07ASTANA1438, KAZAKHSTAN SIGNS AGREEMENT ON CREATION OF

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Reference ID Created Released Classification Origin
07ASTANA1438 2007-05-29 03:14 2011-08-30 01:44 CONFIDENTIAL//NOFORN Embassy Astana

VZCZCXRO8228
PP RUEHDBU
DE RUEHTA #1438/01 1490314
ZNY CCCCC ZZH
P 290314Z MAY 07
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC PRIORITY 9562
INFO RUCNCIS/CIS COLLECTIVE 0180
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 001438 
 
SIPDIS 
 
NOFORN 
SIPDIS 
 
DEPT FOR EB/ESC; SCA/CEN (O'MARA) 
 
E.O. 12958: DECL: 05/28/2015 
TAGS: ENRG EPET KZ RS
SUBJECT: KAZAKHSTAN SIGNS AGREEMENT ON CREATION OF 
INTERNATIONAL URANIUM ENRICHMENT CENTER 
 
REF: A. 06 ALMATY 602 
 
     B. 06 ALMATY 2673 
 
Classified By: Acting DCM Deborah Mennuti; reasons 1.5(b) and (d). 
 
1. (C) Summary: On May 10 representatives of the Government 
of Kazakhstan and the Government of Russia signed an 
Inter-governmental Agreement to set up an international 
uranium enrichment center, under International Atomic Energy 
Agency (IAEA) control, in Angarsk, Russia.  For Kazakhstan's 
state-owned atomic energy company, KazAtomProm, the agreement 
represents an important step toward achieving its stated goal 
of completing the nuclear fuel cycle, and thereby capturing 
additional value in the processing of its natural uranium 
reserves.  In addition to completing the fuel cycle, 
KazAtomProm is driven to become the world's largest 
uranium-producing company, with company president Mukhtar 
Dzhakishev announcing a production target of 18,000 tons of 
natural uranium by 2010. KazAtomProm has signed several 
uranium production agreements toward these ends in the past 
year, primarily with Russian and Japanese companies. 
According to a high-level KazAtomProm executive, the company 
has also finalized terms of a deal to buy 10% of Westinghouse 
from Toshiba.  End summary. 
 
International Uranium Enrichment Center 
--------------------------------------- 
 
2. (SBU)  On May 10, Kazakhstan's Energy Minister and 
Russia's Director of the Federal Atomic Energy Agency 
(ROSATOM) signed an Inter-governmental Agreement (IGA) on the 
creation of an international uranium enrichment center in 
Angarsk, Russia.  The stated goal of the center is to provide 
participating states with guaranteed access to enrichment 
facilities for the purpose of creating nuclear fuel.  (The 
agreement also stipulates that participating states may, with 
IAEA and Russian government approval, create stockpiles of 
enriched uranium under the center's auspices.) 
 
3. (SBU) The agreement specifies that the enrichment center 
will be established using existing facilities at the Angarsk 
Electrolysis Chemical Combine; media quotes from ROSATOM's 
Director suggest that, while initial production will be 
launched using the Combine's "unused capacities," the 
Center's operations could be expanded in the future to new, 
or other existing enrichment facilities -- likely with 
funding from new partners.  The agreement states that 
additional countries without enrichment facilities of their 
own may join the joint venture, provided they are in 
compliance with the Nuclear Non-Proliferation Treaty.  While 
Kazakhstan and future partner governments may own equity in 
the center, and participate in its management, the agreement 
prohibits the transfer of Russian enrichment technology to 
Kazakhstan and future joint venture partners. 
 
4. (C) On May 18, KazAtomProm Vice President Dmitry Parfenov 
told Energy Officer that the IGA had been "based on" 
commercial negotiations between KazAtomProm and Russia's 
Techsnabexport (TENEX).  TENEX and KazAtomProm are already 
majority shareholders (49.33% each) in the Zarechnoye mining 
joint venture in Kazakhstan (where uranium production began 
in December 2006) and in a new, 2006 JV to exploit 
Kazakhstan's Budenovskoye mine, where production is scheduled 
to begin in 2008.  TENEX also signed a fifteen-year contract 
in 2006 to deliver Zarechnoye uranium to Russia (exact 
destination undisclosed) for enrichment.  KazAtomProm and 
TENEX's presence in each of these deals lends evidence to the 
widespread conclusion that KazAtomProm envisions using the 
Angarsk center for the enrichment of future volumes of 
uranium mined at Zarechnoye and Budenovskoye, for onward sale 
to interested nations. 
 
