Daily Archives: April 15, 2008

08ASTANA754, TURMOIL AT KMG – FIRST VP IDENOV MAY BE OUT THE

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Reference ID Created Released Classification Origin
08ASTANA754 2008-04-15 11:50 2011-08-30 01:44 CONFIDENTIAL Embassy Astana

VZCZCXYZ0010
PP RUEHWEB

DE RUEHTA #0754 1061150
ZNY CCCCC ZZH
P 151150Z APR 08
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC PRIORITY 2242
INFO RUCNCIS/CIS COLLECTIVE PRIORITY 0475
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 000754 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR SCA/CEN. EEB 
DOE FOR EKIMOFF 
COMMERCE FOR HUEPER 
 
E.O. 12958: DECL: 04/15/2018 
TAGS: PGOV PREL EPET KZ
SUBJECT: TURMOIL AT KMG - FIRST VP IDENOV MAY BE OUT THE 
DOOR 
 
 
Classified By: AMBASSADOR ORDWAY FOR REASONS 1.4(B) AND (D) 
 
1. (C) KazMunaiGas (KMG) First Vice President Maksat Idenov 
called the Ambassador from Dubai on April 14 and told him 
that he is on the verge of leaving KMG.  According to Idenov, 
KMG President Uzakbay Karabalin met earlier that day with 
President Nazarbayev to complain about Idenov's activities at 
KMG.  Karabalin criticized Idenov's efforts to restructure 
KMG, saying that they were unacceptable, demoralizing, and 
not in accordance with "Kazakh traditions and culture". 
Karabalin also blamed Idenov for problems with the Kashagan 
Memorandum of Understanding.  Idenov said that Karabalin had 
ordered him to write a letter admitting his mistakes. 
 
2. (C) Idenov noted that in reforming KMG he was acting at 
the instructions of Prime Minister Masimov. (Note: 
Karabalin's attack on Idenov came as Masimov was returning 
from China).  He told the Ambassador that Karabalin and Askar 
Balzhanov, Director General of KMG Exploration and 
Production, had planted a story in the media accusing Idenov 
of corruption.  After indicating earlier in their 
conversation that he was considering resigning, Idenov 
concluded by saying "I am going to resign anyway." (Note: 
Idenov later called Coordinator for Eurasian Energy Policy 
Steve Mann  and told him that he would return to Astana on 
Wednesday to submit his resignation.  He said that Samruk 
Chairman Sir Richard Evans asked him not to resign.  Idenov 
also discussed at further length Karabalin's motivations, 
saying that he is trying to get his own people in to the new 
Kashagan operational structure in order to gain access to the 
procurement and supply chain.  Karabalin is also seeking to 
chair the Kashagan management committee, which Idenov 
currently chairs.) 
 
3. (U) On April 15, one media source, RusEnergy, reported 
that Idenov had already resigned, citing a source close to 
Agip KCO. According to the source, Idenov wrote in his 
resignation letter that he is leaving KMG because of 
disagreements with the GOK over Kashagan, in particular the 
heavy demands placed on the project's operator. 
 
4. (C) Comment: The cocksure Idenov may rub some the wrong 
way but he is also a bright light in Kazakhstan's energy 
sector.   His resignation would be a significant loss for KMG 
and a sign that entrenched interests are hesitant to accept 
his serious efforts to reform the company.  Only last week, a 
representative from ExxonMobil told Poloff that she had 
recently attended a presentation by Idenov on restructuring 
and that she was extremely impressed with Idenov's vision for 
KMG. End Comment 
ORDWAY

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08ASTANA729, WITH IGA ON TRANS-CASPIAN OIL TRANSPORT RATIFIED,

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Reference ID Created Released Classification Origin
08ASTANA729 2008-04-15 08:31 2011-08-30 01:44 CONFIDENTIAL Embassy Astana

VZCZCXRO7681
RR RUEHFL RUEHKW RUEHLA RUEHROV RUEHSR
DE RUEHTA #0729/01 1060831
ZNY CCCCC ZZH
R 150831Z APR 08
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC 2215
INFO RUCNCIS/CIS COLLECTIVE 0473
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHAK/AMEMBASSY ANKARA 2157
RHEBAAA/DEPT OF ENERGY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

