07ASTANA1302, KAZAKHSTAN: PRIME MINISTER AND FOREIGN MINISTER

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Reference ID Created Released Classification Origin
07ASTANA1302 2007-05-15 11:04 2011-08-30 01:44 CONFIDENTIAL//NOFORN Embassy Astana

VZCZCXRO5566
PP RUEHDBU
DE RUEHTA #1302/01 1351104
ZNY CCCCC ZZH
P 151104Z MAY 07
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC PRIORITY 9444
INFO RUCNCIS/CIS COLLECTIVE 0163
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEAIIA/CIA WASHDC
RUEBAAA/DEPT OF ENERGY WASHDC

C O N F I D E N T I A L SECTION 01 OF 02 ASTANA 001302 
 
SIPDIS 
 
NOFORN 
SIPDIS 
 
DEPT FOR SCA/FO SMANN); EB/ESC; SCA/CEN (O'MARA) 
DEPT PLEASE PASS USTDA (DSTEIN) 
 
E.O. 12958: DECL: 05/14/2017 
TAGS: ENRG EPET KZ RS TX
SUBJECT: KAZAKHSTAN: PRIME MINISTER AND FOREIGN MINISTER 
DOWNPLAY ANNOUNCED GAS PIPELINE DEALS 
 
REF: ASHGABAT 489 
 
Classified By: Ambassador John Ordway; reasons 1.4 (b) and (d). 
 
1. (C) Summary: Both Prime Minister Masimov and Foreign 
Minister Tazhin downplayed the significance of the gas 
pipeline deals announced during the May 12 tripartite summit 
in Turkmenistan (Ref A) in separate May 15 conversations with 
Ambassador Ordway.  Masimov told the Ambassador that "all we 
agreed to was a feasibility study" for a new gas pipeline, 
and that "only because it was so very important to Putin." 
Tazhin, in turn, described the deal as a "Russian deal for 
Turkmen gas," and assured the Ambassador that "we are not 
cutting off any options" for gas transportation.  Masimov 
also told the Ambassador that the summit had not led to any 
progress on the issue of Caspian Pipeline Consortium (CPC) 
expansion, and voiced skepticism that the Government of 
Russia would ever agree to expansion terms.  Masimov 
acknowledged that the government was preparing itself for a 
heated battle with Kashagan partners once project delays and 
cost overruns were formally announced later this summer; in 
addition to financial compensation, he said, the government 
might seek a change of operator.  End summary. 
 
Downplaying the Gas Pipeline Drama 
---------------------------------- 
 
2. (C) On May 15, Prime Minister Masimov downplayed the gas 
pipeline deals announced during the May 12 tripartite summit 
in Turkmenistan, telling Ambassador Ordway that "all we 
agreed to was a feasibility study" for a new gas pipeline, 
and that Nazarbayev had gone that far "only because it was so 
very important to Putin."  The presidents, he said, had 
ordered their governments to draw up an agreement for 
signature by September 1.  Masimov portrayed the deal as 
driven by the Russians and Turkmen, with Kazakhstan involved 
merely by virtue of geography. 
 
3. (C) What Kazakhstan was really after in Turkmenistan was a 
gas concession, Masimov explained, in order to secure gas 
supplies for Kazakhstan's gas-deficit Southern population 
centers.  Beyond that, he said, the Government of Kazakhstan 
(GOK) had pursued railroad and road projects linking the 
Caspian port of Aktau with Turkmenistan. 
 
4. (C) Foreign Minister Tazhin requested the May 15 meeting 
with Ambassador Ordway, telling the latter that he was 
fulfilling a commitment he had made to Principal Deputy 
Assistant Secretary Mann to inform the USG about the 
discussions in Ashgabat.  Like Masimov, Tazhin downplayed the 
significance of the announced agreements.  What had 
transpired, he said, was a "Turkmen-Russian deal for Turkmen 
gas."  Kazakhstan, he noted, was only a transit country.  The 
deal did not involve Kazakhstani gas, nor any project on the 
Kazakhstani shelf.  Therefore, he concluded, there was 
nothing which Kazakhstan had been in a position to say "no" 
to.  Tazhin shared an additional detail of the gas pipeline 
project with the Ambassador, noting each of the three 
countries would pay for the construction of that part of the 
pipeline which passed through its territory, with Kazakhstan 
recouping its investment by means of transit fees. 
 
5. (C) Tazhin also qualified Nazarbayev's May 10 remark 
(following a meeting with Putin) to the effect that 
Kazakhstan was committed to shipping most, if not all, of its 
oil through Russian territory.  Tazhin agreed that, even if 
CPC expansion was factored in, there was "no way" that 
Kazakhstan could export all its oil through Russia. 
 
 
No Progress on CPC Expansion 
---------------------------- 
 
6. (C) Masimov told the Ambassador that, notwithstanding 
Nazarbayev's media quotes implying that optimism on CPC 
expansion was justified, no progress had been made on the 
issue.  "The Russians are not going to agree on CPC 
expansion," Masimov said flatly.  Masimov noted that he would 
be traveling to Moscow on June 1, where a host of energy 
issues, including CPC expansion, possible expansion of the 
Atyrau-Samara pipeline, and the Orenburg gas-processing plant 
joint venture would be at the top of his agenda.  (Tazhin 
told the Ambassador that the Orenburg negotiations were "very 
difficult" as well.  The Russians were striking a hard 
bargain, he said, knowing that the cost to the Kazakhstanis 
 
ASTANA 00001302  002 OF 002 
 
 
of constructing their own, alternative gas processing plant 
were nearly prohibitive.) 
 
Tough Times Ahead for Kashagan Partners 
--------------------------------------- 
 
7. (C) Masimov informed the Ambassador that the GOK had hired 
outside, U.S. consultants -- including Cambridge Energy 
Research Associates' Daniel Yergin -- in preparation for the 
formal announcement, later this summer, of Kashagan delays 
and cost overruns.  (Note: The Kashagan partners will present

the project's "Final Project Schedule," as well as cost 
estimates for full field development, to the GOK either in 
late June or July.  End note.)  The report, Masimov 
predicted, would unleash a "storm," as the GOK intended to 
seek economic compensation for the delays and cost overruns. 
The GOK might go further, he said, and seek a change of 
operator.  While the GOK was considering a series of options, 
Masimov concluded, it had no interest in either slowing down 
overall Kashagan development or forcing any existing partner 
to sell its stake in the consortium. 
 
Comment 
------- 
 
8. (C) While we are encouraged by Masimov's interpretation of 
what was -- and what wasn't -- agreed to in Turkmenistan, it 
is clear that our window of opportunity for proving the 
advantages, both economic and geopolitical, of a 
Trans-Caspian gas pipeline is closing.  In order to counter 
the momentum squarely now on the side of the Russians, we 
need to move ahead with our own Trans-Caspian pipeline 
feasibility study as soon as possible.  We may need to 
rewrite the Terms of Reference in order to obtain at least 
preliminary results by September 1, in order to give 
ourselves the evidence and arguments to state our best case. 
ORDWAY

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