Monthly Archives: September 2006

06ASTANA152, ASSESSING KAZAKHSTAN’S WATER NEEDS

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Reference ID Created Released Classification Origin
06ASTANA152 2006-09-29 05:52 2011-08-30 01:44 UNCLASSIFIED Embassy Astana

VZCZCXRO4234
RR RUEHAST RUEHCN RUEHDBU
DE RUEHAST #0152/01 2720552
ZNR UUUUU ZZH
R 290552Z SEP 06
FM USOFFICE ASTANA
TO RUEHC/SECSTATE WASHDC 0274
INFO RUEHCN/AMCONSUL CHENGDU 0001
RUEHTA/AMEMBASSY ALMATY 0241
RUEHEK/AMEMBASSY BISHKEK 0032
RUEHNT/AMEMBASSY TASHKENT 0029
RUEHDBU/AMEMBASSY DUSHANBE 0028
RUEHAH/AMEMBASSY ASHGABAT 0029
RUEHBJ/AMEMBASSY BEIJING 0014
RUEHMO/AMEMBASSY MOSCOW 0029
RUEHAST/USOFFICE ASTANA 0295

UNCLAS SECTION 01 OF 03 ASTANA 000152 
 
SIPDIS 
 
SIPDIS 
 
DEPARTMENT FOR OES/ETC, OES/PCI, OES/STC, SCA/CEN, EUR/ACE 
EPA FOR OFFICE OF INTERNATIONAL AFFAIRS, TASHKENT FOR EPUTNAM 
 
E.O. 12958: N/A 
TAGS: SENV EAID KZ
SUBJECT: ASSESSING KAZAKHSTAN'S WATER NEEDS 
 
REF: ASTANA 146 
 
1. Summary:  Kazakhstan faces major challenges in the water 
sector.   Recent GOK activities reflect an increasing awareness 
of the severity of the problem.  Domestically, it created the 
"Water Supply Sector Program 2002-2010," a 115 billion tenge 
($900 million) program intended to ensure a sustainable supply 
of clean drinking water.  In a push to erase the damaging legacy 
of Soviet-era resource management, Kazakhstan made regional 
water use a primary theme at a recent meeting in Astana of 
Central Asian leaders.   Nevertheless, despite Kazakhstan's 
commitment, daunting challenges remain.  The deterioration of 
existing water supply infrastructure is taking place faster than 
rehabilitation.  In rural areas, access to clean drinking water 
has greatly decreased in recent years.  Regionally, efforts to 
effectively manage the resources of the Syr Darya Basin have 
achieved little success.   Moreover, the growth of Western China 
may further threaten Kazakhstan's water security.   The United 
States has provided significant assistance to various water 
programs in Kazakhstan.   Most USG water-related projects have 
ended, however, leaving the U.S. with fewer opportunities to 
demonstrate its commitment to an issue of great importance to 
Kazakhstan.   End summary. 
 
Clean Drinking Water:  Emerging Commitment, Distant Result? 
 
2.  The deterioration of existing water supply infrastructure in 
Kazakhstan is taking place faster than rehabilitation. 
According to a UNDP survey, only 36% of rural inhabitants are 
connected to piped water.   As a result, in rural areas access 
to good quality drinking water has greatly decreased.  In the 
Pavlodar oblast, 43% of settlements use water that does not meet 
national standards.  Half of the 840 villages in the Almaty 
region do not have access to safe drinking water.  In the Ili 
River and Lake Balkhash regions, water must be trucked into 42 
settlements because villagers currently drink untreated water. 
 
 
3. In order to combat the critical state of its drinking water, 
Kazakhstan introduced the "Water Supply Sector Program 
2002-2010," a 115 billion tenge ($900 million) program aimed at 
creating a sustainable supply of healthy drinking water.  Key 
elements of the two-stage program include the construction and 
reconstruction of water supply systems and facilities, the 
rehabilitation and decentralization of large group water 
pipelines, and the introduction of new water treatment 
technologies.  From 2002-2004, 33 billion tenge ($257 million) 
was spent under the program, with two billion tenge ($15 
million) coming from foreign loans and grants.  Kazakhstan also 
co-financed a $34.6 million loan from the Asian Development Bank 
for Rural Area Water Supply and Sanitation (WSS) to 800 rural 
villages in four oblasts. 
 
4. In addition to the water supply program, Kazakhstan recently 
enacted a series of water-related laws and policy documents.  In 
2003, a new water code was introduced to address water use 
rights, water management, and use and protection of 
transboundary water resources.  The GOK has also issued the 
"National Strategy and Action Plan to Combat Desertification" 
and the "National Environment Action Plan for Sustainable 
Development." 
 
