07ASTANA1639, KAZAKHSTAN REACTION TO EITI VALIDATION DEADLINE

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Reference ID Created Released Classification Origin
07ASTANA1639 2007-06-15 06:58 2011-08-30 01:44 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Astana

VZCZCXRO6232
RR RUEHAST
DE RUEHTA #1639/01 1660658
ZNR UUUUU ZZH
R 150658Z JUN 07
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC 9794
INFO RUEHAST/USOFFICE ALMATY

UNCLAS SECTION 01 OF 02 ASTANA 001639 
 
SIPDIS 
 
DEPT FOR SCA/CEN (O'MARA) 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EAID ENRG EPET KZ
SUBJECT:  KAZAKHSTAN REACTION TO EITI VALIDATION DEADLINE 
 
REF: A) State 75118, B) 06 Astana 492 
 
1. (SBU) Summary: Per Ref A action request, Kazakhstan appears well 
on its way to meeting the September 2007 deadline for completing the 
four Extractive Industry Transparency Initiative (EITI) "sign-up" 
indicators, with the last criteria -- publication of a work plan -- 
likely to be fulfilled later this month.  Overall, Kazakhstan's EITI 
implementation efforts received a big boost in late May, when Prime 
Minister Masimov agreed to create a three-person office within the 
Energy Ministry dedicated to EITI implementation.  The Government of 
Kazakhstan (GOK) has made additional progress on EITI issues in 
recent months - notably, passing legislation in January 2007 that 
obliges future subsoil users to join EITI - and appears to have won 
the respect of the NGO and business representatives on the National 
Stakeholder's Council for its efforts. The one EITI issue that 
appears to trouble all three EITI participant sectors - government, 
business, and NGOs - is the non-participation to date of 
Kazakhstan's largest oil producer, TengizChevrOil.  End summary. 
 
 
GOK Reaction to September Deadline 
---------------------------------- 
 
2. (SBU) On June 8, the head of Kazakhstan's EITI Secretariat, Vice 
Minister of Energy and Mineral Resources Bolat Akchulakov, 
acknowledged receiving the EITI letter from Board Chairman Peter 
Eigen, and informed Energy Officer that Kazakhstan would soon 
complete its fourth, and final, "sign-up" step by publishing an 
approved Work Plan on Kazakhstan's EITI website.  Akchulakov noted 
that the GOK might decide to take publication of the work plan one 
step further, by listing it in the government's official newspaper, 
but in either case the work plan had been finalized, and thus 
Kazakhstan was on the verge of completing the fourth, and final, 
"sign-up" EITI step.  (Note: Technically, the National Stakeholders' 
Council has only approved the plan "in principle"; however, the 
Council is expected to formally adopt the plan during its scheduled 
June 20 meeting.  World Bank Country Manager Sergey Shatalov echoed 
Akchulakov's timing forecast on June 13, telling Energy Officer that 
the work plan "should be" published on www.eiti.kz by the end of 
June.  The website itself is being redesigned, but will be fully 
operational by mid-July. End note.) 
 
GOK Making Steady EITI Progress 
------------------------------- 
 
3. (SBU) Currently, Kazakhstan's EITI Secretariat is based in the 
Ministry of Energy and Mineral Resources (MEMR), and is staffed on 
the government side by Akchulakov, Vice Minister of Finance 
Yergozhin, and Beksultan Zhaliyev, a mid-level MEMR employee. 
Akchulakov pointed out the limitation of this arrangement to Energy 
Officer: "We all have full-time jobs other than EITI," he said, 
noting with satisfaction that the Prime Minister had recently agreed 
to establish a separate, three-person EITI office within the Energy 
Ministry.  Two additional Stakeholder Council representatives -- 
Anton Artemyev of the NGO "Kazakhstan Revenue Watch Program" and 
Patty Graham of ExxonMobil --  also greeted this news with 
enthusiasm, telling Energy Officer that, while Akchulakov had been 
accessible and engaged on EITI issues, he was clearly overworked and 
the EITI process would be well-served by the creation of a dedicated 
EITI office. 
 
4. (SBU) In January 2007 Kazakhstan passed an amendment to its 
"Subsoil Law" which obliges future tender applicants to accede to 
EITI.  Meanwhile, in January, a new EITI working group was formed 
with the task of recruiting more existing companies to join EITI.  A 
month-long recruitment drive in January netted 20 additional 
companies, bringing total membership to 92 (51 oil and gas companies 
and 41 mining companies), out of approximately 250 extractive 
companies operating in the country. 
 
 
Biggest Oil Producer Still to Join 
---------------------------------- 
 
5. (SBU) All of our EITI interlocutors have indicated that 
TengizChevrOil's (TCO) participation is essential for the 
credibility of the process. (TCO is Kazakhstan's largest oil 
producer, at 280,000 barrels a day, a number due to double over the 
next 18 months.)  Graham of ExxonMobil (itself a 25% participant in 
TCO) told Energy Officer that she was not aware of any particular 
reason why TCO had not joined, and added that ExxonMobil, for one, 
would "put pressure" on the joint venture to do so.  Shatalov cast 
TCO's absence in a more negative light, telling Energy Officer that 
Prime Minister Masimov had told him that TCO had failed to reply to 
several letters sent by his office encouraging it to join the 
initiative. "If they keep silence," Shatalov quoted Masimov as 
saying, "it means they are hiding something."  Shatalov indicated to 
Energy Officer that, in his opinion, there was little point in 
compiling a formal EITI report until TCO had joined the initiative. 
(Note: The Council has had difficulty engaging an international 
 
ASTANA 00001639  002 OF 002 
 
 
audit firm to perform the first audit reco
nciling the revenues 
reported paid by companies and received the by the government.  Of 
the "big four" international accounting firm, only KPMG bid on the 
initial tender - and then withdrew from the process.  While Graham 
told Energy Officer that she was hopeful that a new firm would be 
selected in time to publish the first audited report - of 2005 
revenues - by year-end 2007, she admitted that it would be an uphill 
battle.  End note.) 
 
NGO Role 
-------- 
 
6. (SBU) The government, World Bank, and private sector have all 
spoken highly of NGO participation in the EITI process thus far. 
Early in the process of forming the Stakeholder's Council, a battle 
for influence occurred between "pro-GOK" and "independent" NGOs, 
but, according to the World Bank's full-time EITI consultant Yerlan 
Akishev, the pro-GOK NGOs have gradually lost interest in the 
process and have been replaced by their more demanding, active NGO 
colleagues.  To a certain extent, the participating NGOs have 
focused on two "marginal" issues -- lobbying for the reporting of 
disaggregated revenue data and for the publication of extractive 
companies' "social payments" -- but (in both Akchulakov and Graham's 
view) not to the extent that they have impeded the mainstream EITI 
process. 
 
Additional Points 
----------------- 
 
7. (SBU) Per Ref A points: (1) Kazakhstan, as a major producer not 
only of hydrocarbons, but of minerals as well, has a large and 
well-organized extractive sector; (2) while the GOK has undertaken 
other initiatives to manage oil industry revenues in a transparent 
way (i.e., establishment of a National Fund - Ref B), Post is not 
aware of any existing GOK effort to report these revenues; (3) Post 
is not aware of additional industry-driven transparency initiatives; 
(4) Post's impression is that, while there are not a large number of 
NGOs engaged on this issue, there are a few, highly-capable ones 
which do influence the process; (5) the USG does not offer 
assistance to EITI in Kazakhstan, nor are we aware of any other 
country which does.  The World Bank provides technical assistance to 
the GOK on EITI issues, based on an MOU signed in December 2006. 
 
ORDWAY

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