08ASTANA405, KAZAKHSTAN SEARCHES FOR NEW ENERGY SECTOR MODEL

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Reference ID Created Released Classification Origin
08ASTANA405 2008-02-29 11:48 2011-08-30 01:44 CONFIDENTIAL Embassy Astana

VZCZCXRO1212
PP RUEHBI RUEHCI RUEHLH RUEHPW
DE RUEHTA #0405/01 0601148
ZNY CCCCC ZZH
P 291148Z FEB 08
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC PRIORITY 1866
INFO RUCNCIS/CIS COLLECTIVE 0411
RUCNCLS/SCA COLLECTIVE
RUEHAK/AMEMBASSY ANKARA 2144
RUEHBJ/AMEMBASSY BEIJING 0037
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC

C O N F I D E N T I A L SECTION 01 OF 02 ASTANA 000405 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR SCA/CEN, EEB 
DEPARTMENT OF ENERGY FOR EKIMOFF/THOMPSON 
COMMERCE FOR HEUPER 
USTDA FOR DAN STEIN 
 
E.O. 12958: DECL: 02/28/2018 
TAGS: EPET PGOV PREL KZ
SUBJECT: KAZAKHSTAN SEARCHES FOR NEW ENERGY SECTOR MODEL 
 
REF: ASTANA 3379 
 
Classified By: AMBASSADOR JOHN ORDWAY FOR REASONS 1.4 (B) AND (D) 
 
1. (C) Summary: Kazakhstani officials have made a series of 
announcements since the beginning of 2008 indicating that 
Kazakhstan intends to take a tougher stance with foreign 
energy investors.  Prime Minister Masimov has banned new 
production-sharing agreements, called for a new tax code for 
natural resource users, and vowed to expropriate mineral 
fields from "unscrupulous operators." Minister of Energy and 
Natural Resources Sauat Mynbayev announced that Kazakhstan 
will seek to introduce customs duties on exports of crude oil 
and other products from 2009.  While Kazakhstan is clearly 
trying to increase its share of energy sector profits, 
foreign investors are not panicking.  Both ExxonMobil and 
ConocoPhillips are actively pursuing new opportunities in 
Kazakhstan.  Several country representatives for 
international oil companies have described Kazakhstan's 
actions as a move to a new model for deals, not a 
radicalization of the energy sector. In addition, Prime 
Minister Masimov told the Ambassador that as long as 
President Nazarbayev is in power existing contracts will be 
respected. End Summary 
 
Tough Statements From the GOK 
----------------------------- 
 
2, (SBU) GOK officials have signaled their intent to 
establish a new modus operandi in the energy sector.  In 
February, Prime Minister Masimov banned new production 
sharing agreements and announced publicly that a new tax code 
will be formulated defining "precise rules of the game for 
natural resource users and increasing the government's take 
from the raw materials sector."  Masimov also announced that 
Kazakhstan would expropriate mineral fields from 
"unscrupulous" developers by the end of 2008.  In January, 
Minister of Energy and Mineral Resouces Sauat Mynbayev said 
that the GOK would introduce customs duties on exports of 
crude oil and products from 2009. 
 
3. (SBU)  While seeking a bigger share of the energy sector 
pie, the GOK has also sought to reassure foreign investors. 
Masimov promised that Kazakhstan will "continue to honor its 
obligations stipulated by the contracts that have already 
been concluded."  Deputy Energy Minister Lyazzat Kiinov, 
responding to Prime Minister Masimov's threat to revoke 
mineral licenses, said that "there is not a single Western 
investor" in a group of 60 to 70 contracts under review. 
Even Mynbayev's call for export duties on oil exports may 
have a limited affect, as the new taxes will not apply to 
production sharing agreements or most other stabilized 
contracts. 
 
Kazakhstan Seeks a New System 
----------------------------- 
 
4.(C) Several country representatives for international oil 
companies acknowledged to Poloff that Kazakhstan is looking 
to increase its share of energy sector earnings.  Per Einer 
Rettedal, Country Manager for StatoilHydro, described the 
Kazakhstanis as mistrustful of PSAs and searching for a new 
framework for deals.  According to Rettedal, the Kazakhstanis 
still do not clearly understand PSAs. They believe that PSAs 
only benefit the oil companies while offering no advantages 
to Kazakhstan.   Rettedal, who has worked with Kazakhstan 
since its independence, said that twice Kazakhstani Energy 
ministers in Norway have asked how Kazakhstan should punish 
oil companies that have delays and cost overruns. The 
Norwegians, he said, had difficulty on each occasion even 
understanding the question, because they see it as a 
fundamental misunderstanding of the relationship between 
goverments and oil companies.  (Comment: This was not the 
only instance in which Kazakhstanis energy officials 
exhibited a different world view than the Norwegians.  One 
KazMunaiGas official on a tour of oil-rich Norway asked " 
where are all the Mercedes'?") 
 
5. (C) Nevertheless, said Rettedal, Kazakhstan "is not 
Moscow."  He believes that the Kazakhstanis have no intention 
of "squeezing out the IOCs."  Moreover, the Kazakhstanis 
understand that they do not have the resources or the 
 
ASTANA 00000405  002 OF 002 
 
 
expertise to act alone , he added. 
 
6. (C) Patty Graham, ExxonMobil General Relations and Public 
Affairs Director, told Poloff that she believes Kazakhstan is 
moving to a new model in its relationships with international 
oil companies,, but is "not looking to take things over." 
Graham said that Kazakhstan's energy policymakers are 
adopting a strategy mirroring Kazakhstan's multi-vector 
foreign policy. Kazakhstan in the future will try to achieve 
a balance between the major foreign oil companies, seeking 
different partners for different projects, but with KMG 
always in the lead. 
 
7. (C) ConocoPhillips Country Manager said that Kazakhstan is 
"tightening the screws" but that its ac
tions must be compared 
with "situations elsewhere."  As an indication that 
ConocoPhillips has not been put off by changes in Kazakhstan, 
Olds told Poloff that ConocoPhillips is making another push 
for a deal on N Block.  Conoco CEO Jim Mulva traveled to 
Kazakhstan on February 28.  (Comment: Both Prime Minister 
Masimov and Energy Minister Mynbayev have told the Ambassador 
that Kazakhstan will move forward with ConocoPhillips on N 
Block.  Conoco is not the only American major pursuing new 
deals in Kazakhstan.  ExxonMobil is attempting to secure 
rights to an on-shore field.) 
 
Prime Minister Masimov's Message to the Ambassador 
--------------------------------------------- ---- 
 
8. (C) Prime Minister Masimov told the Ambassador on February 
19 that ensuring long-term stability and respect for existing 
contracts will not be a problem as long as President 
Nazarbayev is in office.  After his departure, however, the 
contracts may be vulnerable because they have never been 
ratified and thus do not have status superior to Kazakhstani 
law as amended.  Masimov said that the only way to solve the 
problem is to get the contracts ratified, which he described 
as a personal priority. 
 
9. (C) Comment: Kazakhstan's vision of terms for future 
energy deals should become clearer in coming months after 
talks with several of the major investors seeking new 
projects in Kazakhstan. With President Nazarbayev, Prime 
Minister Masimov, and KMG's Makhsat Idenov (in that order) 
shaping the strategy, we expect the new framework established 
to be more advantageous and profitable for Kazakhstan but not 
damaging to the investment climate. End Comment 
 
 
ORDWAY

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