07ASTANA908, KAZAKHSTANI PRIME MINISTER ON ENERGY, CTR VAT

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Reference ID Created Released Classification Origin
07ASTANA908 2007-04-10 00:46 2011-08-30 01:44 CONFIDENTIAL Embassy Astana

VZCZCXYZ0005
PP RUEHWEB

DE RUEHTA #0908 1000046
ZNY CCCCC ZZH
P 100046Z APR 07
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC PRIORITY 9034
INFO RUCNCIS/CIS COLLECTIVE PRIORITY 0119
RUEKJCS/SECDEF WASHDC PRIORITY 0023
RUEAIIA/CIA WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEBAAA/DEPT OF ENERGY WASHDC PRIORITY
RUEAADN/DTRA DULLES WASHDC

C O N F I D E N T I A L ASTANA 000908 
 
SIPDIS 
 
CONFIDENTIAL 
 
SIPDIS 
SIPDIS 
 
DEPT FOR SCA/CEN (M. O'MARA), SCA/RA (A. CUMMINGS) 
CORRECTED COPY - ADD ADDRESSEES 
 
E.O. 12958: DECL: 04/09/2017 
TAGS: ENRG KZ PARM
SUBJECT: KAZAKHSTANI PRIME MINISTER ON ENERGY, CTR VAT 
ISSUES 
 
REF: A. ASTANA 684 
 
     B. ASTANA 848 
     C. ASTANA 860 
 
Classified By: Ambassador John Ordway, reasons 1.4 (B) and (D). 
 
1. (C) Summary:  In a one-on-one meeting with the Ambassador 
April 9, Prime Minister Masimov attributed the delay in final 
agreement on the offshore "N" Block to a Kazakhstani 
government decision to link oil and gas tenders to economic 
diversification goals.  He expressed confidence that the VAT 
issue threatening Cooperative Threat Reduction programs would 
be resolved before the USG's April 15 deadline.  Masimov took 
the Ambassador's point regarding the need to ensure that the 
Tax Treaty is upheld, although he made no commitment 
regarding the specific case now in the courts.  He briefed 
the Ambassador on a recent trip to Azerbaijan, which focused 
on the idea of a "transportation union" among Kazakhstan, 
Azerbaijan, Georgia, and Turkey.  Masimov also shared his 
hope that Kazakhstan will be able to free electricity tariffs 
in 2008.  Finally, the Prime Minister said that he plans to 
visit Washington in September and hopes for high-level USG 
meetings.  End summary. 
 
2. (C) In an April 9 meeting in Astana, Prime Minister Karim 
Masimov told the Ambassador that the GOK decision to delay 
final agreement on the offshore "N" Block (Ref A) was the 
result of a "sea change" in the GOK's approach to oil and gas 
tenders.  The GOK, he said, was determined to use oil and gas 
contracts as an engine for diversification by requiring 
companies to include proposals in their bids which would 
support the non-oil economy.  The GOK had delayed the "N" 
decision, Masimov explained, while it brought in outside 
consultants and otherwise determined how, exactly, to use the 
tender process to further diversification.  (Masimov implied 
that ExxonMobil's onshore proposal - Ref B - was subject to 
the same scrutiny.)  Masimov added that, as part of its new 
strategy on oil and gas development, the GOK was no longer 
going to "acquiesce" to full reinjection of sour gas, 
insisting instead that more gas be used domestically (i.e., 
petrochemicals) as well as exported.  We have identified the 
means to store the resulting sulfur, he added. 
 
3. (C)  The Ambassador underscored the urgency of resolving 
the CTR VAT issue before the April 15 deadline, in order to 
avoid the suspension of all Cooperative Threat Reduction 
programs.  Masimov indicated that he was actively engaged and 
thought that the issue would be resolved in time.  He added 
that he had ordered the bureaucracy to push through the order 
creating an interagency tax exemption commission (Ref C) 
after the Ambassador's personal approach detailing the 
problem and consequences.  The Ambassador stressed that the 
tax authorities needed to take a constructive and flexible 
approach, not raise constant technical questions and 
objections. 
 
4. (C)  Masimov declined to comment on the Parker Drilling 
case.  Ambassador Ordway underscored the importance of the 
issue, explaining that, at the end of the day, both tax 
authorities had to be convinced that the tax treaty was being 
upheld - something which was clearly at risk, from the USG 
side, in the Parker case.  The Ambassador suggested to 
Masimov that, even if the Supreme Court issued a ruling 
against Parker, the tax authorities should be allowed to 
continue negotiating a settlement. 
 
5.  (C)  Masimov commented that his recent trip to Azerbaijan 
had gone very well.  He wished to let Washington know that 
Kazakhstan was "quietly" pursuing the idea of a four-country 
(Kazakhstan, Azerbaijan, Georgia, Turkey) "transportation 
union."  Masimov also noted that his goal was to completely 
free electricity tariffs "next year." 
 
6.  (SBU) Masimov told the Ambassador that he plans to visit 
Washington in September for World Bank meetings, and hoped to 
meet with USG decisionmakers at the same time. 
ORDWAY

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