5. Despite Kazakhstan's efforts, major obstacles remain. 
According to a UNDP report, a growing number of water-pipes in 
the country do not meet sanitary requirements.   Moreover, a 
report funded by the Asian Development Bank warned that the 115 
billion tenge allotted for water sector reform and improvement 
will have limited impact, if not managed effectively. 
Kazakhstan lacks qualified and experienced water experts to 
implement the reforms.   The report's authors estimate that 
without additional professional staff to oversee the "Water 
Supply Sector Program 2002-2010," only 25% of the Kazakhstani 
planned water supply sector program will be introduced by 2010. 
The increase in population served with water will be as low as 
ten percent.  They also believe that many of the projects 
implemented will be of poor quality and unsustainable. 
 
Transboundary Issues: Competition for Limited Resources 
 
6. More than 50% of Kazakhstan's water resources begin outside 
the country's borders.  As a result, the failure of the Central 
Asian nations to create a viable multilateral approach to 
replace the Soviet system of water management poses a continued 
 
ASTANA 00000152  002 OF 003 
 
 
threat to Kazakhstan's water security.  The greatest point of 
contention remains management of the Syr Darya basin, shared by 
Kyrgyzstan, Tajikistan, Uzbekistan, and Kazakhstan.   The four 
countries have yet to create an effective water resource 
management program to balance the summer irrigation needs of 
Kazakhstan and Uzbekistan with
 the winter energy needs of 
Kyrgyzstan and Tajikistan. 
 
7. At a summit meeting in Astana on September 1, the presidents 
of Kazakhstan, Uzbekistan, Tajikistan, and Kyrgyzstan made water 
use a primary theme.  The four leaders agreed to form a working 
group to discuss the creation of a regional water and energy 
consortium to regulate the transboundary transfer of natural 
resources and to resolve water disputes.   Promises of future 
discussions, however, did not lead to the establishment of any 
framework for concrete action. 
 
8. The leaders agreed at the summit to revive the International 
Fund for saving the Aral Sea.  The Fund will be chaired by 
Kyrgyzstan and based in Kazakhstan, with an information center 
in Almaty.  At a news conference at the conclusion of the 
summit, President Nazarbayev expressed his support for a plan to 
divert Siberian waters to save the Aral Sea and to provide 
Central Asia with additional water resources.  Anatoliy 
Ryabtsev. Chairman of Kazakhstan's Committee on Water Resources, 
told ESTH officer at a subsequent meeting that Kazakhstan does 
not intend to divert Siberian waters.  According to Ryabtsev, 
Moscow Mayor Yuriy Luzhkov first proposed the plan several years 
ago, but Kazakhstan has never seriously considered the idea. 
 
9.  The six member states of the Eurasian Economic Community 
(EEC) - Russia, Belarus, Kazakhstan, Kyrgyzstan, Tajikistan and 
Uzbekistan - discussed water use in Central Asia at an August 
15-17 summit meeting in Sochi.  Russia forwarded an initiative 
to establish a Eurasian hydro-power consortium.  Plans for the 
consortium's structure and operations are expected to be 
detailed in time for the next EEC summit. 
 
10.  Kazakhstan also faces increased water pressures because of 
Western China's rapid economic growth.  China's increasing 
hunger for water may significantly impact Kazakhstan's Ili and 
Irtyush Rivers.  The Ili River, which originates in China, 
provides Lake Balkhash with 80 percent of its water.  The 
Irtysh, which also originates in China, supplies a number of 
lakes in Kazakhstan as well as the Irtysh-Karaganda Canal. 
Water Resources Committee chairman Ryabtsev told ESTH officer 
that China and Kazakhstan have established a successful 
framework for water resource cooperation.  Some 
environmentalists, however, dispute the government's appraisal. 
 The Kazakhstani NGO Tagibat (Nature) says that new factories in 
Western China and its growing population are draining both 
rivers and could create an environmental disaster worse than the 
Aral Sea.  The UNDP agrees that Lake Balkhash, only slightly 
smaller in area than Lake Baikal, is in danger of drying out. 
 
U.S. Contributions 
 
11.  In 2003, the U.S. EPA began to fund the Clean Water 
Financing Program, creating a network of financially sustainable 
village water systems in rural areas of the Almaty oblast.  The 
program attempts to create a sense of ownership among users 
through their commitment to pay a portion of the capital 
(construction) costs and the full cost of the system's operation 
and maintenance.  After the initial construction costs are 
collected, participating villages organize themselves into a 
series of democratically elected committees to allow them to 
independently manage their water systems.  The USG has spent 
over $250,000 on the project, and today six village projects 
have been completed, bringing safe drinking water to more than 
8,000 people in the Almaty Oblast.  (See reftel) 
 
12.  USAID has financed several major programs in Kazakhstan. 
From 1993 to 1997, as part of the Aral Water Basin Program, 
USAID spent $5.5 million to bring clean drinking water to 
Kazakhstanis living along a 240 kilometer pipeline stretching 
from Aralsk to Kazalinsk.  The project rehabilitated 
well-fields, provided chlorination equipment, and rebuilt 
infrastructure.  More than 150,000  people gained access to 
clean water as a result of the project.  From 2001 to 2005, 
USAID conducted the Transboundary Water and Energy Project, 
aimed at supporting activities to help leaders in Central Asia 
to develop and agree on measures to improve water and energy 
 
ASTANA 00000152  003 OF 003 
 
 
cooperation in the Syr Darya Basin.  The U.S. spent $3.3 million 
dollars on the project.  In 2004, USAID initiated a limited 
program of support for Water User Associations (WUAs) in the 
heavily irrigated region of Southern Kazakhstan.  WUAs are 
self-managing groups of farmers which coordinate irrigation and 
drainage network use in order to ensure fair and equitable water 
distribution.  The program provides training to WUA staff on how 
to operate as a democratic non-governmental organization and 
also offers technical training on improved water management. 
 
