08ASTANA56, HIGH-LEVEL KASHAGAN TALKS SCHEDULED IN ASTANA FOR

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Reference ID Created Released Classification Origin
08ASTANA56 2008-01-11 12:44 2011-08-30 01:44 CONFIDENTIAL Embassy Astana

VZCZCXYZ0000
PP RUEHWEB

DE RUEHTA #0056/01 0111244
ZNY CCCCC ZZH
P 111244Z JAN 08
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC PRIORITY 1473
INFO RUCNCIS/CIS COLLECTIVE PRIORITY 0359
RHEBAAA/DEPT OF ENERGY WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY

C O N F I D E N T I A L ASTANA 000056 
 
SIPDIS 
 
SIPDIS 
 
SCA/CEN FOR M. O'MARA 
DOE FOR EKIMOFF 
COMMERCE FOR HUEPER 
 
E.O. 12958: DECL: 01/12/2018 
TAGS: EPET ENRG ECON PREL KZ
SUBJECT: HIGH-LEVEL KASHAGAN TALKS SCHEDULED IN ASTANA FOR 
JANUARY 13 
 
 
Classified By: AMBASSADOR ORDWAY FOR REASONS 1.4(B) and (D) 
 
1. (C) Summary:  Further Kashagan negotiations are scheduled 
for January 13 in Astana.  CEOs from all consortium members 
(except Total) expected to participate.  Kashagan was a topic 
of discussion during Senator Richard Lugar's January 10-11 
visit to Astana, with Ministry of Energy and Natural 
Resources Sauat Mynbayev expressing frustration with 
ExxonMobil, KazMunayGas First Vice President Maksat Idenov 
still optimistic on chances for a resolution, and Prime 
Minister Masimov reserved.  ExxonMobil's country 
representative for Kazakhstan told the Ambassador on January 
11 that ExxonMobil does not plan to change its position.  End 
Summary 
 
2. (C) CEOs from Eni, ExxonMobil, ConocoPhillips, Impex, and 
Shell are expected in Astana on January 13 for the latest 
round of Kashagan negotiations. (Total will be represented by 
chairman.)  According to ExxonMobil Kazakhstan's Government 
Relations and Public Affairs Director Patricia Graham, each 
CEO will meet separately with Ministry of Energy and Natural 
Resources Sauat Mynbayev before a group meeting with Prime 
Minister Karim Masimov. 
 
3. (C) Kashagan was a subject of conversation during Senator 
Richard Lugar's January 9-11 trip to Kazakhstan (see septel 
for a more detailed description of the Senator's meetings). 
Prime Minister Masimov noted that ExxonMobil was the 
remaining obstacle but otherwise did not comment on the 
prospects of a negotiated settlement.  Energy Minister 
Mynbayev told the Senator that Kazakhstan "has exhausted all 
of its flexibility on Kashagan." January 13-14 will be the 
final negotiations, he said, and then Kazakhstan will decide 
whether to continue to work with the consortium (Comment: 
Mynbayev gave no hint of contemplated next steps if the next 
round of negotiations fail. Local media on January 11 quoted 
an unnamed source "close to the talks" who said that 
Kazakhstan is considering termination of the Production 
Sharing Agreement (PSA)).  Mynbayev placed the blame on 
ExxonMobil, saying that ExxonMobil and Kazakhstan have not 
been able to agree upon the value of an increased stake for 
KazMunayGas (KMG).  Aside from the dispute with ExxonMobil, 
all sides are in agreement on all issues, claimed Mynbayev. 
 
4. (C)  Maksat Idenov, KMG First Vice-President and Kashagan 
lead negotiator, told Senator Lugar that he is still 
optimistic on chances for a resolution.  Idenov did not spare 
the consortium of criticism, calling it dysfunctional and 
describing frequent disagreements among the parties.  He 
explained to the Senator in some detail the reforms he 
believes are needed within the consortium and which he 
claimed are largely agreed upon.  Like Mynbayev, Idenov was 
critical of ExxonMobil's approach to calculating the 
fair-market value of KMG's increased stake.  Nevertheless, he 
said that Kazakhstan wants to keep the consortium together 
and could not see the prospect of "excluding" any current 
consortium members.  In response to a question from a 
delegation member, Idenov stated that Kazakhstan has never 
threatened to apply the sub-soil use law against the 
consortium. He also noted that he has approved the next 
operating budget for Kashagan. 
 
5.(C) Graham told the Ambassador on January 11 that 
ExxonMobil will not change its position.  ExxonMobil is a 
world-wide operation, she said, and cannot afford to create a 
precedent in Kazakhstan that will affect it elsewhere.  She 
said that progress has been made on other issues, but not on 
the question of establishing the fair market value of an 
increased ownership share for KMG. Graham indicated that 
ExxonMobil does not have any new ideas to offer and she 
expects "tough negotiations." 
 
6. (C) Comment: The sides in the Kashagan dispute have made 
some progress, and Kazakhstan's decision to approve the next 
operating budget is positive.  Nevertheless, with Kazakhstan 
and ExxonMobil at loggerheads, we do not expect this 
weekend's negotiations to yield a final result, and we are 
not yet ready to give credence to rumors of breaking the PSA 
as anything more than another bargaining tactic. Ultimately, 
as Idenov confirmed, none of the consortium members are 
willing to sell any of their interests (except to grant KMG a 
larger share), or to walk away from an asset that has 
considerable impact on each company's proven reserves.  The 
GOK needs a capable operator, and breaking the current 
contract would create a situation that would further delay 
the project, raise costs, and create a grave risk to its 
 
viability, particularly if ExxonMobil or any other member 
took the matter to the courts or arbitration. End Comment 
 
7. (U) Senator Lugar has not cleared this cable. 
 
ORDWAY

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