C O N F I D E N T I A L SECTION 01 OF 02 ASTANA 000729 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR SCA/CEN 
DOE FOR EKIMOFF 
COMMERCE FOR HUEPER 
 
E.O. 12958: DECL: 04/15/2018 
TAGS: PGOV PREL EPET KZ
SUBJECT: WITH IGA ON TRANS-CASPIAN OIL TRANSPORT RATIFIED, 
KAZAKHSTAN IMPATIENT WITH AZERBAIJAN, ALOOF OF IOCS 
 
REF: A. ASTANA 480 B. ASTANA 354 
 
Classified By: AMBASSADOR ORDWAY FOR REASONS 1.4 (B) AND (D) 
 
1. (C) Summary: On March 26, Kazakhstan's Parliament ratified 
an intergovernmental agreement with Azerbaijan on 
trans-Caspian oil transportation.  According to the 
Kazakhstanis, Azerbaijan appears "not in a hurry" in 
trans-Caspian talks and, sensing Kazakhstan's 
vulnerabilities, is driving a hard bargain.  Kazakhstan may 
try to strengthen its position by shipping some oil from the 
Kazakhstan Caspian Transportation System (KCTS) to Russia and 
Iran, although shipments to Iran would be small. The 
Kazakhstanis continue to insist that they will build and 
finance the Eskene - Kurik pipeline on their own, to the 
concern of their international partners.  End Summary 
 
2. (C) On March 26, Kazakhstan's Parliament ratified an 
intergovernmental agreement (IGA) with Azerbaijan on 
trans-Caspian oil transportation.  Arman Darbayev, 
KazMunayGas Executive Director for Oil Transportation and 
Service Projects, told Poloff on March 27 that when he 
notified his Azeri counterparts of ratification, they seemed 
"disinterested."  Their reaction is not a surprise, said 
Darbayev, because the Azeris appear "not in a hurry" to 
develop trans-Caspian options.  "We are doing all the 
pushing."  Darbayev noted that Kazakhstan cannot even get the 
Azeris to travel to Astana; the last three meetings on 
transportation have all been held in Baku. 
 
3. (C) The Azeris are also taking a tough negotiating stance, 
according to Darbayev.  They are well-aware that Kazakhstan's 
need for additional export routes provides them a strong 
bargaining position.  Darbayev identified two immediate 
problems for the trans-Caspian project.  First, Kazakhstan 
and Azerbaijan are in a dispute over sole risk expansion. 
Kazakhstan wishes to establish provisions for sole risk 
expansion, but the Azerbaijanis will do so only with strict 
conditions.  The Azeris have also said that only project 
financing is acceptable, which the Kazakhstanis believe could 
cause delays of two to four years. 
 
4. (C) Darbayev confirmed that Kazakhstan will build the 
KCTS' Eskene - Kurik pipeline by itself.  He described the 
project as technically simple and relatively inexpensive 
($1.2 - 1.3 billion) (Note: The Kazakhstanis have indicated 
that they may dip into their oil fund to pay for the project. 
Minister of Energy Sauat Mynbayev told the Ambassador in 
February that the Kazakhstanis realize that they will need to 
offer stable tariffs and other guarantees with the pipeline. 
Reftel A). Darbayev also noted that KMG will soon register a 
new daughter company focused solely on assessing and 
developing trans-Caspian transportation options.  The outfit 
will have ten employees.  Kazakhstan had initially considered 
creating a joint venture with Azerbaijan, but has abandoned 
the idea because of concerns that Azerbaijan would not 
provide sufficient manpower. 
 
5. (C) Poloff asked Darbayev about his previous statement 
that the Eskene - Kurik pipeline might be a means to ship oil 
to points other than Azerbaijan.  Darbayev responded that 
Kazakhstan needs to show the Azerbaijanis that it has other 
options and will consider additional shipments to Iran and 
Russia.  He noted, however, that shipments to Iran would be 
small and that Kazakhstan has no interest in pipeline 
projects in Iran. 
 
