08ASTANA522, YUSHCHENKO’S VISIT TO KAZAKHSTAN PAYS NO IMMEDIATE

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Reference ID Created Released Classification Origin
08ASTANA522 2008-03-17 08:35 2011-08-30 01:44 CONFIDENTIAL Embassy Astana

VZCZCXYZ0000
RR RUEHWEB

DE RUEHTA #0522 0770835
ZNY CCCCC ZZH
R 170835Z MAR 08
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC 2013
INFO RUCNCIS/CIS COLLECTIVE 0438
RHEBAAA/DEPT OF ENERGY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

C O N F I D E N T I A L ASTANA 000522 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR SCA/CEN, EEB 
 
E.O. 12958: DECL: 03/14/2018 
TAGS: PGOV PREL EPET KZ
SUBJECT: YUSHCHENKO'S VISIT TO KAZAKHSTAN PAYS NO IMMEDIATE 
DIVIDENDS IN ENERGY SECTOR 
 
Classified By: AMBASSADOR ORDWAY FOR REASONS 1.4 (B) AND (D) 
 
1. (C) Summary: Presidents Yushchenko and Nazarbayev both 
described Kazakhstan - Ukraine relations as excellent during 
Yushchenko's March 5-6 visit to Kazakhstan.  No agreements 
were reached, however, on energy cooperation.  Instead, 
President Nazarbayev publicly pronounced that Kazakhstan will 
not supply oil for the Odessa - Brody pipeline without 
Russia's consent. After Yushchenko's departure, Ukrainian 
diplomats in Astana said that prospects are poor for enhanced 
energy cooperation with Kazakhstan. End Summary 
 
2. (SBU) President Yushchenko of Ukraine travelled to 
Kazakhstan on March 5-6 for a visit timed to coincide with 
the opening of the "Year of Ukraine" events in Kazakhstan. 
Yushchenko said that Ukraine is ready to support Kazakhstan 
in its efforts to promote its political and economic 
interests in Europe.  President Nazarbayev called Ukraine a 
key political and economic partner and noted that trade 
increased by 64% between the two countries in 2007. 
According to Nazarbayev, Kazakhstan is the seventh biggest 
trade partner of Ukraine globally and the second biggest in 
the CIS. 
 
3. (SBU) Energy cooperation was a clear focus of Yushchenko's 
trip, and the two presidents signed a joint statement 
declaring "Kazakhstan and Ukraine plan to expand cooperation 
in Kazakhstan's oil transportation to European markets and to 
continue working on the long-term prospects of developing the 
Odessa-Brody oil pipeline." Beyond the joint statement, 
however, no concrete arrangements were reached, and President 
Nazarbayev stated that Kazakhstan cannot supply oil for the 
Odessa-Brody pipeline without Russian consent.  Nazarbayev 
did offer one glimpse of hope for the future, saying that 
"there is an alternative way to resolve this issue, and that 
is to reach the Black Sea via Baku." 
 
4. (C) On March 12, Poloff discussed President Yushchenko's 
trip with Mihail Lugovoy, the head of the Ukrainian Embassy's 
Trade and Economic Mission and his deputy, Sergey Polishuk. 
Lugovoy was very pessimistic about Ukraine - Kazakhstan 
energy relations.  Ukraine has no leverage with Kazakhstan, 
he said, in part because of a lack of investments in the 
Kazakhstani energy sector.  Moreover, Russia is Kazakhstan's 
closest energy partner.  Poloff asked Lugovoy whether Ukraine 
might benefit from the increases in oil output to occur with 
Tenghiz expansion and initial production at Kashagan. Lugovoy 
expressed doubt, saying that Ukraine's "oil relationship with 
Kazakhstan is poor."  Even by 2015, according to Lugovoy, 
Ukraine will not be receiving oil from Kazakhstan. 
 
5. (C) Lugovoy was even more pessimistic about gas.  He 
became very emotional when discussing the recent announcement 
by Kazakhstan, Uzbekistan, and Turkmenistan that they intend 
to sell gas at "European" prices, a plan which he called 
instigated by Gazprom.  Lugovoy said that Ukraine can battle 
Russia in a gas war, matching price increases with transit 
tariff increases.  With the Central Asian countries, said 
Lugovoy, Ukraine has no countermeasures and is much more 
vulnerable.  Lugovoy concluded by praising the U.S. for its 
efforts on energy security issues and criticizing the E.U. 
countries for their inability to create a unified energy 
policy. 
 
6. (C) Comment: Kazakhstan's downstream ambitions are 
growing. KMG has already made a series of significant 
purchases, most notably its acquisition of 75% of Romania's 
Rompetrol.  KMG also remains interested in several refineries 
in Ukraine. Despite the grim prognosis of Ukrainian 
diplomats, Kazakhstan will continue to engage with Ukraine, 
if only to keep all of its downstream options open.  End 
Comment. 
ORDWAY

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