13.  USAID also recently installed a unified communications 
network, utilizing meteorburst technology to enable the rapid 
collection and distribution of critical, real time weather and 
water resource information among participating countries in the 
region.  The master station for the network will be located in 
Kazakhstan, and the GOK has allocated the necessary budgetary 
resources for the station's operation and maintenance.  USAID 
provided $60,000 for the establishment of a Water Training 
Center at the Agricultural University in Almaty, which has 
become the main water management training facility in Kazakhstan 
and hosts national and Central Asian water specialists 
participating in vocational training and international round 
tables. 
 
Next Steps 
 
14.    Kazakhstan has established a series of regional water 
basin authorities but poor communication and coordination 
severely diminishes their effectiveness.  The GOK appears eager 
for additional U.S. expertise and guidance in the area of water 
basin management.  Water Resources Committee chairman Ryabtsev, 
told ESTH officer that any additional U.S. assistance with 
Kazakhstan's efforts to increase access to clean water would be 
welcomed. 
 
15. Comment:  President Nazarbayev has stated that a key 
priority for Kazakhstan is to become one of the fifty most 
developed countries in the world.  This goal will be difficult 
to achieve if a large number of Kazakhstanis remain without 
access to clean drinking water.  As a result, Kazakhstan can be 
expected to continue to devote resources to improving its water 
supply as it strives to achieve a higher level of development. 
End comment. 
MILAS

Wikileaks

06ASTANA150, KAZAKHSTAN’S TEXTILES AND APPAREL SECTOR: UPDATED STATISTICS

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Reference ID Created Released Classification Origin
06ASTANA150 2006-09-29 04:55 2011-08-30 01:44 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Astana

VZCZCXRO4177
RR RUEHAST
DE RUEHAST #0150 2720455
ZNR UUUUU ZZH
R 290455Z SEP 06
FM USOFFICE ASTANA
TO RUEHC/SECSTATE WASHDC 0270
INFO RUEHTA/AMEMBASSY ALMATY 0237
RUEHAST/USOFFICE ASTANA 0291

UNCLAS ASTANA 000150 
 
SIPDIS 
 
SENSITIVE 
 
SCA/CEN - O'MARA 
STATE/EB/TPP/ABT - LERSTEN 
COMMERCE/ITA/OTEXA - D'ANDREA 
USTR - HEYLIGER 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON ETRD KTEX KZ
SUBJECT: KAZAKHSTAN'S TEXTILES AND APPAREL SECTOR: UPDATED STATISTICS 
AND PROJECTION OF FUTURE COMPETITIVENESS 
 
1. (U) The following data for Kazakhstan in 2005, provided by 
Lubov Khudova, representative of the Kazakhstani Association of 
Light Industry Enterprises, and sources from the National 
Statistics Agency, responds to the questions in reftel. 
 
--  Industrial production: $38.6 billion 
 
--  Total textile and apparel production: $242 million 
 
--  Exports in textiles and apparel to the U.S.:  N/A 
(negligible) 
 
--  Total manufacturing employment:  540,500 people (892,000 
including mining, metallurgy, and extractive industries) 
 
--  Total employment in textiles and apparel:  22,800 (including 
1,300 in shoe manufacturing). 
 
2. (SBU) According Khudova, a representative of the Kazakhstani 
Association of Light Industry Enterprises, the country's textile 
and apparel industry "has not felt" the impact of the end of 
global textile quotas.   Khudova described the internal textile 
and apparel market as "wild and unregulated."  The reason, she 
said, is that the vast majority of the textile and apparel 
products on the Kazakhstani market are imports, of which roughly 
95% are undeclared.  While Kazakhstan does impose import duties 
on textile products, Khudova explained, customs enforcement is 
woefully inadequate.  This is partially due to gaping loopholes 
in customs regulations, which allow enterprises classified as 
small and medium to import large quantities of goods 
uninspected.  It is also partially the result of ineffectiveness 
and corruption at the customs checkpoints.  The government has 
to date failed to adequately address this problem, said Khudova. 
 
