08ASTANA905, KAZAKHSTAN: KMG EXPERT DISCUSSES CPC EXPANSION,

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Reference ID Created Released Classification Origin
08ASTANA905 2008-05-13 10:44 2011-08-30 01:44 CONFIDENTIAL Embassy Astana

VZCZCXYZ0000
PP RUEHWEB

DE RUEHTA #0905/01 1341044
ZNY CCCCC ZZH
P 131044Z MAY 08
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC PRIORITY 2400
INFO RUCNCIS/CIS COLLECTIVE 0507
RUEHAK/AMEMBASSY ANKARA 2165
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC

C O N F I D E N T I A L ASTANA 000905 
 
SIPDIS 
 
STATE FOR SCA/CEN M. O'MARA 
DEPARTMENT OF ENERGY FOR EKIMOFF 
DEPARTMENT OF COMMERCE FOR HUEPER 
 
E.O. 12958: DECL: 05/13/2018 
TAGS: PREL ECON ENRG EPET KZ
SUBJECT: KAZAKHSTAN: KMG EXPERT DISCUSSES CPC EXPANSION, 
CROSS-CASPIAN TRANSPORTATION 
 
Classified By: POL/ECON CHIEF STEVE FAGIN FOR REASONS 1.4 (B) AND (D) 
 
1. (C) Summary: KazMunaiGas' Executive Director for Oil 
Transportation Arman Darbayev believes that Russia has, for 
the first time, created a framework that may make CPC 
expansion possible.  He disputes reports, however, that 
expansion will be directly linked to Kazakhstan's supplying 
oil to the Bourgas - Alezandroupolis pipeline.  On 
trans-Caspian oil transportation plans, Darbayev expressed 
frustration with Azerbaijan, claiming that the Azerbaijanis 
continue to move slowly.  End Summary 
 
Some Optimism on CPC Expansion 
---------------------------- 
 
2. (C) On May 13, KazMuniaGas Executive Director for Oil 
Transportation Arman Darbayev told Poloff that he believes 
prospects for CPC expansion have improved after recent talks 
between Russia and Kazakhstan.  According to Darbayev, the 
MOU on expansion developed by Kazakhstan and Russia has now 
been released to other shareholders for consideration. 
Darbayev called some of the terms "controversial" for the 
shippers but believes there is "a big chance they will 
accept."  Most importantly, he noted, the Russians have for 
the first time laid out all conditions for expansion. 
Previously, the Russians added a new obstacle each time a 
condition was met. 
 
3. (C) Darbayev speculated that high-level Russian leaders 
are not pleased with the ongoing CPC deadlock, and that if 
the Russian CPC team can prove to their superiors they are 
gaining something of value, Russia will move forward.  "The 
Russians have the will," he said.  Darbayev also underlined 
that CPC is still the most profitable route for Kazakhstan, 
and said that expansion under the conditions sought is better 
than continued prolonged discussions. 
 
4. (C) Poloff asked Darbayev about a linkage between CPC 
expansion and the supply of Kazakhstani oil for the Bourgas - 
Alexandroupolis pipeline (BAP).  Darbayev was skeptical that 
Kazakhstan will be providing BAP oil in the near future.  He 
told Poloff that he had recently seen a presentation on BAP 
and was left with the impression that progress on the project 
is lagging.  Many commercial mistakes have been made, he 
said.  Transneft wants guarantees, but shippers cannot make 
any guarantees without conditions.  Kazakhstan cannot wait 
for BAP, according to Darbayev.  The Russians, said Darbayev, 
"always want to get everything, plus a little bit more." 
BAP, he believes, is the "little bit more." 
 
Frustration with Azerbaijan Continues 
------------------------------------- 
 
5. (C) Darbayev, as he has done on previous occasions, 
expressed displeasure with the efforts of Azerbaijan to move 
forward on plans for trans-Caspian oil transportation. 
Kazakhstan sent to Azerbaijan two months ago a draft Heads of 
Agreement (which he described as only an eight page 
document), and still has not received any comments.  Poloff 
asked Darbayev why the Azerbaijanis have been slow to react. 
Darbayev responded that it may in part be a question of human 
resources, as SOCAR "is not an international oil company." 
When the political pressure is sufficient, however, they are 
capable of acting efficiently. 
 
6. (C) Looking at Kazakhstan's transportation options from 
Baku onwards, Darbayev said that Kazakhstan is ready to use 
the Baku-Supsa pipeline and would be willing to consider the 
possibility of a second Baku-Supsa pipeline.  The 
Azerbaijanis have cast doubt on Baku - Supsa, saying that it 
is a PSA pipeline and that if changes are made the Georgians 
will seek to change the conditions of the agreement. 
Darbayev seemed exasperated by this logic and said that such 
issues can be negotiated. He noted that the Azerbaijanis were 
the only party to vote against initial BTC expansion, and 
said that the Azerbaijanis may play difficult when the next 
stage of expansion comes to vote (and unanimity is required). 
 Darbayev suggested that the Azerbaijanis will pressure 
Kazakhstan to rail more of its oil to Azerbaijan's Kulevi 
terminal. 
 
7. (C) Darbayev claimed that 80% of the capacity at 
Azerbaijan's oil terminals is currently free.  He claimed to 
Poloff that no one wants to supply Azerbaijan oil when they 
are increasing tariffs and changing transit conditions.  He 
 
 
concluded by saying that "Azerbaijan needs to change its 
policies." 
 
8. (C) Comment: Given past history, it is easy to be 
skeptical about talk of CPC expansion.  This time, however, 
the Kazakhstanis feel that Russia is making more of a 
good-faith effort, and appear guardedly optimistic.  Russia's 
true intentions may be better known when President Medvedev 
travels to Kazakhstan on May 22-23 for his first trip abroad 
as head of state.  End Comment. 
ORDWAY

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