6. (C) Darbayev also briefly discussed Kazakhstan's plans 
beyond Baku. The extent to which BTC's capacity will be 
expanded is uncertain, said Darbayev.  As a result, more 
shippers (Darbayev specifically identified Shell, Exxon, and 
Chevron) are clamoring for another route to Georgia, a "Baku 
- Supsa II."  While Darbayev believes that this plan has 
advantages, it also could create more conflict between 
Azerbaijan and Kazakhstan because of their competing 
terminals in Georgia (Kazakhstan's at Batumi, Azerbaijan's at 
Kulevi). Referring to President Yushchenko's recent trip to 
Kazakhstan, Darbayev said that Kazakhstan considers the 
Odessa - Brody pipeline unprofitable and is waiting to be 
shown a feasibility study proving otherwise. Many of 
Kazakhstan's problems could be solved, he admitted, with a 
trans-Caspian pipeline.  Political issues still exist, but 
"as soon as we have a chance we will build it," said 
Darbayev. 
 
ASTANA 00000729  002 OF 002 
 
 
 
7. (C) KMG Vice President for Oil and Gas Transportation 
Kabildin reaffirmed that Azerbaijan is "not rushing" on KCTS 
in a conversation with the Ambassador on April 3. Kabildin 
added that it is unfortunate that Baku-Supsa has been idle 
for a year and he hopes that it will be revived to accomodate 
Kazakhstani volumes in excess of BTC capacity. Kabildin also 
discussed a number of other transportation issues with
 the 
Ambassador. Kabildin expressed some optimism on CPC 
expansion, claiming that the Russians have moved beyond any 
political considerations and are prepared to look at 
expansion in commercial terms.  He noted that Transneft will 
have substantial excess capacity in the westward direction 
because of falling Russian oil production and the expansion 
of pipelines.  This, he believes, will strengthen the 
position of Kazakhstani shippers and could even support the 
reversal of Odessa-Brody.  Kabildin does not think Russia has 
the oil for Bourgas - Alexandropoulos and doubts the pipeline 
will be built.  He stated that Atyrau - Samara could be 
expanded in one year, and would be once Transneft needs 
Kazakhstani oil. 
 
8. (C) After the ratification, Poloff discussed the status of 
KCTS with several representatives from western oil companies 
.  Patty Graham, ExxonMobil's Kazakhstan Government and 
Public Affairs Representative, said that ExxonMobil has of 
late been consistently told that Kazakhstan will build and 
finance the Eskene - Kurik pipeline, and that "the door is 
totally shut" on negotiations. The decision on financing is 
particularly crucial, she said, because it eliminates 
possible leverage for the IOCs.  "All we can do", she said, 
"is engage on tariff and capacity agreements."  Pete Clark, 
Manager of Chevron's Strategic Planning Eurasia Business 
Unit, told Poloff that Azerbaijan is "playing hard to get" on 
KCTS.  Chevron, he said, would still like to participate as 
an equity partner in Eskene - Kurik. If the Kazakhstanis came 
looking for a loan from TenghizChevroil for the pipeline, "it 
would be hard to turn down." The real tricky part for Chevron 
will come when Kazakhstan asks it to commit volumes for KCTS. 
 Chevron then might have to make a choice at the expense of 
the CPC, said Clark. 
 
9. (C) Comment: Kazakhstani criticism of Azerbaijan's inertia 
is a bit rich, given that it took more than one year for 
Kazakhstan to ratify the IGA.  Nevertheless, the Kazakhstanis 
are now acting with an increased sense of urgency as they try 
to diversify their oil export options to meet increased 
production.  With CPC expansion still uncertain and other 
options less appealing, they are ready to show some 
flexibility in the face of tough demands from Azerbaijan. 
Given their apparent unshakable determination to build and 
finance the Eskene - Kurik pipeline by themselves, the 
Kazakhstanis also must reassure their Kashagan and Tenghiz 
partners that they will establish fair access conditions. End 
Comment 
ORDWAY

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08ASTANA726, KAZAKHSTAN ECONOMIC AND ENERGY UPDATE, MARCH 22 – APRIL 4,

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Reference ID Created Released Classification Origin
08ASTANA726 2008-04-15 06:15 2011-08-30 01:44 UNCLASSIFIED Embassy Astana

VZCZCXRO7599
RR RUEHLN RUEHVK RUEHYG
DE RUEHTA #0726 1060615
ZNR UUUUU ZZH
R 150615Z APR 08
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC 2213
INFO RUCPCIM/CIMS NTDB WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUCNCIS/CIS COLLECTIVE 0472
RUEHAK/AMEMBASSY ANKARA 2156
RUEHBUL/AMEMBASSY KABUL 0393
RUEHNE/AMEMBASSY NEW DELHI 0501
RUEHAST/USOFFICE ALMATY 0384