3. (SBU) Kazakhstan's "light industry" (which includes textile 
and shoe manufacturing) has, according to Khudova, contracted 
dramatically from 15.8% of GDP in the early 1990's to 0.6% of 
GDP now.  Post-Soviet economic decline and readjustment, 
combined with a flood of cheap imports, particularly from China 
and Turkey, has led to a collapse of the domestic textile 
industry.  The failure of customs controls, she added, has 
resulted in domination of the Kazakhstani textile and apparel 
market by low-grade counterfeit goods.  While Kazakhstan still 
has a substantial government-subsidized cotton-growing sector, 
96% of the Kazakhstani cotton is exported.  On the other hand, 
the vast majority of finished goods are imported; only about 8% 
of textile and apparel products and 1% of shoes purchased on the 
Kazakhstani market are domestically manufactured. 
 
 
MILAS 
 
 
ORDWAY 
 
MILAS

Wikileaks

06ASTANA149, AND THEN THERE WERE THREE: CUSTOMS UNION BETWEEN RUSSIA,

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Reference ID Created Released Classification Origin
06ASTANA149 2006-09-28 08:03 2011-08-30 01:44 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Astana

VZCZCXRO2709
RR RUEHAST
DE RUEHAST #0149/01 2710803
ZNR UUUUU ZZH
R 280803Z SEP 06
FM USOFFICE ASTANA
TO RUEHC/SECSTATE WASHDC 0268
INFO RUEHTA/AMEMBASSY ALMATY 0235
RUEHAST/USOFFICE ASTANA 0289

UNCLAS SECTION 01 OF 02 ASTANA 000149 
 
SIPDIS 
 
SENSITIVE 
 
SIPDIS 
SCA/CEN - O'MARA 
PLEASE PASS TO USTR - BURKHEAD, HAFNER 
 
E.O. 12958: N/A 
TAGS: ECON ETRD PREL PGOV KZ BO RS UZ UP
SUBJECT: AND THEN THERE WERE THREE: CUSTOMS UNION BETWEEN RUSSIA, 
BELARUS, AND KAZAKHSTAN PROMISES FURTHER INTEGRATION 
 
1. (SBU) Summary: In the view of Kazakhstani working-level 
Industry & Trade officials, the newly announced 
Russia-Belarus-Kazakhstan customs union within the framework of 
the Eurasian Economic Community (EEC) is an acknowledgement of 
Ukraine's refusal to take part.  While the creation of the 
customs union will not necessarily lead to impediments on 
Kazakhstan's road to the WTO accession, it heralds a potential 
breakthrough in reinvigorating the EEC and bringing about a 
multi-faceted regional integration among Central Asia (minus 
Turkmenistan), Russia, and Belarus.  End summary. 
 
2. (U) According to press reports, Russian President Vladimir 
Putin confirmed on August 16 the creation of a trilateral 
customs union between Russian, Belarus, and Kazakhstan.  The 
decision was reached at an informal summit in Sochi of the 
Eurasian Economic Community.  (Note:  the EEC encompasses 
Russia, Belarus, Kyrgyzstan, Kazakhstan, Tajikistan, and 
Uzbekistan; Ukraine, Moldova, and Armenia have observer status. 
End note.)  Addressing other heads of state, Putin said that the 
creation of the customs union should be closely coordinated with 
the WTO accession process in regard to both the timeline and 
quality of accession.  He also stated that other EEC states 
would join the customs union later. 
 
SES IS WEAKENED: "IT'S UP TO UKRAINE NOW" 
 
3. (SBU) The creation of the customs union appears to be the 
culmination of a long-term effort to establish one within the 
framework of the Single Economic Space (SES).  (Note: the SES - 
comprised of Russia, Ukraine, Kazakhstan and Belarus - has long 
focused on establishing a customs union as part of its drive 
towards economic integration among the four countries.  End 
note.)  Zhanel Kushukova, Head of the Division on Development of 
Trade at the Kazakhstani Ministry of Industry and Trade, told 
Econoff that the effort to establish a customs union "has been 
underway for ten years."  In a later conversation, Damegul 
Kabiyeva, Deputy Director of the Ministry's Department on Trade 
Policy Development and WTO Accession, confirmed to Econoff that 
the focus on creating a customs union has now been switched from 
the SES to the EEC due to Ukraine's reticence.  Ukraine, 
Kabiyeva said, has been very slow in moving the process forward. 
 
4. (SBU) Kushukova denied that the formation of a customs union 
within the EEC spells the death of the SES, however.  The future 
direction of the SES, she explained, will be determined by 
Ukraine's actions vis-a-vis the new customs union.  "It's up to 
Ukraine now," stated Kushukova; for the moment, she said, it is 
much easier to form a customs union among the three countries. 
 
INTEGRATION IS IN THE AIR:  EEC IS REENERGIZED 
 
5. (SBU) Kushukova stated that the customs union will further 
liberalize the already liberal trade regime among Russia, 
Belarus, and Kazakhstan.  It will also provide additional 
uniformity to their external tariffs (i.e. import duties charged 
on goods from third countries).  Currently, she said, the trio 
shares external tariffs on 62% of goods.  The goal, she said, is 
to raise that ratio to 90%. 
 
