08ASTANA1672, KAZAKHSTAN – KMG EXPRESSES OPTIMISM ON CPC EXPANSION

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Reference ID Created Released Classification Origin
08ASTANA1672 2008-09-08 01:39 2011-08-30 01:44 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Astana

VZCZCXRO7193
OO RUEHAST RUEHBI RUEHCI RUEHLH RUEHLN RUEHPW RUEHVK RUEHYG
DE RUEHTA #1672 2520139
ZNR UUUUU ZZH
O 080139Z SEP 08
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 3188
INFO RUCNCIS/CIS COLLECTIVE 0624
RUCNCLS/SOUTH AND CENTRAL ASIA COLLECTIVE

UNCLAS ASTANA 001672 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EPET EINV PGOV KZ
SUBJECT:  KAZAKHSTAN - KMG EXPRESSES OPTIMISM ON CPC EXPANSION 
 
1. (SBU) KazMunaiGas (KMG) head Kairgeldy Kabyldin told the 
Ambassador on September 2 that progress was being made in 
negotiations over the expansion of the CPC pipeline.   Transneft CEO 
Nikolay Tokarev was in Astana, along with ExxonMobil and Chevron 
executives, to continue discussions on the issue.  Kabyldin said 
that all of the consortium members have reached agreement in 
principle to expand capacity from 690,000 barrels per day to 1.3 
million barrel per day by 2015.  (Note:  Energy Minister Mynbayev 
echoed these comments on September 4, in remarks he made to 
KazEnergy Forum in Astana, explaining that only "technical details" 
still needed to be worked out.  End Note.)  The negotiations, 
Kabyldin maintained, had been complicated by expected changes to the 
equity structure of the CPC consortium:  the purchase of Oman's 7 
percent stake will result in Transneft's share increasing to 27.1 
percent and KMG's to 22.9 percent -- i.e., a 50 percent overall 
stake for the two companies.   Kabyldin expressed optimism that an 
agreement would be finalized in the very near future. 
 
2. (SBU) Arman Darbayev, KMG Executive Director for Oil 
Transportation and long-time deputy to Kabyldin, told us on 
September 3 that KMG drafted a Memorandum of Understanding (MOU) on 
CPC expansion in July and circulated it for review among the CPC 
consortium members.  According to Darbayev, all but one of the 
companies had accepted the terms of the memorandum.  LUKARCO, a 
joint venture of British Petroleum and Lukoil, has expressed 
reservations and is holding out until it is satisfied on several 
issues, including volume allocation and access rights; tariff 
increases tied to capital expenditure increases; financial penalties 
to guarantee oil flow quantities; and the refinancing of equity debt 
through third-party project finance vehicles.  According to 
Darbayev, KMG and other CPC partners are exerting pressure on 
LUKARCO to sign the MOU as soon as possible.  Darbayev expressed 
hope that the parties would reach consensus on these issues by the 
end of September, but he noted that time is running out.  The 
current feasibility study for CPC expansion expires in October and 
if negotiations continued past that deadline, the parties would need 
to commission a new feasibility study, which could delay 
negotiations still further. 
 
3. (SBU) Jonathan Popper, British Petroleum's lead negotiator on CPC 
expansion, confirmed to the DCM on September 4 that LUKARCO is not 
satisfied with the current terms, but did not want to block CPC 
expansion entirely. He explained that LUKARCO is not a significant 
shareholder in Tengizchevroil (TCO) -- its stake is just 5 percent 
-- and thus does not need CPC expansion to accommodate LUKARCO's 
share of increased TCO production.  Popper said that LUKARCO had met 
with Kabyldin on September 4 and offered to sell to KMG its share in 
CPC as a way to resolve the impasse.  Popper said he told Kabyldin 
to "make us an offer so we can exit gracefully." 
 
ORDWAY

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