KazAtomProm: Completing the Fuel Cycle 
-------------------------------------- 
 
5. (SBU) KazAtomProm President Mukhtar Dzhakishev has been 
outspoken about his company's ambition to complete the 
nuclear-fuel cycle, articulating the goal as a logical 
business strategy: maximizing the value added in Kazakhstan's 
natural uranium reserves.  The Angarsk deal clearly gives 
KazAtomProm a share of the value-added by the uranium 
enrichment process, while the deal's prohibition on 
enrichment technology transfer appears to adhere to 
international non-proliferation standards, while also having 
the effect of precluding KazAtomProm from emerging as a 
direct competitor to Russia's enrichment industry. In 
 
ASTANA 00001438  002 OF 002 
 
 
general, both Dzhakishev and officials of both governments 
have explained the Angarsk and Budenovskoye JV's (along with 
a third, to design and market small- and medium sized 
reactors, announced simultaneously in July 2006) as 
exploiting a complementarity in the Russian and Kazakhstani 
nuclear industries created in the Soviet era.  In a December 
2006 interview with BBC, for example, Dzhakishev credited the 
joint ventures as the outcome of a realization that, 
"..during Soviet times our e
nterprises were meant to be part 
of...a single nuclear-fuel cycle, and that both the Russian 
and Kazakh sides can, by being mutually complementary, get a 
competitive advantage in the market." 
 
6. (C) However, it is clear that KazAtomProm is not limiting 
its pursuit of the complete nuclear fuel cycle to those 
projects which "complement" existing Russian ventures. 
Parfenov told Energy Officer that KazAtomProm had recently 
finalized negotiations to purchase 10% of Westinghouse from 
Toshiba; the deal, he said, was awaiting USG approval.  Prior 
to Toshiba's October 2006 acquisition of Westinghouse, 
KazAtomProm partnered with General Electric to make a 
competitive bid for the company.  In a January 2006 interview 
with "Nuclear.Ru" Dzhakishev explained that, if KazAtomProm 
succeeded in its bid to buy Westinghouse, the company would 
enter into direct competition with Russia's TVEL in the 
production of fuel assemblies.  KazAtomProm is also pursuing 
deals in other aspects of the fuel cycle with non-Russian 
partners.  Parfenov told Energy Officer that the company 
would soon announce a "Memorandum of Intent" with Canada's 
CAMECO for the creation of a conversion facility in 
Kazakhstan, "or elsewhere, if it isn't profitable in 
Kazakhstan."  The April visit of Japan's Minister of Economy, 
Trade, and Industry, Akira Amari, Parfenov explained, had 
yielded a "strategic understanding" with the Japanese 
companies NFI and Sumitomo on "the most difficult part of the 
fuel cycle," the fabrication of fuel assemblies.  (Note: The 
Japanese Minister's visit also resulted in an announcement by 
Dzhakishev that KazAtomProm would dramatically increase the 
exports of uranium and uranium value-added products to Japan, 
to reach 40% of the market share of the former by 2010.  And 
on April 24, Japan's Marubeni Corporation, Tokyo Electric 
Power Company, and Chubu Electric Power Company announced 
their joint acquisition of an indirect ownership interest in 
the companies developing Kazakhstan's Kharasan mine, 
projected to produce 750 tons of uranium by 2012.  End note.) 
 
Uranium Production: Doubling in Three Years? 
-------------------------------------------- 
 
7. (U) According to the Ministry of Energy and Mineral 
Resources, Kazakhstan produced 5,279 tons of uranium in 2006, 
an increase of 21% above 2005.  Output in 2007 is expected to 
reach 6,937 tons, an additional rise of 31%. 
KazAtomProm has set forth lofty mid-term production goals. In 
an April 2007 interview with a Kazakhstani newspaper, 
Dzhakishev announced that KazAtomProm's uranium production 
would reach 18,000 tons by 2010.  In 2004, Dzhakishev 
explained, KazAtomProm had announced a 2010 target of 15,000 
tons, but "we recently reviewed our plans and raised the bar 
a little more."  Dzhakishev has also articulated the related 
goal of transforming KazAtomProm into the world's largest 
uranium producing company in the same time frame. (According 
to the World Nuclear Association, KazAtomProm currently ranks 
a distant second to Canada's CAMECO.)  In order to realize 
these production goals, KazAtomProm will depend heavily on 
newly-opened uranium mines, including Zarechnoye, Mynkuduk, 
Budenovskoye, and Kharasan. 
GILMER

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