6. (SBU) Russia, Belarus, and Kazakhstan have signed the bulk of 
agreements making up the customs union.  The plan, according to 
press reports, is to sign the remainder by the end of the year. 
Kushukova confirmed this goal and added that among the key 
agreements still to be signed are those that concern a common 
external tariff, preferences towards third-party countries (a 
system of preferences applied towards developing countries, akin 
to the USG's General System of Preferences), and border crossing 
regulations.  Both Kushukova and Kabiyeva made it clear that 
after all the agreements are signed, additional steps, such as 
introduction of necessary legislation and ratification, must be 
completed before the customs union goes into force. 
 
7. (SBU) The new customs union is widely seen as an impetus 
towards reenergizing the previously dormant EEC.  Uzbekistan's 
January 2006 entry in the EEC is another significant step in 
this direction.  The plan now is to expand the customs union to 
include other EEC countries.  The timeline for this process, 
Kushukova said, should become clearer by October. 
 
8. (SBU) The customs union is seen as only one aspect of a 
renewed drive toward integration among the EEC countries. 
According to press reports, Putin spoke at the Sochi meetings 
about the importance of deepening cooperation between the EEC 
and the Collective Security Treaty Organization (CSTO) and 
working to restore Uzbekistan's CSTO membership.  (Note:  CSTO 
is comprised of Russia, Ka
zakhstan, Tajikistan, Kyrgyzstan, 
Belarus, Armenia, and Uzbekistan [currently rejoining].  End 
note.)  In response to Econoff's question about the link between 
 
ASTANA 00000149  002 OF 002 
 
 
the EEC and the CSTO, Kushukova said that the two are 
independent of each other but both are part of the process of 
"drawing closer" and "integration." 
 
9. (SBU) Separately, Kabiyeva stated that integration under the 
umbrella of the EEC will encompass regional harmonization of the 
pension system, education system, the banking system, and the 
telecom sector, as well as introduction of a unified transport 
corridor.  Directly involved in this work is the Minister of 
Industry & Trade Vladimir Shkolnik, who represents Kazakhstan on 
the EEC's "High-Level Group."  "We used to have the CAU, the 
Central Asian Union," Kabiyeva mused, "now we have the EEC." 
(Note: the CAU was a framework initiated in the second half of 
2005 by President Nazarbayev for cooperation between Central 
Asian states in political and economic spheres.  End note.) 
 
"WTO FIRST, CUSTOMS UNION SECOND" 
 
10. (SBU) Kushukova described the process of Kazakhstan's entry 
into the customs union as "parallel" with its drive to accede to 
the WTO, and not in any way impacting on accession plans. 
Astana, she added, is still eyeing 2007 as the accession year. 
In a separate conversation, Kabiyeva was emphatic that the 
working assumption in her ministry regarding timing is still 
"WTO first, customs union second." 
 
COMMENT 
 
11. (SBU) Comment:  Some of Putin's remarks along with 
speculation in the Kazakhstani media, suggest that the EEC 
customs union may become a mechanism by which Russia attempts to 
influence Kazakhstan's WTO accession.  Moreover, Russia, 
Belarus, and Kazakhstan's far-reaching plans to harmonize their 
external tariffs could substantially complicate Kazakhstan's WTO 
accession process if the customs union comes into force before 
Kazakhstan accedes to the WTO.  Still, it appears unlikely at 
this point that the customs union creation will occur rapidly 
enough to interfere with Kazakhstan's WTO accession, as long as 
Astana continues to make progress on the WTO front.  At the 
working level at least, Kazakhstani officials are treating the 
accession process as unaffected by the newly created customs 
union. 
 
12. (SBU) Comment, continued:  The customs union, a significant 
development in itself, may also serve as a catalyst for 
revitalizing the earlier dormant EEC.  With the SES apparently 
undermined by Ukraine's reticence (for now), multi-faceted 
regional integration among Russia, Belarus, and Central Asia 
(minus Turkmenistan) may be taking center stage.  Tashkent's 
newly found enthusiasm for cooperation within the EEC supports 
this vision.  On the other hand, adding Uzbekistan to the mix is 
likely to complicate and delay any plans for integration. 
Uzbekistan's economy is not compatible with the more 
market-oriented Russian and Kazakhstani economies, and achieving 
agreement with Tashkent is likely to be a long and difficult 
process.  Still, the EEC integration process may help draw the 
economies of Central Asia closer.  At the same time, it may 
further strengthen the region's gravitational pull toward Russia 
and away from South Asia.  End Comment. 
MILAS

Wikileaks

06ASTANA147, KAZAKHSTAN’S “BONUS SCANDAL”: PUBLIC COMPANIES IN THE

WikiLeaks Link

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If you find meaningful or important information in a cable, please link directly to its unique reference number. Linking to a specific paragraph in the body of a cable is also possible by copying the appropriate link (to be found at theparagraph symbol).Please mark messages for social networking services like Twitter with the hash tags #cablegate and a hash containing the reference ID e.g. #06ASTANA147.
Reference ID Created Released Classification Origin
06ASTANA147 2006-09-27 12:05 2011-08-30 01:44 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Astana