UNCLAS ASTANA 000726 
 
SIPDIS 
 
DEPT FOR SCA/CEN (O'MARA) 
DEPT PASS TO OPIC - BALLINGER 
DEPT PASS TO TDA FOR STEIN, EXIM FOR GLAZER 
DEPT PASS TO AID - EE-PHILLIPS/RUSHING 
TREASURY FOR OASIA/VELTRI 
USDOC FOR 4231/ITA/MAC/MLONDON, 4201/BISNIS 
USDOC FOR 6110/ITA/TD/BI/RHALPERN 
ANKARA FOR CFC 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EIND ENRG EPET EFIN KTDB KZ
SUBJECT:  KAZAKHSTAN ECONOMIC AND ENERGY UPDATE, MARCH 22 - APRIL 4, 
2008 
 
 
1.  Summary:  This information is drawn primarily from the 
Kazakhstani local press, and has not been verified for accuracy. 
 
-- KazAgro to Transfer Secondary Assets 
-- ArcelorMittal Temirtau Wins Court Ruling in Tax Dispute 
-- KMG to Upgrade Oil Refineries 
-- State Considers a 15% Stake in Kazakhmys 
-- Economic and Energy Statistics for January-March 2008 
 
KazAgro to Transfer Secondary Assets 
------------------------------------ 
 
2.  The state agricultural holding company KazAgro plans to spin off 
some of its secondary assets not directly associated with its 
operations.  According to KazAgro management board chairman Alikhan 
Smailov, such assets include grain storage facilities and a cotton 
refining plant.  (Kazakhstan Today, April 4) 
 
ArcelorMittal Temirtau Wins Court Ruling Tax Dispute 
--------------------------------------------- ------- 
 
3.  The Karaganda regional court ruled in favor of metals company 
ArcelorMittal Temirtau (AMT) in its claim against the Temirtau Tax 
Committee, which levied corporate income taxes from 2002-2005 on an 
AMT offshore subsidiary in the UAE.  The Tax Committee will appeal 
the decision.  The Karaganda regional court's decision reversed an 
earlier ruling by a lower court in the Tax Committee's favor. 
(Kazinform, April 4) 
 
KMG To Upgrade Oil Refineries 
----------------------------- 
 
4.  According to the KMG Crude Processing Department Deputy Director 
Arman Kairdenov, reconstruction of the Pavlodar oil refinery (in 
North Kazakhstan) will cost approximately $500 million.  KMG plans 
to obtain a 70% stake in the Indonesian-led company 
MangistauMunayGas, which co-owns the refinery.  KMG is also in talks 
with its partner, Chinese National Petroleum Corporation, to fund 
the upgrade of the Shymkent oil refinery (in South Kazakhstan) and 
is in search of external financing to increase the capacity of its 
Atyrau oil refinery (in West Kazakhstan).  (Astana TV Channel, March 
27) 
 
State Considers a 15% Stake in Kazakhmys 
---------------------------------------- 
 
5.  Kazakhstan's government intends to buy a 15% stake in the 
privately-owned copper producing company Kazakhmys.  The company 
confirmed that it has held preliminary negotiations with the 
government.  In December of 2002, the state sold its 24.65% stake in 
Kazakhmys.  (Delovaya nedelya newspaper, March 28) 
 
Economic and Energy Statistics for January-March 2008 
--------------------------------------------- -------- 
 
6.  According to the National Statistics Agency, the inflation rate 
was 2.5% during January-March 2008, compared to 2.6% during the same 
period in 2007.  The exchange rate averaged 120.45 tenge per dollar. 
 (Delovaya Nedelya newspaper, April 4) 
 
7.  Total production of gas condensate and crude oil during 
January-March was up 6.4% year-on-year to 17.675 million tons, 
though gas condensate production itself fell 5.3% to 1.648 million 
tons.  Production of gas (dry natural gas, LNG, and natural gas 
liquids) during the three-month period grew 10.4% year-on-year to 
8.294 billion cubic meters, which included an 18.8% increase in dry 
natural gas production to 5.041 bcm. (Interfax-Kazakhstan, April 2) 
 
ORDWAY

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