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Reference ID Created Released Classification Origin
08ASTANA1697 2008-09-08 07:59 2011-08-30 01:44 CONFIDENTIAL Embassy Astana

DE RUEHTA #1697/01 2520759
O 080759Z SEP 08

C O N F I D E N T I A L SECTION 01 OF 03 ASTANA 001697 
E.O. 12958: DECL: 09/08/2018 
     B. ASTANA 1647 (NOTAL) 
Classified By: Pol-Econ Chief Steven Fagin, Reasons 1.4 (b) and (d) 
1. (C) Prime Minister Masimov and Foreign Minister Tazhin, 
citing President Nazarbayev's public commitment, told 
Assistant Secretary Boucher on September 2 that Kazakhstan 
would follow through on its Madrid commitments on democratic 
reform.  Masimov looked forward to next steps on the 
Public-Private Economic Partnership Initiative (PPEPI).  He 
explained that Kazakhstan wanted to raise additional taxes 
from the extractive sector, but would respect the sanctity of 
existing oil and gas contracts.  Masimov promised Kazakhstan 
would support Tajikistan and Kyrgyzstan in helping them get 
through the winter.  He also said he intended to visit 
Afghanistan in late October.  Tazhin indicated to Boucher 
that Kazakhstan was moving forward in pursuing the 
International Atomic Eenergy Agency Board of Governors seat 
for which Syria is also a candidate.  He asked for high-level 
U.S. Government attendance at the October 17 ministerial 
meeting of President Nazarbayev's Common World Forum.  End 
Follow Through Promised on Madrid Commitments 
2. (C) During separate September 2 meetings in Astana, 
President Nursultan Nazarbayev, Prime Minister Karim Masimov, 
and Foreign Minister Marat Tazhin discussed with visiting 
Assistant Secretary for South and Central Asian Affairs 
Richard Boucher the Georgia crisis, Kazakhstan's Madrid 
commitments, economic issues, Central Asia regional 
relations, Afghanistan, Kazakhstan's candidacy for the 
International Atomic Energy Agency Board of Governors, the 
Common World Forum, and Kazakhstan's "Path to Europe" 
program.  Discussion of Georgia -- which was the principal 
topic of the Nazarbayev meeting -- was reported in Ref A. 
3. (C) Masimov and Tazhin both reaffirmed to Boucher 
Kazakhstan's intention to fulfill its Madrid commitments on 
democratic reform.  Masimov explained that in Nazarbayev's 
speech opening the latest session of Parliament earlier in 
the day, he had pledged that the necessary legislation 
amending Kazakhstan's election, political party, and media 
laws would soon be introduced to Parliament.  Masimov said 
that the government's timeline was to have everything passed 
by year's end.  He noted that Nazarbayev had specifically 
said in the speech that the election law should be changed to 
ensure that at least two parties would receive seats in 
Parliament, regardless of whether a second one crossed the 
seven percent barrier.  Nazarbayev also said in the address 
that there were "no legal or political reasons" for early 
parliamentary elections; rather, the next elections would 
occur on time, in 2012. (Note: See Ref B for more details on 
Nazarbayev's September 2 address to Parliament.  End Note.) 
Respect for Contract Sanctity 
4. (C) Masimov told Boucher that the Kazakhstani economy was 
performing relatively well.  Gross Domestic Product grew at a 
5 percent annual rate for the first half of the year. 
Inflation was 5.7 percent -- a little higher than expected, 
but manageable.  Masimov said that Kazakhstan hoped to move 
forward on next steps in the U.S.-Kazakhstan Public-Private 
Economic Partnership Initiative (PPEPI).  He explained that 
the government was continuing to take steps to support the 
construction sector, which had been hit hard by the global 
financial crisis.  The government intended to create a fund, 
with 5 or 6 billion dollars in capital, to buy up distressed 
assets from banks at a discount.  The aim would be to 
privatize the fund after several years, and reap a profit -- 
as South Korea had done a decade earlier. 
5. (C) Masimov reminded Boucher that Kazakhstan was in the 
process of adopting a new tax code, which would lower the 
corporate income tax rate from its current 30 percent level 
to just 15 percent in 2011 -- one of the lowest rates in the 
world.  A main aim of this tax reform effort was to decrease 
the tax burden on the non-extractive sector.  Higher taxes on 
the extractive sector would make up for the revenue 
shortfall.  Kazakhstan's target was to capture 60 percent of 
the profits from oil and gas, which is what Statoil pays in 
ASTANA 00001697  002 OF 003 
Norway, Masimov explained.  Kazakhstan respected sanctity of 
contract and would thus not force reconsideration of the 
terms of existing extractive sector contracts, but in the 
future, new contracts would have taxation terms consistent 
with the new tax code.  Masimov said he had advised the 
international companies to have their current contracts with 
special tax terms ratified by Parliament to ensure they would 
be exempt
from the new code. 
6. (C) The government was also introducing legislation to 
implement a new budget code, Masimov continued, which 
envisioned performance-based budgeting, as well as 
three-year, in place of two-year, government budgets.  In the 