VZCZCXRO1797
RR RUEHDBU RUEHLN RUEHVK RUEHYG
DE RUEHAST #0147/01 2701205
ZNR UUUUU ZZH
R 271205Z SEP 06
FM USOFFICE ASTANA
TO RUEHC/SECSTATE WASHDC 0265
INFO RUEHTA/AMEMBASSY ALMATY 0233
RUCNCIS/CIS COLLECTIVE
RUEHAST/USOFFICE ASTANA 0286

UNCLAS SECTION 01 OF 02 ASTANA 000147 
 
SIPDIS 
 
SENSITIVE 
 
SIPDIS, SCA/CEN - O'MARA 
 
E.O. 12958: N/A 
TAGS: PGOV ECON ENRG KZ
SUBJECT: KAZAKHSTAN'S "BONUS SCANDAL":  PUBLIC COMPANIES IN THE 
PUBLIC EYE 
 
REF: REF A.  ALMATY 3278, REF B.  ALMATY 2888, REF C.  ALMATY 3274 
 
ASTANA 00000147  001.2 OF 002 
 
 
1. (SBU) Summary:  The so-called "bonus scandal," in which 
President Nazarbayev lashed out against the exorbitant level of 
salaries paid to top executives at state-owned companies, has 
added to the mounting criticism of the government.  The media 
has portrayed the affair as part of Nazarbayev's effort to 
correct the government's errant ways.  Although nominally 
tainted by the scandal, the newly created state holding 
companies Samruk and Kazyna are unlikely to be weakened.  In all 
likelihood, the developments represent a carefully stage-managed 
anti-corruption move, a shift of spoils between competing 
elites, and flexing of presidential muscle over the control of 
state-owned enterprises.  End summary. 
 
 
NAZARBAYEV BREAKS THE STORY 
 
2. (U) At the September 20 Security Council meeting, President 
Nazarbayev sharply criticized top management salaries at 
Kazakhstan's national companies.  The session, parts of which 
were televised, saw an outpouring of what the media widely 
described as the President's "indignation" at the level of 
compensation enjoyed by top executives of some prominent 
national companies.  Nazarbayev specifically mentioned the state 
holding company Samruk, Samruk's constituent company 
KazakhTelecom, the development fund umbrella organization 
Kazyna, and Kazyna's constituent Kazakhstan Development Bank. 
 
3. (U) The brunt of Nazarbayev's anger fell on Khayrat 
Karibzhanov, president of the telecommunications monopoly 
KazakhTelecom.  Addressing Prime Minister Daniyal Akhmetov, 
Nazarbayev demanded the dismissal of Karibzhanov, whose salary, 
he said, was $364,000 a month.  Among others, Nazarbayev also 
mentioned the former President of the Kazakhstan Development 
Bank Kambar Shalgimbayev ($100,000 a month), and the head and 
deputy heads of Samruk (respectively, $34,000 and $32,500 a 
month).  (Note: one of the two deputy heads of Samruk is 
Nazarbayev' son-in-law Timur Kulibayev.  End note.)  Karibzhanov 
has since been fired. 
 
4. (SBU) "All who have lost their shame," said Nazarbayev, "must 
return the money to the state."  Those who fail to do so, he 
continued, are to be put on a "special list to be published, 
followed by an investigation in accordance with the law." 
Nazarbayev gave the General Procuracy a month to investigate the 
issue of remuneration in national companies.  Some officials, 
including Karibzhanov, have returned their bonuses.  A Samruk 
insider told Econoff that at least one official of the holding 
company has "voluntarily" reduced his salary.  Defending his 
organization to members of the Mazhilis (lower house of 
Parliament) on September 21, Samruk Acting Executive Director 
Sauat Mynbayev clarified that Karibzhanov's base salary last 
year was, in fact, $6,500 a month.  With bonuses, it amounted to 
$140,000 a month, still "incredibly high," Mynbayev said, but 
not as high as the monthly sum of $365,000 announced by 
Nazarbayev. 
 
SAMRUK AFFECTED... 
 
5. (SBU) According to the Samruk insider, Karibzhanov's 2005 
compensation was determined by a long-standing mechanism which 
set aside a bonus pool based on the company's profitability.  By 
"effectively taking advantage of its monopoly power," he said, 
KazakhTelecom has, indeed, been very profitable.  According to 
press reports, KazakhTelecom and KazMunaiGas, the state oil & 
gas company, together accounted for 99% of Samruk's 2005 income. 
 (Note:  Established in January 2006, Samruk currently holds the 
assets of KazakhTelecom, KazMunaiGas, the post office KazPost, 
the railroad Kazakhstan TemirZholy, and the Kazakhstan 
Electrical Grid Operating Company, KEGOC.  See Ref A.  End note.) 
 
