of the project. Dzhakishev added that Irkol, which can extract 500 tons annually, already had begun production, while operations at Semizbai, which can produce 500 tons per year, are slated to begin in 2009. Dzhakishev also named the Zhalpak mine, which produces 700 to 750 tons per year, as part of the project, but gave no further details.

According to Dzhakishev, the consortium intends to start enrichment reprocessing of the uranium for nuclear fuel rods for atomic power plants by 2013.

The deal is a critical one for China, as it lacks raw materials to develop its nuclear energy. China's uranium reserves are estimated at less than 1.5 percent of the world's total, and its uranium production last year amounted to 870 tons, which met only half of the country's current needs.

While the global economy recently has experienced an abruptly sharp downturn in oil prices due to the worldwide recession, Kazatomprom projects a future strong demand for uranium due to rising interest in nuclear power generation in China, India and Russia, which are all due to build new reactors, and in the West as well, as it seeks both to diversify its energy sources and reduce greenhouse gas emissions. Accordingly, Kazatomprom is pressing on with increasing its uranium production next year to 11,000 tons, with a goal for 2010 of 15,000 tons. Impressive as these figures are, by 2015-16 the company is aiming to increase production to 27,000 tons.

There are some dark clouds on Astana's sunny horizon, however. The global economic slowdown has impacted the uranium market, where on Oct. 21 weekly spot prices fell to $44 per pound, their lowest level since May 2006. Kazatomprom Vice President Sergei Iashin noted that spot prices were highly speculative and could rebound to about $65 per pound by year's end.

Underlying reasons for the earlier uranium price bubble included Russia halting its dumping practices combining with Western hedge funds providing massive infusions of cash prior to the recent global downturn. Accordingly, uranium prices climbed from their record low of $7 per pound in 2001 to a record high of $136 per pound in June 2007. Despite the price gyrations, Kazakh producers remain optimistically bullish on uranium's long-term prospects, primarily because of rising Asian demand.

Western analysts also worry about the potential negative impact of Kazakhstan's proposed tax and subsoil use legislation, which Kazakh President Nursultan Nazarbayev reportedly is preparing to sign over the next few days.

The new Tax Code, to be implemented on Jan. 1, is designed to shift the national tax burden from the economy's non-resource to resource sectors, improve tax management and foster conditions for economic diversification.

For foreign companies, the good news is that the draft tax legislation suggests reducing the corporate income tax gradually from its current rate of 30 percent to 15 percent over the next two years. The downside for foreign mining and extraction interests is that the current royalty tax will be replaced by a mineral extraction tax ranging from 2 percent to 20 percent, with a possible rate for uranium of between 22 percent and 24 percent.

Iashin remains unperturbed by such considerations because of rising Asian demand, observing during an interview in Moscow, "It doesn't matter if oil prices are high or low. The swiftly developing nations in Asia -- China and India -- are seeking to boost nuclear power, and Japan is, too. For those Asian countries, developing nuclear power is a high priority, and the price of oil, gas, coal or whatever will not significantly change that. The Asian countries are the drivers behind the rise in demand, and that demand will only rise in the future." While Western firms may shrink from both a volatile bear market and new tax regime, it seems likely that Beijing, as both consumer and now producer, will prove not to be quite so fainthearted.

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