2009-11 budget, the government would significantly increase 
salaries, pensions, and student stipends, he explained.  In 
putting together the budget, the government was presuming a 
$60 per barrel price for crude.  Masimov noted that for some 
time, he personally had been predicting a significant fall in 
crude prices once the Beijing Olympics were over. 
Little Regional Progress on Water and Energy 
7. (C) Turning to regional cooperation, Masimov told Boucher 
that Kazakhstan was prepared to assist Tajikistan and 
Kyrgyzstan in helping them get through the upcoming winter. 
Kazakhstan was already supporting Kyzgyzstan by buying Kyrgyz 
summer electricity at rates 35 percent above those of the 
domestic Kazakhstani market.  Masimov said that the 
Kazakhstanis, Kyrgyz, Uzbeks, and Tajiks would meet in Almaty 
in late September to discuss water and energy, but admitted 
that little progress had been made on these issues over the 
past 15 years.  Masimov argued that there was a fundamental 
"conflict of interest" among the countries: for Kazakhstan 
and Uzbekistan, water was more important than energy, but for 
Kyrgyzstan and Tajikistan, the situation was reversed.  To 
protect itself from floods and droughts owing to Kyrgyzstan's 
upstream water usage for hydropower, Kazakhstan was 
proceeding with work on a "counter-regulating" water 
reservoir.  The Kazakhstanis are also building a pipeline to 
bring gas from the country's west to its south, so that the 
south would not have to rely on Uzbek gas.  (Note: 
Nazarbayev told Boucher in their meeting largely devoted to 
Georgia that his own concept of a Central Asian union was 
"understood everywhere except in Uzbekistan."  Nazarbayev 
said he had explained to Uzbek President Karimov that "with 
our unity, everyone would have a different approach toward 
Central Asia."  Nazarbayev maintained he had even told 
Karimov that Karimov could lead the union, but Karimov would 
not budge in his opposition to the idea.  "Karimov is an old 
friend, but he always says we have to separate friendship 
from business, that you should go your way in running your 
country, and he will go his way in running his," Nazarbayev 
related.  End Note.) 
Masimov Heading to Afghanistan 
8. (C) Boucher outlined for Masimov our priorities for future 
assistance to Afghanistan.  Masimov reminded Boucher about 
Kazakhstan's aid program for Afghanistan and said that he 
would visit Kabul in late October, most likely either October 
22 or 23.  He explained that he may want a briefing from the 
U.S. before the trip. 
Moving Forward on Board of Governors Seat 
9. (C) Foreign Minister Tazhin indicated to Boucher that 
Kazakhstan was moving forward in pursuing the International 
Atomic Energy Agency Board of Governors seat which Syria is 
also competing for.  He said that the Kazakhstanis had sent 
an official request to the Indians to join the  Middle 
East/South Asia (MESA) group, and had begun consultations 
with partner countries, including Russia.  Tazhin contended 
that a Board of Governors seat made sense for Kazakhstan 
"institutionally, historically, and psychologically."  He 
explained that he was very appreciative of Secretary Rice's 
support on the issue.  Boucher noted that he had just told 
the Indians that Kazakhstan should be accepted into the MESA 
group, and that given multiple candidacies for the seat, the 
Indians should report to the Agency General Conference that 
there is no consensus Middle East/South Asia candidate. 
Support for Common World Forum 
ASTANA 00001697  003 OF 003 
10. (C) Tazhin asked Boucher for high-level U.S. 
representation at the October 17 ministerial meeting of the 
Common World Forum, a Nazarbayev initiative aimed at 
encouraging dialogue between the West and the Muslim world. 
Tazhin reminded Boucher that Nazarbayev had discussed 
launching such an initiative with President Bush in 2006. 
According to Tazhin, approximately 30 countries have already 
confirmed participation by foreign ministers for October. 
Boucher said he would check as to who might be able to attend 
from Washington.  Regarding the U.S. request to expand 
attendance at the Forum to additional countries, Tazhin 
indicated that this might raise problems.  For example, if 
the Georgians were now invited, Russian Foreign Minister 
Lavrov might back out. 
"Path to Europe," Rather Than an Asian Model 
11. (C) Boucher told Tazhin that he had pressed the Europeans 
to help Kazakhstan with Nazarbayev's "Path to Europe" 
program.  Tazhin explained that the Kazakhstanis had made a 
deliberate decision to reject Asian models of development -- 
Singapore, China, South Korea, etc .-- and to instead adopt a 
European one.  The "Path to Europe" program, he said, 
envisioned greater cooperation with Europe in areas such as 
energy and technology transfer, as well as in restructuring 
government/business, government/civil society, and 
center/regional relationships in Kazakhstan toward a European 
model.  The Europeans appeared to be interested in working 
more closely with Kazakhstan, though the fact that Russia 
stood geographically between the two sides was a complicating 
factor, Tazhin maintained. 


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