6. (SBU) The Samruk insider further told Econoff that the 
scandal reflects Samruk's failure to date to establish effective 
reporting channels with constituent companies.  The companies 
under the Samruk umbrella did not inform the Samruk management 
of incoming official inquiries on executive salaries, he said. 
Samruk, the insider added, had intended to review the salary 
issue but was upstaged by the scandal.  He expressed some 
concern that, in the short term, the scandal represents a public 
relations blow to the still-young Samruk. 
 
...BUT NOT DAMAGED... 
 
7. (SBU) Observers, however, have not blamed Samruk and Kazyna 
for the salary debacle.  Media coverage has portrayed the 
emergence of the salary issue as part of President Nazarbayev's 
drive to fight corruption and clean up the government, 
particularly in the wake of the HIV infection scandal in South 
Kazakhstan (Ref B).  In both scandals, much blame has been 
 
ASTANA 00000147  002.2 OF 002 
 
 
directed at the government but not at the Presidential Palace. 
Nazarbayev's decision to raise the issue in a very public forum 
has further fueled media speculation that the government's d
ays 
may be numbered.  In power for three years as of June 2006, 
Daniyal Akhmetov is the longest-serving prime minister in the 
history of independent Kazakhstan. 
 
...AS BIGGER CHANGES MAY BE AFOOT 
 
8. (U) Talgat Mukashev, an observer writing for a Russian-based 
website centrasia.org, views the bonus scandal through the prism 
of an emerging "new hierarchy of economic power in the country." 
 Citing ample talk of creating additional state holding 
companies, he sees a drive toward consolidation of key economic 
assets. (Note:  A new agricultural state holding company, 
KazAgro, is in the works, per Ref C.  There is also discussion 
of forming a metallurgical state holding company.  End note.) 
The bonus scandal, according to this view, is a shift in the 
balance of power between various elite groups competing for 
control of the assets.  In particular, Mukashev sees PM 
Akhmetov's government losing control over state-owned companies. 
 (Comment:  Post sees a possible connection between this 
development and reported plans to strengthen the power of 
Parliament and the government.  It is too early, however, to 
definitively judge the cause-and-effect relationships, if any. 
End comment.) 
 
9. (SBU) Karibzhanov's ouster comes amid other changes at 
KazakhTelecom.  In the wake of Samruk's creation, the company's 
entire board of directors was replaced in June, with the 
exception of Karibzhanov himself.  Furthermore, there is much 
discussion of a staged privatization of KazakhTelecom through 
initial public offerings, both on the Kazakhstani Stock Exchange 
(KASE) and abroad. 
 
10. (SBU) Comment:  Although the bonus scandal has nominally 
impacted Samruk and Kazyna, it is unlikely to weaken these 
institutions.  Only recently created, Samruk and Kazyna are 
currently at the core of the GOK's key economic policies, the 
former for bringing efficiency and transparency to state-owned 
enterprises, the latter for diversifying the economy away from 
energy.  With plans underway to bring more state-owned companies 
into Samruk and direct more government resources toward economic 
development in the non-energy sector (presumably through 
Kazyna), it is likely that both institutions will continue to 
grow in importance.  The current shake-up may continue the trend 
of more Samruk insiders being appointed to key positions at 
Samruk's constituent companies.  This should strengthen the 
holding company's ability to implement changes within its 
components and help prevent reporting breakdowns such as the 
constituent companies' recent failure to inform Samruk of the 
government's salary inquiries.  End comment. 
MILAS

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06ASTANA146, CLEAN WATER PROGRAM GIVES KAZAKHSTANIS TASTE OF DEMOCRACY

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Reference ID Created Released Classification Origin
06ASTANA146 2006-09-26 14:18 2011-08-30 01:44 UNCLASSIFIED Embassy Astana

VZCZCXRO0686
RR RUEHAST RUEHDBU
DE RUEHAST #0146/01 2691418
ZNR UUUUU ZZH
R 261418Z SEP 06
FM USOFFICE ASTANA
TO RUEHC/SECSTATE WASHDC 0263
INFO RUEHAST/USOFFICE ASTANA 0284
RUEHTA/AMEMBASSY ALMATY 0231
RUEHEK/AMEMBASSY BISHKEK 0030
RUEHNT/AMEMBASSY TASHKENT 0027
RUEHDBU/AMEMBASSY DUSHANBE 0026
RUEHAH/AMEMBASSY ASHGABAT 0027

UNCLAS SECTION 01 OF 02 ASTANA 000146 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR OES/PCI (SALZBERG); EPA FOR OFFICE OF INTERNATIONAL AFFAIRS (B. FREEMAN) 
 
E.O. 12958: N/A 
TAGS: SENV EAID KZ
SUBJECT: CLEAN WATER PROGRAM GIVES KAZAKHSTANIS TASTE OF DEMOCRACY 
 
 
1. Summary:  On September 21, ESTH officer observed local water 
committee elections in the village of Bayanday (population 870), 
the seventh village to participate in the Clean Water Financing 
Program for Kazakhstan.   The program, funded in part by the 
EPA, provides clean drinking water to small isolated villages 
suffering from high rates of water borne diseases.  Water 
systems have been completed in six villages, at an average 
construction cost of $50,000.   As a result, over 8,000 
Kazakhstanis have gained access to safe drinking water.   The 
villagers have also gained valuable exposure to the democratic 
process, as the program mandates that each village must elect a 
water committee to oversee the water system.   The cessation of 
EPA funding, however, leaves the future of the program is in 
doubt.  End summary. 
 
Sustainability Through Ownership 
 
2.  Clean water remains a scarce commodity in Kazakhstan's 
villages.  Half of the 840 villages in the Almaty region do not 
have access to safe drinking water.  The Clean Water Financing 
Program, designed and implemented by the Global Environment 
Technology Foundation (GETF) and the International Center for 
Environment Finance (ICEF), with funding from the EPA, aims to 
provide clean drinking water to isolated villages suffering from 
high rates of water-borne diseases. 
 
3.  In order to ensure sustainability, the program requires that 
each participant village pay ten percent of the costs needed to 
construct a new, or rehabilitate an old, water system.  In the 
six completed projects, costs for villages have ranged from 
$3707 to $5769, or roughly three to four dollars per villager. 
The villages are also fully responsible for the system's 
operation, maintenance, and reserve fund.   According to Diyas 
Jubandykov, GETF Country Director, the average monthly tariff 
paid by each villager is approximately 25-50 cents. 
 
4.  To further create a sense of ownership, each village is 
required to elect a water committee to democratically manage and 
operate its water system.  Working through the water committee, 
villagers agree upon the numbers of hours each day the system 
delivers water, which, in turn, determines the monthly tariff 
rate.  Once elected by the villagers, the water committee 
chooses a director and elects members of the audit, management, 
and operations committee. 
 
5. Thus far, six villages, with a combined population of over 
8,000, have received access to clean water through the Clean 
Water Financing Program.  The EPA has funded each project, 
spending between $25,000 and $40,000.   No further EPA funding 
exists.  The Philip Morris Corp. paid for the project in 
Bayanday, which is scheduled to be finished in November 2006. 
Norway is supporting one project in the village of Ghalgyzagash, 
also scheduled to be completed in November 2006. 
 
6. The GOK has expressed interest in the Clean Water Financing 
Program.  Anatoly Ryabtsev, Chairman of Kazakhstan's Committee 
on Water Resources, has publicly stated that Kazakhstan should 
consider adopting similar methodology when providing clean water 
to small villages.  As of now, however, Kazakhstan has yet to 
implement any programs mirroring those of the Clean Water 
Financing Program. 
 
7. Therefore, according to Jubandykov, one ultimate goal of the 
ICEF is to demonstrate that its program is a more effective 
means of creating sustainable clean drinking water systems than 
existing GOK programs.  Jubandykov said that ICEF would first 
like to strengthen the sustainability of its program by 
establishing a financial cooperative, which would serve as 
central bank holding the reserve funds from all participant 
villages.  Each village would be able to borrow funds from the 
pooled fund to defray the cost of future repairs and 
improvements.  Jubandykov believes that a successful financial 
cooperative would require the participation of 10-15 villages. 
 
Democracy Comes to Kazakhstan 
 
8. On September 21, ESTH officer traveled to the village of 
Bayanday, 30 miles outside of Almaty, to watch the village's 
water council hold committee elections.  Council members, who 
were elected by the entire village, met to elect a director and 
representatives for the council's audit, management and 
operation committees. 
 
9. The elections were held at Bayanday's small two room school 
house, decorated with balloons and streamers for the event. 
After opening remarks by the county's deputy governor, council 
members gathered in line and entered the designated voting area, 
 
ASTANA 00000146  002 OF 002 
 
 
one at a time.  Most voters entered solemnly, but left with 
smiles on their faces.  The votes were quickly tabulated and the 
council gathered again in the schoolhouse to hear the results. 
While the director was elected unanim
ously, competition was 
tight for the other positions.  With positions now established, 
the council will meet at least every once every three months to 
discuss the water needs of their village constituents. 
 
10. Comment:  At a low cost, the Clean Water Financing Program 
for Kazakhstan has provided clean drinking water to over 8,000 
Kazakhstanis, influenced GOK thinking on water issues, and 
enabled seven villages to hold true democratic elections.  With 
word of mouth spreading about the program, enthusiasm has 
gradually replaced skepticism among Kazakhstanis.  Several 
villages have approached GETF Country Director Jubandykov, money 
for construction costs in hand, ready to begin the program. 
Unless additional donors are identified, however, the Clean 
Water Financing Program is unlikely to have the funds to create 
water systems in additional villages.  End comment 
MILAS

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